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Q: Company Analysis ( Answered 5 out of 5 stars,   0 Comments )
Subject: Company Analysis
Category: Business and Money > Finance
Asked by: erotyquewhyspers-ga
List Price: $55.00
Posted: 12 Sep 2005 21:16 PDT
Expires: 12 Oct 2005 21:16 PDT
Question ID: 567424
Question:  What is the working capital for SPRINT?  The NYSE symbol is
(S).   How do you go about finding the Short-term Financing
Strategies?  What would the most significant financial strategies for
a 2 ? 5 year forecast?

I understand that the working capital is related to the current assets
and current liabilities.   However, I need an in depth analysis of
Sprint?s working capital.  I using the 10-K/A filed on 29 April 05.

What are some recommendations for improvement?  Especially with the
combination of FON and PCSPlease explain rationale for all findings.

Request for Question Clarification by omnivorous-ga on 14 Sep 2005 13:49 PDT
Erotyquewhyspers -

One of the impacts of the FON/PCS recombination and the Nextel merger
is to make this analysis a bit more difficult.  I've put in several
hours on this and still have perhaps 25% more to go -- but what I'd
really like to know is if you're up against a deadline here.

Note too that many of the actions being taken by management are both
strategic AND financial.

Best regards,


Clarification of Question by erotyquewhyspers-ga on 14 Sep 2005 14:17 PDT
omnivorous - 

My deadline for this part of my research is Friday 16 of Sept.  I'm
running a little behind with some of my research so I had to seek

Question to you:  In regards to the question I've posed here ---- Is
what I'm trying to do here, redundant information?  I'm asking this
because of your comment "Note too that many of the actions being taken
by management are both
strategic AND financial".
Subject: Re: Company Analysis
Answered By: omnivorous-ga on 14 Sep 2005 14:45 PDT
Rated:5 out of 5 stars
Erotyquewhispers ?

You question about being redundant is not at all.  Recently I answered
a question that was similar in structure about Wal-Mart ? and that
person wanted to stick to FINANCE issues only.  In that case I stuck
to decisions on which a CFO would take the lead.  You can read it

Google Answers
?Optimal Financial Strategies,? (Omnivorous-GA, July 27, 2005)

However, your question seems to deal more with Working Capital and
short-term issues.


The acquisition of Nextel was announced during 2004 but is NOT
reflected in the company?s balance sheet and income statement, as it
was only approved by the U.S. Department of Justice in early August,
2005.  Nevertheless, it presents a challenge to the company and its
working capital because it calls for a cash payment to Nextel
shareholders of as much as $2.8 billion, according to the 2004 annual

SEC Edgar
?Sprint Corporation, Form 10-K for 2004?


Working capital is defined as current assets (CA) minus current
liabilities (CL) and here?s a summary of what?s on the Sprint balance

(All numbers in millions)


Cash . . . . . . . . . . . . . . . . $4,556
Accounts receivable . . . . . . . .  $3,107
Inventories  . . . . . . . . . . .   $  651
Deferred tax asset . . . . . . . . . $1,049
Prepaid expenses . . . . . . . . . . $  274
Other . . . . . . . . . . . . . . . .$  336

TOTAL CA = $9,975


Current portion of LT debt . . . $1,288
Accounts payable . . . . . . . . $2,261
Accrued interconnect cost . . . .$  410 
Accrued taxes . . . . . . . . . .$  404
Advance billings . . . . . . . . $  644
Accrued restructure cost . . . . $  168
Accrued interest . . . . . . . . $  335
Other . . . . . . . . . . . . . .$  964 

TOTAL CL = $6,902


2004 ANNUAL REVENUES = $27,428

2004 NET INCOME (LOSS) = ($1,028) 


Is $3 billion in working capital adequate for a $27 billion company?  
The quick ratio (CA/CL) is 1.45 and analysts like to see numbers in
the 1.5 ? 2.0 range but industries can vary highly.

It?s always helpful to look at competition to see where they stand. 
Wall Street analysts refer to the U.S. wireless business, the core of
what Sprint is targeting with the Nextel acquisition, as the ?Big 4,?
including Sprint Nextel, Cingular Wireless, Verizon Wireless, and
T-Mobile.  Indeed, with the industry in a strong consolidation phase,
Deutsche Telecom has considered selling T-Mobile because its 18
million customers might not be competitive against the larger

Kansas City Star
?T-Mobile rumors revived,? (Lander and Belson, July 6, 2005)

Only Verizon and Sprint Nextel of the ?Big 4?are public (Cingular
combined with Bell South and became a private LLC).  But here are
summary statistics for Verizon:

Yahoo! Finance
?Verizon Communications, Balance Sheet,? (June 30, 2005)

CA = $16,669
CL =  $27,442
Sales = $73,220

Several things stand out in this comparison:
?	Sprint Nextel has positive working capital vs. negative working
capital for a company that?s more than 2.5 times larger.
?	Sprint Nextel?s cash position at $4.556 billion is much stronger
than Verizon?s $3.001 billion in cash and marketable securities
?	Current portion of LT debt is 4.4% of sales.  At Verizon it is 11.9% of sales.
?	Receivables are almost 48 days for Verizon.  They are 41.3 days for Sprint.

