Sprint Reports Fiscal Year 2019 Third Quarter Results

WIRELESS STATEMENTS OF OPERATIONS (Unaudited)

(Millions)

Quarter To Date

Year To Date

12/31/19

9/30/19

12/31/18

12/31/19

12/31/18

Net operating revenues

Service revenue

Postpaid

$           4,229

$           4,218

$           4,236

$         12,646

$         12,679

Prepaid

740

792

924

2,375

2,860

226

35

289

541

868

5,195

5,045

5,449

15,562

16,407

Equipment sales

1,372

1,192

1,589

3,784

4,180

Equipment rentals

1,292

1,330

1,313

3,981

3,778

Total net operating revenues

7,567

8,351

23,327

24,365

Net operating expenses

Cost of services (exclusive of depreciation and amortization below)

1,554

1,591

1,439

4,664

4,334

Cost of equipment sales

1,646

1,359

1,734

4,346

4,521

Cost of equipment rentals (exclusive of depreciation below)

201

240

182

666

457

Selling, general and administrative

1,923

1,815

1,885

5,517

5,338

Depreciation - network and other

1,023

1,023

1,035

3,116

2,975

Depreciation - equipment rentals

1,011

1,056

1,137

3,096

3,454

Amortization

474

106

145

698

475

Other, net

110

20

185

360

280

Total net operating expenses

7,942

7,210

7,742

22,463

21,834

Operating (loss) income

$              (83)

$             609

$             864

$           2,531

WIRELESS NON-GAAP RECONCILIATION (Unaudited)

(Millions)

Quarter To Date

Year To Date

12/31/19

9/30/19

12/31/18

12/31/19

12/31/18

Operating (loss) income

$              (83)

$             357

$             609

$             864

$           2,531

Asset impairments ⁽²⁾

19

1

-

223

-

Loss from asset dispositions, exchanges, and other, net⁽³⁾

22

-

105

22

173

Severance and exit costs ⁽⁴⁾

22

19

30

68

45

Contract terminations costs ⁽⁵⁾

-

-

-

-

34

Litigation expenses and other contingencies ⁽⁷⁾

5

-

50

5

50

Partial pension settlement ⁽⁸⁾

42

-

-

42

-

Hurricanes ⁽⁹⁾

-

-

-

-

(32)

Depreciation - network and other

1,023

1,023

1,035

3,116

2,975

Depreciation - equipment rentals

1,011

1,056

1,137

3,096

3,454

Amortization

474

106

145

698

475

Adjusted EBITDA*⁽¹⁾

$           2,535

$           2,562

$           3,111

$           8,134

$           9,705

Adjusted EBITDA margin*

48.8%

50.8%

57.1%

52.3%

59.2%

Selected items:

Cash paid for capital expenditures - network and other

$              921

$              963

$           1,242

$           2,911

$           3,362

Cash paid for capital expenditures - leased devices

$           2,147

$           1,786

$           2,215

$           5,449

$           5,739

WIRELINE STATEMENTS OF OPERATIONS (Unaudited)

(Millions)

Quarter To Date

Year To Date

12/31/19

9/30/19

12/31/18

12/31/19

12/31/18

Net operating revenues

$             296

$             300

$             316

$             903

$             982

Net operating expenses

Cost of services (exclusive of depreciation and amortization below)

238

256

280

756

886

Selling, general and administrative

46

49

52

140

174

Depreciation and amortization

48

42

51

137

151

Other, net

(262)

1

-

(254)

18

Total net operating expenses

70

348

383

779

1,229

Operating income (loss)

$             226

$              (48)

$              (67)

$             124

$            (247)

WIRELINE NON-GAAP RECONCILIATION (Unaudited)

(Millions)

Quarter To Date

Year To Date

12/31/19

9/30/19

12/31/18

12/31/19

12/31/18

Operating income (loss)

$             226

$              (48)

$              (67)

$             124

$            (247)

Asset impairments ⁽²⁾

-

1

-

8

-

Severance and exit costs ⁽⁴⁾

(2)

-

-

(2)

18

Litigation expenses and other contingencies ⁽⁷⁾

(275)

-

-

(275)

-

Partial pension settlement ⁽⁸⁾

15

-

-

15

-

Depreciation and amortization

48

42

51

137

151

Adjusted EBITDA*

$               12

$                (5)

$              (16)

$                 7

$              (78)

Adjusted EBITDA margin*

4.1%

-1.7%

-5.1%

0.8%

-7.9%

Selected items:

Cash paid for capital expenditures - network and other

$               34

$               30

$               64

$               92

$             170

CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited)

(Millions)

Year To Date

12/31/19

12/31/18

Operating activities

Net (loss) income

$            (514)

$             235

Asset impairments ⁽²⁾

231

-

Depreciation and amortization

7,050

7,061

Provision for losses on accounts receivable

435

278

Share-based and long-term incentive compensation expense 

90

101

Deferred income tax (benefit) expense

(532)

