Sprint Nextel Reports Fourth Quarter and Full-Year 2008 Results

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 Everything^TM 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™, LG Lotus™ and the award-winning Samsung Rant™, all featuring the easy-to-use One Click interactive user interface, and the HTC Touch Pro™, Touch Diamond™ by HTC, and i576 by Motorola. Additionally, the company launched the BlackBerry^® Curve™ 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™ and Motorola Stature™ 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™, 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 projects to increase capacity and introduce EVDO capability in 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.

*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 (Loss) per Share (EPS) is defined as net income (loss) before special items, net of tax and the diluted EPS calculated thereon. Adjusted EPS before Amortization is defined as net income (loss) 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 (Loss) is defined as income (loss) from continuing operations before special items, net of tax. 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 (Loss) is defined as operating income (loss) 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, severance, exit costs and asset impairments, gains or losses on asset dispositions and exchanges and other special items. Adjusted OIBDA Margin represents Adjusted OIBDA divided by non-equipment net operating revenues adjusted for certain non-recurring revenue adjustments for Wireless and Adjusted OIBDA divided by net operating revenues for Wireline. 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 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 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 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 and forward-looking guidance, 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 and regulatory environment.

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

• our ability to attract and retain subscribers;
• the effects of vigorous competition on a highly penetrated market, including the impact of competition on the price we are able to charge subscribers for services and equipment we provide and our ability to attract new subscribers and retain existing subscribers; the overall demand for our service offerings, including the impact of decisions of new subscribers between our post-paid and prepaid services offerings and between our two network platforms; and the impact of new, emerging and competing technologies on our business;
• the effect of limiting capital and operating expenditures on our ability to improve and enhance our networks and service offerings, implement our business strategies and provide competitive new technologies;
• volatility in the trading price of our common stock, current economic conditions and our ability to access capital;
• the impact of third parties not meeting our business requirements, including a significant adverse change in the ability or willingness of such parties to provide handset devices or infrastructure equipment for our CDMA network, or Motorola, Inc.’s ability or willingness to provide related handset devices, infrastructure equipment and software applications, or to develop new technologies or features, for our iDEN network;
• the costs and business risks associated with providing new services and entering new geographic markets;
• the financial performance of Clearwire Corporation and its deployment of a WiMAX network;
• the effects of mergers and consolidations and new entrants in the communications industry and unexpected announcements or developments from others in the communications industry;
• unexpected results of litigation filed against us or our suppliers or vendors;
• the impact of adverse network performance;
• the costs and/or potential customer impacts of compliance with regulatory mandates;
• equipment failure, natural disasters, terrorist acts, or other breaches of network or information technology security;
• one or more of the markets in which we compete being impacted by changes in political, economic or other factors such as monetary policy, legal and regulatory changes or other external factors over which we have no control; and
• other risks referenced from time to time in this report and other filings of ours with the Securities and Exchange Commission, or SEC, including in our annual report on Form 10-K for the year ended December 31, 2007 in Part I, Item 1A, "Risk Factors” and, when filed, our Form 10-K for the year ended December 31, 2008.

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.

⁺ "Dependable” based on independent third-party drive tests for 3G data connection success, session reliability and signal strength for the top 50 most populous markets, April to November 2008.

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 wireless networks serving over 49 million customers at the end of the fourth quarter 2008; industry-leading mobile data services; instant national and international walkie-talkie capabilities; and a global Tier 1 Internet backbone. For more information, visit www.sprint.com.