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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------------------------
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 (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 11315, Kansas City, Missouri 64112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 624-3000
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------------- ------------------------------------------
Preferred Stock, without par value
First series, $7.50 stated value New York Stock Exchange
Second series, $6.25 stated value New York Stock Exchange
Common stock, $2.50 par value, and Rights New York Stock Exchange
(shares outstanding at February 28, Chicago Stock Exchange
1997, 344,594,632) Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for these shorter period that the registrant was
required to file these reports), and (2) has been subject to these filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates at February 28,
1997 is $15,637,309,097.
Documents incorporated by reference.
Registrant's definitive proxy statement filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934 is incorporated by reference in Part III hereof.
SPRINT CORPORATION
SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT ON FORM 10-K
Part I
Item 1. Business
The Corporation
Sprint Corporation, incorporated in 1938 under the laws of Kansas, is
mainly a holding company. The principal activities of Sprint and its
subsidiaries (Sprint) include domestic and international long distance and local
exchange telecommunications services. Other activities include emerging
businesses and product distribution and directory publishing as discussed below.
In March 1996, Sprint spun off its cellular and wireless communications services
division (Cellular) to holders of Sprint's common stock.
Telecommunications Law
The Telecommunications Act of 1996 (the Act), which was signed into law in
February 1996, promotes competition in all aspects of telecommunications. Of
particular relevance to Sprint, the Act eliminates legal and regulatory barriers
to entry into local telephone markets and requires incumbent local exchange
carriers (LECs), among other things, to allow local resale at wholesale rates,
negotiate interconnection agreements, provide nondiscriminatory access to
unbundled network elements and allow collocation of interconnection equipment by
competitors. The Act also allows Bell Operating Companies (BOCs) to provide
in-region long distance service once they obtain state certification of
compliance with a competitive "checklist," have a facilities-based competitor,
and obtain a Federal Communications Commission (FCC) ruling that the provision
of in-region long distance service is in the public interest. As part of its
public interest inquiry, the FCC must solicit the views of the Department of
Justice and give those views substantial weight.
The FCC adopted detailed rules in August 1996 to govern interconnection to
incumbent local networks by new market entrants. Some LECs and state public
service commissions (PSC) appealed these rules to the U.S. Court of Appeals,
which stayed some of the pricing rules pending full review by the court. A court
decision is expected in mid-1997.
The FCC is also expected to issue decisions in 1997 on two related matters
critical to local competition -- universal service reform and access reform.
Currently, local rates are subsidized through implicit subsidies, such as
above-cost access charges imposed on long distance companies for connections to
local customers. The purpose of universal service reform is to establish an
explicit subsidy mechanism to replace the current implicit subsidies. Access
reform will change the structure and level of access charges and will determine
the degree of regulatory oversight for those charges.
The impact of the Act on Sprint cannot be determined because the rules for
local competition are still being decided by regulators and the courts. Sprint
intends to provide competitive local exchange carrier (CLEC) service and has
filed for certification in most states in anticipation of the opening of local
markets to competition. This CLEC activity is important to Sprint both from
offensive and defensive perspectives because it will allow customers to look to
Sprint for all their telecommunications needs. Because of high development
costs, however, CLEC activities are unlikely to be profitable for the first few
years.
In those areas where Sprint is the incumbent LEC, local competition is
expected to eventually result in some loss of market share. However, because
Sprint's LEC operations are geographically dispersed and largely in rural
markets, local competition is expected to occur more gradually. Entry is most
likely to be through the resale of Sprint LEC services or through the purchase
of Sprint LEC unbundled network elements. This will allow Sprint to retain
revenue for customers lost to CLEC competition.
1
The impact of local competition is also dependent on the outcome of the
universal service reform and access reform dockets at the FCC. While Sprint has
presented a proposal to the FCC that fairly balances the conflicting interests
of industry participants, Sprint cannot predict what the FCC will do. If
regulators were to require an immediate reduction in access subsidies flowing to
local service without offsetting universal service support or giving LECs an
opportunity to re-balance local rates, Sprint's local division would be
adversely impacted. On the other hand, a reduction in access charges would
benefit Sprint's long distance division (and other long distance companies)
because access charges are the largest single cost of providing long distance
service. Long distance companies should benefit from lower access charges even
if these lower rates are flowed through to customers because lower long distance
prices will likely stimulate additional demand.
Several BOCs claim that they meet the competitive checklist and will seek
FCC approval to offer in-region long distance service in 1997. Given the absence
of local competition ground rules and the absence of any meaningful local
competition, Sprint believes these applications are premature. However, even if
BOCs were to get authority to offer in-region long distance services, it is
likely that any loss of Sprint customers at the retail level would be offset,
since Sprint is the underlying network provider to at least three of the seven
regional Bell operating companies.
Strategic Alliances
Sprint is a 40% partner in Sprint Spectrum L.P. (Sprint PCS), a partnership
with Tele-Communications Inc., Comcast Corporation and Cox Communications, Inc.
Sprint PCS is building the nation's first single technology, 100% digital,
state-of-the-art, wireless network to provide personal communication services
(PCS) across the United States.
During December 1996, Sprint PCS launched service in the first of 65
metropolitan markets. Sprint PCS expects to complete this first phase in 1997
and have service in markets covering nearly 100 million people by early 1998.
Sprint PCS, through its affiliate, American Personal Communications (APC),
launched the nation's first PCS system in the Washington, D.C., and Baltimore,
Maryland, areas in November 1995.
Sprint is a partner in Global One, a joint venture with Deutsche Telekom AG
(DT) and France Telecom (FT) to provide seamless global telecommunications
services to business, residential and carrier markets worldwide. Sprint is a
one-third partner in Global One's operating group serving Europe (excluding
France and Germany), and is a 50% partner in Global One's operating group for
the worldwide activities outside the United States and Europe.
In connection with the formation of the Global One joint venture on January
31, 1996, the long distance division contributed certain assets and related
operations of its international business unit to Global One.
2
Long Distance Communications Services
The long distance communications services division is the nation's
third-largest long distance telephone company. It operates a nationwide
all-digital long distance communications network that uses state-of-the-art
fiber-optic and electronic technology. The division primarily provides domestic
and international voice, video and data communications services. The division
offers its services to the public subject to different levels of state and
federal regulation, but rates are not subject to rate-base regulation except
nominally in some states. The division's net operating revenues were $8.3, $7.3
and $6.8 billion in 1996, 1995 and 1994, respectively.
AT&T dominates the long distance communications market and is expected to
continue to dominate the market for some years into the future. MCI
Communications Corporation (MCI) is the nation's second largest long distance
telephone company. Sprint's long distance division competes with AT&T, MCI and
other telecommunications providers in all segments of the long distance
communications market. Competition is based on price and pricing plans, the
types of services offered, customer service, and communications quality,
reliability and availability.
As competition has developed in long distance markets in recent years, the
FCC has streamlined regulation of interstate interexchange carriers, including
AT&T. Nondominant competitive long distance carriers (like Sprint) have been
subject to considerably less regulation, because market forces served as a more
effective regulator of prices. As AT&T lost domestic market share, it sought to
be relieved of regulation as well. The FCC ended rate-of-return regulation of
AT&T in 1989, and removed some competitive services from price cap regulation in
1991. In 1995, the FCC reclassified AT&T as a nondominant domestic carrier, in
exchange for commitments to protect rates charged to low income, low volume and
reseller customers. The FCC did not find that the long distance market was
completely competitive and some interstate regulation continues to apply. AT&T
was also subsequently declared to be a nondominant international
telecommunications carrier.
See "Telecommunications Law" for a discussion of the new telecommunications
legislation and its potential impact on the long distance division.
3
Local Communications Services
The local communications services division consists of regulated LECs that
serve more than seven million access lines in 19 states. The division provides
local exchange services, access by telephone customers and other carriers to
Sprint's local exchange facilities, sales of telecommunications equipment, and
long distance services within specified geographical areas.
The division's net operating revenues were $5.2, $4.7 and $4.4 billion in
1996, 1995 and 1994, respectively. The following table reflects major revenue
categories as a percentage of the division's total net operating revenues:
1996 1995 1994
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Local service 40.3% 39.8% 39.7%
Network access 36.2 36.1 36.2
Toll service 8.2 10.3 12.0
Other 15.3 13.8 12.1
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
100.0% 100.0% 100.0%
-- ------------- --- ------------- -- -------------
AT&T is the division's largest customer for network access services. In
1996, 13.3% of the division's net operating revenues was derived from services
(mainly network access services) provided to AT&T, compared with 15.2% in 1995
and 16.6% in 1994. On a consolidated basis, revenues from AT&T were 5.2% of
Sprint's revenues in 1996, 6.0% in 1995 and 6.3% in 1994. While AT&T is a
significant customer, Sprint does not believe the division's revenues are
dependent upon AT&T, as customers' demand for interLATA long distance telephone
service is not tied to any one long distance carrier. Historically, as the
market share of AT&T's long distance competitors increases, the percentage of
revenues derived from network access services provided to AT&T decreases.
The division's LECs are subject to FCC jurisdiction, as well as state PSC
jurisdiction in each state in which the LECs operate. In each state in which the
PSCs exercise authority to grant certificates of public convenience and
necessity, the LECs have been granted certificates of indefinite duration to
provide local exchange telephone service in their current service areas.
In 1991, the FCC adopted a price cap regulatory format for the BOCs and the
GTE LECs. Other LECs could voluntarily become subject to price cap regulation.
The division's LECs elected to be subject to price cap regulation. Under price
caps, prices for network access service must be adjusted each year to reflect
industry average productivity gains (as specified by the FCC), inflation and
certain allowed cost changes. During 1995, the FCC adopted modifications to the
price cap plan to reset productivity elections, change certain rate adjustment
methods, address new service offerings and generally reduce regulatory
requirements. Under these changes, the division's LECs adopted a rate formula
based on the maximum productivity factors that effectively removes the earnings
cap on the division's interstate access revenues. Interstate access revenues
currently comprise approximately 60 percent of the division's network access
revenues.
See "Telecommunications Law" for a discussion of the new telecommunications
legislation and its potential impact on the local communications division.
4
Product Distribution and Directory Publishing
The product distribution and directory publishing businesses (PDDP) consist
of North Supply Company (North Supply) and Sprint Publishing & Advertising
(SPA).
North Supply is a wholesale distributor of telecommunications products.
Products range from basics, such as wire and cable, telephones and repair parts,
to complete PBX systems, transmission systems and security and alarm equipment.
The nature of competition in North Supply's markets demands a high level of
customer service to succeed, as a number of competitors, including other
national wholesale distributors, sell the same products and services.
SPA publishes and markets white and yellow page telephone directories in
certain of Sprint's local exchange territories, as well as in the greater
metropolitan areas of Milwaukee, Wisconsin and Chicago, Illinois. SPA's revenues
are principally derived from selling directory advertisements. The company
competes with publishers of telephone directories and others for advertising
revenues.
Emerging Businesses
Emerging businesses consists of consumer Internet access services, CLEC
services, international development activities (outside the scope of Global
One), and PCS controlled by Sprint.
In December 1996, Sprint launched its consumer Internet access service,
Sprint Internet Passport(SM), to the general public. Sprint has substantially
completed the buildout of its Internet access platform, which now contains more
than 230 points of presence and can be reached by 85% of the nation's population
through a local call.
To take advantage of newly competitive markets, Sprint has initiated
efforts to enter local markets across the United States by filing for CLEC
status. Through January 1997, Sprint had filed in 47 states and the District of
Columbia, and gained regulatory approval to provide competitive local telephone
service in 25 states and the District of Columbia. In January 1997, Sprint
launched its initial competitive local service offering in Southern California.
The timing of entry, means of access to the customer and product offering will
be influenced by a number of factors, including buy versus build economic
trade-offs, competitive positioning, customer needs and the regulatory
environment. Sprint, to the extent possible, will employ existing sales channels
and marketing resources to market its CLEC services.
Sprint has undertaken efforts to pursue selected business opportunities in
key countries and markets around the world. Projects will be selected based on
their ability to provide significant growth and financial return, the impact on
Global One's position in world markets, and the volume of traffic terminated on
Sprint's U.S.
networks.
As part of an overall strategy to achieve nationwide PCS coverage, Sprint
directly acquired PCS licenses in the FCC's recent auction. These licenses cover
139 markets across the United States reaching a total population of 70 million
people. Sprint plans to affiliate these licenses with the licenses previously
acquired by Sprint PCS. With the affiliation of Sprint's licenses, licensed
coverage for Sprint-branded PCS will include nearly 260 million people across
the United States, Puerto Rico and the U.S. Virgin Islands.
5
Spin-off of Cellular
In March 1996, Sprint completed the tax-free spin-off of Cellular to Sprint
common shareholders. The spin-off was effected by distributing all shares of
Cellular common stock to all of Sprint's common shareholders at a rate of one
Cellular common share for every three Sprint common shares held. In connection
with the spin-off, Cellular repaid $1.4 billion of intercompany debt owed to
Sprint. In addition, Sprint contributed to the equity capital of Cellular $185
million of debt owed by Cellular in excess of the amount repaid. This equity
contribution, together with Sprint's previous investment in Cellular, resulted
in Sprint's net investment in Cellular totaling $260 million at the date of the
spin-off.
Environment
Sprint's environmental compliance and remediation expenditures are mainly
due to the operation of standby power generators for its telecommunications
equipment. The expenditures arise in connection with permits, standards
compliance, or occasional remediation, which are usually related to generators,
batteries or fuel storage. Sprint has been designated a potentially responsible
party at sites relating to either landfill contamination or discontinued power
generation operations. Sprint's environmental compliance and remediation
expenditures have not been material to its financial statements or to its
operations and are not expected to have any future material effects.
Patents, Trademarks and Licenses
Sprint owns numerous patents, patent applications and trademarks in the
United States and other countries. Sprint is also licensed under domestic and
foreign patents and trademarks owned by others. In total, these patents, patent
applications, trademarks and licenses are of material importance to Sprint's
business. Generally, Sprint's trademarks and trademark licenses have no
limitation on duration; Sprint's patents and licensed patents have lives
generally ranging from one to 17 years.
Sprint's PCS licenses have an initial duration of 10 years. Sprint expects
to renew these licenses for additional 10 year terms under FCC rules.
Employee Relations
As of year-end 1996, Sprint had approximately 48,000 employees, of whom 24%
are represented by unions. During 1996, Sprint had no material work stoppages
caused by labor controversies.
Information as to Industry Segments
For information required by this section, refer to the "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Segmental Results of Operations" and Note 13 of the "Notes to Consolidated
Financial Statements" sections of the Financial Statements and Financial
Statement Schedule filed as part of this report.
6
Item 2. Properties
Sprint's property, plant and equipment totaled $21.4 billion at year-end
1996, of which $13.4 billion relates to local communications services and $7.4
billion relates to long distance communications services. These properties
mainly consist of land, buildings, digital fiber-optic network, switching
equipment, microwave radio and cable and wire facilities. Sprint leases certain
switching equipment and several general office facilities. The long distance
division has been granted easements, rights-of-way and rights-of-occupancy,
mainly by railroads and other private landowners, for its fiber-optic network.
PDDP's properties mainly consist of office and warehouse facilities to
support the business units in the distribution of telecommunications products
and publication of telephone directories.
Sprint owns its corporate headquarters building and other property located
in the greater Kansas City metropolitan area.
Property, plant and equipment totaling $12.4 billion is either pledged as
security for first mortgage bonds and certain notes or is restricted for use as
mortgaged property.
Item 3. Legal Proceedings
Following the announcement of the Sprint/Centel merger agreement in May
1992, class action suits were filed against Centel and certain of its officers
and directors in federal and state courts. The federal actions were consolidated
in the United States District Court for the Northern District of Illinois. An
amended complaint was filed against the Company and two officers/directors. The
amended complaint alleged violations of federal securities laws by failing to
disclose pertinent information regarding the value of Centel common stock. In
June 1996, the defendants were granted summary judgment on the plaintiffs'
claims, and the plaintiffs have appealed. In January 1995, a purported class
action suit was filed against Centel's financial advisors in state court in New
York in connection with the Sprint/Centel merger. In October 1995, the New York
trial court granted a motion to dismiss that suit, and the order dismissing the
claims was affirmed on appeal by the intermediate appellate court in New York.
Sprint may have indemnification obligations to the financial advisors in
connection with this suit.
Various other suits arising in the ordinary course of business are pending
against Sprint. Management cannot predict the ultimate outcome of these actions
or the above-described litigation, but believes they will not result in a
material effect on Sprint's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
7
Item 10(b). Executive Officers of the Registrant
Office Name Age
- -------------------------------------------------------------- --------------------------------- ------
Chairman and Chief Executive Officer William T. Esrey (1) 57
President and Chief Operating Officer Ronald T. LeMay (2) 51
President and Chief Operating Officer - Local
Telecommunications Division Michael B. Fuller (3) 52
President and Chief Operating Officer - Long Distance
Division Gary D. Forsee (4) 46
President and Chief Operating Officer - National Integrated
Services D. Wayne Peterson (5) 61
Executive Vice President - Law and External Affairs J. Richard Devlin (6) 46
Executive Vice President - Chief Financial Officer Arthur B. Krause (7) 55
Senior Vice President - Corporate Finance Gene M. Betts (8) 44
Senior Vice President - External Affairs John R. Hoffman (9) 51
Senior Vice President - Controller John P. Meyer (10) 46
Senior Vice President - Strategic Planning and Corporate
Development Theodore H. Schell (11) 52
Senior Vice President - Quality Development and Public
Relations Richard C. Smith, Jr. (12) 55
Senior Vice President - Treasurer M. Jeannine Strandjord (13) 51
Senior Vice President - Human Resources I. Benjamin Watson (14) 48
Vice President - Secretary Don A. Jensen (15) 61
(1) Mr. Esrey was elected Chairman in 1990. He was elected Chief Executive
Officer and a member of the Board of Directors in 1985.
