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, 1998
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
COMMON SHARES OUTSTANDING AT JUNE 30, 1998:
COMMON STOCK 343,840,537
CLASS A COMMON STOCK 86,236,036
<PAGE>
SPRINT CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
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Page
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Part I - Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Consolidated Statements of Cash Flows 4
Consolidated Statement of Common Stock and Other Shareholders'
Equity 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Part II - Other Information
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 28
Signature 29
Exhibits
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<TABLE>
<CAPTION>
PART I.
Item 1.
CONSOLIDATED BALANCE SHEETS SPRINT CORPORATION
(in millions, except per share data)
- -------------------------------------------------------------------------- -------------------- --- ----------------
June 30, December 31,
1998 1997
- -------------------------------------------------------------------------- -------------------- --- ----------------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash and equivalents $ 93.3 $ 101.7
Accounts receivable, net of allowance for doubtful accounts
of $159.7 and $146.7 2,492.6 2,495.6
Inventories 381.0 352.0
Prepaid expenses 228.0 159.1
Notes and other receivables 519.5 464.6
Other 178.3 199.6
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total current assets 3,892.7 3,772.6
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Investments in equity securities 367.4 303.0
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Property, plant and equipment
Long distance communications services 8,838.2 8,245.5
Local communications services 14,536.7 14,011.5
Other 1,888.2 953.9
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total property, plant and equipment 25,263.1 23,210.9
Less accumulated depreciation 12,375.4 11,716.8
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Net property, plant and equipment 12,887.7 11,494.1
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Investments in and advances to affiliates 1,158.3 1,427.5
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Other assets 1,484.6 1,187.6
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total $ 19,790.7 $ 18,184.8
---- --------------- ---- ---------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 115.8 $ 131.0
Accounts payable 1,251.7 1,100.1
Accrued interconnection costs 569.0 672.7
Accrued taxes 354.6 270.7
Advance billings 211.3 202.9
Other 704.0 699.4
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total current liabilities 3,206.4 3,076.8
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Construction obligations 474.8 -
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Long-term debt 4,406.2 3,748.6
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 979.9 1,016.5
Postretirement and other benefit obligations 1,068.1 947.4
Other 422.6 358.8
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total deferred credits and other liabilities 2,470.6 2,322.7
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Redeemable preferred stock 9.5 11.5
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Common stock and other shareholders' equity
Common stock, par value $2.50 per share, 1,000.0 shares authorized,
350.3 shares issued, and 343.9 and 343.8 shares outstanding 875.7 875.7
Class A common stock, par value $2.50 per share, 500.0 shares
authorized, 86.2 shares issued and outstanding 215.6 215.6
Capital in excess of par or stated value 4,479.0 4,457.7
Retained earnings 3,899.0 3,693.1
Treasury stock, at cost, 6.4 and 6.5 shares (343.0) (292.9)
Accumulated other comprehensive income 114.4 107.9
Other (17.5) (31.9)
- -------------------------------------------------------------------------- ---- --------------- ---- ---------------
Total common stock and other shareholders' equity 9,223.2 9,025.2
- --------------------------------------------------------------------------
---- --------------- ---- ---------------
Total $ 19,790.7 $ 18,184.8
---- --------------- ---- ---------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
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PART I.
Item 1.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) SPRINT CORPORATION
(in millions, except per share data)
- -------------------------------------------- ---------------------------------- ----------------------------------
Quarter Ended Year-to-Date
June 30, June 30,
- -------------------------------------------- ---------------------------------- ----------------------------------
1998 1997 1998 1997
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
<S> <C> <C> <C> <C>
Net Operating Revenues $ 3,967.2 $ 3,667.5 $ 7,878.1 $ 7,246.0
Operating Expenses
Costs of services and products 1,891.5 1,849.6 3,775.8 3,644.5
Selling, general and administrative 931.3 803.2 1,822.4 1,571.2
Depreciation and amortization 468.8 419.2 936.1 830.1
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total operating expenses 3,291.6 3,072.0 6,534.3 6,045.8
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Operating Income 675.6 595.5 1,343.8 1,200.2
Interest expense (61.3) (40.7) (128.0) (85.5)
Equity in loss of Global One (41.7) (23.6) (86.9) (47.3)
Equity in loss of Sprint PCS (226.3) (136.0) (436.0) (221.9)
Other income, net 17.3 19.8 38.5 54.7
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Income before income taxes and
extraordinary item 363.6 415.0 731.4 900.2
Income taxes (150.1) (159.1) (301.4) (354.3)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Income before extraordinary item 213.5 255.9 430.0 545.9
Extraordinary item, net - - (4.4) -
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Net Income 213.5 255.9 425.6 545.9
Preferred stock dividends (0.2) (0.2) (0.5) (0.5)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Earnings applicable to common stock $ 213.3 $ 255.7 $ 425.1 $ 545.4
--- ------------- -- ------------- --- ------------- -- -------------
Basic Earnings per Common Share
Income before extraordinary item $ 0.50 $ 0.59 $ 1.00 $ 1.27
Extraordinary item - - (0.01) -
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total $ 0.50 $ 0.59 $ 0.99 $ 1.27
--- ------------- -- ------------- --- ------------- -- -------------
Basic weighted average common shares 430.5 430.5 430.3 430.5
--- ------------- -- ------------- --- ------------- -- -------------
Diluted Earnings per Common Share
Income before extraordinary item $ 0.49 $ 0.59 $ 0.98 $ 1.25
Extraordinary item - - (0.01) -
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total $ 0.49 $ 0.59 $ 0.97 $ 1.25
--- ------------- -- ------------- --- ------------- -- -------------
Diluted weighted average common shares 439.5 436.5 439.0 436.2
--- ------------- -- ------------- --- ------------- -- -------------
Dividends per Common Share $ 0.25 $ 0.25 $ 0.50 $ 0.50
--- ------------- -- ------------- --- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) SPRINT CORPORATION
(in millions)
- -------------------------------------------- ---------------------------------- ----------------------------------
Quarter Ended Year-to-Date
June 30, June 30,
- -------------------------------------------- ---------------------------------- ----------------------------------
1998 1997 1998 1997
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Income $ 213.5 $ 255.9 $ 425.6 $ 545.9
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Other Comprehensive Income
Unrealized holding gains (losses) on
securities (5.1) 14.3 13.4 4.4
Tax (expense) benefit 1.9 (5.3) (4.8) (1.7)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Net unrealized holding gains (losses)
on securities (3.2) 9.0 8.6 2.7
Foreign currency translation adjustments (2.6) (0.5) (2.1) 5.8
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total other comprehensive income (5.8) 8.5 6.5 8.5
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Comprehensive Income $ 207.7 $ 264.4 $ 432.1 $ 554.4
--- ------------- -- ------------- --- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) SPRINT CORPORATION
(in millions)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Year-to-Date June 30, 1998 1997
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Operating Activities
<S> <C> <C>
Net income $ 425.6 $ 545.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in net losses of affiliates 521.9 271.0
Depreciation and amortization 936.1 830.1
Deferred income taxes and investment tax credits (16.9) 88.5
Changes in assets and liabilities:
Accounts receivable, net 3.0 (42.8)
Inventories and other current assets (29.2) (5.4)
Accounts payable and other current liabilities 142.7 (153.1)
Noncurrent assets and liabilities, net (52.9) 16.1
Other, net 2.8 (5.9)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash provided by operating activities 1,933.1 1,544.4
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Investing Activities
Capital expenditures (2,040.7) (1,268.1)
Purchase of PCS licenses - (433.7)
Investments in and advances to affiliates, net (451.0) (140.8)
Other, net (17.2) 14.3
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash used by investing activities (2,508.9) (1,828.3)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Financing Activities
Payments on long-term debt (164.6) (70.1)
Proceeds from long-term debt 495.2 -
Change in construction obligations 474.8 -
Change in short-term borrowings - (200.0)
Dividends paid (205.2) (188.6)
Treasury stock purchased (110.4) (73.8)
Other, net 77.6 57.5
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Net cash provided (used) by financing activities 567.4 (475.0)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Decrease in Cash and Equivalents (8.4) (758.9)
Cash and Equivalents at Beginning of Period 101.7 1,150.6
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Cash and Equivalents at End of Period $ 93.3 $ 391.7
--- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CONSOLIDATED STATEMENT OF COMMMON STOCK AND OTHER SHAREHOLDERS' EQUITY SPRINT CORPORATION
(Unaudited)
(in millions)
- -------------------------------------------------------------------------------------------------------------------
Year-to-Date June 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Capital
in
Excess Accumulated
Class A of Par Other
Common Common or Retained Treasury Comprehensive
Stock Stock Stated Earnings Stock Income Other Total
Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning 1998 Balance $ 875.7 $ 215.6 $ 4,457.7 $3,693.1 $ (292.9)$ 107.9 $ (31.9) $ 9,025.2
Net income - - - 425.6 - - - 425.6
Common stock dividends - - - (172.3) - - - (172.3)
Class A common stock
dividends - - - (43.1) - - - (43.1)
Treasury stock
purchased - - - - (110.4) - - (110.4)
Treasury stock issued - - 0.5 (5.7) 52.8 - - 47.6
Other, net - - 20.8 1.4 7.5 6.5 14.4 50.6
- -------------------------------------------------------------------------------------------------------------------
June 1998 Balance $ 875.7 $ 215.6 $ 4,479.0 $3,899.0 $ (343.0)$ 114.4 $ (17.5) $ 9,223.2
-------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements.
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<PAGE>
PART I.
Item 1.
CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) SPRINT CORPORATION
The information in this Form 10-Q has been prepared according to the rules and
regulations of the Securities and Exchange Commission. In management's opinion,
these consolidated interim financial statements reflect all adjustments
(consisting only of normal recurring accruals) necessary to present fairly
Sprint Corporation's consolidated financial position, results of operations and
cash flows.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared according to generally accepted accounting
principles (GAAP) have been condensed or omitted. These consolidated financial
statements should be read in connection with Sprint Corporation's 1997 annual
report on Form 10-K. Operating results for the 1998 year-to-date period are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
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
entities in which Sprint exercises significant influence, but does not control,
are accounted for using the equity method (see Note 3).
The consolidated financial statements are prepared according to 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.
Certain prior-year amounts have been reclassified to conform to the
current-period presentation. These reclassifications had no effect on the
results of operations or shareholders' equity as previously reported.
2. Restructuring and Recapitalization Plans
Sprint has entered into a restructuring agreement with Tele-Communications, Inc.
(TCI), Comcast Corporation (Comcast) and Cox Communications, Inc. (Cox)
(together, the Cable Parents) to restructure Sprint's wireless personal
communication services (PCS) operations (the PCS Restructuring). Sprint will
acquire the joint venture interests of TCI, Comcast and Cox in Sprint Spectrum
Holding Company, L.P. and MinorCo, L.P. (together, Sprint Spectrum Holdings) and
the joint venture interests of TCI and Cox in PhillieCo Partners I, L.P. and
PhillieCo Partners II, L.P. (together, PhillieCo). In exchange for these joint
venture interests, Sprint will issue to the Cable Parents a newly created class
of Sprint common stock (the PCS Stock). The PCS Stock is intended to reflect
separately the performance of these joint ventures and the domestic PCS
operations of Sprint's wholly-owned subsidiaries, SprintCom, Inc. and SprintCom
Equipment Company, L.P. (together, SprintCom). These operations, which after the
PCS Restructuring will be 100% owned by Sprint (subject to a 40.8% minority
interest in the entity holding the PCS license for and conducting operations in
the Los Angeles/San Diego/Las Vegas area), will be referred to as the PCS Group.
The FON Stock, which will be created in a tax-free recapitalization, is intended
to reflect the performance of all of Sprint's other operations, including its
long distance, local telecommunications, and product distribution and directory
publishing divisions, emerging businesses and its interest in Global One. These
operations will be referred to as the FON Group.
These transactions are subject to shareholder and regulatory approvals. The PCS
Restructuring is expected to close in the 1998 fourth quarter.
<PAGE>
3. Investments
Sprint is a 40% partner in Sprint Spectrum Holdings and a 47.1% partner in
PhillieCo (together, Sprint PCS). Sprint PCS is building the nation's first
single-technology, state-of-the-art wireless network to provide PCS across the
United States.
Sprint is also a partner in Global One, a joint venture with Deutsche Telekom AG
(DT) and France Telecom S.A. (FT) formed 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.
Combined, summarized financial information (100% basis) of all entities
accounted for using the equity method was as follows:
<TABLE>
<CAPTION>
Quarter Ended Year-to-Date
June 30, June 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions)
Results of operations
<S> <C> <C> <C> <C>
Net operating revenues $ 817.5 $ 555.9 $ 1,520.1 $ 988.1
--- ------------- -- ------------- --- ------------- -- -------------
Net operating loss $ (522.9) $ (416.4) $ (1,159.4) $ (734.8)
--- ------------- -- ------------- --- ------------- -- -------------
Net loss $ (637.1) $ (541.6) $ (1,376.8) $ (882.8)
--- ------------- -- ------------- --- ------------- -- -------------
Sprint's net losses in affiliates $ (265.8) $ (157.5) $ (521.3) $ (264.0)
--- ------------- -- ------------- --- ------------- -- -------------
</TABLE>
4. Income Taxes
The differences that caused Sprint's effective income tax rates to vary from the
statutory federal rate of 35% were as follows:
<TABLE>
<CAPTION>
Year-to-Date
June 30,
----------------------------------
1998 1997
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions)
<S> <C> <C>
Income tax expense at the statutory rate $ 256.0 $ 315.1
Less: Investment tax credits included in income 0.8 1.9
--- ------------- -- -------------
Expected federal income taxes after investment tax credits 255.2 313.2
Effect of:
State income taxes, net of federal income tax effect 26.7 30.7
Equity in losses of foreign joint ventures 19.8 12.1
Other, net (0.3) (1.7)
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Income tax expense, including investment tax credits $ 301.4 $ 354.3
--- ------------- -- -------------
Effective income tax rate 41.2% 39.4%
--- ------------- -- -------------
</TABLE>
<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. The remainder was directed to be paid to the Missouri
state court in which a proposed class action by Network 2000's independent
marketing representatives against Network 2000 and Sprint is pending.
