Net revenue for the quarter was $6.7M, up 2.1% from $6.5M in 4Q02; profit was $38M, down 2.6% from $39M the year-ago quarter

February 3, 2004

7 Min Read

OVERLAND PARK, Kan. -- The Sprint FON Group (NYSE: FON - News) is comprised of Sprint's global markets division, local division and other businesses consisting primarily of wholesale distribution of telecommunications products. The Sprint PCS Group (NYSE: PCS - News) consists of Sprint's mobile wireless operations.

Sprint today announced fourth quarter and full-year 2003 financial results. Sprint completed the year with improving top-line performance, substantial progress on profitability and excellent cash flow generation. In the quarter, Sprint's total net operating revenues increased 2% compared to the fourth quarter of 2002; total Adjusted Operating Income* was up 20%; and fourth quarter Free Cash Flow* totaled $581 million.

In the quarter, Sprint made strong gains in key growth metrics. The PCS Group added over one million net customers in the fourth quarter, consisting of 390,000 net direct customer additions combined with 640,000 from our wholesale and affiliate partners. The PCS Group, through all channels, was serving a total of 20.4 million customers at the end of the year, an increase of more than 2.6 million, or 15%, from a year ago.

The Local Division surpassed 300,000 DSL subscribers, and sales of Sprint Complete Sense, Sprint's bundle of communication services including competitive local service, topped 280,000 following its second quarter launch. On the strength of its product bundling expertise, Sprint improved product penetration in its local customer base, exiting the year with two out of three local consumer customers taking one or more of Sprint's strategic products in addition to local phone service.

The FON Group reported earnings per share from continuing operations of 40 cents for the fourth quarter, compared to 28 cents in the fourth quarter of 2002. Before special items described in the FON discussion below, FON Group's Adjusted EPS* was 39 cents versus 37 cents in the year-ago period, a 5% increase.

The PCS Group reported a loss from continuing operations of 31 cents per share for the fourth quarter, compared to a loss of 25 cents per share in the fourth quarter of 2002. Before special items described in the PCS discussion below, the PCS Group reported a 10 cent Adjusted loss per share* versus an 18 cent loss in the year-ago period, a 44% improvement.

"I'm pleased with our operational and financial performance in the period," said Gary Forsee, Sprint chairman and chief executive officer. "Our results demonstrate that we kept our eye focused on execution even as we worked extensively to transform our organization to market-facing units for the business and consumer segments.

"We achieved good progress in 2003 on profitability within both the FON Group and PCS Group. FON Group exceeded the original Adjusted EPS* goal for the year, and the PCS Group exceeded the Adjusted EBITDA* goal for the year," Forsee added. "Our momentum is also evident in our growing financial strength and flexibility as we reduced Net Debt* for the full year by $4.2 billion and significantly improved credit ratios. Throughout 2003 the Sprint team was able to overcome market challenges, and I am delighted to report that we enter 2004 with a streamlined, customer-driven organization that is eager to build on these successes."

Fourth quarter consolidated net operating revenues were $6.7 billion, compared to $6.5 billion in the same period last year. Net income for the fourth quarter was $38 million versus net income of $39 million for the same period last year. Operating income was $325 million in the fourth quarter compared with operating income of $388 million a year ago. Adjusted Operating Income* was up 20% to $759 million this quarter, compared with $633 million a year ago. Full year Adjusted Operating Income* was $2.9 billion, up 16% from $2.5 billion in 2002.

At year-end 2003, cash on hand was $2.4 billion as Sprint continues to be ahead of schedule on planned debt reduction. In the quarter, Net Debt* was cut by $392 million and now stands at $16.7 billion.

In addition to strong DSL growth, the Local Division improved penetration of our strategic products, expanded Sprint-branded service beyond our existing markets to Dallas and Kansas City, and made progress in converting circuit- based networks to next-generation packet technology. At the end of the fourth quarter, 66% of our local consumer customers have one or more of our strategic products including long-distance, DSL, Sprint PCS wireless service or a premium package of vertical services. In the quarter, the division successfully converted 20 additional switch complexes to packet technology and had converted a total of nearly 130,000 lines by the end of the year.

Total fourth quarter expenses decreased 2% compared to a year ago. Special items accounted for approximately one third of this reduction. Reduced staffing and tight general expense controls mitigated the pension expense. Lower depreciation expense in 2003 was due to the adoption of SFAS No. 143 and reduced depreciation rates on switching equipment.

In the quarter, total business revenues, including wholesale and affiliates, declined 3% from the year-ago period, but were up 1% sequentially. Consumer revenues were down 19% from the year ago period, and declined 7% sequentially. Revenue declines in consumer long-distance are beginning to be partially mitigated by growing competitive local service revenues from Sprint Complete Sense. This revenue source surpassed $100 million for the year.

In the quarter, total voice revenues decreased 8% compared to the year-ago period and 2% sequentially. Voice revenues were impacted by ongoing product substitution and increased competition.

Data revenues increased 2% from the year-ago period but declined 1% sequentially. Compared to the year ago period, growth in Frame Relay, private line and managed network services was partially offset by lower ATM revenues. IP revenues declined 3% compared to the fourth quarter of 2002. Excluding the customer contract buyout, fourth quarter IP revenue would have declined 12% from the year-ago period. Within this category, growth in dedicated services was offset by declines in dial-up and hosting revenues. Other revenues were impacted by lower sales of early generation data services.

The Global Markets Division total expenses declined 9% compared to the year-ago period. Special items account for 25% of this decline. The remaining 75% of the expense decline is being driven by workforce reductions, reduced depreciation, improvement in bad debt expense and initiatives to improve access unit costs.

In the fourth quarter, the PCS Group experienced strong demand for data services. In the period nearly 600,000 net new and existing customers added PCS Vision(SM) services. At the end of the period more than 3.2 million customers were subscribing to PCS Vision and more than 2.2 million customers subscribed to our first generation data services. Combined, more than a third of the direct customer base are now subscribing to data services. For the full quarter, data contributed nearly 5% to overall ARPU*.

The PCS Group continues to enhance its growth potential through strategic alliances. These alliances leverage Sprint's network assets and expand the channels for selling our services. The Virgin Mobile joint venture had excellent growth in the quarter and exited 2003 with more than 1.4 million customers. For the quarter, wholesale and affiliate revenues totaled $100 million, which was nearly double the year-ago period.

In the fourth quarter, the PCS Group made substantial progress in deploying network capacity and enhancing network quality. Capital spending in the quarter was $939 million, bringing the full-year investment to $2.15 billion. The PCS Group added approximately 1,800 cell sites in 2003.

The PCS Group's full-year Free Cash Flow* of $308 million is an increase of $900 million over 2002. The 2003 results exclude $700 million of tax sharing payments from the FON Group associated with the sale of the directory publishing business.

Sprint Corp.

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