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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2005
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to __________________________
Commission file number 1-04721
---------------------------------------------------------
SPRINT CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
KANSAS 48-0457967
----------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 7997, Shawnee Mission, Kansas 66207-0997
-------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 829-0965
-----------------------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file these reports), and (2) has been subject to these filing
requirements for the past 90 days.
Yes X No
----------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----------- -------
COMMON SHARES OUTSTANDING AT APRIL 29, 2005:
FON COMMON STOCK
Series 1 1,395,896,391
Series 2 83,841,987
TABLE OF CONTENTS
Page
Reference
Part I - Financial Information
Item 1. Sprint Corporation Financial Statements
Consolidated Financial Statements
Consolidated Statements of Operations 1
Consolidated Statements of Comprehensive Income 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 33
Item 4. Controls and Procedures 34
Part II - Other Information
Item 1. Legal Proceedings 35
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 36
Item 4. Submission of Matters to a Vote of Security
Holders 36
Item 5. Other Information 36
Item 6. Exhibits 37
Signature 39
Exhibits
(12) Computation of Ratios of Earnings to Fixed Charges
(31) (a) Certification of Chief Executive Officer Pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a)
(31) (b) Certification of Chief Financial Officer Pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a)
(32) (a) Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(32) (b) Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Part I.
Item 1.
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(millions, except per share data)
Quarters Ended
March 31,
--- -------------------------------
2005 2004
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Net Operating Revenues $ 6,936 $ 6,707
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Operating Expenses
Costs of services and products 3,240 3,083
Selling, general and administrative 1,624 1,637
Depreciation and amortization 1,036 1,233
Restructuring and asset impairments - 30
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Total operating expenses 5,900 5,983
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Operating Income 1,036 724
Interest expense (299) (326)
Other income (expense), net 26 (26)
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Income before income taxes 763 372
Income tax expense (291) (147)
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Net Income 472 225
Preferred stock dividends paid (2) (2)
--------------------------------------------- -- ------------- -- ------------- --- ------------- --- -------------
Earnings Applicable to Common Stock $ 470 $ 223
--- ------------- --- -------------
Diluted Earnings per Common Share $ 0.31 $ 0.16
--- ------------- --- -------------
Diluted weighted average common shares 1,494.7 1,436.1
--- ------------- --- -------------
Basic Earnings per Common Share $ 0.32 $ 0.16
--- ------------- --- -------------
Basic weighted average common shares 1,476.8 1,424.2
--- ------------- --- -------------
See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(millions)
Quarters Ended
March 31,
-- ------------------------------
2005 2004
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Net Income $ 472 $ 225
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Other Comprehensive Income (Loss)
Unrealized holding losses on securities (34) (21)
Income tax benefit 13 8
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Net unrealized holding losses on securities (21) (13)
Reclassification adjustment for gains on
securities included in net income (2) (2)
Income tax expense 1 1
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Net reclassification adjustment for gains
on securities included in net income (1) (1)
Unrealized gains on qualifying cash flow
hedges 21 17
Income tax expense (8) (6)
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Net unrealized gains on qualifying cash
flow hedges 13 11
Reclassification adjustment for gains on
cash flow hedges included in net income
(2) -
Income tax expense 1 -
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Net reclassification adjustment for gains
on cash flow hedges included in net
income (1) -
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Total other comprehensive loss (10) (3)
--------------------------------------------- -- ------------- -- ------------- -- ------------- -- -------------
Comprehensive Income $ 462 $ 222
-- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions)
March 31, December 31,
2005 2004
(Unaudited)
------------------------------------------------------------------------- -- ----------------- -- ----------------
Assets
Current assets
Cash and equivalents $ 3,687 $ 4,176
Marketable debt securities 574 445
Accounts receivable, net of allowance for doubtful accounts of
$313 and $293 3,002 3,107
Inventories 578 651
Prepaid expenses 286 274
Deferred tax asset 1,123 1,049
Other 280 273
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total current assets 9,530 9,975
Gross property, plant and equipment 43,798 43,562
Accumulated depreciation (21,551) (20,934)
------------------------------------------------------------------------- -- ----------------- -- ----------------
Net property, plant and equipment 22,247 22,628
Intangibles
Goodwill 4,401 4,401
Spectrum licenses 3,372 3,376
Other intangibles, net of accumulated amortization of $15 and $11 57 59
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total intangibles 7,830 7,836
Other assets 730 882
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total $ 40,337 $ 41,321
-- ----------------- -- ----------------
See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
(millions, except per share data)
March 31, December 31,
2005 2004
(Unaudited)
------------------------------------------------------------------------- -- ----------------- -- ----------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 1,022 $ 1,288
Accounts payable 1,994 2,261
Accrued interconnection costs 405 410
Accrued taxes 420 404
Advance billings 700 644
Accrued restructuring costs 134 168
Payroll and employee benefits 326 428
Accrued interest 262 335
Other 988 964
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total current liabilities 6,251 6,902
Noncurrent liabilities
Long-term debt and capital lease obligations 15,100 15,916
Deferred income taxes 2,496 2,176
Postretirement and other benefit obligations 1,192 1,445
Other 1,131 1,114
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total noncurrent liabilities 19,919 20,651
Redeemable preferred stock 247 247
Shareholders' equity
Common stock
FON, par value $2.00 per share, 3,000.0 shares authorized,
1,479.0 and 1,474.8 shares issued and outstanding 2,958 2,950
Capital in excess of par or stated value 11,988 11,873
Retained deficit (300) (586)
Accumulated other comprehensive loss (726) (716)
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total shareholders' equity 13,920 13,521
------------------------------------------------------------------------- -- ----------------- -- ----------------
Total $ 40,337 $ 41,321
-- ----------------- -- ----------------
See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(millions)
------------------------------------------------------------------------- -- ----------------- -- ----------------
Quarters Ended March 31, 2005 2004
------------------------------------------------------------------------- -- ----------------- -- ----------------
Operating Activities
Net income $ 472 $ 225
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,036 1,233
Deferred income taxes 260 146
Changes in assets and liabilities:
Accounts receivable, net 105 (51)
Inventories and other current assets 66 19
Accounts payable and other current liabilities (380) (381)
Noncurrent assets and liabilities, net (237) (202)
Other, net 62 49
------------------------------------------------------------------------- -- ----------------- -- ----------------
Net cash provided by operating activities 1,384 1,038
------------------------------------------------------------------------- -- ----------------- -- ----------------
Investing Activities
Capital expenditures (659) (683)
Investments in and loans to other affiliates, net (14) (2)
Investments in debt securities (222) (167)
Proceeds from debt securities 142 147
Proceeds from sales of assets and other 8 5
------------------------------------------------------------------------- -- ----------------- -- ----------------
Net cash used by investing activities (745) (700)
------------------------------------------------------------------------- -- ----------------- -- ----------------
Financing Activities
Payments on debt (1,012) (22)
Proceeds from common stock issued 58 33
Dividends paid (187) (115)
Other, net 13 16
------------------------------------------------------------------------- -- ----------------- -- ----------------
Net cash used by financing activities (1,128) (88)
------------------------------------------------------------------------- -- ----------------- -- ----------------
(Decrease) Increase in Cash and Equivalents (489) 250
Cash and Equivalents at Beginning of Period 4,176 2,287
------------------------------------------------------------------------- -- ----------------- -- ----------------
Cash and Equivalents at End of Period $ 3,687 $ 2,537
-- ----------------- -- ----------------
See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
SPRINT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(millions)
--------------------------------------------------------------------------------------------------------------------
FON Excess of Other
Common Par or Retained Comprehensive
Quarter Ended March 31, 2005 Stock Stated Value (Deficit) Loss Total
------------------------------------ -- ----------- -- ------------ -- ---------- -- -------------- -- -------------
Beginning 2005 balance $ 2,950 $ 11,873 $ (586) $ (716) $ 13,521
Net income - - 472 - 472
Common stock dividends - - (185) - (185)
Preferred stock dividends - (2) - - (2)
FON common stock issued 8 60 - - 68
Stock-based compensation expense - 37 - - 37
Tax benefit from stock compensation - 18 - - 18
Other net - 2 (1) (10) (9)
------------------------------------ -- ----------- -- ------------ -- ---------- -- -------------- -- -------------
March 2005 balance $ 2,958 $ 11,988 $ (300) $ (726) $ 13,920
------------------------------------ -- ----------- -- ------------ -- ---------- -- -------------- -- -------------
Shares Outstanding
------------------------------------ -- ----------
Beginning 2005 balance 1,474.8
FON common stock issued 4.2
------------------------------------ -- ----------
March 2005 balance 1,479.0
-- ----------
See accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
Part I.
Item 1.
SPRINT CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The information in this Form 10-Q has been prepared according to Securities and
Exchange Commission (SEC) rules and regulations. In our opinion, the
consolidated interim financial statements reflect all adjustments, consisting
only of normal recurring accruals, needed to fairly present Sprint Corporation's
consolidated financial position, results of operations, cash flows and
comprehensive income.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared according to accounting principles generally
accepted in the United States have been condensed or omitted. As a result, you
should read these financial statements along with Sprint Corporation's 2004 Form
10-K/A. Operating results for the 2005 year-to-date period do not necessarily
represent the results that may be expected for the year ending December 31,
2005.