In June 1997, Sprint recorded an additional $20 million charge related to the
settlement of both the class action lawsuit against Sprint and Network 2000 and
the related claims of Network 2000 against Sprint. In June 1998, the court
approved the class action settlement; however, a number of potential class
members decided not to participate in that settlement and another group of
potential class members appealed from the order that approved the settlement.
Various other suits arising in the ordinary course of business are pending
against Sprint. Management cannot predict the final 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
<TABLE>
<CAPTION>
Year-to-Date
June 30,
--- ------------------------------
1998 1997
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions)
Cash paid for:
<S> <C> <C>
Interest (net of amounts capitalized) $ 126.0 $ 89.7
--- ------------- -- -------------
Income taxes $ 224.0 $ 217.1
--- ------------- -- -------------
Noncash activity:
Capital lease obligations $ 256.1 $ 30.0
--- ------------- -- -------------
</TABLE>
7. Earnings per Share
Dilutive securities, such as options, included in the calculation of diluted
weighted average common shares were 8.7 and 5.7 million shares for the 1998 and
1997 year-to-date periods, respectively, and 9.0 and 6.0 million shares for the
1998 and 1997 second quarters, respectively.
8. Comprehensive Income
In 1998, Sprint adopted Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income includes all changes in equity during a period except those due to owner
investments and distributions. It includes items such as foreign currency
translation adjustments, and unrealized gains and losses on available-for-sale
securities. This standard does not change the display or components of
present-day net income; rather, comprehensive income is displayed as a separate
statement in the Consolidated Statements of Comprehensive Income and as an
additional component in the Consolidated Balance Sheets and the Consolidated
Statement of Common Stock and Other Shareholders' Equity.
<PAGE>
9. Recently Issued Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires all derivatives to be recorded on the balance sheet as either assets or
liabilities and measured at fair value. Gains or losses resulting from changes
in the values of the derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. Sprint will adopt
SFAS 133 beginning January 1, 2000. This statement is not expected to have a
material impact on Sprint.
10. Agreement for Sale of Properties
In April 1998, Sprint signed an agreement to sell approximately 79,000
residential and business access lines in rural Illinois. Sprint expects to
complete the sale of these properties, which is subject to regulatory approval,
and record the related gain in late 1998.
<PAGE>
PART I.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SPRINT CORPORATION
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Sprint Corporation, with its subsidiaries, (Sprint) includes certain estimates,
projections and other forward-looking statements in its reports, in
presentations to analysts and others, and in other publicly available material.
Future performance cannot be ensured. 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 and business risks associated with entering and expanding new
markets necessary to provide seamless services and to provide new
services;
- the risks related to Sprint's investments in Sprint Spectrum Holding
Company, L.P. and MinorCo, L.P.(together, Sprint Spectrum Holdings),
PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P.
(together, PhillieCo), Global One and other joint ventures;
- the impact of any unusual items resulting from ongoing evaluations of
Sprint's business strategies;
- requirements imposed on Sprint or latitude allowed its competitors by
the Federal Communications Commission (FCC) or state regulatory
commissions under the Telecommunications Act of 1996;
- unexpected results of litigation filed against Sprint;
- the impact of the Year 2000 issue and any related noncompliance; and
- the possibility of one or more of the markets in which Sprint
competes being impacted by changes in political, economic or other
factors such as monetary policy, legal and regulatory changes or other
external factors over which Sprint has no control.
The words "estimate", "project", "intend", "expect", "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Sprint undertakes no
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Moreover, Sprint, through senior management,
may from time to time make forward-looking statements about the matters
described herein or other matters concerning Sprint.
Strategic Initiatives
Restructuring and Recapitalization Plans
Sprint has entered into a restructuring agreement with Tele-Communications, Inc.
(TCI), Comcast Corporation (Comcast) and Cox Communications, Inc. (Cox)
(together, the Cable Parents) to restructure Sprint's wireless personal
communication services (PCS) operations (the PCS Restructuring). Sprint will
acquire the joint venture interests of TCI, Comcast and Cox in Sprint Spectrum
Holdings and the joint venture interests of TCI and Cox (together, the PhillieCo
Partners) in PhillieCo. In exchange for these joint venture interests, Sprint
will issue to the Cable Parents a newly created class of Sprint common stock
(the PCS Stock). The PCS Stock is intended to reflect separately the performance
of these joint ventures and the domestic PCS operations of Sprint's wholly-owned
subsidiaries, SprintCom, Inc. and SprintCom Equipment Company, L.P.
(together, SprintCom). These operations will be referred to as the PCS Group.
<PAGE>
The FON Stock, which will be created in a tax-free recapitalization, is intended
to reflect separately the performance of all of Sprint's other operations,
including long distance, local telecommunications, and product distribution and
directory publishing divisions, emerging businesses and its interest in Global
One. These operations will be referred to as the FON Group.
These transactions are subject to shareholder and regulatory approvals. The PCS
Restructuring is expected to close in the 1998 fourth quarter.
Integrated On-demand Network
In June 1998, Sprint announced its strategy to enter new local markets with its
Integrated On-demand Network (ION). ION is expected to extend Sprint's existing
advanced network capabilities to customer premises and enable Sprint to meet two
critical business needs, namely (a) to provide the network infrastructure to
meet customers' ever-increasing demands for data, Internet, and video use and
(b) to provide the foundation for Sprint to provide competitive local service.
Sprint will be assisted in this development effort by Cisco Systems and
Bellcore. These companies will be contributing their expertise and assisting in
the funding of these efforts. Additional infrastructure capital will be required
as demand for the services develops.
ION intends to rely substantially on the transmission infrastructure of the long
distance division and to a lesser extent on the transmission infrastructure of
the local telecommunications division. Where existing Sprint facilities do not
exist, ION will evaluate whether facilities should be built, leased or acquired.
Because a significant amount of future investment will be associated with
specific customer contracts, Sprint should be able to manage its investment in
ION to be consistent with customer demand.
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance telephone
company. It operates a nationwide, all-digital long distance communications
network using state-of-the-art fiber-optic and electronic technology. The
division provides domestic and international voice, video and data
communications services.
Local Division
The local division consists of regulated local exchange carriers (LECs) serving
more than 7.5 million access lines in 19 states. It 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 regional calling areas, or local access transport
areas (LATAs).
Product Distribution and Directory Publishing Division
The product distribution and directory publishing businesses provide wholesale
distribution services of telecommunications products, and publish and market
white and yellow page telephone directories.
Emerging Businesses
Emerging businesses consists of competitive local exchange carrier (CLEC)
services, Sprint Paranet, SprintCom, and Sprint International. Emerging
businesses also includes consumer Internet access services prior to the closing
of the Earthlink transaction (see "Segmental Results of Operations - Emerging
Businesses" for more information).
<PAGE>
Strategic Alliances
Global One
Sprint is a partner in Global One, a joint venture with Deutsche Telekom AG (DT)
and France Telecom S.A. (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 a 50% partner in Global One's operating group for the
worldwide activities outside the United States and Europe.
DT and FT each own 10% of Sprint's voting equity through Sprint's Class A common
stock. As Class A common shareholders, they have the right in most cases to
proportionate representation on Sprint's Board of Directors. They may also
purchase additional Class A common shares from Sprint to keep their ownership
level at 10% each.
Sprint PCS
Sprint is a 40% partner in Sprint Spectrum Holdings and a 47.1% partner in
PhillieCo (together, Sprint PCS). 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. PCS also offers features such as voice
mail, Caller ID, Call Waiting and Three-way Calling. Sprint PCS offers service
to 156 metropolitan markets with 108 million people.
As part of an overall strategy to increase PCS coverage, Sprint directly
acquired the rights to PCS licenses covering 139 markets across the United
States. These licenses reach a total population of 70 million people. Sprint PCS
and Sprint have licensed PCS coverage of nearly 260 million people across the
United States, Puerto Rico and the U.S. Virgin Islands.
In May 1998, Sprint announced it had reached an agreement with the Cable Parents
to restructure the ownership interests of Sprint PCS. See "Strategic Initiatives
- - Restructuring and Recapitalization Plans" for more information.
Results Of Operations
Consolidated
Total net operating revenues for the 1998 second quarter increased 8% to $4.0
billion from $3.7 billion for the same period a year ago. Net income was $214
million ($0.50 per basic share) versus $256 million ($0.59 per basic share) for
the 1997 second quarter. The 1997 second quarter includes a $0.03 per share
charge related to litigation in the long distance division.
Net operating revenues for the first six months of 1998 increased 9% to $7.9
billion from $7.2 billion for the same 1997 period. Net income was $426 million
($0.99 per basic share) versus $546 million ($1.27 per basic share) in 1997. Net
income for 1998 includes a $0.01 per share extraordinary charge related to the
early extinguishment of debt, while 1997 includes the $0.03 per share charge
related to litigation.
Core Businesses
Sprint's core businesses generated improved 1998 second quarter net operating
revenues and operating income compared with the same 1997 period. Core results
exclude the impact from joint ventures and emerging businesses. Both second
quarter and year-to-date 1998 long distance calling volumes increased 12% from
the same 1997 periods. Access lines served by the local division increased 3.4%
during the past 12 months. Excluding the sale of exchanges in the 1997 fourth
quarter, access line growth would have been 5.4%.
<PAGE>
Segmental Results of Operations
Long Distance Division
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------------------------------------------
Quarter Ended
June 30, Variance
---------------------------------- -------------------------------
1998 1997 Dollar %
- -------------------------------------------- ----------------- ---------------- --- ------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 2,381.7 $ 2,218.6 $ 163.1 7.4%
Operating expenses
Interconnection 950.5 999.6 (49.1) (4.9)%
Operations 334.0 317.1 16.9 5.3%
Selling, general and administrative 557.1 493.0 64.1 13.0%
Depreciation and amortization 205.0 167.2 37.8 22.6%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 2,046.6 1,976.9 69.7 3.5%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 335.1 $ 241.7 (1)$ 93.4 38.6%
--- ------------- -- ------------- --- -------------
Operating margin 14.1% 10.9%(1)
--- ------------- -- -------------
(1)Excluding a $20 million charge related to litigation, 1997 second quarter
operating income and margin would have been $262 million and 11.8%,
respectively.
</TABLE>
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------------------------------------------
Year-to-Date
June 30, Variance
---------------------------------- -------------------------------
1998 1997 Dollar %
- -------------------------------------------- ----------------- ---------------- --- ------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 4,749.3 $ 4,391.0 $ 358.3 8.2%
Operating expenses
Interconnection 1,921.1 2,007.0 (85.9) (4.3)%
Operations 656.6 592.9 63.7 10.7%
Selling, general and administrative 1,101.7 964.1 137.6 14.3%
Depreciation and amortization 407.0 333.8 73.2 21.9%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 4,086.4 3,897.8 188.6 4.8%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 662.9 $ 493.2 (1)$ 169.7 34.4%
--- ------------- -- ------------- --- -------------
Operating margin 14.0% 11.2%(1)
--- ------------- -- -------------
(1)Excluding a $20 million charge related to litigation, 1997 year-to-date
operating income and margin would have been $513 million and 11.7%,
respectively.
</TABLE>
Net Operating Revenues
Second quarter and year-to-date net operating revenues for 1998 increased 7% and
8%, respectively, from the same 1997 periods. All major market segments -
residential, business and wholesale - contributed to these increases. The
increases mainly reflect strong minute growth of 12% in both 1998 periods and
increased data services revenue, partly offset by a more competitive pricing
environment and a change in the mix of products sold.
<PAGE>
Business and Data Market - Both second quarter and year-to-date business market
revenues increased 13% in 1998 from the same 1997 periods, reflecting increased
calling volumes for toll-free and direct-distance-dialing toll (WATS) calls made
within the United States. Growth in the small and medium business market was due
to the growth in Real Solutions (sm) customers and the continuing success of the
division's small business product, Fridays Free. Data services, which includes
sales of capacity on Sprint's network to Internet service providers, showed
strong growth because of continued demand and expanded service offerings.
Residential Market - Second quarter and year-to-date residential market revenues
increased 5% and 6%, respectively, in 1998 from the same 1997 periods,
reflecting increases in 1998 mainly from long distance calling card calls made
by LEC customers. Through various agreements Sprint has with LECs, their
customers use the Sprint network when making long distance calls.
Wholesale Market - Second quarter and year-to-date wholesale market revenues
increased 2% and 6%, respectively, in 1998 from the same 1997 periods,
reflecting strong minute growth in the domestic market. These increases mainly
reflect increased WATS calling volumes, partly offset by a change in
international mix to lower yielding but higher margin countries.
Interconnection Costs
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. Second quarter and year-to-date 1998
interconnection costs decreased 5% and 4%, respectively, from the same 1997
periods, reflecting lower unit costs for both domestic and international access,
partly offset by strong minute growth. The lower domestic costs are generally
due to FCC-mandated access rate reductions, while lower international costs
reflect continued competition in the market. Access rates are expected to
continue to decline in the second half of 1998; however, the year-over-year cost
savings for the remainder of the year is not expected to be as significant
because the 1997 third and fourth quarters include certain rate reductions that
took effect in July 1997. Internationally, Sprint expects market opening
measures and competitive pressures to contribute to the continued trend of
declining interconnection unit costs. Interconnection costs were 39.9% and 40.5%
of net operating revenues in the 1998 second quarter and year-to-date periods,
respectively, versus 45.1% and 45.7% for the same periods a year ago.
Operations Expense
Operations expense mainly consists of costs related to operating and maintaining
the long distance network and costs of equipment sales. It also includes costs
of providing operator, public payphone and video teleconferencing services, as
well as telecommunications services for the hearing impaired. Second quarter and
year-to-date 1998 operations expense increased 5% and 11%, respectively, from
the same 1997 periods. These increases reflect increased costs related to data
services growth as well as increases in the volume of network equipment
operating leases, partly offset by decreased costs of equipment sales. In
addition, FCC-mandated payments to public payphone providers increased in the
1997 second quarter. As a result, the 1997 year-to-date period reflects three
months of these payments compared with six months for the same 1998 period. As a
percentage of net operating revenues, operations expense was 14.0% and 13.8% in
the 1998 second quarter and year-to-date periods, respectively, and 14.3% and
13.5% for the same periods a year ago.
