EX-99 2 dex99.htm PRESS RELEASE ANNOUNCING THIRD QUARTER 2005 RESULTS Press Release announcing third quarter 2005 results

Exhibit 99

 

LOGO

 

Investor Quarterly Update

Third Quarter 2005

 

Third Quarter Highlights

 

•   New company off to fast start

 

•   Strong revenues, profit and cash flow performance

 

•   Wireless pro forma net adds of 1.3 million push total subs to 45.6 million

 

•   Substantial progress on merger integration and Local spin

 

 

Inquiries should be directed to:

 

Media Relations

Nick Sweers

913-794-3460

nicholas.sweers@sprint.com

 

Investor Relations

Kurt Fawkes

913-794-1140

Investorrelations@sprint.com

 

INDEX

 

Earnings Release

    1-10

Consolidated Statements of Operations

    11

Notes to Statements of Operations

    12

Consolidated Balance Sheets

    13

Consolidated Cash Flows

    14

Reconciliations

    15-18

Quarterly Pro Forma Schedule

    19-20

Key Statistics

    21

Local Segment Reconciliation

    22-23

 

1

Sprint Nextel Reports Third Quarter Earnings

 

Third Quarter Highlights

 

Wireless

 

•   Pro forma revenues of $8.07 billion increased 12% year-over-year

 

•   Pro forma Adjusted Operating Income* of $698 million increased 45% year-over-year

 

•   Pro forma Adjusted OIBDA* of $2.65 billion increased 14% year-over-year

 

Long Distance

 

•   Revenues were $1.74 billion, a slight increase from the prior quarter

 

•   Adjusted Operating Income* was $163 million versus a loss of $17 million in the year-ago period

 

•   Adjusted OIBDA* was $285 million, an 8% increase sequentially

 

Local

 

•   Revenues of $1.67 billion increased 5% year-over-year

 

•   Adjusted Operating Income* of $459 million increased 5% year-over-year

 

•   Adjusted OIBDA* was $736 million, an increase of 3% year-over-year

 

In its first quarterly earnings release, Sprint Nextel Corp. (NYSE: S) today reported third quarter 2005 earnings per share of 23 cents compared to a loss per share of $1.32 in third quarter 2004. Pro forma Adjusted EPS*, which removes the effects of special items, was 25 cents per share compared to 16 cents in the same period a year ago. The current quarter pro forma earnings benefited by about 4 cents per share due to lower depreciation expense in Long Distance following the asset impairment charge recorded in the year-ago period. Pro forma Adjusted EPS* was reduced by 16 cents in third quarter 2005 and 15 cents in third quarter 2004 related to incremental tax-effected net amortization and depreciation expense which has significantly increased from historical reported amounts due to the step up of our customer base in purchase accounting. Excluding these purchase accounting impacts, pro forma Adjusted EPS* was 41 cents per share compared to 31 cents in the same period a year ago.

 

Pro forma Consolidated revenues of $11.2 billion increased 8% from the year-ago period and pro forma Adjusted OIBDA* of $3.67 billion increased 10%. Pro forma Adjusted Operating Income* of $1.32 billion was up 46%, in part aided by the lower Long Distance depreciation expense. Total pro forma capital expenditures in the third quarter were $1.6 billion.

 

Editor’s Note:

 

In accordance with purchase accounting rules, Sprint Nextel’s third quarter 2005 reported results are comprised of Sprint’s stand-alone results for the first 43 days of the quarter, prior to the merger with Nextel Communications, Inc., plus combined Sprint and Nextel results for the remainder of the quarter. US Unwired Inc. results are included effective from the Aug. 12 acquisition date. To provide comparability with previous quarters, Sprint Nextel is also providing pro forma Consolidated and Wireless results and financial measures*. The pro forma results assume the merger of Sprint and Nextel occurred at the beginning of each reporting period presented and includes the impact of conforming the accounting policies and both financial and non-financial measures of the two companies. The Consolidated and Wireless pro forma results do not include any US Unwired results prior to the date of its acquisition because they do not significantly affect reported results. Beginning this quarter, the Local segment now includes both the local telephone operations and the North Supply product distribution business for all periods presented since North Supply will be included with the Local operations when it is spun-off, which is expected to occur in the second quarter of 2006. To provide investors continuity and comparative information, certain results for the local telephone operations only are also included in this release.

 

“Sprint Nextel is determined to reshape the industry with its exceptional technology portfolio, innovative vision and creative partnerships that span beyond traditional telecom providers,” said Gary Forsee, Sprint Nextel president and chief executive officer. “With most of our revenue coming from the fastest growing segments of the telecommunications industry and 100% ownership in nationwide wireless and wireline IP networks, Sprint Nextel is positioned to be the premiere distributor of content, media and data services in the industry.

 

2

“Our strong third quarter results reflect solid contributions across our telecommunications businesses. But I’m even more encouraged by our collective future and our ability to achieve truly ambitious business objectives. We’ve only just begun to let customers know, ‘Yes, you can.’”

 

Pro forma Consolidated revenues in the quarter were aided by double-digit growth year-over-year in Wireless, a steady contribution from Local and improved Long Distance performance.

 

Wireless posted year-over-year pro forma revenue growth of 12% and contributed approximately 72% of Sprint Nextel’s total pro forma revenues in the quarter. For the quarter, Wireless had a $65 pro forma direct post-paid ARPU*. Wireless added 1.3 million pro forma subscribers, ending the period with a total of 45.6 million subscribers. Wireless also built on its data leadership with the rollout of wireless high-speed data service (EV-DO or Evolution Data Optimized) to initial markets. Pro forma data revenues grew 62% from the year-ago period.

 

For the second consecutive quarter, Long Distance reported a sequential increase in revenues. Long Distance is benefiting from gains in enterprise IP services and demand for services by cable network operators.

 

Local revenues increased 5% from the year-ago period benefiting from a new major contract at North Supply. Local telephone operations revenues were flat year-over-year. Local added 48,000 DSL lines in the quarter driving a 17% improvement in data revenues.

 

Sprint Nextel’s third quarter results were impacted by the recent hurricane activities, resulting in service revenue credits of $45 million, bad debt expense of $17 million, $20 million of other costs primarily related to network expenses and asset impairment charges of $30 million for a total pre-tax hurricane impact of $112 million.

 

Free Cash Flow* this quarter of $1.35 billion includes $376 million from the sale of a portion of the investment in NII Holdings, Inc. as well as a distribution of $201 million from Virgin Mobile USA. Year-to-date Free Cash Flow* was $4.42 billion. This strong cash production has contributed to a substantial improvement in financial strength. At the end of the period, net debt* was approximately $16.4 billion.

 

Consolidated

 

Selected Unaudited Financial Data (dollars in millions except per share amounts)

 

    

Quarter

Ended

Sept 30,

2005

   

Quarter

Ended

Sept 30,

2004

    

%

diff

    

Nine
Months

Ended

Sept 30,

2005

   

Nine

Months

Ended

Sept 30,

2004

    

%

diff

  

Net operating revenues

    $ 9,335    $ 6,922     35 %   $ 23,384    $ 20,498     14 %

Operating income (loss)

      923      (2,715 )   NM       3,155      (1,273 )   NM  

Adjusted operating income*

      1,284      874     47 %     3,576      2,428     47 %

Adjusted OIBDA*

      3,043      2,096     45 %     7,407      6,115     21 %

Net income (loss)

      516      (1,910 )   NM       1,588      (1,449 )   NM  

Adjusted net income*

      655      368     78 %     1,764      915     93 %

Diluted earnings (loss) per share

    $ 0.23    $ (1.32 )   NM     $ 0.91    $ (1.02 )   NM  

Adjusted earnings per share*

      0.29      0.25     16 %     1.01      0.63     60 %

Capex

    $ 1,252    $ 966     30 %   $ 2,908    $ 2,642     10 %

Free cash flow*

    $ 1,354    $ 439     NM     $ 4,420    $ 1,373     NM  

NM – Not meaningful

 

3

Selected Unaudited Pro Forma Financial Data (dollars in millions except per share amounts)

 

    

Quarter

Ended

Sept 30,

2005

   

Quarter

Ended

Sept 30,

2004

    

%

diff

  

Net operating revenues

    $ 11,209    $ 10,349     8 %

Operating income (loss)

      875      (2,686 )   NM  

Adjusted operating income*

      1,320      903     46 %

Adjusted OIBDA*

      3,671      3,332     10 %

Net income (loss)

      493      (1,837 )   NM  

Adjusted net income*

      737      462     60 %

Diluted earnings (loss) per share

    $ 0.16    $ (0.64 )   NM  

Adjusted earnings per share*

    $ 0.25    $ 0.16     56 %

Amortization and depreciation (a)

      0.16      0.15     7 %

Adjusted EPS* excluding amortization & depreciation

      0.41      0.31     32 %

NM – Not meaningful

(a) Represents the diluted per share effect of the incremental net amortization and depreciation expense, net of tax, of $465 million in 2005 and $443 million in 2004 associated with purchase accounting step-up.

