UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4721
SPRINT CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-0457967
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
P.O. Box 11315, Kansas City, Missouri 64112
(Address of principal executive offices)
(913) 624-3000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
SHARES OF COMMON STOCK OUTSTANDING AT June 30, 1994 --345,302,162
<PAGE>
PART 1.
Item 1.
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
As of As of
June 30, December 31,
1994 1993
(Unaudited)
Assets
Current assets
Cash and equivalents $ 121.4 $ 76.8
Accounts receivable, net of allowance
for doubtful accounts of $136.5
million ($121.9 million in 1993) 1,370.6 1,230.6
Investment in equity securities -- 130.2
Inventories 192.1 182.3
Deferred income taxes 68.1 81.1
Prepaid expenses 135.0 120.7
Other 150.6 156.1
Total current assets 2,037.8 1,977.8
Investments in equity securities 167.6 173.1
Property, plant and equipment
Long distance communications services 5,631.1 5,492.7
Local communications services 11,619.0 11,226.4
Cellular and wireless communications
services 663.3 569.6
Other 450.9 433.7
18,364.3 17,722.4
Less accumulated depreciation 7,910.1 7,407.6
10,454.2 10,314.8
Cellular minority partnership
interests 290.7 284.9
Excess of cost over net assets acquired 729.9 739.5
Other assets 628.2 658.8
$ 14,308.4 $ 14,148.9
See accompanying condensed notes to consolidated financial
statements.
<PAGE>
PART 1.
Item 1.
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
(In Millions)
As of As of
June 30, December 31,
1994 1993
(Unaudited)
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 301.4 $ 523.4
Accounts payable 949.4 925.4
Accrued interconnection costs 483.8 487.5
Accrued taxes 281.1 307.2
Advance billings 158.7 150.6
Other 654.9 674.5
Total current liabilities 2,829.3 3,068.6
Long-term debt 4,586.4 4,571.0
Deferred credits and other liabilities
Deferred income taxes and investment tax
credits 1,234.4 1,229.9
Postretirement and other benefit
obligations 829.2 793.1
Other 554.1 529.4
2,617.7 2,552.4
Redeemable preferred stock 37.4 38.6
Common stock and other shareholders'
equity
Common stock, par value $2.50 per share,
authorized 500.0 million shares, issued
and outstanding 345.3 million (343.4
million in 1993) 863.3 858.5
Capital in excess of par or stated value 882.4 827.4
Retained earnings 2,469.0 2,184.2
Other 22.9 48.2
4,237.6 3,918.3
$ 14,308.4 $ 14,148.9
See accompanying condensed notes to consolidated financial
statements.
<PAGE>
PART I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Millions, Except Per Share Data)
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
Net operating revenues $ 3,150.4 $ 2,800.9 $ 6,183.6 $ 5,518.9
Operating expenses
Costs of services and
products 1,574.4 1,408.9 3,102.8 2,790.8
Selling, general and
administrative 752.8 675.9 1,477.0 1,317.7
Depreciation and amortization 366.4 338.0 718.7 675.2
Merger, integration and
restructuring costs -- -- -- 248.0
Total operating expenses 2,693.6 2,422.8 5,298.5 5,031.7
Operating income 456.8 378.1 885.1 487.2
Interest expense (100.0) (113.0) (201.1) (230.9)
Other income (expense), net (9.3) (8.1) 19.9 (8.8)
Income from continuing
operations before income
taxes 347.5 257.0 703.9 247.5
Income tax provision (127.9) (91.9) (256.9) (93.7)
Income from continuing
operations 219.6 165.1 447.0 153.8
Discontinued operations, net -- -- -- (12.3)
Extraordinary losses on early
extinguishments of debt, net -- (8.5) -- (13.7)
Cumulative effect of changes
in accounting principles,
net -- -- -- (384.2)
Net income (loss) 219.6 156.6 447.0 (256.4)
Preferred stock dividends (0.7) (0.9) (1.4) (1.5)
Earnings (loss) applicable
to common stock $ 218.9 $ 155.7 $ 445.6 $ (257.9)
<PAGE>
Earnings (loss) per common
share
Continuing operations $ 0.63 $ 0.48 $ 1.28 $ 0.45
Discontinued operations -- -- -- (0.04)
Extraordinary item -- (0.02) -- (0.04)
Cumulative effect of changes
in accounting principles -- -- -- (1.12)
Total $ 0.63 $ 0.46 $ 1.28 $ (0.75)
Weighted average number of
common shares 347.6 342.1 347.1 341.9
Dividends per common share $ 0.25 $ 0.25 $ 0.50 $ 0.50
See accompanying condensed notes to consolidated financial statements.
<PAGE>
PART I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Millions)
Six Months Ended
June 30,
1994 1993
Operating activities
Net income (loss) $ 447.0 $ (256.4)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities
Depreciation and amortization 718.7 675.2
Gain on sale of investment in equity
securities (34.7) --
Discontinued operations 4.5 (0.8)
Extraordinary losses on early
extinguishments of debt -- 23.5
Cumulative effect of changes in accounting
principles -- 384.2
Deferred income taxes and investment tax
credits 44.8 (21.6)
Changes in operating assets and liabilities
Accounts receivable, net (140.0) (51.4)
Inventories and other current assets (18.6) 8.6
Accounts payable, accrued expenses and other
current liabilities (8.5) 53.5
Noncurrent assets and liabilities, net 69.6 151.1
Other, net 37.1 38.4
Net cash provided by operating activities 1,119.9 1,004.3
Investing activities
Capital expenditures (848.0) (723.9)
Proceeds from sale of investment in equity
securities 117.7 --
Other, net (15.9) (4.7)
Net cash used by investing activities (746.2) (728.6)
Financing activities
Proceeds from long-term debt 100.2 269.0
Retirements of long-term debt (380.3) (905.1)
Net increase in notes payable and commercial
paper 73.5 501.0
Proceeds from common stock issued 28.7 32.1
Proceeds from employees stock purchase
installments 10.5 13.6
Dividends paid (172.0) (174.5)
Other, net 10.3 (19.9)
Net cash used by financing activities (329.1) (283.8)
Increase (decrease) in cash and equivalents 44.6 (8.1)
Cash and equivalents at beginning of period 76.8 128.8
Cash and equivalents at end of period $ 121.4 $ 120.7
See accompanying condensed notes to consolidated financial statements.
<PAGE>
PART I.
Item 1.
SPRINT CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The information contained in this Form 10-Q for the three- and six-
month interim periods ended June 30, 1994 and 1993 has been
prepared in accordance with instructions to Form 10-Q and Rule 10-
01 of Regulation S-X. In the opinion of management, all
adjustments considered necessary, consisting only of normal
recurring and certain nonrecurring accruals (see Note 2), to
present fairly the consolidated balance sheets, results of
operations, and cash flows for such interim periods have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles (GAAP) have been condensed
or omitted. The results of operations for the six months ended
June 30, 1994 are not necessarily indicative of the operating
results that may be expected for the year ended December 31, 1994.
1. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of Sprint Corporation and its wholly-owned and majority-
owned subsidiaries (Sprint), including Centel Corporation (Centel)
and Sprint Communications Company L.P. Investments in less than 50
percent-owned cellular communications partnerships are accounted
for using the equity method.
In accordance with industry practice, revenues and related net
income of non-regulated operations attributable to transactions
with Sprint's rate-regulated telephone companies have not been
eliminated in the accompanying consolidated financial statements.
Intercompany revenues of such entities amounted to $85 million and
$63 million for the three months ended June 30, 1994 and 1993,
respectively, and $150 million and $115 million for the six months
ended June 30, 1994 and 1993, respectively.
All other significant intercompany transactions have been
eliminated.
Classification of Operations
The long distance communications services division provides
domestic voice and data communications services across certain
specified geographical boundaries, as well as international long
distance communications services. Rates charged for such services
sold to the public are subject to different levels of state and
federal regulation, but are generally not subject to rate-base
regulation.
The local communications services division consists principally of
the operations of Sprint's rate-regulated telephone companies.
These operations provide local exchange services, access by
telephone customers and other carriers to local exchange facilities
and long distance services within specified geographical areas.
The cellular and wireless communications services division consists
of wholly-owned and majority-owned interests in partnerships and
corporations operating cellular and wireless communications
properties in various metropolitan and rural service area markets.
The product distribution and directory publishing businesses
include the wholesale distribution of telecommunications products
and the publishing and marketing of white and yellow page telephone
directories.
Postretirement Benefits
Effective January 1, 1993, Sprint changed or modified its method of
accounting for certain postretirement benefits by adopting
Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." Sprint provides postretirement benefits (principally
health care benefits) to certain retirees. SFAS No. 106 requires
accrual of the expected cost of providing postretirement benefits
to employees and their dependents or beneficiaries during the years
employees earn the benefits.
Upon adoption of the new standard, Sprint elected to immediately
recognize its previously unrecorded obligation for postretirement
benefits already earned by current retirees and employees (the
transition obligation), a substantial portion of which related to
its rate-regulated telephone companies. Pursuant to SFAS No. 71,
regulatory assets associated with the recognition of the transition
obligation were recorded in certain jurisdictions where the
regulators have issued orders specific to Sprint permitting
recognition of net postretirement benefits costs for ratemaking
purposes, and providing for recovery of the transition obligation
over a period of no longer than 20 years. Accordingly, in
connection with the adoption of SFAS No. 106, Sprint recorded
regulatory assets of $87 million. In all other jurisdictions,
regulatory assets associated with the recognition of the transition
obligation were not recorded due to the uncertainties as to the
timing and extent of recovery.
The resulting nonrecurring, noncash charge of $341 million ($1.00
per share), net of related income tax benefits, is reflected in the
1993 consolidated statement of income as a cumulative effect of
change in accounting principle.
Postemployment Benefits
Effective January 1, 1993, Sprint adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Upon adoption, Sprint
recognized certain previously unrecorded obligations for benefits
to be provided to former or inactive employees and their
dependents, after employment but before retirement. Such
postemployment benefits offered by Sprint include severance,
disability and workers compensation benefits, including the
continuation of other benefits such as health care and life
insurance coverage.
The resulting nonrecurring, noncash charge of $11 million ($0.03
per share), net of related income tax benefits, is reflected in the
1993 consolidated statement of income as a cumulative effect of
change in accounting principle.
Accounting for Circuit Activity Costs
Effective January 1, 1993, Sprint's long distance communications
services division changed its method of accounting for certain
costs related to connecting new customers to its network. The
change was made to conform Sprint's accounting to the predominant
industry practice for such costs. Under the new method, such costs
(which were previously capitalized) are being expensed when
incurred. The resulting nonrecurring, noncash charge of $32
million ($0.09 per share), net of related income tax benefits, is
reflected in the 1993 consolidated statement of income as a
cumulative effect of change in accounting principle.
Reclassifications
Certain amounts in the accompanying consolidated financial
statements for 1993 have been reclassified to conform to the
presentation of amounts in the 1994 consolidated financial
statements. Such reclassifications had no effect on the results of
operations.
2. Sprint/Centel Merger
Effective March 9, 1993, Sprint consummated its merger with Centel,
creating a diversified telecommunications enterprise with
operations in long distance, local exchange and cellular/wireless
communications services. The merger was accounted for as a pooling
of interests. The transaction costs associated with the merger
(consisting primarily of investment banking and legal fees) and the
estimated expenses of integrating and restructuring the operations
of the two companies (consisting primarily of employee severance
and relocation expenses and costs of eliminating duplicative
facilities) resulted in nonrecurring charges during 1993
aggregating $259 million, of which $248 million was recorded during
the six months ended June 30, 1993. Such nonrecurring charges
reduced income from continuing operations for the six months ended
June 30, 1993 by $165 million ($0.48 per share).
3. Investments in Equity Securities
Investments in equity securities are classified as available for
sale and reported at fair value (estimated based on quoted market
prices). As of June 30, 1994 and December 31, 1993, the cost of
such investments was $119 million and $202 million, respectively,
with gross unrealized holding gains of $49 million and $101
million, respectively, reflected as additions to other
shareholders' equity, net of related income taxes.
During the six months ended June 30, 1994, Sprint sold an
investment in common stock, realizing a gain of $35 million, which
increased income from continuing operations by $22 million ($0.06
per share).
4. Income Taxes
The differences which cause the effective income tax rate to vary
from the statutory federal income tax rate of 35 percent and 34
percent for the six months ended June 30, 1994 and 1993,
respectively, are as follows (in millions):
Six Months Ended
June 30,
1994 1993
Income tax provision at the statutory rate $ 246.4 $ 84.2
Effect of:
Investment tax credits included in income (11.2) (11.7)
State income taxes, net of federal income
tax effect 27.4 11.4
Merger related costs -- 14.0
Other, net (5.7) (4.2)
Income tax provision, including investment
tax credits $ 256.9 $ 93.7
Effective income tax rate 36% 38%
On August 10, 1993, the Revenue Reconciliation Act of 1993 was
enacted which, among other changes, raised the federal income tax
rate for corporations to 35 percent from 34 percent, retroactive to
January 1, 1993. Accordingly, upon enactment, Sprint adjusted its
deferred income tax assets and liabilities to reflect the revised
rate.
5. Contingencies
Litigation, Claims and Assessments
In September 1993, a settlement agreement was reached related to a
class action complaint filed in January 1992 against Sprint and
certain of its officers and directors, amending a complaint
originally filed in 1990. The plaintiffs in the class action
alleged violations of various federal securities laws and related
state laws and, among other relief, sought unspecified compensatory
damages. The settlement, which totaled $29 million, was approved
by the court and paid in 1994. Approximately 60 percent of the
settlement was recovered from Sprint's insurance carriers. The net
settlement did not have a significant effect on Sprint's 1993
results of operations.
Following announcement of Sprint's merger with Centel, class action
suits were filed against Centel and certain of its officers and
directors in federal and state courts. The state suits have been
dismissed, while the federal suits have been consolidated into a
single action and seek damages for alleged violations of securities
laws. These and various other suits arising in the ordinary course
of business are pending against Sprint. Management cannot predict
the ultimate outcome of these actions but believes they will not
result in a material effect on Sprint's consolidated financial
statements.
Accounts Receivable Sold with Recourse
Under an agreement available through July 1995, Sprint may sell on
a continuous basis, with recourse, up to $600 million of undivided
interests in a designated pool of its accounts receivable.
Subsequent collections of receivables sold to investors are
typically reinvested in the pool. On a quarterly basis, subject to
the approval of the investors, Sprint may extend the agreement for
an additional ninety days. Receivables sold that remained
uncollected as of June 30, 1994 aggregated $600 million.
6. Supplemental Cash Flows Information
Six Months Ended
June 30,
1994 1993
Cash paid for (in millions):
Interest $ 218.1 $ 263.1
Income taxes $ 224.9 $ 170.5
During the six months ended June 30, 1994 and 1993, Sprint
contributed previously unissued shares of its common stock with
market values of $26 million and $19 million, respectively, to the
employee savings plans.
7. Subsequent Event
In August 1994, Sprint's Board of Directors declared a common stock
dividend of $0.25 per share payable on September 30, 1994.
