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 March 31, 1997
----------------------------------
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 (IRS Employer
or organization) Identification No.)
P.O. Box 11315, Kansas City, Missouri 64112
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(913) 624-3000
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(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 MARCH 31, 1997:
COMMON STOCK 344,340,863
CLASS A COMMON STOCK 86,236,036
<PAGE>
SPRINT CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
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Page
Number
-------------------------
Part I - Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Consolidated Statements of Common Stock and Other Shareholders'
Equity 4
Condensed Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
Exhibits
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
March 31, December 31,
1997 1996
- -------------------------------------------------------------------------- -- ----------------- --- ----------------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash and equivalents $ 1,060.2 $ 1,150.6
Accounts receivable, net of allowance for doubtful accounts
of $128.9 and $117.4 2,556.1 2,463.5
Inventories 227.1 214.5
Other 455.1 524.2
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total current assets 4,298.5 4,352.8
Investments in equity securities 241.7 254.5
Property, plant and equipment
Long distance communications services 7,653.7 7,467.8
Local communications services 13,613.0 13,368.7
Other 603.6 574.3
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
21,870.3 21,410.8
Less accumulated depreciation 11,256.0 10,946.7
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
10,614.3 10,464.1
Investments in and advances to affiliates 1,403.6 1,527.1
Other assets 396.9 347.8
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
$ 16,955.0 $ 16,946.3
---- --------------- ---- ---------------
Liabilities and shareholders' equity
Current liabilities
Current maturities of long-term debt $ 96.6 $ 99.1
Short-term borrowings 100.0 200.0
Accounts payable 901.8 1,026.7
Accrued interconnection costs 941.4 828.9
Accrued taxes 311.1 189.2
Advance billings 185.7 199.7
Other 620.5 770.6
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total current liabilities 3,157.1 3,314.2
Long-term debt 2,931.7 2,974.8
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 856.4 846.9
Postretirement and other benefit obligations 926.7 919.7
Other 361.6 359.0
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
2,144.7 2,125.6
Redeemable preferred stock 11.8 11.8
Common stock and other shareholders' equity
Common stock, par value $2.50 per share, authorized 1,000.0 shares,
issued 350.3 shares, and outstanding 344.4 and 343.9 shares 875.7 875.7
Class A common stock, par value $2.50 per share, authorized 500.0
shares, issued and outstanding 86.2 shares 215.6 215.6
Capital in excess of par or stated value 4,437.6 4,425.9
Retained earnings 3,377.2 3,211.8
Treasury stock, at cost, 5.9 and 6.4 shares (244.0) (262.2)
Other 47.6 53.1
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
8,709.7 8,519.9
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
$ 16,955.0 $ 16,946.3
---- --------------- ---- ---------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
1
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in millions, except per share data)
Three Months Ended
March 31,
----------------------------------
1997 1996
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
<S> <C> <C>
Net operating revenues $ 3,618.9 $ 3,371.9
Operating expenses
Costs of services and products 1,824.4 1,671.2
Selling, general and administrative 778.9 734.6
Depreciation and amortization 410.9 391.2
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total operating expenses 3,014.2 2,797.0
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Operating income 604.7 574.9
Interest expense (44.8) (47.7)
Equity in loss of Global One (23.7) (15.2)
Equity in loss of Sprint PCS (85.9) (17.3)
Other income, net 34.9 11.6
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Income from continuing operations before
income taxes 485.2 506.3
Income tax provision (195.2) (194.1)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Income from continuing operations 290.0 312.2
Discontinued operation, net -- (2.9)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Net income 290.0 309.3
Preferred stock dividends (0.3) (0.5)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Earnings applicable to common stock $ 289.7 $ 308.8
--- ------------- -- -------------
Earnings per common share
Continuing operations $ 0.67 $ 0.78
Discontinued operation -- (0.01)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total $ 0.67 $ 0.77
--- ------------- -- -------------
Weighted average common shares 434.8 400.3
--- ------------- -- -------------
Dividends per common share $ 0.25 $ 0.25
--- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
2
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Three Months Ended
March 31,
--- ------------------------------
1997 1996
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Operating activities
<S> <C> <C>
Net income $ 290.0 $ 309.3
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in net losses of affiliates 107.0 23.2
Depreciation and amortization 410.9 391.2
Deferred income taxes and investment tax credits 41.8 (29.2)
Changes in operating assets and liabilities
Accounts receivable, net (92.6) (634.0)
Inventories and other current assets 26.0 (74.4)
Accounts payable and other current liabilities (75.8) 189.9
Noncurrent assets and liabilities, net (6.3) (29.2)
Other, net (0.9) 15.9
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash provided by continuing operations 700.1 162.7
Net cash provided by cellular division -- 1.8
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash provided by operating activities 700.1 164.5
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Investing activities
Capital expenditures (574.4) (478.5)
Investments in and advances to affiliates, net 40.7 (92.2)
Other, net (45.8) (25.9)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash used by continuing operations (579.5) (596.6)
Repayment of intercompany advances by cellular division -- 1,400.0
Net investing activities of cellular division -- (140.7)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash provided (used) by investing activities (579.5) 662.7
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Financing activities
Retirements of long-term debt (37.5) (169.4)
Proceeds from long-term debt -- 6.3
Net change in short-term borrowings (100.0) (1,986.8)
Dividends paid (99.8) (88.1)
Proceeds from Class A common stock issued -- 3,000.0
Proceeds from common stock issued 27.3 27.3
Redemption of preferred stock -- (18.4)
Purchase of treasury stock (22.7) --
Other, net 21.7 (4.1)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash provided (used) by financing activities (211.0) 766.8
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Increase (decrease) in cash and equivalents (90.4) 1,594.0
Cash and equivalents at beginning of period 1,150.6 124.2
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Cash and equivalents at end of period $ 1,060.2 $ 1,718.2
--- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
3
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY (UNAUDITED)
(in millions)
Three Months Ended March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
Capital
in Excess
Class A of Par or
Common Common Stated Retained Treasury
Stock Stock Value Earnings Stock Other Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1997 $ 875.7 $ 215.6 $ 4,425.9 $ 3,211.8 $ (262.2) $ 53.1 $ 8,519.9
Net income -- -- -- 290.0 -- -- 290.0
Common stock dividends -- -- -- (86.4) -- -- (86.4)
Class A common stock
dividends -- -- -- (21.6) -- -- (21.6)
Stock options exercised -- -- -- (19.4) 46.7 -- 27.3
Tax benefit from stock
options exercised -- -- 8.2 -- -- -- 8.2
Change in unrealized
holding gains, net -- -- -- -- -- (6.3) (6.3)
Treasury stock purchased -- -- -- -- (35.9) -- (35.9)
Other treasury stock issued -- -- -- (3.1) 7.4 -- 4.3
Other, net -- -- 3.5 5.9 -- 0.8 10.2
- ---------------------------------------------------------------------------------------------------------------------
Balance as of
March 31, 1997 $ 875.7 $ 215.6 $ 4,437.6 $ 3,377.2 $ (244.0) $ 47.6 $ 8,709.7
----------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
PART I.
