-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AeeghRJcJhfqGzjfK0gYdELP8aOpq6FKCXudHQro6h/NuSILeRqRBSv5T1jXn1fY /C9zuLKdYBQv0sKtppiXvA== 0000101830-98-000042.txt : 19980812 0000101830-98-000042.hdr.sgml : 19980812 ACCESSION NUMBER: 0000101830-98-000042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 SROS: CSX SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPRINT CORP CENTRAL INDEX KEY: 0000101830 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 480457967 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04721 FILM NUMBER: 98680846 BUSINESS ADDRESS: STREET 1: 2330 SHAWNEE MISSION PKWY STREET 2: P O BOX 11315 CITY: WESTWOOD STATE: KS ZIP: 66205 BUSINESS PHONE: 9136243000 MAIL ADDRESS: STREET 1: 2330 SHAWNEE MISSION PKWY STREET 2: NULL CITY: WESTWOOD STATE: KS ZIP: 66205 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TELECOMMUNICATIONS INC DATE OF NAME CHANGE: 19920316 FORMER COMPANY: FORMER CONFORMED NAME: UNITED UTILITIES INC DATE OF NAME CHANGE: 19731011 10-Q 1 SPRINT CORPORATION FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4721 SPRINT CORPORATION (Exact name of registrant as specified in its charter) KANSAS 48-0457967 (State or other jurisdiction of incorporation (IRS Employer or organization) Identification No.) P.O. Box 11315, Kansas City, Missouri 64112 - -------------------------------------------------------------------------------- (Address of principal executive offices) (913) 624-3000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No COMMON SHARES OUTSTANDING AT JUNE 30, 1998: COMMON STOCK 343,840,537 CLASS A COMMON STOCK 86,236,036 SPRINT CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 INDEX
Page ---------------------- Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statements of Comprehensive Income 3 Consolidated Statements of Cash Flows 4 Consolidated Statement of Common Stock and Other Shareholders' Equity 5 Condensed Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Part II - Other Information Item 1. Legal Proceedings 26 Item 2. Changes in Securities 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 28 Signature 29 Exhibits
PART I. Item 1. CONSOLIDATED BALANCE SHEETS SPRINT CORPORATION (in millions, except per share data) - -------------------------------------------------------------------------- -------------------- --- ---------------- June 30, December 31, 1998 1997 - -------------------------------------------------------------------------- -------------------- --- ---------------- (unaudited) Assets Current assets Cash and equivalents $ 93.3 $ 101.7 Accounts receivable, net of allowance for doubtful accounts of $159.7 and $146.7 2,492.6 2,495.6 Inventories 381.0 352.0 Prepaid expenses 228.0 159.1 Notes and other receivables 519.5 464.6 Other 178.3 199.6 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total current assets 3,892.7 3,772.6 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Investments in equity securities 367.4 303.0 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Property, plant and equipment Long distance communications services 8,838.2 8,245.5 Local communications services 14,536.7 14,011.5 Other 1,888.2 953.9 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total property, plant and equipment 25,263.1 23,210.9 Less accumulated depreciation 12,375.4 11,716.8 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Net property, plant and equipment 12,887.7 11,494.1 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Investments in and advances to affiliates 1,158.3 1,427.5 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Other assets 1,484.6 1,187.6 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total $ 19,790.7 $ 18,184.8 ---- --------------- ---- --------------- Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt $ 115.8 $ 131.0 Accounts payable 1,251.7 1,100.1 Accrued interconnection costs 569.0 672.7 Accrued taxes 354.6 270.7 Advance billings 211.3 202.9 Other 704.0 699.4 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total current liabilities 3,206.4 3,076.8 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Construction obligations 474.8 - - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Long-term debt 4,406.2 3,748.6 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Deferred credits and other liabilities Deferred income taxes and investment tax credits 979.9 1,016.5 Postretirement and other benefit obligations 1,068.1 947.4 Other 422.6 358.8 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total deferred credits and other liabilities 2,470.6 2,322.7 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Redeemable preferred stock 9.5 11.5 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Common stock and other shareholders' equity Common stock, par value $2.50 per share, 1,000.0 shares authorized, 350.3 shares issued, and 343.9 and 343.8 shares outstanding 875.7 875.7 Class A common stock, par value $2.50 per share, 500.0 shares authorized, 86.2 shares issued and outstanding 215.6 215.6 Capital in excess of par or stated value 4,479.0 4,457.7 Retained earnings 3,899.0 3,693.1 Treasury stock, at cost, 6.4 and 6.5 shares (343.0) (292.9) Accumulated other comprehensive income 114.4 107.9 Other (17.5) (31.9) - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total common stock and other shareholders' equity 9,223.2 9,025.2 - -------------------------------------------------------------------------- ---- --------------- ---- --------------- Total $ 19,790.7 $ 18,184.8 ---- --------------- ---- --------------- See accompanying Condensed Notes to Consolidated Financial Statements.
PART I. Item 1. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) SPRINT CORPORATION (in millions, except per share data) - -------------------------------------------- ---------------------------------- ---------------------------------- Quarter Ended Year-to-Date June 30, June 30, - -------------------------------------------- ---------------------------------- ---------------------------------- 1998 1997 1998 1997 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Net Operating Revenues $ 3,967.2 $ 3,667.5 $ 7,878.1 $ 7,246.0 Operating Expenses Costs of services and products 1,891.5 1,849.6 3,775.8 3,644.5 Selling, general and administrative 931.3 803.2 1,822.4 1,571.2 Depreciation and amortization 468.8 419.2 936.1 830.1 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total operating expenses 3,291.6 3,072.0 6,534.3 6,045.8 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Operating Income 675.6 595.5 1,343.8 1,200.2 Interest expense (61.3) (40.7) (128.0) (85.5) Equity in loss of Global One (41.7) (23.6) (86.9) (47.3) Equity in loss of Sprint PCS (226.3) (136.0) (436.0) (221.9) Other income, net 17.3 19.8 38.5 54.7 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Income before income taxes and extraordinary item 363.6 415.0 731.4 900.2 Income taxes (150.1) (159.1) (301.4) (354.3) - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Income before extraordinary item 213.5 255.9 430.0 545.9 Extraordinary item, net - - (4.4) - - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Net Income 213.5 255.9 425.6 545.9 Preferred stock dividends (0.2) (0.2) (0.5) (0.5) - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Earnings applicable to common stock $ 213.3 $ 255.7 $ 425.1 $ 545.4 --- ------------- -- ------------- --- ------------- -- ------------- Basic Earnings per Common Share Income before extraordinary item $ 0.50 $ 0.59 $ 1.00 $ 1.27 Extraordinary item - - (0.01) - - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total $ 0.50 $ 0.59 $ 0.99 $ 1.27 --- ------------- -- ------------- --- ------------- -- ------------- Basic weighted average common shares 430.5 430.5 430.3 430.5 --- ------------- -- ------------- --- ------------- -- ------------- Diluted Earnings per Common Share Income before extraordinary item $ 0.49 $ 0.59 $ 0.98 $ 1.25 Extraordinary item - - (0.01) - - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total $ 0.49 $ 0.59 $ 0.97 $ 1.25 --- ------------- -- ------------- --- ------------- -- ------------- Diluted weighted average common shares 439.5 436.5 439.0 436.2 --- ------------- -- ------------- --- ------------- -- ------------- Dividends per Common Share $ 0.25 $ 0.25 $ 0.50 $ 0.50 --- ------------- -- ------------- --- ------------- -- ------------- See accompanying Condensed Notes to Consolidated Financial Statements.
PART I. Item 1. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) SPRINT CORPORATION (in millions) - -------------------------------------------- ---------------------------------- ---------------------------------- Quarter Ended Year-to-Date June 30, June 30, - -------------------------------------------- ---------------------------------- ---------------------------------- 1998 1997 1998 1997 - -------------------------------------------- ----------------- ---------------- ----------------- ---------------- Net Income $ 213.5 $ 255.9 $ 425.6 $ 545.9 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Other Comprehensive Income Unrealized holding gains (losses) on securities (5.1) 14.3 13.4 4.4 Tax (expense) benefit 1.9 (5.3) (4.8) (1.7) - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Net unrealized holding gains (losses) on securities (3.2) 9.0 8.6 2.7 Foreign currency translation adjustments (2.6) (0.5) (2.1) 5.8 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total other comprehensive income (5.8) 8.5 6.5 8.5 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Comprehensive Income $ 207.7 $ 264.4 $ 432.1 $ 554.4 --- ------------- -- ------------- --- ------------- -- ------------- See accompanying Condensed Notes to Consolidated Financial Statements.
PART I. Item 1. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) SPRINT CORPORATION (in millions) - ------------------------------------------------------------------------------- --- ------------- -- ------------- Year-to-Date June 30, 1998 1997 - ------------------------------------------------------------------------------- --- ------------- -- ------------- Operating Activities Net income $ 425.6 $ 545.9 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net losses of affiliates 521.9 271.0 Depreciation and amortization 936.1 830.1 Deferred income taxes and investment tax credits (16.9) 88.5 Changes in assets and liabilities: Accounts receivable, net 3.0 (42.8) Inventories and other current assets (29.2) (5.4) Accounts payable and other current liabilities 142.7 (153.1) Noncurrent assets and liabilities, net (52.9) 16.1 Other, net 2.8 (5.9) - ------------------------------------------------------------------------------- --- ------------- -- ------------- Net cash provided by operating activities 1,933.1 1,544.4 - ------------------------------------------------------------------------------- --- ------------- -- ------------- Investing Activities Capital expenditures (2,040.7) (1,268.1) Purchase of PCS licenses - (433.7) Investments in and advances to affiliates, net (451.0) (140.8) Other, net (17.2) 14.3 - ------------------------------------------------------------------------------- --- ------------- -- ------------- Net cash used by investing activities (2,508.9) (1,828.3) - ------------------------------------------------------------------------------- --- ------------- -- ------------- Financing Activities Payments on long-term debt (164.6) (70.1) Proceeds from long-term debt 495.2 - Change in construction obligations 474.8 - Change in short-term borrowings - (200.0) Dividends paid (205.2) (188.6) Treasury stock purchased (110.4) (73.8) Other, net 77.6 57.5 - ------------------------------------------------------------------------------- --- ------------- -- ------------- Net cash provided (used) by financing activities 567.4 (475.0) - ------------------------------------------------------------------------------- --- ------------- -- ------------- Decrease in Cash and Equivalents (8.4) (758.9) Cash and Equivalents at Beginning of Period 101.7 1,150.6 - ------------------------------------------------------------------------------- --- ------------- -- ------------- Cash and Equivalents at End of Period $ 93.3 $ 391.7 --- ------------- -- ------------- See accompanying Condensed Notes to Consolidated Financial Statements.
PART I. Item 1. CONSOLIDATED STATEMENT OF COMMMON STOCK AND OTHER SHAREHOLDERS' EQUITY SPRINT CORPORATION (Unaudited) (in millions) - ------------------------------------------------------------------------------------------------------------------- Year-to-Date June 30, 1998 - ------------------------------------------------------------------------------------------------------------------- Capital in Excess Accumulated Class A of Par Other Common Common or Retained Treasury Comprehensive Stock Stock Stated Earnings Stock Income Other Total Value - ------------------------------------------------------------------------------------------------------------------- Beginning 1998 Balance $ 875.7 $ 215.6 $ 4,457.7 $3,693.1 $ (292.9)$ 107.9 $ (31.9) $ 9,025.2 Net income - - - 425.6 - - - 425.6 Common stock dividends - - - (172.3) - - - (172.3) Class A common stock dividends - - - (43.1) - - - (43.1) Treasury stock purchased - - - - (110.4) - - (110.4) Treasury stock issued - - 0.5 (5.7) 52.8 - - 47.6 Other, net - - 20.8 1.4 7.5 6.5 14.4 50.6 - ------------------------------------------------------------------------------------------------------------------- June 1998 Balance $ 875.7 $ 215.6 $ 4,479.0 $3,899.0 $ (343.0)$ 114.4 $ (17.5) $ 9,223.2 ------------------------------------------------------------------------------------------- See accompanying Condensed Notes to Consolidated Financial Statements.
