Consolidated net operating revenues of $8.4 billion and a diluted loss per share of 57 cents; full-year 2008 revenues were $35.6 billion

February 19, 2009

10 Min Read

OVERLAND PARK, Kan. -- Sprint Nextel Corp. (NYSE: S) today reported fourth quarter and full-year 2008 financial results. The company generated $536 million of Free Cash Flow* in the quarter, and $1.8 billion for full-year 2008. During the quarter, the company repaid approximately $1 billion in principal of debt and received $213 million in proceeds at the closing of the Clearwire transaction. As of Dec. 31, 2008, the company had $3.7 billion of cash and cash equivalents and $1.4 billion of borrowing capacity available under its revolving bank credit facility, for a total liquidity of $5.1 billion.

The company reported consolidated net operating revenues of $8.4 billion and a diluted loss per share of 57 cents. Full-year 2008 revenues were $35.6 billion. The company recorded a non-cash goodwill impairment charge of approximately $1 billion in the quarter, which finalizes the accounting for the goodwill related to the Sprint Nextel merger and other acquisitions. Adjusted EPS before Amortization*, which removes the impact of non-cash goodwill and other asset impairment charges, as well as the effects of other special items and non-cash amortization expense, was a loss of 1 cent for the quarter.

"In tough economic times, we're generating substantial cash and reducing costs to ensure we remain financially sound. We already have the cash on hand to be able to meet our debt service requirements at least through the end of 2010," said Dan Hesse, Sprint Nextel CEO. "With this financial stability, we can build on the improvements we've made in customer care, strengthen our brand and maintain continued strong network performance in 2009.

"Independent evaluations report our significant improvement in customer care and network performance. Customers are responding to our messages of value, simplicity and productivity. Simply EverythingTM provides a worry-free postpaid experience, and we are bringing the lessons learned from this success to our new family plans and to the prepaid market with the hassle-free national Boost Monthly Unlimited offer. We also have high expectations for the Palm® Pre handset which will be launched later this year," Hesse said.

On Nov. 28, 2008, the company closed a transaction with Clearwire Corporation. At closing, the company contributed assets, including its 2.5 gigahertz spectrum and WiMAX-related assets, in exchange for an ownership interest in Clearwire. Clearwire is deploying WiMAX, a 4G technology, as a new nationwide network. The services supported by these technologies will give subscribers with compatible devices high-speed access to the Internet and a variety of increasingly sophisticated data services. The company has entered into a mobile virtual network operator (MVNO) arrangement with Clearwire that enables it to resell Clearwire's 4G wireless services under the Sprint brand name.

CONSOLIDATED RESULTS

•Consolidated net operating revenues of $8.4 billion for the quarter were 4% lower than in the third quarter, primarily due to a lower contribution from Wireless.

•Adjusted OIBDA* of $1.7 billion reflects a sequential decline in net operating revenues due to subscriber losses, partially offset by lower cost of service and continued improvement in SG&A expenses. Fourth quarter Adjusted OIBDA* includes $60 million in non-cash compensation expense. Also included in the fourth quarter and full-year 2008 Adjusted OIBDA* is approximately $60 million and $290 million, respectively, in operating expenses associated with the company's WiMAX efforts that will not recur in 2009 due to the closing of the Clearwire transaction.

•Capital expenditures were $548 million in the quarter, as compared to $485 million in the third quarter. The increase reflects higher spending in both Wireless and Wireline segments. Included in the fourth quarter and full-year 2008 capital expenditures is $90 million and $560 million, respectively, in capital expenditures related to the deployment of WiMAX that will not recur in 2009 due to the closing of the Clearwire transaction. In the quarter, the company recorded cash expenditures of $146 million related to intangible asset acquisitions, compared to $187 million in the third quarter. All of the acquisitions during the quarter were associated with re-banding efforts.

•Free Cash Flow* was $536 million for the quarter, compared to $211 million in the fourth quarter of 2007 and $1.1 billion in the third quarter of 2008. The sequential decline reflects primarily an increase in working capital, partially offset by the $213 million proceeds received from Clearwire to reimburse us for the $388 million financing that we provided to our WiMAX business between April and the closing of the transaction. Additionally, cash paid for capital expenditures and FCC licenses decreased by $134 million.

•Net Debt* decreased by approximately $550 million from the end of the third quarter to $17.9 billion at the end of the fourth quarter, consisting of total debt of $21.6 billion, offset by cash and marketable securities of $3.7 billion. The company repaid $1 billion of its revolving credit facility in November 2008.

WIRELESS RESULTS

Wireless Customers

•The company served 49.3 million customers at the end of 2008, compared to 53.8 million at the end of 2007. The credit quality of our customer base improved every quarter in 2008, and prime customers represent almost 84% of the post-paid base, compared to 79% a year ago.

•For the quarter, total wireless customers declined by a net 1.3 million, including losses of 1.1 million post-paid customers and 314,000 prepaid users, which was slightly offset by a 146,000 increase in the number of wholesale and affiliate subscribers.

•At the end of the fourth quarter, the company served 36.7 million post-paid subscribers, 3.6 million prepaid subscribers and 9.0 million wholesale and affiliate subscribers.

•Subscribers by network platform include 35.5 million on CDMA, 12.4 million on iDEN and 1.4 million Power Source users who utilize both networks.

•Almost 10% of post-paid customers upgraded their handsets during the fourth quarter, resulting in increased contract renewals.

•In the fourth quarter, the company added to its device and service capabilities with the launch of the Samsung Highnote(TM), LG Lotus(TM) and the award-winning Samsung Rant(TM), all featuring the easy-to-use One Click interactive user interface, and the HTC Touch Pro(TM), Touch Diamond(TM) by HTC, and i576 by Motorola. Additionally, the company launched the BlackBerry® Curve(TM) 8350i - the newest Nextel Direct Connect-capable BlackBerry smartphone.

