Investor Quarterly Update: Sprint Nextel Reports Third Quarter 2006 Results

Third Quarter Highlights Wireless (pro forma) Revenues of $9.1 billion increased 12% from third quarter 2005 Adjusted Operating Income* of $743 million compares to $689 million in the year-ago period. This measure was partially impacted by increased amortization expense arising from acquisitions Adjusted OIBDA* of $3.16 billion increased 20% from the year-ago period Long Distance Revenues were $1.6 billion, a 6% decrease year-over-year Adjusted Operating Income* of $82 million decreased 48% from the year- ago period Adjusted OIBDA* of $206 million was 27% lower than the third quarter 2005 Sprint Nextel Corp. (NYSE:S) today reported third quarter 2006 financial results. In the quarter, the company improved profitability and launched several initiatives to enhance operating performance. For the quarter, diluted earnings per share (EPS) from continuing operations were 8 cents, compared to 12 cents per share for the third quarter 2005. The reported earnings include charges of 2 cents for special items and 22 cents for merger and acquisition-related amortization cost. For the quarter, Adjusted EPS before Amortization*, which removes these effects, increased 7% to 32 cents per share, versus pro forma Adjusted EPS before Amortization* of 30 cents in the year-ago period. Third quarter results reflect growth in operating income from the Wireless segment, offset by a lower contribution from Long Distance. In the current quarter, the company reported consolidated revenue of $10.5 billion, an increase of 8% compared to pro forma revenues in the 2005 third quarter. Consolidated Adjusted OIBDA* of $3.4 billion increased 14 percent compared to the third quarter of 2005 pro forma results. In the quarter, the company reported a 38.4% Adjusted OIBDA margin* in the Wireless segment and a Consolidated Adjusted OIBDA margin of 34.8%, a 150-basis point improvement from the year-ago period. Third-quarter Consolidated Free Cash Flow* was $769 million. Total wireless net subscriber additions were 233,000 for the quarter due to growth in CDMA post-paid subscribers, a gain in Boost pre-paid service subscribers and renewed growth in wholesale subscribers, offset by a decline in iDEN post-paid subscribers. At the end of the quarter, Sprint Nextel’s total base was 51.9 million subscribers. In the third quarter, Wireless data revenues increased 74% compared to the year-ago period. Long Distance IP services increased 26% and Cable Voice over Internet Protocol (VoIP) users served by Sprint Nextel more than doubled from the third quarter a year-ago. In August, the company initiated its common stock buy-back program which is expected to total up to $6 billion over an 18-month period. In the third quarter, the company acquired 91 million common shares at an aggregate cost of approximately $1.5 billion. The company will vary the amount and timing of its common stock purchases from time to time as the program proceeds. "In the third quarter, our margins benefited from merger synergies and the scale provided by acquisitions,” said Sprint Nextel President and Chief Executive Officer Gary Forsee. "Our profitability in the quarter is encouraging and demonstrates the potential of an asset mix that now is predominantly wireless. In the third quarter we took some actions to improve the quality of the customers coming into our business, and this is constraining our near-term growth. At the same time, we have taken a number of actions we believe will improve our top-line growth performance over time. Activities in the quarter included: Launching a new "Power Up” branding and marketing campaign that emphasizes the power of our network and the power we bring customers to enhance their lifestyles and productivity. The campaign focuses on both the Nextel and Sprint brands, and utilizes traditional national channels, local network advertising, new media and innovative placement approaches; Restructuring our sales, service and distribution organization and simplifying the business to enhance operating effectiveness while lowering our cost structure; Augmenting our product portfolio to include fourth quarter introductions of hybrid phones that will offer the benefits of Nextel and Sprint features, and a popular suite of Motorola handsets; and Investing in our networks, including initiatives to improve performance on the iDEN platform, expansion of our CDMA EV-DO broadband network to areas where 168 million people live or work, planning for the fourth quarter implementation of the EV-DO Rev. A network, and the announcement of the selection of WIMAX as our 4G Network technology. "We have established an intense focus on execution across the company, and I am confident this will produce stronger customer growth and loyalty, improved margins and increased shareholder value over time,” Forsee said. Editor’s Note: In accordance with purchase accounting rules, Sprint Nextel’s 2005 reported results are comprised of Sprint’s stand-alone results prior to the Aug. 12, 2005, merger with Nextel Communications Inc., plus combined Sprint and Nextel results for the remainder of the year. Results from acquired Sprint PCS affiliates and Nextel Partners are included as of the date the applicable acquisition was completed. To provide comparability with previously reported periods, Sprint Nextel also is providing pro forma Consolidated and Wireless results and certain other financial measures* for 2005 reporting periods. The pro forma results assume the merger of Sprint and Nextel occurred at the beginning of each 2005 reporting period and include the impact of conforming the accounting policies and both financial and non-financial measures of the two companies. The pro forma Consolidated and Wireless information excludes results of acquired affiliates prior to their respective acquisition close dates. Consolidated TABLE No. 1 Selected Unaudited Financial Data (in millions, except per share amounts). Diluted EPS below is from continuing operations.   