[Sprint Logo] Exhibit 99
Investor Update
2Q 2004
Sprint Reports Second Quarter Results
o Strong revenue, profit and free cash flow* performance
o Continued momentum in wireless customer growth
o 2004 full-year earnings guidance raised
Overland Park, Kan. - July 21, 2004:
In its initial financial report since returning to a single common stock
structure, Sprint (NYSE: FON) today announced strong second quarter results. For
the quarter, fully diluted earnings per share on a GAAP basis were 16 cents
versus break-even earnings in the second quarter of 2003. Adjusted EPS*, which
removes the effects of special items, was 20 cents per share compared to 17
cents per share in the same period a year ago, an 18% improvement.
Consolidated net operating revenues increased 6% compared to a year ago and 2%
sequentially. In the quarter, both business and consumer solutions reported
sequential growth of revenues, while local consumer solutions reported a small
sequential decline. Consolidated Adjusted EBITDA* in the quarter was $2.03
billion, a 1% increase from a year ago and a 2% increase sequentially.
Consolidated Adjusted Operating Income* for the quarter increased 5% compared to
the year-ago period, and 6% sequentially. Second quarter Free Cash Flow* totaled
$692 million and year-to-date Free Cash Flow* was $934 million.
The second quarter performance was driven by very strong results in Wireless and
solid contributions from Local, partially offset by lower contributions from
Long distance.
"Sprint continues to successfully execute its transformation agenda," said Gary
Forsee, Sprint chairman and chief executive officer. "Led by outstanding
performance in Wireless which produced its first $1 billion quarterly Adjusted
EBITDA*, we generated strong cash flows and improved our balance sheet. We
achieved revenue growth in the second quarter that will likely lead other
integrated telecom players. Additionally, we continued to implement actions that
are enabling us to meet our previously announced goal of reducing annual
operating expenses by more than $1 billion by the end of 2006. This consistent
progress is the result of our unique nationwide wireless and wireline assets
that offer integrated communication solutions to businesses and consumers and a
customer-driven team that is producing a diversified and growing roster of
satisfied users."
Wireless posted year-over-year revenue growth of 17% and reported a 19% increase
in Adjusted EBITDA*. In the quarter, ARPU* came in at a strong $62, a modest
increase over both the year-ago period and the first quarter. PCS also continued
to
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achieve solid subscriber gains with the total base increasing by 897,000
subscribers in the quarter. The subscriber gains included 505,000 direct
additions and 392,000 additions from our wholesale and affiliate partners.
Sprint also acquired 91,000 subscribers from an affiliate during the quarter.
This acquisition is not reflected in either direct or affiliate additions.
Local reported steady revenues and solid profit margins while continuing to lead
the industry in deploying next generation switching technology. Local also
continues to lead in marketing bundled services. At quarter end, 54% of Local's
residential customers were also using Sprint long-distance services and 45% were
enrolled for a premium package of vertical services.
Long distance reported a revenue decline of 7%, which is again expected to be
well below the rate of decline reported by other backbone competitors. Although
Long distance profitability was impacted by pricing pressures in the quarter,
Adjusted EBITDA* exceeded capital spending by more than $190 million and
year-to-date the excess is nearly $480 million.
"Significant strategic steps were made in the second quarter to continue to
invest in the future growth of our business," Forsee added. "We demonstrated our
commitment to improving the fundamental relationship with our customers by
introducing the Sprint PCS Fair & Flexible(sm) Plan, the wireless industry's
first pricing plan that adjusts automatically to meet a customer's usage
month-to-month while eliminating high overage charges. We unveiled plans to meet
customers' demands for faster wireless data speeds and expand the possibilities
of anywhere, anytime wireless access to information and entertainment with a
significant capital commitment to the next generation of CDMA wireless
technology. In our local markets, we continued to expand our DSL capabilities
with more than 5 million of our 7.8 million local access lines now DSL ready.
All of these areas represent significant opportunities for Sprint."
Sprint Consolidated Highlights
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Sprint Corporation
Selected Financial Data
(millions) Quarters Ended
June 30, June 30, Percent
2004 2003 Change
- ---------------------------------------------------------------
Net operating revenues $6,869 $6,463 6.3%
Operating income 707 370 91.1%
Adjusted operating income* 789 754 4.6%
Adjusted income from
continuing operations* 300 238 26.1%
Income/(Loss) from
continuing operations 233 (2)
Discontinued operations - 9 (100%)
Net Income $ 233 $ 7
CapEx $ 999 $ 945 5.7%
Free Cash Flow* $ 692 $ 925 (25.2%)
Six Months Ended
June 30, June 30, Percent
2004 2003 Change
- ---------------------------------------------------------------
Net operating revenues $13,576 $12,802 6.0%
Operating income 1,421 974 45.9%
Adjusted operating income* 1,533 1,368 12.1%
Adjusted income from
continuing operations* 541 385 40.5%
Income from continuing
operations 455 95
Discontinued operations - 1,322 (100%)
Cumulative effect of
change in accounting
principle, net - 258 (100%)
Net Income $ 455 $ 1,675 (72.8%)
CapEx $ 1,688 $ 1,492 13.1%
Free Cash Flow* $ 934 $ 1,313 (28.9%)
- ---------------------------------------------------------------
Second quarter net operating revenues were $6.9 billion compared to $6.5 billion
last year. Operating income for the second quarter was $707 million compared to
$370 million a year ago. Adjusted Operating Income* as a percentage of net
operating revenues was consistent year-over-year. Second quarter net income was
$233 million compared to $7 million last year. In the second quarter,
pension-related costs and stock-based compensation costs totaled $167 million
versus $120 million in the year-ago period.
Sprint produced strong cash flows in the second quarter. Debt was reduced by
$1.1 billion during the quarter, and Sprint ended the quarter with a cash
balance of $2.4 billion. Net Debt* now stands at $15.6 billion.
