Sprint Filings

I Must Admit; I am Confused by Sprint's Latest Move

2009-08-18T08:49:00.000-07:00

In all honesty, it doesn't take much to confuse me anymore. For example, I am confused as to how anyone can let an Asian woman drive a car without fearing for their life, find Kathy Griffin funny, or consider Renee Zellweger pretty (she looks like an ant eater crossed with a horse). But I am even more confused by Sprint's latest filing in which they are issuing an additional $1.3 billion in unsecured debt. Before I delve into my lack of understanding, let's look at the summary of the offering: (click pic to view larger image)

Essentially, Sprint is offering up $1.3 billion in bonds in which they will pay 8.375% in interest until the bond matures in August 2017*. The bonds are unsecured (i.e. if Sprint goes bankrupt you might not get your money back) and can be called (by Sprint) before the maturity date. All of that is relatively straightforward. The question I have is this: why the offering?

In the same filing, it is noted that "as of June 30, 2009, our consolidated indebtedness was approximately $21.0 billion." And, more tellingly, is this part:

The degree to which we incur additional debt could have important consequences to holders of the notes, including:

• limiting our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes;

• requiring us to dedicate a substantial portion of our cash flows from operations to the payment of indebtedness and not for other purposes, such as working capital and capital expenditures;

• limiting our flexibility to plan for, or react to, changes in our businesses;

• making us more indebted than some of our competitors, which may place us at a competitive disadvantage; and

• making us more vulnerable to a downturn in our businesses.

The second bullet above is something I've touched on a few times (score one for me) - namely that Sprint is going to have use its cash flow to pay off debt. So we agree, in this case, debt is bad. So, more debt makes that problem worse. Besides all of that, they already have "a $4.5 billion revolving credit facility." So, again, why the debt offering and, more importantly, why now?

As it is explained, Sprint intends to use the "net proceeds from this offering for general corporate purposes." That, to me, means absolutely nothing; it is annoyingly - and I assume purposefully - vague. That could be a $1.3 billion raise for Hesse - lord knows he deserves it - for all I know. Or, maybe it's so Bob Brust can take some more non-business flights around the country. I hear the Rockies are nice this time of year.

So, much like usual, I do not have the answers. My best guess is they are going to use it to pay short-term maturing debt in hopes of saving some cash flow and then (hopefully) they can make the bond payments in due time. In other words, borrow from Creditor B so you can pay off Creditor A and then pay off Creditor B after Sprint stabilizes. And, if that is what they're banking on, well...I'm not sure who's more confused then - me or Sprint.

* - After underwriting and commissions, the net proceeds to Sprint (before expenses) is $1,258,725,000.

The 10-Q, Part V - Wrap Up

2009-08-05T08:11:00.000-07:00

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
Previous Post:The 10-Q, Part IV - Cash Flow (It's All About the Benjamins)

Well, we've finally come to the part where I pretend like I know what I'm talking about and then I make some vague, open-to-interpretation comments on Sprint's short term and long term future. You know, kind of like Dan Hesse does. My predictions though, hopefully, are reality-based due to my thorough (hey, I looked at it) review of Sprint's 1st Qtr 10-Q statement. So, let's get to it...

Short-Term
Sprint's balance sheet is getting worse and will continue to get worse. By the same token, net income will continue to be negative. Not exactly encouraging. On the positive side, Sprint is generating some positive cash flow. Yet, in both the short and long term, Sprint is going to have to use that cash to pay down maturing debt. I don't see anyway around that. So, cash flow must continue to be positive or Sprint faces a very real risk of going bankrupt (not within a year but relatively soon). Since Sprint is shrinking in terms of revenue they will most likely have to continue to cut costs in order to retain a large positive cash flow...more layoffs, anyone? So, here are my predictions:

Sprint will lose at least another 1.75 million customers for this year (3rd and 4th qtrs combined)
More reshuffling of executives (like re-arranging deck chairs on the Titanic)
Cash flow will continue to be positive but will shrink over the next year which will lead to...
Some limited layoffs (i.e. more outsourcing and/or rebadging)

Long-Term (> 1 year but less than 3 years)
It's almost impossible to make any accurate long-term predictions simply due to the unbelievable amount of variables and parameters. Just ask any supporter of anthropogenic global warming. But, that's not going to stop me from making such predictions. So, let me just say, I don't think Sprint is going to go bankrupt but it is a real possibility. In fact, if Sprint is not able to start adding customers on a net basis (or, at the very least, stem the subscriber losses), then they will not be able to meet their debt obligation at some point in the next few years. They have too much maturing debt and they will not be able to get reasonable financing in order to "roll over" that debt. That's not to say Sprint would no longer exist; it just wouldn't exist in its current form. Having said all that - and I'm not sure why - I still remain optimistic that that will not come to pass. So, some predictions:

Sprint will undertake more "novel" ways to cut costs (similar to the Ericsson outsourcing deal) as they are forced to deal with their ability to stop subscriber losses
Net subscriber losses, though, will eventually stabilize in late 2010
Large growth in pre-paid but continued losses in post-paid (which, on net, will cancel each other out in terms of net subscribers)
Once stabilized, smaller overall revenue due to higher percentage of pre-paid customers
Sprint will, at some point, be forced to dump WiMax

Is Sprint a viable company in the short-term? Yes. Is Sprint a viable company in the long-term? Probably. Even if it is, I think there have been too many poorly-executed strategic decisions to "right the ship" and see any growth in the foreseeable future. Every botched decision - from the merger, to marketing, to IDEN stupidity (sell it? keep it? reduce spending? no, wait, increase spending?), to not pursuing the iPhone, to the woeful impact of Dan's "nukes" - has hampered this company to the point where the best it can hope for right now is remaining in business. It has been said that "hope never abandons you; you abandon it" and Sprint shouldn't abandon it quite yet.*

* Of course, it has also been said that "hope is the worst of evils, for it prolongs the torments of man." But the other quote sounded better.

I'm Back...Although I Don't Know If Anyone Realized I Was Gone

2009-08-01T10:53:00.000-07:00

First, I know it's been awhile since I've made a post. I'm sure I've upset my loyal readers (Hi Mom & Dad!) by my lack of blogging dedication so let me say that I do apologize. It's just that I was so upset after the death of Michael Jackson* that I could not bring myself to post with my usual wit and charm. So, now that I've taken time to recover, I have a new found sense of energy and vigor. As such, I will be posting more of the worthless drivel that I used to post; at least until the next celebrity death.

* - Does anyone realize why Michael Jackson went to heaven after Farrah Fawcett? It's because he always did like coming in a little behind.

Clearly a lot has happened to Sprint in my blogging absence. For one, the long rumored outsourcing of the Sprint network to Ericsson is a done deal. Also, Sprint recently acquired pre-paid operator Virgin Mobile. While that deal has been criticized, I must admit it does fit into Sprint's long term plans to buy successful companies and run them into the ground. So, they have that going for them.

And, just a few days ago, Sprint released its (in my not-so-humble opinion) horrific 2nd Qtr results and, in doing so, tanked the Sprint stock. In fact, I haven't seen anything go down that fast since I watched a Shannon Tweed movie on Cinemax (incidentally, Shannon looks great for being 75). Anyways, in announcing the results, Dan Hesse said "Job One" was to increase subscribers. The Sprint CEO, ladies and gentlemen! He's been on the job for almost 2 years and he just now realizes (or announces) that the priority is to add customers? Are you f'ing kidding me? Good lord, even former potato Terri Schiavo could've figured that out and she died four years ago. What other brilliant insights do you for us, Dan? Maybe you can comment on how Sprint needs to improve customer service and reduce churn. Or maybe you can explain that Sprint needs to increase revenue and decrease costs while leaving out the roadmap on how to accomplish said goal. I think Dan should write a book on how to be a CEO; he can title it "How to Screw Up a CEO Gig You Didn't Deserve In the First Place" (subtitle: "How to Point Out the Obvious, Run a Business into Oblivion, and Get Paid Millions to do so"). It'd be pages of mindless platitudes, trite sayings, and, for good measure, he could top it off with some cliched fillers. A best seller, I'm sure.

Anyways - back to my point - even an anonymous schmuck with no background in economics or accounting who looked at a few quarterly reports for about 10-15 minutes total realized that Sprint must increase customers and, in turn, revenue. Hell, in a previous post, I even wrote "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." So, how long did it take me to reach that conclusion? Apparently less time than it took the CEO. So, even with all the changes recently, at least some things remain consistent. It's good to be back.

The 10-Q, Part IV - Cash Flow (It's All About the Benjamins)

2009-06-09T16:37:00.000-07:00

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:

Core Operations - how much cash is generated from Sprint's products and services
Investing - changes to equipment, assets, or investments
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.

The 10-Q, Part III - Return of the Income Statement

2009-06-02T17:40:00.001-07:00

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.