As Reported Financial Data Quarter Ended September 30, % ? Year-to-Date September 30, % ?   2006    2005    2006    2005  Net operating revenues $ 10,496  $ 7,825  34% $ 30,584  $ 18,997  61% Adjusted operating income* 824  838  (2)% 2,287  2,252  2% Adjusted OIBDA* 3,364  2,325  45% 9,527  5,268  81%   Income from Continuing Operations 247  263  (6)% 702  816  (14)%   Diluted earnings per share $ 0.08  $ 0.12  (33)% $ 0.24  $ 0.46  (48)%   Capex $ 1,843  $ 1,051  75% $ 4,445  $ 2,365  88%   Free cash flow* $ 769  $ 801  (4)% $ 2,338  $ 3,824  (39)%     Quarter Ended September 30, % ? Year-to-Date September 30, % ?   2006    2005    2006    2005  Pro Forma Financial Data Net operating revenues $ 10,496  $ 9,698  8% $ 30,584  $ 28,385  8% Adjusted operating income* 824  874  (6)% 2,287  2,344  (2)% Adjusted OIBDA* 3,364  2,953  14% 9,527  8,493  12%   Diluted earnings per share from continuing operations $ 0.08  $ 0.05  60% $ 0.24  $ 0.21  14% Adjusted earnings per share before amortization* $ 0.32  $ 0.30  7% $ 0.89  $ 0.82  9%   Pro Forma Capex $ 1,843  $ 1,406  31% $ 4,445  $ 4,395  1% The following is a discussion of Consolidated pro forma results. Revenue growth in the quarter was due to revenue growth in Wireless, offset by lower Long Distance revenues. Long Distance revenues were partially impacted by sales of businesses. The decline in Adjusted Operating Income* was due to higher amortization and depreciation expense and a lower contribution from Long Distance which offset growth in Wireless Adjusted OIBDA*. Free cash flow* in the quarter was $769 million. In the quarter, a lower average cash balance due to the Nextel Partners and UbiquiTel acquisitions, debt retirements and purchases of common stock produced a $43 million sequential decline in interest income, while interest expense declined $18 million. The effective tax rate for the quarter was 30.8% compared to 38.1% a year ago. The lower tax rate is due to a favorable tax audit settlement covering 1995 to 1999. It includes a tax benefit of $26 million, plus interest income, net of tax, of $16 million. The $42 million total is netted in special items for the quarter. At the end of the quarter, Net Debt* was $19.9 billion. Wireless TABLE No. 2 Selected Unaudited Financial Data (dollars in millions)   As Reported Financial Data Quarter Ended September 30, % ? Year-to-Date September 30, % ?   2006    2005    2006    2005  Net operating revenues $ 9,072  $ 6,190  47% $ 26,111  $ 14,098  85% Adjusted operating income* 743  653  14% 1,900  1,737  9% Adjusted OIBDA* 3,159  2,015  57% 8,781  4,391  100%   Capex1 $ 1,473  $ 914  61% $ 3,608  $ 2,010  80%     Pro Forma Financial Data Net operating revenues $ 9,072  $ 8,066  12% $ 26,111  $ 23,496  11% Adjusted operating income* 743  689  8% 1,900  1,829  4% Adjusted OIBDA* 3,159  2,643  20% 8,781  7,616  15% Adjusted OIBDA margin* 38.4% 36.5% 37.0% 35.9%   Pro Forma Capex1 $ 1,473  $ 1,262  17% $ 3,608  $ 4,040  (11)%   1Capex includes re-banding capital Discussion of the following Wireless results is on a pro forma basis. Total operating revenues increased 12% compared to the year-ago period. Service revenues increased 14% due to a larger subscriber base, offset by lower average revenue per user (ARPU). After adjusting for Nextel Partners and all affiliate acquisitions, pro forma year-over-year net operating revenue growth would have been approximately 4%. Adjusted OIBDA Margin* improved to 38.4% compared to 37.6% in the second quarter and 36.5% a year ago. The margin gain is due to a growing customer base and operating cost efficiencies which offset lower average customer revenues. In the quarter, the company reported a total net subscriber gain of 233,000. Total net additions include a loss of 188,000 post-paid subscribers, a gain of 216,000 Boost subscribers, a gain of 177,000 Wholesale subscribers, and a gain of 28,000 net subscribers from affiliates. The company also acquired 458,000 post-paid customers though the purchase of UbiquiTel. Total retail gross additions were approximately 3.8 million compared to 3.5 million a year ago on a pro forma basis and 3.8 million in the second quarter. Post-paid churn in the quarter was 2.4%. Churn increased from 2.1% in the second quarter, mainly due to seasonally higher CDMA network involuntary churn, higher iDEN network voluntary churn, and higher-than-expected Nextel Partners churn. Boost churn was 6.8% in the quarter versus 6.0% in the second quarter. The increase is due to increased competition. Direct post-paid ARPU was approximately $61, a decline of 5.5% year-over-year and 1% sequentially. After adjusting for the effects of affiliate acquisitions, the decline was 4% from a year ago and 1% sequentially. Strong growth in data services partially mitigated lower contributions from voice revenues. Data revenues contributed approximately $7.75 to direct post-paid ARPU, up from $7.25 in the second quarter. CDMA post-paid data ARPU exceeded $10 in the quarter. Boost ARPU was approximately $32.50 in the quarter. Net equipment subsidies increased 18% from the year-ago period due to higher gross additions. Subsidies declined 9% sequentially due to higher-priced handset sales. Cost of services increased 10% year-over-year and 6% sequentially due to a larger subscriber base, significant network expansion and deployment of broadband services. At the end of the quarter, Sprint Nextel was providing services through 59,000 cell sites. Selling, general and administrative expense increased 6% year-over-year and 6% sequentially. The year-over-year increase is due to increases in sales and marketing and customer care costs, while the sequential increase is due to higher sales costs and seasonally higher bad debt expense. Year-to-date, Adjusted OIBDA* exceeded capital expenditures by $5.2 billion compared to $3.6 billion in the year-ago period. Long Distance TABLE No. 3 Selected Unaudited Financial Data (dollars in millions) Quarter Ended September 30, % ? Year-to-Date September 30, % ?   