Item 1.
SPRINT CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997 and 1996
The information contained in this Form 10-Q has been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission. In
management's opinion, the consolidated interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the consolidated financial position, results of operations and cash
flows for the periods presented.
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. These consolidated financial
statements should be read in connection with Sprint Corporation's 1996 annual
report on Form 10-K. Sprint's operating results for the 1997 first quarter are
not necessarily indicative of the operating results that may be expected for the
year ending December 31, 1997.
1. Basis of Consolidation
The consolidated financial statements include the accounts of Sprint Corporation
and its wholly-owned and majority-owned subsidiaries (Sprint). Investments in
affiliates in which Sprint exercises significant influence, but does not
control, are accounted for using the equity method.
The consolidated financial statements are prepared in conformity with GAAP. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.
In March 1996, Sprint spun off its cellular and wireless communications services
division (Cellular) to Sprint common shareholders (see Note 7). Cellular's
operating results and cash flows have been separately classified as a
discontinued operation and have been excluded from Sprint's continuing
operations.
Certain amounts previously reported have been reclassified to conform to the
current period presentation in the consolidated financial statements. These
reclassifications had no effect on the results of operations or shareholders'
equity as previously reported.
2. Investments
Investments accounted for using the equity method mainly consist of Sprint's
investments in Sprint Spectrum L.P. (Sprint PCS) and Global One.
Sprint is a 40% partner in Sprint PCS, a partnership with Tele-Communications
Inc., Comcast Corporation and Cox Communications, Inc. Sprint PCS is building a
wireless network to provide personal communication services on a broad
geographic basis within the United States.
Global One, a joint venture with Deutsche Telekom AG (DT) and France Telecom
(FT), was formed in 1996 to provide seamless global telecommunications services
to business, residential and carrier markets worldwide. Sprint is a one-third
partner in Global One's operating group serving Europe (excluding France and
Germany) and a 50% partner in Global One's operating group for the worldwide
activities outside the United States and Europe.
5
<PAGE>
Combined, summarized income statement information (100% basis) of all entities
accounted for using the equity method is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1997 1996
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Results of operations
<S> <C> <C>
Net operating revenues $ 432.2 $ 270.8
--- ------------- -- -------------
Operating loss $ (318.4) $ (103.6)
--- ------------- -- -------------
Net loss $ (341.2) $ (103.7)
--- ------------- -- -------------
</TABLE>
During the first three months of 1997 and 1996, Sprint recorded net losses in
affiliates accounted for using the equity method of $106 and $28 million,
respectively.
3. Income Taxes
The differences that cause the effective income tax rate to vary from the
statutory federal income tax rate of 35% are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--- ------------------------------
1997 1996
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions)
<S> <C> <C>
Income tax provision at the statutory rate $ 169.8 $ 177.2
Effect of:
State income taxes, net of federal income tax effect 18.1 18.7
Equity in losses of foreign joint ventures 5.3 2.1
Investment tax credits included in income (1.1) (1.8)
Other, net 3.1 (2.1)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Income tax provision $ 195.2 $ 194.1
--- ------------- -- -------------
Effective income tax rate 40.2% 38.3%
--- ------------- -- -------------
</TABLE>
4. Class A Common Stock
On January 31, 1996, DT and FT acquired shares of a new class of convertible
preference stock for a total of $3.0 billion. This resulted in DT and FT each
holding 7.5% of Sprint's voting power. In April 1996, following the spin-off of
Cellular (see Note 7), the preference stock was converted into Class A common
stock, and DT and FT each acquired additional shares of Class A common stock.
Following their total investment of $3.7 billion, DT and FT each own shares of
Class A common stock with 10% of Sprint's voting power.
DT and FT, as the holders of the Class A common stock, have the right in most
circumstances to proportionate representation on Sprint's board of directors and
to purchase additional shares of Class A common stock from Sprint to maintain
their ownership level at 10% each. In addition, the holders of Class A common
stock have disapproval rights with respect to Sprint's undertaking certain types
of transactions. DT and FT have entered into a standstill agreement with Sprint
that contains restrictions on their ability to acquire voting securities of
Sprint other than as contemplated by their investment agreement with Sprint and
related agreements. The standstill agreement also contains customary provisions
restricting DT and FT from initiating or participating in any proposal with
respect to the control of Sprint.
6
<PAGE>
5. Litigation, Claims and Assessments
In December 1996, an arbitration panel entered a $61 million award in favor of
Network 2000 Communications Corporation (Network 2000) on its breach of contract
claim against Sprint. The arbitrators directed Sprint to pay one-half of this
award to Network 2000, and the remaining amount to the Missouri state court in
which a proposed class action by Network 2000's independent marketing
representatives (IMRs) against Network 2000 and Sprint is pending. The
arbitrators denied all other claims by Network 2000, including claims of fraud
and deceit.
Sprint filed an action in federal district court in Kansas City, Missouri,
seeking to have the arbitration panel's award vacated, modified, or corrected,
and asking the court to enter an order regarding the distribution of the award
among the defendants. In March 1997, Sprint deposited $61 million, which was
previously accrued, in the federal district court's account at a financial
institution. In April 1997, the court denied Sprint's request that the
arbitration award be vacated and granted Network 2000's request that the award
be confirmed. The distribution of the $61 million will be addressed by the court
in a separate order.