--------------------------------------------------------------------------------
1. Basis of Consolidation and Presentation
--------------------------------------------------------------------------------
Consolidation and Comparative Presentation
The consolidated financial statements include the accounts of Sprint, its wholly
owned subsidiaries and subsidiaries it controls. Investments in entities in
which Sprint exercises significant influence, but does not control, are
accounted for using the equity method. See Note 3 for additional information.
The consolidated financial statements are prepared using accounting principles
generally accepted in the United States. These principles require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
Certain prior-year amounts have been reclassified to conform to the current-year
presentation. Sprint reclassified its auction rate securities from "Cash and
equivalents" to "Marketable debt securities" reflecting recently issued SEC
guidance. These auction rate securities totaled $479 million at March 31, 2005
and $380 million at December 31, 2004. These reclassifications had no effect on
the net results of operations or shareholders' equity as previously reported.
Classification of Operations
Sprint is a global communications company and a leader in integrating
long-distance, local service, and wireless communications. Sprint is also one of
the largest carriers of Internet traffic using its tier one Internet Protocol
(IP) network and is a leader in providing high-speed wireless data services.
Sprint's business is divided into three segments: Wireless, Local and Long
distance operations.
--------------------------------------------------------------------------------
2. Recombination of Tracking Stock
--------------------------------------------------------------------------------
On April 23, 2004, Sprint recombined its two tracking stocks. Each share of PCS
common stock automatically converted into 0.5 shares of FON common stock. As of
April 23, 2004, the FON Group and the PCS Group no longer exist, and FON common
stock represents all of the operations and assets of Sprint, including Wireless,
Long distance and Local. This event is reflected in the presentation of these
financial statements as of the earliest period presented at an identical
conversion ratio (0.50).
--------------------------------------------------------------------------------
3. Investments
--------------------------------------------------------------------------------
At March 31, 2005, Sprint carried $755 million in investment asset value: $574
million was included in "Marketable debt securities" and $181 million in "Other
assets" on the Consolidated Balance sheets.
At December 31, 2004, Sprint carried $721 million in investment asset value:
$445 million was included in "Marketable debt securities" and $276 million in
"Other assets" on the Consolidated Balance Sheets.
Specific investment types and the related carrying amounts include:
Investments in Debt Securities
At March 31, 2005, $574 million of Sprint's investments were classified as
"Marketable debt securities". This includes $479 million of auction rate
securities and $95 million of other debt securities previously classified as
"Current assets-other". As of December 31, 2004, "Marketable debt securities"
totaled $445 million, which includes $380 million of auction rate securities and
$65 million of other debt securities previously classified as "Current
assets-other". In addition, $43 million and $91 million were classified in
"Other assets" on the Consolidated Balance Sheets as of March 31, 2005 and
December 31, 2004, respectively. At March 31, 2005, the debt securities carried
in "Other assets" all have maturities prior to December 31, 2006. All debt
securities are classified as available for sale.
Sprint also invested in debt securities with original or remaining maturities at
purchase of 90 days or less. These securities were included in "Cash and
equivalents."
Interest on these investments is reinvested and recognized in "Other, net" in
the Consolidated Statements of Operations. Sprint recognized approximately $9
million of interest income on these investments in the 2005 first quarter.
Accumulated unrealized holding losses were immaterial in the 2005 first quarter.
Investments in Equity Securities
The cost of investments in marketable equity securities, primarily consisting of
EarthLink common stock, was $73 million at March 31, 2005 and $90 million at
December 31, 2004. These securities were reflected in "Other assets" on the
Consolidated Balance Sheets. Accumulated unrealized holding gains were $20
million (net of $11 million tax) at March 31, 2005. Comparatively, at December
31, 2004, the accumulated unrealized holding gains were $42 million (net of $25
million tax). Accumulated unrealized holding gains were included in "Accumulated
other comprehensive loss" on the Consolidated Balance Sheets.
In the 2005 first quarter, in connection with the maturity of certain EarthLink
variable prepaid forward contracts, 2.4 million shares were used to settle
approximately $24 million of the forward contracts recorded in outstanding
long-term debt. Sprint recognized a $2 million gain on this transaction, net of
$1 million tax. At March 31, 2005, Sprint held 9.9 million shares of EarthLink
common stock, down from 12.3 million shares at year-end 2004. The forecasted
sale of these shares was hedged with variable prepaid forward contracts, which
began maturing in the 2004 fourth quarter and will continue to mature through
the 2005 fourth quarter. See Note 9 for additional information.
Equity Method Investments
At March 31, 2005 and at December 31, 2004, investments accounted for using the
equity method consisted primarily of Sprint's investment in Virgin Mobile USA,
LLC (Virgin Mobile USA). These investments were reflected in "Other assets" on
the Consolidated Balance Sheets. Certain other equity method investments were
carried at zero value.
Virgin Mobile USA
Sprint's investment in Virgin Mobile USA was $20 million at March 31, 2005 and
December 31, 2004. Sprint determined that Virgin Mobile USA is not a variable
interest entity and therefore carries it as an equity investment.
This joint venture with the Virgin Group was originally entered into in the 2001
fourth quarter. Virgin Mobile USA launched services in June 2002. Since its
inception, Sprint has contributed approximately $180 million to the venture in
the form of cash and discounted network services, thereby satisfying 100% of its
original commitments. In 2004, Sprint advanced $10 million to Virgin Mobile USA
in the form of a loan to be repaid in 2005. An additional $10 million was
advanced in the form of a loan in January 2005. Sprint's board of directors has
approved up to $35 million in loans to Virgin Mobile USA. Using equity method
accounting, Sprint has recognized losses to the extent of its investment, except
that under the terms of the joint venture agreement, Sprint is guaranteed a $20
million return of capital in the event of liquidation.
Combined, unaudited, summarized financial information (100% basis) of entities
accounted for using the equity method was as follows:
Quarters Ended
March 31,
-----------------------------------
2005 2004
--------------------------------------------- --- ------------- -- --------------
(millions)
Results of operations
Net operating revenues $ 423 $ 295
--- ------------- -- --------------
Operating income (loss) $ 13 $ (30)
--- ------------- -- --------------
Net income (loss) $ 3 $ (46)
--- ------------- -- --------------
Equity in net losses of affiliates $ (9) $ (12)
--- ------------- -- --------------
--------------------------------------------------------------------------------
4. Restructuring and Asset Impairment
--------------------------------------------------------------------------------
Organizational Realignment
In the 2003 fourth quarter, Sprint initiated a company-wide effort to realign
internal resources to enhance our focus on the needs and preferences of two
distinct consumer types--businesses and individuals. This business
transformation initiative is enabling the enterprise to more effectively and
efficiently use its asset portfolio to create customer-focused solutions. One of
the goals of this initiative is to create a more efficient cost structure. As
decisions are made to meet this specific goal (Organizational Realignment),
charges are recognized for severance costs associated with work force
reductions.
Decisions thus far, associated with the Organizational Realignment, have
resulted in approximately 5,300 separations and $192 million of pre-tax charges
primarily for severance benefits. Sprint expects approximately 5,850 employee
separations will be achieved through attrition and voluntary and involuntary
separations associated with this action, at a cost not to exceed $215 million.
Other Restructuring Activity
In the 2003 second quarter, Sprint announced the wind-down of its Web Hosting
service. Restructurings of other Long distance operations also occurred in the
continuing effort to create a more efficient cost structure (Web hosting
Wind-down). These decisions have resulted in pre-tax charges of $436 million
through March 31, 2005. The aggregate charge for asset impairments was $316
million, the aggregate charge for employee terminations was $13 million and the
remaining $107 million was for facility lease terminations. The severance
charges are associated with the involuntary employee separation of approximately
600 employees. As of March 31, 2005, substantially all actions have been
completed.
The 2005 activity is summarized as follows:
------------------------------------- -- ----------------- ----------------------------------- -- -----------------
2005 Activity
-----------------------------------
December 31, 2004 Restructuring Cash March 31, 2005
Liability Balance Charge Payments Liability Balance
------------------------------------- -------------------- ----------------- ----------------- --------------------
(millions)
Restructuring Events
Organizational Realignment
Severance $ 67 $ 3 $ 27 $ 43
Other exit costs 8 - 1 7
Web Hosting Wind-down
Other exit costs 93 (3) 6 84
------------------------------------- -- ----------------- --- ------------- --- ------------- -- -----------------
Total $ 168 $ - $ 34 $ 134
-- ----------------- --- ------------- --- ------------- -- -----------------
--------------------------------------------------------------------------------
5. Stock-based Compensation
--------------------------------------------------------------------------------
Proforma Earnings per Share
Effective January 1, 2003, Sprint adopted Statement of Financial Accounting
Standard (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS No. 123),
as amended by SFAS No. 148, Accounting for Stock-Based Compensation--Transition
and Disclosure, using the prospective method. Upon adoption, Sprint began
expensing the fair value of stock-based compensation for all grants,
modifications or settlements made on or after January 1, 2003 using the
Black-Scholes-Merton model. The following table illustrates the effect on net
income and earnings per share of stock-based compensation included in net income
and the effect on net income and earnings per share for grants issued on or
before December 31, 2002, had Sprint applied the fair value recognition
provisions of SFAS No. 123.