PART I.
Item 2.
SPRINT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Strategic Development
On June 14, 1994, Sprint Corporation (Sprint) announced that it had
entered into a Memorandum of Understanding (the MOU) with Deutsche
Telekom and France Telecom to form a global partnership which will
offer telecommunications services to business, consumer and carrier
markets worldwide. The MOU provides that Deutsche Telekom and
France Telecom together will purchase approximately 42.9 million
shares of a new class of Sprint stock at a price of $47.225 per
share. Deutsche Telekom and France Telecom will also purchase
approximately 42.9 million shares of the new class of Sprint stock
at a price of $51.00 per share two years after the initial
acquisition. As part of the transaction, Deutsche Telekom and
France Telecom will be entitled to representation on Sprint's
board, such representation to be based on their actual percentage
ownership interest, with a minimum of two directors serving on
Sprint's board so long as the two companies own at least 10 percent
of the outstanding common stock of Sprint, subject to the approval
of the New York Stock Exchange. The formation of the partnership
and the acquisition of Sprint stock are subject to conditions,
including the negotiation and execution of definitive agreements,
approval by Sprint's board of directors and its shareholders,
approval by the governing bodies of Deutsche Telekom and France
Telecom and government and regulatory approvals.
Sprint / Centel Merger
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation (Centel), creating a diversified telecommunications
enterprise with operations in long distance, local exchange and
cellular/wireless communications services. The merger was
accounted for as a pooling of interests.
The operations of the merged companies continue to be integrated
and restructured to achieve efficiencies which are yielding
operational synergies and cost savings. The transaction costs
associated with the merger (consisting primarily of investment
banking and legal fees) and the estimated expenses of integrating
and restructuring the operations of the two companies (consisting
primarily of employee severance and relocation expenses and costs
of eliminating duplicative facilities) resulted in nonrecurring
charges during 1993 aggregating $259 million, of which $248 million
was recorded during the six months ended June 30, 1993. Such
nonrecurring charges reduced income from continuing operations for
the six months ended June 30, 1993 by $165 million ($0.48 per
share).
Liquidity and Capital Resources
Cash flows from operating activities, which are Sprint's primary
source of liquidity, were $1.1 billion during the first half of
1994, compared to $1.0 billion during the first half of 1993. The
improvement reflects improved operating results in all divisions.
Sprint's investing activities used cash of $746 million and $729
million during the first half of 1994 and 1993, respectively.
Capital expenditures, which represent Sprint's most significant
investing activity, were $848 million and $724 million during the
first half of 1994 and 1993, respectively. Long distance capital
expenditures were incurred primarily to enhance network
capabilities for providing new products and services and to meet
increased customer demand. Capital expenditures for the local
division were made to accommodate access line growth, to continue
the conversion to digital technologies, and to expand the
division's capabilities for providing enhanced telecommunications
services. Capital expenditures for the cellular and wireless
division were made to support the increase in the number of
cellular subscribers. Sprint now expects capital expenditures for
the year to be approximately $1.9 billion. Investing activities in
the first half of 1994 also include $118 million received in
connection with the sale of an investment in equity securities.
Financing activities used cash of $329 million in the first half of
1994 and $284 million in the comparable 1993 period. Long-term
debt retirements during the first half of 1994 include the
redemption of $102 million of debt called in 1993 prior to its
scheduled maturity.
During 1994, Sprint anticipates funding capital expenditures and
dividends with cash flows from operating activities. Sprint
expects its external cash requirements for the remainder of the
year to be approximately $150 million to $250 million, which will
generally be used to fund scheduled long-term debt maturities. The
method of financing the external cash requirements will depend on
prevailing market conditions during the remainder of the year. The
estimate of external cash requirements has decreased due to revised
expectations related to debt refinancing; however, debt
refinancings may still occur if management determines that such
refinancings are warranted.
As of June 30, 1994, Sprint had the ability to borrow $876 million
under a revolving credit agreement with a syndicate of domestic and
international banks and other bank commitments. Other available
financing sources include a Medium-Term Note program, under which
Sprint may offer for sale up to $175 million of unsecured senior
debt securities. In addition, Sprint may offer for sale
approximately $1.3 billion of debt securities pursuant to shelf
registration statements filed with the Securities and Exchange
Commission.
The aggregate amount of additional borrowings which can be incurred
is ultimately limited by certain covenants contained in existing
debt agreements. As of June 30, 1994, Sprint had borrowing
capacity of approximately $3.6 billion under the most restrictive
of its debt covenants.
The most restrictive covenant applicable to dividends results from
Sprint's revolving credit agreement. Among other restrictions, the
agreement requires Sprint to maintain specified levels of
consolidated net worth, as defined. As a result of this
requirement, $1.6 billion of Sprint's $2.5 billion consolidated
retained earnings were effectively restricted from the payment of
dividends as of June 30, 1994.
Results Of Operations
Long Distance Communications Services
Selected Operating Results
(In Millions)
Three Months
Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues $ 1,695.5 $ 1,509.9 $ 185.6 12.3%
Operating expenses
Interconnection 747.2 671.6 75.6 11.3%
Operations 220.0 205.3 14.7 7.2%
Selling, general and
administrative 433.1 381.7 51.4 13.5%
Depreciation and
amortization 137.0 130.0 7.0 5.4%
Total operating
expenses 1,537.3 1,388.6 148.7 10.7%
Operating income $ 158.2 $ 121.3 $ 36.9 30.4%
Selected Operating Results
(In Millions)
Six Months Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues $ 3,355.9 $ 3,001.2 $ 354.7 11.8%
Operating expenses
Interconnection 1,495.7 1,346.6 149.1 11.1%
Operations 434.8 398.4 36.4 9.1%
Selling, general and
administrative 853.4 750.1 103.3 13.8%
Depreciation and
amortization 270.7 264.1 6.6 2.5%
Total operating
expenses 3,054.6 2,759.2 295.4 10.7%
Operating income $ 301.3 $ 242.0 $ 59.3 24.5%
Net operating revenues for the second quarter and first half of
1994 increased 12 percent over the comparable 1993 periods. The
increases were generally due to traffic volume growth of 12 percent
and 11 percent for the second quarter and first half of 1994,
respectively. Average revenue per minute received from customers
was relatively constant. The increases in net operating revenues
and traffic volumes reflect continuing growth in the business,
international, and residential markets. Growth in the business
market was primarily attributable to "800" services, reflecting the
enhanced growth opportunities generated by "800" portability, while
growth in the international and residential markets reflects
ongoing sales and marketing efforts.
Maintaining growth rates in the future for both net operating
revenues and traffic volumes may be influenced by both domestic and
international economic conditions and price levels in the intensely
competitive long distance marketplace.
Interconnection costs increased during the second quarter and first
half of 1994 relative to the comparable 1993 periods primarily as a
result of traffic volume growth; however, as a percentage of net
operating revenues, interconnection costs decreased from 44.5
percent to 44.1 percent and from 44.9 percent to 44.6 percent for
the second quarter and first half of 1994, respectively, compared
to the same periods of the prior year. Such decreased percentages
reflect reduced percentages related to domestic interconnection
costs, partially offset by increased percentages related to
international interconnection costs. International interconnection
costs increased as a percentage of related net operating revenues
due to changes in the mix of traffic volumes to various countries,
partially offset by reductions in rates paid to foreign telephone
companies to complete international calls made by the division's
domestic customers. Domestic interconnection costs decreased as a
percentage of related net operating revenues due to reductions in
interconnection charges paid to local exchange companies. The
annual interconnection rate filings of domestic local exchange
carriers became effective July 1, 1994. The specific impact on the
division's domestic interconnection costs is expected to be
favorable, although not material.
Operations expense consists of costs related to operating and
maintaining the long distance network; costs of providing various
services such as operator services, public payphones,
telecommunications services for the hearing impaired, and video
teleconferencing; and costs of data system sales. Operations
expense for the second quarter and first half of 1994 increased $15
million and $36 million, respectively, from the comparable 1993
periods, primarily due to expanded service offerings as well as
providing services to new customers.
Selling, general and administrative expense for the second quarter
and first half of 1994 increased $51 million and $103 million,
respectively, generally as a result of sales and marketing efforts.
During the first half of 1994, marketing efforts were primarily
directed at The Most (sm) and The Most WORLDWIDE (sm) calling
plans, the recently introduced voice-activated FONCARD (sm)
product, the Sprint Business Campaign, and the "Be There Now" and
World Cup Soccer corporate imaging campaigns. These efforts
resulted in increased advertising expense.
Depreciation and amortization increased $7 million for both the
second quarter and first half of 1994 relative to the comparable
1993 periods primarily due to an increase in the asset base.
Local Communications Services
Selected Operating Results
(In Millions)
Three Months
Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues
Local service $ 434.9 $ 402.3 $ 32.6 8.1%
Network access 391.1 374.7 16.4 4.4%
Toll service 132.5 127.0 5.5 4.3%
Other 124.9 115.8 9.1 7.9%
Total net operating
revenues 1,083.4 1,019.8 63.6 6.2%
Operating expenses
Plant operations 311.1 303.8 7.3 2.4%
Depreciation and
amortization 197.6 183.0 14.6 8.0%
Other 320.2 298.1 22.1 7.4%
Total operating
expenses 828.9 784.9 44.0 5.6%
Operating income $ 254.5 $ 234.9 $ 19.6 8.3%
Selected Operating Results
(In Millions)
Six Months Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues
Local service $ 860.5 $ 790.4 $ 70.1 8.9%
Network access 782.1 748.3 33.8 4.5%
Toll service 266.7 251.4 15.3 6.1%
Other 242.6 221.2 21.4 9.7%
Total net operating
revenues 2,151.9 2,011.3 140.6 7.0%
Operating expenses
Plant operations 628.8 606.8 22.0 3.6%
Depreciation and
amortization 384.9 363.1 21.8 6.0%
Other 627.3 587.4 39.9 6.8%
Total operating
expenses 1,641.0 1,557.3 83.7 5.4%
Operating income $ 510.9 $ 454.0 $ 56.9 12.5%
The division's net operating revenues for the second quarter and
first half of 1994 increased 6 percent and 7 percent, respectively,
over the comparable 1993 periods. Growth in local service revenues
reflects continued increases in the number of access lines served
and growth in add-on services, such as custom calling features.
The number of access lines served grew 4.9 percent during the past
twelve months. Network access revenues, derived from interexchange
long distance carriers' use of the local network to complete calls,
increased as a result of increased traffic volumes, partially
offset by periodic reductions in network access rates charged.
Annual access rate filings became effective July 1, 1994. Such
filings will result in decreased access rates; however, the impact
of such decreases are not expected to be material. Toll service
revenues, related to the provision of long distance services within
specified geographical areas and the reselling of interexchange
long distance services, increased 4 percent and 6 percent for the
second quarter and first half of 1994, respectively. Such
increases include a change in North Carolina from a pooling
arrangement to an originating responsibility plan for toll revenue
settlements, effective January 1, 1994. Other revenues, including
revenues from directory publishing fees, billing and collection and
operator services, leasing of network facilities, and sales of
telecommunications equipment, increased 8 percent and 10 percent
for the second quarter and first half of 1994, respectively,
generally due to higher equipment sales.
Plant operations expense increased $7 million and $22 million in
the second quarter and first half of 1994, respectively, over the
comparable 1993 periods primarily due to increases in the costs of
providing services resulting from access line growth. The
increases in depreciation and amortization expense for the second
quarter and first half of 1994 relative to the comparable 1993
periods were generally due to plant additions. Other operating
expenses increased $22 million and $40 million in the second
quarter and first half of 1994, respectively, over the comparable
1993 periods. Among the factors contributing to these increases
were higher customer service costs, increases in the cost of
equipment sales, and increases in sales and marketing expenses to
promote new products and services.
Consistent with most local exchange carriers, the division accounts
for the economic effects of regulation pursuant to SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." The
application of SFAS No. 71 requires the accounting recognition of
the rate actions of regulators where appropriate, including the
recognition of depreciation and amortization based on estimated
useful lives prescribed by regulatory commissions rather than those
that might be utilized by non-regulated enterprises. Sprint's
management believes the division's operations meet the criteria for
the continued application of the provisions of SFAS No. 71. With
increasing competition and the changing nature of regulation in the
telecommunications industry, the ongoing applicability of SFAS No.
71 must, however, be constantly monitored and evaluated. Should
the division no longer qualify for the application of the
provisions of SFAS No. 71 at some future date, the accounting
impact could result in the recognition of a material,
extraordinary, noncash charge.
Cellular and Wireless Communications Services
Selected Operating Results
(In Millions)
Three Months
Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues $ 171.6 $ 112.2 $ 59.4 52.9%
Operating expenses
Costs of services and
products 55.4 36.0 19.4 53.9%
Selling, general and
administrative 69.0 50.2 18.8 37.5%
Depreciation and
amortization 22.6 18.5 4.1 22.2%
Total operating
expenses 147.0 104.7 42.3 40.4%
Operating income $ 24.6 $ 7.5 $ 17.1 --
Selected Operating Results
(In Millions)
Six Months Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues $ 314.9 $ 204.7 $ 110.2 53.8%
Operating expenses
Costs of services and
products 101.6 68.5 33.1 48.3%
Selling, general and
administrative 131.0 91.5 39.5 43.2%
Depreciation and
amortization 45.3 35.4 9.9 28.0%
Total operating
expenses 277.9 195.4 82.5 42.2%
Operating income $ 37.0 $ 9.3 $ 27.7 --
Net operating revenues for the second quarter and first half of
1994 increased 53 percent and 54 percent, respectively, over the
comparable 1993 periods, primarily due to growth in the number of
cellular subscribers. Over the past 12 months, the number of
cellular subscribers has increased 68 percent. The effect of
growth in the number of cellular subscribers was partially offset
by a decline in service revenue per subscriber, reflecting an
industry-wide trend that has occurred as a result of increased
general consumer market penetration.
Maintaining growth rates in the future for net operating revenues
and the number of cellular subscribers may be influenced by
economic conditions and price levels in the competitive cellular
marketplace.
Excluding the costs and revenues related to equipment sales, costs
of services decreased to 24 percent and 25 percent of net operating
revenues for the second quarter and first half of 1994,
respectively, compared to 26 percent and 28 percent for the
comparable 1993 periods. These decreases generally reflect
economies of scale gained from serving additional subscribers.
Selling, general and administrative (SG&A) costs for the second
quarter and first half of 1994 increased approximately $19 million
and $40 million, respectively, over the 1993 comparable periods as
a result of increased commissions and customer service expenses due
to the growth in the number of cellular subscribers. Despite the
increase in the amount of SG&A expense, such expense as a
percentage of net operating revenues (excluding revenues from
equipment sales) declined to 43 percent and 45 percent,
respectively, for the second quarter and first half of 1994 from 48
percent for both the second quarter and first half of 1993.
Equipment sales are subject to significant discounting in an effort
to entice potential customers to subscribe for cellular service;
accordingly, revenues and costs related to these sales have been
excluded from the above calculations.