PART I. Item 1. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SPRINT CORPORATION The information in this Form 10-Q has been prepared according to the rules and regulations of the Securities and Exchange Commission. In management's opinion, these consolidated interim financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly Sprint Corporation's consolidated financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in consolidated financial statements prepared according to generally accepted accounting principles (GAAP) have been condensed or omitted. These consolidated financial statements should be read in connection with Sprint Corporation's 1997 annual report on Form 10-K. Operating results for the 1998 year-to-date period are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 1. Basis of Consolidation The consolidated financial statements include the accounts of Sprint Corporation and its wholly owned and majority-owned subsidiaries (Sprint). Investments in entities in which Sprint exercises significant influence, but does not control, are accounted for using the equity method (see Note 3). The consolidated financial statements are prepared according to GAAP. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Certain prior-year amounts have been reclassified to conform to the current-period presentation. These reclassifications had no effect on the results of operations or shareholders' equity as previously reported. 2. Restructuring and Recapitalization Plans Sprint has entered into a restructuring agreement with Tele-Communications, Inc. (TCI), Comcast Corporation (Comcast) and Cox Communications, Inc. (Cox) (together, the Cable Parents) to restructure Sprint's wireless personal communication services (PCS) operations (the PCS Restructuring). Sprint will acquire the joint venture interests of TCI, Comcast and Cox in Sprint Spectrum Holding Company, L.P. and MinorCo, L.P. (together, Sprint Spectrum Holdings) and the joint venture interests of TCI and Cox in PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P. (together, PhillieCo). In exchange for these joint venture interests, Sprint will issue to the Cable Parents a newly created class of Sprint common stock (the PCS Stock). The PCS Stock is intended to reflect separately the performance of these joint ventures and the domestic PCS operations of Sprint's wholly-owned subsidiaries, SprintCom, Inc. and SprintCom Equipment Company, L.P. (together, SprintCom). These operations, which after the PCS Restructuring will be 100% owned by Sprint (subject to a 40.8% minority interest in the entity holding the PCS license for and conducting operations in the Los Angeles/San Diego/Las Vegas area), will be referred to as the PCS Group. The FON Stock, which will be created in a tax-free recapitalization, is intended to reflect the performance of all of Sprint's other operations, including its long distance, local telecommunications, and product distribution and directory publishing divisions, emerging businesses and its interest in Global One. These operations will be referred to as the FON Group. These transactions are subject to shareholder and regulatory approvals. The PCS Restructuring is expected to close in the 1998 fourth quarter. 3. Investments Sprint is a 40% partner in Sprint Spectrum Holdings and a 47.1% partner in PhillieCo (together, Sprint PCS). Sprint PCS is building the nation's first single-technology, state-of-the-art wireless network to provide PCS across the United States. Sprint is also a partner in Global One, a joint venture with Deutsche Telekom AG (DT) and France Telecom S.A. (FT) formed to provide seamless global telecommunications services to business, residential and carrier markets worldwide. Sprint is a one-third partner in Global One's operating group serving Europe (excluding France and Germany) and a 50% partner in Global One's operating group for the worldwide activities outside the United States and Europe. Combined, summarized financial information (100% basis) of all entities accounted for using the equity method was as follows:
Quarter Ended Year-to-Date June 30, June 30, ---------------------------------- ---------------------------------- 1998 1997 1998 1997 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- (in millions) Results of operations Net operating revenues $ 817.5 $ 555.9 $ 1,520.1 $ 988.1 --- ------------- -- ------------- --- ------------- -- ------------- Net operating loss $ (522.9) $ (416.4) $ (1,159.4) $ (734.8) --- ------------- -- ------------- --- ------------- -- ------------- Net loss $ (637.1) $ (541.6) $ (1,376.8) $ (882.8) --- ------------- -- ------------- --- ------------- -- ------------- Sprint's net losses in affiliates $ (265.8) $ (157.5) $ (521.3) $ (264.0) --- ------------- -- ------------- --- ------------- -- -------------
4. Income Taxes The differences that caused Sprint's effective income tax rates to vary from the statutory federal rate of 35% were as follows:
Year-to-Date June 30, ---------------------------------- 1998 1997 - ------------------------------------------------------------------------------- --- ------------- -- ------------- (in millions) Income tax expense at the statutory rate $ 256.0 $ 315.1 Less: Investment tax credits included in income 0.8 1.9 --- ------------- -- ------------- Expected federal income taxes after investment tax credits 255.2 313.2 Effect of: State income taxes, net of federal income tax effect 26.7 30.7 Equity in losses of foreign joint ventures 19.8 12.1 Other, net (0.3) (1.7) - ------------------------------------------------------------------------------- --- ------------- -- ------------- Income tax expense, including investment tax credits $ 301.4 $ 354.3 --- ------------- -- ------------- Effective income tax rate 41.2% 39.4% --- ------------- -- -------------
5. Litigation, Claims and Assessments In December 1996, an arbitration panel entered a $61 million award in favor of Network 2000 Communications Corporation (Network 2000) on its breach of contract claim against Sprint. The arbitrators directed Sprint to pay one-half of this award to Network 2000. The remainder was directed to be paid to the Missouri state court in which a proposed class action by Network 2000's independent marketing representatives against Network 2000 and Sprint is pending. In June 1997, Sprint recorded an additional $20 million charge related to the settlement of both the class action lawsuit against Sprint and Network 2000 and the related claims of Network 2000 against Sprint. In June 1998, the court approved the class action settlement; however, a number of potential class members decided not to participate in that settlement and another group of potential class members appealed from the order that approved the settlement. Various other suits arising in the ordinary course of business are pending against Sprint. Management cannot predict the final outcome of these actions but believes they will not result in a material effect on Sprint's consolidated financial statements. 6. Supplemental Cash Flow Information
Year-to-Date June 30, --- ------------------------------ 1998 1997 - ------------------------------------------------------------------------------- --- ------------- -- ------------- (in millions) Cash paid for: Interest (net of amounts capitalized) $ 126.0 $ 89.7 --- ------------- -- ------------- Income taxes $ 224.0 $ 217.1 --- ------------- -- ------------- Noncash activity: Capital lease obligations $ 256.1 $ 30.0 --- ------------- -- -------------
7. Earnings per Share Dilutive securities, such as options, included in the calculation of diluted weighted average common shares were 8.7 and 5.7 million shares for the 1998 and 1997 year-to-date periods, respectively, and 9.0 and 6.0 million shares for the 1998 and 1997 second quarters, respectively. 8. Comprehensive Income In 1998, Sprint adopted Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income includes all changes in equity during a period except those due to owner investments and distributions. It includes items such as foreign currency translation adjustments, and unrealized gains and losses on available-for-sale securities. This standard does not change the display or components of present-day net income; rather, comprehensive income is displayed as a separate statement in the Consolidated Statements of Comprehensive Income and as an additional component in the Consolidated Balance Sheets and the Consolidated Statement of Common Stock and Other Shareholders' Equity. 9. Recently Issued Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires all derivatives to be recorded on the balance sheet as either assets or liabilities and measured at fair value. Gains or losses resulting from changes in the values of the derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Sprint will adopt SFAS 133 beginning January 1, 2000. This statement is not expected to have a material impact on Sprint. 10. Agreement for Sale of Properties In April 1998, Sprint signed an agreement to sell approximately 79,000 residential and business access lines in rural Illinois. Sprint expects to complete the sale of these properties, which is subject to regulatory approval, and record the related gain in late 1998. PART I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF SPRINT CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Sprint Corporation, with its subsidiaries, (Sprint) includes certain estimates, projections and other forward-looking statements in its reports, in presentations to analysts and others, and in other publicly available material. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include: - the effects of vigorous competition in the markets in which Sprint operates; - the cost and business risks associated with entering and expanding new markets necessary to provide seamless services and to provide new services; - the risks related to Sprint's investments in Sprint Spectrum Holding Company, L.P. and MinorCo, L.P.(together, Sprint Spectrum Holdings), PhillieCo Partners I, L.P. and PhillieCo Partners II, L.P. (together, PhillieCo), Global One and other joint ventures; - the impact of any unusual items resulting from ongoing evaluations of Sprint's business strategies; - requirements imposed on Sprint or latitude allowed its competitors by the Federal Communications Commission (FCC) or state regulatory commissions under the Telecommunications Act of 1996; - unexpected results of litigation filed against Sprint; - the impact of the Year 2000 issue and any related noncompliance; and - the possibility of one or more of the markets in which Sprint competes being impacted by changes in political, economic or other factors such as monetary policy, legal and regulatory changes or other external factors over which Sprint has no control. The words "estimate", "project", "intend", "expect", "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout Management's Discussion and Analysis of Financial Condition and Results of Operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Sprint undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Moreover, Sprint, through senior management, may from time to time make forward-looking statements about the matters described herein or other matters concerning Sprint. Strategic Initiatives Restructuring and Recapitalization Plans Sprint has entered into a restructuring agreement with Tele-Communications, Inc. (TCI), Comcast Corporation (Comcast) and Cox Communications, Inc. (Cox) (together, the Cable Parents) to restructure Sprint's wireless personal communication services (PCS) operations (the PCS Restructuring). Sprint will acquire the joint venture interests of TCI, Comcast and Cox in Sprint Spectrum Holdings and the joint venture interests of TCI and Cox (together, the PhillieCo Partners) in PhillieCo. In exchange for these joint venture interests, Sprint will issue to the Cable Parents a newly created class of Sprint common stock (the PCS Stock). The PCS Stock is intended to reflect separately the performance of these joint ventures and the domestic PCS operations of Sprint's wholly-owned subsidiaries, SprintCom, Inc. and SprintCom Equipment Company, L.P. (together, SprintCom). These operations will be referred to as the PCS Group. The FON Stock, which will be created in a tax-free recapitalization, is intended to reflect separately the performance of all of Sprint's other operations, including long distance, local telecommunications, and product distribution and directory publishing divisions, emerging businesses and its interest in Global One. These operations will be referred to as the FON Group. These transactions are subject to shareholder and regulatory approvals. The PCS Restructuring is expected to close in the 1998 fourth quarter. Integrated On-demand Network In June 1998, Sprint announced its strategy to enter new local markets with its Integrated On-demand Network (ION). ION is expected to extend Sprint's existing advanced network capabilities to customer premises and enable Sprint to meet two critical business needs, namely (a) to provide the network infrastructure to meet customers' ever-increasing demands for data, Internet, and video use and (b) to provide the foundation for Sprint to provide competitive local service. Sprint will be assisted in this development effort by Cisco Systems and Bellcore. These companies will be contributing their expertise and assisting in the funding of these efforts. Additional infrastructure capital will be required as demand for the services develops. ION intends to rely substantially on the transmission infrastructure of the long distance division and to a lesser extent on the transmission infrastructure of the local telecommunications division. Where existing Sprint facilities do not exist, ION will evaluate whether facilities should be built, leased or acquired. Because a significant amount of future investment will be associated with specific customer contracts, Sprint should be able to manage its investment in ION to be consistent with customer demand. Core Businesses Long Distance Division The long distance division is the nation's third-largest long distance telephone company. It operates a nationwide, all-digital long distance communications network using state-of-the-art fiber-optic and electronic technology. The division provides domestic and international voice, video and data communications services. Local Division The local division consists of regulated local exchange carriers (LECs) serving more than 7.5 million access lines in 19 states. It provides local exchange services, access by telephone customers and other carriers to Sprint's local exchange facilities, sales of telecommunications equipment, and long distance services within specified regional calling areas, or local access transport areas (LATAs). Product Distribution and Directory Publishing Division The product distribution and directory publishing businesses provide wholesale distribution services of telecommunications products, and publish and market white and yellow page telephone directories. Emerging Businesses Emerging businesses consists of competitive local exchange carrier (CLEC) services, Sprint Paranet, SprintCom, and Sprint International. Emerging businesses also includes consumer Internet access services prior to the closing of the Earthlink transaction (see "Segmental Results of Operations - Emerging Businesses" for more information). Strategic Alliances Global One Sprint is a partner in Global One, a joint venture with Deutsche Telekom AG (DT) and France Telecom S.A. (FT) to provide seamless global telecommunications services to business, residential and carrier markets worldwide. Sprint is a one-third partner in Global One's operating group serving Europe (excluding France and Germany) and a 50% partner in Global One's operating group for the worldwide activities outside the United States and Europe. DT and FT each own 10% of Sprint's voting equity through Sprint's Class A common stock. As Class A common shareholders, they have the right in most cases to proportionate representation on Sprint's Board of Directors. They may also purchase additional Class A common shares from Sprint to keep their ownership level at 10% each. Sprint PCS Sprint is a 40% partner in Sprint Spectrum Holdings and a 47.1% partner in PhillieCo (together, Sprint PCS). Sprint PCS is building the nation's first single-technology, all-digital, state-of-the-art wireless network to provide PCS across the United States. PCS uses digital technology, which has sound quality superior to existing cellular technology and is less susceptible to interference and eavesdropping. PCS also offers features such as voice mail, Caller ID, Call Waiting and Three-way Calling. Sprint PCS offers service to 156 metropolitan markets with 108 million people. As part of an overall strategy to increase PCS coverage, Sprint directly acquired the rights to PCS licenses covering 139 markets across the United States. These licenses reach a total population of 70 million people. Sprint PCS and Sprint have licensed PCS coverage of nearly 260 million people across the United States, Puerto Rico and the U.S. Virgin Islands. In May 1998, Sprint announced it had reached an agreement with the Cable Parents to restructure the ownership interests of Sprint PCS. See "Strategic Initiatives - - Restructuring and Recapitalization Plans" for more information. Results Of Operations Consolidated Total net operating revenues for the 1998 second quarter increased 8% to $4.0 billion from $3.7 billion for the same period a year ago. Net income was $214 million ($0.50 per basic share) versus $256 million ($0.59 per basic share) for the 1997 second quarter. The 1997 second quarter includes a $0.03 per share charge related to litigation in the long distance division. Net operating revenues for the first six months of 1998 increased 9% to $7.9 billion from $7.2 billion for the same 1997 period. Net income was $426 million ($0.99 per basic share) versus $546 million ($1.27 per basic share) in 1997. Net income for 1998 includes a $0.01 per share extraordinary charge related to the early extinguishment of debt, while 1997 includes the $0.03 per share charge related to litigation. Core Businesses Sprint's core businesses generated improved 1998 second quarter net operating revenues and operating income compared with the same 1997 period. Core results exclude the impact from joint ventures and emerging businesses. Both second quarter and year-to-date 1998 long distance calling volumes increased 12% from the same 1997 periods. Access lines served by the local division increased 3.4% during the past 12 months. Excluding the sale of exchanges in the 1997 fourth quarter, access line growth would have been 5.4%. Segmental Results of Operations Long Distance Division
Selected Operating Results ---------------------------------------------------------------------- Quarter Ended June 30, Variance ---------------------------------- ------------------------------- 1998 1997 Dollar % - -------------------------------------------- ----------------- ---------------- --- ------------- ----------------- (in millions) Net operating revenues $ 2,381.7 $ 2,218.6 $ 163.1 7.4% Operating expenses Interconnection 950.5 999.6 (49.1) (4.9)% Operations 334.0 317.1 16.9 5.3% Selling, general and administrative 557.1 493.0 64.1 13.0% Depreciation and amortization 205.0 167.2 37.8 22.6% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Total operating expenses 2,046.6 1,976.9 69.7 3.5% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Operating income $ 335.1 $ 241.7 (1)$ 93.4 38.6% --- ------------- -- ------------- --- ------------- Operating margin 14.1% 10.9%(1) --- ------------- -- ------------- (1)Excluding a $20 million charge related to litigation, 1997 second quarter operating income and margin would have been $262 million and 11.8%, respectively.