(2) Mr. LeMay was elected President and Chief Operating Officer in February
1996. He had served as Vice Chairman since April 1995. From 1989 to 1995,
he had served as President and Chief Operating Officer Long Distance
Division. He was elected to the Board of Directors of Sprint in 1993.
(3) Mr. Fuller was elected President - Local Telecommunications Division in
October 1996. From 1990 to 1996, he served as President of United
Telephone - Midwest Group, an operating group of subsidiaries of Sprint.
(4) Mr. Forsee was elected President - Long Distance Division in March 1995.
He also serves as President and Chief Operating Officer of Sprint
Communications Company L.P. (the Limited Partnership), a subsidiary of
Sprint. Mr. Forsee had served as Senior Vice President - Staff Operations
of the Limited Partnership since 1993. From 1991 to 1993, he was
President of the Limited Partnership's Business Service Group.
(5) Mr. Peterson was elected President - National Integrated Services in
October 1996. He had served as President - Local Telecommunications
Division since 1993. From 1980 to 1993, he served as President of Carolina
Telephone and Telegraph Company, a subsidiary of Sprint.
(6) Mr. Devlin was elected Executive Vice President - Law and External Affairs
in 1989.
(7) Mr. Krause was elected Executive Vice President - Chief Financial Officer
in 1988.
(8) Mr. Betts was elected Senior Vice President in 1990.
(9) Mr. Hoffman was elected Senior Vice President - External Affairs in 1990.
8
(10) Mr. Meyer was elected Senior Vice President and Controller in 1993. He
had served as Vice President and Controller of Centel since 1989.
(11) Mr. Schell was elected Senior Vice President - Strategic Planning and
Corporate Development in 1990.
(12) Mr. Smith was elected Senior Vice President - Quality Development and
Public Relations in 1991.
(13) Ms. Strandjord was elected Senior Vice President and Treasurer in 1990.
(14) Mr. Watson was elected Senior Vice President - Human Resources in 1993. He
had served as Vice President Finance and Administration of United
Telephone - Eastern Group, an operating group of subsidiaries of Sprint,
since 1990.
(15) Mr. Jensen was elected Vice President and Secretary in 1975.
There are no known family relationships between any of the persons named
above or between any of these persons and any outside directors of Sprint.
Officers are elected annually.
9
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Price Per Share
- --------------------- -----------------------------------------------------------------------------------------------
---------------------------------------------- ---------------------------------------------
1996 1995*
---------------------------------------------- ---------------------------------------------
-- ----------- --- ------------ --- ---------- --- ----------- -- ----------- -- -----------
End of End of
High Low Period High Low Period
-- ----------- --- ------------ --- ---------- --- ----------- -- ----------- -- -----------
First quarter $ 38 5/8* $ 31 15/16* $ 38 $ 26 5/16 $ 21 5/16 $ 24 15/16
Second quarter 44 3/8 37 1/2 42 29 9/16 25 1/16 27 3/4
Third quarter 42 7/8 34 1/2 38 7/8 30 3/8 26 7/8 28 7/8
Fourth quarter 44 37 1/2 39 7/8 33 15/16 27 7/16 32 11/16
- --------------------- -- ----------- --- ------------ --- ---------- -- --- ----------- -- ----------- -- -----------
* Adjusted to reflect the spin-off of Cellular.
As of February 28, 1997, Sprint had approximately 100,000 common stock
record holders and 2 Class A common stock record holders. The principal trading
market for Sprint's common stock is the New York Stock Exchange. The common
stock is also listed and traded on the Chicago and Pacific Stock Exchanges. The
Class A common stock is not publicly traded. Sprint declared common stock
dividends of $0.25 per share during each quarter of 1996 and 1995. During the
last three quarters of 1996, Sprint declared dividends of $0.25 per share on its
Class A common stock.
Item 6. Selected Financial Data
For information required by Item 6, refer to the "Selected Financial Data"
section of the Financial Statements and Financial Statement Schedule filed as
part of this report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For information required by Item 7, refer to the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of the
Financial Statements and Financial Statement Schedule filed as part of this
report.
Item 8. Financial Statements and Supplementary Data
For information required by Item 8, refer to the "Consolidated Financial
Statements and Schedule" section of the Financial Statements and Financial
Statement Schedule filed as part of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
10
Part III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G(3) to Form 10-K, the information relating to
Directors of Sprint required by Item 10 is incorporated by reference from
Sprint's definitive proxy statement filed pursuant to Regulation 14A.
For information pertaining to Executive Officers of Sprint, as required by
Instruction 3 of Paragraph (b) of Item 401 of Regulation S-K, refer to the
"Executive Officers of the Registrant" section of Part I of this report.
Pursuant to Instruction G(3) to Form 10-K, the information relating to
compliance with Section 16(a) required by Item 10 is incorporated by reference
from Sprint's definitive proxy statement filed pursuant to Regulation 14A.
Item 11. Executive Compensation
Pursuant to Instruction G(3) to Form 10-K, the information required by Item
11 is incorporated by reference from Sprint's definitive proxy statement filed
pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G(3) to Form 10-K, the information required by Item
12 is incorporated by reference from Sprint's definitive proxy statement filed
pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G(3) to Form 10-K, the information required by Item
13 is incorporated by reference from Sprint's definitive proxy statement filed
pursuant to Regulation 14A.
11
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) 1. The consolidated financial statements of Sprint filed as part of
this report are listed in the Index to Financial Statements and
Financial Statement Schedule.
2. The consolidated financial statement schedule of Sprint filed as part
of this report is listed in the Index to Financial Statements and
Financial Statement Schedule.
3. The following exhibits are filed as part of this report:
EXHIBITS
(3) Articles of Incorporation and Bylaws:
(a) Articles of Incorporation, as amended (filed as Exhibit
3(a) to Sprint Corporation Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference).
(b) Bylaws, as amended (filed as Exhibit 3(a) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated
herein by reference).
(4) Instruments defining the Rights of Sprint's Equity Security
Holders:
(a) The rights of Sprint's equity security holders are
defined in the Fifth, Sixth, Seventh and Eighth
Articles of Sprint's Articles of Incorporation. See
Exhibit 3(a).
(b) Rights Agreement dated as of August 8, 1989, between
Sprint Corporation (formerly United Telecommunications,
Inc.) and UMB Bank, n.a. (formerly United Missouri Bank
of Kansas City, N.A.), as Rights Agent (filed as
Exhibit 2(b) to Sprint Corporation Registration
Statement on Form 8-A dated August 11, 1989 (File No.
1-4721), and incorporated herein by reference).
(c) Amendment and supplement dated June 4, 1992 to Rights
Agreement dated as of August 8, 1989 (filed as Exhibit
2(c) to Amendment No. 1 on Form 8 dated June 8, 1992 to
Sprint Corporation Registration Statement on Form 8-A
dated August 11, 1989 (File No. 1-4721), and
incorporated herein by reference).
(d) Second Amendment to Rights Agreement dated as of July
31, 1995 between Sprint Corporation and UMB Bank, n.a.
(filed as Exhibit 2(d) to Form 8-A/A-2 dated October
20, 1995 amending Sprint Corporation Registration
Statement on Form 8-A dated August 11, 1989 (File No.
1-4721) and incorporated herein by reference).
(e) Standstill Agreement dated as of July 31, 1995, by and
among Sprint Corporation, France Telecom and Deutsche
Telekom AG (filed as Exhibit (10)(c) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by
reference).
12
(10) Material Agreements - Joint Ventures:
(a) Joint Venture Agreement dated as of June 22, 1995 among
Sprint Corporation, Sprint Global Venture, Inc., France
Telecom and Deutsche Telekom AG (filed as Exhibit
(10)(a) to Sprint Corporation Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 and
incorporated herein by reference).
(b) Amendment No. 1 to Joint Venture Agreement, dated as of
January 31, 1996, among Sprint Corporation, Sprint
Global Venture, Inc., France Telecom, Deutsche Telekom
AG and Atlas Telecommunications, S.A. (filed as Exhibit
99A to Sprint Corporation Current Report on Form 8-K
dated January 31, 1996 and incorporated herein by
reference).
(c) Investment Agreement dated as of July 31, 1995 among
Sprint Corporation, France Telecom and Deutsche Telekom
AG (including as an exhibit the Stockholders' Agreement
among France Telecom, Deutsche Telekom AG and Sprint
Corporation) (filed as Exhibit (10)(b) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by
reference).
(d) Amended and Restated Agreement of Limited Partnership
of MajorCo., L.P., dated as of January 31, 1996, among
Sprint Spectrum, L.P., TCI Network Services, Comcast
Telephony Services and Cox Telephony Partnership (filed
as Exhibit 99C to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(e) Parents Agreement dated as of January 31, 1996, between
Sprint Corporation and Tele-Communications, Inc. (filed
as Exhibit 99D to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(f) Parents Agreement dated as of January 31, 1996, between
Sprint Corporation and Comcast Corporation (filed as
Exhibit 99E to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(g) Parents Agreement dated as of January 31, 1996, between
Sprint Corporation and Cox Communications, Inc. (filed
as Exhibit 99F to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(10) Executive Compensation Plans and Arrangements
(h) 1985 Stock Option Plan, as amended (Appendix to Stock
Option Plans filed as Exhibit (10)(h) to Sprint
Corporation Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
(i) 1990 Stock Option Plan, as amended. See Exhibit (10)
(h) for Appendix to Stock Option Plans.
(j) 1990 Restricted Stock Plan, as amended.
(k) Executive Deferred Compensation Plan, as amended.
(l) Management Incentive Stock Option Plan, as amended.
See Exhibit (10)(h) for Appendix to Stock Option Plans.
(m) Long-Term Stock Incentive Program, as amended (filed as
Exhibit (10)(f) to Sprint Corporation Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996
and incorporated herein by reference).
13
(n) Sprint Supplemental Executive Retirement Plan (filed as
Exhibit (10)(i) to Sprint Corporation Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
(o) Amended and Restated Centel Directors Deferred
Compensation Plan (filed as Exhibit (10)(j) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 and incorporated
herein by reference).
(p) Restated Memorandum Agreements Respecting Supplemental
Pension Benefits between Sprint Corporation (formerly
United Telecommunications, Inc.) and two of its current
and former executive officers (filed as Exhibit 10(i)
to Sprint Corporation Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated
herein by reference).
(q) Executive Long-Term Incentive Plan (filed as Exhibit
10(j) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated
herein by reference).
(r) Executive Management Incentive Plan (filed as Exhibit
10(k) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated
herein by reference).
(s) Long-Term Incentive Compensation Plan, as amended
(filed as Exhibit 10(i) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996, and incorporated herein by reference).
(t) Short-Term Incentive Compensation Plan (filed as
Exhibit 10(k) to United Telecommunications, Inc. Annual
Report on Form 10-K for the year ended December 31,
1989, and incorporated herein by reference).
(u) Retirement Plan for Directors, as amended.
(v) Key Management Benefit Plan, as amended (filed as
Exhibit 10(g) to Sprint Corporation Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference).
(w) Agreements Regarding Special Compensation and Post
Employment Restrictive Covenants between Sprint
Corporation and certain of its Executive Officers
(filed as Exhibit 10(x) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31,
1993, Exhibit 10(d) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994 and Exhibit 10 (h) of Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended March 31,
1996 and incorporated herein by reference). Agreement
Regarding Special Compensation and Post Employment
Restrictive Covenants between Sprint Corporation and
one of its Executive Officers, as amended.
(x) Director's Deferred Fee Plan, as amended.
(y) Form of Contingency Employment Agreements between
Sprint Corporation and certain of its executive
officers (filed as Exhibit 10(b) to Sprint Corporation
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference).
(z) Form of Indemnification Agreements between Sprint
Corporation (formerly United Telecommunications, Inc.)
and its Directors and Officers (filed as Exhibit 10(s)
to Sprint Corporation Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated
herein by reference).
14
(aa) Summary of Executive Officer and Board of Directors
Benefits (filed as Exhibit (10)(k) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated
herein by reference).
(bb) Description of agreement regarding Supplemental Pension
Benefits between Sprint Corporation and one of its
executive officers (filed as Exhibit 10(e) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, and incorporated
herein by reference).
(cc) Amended and Restated Centel Director Stock Option Plan
(filed as Exhibit 10(aa) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference).
(11) Computation of Earnings Per Common Share.
(12) Computation of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of Registrant.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedules:
(a) December 31, 1996 Financial Data Schedule.
(b) December 31, 1995 Restated Financial Data Schedule.
Sprint will furnish to the Securities and Exchange Commission, upon request, a
copy of the instruments defining the rights of holders of its long-term debt.
The total amount of securities authorized under any of said instruments does not
exceed 10% of the total assets of Sprint.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1996.
(c) Exhibits are listed in Item 14(a).
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPRINT CORPORATION
(Registrant)
By /s/ W. T. Esrey
William T. Esrey
Chairman and Chief Executive Officer
Date: March 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 11th day of March, 1997.
/s/ W. T. Esrey
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
Arthur B. Krause
Executive Vice President and
Chief Financial Officer
/s/ John P. Meyer
John P. Meyer
Senior Vice President and Controller
Principal Accounting Officer
16
SIGNATURES
SPRINT CORPORATION
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 11th day of March, 1997.
/s/ DuBose Ausley
DuBose Ausley, Director
/s/ Warren L. Batts
Warren L. Batts, Director
/s/ Michel Bon
Michel Bon, Director
/s/ Ruth M. Davis
Ruth M. Davis, Director
/s/ W. T. Esrey
William T. Esrey, Director
/s/ Donald J. Hall
Donald J. Hall, Director
/s/ Harold S. Hook
Harold S. Hook, Director
/s/ Ronald T. LeMay
Ronald T. LeMay, Director
/s/ Linda Koch Lorimer
Linda Koch Lorimer, Director
/s/ Charles E. Rice
Charles E. Rice, Director
/s/ Ron Sommer
Ron Sommer, Director
/s/ Stewart Turley
Stewart Turley, Director
17
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Sprint Corporation
Page Reference
---------------------
Selected Financial Data F-2
Management's Discussion and Analysis of Financial Condition and Results of Operations F-3
Consolidated Financial Statements and Schedule:
Management Report F-16
Report of Independent Auditors - Ernst & Young LLP F-17
Consolidated Statements of Income for each of the three years ended December 31, 1996 F-18
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-19
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1996 F-20
Consolidated Statements of Common Stock and Other Shareholders' Equity for each of
the three years ended December 31, 1996 F-21
Notes to Consolidated Financial Statements F-22
Financial Statement Schedule for each of the three years ended December 31,
1996:
II - Consolidated Valuation and Qualifying Accounts F-44
Certain financial statement schedules have been omitted because the
required information is not present, or has been included in the
consolidated financial statements and notes thereto.
F-1
SELECTED FINANCIAL DATA Sprint Corporation
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
Results of Operations
Net operating revenues $ 14,044.7 $ 12,765.1 $ 11,986.6 $ 10,914.7 $ 10,105.7
Operating income (1) 2,267.2 1,834.3 1,690.7 1,214.1 1,199.8
Income from continuing
operations (1), (2) 1,190.9 946.1 899.2 517.1 550.6
Earnings per common share from continuing
operations (1), (2) 2.79 2.69 2.57 1.50 1.62
Dividends per common share 1.00 1.00 1.00 1.00 1.00
Financial Position
Total assets $ 16,953.0 $ 15,195.9 $ 14,547.5 $ 13,898.1 $ 13,431.7
Property, plant and equipment, net 10,464.1 9,715.8 10,258.8 9,883.1 9,895.6
Total debt (including short-term
borrowings) 3,280.6 5,677.4 4,937.2 5,094.4 5,442.7
Redeemable preferred stock 11.8 32.5 37.1 38.6 40.2
Common stock and other shareholders'
equity 8,519.9 4,642.6 4,524.8 3,918.3 3,971.6
Cash Flow Data
Cash from operating activities -
continuing operations(3) $ 2,403.6 $ 2,609.6 $ 2,339.6 $ 2,007.8 $ 2,397.3
Capital expenditures 2,433.6 1,857.3 1,751.6 1,429.8 1,342.4
(1) During 1996, Sprint recorded a nonrecurring charge of $60 million related
to litigation within the long distance division. This charge reduced income
from continuing operations by $36 million ($0.08 per share).
During 1995, Sprint recorded a nonrecurring charge of $88 million related
to a restructuring within the local division. This charge reduced income
from continuing operations by $55 million ($0.16 per share).
During 1993, Sprint recorded nonrecurring charges of $293 million related
to (a) transaction costs associated with the merger with Centel Corporation
and the expenses of integrating and restructuring the operations of the two
companies and (b) a realignment and restructuring within the long distance
division. These charges reduced income from continuing operations by $193
million ($0.56 per share).