 

Discussion of the following Consolidated results is on a pro forma basis.

 

•   In the third quarter of 2005, the difference between Sprint Nextel’s operating income and Adjusted Operating Income* is the result of pre-tax charges of $120 million primarily related to the impact of the hurricanes and $325 million in merger and integration expense. These merger costs have been reflected as unallocated corporate costs and therefore have been excluded from segment results.

 

•   The third quarter 2004 special items mostly consist of the Long Distance asset impairment charge.

 

•   The difference between net income and Adjusted Net Income* includes the after-tax impacts of the following: the above special items, the consent fee payment related to the merger with Nextel, the net gains related to investment activities and equity in earnings, and the premium related to the early retirement of debt in 2004.

 

Wireless

 

Selected Unaudited Financial Data (dollars in millions)

 

    

Quarter

Ended

Sept 30,

2005

   

Quarter

Ended

Sept 30,

2004

   

%

diff

    

Nine

Months

Ended

Sept 30,

2005

   

Nine

Months

Ended

Sept 30,

2004

   

%

diff

  

Net operating revenues

                                         

Service

    $ 5,362    $ 3,244    65 %   $ 12,116    $ 9,285    30 %

Equipment

      601      350    72 %     1,305      1,115    17 %

Wholesale, affiliate and other

      227      166    37 %     677      411    65 %

Net operating revenues

      6,190      3,760    65 %     14,098      10,811    30 %

Operating expenses

                                         

Cost of services & products

      2,318      1,532    51 %     5,456      4,479    22 %

Selling, general & administrative

      1,914      1,144    67 %     4,294      3,253    32 %

Depreciation

      902      627    44 %     2,184      1,911    14 %

Amortization

      459      3    NM       466      3    NM  

Restructuring & asset impairment

      16      3    NM       37      19    95 %

Total operating expenses

      5,609      3,309    70 %     12,437      9,665    29 %

Operating income

      581      451    29 %     1,661      1,146    45 %

Adjusted operating income*

      662      454    46 %     1,763      1,160    52 %

Adjusted OIBDA*

      2,023      1,084    87 %     4,413      3,074    44 %

Capex

    $ 914    $ 603    52 %   $ 2,010    $ 1,670    20 %

NM – Not meaningful

 

4

Selected Unaudited Pro Forma Financial Data (dollars in millions except ARPU)

 

    

Quarter

Ended

Sept 30,

2005

    

Quarter

Ended

Sept 30,

2004

    

%

diff

  

Net operating revenues

                       

Service

    $ 7,022     $ 6,330     11 %

Equipment

      817       695     18 %

Wholesale, affiliate and other

      227       166     37 %

Net operating revenues

      8,066       7,191     12 %

Operating expenses

                       

Cost of services & products

      2,987       2,602     15 %

Selling, general & administrative

      2,493       2,269     10 %

Depreciation

      1,115       1,012     10 %

Amortization

      838       825     2 %

Restructuring & asset impairment

      16       3     NM  

Total operating expenses

      7,449       6,711     11 %

Operating income

      617       480     29 %

Adjusted Operating income*

      698       483     45 %

Adjusted OIBDA*

      2,651       2,320     14 %

Adjusted OIBDA margin*

      37 %     36 %      

Net subscriber adds (in thousands)

      1,272       1,697     (25 )%

Direct – post-paid (a)

      669       979     (32 )%

Direct – pre-paid

      300       195     54 %

Wholesale

      213       422     (50 )%

Affiliate (a)(b)

      90       101     (11 )%

Ending subscriber (in thousands)

      45,615       38,430     19 %

Direct – post-paid (a)(b)

      35,967       31,758     13 %

Direct – pre-paid

      1,987       800     148 %

Wholesale

      4,596       2,752     67 %

Affiliate (a)(b)

      3,065       3,120     (2 )%

Customer churn

                       

Direct – post-paid

      2.1 %     2.2 %   0 %

Direct – pre-paid

      4.9 %     NM     NM  

Service revenues

                       

Direct – post-paid

    $ 6,822     $ 6,253     9 %

Direct – pre-paid

      200       77     160 %

ARPU*

                       

Direct – post-paid

    $ 65     $ 67     (3 )%

Direct – pre-paid

    $ 37       NM     NM  

Hours per subscriber

                       

Direct – post-paid

      16.7       15.4     8 %

Direct – pre-paid

      6.8       6.7     1 %

Number of cell sites on air

      47,100       42,500     11 %

NM – Not meaningful

(a) In the third quarter of 2005, Post-paid and Affiliate net subscriber adds do not include the impact of 522,000 subscriber transfers related to our acquisition of US Unwired Inc. However, the ending subscriber amounts do reflect these transfers.
(b) In the fourth quarter of 2004, Sprint corrected the year-end 2004 Post-paid and Affiliate end of period subscribers to remove devices used for demonstration or testing purposes. As this occurred over several years, the third quarter of 2004 end of period subscriber information presented above has not been restated from amounts previously reported.

 

Discussion of the following Wireless results is on a pro forma basis.

 

•   In the third quarter, direct post-paid gross additions were 2.9 million, similar to second quarter levels, and a slight decrease over the year-ago period.

 

•   In the third quarter, Sprint Nextel added a total of 1.3 million subscribers including 669,000 direct post-paid and 300,000 Boost Mobile™ pre-paid.

 

•   Net operating revenues increased 12% from the year-ago period. Service revenues increased 11% from the year-ago period, due to the growth of the direct customer base. The growth in wholesale and affiliate revenues in the quarter compared to one year ago reflects subscriber gains in the Mobile Virtual Network Operator (MVNO) base. During the third quarter, Sprint Nextel added Disney to its growing lineup of MVNO second-brand partners.

 

•   Direct post-paid ARPU* was $65 in the third quarter compared to $67 one year ago and $66 in the second quarter. Direct post- paid ARPU* was impacted by 34 cents in the quarter due to hurricane-related customer credits. During the third quarter, average post-paid customer usage was more than 16 hours per month.

 

•   Post-paid churn was 2.1% this quarter compared to 2.2% in the prior year and 1.9% in the previous quarter.

 

5

•   Sprint Nextel continued to expand its wireless high-speed data service (EV-DO) in the third quarter, extending the service initially in business corridors with high wireless-data traffic demands, such as airports and central business districts, followed by broader metropolitan areas. The company launched its first EV-DO business handset during the quarter and also offers two EV-DO-ready Sprint PCS Connection CardsTM.

 

•   Sprint Nextel added several new sponsorship and content partners in the quarter, further positioning itself as a communications and entertainment company. New agreements were reached with the National Football League, music artist Bon Jovi, GPS provider Garmin and gaming company Electronic Arts. Additionally, SIRIUS Satellite Radio began offering 20 commercial free music channels to wireless customers.