However, Verizon did better in net income, recording $8.17 billion in
income during 2004.  But Sprint?s loss came largely because of a
write-down of $3.54 billion in long-distance assets, which is a
non-cash expense and wouldn?t effect either CA or CL ? unless we
counted the tax refund that comes with the loss.

Net: Sprint is doing well versus its public competitor in WC.


Finance strategies in this consolidating communications industry are
combined tightly with operational goals, so it requires a detailed
reading of the Sprint annual report (and a close eye on everything
that management says).  Luckily, Sprint provides a detailed annual

Some of the key activities that management is taking are:
1. Spinning off the local phone carrier portion of the business to
shareholders and recapitalize the company in the process.  The local
phone business contributes $6.021 billion in revenues and $1.766
billion in earnings but its 7.7 million subscribers are scattered
across 18 states.  The company has proposed it as a company with
long-term debt of $7.25 billion, according to Prudential Equity Group
? or roughly half of the $15.9 billion on the current balance sheet. 
This prompted CIBC World Markets analysts to comment, ?After the Local
spin-out (Sprint Nextel) could potentially be debt-free in 2008.? 
What could the company do better?  Accelerate the spin-out of ?Local?
? expected in the next 9-12 months.

2. Hold down the cost of the Nextel acquisition.  According to
Prudential Equity, each of the 270 million Nextel shares gets $0.8463
in the merger, holding the cash cost down to $228.5 million ? far less
than the $2.8 billion in cash originally discussed last December.

3. Continue to generate cash.  By the end of Q2, 2005 cash and
equivalents rose to $6.8 billion from the $4.6 billion at year-end. 
Some of that came from making its wireless towers more profitable by
concluding a leasing arrangement with Global Signal in February, 2005.
 And part came from the sale of the company?s audio conferencing
business.  The company has repeatedly sold portions of its businesses
that don't fit with long-term direction, including its telephone
directory business -- sold to R.H. Donnelly in 2002 for $2.23 billion
in cash.

4. Use interest rate swaps to lower the cost-of-capital (see annual
report section on ?Interest Expense.?)


By recombining the FON and PCS stocks, the only real impact on Sprint
was an increase in the dividends being paid due to the increase in
common shares outstanding.  The company went from 1.8 billion shares
of FON and 1.035 billion of PCS to 2.95 billion shares outstanding.

FON shares paid a dividend of $0.50 per share and PCS paid no
dividends, so the result was an increase in total dividend expense
from $457 million in 2003 to $670 million in 2004 (see ?Consolidated
Statements of Cash Flows.?

Where did the accounting credit come from with the translation of PCS
stock to FON stock?  Because FON has a par value of $2 and PCS had a
par value of $1, the company took it from ?capital in excess of par
value.?  That?s an equity account with no impact on Working Capital.

Google search strategy:
?	supplemented a Google search with a service available at my local
library called Investext.  Investext provides text of Wall Street
analysts reports on public companies.
?	Use the SEC Edgar database
?	Search Google Answers for FON information

One final note, with a bit of historical perspective.  Sprint has
become a leading U.S. brand name, but has been a leading company under
several names, including United Telecommunications.  It became Sprint
(FON) only in the mid-1980s:

Google Answers
?Was Sprint [ticker = FON] being traded on NYSE in 1980??
(Omnivorous-GA, Aug. 20, 2005)

Best regards,


Clarification of Answer by omnivorous-ga on 14 Sep 2005 18:33 PDT
Erotyquewhyspers --

My MBA is in Finance and I've worked in finance with electronics
companies -- but actually changed spots and spent most of my career in
marketing.  My specializations in marketing are segmentation and
building quantitative marketing models (using financial analysis).

You can find lots in the Sprint annual report -- they take disclosure
issues seriously and are very detailed in their reporting.  Investment
analysts breakdowns on the company and market are very good: try to
get your hands on several or get library access to Investext.  I'd
also suggest listening in on the Sprint quarterly earnings calls. 
They tend to last about an hour, with excellent and timely questions
from analysts.  There are links to several and to the CEO's Goldman
Sachs conference on the IR page:

And thanks so much for the extra sum!

erotyquewhyspers-ga rated this answer:5 out of 5 stars and gave an additional tip of: $5.00
Omnivorous -
Are you in finance?  Or accounting?  You manage to complete this is
hours.  I'm working on the rest of this project for weeks.  However,
some of the information that you have gathered here, will assist me to
other sections of my project.

I thinking of adding the Capital Structure to this particular section.
 Will I be able to find everything in the annual report?  What would
you suggest?  I know with SEC regulations public traded companies
pretty can't leave anything to hide.  However, being the novice that I
am, I some times fumble with finding information.  Basically, taking
the long route and bypassing the less complicated route altogether.

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