(2) During 1994, Sprint sold an investment in equity securities, realizing a
gain of $35 million, which increased income from continuing operations by
$22 million ($0.06 per share).
During 1993, due to the enactment of the Revenue Reconciliation Act of
1993, Sprint adjusted its deferred income tax assets and liabilities to
reflect the increased tax rate. This adjustment reduced income from
continuing operations by $11 million ($0.03 per share).
During 1992, Sprint recognized gains related to sales of certain local
telephone properties, which increased income from continuing operations by
$44 million ($0.13 per share).
(3) The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement. The 1992 amount includes $300
million of cash proceeds from the sale of accounts receivable.
F-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Sprint Corporation
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Sprint Corporation and its subsidiaries (Sprint) include certain estimates,
projections and other forward-looking statements in its reports, presentations
to analysts and others, and other material disseminated to the public. There can
be no assurances of future performance and 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
forward-looking statements include:
- the effects of vigorous competition in the markets in which Sprint
operates;
- the cost of entering new markets necessary to provide seamless
services;
- the risks associated with Sprint's investments in Sprint Spectrum L.P.
(Sprint PCS) and Global One, which are presently in the early stages
of development;
- the impacts of any unusual items resulting from ongoing evaluations of
Sprint's business strategies;
- requirements imposed on Sprint and its competitors by the Federal
Communications Commission (FCC) and state regulatory commissions
under the Telecommunications Act of 1996;
- unexpected results of litigation filed against Sprint; and
- the possibility of one or more of the markets in which Sprint competes
being affected by variations in political, economic or other
factors such as monetary policy, legal and regulatory changes or
other external factors over which Sprint has no control.
Sprint's principal activities consist of the following:
Long Distance Communications Services
The long distance communications services division is the nation's
third-largest long distance telephone company. It operates a nationwide,
all-digital long distance communications network that uses state-of-the-art
fiber-optic and electronic technology. The division primarily provides domestic
and international voice, video and data communications services. The division
offers its services to the public subject to different levels of state and
federal regulation, but rates are not subject to rate-base regulation except
nominally in some states.
Local Communications Services
The local communications services division consists of regulated local
exchange carriers (LECs) that serve more than seven million access lines in 19
states. The division provides local exchange services, access by telephone
customers and other carriers to Sprint's local exchange facilities, sales of
telecommunications equipment, and long distance services within specified
geographical areas.
Emerging Businesses
Emerging businesses consists of consumer Internet access services,
competitive local exchange carrier (CLEC) services, international development
activities (outside the scope of Global One), and personal communication
services (PCS) controlled by Sprint.
Product Distribution and Directory Publishing
The product distribution and directory publishing businesses include the
wholesale distribution of telecommunications products and the publishing and
marketing of white and yellow page telephone directories.
F-3
Strategic Alliances
Global One
Sprint is a partner in Global One, a joint venture with Deutsche Telekom AG
(DT) and France Telecom (FT) to provide seamless global telecommunications
services to business, residential and carrier markets worldwide. Sprint is a
one-third partner in Global One's operating group serving Europe (excluding
France and Germany), and is a 50% partner in Global One's operating group for
the worldwide activities outside the United States and Europe.
In connection with the formation of the Global One joint venture on January
31, 1996, the long distance division contributed certain assets and related
operations of its international business unit to Global One.
On January 31, 1996, DT and FT acquired shares of a new class of Sprint
convertible preference stock for a total of $3.0 billion. This resulted in DT
and FT each holding 7.5% of Sprint's voting power. In April 1996, following the
March 1996 spin-off of Sprint's cellular and wireless communications services
division (Cellular), the preference stock was converted into Sprint Class A
common stock, and DT and FT each acquired additional shares of Class A common
stock. Following their total investment of $3.7 billion, DT and FT each own
shares of Class A common stock with 10% of Sprint's voting power. See Note 7 of
Notes to Consolidated Financial Statements for further information.
Sprint PCS
Sprint is a 40% partner in Sprint PCS, a partnership with
Tele-Communications Inc., Comcast Corporation and Cox Communications, Inc.
Sprint PCS is building the nation's first single technology, all digital,
state-of-the-art, wireless network to provide PCS across the United States. PCS
uses digital technology, which has sound quality superior to existing cellular
technology and is less susceptible to interference and eavesdropping. In
addition, PCS offers additional features, such as paging, voice mail, Caller ID
and data transmission.
Through 1996, the four partners had invested more than $3.2 billion in
Sprint PCS to fund the acquisition of licenses and the related network buildout.
During December 1996, Sprint PCS launched service in the first of 65
metropolitan markets. Sprint PCS expects to complete this first phase in 1997
and have service in markets covering nearly 100 million people by early 1998.
Sprint PCS, through its affiliate, American Personal Communications (APC),
launched the nation's first PCS system in the Washington, D.C., and Baltimore,
Maryland, areas in November 1995.
As part of an overall strategy to increase PCS coverage, Sprint directly
acquired the rights to PCS licenses in the FCC's most recent auction. The
licenses cover 139 markets across the United States reaching a total population
of 70 million people. Sprint expects to affiliate these licenses with Sprint
PCS. With this affiliation, licensed coverage for Sprint-branded PCS will
include nearly 260 million people across the United States, Puerto Rico and the
U.S. Virgin Islands.
Beginning in 1996, discussions have taken place among the partners
concerning the possible restructuring of their interests in Sprint PCS. Although
discussions have continued, there is no certainty these discussions will result
in any change to the partnership structure.
F-4
Telecommunications Law
The Telecommunications Act of 1996 (the Act), which was signed into law in
February 1996, promotes competition in all aspects of telecommunications. Of
particular relevance to Sprint, the Act eliminates legal and regulatory barriers
to entry into local telephone markets and requires incumbent LECs, among other
things, to allow local resale at wholesale rates, negotiate interconnection
agreements, provide nondiscriminatory access to unbundled network elements and
allow collocation of interconnection equipment by competitors. The Act also
allows Bell Operating Companies (BOCs) to provide in-region long distance
service once they obtain state certification of compliance with a competitive
"checklist," have a facilities-based competitor, and obtain an FCC ruling that
the provision of in-region long distance service is in the public interest. As
part of its public interest inquiry, the FCC must solicit the views of the
Department of Justice and give those views substantial weight.
The FCC adopted detailed rules in August 1996 to govern interconnection to
incumbent local networks by new market entrants. Some LECs and state public
service commissions appealed these rules to the U.S. Court of Appeals, which
stayed some of the pricing rules pending full review by the court. A court
decision is expected in mid-1997.
The FCC is also expected to issue decisions in 1997 on two related matters
critical to local competition -- universal service reform and access reform.
Currently, local rates are subsidized through implicit subsidies, such as
above-cost access charges imposed on long distance companies for connections to
local customers. The purpose of universal service reform is to establish an
explicit subsidy mechanism to replace the current implicit subsidies. Access
reform will change the structure and level of access charges and will determine
the degree of regulatory oversight for those charges.
The impact of the Act on Sprint cannot be determined because the rules for
local competition are still being decided by regulators and the courts. Sprint
intends to provide CLEC service and has filed for certification in most states
in anticipation of the opening of local markets to competition. This CLEC
activity is important to Sprint both from offensive and defensive perspectives
because it will allow customers to look to Sprint for all their
telecommunications needs. Because of high development costs, however, CLEC
activities are unlikely to be profitable for the first few years.
In those areas where Sprint is the incumbent LEC, local competition is
expected to eventually result in some loss of market share. However, because
Sprint's LEC operations are geographically dispersed and largely in rural
markets, local competition is expected to occur more gradually. Entry is most
likely to be through the resale of Sprint LEC services or through the purchase
of Sprint LEC unbundled network elements. This will allow Sprint to retain
revenue for customers lost to CLEC competition.
The impact of local competition is also dependent on the outcome of the
universal service reform and access reform dockets at the FCC. While Sprint has
presented a proposal to the FCC that fairly balances the conflicting interests
of industry participants, Sprint cannot predict what the FCC will do. If
regulators were to require an immediate reduction in access subsidies flowing to
local service without offsetting universal service support or giving LECs an
opportunity to re-balance local rates, Sprint's local division would be
adversely impacted. On the other hand, a reduction in access charges would
benefit Sprint's long distance division (and other long distance companies)
because access charges are the largest single cost of providing long distance
service. Long distance companies should benefit from lower access charges even
if these lower rates are flowed through to customers because lower long distance
prices will likely stimulate additional demand.
Several BOCs claim that they meet the competitive checklist and will seek
FCC approval to offer in-region long distance service in 1997. Given the absence
of local competition ground rules and the absence of any meaningful local
competition, Sprint believes these applications are premature. However, even if
BOCs were to get authority to offer in-region long distance services, it is
likely that any loss of Sprint customers at the retail level would be offset
since Sprint is the underlying network provider to at least three of the seven
regional Bell operating companies.
F-5
Spin-off of Cellular Division
In March 1996, Sprint completed the tax-free spin-off of Cellular
(Spin-off) to Sprint common shareholders. The Spin-off was effected by
distributing all shares of Cellular common stock to all of Sprint's common
shareholders at a rate of one Cellular common share for every three Sprint
common shares held. In connection with the Spin-off, Cellular repaid $1.4
billion of intercompany debt owed to Sprint. In addition, Sprint contributed to
the equity capital of Cellular $185 million of debt owed by Cellular in excess
of the amount repaid. This equity contribution, together with Sprint's previous
investment in Cellular, resulted in Sprint's net investment in Cellular totaling
$260 million at the date of the Spin-off.
Results of Operations
Consolidated
Sprint's two primary divisions -- long distance and local -- generated
record levels of net operating revenues and improved operating results in 1996.
The long distance division generated a 20% growth in traffic volumes in 1996,
and the number of access lines served by the local division grew 5.6%.
Total net operating revenues for 1996 were $14.0 billion, a 10% increase
from $12.8 billion in 1995. Total net operating revenues for 1994 were $12.0
billion. Income from continuing operations was $1.2 billion ($2.79 per share)
for 1996 compared with $946 million ($2.69 per share) for 1995 and $899 million
($2.57 per share) for 1994. Income from continuing operations for 1996 includes
a charge related to litigation in the long distance division ($0.08 per share),
while 1995 includes a charge for restructuring within the local division ($0.16
per share). Income from continuing operations for 1994 includes a gain on the
sale of an investment in equity securities ($0.06 per share).
Segmental Results of Operations
Long Distance Communications Services
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
1996 1995 1994
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Net operating revenues $ 8,302.1 $ 7,277.4 $ 6,805.1
Operating expenses
Interconnection 3,722.7 3,102.7 2,994.5
Operations 1,051.8 1,046.6 925.4
Selling, general and administrative 1,970.3 1,839.7 1,737.0
Depreciation and amortization 633.3 581.6 550.5
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Total operating expenses 7,378.1 6,570.6 6,207.4
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Operating income $ 924.0 (1) $ 706.8 $ 597.7
-- ------------- --- ------------- -- -------------
Operating margin 11.1% (1) 9.7% 8.8%
-- ------------- --- ------------- -- -------------
Capital expenditures $ 1,133.7 $ 861.7 $ 774.1
-- ------------- --- ------------- -- -------------
Identifiable assets $ 6,040.6 $ 4,912.2 $ 4,546.0
-- ------------- --- ------------- -- -------------
(1) Excluding the $60 million charge related to litigation, operating income and margin for 1996 would have been
$984 million and 11.9%, respectively.
On January 31, 1996, the long distance division contributed certain
international assets and related operations to Global One (the Contribution to
Global One). Accordingly, the operating results of the contributed operations
have been reflected in the division's operating results only through the date of
contribution. The contribution had two significant effects on the division's
operating results. First, revenue was reduced because customers of Sprint's
F-6
international operations became Global One customers. Because Global One traffic
carried by the division is priced on a wholesale, rather than retail basis, the
division's revenue yield related to these international customers declined.
Second, operating expenses were reduced to the extent they related to
contributed operations. Had the Contribution to Global One occurred on January
1, 1994, year-over-year operating income growth would have been an estimated 29%
in 1996 (excluding the nonrecurring charge) versus 21% in 1995. The related
operating margins would have been an estimated 12.0% in 1996 (excluding the
nonrecurring charge), 10.9% in 1995 and 9.5% in 1994.
Net operating revenues increased 14% in 1996 and 7% in 1995. Traffic
volumes increased 20% and 7% in the same periods. Revenue growth was mainly
driven by strong volume growth in the residential, business and wholesale
markets and continued growth in the data services markets. Growth in the
residential market reflects the continuing success of Sprint Sense(R), a
flat-rate calling plan. The small-to-medium business market, which experienced
declining revenue during 1995, produced increased revenue in 1996. This
improvement generally reflects the success of the Fridays Free calling plan,
which experienced strong domestic and international volume growth. Growth in the
data services market, which includes sales of capacity on Sprint's network to
Internet service providers, reflects continued growth in demand and expanded
service offerings. The wholesale market experienced strong growth in both the
international and domestic markets. Growth in the wholesale international market
was due, in part, to Global One traffic. These increases in 1996 revenues were
partly offset by reduced long distance rates. Average long distance rates have
declined due to increased competition both domestically and internationally, and
due to Global One traffic being priced on a wholesale, rather than retail,
basis. Had the Contribution to Global One occurred as of January 1, 1994, the
division's year-over-year growth in net operating revenues would have been an
estimated 17% in 1996 and 6% in 1995.
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. Interconnection costs increased during 1996 and
1995 mainly due to strong growth in both international outbound and domestic
traffic volumes. Interconnection costs were 44.8% of net operating revenues in
1996 versus 42.6% in 1995 and 44.0% in 1994. The 1996 increase in
interconnection costs as a percentage of net operating revenues reflects changes
in revenue mix, particularly the growth in international traffic. These factors
were partly offset by reduced rates charged by other domestic and international
carriers for connecting to their networks. In addition, this percentage
relationship was affected in 1996 by reduced long distance rates and reduced
revenue due to the Contribution to Global One. Had the contribution occurred as
of January 1, 1994, interconnection costs as a percentage of net operating
revenues would have been an estimated 45.0% in 1996, 43.9% in 1995 and 45.0% in
1994.
Operations expense consists of costs related to operating and maintaining
the long distance network; costs of providing various services such as operator
services, public payphones, telecommunications services for the hearing
impaired, and video teleconferencing; and costs of data system sales. Operations
expense increased less than 1% in 1996 and 13% in 1995. These increases were
mainly due to overall revenue growth. The 1996 increase was offset by the
Contribution to Global One. Had the contribution occurred as of January 1, 1994,
operations expense would have increased an estimated 17% in 1996 and 6% in 1995.
As a percentage of net operating revenues, operations expense would have been an
estimated 12.5% in 1996, 12.4% in 1995 and 12.5% in 1994.
Selling, general and administrative (SG&A) expense increased 7% in 1996 and
6% in 1995. The 1996 increase reflects a $60 million nonrecurring charge related
to litigation (see Note 9 of Notes to Consolidated Financial Statements), partly
offset by the Contribution to Global One. Excluding these items, the increases
reflect the overall growth in the division's operating activities as well as
increased advertising and marketing efforts due to the intensely competitive
long distance marketplace. Had the Contribution to Global One occurred as of
January 1, 1994, SG&A expense would have increased 8% in 1996 (excluding the
nonrecurring charge) and 6% in 1995. As a percentage of net operating revenues,
SG&A expense would have been an estimated 23.0% in 1996 (excluding the
nonrecurring charge), 24.8% in 1995 and 24.9% in 1994.
F-7
Depreciation and amortization expense increased $52 million in 1996 and $31
million in 1995, generally due to an increased asset base. The increased asset
base supports data services revenue growth and expanded service capabilities.
Local Communications Services
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
1996 1995 1994
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Net operating revenues
Local service $ 2,083.7 $ 1,875.7 $ 1,752.3
Network access 1,870.8 1,705.8 1,598.4
Toll service 421.5 485.4 529.3
Other 790.1 652.5 532.8
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Total net operating revenues 5,166.1 4,719.4 4,412.8
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Operating expenses
Plant operations 1,379.6 1,360.6 1,298.3
Depreciation and amortization 909.1 835.6 794.6
Customer operations 676.6 601.0 549.3
Other 863.8 793.8 752.4
Restructuring costs -- 87.6 --
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Total operating expenses 3,829.1 3,678.6 3,394.6
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Operating income $ 1,337.0 $ 1,040.8 (1)$ 1,018.2
-- ------------- --- ------------- -- -------------
Operating margin 25.9% 22.1% (1) 23.1%
-- ------------- --- ------------- -- -------------
Capital expenditures $ 1,142.6 $ 950.8 $ 914.2
-- ------------- --- ------------- -- -------------
Identifiable assets $ 7,512.8 $ 6,970.4 $ 7,821.3
-- ------------- --- ------------- -- -------------
(1) Excluding the $87.6 million restructuring charge, operating income and margin for 1995 would have been
$1,128.4 million and 23.9%, respectively.
At year-end 1995, Sprint adopted accounting principles for a competitive
marketplace and discontinued applying Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," to its local division (see Note 11 of Notes to Consolidated
Financial Statements). This resulted in a 1995 after-tax, noncash, extraordinary
charge of $565 million. Beginning in 1996, the local division's business
transactions have been recorded based on their economic substance, and
regulatory assets and liabilities based on SFAS 71 have not been recognized. The
primary effects of Sprint's discontinued use of SFAS 71 were that certain
accumulated depreciation balances were increased; plant asset lives were
shortened to reflect their economic lives; and switch software costs, which were
previously expensed as incurred, are now capitalized and amortized over their
estimated economic lives.