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Special Items
The difference between reported Sprint operating income and Adjusted Operating
Income* is primarily the result of a pre-tax charge of $96 million recorded in
the second quarter of 2004 and $30 million in the first quarter of 2004 related
to severance costs associated with Sprint's transformation initiatives and Web
Hosting wind-down. Additionally, Sprint recorded a pre-tax benefit of $14
million in the second quarter of 2004 as a result of the final payment of a
bankruptcy settlement reached with MCI (WorldCom).
In 2003, pre-tax charges included $348 million associated with the Web Hosting
wind-down, as well as $36 million associated with executive separation
agreements, both recorded in the second quarter, and a $10 million charge in the
first quarter associated with the termination of a software development project.
The difference between reported income from continuing operations and Adjusted
income from continuing operations* includes the impacts of the following
additional special items:
o Early retirement of debt - a pre-tax charge of $29 million was recorded in
the second quarter of 2004 related to the early retirement of $750 million
of equity unit notes. This consisted of a $20 million charge reflecting
premiums paid and a $9 million recognition of deferred debt costs. A
pre-tax charge of $19 million was recorded in the first quarter of 2003
related to the early retirement of approximately $1.1 billion of long-term
debt.
o Shareholder litigation charge - a pre-tax charge of $50 million was
recorded in the first quarter of 2003 for a shareholder litigation
settlement.
Finally, Sprint reported two items below the continuing operations line in the
first quarter of 2003:
o Discontinued operation - reflects the operational activity and gain on sale
of Sprint's directory publishing business.
o Cumulative effect of a change in accounting principle - reflects a pre-tax
gain of $420 million recorded upon adoption of Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations.
Wireless
- ---------------------------------------------------------------
PCS
Selected Financial Data
(millions)
Quarters Ended
June 30, June 30, Percent
2004 2003 Change
- ---------------------------------------------------------------
Net operating revenues
Service $ 3,226 $ 2,859 12.8%
Equipment 388 237 63.7%
Net operating revenues 3,614 3,096 16.7%
Operating expenses
Cost of services &
products 1,733 1,521 13.9%
Selling, general &
administrative 811 697 16.4%
Depreciation 651 617 5.5%
Restructuring & asset
impairments 12 -
Total operating expenses 3,207 2,835 13.1%
Operating income $ 407 $ 261 55.9%
Capex $ 667 $ 533 25.1%
Six Months Ended
June 30, June 30, Percent
2004 2003 Change
- -----------------------------------------------------------------
Net operating revenues
Service $ 6,286 $ 5,538 13.5%
Equipment 765 505 51.5%
Net operating revenues 7,051 6,043 16.7%
Operating expenses
Cost of services &
products 3,477 2,969 17.1%
Selling, general &
administrative 1,579 1,428 10.6%
Depreciation 1,305 1,225 6.5%
Restructuring & asset
impairments 16 10 60.0%
Total operating expenses 6,377 5,632 13.2%
Operating income $ 674 $ 411 64.0%
Capex $ 1,079 $ 720 49.9%
- ----------------------------------------------------------------
o Second quarter net subscriber additions include 505,000 direct, 299,000
from wholesale partners and 93,000 from affiliates. PCS also acquired
91,000 subscribers from an affiliate during the quarter. This acquisition
is not reflected in either direct or affiliate additions. At the end of the
period, there were a total of 22.2 million wireless subscribers, consisting
of 16.9 million direct, 3.0 million affiliates and 2.3 million wholesale.
o Direct gross additions were 1.67 million in the quarter, a 14%
year-over-year increase.
o Second quarter net operating revenues increased 17% compared to the
year-ago period and increased 5% sequentially.
o Second quarter Adjusted Operating Income* was up 48% from the year-ago
period and 53% sequentially.
o Adjusted EBITDA* was $1.07 billion, an increase of 19% from the second
quarter of 2003 and 15% from the first quarter of 2004.
o Average monthly service revenue per user (ARPU)* was $62 in the second
quarter and in
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the year-ago period, compared with $61 in the first quarter of 2004.
o During the quarter, average subscriber usage was over 16 hours per month.
o Churn was 2.3% this quarter compared to 2.4% a year ago, and 2.9% in the
first quarter of 2004.
At the end of the period, nearly 6.9 million subscribers were using Sprint PCS
data services, including five million Sprint PCS Vision(sm) subscribers. For the
full quarter, data contributed over 7% to overall ARPU*.
On the operational side, there was notable improvement in customer retention in
the second quarter as total churn declined by over 50 basis points sequentially.
The decrease was due to reductions in both voluntary and involuntary turnover
driven by improving satisfaction with network and customer service performance,
proactive credit and collection efforts, and a growing percentage of customers
under contract.
In the quarter, PCS continued to enhance network coverage and increase capacity
to meet growing demand. Capital spending totaled $667 million as Sprint
continues to prioritize investments in signal density and coverage in
competitive markets.
Total second quarter operating expenses increased 13% compared to the year-ago
period. The increases were primarily due to higher spending on sales and
distribution associated with higher gross additions, the addition of new PCS
stores, the initial costs associated with a new arrangement with our customer
service co-sourcing provider, and increased marketing costs associated with the
launch of the Sprint PCS Fair and Flexible Plan.
In the quarter, Sprint added to a growing roster of wholesale MVNO partners by
reaching new agreements with AT&T and others. Additionally, Qwest began to
transition its customers to the Sprint network.