In the proposed class action, the IMRs seek to certify a class to pursue breach
of contract and tort claims against Network 2000 and Sprint. Sprint believes the
IMRs' contract claims have been or will be addressed by the arbitration panel's
award and the related federal court action filed by Sprint. Further, Sprint
believes the IMRs' tort claims are not appropriate for class action treatment.
Following the announcement in 1992 of Sprint's merger agreement with Centel
Corporation (Centel), class action suits were filed against Centel and certain
of its officers and directors in federal and state courts. The state suits were
dismissed. In June 1996, Centel and the other defendants were granted summary
judgment in the federal action. The plaintiffs have appealed the court's order.
In October 1995, the New York trial court granted the motion of Centel's
financial advisors to dismiss a purported class action suit filed against them
in connection with their representation of Centel in the merger. The order
dismissing the claims was affirmed on appeal by the intermediate appellate court
in New York. In March 1997, the court denied the plaintiff's request for
permission to appeal to New York's highest court. Sprint may have
indemnification obligations to the financial advisors in connection with this
suit.
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.
6. Supplemental Cash Flow Information and Noncash Activities
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--- ------------------------------
1997 1996
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions)
Cash paid for:
Interest (net of amounts capitalized)
<S> <C> <C>
Continuing operations $ 40.6 $ 54.2
--- ------------- -- -------------
Cellular division $ -- $ 21.0
--- ------------- -- -------------
Income taxes $ 8.2 $ 22.6
--- ------------- -- -------------
</TABLE>
On January 31, 1996, in connection with the formation of the Global One joint
venture, Sprint contributed cash, property, plant and equipment, and other
assets and liabilities of certain international operations to Global One. The
net book value of the noncash assets and liabilities contributed to Global One
totaled $73 million.
7
<PAGE>
7. Spin-off of Cellular Division
In March 1996, Sprint completed the tax-free spin-off of Cellular (Spin-off) to
the holders of Sprint common stock. The Spin-off was effected by distributing to
all holders of Sprint common stock all shares of Cellular common stock at a rate
of one share of Cellular common stock for every three shares of Sprint common
stock held. In connection with the Spin-off, Cellular repaid $1.4 billion of
intercompany debt owed by Cellular to Sprint. In addition, Sprint contributed to
the equity capital of Cellular $185 million of debt owed by Cellular in excess
of the amount repaid.
8. Subsequent Events
In April 1997, Sprint's Board of Directors declared common and Class A common
stock dividends of $0.25 per share payable June 30, 1997.
In April 1997, Sprint signed an agreement to sell approximately 136,000
residential and business access lines in a small area of northwest Chicago and
10 nearby suburbs. Sprint expects to complete the sale of these properties,
which is subject to regulatory approval, in the 1997 third quarter.
9. Recently Issued Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). This
new standard simplifies the calculation of EPS and makes the U.S. standard for
computing EPS more comparable with international accounting standards. Sprint
will adopt SFAS 128 in its 1997 year-end financial statements. This standard is
not expected to have a material effect on Sprint's reported EPS.
8
<PAGE>
PART I.
Item 2.
SPRINT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Sprint Corporation and its subsidiaries (Sprint) include certain estimates,
projections and other forward-looking statements in their reports, as well as in
presentations to analysts and others, and in other material disseminated to the
public. There can be no assurances of future performance. Actual results may
differ materially from those in the forward-looking statements. Factors that
could cause actual results to differ materially from estimates or projections
contained in the forward-looking statements include:
- the effects of vigorous competition in the markets in which Sprint
operates;
- the cost of entering new markets necessary to provide seamless
services;
- the risks related to Sprint's investments in Global One and Sprint
Spectrum L.P. (Sprint PCS), which are presently in the early stages
of development;
- the impact of any unusual items resulting from ongoing evaluations of
Sprint's business strategies;
- requirements imposed on Sprint and its competitors by the Federal
Communications Commission (FCC) and state regulatory commissions under
the Telecommunications Act of 1996;
- unexpected results of litigation filed against Sprint; and
- the possibility of one or more of the markets in which Sprint competes
being impacted by variations in political, economic or other factors
such as monetary policy, legal and regulatory changes or other
external factors over which Sprint has no control.
Sprint's principal activities consist of the following:
Long Distance Communications Services. The long distance division is the
nation's third largest long distance telephone company. It operates a
nationwide, all-digital long distance communications network that uses
state-of-the-art fiber-optic and electronic technology. The division primarily
provides domestic and international voice, video and data communications
services. The division offers its services to the public subject to different
levels of state and federal regulation.
Local Communications Services. The local division consists of regulated local
exchange carriers (LECs) that serve more than 7 million access lines in 19
states. The division provides local exchange services, access by telephone
customers and other carriers to Sprint's local exchange facilities, sales of
telecommunications equipment, and long distance services within specified
geographical areas.
Product Distribution and Directory Publishing. 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.
Emerging Businesses. Emerging businesses consists of consumer Internet access
services, competitive local exchange carrier (CLEC) services, international
development activities (outside the scope of Global One), and personal
communication services (PCS) controlled by Sprint.
9
<PAGE>
Strategic Alliances
Global One
Sprint is a partner in Global One, a joint venture with Deutsche Telekom AG (DT)
and France Telecom (FT) to provide seamless global telecommunications services
to business, residential and carrier markets worldwide. Sprint is a one-third
partner in Global One's operating group serving Europe (excluding France and
Germany) and is a 50% partner in Global One's operating group for the worldwide
activities outside the United States and Europe.
In connection with the formation of the Global One joint venture on January 31,
1996, the long distance division contributed certain assets and related
operations of its international business unit to Global One.
On January 31, 1996, DT and FT acquired shares of a new class of convertible
preference stock for a total of $3.0 billion. This resulted in DT and FT each
holding 7.5% of Sprint's voting power. In April 1996, following the March 1996
spin-off of Sprint's cellular and wireless communications services division
(Cellular), the preference stock was converted into Class A common stock, and DT
and FT each acquired additional shares of Class A common stock. Following their
total investment of $3.7 billion, DT and FT each own shares of Class A common
stock with 10% of Sprint's voting power.
