<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 1-04721
SPRINT CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-0457967
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 11315, Kansas City, Missouri 64112
(Address of principal executive (Zip Code)
offices) (913) 624-3000
Registrant's telephone number,
including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Preferred Stock, without par value
First series, $7.50 stated value New York Stock Exchange
Second series, $6.25 stated value New York Stock Exchange
FON Common Stock, Series 1, $2.00
par value, and FON Group Rights New York Stock Exchange
PCS Common Stock, Series 1, $1.00
par value, and PCS Group Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 these shorter period that the
registrant was required to file these reports), and (2) has been subject to
these filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Aggregate market value of voting and non-voting stock held by non-affiliates at
February 29, 2000, was $86,009,182,449.
COMMON SHARES OUTSTANDING AT FEBRUARY 29, 2000:
<TABLE>
<S> <C>
FON COMMON STOCK 789,829,611
PCS COMMON STOCK 913,848,026
CLASS A COMMON STOCK 86,236,036
</TABLE>
Documents incorporated by reference.
Registrant's definitive proxy statement filed under Regulation 14A promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, which definitive proxy statement is to be filed within 120 days after the
end of Registrant's fiscal year ended December 31, 1999, is incorporated by
reference in Part III hereof.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT ON FORM 10-K Sprint Corporation
Part I
- --------------------------------------------------------------------------------
Item 1. Business
- --------------------------------------------------------------------------------
The Corporation
Sprint Corporation, incorporated in 1938 under the laws of Kansas, is mainly a
holding company.
In October 1999, Sprint announced a definitive merger agreement with MCI
WorldCom. Under the agreement, each share of Sprint FON stock will be exchanged
for $76 of MCI WorldCom common stock, subject to a collar. In addition, each
share of Sprint PCS stock will be exchanged for one share of a new WorldCom PCS
tracking stock and 0.116025 shares of MCI WorldCom common stock. The terms of
the WorldCom PCS tracking stock will be equivalent to those of Sprint's PCS
common stock and will track the performance of the company's personal
communication services (PCS) business. The merger is subject to the approvals
of Sprint and MCI WorldCom shareholders as well as approvals from the Federal
Communications Commission (FCC), the Justice Department, various state
government bodies and foreign antitrust authorities. The companies anticipate
that the merger will close in the second half of 2000.
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc. (TCI), Comcast
Corporation and Cox Communications, Inc. (the Cable Partners). In exchange,
Sprint issued the Cable Partners special low-vote PCS shares and warrants to
acquire additional PCS shares. Sprint also issued the Cable Partners shares of
a new class of preferred stock convertible into PCS shares. The purchase of the
Cable Partners' interests is referred to as the PCS Restructuring. In the 1999
second quarter, Cox Communications, Inc. exercised a put option requiring
Sprint to purchase the remaining 40.8% interest in Cox PCS. Sprint issued
additional low vote PCS shares in exchange for this interest.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless PCS operations. These operations are referred to as the PCS Group.
The FON stock is intended to reflect the performance of all of Sprint's other
operations. These operations are referred to as the FON Group and include the
following:
. Core businesses
. Long distance division
. Local division
. Product distribution and directory publishing businesses
. Activities to develop and deploy Sprint ION(SM), Integrated On-Demand
Network
. Other strategic ventures.
Characteristics of Tracking Stock
FON and PCS shareholders are subject to the risks related to all of Sprint's
businesses, assets and liabilities. Owning FON or PCS shares does not represent
a direct legal interest in the assets and liabilities of the Groups. Rather,
shareholders remain invested in Sprint and continue to vote as a single voting
class for Board member elections (other than Class A directors elected by FT
and DT) and most other company matters.
The vote per share of the PCS stock is different from the vote of the FON
stock. The FON stock has one vote per share. The vote of the PCS stock is based
on the market price of a share of PCS stock relative to the market price of a
share of FON stock for a period of time prior to the record date for a
shareholders meeting. The shares of PCS stock held by the Cable Partners have
1/10 of the vote per share of the publicly traded PCS stock. The shares held by
the Cable Partners convert into full voting PCS stock upon sale to the public.
For 90 days after the merger, each Cable Partner will have the right to convert
all of its shares of WorldCom series 2 PCS common stock and WorldCom series 2
common stock into an equivalent number of shares of WorldCom series 1 PCS
common stock and WorldCom common stock, respectively.
The price of the FON stock may not accurately reflect the performance of the
FON Group and the price of the PCS stock may not accurately reflect the
performance of the PCS Group. Events affecting the results of one Group could
adversely affect the results and stock price of the other Group. Net losses of
either Group, and dividends or distributions on, or repurchases of, one stock
will reduce Sprint funds legally available for dividends on both stocks. Debt
incurred by either Group could affect the credit rating of Sprint as a whole
and increase borrowing costs for both Groups.
1
<PAGE>
Holders of one of the stocks may have different or conflicting interests from
the holders of the other stock. For example, conflicts could arise with respect
to decisions by the Sprint Board to (1) convert the outstanding shares of PCS
stock into shares of FON stock, (2) sell assets of a Group, either to the other
Group or to a third party, (3) transfer assets from one Group to the other
Group, (4) formulate public policy positions which could have an unequal effect
on the interests of the FON Group and the PCS Group, and (5) make operational
and financial decisions with respect to one Group that could be considered to
be detrimental to the other Group. Material conflicts are addressed in
accordance with the Tracking Stock Policies adopted by the Sprint Board. In
addition, the Board has appointed a committee of its members (the Capital Stock
Committee) to interpret and oversee the implementation of these policies.
Transfers of assets from the FON Group to the PCS Group treated as an equity
contribution will result in an increase in the intergroup interest of the FON
Group in the PCS Group. This interest is similar to the FON Group holding PCS
stock. A transfer of funds from the PCS Group to the FON Group would decrease
the intergroup interest. An intergroup interest of the PCS Group in the FON
Group cannot be created.
Sprint FON Group
General Overview of the Sprint FON Group
The main activities of the FON Group include its core businesses, consisting of
domestic and international long distance communications, local exchange
communications, and product distribution and directory publishing activities.
The FON Group also includes results from Sprint ION(SM), and other ventures,
including Sprint's investment in EarthLink.
Core Businesses--Long Distance Division
General
The FON Group's long distance division (LDD) is the nation's third-largest long
distance phone company. LDD operates a nationwide, all-digital long distance
communications network that uses fiber-optic and electronic technology. LDD
primarily provides domestic and international voice, video and data
communications services. It consists mainly of Sprint Communications Company
L.P. (the Limited Partnership).
LDD's financial performance for 1999, 1998 and 1997 is summarized as follows:
<TABLE>
- ---------------------------------------------
<CAPTION>
1999 1998 1997
- ---------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $10,567 $9,658 $8,684
-------------------------
Operating income(/1/) $ 1,634 $1,367 $1,025
-------------------------
</TABLE>
(/1/)Includes nonrecurring litigation charges of $20 million in 1997.
Competition
The division competes with AT&T, MCI WorldCom and other telecommunications
providers in all segments of the long distance communications market. AT&T
continues to have the largest market share of the domestic long distance
communications market. The Regional Bell Operating Companies (RBOCS) are
beginning to obtain authorization to provide in-region long distance service,
which is expected to heighten competition. Competition in long distance is
based on price and pricing plans, the types of services offered, customer
service, and communications quality, reliability and availability.
Strategy
In order to achieve profitable market share growth in an increasingly
competitive long distance communications environment, LDD intends to leverage
its principal strategic assets: its national brand, innovative marketing and
pricing plans, its reputation for superior customer service, its state-of-the-
art technology, and offerings available from other FON Group operating entities
and the PCS Group. LDD will focus on expanding its presence in the high-growth
data communications markets and intends to become the provider of choice for
delivery of end-to-end service to companies with complex distributed computing
environments. The FON Group continues to deploy network and systems
infrastructure which provides reliability, cost effectiveness and technological
improvements. In order to create integrated product offerings for its
customers, the FON Group is solidifying the linkage of its long distance
division with Sprint's other operations such as the local division and the PCS
Group. The long distance division is also entering local markets of the RBOCS
through resale and unbundled network element (UNE) offerings of the RBOCS.
These local products will be primarily marketed in connection with long
distance products to customers who desire a single voice service provider but
do not need advanced services. The long distance division also supports Sprint
ION(SM) activities. See "Sprint ION--Strategy" for more details.
Core Businesses--Local Division
General
The local division (LTD) consists of regulated local phone companies serving
more than 8 million access lines in 18 states. LTD provides local phone
services, access by phone customers and other carriers to LTD's local network,
sales of telecommunications equipment, and long distance services within
certain regional calling areas, or LATAs.
LTD's financial performance for 1999, 1998 and 1997 is summarized as follows:
<TABLE>
- ----------------------------------------------------
<CAPTION>
1999 1998 1997
- ----------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues(/1/) $ 5,650 $ 5,372 $ 5,294
--------------------------------
Operating income $ 1,500 $ 1,407 $ 1,392
--------------------------------
</TABLE>
(/1/)Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. For further discussion, see the FON Group's "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
2
<PAGE>
AT&T is LTD's largest customer for network access services. The division's net
operating revenues from services (mainly network access services) provided to
AT&T were 11% in 1999 and 13% in 1998 and 1997. Revenues from AT&T were 4% of
the FON Group's revenues in 1999 and 5% in 1998 and 1997.
Competition
Because LTD operations are largely in secondary and tertiary markets,
competition in its markets is occurring more gradually. There is already some
competition in urban areas served by LTD and for business customers located in
all areas. There continues to be significant competition for intraLATA toll.
The merger of AT&T and TCI may accelerate competition in the areas served by
LTD by enabling AT&T to bypass the local phone company and reach local
customers through the cable of TCI. In addition, wireless services will
continue to grow as an alternative to wireline services as a means of reaching
local customers.
Strategy
To continue to build on its successful track record, LTD has embarked on a
growth strategy whereby it will aggressively market Sprint's entire product
portfolio to its local customers as well as its core product line of advanced
network features and data products. LTD also supports the FON Group's
initiatives with Sprint ION(SM). See "Sprint ION--Strategy" for more details.
Core Businesses--Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
The financial performance for the product distribution and directory publishing
businesses for 1999, 1998 and 1997 is summarized as follows:
<TABLE>
- ----------------------------------------------------
<CAPTION>
1999 1998 1997
- ----------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues(/1/) $ 1,731 $ 1,683 $ 1,454
--------------------------------
Operating income(/1/) $ 242 $ 231 $ 179
--------------------------------
</TABLE>
(/1/)Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. For further discussion, see the FON Group's "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Sprint ION(SM)
Sprint is developing and deploying new integrated communications services,
referred to as Sprint ION. Sprint ION extends Sprint's existing network
capabilities to the customer and enables Sprint to provide the network
infrastructure to meet customers' demands for advanced services including
integrated voice, data, Internet and video. It is also expected to be the
foundation for Sprint to provide advanced services in the competitive local
service market. Sprint will use various advanced services last mile
technologies including dedicated access, Digital Subscriber Line (xDSL), and
Multipoint Multichannel Distribution Services (MMDS).
The financial performance for Sprint ION for 1999, 1998 and 1997 is summarized
as follows:
<TABLE>
- --------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------
(millions)
<S> <C> <C> <C>
Net operating expenses $358 $143 $ 5
-------------
</TABLE>
Strategy
This integrated services capability is expected to generate increased demand
for Sprint's products and services, and at the same time reduce the costs to
provide those services.
Sprint ION intends to rely largely on the long distance division's transmission
infrastructure, Sprint's MMDS capabilities and, to a lesser extent, on the
transmission infrastructure of the local division. Sprint will evaluate whether
facilities should be built, leased or acquired where they currently do not
exist. Because a great amount of future investment will be related to specific
customer contracts, Sprint expects to manage its investment in Sprint ION
consistent with customer demand.
Other Ventures
The "other ventures" segment includes the operating results of the cable TV
service operations of the broadband fixed wireless companies after their 1999
acquisition dates.
This segment also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures. All of the investments and ventures are accounted for
on the equity basis.
The financial performance of the operations of other ventures for 1999, 1998
and 1997 is summarized as follows:
<TABLE>
- ----------------------------------------------------
<CAPTION>
1999 1998 1997
- ----------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $ 20 $ -- $ --
----------------------------
Operating expenses $ 68 $ 40 $ 84
----------------------------
Operating loss $ (48) $ (40) $ (84)
----------------------------
Equity in losses of affiliates $ (89) $ (51) $ (10)
----------------------------
</TABLE>
Operating expenses in 1998 and 1997 mainly relate to the FON Group's offering
of Internet services. In June 1998, the FON Group completed the strategic
alliance to combine its Internet business with EarthLink. As part
3
<PAGE>
of the alliance, EarthLink obtained the FON Group's Sprint Internet Passport
customers and took over the day-to-day operations of those services. In
exchange, the FON Group acquired an equity interest in EarthLink.
This segment previously included the FON Group's investment in Global One. In
January 2000, Sprint reached a definitive agreement with FT and DT to sell its
interest in Global One. The sale was completed in February 2000. Sprint's
equity share of the results of Global One has been reported as a discontinued
operation in Sprint's earnings for all periods presented.
Sprint PCS Group
General Overview of the Sprint PCS Group
The PCS Group includes Sprint's domestic wireless PCS operations. It operates a
100% digital PCS wireless network in the United States, with licenses to
provide service nationwide using a single frequency and a single technology. At
year-end 1999, the PCS Group, together with affiliates, operated PCS systems in
over 360 metropolitan markets, including the 50 largest U.S. metropolitan
areas. The PCS Group has licenses to serve more than 270 million people in all
50 states, Puerto Rico and the U.S. Virgin Islands. The PCS Group's service,
including affiliates, now reaches nearly 190 million people. The PCS Group
provides nationwide service through:
. operating its own digital network in major U.S. metropolitan areas,
. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,
. roaming on other providers' analog cellular networks using dual-
band/dual-mode handsets, and
. roaming on other providers' digital PCS networks that use code division
multiple access (CDMA).
The financial performance for the PCS Group for 1999, 1998 and 1997 is
summarized as follows:
<TABLE>
- ------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues(/1/) $ 3,180 $ 1,225 $ --
---------------------------------------
Operating loss(/1/),(/2/) $(3,237) $(2,570) $(19)
---------------------------------------
Other partners' loss in Sprint PCS $ -- $ 1,251 $ --
---------------------------------------
Equity in loss of Sprint PCS $ -- $ -- $(660)
---------------------------------------
</TABLE>
(/1/)The PCS Group's 1998 results of operations included SprintCom's operating
results as well as Sprint PCS' operating results on a consolidated basis
for the entire year. Before 1998, Sprint's investment in Sprint PCS was
accounted for using the equity method.
(/2/)Includes a nonrecurring charge to write-off $179 million of acquired in-
process research and development costs related to the PCS Restructuring in
1998. For further discussion, see the PCS Group's "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
License Coverage
The PCS Group holds licenses covering 276 million Pops (one person residing in
a license area equals one Pop).
Competition
Each of the markets in which the PCS Group competes is served by other two-way
wireless service providers, including cellular and PCS operators and resellers.
A majority of the markets will have five or more commercial mobile radio
service (CMRS) providers and each of the top 50 metropolitan markets have at
least one other PCS competitor in addition to two cellular incumbents. Many of
these competitors have been operating for a number of years and currently
service a significant subscriber base.
Strategy
The business objective of the PCS Group is to expand network coverage and
increase market penetration by aggressively marketing competitively priced PCS
products and services under the Sprint and Sprint PCS brand names, offering
enhanced services and seeking to provide superior customer service. The
principal elements of the PCS Group's strategy for achieving these goals are:
. Operating a nationwide digital wireless network
. Leveraging Sprint's national brand
. Utilizing state-of-the-art CDMA technology
. Delivering superior value to its customers
. Growing customer base using multiple distribution channels
. Continuing to expand coverage
Regulatory Developments
Sprint FON Group
Competitive Local Service
The Telecommunications Act of 1996 (Telecom Act) was designed to promote
competition in all aspects of telecommunications. It eliminated legal and
regulatory barriers to entry into local phone markets. It also required
incumbent local phone companies, among other things, to allow local resale at
wholesale rates, negotiate interconnection agreements, provide
nondiscriminatory access to unbundled network elements and allow collocation of
interconnection equipment by competitors. Sprint has obtained interconnection
and collocation agreements with a number of incumbent local telephone carriers,
and is rolling out Sprint ION in cities across the nation.
Sprint is also rolling out resold and UNE based local services obtained from
other local phone companies under the Telecom Act. This rollout of local
services obtained from other local phone companies will occur in major areas
across the nation not served by the LTD.
4
<PAGE>
In January 1999, the Supreme Court affirmed the FCC's authority to establish
rules and prices relating to interconnection and unbundling of the incumbent
local phone companies' networks. The FCC subsequently reaffirmed in large part
the list of network elements incumbents are required to provide on an unbundled
basis, and strengthened collocation requirements. It also took steps to speed
the deployment of advanced technologies such as xDSL.
RBOC Long Distance Entry
The Telecom Act also allows RBOCs to provide in-region long distance service
once they obtain state certification of compliance with a competitive
"checklist," have a facilities-based competitor, and obtain a FCC ruling that
the provision of in-region long distance service is in the public interest. One
RBOC, Bell Atlantic, obtained FCC authorization to provide in-region long
distance service in New York in December 1999; RBOCs may gain such
authorization in the near future in other states. The entry of the RBOCs into
the long distance market will impact competition, but the extent of the impact
will depend upon factors such as the RBOCs' competitive ability, the appeal of
the RBOC brand to different market segments, and the response of competitors.
Some of the impact on Sprint may be offset by wholesale revenues from those
RBOCs which choose to resell Sprint services.
Customer Service Slamming
The Telecom Act also established liability for the unauthorized switch of a
consumer's telephone service from one carrier to another (slamming). In late
1998, the FCC adopted new rules intended to prevent slamming and to compensate
victims of slamming; these rules were stayed by the Court of Appeals, and the
FCC is currently considering an industry proposal that would streamline the
process for adjudicating alleged slams.
Mergers
As a result of increasing competitive pressures, a number of carriers have
combined or proposed to combine. Sprint and MCI WorldCom filed a merger
application with the FCC (November 1999) and with the European Commission
(January 2000); Sprint and MCI WorldCom are also continuing to provide the
Department of Justice with information supporting the proposed merger. SBC
completed its merger with Ameritech in 1999; the Bell Atlantic-GTE proposed
merger remains pending before the FCC. In 1999, AT&T completed its merger with
TCI, and announced its pending merger with MediaOne. AT&T is expected to use
its newly acquired cable facilities to provide competitive local telephone
services.
Universal Services Requirements
The FCC continued to address issues related to Universal Service and access
charge reform. It increased the amount of money available to schools and
libraries under the "e-rate" program; adopted a computer model designed to
calculate "high cost" universal service subsidies (and to replace high cost
subsidies implicit in interstate access charges with explicit contributions);
and continued to shift certain non-traffic sensitive costs from
usage-sensitive to flat-rated access charges. Sprint's long distance and local
divisions both benefit from cost-based access charges. In addition, the shift
in costs from usage-sensitive to flat-rated access charges has contributed to
sharp decreases in long distance usage rate charges.
The FCC and many states have established "universal service" programs to ensure
affordable, quality local telecommunications services for all Americans. The
FON Group's assessment to fund these programs is typically a percentage of end-
user revenues. The FON Group's 1999 results contained assessments for 1999.
Currently, management cannot predict the extent of the FON Group's future
federal and state universal service assessments, or its ability to recover its
contributions from the universal service fund.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act (CALEA) was enacted in
1994 to preserve electronic surveillance capabilities authorized by federal and
state law. CALEA requires local telecommunications companies to meet certain
"assistance capability requirements" by the end of June 2000 where circuit-
switching is used and by September 2001 where packet-switching is used. Where
circuit-switched technology was installed before 1995, reimbursement for
hardware and software upgrades to facilitate CALEA compliance was authorized.
The U.S. Department of Justice has published guidelines concerning what is
required for it to support, at the FCC, petitions for extension of the CALEA
enforcement deadlines. LTD uses circuit-switching for the bulk of its traffic
and most LTD switches were installed before 1995 and qualify for reimbursement
if upgrades are required by the Justice Department. Sprint ION uses packet
switching for its local operations. In the case of Sprint ION, CALEA compliance
capabilities are not currently available from equipment and software vendors
involved in Sprint ION's deployment. Sprint believes it will be in compliance
with CALEA by the appropriate deadlines for local circuit-switched equipment.
Sprint ION will apply for an extension for the local packet-based services to
allow for development of required hardware and software.
Sprint PCS Group
The FCC sets rules, regulations and policies to, among other things:
. grant licenses for PCS frequencies and license renewals,
. rule on assignments and transfers of control of PCS licenses,
. govern the interconnection of PCS networks with other wireless and
wireline carriers,
. establish access and universal service funding provisions,
. impose fines and forfeitures for violations of any of the FCC's rules,
and
. regulate the technical standards of PCS networks.
5
<PAGE>
The FCC currently prohibits a single entity from having a combined attributable
interest (20% or greater interest in any license) in broadband PCS, cellular
and specialized mobile radio licenses totaling more than 45 megahertz (MHz) in
any geographic area except that in rural service areas no licensee may have an
attributable interest in more than 55 MHz of commercial mobile radio service
(CMRS) spectrum.
PCS License Transfers and Assignments
The FCC must approve any substantial changes in ownership or control of a PCS
license. Noncontrolling interests in an entity that holds a PCS license or
operates PCS networks generally may be bought or sold without prior FCC
approval. In addition, a recent FCC order requires only post-consummation
notification of certain pro forma assignments or transfers of control.
PCS License Conditions
All PCS licenses are granted for 10-year terms if the FCC's buildout
requirements are followed. Based on those requirements, all 30 MHz broadband
major trading area licensees must build networks offering coverage to 1/3 of
the population within five years and 2/3 within 10 years. All 10 MHz broadband
PCS licensees must build networks offering coverage to at least 1/4 of the
population within five years or make a showing of "substantial service" within
that five-year period. Licenses may be revoked if the rules are violated.
PCS licenses may be renewed for additional 10-year terms. Renewal applications
are not subject to auctions. However, third parties may oppose renewal
applications and/or file competing applications.
Other FCC Requirements
Broadband PCS providers cannot unreasonably restrict or prohibit other
companies from reselling their services. They also cannot unreasonably
discriminate against resellers. CMRS resale obligations will expire in 2002.
Local phone companies must program their networks to allow customers to change
service providers without changing phone numbers. This is referred to as
service provider number portability. CMRS providers are currently required to
deliver calls from their networks to ported numbers anywhere in the country. By
November 24, 2002, CMRS providers must be able to offer their own customers
number portability in their switches in the 100 largest metropolitan areas.
They must also be able to support nationwide roaming.
Broadband PCS and other CMRS providers may provide wireless local loop and
other fixed services that would directly compete with the wireline services of
local phone companies. Broadband PCS and other CMRS providers must implement
enhanced emergency 911 capabilities to be completed in phases by October 2001.
Communications Assistance for Law Enforcement Act
CALEA was enacted in 1994 to preserve electronic surveillance capabilities
authorized by federal and state law. CALEA requires telecommunications carriers
to meet certain "assistance capability requirements" by the end of June 2000.
In 1997, telecommunications industry standard-setting organizations agreed to a
joint standard to implement CALEA's capability requirements. The PCS Group
believes it will be in compliance with CALEA requirements.
Other Federal Regulations
Wireless systems must comply with certain FCC and Federal Aviation
Administration regulations about the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause certain cell site locations to come under National
Environmental Policy Act (NEPA) regulation. NEPA requires carriers to meet
certain land use and radio frequency standards.
Universal Service Requirements
The FCC and many states have established "universal service" programs to ensure
affordable, quality telecommunications services for all Americans. The PCS
Group's "contribution" to these programs is typically a percentage of end-user
revenues. The PCS Group's 1999 results contained assessments for 1999.
Currently, management cannot predict the extent of the PCS Group's future
federal and state universal service assessments, or its ability to recover its
contributions from the universal service fund.
Environmental Compliance
Sprint's environmental compliance and remediation expenditures mainly result
from the operation of standby power generators for its telecommunications
equipment. The expenditures arise in connection with standards compliance,
permits or occasional remediation, which are usually related to generators,
batteries or fuel storage. Sprint has been identified as a potentially
responsible party at a site relating to discontinued power generation
operations. Sprint's environmental compliance and remediation expenditures have
not been material to its financial statements or to its operations and are not
expected to have any future material adverse effects on the FON Group or the
PCS Group.
Patents, Trademarks and Licenses
Sprint owns numerous patents, patent applications, service marks and trademarks
in the United States and other countries. Sprint expects to apply for and
develop trademarks, service marks and patents for the benefit of the Groups in
the ordinary course of business. Sprint is a registered trademark of Sprint and
Sprint PCS is a registered service mark of Sprint. Sprint is also licensed
under domestic and foreign patents and trademarks owned by others. In total,
these patents, patent applications, trademarks, service marks and licenses are
6
<PAGE>
of material importance to the business. Generally, Sprint's trademarks,
trademark licenses and service marks have no limitation on duration; Sprint's
patents and licensed patents have remaining lives generally ranging from one to
17 years.
Pursuant to certain of the PCS Group's third party supplier contracts, the PCS
Group has certain rights to use third party supplier trademarks in connection
with the buildout, marketing and operation of its network.
Employee Relations
At year-end 1999, Sprint had approximately 77,600 employees. Approximately
10,600 FON Group employees were represented by unions. During 1999, Sprint had
no material work stoppages caused by labor controversies.
Management
For information concerning the executive officers of Sprint, see "Executive
Officers of the Registrant" in this document.
Information as to Business Segments
For information required by this section, refer to Sprint's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the FON Group's "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Also refer to Note 13 of Sprint's "Notes to
Consolidated Financial Statements" and Note 12 of the FON Group's "Notes to
Combined Financial Statements" sections of the Financial Statements and
Financial Statement Schedules filed as part of this document.
- --------------------------------------------------------------------------------
Item 2. Properties
- --------------------------------------------------------------------------------
Sprint's gross property, plant and equipment totaled $37.1 billion at year-end
1999, of which $15.8 billion relates to the FON Group's local communications
services, $9.8 billion relates to the FON Group's long distance communications
services, $9.4 billion relates to the PCS Group's PCS wireless services and the
remainder relates to the FON Group's product distribution and directory
publishing businesses' properties, Sprint ION properties and general support
assets.
The FON Group's gross property, plant and equipment totaled $27.7 billion at
year-end 1999. These properties mainly consist of land, buildings, digital
fiber-optic network, switching equipment, microwave radio and cable and wire
facilities. Sprint leases certain switching equipment and several general
office facilities. The LDD has been granted easements, rights-of-way and
rights-of-occupancy, mainly by railroads and other private landowners, for its
fiber-optic network.
The product distribution and directory publishing businesses' properties mainly
consist of office and warehouse facilities to support the business units in the
distribution of telecommunications products and publication of telephone
directories.
The PCS Group's properties consist of leased and owned office space for its
corporate operations, network monitoring personnel, customer care centers and
retail stores. The PCS Group leases space for base station towers and switch
sites for its PCS network. At year-end 1999, the PCS Group had under lease (or
options to lease) approximately 14,400 cell sites.
Sprint owns its corporate headquarters building and is in the process of
building a $1 billion corporate campus in the greater Kansas City metropolitan
area.
Gross property, plant and equipment totaling $14.3 billion for the FON Group is
either pledged as security for first mortgage bonds and certain notes or is
restricted for use as mortgaged property.
- --------------------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------
Eight purported class action suits were filed by shareholders in connection
with the proposed merger of Sprint into MCI WorldCom. The suits allege that
Sprint's directors breached their fiduciary duties, and certain other duties,
to shareholders by entering into the merger agreement with MCI WorldCom and
seek various relief, including injunction of the merger, requiring Sprint to
conduct an auction for the sale of the company and awarding compensatory
damages and costs. Six lawsuits were filed in Johnson County, Kansas District
Court and two lawsuits were filed in the Supreme Court of New York. The six
lawsuits filed in Kansas were dismissed without prejudice in February 2000.
Plaintiffs in the remaining two cases have agreed to dismissal and the
documents necessary to dismiss those cases have been filed with the court. The
dismissal will become final following a court hearing.
The PCS Group has been involved in legal proceedings in various states
concerning the suspension of the processing or approval of permits for wireless
telecommunications towers, the denial of applications for permits and other
issues arising in connection with tower siting. There can be no assurance that
such litigation and similar actions taken by others seeking to block the
construction of individual cell sites of the PCS Group's network will not, in
the aggregate, significantly delay expansion of the PCS Group's network
coverage.
Sprint is involved in various other legal proceedings incidental to the conduct
of its business. While it is not possible to determine the ultimate disposition
of each of these proceedings, Sprint believes that the outcome of such
proceedings, individually or in the aggregate, will not have a material adverse
effect on Sprint's, the FON Group's or the PCS Group's financial conditions or
results of operations.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth quarter
of 1999.
7
<PAGE>
- --------------------------------------------------------------------------------
Item 10(b). Executive Officers of the Registrant
- --------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Office Name Age
- -------------------------------------------------------------------------------
<S> <C> <C>
Chairman and Chief Executive Officer William T. Esrey(/1/) 60
President and Chief Operating Officer Ronald T. LeMay(/2/) 54
President--Local Telecommunications Division Michael B. Fuller(/3/) 55
President--Sprint PCS Andrew J. Sukawaty(/4/) 44
President--Sprint International John E. Berndt(/5/) 59
President--National Integrated Services and
Sprint Business Kevin E. Brauer(/6/) 49
Executive Vice President--General Counsel and
External Affairs J. Richard Devlin(/7/) 49
Executive Vice President--Chief Financial Officer Arthur B. Krause(/8/) 58
Senior Vice President and Treasurer Gene M. Betts(/9/) 47
Senior Vice President--One Sprint Strategic
Development Arthur A. Kurtze(/10/) 55
Senior Vice President--Federal External Affairs Vonya B. McCann(/11/) 45
Senior Vice President and Controller John P. Meyer(/12/) 49
Senior Vice President--Strategic Planning and
Corporate Development Theodore H. Schell(/13/) 55
Senior Vice President--Human Resources I. Benjamin Watson(/14/) 51
Senior Vice President--Consumer Market Strategy
and Communications Thomas E. Weigman(/15/) 52
Vice President--Secretary Don A. Jensen(/16/) 64
</TABLE>
(/1/)Mr. Esrey was elected Chairman in 1990. He was elected Chief Executive
Officer and a member of the Board of Directors in 1985.
(/2/)Mr. LeMay was first elected President and Chief Operating Officer in 1996.
From July 1997 to October 1997, he served as Chairman and Chief Executive
Officer of Waste Management, Inc., a provider of comprehensive waste
management services. He was re-elected President and Chief Operating
Officer of Sprint effective October 1997. From 1995 to 1996 Mr. LeMay
served as Vice Chairman of Sprint. He also served as Chief Executive
Officer of Sprint Spectrum Holding Company from 1995 to 1996. From 1989 to
1995, he served as President and Chief Operating Officer--Long Distance
Division. Mr. LeMay served on Sprint's Board of Directors from 1993 until
he went to work for Waste Management, Inc. He was re-elected to Sprint's
Board of Directors in December 1997.
(/3/)Mr. Fuller was elected President--Local Telecommunications Division in
1996. From 1990 to 1996, he served as President of United Telephone--
Midwest Group, an operating group of subsidiaries of Sprint.
(/4/)Mr. Sukawaty was elected President--Sprint PCS in 1998. He was appointed
Chief Executive Officer of Sprint Spectrum Holding Company in September
1996. Prior to joining Sprint Spectrum Holding Company, Mr. Sukawaty was
Chief Executive Officer of NTL, the British diversified broadcast
transmission and communications company, since 1994.
(/5/)Mr. Berndt was elected President--Sprint International in 1998. Before
that, Mr. Berndt was President of Fluor Daniel Telecommunications since
January 1997. He was President--Multimedia Ventures and Technologies for
AT&T and Lucent Technologies from 1995 to 1996. From 1993 to 1995, Mr.
Berndt was President of New Business Development for AT&T.
(/6/)Mr. Brauer became President--National Integrated Services and Sprint
Business in July 1999. He had served as President--National Integrated
Services since 1997. From 1994 to 1997, he was President of Sprint
Business.
(/7/)Mr. Devlin was elected Executive Vice President--General Counsel and
External Affairs in 1989.
(/8/)Mr. Krause was elected Executive Vice President--Chief Financial Officer in
1988.
(/9/)Mr. Betts was elected Senior Vice President in 1990. He was elected
Treasurer in December 1998.
(/10/)Mr. Kurtze was appointed Senior Vice President--One Sprint Strategic
Development in February 1999. He had served as Chief Operating Officer of
Sprint Spectrum Holding Company since 1995. Prior to joining Sprint
Spectrum Holding Company, Mr. Kurtze was Senior Vice President--Operations
for Sprint's Local Division since 1993.
(/11/)Ms. McCann was elected Senior Vice President--Federal External Affairs in
October 1999. Prior to joining Sprint, Ms. McCann served in the U.S.
Department of State as Ambassador and Deputy Assistant Secretary for
International Communications and Information Policy since 1994. Ms. McCann
also served as Principal Deputy Assistant Secretary of State for Economic
and Business Affairs since 1997.
(/12/)Mr. Meyer was elected Senior Vice President--Controller in 1993.
(/13/)Mr. Schell was elected Senior Vice President--Strategic Planning and
Corporate Development in 1990.
(/14/)Mr. Watson was elected Senior Vice President--Human Resources in 1993.
(/15/)Mr. Weigman was appointed Senior Vice President--Consumer Market Strategy
and Communications in February 1999. He had served as President--Consumer
Services Group of Sprint's Long Distance Division since 1995. From 1993 to
1995, he served as President--Multimedia/Strategic Services of the Long
Distance Division.
(/16/)Mr. Jensen was elected Vice President--Secretary in 1975.
There are no known family relationships between any of the persons named above
or between any of these persons and any outside directors of Sprint. Officers
are elected annually.
8
<PAGE>
Part II
- --------------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------
Common Stock Data
<TABLE>
- ---------------------------------------------------
<CAPTION>
1999 Market Price
-----------------------------
End
of
High Low Period
- ---------------------------------------------------
<S> <C> <C> <C>
FON Stock(/1/)
First quarter $50 11/32 $36 7/8 $49 1/16
Second quarter 57 15/32 48 5/8 53
Third quarter 55 11/16 42 5/8 54 1/4
Fourth quarter 75 15/16 54 67 5/16
PCS Stock(/2/)
First quarter 24 5/32 10 7/16 22 5/32
Second quarter 30 3/8 20 3/4 28 1/2
Third quarter 39 1/8 26 15/32 37 9/32
Fourth quarter 57 7/32 33 13/32 51 1/4
- ---------------------------------------------------
<CAPTION>
1998 Market Price
-----------------------------
End
of
High Low Period
- ---------------------------------------------------
<S> <C> <C> <C>
Sprint Stock
First quarter $75 5/8 $55 1/4 $67 11/16
Second quarter 75 5/8 65 70 1/2
Third quarter 80 1/8 61 1/2 72
Fourth quarter(/3/) 82 7/8 69 1/16 81 5/16
FON Stock(/1/),(/4/) 42 21/32 35 13/16 42 1/16
PCS Stock(/2/),(/4/) 11 11/16 7 1/32 11 9/16
</TABLE>
(/1/)In the second quarter of 1999, Sprint effected a two-for-one stock split of
its Sprint FON common stock. Market prices prior to the split have been
restated.
(/2/)On February 4, 2000, Sprint effected a two-for-one stock split of its
Sprint PCS common stock. Market prices prior to the split have been
restated.
(/3/)Fourth quarter per share market data is for the period October 1, 1998
through November 23, 1998, before the Recapitalization when Sprint stock
was reclassified into FON stock and PCS stock.
(/4/)FON Stock and PCS Stock per share market data is for the period November
24, 1998 through December 31, 1998.
As of February 29, 1999, Sprint had approximately 74,000 FON stock record
holders, 68,000 PCS stock record holders and two Class A common stock record
holders. The principal trading market for Sprint's FON stock and PCS stock is
the New York Stock Exchange. The Class A common stock is not publicly traded.
Adjusting for the effects of the two-for-one split of the FON Stock in the 1999
second quarter, Sprint paid a FON stock dividend of $0.125 per share in each of
the quarters of 1999 and the fourth quarter of 1998. Sprint paid common stock
dividends of $0.25 per share in the first three quarters of 1998. Sprint paid
Class A common stock dividends of $0.125 per share in each of the last three
quarters of 1999 and $0.25 per share in the first quarter of 1999 and in each
quarter of 1998. Sprint does not intend to pay dividends on the PCS stock in
the foreseeable future.
In December 1999, Sprint issued an aggregate of 490,000 shares of Series 3 FON
Stock and 478,750 shares of Series 3 PCS stock that were not registered under
the Securities Act of 1933 to FT and DT for an aggregate of $57.1 million.
These shares were purchased by FT and DT in order to maintain their aggregate
voting power at 20% of Sprint's outstanding voting power.
The sale of shares to FT and DT was exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) of the Securities Act. No
solicitation was made to sell such shares to the public, and all material
information regarding Sprint was available to FT and DT. FT and DT are
accredited investors having sufficient knowledge and experience in financial
and business matters necessary to evaluate the merits and risks of their
investment. FT and DT were informed that the transactions were being effected
without registration under the Securities Act and that the shares acquired
could not be resold without registration under the Securities Act unless the
sale is effected pursuant to an exemption from the registration requirements of
the Securities Act. FT and DT have been given certain registration rights by
Sprint.
- --------------------------------------------------------------------------------
Item 6. Selected Financial Data
- --------------------------------------------------------------------------------
The information required by Item 6 is incorporated by reference from Annex I,
Annex II and Annex III included herein.
- --------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The information required by Item 7 is incorporated by reference from Annex I,
Annex II and Annex III included herein.
- --------------------------------------------------------------------------------
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------------------
Sprint's exposure to market risk--through derivative financial instruments,
other financial instruments, such as investments in marketable securities and
long-term debt, from changes in interest rates and from changes in foreign
currency exchange rates--is not material.
- --------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
The information required by Item 8 is incorporated by reference from Annex I,
Annex II and Annex III included herein.
- --------------------------------------------------------------------------------
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
As previously reported in Sprint's Current Report on Form 8-K dated June 13,
1999, as amended, Deloitte & Touche LLP, the independent auditors for Sprint
Spectrum Holding Company, L.P., and its subsidiaries, was replaced by Ernst &
Young LLP.
9
<PAGE>
Part III
- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information relating to
Directors of Sprint required by Item 10 is incorporated by reference from
Sprint's definitive proxy statement which is to be filed pursuant to Regulation
14A within 120 days after the end of Sprint's fiscal year ended December 31,
1999.
For information pertaining to Executive Officers of Sprint, as required by
Instruction 3 of Paragraph (b) of Item 401 of Regulation S-K, refer to the
"Executive Officers of the Registrant" section of Part I of this document.
Pursuant to Instruction G(3) to Form 10-K, the information relating to
compliance with Section 16(a) required by Item 10 is incorporated by reference
from Sprint's definitive proxy statement which is to be filed pursuant to
Regulation 14A within 120 days after the end of Sprint's fiscal year ended
December 31, 1999.
- --------------------------------------------------------------------------------
Item 11. Executive Compensation
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 11
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 1999.
- --------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 12
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 1999.
- --------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 13
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 1999.
10
<PAGE>
Part IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a)1. The consolidated financial statements of Sprint and the combined
financial statements of the FON Group and the PCS Group, filed as part of
this report, are listed in the Index to Financial Statements and
Financial Statement Schedules.
2. The consolidated financial statement schedule of Sprint and the combined
financial statement schedules of the FON Group and the PCS Group, filed
as part of this report, are listed in the Index to Financial Statements
and Financial Statement Schedules.
3. The following exhibits are filed as part of this report:
EXHIBITS
(2) Merger Agreement and Transfer Agreement
(a) Amended and Restated Agreement and Plan of Merger dated March 8,
2000 between MCI WorldCom, Inc. and Sprint Corporation (filed as
Annex I to the Proxy Statement/Prospectus that forms a part of
MCI WorldCom's Registration Statement No. 333-90421 and
incorporated herein by reference).
(b) Master Transfer Agreement dated January 21, 2000 between and
among France Telecom, Deutsche Telekom AG, NAB Nordamerika
Beteiligungs Holding GmbH, Atlas Telecommunications, S.A., Sprint
Corporation, Sprint Global Venture, Inc. and the JV Entities set
forth in Schedule II thereto (filed as Exhibit 2 to Sprint
Corporation's Current Report on Form 8-K dated January 26, 2000
and incorporated herein by reference).
(c) Amendment No. 1 to the Master Transfer Agreement, dated as of
February 22, 2000 (filed as Exhibit 2B to Sprint Corporation's
Current Report on Form 8-K dated February 22, 2000 and
incorporated herein by reference).
(3) Articles of Incorporation and Bylaws:
(a) Articles of Incorporation, as amended (filed as Exhibit 4A to
Post-Effective Amendment No. 2 to Sprint Corporation's
Registration Statement on Form S-3 (No. 33-58488) and
incorporated herein by reference).
(b) Bylaws, as amended (filed as Exhibit 4C to Post-Effective
Amendment No. 2 to Sprint Corporation's Registration Statement on
Form S-3 (No. 33-58488) and incorporated herein by reference).
(4) Instruments defining the Rights of Sprint's Security Holders:
(a) The rights of Sprint's equity security holders are defined in the
Fifth, Sixth, Seventh and Eighth Articles of Sprint's Articles of
Incorporation. See Exhibit 3(a).
(b) Rights Agreement dated as of November 23, 1998, between Sprint
Corporation and UMB Bank, n.a. (filed as Exhibit 4.1 to Amendment
No. 1 to Sprint Corporation's Registration Statement on Form 8-A
relating to Sprint's PCS Group Rights, filed November 25, 1998,
and incorporated herein by reference).
(c) Tracking Stock Policies of Sprint Corporation (filed as Exhibit
4D to Post-Effective Amendment No. 2 to Sprint Corporation's
Registration Statement on Form S-3 (No. 33-58488) and
incorporated herein by reference).
(d) Amended and Restated Standstill Agreement dated November 23,
1998, by and among Sprint Corporation, France Telecom S.A. and
Deutsche Telekom AG (filed as Exhibit 4E to Post-Effective
Amendment No.2 to Sprint Corporation's Registration Statement on
Form S-3 (No. 33-58488) and incorporated herein by reference).
11
<PAGE>
(e) Indenture, dated as of October 1, 1998, among Sprint Capital
Corporation, Sprint Corporation and Bank One, N.A., as Trustee
(filed as Exhibit 4(b) to Sprint Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998, and
incorporated herein by reference).
(f) First Supplemental Indenture, dated as of January 15, 1999, among
Sprint Capital Corporation, Sprint Corporation and Bank One,
N.A., as Trustee (filed as Exhibit 4(b) to Sprint Corporation
Current Report on Form 8-K dated February 2, 1999 and
incorporated herein by reference).
(g) Indenture, dated as of October 1, 1998, between Sprint
Corporation and Bank One, N.A., as Trustee (filed as Exhibit 4(a)
to Sprint Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, and incorporated herein by
reference).
(h) First Supplemental Indenture, dated as of January 15, 1999,
between Sprint Corporation and Bank One, N.A., as Trustee (filed
as Exhibit 4(a) to Sprint Corporation Current Report on Form 8-K
dated February 2, 1999 and incorporated herein by reference).
(10) Material Agreements
(a) Amended and Restated Stockholders' Agreement among France Telecom
S.A., Deutsche Telekom AG and Sprint Corporation, dated as of
November 23, 1998 (filed as Exhibit 10(c) to Sprint Corporation
Annual Report on Form 10-K for the year ended December 31, 1998
and incorporated herein by reference).
(b) Amended and Restated Registration Rights Agreement, dated as of
November 23, 1998, among Sprint Corporation, France Telecom S.A.
and Deutsche Telekom A.G. (filed as Exhibit 10.1 to Amendment No.
1 to Sprint Corporation Registration Statement on Form S-3 (No.
333-64241) and incorporated herein by reference).
(c) Registration Rights Agreement, dated as of November 23, 1998,
among Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc. (filed as Exhibit 10.2
to Amendment No. 1 to Sprint Corporation Registration Statement
on Form S-3 (No. 333-64241) and incorporated herein by
reference).
(d) Standstill Agreements, dated May 26, 1996, between Sprint
Corporation and each of Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc. (filed as Exhibit 10(g)
to Sprint Corporation Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference).
(e) 364-Day Credit Agreement, dated as of August 6, 1999, among
Sprint Corporation and Sprint Capital Corporation, as Borrowers,
and the initial Lenders named therein, as Initial Lenders, and
Citibank, N.A., as Administrative Agent, and Salomon Smith Barney
Inc., as Book Manager and Arranger, and Morgan Guaranty Trust
Company of New York, as Syndication Agent, and Bank of America
National Trust and Savings Association and The Chase Manhattan
Bank, as Documentation Agents (filed as Exhibit 99-B to Sprint
Corporation's Current Report on Form 8-K dated October 20, 1999
and incorporated herein by reference).
(f) Five-Year Credit Agreement, dated as of August 7, 1998, among
Sprint Corporation and Sprint Capital Corporation, as Borrowers,
and the initial Lenders named therein, as Initial Lenders, and
Citibank, N.A., as Administrative Agent, and Morgan Guaranty
Trust Company of New York, as Syndication Agent, and Bank of
America National Trust and Savings Association and The Chase
Manhattan Bank, as Documentation Agents (filed as Exhibit 10.24
to Sprint Corporation Registration Statement on Form S-3 (No.
333-64241) and incorporated herein by reference).
(10) Executive Compensation Plans and Arrangements:
(g) 1990 Stock Option Plan, as amended.
(h) 1990 Restricted Stock Plan, as amended.
(i) Executive Deferred Compensation Plan, as amended.
(j) Management Incentive Stock Option Plan, as amended.
(k) 1997 Long-Term Stock Incentive Program.
(l) Sprint Supplemental Executive Retirement Plan (filed as Exhibit
(10)(i) to Sprint Corporation Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference).
12
<PAGE>
(m) Amended and Restated Centel Directors Deferred Compensation Plan.
(n) Restated Memorandum Agreements Respecting Supplemental Pension
Benefits between Sprint Corporation (formerly United
Telecommunications, Inc.) and two of its current and former
executive officers (filed as Exhibit 10(i) to Sprint Corporation
Annual Report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).
(o) Executive Long-Term Incentive Plan (filed as Exhibit 10(j) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
(p) Executive Management Incentive Plan (filed as Exhibit 10(k) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
(q) Long-Term Incentive Compensation Plan, as amended (filed as
Exhibit 10(i) to Sprint Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, and incorporated herein
by reference).
(r) Short-Term Incentive Compensation Plan (filed as Exhibit 10(k) to
Sprint Corporation (formerly United Telecommunications, Inc.)
Annual Report on Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference).
(s) Retirement Plan for Directors, as amended (filed as Exhibit
(10)(u) to Sprint Corporation Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by
reference).
(t) Key Management Benefit Plan, as amended (filed as Exhibit 10(g)
to Sprint Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
(u) Agreements Regarding Special Compensation and Post Employment
Restrictive Covenants between Sprint Corporation and certain of
its Executive Officers (filed as Exhibit 10(d) to Sprint
Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, Exhibit 10(h) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, Exhibit
10(w) to Sprint Corporation Annual Report on Form 10-K for the
year ended December 31, 1997, and Exhibit 10 (b) to Sprint
Corporation Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, and incorporated herein by reference). Agreements
Regarding Special Compensation and Post Employment Restrictive
Covenants between Sprint Corporation and certain of its Executive
officers.
(v) Director's Deferred Fee Plan, as amended.
(w) Form of Contingency Employment Agreements between Sprint
Corporation and certain of its executive officers (filed as
Exhibit 10(a) to Sprint Corporation Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, and incorporated herein by
reference).
(x) Form of Indemnification Agreements between Sprint Corporation
(formerly United Telecommunications, Inc.) and its Directors and
Officers (filed as Exhibit 10(s) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference).
(y) Summary of Executive Officer and Board of Directors Benefits
(filed as Exhibit 10(cc) to Sprint Corporation Annual Report on
Form 10-K for the year ended December 31, 1998 and incorporated
herein by reference).
(z) Amended and Restated Centel Director Stock Option Plan (filed as
Exhibit 10(aa) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein by
reference).
(aa) Employment Agreement, dated as of July 29, 1996, between Sprint
Spectrum Holding Company, L.P. and Andrew Sukawaty (filed as
Exhibit 10.20 to Sprint Spectrum L.P. Registration Statement on
Form S-1 (No. 333-06609) and incorporated herein by reference).
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of Registrant
(23) (a) Consent of Ernst & Young LLP
(b) Consent of Deloitte & Touche LLP
(27) Financial Data Schedules
(a) December 31, 1999
13
<PAGE>
(b) September 30, 1999 Restated
(c) June 30, 1999 Restated
(d) March 31, 1999 Restated
(e) December 31, 1998 Restated
(f) September 30, 1998 Restated
(g) June 30, 1998 Restated
(h) March 31, 1998 Restated
(i) December 31, 1997 Restated
Sprint will furnish to the Securities and Exchange Commission, upon request, a
copy of the instruments defining the rights of holders of its long-term debt.
The total amount of securities authorized under any of said instruments (other
than those listed above) does not exceed 10% of the total assets of Sprint.
(b)Reports on Form 8-K
Sprint filed a Current Report on Form 8-K dated October 5, 1999, in which it
reported that it had entered into a definitive merger agreement with MCI
WorldCom, Inc.
Sprint filed a Current Report on Form 8-K dated October 20, 1999, in which it
reported that it had announced third quarter 1999 results in both its FON Group
and its PCS Group. Sprint also reported that seven purported class action
lawsuits had been filed by shareholders in connection with the proposed merger
of Sprint into MCI WorldCom, Inc.
The news release regarding third quarter 1999 results, which was included as an
Exhibit to the Current Report dated October 20, 1999, included the following
financial information:
Sprint FON Group Combined Statements of Income
Sprint FON Group Selected Operating Results
Sprint FON Group Condensed Combined Balance Sheets
Sprint FON Group Condensed Combined Cash Flow Information
Sprint PCS Group Combined Statements of Operations
Sprint PCS Group Condensed Combined Balance Sheets
Sprint PCS Group Condensed Combined Cash Flow Information
Sprint Corporation Condensed Consolidated Balance Sheets
Sprint Corporation Condensed Consolidated Cash Flow Information
Sprint filed a Current Report on Form 8-K dated January 26, 2000 in which it
reported that it had entered into a definitive agreement with DT and FT to sell
Sprint's interest in Global One. Sprint also reported that it had announced
fourth quarter 1999 and calendar year 1999 results in both its FON Group and
its PCS Group.
The news release regarding fourth quarter 1999 and calendar year 1999 results,
which was included as an Exhibit to the Current Report dated January 26, 2000,
included the following financial information:
Sprint FON Group Combined Statements of Income
Sprint FON Group Selected Operating Results
Sprint FON Group Condensed Combined Balance Sheets
Sprint FON Group Condensed Combined Cash Flow Information
Sprint PCS Group Combined Statements of Operations
Sprint PCS Group Condensed Combined Balance Sheets
Sprint PCS Group Condensed Combined Cash Flow Information
Sprint Corporation Condensed Consolidated Balance Sheets
Sprint Corporation Condensed Consolidated Cash Flow Information
Sprint filed a Current Report on Form 8-K dated February 22, 2000 in which it
reported that it had completed the sale of its interest in Global One. The
Current Report included the following unaudited pro forma consolidated
financial statements for Sprint Corporation:
Pro Forma Consolidated Balance Sheets
Pro Forma Consolidated Statements of Operations
(c)Exhibits are listed in Item 14(a).
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ W. T. Esrey
-------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
Date: March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 23rd day of March, 2000.
/s/ W. T. Esrey
-------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
-------------------------------------
Arthur B. Krause
Executive Vice President and
Chief Financial Officer
/s/ John P. Meyer
-------------------------------------
John P. Meyer
Senior Vice President and Controller
Principal Accounting Officer
15
<PAGE>
SIGNATURES
SPRINT CORPORATION
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 23rd day of March, 2000.
/s/ DuBose Ausley /s/ Ronald T. LeMay
- ------------------------------------- -------------------------------------
DuBose Ausley, Director
Ronald T. LeMay, Director
/s/ Warren L. Batts /s/ Linda K. Lorimer
- ------------------------------------- -------------------------------------
Warren L. Batts, Director
Linda K. Lorimer, Director
/s/ Michel Bon /s/ Charles E. Rice
- ------------------------------------- -------------------------------------
Michel Bon, Director
Charles E. Rice, Director
/s/ W. T. Esrey /s/ Louis W. Smith
- ------------------------------------- -------------------------------------
William T. Esrey, Director
Louis W. Smith, Director
/s/ Irvine O. Hockaday, Jr. /s/ Ron Sommer
- ------------------------------------- -------------------------------------
Irvine O. Hockaday, Jr., Director
Ron Sommer, Director
/s/ Harold S. Hook /s/ Stewart Turley
- ------------------------------------- -------------------------------------
Harold S. Hook, Director Stewart Turley, Director
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
Reference
ANNEX I ---------
<S> <C>
SPRINT CORPORATION
Selected Financial Data I-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations I-2
Consolidated Financial Statements
Management Report I-11
Report of Independent Auditors I-12
Consolidated Statements of Operations for each of the three years
ended December 31, 1999 I-13
Consolidated Statements of Comprehensive Income (Loss) for each of
the three years ended December 31, 1999 I-15
Consolidated Balance Sheets as of December 31, 1999 and 1998 I-16
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1999 I-17
Consolidated Statements of Shareholders' Equity for each of the
three years ended December 31, 1999 I-18
Notes to Consolidated Financial Statements I-19
Financial Statement Schedule
Schedule II--Consolidated Valuation and Qualifying Accounts for each
of the three years ended December 31, 1999 I-38
<CAPTION>
ANNEX II
<S> <C>
SPRINT FON GROUP
Selected Financial Data II-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations II-2
Combined Financial Statements
Management Report II-9
Report of Independent Auditors II-9
Combined Statements of Operations for each of the three years ended
December 31, 1999 II-10
Combined Statements of Comprehensive Income for each of the three
years ended December 31, 1999 II-11
Combined Balance Sheets as of December 31, 1999 and 1998 II-12
Combined Statements of Cash Flows for each of the three years ended
December 31, 1999 II-13
Notes to Combined Financial Statements II-14
Financial Statement Schedule
Schedule II--Combined Valuation and Qualifying Accounts for each of
the three years ended December 31, 1999 II-26
<CAPTION>
ANNEX III
<S> <C>
SPRINT PCS GROUP
Selected Financial Data III-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations III-2
Combined Financial Statements
Management Report III-7
Report of Independent Auditors III-8
Combined Statements of Operations for each of the three years ended
December 31, 1999 III-10
Combined Statements of Comprehensive Loss for each of the three
years ended December 31, 1999 III-11
Combined Balance Sheets as of December 31, 1999 and 1998 III-12
Combined Statements of Cash Flows for each of the three years ended
December 31, 1999 III-13
Notes to Combined Financial Statements III-14
Financial Statement Schedule
Schedule II--Combined Valuation and Qualifying Accounts for each of
the two years ended December 31, 1999 III-26
</TABLE>
<PAGE>
Annex I
SPRINT CORPORATION
Consolidated Financial Information
<PAGE>
SELECTED FINANCIAL DATA Sprint Corporation
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
1999 1998(/1/) 1997(/1/) 1996(/1/) 1995(/1/)
- --------------------------------------------------------------------------------
(millions, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
- --------------------------------------------------------------------------------
Net operating revenues $19,928 $16,881 $14,564 $13,610 $12,482
Operating income
(loss)(/2/),(/3/) (307) 190 2,451 2,267 1,834
Income (Loss) from continuing
operations(/2/),(/3/),(/4/) (745) 585 1,094 1,253 946
Earnings per Share and
Dividends
- --------------------------------------------------------------------------------
Earnings per common share from
continuing
operations:(/3/),(/4/)
Diluted $ NA $ NM $ 2.51 $ 2.93 $ 2.69
Basic NA NM 2.54 2.97 2.71
Dividends per common share NA 0.75 1.00 1.00 1.00
Earnings (Loss) per Share and
Dividends(/5/),(/6/)
- --------------------------------------------------------------------------------
Earnings (Loss) per common
share from continuing
operations:(/3/),(/4/)
Sprint FON Group (diluted) $ 1.97 $ 1.93 $ 1.73 $ 1.61 $ 1.37
Sprint FON Group (basic) 2.01 1.96 1.76 1.63 1.38
Sprint PCS Group (diluted and
basic) (2.71) (2.21) (1.98) NA NA
Dividends per FON common share 0.50 0.50 0.50 0.50 0.50
Financial Position
- --------------------------------------------------------------------------------
Total assets $39,250 $33,257 $18,274 $16,915 $15,074
Property, plant and equipment,
net 21,969 18,983 11,494 10,464 9,716
Total debt (including short-
term borrowings) 16,772 12,189 3,880 3,274 5,668
Shareholders' equity 13,560 12,448 9,025 8,520 4,643
Cash Flow Data
- --------------------------------------------------------------------------------
Net cash from operating
activities-- continuing
operations(/7/) $ 1,952 $ 4,199 $ 3,372 $ 2,404 $ 2,610
Capital expenditures 6,114 4,231 2,863 2,434 1,857
</TABLE>
Certain prior-year amounts have been reclassified to conform to the current-
year presentation. These reclassifications had no effect on the results of
operations or shareholders' equity as previously reported.
(/1/)Sprint's 1998 results of operations include Sprint PCS' operating results
on a consolidated basis for the entire year. The cable partners' share of
losses through the PCS restructuring date has been reflected as "Other
partners' loss in Sprint PCS" in the Consolidated Statements of Operations.
Before 1998, Sprint's investment in Sprint PCS was accounted for using the
equity method. Sprint PCS' financial position at year-end 1998 has also
been reflected on a consolidated basis. Cash flow data reflects Sprint PCS'
cash flows only after the PCS restructuring date. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General" for more information.
(/2/)In 1998, the PCS Group recorded a nonrecurring charge to write off $179
million of acquired in-process research and development costs related to
the PCS restructuring. This charge reduced operating income and income from
continuing operations by $179 million.
(/3/)The FON Group recorded nonrecurring charges of $20 million in 1997 and $60
million in 1996 related to litigation within the long distance division.
These charges reduced income from continuing operations by $13 million in
1997 and $36 million in 1996. In 1995, the FON Group recorded a
nonrecurring charge of $88 million related to a restructuring within the
local division. This reduced income from continuing operations by $55
million.
(/4/)In 1998, the FON Group recorded net nonrecurring gains of $104 million
mainly from the sale of local exchanges. This increased income from
continuing operations by $62 million. In 1997, the FON Group recorded
nonrecurring gains of $71 million mainly from sales of local exchanges and
certain investments. These gains increased income from continuing
operations by $44 million.
(/5/)In December 1999, the Sprint Board of Directors authorized a two-for-one
stock split of Sprint's PCS common stock in the form of a stock dividend,
which was distributed on February 4, 2000 to the PCS shareholders. In the
second quarter of 1999, Sprint effected a two-for-one stock split of its
Sprint FON common stock. As a result, diluted and basic earnings per common
share and dividends for Sprint FON common stock and diluted and basic loss
per common share for Sprint PCS common stock have been restated for periods
before these stock splits.
(/6/)Earnings per share and dividends for the FON Group for periods prior to
1999 are on a pro forma basis and assume the FON shares created in the 1998
recapitalization of Sprint's common stock existed for such periods. Loss
per share for the PCS Group for periods prior to 1999 is on a pro forma
basis and assumes the PCS restructuring, the recapitalization, the purchase
of 5.1 million PCS shares by France Telecom and Deutsche Telekom that
occurred in connection with the restructuring and the PCS Group's write-off
of $179 million of acquired in-process research and development costs
occurred at the beginning of 1997. These pro forma amounts are for
comparative purposes only and do not necessarily represent what actual
results of operations would have been had the transactions occurred at the
beginning of 1997, nor do they indicate the results of future operations.
(/7/)The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
NM = Not meaningful
NA = Not applicable
I-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Sprint Corporation
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
In October 1999, Sprint announced a definitive merger agreement with MCI
WorldCom. Under the agreement, each share of Sprint FON stock will be exchanged
for $76 of MCI WorldCom common stock, subject to a collar. In addition, each
share of Sprint PCS stock will be exchanged for one share of a new WorldCom PCS
tracking stock and 0.116025 shares of MCI WorldCom common stock. The terms of
the WorldCom PCS tracking stock will be equivalent to those of Sprint's PCS
common stock and will track the performance of the company's personal
communication services (PCS) business. The merger is subject to the approvals
of Sprint and MCI WorldCom shareholders as well as approvals from the Federal
Communications Commission, the Justice Department, various state government
bodies and foreign antitrust authorities. The companies anticipate that the
merger will close in the second half of 2000.
In January 2000, Sprint reached a definitive agreement with France Telecom S.A.
(FT) and Deutsche Telekom AG (DT) to sell its interest in Global One. In
February 2000, Sprint received $1.1 billion in cash and was repaid $276 million
for advances for its entire stake in Global One. Sprint's equity share of the
results of Global One has been reported as a discontinued operation in Sprint's
earnings for all periods presented.
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring. In the 1999 second
quarter, Cox Communications, Inc. exercised a put option requiring Sprint to
purchase the remaining 40.8% interest in Cox PCS. Sprint issued additional low
vote PCS shares in exchange for this interest.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by FT and DT was reclassified to represent an equity interest in the FON Group
and the PCS Group that entitles FT and DT to one share of FON stock and 1/2
share of PCS stock. These transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares (pre-split basis) to maintain their combined 20% voting
power in Sprint (Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless PCS operations. These operations are referred to as the PCS Group.
The FON stock is intended to reflect the performance of all of Sprint's other
operations. These operations are referred to as the FON Group and include the
following:
. Core businesses
. Long distance division
. Local division
. Product distribution and directory publishing businesses
. Activities to develop and deploy Sprint ION(SM), Integrated On-Demand
Network
. Other strategic ventures.
FON and PCS shareholders are subject to the risks related to all of Sprint's
businesses, assets and liabilities. Owning FON or PCS shares does not represent
a direct legal interest in the assets and liabilities of the Groups. Rather,
shareholders remain invested in Sprint and continue to vote as a single voting
class for Board member elections (other than Class A directors elected by FT
and DT) and most other company matters.
FON Group or PCS Group events affecting Sprint's consolidated statements of
operations and balance sheets could, in turn, affect the other Group's
financial statements or stock price.
Net losses of either Group, and dividends or distributions on, or repurchases
of, PCS stock or FON stock will reduce Sprint funds legally available for
dividends on both Groups' stock. Sprint does not expect to pay dividends on the
PCS shares in the foreseeable future.
Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (MD&A) should be read along with the FON Group's MD&A
and the PCS Group's MD&A.
I-2
<PAGE>
- --------------------------------------------------------------------------------
Forward-looking Information
- --------------------------------------------------------------------------------
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.
Some factors that could cause actual results to differ include:
. the effects of vigorous competition in the markets in which Sprint
operates;
. the costs and business risks related to entering and expanding new
markets necessary to provide seamless services and new services;
. the ability of the PCS Group to continue to grow a significant market
presence;
. the risks related to Sprint's investments in joint ventures;
. the impact of any unusual items resulting from ongoing evaluations of
Sprint's business strategies;
. regulatory risks, including the impact of the Telecommunications Act of
1996 (Telecom Act);
. unexpected results of litigation filed against Sprint;
. uncertainties associated with the pending merger of Sprint and MCI
WorldCom;
. 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; and
. other risks referenced from time to time in Sprint's filings with the
Securities and Exchange Commission.
The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements. Forward-
looking statements are found throughout MD&A. The reader should not place undue
reliance on forward-looking statements, which speak only as of the date of this
report. Sprint is not obligated to publicly release any revisions to forward-
looking statements to reflect events after the date of this report or
unforeseen events.
- --------------------------------------------------------------------------------
General Overview of the Sprint FON Group
- --------------------------------------------------------------------------------
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network that uses fiber-optic and electronic technology. The division primarily
provides domestic and international voice, video and data communications
services.
Local Division
The local division consists of regulated local phone companies serving more
than 8 million access lines in 18 states. It provides local phone services,
access by phone customers and other carriers to its local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas.
Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint is developing and deploying new integrated communications services,
referred to as Sprint ION. Sprint ION extends Sprint's existing network
capabilities to the customer and enables Sprint to provide the network
infrastructure to meet customers' demands for advanced services including
integrated voice, data, Internet and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
Other Ventures
The "other ventures" segment includes the cable TV service operations of the
broadband fixed wireless companies acquired in the second half of 1999.
This segment also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures.
- --------------------------------------------------------------------------------
General Overview of the Sprint PCS Group
- --------------------------------------------------------------------------------
The PCS Group includes Sprint's domestic wireless PCS operations. It operates
the only 100% digital PCS wireless network in the United States with licenses
to provide service nationwide using a single frequency and a single technology.
At year-end 1999, the PCS Group, together with affiliates, operated PCS systems
in over 360 metropolitan markets, including the 50 largest U.S. metropolitan
areas. The PCS Group has licenses to serve more than 270 million people in all
50 states, Puerto Rico and the U.S. Virgin Islands. The PCS Group's service,
including affiliates, now reaches nearly 190 million people. The PCS Group
provides nationwide service through:
. operating its own digital network in major U.S. metropolitan areas,
. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,
. roaming on other providers' analog cellular networks using dual-
band/dual-mode handsets, and
I-3
<PAGE>
. roaming on other providers' digital PCS networks that use code division
multiple access (CDMA).
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
Consolidated
Total net operating revenues were as follows:
<TABLE>
- --------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------
(millions)
<S> <C> <C> <C>
FON Group $17,016 $15,764 $14,564
PCS Group 3,180 1,225 --
Intergroup eliminations (268) (108) --
- --------------------------------------------------
Net operating revenues $19,928 $16,881 $14,564
-------------------------------
</TABLE>
Income (Loss) from continuing operations was as follows:
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
FON Group $ 1,736 $ 1,675 $1,513
PCS Group (2,481) (1,090) (419)
- -------------------------------------------------------------------
Income (Loss) from continuing operations $ (745) $ 585 $1,094
-----------------------------------------------
</TABLE>
Sprint FON Group
<TABLE>
- --------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $17,016 $15,764 $14,564
Operating expenses 14,086 13,004 12,094
- --------------------------------------------------
Operating income $ 2,930 $ 2,760 $ 2,470
-------------------------------
Operating margin 17.2% 17.5% 17.0%
-------------------------------
Capital expenditures $ 3,534 $ 3,159 $ 2,709
-------------------------------
</TABLE>
Net Operating Revenues
Net operating revenues increased 8% in 1999 and 1998. These increases mainly
reflect growth of the FON Group's long distance and local divisions.
Long Distance Division
All major market segments--business, residential and wholesale--contributed to
the increase in the long distance division's revenues in 1999 and 1998. The
increases mainly reflect strong data services revenue growth as well as strong
minute growth of 22% in 1999 and 15% in 1998, partly offset by a more
competitive pricing environment and a change in the mix of products sold.
Business and data market revenues increased 9% in 1999 and 15% in 1998. This
primarily reflects growth in data services.
Residential market revenues increased 7% in 1999 and 5% in 1998. These
increases reflect strong volume growth from long distance calls, partly offset
by lower rates. Growth in 1999 was also enhanced by Sprint Nickel Nights(R) as
well as increased prepaid card revenues.
Wholesale market revenues increased 15% in 1999 and 8% in 1998. This reflects
strong minute growth mainly from international calls and increased inbound and
outbound toll-free calls.
Local Division
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. Sprint sold approximately 139,000 residential and business access
lines in Illinois in 1997 and the remaining 81,000 access lines in Illinois in
November 1998. For comparative purposes, the following discussion of local
division results assumes these transfer pricing changes and sales of exchanges
occurred at the beginning of 1997.
Local division revenues increased 6% in 1999 and 5% in 1998, mainly reflecting
customer access line growth and increased sales of network-based services such
as Caller ID and Call Waiting. Customer access lines increased 5% in both 1999
and 1998. Sales of network-based services increased in 1999 due to strong
demand for bundled services which combine local service, network-based features
and long distance calling. The increase in 1998 revenues also reflects
increased sales of equipment.
Local service revenues, which grew 9% in 1999 and 10% in 1998, increased due to
customer access line growth, continued demand for network-based services,
growth in data products and increased revenues from maintaining customer wiring
and equipment. Revenue growth in 1998 also reflects increased sales of private
line services.
Network access revenues increased 4% in 1999 and 1998 reflecting an 8% increase
in minutes of use in 1999 and 1998 and the 1999 implementation of local number
portability charges. These increases were partly offset by FCC-mandated access
rate reductions.
Toll service revenues decreased 11% in 1999 and 26% in 1998, mainly due to
increased competition in the intraLATA long distance market, which is expected
to continue. In addition, toll service areas are shrinking as certain local
calling areas are expanding. However, the reduced revenues are, in part, offset
by increases in local service revenues and by increases in network access
revenues paid by other carriers providing intraLATA long distance services to
the local division's customers. In addition, over one-third of the toll
customers lost by the local division have selected Sprint's long distance
division for intraLATA long distance service, which helps mitigate the erosion
of these revenues.
I-4
<PAGE>
Other revenues increased 7% in 1999 and 1998 reflecting increased equipment
sales of business systems and data networks as well as growth in telemarketing
and commission revenues. Revenue growth in 1999 also reflects improvements in
uncollectibles. The 1998 growth also reflects increased revenues from providing
billing and collection services.
Product Distribution & Directory Publishing Businesses
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The following discussion assumes these transfer pricing changes
occurred at the beginning of 1997.
The product distribution and directory publishing businesses' revenues
increased 3% in 1999 and 16% in 1998. Nonaffiliated revenues, which account for
roughly 60% of revenues in 1999 and 1998, increased 12% in 1999 and 10% in
1998. Sales to affiliates decreased 10% in 1999 and increased 27% in 1998. The
change in the mix of the local division's capital program to more electronics
and software, which is more frequently purchased directly from manufacturers,
caused the decline in affiliate sales in 1999. In 1998, the growth reflects the
centralization of certain local division purchasing and warehousing functions
at North Supply in 1997 resulting in affiliates purchasing more through North
Supply.