Local service revenues, derived from local exchange services, increased 11%
in 1996 and 7% in 1995 reflecting increases in customer access lines of 5.6% in
1996 and 4.7% in 1995. The growth in access lines reflects strong economic
growth in the division's service areas and second-line service to existing
business and residential customers to meet lifestyle and data access needs.
Local service revenues also increased due to extended area calling plans and
increased demand for advanced intelligent network services, including caller ID,
voice dialing and return call.
Network access revenues, derived from interexchange long distance carriers'
use of the local network to complete calls, increased 10% in 1996 and 7% in
1995. The increases are largely due to increased traffic volumes of 10% in 1996
and 9% in 1995, and the impact of the FCC's interim interstate price cap plan.
F-8
Traffic volumes increased due to strong economic conditions in many of the
division's service areas, the migration of traffic related to toll service
revenues as described below, and the harsh 1996 winter season experienced on the
East Coast. The impact of the FCC's interim interstate price cap plan, which
became effective in 1995, increased network access revenues for 1996 and had a
nominal effect on 1995. Under the new plan, the local division adopted a rate
formula based on the maximum productivity factors that effectively removes the
earnings cap on the division's interstate access revenues. Interstate access
revenues currently comprise approximately 60% of the division's network access
revenues.
Toll service revenues, related to the provision of long distance services
within specified geographical areas and the reselling of interexchange long
distance services, decreased 13% in 1996 and 8% in 1995. The decreases primarily
reflect increased competition in the intrastate long distance market since
interexchange long distance carriers are now offering intraLATA long distance
service in certain states. In addition, toll service revenues have declined due
to the expansion of extended local area calling plans. Reductions in toll
service revenues were partly offset by increased local service and network
access revenues.
Other revenues, including revenues from telecommunications equipment sales,
directory publishing fees, and billing and collection services, increased 21% in
1996 and 22% in 1995. The increases were mainly due to business and residential
equipment sales growth. A major factor in the 1996 growth was the introduction
of several leading-edge telephone instruments, such as Caller ID.
Plant operations expense mainly includes network operations, and repair and
maintenance costs related to property, plant and equipment. Plant operations
expense increased 1% in 1996 and 5% in 1995. These increases mainly reflect
increased service costs due to customer access line growth. In addition, the
increases reflect repair and maintenance expenses in the division's Florida and
Mid-Atlantic regions due to bad weather conditions, including severe storms and
hurricanes. The 1996 increase was largely offset by the change in accounting for
switch software costs.
Depreciation and amortization expense increased $74 million in 1996 and $41
million in 1995 mainly due to plant additions. The 1996 increase also reflects
amortization of capitalized switch software costs, which largely offset the
related decrease in plant operations expense discussed above.
Customer operations expense includes costs related to business office
operations, billing services, marketing, and customer services, including
operator and directory assistance. Customer operations expense increased 13% in
1996 and 9% in 1995. The increases were mainly due to increased marketing costs
to promote new products and services, and increased customer service costs due
to access line growth.
Other operating expenses increased $70 million in 1996 and $41 million in
1995 mainly due to the growth in equipment sales.
In 1995, Sprint initiated a restructuring within its local division in an
effort to streamline certain processes and reduce costs in an increasingly
competitive marketplace. These actions resulted in the planned elimination over
several years of approximately 1,600 positions, mainly in the network and
finance functions. As a result, the local division recorded an $88 million
nonrecurring charge in 1995. The accrued liability related to this charge
specifically relates to the benefits that affected employees will receive upon
termination. Through 1996, approximately 400 positions have been eliminated
resulting in termination benefit payments of $10 million, with an additional $10
million to be paid in 1997. Substantially all of the remaining positions are
expected to be eliminated during 1997, with the related costs expected to be
paid during 1997 and 1998.
F-9
Emerging Businesses
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
1996
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Net operating revenues $ 0.5
-- -------------
Operating loss $ (63.8)
-- -------------
Capital expenditures $ 49.9
-- -------------
Identifiable assets $ 138.3
-- -------------
During 1996, Sprint established a new emerging businesses segment
consisting of consumer Internet access services, CLEC services, international
development activities (outside the scope of Global One), and PCS controlled by
Sprint.
The 1996 operating results largely reflect activities related to Sprint
Internet Passport(SM), Sprint's consumer Internet offering, which was launched
in the 1996 fourth quarter. Sprint has substantially completed the buildout of
its Internet access platform, which now contains more than 230 points of
presence and can be reached by 85% of the nation's population through a local
call.
In addition, the operating results reflect Sprint's efforts in entering
newly competitive markets. Sprint has initiated efforts to enter local markets
across the United States by filing for CLEC status. Through January 1997, Sprint
had filed in 47 states and the District of Columbia, and gained regulatory
approval to provide competitive local telephone service in 25 states and the
District of Columbia. In January 1997, Sprint launched its initial competitive
local service offering in Southern California.
As part of an overall strategy to achieve nationwide PCS coverage, Sprint
directly acquired licenses in the FCC's recent auction for a total cost of $544
million. The licenses cover 139 markets across the United States reaching a
total population of 70 million people. Sprint expects to spend approximately
$1.5 billion over the next three years for the network buildout related to these
licenses. Sprint plans to affiliate these licenses with the licenses previously
acquired by Sprint PCS. With the affiliation of Sprint's licenses, licensed
coverage for Sprint-branded PCS will include nearly 260 million people across
the United States, Puerto Rico and the U.S. Virgin Islands.
Product Distribution and Directory Publishing
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
1996 1995 1994
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Net operating revenues $ 1,225.9 $ 1,148.0 $ 1,108.7
Operating expenses
Costs of services and products 1,025.7 965.8 938.2
Selling, general and administrative 91.4 88.1 88.8
Depreciation and amortization 7.2 7.4 6.9
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Total operating expenses 1,124.3 1,061.3 1,033.9
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Operating income $ 101.6 $ 86.7 $ 74.8
-- ------------- --- ------------- -- -------------
Operating margin 8.3% 7.6% 6.7%
-- ------------- --- ------------- -- -------------
Capital expenditures $ 9.4 $ 7.8 $ 6.7
-- ------------- --- ------------- -- -------------
Identifiable assets $ 446.1 $ 395.4 $ 376.2
-- ------------- --- ------------- -- -------------
F-10
Product distribution and directory publishing's net operating revenues
increased $78 million in 1996 and $39 million in 1995 mainly due to increased
sales to customers not affiliated with Sprint. The 1995 increase also reflects
overall price increases.
Nonoperating Items
Interest Expense
Interest costs consist of the following:
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Interest expense from continuing operations $ 196.7 $ 260.7 $ 300.7
Interest expense related to Cellular (1) 21.5 124.0 97.3
Capitalized interest costs 104.0 57.0 7.5
- -------------------------------------------------------------------------------------------------------------------
Total interest costs $ 322.2 $ 441.7 $ 405.5
----------------------------------------------------
Average debt outstanding $ 3,604.9 $ 5,505.2 $ 4,900.7
----------------------------------------------------
Effective interest rate 8.9% 8.0% 8.3%
----------------------------------------------------
(1) Interest expense related to Cellular is included in "Discontinued
operations, net" on the Consolidated Statements of Income.
Sprint's average debt outstanding decreased $1.9 billion in 1996, generally
due to repayments funded by a portion of the cash received from DT and FT for
their equity investments in Sprint and from Cellular's repayment of intercompany
debt in connection with the Spin-off. In 1995, Sprint's average debt outstanding
increased by $605 million, mainly due to short-term borrowings incurred to fund
investments in Sprint PCS.
Sprint capitalizes interest costs on borrowings related to its investment
in Sprint PCS. Capitalized interest costs increased in 1996 and 1995 due to
Sprint's increased investment in Sprint PCS. Sprint will continue to capitalize
these interest costs until Sprint PCS is no longer in the development stage.
Sprint does not expect that Sprint PCS will meet the criteria of a development
stage company beyond mid-1997.
Beginning in 1997, Sprint expects to capitalize interest costs related to
the investment in PCS licenses directly acquired by Sprint and the related
network buildout.
Sprint's effective interest rate increased to 8.9% in 1996 from 8.0% in
1995 mainly due to the decrease in short-term borrowings as a percentage of
total borrowings.
F-11
Other Expense, Net
Other income (expense) consists of the following:
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Equity in loss of Sprint PCS $ (191.8) $ (31.4) $ (1.3)
Equity in loss of Global One and related venture costs (82.1) (22.9) (6.1)
Dividend and interest income 99.7 12.6 14.4
Gains on sales of assets 15.9 -- 34.7
Loss on sales of accounts receivable (4.2) (38.6) (28.7)
Other, net 3.9 (12.9) (15.1)
- -------------------------------------------------------------------------------------------------------------------
Total other expense, net $ (158.6) $ (93.2) $ (2.1)
----------------------------------------------------
Income Tax Provision
Sprint's income tax provisions for 1996, 1995 and 1994 resulted in
effective tax rates of 37.7%, 36.1% and 35.2%, respectively. See Note 4 of Notes
to Consolidated Financial Statements for information regarding the differences
that cause the effective income tax rates to vary from the statutory federal
income tax rate.
Discontinued Operations
During 1996, 1995 and 1994, Sprint recognized income (losses) of $(3), $15,
and $(16) million, respectively, associated with its investment in Cellular,
which was spun off to Sprint common shareholders in March 1996 (see Note 12 of
Notes to Consolidated Financial Statements). During 1994, Sprint also recognized
income of $7 million for the settlement of matters related to another
discontinued operation.
Extraordinary Items
During 1996, Sprint redeemed, prior to maturity, $190 million of debt with
interest rates ranging from 6.0% to 9.5%. These early redemptions resulted in a
$5 million ($0.01 per share) after-tax loss.
At year-end 1995, Sprint adopted accounting principles for a competitive
marketplace and discontinued applying SFAS 71 to its local division (see Note 11
of Notes to Consolidated Financial Statements). SFAS 71 requires the accounting
recognition of regulators' rate actions where appropriate. Sprint determined
that the local division no longer met the criteria for applying SFAS 71 due to
changes in the regulatory framework and the evolving competitive environment. As
a result, Sprint recorded an after-tax, noncash, extraordinary charge of $565
million ($1.61 per share).
F-12
Financial Condition
Sprint's financial condition at year-end 1996 compared with year-end 1995
mainly reflects the completion of strategic initiatives during the first half of
1996. A portion of the cash received from DT's and FT's investments in Sprint
and from Cellular's repayment of intercompany debt was used to reduce short- and
long-term debt. In addition, Sprint used a portion of the cash to terminate a
$600 million accounts receivable sales agreement and to meet its commitments
related to Sprint PCS. The remaining proceeds were invested on a temporary
basis.
Sprint's accounts receivable increased $940 million in 1996, reflecting the
termination of the accounts receivable sales agreement as well as the 10%
increase in consolidated net operating revenues. The allowance for doubtful
accounts as a percentage of gross accounts receivable decreased to 5% at
year-end 1996 from 8% at year-end 1995 generally because the termination of the
accounts receivable sales agreement did not require a related increase in the
allowance for doubtful accounts. Property, plant and equipment, net of
accumulated depreciation, increased $748 million in 1996. This increase was
mainly due to increased capital expenditures to enhance and upgrade Sprint's
networks, expand service capabilities and increase productivity.
At year-end 1996, Sprint's total capitalization was $11.8 billion,
consisting of short-term borrowings, long-term debt (including current
maturities), redeemable preferred stock, and common stock and other
shareholders' equity. Short-term borrowings and long-term debt (including
current maturities) declined to 27.8% of total capitalization at year-end 1996
from 54.8% at year-end 1995.
Liquidity and Capital Resources
Operating Activities - Continuing Operations
Cash flows from operating activities, which are Sprint's primary source of
liquidity, were $2.4, $2.6 and $2.3 billion in 1996, 1995 and 1994,
respectively. Excluding the effect of terminating the $600 million accounts
receivable sales agreement, cash flows increased $394 million in 1996. This
increase generally reflects improved operating results in all divisions. The
1995 increase reflects improved operating results and reduced working capital
requirements.
Investing Activities - Continuing Operations
Sprint's investing activities used cash of $3.1, $2.9 and $1.8 billion in
1996, 1995 and 1994, respectively. Capital expenditures, which are Sprint's most
significant investing activity, were $2.4, $1.9 and $1.8 billion in 1996, 1995
and 1994, respectively.
Long distance capital expenditures were incurred each year mainly to meet
increased demand for data related services, to enhance network reliability and
to upgrade capabilities for providing new products and services. Capital
expenditures for the local division were made to accommodate access line growth
and expand the division's capabilities for providing enhanced telecommunications
services. Local division 1996 capital expenditures also include $76 million of
switch software costs. In previous years, these costs were expensed as incurred.
Investments in and advances to affiliates consists mainly of contributions
to Sprint PCS. During 1996, 1995 and 1994, Sprint contributed $298, $911 and $52
million, respectively. Also in 1996, Sprint loaned $67 million to Sprint PCS.
The 1996 amounts were used to fund Sprint's portion of Sprint PCS' capital and
operating requirements. In 1995, $840 million of the contribution was used to
fund Sprint's share of payments for PCS licenses. The remainder was used to fund
Sprint's share of Sprint PCS' acquisition of a limited partnership interest in
APC, and for capital and operating requirements.
During 1996, Sprint purchased $183 million (face value) of Sprint PCS
Senior Discount bonds for $100 million.
During 1996, Sprint made an $84 million deposit to directly acquire PCS
licenses. See "Segmental Results of Operations -- Emerging Businesses" for
further discussion.
F-13
Financing Activities
Sprint's financing activities provided cash of $479 million in 1996 and
$423 million in 1995, and used cash of $457 million in 1994. During 1996, DT and
FT acquired shares of a new class of Sprint stock for a total of $3.7 billion. A
portion of these proceeds, together with proceeds from Cellular's repayment of
intercompany debt, were used to reduce outstanding debt. During 1995, Sprint
issued $261 million of long-term debt and increased short-term borrowings by
$1.1 billion to fund commitments related to Sprint PCS and repay long-term debt.
During 1996, Sprint purchased 10 million treasury shares for $407 million.
Sprint's Board of Directors has authorized, through 1998, the repurchase of
shares on the open market to meet share issuance requirements of employee
benefit plans and for the conversion of preferred stock.
Sprint paid dividends to common, preference and preferred shareholders of
$420, $352 and $349 million in 1996, 1995 and 1994, respectively. Sprint's
indicated annual dividend rate on common stock is currently $1.00 per share.
Discontinued Operations
In connection with the March 1996 Spin-off, Cellular repaid $1.4 billion of
intercompany debt owed to Sprint.
Prior to the Spin-off, Cellular's 1996 investing activities required net
cash of $141 million, mainly for the acquisition of additional cellular
properties and capital expenditures.
During 1995 and 1994, Cellular's cash flows from operating activities were
$163 and $180 million, respectively. Cellular's investing activities used cash
of $325 and $272 million in 1995 and 1994, respectively, mainly for capital
expenditures.
Capital Requirements
Sprint expects its 1997 investing activities, consisting of capital
expenditures and investments in affiliates, to require cash of $4.5 to $5.0
billion. In addition, Sprint expects to pay dividends totaling $430 million.
Sprint intends to fund these 1997 cash requirements with cash from operating
activities, cash on hand, and from external sources.
Capital expenditures of $4.1 to $4.4 billion are anticipated in 1997.
Capital expenditures for the long distance and local divisions are expected to
total $2.5 billion. In early 1997, Sprint will pay $460 million for the balance
due on the PCS licenses directly acquired in the recent FCC auction. The balance
of anticipated capital expenditures will primarily be used to build out the
network for these new PCS markets and the emerging CLEC markets.
Sprint expects to invest $400 to $600 million in its affiliates during
1997. Sprint PCS will require $350 to $500 million in 1997 to continue its
network buildout and for operating cash requirements. Sprint also expects that
Global One will require partner contributions for ongoing development
activities.
In addition to these investing activities, international development
opportunities apart from Global One may create further cash requirements during
1997.
Sprint expects to borrow $1.0 to $1.5 billion during 1997, excluding any
borrowings that may be required to take advantage of any new international
opportunities. A combination of long- and short-term borrowings will be used
depending on capital market conditions during the year.
F-14
Liquidity
At year-end 1996, Sprint had the ability to borrow $1.3 billion under a
revolving credit agreement with a syndicate of domestic and international banks
and other bank commitments. Other available financing sources include a
Medium-Term Note program, under which Sprint may offer for sale up to $175
million of unsecured senior debt securities. In addition, as of year-end 1996,
Sprint could offer for sale $900 million of debt securities pursuant to shelf
registration statements filed with the Securities and Exchange Commission.
Additional borrowings that may be incurred are ultimately limited by
certain covenants contained in existing debt agreements. At year-end 1996,
Sprint had borrowing capacity of $13.2 billion under the most restrictive of its
debt covenants.
The most restrictive covenant related to dividends results from Sprint's
revolving credit agreement. Among other restrictions, the agreement requires
Sprint to maintain specified levels of net worth. Due to this requirement, $2.5
billion of Sprint's $3.2 billion retained earnings were effectively restricted
from the payment of dividends at the end of 1996.