Selected Operating Results ---------------------------------------------------------------------- Year-to-Date June 30, Variance ---------------------------------- ------------------------------- 1998 1997 Dollar % - -------------------------------------------- ----------------- ---------------- --- ------------- ----------------- (in millions) Net operating revenues $ 4,749.3 $ 4,391.0 $ 358.3 8.2% Operating expenses Interconnection 1,921.1 2,007.0 (85.9) (4.3)% Operations 656.6 592.9 63.7 10.7% Selling, general and administrative 1,101.7 964.1 137.6 14.3% Depreciation and amortization 407.0 333.8 73.2 21.9% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Total operating expenses 4,086.4 3,897.8 188.6 4.8% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Operating income $ 662.9 $ 493.2 (1)$ 169.7 34.4% --- ------------- -- ------------- --- ------------- Operating margin 14.0% 11.2%(1) --- ------------- -- ------------- (1)Excluding a $20 million charge related to litigation, 1997 year-to-date operating income and margin would have been $513 million and 11.7%, respectively.
Net Operating Revenues Second quarter and year-to-date net operating revenues for 1998 increased 7% and 8%, respectively, from the same 1997 periods. All major market segments - residential, business and wholesale - contributed to these increases. The increases mainly reflect strong minute growth of 12% in both 1998 periods and increased data services revenue, partly offset by a more competitive pricing environment and a change in the mix of products sold. Business and Data Market - Both second quarter and year-to-date business market revenues increased 13% in 1998 from the same 1997 periods, reflecting increased calling volumes for toll-free and direct-distance-dialing toll (WATS) calls made within the United States. Growth in the small and medium business market was due to the growth in Real Solutions (sm) customers and the continuing success of the division's small business product, Fridays Free. Data services, which includes sales of capacity on Sprint's network to Internet service providers, showed strong growth because of continued demand and expanded service offerings. Residential Market - Second quarter and year-to-date residential market revenues increased 5% and 6%, respectively, in 1998 from the same 1997 periods, reflecting increases in 1998 mainly from long distance calling card calls made by LEC customers. Through various agreements Sprint has with LECs, their customers use the Sprint network when making long distance calls. Wholesale Market - Second quarter and year-to-date wholesale market revenues increased 2% and 6%, respectively, in 1998 from the same 1997 periods, reflecting strong minute growth in the domestic market. These increases mainly reflect increased WATS calling volumes, partly offset by a change in international mix to lower yielding but higher margin countries. Interconnection Costs Interconnection costs consist of amounts paid to LECs, other domestic service providers, and foreign telephone companies to complete calls made by the division's domestic customers. Second quarter and year-to-date 1998 interconnection costs decreased 5% and 4%, respectively, from the same 1997 periods, reflecting lower unit costs for both domestic and international access, partly offset by strong minute growth. The lower domestic costs are generally due to FCC-mandated access rate reductions, while lower international costs reflect continued competition in the market. Access rates are expected to continue to decline in the second half of 1998; however, the year-over-year cost savings for the remainder of the year is not expected to be as significant because the 1997 third and fourth quarters include certain rate reductions that took effect in July 1997. Internationally, Sprint expects market opening measures and competitive pressures to contribute to the continued trend of declining interconnection unit costs. Interconnection costs were 39.9% and 40.5% of net operating revenues in the 1998 second quarter and year-to-date periods, respectively, versus 45.1% and 45.7% for the same periods a year ago. Operations Expense Operations expense mainly consists of costs related to operating and maintaining the long distance network and costs of equipment sales. It also includes costs of providing operator, public payphone and video teleconferencing services, as well as telecommunications services for the hearing impaired. Second quarter and year-to-date 1998 operations expense increased 5% and 11%, respectively, from the same 1997 periods. These increases reflect increased costs related to data services growth as well as increases in the volume of network equipment operating leases, partly offset by decreased costs of equipment sales. In addition, FCC-mandated payments to public payphone providers increased in the 1997 second quarter. As a result, the 1997 year-to-date period reflects three months of these payments compared with six months for the same 1998 period. As a percentage of net operating revenues, operations expense was 14.0% and 13.8% in the 1998 second quarter and year-to-date periods, respectively, and 14.3% and 13.5% for the same periods a year ago. Selling, General and Administrative Expense Selling, general and administrative (SG&A) expense increased 13% and 14% in the 1998 second quarter and year-to-date periods, respectively, from the same 1997 periods. These increases reflect the overall growth of the division's operating activities as well as increases in marketing activities and promotions to support products and services. SG&A expense was 23.4% and 23.2% of net operating revenues in the 1998 second quarter and year-to-date periods, respectively, and 22.2% and 22.0% for the same periods a year ago. Depreciation and Amortization Expense Second quarter and year-to-date 1998 depreciation and amortization expense increased 23% and 22%, respectively, from the same 1997 periods, generally due to an increased asset base and shorter average depreciable lives. Capital expenditures were incurred mainly to enhance network reliability, meet increased demand for data-related services and upgrade capabilities for providing new products and services. Depreciation and amortization expense was 8.6% and 8.5% of net operating revenues in the 1998 second quarter and year-to-date periods, respectively, and 7.5% and 7.6% for the same periods a year ago. Local Division
Selected Operating Results ---------------------------------------------------------------------- Quarter Ended June 30, Variance ---------------------------------- ------------------------------ 1998 1997 Dollar % - -------------------------------------------- ----------------- ---------------- --- ------------- ---------------- (in millions) Net operating revenues $ 1,345.7 $ 1,336.8 $ 8.9 0.7% Operating expenses Costs of services and products 456.2 465.0 (8.8) (1.9)% Selling, general and administrative 286.2 267.5 18.7 7.0% Depreciation and amortization 234.5 235.1 (0.6) (0.3)% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Total operating expenses 976.9 967.6 9.3 1.0% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Operating income $ 368.8 $ 369.2 $ (0.4) (0.1)% --- ------------- -- ------------- --- ------------- Operating margin 27.4% 27.6% --- ------------- -- -------------
Selected Operating Results ---------------------------------------------------------------------- Year-to-Date June 30, Variance ---------------------------------- ------------------------------ 1998 1997 Dollar % - -------------------------------------------- ----------------- ---------------- --- ------------- ---------------- (in millions) Net operating revenues $ 2,667.9 $ 2,641.1 $ 26.8 1.0% Operating expenses Costs of services and products 916.1 911.4 4.7 0.5% Selling, general and administrative 564.1 525.7 38.4 7.3% Depreciation and amortization 467.7 466.5 1.2 0.3% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Total operating expenses 1,947.9 1,903.6 44.3 2.3% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Operating income $ 720.0 $ 737.5 $ (17.5) (2.4)% --- ------------- -- ------------- --- ------------- Operating margin 27.0% 27.9% --- ------------- -- ------------- Beginning in July 1997, Sprint changed its transfer pricing for certain transactions between affiliates to more accurately reflect market pricing. The main effect of the pricing change was to reduce "Net Operating Revenues Other Revenues" as described below. For comparative purposes, the following discussion of local division operating results assumes these pricing changes occurred at the beginning of 1997. Based on this assumption, the 1997 second quarter and year-to-date operating margins would have been 26.1% and 26.4%, respectively.