The 10-Q, Part II - The Balance Sheet

2009-05-16T11:04:00.000-07:00

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 10-Q, Part I - The Overview

2009-05-12T16:09:00.001-07:00

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:

Balance Sheet - details information on the company's assets (what they own) and liabilities (what they owe).
Income Statement - how much revenue the company earned over a period of time.
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.
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...

So How Much Does the Board Make?

2009-05-10T10:41:00.000-07:00

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:

Well, I Guess They Could've Gotten a F

2009-04-26T15:13:00.000-07:00

At left: Ever wonder what happens at Sprint's annual Board meetings? A board member prepares to wrestle in a vat of jelly while shareholders cheer him on.

In keeping with my theme of not really doing any investigative work and merely pointing out information already contained in Sprint's 2009 proxy, I would now like to say a few words about the Board of Directors. Those words are "they suck." And, if you don't believe me, well that was the opinion of the independent research firm The Corporate Library (TCL). While they did not state their opinion as eloquently as I did, they did rate the B.O.D. as a "D" overall. Now, unless you are George W. Bush, that is nothing to be proud of. So, what did TCL say about the B.O.D?

"D" overall (reiterated just so it sinks in)
"High Governance Risk Assessment"
"Very High Concern" in Executive pay

Some other governance issues were identified as well (note, I'm not sure they are directly attributed to TCL but they are mentioned in the proxy). Specifically, for shareholders, there is:

No right to cumulative voting
No right to act by written consent
No right to call a special meeting
No right to vote on executive pay

And, to me, this quote from the proxy summarizes up the overall concerns:

"Our management should have the leadership initiative to adopt the above Board accountability items instead of leaving it to shareholders to take the initiative in proposing such improvements."

Now, maybe you're thinking, "Well, sure they've made mistakes. They're only human. Sprint did not do well so of course the Board would be rated low. It's not like the Board is the problem. Let he who is without sin, cast the first stone!" Well, TCL disagrees with you and casts away:

Irvine Hockaday was designated a “Problem Director” due to his involvement with the proposed Sprint merger with WorldCom that led to the acceleration of $1.7 billion in stock options even though the merger ultimately failed
Irvine Hockaday and Janet Hill were designated “Accelerated Vesting” directors due to their accelerating stock option vesting to avoid recognizing the related cost.

And, as it turns out, 6 of the current 11 members (and 1 former member) of the Board coincidentally also served on other boards that were also rated "D" by TCL. Of the 5 who didn't, 1 is Dan Hesse who, I would imagine, will not and cannot serve on another board while CEO. Of the remaining 4, 3 have been on Sprint's board for less than a year. Excluding Hesse, the only member of the board who has served more than a year and did not serve on another "D" rated board is James Hance - who is the retired Vice Chairman of Bank of America. And we all know how well they are doing (thanks to taxpayer money).

So, who are the other folks that also helped screw up other companies? Well, leading the way, was one Mr. Irvine Hockaday who served on 3 other boards that received a "D" (4 total - Sprint, Ford, Estee Lauder, and Crown Media). "Funny" enough, he only served on a total of 4 boards . Well done Mr. Hockaday! You are a fortress of ineptitude. With the loss of shareholder value in those companies, you've probably screwed over more retirees than Medicaid. Luckily for Sprint, Mr. Hockaday is retiring from the Board to pursue his dream of eating live puppies in front of school children (addendum: see end of post). After all, he's not getting any younger and why wait to crush the hopes and dreams of adults when you can do it to kids?

Hot on Irvine's heels, is one Mr. Rodney O'Neal who served on 2 other boards that received a "D" (Sprint, Goodyear, and Delphi). Well done, Rodney! You have some work to do to catch Irvine but I have faith that you too can become as terrible at this as he is. Shoot for the stars and when you don't make it, blame it on the little guy. Not to be excluded from the party of incompetence, 5 other Sprint board members (of which, 4 are still on the board) served on other "D" rated boards - Gordon Bethune (Honeywell), Ralph Whitworth (no longer at Sprint; Sovereign Bancorp), Janet Hill (Wendy's/Arby's), Robert Bennett (Liberty Media), and Larry Glasscock (WellPoint).

In my next post, I'll take a closer look at the compensation provided to the board. But, in the meantime, I will be hard at work figuring out how I too can become a rich, old white guy so I can serve on the board. Wish me luck.

author's note: I do not know if Irvine Hockaday eats live puppies. Presumably he does not. Besides, they are better cooked.