General Hedging Policies
Sprint uses certain derivative instruments in an effort to manage exposure
to interest rate risk and foreign exchange risk. Sprint's use of these
derivative instruments related to hedging activities is limited to interest rate
swap agreements, interest rate caps and forward contracts and options in foreign
currencies. As is customary for these types of derivative instruments, Sprint
does not require collateral or other security from the counterparties to the
agreements. However, since Sprint controls its exposure to credit risk through
credit approvals, credit limits, and internal monitoring procedures, Sprint
believes its credit risk exposure is limited.
Sprint will in no circumstance take speculative positions and create an
exposure to benefit from market fluctuations. All hedging activity is in
accordance with Board-approved policies. Any exposure from Sprint's use of
derivative instruments is immaterial to its overall operations, financial
condition and liquidity. See Note 10 of Notes to Consolidated Financial
Statements for more information related to Sprint's portfolio of derivative
instruments.
Interest Rate Risk Management
Sprint's interest rate risk management program focuses on minimizing
exposure to interest rate movements, setting an optimal mixture of floating-rate
and fixed-rate debt in the liability portfolio and preventing liquidity risk.
Sprint primarily employs a gap methodology to measure interest rate exposure and
uses simulation analysis to manage interest rate risk. Sprint takes an active
stance in modifying hedge positions to benefit from the value of timing
flexibility and fixed-rate/floating-rate adjustments.
Foreign Exchange Risk Management
Sprint's foreign exchange risk management program focuses on optimizing
consolidated cash flows and stabilizing accounting results. Sprint does not
hedge translation exposure because it believes optimizing consolidated cash
flows will, over time, maintain shareholder value. Sprint's primary transaction
exposure in foreign currencies results from changes in foreign exchange rates
between the dates Sprint incurs and settles liabilities (payable in a foreign
currency). These liabilities consist of charges from overseas telephone
companies for terminating international calls made by Sprint's domestic
customers.
F-15
MANAGEMENT REPORT
The management of Sprint Corporation has the responsibility for the
integrity and objectivity of the information contained in this Annual Report.
Management is responsible for the consistency of reporting such information and
for ensuring that generally accepted accounting principles are used.
In discharging this responsibility, management maintains a comprehensive
system of internal controls and supports an extensive program of internal
audits, has made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring that
its policies, procedures and codes of conduct are understood and practiced by
its employees.
The consolidated financial statements included in this Annual Report have
been audited by Ernst & Young LLP, independent auditors. Their audit was
conducted in accordance with generally accepted auditing standards and their
report is included herein.
The responsibility of the Board of Directors for these financial statements
is pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities are
being fulfilled. The internal and independent auditors have full access to the
Audit Committee to discuss auditing and financial reporting matters.
/s/ W. T. Esrey
William T. Esrey
Chairman and Chief Executive Officer
/s/ Arthur B. Krause
Arthur B. Krause
Executive Vice President and Chief Financial Officer
F-16
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sprint Corporation
We have audited the accompanying consolidated balance sheets of Sprint
Corporation (Sprint) as of December 31, 1996 and 1995, and the related
consolidated statements of income, cash flows, and common stock and other
shareholders' equity for each of the three years in the period ended December
31, 1996. Our audits also included the financial statement schedule listed in
the Index to Financial Statements and Financial Statement Schedule. These
financial statements and the schedule are the responsibility of the management
of Sprint. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sprint at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As discussed in Note 11 to the consolidated financial statements, Sprint
discontinued accounting for the operations of its local telecommunications
division in accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," in 1995.
ERNST & YOUNG LLP
Kansas City, Missouri
February 4, 1997
F-17
CONSOLIDATED STATEMENTS OF INCOME Sprint Corporation
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
Net Operating Revenues $ 14,044.7 $ 12,765.1 $ 11,986.6
Operating Expenses
Costs of services and products 7,028.7 6,504.9 6,154.5
Selling, general and administrative 3,157.8 2,871.9 2,755.4
Depreciation and amortization 1,591.0 1,466.4 1,386.0
Restructuring costs -- 87.6 --
-------------------------------------------------------------------------------------------------------------
Total operating expenses 11,777.5 10,930.8 10,295.9
-------------------------------------------------------------------------------------------------------------
Operating Income 2,267.2 1,834.3 1,690.7
Interest expense (196.7) (260.7) (300.7)
Other expense, net (158.6) (93.2) (2.1)
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 1,911.9 1,480.4 1,387.9
Income tax provision (721.0) (534.3) (488.7)
- -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 1,190.9 946.1 899.2
Discontinued operations, net (2.6) 14.5 (8.5)
Extraordinary items, net (4.5) (565.3) --
- -------------------------------------------------------------------------------------------------------------------
Net income 1,183.8 395.3 890.7
Preferred stock dividends (1.3) (2.6) (2.7)
- -------------------------------------------------------------------------------------------------------------------
Earnings applicable to common stock $ 1,182.5 $ 392.7 $ 888.0
-----------------------------------------------
Earnings per Common Share
Continuing operations $ 2.79 $ 2.69 $ 2.57
Discontinued operations -- 0.04 (0.02)
Extraordinary items (0.01) (1.61) --
- -------------------------------------------------------------------------------------------------------------------
Total $ 2.78 $ 1.12 $ 2.55
-----------------------------------------------
Weighted average number of common shares 426.0 350.1 348.7
-----------------------------------------------
Dividends per common share $ 1.00 $ 1.00 $ 1.00
-----------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-18
CONSOLIDATED BALANCE SHEETS Sprint Corporation
- ------------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
Assets
Current assets
Cash and equivalents $ 1,150.6 $ 124.2
Accounts receivable, net of allowance for doubtful accounts of $117.4 and
$125.8 2,463.5 1,523.7
Receivable from cellular division -- 1,400.0
Other 738.7 571.5
------------------------------------------------------------------------------------------------------------------
Total current assets 4,352.8 3,619.4
Investments in equity securities 254.5 262.9
Property, plant and equipment
Long distance communications services 7,390.8 6,773.7
Local communications services 13,368.7 12,603.1
Other 651.3 539.1
------------------------------------------------------------------------------------------------------------------
21,410.8 19,915.9
Less accumulated depreciation 10,946.7 10,200.1
------------------------------------------------------------------------------------------------------------------
10,464.1 9,715.8
Investments in and advances to affiliates 1,527.1 1,195.7
Net investment in cellular division -- 106.9
Other assets 354.5 295.2
--------------------------------------------------------------------------------------------------------------------
$ 16,953.0 $ 15,195.9
------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 99.1 $ 280.4
Short-term borrowings 200.0 2,144.0
Accounts payable 1,026.7 938.9
Accrued interconnection costs 828.9 617.7
Accrued taxes 189.2 235.5
Advance billings 199.7 202.9
Other 770.6 722.7
-----------------------------------------------------------------------------------------------------------------
Total current liabilities 3,314.2 5,142.1
Long-term debt 2,981.5 3,253.0
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 846.9 843.4
Postretirement and other benefit obligations 919.7 889.3
Other 359.0 393.0
-----------------------------------------------------------------------------------------------------------------
2,125.6 2,125.7
Redeemable preferred stock 11.8 32.5
Common stock and other shareholders' equity
Common stock, par value $2.50 per share, authorized 1,000.0 shares,
issued 350.3 and 349.2 shares, and outstanding 343.9 and 349.2 shares 875.7 872.9
Class A common stock, par value $2.50 per share, authorized 500.0 shares,
issued and outstanding 86.2 shares 215.6 --
Capital in excess of par or stated value 4,425.9 960.0
Retained earnings 3,211.8 2,763.0
Treasury stock, at cost, 6.4 shares (262.2) --
Other 53.1 46.7
-----------------------------------------------------------------------------------------------------------------
8,519.9 4,642.6
-----------------------------------------------------------------------------------------------------------------
$ 16,953.0 $ 15,195.9
----------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-19
CONSOLIDATED STATEMENTS OF CASH FLOWS Sprint Corporation
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
(in millions)
Operating Activities
Net income $ 1,183.8 $ 395.3 $ 890.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Discontinued operations, net 2.6 (14.5) 8.5
Extraordinary items, net 4.9 565.3 --
Equity in net losses of affiliates 273.7 39.1 3.8
Depreciation and amortization 1,591.0 1,466.4 1,386.0
Deferred income taxes and investment tax credits (10.3) 5.8 53.2
Changes in operating assets and liabilities
Accounts receivable, net (988.8) (135.8) (226.5)
Inventories and other current assets 15.7 (38.6) (56.1)
Accounts payable and other current liabilities 368.7 178.5 120.2
Noncurrent assets and liabilities, net (23.7) 124.0 128.5
Other, net (14.0) 24.1 31.3
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Net cash provided by continuing operations 2,403.6 2,609.6 2,339.6
Net cash provided (used) by cellular division (0.1) 162.5 179.9
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Net cash provided by operating activities 2,403.5 2,772.1 2,519.5
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Investing Activities
Capital expenditures (2,433.6) (1,857.3) (1,751.6)
Proceeds from sale of investment in equity securities -- -- 117.7
Investments in and advances to affiliates (446.1) (948.7) (74.1)
Investment in affiliate debt securities (100.0) -- --
Deposit for PCS licenses (84.0) -- --
Other, net (51.8) (53.6) (45.0)
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Net cash used by continuing operations (3,115.5) (2,859.6) (1,753.0)
Repayment by cellular division of intercompany advances 1,400.0 -- --
Net cash used by cellular division (140.7) (324.6) (272.4)
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Net cash used by investing activities (1,856.2) (3,184.2) (2,025.4)
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Financing Activities
Proceeds from long-term debt 9.4 260.7 107.9
Retirements of long-term debt (433.1) (630.0) (597.0)
Net increase (decrease) in short-term borrowings (1,986.8) 1,109.5 321.5
Proceeds from common stock issued 20.5 16.9 42.7
Proceeds from Class A common stock issued 3,661.3 -- --
Proceeds from employee stock purchase installments 38.1 38.8 33.1
Dividends paid (419.6) (351.5) (349.4)
Purchase of treasury stock (407.2) -- (9.8)
Other, net (3.5) (21.8) (5.9)
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Net cash provided (used) by financing activities 479.1 422.6 (456.9)
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Increase in cash and equivalents 1,026.4 10.5 37.2
Cash and equivalents at beginning of year 124.2 113.7 76.5
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Cash and equivalents at end of year $ 1,150.6 $ 124.2 $ 113.7
--- ------------- -- ------------- --- -------------
See accompanying Notes to Consolidated Financial Statements.
F-20
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY Sprint Corporation
- -----------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
(in millions)
Common Stock
Balance beginning of year $ 872.9 $ 871.4 $ 858.5
Common stock issued 2.5 1.4 12.8
Other, net 0.3 0.1 0.1
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year 875.7 872.9 871.4
- -----------------------------------------------------------------------------------------------------------------------
Class A Common Stock
Balance beginning of year -- -- --
Class A common stock issued (86.2 shares) 215.6 -- --
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year 215.6 -- --
- -----------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par or Stated Value
Balance beginning of year 960.0 942.9 827.4
Common stock issued 17.5 13.5 111.9
Class A common stock issued 3,436.3 -- --
Other, net 12.1 3.6 3.6
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year 4,425.9 960.0 942.9
- -----------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance beginning of year 2,763.0 2,730.9 2,184.2
Net income 1,183.8 395.3 890.7
Common stock dividends (346.1) (348.9) (346.7)
Class A common stock and preference stock dividends (74.9) -- --
Preferred stock dividends (1.3) (2.6) (2.7)
Spin-off of cellular division (260.2) -- --
Treasury stock issued (52.9) (3.5) --
Other, net 0.4 (8.2) 5.4
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year 3,211.8 2,763.0 2,730.9
- -----------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance beginning of year -- (9.6) (0.3)
Treasury stock purchased (407.2) -- (9.8)
Treasury stock issued 145.0 9.6 0.5
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year (262.2) -- (9.6)
- -----------------------------------------------------------------------------------------------------------------------
Other
Balance beginning of year 46.7 (10.8) 48.5
Change in unrealized holding gains on investments, net 2.9 54.6 (20.5)
Other, net 3.5 2.9 (38.8)
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year 53.1 46.7 (10.8)
- -----------------------------------------------------------------------------------------------------------------------
$ 8,519.9 $ 4,642.6 $ 4,524.8
-----------------------------------------------------
Shares of Common Stock Outstanding
Balance beginning of year 349.2 348.3 343.4
Common stock issued (including Class A common stock) 87.3 0.6 5.2
Treasury stock purchased (10.1) -- (0.3)
Treasury stock issued 3.7 0.3 --
- -----------------------------------------------------------------------------------------------------------------------
Balance end of year 430.1 349.2 348.3
-----------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sprint Corporation
1. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
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 2).
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities. Those estimates and assumptions also affect the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts previously reported have been reclassified to conform to
the current year presentation in the consolidated financial statements. These
reclassifications had no effect on the results of operations or shareholders'
equity as previously reported.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation," revenues and
related net income resulting from transactions between Sprint's nonregulated
operations and its regulated local exchange carriers were not eliminated in the
consolidated financial statements before 1996. Revenues related to these
intercompany transactions were $262 and $285 million in 1995 and 1994,
respectively. All other significant intercompany transactions have been
eliminated.
Classification of Operations
The long distance communications services division provides domestic and
international voice, video and data communications services. The division offers
its services to the public subject to different levels of state and federal
regulation, but rates are generally not subject to rate-base regulation.
The local communications services division consists of regulated telephone
companies. These operations provide local exchange services, access by telephone
customers and other carriers to local exchange facilities, sales of
telecommunications equipment and long distance services within specified
geographical areas.
Emerging businesses consists of activities related to consumer Internet
access services, competitive local exchange carrier (CLEC) services, personal
communication services (PCS) controlled by Sprint and international development
activities outside the scope of the Global One joint venture.
The product distribution and directory publishing businesses include the
wholesale distribution of telecommunications products and the publishing and
marketing of white and yellow page telephone directories.
Revenue Recognition
Sprint recognizes operating revenues as services are rendered or as
products are delivered to customers. The long distance division records
operating revenues net of an estimate for uncollectible accounts.
F-22
1. Summary of Significant Accounting Policies (continued)
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less and are stated at cost, which approximates
market value. As part of its cash management program, Sprint uses controlled
disbursement banking arrangements. At year-end 1996 and 1995, outstanding checks
in excess of cash balances of $127 and $131 million, respectively, were included
in accounts payable. Sprint had sufficient funds available to fund these
outstanding checks when they were presented for payment.
Investments in Debt and Equity Securities
Investments in debt and equity securities are classified as available for
sale and reported at fair value (estimated based on quoted market prices). Gross
unrealized holding gains and losses are reflected as adjustments to "Common
stock and other shareholders' equity - Other," net of related income taxes.
Inventories
Inventories, consisting principally of those related to Sprint's product
distribution business, are stated at the lower of cost (principally first-in,
first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary
asset retirements and disposals are charged against accumulated depreciation
with no gain or loss recognized. Repairs and maintenance costs are expensed as
incurred.
Depreciation
The cost of property, plant and equipment is generally depreciated on a
straight-line basis over estimated economic useful lives. Prior to the
discontinued use of SFAS 71 as of year-end 1995, the cost of property, plant and
equipment for Sprint's local division had been generally depreciated on a
straight-line basis over the lives prescribed by regulatory commissions.
Income Taxes
Deferred income taxes are provided for certain temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes.
Investment tax credits related to regulated telephone property, plant and
equipment have been deferred and are being amortized over the estimated useful
lives of the related assets.
Capitalized Interest
Sprint capitalizes interest costs related to the construction of capital
assets and to its investment in Sprint Spectrum L.P. (Sprint PCS). Capitalized
interest totaled $104, $57 and $8 million in 1996, 1995 and 1994, respectively.
F-23
1. Summary of Significant Accounting Policies (continued)
Earnings Per Share (EPS)
EPS is based on the weighted average of both outstanding and issuable
shares assuming all dilutive options are exercised, as applicable.
Had the Class A common stock discussed in Note 7 been issued as of January
1, 1996, and the related proceeds been used to repay debt or invested on a
temporary basis at that time, Sprint's 1996 EPS from continuing operations would
have decreased from $2.79 per share to an estimated $2.76 per share.
2. Investments
Investment in Affiliate Debt Securities
In August 1996, Sprint purchased $183 million (face value) of Sprint PCS
Senior Discount bonds for $100 million. The bonds mature in 2006. At year-end
1996, the accreted cost of the bonds was $104 million and gross unrealized
holding gains totaled $18 million. This investment has been included in "Current
assets - Other" on the 1996 Consolidated Balance Sheet.
Investments in Equity Securities
The cost of equity securities was $105 and $109 million at year-end 1996
and 1995, respectively. Gross unrealized holding gains were $149 million in 1996
and $154 million in 1995.
Investments in and Advances to Affiliates
Investments accounted for using the equity method mainly consist of
Sprint's investments in Sprint PCS and Global One.
Sprint is a 40% partner in Sprint PCS, a partnership with
Tele-Communications Inc., Comcast Corporation and Cox Communications, Inc.
Sprint PCS is building a wireless network to provide PCS on a broad geographic
basis within the United States.