 

Long Distance

 

Selected Unaudited Financial Data (dollars in millions)

 

    

Quarter

Ended

Sept 30,

2005

    

Quarter

Ended

Sept 30,

2004

    

%

diff

    

Nine

Months

Ended

Sept 30,

2005

    

Nine

Months

Ended

Sept 30,

2004

    

%

diff

  

Net operating revenues

                                             

Voice

    $ 1,085     $ 1,131     (4 )%   $ 3,204     $ 3,481     (8 )%

Data

      402       427     (6 )%     1,234       1,317     (6 )%

Internet

      188       180     4 %     544       617     (12 )%

Other

      60       70     (14 )%     190       178     7 %

Net operating revenues

      1,735       1,808     (4 )%     5,172       5,593     (8 )%

Operating expenses

                                             

Cost of services & products

      1,107       1,067     4 %     3,282       3,173     3 %

Selling, general & administrative

      357       439     (19 )%     1,096       1,512     (28 )%

Depreciation & amortization

      122       319     (62 )%     353       960     (63 )%

Restructuring & asset impairment

      21       3,553     (99 )%     31       3,646     (99 )%

Total operating expenses

      1,607       5,378     (70 )%     4,762       9,291     (49 )%

Operating income (loss)

      128       (3,570 )   NM       410       (3,698 )   NM  

Adjusted operating income (loss)*

      163       (17 )   NM       455       (60 )   NM  

Adjusted OIBDA*

      285       302     (6 )%     808       900     (10 )%

Adjusted OIBDA* Margin

      16 %     17 %   (6 )%     16 %     16 %   0 %

YOY voice volume growth

      10 %     14 %   NM       11 %     12 %   NM  

Capex

    $ 83     $ 71     17 %   $ 218     $ 191     14 %

NM – Not meaningful

                                             

 

•   Third quarter net operating revenues declined 4% year-over-year as growth in wholesale voice revenues was offset by lower consumer voice and legacy data revenues. Comparisons were also impacted by the sale of Sprint’s Dial IP business in the fourth quarter of 2004.

 

•   Dedicated IP revenue increased 20% from the year-ago period and 6% sequentially. Data revenues decreased 4% sequentially, reflecting customer transitions to IP-based services.

 

•   Adjusted Operating Income* was $163 million for the quarter compared to a loss of $17 million in the year-ago period. The increase is primarily due to lower depreciation expense following the asset impairment recorded in the third quarter of 2004. Adjusted Operating Income* rose 9% sequentially.

 

•   Adjusted OIBDA* was $285 million in the quarter, a decline of 6% from the year-ago period but an increase of 8% sequentially. Adjusted OIBDA* performance reflects the benefits of previous initiatives to streamline sales, marketing and support resources. Results also benefited from a reduction of bad debt.

 

•   Sprint Nextel continued to gain subscribers and increase revenues through its relationships with the cable network operators. At quarter’s end, Sprint Nextel was providing wireline service to more than 620,000 cable subscribers, a 42% gain over the prior quarter.

 

6

Local

 

Selected Unaudited Financial Data (dollars in millions)

 

    

Quarter

Ended

Sept 30,

2005

    

Quarter

Ended

Sept 30,

2004

    

%

diff

    

Nine

Months

Ended

Sept 30,

2005

    

Nine

Months

Ended

Sept 30,

2004

    

%

diff

  

Net operating revenues

                                             

Voice

    $ 1,082     $ 1,105     (2 )%   $ 3,272     $ 3,388     (3 )%

Data

      251       214     17 %     724       614     18 %

Other

      339       277     22 %     864       812     6 %

Net operating revenues

      1,672       1,596     5 %     4,860       4,814     1 %

Operating expenses

                                             

Cost of services & products

      641       577     11 %     1,766       1,653     7 %

Selling, general & administrative

      298       337     (12 )%     909       1,045     (13 )%

Depreciation & amortization

      277       274     1 %     831       815     2 %

Restructuring & asset impairment

      1       3     (67 )%     3       20     (85 )%

Total operating expenses

      1,217       1,191     2 %     3,509       3,533     (1 )%

Operating income

      455       405     12 %     1,351       1,281     5 %

Adjusted operating income*

      459       438     5 %     1,357       1,330     2 %

Adjusted OIBDA*

      736       712     3 %     2,188       2,145     2 %

Adjusted OIBDA* Margin

      44 %     45 %   (2 )%     45 %     45 %   0 %

Access lines (in thousands)

      7,438       7,718     (3.6 )%     7,438       7,718     (3.6 )%

DSL lines (in thousands)

      638       432     48 %     638       432     48 %

Capex

    $ 205     $ 251     (18 )%   $ 554     $ 697     (21 )%

NM – Not meaningful

                                             

 

• Third quarter revenues of $1.67 billion increased 5% compared to the year-ago period due to increased non-affiliate sales in North Supply and flat performance in the Local telephone operations.

 

• Adjusted Operating Income* was $459 million for the third quarter compared to $438 million a year ago.

 

• Adjusted OIBDA* was $736 million for the quarter compared to $712 million last year, a 3% increase.

 

• At the end of the period, 73% of Local lines were DSL-capable and penetration of capable lines was 12%. Total data revenue grew by 17% to nearly $1 billion on an annualized basis.

 

• Total access lines declined 3.6% from the year-ago period. Wireless substitution and competitive losses continue to be the primary drivers of access line losses.

 

• Sprint Nextel expects to spin-off its Local business to its shareholders in the second quarter of 2006.

 

Forward-Looking Guidance

 

Pro forma Consolidated revenues for the year are expected to be about $44 billion, up about 8% from prior year pro forma revenues.

 

•   Wireless pro forma revenues are expected to be up 12% to 13% from prior year pro forma revenues.  

 

•   Full year Long Distance revenues are expected to decline by approximately 6% from the prior year.  

 

•   Full year Local revenues are expected to go up slightly from 2004 levels.  

 

Pro forma Consolidated Adjusted OIBDA* for the year is estimated to be about $14 billion, up approximately 9% from prior year pro forma Adjusted OIBDA*.

 

Pro forma Capex is forecasted to be about $6.4 billion for the year, excluding re-banding.

 

•   Wireless – about $5 billion

 

•   Long Distance – about $350 million

 

•   Local - $850 to $900 million

 

In the fourth quarter, exclusive of affiliate acquisitions, we expect to add approximately 1.4 million direct subscribers with strong sequential gains in both post-paid and pre-paid.

 

7

*Financial Measures

 

Sprint Nextel provides financial measures generated using generally accepted accounting principles (GAAP) and using adjustments to GAAP (non-GAAP). The non-GAAP financial measures reflect industry conventions, or standard measures of liquidity, profitability or performance commonly used by the investment community for comparability purposes. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use, but these measures may not be synonymous to similar measurement terms used by other companies.

 

Sprint Nextel provides reconciliations of these non-GAAP measures in its financial reporting. Because Sprint Nextel does not predict special items that might occur in the future, and our forecasts are developed at a level of detail different than that used to prepare GAAP-based financial measures, Sprint Nextel does not provide reconciliations to GAAP of its forward-looking financial measures.

 

The measures used in this release include the following:

 

Adjusted Operating Income (Loss) is defined as operating income plus special items. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe this measure is useful because it allows investors to evaluate our operating results for different periods on a more comparable basis by excluding special items.

 

Adjusted Net Income (Loss) and Adjusted Earnings per Share (EPS) or Adjusted Loss per Share are defined as net income or loss plus special items, net of tax and the diluted EPS calculated thereon. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that these measures are useful because they allow investors to evaluate our performance for different periods on a more comparable basis by excluding items that do not relate to the ongoing operations of our businesses.

 

Adjusted OIBDA is defined as operating income plus depreciation, amortization and special items. Adjusted OIBDA Margin represents Adjusted OIBDA divided by non-equipment net operating revenues for wireless and Adjusted OIBDA divided by net operating revenues for Local and Long Distance. Although we have used substantively similar measures in the past, which we called “Adjusted EBITDA,” we now use the term Adjusted OIBDA and Adjusted OIBDA Margin to describe the measure we use as it more clearly reflects the elements of the measure. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that Adjusted OIBDA and Adjusted OIBDA Margin provide useful information to investors because they are an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, spectrum acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Adjusted OIBDA and Adjusted OIBDA Margin are calculations commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the telecommunications industry.

 

Free Cash Flow is defined as the change in cash and equivalents less the change in debt, investment in marketable securities, proceeds from common stock and other financing activities, net. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of cash flows. We believe that Free Cash Flow provides useful information to investors, analysts and our management about the cash generated by our core operations after interest and dividends and our ability to fund scheduled debt maturities and other financing activities, including discretionary refinancing and retirement of debt and purchase or sale of investments.