Selling, General and Administrative Expense
Selling, general and administrative (SG&A) expense increased 13% and 14% in the
1998 second quarter and year-to-date periods, respectively, from the same 1997
periods. These increases reflect the overall growth of the division's operating
activities as well as increases in marketing activities and promotions to
support products and services. SG&A expense was 23.4% and 23.2% of net operating
revenues in the 1998 second quarter and year-to-date periods, respectively, and
22.2% and 22.0% for the same periods a year ago.
<PAGE>
Depreciation and Amortization Expense
Second quarter and year-to-date 1998 depreciation and amortization expense
increased 23% and 22%, respectively, from the same 1997 periods, generally due
to an increased asset base and shorter average depreciable lives. Capital
expenditures were incurred mainly to enhance network reliability, meet increased
demand for data-related services and upgrade capabilities for providing new
products and services. Depreciation and amortization expense was 8.6% and 8.5%
of net operating revenues in the 1998 second quarter and year-to-date periods,
respectively, and 7.5% and 7.6% for the same periods a year ago.
Local Division
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------------------------------------------
Quarter Ended
June 30, Variance
---------------------------------- ------------------------------
1998 1997 Dollar %
- -------------------------------------------- ----------------- ---------------- --- ------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 1,345.7 $ 1,336.8 $ 8.9 0.7%
Operating expenses
Costs of services and products 456.2 465.0 (8.8) (1.9)%
Selling, general and administrative 286.2 267.5 18.7 7.0%
Depreciation and amortization 234.5 235.1 (0.6) (0.3)%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 976.9 967.6 9.3 1.0%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 368.8 $ 369.2 $ (0.4) (0.1)%
--- ------------- -- ------------- --- -------------
Operating margin 27.4% 27.6%
--- ------------- -- -------------
</TABLE>
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------------------------------------------
Year-to-Date
June 30, Variance
---------------------------------- ------------------------------
1998 1997 Dollar %
- -------------------------------------------- ----------------- ---------------- --- ------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 2,667.9 $ 2,641.1 $ 26.8 1.0%
Operating expenses
Costs of services and products 916.1 911.4 4.7 0.5%
Selling, general and administrative 564.1 525.7 38.4 7.3%
Depreciation and amortization 467.7 466.5 1.2 0.3%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 1,947.9 1,903.6 44.3 2.3%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 720.0 $ 737.5 $ (17.5) (2.4)%
--- ------------- -- ------------- --- -------------
Operating margin 27.0% 27.9%
--- ------------- -- -------------
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between affiliates to more accurately reflect market pricing. The
main effect of the pricing change was to reduce "Net Operating Revenues Other
Revenues" as described below. For comparative purposes, the following discussion
of local division operating results assumes these pricing changes occurred at
the beginning of 1997. Based on this assumption, the 1997 second quarter and
year-to-date operating margins would have been 26.1% and 26.4%, respectively.
</TABLE>
<PAGE>
Net Operating Revenues
Net operating revenues increased 3% in both the 1998 second quarter and
year-to-date periods from the same 1997 periods. These increases mainly reflect
customer access line growth, and increased sales of equipment and network-based
services such as Caller ID and Call Waiting. Excluding the sale of local
exchanges in the 1997 fourth quarter, net operating revenues would have
increased 5% and 6% in the 1998 second quarter and year-to-date periods,
respectively, and access line growth would have been 5.4% during the past 12
months.
Local Service Revenues
Local service revenues, derived from local exchange services, increased 5% and
6% (8% for both periods excluding the sale of exchanges) in the 1998 second
quarter and year-to-date periods, respectively, from the same 1997 periods.
Local service revenues increased because of continued demand for network-based
services. These increases also reflect increased sales of private line services
and maintenance of customer wiring and equipment.
Network Access Revenues
Network access revenues, derived from interexchange long distance carriers' use
of the local network to complete calls, increased 1% (3% excluding the sale of
exchanges) for both the 1998 second quarter and year-to-date periods compared
with the same 1997 periods. The 1998 second quarter and year-to-date revenues
reflect a 5% (7% excluding the sale of exchanges) increase in minutes of use,
partly offset by FCC-mandated access rate reductions.
Toll Service Revenues
Toll service revenues are mainly derived from providing long distance services
within specified regional calling areas, or LATAs, that are beyond the local
calling area. Second quarter and year-to-date 1998 toll service revenues
declined 29% and 28%, respectively, compared with the same 1997 periods. These
decreases were mainly due to extended local calling areas and increased
competition in the intrastate long distance market. These losses were, in part,
offset by increases in the division's local service revenues and network access
revenues. In addition, Sprint's long distance division has acquired some of the
customer base to help mitigate the erosion of these revenues.
Other Revenues
Other revenues include telecommunications equipment sales, directory sales and
listing services, billing and collection services, services to locate
underground utility lines and commissions for the sale of long distance service
on behalf of Sprint's long distance division. During the 1998 second quarter and
year-to-date periods these revenues increased 17% and 20%, respectively,
compared with the same 1997 periods. The increases were mainly due to increased
equipment sales of business systems and data networks, growth in payphone
revenues, expanded operations of locating underground utility lines and
increased commissions from the sale of Sprint's long distance services.
Costs of Services and Products
Costs of services and products consists of costs related to operating and
maintaining the local network and costs of equipment sales. These expenses
decreased 2% (less than 1% excluding the sale of exchanges) in second quarter
1998 and increased 1% (3% excluding the sale of exchanges) for the 1998
year-to-date period compared with the same periods a year ago. This reflects
continued cost control, while still supporting customer access line growth and
increased equipment sales. Costs of services and products was 33.9% and 34.3% of
net operating revenues in the 1998 second quarter and year-to-date periods,
respectively, and 35.5% and 35.2% for the same periods a year ago.
Selling, General and Administrative Expense
SG&A expense increased 7% (9% excluding the sale of exchanges) in both 1998
second quarter and year-to-date periods. These increases were mainly due to
<PAGE>
increased customer service costs related to access line growth and marketing
costs to promote new products and services. SG&A expense was 21.3% and 21.2% of
net operating revenues in the 1998 second quarter and year-to-date periods,
respectively, and 20.4% and 20.3% for the same periods a year ago.
Depreciation and Amortization Expense
Depreciation and amortization expense remained flat (increased 2% excluding the
sale of exchanges) in both the 1998 second quarter and year-to-date periods
because of plant additions, offset by lower depreciation rates resulting from
longer asset lives. Depreciation and amortization expense was 17.4% and 17.5% of
net operating revenues in the 1998 second quarter and year-to-date periods,
respectively, and 18.0% and 18.1% for the same periods a year ago.
Product Distribution and Directory Publishing Division
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------------------------------------------
Quarter Ended
June 30, Variance
---------------------------------- ------------------------------
1998 1997 Dollar %
- -------------------------------------------- ----------------- ---------------- --- ------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 445.1 $ 364.4 $ 80.7 22.1%
Operating expenses
Costs of services and products 355.4 307.5 47.9 15.6%
Selling, general and administrative 26.5 23.2 3.3 14.2%
Depreciation and amortization 2.4 2.0 0.4 20.0%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 384.3 332.7 51.6 15.5%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 60.8 $ 31.7 $ 29.1 91.8%
--- ------------- -- ------------- --- -------------
Operating margin 13.7% 8.7%
--- ------------- -- -------------
</TABLE>
<TABLE>
<CAPTION>
Selected Operating Results
----------------------------------------------------------------------
Year-to-Date
June 30, Variance
---------------------------------- ------------------------------
1998 1997 Dollar %
- -------------------------------------------- ----------------- ---------------- --- ------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 836.3 $ 674.1 $ 162.2 24.1%
Operating expenses
Costs of services and products 659.3 566.8 92.5 16.3%
Selling, general and administrative 52.4 44.8 7.6 17.0%
Depreciation and amortization 4.6 3.8 0.8 21.1%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 716.3 615.4 100.9 16.4%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 120.0 $ 58.7 $ 61.3 104.4%
--- ------------- -- ------------- --- -------------
Operating margin 14.3% 8.7%
--- ------------- -- -------------
</TABLE>
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between affiliates to more accurately reflect market pricing. Had
these pricing changes occurred at the beginning of 1997, net operating revenues
would have increased 24% from $359 million in second quarter 1997. Approximately
two-thirds of this revenue increase was from sales to affiliates and one-third
was from non-affiliates.Year-to-date net operating revenues would have increased
26% from $665 million in the first six months of 1997.Costs of services and
products would have increased 28% from $279 million in the 1997 second quarter
and 29% from $510 million in the 1997 year-to-date period. The second quarter
and year-to-date 1997 operating margins would have been 15.3% and 16.0%,
respectively. The decrease in 1998 margins compared with the 1997 margins
(adjusted for the transfer pricing change) was attributable to the distribution
business.
<PAGE>
Emerging Businesses
<TABLE>
<CAPTION>
Selected Operating Results
---------------------------------------------------------------------
Quarter Ended Year-to-Date
June 30, June 30,
----------------- ---------------- ----------------- ----------------
1998 1997 1998 1997
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues $ 46.1 $ 5.1 $ 93.5 $ 7.9
--- ------------- -- ------------- --- ------------- -- -------------
Operating loss $ (77.5) $ (37.6) $ (138.4) $ (70.4)
--- ------------- -- ------------- --- ------------- -- -------------
</TABLE>
Most of the 1998 revenues were from Sprint Paranet. Sprint acquired
Houston-based Paranet, Inc., in September 1997 to allow Sprint to capitalize on
the accelerating demand for network management services.
Operating losses for both years largely reflect activities to develop or enter
newly competitive domestic and international markets, such as CLEC services and
the buildout of the SprintCom PCS markets.
Costs incurred year-to-date and during second quarter 1998 relating to CLEC
services were mainly due to the development of ION. While Sprint's approach to
entering the CLEC market has enabled it to avoid significant losses, Sprint
continues to devote significant resources toward developing ION (see "Strategic
Initiatives - Integrated On-demand Network" for more information).
In June 1998, Sprint completed the strategic alliance to combine Sprint's
Internet business with EarthLink Network Inc. (EarthLink), an Internet service
provider. EarthLink obtained Sprint's Internet Passport customers and took over
the day-to-day operations of those services. This relationship enables Sprint to
build its brand equity and market share. Earthlink had a total of 710,000
subscribers, including Sprint Internet Passport customers, through June 1998. As
a result of the sale of Sprint's Internet business to EarthLink, the emerging
businesses segment will no longer include the operating results of Sprint's
Internet business.
<PAGE>
Nonoperating Items
Interest Expense
Interest costs on borrowings consist of the following:
<TABLE>
<CAPTION>
Quarter Ended Year-to-Date
June 30, June 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Interest expense on outstanding debt $ 50.5 $ 33.7 $ 105.0 $ 69.4
Capitalized interest costs 22.7 27.7 41.3 56.7
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total interest costs on outstanding debt
$ 73.2 $ 61.4 $ 146.3 $ 126.1
--- ------------- -- ------------- --- ------------- -- -------------
Average debt outstanding $ 4,220.6 $ 3,072.6 $ 4,103.5 $ 3,152.5
--- ------------- -- ------------- --- ------------- -- -------------
Effective interest rate 6.9% 8.0% 7.1% 8.0%
--- ------------- -- ------------- --- ------------- -- -------------
</TABLE>
Through June 1997, Sprint capitalized interest costs on borrowings related to
its investment in Sprint PCS. Sprint stopped capitalizing these costs because
Sprint PCS no longer qualified as a development-stage company. Sprint continues
to capitalize interest costs related to the buildout of SprintCom markets.
The decrease in Sprint's effective interest rate for the second quarter and
year-to-date periods was due to an increase in short-term borrowings as a
percentage of total borrowings. Short-term borrowings have been classified as
long-term debt because of Sprint's intent and ability, through unused credit
facilities, to refinance these borrowings. Average debt outstanding increased to
support various Sprint initiatives.
Global One
Global One's revenues totaled $258 and $523 million in the 1998 second quarter
and year-to-date periods, respectively, compared with $286 and $529 million in
the same periods a year ago. Sprint's share of losses from Global One
totaled $42 and $87 million in the 1998 second quarter and year-to-date periods,
respectively, compared with $24 and $47 million a year ago. The increased losses
in 1998 reflect lower operating margins resulting from higher operating costs.
In an effort to improve profitability, Global One is refocusing its efforts to
place more emphasis on corporate retail customers.
Global One is continuing to review its operations, is implementing expense
controls, and is focusing on improving the network infrastructure in an effort
to improve efficiencies and reduce operating costs. Global One is in the process
of implementing various components of a plan to address these items. It is
expected that Global One will incur nonrecurring charges as the plan is
executed.
Sprint PCS
Sprint PCS' revenues totaled $285 and $468 million in the 1998 second quarter
and year-to-date periods, respectively, versus $26 and $35 million a year ago.
Sprint's share of losses from Sprint PCS was $226 and $436 million in the
1998 second quarter and year-to-date periods, respectively, compared with $136
and $222 million a year ago. The 1998 losses reflect marketing and promotional
costs, and operating costs to support a growing customer base. At the end of
June 1998, the Sprint PCS customer base exceeded 1.3 million customers. The
venture is continuing to aggressively obtain new customers, which has resulted
in higher losses in 1998 compared with 1997.
Average monthly revenue per customer (ARPU) for the six months ended June 30,
1998 was $60. This average is expected to decline in the future (consistent
with industry projections) due to increased competition resulting from
additional wireless service providers entering the market. Sprint PCS has
adopted marketing plans that both target and encourage higher usage and higher
average monthly revenue per subscriber. Customer churn rates and customer
marketing costs have been as management expected at this stage of development
and continue to be within the range of results reported by other PCS providers.
As the PCS markets mature and Sprint PCS gains additional scale, both of these
measures are expected to trend downward toward cellular industry levels.
<PAGE>
In May 1998, Sprint announced it had reached an agreement with the Cable Parents
to restructure the ownership interests of Sprint PCS. See "Strategic Initiatives
- - Restructuring and Recapitalization Plans" for more information.
Other Income, Net
Other income consisted of the following:
<TABLE>
<CAPTION>
Quarter Ended Year-to-Date
June 30, June 30,
----------------- ---------------- ----------------- ----------------
1998 1997 1998 1997
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Dividend and interest income $ 20.6 $ 15.7 $ 39.7 $ 42.8
Other, net (3.3) 4.1 (1.2) 11.9
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total other income, net $ 17.3 $ 19.8 $ 38.5 $ 54.7
--- ------------- -- ------------- --- ------------- -- -------------
</TABLE>
The 1997 second quarter dividend and interest income mainly reflects income
earned on the cash received from DT and FT for their 1996 equity investment in
Sprint as well as the repayment of intercompany debt in connection with the 1996
spinoff of Sprint's cellular division. Sprint has since invested those funds in
strategic initiatives, reducing the balance held in temporary investments.
