Sprint Filings

Previous Post: The 10-Q, Part I - The Overview
Previous Post: The 10-Q, Part II - The Balance Sheet
Previous Post: The 10-Q, Part III - Return of the Income Statement


At left: Unfortunately for Dan Hesse, his early rap career was cut short because of his woeful lack of talent. Luckily, he had a CEO gig to fall back on.


I think everyone, implicitly, understands that generating cash flow is a positive thing. Even rappers, with their limited faculties, understand positive cash flow is a good thing. After all, without it, how would they be able to buy stuff like solid-gold zippers on their Tommy jeans? How would they be able to pop Cristal while coolin' out with their hizoes? How would they get through life considering they have other no skills or talents? Well, as P.Diddy (or whatever his name is now) said "It's all about the Benjamins." Ben. Ja. Mins. While I don't have my rapper to English translator handy I'm pretty sure that means money. Anyways, back to the point, cash flow is a good thing. In terms of Sprint's business, let's take a look at their recent quarter cash flow (note: this is a long post so if you just care about the results, skip to the last couple paragraphs. You're welcome) ...

So what is cash flow and how does it relate to the income statement and balance sheet? Let's have investopedia explain:

The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit.

There are 3 main parts to the cash flow statement:

1. Core Operations - how much cash is generated from Sprint's products and services
   
2. Investing - changes to equipment, assets, or investments
   
3. Financing - changes to debts, loans, or dividends
   

So, on balance, the cash flow is simply a measure of this quarter's incoming and outgoing cash from those three components (not all items on the balance sheet and income statements actually involve cash). So, what is Sprint's cash flow? Maybe somewhat surprisingly to all the nay-sayers, Sprint actually generates a positive cash flow. In fact, for the 1st Qtr of 2009, Sprint generated a net cash flow of $825 million. Of course, they still lost money overall for the quarter. Still, it is nice to see that, at least, it's not a negative cash flow. That would be very, very bad. Like giving David Carradine a rope and some KY Jelly bad (too soon?).

So, all is well then, right? Sprint is on solid footing and all the doomsday predictions are just inaccurate ramblings from "haters"? Well, not necessarily. Let's dig a bit deeper into the numbers and compare them with some of the previous quarters.

1st Qtr '09 (in Billions)	% Chg vs 4th Qtr '08	% Chg vs 1st Qtr '08
Cash from Operations : $1.4B	26.44%	- 35.31%
Cash from Investing : -$.6B	-11.55%	69.76%
Net Change in Cash : $.825B	294.12%	66.08%

Now, I purposefully left off "Cash from Financing" from the above chart -- and I'll detail the reason shortly. But, before I do that, let's look at each of the above line items in detail.

Cash from Operations - $1.363 billion in the first quarter. Clearly, the bigger this number is the better. As you can see, Sprint generated 26.44% more cash in the first Qtr of '09 versus the 4th Qtr of '08. However, they generated 35.31% less than last year at the same time.

Cash from Investing - -$560 million in the first quarter. Ugh. While it's almost a 70% improvement versus last year, the vast majority of that is due to reduced capital expenditures.

Cash from Financing - here's where it's a bit tricky. In the 4th Qtr of '08, Sprint actually reduced debt by over 1 billion dollars whereas they increased debt in 1st Qtr of '08. In 2009 (so far), they essentially did neither. Cash from financing for the quarter was a paltry $22 million. Those facts would've, to me, misrepresented the percentage numbers in the table above which is why I excluded them.

Now, to reiterate (although, come to think of it, does anyone really "iterate"?), Sprint generated $825 million in cash in the first quarter. Last year over the same period, they generated over $2.4 billion but much of it ($2.1 billion) was due to raising money (increased debt) which is treated as cash in to the business. By the same token, Sprint's cash flow was a negative $425 million in the 4th Qtr of '08 but much of that was due to the retirement of debt which is treated as cash out of the business.

Now, if you read all that, I commend you because I made most of it up. Just kidding. But, you are probably wondering what it all means. I personally think the cash flow statement is encouraging albeit with a couple caveats. One is that - and there's no surprise here - Sprint's business is shrinking. For the long-term health of the company, that must change or at least stabilize. Secondly, it's going to be increasingly more difficult (in my opinion) to get any kind of debt financing at a reasonable rate. As such, Sprint will (most likely) start using its cash to pay down any debt that is maturing. That is going to be a direct hit on cash flow and they better continue to generate enough cash flow to pay down that debt. That will be a challenge. However, doing so will benefit Sprint long term as they will not paying millions of dollars in interest on that debt.