•For 2009, Sprint has announced that it will be the exclusive carrier partner for both the Palm® Pre(TM) and Motorola Stature(TM) i9. The company plans to launch a total of seven new Nextel Direct Connect handsets as part of its new device portfolio, with most launching during the first half of the year.

Wireless Churn

•Wireless post-paid churn was 2.16% compared to 2.15% in the third quarter and 2.29% in the year-ago period. The sequential increase in churn is primarily driven by deactivations on business lines as a result of current economic conditions, and the year-over-year decrease is primarily due to the improvement in the credit quality of our customer base, partially offset by the slight increase in voluntary churn.

•Boost churn in the fourth quarter was 8.20%, compared to 8.16% in the third quarter of 2008.

Wireless Service Revenues

•Wireless service revenues for the quarter of $6.6 billion declined 13% year-over-year and 4% sequentially. The year-over-year decline and the sequential decline were due primarily to fewer wireless subscribers. Wholesale, affiliate, and other revenues were down sequentially and as compared to the year-ago period primarily due to a decline in average monthly service revenue per wholesale subscriber.

•Wireless post-paid ARPU in the quarter was stable sequentially at $56, as growth in data helped offset voice declines. Wireless post-paid ARPU declined by approximately 4% compared to the year-ago period, reflecting continued pressure on iDEN voice monthly access and overage revenues, partially offset by data revenue growth.

•Data revenues contributed more than $14.50 to overall post-paid ARPU in the fourth quarter, led by growth in CDMA data ARPU. CDMA data ARPU increased about 9% from third quarter, to more than $17.75, now representing almost 31% of total CDMA ARPU. The increase was driven by strong take rates on bundled data services, such as those included with Simply Everything(TM), as well as continued growth in data cards.

•Prepaid ARPU in the quarter was approximately $30 compared to $28 in the year-ago period and $31 in the third quarter of 2008. The year-over-year increase reflects a growing contribution from CDMA Boost Unlimited subscribers. The sequential decline is due to lower ARPU from traditional prepaid users.

Wireless Operating Expenses and Adjusted OIBDA*

•Total operating expenses, after normalizing for special items, were $7.6 billion in the fourth quarter, compared to $8.2 billion in the year-ago period and $7.8 billion in the third quarter of 2008.

•Adjusted OIBDA* of $1.5 billion in the quarter compares to $2.2 billion in the fourth quarter of 2007 and $1.6 billion in the third quarter of 2008. The year-over-year decline in Adjusted OIBDA* was primarily due to fewer wireless subscribers, offset by an improvement of over $500 million in SG&A expenses. The sequential decline was due primarily to fewer wireless subscribers partially offset by lower cost of service and continued improvement in SG&A expense.

•Equipment subsidy of $800 million (equipment revenue of approximately $400 million less cost of products of $1.2 billion) compared to almost $700 million in the third quarter and over $500 million a year ago. The year-over-year increase in subsidy is primarily due to the increase in the average cost per handset sold as the company continued to sell a greater number of higher-priced units, partially offset by a decrease in the number of handsets sold.

•SG&A expenses declined 19% from the fourth quarter of 2007 and 4% from the third quarter of 2008. The year-over-year improvement is due to lower selling, bad debt and labor expenses. On a sequential basis, the decline reflects lower selling and bad debt expenses.

•Bad debt expense was at its lowest level since the Sprint Nextel merger in 2005 due to the continued increase in the credit quality of our subscribers and improved collection efforts.

Wireless Capital Spending

Wireless capital expenditures were $304 million in the fourth quarter, compared to $217 million spent in the third quarter of 2008 and $1.4 billion spent in the fourth quarter of 2007. Fourth quarter Wireless capital expenditures increased sequentially,principally due to the timing of projectsto increase capacityandintroduce EVDO capabilityin certain smaller markets. The year-over-year decrease in wireless capital spending reflects reduced capacity needs and the conclusion of several network and IT investment initiatives. At the end of the quarter, Sprint's CDMA and iDEN networks continue to operate at best-ever levels, and Sprint has the most dependable+ 3G network in the country.

WIRELINE RESULTS

•Wireline revenues of $1.5 billion for the quarter were 3% lower sequentially and 6% lower year-over-year as legacy voice and data declines offset Internet revenue growth.

•Internet revenues for the quarter increased 25% from the year-ago period and 2% sequentially. The year-over-year increase reflects strong enterprise demand for Global MPLS services and the increasing base of cable subscribers who utilize our VoIP services. Internet revenues as a percent of Wireline revenue have increased from 24% in 2007 to 34% in 2008. At the end of the fourth quarter, the company supported nearly 4.4 million users of cable partner VoIP services. These services are currently available to almost 31 million MSO households.

•Legacy voice revenues for the quarter declined 5% sequentially and 14% year-over-year.

•Legacy data revenues are impacted in part by customer transitions to IP services. These legacy services declined 28% compared to the fourth quarter of 2007 and 10% quarter-over-quarter.

•Adjusted OIBDA* was $326 million compared to $263 million reported for the third quarter of 2008. Total operating expenses, after normalizing for special items, were $1.3 billion in the fourth quarter, 8% lower sequentially and 7% lower year-over-year.

•Wireline capital expenditures in the quarter were $110 million and were primarily deployed to support IP growth.

Forecast

Sprint Nextel expects that both post-paid and total subscriber losses will improve in 2009, as compared to 2008. The company expects full-year capital expenditures in 2009 to be consistent with 2008 levels, excluding WiMAX. The company expects to continue to generate positive Free Cash Flow* during 2009.

Sprint Corp. (NYSE: S)

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