2006    2005    2006    2005  Net operating revenues $ 1,626  $ 1,735  (6)% $ 4,936  $ 5,172  (5)% Adjusted operating income* 82  159  (48)% 358  440  (19)% Adjusted OIBDA* 206  283  (27)% 717  801  (10)% Adjusted OIBDA margin* 12.7% 16.3% 14.5% 15.5% Capex $ 255  $ 83  NM  $ 547  $ 218  NM  The following is a discussion of Long Distance results. Total revenues declined 6% versus the third quarter of 2005, and 1% sequentially. Adjusting for the sale of a conferencing business and a UNE-P business in prior periods, revenues declined 3% on a year-over-year basis and were up modestly on a sequential basis. Compared to a year ago, voice revenues declined 9%. Voice revenues continue to be impacted by declining consumer market share and lower yields. Adjusting for the sale of businesses, voice revenues declined 4% year-over-year and were flat sequentially. Legacy data revenues were 14% below the year-ago period. These services continue to be impacted by product substitution. The company reported strong growth in IP revenues, which were up 26%, driven by strong demand for Multi-Protocol Label Switching services. At the end of the quarter, Sprint Nextel was providing services to more than 1.3 million cable telephony customers. Market penetration now exceeds 10% in more than a quarter of the cable footprint served by Sprint Nextel. The Adjusted OIBDA Margin* of 12.7% was down both sequentially and year-over-year. Margins were impacted by a lower product margin mix and increased access costs. Year-to-date Adjusted OIBDA* exceeded capital expenditures by $170 million compared to $583 million in year to date 2005. The decline is mainly due to increased investment to support wireless volume growth and demand for IP services. Forward-Looking Guidance The company is reiterating prior guidance which calls for full-year revenues of $41.0 billion to $41.5 billion, Adjusted OIBDA* of $12.6 billion to $12.9 billion and capital expenditures, inclusive of re-banding requirements, of $7 billion to $7.1 billion. This guidance includes results for Nextel Partners and UbiquiTel operations from July 1, 2006. *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 Earnings per Share (EPS) is defined as income from continuing operations, before special items, net of tax and the diluted EPS calculated thereon. Adjusted EPS before Amortization is defined as income from continuing operations, before special items and amortization, 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 relate to acquired amortizable intangible assets and not to the ongoing operations of our businesses. Adjusted Net Income is defined as income (loss) from continuing operations before special items. Adjusted Net Income before Amortization is defined as income (loss) from continuing operations before special items and amortization, net of tax. 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 Operating Income is defined as operating income before 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 OIBDA is defined as operating income before depreciation, amortization, restructuring and asset impairments, 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 Long Distance. Although we have used substantially 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 cash equivalents less the change in debt, investment in certain securities, proceeds from common stock, repurchase of the company’s common stock and other financing activities, net, from continuing operations. 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 cash equivalents, current marketable securities and restricted cash. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the balance sheet and statement of 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. Safe Harbor This press release includes "forward-looking statements” within the meaning of the securities laws. The statements in this presentation regarding the business outlook and 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 based on currently available information 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 effects of vigorous competition, including the impact of competition on the price we are able to charge customers for the services we provide and on Sprint Nextel’s ability to attract new customers and retain existing customers; the overall demand for Sprint Nextel’s service offerings, including the impact of decisions of new subscribers between Sprint Nextel’s post-paid and prepaid services offerings and between Sprint Nextel’s two network platforms; and the impact of new, emerging and competing technologies on Sprint Nextel’s business; the impact of overall wireless market penetration on Sprint Nextel’s ability to attract and retain customers with good credit standing and the intensified competition among wireless carriers for those customers; the uncertainties related to the benefits of the Sprint-Nextel merger, including anticipated synergies and cost savings and the timing thereof; the potential impact of difficulties we may encounter in connection with the integration of the pre-merger Sprint and Nextel businesses, and the integration of the businesses and assets of certain of the third party