Dividend and interest income for 1998 reflects interest earned on loans to
affiliates.
Income Taxes
See Note 4 of Condensed Notes to Consolidated Financial Statements for the
differences that caused Sprint's effective income tax rates to vary from the
statutory federal rate.
Extraordinary Item
In March 1998, Sprint redeemed, prior to maturity, $115 million of debt with a
9.25% interest rate. This resulted in a $4 million ($0.01 per share) after-tax
loss.
Financial Condition
Sprint's consolidated assets totaled $19.8 billion at the end of June 1998, and
$18.2 billion at year-end 1997. Net property, plant and equipment increased $1.4
billion since year-end 1997 mainly because of an increase in capital
expenditures to support the core long distance and local networks, and expanded
product and service offerings. In addition, this growth reflects the buildout of
the SprintCom markets. Sprint's debt-to-capital ratio was 35.1% at the end of
June 1998, versus 30.0% at year-end 1997. See "Liquidity and Capital Resources"
for more information about changes in Sprint's Consolidated Balance Sheets.
Liquidity and Capital Resources
Operating Activities
Sprint's operating activities provided cash of $1.9 billion in the 1998
year-to-date period versus $1.5 billion in the same 1997 period. Operating cash
flows for 1998 reflect improved operating results in Sprint's core businesses.
<PAGE>
Investing Activities
Sprint's investing activities used cash of $2.5 billion in the first six months
of 1998 versus $1.8 billion in the same period a year ago. Capital expenditures,
which are Sprint's largest investing activity, totaled $2.0 billion in the 1998
year-to-date period and $1.3 billion in 1997. This increase was mainly due to
the buildout of the SprintCom PCS markets. Long distance division capital
expenditures totaled $594 million for the first six months of 1998 versus $508
million for the same period a year ago. Expenditures in both years were incurred
mainly to enhance network reliability, meet increased demand for data-related
services, and upgrade capabilities for providing new products and services.
Year-to-date local division capital expenditures totaled $707 million for 1998
versus $647 million for 1997. Expenditures in both years were made to
accommodate access line growth and expand capabilities for providing enhanced
services.
In the first six months of 1997, Sprint paid $434 million toward its purchase of
the SprintCom PCS licenses.
"Investments in and advances to affiliates, net" consisted of the following:
<TABLE>
<CAPTION>
Year-to-Date
June 30,
----------------------------------
1998 1997
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Sprint PCS
<S> <C> <C>
Capital contributions $ 65.7 $ 86.7
Advances, net 113.6 (45.9)
Capitalized interest - 47.2
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
179.3 88.0
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Global One
Capital contributions 283.5 -
Advances, net (85.7) 33.9
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
197.8 33.9
Other, net 73.9 18.9
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Total $ 451.0 $ 140.8
--- ------------- -- -------------
</TABLE>
Capital contributions and net advances to Sprint PCS in both years were used to
fund capital and operating requirements. Capital contributions and net advances
to Global One in 1998 were used mainly to fund operations. "Other, net" includes
the contribution related to the Earthlink transaction, which closed in June 1998
(see "Segmental Results of Operations - Emerging Businesses" for more
information).
Financing Activities
Sprint's year-to-date financing activities provided cash of $567 million in
1998, while year-to-date 1997 activities used cash of $475 million. Financing
activities during 1998 reflect proceeds from long-term debt and an increase in
construction obligations of $495 million and $475 million, respectively, partly
offset by payments of $165 million. Financing activities in the first six months
of 1997 reflect payments of $200 million on short-term borrowings and $70
million on long-term debt. Sprint paid dividends of $205 and $189 million in the
first six months of 1998 and 1997, respectively.
Capital Requirements
Sprint's 1998 investing activities, mainly consisting of capital expenditures
and investments in affiliates, are expected to require cash of $5.7 to $6.1
billion. Dividend payments are expected to total $430 million in 1998.
Sprint expects to spend $5.2 to $5.4 billion on capital expenditures in 1998,
including $2.8 to $2.9 billion for the long distance and local divisions. The
remainder will mainly be used to buildout the SprintCom network.
<PAGE>
Sprint PCS is expected to require $130 to $230 million from Sprint during the
remainder of 1998 to help fund operating cash requirements and continue their
network buildout. Global One is also expected to require $20 to $120 million
from Sprint during the remainder of 1998 to help fund operations and ongoing
development activities.
Sprint and the Cable Parents have agreed to loan up to $400 million, based on
respective ownership interests, to fund the capital requirements of Sprint PCS
from the date of the signing of the PCS Restructuring agreement, May 26, 1998,
through the closing date of the PCS Restructuring. As of June 30, 1998, $80.6
million had been loaned by Sprint and the Cable Parents under this agreement and
it is anticipated that the remaining amount will be funded during the third
quarter of 1998. The PhillieCo Partners agreed to lend up to $50 million, and
have fully funded this commitment as of June 30, 1998. Sprint also agreed to
loan up to $110.6 million to fund SprintCom's capital requirements during the
same period and has funded substantially all of this commitment as of June 30,
1998. Sprint has been financing SprintCom with Sprint's cash from operations,
commercial paper borrowings and leases on specific equipment. Sprint
intends to continue to fund the buildout of the SprintCom markets through
the closing of this transaction. The above mentioned loans, totaling $510.6
million excluding loans to PhillieCo, may be repaid from the proceeds of an
anticipated initial public offering (IPO), as further discussed below, but only
to the extent the net proceeds of the IPO exceed $500 million. In the event
the loans remain outstanding after the IPO, the remaining balance will be
converted into 10-year preferred stock of Sprint convertible into PCS Stock.
Liquidity
At the end of June 1998, Sprint could borrow $538 million under its existing
revolving credit agreement with a syndicate of domestic and international banks.
In August 1998, Sprint negotiated new credit facilities as further discussed
below. In addition, in 1997, Sprint negotiated a separate five-year revolving
credit facility with a bank. At June 30, 1998, Sprint's unused capacity under
the committed portion of this facility was $100 million. Sprint could offer for
sale up to $1.1 billion of debt securities under existing shelf registration
statements filed with the Securities and Exchange Commission (SEC). Any
borrowings Sprint may incur are ultimately limited by certain debt covenants. At
June 30, 1998, Sprint could borrow up to $13.3 billion under the most
restrictive of its debt covenants.
The most restrictive covenant related to dividends results from Sprint's
revolving credit agreement. As a result, $2.9 billion of Sprint's $3.9 billion
of retained earnings was restricted from the payment of dividends at the end of
the 1998 second quarter. Among other restrictions, Sprint must maintain
specified levels of consolidated net worth.
Sprint currently uses the commercial paper market to fund its short-term working
capital needs. Sprint uses four commercial paper dealers to place the paper at
the most favorable rates and maturities. Sprint also uses the medium-term note
and long-term bond markets as well as other debt markets to fund its needs.
Sprint intends to borrow funds through the U.S. and international money and
capital markets and bank credit markets to fund capital expenditures, operating
and working capital requirements and, if the PCS Restructuring occurs, to
refinance existing debt obligations of Sprint PCS.
In addition, Sprint intends to file with the SEC a registration statement on
Form S-3 relating to the registration of shares of PCS Stock aggregating total
proceeds of between $500 and $525 million, subject to market conditions. Sprint,
subject to a disapproval right held by each of the Cable Parents, may elect an
offering netting higher proceeds in the IPO if the Board of Directors of Sprint
determines that market conditions are favorable to a larger offering. All of the
proceeds in the IPO will be allocated to the PCS Group. Proceeds in excess of
the initial $500 to $525 million may be used to repay loans from Sprint and
the Cable Parents to Sprint PCS as discussed in "Capital Requirements."
Neither Sprint nor the Cable Parents would sell shares on a secondary basis as
part of the IPO. Sprint intends to complete the IPO and the PCS Restructuring
concurrently, assuming shareholder approval of the transaction, subject to
prevailing market conditions and other factors. There can be no assurance that
the IPO will occur.
<PAGE>
Sprint intends to file a shelf registration statement for $8.0 billion of debt
securities which would replace an existing shelf registration statement for $1.0
billion. Sprint currently anticipates issuing, at approximately the same time as
the IPO, up to $6 billion aggregate principal amount of debt securities under
the new shelf registration statement, subject to market conditions. There can be
no assurance such debt offering will occur. Proceeds from the sale of securities
under the new shelf registration statement would be used to repay short-term
borrowings, to refinance existing long-term borrowings, and to provide funds for
working capital and new capital expenditures for both the PCS Group and the FON
Group.
In August 1998, Sprint obtained revolving credit facilities for approximately $5
billion that will be used to support commercial paper operations and replace its
existing credit facilities. The agreements were negotiated with market terms,
conditions and covenants.
In connection with the PCS Restructuring and the IPO, DT and FT have agreed to
purchase shares of PCS Stock so that they will maintain their aggregate 20%
voting power. Proceeds from the exercise of these equity purchase rights are
expected to total between $225 and $250 million.
Financial Strategies
General Hedging Policies
Sprint selectively enters into interest rate swap and cap agreements to manage
its exposure to interest rate changes on its debt. Sprint also enters into
forward contracts and options in foreign currencies to reduce the impact of
changes in foreign exchange rates. Sprint seeks to minimize counterparty credit
risk through stringent credit approval and review processes, the selection of
only the most creditworthy counterparties, continual review and monitoring of
all counterparties, and thorough legal review of contracts. Sprint also controls
exposure to market risk through regular monitoring of changes in foreign
exchange and interest rate positions under normal and stress conditions to
ensure they do not exceed established limits.
Sprint's derivative transactions are used for hedging purposes only and comply
with Board-approved policies. Senior management receives monthly status updates
of all outstanding derivative positions.
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- and fixed-rate
debt and minimizing liquidity risk. Sprint uses simulation analysis to assess
its interest rate exposure and to establish the desired ratio of floating- and
fixed-rate debt. To the extent possible, Sprint manages interest rate exposure
and the floating-to-fixed ratio through its borrowings, but sometimes uses
interest rate swaps and caps to adjust its risk profile.
Foreign Exchange Risk Management
Sprint's foreign exchange risk management program focuses on hedging transaction
exposure to optimize consolidated cash flow. Sprint's main transaction exposure
results from net payments made to overseas telecommunications companies for
completing international calls made by Sprint's domestic customers.
Year 2000 Issue
The "Year 2000" issue affects Sprint's installed computer systems, network
elements, software applications, and other business systems that have
time-sensitive programs that may not properly reflect or recognize the year
2000. Because many computers and computer applications define dates by the last
two digits of the year, "00" may not be properly identified as the year 2000.
This error could result in miscalculations or system failures. The Year 2000
issue may also affect the systems and applications of Sprint's customers,
vendors or resellers.
Sprint started a program in 1996 to identify and address the Year 2000 issue. It
has completed an inventory and Year 2000 assessment of its principal computer
systems, network elements, software applications and other business systems.
Sprint expects to complete the renovation of these computer systems, software
applications and the majority of the network elements and other business systems
by year-end 1998. Year 2000 testing commenced in the third quarter of 1998 and
will be completed during 1999. Sprint is using both internal and external
sources to identify, correct or reprogram, and test its systems for Year 2000
compliance. Sprint is also contacting others with whom it conducts business to
receive the appropriate warranties and assurances that those third parties are
or will be Year 2000 compliant.
<PAGE>
Sprint expects to incur approximately $200 million in expense in 1998 and 1999
to complete its Year 2000 compliance program. If compliance is not achieved in a
timely manner by Sprint or any significant related third party, the Year 2000
issue could have a material effect on Sprint's operations. Sprint is focusing on
identifying and addressing all aspects of its operations that may be affected by
the Year 2000 issue and is addressing the most critical applications first.
Sprint intends to develop and implement, if necessary, appropriate contingency
plans to mitigate to the extent possible any significant Year 2000
noncompliance.
Impact of Recently Issued Accounting Pronouncement
See Note 9 of Condensed Notes to Consolidated Financial Statements for a
discussion of a recently issued accounting pronouncement.
<PAGE>
PART I.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK SPRINT CORPORATION
Sprint's exposure to market risk through derivative financial instruments and
other financial instruments, such as investments in marketable securities and
long-term debt, is not material. There have been no material changes in market
risk since year-end 1997.
<PAGE>
PART II.
Other Information
Item 1. Legal Proceedings
There were no reportable events during the quarter ended June 30, 1998.
Item 2. Changes in Securities
If the shareholders of Sprint approve the proposal to restructure
Sprint's wireless operations, Sprint's existing common stock will be
recapitalized into PCS Stock and FON Stock. See Management's Discussion
and Analysis for further discussion regarding the restructuring
transaction.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended June 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting
On April 21, 1998, Sprint held its Annual Meeting of Shareholders. In
addition to the election of three Class III Directors to serve for a
term of three years, the shareholders (i) approved amendments to the
1988 Employees Stock Purchase Plan and (ii) 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>
William T. Esrey 258,927,982 19,008,680
Linda Koch Lorimer 259,192,554 18,744,108
Stewart Turley 259,176,273 18,760,389
</TABLE>
The following votes were cast with respect to the proposal to approve
amendments to the 1988 Employees Stock Purchase Plan:
For 357,249,963
Against 5,440,126
Abstain 1,482,609
The following votes were cast with respect to the proposal to approve
the appointment of Ernst & Young LLP as independent auditors of Sprint
for 1998:
For 362,188,686
Against 1,180,178
Abstain 803,834
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 92,590,049
Against 239,132,914
Abstain 3,455,850
Broker non-votes 28,993,885
<PAGE>
The following votes were cast with respect to a shareholder proposal
urging that no option plans be adopted or amended to allow options to
be issued for exercise prices below those of any options outstanding at
any time during the year preceding the grants of the new options:
For 29,645,871
Against 301,943,238
Abstain 3,589,701
Broker non-votes 28,993,888
The following votes were cast with respect to a shareholder proposal
urging the Board of Directors of Sprint to adopt a policy against
making compensation awards to officers and directors which are
contingent on a change of control of Sprint unless such awards are
submitted to a vote of shareholders and approved by a majority of the
votes cast:
For 95,430,963
Against 236,104,875
Abstain 3,642,971
Broker non-votes 28,993,889
Item 5. Other Information
(a) Computation of Ratio of Earnings to Fixed Charges
For the 1998 second quarter and year-to-date periods, Sprint's ratio of
earnings to fixed charges was 5.57 and 5.66, respectively, versus 6.37
and 6.32 for the same 1997 periods. The ratios were computed by
dividing fixed charges into the sum of earnings (after certain
adjustments) and fixed charges. Earnings include income from continuing
operations before taxes, plus equity in the net losses of less-than-50%
owned entities, less capitalized interest. Fixed charges include (a)
interest on all debt of continuing operations (including amortization
of debt issuance costs), (b) the interest component of operating rents,
and (c) the pre-tax cost of subsidiary preferred stock dividends.
