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.