Net Operating Revenues Net operating revenues increased 3% in both the 1998 second quarter and year-to-date periods from the same 1997 periods. These increases mainly reflect customer access line growth, and increased sales of equipment and network-based services such as Caller ID and Call Waiting. Excluding the sale of local exchanges in the 1997 fourth quarter, net operating revenues would have increased 5% and 6% in the 1998 second quarter and year-to-date periods, respectively, and access line growth would have been 5.4% during the past 12 months. Local Service Revenues Local service revenues, derived from local exchange services, increased 5% and 6% (8% for both periods excluding the sale of exchanges) in the 1998 second quarter and year-to-date periods, respectively, from the same 1997 periods. Local service revenues increased because of continued demand for network-based services. These increases also reflect increased sales of private line services and maintenance of customer wiring and equipment. Network Access Revenues Network access revenues, derived from interexchange long distance carriers' use of the local network to complete calls, increased 1% (3% excluding the sale of exchanges) for both the 1998 second quarter and year-to-date periods compared with the same 1997 periods. The 1998 second quarter and year-to-date revenues reflect a 5% (7% excluding the sale of exchanges) increase in minutes of use, partly offset by FCC-mandated access rate reductions. Toll Service Revenues Toll service revenues are mainly derived from providing long distance services within specified regional calling areas, or LATAs, that are beyond the local calling area. Second quarter and year-to-date 1998 toll service revenues declined 29% and 28%, respectively, compared with the same 1997 periods. These decreases were mainly due to extended local calling areas and increased competition in the intrastate long distance market. These losses were, in part, offset by increases in the division's local service revenues and network access revenues. In addition, Sprint's long distance division has acquired some of the customer base to help mitigate the erosion of these revenues. Other Revenues Other revenues include telecommunications equipment sales, directory sales and listing services, billing and collection services, services to locate underground utility lines and commissions for the sale of long distance service on behalf of Sprint's long distance division. During the 1998 second quarter and year-to-date periods these revenues increased 17% and 20%, respectively, compared with the same 1997 periods. The increases were mainly due to increased equipment sales of business systems and data networks, growth in payphone revenues, expanded operations of locating underground utility lines and increased commissions from the sale of Sprint's long distance services. Costs of Services and Products Costs of services and products consists of costs related to operating and maintaining the local network and costs of equipment sales. These expenses decreased 2% (less than 1% excluding the sale of exchanges) in second quarter 1998 and increased 1% (3% excluding the sale of exchanges) for the 1998 year-to-date period compared with the same periods a year ago. This reflects continued cost control, while still supporting customer access line growth and increased equipment sales. Costs of services and products was 33.9% and 34.3% of net operating revenues in the 1998 second quarter and year-to-date periods, respectively, and 35.5% and 35.2% for the same periods a year ago. Selling, General and Administrative Expense SG&A expense increased 7% (9% excluding the sale of exchanges) in both 1998 second quarter and year-to-date periods. These increases were mainly due to increased customer service costs related to access line growth and marketing costs to promote new products and services. SG&A expense was 21.3% and 21.2% of net operating revenues in the 1998 second quarter and year-to-date periods, respectively, and 20.4% and 20.3% for the same periods a year ago. Depreciation and Amortization Expense Depreciation and amortization expense remained flat (increased 2% excluding the sale of exchanges) in both the 1998 second quarter and year-to-date periods because of plant additions, offset by lower depreciation rates resulting from longer asset lives. Depreciation and amortization expense was 17.4% and 17.5% of net operating revenues in the 1998 second quarter and year-to-date periods, respectively, and 18.0% and 18.1% for the same periods a year ago. Product Distribution and Directory Publishing Division
Selected Operating Results ---------------------------------------------------------------------- Quarter Ended June 30, Variance ---------------------------------- ------------------------------ 1998 1997 Dollar % - -------------------------------------------- ----------------- ---------------- --- ------------- ---------------- (in millions) Net operating revenues $ 445.1 $ 364.4 $ 80.7 22.1% Operating expenses Costs of services and products 355.4 307.5 47.9 15.6% Selling, general and administrative 26.5 23.2 3.3 14.2% Depreciation and amortization 2.4 2.0 0.4 20.0% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Total operating expenses 384.3 332.7 51.6 15.5% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Operating income $ 60.8 $ 31.7 $ 29.1 91.8% --- ------------- -- ------------- --- ------------- Operating margin 13.7% 8.7% --- ------------- -- -------------
Selected Operating Results ---------------------------------------------------------------------- Year-to-Date June 30, Variance ---------------------------------- ------------------------------ 1998 1997 Dollar % - -------------------------------------------- ----------------- ---------------- --- ------------- ---------------- (in millions) Net operating revenues $ 836.3 $ 674.1 $ 162.2 24.1% Operating expenses Costs of services and products 659.3 566.8 92.5 16.3% Selling, general and administrative 52.4 44.8 7.6 17.0% Depreciation and amortization 4.6 3.8 0.8 21.1% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Total operating expenses 716.3 615.4 100.9 16.4% - -------------------------------------------- --- ------------- -- ------------- --- ------------- Operating income $ 120.0 $ 58.7 $ 61.3 104.4% --- ------------- -- ------------- --- ------------- Operating margin 14.3% 8.7% --- ------------- -- -------------
Beginning in July 1997, Sprint changed its transfer pricing for certain transactions between affiliates to more accurately reflect market pricing. Had these pricing changes occurred at the beginning of 1997, net operating revenues would have increased 24% from $359 million in second quarter 1997. Approximately two-thirds of this revenue increase was from sales to affiliates and one-third was from non-affiliates.Year-to-date net operating revenues would have increased 26% from $665 million in the first six months of 1997.Costs of services and products would have increased 28% from $279 million in the 1997 second quarter and 29% from $510 million in the 1997 year-to-date period. The second quarter and year-to-date 1997 operating margins would have been 15.3% and 16.0%, respectively. The decrease in 1998 margins compared with the 1997 margins (adjusted for the transfer pricing change) was attributable to the distribution business. Emerging Businesses
Selected Operating Results --------------------------------------------------------------------- Quarter Ended Year-to-Date June 30, June 30, ----------------- ---------------- ----------------- ---------------- 1998 1997 1998 1997 - -------------------------------------------- ----------------- ---------------- ----------------- ---------------- (in millions) Net operating revenues $ 46.1 $ 5.1 $ 93.5 $ 7.9 --- ------------- -- ------------- --- ------------- -- ------------- Operating loss $ (77.5) $ (37.6) $ (138.4) $ (70.4) --- ------------- -- ------------- --- ------------- -- -------------
Most of the 1998 revenues were from Sprint Paranet. Sprint acquired Houston-based Paranet, Inc., in September 1997 to allow Sprint to capitalize on the accelerating demand for network management services. Operating losses for both years largely reflect activities to develop or enter newly competitive domestic and international markets, such as CLEC services and the buildout of the SprintCom PCS markets. Costs incurred year-to-date and during second quarter 1998 relating to CLEC services were mainly due to the development of ION. While Sprint's approach to entering the CLEC market has enabled it to avoid significant losses, Sprint continues to devote significant resources toward developing ION (see "Strategic Initiatives - Integrated On-demand Network" for more information). In June 1998, Sprint completed the strategic alliance to combine Sprint's Internet business with EarthLink Network Inc. (EarthLink), an Internet service provider. EarthLink obtained Sprint's Internet Passport customers and took over the day-to-day operations of those services. This relationship enables Sprint to build its brand equity and market share. Earthlink had a total of 710,000 subscribers, including Sprint Internet Passport customers, through June 1998. As a result of the sale of Sprint's Internet business to EarthLink, the emerging businesses segment will no longer include the operating results of Sprint's Internet business. Nonoperating Items Interest Expense Interest costs on borrowings consist of the following:
Quarter Ended Year-to-Date June 30, June 30, ---------------------------------- ---------------------------------- 1998 1997 1998 1997 - -------------------------------------------- ----------------- ---------------- ----------------- ---------------- (in millions) Interest expense on outstanding debt $ 50.5 $ 33.7 $ 105.0 $ 69.4 Capitalized interest costs 22.7 27.7 41.3 56.7 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total interest costs on outstanding debt $ 73.2 $ 61.4 $ 146.3 $ 126.1 --- ------------- -- ------------- --- ------------- -- ------------- Average debt outstanding $ 4,220.6 $ 3,072.6 $ 4,103.5 $ 3,152.5 --- ------------- -- ------------- --- ------------- -- ------------- Effective interest rate 6.9% 8.0% 7.1% 8.0% --- ------------- -- ------------- --- ------------- -- -------------
Through June 1997, Sprint capitalized interest costs on borrowings related to its investment in Sprint PCS. Sprint stopped capitalizing these costs because Sprint PCS no longer qualified as a development-stage company. Sprint continues to capitalize interest costs related to the buildout of SprintCom markets. The decrease in Sprint's effective interest rate for the second quarter and year-to-date periods was due to an increase in short-term borrowings as a percentage of total borrowings. Short-term borrowings have been classified as long-term debt because of Sprint's intent and ability, through unused credit facilities, to refinance these borrowings. Average debt outstanding increased to support various Sprint initiatives. Global One Global One's revenues totaled $258 and $523 million in the 1998 second quarter and year-to-date periods, respectively, compared with $286 and $529 million in the same periods a year ago. Sprint's share of losses from Global One totaled $42 and $87 million in the 1998 second quarter and year-to-date periods, respectively, compared with $24 and $47 million a year ago. The increased losses in 1998 reflect lower operating margins resulting from higher operating costs. In an effort to improve profitability, Global One is refocusing its efforts to place more emphasis on corporate retail customers. Global One is continuing to review its operations, is implementing expense controls, and is focusing on improving the network infrastructure in an effort to improve efficiencies and reduce operating costs. Global One is in the process of implementing various components of a plan to address these items. It is expected that Global One will incur nonrecurring charges as the plan is executed. Sprint PCS Sprint PCS' revenues totaled $285 and $468 million in the 1998 second quarter and year-to-date periods, respectively, versus $26 and $35 million a year ago. Sprint's share of losses from Sprint PCS was $226 and $436 million in the 1998 second quarter and year-to-date periods, respectively, compared with $136 and $222 million a year ago. The 1998 losses reflect marketing and promotional costs, and operating costs to support a growing customer base. At the end of June 1998, the Sprint PCS customer base exceeded 1.3 million customers. The venture is continuing to aggressively obtain new customers, which has resulted in higher losses in 1998 compared with 1997. Average monthly revenue per customer (ARPU) for the six months ended June 30, 1998 was $60. This average is expected to decline in the future (consistent with industry projections) due to increased competition resulting from additional wireless service providers entering the market. Sprint PCS has adopted marketing plans that both target and encourage higher usage and higher average monthly revenue per subscriber. Customer churn rates and customer marketing costs have been as management expected at this stage of development and continue to be within the range of results reported by other PCS providers. As the PCS markets mature and Sprint PCS gains additional scale, both of these measures are expected to trend downward toward cellular industry levels. In May 1998, Sprint announced it had reached an agreement with the Cable Parents to restructure the ownership interests of Sprint PCS. See "Strategic Initiatives - - Restructuring and Recapitalization Plans" for more information. Other Income, Net Other income consisted of the following:
Quarter Ended Year-to-Date June 30, June 30, ----------------- ---------------- ----------------- ---------------- 1998 1997 1998 1997 - -------------------------------------------- ----------------- ---------------- ----------------- ---------------- (in millions) Dividend and interest income $ 20.6 $ 15.7 $ 39.7 $ 42.8 Other, net (3.3) 4.1 (1.2) 11.9 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total other income, net $ 17.3 $ 19.8 $ 38.5 $ 54.7 --- ------------- -- ------------- --- ------------- -- -------------
The 1997 second quarter dividend and interest income mainly reflects income earned on the cash received from DT and FT for their 1996 equity investment in Sprint as well as the repayment of intercompany debt in connection with the 1996 spinoff of Sprint's cellular division. Sprint has since invested those funds in strategic initiatives, reducing the balance held in temporary investments. Dividend and interest income for 1998 reflects interest earned on loans to affiliates. Income Taxes See Note 4 of Condensed Notes to Consolidated Financial Statements for the differences that caused Sprint's effective income tax rates to vary from the statutory federal rate. Extraordinary Item In March 1998, Sprint redeemed, prior to maturity, $115 million of debt with a 9.25% interest rate. This resulted in a $4 million ($0.01 per share) after-tax loss. Financial Condition Sprint's consolidated assets totaled $19.8 billion at the end of June 1998, and $18.2 billion at year-end 1997. Net property, plant and equipment increased $1.4 billion since year-end 1997 mainly because of an increase in capital expenditures to support the core long distance and local networks, and expanded product and service offerings. In addition, this growth reflects the buildout of the SprintCom markets. Sprint's debt-to-capital ratio was 35.1% at the end of June 1998, versus 30.0% at year-end 1997. See "Liquidity and Capital Resources" for more information about changes in Sprint's Consolidated Balance Sheets. Liquidity and Capital Resources Operating Activities Sprint's operating activities provided cash of $1.9 billion in the 1998 year-to-date period versus $1.5 billion in the same 1997 period. Operating cash flows for 1998 reflect improved operating results in Sprint's core businesses. Investing Activities Sprint's investing activities used cash of $2.5 billion in the first six months of 1998 versus $1.8 billion in the same period a year ago. Capital expenditures, which are Sprint's largest investing activity, totaled $2.0 billion in the 1998 year-to-date period and $1.3 billion in 1997. This increase was mainly due to the buildout of the SprintCom PCS markets. Long distance division capital expenditures totaled $594 million for the first six months of 1998 versus $508 million for the same period a year ago. Expenditures in both years were incurred mainly to enhance network reliability, meet increased demand for data-related services, and upgrade capabilities for providing new products and services. Year-to-date local division capital expenditures totaled $707 million for 1998 versus $647 million for 1997. Expenditures in both years were made to accommodate access line growth and expand capabilities for providing enhanced services. In the first six months of 1997, Sprint paid $434 million toward its purchase of the SprintCom PCS licenses. "Investments in and advances to affiliates, net" consisted of the following:
Year-to-Date June 30, ---------------------------------- 1998 1997 - -------------------------------------------------------------- -- ------------- --- ------------- -- ------------- (in millions) Sprint PCS Capital contributions $ 65.7 $ 86.7 Advances, net 113.6 (45.9) Capitalized interest - 47.2 - -------------------------------------------------------------- -- ------------- --- ------------- -- ------------- 179.3 88.0 - -------------------------------------------------------------- -- ------------- --- ------------- -- ------------- Global One Capital contributions 283.5 - Advances, net (85.7) 33.9 - -------------------------------------------------------------- -- ------------- --- ------------- -- ------------- 197.8 33.9 Other, net 73.9 18.9 - -------------------------------------------------------------- -- ------------- --- ------------- -- ------------- Total $ 451.0 $ 140.8 --- ------------- -- -------------
Capital contributions and net advances to Sprint PCS in both years were used to fund capital and operating requirements. Capital contributions and net advances to Global One in 1998 were used mainly to fund operations. "Other, net" includes the contribution related to the Earthlink transaction, which closed in June 1998 (see "Segmental Results of Operations - Emerging Businesses" for more information). Financing Activities Sprint's year-to-date financing activities provided cash of $567 million in 1998, while year-to-date 1997 activities used cash of $475 million. Financing activities during 1998 reflect proceeds from long-term debt and an increase in construction obligations of $495 million and $475 million, respectively, partly offset by payments of $165 million. Financing activities in the first six months of 1997 reflect payments of $200 million on short-term borrowings and $70 million on long-term debt. Sprint paid dividends of $205 and $189 million in the first six months of 1998 and 1997, respectively. Capital Requirements Sprint's 1998 investing activities, mainly consisting of capital expenditures and investments in affiliates, are expected to require cash of $5.7 to $6.1 billion. Dividend payments are expected to total $430 million in 1998. Sprint expects to spend $5.2 to $5.4 billion on capital expenditures in 1998, including $2.8 to $2.9 billion for the long distance and local divisions. The remainder will mainly be used to buildout the SprintCom network. Sprint PCS is expected to require $130 to $230 million from Sprint during the remainder of 1998 to help fund operating cash requirements and continue their network buildout. Global One is also expected to require $20 to $120 million from Sprint during the remainder of 1998 to help fund operations and ongoing development activities. Sprint and the Cable Parents have agreed to loan up to $400 million, based on respective ownership interests, to fund the capital requirements of Sprint PCS from the date of the signing of the PCS Restructuring agreement, May 26, 1998, through the closing date of the PCS Restructuring. As of June 30, 1998, $80.6 million had been loaned by Sprint and the Cable Parents under this agreement and it is anticipated that the remaining amount will be funded during the third quarter of 1998. The PhillieCo Partners agreed to lend up to $50 million, and have fully funded this commitment as of June 30, 1998. Sprint also agreed to loan up to $110.6 million to fund SprintCom's capital requirements during the same period and has funded substantially all of this commitment as of June 30, 1998. Sprint has been financing SprintCom with Sprint's cash from operations, commercial paper borrowings and leases on specific equipment. Sprint intends to continue to fund the buildout of the SprintCom markets through the closing of this transaction. The above mentioned loans, totaling $510.6 million excluding loans to PhillieCo, may be repaid from the proceeds of an anticipated initial public offering (IPO), as further discussed below, but only to the extent the net proceeds of the IPO exceed $500 million. In the event the loans remain outstanding after the IPO, the remaining balance will be converted into 10-year preferred stock of Sprint convertible into PCS Stock. Liquidity At the end of June 1998, Sprint could borrow $538 million under its existing revolving credit agreement with a syndicate of domestic and international banks. In August 1998, Sprint negotiated new credit facilities as further discussed below. In addition, in 1997, Sprint negotiated a separate five-year revolving credit facility with a bank. At June 30, 1998, Sprint's unused capacity under the committed portion of this facility was $100 million. Sprint could offer for sale up to $1.1 billion of debt securities under existing shelf registration statements filed with the Securities and Exchange Commission (SEC). Any borrowings Sprint may incur are ultimately limited by certain debt covenants. At June 30, 1998, Sprint could borrow up to $13.3 billion under the most restrictive of its debt covenants. The most restrictive covenant related to dividends results from Sprint's revolving credit agreement. As a result, $2.9 billion of Sprint's $3.9 billion of retained earnings was restricted from the payment of dividends at the end of the 1998 second quarter. Among other restrictions, Sprint must maintain specified levels of consolidated net worth. Sprint currently uses the commercial paper market to fund its short-term working capital needs. Sprint uses four commercial paper dealers to place the paper at the most favorable rates and maturities. Sprint also uses the medium-term note and long-term bond markets as well as other debt markets to fund its needs. Sprint intends to borrow funds through the U.S. and international money and capital markets and bank credit markets to fund capital expenditures, operating and working capital requirements and, if the PCS Restructuring occurs, to refinance existing debt obligations of Sprint PCS. In addition, Sprint intends to file with the SEC a registration statement on Form S-3 relating to the registration of shares of PCS Stock aggregating total proceeds of between $500 and $525 million, subject to market conditions. Sprint, subject to a disapproval right held by each of the Cable Parents, may elect an offering netting higher proceeds in the IPO if the Board of Directors of Sprint determines that market conditions are favorable to a larger offering. All of the proceeds in the IPO will be allocated to the PCS Group. Proceeds in excess of the initial $500 to $525 million may be used to repay loans from Sprint and the Cable Parents to Sprint PCS as discussed in "Capital Requirements." Neither Sprint nor the Cable Parents would sell shares on a secondary basis as part of the IPO. Sprint intends to complete the IPO and the PCS Restructuring concurrently, assuming shareholder approval of the transaction, subject to prevailing market conditions and other factors. There can be no assurance that the IPO will occur. Sprint intends to file a shelf registration statement for $8.0 billion of debt securities which would replace an existing shelf registration statement for $1.0 billion. Sprint currently anticipates issuing, at approximately the same time as the IPO, up to $6 billion aggregate principal amount of debt securities under the new shelf registration statement, subject to market conditions. There can be no assurance such debt offering will occur. Proceeds from the sale of securities under the new shelf registration statement would be used to repay short-term borrowings, to refinance existing long-term borrowings, and to provide funds for working capital and new capital expenditures for both the PCS Group and the FON Group. In August 1998, Sprint obtained revolving credit facilities for approximately $5 billion that will be used to support commercial paper operations and replace its existing credit facilities. The agreements were negotiated with market terms, conditions and covenants. In connection with the PCS Restructuring and the IPO, DT and FT have agreed to purchase shares of PCS Stock so that they will maintain their aggregate 20% voting power. Proceeds from the exercise of these equity purchase rights are expected to total between $225 and $250 million. Financial Strategies General Hedging Policies Sprint selectively enters into interest rate swap and cap agreements to manage its exposure to interest rate changes on its debt. Sprint also enters into forward contracts and options in foreign currencies to reduce the impact of changes in foreign exchange rates. Sprint seeks to minimize counterparty credit risk through stringent credit approval and review processes, the selection of only the most creditworthy counterparties, continual review and monitoring of all counterparties, and thorough legal review of contracts. Sprint also controls exposure to market risk through regular monitoring of changes in foreign exchange and interest rate positions under normal and stress conditions to ensure they do not exceed established limits. Sprint's derivative transactions are used for hedging purposes only and comply with Board-approved policies. Senior management receives monthly status updates of all outstanding derivative positions. Interest Rate Risk Management Sprint's interest rate risk management program focuses on minimizing exposure to interest rate movements, setting an optimal mixture of floating- and fixed-rate debt and minimizing liquidity risk. Sprint uses simulation analysis to assess its interest rate exposure and to establish the desired ratio of floating- and fixed-rate debt. To the extent possible, Sprint manages interest rate exposure and the floating-to-fixed ratio through its borrowings, but sometimes uses interest rate swaps and caps to adjust its risk profile. Foreign Exchange Risk Management Sprint's foreign exchange risk management program focuses on hedging transaction exposure to optimize consolidated cash flow. Sprint's main transaction exposure results from net payments made to overseas telecommunications companies for completing international calls made by Sprint's domestic customers. Year 2000 Issue The "Year 2000" issue affects Sprint's installed computer systems, network elements, software applications, and other business systems that have time-sensitive programs that may not properly reflect or recognize the year 2000. Because many computers and computer applications define dates by the last two digits of the year, "00" may not be properly identified as the year 2000. This error could result in miscalculations or system failures. The Year 2000 issue may also affect the systems and applications of Sprint's customers, vendors or resellers. Sprint started a program in 1996 to identify and address the Year 2000 issue. It has completed an inventory and Year 2000 assessment of its principal computer systems, network elements, software applications and other business systems. Sprint expects to complete the renovation of these computer systems, software applications and the majority of the network elements and other business systems by year-end 1998. Year 2000 testing commenced in the third quarter of 1998 and will be completed during 1999. Sprint is using both internal and external sources to identify, correct or reprogram, and test its systems for Year 2000 compliance. Sprint is also contacting others with whom it conducts business to receive the appropriate warranties and assurances that those third parties are or will be Year 2000 compliant. Sprint expects to incur approximately $200 million in expense in 1998 and 1999 to complete its Year 2000 compliance program. If compliance is not achieved in a timely manner by Sprint or any significant related third party, the Year 2000 issue could have a material effect on Sprint's operations. Sprint is focusing on identifying and addressing all aspects of its operations that may be affected by the Year 2000 issue and is addressing the most critical applications first. Sprint intends to develop and implement, if necessary, appropriate contingency plans to mitigate to the extent possible any significant Year 2000 noncompliance. Impact of Recently Issued Accounting Pronouncement See Note 9 of Condensed Notes to Consolidated Financial Statements for a discussion of a recently issued accounting pronouncement. PART I. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SPRINT CORPORATION Sprint's exposure to market risk through derivative financial instruments and other financial instruments, such as investments in marketable securities and long-term debt, is not material. There have been no material changes in market risk since year-end 1997. PART II. Other Information Item 1. Legal Proceedings There were no reportable events during the quarter ended June 30, 1998. Item 2. Changes in Securities If the shareholders of Sprint approve the proposal to restructure Sprint's wireless operations, Sprint's existing common stock will be recapitalized into PCS Stock and FON Stock. See Management's Discussion and Analysis for further discussion regarding the restructuring transaction. Item 3. Defaults Upon Senior Securities There were no reportable events during the quarter ended June 30, 1998. Item 4. Submission of Matters to a Vote of Security Holders Annual Meeting On April 21, 1998, Sprint held its Annual Meeting of Shareholders. In addition to the election of three Class III Directors to serve for a term of three years, the shareholders (i) approved amendments to the 1988 Employees Stock Purchase Plan and (ii) approved the appointment of Ernst & Young LLP as independent auditors for Sprint. The shareholders did not approve three shareholder proposals. The following votes were cast for each of the following nominees for Director or were withheld with respect to such nominees:
For Withheld ---------------------------------- ---------------------------------- ---------------------------------- William T. Esrey 258,927,982 19,008,680 Linda Koch Lorimer 259,192,554 18,744,108 Stewart Turley 259,176,273 18,760,389