In 1996, Sprint became a partner in Global One, a joint venture with
Deutsche Telekom AG (DT) and France Telecom (FT). Global One was 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 is a 50%
partner in Global One's operating group for the worldwide activities outside the
United States and Europe. At year-end 1996, Sprint's share of underlying equity
in Global One's net assets exceeded the carrying value of Sprint's investment in
Global One by $186 million. This difference is being amortized through January
2001.
F-24
2. Investments (continued)
Combined, summarized financial information (100% basis) of all entities
accounted for using the equity method is as follows:
1996 1995 1994
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(in millions)
Results of operations
Net operating revenues $ 1,727.9 $ 779.5 $ 520.5
-- ------------- --- ------------- -- -------------
Operating loss $ (794.0) $ (58.3) $ (22.3)
-- ------------- --- ------------- -- -------------
Net loss $ (844.3) $ (90.6) $ (23.3)
-- ------------- --- ------------- -- -------------
Financial position
Current assets $ 1,360.7 $ 384.4
Noncurrent assets 6,779.3 2,613.4
- -------------------------------------------------------------- -- ------------- --- -------------
$ 8,140.0 $ 2,997.8
-- ------------- --- -------------
Current liabilities $ 1,185.5 $ 223.7
Noncurrent liabilities 2,042.1 135.4
Owners' equity 4,912.4 2,638.7
- -------------------------------------------------------------- -- ------------- --- -------------
$ 8,140.0 $ 2,997.8
-- ------------- --- -------------
During 1996, 1995 and 1994, Sprint recorded net income (losses) in
affiliates accounted for using the equity method of $(264), $(23) and $3
million, respectively. These amounts are included in "Other expense, net" on the
Consolidated Statements of Income.
As of year-end 1996, Sprint had loaned Sprint PCS $67 million.
3. Employee Benefit Plans
Defined Benefit Pension Plan
Substantially all Sprint employees are covered by a noncontributory defined
benefit pension plan. Benefits for plan participants represented by collective
bargaining units are based on negotiated schedules of defined amounts. For
participants not covered by collective bargaining agreements, the plan provides
pension benefits based on years of service and participants' compensation.
Sprint's policy is to make annual plan contributions equal to an
actuarially determined amount consistent with applicable federal tax
regulations. The funding objective is to accumulate funds at a relatively stable
rate over the participants' working lives so that benefits are fully funded at
retirement. At year-end 1996, the plan's assets consisted mainly of investments
in corporate equity securities and U.S. government and corporate debt
securities.
F-25
3. Employee Benefit Plans (continued)
The net pension cost (credit) and related weighted average assumptions
consist of the following:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Service cost -- benefits earned during the period $ 65.4 $ 51.8 $ 61.6
Interest cost on projected benefit obligation 138.5 129.7 121.6
Actual return on plan assets (353.0) (472.1) (1.1)
Net amortization and deferral 159.4 287.9 (176.6)
- -------------------------------------------------------------------------------------------------------------------
Net pension cost (credit) $ 10.3 $ (2.7) $ 5.5
----------------------------------------------------
Discount rate 7.25% 8.50% 7.50%
Expected long-term rate of return on plan assets 9.50% 9.50% 9.50%
Anticipated composite rate of future increases in compensation 4.25% 5.00% 4.50%
The funded status and amounts recognized in the Consolidated Balance Sheets
for the plan, at year-end, are as follows:
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Actuarial present value of benefit obligations
Vested benefit obligation $ (1,713.6) $ (1,705.1)
-----------------------------------
Accumulated benefit obligation $ (1,864.1) $ (1,866.0)
-----------------------------------
Projected benefit obligation $ (1,967.0) $ (1,962.7)
Plan assets at fair value 2,584.2 2,331.3
- -------------------------------------------------------------------------------------------------------------------
Plan assets in excess of the projected benefit obligation 617.2 368.6
Unrecognized net gains (481.8) (199.2)
Unrecognized prior service cost 100.4 101.3
Unamortized transition asset (147.1) (170.9)
- -------------------------------------------------------------------------------------------------------------------
Prepaid pension cost $ 88.7 $ 99.8
-----------------------------------
Discount rate 7.75% 7.25%
Anticipated composite rate of future increases in compensation 4.75% 4.25%
Defined Contribution Plans
Sprint sponsors defined contribution employee savings plans covering
substantially all employees. Participants may contribute portions of their
compensation to the plans. Contributions of participants represented by
collective bargaining units are matched by Sprint based on defined amounts as
negotiated by the respective parties. Contributions of participants not covered
by collective bargaining agreements are also matched by Sprint. For these
participants, Sprint provides matching contributions in Sprint common stock
equal to 50% of participants' contributions up to 6% of their compensation. In
addition, Sprint may, at the discretion of the Board of Directors, provide
matching contributions based on the performance of Sprint common stock compared
with other telecommunications companies. Sprint's matching contributions were
$56, $51 and $47 million in 1996, 1995 and 1994, respectively. At year-end 1996,
the plans held 22 million shares of Sprint common stock.
F-26
3. Employee Benefit Plans (continued)
Postretirement Benefits
Sprint provides postretirement benefits (principally medical benefits) to
substantially all employees. Employees retiring before specified dates are
eligible for benefits at no cost, or a reduced cost. Employees retiring after
specified dates are eligible for benefits on a shared-cost basis. Sprint funds
the accrued costs as benefits are paid.
The net postretirement benefits cost consists of the following:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Service cost -- benefits earned during the period $ 21.7 $ 22.2 $ 23.2
Interest on accumulated postretirement benefit obligation
49.9 58.7 53.2
Net amortization and deferral (13.7) (9.4) (1.9)
- -------------------------------------------------------------------------------------------------------------------
Net postretirement benefits cost $ 57.9 $ 71.5 $ 74.5
----------------------------------------------------
For measurement purposes, a weighted average annual health care cost trend
rate of 9.6% was assumed for 1996, gradually decreasing to an ultimate level of
5% by 2001. The effect of a 1% increase in the assumed trend rates would have
increased the 1996 net postretirement benefits cost by an estimated $12 million.
The discount rates for 1996, 1995 and 1994 were 7.25%, 8.50% and 7.50%,
respectively.
The amounts recognized in the Consolidated Balance Sheets, at year-end, are as
follows:
1996 1995
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions)
Accumulated postretirement benefit obligation
Retirees $ 277.9 $ 312.4
Active plan participants -- fully eligible 127.6 118.3
Active plan participants -- other 320.7 328.6
- ------------------------------------------------------------------------------- --- ------------- -- -------------
726.2 759.3
Unrecognized prior service benefit 5.7 5.6
Unrecognized net gains 178.7 115.3
- ------------------------------------------------------------------------------- --- ------------- -- -------------
Accrued postretirement benefits cost $ 910.6 $ 880.2
--- ------------- -- -------------
The year-end 1996 and 1995 accumulated benefit obligations were based on
discount rates of 7.75% and 7.25%, respectively. The assumed 1997 annual health
care cost trend rate was 9%, gradually decreasing to an ultimate level of 5% by
2005. The effect of a 1% annual increase in the assumed health care cost trend
rates would have increased the year-end 1996 accumulated postretirement benefit
obligation by an estimated $96 million.
F-27
4. Income Taxes
The income tax provisions allocated to continuing operations consist of the
following:
1996 1995 1994
- --------------------------------------------------------------- -- -------------- -- ------------- --- -------------
(in millions)
Current income tax provision
Federal $ 655.4 $ 437.4 $ 355.7
State 75.9 91.1 79.8
- --------------------------------------------------------------- -- -------------- -- ------------- --- -------------
731.3 528.5 435.5
Deferred income tax provision (benefit)
Federal (22.2) 45.9 81.6
State 23.5 (23.6) (6.4)
Amortization of deferred investment tax credits (11.6) (16.5) (22.0)
- --------------------------------------------------------------- -- -------------- -- ------------- --- -------------
(10.3) 5.8 53.2
- --------------------------------------------------------------- -- -------------- -- ------------- --- -------------
Total income tax provision $ 721.0 $ 534.3 $ 488.7
-- -------------- -- ------------- --- -------------
The differences that cause the effective income tax rate to vary from the
statutory federal income tax rate of 35% are as follows:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Income tax provision at the statutory rate $ 669.2 $ 518.1 $ 485.8
Less investment tax credits included in income 11.6 16.5 22.0
- -------------------------------------------------------------------------------------------------------------------
Expected federal income tax provision after investment tax
credits 657.6 501.6 463.8
Effect of
State income taxes, net of federal income tax effect 64.6 43.9 47.7
Equity in losses of foreign joint venture 8.6 -- --
Other, net (9.8) (11.2) (22.8)
- -------------------------------------------------------------------------------------------------------------------
Income tax provision, including investment tax credits $ 721.0 $ 534.3 $ 488.7
-----------------------------------------------------
Effective income tax rate 37.7% 36.1% 35.2%
-----------------------------------------------------
The income tax provisions (benefits) allocated to other items are as
follows:
1996 1995 1994
- ---------------------------------------------------------------- --- ------------ -- ------------- -- ------------
(in millions)
Discontinued operations $ 7.0 $ 31.2 $ 0.7
Extraordinary items (2.9) (437.4) --
Unrealized holding gains on investments (1) 1.7 30.7 (11.6)
Stock ownership, purchase and options arrangements (1) (14.1) (7.5) (8.1)
- ---------------------------------------------------------------- --- ------------ -- ------------- -- ------------
(1) These amounts have been recorded directly to "Common stock and other shareholders' equity - Other."
F-28
4. Income Taxes (continued)
Deferred income taxes are provided for the temporary differences between
the carrying amounts of Sprint's assets and liabilities for financial statement
purposes and their tax bases. The sources of the differences that give rise to
the deferred income tax assets and liabilities at year-end 1996 and 1995, along
with the income tax effect of each, are as follows:
1996 Deferred Income Tax 1995 Deferred Income Tax
------------- -- ------------- --- ------------- -- -------------
Assets Liabilities Assets Liabilities
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions)
Property, plant and equipment $ -- $ 1,304.3 $ -- $ 1,276.7
Postretirement and other benefits 360.3 -- 347.0 --
Reserves and allowances 115.6 -- 94.9 --
Unrealized holding gains on securities -- 57.3 -- 55.6
Other, net 106.8 -- 132.0 --
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
582.7 1,361.6 573.9 1,332.3
Less valuation allowance 13.7 -- 17.4 --
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total $ 569.0 $ 1,361.6 $ 556.5 $ 1,332.3
--- ------------- -- ------------- --- ------------- -- -------------
During 1996, 1995 and 1994, the valuation allowance related to deferred
income tax assets decreased $4, $4 and $1 million, respectively.
Sprint's management believes it is more likely than not that these deferred
income tax assets, net of the valuation allowance, will be realized based on
current income tax laws and expectations of future taxable income stemming from
the reversal of existing deferred tax liabilities or ordinary operations.
Uncertainties surrounding income tax law changes, shifts in operations between
state taxing jurisdictions, and future operating income levels may, however,
affect the ultimate realization of all or some portion of these deferred income
tax assets.
At year-end 1996, Sprint had available, for income tax purposes, $3 million
of state alternative minimum tax credit carryforwards to offset state income tax
payable in future years, and tax benefits of $18 million related to state
operating loss carryforwards. The loss carryforwards expire in varying amounts
per year from 1997 through 2011.
F-29
5. Borrowings
Long-term Debt
Long-term debt, at year-end, is as follows:
Maturing 1996 1995
- --------------------------------------------------------------------------------------------------------------------
(in millions)
Corporate
Senior notes
10.45% 1996 $ -- $ 100.0
9.2% to 9.8% 1997 to 2001 325.3 325.3
8.1% to 9.5% 2002 to 2006 350.0 350.0
Debentures
9.25% 2022 200.0 200.0
Other
8.25% (1) 2000 146.4 138.4
Long Distance Division
Vendor financing agreements
7.4% to 10.2% 1997 to 1999 67.9 177.6
Local Division
First mortgage bonds
5.3% to 6.3% 1996 -- 31.6
2.0% to 9.4% 1997 to 2001 291.7 311.3
4.0% to 7.8% 2002 to 2006 507.1 510.9
6.9% to 9.8% 2007 to 2011 151.7 151.7
6.9% to 7.5% 2012 to 2016 90.0 90.0
8.8% to 9.9% 2017 to 2021 325.5 297.7
7.1% to 8.4% 2022 to 2026 145.0 173.8
Debentures and notes
5.0% to 9.6% 1997 to 2016 275.3 415.6
Notes payable and commercial paper 1996 -- 42.8
Other
2.0% to 19.5% 1997 to 2009 6.2 9.8
Other
Debentures
9.00% 2019 150.0 150.0
Other
5.4% to 12.5% 1997 to 2003 48.5 56.9
- --------------------------------------------------------------------------------------------------------------------
3,080.6 3,533.4
Less current maturities 99.1 280.4
- --------------------------------------------------------------------------------------------------------------------
Long-term debt $ 2,981.5 $ 3,253.0
-----------------------------------
(1) Notes may be exchanged at maturity for shares of Southern New England
Telecommunications Corporation (SNET) common stock owned by Sprint, or
cash. Based on SNET's closing market prices, had the notes matured at
year-end 1996 or 1995, they could have been exchanged for 3.8 million
shares of SNET stock. At year-end 1996 and 1995, Sprint held 4.2 and 4.4
million shares, respectively, of SNET stock, which have been included in
"Investments in equity securities" on the Consolidated Balance Sheets.
F-30
5. Borrowings (continued)
Long-term debt maturities during each of the next five years are as
follows:
- -------------------------------------------------------------------------------------------------------------------
(in millions)
1997 $ 99.1
1998 128.3
1999 30.9
2000 648.4
2001 37.8
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment with a total cost of $12.4 billion is either
pledged as security for first mortgage bonds and certain notes or is restricted
for use as mortgaged property.
During 1996, Sprint redeemed, prior to scheduled maturities, $190 million
of debt with interest rates ranging from 6.0% to 9.5%. These early redemptions
resulted in a $5 million after-tax extraordinary loss.
Short-term Borrowings
Notes payable and commercial paper outstanding and related weighted average
interest rates, at year-end, are as follows:
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Bank notes, 5.9% $ 200.0 $ 1,551.8
Commercial paper, 6.3% -- 635.0
- -------------------------------------------------------------------------------------------------------------------
Total notes payable and commercial paper $ 200.0 $ 2,186.8
-----------------------------------
At year-end 1995, $43 million of notes payable and commercial paper were
classified as long-term debt based on Sprint's ability and intent to refinance
the borrowings on a long-term basis.
The bank notes are renewable at various dates throughout the year. Sprint
pays a fee to certain commercial banks to support current and future credit
requirements based on loan commitments. Lines of credit could be withdrawn by
the banks if there were a material adverse change in Sprint's financial
condition. At year-end 1996, Sprint's unused bank lines of credit totaled $1.3
billion.
Other
Sprint is in compliance with all restrictive or financial covenants
relating to its debt arrangements at year-end 1996.
F-31
6. Redeemable Preferred Stock
Sprint has approximately 25 million authorized shares of preferred stock,
including nonredeemable preferred stock. The redeemable preferred stock
outstanding, at year-end, is as follows:
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(in millions, except per
share and share data)
Third series -- stated value $100 per share, shares - 184,000,
nonparticipating, nonvoting, cumulative 7.75% annual dividend rate $ -- $ 18.4
Fifth series -- stated value $100,000 per share, shares - 95, voting,
cumulative 6% annual dividend rate 9.5 9.5
Other -- stated values ranging from $25 to $100 per share, shares - 22,800 and
110,675, annual dividend rates ranging from 4.7% to 5.0% 2.3 4.6
- -------------------------------------------------------------------------------------------------------------------
Total redeemable preferred stock $ 11.8 $ 32.5
-----------------------------------
In 1996, 24,000 shares of Sprint's third series preferred stock were
redeemed at $100.00 per share and 160,000 shares were redeemed at $101.77 per
share.
Sprint's fifth series preferred stock must be redeemed in full in 2003. If
less than full dividends have been paid for four consecutive dividend periods,
or if the total amount of dividends in arrears exceeds the dividend payment for
six dividend periods, the holders of the fifth series preferred stock may elect
a majority of directors standing for election until all arrears in dividend
payments have been paid.
7. Common Stock
Common Stock
At year-end 1996, common stock reserved for future grants under stock
option plans or for future issuances under various arrangements was as follows:
Number of Shares
- ----------------------------------------------------------------------------------------------------------------
(in millions)
Employees Stock Purchase Plan (ESPP) 6.2
Employee savings plans 3.4
Automatic Dividend Reinvestment Plan 1.2
Officer and key employees' and directors' stock options 13.8
Conversion of preferred stock and other 1.5
- ----------------------------------------------------------------------------------------------------------------
Total 26.1
------------------
Under a Shareholder Rights plan, one-half of a Preferred Stock Purchase
Right is attached to each share of Sprint common stock and Class A common stock.
Each Right is exercisable and detachable only if certain takeover events occur.
The Rights entitle shareholders to buy units consisting of one one-hundredth of
a newly issued Preferred Stock-Fourth Series, Junior Participating share at
$235.00 per unit or, in certain circumstances, common stock. Under certain
circumstances, Rights beneficially owned by an acquiring person become null and
void. Sprint's Preferred Stock-Fourth Series is without par value. It is voting,
cumulative and accrues dividends generally equal to the greater of $10.00 per
share or 200 times the aggregate per share amount of all common stock dividends.
