Investor Quarterly Update: Sprint Nextel Reports Fourth Quarter 2006 Results

Fourth Quarter Highlights Wireless Total revenues of $9.0 billion increased 9% from the fourth quarter of 2005. Adjusted Operating Income* of $651 million increased 28% from $508 million reported in the year-ago period Adjusted OIBDA* of $2.9 billion increased 14% from the same period a year ago Long Distance Revenues were $1.6 billion, a decline of 2%, compared to the fourth quarter of 2005 Adjusted Operating Income* was $112 million, a 35% gain from the year-ago period Adjusted OIBDA* was $259 million, a 17% increase compared to the fourth quarter of 2005 Sprint Nextel Corp. (NYSE: S) today reported fourth quarter and full-year 2006 financial results. In the quarter, the company enhanced its product portfolio, aggressively expanded network coverage and capabilities, reported continued strong growth in wireless data and wireline IP revenue, and significantly increased investment in business operations to enhance future growth and profitability. The company also made significant strides on its planned fourth generation mobile broadband network. For the quarter, diluted earnings per share (EPS) from continuing operations were 9 cents, compared to break-even in the fourth quarter of 2005. Adjusted EPS before Amortization* was 29 cents in the most recent quarter, compared to 23 cents in the fourth quarter of 2005, an increase of 26%. The growth in earnings is due to higher contributions in both the Wireless and Long Distance segments. For the full year, EPS from continuing operations was 34 cents compared to 40 cents for 2005. Full-year 2006 Adjusted EPS before Amortization* was $1.18, compared to pro forma Adjusted EPS before Amortization* of $1.05 for the full year 2005, a 12% increase. Consolidated net operating revenues in the fourth quarter of 2006 were $10.4 billion, an increase of 7% compared to $9.8 billion in the fourth quarter of 2005. For the full year, total consolidated revenue of $41.0 billion increased 43% on a reported basis and 7% compared to pro forma 2005. Consolidated adjusted OIBDA* in the most recent quarter was $3.2 billion, an increase of 13% compared to the year-ago period. Full-year consolidated adjusted OIBDA* was $12.7 billion, an increase of 12% compared to pro forma 2005 full year adjusted OIBDA* of $11.3 billion. Consolidated adjusted OIBDA margin* was 32.9% in the fourth quarter of 2006 versus 31.2% in the year-ago period and 33.6% for the full year, compared to 32.2% for pro forma 2005. "In the fourth quarter, we increased funding of business operations and network investments. We are seeing early returns from these investments as we widen our lead in wireless data services on the CDMA platform and with the iDEN network now delivering substantially improved call quality metrics,” said Gary Forsee, Sprint Nextel Chairman and CEO. "The introduction of our PowerSourceTM phones to bridge the two networks brings customers the industry’s best push-to-talk, voice and data services. "Although we achieved these improvements, we experienced uneven financial performance between our network platforms and within some of our key wireless metrics. We saw these trends in the 4th quarter: Data service revenues increased 66% compared to the year-ago period. Net subscriber growth on the CDMA platform was solid, with a total of more than 1.3 million net additions from post-paid, wholesale and affiliate subscribers. We reported a decline in iDEN post-paid subscribers. Boost Mobile reported a subscriber gain in the quarter. Customer retention rates improved sequentially. The credit mix of new subscribers was enhanced, but gross post-paid customer acquisitions declined. The postpaid Average Revenue Per User (ARPU) rate of decline again moderated. We added several devices to our product line-up, and initiated efforts for aggressive 2007 marketing of PowerSource phones. We made significant investments in branding, distribution and customer care. "Additionally, we had solid performance in our Long Distance business, with a year-over-year increase in wireline Internet Protocol (IP) revenues of 32%. "We have established a framework to bolster our business operations and drive future growth and profitability,” noted Forsee. "Our efforts in 2007 will be centered on improving subscriber acquisition and retention, extending our lead in data services, fully capturing cost efficiencies and developing an innovative high-speed data network that will provide significant differentiation and cost advantages.” Editor’s Note: In accordance with purchase accounting rules, Sprint Nextel’s reported results for the year ended December 31, 2005, are comprised of Sprint’s stand-alone results prior to the August 12, 2005, merger with Nextel Communications Inc., plus combined Sprint and Nextel results for the remainder of the year. Results from acquired Sprint PCS affiliates and Nextel Partners are included from either the date the applicable acquisition was completed or the start of the month closest to the acquisition date. To provide comparability with the full-year 2005 period, Sprint Nextel also is providing pro forma Consolidated and Wireless results and certain other financial measures* for 2005. The pro forma results assume the merger of Sprint and Nextel occurred on January 1, 2005, and include the impact of conforming the accounting policies and both financial and non-financial measures of the two companies. The pro forma Consolidated and Wireless information excludes results of acquired affiliates prior to their respective dates of acquisition. Consolidated   TABLE No. 1 Selected Unaudited Financial Data (in millions, except per share amounts) Diluted EPS below is from continuing operations.   As Reported Financial Data Quarter Ended December 31, % ? Year-to-Date December 31, % ? 