Nextel reports ‘record-setting’ third-quarter 2002 results

Highlights:

• Income of $526 million, or 58 cents per share
• EBITDA of $878 million and margins of 41%
• Subscriber additions of 480,000
• Retirement of $1.5 billion in debt and preferred securities in the third quarter and $2.6 billion year-to-date

Nextel Communications, Reston, Va., today announced record financial results for the third quarter of 2002 including income of $526 million, or 58 cents per share.

The company said that its revenue was $2.3 billion, a 26% increase over last year’s third quarter. Domestic operating cash flow was $878 million, increasing by 67% over the same period last year.

Nextel said that it had retired $1.5 billion in debt and preferred stock during the third quarter, bringing total debt and preferred stock retirements to $2.6 billion thus far this year. Nextel reported adding 480,000 domestic subscribers during the third quarter, finishing the quarter with 10.1 million domestic subscribers.

“Nextel continues to attract high value customers at a healthy pace. We are growing market share with the best product and service portfolio in the industry and our cash flow margin improved to 41%,” said Tim Donahue, Nextel’s chief executive, in a prepared statement.

“Our base of more than 10 million customers continues to grow due to strong add-on sales, strong business customer referrals and growth in targeted segments including construction and government sectors,” he said.

“At the same time, Nextel is improving its back-office systems, scaling network expenditures, and keeping our network quality and customer satisfaction at high levels while reducing customer churn. Nextel will continue to expand our Direct Connect capabilities, add new products to our portfolio and continue to pursue our smart growth strategies,” Donahue said.

Nextel said that its average monthly service revenue per domestic subscriber remained at $71, which it said is “significantly higher” than that of other national wireless carriers. The company put its customer churn at 2% during the quarter and said that the rate “is the best among the national wireless carriers.”

Nextel reported that its consolidated income available to common stockholders during the third quarter was $526 million, or 58 cents per basic share. Gains of $401 million or 44 cents per basic share were recognized during the quarter related to gains on retirement of debt and preferred stock. Net of these gains and a $3 million reduction in investment fair value, Nextel’s income available to basic common stockholders was $128 million or 14 cents per share.

“Today’s financial results show that Nextel continues to deliver on our business plan. We are driving top-line growth by focusing on high-value customers. We are simultaneously driving higher EBITDA margins by creating operating efficiencies in the business, and we have instilled a more disciplined approach to capital spending,” said Paul Saleh, Nextel’s chief financial officer, in a prepared statement.

“Together these actions are driving greater cash flow, which is enabling Nextel to significantly reduce our debt and preferred stock obligations,” he said.

“During the third quarter, Nextel retired $1.5 billion in principal amount of debt and preferred securities. Thus far during 2002, we have retired $2.6 billion in principal amount of our securities. These transactions allow Nextel to avoid payments of $4.4 billion in principal, interest and dividends over the life of these securities, or $235 million in interest and dividend savings annually,” Saleh said.

For the quarter ended Sept. 30, 2002, Nextel said that it had retired $1.5 billion in principal amount of its outstanding debt and mandatorily redeemable preferred stock in exchange for 83 million newly issued shares of Class A common stock and $394 million in cash. Thus far this year, Nextel said that it retired $2.6 billion in principal amount of debt and mandatorily redeemable preferred stock.

Nextel put its domestic capital expenditures at $401 million in the third quarter of 2002. The company said that the total domestic system minutes of use on its national network increased 40 percent during the quarter when compared with the same period in 2001, to 19.2 billion total system minutes of use.