Depreciation and amortization increased for the three and six
months ended June 30, 1994 compared to the same periods in 1993
primarily due to the additional investment in property, plant and
equipment required to accommodate the growth in the number of
cellular subscribers.
Product Distribution and Directory Publishing Businesses
Selected Operating Results
(In Millions)
Three Months
Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues $ 289.2 $ 239.2 $ 50.0 20.9%
Operating expenses 269.7 224.8 44.9 20.0%
Operating income $ 19.5 $ 14.4 $ 5.1 35.4%
Selected Operating Results
(In Millions)
Six Months Ended
June 30, Variance
1994 1993 Dollar Percent
Net operating revenues $ 540.0 $ 454.7 $ 85.3 18.8%
Operating expenses 504.1 424.8 79.3 18.7%
Operating income $ 35.9 $ 29.9 $ 6.0 20.1%
North Supply, Sprint's product distribution subsidiary, had net
operating revenues of $221 million and $404 million for the second
quarter and first half of 1994, respectively, reflecting 27 percent
and 25 percent increases from the comparable 1993 periods. These
increases primarily reflect increased sales due to the addition of
new markets for non-affiliated sales and increased sales to the
local communications services division. As a percentage of net
operating revenues, operating expenses declined to 95 percent for
both the second quarter and first half of 1994 from 97 percent for
both the comparable 1993 periods.
Sprint Publishing & Advertising, Sprint's directory publishing
subsidiary, had net operating revenues of $68 million and $66
million for the three months ended June 30, 1994 and 1993,
respectively, and $136 million and $131 million for the six months
ended June 30, 1994 and 1993, respectively. As a percentage of net
operating revenues, operating expenses increased to 88 percent and
87 percent for the second quarter and first half of 1994,
respectively, compared to 86 percent and 85 percent for the
comparable 1993 periods.
Non-Operating Items
Interest expense for the second quarter and first half of 1994
decreased $13 million and $30 million, respectively, from the
comparable 1993 periods, generally related to a decrease in average
levels of debt outstanding and lower interest rates.
The components of other income (expense), net are as follows (in
millions):
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
Gain on sale of investment in
common stock $ -- $ -- $ 34.7 $ --
Equity in earnings of
cellular minority
partnership interests 5.4 4.3 8.0 8.5
Loss on sales of accounts
receivable (6.8) (5.4) (12.5) (10.9)
Minority interests (6.0) (1.9) (9.5) (2.5)
Other (1.9) (5.1) (0.8) (3.9)
Total other income (expense),
net $ (9.3) $ (8.1) $ 19.9 $ (8.8)
Income Tax Provision
See Note 4 of "Condensed Notes to Consolidated Financial
Statements" for information regarding the differences which cause
the effective income tax rate to vary from the statutory federal
income tax rate.
PART II.
Other Information
Item 1. Legal Proceedings
The settlement of the class action lawsuit originally filed in
1990 by certain Sprint shareholders against Sprint and certain
of its executive officers and directors in the United States
District Court for the District of Kansas that was reported in
Sprint's Annual Report on Form 10-K for the year ended
December 31, 1993 was approved by the court in June 1994. The
settlement of the related derivative action was also approved
by the court in June 1994. The settlement amounts have been
paid to the respective plaintiffs. See Note 5 of "Condensed
Notes to Consolidated Financial Statements" for further
discussion relating to this settlement.
Item 2. Changes in Securities
There were no reportable events during the quarter ended June
30, 1994.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended June
30, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
On April 19, 1994, Sprint held its Annual Meeting of
Shareholders. In addition to the election of six Class II
Directors to serve for a term of three years, the shareholders
approved the appointment of Ernst & Young as independent
auditors for Sprint, approved amendments to the 1988 Employees
Stock Purchase Plan, approved performance goals under certain
compensation plans in accordance with the Revenue
Reconciliation Act of 1993, and did not approve four
shareholder proposals.
The following votes were cast for each of the following
nominees for Director or were withheld with respect to such
nominees:
For Withheld
Ruth M. Davis 277,841,172 3,642,232
Harold S. Hook 277,938,331 3,545,073
Ronald T. LeMay 277,515,431 3,967,973
Frank E. Reed 277,924,595 3,558,809
Charles E. Rice 277,936,681 3,546,723
Stewart Turley 277,951,141 3,532,263
The following votes were cast with respect to the proposal to
approve the appointment of Ernst & Young as independent
auditors for Sprint for 1994:
For 274,879,059
Against 4,745,603
Abstain 1,858,742
The following votes were cast with respect to the proposal to
approve amendments to the 1988 Employees Stock Purchase Plan
increasing the number of shares authorized for issuance and
making certain administrative changes to the Plan:
For 269,989,087
Against 9,352,734
Abstain 2,141,583
The following votes were cast with respect to the proposal to
approve performance goals under the Executive Management
Incentive Plan:
For 244,338,053
Against 33,807,833
Abstain 3,337,518
The following votes were cast with respect to the proposal to
approve performance goals under the Executive Long-Term
Incentive Plan:
For 264,019,116
Against 14,058,416
Abstain 3,405,872
The following votes were cast with respect to the proposal to
approve an amendment to the Long-Term Stock Incentive Program
limiting the grant of stock options or stock appreciation
rights to an individual employee during any calendar year to
500,000 shares:
For 263,761,307
Against 14,452,401
Abstain 3,269,696
The following votes were cast with respect to a shareholder
proposal requesting that the Board of Directors of Sprint
implement certain procedures concerning the selection of
independent auditors:
For 19,816,696
Against 225,928,443
Abstain 6,610,733
Broker non-votes 29,127,532
The following votes were cast with respect to a shareholder
proposal to limit increases in executive cash compensation to
the average percentage pay increase granted to Sprint
employees:
For 23,127,053
Against 221,671,033
Abstain 7,557,786
Broker non-votes 29,127,532
The following votes were cast with respect to a shareholder
proposal requesting that the Board of Directors of Sprint
create a Facilities Closure and Relocation of Work Committee:
For 19,449,898
Against 221,649,608
Abstain 11,256,366
Broker non-votes 29,127,532
The following votes were cast with respect to a shareholder
proposal recommending that the Board of Directors of Sprint
adopt and implement a policy of confidential voting at all
meetings of its shareholders:
For 118,328,597
Against 127,262,692
Abstain 6,764,583
Broker non-votes 29,127,532
Item 5. Other Information
Sprint's ratios of earnings to fixed charges were 3.66 and
2.75 for the three months ended and 3.69 and 1.82 for the six
months ended June 30, 1994 and 1993, respectively. These
ratios have been computed by dividing fixed charges into the
sum of (a) income from continuing operations less capitalized
interest included in income, (b) income taxes, and (c) fixed
charges. Fixed charges consist of interest on all
indebtedness (including amortization of debt issuance
expenses), the interest factor of operating rents and the pre-
tax cost of preferred stock dividends of subsidiaries. In the
absence of the nonrecurring merger, integration and
restructuring costs of $248 million recorded during the first
quarter of 1993, the ratio of earnings to fixed charges would
have been 2.66 for the six months ended June 30, 1993.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(10) Material Contracts
(a) Memorandum of Understanding between Sprint
Corporation and France Telecom and Deutsche
Bundespost Telekom, dated June 14, 1994.
(11) Computation of earnings per common share.
(12) Computation of ratio of earnings to fixed
charges.
(b) Reports on Form 8-K.
Sprint filed a Current Report on Form 8-K dated May 16, 1994
in which Sprint confirmed that it and Electronic Data Systems
were engaged in discussions concerning the possible formation
of a strategic relationship between the two companies. Sprint
subsequently filed a Current Report on Form 8-K dated June 6,
1994 which reported that the two companies were no longer
considering a merger of equals but were continuing to explore
other forms of a strategic relationship.
Sprint filed a Current Report on Form 8-K dated June 7, 1994
in which Sprint confirmed that it was engaged in discussions
concerning formation of a global partnership with France
Telecom and Deutsche Telekom. Sprint subsequently filed a
Current Report on Form 8-K dated June 14, 1994 which reported
that it had entered into a Memorandum of Understanding (MOU)
with France Telecom and Deutsche Telekom to form a global
partnership to offer telecommunications services worldwide.
The MOU also provides for France Telecom and Deutsche Telekom
to purchase shares of a new class of Sprint's stock and
entitles them to representation on Sprint's board of
directors. See "Part I -- Item 2 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations
-- Strategic Development" for further discussion relating to
the MOU.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SPRINT CORPORATION
(Registrant)
By /s/ John P. Meyer
John P. Meyer
Senior Vice President --
Controller
Principal Accounting
Officer
Dated: August 12, 1994
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
(10) Material Contracts
(a) Memorandum of Understanding between Sprint Corporation
and France Telecom and Deutsche Bundespost Telekom,
dated June 14, 1994.
(11) Computation of Earnings Per Common Share
(12) Computation of Ratio of Earnings to Fixed Charges
<PAGE>
EXHIBIT 10(a)
<PAGE>
MEMORANDUM OF UNDERSTANDING
BETWEEN
SPRINT CORPORATION, a corporation organized and existing
under the laws of the State of Kansas, 2330 Shawnee Mission
Parkway, Westwood, Kansas, USA 66205 ("SPRINT"),
AND
FRANCE TELECOM, a public operator formed under the laws of
France, with its headquarters at 6 Place d'Alleray, 75015,
Paris, France ("FT"),
AND
DEUTSCHE BUNDESPOST TELEKOM, a public operator formed under
the laws of the Federal Republic of Germany, with its
headquarters at Godesberger Allee, D-53175, Bonn, Germany
("DT").
For the purposes of this Memorandum of Understanding:
i) SPRINT, FT and DT are hereinafter also each
individually referred to as a "Party" and
collectively or jointly referred to as "Parties".
ii) "Home Country" means the United States of
America in the case of SPRINT, the Republic of France
in the case of FT, and the Federal Republic of
Germany in the case of DT.
iii) "Europe" means the countries and territories
located on the European continent as set forth on
Schedule 1 hereto.
iv) "Full Cost Reimbursement Basis" means payment of
all costs incurred including, without limitation,
recovery of capital and costs of capital; i.e., for
each Party, the blended rate reflecting the actual
proportion of debt and equity in its capital
structure, with appropriate provision to reflect the
impact of taxes (if any).
v) "NAFTA Countries" means Canada and Mexico and any
other country in the Americas that either: (a)
accedes to the North American Free Trade Agreement;
or (b) enters into agreements with the United States
<PAGE> 2
and each other country that is a NAFTA Country as of
the date such country becomes a NAFTA Country, that
in each case contains provisions establishing a free
trade relationship that is substantially similar in
scope and terms to the North American Free Trade
Agreement. Such other country will become a NAFTA
Country as of (i) the date the North American Free
Trade Agreement becomes effective with respect to
such country or (ii) the date the last of the
agreements referred to in clause (b) above becomes
effective with respect to such country, as the case
may be. The United States will not be a NAFTA
Country.
vi) "National Operation" means an entity or group of
entities primarily engaged in providing national long
distance telecommunications services, irrespective of
the technology used in providing such services, but
shall not include Public Telephone Operators.
Cellular operations are now usually local operations
and will not constitute a National Operation, except
that a nationwide trunk overlay network
interconnecting cellular operations can be a National
Operation. Criteria for determining when such a
nationwide trunk overlay network constitutes a
National Operation will be set forth in the
definitive agreements.
vii) "Public Telephone Operator" means an entity or
group of entities providing national telecommunications
services owned, in whole or in part by the
respective national government or any regional
government or any organ thereof.
WHEREAS, there have been dramatic changes in the telecommunications
industry;
WHEREAS, it is anticipated that there will be further
changes in the telecommunications industry in view of
ongoing liberalization and deregulation;
WHEREAS, alliances of telecommunications operators have been
announced and are in the process of formation or implementation;
WHEREAS, the Parties desire to satisfy the needs of existing
and future customers throughout the world with an initial
focus on multinational corporations and other large users
<PAGE> 3
and international travelers by providing seamless global
telecommunications services;
WHEREAS, meeting the global needs of such customers requires
capabilities that are beyond the geographic coverage, know-
how and resources of any single Party;
WHEREAS, the Parties share a common vision of the future and
the opportunities that can be realized for their customers
and themselves, by their undertaking joint activity together;
WHEREAS, FT and DT have announced in December 1993 their
agreement to form a strategic alliance to provide advanced
telecommunications services to corporate customers and other
large users and to create a joint venture entity ("Atlas")
to provide such services;
WHEREAS, the Parties wish to form a long-lasting Global
Partnership (whether formed as one or more entities) to
provide telecommunications services and to pursue various
telecommunications opportunities around the globe;
WHEREAS, the Parties intend that their Global Partnership
(whether formed as one or more entities) be the preeminent
global communications company, the standard against which
others are measured, and that the Global Partnership provide
highly competitive, functionally differentiated, global
telecommunications services more cost effectively, more
efficiently and more rapidly than each Party could provide
alone;
WHEREAS, the Parties intend that the Global Partnership
permit the introduction of new, sophisticated global
telecommunications services effectively, economically and
rapidly; provide a range of more comprehensive and
technically advanced services; avoid unnecessary duplication
of efforts; lead to improved technical solutions; create
greater choices for customers; and meet customer needs more
effectively; and
WHEREAS, to further the purposes of the long-lasting Global
Partnership FT and DT are entering into certain financial
arrangements with SPRINT, the terms and conditions of which
are set forth in Annex A hereto (the "Financial Arrangements").
<PAGE> 4
BASED ON THE FOREGOING, the Parties hereby set forth their
common understanding in this Memorandum of Understanding
("MOU"), as follows:
A. SCOPE OF THE MOU; STRATEGIC AND BUSINESS PLAN
1. The Parties intend to accomplish several objectives
in this MOU:
- to outline the principal terms of their
proposed Global Partnership (sometimes also
referred to as the "Joint Venture" or "JV") and
the Financial Arrangements;
- to establish procedures for the negotiation
of definitive agreements;
- to set forth terms of exclusivity with
respect to negotiations; and
- to set forth arrangements for public
announcements.
2. Following execution of this MOU, the Parties will
devote resources needed to develop a five year
strategic and business plan for the Joint Venture as a
whole (including the Regional Operating Groups (as
defined below) and the Global Backbone Network entity
(as defined below)). Such plan will contain, without
limitation, capital and expense requirements and specific
schedules for: (a) introducing the services of the JV set
forth in Section D.1; (b) consolidating and optimizing the
Parties' international networks as provided in Section
D.1.c; and (c) conducting the Parties' bilateral
arrangements as provided in Section D.4.b. Agreement as
to such plan will be a condition precedent to the
execution of definitive agreements relating to the
Financial Arrangements and the JV.
B. PRINCIPLES UNDERLYING COMMON ACTIVITIES
1. The Parties share a common long-term vision with
regard to international telecommunications
opportunities. They intend the JV to become over
time the principal embodiment and global reference
<PAGE> 5
point of their international telecommunications
activities.