Other Ventures
The other ventures' 1999 revenues reflect the cable TV service revenues of the
broadband fixed wireless companies after their acquisition dates.
Operating Expenses
The FON Group's operating expenses increased 8% in 1999 and 1998 mainly to
support revenue growth.
Long Distance Division
Long distance division operating expenses increased 8% in 1999 and 1998.
Interconnection costs increased 5% in 1999 and decreased 1% in 1998. Increased
calling volumes were partially offset by reductions in per-minute costs for
both domestic and international access in 1999. The 1999 increase also reflects
costs related to growth in non-minute driven revenues. In 1998, reductions in
per minute costs more than offset the impact of increased calling volumes. The
rate reductions were generally due to domestic FCC-mandated access rate
reductions. Lower international per minute costs reflect continued competition.
Sprint expects government deregulation and competitive pressures to add to the
trend of declining unit costs for international interconnection. Operations
expense increased due to growth in data services as well as increases in
network equipment operating leases in both years. Selling, general and
administrative (SG&A) expense increased reflecting the overall growth of the
business as well as increased marketing and promotions to support products and
services.
Local Division
The following local division discussion assumes the transfer pricing changes
and sales of exchanges occurred at the beginning of 1997. See "Net Operating
Revenues--Local Division" for more details.
Local division operating expenses increased 5% in 1999 and 4% in 1998
reflecting increases in costs of services and products in 1999, SG&A expenses
in 1998 and depreciation and amortization in both years. Costs of services and
products increased in 1999 mainly due to customer access line growth and
increased equipment sales. SG&A increased in 1998 mainly because of increased
customer service costs related to customer access line growth and marketing
costs to promote new products and services. Depreciation and amortization
expense increased mainly because of increased capital expenditures in switching
and transport technologies which have shorter asset lives.
Product Distribution & Directory Publishing Businesses
The following discussion assumes the transfer pricing changes occurred at the
beginning of 1997. See "Net Operating Revenues--Product Distribution and
Directory Publishing Businesses" for more details.
The product distribution and directory publishing businesses' cost of services
and products increased 1% in 1999 and 19% in 1998 reflecting increased
equipment sales. SG&A expense increased 17% in both 1999 and 1998. The 1999
increase was the result of staffing demands related to nonaffiliated sales
growth. The 1998 increase was the result of costs related to the division's
acquisition of a sales force from another directory sales company in 1998.
Sprint ION(SM)
Operating expenses for Sprint ION in 1999 and 1998 reflect its initial
development and deployment activities and include costs for network research
and testing, systems and operations development, product development, and
advertising to increase public awareness.
Other Ventures
The other ventures' 1999 expenses reflect the cable TV service operations
expenses of the broadband fixed wireless companies after their acquisition
dates.
This segment's operating expenses in 1998 and 1997 mainly reflect activities
related to offering Internet services. In June 1998, the FON Group completed
the strategic alliance to combine its Internet business with
I-5
<PAGE>
EarthLink. As part of the alliance, EarthLink obtained the FON Group's Sprint
Internet Passport customers and took over the day-to-day operations of those
services. In exchange, Sprint acquired an equity interest in EarthLink.
Sprint PCS Group
<TABLE>
- -----------------------------------------------
<CAPTION>
1999 1998 1997
- -----------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $ 3,180 $ 1,225 $ --
Operating expenses 6,417 3,795 19
- -----------------------------------------------
Operating loss $(3,237) $(2,570) $(19)
--------------------------
Capital expenditures $ 2,580 $ 1,072 $154
--------------------------
</TABLE>
The PCS Group's 1999 results of operations reflect the first full year of
combined results after the PCS Restructuring. The PCS Group's 1998 results of
operations included SprintCom's operating results as well as Sprint PCS'
operating results on a consolidated basis for the entire year. Before 1998,
Sprint's investment in Sprint PCS was accounted for using the equity method.
(See "Pro Forma Sprint PCS Group" section below for a discussion of pro forma
results of operations.)
Operating expenses in 1998 include a write-off of $179 million associated with
the cost of nine in-process research and development projects acquired in
connection with the PCS Restructuring. Management has continued supporting
these research and development projects and believes the PCS Group has a
reasonable chance of successfully completing the projects. These projects are
intended to address new and emerging markets within the PCS wireless
communications industry, such as the rapid adoption of the Internet and the
rapid convergence of voice, data, and video. The failure of any particular
individual project in-process would not materially impact the PCS Group's
financial condition, results of operations or cash flows.
The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail chain and the subsequent service revenues generated by
sales to its customers accounted for 28% of net operating revenues in 1999 and
25% in 1998.
Pro Forma Sprint PCS Group
To provide a more meaningful analysis of the PCS Group's underlying operating
results, the following supplemental discussion presents 1998 and 1997 on a pro
forma basis and assumes the PCS Restructuring and the write-off of acquired in-
process research and development costs occurred at the beginning of 1997.
<TABLE>
- ------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $ 3,180 $ 1,225 $ 258
Operating expenses 6,417 3,865 2,540
- ------------------------------------------------------------------
Operating loss $(3,237) $(2,640) $(2,282)
----------------------------------------------
Capital expenditures
(including capital lease obligations) $ 2,616 $ 2,904 $ 2,278
----------------------------------------------
</TABLE>
Net Operating Revenues
The PCS Group's net operating revenues include subscriber revenues and sales of
handsets and accessory equipment. Subscriber revenues consist of monthly
recurring charges and usage charges. The increases in the PCS Group's net
operating revenues mainly reflect the launch of new markets and a growing
customer base. The PCS Group ended 1999 with over 5.7 million customers in
nearly 330 markets nationwide. Affiliates had approximately 200,000 customers
in over 30 markets.
Approximately 20% of 1999 and 1998 net operating revenues, and nearly half of
1997 revenues, were from sales of handsets and accessories. As part of the PCS
Group's marketing plans, handsets are normally sold at prices below the PCS
Group's cost.
Operating Expenses
The PCS Group's operating expenses increased 66% in 1999 and 52% in 1998.
The PCS Group's costs of services and products mainly includes handset and
accessory costs, switch and cell site expenses and other network-related costs.
These costs increased $1.4 billion in 1999 and $908 million in 1998 driven by
the significant growth in customers and the expanded market coverage.
The PCS Group's SG&A expense mainly includes marketing costs to promote
products and services, as well as salary and benefit costs. SG&A expense
increased $675 million in 1999 and $579 million in 1998 reflecting an expanded
workforce to support subscriber growth and increased marketing and selling
costs.
Depreciation and amortization expense for the PCS Group, which increased $485
million in 1999 and $17 million in 1998, consists mainly of depreciation of
network assets and amortization of intangible assets. The intangible assets
include goodwill, PCS licenses, customer base, microwave relocation costs and
assembled workforce, which are being amortized over 30 months to 40 years. The
increase in depreciation and amortization expense in 1999 reflects amortization
of intangible assets acquired in the PCS Restructuring and the Cox PCS purchase
as well as depreciation on an increased property base. The increase in 1998
reflects depreciation on an increased property base.
I-6
<PAGE>
- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------
Interest Expense
The effective interest rates in the following table reflect interest expense on
long-term debt only. Interest costs on short-term borrowings classified as
long-term debt, deferred compensation plans and customer deposits have been
excluded so as not to distort the effective interest rates on long-term debt.
<TABLE>
- ---------------------------------------------
<CAPTION>
1999 1998 1997
- ---------------------------------------------
<S> <C> <C> <C>
Effective interest rate on
long-term debt(/1/) 7.0% 8.6% 8.0%
----------------------
</TABLE>
(/1/)The effective interest rate on long-term debt for 1998 is on a pro forma
basis as if Sprint PCS' long-term debt had been included in Sprint's
outstanding long-term debt balance all year.
Sprint's effective interest rate on long-term debt decreased in 1999. In the
1998 fourth quarter, Sprint refinanced $3.3 billion of the PCS Group's debt
with borrowings which have lower interest rates. The decrease also reflects
additional borrowings with lower interest rates.
Sprint's 1998 interest costs include an entire year of Sprint PCS' interest due
to the PCS Restructuring. The increase in the 1998 effective interest rate on
long-term debt was mainly due to Sprint PCS' borrowings made before the PCS
Restructuring. These borrowings had higher interest rates than Sprint's
borrowings.
Equity in Sprint PCS Losses
Sprint PCS' results of operations for 1998 have been consolidated for the
entire year. The Cable Partners' share of losses through the PCS Restructuring
date has been reflected as "Other partners' loss in Sprint PCS" in the
Consolidated Statements of Operations. Prior to the PCS Restructuring, Sprint's
ownership interest in Sprint PCS was accounted for using the equity method.
Sprint's share of losses from Sprint PCS was $660 million in 1997.
Other Income, Net
Other income consisted of the following:
<TABLE>
- --------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------
(millions)
<S> <C> <C> <C>
Dividend and interest income $23 $ 93 $ 75
Other, net 52 78 66
- --------------------------------------------
Total $75 $171 $141
-------------------
</TABLE>
Dividend and interest income for all years reflects interest earned on
temporary investments. For 1998, it also reflects interest earned on loans to
unconsolidated affiliates and interest earned on short-term investments
following Sprint's $5.0 billion debt offering in late 1998.
"Other, net" for 1999 mainly includes net gains on miscellaneous investment
activities, partly offset by losses from certain equity method investments. For
1998 and 1997, it mainly reflects net gains on sales of local exchanges and
certain other investments, partly offset by losses from certain equity method
investments.
Income Taxes
Sprint's consolidated effective tax rates were 30.5% in 1999, 43.7% in 1998 and
37.4% in 1997. See Note 7 of Notes to Consolidated Financial Statements for
information about the differences that caused the effective income tax rates to
vary from the statutory federal rate for income taxes related to continuing
operations.
Discontinued Operation, Net
As a result of Sprint's sale of its interest in Global One to FT and DT,
Sprint's equity share of the results of Global One has been reported as a
discontinued operation in Sprint's earnings for all periods presented.
Sprint recorded after-tax losses related to Global One totaling $130 million in
1999, $135 million in 1998 and $142 million in 1997. The 1999 amount includes a
$50 million tax benefit recorded to recognize tax assets related to previous
losses. The realization of these assets was uncertain until the sale agreement
was reached. The gain on the sale of Sprint's interest in Global One made it
apparent that these tax assets would be realized.
Extraordinary Items, Net
In 1999, Sprint redeemed, prior to scheduled maturities, $575 million of the
broadband fixed wireless companies' debt assumed by the FON Group and $2.2
billion of the PCS Group's revolving credit facilities and other borrowings.
These borrowings had interest rates ranging from 5.6% to 14.5%. This resulted
in a $60 million after-tax extraordinary loss for Sprint.
In 1998, Sprint redeemed, prior to scheduled maturities, $138 million of the
FON Group's debt and $3.3 billion of the PCS Group's debt. These borrowings had
interest rates ranging from 7.9% to 9.3%. This resulted in a $36 million after-
tax extraordinary loss for Sprint.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
- ----------------------------------------
<CAPTION>
1999 1998
- ----------------------------------------
(millions)
<S> <C> <C>
Consolidated assets $39,250 $33,257
-------------------
</TABLE>
Net property, plant and equipment increased $3.0 billion in 1999 reflecting
capital expenditures to support the PCS network buildout. The increase also
reflects capital
I-7
<PAGE>
expenditures to support the core long distance and local networks, Sprint ION
development and expanded product and service offerings. Net intangibles
increased $1.9 billion mainly reflecting goodwill resulting from the
acquisition of the remaining interest in Cox PCS and the purchase of the
broadband fixed wireless companies. Sprint's debt-to-capital ratio was 55.3% at
year-end 1999 versus 49.5% at year-end 1998. See "Liquidity and Capital
Resources" for more information about changes in Sprint's Consolidated Balance
Sheets.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Consolidated cash flows for 1998 include Sprint PCS' cash flows only after the
PCS Restructuring date. In 1997 and prior to the PCS Restructuring date in
1998, consolidated cash flows include SprintCom's cash flows and treat the
investment in Sprint PCS as an equity method investment.
Operating Activities
<TABLE>
- --------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
FON Group $ 3,713 $3,915 $2,899
PCS Group (1,692) (159) 38
Intergroup eliminations (69) 443 435
- --------------------------------------------------------------------
Cash flows provided by operating activities $ 1,952 $4,199 $3,372
-----------------------------------------------
</TABLE>
Operating cash flows decreased 54% in 1999 and increased 25% in 1998. The 1999
decrease reflects increases in working capital in both the FON Group and PCS
Group and the increased operating losses of the PCS Group, partly offset by the
FON Group's improved operating results. The 1998 increase mainly reflects
improved operating results in the FON Group's core businesses and decreases in
working capital in both the FON Group and the PCS Group.
Investing Activities
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
FON Group $(3,965) $(3,098) $(3,827)
PCS Group (2,509) (861) (1,020)
Intergroup eliminations (299) (259) 547
- ------------------------------------------------------------------------
Cash flows used by investing activities from
continuing operations $(6,773) $(4,218) $(4,300)
----------------------------------------------------
</TABLE>
The FON Group's capital expenditures totaled $3.5 billion in 1999, $3.2 billion
in 1998 and $2.7 billion in 1997. Long distance capital expenditures were
incurred mainly to enhance network reliability, meet increased demand for voice
and data-related services and upgrade capabilities for providing new products
and services. The local division incurred capital expenditures to accommodate
access line growth, provide additional capacity for increased Internet traffic
and expand capabilities for providing enhanced services. Sprint ION capital
expenditures were made for continuing development and hardware deployment. PCS
Group capital expenditures, totaling $2.6 billion in 1999, $1.1 billion in 1998
and $154 million in 1997, were incurred to support the PCS network buildout.
(See the PCS Group's MD&A for a pro forma presentation of capital
expenditures.)
In 1999, Sprint purchased several broadband fixed wireless companies for $618
million excluding assumed debt. Investing activities also include proceeds from
sales of assets totaling $243 million in 1999, $230 million in 1998 and $292
million in 1997. In addition, in 1997, Sprint paid $460 million toward the
purchase of its PCS licenses and purchased the net assets of Paranet, Inc. for
$375 million.
"Investments in and advances to affiliates, net" consisted of the following:
<TABLE>
- ---------------------------------------
<CAPTION>
1999 1998 1997
- ---------------------------------------
(millions)
<S> <C> <C> <C>
Sprint PCS
Capital contributions $-- $ 33 $406
Loans and advances, net -- 154 254
Capitalized interest -- -- 46
- ---------------------------------------
-- 187 706
Other, net 135 236 186
- ---------------------------------------
Total $135 $423 $892
--------------
</TABLE>
Amounts for Sprint PCS in 1998 reflect contributions and advances prior to the
PCS Restructuring. These amounts, as well as capital contributions and net
advances to Sprint PCS prior to 1998, were used to fund capital and operating
requirements. "Other, net" includes the FON Group's investments in EarthLink,
Call-Net and other miscellaneous ventures.
Financing Activities
<TABLE>
- ------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
FON Group $ 308 $ (219) $ 79
PCS Group 4,044 1,193 982
Intergroup eliminations 368 (184) (982)
- ------------------------------------------------------------------
Cash flows provided by financing activities $4,720 $ 790 $ 79
--------------------------------------------
</TABLE>
Financing activities in 1999 reflect proceeds from long-term debt of $6.9
billion, partly offset by payments on long-term debt. These net proceeds were
used mainly for capital investments and to fund the PCS Group's operating
losses. In 1998, Sprint borrowed $5.2 billion which was mainly used to repay
existing debt. In 1997, Sprint had net borrowings of $532 million, mainly to
fund investments in and loans to affiliates. Sprint paid dividends of $441
million in 1999 and $430 million in 1998 and 1997.
I-8
<PAGE>
Capital Requirements
Sprint's 2000 investing activities, mainly consisting of capital expenditures
and investments in affiliates, are expected to require cash of $6.5 to $7.0
billion. FON Group capital expenditures are expected to range between $3.9 and
$4.2 billion, and PCS Group capital expenditures are expected to be between
$2.4 and $2.6 billion. Investments in affiliates are expected to require cash
of approximately $200 million. Additional funds will be required to fund the
PCS Group's expected operating losses, working capital and debt service
requirements. Dividend payments are expected to approximate $450 million in
2000.
In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement that provides for the allocation of income taxes between the FON
Group and the PCS Group. Sprint expects the FON Group to make significant
payments to the PCS Group under this agreement because of expected PCS Group
operating losses in the near future. These payments will reflect the PCS
Group's incremental cumulative effect on Sprint's consolidated federal and
state tax liability and tax credit position. The PCS Group accrued current
benefits under the agreement totaling $887 million in 1999 and $190 million in
1998 and received related payments from the FON Group totaling $764 million in
1999 and $20 million in 1998. The remaining $293 million will be paid by the
FON Group during the first half of 2000. See Note 2 of Notes to Consolidated
Financial Statements, "Allocation of Federal and State Income Taxes," for more
details.
Liquidity
Sprint mainly uses commercial paper to fund its short-term working capital
needs. Sprint also uses the long-term bond market as well as other debt markets
to fund its needs. Sprint intends to continue borrowing funds through the U.S.
and international money and capital markets and bank credit markets to fund
capital expenditures, and operating and working capital requirements.
In 1998, Sprint replaced its previous $1.5 billion credit facility with $5.0
billion of new revolving credit facilities with syndicates of domestic and
international banks. These facilities expire in 2000 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Sprint also has a separate five-year revolving credit facility with
a bank which expires in 2002. At year-end 1999, Sprint had total unused lines
of credit of $3.5 billion under these facilities.
In the 1999 third quarter, Sprint filed a shelf registration statement with the
SEC covering $4.0 billion of senior unsecured debt securities. At year-end
1999, Sprint had issued $750 million of debt securities under the shelf. These
securities have interest rates ranging from 6.4% to 6.5% and mature in 2001.
In June 1999, Sprint entered into a $1.0 billion financing agreement to sell,
on a continuous basis with recourse, undivided percentage ownership interests
in a designated pool of its accounts receivable. Subsequent collections of
receivables sold to investors are typically reinvested in new receivables. At
year-end 1999, Sprint had borrowed $900 million under this agreement. These
borrowings had a weighted average interest rate of 6.4% and mature in 2002.
Any borrowings Sprint may incur are ultimately limited by certain debt
covenants. Sprint could borrow up to an additional $11.3 billion at year-end
1999 under the most restrictive of its debt covenants.
- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------
See "Regulatory Developments" in the FON Group's MD&A and the PCS Group's MD&A.
- --------------------------------------------------------------------------------
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 by regularly monitoring 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 frequent 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 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
I-9
<PAGE>
exposure results from net payments made to overseas telecommunications
companies for completing international calls made by Sprint's domestic
customers. These international operations were not material to the consolidated
financial position, results of operations or cash flows at year-end 1999. In
addition, foreign currency transaction gains and losses were not material to
Sprint's 1999 results of operations. Sprint has not entered into any
significant foreign currency forward contracts or other derivative instruments
to hedge the effects of adverse fluctuations in foreign exchange rates. As a
result, Sprint was not subject to material foreign exchange risk.
- --------------------------------------------------------------------------------
Year 2000 Issue
- --------------------------------------------------------------------------------
Sprint successfully completed its Year 2000 readiness work and passed through
the January 1, 2000 rollover event while encountering no customer- affecting
outages or business interruptions. Since the inception of Sprint's Year 2000
readiness program in 1996 through December 31, 1999, Sprint incurred
approximately $320 million of costs associated with its Year 2000 readiness
program. Sprint does not expect to incur any significant additional
expenditures related to the Year 2000 issue.
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
See Note 14 of Notes to Consolidated Financial Statements for a discussion of a
recently issued accounting pronouncement.
I-10
<PAGE>
MANAGEMENT REPORT
Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this document. Management is
responsible for the consistency of reporting this information and for ensuring
that accounting principles generally accepted in the United States are used.
In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and principles of business conduct are understood
and practiced by its employees.
The financial statements included in this document have been audited by Ernst &
Young LLP, independent auditors. Their audits were conducted using auditing
standards generally accepted in the United States and their reports are
included herein.
The Board of Director's responsibility for these financial statements is
pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
________________________________________________________________________________
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
________________________________________________________________________________
Arthur B. Krause
Executive Vice President and Chief Financial Officer
I-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sprint Corporation
We have audited the accompanying consolidated balance sheets of Sprint
Corporation (Sprint) as of December 31, 1999 and 1998, and the related
consolidated statements of operations, comprehensive income (loss), cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1999. Our audits also included the financial statement schedule
listed in the Index to Financial Statements and Financial Statement Schedules.
These financial statements and the schedule are the responsibility of the
management of Sprint. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits. We did not audit
the 1998 or 1997 consolidated financial statements of Sprint Spectrum Holding
Company, L.P., a wholly owned subsidiary of Sprint as of December 31, 1998 and
an investment in which Sprint had a 40% interest through November 23, 1998 (as
discussed in Note 1). Such financial statements reflect assets of $2.7 billion
as of December 31, 1998, and revenues of $1.2 billion for the year then ended
which we did not audit. Sprint's equity in the net loss of Sprint Spectrum
Holding Company, L.P. is stated at $625 million for the year ended December
31, 1997. The consolidated financial statements of Sprint Spectrum Holding
Company, L.P. have been audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the 1998 assets and
revenues and the 1997 equity in the net loss which we did not audit, is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and the
report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sprint at December
31, 1999 and 1998, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Kansas City, Missouri
February 1, 2000
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Sprint Corporation and Partners of Sprint Spectrum
Holding Company, L.P.
We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations and cash flows for the two years
in the period ended December 31, 1998. Our audits also included the financial
statement schedule (Schedule II). These financial statements and Schedule II
are the responsibility of Partnership management. Our responsibility is to
express an opinion on these consolidated financial statements and Schedule II
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the two years ended December 31,1998, in
conformity with generally accepted accounting principles. Also, in our
opinion, Schedule II, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Kansas City, Missouri
February 2, 1999
I-12
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS Sprint Corporation
(millions)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Operating Revenues $19,928 $16,881 $14,564
- -------------------------------------------------------------------------------
Operating Expenses
Costs of services and products 10,606 8,996 7,142
Selling, general and administrative 5,977 4,806 3,258
Depreciation and amortization 3,652 2,710 1,713
Acquired in-process research and development costs -- 179 --
- -------------------------------------------------------------------------------
Total operating expenses 20,235 16,691 12,113
- -------------------------------------------------------------------------------
Operating Income (Loss) (307) 190 2,451
Interest expense (860) (718) (184)
Other partners' loss in Sprint PCS -- 1,251 --
Equity in loss of Sprint PCS -- -- (660)
Minority interest 20 145 --
Other income, net 75 171 141
- -------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes (1,072) 1,039 1,748
Income tax (expense) benefit 327 (454) (654)
- -------------------------------------------------------------------------------
Income (Loss) from Continuing Operations (745) 585 1,094
Discontinued operation, net (130) (135) (142)
Extraordinary items, net (60) (36) --
- -------------------------------------------------------------------------------
Net Income (Loss) $ (935) $ 414 952
----------------
Preferred stock dividends (1)
--------
Earnings applicable to common stock $ 951
--------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (continued) Sprint Corporation
(millions, except per share data)
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998(/1/) 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FON COMMON STOCK
Earnings applicable to common stock $ 1,574 $ 118
------------------
Diluted Earnings per Common Share(/2/)
Continuing operations $ 1.97 $ 0.18
Discontinued operation (0.15) (0.04)
Extraordinary items (0.04) --
- ---------------------------------------------------------------------
Total $ 1.78 $ 0.14
------------------
Diluted weighted average common shares 887.2 869.0
------------------
Basic Earnings per Common Share(/2/)
Continuing operations $ 2.01 $ 0.18
Discontinued operation (0.15) (0.04)
Extraordinary items (0.05) --
- ---------------------------------------------------------------------
Total $ 1.81 $ 0.14
------------------
Basic weighted average common shares 868.0 855.2
------------------
PCS COMMON STOCK
Loss applicable to common stock $(2,517) $ (559)
------------------
Basic and Diluted Loss per Common Share(/2/)
Continuing operations $ (2.71) $(0.63)
Extraordinary item (0.02) (0.04)
- ---------------------------------------------------------------------
Total $ (2.73) $(0.67)
------------------
Basic and diluted weighted average common shares 920.4 831.6
------------------
SPRINT COMMON STOCK
Earnings applicable to common stock $ 853 $ 951
----------------
Diluted Earnings per Common Share
Continuing operations $ 2.19 $ 2.51
Discontinued operation (0.23) (0.33)
Extraordinary items (0.01) --
- -----------------------------------------------------------------------------
Total $ 1.95 $ 2.18
----------------
Diluted weighted average common shares 438.6 436.5
----------------
Basic Earnings per Common Share
Continuing operations $ 2.23 $ 2.54
Discontinued operation (0.24) (0.33)
Extraordinary items (0.01) --
- -----------------------------------------------------------------------------
Total $ 1.98 $ 2.21
----------------
Basic weighted average common shares 430.8 430.2
----------------
DIVIDENDS PER COMMON SHARE
FON common stock(/2/) $ 0.50 $0.125
------------------
Class A common stock $ 0.625 $ 1.00 $ 1.00
--------------------------
Sprint common stock $ 0.75 $ 1.00
----------------
</TABLE>
(/1/)As discussed in Note 1 of Notes to Consolidated Financial Statements, the
Recapitalization occurred in November 1998. As a result, earnings per share
for Sprint common stock reflects earnings through the Recapitalization
date, while earnings (loss) per share for FON common stock and PCS common
stock reflects results from that date to year-end 1998.
(/2/)In December 1999, the Sprint Board of Directors authorized a two-for-one
stock split of Sprint's PCS common stock in the form of a stock dividend,
which was distributed on February 4, 2000 to the PCS shareholders. In the
second quarter of 1999, Sprint effected a two-for-one stock split of its
Sprint FON common stock in the form of a stock dividend. As a result, basic
and diluted earnings per common share, weighted-average common shares and
dividends for Sprint FON common stock and Sprint PCS common stock have been
restated for periods prior to these stock splits.
See accompanying Notes to Consolidated Financial Statements.
I-14
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Sprint Corporation
(millions)
<TABLE>
- --------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- --------------------------------------------
<S> <C> <C> <C>
Net Income (Loss) $(935) $414 $952
- --------------------------------------------
Other Comprehensive
Income (Loss)
Unrealized holding gains
on securities 54 21 12
Income tax expense (20) (8) (5)
- --------------------------------------------
Net unrealized holding
gains on securities
during the period 34 13 7
Reclassification
adjustment for gains
included in net income (57) -- --
- --------------------------------------------
Total net unrealized
holding gains (losses)
on securities (23) 13 7
Foreign currency
translation adjustments -- (2) 10
- --------------------------------------------
Total other
comprehensive income
(loss) (23) 11 17
- --------------------------------------------
Comprehensive Income
(Loss) $(958) $425 $969
-----------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-15
<PAGE>
CONSOLIDATED BALANCE SHEETS Sprint Corporation
(millions, except per share data)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 120 $ 605
Accounts receivable, net of allowance for doubtful
accounts of $285 and $186 3,408 2,708
Inventories 777 477
Prepaid expenses 340 259
Income tax receivable 411 171
Investments in equity securities 317 --
Other 207 194
- -------------------------------------------------------------------------------
Total current assets 5,580 4,414
Investments in equity securities 147 489
Property, plant and equipment
FON Group 27,687 25,156
PCS Group 9,411 6,988
- -------------------------------------------------------------------------------
Total property, plant and equipment 37,098 32,144
Accumulated depreciation (15,129) (13,161)
- -------------------------------------------------------------------------------
Net property, plant and equipment 21,969 18,983
Investments in and advances to affiliates 452 463
Intangible assets
Goodwill 5,745 3,701
PCS licenses 3,060 3,037
Other 1,453 1,137
- -------------------------------------------------------------------------------
Total intangible assets 10,258 7,875
Accumulated amortization (691) (182)
- -------------------------------------------------------------------------------
Net intangible assets 9,567 7,693
Net assets of discontinued operation 394 182
Other 1,141 1,033
- -------------------------------------------------------------------------------
Total $ 39,250 $ 33,257
-------------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 1,087 $ 247
Accounts payable 1,462 1,631
Construction obligations 1,039 979
Accrued interconnection costs 683 592
Accrued taxes 410 442
Advance billings 323 229
Payroll and employee benefits 638 416
Other 1,190 910
- -------------------------------------------------------------------------------
Total current liabilities 6,832 5,446
Long-term debt and capital lease obligations 15,685 11,942
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 1,511 1,830
Postretirement and other benefit obligations 1,064 1,064
Other 598 527
- -------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,173 3,421
Shareholders' equity
Common stock
Class A common stock, par value $2.50 per share, 200.0
shares authorized, 86.2 shares issued and outstanding
(each share represents the right to one FON share and
1/2 PCS share) 216 216
FON, par value $2.00 per share, 4,200.0 shares
authorized, 788.0 and 350.3 shares issued and 788.0
and 344.5 shares outstanding 1,576 701
PCS, par value $1.00 per share, 2,350.0 shares
authorized, 910.4 and 375.4 shares issued and 910.4
and 372.7 shares outstanding 910 375
PCS preferred stock, no par, 0.3 shares authorized, 0.2
shares issued and outstanding 247 247
Capital in excess of par or stated value 8,569 7,586
Retained earnings 1,961 3,651
Treasury stock, at cost, 0.0 and 8.5 shares (2) (426)
Accumulated other comprehensive income 81 104
Other 2 (6)
- -------------------------------------------------------------------------------
Total shareholders' equity 13,560 12,448
- -------------------------------------------------------------------------------
Total $ 39,250 $ 33,257
-------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Sprint Corporation
(millions)
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ (935) $ 414 $ 952
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Discontinued operation, net 130 135 142
Extraordinary items, net 60 32 --
Equity in net losses of affiliates 70 892 682
Depreciation and amortization 3,652 2,042 1,713
Acquired in-process research and development
costs -- 179 --
Deferred income taxes and investment tax credits (333) 127 176
Net gains on sales of assets (183) (104) (93)
Changes in assets and liabilities, excluding the
PCS Restructuring in 1998:
Accounts receivable, net (700) 101 (127)
Inventories and other current assets (778) (189) (95)
Accounts payable and other current liabilities 906 733 21
Noncurrent assets and liabilities, net (63) (126) (18)
Other, net 126 (37) 19
- -----------------------------------------------------------------------------
Net cash provided by operating activities 1,952 4,199 3,372
- -----------------------------------------------------------------------------
Investing Activities
Capital expenditures (6,114) (4,231) (2,863)
Investments in and loans to affiliates, net (135) (423) (892)
Net proceeds from sales of assets 243 230 292
Purchase of broadband fixed wireless companies,
net of cash acquired (618) -- --
PCS licenses purchased -- -- (460)
Paranet acquisition -- -- (375)
Other, net (149) 206 (2)
- -----------------------------------------------------------------------------
Net cash used by continuing operations (6,773) (4,218) (4,300)
Net investing activities of discontinued
operation (384) (268) (200)
- -----------------------------------------------------------------------------
Net cash used by investing activities (7,157) (4,486) (4,500)
- -----------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 6,921 5,213 867
Payments on long-term debt (2,949) (3,822) (135)
Net change in short-term borrowings -- -- (200)
Proceeds from common stock issued 688 -- --
Proceeds from sales of shares to FT and DT 269 85 --
Proceeds from treasury stock issued 134 60 57
Dividends paid (441) (430) (430)
Treasury stock purchased (48) (321) (145)
Other, net 146 5 65
- -----------------------------------------------------------------------------
Net cash provided by financing activities 4,720 790 79
- -----------------------------------------------------------------------------
Increase (Decrease) in Cash and Equivalents (485) 503 (1,049)
Cash and Equivalents at Beginning of Year 605 102 1,151
- -----------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 120 $ 605 $ 102
--------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Sprint Corporation
(in millions)
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
PCS Capital
Common In Excess
Sprint FON and of Par or
Common Common Preferred Stated Retained Treasury
Stock Stock Stock Value Earnings Stock Other Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning 1997 balance $1,092 $ -- $ -- $ 4,426 $3,222 $(262) $ 42 $ 8,520
Net income -- -- -- -- 952 -- -- 952
Common stock dividends -- -- -- -- (343) -- -- (343)
Class A common stock
dividends -- -- -- -- (86) -- -- (86)
Treasury stock purchased -- -- -- -- -- (145) -- (145)
Treasury stock issued -- -- -- -- (49) 114 -- 65
Tax benefit from stock
options exercised -- -- -- 26 -- -- -- 26
Other, net -- -- -- 6 (3) -- 33 36
- -----------------------------------------------------------------------------------------------
Ending 1997 balance 1,092 -- -- 4,458 3,693 (293) 75 9,025
Net income -- -- -- -- 414 -- -- 414
Common stock dividends -- -- -- -- (345) -- -- (345)
Class A common stock
dividends -- -- -- -- (86) -- -- (86)
Sprint common stock
recapitalized (876) 701 175 -- -- -- -- --
PCS Series 2 common
stock issued -- -- 195 3,005 -- -- -- 3,200
PCS Series 3 common
stock issued -- -- 5 80 -- -- -- 85
PCS preferred stock
issued -- -- 247 -- -- -- -- 247
Treasury stock purchased -- -- -- -- -- (321) -- (321)
Treasury stock issued -- -- -- -- (24) 188 -- 164
Tax benefit from stock
options exercised -- -- -- 49 -- -- -- 49
Other, net -- -- -- (6) (1) -- 23 16
- -----------------------------------------------------------------------------------------------
Ending 1998 balance 216 701 622 7,586 3,651 (426) 98 12,448
Net loss -- -- -- -- (935) -- -- (935)
FON common stock
dividends -- -- -- -- (380) -- -- (380)
Class A common stock
dividends -- -- -- -- (54) -- -- (54)
PCS preferred stock
dividends -- -- -- -- (8) -- -- (8)
FON Series 3 common
stock issued -- 2 -- 50 -- -- -- 52
PCS Series 1 common
stock issued -- -- 27 674 -- -- -- 701
PCS Series 2 common
stock issued -- -- 24 1,122 -- -- -- 1,146
PCS Series 3 common
stock issued -- -- 7 210 -- -- -- 217
Two-for-one stock splits -- 873 477 (1,350) -- -- -- --
Treasury stock purchased -- -- -- -- -- (48) -- (48)
Treasury stock issued -- -- -- -- (315) 472 -- 157
Tax benefit from stock
options exercised -- -- -- 254 -- -- -- 254
Other, net -- -- -- 23 2 -- (15) 10
- -----------------------------------------------------------------------------------------------
Ending 1999 balance $ 216 $1,576 $1,157 $ 8,569 $1,961 $ (2) $ 83 $13,560
-------------------------------------------------------------------
Shares Outstanding
- ------------------------------------------------------------------------------
Beginning 1997 balance 430.1 -- --
Treasury stock purchased (3.0) -- --
Treasury stock issued 2.9 -- --
- ------------------------------------------------------------------------------
Ending 1997 balance 430.0 -- --
Sprint common stock
recapitalized (350.3) 350.3 175.2
Treasury shares
recapitalized 5.4 (5.4) (2.7)
Treasury stock purchased (4.2) (0.5) --
Treasury stock issued 5.3 0.1 --
PCS Series 2 common
stock issued -- -- 195.1
PCS Series 3 common
stock issued -- -- 5.1
PCS preferred stock
issued -- -- 0.2
- ------------------------------------------------------------------------------
Ending 1998 balance 86.2 344.5 372.9
FON Series 3 common
stock issued -- 1.2 --
PCS Series 1 common
stock issued -- -- 27.1
PCS Series 2 common
stock issued -- -- 24.3
PCS Series 3 common
stock issued -- -- 6.9
Two-for-one stock splits -- 433.5 476.7
Treasury stock purchased -- (0.6) --
Treasury stock issued -- 9.4 2.7
- ------------------------------------------------------------------------------
Ending 1999 balance 86.2 788.0 910.6
------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
I-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sprint Corporation
- --------------------------------------------------------------------------------
1. General
- --------------------------------------------------------------------------------
In October 1999, Sprint announced a definitive merger agreement with MCI
WorldCom. Under the agreement, each share of Sprint FON stock will be exchanged
for $76 of MCI WorldCom common stock, subject to a collar. In addition, each
share of Sprint PCS stock will be exchanged for one share of a new WorldCom PCS
tracking stock and 0.116025 shares of MCI WorldCom common stock. The terms of
the WorldCom PCS tracking stock will be equivalent to those of Sprint's PCS
common stock and will track the performance of the company's personal
communication services (PCS) business. The merger is subject to the approvals
of Sprint and MCI WorldCom shareholders as well as approvals from the Federal
Communications Commission, the Justice Department, various state government
bodies and foreign antitrust authorities. The companies anticipate the merger
will close in the second half of 2000.
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring. In the 1999 second
quarter, Sprint acquired the remaining minority interest in Cox PCS.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares (pre-split basis) to maintain their combined 20% voting
power in Sprint (Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless PCS operations. The FON stock is intended to reflect the performance
of all of Sprint's other operations.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Consolidation and Presentation
The consolidated financial statements include the accounts of Sprint and its
wholly owned and majority-owned subsidiaries. Sprint PCS' results of operations
for 1998 have been consolidated for the entire year. The Cable Partners' share
of losses through the PCS Restructuring date has been reflected as "Other
partners' loss in Sprint PCS" in the Consolidated Statements of Operations.
Sprint PCS' financial position has been reflected on a consolidated basis at
year-end 1998. Before 1998, Sprint's investment in Sprint PCS was accounted for
using the equity method. Sprint's cash flows include Sprint PCS' cash flows
only after the PCS Restructuring date.
Investments in entities in which Sprint exercises significant influence, but
does not control, are accounted for using the equity method (see Note 4).
The consolidated financial statements are prepared using accounting principles
generally accepted in the United States. These principles require 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-
year presentation. These reclassifications had no effect on the results of
operations or shareholders' equity as previously reported.
Classification of Operations
Sprint FON Group
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network that uses 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 phone companies serving more
than 8 million access lines in 18 states. It provides local services, access by
phone customers and other carriers to the local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas, or local
I-19
<PAGE>
access transport areas. In November 1998, Sprint sold its remaining 81,000
residential and business access lines in Illinois.
Product Distribution & Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint ION extends Sprint's existing network capabilities to the customer and
enables Sprint to provide the network infrastructure to meet customers' demands
for advanced services including integrated voice, data, Internet and video. It
is also expected to be the foundation for Sprint to provide new competitive
local service.
Other Ventures
The "other ventures" segment includes the cable TV service operations of the
broadband fixed wireless companies acquired in the second half of 1999.
This segment also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures. All of the investments and ventures are accounted for
on the equity basis.
Sprint PCS Group
The PCS Group includes Sprint's domestic wireless PCS operations. It operates
the only 100% digital PCS wireless network in the United States, with licenses
to provide service nationwide using a single frequency and a single technology.
At year-end 1999, the PCS Group, together with affiliates, operated PCS systems
in over 360 metropolitan markets, including the 50 largest U.S. metropolitan
areas.
Allocation of Shared Services
Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses other indirect methods, including time studies, to estimate the
assignment of costs to each Group. Sprint believes that the costs allocated are
comparable to the costs that would be incurred if the Groups would have been
operating on a stand-alone basis. The allocation of shared services may change
at the discretion of Sprint and does not require shareholder approval.
Allocation of Federal and State Income Taxes
Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provides
for the allocation of income taxes between the two Groups. The FON Group's
income taxes are calculated as if it files returns which exclude the PCS Group.
The PCS Group's income taxes reflect the PCS Group's incremental cumulative
impact on Sprint's consolidated income taxes. Intergroup tax payments are
satisfied on the date Sprint's related tax payment is due to or the refund is
received from the applicable tax authority.
Allocation of Group Financing
Financing activities for the Groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the Groups is specifically
allocated to and reflected in the financial statements of the applicable Group.
Interest expense is allocated to the PCS Group based on an interest rate that
is substantially equal to the rate it would be able to obtain from third
parties as a direct or indirect wholly owned Sprint subsidiary, but without the
benefit of any guaranty by Sprint or any member of the FON Group. That interest
rate is higher than the rate Sprint obtains on borrowings. The difference
between Sprint's actual interest rate and the rate charged to the PCS Group is
reflected as a reduction in the FON Group's interest expense.
Under Sprint's centralized cash management program, one Group may advance funds
to the other Group. These advances are accounted for as short-term borrowings
between the Groups and bear interest at a market rate that is substantially
equal to the rate that Group would be able to obtain from third parties on a
short-term basis.
The allocation of Group financing activities may change at the discretion of
Sprint and does not require shareholder approval.
Income Taxes
Sprint records deferred income taxes based on temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their tax bases.
Revenue Recognition
Sprint recognizes operating revenues as services are rendered or as products
are delivered to customers. Sprint records operating revenues net of an
estimate for uncollectible accounts. Sprint's directory publishing business
recognizes revenues for directory services over the life of the related
directory (amortization method).
I-20
<PAGE>
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value. Sprint uses controlled disbursement banking arrangements as part
of its cash management program. Outstanding checks in excess of cash balances,
which were included in accounts payable, totaled $204 million at year-end 1999
and $336 million at year-end 1998. Sprint had sufficient funds available to
fund the outstanding checks when they were presented for payment.
Investments in Equity Securities
Investments in equity securities are classified as available for sale and
reported at fair value (estimated based on quoted market prices). Gross
unrealized holding gains and losses are reflected in the Consolidated Balance
Sheets as adjustments to "Shareholders' equity--Accumulated other comprehensive
income," net of related income taxes.
Inventories
Inventories for the FON Group are stated at the lower of cost (principally
first-in, first-out method) or market value. Inventories for the PCS Group are
stated at the lower of cost (principally first-in, first-out) or replacement
value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. The cost of property, plant and equipment is generally
depreciated on a straight-line basis over estimated economic useful lives.
Repairs and maintenance costs are expensed as incurred.
Capitalized Interest
Capitalized interest totaled $151 million in 1999, $167 million in 1998 and $93
million in 1997. In 1999 and 1998, capitalized interest reflects capitalized
costs related to the PCS Group's network buildout and PCS licenses as well as
the FON Group's construction of capital assets. In 1997, capitalized interest
mainly reflected interest related to Sprint's investment in Sprint PCS. Sprint
capitalized these costs until July 1997 when Sprint PCS emerged from the
development stage.
Intangible Assets
Sprint evaluates the recoverability of intangible assets when events or
circumstances indicate that such assets might be impaired. Sprint determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by these assets to their respective carrying value. In the event
impairment exists, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the asset.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over five to 40 years using the straight-line
method. Accumulated amortization totaled $210 million at year-end 1999 and $63
million at year-end 1998.
PCS Licenses
The PCS Group acquired licenses from the Federal Communications Commission to
operate as a PCS service provider. These licenses are granted for up to 10-year
terms with renewals for additional 10-year terms if license obligations are
met. These licenses are recorded at cost and are amortized on a straight-line
basis over 40 years when service begins in a specific geographic area.
Accumulated amortization totaled $130 million at year-end 1999 and $51 million
at year-end 1998.
Earnings per Share
Earnings per share (EPS) was calculated on a consolidated basis until the PCS
stock and FON stock were created as part of the November 1998 PCS Restructuring
and Recapitalization. From that time forward, EPS was computed individually for
the FON Group and PCS Group.
In December 1999, the Sprint Board of Directors authorized a two-for-one stock
split of Sprint's PCS common stock in the form of a stock dividend, which was
distributed on February 4, 2000 to the PCS shareholders. In the second quarter
of 1999, Sprint effected a two-for-one split of its Sprint FON common stock. As
a result, basic and diluted earnings per common share, weighted-average common
shares and dividends for Sprint FON common stock and Sprint PCS common stock
have been restated for periods prior to these stock splits.
In 1999, the FON Group's convertible preferred dividends totaled $1 million and
dilutive securities (mainly options) totaled 19.2 million shares. From the
Recapitalization date to year-end 1998, the FON Group's convertible preferred
dividends totaled $0.1 million and dilutive securities (mainly options) totaled
13.8 million shares. Dilutive securities for the PCS Group mainly include
options, warrants and convertible preferred stock. These securities did not
have a dilutive effect because the PCS Group incurred net losses for 1999 and
1998. As a result, diluted loss per share equaled basic loss per share.
Sprint's convertible preferred dividends totaled $0.5 million in 1998 through
the Recapitalization date and in 1997. Dilutive securities, such as options,
included in the calculation of diluted weighted average common shares totaled
7.8 million in 1998 through the Recapitalization, and 6.3 million in 1997.
I-21
<PAGE>
Stock-based Compensation
Sprint adopted the pro forma disclosure requirements under Statement of
Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation," and
continues to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to its stock option and employee stock purchase
plans.
- --------------------------------------------------------------------------------
3. Business Combinations
- --------------------------------------------------------------------------------
Broadband Fixed Wireless Companies
In the second half of 1999, Sprint acquired People's Choice TV Corp. (PCTV),
American Telecasting, Inc. (ATI), Videotron USA and the operating subsidiaries
of WBS America, LLC.
These companies own broadband fixed wireless licenses in the Midwest,
Southwest, North Central, Western and Southeastern United States. Sprint paid
$618 million for the companies' outstanding stock and assumed $575 million of
the companies' debt. These notes were redeemed, prior to scheduled maturities,
in the 1999 fourth quarter (see Note 8).
These acquisitions were accounted for as purchases. The results of these
companies have been included in Sprint's consolidated financial statements
after the acquisition dates. The excess of the purchase price over the net
liabilities acquired totaled $835 million and was preliminarily allocated to
goodwill, which is being amortized on a straight-line basis over 40 years.
Cox PCS
In the 1999 second quarter, Cox Communications, Inc. exercised a put option
requiring Sprint to purchase the remaining 40.8% interest in Cox PCS. Sprint's
existing 59.2% interest in Cox PCS was reflected in Sprint's consolidated
financial statements on a consolidated basis. Sprint issued 24.3 million shares
of low-vote PCS stock (pre-split basis) in exchange for the remaining interest.
The shares were valued at $1.1 billion. Sprint accounted for the transaction as
a purchase.
The excess of the purchase price over the fair value of the net liabilities
acquired was allocated as follows:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1999
- -------------------------------------------------------------------------
(millions)
<S> <C>
Purchase price $1,146
Net liabilities acquired 99
Fair value assigned to customer base acquired (45)
Fair value assigned to PCS licenses (99)
Deferred taxes established on acquired assets and liabilities 88
- -------------------------------------------------------------------------
Goodwill $1,189
----------------------------------------
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years.
PCS Restructuring
In November 1998, Sprint acquired the remaining interest in Sprint PCS (except
for the minority interest in Cox PCS) from the Cable Partners. In exchange,
Sprint issued the Cable Partners 195.1 million low-vote shares of PCS stock and
12.5 million warrants to purchase additional shares of PCS stock (on a pre-
split basis). The purchase price was $3.2 billion. In addition, Sprint issued
the Cable Partners shares of a new class of preferred stock convertible into
PCS shares.
Sprint accounted for the transaction as a purchase. The excess of the purchase
price over the fair value of the net liabilities acquired was allocated as
follows:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1998
- -------------------------------------------------------------------------
(millions)
<S> <C>
Purchase price including transaction costs $3,226
Net liabilities acquired 281
Fair value assigned to customer base acquired (681)
Fair value assigned to assembled workforce acquired (45)
Increase in property, plant and equipment to fair value (204)
Mark-to-market of long-term debt 85
Deferred taxes established on acquired assets and liabilities 678
In-process research and development costs (179)
- -------------------------------------------------------------------------
Goodwill $3,161
----------------------------------------
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years.
With respect to the purchase price attributed to in-process research and
development (IPR&D), the acquired IPR&D was limited to significant new products
under development that were intended to address new and emerging market needs
and requirements, such as the rapid adoption of the Internet and the rapid
convergence of voice, data, and video. No routine research and development
projects, minor refinements, normal enhancements, or production activities were
included in the acquired IPR&D.
The income approach was the primary technique utilized in valuing the acquired
IPR&D. This approach included, but was not limited to, an analysis of (i) the
markets for each product; (ii) the completion costs for projects; (iii) the
expected cash flows attributable to the IPR&D projects; (iv) the risks related
to achieving these cash flows; and (v) the stage of development of each
project. The issue of alternative future use was extensively evaluated and
these technologies, once completed, could only be economically used for their
intended purposes.
Pro Forma Results
The following unaudited pro forma combined results of operations assume the PCS
Restructuring, Recapitalization, Top-up and the write-off of acquired
I-22
<PAGE>
IPR&D costs occurred at the beginning of 1997. These pro forma amounts are for
comparative purposes only and do not necessarily represent what actual results
of operations would have been had the transactions occurred at the beginning of
1997, nor do they indicate the results of future operations. Pro forma results
were as follows:
<TABLE>
- ---------------------------------------------------------------
<CAPTION>
1998 1997
- ---------------------------------------------------------------
(millions,
except per
share data)
<S> <C> <C>
Net operating revenues $16,881 $14,822
-------------------------------------
Loss from continuing operations $ (172) $ (132)
-------------------------------------
Net loss $ (343) $ (274)
-------------------------------------
Basic and diluted loss per PCS common share:
Loss before extraordinary item $ (2.21) $ (1.98)
Extraordinary item (0.04) --
- ---------------------------------------------------------------
Total $ (2.25) $ (1.98)
-------------------------------------
</TABLE>
Paranet, Inc.
In September 1997, Sprint paid $375 million to purchase the net assets of
Houston-based Paranet, Inc., a provider of integration, management and support
services for computer networks.
The transaction was accounted for using the purchase method of accounting. As a
result, Sprint's financial statements reflect Sprint Paranet's results of
operations beginning in October 1997.
The excess of the purchase price over the tangible net assets acquired was $357
million. This excess was allocated to noncompete agreements and goodwill, and
is being amortized on a straight-line basis over four to 10 years.
- --------------------------------------------------------------------------------
4. Investments
- --------------------------------------------------------------------------------
Investments in Equity Securities
The cost of investments in equity securities was $154 million at year-end 1999
and $105 million at year-end 1998. Gross unrealized holding gains were $310
million at year-end 1999 and $384 million at year-end 1998. At year-end 1999,
$316 million of investments in equity securities are classified as current in
anticipation of using the investments to retire debt instruments (see Note 8).
The accumulated unrealized gains on investments in equity securities, net of
income taxes and the impact of the related debt instruments, were $84 million
at year-end 1999 and $107 million at year-end 1998 and are included in
"Accumulated other comprehensive income" in the Sprint Consolidated Balance
Sheets.
During 1999, Sprint sold available-for-sale securities with a cost basis of $14
million for $104 million. The $90 million gain was included in "Other income,
net" in Sprint's Consolidated Statements of Operations.
Investments in and Advances to Affiliates
At year-end 1999, investments accounted for using the equity method consisted
of the FON Group's investments in EarthLink, Call-Net and other strategic
investments.
In November 1998, Sprint assumed 100% ownership of Sprint PCS; as a result,
Sprint consolidated Sprint PCS' results in 1998. Prior to 1998, Sprint
accounted for its investment in Sprint PCS on the equity basis. Sprint PCS'
1997 results of operations are reflected in the unaudited pro forma disclosures
in Note 3.
Combined, unaudited, summarized financial information (100% basis) of other
entities accounted for using the equity method was as follows:
<TABLE>
- ------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------
(millions)
<S> <C> <C> <C>
Results of operations
Net operating revenues $1,571 $1,242 $ 724
--------------------------
Operating income (loss) $ (192) $ 67 $(246)
--------------------------
Net loss $ (329) $ (145) $(287)
--------------------------
Financial position
Current assets $1,524 $1,038
Noncurrent assets 2,749 2,401
----------------------------------------------
Total $4,273 $3,439
-----------------
Current liabilities $ 599 $ 538
Noncurrent liabilities 1,644 1,004
Owners' equity 2,030 1,897
----------------------------------------------
Total $4,273 $3,439
-----------------
</TABLE>
- --------------------------------------------------------------------------------
5. Discontinued Operation
- --------------------------------------------------------------------------------
In January 2000, Sprint reached a definitive agreement with Deutsche Telekom
and France Telecom to sell its interest in Global One. In February 2000, Sprint
received $1.1 billion in cash and was repaid $276 million for advances for its
entire stake in Global One.
Sprint's investment in the net assets of the discontinued operation, including
advances, totaled $394 million at year-end 1999 and $182 million at year-end
1998.
Sprint recorded after-tax losses related to Global One totaling $130 million in
1999, $135 million in 1998 and $142 million in 1997. The 1999 amount includes a
$50 million tax benefit recorded to recognize tax assets related to previous
losses. The realization of these assets was uncertain until the sale agreement
was reached. The gain on the sale of Sprint's interest in Global One made it
apparent that these tax assets would be realized.
Sprint provided various voice, data and administrative services to Global One
totaling $241 million in 1999, $277 million in 1998 and $415 million in 1997.
In addition, Global One provided data and administrative services to Sprint
totaling $139 million in 1999, $140 million in 1998 and $114 million in 1997.
Sprint's receivable from Global One was $107 million at year-
I-23
<PAGE>
end 1999 and $187 million at year-end 1998. Sprint's payable to Global One was
$36 million at year-end 1999 and $42 million at year-end 1998.
- --------------------------------------------------------------------------------
6. Employee Benefit Plans
- --------------------------------------------------------------------------------
Defined Benefit Pension Plan
Most FON Group and PCS Group employees are covered by a noncontributory defined
benefit pension plan. Benefits for plan participants belonging to unions are
based on negotiated schedules. For non-union participants, pension benefits are
based on years of service and the participants' compensation.
Sprint's policy is to make plan contributions equal to an actuarially
determined amount consistent with federal tax regulations. The funding
objective is to accumulate funds at a relatively stable rate over the
participants' working lives so benefits are fully funded at retirement.
The following table shows the changes in the projected benefit obligation:
<TABLE>
- --------------------------------------
<CAPTION>
1999 1998
- --------------------------------------
(millions)
<S> <C> <C>
Beginning balance $2,579 $2,241
Service cost 86 72
Interest cost 177 165
Amendments 7 9
Actuarial (gain) loss (326) 202
Benefits paid (122) (110)
- --------------------------------------
Ending balance $2,401 $2,579
--------------
</TABLE>
The following table shows the changes in plan assets:
<TABLE>
- ---------------------------------------------
<CAPTION>
1999 1998
- ---------------------------------------------
(millions)
<S> <C> <C>
Beginning balance $3,169 $2,929
Actual return on plan assets 622 350
Benefits paid (122) (110)
- ---------------------------------------------
Ending balance $3,669 $3,169
------------------
</TABLE>
At year-end, the funded status and amounts recognized in the Consolidated
Balance Sheets for the plan were as follows:
<TABLE>
- -----------------------------------------------------------
<CAPTION>
1999 1998
- -----------------------------------------------------------
(millions)
<S> <C> <C>
Plan assets in excess of
the projected benefit
obligation $ 1,268 $ 590
Unrecognized net gains (1,016) (375)
Unrecognized prior service cost 100 104
Unamortized transition
asset (72) (97)
- -----------------------------------------------------------
Prepaid pension cost $ 280 $ 222
--------------------------------
Discount rate 8.25% 7.00%
--------------------------------
Expected blended rate of future pay raises 5.25% 4.00%
--------------------------------
</TABLE>
The net pension cost (credit) consisted of the following:
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Service cost--
benefits earned
during the year $ 86 $ 72 $ 62
Interest on projected benefit obligation 177 165 149
Expected return on plan assets (300) (265) (194)
Amortization of unrecognized transition asset (25) (25) (25)
Recognition of prior service cost 12 11 9
Recognition of actuarial (gains)
and losses (8) (4) 1
- ----------------------------------------------------------------------
Net pension cost (credit) $ (58) $ (46) $ 2
----------------------------------------------
Discount rate 7.00% 7.25% 7.75%
----------------------------------------------
Expected long-term rate of return on plan assets 10.00% 10.00% 9.50%
----------------------------------------------
Expected blended rate of future pay raises 4.00% 4.25% 4.75%
----------------------------------------------
</TABLE>
Defined Contribution Plans
Sprint sponsors defined contribution employee savings plans covering most FON
Group and PCS Group employees. Participants may contribute portions of their
pay to the plans. For union employees, Sprint matches contributions based on
negotiated amounts. Sprint also matches contributions of non-union employees in
FON stock and PCS stock. The matching is equal to 50% of participants'
contributions up to 6% of their pay. In addition, Sprint may, at the discretion
of the Board of Directors, provide additional matching contributions based on
the performance of FON stock and PCS stock compared to other telecommunications
companies' stock. Sprint's matching contributions were $83 million in 1999 and
$54 million in 1998 and 1997. At year-end 1999, the plans held 33 million FON
shares and 27 million PCS shares (on a post-split basis).
Prior to January 1999, Sprint PCS sponsored a savings and retirement program
for certain employees. Sprint PCS matched contributions equal to 50% of the
contribution of each participant, up to the first 6% that the employee elected
to contribute. Expense under the savings plan was $7 million in 1998.
Postretirement Benefits
Sprint provides postretirement benefits (mainly medical and life insurance) to
most FON Group and PCS Group employees. Employees retiring before certain dates
are eligible for benefits at no cost, or at a reduced cost. Employees retiring
after certain dates are eligible for benefits on a shared-cost basis. Sprint
funds the accrued costs as benefits are paid.
I-24
<PAGE>
The following table shows the changes in the accumulated postretirement benefit
obligation:
<TABLE>
- --------------------------------
<CAPTION>
1999 1998
- --------------------------------
(millions)
<S> <C> <C>
Beginning balance $ 864 $ 832
Service cost 21 20
Interest cost 59 58
Actuarial gains (30) (6)
Benefits paid (38) (40)
- --------------------------------
Ending balance $ 876 $ 864
------ ------
</TABLE>
Amounts included in the Consolidated Balance Sheets at year-end were as
follows:
<TABLE>
- -----------------------------------------------------
<CAPTION>
1999 1998
- -----------------------------------------------------
(millions)
<S> <C> <C>
Accumulated
postretirement benefit
obligation $ 876 $ 864
Unrecognized prior service cost 53 61
Unrecognized net gains 120 124
- -----------------------------------------------------
Accrued postretirement benefits cost $1,049 $1,049
--------------------------
Discount rate 8.25% 7.00%
--------------------------
</TABLE>
The assumed 2000 annual health care cost trend rates are 9.6% before Medicare
eligibility and 10.0% after Medicare eligibility. Both rates gradually decrease
to an ultimate level of 5% by 2010. A 1% increase in the rates would have
increased the 1999 accumulated postretirement benefit obligation by an
estimated $107 million. A 1% decrease would have reduced the obligation by an
estimated $89 million.
The net postretirement benefits cost consisted of the following:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Service cost--benefits earned
during the year $ 21 $ 20 $ 21
Interest on accumulated postretirement benefit obligation 59 58 52
Recognition of prior service cost (8) (6) --
Recognition of
actuarial gains (17) (21) (19)
- ----------------------------------------------------------------------------
Net postretirement benefits cost $ 55 $ 51 $ 54
----------------------------------------------------
Discount rate 7.00% 7.25% 7.75%
----------------------------------------------------
</TABLE>
For measurement purposes, the assumed 1999 weighted average annual health care
cost trend rates were 7.6% before Medicare eligibility and 8.1% after Medicare
eligibility. Both rates gradually decrease to an ultimate level of 5% by 2005.
A 1% increase in the rates would have increased the 1999 postretirement
benefits service and interest costs by an estimated $13 million. A 1% decrease
would have reduced the 1999 postretirement benefits service and interest costs
by an estimated $11 million.
- --------------------------------------------------------------------------------
7. Income Taxes
- --------------------------------------------------------------------------------
Income tax expense (benefit) allocated to continuing operations consists of the
following:
<TABLE>
- --------------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------------
(millions)
<S> <C> <C> <C>
Current income tax expense (benefit)
Federal $ (34) $283 $399
State 40 44 79
- --------------------------------------------------------
Total current 6 327 478
- --------------------------------------------------------
Deferred income tax expense (benefit)
Federal (309) 120 181
State (24) 7 (5)
- --------------------------------------------------------
Total deferred (333) 127 176
- --------------------------------------------------------
Total $(327) $454 $654
--------------------------------
</TABLE>
The differences that caused Sprint's effective income tax rates to vary from
the 35% federal statutory rate for income taxes related to continuing
operations were as follows:
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Income tax expense (benefit)
at the federal statutory rate $(375) $364 $611
Effect of:
State income taxes, net of federal income tax effect 10 33 48
Equity in losses of foreign joint ventures 18 6 4
Write-off of in-process research and development costs -- 63 --
Goodwill amortization 34 3 --
Other, net (14) (15) (9)
- --------------------------------------------------------------------------
Income tax expense (benefit) $(327) $454 $654
--------------------------------------------------
Effective income tax rate 30.5% 43.7% 37.4%
--------------------------------------------------
</TABLE>
Income tax expense (benefit) allocated to other items was as follows:
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Discontinued operation $(111) $(62) $(24)
Extraordinary items (34) (23) --
Unrealized holding gains on investments(/1/) 13 8 5
Stock ownership,
purchase and options
arrangements(/2/) (254) (49) (26)
- ----------------------------------------------------------------
</TABLE>
(/1/)These amounts have been recorded directly to "Shareholders' equity--
Accumulated other comprehensive income" in the Consolidated Balance Sheets.
(/2/)These amounts have been recorded directly to "Shareholders' equity--Capital
in excess of par or stated value" in the Consolidated Balance Sheets.
Sprint recognizes deferred income taxes for the temporary differences between
the carrying amounts of its assets and liabilities for financial statement
purposes and their tax bases. The sources of the differences that
I-25
<PAGE>
give rise to the deferred income tax assets and liabilities at year-end 1999
and 1998, along with the income tax effect of each, were as follows:
<TABLE>
- -----------------------------------------------------------
<CAPTION>
1999 Deferred
Income Tax
------------------
Assets Liabilities
- -----------------------------------------------------------
(millions)
<S> <C> <C>
Property, plant and equipment $ -- $2,473
Intangibles -- 452
Postretirement and other benefits 422 --
Reserves and allowances 149 --
Unrealized holding gains on investments -- 48
Operating loss carryforwards 1,189 --
Tax credit carryforwards 75 --
Other, net 177 --
- -----------------------------------------------------------
2,012 2,973
Less valuation allowance 466 --
- -----------------------------------------------------------
Total $1,546 $2,973
-------------------------------------
- -----------------------------------------------------------
<CAPTION>
1998 Deferred
Income Tax
------------------
Assets Liabilities
- -----------------------------------------------------------
(millions)
<S> <C> <C>
Property, plant and equipment $ -- $2,048
Intangibles -- 454
Postretirement and other benefits 419 --
Reserves and allowances 171 --
Unrealized holding gains on investments -- 60
Operating loss carryforwards 302 --
Other, net 142 --
- -----------------------------------------------------------
1,034 2,562
Less valuation allowance 249 --
- -----------------------------------------------------------
Total $ 785 $2,562
-------------------------------------
</TABLE>
Management believes it is more likely than not that these deferred income tax
assets, net of the valuation allowance, will be realized based on current
income tax laws and expectations of future taxable income stemming from the
reversal of existing deferred tax liabilities or ordinary operations.
Uncertainties surrounding income tax law changes, shifts in operations between
state taxing jurisdictions and future operating income levels may, however,
affect the ultimate realization of all or some of these deferred income tax
assets.
The valuation allowance related to deferred income tax assets increased $217
million in 1999 and $237 million in 1998 and decreased $2 million in 1997.
In 1999, Sprint acquired approximately $179 million of potential tax benefits
related to net operating loss carryforwards in the acquisitions of the
broadband fixed wireless companies. In 1998, Sprint acquired approximately $229
million of potential tax benefits related to net operating loss carryforwards
in the PCS Restructuring. The benefits from the acquisitions and PCS
Restructuring are subject to certain realization restrictions under various tax
laws. A valuation allowance was provided for the total of these benefits. If
these benefits are subsequently recognized, they will reduce goodwill or other
noncurrent intangible assets resulting from the application of the purchase
method of accounting for these transactions.
In connection with the PCS Restructuring, the PCS Group is required to
reimburse the FON Group and the Cable Partners for net operating loss and tax
credit carryforward benefits generated prior to the PCS Restructuring if
realization by the PCS Group produces a cash benefit that would not otherwise
have been realized. The reimbursement will equal 60% of the net cash benefit
received by the PCS Group and will be made to the FON Group in cash and to the
Cable Partners in shares of Series 2 PCS stock. The carryforward benefits
subject to this requirement total $259 million, which includes the $229 million
acquired in the PCS Restructuring.
At year-end 1999, Sprint had federal operating loss carryforwards of
approximately $2.7 billion and state operating loss carryforwards of
approximately $6.2 billion. Related to these loss carryforwards are federal tax
benefits of $938 million and state tax benefits of $385 million. In addition,
Sprint had available for income tax purposes federal alternative minimum tax
credit carryforwards of $49 million, state alternative minimum tax credit
carryforwards of $5 million, federal alternative minimum tax net operating loss
carryforwards of $933 million and state alternative minimum tax net operating
loss carryforwards of $359 million. The loss carryforwards expire in varying
amounts through 2019.
I-26
<PAGE>
- --------------------------------------------------------------------------------
8. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------
Sprint's consolidated long-term debt and capital lease obligations at year-end
was as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
-------------------------------- --------------------------------
Sprint Sprint Sprint Sprint
Maturing FON Group PCS Group Consolidated FON Group PCS Group Consolidated
- ----------------------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Senior notes
5.7% to 6.9%(/1/) 2001 to 2028 $1,105 $ 8,145 $ 9,250 $1,059 $3,941 $ 5,000
8.1% to 9.8% 2000 to 2003 632 -- 632 632 -- 632
11.0% to 12.5%(/2/) 2001 to 2006 -- 734 584 -- 699 565
Debentures and notes
5.8% to 9.6% 2000 to 2022 565 -- 565 565 -- 565
Notes payable and
commercial paper -- 294 1,971 2,265 472 274 746
First mortgage bonds
2.0% to 9.9% 1999 to 2025 1,295 -- 1,295 1,312 -- 1,312
Capital lease
obligations
5.2% to 14.0% 1999 to 2008 69 486 555 32 452 484
Revolving credit
facilities
Variable rates 2002 to 2006 900 -- 900 -- 1,800 1,800
Other(/2/),(/3/)
2.0% to 10.0% 1999 to 2007 573 153 726 370 1,029 1,085
- ----------------------------------------------------------------------------------------------------
5,433 11,489 16,772 4,442 8,195 12,189
Less: current
maturities(/2/) 902 185 1,087 33 348 247
- ----------------------------------------------------------------------------------------------------
Long-term debt and
capital lease
obligations(/2/) $4,531 $11,304 $15,685 $4,409 $7,847 $11,942
----------------------------------------------------------------------
</TABLE>
(/1/)These borrowings were incurred by Sprint and allocated to the applicable
Group. Sprint's weighted average interest rate related to these borrowings
was 6.6% at year-end 1999 and 6.4% at year-end 1998. The weighted average
interest rate related to the borrowings allocated to the PCS Group was
approximately 8.7% at year-end 1999 and 8.5% at year-end 1998. See Note 2
for a more detailed description of how Sprint allocates financing to each
of the Groups.
(/2/)Consolidated debt does not equal the total of PCS Group and FON Group debt
due to intergroup debt eliminated in consolidation. The FON Group had an
investment in the PCS Group's Senior Discount notes totaling $150 million
at year-end 1999 and $134 million at year-end 1998. In addition, the PCS
Group had other long-term debt payable to the FON Group totaling $314
million at year-end 1998, including $134 million classified as current.
(/3/)Includes notes with a market value of $316 million at year-end 1999 and
$358 million at year-end 1998 recorded by the FON Group that may be
exchanged at maturity for SBC Communications, Inc. (SBC) common shares
owned by the FON Group or for cash. Based on SBC's closing price, had the
notes matured at year-end 1999, they could have been exchanged for 6.5
million SBC shares. At year-end 1999, Sprint held 7.5 million SBC shares,
which have been included in "Investments in equity securities" in the FON
Group's Combined Balance Sheets.
I-27
<PAGE>
Scheduled principal payments, excluding reclassified short-term borrowings,
during each of the next five years are as follows:
<TABLE>
- --------------------------
<CAPTION>
Sprint Sprint
FON PCS
Group Group Sprint
- --------------------------
(millions)
<S> <C> <C> <C>
2000 $ 902 $ 185 $1,087
2001 877 289 1,096
2002 1,339 59 1,398
2003 373 1,058 1,431
2004 144 1,042 1,186
- --------------------------
</TABLE>
Sprint
Short-term Borrowings
Sprint had bank notes payable totaling $670 million at year-end 1999 and $454
million at year-end 1998. In addition, Sprint had commercial paper borrowings
totaling $1.6 billion at year-end 1999 and $292 million at year-end 1998.
Though these borrowings are renewable at various dates throughout the year,
they were classified as long-term debt because of Sprint's intent and ability,
through unused credit facilities, to refinance these borrowings on a long-term
basis.
In 1998, Sprint replaced its previous $1.5 billion credit facility with new
facilities with syndicates of domestic and international banks. The new
facilities totaled $5.0 billion and expire in 2000 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility which expires in 2002. At year-end 1999, Sprint had total unused lines
of credit of $3.5 billion.
Bank notes outstanding had weighted average interest rates of 6.3% at year-end
1999 and 5.7% at year-end 1998. The weighted average interest rate of
commercial paper was 6.4% at year-end 1999 and 5.8% at year-end 1998.
Long-term Debt
In the 1999 third quarter, Sprint filed a shelf registration statement with the
SEC covering $4.0 billion of senior unsecured debt securities. At year-end
1999, Sprint had issued $750 million of debt securities under the shelf. These
securities have interest rates ranging from 6.4% to 6.5% and mature in 2001.
In August 1999, Sprint incurred other borrowings totaling $250 million which
mature in 2002 and have variable interest rates. At year-end 1999, the notes
had an interest rate of 6.1%.
In June 1999, Sprint entered into a $1.0 billion financing agreement to sell,
on a continuous basis with recourse, undivided percentage ownership interests
in a designated pool of its accounts receivable. Subsequent collections of
receivables sold to investors are typically reinvested in new receivables. At
year-end 1999, Sprint had borrowed $900 million with a weighted average
interest rate of 6.4% under this agreement. These borrowings mature in 2002.
In May 1999, Sprint issued $3.5 billion of senior notes registered with the
SEC. These notes have maturities ranging from 5 to 20 years and interest rates
ranging from 5.9% to 6.9%. In 1998, Sprint issued $5.0 billion of senior notes
registered with the SEC. These notes have maturities ranging from 5 to 30 years
and interest rates ranging from 5.7% to 6.9%.