No shares of Preferred Stock-Fourth Series were issued or outstanding at
year-end 1996. The Rights may be redeemed by Sprint at $0.01 per Right and will
expire in September 1999.
F-32
7. Common Stock (continued)
During 1996, 1995 and 1994, Sprint declared and paid annual common stock
dividends of $1.00 per share. The most restrictive covenant related to common
stock dividends results from Sprint's $1.5 billion revolving credit agreement.
Among other restrictions, this agreement requires Sprint to maintain specified
levels of consolidated net worth, as defined. Due to this requirement, $2.5
billion of Sprint's $3.2 billion consolidated retained earnings were effectively
restricted from the payment of dividends at year-end 1996. The indentures and
financing agreements of certain of Sprint's subsidiaries contain various
provisions restricting the payment of cash dividends on subsidiary common stock
held by Sprint. In connection with these restrictions, $145 million of the
related subsidiaries' $1.2 billion total retained earnings were restricted at
year-end 1996. The flow of cash in the form of advances from the subsidiaries to
Sprint is generally not restricted.
During 1990, the Savings Plan Trust, an employee savings plan, acquired
common stock from Sprint in exchange for a $75 million promissory note payable
to Sprint. The note bears interest at 9% and is to be repaid from the common
stock dividends received by the plan and the contributions made to the plan by
Sprint according to plan provisions. The remaining $51.2 million note receivable
balance at year-end 1996 is reflected as a reduction to "Common stock and other
shareholders' equity - Other."
Class A Common Stock
On January 31, 1996, DT and FT acquired shares of a new class of
convertible preference stock for a total of $3.0 billion. This resulted in DT
and FT each holding 7.5% of Sprint's voting power. In April 1996, following the
spin-off of Sprint's cellular and wireless communications services division
(Cellular) (see Note 12), the preference stock was converted into Class A common
stock, and DT and FT each acquired additional shares of Class A common stock.
Following their total investment of $3.7 billion, DT and FT each own shares of
Class A common stock with 10% of Sprint's voting power. During 1996, Sprint
declared and paid dividends of $0.16 per share for the preference stock and
$0.75 per share for the Class A common stock.
DT and FT, as the holders of the Class A common stock, have the right in
most circumstances to proportionate representation on Sprint's Board of
Directors and to purchase additional shares of Class A common stock from Sprint
to maintain their total ownership level at 20%. In addition, the holders of
Class A common stock have disapproval rights with respect to Sprint's
undertaking certain types of transactions. DT and FT have entered into a
standstill agreement with Sprint that contains restrictions on their ability to
acquire voting securities of Sprint other than as contemplated by their
investment agreement with Sprint and related agreements. The standstill
agreement also contains customary provisions restricting DT and FT from
initiating or participating in any proposal with respect to the control of
Sprint.
F-33
8. Stock-based Compensation
Sprint's Management Incentive Stock Option Plan (MISOP) provides for the
granting of stock options to employees who are eligible to receive annual
incentive compensation. Eligible employees are entitled to receive stock options
in lieu of a portion of the target incentive under Sprint's management incentive
plans. The options generally become exercisable on December 31 of the year
granted and have a maximum term of 10 years. MISOP options are granted with
exercise prices equal to the market price of Sprint's common stock on the grant
date. At year-end 1996, authorized shares under this plan approximated eight
million. This amount increased by approximately three million shares on January
1, 1997.
The Sprint Corporation Stock Option Plans (SOP) provide for the granting of
stock options to officers and key employees. The options generally become
exercisable at the rate of 25% per year, beginning one year from the grant date,
and have a maximum term of 10 years. SOP options are granted with exercise
prices equal to the market price of Sprint's common stock on the grant date. At
year-end 1996, authorized shares under these plans approximated 18 million. This
amount increased by approximately two million shares on January 1, 1997.
Every two years, the ESPP offers all employees the election to purchase
Sprint common stock at a price equal to 85% of the market value on the grant or
exercise date, whichever is less. At year-end 1996, authorized shares under this
plan approximated 18 million.
In 1996, Sprint adopted the pro forma disclosure requirements under SFAS
No. 123, "Accounting for Stock-based Compensation," and continued to apply
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," to its stock option and employee stock purchase plans. Under APB
25, Sprint has recognized no compensation expense related to these plans.
Pro forma net income and EPS have been determined as if Sprint had used the
fair value method of accounting for its stock option grants and ESPP share
elections after 1994. Under this method, these pro forma amounts have been
reduced for compensation expense. Compensation expense is recognized over the
applicable vesting periods and is based on the number of shares under option and
their related fair values on the grant date.
The following pro forma information will not likely represent the
information reported in future years because options granted and ESPP shares
elected after 1994 will continue to vest over the next several years. In
addition, compensation expense resulting from the spin-off of Cellular will
decline over the next several years.
Sprint's pro forma net income and EPS for 1996 and 1995 are as follows:
1996 (1) 1995
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in millions, except per share data)
Pro forma net income $ 1,158 $ 388
--- ------------- -- -------------
Pro forma EPS $ 2.72 $ 1.10
--- ------------- -- -------------
(1) Pro forma net income was reduced by $6 million ($0.01 per share) in 1996
due to additional compensation resulting from modifications to terms of
options and ESPP share elections made in connection with the spin-off of
Cellular.
During 1996, Sprint employees elected to purchase 2.8 million ESPP shares
with a weighted average fair value (using the Black-Scholes pricing model) of
$10.06 per share. No ESPP shares were offered in 1995.
F-34
8. Stock-based Compensation (continued)
The following tables reflect the weighted average fair value per option
granted during the year, as well as the significant weighted average assumptions
used in determining those fair values using the Black-Scholes pricing model:
1996 MISOP SOP
- -------------------------------------------------------------------------------------------------------------------
Fair value on grant date $ 9.17 $ 10.96
Risk-free interest rate 5.2% 5.2%
Expected volatility 23.3% 23.3%
Expected dividend yield 2.5% 2.5%
Expected life (years) 4 6
- -------------------------------------------------------------------------------------------------------------------
1995 MISOP SOP
- -------------------------------------------------------------------------------------------------------------------
Fair value on grant date $ 6.67 $ 8.73
Risk-free interest rate 6.9% 7.2%
Expected volatility 23.3% 23.3%
Expected dividend yield 2.5% 2.5%
Expected life (years) 4 6
- -------------------------------------------------------------------------------------------------------------------
A summary of stock option plan activity is as follows:
Weighted
Average per
Share
Number of Exercise
Shares (1) Price (1)
- --------------------------------------------------- ------------- --- ----------- ------------- --- --------------
(in millions, except per share data)
Outstanding January 1, 1994 7.8 $ 21.38
Granted 3.3 30.02
Exercised 1.2 17.25
Forfeited / Expired 0.6 26.46
-------------
Outstanding December 31, 1994 9.3 24.67
Granted 4.3 24.69
Exercised 0.8 19.81
Forfeited / Expired 0.5 27.06
-------------
Outstanding December 31, 1995 12.3 24.88
Granted 4.9 36.94
Exercised 2.6 22.28
Forfeited / Expired 1.0 29.22
-------------
Outstanding December 31, 1996 13.6 $ 29.42
------------- -- -----------
(1) Due to the spin-off of Cellular, the number of shares and the related
exercise prices have been adjusted to maintain both the total fair market
value of common stock underlying the options, and the relationship between
the market value of Sprint's common stock and the option's exercise price.
Outstanding options held by Cellular employees were converted into options
and grants to purchase Cellular common stock and are not included in the
above table.
F-35
8. Stock-based Compensation (continued)
After adjustment for the spin-off of Cellular, options exercisable, at
year-end 1995 and 1994 were 6.4 and 4.5 million, respectively. The following
table summarizes outstanding and exercisable options at year-end 1996:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted
Average Weighted
Remaining Weighted Average
Number Contractual Average Number Exercise
Range of Outstanding Life Exercise Exercisable Price
Exercise Prices (in millions) (in years) Price (in millions)
- ---------------------------- --------------- --------------- -- ------------- --- --------------- -- -------------
$11.56 - $14.96 0.3 2.3 $ 13.14 0.3 $ 13.14
$15.18 - $19.24 0.3 4.3 17.69 0.3 17.69
$20.08 - $24.50 3.9 6.8 23.48 2.2 22.79
$25.07 - $29.96 2.6 5.4 27.32 2.0 26.62
$30.12 - $34.80 2.0 7.2 30.60 1.8 30.27
$35.32 - $39.88 4.4 9.1 36.84 1.8 36.82
$40.19 - $44.06 0.1 5.9 42.12 -- --
- ---------------------------- --------------- --------------- -- ------------- --- --------------- -- -------------
9. Commitments and Contingencies
Litigation, Claims and Assessments
In December 1996, an arbitration panel entered a $61 million award in favor
of Network 2000 Communications Corporation (Network 2000) on its breach of
contract claim against Sprint. The arbitrators directed Sprint to pay one-half
of this award to Network 2000, and the remaining amount to the Missouri state
court in which a proposed class action by Network 2000's independent marketing
representatives (IMRs) against Network 2000 and Sprint is pending. The
arbitrators denied all other claims by Network 2000, including claims of fraud
and deceit.
In December 1996, Sprint filed an action in federal district court in
Kansas City, Missouri, naming as defendants Network 2000, Network 2000's
attorneys, and representatives of a proposed class of IMRs. Sprint seeks to have
the arbitration panel's award vacated, modified, or corrected, and has asked the
court to enter an order regarding the distribution of the award among the
defendants.
In the proposed class action, the IMRs seek to certify a class to pursue
breach of contract and tort claims against Network 2000 and Sprint. Sprint
believes the IMRs' contract claims have been or will be addressed by the
arbitration panel's award and the related federal court action filed by Sprint.
Further, Sprint believes the IMRs' tort claims are not appropriate for class
action treatment.
In 1996, Sprint accrued $60 million based on its ongoing assessment of the
potential liability related to actions by Network 2000 and its IMRs. This charge
reduced income from continuing operations by $36 million ($0.08 per share).
F-36
9. Commitments and Contingencies (continued)
Following the announcement in 1992 of Sprint's merger agreement with Centel
Corporation (Centel), class action suits were filed against Centel and certain
of its officers and directors in federal and state courts. The state suits were
dismissed. In June 1996, Centel and the other defendants were granted summary
judgment in the federal action. The plaintiffs have appealed the court's order.
In October 1995, the New York trial court granted the motion of Centel's
financial advisors to dismiss a purported class action suit filed against them
in connection with their representation of Centel in the merger. The order
dismissing the claims was affirmed on appeal by the intermediate appellate court
in New York. Sprint may have indemnification obligations to the financial
advisors in connection with this suit.
Various other suits arising in the ordinary course of business are pending
against Sprint. Management cannot predict the ultimate outcome of these actions
but believes they will not result in a material effect on Sprint's consolidated
financial statements.
Commitments
Sprint expects to invest $400 to $600 million in its affiliates during
1997. Sprint PCS will require $350 to $500 million in 1997 to continue its
network buildout and for operating cash requirements. Sprint also expects Global
One will require partner contributions for ongoing development activities.
In the FCC's recently completed PCS license auctions, Sprint directly
acquired licenses for a total of $544 million. Sprint will pay the $460 million
balance due on these licenses in early 1997.
Operating Leases
Minimum rental commitments at year-end 1996 for all noncancelable operating
leases, consisting mainly of leases for data processing equipment and real
estate, are as follows:
- -------------------------------------------------------------------------------------------------------------------
(in millions)
1997 $ 207.6
1998 203.7
1999 177.7
2000 127.2
2001 92.0
Thereafter 252.4
- -------------------------------------------------------------------------------------------------------------------
Gross rental expense totaled $401, $402 and $379 million in 1996, 1995 and
1994, respectively. Rental commitments for subleases, contingent rentals and
executory costs are not significant.
F-37
10. Financial Instruments
Fair Value of Financial Instruments
Sprint estimates the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Accordingly, the following estimates are not necessarily indicative of the
values Sprint could realize in a current market exchange. Although management is
not aware of any factors that would affect the estimated fair values presented
at year-end 1996, those amounts have not been comprehensively revalued for
purposes of these financial statements since that date. Therefore, estimates of
fair value after year-end 1996 may differ significantly from the amounts
presented below. The carrying amounts and estimated fair values of Sprint's
financial instruments, at year-end, are as follows:
1996 1995
------------------------------ ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions)
Financial assets
Cash and equivalents $ 1,150.6 $ 1,150.6 $ 124.2 $ 124.2
Investment in affiliate debt securities 122.5 122.5 -- --
Investments in equity securities 254.5 254.5 262.9 262.9
Financial liabilities
Short-term borrowings 200.0 200.0 2,144.0 2,144.0
Long-term debt
Corporate 1,021.7 1,142.1 1,113.7 1,282.9
Long distance division 67.9 69.0 177.6 184.5
Local division 1,792.5 1,855.8 2,035.2 2,237.5
Other 198.5 206.8 206.9 242.8
Other financial instruments
Interest rate swap agreements -- 0.2 -- (3.4)
Foreign currency contracts (0.5) (0.5) 0.5 0.4
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
The carrying values of Sprint's cash and equivalents approximate fair value
at year-end 1996 and 1995. The fair value of Sprint's investments in debt and
equity securities is estimated based on quoted market prices. The fair value of
Sprint's long-term debt is estimated based on quoted market prices for publicly
traded issues. The fair value of all other issues is estimated based on the
present value of estimated future cash flows using a discount rate based on the
risks involved. The fair value of interest rate swap agreements is estimated as
the amount Sprint would receive (pay) to terminate the swap agreements at
year-end 1996 and 1995, taking into account the then-current interest rates. The
fair value of foreign currency contracts is estimated as the replacement cost of
the contracts at year-end 1996 and 1995, taking into account the then-current
foreign currency exchange rates.
Concentrations of Credit Risk
Sprint's accounts receivable are not subject to any concentration of credit
risk. Interest rate swap agreements and foreign currency contracts involve the
risk of dealing with counterparties and their ability to meet the contract
terms. Notional principal amounts are often used to express the volume of these
transactions, but the amounts subject to credit risk are significantly smaller.
In the event of nonperformance by the counterparties, Sprint's accounting loss
would be limited to the net amount it would be entitled to receive under the
terms of the applicable interest rate swap agreement or foreign currency
contract. However, Sprint does not anticipate nonperformance by any of the
counterparties associated with these agreements. Sprint controls credit risk and
the concentration of credit risk of its interest rate swap agreements and
foreign currency contracts through credit approvals, dollar exposure limits and
internal monitoring procedures.
F-38
10. Financial Instruments (continued)
Interest Rate Swap Agreements
Sprint uses interest rate swap agreements as part of its interest rate
risk management program. Net interest paid or received related to these
agreements is recorded using the accrual method and is recorded as an adjustment
to interest expense. Sprint had interest rate swap agreements with notional
amounts of $350 and $275 million outstanding at year-end 1996 and 1995,
respectively. Net interest expense (income) related to interest rate swap
agreements was $2 million, $(400,000) and $1 million for 1996, 1995 and 1994,
respectively. There were no deferred gains or losses related to any terminated
interest rate swap agreements at year-end 1996, 1995 or 1994.
Foreign Currency Contracts
As part of its foreign currency exchange risk management program, Sprint
purchases and sells over-the-counter forward contracts and options in various
foreign currencies. Sprint had outstanding $46 and $13 million of open forward
contracts to buy various foreign currencies at year-end 1996 and 1995,
respectively. Sprint had $3 and $24 million of outstanding open purchase option
contracts to call various foreign currencies at year-end 1996 and 1995,
respectively. The premium paid for an option is expensed as incurred and the
fair value of an option is recorded as an asset at the end of each period. The
forward contracts open at year-end 1996 and 1995 all had original maturities of
six months or less. The net gain or loss recorded to reflect the fair value of
these contracts is recorded in the period incurred. Total net losses of
$400,000, $1 million and $2 million were recorded related to foreign currency
transactions and contracts for 1996, 1995 and 1994, respectively.
11. Adoption of Accounting Principles for a Competitive Marketplace
As of year-end 1995, Sprint determined that its local division no longer
met the criteria necessary for the continued use of SFAS 71. As a result, 1995
results include a noncash, extraordinary charge of $565 million, net of income
tax benefits of $437 million.
The decision to discontinue the use of SFAS 71 was based on changes in the
regulatory framework and the convergence of competition in the
telecommunications industry.
The 1995 extraordinary charge recognized upon the discontinued use of SFAS
71 consisted of the following:
Pre-Tax After-Tax
- ------------------------------------------------------------------------- -- ----------------- -- -----------------
(in millions)
Increase in accumulated depreciation $ 979.1 $ 607.9
Recognition of switch software asset (99.5) (61.7)
Elimination of other net regulatory assets 123.1 76.3
-- ----------------- -- -----------------
Total $ 1,002.7 622.5
-- -----------------
Tax-related net regulatory liabilities (43.9)
Accelerated amortization of investment tax credits (13.3)
-- -----------------
Extraordinary charge $ 565.3
-- -----------------
F-39
11. Adoption of Accounting Principles for a Competitive Marketplace (continued)
The adjustment to accumulated depreciation was based on depreciation
reserve and impairment studies. The depreciation reserve study analyzed, by
individual plant asset category, the impact of regulator-prescribed depreciable
asset lives compared with Sprint's estimated economic lives. The results
identified the cumulative under-depreciation of certain asset categories. The
impairment study, which validated the depreciation study results, estimated the
impact on future revenues of price changes and developing industry competition,
and their effects on cash flows.