25

Amortization of long-term debt premiums, net

(47)

(94)

Loss on disposal of property, plant and equipment

692

642

Deferred purchase price from sale of receivables

-

(223)

Other changes in assets and liabilities:

Accounts and notes receivable

(754)

65

Inventories and other current assets 

650

248

Operating lease right-of-use assets

1,280

-

Accounts payable and other current liabilities 

(436)

(530)

Current and long-term operating lease liabilities

(1,433)

-

Non-current assets and liabilities, net 

(172)

(601)

Other, net 

225

375

Net cash provided by operating activities

6,765

7,582

Investing activities

Capital expenditures - network and other

(3,360)

(3,814)

Capital expenditures - leased devices

(5,449)

(5,739)

Expenditures relating to FCC licenses

(24)

(145)

Change in short-term investments, net

5

1,467

Proceeds from sales of assets and FCC licenses

819

416

Proceeds from deferred purchase price from sale of receivables

-

223

Proceeds from corporate owned life insurance policies

5

110

Other, net

(27)

52

Net cash used in investing activities 

Financing activities

Proceeds from debt and financings

4,731

6,416

Repayments of debt, financing and finance lease obligations

(7,188)

(6,937)

Debt financing costs

(12)

(286)

Proceeds from issuance of common stock, net

(29)

281

Acquisition of noncontrolling interest

(33)

-

Other, net

1

-

Net cash used in financing activities 

(2,530)

(526)

Net decrease in cash, cash equivalents and restricted cash

(3,796)

(374)

Cash, cash equivalents and restricted cash, beginning of period

7,063

6,659

Cash, cash equivalents and restricted cash, end of period

$           3,267

$           6,285

RECONCILIATION TO CONSOLIDATED FREE CASH FLOW* (NON-GAAP) (Unaudited)

(Millions)

Quarter To Date

Year To Date

12/31/19

9/30/19

12/31/18

12/31/19

12/31/18

Net cash provided by operating activities

$           1,955

$           2,566

$           2,225

$           6,765

$           7,582

Capital expenditures - network and other

(1,062)

(1,109)

(1,416)

(3,360)

(3,814)

(2,147)

(1,786)

(2,215)

(5,449)

(5,739)

Expenditures relating to FCC licenses, net

(8)

(7)

(75)

(24)

(145)

Proceeds from sales of assets and FCC licenses

220

417

144

819

416

Proceeds from deferred purchase price from sale of receivables

-

-

-

-

223

Other investing activities, net

6

4

129

10

189

Free cash flow*

$          (1,036)

$               85

$          (1,208)

$          (1,239)

$          (1,288)

Net proceeds (repayments) of financings related to devices and receivables

603

(130)

300

703

913

Adjusted free cash flow*

$            (433)

$              (45)

$            (908)

$            (536)

$            (375)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Millions)

12/31/19

3/31/19

ASSETS

Current assets

Cash and cash equivalents

$           3,179

$           6,982

Short-term investments

62

67

Accounts and notes receivable, net

3,873

3,554

Device and accessory inventory

1,117

999

Prepaid expenses and other current assets

1,224

1,289

Total current assets

9,455

12,891

Property, plant and equipment, net

20,827

21,201

Costs to acquire a customer contract

1,808

1,559

Operating lease right-of-use assets

6,713

-

Goodwill

4,598

4,598

FCC licenses and other

41,492

41,465

Definite-lived intangible assets, net

918

1,769

Other assets

1,091

1,118

Total assets

$         86,902

$         84,601

LIABILITIES AND EQUITY

Current liabilities

Accounts payable

$           3,396

$           3,961

Accrued expenses and other current liabilities

3,335

3,597

Current operating lease liabilities

1,860

-

Current portion of long-term debt, financing and finance lease obligations

3,880

4,557

Total current liabilities

12,471

12,115

Long-term debt, financing and finance lease obligations

33,507

35,366

Long-term operating lease liabilities

5,423

-

Deferred tax liabilities

7,038

7,556

Other liabilities

2,708

3,437

61,147

58,474

Stockholders' equity

Common stock

41

41

Treasury shares, at cost

(9)

-

Paid-in capital

28,402

28,306

Accumulated deficit

(2,226)

(1,883)

Accumulated other comprehensive loss

(453)

(392)

Total stockholders' equity

25,755

26,072

Noncontrolling interests

-

55

Total equity

25,755

26,127

Total liabilities and equity

$         86,902

$         84,601

NET DEBT* (NON-GAAP) (Unaudited)

(Millions)

12/31/19

3/31/19

Total debt

$         37,387

$         39,923

Less: Cash and cash equivalents

(3,179)

(6,982)

Less: Short-term investments

(62)

(67)

Net debt*

$         34,146

$         32,874

SCHEDULE OF DEBT (Unaudited)

(Millions)