Quarters Ended
March 31,
-----------------------------------
2005 2004
--------------------------------------------- --- ------------- -- --------------
(millions)
Net income, as reported $ 472 $ 225
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects
24 13
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (27) (28)
--------------------------------------------- --- ------------- -- --------------
Pro forma net income $ 469 $ 210
--- ------------- -- --------------
Earnings per common share:
Basic - as reported $ 0.32 $ 0.16
--- ------------- -- --------------
Basic - pro forma $ 0.32 $ 0.15
--- ------------- -- --------------
Diluted - as reported $ 0.31 $ 0.16
--- ------------- -- --------------
Diluted - pro forma $ 0.31 $ 0.14
--- ------------- -- --------------
Sprint recognized pre-tax charges of $25 million in the 2005 first quarter and
$21 million in the 2004 first quarter related to stock-based grants issued after
December 31, 2002 and grants of restricted stock made in 2002 and previous
years.
Sprint recognized pre-tax charges of $12 million in the 2005 first quarter of
non-cash expense related to the recombination of FON common stock and PCS common
stock on April 23, 2004. The charges primarily reflect application of stock
option expensing for modifications, resulting from the recombination, to PCS
stock options granted before January 1, 2003, as required by SFAS No. 123.
Antidilutive Options
Options have been granted with exercise prices which are currently higher than
market prices. These options are considered antidilutive. Sprint's antidilutive
securities totaled 50.6 million average shares for the 2005 first quarter
compared to 97.5 million average shares for the same 2004 period.
--------------------------------------------------------------------------------
6. Employee Benefit Information
--------------------------------------------------------------------------------
The net periodic benefit cost consisted of the following:
Pension Benefits Other Postretirement Benefits
---------------------------------- ----------------------------------
Quarters Ended Quarters Ended
March 31, March 31,
---------------------------------- --- ----------------------------------
2005 2004 2005 2004
------------------------------------------ -- ------------- --- ------------- --- -- ------------- --- -------------
(millions)
Service cost $ 38 $ 36 $ 4 $ 4
Interest cost 65 62 14 15
Expected return on plan assets (82) (76) (1) (1)
Amortization of transition (asset)
obligation - (1) - -
Amortization of prior service cost 4 4 (12) (12)
Amortization of net loss 27 21 7 8
------------------------------------------ -- ------------- --- ------------- --- -- ------------- --- -------------
Net benefit expense $ 52 $ 46 $ 12 $ 14
-- ------------- --- ------------- --- -- ------------- --- -------------
Sprint contributed $300 million to its pension plan in January 2005. This is the
only contribution expected to be made in 2005.
In the 2004 first quarter, Sprint amended certain retiree medical plans to
standardize the plan design effective January 1, 2005, eliminating differences
in benefit levels. These amendments decreased the accumulated postretirement
benefit obligation (APBO) related to other postretirement benefits by
approximately $35 million.
As a result of these amendments, Sprint also recognized the effects of the 2003
Medicare Prescription Drug, Improvement and Modernization Act (the Act). The Act
contains a subsidy to employers who provide prescription drug coverage to
retirees that is actuarially equivalent to Medicare Part D. Analysis of Sprint's
retiree prescription drug claims data determined that Sprint's retiree
prescription drug benefit was actuarially equivalent. In estimating the effects
of the Act, estimates of participation rates and per capita claims costs were
not changed. The effect of recognizing the federal subsidy related to the Act in
the 2004 first quarter was a $67 million reduction in the APBO. Sprint has
accounted for its retiree medical benefit plan in accordance with Financial
Accounting Standards Board Staff Position No. 106-2.
--------------------------------------------------------------------------------
7. Litigation, Claims and Assessments
--------------------------------------------------------------------------------
In March 2004, eight purported class action lawsuits relating to the
recombination of the tracking stocks were filed against Sprint and its directors
by holders of PCS common stock. Seven of the lawsuits were consolidated in the
District Court of Johnson County, Kansas. The eighth, pending in New York, has
been voluntarily stayed. The consolidated lawsuit alleges breach of fiduciary
duty in connection with allocations between the FON Group and the PCS Group
before the recombination of the tracking stocks and breach of fiduciary duty in
the recombination. The lawsuit seeks to rescind the recombination and monetary
damages. In February 2005, the court denied defendants' motion to dismiss the
complaint. All defendants have denied plaintiffs' allegations and intend to
vigorously defend this matter.
A number of putative class action cases that allege Sprint failed to obtain
easements from property owners during the installation of its fiber optic
network in the 1980's have been filed in various courts. Several of these cases
sought certification of nationwide classes, and in one case, a nationwide class
was certified. In 2002, a nationwide settlement of these claims was approved by
the U.S. District Court for the Northern District of Illinois, but objectors
appealed the preliminary approval order to the Seventh Circuit Court of Appeals.
In October, 2004, the Seventh Circuit Court of Appeals overturned the settlement
approval and remanded the case to the trial court for further proceedings. The
settling parties have asked the U.S. Supreme Court to review the Seventh
Circuit's decision overturning approval of the settlement. In 2001, Sprint
accrued for the estimated settlement costs of these suits.
In 2003, certain participants in the Sprint Retirement Savings Plan, the Sprint
Retirement Savings Plan for Bargaining Unit Employees and the Centel Retirement
Savings Plan for Bargaining Unit Employees filed suit in the U.S. District Court
for the District of Kansas against Sprint, the committees that administer the
plans, the plan trustee, and various current and former directors and officers.
The consolidated lawsuit alleges that defendants breached their fiduciary duties
to the plans and violated the ERISA statutes by making the company contribution
in FON common stock and PCS common stock and including FON common stock and PCS
common stock among the thirty investment options offered to plan participants.
The lawsuit seeks to recover any decline in the value of FON common stock and
PCS common stock during the class period. All defendants have denied plaintiffs'
allegations and intend to vigorously defend this matter.
In September 2004, the U.S. District Court for the District of Kansas denied a
motion to dismiss a shareholder lawsuit alleging that Sprint's 2001 and 2002
proxy statements were false and misleading in violation of federal securities
laws to the extent they described new employment agreements with senior
executives without disclosing that, according to the allegations, replacement of
those executives was inevitable. These allegations, made in an amended complaint
in a lawsuit originally filed in 2003, are asserted against Sprint and certain
current and former officers and directors. The lawsuit seeks to recover any
decline in the value of FON common stock and PCS common stock during the class
period. Following denial of the dismissal motion, the parties stipulated that
the case can proceed as a class action. All defendants have denied plaintiffs'
allegations and intend to vigorously defend this matter. The allegations in the
original complaint, which asserted claims against Sprint, certain current and
former officers and directors, and Sprint's former independent auditor, were
dismissed by the court in April 2004.
Various other suits, proceedings and claims, including purported class actions,
typical for a business enterprise, are pending against Sprint.
While it is not possible to determine the ultimate disposition of each of these
proceedings and whether they will be resolved consistent with Sprint's beliefs,
Sprint expects that the outcome of such proceedings, individually or in the
aggregate, will not have a material adverse effect on the financial condition or
results of operations of Sprint or its business segments.
--------------------------------------------------------------------------------
8. Income Taxes
--------------------------------------------------------------------------------
The differences that caused Sprint's effective income tax rates to vary from the
35% federal statutory rate for income taxes were as follows:
Quarters Ended
March 31,
-----------------------------------
2005 2004
----------------------------------------------------------- --- ------------- --- -------------
(millions)
Income tax expense at the federal statutory rate $ 267 $ 130
Effect of:
State income taxes, net of federal income tax effect 25 12
Other, net (1) 5
----------------------------------------------------------- --- ------------- --- -------------
Income tax expense $ 291 $ 147
--- ------------- --- -------------
Effective income tax rate 38.1% 39.5%
--- ------------- --- -------------
--------------------------------------------------------------------------------
9. Accounting for Derivative Instruments
--------------------------------------------------------------------------------
Risk Management Policies
Sprint's derivative instruments include interest rate swaps, stock warrants,
variable prepaid forward contracts, and foreign currency forward and option
contracts. Sprint's derivative transactions are used principally for hedging
purposes. The Sprint board of directors has authorized Sprint to enter into
derivative transactions, and all transactions comply with Sprint's risk
management policies.
Sprint enters into interest rate swap agreements to manage exposure to interest
rate movements and achieve an optimal mixture of floating and fixed-rate debt
while minimizing liquidity risk. Interest rate swap agreements that are
designated as fair value hedges effectively convert Sprint's fixed-rate debt to
a floating rate through the receipt of fixed-rate amounts in exchange for
floating-rate interest payments over the life of the agreement without an
exchange of the underlying principal amount. Interest rate swap agreements
designated as cash flow hedges reduce the impact of interest rate movements on
future interest expense by effectively converting a portion of its floating-rate
debt to a fixed rate.
In certain business transactions, Sprint is granted warrants to purchase the
securities of other companies at fixed rates. These warrants are supplemental to
the terms of the business transactions and are not designated as hedging
instruments.
Sprint enters into variable prepaid forward contracts which reduce the
variability in expected cash flows related to a forecasted sale of the
underlying equity securities held as available for sale.
Sprint's foreign exchange risk management program focuses on reducing
transaction exposure to optimize consolidated cash flow. Sprint enters into
forward and option contracts in foreign currencies to reduce the impact of
changes in foreign exchange rates. Sprint's primary transaction exposure results
from net payments made to and received from overseas telecommunications
companies for completing international calls made by Sprint's domestic customers
and the operation of its international subsidiaries.
Interest Rate Swaps
The interest rate swaps met all the required criteria under derivative
accounting rules for the assumption of perfect effectiveness resulting in no
impact on earnings during the life of the swap. Sprint held only fair-value
hedges during 2004 and in the period ending March 31, 2005.
