Strategy

Dropped Call: Sprint Has $29.5B Q4 Loss

Flood of red ink, including goodwill impairment from Nextel deal, is fifth-largest quarterly loss for an S&P 500 firm since 1990. Say good-bye to t...
Stephen TaubFebruary 28, 2008

Sprint Nextel Corp. reported a fourth quarter loss of $29.5 billion, reflecting a noncash goodwill impairment charge of $29.7 billion. The flood of red ink represents the fifth-largest loss recorded by a Standard & Poor’s 500 company since 1990, according to Bloomberg News.

The embattled telecommunications company, which measured the quarterly loss at $10.36 per diluted share, also said that it eliminated its dividend. Shares of Sprint fell about 11 percent on news of the immense loss.

The write-off reduced by 80 percent the value of Nextel, which Sprint bought in 2005 for $36 billion, Bloomberg calculated. Sprint Nextel, which previously reported that its wireless subscribers had declined by 108,000 in the fourth quarter, also said that it borrowed $2.5 billion under a credit line. Subscribers have been bolting from the company amid complaints of dropped calls and poor service, the wire service added.

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In the year-earlier fourth quarter, Sprint Nextel had net income of $261 million, or 9 cents per diluted share. Consolidated net operating revenues in the latest quarter fell to $9.8 billion from the prior year’s $10.4 billion in the fourth quarter of 2006. Full-year 2007 revenues dipped to $40.1 billion from $41.0 billion.

Underscoring Sprint Nextel’s woes and concerns about its ability to repay its debt, said Bloomberg, credit-default swaps tied to Sprint’s bonds jumped to the highest on record. The wire service reported that the contracts climbed 206 basis points to 580 basis points, citing London-based CMA Datavision.

Credit-default swaps are used by some investors to speculate on a company’s ability to repay its debt. An increases shows a deterioration in the perception of credit quality while a drop shows improvement.

“We are taking steps to increase our financial flexibility and mitigate refinancing risk by borrowing funds from a revolving credit facility and discontinuing declaring a dividend for the foreseeable future,” said Dan Hesse, Sprint Nextel CEO.