Local
- ---------------------------------------------------------------
Local
Selected Financial Data
(millions)
Quarters Ended
June 30, June 30, Percent
2004 2003 Change
- -----------------------------------------------------------------
Net operating revenues
Voice $ 1,136 $ 1,165 (2.5%)
Data 205 176 16.5%
Other 169 185 (8.6%)
Net operating revenues 1,510 1,526 (1.0%)
Operating expenses
Cost of services &
products 462 489 (5.5%)
Selling, general &
administrative 329 313 5.1%
Depreciation 271 271
Restructuring & asset
impairments 3 -
Total operating expenses 1,065 1,073 (0.7%)
Operating Income $ 445 $ 453 (1.8%)
Capex $ 247 $ 289 (14.5%)
Six Months Ended
June 30, June 30, Percent
2004 2003 Change
- ----------------------------------------------------------------
Net operating revenues
Voice $ 2,283 $ 2,348 (2.8%)
Data 400 349 14.6%
Other 333 361 (7.8%)
Net operating revenues 3,016 3,058 (1.4%)
Operating expenses
Cost of services &
products 913 976 (6.5%)
Selling, general &
administrative 656 631 4.0%
Depreciation 539 536 0.6%
Restructuring & asset
impairments 17 - -
Total operating expenses 2,125 2,143 (0.8%)
Operating Income $ 891 $ 915 (2.6%)
Capex $ 456 $ 570 (20.0%)
- ---------------------------------------------------------------
o Second quarter revenues of $1.51 billion declined 1% from $1.53 billion in
the year-ago period, but were essentially flat from the first quarter.
o Adjusted EBITDA* was $718 million for the quarter compared to $732 million
in the year-ago period and $728 million in the first quarter of 2004.
o Adjusted Operating Income* was $447 million for the second quarter compared
to $461 million in the second quarter of 2003 and $460 million in the first
quarter of 2004.
o Local added 34,000 new DSL customers in the quarter and ended the period
with a total base of 383,000.
o Total access lines declined 2.4% from the year-ago period.
Revenues were stable in the quarter as growth in data services offset pressures
on voice revenues. The 16% year-over-year growth in data is driven by a gain of
160,000 DSL subscribers over the past 12 months. The gain in DSL subscribers
compares with a loss of 192,000 voice access lines in the same 12-month period.
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Consumer long-distance minutes of use increased 28% year-over-year due to the
unlimited long-distance product which now accounts for over 40% of total
consumer long-distance minutes of use.
In the residential market, penetration of strategic products rose 270 basis
points from the second quarter of 2003, and now 68% of Local residential
customers buy at least one strategic product in addition to basic telephone
service. More than one third of the customer base uses at least two strategic
products. Success is being driven by unlimited long-distance and DSL bundles
which include a package of features.
Local maintained strong margins as it continues to efficiently manage operating
expenses. Total second quarter operating expenses decreased slightly less than
1% percent compared to the year-ago period driven by a continued focus on
expense reduction and productivity improvements somewhat offset by a $14 million
increase in post-retirement benefit expense. Restructuring charges increased
operating expenses by $3 million in the second quarter of 2004.
Long distance
- ---------------------------------------------------------------
Long distance
Selected Financial Data
(millions)
Quarters Ended
June 30, June 30, Percent
2004 2003 Change
- ---------------------------------------------------------------
Net operating revenues
Voice $ 1,164 $ 1,244 (6.4%)
Data 438 466 (6.0%)
Internet 214 245 (12.7%)
Other 57 50 14.0%
Net operating revenues 1,873 2,005 (6.6%)
Operating expenses
Cost of services &
products 1,095 1,064 2.9%
Selling, general &
administrative 515 563 (8.5%)
Depreciation 321 363 (11.6%)
Restructuring & asset
impairments 81 348 (76.7%)
Total operating expenses 2,012 2,338 (13.9%)
Operating loss $ (139) $ (333) 58.3%
Capex $ 64 $ 94 (31.9%)
Six Months Ended
June 30, June 30, Percent
2004 2003 Change
- ---------------------------------------------------------------
Net operating revenues
Voice $ 2,350 $ 2,537 (7.4%)
Data 890 928 (4.1%)
Internet 437 488 (10.5%)
Other 108 98 10.2%
Net operating revenues 3,785 4,051 (6.6%)
Operating expenses
Cost of services &
products 2,148 2,170 (1.0%)
Selling, general &
administrative 1,031 1,138 (9.4%)
Depreciation 641 724 (11.5%)
Restructuring & asset
impairments 93 348 (73.3%)
Total operating expenses 3,913 4,380 (10.7%)
Operating loss $ (128) $ (329) 61.1%
Capex $ 120 $ 155 (22.6%)
- ---------------------------------------------------------------
o Net operating revenues declined nearly 7% to $1.87 billion from $2.01
billion in the year-ago period and declined 2% sequentially.
o Adjusted EBITDA* was $255 million in the quarter compared to $387 million
in the second quarter of 2003 and $343 million in the first quarter of
2004.
o Adjusted Operating Loss* was $66 million for the second quarter compared to
income of $24 million in the year-ago period and income of $23 million in
the first quarter of 2004.
In the quarter, Sprint built on its extensive Long distance customer
relationships to expand sales across its entire portfolio of products. Key wins
include new integrated enterprise business relationships with the State of
Texas, Overhead Door and Misys Healthcare Systems.
In the quarter, total voice revenues decreased 6% from the year-ago period and
2% sequentially. Compared to the year-ago period, consumer voice revenues
declined 15%, while business voice revenues, including wholesale and affiliates,
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declined by 4%. The decline in consumer is mainly driven by lower volumes, while
the business decline is due to lower pricing.
Data revenues decreased 6% from the second quarter of 2003 and 3% sequentially.
In the quarter, Frame Relay and Private Line services declined compared to both
the year-ago period and sequentially, while ATM and Managed network services
increased. In the quarter, dedicated IP revenues were flat year-over-year and
declined 4% from the first quarter. Overall IP revenues continue to be impacted
by declining dial IP usage and Sprint's exit from the Web Hosting business.
Total second quarter operating expenses declined 14% compared to the year-ago
period. The primary drivers of this decline included a change in the depreciable
life associated with certain high-capacity transmission equipment, as well as
lower restructuring charges quarter-over-quarter. Total restructuring charges in
the second quarter of 2004 were $81 million compared to $348 million in the
second quarter of 2003. Reported expenses were impacted by higher bad debt
expense related to the wholesale market.