affiliates, or PCS Affiliates, that provide wireless personal communications services, or PCS, under the Sprint® brand that we have acquired, and Nextel Partners, Inc., including the risk that these difficulties could prevent or delay Sprint Nextel’s realization of the cost savings and other benefits we expect to achieve as a result of these integration efforts and the risk that Sprint Nextel will be unable to continue to retain key employees; the uncertainties related to the implementation of Sprint Nextel’s business strategies and Sprint Nextel’s investments in networks, systems, and other businesses, including investments required in connection with Sprint Nextel’s planned deployment of a next generation broadband wireless network; the costs and business risks associated with providing new services and entering new geographic markets, including with respect to Sprint Nextel’s development of new services expected to be provided using the next generation broadband wireless network that we plan to deploy; the impact of potential adverse changes in the ratings afforded Sprint Nextel’s debt securities by ratings agencies; the ability of Wireless to continue to grow and improve profitability; the ability of Long Distance to achieve expected revenues; the effects of mergers and consolidations in the communications industry and unexpected announcements or developments from others in the communications industry; unexpected results of litigation filed against Sprint Nextel; the inability of third parties to perform to Sprint Nextel’s requirements under agreements related to Sprint Nextel’s business operations; 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 impact of adverse network performance, including, but not limited to, any performance issues resulting from reduced network capacity and other adverse impacts resulting from the reconfiguration of the 800 Megahertz band used to operate the iDEN network, as contemplated by the Federal Communications Commission’s, or FCC’s, Report and Order, released in August 2004 and supplemented thereafter; the costs of compliance with regulatory mandates, particularly requirements related to the FCC’s Report and Order, deployment of enhanced 911, or E911, services on the iDEN network and privacy-related matters; equipment failure, natural disasters, terrorist acts, or other breaches of network or information technology security; 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, including its Form 10-K for the year ended December 31, 2005, as amended, in Part I, Item 1A, "Risk Factors.” 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 presentation. Sprint Nextel is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this release. About Sprint Nextel Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel is widely recognized for developing, engineering and deploying innovative technologies, including two robust wireless networks covering nearly 282 million people and serving more than 51 million customers at the end of third quarter 2006; 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. Sprint Nextel Corporation CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (a) (millions, except per share data)     TABLE No. 4 Quarter Ended Year-to-Date September 30, September 30, September 30, September 30,   2006      2005    2006      2005    Net Operating Revenues $ 10,496    $ 7,825  $ 30,584    $ 18,997  Operating Expenses Costs of services and products 4,201  3,281  12,245  8,337  Selling, general and administrative (1) 3,038  2,532  9,108  5,732  (includes $107, $234, $296 & $261 of merger and integration) Severance, lease exit costs and asset impairments (2) 50  37  128  68  Depreciation 1,460  1,027  4,264  2,549  Amortization   1,080      460    2,976      467  Total operating expenses   9,829      7,337    28,721      17,153  Operating Income 667  488  1,863  1,844  Interest expense (381) (337) (1,174) (896) Interest income 74  71  275  142  Gain on early retirement of debt 6  -  14  -  Equity in (losses) earnings of unconsolidated investees, net (2) 124  (1) 114  Other, net   (7)     42    76      67  Income from continuing operations before income taxes 357  388  1,053  1,271  Income tax expense   (110)     (125)   (351)     (455) Income from continuing operations 247  263  702  816  Discontinued operations, net (3)   -      253    334      772  Net Income 247  516  1,036  1,588  Preferred stock dividends paid   -      (2)   (2)     (5) Income Available to Common Shareholders $ 247    $ 514  $ 1,034    $ 1,583    Diluted Earnings Per Common Share $ 0.08  $ 0.23  $ 0.35  $ 0.91  Discontinued Operations   -      (0.11)   (0.11)     (0.45) Diluted Earnings Per Common Share from Continuing Operations $ 0.08    $ 0.12  $ 0.24    $ 0.46    Diluted weighted average common shares   2,968.7      2,242.1    2,987.5      1,745.0  Basic Earnings Per Common Share $ 0.08    $ 0.23  $ 0.35    $ 0.92    (a) Results for each of the periods reflected include the results of Nextel from the date of Sprint-Nextel merger and of each of the acquired PCS Affiliates as well as Nextel Partners from the date of each acquisition.   (1), (2), (3) See accompanying Notes to Financial Data. Sprint Nextel Corporation PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (millions, except per share data)     TABLE No. 5 Quarter Ended Year-to-Date September 30, September 30, September 30, September 30,   2006    2005    2006    2005    Net Operating Revenues $ 10,496  $ 9,698  $ 30,584  $ 28,385  Operating Expenses Costs of services and products 4,201  3,947  12,245  11,372  Selling, general and administrative (includes $107, $37, $296 & $68 of merger and integration) (1) 3,038  3,195  9,108  8,989  Severance, lease exit costs and asset impairments (2) 50  37  128  68  Depreciation 1,460  1,240  4,264  3,667  Amortization   1,080    839    2,976    2,482  Total operating expenses   9,829    9,258    28,721    26,578  Operating Income 667  440  1,863  1,807  Interest expense (381) (396) (1,174) (1,201) Interest income 74  79  275  167  Gain (loss) on early retirement of debt 6  -  14  (37) Equity in (losses) earnings of unconsolidated investees, net (2) 136  (1) 165  Other, net   (7)   (7)   76    23  Income from continuing operations before income taxes 357  252  1,053  924  Income tax expense   (110)   (96)   (351)   (314) Income from Continuing Operations 247  156  702  610  Discontinued Operations, net (3)   -    253    334    772  Net Income 247  409  1,036  1,382  Preferred stock dividends paid   -    (2)   (2)   (5) Income Available to Common Shareholders $ 247  $ 407  $ 1,034  $ 1,377      Diluted Earnings Per Common Share (a) Diluted earnings per share $ 0.08  $ 0.14  $ 0.35  $ 0.47  Discontinued Operations -  (0.09) (0.11) (0.26) Special items   0.02    0.08    0.05    0.11  Adjusted EPS * (a) $ 0.10  $ 0.13  $ 0.29  $ 0.32    Diluted weighted average common shares   2,968.7    2,976.1    2,987.5    2,955.0      (a) Earnings per share data may not add due to rounding.   (1),(2), (3) See accompanying Notes to Financial Data.   Pro forma consolidated statements of operations have been presented as if the Sprint-Nextel merger occurred at the beginning of each 2005 period presented. Because the merger occurred in the third quarter 2005, the third quarter and the year-to-date 2006 results reflect actual combined results. The pro forma results do not include the results of any acquired PCS Affiliate, Nextel Partners or Velocita prior to the dates of their respective acquisitions because they do not significantly affect reported results. Sprint Nextel Corporation RECONCILIATIONS OF EARNINGS PER SHARE (Unaudited) (millions, except per share data) TABLE No. 6 As Reported   Pro Forma (c) Quarter Ended Year-to-Date Quarter Ended Year-to-Date September 30, September 30, September 30, September 30, September 30, September 30, September 30, September 30,   2006      2005    2006      2005    2006      2005    2006      2005    Income Available to Common Shareholders $ 247  $ 514  $ 1,034  $ 1,583  $ 247  $ 407  $ 1,034  $ 1,377  Preferred stock dividends paid    -      2    2      5    -      2    2      5  Net Income (Loss) 247  516  1,036  1,588  247  409  1,036  1,382  Discontinuedoperations, net   -      (253)     (334)     (772)   -      (253)     (334)     (772) Income from Continuing Operations 247  263  702  816  247  156  702  610  Special items(net of taxes) (a) Restructuring and asset impairments 31  24  77  43  31  24  77  43  Merger and integrationexpense 66  149  181  166  66  204  181  248  Hurricane charges (excluding asset impairments) -  49  -  49  -  49  -  49  Net gains on investment activities -  (90) (40) (90) -  (90) (40) (90) (Gain) Loss on early retirement of debt (4) -  (9) -  (4) -  (9) 22  Tax audit settlement (42) -  (42) -  (42) -  (42) -  Motorola consent fee   -      -    -      -    -      50    -      50  Adjusted Net Income* $ 298    $ 395  $ 869    $ 984  $ 298    $ 393  $ 869    $ 932    Amortization (net of taxes) 650  276  1,792  281  650  504  1,792  1,492                            Adjusted Net Income before Amortization* $ 948    $ 671  $ 2,661    $ 1,265  $ 948    $ 897  $ 2,661    $ 2,424    Diluted Earnings Per Share $ 0.08  $ 0.23  $ 0.35  $ 0.91  $ 0.08  $ 0.14  $ 0.35  $ 0.47  Discontinued operations   -      (0.11)   (0.11)     (0.45)   -      (0.09)   (0.11)     (0.26) Earnings Per Share from Continuing Operations 0.08  0.12  0.24  0.46  0.08  $ 0.05  0.24  $ 0.21  Special items 0.02  0.06  0.05  0.10  0.02  0.08  0.05  0.11                            Adjusted Earnings Per Share* (b) $ 0.10    $ 0.18  $ 0.29    $ 0.56  $ 0.10    $ 0.13  $ 0.29    $ 0.32    Amortization(net of taxes) (d)   0.22      0.12    0.60      0.16    0.22      0.17    0.60      0.50  Adjusted Earnings Per Share before Amortization* (b) $ 0.32    $ 0.30  $ 0.89    $ 0.72  $ 0.32    $ 0.30  $ 0.89    $ 0.82  (a) See accompanying Notes to Financial Data for more information on special items. (b) Earnings per share data may not add due to rounding. (c) Pro forma consolidated information has been presented as if the Sprint Nextel merger occurred at the beginning of 2005. The 2006 periods reflect actual results. (d) Rounding difference is pushed to this line. Sprint Nextel Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (millions)     TABLE No. 7       September 30, December 31,   2006      2005  Assets Current assets Cash and cash equivalents $ 1,482  $ 8,903  Marketable securities 626  1,763  Accounts receivable, net 4,500  4,166  Inventories 982  776  Deferred tax assets 1,181  1,789  Prepaid expenses and other current assets 740  779  Assets of discontinued operations   -      916  Total current assets 9,511  19,092    Investments 187  2,543  Property, plant and equipment, net 24,818  23,329  Goodwill 30,888  21,288  FCC licenses 19,599  18,023  Customer relationships, net 8,058  8,651  Other intangible assets, net 2,449  1,345  Other assets 648  632  Non-current assets of discontinued operations   -      7,857    Total $ 96,158    $ 102,760    Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 3,315  $ 3,562  Accrued expenses and other 4,547  4,622  Current portion of long-term debt and capital lease obligations 2,318  5,045  Liabilities of discontinued operations   -      822  Total current liabilities 10,180  14,051    Long-term debt and capital lease obligations 19,643  19,969  Deferred income taxes 10,276  10,405  Postretirement and other benefit obligations 