Sprint PCS
Sprint is a 40% partner in Sprint PCS, a partnership with Tele-Communications
Inc., Comcast Corporation and Cox Communications, Inc. Sprint PCS is building
the nation's first single technology, all digital, state-of-the-art, wireless
network to provide PCS across the United States. PCS uses digital technology,
which has sound quality superior to existing cellular technology and is less
susceptible to interference and eavesdropping. In addition, PCS offers enhanced
features, such as paging, voice mail, Caller ID and data transmission. Through
April 1997, Sprint PCS had launched service in 32 cities, with an additional 33
cities expected to be launched during 1997.
As part of an overall strategy to increase PCS coverage, Sprint directly
acquired the rights to PCS licenses in the FCC's most recent auction. The
licenses cover 139 markets across the United States reaching a total population
of 70 million people. Sprint expects to affiliate these licenses with Sprint
PCS. With this affiliation, licensed coverage for Sprint-branded PCS will
include nearly 260 million people across the United States, Puerto Rico and the
U.S. Virgin Islands.
Beginning in 1996, discussions have taken place among the partners concerning
the possible restructuring of their interests in Sprint PCS. Although
discussions have continued, there is no certainty they will result in any change
to the partnership structure.
10
<PAGE>
Results Of Operations
Consolidated
Sprint's two core operating divisions -- long distance and local -- generated
improved net operating revenues and operating income in the 1997 first quarter
compared with the same period a year ago. During the past 12 months, long
distance traffic volumes increased 14% and access lines served by the local
division grew 5.5%.
Total net operating revenues for the 1997 first quarter increased 7% to $3.6
billion from $3.4 billion for the first quarter a year ago. Income from
continuing operations was $290 million ($0.67 per share) for the 1997 first
quarter versus $312 million ($0.78 per share) for the 1996 first quarter.
Long Distance Communications Services
<TABLE>
<CAPTION>
Selected Operating Results (dollars in millions)
----------------------------------------------------------------------
Three Months Ended
March 31, Variance
---------------------------------- -------------------------------
1997 1996 Dollar %
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -----------------
<S> <C> <C> <C> <C>
Net operating revenues $ 2,172.4 $ 2,001.5 $ 170.9 8.5%
Operating expenses
Interconnection 1,007.4 892.7 114.7 12.8%
Operations 275.8 259.3 16.5 6.4%
Selling, general and administrative 471.1 469.2 1.9 0.4%
Depreciation and amortization 166.6 152.7 13.9 9.1%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 1,920.9 1,773.9 147.0 8.3%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 251.5 $ 227.6 $ 23.9 10.5%
--- ------------- -- ------------- --- -------------
Operating margin 11.6% 11.4%
--- ------------- -- -------------
</TABLE>
On January 31, 1996, the long distance division contributed certain
international assets and related operations to Global One. Accordingly, the
operating results of the contributed operations have been reflected in the
division's operating results only through the date of contribution. Had this
contribution occurred as of January 1, 1996, operating income for the 1997 first
quarter would have increased an estimated 7% from the same period a year ago.
The related 1996 first quarter operating margin would have been an estimated
11.9%.
Net operating revenues for 1997 increased 9% mainly due to strong minute growth
and increased data services revenue compared with the first quarter a year ago.
Revenue growth was partly offset by an increase in the bad debt provision, which
is consistent with a nationwide increase in consumer bad debt. Management has
taken steps to ensure Sprint's credit extension policies are sound. In addition,
1996 revenues reflect a seasonal boost from carrying the Internal Revenue
Service 800 help line traffic, a service Sprint no longer provides.
Traffic volumes increased 14% from the 1996 first quarter mainly driven by
strong minute growth in the business and wholesale markets. Residential minute
growth rates were modest primarily due to increased competition.
11
<PAGE>
Revenue growth in the business market reflects increased calling volumes for
domestic WATS, toll-free and international traffic. In addition, the
small-to-medium business market increased largely due to the continuing success
of the division's small business product, Fridays Free, which has been extended
through the year 2000. Revenue growth in the data services market, which
includes sales of capacity on Sprint's network to Internet service providers,
reflects increased demand and expanded service offerings. The wholesale market
experienced strong growth in both international and domestic markets.
Interconnection costs consist of amounts paid to LECs, other domestic service
providers, and foreign telephone companies to complete calls made by the
division's domestic customers. First quarter 1997 interconnection costs
increased 13% from the same period a year ago mainly due to increased
international outbound and domestic traffic volumes. The increase was partly
offset by reduced rates charged by other domestic and international carriers for
connecting to their networks. Interconnection costs as a percentage of net
operating revenues were 46.4% for the 1997 first quarter versus 44.6% for the
same period a year ago. The higher percentage reflects changes in revenue mix,
particularly the growth in international traffic, and lower revenue yields due
to competitive pricing and a higher bad debt provision.
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 1997 first quarter increased 6% from the same period a year ago.
This increase is mostly due to increased costs of providing telecommunications
services for public payphones as well as increased commissions paid for the
right to provide long distance services in places such as hotels, universities
and government agencies.
Selling, general and administrative (SG&A) expense for the 1997 first quarter
increased less than 1% compared with the same period a year ago. This increase
was generally due to costs related to marketing efforts, which continue to be
important in the intensely competitive long distance marketplace.
Depreciation and amortization expense increased 9% for the 1997 first quarter
from the same period a year ago generally due to an increased asset base. The
increased asset base supports data revenue growth and improved transport
capacity resulting from the deployment of the synchronous optical network
(SONET).
