New Accounting Pronouncements

Accounting Pronouncements Adopted During the Current Year

In May 2014, the Financial Accounting Standards Board (FASB) issued new authoritative literature, Revenue from Contracts with Customers (Topic 606). This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The new standard supersedes much of the existing authoritative literature for revenue recognition (Topic 605). The standard update also amends current guidance for the recognition of costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and direct costs of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good or service. Upon adoption, the Company applied the standard only to contracts that were not completed, referred to as open contracts.

The Company adopted this standard update beginning on April 1, 2018 using the modified retrospective method. This method requires that the cumulative effect of initially applying the standard be recognized at the date of application beginning April 1, 2018. We recorded a pre-tax cumulative effect of $1.7 billion ($1.3 billion, net of tax) as a reduction to the April 1, 2018 opening balance of accumulated deficit. Results for reporting periods beginning after April 1, 2018 are presented under Topic 606, while amounts reported for prior periods have not been adjusted and continue to be reported under accounting standards in effect for those periods. See Note 8. Revenues from Contracts with Customers for additional information related to revenues and contract costs, including qualitative and quantitative disclosures required under Topic 606.

In January 2016, the FASB issued authoritative guidance regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity method at fair value with any changes in fair value recorded in net (loss) income, unless the entity has elected the new practicability exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other comprehensive (loss) income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the guidance amends certain disclosure requirements associated with the fair value of financial instruments. The Company adopted this standard update beginning on April 1, 2018 on a retrospective basis resulting in a pre-tax cumulative effect of $12 million ($8 million, net of tax) to our opening balance of accumulated deficit.

In October 2016, the FASB issued authoritative guidance regarding Income Taxes, which amended guidance for the income tax consequences of intra-entity transfers of assets other than inventory. Under the new guidance, entities will be required to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, thereby eliminating the recognition exception within current guidance. The Company adopted this standard on April 1, 2018 on a modified retrospective basis with no impact to our consolidated financial statements.

In January 2017, the FASB issued authoritative guidance amending Business Combinations: Clarifying the Definition of a Business, to clarify the definition of a business with the objective of providing a more robust framework to assist management when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this standard on April 1, 2018 with prospective application to future business combinations.

In January 2017, the FASB issued authoritative guidance regarding Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the goodwill impairment test by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the test), but rather to record an impairment charge based on the excess of the carrying value over its fair value. The Company adopted this standard on April 1, 2018 with no impact to our consolidated financial statements at the date of adoption.

The cumulative after-tax effect of the changes made to our consolidated balance sheet for the adoption of Topic 606 and other ASUs effective for the Company on April 1, 2018 were as follows:



				Adjustments due to
	March 31, 2018			Topic 606			Other ASUs			April 1, 2018
	(in millions)
ASSETS
Current assets:
Accounts and notes receivable, net	$	3,711		$	97		$	—		$	3,808
Device and accessory inventory	1,003			(24		)	—			979
Prepaid expenses and other current assets	575			271			—			846
Costs to acquire a customer contract	—			1,219			—			1,219
Other assets	921			43			—			964
LIABILITIES AND EQUITY
Current liabilities:
Accrued expenses and other current liabilities	$	3,962		$	(35	)	$	—		$	3,927
Deferred tax liabilities	7,294			366			—			7,660
Other liabilities	3,483			(32		)	—			3,451
Stockholders' equity:
(Accumulated deficit) retained earnings	(1,255		)	1,307			8			60
Accumulated other comprehensive loss	(313		)	—			(8		)	(321		)

The most significant impact upon adoption of Topic 606 on April 1, 2018 was the recognition of a deferred contract cost asset of $1.2 billion, which was recorded in "Costs to acquire a customer contract" in our consolidated balance sheets for incremental contract acquisition costs paid on open contracts at the date of adoption. We are capitalizing and subsequently amortizing commission costs, which were previously expensed, related to new service contracts over the expected customer relationship period, while costs associated with contract renewals are amortized over the anticipated length of the service contract. We expect that operating expenses will be lower in the current fiscal year compared to amounts recorded under Topic 605 due to higher deferrals of such costs compared to the amortization of prior period commission costs deferred only for open contracts at the date of adoption as permitted by Topic 606.

A reconciliation of the adjustments from the adoption of Topic 606 relative to Topic 605 on our consolidated statements of comprehensive (loss) income and balance sheet is as follows:



	Three Months Ended December 31, 2018									Nine Months Ended December 31, 2018
	As reported			Balances without adoption of Topic 606			Change			As reported			Balances without adoption of Topic 606			Change
	(in millions, except per share amounts)									(in millions, except per share amounts)
Net operating revenues:
Service	$	5,699		$	5,898		$	(199	)	$	17,201		$	17,716		$	(515	)
Equipment sales	1,589			1,264			325			4,180			3,223			957
Equipment rentals	1,313			1,329			(16		)	3,778			3,827			(49		)
	8,601			8,491			110			25,159			24,766			393
Net operating expenses:
Cost of services (exclusive of depreciation and amortization included below)	1,648			1,671			(23		)	5,019			5,073			(54		)
Cost of equipment sales	1,734			1,715			19			4,521			4,431			90
Cost of equipment rentals (exclusive of depreciation below)	182			182			—			457			457			—
Selling, general and administrative	2,003			2,145			(142		)	5,731			6,047			(316		)
Depreciation - network and other	1,088			1,088			—			3,132			3,132			—
Depreciation - equipment rentals	1,137			1,137			—			3,454			3,454			—
Amortization	145			145			—			475			475			—
Other, net	185			185			—			298			298			—
	8,122			8,268			(146		)	23,087			23,367			(280		)
Operating income	479			223			256			2,072			1,399			673
Total other expense	(632		)	(632		)	—			(1,781		)	(1,781		)	—
(Loss) income before income taxes	(153		)	(409		)	256			291			(382		)	673
Income tax benefit (expense)	8			62			(54		)	(56		)	85			(141		)
Net (loss) income	(145		)	(347		)	202			235			(297		)	532
Less: Net loss (income) attributable to noncontrolling interests	4			4			—			(4		)	(4		)	—
Net (loss) income attributable to Sprint	$	(141	)	$	(343	)	$	202		$	231		$	(301	)	$	532

Basic net (loss) income per common share attributable to Sprint	$	(0.03	)	$	(0.08	)	$	0.05		$	0.06		$	(0.07	)	$	0.13
Diluted net (loss) income per common share attributable to Sprint	$	(0.03	)	$	(0.08	)	$	0.05		$	0.06		$	(0.07	)	$	0.13
Basic weighted average common shares outstanding	4,078			4,078			—			4,050			4,050			—
Diluted weighted average common shares outstanding	4,078			4,078			—			4,110			4,050			60



	December 31, 2018
	As reported		Balances without adoption of Topic 606			Change
	(in millions)
ASSETS
Current assets:
Accounts and notes receivable, net	$	3,455	$	3,356		$	99
Device and accessory inventory	919		941			(22		)
Prepaid expenses and other current assets	1,199		672			527
Costs to acquire a customer contract	1,497		—			1,497
Other assets	1,128		939			189
LIABILITIES AND EQUITY
Current liabilities:
Accrued expenses and other current liabilities	$	3,467	$	3,489		$	(22	)
Deferred tax liabilities	7,684		7,177			507
Other liabilities	3,403		3,437			(34		)
Stockholders' equity:
Retained earnings (accumulated deficit)	291		(1,548		)	1,839

The most significant impacts to our financial statement results as reported under Topic 606 as compared to Topic 605 for the current reporting period are as follows:

•

Consideration paid to customers or on behalf of customers is included as a reduction of the total transaction price of customer contracts, resulting in a contract asset that is amortized to service revenue over the term of the contract. As a result, the income statement impact reflects an increase in equipment sales offset by a reduction in wireless service revenue. Under the previous standard, this consideration paid to customers or on behalf of customers was recognized as a reduction to revenue or as selling, general and administrative expense.


•	Costs to acquire a customer contract or for a contract renewal are now capitalized and amortized to selling, general and administrative expenses over the expected customer relationship period or length of the service contract, respectively. Under the previous standard, these commission costs were expensed as incurred.


•	Deferred tax liabilities were increased for temporary differences established upon adoption of Topic 606, primarily attributable to costs to acquire a customer contract. For income tax purposes, these commission costs will continue to be expensed as incurred.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued authoritative guidance regarding Leases, and has subsequently modified several areas of the standard in order to provide additional clarity and improvements. The new standard will supersede much of the existing authoritative literature for leases. This guidance requires lessees, among other things, to recognize right-of-use assets and liabilities on their balance sheet for all leases with lease terms longer than twelve months. In July 2018, the FASB made targeted improvements to the standard, including providing an additional and optional transition method. Under this method, an entity initially applies the standard at the adoption date, including the election of certain transition reliefs, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The standard will be effective for the Company for its fiscal year beginning April 1, 2019, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the guidance and assessing its overall impact. However, we expect the adoption of this guidance to have a material impact on our consolidated balance sheets and we are implementing significant new processes and internal controls over lease recognition, which will ultimately assist in the application of the new lease standard.

In June 2016 and November 2018, the FASB issued authoritative guidance regarding Financial Instruments - Credit Losses, which requires entities to use a Current Expected Credit Loss impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost within the scope of the standard. The entity's estimate would consider relevant information about past events, current conditions and reasonable and supportable forecasts, which will result in recognition of lifetime expected credit losses. The standard will be effective for the Company's fiscal year beginning April 1, 2020, including interim reporting periods within that fiscal year, although early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In June 2018, the FASB issued authoritative guidance regarding Compensation - Stock Compensation, which expands the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The standard will be effective for the Company for its fiscal year beginning April 1, 2019, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the guidance and assessing its overall impact. However, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued authoritative guidance regarding Fair Value Measurement: Disclosure Framework, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The standard will be effective for the Company for its fiscal year beginning April 1, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the guidance and assessing its overall impact. However, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued authoritative guidance regarding Intangibles - Goodwill and Other - Internal-Use Software, which aligns the requirements for a customer to capitalize implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will be effective for the Company for its fiscal year beginning April 1, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the guidance and assessing its overall impact.