2. The Parties see their future to be in serving the
global telecommunications market together. They have
decided to join together in a long-term Global Partnership
which should include appropriate provisions of exclusivity
and non-competition.
3. In the long-term, the Parties' common activities in
international telecommunications should not be restricted to
select services or market segments, but should grow and
change to meet telecommunications opportunities as they
arise.
C. ORGANIZATION AND ENTITIES
1. OVERALL ORGANIZATION
a. The Parties anticipate that activity of the Joint
Venture will be conducted through various entities:
- A Global Partnership Board, composed of
an equal number of representatives of each of
the Parties, which Board will adopt policies,
strategies, guidelines and standards for any
and all entities through which activity of the
Joint Venture will be conducted, and which
Board will coordinate the activity of said
entities.
- The Global Partnership Board will
appoint such staff as appropriate, who, working
with the Regional Operating Groups (and Atlas
and SPRINT in the relevant Home Countries) and
the Global Backbone Network entity, will assist
the Global Partnership Board in carrying out
its responsibilities, including without
limitation, formulating and implementing policies,
strategies, guidelines and standards, and
assist the Global Partnership Board in
coordination of activities of the various
entities. Each Party will cause its
representatives in each Regional Operating
Group (and Atlas and SPRINT in the relevant
Home Countries) in which it has a direct or
<PAGE> 6
indirect interest to act in accordance with the
global standards, policies and strategies
defined by the Global Partnership Board with
respect to the matters set forth in Section
C.2.a below.
- Regional Operating Groups, which will
provide the services of the Joint Venture to
customers, and will make operating decisions
implementing the policies, strategies,
guidelines and standards set by the Global
Partnership Board. It is contemplated that
initially there will be Regional Operating
Groups for each of the following operating
areas: (1) Europe (excluding Home Countries),
and (2) the rest of the world (as defined in
Section C.4.d(1) below) (excluding Home
Countries).
- A Global Backbone Network entity which
will administer the operation of the Global
Backbone Network.
b. The Parties believe that ownership interests and
allocations of profits and losses relating to the JV's
activities should be as set forth in Section C.4.d
below. Failure by a Party to comply with a capital
and/or expense call by the Global Partnership entity
(as defined below), a Regional Operating Group, the
Global Backbone Network entity, or a National
Operation shall result in appropriate dilution of
the ownership interest of said party in the
respective entity for which a capital or expense
call was made.
2. GLOBAL PARTNERSHIP BOARD
a. The Parties will establish a Global Partnership
Board for their Global Partnership. (The Parties may
determine to establish a separate Global Partnership
entity for such Board.) The activities of the Global
Partnership Board and its staff will be funded on a
Full Cost Reimbursement Basis. All matters decided
by the Global Partnership Board will require the
consent of each of the Parties. The Global
Partnership Board will have responsibility for the
following matters:
<PAGE> 7
(i) adoption of the global strategic plan for the
Global Partnership;
(ii) monitoring the conformity of the operations of
the Regional Operating Groups (and Atlas and
SPRINT in the relevant Home Countries) and the
Global Backbone Network entity with their
strategic, capital, business, operating,
technology and marketing plans and the global
standards, policies and strategies defined by
the Global Partnership Board;
(iii) consultation with respect to tie-breaking
situations as provided in Sections C.5.e and
C.6.c(ii) and (iii) below;
(iv) inclusion of new participants in the Global
Partnership or establishment by the JV of
National Operations;
(v) appointment of key officers of the Global
Partnership entity (if such entity is
established) and any and all entities through
which activity of the Joint Venture is
conducted, other than for the ROE Group
(as defined below) (and Atlas and SPRINT
in the relevant Home Countries);
(vi) determining the timing and manner in which
additional and new services are to be included
within the scope of the Global Partnership;
(vii) adopting:
- uniform standards for
product development and management;
- coherent marketing and
sales force organization standards and
common brands;
- principles of global
account management to motivate all
Parties as appropriate;
- transfer pricing standards;
<PAGE> 8
- principles to ensure that
the acquisitions, investments and other
operations of the Regional Operating
Groups (and the operations of SPRINT and
Atlas in the relevant Home Countries
relating to the JV) are consistent with
the policies and strategic direction of
the JV;
- principles to ensure coherent business
development;
- principles to ensure coherent
intellectual property management
and development at the Global Partnership
level;
- programs to develop, and specifications of,
global platforms, including principles
designed to establish coherent billing,
services, administration and maintenance
procedures;
- uniform service levels and standards for
each service within the scope of the JV;
- network planning standards to ensure
adequate capacity and seamless
services worldwide;
- the principles of the design, planning,
administration and maintenance of the
Global Backbone Network;
- overall personnel and compensation policies:
(a) to create incentives for employees to
seek the success of the Joint Venture,
rather than any one of the Parties; and
(b) to facilitate transfer of employees
among the various regions and the central
staff of the Global Partnership Board; and
(viii) supporting the marketing and product
development needs of the Regional Operating
Groups (and Atlas and SPRINT in the relevant
Home Countries).
<PAGE> 9
3. HOME COUNTRIES
a. The Parties contemplate that the services within
the scope of the JV (the "Business") will be provided
to customers in the United States by SPRINT and in
France and Germany by FT and DT, through Atlas. FT
and DT, through Atlas, and SPRINT will be responsible
for conducting operations and making and financing
the necessary investments within the relevant Home
Country and will enter into arrangements to ensure
that such operations and investments are appropriate.
b. SPRINT and Atlas will be responsible for preparing
and implementing their strategic, capital, business,
operating, marketing and technology plans in their
respective Home Countries to support and implement the
activities of the JV. SPRINT and Atlas will prepare a
five year strategic, capital, business, operating,
marketing and technology plan in their respective
Home Countries covering JV activities to support and
implement the activities of the JV and will submit
such plan to the Global Partnership Board to permit
the Global Partnership Board to fulfill its
responsibilities as provided in Section C.2.a.
c. Subject to regulatory constraints, the Parties
will commit to establish and operate facilities and
services in their respective Home Countries so as
to conform with policies established by the Global
Partnership Board relating to the matters set forth
in Section C.2.a for the Joint Venture.
4. REGIONAL OPERATING GROUPS
a. The Parties contemplate that the Business outside
of the Home Countries will be provided by the
Regional Operating Groups.
b. Each Regional Operating Group will be responsible
for conducting operations and making and financing
the necessary investments within its operating area
consistent with the policies, strategy, guidelines
and standards established by the Global Partnership
Board with respect to the matters set forth in
Section C.2.a. The Regional Operating
<PAGE> 10
Groups (and SPRINT and Atlas in the relevant Home
Countries) will cooperate with, and provide assistance
to, each other to the extent necessary or appropriate
to fully implement such policies, strategies,
guidelines and standards.
c. Each Regional Operating Group will be responsible
for preparing and implementing its strategic, capital,
business, operating, technology and marketing plans to
support and implement the activities of the JV. Each
Regional Operating Group will prepare a five year
strategic, capital, business, operating, technology
and marketing plan to support and implement the
activities of the JV and will submit such plan to the
Global Partnership Board to permit the Global
Partnership Board to fulfill its responsibilities
as provided in Section C.2.a.
d. The Regional Operating Groups will be organized on
a geographical basis as follows:
(1) The Business in the rest of the world (all
countries other than the Home Countries and
countries located in Europe) will be owned and
conducted by a Regional Operating Group 1/2
owned by SPRINT and 1/2 owned by Atlas
(the "ROW Group").
(2) The Business in Europe (other than France and
Germany) will be owned and conducted by a
Regional Operating Group owned 2/3 by Atlas
and 1/3 by SPRINT (the "ROE Group").
(3) Regional Operating Group profits and losses will
be allocated, and the Parties will fund the
Regional Operating Group's capital and expenses
(including costs of capital) in accordance with
the proportions set forth in this Section C.4.d.
(4) DT and FT have determined that the integration of
major portions of their international activities
in Atlas will be beneficial to the Global
Partnership as a whole and have decided to own
their interest in the Regional Operating Groups
and the Global Backbone entity through Atlas. Such
<PAGE> 11
ownership by a single joint organization
will permit DT and FT to provide a
more focused and efficient contribution at the
Regional Operating Group level. DT and FT
will ensure that Atlas and its personnel are
as fully committed to the success of the JV
as FT and DT, and FT and DT agree that they
will devote sufficient resources to Atlas so
that it can comply fully with shareholder
obligations for the Regional Operating
Groups and the Global Backbone Network
entity in accordance with the definitive
agreements, and will cause Atlas to fulfill
such obligations. SPRINT also agrees to
devote sufficient resources to any
subsidiary or other entity through which it
holds its interest in any Regional Operating
Group or the Global Backbone Network entity
so that such subsidiary or other entity can
comply fully with shareholder obligations
for such Regional Operating Group or the
Global Backbone Network entity in accordance
with the definitive agreements, and will
cause such subsidiary or other entity to
fulfill such obligations.
5. GLOBAL BACKBONE NETWORK
a. The Parties will form a transmission network (the
"Global Backbone Network") interconnecting regional
hubs by the means of gateways, the number and location
of which shall be determined in accordance with network
engineering, regulatory and commercial considerations,
and by the construction and lease of new facilities as
will be further detailed in the business plan referred
to in Section A.2 and the definitive agreements. The
Global Backbone Network will be connected to regional
or national hubs operated by the Regional Operating
Groups (and SPRINT and Atlas in the relevant Home
Countries). The Parties agree that the ROE Group will
form and own a European backbone network. Such network
will be operated and managed by the ROE Group in
accordance with the policies of the Global Partnership
Board provided in Section C.2.a. As determined in
accordance with network engineering, regulatory
<PAGE> 12
and commercial considerations, and as will be
further detailed in the business plan referred to
in Section A.2 and the definitive agreements: (i)
the European backbone network may or may not
be co-extensive with the ROE Group operating area;
and (ii) certain elements of the Global Backbone
Network may be located within the ROE Group operating
area. The Parties may also determine by mutual
agreement to form one or more regional networks in the
ROW Group operating area in accordance with network
engineering, regulatory and commercial considerations
as will be further detailed in the business plan
referred to in Section A.2 and the definitive
agreements.
Services within the scope of the JV and other
traffic will be progressively routed over the
Global Backbone Network to the extent appropriate
in light of the regulatory environment and
existing commercial arrangements between the
Parties and third parties. Planning for the
Global Backbone Network shall be undertaken in
accordance with the provisions of Section D.4.
b. The sale of Global Backbone Network capacity to
customers and other carriers will be the
responsibility of the Regional Operating Groups
(and SPRINT and Atlas in the relevant Home Countries)
in accordance with the policies of the Global
Partnership Board provided in Section C.2.a.
c. The operation of the Global Backbone Network will
be funded on a Full Cost Reimbursement Basis.
The Global Backbone Network will operate on a basis
consistent with the global standards, policies and
strategies established by the Global Partnership
Board. Upon agreement of all Parties, the operation
of the Global Backbone Network may be reviewed
and agreed to be on a for profit basis.
d. The Global Backbone Network will be a separate
legal entity. The Global Backbone Network entity
will be initially owned 1/2 by DT/FT, and 1/2 by
SPRINT. At the end of an initial two year period,
the Parties will review the ownership of the
Global Backbone Network entity possibly to
adjust each Party's interest.
<PAGE> 13
e. The ownership interest in the Global Backbone
Network entity of any Party which fails to fund
investment included in an approved business plan
(whether by contribution of desirable facilities
or payment of cash) for Global Backbone Network
facilities recommended pursuant to the planning
commitments described in Section D.4.b below
shall be appropriately diluted. Should the Parties
not agree on a specific additional investment in the
Global Backbone Network, the matter will be brought
promptly to the Global Partnership Board for final
resolution. If the Global Partnership Board is
unable to resolve the matter by unanimous decision
within a reasonable period, no Party will
be required to make any such additional investment and
the Party or Parties in favor of making such additional
investment may make such investment independently, and
such investment will be accounted for separately;
provided that the governance rights of the Parties
with respect to the Global Backbone Network entity
will not be affected. Any portion of the Global
Backbone Network that was not constructed or leased
with investments approved by all of
the Parties will be operated so that it does not
compete with the other portions of the Global
Backbone Network.
6. GOVERNANCE
a. The following Regional Operating Group and Global
Backbone Network entity actions must be approved by
the representatives of each Party on the board of
directors or other management body of such Group
or entity:
(1) Adoption of strategic, capital, business,
operating, marketing and technology plans, or
substantial changes in, or substantial
deviation from, any such plan, including
changes in the introduction and timing of
particular services offered by such Regional
Operating Group or the Global Backbone Network
entity (collectively "Plan Action"), except as
provided in Sections C.6.c(ii) and (iii)
below.
<PAGE> 14
(2) Contracts or dealings with any of the Parties
above certain thresholds.
(3) Changes in share capitalization of such
Regional Operating Group.
(4) Inclusion of new shareholders in such
Regional Operating Group or the Global
Backbone Network entity.
(5) Material changes in the constituent
documents of such Regional Operating Group
or the Global Backbone Network entity.
(6) Any material decision regarding technology
and architecture that would have a material
effect on continued compatibility of the
system of the Parties and of the Joint Venture.
b. The following actions of the Global Backbone
Network entity and the Regional Operating Groups,
other than the ROE Group, must be approved by
the representatives of each Party on the board of
directors or other management body of the Global
Backbone Network entity or such Regional Operating
Group:
- appointment of key officers; and
- Operating Group level personnel and
compensation policies and plans.
c. (i) Subject to Section C.6.a, management
and control of the ROE Group will be exercised
by majority vote of the board of directors or
other management body. Atlas and SPRINT will
each be entitled to representation on
such board of directors or other management
body of the ROE Group in accordance with their
participation in such Group. It is understood
that the SPRINT representatives on the ROE
Group board or other governing body will
participate fully in the development of such
Group's strategic, capital, business,
operating, marketing and technology plans.
<PAGE> 15
(ii) Notwithstanding anything to the
contrary herein (including Section C.6.a),
if SPRINT fails to approve any ROE Group
Plan Action, the matter will be brought
promptly to the Global Partnership Board for
final resolution. If the Global Partnership
Board is unable to resolve such matter by
unanimous decision within a reasonable
period, the ROE Group may continue to
operate in accordance with the terms of such
Plan Action as adopted by majority vote of
the ROE Group's board or other governing
body during a period of two years
thereafter. Should such Plan Action call
for material additional financial
commitments from SPRINT and Atlas, SPRINT
will have no obligation, during such two
year period, to provide commitments in
excess of the levels provided for in the
preceding Plan Action approved by SPRINT.
If SPRINT chooses not to provide its share
of financing in addition to such levels, its
financial interest in the ROE Group will be
appropriately diluted; provided that such
dilution will not affect SPRINT's governance
rights in the ROE Group. If the Parties
continue to disagree with respect to such
Plan Action of the ROE Group at the end of
such two year period, the Parties will
determine whether it is possible to continue
the Global Partnership in light of such
disagreement.