Forward-looking Guidance
Based upon second quarter results and current internal forecasts for the
remainder of the year, Sprint is updating its financial guidance for 2004. This
update supersedes all prior guidance for 2004. Our forecast assumes that PCS
will continue to achieve a mid-teens share of gross wireless additions within
our operating territories. We are making no changes to the 2005 consolidated
guidance previously provided.
Revenue
We continue to expect consolidated net operating revenues for full year 2004 to
increase 3% to 4% compared to full year 2003. Wireless revenues are now expected
to grow at a solid double digit rate while Local revenues are expected to
continue to decline at a low single digit rate and Long distance revenues now
are expected to decline at a very high single digit rate.
Adjusted EBITDA*
Consolidated Adjusted EBITDA* is expected to be approximately $8.1 billion to
$8.2 billion with PCS now contributing approximately $4.1 billion to $4.2
billion, Local producing around $2.9 billion and Long distance now contributing
approximately $1.1 billion.
Adjusted Operating Income*
Consolidated Adjusted Operating Income* is now expected to be $3.1 billion to
$3.2 billion compared to previous guidance of $3.0 billion to $3.1 billion, with
PCS now producing $1.4 billion to $1.5 billion, Local contributing around $1.8
billion and Long distance now expecting to report a loss.
Adjusted EPS*
Full year Adjusted EPS* is now expected to be in a range of 74 cents to 78 cents
per share compared to previous guidance of 70 cents to 75 cents per share.
Free Cash Flow* and Capital Expenditures
We continue to expect full-year Free Cash Flow* to be approximately $1.8
billion. We continue to expect capital spending to be approximately $4.0
billion, consisting of approximately $2.5 billion in Wireless, a little over
$1.0 billion in Local and $350 million in Long distance.
*Financial Measures
Sprint provides readers 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
6
purposes. Sprint provides reconciliations of these non-GAAP measures in its
financial reporting. Because Sprint 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 does
not provide reconciliations to GAAP of its forward-looking financial measures.
The financial measures used in this release include the following:
Adjusted Operating Income (Loss) is defined as operating income plus special
items. This non-GAAP measure should be used in addition to, but not as a
substitute for, the analysis provided in the statement of operations.
Adjusted income (loss) from continuing operations is defined as income or loss
from continuing operations plus special items, net of tax. This non-GAAP measure
should be used in addition to, but not as a substitute for, the analysis
provided in the statement of operations.
Adjusted earnings per share or Adjusted loss per share is defined as diluted
earnings (loss) per share from continuing operations plus special items. This
non-GAAP measure should be used in addition to, but not as a substitute for, the
analysis provided in the statement of operations.
Adjusted EBITDA is defined as operating income plus depreciation and 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 cash flows.
Free Cash Flow is defined as the change in cash and equivalents less the change
in discontinued operations, debt, investment in debt securities 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.
Net Debt is consolidated debt, including current maturities, and equity unit
notes, less cash and cash equivalents. This non-GAAP measure should be used in
addition to, but not as a substitute for, the analysis provided in the
statements of financial position and cash flows.
ARPU (Average monthly service revenue per user) is calculated by dividing
wireless service revenues by weighted average monthly wireless subscribers. ARPU
is used to measure revenue on a per-user basis. This is a measure which uses
GAAP as the basis for calculation.
Conference Call and Webcast Information
Sprint management will provide an overview of the company's performance and
participate in an interactive Q&A via conference call on Wednesday, July 21,
2004, beginning at 7 a.m. CDT. Call-in numbers are 866-215-1938 (toll free) and
816-650-0742 (international). Please plan on gaining access 10 minutes prior to
the start of the call.
A simultaneous webcast will be available at
www.sprint.com/sprint/ir/ai/web.html.
A continuous replay of the call will be available through August 4, 2004, and
can be accessed by dialing 888-775-8696 (toll free) or 402-220-1326
(international).
Cautionary Statement regarding forward-looking information
This news release includes "forward-looking statements" within the meaning of
securities laws. The statements in this news release 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," "intend," "expect," "believe," "target" and similar expressions
identify forward-looking statements. Forward-looking statements are estimates
and projections reflecting management's judgment and involve a number of risks
and uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements. With respect to these
forward-looking statements, Sprint 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.
Important factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include:
o the effects of vigorous competition and the overall demand for our service
offerings in the markets in which Sprint operates;
o the costs and business risks associated with providing new services and
entering new markets;
o adverse change in the ratings afforded our debt securities by ratings
agencies;
o the ability of Wireless to continue to grow and improve profitability;
o the ability of Long distance and Local to improve cash flow generation;
o the effects of mergers and consolidations within the telecommunications
industry and unexpected announcements or developments from others in the
telecommunications industry;
7
o the uncertainties related to bankruptcies affecting the telecommunications
industry;
o the impact of financial difficulties of third-party affiliates on PCS's
network coverage;
o the uncertainties related to Sprint's investments in networks, systems and
other businesses;
o the uncertainties related to the implementation of Sprint's strategies,
including our initiative to realign service to enhance the focus on
business and consumer customers;
o the impact of new, emerging and competing technologies on Sprint's
business;
o unexpected results of litigation filed against Sprint;
o the impact of wireless local number portability on PCS growth and churn
rates, revenues and expenses;
o the risk of equipment failure, natural disasters, terrorist acts, or other
breaches of network or information technology security;
o the possibility of one or more of the markets in which Sprint 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 has no control; and
o other risks referenced from time to time in Sprint's filings with the
Securities and Exchange Commission (SEC).
Sprint 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 is
not obligated to publicly release any revisions to forward-looking statements to
reflect events after the date of this release or unforeseen events. Unless
specifically discussed in this release, no forward-looking statements made by
Sprint before the date of this release should be deemed to be reiterated,
confirmed or updated by any statement in this release. Sprint provides a
detailed discussion of risk factors in various SEC filings, including its 2003
Form 10-K, and you are encouraged to review these filings.