 

Net Debt is consolidated debt, including current maturities, less cash and equivalents and current marketable securities. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statements of financial position and cash flows. We believe that Net Debt provides useful information to investors, analysts and credit rating agencies about the capacity of the company to reduce the debt load and improve its capital structure.

 

8

ARPU (Average monthly service revenue per user) is calculated by dividing wireless service revenues from direct subscribers by weighted average monthly wireless direct subscribers. This industry operating metric is used to measure revenue on a per-user basis. While this measure is not defined under accounting principles generally accepted in the United States, the measure uses GAAP service revenues as the basis for calculation. We believe that ARPU provides useful information concerning the appeal of our rate plans and service offerings and our performance in attracting and retaining high value customers.

 

Safe Harbor

 

This news release includes “forward-looking statements” within the meaning of the securities laws. The statements in this news release regarding the business outlook, expected performance, as well as other statements that are not historical facts, are forward-looking statements. The words “estimate,” “project,” “forecast,” “intend,” “expect,” “believe,” “target,” “providing guidance” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are estimates and projections reflecting management’s judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer growth and retention, pricing, operating costs, the timing of various events and the economic environment.

 

Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:

 

•   the uncertainties related to the benefits of the Nextel merger, including anticipated synergies and cost savings and the timing thereof;

 

•   the uncertainties related to the contemplated spin-off of our local telecommunications business;

 

•   the effects of vigorous competition and the overall demand for Sprint Nextel’s service offerings in the markets in which Sprint Nextel operates;

 

•   the costs and business risks associated with providing new services and entering new markets;

 

•   adverse change in the ratings afforded our debt securities by ratings agencies;

 

•   the ability of Wireless to continue to grow and improve profitability;

 

•   the ability of Local and Long Distance to achieve expected revenues;

 

•   the effects of mergers and consolidations in the telecommunications industry and unexpected announcements or developments from others in the telecommunications industry;

 

•   the uncertainties related to Sprint Nextel’s investments in networks, systems, and other businesses;

 

•   the uncertainties related to the implementation of Sprint Nextel’s business strategies,

 

•   the impact of new, emerging and competing technologies on Sprint Nextel’s business;

 

•   unexpected results of litigation pending or filed against Sprint Nextel;

 

•   no significant adverse change in Motorola, Inc.’s ability or willingness to provide handsets and related equipment and software applications or to develop new technologies or features for the iDEN network;

 

•   the network performance, including any performance issues resulting from the reconfiguration of the 800 Megahertz band of the iDEN network that is contemplated by the Federal Communications Commission’s Report and Order, released in August 2004 and supplemented thereafter;

 

•   the costs of compliance with regulatory mandates, particularly requirements related to the Federal Communications Commission’s Report and Order and deployment of enhanced 911 services on the iDEN network;

 

•   the risk of equipment failure, natural disasters, terrorist acts, or other breaches of network or information technology security;

 

•   the risk that third parties are unable to perform to our requirements under agreements related to our business operations;

 

9

•   the possibility of one or more of the markets in which Sprint Nextel competes being impacted by changes in political or other factors such as monetary policy, legal and regulatory changes or other external factors over which Sprint Nextel has no control; and

 

•   other risks referenced from time to time in Sprint Nextel’s filings with the Securities and Exchange Commission (SEC), including its Form 10-K for the year ended December 31, 2004, as amended, and its quarterly reports on Form 10-Q for the subsequent quarterly periods.

 

Sprint Nextel believes these forward-looking statements are reasonable; however, you should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date of this release. Sprint Nextel is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this release. Sprint Nextel provides a detailed discussion of risk factors in periodic SEC filings, including its 2004 Form 10-K as amended, and you are encouraged to review these filings.

 

About Sprint Nextel

 

Sprint Nextel offers a comprehensive range of wireless and wireline communications services to consumer, business and government customers. Sprint Nextel is widely recognized for developing, engineering and deploying innovative technologies, including two robust wireless networks offering industry leading mobile data services; instant national and international walkie-talkie capabilities; and an award-winning and global Tier 1 Internet backbone. For more information, visit www.sprint.com/mr <http://www.sprint.com/mr>.

 

10

Sprint Nextel Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(millions, except share data)

 

     Quarter-to-Date
     Year-to-Date
  

Periods Ended September 30,

    2005
     2004
     2005
     2004
  

Net Operating Revenues (1)

    $ 9,335     $ 6,922     $ 23,384     $ 20,498  
    
 
 
 

Operating Expenses

                                 

Costs of services and products (1)

      3,805       2,936       9,760       8,589  

Selling, general and administrative (1), (2)

      2,810       1,920       6,567       5,810  

Depreciation

      1,299       1,218       3,364       3,683  

Amortization

      460       4       467       4  

Restructuring and asset impairments (3)

      38       3,559       71       3,685  
    
 
 
 

Total operating expenses

      8,412       9,637       20,229       21,771  
    
 
 
 

Operating Income (Loss)

      923       (2,715 )     3,155       (1,273 )

Interest expense

      (346 )     (305 )     (927 )     (947 )

Premium on early retirement of debt (4)

      —         (38 )     —         (58 )

Other income (expense), net (5)

      233       13       314       (17 )
    
 
 
 

Income (loss) before income taxes

      810       (3,045 )     2,542       (2,295 )

Income tax (expense) benefit

      (294 )     1,135       (954 )     846  
    
 
 
 

Net Income (Loss)

      516       (1,910 )     1,588       (1,449 )

Earnings allocated to participating securities

      —         (3 )     —         (9 )

Preferred stock dividends paid

      (2 )     (2 )     (5 )     (5 )
    
 
 
 

Earnings (Loss) Applicable to Common Stock

    $ 514     $ (1,915 )   $ 1,583     $ (1,463 )
    
 
 
 

Diluted Earnings (Loss) per Common Share

    $ 0.23     $ (1.32 )   $ 0.91     $ (1.02 )
    
 
 
 

Diluted weighted average common shares

      2,242.1       1,450.6       1,745.0       1,433.8  
    
 
 
 

Basic Earnings (Loss) per Common Share

    $ 0.23     $ (1.32 )   $ 0.92     $ (1.02 )
    
 
 
 

 

See accompanying Notes to Consolidated Statements of Operations.

 

11

Sprint Nextel Corporation

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

(1) In the 2005 third quarter and year-to-date periods, Sprint recorded hurricane-related charges of $82 million, which reduced net income by $51 million.

In the 2004 third quarter and year-to-date periods, Sprint recorded hurricane-related charges of $30 million, which reduced net income by $18 million.

 

(2) In the 2005 third quarter, Sprint recorded merger-related charges of $241 million, which reduced net income by $153 million. All merger costs were related to Sprint’s merger with Nextel and planned spin-off of Sprint’s local operations. Merger-related costs have been reflected as unallocated corporate costs and therefore have been excluded from segment results.

In the 2005 year-to-date period, Sprint recorded merger-related charges of $268 million, which reduced net income by $170 million. All merger costs were related to Sprint’s merger with Nextel and planned spin-off of Sprint’s local operations. Merger-related costs have been reflected as unallocated corporate costs and therefore have been excluded from segment results.

In the 2004 year-to-date period, Sprint recognized a $14 million pre-tax benefit to bad debt expense as a result of the final payment of the settlement of claims with MCI (WorldCom) that previously had been fully reserved. This settlement increased net income by $9 million.

 

(3) In the 2005 third quarter, Sprint recorded restructuring and asset impairment charges of $38 million, which reduced net income by $25 million. Restructuring charges of $9 million were related to Sprint’s ongoing organizational realignment initiatives and the termination of the Web Hosting business. Asset impairment charges of $30 million were primarily related to hurricane damage.

In the 2005 year-to-date period, Sprint recorded restructuring and asset impairment charges of $71 million, which reduced net income by $45 million. In addition to the 2005 third quarter charges noted above, Sprint recorded restructuring charges of $5 million related to Sprint’s ongoing organizational realignment initiatives and the termination of the Web Hosting business. Asset impairment charges of $28 million were related to the write-down of various software applications.