(iii) Notwithstanding anything to the contrary herein
(including Section C.6.a), if Atlas fails to
approve any ROW Group Plan Action proposed by
SPRINT to the extent it relates to the
NAFTA Countries, the matter will be
brought promptly to the Global
Partnership Board for final resolution.
If the Global Partnership Board is unable
to resolve such matter by unanimous
decision within a reasonable period, the
ROW Group may continue to operate in
accordance with the terms of such Plan
Action with respect to the NAFTA
Countries as approved by SPRINT during a
period of two years thereafter.
<PAGE> 16
Should such Plan Action call for material
additional financial commitments from
SPRINT and Atlas, Atlas will have no
obligation, during such two year period,
to provide commitments in excess of the
levels provided for in the preceding Plan
Action relating to the NAFTA Countries
approved by Atlas. If Atlas chooses not
to provide its share of financing in
addition to such levels, its financial
interest with respect to the NAFTA
Countries will be diluted; provided that
such dilution will not affect Atlas'
governance rights with respect to
operations in those countries. If the
Parties continue to disagree with respect
to such Plan Action relating to the NAFTA
Countries at the end of such two year
period, the Parties will determine
whether it is possible to continue the
Global Partnership in light of such
disagreement.
(iv) It is understood that the actions
referred to in Sections C.6.a(ii), (iv) and
(vi) will not be subject to the foregoing
tie breaking procedures and the actions
referred to in Sections C.6.a(iii) and (v)
will be subject to such tie breaking
procedures only to the extent changes in
share capitalization or modifications of the
relevant constituent documents are required
by proper Plan Action.
d. SPRINT will be consulted prior to the appointment
of key officers of the ROE Group and the termination
of any executive seconded by it to such Group, but
will not have a veto right over such appointment or
termination; provided that SPRINT will have the right
to appoint one of the top three officers of the ROE
Group (such person to be reasonably acceptable to
Atlas). The Parties acknowledge that some or all of
the executive positions of the ROE Group
may be filled by persons that are not seconded by the
Parties as decided by the management of the ROE Group.
<PAGE> 17
e. The Global Partnership Board will establish
principles of compensation for the senior management
of the ROE and ROW Groups and the Global Backbone
Network entity to reward meeting business plan
targets, and deter failure to meet business plan
targets.
D. SCOPE OF SERVICES
1. The initial telecommunications services covered by
the JV will be as follows:
a. Global international data, voice and video
business services for multinational companies and
business customers, taking into account the
relevant regulatory environment.
b. International services for consumers, initially
based on card services for travellers.
c. Consistent with the global strategic plan for the
JV, the Parties will engage in a carrier's
carrier business which will both provide transport
services for other carriers and achieve transport
economies for the Parties' traffic as allowed by
regulation in compliance with Section D.4. The
Parties will work diligently towards the
consolidation and optimization of their international
networks to achieve economies of scale taking into
account available efficiencies, current commercial
arrangements and the regulatory environment.
2. Subject to regulatory constraints, the JV will
provide services in global, regional and international
long distance markets, and in national long distance
markets, except in the Home Countries. Subject to
regulatory constraints, such services in national long
distance markets (except in the Home Countries) will be
provided through National Operations. (It is understood
that such National Operations are included within the
scope of the JV.) The Parties do not intend that the
JV provide local exchange services.
<PAGE> 18
3. The Parties' long term objective is to have the scope
of the JV cover a full range of telecommunications
services on a global basis.
4. a. Existing bilateral arrangements of the Parties
as required by regulation or contractual
commitments will be respected.
b. Consistent with the process of rationalizing their
international networks described in Section D.1.c,
the Parties commit to conduct as soon as reasonably
possible their bilateral arrangements to the extent
allowed by regulation as follows: (i) the Global
Backbone Network entity will carry out the internal
planning of the Global Backbone Network related to
the bilateral arrangements of the Parties, and the
Parties will contribute the assets and
resources for such planning; (ii) appropriate entities
of the Joint Venture will represent the Parties in
dealing with correspondent carriers; (iii) the Parties
will grant to the Global Backbone Network entity the
use of their respective international facilities for
such bilateral arrangements; and (iv) the Regional
Operating Groups (and SPRINT and Atlas
in the relevant Home Countries) will contract with the
Global Backbone Network entity for the transmission of
traffic.
5. Subject to Sections F.1.c and d, the Joint Venture
will be the exclusive vehicle of the Parties to engage in
the services included at any time within the scope of the
Joint Venture.
6. The Joint Venture's scope will expressly exclude the
provision of non-telecommunications information technology
services.
E. NAME BRANDS
1. The Parties will attempt to establish a name for the
Global Partnership that includes or refers appropriately
to each of the "DT", "SPRINT" and "FT" names.
2. The name of the Global Partnership may be used in
combination with one or more names of the Parties as
<PAGE> 19
appropriate. It is expected that the Parties may also
jointly establish global brands for the services and
products of the JV and will agree on brands which have
developed goodwill either singly or in combination with the
brands and names established for the JV, as may be the most
effective to develop the JV, including prominent
utilization of the Parties' branding.
F. NATIONAL OPERATIONS; CONTRIBUTIONS OF THE PARTIES
1. NATIONAL OPERATIONS
a. The Parties will review all of their investments
in National Operations existing as of the date of the
formation of the JV (including without limitation
National Operations of one Party within the Home
Country of another Party) on an individual basis to
determine whether their contribution to any
Regional Operating Group is appropriate
and whether such contribution can be achieved on
mutually acceptable terms.
b. The Regional Operating Groups may decide to invest
in National Operations outside the Home Countries
within their operating areas.
c. (i) If a Party wishes to invest in any
National Operation located in the operating
areas of the ROE Group or the ROW Group
(other than additional investments in
the National Operations referred to in Section
F.1.a above), such Party will first inform
the Global Partnership Board of such
opportunity and the Global Partnership Board
will determine whether and the conditions under
which the JV will make such investment. No
Party will be required to participate in such
investment. If the Global Partnership Board
is unable to agree by unanimous decision within
a reasonable period of time that the JV should
make such investment and the conditions of
such investment, all Parties will then be free
to participate in such opportunity separately
or in association with one or more Parties.
The Parties intend that if more than one Party
<PAGE> 20
is in favor of pursuing such investment, they
will do so jointly on terms to be mutually agreed.
If after good faith negotiations the
Parties are unable to establish mutually
acceptable terms for such joint investment,
each Party may then pursue such investment
opportunity separately. Notwithstanding the
foregoing, no Party may invest in such National
Operation if the activities of such National
Operation materially compete with the
activities of the JV in the country where such
National Operation is located.
(ii) If, after following the procedures set forth
in Section F.1.c(i) above, SPRINT wishes to
invest separately in a National Operation in
Mexico, the Parties acknowledge that
notwithstanding Section F.1.f below, SPRINT
will use the JV name in conjunction with the
SPRINT name as a co-brand in connection with
such investment; provided that such co-brand
will display the SPRINT name in a prominent
manner.
d. If any Party wishes to invest in any stage of the
privatization of any Public Telephone Operator,
such Party shall advise the Global Partnership
Board prior to making such investment; provided
that no Party interested in pursuing any such
investment will be required to accept any
co-investment by the Parties or the JV and each
Party may pursue such investment separately or
jointly with one or more Parties.
e. If one or more Parties invest independently or
jointly in any National Operations or in any
stage of the privatization of any Public
Telephone Operator as provided in Sections F.1.c
and F.1.d above, such Parties will use
commercially reasonable efforts to align the
activities of such National Operation or Public
Telephone Operator with those of the JV, including
without limitation using commercially reasonable
efforts to cause such National Operations or Public
Telephone Operator to: (i) become a distributor of
the services falling within the scope of the JV
(if so selected by the JV); (ii) align their network
<PAGE> 21
technology with the network technology of
the JV; and (iii) use the JV for the international
transport of traffic.
f. The JV will retain control over its intellectual
property and brands in connection with National
Operations and will not be required to license
such intellectual property or brands to Parties
investing in National Operations or in any stage
of the privatization of any Public Telephone
Operator unless agreed by the Partnership Board.
g. In no event will any Party pursue any new
investment opportunities involving the services that
are referenced in Section D.1 or D.2 if an entity
that competes substantially with the services within
the scope of the Global Partnership (such as AT&T,
BT, MCI) is also a material participant in such
investment; provided that, in the case of investments
in any stage of the privatization of
any Public Telephone Operator, if the governmental
authorities in charge of such privatization require
a Party to jointly invest or otherwise participate
with such an entity, such Party will consult with
the other Parties who will not unreasonably withhold
their consent to such investment. If a Party
determines in good faith, after due
consultation, that the participation of another
Party will materially decrease such Party's chances
of securing such investment, such Party will be
required to use commercially reasonable efforts to
include the other Parties after such investment
opportunity has been secured. This provision is
not intended to prohibit cooperation in customary
areas among national European carriers (e.g. the
establishment of international network connections).
h. Each Party will seek to provide opportunities in
its Home Country to the other Parties to participate
as partners with such Party in its Home Country in
investments in telecommunications activities in
which such other Parties may have an interest and
as may be allowed by regulation.
<PAGE> 22
2. CONTRIBUTIONS OF THE PARTIES
The Parties will contribute to the relevant
Regional Operating Group or such other entity as is
mutually agreed all tangible, non-cash assets they
own that are used primarily in the provision of the
global services identified in Section D.1.a, b and c
hereof other than those located in the Home
Countries. It is anticipated that the Parties will
contribute by non-exclusive license to the Global
Partnership entity (if one is established) or an
appropriate entity, on mutually acceptable terms, all
intellectual property, without regard to location,
used in the provision of such global services, to the
extent the Parties have rights to contribute by non-
exclusive license such intellectual property. The
Parties will also license on a non-exclusive basis
intellectual property relating to the national long
distance services described in Section D.2 to the JV
on terms and conditions as shall be reasonable in
view of the commercial market for such intellectual
property. Such assets are referred to as the
"Initial Contribution". The Parties will agree on an
appropriate mechanism to value and account for such
Initial Contributions.
G. PRICING FOR SERVICES
In order to provide competitively priced services, to
the extent that services are provided on the one hand by
a Party to the Joint Venture (or any related entity) or
on the other hand by the Joint Venture (or any related
entity) to a Party, they will be priced as follows
subject to applicable regulation:
- for a commercially available service, at most favored rates; and
- for a service which is not commercially available, on a Full
Cost Reimbursement Basis.
H. FINANCIAL ARRANGEMENTS
The terms for the Financial Arrangements are set forth
in Annex A.
<PAGE> 23
I. PROCEDURES
1. The Parties will commit resources, direct their
respective employees and advisors, and cooperate in good
faith to meet the following targets:
a. Identification (in terms of categories of assets,
and specified National Operations) of Initial
Contributions by each Party to the Joint Venture
and agreement as to approach to valuation.
Target date: July 15, 1994.
b. Agreement on the first draft strategic and
business plan of the Joint Venture referred to in
Section A.2. Target date: October 31, 1994.
c. Agreement on difference of value of the Initial
Contributions of FT and DT jointly on the one hand,
and SPRINT on the other hand. Target date:
November 15, 1994.
d. Negotiation and execution of definitive
agreements, subsequent to approval by the Boards of
Directors of the respective Parties. Target date:
December 31, 1994.
e. Investment by FT and DT in SPRINT - in accordance
with Annex A.
2. FT and DT will each identify one individual, and
SPRINT on the other hand will identify one individual, and
said individuals shall be the single points of contact to
administer and progress the activities referred to in
subsection (a) above. They shall establish such work teams
as appropriate.
3. FT and DT on the one hand and SPRINT on the other
will afford to the other reasonable access at all reasonable
times to such relevant information as the other may request,
subject to the Confidentiality Agreement among the Parties.
J. EXCLUSIVITY OF NEGOTIATIONS
During the Exclusivity Period, no Party or any of its
subsidiaries or affiliates, or any of their respective
employees, officers, directors, shareholders or agents
<PAGE> 24
will engage in any negotiations with any third party
regarding, or enter into, any venture or other business
combination involving such third party and the Parties
or their respective affiliates that is similar in global
nature to the JV as described herein or relating to the
provision of any of the global services referred to in
Section D.1. The provisions of this Section J will not
apply to ventures, potential ventures or negotiations
listed on Schedule J hereto. Each of the Parties will
each advise the others immediately of any inquiries or
proposals from any third party to undertake any such
transaction.
As used herein, the "Exclusivity Period" means the
period commencing on the date hereof and ending on the
date this MOU expires or is terminated, unless otherwise
agreed in writing by the Parties.
K. TERMINATION
This MOU will terminate on the earlier of: (a) December
31, 1994, unless otherwise agreed in writing by the
Parties; or (b) the date this MOU is superseded by
definitive agreements; provided that any Party may
terminate this MOU at any time after the 120th day of
the date of the execution hereof, such termination to
become effective upon delivery of written notice to the
other Parties.
L. ANNOUNCEMENTS
The Parties will, in a form and on a date to be mutually
agreed, make a public announcement of the substance of
this MOU upon execution hereof. The Parties thereafter
will agree on the form and content of all announcements
with regard to the activities conducted pursuant to this
MOU and with regard to the activities of the JV, or
their common activities and no Party will make any
announcement without the prior consent of the other
Parties, except to the extent such announcement is
required by law.
<PAGE> 25
M. CONFIDENTIALITY
Other than as may be required by law or as may be agreed
in writing by the Parties, the Parties will not disclose
the terms and conditions hereof, or activities conducted
pursuant to this MOU, or any confidential information
exchanged between them as a result of this MOU, without
the previous written consent of each other Party, and
will otherwise comply with the Confidentiality Agreement
among the Parties.
N. NOTICES
Any notice, request, statement or other writing required
or permitted by this MOU shall be deemed to have been
sufficiently given when delivered personally, sent by
international courier, mailed by certified or registered
mail, postage prepaid, or sent by facsimile (with the
original to promptly follow by personal delivery or
international courier, or with answerback confirmed),
addressed as follows:
SPRINT CORPORATION
2330 Shawnee Mission Parkway, East Wing
Westwood, Kansas 66205
USA
Attn. of: General Counsel
Tel: (913) 624-8110
Fax: (913)624-8426
with a copy to:
Sprint International Communications Corporation
12490 Sunrise Valley Drive
Reston, Virginia 22096
USA
Attn. of: General Counsel
Tel: (703) 689-5662
Fax: (703) 689-5321
FRANCE TELECOM
Direction Generale
Direction de L'International
6 Place d'Alleray
75505 Paris Cedex 15
Attn. of: M. Michel Hirsch
Tel: (33-1) 44-44-19-94
Fax: (33-1) 46-54-53-69
with a copy to:
Louis Begley, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
USA
Tel: (212) 909-6273
Fax: (212) 909-6836
DEUTSCHE BUNDESPOST TELEKOM
Godesberger Allee
D-53175 Bonn
Germany
Attn. of: Mr. Fred Meissner
Tel: 49-228-181-4000
Fax: 49-228-181-8602
with a copy to:
Werner Hein, Esq.