Sprint FON Group
In 1999, the FON Group received a net allocation of $1.0 billion of debt from
Sprint. This debt was mainly used for new capital investments and acquisitions.
See Note 2 for a more detailed description of how Sprint allocates debt to the
Groups.
In the 1999 fourth quarter, Sprint redeemed, prior to scheduled maturities,
$575 million of the assumed broadband fixed wireless companies' debt with
interest rates ranging from 13.1% to 14.5%. This resulted in a $39 million
after-tax extraordinary loss for the FON Group. In 1998, Sprint redeemed, prior
to scheduled maturities, $138 million of FON Group debt with interest rates
ranging from 7.9% to 9.3%. This resulted in a $5 million after-tax
extraordinary loss for the FON Group.
FON Group gross property, plant and equipment totaling $14.3 billion was either
pledged as security for first mortgage bonds and certain notes or is restricted
for use as mortgaged property.
Sprint PCS Group
In 1999, Sprint allocated $5.9 billion of debt to the PCS Group. This debt was
mainly used to repay debt, to fund new capital investments and to fund
operating losses and working capital requirements.
In 1999, the PCS Group repaid $2.2 billion of its revolving credit facilities
and other borrowings prior to scheduled maturities. This resulted in a $21
million after-tax extraordianary loss.
In 1998, Sprint redeemed, prior to scheduled maturities, $3.3 billion of PCS
Group debt with a weighted average interest rate of 8.3%. This resulted in a
$31 million after-tax extraordinary loss for the PCS Group. The debt was repaid
with a portion of the proceeds from Sprint's $5.0 billion debt offering in
November 1998.
Other
Sprint, including the FON Group and the PCS Group, had complied with all
restrictive or financial covenants relating to its debt arrangements at year-
end 1999.
I-28
<PAGE>
- --------------------------------------------------------------------------------
9. Common Stock
- --------------------------------------------------------------------------------
Sprint FON Stock and Sprint PCS Stock
On December 14, 1999, the Sprint Board of Directors authorized a two-for-one
stock split of Sprint's PCS common stock in the form of a stock dividend which
was distributed on February 4, 2000 to the PCS shareholders.
On April 20, 1999, the Board of Directors authorized a two-for-one stock split
of Sprint's FON common stock in the form of a stock dividend which was
distributed on June 4, 1999 to the FON shareholders.
In November 1998, Sprint recapitalized its common stock into FON stock and PCS
stock and restructured its interests in Sprint PCS. As a result, Sprint created
the following series of common stock:
. Series 1 FON stock and Series 1 PCS stock
Existing Sprint common shareholders received one share of FON stock and 1/2
share of PCS stock for each Sprint share owned. Authorized shares totaled
2.5 billion for the Series 1 FON stock and 1.25 billion for the Series 1
PCS stock.
. Series 2 FON stock and Series 2 PCS stock
The Cable Partners received PCS shares for their ownership interests in
Sprint PCS. These shares have 1/10 the voting power of the Series 1 and
Series 3 PCS shares. Authorized shares totaled 500 million for both the
Series 2 FON stock and Series 2 PCS stock.
. Series 3 FON stock and Series 3 PCS stock
To maintain their combined voting power at 20%, FT and DT purchased a
combined total of 5.1 million Series 3 PCS shares (pre-split basis) for $85
million at the time of the restructuring. Series 3 FON and PCS stock is
also used whenever FT and DT purchase stock to maintain their voting power
and would be used if FT and DT were to elect to convert their Class A
common shares into FON and PCS stock. Authorized shares totaled 1.2 billion
for the Series 3 FON stock and 600 million for the Series 3 PCS stock.
At year-end 1999, Sprint had 22 thousand PCS treasury shares (post-split
basis), which were recorded at cost. The PCS shares are held by the FON Group
and represent an intergroup interest in the PCS Group which has been eliminated
in the Sprint Consolidated financial statements.
Beginning in November 2001, Sprint has the option to convert PCS shares into
FON shares.
Class A and Series 3 Common Stock
FT and DT own Series 3 FON common shares, Series 3 PCS common shares and Class
A common shares which represent approximately 20% of Sprint's voting power.
Sprint declared and paid Class A common dividends of 62.5 cents per share in
1999 and $1.00 per share in 1998 and 1997.
In February 1999, FT and DT purchased an aggregate of 6.1 million Series 3 PCS
shares (pre-split basis) for $169 million in conjunction with the registered
public offering of 24.4 million shares of Series 1 PCS stock (pre-split basis).
During 1999, FT and DT purchased an aggregate of 1.2 million shares of Series 3
FON shares (post-split basis) and 0.8 million additional Series 3 PCS shares
(pre-split basis) for $100 million to maintain their combined 20% voting power.
Additionally, during 1999, FT and DT bought Series 1 FON and Series 1 PCS
shares on the open market to maintain their combined 20% voting power. These
shares converted into Series 3 FON and Series 3 PCS shares.
In November 1998, 86.2 million Class A common shares were reclassified to
represent an equity interest in the FON Group (86.2 million shares) and the PCS
Group (43.1 million shares). FT and DT maintained their combined 20% voting
power in Sprint by purchasing an additional 5.1 million Series 3 PCS shares
(pre-split basis) for $85 million.
FT and DT, as Class A common, Series 3 FON and Series 3 PCS shareholders, have
the right in most cases to pro rata representation on Sprint's Board of
Directors. They may also purchase additional shares of FON stock and PCS stock
from Sprint to keep their ownership level at a combined 20%. FT and DT have
entered into a standstill agreement with Sprint restricting their ability to
acquire Sprint voting shares (other than as intended by their agreements with
Sprint). The standstill agreement also contains customary provisions
restricting FT and DT from initiating or participating in any proposal with
respect to the control of Sprint.
PCS Preferred Stock
As part of the PCS Restructuring, Sprint issued to the Cable Partners a new
class of convertible preferred stock convertible into PCS shares.
Common Stock Reserved for Future Grants
At year-end 1999, common stock reserved for future grants under stock option
plans or for future issuances under various other arrangements was as follows:
I-29
<PAGE>
Sprint FON Group
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------
(millions)
<S> <C>
Employees Stock Purchase Plan 12.9
Employee savings plans 6.5
Automatic Dividend Reinvestment Plan 2.3
Officer and key employees' and directors' stock options 11.6
Conversion of preferred stock and other 3.0
- -------------------------------------------------------------------
36.3
----
</TABLE>
Sprint PCS Group(/1/)
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------
(millions)
<S> <C>
Employees Stock Purchase Plan 0.9
Employee savings plans 3.3
Officer and key employees' and directors' stock options 15.9
Warrants issued to Cable Partners 24.9
Conversion of preferred stock and other 20.3
- -------------------------------------------------------------------
65.3
----
</TABLE>
(/1/)Restated to give effect to the February 2000 two-for-one stock split.
Shareholder Rights Plan
Under Sprint's Shareholder Rights Plan, one half of a preferred stock purchase
right is attached to each share of FON stock and PCS stock and one preferred
stock purchase right is attached to each share of Class A common stock. The
rights may be redeemed by Sprint at $0.01 per right and will expire in June
2007, unless extended. The rights are exercisable only if certain takeover
events occur and are entitled to the following (on a post-split basis):
. Each FON stock right entitles the holder to purchase 1/1,000 of a share
(Unit) of a no par Preferred Stock-Sixth Series at $275 per Unit.
. Each PCS stock right entitles the holder to purchase a Unit of a no par
Preferred Stock-Eighth Series at $150 per Unit.
. Each Class A right entitles the holder to purchase 1/2 Unit of Preferred
Stock-Sixth Series at $137.50 per 1/2 Unit and 1/4 Unit of Preferred
Stock-Eighth Series at $37.50 per 1/4 Unit.
Preferred Stock-Sixth Series is voting, cumulative and accrues dividends on a
quarterly basis generally equal to the greater of $100 per share or 2,000 times
the total per share amount of all FON stock common dividends. Preferred Stock-
Eighth Series has the same features as the Sixth Series, but applies to PCS
shares. No Preferred Stock-Sixth Series or Preferred Stock-Eighth Series were
issued or outstanding at year-end 1999 or 1998.
Other
The indentures and financing agreements of certain of Sprint's subsidiaries
contain provisions limiting cash dividend payments on subsidiary common stock
held by Sprint. As a result, $552 million of those subsidiaries' $1.5 billion
total retained earnings was restricted at year-end 1999. The flow of cash in
the form of advances from the subsidiaries to Sprint is generally not
restricted.
- --------------------------------------------------------------------------------
10. Stock-based Compensation
- --------------------------------------------------------------------------------
Recapitalization and Stock Splits
Due to the Recapitalization and the FON and PCS stock splits, the number of
shares and the related exercise prices have been adjusted to maintain both the
total fair value of common stock underlying the options and ESPP share
elections, and the relationship between the market value of the common stock
and the exercise prices of the options and ESPP share elections.
Management Incentive Stock Option Plan
Under the Management Incentive Stock Option Plan (MISOP), Sprint has granted
stock options to employees who are eligible to receive annual incentive
compensation. Eligible employees are entitled to receive stock options in lieu
of a portion of the target incentive under Sprint's management incentive plans.
The options generally become exercisable on December 31 of the year granted and
have a maximum term of 10 years. MISOP options are granted with exercise prices
equal to the market price of the underlying common stock on the grant date. At
year-end 1999, authorized FON shares under this plan approximated 24.1 million
and authorized PCS shares approximated 14.5 million. The authorized number of
shares was increased by approximately 7.1 million FON shares and 7.5 million
PCS shares on January 1, 2000.
Stock Option Plan
Under the Sprint Stock Option Plan (SOP), Sprint has granted stock options to
officers and key employees. The options generally become exercisable at the
rate of 25% per year, beginning one year from the grant date, and have a
maximum term of 10 years. SOP options are granted with exercise prices equal to
the market price of the underlying common stock on the grant date. At year-end
1999, authorized FON shares under this plan approximated 38.5 million and
authorized PCS shares approximated 40.6 million. These amounts were increased
by approximately 11.8 million FON shares and 12.7 million PCS shares on January
1, 2000.
In 1997, Sprint granted performance-based stock options to certain key
executives. The FON Group expensed $9 million in 1999 and $14 million in 1998
and the PCS Group expensed $5 million in 1999 and $1 million in 1998 related to
these performance-based stock options.
Employees Stock Purchase Plan
Under Sprint's Employees Stock Purchase Plan (ESPP), employees may elect to
purchase FON common stock or PCS common stock at a price equal to 85% of the
I-30
<PAGE>
market value on the grant or exercise date, whichever is less. At year-end
1999, authorized FON shares under this plan approximated 13.8 million and
authorized PCS shares approximated 5.5 million.
Sprint PCS Long-term Incentive Plan
Prior to 1999, PCS Group employees meeting certain eligibility requirements
were included in Sprint PCS' long-term incentive plan (LTIP). Under this plan,
participants received appreciation units based on independent appraisals.
Appreciation on the units was based on annual independent appraisals. The 1997
plan year appreciation units vest 25% per year beginning one year from the
grant date and also expire after 10 years.
In connection with the PCS Restructuring, Sprint discontinued the Sprint PCS
LTIP plan. The appreciation units were converted to PCS shares and options to
buy PCS shares based on a formula designed to replace the appreciated value of
the units at the beginning of July 1998. For vested units at year-end 1998,
participants could elect to receive the appreciation in cash, or in shares and
options. Most elected to receive shares and options.
In 1999, Sprint began issuing the shares, and options have become exercisable,
based on the vesting requirements of the converted units. Assuming all
participants stay employed by Sprint until all replacement options and shares
are vested, Sprint will issue the remaining 1.7 million PCS shares and the
remaining 2.0 million PCS shares under option will become exercisable.
Pro Forma Disclosures
Pro forma net income (loss) and earnings (loss) per share have been determined
as if Sprint had used the fair value method of accounting for its stock option
grants and ESPP share elections after 1994. Under this method, compensation
expense is recognized over the applicable vesting periods and is based on the
shares under option and their related fair values on the grant date.
For 1999, the FON Group's pro forma net income was $1,434 million and pro forma
diluted EPS was $1.63. From the Recapitalization date through year-end 1998,
the FON Group's pro forma net income was $103 million and pro forma diluted EPS
was $0.12. The FON Group's pro forma net income was reduced by $10 million or
$0.01 per FON share in 1999 and $19 million or $0.02 per FON share in 1998 due
to additional compensation resulting from modifications to terms of options and
ESPP share elections related to the Recapitalization.
For 1999, the PCS Group's pro forma net loss was $2,578 million and pro forma
diluted loss per share was $2.82. The application of SFAS No. 123 did not have
a material impact on the PCS Group's pro forma net loss from the
Recapitalization date through year-end 1998. Sprint's pro forma net income and
earnings per share prior to the Recapitalization date were as follows:
<TABLE>
- ---------------------------------------------
<CAPTION>
1998(/1/) 1997
- ---------------------------------------------
(millions,
except per
share data)
<S> <C> <C>
Pro forma net income $ 785 $ 908
-----------------
Pro forma diluted earnings
per share $ 1.79 $ 2.11
-----------------
</TABLE>
(/1/)Reflects consolidated pro forma net income and earnings per share until
the Recapitalization date.
Fair Value Disclosures
MISOP and SOP
The following tables reflect the weighted average fair value per option
granted, as well as the significant weighted average assumptions used in
determining those fair values using the Black-Scholes pricing model:
FON Common Stock
<TABLE>
- ----------------------------------------
<CAPTION>
1999 MISOP SOP
- ----------------------------------------
<S> <C> <C>
Fair value on grant date $9.86 $12.09
Risk-free interest rate 4.8% 4.8%
Expected volatility 26.6% 26.6%
Expected dividend yield 1.3% 1.3%
Expected life (years) 4 6
</TABLE>
PCS Common Stock
<TABLE>
- ----------------------------------------
<CAPTION>
1999 MISOP SOP
- ----------------------------------------
<S> <C> <C>
Fair value on grant date $8.55 $10.12
Risk-free interest rate 4.8% 4.8%
Expected volatility 67.7% 67.7%
Expected dividend yield -- --
Expected life (years) 4 6
</TABLE>
<TABLE>
- --------------------------------
<CAPTION>
1998 SOP
- --------------------------------
<S> <C>
Fair value on grant date $5.44
Risk-free interest rate 4.4%
Expected volatility 75.0%
Expected dividend yield --
Expected life (years) 6
</TABLE>
Sprint Common Stock
<TABLE>
- -----------------------------------------
<CAPTION>
1998 MISOP SOP
- -----------------------------------------
<S> <C> <C>
Fair value on grant date $14.58 $16.00
Risk-free interest rate 5.5% 5.5%
Expected volatility 21.7% 21.7%
Expected dividend yield 1.7% 1.7%
Expected life (years) 5 6
- -----------------------------------------
<CAPTION>
1997 MISOP SOP
- -----------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Fair value on grant date $9.66 $11.74
Risk-free interest rate 6.2% 6.2%
Expected volatility 22.8% 22.8%
Expected dividend yield 2.3% 2.3%
Expected life (years) 4 6
</TABLE>
I-31
<PAGE>
Employees Stock Purchase Plan
During 1999, FON Group and PCS Group employees elected to purchase 1.3 million
FON and 6.5 million PCS ESPP shares. Using the Black-Scholes pricing model, the
weighted average fair value is $11.12 per share for each FON election and $8.08
per share for each PCS election.
During 1998, FON Group employees elected to purchase 2.1 million ESPP shares
with each election having a weighted average fair value (using the Black-
Scholes pricing model) of $13.90 per share. No ESPP shares were offered in
1997.
Stock Options
Stock option plan activity was as follows:
FON stock option plan activity has been restated to give effect to the 1999
two-for-one stock split.
FON Common Stock
<TABLE>
- -----------------------------------------------
<CAPTION>
Weighted
Average
per
Sprint Share
FON Exercise
Shares Price
- -----------------------------------------------
(millions)
<S> <C> <C>
Converted in November 1998 47.6 $21.01
Exercised (0.2) 15.95
-----
Outstanding, year-end 1998 47.4 21.03
Granted 20.9 41.51
Exercised (13.5) 18.93
Forfeited/Expired (2.8) 28.61
-----
Outstanding, year-end 1999 52.0 $29.48
------------------------
</TABLE>
PCS stock option plan activity has been restated to give effect to the February
2000 two-for-one stock split.
PCS Common Stock
<TABLE>
- -----------------------------------------------
<CAPTION>
Weighted
Average
per
Sprint Share
PCS Exercise
Shares Price
- -----------------------------------------------
(millions)
<S> <C> <C>
Converted in November 1998 23.8 $ 4.58
Granted 5.4 7.92
----
Outstanding, year-end 1998 29.2 5.20
Granted 21.8 17.67
Exercised (9.2) 6.05
Forfeited/Expired (2.0) 9.64
----
Outstanding, year-end 1999 39.8 $11.64
------------------------
</TABLE>
Sprint Common Stock
<TABLE>
- ---------------------------------------------------
<CAPTION>
Weighted
Average
per
Share
Sprint Exercise
Shares Price
- ---------------------------------------------------
(millions)
<S> <C> <C>
Outstanding, beginning of 1997 13.6 $29.42
Granted 9.4 46.14
Exercised (3.4) 27.17
Forfeited/Expired (0.9) 38.10
----
Outstanding, year-end 1997 18.7 37.85
Granted 9.1 59.73
Exercised (3.4) 33.54
Forfeited/Expired (0.6) 47.28
----
Converted in
November 1998 23.8 $46.60
----------------------------
</TABLE>
Options exercisable at year-end 1998 were 21.2 million FON options and 11.5
million PCS options. Sprint options exercisable were 8.3 million at year-end
1997. At year-end 1998, the weighted average exercise prices for exercisable
options were $18.83 for FON options and $4.41 for PCS options.
The following tables summarize outstanding and exercisable options at year-end
1999:
FON Common Stock
<TABLE>
- -----------------------------------------------
<CAPTION>
Options Outstanding
--------------------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- -----------------------------------------------
(millions) (years)
<S> <C> <C> <C>
$ 5.00-$ 9.99 0.3 1.3 $ 8.28
10.00- 19.99 12.0 6.2 16.67
20.00- 29.99 18.5 7.8 24.84
30.00- 39.99 17.9 8.8 38.59
40.00- 49.99 1.6 5.7 45.26
50.00- 59.99 0.5 5.9 52.34
60.00- 69.99 0.8 6.0 67.88
70.00- 79.99 0.4 6.4 74.00
- -----------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------
<CAPTION>
Options Exercisable
--------------------
Weighted
Range of Average
Exercise Number Exercise
Prices Exercisable Price
- -----------------------------------
(millions)
<S> <C> <C>
$ 5.00-$ 9.99 0.3 $ 8.28
10.00- 19.99 9.6 16.23
20.00- 29.99 5.8 25.97
30.00- 39.99 8.4 38.21
- -----------------------------------
</TABLE>
I-32
<PAGE>
PCS Common Stock
<TABLE>
- -----------------------------------------------
<CAPTION>
Options Outstanding
--------------------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- -----------------------------------------------
(millions) (years)
<S> <C> <C> <C>
$ 2.00-$ 9.99 19.8 7.1 $ 5.36
10.00- 19.99 18.4 9.1 15.59
20.00- 29.99 0.3 6.6 27.11
30.00- 39.99 0.2 7.0 33.32
40.00- 49.99 0.2 6.5 45.95
50.00- 59.99 0.9 7.7 50.76
- -----------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------
<CAPTION>
Options Exercisable
--------------------
Weighted
Range of Average
Exercise Number Exercise
Prices Exercisable Price
- -----------------------------------
(millions)
<S> <C> <C>
$ 2.00-$ 9.99 9.2 $ 4.74
10.00- 19.99 7.8 15.59
</TABLE>
- --------------------------------------------------------------------------------
11. Commitments and Contingencies
- --------------------------------------------------------------------------------
Litigation, Claims and Assessments
Various 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 be material to Sprint's consolidated financial
statements.
Operating Leases
Sprint's minimum rental commitments at year-end 1999 for all noncancelable
operating leases, consisting mainly of leases for data processing equipment,
real estate, cell and switch sites, and office space are as follows:
<TABLE>
- ----------------------
<CAPTION>
(millions)
<S> <C>
2000 $676
2001 503
2002 346
2003 229
2004 141
Thereafter 423
- ----------------------
</TABLE>
Sprint's gross rental expense totaled $890 million in 1999, $730 million in
1998 and $410 million in 1997. Rental commitments for subleases, contingent
rentals and executory costs were not significant. The table excludes renewal
options related to certain cell and switch site leases. These renewal options
generally have five-year terms and may be exercised from time to time.
- --------------------------------------------------------------------------------
12. Financial Instruments
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
Sprint estimates the fair value of its financial instruments using available
market information and appropriate valuation methodologies. As a result, the
following estimates do not necessarily represent the values Sprint could
realize in a current market exchange. Although management is not aware of any
factors that would affect the year-end 1999 estimated fair values, those
amounts have not been comprehensively revalued for purposes of these financial
statements since that date. Therefore, estimates of fair value after year-end
1999 may differ significantly from the amounts presented below.
The carrying amounts and estimated fair values of Sprint's financial
instruments at year-end were as follows:
<TABLE>
- ----------------------------------------------------------------
<CAPTION>
1999
------------------
Estimated
Carrying Fair
Amount Value
- ----------------------------------------------------------------
(millions)
<S> <C> <C>
Cash and equivalents $ 120 $ 120
Investments in equity securities 464 464
Long-term debt and capital lease obligations 16,772 16,126
- ----------------------------------------------------------------
- ----------------------------------------------------------------
<CAPTION>
1998
------------------
Estimated
Carrying Fair
Amount Value
- ----------------------------------------------------------------
(millions)
<S> <C> <C>
Cash and equivalents $ 605 $ 605
Investments in equity securities 489 489
Long-term debt and capital lease obligations 12,189 12,771
- ----------------------------------------------------------------
</TABLE>
The carrying amounts of Sprint's cash and equivalents approximate fair value at
year-end 1999 and 1998. The estimated fair value of investments in equity
securities was based on quoted market prices. The estimated fair value of long-
term debt was based on quoted market prices for publicly traded issues. The
estimated fair value of all other issues was based on the present value of
estimated future cash flows using a discount rate based on the risks involved.
Concentrations of Credit Risk
Sprint's accounts receivable are not subject to any concentration of credit
risk. Sprint controls credit risk of its interest rate swap agreements and
foreign currency contracts through credit approvals, dollar exposure limits and
internal monitoring procedures. In the event of nonperformance by the
counterparties, Sprint's accounting loss would be limited to the net amount it
would be entitled to receive under the terms of the applicable interest rate
swap agreement or foreign currency contract. However, Sprint does not
anticipate nonperformance by any of the counterparties to these agreements.
Interest Rate Swap Agreements
Sprint uses interest rate swap agreements as part of its interest rate risk
management program. Net interest paid
I-33
<PAGE>
or received related to these agreements is recorded using the accrual method
and is recorded as an adjustment to interest expense. Sprint had interest rate
swap agreements with notional amounts of $598 million outstanding at year-end
1999 and $134 million outstanding at year-end 1998. Net interest expense
(income) related to interest rate swap agreements was $1 million in 1999, $0.1
million in 1998 and $(0.2) million in 1997.
In 1998, Sprint deferred losses from the termination of interest rate swap
agreements used to hedge a portion of a $5.0 billion debt offering. These
losses, totaling $75 million, are being amortized to interest expense using the
effective interest method over the term of the debt. At year-end 1999, the
remaining unamortized deferred loss totaled $67 million.
Foreign Currency Contracts
As part of its foreign currency exchange risk management program, Sprint
purchases and sells over-the-counter forward contracts and options in various
foreign currencies. Sprint had outstanding open forward contracts to buy
various foreign currencies of $14 million at year-end 1999 and $18 million at
year-end 1998. Sprint had outstanding open purchase option contracts to call
various foreign currencies of $1 million at year-end 1999 and $10 million at
year-end 1998. The premium paid for an option is deferred and amortized over
the life of the option. The forward contracts and options open at year-end 1999
and 1998 all had original maturities of six months or less. The net gain or
loss recorded to reflect the fair value of these contracts is recorded in the
period incurred. Total net losses, including hedge costs, of $0.3 million in
1999, $0.6 million in 1998 and $0.1 million in 1997 were recorded related to
foreign currency transactions and contracts.
- --------------------------------------------------------------------------------
13. Additional Financial Information
- --------------------------------------------------------------------------------
Segment Information
The FON Group operates in five business segments, based on services and
products: the long distance division, the local division, the product
distribution and directory publishing businesses, activities to develop and
deploy Sprint ION(SM) and other ventures. See Note 12 of Sprint FON Group Notes
to the Combined Financial Statements for more information about the FON Group's
business segments.
The PCS Group businesses operate in a single segment.
Sprint generally accounts for transactions between segments based on fully
distributed costs, which Sprint believes approximates fair value.
I-34
<PAGE>
Industry segment financial information was as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Sprint Sprint
FON PCS Intergroup
Group Group Eliminations(/1/) Consolidated
- -------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C>
1999
Net operating revenues $17,016 $ 3,180 $(268) $19,928
Intergroup revenues 264 4 (268) --
Depreciation and amortization 2,129 1,523 -- 3,652
Operating expenses 14,086 6,417 (268) 20,235
Operating income (loss) 2,930 (3,237) -- (307)
Operating margin 17.2% NM -- NM
Equity in losses of
affiliates (73) -- -- (73)
Capital expenditures 3,534 2,580 -- 6,114
Total assets 21,803 17,924 (477) 39,250
1998
Net operating revenues $15,764 $ 1,225 $(108) $16,881
Intergroup revenues 108 -- (108) --
Depreciation and amortization 1,921 789 -- 2,710
Operating expenses 13,004 3,795 (108) 16,691
Operating income (loss) 2,760 (2,570) -- 190
Operating margin 17.5% NM -- NM
Other partners' loss in
Sprint PCS -- 1,251 -- 1,251
Equity in losses of
affiliates (41) -- -- (41)
Capital expenditures 3,159 1,072 -- 4,231
Total assets 19,001 15,165 (909) 33,257
1997
Net operating revenues $14,564 $ -- $ -- $14,564
Depreciation and amortization 1,713 -- -- 1,713
Operating expenses 12,094 19 -- 12,113
Operating income (loss) 2,470 (19) -- 2,451
Operating margin 17.0% NM -- 16.8%
Equity in losses of
affiliates (10) (660) -- (670)
Capital expenditures 2,709 154 -- 2,863
Total assets 16,581 1,703 (10) 18,274
</TABLE>
NM = Not meaningful
(/1/)FON Group revenues eliminated in consolidation consist principally of long-
distance services provided to the PCS Group for resale to PCS customers and
for internal business use and telemarketing services provided by the FON
Group for PCS sales programs.
More than 95% of Sprint's revenues are from domestic customers located within
the United States.
Revenues from one customer of the FON Group represent approximately 4% of the
FON Group's net operating revenues in 1999 and 5% in 1998 and 1997.
Equipment sales to one retail chain and the subsequent service revenues
generated by sales to its customers represent approximately 28% of the PCS
Group's net operating revenues in 1999 and 25% in 1998.
I-35
<PAGE>
Supplemental Cash Flows Information
Sprint's cash paid (received) for interest and income taxes was as follows:
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Interest (net of capitalized interest) $ 714 $ 217 $198
-------------------
Income taxes $ (131) $ 307 $366
-------------------
Sprint's noncash activities included the following:
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Common stock issued for Cox PCS acquisition $1,146 $-- $--
-------------------
Debt assumed in the broadband fixed wireless acquisitions $ 575 $ -- $--
-------------------
Tax benefit from stock options exercised $ 254 $ 49 $ 26
-------------------
Stock received for stock options exercised $ 118 $ 18 $ 7
-------------------
Noncash extinguishment of debt $ 78 $ -- $--
-------------------
Capital lease obligations $ 77 $ 460 $ 30
-------------------
Common stock issued under Sprint's ESPP $ 72 $ 95 $ 5
-------------------
Common stock issued to the Cable Partners to purchase
Sprint PCS $ -- $3,200 $--
-------------------
Preferred stock issued to the Cable Partners in exchange
for interim financing $ -- $ 247 $--
-------------------
</TABLE>
See Note 3 for more details about the assets and liabilities acquired in
business combinations.
Related Party Transactions
The Cable Partners advanced PhillieCo $26 million in 1998 and $24 million in
1997. These advances were repaid in the 1999 first quarter.
- --------------------------------------------------------------------------------
14. Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires all derivatives to be recorded on the balance sheet as either assets
or liabilities and be measured at fair value. Gains or losses from changes in
the derivative values are to be accounted for based on how the derivative was
used and whether it qualifies for hedge accounting. When adopted in January
2001, this statement is not expected to have a material impact on Sprint's
consolidated financial statements.
I-36
<PAGE>
- --------------------------------------------------------------------------------
15. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
------------------------------
1999 1st 2nd 3rd 4th
- ------------------------------------------------------------------------
(millions, except per share
data)
<S> <C> <C> <C> <C>
Net operating revenues(/1/) $4,652 $4,888 $5,068 $5,320
Operating income (loss) (90) 28 (64) (181)
Loss from continuing operations(/2/) (171) (103) (196) (275)
Net loss (220) (169) (256) (290)
Earnings (Loss) per common share from
continuing operations(/3/),(/4/)
FON common stock
Diluted 0.49 0.51 0.48 0.49
Basic 0.50 0.52 0.49 0.50
PCS common stock
Diluted and Basic (0.71) (0.61) (0.65) (0.75)
- ------------------------------------------------------------------------
<CAPTION>
Quarter
------------------------------
1998 1st 2nd 3rd 4th
- ------------------------------------------------------------------------
(millions, except per share
data)
<S> <C> <C> <C> <C>
Net operating revenues(/1/) $4,011 $4,126 $4,273 $4,471
Operating income (loss)(/6/) 214 185 148 (357)
Income (Loss) from continuing
operations(/2/),(/5/),(/6/) 249 247 251 (162)
Net income (loss)(/5/) 207 210 240 (243)
Earnings (Loss) per common share from
continuing operations(/3/),(/4/),(/7/)
Sprint common stock
Diluted 0.57 0.56 0.57 0.49
Basic 0.58 0.57 0.58 0.50
FON common stock
Diluted NA NA NA 0.18
Basic NA NA NA 0.18
PCS common stock
Diluted and Basic NA NA NA (0.63)
- ------------------------------------------------------------------------
</TABLE>
(/1/)Certain reclassifications were made from net operating revenues to
operating expenses from amounts reported in 1999 reports on Form 10-Q to
conform to current year presentation. These reclassifications had no impact
on operating income (loss) as previously reported.
(/2/)Quarterly income (loss) from continuing operations have been adjusted from
amounts reported in 1999 reports on Form 10-Q to reflect the presentation
of the equity investment in Global One as a discontinued operation for all
periods presented.
(/3/)In the 1999 second quarter, Sprint effected a two-for-one stock split of
its FON stock. FON Group earnings per share for prior periods have been
restated to reflect this stock split.
(/4/)On February 4, 2000, Sprint effected a two-for-one stock split of its PCS
stock. PCS Group loss per share for prior periods have been restated to
reflect this stock split.
(/5/)In the 1998 fourth quarter, the FON Group recorded net nonrecurring gains
of $104 million, mainly from the sale of local exchanges. This decreased
loss from continuing operations by $62 million.
(/6/)In the 1998 fourth quarter, the PCS Group recorded a nonrecurring charge to
write off $179 million of acquired IPR&D related to the PCS Restructuring.
This charge increased operating loss and loss from continuing operations by
$179 million.
(/7/)Fourth quarter 1998 reflects EPS for Sprint only through the date of the
November 1998 Recapitalization. EPS for the FON Group and the PCS Group
reflects EPS from the date of the Recapitalization through year-end 1998.
NA = Not applicable
- --------------------------------------------------------------------------------
16. Subsequent Event (Unaudited)
- --------------------------------------------------------------------------------
In February 2000, Sprint's Board of Directors declared dividends of 12.5 cents
per share on the Sprint FON common stock and Class A common stock. Dividends
will be paid March 30, 2000.
I-37
<PAGE>
SPRINT CORPORATION
SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additions
-------------------------------
Balance Charged Charged Balance
Beginning PCS to to Other Other End of
of Year Restructuring Income Accounts Deductions Year
- --------------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
1999
Allowance for doubtful
accounts $186 $-- $655 $ 7 $(563)(/1/) $285
-----------------------------------------------------------------
Valuation allowance--
deferred income tax
assets $249 $-- $ 47 $179(/4/) $ (9) $466
-----------------------------------------------------------------
1998
Allowance for doubtful
accounts $147 $ 8(/2/) $379 $ 3 $(351)(/1/) $186
-----------------------------------------------------------------
Valuation allowance--
deferred income tax
assets $ 12 $229(/3/) $-- $ 16 $ (8) $249
-----------------------------------------------------------------
1997
Allowance for doubtful
accounts $117 $-- $389 $ 4 $(363)(/1/) $147
-----------------------------------------------------------------
Valuation allowance--
deferred income tax
assets $ 14 $-- $ 3 $-- $ (5) $ 12
-----------------------------------------------------------------
</TABLE>
(/1/)Accounts written off, net of recoveries.
(/2/)As discussed in Note 3, the PCS Group's assets and liabilities were
recorded at their fair values on the PCS Restructuring date. Therefore, the
data presented in this Schedule reflects activity since the PCS
Restructuring.
(/3/)Represents a valuation allowance for deferred income tax assets recorded in
connection with the PCS Restructuring.
(/4/)Represents a valuation allowance for deferred income tax assets relating to
the net operating loss carryforwards acquired in the purchase of the
broadband fixed wireless companies.
I-38
<PAGE>
Annex II
Sprint FON Group
Combined Financial Information
<PAGE>
SELECTED FINANCIAL DATA Sprint FON Group
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
(millions, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
- ------------------------------------------------------------------------------
Net operating revenues $17,016 $15,764 $14,564 $13,610 $12,482
Operating income(/1/) 2,930 2,760 2,470 2,268 1,834
Income from continuing
operations(/1/),(/2/) 1,736 1,675 1,513 1,373 966
Earnings per Share and Dividends(/3/)
- ------------------------------------------------------------------------------
Earnings per common share from
continuing operations(/1/),(/2/)
Diluted $ 1.97 $ 1.93 $ 1.73 $ 1.61 $ 1.37
Basic 2.01 1.96 1.76 1.63 1.38
Dividends per common share $ .50 $ .50 $ .50 $ .50 $ .50
Financial Position
- ------------------------------------------------------------------------------
Total assets $21,803 $19,001 $16,581 $15,655 $14,101
Property, plant and equipment, net 14,002 12,464 11,307 10,464 9,716
Total debt (including short-term
borrowings) 5,433 4,442 3,880 3,274 5,668
Group equity 10,514 9,024 7,639 7,332 3,677
Cash Flow Data
- ------------------------------------------------------------------------------
Cash from operating activities(/4/) $ 3,713 $ 3,915 $ 2,899 $ 2,267 $ 2,590
Capital expenditures 3,534 3,159 2,709 2,434 1,857
</TABLE>
Certain prior-year amounts have been reclassified to conform to the current-
year presentation. These reclassifications had no effect on the results of
operations or group equity as previously reported.
The FON Group was created as a result of the PCS Restructuring and
Recapitalization. See Sprint's "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" for more information.
(/1/)The FON Group recorded nonrecurring charges of $20 million in 1997 and $60
million in 1996 related to litigation within the long distance division.
These charges reduced income from continuing operations by $13 million in
1997 and $36 million in 1996. In 1995, the FON Group recorded a
nonrecurring charge of $88 million related to a restructuring within the
local division. This reduced income from continuing operations by $55
million.
(/2/)In 1998, the FON Group recorded net nonrecurring gains of $104 million
mainly from the sale of local exchanges. This increased income from
continuing operations by $62 million. In 1997, the FON Group recorded
nonrecurring gains of $71 million mainly from sales of local exchanges and
certain investments. These gains increased income from continuing
operations by $44 million.
(/3/)In the 1999 second quarter, Sprint effected a two-for-one stock split of
its FON stock. Earnings per share and dividends for the FON Group for
periods prior to 1999 are on a pro forma basis and assume the FON shares
created in the 1998 recapitalization of Sprint's common stock existed for
all periods presented. Pro forma earnings per share and dividends for
prior periods have been restated to reflect the stock split.
(/4/)The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
II-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Sprint FON Group
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
General
- -------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" for more information.
- -------------------------------------------------------------------------------
Forward-looking Information
- -------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-looking Information" for a discussion of
forward-looking information.
- -------------------------------------------------------------------------------
Sprint FON Group
- -------------------------------------------------------------------------------
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network that uses fiber-optic and electronic technology. The division
primarily provides domestic and international voice, video and data
communications services.
Local Division
The local division consists of regulated local phone companies serving more
than 8 million access lines in 18 states. It provides local phone services,
access by phone customers and other carriers to its local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas, or LATAs.
Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint is developing and deploying new integrated communications services,
referred to as Sprint ION. Sprint ION extends Sprint's existing network
capabilities to the customer and enables Sprint to provide the network
infrastructure to meet customers' demands for advanced services including
integrated voice, data, Internet and video. It is also expected to be the
foundation for Sprint to provide new competitive local service.
Other Ventures
The "other ventures" segment includes the cable TV service operations of the
broadband fixed wireless companies acquired in the second half of 1999.
This segment also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures.
- -------------------------------------------------------------------------------
Results of Operations
- -------------------------------------------------------------------------------
Total net operating revenues for 1999 were $17.0 billion, an 8% increase from
$15.8 billion in 1998. Total net operating revenues for 1997 were $14.6
billion.
Income from continuing operations was $1.7 billion in 1999 and 1998 and $1.5
billion in 1997.
Core Businesses
In 1999, the FON Group's core businesses generated improved net operating
revenues and operating income from 1998. Long distance calling volumes
increased 22% in 1999 and 15% in 1998. Access lines served by the local
division increased 5% in 1999 and 1998, excluding sales of local exchanges.
Core net income included net nonrecurring pretax gains of $104 million in 1998
and $51 million in 1997. These gains mainly consisted of sales of local
exchanges and certain investments, partly offset by litigation charges in
1997.
Excluding these nonrecurring items, operating income from core operations was
$3.3 billion in 1999, $2.9 billion in 1998 and $2.6 billion in 1997.
- -------------------------------------------------------------------------------
Segmental Results of Operations
- -------------------------------------------------------------------------------
Long Distance Division
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $10,567 $9,658 $8,684
- -------------------------------------------------------------------
Operating expenses
Interconnection 3,804 3,608 3,640
Operations 1,507 1,453 1,257
Selling, general and administrative(/1/) 2,629 2,312 2,014
Depreciation and amortization 993 918 748
- -------------------------------------------------------------------
Total operating expenses 8,933 8,291 7,659
- -------------------------------------------------------------------
Operating income $ 1,634 $1,367 $1,025
<CAPTION>
-----------------------
<S> <C> <C> <C>
Operating margin 15.5% 14.2% 11.8%
<CAPTION>
-----------------------
<S> <C> <C> <C>
Capital expenditures $ 1,209 $1,364 $1,223
<CAPTION>
-----------------------
</TABLE>
(/1/)The FON Group recorded nonrecurring litigation charges of $20 million in
1997.
II-2
<PAGE>
Net Operating Revenues
All major market segments--business, residential and wholesale--contributed to
the increase in net operating revenues in 1999 and 1998. The increases mainly
reflect strong data services revenue growth as well as strong minute growth of
22% in 1999 and 15% in 1998, partly offset by a more competitive pricing
environment and a change in the mix of products sold.
Business and Data Market
Business and data market revenues increased 9% in 1999 and 15% in 1998. Data
services showed strong growth because of continued demand and increased use of
the Internet. The increases also reflect strong calling volumes partly offset
by lower rates due to increased competition.
Residential Market
Residential market revenues increased 7% in 1999 and 5% in 1998. These
increases reflect strong volume growth from long distance calls, partly offset
by lower domestic and international rates. Growth was also enhanced by the
Sprint Nickel Nights(SM) product which generated increased sales in 1999. Other
growth factors included increased prepaid card revenues and increased sales of
Sprint Solutions(SM)--bundled local and long-distance services sold through
Sprint's local telephone operations.
Wholesale Market
Wholesale market revenues increased 15% in 1999 and 8% in 1998. This reflects
strong minute growth mainly from international calls and increased inbound and
outbound toll-free calls.
Interconnection Costs
Interconnection costs consist of amounts paid to local phone companies, other
domestic service providers and foreign phone companies to complete calls made
by the division's domestic customers. These costs increased 5% in 1999 and
decreased 1% in 1998. Increased calling volumes were partially offset by
reductions in per-minute costs for both domestic and international access in
1999. The 1999 increase in interconnection costs also reflects costs related to
growth in non-minute driven revenues. In 1998, reductions in per-minute costs
more than offset the impact of increased calling volumes. The rate reductions
were generally due to domestic FCC-mandated access rate reductions that took
effect in January and July 1998 and July 1999. Lower international per minute
costs reflect continued competition. Sprint expects government deregulation and
competitive pressures to add to the trend of declining unit costs for
international interconnection. Interconnection costs were 36.0% of net
operating revenues in 1999, 37.4% in 1998 and 41.9% in 1997.
Operations Expense
Operations expense includes costs to operate and maintain the long distance
network and costs of equipment sales. It also includes costs to provide
operator, public payphone and video teleconferencing services as well as
telecommunications services for the hearing-impaired. Operations expense
increased 4% in 1999 and 16% in 1998. These increases were driven by growth in
data services as well as increases in network equipment operating leases in
both years. The 1998 increase also reflects the service costs of Paranet, which
was purchased in late 1997. Operations expense was 14.3% of net operating
revenues in 1999, 15.0% in 1998 and 14.5% in 1997.
Selling, General and Administrative Expense
Selling, general and administrative (SG&A) expense increased 14% in 1999 and
15% in 1998. These increases mainly reflect the overall growth of the business
as well as increased marketing and promotions to support products and services,
including the rollout of an airline alliance program which enables customers to
earn frequent flyer miles when they use Sprint's services. SG&A expense was
24.8% of net operating revenues in 1999, 23.9% in 1998 and 23.2% in 1997.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 8% in 1999 and 23% in 1998.
These increases were generally due to an increased asset base to enhance
network reliability, meet increased demand for voice and data-related services
and upgrade capabilities for providing new products and services. The 1998
increase was also driven by capital additions having shorter average
depreciable lives. Depreciation and amortization expense was 9.4% of net
operating revenues in 1999, 9.5% in 1998 and 8.6% in 1997.
Local Division
<TABLE>
- -------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $5,650 $5,372 $5,294
- -------------------------------------------------------------
Operating expenses
Costs of services and products 1,971 1,853 1,892
Selling, general and administrative 1,114 1,130 1,064
Depreciation and amortization 1,065 982 946
- -------------------------------------------------------------
Total operating expenses 4,150 3,965 3,902
- -------------------------------------------------------------
Operating income $1,500 $1,407 $1,392
<CAPTION>
----------------------
<S> <C> <C> <C>
Operating margin 26.5% 26.2% 26.3%
<CAPTION>
----------------------
<S> <C> <C> <C>
Capital expenditures $1,354 $1,374 $1,270
<CAPTION>
----------------------
</TABLE>
II-3
<PAGE>
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The main effect of this change was a reduction in the local division's
"Net Operating Revenues--Other Revenues." Sprint sold approximately 139,000
residential and business access lines in Illinois in 1997 and the remaining
81,000 access lines in Illinois in November 1998. For comparative purposes, the
following discussion of local division results assumes these transfer pricing
changes and sales of exchanges occurred at the beginning of 1997. Adjusting for
these transfer pricing changes and sales of exchanges, operating margins would
have been 26.0% in 1998 and 25.0% in 1997.
Net Operating Revenues
Net operating revenues increased 6% in 1999 and 5% in 1998. These increases
mainly reflect customer access line growth and increased sales of network-based
services such as Caller ID and Call Waiting. Customer access lines increased 5%
in both 1999 and 1998. Sales of network-based services increased in 1999 due to
strong demand for bundled services which combine local service, network-based
features and long distance calling. The increase in 1998 revenues also reflects
increased sales of equipment. Net operating revenues were $5.7 billion in 1999,
$5.3 billion in 1998 and $5.1 billion in 1997.
Local Service Revenues
Local service revenues, derived from local exchange services, grew 9% in 1999
and 10% in 1998 because of customer access line growth, continued demand for
network-based services, growth in data products and increased revenues from
maintaining customer wiring and equipment. Revenue growth in 1998 also reflects
increased sales of private line services.
Network Access Revenues
Network access revenues, derived from long distance phone companies using the
local network to complete calls, increased 4% in 1999 and in 1998. These
revenues reflect an 8% increase in minutes of use in 1999 and 1998 and the 1999
implementation of local number portability charges. These increases were partly
offset by access rate reductions mandated by the FCC. Access rate reductions
took effect in January and July 1998 and July 1999.
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. These revenues decreased 11% in 1999 and 26% in 1998, mainly
reflecting increased competition in the intraLATA long distance market, which
is expected to continue. In addition, toll service areas are shrinking as
certain local calling areas are expanding. However, the reduced revenues are,
in part, offset by increases in local service revenues and by increases in
network access revenues paid by other carriers providing intraLATA long
distance services to the local division's customers. In addition, over one-
third of the toll customers lost by the local division have selected Sprint's
long distance division for intraLATA long distance service, which helps
mitigate the erosion of these revenues.
Other Revenues
Other revenues increased 7% in 1999 and 1998 reflecting increased equipment
sales of business systems and data networks, as well as growth in telemarketing
and commission revenues. Revenue growth in 1999 also reflects improvements in
uncollectibles. The 1998 growth also reflects increased revenues from providing
billing and collection services.
Costs of Services and Products
Costs of services and products include costs to operate and maintain the local
network and costs of equipment sales. These expenses increased 7% in 1999 and
remained flat in 1998. The 1999 increase was driven by customer access line
growth, increased equipment sales, an increased emphasis on service levels,
increased telemarketing expenses and storm related costs. The 1998 cost
increases from customer access line growth and increased equipment sales were
offset by efficiencies from streamlining and standardizing business processes
and a reduction in pension costs due to increased returns on plan assets. Costs
of services and products were 34.9% of net operating revenues in 1999, 34.5% in
1998 and 36.1% in 1997.
Selling, General and Administrative Expense
SG&A expenses decreased 1% in 1999 and increased 8% in 1998. The 1999 decrease
is due to a strong emphasis on cost control, partly offset by increased
marketing costs to promote new products and services and costs related to
customer access line growth. The 1998 increase was mainly due to marketing
costs to promote new products and services and increased customer service costs
related to customer access line growth. Also impacting SG&A for 1998 was a
reduction in pension costs due to increased returns on plan assets. SG&A
expense was 19.7% of net operating revenues in 1999, 21.1% in 1998 and 20.5% in
1997.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 9% in 1999 and 5% in 1998,
mainly because of increased capital expenditures in switching and transport
technologies which have shorter asset lives. Depreciation and amortization
expense was 18.9% of net operating revenues in 1999, 18.4% in 1998 and 18.3% in
1997.
II-4
<PAGE>
Product Distribution and Directory Publishing Businesses
<TABLE>
- -------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $1,731 $1,683 $1,454
- -------------------------------------------------------------
Operating expenses
Costs of services and products 1,345 1,330 1,173
Selling, general and administrative 127 109 93
Depreciation and amortization 17 13 9
- -------------------------------------------------------------
Total operating expenses 1,489 1,452 1,275
- -------------------------------------------------------------
Operating income $ 242 $ 231 $ 179
<CAPTION>
----------------------
<S> <C> <C> <C>
Operating margin 14.0% 13.7% 12.3%
<CAPTION>
----------------------
<S> <C> <C> <C>
Capital expenditures $ 36 $ 9 $ 11
<CAPTION>
----------------------
</TABLE>
Beginning in July 1997, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The following discussion assumes these transfer pricing changes
occurred at the beginning of 1997. Adjusting for these changes, the product
distribution and directory publishing businesses' operating margins would have
been 15.7% in 1997.
Net operating revenues increased 3% in 1999 and 16% in 1998. Nonaffiliated
revenues accounted for roughly 60% of revenues in 1999 and 1998. These revenues
increased 12% in 1999 and 10% in 1998. Sales to affiliates decreased 10% in
1999 and increased 27% in 1998. The change in the mix of the local division's
capital program to more electronics and software, which is more frequently
purchased directly from manufacturers, caused the decline in affiliate sales in
1999. In 1998, the growth reflects the centralization of certain local division
purchasing and warehousing functions at North Supply in 1997 resulting in
affiliates purchasing more through North Supply.
Costs of services and products increased 1% in 1999 and 19% in 1998 reflecting
increased equipment sales. SG&A expense increased 17% in both 1999 and 1998.
The 1999 increase was the result of staffing demands related to nonaffiliated
sales growth. The 1998 increase was the result of costs related to the
division's acquisition of a sales force from another directory sales company in
1998.
Sprint ION(SM)
<TABLE>
- ------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------
(millions)
<S> <C> <C> <C>
Operating expenses $358 $143 $ 5
<CAPTION>
--------------
<S> <C> <C> <C>
Capital expenditures $542 $154 $46
<CAPTION>
--------------
</TABLE>
Operating expenses for Sprint ION in 1999 and 1998 reflect its initial
development and deployment activities and include costs for network research
and testing, systems and operations development, product development and
advertising to increase public awareness. Depreciation and amortization totaled
$38 million in 1999, $5 million in 1998 and $2 million in 1997.
Other Ventures
<TABLE>
- -------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $ 20 $-- $--
<CAPTION>
----------------
<S> <C> <C> <C>
Operating expenses $ 68 $ 40 $ 84
<CAPTION>
----------------
<S> <C> <C> <C>
Operating loss $(48) $(40) $(84)
<CAPTION>
----------------
<S> <C> <C> <C>
Equity in losses of affiliates $(89) $(51) $(10)
<CAPTION>
----------------
<S> <C> <C> <C>
Capital expenditures $ 23 $-- $ 17
<CAPTION>
----------------
</TABLE>
This segment includes the operating results of the cable TV service operations
of the broadband fixed wireless companies after their 1999 acquisition dates.
Operating expenses in 1998 and 1997 and capital expenditures in 1997 mainly
relate to the FON Group's offering of Internet services. In June 1998, the FON
Group completed the strategic alliance to combine its Internet business with
EarthLink. As part of the alliance, EarthLink obtained the FON Group's Sprint
Internet Passport customers and took over the day-to-day operations of those
services. In exchange, the FON Group acquired an equity interest in EarthLink.
As a result, beginning in 1998, the FON Group's share of EarthLink's losses has
been reflected in "Equity in losses of affiliates" above.
"Equity in losses of affiliates" mainly consists of losses from EarthLink and
Call-Net.
- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------
Interest Expense
The effective interest rates in the following table reflect interest expense on
long-term debt only. Interest costs on short-term borrowings classified as
long-term debt, intergroup borrowings, deferred compensation plans and customer
deposits have been excluded so as not to distort the effective interest rates
on long-term debt.
<TABLE>
- ---------------------------------------------------------
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Effective interest rate on long-term debt 7.8% 7.9% 8.0%
<CAPTION>
--------------
</TABLE>
Effective with the PCS Restructuring, interest expense on borrowings incurred
by Sprint and allocated to the PCS Group is based on rates the PCS Group would
be able to obtain from third parties. Those interest rates are higher than the
rates Sprint obtains on the borrowings. The difference between Sprint's actual
interest rates and the rates charged to the PCS Group is reflected as a
reduction in the FON Group's interest expense. These reductions, which totaled
$157 million in 1999 and $11
II-5
<PAGE>
million in 1998, have also been excluded in computing the effective interest
rates above. See Note 2 of Notes to Combined Financial Statements for a more
detailed description of Sprint's policies about the allocation of Group
financing.
Other Income, Net
Other income consisted of the following:
<TABLE>
- --------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------
(millions)
<S> <C> <C> <C>
Dividend and interest income $36 $ 74 $ 99
Other, net 13 79 66
- --------------------------------------------
Total $49 $153 $165
<CAPTION>
--------------
</TABLE>
Dividend and interest income for all years reflects interest earned on
temporary investments. For 1998, it also reflects interest earned on loans to
unconsolidated affiliates and interest earned on short-term investments
following Sprint's $5.0 billion debt offering in late 1998. "Other, net" for
1999 includes net gains on miscellaneous investment activities, partly offset
by losses from certain equity method investments. For 1998 and 1997, it mainly
reflects net gains on sales of local exchanges and certain investments, partly
offset by losses from certain equity method investments.
Income Taxes
The FON Group's effective tax rates were 37.9% in 1999, 37.3% in 1998 and 37.7%
in 1997. See Note 7 of Notes to Combined Financial Statements for information
about the differences that caused the effective income tax rates to vary from
the statutory federal rate for income taxes related to continuing operations.
Discontinued Operation, Net
As a result of Sprint's sale of its interest in Global One to Deutsche Telekom
and France Telecom, Sprint's equity share of the results of Global One has been
reported as a discontinued operation for all periods presented.
Sprint recorded after-tax losses related to Global One totaling $130 million in
1999, $135 million in 1998 and $142 million in 1997. The 1999 amount includes a
$50 million tax benefit recorded to recognize tax assets related to previous
losses. The realization of these assets was uncertain until the sale agreement
was reached. The gain on the sale of Sprint's interest in Global One made it
apparent that these tax assets would be realized.
Extraordinary Items, Net
In 1999, Sprint redeemed, prior to scheduled maturities, $575 million of the
broadband fixed wireless companies' debt, assumed by the FON Group, with
interest rates ranging from 13.1% to 14.5%. This resulted in a $39 million
after-tax extraordinary loss for the FON Group.
In 1998, Sprint redeemed, prior to scheduled maturities, $138 million of FON
Group debt with interest rates ranging from 7.9% to 9.3%. This resulted in a $5
million after-tax extraordinary loss.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------
<CAPTION>
1999 1998
- --------------------------------
(millions)
<S> <C> <C>
Combined assets $21,803 $19,001
<CAPTION>
---------------
</TABLE>
The increase in assets was due to capital expenditures to support the core long
distance and local networks and Sprint ION development as well as the purchase
of the broadband fixed wireless companies. See "Liquidity and Capital
Resources" for more information about changes in the Combined Balance Sheets.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Operating Activities
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Cash flows provided by operating activities $3,713 $3,915 $2,899
<CAPTION>
--------------------
</TABLE>
The decrease in 1999 operating cash flows mainly reflects increases in working
capital partly offset by improved operating results. The increase in 1998
operating cash flows mainly reflects improved operating results in the FON
Group's core businesses and decreases in working capital.
Investing Activities
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Cash flows used by investing activities from
continuing operations $(3,965) $(3,098) $(3,827)
<CAPTION>
-------------------------
</TABLE>
Capital expenditures, which are the FON Group's largest investing activity,
totaled $3.5 billion in 1999, $3.2 billion in 1998 and $2.7 billion in 1997.
Long distance capital expenditures were incurred mainly to enhance network
reliability, meet increased demand for voice and data-related services and
upgrade capabilities for providing new products and services. The local
division incurred capital expenditures to accommodate access line growth,
provide additional capacity for increased Internet traffic and expand
capabilities for providing enhanced services. In addition, capital expenditures
increased $388 million in 1999 from 1998 due to Sprint ION development and
hardware deployment.
In 1999, Sprint purchased the net assets of several broadband fixed wireless
companies for $618 million, excluding assumed debt. In 1997, Sprint purchased
the net assets of Paranet for $375 million. See Note 3 of Notes to Combined
Financial Statements.
II-6
<PAGE>
In 1999, the FON Group received a payment of $314 million from the PCS Group on
its outstanding loan. The FON Group had advances to the PCS Group and loans to
Sprint PCS to fund capital and operating requirements. Loans to Sprint PCS in
1998 were partly offset by the repayment of a vendor financing loan. Equity
transfers to the PCS Group were also used to fund its capital and operating
requirements and were offset by current tax benefits used by the FON Group.
Investing activities also include net proceeds from sales of assets totaling
$90 million in 1999, $230 million in 1998 and $292 million in 1997.
"Investments in and loans to other affiliates, net" includes the FON Group's
investment in EarthLink, Call-Net and other miscellaneous ventures.
Financing Activities
<TABLE>
- --------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Cash flows provided (used) by financing activities $308 $(219) $79
<CAPTION>
----------------
</TABLE>
Financing activities during 1999 mainly reflect long-term borrowings of $1.0
billion, partly offset by payments on long-term debt of $529 million. In 1998,
financing activities mainly reflect long-term borrowings of $785 million partly
offset by payments on long-term debt of $388 million. In 1997, the FON Group
had net borrowings of $532 million, mainly to fund investments in and loans to
affiliates.
The FON Group paid dividends of $426 million in 1999 and $430 million in 1998
and 1997. The indicated annual dividend rate on FON stock is $0.50 per share.
Capital Requirements
The FON Group's 2000 investing activities, mainly consisting of capital
expenditures and investments in affiliates, are expected to require cash of
$4.1 to $4.4 billion. FON Group capital expenditures are expected to range
between $3.9 and $4.2 billion in 2000. The long distance and local divisions
will require the majority of this total. Sprint ION is expected to require $600
to $700 million for capital expenditures in 2000. Investments in affiliates are
expected to require cash of approximately $200 million. Dividend payments are
expected to approximate $435 million.
In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement that provides for the allocation of income taxes between the FON
Group and the PCS Group. Sprint expects the FON Group to make significant
payments to the PCS Group under this agreement because of expected PCS Group
operating losses in the near future. These payments will reflect the PCS
Group's incremental cumulative effect on Sprint's consolidated federal and
state tax liability and tax credit position. The PCS Group accrued current
benefits under the agreement totaling $887 million in 1999 and $190 million in
1998 and received related payments from the FON Group totaling $764 million in
1999 and $20 million in 1998. The remaining $293 million will be paid by the
FON Group during the first half of 2000. See Note 2 of Notes to Combined
Financial Statements, "Allocation of Federal and State Income Taxes" for more
details.
Liquidity
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity" for a discussion of liquidity.
- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------
Competitive Local Service
The Telecommunications Act of 1996 (Telecom Act) was designed to promote
competition in all aspects of telecommunications. It eliminated legal and
regulatory barriers to entry into local phone markets. It also required
incumbent local phone companies, among other things, to allow local resale at
wholesale rates, negotiate interconnection agreements, provide
nondiscriminatory access to unbundled network elements and allow collocation of
interconnection equipment by competitors. Sprint has obtained interconnection
and collocation agreements with a number of incumbent local telephone carriers,
and is rolling out Sprint ION in cities across the nation.
Sprint is also rolling out resold and UNE based local services obtained from
other local phone companies under the Telecom Act. This rollout of local
services obtained from other local phone companies will occur in major areas
across the nation not served by the LTD.
In January 1999, the Supreme Court affirmed the FCC's authority to establish
rules and prices relating to interconnection and unbundling of the incumbent
local phone companies' networks. The FCC subsequently reaffirmed in large part
the list of network elements incumbents are required to provide on an unbundled
basis, and strengthened collocation requirements. It also took steps to speed
the deployment of advanced technologies such as xDSL.
RBOC Long Distance Entry
The Telecom Act also allows RBOCs to provide in-region long distance service
once they obtain state certification of compliance with a competitive
"checklist," have a facilities-based competitor, and obtain a FCC ruling that
the provision of in-region long distance service is in the public interest. One
RBOC, Bell Atlantic, obtained FCC authorization to provide in-region long
distance service in New York in December 1999; RBOCs may gain such
II-7
<PAGE>
authorization in the near future in other states. The entry of the RBOCs into
the long distance market will impact competition, but the extent of the impact
will depend upon factors such as the RBOCs' competitive ability, the appeal of
the RBOC brand to different market segments, and the response of competitors.
Some of the impact on Sprint may be offset by wholesale revenues from those
RBOCs that choose to resell Sprint services.
Customer Service Slamming
The Telecom Act also established liability for the unauthorized switch of a
consumer's telephone service from one carrier to another (slamming). In late
1998, the FCC adopted new rules intended to prevent slamming and to compensate
victims of slamming; these rules were stayed by the Court of Appeals, and the
FCC is currently considering an industry proposal that would streamline the
process for adjudicating alleged slams.
Mergers
As a result of increasing competitive pressures, a number of carriers have
combined or proposed to combine. Sprint and MCI WorldCom filed a merger
application with the FCC (November 1999) and with the European Commission
(January 2000); Sprint and MCI WorldCom are also continuing to provide the
Department of Justice with information supporting the proposed merger. SBC
completed its merger with Ameritech in 1999; the Bell Atlantic-GTE proposed
merger remains pending before the FCC. In 1999, AT&T completed its merger with
TCI, and announced its pending merger with MediaOne. AT&T is expected to use
its newly acquired cable facilities to provide competitive local telephone
services.
Universal Services Requirements
The FCC continued to address issues related to Universal Service and access
charge reform. It increased the amount of money available to schools and
libraries under the "e-rate" program; adopted a computer model designed to
calculate "high cost" universal service subsidies (and to replace high cost
subsidies implicit in interstate access charges with explicit contributions);
and continued to shift certain non-traffic sensitive costs from usage-sensitive
to flat-rated access charges. Sprint's long distance and local divisions both
benefit from cost-based access charges. In addition, the shift in costs from
usage-sensitive to flat-rated access charges has contributed to sharp decreases
in long distance usage rate charges.
The FCC and many states have established "universal service" programs to ensure
affordable, quality local telecommunications services for all Americans. The
FON Group's assessment to fund these programs is typically a percentage of end-
user revenues. The FON Group's 1999 results contained assessments for 1999.
Currently, management cannot predict the extent of the FON Group's future
federal and state universal service assessments, or its ability to recover its
contributions from the universal service fund.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act (CALEA) was enacted in
1994 to preserve electronic surveillance capabilities authorized by federal and
state law. CALEA requires local telecommunications companies to meet certain
"assistance capability requirements" by the end of June 2000 where circuit-
switching is used and by September 2001 where packet-switching is used. Where
circuit-switched technology was installed before 1995, reimbursement for
hardware and software upgrades to facilitate CALEA compliance was authorized.
The U.S. Department of Justice has published guidelines concerning what is
required for it to support, at the FCC, petitions for extension of the CALEA
enforcement deadlines. LTD uses circuit-switching for the bulk of its traffic
and most LTD switches were installed before 1995 and qualify for reimbursement
if upgrades are required by the Justice Department. Sprint ION uses packet
switching for its local operations. In the case of Sprint ION, CALEA compliance
capabilities are not currently available from equipment and software vendors
involved in Sprint ION's deployment. Sprint believes it will be in compliance
with CALEA by the appropriate deadlines for local circuit-switched equipment.
Sprint ION will apply for an extension for the local packet-based services to
allow for development of required hardware and software.
- --------------------------------------------------------------------------------
Financial Strategies
- --------------------------------------------------------------------------------
Financial strategies are determined by Sprint on a centralized basis. See
Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Strategies."
- --------------------------------------------------------------------------------
Year 2000 Issue
- --------------------------------------------------------------------------------
The FON Group successfully completed its Year 2000 readiness work and passed
through the January 1, 2000 rollover event while encountering no customer-
affecting outages or business interruptions. Since the inception of the FON
Group's Year 2000 readiness program in 1996 through December 31, 1999, the FON
Group incurred approximately $275 million of costs associated with its Year
2000 readiness program. The FON Group does not expect to incur any significant
additional expenditures related to the Year 2000 issue.
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
See Note 13 of Notes to Combined Financial Statements for a discussion of a
recently issued accounting pronouncement.
II-8
<PAGE>
MANAGEMENT REPORT
Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this annex. Management is
responsible for the consistency of reporting this information and for ensuring
that accounting principles generally accepted in the United States are used.
In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and principles of business conduct are understood
and practiced by its employees.
The combined financial statements included in this annex have been audited by
Ernst & Young LLP, independent auditors. Their audits were conducted using
auditing standards generally accepted in the United States and their report is
included herein.
The Board of Director's responsibility for these combined financial statements
is pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
- --------------------------------------------------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
- --------------------------------------------------------------------------------
Arthur B. Krause
Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sprint Corporation
We have audited the accompanying combined balance sheets of the Sprint FON
Group (as described in Note 2) as of December 31, 1999 and 1998, and the
related combined statements of operations, comprehensive income and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the Index to Financial
Statements and Financial Statement Schedules. These financial statements and
the schedule are the responsibility of the management of Sprint Corporation
(Sprint). Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Sprint
FON Group at December 31, 1999 and 1998, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
As more fully discussed in Note 2, the combined financial statements of the
Sprint FON Group should be read together with the audited consolidated
financial statements of Sprint.
Ernst & Young LLP
Kansas City, Missouri
February 1, 2000
II-9
<PAGE>
COMBINED STATEMENTS OF OPERATIONS Sprint FON Group
(millions, except per share data)
<TABLE>
- ---------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net Operating Revenues $17,016 $15,764 $14,564
- ---------------------------------------------------------------------------
Operating Expenses
Costs of services and products 7,724 7,346 7,142
Selling, general and administrative 4,233 3,737 3,239
Depreciation and amortization 2,129 1,921 1,713
- ---------------------------------------------------------------------------
Total operating expenses 14,086 13,004 12,094
- ---------------------------------------------------------------------------
Operating Income 2,930 2,760 2,470
Interest expense (182) (243) (208)
Other income, net 49 153 165
- ---------------------------------------------------------------------------
Income from continuing operations before income
taxes 2,797 2,670 2,427
Income taxes (1,061) (995) (914)
- ---------------------------------------------------------------------------
Income from Continuing Operations 1,736 1,675 1,513
Discontinued operation, net (130) (135) (142)
Extraordinary items, net (39) (5) --
- ---------------------------------------------------------------------------
Net Income 1,567 1,535 1,371
Preferred stock dividends received (paid) 7 -- (1)
- ---------------------------------------------------------------------------
Earnings applicable to common stock $ 1,574 $ 1,535 $ 1,370
-------------------------
Diluted Earnings per Common Share(/1/)
Continuing operations $ 1.97 $ 1.93 $ 1.73
Discontinued operation (0.15) (0.16) (0.16)
Extraordinary items (0.04) -- --
- ---------------------------------------------------------------------------
Total $ 1.78 $ 1.77 $ 1.57
-------------------------
Diluted weighted average common shares 887.2 868.9 873.0
-------------------------
Basic Earnings per Common Share(/1/)
Continuing operations $ 2.01 $ 1.96 $ 1.76
Discontinued operation (0.15) (0.16) (0.17)
Extraordinary items (0.05) -- --
- ---------------------------------------------------------------------------
Total $ 1.81 $ 1.80 $ 1.59
-------------------------
Basic weighted average common shares 868.0 854.0 860.5
-------------------------
Dividends per Common Share(/1/) $ 0.50 $ 0.50 $ 0.50
-------------------------
</TABLE>
(/1/)Basic and diluted earnings per common share, weighted average common
shares, and dividends per common share for 1998 and 1997 are pro forma,
unaudited and assume the Recapitalization occurred at the beginning of
1997. In the 1999 second quarter, Sprint effected a two-for-one stock
split of its FON common stock. As a result, 1998 and 1997 basic and
diluted earnings per common share, weighted average common shares and
dividends per common share have been restated.
See accompanying Notes to Combined Financial Statements.
II-10
<PAGE>
COMBINED STATEMENTS OF COMPREHENSIVE INCOME Sprint FON Group
(millions)
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $1,567 $1,535 $1,371
- ------------------------------------------------------------------------------
Other Comprehensive Income (Loss)
Unrealized holding gains on securities 33 28 12
Income tax expense (12) (10) (5)
- ------------------------------------------------------------------------------
Net unrealized holding gains on securities during the
period 21 18 7
Reclassification adjustment for gains included in net
income (57) -- --
- ------------------------------------------------------------------------------
Total net unrealized holding gains (losses) on
securities (36) 18 7
Foreign currency translation adjustments -- (2) 10
- ------------------------------------------------------------------------------
Total other comprehensive income (loss) (36) 16 17
- ------------------------------------------------------------------------------
Comprehensive Income $1,531 $1,551 $1,388
----------------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-11
<PAGE>
COMBINED BALANCE SHEETS Sprint FON Group
(millions)
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 104 $ 432
Accounts receivable, net of allowance for doubtful
accounts of $228 and $175 2,836 2,375
Inventories 441 350
Prepaid expenses 251 199
Receivables from the PCS Group 136 236
Investments in equity securities 316 --
Other 198 177
- -------------------------------------------------------------------------
Total current assets 4,282 3,769
Investments in equity securities 139 489
Property, plant and equipment
Long distance division 9,824 9,241
Local division 15,828 14,858
Other 2,035 1,057
- -------------------------------------------------------------------------
Total property, plant and equipment 27,687 25,156
Accumulated depreciation (13,685) (12,692)
- -------------------------------------------------------------------------
Net property, plant and equipment 14,002 12,464
Investments in and loans to the PCS Group 431 656
Investments in and advances to other affiliates 452 463
Intangible assets
Goodwill 1,223 388
Other 296 56
- -------------------------------------------------------------------------
Total intangible assets 1,519 444
Accumulated amortization (140) (89)
- -------------------------------------------------------------------------
Net intangible assets 1,379 355
Net assets of discontinued operation 394 182
Other assets 724 623
- -------------------------------------------------------------------------
Total $ 21,803 $ 19,001
------------------
Liabilities and Group Equity
Current liabilities
Current maturities of long-term debt $ 902 $ 33
Accounts payable 1,012 1,260
Accrued interconnection costs 683 592
Accrued taxes 162 349
Advance billings 323 229
Payroll and employee benefits 557 280
Other 662 530
- -------------------------------------------------------------------------
Total current liabilities 4,301 3,273
Long-term debt 4,531 4,409
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 935 828
Postretirement and other benefit obligations 1,064 1,064
Other 458 403
- -------------------------------------------------------------------------
Total deferred credits and other liabilities 2,457 2,295
Group equity 10,514 9,024
- -------------------------------------------------------------------------
Total $ 21,803 $ 19,001
------------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-12
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS Sprint FON Group
(millions)
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 1,567 $ 1,535 $ 1,371
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operation, net 130 135 142
Extraordinary items, net 39 1 --
Equity in net losses of affiliates 70 52 22
Depreciation and amortization 2,129 1,921 1,713
Deferred income taxes and investment tax credits 220 60 --
Net gains on sales of assets (158) (104) (93)
Changes in assets and liabilities:
Accounts receivable, net (459) 102 (127)
Inventories and other current assets (130) (19) (92)
Accounts payable and other current liabilities 152 347 (37)
Affiliate receivables and payables, net 88 (84) --
Noncurrent assets and liabilities, net (76) (24) (19)
Other, net 141 (7) 19
- -----------------------------------------------------------------------------
Net cash provided by operating activities 3,713 3,915 2,899
- -----------------------------------------------------------------------------
Investing Activities
Capital expenditures (3,534) (3,159) (2,709)
Repayments from (investments in and loans to)
Sprint PCS 314 (154) (300)
Investments in and loans to other affiliates, net (135) (236) (186)
Net proceeds from sales of assets 90 230 292
Purchase of broadband fixed wireless companies,
net of cash acquired (618) -- --
Advances to the PCS Group -- (64) --
Equity transfers from (to) the PCS Group -- 340 (547)
Paranet acquisition -- -- (375)
Other, net (82) (55) (2)
- -----------------------------------------------------------------------------
Net cash used by continuing operations (3,965) (3,098) (3,827)
Net investing activities of discontinued
operation (384) (268) (200)
- -----------------------------------------------------------------------------
Net cash used by investing activities (4,349) (3,366) (4,027)
- -----------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 1,020 785 867
Payments on long-term debt (529) (388) (135)
Net change in short-term borrowings -- -- (200)
Proceeds from sales of shares to FT and DT 52 -- --
Proceeds from treasury stock issued 134 60 57
Dividends paid (426) (430) (430)
Treasury stock purchased (48) (321) (145)
Other, net 105 75 65
- -----------------------------------------------------------------------------
Net cash provided (used) by financing activities 308 (219) 79
- -----------------------------------------------------------------------------
Increase (Decrease) in Cash and Equivalents (328) 330 (1,049)
Cash and Equivalents at Beginning of Year 432 102 1,151
- -----------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 104 $ 432 $ 102
-------------------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
II-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS Sprint FON Group
- -------------------------------------------------------------------------------
1. General
- -------------------------------------------------------------------------------
In October 1999, Sprint announced a definitive merger agreement with MCI
WorldCom. Under the agreement, each share of Sprint FON stock will be
exchanged for $76 of MCI WorldCom common stock, subject to a collar. In
addition, each share of Sprint PCS stock will be exchanged for one share of a
new WorldCom PCS tracking stock and 0.116025 shares of MCI WorldCom common
stock. The terms of the WorldCom PCS tracking stock will be equivalent to
those of Sprint's PCS common stock and will track the performance of the
company's personal communication services (PCS) business. The merger is
subject to the approvals of Sprint and MCI WorldCom shareholders as well as
approvals from the Federal Communications Commission, the Justice Department,
various state government bodies and foreign antitrust authorities. The
companies anticipate that the merger will close in the second half of 2000.
