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Sprint in $29.5bn loss on Nextel writedown
|29 февраля 2008|
Sprint Nextel, the third largest US mobile phone company, said it made a $29.5bn loss in the fourth quarter as it wrote down the value of its acquisition of Nextel Communications in 2005 and lost subscribers. It also said it would stop its dividend.
Sprint recorded a goodwill impairment charge of $29.7bn, writing off nearly all of Nextel’s value following its acquisition for $36bn three years ago. The company recorded a further $279m in other charges.
Shares in Sprint were off 7.3 per cent at $8.30 in mid-morning trading.
The company has been struggling with integration and customer defections since Sprint acquired Nextel and has been losing ground to AT&T Mobile and Verizon Wireless, its larger rivals.
“The fourth quarter financial results reflect the challenges facing our wireless business,” said Dan Hesse, Sprint Nextel chief executive. “We are making significant changes across the organisation in an effort to improve execution, stabilise our customer base and deliver on the opportunity provided by our assets.
“Given current deteriorating business conditions, which are more difficult than what I had expected to encounter, these changes will take time to produce improved operating performance, and our near-term subscriber and financial results will continue to be pressured,” he added.
Sprint Nextel said it expected an increase in churn rates of post-paid wireless phone services and a fall in subscribers of about 1.2m customers, which is unlikely to improve in the second quarter.
Goodwill is the “premium paid over the fair value of the net tangible and intangible assets we acquired in business combinations.” Sprint said it was required to assess goodwill annually and it typically did so in the fourth quarter. The company said that the charge would not affect future cash flows and did not cause it to break any of its debt covenants.
Sprint said that in light of capital market conditions, it was moving to reduce refinancing risk by borrowing funds from a revolving credit facility and would stop issuing a dividend for the foreseeable future. IT said it had borrowed $2.5bn to raise cash.
Sprint’s loss of $10.36 per share compared with net income of $261m or 9 cents per share a year ago.
Revenues were down 6 per cent at $8.5bn, “principally due to a decline in Wireless contribution” the company said.
Operating loss in wireless was $29.7bn, down from a $488m profit last year. Net wireless subscribers fell by 108,000 in the fourth quarter. Post-paid subscribers fell 683,000 or more than double the decline in the previous quarter.
In the company’s wireline business, adjusted operating income rose 75 per cent to $194m, driven as customers took more internet and cable services and gave up traditional land lines.