A Clarification or Two About My Posts

2009-04-19T15:28:00.001-07:00

Recently, I received a comment and some emails stating, effectively, my "populist drivel" was "nonsense" and "stupid." That is borderline libel and I take great offense to that. Everyone knows I am nothing close to popular and my writing is not drivel but more like poppycock. But, it did get me thinking (for a change) and I would like clarify a couple things about my posts:

I do not believe in the vague, Utopian, and socialistic nature of "fairness" as it concerns salaries. It's quite simple, an employee gets paid a certain amount of money because, in theory, he/she is worth more than that amount in value to the company (incidentally, that's why minimum wage laws actually raise unemployment as marginal workers who don't provide more value than the minimum wage will not get hired. Look at that; I not only entertain but I also educate. You're welcome). An employee produces a good (or service) and, in return, the company provides compensation for his or her production. It should be a win-win situation. But, that is not to say that there cannot be errors in the process. And the results say that Sprint has erred a lot. As proof, look no further than the hiring of (and golden parachute given to) Gary Forsee. So while I may rant against some executives and their pay, so long as they did not commit fraud, they really did nothing wrong. A quote I saw somewhere (fortune cookie?) said it best - "Do not judge so that you will not be judged." But...Sprint is a public company that, ultimately, answers to its shareholders. And they are doing a terrible job. So, that means I will not blindly accept the given results and agree with the Board's actions. Do I want to have my cake and eat it too? Hell yes I do. What good is the cake if you just have to look at it? You think America became great (and fat) just by looking at the cake?
I fully encourage everyone to do their own research and come to their own conclusions on anything and everything. Feel free to disagree with me and, in fact, if you have valid points I fully encourage it. I always like to hear dissenting opinions, no matter how wrong they might be. But, if you do disagree, at least attack my arguments (or lack thereof) and not me personally. Or, if you do, at least make it somewhat clever or entertaining. From now on, stupid personal attacks on me is going to be like playing "Marco Polo" with Helen Keller - I won't hear it, I won't see it, and I won't respond to it.

In my next few posts, I'll be checking in on the Board (and how they were rated by an independent research firm) and, hopefully, delving into the financial health of the company via the 10-k and Sprint's first quarter results.

Sprint Stock Bought Under ESPP

2009-04-16T16:39:00.000-07:00

Statistics and numbers. Numbers and statistics. No matter how you type it, everyone knows you can manipulate virtually any number or statistic to say whatever it is you want it to say. Numbers are not to be trusted (don't even get me started on 2,587). As for statistics, did you know that 24% of all statistics are false? If you didn't, you should now since I just made that up.

I say all that with the intention of showing you a chart I stumbled upon in the 2009 SEC filing that shows the amount of stock bought by employees in the Employee Stock Purchase Plan (page 70). Now, I don't know if much can really be read into the chart but it is interesting to me. And since this is my blog and no one reads this stuff anyways, it doesn't really matter if I post it. So here it goes...

Obviously, Sprint's stock took a worse beating than Rihanna this past year. I think the depth and breadth of the beating surprised everyone. In fact, I can't believe she took Chris Brown back! But, back to Sprint's stock; it makes sense to buy stock if you believe if it is going to go up in price. In no other situation (other than covering a short sale), would you buy stock that you thought would depreciate unless - and this is a huge caveat - you are f*cking retarded. But, I assume the best in people so I doubt this is the case. So, what did non-executive employees buy via the ESPP? And what did executives buy via the ESPP? Let's go to the scorecard:

All executive officers (8 people) - 2,672 shares
All employees (excluding officers) - 8,676,427 shares

Now here it is in monetary terms at a weighted price of $4.16 per share (as listed in the proxy):

All executive officers (8 people) - $ 15,943
All employees (excluding officers) - $ 36,109,316

To help you comprehend the difference, that's about my yearly salary versus 77 minutes of losses by AIG in the 4th qtr. You can guess which value is which.

Now, obviously, the number of employees (excluding officers) greatly exceeds the top 8 people in the company. And the top officers in the company are already tied heavily in stock as part of their compensation mainly through stock options and grants/awards. But, none of the top 5 current executives (Hesse, Brust, Cowan, Elfman, Johnson) nor any of the top 4 ex-executives (Saleh, Arendt, Kennedy, Angelino) purchased stock via the ESPP. If they thought the stock price would go up in 2008, would they have bought stock? Is the fact that they didn't indicative that they believed the stock would go down? Why is there such a discrepancy in the "bullishness" of the stock between executives and non-executives? I, like usual, don't have any idea.

So I'll leave it up to you, my dear astute readers, to answer those questions for yourself. By the way, here's the actual chart:

Bob Brust Soars Like an Eagle

2009-04-14T16:17:00.000-07:00

If you were to google "Robert H. Brust & frugal" (go ahead, I'll wait), you'll get 533 results. None of the results, however, actually talk about Bob Brust being frugal. That is a good thing because his contract is anything but thrifty. Of course, there is nothing wrong with that as "Bob Brust is an experienced, respected financial leader with the right skills to lead Sprint's financial team." Straight from Dan Hesse's mouth to your eyes. Not only that but I hear he plays a pretty mean round of golf.

Of course, when you bill yourself as an economically sound, penny-pinching spendthrift who is making tough financial decisions you might want to - oh, I don't know - follow your own advice. Unless, of course, you want to look like a hypocrite. And maybe that's his plan. Either way, let's take a look...

Mr. Brust, according to a Bloomberg News article from Dec 2008, intended to save "about $40 million by closing cafeterias, buying fewer office supplies and putting printers in storage." He even took pens from a hotel to bring back to Sprint campus as (presumably) a metaphor of cost-cutting measures. Obviously, he means business. So much so he said, and I quote, “The message is, we really have to be serious about this, because we are in an economic event that nobody understands.” Of course, it doesn't speak well of your Chief Financial Officer if he doesn't understand the financial crises but I digress. Anyways, in light of Sprint's struggles that is absolutely the right thing to do. Come in and lay down the law. Rule with an iron fist. Lead the charge against waste! I imagine that, even right now, he's stooped over his desk laboriously reviewing TPS reports, mumbling incoherently, and furiously scribbling on the reports in red ink. Anything in the name of savings!

So, it comes as a bit of surprise that Mr. Brust took $601,338 worth of flights in 2008 for "non-business use of our corporate jet and use of chartered jets." Not only that but "family members of Mr. Brust occasionally accompanied him on our corporate aircraft at no...incremental cost to us" (Sprint). Now, I'm not a pilot but last I checked, additional passengers on a plane do indeed raise the costs of a flight especially when the flights are chartered. But, even if I concede that point, that is still some chutzpah; over 600k worth of personal benefits in one hand while taking 2 cent pens for Sprint's benefit in the other.

Of course, one could make the argument that, while maybe not ideal behavior, there is nothing wrong with it. Nothing wrong with it from a moral standpoint. Of course, you could also argue that strangling a hooker is really a form of community service. And, actually, I contend that it is as hookers are not really people but soulless devils spawned from hell. But, umm, where was I? Oh, some may say my characterization of Mr. Brust as a hypocrite is unjust and unfair. And that's why I will now debate myself on the topic in my Point vs. Other Point segment.

Point: "Mr. Brust fairly and honestly negotiated that perk into his benefits. Sprint came to him on hands and knees begging for his help. His expertise avoided a financial calamity. Without this perk, maybe Sprint does not get Mr. Brust and everyone is worse off for it."
Other Point: "I think Sprint did more than beg while they were on their knees asking for his help. But, to your point, maybe they did avoid financial ruin by hiring Mr. Brust. Maybe it was a brilliant strategic move by leadership and the Board. Yet something still doesn't quite seem right to me.."
Point: "And what's that? That you cannot give credit to the Board for approving such an outstanding hiring?"
Other Point: "No, the fact that such a move was even necessary in the first place. When all is said and done, Sprint paid out tens of millions to the previous CFO's, Paul Saleh and William Arendt. Why would Sprint be in such financial dire straits unless they performed particularly poorly? Is it not duplicitous that, a CFO who makes millions of dollars of cutbacks, is okay with spending 600k of Sprint's money for personal, non-business use flights? Bob, if you are going to ask people to make financial sacrifices then you, as the financial leader of the company, should also make sacrifices. In doing so, maybe you actually have a chance not only at good PR - which is priceless right now - but to also inspire the down-trodden masses that work at Sprint. In the long run, the gain from such a move would greatly outweigh any short-term pain you may experience. That is the essence of true leadership."

The best part of that segment is, much like Bob Brust, I win no matter what happens.

Former Exec Pay Part 2 - Arendt, Kennedy, & Angelino

2009-04-09T15:53:00.000-07:00

A few days ago, when I touched upon Sprint's payments to former Executives, I promised to look at how the objectives of compensation and retention do not necessarily match the results. And I almost always sometimes keep my promises. So let's take a look, shall we?

One factor in compensation, eloquently titled "Retention Programs," is listed in the 2009 proxy. Here's the money quote (not to be confused with money shot; I hear that's slightly different...) from page 38: (bold is my emphasis)

The Compensation Committee periodically evaluates whether we are at risk of losing the services of any of our named executive officers and other key personnel who we believe are critical to the success of our business. To ensure that we retain the employment of our named executive officers and other key personnel who we believe may be at particular risk of voluntarily terminating employment, the Compensation Committee from time to time awards cash bonuses, RSUs or stock options to further our retention objectives and promote a commonality of interests with shareholders.

So, the goal of the retention program is to provide some type of bonus to "named executive officers and other key personnel who we believe may be at particular risk of voluntarily terminating employment" because, doing so, promotes "a commonality of interests with shareholders." Beautiful! Well stated too, I might add. These people are key personnel in the company, they are in high demand, they have amazing skills that cause other companies to viciously seek out their services, and losing them would just be disastrous to the shareholders. That makes perfect sense to me. Yet, let's keep reading (again, page 38 and bolding is mine):

During 2008, the Compensation Committee awarded Mr. Arendt 20,824 RSUs that were scheduled to vest on June 9, 2009. This award vested upon Mr. Arendt’s involuntary termination without cause on November 14, 2008 and is included in the Grants of Plan-Based Awards table. During 2008, the Compensation Committee also awarded Mr. Kennedy 29,462 RSUs that were scheduled to vest on June 9, 2009. This award vested upon Mr. Kennedy’s involuntary termination without cause on December 19, 2008, and is included in the Grants of Plan-Based Awards table.

Uh huh. So, umm, let me see if I understand this. Mr. Arendt was awarded 20,824 Restrictued Stock Units (essentially shares of stock, in this case) because he was at high-risk for voluntarily leaving Sprint. Yet, during the same year he received those RSUs, he is involuntary terminated. But he still gets to keep his bonus. A bonus in which the sole intent was to keep him from leaving! Not only that but his RSUs vest (i.e. they are convertible to common stock) on the day he was fired! Hahaha! Brilliant! Sprint paid out, if the stock were held through today, roughly a $90,000 bonus ($4.29 share x 20,824 shares) to an executive whom they terminated because they were afraid he voluntarily leave! You know, leave at a cost of $0 to Sprint and Sprint shareholders.

Mr. Kennedy's situation, of course, is no better. He received 29,462 RSUs (that's over $125,000 in today's prices if you're keeping track) as a retention bonus and then was subsequently terminated in December 2008. Tell me again how this lines up to shareholder value?

If I were one of these gentlemen and received such a payment, I'd be happier than Michael Jackson on Boy Scout Day at Disney World. Alas, I am not. So at this point, in order to dull the pain, I need to go take some Zoloft (for my depression), wash it down with some Valium (for my anxiety), and pop some OxyContin (they taste like candy).

As such, here are the official 2008 salaries of the named executives in the title of this post. Their "official" salaries are based on what the options were worth on the day each was involuntarily terminated. As of today, the stock price (of the RSUs that were granted) has gone down in Mr. Angelino's case but up for Mr. Kennedy and Mr. Arendt. As I mentioned in a prior post, if the stock had not tanked then their overall pay would have been significantly higher. That can be viewed in this table. Note, all tables shown come directly from the proxy.

Mr. Angelino, former President of Sales and Distribution. Terminated on January 25, 2008 - $3,535,498

Mr. Arendt, former Acting Chief Financial Officer. Terminated on November 14, 2008 - $1,742,366

Mr. Kennedy, former General Counsel and Corporate Secretary. Terminated December 19, 2008 - $2,627,179

Former Exec Pay Part 1 - Paul Saleh

2009-04-07T16:07:00.000-07:00

Page 63 of Sprint's 2009 proxy filing, under the header of Mr. Saleh, states "On January 25, 2008, we terminated Paul N. Saleh’s, our former Chief Financial Officer, employment without cause. The following table and narrative describe the payments Mr. Saleh is entitled to receive due to his termination." (See table taken directly from the proxy. Click to enlarge)

Is $7,606,225 a fair severance for someone was "terminated without cause" (get used to seeing those words) 25 calendars into 2008? Over $7 million dollars for someone who was with Sprint (Nextel, at that time) since September 2001? I contend that in Sprint's current financial and operational situation that such a payment is, shall we say, more than fair especially considering his compensation was over $6 million a year in both 2006 and 2007 . Of course, my opinion in this matter (or virtually any matter) does not matter. But, I would like to highlight a few things regarded Mr. Saleh's package:

If not for the change in the stock price in '08 (it went down faster than a Las Vegas call girl...not that I, um, would know), some accounting mumbo-jumbo, and various vesting periods for prior stock awards, his total compensation for the 2008 year would have been $13,645,385 (page 42 of the proxy) .
He received a $250,000 one-time payment on March 15th, 2008 in recognition of his service as interim Chief Executive Officer. This payment came almost two months after he was terminated.
He can possibly receive a Short Term Incentive (STI) payment through the beginning of 2010. Not a bad deal if you can get it.
He gets continued participation in the medical and welfare plans for a period of two years

Ultimately, unless you are his accountant, there is no way to find out Mr. Saleh's exact total compensation as his stock awards and options are variable and dependent on Sprint's stock price. His stock options have different vesting periods, probably different strike prices, and he may or may not have sold some or all of them.

Lest you think Sprint did not get anything out of providing this package, au contraire! In exchange for his severance, Mr. Saleh did actually have to meet a couple conditions.

He executed a release in favor of Sprint and entered into a lifelong confidentiality agreement (take that, Verizon!).
He entered into a "non-competition" and "non-solicitation provisions" for a period of 24 months after his termination.

Whew! Sprint really took it to him during those negotiations. Just so you don't get the wrong idea, I don't begrudge Mr. Saleh for taking what he can get (earned?) from his employer; in fact, I am quite jealous. After all, he's probably laying on a golden beach somewhere sipping Mai Tai's and I'm stuck here blogging about him. Well done, Mr. Saleh, well done.

Kathy Walker and The Dog That Did Not Bark

2009-04-06T17:59:00.000-07:00

Among the 56 Sherlock Holmes stories written by Sir Arthur Conan Doyle one in particular, Silver Blaze, has caught my attention. In the story, a prize race horse is stolen in the night and the lack of the dog barking the night the horse was stolen led Holmes to deduce that the culprit was not a stranger but someone that the dog knew and knew well.

How is this relevant to Sprint? Simple. The lack of information regarding Kathy Walker's severance in the latest proxy filing is, by its very absence, quite telling. So, what does it tell us? To me, it says that Sprint is trying to hide her full severance package. Let me explain...

What is a proxy filing (SEC form 14A)?
A proxy statement is a document which is intended to provide security holders (i.e. shareholders) with the information necessary to enable them to vote in an informed manner on matters intended to be acted upon at meetings, whether the traditional annual meeting or a special meeting. Typically, a security holder is also provided with a "proxy" to authorize designated persons to vote his or her securities in the event the holder does not attend the meeting. It also, legally, must contain information about top officers and their compensation. That is why you see information regarding Dan Hesse's, Bob Brust's, and Steve Elfman's compensation, among others.

So, why isn't Kathy Walker included?
As best as I can tell, Ms. Walker, who was Chief Information and Network Officer is more than qualified to be labeled as an Executive Officer. And, in fact, she was labeled as such on Sprint's 2008 proxy filing. So, why the change from 2008 to 2009? At this time, I can't say for absolute certainty why she was not included. But, what can I say is this: Sprint's 2009 proxy filing was filed on March 30, 2009. Ms. Walker's "termination without cause" was announced on January 23rd, 2009. However, her termination was not effective until March 31st.

So, 1 day after the proxy filing was, officially, Ms. Walker's last day worked. Is this not highly coincidental? If she had been terminated on the day of the announcement, would Sprint have been legally required to include her severance package? I'm not a lawyer (but I did stay a Holiday Inn Express once) but I believe (but am not positive) Sprint would've had to have included her severance package.

Oh, and there is one other slightly curious fact. According to SEC filings, about one month before her termination, Ms. Walker agreed into an amended contract with Sprint. You can view the announcement here. Why would the Board change her contract if her she were to possibly be terminated soon? What were the changes to her contract? I haven't been able to find that information.

Either way, the fact that Ms. Walker is missing from the proxy filing is telling by its very omission. We already have the data for 9 current and former Executives in the 2009 filing so why exclude her? Shareholders have the right to review this data and it's time Sprint made it publicly available.

