Analysis

WHAT ARE THE FINANCE STRATEGIES?

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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

report.

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

вЂ" 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”

вЂ" 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 вЂ" 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