(b) Shareholder Proposals
Sprint's Bylaws provide that Sprint's Annual Meeting of Shareholders is
to be held on the third Tuesday in April of each year. In 1999, the
third Tuesday falls on April 20.
In order to be eligible for inclusion in Sprint's proxy solicitation
materials for its 1999 Annual Meeting of Shareholders, any shareholder
proposal to be considered at such meeting must be received by Sprint's
Corporation Secretary at Sprint's principal office, 2330 Shawnee
Mission Parkway, Westwood, Kansas 66205, on or before November 10,
1998. Any such proposal will be subject to the requirements contained
in Sprint's Bylaws relating to shareholder proposals and the proxy
rules under the Securities Exchange Act of 1934.
If a shareholder intends to bring a matter before the 1999 Annual
Meeting of Shareholders, other than by submitting a proposal for
inclusion in Sprint's proxy statement for that meeting, the shareholder
must give timely notice according to Sprint's Bylaws. To be timely, a
shareholder's notice must be received by Sprint's Corporate Secretary
at Sprint's principal office, 2330 Shawnee Mission Parkway, Westwood,
Kansas 66205, on or after February 4, 1999 and on or before March 1,
1999. Such notice must set forth (a) as to each matter the shareholder
proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, and (b) the name and record
address of the shareholder, the class and number of shares of capital
stock of Sprint that are beneficially owned by the shareholder, and any
material interest of the shareholder in such business.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Restructuring and Merger Agreement By and Among Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation,
Cox Communications, Inc. and certain of their subsidiaries,
dated as of May 26, 1998 (filed as Exhibit 2 to Sprint
Corporation Current Report on Form 8-K dated May 26, 1998 and
incorporated herein by reference).
(10) Material Agreements
(a) Master Restructuring and Investment Agreement Among
Sprint Corporation, France Telecom S.A. and Deutsche
Telecom AG, dated as of May 26, 1998 (filed as
Exhibit 99(B) to Sprint Corporation Current Report on
Form 8-K dated May 26, 1998 and incorporated herein
by reference).
(10) Executive Compensation Plans and Arrangements
(b) Special Compensation and Non-Compete Agreements
between Sprint Corporation and two of its Executive
Officers.
(c) Summary of Amendments to the Executive Deferred
Compensation Plan and the Directors' Deferred Fee
Plan.
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
Sprint filed a Current Report on Form 8-K dated May 26, 1998, in which
it reported that it had entered into an agreement with
Tele-Communications, Inc., Comcast Corporation and Cox Communications,
Inc., to restructure its wireless operations. If the transaction is
approved by Sprint's stockholders, Sprint will issue shares of a new
common stock that tracks its wireless operations (PCS Stock) to the
three cable companies in exchange for their interests in the wireless
joint ventures. In addition, Sprint will recapitalize its existing
common stock into FON Stock, which will track its operations other than
its wireless holdings, and PCS Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Strategic
Initiatives - Restructuring and Recapitalization Plans" for further
discussion of the transaction.
Sprint also filed a Current Report on Form 8-K dated June 29, 1998, in
which it reported that its Board of Directors had adopted an Amended
and Restated Shareholder Rights Plan which contemplates the issuance of
tracking stock and which will be effective at the time the wireless
operations are restructured and the new PCS Stock is created.
<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: August 10, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
(10) Executive Compensation Plans and Arrangements
(b) Special Compensation and Non-Compete Agreements between
Sprint Corporation and two of its Executive Officers.
(c) Summary of Amendments to the Executive Deferred
Compensation Plan and the Directors' Deferred Fee Plan.
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
Exhibit 10(b)
Special Compensation and Non-Compete Agreement
THIS AGREEMENT is entered into as of the 20th day of April, 1998 (the "Effective
Date"), by and between SPRINT CORPORATION, a Kansas corporation ("Sprint," and
it, together with its Subsidiaries, the "Employer"), and JOHN E. BERNDT
("Employee").
Recitals
1.Employer is engaged in the telecommunications and related businesses. This
is a worldwide business that may be conducted from sites and serve
customers throughout the world.
2.By virtue of his work for Employer, Employee has gained and will continue
to gain additional valuable Proprietary Information of Employer.
3.Employer desires to enter into this Agreement to provide severance and
other benefits for Employee in exchange for Employee's agreement to
maintain the confidentiality of certain information and to refrain from
competing with Employer during and after termination of his employment
with Employer.
Capitalized terms are defined in Section 6 or parenthetically throughout this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the parties hereby
agree as follows:
1. Employment At Will.
Employee's employment may be terminated by either party for any reason. Employee
shall provide Employer with written notice of his intent to terminate at least
30 days before the effective date of the termination. Except in the event of
Termination for Cause, Employer shall provide Employee with written notice of
its intent to terminate Employee's employment at least 30 days before the
effective date of the termination.
2. Employee's Covenants.
2.01. Committee Approval.
This Agreement is contingent on the Committee's approval of the Stock-based
Award.
2.02. Exclusivity of Services.
Employee shall, during his employment with Employer, owe an undivided duty of
loyalty to Employer and agrees to devote his entire business time and attention
1
<PAGE>
to the performance of those duties and responsibilities and to use his best
efforts to promote and develop the business of Employer. Employee shall adhere
to the conflicts of interest provisions set forth in Section 7 of the Sprint
Code of Ethics (or any successor provision, which is incorporated by this
reference) as in effect as of the date of this Agreement and as may be amended
from time to time hereafter. The determination of the Committee as to the
Employee's compliance with this provision shall be final.
2.03. Proprietary Information.
Employee acknowledges that during the course of his employment he has learned or
will learn or develop Proprietary Information. Employee further acknowledges
that unauthorized disclosure or use of such Proprietary Information, other than
in discharge of Employee's duties, will cause Employer irreparable harm.
Except in the course of his employment with Employer under this Agreement, in
the pursuit of the business of Employer, or as otherwise required in employment
with Employer, Employee shall not, during the course of his employment or at any
time following termination of his employment, directly or indirectly, disclose,
publish, communicate, or use on his behalf or another's behalf, any Proprietary
Information. If during or after his employment Employee has any questions about
whether particular information is Proprietary Information he shall consult with
Employer's Corporate Secretary.
2.04. Non-Competition.
Employee shall not, during the Non-Compete Period, engage in Competitive
Employment, whether paid or unpaid and whether as a consultant, employee, or
otherwise. This provision shall not apply if, within one year following a Change
in Control:
(i) Employer terminates Employee's employment with Employer for any
reason other than Termination for Cause or Total Disability; or
(ii) Employee terminates his employment with Employer upon
Constructive Discharge.
If Employee ceases to be employed by Employer because of the sale, spin-off,
divestiture, or other disposition by Employer of the Subsidiary, division, or
other divested unit employing Employee, this provision shall continue to apply
during the NonCompete Period, except that Employee's continued employment for
the Subsidiary, division, or other divested unit disposed of by the Employer
shall not be deemed a violation of this provision.
Employee agrees that because of the worldwide nature of Employer's business,
breach of this agreement by accepting Competitive Employment anywhere in the
United States would irreparably injure Employer and that, therefore, a more
limited geographic restriction is neither feasible nor appropriate to protect
Employer's interests.
2
<PAGE>
2.05. Inducement of Employees, Customers and Others.
During the term of his employment and the Non-Compete Period, Employee shall not
directly or indirectly solicit, induce, or encourage any employee, consultant,
agent, or customer of Employer with whom he has worked or about whom he has
gained Proprietary Information to terminate his or its employment, agency, or
customer relationship with Employer or to render services for or transfer
business to any Competitor of Employer.
2.06. Return of Employer's Property.
Employee shall, upon termination of his employment with Employer, return to
Employer all property of Employer in his possession, including all notes,
reports, sketches, plans, published memoranda or other documents, whether in
hard copy or in computer form, created, developed, generated, received, or held
by Employee during employment, concerning or related to Employer's business,
whether containing or relating to Proprietary Information or not. Employee shall
not remove, by e-mail, by removal of computer discs or hard drives, or by other
means, any of the above property containing Proprietary Information, or
reproductions or copies thereof, or any apparatus from Employer's premises
without Employer's authorization.
2.07. Exit Interview.
At Employer's request, Employee shall participate in an exit interview prior to
his Severance Date to provide for the orderly transition of his duties, to
arrange for the return of Employer's property, to discuss his intended new
employment, and to discuss and complete such other matters as may be necessary
to ensure full compliance with this Agreement.
2.08. Confidentiality of Agreement.
Employee shall not disclose or discuss the existence of this Agreement, the
Stock-Based Award, the Special Compensation, or any other terms of the Agreement
except
(i) to members of his immediate family,
(ii) to his financial advisor or attorney, but then only to the extent
necessary for them to assist him
(iii) to a potential employer on a strictly confidential basis, and then
only to the extent necessary for reasonable disclosure in the
course of serious negotiations, or
(iv) as required by law or to enforce his legal rights.
3. Stock-Based Award.
As partial consideration for Employee's agreements hereunder, Employee shall be
granted the Stock-Based Award on the terms set forth in this section.
3
<PAGE>
3.01. Award of Restricted Stock.
Effective as of the date of approval (the "Grant Date") by the Committee,
Employer grants to Employee an award of 3,000 shares of restricted stock under
Sprint's 1990 Restricted Stock Plan, the terms of which are hereby incorporated
into this Agreement by this reference.
(a) Lapse of Restrictions.
Employee may not sell, transfer, assign, pledge, or otherwise encumber or
dispose of shares of restricted stock until the restrictions on the shares
lapse. Restrictions on the shares covered by this award shall lapse, with
respect to 25% of the total shares granted, on each of the first four
anniversaries of the Grant Date.
(b) Rights as Stockholder and Issuance of Shares.
Except as set forth in the 1990 Restricted Stock Plan, Employee shall have all
rights of a stockholder with respect to the shares of restricted stock,
including the right to vote the shares of stock and the right to dividends on
the shares. The shares of restricted stock shall be registered in the name of
the Employee and the certificates evidencing the shares shall, at Employer's
sole election, either (i) bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to the award or (ii) be held in escrow
by the Company. Within 60 days of the Effective Date of this Agreement, the
Employee shall execute a stock power or powers assigning the shares of
restricted stock to Sprint, and Sprint shall hold the stock power and the
certificate in escrow and may use the stock power to effect forfeiture of the
restricted stock to the extent the shares are forfeited under the terms of
this Agreement. Sprint shall cause the certificate evidencing unrestricted
shares of common stock to be issued to the Employee as soon as practicable
after the restrictions lapse on the restricted shares.
3.02. Provisions Applicable to Stock-Based Award.
(a) Acceleration of Stock-Based Award.
(1) Conditions to Acceleration.
The restrictions on all shares of restricted stock that have not otherwise
lapsed shall lapse if, on or after the first anniversary of the Effective
Date, Employee is not in breach of this Agreement and
(i) Employer terminates Employee's employment with Employer for any
reason other than Termination for Cause or Employee's Total
Disability or
(ii) Employee terminates his employment with Employer by reason of
Employee's Constructive Discharge or
(iii) Employee ceases to be employed by Employer because of a sale,
merger, divestiture, or other transaction entered into by
Employer.
4
<PAGE>
(2) No Acceleration on Transfer of Employment to Affiliates.
In no event shall the restrictions lapse on restricted stock as provided in
the prior section upon Employee's ceasing employment with Employer to
commence employment with an Affiliate of Sprint.
(3) Section 280G Limits on Acceleration.
If the acceleration of the vesting of restricted stock or
the exercisability of the stock-based award hereunder, together with all
other payments or benefits contingent on a change in control within the
meaning of Internal Revenue Code Section 280G or any successor provision
("280G"), results in any portion of such payments or benefits to the
Employee not being deductible by the Employer or its successor as a result
of the application of 280G, the Employee's benefits shall be reduced until
the entire amount of the benefits is deductible. The reduction shall be
effected by the exclusion of grants of options, restricted stock, or other
benefits not deductible by Sprint under 280G in reverse chronological order
of grant date from the application of this or other acceleration provision,
until no portion of such benefits is rendered non-deductible by application
of Code Section 280G.
(b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on
Termination of Employment in Certain Circumstances.
Employee shall not be entitled to sell or continue to own
any unvested shares of restricted stock if before such restricted shares
vest,
(i) Employee ceases employment with Employer and begins employment
with an Affiliate of Employer,
(ii) Employer terminates Employee's employment with Employer for
any reason constituting Termination for Cause or by reason of
Employee's Total Disability, or
(iii) Employee terminates his employment with Employer for any
reason other than Employee's Constructive Discharge.
Except as to clause (iii), this provision applies regardless of what
subsequent employment Employee may take.
(c) Tax Withholding.
Employer may withhold the amount of any tax attributable to any amount
payable or shares issuable under this Agreement.
4. Payment of Special Compensation.
In lieu of any payments or benefits available under any and all Employer
severance plans or policies but not in lieu of benefits under Sprint's Long-Term
Disability Plan, Employee shall be entitled to Special Compensation plus any
vacation pay for vacation accrued but not taken by Employee on his Severance
Date, if
(i) Employer terminates Employee's employment with Employer for any reason
other than Termination for Cause or Total Disability or
5
<PAGE>
(ii) Employee terminates his employment with Employer upon Constructive
Discharge.
The payments and benefits provided for in this section shall be
in addition to all other sums then payable and owing to Employee hereunder and,
except as expressly provided herein, shall not be subject to reduction for any
amounts received by Employee for employment or services provided to any Person
other than Employer after the Severance Date and shall be in full settlement and
satisfaction of all of Employee's claims against and demands upon Employer.
