Sprint Nextel (NYSE:S) discounted the negative financial impact of selling Apple's (NASDAQ:AAPL) iPhone when it calculated bonuses for eligible executives in 2011, and also discounted the payments LightSquared made to Sprint last year when determining executive compensation.
In a filing Monday with the Securities and Exchange Commission, Sprint said the changes were made because the company did not know it would be carrying the iPhone or would strike a network-sharing deal when performance metrics were calculated for its 2011 bonuses. As a result of the changes, for example, Sprint CEO Dan Hesse will receive a short-term incentive payout of $1.77 million for 2011 compared with $1.53 million if the iPhone's impact on Sprint's finances had been counted.
Sprint said that it decided to "exclude the total financial impact related to the launch of the iPhone in the second half of 2011, including (i) the negative effects the launch had on adjusted OIBDA and free cash flow, and (ii) the positive impact on net service revenue." In the fourth quarter, Sprint's adjusted OIBDA fell 36 percent year-over-year to $842 million from $1.31 billion in the year-ago period, a drop Sprint pinned on both the launch of the iPhone and the cost of the company's Network Vision network modernization plan. Sprint reported wireless retail service revenues of $6.9 billion for the quarter, up 7 percent compared with the fourth quarter of 2010.
Investors are still debating how positive the iPhone will ultimately be for Sprint. Sprint executives have said they think over the life of the company's four-year, $15.5 billion deal with Apple, selling the iPhone will pay off, especially in terms of higher service revenues and higher average revenues per user. Sprint sold 1.8 million iPhones in its first quarter selling the device, and said that around 40 percent of those sales, or 720,000 people, were new customers. However, Sprint's device subsidy cost grew $540 million year-over-year to $1.7 billion in the quarter.
On the LightSquared front, LightSquared paid Sprint $310 million in 2011 as part of the companies' network-hosting arrangement. If the payments to Sprint were taken into account, they would have resulted in higher bonuses since they increased Sprint's free cash flow. However, investments in the deal have been halted as LightSquared continues to try to get approval from the FCC to operate its network in the face of continued concerns that its L-band spectrum interferes with GPS receivers. Sprint has given LightSquared until mid-March to get regulatory approval.
- see this SEC filing
- see this WSJ article (sub. req.)
- see this Bloomberg article
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