2006  2005  2006  2005  Net operating revenues $ 10,444  $ 9,792  7% $ 41,028  $ 28,789  43% Adjusted operating income* 765  612  25% 3,104  2,864  8% Adjusted OIBDA* 3,169  2,796  13% 12,696  8,064  57%   Income from Continuing Operations 261  5  NM  995  821  21%   Diluted earnings per share $ 0.09  $ --  NM  $ 0.34  $ 0.40  (15)%   Capex $ 2,612  $ 1,836  42% $ 7,057  $ 4,201  68%   Free cash flow* $ 421  $ 1,506  (72)% $ 2,759  $ 5,330  (48)%   Pro Forma Financial Data Net operating revenues $ 10,444  9,792  7% $ 41,028  $ 38,177  7% Adjusted operating income* 765  612  25% 3,104  2,979  4% Adjusted OIBDA* 3,169  2,796  13% 12,696  11,312  12%   Diluted earnings per share $ 0.09  $ --  NM  $ 0.34  $ 0.21  62% Adjusted earnings per share before amortization* $ 0.29  $ 0.23  26% $ 1.18  $ 1.05  12%   Pro Forma Capex $ 2,612  $ 1,836  42% $ 7,057  $ 6,231  13% The following is a discussion of Consolidated results. The growth in revenue in the fourth quarter was due to higher Wireless revenues which benefited from acquisitions and a larger subscriber base. Adjusted operating income* increased due to growth in the Wireless and Long Distance segments. The annual growth in adjusted OIBDA* was due to higher contributions from both the Wireless and Long Distance segments. Interest expense, net of interest income, was $333 million compared to $304 million in the fourth quarter of 2005 due to lower interest expense offset by lower interest income. The effective income tax rate in the fourth quarter was 31%. Non-cash compensation expense was $80 million in the fourth quarter of 2006, versus $110 million in the fourth quarter of 2005. Net debt* was $20.1 billion at the end of 2006. Wireless   TABLE No. 2 Selected Unaudited Financial Data (dollars in millions)   As Reported Financial Data Quarter Ended December 31, % ? Year-to-Date % ? 2006  2005  2006  2005  Net operating revenues $ 9,004  $ 8,230  9% $ 35,115  $ 22,328  57% Adjusted operating income* 651  508  28% 2,603  2,245  16% Adjusted OIBDA* 2,908  2,553  14% 11,689  6,944  68%   Capex1 $ 2,238  $ 1,535  46% $ 5,846  $ 3,545  65%   Pro Forma Financial Data Net operating revenues $ 9,004  $ 8,230  9% $ 35,115  $ 31,726  11% Adjusted operating income* 651  508  28% 2,603  2,360  10% Adjusted OIBDA* 2,908  2,553  14% 11,689  10,192  15% Adjusted OIBDA margin* 35.4% 34.6% 36.6% 35.6%   Pro Forma Capex1 $ 2,238  $ 1,535  46% $ 5,846  $ 5,575  5%   1Capex includes re-banding capital, but excludes non-network rebanding costs The following is a discussion of our Wireless results. Subscribers In the quarter, Wireless added a total of 742,000 subscribers. -- Postpaid subscribers declined by 306,000 in the quarter, reflecting a gain in CDMA subscribers, offset by a decline of iDEN subscribers; -- Boost pre-paid subscribers increased 171,000; -- Wholesale channels added 830,000 subscribers; and, -- Affiliates added 46,000 subscribers. Sprint Nextel ended 2006 with a total of 53.1 million subscribers, compared to 47.6 million at the end of 2005. The detailed breakdown of the year-end subscriber count includes: -- Approximately 41.8 million post-paid subscribers, consisting of 24.2 million on the CDMA platform and 17.6 million on the iDEN platform; -- 4.0 million Boost pre-paid subscribers; -- 6.4 million wholesale subscribers; and -- 900,000 affiliate subscribers. Churn Post-paid churn in the quarter was 2.3% compared to 2.4% in the third quarter, and 2.1% in the fourth quarter a year-ago. The increase from the year-ago period is due to higher churn among iDEN subscribers. The sequential improvement is due to lower churn within the CDMA base offset by higher churn in former Nextel Partners markets. Pre-paid churn in the quarter was 6.5% compared to 6.8% in the third quarter, and 4.8% a year ago. Revenues/ARPU Total operating revenues increased 9%, compared to the fourth quarter of 2005. Service revenues increased 11% due to acquisitions and a larger direct customer base, offset by a decline in post-paid and pre-paid ARPU. Wireless had strong wholesale growth due to a larger MVNO customer base. Equipment revenues declined 5% compared to the year-ago period due to lower post-paid gross additions partially offset by higher customer upgrades. Post-paid ARPU in the quarter was a little over $60, reflecting a 1% sequential decline and a less than 5% decline from the year-ago period. Post-paid ARPU continues to be impacted by lower voice revenues, which are being partially offset by growth in data revenues. Sequentially, CDMA ARPU was flat at $59, while iDEN ARPU declined 2% to $62. Compared to the year-ago period, CDMA ARPU was down 1%, while iDEN ARPU declined 8%. Boost ARPU was a little under $32 in the quarter, a 3% sequential decline and a 14% decline year-over-year. In the fourth quarter, data service revenues increased 66%, compared to the year-ago period and 14% sequentially. The growth is being driven by strong take rates for Power Vision SM data services on handsets, demand for text messaging and increasing laptop aircard usage supported by EVDO expansion on the CDMA network. Data contributed $8.75 to overall post-paid ARPU in the quarter and reached nearly $12 of contribution, or 20% of CDMA postpaid ARPU. Operating Expenses/Margin In the quarter, costs of services increased 13% compared to the year-ago period due to a larger customer base, growth in the network and higher service and repair costs. Cost of products declined 5% in the quarter due to lower volume, partially offset by higher handset upgrade costs. SG+A expense increased 9% compared to the fourth quarter of 2005, due to increases in sales, marketing, customer care and bad debt expense offset by lower IT, employee incentive compensation and billing costs. Depreciation expense increased 13% due to a larger asset base. Adjusted OIBDA Margin* was 35.4% in the quarter, compared to 34.6% in the year-ago period due to increasing scale and merger expense synergies. For the full year, the margin improved 100 basis points to 36.6% from the 2005 pro forma margin. Capital Spending In the quarter, Adjusted OIBDA* exceeded capital investment by $670 million, bringing the full year measure to $5.8 billion compared to pro forma $4.6 billion in 2005. In the fourth quarter capital spending of $2.2 billion reflects the addition of more than 1,800 cell sites to improve capacity and coverage, the extension of EVDO coverage, which today reaches 209 million people and the deployment of Revision A technology, which currently covers a population of 110 million. Long Distance   TABLE No. 3 Selected Unaudited Financial Data (dollars in millions)   Quarter Ended December 31, % ? Year-to-Date December 31, % ? 