Sprint's liability as of March 31, 2005 was $9 million compared to a $19 million
asset as of December 31, 2004 resulting from changes in the fair value of the
interest rate swaps. The decrease in value of these swaps has been recorded in
"Other non-current liabilities" on the Consolidated Balance Sheets. As the swaps
have been deemed perfectly effective, an offset was recorded to the underlying
"Long-term debt."
Stock Warrants
The stock warrants are not designated as hedging instruments and changes in the
fair value of these derivative instruments are recognized in earnings during the
period of change.
Sprint's net derivative gains on stock warrants were immaterial in both the 2005
and 2004 first quarters.
Net Purchased Equity Options
The net purchased equity options embedded in variable prepaid forward contracts
are designated as cash flow hedges. In the 2005 first quarter, approximately 2.4
million shares of EarthLink common stock were used to settle a portion of the
prepaid forward contracts. This resulted in a $2 million pre-tax gain related to
the cash flow hedges. Prepaid forward contracts associated with the forecasted
sale of approximately 9.9 million shares of EarthLink common stock remain
outstanding at March 31, 2005 and will settle in 2005. Accumulated unrealized
losses related to these hedges were $8 million (net of $5 million tax) at March
31, 2005. These unrealized losses were included in "Accumulated other
comprehensive loss" on the Consolidated Balance Sheets.
Foreign Currency Forward and Option Contracts
Foreign currency forward and option contracts held during the periods were not
designated as hedges as defined in SFAS No. 133 and changes in the fair value of
these derivative instruments are recognized in earnings during the period of
change. The activity associated with these contracts was immaterial in all
periods presented.
Concentrations of Credit Risk
Sprint's accounts receivable are not subject to any concentration of credit
risk. Sprint controls credit risk of its interest rate swap agreements and
foreign currency contracts through credit approvals, dollar exposure limits and
internal monitoring procedures. In the event of nonperformance by the
counterparties, Sprint's accounting loss would be limited to the net amount it
would be entitled to receive under the terms of the applicable interest rate
swap agreement or foreign currency contract. However, Sprint does not anticipate
nonperformance by any of the counterparties to these agreements.
--------------------------------------------------------------------------------
10. Other Financial Information
--------------------------------------------------------------------------------
Supplemental Cash Flows Information
Sprint's net cash paid (received) for interest and income taxes was as follows:
Quarters Ended
March 31,
-----------------------------------
2005 2004
----------------------------------------------------------- --- ------------- --- -------------
(millions)
Interest (net of capitalized interest) $ 368 $ 386
--- ------------- --- -------------
Income taxes $ 4 $ (1)
--- ------------- --- -------------
Sprint's non-cash activities included the following:
Quarters Ended
March 31,
-----------------------------------
2005 2004
----------------------------------------------------------- --- ------------- --- -------------
(millions)
Earthlink common stock used to extinguish debt $ 24 $ -
--- ------------- --- -------------
Common stock issued for settlement of
shareholder suit $ - $ 5
--- ------------- --- -------------
--------------------------------------------------------------------------------
11. Segment Information
--------------------------------------------------------------------------------
Sprint is divided into three main lines of business: Wireless, Local and Long
distance. Other consists primarily of wholesale distribution of
telecommunications products.
Sprint manages its segments to the operating income level of reporting. Items
below operating income are managed at a corporate level. The reconciliation from
operating income to net income is shown on the face of the Consolidated
Statements of Operations.
Segment financial information was as follows:
---------------------------- -- ----------- -------------- -------------- --------------- -------------- --------------
Corporate
Quarters Ended Long and
March 31, Wireless Local Distance Other Eliminations((1Consolidated
---------------------------- -- ----------- -------------- -------------- --------------- -------------- --------------
(millions)
2005
Net operating revenues $ 3,867 $ 1,498 $ 1,715 $ 186 $ (330) $ 6,936
Affiliated revenues 7 54 172 97 (330) -
Operating income (loss) 455 445 146 (11) 1 1,036
2004
Net operating revenues $ 3,437 $ 1,506 $ 1,912 $ 196 $ (344) $ 6,707
Affiliated revenues 4 56 169 115 (344) -
Operating income (loss) 277 446 11 (8) (2) 724
---------------------------- -- ----------- -- ----------- -- ----------- -- ------------ - ------------ -- -----------
(1) Revenues eliminated in consolidation consist principally of access charged
to Long distance by Local, equipment purchases from the wholesale
distribution business, interexchange services provided to Local, long
distance services provided to Wireless for resale to Wireless customers and
for internal business use, and Caller ID services provided by Local and
Wireless.
Net operating revenues by product and services were as follows:
---------------------------- -- ----------- -------------- -------------- --------------- -------------- --------------
Corporate
Quarters Ended Long and
March 31, Wireless Local Distance Other Eliminations(1)Consolidated
---------------------------- -- ----------- -------------- -------------- --------------- -------------- --------------
(millions)
2005
Wireless services $ 3,539 $ - $ - $ - $ (7) $ 3,532
Wireless equipment 328 - - - - 328
Voice - 1,105 1,065 - (203) 1,967
Data - 233 412 - (15) 630
Internet - - 178 - (2) 176
Other - 160 60 186 (103) 303
-- ----------- -- ----------- -- ----------- -- ------------ - ------------ -- -----------
Total net operating
revenues $ 3,867 $ 1,498 $ 1,715 $ 186 $ (330) $ 6,936
-- ----------- -- ----------- -- ----------- -- ------------ - ------------ -- -----------
2004
Wireless services $ 3,060 $ - $ - $ - $ (4) $ 3,056
Wireless equipment 377 - - - - 377
Voice - 1,147 1,186 - (196) 2,137
Data - 195 452 - (19) 628
Internet - - 223 - (3) 220
Other - 164 51 196 (122) 289
-- ----------- -- ----------- -- ----------- -- ------------ - ------------ -- -----------
Total net operating
revenues $ 3,437 $ 1,506 $ 1,912 $ 196 $ (344) $ 6,707
-- ----------- -- ----------- -- ----------- -- ------------ - ------------ -- -----------
(1) Revenues eliminated in consolidation consist principally of access charged
to Long distance by Local, equipment purchases from the wholesale
distribution business, interexchange services provided to Local, long
distance services provided to Wireless for resale to Wireless customers and
for internal business use, and Caller ID services provided by Local and
Wireless.
--------------------------------------------------------------------------------
12. Recently Issued Accounting Pronouncements
--------------------------------------------------------------------------------
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123R, Share-Based Payment. This statement requires an entity to recognize
the cost of employee services received in share-based payment transactions,
through the use of fair-value-based methods of recognizing cost. This statement
is effective for Sprint as of January 1, 2006.
Sprint voluntarily adopted fair value accounting for share-based payments
effective January 1, 2003, under SFAS No. 123 as amended by SFAS No. 148, using
the prospective method. Upon adoption Sprint began expensing the fair value of
stock-based compensation for all grants, modifications or settlements made on or
after January 1, 2003. Further, in connection with the tracking stock
recombination, as required by SFAS No. 123, Sprint accounted for the conversion
of PCS stock options to FON stock options as a modification and accordingly
applied stock option expensing to FON stock options resulting from the
conversion of PCS stock options granted before January 1, 2003.
The revised standard will require Sprint to begin to recognize compensation cost
for unvested FON stock options granted before January 1, 2003, which are
outstanding as of January 1, 2006. This requirement to recognize expense on
additional unvested grants is immaterial to Sprint.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment
of ARB No. 43, Chapter 4. This statement requires that items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs be
recognized as current-period charges regardless of whether they meet the
definition of abnormal provided in ARB 43, Chapter 4, Inventory Pricing. The
statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Sprint does not expect the adoption of this
standard to have a material impact on its financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29. This statement eliminates the exception to
fair value measurement in the exchange of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance. That standard indicates that an exchange does not have
commercial substance if it is not expected to significantly change the cash
flows of the reporting entity. This statement is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. Sprint does
not expect the adoption of this standard to have a material impact on its
financial statements.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47). FIN 47 requires an entity to
recognize a liability for a legal obligation to perform an asset retirement
activity in which the timing and (or) method of the settlement are conditional
on a future event. The liability must be recognized if the fair value of the
liability can be reasonably estimated. This interpretation of SFAS No. 143,
Accounting for Asset Retirement Obligation, is effective no later than the end
of fiscal years ending after December 15, 2005. Sprint is evaluating FIN 47 for
any impact to the financial statements from the original 2003 adoption of SFAS
No. 143.
--------------------------------------------------------------------------------
13. Subsequent Event
--------------------------------------------------------------------------------
Dividend Declaration
On April 19, 2005, Sprint's board of directors declared a dividend of 12.5 cents
per share on the Sprint FON common stock to shareholders of record at the close
of business, June 9, 2005. The dividend will be paid June 30, 2005.
Part I.
Item 2.
SPRINT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Forward-looking Information
--------------------------------------------------------------------------------
Sprint includes certain estimates, projections and other forward-looking
statements in its reports and in other publicly available material. Statements
regarding expectations, including performance assumptions and estimates relating
to capital requirements, as well as other statements that are not historical
facts, are forward-looking statements.
These statements reflect management's judgements based on currently available
information and involve a number of risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. With respect to these forward-looking statements, management has
made assumptions regarding, among other things, customer and network usage,
customer growth and retention, pricing, operating costs, the timing of various
events and the economic environment.