In the 2004 third quarter, Sprint recorded restructuring and asset impairment charges of $3.56 billion, which increased loss from continuing operations by $2.24 billion. The impairment of Sprint’s long distance network assets, which was determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, resulted in a pre-tax, non-cash charge of $3.54 billion. This charge was the result of the analysis of long distance business trends and projections that considered current industry and competitive conditions, recent regulatory rulings, evolving technologies and the company’s strategy to expand its position as a leader in the development and delivery of customer solutions requiring transparent wireless and wireline connectivity. This charge reduced the net book value of Sprint’s long distance property, plant and equipment by about 60%, to $2.3 billion at September 30, 2004. Restructuring charges related to Sprint’s organizational realignment initiatives and the termination of the Web Hosting business aggregated $19 million in the quarter.

In the 2004 year-to-date period, Sprint recorded $3.69 billion in restructuring charges and asset impairments, which increased loss from continuing operations by $2.31 billion. In addition to the 2004 third quarter charges noted above, Sprint recorded $126 million of restructuring charges associated with Sprint’s organizational realignment initiatives and the termination of the Web Hosting business.

 

(4) In the 2004 third quarter, Sprint recorded a $38 million charge reflecting premiums paid for the early retirement of $516 million of senior notes. In connection with this retirement, Sprint recognized $3 million of deferred debt costs and other fees in Other income (expense), net. These charges increased loss from continuing operations by $25 million.

In the 2004 year to date period, Sprint recorded $58 million in charges reflecting premiums paid for the early retirement of debt. In addition to the 2004 third quarter charges noted above, Sprint recorded a $20 million charge for premiums paid on the early retirement of $750 million of equity unit notes. In connection with these retirements, Sprint recognized $12 million of deferred debt costs in Other income (expense), net. These charges reduced net income by $43 million.

 

(5) In the 2005 third quarter and year-to-date periods, Sprint recorded income of $142 million related to activities associated with various equity method investees and marketable securities transactions. These gains increased net income by $90 million.

 

12

Sprint Nextel Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

 

     September 30,
2005
    December 31,
2004
     (Unaudited)     

Assets

              

Current assets

              

Cash and equivalents

    $ 7,825    $ 4,176

Marketable debt securities

      1,110      445

Accounts receivable, net

      4,849      3,107

Inventories

      1,004      651

Deferred tax asset

      2,164      1,049

Prepaid expenses and other

      813      547
    
  

Total current assets

      17,765      9,975

Net property, plant and equipment

      30,591      22,628

Net intangible assets

      49,487      7,836

Other

      3,472      882
    
  

Total

    $ 101,315    $ 41,321
    
  

Liabilities and Shareholders’ Equity

              

Current liabilities

              

Current maturities of long-term debt

    $ 1,760    $ 1,288

Accounts payable and accrued interconnection costs

      3,452      2,671

Other accrued liabilities

      4,774      2,943
    
  

Total current liabilities

      9,986      6,902

Noncurrent liabilities

              

Long-term debt and capital lease obligations

      23,538      15,916

Deferred income taxes

      12,050      2,176

Communications towers - deferred rental income

      1,118      —  

Other accrued liabilities

      2,844      2,559
    
  

Total noncurrent liabilities

      39,550      20,651

Redeemable preferred stock

      247      247

Shareholders’ equity

              

Common stock

      5,826      2,950

Other shareholders’ equity

      45,706      10,571
    
  

Total shareholders’ equity

      51,532      13,521
    
  

Total

    $ 101,315    $ 41,321
    
  

 

13

Sprint Nextel Corporation

CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited)

(millions)

 

Year-to-Date September 30,

    2005
     2004
  

Operating Activities

                 

Net income (loss)

    $ 1,588     $ (1,449 )

Depreciation and amortization

      3,831       3,687  

Deferred income taxes

      742       (879 )

Losses on write-down of assets

      57       3,540  

Proceeds from lease of communications towers

      1,195       —    

Other, net

      (625 )     (373 )
    
 

Net cash provided by operating activities

      6,788       4,526  
    
 

Investing Activities

                 

Capital expenditures

      (2,908 )     (2,642 )

Cash acquired in Nextel merger, net of cash paid

      1,183       —    

Purchase of US Unwired, net of cash acquired

      (949 )     —    

Investments in debt securities, net

      49       85  

Proceeds from sales of assets and other

      597       19  

Other, net

      156       (45 )
    
 

Net cash used by investing activities

      (1,872 )     (2,583 )
    
 

Financing Activities

                 

Change in debt, net

      (1,139 )     (1,685 )

Dividends paid

      (447 )     (485 )

Proceeds from common stock issued

      293       1,802  

Other, net

      26       (14 )
    
 

Net cash used by financing activities

      (1,267 )     (382 )
    
 

Change in cash and equivalents

      3,649       1,561  

Cash and equivalents at beginning of period

      4,176       2,287  
    
 

Cash and equivalents at end of period

    $ 7,825     $ 3,848  
    
 

 

14

Sprint Nextel Corporation

NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited)

(millions)

 

Quarter-to-date September 30, 2005

    Consolidated
     Wireless
    Local
    Long
Distance
     Other &
Eliminations
  

Operating income (loss)

    $ 923     $ 581    $ 455    $ 128     $ (241 )

Special items (1)

      361       81      4      35       241  
    
 
  
  
 

Adjusted operating income*

      1,284       662      459      163       —    

Depreciation and amortization

      1,759       1,361      277      122       (1 )
    
 
  
  
 

Adjusted OIBDA*

    $ 3,043     $ 2,023    $ 736    $ 285     $ (1 )
    
 
  
  
 

Adjusted OIBDA*

    $ 3,043                                

Adjust for special items

      (361 )                              

Other operating activities, net (2)

      (790 )                              

Capital expenditures

      (1,252 )                              

Purchase of Nextel, net of cash acquired

      1,183                                

Purchase of US Unwired, net of cash acquired

      (949 )                              

Dividends paid

      (74 )                              

Proceeds from sales of assets

      381                                

Other investing activities, net

      173                                
    
                             

Free Cash Flow*

      1,354                                

Decrease in debt, net

      (87 )                              

Investments in debt securities, net

      134                                

Proceeds from common stock issued

      187                                

Other financing activities, net

      2                                
    
                             

Change in cash and equivalents - GAAP

    $ 1,590                                
    
                             

Quarter-to-date September 30, 2004

    Consolidated
     Wireless
    Local
    Long
Distance
     Other &
Eliminations
  

Operating income (loss)

    $ (2,715 )   $ 451    $ 405    $ (3,570 )   $ (1 )

Special items (1)

      3,589       3      33      3,553       —    
    
 
  
  
 

Adjusted operating income (loss)*

      874       454      438      (17 )     (1 )

Depreciation and amortization

      1,222       630      274      319       (1 )
    
 
  
  
 

Adjusted OIBDA*

    $ 2,096     $ 1,084    $ 712    $ 302     $ (2 )
    
 
  
  
 

Adjusted OIBDA*

    $ 2,096                                

Adjust for special items

      (3,589 )                              

Other operating activities, net (2)

      3,085                                

Capital expenditures

      (966 )                              

Dividends paid

      (190 )                              

Other investing activities, net

      3                                
    
                             

Free Cash Flow*

      439                                

Decrease in debt, net

      (573 )                              

Proceeds from common stock issued

      1,757                                

Investments in debt securities, net

      80                                

Other financing activities, net

      (22 )                              
    
                             

Change in cash and equivalents - GAAP

    $ 1,681                                
    
                             
(1) See accompanying Notes to Consolidated Statements of Operations for more information on special items.
(2) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous operating activities and non-operating items in net income (loss).