The discontinued use of SFAS 71 also required Sprint to eliminate from the
Consolidated Balance Sheets the effects of any actions of regulators that had
been recognized as assets and liabilities under SFAS 71, but would not have been
recognized as assets and liabilities by enterprises in general. The elimination
of other net regulatory assets mainly related to deferred postretirement benefit
obligations and deferred debt financing costs.
The tax-related adjustments were required to adjust deferred income taxes
to the currently enacted statutory rates and to eliminate tax-related regulatory
assets and liabilities. Sprint's local division uses the deferral method of
accounting for investment tax credits and amortizes the credits as a reduction
to tax expense over the life of the asset that gave rise to the tax credit.
Since plant asset lives were shortened, the related investment tax credits were
adjusted to reduce the unamortized balance by a corresponding amount.
12. Spin-off of Cellular Division
In March 1996, Sprint completed the tax-free spin-off of Cellular
(Spin-off) to the holders of Sprint common stock. The Spin-off was effected by
distributing to all holders of Sprint common stock all shares of Cellular common
stock at a rate of one share of Cellular common stock for every three shares of
Sprint common stock held. In connection with the Spin-off, Cellular repaid $1.4
billion of intercompany debt owed by Cellular to Sprint. In addition, Sprint
contributed to the equity capital of Cellular $185 million of debt owed by
Cellular in excess of the amount repaid. This equity contribution, together with
Sprint's previous investment in Cellular, resulted in Sprint's net investment in
Cellular totaling $260 million at the date of the Spin-off.
Cellular's net operating results, as summarized below, have been separately
classified as discontinued operations in the Consolidated Statements of Income.
Interest expense was allocated to Cellular based on the assumed repayment of
intercompany debt to Sprint by Cellular. The operating expenses as presented
below do not include Cellular's share of Sprint's general corporate overhead
expenses. These expenses, totaling $2, $13 and $12 million for 1996, 1995 and
1994, respectively, were reallocated to Sprint's other operating segments.
1996 (1) 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(in millions)
Net operating revenues $ 190.2 $ 834.4 $ 626.5
Operating expenses 156.0 675.6 529.4
- -------------------------------------------------------------------------------------------------------------------
Operating income 34.2 158.8 97.1
Interest expense (21.5) (124.0) (97.3)
Other income (expense), net (8.3) 10.9 (5.6)
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) before income taxes 4.4 45.7 (5.8)
Income tax provision (7.0) (31.2) (9.7)
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) from cellular division $ (2.6) $ 14.5 $ (15.5)
----------------------------------------------------
(1) 1996 reflects Cellular's operating results only through the date of the
Spin-off.
F-40
12. Spin-off of Cellular Division (continued)
In 1995, Cellular's net assets and liabilities, as summarized below, were
separately classified as "Net investment in cellular division" on the
Consolidated Balance Sheets.
1995
- ------------------------------------------------------------------------------- --- ------------- -- -------------
(in
millions)
Current assets $ 153.9
Noncurrent assets 1,799.0
Advance payable to Sprint (1,433.0)
Other current liabilities (166.6)
Noncurrent liabilities (246.4)
-- -------------
Net investment in cellular division $ 106.9
-- -------------
13. Additional Financial Information
Segment Information
Information related to Sprint's operating business segments is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Segmental Results of Operations." The net operating revenues and
operating expenses shown in those tables include revenues and expenses
eliminated in consolidation. The amounts eliminated are as follows:
1996 1995 1994
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
(in millions)
Long distance division $ 30.9 $ 38.9 $ 41.6
Local division 293.1 266.4 233.1
Product distribution and directory publishing 325.9 336.8 350.8
Intercompany revenues not eliminated under SFAS 71 -- (262.4) (285.5)
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Net operating revenues 649.9 379.7 340.0
Operating expenses 618.3 379.7 340.0
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
Operating income $ 31.6 $ -- $ --
--- ------------- -- ------------- --- -------------
Capital expenditures and identifiable assets not related to operating
segments are as follows:
1996 1995 1994
- ----------------------------------------------------------------- --- ------------- -- ------------- --- -------------
(in millions)
Capital expenditures $ 98.0 $ 37.0 $ 56.6
--- ------------- -- ------------- --- -------------
Identifiable assets (1) $ 2,815.2 $ 2,917.9 $ 1,804.0
--- ------------- -- ------------- --- -------------
(1) 1995 and 1994 amounts include the net assets of the discontinued cellular
division.
F-41
13. Additional Financial Information (continued)
Realignment and Restructuring Charge
In 1995, Sprint initiated a restructuring within its local division in an
effort to streamline certain processes and reduce costs in an increasingly
competitive marketplace. These actions resulted in the planned elimination over
several years of approximately 1,600 positions, mainly in the network and
finance functions. As a result, the local division recorded an $88 million
nonrecurring charge in 1995, which reduced income from continuing operations by
$55 million ($0.16 per share). The accrued liability related to this charge
specifically relates to the benefits that affected employees will receive upon
termination.
Through 1996, approximately 400 positions have been eliminated resulting in
termination benefit payments of $10 million, with an additional $10 million to
be paid in 1997. Substantially all of the remaining positions are expected to be
eliminated during 1997 with the related costs expected to be paid during 1997
and 1998.
Accounts Receivable Sold with Recourse
Under an agreement available through year-end 1996, Sprint could sell on a
continuous basis, with recourse, up to $600 million of undivided interests in a
designated pool of its accounts receivable. Sprint elected to terminate this
agreement in early 1996 and repaid the $600 million in receivables that were
uncollected at year-end 1995.
Supplemental Cash Flows Information
1996 1995 1994
- ---------------------------------------------------------------- --- ------------ -- ------------- -- ------------
(in millions)
Cash paid for:
Interest (net of amounts capitalized)
Continuing operations $ 212.1 $ 263.5 $ 320.8
--- ------------ -- ------------- -- ------------
Cellular division $ 21.5 $ 124.0 $ 97.3
--- ------------ -- ------------- -- ------------
Income taxes $ 695.3 $ 532.8 $ 435.1
--- ------------ -- ------------- -- ------------
On January 31, 1996, in connection with the formation of the Global One
joint venture, Sprint contributed cash, property, plant and equipment, and other
assets and liabilities of certain of its international operations to Global One.
The net book value of the noncash assets and liabilities contributed to Global
One totaled $73 million.
During 1996 and 1994, in connection with the ESPP, Sprint issued common
stock totaling $65 and $53 million, respectively.
During 1996, as discussed in Note 12, Sprint completed the Spin-off which
had no immediate effect on cash flows other than Cellular's repayment of $1.4
billion in intercompany debt owed to Sprint.
During 1994, Sprint contributed previously unissued common stock to the
employee savings plans. The stock had a market value of $31 million.
Related Party Transactions
During 1996, Sprint provided various voice, data and administrative
services to Global One totaling $361 million. In addition, Global One provided
data and administrative services to Sprint totaling $130 million. At year-end
1996, Sprint's receivable due from Global One was $163 million and Sprint's
payable to Global One was $49 million.
F-42
14. Quarterly Financial Data (Unaudited)
Quarter
--- ------------- -- ------------------------------- -- -------------
1996 1st 2nd 3rd 4th (1)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions, except per share data)
Net operating revenues $ 3,371.9 $ 3,506.4 $ 3,544.4 $ 3,622.0
Operating income 574.9 580.9 598.9 512.5
Income before extraordinary items 309.3 316.8 316.2 246.0
Net income 309.3 316.8 312.4 245.3
EPS from income before extraordinary items $ 0.77 $ 0.73 $ 0.73 $ 0.57
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Quarter
--- ------------- -- ------------- --- ------------- -- -------------
1995 1st 2nd 3rd 4th (2)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(in millions, except per share data)
Net operating revenues $ 3,079.1 $ 3,142.1 $ 3,205.3 $ 3,338.6
Operating income 442.8 461.8 497.1 432.6
Income before extraordinary items 224.3 245.7 268.5 222.1
Net income (loss) 224.3 245.7 268.5 (343.2)
EPS from income before extraordinary items $ 0.64 $ 0.70 $ 0.76 $ 0.63
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
(1) During the 1996 fourth quarter, Sprint recorded a nonrecurring charge of
$60 million related to litigation within the long distance division. This
charge reduced income from continuing operations by $36 million ($0.08 per
share) (see Note 9).
(2) During the 1995 fourth quarter, Sprint recorded a nonrecurring charge of
$88 million related to a restructuring within the local division. This
charge reduced income from continuing operations by $55 million ($0.16 per
share) (see Note 13).
During the 1995 fourth quarter, Sprint adopted accounting principles for a
competitive marketplace for its local division and discontinued the use of
SFAS 71. As a result, Sprint recorded a noncash, after-tax extraordinary
charge of $565 million ($1.61 per share) (see Note 11).
F-43
SPRINT CORPORATION
SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Additions
---------------------------
Balance Charged to Balance
beginning Charged to other Other end of
of year income accounts deductions year
- -------------------------------------------------------------------------------------------------------------------
(in millions)
1996
Allowance for doubtful accounts $ 125.8 $ 248.5 $ (1.5) $ (255.4) (1) $ 117.4
-----------------------------------------------------------------------------
Valuation allowance - deferred
income tax assets $ 17.4 $ 1.9 $ -- $ (5.6) $ 13.7
-----------------------------------------------------------------------------
1995
Allowance for doubtful accounts $ 87.5 $ 219.2 $ 7.0 $ (187.9) (1) $ 125.8
-----------------------------------------------------------------------------
Valuation allowance - deferred
income tax assets $ 21.1 $ 4.3 $ -- $ (8.0) $ 17.4
-----------------------------------------------------------------------------
1994
Allowance for doubtful accounts $ 81.5 $ 179.1 $ 7.4 $ (180.5) (1) $ 87.5
-----------------------------------------------------------------------------
Valuation allowance - deferred
income tax assets $ 22.1 $ 2.2 $ -- $ (3.2) $ 21.1
-----------------------------------------------------------------------------
(1) Accounts written off, net of recoveries.
F-44
EXHIBIT INDEX
EXHIBIT
NUMBER
(3) Articles of Incorporation and Bylaws:
(a) Articles of Incorporation, as amended (filed as Exhibit
3(a) to Sprint Corporation Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference).
(b) Bylaws, as amended (filed as Exhibit 3(a) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated
herein by reference).
(4) Instruments defining the Rights of Sprint's Equity Security
Holders:
(a) The rights of Sprint's equity security holders are
defined in the Fifth, Sixth, Seventh and Eighth
Articles of Sprint's Articles of Incorporation. See
Exhibit 3(a).
(b) Rights Agreement dated as of August 8, 1989, between
Sprint Corporation (formerly United Telecommunications,
Inc.) and UMB Bank, n.a. (formerly United Missouri Bank
of Kansas City, N.A.), as Rights Agent (filed as
Exhibit 2(b) to Sprint Corporation Registration
Statement on Form 8-A dated August 11, 1989 (File No.
1-4721), and incorporated herein by reference).
(c) Amendment and supplement dated June 4, 1992 to Rights
Agreement dated as of August 8, 1989 (filed as Exhibit
2(c) to Amendment No. 1 on Form 8 dated June 8, 1992 to
Sprint Corporation Registration Statement on Form 8-A
dated August 11, 1989 (File No. 1-4721), and
incorporated herein by reference).
(d) Second Amendment to Rights Agreement dated as of July
31, 1995 between Sprint Corporation and UMB Bank, n.a.
(filed as Exhibit 2(d) to Form 8-A/A-2 dated October
20, 1995 amending Sprint Corporation Registration
Statement on Form 8-A dated August 11, 1989 (File No.
1-4721) and incorporated herein by reference).
(e) Standstill Agreement dated as of July 31, 1995, by and
among Sprint Corporation, France Telecom and Deutsche
Telekom AG (filed as Exhibit (10)(c) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by
reference).
(10) Material Agreements - Joint Ventures:
(a) Joint Venture Agreement dated as of June 22, 1995 among
Sprint Corporation, Sprint Global Venture, Inc., France
Telecom and Deutsche Telekom AG (filed as Exhibit
(10)(a) to Sprint Corporation Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 and
incorporated herein by reference).
(b) Amendment No. 1 to Joint Venture Agreement, dated as of
January 31, 1996, among Sprint Corporation, Sprint
Global Venture, Inc., France Telecom, Deutsche Telekom
AG and Atlas Telecommunications, S.A. (filed as Exhibit
99A to Sprint Corporation Current Report on Form 8-K
dated January 31, 1996 and incorporated herein by
reference).
(c) Investment Agreement dated as of July 31, 1995 among
Sprint Corporation, France Telecom and Deutsche Telekom
AG (including as an exhibit the Stockholders' Agreement
among France Telecom, Deutsche Telekom AG and Sprint
Corporation) (filed as Exhibit (10)(b) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated herein by
reference).
(d) Amended and Restated Agreement of Limited Partnership
of MajorCo., L.P., dated as of January 31, 1996, among
Sprint Spectrum, L.P., TCI Network Services, Comcast
Telephony Services and Cox Telephony Partnership (filed
as Exhibit 99C to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(e) Parents Agreement dated as of January 31, 1996, between
Sprint Corporation and Tele-Communications, Inc. (filed
as Exhibit 99D to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(f) Parents Agreement dated as of January 31, 1996, between
Sprint Corporation and Comcast Corporation (filed as
Exhibit 99E to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(g) Parents Agreement dated as of January 31, 1996, between
Sprint Corporation and Cox Communications, Inc. (filed
as Exhibit 99F to Sprint Corporation Current Report on
Form 8-K dated January 31, 1996 and incorporated herein
by reference).
(10) Executive Compensation Plans and Arrangements
(h) 1985 Stock Option Plan, as amended (Appendix to Stock
Option Plans filed as Exhibit (10)(h) to Sprint
Corporation Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
(i) 1990 Stock Option Plan, as amended. See Exhibit (10)
(h) for Appendix to Stock Option Plans.
(j) 1990 Restricted Stock Plan, as amended.
(k) Executive Deferred Compensation Plan, as amended.
(l) Management Incentive Stock Option Plan, as amended.
See Exhibit (10)(h) for Appendix to Stock Option Plans.
(m) Long-Term Stock Incentive Program, as amended (filed as
Exhibit (10)(f) to Sprint Corporation Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996
and incorporated herein by reference).
(n) Sprint Supplemental Executive Retirement Plan (filed as
Exhibit (10)(i) to Sprint Corporation Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
(o) Amended and Restated Centel Directors Deferred
Compensation Plan (filed as Exhibit (10)(j) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 and incorporated
herein by reference).
(p) Restated Memorandum Agreements Respecting Supplemental
Pension Benefits between Sprint Corporation (formerly
United Telecommunications, Inc.) and two of its current
and former executive officers (filed as Exhibit 10(i)
to Sprint Corporation Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated
herein by reference).
(q) Executive Long-Term Incentive Plan (filed as Exhibit
10(j) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated
herein by reference).
(r) Executive Management Incentive Plan (filed as Exhibit
10(k) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated
herein by reference).
(s) Long-Term Incentive Compensation Plan, as amended
(filed as Exhibit 10(i) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996, and incorporated herein by reference).
(t) Short-Term Incentive Compensation Plan (filed as
Exhibit 10(k) to United Telecommunications, Inc. Annual
Report on Form 10-K for the year ended December 31,
1989, and incorporated herein by reference).
(u) Retirement Plan for Directors, as amended.
(v) Key Management Benefit Plan, as amended (filed as
Exhibit 10(g) to Sprint Corporation Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference).
(w) Agreements Regarding Special Compensation and Post
Employment Restrictive Covenants between Sprint
Corporation and certain of its Executive Officers
(filed as Exhibit 10(x) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31,
1993, Exhibit 10(d) to Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994 and Exhibit 10 (h) of Sprint Corporation Quarterly
Report on Form 10-Q for the quarter ended March 31,
1996 and incorporated herein by reference). Agreement
Regarding Special Compensation and Post Employment
Restrictive Covenants between Sprint Corporation and
one of its Executive Officers, as amended.
(x) Director's Deferred Fee Plan, as amended.
(y) Form of Contingency Employment Agreements between
Sprint Corporation and certain of its executive
officers (filed as Exhibit 10(b) to Sprint Corporation
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference).
(z) Form of Indemnification Agreements between Sprint
Corporation (formerly United Telecommunications, Inc.)
and its Directors and Officers (filed as Exhibit 10(s)
to Sprint Corporation Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated
herein by reference).
(aa) Summary of Executive Officer and Board of Directors
Benefits (filed as Exhibit (10)(k) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated
herein by reference).
(bb) Description of agreement regarding Supplemental Pension
Benefits between Sprint Corporation and one of its
executive officers (filed as Exhibit 10(e) to Sprint
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, and incorporated
herein by reference).
(cc) Amended and Restated Centel Director Stock Option Plan
(filed as Exhibit 10(aa) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference).
(11) Computation of Earnings Per Common Share.
(12) Computation of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of Registrant.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedules:
(a) December 31, 1996 Financial Data Schedule.
(b) December 31, 1995 Restated Financial Data Schedule.