12
<PAGE>
Local Communications Services
<TABLE>
<CAPTION>
Selected Operating Results (dollars in millions)
---------------------------------------------------------------------
Three Months Ended
March 31, Variance
--- ------------------------------ ------------------------------
1997 1996 Dollar %
- -------------------------------------------- --- ------------- -- ------------- --- ------------- ----------------
Net operating revenues
<S> <C> <C> <C> <C>
Local service $ 551.8 $ 496.9 $ 54.9 11.0%
Network access 478.6 460.0 18.6 4.0%
Toll service 91.1 113.5 (22.4) (19.7)%
Other 193.2 170.2 23.0 13.5%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total net operating revenues 1,314.7 1,240.6 74.1 6.0%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating expenses
Plant operations 339.6 330.9 8.7 2.6%
Depreciation and amortization 231.4 226.1 5.3 2.3%
Customer operations 172.3 153.4 18.9 12.3%
Other 203.1 197.8 5.3 2.7%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 946.4 908.2 38.2 4.2%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 368.3 $ 332.4 $ 35.9 10.8%
--- ------------- -- ------------- --- -------------
Operating margin 28.0% 26.8%
--- ------------- -- -------------
</TABLE>
Local service revenues, derived from local exchange services, increased 11% for
the 1997 first quarter from the same period a year ago reflecting a 5.5%
increase in customer access lines during the past 12 months. The growth in
access lines reflects economic growth in the division's service areas and
second-line service to existing business and residential customers to meet
lifestyle and data access needs. Local service revenues also increased due to
extended local area calling plans and increased demand for advanced intelligent
network services, including Caller ID, voice dialing and return call.
Network access revenues, derived from interexchange long distance carriers' use
of the local network to complete calls, increased 4% for the 1997 first quarter
from the same period a year ago. The increase was mostly due to minute growth of
more than 5%. First quarter 1996 network access revenues reflect increased
calling volumes during the harsh 1996 winter season experienced in several of
the division's operating areas.
Toll service revenues, mainly derived from providing long distance services
within specified geographical areas, declined 20% for the 1997 first quarter
from the same period a year ago. The decrease was mainly due to extended local
area calling plans and increased competition in the intrastate long distance
market since interexchange long distance carriers are now competing to provide
intraLATA long distance services in certain states. In the 1996 first quarter,
the division was reselling interexchange long distance services in certain of
its service areas. This service was phased out through early 1997; as a result,
many of those customers have become customers of Sprint's long distance
division. The decline in toll revenues was partly offset by increases in the
division's local service and network access revenues.
Other revenues, including revenues from sales of telecommunications equipment,
directory publishing fees, and billing and collection services, increased 14%
for the 1997 first quarter from the same period a year ago. The increase was
mainly due to increased equipment sales in both the consumer and business
markets.
13
<PAGE>
Plant operations expense includes network operations, and repair and maintenance
costs of property, plant and equipment. Plant operations expense increased 3%
for the 1997 first quarter compared with the same period a year ago primarily
due to increased service costs related to access line growth. Plant operations
expense for the 1996 first quarter reflects access charges for reselling
interexchange long distance services, which the division phased out through the
1997 first quarter.
Depreciation and amortization expense increased 2% for the 1997 first quarter
compared with the same 1996 period mainly due to plant additions.
Customer operations expense includes costs related to business office
operations, billing services, marketing costs, and customer services, including
operator and directory assistance. Customer operations expense increased 12% for
the 1997 first quarter compared with the same period a year ago. The increase
was mainly due to increased marketing costs to promote products and services and
customer support related to the overall growth in access lines.
Other operating expenses increased 3% for the 1997 first quarter compared with
the same period a year ago. The increase is mainly due to the growth in
equipment sales, partly offset by cost savings related to the restructuring of
the division's finance function that was initiated in 1995.
In April 1997, Sprint signed an agreement to sell approximately 136,000
residential and business access lines in a small area of northwest Chicago and
10 nearby suburbs. Sprint expects to complete the sale of these properties,
which is subject to regulatory approval, in the 1997 third quarter.
Product Distribution and Directory Publishing Businesses
<TABLE>
<CAPTION>
Selected Operating Results (dollars in millions)
----------------------------------------------------------------------
Three Months Ended
March 31, Variance
--- ------------------------------ ------------------------------
1997 1996 Dollar %
- -------------------------------------------- --- ------------- -- ------------- --- ------------- ----------------
Net operating revenues
<S> <C> <C> <C> <C>
Non-affiliated $ 212.2 $ 205.0 $ 7.2 3.5%
Affiliated 97.6 84.7 12.9 15.2%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total net operating revenues 309.8 289.7 20.1 6.9%
Operating expenses
Costs of services and products 259.3 241.8 17.5 7.2%
Selling, general and administrative 21.7 22.0 (0.3) (1.4)%
Depreciation and amortization 1.8 1.8 -- --
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 282.8 265.6 17.2 6.5%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 27.0 $ 24.1 $ 2.9 12.0%
--- ------------- -- ------------- --- -------------
Operating margin 8.7% 8.3%
--- ------------- -- -------------
</TABLE>
Product distribution and directory publishing's net operating revenues increased
7% for the 1997 first quarter from the same period a year ago mainly due to
increased equipment sales to affiliated customers.
14
<PAGE>
Emerging Businesses
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------
Three Months Ended
March 31,
----------------------------------
1997 1996
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions)
<S> <C> <C>
Net operating revenues $ 2.8 $ --
--- ------------- -- -------------
Operating loss $ (32.8) $ (1.3)
--- ------------- -- -------------
</TABLE>
During the 1996 fourth quarter, Sprint established a new emerging businesses
segment consisting of consumer Internet access services, CLEC services,
international development activities (outside the scope of Global One), and PCS
controlled by Sprint.
The 1997 operating results largely reflect activities related to the development
of Sprint Internet access services. In the 1997 first quarter, Sprint launched
Sprint Internet Private Passport(SM), an extension of Sprint Internet Passport
(SM), Sprint's consumer Internet offering. Sprint Internet Private Passport
provides customized, private Internet access services for key communities such
as businesses and on-line game players. Sprint's Internet access platform
currently consists of more than 230 points of presence and can be reached by 85%
of the nation's population through a local call.
The 1997 operating results also reflect Sprint's efforts in entering newly
competitive domestic and international markets. Sprint has initiated efforts to
enter local markets across the United States by filing for CLEC status. Through
April 1997, Sprint had filed in 48 states and the District of Columbia, and
gained regulatory approval to provide CLEC service in 36 states and the District
of Columbia.
As part of an overall strategy to achieve nationwide PCS coverage, Sprint
directly acquired licenses in the recent FCC auction for a total of $544
million. The licenses cover 139 markets across the United States, reaching a
total population of 70 million people. Sprint currently expects to spend
approximately $1.5 billion over the next three years for the network build out.