 

15

Sprint Nextel Corporation

NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited)

(millions)

 

Year-to-date September 30, 2005

    Consolidated
     Wireless
    Local
    Long
Distance
     Other &
Eliminations
  

Operating income (loss)

    $ 3,155     $ 1,661    $ 1,351    $ 410     $ (267 )

Special items (1)

      421       102      6      45       268  
    
 
  
  
 

Adjusted operating income*

      3,576       1,763      1,357      455       1  

Depreciation and amortization

      3,831       2,650      831      353       (3 )
    
 
  
  
 

Adjusted OIBDA*

    $ 7,407     $ 4,413    $ 2,188    $ 808     $ (2 )
    
 
  
  
 

Adjusted OIBDA*

    $ 7,407                                

Adjust for special items

      (421 )                              

Other operating activities, net (2)

      (198 )                              

Capital expenditures

      (2,908 )                              

Purchase of Nextel, net of cash acquired

      1,183                                

Purchase of US Unwired, net of cash acquired

      (949 )                              

Dividends paid

      (447 )                              

Proceeds from sales of assets

      597                                

Other investing activities, net

      156                                
    
                             

Free Cash Flow*

      4,420                                

Decrease in debt, net

      (1,139 )                              

Investments in debt securities, net

      49                                

Proceeds from common stock issued

      293                                

Other financing activities, net

      26                                
    
                             

Change in cash and equivalents - GAAP

    $ 3,649                                
    
                             

Year-to-date September 30, 2004

    Consolidated
     Wireless
    Local
    Long
Distance
     Other &
Eliminations
  

Operating income (loss)

    $ (1,273 )   $ 1,146    $ 1,281    $ (3,698 )   $ (2 )

Special items (1)

      3,701       14      49      3,638       —    
    
 
  
  
 

Adjusted operating income (loss)*

      2,428       1,160      1,330      (60 )     (2 )

Depreciation and amortization

      3,687       1,914      815      960       (2 )
    
 
  
  
 

Adjusted OIBDA*

    $ 6,115     $ 3,074    $ 2,145    $ 900     $ (4 )
    
 
  
  
 

Adjusted OIBDA*

    $ 6,115                                

Adjust for special items

      (3,701 )                              

Other operating activities, net (2)

      2,112                                

Capital expenditures

      (2,642 )                              

Dividends paid

      (485 )                              

Other investing activities, net

      (26 )                              
    
                             

Free Cash Flow*

      1,373                                

Decrease in debt, net

      (1,685 )                              

Proceeds from common stock issued

      1,802                                

Investments in debt securities, net

      85                                

Other financing activities, net

      (14 )                              
    
                             

Change in cash and equivalents - GAAP

    $ 1,561                                
    
                             
(1) See accompanying Notes to Consolidated Statements of Operations for more information on special items.
(2) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous operating activities and non-operating items in net income (loss).

 

16

Sprint Nextel Corporation

NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited)

(millions)

 

Quarter-to-date March 31, 2005

    Consolidated
     Wireless
    Local
    Long
Distance
     Other &
Eliminations
  

Operating income (loss)

    $ 1,036     $ 455    $ 435    $ 146     $ —    

Special items (1)

      —         2      1      (3 )     —    
    
 
  
  
 

Adjusted operating income (loss)*

      1,036       457      436      143       —    

Depreciation and amortization

      1,036       644      276      117       (1 )
    
 
  
  
 

Adjusted OIBDA*

    $ 2,072     $ 1,101    $ 712    $ 260     $ (1 )
    
 
  
  
 

Adjusted OIBDA*

    $ 2,072                                

Other operating activities, net (2)

      (688 )                              

Capital expenditures

      (659 )                              

Dividends paid

      (187 )                              

Other investing activities, net

      (6 )                              
    
                             

Free Cash Flow*

      532                                

Decrease in debt, net

      (1,012 )                              

Investments in debt securities, net

      (80 )                              

Proceeds from common stock issued

      58                                

Other financing activities, net

      13                                
    
                             

Change in cash and equivalents - GAAP

    $ (489 )                              
    
                             

Quarter-to-date June 30, 2005

    Consolidated
     Wireless
    Local
    Long
Distance
     Other &
Eliminations
  

Operating income (loss)

    $ 1,196     $ 625    $ 461    $ 136     $ (26 )

Special items (1)

      60       19      1      13       27  
    
 
  
  
 

Adjusted operating income (loss)*

      1,256       644      462      149       1  

Depreciation and amortization

      1,036       645      278      114       (1 )
    
 
  
  
 

Adjusted OIBDA*

    $ 2,292     $ 1,289    $ 740    $ 263     $ —    
    
 
  
  
 

Adjusted OIBDA*

    $ 2,292                                

Adjust for special items

      (60 )                              

Other operating activities, net (2)

      1,280                                

Capital expenditures

      (997 )                              

Dividends paid

      (186 )                              

Proceeds from sales of assets

      208                                

Other investing activities, net

      (3 )                              
    
                             

Free Cash Flow*

      2,534                                

Decrease in debt, net

      (40 )                              

Proceeds from common stock issued

      48                                

Investments in debt securities, net

      (5 )                              

Other financing activities, net

      11                                
    
                             

Change in cash and equivalents - GAAP

    $ 2,548                                
    
                             
(1) See accompanying Notes to Consolidated Statements of Operations for more information on special items.
(2) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous operating activities and non-operating items in net income (loss).

 

17

Sprint Nextel Corporation

RECONCILIATIONS OF EARNINGS PER SHARE (Unaudited)

(millions, except per share data)

 

     Quarter-to-Date
     Year-to-Date
  

Periods Ended September 30,

    2005
     2004
     2005
     2004
  

Earnings (Loss) Applicable to Common Stock

    $ 514     $ (1,915 )   $ 1,583     $ (1,463 )

Earnings allocated to participating securities

      —         3       —         9  

Preferred stock dividends paid

      2       2       5       5  
    
 
 
 

GAAP Net income (loss)

      516       (1,910 )     1,588       (1,449 )

Special items (net of taxes) (1)

                                 

Restructuring and asset impairments

      25       2,235       45       2,312  

Merger and integration expense

      153       —         170       —    

Hurricane charges (excluding asset impairments)

      51       18       51       18  

Gains on investment activities and equity in earnings

      (90 )     —         (90 )     —    

MCI (WorldCom) settlement

      —         —         —         (9 )

Premium on early retirement of debt

      —         25       —         43  
    
 
 
 

Adjusted Net Income*

    $ 655     $ 368     $ 1,764     $ 915  
    
 
 
 

GAAP diluted earnings (loss) per share

    $ 0.23     $ (1.32 )   $ 0.91     $ (1.02 )

Special items

      0.06       1.57       0.10       1.65  
    
 
 
 

Adjusted Earnings Per Share* (2)

    $ 0.29     $ 0.25     $ 1.01     $ 0.63  
    
 
 
 
(1) See accompanying Notes to Consolidated Statements of Operations for more information on special items.
(2) Earnings per share data may not add due to rounding.

 

18

Sprint Nextel Corporation

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(millions, except share data)

 

Quarters Ended

    September 30,
2005
     June 30,
2005
     March 31,
2005
     December 31,
2004
     September 30,
2004
     June 30,
2004
     March 31,
2004
  

Net Operating Revenues

    $ 11,209     $ 10,978     $ 10,586     $ 10,539     $ 10,349     $ 10,183     $ 9,831  
    
 
 
 
 
 
 

Operating Expenses

                                                         

Costs of services and products

      4,472       4,230       4,094       4,152       4,002       3,851       3,776  

Selling, general and administrative

      3,473       3,160       3,191       3,095       3,045       3,117       2,953  

Depreciation

      1,512       1,500       1,470       1,424       1,603       1,622       1,601  

Amortization

      839       821       822       823       826       826       826  

Restructuring and asset impairments

      38       33       —         46       3,559       96       30  
    
 
 
 
 
 
 

Total operating expenses

      10,334       9,744       9,577       9,540       13,035       9,512       9,186  
    
 
 
 
 
 
 

Operating Income (Loss)

      875       1,234       1,009       999       (2,686 )     671       645  

Interest expense

      (406 )     (405 )     (422 )     (435 )     (446 )     (466 )     (475 )

Premium on early retirement of debt

      —         —         (37 )     (34 )     (72 )     (54 )     (17 )

Other income (expense), net

      205       92       51       39       22       (3 )     7  
    
 
 
 
 
 
 

Income (loss) before income taxes

      674       921       601       569       (3,182 )     148       160  

Income tax (expense) benefit

      (181 )     (303 )     (43 )     (166 )     1,345       (64 )     (56 )
    
 
 
 
 
 
 

Net Income (Loss)

      493       618       558       403       (1,837 )     84       104  

Earnings allocated to participating securities

      —         —         —         —         (3 )     (6 )     —    

Preferred stock dividends paid

      (2 )     (1 )     (2 )     (2 )     (2 )     (1 )     (2 )
    