Future performance cannot be ensured. Actual results may differ materially from
those in the forward-looking statements. Some factors that could cause actual
results to differ include:
o the uncertainties related to, and the impact of, our proposed merger with
Nextel Communications, Inc., and the contemplated spin-off of our local
telecommunications business;
o the effects of vigorous competition and the overall demand for Sprint's
service offerings in the markets in which Sprint operates;
o the costs and business risks associated with providing new services and
entering new markets;
o adverse change in the ratings afforded our debt securities by ratings
agencies;
o the ability of Wireless to continue to grow and improve profitability;
o the ability of Local and Long distance to achieve expected revenues;
o the effects of mergers and consolidations in the telecommunications industry
and unexpected announcements or developments from others in the
telecommunications industry;
o the uncertainties related to bankruptcies affecting the telecommunications
industry;
o the uncertainties related to Sprint's investments in networks, systems and
other businesses;
o the uncertainties related to the implementation of Sprint's business
strategies;
o the impact of new, emerging and competing technologies on Sprint's business;
o unexpected results of litigation filed against Sprint;
o the risk of equipment failure, natural disasters, terrorist acts, or other
breaches of network or information technology security;
o the risk that third parties are unable to perform to our requirements under
agreements related to our business operations;
o the possibility of one or more of the markets in which Sprint competes
being impacted by changes in political or other factors such as
monetary policy, legal and regulatory changes or other external factors
over which Sprint has no control; and
o other risks referenced from time to time in Sprint's filings with the
Securities and Exchange Commission (SEC).
The words "estimate," "project," "forecast," "intend," "expect," "believe,"
"target," "providing guidance" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are found throughout
Management's Discussion and Analysis. The reader should not place undue reliance
on forward-looking statements, which speak only as of the date of this report.
Sprint is not obligated to publicly release any revisions to forward-looking
statements to reflect events after the date of this report or unforeseen events.
Sprint provides a detailed discussion of risk factors in various SEC filings,
including its 2004 Form 10-K/A, and you are encouraged to review these filings.
--------------------------------------------------------------------------------
Overview
--------------------------------------------------------------------------------
Business
Sprint is a global communications company offering an extensive range of
innovative communication products and solutions, including wireless, long
distance voice and data transport, global Internet Protocol (IP), local and
multiproduct bundles. Sprint is a Fortune 100 company widely recognized for
developing, engineering and deploying state-of-the-art technologies.
Sprint operates a 100% digital personal communications service (PCS) wireless
network with licenses to provide service to the entire United States population,
including Puerto Rico and the U.S. Virgin Islands, using a single frequency band
and a single technology. Sprint, together with third party affiliates, operates
PCS wireless systems in over 350 metropolitan markets, including the 100 largest
U.S. metropolitan areas. Sprint's wireless service, including third party
affiliates, reaches a quarter billion people. Combined with our wholesale
partners and Sprint PCS Affiliates, we served a total of 26.0 million wireless
subscribers at the end of the 2005 first quarter. Sprint currently serves
approximately 7.6 million access lines in its franchise territories in 18
states. Sprint is selling into the cable telephony market through arrangements
with cable companies that resell Sprint long distance service and/or use Sprint
back office systems and network assets in support of their local telephone
service provided over cable facilities. Sprint is one of the largest carriers of
Internet traffic, and provides connectivity to any point on the Internet either
through its own network or via direct connections with other backbone providers.
Elimination of Tracking Stocks
On April 23, 2004, Sprint recombined its two tracking stocks. Each share of PCS
common stock automatically converted into 0.5 shares of FON common stock. As of
April 23, 2004, the FON Group and the PCS Group no longer exist, and FON common
stock represents all of the operations and assets of Sprint, including Wireless,
Local and Long distance.
Proposed Merger and Contemplated Spin-off
In December 2004, the boards of directors of Sprint and Nextel Communications,
Inc. (Nextel) each unanimously approved a strategic merger combining Sprint and
Nextel in what we intend to be a "merger of equals." Existing shares of Sprint
common stock will remain outstanding as Sprint Nextel common stock, as Sprint is
the acquiring entity for legal and accounting purposes. Under the terms of the
merger agreement, at closing each share of Nextel class A common stock and
Nextel class B common stock will be converted into shares of Sprint Nextel
common stock and Sprint Nextel non-voting common stock, respectively, as well as
a small per share amount of cash, with a total value expected to equal 1.3
shares of Sprint Nextel common stock. Nextel zero-coupon, convertible,
redeemable preferred stock will be converted into Sprint Nextel zero-coupon,
convertible, redeemable preferred stock.
The proposed merger is subject to shareholder approval, as well as various
regulatory approvals. It is subject to other customary closing conditions and is
expected to be completed in the second half of 2005. Sprint incurred immaterial
expense amounts related to the proposed merger in the 2005 first quarter,
however these costs are expected to increase in subsequent quarters.
Sprint and Nextel intend to spin-off Sprint's local telecommunications business
after the proposed merger is completed. In order to facilitate the spin-off on a
tax-free basis, the exact allocation of cash and shares of Sprint Nextel common
stock that Nextel common stockholders will receive in the proposed merger will
be adjusted at the time the merger is completed to ensure that former Nextel
stockholders will own slightly less than 50% of Sprint Nextel. The aggregate
cash portion of the merger consideration is capped at $2.8 billion.
Statements contained in this quarterly report relating to our business
strategies, operating plans, planned expenditures, expected capital
requirements, future dividend payments and other forward-looking statements
regarding our business do not take into account potential future impacts of our
proposed merger with Nextel or the contemplated spin-off of our local
telecommunications business.
Business Environment
Sprint's operations are divided into three lines of business: Wireless, Local
and Long distance operations. In the 2003 fourth quarter, Sprint undertook an
initiative to realign internal resources (Organizational Realignment). This
effort was implemented to enhance our focus on the needs and preferences of two
distinct consumer types--businesses and individuals. This effort is enabling
Sprint to more effectively and efficiently use its portfolio of assets to create
customer-focused communications solutions. Sprint continues to measure its
results using the current business segmentation, taking into consideration the
re-aligned customer-focused approach in 2005.
The Organization Realignment resulted in and could continue to result in
decisions requiring restructuring charges and asset impairments. See Note 4 of
Notes to Consolidated Financial Statements for more information relating to
these activities.
Sprint operates in an industry that has been and continues to be subject to
consolidation and dynamic change. Therefore, Sprint routinely reassesses its
business strategies and their implications on its operations and these
assessments may continue to impact the future valuation of its long-lived
assets.
As part of its overall business strategy, Sprint regularly evaluates
opportunities to expand and complement its business and may at any time be
discussing or negotiating a transaction that, if consummated, could have a
material effect on its business, financial condition, liquidity or results of
operations.
In February 2005, Sprint reached a definitive agreement with Global Signal Inc.
(Global Signal) under which Global Signal will have exclusive rights to lease or
operate more than 6,600 communication towers owned by Sprint for a negotiated
lease term which is the greater of the remaining terms of the underlying ground
leases or up to 32 years, assuming successful renegotiation of the underlying
ground leases at the end of their current lease terms. Sprint has committed to
sublease space on approximately 6,400 of the towers from Global Signal for a
minimum of ten years. Sprint will maintain ownership of the towers, and will
continue to reflect the towers on its Consolidated Balance Sheet. This
transaction is not expected to materially affect the operational results of
Wireless. Under the transaction which is expected to close in the 2005 second
quarter, Sprint will receive proceeds of approximately $1.2 billion.
--------------------------------------------------------------------------------
Results of Operations
--------------------------------------------------------------------------------
Consolidated
Quarters Ended
March 31,
-----------------------------------
2005 2004
--------------------------------------------- --- ------------- -- --------------
(millions)
Net operating revenues $ 6,936 $ 6,707
--- ------------- -- --------------
Net income $ 472 $ 225
--- ------------- -- --------------
Net operating revenues increased 3.4% in the 2005 first quarter compared to the
same 2004 period reflecting growth in Wireless revenues partially offset by
declining Long distance revenues.
In the 2004 first quarter, net income includes a $19 million charge related to
Sprint's Organizational Realignment and the termination of its Web Hosting
service.
--------------------------------------------------------------------------------
Segmental Results of Operations
--------------------------------------------------------------------------------
Wireless
Wireless operates a 100% digital PCS wireless network with licenses to provide
service to the entire United States population, including Puerto Rico and the
U.S. Virgin Islands, using a single frequency band and a single technology.
Wireless, together with third party affiliates, operates PCS wireless systems in
over 350 metropolitan markets, including the 100 largest U.S. metropolitan
areas, and reaches a quarter billion people. Combined with our wholesale
partners and Sprint PCS Affiliates, Wireless served 26.0 million subscribers at
the end of the 2005 first quarter. Wireless provides nationwide service through
a combination of:
o operating its own digital network in major U.S. metropolitan areas
using code division multiple access (CDMA), which is a digital
spread-spectrum wireless technology that allows a large number of users
to access a single frequency band by assigning a code to all voice and
data bits, sending a scrambled transmission of the encoded information
over the air and reassembling the voice and data into its original
format,
o affiliating under commercial agreements with other companies that use CDMA,
mainly in and around smaller U.S. metropolitan areas,
o roaming on other providers' analog cellular networks using multi-mode and
multi-band handsets, and
o roaming on other providers' digital networks that use CDMA.
Wireless subscribers can use their phones through roaming agreements in
countries other than the United States, including areas of:
o Asia Pacific, including China, Guam, Hong Kong, Taiwan, Thailand and
New Zealand,
o India,
o Gabon,
o Canada and Mexico,
o Central and South America, including Argentina, Bolivia, Chile, Ecuador,
Guatemala, Honduras, Paraguay, Peru, Uruguay and Venezuela, and
o Most major Caribbean Islands.