The following votes were cast with respect to the proposal to approve amendments to the 1988 Employees Stock Purchase Plan: For 357,249,963 Against 5,440,126 Abstain 1,482,609 The following votes were cast with respect to the proposal to approve the appointment of Ernst & Young LLP as independent auditors of Sprint for 1998: For 362,188,686 Against 1,180,178 Abstain 803,834 The following votes were cast with respect to a shareholder proposal requesting that the Board of Directors of Sprint refrain from providing pension or other retirement benefits to non-employee directors unless such benefits are submitted to the shareholders for approval: For 92,590,049 Against 239,132,914 Abstain 3,455,850 Broker non-votes 28,993,885 The following votes were cast with respect to a shareholder proposal urging that no option plans be adopted or amended to allow options to be issued for exercise prices below those of any options outstanding at any time during the year preceding the grants of the new options: For 29,645,871 Against 301,943,238 Abstain 3,589,701 Broker non-votes 28,993,888 The following votes were cast with respect to a shareholder proposal urging the Board of Directors of Sprint to adopt a policy against making compensation awards to officers and directors which are contingent on a change of control of Sprint unless such awards are submitted to a vote of shareholders and approved by a majority of the votes cast: For 95,430,963 Against 236,104,875 Abstain 3,642,971 Broker non-votes 28,993,889 Item 5. Other Information (a) Computation of Ratio of Earnings to Fixed Charges For the 1998 second quarter and year-to-date periods, Sprint's ratio of earnings to fixed charges was 5.57 and 5.66, respectively, versus 6.37 and 6.32 for the same 1997 periods. The ratios were computed by dividing fixed charges into the sum of earnings (after certain adjustments) and fixed charges. Earnings include income from continuing operations before taxes, plus equity in the net losses of less-than-50% owned entities, less capitalized interest. Fixed charges include (a) interest on all debt of continuing operations (including amortization of debt issuance costs), (b) the interest component of operating rents, and (c) the pre-tax cost of subsidiary preferred stock dividends. (b) Shareholder Proposals Sprint's Bylaws provide that Sprint's Annual Meeting of Shareholders is to be held on the third Tuesday in April of each year. In 1999, the third Tuesday falls on April 20. In order to be eligible for inclusion in Sprint's proxy solicitation materials for its 1999 Annual Meeting of Shareholders, any shareholder proposal to be considered at such meeting must be received by Sprint's Corporation Secretary at Sprint's principal office, 2330 Shawnee Mission Parkway, Westwood, Kansas 66205, on or before November 10, 1998. Any such proposal will be subject to the requirements contained in Sprint's Bylaws relating to shareholder proposals and the proxy rules under the Securities Exchange Act of 1934. If a shareholder intends to bring a matter before the 1999 Annual Meeting of Shareholders, other than by submitting a proposal for inclusion in Sprint's proxy statement for that meeting, the shareholder must give timely notice according to Sprint's Bylaws. To be timely, a shareholder's notice must be received by Sprint's Corporate Secretary at Sprint's principal office, 2330 Shawnee Mission Parkway, Westwood, Kansas 66205, on or after February 4, 1999 and on or before March 1, 1999. Such notice must set forth (a) as to each matter the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, and (b) the name and record address of the shareholder, the class and number of shares of capital stock of Sprint that are beneficially owned by the shareholder, and any material interest of the shareholder in such business. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (2) Restructuring and Merger Agreement By and Among Sprint Corporation, Tele-Communications, Inc., Comcast Corporation, Cox Communications, Inc. and certain of their subsidiaries, dated as of May 26, 1998 (filed as Exhibit 2 to Sprint Corporation Current Report on Form 8-K dated May 26, 1998 and incorporated herein by reference). (10) Material Agreements (a) Master Restructuring and Investment Agreement Among Sprint Corporation, France Telecom S.A. and Deutsche Telecom AG, dated as of May 26, 1998 (filed as Exhibit 99(B) to Sprint Corporation Current Report on Form 8-K dated May 26, 1998 and incorporated herein by reference). (10) Executive Compensation Plans and Arrangements (b) Special Compensation and Non-Compete Agreements between Sprint Corporation and two of its Executive Officers. (c) Summary of Amendments to the Executive Deferred Compensation Plan and the Directors' Deferred Fee Plan. (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule (b) Reports on Form 8-K Sprint filed a Current Report on Form 8-K dated May 26, 1998, in which it reported that it had entered into an agreement with Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc., to restructure its wireless operations. If the transaction is approved by Sprint's stockholders, Sprint will issue shares of a new common stock that tracks its wireless operations (PCS Stock) to the three cable companies in exchange for their interests in the wireless joint ventures. In addition, Sprint will recapitalize its existing common stock into FON Stock, which will track its operations other than its wireless holdings, and PCS Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Strategic Initiatives - Restructuring and Recapitalization Plans" for further discussion of the transaction. Sprint also filed a Current Report on Form 8-K dated June 29, 1998, in which it reported that its Board of Directors had adopted an Amended and Restated Shareholder Rights Plan which contemplates the issuance of tracking stock and which will be effective at the time the wireless operations are restructured and the new PCS Stock is created. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPRINT CORPORATION (Registrant) By /s/ John P. Meyer John P. Meyer Senior Vice President -- Controller Principal Accounting Officer Dated: August 10, 1998 EXHIBIT INDEX EXHIBIT NUMBER (10) Executive Compensation Plans and Arrangements (b) Special Compensation and Non-Compete Agreements between Sprint Corporation and two of its Executive Officers. (c) Summary of Amendments to the Executive Deferred Compensation Plan and the Directors' Deferred Fee Plan. (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule EX-10 2 SPECIAL COMPENSATION AND NON-COMPETE AGREEMENTS Exhibit 10(b) Special Compensation and Non-Compete Agreement THIS AGREEMENT is entered into as of the 20th day of April, 1998 (the "Effective Date"), by and between SPRINT CORPORATION, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and JOHN E. BERNDT ("Employee"). Recitals 1.Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2.By virtue of his work for Employer, Employee has gained and will continue to gain additional valuable Proprietary Information of Employer. 3.Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will. Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants. 2.01. Committee Approval. This Agreement is contingent on the Committee's approval of the Stock-based Award. 2.02. Exclusivity of Services. Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and attention 1 to the performance of those duties and responsibilities and to use his best efforts to promote and develop the business of Employer. Employee shall adhere to the conflicts of interest provisions set forth in Section 7 of the Sprint Code of Ethics (or any successor provision, which is incorporated by this reference) as in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.03. Proprietary Information. Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agreement, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.04. Non-Competition. Employee shall not, during the Non-Compete Period, engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Constructive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary, division, or other divested unit employing Employee, this provision shall continue to apply during the NonCompete Period, except that Employee's continued employment for the Subsidiary, division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2 2.05. Inducement of Employees, Customers and Others. During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for or transfer business to any Competitor of Employer. 2.06. Return of Employer's Property. Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.07. Exit Interview. At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 2.08. Confidentiality of Agreement. Employee shall not disclose or discuss the existence of this Agreement, the Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Stock-Based Award. As partial consideration for Employee's agreements hereunder, Employee shall be granted the Stock-Based Award on the terms set forth in this section. 3 3.01. Award of Restricted Stock. Effective as of the date of approval (the "Grant Date") by the Committee, Employer grants to Employee an award of 3,000 shares of restricted stock under Sprint's 1990 Restricted Stock Plan, the terms of which are hereby incorporated into this Agreement by this reference. (a) Lapse of Restrictions. Employee may not sell, transfer, assign, pledge, or otherwise encumber or dispose of shares of restricted stock until the restrictions on the shares lapse. Restrictions on the shares covered by this award shall lapse, with respect to 25% of the total shares granted, on each of the first four anniversaries of the Grant Date. (b) Rights as Stockholder and Issuance of Shares. Except as set forth in the 1990 Restricted Stock Plan, Employee shall have all rights of a stockholder with respect to the shares of restricted stock, including the right to vote the shares of stock and the right to dividends on the shares. The shares of restricted stock shall be registered in the name of the Employee and the certificates evidencing the shares shall, at Employer's sole election, either (i) bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the award or (ii) be held in escrow by the Company. Within 60 days of the Effective Date of this Agreement, the Employee shall execute a stock power or powers assigning the shares of restricted stock to Sprint, and Sprint shall hold the stock power and the certificate in escrow and may use the stock power to effect forfeiture of the restricted stock to the extent the shares are forfeited under the terms of this Agreement. Sprint shall cause the certificate evidencing unrestricted shares of common stock to be issued to the Employee as soon as practicable after the restrictions lapse on the restricted shares. 3.02. Provisions Applicable to Stock-Based Award. (a) Acceleration of Stock-Based Award. (1) Conditions to Acceleration. The restrictions on all shares of restricted stock that have not otherwise lapsed shall lapse if, on or after the first anniversary of the Effective Date, Employee is not in breach of this Agreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Employee's Total Disability or (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. 4 (2) No Acceleration on Transfer of Employment to Affiliates. In no event shall the restrictions lapse on restricted stock as provided in the prior section upon Employee's ceasing employment with Employer to commence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration. If the acceleration of the vesting of restricted stock or the exercisability of the stock-based award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances. Employee shall not be entitled to sell or continue to own any unvested shares of restricted stock if before such restricted shares vest, (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause or by reason of Employee's Total Disability, or (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. Except as to clause (iii), this provision applies regardless of what subsequent employment Employee may take. (c) Tax Withholding. Employer may withhold the amount of any tax attributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation. In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's Long-Term Disability Plan, Employee shall be entitled to Special Compensation plus any vacation pay for vacation accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or 5 (ii) Employee terminates his employment with Employer upon Constructive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is reemployed by Employer or Employee materially breaches this Agreement. 5. Dispute Resolution. 5.01. Jurisdiction and Venue. Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 5.02. Remedies. Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Effective Date of this Agreement, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. 6 This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6. Definitions. 6.01. Affiliate. "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 6.02. Change in Control. "Change in Control" means the occurrence of any of the following events: (i) the acquisition by any "person" or "group" as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder other than (A) a trustee or other fiduciary holding securities under an employee benefit plan of Sprint, (B) Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their ownership of stock of Sprint, or (C) Deutsche Telekom AG or France Telecom, individually or collectively; of securities of Sprint representing 20% or more of the combined voting power of Sprint's then outstanding securities; or (ii) at the end of any two-year period, less than a majority of the directors of Sprint are directors (A) who were directors of Sprint at the beginning of the two-year period or (B) whose election or nomination as director was approved by a vote 2/3?s of the then directors described in this clause (ii) of this Section 6.02 by prior nomination or election; or (iii) the shareholders of Sprint approve a merger (in which Sprint is not the surviving operating entity), consolidation, liquidation, or dissolution of Sprint, or a sale of all or substantially all of the assets of Sprint; or (iv) the acquisition by Deutsche Telekom AG or France Telecom, individually or collectively, of additional securities of the Company that would result in their possessing in the aggregate 35% or more of the combined voting power of the Company's then outstanding securities. 7 6.03. Committee. "Committee" means the Organization, Compensation, and Nominating Committee of Sprint's board of directors. 6.04. Competitive Employment. "Competitive Employment" means the performance of duties or responsibilities for a Competitor of Employer (i) that are of a similar nature or employ similar professional or technical skills (e.g., marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, (ii) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (iii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.05. Competitor of Employer. Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. "Competitor of Employer" means (i) any Person doing business in the United States whose primary business is providing local or long distance telephone or wireless service; (ii) any Person doing business in the United States, who, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenue from a line of business in which Employer, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenues, all as measured by the most recent available financial information of both Employer and such other Person, at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person; (iii) any Person doing business in the United States and operating, for less than 5 years, a line of business from which Employer derives more than 15% of its gross operating revenues, notwithstanding such Person's lack of substantial revenues in such line of business; and 8 (iv) any Person doing business in the United States, who receives more than 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years,notwithstanding Employer's lack of substantial revenues in such line of business. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.06. Consolidated Affiliate. "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 6.07. Constructive Discharge. "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.08. Non-Compete Period. "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 6.09. Person. "Person" means any individual, corporation, partnership, association, company, or other entity. 6.10. Proprietary Information. "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer 9 or Employer's Affiliates, including but not limited to: computer programs, un-patented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; and information about potential mergers or acquisitions which information: (i) has not been made generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 6.11. Severance Date. "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.12. Severance Period. "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.13. Special Compensation. "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the ShortTerm Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; 10 (iii) to receive an award under the Long Term Incentive Plan and the Executive Long Term Incentive Plan (the "Long-Term Incentive Plans"), assuming achievement of performance targets under the Long-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) 0% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Long- Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Long-Term Incentive Plan; (iv) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; (v) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (vi) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vii) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of vacation; and (viii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans and restricted stock plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.14. Stock-Based Award. "Stock-Based Award" means the award of restricted stock under Section 3 of this Agreement. 