Sprint plans to affiliate these licenses with the licenses previously acquired
by Sprint PCS. With this affiliation, licensed coverage for Sprint-branded PCS
will include nearly 260 million people across the United States, Puerto Rico and
the U.S. Virgin Islands.
15
<PAGE>
Non-Operating Items
Interest Expense
Interest costs consist of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--- ------------------------------
1997 1996
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions)
<S> <C> <C>
Interest expense from continuing operations $ 44.8 $ 47.7
Interest costs related to Cellular operations -- 21.5
Capitalized interest costs 29.0 24.4
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total interest costs $ 73.8 $ 93.6
--- ------------- -- -------------
Average debt outstanding $ 3,226.4 $ 4,106.3
--- ------------- -- -------------
Effective interest rate 9.1% 9.1%
--- ------------- -- -------------
</TABLE>
The decrease in average debt outstanding is mainly due to debt repayments funded
by the cash received from DT and FT for their equity investment in Sprint as
well as the cash received from Cellular to repay intercompany debt in connection
with Sprint's spin-off of Cellular (Spin-off). Interest expense related to
Cellular's operations has been included in "Discontinued operation, net" on the
1996 Consolidated Statement of Income.
Sprint capitalizes interest costs on borrowings related to its investment in
Sprint PCS. Capitalized interest costs increased from the 1996 first quarter due
to Sprint's increased investment in Sprint PCS. Sprint will continue to
capitalize these interest costs as long as Sprint PCS meets the criteria of a
development-stage company, which is not expected beyond mid-1997.
Beginning in 1997, Sprint began capitalizing interest costs on its investment in
PCS licenses directly acquired in the recent FCC auction.
Other Income, Net
Other income, net consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--- ------------------------------
1997 1996
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions)
<S> <C> <C>
Dividend and interest income $ 27.1 $ 12.4
Loss on sales of accounts receivable -- (4.2)
Other 7.8 3.4
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total other income, net $ 34.9 $ 11.6
--- ------------- -- -------------
</TABLE>
The increase in interest and dividend income reflects income earned on the cash
received from DT and FT for their equity investment in Sprint as well as
Cellular's repayment of intercompany debt in connection with the Spin-off.
16
<PAGE>
Income Tax Provision
See Note 3 of Condensed Notes to Consolidated Financial Statements for the
differences that cause the effective income tax rate to vary from the statutory
federal income tax rate.
Financial Condition
Sprint's consolidated assets totaled nearly $17 billion at March 31, 1997 and
year-end 1996. Net property, plant and equipment increased $150 million since
year-end 1996 mainly due to increased capital expenditures to support the core
long distance and local networks and expanded product and service offerings.
Investments in and advances to affiliates decreased $124 million since year-end
1996 mainly due to Sprint's share of net losses incurred by affiliates. Accounts
payable decreased $125 million during the same period generally due to the
payment of expenditures that had been accrued as of year-end 1996. Short-term
borrowings decreased $100 million due to the repayment of a note payable.
Sprint's debt-to-capital ratio improved to 26.4% at March 31, 1997 versus 27.7%
at year-end 1996.
Liquidity and Capital Resources
Cash Flows - Operating Activities
Cash flows from the operating activities of Sprint's continuing operations were
$700 million during the 1997 first quarter versus $163 million during the same
period a year ago. Excluding the effect of terminating a $600 million accounts
receivable sales agreement in the 1996 first quarter, first quarter 1997 cash
flows from continuing operations decreased $63 million generally due to greater
working capital requirements.
Cash Flows - Investing Activities
Investing activities of Sprint's continuing operations used cash of $580 and
$597 million during the 1997 and 1996 first quarters, respectively. Capital
expenditures were $574 and $479 million during the first three months of 1997
and 1996, respectively. Long distance capital expenditures totaled $223 million
for the 1997 first quarter versus $143 million for the same period a year ago.
The 1997 expenditures were incurred mainly to enhance network reliability, to
upgrade capabilities for providing new products and services and to meet
increased demand for data-related services. Capital expenditures for the local
division totaled $321 million for the 1997 first quarter versus $328 million for
the same period a year ago. The 1997 capital expenditures were made to
accommodate access line growth and to expand the division's capabilities for
providing enhanced telecommunications services.
During the 1997 first quarter, Sprint paid $25 million related to the PCS
licenses it directly acquired in the recent FCC auction.
During the 1997 and 1996 first quarters, Sprint contributed $16 and $45 million,
respectively, to Sprint PCS. These contributions were used to fund Sprint's
portion of Sprint PCS' capital and operating requirements. An advance to Sprint
PCS totaling $67 million was repaid during the 1997 first quarter.
In connection with the March 1996 spin-off of Cellular, Cellular repaid $1.4
billion of intercompany debt to Sprint. Prior to the spin-off, Cellular's 1996
investing activities required net cash of $141 million, primarily to acquire
additional cellular properties and to fund capital expenditures.
17
<PAGE>
Cash Flows - Financing Activities
Financing activities used cash of $211 million during the 1997 first quarter and
provided cash of $767 million in the same period a year ago. Financing
activities during 1997 mainly reflect the repayment of short-term debt and
dividend payments of $100 million each. In January 1996, DT and FT acquired
shares of a new class of Sprint stock for a total of $3.0 billion. These
proceeds, together with the $1.4 billion received from Cellular as discussed
above, were used to reduce outstanding debt, meet commitments related to Sprint
PCS and terminate the accounts receivable sales agreement. The remaining
proceeds were invested on a temporary basis.
Capital Requirements
Sprint expects its 1997 investing activities, consisting of capital expenditures
and investments in affiliates, to require cash of $4.5 to $5.0 billion. In
addition, Sprint expects to pay dividends totaling $430 million. Sprint intends
to fund these 1997 cash requirements with cash from operating activities,
temporary investments, and from external sources.
Capital expenditures of $4.1 to $4.4 billion are anticipated in 1997. Capital
expenditures for the long distance and local divisions are expected to total
$2.5 billion. In the second quarter, Sprint expects to pay $435 million for the
balance due on the PCS licenses directly acquired in the recent FCC auction. The
balance of anticipated capital expenditures will primarily be used to build out
the network for these new PCS markets and the emerging CLEC markets.