497  1,385  Other liabilities 2,747  2,753  Non-current liabilities of discontinued operations   -      2,013  Total liabilities 43,343  50,576    Redeemable preferred shares -  247    Shareholders' equity Common shares 5,902  5,846  Treasury shares (1,505) -  Other shareholders' equity   48,418      46,091  Total shareholders' equity   52,815      51,937    Total $ 96,158    $ 102,760  Sprint Nextel Corporation CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited) (a) (millions)   TABLE No. 8           September 30, September 30, For the Year-to-Date Period Ended     2006      2005    Operating Activities Net income $ 1,036  $ 1,588  Discontinued operations, net (334) (772) Depreciation and amortization 7,240  3,016  Deferred income taxes 233  714  Proceeds from communications towers lease transactions -  1,195  Other, net     (583)     (525) Net cash provided by continuing operations 7,592  5,216  Net cash provided by discontinued operations     903      1,597  Net cash provided by operating activities     8,495      6,813    Investing Activities Cash paid for capital expenditures (5,145) (2,908) Cash transferred to Embarq, net of cash received 1,821  -  Proceeds from sale of Embarq notes 4,447  -  Cash acquired in Nextel merger, net of cash paid -  1,183  Business acquisitions, net of cash acquired (10,483) (949) Proceeds from maturities and sales of marketable securities 1,128  49  Proceeds from sales of assets and investments 216  597  Distributions from unconsolidated investees, net -  181  Other, net     (544)     (25) Net cash used in investing activities     (8,560)     (1,872)   Financing Activities Purchase and retirements of debt (5,746) (1,139) Retirement of redeemable preferred shares (247) -  Purchase of treasury shares (1,523) -  Proceeds from issuance of common shares 372  293  Dividends paid (224) (447) Other, net     12      4  Net cash used in financing activities     (7,356)     (1,289)   Change in cash and cash equivalents (7,421) 3,652    Cash and cash equivalents, beginning of period     8,903      4,176    Cash and cash equivalents, end of period $ 1,482    $ 7,828      (a) The 2005 statement is comprised of Sprint's stand-alone results, prior to the merger with Nextel Communications, Inc., plus combined Sprint and Nextel results for the remainder of the year. Results from PCS Affiliates and Nextel Partners acquired in 2006 are included beginning at each acquisition close date. PRO FORMA WIRELESS STATEMENTS OF OPERATIONS (Unaudited) (millions)   TABLE No. 9 Quarter Ended Year-to-Date September 30, September 30, September 30, September 30,   2006    2005    2006    2005    Net Operating Revenues Service $ 8,017  $ 7,022  $ 23,100  $ 20,566  Equipment 843  817  2,397  2,253  Wholesale, affiliateand other   212    227    614    677  Total   9,072    8,066    26,111    23,496    Operating Expenses Cost of services 1,908  1,742  5,465  4,856  Cost of products 1,350  1,245  3,972  3,645  Selling, general and administrative 2,655  2,501  7,893  7,444  Severance, lease exit costs and asset impairments 41  16  102  37  Depreciation 1,336  1,116  3,905  3,306  Amortization   1,080    838    2,976    2,481  Total operating expenses   8,370    7,458    24,313    21,769    Operating Income $ 702  $ 608  $ 1,798  $ 1,727    NON-GAAP MEASURES AND RECONCILIATIONS   Operating Income $ 702  $ 608  $ 1,798  $ 1,727  Special items: Severance, lease exit costs and asset impairments 41  16  102  37  Hurricane charges (excluding asset impairments)   -    65    -    65  Adjusted Operating Income * $ 743  $ 689  $ 1,900  $ 1,829  Depreciation and amortization   2,416    1,954    6,881    5,787  Adjusted OIBDA * $ 3,159  $ 2,643  $ 8,781  $ 7,616    Operating Income Margin (1) 8.5% 8.4% 7.6% 8.1% Adjusted OIBDA Margin * 38.4% 36.5% 37.0% 35.9%     (1)Operating Income Margin percentage excludes wireless equipment revenue.   Pro forma consolidated statements of operations have been presented as if the Sprint-Nextel merger occurred at the beginning of each period presented. Because the merger occurred in the third quarter of 2005, the third quarter and year-to-date 2006 reflect actual results. The pro forma results do not include the results of any acquired PCS Affiliate, Velocita or Nextel Partners prior to the dates of their respective acquisitions because they do not significantly affect reported results. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)     TABLE No. 10         Long Corporate & For the Quarter Ended September 30, 2006 Consolidated Wireless Distance Eliminations   Operating Income (Loss) $ 667  $ 702  $ 73  $ (108) Special items (a) Severance, lease exit costs and asset impairments 50  41  9  -  Merger and integration expense   107    -    -    107  Adjusted Operating Income* 824  743  82  (1) Depreciation and amortization   2,540    2,416    124    -  Adjusted OIBDA* 3,364  3,159  206  (1) Capital expenditures   1,843    1,473    255    115  Adjusted OIBDA* less Capex $ 1,521  $ 1,686  $ (49) $ (116)             Long Corporate & For the Quarter Ended September 30, 2005 Consolidated Wireless Distance Eliminations   Operating Income (Loss) $ 488  $ 572  $ 124  $ (208) Special items Severance, lease exit costs and asset impairments 37  16  21  -  Merger and integration expense 234  -  -  234  Hurricane charges   79    65    14    -  Adjusted Operating Income* 838  653  159  26  Depreciation and amortization   1,487    1,362    124    1  Adjusted OIBDA* 2,325  2,015  283  27  Capital expenditures   1,051    914    83    54  Adjusted OIBDA* less Capex $ 1,274  $ 1,101  $ 200  $ (27)             Pro forma Pro forma Long Corporate & For the Quarter Ended September 30, 2005 Consolidated Wireless Distance Eliminations   Operating Income (Loss) $ 440  $ 608  $ 124  $ (292) Special items Severance, lease exit costs and asset impairments 37  16  21  -  Merger and integration expense 318  -  -  318  Hurricane charges   79    65    14    -  Adjusted Operating Income* 874  689  159  26  Depreciation and amortization   2,079    1,954    124    1  Adjusted OIBDA* 2,953  2,643  283  27  Capital expenditures   1,406    1,262    83    61  Adjusted OIBDA* less Capex $ 1,547  $ 1,381  $ 200  $ (34)     (a) See accompanying Notes to Financial Data for more information on special items. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)     TABLE No. 10         Long Corporate & For the Quarter Ended June 30, 2006 Consolidated Wireless Distance Eliminations   Operating Income (Loss) $ 712  $ 660  $ 155  $ (103) Special items Severance, lease exit costs and asset impairments 40  33  7  -  Merger and integration expense   113    -    -    113  Adjusted Operating Income* 865  693  162  10  Depreciation and amortization   2,354    2,242    113    (1) Adjusted OIBDA* 3,219  2,935  275  9  Capital expenditures   1,359    1,064    200    95  Adjusted OIBDA* less Capex $ 1,860  $ 1,871  $ 75  $ (86)             Long Corporate & For the Quarter Ended March 31, 2006 Consolidated Wireless Distance Eliminations   Operating Income (Loss) $ 484  $ 436  $ 104  $ (56) Special items Severance, lease exit costs and asset impairments 38  28  10  -  Merger and integration expense   76    -    -    76  Adjusted Operating Income* 598  464  114  20  Depreciation and amortization   2,346    2,223    122    1  Adjusted OIBDA* 2,944  2,687  236  21  Capital expenditures   1,243    1,071    92    80  Adjusted OIBDA* less Capex $ 1,701  $ 1,616  $ 144  $ (59)     (a) See accompanying Notes to Financial Data for more information on special items. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)     TABLE No. 11         Long Corporate & For the Nine Months Ended September 30, 2006 Consolidated Wireless Distance Eliminations   Operating income (Loss) $ 1,863  $ 1,798  $ 332  $ (267) Special items (a)   424    102    26    296  Adjusted operating income* 2,287  1,900  358  29  Depreciation and amortization   7,240    6,881    359    -  Adjusted OIBDA* 9,527  8,781  717  $ 29  Capital expenditures   4,445    3,608    547    290  Adjusted OIBDA* less Capex $ 5,082  $ 5,173  $ 170  $ (261)             Long Corporate & For the Nine Months Ended September 30, 2005 Consolidated Wireless Distance Eliminations   Operating income (Loss) $ 1,844  $ 1,635  $ 395  $ (186) Special items   408    102    45    261  Adjusted operating income (loss)* 2,252  1,737  440  75  Depreciation and amortization   3,016    2,654    361    1  Adjusted OIBDA* $ 5,268  $ 4,391  $ 801  $ 76  Capital expenditures   2,365    2,010    218    137  Adjusted OIBDA* less Capex $ 2,903  $ 2,381  $ 583  $ (61)             Pro forma Pro forma Long Corporate & For the Nine Months Ended September 30, 2005 Consolidated Wireless Distance Eliminations   Operating income (Loss) $ 1,807  $ 1,727  $ 395  $ (315) Special items   537    102    45    390  Adjusted Operating Income* 2,344  1,829  440  75  Depreciation and amortization   6,149    5,787    361    1  Adjusted OIBDA*   8,493    7,616    801    76  Capital expenditures   4,395    4,040    218    137  Adjusted OIBDA* less Capex $ 4,098  $ 3,576  $ 583  $ (61)     (a) See accompanying Notes to Financial Data for more information on special items. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)   TABLE No.12                 Quarter Ended Year-to-date September 30, June 30, September 30, September 30, September 30, 2006    2006    2005  2006    2005  Wireless Pro Forma Adjusted OIBDA* $ 3,159  $ 2,935  $ 2,643  $ 8,781  $ 7,616  Service, wholesale, affiliate and other net operating revenues 8,229  7,800  7,249  23,714  21,243  Adjusted OIBDA margin* 38.4% 37.6% 36.5% 37.0% 35.9%   Operating income $ 702  $ 660  $ 608  $ 1,798  $ 1,727  Operating income margin 8.5% 8.5% 8.4% 7.6% 8.1%     Long Distance Adjusted OIBDA* $ 206  $ 275  $ 283  $ 717  $ 801  Total net operating revenues 1,626  1,641  1,735  4,936  5,172  Adjusted OIBDA margin* 12.7% 16.8% 16.3% 14.5% 15.5%   Operating income $ 73  $ 155  $ 124  $ 332  $ 395  Operating income margin 4.5% 9.4% 7.1% 6.7% 7.6%     Consolidated Pro Forma Adjusted OIBDA* $ 3,364  $ 3,219  $ 2,953  $ 9,527  $ 8,493  Service, wholesale, affiliate and other net operating revenues 9,653  9,290  8,881  28,187  26,132  Adjusted OIBDA margin* 34.8% 34.7% 33.3% 33.8% 32.5%   Operating income $ 667  $ 712  $ 440  $ 1,863  $ 1,807  Operating income margin 6.9% 7.7% 5.0% 6.6% 6.9% Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (millions)     TABLE No. 13         Quarter Ended Year-to-Date September 30, September 30, September 30, September 30,   2006    2005    2006    2005    Adjusted OIBDA* $ 3,364  $ 2,325  $ 9,527  $ 5,268  Adjust for special items (157) (350) (424) (408) Proceeds from communications towers lease transactions -  -  -  1,195  Other operating activities, net (a) (303) (711) (1,511) (839) Capital expenditures (1,885) (1,051) (4,798) (2,365) Dividends paid (74) (74) (224) (447) Proceeds from sales of assets 54  378  211  589  Other investing activities, net   (230)   284    (443)   831  Free Cash Flow* 769  801  2,338  3,824  Decrease in debt, net (1,783) (9) (5,746) (1,024) Retirement of redeemable preferred shares -  -  (247) -  Purchase of treasury shares (1,523) -  (1,523) -  Cash transferred to Embarq, net of cash received and proceeds from the sale of Embarq notes -  -  6,268  -  Discontinued operations activity, net (b) -  68  367  83  Cash acquired in Nextel merger, net of cash paid -  1,183  -  1,183  Purchase of PCS Affiliates, Nextel Partners and