View Full Version : Economics So, Is Sprint Cooking The Books?

06-28-2010, 08:08 AM
Shares in Sprint Nextel were down 7 cents or 1.4 percent early Thursday afternoon. Earlier in the day, Piper Jaffray issued a new report that reiterated their sell ratingon Sprint.

The brokerage firm said that "4G has become essential to Sprint's business plan and Sprint has been openly willing to continue funding Clearwire," it's high-speed partner.

"Given these facts," the report said, "we think it is appropriate to start looking at Sprint's financials on a consolidated basis. Doing so makes the stock look much more expensive, but in our opinion, gives investors a more accurate valuation."

Shares in Sprint were trading at $4.45.

Here is the back story: Sprint owns 56.6% of Clearwire yet they do not claim Clearwire's earnings on Sprint's financial statements. Sprint nominates 7 of the 13 directors of Clearwire, but since they deem 1 of the directors to be independent they claim that clears them from having to report the Clewarwire earnings on their balance sheet, or as they say report the earnings in a consolidated manner.

Back in late January or early February I believe the SEC raised a flag to Sprint about this. As the OP article states, when you look at Sprint in the entire context of what their business is doing it makes their stock look pricier than if they exclude Clearwire.

06-28-2010, 08:13 AM
With a bunch of cable operators also in with the bucket and helping to fund it do we need to put it on their books as well?

06-28-2010, 08:16 AM
With a bunch of cable operators also in with the bucket and helping to fund it do we need to put it on their books as well?

No. And the reason is those companies do not own 56.6% of Clearwire. Those companies do not elect more than 1/2 of the directors. If you own over half of a company and elect more than half of the directors you own the company. And I believe the SEC will eventually rule such.

KC native
06-28-2010, 08:31 PM
The key issue here is whether Sprint is deemed to have control or not. Whether they own 40% or 70% really isn't important. The test is for control of the company. They are already accounting for Clearwire with the equity method. There is nothing wrong with this but it does distort some of the financials from an analysis perspective.

A good analyst will adjust financials to reflect what they think is the more accurate picture of the company. The piper people think it is more appropriate to analyze Sprint and Clearwire on a consolidated basis. I agree with them but it doesn't necessarily mean Sprint is cooking the books.

The SEC will more than likely rule that Sprint needs to use the consolidation method for Clearwire which will require them to restate their previous earnings.

06-29-2010, 11:04 AM
They haven't been the black for years.

06-30-2010, 08:42 AM
It's pretty obvious Sprint pulls the strings for Clearwire (aka Xohm, formerly part of Sprint).