In November 1998, Sprint's shareholders approved the formation of the FON
Group and the PCS Group and the creation of the FON stock and the PCS stock.
In addition, Sprint purchased the remaining ownership interests in Sprint
Spectrum Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS),
other than a minority interest in Cox Communications PCS, L.P. (Cox PCS).
Sprint acquired these ownership interests from Tele-Communications, Inc.,
Comcast Corporation and Cox Communications, Inc. (the Cable Partners). In
exchange, Sprint issued the Cable Partners special low-vote PCS shares and
warrants to acquire additional PCS shares. Sprint also issued the Cable
Partners shares of a new class of preferred stock convertible into PCS shares.
The purchase of the Cable Partners' interests is referred to as the PCS
Restructuring. In the 1999 second quarter, Sprint acquired the remaining
minority interest in Cox PCS.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares (pre-split basis) to maintain their combined 20% voting
power in Sprint (Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless PCS operations. The FON stock is intended to reflect the performance
of all of Sprint's other operations.
- -------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
- -------------------------------------------------------------------------------
Basis of Combination and Presentation
The combined FON Group financial statements, together with the combined PCS
Group financial statements, include all the accounts in Sprint's consolidated
financial statements. The combined financial statements for each Group were
prepared on a basis that management believes is reasonable and proper and
include:
. the combined historical balance sheets, results of operations and cash
flows for each of the Groups, with all significant intragroup amounts
and transactions eliminated,
. an allocation of Sprint's debt, including the related effects on results
of operations and cash flows, and
. an allocation of corporate overhead after the PCS Restructuring date.
The FON Group entities are commonly controlled companies. Transactions between
the PCS Group and the FON Group have not been eliminated in the combined
financial statements of either Group.
The FON Group combined financial statements provide FON shareholders with
financial information about the FON Group operations. Investors in FON stock
and PCS stock are Sprint shareholders and are subject to risks related to all
of Sprint's businesses, assets and liabilities. Sprint retains ownership and
control of the assets and operations of each Group. Financial effects of
either Group that affect Sprint's results of operations or financial condition
could affect the results of operations or financial position of the other
Group or the market price of the other Group's stock. Net losses of either
Group, and dividends or distributions on, or repurchases of, PCS stock or FON
stock will reduce Sprint funds legally available for dividends on both Groups'
stock. As a result, the FON Group combined financial statements should be read
along with Sprint's consolidated financial statements and the PCS Group's
combined financial statements.
The FON Group combined financial statements are prepared using accounting
principles generally accepted in the United States. These principles require
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-
year presentation. These reclassifications had no effect on the results of
operations or group equity as previously reported.
II-14
<PAGE>
Investments in entities in which the FON Group exercises significant influence,
but does not control, are accounted for using the equity method (see Note 4).
Classification of Operations
Core Businesses
Long Distance Division
The long distance division is the nation's third-largest long distance phone
company. It operates a nationwide, all-digital long distance communications
network that uses 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 phone companies serving more
than 8 million access lines in 18 states. It provides local services, access by
phone customers and other carriers to its local network, sales of
telecommunications equipment, and long distance services within certain
regional calling areas, or local access transport areas. In November 1998,
Sprint sold its remaining 81,000 residential and business access lines in
Illinois.
Product Distribution and Directory Publishing Businesses
The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.
Sprint ION(SM)
Sprint ION extends Sprint's existing network capabilities to the customer and
enables Sprint to provide the network infrastructure to meet customers' demands
for advanced services including integrated voice, data, Internet and video. It
is also expected to be the foundation for Sprint to provide new competitive
local service.
Other Ventures
The "other ventures" segment includes the cable TV service operations of the
broadband fixed wireless companies acquired in the second half of 1999.
This segment also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada
operating under the Sprint brand name; and certain other telecommunications
investments and ventures. All of the investments and ventures are accounted for
on the equity basis.
Allocation of Shared Services
Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses other indirect methods, including time studies, to estimate the
assignment of costs to each Group. Sprint believes that the costs allocated are
comparable to the costs that would be incurred if the Groups would have been
operating on a stand-alone basis. The allocation of shared services may change
at the discretion of Sprint and does not require shareholder approval.
Allocation of Federal and State Income Taxes
Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provides
for the allocation of income taxes between the two Groups. The FON Group's
income taxes are calculated as if it files returns which exclude the PCS Group.
Intergroup tax payments are satisfied on the date Sprint's related tax payment
is due to or the refund is received from the applicable tax authority. The FON
Group accrued income taxes payable to the PCS Group in accordance with the tax
sharing agreement totaling $887 million in 1999 and $190 million in 1998.
Allocation of Group Financing
Financing activities for the Groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the Groups is specifically
allocated to and reflected in the financial statements of the applicable Group.
Interest expense is allocated to the PCS Group based on an interest rate that
is substantially equal to the rate it would be able to obtain from third
parties as a direct or indirect wholly owned Sprint subsidiary, but without the
benefit of any guaranty by Sprint or any member of the FON Group. That interest
rate is higher than the rate Sprint obtains on borrowings. The difference
between Sprint's actual interest rate and the rate charged to the PCS Group is
reflected as a reduction in the FON Group's interest expense.
Under Sprint's centralized cash management program, one Group may advance funds
to the other Group. These advances are accounted for as short-term borrowings
between the Groups and bear interest at a market rate that is substantially
equal to the rate that Group would be able to obtain from third parties on a
short-term basis.
The allocation of Group financing activities may change at the discretion of
Sprint and does not require shareholder approval.
Income Taxes
The FON Group records deferred income taxes based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases.
II-15
<PAGE>
Revenue Recognition
The FON Group recognizes operating revenues as services are rendered or as
products are delivered to customers. The FON Group records operating revenues
net of an estimate for uncollectible accounts. Sprint's directory publishing
business recognizes revenues for directory services over the life of the
related directory (amortization method).
Cash and Equivalents
Cash and equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value. Sprint uses controlled disbursement banking arrangements as part
of its cash management program. Outstanding checks in excess of cash balances
for the FON Group were included in accounts payable. These amounts totaled $174
million at year-end 1999 and $263 million at year-end 1998. The FON Group had
sufficient funds available to fund these outstanding checks when they were
presented for payment.
Investments in Debt and Equity Securities
Investments in debt and equity securities are classified as available for sale
and reported at fair value (estimated based on quoted market prices). Gross
unrealized holding gains and losses are reflected as adjustments to "Group
equity," net of related income taxes.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. The cost of property, plant and equipment is generally
depreciated on a straight-line basis over estimated economic useful lives.
Repair and maintenance costs are expensed as incurred.
Capitalized Interest
The FON Group capitalized interest costs related to constructing capital assets
of $43 million in 1999, $42 million in 1998 and $23 million in 1997. In
addition, Sprint capitalized interest costs related to the PCS Group's network
buildout. This capitalized interest totaled $61 million for 1998 and $24
million for 1997 and was contributed to, and will be amortized by, the PCS
Group. Sprint also capitalized interest costs related to its investment in
Sprint PCS until July 1997 when Sprint PCS emerged from the development stage.
This capitalized interest, totaling $142 million, was contributed to, and is
being amortized by, the PCS Group.
Intangible Assets
The FON Group evaluates the recoverability of intangible assets when events or
circumstances indicate that such assets might be impaired. The FON Group
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying value. In the
event impairment exists, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the asset.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over five to 40 years using the straight-line
method. Accumulated amortization totaled $94 million at year-end 1999 and $52
million at year-end 1998.
Earnings per Share
As a result of the Recapitalization, earnings per share for the FON Group for
1998 has been calculated based on the Group's income from November 1998 through
year-end 1998. It was not calculated on a Group basis for periods prior to
November 1998 because the FON stock was not part of Sprint's capital structure
at that time.
In the 1999 second quarter, Sprint effected a two-for-one split on its FON
common stock. As a result, basic and diluted earnings per common share,
weighted-average common shares and dividends for FON common stock have been
restated for periods prior to the stock split.
In 1999, the FON Group's convertible preferred dividends totaled $1 million and
dilutive securities (mainly options) totaled 19.2 million shares. From the
Recapitalization date to year-end 1998, the FON Group's convertible preferred
dividends totaled $0.1 million, and dilutive securities (mainly options)
totaled 13.8 million shares.
The FON Group's earnings per common share after the Recapitalization date was
as follows:
<TABLE>
- ---------------------------------------------------
<CAPTION>
1998
- ---------------------------------------------------
(millions,
except per
share data)
<S> <C>
Earnings applicable to common stock $ 118
------
Diluted earnings per common share
Continuing operations $ 0.18
Discontinued operation (0.04)
- ---------------------------------------------------
Total $ 0.14
------
Diluted weighted average common shares 869.0
------
Basic earnings per common share
Continuing operations $ 0.18
Discontinued operation (0.04)
- ---------------------------------------------------
Total $ 0.14
------
Basic weighted average common shares 855.2
------
</TABLE>
II-16
<PAGE>
Stock-based Compensation
The FON Group participates in the incentive-based stock option plans and
employee stock purchase plan administered by Sprint for executives and other
employees. Sprint adopted the pro forma disclosure requirements under Statement
of Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation,"
and continues to apply Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to its stock option and employee stock purchase
plans. Had the FON Group applied SFAS 123, pro forma net income would have been
$1,434 million for 1999 and $103 million from the Recapitalization date through
year-end 1998. See Note 10 of Sprint's Notes to Consolidated Financial
Statements for more information about Sprint's stock-based compensation and the
FON Group's pro forma net income and earnings per share.
In 1997, Sprint granted performance-based stock options to certain key
executives. The FON Group expensed $9 million in 1999 and $14 million in 1998
related to these performance-based stock options.
- --------------------------------------------------------------------------------
3. Business Combinations
- --------------------------------------------------------------------------------
Broadband Fixed Wireless Companies
In the second half of 1999, Sprint acquired People's Choice TV Corp. (PCTV),
American Telecasting, Inc. (ATI), Videotron USA and the operating subsidiaries
of WBS America, LLC. These companies own broadband fixed wireless licenses in
the Midwest, Southwest, North Central, Western and Southeastern United States.
Sprint paid $618 million for the companies' outstanding stock and assumed $575
million of the companies' debt. These notes were redeemed, prior to scheduled
maturities, in the 1999 fourth quarter (see Note 8).
These acquisitions were accounted for as purchases. As a result, the financial
statements of these companies have been reflected in the FON Group's combined
financial statements after the acquisition dates. The excess of the purchase
price over the net liabilities acquired totaled $835 million and was
preliminarily allocated to goodwill, which is being amortized on a straight-
line basis over 40 years.
Paranet, Inc.
In September 1997, Sprint paid $375 million to purchase the net assets of
Houston-based Paranet, Inc., a provider of integration, management and support
services for computer networks.
The transaction was accounted for using the purchase method of accounting. As a
result, the FON Group's combined financial statements reflect Sprint Paranet's
results of operations beginning in October 1997.
The excess of the purchase price over the tangible net assets acquired was $357
million. This excess was allocated to noncompete agreements and goodwill, and
is being amortized on a straight-line basis over four to 10 years.
- --------------------------------------------------------------------------------
4. Investments
- --------------------------------------------------------------------------------
Investments in Equity Securities
The cost of investments in equity securities was $153 million at year-end 1999
and $105 million at year-end 1998. Gross unrealized holding gains were $302
million at year-end 1999 and $384 million at year-end 1998. At year-end 1999,
$316 million of investments in equity securities are classified as current in
anticipation of using the investments to retire debt instruments (see Note 8).
During 1999, the FON Group sold available-for-sale securities with a cost basis
of $14 million for $104 million. The $90 million gain was included in "Other
income, net" in the Combined Statements of Operations.
Investments in and Advances to Other Affiliates
At year-end 1999, investments accounted for using the equity method consisted
of the FON Group's investments in EarthLink, Call-Net and strategic
investments. Combined, unaudited, summarized financial information (100% basis)
of these entities and others accounted for using the equity method was as
follows:
<TABLE>
- ------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------
(millions)
<S> <C> <C> <C>
Results of operations
Net operating revenues $1,571 $1,242 $ 724
---------------------
Operating income (loss) $ (192) $ 67 $(246)
---------------------
Net loss $ (329) $ (145) $(287)
---------------------
Financial position
Current assets $1,524 $1,038
Noncurrent assets 2,749 2,401
- ----------------------------------------
Total $4,273 $3,439
--------------
Current liabilities $ 599 $ 538
Noncurrent liabilities 1,644 1,004
Owners' equity 2,030 1,897
- ----------------------------------------
Total $4,273 $3,439
--------------
</TABLE>
- --------------------------------------------------------------------------------
5. Discontinued Operation
- --------------------------------------------------------------------------------
In January 2000, Sprint reached a definitive agreement with Deutsche Telekom
and France Telecom to sell its interest in Global One. In February 2000, Sprint
received $1.1 billion in cash and was repaid $276 million for advances for its
entire stake in Global One.
The FON Group's investment in the net assets of the discontinued operation,
including advances, totaled $394 million at year-end 1999 and $182 million at
year-end 1998.
II-17
<PAGE>
The Fon Group recorded after-tax losses related to Global One totaling $130
million in 1999, $135 million in 1998 and $142 million in 1997. The 1999 amount
includes a $50 million tax benefit recorded to recognize tax assets related to
previous losses. The realization of these assets was uncertain until the sale
agreement was reached. The gain on the sale of Sprint's interest in Global One
made it apparent that these tax assets would be realized.
The FON Group provided various voice, data and administrative services to
Global One totaling $241 million in 1999, $277 million in 1998 and $415 million
in 1997. In addition, Global One provided data and administrative services to
the FON Group totaling $139 million in 1999, $140 million in 1998 and $114
million in 1997. The FON Group's receivable from Global One was $107 million at
year-end 1999 and $187 million at year-end 1998. The FON Group's payable to
Global One was $36 million at year-end 1999 and $42 million at year-end 1998.
- --------------------------------------------------------------------------------
6. Employee Benefit Plans
- --------------------------------------------------------------------------------
Defined Benefit Pension Plan
Most FON Group employees are covered by a noncontributory defined benefit
pension plan sponsored by Sprint. Benefits for plan participants belonging to
unions are based on negotiated schedules. For non-union participants, pension
benefits are based on years of service and the participants' compensation.
Sprint's policy is to make plan contributions equal to an actuarially
determined amount consistent with federal tax regulations. The funding
objective is to accumulate funds at a relatively stable rate over the
participants' working lives so benefits are fully funded at retirement.
Amounts included in the Combined Balance Sheets for the plan were prepaid
pension costs of $285 million at year-end 1999 and $222 million at year-end
1998.
Net pension costs or credits are determined for the FON Group based on a direct
calculation of service costs and interest on projected benefit obligations and
an appropriate allocation of unrecognized prior service costs, amortization of
unrecognized transition asset, actuarial gains and losses, and expected return
on plan assets. The FON Group recorded net pension credits (costs) of $63
million in 1999, $46 million in 1998 and $(2) million in 1997.
Defined Contribution Plans
Sprint sponsors defined contribution employee savings plans covering most FON
Group employees. Participants may contribute portions of their pay to the
plans. For union employees, Sprint matches contributions based on negotiated
amounts. Sprint also matches contributions of non-union employees in FON and
PCS stock. The matching is equal to 50% of participants' contributions up to 6%
of their pay. In addition, Sprint may, at the discretion of the Board of
Directors, provide additional matching contributions based on the performance
of FON and PCS stock compared to other telecommunications companies' stock. The
FON Group recorded expenses of $73 million in 1999 and $54 million in 1998 and
1997 for Sprint's matching contributions to the Sprint defined contribution
plans. At year-end 1999, Sprint's defined contribution plans held 33 million
FON shares and 27 million PCS shares (on a post-split basis).
Postretirement Benefits
Sprint provides postretirement benefits (principally medical and life insurance
benefits) to most FON Group employees. Employees retiring before certain dates
are eligible for benefits at no cost, or at a reduced cost. Employees retiring
after certain dates are eligible for benefits on a shared-cost basis. Sprint
funds the accrued costs as benefits are paid.
Amounts included in the Combined Balance Sheets at year-end were accrued
postretirement benefits costs of $1.0 billion in 1999 and 1998.
Net postretirement benefits costs are determined for the FON Group based on a
direct calculation of service costs and interest on accumulated postretirement
benefit obligations and an appropriate allocation of unrecognized prior service
costs and actuarial gains. The FON Group recorded net postretirement benefits
costs of $54 million in 1999, $51 million in 1998 and $54 million in 1997.
- --------------------------------------------------------------------------------
7. Income Taxes
- --------------------------------------------------------------------------------
Income tax expense allocated to continuing operations consisted of the
following:
<TABLE>
- --------------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------------
(millions)
<S> <C> <C> <C>
Current income tax expense
Federal $ 776 $861 $814
State 65 74 100
- --------------------------------------------------------
Total current 841 935 914
- --------------------------------------------------------
Deferred income tax expense (benefit)
Federal 170 38 (7)
State 50 22 7
- --------------------------------------------------------
Total deferred 220 60 --
- --------------------------------------------------------
Total $1,061 $995 $914
----------------
</TABLE>
II-18
<PAGE>
The differences that caused the FON Group's effective income tax rates to vary
from the 35% federal statutory rate for income taxes related to continuing
operations were as follows:
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Income tax expense at the federal statutory rate $979 $935 $849
Effect of:
State income taxes, net of federal income tax effect 75 62 70
Equity in losses of foreign joint ventures 18 6 4
Other, net (11) (8) (9)
- ------------------------------------------------------------------------------
Income tax expense $1,061 $995 $914
----------------------
Effective income tax rate 37.9% 37.3% 37.7%
----------------------
</TABLE>
Income tax expense (benefit) allocated to other items was as follows:
<TABLE>
- ---------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Discontinued operation $(111) $(62) $(24)
Extraordinary items (23) (3) --
Unrealized holding gains on investments(/1/) 20 10 5
Stock ownership, purchase and options arrangements(/1/) (223) (49) (26)
- ---------------------------------------------------------------------------
</TABLE>
(/1/)These amounts have been recorded directly to "Group equity."
The FON Group recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial
statement purposes and their tax bases. The sources of the differences that
give rise to the deferred income tax assets and liabilities at year-end 1999
and 1998, along with the income tax effect of each, were as follows:
<TABLE>
- -----------------------------------------------------------
<CAPTION>
1999 Deferred
Income Tax
------------------
Assets Liabilities
- -----------------------------------------------------------
(millions)
<S> <C> <C>
Property, plant and equipment $-- $1,555
Postretirement and other benefits 422 --
Reserves and allowances 143 --
Unrealized holding gains on investments -- 52
Operating loss carryforwards 183 --
Tax credit carryforwards 22 --
Other, net 161 --
- -----------------------------------------------------------
931 1,607
Less valuation allowance 183 --
- -----------------------------------------------------------
Total $748 $1,607
-------------
</TABLE>
<TABLE>
- -----------------------------------------------------------
<CAPTION>
1998 Deferred
Income Tax
------------------
Assets Liabilities
- -----------------------------------------------------------
(millions)
<S> <C> <C>
Property, plant and equipment $-- $1,402
Postretirement and other benefits 419 --
Reserves and allowances 149 --
Unrealized holding gains on investments -- 72
Other, net 117 --
- -----------------------------------------------------------
685 1,474
Less valuation allowance 4 --
- -----------------------------------------------------------
Total $681 $1,474
-------------
</TABLE>
Management believes it is more likely than not that these deferred income tax
assets, net of the valuation allowance, will be realized based on current
income tax laws and expectations of future taxable income stemming from the
reversal of existing deferred tax liabilities or ordinary operations.
Uncertainties surrounding income tax law changes, shifts in operations between
state taxing jurisdictions, and future operating income levels may, however,
affect the ultimate realization of all or some of these deferred income tax
assets.
The valuation allowance related to deferred income tax assets increased $179
million in 1999 and decreased $8 million in 1998 and $2 million in 1997.
In 1999, the FON Group acquired approximately $179 million of potential tax
benefits related to net operating loss carryforwards in the acquisitions of the
broadband fixed wireless companies. These benefits are subject to certain
realization restrictions under various tax laws. A valuation allowance was
provided for the total of these benefits. If these benefits are subsequently
recognized, they will reduce goodwill or other noncurrent intangible assets
resulting from the application of the purchase method of accounting for these
transactions.
At year-end 1999, the FON Group had federal operating loss carryforwards of
$432 million and state operating loss carryforwards of $741 million. Related to
these loss carryforwards are federal tax benefits of $151 million and state tax
benefits of $49 million which expire in varying amounts through 2019.
II-19
<PAGE>
- --------------------------------------------------------------------------------
8. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------
Sprint's consolidated long-term debt and capital lease obligations at year-end
was as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
-------------------------------- --------------------------------
Sprint Sprint Sprint Sprint
Maturing FON Group PCS Group Consolidated FON Group PCS Group Consolidated
- ----------------------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Senior notes
5.7% to 6.9%(/1/) 2001 to 2028 $1,105 $ 8,145 $ 9,250 $1,059 $3,941 $ 5,000
8.1% to 9.8% 2000 to 2003 632 -- 632 632 -- 632
11.0% to 12.5%(/2/) 2001 to 2006 -- 734 584 -- 699 565
Debentures and notes
5.8% to 9.6% 2000 to 2022 565 -- 565 565 -- 565
Notes payable and
commercial paper -- 294 1,971 2,265 472 274 746
First mortgage bonds
2.0% to 9.9% 1999 to 2025 1,295 -- 1,295 1,312 -- 1,312
Capital lease
obligations
5.2% to 14.0% 1999 to 2008 69 486 555 32 452 484
Revolving credit
facilities
Variable rates 2002 to 2006 900 -- 900 -- 1,800 1,800
Other(/2/),(/3/)
2.0% to 10.0% 1999 to 2007 573 153 726 370 1,029 1,085
- ----------------------------------------------------------------------------------------------------
5,433 11,489 16,772 4,442 8,195 12,189
Less: current
maturities(/2/) 902 185 1,087 33 348 247
- ----------------------------------------------------------------------------------------------------
Long-term debt and
capital lease
obligations(/2/) $4,531 $11,304 $15,685 $4,409 $7,847 $11,942
<CAPTION>
-----------------------------------------------------------------
</TABLE>
(/1/)These borrowings were incurred by Sprint and allocated to the applicable
Group. Sprint's weighted average interest rate related to these borrowings
was 6.6% at year-end 1999 and 6.4% at year-end 1998. The weighted average
interest rate related to the borrowings allocated to the PCS Group was
approximately 8.7% at year-end 1999 and 8.5% at year-end 1998. See Note 2
for a more detailed description of how Sprint allocates financing to each
of the Groups.
(/2/)Consolidated debt does not equal the total of PCS Group and FON Group debt
due to intergroup debt eliminated in consolidation. The FON Group had an
investment in the PCS Group's Senior Discount notes totaling $150 million
at year-end 1999 and $134 million at year-end 1998. In addition, the PCS
Group had other long-term debt payable to the FON Group totaling $314
million at year-end 1998, including $134 million classified as current.
(/3/)Includes notes with a market value of $316 million at year-end 1999 and
$358 million at year-end 1998 recorded by the FON Group that may be
exchanged at maturity for SBC Communications, Inc. (SBC) common shares
owned by the FON Group or for cash. Based on SBC's closing price, had the
notes matured at year-end 1999, they could have been exchanged for 6.5
million SBC shares. At year-end 1999, Sprint held 7.5 million SBC shares,
which have been included in "Investments in equity securities" in the FON
Group's Combined Balance Sheets.
II-20
<PAGE>
Scheduled principal payments, excluding reclassified short-term borrowings,
during each of the next five years are as follows:
<TABLE>
- --------------------------
<CAPTION>
Sprint Sprint
FON PCS
Group Group Sprint
- --------------------------
(millions)
<S> <C> <C> <C>
2000 $ 902 $ 185 $1,087
2001 877 289 1,096
2002 1,339 59 1,398
2003 373 1,058 1,431
2004 144 1,042 1,186
- --------------------------
</TABLE>
Sprint
Short-term Borrowings
Sprint had bank notes payable totaling $670 million at year-end 1999 and $454
million at year-end 1998. In addition, Sprint had commercial paper borrowings
totaling $1.6 billion at year-end 1999 and $292 million at year-end 1998.
Though these borrowings are renewable at various dates throughout the year,
they were classified as long-term debt because of Sprint's intent and ability,
through unused credit facilities, to refinance these borrowings on a long-term
basis.
In 1998, Sprint replaced its previous $1.5 billion credit facility with new
facilities with syndicates of domestic and international banks. The new
facilities totaled $5.0 billion and expire in 2000 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility which expires in 2002. At year-end 1999, Sprint had total unused lines
of credit of $3.5 billion.
Bank notes outstanding had weighted average interest rates of 6.3% at year-end
1999 and 5.7% at year-end 1998. The weighted average interest rate of
commercial paper was 6.4% at year-end 1999 and 5.8% at year-end 1998.
Long-term Debt
In the 1999 third quarter, Sprint filed a shelf registration statement with the
SEC covering $4.0 billion of senior unsecured debt securities. At year-end
1999, Sprint had issued $750 million of debt securities under the shelf. These
securities have interest rates ranging from 6.4% to 6.5% and mature in 2001.
In August 1999, Sprint incurred other borrowings totaling $250 million which
mature in 2002 and have variable interest rates. At year-end 1999, the notes
had an interest rate of 6.1%.
In June 1999, Sprint entered into a $1.0 billion financing agreement to sell,
on a continuous basis with recourse, undivided percentage ownership interests
in a designated pool of its accounts receivable. Subsequent collections of
receivables sold to investors are typically reinvested in new receivables. At
year-end 1999, Sprint had borrowed $900 million with a weighted average
interest rate of 6.4% under this agreement. These borrowings mature in 2002.
In May 1999, Sprint issued $3.5 billion of senior notes registered with the
SEC. These notes have maturities ranging from 5 to 20 years and interest rates
ranging from 5.9% to 6.9%. In 1998, Sprint issued $5.0 billion of senior notes
registered with the SEC. These notes have maturities ranging from 5 to 30 years
and interest rates ranging from 5.7% to 6.9%.
Sprint FON Group
In 1999, the FON Group received a net allocation of $1.0 billion of debt from
Sprint. This debt was mainly used for new capital investments and acquisitions.
See Note 2 for a more detailed description of how Sprint allocates debt to the
Groups.
In the 1999 fourth quarter, Sprint redeemed, prior to scheduled maturities,
$575 million of the assumed broadband fixed wireless companies' debt with
interest rates ranging from 13.1% to 14.5%. This resulted in a $39 million
after-tax extraordinary loss for the FON Group. In 1998, Sprint redeemed, prior
to scheduled maturities, $138 million of FON Group debt with interest rates
ranging from 7.9% to 9.3%. This resulted in a $5 million after-tax
extraordinary loss for the FON Group.
FON Group gross property, plant and equipment totaling $14.3 billion was either
pledged as security for first mortgage bonds and certain notes or is restricted
for use as mortgaged property.
Other
Sprint, including the FON Group, had complied with all restrictive or financial
covenants relating to its debt arrangements at year-end 1999.
- --------------------------------------------------------------------------------
9. Group Equity
- --------------------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Beginning balance $ 9,024 $7,639 $7,332
Net income 1,567 1,535 1,371
Dividends (427) (431) (429)
Equity issued 209 164 65
Equity repurchased (48) (321) (145)
Tax benefit from stock options exercised 223 49 26
Contributions to the PCS Group -- (146) (1,052)
Equity transfer from the PCS Group -- 460 435
Other comprehensive income (loss) (36) 16 17
Other, net 2 59 19
- ------------------------------------------------------------------
Ending balance $10,514 $9,024 $7,639
-----------------------
</TABLE>
II-21
<PAGE>
- --------------------------------------------------------------------------------
10. Commitments and Contingencies
- --------------------------------------------------------------------------------
Litigation, Claims and Assessments
FON shareholders are subject to all of the risks related to an investment in
Sprint and the FON Group, including the effects of any legal proceedings and
claims against the PCS Group.
Various 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 be material to the FON Group's combined financial
statements.
Operating Leases
The FON Group's minimum rental commitments at year-end 1999 for all
noncancelable operating leases, consisting mainly of leases for data processing
equipment and real estate, are as follows:
<TABLE>
- ----------------------
<CAPTION>
(millions)
<S> <C>
2000 $423
2001 299
2002 202
2003 148
2004 106
Thereafter 349
- ----------------------
</TABLE>
The FON Group's gross rental expense totaled $575 million in 1999, $474 million
in 1998 and $406 million in 1997. Rental commitments for subleases, contingent
rentals and executory costs were not significant.
- --------------------------------------------------------------------------------
11. Financial Instruments
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
Sprint estimates the fair value of the FON Group's financial instruments using
available market information and appropriate valuation methodologies. As a
result, the following estimates do not necessarily represent the values the FON
Group could realize in a current market exchange. Although management is not
aware of any factors that would affect the year-end 1999 estimated fair values,
those amounts have not been comprehensively revalued for purposes of these
financial statements since that date. Therefore, estimates of fair value after
year-end 1999 may differ significantly from the amounts presented below.
The carrying amounts and estimated fair values of the FON Group's financial
instruments at year-end were as follows:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1999
-------------------
Carrying Estimated
Amount Fair Value
- -----------------------------------------------------------------
(millions)
<S> <C> <C>
Cash and equivalents $ 104 $ 104
Investment in affiliate debt securities 169 169
Investments in equity securities 455 455
Long-term debt and capital lease obligations 5,433 5,497
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<CAPTION>
1998
-------------------
Carrying Estimated
Amount Fair Value
- -----------------------------------------------------------------
(millions)
<S> <C> <C>
Cash and equivalents $ 432 $ 432
Investment in affiliate debt securities 165 165
Investment in equity securities 489 489
Long-term debt and capital lease obligations 4,442 4,834
- -----------------------------------------------------------------
</TABLE>
The carrying amounts of the FON Group's cash and equivalents approximate fair
value at year-end 1999 and 1998. The estimated fair value of investments in
debt and equity securities was based on quoted market prices. The estimated
fair value of the FON Group's long-term debt was based on quoted market prices
for publicly traded issues. The estimated fair value of all other issues was
based on the present value of estimated future cash flows using a discount rate
based on the risks involved.
Concentrations of Credit Risk
The FON Group's accounts receivable are not subject to any concentration of
credit risk.
- --------------------------------------------------------------------------------
12. Additional Financial Information
- --------------------------------------------------------------------------------
Segment Information
The FON Group operates in five business segments, based on services and
products: the long distance division, the local division, the product
distribution and directory publishing businesses, activities to develop and
deploy Sprint ION(SM) and other ventures.
Sprint generally accounts for transactions between segments based on fully
distributed costs, which Sprint believes approximates fair value.
II-22
<PAGE>
Industry segment financial information was as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Product
Long Distribution Sprint
Distance Local & Directory Sprint Other Corporate and FON
Division Division Publishing ION(SM) Ventures(/1/) ElimInations(/2/) Group
- ---------------------------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Net operating revenues $10,567 $5,650 $1,731 $-- $ 20 $ (952) $17,016
Intercompany revenues 256 319 641 -- -- (952) 264
Depreciation and
amortization 993 1,065 17 38 18 (2) 2,129
Operating expenses 8,933 4,150 1,489 358 68 (912) 14,086
Operating income (loss) 1,634 1,500 242 (358) (48) (40) 2,930
Operating margin 15.5% 26.5% 14.0% NM NM -- 17.2%
Capital expenditures 1,209 1,354 36 542 23 370 3,534
Total assets 13,523 8,072 726 909 1,936 (3,363) 21,803
1998
Net operating revenues $ 9,658 $5,372 $1,683 $-- $ -- $ (949) $15,764
Intercompany revenues 137 208 712 -- -- (949) 108
Depreciation and
amortization 918 982 13 5 7 (4) 1,921
Operating expenses 8,291 3,965 1,452 143 40 (887) 13,004
Operating income (loss) 1,367 1,407 231 (143) (40) (62) 2,760
Operating margin 14.2% 26.2% 13.7% NM NM -- 17.5%
Capital expenditures 1,364 1,374 9 154 -- 258 3,159
Total assets 6,445 7,044 727 199 628 3,958 19,001
1997
Net operating revenues $ 8,684 $5,294 $1,454 $-- $ -- $ (868) $14,564
Intercompany revenues 3 294 571 -- -- (868) --
Depreciation and
amortization 748 946 9 2 9 (1) 1,713
Operating expenses 7,659 3,902 1,275 5 84 (831) 12,094
Operating income (loss) 1,025 1,392 179 (5) (84) (37) 2,470
Operating margin 11.8% 26.3% 12.3% NM NM -- 17.0%
Capital expenditures 1,223 1,270 11 46 17 142 2,709
Total assets 6,828 7,933 601 50 228 941 16,581
</TABLE>
NM = Not meaningful
(/1/)The "other ventures" segment's equity in losses of affiliates totaled $89
million in 1999, $51 million in 1998 and $10 million in 1997.
(/2/)Significant intercompany eliminations consist of local access charged to
the long distance division, equipment purchases from the product
distribution business and interexchange services provided to the local
division.
More than 95% of the FON Group's s revenues are from domestic customers located
within the United States.
Revenues of one customer represents approximately 4% of the FON Group's net
operating revenues in 1999 and 5% in 1998 and 1997.
II-23
<PAGE>
Supplemental Cash Flows Information
The FON Group's cash paid for interest and income taxes was as follows:
<TABLE>
- ------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------
(millions)
<S> <C> <C> <C>
Interest (net of capitalized interest) $ 82 $217 $198
--------------
Income taxes $633 $327 $366
--------------
</TABLE>
Noncash activities for the FON Group included the following:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Debt assumed in the broadband fixed wireless acquisitions $575 $-- $--
--------------
Tax benefit from stock options exercised $223 $ 49 $ 26
--------------
Stock received for stock options exercised $ 78 $ 18 $ 7
--------------
Noncash extinguishment of debt $ 78 $-- $--
--------------
Common stock issued under Sprint's ESPP $ 72 $ 95 $ 5
--------------
Capital lease obligations $ 41 $-- $ 30
--------------
</TABLE>
Intergroup Investments and Transactions
Sprint FON Group Investments in the Sprint PCS Group
The following table reflects the FON Group's noncurrent investments in the PCS
Group, which have been eliminated in Sprint's consolidated financial
statements:
<TABLE>
- -----------------------------------------------------
<CAPTION>
1999 1998
- -----------------------------------------------------
(millions)
<S> <C> <C>
Common and preferred intergroup interest $ 262 $ 311
Long-term loans -- 180
Investment in debt securities 169 165
- -----------------------------------------------------
Total $ 431 $ 656
-----------
</TABLE>
Common Intergroup Interest
The FON Group received a 1% intergroup interest in the PCS Group at the time of
the PCS Restructuring and Recapitalization. This interest represented 4.5
million PCS shares and included 2.7 million shares held in treasury by the FON
Group. During 1999, PCS shares were issued to FON Group employees, reducing the
FON Group's interest in the PCS Group.
The FON Group's share of the PCS Group's net loss totaled $13 million in 1999
and $6 million from the date of the PCS Restructuring to year-end 1998 and was
included in "Other income, net" in the Sprint FON Group Combined Statements of
Operations.
Preferred Intergroup Interest
The FON Group provided Sprint PCS and the PCS Group with interim financing from
the date the PCS Restructuring agreement was signed in May 1998 until it was
completed in November 1998. As part of the PCS Restructuring, Sprint converted
this financing, totaling $279 million, into an intergroup interest representing
0.3 million shares of 10-year PCS preferred stock convertible into a PCS common
intergroup interest. The PCS Group paid the FON Group dividends on the
preferred intergroup interest of $8 million in 1999 and $1 million in 1998.
Long-term Loans
Sprint provided Sprint PCS with additional interim financing of $180 million
from May 1998 through November 1998. This loan was repaid in 1999.
Intergroup Interest Income
The FON Group earned intergroup interest income of $16 million in 1999, $15
million in 1998 and $24 million in 1997 related to the FON Group's investment
in PCS Group debt securities and advances to the PCS Group. These amounts are
included in "Other income, net" in the Sprint FON Group Combined Statements of
Operations.
The difference between Sprint's actual interest costs and the interest costs
charged to the PCS Group on allocated debt totaled $157 million in 1999 and $11
million in 1998. These amounts are reflected as a reduction to "Interest
expense" in the Sprint FON Group Combined Statements of Operations. See Note 2
for a more detailed description of how Sprint allocates interest expense to
each of the Groups.
Intergroup Transactions
The PCS Group is using the long distance division as its interexchange carrier
and purchasing wholesale long distance for resale to its customers.
Additionally, the FON Group provided the PCS Group with telemarketing services
and various other goods and services. Charges to the PCS Group for these items
totaled $280 million in 1999 and $21 million from the PCS Restructuring date to
year-end 1998.
The FON Group provided management, printing, mailing and warehousing services
to the PCS Group. Charges to the PCS Group for these services totaled $65
million in 1999 and $5 million from the PCS Restructuring date to year-end
1998.
Related Party Transactions
Sprint PCS
The following discussion reflects related party transactions between Sprint and
Sprint PCS prior to the PCS Restructuring:
Sprint provided Sprint PCS with billing and operator services, and switching
equipment. Sprint PCS also used the long distance division as its interexchange
carrier.
II-24
<PAGE>
Charges to Sprint PCS for these services totaled $104 million in 1998 and $61
million in 1997.
Sprint provided management, printing, mailing and warehousing services to
Sprint PCS. Charges to Sprint PCS for these services totaled $25 million in
1998 and $11 million in 1997.
Sprint had a vendor financing loan to Sprint PCS for $300 million at year-end
1997 which was repaid in 1998. Sprint also loaned Sprint PCS $114 million in
1998 and $21 million in 1997, which was repaid in the 1999 first quarter.
- --------------------------------------------------------------------------------
13. Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires all derivatives to be recorded on the balance sheet as either assets
or liabilities and be measured at fair value. Gains or losses from changes in
the derivative values are to be accounted for based on how the derivative was
used and whether it qualifies for hedge accounting. When adopted in January
2001, this statement is not expected to have a material impact on the FON
Group's combined financial statements.
- --------------------------------------------------------------------------------
14. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
---------------------------
1999 1st 2nd 3rd 4th
- -------------------------------------------------------------------------
(millions, except per share
data)
<S> <C> <C> <C> <C>
Net operating revenues(/1/) $4,107 $4,204 $4,298 $4,407
Operating income 737 736 726 731
Income from continuing operations(/2/) 434 452 419 431
Net income 406 386 359 416
Earnings per common share from continuing
operations(/3/)
Diluted 0.49 0.51 0.48 0.49
Basic 0.50 0.52 0.49 0.50
- -------------------------------------------------------------------------
<CAPTION>
Quarter
---------------------------
1998 1st 2nd 3rd 4th
- -------------------------------------------------------------------------
(millions, except per share
data)
<S> <C> <C> <C> <C>
Net operating revenues(/1/) $3,827 $3,882 $3,977 $4,078
Operating income 683 692 713 672
Income from continuing operations(/2/),(/4/) 394 401 426 454
Net income(/4/) 352 364 415 404
Pro forma earnings per common share from
continuing operations(/3/),(/5/)
Diluted 0.45 0.45 0.48 0.52
Basic 0.46 0.46 0.49 0.53
- -------------------------------------------------------------------------
</TABLE>
(/1/)Certain reclassifications were made from net operating revenues to
operating expenses from amounts reported in 1999 reports on Form 10-Q to
conform to current year presentation. These reclassifications had no impact
on operating income as previously reported.
(/2/)Quarterly income from continuing operations has been adjusted from amounts
reported in 1999 reports on Form 10-Q to reflect the presentation of the
equity investment in Global One as a discontinued operation for all periods
presented.
(/3/)In the 1999 second quarter, Sprint effected a two-for-one stock split of
its FON stock. FON Group earnings per share for prior periods have been
restated to reflect this stock split.
(/4/)In the 1998 fourth quarter, the FON Group recorded net nonrecurring gains
of $104 million, mainly from the sale of local exchanges. This increased
income from continuing operations by $62 million.
(/5/)Pro forma earnings per share assumes the FON shares created in the
Recapitalization existed for all periods presented.
- --------------------------------------------------------------------------------
15. Subsequent Events (Unaudited)
- --------------------------------------------------------------------------------
In February 2000, Sprint's Board of Directors declared dividends of 12.5 cents
per share on the Sprint FON common stock and Class A common stock. Dividends
will be paid March 30, 2000.
II-25
<PAGE>
SPRINT FON GROUP
SCHEDULE II--COMBINED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Additions
----------------
Balance Charged Charged Balance
Beginning to to Other Other End of
of Year Income Accounts Deductions Year
- ----------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C>
1999
Allowance for doubtful
accounts $175 $383 $ 3 $(333)(/1/) $228
<CAPTION>
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation allowance--
deferred income tax
assets $ 4 $-- $179(/2/) $ -- $183
<CAPTION>
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $147 $365 $ 3 $(340)(/1/) $175
<CAPTION>
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation allowance--
deferred income tax
assets $ 12 $-- $-- $ (8) $ 4
<CAPTION>
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful
accounts $117 $389 $ 4 $(363)(/1/) $147
<CAPTION>
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation allowance--
deferred income tax
assets $ 14 $ 3 $-- $ (5) $ 12
<CAPTION>
----------------------------------------------------
</TABLE>
(/1/)Accounts written off, net of recoveries.
(/2/)Represents a valuation allowance for deferred income tax assets relating to
the net operating loss carryforwards acquired in the purchase of the
broadband fixed wireless companies.
II-26
<PAGE>
[LOGO OF SPRINT]
Annex III
Sprint PCS Group
Combined Financial Information
<PAGE>
SELECTED FINANCIAL DATA Sprint PCS Group
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998(/1/) 1997(/1/) 1996(/1/) 1995(/1/)
- ------------------------------------------------------------------------------
(millions, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
- ------------------------------------------------------------------------------
Net operating revenues $ 3,180 $ 1,225 $ -- $ -- $--
Operating loss(/2/) (3,237) (2,570) (19) (1) --
Other partners' loss in
Sprint PCS -- 1,251 -- -- --
Equity in loss of Sprint PCS -- -- (660) (192) (31)
Loss before extraordinary
items(/2/) (2,481) (1,090) (419) (120) (20)
Net loss(/2/) (2,502) (1,121) (419) (120) (20)
Loss per Share(/3/),(/4/)
- ------------------------------------------------------------------------------
Diluted and basic loss per
common share before
extraordinary items $ (2.71) $ (2.21) $(1.98) NA NA
Financial Position
- ------------------------------------------------------------------------------
Total assets $17,924 $15,165 $1,703 $1,260 $974
Property, plant and
equipment, net 7,996 6,535 187 -- --
Investment in Sprint PCS -- -- 784 1,176 974
Total debt 11,489 8,195 -- -- --
Group equity 3,320 3,755 1,386 1,188 966
Cash Flow Data
- ------------------------------------------------------------------------------
Net cash provided (used) by
operating activities $(1,692) $ (159) $ 38 $ (1) $--
Capital expenditures 2,580 1,072 154 -- --
PCS license purchases -- -- 460 84 --
Investments in Sprint PCS -- 33 406 298 911
</TABLE>
Certain prior-year amounts have been reclassified to conform to the current-
year presentation. These reclassifications had no effect on the results of
operations or Group equity as previously reported.
(/1/)Results of operations for 1998 include Sprint PCS' operating results on a
consolidated basis for the entire year. The cable partners' share of losses
through the PCS restructuring date has been reflected as "Other partners'
loss in Sprint PCS" in the Combined Statements of Operations. Before 1998,
the PCS Group's investment in Sprint PCS was accounted for using the equity
method. Sprint PCS' financial position at year-end 1998 has also been
reflected on a consolidated basis. Cash flow data reflects Sprint PCS' cash
flows only after the PCS restructuring date. See Sprint's "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General" for more information.
(/2/)In 1998, the PCS Group recorded a nonrecurring charge to write off $179
million of acquired in-process research and development costs related to
the PCS restructuring. This charge increased operating loss, loss before
extraordinary items and net loss by $179 million.
(/3/)In December 1999, the Sprint Board of Directors authorized a two-for-one
stock split of Sprint's PCS common stock in the form of a stock dividend,
which was distributed on February 4, 2000 to the PCS shareholders. As a
result, diluted and basic loss per common share have been restated for
periods before this stock split.
(/4/)Loss per share for the PCS Group for periods prior to 1999 is on a pro
forma basis and assumes the PCS restructuring, the recapitalization, the
purchase of 5.1 million PCS shares by France Telecom and Deutsche Telekom
that occurred in connection with the restructuring and the PCS Group's
write-off of $179 million of acquired in-process research and development
costs occurred at the beginning of 1997. These pro forma amounts are for
comparative purposes only and do not necessarily represent what actual
results of operations would have been had the transactions occurred at the
beginning of 1997, nor do they indicate the results of future operations.
NA = not applicable
III-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Sprint PCS Group
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" for more information.
- --------------------------------------------------------------------------------
Forward-looking Information
- --------------------------------------------------------------------------------
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-looking Information" for a discussion of
forward-looking information.
- --------------------------------------------------------------------------------
Sprint PCS Group
- --------------------------------------------------------------------------------
The PCS Group includes Sprint's domestic wireless personal communication
services (PCS) operations. It operates the only 100% digital PCS wireless
network in the United States with licenses to provide service nationwide using
a single frequency and a single technology. At year-end 1999, the PCS Group,
together with affiliates, operated PCS systems in over 360 metropolitan
markets, including the 50 largest U.S. metropolitan areas. The PCS Group has
licenses to serve more than 270 million people in all 50 states, Puerto Rico
and the U.S. Virgin Islands. The service offered by the PCS Group and its
affiliates now reaches nearly 190 million people. The PCS Group provides
nationwide service through:
. operating its own digital network in major U.S. metropolitan areas,
. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,
. roaming on other providers' analog cellular networks using dual-
band/dual-mode handsets, and
. roaming on other providers' digital PCS networks that use code division
multiple access.
The wireless industry typically generates a significantly higher number of
subscriber additions and handset sales in the fourth quarter of each year
versus the remaining quarters. This is due to the use of retail distribution,
which is dependent on the holiday shopping season; the timing of new products
and service introductions; and aggressive marketing and sales promotions.
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------
<CAPTION>
1999 1998 1997
- -----------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $ 3,180 $ 1,225 $--
Operating expenses 6,417 3,795 19
- -----------------------------------------------
Operating loss $(3,237) $(2,570) $(19)
--------------------------
</TABLE>
The PCS Group's 1999 results of operations reflect the first full year of
combined results after the PCS Restructuring. The PCS Group's 1998 results of
operations included SprintCom's operating results as well as Sprint PCS'
operating results on a consolidated basis for the entire year. Before 1998,
Sprint's investment in Sprint PCS was accounted for using the equity method.
Operating expenses in 1998 include a write-off of $179 million associated with
the cost of nine in-process research and development projects acquired in
connection with the PCS Restructuring. Management has continued supporting
these research and development projects and believes the PCS Group has a
reasonable chance of successfully completing the projects. These projects are
intended to address new and emerging markets within the PCS wireless
communications industry, such as the rapid adoption of the Internet and the
rapid convergence of voice, data, and video. The failure of any particular
individual project in-process would not materially impact the PCS Group's
financial condition, results of operations or cash flows.
The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail chain and the subsequent service revenues generated by
sales to its customers accounted for 28% of net operating revenues in 1999 and
25% in 1998.
Pro Forma Sprint PCS Group
To provide a more meaningful analysis of the PCS Group's underlying operating
results, the following supplemental discussion presents 1998 and 1997 on a pro
forma basis and assumes the PCS Restructuring and the write-off of acquired in-
process research and development costs occurred at the beginning of 1997.
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Net operating revenues $ 3,180 $ 1,225 $ 258
Operating expenses
Costs of services and products 3,150 1,758 850
Selling, general and administrative 1,744 1,069 490
Depreciation and amortization 1,523 1,038 1,021
Acquired in-process research and development costs -- -- 179
- -------------------------------------------------------------------------------
Total operating expenses 6,417 3,865 2,540
- -------------------------------------------------------------------------------
Operating loss $(3,237) $(2,640) $(2,282)
-----------------------------------------------------------
Capital expenditures
(including capital lease obligations) $ 2,616 $ 2,904 $ 2,278
-----------------------------------------------------------
</TABLE>
III-2
<PAGE>
Net Operating Revenues
<TABLE>
- --------------------------------------------------------
<CAPTION>
1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Customers at year-end (millions) 5.7 2.6 0.9
-------------------------------
Average monthly service revenue per user $ 54 $ 56 $ 49
-------------------------------
</TABLE>
Net operating revenues include subscriber revenues and sales of handsets and
accessory equipment. Subscriber revenues consist of monthly recurring charges
and usage charges. The PCS Group's net operating revenues were $3.2 billion in
1999, $1.2 billion in 1998 and $258 million in 1997. The 1999 increase mainly
reflects the launch of nearly 60 new markets and the addition of 3.1 million
customers. The 1998 increase reflects the launch of nearly 90 new markets and
the addition of 1.7 million customers. Average monthly service revenue per user
(ARPU) has decreased from 1998 due to a wider acceptance of lower-priced,
bundled minute rate plans.
Approximately 20% of 1999 and 1998 net operating revenues, and nearly half of
1997 revenues, were from sales of handsets and accessories. As part of the PCS
Group's marketing plans, handsets are normally sold at prices below the PCS
Group's cost.
Average monthly customer churn rates have remained consistent during 1999 and
1998 in the mid 3% range.
Operating Expenses
Costs of services and products mainly include handset and accessory costs,
switch and cell site expenses and other network-related costs. These costs
increased $1.4 billion in 1999 and $908 million in 1998 driven by the
significant growth in customers and the expanded market coverage.
Selling, general and administrative (SG&A) expense mainly includes marketing
costs to promote products and services as well as salary and benefit costs.
SG&A expense increased $675 million in 1999 and $579 million in 1998 reflecting
an expanded workforce to support subscriber growth and increased marketing and
selling costs.
Acquisition costs per gross customer addition, including equipment subsidies
and marketing costs, have improved from the high-$500 range in 1998 to the low-
$400 range in 1999. Lower handset unit costs and scale benefits from greater
customer additions have contributed to the improvement.
Cash costs per user (CCPU) consists of costs of service revenues, service
delivery and other general and administrative costs. CCPU decreased 36% in 1999
compared to 1998. The improvements reflect good expense management and scale
benefits resulting from the increased customer base.
Depreciation and amortization expense, which increased $485 million in 1999 and
$17 million in 1998, consists mainly of depreciation of network assets and
amortization of intangible assets. The intangible assets include goodwill, PCS
licenses, customer base, microwave relocation costs and assembled workforce,
which are being amortized over 30 months to 40 years. The increase in
depreciation and amortization expense in 1999 reflects amortization of
intangible assets acquired in the PCS Restructuring and the Cox PCS purchase as
well as depreciation on an increased property base. The increase in 1998
reflects depreciation on an increased property base.
- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------
Interest Expense
The effective interest rates in the following table reflect interest expense on
long-term debt only. Interest costs on short-term borrowings classified as
long-term debt and intergroup borrowings have been excluded so as not to
distort the PCS Group's effective interest rates on long-term debt.
<TABLE>
- --------------------------------------------------------------
<CAPTION>
1999 1998
- --------------------------------------------------------------
<S> <C> <C>
Effective interest rate on long-term debt (/1/) 8.7% 9.4%
---------------------------------
</TABLE>
(/1/) The effective interest rate on long-term debt for 1998 is on a pro forma
basis as if Sprint PCS' long-term debt had been included in the PCS Group's
outstanding long-term debt balance all year.
The decrease in the PCS Group's effective interest rate mainly reflects
increased borrowings with lower interest rates.
Effective with the PCS Restructuring, interest expense on borrowings incurred
by Sprint and allocated to the PCS Group is based on rates the PCS Group would
be able to obtain from third parties as a direct or indirect wholly owned
Sprint subsidiary, but without the benefit of any guaranty by Sprint or any
member of the FON Group. The PCS Group's interest expense includes $157 million
in 1999 and $11 million in 1998 resulting from the difference between Sprint's
actual interest rates and the rates charged to the PCS Group. These costs are
included in the effective interest rates above.
Equity in Sprint PCS Losses
Sprint PCS' results of operations for 1998 have been consolidated for the
entire year. The Cable Partners' share of losses through the PCS Restructuring
date has been reflected as "Other partners' loss in Sprint PCS" in the Combined
Statements of Operations. Prior to the PCS Restructuring, the PCS Group's
ownership interest in Sprint PCS was accounted for using the equity method. The
PCS Group's share of losses from Sprint PCS was $660 million in 1997.
Other Income, Net
Other income for 1999 mainly includes a gain on the sale of property totaling
$25 million and $13 million from the FON Group's interest in the PCS Group's
loss.
III-3
<PAGE>
Other income for 1998 consisted mainly of interest income totaling $34 million,
reflecting interest earned on partner contributions from the Sprint PCS
partners prior to the PCS Restructuring.
Income Taxes
The PCS Group's effective tax rates were 35.9% in 1999, 33.2% in 1998 and 38.3%
in 1997. See Note 5 of Notes to Combined Financial Statements for the
differences that caused the effective income tax rates to vary from the
statutory federal rate.
Extraordinary Items, Net
In 1999, Sprint redeemed, prior to scheduled maturities, $2.2 billion of the
PCS Groups revolving credit facilities and other borrowings. These borrowings
had interest rates ranging from 5.6% to 8.3%. This resulted in a $21 million
after-tax extraordinary loss. These short-term borrowings were repaid with
proceeds from long-term financing.
In 1998, Sprint redeemed, prior to scheduled maturities, $3.3 billion of PCS
Group debt with a weighted average interest rate of 8.3%. This resulted in a
$31 million after-tax extraordinary loss.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------
<CAPTION>
1999 1998
- --------------------------------
(millions)
<S> <C> <C>
Combined assets $17,924 $15,165
---------------
</TABLE>
Net property, plant and equipment increased $1.5 billion in 1999 reflecting
capital expenditures to support the PCS network buildout, partly offset by 1999
depreciation.
Net intangibles increased $850 million mainly reflecting goodwill resulting
from the 1999 acquisition of the remaining interest in Cox PCS, partly offset
by 1999 amortization. See "Liquidity and Capital Reserves" for more information
about changes in the Combined Balance Sheets.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
The PCS Group's cash flows for 1998 include Sprint PCS cash flows only after
the PCS Restructuring date. In 1997 and prior to the PCS Restructuring date in
1998, the PCS Group's cash flows include SprintCom's cash flows and treat the
investment in Sprint PCS as an equity method investment.
Operating Activities
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Cash flows provided (used) by operating activities $(1,692) $(159) $38
--------------------------------------------------
</TABLE>
Cash flows used by operating activities increased $1.5 billion in 1999 and $197
million in 1998. The 1999 increase mainly reflects increased operating losses
for the PCS Group and an increase in working capital. The 1998 increase mainly
reflects increased operating losses, partly offset by a decrease in working
capital.
Investing Activities
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Cash flows used by investing activities $(2,509) $(861) $(1,020)
--------------------------------------------
</TABLE>
The PCS Group's main use of cash in 1999 and 1998 was to fund capital
expenditures for the PCS network buildout. In 1997, the PCS Group used cash to
acquire PCS licenses and to fund the initial operating losses of Sprint PCS.
Capital expenditures for the PCS Group totaled $2.6 billion in 1999, $1.1
billion in 1998 and $154 million in 1997.
Financing Activities
<TABLE>
- ---------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Cash flows provided by financing activities $4,044 $1,193 $982
-----------------------------------------
</TABLE>
In 1999, the PCS Group received $5.9 billion of proceeds from long-term debt
allocated from Sprint and $905 million of proceeds from stock issuances. These
proceeds were mainly used to repay existing debt and to fund the PCS Group's
capital expenditures and operating losses.
In 1998, the PCS Group used their allocated portion of the proceeds from
Sprint's $5.0 billion debt offering mainly to repay existing debt and to fund
capital expenditures. In 1997, the PCS Group used capital provided by the FON
Group mainly to fund its investing activities.
In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement that provides for the allocation of income taxes between the FON
Group and PCS Group. Sprint expects the FON Group to make significant payments
to the PCS Group under this agreement because of expected PCS Group operating
losses in the near future. These payments will reflect the PCS Group's
incremental cumulative effect on Sprint's consolidated federal and state tax
liability and tax credit position. The PCS Group accrued current benefits under
the agreement totaling $887 million in 1999 and $190 million in 1998 and
received related payments from the FON Group totaling $764 million in 1999 and
$20 million in 1998. The remaining $293 million will be paid by the FON Group
during the first half of 2000. See Note 2 of Notes to Combined Financial
Statements, "Allocation of Federal and State Income Taxes," for more details.
Capital Requirements
The PCS Group's 2000 investing activities, mainly consisting of capital
expenditures, are expected to be
III-4
<PAGE>
between $2.4 and $2.6 billion. Additional funds will be required to fund
expected operating losses, working capital and debt service requirements of the
PCS Group.
PCS preferred stock dividend payments are expected to total $15 million,
including payments to the FON Group for its preferred intergroup interest. See
Note 10 of Notes to Combined Financial Statements for a more detailed
discussion of the FON Group's preferred intergroup interest in the PCS Group.
Liquidity
See Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity" for a discussion of liquidity.
- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------
The FCC sets rules, regulations and policies to, among other things:
. grant licenses for PCS frequencies and license renewals,
. rule on assignments and transfers of control of PCS licenses,
. govern the interconnection of PCS networks with other wireless and
wireline carriers,
. establish access and universal service funding provisions,
. impose fines and forfeitures for violations of any of the FCC's rules,
and
. regulate the technical standards of PCS networks.
The FCC currently prohibits a single entity from having a combined attributable
interest (20% or greater interest in any license) in broadband PCS, cellular
and specialized mobile radio licenses totaling more than 45 megahertz (MHz) in
any geographic area except that in rural service areas no licensee may have an
attributable interest in more than 55 MHz of commercial mobile radio service
(CMRS) spectrum.
PCS License Transfers and Assignments
The FCC must approve any substantial changes in ownership or control of a PCS
license. Noncontrolling interests in an entity that holds a PCS license or
operates PCS networks generally may be bought or sold without prior FCC
approval. In addition, a recent FCC order requires only post-consummation
notification of certain pro forma assignments or transfers of control.
PCS License Conditions
All PCS licenses are granted for 10-year terms if the FCC's buildout
requirements are followed. Based on those requirements, all 30 MHz broadband
major trading area licensees must build networks offering coverage to 1/3 of
the population within five years and 2/3 within 10 years. All 10 MHz broadband
PCS licensees must build networks offering coverage to at least 1/4 of the
population within five years or make a showing of "substantial service" within
that five-year period. Licenses may be revoked if the rules are violated.
PCS licenses may be renewed for additional 10-year terms. Renewal applications
are not subject to auctions. However, third parties may oppose renewal
applications and/or file competing applications.
Other FCC Requirements
Broadband PCS providers cannot unreasonably restrict or prohibit other
companies from reselling their services. They also cannot unreasonably
discriminate against resellers. CMRS resale obligations will expire in 2002.
Local phone companies must program their networks to allow customers to change
service providers without changing phone numbers. This is referred to as
service provider number portability. CMRS providers are currently required to
deliver calls from their networks to ported numbers anywhere in the country. By
November 24, 2002, CMRS providers must be able to offer their own customers
number portability in their switches in the 100 largest metropolitan areas.
They must also be able to support nationwide roaming.
Broadband PCS and other CMRS providers may provide wireless local loop and
other fixed services that would directly compete with the wireline services of
local phone companies. Broadband PCS and other CMRS providers must implement
enhanced emergency 911 capabilities to be completed in phases by October 2001.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act (CALEA) was enacted in
1994 to preserve electronic surveillance capabilities authorized by federal and
state law. CALEA requires telecommunications carriers to meet certain
"assistance capability requirements" by the end of June 2000. In 1997,
telecommunications industry standard-setting organizations agreed to a joint
standard to implement CALEA's capability requirements. The PCS Group believes
it will be in compliance with CALEA requirements.
Other Federal Regulations
Wireless systems must comply with certain FCC and Federal Aviation
Administration regulations about the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause certain cell site locations to come under National
Environmental Policy Act (NEPA) regulation. NEPA requires carriers to meet
certain land use and radio frequency standards.
III-5
<PAGE>
Universal Service Requirements
The FCC and many states have established "universal service" programs to ensure
affordable, quality telecommunications services for all Americans. The PCS
Group's "contribution" to these programs is typically a percentage of end-user
revenues. The PCS Group's 1999 results contained assessments for 1999.
Currently, management cannot predict the extent of the PCS Group's future
federal and state universal service assessments, or its ability to recover its
contributions from the universal service fund.
- --------------------------------------------------------------------------------
Financial Strategies
- --------------------------------------------------------------------------------
Financial strategies are determined by Sprint on a centralized basis. See
Sprint's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Strategies."
- --------------------------------------------------------------------------------
Year 2000 Issue
- --------------------------------------------------------------------------------
The PCS Group successfully completed its Year 2000 readiness work and passed
through the January 1, 2000 rollover event while encountering no customer-
affecting outages or business interruptions. Since the inception of the PCS
Group's Year 2000 readiness program through December 31, 1999, the PCS Group
incurred approximately $45 million of costs associated with its Year 2000
readiness program. The PCS Group does not expect to incur any significant
additional expenditures related to the Year 2000 issue.
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
See Note 11 of Notes to Combined Financial Statements for a discussion of a
recently issued accounting pronouncement.
III-6
<PAGE>
MANAGEMENT REPORT
Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this annex. Management is
responsible for the consistency of reporting this information and for ensuring
that accounting principles generally accepted in the United States are used.
In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and principles of business conduct are understood
and practiced by its employees.
The combined financial statements included in this annex have been audited by
Ernst & Young LLP, independent auditors. Their audits were conducted using
auditing standards generally accepted in the United States and their report is
included herein.
The Board of Director's responsibility for these combined financial statements
is pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
- --------------------------------------------------------------------------------
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
- --------------------------------------------------------------------------------
Arthur B. Krause
Executive Vice President and Chief Financial Officer
III-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sprint Corporation
We have audited the accompanying combined balance sheets of the Sprint PCS
Group (as described in Note 2) as of December 31, 1999 and 1998, and the
related combined statements of operations, comprehensive loss and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the Index to Financial
Statements and Financial Statement Schedules. These financial statements and
the schedule are the responsibility of the management of Sprint Corporation
(Sprint). Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits. We did not audit the 1998 or
1997 consolidated financial statements of Sprint Spectrum Holding Company,
L.P., a wholly owned subsidiary of Sprint as of December 31, 1998 and an
investment in which Sprint had a 40% interest through November 23, 1998 (as
discussed in Note 1). Such financial statements reflect assets of $2.7 billion
as of December 31, 1998 and revenues of $1.2 billion for the year then ended
which we did not audit. The PCS Group's equity in the net loss of Sprint
Spectrum Holding Company, L.P. is stated at $625 million for the year ended
December 31, 1997. The consolidated financial statements and financial
statement schedule of Sprint Spectrum Holding Company, L.P. have been audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the 1998 assets and revenues and the 1997 equity in
the net loss which we did not audit, is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of the Sprint PCS Group at December
31, 1999 and 1998, and the combined results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As more fully discussed in Note 2, the combined financial statements of the
Sprint PCS Group should be read together with the audited consolidated
financial statements of Sprint.
Ernst & Young LLP
Kansas City, Missouri
February 1, 2000
III-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Sprint Corporation and Partners of Sprint Spectrum
Holding Company, L.P.
We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations and cash flows for the two years
in the period ended December 31, 1998. Our audits also included the financial
statement schedule (Schedule II). These financial statements and Schedule II
are the responsibility of Partnership management. Our responsibility is to
express an opinion on these consolidated financial statements and Schedule II
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the two years ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our
opinion, Schedule II, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects the information set forth therein.
Deloitte & Touche LLP
Kansas City, Missouri
February 2, 1999
III-9
<PAGE>
COMBINED STATEMENTS OF OPERATIONS Sprint PCS Group
(millions)
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Operating Revenues $ 3,180 $ 1,225 $ --
- ------------------------------------------------------------------------------
Operating Expenses
Costs of services and products 3,150 1,758 --
Selling, general and administrative 1,744 1,069 19
Depreciation and amortization 1,523 789 --
Acquired in-process research and development costs -- 179 --
- ------------------------------------------------------------------------------
Total operating expenses 6,417 3,795 19
- ------------------------------------------------------------------------------
Operating Loss (3,237) (2,570) (19)
Interest expense (698) (491) --
Other partners' loss in Sprint PCS -- 1,251 --
Equity in loss of Sprint PCS -- -- (660)
Minority interest 20 145 --
Other income, net 46 34 --
- ------------------------------------------------------------------------------
Loss before income tax benefit and extraordinary
items (3,869) (1,631) (679)
Income tax benefit 1,388 541 260
- ------------------------------------------------------------------------------
Loss before Extraordinary Items (2,481) (1,090) (419)
Extraordinary items, net (21) (31) --
- ------------------------------------------------------------------------------
Net Loss (2,502) (1,121) (419)
Preferred stock dividends paid (15) (2) --
- ------------------------------------------------------------------------------
Loss applicable to common stock $(2,517) $(1,123) $ (419)
-------------------------
Basic and Diluted Loss per Common Share(/1/),(/2/)
Continuing operations $ (2.71) $ (2.21) $(1.98)
Extraordinary items (0.02) (0.04) --
- ------------------------------------------------------------------------------
Total $ (2.73) $ (2.25) $(1.98)
-------------------------
Basic and diluted weighted average common shares 920.4 831.6 831.6
-------------------------
</TABLE>
(/1/)Basic and diluted loss per common share and weighted average common shares
for 1998 and 1997 are pro forma, unaudited and assume the PCS
Restructuring, Recapitalization, Top-up and the write-off of $179 million
of acquired in-process research and development occurred at the beginning
of 1997. These pro forma amounts are for comparative purposes only and do
not necessarily represent what actual results of operations would have been
had the transactions occurred at the beginning of 1997, nor do they
indicate the results of future operations.
(/2/)In February 2000, Sprint effected a two-for-one stock split of its PCS
common stock. As a result, basic and diluted loss per common share and
weighted average common shares for periods before the stock split have been
restated.
See accompanying Notes to Combined Financial Statements.