About Sprint
Sprint is a global integrated communications provider serving more than 26
million customers in over 100 countries. With approximately 63,000 employees
worldwide and over $26 billion in annual revenues in 2003, Sprint is widely
recognized for developing, engineering and deploying state-of-the-art network
technologies, including the United States' first nationwide all-digital,
fiber-optic network and an award-winning Tier 1 Internet backbone. Sprint
provides local services in 39 states and the District of Columbia and operates
the largest 100-percent digital, nationwide PCS wireless network in the United
States. For more information, visit www.sprint.com.
For further information, contact Corporate Communications:
- - Media Relations:
Scott Stoffel
913-794-3603
scott.e.stoffel@mail.sprint.com
- - Investor Relations:
Kurt Fawkes
913-794-1126
Investorrelation.sprintcom@mail.sprint.com
8
Sprint Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(millions, except per share data)
Quarter-to-Date Year-to-Date
- ----------------------------------------------------------------- ------------------------------ --------------------------
Periods Ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------------------- ------------------------------ --------------------------
Net Operating Revenues $ 6,869 $ 6,463 $ 13,576 $ 12,802
- ----------------------------------------------------------------- ------------------------------ --------------------------
Operating Expenses
Costs of services and products 3,142 2,893 6,225 5,732
Selling, general and administrative (1) 1,681 1,600 3,318 3,250
Depreciation and amortization 1,243 1,252 2,486 2,488
Restructuring and asset impairments (2) 96 348 126 358
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Total operating expenses 6,162 6,093 12,155 11,828
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Operating Income 707 370 1,421 974
Interest expense (310) (351) (630) (717)
Premium on early retirement of debt (3) (20) - (20) (19)
Other expense, net (3), (4) (4) (21) (30) (82)
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Income (loss) from continuing operations before income taxes 373 (2) 741 156
Income tax expense (140) - (286) (61)
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Income (Loss) from Continuing Operations 233 (2) 455 95
Discontinued operation, net (5) - 9 - 1,322
Cumulative effect of change in accounting principle, net (6) - - - 258
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Net Income 233 7 455 1,675
Earnings allocated to participating securities (7) (6) - (6) -
Preferred stock dividends paid (1) (1) (3) (3)
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Earnings Applicable to Common Stock $ 226 $ 6 $ 446 $ 1,672
----------------------------- ---------------------------
Diluted Earnings per Common Share (8), (10)
Continuing operations $ 0.16 $ - $ 0.31 $ 0.07
Discontinued operation - 0.01 - 0.94
Cumulative effect of change in accounting principle, net - - - 0.18
- ----------------------------------------------------------------- ----------------------------- ---------------------------
Total $ 0.16 $ - $ 0.31 $ 1.18
----------------------------- ---------------------------
Diluted weighted average common shares (9), (10) 1,438.1 1,412.0 1,437.3 1,413.5
----------------------------- ---------------------------
Basic Earnings per Common Share (10) $ 0.16 $ - $ 0.31 $ 1.19
----------------------------- ---------------------------
See accompanying Footnotes to Consolidated Statements of Operations.
9
Sprint Corporation
FOOTNOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(1) In the 2004 second quarter, Sprint recognized a $14 million pre-tax benefit
to bad debt expense as a result of the final payment of the settlement of
claims with MCI (WorldCom) that previously had been fully reserved. This
settlement increased income from continuing operations by $9 million.
In the 2003 second quarter, Sprint recorded charges of $36 million in
connection with the separation agreements agreed to by Sprint and three
former executive officers. This includes a $15 million non-cash charge
associated with accounting for modifications to certain terms of stock
options granted in prior periods. This charge reduced income from
continuing operations by $22 million.
(2) In the 2004 second quarter, Sprint recorded restructuring charges of $96
million associated with Sprint's transformation initiatives and the
termination of the Web Hosting business. These charges reduced income from
continuing operations by $58 million.
In the 2004 year-to-date period, Sprint recorded $126 million in
restructuring charges, which reduced income from continuing operations by
$77 million. All year-to-date restructuring charges in 2004 were associated
with Sprint's transformation initiatives and the termination of the Web
Hosting business.
In the 2003 second quarter, Sprint recorded restructuring and asset
impairment charges of $348 million primarily related to winding down the
Web Hosting business. This included a $337 million non-cash charge for the
impairment of hosting assets and an $11 million charge related to cash
requirements for employee terminations. The 2003 second quarter charge
decreased income from continuing operations by $218 million.
In the 2003 year-to-date period, Sprint recorded restructuring and asset
impairments aggregating $358 million, which reduced income from continuing
operations by $224 million. In addition to the 2003 second quarter charges
noted above, Sprint recorded an asset impairment of $10 million associated
with the termination of a software development project.
(3) In the 2004 second quarter, Sprint recorded a $20 million charge reflecting
premiums paid for the early retirement of $750 million of equity unit
notes. In connection with this retirement, Sprint recognized $9 million of
deferred debt costs in Other expense, net. These charges reduced income
from continuing operations by $18 million.
In the 2003 first quarter, Sprint recorded a $19 million charge related to
the debt tender offer of approximately $1.1 billion of long term debt. This
charge decreased income from continuing operations by $12 million.
(4) In the 2003 first quarter, Sprint recorded a $50 million aggregate charge
to settle a securities class action and derivative lawsuit relating to the
failed merger with WorldCom. This charge reduced income from continuing
operations by $32 million.
(5) In the 2003 first quarter, Sprint recorded an after-tax gain of $1.3
billion associated with the sale of its directory publishing business to
R.H. Donnelley.
(6) Sprint adopted Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations, on January 1, 2003. Local
historically accrued costs of removal in its depreciation reserves
consistent with industry practice. These costs of removal do not meet the
SFAS No. 143 definition of an asset retirement obligation. Accordingly,
Sprint recorded a credit of $420 million to remove the accumulated excess
cost of removal resulting in a cumulative effect of change in accounting
principle credit of $258 million, net of tax.