Sprint's third generation (3G) capability allows more efficient utilization of
the network when voice calls are made using 3G-enabled handsets. It also
provides enhanced data services. The service, marketed as "Sprint PCS VisionSM,"
allows consumer and business subscribers to use their Vision-enabled PCS devices
to exchange instant messages, exchange personal and corporate e-mail, send and
receive pictures, play games with full-color graphics and polyphonic sounds and
browse the Internet wirelessly with speeds up to 144 kbps.
Sprint is continuing to execute its plans for faster wireless data speeds by
deploying Evolution Data Optimized (EV-DO) technology across the Sprint
Nationwide PCS Network. With peak rates of up to 2.4 Megabits per second for
downloads, EV-DO will accelerate mobile-device data speeds up to 10 times faster
than on our current network. In addition, this technology is expected to deliver
superior application and service performance on EV-DO-capable handsets and
laptops equipped with EV-DO-enabled Sprint PCS Connection CardsTM. Sprint is
targeting the first commercial roll-out of EV-DO in the 2005 second quarter and
subsequent roll-outs will continue through the first half of 2006.
Wireless supplements its own network through commercial affiliation arrangements
with other companies that use CDMA. Under these arrangements, these companies
offer wireless services under Sprint's brand on CDMA networks built and operated
at their own expense. We call these companies Sprint PCS Affiliates. Generally,
the Sprint PCS Affiliates use spectrum owned and controlled by Sprint. The
agreements with ten of the 11 Sprint PCS Affiliates have been amended to provide
for a simplified pricing mechanism, as well as refining and changing various
business processes.
Sprint is subject to exclusivity provisions and other restrictions under its
arrangements with the Sprint PCS Affiliates. Once the proposed merger is
completed, continued compliance with those restrictions may limit the ability to
fully integrate the operations of Sprint and Nextel in areas managed by the
Sprint PCS Affiliates, and Sprint or Sprint Nextel could incur significant costs
to resolve issues related to the proposed merger under these arrangements. We
are currently working with the Sprint PCS Affiliates in an attempt to modify our
arrangements with them such that the proposed merger of Sprint and Nextel may be
mutually beneficial.
Wireless also provides wireless services to companies that resell wireless
services to their customers on a retail basis under their own brand using the
Sprint Nationwide PCS Network. These companies bear the costs of acquisition,
billing and customer service. In June 2002, Virgin Mobile USA, LLC, a joint
venture between Sprint and the Virgin Group, launched services targeting youth
and pre-pay segments. Sprint also has a multi-year, exclusive wholesale
agreement with Qwest Communications (Qwest) whereby Qwest wireless subscribers
use the Sprint Nationwide PCS Network and have access to Sprint PCS Vision data
services. Qwest began adding new subscribers under this agreement in the 2004
first quarter. In the 2004 second quarter, existing subscribers began
transitioning to Sprint's Nationwide PCS Network. This transition was completed
in the 2005 first quarter.
Selected Operating Results
----------------------------------------------------------------------
Quarters Ended
March 31, Variance
----------------------------------- -------------------------------
(millions) 2005 2004 $ %
--------------------------------------------- --- ------------- -- -------------- -- ------------- -------------
Net operating revenues
Service $ 3,314 $ 2,939 $ 375 12.8%
Equipment 328 377 (49) (13.0)%
Wholesale, affiliate and other 225 121 104 86.0%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Total net operating revenues 3,867 3,437 430 12.5%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Operating expenses
Costs of services and products 1,831 1,744 87 5.0%
Selling, general and administrative 935 768 167 21.7%
Depreciation and amortization 644 644 - 0.0%
Restructuring and asset impairment 2 4 (2) (50.0)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Total operating expense 3,412 3,160 252 8.0%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Operating income $ 455 $ 277 $ 178 64.3%
--- ------------- -- -------------- -- -------------
Capital expenditures $ 418 $ 406 $ 12 3.0%
--- ------------- -- -------------- -- -------------
Net Operating Revenues
Quarters Ended
March 31,
-----------------------------------
2005 2004
--------------------------------------------- --- ------------- -- --------------
Direct subscribers (millions) 18.3 16.3
--- ------------- -- --------------
Average monthly service revenue
per user (ARPU) $ 61 $ 61
--- ------------- -- --------------
Subscriber churn rate 2.5% 2.9%
--- ------------- -- --------------
Wireless had 518,000 direct net additions in the 2005 first quarter, ending the
period with approximately 18.3 million subscribers compared to approximately
16.3 million subscribers at the end of the 2004 first quarter. Wholesale
partners added 621,000 subscribers in the first quarter of 2005, ending the
period with approximately 4.3 million subscribers, principally driven by Virgin
Mobile USA and Qwest. The Sprint PCS Affiliates added 166,000 subscribers in the
first quarter of 2005, ending the period with approximately 3.4 million
subscribers. This brings the total number of subscribers served on the Wireless
and Sprint PCS Affiliate networks, including direct, Sprint PCS Affiliates and
wholesale subscribers, to 26.0 million at the end of the 2005 first quarter.
Subscriber churn, which is calculated on the direct subscriber base, is computed
by dividing the direct subscribers who discontinued Sprint PCS service by the
weighted average direct subscribers for the period. This is an operational
measure which is used by most wireless companies as a method of estimating the
life of the direct subscriber. Analysts and investors primarily use churn to
compare relative value across the wireless industry. The subscriber churn rate
was 2.5% in the 2005 first quarter compared to 2.9% for the same 2004 period
primarily due to improvement in voluntary churn. The 2004 first quarter was
negatively impacted by the launch of wireless local number portability in
November 2003.
Average monthly service revenue per user (ARPU), calculated on the direct
subscriber base, is computed by dividing direct wireless service revenues by
weighted average monthly direct wireless subscribers to measure revenue on a per
user basis. This is a measure which uses GAAP as the basis for the calculation.
ARPU, which is used by most wireless companies, is a method of valuing recurring
subscriber revenue and is used by analysts and investors to compare relative
value across the wireless industry.
Net operating revenues include service revenues from the direct subscriber base,
revenues from sales of handsets and accessory equipment, and revenues from
wholesale partners and Sprint PCS Affiliates. Service revenues consist of
monthly recurring charges, usage charges and miscellaneous fees such as
directory assistance, operator-assisted calling, handset insurance and late
payment charges. Service revenues increased 13% in the 2005 first quarter from
the same 2004 period reflecting an increase in the number of subscribers,
increased revenue from data services, and subscriber elections to add services
to their base plans. These increases were partially offset by lower fees and
lower overage charges from usage-based plans. In the 2005 first quarter, 64% of
new direct subscribers chose to include Sprint PCS Vision in their service
package. At the end of the period approximately 44% of the subscriber base
included data services in their wireless plan compared to approximately 38% at
the end of the 2004 first quarter.
Average monthly usage in the 2005 first quarter was just over 16 hours per
month, an increase of approximately two hours when compared to the 2004 first
quarter but relatively unchanged when compared to the 2004 fourth quarter. The
growth in average monthly usage has significantly slowed over the last few
quarters. Wireless may be challenged in the future to sustain ARPU levels if
minute yields are pressured and usage remains flat.
Revenues from sales of handsets and accessories, including new subscribers and
upgrades, were approximately 8.5% of net operating revenues in the 2005 first
quarter compared to 11.0% for the same 2004 period. This decline was mainly due
to lower retail prices, higher rebate offers on handsets and lower sales to
third party retailers. Wireless' marketing plans assume that handsets, net of
rebates, are normally sold at prices below cost.
Wholesale, affiliate and other revenues consist primarily of net revenues
retained from Wireless subscribers residing in Sprint PCS Affiliate territories,
and revenues from the sale of our wireless services to companies that resell
those services to their subscribers on a retail basis. These revenues
represented 5.8% of net operating revenues in the 2005 first quarter compared to
3.5% for the same 2004 period. These increases mainly reflect the net additions
from the wholesale and Sprint PCS Affiliate bases.
Costs of Services and Products
Costs of services and products mainly include handset and accessory costs,
switch and cell site expenses, customer service costs and other network-related
costs. These costs increased 5% in the 2005 first quarter from the same 2004
period. These increases were primarily due to network support of a larger
subscriber base, higher minutes of use and growth in the size of the network.
These increases were somewhat offset by decreases in handset costs, including
lower equipment refurbishment costs due to operational improvements to the
handset exchange and insurance programs. Handset and equipment costs were 35.6%
of total costs of services and products in the 2005 first quarter compared to
41.4% for the same 2004 period. Costs of services and products were 47.3% of net
operating revenues in the 2005 first quarter compared to 50.7% for the same 2004
period.
Selling, General and Administrative
Selling, General and Administrative (SG&A) expense mainly includes sales and
marketing costs to promote and sell products and services, as well as salary,
benefit and other administrative costs. SG&A expense increased 22% in the 2005
first quarter from the same 2004 period reflecting an increase in sales and
distribution costs primarily driven by higher direct gross additions and an
expanded direct retail presence. Wireless has significantly expanded its
company-owned network of retail stores. Improving returns from this investment,
through achievement of targeted productivity levels, is a critical component in
Wireless' efforts to expand margins. Marketing costs in 2005 also contributed to
the increase following reduced marketing spending in the year-ago period in
advance of the 2004 second quarter launch to reposition the Sprint PCS(R) brand.