III-10
<PAGE>
COMBINED STATEMENTS OF COMPREHENSIVE LOSS Sprint PCS Group
(millions)
<TABLE>
- --------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net Loss $(2,502) $(1,121) $(419)
- --------------------------------------------------------------------
Other Comprehensive Income
Unrealized holding gains on securities 8 -- --
Income tax expense (3) -- --
- --------------------------------------------------------------------
Net unrealized holding gains on securities 5 -- --
- --------------------------------------------------------------------
Total other comprehensive income 5 -- --
- --------------------------------------------------------------------
Comprehensive Loss $(2,497) $(1,121) $(419)
------------------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-11
<PAGE>
COMBINED BALANCE SHEETS Sprint PCS Group
(millions)
<TABLE>
- -----------------------------------------------------------------------
<CAPTION>
December 31, 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 16 $ 173
Accounts receivable, net of allowance for doubtful
accounts of $57 and $11 572 333
Inventories 336 127
Prepaid expenses 89 60
Current tax benefit receivable from the FON Group 293 170
Other 9 19
- -----------------------------------------------------------------------
Total current assets 1,315 882
Property, plant and equipment
Network equipment 5,817 3,999
Construction work in progress 1,692 1,607
Buildings and leasehold improvements 1,235 1,026
Other 667 356
- -----------------------------------------------------------------------
Total property, plant and equipment 9,411 6,988
Accumulated depreciation (1,415) (453)
- -----------------------------------------------------------------------
Net property, plant and equipment 7,996 6,535
Intangible assets
Goodwill 4,522 3,313
PCS licenses 3,060 3,037
Customer base 726 681
Microwave relocation costs 377 355
Other 54 45
- -----------------------------------------------------------------------
Total intangible assets 8,739 7,431
Accumulated amortization (551) (93)
- -----------------------------------------------------------------------
Net intangible assets 8,188 7,338
Other assets 425 410
- -----------------------------------------------------------------------
Total $17,924 $15,165
-----------------
Liabilities and Group Equity
Current liabilities
Current maturities of long-term debt $ 185 $ 348
Accounts payable 450 371
Construction obligations 1,039 979
Accrued taxes 130 93
Payables to the FON Group 136 101
Other 638 534
- -----------------------------------------------------------------------
Total current liabilities 2,578 2,426
Long-term debt and capital lease obligations 11,304 7,847
Deferred credits and other liabilities
Deferred income taxes 582 1,013
Other 140 124
- -----------------------------------------------------------------------
Total deferred credits and other liabilities 722 1,137
Group equity 3,320 3,755
- -----------------------------------------------------------------------
Total $17,924 $15,165
-----------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-12
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS Sprint PCS Group
(in millions)
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net loss $(2,502) $(1,121) $ (419)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Extraordinary items, net 21 31 --
Equity in net losses of affiliates -- 840 660
Acquired in-process research and development
costs -- 179 --
Depreciation and amortization 1,523 121 --
Deferred income taxes (553) 68 176
Current tax benefit used by the FON Group -- (460) (436)
Net gains on sales of assets (25) -- --
Changes in assets and liabilities, excluding the
PCS Restructuring:
Accounts receivable, net (241) (1) --
Inventories and other current assets (237) -- (3)
Accounts payable and other current liabilities 363 386 58
Current tax benefit receivable from the FON
Group (123) (170) --
Affiliate receivables and payables, net 35 101 --
Noncurrent assets and liabilities, net 13 (102) 1
Other, net 34 (31) 1
- -----------------------------------------------------------------------------
Net cash provided (used) by operating activities (1,692) (159) 38
- -----------------------------------------------------------------------------
Investing Activities
Capital expenditures (2,580) (1,072) (154)
Proceeds from sales of assets 153 -- --
Cash acquired in the PCS Restructuring -- 244 --
Investments in Sprint PCS -- (33) (406)
PCS licenses purchased -- -- (460)
Other, net (82) -- --
- -----------------------------------------------------------------------------
Net cash used by investing activities (2,509) (861) (1,020)
- -----------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 5,901 4,428 --
Payments on long-term debt (2,734) (3,434) --
Proceeds from common stock issued 688 -- --
Proceeds from sales of shares to FT and DT 217 85 --
Dividends paid (15) -- --
Advances from the FON Group -- 64 --
Equity transfer (to) from the FON Group -- (340) 547
Current tax benefit used by the FON Group -- 460 435
Other, net (13) (70) --
- -----------------------------------------------------------------------------
Net cash provided by financing activities 4,044 1,193 982
- -----------------------------------------------------------------------------
Increase (Decrease) in Cash and Equivalents (157) 173 --
Cash and Equivalents at Beginning of Year 173 -- --
- -----------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 16 $ 173 $ --
--------------------------
</TABLE>
See accompanying Notes to Combined Financial Statements.
III-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS Sprint PCS Group
- --------------------------------------------------------------------------------
1. General
- --------------------------------------------------------------------------------
In October 1999, Sprint announced a definitive merger agreement with MCI
WorldCom. Under the agreement, each share of Sprint FON stock will be exchanged
for $76 of MCI WorldCom common stock, subject to a collar. In addition, each
share of Sprint PCS stock will be exchanged for one share of a new WorldCom PCS
tracking stock and 0.116025 shares of MCI WorldCom common stock. The terms of
the WorldCom PCS tracking stock will be equivalent to those of Sprint's PCS
common stock and will track the performance of the company's personal
communication services (PCS) business. The merger is subject to the approvals
of Sprint and MCI WorldCom shareholders as well as approvals from the Federal
Communications Commission, the Justice Department, various state government
bodies and foreign antitrust authorities. The companies anticipate that the
merger will close in the second half of 2000.
In November 1998, Sprint's shareholders approved the formation of the FON Group
and the PCS Group and the creation of the FON stock and the PCS stock. In
addition, Sprint purchased the remaining ownership interests in Sprint Spectrum
Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS), other than a
minority interest in Cox Communications PCS, L.P. (Cox PCS). Sprint acquired
these ownership interests from Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring. In the 1999 second
quarter, Cox Communications, Inc. exercised a put option requiring Sprint to
purchase the remaining 40.8% interest in Cox PCS. Sprint issued additional low
vote PCS shares in exchange for this interest.
Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. Each Class A common share owned
by France Telecom S.A. (FT) and Deutsche Telekom AG (DT) was reclassified to
represent an equity interest in the FON Group and the PCS Group that entitles
FT and DT to one share of FON stock and 1/2 share of PCS stock. These
transactions are referred to as the Recapitalization.
In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares (pre-split basis) to maintain their combined 20% voting
power in Sprint (Top-up).
The PCS stock is intended to reflect the performance of Sprint's domestic
wireless PCS operations. The FON stock is intended to reflect the performance
of all of Sprint's other operations.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Combination and Presentation
The combined PCS Group financial statements, together with the combined FON
Group financial statements, include all the accounts included in Sprint's
consolidated financial statements. The combined financial statements for each
Group were prepared on a basis that management believes is reasonable and
proper and include:
. the combined historical balance sheets, results of operations and cash
flows for each of the Groups, with all significant intragroup amounts
and transactions eliminated,
. an allocation of Sprint's debt, including the related effects on results
of operations and cash flows, and
. an allocation of corporate overhead after the PCS Restructuring date.
The PCS Group entities are commonly controlled companies and are wholly owned
by Sprint. Transactions between the PCS Group and the FON Group have not been
eliminated in the combined financial statements of either Group.
The PCS Group combined financial statements provide PCS shareholders with
financial information about the PCS Group operations. Investors in FON stock
and PCS stock are Sprint shareholders and are subject to risks related to all
of Sprint's businesses, assets and liabilities. Sprint retains ownership and
control of the assets and operations of each Group. Financial effects of either
Group that affect Sprint's results of operations or financial condition could
affect the results of operations or financial position of the other Group or
the market price of the other Group's stock. Net losses of either Group, and
dividends or distributions on, or repurchases of, PCS stock or FON stock will
reduce Sprint funds legally available for dividends on both Groups' stock. As a
result, the PCS Group combined financial statements should be read along with
Sprint's consolidated financial statements and the FON Group's combined
financial statements.
Sprint PCS' results of operations for 1998 have been consolidated for the
entire year. The Cable Partners' share of losses through the PCS Restructuring
date has been reflected as "Other partners' loss in Sprint PCS" in the Combined
Statements of Operations. Sprint PCS financial position has been reflected on a
consolidated basis at year-end 1998. Before 1998, Sprint's investment in Sprint
PCS was accounted for using the equity method. The PCS Group's cash flows
include Sprint PCS' cash flows only after the PCS Restructuring date.
III-14
<PAGE>
The PCS Group combined financial statements are prepared using accounting
principles generally accepted in the United States. These principles require
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-
year presentation. These reclassifications had no effect on the results of
operations or group equity as previously reported.
Classification of Operations
The PCS Group includes Sprint's domestic wireless PCS operations. It operates
the only 100% digital PCS wireless network in the United States with licenses
to provide nationwide service using a single frequency and a single technology.
At year-end 1999, the PCS Group, together with affiliates, operated PCS systems
in over 360 metropolitan markets including the 50 largest U.S. metropolitan
areas.
Allocation of Shared Services
Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses indirect methods, including time studies, to estimate the
assignment of costs to each Group. Sprint believes that the costs allocated are
comparable to the costs that would be incurred if the Groups would have been
operating on a stand-alone basis. The allocation of shared services may change
at the discretion of Sprint and does not require shareholder approval.
Allocation of Federal and State Income Taxes
Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provides
for the allocation of income taxes between the two Groups. The PCS Group's
income taxes reflect the PCS Group's incremental cumulative impact on Sprint's
consolidated income taxes. Intergroup tax payments are satisfied on the date
Sprint's related tax payment is due to or the refund is received from the
applicable tax authority. The PCS Group accrued current income tax benefits in
accordance with the tax sharing agreement totaling $887 million in 1999 and
$190 million in 1998.
Allocation of Group Financing
Financing activities for the Groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the Groups is specifically
allocated to and reflected in the financial statements of the applicable Group.
Interest expense is allocated to the PCS Group based on an interest rate that
is substantially equal to the rate it would be able to obtain from third
parties as a direct or indirect wholly owned Sprint subsidiary, but without the
benefit of any guaranty by Sprint or any member of the FON Group. That interest
rate is higher than the rate Sprint obtains on borrowings. The difference
between Sprint's actual interest rate and the rate charged to the PCS Group is
reflected as a reduction in the FON Group's interest expense.
Under Sprint's centralized cash management program, one Group may advance funds
to the other Group. These advances are accounted for as short-term borrowings
between the Groups and bear interest at a market rate that is substantially
equal to the rate that Group would be able to obtain from third parties on a
short-term basis.
The allocation of Group financing activities may change at the discretion of
Sprint and does not require shareholder approval.
Income Taxes
The PCS Group records deferred income taxes based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases.
Revenue Recognition
The PCS Group recognizes operating revenues as services are rendered or as
products are delivered to customers. The PCS Group records operating revenues
net of an estimate for uncollectible accounts.
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value. Sprint uses controlled disbursement banking arrangements as part
of its cash management program. Outstanding checks in excess of cash balances
for the PCS Group were included in accounts payable. These amounts totaled $30
million at year-end 1999 and $73 million at year-end 1998. The PCS Group had
sufficient funds available to fund these outstanding checks when they were
presented for payment.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or replacement value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain
III-15
<PAGE>
or loss recognized. Property, plant and equipment is depreciated on a straight-
line basis over estimated economic useful lives. Repair and maintenance costs
are expensed as incurred.
Capitalized Interest
The PCS Group capitalizes interest costs related to network buildout and PCS
licenses, which totaled $108 million in 1999 and $64 million in 1998. In
addition, Sprint capitalized interest costs related to the PCS Group's network
buildout. This capitalized interest totaled $61 million for 1998 and $24
million for 1997 and was contributed to, and will be amortized by, the PCS
Group. Sprint also capitalized interest costs related to its investment in
Sprint PCS until July 1997 when Sprint PCS emerged from the development stage.
This capitalized interest, totaling $142 million, was contributed to, and is
being amortized by, the PCS Group.
Intangible Assets
The PCS Group evaluates the recoverability of intangible assets when events or
circumstances indicate that such assets might be impaired. The PCS Group
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying value. In the
event impairment exists, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the asset.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over 40 years using the straight-line method.
Accumulated amortization totaled $116 million at year-end 1999 and $11 million
at year-end 1998.
PCS Licenses
The PCS Group acquired licenses from the Federal Communications Commission
(FCC) to operate as a PCS service provider. These licenses are granted for up
to 10-year terms with renewals for additional 10-year terms if license
obligations are met. These licenses are recorded at cost and are amortized on a
straight-line basis over 40 years when service begins in a specific geographic
area. Accumulated amortization totaled $130 million at year-end 1999 and $51
million at year-end 1998.
Customer Base
The PCS Group capitalized the fair value of Sprint PCS' customer base acquired
in the PCS Restructuring and the fair value of Cox PCS' customer base when the
remaining minority interest in Cox PCS was acquired in the 1999 second quarter.
The customer base is being amortized over 30 months using the straight-line
method. Accumulated amortization totaled $277 million at year-end 1999 and $23
million at year-end 1998.
Microwave Relocation Costs
The PCS Group has incurred costs related to microwave relocation in
constructing the PCS network. Microwave relocation costs are being amortized
over the remaining lives of the PCS licenses. Accumulated amortization totaled
$15 million at year-end 1999 and $6 million at year-end 1998.
Loss per Share
As a result of the PCS Restructuring and the Recapitalization, loss per share
for the PCS Group for 1998 has been calculated based on the Group's net loss
from November 1998 through year-end 1998. It was not calculated on a Group
basis for periods prior to November 1998 because the PCS stock was not part of
Sprint's capital structure at that time.
On December 14, 1999, the Sprint Board of Directors authorized a two-for-one
stock split of Sprint's PCS common stock in the form of a stock dividend which
was distributed on February 4, 2000 to the PCS shareholders. As a result, basic
and diluted loss per common share and weighted-average common shares for PCS
common stock have been restated for periods prior to the stock split.
Dilutive securities for the PCS Group mainly include options, warrants and
convertible preferred stock. These securities did not have a dilutive effect on
loss per share because the PCS Group incurred net losses for 1999 and 1998. As
a result, diluted loss per share equaled basic loss per share.
The PCS Group's basic and diluted loss per common share after the PCS
Restructuring and Recapitalization date was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
- ------------------------------------------------------------
(millions, except
per share data)
<S> <C>
Loss applicable to common stock $ (559)
-----------------------------
Basic and diluted loss per common share:
Loss before extraordinary item $(0.63)
Extraordinary item (0.04)
- ------------------------------------------------------------
Total $(0.67)
-----------------------------
Basic and diluted weighted average shares 831.6
-----------------------------
</TABLE>
Stock-based Compensation
The PCS Group participates in the incentive-based stock option plans and
employee stock purchase plan administered by Sprint for executives and other
employees. Sprint adopted the pro forma disclosure requirements under Statement
of Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation,"
and continues to apply Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to its stock option and employee stock purchase
plans. Had the PCS Group applied SFAS 123, pro forma net loss would have been
$2,578 million in
III-16
<PAGE>
1999 and would not have changed materially from the Recapitalization date
through year-end 1998. See Note 10 of Sprint's Notes to Consolidated Financial
Statements for more information about Sprint's stock-based compensation and the
PCS Group's pro forma net loss and loss per share.
In 1997, Sprint granted performance-based stock options to certain key
executives. The PCS Group expensed $5 million in 1999 and $1 million in 1998
related to these performance-based stock options.
- --------------------------------------------------------------------------------
3. Business Combinations
- --------------------------------------------------------------------------------
Cox PCS
In the 1999 second quarter, Cox Communications, Inc. exercised a put option
requiring Sprint to purchase the remaining 40.8% interest in Cox PCS. Sprint's
existing 59.2% interest in Cox PCS was reflected in the PCS Group combined
financial statements on a combined basis. Sprint issued 24.3 million shares of
low-vote PCS stock (pre-split basis) in exchange for the remaining interest.
The shares were valued at $1.1 billion. Sprint accounted for the transaction as
a purchase.
The excess of the purchase price over the fair value of the net liabilities
acquired was allocated as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999
- -------------------------------------------------------------------------
(millions)
<S> <C>
Purchase price $1,146
Net liabilities acquired 99
Fair value assigned to customer base acquired (45)
Fair value assigned to PCS licenses (99)
Deferred taxes established on acquired assets and liabilities 88
- -------------------------------------------------------------------------
Goodwill $1,189
------
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years.
PCS Restructuring
In November 1998, Sprint acquired the remaining interest in Sprint PCS (except
for the minority interest in Cox PCS) from the Cable Partners. In exchange,
Sprint issued the Cable Partners 195.1 million low-vote shares of PCS stock and
12.5 million warrants to purchase additional shares of PCS stock (on a pre-
split basis). The purchase price was $3.2 billion. In addition, Sprint issued
the Cable Partners shares of a new class of preferred stock convertible into
PCS shares.
Sprint accounted for the transaction as a purchase. The excess of the purchase
price over the fair value of the net liabilities acquired was allocated as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
- -------------------------------------------------------------------------
(millions)
<S> <C>
Purchase price including transaction costs $ 3,226
Net liabilities acquired 281
Fair value assigned to customer base acquired (681)
Fair value assigned to assembled workforce acquired (45)
Increase in property, plant and equipment to fair value (204)
Mark-to-market of long-term debt 85
Deferred taxes established on acquired assets and liabilities 678
In-process research and development costs (179)
- -------------------------------------------------------------------------
Goodwill $ 3,161
-------
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years.
With respect to the purchase price attributed to in-process research and
development (IPR&D), the acquired IPR&D was limited to significant new products
under development that were intended to address new and emerging market needs
and requirements, such as the rapid adoption of the Internet and the rapid
convergence of voice, data, and video. No routine research and development
projects, minor refinements, normal enhancements, or production activities were
included in the acquired IPR&D.
The income approach was the primary technique utilized in valuing the acquired
IPR&D. This approach included, but was not limited to, an analysis of (i) the
markets for each product; (ii) the completion costs for projects; (iii) the
expected cash flows attributable to the IPR&D projects; (iv) the risks related
to achieving these cash flows; and (v) the stage of development of each
project. The issue of alternative future use was extensively evaluated and
these technologies, once completed, could only be economically used for their
intended purposes.
III-17
<PAGE>
Sprint PCS Group Pro Forma Results
The following unaudited pro forma combined results of operations for the PCS
Group assume the PCS Restructuring, Recapitalization, Top-up and the write-off
of acquired IPR&D costs occurred at the beginning of 1997. These pro forma
amounts are for comparative purposes only and do not necessarily represent what
actual results of operations would have been had the transactions occurred at
the beginning of 1997, nor do they indicate the results of future operations.
Pro forma results were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------
(millions,
except per
share data)
<S> <C> <C>
Net operating revenues $ 1,225 $ 258
----------------
Loss before extraordinary items $(1,847) $(1,645)
----------------
Net loss $(1,878) $(1,645)
----------------
Basic and diluted loss
per common share:
Loss before extraordinary items $ (2.21) $ (1.98)
Extraordinary items (0.04) --
- ---------------------------------------------------
Total $ (2.25) $ (1.98)
----------------
</TABLE>
- --------------------------------------------------------------------------------
4. Employee Benefit Plans
- --------------------------------------------------------------------------------
Defined Benefit Pension Plan
Effective January 1999, most PCS Group employees became eligible to participate
in Sprint's pension plans. Pension benefits are based on years of service and
the participants' compensation.
Sprint's policy is to make plan contributions equal to an actuarially
determined amount consistent with federal tax regulations. The funding
objective is to accumulate funds at a relatively stable rate over the
participants' working lives so benefits are fully funded at retirement.
Amounts included in the Combined Balance Sheets for the plan were accrued
pension costs of $5 million at year-end 1999.
Net pension costs are determined for the PCS Group based on a direct
calculation of service costs. The PCS Group recorded net pension costs of $5
million in 1999.
Defined Contribution Plan
Prior to January 1999, Sprint PCS sponsored a savings and retirement program
for certain employees. Sprint PCS matched contributions equal to 50% of the
contribution of each participant, up to the first 6% that the employee elected
to contribute. Expense under the savings plan was $7 million in 1998. Effective
January 1999, the PCS Group employees began making contributions to Sprint's
defined contribution plan. The existing assets of the Sprint PCS savings plan
were rolled over to Sprint's defined contribution plan in early 1999. The PCS
Group recorded $10 million of expense in 1999 for Sprint's matching
contributions to the Sprint defined contribution plans. At year-end 1999,
Sprint's defined contribution plans held 33 million FON shares and 27 million
PCS shares (on a post-split basis).
Postretirement Benefits
Effective January 1999, most PCS Group employees also became eligible for
postretirement benefits (principally medical and life insurance benefits).
Retiring employees are eligible for benefits on a shared-cost basis. Sprint
funds the accrued costs as benefits are paid.
Amounts included in the Combined Balance Sheets at year-end were accrued
postretirement benefits costs of $1 million in 1999.
Net postretirement benefits costs are determined for the PCS Group based on a
direct calculation of service costs. The PCS Group recorded net postretirement
benefits costs of $1 million in 1999.
- --------------------------------------------------------------------------------
5. Income Taxes
- --------------------------------------------------------------------------------
Income tax benefits allocated to continuing operations consisted of the
following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Current income tax benefit
Federal $ (810) $(579) $(415)
State (25) (30) (21)
- -------------------------------------------------------------
Total current (835) (609) (436)
- -------------------------------------------------------------
Deferred income tax expense (benefit)
Federal (479) 83 188
State (74) (15) (12)
- -------------------------------------------------------------
Total deferred (553) 68 176
- -------------------------------------------------------------
Total $(1,388) $(541) $(260)
---------------------------------------
</TABLE>
The differences that caused the PCS Group's effective income tax rates to vary
from the 35% federal statutory rate for income taxes related to continuing
operations were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Income tax benefit at the statutory rate $ (1,354) $ (571) $ (238)
Effect of:
State income taxes, net of federal income tax effect (64) (29) (21)
Write-off of in-process research and development
costs -- 63 --
Goodwill amortization 34 3 --
Other, net (4) (7) (1)
- -------------------------------------------------------------------------------
Income tax benefit $ (1,388) $ (541) $ (260)
----------------------------------------------------------
Effective income tax rate 35.9% 33.2% 38.3%
----------------------------------------------------------
</TABLE>
III-18
<PAGE>
Income tax expense (benefit) allocated to other items was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Extraordinary items $(11) $(20) $--
Unrealized holding gains on investments(/1/) 3 -- --
Stock ownership, purchase and options arrangements(/1/) (31) -- --
- -------------------------------------------------------------------------
</TABLE>
(/1/)These amounts have been recorded directly to "Group equity."
The PCS Group recognizes deferred income taxes for the temporary differences
between the carrying amounts of its assets and liabilities for financial
statement purposes and their tax bases. The sources of the differences that
give rise to the deferred income tax assets and liabilities at year-end 1999
and 1998, along with the income tax effect of each, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 Deferred
Income Tax
----------------------
Assets Liabilities
- -------------------------------------------------
(millions)
<S> <C> <C>
Property, plant and equipment $ -- $ 811
Intangibles -- 453
Capitalized interest -- 108
Operating loss carryforwards 1,006 --
Tax credit carryforwards 53 --
Other, net 21 --
- -------------------------------------------------
1,080 1,372
Less valuation allowance 283 --
- -------------------------------------------------
Total $ 797 $1,372
----------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 Deferred
Income Tax
----------------------
Assets Liabilities
- -------------------------------------------------
(millions)
<S> <C> <C>
Property, plant and equipment $-- $ 542
Intangibles -- 454
Capitalized interest -- 103
Reserves and allowances 22 --
Operating loss carryforwards 295 --
Tax credit carryforwards 27 --
Other, net 5 --
- -------------------------------------------------
349 1,099
Less valuation allowance 245 --
- -------------------------------------------------
Total $104 $1,099
----------------------
</TABLE>
Management believes it is more likely than not that these deferred income tax
assets, net of the valuation allowance, will be realized based on current
income tax laws and expectations of future taxable income stemming from the
reversal of existing deferred tax liabilities or ordinary operations.
Uncertainties surrounding income tax law changes, shifts in operations between
state taxing jurisdictions, and future operating income levels may, however,
affect the ultimate realization of all or some of these deferred income tax
assets.
The valuation allowance related to deferred income tax assets increased $38
million in 1999.
The PCS Group acquired approximately $229 million of potential tax benefits
related to net operating loss carryforwards in the PCS Restructuring which are
subject to certain realization restrictions under various tax laws. A valuation
allowance was provided for the total of these benefits. If these benefits are
subsequently recognized, they will reduce the goodwill or other noncurrent
intangible assets resulting from the PCS Restructuring.
In connection with the PCS Restructuring, the PCS Group is required to
reimburse the FON Group and the Cable Partners for net operating loss and tax
credit carryforward benefits generated prior to the PCS Restructuring if
realization by the PCS Group produces a cash benefit that would not otherwise
have been realized. The reimbursement will equal 60% of the net cash benefit
received by the PCS Group and will be made to the FON Group in cash and to the
Cable Partners in shares of Series 2 PCS stock. The carryforward benefits
subject to this requirement totaled $259 million, which includes the $229
million acquired in the PCS Restructuring.
At year-end 1999, the PCS Group had federal operating loss carryforwards of
approximately $2.3 billion and state operating loss carryforwards of
approximately $5.5 billion. Related to these loss carryforwards are federal tax
benefits of $787 million and state tax benefits of $336 million. In addition,
the PCS Group had available for income tax purposes federal alternative minimum
tax credit carryforwards of $49 million, state alternative minimum tax credit
carryforwards of $5 million, federal alternative minimum tax net operating loss
carryforwards of $933 million, and state alternative minimum tax net operating
loss carryforwards of $359 million. The loss carryforwards expire in varying
amounts through 2019.
III-19
<PAGE>
- --------------------------------------------------------------------------------
6. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------
Sprint's consolidated long-term debt and capital lease obligations at year-end
was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------------------- ---------------------------
Sprint Sprint Sprint Sprint
FON PCS FON PCS
Maturing Group Group Consolidated Group Group Consolidated
- --------------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Senior notes
5.7% to 6.9%(/1/) 2001 to 2028 $ 1,105 $ 8,145 $ 9,250 $1,059 $ 3,941 $ 5,000
8.1% to 9.8% 2000 to 2003 632 -- 632 632 -- 632
11.0% to 12.5%(/2/) 2001 to 2006 -- 734 584 -- 699 565
Debentures and notes
5.8% to 9.6% 2000 to 2022 565 -- 565 565 -- 565
Notes payable and
commercial paper -- 294 1,971 2,265 472 274 746
First mortgage bonds
2.0% to 9.9% 1999 to 2025 1,295 -- 1,295 1,312 -- 1,312
Capital lease
obligations
5.2% to 14.0% 1999 to 2008 69 486 555 32 452 484
Revolving credit
facilities
Variable rates 2002 to 2006 900 -- 900 -- 1,800 1,800
Other(/2/),(/3/)
2.0% to 10.0% 1999 to 2007 573 153 726 370 1,029 1,085
- --------------------------------------------------------------------------------------------
5,433 11,489 16,772 4,442 8,195 12,189
Less: current
maturities(/2/) 902 185 1,087 33 348 247
- --------------------------------------------------------------------------------------------
Long-term debt and
capital lease
obligations(/2/) $ 4,531 $ 11,304 $15,685 $4,409 $ 7,847 $11,942
---------------------------------------------------------
</TABLE>
(/1/)These borrowings were incurred by Sprint and allocated to the applicable
Group. Sprint's weighted average interest rate related to these borrowings
was 6.6% at year-end 1999 and 6.4% at year-end 1998. The weighted average
interest rate related to the borrowings allocated to the PCS Group was
approximately 8.7% at year-end 1999 and 8.5% at year-end 1998. See Note 2
for a more detailed description of how Sprint allocates financing to each
of the Groups.
(/2/)Consolidated debt does not equal the total of PCS Group and FON Group debt
due to intergroup debt eliminated in consolidation. The FON Group had an
investment in the PCS Group's Senior Discount notes totaling $150 million
at year-end 1999 and $134 million at year-end 1998. In addition, the PCS
Group had other long-term debt payable to the FON Group totaling $314
million at year-end 1998, including $134 million classified as current.
(/3/)Includes notes with a market value of $316 million at year-end 1999 and
$358 million at year-end 1998 recorded by the FON Group that may be
exchanged at maturity for SBC Communications, Inc. (SBC) common shares
owned by the FON Group or for cash. Based on SBC's closing price, had the
notes matured at year-end 1999, they could have been exchanged for 6.5
million SBC shares. At year-end 1999, Sprint held 7.5 million SBC shares,
which have been included in "Investments in equity securities" in the FON
Group's Combined Balance Sheets.
III-20
<PAGE>
Scheduled principal payments, excluding reclassified short-term borrowings,
during each of the next five years are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sprint Sprint
FON PCS
Group Group Sprint
- --------------------------
(millions)
<S> <C> <C> <C>
2000 $ 902 $ 185 $1,087
2001 877 289 1,096
2002 1,339 59 1,398
2003 373 1,058 1,431
2004 144 1,042 1,186
- --------------------------
</TABLE>
Sprint
Short-term Borrowings
Sprint had bank notes payable totaling $670 million at year-end 1999 and $454
million at year-end 1998. In addition, Sprint had commercial paper borrowings
totaling $1.6 billion at year-end 1999 and $292 million at year-end 1998.
Though these borrowings are renewable at various dates throughout the year,
they were classified as long-term debt because of Sprint's intent and ability,
through unused credit facilities, to refinance these borrowings on a long-term
basis.
In 1998, Sprint replaced its previous $1.5 billion credit facility with new
facilities with syndicates of domestic and international banks. The new
facilities totaled $5.0 billion and expire in 2000 and 2003. Commercial paper
and certain bank notes payable are supported by Sprint's revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility which expires in 2002. At year-end 1999, Sprint had total unused lines
of credit of $3.5 billion.
Bank notes outstanding had weighted average interest rates of 6.3% at year-end
1999 and 5.7% at year-end 1998. The weighted average interest rate of
commercial paper was 6.4% at year-end 1999 and 5.8% at year-end 1998.
Long-term Debt
In the 1999 third quarter, Sprint filed a shelf registration statement with the
SEC covering $4.0 billion of senior unsecured debt securities. At year-end
1999, Sprint had issued $750 million of debt securities under the shelf. These
securities have interest rates ranging from 6.4% to 6.5% and mature in 2001.
In August 1999, Sprint incurred other borrowings totaling $250 million which
mature in 2002 and have variable interest rates. At year-end 1999, the notes
had an interest rate of 6.1%.
In June 1999, Sprint entered into a $1.0 billion financing agreement to sell,
on a continuous basis with recourse, undivided percentage ownership interests
in a designated pool of its accounts receivable. Subsequent collections of
receivables sold to investors are typically reinvested in new receivables. At
year-end 1999, Sprint had borrowed $900 million with a weighted average
interest rate of 6.4% under this agreement. These borrowings mature in 2002.
In May 1999, Sprint issued $3.5 billion of senior notes registered with the
SEC. These notes have maturities ranging from 5 to 20 years and interest rates
ranging from 5.9% to 6.9%. In 1998, Sprint issued $5.0 billion of senior notes
registered with the SEC. These notes have maturities ranging from 5 to 30 years
and interest rates ranging from 5.7% to 6.9%.
Sprint PCS Group
In 1999, Sprint allocated $5.9 billion of debt to the PCS Group. This debt was
mainly used to repay debt, to fund new capital investments and to fund
operating losses and working capital requirements. See Note 2 for a more
detailed description of how Sprint allocates debt to the Groups.
In 1999, the PCS Group repaid $2.2 billion of its revolving credit facilities
and other borrowings prior to scheduled maturities. This resulted in a $21
million after-tax extraordinary loss.
In 1998, Sprint redeemed, prior to scheduled maturities, $3.3 billion of PCS
Group debt with a weighted average interest rate of 8.3%. This resulted in a
$31 million after-tax extraordinary loss for the PCS Group. The debt was repaid
with a portion of the proceeds from Sprint's $5.0 billion debt offering in
November 1998.
Other
Sprint, including the PCS Group, had complied with all restrictive or financial
covenants relating to its debt arrangements at year-end 1999.
- --------------------------------------------------------------------------------
7. Group Equity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
Beginning balance $ 3,755 $ 1,386 $1,188
Net loss (2,502) (1,121) (419)
Dividends (15) (2) --
Common stock issued 2,064 3,285 --
Tax benefit from stock options exercised 31 -- --
Preferred stock issued -- 247 --
Preferred intergroup interest -- 279 --
Contributions from the FON Group -- 146 1,052
Equity transfers to the FON Group -- (460) (435)
Other, net (13) (5) --
- -------------------------------------------------------------------
Ending balance $ 3,320 $ 3,755 $1,386
------------------------
</TABLE>
III-21
<PAGE>
- --------------------------------------------------------------------------------
8. Commitments and Contingencies
- --------------------------------------------------------------------------------
Litigation, Claims and Assessments
PCS shareholders are subject to all of the risks related to an investment in
Sprint and the PCS Group, including the effects of any legal proceedings and
claims against the FON Group.
Various 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 be material to the PCS Group combined financial
statements.
Operating Leases
The PCS Group's minimum rental commitments at year-end 1999 for all
noncancelable operating leases, consisting mainly of leases for cell and switch
sites and office space, are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(millions)
<S> <C>
2000 $253
2001 204
2002 144
2003 81
2004 35
Thereafter 74
- ----------------------
</TABLE>
The PCS Group's gross rental expense totaled $315 million in 1999, $256 million
in 1998 and $4 million in 1997. The table excludes renewal options related to
certain cell and switch site leases. These renewal options generally have five-
year terms and may be exercised from time to time.
- --------------------------------------------------------------------------------
9. Financial Instruments
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
Sprint estimates the fair value of the PCS Group's financial instruments using
available market information and appropriate valuation methodologies. As a
result, the following estimates do not necessarily represent the values the PCS
Group could realize in a current market exchange. Although management is not
aware of any factors that would affect the year-end 1999 estimated fair values,
those amounts have not been comprehensively revalued for purposes of these
financial statements since that date. Therefore, estimates of fair value after
year-end 1999 may differ significantly from the amounts presented below.
The carrying amounts and estimated fair values of the PCS Group's financial
instruments at year-end were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999
------------------
Estimated
Carrying Fair
Amount Value
- ----------------------------------------------------------------
(millions)
<S> <C> <C>
Cash and equivalents $ 16 $ 16
Investments in equity securities 9 9
Long-term debt and capital lease obligations 11,489 11,054
- ----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
------------------
Estimated
Carrying Fair
Amount Value
- ----------------------------------------------------------------
(millions)
<S> <C> <C>
Cash and equivalents $ 173 $ 173
Long-term debt and capital lease obligations 8,195 8,385
- ----------------------------------------------------------------
</TABLE>
The carrying amounts of the PCS Group's cash and equivalents approximate fair
value at year-end 1999 and 1998. The estimated fair value of investments in
equity securities was based on quoted market prices. The estimated fair value
of the PCS Group's long-term debt was based on quoted market prices for
publicly traded issues. The estimated fair value of all other issues was based
on the present value of estimated future cash flows using a discount rate based
on the risks involved.
Concentrations of Credit Risk
The PCS Group's accounts receivable are not subject to any concentration of
credit risk.
Interest Rate Swap Agreements
In 1998, Sprint deferred losses from the termination of interest rate swap
agreements used to hedge a portion of a $5.0 billion debt offering. These
losses, totaling $75 million, were allocated to the PCS Group and are being
amortized to interest expense using the effective interest method over the term
of the debt. At year-end 1999, the remaining unamortized deferred loss totaled
$67 million.
- --------------------------------------------------------------------------------
10. Additional Financial Information
- --------------------------------------------------------------------------------
Supplemental Cash Flows Information
The PCS Group received cash from the FON Group of $764 million in 1999 and $20
million in 1998 related to income taxes.
The PCS Group paid $632 million for interest (net of capitalized interest) in
1999.
Noncash activities for the PCS Group included the following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------
(millions)
<S> <C> <C>
Common stock issued for Cox PCS acquisition $1,146 $ --
-------------
Stock received for stock options exercised $ 40 $ --
-------------
Capital lease obligations $ 36 $ 460
-------------
Tax benefit from stock options exercised $ 31 $ --
-------------
Common stock issued to the Cable Partners to purchase Sprint PCS $ -- $3,200
-------------
Conversion of interim financing to preferred intergroup interest $ -- $ 279
-------------
Preferred stock issued to the Cable Partners in exchange for
interim financing $ -- $ 247
-------------
</TABLE>
III-22
<PAGE>
See Note 3 for more details about the assets and liabilities acquired in the
Cox PCS purchase and the PCS Restructuring.
Intergroup Investments and Transactions
Sprint FON Group Investments in the Sprint PCS Group
The following table reflects the FON Group's noncurrent investments in the PCS
Group, which have been eliminated in Sprint's consolidated financial
statements:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------
(millions)
<S> <C> <C>
Common and preferred intergroup interest $ 262 $ 311
Long-term loans -- 180
Investment in debt securities 169 165
- -----------------------------------------------------
Total $ 431 $ 656
-----------
</TABLE>
Common Intergroup Interest
The FON Group received a 1% intergroup interest in the PCS Group at the time of
the PCS Restructuring and Recapitalization. This interest represented 4.5
million PCS shares, and included 2.7 million shares held in treasury by the FON
Group. During 1999, PCS shares were issued to FON Group employees, reducing the
FON Group's interest in the PCS Group.
The FON Group's share of the PCS Group's net loss totaled $13 million in 1999
and $6 million from the date of the PCS Restructuring to year-end 1998 and was
included in "Other income, net" in the Sprint PCS Group Combined Statements of
Operations.
Preferred Intergroup Interest
The FON Group provided Sprint PCS and the PCS Group with interim financing from
the date the PCS Restructuring agreement was signed in May 1998 until it was
completed in November 1998. As part of the PCS Restructuring, Sprint converted
this financing, totaling $279 million, into an intergroup interest representing
0.3 million shares of 10-year PCS preferred stock convertible into a PCS common
intergroup interest. The PCS Group paid the FON Group dividends on the
preferred intergroup interest of $8 million in 1999 and $1 million in 1998.
Long-term Loans
Sprint provided Sprint PCS with additional interim financing of $180 million
from May 1998 through November 1998. This loan was repaid in 1999.
Intergroup Interest Expense
The PCS Group incurred intergroup interest expense of $16 million in 1999, $15
million in 1998 and $24 million in 1997 related to the FON Group's investment
in PCS Group debt securities and advances from the FON Group. The difference
between Sprint's actual interest costs and the interest costs charged to the
PCS Group on allocated debt totaled $157 million in 1999 and $11 million in
1998. These amounts are included in "Interest expense" in the Sprint PCS Group
Combined Statements of Operations. See Note 2 for a more detailed description
of how Sprint allocates interest expense to each of the Groups.
Intergroup Transactions
The PCS Group is using the long distance division as its interexchange carrier
and purchasing wholesale long distance for resale to its customers.
Additionally, the FON Group provided the PCS Group with telemarketing services
and various other goods and services. Charges to the PCS Group for these items
totaled $280 million in 1999 and $21 million from the PCS Restructuring date to
year-end 1998.
The FON Group provided management, printing, mailing and warehousing services
to the PCS Group. Charges to the PCS Group for these services totaled $65
million in 1999 and $5 million from the PCS Restructuring date to year-end
1998.
Related Party Transactions
Sprint PCS Group
The Cable Partners advanced PhillieCo $26 million in 1998 and $24 million in
1997. These advances were repaid in the 1999 first quarter.
Sprint PCS
The following discussion reflects related party transactions between Sprint and
Sprint PCS prior to the PCS Restructuring:
Sprint provided Sprint PCS with billing and operator services, and switching
equipment. Sprint PCS also used the long distance division as its interexchange
carrier. Charges to Sprint PCS for these services totaled $104 million in 1998
and $61 million in 1997.
Sprint provided management, printing, mailing and warehousing services to
Sprint PCS. Charges to Sprint PCS for these services totaled $25 million in
1998 and $11 million in 1997.
Sprint had a vendor financing loan to Sprint PCS for $300 million at year-end
1997 which was repaid in 1998. Sprint also loaned Sprint PCS $114 million in
1998 and $21 million in 1997, which was repaid in the 1999 first quarter.
Major Customer
The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail chain and the subsequent service revenues generated by
sales to its customers accounted for 28% of net operating revenues in 1999 and
25% in 1998.
III-23
<PAGE>
- --------------------------------------------------------------------------------
11. Recently Issued Accounting Pronouncement
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires all derivatives to be recorded on the balance sheet as either assets
or liabilities and be measured at fair value. Gains or losses from changes in
the derivative values are to be accounted for based on how the derivative was
used and whether it qualified for hedge accounting. When adopted in January
2001, this statement is not expected to have a material impact on the PCS
Group's combined financial statements.
III-24
<PAGE>
- --------------------------------------------------------------------------------
12. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
--------------------------------------
1999 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
(millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 604 $ 736 $ 844 $ 996
Operating loss (827) (708) (790) (912)
Loss before extraordinary items (605) (555) (615) (706)
Net loss (626) (555) (615) (706)
Diluted and basic loss per common
share before extraordinary items(/3/) (0.71) (0.61) (0.65) (0.75)
<CAPTION>
Quarter
--------------------------------------
1998 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------
(millions, except per share data)
<S> <C> <C> <C> <C>
Net operating revenues $ 203 $ 265 $ 320 $ 437
Operating loss(/1/) (469) (507) (565) (1,029)
Loss before extraordinary items(/1/) (145) (154) (175) (616)
Net loss(/1/) (145) (154) (175) (647)
Pro forma diluted and basic loss per
common share before extraordinary
items(/2/),(/3/) (0.48) (0.49) (0.52) (0.72)
</TABLE>
(/1/)In the 1998 fourth quarter, the PCS Group recorded a nonrecurring charge to
write off $179 million of acquired IPR&D costs related to the PCS
Restructuring. This charge increased operating loss and loss before
extraordinary items by $179 million.
(/2/)Pro forma loss per share assumes the PCS Restructuring, Recapitalization,
Top-up and the PCS Group's write-off of $179 million of acquired IPR&D
occurred at the beginning of 1997. These pro forma amounts are for
comparative purposes only and do not necessarily represent what actual
results of operations would have been had the transactions occurred at the
beginning of 1997, nor do they indicate the results of future operations.
(/3/)On February 4, 2000, Sprint effected a two-for-one stock split of its PCS
stock. PCS Group loss per share for prior periods have been restated to
reflect this stock split.
III-25
<PAGE>
SPRINT PCS GROUP
SCHEDULE II--COMBINED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additions
-------------------------------
Balance Charged Charged Balance
Beginning PCS to to Other Other End of
of Year Restructuring Income Accounts Deductions Year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(millions)
1999
Allowance for doubtful
accounts $ 11 $-- $272 $ 4 $(230)(/3/) $ 57
<CAPTION>
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuation allowance--
deferred income tax
assets $245 $-- $ 47 $-- $ (9) $283
<CAPTION>
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $-- $ 8(/1/) $ 14 $-- $ (11)(/3/) $ 11
<CAPTION>
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuation allowance--
deferred income tax
assets $-- $229(/2/) $-- $ 16 $ -- $245
<CAPTION>
----------------------------------------------------------------
</TABLE>
There was no activity in the valuation and qualifying accounts for 1997.
(/1/)As discussed in Note 3 of the Notes to Combined Financial Statements, the
PCS Group's assets and liabilities were recorded at their fair values on
the PCS Restructuring date. Therefore, the data presented in this schedule
reflects activity since the PCS Restructuring.
(/2/)Represents a valuation allowance for deferred income tax assets recorded in
connection with the PCS Restructuring.
(/3/)Accounts written off, net of recoveries.
III-26
<PAGE>
Exhibit (10)(g)
Sprint Corporation
1990 Stock Option Plan
Adopted as a Stock Option Plan under the
1997 Sprint Corporation Long-Term Stock Incentive Program
As Amended and Restated
by the Board Effective
<PAGE>
Table of Contents
1 Establishment 1
2 Defined Terms 1
3 Purpose 1
4 Administration 1
4.01 Interpretation of the Plan . . . . . . . . . . . . 1
4.02 Abstention in Certain Cases by Committee Members . 2
5 Number of Shares Authorized to be Issued 2
6 Grant of Options 3
6.01 Eligibility for Grants . . . . . . . . . . . . . . 3
6.02 Committee Grants . . . . . . . . . . . . . . . . . 3
6.03 Interim Grants . . . . . . . . . . . . . . . . . . 3
6.04 Limitation on Discretion of Committee and
Authorized Officers . . . . . . . . . . . . . . . . 4
7 Terms of Options 4
7.01 Standard Terms of Options . . . . . . . . . . . . . 4
7.02 Mandatory Terms of Incentive Stock Options . . . . 7
7.03 Standard Terms of Incentive Stock Options . . . . . 8
7.04 Stock Option Agreement . . . . . . . . . . . . . . 8
8 Exercise of Options 8
8.01 Notice of Exercise . . . . . . . . . . . . . . . . 8
8.02 Form of Payment of Exercise Price . . . . . . . . 9
9 Withholding of Payroll Taxes on Exercise 10
9.01 Obligation to Pay Payroll Taxes . . . . . . . . . 10
9.02 Amount to Be Withheld . . . . . . . . . . . . . . 10
9.03 Eligibility to Elect Stock Withholding . . . . . 11
9.04 Manner of Withholding . . . . . . . . . . . . . . 11
10 Issuance of Shares on Exercise 12
10.01 Generally . . . . . . . . . . . . . . . . . . . 12
10.02 Elective Issuance of Restricted Shares . . . . 12
i
<PAGE>
<TABLE>
<S> <C>
10.03 Mandatory Issuance of Restricted Shares............................ 12
10.04 Issuance of Restricted Shares Not Available to
Transferred Options................................................ 13
10.05 Terms of Restricted Shares Issued on Exercise...................... 13
11 Reload Rights......................................................... 15
11.01 Grant of Reload Rights on Outstanding
Non-Qualified Options.............................................. 15
11.02 Terms of Reload Options............................................ 15
11.03 Variant Reload Rights.............................................. 17
12 Change in Stock, Adjustments, Etc..................................... 17
13 Amendment and Termination............................................. 18
14 Effective Date and Duration of the Plan............................... 18
15 Definitions........................................................... 18
15.01 1989 Program....................................................... 18
15.02 1997 Program....................................................... 18
15.03 Affiliate.......................................................... 18
15.04 Authorized Officer................................................. 18
15.05 Board.............................................................. 18
15.06 Change in Control.................................................. 18
15.07 Code............................................................... 19
15.08 Code Section....................................................... 19
15.09 Committee.......................................................... 19
15.10 Common Stock....................................................... 19
15.11 Company............................................................ 19
15.12 Corporate Secretary................................................ 20
15.13 Director........................................................... 20
15.14 Employee........................................................... 20
15.15 Equity Security.................................................... 20
15.16 Exchange Act....................................................... 20
15.17 Exchange Act Section 16............................................ 20
15.18 Executive Officer.................................................. 20
15.19 Exercise Date...................................................... 20
15.20 Exercise Price..................................................... 20
15.21 Expiration Date.................................................... 20
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
15.22 Fair Market Value.................................................. 20
15.23 FON Stock.......................................................... 21
15.24 Foreign Reload Option.............................................. 21
15.25 Grant Date......................................................... 21
15.26 Grantee............................................................ 21
15.27 Incentive Stock Option............................................. 21
15.28 Minimum Withholding Amount......................................... 21
15.29 Non-Qualified Option............................................... 21
15.30 Normal Retirement.................................................. 21
15.31 Notice of Exercise................................................. 21
15.32 Option............................................................. 22
15.33 Option Class....................................................... 22
15.34 Optionee........................................................... 22
15.35 Payroll Tax........................................................ 22
15.36 Payroll Taxpayer................................................... 22
15.37 PCS Stock.......................................................... 22
15.38 Person............................................................. 22
15.39 Program Adoption Date.............................................. 22
15.40 Plan............................................................... 22
15.41 Qualified Transferee............................................... 22
15.42 Qualified Trust.................................................... 22
15.43 Reload Option...................................................... 23
15.44 Restricted Shares.................................................. 23
15.45 Retirement......................................................... 23
15.46 Seasoned Shares.................................................... 23
15.47 Securities Act..................................................... 23
15.48 Strike Price....................................................... 23
15.49 Subsidiary......................................................... 23
15.50 Tax Date........................................................... 24
15.51 Termination Date................................................... 24
15.52 Termination for Cause.............................................. 24
15.53 Total Disability................................................... 24
15.54 Underlying Option.................................................. 24
15.55 Vesting Period..................................................... 25
15.56 Withholding Amount................................................. 25
iii
</TABLE>
<PAGE>
Article 1
Establishment
Pursuant to the 1989 Program the Company established a stock option plan named
the 1990 Stock Option Plan (the "Plan") for officers and key employees of the
Company and its subsidiaries. The 1989 Program has been replaced by the 1997
Program, and this Plan is now established pursuant to the 1997 Program.
Article 2
Defined Terms
Capitalized words used throughout this Plan have the meanings assigned to them
parenthetically throughout the Plan or in Article 15.
Article 3
Purpose
The purposes of the Plan are to induce officers and key employees of the Company
or its Subsidiaries who are in a position to contribute materially to the
Company's prosperity to remain with the Company or its Subsidiaries, to offer
them incentives and rewards in recognition of their share in the Company's
progress, to encourage them to continue to promote the best interests of the
Company and its stockholders, and to allow the Company and its Subsidiaries to
successfully compete with other enterprises in the recruitment of new officers
and key employees.
Article 4
Administration
The Committee shall administer the Plan as set forth in this Section.
4.01. Interpretation of the Plan.
The Committee may from time to time adopt, and thereafter amend or rescind, such
rules and regulations for carrying out the Plan and take such action in the
administration of the Plan, not inconsistent with the provisions of the Plan and
the 1997 Program, as it considers proper. The interpretation and construction of
any provisions of the Plan by the Committee shall be final. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
The Corporate Secretary shall have the discretion and authority to establish any
and all procedures, forms, and rules of a ministerial nature that the Corporate
Secretary considers necessary or desirable for the orderly administration of the
1
<PAGE>
Plan and shall have other administrative responsibilities as set forth elsewhere
in this Plan.
The Committee may designate one or more Employees to hear and resolve disputes
arising under the Plan.
4.02. Abstention in Certain Cases by Committee Members.
If any Committee member's participation in an action to approve the acquisition
or disposition of an Equity Security by an Executive Officer would prevent the
Executive Officer's acquisition or disposition of the Equity Security from being
exempt from the liability provisions of Exchange Act Section 16, the member
shall abstain from voting on the transaction if doing so would cause the
acquisition or disposition to be exempt.
Article 5
Number of Shares Authorized to be Issued
The number of shares of Common Stock that may be issued upon exercise of Options
granted under the Plan may not exceed 70,200,000 shares of FON Stock or
64,400,000 shares of PCS Stock, subject to adjustment as provided in Article 12
hereof. The shares issued under the Plan may be either treasury shares or
authorized but unissued shares.
The number of shares of Common Stock that may be issued upon exercise of Options
granted pursuant to this Plan after April 15, 1997, together with shares of
Common Stock subject to other awards under the 1997 Program, may not exceed the
limits set forth in Section 4(a) of the 1997 Program.
The number of shares of Common Stock that may be issued upon exercise of
Incentive Stock Options granted pursuant to this Plan after April 15, 1997, may
not exceed 8,000,000 shares of FON Stock or 4,000,000 shares of PCS Stock.
The shares of Common Stock allocable to the unexercised portion of any Option
that for any reason expires or is forfeited may again be subject to an Option
under the Plan.
2
<PAGE>
Article 6
Grant of Options
6.01. Eligibility for Grants.
The Committee or an Authorized Officer may grant Options under this Plan to any
Grantee who is a Director or Employee of the Company or a Subsidiary of the
Company on the Grant Date of the Option and to whom the granting of Options and
the exercise thereof would not be in violation of the laws of the jurisdiction,
foreign or domestic, having legal authority over the issuance of Options to, or
the exercise thereof by, Directors or Employees working or residing in such
jurisdiction.
No Incentive Stock Option may be granted to any Grantee who owns directly or
indirectly shares of Common Stock or options to purchase shares of Common Stock,
together possessing more than 10% of the total combined voting power or value of
all classes of stock of the Company or any of its Subsidiaries.
6.02. Committee Grants.
The Committee shall determine which Directors or Employees among those eligible
shall be granted Options and, with respect to each Option, shall specify the
Option Class and number of shares of Common Stock subject to the Option. The
Committee may designate Grantees, the Option Class, and the number of shares
subject to each Option by any objectively determinable description. The
Committee may also specify the Grant Date of the Option, the Strike Price, the
Expiration Date of the Option, the rate at which the Option may be exercised,
and such other terms of the Option as the Committee may consider appropriate. In
making its determinations, the Committee shall take into consideration the value
of the services rendered by the Grantees, their present and potential
contribution to the success of the Company and its Subsidiaries, and such other
factors the Committee may consider relevant in accomplishing the purposes of the
Plan.
6.03. Interim Grants.
Between meetings of the Committee, any of the Authorized Officers may grant an
Option to any eligible Employee other than a Director or an Executive Officer.
The number of shares subject to Options granted pursuant to this Section 6.03
may not exceed a total of 20,000 shares of all Classes of Common Stock for any
single Grantee between any two meetings of the Committee. An Authorized Officer
may make interim grants of Options in excess of 20,000 shares with the written
concurrence of the chairman of the Committee on or before the Grant Date.
In making such grants, the Authorized Officer shall specify in a writing,
executed by the Authorized Officer (and the chairman of the Committee, if the
number of shares subject to the Option are in excess of 20,000) and setting
forth the actual date of execution, which Employees among those eligible shall
be granted Options and, with respect to each Option, shall specify the Option
3
<PAGE>
Class and number of shares of Common Stock subject to the Option. The Authorized
Officer may designate Grantees, the Option Class, and the number of shares
subject to each Option by any objectively determinable description. The
Authorized Officer may also specify the Grant Date of the Option, the Strike
Price, the Expiration Date of the Option, the rate at which the Option may be
exercised, and such other terms of the Option as the Authorized Officer may
consider appropriate. In making its determinations, the Authorized Officer shall
take into consideration the value of the services rendered by the Grantees,
their present and potential contribution to the success of the Company and its
Subsidiaries, and such other factors the Authorized Officer may consider
relevant in accomplishing the purposes of the Plan.
The Authorized Officer shall report to the Committee the Grantees and terms of
all Options granted pursuant to this Section 6.03 at the next meeting of the
Committee following such grants.
6.04. Limitation on Discretion of Committee and Authorized Officers.
Neither the Committee nor the Authorized Officer may
(i) set the Grant Date of any Option to any date earlier than the
date of the action granting the Option;
(ii) establish the Strike Price of any Option at a price lower than the greater
of (a) the Fair Market Value of one share of the Option Class of Common
Stock on the Grant Date of the Option or (b) the par value on the Grant
Date of the Option Class of the Common Stock; or
(iii) subject more than 6,000,000 shares to Options in the FON Stock Option
Class nor more than 3,000,000 shares to Options in the PCS Stock Option
Class granted to any single Director or Employee in any calendar year.
Article 7
Terms of Options
7.01. Standard Terms of Options.
Unless the Committee or Authorized Officer specifies otherwise, the terms set
forth in this Section 7.01 shall apply to all Options granted under this Plan.
Any Stock Option Agreement that incorporates the terms of the Plan by reference
shall be deemed to have incorporated the terms set forth in this Section 7.01 to
the extent that these terms are not in conflict with those explicitly set forth
in the Stock Option Agreement.
(a) Non-Qualified Options. Each Option shall be a Non-Qualified Option.
(b) Grant Date. The Grant Date of each Option shall be the date of the
Committee's or Authorized Officer's action granting the Option.
(c) Strike Price. The Strike Price of each Option shall be the Fair Market
Value of one share of the Option Class of Common Stock on the Grant Date.
4
<PAGE>
(d) Expiration Date. The Expiration Date of each Option shall be the close of
business on the tenth anniversary of the Option's Grant Date. The Option
shall not be exercisable after its Expiration Date .
(e) Rate of Exercisability. Each Option shall become exercisable with respect
to 25% of the number of shares of the Option Class of Common Stock subject
to the Option on each of the first four anniversaries of the Grant Date if,
on such anniversary date, the Grantee shall have been continuously employed
by or served as a Director of the Company, a Subsidiary of the Company, or
an Affiliate from the Grant Date.
(f) Reload Rights. Each Non-Qualified Option, other than Options granted
pursuant to Reload Rights, shall be granted with Reload Rights.
(g) Limitations on Transfer. No Option may, during the lifetime of the Grantee,
be transferred, levied, garnished, executed upon, subjected to a security
interest, or assigned to any person other than the Grantee, except that a
Grantee may transfer an Option to a Qualified Transferee if the transfer is
made without payment of consideration being paid to the Grantee. Documents
evidencing the transfer of any Option and the identity of the Qualified
Transferee shall be in such form as may be required by the Corporate
Secretary. No such Qualified Transferee may dispose of shares issued upon
exercise of an Option, other than to the Company, until such shares are
validly registered or, in the opinion of the Corporate Secretary, exempt
from registration under the Securities Act.
(h) Post-Employment Exercise of Options. Each Option may be exercised after the
Grantee's Termination Date only with respect to the number of shares of
Common Stock that were exercisable on the Grantee's Termination Date. An
Optionee may exercise an Option before its Expiration Date with respect to
those shares during a limited period beginning on the Grantee's Termination
Date and ending
(i) on the fifth anniversary of the Grantee's Termination Date, if the
Grantee's service as Director or employment terminated by reason of
his Retirement or Total Disability;
(ii) on the first anniversary of the Grantee's Termination Date if the
Grantee's employment or service as Director terminated by reason of
his death;
(iii) on the day three months following the Grantee's Termination Date if
the Grantee terminated his employment or service as Director
voluntarily, for a reason other than Retirement, or involuntarily
for a reason not constituting Termination for Cause.
If a Grantee's employment has been Terminated for Cause, the Optionee shall
forfeit all outstanding Options immediately on the Grantee's Termination Date.
(i) Acceleration on Termination of Employment for Certain Reasons.
5
<PAGE>
(1) Death or Total Disability. Each Option shall become exercisable
immediately on the Grantee's Termination Date if the reason for
termination was the Grantee's death or Total Disability.
(2) Normal Retirement. Each Option shall become exercisable immediately on
the Grantee's Termination Date if (i) the reason for termination was
the Grantee's Normal Retirement and (ii) the Option's Grant Date was
at least one year before the Grantee's Termination Date.
(j) Acceleration on Change in Control.
(1) Acceleration. Each Option shall become immediately exercisable in full
upon a Change in Control if
(i) the Change in Control occurs at least one year after the Option's
Grant Date and
(ii) the Grantee of the Option has been a Director, Employee, or an
employee of an Affiliate continuously from the Option's Grant
Date to the date of the Change in Control.
(2) Limitation on Acceleration. If the acceleration of exercisability
under Section 7.01(j)(1), together with all other payments or benefits
contingent on the Change in Control with the meaning of Code Section
280G, results in any portion of such payments or benefits not being
deductible by the Company as a result of the application of Code
Section 280G, the 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 or portions thereof in reverse
chronological order of their respective Grant Dates from the
application of Section 7.01(j)(1) until no portion of such benefits is
rendered non-deductible by application of Code Section 280G.
(k) Exercise After Death of Optionee. Upon the death of an Optionee, all
Options held by the Optionee on the Optionee's date of death, to the extent
exercisable under their terms, may be exercised by
(i) the executor or administrator of the Optionee's estate,
(ii) the Person or Persons to whom the Optionee's rights under the Options
pass by the Optionee's will or the laws of descent and distribution,
or
(iii) the beneficiary or beneficiaries designated by the Optionee in
accordance with Section 7.01(l).
(l) Designation of Beneficiaries. An Optionee may designate a beneficiary or
beneficiaries to exercise unexpired Options and to own shares issued upon
any such exercise after the Optionee's death without order of any probate
court or otherwise. A beneficiary so designated may exercise an Option upon
presentation to the Company of evidence satisfactory to the Corporate
Secretary of the beneficiary's identity and the death of the Optionee.
6
<PAGE>
An Optionee may change any beneficiary designation at any time before his
death but may not do so by testamentary designation in his will or
otherwise. Beneficiary designations must be made in writing on a form
provided by the Corporate Secretary. Beneficiary designations shall become
effective on the date that the form, properly completed, signed, and
notarized, is received by the Corporate Secretary. Any designation of a
beneficiary by an Optionee with respect to any Option shall be canceled
upon the transfer of such Option by the Optionee in accordance with the
terms of the Plan.
(m) Agreement to Remain Employed. Each Grantee other than Directors shall, as
consideration for the grant of each Option, agree in the Stock Option
Agreement to remain in the employ of the Company, its Subsidiaries, or an
Affiliate at the pleasure of the Company, such Subsidiary, or Affiliate for
at least one year from the Option's Grant Date or the earlier termination
of the Grantee's employment effected or approved by the Company, the
Subsidiary, or Affiliate. If the Grantee violates the agreement, the
Optionee shall forfeit the Option.
Nothing contained in the Plan or in any Option granted pursuant to the Plan
shall confer upon any Grantee any right to continue employment with the
Company, its Subsidiaries, or Affiliates nor interfere in any way with the
right of the Company, its Subsidiaries, or Affiliates to terminate the
Grantee's employment or change the Grantee's compensation at any time.
(n) Forfeiture Upon Conflict of Interest. If any Grantee, without the consent
of the Committee, becomes associated with, employed by, renders services
to, or owns any significant interest in any business that is in competition
with the Company, its Subsidiaries, or Affiliates, any outstanding Option
granted to such Grantee shall be forfeited.
7.02. Mandatory Terms of Incentive Stock Options.
If the Committee or Authorized Officer specifies that an Option is an Incentive
Stock Option, the terms set forth in this Section 7.02 shall be incorporated
into the terms of the Option in preference to any conflicting terms set forth in
Section 7.01. If the Stock Option Agreement setting forth the terms of any
Option contradict the terms set forth in this Section 7.02, such Option shall be
treated as a Non-Qualified Stock Option, notwithstanding its designation as an
Incentive Stock Option.
(a) Grant Date within 10 Years of Program Adoption. No Incentive Stock Option
may be granted under the Plan after the tenth anniversary of the Program
Adoption Date.
(b) Limitation on Option Term. No Incentive Stock Option may be exercised after
the tenth anniversary of its Grant Date.
(c) Strike Price. No Incentive Stock Option may have a Strike Price less than
the Fair Market Value of one share of the Option Class of Common Stock on
the Grant Date of the Incentive Stock Option.
7
<PAGE>
(d) Non-Transferability. No Incentive Stock Option may be transferred by the
Grantee except by the Grantee's will or the laws of descent and
distribution. An Incentive Stock Option may be exercised during the
Grantee's lifetime only by the Grantee, and after the Grantee's death only
by a beneficiary designated by the Grantee pursuant to the terms of the
Plan, or otherwise by the executor or administrator of the Grantee's estate
or the Person succeeding to the Grantee's interest in the Incentive Stock
Option under the Grantee's will or the applicable laws of intestacy.
7.03. Standard Terms of Incentive Stock Options.
Unless the Committee or Authorized Officer specifies otherwise in the action
granting the Option, the following terms shall apply to all Incentive Stock
Options granted under the Plan. To the extent the terms set forth in this
Section 7.03 conflict with the standard terms applicable to Options generally
set forth in Section 7.01, the terms of this section shall control the terms of
any Options designated as Incentive Stock Options at the time of grant.
(a) Maximum Rate of Exercisability. The Fair Market Value on the Grant Date of
the shares of Common Stock subject to any Incentive Stock Option with
respect to which the Incentive Stock Option becomes exercisable for the
first time during any calendar year, together with the Fair Market Value of
shares of Common Stock subject to other Incentive Stock Options on their
respective Grant Dates owned by the Optionee under all plans of the Company
and its Subsidiaries and first becoming exercisable in the same calendar
year, shall not exceed $100,000 or, if different, the maximum limitation in
effect under Code Section 422 for Incentive Stock Options on the Grant Date
of such Incentive Stock Option. To the extent the terms of the Option
permit the exercise of an Option for more shares than permitted by this
Section 7.03(a), each Option or portion of an Option, in reverse
chronological order of their Grant Dates, shall be treated as NonQualified
Options until the remaining Options or portions of Options meet the
limitations set forth in this Section 7.03(a).
(b) Post-Termination Exercise. Any Incentive Stock Option exercised after the
end of the 12-month period beginning on the Grantee's Termination Date
shall, to that extent, be treated as a Non- Qualified Option.
7.04. Stock Option Agreement.
The terms of each Option shall be set forth in a Stock Option Agreement executed
by the Company and the Grantee. The Stock Option Agreement must set forth those
terms that are not made standard terms of the Option pursuant to this Plan.
Article 8
Exercise of Options
8.01. Notice of Exercise.
8
<PAGE>
An Optionee may exercise his Option to purchase shares of Common Stock by
written notice to the Corporate Secretary
(i) unambiguously identifying the Option that he is exercising;
(ii) stating the number of shares with respect to which he is exercising the
Option;
(iii) accompanied by payment of the Exercise Price in cash or any other form
permitted by Section 8.02;
(iv) if the Optionee wants to have the shares issued to be registered jointly
with the Optionee's spouse, a statement to that effect;
(v) if the Optionee is electing to have any Payroll Tax withholding obligation
discharged by delivery of Seasoned Shares or withholding of shares from
shares issuable upon the exercise pursuant to Section 9.04, a statement to
that effect, and, if the Optionee elects to have more than the required
minimum percentage of Payroll Taxes withheld, a statement of the
percentage to be withheld, not exceeding, if the Grantee is an Executive
Officer, the applicable marginal tax rate;
(vi) if the Optionee is electing to receive Restricted Shares pursuant to
Section 10.02, a statement of the Vesting Period the Optionee is electing;
(vii) if the Optionee is delivering or attesting to ownership of Restricted
Shares in payment of the Exercise Price and desires to elect a more
extended Vesting Period pursuant to Section 10.03, a statement of the
extended Vesting Period the Optionee is electing.
The Corporate Secretary may dispense with a written Notice of Exercise in the
case of certain exercises in which he considers a written Notice of Exercise
unnecessary.
The Exercise Date shall be the date on which the Notice of Exercise, together
with the payment of the Exercise Price, is received by the Corporate Secretary
or his designee. The Optionee may not, after the Exercise Date, change the form
of payment of the Exercise Price, the election regarding stock withholding, or
other aspects of the exercise dependent on the Fair Market Value of the Common
Stock.
The Corporate Secretary may condition the exercise of an Option on the
Optionee's filing with the Company a representation in writing that at the time
of such exercise it is the Optionee's then present intent to hold the shares
being purchased for investment and not for resale, or on the completion of any
registration or other qualification of shares under any state or federal laws or
rulings or regulations of any government regulatory body that the Corporate
Secretary may determine to be necessary or advisable.
8.02. Form of Payment of Exercise Price.
(a) Payment in Cash. Unless the Optionee elects in the Notice of Exercise to
make payment in another form authorized by the Plan, payment of the
9
<PAGE>
Exercise Price shall be in United States dollars, payable in cash or by check.
The Corporate Secretary may establish procedures to delay the processing of any
Option exercise until any check delivered in payment of the Exercise Price has
cleared, and, if a check fails to clear, cancel the exercise.
(b) Payment in Shares of Common Stock. On exercise of any Option, the Optionee
may elect in the Notice of Exercise to pay the Exercise Price by surrender
of stock certificates in transferable form representing Seasoned Shares of
the Option Class having an aggregate Fair Market Value, determined as of
the Exercise Date, at least equal to the Exercise Price.
(c) Payment by Attestation. In lieu of the delivery of physical certificates,
an Optionee may deliver shares in payment of the Exercise Price by
attesting, on a form established by the Corporate Secretary, to the
ownership, either outright or through ownership of a broker account, of a
sufficient number of Seasoned Shares of the Option Class to pay the
Exercise Price. The attestation must be notarized and signed by the
Optionee and any co-owners with the Optionee of the shares with respect to
which the attestation is being made. The form of attestation must be
accompanied by any other documentation the Corporate Secretary considers
necessary to evidence actual ownership of such shares or otherwise preserve
the integrity of the Plan. Shares, the ownership of which is so attested to
by the Optionee, shall be deemed to have been re-issued to the Optionee on
the Exercise Date in partial satisfaction of the Company's obligation to
issue shares of the Option Class of Common Stock pursuant to the Option
exercise to which it relates.
(d) Fractional Shares. If an Optionee pays the Exercise Price of an Option by
delivery or attestation of Seasoned Shares, the Company shall apply to
payment of the Exercise Price from the shares delivered or attested the
highest number of whole shares having a Fair Market Value on the Exercise
Date less than or equal to the Exercise Price, and the Optionee shall be
required to pay in cash the Fair Market Value of the fractional share
resulting from truncating the number of shares to a whole number of shares.
Article 9
Withholding of Payroll Taxes on Exercise
9.01. Obligation to Pay Payroll Taxes. Any Optionee, Grantee, or other Person
(the "Payroll Taxpayer") with respect to whom the Company or a Subsidiary of the
Company has an obligation under any Payroll Tax law to withhold amounts with
respect to income arising from the exercise of any Option must pay to the
Company or Subsidiary of the Company the Minimum Withholding Amount.
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9.02. Amount to Be Withheld.
The Payroll Taxpayer may elect in the Notice of Exercise or on another form
specified by the Corporate Secretary for such purpose an amount to be withheld
(the "Withholding Amount") with respect to the exercise of any Option. The
Withholding Amount must be greater than or equal to the Minimum Withholding
Amount and, if the Payroll Taxpayer is an Executive Officer, less than or equal
to the Payroll Taxpayer's combined marginal tax rate for all Payroll Taxes. In
the absence of such an election, the Withholding Amount shall be the Minimum
Withholding Amount.
If all amounts withheld in payment of Payroll taxes are reported to the
appropriate taxing jurisdiction as amounts withheld from the Payroll Taxpayer,
the Company or Subsidiary may, in cases where the Corporate Secretary considers
it necessary, set the Withholding Amount to an amount in excess of the Minimum
Withholding Amount based on assumptions about the amount required by law to be
withheld.
9.03. Eligibility to Elect Stock Withholding.
A Payroll Taxpayer may elect to pay all or part of the Withholding Amount in
shares of the Option Class of Common Stock if the Optionee pays the Exercise
Price by delivering or attesting to ownership of shares of the Option Class of
Common Stock pursuant to Sections 8.02(b) or 8.02(c).
9.04. Manner of Withholding.
If the Payroll Taxpayer is eligible to satisfy his obligation to pay the
Withholding Amount by payment of shares of the Option Class of the Common Stock
pursuant to Section 9.03, he may pay the Withholding Amount by one or more of
the following methods:
(i) delivering Seasoned Shares of the Option Class; or
(ii) directing the Company to withhold from those shares that would
otherwise be received upon exercise of the Option or upon the vesting
of Restricted Shares, shares of the Option Class of the Common Stock
having a Fair Market Value on the Tax Date of no more than the
Minimum Withholding Amount; or
(iii) paying cash to the Company.
If the Payroll Taxpayer is not eligible to elect stock withholding, the
Withholding Amount must be paid entirely in cash. Any portion of the
Withholding Amount that would require withholding or delivery of a
fractional share and any portion of the Withholding Amount not paid by the
withholding or surrender of Common Stock must be paid in cash.
(a) Limit on Use of Unvested Restricted Shares. If the Option exercise
resulted in the issuance of Restricted Shares and the Vesting Period
with respect to the Restricted Shares has not ended on or before the
Tax Date, method (ii) described in Section 9.04 shall not be available
as a means of
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stock withholding.
(b) Limit with Respect to Transferred Options. If an Option was
transferred by the Grantee or the tax liability resulting from the
exercise of the Option is otherwise not imposed on the Optionee,
method (ii) described in Section 9.04 shall not be available as a
means of stock withholding.