 
 
 
 
 
 

Earnings (Loss) Applicable to Common Stock

    $ 491     $ 617     $ 556     $ 401     $ (1,842 )   $ 77     $ 102  
    
 
 
 
 
 
 

Diluted Earnings per Common Share - PRO FORMA

                                                         

Diluted earnings (loss) per share

    $ 0.16     $ 0.21     $ 0.19     $ 0.14     $ (0.64 )   $ 0.03     $ 0.03  

Special items

      0.08       0.02       0.01       0.02       0.80       0.03       0.01  
    
 
 
 
 
 
 

Adjusted EPS *

      0.25       0.23       0.20       0.15       0.16       0.06       0.04  
    
 
 
 
 
 
 

Diluted weighted average common shares

      2,976.1       2,950.1       2,944.8       2,928.8       2,868.6       2,931.1       2,927.2  
    
 
 
 
 
 
 

Special Item Reconciliations

                                                         

Operating income (loss) - PRO FORMA

    $ 875     $ 1,234     $ 1,009     $ 999     $ (2,686 )   $ 671     $ 645  

Special items:

                                                         

Restructuring and asset impairments

      38       33       —         46       3,559       96       30  

Merger and integration expense

      325       62       10       —         —         —         —    

Hurricane charges (excluding asset impairments)

      82       —         —         —         30       —         —    

MCI (WorldCom) bad debt

      —         —         —         —         —         (14 )     —    
    
 
 
 
 
 
 

Adjusted operating income *

      1,320       1,329       1,019       1,045       903       753       675  

Depreciation and amortization

      2,351       2,321       2,292       2,247       2,429       2,448       2,427  
    
 
 
 
 
 
 

Adjusted OIBDA *

    $ 3,671     $ 3,650     $ 3,311     $ 3,292     $ 3,332     $ 3,201     $ 3,102  
    
 
 
 
 
 
 

Net income (loss) - PRO FORMA

    $ 493     $ 618     $ 558     $ 403     $ (1,837 )   $ 84     $ 104  

Special items (net of tax):

                                                         

Total special items included in operating income

      284       58       6       30       2,253       49       19  

Gains on investment activities and equity in earnings

      (90 )     —         —         —         —         —         —    

Motorola consent fee

      50       —         —         —         —         —         —    

Premium on early retirement of debt

      —         —         22       20       46       39       10  
    
 
 
 
 
 
 

Adjusted net income *

    $ 737     $ 676     $ 586     $ 453     $ 462     $ 172     $ 133  
    
 
 
 
 
 
 

 

Pro Forma consolidated statements of operations have been presented as if the Sprint Nextel merger occurred at the beginning of each period presented.

 

19

Sprint Nextel Corporation

PRO FORMA WIRELESS STATEMENTS OF OPERATIONS (Unaudited)

(millions, except statistics data)

 

Quarters Ended

    September 30,
2005
     June 30,
2005
     March 31,
2005
     December 31,
2004
     September 30,
2004
     June 30,
2004
     March 31,
2004
  

Net Operating Revenues

                                                         

Service

    $ 7,022     $ 6,928     $ 6,616     $ 6,437     $ 6,330     $ 6,070     $ 5,738  

Equipment

      817       757       679       816       695       738       704  

Wholesale, affiliate and other

      227       225       225       197       166       124       121  
    
 
 
 
 
 
 

Total

      8,066       7,910       7,520       7,450       7,191       6,932       6,563  
    
 
 
 
 
 
 

Operating Expenses

                                                         

Costs of services and products

      2,987       2,808       2,706       2,782       2,602       2,469       2,458  

Selling, general and administrative

      2,493       2,455       2,474       2,359       2,269       2,224       2,065  

Depreciation

      1,115       1,109       1,078       1,040       1,012       1,030       1,012  

Amortization

      838       821       822       823       825       826       826  

Restructuring and asset impairments

      16       19       2       11       3       12       4  
    
 
 
 
 
 
 

Total operating expenses

      7,449       7,212       7,082       7,015       6,711       6,561       6,365  
    
 
 
 
 
 
 

Operating Income

    $ 617     $ 698     $ 438     $ 435     $ 480     $ 371     $ 198  
    
 
 
 
 
 
 

Special Item Reconciliations

                                                         

Operating income (loss) - PRO FORMA

    $ 617     $ 698     $ 438     $ 435     $ 480     $ 371     $ 198  

Special items:

                                                         

Restructuring and asset impairments

      16       19       2       11       3       12       4  

Hurricane charges (excluding asset impairments)

      65       —         —         —         —         —         —    

MCI (WorldCom) bad debt

      —         —         —         —         —         (5 )     —    
    
 
 
 
 
 
 

Adjusted operating income *

      698       717       440       446       483       378       202  

Depreciation and amortization

      1,953       1,930       1,900       1,863       1,837       1,856       1,838  
    
 
 
 
 
 
 

Adjusted OIBDA *

    $ 2,651     $ 2,647     $ 2,340     $ 2,309     $ 2,320     $ 2,234     $ 2,040  
    
 
 
 
 
 
 

Operating income margin - PRO FORMA

      8.5 %     9.8 %     6.4 %     6.6 %     7.4 %     6.0 %     3.4 %

Adjusted OIBDA Margin *

      36.6 %     37.0 %     34.2 %     34.8 %     35.7 %     36.1 %     34.8 %

Selected Operating Statistics

                                                         

Direct Post-Paid Subscribers

                                                         

Service revenue (millions)

    $ 6,822     $ 6,746     $ 6,455     $ 6,321     $ 6,253     $ 6,012     $ 5,689  

ARPU

      65       66       65       65       67       66       65  

Churn

      2.1 %     1.9 %     2.1 %     2.2 %     2.2 %     2.0 %     2.4 %

Additions (in thousands) (1)

      669       950       1,014       1,121       979       1,050       889  

End of period subscribers (in thousands) (2)

      35,967       34,776       33,826       32,812       31,758       30,779       29,638  

Direct Pre-Paid Subscribers (Boost)

                                                         

Service revenue (millions)

    $ 200     $ 182     $ 161     $ 116     $ 77     $ 58     $ 49  

ARPU

      37       38       40       —         —         —         —    

Churn

      4.9 %     6.2 %     5.0 %     —         —         —         —    

Additions (in thousands)

      300       213       314       360       195       68       132  

End of period subscribers (in thousands)

      1,987       1,687       1,474       1,160       800       605       537  

Wholesale Subscribers

                                                         

Additions (in thousands)

      213       87       621       923       422       299       420  

End of period subscribers (in thousands)

      4,596       4,383       4,296       3,675       2,752       2,330       2,031  

Affiliate Subscribers

                                                         

Additions (in thousands) (1)

      90       101       166       133       101       93       138  

End of period subscribers (in thousands) (2)

      3,065       3,497       3,396       3,230       3,120       3,019       3,017  
(1) Direct post-paid and affiliate net subscriber additions have been reflected before transfers from the affiliate subscriber base totaling 522 thousand in the 2005 third quarter and 91 thousand in the 2004 second quarter.
(2) In the 2004 fourth quarter, Sprint corrected the year-end 2004 post-paid and affiliate end of period subscribers to remove devices used for demonstration or testing purposes.

 

Pro Forma wireless statements of operations have been presented as if the Sprint Nextel merger occurred at the beginning of each period presented.