Velocita, net of cash acquired (867) (949) (10,483) (949) Change in restricted cash 1,124  -  93  -  Distributions from unconsolidated investees, net -  181  -  181  Investments in debt securities, net 91  134  1,128  49  Proceeds from common shares issued 46  187  372  293  Other financing activities, net   12    7    12    12  Change in cash and cash equivalents - GAAP $ (2,131) $ 1,603  $ (7,421) $ 3,652  TABLE No.14 September 30, 2006  Total Debt $ 21,961  Less: Cash on hand (1,482) Less: Current marketable securities (626) Net Debt* $ 19,853  (a) 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). (b) Discontinued operations activity, net includes $6.6 billion from the issuance of long-term debt. Sprint Nextel Corporation OPERATING STATISTICS   TABLE No. 15           1Q06 2Q06 3Q06 YTD 2006   Wireless   Financial and Other Statistics   Direct Post-Paid Subscribers Service revenue (in millions) $ 7,175  $ 7,259  $ 7,653  $ 22,087  ARPU $ 62  $ 62  $ 61  $ 62  Churn 2.1% 2.1% 2.4% 2.2% Additions (in thousands) (1) 563  210  (188) 585  End of period subscribers (in thousands) (2) 39,103  41,405  41,675  41,675  Hours per subscriber 17  17  17  17    Direct Pre-Paid Subscribers Service revenue (in millions) $ 312  $ 337  $ 364  $ 1,013  ARPU $ 36  $ 34  $ 33  $ 34  Churn (4) 5.4% 6.0% 6.8% 6.0% Additions (in thousands) 502  498  216  1,216  End of period subscribers (in thousands) (3) 3,127  3,625  3,841  3,841    Wholesale Subscribers Additions (in thousands) 228  (31) 177  374  End of period subscribers (in thousands) 5,382  5,351  5,528  5,528    Affiliate Subscribers Additions (in thousands) (1) 45  27  28  100  End of period subscribers (in thousands) 1,256  1,283  853  853    Number of cell sites on air (approximate) 55,000  57,000  59,000  59,000    Adjusted OIBDA* (in millions) (5) $ 2,687  $ 2,935  $ 3,159  $ 8,781  Service, wholesale, affiliate and other net operating revenues (in millions) $ 7,685  $ 7,800  $ 8,229  $ 23,714  Adjusted OIBDA margin* 35.0% 37.6% 38.4% 37.0%   Capital expenditures $ 1,071  $ 1,064  $ 1,473  $ 3,608  Pro forma Adjusted OIBDA* less capital expenditures $ 1,616  $ 1,871  $ 1,686  $ 5,173  (1) Direct post-paid and affiliate net subscriber additions for the first quarter 2006 have been reported before transfers from the affiliate subscriber base totaling 1,605,000. Direct post-paid additions for the second quarter 2006 have been reported before acquisitions of subscribers from Nextel Partners totaling 2,092,000. Direct post-paid additions for the third quarter 2006 have been reported before transfers from the affiliate subscriber base totalling 458,000.   (2) Direct post-paid end of period subscribers reflect a decrease in the first quarter and year-to-date 2006 due to a reclassification of 42,000 employee phone rate plans from revenue-generating to non-revenue-generating.   (3) Direct prepaid end of period subscribers for the first quarter 2006 and year-to-date 2006 reflect a beginning balance adjustment of 59,000 subscribers to exclude prepaid subscribers acquired from affiliates in the third and fourth quarters 2005.   (4) Represents prepaid churn normalized for a change in the first quarter 2006 in the treatment of low-balance customers.   (5) See Tables 10 and 11 for Adjusted OIBDA* reconciliation. Long Distance   Financial and Other Statistics (dollars in millions, except where stated)   Total Long Distance Net Operating Revenues $ 1,669  $ 1,641  $ 1,626  $ 4,936  Voice net operating revenue $ 1,009  $ 1,003  $ 989  $ 3,001  Data net operating revenue $ 375  $ 366  $ 346  $ 1,087  Internet net operating revenue $ 225  $ 217  $ 237  $ 679  Other net operating revenue $ 60  $ 55  $ 54  $ 169    Total Operating Expenses $ 1,565  $ 1,486  $ 1,553  $ 4,604  Costs of services and products $ 1,098  $ 1,085  $ 1,141  $ 3,324  Selling, general and administrative $ 335  $ 281  $ 279  $ 895  Depreciation $ 122  $ 113  $ 124  $ 359  Severance, lease exit costs and asset impairments $ 10  $ 7  $ 9  $ 26    Operating income $ 104  $ 155  $ 73  $ 332  Operating income margin 6.2% 9.4% 4.5% 6.7%   Adjusted OIBDA* $ 236  $ 275  $ 206  $ 717  Adjusted OIBDA margin* 14.1% 16.8% 12.7% 14.5%   Capital expenditures $ 92  $ 200  $ 255  $ 547  Adjusted OIBDA* less capital expenditures $ 144  $ 75  $ (49) $ 170    YOY voice volume growth 10% 5% 5% 7%   Sprint Nextel Corporation NOTES TO FINANCIAL DATA (Unaudited)   (1) In the third quarter 2006, we recorded merger and integration costs of $107 million (pre-tax). All merger costs were related to the Sprint-Nextel merger and the acquisition of PCS Affiliates. Merger and integration costs are considered to be non-recurring in nature, and have been reflected as unallocated corporate costs and therefore excluded from segment results.   (2) In the third quarter 2006, we recorded severance, lease exit costs and asset impairment charges of $50 million (pre-tax), which consists of about $31 million related to work force reductions and lease termination charges, and $19 million of asset impairments primarily related to the abandonment of various assets including certain cell sites under construction. Severance, lease exit costs and asset impairment charges are allocated to the appropriate segment results.   (3) In May 2006 we entered into a separation and distribution agreement with Embarq Corporation, which consists primarily of the business that we had reported as the Local segment in our consolidated financial statements in prior periods, and, at the time, was a wholly owned subsidiary, and on May 17, 2006, we completed the spin off of Embarq. The results of the discontinued operations (net of tax), have been reclassified out of the operating results as of the first day of each period presented.