Article 10
Issuance of Shares on Exercise
10.01. Generally.
No Optionee will be considered a holder of any shares of Common Stock subject to
an Option until a stock certificate or certificates for such shares are issued
to the Optionee after an exercise of the Option under the terms of the Plan. No
Optionee shall be entitled to dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions, or other rights with respect
to the shares subject to purchase under the Option unless the record date for
any such dividend, distribution, or other right falls on or after the date the
Optionee becomes a record holder of such shares.
All shares of Common Stock issued pursuant to an exercise of an Option shall be
issued in the name of the Optionee, or in the name of the Optionee and the
Optionee's spouse, and shall, except as otherwise provided in Article 8, be
freely transferable by the registered owners upon issuance.
10.02. Elective Issuance of Restricted Shares.
Certain Optionees, as determined by the Committee, may elect to receive
Restricted Shares upon the exercise of an Option if the Optionee so states in
the Notice of Exercise and has paid the Exercise Price of the Option by
attesting to or by delivering shares of unrestricted Common Stock pursuant to
Sections 8.02(b) or 8.02(c).
If an Optionee elects on exercise of any Option to receive Restricted Shares,
the Company shall issue to the Optionee
(i) a number of unrestricted shares of the Option Class of Common Stock equal
to the number of unrestricted shares the Optionee used to pay the Exercise
Price plus
(ii) all other shares issuable pursuant to the exercise of the Option as
Restricted Shares, having the Vesting Period specified by the Optionee in
the Notice of Exercise and otherwise subject to the restrictions on
transfer and other terms set forth in Section 10.05.
10.03. Mandatory Issuance of Restricted Shares.
Certain Optionees, as determined by the Committee, may in the exercise of an
Option deliver or attest to ownership of Restricted Shares of the Option Class
of Common Stock in payment of the Exercise Price, notwithstanding restrictions
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on transferability to which such shares are subject. If an Optionee elects to so
pay the Exercise Price of an Option, the Company shall issue to the Optionee
(i) a number of shares of the Option Class equal to the number of Restricted
Shares used to pay the Exercise Price as Restricted Shares having a Vesting
Period identical to the Vesting Period of the shares so used in payment of
the Exercise Price and
(ii) all other shares of the Option Class issuable pursuant to the exercise of
the Options as Restricted Shares having a Vesting Period identical to the
Vesting Period of the shares so used to pay the Exercise Price, or if the
Optionee elects in the Notice of Exercise, a Vesting Period extending
beyond the end of the Vesting Period of the shares so used.
10.04. Issuance of Restricted Shares Not Available to Transferred Options.
Neither the Optionee nor the Grantee of an Option transferred by the Grantee
pursuant to the provisions of this Plan may use Restricted Shares in payment of
the Exercise Price nor elect to receive Restricted Shares on exercise of the
Option.
10.05. Terms of Restricted Shares Issued on Exercise.
Subject to the right of the Optionee to elect the length of the Vesting Period
applicable to Restricted Shares issued pursuant to an Option exercise under the
Plan, all Restricted Shares issued pursuant to the Plan shall be subject to the
terms and conditions set forth in this Section 10.05.
(a) Restriction on Transfer. An Optionee who receives Restricted Shares may not
sell, transfer, assign, pledge or otherwise encumber or dispose of the
Restricted Shares until the end of the Vesting Period for such shares,
except:
(i) to the Company in payment of the exercise price of a stock option
issued by the Company under any director or employee stock option plan
adopted by the Company that provides for payment of the exercise price
in the form of restricted stock or
(ii) to a trust that is a Qualified Trust upon the following
terms:
(A) the Company receives, before the transfer, a true copy of the
trust agreement of the Qualified Trust and an opinion from
Optionee's counsel that (1) the trust will be treated as a
grantor trust owned by the Optionee under Subchapter J of the
Code at all times until the restrictions on such stock lapse or
the stock is forfeited under the terms of their grant, (2) the
terms of the trust provide that upon the forfeiture of the
Restricted Shares under the terms of its grant or the earlier
termination of the trust for whatever reason, ownership of the
Restricted Shares shall revert to the Optionee or to the Company,
(3) the trustee of such trust may not, prior to the lapsing of
restrictions on such stock, sell, transfer, assign, pledge, or
otherwise encumber or dispose of the
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Restricted Shares except to the Company or to the Optionee,
subject to the restrictions provided for in this Plan, and (4)
until the restrictions lapse, the trustee is not authorized to
incur liabilities on behalf of the trust, other than to the
beneficiaries of the trust; and
(B) the Corporate Secretary, in his discretion, may require the
Optionee and the trustee to execute other documents as a
precondition to such transfer to insure enforcement of the terms
of the Restricted Shares or otherwise.
(b) Enforcement of Transfer Restrictions. Unless the Corporate Secretary
establishes alternative procedures, certificates representing Restricted
Shares shall be registered in the name of the Optionee (or the Qualified
Transferee trust in the case of shares transferred to such a trust pursuant
to Section 10.05(a)) and shall be held by the Company in escrow, together
with a stock power assigning the Restricted Shares back to the Company, to
be used only in the event of the forfeiture of any of the Restricted
Shares.
(c) Vesting Period. When an Optionee elects a Vesting Period to apply to
Restricted Shares issued under the Plan, the Optionee shall elect a Vesting
Period ending at least six months and no more than ten years after the
Exercise Date of the Option with respect to which the Restricted Shares
were issued, but in no event may the Optionee elect a Vesting Period ending
before the end of the Vesting Period of any Restricted Shares used to pay
the Exercise Price of the Option pursuant to Section 10.03.
The Corporate Secretary may establish restrictions on the dates during the
year on which Vesting Periods electable pursuant to this Article 10 may end
for the convenient administration of Restricted Shares issued under the
Plan.
At any time on or before the last day of the 13th calendar month that ends
on or before the last day of the Vesting Period for any Restricted Shares,
the Optionee may elect to extend the Vesting Period on all but not a
portion of the Restricted Shares by any multiple of six months.
(d) Forfeiture and Vesting of Restricted Shares.
(1) Vesting at End of Vesting Period. Any Restricted Shares not forfeited
by the end of the Vesting Period shall vest, and the Company shall
issue a certificate evidencing the shares to the registered owner
thereof promptly after the end of the Vesting Period.
(2) Restricted Shares Issued Mandatorily. Unless the Committee determines
otherwise, Restricted Shares issued mandatorily pursuant to the
exercise of an Option under Section 10.03 shall inherit the vesting
conditions of the Restricted Shares used to pay the Exercise Price. If
the Restricted Shares used to pay the Exercise Price would be
forfeited upon the Grantee's termination of service or employment
before the
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end of the Vesting Period, the Restricted Shares issued pursuant to such
exercise shall be forfeited; if the Restricted Shares used to pay the
Exercise Price would be vested upon the Grantee's termination of service or
employment before the end of the Vesting Period, the Restricted Shares
issued pursuant to such exercise shall vest and the Company shall issue a
certificate representing the shares to the registered owner thereof.
Likewise, Restricted Shares issued under the Plan shall be forfeited or
shall vest upon the occurrence of any other event that would cause the
forfeiture or vesting of the Restricted Shares used to pay the Exercise
Price under Section 10.03.
(3) Restricted Shares Issued Electively. Unless the Committee determines
otherwise, restrictions on Restricted Shares issued at the election of
the Optionee under Section 10.02 shall lapse if the Grantee terminates
his service or employment at any time before the end of the Vesting
Period for the Restricted Shares if
(i) the Grantee terminated service or employment by reason of the
Grantee's Death or Total Disability,
(ii) the Grantee terminated service or employment by reason of the
Grantee's Normal Retirement, or
(iii) the Grantee's employment was terminated involuntarily other than
as a Termination for Cause,
in which cases, the Company shall issue a certificate representing the
shares to the registered owner thereof; otherwise the Restricted
Shares shall be forfeited.
(e) Acceleration on Change in Control. Unless the Committee determines
otherwise, Restricted Shares issued at the election of the Optionee
under Section 10.02 shall vest on a Change in Control if the Change in
Control occurs at least one year after the Exercise Date on which the
Restricted Shares were issued.
(f) Rights of Grantee in Restricted Stock. The registered owner of
Restricted Shares shall have the right to vote the shares of stock and
to receive dividends or other distributions with respect to the
shares.
Article 11
Reload Rights
11.01. Grant of Reload Rights on Outstanding Non-Qualified Options.
The Committee may grant Reload Rights with respect to any outstanding
NonQualified Options issued under any stock option plan of the Company, whether
originally granted with Reload Rights or not.
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11.02. Terms of Reload Options.
Any Underlying Option granted Reload Rights shall, unless the Committee
specifies other terms at the time the Reload Rights are granted, entitle the
Grantee to receive a new Option (a "Reload Option") to purchase shares of the
same Option Class as the Underlying Option upon the Optionee's exercise of the
Underlying Option by delivery or attestation of shares of Common Stock in
payment of the Exercise Price on the terms set forth in this Article 11.
(a) Conditions to the Grant of Reload Options. No Reload Option
shall be granted on the exercise of the Underlying Option unless
(i) a sufficient number of shares remain authorized and not issued or
subject to purchase under outstanding Options granted under the Plan;
(ii) the Grantee of the Option is a Director or Employee on the Exercise
Date of the Underlying Option;
(iii) the exercise of the Underlying Option is for the purchase of a number
of shares of Common Stock at least equal to the lesser of (a) 25% of
the total number of shares subject to purchase under the Underlying
Option or (b) 100% of the shares with respect to which the Underlying
Option is then exercisable;
(iv) the Grant Date of the Reload Option would be at least one year before
the Expiration Date of the Underlying Option; and
(v) the Fair Market Value of one share of the Underlying Option's Option
Class on the Exercise Date is greater than or equal to the Strike
Price of the Underlying Option.
(b) Number of Shares Subject to Purchase; Grant Date. Each Reload Option shall
entitle the Optionee to purchase a number of shares equal to the sum of
(i) the number of shares of the Option Class used to pay the Exercise
Price of the Underlying Option pursuant to Sections 8.02(b) or 8.02(c)
on the Exercise Date and
(ii) the number of shares of the Option Class delivered or withheld in
payment of the Withholding Amount pursuant to Section 9.04.
If the Exercise Date and the Tax Date do not coincide, the Reload Option
shall be issued as two separate Options to purchase the number of shares
set forth in (i) and (ii) above and having Grant Dates on the Exercise Date
and the Tax Date, respectively.
(c) Strike Price. Each Reload Option shall have a Strike Price equal to the
Fair Market Value of one share of the Option Class of the Common Stock on
the Grant Date of the Reload Option.
(d) Expiration Date. Each Reload Option shall have the same Expiration Date as
the Underlying Option.
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(e) No Reload Rights. No Reload Option shall have Reload Rights.
(f) Rate of Exercisability. Each Reload Option shall become exercisable in full
on the first anniversary of the Grant Date of the Reload Option.
(g) Forfeiture on Disposition of Shares Acquired in Exercise of Underlying
Option. Each Reload Option shall be forfeited if the Optionee disposes of
any of the shares issued on exercise of the Underlying Option before the
date six months after the Exercise Date to any Person other than the
Company in the payment of Payroll Taxes on exercise of the Underlying
Option.
(h) Other Terms and Conditions. Except to the extent in conflict with the terms
set forth in this Article 11, the terms for Options granted under the Plan
as set forth in Section 7.01 shall apply to each Reload Option.
(i) Terms of Foreign Reload Options. A Foreign Reload Option shall be subject
to the terms and conditions set forth in the plan in which the underlying
reload right was granted.
11.03. Variant Reload Rights.
Any terms of Reload Rights or Reload Options different from those set forth in
this Article 11 must be set forth in the Stock Option Agreement for the
Underlying Option.
Article 12
Change in Stock, Adjustments, Etc
If the outstanding Common Stock of the Company is increased or decreased or
changed into or exchanged for a different number of shares or kind of shares or
other securities of the Company or of another Person by reason of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or a dividend payable in capital stock
(including a spinoff), or otherwise, the Committee shall make an appropriate
adjustment to the number and kind of shares for the purchase of which Options
may be granted under the Plan including the maximum number that may be granted
to any one person.
In addition, the Committee shall make appropriate adjustment to the number and
kind of shares as to which outstanding Options, or portions thereof then
unexercised, shall be exercisable and to the Strike Price of the Options. Each
such adjustment to outstanding Incentive Stock Options shall be made in such a
manner as not to constitute a modification as defined in Code Section 424. If
any outstanding Options are subject to any conditions affected by the event, the
Committee shall also make appropriate adjustments to such conditions. Any such
adjustments made by the Committee shall be conclusive.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate, or to sell or transfer all or any part
of its business or assets.
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Article 13
Amendment and Termination
The Board may at any time amend or terminate the Plan as it considers advisable
and in the best interests of the Company, but no such termination or amendment
may
(i) without the consent of the Optionee, adversely affect or impair the rights
of the Optionee under any outstanding Option; or
(ii) be inconsistent with the provisions of the 1997 Program.
Article 14
Effective Date and Duration of the Plan
This Plan was initially effective as of February 17, 1990, and was continued as
a plan under the 1997 Program on the Program Adoption Date. No Option shall be
granted under the Plan after the last permissible date for the granting of
Options under the 1997 Program, but Options granted before that date may have
Expiration Dates that extend beyond such date.
Article 15
Definitions
15.01. 1989 Program.
"1989 Program" means the Company's Long-Term Stock Incentive Program, approved
by the Company's shareholders on April 18, 1989.
15.02. 1997 Program.
"1997 Program" means the Company's 1997 Long-Term Stock Incentive Program,
approved by the Company's shareholders on April 15, 1997, as amended from time
to time.
15.03. Affiliate.
"Affiliate" means those Persons, other than Subsidiaries of the Company,
designated from time to time by the Committee as such.
15.04. Authorized Officer.
"Authorized Officer" means the Chief Executive Officer of the Company.
15.05. Board.
"Board" means the board of directors of the Company.
15.06. Change in Control.
"Change in Control" means the occurrence of any of the following events
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(i) the acquisition of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities by
any "person" or "group" as such terms are defined in Sections 13(d) and
14(d) of the Exchange Act, other than
(A) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company;
(B) the Company or a Person (or one of its Subsidiaries) owned by the
stockholders of the Company in substantially the same proportions as
their ownership of the stock of the Company; or
(C) Deutsche Telekom AG or France Telecom, individually or collectively;
(ii) at the end of any two-year period, less than a majority of the directors
of the Company are directors
(A) who were directors of the Company at the beginning of the two-year
period or
(B) whose election as director was approved by a vote of two-thirds of
the then directors described in the preceding clause (A) or this
clause (B) by prior election;
(iii) the Company's shareholders approve a merger or consolidation in which the
Company is not the surviving entity, or a liquidation or dissolution of
the Company, or a sale of all or substantially all of the Company's
assets; 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.
15.07. Code.
"Code" means the Internal Revenue Code of 1986, as amended, or any successor
statute.
15.08. Code Section.
"Code Section" is a reference to a particular section of the Code, and includes
any successor provision or the same or a successor provision as renumbered at
any time.
15.09. Committee.
"Committee" means the the Organization, Compensation, and Nominating Committee
of the Board.
15.10. Common Stock.
"Common Stock" means any class of the Company's publicly-traded common stock as
the Committee may determine to issue under the Plan, including the FON Stock and
the PCS Stock.
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15.11. Company.
"Company" means Sprint Corporation, a Kansas corporation, or its successor.
15.12. Corporate Secretary.
"Corporate Secretary" means the secretary of the Company.
15.13. Director.
"Director" means a member of the Board or a member of the board of directors of
a Subsidiary of the Company.
15.14. Employee.
"Employee" means an employee of the Company or a Subsidiary of the Company.
15.15. Equity Security.
"Equity Security" means an equity security as defined by the Exchange Act for
purposes of Exchange Act Section 16.
15.16. Exchange Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time and as interpreted and implemented by the rules and regulations issued
thereunder.
15.17. Exchange Act Section 16.
"Exchange Act Section 16" means section 16 of the Exchange Act.
15.18. Executive Officer.
"Executive Officer" means an officer of the Company that is subject to the
liability provisions of Exchange Act Section 16.
15.19. Exercise Date.
"Exercise Date" has the meaning indicated in Section 8.01.
15.20. Exercise Price.
"Exercise Price" means, with respect to the exercise of an Option, the Strike
Price of the Option multiplied by the number of shares with respect to which the
Option is being exercised.
15.21. Expiration Date.
"Expiration Date" means, with respect to any Option, the last date on which the
Option may be exercised in the absence of an earlier forfeiture of the Option.
15.22. Fair Market Value.
"Fair Market Value" means, with respect to any class of the Common Stock on any
date, the average of the high and low prices per share of that class of Common
Stock for composite transactions on that date, unless there was no trading in
that class of Common Stock on that date, in which case, on the most
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recent day before that date on which that class of Common Stock was traded. The
Fair Market Value of shares of Restricted Stock shall be determined without
taking into account any restrictions.
"Fair Market Value" means, with respect to other property, the value of the
property as determined by the Committee.
15.23. FON Stock.
"FON Stock" means the Series 1 FON Stock as described in the Company's articles
of incorporation.
15.24. Foreign Reload Option.
"Foreign Reload Option" means a reload option issued with respect to an option
issued under a plan of Sprint's other than this Plan.
15.25. Grant Date.
"Grant Date" means, with respect to any Option, the date on which the term of
the Option begins, as determined in Article 7 and Article 11.
15.26. Grantee.
"Grantee" means, with respect to any Option, the Director or Employee to whom
the Option was originally granted, notwithstanding any subsequent transfer of
the Option under the terms of the Plan.
15.27. Incentive Stock Option.
"Incentive Stock Option" means an Option designated as such in the action
granting the Option. This Plan's intent is that Incentive Stock Options meet the
requirements of Code Section 422.
15.28. Minimum Withholding Amount.
"Minimum Withholding Amount" means, with respect to any Option exercise, the
amount the employer is required to withhold from the income of the Payroll
Taxpayer under the Payroll Tax laws.
15.29. Non-Qualified Option.
"Non-Qualified Option" means any Option that is not an Incentive Stock Option.
15.30. Normal Retirement.
"Normal Retirement" means, with respect to any Employee, Retirement at or later
than an age qualifying as "normal retirement" under the Company's defined
benefit pension plan, whether or not the person is a participant in the plan
and, with respect to any Director, termination of service as a Director at the
mandatory retirement age for members of the Board under its policies, as amended
from time to time, even if the Director serves on the board of a Subsidiary or
Affiliate.
15.31. Notice of Exercise.
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"Notice of Exercise" means the notice by an Optionee of the exercise of an
Option as set forth in Section 8.01.
15.32. Option.
"Option" means the right, set forth in a written agreement between the Company
and an Optionee, authorized by this Plan to acquire a determinable number of
shares of the Option Class of Common Stock at a determinable price for a
determinable period of time and having such other terms as may be determined by
the Committee or Authorized Officer or as set forth in this Plan.
15.33. Option Class.
"Option Class" means, with respect to any Option, the class of Common Stock
subject to purchase pursuant to the terms of the Option.
15.34. Optionee.
"Optionee" means, with respect to any Option at any particular time, the holder
of the Option at that time.
15.35. Payroll Tax.
"Payroll Tax" means any tax required by an employer to be withheld from wages
paid to its employees, including but not limited to federal income tax
withholding, Social Security and Medicare withholding taxes, and state and local
income tax withholding.
15.36. Payroll Taxpayer.
"Payroll Taxpayer" has the meaning specified in Section 9.01.
15.37. PCS Stock.
"PCS Stock" means the Series 1 PCS Stock as defined in the Company's articles of
incorporation.
15.38. Person.
"Person" means any individual, corporation, partnership, limited liability
company, business trust, or other entity.
15.39. Program Adoption Date.
"Program Adoption Date" means April 15, 1997.
15.40. Plan.
"Plan" means the 1990 Stock Option Plan, the terms of which are set forth in
this document.
15.41. Qualified Transferee.
"Qualified Transferee" means a Qualified Trust.
15.42. Qualified Trust.
"Qualified Trust" means a trust.
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(i) that is a grantor trust treated as owned by the Grantee under Subchapter J
of the Code;
(ii) of which the Grantee, the Grantee's spouse, or the Grantee's descendants
by blood, adoption, or marriage, are the sole beneficiaries; and
(iii) that, by its terms, may not be amended to violate the foregoing
restrictions so long as the trust is an Optionee under this Plan.
15.43. Reload Option.
"Reload Option" means an Option granted upon exercise of an Option having Reload
Rights under the terms and conditions set forth in Article 11
15.44. Restricted Shares.
"Restricted Shares" means shares of Common Stock subject to restrictions on
transfer and the possibility of forfeiture for any period of time.
15.45. Retirement.
"Retirement" means, in the case of an Employee, termination of employment by an
employee who is entitled to receive payment of pension benefits in accordance
with the Sprint Retirement Pension Plan or his employer's defined benefit
pension plan, if any, immediately after the employee's Termination Date and, in
the case of a Director, termination of service as a Director after five years of
service as a Director.
15.46. Seasoned Shares.
"Seasoned Shares" means, with respect to any Person, shares of Common Stock
(i) acquired by such Person from the Company and owned by such Person for a
period of at least six months; or
(ii) acquired by such Person other than from the Company.
15.47. Securities Act.
"Securities Act" means the Securities Act of 1933, as amended from time to time
and as interpreted and implemented by the rules and regulations issued
thereunder.
15.48. Strike Price.
"Strike Price" means, with respect to any Option, the price per share at which
the Optionee is entitled to purchase shares of Common Stock.
15.49. Subsidiary.
"Subsidiary" means, with respect to any Person (the "Controlling Person"),
(i) all Persons (the "Controlled Persons") in whom the Controlling Person,
together with its Subsidiaries, directly owns more than 50% of the voting
rights, and
(ii) all Subsidiaries of the Controlled Persons.
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15.50. Tax Date.
"Tax Date" means, with respect to any Option exercise, the date on which the
shares issued pursuant to the Option exercise become subject to federal income
taxation.
15.51. Termination Date. "Termination Date" means,
(i) with respect to any Employee, the date on which the Employee ceases to be
employed by the Company, any of its Subsidiaries, or any Affiliate, and
ceases to receive severance benefits under any applicable plans for the
payment of severance benefits by the employing entity, or
(ii) with respect to any Director, the date on which the Director's service as a
director ends.
15.52. Termination for Cause.
In the case of an Employee, "Termination for Cause" means an involuntary
termination of employment because
(i) the employee has materially breached the Company's Code of Ethics, or the
code of ethics of the employer;
(ii) the employee has materially breached the Sprint Employee Agreement
Regarding Property Rights and Business Practices;
(iii) the employee has engaged in acts or omissions constituting dishonesty,
intentional breach of a fiduciary obligation, or intentional acts of
wrongdoing or misfeasance; or
(iv) the employee has acted intentionally and in bad faith in a manner that
results in a material detriment to the assets, business, or prospects of
the employer.
In determining whether any particular employee was Terminated for Cause, the
characterization of the reason for termination used for purposes of other
employee benefit plans of the Company or other employer shall apply to this
Plan.
In the case of a Director, "Termination for Cause" means removal for cause from
service as a director.
15.53. Total Disability.
"Total Disability" means, in the case of employees, termination of employment
under circumstances that would make the employee eligible to receive benefits
under the employer's long-term disability plan and, in the case of Directors,
termination of service as a Director under circumstances that would make the
Director eligible to receive Social Security disability benefits.
15.54. Underlying Option.
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<PAGE>
"Underlying Option" means, with respect to any Reload Option, the Option to
which the Reload Rights were attached and the exercise of which resulted in the
grant of the Reload Option.
15.55. Vesting Period.
"Vesting Period" means, with respect to any Restricted Shares, the period of
time during which the Restricted Shares (i) are subject to limitations on
transfer and (ii) may be divested from the owner upon failure to meet any
applicable conditions to vesting.
15.56. Withholding Amount.
"Withholding Amount" has the meaning specified in Section 9.02.
25
<PAGE>
Exhibit (10)(h)
1990 RESTRICTED STOCK PLAN
Section 1. Establishment.
Pursuant to the Sprint Long-Term Stock Incentive Program (the "Program"),
Sprint Corporation, a Kansas corporation (the "Company"), hereby establishes a
restricted stock plan to be named the 1990 Restricted Stock Plan (the "Plan").
Section 2. Purpose.
The purpose of the Plan is to aid the Company and its subsidiaries in
competing with other enterprises for the services of new key personnel needed to
help ensure their continued development. The Plan will also help the Company and
its subsidiaries retain key personnel.
Section 3. Administration.
The Plan shall be administered by the Organization and Compensation
Committee (the "Compensation Committee") of the Board of Directors of the
Company. Members of the Compensation Committee shall be Disinterested Persons as
defined in the Program. The Compensation Committee shall hold its meetings at
such times and places as it may determine. A majority of the Compensation
Committee shall constitute a quorum and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by a majority of the Compensation Committee, shall be deemed the acts of the
Compensation Committee. The Compensation Committee may delegate to the Chief
Executive Officer of the Company (the "CEO") the right to grant awards of
restricted stock to employees of the Company and its subsidiaries who are not
officers or directors of the Company and to cancel or suspend such awards. The
CEO may not make awards of restricted stock to any one individual in excess of
30,000 shares of FON Stock nor 15,000 shares of PCS Stock and may not make
awards of restricted stock aggregating in excess of 100,000 shares of FON Stock
nor 50,000 shares of PCS Stock between meetings of the Compensation Committee.
The awards made by the CEO shall be reported to the Compensation Committee at
each of its meetings.
The Company shall issue shares of restricted stock under the Plan in
accordance with determinations made by the Compensation Committee or the CEO
pursuant to the provisions of the Plan and the Program. The Compensation
Committee from time to time may adopt (and thereafter amend and rescind) such
rules and regulations for carrying out the Plan and take such action in the
administration of the Plan, not inconsistent with the provisions of the Plan and
the Program, as it shall deem proper. Except as set forth in Section 6(a)
hereof, the Compensation Committee may accelerate the time or times at which
restrictions lapse and may waive any forfeiture of restricted stock. The
interpretation and construction of any provisions of the Plan by the
Compensation Committee shall, unless otherwise determined by the Board of
Directors of the Company, be final and conclusive. No member of the Board of
Directors or the
<PAGE>
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any grant under it.
Section 4. Total Number of Shares Subject to Grant<F1>.
The maximum number of shares of FON Stock that may be issued under the Plan
shall not exceed 713,276, and the maximum number of shares of PCS Stock that may
be issued under the Plan shall not exceed 356,638, in both cases subject to
adjustment as provided in Section 7 hereof. The shares issued under the Plan may
be either treasury shares or authorized but unissued shares, as the Board of
Directors from time to time may determine. The maximum number of shares of
common stock which may be issued in any calendar year, together with shares of
common stock subject to other awards under the Program, shall not exceed the
limits set forth in Section 4(a) of the Program.
In the event that any outstanding shares of restricted stock under the Plan
are forfeited for any reason, such shares of common stock may again be subject
to grant under the Plan.
Section 5. Eligibility.
Restricted stock shall be granted only to key employees of the Company or
its subsidiaries, including new hires. No grants shall be made by the CEO to any
individual who is an officer or director of the Company or who will be proposed
to be elected as an officer or director at the next meeting of the Board of
Directors or Stockholders of the Company. The Compensation Committee or the CEO
will, in its discretion, determine the key employees to be granted restricted
stock, the time or times at which restricted stock shall be granted, the number
of shares to be granted and the duration of restrictions on the shares granted.
In making such determination, the Compensation Committee and the CEO may take
into consideration the value of the services rendered or to be rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its affiliates and such other factors which the Compensation
Committee or the CEO may deem relevant in accomplishing the purposes of the
Plan.
No restricted stock may be granted to any individual who immediately after
the grant owns directly or indirectly stock possessing more than five percent
(5%) of the total combined voting power or value of all classes of stock of the
Company or any subsidiary. No person shall be eligible to receive a larger
number of shares of restricted stock than is recommended for such individual by
the Compensation Committee or the CEO.
[FN]
These numbers reflect the number of shares authorized for issuance under the
Plan immediately after the recapitalization of Sprint's Common Stock into FON
Stock and PCS Stock on November 23, 1998. The number of shares of FON Stock has
also been doubled to reflect the 2-1 split of FON Stock on May 13, 1999, and the
number of shares of PCS Stock has been doubled to reflect 2-1 stock split of PCS
Stock on January 14, 2000. These numbers should be increased by the number of
shares of FON Stock and PCS Stock that were awarded before the recapitlization
that become forfeited.
</FN>
2
<PAGE>
Section 6. Terms and Conditions of Grants.
Each grant under the Plan shall be evidenced by an Agreement in such form
not inconsistent with the Plan as the Compensation Committee or the CEO shall
determine; provided that the substance of the following terms and conditions be
included therein:
(a) Duration of Restrictions. The restrictions on restricted stock shall
lapse at such time or times as determined by the Compensation
Committee or the CEO; provided, however, that no restricted stock
shall become free of restrictions prior to the first anniversary date
of the granting of the restricted stock. At any time on or before the
13th calendar month preceding the date on which restrictions on shares
of restricted stock would otherwise lapse, the grantee may elect to
extend the period of restriction on all but not a portion of such
shares by six months or any multiple of six months. Unless the
Compensation Committee specifies otherwise with respect to a
particular grant of restricted stock, restrictions on restricted stock
outstanding at least one year shall lapse upon a Change in Control (as
defined in the 1990 Stock Option Plan or any successor plan).
(b) Nontransferable. The employee who receives restricted stock (the
"Grantee") may not sell, transfer, assign, pledge or otherwise
encumber or dispose of shares of restricted stock until such time as
all restrictions on such stock have lapsed except: (i) to the Company
in payment of the exercise price of a stock option issued by the
Company under any employee stock option plan adopted by the Company
that provides for payment of the exercise price in the form of
restricted stock, provided that such payment is made in accordance
with the terms of such plan; or (ii) to a trust of which the Grantee,
the Grantee's spouse, or descendants of the Grantee are the primary
beneficiaries and which is a grantor trust treated as owned by the
Grantee under Subchapter J of the Internal Revenue Code, upon the
following terms:
(A) the Company receives, prior to such transfer, a true copy of the
trust agreement and an opinion from Grantee's counsel (1) that the
trust will be treated as a grantor trust owned by the Grantee under
Subchapter J of the Internal Revenue Code at all times until the
restrictions on such stock lapse or the stock is forfeited under the
terms of its grant, (2) that the terms of the trust provide that upon
the forfeiture of the restricted stock under the terms of its grant or
the earlier termination of the trust for whatever reason, ownership of
the restricted stock shall revert to the Grantee or to the Company,
(3) that the trustee of such trust may not, prior to the lapsing of
restrictions on such stock, sell, transfer, assign, pledge, or
otherwise encumber or dispose of shares of restricted stock except to
the Company or to the Grantee, subject to the restrictions provided
for in this Plan, and (4) that, until the restrictions lapse, the
trustee is not authorized to incur liabilities on behalf of the trust,
other than to the beneficiaries of the trust; and
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<PAGE>
(B) the Grantee and the trustee of the trust shall execute stock
powers in blank to be held in the custody of the Company; and
(C) the Corporate Secretary of the Company may, in his discretion,
enforce the foregoing transfer restrictions by maintaining physical
custody of the certificate or certificates representing such shares of
restricted stock, by placing a restrictive legend on such
certificates, by requiring the Grantee and the trustee to execute
other documents as a pre-condition to such transfer, or otherwise.
(c) Termination of Employment. If, before the restrictions on shares of
restricted stock lapse, the Grantee ceases to be employed by the
Company or a subsidiary of the Company for any reason (other than
death, disability, or involuntary termination without cause), the
shares of restricted stock that continue to be restricted shall be
forfeited and the Grantee or his representative shall sign any
document and take any other action required to assign said restricted
shares back to the Company. If the Grantee ceases to be employed by
reason of the grantee's death, total disability, or involuntary
termination without cause, restrictions on the restricted stock shall
lapse as of the grantee's termination date and the Company shall
release restrictions on the restricted shares as soon as practicable
thereafter. For purposes of this Plan, unless the Committee determines
otherwise at the time of grant, an employee who becomes employed by
Global One. (together with its subsidiaries, an "Affiliated Entity"),
shall not, except with respect to incentive stock options, be
considered to have terminated employment with the Company or a
subsidiary of the Company until his employment is terminated with all
Affiliated Entities without becoming employed by the Company or its
subsidiaries.
(d) Consideration. Each Grantee shall, as consideration for the grant of
restricted stock, agree in writing to remain in the employ of the
Company or of one of its subsidiaries, at the pleasure of the Company
or of such subsidiary, for the period of time until the restrictions
on the restricted stock lapse. Nothing contained in the Plan or in any
Agreement shall confer upon any Grantee any right with respect to
continuance of employment by the Company or its subsidiaries, nor
interfere in any way with the right of the Company or its subsidiaries
to terminate the Grantee's employment or change the Grantee's
compensation at any time.
(e) Interest in Competitor. In the event that any Grantee, without the
consent of the Compensation Committee, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined
by the Compensation Committee) any business that is in competition
with the Company or with any business in which the Company has a
substantial interest, as determined by the Compensation Committee, any
restricted stock shall automatically be forfeited. The decision of the
Compensation Committee on any such matters shall be final and binding
upon all concerned.
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<PAGE>
(f) Rights as Stockholder. Except as set forth in the Plan, a Grantee will
have all rights of a stockholder with respect to shares of restricted
stock, including the right to vote the shares of stock and the right
to dividends on the stock. The shares of restricted stock will be
registered in the name of the Grantee and the certificates evidencing
such shares shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to the award and shall be held
in escrow by the Company. The Grantee shall execute a stock power or
powers assigning the shares of restricted stock back to the Company,
which stock powers shall be held in escrow by the Company and used
only in the event of the forfeiture of any of the shares of restricted
stock. A certificate evidencing unrestricted shares of common stock
shall be issued to the Grantee promptly after the restrictions lapse
on any restricted shares.
(g) Stock Withholding Election. When taxes are withheld upon the lapse of
restrictions on restricted stock (the date on which such restrictions
lapse hereinafter referred to as the "Tax Date"), the Grantee may
elect to make payment for the withholding of federal, state and local
taxes, including Social Security and Medicare ("FICA") taxes, up to
the Grantee's marginal tax rate, by one or both of the following
methods:
(i) delivering part or all of the payment in previously-owned
shares of the same class as the restricted shares (which shall be
valued at fair market, as defined herein, on the Tax Date) which
shares, if acquired from the Company, must have been held for at least
six months; or
(ii) requesting the Company to withhold from those shares that
would otherwise be received upon the lapse of restrictions, a number
of shares having a fair market value (as defined herein) on the Tax
Date equal to the amount to be withheld. The amount of tax withholding
to be satisfied by withholding shares is limited to the minimum amount
of taxes, including FICA taxes, required to be withheld under federal,
state and local law.
Any fractional share amount and any additional withholding not paid
by the withholding or surrender of shares must be paid in cash. If no
timely election is made, cash must be delivered to satisfy all tax
withholding requirements.
Section 7. Change in Stock, Adjustments, Etc.
In the event that the outstanding shares of common stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number of shares or kind of shares or other securities of the Company or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or a
dividend payable in capital stock, outstanding shares of restricted stock shall
be treated the same as other outstanding shares of common stock and appropriate
adjustment shall be made by the Compensation Committee in the number
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<PAGE>
and kind of shares that may be granted under the Plan and that may be granted by
the CEO under the Plan.
The grant of restricted stock pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate, or sell or transfer all or any part of
its business or assets.
Section 8. Duration, Amendment and Termination.
The Board of Directors of the Company may at any time terminate the Plan or
make such amendments thereof as it shall deem advisable and in the best
interests of the Company; provided, however, that no such termination or
amendment shall, without the consent of the individual to whom any restricted
stock shall theretofore have been granted, affect or impair the rights of such
individual with respect to such restricted stock; and provided further, that any
such amendment shall be consistent with the provisions of the Program, as it may
be amended from time to time.
No restricted stock shall be granted under the Plan after April 15, 2007.
Section 9. Effectiveness of Plan.
This Plan shall be effective as of February 17, 1990.
Section 10. Date of Granting of Restricted Stock.
The granting of restricted stock pursuant to the Plan shall take place on
the date the Compensation Committee or the CEO decides to grant the restricted
stock. As soon as practicable but no later than twenty (20) days after the
granting of the restricted stock, the Company shall notify the employee of the
grant and, within sixty (60) days of the granting of the restricted stock, the
Company shall submit to the employee an Agreement duly executed by and on behalf
of the Company, and a stock power or powers with respect to the restricted
stock, with the request that the employee execute the Agreement and stock powers
within sixty (60) days after the mailing by the Company of the notice to the
employee. The employee shall execute the written Agreement and stock powers
within said 60-day period.
<PAGE>
Exhibit (10)(i)
Executive Deferred Compensation Plan
ARTICLE I
PURPOSE
The purpose of the Sprint Corporation Executive Deferred Compensation Plan
(hereinafter referred to as the "Plan") is to provide funds for retirement or
death for executive employees (and their Beneficiaries) of Sprint Corporation
and its subsidiaries. It is intended that the Plan will aid in retaining and
attracting employees of exceptional ability by providing such employees with a
means to supplement their standard of living at retirement.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall have the
meanings indicated, unless the context clearly indicates otherwise:
2.1 Account Transfer Request. "Account Transfer Request" means a written notice,
in a form prescribed by the Company, by a Participant to transfer all or any
portion of one Deferred Benefit Account to another Deferred Benefit Account as
provided for in paragraph 6.7.
2.2 Amendment of Payment Election Form. "Amendment of Payment Election Form"
means a written notice, in a form prescribed by the Company, filed with the
Company by a Participant to change the manner in which such Participant's
Deferral Benefits are to be paid.
2.3 Beneficiary. "Beneficiary" means the person, persons or entity designated by
the Participant, or as provided in Article VIII, to receive any benefits payable
under the Plan. Any Participant Beneficiary Designation shall be made in a
written instrument filed with the Company and shall become effective only when
received, accepted and acknowledged in writing by the Company.
2.4 Board. "Board" means the Board of Directors of the Company.
2.5 Committee. "Committee" means the Deferred Compensation Committee appointed
to review the Plan decisions pursuant to Article III.
<PAGE>
2.6 Company. "Company" means Sprint Corporation, or any successor thereto.
2.7 Compensation. "Compensation" means the Base Salary, Annual Incentive
Compensation and Long-Term Incentive Compensation payable to a Participant
during a Plan Year other than a distribution under this Plan.
(a) Base Salary. "Base Salary" means all regular cash remuneration for
services, other than such items as Annual Incentive Compensation, payable
by the Employer to a Participant in cash during a Plan Year, but before
reduction for amounts deferred pursuant to this Plan or any other Plan of
the Employer.
(b) Annual Incentive Compensation. "Annual Incentive Compensation" means any
annual cash incentive compensation payable by the Employer to a Participant
in a Plan Year.
(c) Long-Term Incentive Compensation. "Long-Term Incentive Compensation" means
cash incentive compensation, if any, earned over a period of at least two
years and paid to a Participant in a Plan Year.
2.8 Deferral Benefit. "Deferral Benefit" means the benefit payable to a
Participant or the Participant's Beneficiary on the Participant's retirement,
death, disability, or termination of employment as calculated in Article VII
hereof.
2.9 Deferred Benefit Account. "Deferred Benefit Account" means the accounts
maintained on the books of account of the Employer for each Participant pursuant
to Article VI. Separate Deferred Benefit Accounts shall be maintained for each
Participant. More than one Deferred Benefit Account shall be maintained for each
Participant to reflect (a) Termination and Retirement Interest Yields, (b)
separate deferral elections, and (c) Account A, Account B, Account D, Account
AA, Account BB, and Account DD elections.
For Account AA two sub-accounts (a Retirement Deferred Benefit Account and a
Termination Deferred Benefit Account) shall be maintained to reflect the
difference in Interest Yields as provided in Article VI, paragraph 6.4.
2
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For Account BB two sub-accounts (a Retirement Deferred Benefit Account and a
Termination Deferred Benefit Account) shall be maintained to reflect, in the
event of a transfer from Account AA or Account DD to Account BB pursuant to
paragraph 6.7, the difference in values of the two sub-accounts of Account AA or
Account DD transferred to Account BB.
For Account DD two sub-accounts (a Retirement Deferred Benefit Account and a
Termination Deferred Benefit Account) shall be maintained to reflect the
crediting of PCS Share Units corresponding to the respective sub- accounts of
Account BB pursuant to Section 6.3(b) and to reflect, in the event of a transfer
from Account AA or Account BB to Account DD pursuant to paragraph 6.7, the
difference in values of the two sub-accounts of Account AA or Account BB
transferred to Account DD.
A Participant's Deferred Benefit Accounts shall be used solely as a device for
the measurement and determination of the amounts to be paid to the Participant
pursuant to this Plan. A Participant's Deferred Benefit Account shall not
constitute or be treated as a trust fund of any kind. Unless the context
requires otherwise, "Deferred Benefit Account" shall mean the aggregate balance
of all accounts of a Participant.
2.10 Determination Date. "Determination Date" means the date on which the amount
of a Participant's Deferred Benefit Account is determined as provided in Article
VI hereof. The last day of each calendar month shall be a Determination Date.
2.11 Disability. "Disability" or "Disabled Participant" means a physical or
mental condition of a Participant resulting in a determination of disability for
purposes of receiving benefits under the Employer Long-Term Disability Insurance
Plan.
2.12 Early Retirement Date. "Early Retirement Date" means the date on which the
Participant actually terminates employment following the first day of the month
coincidental with or next following a Participant's attainment of age fifty-five
(55), but before his Normal Retirement Date.
2.13 Employer. "Employer" means Sprint Corporation, any successor to the
business thereof or any affiliate or subsidiary designated by the Board.
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<PAGE>
2.14 FON Share Unit. "FON Share Unit" means a measure of participation under the
Plan having a value based on the market value of one share of FON Common Stock,
Series 1, of the Company.
2.15 Internal Revenue Code. "Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended or supplemented from time to time. References to any
section of the Internal Revenue Code shall be to that section as it is
renumbered, amended, supplemented or re-enacted.
2.16 Interest Yield. "Interest Yield" means with respect to any calendar month
the Termination Interest Yield or the Retirement Interest Yield as defined
below:
(a) Termination Interest Yield. The "Termination Interest Yield" means (1) in
the case of balances in Account AA, the composite yield on Moody's Seasoned
Corporate Bond Yield Index for the preceding calendar month as determined
from Moody's Bond Record published by Moody's Investors Services, Inc. (or
any successor thereto) or, if such monthly yield is no longer published, a
substantially similar average selected by the Company, and (2) in the case
of balances in Account A, the greater of (i) the prime rate in effect at
Citibank, N.A. at the opening of business on the first business day of the
month, or if said bank, for any reason, no longer publishes its prime rate,
the prime rate similarly determined of another major bank selected by the
Company and (ii) six percent per annum.
(b) Retirement Interest Yield. The "Retirement Interest Yield" means (1) in the
case of balances in Account AA, three percentage points over the
Termination Interest Yield, and (2) in the case of balances in Account A,
the Termination Interest Yield.
2.17 Normal Retirement Age. "Normal Retirement Age" means the time at which a
Participant attains age sixty-five (65).
2.18 Normal Retirement Date. "Normal Retirement Date" means the first day of
the month coincidental with or next following a Participant's Normal Retirement
Age.
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2.19 Participant. "Participant" means any individual who is designated by the
Company in accordance with paragraph 4.1 to participate in this Plan and who
elects to participate by filing a Participation Agreement as provided in Article
IV.
2.20 Participation Agreement. "Participation Agreement" means the agreement, in
a form prescribed by the Company, filed with the Company by a Participant before
the beginning of the period in which the Participant's Compensation is to be
deferred pursuant to the Plan and the Participation Agreement. A new
Participation Agreement shall be filed by the Participant for each separate Base
Salary deferral election and for each Annual Incentive Compensation deferral
election and, if applicable, each Long-Term Incentive Compensation deferral
election not accompanying a Base Salary deferral election.
2.21 PCS Share Unit. "PCS Share Unit" means a measure of participation under the
Plan having a value based on the market value of a share of PCS Common Stock,
Series 1, of the Company.
2.22 Plan. "Plan" means the Sprint Corporation Executive Deferred Compensation
Plan as set forth in this document. This Plan is the successor to, and comprises
an amendment and revision of, the United Telecommunications, Inc. 1985 Executive
Deferred Compensation Plan adopted February 12, 1985.
2.23 Plan Administrator. "Plan Administrator" means the person appointed by the
Company to represent the Company in the administration of this Plan.
2.24 Plan Year. "Plan Year" means a twelve month period commencing May 1st and
ending the following April 30th. The first Plan Year commenced May 1, 1985.
2.25 Recapitalization Date. "Recapitalization Date" means November 23, 1998.
2.26 Retirement Plan. "Retirement Plan" means the Sprint Retirement Pension
Plan, as amended from time to time.
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<PAGE>
2.27 Share Units. "Share Units" means the Share Units credited to Accounts B and
BB prior to the recapitalization of the Company's Common Stock on the
Recapitalization Date.
2.28 Spouse. "Spouse" means a Participant's wife or husband who was lawfully
married to the Participant upon the Participant's retirement, death or severance
from service.
2.29 Sprint Insider. "Sprint Insider" means, as of any time when the
determination thereof is relevant, any Participant subject to liability under
Section 16 of the Securities Exchange Act of 1934 with respect to trading in the
equity securities of the Company.
2.30 Transition Date. "Transition Date" means May 1, 1990.
ARTICLE III
ADMINISTRATION
3.1 Plan Administrator; Company and Committee; Duties. This Plan shall be
administered by the Committee. The Committee shall consist of not more than five
persons appointed by the Board. The Committee may be a consolidated Committee
administering other benefit plans of the Company in addition to this Plan. The
Committee shall have the authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan and decide
or resolve any and all questions, including interpretations of this Plan, as may
arise in connection with the Plan. The Committee may appoint a Benefit
Administrative Committee and a Plan Administrator. The Committee may delegate
its duties for the day-to-day operations of the Plan to the Plan Administrator
and other duties to the Benefit Administrative Committee. Members of the
Committee, the Benefit Administrative Committee and the Plan Administrator may
be Participants under this Plan.
3.2 Claim for Benefits. Any claim for benefits under this Plan shall be made in
writing to the Plan Administrator. If a claim for benefits is wholly or
partially denied, the Plan Administrator shall so notify the Participant or
Beneficiary within 90 days after receipt of the claim. The notice of denial
shall be written in a manner calculated to be understood by the Participant or
Beneficiary and shall contain (a) the specific reason or reasons for denial of
the claim, (b) specific references to the pertinent Plan provisions
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<PAGE>
upon which the denial is based, (c) a description of any additional material or
information necessary to perfect the claim together with an explanation of why
such material or information is necessary and (d) an explanation of the claims
review procedure. The decision or action of the Plan Administrator shall be
final, conclusive and binding on all persons having any interest in the Plan,
unless a written appeal is filed as provided in Section 3.3.
3.3 Review of Claim. Within 60 days after the receipt by the Participant or
Beneficiary of notice of denial of a claim, the Participant or Beneficiary may
(a) file a request with the Benefit Administrative Committee that it conduct a
full and fair review of the denial of the claim, (b) review pertinent documents
and (c) submit questions and comments to the Committee in writing.
3.4 Decision After Review. Within 60 days after the receipt of a request for
review under Section 3.3, the Committee shall deliver to the Participant or
Beneficiary a written decision with respect to the claim, except that if there
are special circumstances (such as the need to hold a hearing) which require
more time for processing, the 60-day period shall be extended to 120 days upon
notice to the Participant or Beneficiary to that effect. The decision shall be
written in a manner calculated to be understood by the Participant or
Beneficiary and shall (a) include the specific reason or reasons for the
decision and (b) contain a specific reference to the pertinent Plan provisions
upon which the decision is based.
ARTICLE IV
PARTICIPATION
4.1 Participation. Participation in the Plan shall be limited to executives
having a job grade level of E14 or above, or any other employees designated by
the Committee, who elect to participate in the Plan by filing a Participation
Agreement with the Company. Participation Agreements must be filed no later than
the March 31st immediately preceding the Plan Year in which the Participant
Agreement is to take effect, and the election to participate shall be effective
on the first day of the Plan Year following receipt by the Company of a properly
completed and executed Participation Agreement; provided, however, that if March
31st falls on a Saturday, Sunday or holiday, the filing date for the
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<PAGE>
Participation Agreement shall be no later than the next business day after March
31st.
4.2 Minimum and Maximum Deferral and Length of Participation. A Participant may
elect in any Participation Agreement to defer a portion of the Participant's
Compensation. The minimum and maximum amounts that may be deferred under any
single Participation Agreement shall be in $100 units and shall be as follows:
Minimum Maximum
Deferral Deferral
With respect to $300 per 50% of Base
Base Salary month Salary
Deferrals
With respect to 25% of Annual 100% of
Annual Incentive Annual
Incentive Compensation Incentive
Compensation Compensation
With respect to 25% of Long- 100% of Long-
Long-Term Term Incentive Term Incentive
Incentive Compensation Compensation
(a) With respect to Base Salary deferrals, the dollar amount of deferral
elected in each Participation Agreement shall be the amount of Base Salary
that will be deferred in each month subject to the Participation Agreement.
Each Participation Agreement shall apply to the Participant's Base Salary
payable in the Plan Year immediately following the Plan Year in which the
Participation Agreement is filed (or until the Participant's retirement,
whichever occurs first). The fixed dollar amount of Base Salary deferral
applicable over a deferral period shall not be changed by virtue of a
change in Base Salary alone.
(b) With respect to Annual Incentive Compensation or Long-Term Incentive
Compensation deferrals, the deferral percentage selected in each
Participation Agreement shall apply only to the Participant's Annual
Incentive Compensation or Long-Term Incentive Compensation paid in the Plan
Year immediately following receipt of the Participation Agreement.
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(c) From time to time, the Company may increase or decrease the minimum and
maximum deferrals set forth above as well as the period for which the
deferrals are effective by giving reasonable written notice to the affected
Participants. Such changes shall be effective for all Participation
Agreements filed thereafter.
(d) A Participant's election to defer Compensation shall be irrevocable upon
the filing of the respective Participation Agreement; provided, however,
that the deferral of Compensation under any Participation Agreement may be
suspended or amended as provided in paragraphs 7.5 or 9.1.
ARTICLE V
DEFERRED COMPENSATION
5.1 Elective Deferred Compensation. The amount of Compensation that a
Participant elects to defer in the Participation Agreement executed by the
Participant, with respect to each Plan Year of participation in the Plan, shall
be credited by the Company to the Participant's Deferred Benefit Account
throughout each Plan Year as the Participant is paid the non-deferred portion of
Compensation for such Plan Year. The amount credited to a Participant's Deferred
Benefit Account shall equal the amount deferred. To the extent that the Employer
is required to withhold any taxes or other amounts relating to the employees'
deferred wages pursuant to any state, federal or local law, such amounts shall
be taken out of the portion of the Participant's Compensation which is not
deferred under this Plan.
5.2 Additional Amounts Under Savings Plan and Retirement Plan.
(a) Savings Plan. Except for Participants who are Sprint Insiders, to the
extent a Participant's deferral of Compensation under this Plan causes a
reduction in the Company's contribution for the Participant under the
Sprint Retirement Savings Plan, the Company shall credit the amount of any
such reduction to the Participant's Deferred Benefit Accounts B and D in
the ratio determined pursuant to guidelines adopted by the Committee or the
Board. For Sprint Insiders, such reduction shall be credited to Account A.
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(b) Retirement Plan. A Participant shall receive a Pension Make-Up Benefit
from the Supplemental Executive Retirement Plan if the deferral of
compensation under this Plan causes a reduction in the Participant's
benefit under the Retirement Plan.
5.3 Additional Payments. The Company also intends that supplemental payments
shall be made at death, disability or termination of employment, as the case may
be, for any reduction in benefits due to deferrals of Compensation under this
Plan in respect of any of the Employer's life insurance or disability plans or
Employees Stock Purchase Plan now in existence or adopted after the effective
date of this Plan.
5.4 Vesting of Deferred Benefit Account. A Participant shall be 100% vested in
the Participant's Deferred Benefit Account.
ARTICLE VI
DEFERRED BENEFIT ACCOUNT
6.1 Determination of Account. Each Participant's Deferred Benefit Account, as
of each Determination Date, shall consist of the balance of the Participant's
Deferred Benefit Account as of the immediately preceding Determination Date,
plus the Participant's elective deferred compensation withheld since the
immediately preceding Determination Date pursuant to paragraph 5.1 and plus
amounts credited to the Participant's Deferred Benefit Account pursuant to
paragraphs 6.4 and 6.5. The Deferred Benefit Account of each Participant shall
be reduced by the amount of all distributions, if any, made from such Deferred
Benefit Account since the preceding Determination Date.
6.2 Type of Deferral. A Participant may elect to have any portion of the amount
deferred credited to Account A (fixed income return), to Account B (FON Share
Units) or to Account D (PCS Share Units). The election shall be made by a
properly executed Participation Agreement. Deferrals in a Plan Year shall be
credited in accordance with the election of the applicable Participation
Agreement.
6.3 Creation of Accounts AA, BB, D, and DD.
(a) Accounts AA and BB. As of the start of business on the Transition Date, all
amounts standing to the credit of each
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Participant in Account A were transferred to an Account AA. As of the start
of business on the Transition Date, amounts standing to the credit of each
Participant in Account B that were attributable to prior transfers from
Account A into Account B were transferred to an Account BB. The amount of
such transfers was an amount equal to the sum of the dollar amount of all
transfers from Account A to Account B during the period beginning on the
effective date of the Participation Agreement and ending on the Transition
Date. For all purposes of this Plan, except as otherwise noted in this
Plan, Account AA shall be treated in the same manner as Account A, and
Account BB shall be treated in the same manner as Account B.
(b) Accounts D and DD. As of the Recapitalization Date, there was credited to
Accounts D and DD, created for each Participant having a positive balance
in an Account B or BB with respect to any Plan Year, a number of PCS Share
Units determined as follows:
(1) one-half of a PCS Share Unit in Account D for each Share Unit in
Account B for such Participant for such Plan Year as of the
Recapitalization Date; and
(2) one-half of a PCS Share Unit in the Retirement Deferred Benefit
Account of Account DD for each Share Unit in the Retirement Deferred
Benefit Account of Account BB for such Participant for such Plan Year
as of the Recapitalization Date; and
(3) one-half of a PCS Share Unit in the Termination Deferred Benefit
Account of Account DD for each Share Unit in the Termination Deferred
Benefit Account of Account BB for such Participant for such Plan Year
as of the Recapitalization Date.
For all purposes of this Plan except as otherwise noted in this Plan, Account DD
shall be treated in the same manner as Account D.
6.4 Maintenance of Accounts A and AA. As of each Determination Date, the
Participant's Deferred Benefit Accounts A and AA shall be increased by the
amount of interest earned since the preceding Determination Date. Interest on
Accounts A and AA shall be based upon the Interest Yield. For Account AA, a
Retirement Deferred Benefit
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Account shall be maintained and increased at the rate specified by the
Retirement Interest Yield and a Termination Deferred Benefit Account shall be
maintained and increased at the rate specified by the Termination Interest
Yield. Interest shall be credited on the mean average of the balances of the
Deferred Benefit Account on the Determination Date (before crediting the
interest) and on the last preceding Determination Date, but after the Deferred
Benefit Account has been adjusted for any contributions or distributions to be
credited or deducted for each such day.
6.5 Maintenance of Share Unit Accounts.
Accounts B and BB and Accounts D and DD shall maintain balances in FON Share
Units and PCS Share Units, respectively.
(a) Maintenance of Accounts B and BB.
(1) Conversion of Share Units into FON Share Units. As of the
Recapitalization Date, each Share Unit in Accounts B and BB was
converted into a FON Share Unit.
(2) Conversion between Dollar Amounts and FON Share Units in Accounts B
and BB. When an amount is to be added to a Participant's Deferred
Benefit Accounts B or BB, it shall be converted into FON Share Units,
or fractions thereof, by dividing the amount to be credited by the
closing price of the FON Common Stock, Series 1, as reported by the
New York Stock Exchange on the last trading day on or before the
Determination Date. When a number of FON Share Units is to be
subtracted from a Participant's Deferred Benefit Accounts B or BB,
such number of FON Share Units shall be converted into a dollar amount
by multiplying such number of Share Units by the closing price of the
FON Common Stock, Series 1, as reported by the New York Stock Exchange
on the last trading day on or before the Determination Date.
(3) Sub-accounts to be Maintained for Purposes of Computing Retirement and
Termination Benefits. Two sub-accounts shall be maintained for Account
BB: (i) a Retirement Deferred Benefit Account which shall include the
transfer from Account B into Account BB described in paragraph 6.3(a),
plus amounts transferred from the
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Account AA Retirement Deferred Benefit Account, if any, plus amounts
transferred from the Account DD Retirement Benefit Account, if any,
plus other additions pursuant to this paragraph 6.5(a); and (ii) a
Termination Deferred Benefit Account which shall include the transfer
from Account B into Account BB described in paragraph 6.3(a) plus
amounts transferred from the Account AA Termination Deferred Benefit
Account, if any, plus amounts transferred from the Account DD
Termination Deferred Benefit Account, if any, plus other additions
pursuant to this paragraph 6.5(a).
(4) Dividends. When a dividend is declared and paid by the Company on its
FON Common Stock, Series 1, an amount shall be credited to the
Participant's Accounts B and BB as though the same dividend had been
paid on the FON Share Units in such accounts as of the Determination
Date immediately preceding the record date for the dividend, and such
amount shall be converted to FON Share Units. Such amount shall be
valued as of the Determination Date immediately following the payment
of the dividend.
(5) Effect of Recapitalization. In the event of a stock dividend, stock
split, or other corporate reorganization involving the FON Common
Stock, Series 1, the Company shall make equitable adjustment to the
number of FON Share Units credited to a Participant's Accounts B and
BB as may be necessary to give effect to such change in the Company's
capital structure.
(6) Conversion of Share Units to Dollars on Distribution. FON Share Units
in Accounts B and BB shall be converted to an equivalent dollar amount
before any distribution thereof to a Participant pursuant to Article
VII. For purposes of distribution, the value of a FON Share Unit shall
be the average closing price of the FON Common Stock, Series 1, on the
New York Stock Exchange on the last trading day of each of (i) the 12
calendar months immediately preceding the date of distribution or (ii)
the smaller number of calendar months (including part of a month)
elapsed from the Recapitalization Date to such distribution. If a
Participant elects payment in other than a lump sum, FON Share Units
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shall be so converted to a dollar amount with respect to each payment
made in the distribution. During the period of distribution, dividends
and other equitable adjustments shall be credited to the Participant's
Accounts B and BB in accordance with paragraphs 6.5(a)(4) and
6.5(a)(5). For such purposes, a Participant that is a Sprint Insider
immediately before the event that entitles the Participant to
distribution shall be deemed a Sprint Insider during the period of
distribution.
(b) Maintenance of Accounts D and DD.
(1) Conversion between Dollar Amounts and PCS Share Units in Accounts D
and DD. When an amount is to be added to a Participant's Deferred
Benefit Accounts D or DD, it shall be converted into PCS Share Units,
or fractions thereof, by dividing the amount to be credited by the
closing price of the PCS Common Stock, Series 1, as reported by the
New York Stock Exchange on the last trading day on or before the
Determination Date. When a number of PCS Share Units is to be
subtracted from a Participant's Deferred Benefit Accounts D or DD,
such number of PCS Share Units shall be converted into a dollar amount
by multiplying such number of PCS Share Units by the closing price of
PCS Common Stock, Series 1, as reported by the New York Stock Exchange
on the last trading day on or before the Determination Date.
(2) Sub-accounts to be Maintained for Purposes of Computing Retirement and
Termination Benefits. Two sub-accounts shall be maintained for Account
DD: (i) a Retirement Deferred Benefit Account which shall include the
value of the PCS Share Units credited pursuant to paragraph 6.3(b)(2),
plus amounts transferred from the Account AA Retirement Benefit
Account, if any, plus amounts transferred from the Account BB
Retirement Benefit Account, if any, plus other additions pursuant to
this paragraph 6.5(b) and (ii) a Termination Deferred Benefit Account
which shall include the value of the PCS Share Units credited pursuant
to paragraph 6.3(b)(3), plus amounts transferred from the Account AA
Termination Benefit
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Account, if any, plus amounts transferred from the Account BB
Termination Benefit Account, if any, plus other additions pursuant to
this paragraph 6.5(b).
(3) Dividends. When a dividend is declared and paid by the Company on its
PCS Common Stock, Series 1, an amount shall be credited to the
Participant's Accounts D and DD as though the same dividend had been
paid on the PCS Share Units in such accounts as of the Determination
Date immediately preceding the record date for the dividend, and such
amount shall be converted to PCS Share Units. Such amount shall be
valued as of the Determination Date immediately following the payment
of the dividend.
(4) Effect of Recapitalization. In the event of a stock dividend, stock
split or other corporate reorganization involving PCS Common Stock,
Series 1, the Company shall make equitable adjustment to the number of
PCS Share Units credited to a Participant's Accounts D and DD as may
be necessary to give effect to such change in the Company's capital
structure.
(5) Conversion of PCS Share Units to Dollars on Distribution. PCS Share
Units in Accounts D and DD shall be converted to an equivalent dollar
amount before any distribution thereof to a Participant pursuant to
Article VII. For purposes of distribution, the value of a PCS Share
Unit shall be the average closing price of PCS Common Stock, Series 1,
on the New York Stock Exchange on the last trading day for each of (i)
the 12 calendar months immediately preceding the date of such
distribution or (ii) the smaller number of calendar months (including
part of a month) elapsed from the Recapitalization Date to such
distribution. If a Participant elects payment in other than a lump
sum, PCS Share Units shall be so converted to a dollar amount with
respect to each payment made in the distribution. During the period of
distribution, dividends and other equitable adjustments shall be
credited to the Participant's Accounts D and DD in accordance with
paragraphs 6.5(b)(3) and 6.5(b)(4). For such purposes, a Participant
that is a Sprint Insider immediately before the
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event that entitles the Participant to distribution shall be deemed a
Sprint Insider during the period of distribution.
6.6 Statement of Accounts. The Company shall submit to each Participant, within
120 days after the close of each Plan Year, a statement in such form as the
Company deems desirable, setting forth the balance to the credit of such
Participant in the Participant's Deferred Benefit Accounts A, B, and D and in
the Participant's Deferred Benefit Accounts AA, BB, and DD (showing separate
calculations for each Interest Yield), in each case, as of the last day of the
preceding Plan Year.
6.7 Transfers Between Accounts. Within the limitations of this paragraph 6.7, a
Participant may elect, by executing an Account Transfer Request: (1) to transfer
all or any portion of the Participant's Account A to Account B or Account D, (2)
to transfer all or any portion of the Participant's Account B to Account A or
Account D, (3) to transfer all or any portion of the Participant's Account D to
Account A or Account B, (4) to transfer all or any portion of the Participant's
Account AA to Account BB or Account DD, (5) to transfer all or any portion of
the Participant's Account BB to Account AA or Account DD, and (6) to transfer
all or any portion of the Participant's Account DD to Account AA or Account BB.
Such election shall be effective on the last day of the calendar month in which
the Plan Administrator timely receives the Participant's executed Account
Transfer Request. Transfers may not be made more than four times in any Plan
Year, and no such transfer may be made unless a period of at least three months
shall have elapsed from the effective date of the most recent such transfer
(whether it occurred in the current Plan Year or not) to the effective date of
the current transfer.
ARTICLE VII
BENEFITS
7.1 Benefit for Normal or Early Retirement and Termination After Age 55.
Subject to paragraph 7.6 below, upon a Participant's (i) retirement after
reaching the Normal Retirement Date, or (ii) retirement after reaching the Early
Retirement Date, or (iii) termination of employment after attaining age 55, the
Participant shall be entitled to a Deferral Benefit equal to the amount of the
Participant's Retirement Deferred Benefit Account determined under paragraph 6.1
as of the Determination Date coincident with or immediately following such
event.
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7.2 Termination of Employment Before Age 55. Upon any termination of service of
the Participant before age 55 for reasons other than death or Disability, the
Employer shall pay to the Participant, as compensation earned for services
rendered before the Participant's termination of service, a Deferral Benefit
equal to the amount of the Participant's Termination Deferred Benefit Account
determined under paragraph 6.1. The Termination Deferred Benefit Account of a
Participant whose employment has terminated shall be paid in a single sum to the
terminated Participant within 30 days following termination of employment if the
aggregate balance of the Deferred Benefit Account(s) of such Participant is
$20,000 or less. If such aggregate balance of a Participant's Deferred Benefit
Account(s) is more than $20,000, payment shall commence pursuant to the
Participant's election in the Participation Agreement or in the Amendment of
Payment Election Form.
7.3 Death. If a Participant dies after the commencement of payments of the
Participant's Deferral Benefit, the Participant's Beneficiary shall continue to
receive the remaining installments of the Participant's Deferred Benefit Account
in accordance with the Participant's election pursuant to paragraph 7.6.
If a Participant dies before any payments of a Deferral Benefit, the amounts to
which the Participant's Beneficiary is entitled shall be determined as follows:
(a) In the case of deferrals pursuant to a Participation Agreement first
effective before the Transition Date:
(1) Deferrals of Incentive Compensation shall be the Retirement Deferred
Benefit Account value thereof.
(2) Deferrals of Base Salary pursuant to Participation Agreements that
required a total deferral of less than $15,000 per year allocated to
Accounts A and AA during the last Plan Year of deferrals pursuant to
such Participation Agreement shall be the greater of (i) the
Retirement Deferred Benefit Account value thereof or (ii) ten times
the amount of the elected annual Base Salary deferral.
(3) Deferrals of Base Salary pursuant to Participation Agreements that
required a total deferral of $15,000 or
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more per year allocated to Accounts A and AA during the last Plan Year
of deferrals pursuant to such Participation Agreement shall be
determined as follows: (i) that portion of the deferral which totals
$15,000 per year shall be the greater of (x) the Retirement Deferred
Benefit Account value thereof and (y) ten times the amount of the
elected annual Base Salary deferral, and (ii) the portion of such
deferral which is in excess of $15,000 per year shall be the
Retirement Deferred Benefit Account value of such excess.
(4) Deferrals allocated to Accounts B and BB shall be the Retirement
Deferred Benefit Account value thereof.
(5) Deferrals allocated to Accounts D and DD shall be the Retirement
Deferred Benefit Account value thereof.
(b) In the case of deferrals pursuant to a Participation Agreement first
effective on or after the Transition Date, the aggregate amount of all
deferrals shall be the Retirement Deferred Benefit Account value of
Accounts A, B and D. The Deferral Benefit shall be payable as provided for
in paragraph 7.6. The Deferral Benefit provided above shall be in lieu of
all other benefits under this Plan.
7.4 Disability. In the event of Disability while employed by the Employer
before the completion of all deferrals provided for under a Participation
Agreement, the Employer shall credit to the disabled Participant's Deferred
Benefit Account an amount equal to the amount deferred by the Participant under
the Participation Agreement during such period of Disability, but not beyond the
end of the Plan Year to which the Participation Agreement applies.
In the event of Disability before termination of employment or the Normal
Retirement Date, the disabled Participant, unless the Participant otherwise
elects under this paragraph, shall be entitled to the amount in the
Participant's Retirement Deferred Benefit Account (rather than the Participant's
Termination Deferred Benefit Account) determined under paragraph 6.1 as of the
Determination Date next following such Disability, with payments to commence
upon attainment of the Participant's Normal Retirement Date in the form
specified in paragraph 7.6(a)(2) and/or 7.6(a)(3) over a 15 year period. Before
payments commence under the preceding sentence, a Disabled Participant may
elect, subject to
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Committee approval upon good cause shown: (i) to accelerate commencement of the
payments to any earlier date, but not sooner than 60 days after the onset of
Disability and/or (ii) to change the form of payment permitted under paragraph
7.6(a).
7.5 Suspension of Participation; Failure to Continue Participation. The
Committee, in its sole discretion, may suspend the deferral of a Participant's
Compensation upon the advanced written request of a Participant on account of
financial hardship suffered by that Participant. A Participant must file any
request for such suspension on or before the 15th day preceding the regular
payment date on which the suspension is to take effect. The Committee, in its
sole discretion, shall determine the amount, if any, that will not be deferred
by the Participant as a result of the financial hardship.
The suspension of any deferrals under this paragraph shall not affect amounts
deferred with respect to periods before the effective date of the suspension. A
Participant whose deferrals are suspended may not execute a subsequent
Participation Agreement that would take effect before the beginning of the third
Plan Year following the close of the Plan Year in which the suspension first
took effect.
In the event the Participant ceases to remain a member of the class of employees
who are eligible to participate in this Plan, the Participant may elect to
suspend the amount of any remaining deferral commitment in the same manner as
described for other suspensions in this paragraph, except that Committee
approval shall not be required.
7.6 Form of Benefit Payment.
(a) Upon the happening of an event described in paragraphs 7.1, 7.2, 7.3 or 7.4
above, the Employer shall pay to the Participant or the Participant's
Beneficiary the amount (at a time designated by the Participant in the
Participation Agreement, but commencing no later than the Participant's
Normal Retirement Date) specified in one of the following forms as elected
by the Participant, either in the Participation Agreement or the Amendment
of Payment Election Form filed by the Participant:
(1) a lump sum payment.
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(2) with respect to balances in Accounts A and AA, an annual payment of a
fixed amount that shall amortize the Deferred Benefit Account balance
in equal annual payments of principal and interest over a period from
2 to 20 years. For purposes of determining the amount of the annual
payment, the assumed rate of interest on Accounts A and AA shall be
the average of the applicable Interest Yield as of each Determination
Date for the 60 months preceding the initial annual installment
payment.
(3) with respect to balances in Accounts B and BB, an annual payment over
a period from 2 to 20 years, each such payment having a value, as
determined pursuant to paragraph 6.5(a)(6), of the number of FON Share
Units equal to (i) the number of FON Share Units in the accounts on
the Determination Date immediately following the event described in
paragraph 7.1, 7.2, 7.3 or 7.4, divided by (ii) the number of annual
installments elected. During the period that a Participant is
receiving a distribution from Account B or BB, FON Share Unit
dividends will be added to the Accounts in accordance with
subparagraph 6.5(a)(4). Such FON Share Unit dividends shall be valued
in the same manner as previously described, and all such FON Share
Units accruing after a distribution from Accounts B or BB is made
shall be paid to the Participant with the next distribution from the
account.