Employee's right to receive severance or other benefits pursuant to this section
shall cease immediately if Employee is reemployed by Employer or Employee
materially breaches this Agreement.
5. Dispute Resolution.
5.01. Jurisdiction and Venue.
Employee consents to jurisdiction and venue in the state and federal courts in
and for Johnson County, Kansas, for any and all disputes arising under this
Agreement, provided, however, that Employer may seek injunctive relief in any
court of competent jurisdiction to enjoin any violation of the covenants under
Section 2, as well as seeking damages therefor.
5.02. Remedies.
Employee acknowledges that the restraints and agreements herein provided are
fair and reasonable, that enforcement of the provisions of this Agreement will
not cause him undue hardship and that the provisions are reasonably necessary
and commensurate with the need to protect Employer and its legitimate and
proprietary business interests and property from irreparable harm.
Employee acknowledges that failure to comply with the terms of this Agreement,
particularly the provisions of Section 2, will cause irreparable damage to
Employer. Therefore, Employee agrees that, in addition to any other remedies at
law or in equity available to Employer for Employee's breach or threatened
breach of this Agreement, Employer is entitled to specific performance or
injunctive relief, without bond, against Employee to prevent such damage or
breach, and the existence of any claim or cause of action Employee may have
against Employer shall not constitute a defense thereto.
If Employee materially breaches any provision of Section 2 or if any of those
provisions are held to be unenforceable against Employee
(i) Employee shall return any Special Compensation paid pursuant to this
Agreement and
(ii) if Employee's breach occurs within the five-year period beginning on the
Effective Date of this Agreement, Employee shall return to Employer the
stock received with respect to the Stock-Based Award, or, if Employee has
disposed of the stock, an amount equal to the fair market value thereof on
the date of disposition.
6
<PAGE>
This remedy is a return of consideration and shall be in addition to any other
remedies. During Employee's employment with Employer, the Committee shall
determine whether Employee has materially breached the provisions of Section 2,
and the Committee's determination shall be final.
6. Definitions.
6.01. Affiliate.
"Affiliate" means, with respect to any Person, a Person, other than a Subsidiary
of such Person, (i) controlling, controlled by, or under common control with
such Person and (ii) any other Person with whom such Person reports consolidated
financial information for financial reporting purposes. "Control" for this
purpose means direct or indirect possession by one Person of voting or
management rights of at least 20% with respect to another Person.
6.02. Change in Control.
"Change in Control" means the occurrence of any of the following events:
(i) the acquisition by any "person" or "group" as such terms are defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules thereunder other than
(A) a trustee or other fiduciary holding securities under an
employee benefit plan of Sprint,
(B) Sprint or a corporation owned, directly or indirectly, by the
stockholders of Sprint in substantially the same proportions as their
ownership of stock of Sprint, or
(C) Deutsche Telekom AG or France Telecom, individually or collectively;
of securities of Sprint representing 20% or more of the combined voting
power of Sprint's then outstanding securities; or
(ii) at the end of any two-year period, less than a majority of the
directors of Sprint are directors
(A) who were directors of Sprint at the beginning of the two-year period
or
(B) whose election or nomination as director was approved by a vote 2/3?s
of the then directors described in this clause (ii) of this
Section 6.02 by prior nomination or election; or
(iii) the shareholders of Sprint approve a merger (in which Sprint is not
the surviving operating entity), consolidation, liquidation, or
dissolution of Sprint, or a sale of all or substantially all of the
assets of Sprint; or
(iv) the acquisition by Deutsche Telekom AG or France Telecom, individually
or collectively, of additional securities of the Company that would
result in their possessing in the aggregate 35% or more of the
combined voting power of the Company's then outstanding securities.
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6.03. Committee.
"Committee" means the Organization, Compensation, and Nominating Committee of
Sprint's board of directors.
6.04. Competitive Employment.
"Competitive Employment" means the performance of duties or responsibilities
for a Competitor of Employer
(i) that are of a similar nature or employ similar professional or technical
skills (e.g., marketing, engineering, legal, etc.) to those employed by
Employee in his performance of services for Employer at any time during
the two years before the Severance Date,
(ii) that relate to products or services that are competitive
with Employer's products or services with respect to which Employee
performed services for Employer at any time during the two years before
the Severance Date, or
(iii) in the performance of which Proprietary Information to
which Employee had access at any time during the two-year period before
the Severance Date could be of substantial economic value to the
Competitor of Employer.
6.05. Competitor of Employer.
Because of the highly competitive, evolving nature of Employer's industry, the
identities of companies in competition with Employer are likely to change over
time. The following tests, while not exclusive indications of what employment
may be competitive, are designed to assist the parties and any court in
evaluating whether particular employment is prohibited under this Agreement. A
Sprint Affiliate shall not be a Competitor of Employer.
"Competitor of Employer" means
(i) any Person doing business in the United States whose primary business
is providing local or long distance telephone or wireless service;
(ii) any Person doing business in the United States, who,
together with its Consolidated Affiliates, receives more than
15% of its gross operating revenue from a line of business in
which Employer, together with its Consolidated Affiliates,
receives more than 15% of its gross operating revenues, all
as measured by the most recent available financial
information of both Employer and such other Person, at the
time Employee accepts, or proposes to accept, employment with
or to otherwise perform services for such Person;
(iii) any Person doing business in the United States and operating, for less
than 5 years, a line of business from which Employer derives more than
15% of its gross operating revenues, notwithstanding such Person's
lack of substantial revenues in such line of business; and
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(iv) any Person doing business in the United States, who receives more than
15% of its gross operating revenue from a line of business in which
Employer has operated for less than 5 years,notwithstanding Employer's
lack of substantial revenues in such line of business.
If financial information is not publicly available or is
inadequate for purposes of applying this definition, the burden shall be on the
Employee to demonstrate that such Person is not a Competitor of Employer.
6.06. Consolidated Affiliate.
"Consolidated Affiliate" means, with respect to any person, all Affiliates and
Subsidiaries of such person, if any, with whom the financial statements of such
person are required, under generally accepted accounting principles, to be
reported on a consolidated basis.
6.07. Constructive Discharge.
"Constructive Discharge" means termination by the Employee of his employment
with the Employer by written notice given within 60 days following one or more
of the following events:
(i) unless Employer first offers to Employee a position having an equal or
greater grade rating, reassignment of Employee from his then current
position with Employer to a position having a lower grade rating, in each
case under Employer's methodology of rating employment positions for its
employees generally;
(ii) a reduction in Employee's targeted total compensation by more than 10%
other than by an across-the-board reduction affecting substantially all
similarly situated employees of Employer; or
(iii) a change in the Employee's base employment area to anywhere other than the
Kansas City metropolitan area within one year following a Change in
Control.
6.08. Non-Compete Period.
"Non-Compete Period" means the 18-month period beginning on Employee's Severance
Date. If Employee breaches or violates any of the covenants or provisions of
this Agreement, the running of the Non-Compete Period shall be tolled during the
period the breach or violation continues.
6.09. Person.
"Person" means any individual, corporation, partnership, association, company,
or other entity.
6.10. Proprietary Information.
"Proprietary Information" means trade secrets (such as customer information,
technical and non-technical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process) and other confidential and
proprietary information concerning the products, processes, or services of
Employer
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or Employer's Affiliates, including but not limited to: computer programs,
un-patented or unpatentable inventions, discoveries or improvements; marketing,
manufacturing, or organizational research and development results and plans;
business and strategic plans; sales forecasts and plans; personnel information,
including the identity of other employees of Employer, their responsibilities,
competence, abilities, and compensation; pricing and financial information;
current and prospective customer lists and information on customers or their
employees; information concerning purchases of major equipment or property; and
information about potential mergers or acquisitions which information: (i) has
not been made generally to the public; and (ii) is useful or of value to the
current or anticipated business, or research or development activities of
Employer or of any customer or supplier of Employer, or (iii) has been
identified to Employee as confidential by Employer, either orally or in writing.
6.11. Severance Date.
"Severance Date" means the last day on which Employee actually performs services
as an employee of Employer.
6.12. Severance Period.
"Severance Period" means the 18-month period beginning on Employee's Severance
Date.
6.13. Special Compensation.
"Special Compensation" means Employee's right
(i) to continue to receive during the Severance Period periodic
compensation at the same rate as his base salary in effect at the
Employee's Severance Date;
(ii) to receive bonuses under one or more of Sprint's
Management Incentive Plan, Executive Management Incentive
Plan, and Sales Incentive Compensation Plan in which Employee
participated on the Severance Date (together with other
incentive compensation plans specifically approved for this
purpose by the Committee, the "Short-Term Incentive Plans")
based on the Employee's target amount under such plans on the
Severance Date, and assuming achievement of performance
targets under the Short-Term Incentive Plans of
(A) the actual performance level for periods before the
beginning of the Severance Period and
(B) the lesser of (a) the actual performance level during the
Severance Period and (b) 100% of targeted performance during the
Severance Period,
pro-rating the foregoing performance levels under the ShortTerm Incentive
Plans based on the ratio of the amount of time in each of the foregoing time
periods to the amount of time in the whole performance period under each
Short-Term Incentive Plan;
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(iii) to receive an award under the Long Term Incentive Plan and the
Executive Long Term Incentive Plan (the "Long-Term Incentive
Plans"), assuming achievement of performance targets under the
Long-Term Incentive Plans of
(A) the actual performance level for periods before the
beginning of the Severance Period and
(B) 0% of targeted performance during the Severance Period,
pro-rating the foregoing performance levels under the Long-
Term Incentive Plans based on the ratio of the amount of time
in each of the foregoing time periods to the amount of time in the
whole performance period under each Long-Term Incentive Plan;
(iv) to continue to participate throughout the Severance
Period in all group health plans (as defined in Code section
106(b)(3) or any successor provision of the Internal Revenue
Code of 1986, as amended, including but not limited to any
medical and dental) that Employer continues to make available
to Employer's employees generally and that Employee was participating
in on his Severance Date, except that
participation in those plans after Employee becomes employed
full-time during the Severance Period shall immediately cease
unless Employee elects to continue coverage under the COBRA
continuation provisions of any group health plan by paying
the applicable premium therefor;
(v) to continue to participate throughout the Severance Period in all
group life insurance and qualified or non-qualified retirement
plans that Employer continues to make available to Employer's
employees generally and that Employee was participating in on his
Severance Date;
(vi) to receive out-placement counseling by a firm selected by Employer
to continue until Employee becomes employed;
(vii) to continue to receive throughout the Severance Period all executive
perquisites (including automobile allowance, long distance services
and all miscellaneous services) Employee was entitled to receive
on the Severance Date except country club membership dues and
accrual of vacation; and
(viii) to have the end of the Severance Period treated as Employee's
termination date for purposes of Sprint's employee stock option
plans and restricted stock plans.
Employee shall not be entitled to participate in Sprint's long- and short-term
disability plan after the Severance Date.
6.14. Stock-Based Award.
"Stock-Based Award" means the award of restricted stock under Section 3 of this
Agreement.
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6.15. Subsidiary.
"Subsidiary" means, with respect to any Person (the "Controlling Person"), all
other Persons (the "Controlled Persons") in whom the Controlling Person, alone
or in combination with one or more of its Subsidiaries, owns or controls more
than 50% of the management or voting rights, together with all Subsidiaries of
such Controlled Persons.
6.16. Termination for Cause.
"Termination for Cause" means termination by Employer of
Employee's employment because of
(i) conduct by the Employee that violates the Employers code of
ethics or reflects adversely on the Employee's honesty or
(ii) Employee's willful engagement in conduct that is materially injurious
to the Employer.
Termination for failure to meet performance expectations, unless willful,
continuing, and substantial, shall not be deemed a Termination for Cause.
6.17. Total Disability.
"Total Disability" shall have the same meaning as in Sprint's Long Term
Disability Plan, as amended from time to time.
7. General Provisions.
7.01. Obligations to Survive Termination of Employment.
Employee's obligations under this Agreement shall survive his termination of
employment with Employer.
7.02. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of Employee's
executors, administrators, legal representatives, heirs, and legatees and to
Employer's successors and assigns.
7.03. Partial Invalidity.
The various provisions of this Agreement are intended to be severable and to
constitute independent and distinct binding obligations. Should any provision of
this Agreement be determined to be void and unenforceable, in whole or in part,
it shall not be deemed to affect or impair the validity of any other provision
or part thereof, and such provision or part thereof shall be deemed modified to
the extent required to permit enforcement. Without limiting the generality of
the foregoing, if the scope of any provision contained in this Agreement is too
broad to permit enforcement to its full extent, but may be enforceable by
limitations thereon, such provision shall be enforced to the maximum extent
permitted by law, and Employee hereby agrees that such scope may be judicially
modified accordingly.
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7.04. Waiver.
The waiver by either party of a breach of any provision of this Agreement by any
other party shall not operate or be construed as a waiver of any subsequent
breach.
7.05. Prior Agreements Merged into Agreement.
This Agreement represents the entire understanding of the parties and, to the
extent that there is any conflict, supersedes all other agreements with respect
to the subject matter hereof.
7.06. Notices.
Any notice or other communication required or permitted to be given hereunder
shall be determined to have been duly given to any party
(i) upon actual receipt at the address of such party specified
below if delivered personally or by regular U.S. mail;
(ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of
transmission if transmitted by facsimile, but only if a copy is also
sent by regular mail or courier;
(iii) when delivery is certified if sent as certified mail, return receipt
requested, addressed, in any case to the party at the following
addresses:
If to Employee: If to Employer:
John E. Berndt Sprint Corporation
3525 Twin Lakes Way Attn: Corporate Secretary
Plano, TX 75093 2330 Shawnee Mission Parkway
Westwood, KS 66205
FAX: (913) 624-2256
or to such other address or telecopy number as any party may designate by
written notice in the aforesaid manner, or with respect to Employee, such
address as Employee may provide Employer for purposes of its human resources
database.
7.07. Governing Law.
Because Employer's business is headquartered in Kansas, and to ensure uniformity
of enforcement of this Agreement, the validity, interpretation, and enforcement
of this Agreement shall be governed by the laws of the State of Kansas.
7.08. Number and Gender.
Wherever the context requires, each term stated in either the singular or plural
shall include the singular and the plural, and the pronouns stated in either the
masculine, the feminine, or the neuter gender shall include the masculine,
feminine, or neuter as appropriate.
