Sprint Filings

Previous Post: The 10-Q, Part I - The Overview

A balance sheet. The words themselves are bland enough but actually deciphering the balance sheet is even worse. It's the antithesis of excitement. Or - think of it this way - it's almost as bad as watching The View. But, much like the US in The Iraq War, I just don't know when to quit. So, let's take a look...

The balance sheet provides detailed information about a company's assets and their liabilities. Assets are things a company owns that have value. This can include physical property (land, cell towers, handsets, etc) as well as non-physical "stuff" (patents, trademarks, etc). Liabilities are what a company owes to others. This can include things such as borrowed money, payroll, and taxes. The difference between the assets and liabilities is called Shareholders' Equity (which can be negative). Assuming you're past third grade math, this basic equation should help you understand what I just said mathematically:

Assets = Liabilities + Shareholders' Equity or Assets - Liabilities = Equity

If you haven't followed all that then you should re-read the last paragraph. And you probably should not have children. But try re-reading it first.

In order to have a fair comparison, I'm going to compare Sprint's '09 1st Qtr balance sheet with Sprint's '08 4th Qtr and Sprint's '08 1st Qtr balance sheets. Why those two comparisons? For one, I want to see if Sprint improved versus last quarter. And, secondly, there is some seasonality involved in results. For example, in housing, the spring and summer months typically have higher home sales. So, in order to get some accurate housing sale data you must compare current results versus results from a year ago (instead of comparing versus just the previous month). That same principle needs to applied here as well. Now, I'm going to "cheat" here and take the balance sheet results listed in Google finance. The table below lists the major facets of the balance sheet and compares 1st Qtr '09 versus 4th Qtr of '08 and 1st Qtr of '08. As hopefully you expected, everything in green below is an improvement while everything in red is a decrement.

1st Qtr '09 (in Billions)	% Chg vs 4th Qtr '08	% Chg vs 1st Qtr '08
Cash & Equivalents - $4.5B	+22.35%	- 3.45%
Total Current Assets - $8.9B	+6.70%	-13.79%
Total Assets - $57.2B	-1.76%	-12.58%
Total Current Liabilities - $7B	10.89%	-20.25%
Total Liabilities - $38.2B	-1.19%	-12.61%
Shareholder Equity - $19.1B	-2.89%	-12.54%

You can view the entire detailed spreadsheet here. Current Assets are things Sprint expects to convert to cash within a year while current liabilities are obligations they expect to pay off within a year.

So, what's the bottom line? Sprint's total assets are down 12.58% from a year ago (bad). Sprint's total liabilities are down 12.61% (good). In fact, the percent change in assets and liabilities is virtually identical (as compared to 1 yr ago). The reduction in liabilities is a good thing albeit with a caveat as it can signal significant reduction in spending on things such as payroll and network expansion. Of course, Sprint does not have any other prudent options right now. You may be tempted to say "Well, that's okay - Sprint is shrinking, yes, but both liabilities and assets are shrinking at the same rate."

But that doesn't tell the whole story. Since assets are much larger than liabilities (which is a good thing), the fact that assets shrunk at the same percentage rate as liabilities is bad. A 12% change in $65.4 B (last year's assets at this time) is much a larger overall change than a 12% change in $43.7 B (last year's liabilities at this time). This can be seen by the overall decline in shareholder equity or net worth of the company. In short, as measured by the company's net worth, the balance sheet is worse year-over-year and quarter-over-quarter.

Is there hope? Possibly. It could be like many economists hope about the economy - that the rate of decline is lessening which, in turn, implies a turn around. Besides being a logical fallacy, those same economists failed to see the recession in the first place. But, back to Sprint, it's not enough to simply look at the balance sheet and declare the overall health or health trend of the company. Although, the deterioration of the balance sheet is definitely not encouraging. In the next segments, I'll turn my attention to the Income and Cash Flow statements...

The Financial Statement Avenger was a "big" hit at this year's American Institute of Certified Public Accountants meeting


Reading a financial statement is a lot like having sex with a fat girl - you're oddly intrigued, you're not sure where to start, and you really hope your friends don't find out about it later. And let's just say I know what I'm talking about as I just read Sprint's latest 10-Q statement. Not to mention I've been with more fat girls than Jenny Craig. In all instances, it ended up being a much larger undertaking than I initially expected yet, no matter how painful the experience, I felt compelled to finish the job . So it is with me and the 10-Q.

For the unaware, the 10-Q is a federally mandated form all publicly traded companies must file with the SEC. The 10-Q includes unaudited financial statements and provides a continuing view of the company's financial position during the year and the report must be filed for each of the first three fiscal quarters of the company's fiscal year.