(4) with respect to balances in Accounts D and DD, an annual payment over
a period from 2 to 20 years, each such payment having a value, as
determined pursuant to paragraph 6.5(b)(5), of the number of PCS Share
Units equal to (i) the number of PCS Share Units in the accounts on
the Determination Date immediately following the event described in
paragraph 7.1, 7.2, 7.3 or 7.4, divided by (ii) the number of annual
installments elected. During the period that a Participant is
receiving a distribution from Account D or DD, PCS Share Unit
dividends will be added to the Accounts in accordance with
subparagraph 6.5(b)(3). Such PCS Share Unit dividends shall be valued
in the same manner as previously described, and all such PCS Share
Units accruing after a distribution from Accounts D or DD is
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made shall be paid to the Participant with the next distribution from
the account.
(b) A Participant may change the form in which such Participant's benefits
shall be paid by filing an Amendment of Payment Election Form indicating
such change at least 13 months before the date upon which the payments to
be made are determined. No such Amendment of Payment Election Form shall
change the amount elected to be deferred in the Participation Agreement to
which it relates, nor the time elected for commencement of benefit
payments.
(c) In the absence of a Participant's election under subparagraph 7.6(a),
benefits shall be paid in the form specified in subparagraph 7.6(a)(2),
7.6(a)(3), and 7.6(a)(4) over a 15 year period, except as provided in
paragraph 7.2. In the event of a Disabled Participant, payment shall be in
the form described in paragraph 7.4.
(d) If a Participant's Beneficiary dies before payment of the Participant's
Deferred Benefits are complete, payments will continue to be made to the
estate of the Beneficiary in accordance with the Participant's election
pursuant to this paragraph 7.6.
7.7 Withholding; Payroll Taxes. To the extent required by the law in effect at
the time payments are made, the Employer shall withhold from payments made
hereunder any taxes required to be withheld from an employee's wages for the
federal or any state or local government.
7.8 Commencement of Payments. Unless otherwise provided, payments under this
Plan shall begin within 60 days following receipt of notice by the Plan
Administrator of an event which entitles a Participant (or a Beneficiary) to
payments under this Plan, or at such earlier date as may be determined by the
Company pursuant to the terms of the Plan. All payments shall be made as of the
first day of the month.
ARTICLE VIII
BENEFICIARY DESIGNATION
8.1 Beneficiary Designation. Each Participant shall have the right, at any
time, to designate any person or persons as the Participant's Beneficiary or
Beneficiaries (both principal as well as contingent) to whom
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payment under this Plan shall be paid in the event of the Participant's death
before complete distribution to the Participant of the benefits due the
Participant under the Plan.
8.2 Amendments. Any Beneficiary Designation may be changed by a Participant by
the written filing of such change on a form prescribed by the Company. The
filing of a new Beneficiary Designation form will cancel all Beneficiary
Designations previously filed.
8.3 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries predecease the
Participant, then the Participant's designated Beneficiary shall be deemed to be
the person or persons surviving the Participant in the first of the following
classes in which there is a survivor, share and share alike:
(a) The surviving Spouse;
(b) The Participant's children, except that if any of the children predecease
the Participant but leave issue surviving, then such issue shall take by
right of representation the share their parent would have taken if living;
(c) The Participant's personal representative (executor or administrator).
8.4 Effect of Payment. The payment to the Beneficiary or the Beneficiary's
estate shall completely discharge the Employer's obligations relating to the
Participant under this Plan.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment. The Board may at any time amend the Plan in whole or in part;
provided, however, that no amendment shall be effective to decrease or restrict
any Deferred Benefit Account at the time of such amendment.
9.2 Right to Terminate. The Board may at any time terminate the Plan with
respect to new elections to defer if, in its judgment, the continuance of the
Plan, the tax, accounting, or other effects thereof, or
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potential payments thereunder would not be in the best interests of the Company.
The Board may also terminate the Plan in its entirety at any time, and upon any
such termination, each Participant (a) who is then receiving a Deferral Benefit
shall be paid in a lump sum, or over such period of time as determined by the
Company, the then remaining balance in the Participant's Deferred Benefit
Account, and (b) who has not received a Deferral Benefit shall be paid in a lump
sum, or over such period of time as determined by the Company, the balance in
the Participant's Deferred Benefit Account.
ARTICLE X
MISCELLANEOUS
10.1 Unsecured General Creditor. Participants and their Beneficiaries shall have
no legal or equitable rights, interest or claims in any property or assets of
the Employer, nor shall they be Beneficiaries of, or have any rights, claims or
interests in any life insurance policies, annuity contracts or the proceeds
therefrom owned or which may be acquired by the Employer ('Policies'). Such
Policies or other assets of the Employer shall not be held under any trust for
the benefit of Participants or their Beneficiaries or held in any way as
collateral security for the fulfilling of the obligations of the Employer under
this Plan. Any and all of the Employer's assets and Policies shall be, and
remain, the general, unpledged, unrestricted assets of the Employer. The
Employer's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Employer to pay money in the future.
10.2 Nonassignability. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of actual receipt
the amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and non-transferable.
No part of the amounts payable shall, before actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
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10.3 Not a Contract of Service. The terms and conditions of this Plan shall not
be deemed to constitute a contract of service between the Employer and the
Participant, and the Participant (or the Participant's Beneficiary) shall have
no rights against the Employer except as may otherwise be specifically provided
herein. Moreover, nothing in this Plan shall be deemed to give a Participant the
right to be retained in the service of the Employer or to interfere with the
right of the Employer to discipline or discharge the Participant at any time.
10.4 Protective Provisions. A Participant will cooperate with the Employer by
furnishing any and all information requested by the Employer, in order to
facilitate the payment of benefits hereunder, and by taking such physical
examinations as the Employer may deem necessary and taking such other action as
may be requested by the Employer.
10.5 Applicable Law. The Plan, and any Participation Agreement related thereto,
shall be governed by the laws of the State of Kansas, without regard to the
principles of conflicts of law.
10.6 Affiliated Entities. For purposes of this Plan, a Participant who becomes
employed by Global One (an "Affiliated Entity") shall not be considered to have
terminated employment with the Company or a subsidiary of the Company until the
Participant's employment is terminated with all Affiliated Entities without
becoming employed by the Company or its subsidiaries.
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Exhibit(10)(j)
MANAGEMENT INCENTIVE STOCK OPTION PLAN
1. Establishment and Purpose. Sprint Corporation, a Kansas corporation (the
"Company"), hereby establishes a stock option plan to be named the
Management Incentive Stock Option Plan (the "Plan") The purpose of the Plan
is to permit employees of the Company and its subsidiaries who are eligible
to receive annual incentive compensation to receive nonqualified stock
options in lieu of a portion of the target incentive under the Company's
management incentive plans ("MIPs"), thereby encouraging the employees to
focus on the growth and profitability of the Company and the performance of
its common stock. Subject to approval of the Company's stockholders, the
Plan provides for options to be granted beginning March 15, 1995, and
ending April 18, 2005. Stock options granted prior to or as of April 18,
2005, may extend beyond that date.
2. Administration. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors (the "Committee"). The
Company shall grant options under the Plan in accordance with
determinations made by the Committee pursuant to the provisions of the
Plan. The Committee from time to time may adopt (and thereafter amend and
rescind) such rules and regulations for carrying out the Plan and take such
action in the administration of the Plan, not inconsistent with the
provisions of the Plan, as it shall deem proper. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan,
or in any option or restricted shares of common stock granted or issued
pursuant to the Plan, in the manner and to the extent it shall deem
desirable to effect the terms of the Plan. With respect to any option or
restricted stock issued under the Plan, the Committee may determine when
the option may become exercisable or the restrictions on restricted stock
shall lapse, as the case may be, whenever, in the judgement of the
committee, doing so would be in the best interest of the Corporation.
The interpretation and construction of any provisions of the Plan by the
Committee shall, unless otherwise determined by the Board of Directors of
the Company, be final and conclusive. No member of the Board of Directors
or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any option granted under it. The
Corporate Secretary shall act as Plan Administrator carrying out the
day-to-day administration of the Plan unless the Committee appoints another
officer or employee of the Company as Plan Administrator.
3. Eligibility. The Committee will determine each year whether options will
be granted in such year, whether participation will be elective or
automatic, which class or classes of common stock will be subject to
purchase by participants (which may different for different groups of
employees) and the amount of incentive compensation to be given up for each
stock option. Any salaried employee of the Company and its subsidiaries
shall be eligible to be selected for participation in the MIPs. The
Committee will, in its discretion, determine the employees who participate
in the MIPs and, therefore, who will be eligible for
<PAGE>
options, the dates on which options shall be granted, and any conditions on
the exercise of the options.
No option may be granted to any individual who immediately after the option
grant owns directly or indirectly stock possessing more than five percent
(5%) of the total combined voting power or value of all classes of stock of
the Company or any subsidiary.
4. Common Stock Subject to the Plan. The shares of any class of publicly
traded common stock of the Company to be issued upon the exercise of a
nonqualified option to purchase such common stock granted in lieu of MIP
payout may be made available from the authorized but unissued common stock
of the Company, shares of common stock held in the treasury, or common
stock purchased on the open market or otherwise.
Approval of the Plan by the Stockholders of the Company shall constitute
authorization to use such shares for the Plan subject to the discretion of
the Board or as such discretion may be delegated to the Committee.
Subject to the provisions of the following paragraph, the total number of
shares for which options may be granted under the Plan each year shall be
0.9% of the total outstanding shares of each class of common stock of the
Company (including, with respect to the PCS Stock, both Series 1 and Series
2 PCS Stock) as of the first day of such year; provided, however, that such
number shall be increased in any year by the number of shares available in
previous years for which options have not been granted. If and when an
option granted under the Plan is terminated without having been exercised
in full, the unpurchased or forfeited shares shall become available for
grant to other employees.
The number and kind of shares subject to the Plan may be appropriately
adjusted by the Committee in the circumstances outlined in Section 5(k).
5. Stock Options; Terms and Conditions. Each option will represent the right
to purchase a specific class and number of shares of common stock of the
Company and shall be subject to the following terms and conditions and to
such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem desirable:
a. Consideration for and Class and Number of Options. Each option shall
be granted in lieu of a portion of the optionee's cash payout under
the MIPs. The Committee shall determine the class and the number of
shares or the manner of determining the class and number of shares
available for each option each year, subject to the total number of
shares available under the Plan for such year, and the amount or the
method of determining the amount of annual incentive compensation to
be given up by each participant in return for an option, taking into
consideration appropriate factors in making such determinations, such
as interest rates, volatility of the market price of the class of
common stock of the Company and the term of the option, provided,
however that shares subject to options granted to any individual
employee during any calendar year shall not exceed a total
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of 1,000,000 shares of FON Stock (as defined in the Company's articles
of incorporation) or 500,000 shares of Series 1 PCS Stock (as defined
in the Company's articles of incorporation).
b. Participation in the Plan. Participation in the Plan may be voluntary
or automatic, as determined by the Committee. The rules and procedures
for voluntary participation, when applicable, shall be established and
implemented by the Plan Administrator.
c. Exercise Price. The price at which each share covered by an option may
be purchased shall be one hundred percent (100%) of the fair market
value of the Company's common stock on the date the option is granted.
Fair market value shall be deemed to be the average of the high and
low prices of the Company's common stock for composite transactions as
published by major newspapers for the date the option is granted or,
if no sale of the Company's common stock shall have been made on that
day, the next preceding day on which there was a sale of such stock.
d. Vesting. Unless the Committee determines otherwise, stock option
grants shall provide: (i) with respect to options issued in lieu of
annual management incentive compensation, that the total number of
shares subject to an option shall become exercisable December 31 in
the year of the date of grant and (ii) with respect to options issued
in lieu of or as part of long-term incentive compensation ("LTIP
Options") that the total number of shares subject to the option shall
become exercisable in full on the third December 31 following the
grant date. Unless the Committee provides otherwise, if the grantee of
an LTIP Option terminates employment by reason of the grantee's death,
total disability, or normal retirement (with respect to options
outstanding at least 1 year on retirement), the LTIP Option shall
become exercisable in full on the grantee's termination date. Unless
the Committee provides otherwise, if the grantee of any other option
terminates employment before the option becomes exercisable for any
reason other than termination for good cause, the option shall be
forfeited and any incentive compensation foregone to acquire the
options shall be restored to the grantee as if an election to acquire
options were not made.
e. Term of Option. Options shall not be exercisable after the expiration
of ten (10) years from the date of grant.
f. Payment of Exercise Price. Options shall be exercisable only upon
payment to the Company of the full purchase price of the shares with
respect to which options are exercised. Payment for the shares shall
be either in United States dollars, payable in cash or by check, or by
surrender of stock certificates representing the same class of common
stock of the Company having an aggregate fair market value, determined
as of the date of exercise, equal to the number of shares with respect
to which such options are exercised multiplied by the exercise price
per share. The fair market value of common stock on
3
<PAGE>
the date of exercise of options shall be determined in the same manner
as the fair market value of common stock on the date of grant of
options is determined. Certain optionees may use restricted stock as
payment for the exercise price in accordance with Section 6 hereof. In
that event, fair market value of the shares of restricted stock will
be determined as if the shares were not restricted. In lieu of the
delivery of physical certificates, the optionee may deliver shares in
payment of the exercise price by attesting, on a form established for
such purpose by the Secretary, to the ownership, either outright or
through ownership of a broker account, of a sufficient number of
shares held for a period of at least six months to pay the exercise
price. The attestation must be notarized and signed by the optionee's
spouse if the spouse is a joint owner of the shares with respect to
which such attestation is made and must be accompanied by such
documentation as the Corporate Secretary may consider necessary to
evidence actual ownership of such shares.
g. Manner of Exercise. A completed exercise form and the exercise price,
whether in the form of cash or stock, must be delivered to the Plan
Administrator in order to exercise an option. An option shall be
deemed exercised on the date such exercise form and payment are
received by the Plan Administrator.
h. Time for Exercise. Each option expires if it has not been exercised
within its term. Once an option has expired for any reason, it can no
longer be exercised. If the grantee's employment with the Company or a
subsidiary of the Company is terminated, the optionee may exercise
options that are exercisable on the date of termination of employment
until the earlier of (1) the date on which the option expires and (2)
the end of the applicable period below, beginning on the grantee's:
(i) retirement: five years after the grantee's retirement date.
(ii) disability (qualifying for long-term disability benefits under
the Company's Basic Long-Term Disability Plan): five years after
the grantee's qualification date.
(iii) death: one year after the grantee's death for the estate or
designated beneficiary to exercise the decedent's options.
(iv) involuntary termination other than for cause: the date on which
the option expires.
(v) voluntary termination: three months from the grantee's date of
termination of employment.
If a grantee's employment is terminated for a reason constituting good
cause, any outstanding options granted under the Plan shall
automatically terminate. "Good cause" means conduct by the grantee
that reflects adversely on the grantee's honesty, trustworthiness or
4
<PAGE>
fitness as an employee, or the grantee's willful engagement in conduct
which is demonstrably and materially injurious to the Company.
If a grantee becomes associated with, becomes employed by, renders
services to, or owns any interest in (other than an insubstantial
interest, as determined by the Committee) any business in competition
with the Company, all outstanding options granted to the grantee
whether vested or unvested shall automatically terminate and shares of
restricted stock received upon the exercise of an option pursuant to
Section 6 hereof that continue to be restricted shall be forfeited.
For purposes of this Plan, an employee who becomes employed by certain
non- subsidiary affiliates designated by the Committee (each, together
with their subsidiaries, an "Affiliated Entity"), shall not, except
with respect to incentive stock options, be considered to have
terminated employment with the Company or a subsidiary of the Company
until his employment is terminated with all Affiliated Entities
without becoming re-employed by the Company or its subsidiaries.
i. Restricted Stock. Certain grantees may elect to deliver restricted
shares or receive restricted shares in connection with an exercise of
an option by the grantee, as provided in Section 6 hereof.
j. Beneficiary Designations. The grantee of an option may designate a
beneficiary or beneficiaries to exercise unexpired options held by the
grantee and to own shares issued upon any such exercise after the
grantee's death without order of any probate court or otherwise. A
beneficiary so designated may exercise an option upon presentation to
the Company of evidence satisfactory to the Corporate Secretary of (1)
the beneficiary's identity and (2) the death of the grantee. A grantee
may change any beneficiary designation of options held by the grantee
at anytime before his death but may not do so by testamentary
designation in his will or otherwise. Beneficiary designations must be
made in writing on a form provided by the Corporate Secretary.
Beneficiary designations shall become effective on the date that the
form, properly completed, signed and notarized, is received by the
Secretary. Any designation of a beneficiary with respect to any option
shall be deemed canceled upon the transfer of such option to a trust
in accordance with the terms of the Plan.
k. Change in Stock, Adjustments. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, spin-
off, or other change in the corporate structure affecting the shares,
such adjustment shall be made in the aggregate number and class of
shares that may be delivered under the Plan, in the number and class
of shares that may be subject to an option granted to any individual
in any year under the Plan, and in the number, class, and option price
of shares subject to outstanding options granted under the Plan, as
may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any option
shall always be a whole number.
5
<PAGE>
l. Limitations on Transfer. Options may not be transferred, levied,
garnished, executed upon, subjected to a security interest, or
assigned to any person other than the grantee, except that the grantee
may transfer an option to a trust of the kind described in Section
6(b). Any such trust as transferee of an option may not (1) dispose of
shares received in an exercise of such options until such shares are
validly registered or exempt from registration under any applicable
exemption from registration under the Securities Act of 1933, as
amended, in the opinion of the Corporate Secretary or (2) while
continuing to hold options issued under this plan, be amended to
change beneficiaries to persons other than those permissible under
Section 6(b). Documents evidencing the transfer of any option and the
identity of the transferee shall be in such form as may be required by
the Corporate Secretary.
6. Restricted Stock. Certain grantees, as determined by the Committee, may
elect to receive restricted shares upon payment for the exercise of an
option in the form of unrestricted common stock. The grantee will receive
the same number of unrestricted shares as the number of shares surrendered
to pay the exercise price, while the shares received in excess of the
number surrendered to pay the exercise price may be restricted. Such
grantees may also elect to deliver restricted shares of the Company's
common stock in payment of the exercise price notwithstanding restrictions
on transferability to which such shares are subject. The Company shall be
authorized to issue restricted shares of common stock upon such exercises
of stock options, subject to the following conditions:
a. The grantee shall elect a vesting period for the restricted common
stock to be received upon exercise of the option of between 6 months
and 10 years, subject to rules and procedures established by the Plan
Administrator, but in no event may a grantee elect a vesting period
shorter than the period provided in paragraph (d) of this Section 6.
At any time on or before the 13th calendar month preceding the date on
which restrictions on shares of restricted stock would otherwise
lapse, the grantee may elect to extend the vesting period on all but
not a portion of such shares by six months or any multiple of six
months.
b. The grantee who receives restricted stock may not sell, transfer,
assign, pledge or otherwise encumber or dispose of shares of
restricted stock until such time as all restrictions on such stock
have lapsed except: (i) to the Company in payment of the exercise
price of a stock option issued by the Company under any employee stock
option plan adopted by the Company that provides for payment of the
exercise price in the form of restricted stock, provided that such
payment is made in accordance with the terms of such plan; or (ii) to
a trust of which the grantee, the grantee's spouse, or descendants (by
blood, adoption, or marriage) of the grantee are the primary
beneficiaries and which is a grantor trust treated as owned by the
grantee under Subchapter J of the Internal Revenue Code, upon the
following terms:
(A) the Company receives, prior to such transfer, a true copy of the
trust agreement and an opinion from grantee's counsel (1) that
the trust will be treated as a grantor trust owned by the
6
<PAGE>
grantee under Subchapter J of the Internal Revenue Code at all
times until the restrictions on such stock lapse or the stock is
forfeited under the terms of its grant, (2) that the terms of the
trust provide that upon the forfeiture of the restricted stock
under the terms of its grant or the earlier termination of the
trust for whatever reason, ownership of the restricted stock
shall revert to the grantee or to the Company, (3) that the
trustee of such trust may not, prior to the lapsing of
restrictions on such stock, sell, transfer, assign, pledge, or
otherwise encumber or dispose of shares of restricted stock
except to the Company or to the grantee, subject to the
restrictions provided for in this Plan, and (4) that, until the
restrictions lapse, the trustee is not authorized to incur
liabilities on behalf of the trust, other than to the
beneficiaries of the trust; and
(B) the grantee and the trustee of the trust shall execute stock
powers in blank to be held in the custody of the Company; and
(C) the Corporate Secretary of the Company may, in his discretion,
enforce the foregoing transfer restrictions by maintaining
physical custody of the certificate or certificates representing
such shares of restricted stock, by placing a restrictive legend
on such certificates, by requiring the grantee and the trustee to
execute other documents as a pre-condition to such transfer, or
otherwise.
c. A grantee who elects to receive restricted common stock upon an
exercise shall have the right to satisfy tax withholding obligations
in the manner provided in Section 8 hereof.
d. Restricted common stock received in such an exercise or from other
plans of the Company may be used for payment of the exercise price of
a stock option to purchase shares of the same class, so long as all
the shares received as a result of such an exercise are restricted for
a period at least as long as, and shall have other terms consistent
with the terms of, the restricted common stock used in payment.
e. The shares of restricted common stock received in an exercise of a
stock option that continue to be restricted shall be forfeited in the
event that vesting conditions are not satisfied, subject to the
discretion of the Committee, except in the case of death, disability,
normal retirement, or involuntary termination for reasons other than
for good cause, in which case all restrictions lapse; provided,
however, that in no event shall restrictions lapse if the restrictions
on shares used to pay for the exercise price pursuant to Section 6(d)
would not have lapsed under the same conditions. If restricted shares
are forfeited, the grantee or his representative shall sign any
document and take any other action required to assign said restricted
shares back to the Company.
7
<PAGE>
f. The grantee will have all the rights of a stockholder with respect to
shares of restricted stock received upon the exercise of an option,
including the right to vote the shares of stock and the right to
dividends on the stock. Unless the Plan Administrator establishes
alternative procedures, the shares of restricted stock will be
registered in the name of the grantee and the certificates evidencing
such shares shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to the award and shall be held
in escrow by the Company. The grantee shall execute a stock power or
powers assigning the shares of restricted stock back to the Company,
which stock powers shall be held in escrow by the Company and used
only in the event of the forfeiture of any of the shares of restricted
stock. A certificate evidencing unrestricted shares of common stock
shall be issued to the grantee promptly after the restrictions lapse
on any restricted shares.
g. The Plan Administrator shall have the discretion and authority to
establish any rules in connection with the use of restricted stock,
including but not limited to regulating the timing of the lapse of
restrictions within the six-month to ten-year period and prescribing
election forms as the Plan Administrator deems necessary or desirable
for the orderly administration of such exercises.
7. Reload Options. The Committee may provide that optionees have the right to
a reload option, which shall be subject to the following terms and
conditions:
a. Grant of the Reload Option; Number of Shares; Price. Subject to
subsections (b) and (c) of this Section 7 and to the availability of
shares to be optioned under the Plan, if an optionee has an option to
purchase shares of any class of common stock (the "original option")
with reload rights and pays for the exercise of the original option by
surrendering common stock of the same class, the optionee shall
receive a new option ("reload option") to purchase the number and
class of shares so surrendered (or, if applicable, the number of
shares provided for in paragraph (h) of this Section 7) at an exercise
price equal to the fair market value of the class of stock on the date
of the exercise of the original option. If, in the judgment of the
Company's Corporate Secretary, the number of shares available on the
exercise of the original options falls below a number sufficient to
provide for the grant of reload options and for other purposes under
the Plan, the Company's Corporate Secretary may authorize the issuance
of reload options from any other plan of the Company's under which
sufficient shares are authorized but not issued.
b. Minimum Purchase Required. A reload option will be granted only if the
exercise of the original option is an exercise of at least 25% of the
total number of shares granted under the original option (or an
exercise of all the shares remaining under the original option if less
than 25% of the shares remain to be exercised).
c. Other Requirements. A reload option: (1) will not be granted if the
market value of the common stock of the Company on the date of
8
<PAGE>
exercise of the original option is less than the exercise price of the
original option; (2) will not be granted if the grantee is not, on the
exercise date, an employee of Sprint or a Sprint subsidiary; (3) will
not be granted if the original option is exercised less than one year
before the expiration of the original option; and (4) with respect to
options transferred by the grantee to another person in accordance
with this Plan, reload options shall be granted to the grantee upon a
stock-for-stock exercise by the optionee to the same extent as if the
grantee had exercised the option in a similar manner.
d. Term of Option. The reload option shall expire on the same date as the
original option.
e. Type of Option. The reload option shall be a nonqualified option to
purchase shares of the same class of shares as the original option.
f. No Additional Reload Options. The reload options shall not include any
right to a second reload option.
g. Date of Grant, Vesting. The date of grant of the reload option shall
be the date of the exercise of the original option. The reload options
shall be exercisable in full beginning one year from date of grant;
provided, however, that all shares purchased upon the exercise of the
original option (except for any shares withheld for tax withholding
obligations) shall not be sold, transferred or pledged within six
months from the date of exercise of the original option. The reload
option shall become exercisable in full if the optionee terminates
employment by reason of the grantee's death, disability, or normal
retirement. In no event shall a reload option be exercised after the
original option expires as provided in subsection (d) of this Section
7.
h. Stock Withholding; Grants of Reload Options. If the other requirements
of this Section 7 are satisfied, and if shares are withheld or shares
surrendered for tax withholding, a reload option will be granted for
the number of shares surrendered as payment for the exercise of the
original option plus the number of shares surrendered or withheld to
satisfy tax withholding. In connection with reload options for
officers who are subject to Section 16 of the Securities Exchange Act
of 1934, the Committee may at any time impose any limitations which,
in the Committee's sole discretion, are necessary or desirable in
order to comply with Section 16(b) of the Securities Exchange Act of
1934 and the rules and regulations thereunder, or in order to obtain
any exemption therefrom.
i. Other Terms and Conditions. Except as otherwise provided in this
Section 7, all the provisions of the Plan shall apply to reload
options.
8. Stock Withholding Election. When taxes are withheld in connection with the
exercise of a stock option by delivering shares of stock in payment of the
exercise price, or upon the lapse of restrictions on restricted stock
received upon the exercise of an option (the date on which such exercise
occurs or such
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<PAGE>
restrictions lapse hereinafter referred to as the "Tax Date"), the optionee
may elect to make payment for the withholding of federal, state and local
taxes, including Social Security and Medicare ("FICA") taxes, up to the
optionee's marginal tax rate, by one or both of the following methods:
(i) delivering part or all of the payment in previously-owned shares of
the same class (which shall be valued at fair market, as defined
herein, on the Tax Date) which shares, if acquired from the Company,
must have been held for at least six months;
(ii) requesting the Company to withhold from those shares that would
otherwise be received upon exercise of the option or upon the lapse of
restrictions, a number of shares having a fair market value (as
defined herein) on the Tax Date equal to the amount to be withheld.
The amount of tax withholding to be satisfied by withholding shares
from the option exercise is limited to the minimum amount of taxes,
including FICA taxes, required to be withheld under federal, state and
local law.
Such election is irrevocable after the Tax Date. Any fractional share
amount and any additional withholding not paid by the withholding or
surrender of shares must be paid in cash. If no timely election is made,
cash must be delivered to satisfy all tax withholding requirements.
If the exercise of an option by an optionee other than the grantee after
transfer of the option pursuant to this plan from the grantee to the
optionee results in a withholding obligation on the part of the grantee,
the grantee may elect to satisfy his withholding obligation by delivery of
shares to the Company as permitted in clause (i) above.
9. Acceleration on a Change in Control
a. With respect to any LTIP Option outstanding for at least one year or
any restricted shares issued under the Plan other than pursuant to
Section 6(d), the options shall (subject to the 280G limitations
applicable under the 1990 Stock Option Plan) become exercisable in
full and the restrictions shall lapse, as the case may be, upon a
change in control of the Company.
b. For purposes of this Plan, a "change in control of the Company" shall
be deemed to have occurred whenever a "Change in Control" occurs for
purposes of the Company's 1990 Stock Option Plan, as amended from time
to time.
10. Miscellaneous.
a. Amendment. The Company reserves the right to amend the Plan at any
time by action of the Board of Directors provided that no such
amendment may materially and adversely affect any outstanding stock
options without the consent of the optionee, and provided that,
without
10
<PAGE>
the approval of the stockholders, no such amendment may increase the
total number of shares reserved for the purposes of the Plan.
b. Effectiveness of Plan. This Plan shall be effective as of February 18,
1995, subject to approval of Stockholders of the Company prior to
February 18, 1996.
c. Rights in Securities. All certificates for shares delivered under the
Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the shares are then listed,
and any applicable federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions. No optionee or
optionee's beneficiary, executor or administrator, legatees or
distributees, as the case may be, will be, or will be deemed to be, a
holder of any shares subject to an option unless and until a stock
certificate or certificates for such shares are issued to such person
or persons under the terms of the Plan. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities
or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued,
except as provided in Section 5(k) hereof.
d. Date of Grant. The grant of an option shall be effective no earlier
than the date the Committee decides to grant the option, except that
grants of reload options shall be effective as provided in Section
7(g) hereof.
e. Application of Funds. The proceeds received by the Company from the
sale of stock subject to option are to be added to the general funds
of the Company and used for its corporate purposes.
f. No Obligation to Exercise Option. Granting of an option shall impose
no obligation on the optionee to exercise such option.
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Exhibit (10)(k)
1997 LONG-TERM STOCK INCENTIVE PROGRAM
Section 1. Purpose. The purposes of the Sprint 1997 Long-Term Stock
Incentive Program (the "Plan") are to encourage Directors of Sprint Corporation
(the "Company") and officers and selected key employees of the Company and its
Affiliates to acquire a proprietary and vested interest in the growth and
performance of the Company, to generate an increased incentive to contribute to
the Company's future success and prosperity, thus enhancing the value of the
Company for the benefit of stockholders, and to enhance the ability of the
Company and its Affiliates to attract and retain individuals of exceptional
talent upon whom, in large measure, the sustained progress, growth and
profitability of the Company depends.
Section 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Company or (ii) any entity in which the Company has a significant
equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Restricted Stock Award, Performance
Share, Performance Unit, Dividend Equivalent, Other Stock Unit Award, or any
other right, interest, or option relating to Shares granted pursuant to the
provisions of the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award granted hereunder and signed by both
the Company and the Participant or by both the Company and an Outside Director.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the Organization, Compensation, and Nominating
Committee of the Board, composed of not less than two directors each of whom is
a Non-Employee Director.
(g) "Company" shall mean Sprint Corporation.
(h) "Non-Employee Director" shall have the meaning provided for in Rule
16b-3(b)(3) under the Securities Exchange Act of 1934, 17 CFR Section
240.16b-3(b)(3), as amended.
(i) "Dividend Equivalent" shall mean any right granted pursuant to Section
14(h) hereof.
(j) "Employee" shall mean any employee of the Company or of any Affiliate.
<PAGE>
(k) "Fair Market Value" shall mean, with respect to any property, the
market value of such property determined by such methods or procedures as shall
be established from time to time by the Committee; except that the "Fair Market
Value" of a share of common stock of the Company for purposes of Section 10 and
Section 11 shall mean the average of the high and low prices of the common stock
for composite transactions, as published by major newspapers, for the date in
question or, if no trade of the common stock shall have been made on that date,
the next preceding date on which there was a trade of common stock.
(l) "Incentive Stock Option" shall mean an Option granted under Section 6
hereof that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
(m) "Nonstatutory Stock Option" shall mean an Option granted to a
Participant under Section 6 hereof, and an Option granted to an Outside Director
pursuant to Section 10 hereof, that is not intended to be an Incentive Stock
Option.
(n) "Option" shall mean any right granted to a Participant under the Plan
allowing such Participant to purchase Shares at such price or prices and during
such period or periods as the Committee shall determine. "Option" shall also
mean the right granted to an Outside Director under Section 10 hereof allowing
such Outside Director to purchase shares of the common stock of the Company on
the terms set forth in Section 10.
(o) "Other Stock Unit Award" shall mean any right granted to a Participant
by the Committee pursuant to Section 9 hereof.
(p) "Outside Director" shall mean a member of the Board who is not an
Employee of the Company or of any Affiliate.
(q) "Participant" shall mean an Employee or Outside Director who is
selected to receive an Award under the Plan.
(r) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 8 hereof.
(s) "Performance Period" shall mean that period established by the
Committee at the time any Performance Award is granted or at any time thereafter
during which any performance goals specified by the Committee with respect to
such Award are to be measured.
(t) "Performance Share" shall mean any grant pursuant to Section 8 hereof
of a unit valued by reference to a designated number of Shares, which value may
be paid to the Participant by delivery of such property as the Committee shall
determine, including, without limitation, cash, Shares, or any combination
thereof, upon achievement of such performance goals during the Performance
Period as the Committee shall establish at the time of such grant or thereafter.
(u) "Performance Unit" shall mean any grant pursuant to Section 8 hereof
of a unit valued by reference to a designated amount of property other than
Shares, which
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value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
(v) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(w) "Restricted Stock" shall mean any Share issued with restrictions on
the holder's right to sell, transfer, pledge, or assign such Share and with such
other restrictions as the Committee, in its sole discretion, may impose
(including, without limitation, any restriction on the right to vote such Share,
and the right to receive any cash dividends), which restrictions may lapse
separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
(x) "Restricted Stock Award" shall mean an award of Restricted Stock under
Section 7 hereof.
(y) "Senior Officer" shall mean any employee of the Company holding the
office of Vice President or higher.
(z) "Shares" shall mean shares of any class of common stock of the Company
publicly traded on an established securities market, including but not limited
to FON Stock and Series 1 PCS Stock (the "PCS Stock") and such other securities
of the Company as the Committee may from time to time determine.
(aa) "Stockholders Meeting" shall mean the annual meeting of stockholders
of the Company in each year.
(bb) "1989 Plan" shall mean the Long-Term Stock Incentive Program adopted
by the Company's stockholders in 1989, as amended.
(cc) "total outstanding Shares" means, with respect to the FON Stock the
total shares outstanding of FON Stock and, with respect to the PCS Stock, the
total outstanding shares of Series 1 PCS Stock and Series 2 PCS Stock.
Section 3. Administration. The Plan shall be administered by the Committee.
The Committee shall have full power and authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time to
time be adopted by the Board, to: (i) select the Participants to whom Awards may
from time to time be granted hereunder; (ii) determine the type or types of
Awards to be granted to each Participant hereunder; (iii) determine the number
of Shares to be covered by each Award granted hereunder; provided, however, that
Shares subject to Options granted to any individual Participant during any
calendar year shall not exceed a total of 6,000,000 shares of FON Stock nor
3,000,000 shares of PCS Stock; (iv) determine the terms and conditions, not
inconsistent with the provisions of the Plan, of any Award granted hereunder;
(v) determine whether, to what extent and under what circumstances Awards may be
settled in cash, Shares or other property, or canceled or suspended; (vi)
determine whether, to what extent and under what circumstances cash, Shares and
other property and other amounts payable with respect to an Award under this
Plan shall be deferred
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<PAGE>
either automatically or at the election of the Participant; (vii) interpret and
administer the Plan and any instrument or agreement entered into under the Plan;
(viii) establish such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding upon all persons, including the Company, any
Participant, any stockholder, and any employee of the Company or of any
Affiliate.
The Committee shall appoint an administrator of the Plan for purposes of
interpreting and administering the provisions of Section 11 of the Plan.
Section 4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(b), the total number of
Shares available for grant under the Plan in a calendar year shall be nine
tenths of one percent (0.9%) of the total outstanding Shares as of the first day
of calendar year 1997, plus a number of Shares equal to the number of Shares
available for grant under the 1989 Plan as of the close of business on the date
of the 1997 Stockholders Meeting, for calendar year 1997, and one and one-half
percent (1.5%) of the total outstanding Shares as of the first day of each such
year for which the Plan is in effect beginning with calendar year 1998 plus
20,000,000 shares of PCS Stock; provided that such number shall be increased in
any year by the number of Shares available for grant hereunder in previous years
but not covered by Awards granted hereunder in such years; and provided further,
that no more than four million (8,000,000) shares of FON Stock and no more than
two million shares of PCS Stock (4,000,000) shall be cumulatively available for
the grant of Incentive Stock Options under the Plan. In addition, any Shares
issued by the Company through the assumption or substitution of outstanding
grants from an acquired company shall not reduce the shares available for grants
under the Plan. Any Shares issued hereunder may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any Shares subject to any
Award granted hereunder are forfeited or such Award otherwise terminates without
the issuance of such Shares or of other consideration in lieu of such Shares,
the Shares subject to such Award, to the extent of any such forfeiture or
termination, shall again be available for grant under the Plan.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, spin-off, or other change in the corporate
structure affecting the Shares, such adjustment shall be made in the aggregate
number and class of Shares which may be delivered under the Plan, in the number
and class of shares that may be subject to an option granted to any individual
in any year under the Plan, in the number, class and option price of Shares
subject to outstanding Options granted under the Plan, and in the value of, or
number or class of Shares subject to, Awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of Shares subject to any Award shall always be a whole number.
Section 5. Eligibility. Any Employee or Outside Director shall be eligible
to be selected as a Participant.
Section 6. Stock Options. Options may be granted hereunder to Participants
either alone or in addition to other Awards granted under the Plan. Any Option
granted to a Participant under the Plan shall be evidenced by an Award Agreement
in such form as the Committee may from time to time approve. Any such Option
shall be subject to
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<PAGE>
the following terms and conditions and to such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Committee shall deem
desirable:
(a) Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee in its sole discretion; provided
that such exercise price shall not be less than the Fair Market Value of the
Share on the date of the grant of the Option.
(b) Option Period. The term of each Option shall be fixed by the Committee
in its sole discretion; provided that no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date the Option is
granted.
(c) Exercisability. Options shall be exercisable at such time or times as
determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock Option
shall be exercisable until the first anniversary date of the granting of the
Incentive Stock Option.
(d) Method of Exercise. Subject to the other provisions of the Plan and
any applicable Award Agreement, any Option may be exercised by the Participant
in whole or in part at such time or times, and the Participant may pay the
exercise price in such form or forms, including, without limitation, payment by
delivery of cash, Shares or other consideration (including, where permitted by
law and the Committee, Awards) having a Fair Market Value on the exercise date
equal to the total exercise price, or by any combination of cash, Shares and
other consideration, as the Committee may permit.
(e) Incentive Stock Options. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant that are exercisable for the first time by such
Participant during any calendar year under the Plan (and under any other benefit
plans of the Company or of any parent or subsidiary corporation of the Company)
shall not exceed $100,000 or, if different, the maximum limitation in effect at
the time of grant under Section 422 of the Code, or any successor provision, and
any regulations promulgated thereunder. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of Section
422 of the Code, or any successor provision, and any regulations promulgated
thereunder.
(f) Form of Settlement. In its sole discretion, the Committee may provide,
at the time of grant, that the shares to be issued upon an Option's exercise
shall be in the form of Restricted Stock or other similar securities, or may
reserve the right so to provide after the time of grant, or the Committee may
provide that the Participant may elect to receive Restricted Stock upon an
Option's exercise.
Section 7. Restricted Stock.
(a) Issuance. Restricted Stock Awards may be issued hereunder to
Participants, for such consideration as the Committee may determine, not less
than the minimum consideration required by applicable law, either alone or in
addition to other Awards granted under the Plan. The provisions of Restricted
Stock Awards need not be the same with respect to each recipient.
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<PAGE>
(b) Registration. Any Restricted Stock issued hereunder may be evidenced
in such manner as the Committee in its sole discretion shall deem appropriate,
including, without limitation, book- entry registration or issuance of a stock
certificate or certificates. In the event any stock certificate is issued in
respect of shares of Restricted Stock awarded under the Plan, such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award or shall be held in escrow by the Company until all
restrictions on the Restricted Stock have lapsed.
(c) Forfeiture. Except as otherwise determined by the Committee at the
time of grant, upon termination of employment for any reason during the
restriction period, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and reacquired by the Company; provided
that in the event of a Participant's retirement, permanent disability, other
termination of employment or death, or in cases of special circumstances, the
Committee may, in its sole discretion, when it finds that a waiver would be in
the best interests of the Company, waive in whole or in part any or all
remaining restrictions with respect to such Participant's shares of Restricted
Stock.
Section 8. Performance Awards.
Performance Awards may be issued hereunder to Participants, for such
consideration as the Committee may determine, not less than the minimum
consideration required by applicable law, either alone or in addition to other
Awards granted under the Plan. The performance criteria to be achieved during
any Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Award. Except as
provided in Section 12, Performance Awards will be paid only after the end of
the relevant Performance Period. Performance Awards may be paid in cash, Shares,
other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period or, in
accordance with procedures established by the Committee, on a deferred basis.
Section 9. Other Stock Unit Awards.
(a) Stock and Administration. Other Awards of Shares and other Awards that
are valued in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be granted hereunder to
Participants, either alone or in addition to other Awards granted under the
Plan. Other Stock Unit Awards may be paid in Shares, cash or any other form of
property as the Committee shall determine. Subject to the provisions of the
Plan, the Committee shall, subject to Section 3, have sole and complete
authority to determine the Employees or Outside Directors to whom and the time
or times at which such Awards shall be made, the number of Shares to be granted
pursuant to such Awards, and all other conditions of the Awards. The provisions
of Other Stock Unit Awards need not be the same with respect to each recipient.
(b) Terms and Conditions. Subject to the provisions of this Plan and any
applicable Award Agreement, Shares subject to Awards made under this Section 9
may not be sold, assigned, transferred, pledged or otherwise encumbered prior to
the date on
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<PAGE>
which the Shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses. Shares granted under this
Section 9 may be issued for such consideration as the Committee may determine,
not less than the minimum consideration required by applicable law. Shares
purchased pursuant to a purchase right awarded under this Section 9 shall be
purchased for such consideration as the Committee shall in its sole discretion
determine, which shall not be less than the Fair Market Value of such Shares as
of the date such purchase right is awarded.
Section 10. [Deleted]
Section 11. Outside Directors' Shares
Outside Directors may elect, on an annual basis, to purchase shares of any
class of common stock of the Company from the Company in lieu of receiving all
or part (in 10% increments) of their annual retainer, meeting fees and committee
meeting fees in cash. The purchase price of such shares shall be the Fair Market
Value of the stock for the last trading day of the month in which the retainer,
meeting fees, and committee meeting fees are earned.
Commencing May 1, 1997, the annual retainer, meeting fees and committee
meeting fees payable to each Outside Director for service on the Board may, at
the election of the Outside Director (the "Annual Election"), be payable to a
trust in shares of any class of common stock of the Company. The Annual
Election: (i) shall be irrevocable in respect of the one-year period to which it
pertains (the "Plan Year") and shall specify the applicable percentage (in
increments of 10%) of such annual retainer and meeting fees that such Outside
Director wishes to direct to the trust; (ii) must be received in writing by the
administrator of the Plan by the established enrollment deadline of any year in
which this Plan is in effect in order to cause the next succeeding Plan Year's
annual retainer and fees to be subject to the provisions of this Plan; and (iii)
must specify whether the ultimate distribution of the shares of common stock to
the Outside Directors will be paid, following the Outside Director's death or
termination of Board service, in a lump sum or in equal annual payments over a
period of two to twenty years.
The shares shall be purchased from the Company at the Fair Market Value of
the stock for the last trading day of the month in which the fees are earned and
shall be credited by the trustee to the account of the Outside Director. The
certificates for common stock shall be issued in the name of the trustee of the
trust and shall be held by such trustee in trust for the benefit of the Outside
Directors; provided, however, that each Outside Director shall be entitled to
vote the shares. The trustee shall retain all dividends (which shall be
reinvested in shares of the same class of common stock) and other distributions
paid or made with respect thereto in the trust. The shares credited to the
account of an Outside Director shall remain subject to the claims of the
Company's creditors, and the interests of the Outside Director in the trust may
not be sold, hypothecated or transferred (including, without limitation,
transferred by gift or donation) while such shares are held in the trust.
If the Outside Director elects to receive a lump sum distribution, the
trustee of the trust shall distribute such shares of common stock free of
restrictions within 60 days after the Outside Director's termination date or a
later date elected by the Outside Director (no later than the mandatory
retirement age of the Outside Director). If the
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Outside Director elects to receive a lump sum distribution, the Outside Director
may, by delivering notice in writing to the administrator of the Plan no later
than December 31 of the year prior to the year in which the Outside Director
terminates service as a Director, elect to receive any portion or all of the
common stock in the form of cash determined by reference to the Fair Market
Value of the common stock as of the termination date. Any such notice to the
administrator must specify whether the distribution will be entirely in cash or
whether the distribution will be in a combination of common stock and cash (in
which case the applicable percentage must be specified). In the case of
termination of the Outside Director's service as a result of his death, payment
of the Outside Director's account shall be in shares of common stock and not in
cash. If an Outside Director elects to receive payments in installments, the
distribution will commence within 60 days after the Outside Director's
termination date and will be made in shares of common stock and not in cash.
Notwithstanding anything to the contrary contained herein, any fractional shares
of common stock shall be distributed in cash to the Outside Director.
Section 12. Change in Control.
(a) In order to maintain the Participants' rights in the event of any
Change in Control of the Company, as hereinafter defined, the Committee may, in
its sole discretion, as to any Award, either at the time an Award is made
hereunder or any time thereafter, take any one or more of the following actions:
(i) provide for the acceleration of any time periods relating to the exercise or
realization of any such Award so that such Award may be exercised or realized in
full on or before a date fixed by the Committee; (ii) provide for the purchase
of any such Award, upon the Participant's request, for an amount of cash equal
to the excess of the Fair Market Value of the property that could have been
received upon the exercise of such Award or realization of the Participant's
rights had such Award been currently exercisable or payable over the amount
which would have been paid, if any, by the Participant for such property; (iii)
make such adjustment to any such Award then outstanding as the Committee deems
appropriate to reflect such Change in Control; or (iv) cause any such Award then
outstanding to be assumed, or new rights substituted therefor, by the acquiring
or surviving corporation after such Change in Control. The Committee may, in its
discretion, include such further provisions and limitations in any agreement
documenting such Awards as it deems equitable and in the best interests of the
Company.
(b) Unless the Committee determines otherwise with respect to any Award, a
"Change in Control" shall be deemed to have occurred if (i) any person (as
defined in Section 13(d) of the Securities Exchange Act of 1934 and the rules
thereunder) other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, and other than the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities; or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board and any new
Director (other than a Director designated by a person who has entered into an
agreement with the Company to effect a transaction described in (i) above) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the Directors then still
in office who either were Directors at
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the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof.
Section 13. Amendments and Termination. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of a Participant under an Award theretofore
granted, without the Participant's consent, or that without the approval of the
Stockholders would, except as is provided in Section 4(b) of the Plan, increase
the total number of Shares reserved for the purposes of the Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent. The Committee may also substitute new
Awards for Awards previously granted to Participants, including without
limitation previously granted Options having higher option prices.
Section 14. General Provisions.
(a) No Award shall be assignable or transferable by a Participant
otherwise than by will or by the laws of descent and distribution, except that
Restricted Stock may be used in payment of the exercise price of a stock option
issued by the Company and may be otherwise transferred in a manner that protects
the interests of the Company as the Committee may determine; provided that, if
so determined by the Committee, each Participant or Outside Director may, in the
manner established by the Committee, designate a beneficiary to exercise the
rights of the Participant or Outside Director with respect to any Award upon the
death of the Participant or Outside Director and to receive the Shares or other
property issued upon such exercise.
(b) The term of each Award shall be for such period from the date of its
grant as may be determined by the Committee; provided that in no event shall the
term of any Incentive Stock Option exceed a period of ten (10) years from the
date of its grant.
(c) No Participant shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Participants
under the Plan.
(d) The prospective recipient of any Award under the Plan shall not, with
respect to such Award, be deemed to have become a Participant, or to have any
rights with respect to such Award, until and unless such recipient shall have
executed an agreement or other instrument evidencing the Award and delivered a
fully executed copy thereof to the Company, and otherwise complied with the then
applicable terms and conditions.
(e) The Committee shall be authorized to make adjustments in performance
award criteria or in the terms and conditions of other Awards in recognition of
unusual or nonrecurring events affecting the Company or its financial statements
or changes in applicable laws, regulations or accounting principles. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry it into effect. In the event the Company shall assume
outstanding employee benefit awards or the right or obligation to make future
such awards in connection with the acquisition of another
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<PAGE>
corporation or business entity, the Committee may, in its discretion, make such
adjustments in the terms of Awards under the Plan as it shall deem appropriate.
(f) The Committee shall have full power and authority to determine
whether, to what extent and under what circumstances any Award shall be canceled
or suspended. In particular, but without limitation, all outstanding Awards to
any Participant shall be canceled if the Participant, without the consent of the
Committee, while employed by the Company or after termination of such
employment, becomes associated with, employed by, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined by the
Committee), any business that is in competition with the Company or with any
business in which the Company has a substantial interest as determined by the
Committee or any one or more Senior Officers or committee of Senior Officers to
whom the authority to make such determination is delegated by the Committee.
(g) All certificates for Shares delivered under the Plan pursuant to any
Award shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(h) Subject to the provisions of this Plan and any Award Agreement, the
recipient of an Award may, if so determined by the Committee, be entitled to
receive, currently or on a deferred basis, interest or dividends, or interest or
dividend equivalents, with respect to the number of shares covered by the Award,
as determined by the Committee, in its sole discretion, and the Committee may
provide that such amounts (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested.
(i) Except as otherwise required in any applicable Award Agreement or by
the terms of the Plan, recipients of Awards under the Plan shall not be required
to make any payment or provide consideration other than the rendering of
services.
(j) The Committee may delegate to one or more Senior Officers or a
committee of Senior Officers the right to grant Awards to Employees who are not
officers or Directors of the Company and to cancel or suspend Awards to
Employees who are not officers or Directors of the Company.
(k) The Company shall be authorized to withhold from any Award granted or
payment due under the Plan the amount of withholding taxes due with respect to
an Award or payment hereunder and to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for the payment of such
taxes. The Company shall also be authorized to accept the delivery of Shares by
a Participant in payment for the withholding of taxes.
(l) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
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(m) The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of Kansas and applicable Federal law.
(n) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
Section 15. Effective Date of Plan. The Plan shall be effective as of
April 15, 1997.
Section 16. Term of Plan. No Award shall be granted pursuant to the Plan
after April 15, 2007, but any Award granted on or before such date may extend
beyond that date.
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Exhibit (10)(m)
CENTEL DIRECTORS DEFERRED COMPENSATION PLAN
Amended and Restated
SECTION 1. Plan. Centel Corporation, a Kansas corporation, hereby
establishes this "Centel Directors Deferred Compensation Plan".
SECTION 2. Definitions. The following words have the respective meanings
stated below unless a different meaning is plainly required by the context:
(a) "Beneficiary" means any person other than a Director who is
entitled to receive distributions under this Plan pursuant to Section 5.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the committee which administers this Plan as
provided in Section 8.
(d) "Common Stock account" means the account that was credited with
Units prior to the reclassification of Sprint Common Stock into FON Common
Stock and PCS Common Stock on November 23, 1998.
(e) "Company" means Centel Corporation, a Kansas corporation, and its
successors.
(f) Prior to March 9, 1993, "Director" means an individual who is (1)
serving as a member of a Board or who has been nominated to serve as a
member of a Board and (2) receives compensation for such service other
<PAGE>
2
than as employee of the Company or a Subsidiary. Beginning March 9, 1993,
"Director" means an individual serving as a member of the Board of
Directors of Sprint who was a Director of the Company on March 8, 1993.
(g) "FON Common Stock" means shares of FON Common Stock, Series 1, of
Sprint, par value $2.00 per share.
(h) "FON Unit" means the equivalent under this Plan of one share of
FON Common Stock.
(i) "Market Value" of FON Common Stock or PCS Common Stock on any
date means the closing price of the FON Common Stock or PCS Common Stock,
as the case may be, on that day on the Composite Transactions Tape, as
subsequently reported in The Wall Street Journal, or, if no sale of such
stock shall have been made on that date, such closing price on the next
preceding date on which there was a sale.
(j) "PCS Common Stock" means shares of PCS Common Stock, Series 1, of
Sprint, par value $1.00 per share.
(k) "PCS Unit" means the equivalent under this Plan of one share of
PCS Common Stock.
(l) "Plan" means the plan set forth in this instrument, and known as
the "Centel Directors Deferred Compensation Plan".
(m) "Sprint" means Sprint Corporation, a Kansas corporation, and its
successors.
(n) "Sprint Common Stock" means the common stock of Sprint, par value
$2.50 per share, prior to its
<PAGE>
3
recapitalization into FON Common Stock and PCS Common Stock on November 23,
1998. Each share of Sprint Common Stock was reclassified into one share of
FON Common Stock and one-half of a share of PCS Common Stock.
(o) "Subsidiary" means any corporation fifty percent or more of the
voting stock of which is owned, directly or indirectly, by the Company.
(p) "Unit" means the equivalent under this Plan of one share of
Sprint Common Stock, prior to the reclassification of such common stock
into FON Common Stock and PCS Common Stock on November 23, 1998.
(q) "Value" of a FON Unit on any date means the Market Value on such
date of one share of FON Common Stock. "Value" of a PCS Unit on any date
means the Market Value on such date of one share of PCS Common Stock.
(r) "360 Common Stock account" means the account that was credited
with units representing the common stock of Alltel Corporation before the
remaining balance was transferred into the FON Tracking Stock Account and
the PCS Tracking Stock account on November 30, 1999. The percentage of the
360 Common Stock account transferred to each account was based on the
relative prices and trading volumes of FON Common Stock and PCS Common
Stock for a period of time following the reclassification of the Sprint
Common Stock.
<PAGE>
4
SECTION 3. Participation. Beginning March 9, 1993, no new deferrals of
compensation may be made under this Plan. All amounts deferred and accrued under
this Plan will be unsecured liabilities of the Company or a Subsidiary and will
not be funded with any specific assets of the Company or any Subsidiary.
SECTION 4. Accounts.
(a) Prime rate account. Interest equivalents will be credited on the
balance in a Director's prime rate account at the end of each calendar
quarter that ends before the commencement of distribution of the Director's
prime rate account pursuant to Section 5(b), Section 5(c), Section 5(d) or
Section 5(f), whichever occurs first, and (1) at the end of the month in
which the Director's termination of service as a Director ("Termination")
occurs if such month is not the last month in a quarter and if distribution
is made following such Termination pursuant to Section 5(c), or (2) as of
the Common Distribution Date (as defined in Section 5(b)) if distribution
does not commence until after the Common Distribution Date. For the purpose
of crediting interest, (1) interest will be computed at the prime rate of
interest in effect at Citicorp, N.A., New York, New York during such
period, and (2) the balance accrued in a Director's prime rate account
during any period will be the average of the balances
<PAGE>
5
in the Director's account at the beginning of each month during the period.
(b) FON Tracking Stock account. FON Units were credited to each
Director's FON Tracking Stock account at the rate of one FON Unit for each
Unit credited to such Director's Common Stock account at the close of
business on November 23, 1998, to reflect the reclassification of the
Sprint Common Stock. FON Units were credited to each Director's FON
Tracking Stock account as of November 30, 1998, in an amount representing
90.17144% of the balance in such Director's 360 Common Stock account as of
that date. The FON Units credited to each Director's FON Tracking Stock
Account were doubled to reflect the two-for-one stock split of the FON
Common Stock in the 1999 second quarter. On each record date for
determination of shareowners entitled to receive a dividend on the
outstanding shares of FON Common Stock, there will be credited to each FON
Tracking Stock account that number of additional FON Units equal to the
number of shares (and fraction of a share to the nearest one-hundredth) of
FON Common Stock which could have been purchased at the Market Value of FON
Common Stock on that date with the amount, if paid in cash, or the value,
if paid in property (other than shares of FON Common Stock), of the
dividend to be paid on a number (to the nearest one-hundredth) of shares of
FON Common Stock equal to
<PAGE>
6
the number of FON Units (to the nearest one-hundredth) in that account on
such record date. Upon Termination, the Director's FON Tracking Stock
account will be transferred into the Director's prime rate account as
follows: (1) the FON Tracking Stock account will be valued (the "FON
Account Value") at the Market Value of the FON Common Stock on the last day
of business in the month that the Termination occurs; (2) an amount equal
to the FON Account Value will be credited to the prime rate account; and
(3) interest equivalents will be credited on the balance in the prime rate
account pursuant to the terms specified in Section 4(a).
(c) PCS Tracking Stock account. PCS Units were credited to each
Director's PCS Tracking Stock account at the rate of one-half of a PCS Unit
for each Unit credited to such Director's Common Stock account at the close
of business on November 23, 1998, to reflect the reclassification of Sprint
Common Stock. PCS Units were credited to each Director's PCS Tracking Stock
account as of November 30, 1998, in an amount representing 9.82856% of the
balance in such Director's 360 Common Stock account as of that date. The
PCS Units credited to each Director's PCS Tracking Stock account were
doubled to reflect the two-for-one stock split of the PCS Common Stock in
the 2000 first quarter. On each record date for determination of
shareowners entitled to receive a dividend on the
<PAGE>
7
outstanding shares of PCS Common Stock, there will be credited to each PCS
Tracking Stock account that number of additional PCS Units equal to the
number of shares (and fraction of a share to the nearest one-hundredth) of
PCS Common Stock which could have been purchased at the Market Value of PCS
Common Stock on that date with the amount, if paid in cash, or the value,
if paid in property (other than shares of PCS Common Stock), of the
dividend to be paid on a number (to the nearest one-hundredth) of shares of
PCS Common Stock equal to the number of PCS Units (to the nearest one-
hundredth) in that account on such record date. Upon Termination, the
Director's PCS Tracking Stock account will be transferred into the
Director's prime rate account as follows: (1) the PCS Tracking Stock
account will be valued (the "PCS Account Value") at the Market Value of PCS
Common Stock on the last day of business in the month that the Termination
occurs; (2) an amount equal to the PCS Account Value will be credited to
the prime rate account; and (3) interest equivalents will be credited on
the balance in the prime rate account pursuant to the terms specified in
Section 4(a).
(d) Transfers between Accounts. Within the limitations of this
Section 4(d), a Director may elect, by executing and filing with the
Company an Account Transfer Request, to (1) transfer all or any portion of
his or her PCS Tracking Stock account to his or her
<PAGE>
8
prime rate account or to his or her FON Tracking Stock account, (2)
transfer all or any portion of his or her FON Tracking Stock account to his
or her prime rate account or to his or her PCS Tracking Stock account, or
(3) transfer all or any portion of his or her prime rate account to his or
her FON Tracking Stock account or to his or her PCS Tracking Stock account.
Such election shall be effective on the last day of the calendar month in
which the Company receives the executed Account Transfer Request. The value
of FON Units or PCS Units being transferred shall be determined by
multiplying the number of FON Units or PCS Units being transferred (to the
nearest one-hundredth) by the Market Value of one share of FON Common Stock
or PCS Tracking Stock, as the case may be, on the effective date of the
transfer. If the transfer is being made from the FON Tracking Stock account
or the prime rate account to the PCS Tracking Stock account, the value of
the FON Units being transferred as above determined or the amount being
transferred from the prime rate account will be divided by the Market Value
of one share of the PCS Common Stock on the effective date of transfer to
determine the number of PCS Units (to the nearest one-hundredth) to be
credited to the PCS Tracking Stock account. If the transfer is being made
from the PCS Tracking Stock account or the prime rate account to the FON
Tracking
<PAGE>
9
Stock account, the value of the PCS Units being transferred as above
determined or the amount being transferred from the prime rate account will
be divided by the Market Value of one share of the FON Common Stock on the
effective date of transfer to determine the number of FON Units (to the
nearest one-hundredth) to be credited to the FON Tracking Stock account.
SECTION 5. Distributions.
(a) Except as provided in Section 5(b), the timing and manner of each
distribution to a Director under the Plan shall be made pursuant to such
Director's Valid Election, as defined in the following sentence. A "Valid
Election" means an election by the Director which (i) is irrevocable except
as provided in Section 5(g), (ii) is made in writing pursuant to such rules
as the Committee may determine, and (iii) provides for a distribution
pursuant to paragraphs (c) or (d).
(b) If a Director does not submit a Valid Election, upon the
Director's Termination, the amount accrued in the Director's prime rate
account will be distributed to the Director in a lump sum as soon as
practicable after January 31 of the calendar year following the calendar
year in which the Director's
<PAGE>
10
Termination occurs (such January 31 is referred to herein as the "Common
Distribution Date").
(c) If the Director submits a Valid Election prior to the first day
of the calendar year in which such Director's Termination occurs,
distributions shall be paid under the Plan commencing after the date of the
Director's Termination as follows:
(i) in a lump sum either as soon as practicable after the Director's
Termination or as soon as practicable after the Common
Distribution Date, as specified in the Valid Election; or
(ii) in equal annual installment payments over a period from two (2)
to twenty (20) years commencing as soon as practicable after the
Director's Termination or as soon as practicable after the Common
Distribution Date, as specified in the Valid Election. For
purposes of determining the amount of each equal annual
installment, the assumed rate of interest shall be the average of
the rates calculated in accordance with Section 4(a) for the 20
quarters preceding the date on which the distribution commences.
<PAGE>
11
(d) If the Director submits a Valid Election on or after the first
day of the calendar year in which such Director's Termination occurs but
prior to December 31 of the calendar year in which such Director's
Termination occurs, pursuant to the terms of such Valid Election
distributions shall be paid under the Plan commencing no earlier than the
Common Distribution Date using one of the following methods:
(i) in a lump sum as soon as practicable after the Common
Distribution Date; or
(ii) in equal annual installment payments over a period specified in
the Valid Election from two (2) to twenty (20) years commencing
as soon as practicable after the Common Distribution Date. For
purposes of determining the amount of each equal annual
installment, the assumed rate of interest shall be the average of
the rates calculated in accordance with Section 4(a) for the 20
quarters preceding the Common Distribution Date.
(e) All distributions of amounts accrued in a Director's deferred
compensation account will be paid exclusively in cash.
<PAGE>
12
(f) In the event of a Director's death, any amounts to which the
Director is entitled hereunder will be distributed to the Beneficiary(ies)
entitled thereto:
(i) if installment payments have commenced pursuant to Section
5(c)(ii) or Section 5(d)(ii), either (1) as a continuation of
the installment payments, or (2) in a lump sum equal to the
present value of the remaining installments determined using
the same interest rate assumption used in calculating the
amount of the installments, as provided in a Valid Election;
(ii) if no distribution has taken place pursuant to Section 5(c) or
Section 5(d), either (1) in equal annual installments over a
period from two (2) to twenty (20) years, using the same
interest rate assumption set forth in Section 5(c)(ii) to
calculate the amount of each installment, or (2) in a lump sum,
as provided in a Valid Election; or
(iii) if no provision is made in a Valid Election filed with the
Company or if all
<PAGE>
13
of the Beneficiaries designated by a Director predecease the
Director, in a lump sum payment to the estate of the deceased
Director as soon as practicable following the death of the
Director.
(g) Notwithstanding any provision to the contrary hereunder, at any
time, the Director may change a Valid Election by electing to accelerate
the date(s) of payment specified in such prior election, subject to the
following circumstances:
(i) the Committee in its sole discretion consents to the change in
Valid Election, and
(ii) the amounts that are subject to such accelerated payment
date(s) shall be reduced by 6%. Subject to the preceding
sentence, the calculation of the amount of the accelerated
payment(s) and the calculation of such reduction shall be made
in the sole discretion of the Committee.
SECTION 6. Anti-Dilution. In the event of any change in capitalization
which affects the FON Common Stock or the PCS Common Stock, such as a stock
dividend, a stock
<PAGE>
14
distribution, a stock split-up or a subdivision or combination of shares, such
adjustments, if any, as the Board in its discretion deems appropriate to reflect
such change shall be made with respect to the number of FON Units in each FON
Tracking Stock account or the number of PCS Units in each PCS Tracking Stock
account, as the case may be.
SECTION 7. Beneficiaries.
(a) A Director may, by filing a Beneficiary Designation with the
Company during the Director's lifetime, designate (1) a Beneficiary or
Beneficiaries to whom distribution of the Director's deferred compensation
accounts will be made in the event of the Director's death prior to the
full receipt of the Director's interests under this Plan, and (2) the
proportions to be distributed to each such designated Beneficiary if there
be more than one. Any such designation may be revoked or changed by the
Director at any time and from time to time by filing a new Beneficiary
Designation with the Company. If a designated Beneficiary dies after the
Director but prior to distribution of all that designated Beneficiary's
proportionate share of the Director's interest under this Plan, the then
remaining balance of such share will be distributed in a lump sum payment
to the estate of the designated Beneficiary.
<PAGE>
15
(b) If the Company, after reasonable inquiry, is unable within one
year to determine whether any designated Beneficiary did in fact survive
the event that entitled such Beneficiary to receive distribution under this
Plan, it will be conclusively presumed that such Beneficiary did in fact
die prior to such event.
SECTION 8. Committee. This Plan will be administered by a Committee
consisting of at least three (3) members appointed by the Board of the Company,
who are employees of Sprint or a subsidiary of Sprint and who do not participate
in this Plan.
Except as otherwise expressly provided in this Plan, the Committee shall
have full power and authority, within the limits provided by this Plan:
(a) to construe this Plan and make equitable adjustments for any
mistakes or errors made in the administration of this Plan;
(b) to determine all questions arising in the administration of this
Plan, including the power to determine the rights of Directors
participating in this Plan and their Beneficiaries and the amount of their
respective interests;
(c) to adopt such rules and regulations as it may deem reasonably
necessary for the proper and efficient administration of this Plan
consistent with its purposes;
<PAGE>
16
(d) to enforce this Plan in accordance with its terms and with the
rules and regulations adopted by the Committee; and
(e) to do all other acts which in its judgment are necessary or
desirable for the proper and advantageous administration of this Plan.
The Committee shall act by the vote or concurrence of a majority of its members
and shall maintain a written record of its decisions and actions. All decisions
and actions of the Committee pursuant to the provisions of this Plan shall be
final and binding upon all persons affected thereby. No member of the Committee
shall have any personal liability to anyone, either as such member or as an
individual, for anything done or omitted to be done in good faith in carrying
out the provisions of this Plan.
SECTION 9. Non-Alienation. No right or benefit under this Plan shall be
subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber
or charge the same shall be void. No right or benefit under this Plan shall in
any manner be liable for or subject to the debts, contracts, liabilities or
torts of the person entitled to such benefits except such claims as may be made
by the Company or any Subsidiary.
SECTION 10. Notice. Any notice authorized or required to be given to the
Company under this Plan shall be deemed given upon delivery in writing, signed
by the person giving
<PAGE>
17
the notice, to the Secretary of the Company or such other officer as may be
designated by the Board.
SECTION 11. Plan Modifications. The Board of the Company may at any time
terminate this Plan or may, from time to time, amend any provision of this Plan
in such manner and to such extent as it may, in its discretion, deem to be
advisable. In the event this Plan is terminated, any amount remaining in any
Director's account will be distributed in such manner as is determined by the
Committee in its sole discretion.
SECTION 12. Applicable Law. This Plan shall be governed by the law of the
State of Kansas.
<PAGE>
Exhibit (10)(u)
Special Compensation and Non-Compete Agreement
This Agreement is entered into as of the 6th day of August, 1999 (the "Grant
Date"), by and between Sprint Corporation, a Kansas corporation ("Sprint," and
it, together with its Subsidiaries, the "Employer"), and Vonya B. McCann
("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 her agreement to work for Employer, Employee will gain
access to 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 her employment
with Employer.
Capitalized terms are defined in Section 5 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 her 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. Exclusivity of Services.
Employee shall, during her employment with Employer, owe an undivided duty of
loyalty to Employer and agrees to devote her entire business time and attention
to the performance of those duties and responsibilities and to use her 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)
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<PAGE>
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.
2.02. Proprietary Information.
Employee acknowledges that during the course of her employment she 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 her 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 her employment or at any
time following termination of her employment, directly or indirectly, disclose,
publish, communicate, or use on her behalf or another's behalf, any Proprietary
Information. If during or after her employment Employee has any questions about
whether particular information is Proprietary Information she shall consult with
Employer's Corporate Secretary.
2.03. 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 her 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 Non-Compete 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.
Employee's representation of a Competitor of Employer in the private practice of
law as a member of a law firm shall not be deemed as breaching this
Non-Competition covenant.
2
<PAGE>
2.04. Inducement of Employees, Customers and Others.
During the term of her 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 she has worked or about whom she 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.
2.05. Return of Employer's Property.
Employee shall, upon termination of her employment with Employer, return to
Employer all property of Employer in her 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.
2.06. Exit Interview.
At Employer's request, Employee shall participate in an exit interview prior to
her Severance Date to provide for the orderly transition of her duties, to
arrange for the return of Employer's property, to discuss her intended new
employment, and to discuss and complete such other matters as may be necessary
to ensure full compliance with this Agreement.
2.07. Confidentiality of Agreement.
Employee shall not disclose or discuss the existence of this Agreement, the
Special Compensation, or any other terms of the Agreement except
(i) to members of her immediate family,
(ii) to her financial advisor or attorney, but then only to the extent
necessary for them to assist her,
(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 her legal rights.
3. 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 her Severance
Date, if
3
<PAGE>
(i) Employer terminates Employee's employment with Employer for any reason
other than Termination for Cause or Total Disability or
(ii) Employee terminates her 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 (1) Employee is reemployed by Employer, (2) Employee
materially breaches this Agreement, or (3) Employee, while bound by the
provisions of Section 2.03, represents a Competitor of Employer in the private
practice of law as permitted by the last sentence of Section 2.03.
4. Dispute Resolution.
4.01. 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.
4.02. 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 her 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 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, Employee shall return
any Special Compensation paid pursuant to this Agreement. 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.
5. Definitions.
4
<PAGE>
5.01. 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.
5.02. 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 stock
holders 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 of
2/3's of the then directors described in this clause (ii) of this
Section 5.02 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.
5.03. Committee.
"Committee" means the Organization, Compensation, and Nominating Committee of
Sprint's board of directors.
5
<PAGE>
5.04. 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 her 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.
5.05. 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
(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.
6
<PAGE>
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.
5.06. 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.
5.07. Constructive Discharge.
"Constructive Discharge" means termination by the Employee of her 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 her 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
Washington, D.C., metropolitan area within one year following a Change in
Control.
5.08. 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.
5.09. Person.
"Person" means any individual, corporation, partnership, association, company,
or other entity.
5.10. 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 or Employer's Affiliates, including but not limited to: computer
programs, unpatented 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, in-
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cluding 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 known 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.