(7) New accounting guidance, EITF 03-6, Participating Securities and the
Two-Class Method under SFAS No. 128, Earnings Per Share, requires that
rights of securities to participate in the earnings of an enterprise must
be reflected in the reporting of earnings per share. The equity unit
securities, traded as SDE, qualify as "participating securities." The
proportionate share of 2004 second quarter earnings attributable to these
securities is being excluded from the earnings available to common
shareholders.
(8) As the effects of including the incremental shares associated with options,
restricted stock units and ESPP shares are antidilutive in the 2003
quarter-to-date period, both basic earnings per share and diluted earnings
per share reflect the same calculation in these Consolidated Statements of
Operations for that period.
(9) As the effects of including the incremental shares associated with options,
restricted stock units and ESPP shares are antidilutive in the 2003
quarter-to-date period, they are not included in the weighted average
common shares outstanding for that period.
(10) On April 23, 2004, Sprint recombined its two tracking stocks. Each share of
PCS common stock automatically converted into 0.5 shares of FON common
stock. All per share amounts have been restated to reflect the
recombination of the FON common stock and PCS common stock as of the
earliest period presented at an identical conversion ratio (0.5). The
conversion ratio was also applied to dilutive PCS securities (mainly stock
options, ESPP, convertible preferred stock and restricted stock units) to
determine diluted weighted average shares on a consolidated basis.
10
Sprint Corporation
CONSOLIDATED BALANCE SHEETS
(millions)
----------------------------------------------
June 30, December 31,
2004 2003
----------------------------------------------
Assets
Current assets
Cash and equivalents $ 2,378 $ 2,424
Accounts receivable, net 2,999 2,876
Inventories 754 582
Deferred tax asset 8 26
Prepaid expenses and other 720 703
- ---------------------------------------------------------------------------------------------------------
Total current assets 6,859 6,611
Net property, plant and equipment 26,345 27,276
Net intangible assets 7,844 7,815
Other 993 1,148
- ---------------------------------------------------------------------------------------------------------
Total $ 42,041 $ 42,850
-----------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 1,342 $ 594
Accounts payable and accrued interconnection costs 2,818 2,700
Accrued restructuring costs 184 117
Other 2,823 3,065
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 7,167 6,476
Noncurrent liabilities
Long-term debt and capital lease obligations 15,702 16,841
Equity unit notes 975 1,725
Deferred income taxes 2,025 1,789
Other 2,398 2,548
- ---------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 21,100 22,903
Redeemable preferred stock 247 247
Common stock and other shareholders' equity
Common stock
FON 2,854 1,809
PCS - 1,035
Other shareholders' equity 10,673 10,380
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 13,527 13,224
- ---------------------------------------------------------------------------------------------------------
Total $ 42,041 $ 42,850
-----------------------------------------------
11
Sprint Corporation
CONDENSED CONSOLIDATED CASH FLOW INFORMATION
(millions)
- -----------------------------------------------------------------------------------------------------------------------------------
Year-to-Date June 30, 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 455 $ 1,675
Discontinued operation, net - (1,322)
Cumulative effect of change in accounting principle, net - (258)
Depreciation and amortization 2,486 2,488
Deferred income taxes 251 644
Losses on write-down of assets - 347
Changes in assets and liabilities (386) (734)
Other, net 140 128
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of continuing operations 2,946 2,968
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (1,688) (1,492)
Investments in affiliates, net (5) (12)
Investments in debt securities, net 79 -
Other, net (24) 77
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities of continuing operations (1,638) (1,427)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Change in debt, net (1,112) (1,859)
Dividends paid (295) (228)
Other, net 53 19
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities of continuing operations (1,354) (2,068)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash from discontinued operations - 2,231
- -----------------------------------------------------------------------------------------------------------------------------------
Change in cash and equivalents (46) 1,704
Cash and equivalents at beginning of period 2,424 1,035
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 2,378 $ 2,739
----------------------------------------
12
Sprint Corporation
RECONCILIATION OF NON-GAAP LIQUIDITY MEASURES
(millions)
-----------------------------------------------------------------------------------
Quarter-to-date June 30, 2004 Long Other &
Consolidated Wireless Local Distance Eliminations
-----------------------------------------------------------------------------------
Operating income (loss) $ 707 $ 407 $ 445 $ (139) $ (6)
Special items 82 7 2 73 -
-----------------------------------------------------------------------------------
Adjusted operating income (loss)* 789 414 447 (66) (6)
Depreciation and amortization 1,243 651 271 321 -
-----------------------------------------------------------------------------------
Adjusted EBITDA* 2,032 $ 1,065 $ 718 $ 255 $ (6)
--------------------------------------------------------------
Adjust for special items (82)
Other operating activities, net (1) (48)
------------------
Cash provided by operating activities-GAAP 1,902
Capital expenditures (999)
Dividends paid (179)
Investments in affiliates, net (3)
Other investing activities, net (29)
------------------
Free Cash Flow* 692
Decrease in debt, net (1,090)
Investments in debt securities, net 45
Other financing activities, net 3
------------------
Change in cash and equivalents - GAAP $ (350)
------------------
-----------------------------------------------------------------------------------
Quarter-to-date June 30, 2003 Long Other &
Consolidated Wireless Local Distance Eliminations
-----------------------------------------------------------------------------------
Operating income (loss) $ 370 $ 261 $ 453 $ (333) $ (11)
Special items 384 19 8 357 -
-----------------------------------------------------------------------------------
Adjusted operating income (loss)* 754 280 461 24 (11)
Depreciation and amortization 1,252 617 271 363 1
-----------------------------------------------------------------------------------
Adjusted EBITDA* 2,006 $ 897 $ 732 $ 387 $ (10)
-----------------------------------------------------------------------------------
Adjust for special items (384)
Other operating activities, net (1) 288
------------------
Cash provided by operating activities-GAAP 1,910
Capital expenditures (945)
Dividends paid (114)
Other investing activities, net 74
------------------
Free Cash Flow* 925
Discontinued operation 16
Decrease in debt, net (304)
Other financing activities, net 7
------------------
Change in cash and equivalents - GAAP $ 644
------------------
<FN>
(1) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous
operating activities and non-operating items in income (loss) from continuing operations.