 

20

Sprint Nextel Corporation

OPERATING STATISTICS

 

     1Q05
     2Q05
     3Q05
     4Q05
    YTD
2005
  

Local

                                      

Financial Statistics (millions)

                                      

Total Local operating revenues

    $ 1,597       1,591     $ 1,672          $ 4,860  

Voice net operating revenue

    $ 1,105       1,085     $ 1,082          $ 3,272  

Data net operating revenue

    $ 233       240     $ 251          $ 724  

DSL service revenues

    $ 72       76     $ 87          $ 235  

Other net operating revenue

    $ 259       266     $ 339          $ 864  

Operating income

    $ 435       461     $ 455          $ 1,351  

Operating income margin

      27.2 %     29.0 %     27.2 %          27.8 %

Adjusted OIBDA*

    $ 712       740     $ 736          $ 2,188  

Adjusted OIBDA* margin

      44.6 %     46.5 %     44.0 %          45.0 %

Capital expenditures

    $ 152       197     $ 205          $ 554  

Adjusted OIBDA* less capital expenditures

    $ 560       543     $ 531          $ 1,634  

Other Statistics

                                      

Total access lines (thousands)

      7,639       7,530       7,438               

Residential access lines

      5,312       5,215       5,135               

Business access lines

      2,097       2,093       2,089               

Wholesale access lines

      230       222       214               

YOY Access line decline

      -3.0 %     -3.2 %     -3.6 %             

Percentage of Sprint local access lines with Sprint long distance service

      55 %     56 %     57 %             

- Residential

      57 %     58 %     59 %             

- Business

      49 %     50 %     51 %             

Access minutes of use (millions)

      7,548       7,000       7,082            21,630  

Long distance minutes of use (millions)

      1,325       1,282       1,309            3,916  

Strategic product penetration - residential

      71 %     71 %     72 %             

DSL lines in service (thousands)

      551       590       638               

- Residential

      440       469       507               

- Business

      111       121       131               

DSL capable lines (thousands)

      5,500       5,461       5,445               

Long Distance

                                      

Financial Statistics (millions)

                                      

Total Long Distance net operating revenues

    $ 1,715     $ 1,722     $ 1,735          $ 5,172  

Voice net operating revenue

    $ 1,065     $ 1,054     $ 1,085          $ 3,204  

Data net operating revenue

    $ 412     $ 420     $ 402          $ 1,234  

Internet net operating revenue

    $ 178     $ 178     $ 188          $ 544  

Other net operating revenue

    $ 60     $ 70     $ 60          $ 190  

Operating income (loss)

    $ 146     $ 136     $ 128          $ 410  

Operating income margin

      8.5 %     7.9 %     7.4 %          7.9 %

Adjusted OIBDA*

    $ 260     $ 263     $ 285          $ 808  

Adjusted OIBDA* margin

      15.2 %     15.3 %     16.4 %          15.6 %

Capital expenditures

    $ 65     $ 70     $ 83          $ 218  

Adjusted OIBDA* less capital expenditures

    $ 195     $ 193     $ 202          $ 590  

Other Statistics

                                      

YOY Long Distance voice volume growth

      12 %     12 %     10 %          11 %

 

This information should be reviewed in connection with Sprint’s consolidated financial statements.

 

21

Sprint Nextel Corporation

LOCAL DIVISION - STATEMENTS OF OPERATIONS (Unaudited)

RECONCILIATION OF NEW SEGMENT REPORTING

(millions)

 

Quarter Ended 09/30/2005

   

Local as Previously

Reported

    

North

Supply

    

Intercompany *

Eliminations

    

Local

Division

Net Operating Revenues

    $ 1,497     $ 274     $ (99 )   $ 1,672
    
 
 
 

Operating Expenses

                               

Costs of services and products

      490       245       (94 )     641

Selling, general and administrative

      268       29       1       298

Depreciation and amortization

      278       5       (6 )     277

Restructuring and asset impairments

      1       —         —         1
    
 
 
 

Total operating expenses

      1,037       279       (99 )     1,217
    
 
 
 

Operating Income (Loss)

    $ 460     $ (5 )   $ —       $ 455
    
 
 
 

Adjusted OIBDA*

    $ 742     $ —       $ (6 )   $ 736
    
 
 
 

Capex

    $ 209     $ 2     $ (6 )   $ 205
    
 
 
 

Operating Income (Loss)

    $ 460     $ (5 )              

Special items

      4       —                  
    
 
             

Adjusted Operating Income (Loss)*

      464       (5 )              

Depreciation and amortization

      278       5                
    
 
             

Adjusted OIBDA*

    $ 742     $ —                  
    
 
             

Adjusted OIBDA Margin*

      50 %     0 %              

Operating Income Margin

      31 %     -2 %              

Quarter Ended 09/30/2004

   

Local as Previously

Reported

    

North

Supply

    

Intercompany *

Eliminations

    

Local

Division

Net Operating Revenues

    $ 1,496     $ 217     $ (117 )   $ 1,596

Operating Expenses

                               

Costs of services and products

      499       190       (112 )     577

Selling, general and administrative

      311       26       —         337

Depreciation and amortization

      272       6       (4 )     274

Restructuring and asset impairments

      3       —         —         3
    
 
 
 

Total operating expenses

      1,085       222       (116 )     1,191
    
 
 
 

Operating Income (Loss)

    $ 411     $ (5 )   $ (1 )   $ 405
    
 
 
 

Adjusted OIBDA*

    $ 716     $ 1     $ (5 )   $ 712
    
 
 
 

Capex

    $ 257     $ —       $ (6 )   $ 251
    
 
 
 

Operating Income (Loss)

    $ 411     $ (5 )              

Special items

      33       —                  
    
 
             

Adjusted Operating Income (Loss)*

      444       (5 )              

Depreciation and amortization

      272       6                
    
 
             

Adjusted OIBDA*

    $ 716     $ 1                
    
 
             

Adjusted OIBDA Margin*

      48 %     0 %              

Operating Income Margin

      27 %     -2 %              
* Intercompany eliminations also include certain immaterial rounding differences

 

22

Sprint Nextel Corporation

LOCAL DIVISION - STATEMENTS OF OPERATIONS (Unaudited)

RECONCILIATION OF NEW SEGMENT REPORTING

(millions)

 

Year to Date 09/30/2005

   

Local as Previously

Reported

    

North

Supply

    

Intercompany *

Eliminations

    

Local

Division

Net Operating Revenues

    $ 4,476     $ 658     $ (274 )   $ 4,860
    
 
 
 

Operating Expenses

                               

Costs of services and products

      1,440       583       (257 )     1,766

Selling, general and administrative

      827       83       (1 )     909

Depreciation and amortization

      832       16       (17 )     831

Restructuring and asset impairments

      4       —         (1 )     3
    
 
 
 

Total operating expenses

      3,103       682       (276 )     3,509
    
 
 
 

Operating Income (Loss)

    $ 1,373     $ (24 )   $ 2     $ 1,351
    
 
 
 

Adjusted OIBDA*

    $ 2,213     $ (8 )   $ (17 )   $ 2,188
    
 
 
 

Capex

    $ 566     $ 4     $ (16 )   $ 554
    
 
 
 

Operating Income (Loss)

    $ 1,373     $ (24 )              

Special items

      8       —                  
    
 
             

Adjusted Operating Income (Loss)*

      1,381       (24 )              

Depreciation and amortization

      832       16                
    
 
             

Adjusted OIBDA*

    $ 2,213     $ (8 )              
    
 
             

Adjusted OIBDA Margin*

      49 %     -1 %              

Operating Income Margin

      31 %     -4 %              

Year to Date 09/30/2004

   

Local as Previously

Reported

    

North

Supply

    

Intercompany *

Eliminations

    

Local

Division

Net Operating Revenues

    $ 4,512     $ 638     $ (336 )   $ 4,814
    
 
 
 

Operating Expenses

                               

Costs of services and products

      1,412       559       (318 )     1,653

Selling, general and administrative

      967       78       —         1,045

Depreciation and amortization

      811       17       (13 )     815

Restructuring and asset impairments

      20       —         —         20
    
 
 
 

Total operating expenses

      3,210       654       (331 )     3,533
    
 
 
 

Operating Income (Loss)

    $ 1,302     $ (16 )   $ (5 )   $ 1,281
    
 
 
 

Adjusted OIBDA*

    $ 2,162     $ 1     $ (18 )   $ 2,145
    
 
 
 

Capex

    $ 713     $ 2     $ (18 )   $ 697
    
 
 
 

Operating Income (Loss)

    $ 1,302     $ (16 )              

Special items

      49       —                  
    
 
             

Adjusted Operating Income (Loss)*

      1,351       (16 )              

Depreciation and amortization

      811       17                
    
 
             

Adjusted OIBDA*

    $ 2,162     $ 1                
    
 
             

Adjusted OIBDA Margin*

      48 %     0 %              

Operating Income Margin

      29 %     -3 %              
* Intercompany eliminations also include certain immaterial rounding differences

 

23