5.11. Severance Date.
"Severance Date" means the last day on which Employee actually performs services
as an employee of Employer.
5.12. Severance Period.
"Severance Period" means the 18-month period beginning on Employee's Severance
Date.
5.13. Special Compensation.
"Special Compensation" means Employee's right
(i) to continue to receive during the Severance Period periodic compensation
at the same rate as her 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 Short-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 Short-Term Incentive Plan;
(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
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(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 her 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 her 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.
5.14. 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.
5.15. Termination for Cause.
"Termination for Cause" means termination by Employer of Employee's employment
because of
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(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.
5.16. Total Disability.
"Total Disability" shall have the same meaning as in Sprint's Long Term
Disability Plan, as amended from time to time.
6. General Provisions.
6.01. Obligations to Survive Termination of Employment.
Employee's obligations under this Agreement shall survive her termination of
employment with Employer.
6.02. 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.
6.03. 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.
6.04. 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.
6.05. 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.
6.06. Notices.
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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:
Vonya B. McCann Sprint Corporation
2911 Fessenden St., N.W. Attn: Corporate Secretary
Washington, D.C. 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.
6.07. 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.
6.08. 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.
6.09. 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.
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In Witness Whereof, the parties have caused this Agreement to be duly executed
and effective as of August 6, 1999.
Sprint Corporation
by: /s/ Don A. Jensen
Don A. Jensen, Vice President and
Secretary
/s/ Vonya B. McCann
Vonya B. McCann, Employee
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Special Compensation and Non-Compete Agreement
This Agreement is entered into as of the 9th day of December, 1997 (the
"Effective Date"), by and between Sprint Corporation, a Kansas corporation
("Sprint," and it, together with its Subsidiaries, the "Employer"), and Thomas
E. Weigman ("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. 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
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attention 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.
2.02. 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.
2.03. 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 Non-Compete 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.
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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.
2.04. 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.
2.05. 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.
2.06. 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.
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2.07. Confidentiality of Agreement.
Employee shall not disclose or discuss the existence of this Agreement, the
Alternative 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. Alternative Stock-Based Awards.
As partial consideration for Employee's agreements hereunder, Employee shall be
granted one of the two Stock-Based Awards, at the election of Employee, on the
terms set forth in this section. Employee must indicate which of the two forms
of compensation he elects to receive by checking the corresponding box above his
signature line at the bottom of this Agreement. If Employee signs this Agreement
but checks neither box or both boxes, Employee shall be considered to have
elected to receive restricted stock.
3.01. Alternative Award of Restricted Stock.
If Employee elects to receive Restricted Stock, this Section 3.01 shall be
considered a part of this Agreement, otherwise it shall not be considered a part
of this Agreement.
Employer hereby grants to Employee an award of 7,500 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
anniversary dates of the Effective 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
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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. Alternative Award of Stock Options.
If Employee elects to receive stock options, this Section 3.02 shall be
considered a part of this Agreement; otherwise it shall not be considered a part
of this Agreement.
Sprint hereby grants to Employee, under Sprint's 1990 Stock Option Plan, an
option to purchase 30,000 shares of Sprint common stock at a price of $56.50 per
share. The option shall become exercisable, with respect to 25% of the total
shares granted, on each of the first four anniversaries of the Effective Date.
The option shall expire on December 9, 2007. The terms of the 1990 Stock Option
Plan are hereby incorporated into this Agreement by reference.
3.03. Provisions Applicable to Awards of both Restricted Stock and Stock
Options.
(a) Acceleration of Stock-Based Awards.
(1) Conditions to Acceleration.
The restrictions on all shares of restricted stock that have not
otherwise lapsed shall lapse or the stock options shall become
immediately exercisable, as the case may be, 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
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(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.
(2) No Acceleration on Transfer of Employment to Affiliates.
In no event shall the restrictions lapse on restricted stock nor the
exercisability of stock options be accelerated 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 or exercise or continue to own any unexercisable
stock options, as the case may be, if before such restricted shares vest or
before such stock options become exercisable
(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
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(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
(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 re-employed 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.
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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.
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.
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6.02. Change in Control.
"Change in Control" means the occurrence of any of the following events:
(i) the acquisition, without the approval of a majority of the directors
described in clause (ii) of this Section 6.02, 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 of
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.
6.03. Committee.
"Committee" means the Organization, Compensation, and Nominating Committee of
Sprint's board of directors.
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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
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of substantial revenues in such line of business; and
(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.
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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 or Employer's Affiliates, including but not limited to: computer
programs, unpatented 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
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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 Short-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 Short-Term Incentive Plan;
(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;
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(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 or stock options as
elected by Employee under Section 3 of this Agreement.
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.
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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.
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
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(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:
Thomas E. Weigman Sprint Corporation
11729 Manor Attn: Corporate Secretary
Leawood, KS 66211 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.
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.
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In Witness Whereof, the parties have caused this Agreement to be duly executed
and effective as of December 9, 1997.
Sprint Corporation
by: /s/ Don A. Jensen
Don A. Jensen, Vice President
and Secretary
I hereby elect to receive the following as the Stock-Based Award (check one):
___ Restricted Stock
_x_ Stock Options
/s/ Thomas E. Weigman
Thomas E. Weigman, Employee
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Exhibit (10)(v)
Directors' Deferred Fee Plan
ARTICLE I
PURPOSE
The purpose of the Sprint Corporation Directors' Deferred Fee Plan (hereinafter
referred to as the "Plan") is to provide funds upon termination of service or
death for Directors (and their Beneficiaries) of Sprint Corporation. It is
intended that the Plan will aid in retaining and attracting Directors of
exceptional ability by providing such Directors with a means to supplement their
standard of living.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall have the
meanings indicated, unless the context clearly indicates otherwise:
2.1 Account Transfer Request. "Account Transfer Request" means a written
notice, in a form prescribed by the Company, by a Participant to transfer all or
any portion of one Deferred Benefit Account to another Deferred Benefit Account
as provided for in paragraph 6.7.
2.2 Amendment of Payment Election Form. "Amendment of Payment Election Form"
means a written notice, in a form prescribed by the Company, filed with the
Company by a Participant to change the manner in which such Participant's
Deferral Benefits are to be paid.
2.3 Beneficiary. "Beneficiary" means the person, persons, or entity designated
by the Participant, as provided in Article VIII, to receive any benefits payable
under the Plan. Any Participant Beneficiary Designation shall be made in a
written instrument filed with the Company and shall become effective only when
received, accepted, and acknowledged in writing by the Company.
2.4 Board "Board" means the Board of Directors of the Company.
2.5 Committee. "Committee" means the Organization, Compensation and Nominating
Committee of the Board.
2.6 Company. "Company" means Sprint Corporation, or any successor thereto.
<PAGE>
2.7 Deferral Benefit. "Deferral Benefit" means the benefit payable to a
Participant on the Participant's death or termination of service as a Director,
as calculated in Article VII hereof.
2.8 Deferred Benefit Account. "Deferred Benefit Account" means the accounts
maintained on the books of account of the Company for each Participant pursuant
to Article VI. Separate Deferred Benefit Accounts shall be maintained for each
Participant. More than one Deferred Benefit Account shall be maintained for each
Participant to reflect (a) separate deferral elections made pursuant to
separately executed Participation Agreements, (b) Account A, Account B, Account
D, Account AA, Account BB, and Account DD elections made by each Participant in
each such Participation Agreement, and (c) One Time Grants.
A Participant's Deferred Benefit Account shall be used solely as a device for
the measurement and determination of the amounts to be paid to the Participant
or the Participant's Beneficiary pursuant to this Plan. A Participant's Deferred
Benefit Account shall not constitute or be treated as a trust fund of any kind.
2.9 Determination Date. "Determination Date" means the date on which the
amount of a Participant's Deferred Benefit Account is determined as provided in
Article VI hereof. The last day of each calendar month shall be a Determination
Date.
2.10 Director. "Director" means a member of the Board of Directors of the
Company who is not an employee of the Company or its subsidiaries.
2.11 Fee. "Fee" means any cash compensation paid to a Director for his services
as a Director other than a distribution under this Plan.
2.12 FON Share Unit. "FON Share Unit" means a measure of participation under
the Plan having a value based on the market value of one share of FON Common
Stock, Series 1, of the Company.
2.13 Interest Yield. "Interest Yield" means, with respect to any calendar
month, (a) in the case of balances in Account AA, three percentage points over
the composite yield on Moody's Seasoned Corporate Bond Yield Index for the
preceding calendar month as determined from Moody's Bond Record published by
Moody's Investors Services, Inc. (or any successor thereto), or, if such monthly
yield is no longer published, a substantially similar average selected by the
Company, and (b) in the case of balances in Account A, the greater of (i) the
prime rate in effect at Citibank, N.A., at the opening of business on the
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first business day of the month, or if said bank, for any reason, no longer
publishes its prime rate, the prime rate similarly determined of another major
bank selected by the Company and (ii) six percent per annum.
2.14 New Director. "New Director" means a Director who had not accumulated at
least five years of service as a Director as of December 10, 1996 and any
Director who is first elected after such date. Each New Director is entitled to
a One Time Grant.
2.15 One Time Grant, "One Time Grant" means a one time grant to New Directors
of FON Share Units credited into Account B and PCS Share Units credited into
Account D. The number of FON Share Units and the number of PCS Share Units to be
granted to each New Director are determined by the Committee.
2.16 Participant. "Participant" means any New Director and any Director who
elects to participate by filing a Participation Agreement as provided in Article
IV.
2.17 Participation Agreement. "Participation Agreement" means the agreement, in
a form prescribed by the Company, filed by a Participant before the beginning of
the period in which the Participant's Fees are to be deferred pursuant to the
Plan. A new Participation Agreement shall be filed by the Participant for each
separate Fee deferral election.
2.18 PCS Share Unit. "PCS Share Unit" means a measure of participation under
the Plan having a value based on the market value of a share of PCS Common
Stock, Series 1, of the Company.
2.19 Plan. "Plan" means the Sprint Corporation Directors' Deferred Fee Plan as
set forth in this document. This Plan is the successor to, and comprises an
amendment and revision of, the United Telecommunications, Inc., 1985 Directors'
Deferred Fee Plan adopted February 12, 1985.
2.20 Plan Administrator. "Plan Administrator" means the person appointed by
the Company to represent the Company in the administration of this Plan.
2.21 Plan Year. "Plan Year" means a twelve-month period commencing May 1st and
ending the following April 30th. The first Plan Year commenced May 1, 1985.
2.22 Recapitalization Date. "Recapitalization Date" means November 23, 1998.
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2.23 Share Units. "Share Units" means the Share Units credited to Accounts B
and BB prior to the recapitalization of the Company's Common Stock on the
Recapitalization Date.
2.24 Spouse. "Spouse" means a Participant's wife or husband who was lawfully
married to the Participant upon the Participant's death or severance from
service.
2.25 Transition Date. "Transition Date" means May 1, 1990.
ARTICLE III
ADMINISTRATION
3.1 Plan Administrator; Company and Committee; Duties. This Plan shall be
administered by the Plan Administrator. Decisions of the Plan Administrator may
be reviewed by the Company through the Committee. Members of the Committee may
be Participants under this Plan. The Company shall also have the authority to
make, amend interpret, and enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any and all questions
including interpretations of this Plan as may arise in connection with the Plan.
3.2 Binding Effect of Decisions. The decision or action of the Company in
respect to any question arising out of or in connection with the
administration, interpretation, and application of the Plan and the rules and
regulations promulgated hereunder shall be final and conclusive and binding upon
all persons having any interest in the Plan unless a written appeal is received
by the Company within sixty days of the disputed action. The appeal will be
reviewed by the Committee, and its decision shall be final, conclusive, and
binding on the Participant and on all persons claiming by, through, or under the
Participant.
ARTICLE IV
PARTICIPATION
4.1 Participation. Participation in the Plan shall be limited to New Directors
and Directors, under age 70, who elect to participate in the Plan by filing a
Participation Agreement with the Company. Except as provided below, an initial
Participation Agreement must be filed no later than the March 31st immediately
preceding the Plan Year in which the Participant's participation under the
agreement will commence, and the election to
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participate shall be effective on the first day of the Plan Year following
receipt by the Company of a properly completed and executed Participation
Agreement; provided, however, that if March 31st falls on a Saturday, Sunday or
holiday, the filing date for the Participation Agreement shall be no later than
the next business day after March 31st. With respect to an individual becoming a
Director during a Plan Year who thereby becomes eligible to participate in the
Plan, an initial Participation Agreement may be filed within 30 days of the
Company's notification to the Director of the Director's eligibility to
participate, and such election to participate shall be effective on the first
day of the month following the Company's receipt thereof, except that elections
not received by the Company before the 15th day of any calendar month shall be
effective no earlier than the first day of the second month following the month
of receipt.
4.2 Amount of Deferral and Length of Participation. A Participant may elect in
any Participation Agreement to defer up to 100% of the Fees that are expected at
the time of election to be earned in the Plan Year for which the Participation
Agreement relates and all subsequent Plan Years until changed by the
Participant's filing of a new Participant Agreement, provided, the minimum
amount of Fees that may be deferred shall, in each case, be $5,000 per year or
100% of Fees payable, whichever is less.
(a) The deferral percentage in each Participation Agreement shall be applied to
the Participant's Fees as they are payable during the period of election.
(b) A Participant's election to defer Fees shall be irrevocable upon the filing
of the respective Participation Agreement; provided, however, that the
deferral of Fees under any Participation Agreement may be suspended or
amended as provided in paragraphs 7.3 or 9.1.
If a Participant desires to change the percentage of Fees deferred or desires to
cease deferring Fees, the Participant must file a new Participation Agreement.
Such new Participation Agreement must be filed no later than the March 31st
immediately preceding the Plan Year in which the new Participation Agreement is
to take effect, or if March 31st falls on a Saturday, Sunday or holiday, the
next business day after March 31st. The new Participation Agreement shall be
effective as to Fees paid in Plan Years beginning after the last day of the Plan
Year in which the agreement is filed with the Company. Any previously filed
Participation
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Agreement will no longer apply to the deferral of fees. Only one Participation
Agreement will be in effect for new deferrals in each Plan Year. In the event a
Participant elects to defer Fees pursuant to a new Participation Agreement, the
new election shall be treated as an arrangement for which a separate Deferred
Benefit Account shall be maintained and separate Deferral Benefits shall be
payable.
ARTICLE V
DEFERRED FEES
5.1 Elective Deferred Fees. The amount of Fees that a Participant elects to
defer in the Participation Agreement executed by the Participant, with respect
to each Plan Year of participation in the Plan, shall be credited by the Company
to the Participant's Deferred Benefit Account throughout each Plan Year as the
Participant is paid. The amount credited to a Participant's Deferred Benefit
Account shall equal the amount deferred, except to the extent that the Company
is required to withhold any taxes or other amounts related to the Participant's
deferred fees pursuant to any federal, state or local law. In the event
withholding is required, the amount required to be withheld shall first be taken
from the Participant's fees that have not been deferred. If these fees are not
sufficient to meet the withholding obligation, the remainder will be taken from
the amount deferred.
5.2 Vesting of Deferred Benefit Account. Participants shall be 100% vested in
their Deferred Benefit Accounts, except for the Account B and Account D
resulting from a One Time Grant. The FON Share Units and PCS Share Units granted
as part of a One Time Grant will vest at the rate of 50% on the fifth
anniversary of the Participant's election as a Director and 10% per year on the
sixth through tenth anniversaries of such election. The FON Share Units and PCS
Share Units resulting from dividend credits on such FON Share Units and PCS
Share Units will vest at the same time as such FON Share Units and PCS Share
Units vest. Any FON Share Units and PCS Share Units that have not vested at the
time of the Participant's termination of service as a Director shall be
forfeited.
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ARTICLE VI
DEFERRED BENEFIT ACCOUNT
6.1 Determination of Account. Each Participant's Deferred Benefit Account, as
of each Determination Date, shall consist of the balance of the Participant's
Deferred Benefit Account as of the immediately preceding Determination Date plus
the Participant's elective deferred Fees withheld since the immediately
preceding Determination Date pursuant to paragraph 5.1 and plus amounts credited
to the Participant's Deferred Benefit Account pursuant to paragraphs 6.4 and
6.5. The Deferred Benefit Account of each Participant shall be reduced by the
amount of all distributions, if any, made from such Deferred Benefit Account
since the preceding Determination Date.
6.2 Type of Deferral. A Participant may elect to have any portion of the amount
deferred credited to Account A (fixed income return), to Account B (FON Share
Units) or to Account D (PCS Share Units). The initial election shall be made by
a properly executed Participation Agreement. An election to change the
apportionment of deferred amounts between Accounts A, B and D may be made by a
Participant filing with the Plan Administrator a revised Participation Agreement
indicating such change on or before March 31 of each calendar year. The revised
Participation Agreement shall be deemed a continuation of the initial
Participation Agreement to which it relates. The revised Participation Agreement
shall be effective for Plan Years beginning after the date it is filed.
Deferrals in such Plan Years shall be credited in accordance with the election
of the revised Participation Agreement.
6.3 Creation of Accounts AA, BB, D, and DD.
(a) Accounts AA and BB. As of the start of business on the Transition Date, all
amounts standing to the credit of each Participant in Account A were
transferred to an Account AA. As of the start of business on the Transition
Date, amounts standing to the credit of each Participant in Account B that
were attributable to prior transfers from Account A into Account B were
transferred to an Account BB. The amount of such transfers was an amount
equal to the sum of the dollar amount of all transfers from Account A to
Account B during the period beginning on the effective date of the
Participation Agreement and ending on the Transition Date.
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For all purposes of this Plan, except as otherwise noted in this Plan,
Account AA shall be treated in the same manner as Account A, and Account BB
shall be treated in the same manner as Account B.
(b) Accounts D and DD. As of the Recapitalization Date, there was credited to
an Account D and DD, created for each Participant having a positive balance
in an Account B or BB with respect to any Plan Year, a number of PCS Share
Units determined as follows:
(1) one-half of a PCS Share Unit in Account D for each Share Unit in
Account B for such Participant for such Plan Year as of the
Recapitalization Date; and
(2) one-half of a PCS Share Unit in Account DD for each Share Unit in
Account BB for such Participant for such Plan Year as of the
Recapitalization Date.
6.4 Maintenance of Accounts A and AA. As of each Determination Date, the
Participant's Deferred Benefit Accounts A and AA shall be increased by the
amount of interest earned since the preceding Determination Date based on the
Interest Yield. Interest shall be credited on the average of the balances of the
Deferred Benefit Account on the Determination Date (before crediting the
interest) and on the last preceding Determination Date, but after the Deferred
Benefit Account has been adjusted for any contributions or distributions to be
credited or deducted for each such day.
6.5 Maintenance of Share Unit Accounts. Accounts B and BB and Accounts D and DD
shall maintain balances in FON Share Units and PCS Share Units, respectively.
(a) Maintenance of Accounts B and BB.
(1) Conversion of Share Units into FON Share Units. As of the
Recapitalization Date, each Share Unit in Accounts B and BB was
converted into a FON Share Unit.
(2) Conversion between Dollar Amounts and FON Share Units in Accounts B
and BB. When an amount is to be added to a Participant's Deferred
Benefit Accounts B or BB, it shall be converted into FON Share Units,
or fractions thereof, by dividing the amount to be credited by the
closing
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price of the FON Common Stock, Series 1, as reported by the New York
Stock Exchange on the last trading day on or before the Determination
Date. When a number of FON Share Units is to be subtracted from a
Participant's Deferred Benefit Accounts B or BB, such number of FON
Share Units shall be converted into a dollar amount by multiplying
such number of FON Share Units by the closing price of the FON Common
Stock, Series 1, as reported by the New York Stock Exchange on the
last trading day on or before the Determination Date.
(3) Dividends on FON Share Units. When a dividend is declared and paid by
the Company on its FON Common Stock, Series 1, an amount shall be
credited to the Participant's Accounts B and BB as though the same
dividend had been paid on the FON Share Units in such accounts as of
the Determination Date immediately preceding the record date for the
dividend, and such amount shall be converted to FON Share Units. Such
amount shall be valued as of the Determination Date immediately
following the payment of the dividend.
(4) Effect of Recapitalization. In the event of a stock dividend, stock
split, or other corporate reorganization involving the FON Common
Stock, Series 1, the Company shall make equitable adjustment to a
Participant's Accounts B and BB as may be necessary to give effect to
such change in the Company's capital structure.
(5) Conversion of FON Share Units to Dollars on Distribution. FON Share
Units in Accounts B and BB shall be converted to an equivalent dollar
amount before any distribution thereof to a Participant pursuant to
Article VII. For purposes of distribution, the value of a FON Share
Unit shall be the average closing price of the FON Common Stock,
Series 1, on the New York Stock Exchange on the last trading day of
each of (i) the 12 calendar months immediately preceding the date of
distribution or (ii) the smaller number of calendar months (including
part of a month) elapsed from the Recapitalization Date to such
distribution. If a Participant elects payment in other than a
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lump sum, Share Units shall be so converted to a dollar amount with
respect to each payment made in the distribution. During the period of
distribution, dividends and other equitable adjustments shall be
credited to the Participant's Accounts B and BB in accordance with
paragraphs 6.5(a)(3) and 6.5(a)(4).
(b) Maintenance of Accounts D and DD.
(1) Conversion between Dollar Amounts and PCS Share Units in Accounts
D and DD. When an amount is to be added to a Participant's
Deferred Benefit Accounts D or DD, it shall be converted into PCS
Share Units, or fractions thereof, by dividing the amount to be
credited by the closing price of the PCS Common Stock, Series 1,
as reported by the New York Stock Exchange on the last trading
day on or before the Determination Date. When a number of PCS
Share Units is to be subtracted from a Participant's Deferred
Benefit Accounts D or DD, such number of PCS Share Units shall be
converted into a dollar amount by multiplying such number of PCS
Share Units by the closing price of the PCS Common Stock, Series
1, as reported by the New York Stock Exchange on the last trading
day on or before the Determination Date.
(2) Dividends on PCS Share Units. When a dividend is declared and
paid by the Company on its PCS Common Stock, Series 1, an amount
shall be credited to the Participant's Accounts D and DD as
though the same dividend had been paid on the PCS Share Units in
such accounts as of the Determination Date immediately preceding
the record date for the dividend, and such amount shall be
converted to PCS Share Units. Such amount shall be valued as of
the Determination Date immediately following the payment of the
dividend.
(3) Effect of Recapitalization. In the event of a stock dividend,
stock split, or other corporate reorganization involving the PCS
Common Stock, Series 1, the Company shall make equitable
adjustment to a Participant's Accounts D and DD as may be
necessary to give effect to such change in the Company's capital
structure.
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(4) Conversion of PCS Share Units to Dollars on Distribution. PCS
Share Units in Accounts D and DD shall be converted to an
equivalent dollar amount before any distribution thereof to a
Participant pursuant to Article VII. For purposes of
distribution, the value of a PCS Share Unit shall be the average
closing price of the PCS Common Stock, Series 1, on the New York
Stock Exchange on the last trading day of each of (i) the 12
calendar months immediately preceding the date of distribution or
(ii) the smaller number of calendar months (including part of a
month) elapsed from the Recapitalization Date to such
distribution. If a Participant elects payment in other than a
lump sum, PCS Share Units shall be so converted to a dollar
amount with respect to each payment made in the distribution.
During the period of distribution, dividends and other equitable
adjustments shall be credited to the Participant's Accounts D,
and DD in accordance with paragraphs 6.5(b)(2) and 6.5(b)(3).
6.6 Statement of Accounts. The Company shall submit to each Participant, within
120 days after the close of each Plan Year, a statement in such form as the
Company deems desirable, setting forth the balance to the credit of such
Participant in the Participant's Deferred Benefit Accounts A and AA, B and BB,
and D and DD, in each case as of the last day of the preceding Plan Year.
6.7 Transfer Between Accounts. Within the limitations of this paragraph 6.7, a
Participant may elect, by executing an Account Transfer Request: (1) to transfer
all or any portion of the Participant's Account A to Account B or Account D, (2)
to transfer all or any portion of the Participant's Account B to Account A or
Account D, (3) to transfer all or any portion of the Participant's Account D to
Account A or Account B, (4) to transfer all or any portion of the Participant's
Account AA to Account BB or Account DD, (5) to transfer all or any portion of
his Account BB to Account AA or Account DD, and (6) to transfer all or any
portion of his Account DD to Account AA or Account BB. Such election shall be
effective on the last day of the calendar month in which the Plan Administrator
receives the Participant's executed Account Transfer Request. Transfers may not
be made more than four times in any Plan Year, and no such transfer may be made
unless a period of at least three months shall have elapsed from the effective
date of the most recent such
11
<PAGE>
transfer (whether it occurred in the current Plan Year or not) to the effective
date of the current transfer. No part of the Account B or the Account D
resulting from a One Time Grant may be transferred to any other account.
ARTICLE VII
BENEFITS
7.1 Termination of Service as Director. Subject to paragraph 7.4 below, upon
any termination of service of the Participant for reasons other than the
Participant's death, the Company shall pay to the Participant a Deferral Benefit
equal to the amount of the Participant's Deferred Benefit Account determined
under paragraph 6.1 thereof, but excluding any unvested FON Share Units or PCS
Share Units.
7.2 Death. If a Participant dies after the commencement of payments of the
Participant's Deferral Benefit, the Participant's Beneficiary shall continue to
receive the remaining balance of the Participant's Deferred Benefit Account in
accordance with the Participant's election pursuant to paragraph 7.4.
If a Participant dies before any payments of a Deferral Benefit, the amounts to
which the Participant's Beneficiary is entitled shall be determined as follows:
(a) Accounts A, B, BB, D, and DD shall be the Deferred Benefit Account values
thereof excluding any unvested FON Share Units or PCS Share Units, and
(b) Account AA shall be the greater of (i) the Deferred Benefit Account value
thereof and (ii) ten times the amount of the elected annual fee deferral
allocated to Account AA pursuant to the Participation Agreement as revised
on the date of the Participant's death, subject to such conditions relating
to the Participant's health as the Company may impose.
The Deferral Benefit shall be payable as provided for in paragraph 7.4.
If a Participant's Beneficiary dies before payments of the Participant's
Deferral Benefit are complete, payments will continue to be made to the estate
of the beneficiary in accordance with the Participant's election pursuant to
paragraph 7.4.
12
<PAGE>
The Deferral Benefit provided above shall be in lieu of all other benefits under
this Plan.
7.3 Suspension of Participation; Failure to Continue Participation. The
Committee, in its sole discretion, may suspend the deferral of a Participant's
Fees upon the advanced written request of a Participant on account of financial
hardship suffered by that Participant. A Participant must file any request for
suspension on or before the 15th day preceding the regular payment date on which
the suspension is to take effect. The Committee, in its sole discretion, shall
determine the amount, if any, that will not be deferred by the Participant as a
result of the financial hardship. The suspension of any deferrals under this
paragraph shall not affect amounts deferred with respect to periods before the
effective date of the suspension. A Participant whose deferrals are suspended
may not execute a subsequent Participation Agreement that would take effect
before the beginning of the third Plan Year following the close of the Plan Year
in which the suspension first took effect.
7.4 Form of Benefit Payment
(a) Upon the happening of an event described in paragraphs 7.1 or 7.2 above,
the Company shall pay to the Participant or the Participant's Beneficiary
the amount specified therein (at a time designated in the Participation
Agreement, but commencing no later than the Company's mandatory termination
date for Directors) in one of the following forms as elected by the
Participant, either in the Participation Agreement or the Amendment of
Payment Election Form filed by the Participant:
(1) a lump sum payment.
(2) with respect to balances in Accounts A and AA, an annual payment of a
fixed amount that shall amortize the Deferred Benefit Account balance
in equal annual payments of principal and interest over a period from
2 to 20 years. For purposes of determining the amount of the annual
payment, the assumed rate of interest on Accounts A and AA shall be
the average of the applicable Interest Yield as of each Determination
Date for the 60 months preceding the initial annual installment
payment.
(3) with respect to balances in Accounts B and BB, an annual payment over
a period from 2 to 20 years. Each payment
13
<PAGE>
shall be the value, as determined pursuant to paragraph 6.5(a)(5), of
the number of FON Share Units equal to (i) the number of FON Share
Units in the accounts on the Determination Date immediately following
the event described in paragraphs 7.1 or 7.2, divided by (ii) the
number of annual installments elected.
During the period that a Participant is receiving a distribution from
Account B or BB, FON Share Unit dividends will be added to the
Accounts in accordance with subparagraph 6.5(a)(3). Such FON Share
Unit dividends shall be valued in the same manner as previously
described, and the value of all such FON Share Units accruing after a
distribution from Accounts B or BB is made shall be paid to the
Participant with the next distribution from the account.
(4) With respect to balances in Accounts D and DD, an annual payment over
a period from 2 to 20 years. Each payment shall be the value, as
determined pursuant to paragraph 6.5(b)(4), of the number of PCS Share
Units equal to (i) the number of PCS Share Units in the accounts on
the Determination Date immediately following the event described in
paragraphs 7.1 or 7.2, divided by (ii) the number of annual
installments elected.
During the period that a Participant is receiving a distribution from
Account D or DD, PCS Share Unit dividends will be added to the
Accounts in accordance with subparagraph 6.5(b)(2) hereof. Such PCS
Share Unit dividends shall be valued in the same manner as previously
described, and the value of all such PCS Share Units accruing after a
distribution from Accounts D or DD is made shall be paid to the
Participant with the next distribution from the account.
(b) A Participant may change the form in which the Participant's benefits shall
be paid by filing an Amendment of Payment Election Form indicating such
change at least 13 months before the date upon which the initial payment to
be made is determined. No such Amendment of Payment Election Form shall
change the amount elected to be deferred in the Participation Agreement to
which it relates, nor the time elected for commencement of benefit
payments.
14
<PAGE>
(c) In the absence of a Participant's election under subparagraph 7.4(a),
benefits shall be paid in the form specified in subparagraphs 7.4(a)(2),
7.4(a)(3), and 7.4(a)(4) over a 15 year period.
7.5 Withholding; Payroll Taxes. To the extent required by the law in effect at
the time payments are made, the Company shall withhold from payments made
hereunder any taxes required to be withheld from a Director's fees for the
federal or any state or local government.
7.6 Commencement of Payments. Unless otherwise provided, payments under this
Plan shall begin within 60 days following receipt of notice by the Company of an
event that entitles a Participant (or a Beneficiary) to payments under this
Plan, or at such earlier date as may be determined by the Company pursuant to
the terms of the Plan. All payments shall be made as of the first day of the
month.
ARTICLE VIII
BENEFICIARY DESIGNATION
8.1 Beneficiary Designation. Each Participant shall have the right, at any
time, to designate any person or persons as the Participant's Beneficiary or
Beneficiaries (both principal as well as contingent) to whom payment under this
Plan shall be paid in the event of the Participant's death before complete
distribution to the Participant of the benefits due the Participant under the
Plan.
8.2 Amendments. Any Beneficiary Designation may be changed by a Participant by
the written filing of such change on a form prescribed by the Company. The
filing of a new Beneficiary Designation form will cancel all Beneficiary
Designations previously filed.
8.3 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries predecease the
Participant, then the Participant's designated Beneficiary shall be deemed to be
the person or persons surviving the Participant in the first of the following
classes in which there is a survivor, share and share alike:
(a) The surviving Spouse;
(b) The Participant's children, except that if any of the children predecease
the Participant but leave issue surviving, then such issue shall take by
right of representation the share their parent would have taken if living;
15
<PAGE>
(c) The Participant's personal representative (executor or administrator).
8.4 Effect of Payment. The payment to the Participant's Beneficiary or the
Beneficiaries' estate shall completely discharge the Company's obligations
relating to the Participant under this Plan.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment. The Board may at any time amend the Plan in whole or in part;
provided, however, that no amendment shall be effective to decrease or restrict
any Deferred Benefit Account at the time of such amendment.
9.2 Right to Terminate. The Board may at any time terminate the Plan with
respect to new elections to defer if, in its judgment, the continuance of the
Plan, the tax, accounting, or other effects thereof, or potential payments
thereunder would not be in the best interests of the Company. The Board may also
terminate the Plan in its entirety at any time, and upon any such termination,
each Participant (a) who is then receiving a Deferral Benefit shall be paid in a
lump sum, or over such period of time as determined by the Company, the then
remaining balance in the Participant's Deferred Benefit Account, and (b) who has
not received a Deferral Benefit shall be paid in a lump sum, or over such period
of time as determined by the Company, the balance in the Participant's Deferred
Benefit Account.
ARTICLE X
MISCELLANEOUS
10.1 Unsecured General Creditor. Participants and their Beneficiaries shall have
no legal or equitable rights, claims, or interests in any property or assets of
the Company or its subsidiaries, nor shall they be Beneficiaries of, or have any
rights, claims, or interests in any life insurance policies, annuity contracts
or the proceeds therefrom owned or that may be acquired by the Company
("Policies"). Such Policies or other assets of the Company and its subsidiaries
shall not be held under any trust for the benefit of Participants or their
Beneficiaries or held in any way as collateral security for the fulfilling of
the obligations of the Company under this Plan. Any and all of such assets and
Policies shall be and remain the general, unpledged, unrestricted assets of the
Company and
16
<PAGE>
its subsidiaries. The Company's obligation under the Plan shall be merely that
of an unfunded and unsecured promise of the Company to pay money in the future.
10.2 Nonassignability. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of actual receipt
the amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and non-transferable.
No part of the amounts payable shall, before actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony, or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
10.3 Not a Contract of Service. The terms and conditions of this Plan shall not
be deemed to constitute a contract of service between the Company and the
Participant, and the Participant (or the Participant's Beneficiary) shall have
no rights against the Company except as may otherwise be specifically provided
herein. Moreover, nothing in this Plan shall be deemed to give a Participant the
right to be retained as a Director.
10.4 Protective Provisions. A Participant will cooperate with the Company by
furnishing any and all information requested by the Company, in order to
facilitate the payment of benefits hereunder, by taking such physical
examinations as the Company may deem necessary, and by taking such other action
as may be requested by the Company.
10.5 Applicable Law. The Plan, and any Participation Agreement related thereto,
shall be governed by the laws of the State of Kansas, without regard to the
principles of conflicts of law.
17
<PAGE>
EXHIBIT (12)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from
continuing operations
before income taxes $(1,072) $1,039 $1,748 $1,994 $1,480
Capitalized interest (151) (167) (93) (104) (57)
Equity in losses of
less than 50% owned
entities 80 42 680 199 33
- ------------------------------------------------------------------------------------
Subtotal (1,143) 914 2,335 2,089 1,456
- ------------------------------------------------------------------------------------
Fixed charges
Interest charges 1,011 885 277 301 318
Interest factor of
operating rents 311 275 135 120 119
Pre-tax cost of
preferred stock
dividends of
subsidiaries -- -- -- -- 1
- ------------------------------------------------------------------------------------
Total fixed charges 1,322 1,160 412 421 438
- ------------------------------------------------------------------------------------
Earnings, as adjusted $ 179 $2,074 $2,747 $2,510 $1,894
------------------------------------------------------------
Ratio of earnings to
fixed charges -- (/1/) 1.79(/2/) 6.67(/3/) 5.96(/4/) 4.32(/5/)
------------------------------------------------------------
</TABLE>
(/1/)Earnings, as adjusted, were inadequate to cover fixed charges by $1.1
billion in 1999.
(/2/)Earnings as computed for the ratio of earnings to fixed charges includes
nonrecurring net gains of $104 million mainly relating to sales of local
exchanges and a nonrecurring charge to write off $179 million of acquired
in-process research and development costs related to the PCS Restructuring.
Excluding these items, the ratio of earnings to fixed charges would have
been 1.85 for 1998.
(/3/)Earnings as computed for the ratio of earnings to fixed charges includes
nonrecurring items. These items include a litigation charge of $20 million,
gains on the sales of local exchanges of $45 million and a gain on the sale
of an equity investment in an equipment provider of $26 million. Excluding
these items, the ratio of earnings to fixed charges would have been 6.54
for 1997.
(/4/)Earnings as computed for the ratio of earnings to fixed charges includes
the nonrecurring charge related to litigation of $60 million recorded in
1996. Excluding this charge, the ratio of earnings to fixed charges would
have been 6.10 for 1996.
(/5/)Earnings as computed for the ratio of earnings to fixed charges includes
the nonrecurring restructuring charge of $88 million recorded in 1995.
Excluding this charge, the ratio of earnings to fixed charges would have
been 4.53 for 1995.
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.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT Sprint Corporation
Sprint Corporation is the parent. The subsidiaries of Sprint Corporation are as
follows:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Ownership
Interest
Held By
Jurisdiction of Its
Incorporation or Immediate
Name Organization Parent
- ----------------------------------------------------------------------------
<S> <C> <C>
American Telecasting, Inc. Delaware 100
American Telecasting Development, Inc. Delaware 100
Fresno MMDS Associates, A General
Partnership Delaware Partnership 35
FMA Licensee Subsidiary, Inc. California 100
American Telecasting of Anchorage, Inc. Delaware 100
American Telecasting of Bend, Inc. Delaware 100
American Telecasting of Billings, Inc. Delaware 100
American Telecasting of Bismarck, Inc. Delaware 100
American Telecasting of Central Florida,
Inc. Delaware 100
American Telecasting of Cincinnati, Inc. Delaware 100
American Telecasting of Colorado Springs,
Inc. Delaware 100
American Telecasting of Columbus, Inc. Delaware 100
American Telecasting of Denver, Inc. Delaware 100
American Telecasting of Fort Collins, Inc. Delaware 100
American Telecasting of Fort Myers, Inc. Delaware 100
American Telecasting of Green Bay, Inc. Delaware 100
American Telecasting of Minnesota, Inc. Delaware 100
American Telecasting of Nebraska, Inc. Delaware 100
American Telecasting of North Dakota, Inc. Delaware 100
American Telecasting of South Dakota, Inc. Delaware 100
American Telecasting of Hawaii, Inc. Delaware 100
American Telecasting of Jackson, Inc. Delaware 100
American Telecasting of Jacksonville, Inc. Delaware 100
American Telecasting of Lansing, Inc. Delaware 100
American Telecasting of Lincoln, Inc. Delaware 100
American Telecasting of Little Rock, Inc. Delaware 100
American Telecasting of Louisville, Inc. Delaware 100
American Telecasting of Medford, Inc. Delaware 100
American Telecasting of Michiana, Inc. Delaware 100
American Telecasting of Monterey, Inc. Delaware 100
American Telecasting of Oklahoma, Inc. Delaware 100
American Telecasting of Portland, Inc. Delaware 100
American Telecasting of Rapid City, Inc. Delaware 100
American Telecasting of Redding, Inc. Delaware 100
American Telecasting of Rockford, Inc. Delaware 100
American Telecasting of Salem/Eugene, Inc. Delaware 100
American Telecasting of Santa Barbara, Inc. Delaware 100
American Telecasting of Santa Rosa, Inc. Delaware 100
American Telecasting of Sarasota, Inc. Delaware 100
American Telecasting of Seattle, Inc. Delaware 90
American Telecasting of Sheridan, Inc. Delaware 100
American Telecasting of Sioux Valley, Inc. Delaware 100
American Telecasting of Toledo, Inc. Delaware 100
American Telecasting of Youngstown, Inc. Delaware 100
American Telecasting of Yuba City, Inc. Delaware 100
Fresno Wireless Cable Television, Inc. Washington 100
Fresno MMDS Associates, A General
Partnership Delaware Partnership 65
FMA Licensee Subsidiary, Inc. California 100
Superchannels of Las Vegas, Inc. Arizona 58
Carolina Telephone and Telegraph Company North Carolina 100
Carolina Telephone Long Distance, Inc. North Carolina 100
NOCUTS, Inc. Pennsylvania 100
SC One Company Kansas 100
</TABLE>
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest
Held By
Jurisdiction of Its
Incorporation or Immediate
Name Organization Parent
- ------------------------------------------------------------------------------
<S> <C> <C>
Centel Corporation Kansas 91.4(/1/)
Centel Capital Corporation Delaware 100
Centel Credit Company Delaware 100
Centel Directory Company Delaware 100
The CenDon Partnership Illinois Partnership 50
Centel-Texas, Inc. Texas 100
Central Telephone Company of Texas Texas 100
Central Telephone Company Delaware 98.8(/2/)
Central Telephone Company of Illinois Illinois 100
Central Telephone Company of Virginia Virginia 100
Sprint-Florida, Incorporated Florida 100
United Telephone Communications Systems,
Incorporated Florida 100
United Telephone Long Distance,
Incorporated Florida 100
C FON Corporation Delaware 100
DirectoriesAmerica, Inc. Kansas 100
Sprint Publishing & Advertising, Inc. Kansas 100
LD Corporation Kansas 100
North Supply Company Ohio 100
Northstar Transportation, Inc. Kansas 100
North Supply Company of Lenexa Delaware 100
North Supply International, Ltd. Kansas 100
NSC Advertising, Inc. Kansas 100
Sprint Products Group, Inc. Kansas 100
People's Choice TV Corporation Delaware 100
Alda Gold, Inc. Delaware 100
Alda Tucson, Inc. Delaware 100
Alda Wireless Holdings, Inc. Delaware 100
Broadcast Cable, Inc. Indiana 6.9
PCTV Development Co. Delaware 100
PCTV Gold, Inc. Delaware 100
People's Choice TV of Albuquerque, Inc. Delaware 100
People's Choice TV of Houston, Inc. Delaware 100
People's Choice TV of Milwaukee, Inc. Delaware 100
People's Choice TV of Salt Lake City, Inc. Delaware 100
People's Choice TV of St. Louis, Inc. Delaware 100
People's Choice TV of Tucson, Inc. Delaware 100
Preferred Entertainment, Inc. Delaware 100
Sat-Tel Services, Inc. Arizona 100
SpeedChoice Equipment, Inc. Delaware 100
SpeedChoice of Detroit, Inc. Delaware 100
SpeedChoice of Phoenix, Inc. Delaware 100
Waverunner, Inc. Delaware 100
Wireless Cable of Indianapolis, Inc. Delaware 100
Broadcast Cable, Inc. Indiana 78.8
</TABLE>
- --------------------------------------------------------------------------------
(/1/)Sprint Corporation owns all of the common stock. The voting preferred stock
is held by 11 Sprint subsidiaries.
(/2/)Centel Corporation owns all of the common stock. The voting preferred stock
has been called for redemption. The redemption date is March 31, 2000.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest
Held By
Jurisdiction of Its
Incorporation or Immediate
Name Organization Parent
- ------------------------------------------------------------------------------
<S> <C> <C>
Sprint Asian American, Inc. Kansas 100
Sprint Capital Corporation Delaware 100
SprintCom, Inc. Kansas 100
Sprint Communications of Michigan, Inc. Michigan 100
Sprint Credit General, Inc. Kansas 100
Sprint Credit Limited, Inc. Kansas 100
Sprint eBusiness, Inc. Kansas 100
Sprint Healthcare Systems, Inc. Kansas 100
Sprint International Holding, Inc. Kansas 100
Sprint Cayman Holding, Ltd. Cayman Islands 100
Shanghai Cayman Holding, Ltd. Cayman Islands 100
Sprint International do Brasil Ltda. Brazil 50
Sprint UK Holdings Limited United Kingdom 100
Telecom Entity Participacoes Ltda. Brazil 50
JVCO Participacoes Ltda. Brazil 50
Holdco Participacoes Ltda. Brazil 99.9
Intelig Telecomunicacoes Ltda. Brazil 99.9
SprintLink Global Holdings, Inc. Kansas 100
Sprint Mexico, Inc. Kansas 100
Sprint Mid-Atlantic Telecom, Inc. North Carolina 100
Sprint Minnesota, Inc. Minnesota 100
Sprint Missouri, Inc. Missouri 100
SC Eight Company Kansas 100
Sprint Paranet, Inc. Kansas 100
Sprint Paranet Canada, Inc. Canada 100
Sprint Payphone Services, Inc. Florida 100
Sprint TELECENTERS Inc. Florida 100
Sprint/United Management Company Kansas 100
Sprint Services, Inc. Kansas 100
Sprint Ventures, Inc. Kansas 100
Sprint Wavepath Holdings, Inc. Delaware 100
Sprint (Bay Area), Inc. Florida 100
Wavepath Holdings, Inc. Delaware 62.5
Bay Area Cablevision, Inc. California 100
Transworld Wireless T.V.--Spokane, Inc. Delaware 100
TTI Acquisition Corporation Delaware 100
Desert Winds Comm, Inc. California 100
WHI--San Diego, Inc. California 100
Wireless Holdings Purchasing Co. Delaware 100
SWV Eight, Inc. Delaware 100
SWV Three Telephony Partnership Delaware Partnership 22
Cox Communications PCS, L.P. Delaware Partnership 40.8
Cox PCS Assets, L.L.C. Delaware 100
Cox PCS License, L.L.C. Delaware 100
PCS Leasing Company, L.P. Delaware Partnership 51
SWV Five, Inc. Delaware 100
PhillieCo Partners I, L.P. Delaware Partnership 35.3
PhillieCo Sub, L.P. Delaware Partnership 99
PhillieCo, L.P. Delaware Partnership 99
PhillieCo Equipment & Realty Company, L.P. Delaware Partnership 99
PhillieCo Partners II, L.P. Delaware Partnership 35.3
PhillieCo Equipment & Realty Company, L.P. Delaware Partnership 1
PhillieCo, L.P. Delaware Partnership 1
PhillieCo Sub, L.P. Delaware Partnership 1
</TABLE>
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest
Held By
Jurisdiction of Its
Incorporation or Immediate
Name Organization Parent
- ------------------------------------------------------------------------------
<S> <C> <C>
SWV Four, Inc. Delaware 100
PhillieCo Partners I, L.P. Delaware Partnership 17.6
PhillieCo Partners II, L.P. Delaware Partnership 17.6
SWV Two Telephony Partnership Delaware Partnership 99
MinorCo, L.P. Delaware Partnership 15
American PCS, L.P. Delaware Partnership (/3/)
American PCS Communications, LLC Delaware 99(/4/)
APC PCS, LLC Delaware 99(/5/)
APC Realty and Equipment Company Delaware 99(/5/)
American Personal Communications
Holdings, Inc. Delaware 100
American PCS Communications, LLC Delaware (/6/)
APC PCS, LLC Delaware (/6/)
APC Realty and Equipment Company, LLC Delaware (/6/)
NewTelco, L.P. Delaware Partnership (/3/)
Sprint Spectrum Equipment Company, L.P. Delaware Partnership (/3/)
Sprint Spectrum L.P. Delaware Partnership (/3/)
Sprint Spectrum Equipment Company, L.P. Delaware Partnership 99(/7/)
Sprint Spectrum Finance Corporation Delaware 100
Sprint Spectrum Realty Company, L.P. Delaware Partnership 99(/7/)
WirelessCo, L.P. Delaware Partnership 99(/7/)
Sprint Spectrum Realty Company, L.P. Delaware Partnership (/3/)
WirelessCo, L.P. Delaware Partnership (/3/)
Sprint Spectrum Holding Company, L.P. Delaware Partnership 15
American PCS, L.P. Delaware Partnership 99(/8/)
Cox Communications PCS, L.P. Delaware Partnership 59.2
NewTelco, L.P. Delaware Partnership 99(/8/)
PCS Leasing Company, L.P. Delaware Partnership 49
Sprint Spectrum L.P. (dba Sprint PCS) Delaware Partnership 99(/8/)
SWV One, Inc. Delaware 100
SWV One Telephony Partnership Delaware Partnership 1
MinorCo, L.P. Delaware Partnership 15
Sprint Spectrum Holding Company, L.P. Delaware Partnership 15
SWV Seven, Inc. Delaware 100
SWV Three Telephony Partnership Delaware Partnership 78
SWV Six, Inc. Colorado 100
MinorCo, L.P. Delaware Partnership 30
Sprint Spectrum Holding Company, L.P. Delaware Partnership 30
SWV Three, Inc. Delaware 100
SWV Two Telephony Partnership Delaware Partnership 1
SWV Two, Inc. Delaware 100
SWV One Telephony Partnership Delaware Partnership 99
TDI Acquisition Corporation Delaware 100
WBS California, LLC Delaware 100
WBSE Licensing Corporation Delaware 100
WBSS Licensing Corporation Delaware 100
WBS Idaho, LLC Delaware 100
WBSB Licensing Corporation Delaware 100
</TABLE>
- --------------------------------------------------------------------------------
(/3/)MinorCo, L.P. holds a limited and preferred partnership interest of less
than 1%.
(/4/)American PCS, L.P. holds the general partnership interest of greater than
99%.
(/5/)American PCS Communications, LLC holds the general partnership interest of
greater than 99%.
(/6/)American Personal Communications Holdings, Inc. holds a limited partnership
interest of less than 1%.
(/7/)Sprint Spectrum L.P. holds the general partnership interest of greater than
99%.
(/8/)Sprint Spectrum Holding Company, L.P. holds the general partnership
interest of greater than 99%.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest
Held By
Jurisdiction of Its
Incorporation or Immediate
Name Organization Parent
- -------------------------------------------------------------------------------
<S> <C> <C>
WBS Montana, LLC Delaware 100
WBSH Licensing Corporation Delaware 100
WBS Oregon, LLC Delaware 100
WBSCB Licensing Corporation Delaware 100
WBSK Licensing Corporation Delaware 100
WBSR Licensing Corporation Delaware 100
WBS Washington, LLC Delaware 100
Kennewick Licensing, LLC Delaware 100
WBSY Licensing Corporation Delaware 100
Wireless Broadband Services of America, LLC Delaware 100
Wireless Broadcasting Systems of America, Inc. Delaware 100
Wireless Broadcasting Systems of Boise, Inc. Delaware 100
Wireless Broadcasting Systems of Coos Bay,
Inc. Delaware 100
Wireless Broadcasting Systems of Eureka, Inc. Delaware 100
Wireless Broadcasting Systems of Ft. Pierce,
Inc. Delaware 100
WBSFP Licensing Corporation Delaware 100
Wireless Broadcasting Systems of Helena, Inc. Delaware 100
Wireless Broadcasting Systems of Klamath
Falls, Inc. Delaware 100
Wireless Broadcasting Systems of Melbourne,
Inc. Delaware 100
WBSM Licensing Corporation Delaware 100
Wireless Broadcasting Systems of Roseburg,
Inc. Delaware 100
Wireless Broadcasting Systems of Sacramento,
Inc. Delaware 100
Wireless Broadcasting Systems of West Palm,
Inc. Delaware 100
WBSWP Licensing Corporation Delaware 100
Wireless Broadcasting Systems of Yakima, Inc. Delaware 100
Wireless Broadcasting Systems of Knoxville,
LLC Delaware 100
Cherokee Wireless of Knoxville, Inc. Delaware 100
Transworld Telecommunications, Inc. Pennsylvania 100
Wavepath Holdings, Inc. Delaware 37.5
UCOM, Inc. Missouri 100
Sprint Communications Company L.P. Delaware Partnership 34
Sprint Communications Company of New
Hampshire, Inc. New Hampshire 100
Sprint Communications Company of Virginia,
Inc. Virginia 100
Sprint Licensing, Inc. Kansas 100
United Telephone Company of Kansas Kansas 1(/9/)
USST of Texas, Inc. Texas 100
UTI Holding Company, Inc. Kansas 100
SprintCom Equipment Company L.P. Delaware 49
Sprint Enterprises, L.P. Delaware Partnership 49
MinorCo, L.P. Delaware Partnership 40
PhillieCo Partners I, L.P. Delaware Partnership 47
PhillieCo Partners II, L.P. Delaware Partnership 47
Sprint Spectrum Holding Company, L.P. Delaware Partnership 40
Sprint Global Venture, Inc. Kansas (/10/)
SGV Corporation Kansas 100
United Telephone Company of the Carolinas South Carolina 100
SC Two Company Kansas 100
United Telephone Company of Eastern Kansas Delaware 100
Sprint/United Midwest Management Services
Company Kansas 20
United Teleservices, Inc. Kansas 100
United Telephone Company of Florida Florida 100
Vista-United Telecommunications Florida 49
United Telephone Company of Indiana, Inc. Indiana 100
SC Four Company Kansas 100
</TABLE>
- --------------------------------------------------------------------------------
(/9/)Sprint Corporation owns all of the common stock. The voting preferred stock
is held by Sprint Communications Company L.P.
(/10/)UCOM, Inc., US Telecom, Inc., and Utelcom, Inc. each holds less than 1% of
the common stock.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (continued) Sprint Corporation
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Ownership
Interest
Held By
Jurisdiction of Its
Incorporation or Immediate
Name Organization Parent
- -------------------------------------------------------------------------------
<S> <C> <C>
United Telephone Company of Kansas Kansas 99(/9/)
Sprint/United Midwest Management Services
Company Kansas 80
United Telephone Company of New Jersey, Inc. New Jersey 100
United Telephone Company of the Northwest Oregon 100
United Telephone Company of Ohio Ohio 100
SC Five Company Kansas 100
United Telephone Communications Services of
Ohio, Inc. Ohio 100
United Telephone Company of Pennsylvania, The Pennsylvania 100
SC Six Company Kansas 100
United Telephone Long Distance, Inc. Pennsylvania 100
Valley Network Partnership Virginia Partnership 20
United Telephone Company of Southcentral Kansas Arkansas 100
United Telephone Company of Texas, Inc. Texas 100
SC Seven Company Kansas 50
United Telephone Company of the West Delaware 100
United Telephone-Southeast, Inc. Virginia 100
SC Three Company Kansas 100
Valley Network Partnership Virginia Partnership 20
US Telecom, Inc. Kansas 100
ASC Telecom, Inc. (dba AlternaTel) Kansas 100
LCF, Inc. California 100
SC Seven Company Kansas 50
Sprint Communications Company L.P. Delaware Partnership 59
SprintCom Equipment Company L.P. Delaware 51
Sprint Enterprises, L.P. Delaware Partnership 51
Sprint Global Venture, Inc. Kansas (/10/)
Sprint Iridium, Inc. Kansas 100
United Telecommunications, Inc. Delaware 100
US Telecom of New Hampshire, Inc. New Hampshire 100
Utelcom, Inc. Kansas 100
Private TransAtlantic Telecommunications
System, Inc. Delaware 100
Private Trans-Atlantic Telecommunications
System (N.J.), Inc. New Jersey 100
Sprint Communications Company L.P. Delaware Partnership 5
Sprint Global Venture, Inc. Kansas (/10/)
Sprint International Incorporated Delaware 100
Consortium Communications International, Inc. New York 100
Dial--The Israeli Company for International
Communication Services LTD Israel 54.4
Sprint FON Inc. Delaware 100
Sprint Global Venture, Inc. Kansas 86
Sprint International do Brasil Ltda. Brazil 50
Sprint International Caribe, Inc. Puerto Rico 100
Sprint International Communications
Corporation Delaware 100
Sprint Communications Company L.P. Delaware Partnership 2
Sprint Global Venture, Inc. Kansas 13
Sprint International Construction Company Delaware 100
Sprint Israel Cellular, Inc. Delaware 100
Sprint R.P. Telekom Sp. z o.o. Poland 50
Sprint Telecommunications France Inc. Delaware 100
Sprint Telecommunications Services GmbH Germany 100
Sprint Telecommunications (UK) Limited Delaware 100
Wireless Cable of Florida, Inc. Florida 100
</TABLE>
- --------------------------------------------------------------------------------
(/9/)Sprint Corporation owns all of the common stock. The voting preferred stock
is held by Sprint Communications Company L.P.
(/10/)UCOM, Inc., US Telecom, Inc., and Utelcom, Inc. each holds less than 1% of
the common stock.
<PAGE>
EXHIBIT (23)(a)
CONSENT OF INDEPENDENT AUDITORS Sprint Corporation
We consent to the incorporation by reference in the Registration Statements
(Form S-3, No. 333-83577; Form S-3, No. 33-58488; Form S-8, No. 33-38761; Form
S-8, No. 33-31802; Form S-8, No. 2-97322; Form S-8, No. 33-59316; Form S-8, No.
33-59318; Form S-8, No. 33-59322; Form S-8, No. 33-59324; Form S-8, No. 33-
59326; Form S-8, No. 33-53695; Form S-8, No. 33-59349; Form S-8, No. 33-65149;
Form S-8, No. 33-25449; Form S-8, No. 333-42077; Form S-8, No. 333-46487; Form
S-8, No. 333-46491; Form S-8, No. 333-68737; Form S-8, No. 333-68741; Form S-8,
No. 333-68739; Form S-8, No. 333-68795; Form S-8, No. 333-76755; Form S-8, No.
333-76783; and Form S-8, No. 333-92809) of Sprint Corporation and in the
related Prospectuses and in the Joint Proxy Statement/Prospectus of MCI
WORLDCOM, Inc. and Sprint Corporation that is made a part of the Registration
Statement (Form S-4, No. 333-90421) of MCI WORLDCOM, Inc. of our reports dated
February 1, 2000 with respect to the consolidated financial statements and
schedule of Sprint Corporation and the combined financial statements and
schedules of the Sprint FON Group and the Sprint PCS Group included in this
Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
-------------------------------------
Ernst & Young LLP
Kansas City, Missouri
March 20, 2000
<PAGE>
EXHIBIT (23)(b)
INDEPENDENT AUDITORS' CONSENT Sprint Spectrum Holding Company, L.P.
We consent to the incorporation by reference in Registration Statements (Nos.
33-58488 and 333-83577) on Form S-3 and Registration Statements (Nos. 33-
38761, 33-31802, 2-97322, 33-59316, 33-59318, 33-59322, 33-59324, 33-59326,
33-53695, 33-59349, 33-65149, 33-25449, 333-42077, 333-46487, 333-46491, 333-
68737, 333-68739, 333-68741, 333-68795, 333-76755, 333-76783, and 333-92809)
on Form S-8 of Sprint Corporation and in Registration Statement No. 333-90421
on Form S-4 of MCI WORLDCOM, Inc. of our report dated February 2, 1999, on the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries for each of the two years in the period ended December 31, 1998
appearing in this Annual Report on Form 10-K of Sprint Corporation for the
year ended December 31, 1999.
/s/ Deloitte & Touche LLP
-------------------------------------
Deloitte & Touche LLP
Kansas City, Missouri
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 120
<SECURITIES> 317
<RECEIVABLES> 3,693
<ALLOWANCES> 285
<INVENTORY> 777
<CURRENT-ASSETS> 5,580
<PP&E> 37,098
<DEPRECIATION> 15,129
<TOTAL-ASSETS> 39,250
<CURRENT-LIABILITIES> 6,832
<BONDS> 15,685
0
247
<COMMON> 2,702
<OTHER-SE> 10,611
<TOTAL-LIABILITY-AND-EQUITY> 39,250
<SALES> 0
<TOTAL-REVENUES> 19,928
<CGS> 0
<TOTAL-COSTS> 14,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 860
<INCOME-PRETAX> (1,072)
<INCOME-TAX> (327)
<INCOME-CONTINUING> (745)
<DISCONTINUED> (130)
<EXTRAORDINARY> (60)
<CHANGES> 0
<NET-INCOME> (935)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> FON GROUP EPS - BASIC 1.81
FON GROUP EPS - DILUTED 1.78
PCS GROUP EPS - BASIC (2.73)
PCS GROUP EPS - DILUTED (2.73)
IN DECEMBER 1999, THE SPRINT BOARD OF DIRECTORS AUTHORIZED A TWO-FOR-ONE STOCK
SPLIT OF THE SPRINT PCS COMMON STOCK IN THE FORM OF A STOCK DIVIDEND, WHICH WAS
DISTRIBUTED ON FEBRUARY 4, 2000 TO THE PCS SHAREHOLDERS. IN THE 1999 SECOND
QUARTER, SPRINT EFFECTED A TWO-FOR-ONE STOCK SPLIT OF ITS FON COMMON STOCK. NEW
SHARES WERE ISSUED JUNE 4, 1999 TO SHAREHOLDERS OF RECORDS ON MAY 13, 1999.
PRIOR FINANCIAL DATA SCHEDULE HAVE BEEN RESTATED FOR THESE SPLITS.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 426
<SECURITIES> 339
<RECEIVABLES> 3,549
<ALLOWANCES> 251
<INVENTORY> 694
<CURRENT-ASSETS> 5,589
<PP&E> 35,693
<DEPRECIATION> 14,917
<TOTAL-ASSETS> 37,984
<CURRENT-LIABILITIES> 6,318
<BONDS> 14,376
0
247
<COMMON> 2,222
<OTHER-SE> 11,297
<TOTAL-LIABILITY-AND-EQUITY> 37,984
<SALES> 0
<TOTAL-REVENUES> 14,608
<CGS> 0
<TOTAL-COSTS> 10,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 600
<INCOME-PRETAX> (658)
<INCOME-TAX> (188)
<INCOME-CONTINUING> (470)
<DISCONTINUED> (154)
<EXTRAORDINARY> (21)
<CHANGES> 0
<NET-INCOME> (645)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>FON GROUP EPS - BASIC 1.33
FON GROUP EPS - DILUTED 1.31
PCS GROUP EPS - BASIC (1.99)
PCS GROUP EPS - DILUTED (1.99)
IN DECEMBER 1999, THE SPRINT BOARD OF DIRECTORS AUTHORIZED A TWO-FOR-ONE STOCK
SPLIT OF THE SPRINT PCS COMMON STOCK IN THE FORM OF A STOCK DIVIDEND, WHICH WAS
DISTRIBUTED ON FEBRUARY 4, 2000 TO THE PCS SHAREHOLDERS. IN THE 1999 SECOND
QUARTER, SPRINT EFFECTED A TWO-FOR-ONE STOCK SPLIT OF ITS FON COMMON STOCK. NEW
SHARES WERE ISSUED JUNE 4, 1999 TO SHAREHOLDERS OF RECORD ON MAY 13, 1999.
PRIOR FINANCIAL DATA SCHEDULES HAVE BEEN RESTATED FOR THESE SPLITS.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 3,362
<ALLOWANCES> 232
<INVENTORY> 575
<CURRENT-ASSETS> 4,595
<PP&E> 34,487
<DEPRECIATION> 14,311
<TOTAL-ASSETS> 36,099
<CURRENT-LIABILITIES> 5,665
<BONDS> 12,822
0
247
<COMMON> 2,220
<OTHER-SE> 11,520
<TOTAL-LIABILITY-AND-EQUITY> 36,099
<SALES> 0
<TOTAL-REVENUES> 9,540
<CGS> 0
<TOTAL-COSTS> 6,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399
<INCOME-PRETAX> (384)
<INCOME-TAX> (110)
<INCOME-CONTINUING> (274)
<DISCONTINUED> (94)
<EXTRAORDINARY> (21)
<CHANGES> 0
<NET-INCOME> (389)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> FON GROUP EPS - BASIC 0.92
FON GROUP EPS - DILUTED 0.90
PCS GROUP EPS - BASIC (1.33)
PCS GROUP EPS - DILUTED (1.33)
IN DECEMBER 1999, THE SPRINT BOARD OF DIRECTORS AUTHORIZED A TWO-FOR-ONE STOCK
SPLIT OF THE SPRINT PCS COMMON STOCK IN THE FORM OF A STOCK DIVIDEND, WHICH WAS
DISTRIBUTED ON FEBRUARY 4, 2000 TO THE PCS SHAREHOLDERS. IN THE 1999 SECOND
QUARTER, SPRINT EFFECTED A TWO-FOR-ONE STOCK SPLIT OF ITS FON COMMON STOCK. NEW
SHARES WERE ISSUED JUNE 4, 1999 TO SHAREHOLDERS OF RECORD ON MAY 13, 1999. PRIOR
FINANCIAL DATA SCHEDULES HAVE BEEN RESTATED FOR THESE SPLITS.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 148
<SECURITIES> 0
<RECEIVABLES> 3,050
<ALLOWANCES> 198
<INVENTORY> 500
<CURRENT-ASSETS> 4,153
<PP&E> 33,382
<DEPRECIATION> 13,759
<TOTAL-ASSETS> 33,721
<CURRENT-LIABILITIES> 5,458
<BONDS> 11,759
0
247
<COMMON> 1,323
<OTHER-SE> 11,502
<TOTAL-LIABILITY-AND-EQUITY> 33,721
<SALES> 0
<TOTAL-REVENUES> 4,652
<CGS> 0
<TOTAL-COSTS> 3,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191
<INCOME-PRETAX> (248)
<INCOME-TAX> (77)
<INCOME-CONTINUING> (171)
<DISCONTINUED> (28)
<EXTRAORDINARY> (21)
<CHANGES> 0
<NET-INCOME> (220)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>FON GROUP EPS - BASIC 0.47
FON GROUP EPS - DILUTED 0.46
PCS GROUPNEPS - BASIC (0.73)
PCS GROUP EPS - DILUTED (0.73)
IN DECEMBER 1999, THE SPRINT BOARD OF DIRECTORS AUTHORIZED A TWO-FOR-ONE STOCK
SPLIT OF THE SPRING PCS COMMON STOCK IN THE FORM OF A STOCK DIVIDEND, WHICH WAS
DISTRIBUTED ON FEBRUARY 4, 2000 TO THE PCS SHAREHOLDERS. IN THE 1999 SECOND
QUARTER, SPRINT EFFECTED A TWO-FOR-ONE STOCK SPLIT OF ITS FON COMMON STOCK. NEW
SHARES WERE ISSUED JUNE 4, 1999 TO SHAREHOLDERS OF RECORD ON MAY 13, 1999.
PRIOR FINANCIAL DATA SCHEDULES HAVE BEEN RESTATED FOR THESE SPLITS.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 605
<SECURITIES> 0
<RECEIVABLES> 2,894
<ALLOWANCES> 186
<INVENTORY> 477
<CURRENT-ASSETS> 4,414
<PP&E> 32,144
<DEPRECIATION> 13,161
<TOTAL-ASSETS> 33,257
<CURRENT-LIABILITIES> 5,446
<BONDS> 11,942
0
247
<COMMON> 1,292
<OTHER-SE> 10,909
<TOTAL-LIABILITY-AND-EQUITY> 33,257
<SALES> 0
<TOTAL-REVENUES> 16,881
<CGS> 0
<TOTAL-COSTS> 11,706
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 718
<INCOME-PRETAX> 1,039
<INCOME-TAX> 454
<INCOME-CONTINUING> 585
<DISCONTINUED> (135)
<EXTRAORDINARY> (36)
<CHANGES> 0
<NET-INCOME> 414
<EPS-BASIC> 0<F1><F2>
<EPS-DILUTED> 0<F1><F2>
<FN>
<F1>
FROM JANUARY 1, 1998 THROUGH NOVEMBER 23, 1998
SPRINT EPS - BASIC 1.98
SPRINT EPS - DILUTED 1.95
<F2>
FROM NOVEMBER 23, 1998 THROUGH DECEMBER 31, 1998
FON Group EPS - Basic 0.14
FON Group EPS - Diluted 0.14
PCS Group EPS - Basic (0.67)
PCS Group EPS - Diluted (0.67)
In December 1999, the Sprint Board of Directors authorized a two-for-one stock
split of the Sprint PCS common stock in the form of a dividend, which was
distributed on February 4, 2000 to the PCS shareholders. In the 1999 second
quarter, Sprint effected a two-for-one stock split of its FON common stock.
New shares were issued June 4, 1999 to shareholders of record on May 13, 1999.
Prior Financial Data Schedules have been restated for these splits.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 2,682
<ALLOWANCES> 166
<INVENTORY> 350
<CURRENT-ASSETS> 3,879
<PP&E> 26,259
<DEPRECIATION> 12,757
<TOTAL-ASSETS> 20,543
<CURRENT-LIABILITIES> 3,206
<BONDS> 5,040
0
0
<COMMON> 1,091
<OTHER-SE> 8,211
<TOTAL-LIABILITY-AND-EQUITY> 20,543
<SALES> 0
<TOTAL-REVENUES> 12,410
<CGS> 0
<TOTAL-COSTS> 8,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 521
<INCOME-PRETAX> 1,189
<INCOME-TAX> 442
<INCOME-CONTINUING> 747
<DISCONTINUED> (86)
<EXTRAORDINARY> (4)
<CHANGES> 0
<NET-INCOME> 657
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.50
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 2,652
<ALLOWANCES> 160
<INVENTORY> 381
<CURRENT-ASSETS> 3,893
<PP&E> 25,263
<DEPRECIATION> 12,375
<TOTAL-ASSETS> 19,880
<CURRENT-LIABILITIES> 3,206
<BONDS> 4,406
10
0
<COMMON> 1,091
<OTHER-SE> 8,132
<TOTAL-LIABILITY-AND-EQUITY> 19,880
<SALES> 0
<TOTAL-REVENUES> 8,137
<CGS> 0
<TOTAL-COSTS> 5,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> 811
<INCOME-TAX> 315
<INCOME-CONTINUING> 496
<DISCONTINUED> (75)
<EXTRAORDINARY> (4)
<CHANGES> 0
<NET-INCOME> 417
<EPS-BASIC> 0.97
<EPS-DILUTED> 0.95
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 158
<SECURITIES> 0
<RECEIVABLES> 2,685
<ALLOWANCES> 166
<INVENTORY> 379
<CURRENT-ASSETS> 4,018
<PP&E> 23,803
<DEPRECIATION> 12,024
<TOTAL-ASSETS> 18,846
<CURRENT-LIABILITIES> 3,188
<BONDS> 4,076
10
0
<COMMON> 1,091
<OTHER-SE> 8,065
<TOTAL-LIABILITY-AND-EQUITY> 18,846
<SALES> 0
<TOTAL-REVENUES> 4,011
<CGS> 0
<TOTAL-COSTS> 2,703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 407
<INCOME-TAX> 158
<INCOME-CONTINUING> 249
<DISCONTINUED> (38)
<EXTRAORDINARY> (4)
<CHANGES> 0
<NET-INCOME> 207
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 2,643
<ALLOWANCES> 147
<INVENTORY> 352
<CURRENT-ASSETS> 3,773
<PP&E> 23,211
<DEPRECIATION> 11,717
<TOTAL-ASSETS> 18,274
<CURRENT-LIABILITIES> 3,077
<BONDS> 3,749
0
0
<COMMON> 1,091
<OTHER-SE> 7,934
<TOTAL-LIABILITY-AND-EQUITY> 18,274
<SALES> 0
<TOTAL-REVENUES> 14,564
<CGS> 0
<TOTAL-COSTS> 8,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 1,748
<INCOME-TAX> 654
<INCOME-CONTINUING> 1,094
<DISCONTINUED> (142)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 952
<EPS-BASIC> 2.21
<EPS-DILUTED> 2.18
</TABLE>