</FN>
See accompanying Footnotes to Consolidated Statements of Operations
13
Sprint Corporation
RECONCILIATION OF NON-GAAP LIQUIDITY MEASURES
(millions)
------------------------------------------------------------------------------------
Year-to-date June 30, 2004 Long Other &
Consolidated Wireless Local Distance Eliminations
------------------------------------------------------------------------------------
Operating income (loss) $ 1,421 $ 674 $ 891 $ (128) $ (16)
Special items 112 11 16 85 -
------------------------------------------------------------------------------------
Adjusted operating income (loss)* 1,533 685 907 (43) (16)
Depreciation and amortization 2,486 1,305 539 641 1
------------------------------------------------------------------------------------
Adjusted EBITDA* 4,019 $ 1,990 $ 1,446 $ 598 $ (15)
------------------------------------------------------------------
Adjust for special items (112)
Other operating activities, net (1) (961)
------------------
Cash provided by operating activities-GAAP 2,946
Capital expenditures (1,688)
Dividends paid (295)
Investments in affiliates, net (5)
Other investing activities, net (24)
------------------
Free Cash Flow* 934
Decrease in debt, net (1,112)
Investments in debt securities, net 79
Other financing activities, net 53
------------------
Change in cash and equivalents - GAAP $ (46)
------------------
------------------------------------------------------------------------------------
Year-to-date June 30, 2003 Long Other &
Consolidated Wireless Local Distance Eliminations
------------------------------------------------------------------------------------
Operating income (loss) $ 974 $ 411 $ 915 $ (329) $ (23)
Special items 394 29 8 357 -
------------------------------------------------------------------------------------
Adjusted operating income (loss)* 1,368 440 923 28 (23)
Depreciation and amortization 2,488 1,225 536 724 3
------------------------------------------------------------------------------------
Adjusted EBITDA* 3,856 $ 1,665 $ 1,459 $ 752 $ (20)
------------------------------------------------------------------
Adjust for special items (394)
Other operating activities, net (1) (494)
------------------
Cash provided by operating activities-GAAP 2,968
Capital expenditures (1,492)
Dividends paid (228)
Investments in affiliates, net (12)
Other investing activities, net 77
------------------
Free Cash Flow* 1,313
Discontinued operation 2,231
Decrease in debt, net (1,859)
Other financing activities, net 19
------------------
Change in cash and equivalents - GAAP $ 1,704
------------------
<FN>
(1) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous
operating activities and non-operating items in income (loss) from continuing operations.
</FN>
See accompanying Footnotes to Consolidated Statements of Operations
14
Sprint Corporation
RECONCILIATIONS OF EARNINGS PER SHARE
(millions, except per share date)
Quarter-to-Date Year-to-Date
- ----------------------------------------------------- -------------------------------- --------------------------------
Periods Ended June 30, 2004 2003 2004 2003
- ----------------------------------------------------- -------------------------------- --------------------------------
Earnings Applicable to Common Stock $ 226 $ 6 $ 446 $ 1,672
Earnings allocated to participating securities 6 - 6 -
Preferred stock dividends paid 1 1 3 3
- ----------------------------------------------------- -------------------------------- --------------------------------
GAAP Net income 233 7 455 1,675
Discontinued operation, net - (9) - (1,322)
Cumulative effect of change in accounting principle - - - (258)
- ----------------------------------------------------- -------------------------------- --------------------------------
Income (loss) from continuing operations 233 (2) 455 95
Special items (net of taxes)
Restructuring and asset impairments 58 218 77 224
Executive separations - 22 - 22
MCI settlement (9) - (9) -
Premium on early retirement of debt 18 - 18 12
Shareholder litigation charge - - - 32
- ----------------------------------------------------- -------------------------------- --------------------------------
Adjusted income from continuing operations * $ 300 $ 238 $ 541 $ 385
- ----------------------------------------------------- -------------------------------- --------------------------------
GAAP earnings per share $ 0.16 $ - $ 0.31 $ 1.18
Discontinued operation - (0.01) - (0.94)
Cumulative effect of change in accounting principle - - - (0.18)
- ----------------------------------------------------- -------------------------------- --------------------------------
Earnings per share from continuing operations 0.16 - 0.31 0.07
Special items 0.05 0.17 0.06 0.21
- ----------------------------------------------------- -------------------------------- --------------------------------
Adjusted Earnings Per Share * (1) $ 0.20 $ 0.17 $ 0.37 $ 0.27
- ----------------------------------------------------- -------------------------------- --------------------------------
<FN>
(1) Earnings per share data may not add due to rounding.