11 6.15. Subsidiary. "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.16. Termination for Cause. "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Employers code of ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 6.17. Total Disability. "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 7. General Provisions. 7.01. Obligations to Survive Termination of Employment. Employee's obligations under this Agreement shall survive his termination of employment with Employer. 7.02. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity. The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 12 7.04. Waiver. The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement. This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 7.06. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: If to Employee: If to Employer: John E. Berndt Sprint Corporation 3525 Twin Lakes Way Attn: Corporate Secretary Plano, TX 75093 2330 Shawnee Mission Parkway Westwood, KS 66205 FAX: (913) 624-2256 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law. Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas. 7.08. Number and Gender. Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 13 7.09. Headings. The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and effective as of April 20, 1998. SPRINT CORPORATION by: /s/ Don A. Jensen Don A. Jensen, Vice President and Secretary /s/ John E. Berndt John E. Berndt, Employee Special Compensation and Non-Compete Agreement THIS AGREEMENT is entered into as of the 13th day of April, 1998 (the "Effective Date"), by and between SPRINT CORPORATION, a Kansas corporation ("Sprint," and it, together with its Subsidiaries, the "Employer"), and LEN LAUER ("Employee"). Recitals 1.Employer is engaged in the telecommunications and related businesses. This is a worldwide business that may be conducted from sites and serve customers throughout the world. 2.By virtue of his work for Employer, Employee has gained and will continue to gain additional valuable Proprietary Information of Employer. 3.Employer desires to enter into this Agreement to provide severance and other benefits for Employee in exchange for Employee's agreement to maintain the confidentiality of certain information and to refrain from competing with Employer during and after termination of his employment with Employer. Capitalized terms are defined in Section 6 or parenthetically throughout this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment At Will. Employee's employment may be terminated by either party for any reason. Employee shall provide Employer with written notice of his intent to terminate at least 30 days before the effective date of the termination. Except in the event of Termination for Cause, Employer shall provide Employee with written notice of its intent to terminate Employee's employment at least 30 days before the effective date of the termination. 2. Employee's Covenants. 2.01. Committee Approval. This Agreement is contingent on the Committee's approval of the Stock-based Award. 2.02. Exclusivity of Services. Employee shall, during his employment with Employer, owe an undivided duty of loyalty to Employer and agrees to devote his entire business time and attention 1 to the performance of those duties and responsibilities and to use his best efforts to promote and develop the business of Employer. Employee shall adhere to the conflicts of interest provisions set forth in Section 7 of the Sprint Code of Ethics (or any successor provision, which is incorporated by this reference) as in effect as of the date of this Agreement and as may be amended from time to time hereafter. The determination of the Committee as to the Employee's compliance with this provision shall be final. 2.03. Proprietary Information. Employee acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Employee further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Employee's duties, will cause Employer irreparable harm. Except in the course of his employment with Employer under this Agreement, in the pursuit of the business of Employer, or as otherwise required in employment with Employer, Employee shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another's behalf, any Proprietary Information. If during or after his employment Employee has any questions about whether particular information is Proprietary Information he shall consult with Employer's Corporate Secretary. 2.04. Non-Competition. Employee shall not, during the Non-Compete Period, engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. This provision shall not apply if, within one year following a Change in Control: (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability; or (ii) Employee terminates his employment with Employer upon Constructive Discharge. If Employee ceases to be employed by Employer because of the sale, spin-off, divestiture, or other disposition by Employer of the Subsidiary, division, or other divested unit employing Employee, this provision shall continue to apply during the NonCompete Period, except that Employee's continued employment for the Subsidiary, division, or other divested unit disposed of by the Employer shall not be deemed a violation of this provision. Employee agrees that because of the worldwide nature of Employer's business, breach of this agreement by accepting Competitive Employment anywhere in the United States would irreparably injure Employer and that, therefore, a more limited geographic restriction is neither feasible nor appropriate to protect Employer's interests. 2 2.05. Inducement of Employees, Customers and Others. During the term of his employment and the Non-Compete Period, Employee shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of Employer with whom he has worked or about whom he has gained Proprietary Information to terminate his or its employment, agency, or customer relationship with Employer or to render services for or transfer business to any Competitor of Employer. 2.06. Return of Employer's Property. Employee shall, upon termination of his employment with Employer, return to Employer all property of Employer in his possession, including all notes, reports, sketches, plans, published memoranda or other documents, whether in hard copy or in computer form, created, developed, generated, received, or held by Employee during employment, concerning or related to Employer's business, whether containing or relating to Proprietary Information or not. Employee shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from Employer's premises without Employer's authorization. 2.07. Exit Interview. At Employer's request, Employee shall participate in an exit interview prior to his Severance Date to provide for the orderly transition of his duties, to arrange for the return of Employer's property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement. 2.08. Confidentiality of Agreement. Employee shall not disclose or discuss the existence of this Agreement, the Stock-Based Award, the Special Compensation, or any other terms of the Agreement except (i) to members of his immediate family, (ii) to his financial advisor or attorney, but then only to the extent necessary for them to assist him (iii) to a potential employer on a strictly confidential basis, and then only to the extent necessary for reasonable disclosure in the course of serious negotiations, or (iv) as required by law or to enforce his legal rights. 3. Stock-Based Award. As partial consideration for Employee's agreements hereunder, Employee shall be granted the Stock-Based Award on the terms set forth in this section. 3 3.01. Award of Restricted Stock. Effective as of the date of approval (the "Grant Date") by the Committee, Employer grants to Employee an award of 10,000 shares of restricted stock under Sprint's 1990 Restricted Stock Plan, the terms of which are hereby incorporated into this Agreement by this reference. (a) Lapse of Restrictions. Employee may not sell, transfer, assign, pledge, or otherwise encumber or dispose of shares of restricted stock until the restrictions on the shares lapse. Restrictions on the shares covered by this award shall lapse, with respect to one-third of the total shares granted, on each of the first three anniversaries of the Grant Date. (b) Rights as Stockholder and Issuance of Shares. Except as set forth in the 1990 Restricted Stock Plan, Employee shall have all rights of a stockholder with respect to the shares of restricted stock, including the right to vote the shares of stock and the right to dividends on the shares. The shares of restricted stock shall be registered in the name of the Employee and the certificates evidencing the shares shall, at Employer's sole election, either (i) bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the award or (ii) be held in escrow by the Company. Within 60 days of the Effective Date of this Agreement, the Employee shall execute a stock power or powers assigning the shares of restricted stock to Sprint, and Sprint shall hold the stock power and the certificate in escrow and may use the stock power to effect forfeiture of the restricted stock to the extent the shares are forfeited under the terms of this Agreement. Sprint shall cause the certificate evidencing unrestricted shares of common stock to be issued to the Employee as soon as practicable after the restrictions lapse on the restricted shares. 3.02. Provisions Applicable to Stock-Based Award. (a) Acceleration of Stock-Based Award. (1) Conditions to Acceleration. The restrictions on all shares of restricted stock that have not otherwise lapsed shall lapse if, on or after the first anniversary of the Effective Date, Employee is not in breach of this Agreement and (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Employee's Total Disability or (ii) Employee terminates his employment with Employer by reason of Employee's Constructive Discharge or (iii) Employee ceases to be employed by Employer because of a sale, merger, divestiture, or other transaction entered into by Employer. 4 (2) No Acceleration on Transfer of Employment to Affiliates. In no event shall the restrictions lapse on restricted stock as provided in the prior section upon Employee's ceasing employment with Employer to commence employment with an Affiliate of Sprint. (3) Section 280G Limits on Acceleration. If the acceleration of the vesting of restricted stock or the exercisability of the stock-based award hereunder, together with all other payments or benefits contingent on a change in control within the meaning of Internal Revenue Code Section 280G or any successor provision ("280G"), results in any portion of such payments or benefits to the Employee not being deductible by the Employer or its successor as a result of the application of 280G, the Employee's benefits shall be reduced until the entire amount of the benefits is deductible. The reduction shall be effected by the exclusion of grants of options, restricted stock, or other benefits not deductible by Sprint under 280G in reverse chronological order of grant date from the application of this or other acceleration provision, until no portion of such benefits is rendered non-deductible by application of Code Section 280G. (b) Forfeiture of Stock-Based Award on Transfer to Affiliates and on Termination of Employment in Certain Circumstances. Employee shall not be entitled to sell or continue to own any unvested shares of restricted stock if before such restricted shares vest, (i) Employee ceases employment with Employer and begins employment with an Affiliate of Employer, (ii) Employer terminates Employee's employment with Employer for any reason constituting Termination for Cause or by reason of Employee's Total Disability, or (iii) Employee terminates his employment with Employer for any reason other than Employee's Constructive Discharge. Except as to clause (iii), this provision applies regardless of what subsequent employment Employee may take. (c) Tax Withholding. Employer may withhold the amount of any tax attributable to any amount payable or shares issuable under this Agreement. 4. Payment of Special Compensation. In lieu of any payments or benefits available under any and all Employer severance plans or policies but not in lieu of benefits under Sprint's Long-Term Disability Plan, Employee shall be entitled to Special Compensation plus any vacation pay for vacation accrued but not taken by Employee on his Severance Date, if (i) Employer terminates Employee's employment with Employer for any reason other than Termination for Cause or Total Disability or 5 (ii) Employee terminates his employment with Employer upon Constructive Discharge. The payments and benefits provided for in this section shall be in addition to all other sums then payable and owing to Employee hereunder and, except as expressly provided herein, shall not be subject to reduction for any amounts received by Employee for employment or services provided to any Person other than Employer after the Severance Date and shall be in full settlement and satisfaction of all of Employee's claims against and demands upon Employer. Employee's right to receive severance or other benefits pursuant to this section shall cease immediately if Employee is reemployed by Employer or Employee materially breaches this Agreement. 5. Dispute Resolution. 5.01. Jurisdiction and Venue. Employee consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for any and all disputes arising under this Agreement, provided, however, that Employer may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of the covenants under Section 2, as well as seeking damages therefor. 5.02. Remedies. Employee acknowledges that the restraints and agreements herein provided are fair and reasonable, that enforcement of the provisions of this Agreement will not cause him undue hardship and that the provisions are reasonably necessary and commensurate with the need to protect Employer and its legitimate and proprietary business interests and property from irreparable harm. Employee acknowledges that failure to comply with the terms of this Agreement, particularly the provisions of Section 2, will cause irreparable damage to Employer. Therefore, Employee agrees that, in addition to any other remedies at law or in equity available to Employer for Employee's breach or threatened breach of this Agreement, Employer is entitled to specific performance or injunctive relief, without bond, against Employee to prevent such damage or breach, and the existence of any claim or cause of action Employee may have against Employer shall not constitute a defense thereto. If Employee materially breaches any provision of Section 2 or if any of those provisions are held to be unenforceable against Employee (i) Employee shall return any Special Compensation paid pursuant to this Agreement and (ii) if Employee's breach occurs within the five-year period beginning on the Effective Date of this Agreement, Employee shall return to Employer the stock received with respect to the Stock-Based Award, or, if Employee has disposed of the stock, an amount equal to the fair market value thereof on the date of disposition. 6 This remedy is a return of consideration and shall be in addition to any other remedies. During Employee's employment with Employer, the Committee shall determine whether Employee has materially breached the provisions of Section 2, and the Committee's determination shall be final. 6.Definitions. 6.01. Affiliate. "Affiliate" means, with respect to any Person, a Person, other than a Subsidiary of such Person, (i) controlling, controlled by, or under common control with such Person and (ii) any other Person with whom such Person reports consolidated financial information for financial reporting purposes. "Control" for this purpose means direct or indirect possession by one Person of voting or management rights of at least 20% with respect to another Person. 