Sprint expects to invest $400 to $600 million in its affiliates during 1997.
Sprint PCS will require $350 to $500 million in 1997 to continue its network
build out and for operating cash requirements. Sprint also expects Global One to
require partner contributions for ongoing development activities.
Sprint expects to borrow $1.0 to $1.5 billion during 1997. A combination of
long- and short-term borrowings will be used depending on capital market
conditions during the year.
Liquidity
As of March 31, 1997, Sprint had the ability to borrow $1.4 billion 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 $900 million of debt securities pursuant to shelf registration statements
filed with the Securities and Exchange Commission.
Additional borrowings that may be incurred is ultimately limited by certain
covenants contained in existing debt agreements. As of March 31, 1997, Sprint
had borrowing capacity of $13.7 billion under the most restrictive of its debt
covenants.
The most restrictive covenant related to dividends results from Sprint's
revolving credit agreement. Among other restrictions, the agreement requires
Sprint to maintain specified levels of consolidated net worth. Due to this
requirement, $2.6 billion of Sprint's $3.4 billion retained earnings were
effectively restricted from the payment of dividends as of March 31, 1997.
18
<PAGE>
General Hedging Policies
Sprint uses certain derivative instruments in an effort to manage exposure to
interest rate and foreign exchange risk. Sprint's use of these derivative
instruments related to hedging activities is limited to interest rate swap
agreements, interest rate caps and forward contracts and options in foreign
currencies. As is customary for these types of derivative instruments, Sprint
does not require collateral or other security from the counterparties to the
agreements. However, since Sprint controls its exposure to credit risk through
credit approvals, credit limits, and internal monitoring procedures, Sprint
believes its credit risk exposure is limited.
Sprint will in no circumstance take speculative positions and create an exposure
to benefit from market fluctuations. All hedging activity is in accordance with
Board-approved policies. Any exposure from Sprint's use of derivative
instruments is immaterial to its overall operations, financial condition and
liquidity.
Interest Rate Risk Management
Sprint's interest rate risk management program focuses on minimizing exposure to
interest rate movements, setting an optimal mixture of floating-rate and
fixed-rate debt in the liability portfolio and preventing liquidity risk. Sprint
primarily employs a gap methodology to measure interest rate exposure and uses
simulation analysis to manage interest rate risk. Sprint takes an active stance
in modifying hedge positions to benefit from the value of timing flexibility and
fixed- and floating-rate adjustments.
Foreign Exchange Risk Management
Sprint's foreign exchange risk management program focuses on optimizing
consolidated cash flows and stabilizing accounting results. Sprint does not
hedge translation exposure because it believes optimizing consolidated cash
flows will, over time, maintain shareholder value. Sprint's primary transaction
exposure in foreign currencies results from changes in foreign exchange rates
between the dates Sprint incurs and settles liabilities (payable in a foreign
currency). These liabilities consist of charges from overseas telephone
companies for terminating international calls made by Sprint's domestic
customers.
Impact of Recently Issued Accounting Pronouncements
See Note 9 of Condensed Notes to Consolidated Financial Statements for a
discussion of a recently issued accounting pronouncement.
19
<PAGE>
PART II.
Other Information
Item 1. Legal Proceedings
In March 1997, the intermediate appellate court in New York denied the
plaintiffs' request for permission to appeal to New York's highest
court the dismissal of their suit filed against Centel's financial
advisors in connection with the Sprint/Centel merger (reported in
Sprint's 1996 Annual Report on Form 10-K).
Item 2. Changes in Securities
There were no reportable events during the quarter ended March 31,
1997.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended March 31,
1997.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting
On April 15, 1997, Sprint held its Annual Meeting of Shareholders. In
addition to the election of four Class II Directors to serve for a term
of three years, the shareholders (i) approved performance goals under
which executives earn incentive compensation so as to preserve Sprint's
tax deductions for such compensation, (ii) approved the 1997 Long-Term
Stock Incentive Program, and (iii) approved the appointment of Ernst &
Young LLP as independent auditors for Sprint. The shareholders did not
approve three shareholder proposals.
The following votes were cast for each of the following nominees for
Director or were withheld with respect to such nominees:
<TABLE>
<CAPTION>
For Withheld
------------------------- ------------- ---------------------- ---------------- -------------------
<S> <C> <C>
Ruth M. Davis 280,403,136 4,302,951
Harold S. Hook 280,651,063 4,055,024
Ronald T. LeMay 280,640,566 4,065,521
Charles E. Rice 280,568,772 4,137,315
</TABLE>
The following votes were cast with respect to the proposal to approve
performance goals under which certain executives earn incentive
compensation so as to preserve Sprint's tax deduction under Section
162(m) of the Internal Revenue Code:
For 352,908,821
Against 15,515,858
Abstain 2,517,307
Broker non-votes 137
20
<PAGE>
The following votes were cast with respect to the proposal to approve
the 1997 Long-Term Stock Incentive Program:
For 226,977,081
Against 104,409,231
Abstain 2,371,394
Broker non-votes 37,184,417
The following votes were cast with respect to the proposal to approve
the appointment of Ernst & Young LLP as independent auditors of Sprint
for 1997:
For 367,152,592
Against 2,503,968
Abstain 1,284,563
Broker non-votes 1,000
The following votes were cast with respect to a shareholder proposal
requesting that the Board of Directors of Sprint refrain from providing
pension or other retirement benefits to non-employee directors unless
such benefits are submitted to the shareholders for approval:
For 89,619,212
Against 240,598,147
Abstain 3,540,347
Broker non-votes 37,184,417
The following votes were cast with respect to a shareholder proposal
recommending that the Board of Directors take steps to implement a plan
limiting increases in total cash compensation of executive officers to
an amount no greater than the average pay increase granted to Sprint
employees annually:
For 15,977,514
Against 313,915,406
Abstain 3,864,786
Broker non-votes 37,184,417
The following votes were cast with respect to a shareholder proposal
urging the Board of Directors to take the necessary steps to declassify
the Board for the purpose of director elections:
For 121,279,737
Against 208,741,661
Abstain 3,736,308
Broker non-votes 37,184,417
21
<PAGE>
Item 5. Other Information
Sprint's ratios of earnings to fixed charges were 6.41 and 5.89 for the
1997 and 1996 first quarters, respectively. These ratios were
computed by dividing fixed charges into the sum of (a) income from
continuing operations before taxes, less capitalized interest and
equity in losses of less than 50% owned entities included in income,
and (b) fixed charges. Fixed charges consist of interest on all
indebtedness of continuing operations (including amortization of debt
issuance expenses), the interest component of operating rents and the
pre-tax cost of preferred stock dividends of subsidiaries.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(10) Executive Compensation Plans and Arrangements
(a) 1997 Long-Term Stock Incentive Program (filed as
Exhibit 99 to Sprint's Registration Statement No.