Wilkinson, Barker, Knauer & Quinn
1735 New York Avenue, N.W.
Washington, D.C. 20006
USA
Tel: (202) 783-4141
Fax: (202) 783-5851
O. APPROVALS
The arrangements set forth in this MOU and the Financial
Arrangements are subject to: (a) the negotiation and
execution of definitive agreements; (b) approval by the
respective Boards of Directors of the Parties and in the
<PAGE> 26
case of the Financial Arrangements, approval by SPRINT's
shareholders; and (c) the receipt of regulatory
approvals such as may be required pursuant to European
Community requirements and by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
P. TERMINATION OF THE JOINT VENTURE
The Parties contemplate that the definitive agreements
will contain mutually acceptable provisions consistent
with this MOU and Annex A dealing with the termination
of the Joint Venture, which will take into account,
among other things, the need to fulfill contractual
commitments to third parties and the need the Parties
will have for continued access to the assets of the
Joint Venture after such termination.
Q. MISCELLANEOUS
This MOU and the definitive agreements will be governed
by and construed in accordance with the laws of the
State of New York without regard to the conflicts of law
principles thereof. Any dispute with regard to this MOU
or arising under the definitive agreements will be
decided by final arbitration in Geneva, Switzerland in
accordance with ICC rules. FT/DT will appoint one
arbitrator and SPRINT will appoint one arbitrator. The
third arbitrator will be appointed by the arbitrators
appointed by the Parties as provided above. If such
arbitrators are unable to agree on the appointment of
the third arbitrator, such arbitrator will be appointed
by the Court of International Arbitration. This MOU may
not be assigned or amended without the prior written
consent of each Party. Each Party shall bear its own
expenses in connection with this MOU. This MOU may be
executed in counterparts, which taken together shall
constitute one and the same instrument.
<PAGE> 27
IN WITNESS WHEREOF, the Parties hereto have executed this
Memorandum of Understanding on this 14th day of June, 1994.
SPRINT CORPORATION FRANCE TELECOM
By: /s/ W. T. ESREY By: /s/ M. ROULET
Name: William T. Esrey Name: Marcel Roulet
Title: Chairman, Chief Title: President de
Executive Officer France Telecom
DEUTSCHE BUNDESPOST TELEKOM
By: /s/ H. RICKE
Name: Helmut Ricke
Title: Vorsitzender Vorstandes
<PAGE>
SCHEDULE 1 TO THE MOU
Belgium
Denmark Albania
France Bulgaria
Germany Czech Republic
Greece Hungary
Ireland Poland
Italy Romania
Luxembourg Slovakia
Netherlands
Portugal
Spain Bosnia-Hercegovina
United Kingdom Croatia
Macedonia
Montenegro
Andorra Serbia
Gibraltar Slovenia
Monaco Estonia
Vatican City Latvia
Lithuania
Austria
Finland Ukraine
Iceland
Liechtenstein
Norway Turkey
Sweden Malta
Switzerland Cyprus
<PAGE>
SCHEDULE J TO THE MOU
SPRINT: None
FT and DT: Infonet
FNA
<PAGE>
Annex A to MOU*
Financial Arrangement Terms
1. Investment
(a) DT/FT will agree to purchase from SPRINT
Corporation ("SPRINT") that number of shares (the
"SPRINT Shares") of SPRINT Class A Common Stock
(the "Class A Stock") necessary to cause DT/FT to
acquire a total of 20% of the shares of SPRINT
common stock outstanding on the date the MOU is
executed after giving effect to such purchase.
(The treatment of shares issued after the MOU is
executed and prior to the Initial Investment Date
in respect of outstanding convertible securities,
options and other agreements to issue common stock
and employee benefit plans will be discussed in
the context of negotiations of the Definitive
Agreements (as defined in paragraph 1(b) below).)
The SPRINT Shares will be purchased in two equal
tranches (i.e., approximately 42.9 million shares
each, based on the existing capitalization of
SPRINT). The Class A Stock shall be identical in
all respects to the common stock of SPRINT, except
for those certain special voting and other rights
described in this Annex A.
(b) The closing of the first tranche will occur
as promptly as practicable following execution of
definitive agreements relating to the Global
Partnership and the investment by DT/FT contemplated
by this Annex A (the "Definitive Agreements")
and satisfaction of applicable conditions (the
date of such investment being the "Initial Investment
Date"). The purchase price for the shares of
Class A Stock purchased on the Initial Investment Date
will be $47.225 per share.
_________________
* Capitalized terms used herein without definition shall
have the respective meanings specified in the Memorandum
of Understanding to which this Annex A is annexed.
References herein to the Company shall refer to
SPRINT.
<PAGE> 2
(c) Subject to the closing conditions contained
in the Definitive Agreements, the closing of the
second tranche will be held on the second
anniversary of the Initial Investment Date. The
purchase price for the SPRINT Shares purchased in
the second tranche shall be $51.00 per share.
(d) FT and DT contemplate holding directly or
indirectly the shares of the Company on a 50/50
basis with no tie breaking mechanism that would
confer control on either of them. Actions to be
taken hereunder by DT/FT shall be taken by FT and
DT jointly. Separate action will not be taken.
The Definitive Agreements will contain appropriate
provisions concerning FT and DT's relationships as
to the investment.
2. Use of Proceeds
The Definitive Agreements relating to the investment
contemplated by this Annex A shall include provisions
regarding use of the proceeds from the sale of the
shares of the Class A Stock pursuant to paragraph 1,
including, but not limited to, repayment of indebtedness,
funding the Company's investment in the Joint
Venture and other general corporate purposes, subject
in all cases to the ability of the Company to change
such use as determined by its Board of Directors, which
shall include representatives of DT/FT as provided
herein.
3. Standstill
(a) Initial SPRINT standstill at 20% until 15
years from the Initial Investment Date. After the
initial 15-year period, SPRINT standstill will be
at 30%, subject to the SPRINT rights plan.
(b) In the event of (i) a Change of Control (as
defined in paragraph 9(d)), (ii) the acquisition
or ownership by a person or group of persons (with
in the meaning of Section 13(d) of the Securities
Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act")) (other than FT or
DT) of a greater than 20% interest in
<PAGE> 3
the Company, after giving effect to any dilution
to a holder resulting from the operation of the Company's
rights plan, or (iii) a Strategic Merger (as
defined in paragraph 9(d)) resulting in the
existence of a greater than 20% holder, the
standstill restrictions will cease to apply to the
extent necessary to allow DT/FT to top up to the
level of such other holder, provided that, if the
current foreign ownership limitations of the U.S.
Federal Communications Act (" 310(b)") still
exist, DT/FT may assign its right to top up above
20% to a "qualified buyer" (as defined in paragraph
7(b)(ii)(C)). Any "qualified buyer" will
acquire its interest in shares of the Company
subject to the standstill and other limitations
set forth in this Annex A.
4. Transfer Restrictions
(a) No transfers are permitted for five years
from the Initial Investment Date, except for
transfers to majority-owned subsidiaries of DT/FT,
which subsidiaries shall become subject to the
transfer restrictions contained herein. If DT/FT
owns less than 80% of the shares of such a
majority-owned subsidiary, then
(x) the shares owned by DT/FT and wholly
owned subsidiaries, plus the shares owned by
passive financial institutions, must be at least
80% of the shares of such subsidiary,
(y) DT/FT (or wholly owned subsidiaries) must
have a majority of the voting power and economic
interests in such subsidiary and
(z) no more than 10% of the shares of any
such majority-owned subsidiary may be owned by a
Major Competitor of the Company (as defined in
paragraph 7(d)(i)),
provided, however, that for a period of two
years following the Initial Investment Date, the
shares owned by DT/FT and wholly owned
subsidiaries, plus shares owned by persons who are
not Major Competitors of the Company, must be 100%
of the shares of such subsidiary. In addition, such
<PAGE> 4
majority-owned subsidiaries shall have
entered into appropriate arrangements limiting the
access of all holders of such minority interests
to confidential information about the Company, and
holders of such minority interests that are not
passive financial institutions shall have entered
into standstill arrangements consistent with those
applicable to DT/FT as are contemplated hereby.
The fact that such financial institutions are not
required to enter into standstill agreements shall
not create any implication that acquisitions and
other actions by such institutions are not covered
by the standstill agreements to be entered into by
DT/FT and such other holders. As used herein, the
term "transfer" includes both direct and indirect
transfers.
(b) No transfers to, or resulting in, a greater
than 5% holder of voting stock of the Company may
be made other than in an underwritten, widely
distributed public offering or similar distribution,
in which case DT/FT will not knowingly (i) sell
more than 2% of the outstanding shares of common
stock of the Company to any holder that owns 3% or
more of such stock, (ii) sell more than 5% of the
outstanding common stock of the Company to any
person or (iii) sell to a person required under
Section 13(d) of the Exchange Act to file a
Schedule 13D with respect to the Company (a
"Schedule 13-D Filer") or to a person who, as a
result of such sale, would become a Schedule 13-D
Filer, provided that the restriction in this
paragraph (b) shall terminate if DT/FT's ownership
interest in the Company should fall below 3 1/2%.
(c) (i) In the case of proposed
transfers pursuant to underwritten,
widely distributed public offerings or
brokers' transactions pursuant to Rule
144 promulgated by the Securities and
Exchange Commission (the "SEC") pursuant
to the Securities Act of 1933 ("Rule
144"), DT/FT will first offer to sell to
the Company the shares it proposes to
sell at the then current market price.
If the Company declines to purchase all
of the offered shares, DT/FT may sell
such shares within 120 days thereafter
<PAGE> 5
(60 days if a shelf registration
statement is used) or such additional
period of up to 30 days as is reasonably
required to conduct a public offering,
subject to paragraph (c)(ii) below, or
within 45 days thereafter in a Rule 144
brokers' transaction.
(ii) Seven business days prior
to the planned date (the "Planned Date")
for the initial SEC filing relating to a
DT/FT transfer in the case of a
registered public offering, DT/FT shall
offer to sell to the Company all, but
not part, of the shares planned to be so
offered at the then current market
price, except that no such offer need be
made if the market price of shares on
the day seven days prior to the Planned
Date is more than 90% of the market
price at the date of the first offer to
the Company. The Company shall have 24
hours in which to notify DT/FT of its
decision to accept or reject the offer.
If the offer is accepted, the Company
promptly shall reimburse DT/FT for its
out-of-pocket expenses in connection
with the proposed offering. It is
understood that if the second offer is
declined, DT/FT may delay for a reasonable
period (but not more than 10
business days) its offering if it
determines in good faith that such a delay is
advisable because of marketing considerations.
(d) With respect to all transfers not covered by
paragraphs 4(a) or 4(c), DT/FT will first offer to
sell the shares to the Company at a price and on
terms determined by DT/FT. If the Company
declines to purchase all of the offered shares,
then DT/FT may sell all or part of such shares to
one or more purchasers which, if any such purchaser
or purchasers held 5% or more of the common
stock of the Company, would be eligible pursuant
to Rule 13d-1(b) under the Exchange Act to file a
Schedule 13G with respect to the Company, at the
same price and terms (or at a price and on terms
more favorable to DT/FT). If DT/FT wishes to sell
<PAGE> 6
shares to purchasers not so eligible pursuant to
Rule 13d-1(b), the Company shall have a right of
first refusal as to such shares which the Company
must exercise upon ten business days' notice.
(e) If the Company shall exercise its rights to
purchase contained in paragraph 4(c) or 4(d),
payment shall be made as follows (provisions
further defining these payment mechanics to be
contained in the Definitive Agreements):
(i) If the purchase price with respect to
shares to be acquired pursuant to any
such right is less than $200 million,
then payment will be made in cash within
30 days of the date of exercise of such
right.
(ii) If the purchase price with respect to
shares to be acquired pursuant to any
such right is between $200 million and
$500 million, $200 million will be paid
in cash within 30 days, and the
remainder will be paid in marketable
notes of the Company designed, taking
into account the likely manner and
timing of resale, to sell at par value
("Eligible Notes"), one-half of such
amount in Eligible Notes maturing in one
year and one-half in Eligible Notes
maturing in two years.
(iii) If the purchase price exceeds $500
million, the first $200 million will be
paid in cash within 30 days, and the
remainder will be paid in Eligible
Notes, one-third of such amount in
Eligible Notes maturing in one year,
one-third in Eligible Notes maturing in
two years, and one-third in Eligible
Notes maturing in three years.
(iv) In each case, amounts paid shall include
interest from the date of exercise of
such right.
(v) Eligible Notes may not be used at any time
when the Company's debt ratings on the debt
<PAGE> 7
instruments of the Company most
similar to the Eligible Notes (or of the
Eligible Notes, if rated prior to issuance)
are not investment grade.
(f) Transfer restrictions (other than those in paragraph
4(b)) will end if:
(i) the Company seeks to dissolve the Global
Partnership, unless such action results
from a material breach by DT/FT;
(ii) the Company has breached certain specified
material provisions of the Definitive
Agreements;
(iii) there has been a "Termination Event",
defined as (x) a decision by the Global
Partnership Board to terminate, liqui-
date or wind up the Joint Venture or
(y) the commencement of the winding up
of the Joint Venture under the relevant
deadlock provision;
(iv) DT/FT owns shares (together with those
it is committed to purchase or has the
right to commit to purchase)
(A) representing less than 10% of the
common equity of the Company if DT/FT's
ownership is below such levels due to
share issuances by the Company, or
(B) representing less than 9% of the
common equity of the Company if DT/FT's
ownership is below such levels due to
sales of shares by DT/FT, provided that
the right of first offer contained in
paragraph 4(c) shall continue until
DT/FT owns shares (or is committed or
has the right to commit as described
above) representing less than 5% of the
common equity of the Company, and provided,
further, that so long as DT/FT
owns shares (or is committed or has the
right to commit as described above)
representing between 5% of the common
equity of the Company and such 9% or 10%
level, as the case may be, no transfers
in excess of 1% of the shares of common
<PAGE> 8
stock of the Company may be made to any
person or group or in any transaction or
series of related transactions and no
privately negotiated transfers of shares
may be made to any Major Competitor of
the Company; or
(v) there is a greater than 20% holder in
the Company (other than DT/FT) or there
is a Change in Control under paragraph
9(d)(ii).
5. Registration Rights
DT/FT shall have the registration rights outlined in
Annex A-1 attached hereto.
6. Board Representation
(a) Unless prohibited by the New York Stock Exchange
("NYSE"), beginning on the Initial Investment
Date, DT/FT shall be entitled to board
representation on the Board of Directors of the
Company equal to its percentage ownership interest
(excluding amounts DT/FT is committed to purchase),
rounded to the nearest whole number, with
a minimum of two directors until the second
anniversary of the Initial Investment Date and
thereafter as long as DT/FT owns 10% of the
outstanding common stock of the Company (or is
committed to acquire shares of Company common
stock that would result in DT/FT owning at least
10% of the outstanding common stock of the
Company, or is permitted to exercise its preemptive
rights to reach such 10% ownership level),
or as provided in paragraph 7(c), and in all cases
subject to paragraph 10(a). If necessary, to the
extent permitted by law, the Company will limit
the number of non-U.S. directors who are not
designated by DT/FT in order to permit DT/FT under
applicable law to have the Board representation by
non-U.S. persons provided for in this paragraph.