SG&A expense was 24.2% of net operating revenues in the 2005 first quarter
compared to 22.3% for the same 2004 period.
SG&A includes charges for estimated bad debt expense. The reserve for bad debt
requires management's judgement and is based on customer specific indicators, as
well as historical trending, industry norms, and recognition of current market
indicators about general economic conditions. Bad debt expense as a percentage
of net operating revenues was 1.4% in the 2005 first quarter compared to 1.1%
for the same 2004 period. Reserve for bad debt as a percent of outstanding
accounts receivable was 7.8% at the end of the 2005 first quarter and 6.8% at
year-end 2004.
Depreciation and Amortization
Estimates and assumptions are used both in setting depreciable lives and testing
for recoverability. Assumptions are based on internal studies of use, industry
data on lives, recognition of technological advancements and understanding of
business strategy. Depreciation expense consists mainly of depreciation of
network assets.
Depreciation and amortization expense remained flat in the 2005 first quarter
from the same 2004 period. Depreciation and amortization expense was 16.7% of
net operating revenues in the 2005 first quarter compared to 18.7% for the same
2004 period.
Restructuring and Asset Impairment
In both the 2005 and 2004 first quarters, Wireless recorded restructuring
charges related to Sprint's ongoing Organizational Realignment initiatives.
Local
Local consists mainly of regulated incumbent local phone companies serving
approximately 7.6 million access lines in 18 states. Local provides local and
nationwide long distance voice and data services, including Digital Subscriber
Line (DSL), access by other carriers to the local network, sales of
telecommunications equipment, and other telecommunications-related services.
Local provides wireless and video services through agency relationships.
Selected Operating Results
----------------------------------------------------------------------
Quarters Ended
March 31, Variance
----------------------------------- -------------------------------
(millions) 2005 2004 $ %
--------------------------------------------- --- ------------- -- -------------- -- ------------- -------------
Net operating revenues
Voice $ 1,105 $ 1,147 $ (42) (3.7)%
Data 233 195 38 19.5%
Other 160 164 (4) (2.4)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Total net operating revenues 1,498 1,506 (8) (0.5)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Operating expenses
Costs of services and products 482 451 31 6.9%
Selling, general and administrative 293 327 (34) (10.4)%
Depreciation and amortization 277 268 9 3.4%
Restructuring 1 14 (13) (92.9)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Total operating expense 1,053 1,060 (7) (0.7)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Operating income $ 445 $ 446 $ (1) (0.2)%
--- ------------- -- -------------- -- -------------
Operating margin 29.7% 29.6%
--- ------------- -- --------------
Capital expenditures $ 156 $ 209 $ (53) (25.4)%
--- ------------- -- -------------- -- -------------
Net Operating Revenues
Net operating revenues decreased slightly in the 2005 first quarter from the
same 2004 period. The decline was driven by lower voice revenue largely offset
by growth in data revenue. Local ended the 2005 first quarter with approximately
7.6 million switched access lines, a 3% decrease during the past 12 months. The
reduction in access lines was driven principally by wireless and broadband
substitution and losses to competitive local providers. Local experiences a
degree of seasonality in access line losses with declines typically lower in the
first quarter of each year and higher during the second quarter. These trends
are largely attributable to customer movement to and from our Florida
territories. Access line losses are expected to continue as competition from
Voice over IP through cable providers increases and wireless substitution
continues.
Voice Revenues
Voice revenues, consisting of revenue from local exchange services,
long-distance revenue and switched access revenue, decreased 4% in the 2005
first quarter from the same 2004 period due to a decrease in access lines and
lower access minutes of use. Additionally, in 2004, voice revenues included
various FCC-allowable cost recoveries which have now ended.
Data Revenues
Data revenues are mainly derived from DSL, local data transport services, and
special access. Data revenues increased 19% in the 2005 first quarter compared
to the same 2004 period driven by strong growth in DSL lines, as well as special
access sales primarily to wireless companies. Local ended the 2005 first quarter
with 551,000 DSL lines in service, an increase of 58% compared to the year ago
period.
Other Revenues
Other revenues decreased 2% in the 2005 first quarter from the same 2004 period
principally driven by lower equipment sales.
Costs of Services and Products
Costs of services and products include costs to operate and maintain the local
network and costs of equipment sales. These costs increased 7% in the 2005 first
quarter compared to the same 2004 period. The increase was mainly driven by
higher costs associated with DSL revenues, as well as Local's unlimited long
distance product. Costs of services and products were 32.2% of net operating
revenues in the 2005 first quarter compared to 29.9% for the same period a year
ago.
Selling, General and Administrative
SG&A expense decreased 10% in the 2005 first quarter compared to the same 2004
period. The decrease was primarily due to general expense controls partially
offset by higher stock-based compensation. SG&A expense was 19.6% of net
operating revenues in the 2005 first quarter compared to 21.7% for the same
period a year ago.
SG&A includes charges for estimated bad debt expense. The reserve for bad debt
requires management's judgement and is based on historical trending, industry
norms and recognition of current market indications about general economic
conditions. Bad debt expense as a percentage of net revenues was 1.3% in both
the 2005 and 2004 first quarters. Reserve for bad debt as a percent of
outstanding accounts receivable was 9.9% at the end of the 2005 first quarter
and 9.4% at year-end 2004.
Depreciation and Amortization
Estimates and assumptions are used both in setting depreciable lives and testing
for recoverability. Assumptions are based on internal studies of use, industry
data on lives, recognition of technological advancements and understanding of
business strategy. Depreciation and amortization expense increased 3% in the
2005 first quarter compared to the same 2004 period. Depreciation and
amortization expense was 18.5% of net operating revenues in the 2005 first
quarter compared to 17.8% for the same period a year ago.
Restructuring and Asset Impairment
In both the 2005 and 2004 first quarters, Local's restructuring activities were
related to Sprint's ongoing Organizational Realignment initiatives.
Long distance
Long distance provides a broad suite of communications services targeted to
domestic business and residential customers, multinational corporations and
other communications companies. These services include domestic and
international voice, data communications using various protocols such as IP and
frame relay, and managed network services. Sprint is one of the nation's largest
providers of long distance services, and operates all-digital long distance and
tier one IP networks. Long distance is selling into the cable telephony market
through arrangements with cable companies that resell Sprint long distance
service and/or use Sprint back office systems and network assets in support of
their local telephone service provided over cable facilities.
Selected Operating Results
----------------------------------------------------------------------
Quarters Ended
March 31, Variance
----------------------------------- -------------------------------
(millions) 2005 2004 $ %
--------------------------------------------- --- ------------- -- -------------- -- ------------- -------------
Net operating revenues
Voice $ 1,065 $ 1,186 $ (121) (10.2)%
Data 412 452 (40) (8.8)%
Internet 178 223 (45) (20.2)%
Other 60 51 9 17.6%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Total net operating revenues 1,715 1,912 (197) (10.3)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Operating expenses
Costs of services and products 1,086 1,053 33 3.1%
Selling, general and administrative 369 516 (147) (28.5)%
Depreciation and amortization 117 320 (203) (63.4)%
Restructuring and asset impairment (3) 12 (15) NM
--------------------------------------------- --- ------------- -- -------------- -- -------------
Total operating expense 1,569 1,901 (332) (17.5)%
--------------------------------------------- --- ------------- -- -------------- -- -------------
Operating income $ 146 $ 11 $ 135 NM
--- ------------- -- -------------- -- -------------
Capital expenditures $ 65 $ 56 $ 9 16.1%
--- ------------- -- -------------- -- -------------
NM = Not meaningful
Net Operating Revenues
Net operating revenues decreased 10% in the 2005 first quarter from the same
2004 period. Lower pricing and the sale of Long distance's wholesale Dial IP
service were the primary reasons for the revenue decline. Throughout 2005, we
expect continued revenue declines in Long distance due to continued pricing
pressure and the migration of long distance from wireline to wireless.
Voice Revenues
Voice revenues decreased 10% in the 2005 first quarter from the same 2004 period
due to a decline in retail business and consumer voice revenues resulting from
wireless, e-mail and instant messaging substitution, aggressive competition from
Regional Bell Operating Companies (RBOCs) for consumer and small business
customers and aggressive pricing by traditional interexchange carriers and the
RBOCs for enterprise customers. Minute volume increased 12% in the 2005 first
quarter compared to the same 2004 period. Voice revenues generated from the
provision of services to Wireless and Local represented 14.6% of total voice
revenues in the 2005 first quarter compared to 12.3% in the same 2004 period.
Data Revenues
Data revenues reflect sales of current-generation data services including
asynchronous transfer mode (ATM), managed network services, private line, and
frame relay systems. Data revenues decreased 9% in the 2005 first quarter from
the same 2004 period. The decrease was driven by declines in frame relay,
private line services and ATM.
Internet Revenues
Internet revenues decreased 20% in the 2005 first quarter from the same 2004
period. The decline was mainly driven by a decrease in Dial IP, somewhat offset
by an increase in dedicated IP. In the 2004 third quarter, a large Dial IP
contract expired. In the 2004 fourth quarter, Sprint completed the sale of
wholesale Dial IP service.
Other Revenues
Other revenues increased 18% in the 2005 first quarter from the same 2004
period. The increase was primarily due to higher equipment sales.