33-25449 and incorporated herein by reference)
(11) Computation of Earnings Per Common Share
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedules
(a) March 31, 1997 Financial Data Schedule
(b) December 31, 1996 Restated Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
22
<PAGE>
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: May 6, 1997
23
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
(10) Executive Compensation Plans and Arrangements
(a) 1997 Long-Term Stock Incentive Program (filed as
Exhibit 99 to Sprint's Registration Statement No.
33-25449 and incorporated herein by reference)
(11) Computation of Earnings Per Common Share
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedules
(a) March 31, 1997 Financial Data Schedule
(b) December 31, 1996 Restated Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT (11)
SPRINT CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (UNAUDITED)
(in millions, except per share data)
Three Months Ended
March 31,
-- ---------------------------
1997 1996
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
Primary earnings per share (EPS)
<S> <C> <C>
Income from continuing operations $ 290.0 $ 312.2
Preferred stock dividends (0.3) (0.5)
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
289.7 311.7
Discontinued operation, net -- (2.9)
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
Earnings applicable to common stock $ 289.7 $ 308.8
-- ------------ -- -----------
Weighted average common shares (1) 434.8 400.3
-- ------------ -- -----------
Primary EPS
Continuing operations $ 0.67 $ 0.78
Discontinued operation -- (0.01)
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
Total $ 0.67 $ 0.77
-- ------------ -- -----------
Fully diluted EPS
Income from continuing operations, net of
preferred stock dividends $ 289.7 $ 311.7
Convertible preferred stock dividends 0.1 0.1
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
289.8 311.8
Discontinued operation, net -- (2.9)
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
Earnings as adjusted for purposes of computing
fully diluted earnings per share $ 289.8 $ 308.9
-- ------------ -- -----------
Weighted average common shares 434.8 400.3
Additional dilution for common stock equivalents
and dilutive securities 1.8 1.9
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
Total 436.6 402.2
-- ------------ -- -----------
Fully diluted EPS
Continuing operations $ 0.66 $ 0.78
Discontinued operation -- (0.01)
- --------------------------------------------------- --- ----------- -- ------------ -- ------------ -- -----------
Total $ 0.66 $ 0.77
-- ------------ -- -----------
<FN>
(1)Weighted average common shares have been adjusted for the assumed conversion
of convertible preference stock as of March 31, 1996, and for dilutive
common stock equivalents using the treasury stock method.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT (12)
SPRINT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
(dollars in millions)
Three Months Ended
March 31,
--- ------------------------------
1997 1996
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Earnings
<S> <C> <C>
Income from continuing operations
before taxes $ 485.2 $ 506.3
Capitalized interest (29.0) (24.4)
Equity in losses of less than 50% owned
entities 108.3 18.5
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Subtotal 564.5 500.4
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Fixed charges
Interest charges of continuing
operations 73.8 72.1
Interest factor of operating rents 30.5 30.2
Pre-tax cost of preferred stock
dividends of subsidiaries 0.1 0.1
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total fixed charges 104.4 102.4
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Earnings, as adjusted $ 668.9 $ 602.8
--- ------------- -- -------------
Ratio of earnings to fixed charges 6.41 5.89
--- ------------- -- -------------
<FN>
Note: The above ratios were computed by dividing fixed charges into the sum
of (a) income from continuing operations before taxes, less
capitalized interest and equity in losses of less than 50% owned
entities included in income, and (b) fixed charges. Fixed charges
consist of interest on all indebtedness (including amortization of debt
issuance expenses), the interest component of operating rents and the
pre-tax cost of preferred stock dividends of subsidiaries.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 1,060,200
<SECURITIES> 0
<RECEIVABLES> 2,685,000
<ALLOWANCES> 128,900
<INVENTORY> 227,100
<CURRENT-ASSETS> 4,298,500
<PP&E> 21,870,300
<DEPRECIATION> 11,256,000
<TOTAL-ASSETS> 16,955,000
<CURRENT-LIABILITIES> 3,157,100
<BONDS> 2,931,700
11,800
0
<COMMON> 1,091,300
<OTHER-SE> 7,618,400
<TOTAL-LIABILITY-AND-EQUITY> 16,955,000
<SALES> 0
<TOTAL-REVENUES> 3,618,900
<CGS> 0
<TOTAL-COSTS> 2,235,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,800
<INCOME-PRETAX> 485,200
<INCOME-TAX> 195,200
<INCOME-CONTINUING> 290,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290,000
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,150,600
<SECURITIES> 0
<RECEIVABLES> 2,580,900
<ALLOWANCES> 117,400
<INVENTORY> 214,500
<CURRENT-ASSETS> 4,352,800
<PP&E> 21,410,800
<DEPRECIATION> 10,946,700
<TOTAL-ASSETS> 16,946,300
<CURRENT-LIABILITIES> 3,314,200
<BONDS> 2,974,800
11,800
0
<COMMON> 1,091,300
<OTHER-SE> 7,428,600
<TOTAL-LIABILITY-AND-EQUITY> 16,946,300
<SALES> 0
<TOTAL-REVENUES> 14,044,700
<CGS> 0
<TOTAL-COSTS> 8,619,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,700
<INCOME-PRETAX> 1,911,900
<INCOME-TAX> 721,000
<INCOME-CONTINUING> 1,190,900
<DISCONTINUED> (2,600)
<EXTRAORDINARY> (4,500)
<CHANGES> 0
<NET-INCOME> 1,183,800
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.77
</TABLE>