(b) A majority of the Company's directors will be
independent (i.e., unaffiliated with Company management
or DT/FT).
<PAGE> 9
(c) Unless prohibited by law or the NYSE, DT/FT
will be entitled to one representative on each of
the committees of the Board of Directors.
7. DT/FT Approval Rights
(a) In General. For the respective periods of
time noted below, the following actions may not be
taken by the Company if they are disapproved by
DT/FT (by a separate vote of the Class A Stock);
provided, however, that, beginning two years after
the Initial Investment Date the Company may take
any of the actions specified in paragraphs
7(a)(i), 7(a)(ii), 7(a)(iii)(B) or 7(a)(iv)
notwithstanding the disapproval of such actions by
DT/FT (by a separate vote of the Class A Stock),
in which event the transfer restrictions contained
in paragraph 4 (other than paragraph 4(b)) shall
be terminated:
(i) Any transaction or series of related
transactions resulting in divestitures
of assets, with a fair market value of
more than 20% of the market
capitalization of the Company and its
subsidiaries taken as a whole as of the
date of the divestiture, provided that
this limitation shall not apply to:
(A) any contributions of assets to
joint ventures which are
approved by DT/FT prior to the
execution of the Definitive
Agreements;
(B) any contribution of assets to (x) any
entity in exchange for
shares of or interests in such entity if
the Company maintains (1) at least 51%
ownership of such entity and (2) the
right to appoint at least 51% of such
entity's board of directors or other
governing body, or (y) any joint venture
that is an operating joint venture that
is not controlled by any of its
participants and in which (1) the
Company has the right to approve
material business decisions, and
(2) Major Competitors of
<PAGE> 10
the Global Partnership do not in
the aggregate own more than 20%
of the capital or interests of such
joint venture;
(C) "swaps" of local telecommunications
or cellular properties; or
(D) split-offs, spin-offs or
other distributions of assets to the
shareholders of the Company (other than
LD Assets). The parties will discuss in
the context of negotiations of the
Definitive Agreements the treatment of
split-offs, spin-offs or other
distributions of LD Assets.
This paragraph (a)(i) would apply for five
years from the Initial Investment Date.
(ii) Any transaction or series of related
transactions (including a merger or
other business combination) resulting in
the acquisition for cash of (A) "core
businesses" (defined broadly to include
businesses in the fields of
telecommunications, information
technology and other reasonably foreseeable
areas of business to be specified in the
Definitive Agreements implementing this Annex A),
the cost of which exceeds 20% of the Company's
market capitalization immediately prior
to such acquisition or (B) non-core
businesses, the cost of which exceeds 5%
of the Company's market capitalization
immediately prior to such acquisition.
This provision would apply for five
years from the Initial Investment Date.
(iii) (A) Issuance by the Company of any
equity securities (including pursuant to
a merger or other business combination)
with more than one vote per share (this
provision to survive until the
conversion of all of the Class A Stock
into common stock of the Company), or
(B) issuance by the Company of any
<PAGE> 11
equity securities with class voting
rights similar to those granted to DT/FT
(this provision would apply for five
years after the Initial Investment Date).
(iv) The declaration of any extraordinary
cash dividend or distribution to
shareholders of the Company during any
one year in excess of 5% of the market
capitalization of the Company
immediately prior to the declaration of
such dividend or distribution. This
provision would apply for five years
after the Initial Investment Date.
(v) Amendments to the Company's charter
documents, by-laws or rights plan
that would adversely affect
the rights of DT/FT under the agreements
relating to the investment, except for
matters the parties specify as
immaterial in the Definitive Agreements.
This provision would survive until the
conversion of all of the Class A Stock
into common stock of the Company.
(vi) Except in the case of a transaction
resulting in a Change of Control (in
which case the surviving company must
agree that all registration rights,
rights under paragraph 7(b)
(except to the extent such rights are
terminated pursuant to paragraph 9(a))
and any applicable Tie-Breaking Vote of
DT/FT shall nevertheless survive), any
merger or other business combination
unless the Company survives or the
surviving corporation assumes the
Minority Rights of DT/FT under the
Definitive Agreements. This provision
would survive until the conversion of
all of the Class A Stock into common
stock of the Company.
(vii) Any merger or other business combination
in which the Company is not the
surviving corporation. This provision
<PAGE> 12
would apply for two years after the
Initial Investment Date.
(b) Long Distance ("LD")
(i) For 5 years or, if DT/FT's ownership of LD
assets is no longer prohibited by Section
310(b), until such earlier time
(the "Initial Period"), no sale of LD
assets with a fair market value or equity
interests in LD equal to or in excess of 5%
(cumulative) of the fair market value of the
LD assets may be consummated by the Company
if it is disapproved by DT/FT (by a separate
vote of the Class A Stock). As used herein,
the term "cumulative" shall mean a percentage
computed according to the following formula:
the aggregate fair market value of all sales
of LD assets previously sold or proposed to
be sold, divided by the fair market value of
LD assets existing on the date of the
transaction in question.
(ii) After Initial Period
If a disposition of 30% (cumulative) or more
of the fair market value of the LD assets
or sale of 30% (cumulative) or more of the
equity in LD following the Initial Period
and prior to the 10th anniversary of the
Initial Investment Date is disapproved by
DT/FT (by a separate vote of the Class A
Stock), the Company may effect
such disposition notwithstanding this
paragraph 7(b)(ii), but such disposition will
give rise to:
(A) Right of first offer for
what is being sold in favor of DT/FT.
DT/FT has 60 days plus sufficient time
thereafter to obtain supervisory board
approval to exercise its right to
purchase; such approval to be obtained
within 150 days from date of offer.
(B) Timing of sales: Within 150 days after
DT/FT turns down the offer, the Company
must have entered into a binding
<PAGE> 13
agreement to sell. There shall be no
time limit on the Company's ability to
close pursuant to such binding
agreement. If the Company does
not obtain a binding agreement within
such time (or if it abandons such sale
pursuant to clause (ii)(C)(y) below),
the Company may not offer a transaction
involving substantially identical assets
for one year from the date of the offer
which resulted in the failed
transaction.
(C) DT/FT rights are assignable.
(x) Assignability lapses if Section
310(b) does not apply.
(y) DT/FT must disclose assignee and
other relevant facts to the Company
prior to assignment of rights, it
being understood that upon such
disclosure the Company may abandon
such sale.
(z) Only assignable to a "qualified
buyer," i.e., a buyer who has the
legal and financial ability to buy,
and is not a Major Competitor with
the Company's retained business, it
being understood that if an
assignment to any such competitor
is blocked by the Company, the
Company may not thereafter sell to
such competitor.
(D) If the Company proposes to sell so that
it would no longer hold 51% or more of
the LD assets or equity in LD, then the
Company must sell at least 51% of the LD
assets or the equity in LD, subject to
DT/FT's right of first offer as
described herein.
(iii) The provisions of this paragraph 7(b) do
not apply to the following transactions
and such transactions will not count
<PAGE> 14
toward the thresholds referred to in paragraph
7(b)(i) and (ii):
(A) Contributions or sales of
assets to a joint venture, if the joint
venture meets each of the following
criteria:
(v) in case of Critical LD Assets
(as defined below), the Company
owns a majority of the capital
and voting interests in the
joint venture and, in the
case of Other LD Assets, such joint
venture is either controlled by the
Company or, if such joint venture
is not controlled by the Company,
such joint venture is not
controlled by any of its
participants and the Company has
the right to approve material
business decisions of such joint
venture;
(w) such joint venture is an operating
joint venture owning predominantly
assets of a nature similar or
complementary to the LD assets,
which have been contributed
or sold to such joint venture by
the other participants therein;
(x) the assets of such joint venture
are available for use by the
Company on a basis no less favorable
than that which is afforded to other
participants in such joint venture;
the Global Partnership, as a customer
of the joint venture, would be
treated no less favorably than other
similarly situated customers; and the
manner in which such joint venture is
operated is not inconsistent with
the policies of the Global Partnership;
(y) the Company undertakes to make
commercially reasonable efforts to
align the activities of such joint
venture with those of the Global
<PAGE> 15
Partnership, including using
commercially reasonable
efforts to cause such joint venture to
become a distributor of the services
falling within the scope of the
Global Partnership (if so selected
by the Global Partnership), align
the joint venture's network
technology with the network
technology of the Global
Partnership, and use the Global
Partnership's services to the
maximum extent practicable; and
(z) Major Competitors of the Global
Partnership do not in the aggregate
own more than 20% of the capital or
interests of such joint venture.
"Critical LD Assets" shall mean the
transport media, associated switching,
electronic transmissions equipment,
systems and operating software
comprising the SPRINT long distance
telecommunications network.
(B) Transfers to 70%-owned
entities, provided, that in the case in
which a Major Competitor of DT/FT holds
an interest in a 70% or more owned
entity, such Major Competitor's interest is
not more than 20%.
(C) Transfers pursuant to an underwritten,
widely-distributed public offering at
the conclusion of which the Company
shall own at least 51% of the
capital stock and voting power of the
issuer.
(D) The disposition of unneeded LD assets
in the ordinary course of business and
sale-leasebacks of LD assets and similar
financing transactions which leave the
Company in possession and control of the
LD assets involved in such transaction.
(c) Mega Deal
<PAGE> 16
Any transaction resulting in the issuance of 30%
or more shares by the Company (a "Mega Deal")
requires the approval, in the first five years
following the Initial Investment Date, of 2/3 of
the independent directors, and afterwards, a
majority of the independent directors.
(i) The Company will give DT/FT at least 90 days
notice of the issuance of any shares of common stock
in a Mega Deal.
(ii) For two years after the Initial Investment Date,
a Mega Deal may not be effected by the Company if
it is disapproved by FT/ DT (by a separate
vote of the Class A Stock).
(iii) If during the period beginning two years after the
Initial Investment Date and ending five years
after the Initial Investment Date, a
Mega Deal is proposed by the Company
that is disapproved by DT/FT (by a
separate vote of the Class A Stock), the
Company may effect such transaction not-
withstanding this paragraph 7(c), but
the transfer restrictions contained in
paragraph 4 (other than paragraph 4(b))
shall be terminated unless DT/FT has
exercised its rights under paragraph 7(c)(iv).
(iv) If DT/FT is diluted due to a Mega Deal below
10% ownership, DT/FT shall have a three year period
after the consummation of the Mega Deal
to top up its interest to 10% of the
Company if (A) within 30 days after the
issuance of shares in a Mega Deal, DT/FT
enters into a binding commitment with
the Company to exercise its preemptive
rights to purchase shares from the
Company sufficient for it to top up to
10%, or (B) within 180 days after such
issuance, DT/FT enters into a binding
commitment with the Company to top up
its interest to 10% through open market
purchases or from third parties. Except
as provided in paragraph 10(b) or 10(c)
but notwithstanding paragraph
<PAGE> 17
10(a), if DT/FT does not so commit, DT/FT
will continue to have the right to two
directors until three years after such
consummation except to the extent
prohibited by the NYSE.
(d) Provisions as to Major Competitors
(i) Definition: A "Major Competitor" is (A)
with respect to DT/FT, a company which materially
competes with a major portion of the
telecommunications services business of
FT, DT or DT/FT in Europe or of the
Global Partnership, or a company which
has taken substantial steps to become
such a Major Competitor and which DT/FT
has concluded in its reasonable good
faith judgment will be such a competitor
in the near future in one of DT/FT's
home countries, provided that DT/FT furnishes
to the Company evidence of the
occurrence of such steps, and (B) with
respect to the Company, a company which
materially competes with a major portion
of the telecommunications services
business of the Company in North America
or of the Global Partnership, or a
company which has taken substantial
steps to become such a Major Competitor
and which the Company has concluded in
its reasonable good faith judgment will
be such a competitor in the near future
in its home country, provided that the
Company furnishes to DT/FT evidence of
the occurrence of such steps. The
Definitive Agreements will illustrate
and further define the definition of
"Major Competitor."
(ii) For ten years after the Initial Investment
Date, any transaction entered into by the
Company resulting in a 10% or larger holding
in the Company by a Major Competitor of DT/FT
shall not be undertaken if it is disapproved by
DT/FT (by a separate vote of Class A
Stock) unless the transaction is a Strategic
<PAGE> 18
Merger, in which case, if the
Major Competitor of DT/FT holds upon
consummation of such transaction 20% or
more (A) DT/FT has the right to buy up
to the same ownership level as the Major
Competitor of DT/FT and the Company will
provide a mechanism for DT/FT to commit
(within 30 days) to such a top up from
the Company at the deal price or market
purchase will be permitted, (B) DT/FT
will have rights (other than rights
deriving solely from the number of
shares owned) equal to any rights
granted by the Company to the Major
Competitor of DT/FT regardless of
whether DT/FT tops up and (C) if the
Major Competitor of DT/FT has been
granted rights by the Company (other
than rights deriving solely from the
number of shares owned) equivalent or
superior to DT/FT's Minority Rights
under the Definitive Agreements, DT/FT
shall receive the "Tie-Breaking Vote"
(as defined in clause (iii) below).
(iii) As used in this Annex A, the term
"Tie-Breaking Vote" shall mean
the right to cast a vote to determine
the conduct of all entities involved in
the Global Partnership when the parties
thereto are deadlocked. The "Tie-
Breaking Vote" shall terminate upon the
fifth anniversary of the date DT/FT is
granted the Tie-Breaking Vote. In
negotiations of the Definitive Agreements,
the parties will discuss provisions as to
the breaking of such deadlock thereafter.
8. Preemptive Rights, Antidilution Provisions, etc.
(a) DT/FT will have the right to acquire shares
of Class A Stock representing their proportionate
share (based on the number of shares DT/FT owns,
plus those it is committed to purchase under the
Definitive Agreements) of any new voting stock
issued after the Initial Investment Date (includ-
<PAGE> 19
ing upon the exercise of options or warrants or
the conversion of the Company's securities into
common stock or pursuant to the Company's rights
plan, provided that the rights plan has not been
triggered by DT/FT action) at the weighted average
price paid for such stock; provided, however, that
shares in respect of employee stock options not
outstanding on or prior to the Initial Investment
Date shall be purchased at the market price on the
date such options are exercised; and provided,
further that, if voting stock is issued pursuant
to the exercise of options, warrants or other
rights or the conversion of securities that are
outstanding on or prior to the Initial Investment
Date (other than any shares issued under the
rights plan), the price for the corresponding
shares of Class A Stock will be the higher of (i)
the weighted average purchase price of the shares
previously purchased by DT/FT under the Definitive
Agreements, and (ii) the weighted average price
paid for such stock.
(b) The preemptive rights of DT/FT under paragraph 8(a)
must be exercised by DT/FT by written notice to
the Company within 30 days of the date of the
issuance of shares by the Company that gave rise
to such rights. Payment by DT/FT for shares to
be purchased in respect of the exercise of such
rights will be made as follows (provisions further
defining these payment mechanics to be contained
in the Definitive Agreements):
(i) If the purchase price with respect
to shares to be acquired pursuant to any such
right is less than $200 million, then payment
will be made in cash within 30 days of the
date of exercise of such right.