In order to understand a financial statement let's first define what exactly we are going to be looking at. There are four main parts of a financial statement:

1. Balance Sheet - details information on the company's assets (what they own) and liabilities (what they owe).
2. Income Statement - how much revenue the company earned over a period of time.
3. Cash Flow Statement - the company's inflows and outflows of cash; needed to pay its expenses and purchase any assets. It is derived from the balance sheet and income statements.
   
4. Statement of Shareholders' Equity - the money that would be left if a company sold all of its assets and paid off all of its liabilities. Sometimes called net worth or capital.

The first 3 are the most important as they can be used (hopefully) to show the financial health of the company. Or, at least, the trend of the health of the company. Even then, understanding all the accounting nuances can be difficult to incorporate into any analysis. That is the goal, though; to come up with a rational, objective measurement of Sprint's financial health. But, like I tell the chubby chicks, "I aim to please but you should just be happy that you're getting something for free." Since the 10-Q is 36 pages of information and since I have a life (a TV does not watch itself, after all), I'm going to break down the the various parts of the financial statement into a series of upcoming posts. Think the Friday the 13th series - although hopefully infinitely more entertaining. To be continued...

At left: Sprint's newest board member works on the potential Ericsson outsourcing deal. And places an order for bananas.





It has been said that if you took an infinite number of randomly typing monkeys that they, eventually, would produce some of the world's greatest literary works. In fact, I'm pretty sure that's how romance novels are written today. "Fascinating", you may say, "but what does that have to do with anything?" Well, for one, everyone loves monkeys. Humans love monkeys so much we destroy their habitat, dress them up as people for laughs, and then put them in cages to live out their now sad, miserable lives. That's what I call true love. But, the point is that the infinite monkey theorem can also be applied to the Board of Directors. In fact, it has been noted that monkeys can out pick stock professionals; so why then could they not outperform the Board?

Obviously, I am only (sort of) joking when comparing monkeys to the Board. After all, I don't know of any monkeys that have made decisions that led to a 80% drop in stock value since the merger (see chart - Sprint vs. S&P500 vs. North American Telecom Index.). But I am digressing from the original intent of this post - what do board members get for leading Sprint to such prosperity and riches? Let's take a peek...

Each outside director is paid a $70,000 annual base salary plus meeting fees and additional retainers. Not unreasonable sounding, at least to me. They work hard and it's not like they're hiring outside firms to study such issues as executive compensation. Actually, scratch that last part as "for 2008 and year-to-date 2009, the Compensation Committee...retained Frederic W. Cook & Co., Inc. as its independent compensation consultant." Also mentioned is that "our CEO periodically discusses the design of compensation programs and the compensation levels of our other named executive officers and certain key personnel with the Compensation Committee." Now, I'm clearly not an ethicist but that seems poor judgment on the part of the board - allowing the CEO to have input into executive compensation issues when he is the top executive.

But, back to the board. They are, after all, providing a valuable service to Sprint and it's not like they're serving on other boards too. Umm, well, nevermind that one too. The current (current as of the 2009 proxy filing) board members actually serve on a combined 19 other boards. It would seem difficult to devote enough time and energy to Sprint while serving other companies as well but, then again, I could be wrong as there is a first time for everything. But it's not like members get other perks like, say, unlimited number of wireless units including accessories, wireless long distance, and long distance calling cards (max $12,000). And it's not like they get the following for simply attending a meeting:

• $2,000 for in-person meetings
• $1,000 for meetings "held telephonically"

All told, during 2008, the board of directors held 17 meetings with all directors attending at least 75% of board and committee meetings. I'm not sure what legally constitutes a meeting ("Everyone here? Alright, meeting adjourned") but I'm glad to see they're on top of things. Oh, I forget to mention some additonal perks. What are the additional retainers needed to keep these vitally important individuals?

• the Chairman (James Hance) receives an additional $150,000
• the Chair of the Audit Committee (James Hance) receives an additional $20,000
• the Chair of the Compensation Committee (Gordon Bethune) receives an additional $15,000
• the Chairs of the Finance (Robert Bennett) and Corporate Governance Committees (Irvine Hockaday) each receive an additional $10,000

All things considered, being a member of this club is not a bad gig if you can get it. Beats Costco, at least. So, what did Sprint pay in 2008 in total compensation (cash, stock, & other) to all board members (current & former, excluding Hesse)? Here's the breakdown:

• James Hance - $436,036
• Robert Bennett - $265,516
• Gordon Bethune - $264,864
• Larry Glasscock - $257,864
• Irvine Hockaday - $251,194
• V. Janet Hill - $250,690
• Rodney O' Neal - $242,864
• William R. Nuti - $109,222 (joined board on 6/9/08)
• Sven-Christer Nilsson - $46,432 (joined board on 11/10/08)

All told, in 2008 Sprint paid $2,633,617 to current and former board members (not including Hesse). And $2,633,617 sure can buy a lot of bananas. Here's the compensation table lifted from page 14 of the proxy: