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Sprint Nextel Corp. Series 1 Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 4, 2011 03:43PM

Sprint Nextel Corp. Series 1 (S) filed Quarterly Report for the period ended 2011-06-30. Sprint Nextel has a market cap of $12.42 billion; its shares were traded at around $4.15 with and P/S ratio of 0.4.



Highlight of Business Operations:

Consolidated segment earnings decreased $187 million, or 12%, and $151 million, or 5%, in the three and six-month periods ended June 30, 2011 as compared to the same periods in 2010. Consolidated segment earnings consist of our Wireless and Wireline segments, which are discussed below, and Corporate, other and eliminations.

During the first quarter 2011, Sprint completed its annual study of estimated useful lives of depreciable assets, which reflects a reduction in the replacement rate of capital additions and was a primary factor for a decrease to depreciation expense of $140 million, or 11%, and $293 million, or 12%, in the three and six-month periods ended June 30, 2011 compared to the same periods in 2010. As a result of expected increased capital expenditures related to Network Vision, we expect depreciation expense to begin to increase over the next several years as those assets are placed into service. Amortization expense declined $260 million, or 70%, and $527 million, or 68%, in the three and six-month periods ended June 30, 2011 as compared to the same periods in 2010, primarily due to the absence of amortization for customer relationship intangible assets related to the 2005 acquisition of Nextel which became fully amortized in the second quarter 2010. Customer relationships are amortized using the sum-of-the-years'-digits method, resulting in higher amortization rates in early periods that decline over time.

Interest expense decreased $142 million, or 37%, and $265 million, or 35%, in the three and six-month periods ended June 30, 2011 as compared to the same periods in 2010, primarily due to a $98 million and $194 million increase, respectively, in the amount of interest capitalized. The increase in capitalized interest is related to our plan to deploy certain spectrum licenses as part of Network Vision that were not previously utilized. We expect full year capitalized interest related to these spectrum licenses to be approximately $400 million. The reduction in interest expense also includes decreases of $31 million and $52 million in the three and six-month periods ended June 30, 2011 as a result of the repayment of $1.65 billion of Sprint Capital Corporation 7.625% senior notes in January 2011. The effective interest rate on the weighted average long-term debt balance of $18.5 billion and $20.9 billion was 7.2% and 7.3% for the three-month periods ended June 30, 2011 and 2010, respectively. The effective interest rate on the weighted average long-term debt balance of $18.8 billion and $20.9 billion was 7.2% for both the six-month periods ended June 30, 2011 and 2010, respectively. See “Liquidity and Capital Resources” for more information on the Company's financing activities.

This item consists mainly of our proportionate share of losses from our equity method investments and also includes other miscellaneous income/(expense). Equity losses associated with the investment in Clearwire consists of Sprint's share of Clearwire's net loss and other adjustments such as gains or losses associated with the dilution of Sprint's ownership interest resulting from Clearwire's equity issuances. Equity in losses from Clearwire were $594 million and $300 million for the three-month periods ended June 30, 2011 and 2010, and $1.0 billion and $550 million for the six-month periods ended June 30, 2011 and 2010, respectively. Sprint's equity in losses from Clearwire include charges of approximately $202 million and $294 million for the three and six-month periods ended June 30, 2011,which are associated with Clearwire's abandonment of network and other assets that no longer meet their strategic plans.

The consolidated effective tax rate was an expense of approximately 12% and 8% during each of the six-month periods ended June 30, 2011 and 2010, respectively. The income tax expense for the six-month periods ended June 30, 2011 and 2010 includes a $533 million and $667 million net increase to the valuation allowance for federal and state deferred tax assets primarily related to net operating loss carryforwards generated during the respective periods. The 2011 increase to the valuation allowance is also inclusive of $19 million associated with federal income tax effects of recently enacted changes in Michigan's corporate state income tax laws, which occurred in the second quarter, and resulted in a total charge to income tax expense of $52 million. We do not expect to record significant tax benefits on future net operating losses until our circumstances justify the recognition of such benefits. Additional information related to items impacting the effective tax rates can be found in the Notes to the Consolidated Financial Statements.

/td>Retail comprises those subscribers to whom Sprint directly provides wireless services, whether those services are provided on a postpaid or a prepaid basis. Retail service revenue increased $311 million, or 5%, and $528 million, or 4%, for the three and six-month periods ended as compared to the same periods in 2010. The increase in retail service revenue was driven by attracting more subscribers to our Boost and Virgin Mobile prepaid brands who are choosing higher rate plans to take advantage of international offerings as well as the increased availability of smartphones in addition to increased subscribers from new market launches for our Assurance Wireless brand. In addition, an increase in postpaid service revenue reflects an increase related to our premium data add-on required for all smartphones and greater popularity of unlimited and bundled plans, which was partially offset by a decrease in overage charges on voice and data.

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