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7.09. Headings.
The headings of the Sections of this Agreement are for reference purposes only
and do not define or limit, and shall not be used to interpret or construe the
contents of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and effective as of April 20, 1998.
SPRINT CORPORATION
by: /s/ Don A. Jensen
Don A. Jensen, Vice President
and Secretary
/s/ John E. Berndt
John E. Berndt, Employee
<PAGE>
Special Compensation and Non-Compete Agreement
THIS AGREEMENT is entered into as of the 13th day of April, 1998 (the "Effective
Date"), by and between SPRINT CORPORATION, a Kansas corporation ("Sprint," and
it, together with its Subsidiaries, the "Employer"), and LEN LAUER ("Employee").
Recitals
1.Employer is engaged in the telecommunications and related businesses. This
is a worldwide business that may be conducted from sites and serve
customers throughout the world.
2.By virtue of his work for Employer, Employee has gained
and will continue to gain additional valuable Proprietary Information of
Employer.
3.Employer desires to enter into this Agreement to provide severance and
other benefits for Employee in exchange for Employee's agreement to
maintain the confidentiality of certain information and to refrain from
competing with Employer during and after termination of his employment
with Employer.
Capitalized terms are defined in Section 6 or parenthetically throughout this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual promises contained herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the parties, the
parties hereby agree as follows:
1. Employment At Will.
Employee's employment may be terminated by either party for any reason. Employee
shall provide Employer with written notice of his intent to terminate at least
30 days before the effective date of the termination. Except in the event of
Termination for Cause, Employer shall provide Employee with written notice of
its intent to terminate Employee's employment at least 30 days before the
effective date of the termination.
2. Employee's Covenants.
2.01. Committee Approval.
This Agreement is contingent on the Committee's approval of the Stock-based
Award.
2.02. Exclusivity of Services.
Employee shall, during his employment with Employer, owe an undivided duty of
loyalty to Employer and agrees to devote his entire business time and attention
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to the performance of those duties and responsibilities and to
use his best efforts to promote and develop the business of Employer. Employee
shall adhere to the conflicts of interest provisions set forth in Section 7 of
the Sprint Code of Ethics (or any successor provision, which is incorporated by
this reference) as in effect as of the date of this Agreement and
as may be amended from time to time hereafter. The determination of the
Committee as to the Employee's compliance with this provision shall be final.
2.03. Proprietary Information.
Employee acknowledges that during the course of his employment he has learned or
will learn or develop Proprietary Information. Employee further acknowledges
that unauthorized disclosure or use of such Proprietary Information, other than
in discharge of Employee's duties, will cause Employer irreparable harm.
Except in the course of his employment with Employer under this Agreement, in
the pursuit of the business of Employer, or as otherwise required in employment
with Employer, Employee shall not, during the course of his employment or at any
time following termination of his employment, directly or indirectly, disclose,
publish, communicate, or use on his behalf or another's behalf, any Proprietary
Information. If during or after his employment Employee has any questions about
whether particular information is Proprietary Information he shall consult with
Employer's Corporate Secretary.
2.04. Non-Competition.
Employee shall not, during the Non-Compete Period, engage in Competitive
Employment, whether paid or unpaid and whether as a consultant, employee, or
otherwise. This provision shall not apply if, within one year following a Change
in Control:
(i) Employer terminates Employee's employment with Employer for any
reason other than Termination for Cause or Total Disability; or
(ii) Employee terminates his employment with Employer upon Constructive
Discharge.
If Employee ceases to be employed by Employer because of the
sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary,
division, or other divested unit employing Employee, this provision shall
continue to apply during the NonCompete Period, except that Employee's continued
employment for the Subsidiary, division, or other divested unit disposed of by
the Employer shall not be deemed a violation of this provision.
Employee agrees that because of the worldwide nature of
Employer's business, breach of this agreement by accepting Competitive
Employment anywhere in the United States would irreparably injure Employer and
that, therefore, a more limited geographic restriction is neither feasible nor
appropriate to protect Employer's interests.
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2.05. Inducement of Employees, Customers and Others.
During the term of his employment and the Non-Compete Period, Employee shall not
directly or indirectly solicit, induce, or encourage any employee, consultant,
agent, or customer of Employer with whom he has worked or about whom he has
gained Proprietary Information to terminate his or its employment, agency, or
customer relationship with Employer or to render services for or transfer
business to any Competitor of Employer.
2.06. Return of Employer's Property.
Employee shall, upon termination of his employment with Employer, return to
Employer all property of Employer in his possession, including all notes,
reports, sketches, plans, published memoranda or other documents, whether in
hard copy or in computer form, created, developed, generated, received, or held
by Employee during employment, concerning or related to Employer's business,
whether containing or relating to Proprietary Information or not. Employee shall
not remove, by e-mail, by removal of computer discs or hard drives, or by other
means, any of the above property containing Proprietary Information, or
reproductions or copies thereof, or any apparatus from Employer's premises
without Employer's authorization.
2.07. Exit Interview.
At Employer's request, Employee shall participate in an exit interview prior to
his Severance Date to provide for the orderly transition of his duties, to
arrange for the return of Employer's property, to discuss his intended new
employment, and to discuss and complete such other matters as may be necessary
to ensure full compliance with this Agreement.
2.08. Confidentiality of Agreement.
Employee shall not disclose or discuss the existence of this Agreement, the
Stock-Based Award, the Special Compensation, or any other terms of the Agreement
except
(i) to members of his immediate family,
(ii) to his financial advisor or attorney, but then only to the extent
necessary for them to assist him
(iii) to a potential employer on a strictly confidential basis, and then
only to the extent necessary for reasonable disclosure in the
course of serious negotiations, or
(iv) as required by law or to enforce his legal rights.
3. Stock-Based Award.
As partial consideration for Employee's agreements hereunder, Employee shall be
granted the Stock-Based Award on the terms set forth in this section.
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3.01. Award of Restricted Stock.
Effective as of the date of approval (the "Grant Date") by the Committee,
Employer grants to Employee an award of 10,000 shares
of restricted stock under Sprint's 1990 Restricted Stock Plan, the terms of
which are hereby incorporated into this Agreement by this reference.
(a) Lapse of Restrictions.
Employee may not sell, transfer, assign, pledge, or otherwise encumber or
dispose of shares of restricted stock until the restrictions on the shares
lapse. Restrictions on the shares covered by this award shall lapse, with
respect to one-third of the total shares granted, on each of the first three
anniversaries of the Grant Date.
(b) Rights as Stockholder and Issuance of Shares.
Except as set forth in the 1990 Restricted Stock Plan, Employee shall have all
rights of a stockholder with respect
to the shares of restricted stock, including the right to vote the shares of
stock and the right to dividends on the shares. The shares of restricted stock
shall be registered in the name of the Employee and the certificates
evidencing the shares shall, at Employer's sole election, either (i) bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to the award or (ii) be held in escrow by the Company. Within 60
days of the Effective Date of this Agreement, the Employee shall execute a
stock power or powers assigning the shares of restricted stock to Sprint, and
Sprint shall hold the stock power and the certificate in escrow and may use
the stock power to effect forfeiture of the restricted stock to the extent the
shares are forfeited under the terms of this Agreement. Sprint shall cause the
certificate evidencing unrestricted shares of common stock to be issued to the
Employee as soon as practicable after the restrictions lapse on the restricted
shares.
3.02. Provisions Applicable to Stock-Based Award.
(a) Acceleration of Stock-Based Award.
(1) Conditions to Acceleration.
The restrictions on all shares of restricted stock that have not otherwise
lapsed shall lapse if, on or after the first anniversary of the Effective
Date, Employee is not in breach of this Agreement and
(i) Employer terminates Employee's employment with Employer for
any reason other than Termination for Cause or Employee's
Total Disability or
(ii) Employee terminates his employment with Employer by reason
of Employee's Constructive Discharge or
(iii) Employee ceases to be employed by Employer because of a
sale, merger, divestiture, or other transaction entered into
by Employer.
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(2) No Acceleration on Transfer of Employment to Affiliates.
In no event shall the restrictions lapse on restricted stock as provided in
the prior section upon Employee's ceasing employment with Employer to
commence employment with an Affiliate of Sprint.
(3) Section 280G Limits on Acceleration.
If the acceleration of the vesting of restricted stock or
the exercisability of the stock-based award hereunder, together with all
other payments or benefits contingent on a change in control within the
meaning of Internal Revenue Code Section 280G or any successor provision
("280G"), results in any portion of such payments or benefits to the
Employee not being deductible by the Employer or its successor as a result
of the application of 280G, the Employee's benefits shall be reduced until
the entire amount of the benefits is deductible. The reduction shall be
effected by the exclusion of grants of options, restricted stock, or other
benefits not deductible by Sprint under 280G in reverse chronological order
of grant date from the application of this or other acceleration provision,
until no portion of such benefits is rendered non-deductible by application
of Code Section 280G.
(b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination
of Employment in Certain Circumstances.
Employee shall not be entitled to sell or continue to own any unvested
shares of restricted stock if before such restricted shares vest,
(i) Employee ceases employment with Employer and begins
employment with an Affiliate of Employer,
(ii) Employer terminates Employee's employment with Employer for
any reason constituting Termination for Cause or by reason
of Employee's Total Disability, or
(iii) Employee terminates his employment with Employer for any
reason other than Employee's Constructive Discharge.
Except as to clause (iii), this provision applies regardless of what
subsequent employment Employee may take.
(c) Tax Withholding.
Employer may withhold the amount of any tax attributable to any amount
payable or shares issuable under this Agreement.
4. Payment of Special Compensation.
In lieu of any payments or benefits available under any and all Employer
severance plans or policies but not in lieu of benefits under Sprint's Long-Term
Disability Plan, Employee shall be entitled to Special Compensation plus any
vacation pay for vacation accrued but not taken by Employee on his Severance
Date, if
(i) Employer terminates Employee's employment with Employer for any reason
other than Termination for Cause or Total Disability or
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(ii) Employee terminates his employment with Employer upon
Constructive Discharge.
The payments and benefits provided for in this section shall be
in addition to all other sums then payable and owing to Employee hereunder and,
except as expressly provided herein, shall not be subject to reduction for any
amounts received by Employee for employment or services provided to any Person
other than Employer after the Severance Date and shall be in full settlement and
satisfaction of all of Employee's claims against and demands upon Employer.
Employee's right to receive severance or other benefits pursuant to this section
shall cease immediately if Employee is reemployed by Employer or Employee
materially breaches this Agreement.
5. Dispute Resolution.
5.01. Jurisdiction and Venue.
Employee consents to jurisdiction and venue in the state and federal courts in
and for Johnson County, Kansas, for any and all disputes arising under this
Agreement, provided, however, that Employer may seek injunctive relief in any
court of competent jurisdiction to enjoin any violation of the covenants under
Section 2, as well as seeking damages therefor.
5.02. Remedies.
Employee acknowledges that the restraints and agreements herein provided are
fair and reasonable, that enforcement of the provisions of this Agreement will
not cause him undue hardship and that the provisions are reasonably necessary
and commensurate with the need to protect Employer and its legitimate and
proprietary business interests and property from irreparable harm.
Employee acknowledges that failure to comply with the terms of
this Agreement, particularly the provisions of Section 2, will cause irreparable
damage to Employer. Therefore, Employee agrees that, in addition to any other
remedies at law or in equity available to Employer for Employee's breach or
threatened breach of this Agreement, Employer is entitled to specific
performance or injunctive relief, without bond, against Employee to prevent such
damage or breach, and the existence of any claim or cause of action Employee may
have against Employer shall not constitute a defense thereto.
If Employee materially breaches any provision of Section 2 or if any of those
provisions are held to be unenforceable against Employee
(i) Employee shall return any Special Compensation paid pursuant
to this Agreement and
(ii) if Employee's breach occurs within the five-year period beginning on the
Effective Date of this Agreement, Employee shall return to Employer the
stock received with respect to the Stock-Based Award, or, if Employee has
disposed of the stock, an amount equal to the fair market value thereof on
the date of disposition.
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This remedy is a return of consideration and shall be in addition to any other
remedies. During Employee's employment with Employer, the Committee shall
determine whether Employee has materially breached the provisions of Section 2,
and the Committee's determination shall be final.
6.Definitions.
6.01. Affiliate.
"Affiliate" means, with respect to any Person, a Person, other
than a Subsidiary of such Person, (i) controlling, controlled by, or under
common control with such Person and (ii) any other Person with whom such Person
reports consolidated financial information for financial reporting purposes.
"Control" for this purpose means direct or indirect possession by one Person of
voting or management rights of at least 20% with respect to another Person.
6.02. Change in Control.
"Change in Control" means the occurrence of any of the following events:
(i) the acquisition by any "person" or "group" as such terms are defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules thereunder other than
(A) a trustee or other fiduciary holding securities under an employee
benefit plan of Sprint,
(B) Sprint or a corporation owned, directly or indirectly, by the
stockholders of Sprint in substantially the same proportions as
their ownership of stock of Sprint, or
(C) Deutsche Telekom AG or France Telecom, individually or collectively;
of securities of Sprint representing 20% or more of the combined voting
power of Sprint's then outstanding securities; or
(ii) at the end of any two-year period, less than a majority of the
directors of Sprint are directors
(A) who were directors of Sprint at the beginning of the two-year period or
(B) whose election or nomination as director was approved by a vote 2/3?s
of the then directors described in this clause (ii) of this
Section 6.02 by prior nomination or election; or
(iii) the shareholders of Sprint approve a merger (in which Sprint is not
the surviving operating entity), consolidation, liquidation, or
dissolution of Sprint, or a sale of all or substantially all of the
assets of Sprint; or
(iv) the acquisition by Deutsche Telekom AG or France Telecom, individually
or collectively, of additional securities of the Company that would
result in their possessing in the aggregate 35% or more of the
combined voting power of the Company's then outstanding securities.
7
<PAGE>
6.03. Committee.
"Committee" means the Organization, Compensation, and Nominating Committee of
Sprint's board of directors.
