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...