(ii) If the purchase price with respect to shares
to be acquired pursuant to any such right is
between $200 million and $500 million,
$200 million will be paid in cash within
30 days, and the remainder will be paid
in two equal annual installments
beginning on the one year anniversary of
the date of exercise of such right.
The obligation to pay such
installments shall be evidenced by
<PAGE> 20
notes that bear a market rate of
interest taking into account the
likely manner and timing of
resale (if such resale is permitted by
law and governmental policy) and, to the
extent permitted by law and governmental
policy, are marketable.
(iii) If the purchase price exceeds $500 million,
the first $200 million will be paid in cash
within the first 30 days, and the remainder
will be paid in three equal annual installments
beginning on the one year anniversary of
the date of the exercise of such right.
The obligation to pay such installments
shall be evidenced by notes that bear a
market rate of interest taking into
account the likely manner and timing of
resale (if such resale is permitted by
law and governmental policy) and, to the
extent permitted by law and governmental
policy, are marketable.
(iv) In each case, amounts paid shall include
interest from the date of the exercise of
such right.
(v) Notes of DT/FT may not be used at any time
when DT/FT's debt ratings on the debt
instruments of DT/FT most similar to
such notes (or such notes, if rated prior to
issuance) are not investment grade, provided
that this restriction shall only apply if
debt instruments of DT/FT are generally rated
by established rating services.
(c) DT/FT will have appropriate antidilution rights in
the event of stock splits, stock dividends,
reclassifications, etc.
(d) The Company will take all reasonable measures
to permit DT/FT to obtain or maintain its interest
in SPRINT, in accordance with applicable U.S. law.
So long as DT/FT's ownership is at a level that,
viewed alone, is permitted by 310(b), the
Company will take no affirmative action that would
require DT/FT to reduce its interest in the
<PAGE> 21
Company to comply with applicable law (e.g., share
redemption or repurchase that would require DT/FT
to divest shares in order to comply with FCC
rules). The Definitive Agreements will contain
provisions addressing additional means of
enhancing the Company's ability to assure
compliance with 310(b).
9. Change of Control Provisions
(a) In the case of a Change of Control, DT/FT shall
receive the Tie-Breaking Vote (without any time limit),
provided, that if, at any time following such Change of
Control, the Company offers to sell all of its interests
in all entities involved in the Global Partnership to
DT/FT at a price equal to the fair market value thereof,
and DT/FT declines such offer, then, at such time,
DT/FT's Tie-Breaking Vote shall terminate. The
Company also may put to DT/FT all of its interests
in all of the entities involved in the Global
Partnership for cash equal to their fair market
value during the sixth and seventh years after the
Tie-Breaking Vote was first granted to DT/FT. If
DT/FT accepts such offer or such put right is
exercised, DT/FT's rights as to LD under
paragraph 7(b) shall terminate.
(b) If the Company determines to sell all or
substantially all of its assets (or not to oppose
a third-party tender offer for more than 35% of
the Company's shares) or to sell control of the
Company or to effect a merger or other business
combination, the result of which is a 35% or
larger shareholder in the resulting entity (other
than DT/FT), (i) the Company will conduct such
transaction in accordance with reasonable
procedures to be determined by the Company's Board
of Directors and permit DT/FT to participate in
that process on a basis no less favorable than
that granted any other participant and (ii) DT/FT
will have the right to sell its shares in any such
transaction free of any restriction contained in
this Annex A. If after such process, such transaction
shall proceed with a party other than
DT/FT, the standstill provisions and transfer
restrictions shall terminate. It is understood
<PAGE> 22
that the Company's obligations in respect of the
Global Partnership shall continue in full force
and effect after any such transaction.
(c) If a third party makes a tender offer for not
less than 35% of the shares of the Company and the
terms of such tender offer do not permit DT/FT to
sell an equal or greater percentage of its shares
as the other shareholders of the Company are
permitted to sell, then upon the purchase by such
third party in the tender offer of 35% or more of
the shares of the Company, DT/FT may require the
Company to purchase at the tender offer price the
portion of DT/FT's interest that DT/FT was unable
to tender on the same basis as the other
shareholders, unless DT/FT is entitled to receive
publicly traded securities or cash in a back-end
transaction required to be effected within 90 days
after the close of the tender offer.
(d) As used herein, the term "Change of Control" means:
(i) a decision by the Board of Directors to sell
control of the Company or not to oppose a
third-party tender offer for more than 35% of the
outstanding shares of voting stock of the Company,
provided that a Change of Control shall not
include any "Strategic Merger" involving the
Company; a Strategic Merger being defined as any
business combination transaction in which the
resulting corporation is a publicly held company
in which there is no shareholder (other than DT/FT)
that owns more than 35% of the voting stock
of the resulting corporation; or
(ii) a change in the identity of a majority of the
Company's directors due to Unsolicited Activity.
"Unsolicited Activity" shall be defined
as (A) a proxy contest (or the threat to
engage in a proxy contest) or (B) any
unsolicited tender offer which has not
been approved by a majority of the
Company's independent directors.
<PAGE> 23
10. Termination of DT/FT Rights
(a) If DT/FT's interest in the Company falls below 10%
for more than six months (unless DT/FT's ownership
falls below 10% due to sales by DT/FT, in which
case such rights will cease to apply and such
shares will convert immediately), DT/FT's board
representation rights, approval rights under
paragraph 7(a), rights under paragraph 7(b) with
respect to LD, rights under paragraph 7(c) with
respect to Mega Deals, rights with respect to
Major Competitors of DT/FT under paragraph 7(d),
rights under paragraph 8, and Change of Control
protections under paragraph 9 (collectively, the
"Minority Rights") will cease to apply and the
Class A Stock will automatically convert into
shares of common stock of the Company. This
paragraph 10(a) shall not apply during any period
during which (i) DT/FT is committed under the
Definitive Agreements to increase its investment
such that the amount of shares owned by DT/FT,
together with the amount which it is committed to
purchase, equals or exceeds 10% of the outstanding
common stock of the Company, or (ii) DT/FT has the
right to commit under the Definitive Agreements to
exercise its preemptive rights to increase its
actual share ownership such that the amount of
shares owned by DT/FT, together with the amount
which it has the right to commit to purchase,
equals or exceeds 10% of the outstanding common
stock of the Company.
(b) (i) If (A) the Global Partnership is
terminated due to a material breach by
DT/FT of the Definitive Agreements
relating to the Global Partnership, as
finally determined by an arbitral
decision pursuant to the terms of the
Definitive Agreements, or (B) there is a
material breach by DT/FT of the Definitive
Agreements relating to the investment,
after notice and opportunity to cure,
all of the Minority Rights of DT/FT will
terminate immediately and the Class A
Stock will automatically convert into
shares of common stock of the Company.
<PAGE> 24
(ii) Under the circumstances described in
paragraph 10(b)(i) above, the
registration rights, standstill
provisions, transfer restrictions, right
of first offer and right of first
refusal will, however, be unaffected.
(c) If the Global Partnership is terminated due to a
material breach by the Company of the Definitive
Agreements relating to the Global Partnership as
finally determined by an arbitral decision pursuant
to the terms of the Definitive Agreements, DT/FT's
Minority Rights will be unaffected, the standstill
provisions will remain in place, and the transfer
restrictions (except for those in paragraph 4(b))
will terminate. The Definitive Agreements shall
contain appropriate provisions addressing the
implications of such a breach upon the provisions of
paragraph 7(b).
(d) (i) If the Global Partnership is terminated for
any reason other than as described in clause
(b) or (c) above, all of the Minority Rights
of DT/FT will terminate immediately, except
DT/FT's board representation rights under
paragraph 6, approval rights set forth
in subparagraphs (v) and (vi) of
paragraph 7(a), and the rights under
paragraph 8.
(ii) Under the circumstances described in
paragraphs 10(c) and 10(d)(i) above,
DT/FT's board representation rights
under paragraph 6 will terminate three
years after termination of the Global
Partnership and rights under paragraph 8
will terminate three years after termination
of the Global Partnership, and the Class
A Stock will automatically convert into
shares of common stock of the Company on
such date.
(iii) Under the circumstances described in
paragraph 10(d)(i) above, the registration
rights, standstill provisions, transfer
restrictions, right of first offer, right of
first refusal and the approval rights set forth in
<PAGE> 25
subparagraphs (v) and (vi) of paragraph
7(a) will, however, be unaffected.
(e) DT/FT's Minority Rights (except as to LD Assets)
shall terminate if there is a Change of Control
(other than a Change of Control as defined
in paragraph 9(d)(ii)), provided that the Company
shall explore with the buyer the possibility of
DT/FT's having board representation.
(f) Shares of Class A Stock shall automatically
convert to shares of common stock of the Company
upon a transfer by DT/FT to a person that is not a
majority-owned subsidiary of DT/FT meeting the
requirements of paragraph 4(a).
<PAGE>
ANNEX A-1
PROPOSED REGISTRATION RIGHTS
1. Demand Registration.
-- Maximum of one demand registration each year.
In negotiations of the Definitive Agreements,
the parties will discuss any limits on the
maximum aggregate number of demand registrations.
-- If, due to piggy back rights of others,
greater than 1/3 of FT/DT's shares proposed
to be offered are displaced, such
registration will not count toward the limit.
2. Piggyback Registration.
-- Right to participate (as provided below) in
all registrations (except on Forms S-4 or S-8).
-- Includes right to participate in any
secondary offering.
3. Priorities.
-- The parties will address in the Definitive
Agreements priorities vis. the Company.
-- Company agrees not to effect another offering
or sale of stock for 90 days after any FT/DT
demand registration or piggyback registration
(except in connection with sales upon
exercise or exchange, by the holder thereof,
of options, warrants or convertible
securities; any other agreement to issue
shares in effect on the date FT/DT notifies
the Company of its exercise of its
registration rights; in connection with any
acquisition or similar transaction disclosed
to FT/DT prior to the date FT/DT notifies the
Company of its exercise of its registration
rights; and any dividend reinvestment plan or
employee benefit plan (if necessary for such
plan to fulfill its funding obligations in
the ordinary course)).
<PAGE> 2
4. Expenses. The Company shall pay all costs of
registration and preparation of the registration
statement (other than selling discounts, fees and
expenses of FT/DT's counsel and underwriters'
commissions).
5. Underwriter. In the negotiations of the
Definitive Agreements, the parties will discuss
the method of selection of the underwriter.
6. Miscellaneous. The Definitive Agreements will
contain customary indemnification provisions
relating to the sale of registered securities.
The Company agrees to use its reasonable best
efforts to assure that Rule 144 will be available
to FT/DT.
EXHIBIT (11)
SPRINT CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (UNAUDITED)
(In Millions, Except Per Share Data)
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
PRIMARY EARNINGS PER SHARE
Income from continuing
operations $ 219.6 $ 165.1 $ 447.0 $ 153.8
Preferred stock dividends (0.7) (0.9) (1.4) (1.5)
218.9 164.2 445.6 152.3
Discontinued operations, net -- -- -- (12.3)
Extraordinary losses on early
extinguishments of debt, net -- (8.5) -- (13.7)
Cumulative effect of changes in
accounting principles, net -- -- -- (384.2)
Earnings (loss) applicable to
common stock $ 218.9 $ 155.7 $ 445.6 $ (257.9)
Weighted average number of
common shares (1) 347.6 342.1 347.1 341.9
Primary earnings (loss) per
share
Continuing operations $ 0.63 $ 0.48 $ 1.28 $ 0.45
Discontinued operations -- -- -- (0.04)
Extraordinary item -- (0.02) -- (0.04)
Cumulative effect of changes in
accounting principles -- -- -- (1.12)
Total $ 0.63 $ 0.46 $ 1.28 $ (0.75)
<PAGE>
FULLY DILUTED EARNINGS PER
SHARE
Income from continuing
operations, net of preferred
stock dividends $ 218.9 $ 164.2 $ 445.6 $ 152.3
Convertible preferred stock
dividends 0.2 0.1 0.3 0.3
219.1 164.3 445.9 152.6
Discontinued operations, net -- -- -- (12.3)
Extraordinary losses on early
extinguishments of debt, net -- (8.5) -- (13.7)
Cumulative effect of changes in
accounting principles, net -- -- -- (384.2)
Earnings (loss) as adjusted for
purposes of computing fully
diluted earnings per share $ 219.1 $ 155.8 $ 445.9 $ (257.6)
Weighted average number of
common shares 347.6 342.1 347.1 341.9
Additional dilution for common
stock equivalents and dilutive
securities (2) 1.2 2.0 1.3 2.1
Total 348.8 344.1 348.4 344.0
Fully diluted earnings (loss)
per share
Continuing operations $ 0.63 $ 0.48 $ 1.28 $ 0.45
Discontinued operations -- -- -- (0.04)
Extraordinary item -- (0.02) -- (0.04)
Cumulative effect of changes in
accounting principles -- -- -- (1.12)
Total $ 0.63 $ 0.46 $ 1.28 $ (0.75)
(1) Weighted average number of common shares have been adjusted
for dilutive common stock equivalents using the treasury stock
method.
(2) During 1993, the additional dilution for common stock
equivalents and dilutive securities is not included in the
computation of fully diluted earnings (loss) per share from
discontinued operations, extraordinary item, cumulative effect of
changes in accounting principles and net loss because the impact
is anti-dilutive.
<PAGE>
EXHIBIT (12)
SPRINT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
(In Millions) (In MIllions)
Earnings
Income from continuing
operations $ 219.6 $ 165.1 $ 447.0 $ 153.8
Capitalized interest (1.8) (2.4) (2.8) (5.0)
Income tax provision 127.9 91.9 256.9 93.7
Subtotal 345.7 254.6 701.1 242.5
Fixed charges
Interest charges 101.8 115.4 203.9 235.9
Interest factor of operating
rents 27.9 30.0 56.0 59.0
Pre-tax cost of preferred stock
dividends of subsidiaries 0.2 0.3 0.5 0.8
Total fixed charges 129.9 145.7 260.4 295.7
Earnings, as adjusted $ 475.6 $ 400.3 $ 961.5 $ 538.2
Ratio of earnings to fixed
charges 3.66 2.75 3.69 1.82(1)
(1) Earnings as computed for the ratio of earnings to fixed
charges includes the nonrecurring merger, integration and
restructuring costs of $248.0 million recorded during the first
quarter of 1993. In the absence of the nonrecurring costs, the
ratio of earnings to fixed charges would have been 2.66 for the
six months ended June 30, 1993.
Note:The above ratios have been computed by dividing fixed
charges into the sum of (a) income from continuing operations
less capitalized interest included in income, (b) income
taxes, and (c) fixed charges. Fixed charges consist of
interest on all indebtedness (including amortization of debt
issuance expenses), the interest factor of operating rents
and the pre-tax cost of preferred stock dividends of
subsidiaries.
<PAGE>