6.04. Competitive Employment.
"Competitive Employment" means the performance of duties or responsibilities
for a Competitor of Employer
(i) that are of a similar nature or employ similar professional or technical
skills (e.g., marketing, engineering, legal, etc.) to those employed by
Employee in his performance of services for Employer at any time during
the two years before the Severance Date,
(ii) that relate to products or services that are competitive
with Employer's products or services with respect to which Employee
performed services for Employer at any time during the two years before
the Severance Date, or
(iii) in the performance of which Proprietary Information to
which Employee had access at any time during the two-year period before
the Severance Date could be of substantial economic value to the
Competitor of Employer.
6.05. Competitor of Employer.
Because of the highly competitive, evolving nature of Employer's industry, the
identities of companies in competition with Employer are likely to change over
time. The following tests, while not exclusive indications of what employment
may be competitive, are designed to assist the parties and any court in
evaluating whether particular employment is prohibited under this Agreement. A
Sprint Affiliate shall not be a Competitor of Employer.
"Competitor of Employer" means
(i) any Person doing business in the United States whose primary business
is providing local or long distance telephone or wireless service;
(ii) any Person doing business in the United States, who,
together with its Consolidated Affiliates, receives more than
15% of its gross operating revenue from a line of business in
which Employer, together with its Consolidated Affiliates,
receives more than 15% of its gross operating revenues, all
as measured by the most recent available financial
information of both Employer and such other Person, at the
time Employee accepts, or proposes to accept, employment with
or to otherwise perform services for such Person;
(iii) any Person doing business in the United States and operating, for
less than 5 years, a line of business from which Employer derives
more than 15% of its gross operating revenues, notwithstanding such
Person's lack of substantial revenues in such line of business; and
8
<PAGE>
(iv) any Person doing business in the United States, who receives more
than 15% of its gross operating revenue from a line of business
in which Employer has operated for less than 5 years, notwithstanding
Employer's lack of substantial revenues in such line of business.
If financial information is not publicly available or is
inadequate for purposes of applying this definition, the burden
shall be on the Employee to demonstrate that such Person is not a Competitor of
Employer.
6.06. Consolidated Affiliate.
"Consolidated Affiliate" means, with respect to any person, all Affiliates and
Subsidiaries of such person, if any, with whom the financial statements of such
person are required, under generally accepted accounting principles, to be
reported on a consolidated basis.
6.07. Constructive Discharge.
"Constructive Discharge" means termination by the Employee of his employment
with the Employer by written notice given within 60 days following one or more
of the following events:
(i) unless Employer first offers to Employee a position having an equal
or greater grade rating, reassignment of Employee from his then
current position with Employer to a position having a lower grade
rating, in each case under Employer's methodology of rating
employment positions for its employees generally;
(ii) a reduction in Employee's targeted total compensation by more than
10% other than by an across-the-board reduction affecting
substantially all similarly situated employees of Employer; or
(iii) a change in the Employee's base employment area to anywhere other
than the Kansas City metropolitan area within one year following a
Change in Control.
6.08. Non-Compete Period.
"Non-Compete Period" means the 18-month period beginning on Employee's Severance
Date. If Employee breaches or violates any of the covenants or provisions of
this Agreement, the running of the Non-Compete Period shall be tolled during the
period the breach or violation continues.
6.09. Person.
"Person" means any individual, corporation, partnership, association, company,
or other entity.
6.10. Proprietary Information.
"Proprietary Information" means trade secrets (such as customer information,
technical and non-technical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process) and other confidential and
proprietary information concerning the products, processes, or services of
Employer
9
<PAGE>
or Employer's Affiliates, including but not limited to: computer programs,
un-patented or unpatentable inventions, discoveries or improvements; marketing,
manufacturing, or organizational research and development results and plans;
business and strategic plans; sales forecasts and plans; personnel information,
including the identity of other employees of Employer, their responsibilities,
competence, abilities, and compensation; pricing and financial information;
current and prospective customer lists and information on customers or their
employees; information concerning purchases of major equipment or property; and
information about potential mergers or acquisitions which information: (i) has
not been made generally to the public; and (ii) is useful or of value to the
current or anticipated business, or research or development activities of
Employer or of any customer or supplier of Employer, or (iii) has been
identified to Employee as confidential by Employer, either orally or in writing.
6.11. Severance Date.
"Severance Date" means the last day on which Employee actually performs services
as an employee of Employer.
6.12. Severance Period.
"Severance Period" means the 18-month period beginning on Employee's Severance
Date.
6.13. Special Compensation.
"Special Compensation" means Employee's right
(i) to continue to receive during the Severance Period periodic
compensation at the same rate as his base salary in effect at the
Employee's Severance Date;
(ii) to receive bonuses under one or more of Sprint's
Management Incentive Plan, Executive Management Incentive
Plan, and Sales Incentive Compensation Plan in which Employee
participated on the Severance Date (together with other
incentive compensation plans specifically approved for this
purpose by the Committee, the "Short-Term Incentive Plans")
based on the Employee's target amount under such plans on the
Severance Date, and assuming achievement of performance
targets under the Short-Term Incentive Plans of
(A) the actual performance level for periods before the
beginning of the Severance Period and
(B) the lesser of (a) the actual performance level during the
Severance Period and (b) 100% of targeted performance during the
Severance Period,
pro-rating the foregoing performance levels under the ShortTerm Incentive
Plans based on the ratio of the amount of time in each of the foregoing time
periods to the amount of time in the whole performance period under each
Short-Term Incentive Plan;
10
<PAGE>
(iii) to receive an award under the Long Term Incentive Plan and the
Executive Long Term Incentive Plan (the "Long-Term Incentive Plans"),
assuming achievement of performance targets under the Long-Term
Incentive Plans of
(A the actual performance level for periods before the
beginning of the Severance Period and
(B) 0% of targeted performance during the Severance Period,
pro-rating the foregoing performance levels under the Long-
Term Incentive Plans based on the ratio of the amount of time
in each of the foregoing time periods to the amount of time in the whole
performance period under each Long-Term Incentive Plan;
(iv) to continue to participate throughout the Severance
Period in all group health plans (as defined in Code section
106(b)(3) or any successor provision of the Internal Revenue
Code of 1986, as amended, including but not limited to any
medical and dental) that Employer continues to make available
to Employer's employees generally and that Employee was par
ticipating in on his Severance Date, except that
participation in those plans after Employee becomes employed
full-time during the Severance Period shall immediately cease
unless Employee elects to continue coverage under the COBRA
continuation provisions of any group health plan by paying
the applicable premium therefor;
(v) to continue to participate throughout the Severance Period in all
group life insurance and qualified or non-qualified retirement
plans that Employer continues to make available to Employer's
employees generally and that Employee was participating in on his
Severance Date;
(vi) to receive out-placement counseling by a firm selected by
Employer to continue until Employee becomes employed;
(vii) to continue to receive throughout the Severance Period all executive
perquisites (including automobile allowance, long distance services
and all miscellaneous services) Employee was entitled to receive
on the Severance Date except country club membership dues and
accrual of vacation; and
(viii) to have the end of the Severance Period treated as
Employee's termination date for purposes of Sprint's employee stock
option plans and restricted stock plans.
Employee shall not be entitled to participate in Sprint's long- and short-term
disability plan after the Severance Date.
6.14. Stock-Based Award.
"Stock-Based Award" means the award of restricted stock under Section 3 of this
Agreement.
11
<PAGE>
6.15. Subsidiary.
"Subsidiary" means, with respect to any Person (the "Controlling Person"), all
other Persons (the "Controlled Persons") in whom the Controlling Person, alone
or in combination with one or more of its Subsidiaries, owns or controls more
than 50% of the management or voting rights, together with all Subsidiaries of
such Controlled Persons.
6.16. Termination for Cause.
"Termination for Cause" means termination by Employer of
Employee's employment because of
(i) conduct by the Employee that violates the Employers code of
ethics or reflects adversely on the Employee's honesty or
(ii) Employee's willful engagement in conduct that is materially injurious
to the Employer.
Termination for failure to meet performance expectations, unless willful,
continuing, and substantial, shall not be deemed a Termination for Cause.
6.17. Total Disability.
"Total Disability" shall have the same meaning as in Sprint's Long Term
Disability Plan, as amended from time to time.
7. General Provisions.
7.01. Obligations to Survive Termination of Employment.
Employee's obligations under this Agreement shall survive his termination of
employment with Employer.
7.02. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of Employee's
executors, administrators, legal representatives, heirs, and legatees and to
Employer's successors and assigns.
7.03. Partial Invalidity.
The various provisions of this Agreement are intended to be severable and to
constitute independent and distinct binding obligations. Should any provision of
this Agreement be determined to be void and unenforceable, in whole or in part,
it shall not be deemed to affect or impair the validity of any other provision
or part thereof, and such provision or part thereof shall be deemed modified to
the extent required to permit enforcement. Without limiting the generality of
the foregoing, if the scope of any provision contained in this Agreement is too
broad to permit enforcement to its full extent, but may be enforceable by
limitations thereon, such provision shall be enforced to the maximum extent
permitted by law, and Employee hereby agrees that such scope may be judicially
modified accordingly.
12
<PAGE>
7.04. Waiver.
The waiver by either party of a breach of any provision of this Agreement by any
other party shall not operate or be construed as a waiver of any subsequent
breach.
7.05. Prior Agreements Merged into Agreement.
This Agreement represents the entire understanding of the parties and, to the
extent that there is any conflict, supersedes all other agreements with respect
to the subject matter hereof.
7.06. Notices.
Any notice or other communication required or permitted to be given hereunder
shall be determined to have been duly given to any party
(i) upon actual receipt at the address of such party specified
below if delivered personally or by regular U.S. mail;
(ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of
transmission if transmitted by facsimile, but only if a copy is also
sent by regular mail or courier;
(iii) when delivery is certified if sent as certified mail, return receipt
requested, addressed, in any case to the party at the following
addresses:
If to Employee: If to Employer:
Len Lauer Sprint Corporation
Long Hill Road Attn: Corporate Secretary
New Vernon, N.J. 07976 2330 Shawnee Mission Parkway
Westwood, KS 66205
FAX: (913) 624-2256
or to such other address or telecopy number as any party may designate by
written notice in the aforesaid manner, or with respect to Employee, such
address as Employee may provide Employer for purposes of its human resources
database.
7.07. Governing Law.
Because Employer's business is headquartered in Kansas, and to ensure uniformity
of enforcement of this Agreement, the validity, interpretation, and enforcement
of this Agreement shall be governed by the laws of the State of Kansas.
7.08. Number and Gender.
Wherever the context requires, each term stated in either the singular or plural
shall include the singular and the plural, and the pronouns stated in either the
masculine, the feminine, or the neuter gender shall include the masculine,
feminine, or neuter as appropriate.
13
<PAGE>
7.09. Headings.
The headings of the Sections of this Agreement are for reference purposes only
and do not define or limit, and shall not be used to interpret or construe the
contents of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and effective as of April 13, 1998.
SPRINT CORPORATION
by: /s/ Don A. Jensen
Don A. Jensen, Vice President
and Secretary
/s/ Len Lauer
Len Lauer, Employee
Exhibit 10(c)
Summary of Amendments to the Executive Deferred Compensation Plan and the
Directors' Deferred Fee Plan
The Executive Deferred Compensation Plan and the Directors' Deferred Fee
Plan were amended to provide that transfers shall automatically be processed
from each participant's Accounts C and CC (representing an investment under
those plans of common stock of 360 Communications Company, Inc.) into Accounts B
and BB, respectively, as follows: one-quarter of the value of each participant's
Account C and Account CC shall be transferred as of August 31, 1998; one-third
of the remaining value of each participant's Account C and Account CC shall be
transferred as of September 30, 1998, one-half of the remaining value of each
participant's Account C and Account CC shall be transferred as of October 31,
1998, and the remaining value of each participant's Account C and Account CC
shall be transferred as of November 30, 1998. As soon as practicable following
November 30, 1998, Accounts C and CC shall be eliminated.
<TABLE>
<CAPTION>
EXHIBIT (12)
SPRINT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Quarter Ended Year-to-Date
June 30, June 30,
----------------- ---------------- ----------------- ----------------
1998 1997 1998 1997
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
(in millions)
Earnings
<S> <C> <C> <C> <C>
Income before income taxes and
extraordinary item $ 363.6 $ 415.0 $ 731.4 $ 900.2
Capitalized interest (22.7) (27.7) (41.3) (56.7)
Equity in losses of less than 50% owned
entities 222.9 151.4 453.6 252.3
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Subtotal 563.8 538.7 1,143.7 1,095.8
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Fixed charges
Interest charges 84.0 68.4 169.3 142.2
Interest factor of operating rents 39.4 31.9 75.8 63.5
Pre-tax cost of preferred stock
dividends of subsidiaries - 0.1 0.1 0.2
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total fixed charges 123.4 100.4 245.2 205.9
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Earnings, as adjusted $ 687.2 $ 639.1 $ 1,388.9 $ 1,301.7
--- ------------- -- ------------- --- ------------- -- -------------
Ratio of earnings to fixed charges 5.57 6.37 5.66 6.32
--- ------------- -- ------------- --- ------------- -- -------------
Note: The ratios were computed by dividing fixed charges into the sum of
earnings (after certain adjustments) and fixed charges. Earnings
include income from continuing operations before taxes, plus equity in
the net losses of less-than-50% owned entities, less capitalized
interest. Fixed charges include (a) interest on all debt of continuing
operations (including amortization of debt issuance costs), (b) the
interest component of operating rents, and (c) the pre-tax cost of
subsidiary preferred stock dividends.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 93,300
<SECURITIES> 0
<RECEIVABLES> 2,492,600
<ALLOWANCES> 159,700
<INVENTORY> 381,000
<CURRENT-ASSETS> 3,892,700
<PP&E> 25,263,100
<DEPRECIATION> 12,375,400
<TOTAL-ASSETS> 19,790,700
<CURRENT-LIABILITIES> 3,206,400
<BONDS> 4,406,200
9,500
0
<COMMON> 1,091,300
<OTHER-SE> 8,131,900
<TOTAL-LIABILITY-AND-EQUITY> 19,790,700
<SALES> 0
<TOTAL-REVENUES> 7,878,100
<CGS> 0
<TOTAL-COSTS> 4,711,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,000
<INCOME-PRETAX> 731,400
<INCOME-TAX> 301,400
<INCOME-CONTINUING> 430,000
<DISCONTINUED> 0
<EXTRAORDINARY> (4,400)
<CHANGES> 0
<NET-INCOME> 425,600
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.97
</TABLE>