2006  2005  2006  2005  Net operating revenues $ 1,635  $ 1,662  (2)% $ 6,571  $ 6,834  (4)% Adjusted operating income* 112  83  35% 470  523  (10)% Adjusted OIBDA* 259  221  17% 976  1,022  (5)% Adjusted OIBDA margin* 15.8% $ 13.3% 14.9% 15.0%   Capex $ 274  $ 166  65% $ 821  $ 384  NM  The following is a discussion of our Long Distance results. Total revenues declined 2% year-over-year, but increased modestly sequentially. In the quarter, Internet Protocol (IP) revenues increased 32% year-over-year and 7% sequentially due to good demand for enterprise MPLS services. Total voice revenues declined 3% year-over-year and 1% sequentially. Compared to the year-ago period, growth in wholesale services largely offset declines in retail business and consumer voice services. At the end of the quarter, Sprint Nextel was serving cable companies with about 1.5 million cable telephony customers, an increase of more than 80% from year-end 2005. In the quarter, the adjusted OIBDA margin* improved 250 basis points compared to the fourth quarter of 2005 while the full year margin was flat. The fourth quarter operating expenses declined 2% compared to the year-ago period mainly due to lower SG+A costs. For the full year, adjusted OIBDA* exceeded capital investment by a little over $150 million following elevated capital investment in 2006 to meet significant growth in the cable business and to support demand for IP services. Forward-Looking Guidance Sprint Nextel is reiterating 2007 guidance it initially provided on January 8 for the following items: Full year consolidated operating revenues of $41 billion to $42 billion. Adjusted OIBDA* of $11.0 billion to $11.5 billion. The company expects to continue with its previously announced share buy-back program. The company will vary the amount and timing of its common stock purchases from time to time as the program proceeds. Reflecting accelerated fourth quarter Wireless network deployments, the company is revising its target capital expenditures for 2007 to approximately $8.0 billion from previous guidance of $8.5 billion. In 2007, the company expects to invest approximately $600 million in Long Distance and up to $800 million on its WiMAX initiative. Sprint Nextel expects to invest approximately $5.8 billion on Wireless capital in 2007, inclusive of network investments associated with re-banding. In addition, the company estimates that it could spend up to $800 million on intangible costs associated with re-banding which will largely be dependent upon the timing of user relocations. *Financial Measures Sprint Nextel provides financial measures generated using generally accepted accounting principles (GAAP) and using adjustments to GAAP (non-GAAP). The non-GAAP financial measures reflect industry conventions, or standard measures of liquidity, profitability or performance commonly used by the investment community for comparability purposes. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use, but these measures may not be synonymous to similar measurement terms used by other companies. Sprint Nextel provides reconciliations of these non-GAAP measures in its financial reporting. Because Sprint Nextel does not predict special items that might occur in the future, and our forecasts are developed at a level of detail different than that used to prepare GAAP-based financial measures, Sprint Nextel does not provide reconciliations to GAAP of its forward-looking financial measures. The measures used in this release include the following: Adjusted Earnings per Share (EPS) is defined as income from continuing operations, before special items, net of tax and the diluted EPS calculated thereon. Adjusted EPS before Amortization is defined as income from continuing operations, before special items and amortization, net of tax, and the diluted EPS calculated thereon. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that these measures are useful because they allow investors to evaluate our performance for different periods on a more comparable basis by excluding items that relate to acquired amortizable intangible assets and not to the ongoing operations of our businesses. Adjusted Net Income is defined as income (loss) from continuing operations before special items. Adjusted Net Income before Amortization is defined as income (loss) from continuing operations before special items and amortization, net of tax. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that these measures are useful because they allow investors to evaluate our performance for different periods on a more comparable basis by excluding items that do not relate to the ongoing operations of our businesses. Adjusted Operating Income is defined as operating income before special items. This non- GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe this measure is useful because it allows investors to evaluate our operating results for different periods on a more comparable basis by excluding special items. Adjusted OIBDA is defined as operating income before depreciation, amortization, restructuring and asset impairments, and special items. Adjusted OIBDA Margin represents Adjusted OIBDA divided by non-equipment net operating revenues for Wireless and Adjusted OIBDA divided by net operating revenues for Long Distance. Although we have used substantially similar measures in the past, which we called "Adjusted EBITDA,” we now use the term Adjusted OIBDA and Adjusted OIBDA Margin to describe the measure we use as it more clearly reflects the elements of the measure. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that Adjusted OIBDA and Adjusted OIBDA Margin provide useful information to investors because they are an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, spectrum acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Adjusted OIBDA and Adjusted OIBDA Margin are calculations commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the telecommunications industry. Free Cash Flow is defined as the change in cash and cash equivalents less the change in debt, investment in certain securities, proceeds from common stock and other financing activities, net, from continuing operations. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of cash flows. We believe that Free Cash Flow provides useful information to investors, analysts and our management about the cash generated by our core operations after interest and dividends and our ability to fund scheduled debt maturities and other financing activities, including discretionary refinancing and retirement of debt and purchase or sale of investments. Net Debt is consolidated debt, including current maturities, less cash and cash equivalents, current marketable securities and restricted cash. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the balance sheet and statement of cash flows. We believe that Net Debt provides useful information to investors, analysts and credit rating agencies about the capacity of the company to reduce the debt load and improve its capital structure. Safe Harbor This 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, forward looking guidance, continuation of our previously announced share buy-back program, as well as other statements that are not historical facts, are forward-looking statements. The words "estimate," "project," ”forecast,” "intend," "expect," "believe," "target," "providing guidance” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are estimates and projections reflecting management's judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer growth and retention, pricing, operating costs, the timing of various events and the economic environment. Future performance cannot be assured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include: the effects of vigorous competition, including the impact of competition on the price we are able to charge customers for services we provide and our ability to attract new customers and retain existing customers; 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 impact of overall wireless market penetration on our ability to attract and retain customers with good credit standing and the intensified competition among wireless carriers for those customers; the potential impact of difficulties we may encounter in connection with the integration of the pre-merger Sprint and Nextel businesses, and the integration of the businesses and assets of certain of the third party affiliates, or PCS Affiliates, that provide wireless personal communications services, or PCS, under the Sprint® brand that we have acquired, and Nextel Partners, Inc., including the risk that these difficulties could prevent or delay our realization of the cost savings and other benefits we expect to achieve as a result of these integration efforts and the risk that we will be unable to continue to retain key employees; the uncertainties related to the implementation of our business strategies, investments in our networks, our systems, and other businesses, including investments required in connection with our planned deployment of a next generation broadband wireless network; the costs and business risks associated with providing new services and entering new geographic markets, including with respect to our development of new services expected to be provided using the next generation broadband wireless network that we plan to deploy; the impact of potential adverse changes in the ratings afforded our debt securities by ratings agencies; 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; the inability of third parties to perform to our requirements under agreements related to our business operations, including a significant adverse change in Motorola, Inc.’s ability or willingness to provide handsets and related equipment and software applications, or to develop new technologies or features for our integrated Digital Enhanced Network, or iDEN®, network; the impact of adverse network performance; the costs of compliance with regulatory mandates, particularly requirements related to the Federal Communication Commission’s Report and Order; 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 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 our filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2005, as amended, in Part I, Item 1A, "Risk Factors,” and, when filed, our Form 10-K for the year ended December 31, 2006. 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. About Sprint Nextel Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel is widely recognized for developing, engineering and deploying innovative technologies, including two robust wireless networks serving 53.1 million customers at the end of 2006; industry-leading mobile data services; instant national and international walkie-talkie capabilities; and an award-winning and global Tier 1 Internet backbone. For more information, visit www.sprint.com. Sprint Nextel Corporation CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (a) (millions, except per share data)     TABLE No. 4 Quarter Ended Year-to-Date December 31, December 31, December 31, December 31, 2006    2005  2006    2005    Net Operating Revenues $ 10,444    $ 9,792  $ 41,028    $ 28,789    Operating Expenses Costs of services 2,979  2,790  11,646  9,217  Costs of products 1,273  1,333  4,921  3,272  Selling, general and administrative (1) 3,140  3,213  12,178  8,916  (includes $117, $319, $413 & $580 of merger and integration) Severance, lease exit costs and asset impairments (2) 79  (25) 207  43  Depreciation 1,474  1,315  5,738  3,864  Amortization   930      869    3,854      1,336  Total operating expenses   9,875      9,495    38,544      26,648  Operating Income 569  297  2,484  2,141  Interest expense (359) (398) (1,533) (1,294) Interest income 26  94  301  236  Gain on early retirement of debt 1  -  15  -  Equity in gain (losses) earnings of unconsolidated investees, net (5) (7) (6) 107  Other, net   145      34    222      101  Income from continuing operations before income taxes 377  20  1,483  1,291  Income tax expense   (116)     (15)   (488)     (470) Income from Continuing Operations 261  5  995  821  Discontinued operations, net (3) -  208  334  980  Cumulative effect of change in accounting principle, net   -      (16)   -      (16) Net Income 261  197  1,329  1,785  Preferred stock dividends paid   -      (2)   (2)     (7) Income Available to Common Shareholders $ 261    $ 195  $ 1,327    $ 1,778    Diluted Earnings Per Common Share $ 0.09  $ 0.07  $ 0.45  $ 0.87  Discontinued Operations -  (0.08) (0.11) (0.48) Cumulative effect of change in accounting principle, net   -      0.01    -      0.01  Diluted Earnings Per Common Share from Continuing Operations $ 0.09    $ -  $ 0.34    $ 0.40    Diluted weighted average common shares   2,916.2      2,979.4    2,971.7      2,053.6  Basic Earnings Per Common Share $ 0.09    $ 0.07  $ 0.45    $ 0.87    (a) Results for each of the periods reflected include the results of Nextel from the date of Sprint-Nextel merger and of each of the acquired PCS Affiliates as well as Nextel Partners from either the date of the acquisition or the start of the month closest to the acquistion date.   (1), (2), (3) See accompanying Notes to Financial Data. Sprint Nextel Corporation PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (millions, except per share data)     TABLE No. 5 Quarter Ended Year-to-Date December 31, December 31, December 31, December 31, 2006    2005  2006  2005    Net Operating Revenues $ 10,444  $ 9,792  $ 41,028  $ 38,177  Operating Expenses Costs of services 2,979  2,790  11,646  10,854  Costs of products 1,273  1,333  4,921  4,670  Selling, general and administrative (includes $117, $319, $413 & $709 of merger and integration) (1) 3,140  3,213  12,178  12,150  Severance, lease exit costs and asset impairments (2) 79  (25) 207  43  Depreciation 1,474  1,315  5,738  4,982  Amortization   930    869    3,854    3,351  Total operating expenses   9,875    9,495    38,544    36,050  Operating Income 569  297  2,484  2,127  Interest expense (359) (398) (1,533) (1,599) Interest income 26  94  301  261  Gain (loss) on early retirement of debt 1  -  15  (37) Equity in (losses) earnings of unconsolidated investees, net (5) (7) (6) 158  Other, net   145    34    222    57  Income from continuing operations before income taxes 377  20  1,483  967  Income tax expense   (116)   (15)   (488)   (338) Income from Continuing Operations 261  5  995  629  Discontinued Operations, net (3) -  208  334  980  Cumulative effect of change in accounting principle, net   -    (16)   -    (16) Net Income 261  197  1,329  1,593  Preferred stock dividends paid   -    (2)   (2)   (7) Income Available to Common Shareholders $ 261  $ 195  $ 1,327  $ 1,586      Diluted Earnings Per Common Share (a) $ 0.09  $ 0.07  $ 0.45  $ 0.54  Discontinued Operations -  (0.08) (0.11) (0.33) Cumulative effect of change in accounting principle, net -  0.01  -  -  Special items   -    0.05    0.06    0.17  Adjusted EPS * (a) $ 0.09  $ 0.05  $ 0.40  $ 0.38    Diluted weighted average common shares   2,916.2    2,979.4    2,971.7    2,961.1    (a) Earnings per share data may not add due to rounding.   (1),(2), (3) See accompanying Notes to Financial Data.   Pro forma consolidated statements of operations have been presented as if the Sprint-Nextel merger occurred at the beginning of 2005. Because the merger occurred in the third quarter 2005, the fourth quarter 2005 and the fourth quarter and year-to-date 2006 results reflect actual combined results. The pro forma results do not include the results of any acquired PCS Affiliate, Velocita or Nextel Partners prior to the dates of their respective acquisitions because they do not significantly affect reported results. Sprint Nextel Corporation RECONCILIATIONS OF EARNINGS PER SHARE (Unaudited) (millions, except per share data)     TABLE No. 6 As Reported   Pro Forma (c) Quarter Ended Year-to-Date Quarter Ended Year-to-Date December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2006    2005  2006    2005  2006    2005  2006    2005    Income Available to Common Shareholders $ 261  $ 195  $ 1,327  $ 1,778  $ 261  $ 195  $ 1,327  $ 1,586  Preferred stock dividends paid   -      2    2      7    -      2    2      7  Net Income (Loss) 261  197  1,329  1,785  261  197  1,329  1,593  Discontinued operations, net -  (208) (334) (980) -  (208) (334) (980) Cumulative effect of change in accounting principle   -      16      -      16    -      16      -      16  Income from Continuing Operations 261  5  995  821  261  5  995  629  Special items (net of taxes) (a) Severance, lease exit costs and asset impairments 52  (15) 129  28  52  (15) #  129  28  Merger and integration expense 71  190  252  356  71  190  252  438  Hurricane charges (excluding asset impairments) -  12  -  61  -  12  -  61  Net gains on investment activities and equity in earnings (92) (27) (132) (117) (92) (27) (132) (117) (Gain) Loss on early retirement of debt -  -  (9) -  -  -  (9) 22  Tax audit settlement (16) -  (58) -  (16) -  (58) -  Motorola consent fee   -      -    -      -    -      -    -      50  Adjusted Net Income* $ 276    $ 165  $ 1,177    $ 1,149  $ 276    $ 165  $ 1,177    $ 1,111    Amortization (net of taxes) 560  522  2,320  803  560  522  2,320  2,014                            Adjusted Net Income before Amortization* $ 836    $ 687  $ 3,497    $ 1,952  $ 836    $ 687  $ 3,497    $ 3,125    Diluted Earnings Per Share $ 0.09  $ 0.07  $ 0.45  $ 0.87  $ 0.09  $ 0.07  $ 0.45  $ 0.54  Discontinued operations -  (0.08) (0.11) (0.48) -  (0.08) (0.11) (0.33) Cumulative effect of change in accounting principle -  0.01  -  0.01  -  0.01  -  -                            Earnings Per Share from Continuing Operations 0.09  -  0.34  0.40  0.09  -  0.34  0.21  Special items -  0.05  0.06  0.16  -  0.05  0.06  0.17                            Adjusted Earnings Per Share* (b) $ 0.09    $ 0.05  $ 0.40    $ 0.56  $ 0.09    $ 0.05  $ 0.40    $ 0.38    Amortization (net of taxes) (d) 0.20  0.18  0.78  0.39  0.20  0.18  0.78  0.67                            Adjusted Earnings Per Share before Amortization* (b) $ 0.29    $ 0.23  $ 1.18    $ 0.95  $ 0.29    $ 0.23  $ 1.18    $ 1.05    (a) See accompanying Notes to Financial Data for more information on special items. (b) Earnings per share data may not add due to rounding. (c) Pro forma consolidated information has been presented as if the Sprint Nextel merger occurred at the beginning of 2005. The fourth quarter 2005 and all 2006 periods reflect actual results. (d) Rounding difference is pushed to this line. Sprint Nextel Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (millions)     TABLE No. 7       December 31, December 31, 2006    2005  Assets Current assets Cash and cash equivalents $ 2,046  $ 8,903  Marketable securities 15  1,763  Accounts receivable, net 4,595  4,166  Inventories 1,176  776  Deferred tax assets 923  1,789  Prepaid expenses and other current assets 1,549  779  Current assets of discontinued operations     -      916  Total current assets 10,304  19,092    Investments 253  2,543  Property, plant and equipment, net 25,868  23,329  Goodwill 30,904  21,288  FCC licenses 19,519  18,023  Customer relationships, net 7,256  8,651  Other intangible assets, net 2,378  1,345  Other assets 679  632  Non-current assets of discontinued operations     -      7,857    Total $ 97,161    $ 102,760    Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 3,463  $ 3,562  Accrued expenses and other liabilities 5,192  4,622  Current portion of long-term debt and capital lease obligations 1,143  5,045  Current liabilities of discontinued operations     -      822  Total current liabilities 9,798  14,051    Long-term debt and capital lease obligations 21,011  19,969  Deferred income taxes 10,095  10,405  Postretirement and other benefit obligations 244  1,385  Other liabilities 2,882  2,753  Non-current liabilities of discontinued operations     -      2,013  Total liabilities 44,030  50,576      Redeemable preferred shares -  247    Shareholders' equity Common shares 5,902  5,846  Treasury shares, at cost (925) -  Other shareholders' equity     48,154      46,091  Total shareholders' equity     53,131      51,937    Total $ 97,161    $ 102,760  Sprint Nextel Corporation CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited) (a) (millions)   TABLE No. 8           December 31, December 31, For the Year-to-Date Period Ended   2006    2005    Cash flows from operating activities Net income $ 1,329  $ 1,785  Income from discontinued operations (334) (980) Depreciation and amortization 9,592  5,200  Deferred income taxes 468  798  Proceeds from communication towers lease transactions -  1,195  Other, net     (1,000)     657  Net cash provided by continuing operations 10,055  8,655  Net cash provided by discontinued operations     903      2,024  Net cash provided by operating activities     10,958      10,679    Cash flows from investing activities Capital expenditures (7,556) (5,057) Expenditures relating to FCC licenses and other intangibles (822) (150) Proceeds from spin-off of local communications business, net 1,821  -  Proceeds from sale of Embarq notes 4,447  -  Cash acquired in Nextel merger, net of cash paid -  1,183  Acquisitions, net of cash acquired (10,481) (1,371) Proceeds from maturities and sales of marketable securities 1,130  (13) Cash collateral for borrowings (866) (93) Proceeds from sales of assets and investments 842  648  Distributions from unconsolidated investees, net -  167  Other, net     93      (38) Net cash used in investing activities     (11,392)     (4,724)   Cash flows from financing activities Purchase and retirements of debt (8,042) (1,170) Proceeds from issuance of debt securities 1,992  -  Proceeds from collateralized borrowings 866  -  Net issuances and maturities of commercial paper 514  -  Retirement of redeemable preferred shares (247) -  Purchase of common shares (1,643) -  Proceeds from issuance of common shares 405  432  Dividends paid (296) (525) Other, net     28      35  Net cash used in financing activities     (6,423)     (1,228)   Net (decrease) increase in cash and cash equivalents (6,857) 4,727    Cash and cash equivalents, beginning of period 8,903  4,176    Cash and cash equivalents, end of period $ 2,046    $ 8,903      (a) The 2005 statement is comprised of Sprint's stand-alone results, prior to the merger with Nextel Communications, Inc., plus combined Sprint and Nextel results for the remainder of the year. Results from PCS Affiliates and Nextel Partners acquired in 2006 are included beginning from either the date of acquisition or the start of the month closest to the acquisition date. Sprint Nextel Corporation PRO FORMA WIRELESS STATEMENTS OF OPERATIONS (Unaudited) (millions)   TABLE No. 9 Quarter Ended Year-to-Date December 31, December 31, December 31, December 31, 2006    2005  2006    2005    Net Operating Revenues Service $ 7,959  $ 7,173  $ 31,059  $ 27,739  Equipment 800  842  3,197  3,095  Wholesale, affiliate and other   245    215    859    892  Total   9,004    8,230    35,115    31,726    Operating Expenses Cost of services 2,074  1,833  7,933  7,026  Cost of products 1,273  1,333  4,921  4,670  Selling, general and administrative 2,749  2,531  10,572  9,923  Severance, lease exit costs and asset impairments 73  (17) 175  20  Depreciation 1,327  1,176  5,232  4,482  Amortization   930    869    3,854    3,350  Total operating expenses   8,426    7,725    32,687    29,471  -  Operating Income $ 578  $ 505  $ 2,428  $ 2,255      NON-GAAP MEASURES AND RECONCILIATIONS   Operating Income $ 578  $ 505  $ 2,428  $ 2,255  Special items: -  Severance, lease exit costs and asset impairments 73  (17) 175  20  Hurricane charges (excluding asset impairments)   -    20    -    85  Adjusted Operating Income * $ 651  $ 508  $ 2,603  $ 2,360  Depreciation and amortization   2,257    2,045    9,086    7,832  Adjusted OIBDA * $ 2,908  $ 2,553  $ 11,689  $ 10,192    Operating Income Margin (1) 7.0% 6.8% 7.6% 7.9% Adjusted OIBDA Margin * 35.4% 34.6% 36.6% 35.6%     (1) Operating Income Margin percentage excludes wireless equipment revenue.   Pro forma consolidated statements of operations have been presented as if the Sprint-Nextel merger occurred at the beginning of 2005. Because the merger occurred in the third quarter of 2005, the fourth quarter 2005 and the fourth quarter and year-to-date 2006 reflect actual results. The pro forma results do not include the results of any acquired PCS Affiliate, Velocita or Nextel Partners prior to the dates of their respective acquisitions because they do not significantly affect reported results. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)     TABLE No. 10               Long Corporate & For the Quarter Ended December 31, 2006   Consolidated   Wireless   Distance   Eliminations   Operating Income (Loss) $ 569  $ 578  $ 107  $ (116) Special items (a) Severance, lease exit costs and asset impairments 79  73  5  1  Merger and integration expense   117      -      -      117  Adjusted Operating Income* 765  651  112  2  Depreciation and amortization   2,404      2,257      147      -  Adjusted OIBDA* 3,169  2,908  259  2  Capital expenditures   2,612      2,238      274      100  Adjusted OIBDA* less Capex $ 557    $ 670    $ (15)   $ (98)                   Long Corporate & For the Quarter Ended December 31, 2005   Consolidated   Wireless   Distance   Eliminations   Operating Income (Loss) $ 297  $ 505  $ 98  $ (306) Special items Severance, lease exit costs and asset impairments (25) (17) (16) 8  Merger and integration expense 319  -  -  319  Hurricane charges   21      20      1      -  Adjusted Operating Income* 612  508  83  21  Depreciation and amortization   2,184      2,045      138      1  Adjusted OIBDA* 2,796  2,553  221  22  Capital expenditures   1,836      1,535      166      135  Adjusted OIBDA* less Capex $ 960    $ 1,018    $ 55    $ (113)                   Long Corporate & For the Quarter Ended September 30, 2006   Consolidated   Wireless   Distance   Eliminations   Operating Income (Loss) $ 719  $ 754  $ 73  $ (108) Special items Severance, lease exit costs and asset impairments 50  41  9  -  Merger and integration expense   107      -      -      107  Adjusted Operating Income* 876  795  82  (1) Depreciation and amortization (b)   2,488      2,364      124      -  Adjusted OIBDA* 3,364  3,159  206  (1) Capital expenditures   1,843      1,473      255      115  Adjusted OIBDA* less Capex $ 1,521    $ 1,686    $ (49)   $ (116)     (a) See accompanying Notes to Financial Data for more information on special items. (b) Amortization expense for the third quarter 2006 includes an adjustment of $52 million, which reverses amortization expense that was previously recorded in our Form 10-Q for the period ended September 30, 2006. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)     TABLE No. 10               Long Corporate & For the Quarter Ended June 30, 2006   Consolidated   Wireless   Distance   Eliminations   Operating Income (Loss) $ 712  $ 660  $ 155  $ (103) Special items Severance, lease exit costs and asset impairments 40  33  7  -  Merger and integration expense   113      -      -      113  Adjusted Operating Income* 865  693  162  10  Depreciation and amortization   2,354      2,242      113      (1) Adjusted OIBDA* 3,219  2,935  275  9  Capital expenditures   1,359      1,064      200      95  Adjusted OIBDA* less Capex $ 1,860    $ 1,871    $ 75    $ (86)                   Long Corporate & For the Quarter Ended March 31, 2006   Consolidated   Wireless   Distance   Eliminations   Operating Income (Loss) $ 484  $ 436  $ 104  $ (56) Special items Severance, lease exit costs and asset impairments 38  28  10  -  Merger and integration expense   76      -      -      76  Adjusted Operating Income* 598  464  114  20  Depreciation and amortization   2,346      2,223      122      1  Adjusted OIBDA* 2,944  2,687  236  21  Capital expenditures   1,243      1,071      92      80  Adjusted OIBDA* less Capex $ 1,701    $ 1,616    $ 144    $ (59) Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)     TABLE No. 11               Long Corporate & For the Year Ended December 31, 2006   Consolidated   Wireless   Distance   Eliminations   Operating income (Loss) $ 2,484  $ 2,428  $ 439  $ (383) Special items (a)   620      175      31      414  Adjusted operating income* 3,104  2,603  470  31  Depreciation and amortization   9,592      9,086      506      -  Adjusted OIBDA* 12,696  11,689  976  $ 31  Capital expenditures   7,057      5,846      821      390  Adjusted OIBDA* less Capex $ 5,639    $ 5,843    $ 155    $ (359)                   Long Corporate & For the Year Ended December 31, 2005   Consolidated   Wireless   Distance   Eliminations   Operating income (Loss) $ 2,141  $ 2,140  $ 493  $ (492) Special items   723      105      30      588  Adjusted operating income (loss)* 2,864  2,245  523  96  Depreciation and amortization   5,200      4,699      499      2  Adjusted OIBDA* $ 8,064    $ 6,944    $ 1,022    $ 98  Capital expenditures   4,201      3,545      384      272  Adjusted OIBDA* less Capex $ 3,863    $ 3,399    $ 638    $ (174)                   Pro forma Pro forma Long Corporate & For the Year Ended December 31, 2005   Consolidated   Wireless   Distance   Eliminations   Operating income (Loss) $ 2,127  $ 2,255  $ 493  $ (621) Special items   852      105      30      717  Adjusted Operating Income* 2,979  2,360  523  96  Depreciation and amortization   8,333      7,832      499      2  Adjusted OIBDA*   11,312      10,192      1,022      98  Capital expenditures   6,231      5,575      384      272  Adjusted OIBDA* less Capex $ 5,081    $ 4,617    $ 638    $ (174)     (a) See accompanying Notes to Financial Data for more information on special items. Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (Unaudited) (millions)   TABLE No.12             Quarter Ended Year-to-date December 31, December 31, December 31, December 31, 2006    2005  2006    2005  Wireless Pro Forma Adjusted OIBDA* $ 2,908  $ 2,553  $ 11,689  $ 10,192  Service, wholesale, affiliate and other net operating revenues 8,204  7,388  31,918  28,631  Adjusted OIBDA margin* 35.4% 34.6% 36.6% 35.6%   Operating income $ 578  $ 505  $ 2,428  $ 2,255  Operating income margin 7.0% 6.8% 7.6% 7.9%     Long Distance Adjusted OIBDA* $ 259  $ 221  $ 976  $ 1,022  Total net operating revenues 1,635  1,662  6,571  6,834  Adjusted OIBDA margin* 15.8% 13.3% 14.9% 15.0%   Operating income $ 107  $ 98  $ 439  $ 493  Operating income margin 6.5% 5.9% 6.7% 7.2%     Consolidated Pro Forma Adjusted OIBDA* $ 3,169  $ 2,796  $ 12,696  $ 11,312  Service, wholesale, affiliate and other net operating revenues 9,644  8,950  37,831  35,082  Adjusted OIBDA margin* 32.9% 31.2% 33.6% 32.2%   Operating income $ 569  $ 297  $ 2,484  $ 2,127  Operating income margin 5.9% 3.3% 6.6% 6.1% Sprint Nextel Corporation NON-GAAP MEASURES AND RECONCILIATIONS (millions)     TABLE No. 13                 Quarter Ended Year-to-Date December 31, December 31, December 31, December 31, 2006    2005  2006    2005    Adjusted OIBDA* $ 3,169  $ 2,796  $ 12,696  $ 8,064  Adjust for special items (196) (315) (620) (723) Proceeds from communications towers lease transactions -  -  -  1,195  Other operating activities, net (a) (510) 955  (2,021) 116  Capital expenditures (2,411) (1,861) (7,209) (4,226) Dividends paid (72) (78) (296) (525) Proceeds from sales of assets 626  47  837  636  Other investing activities, net   (185)     (38)   (628)     793  Free Cash Flow* 421  1,506  2,759  5,330  Decrease in debt, net 210  (31) (5,536) (1,055) Retirement of redeemable preferred shares -  -  (247) -  Purchase of treasury shares (120) -  (1,643) -  Cash transferred to Embarq, net of cash received and proceeds from the sale of Embarq notes -  -  6,268  -  Discontinued operations activity, net -  13  367  96  Cash acquired in Nextel merger, net of cash paid -  -  -  1,183  Purchase of PCS Affiliates, Nextel Partners and Velocita, net of cash acquired 2  (422) (10,481) (1,371) Change in restricted cash -  (93) 93  (93) Distributions from unconsolidated investees, net -  (14) -  167  Investments in debt securities, net 2  (62) 1,130  (13) Proceeds from common shares issued 33  139  405  432  Other financing activities, net   16      39    28      51  Change in cash and cash equivalents - GAAP $ 564    $ 1,075  $ (6,857)   $ 4,727        TABLE No.14 December 31, 2006  Total Debt $ 22,154  Less: Cash on hand (2,046) Less: Current marketable securities   (15) Net Debt* $ 20,093      (a) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous operating activities and non-operating items in net income (loss). Sprint Nextel Corporation OPERATING STATISTICS   TABLE No. 15                       1Q06   2Q06   3Q06   4Q06   YTD 2006   Wireless   Financial and Other Statistics   Direct Post-Paid Subscribers Service revenue (in millions) $ 7,175  $ 7,259  $ 7,653  $ 7,588  $ 29,675  ARPU $ 62  $ 62  $ 61  $ 60  $ 61  Churn 2.1% 2.1% 2.4% 2.3% 2.3% Additions (in thousands) (1) 563  210  (188) (306) 279  End of period subscribers (in thousands) (2) 39,103  41,405  41,675  41,805  41,805  Hours per subscriber 17  17  17  16  17    Direct Pre-Paid Subscribers Service revenue (in millions) $ 312  $ 337  $ 364  $ 371  $ 1,384  ARPU $ 36  $ 34  $ 33  $ 32  $ 33  Churn (4) 5.4% 6.0% 6.8% 6.5% 6.2% Additions (in thousands) 502  498  216  171  1,387  End of period subscribers (in thousands) (3) 3,127  3,625  3,841  4,012  4,012    Wholesale Subscribers Additions (in thousands) 228  (31) 177  830  1,204  End of period subscribers (in thousands) 5,382  5,351  5,528  6,358  6,358    Affiliate Subscribers Additions (in thousands) (1) 45  27  28  46  146  End of period subscribers (in thousands) 1,256  1,283  853  899  899    Total Subscribers Additions (in thousands) (1) 1,338  704  233  741  3,016  End of period subscribers (in thousands) 48,868  51,664  51,897  53,074  53,074    Number of cell sites on air (in thousands) 55  57  59  61  61    Adjusted OIBDA* (in millions) (5) $ 2,687  $ 2,935  $ 3,159  $ 2,908  $ 11,689  Service, wholesale, affiliate and other net operating revenues (in millions) $ 7,685  $ 7,800  $ 8,229  $ 8,204  $ 31,918  Adjusted OIBDA margin* 35.0% 37.6% 38.4% 35.4% 36.6%   Capital expenditures $ 1,071  $ 1,064  $ 1,473  $ 2,238  $ 5,846  Pro forma Adjusted OIBDA* less capital expenditures $ 1,616  $ 1,871  $ 1,686  $ 670  $ 5,843    (1) Direct post-paid and affiliate net subscriber additions for the first quarter 2006 have been reported before transfers from the affiliate subscriber base totaling 1,605,000. Direct post-paid additions for the second quarter 2006 have been reported before acquisitions of subscribers from Nextel Partners totaling 2,092,000. Direct post-paid additions for the third quarter 2006 have been reported before transfers from the affiliate subscriber base totalling 458,000. (2) Direct post-paid end of period subscribers reflect a decrease in the first quarter and year-to-date 2006 due to a reclassification of 42,000 employee phone rate plans from revenue-generating to non-revenue-generating. In the quarter ended December 31, 2006, the Company changed its subscriber deactivation process for post paid subscribers. To effect this change, the customer subscriber base as of October 1, 2006 was increased by 436,000 subscribers. This adjustment did not impact reported net adds or reported churn in the quarter ended December 31, 2006. (3) Direct prepaid end of period subscribers for the first quarter 2006 and year-to-date 2006 reflect a beginning balance adjustment of 59,000 subscribers to exclude prepaid subscribers acquired from affiliates in the third and fourth quarters 2005. (4) Represents prepaid churn normalized for a change in the first quarter 2006 in the treatment of low-balance customers. (5) See Tables 10 and 11 for Adjusted OIBDA* reconciliation.     Long Distance   Financial and Other Statistics (dollars in millions, except where stated)   Total Long Distance Net Operating Revenues $ 1,669  $ 1,641  $ 1,626  $ 1,635  $ 6,571  Voice net operating revenue $ 1,009  $ 1,003  $ 989  $ 978  $ 3,979  Data net operating revenue $ 375  $ 366  $ 346  $ 353  $ 1,440  Internet net operating revenue $ 225  $ 217  $ 237  $ 254  $ 933  Other net operating revenue $ 60  $ 55  $ 54  $ 50  $ 219    Total Operating Expenses $ 1,565  $ 1,486  $ 1,553  $ 1,528  $ 6,132  Costs of services and products $ 1,098  $ 1,085  $ 1,141  $ 1,102  $ 4,426  Selling, general and administrative $ 335  $ 281  $ 279  $ 274  $ 1,169  Depreciation $ 122  $ 113  $ 124  $ 147  $ 506  Severance, lease exit costs and asset impairments $ 10  $ 7  $ 9  $ 5  $ 31    Operating income $ 104  $ 155  $ 73  $ 107  $ 439  Operating income margin 6.2% 9.4% 4.5% 6.5% 6.7%   Adjusted OIBDA* $ 236  $ 275  $ 206  $ 259  $ 976  Adjusted OIBDA margin* 14.1% 16.8% 12.7% 15.8% 14.9%   Capital expenditures $ 92  $ 200  $ 255  $ 274  $ 821  Adjusted OIBDA* less capital expenditures $ 144  $ 75  $ (49) $ (15) $ 155    YOY voice volume growth 10% 5% 5% 1% 5%   Sprint Nextel Corporation NOTES TO FINANCIAL DATA (Unaudited)   (1) In the fourth quarter 2006, we recorded merger and integration costs of $117 million (pre-tax). All merger costs were related to the Sprint-Nextel merger and the acquisition of PCS Affiliates. Merger and integration costs are considered to be non-recurring in nature, and have been reflected as unallocated corporate costs and therefore excluded from segment results.   (2) In the fourth quarter 2006, we recorded severance, lease exit costs and asset impairment charges of $79 million (pre-tax), which consists of about $71 million related to work force reductions and lease termination charges, and $8 million of asset impairments primarily related to the abandonment of various assets including certain cell sites under construction. Severance, lease exit costs and asset impairment charges are allocated to the appropriate segment results.   (3) In May 2006 we entered into a separation and distribution agreement with Embarq Corporation, which consists primarily of the business that we had reported as the Local segment in our consolidated financial statements in prior periods, and, at the time, was a wholly owned subsidiary, and on May 17, 2006, we completed the spin off of Embarq. The results of the discontinued operations (net of tax), have been reclassified out of the operating results as of the first day of each period presented.