12/31/19

ISSUER

 MATURITY 

 PRINCIPAL 

Sprint Corporation

7.25% Senior notes due 2021

09/15/2021

$              2,250

7.875% Senior notes due 2023

09/15/2023

4,250

7.125% Senior notes due 2024

06/15/2024

2,500

7.625% Senior notes due 2025

02/15/2025

1,500

7.625% Senior notes due 2026

03/01/2026

1,500

Sprint Corporation

12,000

Sprint Spectrum Co LLC, Sprint Spectrum Co II LLC, and Sprint Spectrum Co III LLC

3.36% Senior secured notes due 2021

09/20/2021

1,531

4.738% Senior secured notes due 2025

03/20/2025

2,100

5.152% Senior secured notes due 2028

03/20/2028

1,838

Sprint Spectrum Co LLC, Sprint Spectrum Co II LLC, and Sprint Spectrum Co III LLC

5,469

Sprint Communications, Inc.

7% Guaranteed notes due 2020

03/01/2020

1,000

7% Senior notes due 2020

08/15/2020

1,500

11.5% Senior notes due 2021

11/15/2021

1,000

6% Senior notes due 2022

11/15/2022

2,280

Sprint Communications, Inc.

5,780

Sprint Capital Corporation

6.875% Senior notes due 2028

11/15/2028

2,475

8.75% Senior notes due 2032

03/15/2032

2,000

4,475

Credit facilities

Secured equipment credit facilities

2021 - 2022

505

Secured term loans due 2024

02/03/2024

5,870

Credit facilities

6,375

Accounts receivable facility

2021

3,310

Financing obligations, finance lease and other obligations

2020 - 2026

349

Total principal

37,758

Net premiums and debt financing costs

(371)

Total debt

$            37,387

NOTES TO THE FINANCIAL INFORMATION (Unaudited)

⁽¹⁾

For customers that elect to lease a device rather than purchasing one under our subsidized program, there is a positive impact to EBITDA* and Adjusted EBITDA* from direct channel sales primarily due to the fact the cost of the device is not recorded as cost of equipment sales but rather is depreciated over the customer lease term. Under our device leasing program for the direct channel, devices are transferred from inventory to property and equipment and the cost of the leased device is recognized as depreciation expense over the customer lease term to an estimated residual value. The customer payments are recognized as revenue over the term of the lease. Under our subsidy model, we recognize revenue from the sale of devices as equipment sales at the point of sale and the cost of the device is recognized as cost of equipment sales. During the three and nine month periods ended December 31, 2019, we leased devices through our Sprint direct channels totaling approximately $1,686 million and $4,015 million, respectively, which would have increased cost of equipment sales and reduced EBITDA* if they had been purchased under our subsidized program.

The impact to EBITDA* and Adjusted EBITDA* resulting from the sale of devices under our installment billing program is generally neutral except for the impact in our indirect channels from the time value of money element related to the imputed interest on the installment receivable.

⁽²⁾

During the third quarter of fiscal year 2019, we recognized $19 million of impairment charges primarily related to an inbound roaming arrangement with a third party in Puerto Rico. During the second and first quarters of fiscal year 2019, the company recognized asset impairment expense primarily related to the sale and leaseback of our Overland Park, Kansas campus.

⁽³⁾

During the third quarter of fiscal year 2019, the company recorded losses on disposals of property, plant and equipment primarily related to network costs that are no longer recoverable as a result of changes in the company's network plans. During the third and second quarters of fiscal year 2018, the company recorded losses on disposals of property, plant and equipment primarily related to cell site construction costs and other network costs that are no longer recoverable as a result of changes in the company's network plans.

⁽⁴⁾

During the third, second and first quarters of fiscal year 2019 and third, second and first quarters of fiscal year 2018, severance and exit costs consist primarily of exit costs related to access termination charges and severance costs associated with reductions in work force.

⁽⁵⁾

During the first quarter of fiscal year 2018, we recognized contract termination costs associated with the purchase of certain leased spectrum assets, which upon termination of the spectrum leases resulted in the accelerated recognition of the unamortized favorable lease balances. 

⁽⁶⁾

During the third, second and first quarters of fiscal year 2019 and third, second and first quarters of fiscal year 2018, we recorded merger costs of $78 million, $69 million, $83 million, $67 million, $56 million and $93 million, respectively, due to the proposed Business Combination Agreement with T-Mobile.

⁽⁷⁾

During the third quarter of fiscal year 2019, we had favorable developments in litigation and other contingencies of $270 million primarily associated with legal recoveries for patent infringement lawsuits. During the third quarter of fiscal year 2018, litigation expenses and other contingencies consist of tax matters settled with the State of New York.

⁽⁸⁾

During the third quarter of fiscal year 2019, the partial pension settlement is the result of a plan amendment to the Sprint Retirement Pension Plan to offer certain terminated participants who had not begun receiving Plan benefits the opportunity to voluntarily elect to receive their benefits as an immediate lump sum distribution.

⁽⁹⁾

During the second quarter of fiscal year 2018 we recognized hurricane-related reimbursements of $32 million.