Sprint's Payments to Former Executives

2009-04-05T14:33:00.000-07:00

It has been said that "a fish rots from the head" and nowhere is this more evident than at Sprint. That subject, namely the Board of Directors, will be explored fully in another post. Yet one symptom of this failure will be explored now; namely, Sprint's payments to former Executives. You may ask, "how is this a failure? They were paid to do a job and did it just like you and I." Yet, their job, ultimately, was to enhance shareholder value; these former Executives, along with the Board, have decimated shareholder value. To reinforce that failure by providing large payouts upon involuntary termination is ludicrous. But, I am getting slightly ahead of myself. Let's take a look...

What, exactly, makes up Executive Pay?

This information, from page 30 in Sprint’s latest proxy filing, should be quite simple. Please note this does not include any other forms of compensation such as 401k matching, health benefits, etc. There are 3 main components for Executive pay (I quote from the proxy filing where applicable) :

Base Salary - fixed pay in the form of cash
Short Term Incentive (STI) - based on near-term objectives and paid in cash
Long Term Incentive (LTI) – “Non-qualified stock options and time-based RSUs, as well as performance-based RSUs granted under the ENTI.”

Items #1 and #2 really are straight-forward. However, let’s take a closer look at the LTI. The ENTI referenced above stands for “Enhanced Near-Term Incentive“. What does that mean? Let’s have the proxy filing explain:

“To further the focus of senior management on these critical objectives, the Compensation Committee allocated one half of each participant’s 2008 LTIC plan targeted opportunity, which we refer to as the ENTI, to be in the form of dollar denominated performance units, or Performance Units, payable in RSU awards, based on our actual performance in the second, third and fourth quarters of 2008 using the same performance objectives as the second, third and fourth quarter 2008 STIC plan. The 50% portion of each 2008 LTIC plan participant’s targeted objective to be made in the form of Performance Units were equally allocated to each of the second, third and fourth quarters of 2008 under the ENTI.”

In other words, 50% of the long-term incentive plan was shifted into a shorter-term incentive plan (called the ENTI) that was to be payable in Restricted Stock Units. So, what is a RSU? Quite simply, it is a grant of company stock although no stock is issued at that time. After the recipient of a unit satisfies the vesting requirement, the company distributes shares or the cash equivalent of the number of shares used to value the unit.

So, to make this perfectly clear, the ENTI shifted long-term stock options and RSUs into short-term RSUs that vest 6 months after they were granted. These RSUs were granted based on the STI’s objectives at the end of each the 2^nd, 3^rd, and 4^th quarters of 2008. The ENTI was, essentially, a STI on top of the STI but only for Executives.

If the LTI is supposed to be a long-term incentive designed to align executive values with shareholder values, why was part of the LTI changed to the shorter-term ENTI and then implemented? There was already a short term incentive plan!

The rest of the LTI for 2008 (the other 50% of the LTI plan) included stock options that will vest “in equal amounts on February 11, 2009, February 11, 2010 and February 11, 2011 and have an exercise price equal to the closing price of a share of our common stock on the date of the grant.”

Now that that ugliness is out of the way, let’s look at the pay received by some of the illustrious former executives at Sprint.

So, what did they make?

This, like everything else, isn’t quite as simple as it appears. A picture, though, is worth a thousand words.

(click the picture to enlarge)

To be completely fair, this table overstates their pay due to the simple fact that the stock price collapsed and the total value listed in the table was the total value at the time the options and stock were granted. Of course, their decisions directly attributed to this decline in the stock price so it is more than reasonable their pay would also decline. However, by the same token, if the stock price had gone up in 2008, they would’ve made more than that what’s listed in their respective total columns.

Either way, don’t cry too much for them as here is what they took home at the end of December 2008 (based on what their options were worth on the date they were terminated; these figures come directly from Sprint's proxy filing).

Mr. Saleh, former Chief Financial Officer and interim Chief Executive Officer - $7,606,225
Mr. Arendt, former Acting Chief Financial Officer - $1,742,366
Mr. Kennedy, former General Counsel and Corporate Secretary - $2,627,179
Mr. Angelino, former President of Sales and Distribution - $3,535,498

That is over $15.5 million in severance for 4 people. In the next few days I will detail out their pay and comment on how the stated objectives of Executive Compensation do not match the results. Stay tuned...


•	limiting our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes;

•	requiring us to dedicate a substantial portion of our cash flows from operations to the payment of indebtedness and not for other purposes, such as working capital and capital expenditures;

•	limiting our flexibility to plan for, or react to, changes in our businesses;

•	making us more indebted than some of our competitors, which may place us at a competitive disadvantage; and

•	making us more vulnerable to a downturn in our businesses.