6.02. Change in Control. "Change in Control" means the occurrence of any of the following events: (i) the acquisition by any "person" or "group" as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder other than (A) a trustee or other fiduciary holding securities under an employee benefit plan of Sprint, (B) Sprint or a corporation owned, directly or indirectly, by the stockholders of Sprint in substantially the same proportions as their ownership of stock of Sprint, or (C) Deutsche Telekom AG or France Telecom, individually or collectively; of securities of Sprint representing 20% or more of the combined voting power of Sprint's then outstanding securities; or (ii) at the end of any two-year period, less than a majority of the directors of Sprint are directors (A) who were directors of Sprint at the beginning of the two-year period or (B) whose election or nomination as director was approved by a vote 2/3?s of the then directors described in this clause (ii) of this Section 6.02 by prior nomination or election; or (iii) the shareholders of Sprint approve a merger (in which Sprint is not the surviving operating entity), consolidation, liquidation, or dissolution of Sprint, or a sale of all or substantially all of the assets of Sprint; or (iv) the acquisition by Deutsche Telekom AG or France Telecom, individually or collectively, of additional securities of the Company that would result in their possessing in the aggregate 35% or more of the combined voting power of the Company's then outstanding securities. 7 6.03. Committee. "Committee" means the Organization, Compensation, and Nominating Committee of Sprint's board of directors. 6.04. Competitive Employment. "Competitive Employment" means the performance of duties or responsibilities for a Competitor of Employer (i) that are of a similar nature or employ similar professional or technical skills (e.g., marketing, engineering, legal, etc.) to those employed by Employee in his performance of services for Employer at any time during the two years before the Severance Date, (ii) that relate to products or services that are competitive with Employer's products or services with respect to which Employee performed services for Employer at any time during the two years before the Severance Date, or (iii) in the performance of which Proprietary Information to which Employee had access at any time during the two-year period before the Severance Date could be of substantial economic value to the Competitor of Employer. 6.05. Competitor of Employer. Because of the highly competitive, evolving nature of Employer's industry, the identities of companies in competition with Employer are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement. A Sprint Affiliate shall not be a Competitor of Employer. "Competitor of Employer" means (i) any Person doing business in the United States whose primary business is providing local or long distance telephone or wireless service; (ii) any Person doing business in the United States, who, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenue from a line of business in which Employer, together with its Consolidated Affiliates, receives more than 15% of its gross operating revenues, all as measured by the most recent available financial information of both Employer and such other Person, at the time Employee accepts, or proposes to accept, employment with or to otherwise perform services for such Person; (iii) any Person doing business in the United States and operating, for less than 5 years, a line of business from which Employer derives more than 15% of its gross operating revenues, notwithstanding such Person's lack of substantial revenues in such line of business; and 8 (iv) any Person doing business in the United States, who receives more than 15% of its gross operating revenue from a line of business in which Employer has operated for less than 5 years, notwithstanding Employer's lack of substantial revenues in such line of business. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on the Employee to demonstrate that such Person is not a Competitor of Employer. 6.06. Consolidated Affiliate. "Consolidated Affiliate" means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis. 6.07. Constructive Discharge. "Constructive Discharge" means termination by the Employee of his employment with the Employer by written notice given within 60 days following one or more of the following events: (i) unless Employer first offers to Employee a position having an equal or greater grade rating, reassignment of Employee from his then current position with Employer to a position having a lower grade rating, in each case under Employer's methodology of rating employment positions for its employees generally; (ii) a reduction in Employee's targeted total compensation by more than 10% other than by an across-the-board reduction affecting substantially all similarly situated employees of Employer; or (iii) a change in the Employee's base employment area to anywhere other than the Kansas City metropolitan area within one year following a Change in Control. 6.08. Non-Compete Period. "Non-Compete Period" means the 18-month period beginning on Employee's Severance Date. If Employee breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be tolled during the period the breach or violation continues. 6.09. Person. "Person" means any individual, corporation, partnership, association, company, or other entity. 6.10. Proprietary Information. "Proprietary Information" means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process) and other confidential and proprietary information concerning the products, processes, or services of Employer 9 or Employer's Affiliates, including but not limited to: computer programs, un-patented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of Employer, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; and information about potential mergers or acquisitions which information: (i) has not been made generally to the public; and (ii) is useful or of value to the current or anticipated business, or research or development activities of Employer or of any customer or supplier of Employer, or (iii) has been identified to Employee as confidential by Employer, either orally or in writing. 6.11. Severance Date. "Severance Date" means the last day on which Employee actually performs services as an employee of Employer. 6.12. Severance Period. "Severance Period" means the 18-month period beginning on Employee's Severance Date. 6.13. Special Compensation. "Special Compensation" means Employee's right (i) to continue to receive during the Severance Period periodic compensation at the same rate as his base salary in effect at the Employee's Severance Date; (ii) to receive bonuses under one or more of Sprint's Management Incentive Plan, Executive Management Incentive Plan, and Sales Incentive Compensation Plan in which Employee participated on the Severance Date (together with other incentive compensation plans specifically approved for this purpose by the Committee, the "Short-Term Incentive Plans") based on the Employee's target amount under such plans on the Severance Date, and assuming achievement of performance targets under the Short-Term Incentive Plans of (A) the actual performance level for periods before the beginning of the Severance Period and (B) the lesser of (a) the actual performance level during the Severance Period and (b) 100% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the ShortTerm Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Short-Term Incentive Plan; 10 (iii) to receive an award under the Long Term Incentive Plan and the Executive Long Term Incentive Plan (the "Long-Term Incentive Plans"), assuming achievement of performance targets under the Long-Term Incentive Plans of (A the actual performance level for periods before the beginning of the Severance Period and (B) 0% of targeted performance during the Severance Period, pro-rating the foregoing performance levels under the Long- Term Incentive Plans based on the ratio of the amount of time in each of the foregoing time periods to the amount of time in the whole performance period under each Long-Term Incentive Plan; (iv) to continue to participate throughout the Severance Period in all group health plans (as defined in Code section 106(b)(3) or any successor provision of the Internal Revenue Code of 1986, as amended, including but not limited to any medical and dental) that Employer continues to make available to Employer's employees generally and that Employee was par ticipating in on his Severance Date, except that participation in those plans after Employee becomes employed full-time during the Severance Period shall immediately cease unless Employee elects to continue coverage under the COBRA continuation provisions of any group health plan by paying the applicable premium therefor; (v) to continue to participate throughout the Severance Period in all group life insurance and qualified or non-qualified retirement plans that Employer continues to make available to Employer's employees generally and that Employee was participating in on his Severance Date; (vi) to receive out-placement counseling by a firm selected by Employer to continue until Employee becomes employed; (vii) to continue to receive throughout the Severance Period all executive perquisites (including automobile allowance, long distance services and all miscellaneous services) Employee was entitled to receive on the Severance Date except country club membership dues and accrual of vacation; and (viii) to have the end of the Severance Period treated as Employee's termination date for purposes of Sprint's employee stock option plans and restricted stock plans. Employee shall not be entitled to participate in Sprint's long- and short-term disability plan after the Severance Date. 6.14. Stock-Based Award. "Stock-Based Award" means the award of restricted stock under Section 3 of this Agreement. 11 6.15. Subsidiary. "Subsidiary" means, with respect to any Person (the "Controlling Person"), all other Persons (the "Controlled Persons") in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons. 6.16. Termination for Cause. "Termination for Cause" means termination by Employer of Employee's employment because of (i) conduct by the Employee that violates the Employers code of ethics or reflects adversely on the Employee's honesty or (ii) Employee's willful engagement in conduct that is materially injurious to the Employer. Termination for failure to meet performance expectations, unless willful, continuing, and substantial, shall not be deemed a Termination for Cause. 6.17. Total Disability. "Total Disability" shall have the same meaning as in Sprint's Long Term Disability Plan, as amended from time to time. 7. General Provisions. 7.01. Obligations to Survive Termination of Employment. Employee's obligations under this Agreement shall survive his termination of employment with Employer. 7.02. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employee's executors, administrators, legal representatives, heirs, and legatees and to Employer's successors and assigns. 7.03. Partial Invalidity. The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and Employee hereby agrees that such scope may be judicially modified accordingly. 12 7.04. Waiver. The waiver by either party of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 7.05. Prior Agreements Merged into Agreement. This Agreement represents the entire understanding of the parties and, to the extent that there is any conflict, supersedes all other agreements with respect to the subject matter hereof. 7.06. Notices. Any notice or other communication required or permitted to be given hereunder shall be determined to have been duly given to any party (i) upon actual receipt at the address of such party specified below if delivered personally or by regular U.S. mail; (ii) upon receipt by the sender of a "GOOD" or "OK" confirmation of transmission if transmitted by facsimile, but only if a copy is also sent by regular mail or courier; (iii) when delivery is certified if sent as certified mail, return receipt requested, addressed, in any case to the party at the following addresses: If to Employee: If to Employer: Len Lauer Sprint Corporation Long Hill Road Attn: Corporate Secretary New Vernon, N.J. 07976 2330 Shawnee Mission Parkway Westwood, KS 66205 FAX: (913) 624-2256 or to such other address or telecopy number as any party may designate by written notice in the aforesaid manner, or with respect to Employee, such address as Employee may provide Employer for purposes of its human resources database. 7.07. Governing Law. Because Employer's business is headquartered in Kansas, and to ensure uniformity of enforcement of this Agreement, the validity, interpretation, and enforcement of this Agreement shall be governed by the laws of the State of Kansas. 7.08. Number and Gender. Wherever the context requires, each term stated in either the singular or plural shall include the singular and the plural, and the pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, or neuter as appropriate. 13 7.09. Headings. The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and effective as of April 13, 1998. SPRINT CORPORATION by: /s/ Don A. Jensen Don A. Jensen, Vice President and Secretary /s/ Len Lauer Len Lauer, Employee EX-10 3 SUMMARY OF AMENDMENTS Exhibit 10(c) Summary of Amendments to the Executive Deferred Compensation Plan and the Directors' Deferred Fee Plan The Executive Deferred Compensation Plan and the Directors' Deferred Fee Plan were amended to provide that transfers shall automatically be processed from each participant's Accounts C and CC (representing an investment under those plans of common stock of 360 Communications Company, Inc.) into Accounts B and BB, respectively, as follows: one-quarter of the value of each participant's Account C and Account CC shall be transferred as of August 31, 1998; one-third of the remaining value of each participant's Account C and Account CC shall be transferred as of September 30, 1998, one-half of the remaining value of each participant's Account C and Account CC shall be transferred as of October 31, 1998, and the remaining value of each participant's Account C and Account CC shall be transferred as of November 30, 1998. As soon as practicable following November 30, 1998, Accounts C and CC shall be eliminated. EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT (12) SPRINT CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) Quarter Ended Year-to-Date June 30, June 30, ----------------- ---------------- ----------------- ---------------- 1998 1997 1998 1997 - -------------------------------------------- ----------------- ---------------- ----------------- ---------------- (in millions) Earnings Income before income taxes and extraordinary item $ 363.6 $ 415.0 $ 731.4 $ 900.2 Capitalized interest (22.7) (27.7) (41.3) (56.7) Equity in losses of less than 50% owned entities 222.9 151.4 453.6 252.3 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Subtotal 563.8 538.7 1,143.7 1,095.8 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Fixed charges Interest charges 84.0 68.4 169.3 142.2 Interest factor of operating rents 39.4 31.9 75.8 63.5 Pre-tax cost of preferred stock dividends of subsidiaries - 0.1 0.1 0.2 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Total fixed charges 123.4 100.4 245.2 205.9 - -------------------------------------------- --- ------------- -- ------------- --- ------------- -- ------------- Earnings, as adjusted $ 687.2 $ 639.1 $ 1,388.9 $ 1,301.7 --- ------------- -- ------------- --- ------------- -- ------------- Ratio of earnings to fixed charges 5.57 6.37 5.66 6.32 --- ------------- -- ------------- --- ------------- -- ------------- Note: The ratios were computed by dividing fixed charges into the sum of earnings (after certain adjustments) and fixed charges. Earnings include income from continuing operations before taxes, plus equity in the net losses of less-than-50% owned entities, less capitalized interest. Fixed charges include (a) interest on all debt of continuing operations (including amortization of debt issuance costs), (b) the interest component of operating rents, and (c) the pre-tax cost of subsidiary preferred stock dividends.
EX-27 5 FDS 6/30/98 - EXHIBIT 27
5 1,000 6-MOS Dec-31-1998 Jun-30-1998 93,300 0 2,492,600 159,700 381,000 3,892,700 25,263,100 12,375,400 19,790,700 3,206,400 4,406,200 9,500 0 1,091,300 8,131,900 19,790,700 0 7,878,100 0 4,711,900 0 0 128,000 731,400 301,400 430,000 0 (4,400) 0 425,600 0.99 0.97
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