</FN>
15
Sprint Corporation
OPERATING STATISTICS
- -----------------------------------------------------------------------------------------------------------------------------------
1Q04 2Q04 3Q04 4Q04 YTD 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless
Financial Statistics (millions)
Net operating revenue $ 3,437 $ 3,614 $ 7,051
Service revenues $ 3,060 $ 3,226 $ 6,286
Wholesale, affiliate and other revenues $ 121 $ 124 $ 245
Equipment revenues $ 377 $ 388 $ 765
Equipment costs $ 722 $ 674 $ 1,396
Operating income $ 267 $ 407 $ 674
Adjusted EBITDA * $ 925 $ 1,065 $ 1,990
Capital expenditures $ 412 $ 667 $ 1,079
Bad debt % of net operating revenues 1.1% 1.3% 1.2%
Customer Additions
Direct net adds before subscriber acquisition 414,000 505,000 919,000
Subscriber acquisition from affiliate - 91,000 91,000
------------------------------------------------------------------------------
Direct net adds 414,000 596,000 1,010,000
Affiliate net adds before subscriber sale 138,000 93,000 231,000
Subscriber sale to Sprint - (91,000) (91,000)
------------------------------------------------------------------------------
Affiliate net adds 138,000 2,000 140,000
Reseller net adds 420,000 299,000 719,000
Net gross adds (excluding deactivations
within 30 days) (M) 1.80 1.67 3.47
% of gross adds sold through direct retail ~51% 52%
% of direct retail base that upgraded phones
in the quarter > 7% 7%
Other Wireless Statistics (approximate)
Average revenue per user $ 61 $ 62
Customer churn 2.9% 2.3%
Average monthly customer usage (hours) 15 16
Total minutes provided (billions) 45 51
Number of cell sites on air 21,800 22,700
Number of carriers on air 39,500 40,700
Sprint PCS covered POPs (M) (1) 191 197
Sprint PCS and affiliate covered POPs (M) (1) 246 251
Vision/Wireless Web/Data/3G
Total Vision subscribers (approximate) (M) 4.2 5.0
Vision % of gross adds > 55% 55%
Total Vision and Wireless Web subscribers (M) 6.2 6.9
Data ARPU nearly $4 > $4
% of direct retail subscriber base using 1xRTT
handsets 80% 84%
% of direct retail subscriber base using Vision
handsets 48% 57%
Marketing and Distribution
Total number of subscribers on Sprint PCS network
(thousands) 21,329 22,226
Total direct subscribers 16,281 16,877
Total affiliate subscribers 3,017 3,019
Total wholesale/reseller subscribers 2,031 2,330
Number of PCS stores and kiosks ~660 ~715
Total number of distribution points ~17,400 ~16,700
(M) - in millions
<FN>
(1) Beginning with the 2004 second quarter, covered POPs reflect updated census data
</FN>
This information should be reviewed in connection with Sprint's consolidated financial statements.
16
Sprint Corporation
OPERATING STATISTICS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
1Q04 2Q04 3Q04 4Q04 YTD 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Local
Financial Statistics (millions)
Total Local net operating revenues $ 1,506 $ 1,510 $ 3,016
Voice net operating revenue $ 1,147 $ 1,136 $ 2,283
Data net operating revenue $ 195 $ 205 $ 400
Other net operating revenue $ 164 $ 169 $ 333
Operating income $ 446 $ 445 $ 891
Adjusted EBITDA* $ 728 $ 718 $ 1,446
Capital expenditures $ 209 $ 247 $ 456
Other Statistics
Total access lines (thousands) 7,876 7,780
Residential access lines 5,507 5,430
Business access lines 2,142 2,132
Wholesale access lines 227 218
Resold lines 151 141
UNE-P lines 76 77
YOY Access line decline -2.2% -2.4%
Percentage of Sprint local access lines with
Sprint long distance service 51% 52%
Bundle penetration - residential 67% 68%
Percentage of Sprint local residential customers
with voicemail service 15% 15%
Percentage of Sprint local residential customers
with call waiting service 43% 44%
Percentage of Sprint local residential customers
with caller ID service 46% 47%
DSL lines in service (thousands) 349 383
DSL capable lines (thousands) 4,910 5,005
Long Distance
Financial Statistics (millions)
Total Long distance net operating revenues $ 1,912 $ 1,873 $ 3,785
Voice net operating revenue $ 1,186 $ 1,164 $ 2,350
Data net operating revenue $ 452 $ 438 $ 890
Internet net operating revenue $ 223 $ 214 $ 437
Other net operating revenue $ 51 $ 57 $ 108
Operating income (loss) $ 11 $ (139) $ (128)
Adjusted EBITDA* $ 343 $ 255 $ 598
Capital expenditures $ 56 $ 64 $ 120
Other Statistics
YOY Long distance voice volume growth 9% 13% 11%
This information should be reviewed in connection with Sprint's consolidated financial statements.
17
Sprint Corporation
WIRELESS -- SELECTED INFORMATION (1)
(millions)
Pre Restatement
---------------------------------------------------------------------------------
YTD
1Q04 4Q03 3Q03 2Q03 1Q03 2003
----------- ----------- ----------- ----------- ------------ ----------
Net operating revenues $ 3,437 $ 3,307 $ 3,340 $ 3,096 $ 2,947 $ 12,690
Operating expenses
Costs of services and products 1,744 1,558 1,628 1,521 1,448 6,155
Selling, general and administrative (1) 778 888 800 707 741 3,136
Depreciation and amortization 654 633 628 617 608 2,486
Restructuring and asset impairments 4 352 - - 10 362
----------------------------------------------------------------------------------
Total operating expenses 3,180 3,431 3,056 2,845 2,807 12,139
----------------------------------------------------------------------------------
Operating income (loss) $ 257 $ (124) $ 284 $ 251 $ 140 $ 551
----------------------------------------------------------------------------------
Post Restatement
----------------------------------------------------------------------------------
YTD
1Q04 4Q03 3Q03 2Q03 1Q03 2003
----------- ----------- ----------- ----------- ------------ -----------
Net operating revenues $ 3,437 $ 3,307 $ 3,340 $ 3,096 $ 2,947 $ 12,690
Operating expenses
Costs of services and products 1,744 1,558 1,628 1,521 1,448 6,155
Selling, general and administrative (1) 768 877 789 697 731 3,094
Depreciation and amortization 654 633 628 617 608 2,486
Restructuring and asset impairments 4 352 - - 10 362
----------------------------------------------------------------------------------
Total operating expenses 3,170 3,420 3,045 2,835 2,797 12,097
----------------------------------------------------------------------------------
Operating income (loss) $ 267 $ (113) $ 295 $ 261 $ 150 $ 593
----------------------------------------------------------------------------------
Restatement amount (1) $ 10 $ 11 $ 11 $ 10 $ 10 $ 42
----------------------------------------------------------------------------------
<FN>
(1) The PCS Group's comparative operating results reporting has been restated. Previous to the recombination of the tracking
stocks on April 23, 2004, the PCS Group reflected a corporate asset usage charge from the FON Group as a component of
operating expense. Wireless will reflect this charge as part of non-operating expense consistent with other Sprint
operations. This charge is eliminated in consolidation and, accordingly, has no effect on the Sprint Consolidated
results.
</FN>
18