Wednesday, February 27, 2008

Sprint Takes $29 Billion Impairment Charge as Subscribers and Profitability Decline

Sprint will take a goodwill impairment charge of $29.7 billion to write-down the value of its Nextel acquisition. The company reported declines in subscribers and profitability in Q4 2007 and announced steps it is taking to stabilize its financial situation, including canceling any dividends for the foreseeable future.

The company reported Q4 2007 net revenue of $9.8 billion, compared to $10.4 billion in the fourth quarter of 2006. Full-year 2007 revenues were $40.1 billion versus $41.0 billion in 2006. Including the impairment charge, the net loss for the quarter was $29.5 billion or $10.36 diluted loss per share compared to net income of $261 million or 9 cents diluted earnings per share in the fourth quarter a year ago. After adjusting for the goodwill impairment charge, as well as the effects of other special items and merger-related amortization costs, adjusted EPS before amortization was 21 cents in Q4 2007, compared to 29 cents in Q4 2006.

Some key points:

  • Q4 wireless revenues were $8.5 billion, a 2% sequential decline and a 6% decline from the fourth quarter of 2006. Data revenues increased 12% sequentially and 26% year-over-year. Full-year revenues were $34.7 billion, a 1% decline compared to full-year 2006, primarily driven by lower equipment revenue.

  • Wireless subscribers declined 108,000 in the fourth quarter, due to gains in wholesale and Boost Unlimited subscribers offset by decreases in iDEN post-paid and traditional Boost pre-paid users.

  • The company had 53.8 million total wireless subscribers at the end of 2007. This compares with 53.1 million subscribers at the end of 2006. The net growth of 700,000 subscribers for the year reflects a gain of 1.9 million subscribers in prepaid and wholesale segments, offset by a net decline of 1.2 million in direct and affiliate post-paid subscribers.

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  • At the end of Q4, Sprint Nextel served a little more than 35 million subscribers on the CDMA platform, 17.3 million on iDEN and 1.4 million PowerSource subscribers who access both platforms.

  • Q4 post-paid churn was 2.3%, matching Q3 2007 and Q4 2006. Wireless post-paid ARPU in the quarter was a little more than $58, a 1% sequential decline and a 4% decrease compared to the fourth quarter of 2006. ARPU continues to be pressured by lower voice contributions, partially offset by growth in data services.

  • Q4 wireline revenues were $1.6 billion, a modest sequential increase and a decline of 1% compared to the fourth quarter of 2006. Internet Protocol (IP) revenues increased 11% sequentially and 42% on an annual basis. Full-year 2007 revenues were $6.5 billion compared to $6.6 billion in 2006.