In my next post, I'll have a synopsis on everything I covered in relation to the 10-Q and give some final thoughts on Sprint's short term and long term financial health.

Previous Post: The 10-Q, Part I - The Overview
Previous Post: The 10-Q, Part II - The Balance Sheet

In my last post, I promised to look at the Sprint's income statement. And, if To Catch a Predator has taught us anything, it is this: if you can't trust an anonymous guy on the internet, who can you trust? So, let's look at the income statement...

We all pretty much need income for the basic necessities of today's modern world - things such as food, shelter, and call girls. Companies are really no different. No, they don't need call girls (although that would be a morale booster and make for interesting "casual" Fridays) but they do need a steady stream of income to survive. Well, unless, you are politically connected enough to where you can run your company into the ground yet have the government bailout you out with unsuspecting taxpayer money under the guise of protecting American jobs and averting financial catastrophe for the nation. Not that that happens today.

An income statement is a report that shows how much revenue a company earned over a period of time. For the 10-Q, that is one quarter. An income statement also shows the costs and expenses associated with earning that revenue. The literal “bottom line” of the statement usually shows the company’s net earnings or losses over the defined period. Pretty simple stuff. In fact, it's so simple that most women can even understand it. ("Income Statement: So Easy a Woman Can Understand It." Sorry, ladies.)

Much like my illuminating post on the balance sheet, I'm going to do year-over-year ("seasonally adjusted") and quarter-over-quarter comparisons for the income statement. Again, I'll take the data from google (which comes from filings). Let's go to the grossly simplified scorecard:

1st Qtr '09 (in Billions)	% Chg vs 4th Qtr '08	% Chg vs 1st Qtr '08
Revenue : $8.2B	- 2.62%	- 12.05%
Op Expense : $8.7B	-14.40%	-11.55%
Net Income : -$.59B	-63.36%	17.62%

Like last time, you can view the detailed spreadsheet here. Let's take these one at a time:

Revenue - the amount of money Sprint brought in during the quarter. In this case, $8.209 billion. Ideally, you want this number to be getting larger as it means sales (or the amount of money from sales) are increasing. You can see Sprint had a 12.05% decline versus a year ago and a 2.62% decline versus last quarter. That is not an encouraging sign. At all.

Operating Expense - the amount of money spent supporting the company's "day to day" operations. In Sprint's case, the number is $8.7 billion. That is an improvement over the other two quarters as operating expense fell by 14.40% and 11.55% respectively. Obviously, a significant portion of this is due to the "right-sizing" of the company and its operations to align it better with the revenue being produced.

Net Income - the "bottom line" or net profits or loses after factoring in income expenses (the interest paid on the money that was borrowed) and taxes. Really, the most important one on the income statement. And this is where Sprint is still falling short. In 1st Qtr '09, Sprint's Net Income was -$.594 billion. In other words, they lost almost $600 million dollars. Yet, bad as that is, that is a 63% improvement over the 4th Qtr '08 when they lost $1.621 billion dollars. On the flip side, it is 17.62% worse than 1st Qtr '08 when they "only" lost $505 million.

So, where does that leave Sprint? First, after looking at the balance sheet and income statements, I'm awed by how horrible the 4th Qtr of '08 truly was. Scary, even. Like standing in between a herd (yes, they travel in herds) of fat girls and the last pint of Haagen-Dazs scary. As such, Sprint does show significant improvement from 4th Qtr '08. They lost a lot less money and revenue "only" shrank by 2.6%.

But, when compared to 1st Qtr '08, things look worse. Not only has revenue shrunk by 12% but Sprint actually lost 17.62% more money. So, even with them slashing operating expenses the bottom line actually was worse as compared to one year ago. Not a good combination.

So which is the "real" Sprint? The Sprint that improved significantly versus 4th Qtr or the Sprint that is worse as compared to year ago? At this point, I don't know if we can tell. However, even if they continue to cut operating expenses they are still losing hundreds of millions of dollars each quarter. They must find a way to stop losing revenue. It's that simple. How they do that, however, is not that simple. Not in a recession. Not when they continue to lose millions of post-paid subscribers. Not when they're banking on pre-paid subscribers for revenue and growth opportunities. Not when churn is much higher than competitors like Verizon. Good luck, Mr. Hesse - you're going to need it.

I'll be back soon with a post on Sprint's cash flows.