Costs of Services and Products
Costs of services and products include access costs paid to local phone
companies, other domestic service providers and foreign phone companies to
complete calls made by Long distance's domestic customers, cost to operate and
maintain the long distance networks, and costs of equipment. Costs increased 3%
in the 2005 first quarter compared to the same 2004 period. The increase is
primarily attributable to higher volumes, as well as an unfavorable
out-of-period Universal Service Fund (USF) calculation adjustment. These costs
were partially offset by headcount reduction costs, renegotiated access rate
agreements and initiatives to reduce access unit costs. Costs of services and
products for Long distance were 63.3% of net operating revenues in the 2005
first quarter compared to 55.1% for the same period a year ago. These increases
reflect the competitive pricing environment of the long-distance business, an
increasing mix of lower priced affiliate volumes, and the USF adjustment.
Selling, General and Administrative
SG&A expenses decreased 28% in the 2005 first quarter from the same 2004 period.
The decline was due to restructuring efforts and general cost controls. SG&A
expense was 21.5% of net operating revenues in the 2005 first quarter compared
to 27.0% for the same period a year ago.
SG&A includes charges for estimated bad debt expense. The reserve for bad debt
requires management's judgement and is based on customer specific indicators, as
well as historical trending, industry norms and recognition of current market
indicators about general economic conditions. Bad debt expense as a percentage
of net revenues was 1.2% in the 2005 first quarter compared to 1.3% for the same
2004 period. Reserve for bad debt as a percent of outstanding accounts
receivable was 12.9% at the end of the 2005 first quarter and 12.3% at year-end
2004.
Depreciation and Amortization
Estimates and assumptions are used both in setting depreciable lives and testing
for recoverability. Assumptions are based on internal studies of use, industry
data on lives, recognition of technological advancements and understanding of
business strategy. Depreciation and amortization expense decreased 63% in the
2005 first quarter from the same period a year ago primarily driven by a
decreased asset base due to the asset impairment of Long distance's property,
plant and equipment in the 2004 third quarter.
Depreciation expense was 6.8% of net operating revenues in the 2005 first
quarter compared to 16.7% for the same period a year ago.
Restructuring and Asset Impairment
In both the 2005 and 2004 first quarters, Long distance's restructuring
activities were related to Sprint's ongoing Organizational Realignment
initiatives, as well as the Web Hosting wind-down.
--------------------------------------------------------------------------------
Nonoperating Items
--------------------------------------------------------------------------------
Interest Expense
Interest expense decreased $27 million in the 2005 first quarter compared to the
same period a year ago. This decrease is primarily due to a reduction in
Sprint's outstanding debt.
Sprint's effective interest rate on long-term debt was 7.0% in the 2005 first
quarter compared to 6.9% in the 2004 first quarter. The higher effective
interest rate is primarily due to the maturity and early retirement of debt with
lower effective interest rates. Interest costs on short-term borrowings and
interest costs on deferred compensation plans have been excluded so as not to
distort the effective interest rate on long-term debt. See "Liquidity and
Capital Resources" for more information on Sprint's financing activities.
Other Income (Expense), net
Other income (expense), net consisted of the following:
Quarters Ended
March 31,
-----------------------------------
2005 2004
--------------------------------------------- --- ------------- -- --------------
(millions)
Interest income $ 29 $ 9
Equity in net losses of affiliates (9) (12)
Amortization of debt costs (5) (6)
Royalties 4 4
Tracking stock recombination
advisory fees - (15)
Other, net 7 (6)
--------------------------------------------- --- ------------- -- --------------
Total $ 26 $ (26)
--- ------------- -- --------------
Interest income reflects interest earned on marketable debt securities.
Equity in net losses of affiliates was driven by Sprint's investment in Virgin
Mobile USA, in all periods presented.
Royalties consist of payments made by Call-Net Enterprises, Inc., equaling 2.5%
of their gross revenues from telecommunications services.
Income Taxes
See Note 8 of the Condensed Notes to Consolidated Financial Statements for
information about the differences that caused the effective income tax rates to
vary from the federal statutory rate for income taxes.
--------------------------------------------------------------------------------
Financial Condition
--------------------------------------------------------------------------------
Sprint's consolidated assets of $40.3 billion reflect a decrease of $1.0 billion
in the 2005 first quarter from 2004 year-end. Cash and equivalents decreased
$489 million due to a combination of debt service requirements, capital
expenditures and dividend payments in excess of cash from operations, which
included a $300 million pension contribution. Net property, plant, and equipment
decreased $381 million. Capital expenditures were more than offset by
depreciation expense in the 2005 first quarter.
--------------------------------------------------------------------------------
Liquidity and Capital Resources
--------------------------------------------------------------------------------
Sprint's board of directors exercises discretion regarding the liquidity and
capital resource needs of its business segments. This includes the ability to
prioritize the use of capital and debt capacity, to determine cash management
policies and to make decisions regarding the timing and amount of capital
expenditures.
Operating Activities
Sprint's operating cash flows of $1.4 billion increased $346 million in the 2005
first quarter from the same 2004 period. This growth is driven by higher
Wireless revenues and various company-wide cost containment initiatives somewhat
offset by declining wireline revenues. Lower consolidated working capital
requirements, driven mainly by improved accounts receivable collections, also
contributed to the overall increase in cash from operations.
Investing Activities
Sprint's cash flows used by investing activities totaled $745 million in the
2005 first quarter compared to $700 million in the 2004 first quarter. Capital
expenditures account for the majority of Sprint's investing activities. Wireless
capital expenditures were incurred mainly to maintain and enhance network
reliability and upgrade capabilities for providing new products and services
including EV-DO. Local incurred capital expenditures primarily to accommodate
voice grade equivalent growth, convert our network from circuit to packet
switching, continue the build-out of high-speed DSL services and to meet
regulatory requirements. Long distance capital expenditures were incurred to
meet capacity demands, maintain network reliability and upgrade capabilities for
providing new products and services. In 2005, the overall decrease in capital
expenditures was driven by lower Local spending, somewhat offset by slight
increases in Wireless and Long distance spending.
Financing Activities
Sprint's cash flows used by financing activities totaled $1.1 billion in the
2005 first quarter compared to $88 million in the same 2004 period. Financing
activities include a $1.0 billion reduction of debt in the 2005 first quarter
compared with a reduction of $22 million in the same 2004 period. The debt
reduction in 2005 was due to the repayment of senior notes at their scheduled
maturity. Sprint paid cash dividends of $187 million in the 2005 first quarter
compared with $115 million in the 2004 first quarter. The 2005 first quarter
dividend increase compared to the 2004 first quarter was due primarily to
additional shares of FON common stock issued in the April 2004 tracking stock
recombination.
Capital Requirements
Sprint's 2005 investing activities, mainly consisting of capital expenditures,
are expected to total approximately $4.0 to $4.2 billion. These expenditures are
targeted primarily towards increased network capacity and coverage. They are
expected to also include investments for growth in demand for enterprise
services, broadband initiatives in Wireless and Local and the phased transition
from circuit to packet switching in Local. Sprint continues to review capital
expenditure requirements closely and will adjust spending and capital investment
in concert with customer demand. Dividend payments are expected to approximate
$750 million in 2005.
Liquidity
In the past, Sprint used the long-term bond market, as well as other financial
markets, to fund its needs. As a result of its improved liquidity position,
Sprint has not recently accessed the capital markets and does not currently
expect to do so in 2005 to fund either capital expenditures or operating
requirements.
Sprint has a revolving credit facility with a syndicate of banks which expires
in June 2005, and is expected to be renewed. The $1.0 billion facility is
unsecured, with no springing liens, and is structured as a 364-day credit line
with a subsequent one-year, $1.0 billion term-out option. Sprint does not intend
to draw against this facility. Sprint had letters of credit of approximately
$113 million as of March 31, 2005.
Sprint has a Wireless accounts receivable asset securitization facility that
provides Sprint with up to $500 million of additional liquidity. The facility,
which expires in May 2005 and is expected to be renewed, does not include any
ratings triggers that would allow the lenders involved to terminate the facility
in the event of a credit rating downgrade. The maximum amount of funding
available is based on numerous factors and will fluctuate each month. Sprint has
not drawn against the facility and more than $257 million was available as of
March 31, 2005.
Sprint also has a Long distance accounts receivable asset securitization
facility that provides Sprint with up to $700 million of additional liquidity.
The facility, which expires in August 2005, does not include any ratings
triggers that would allow the lenders involved to terminate the facility in the
event of a credit rating downgrade. The maximum amount of funding available is
based on numerous factors and will fluctuate each month. In February 2003,
Sprint prepaid all outstanding borrowings under this facility. As of March 31,
2005, Sprint had more than $347 million total funding available under the
facility.
The undrawn loan facilities described above would charge interest rates equal to
LIBOR or Prime Rate plus a spread that varies depending on Sprint's credit
ratings.
Debt maturities, including capital lease obligations, total approximately $240
million for the remainder of 2005. Sprint's $3.7 billion cash balance at March
31, 2005 and expected 2005 cash flow from operations more than fund these
requirements.
Any borrowings Sprint may incur are ultimately limited by certain debt
covenants. At March 31, 2005, Sprint's most restrictive debt covenant would
allow an additional $11.7 billion of debt. Sprint is currently in compliance
with all debt covenants associated with its borrowings.
Fitch Ratings currently rates Sprint's senior unsecured debt at BBB. On December
15, 2004, Fitch placed Sprint's rating on Rating Watch Positive. Standard and
Poor's Corporate Ratings currently rates Sprint's long-term senior unsecured
debt at BBB-. On October 8, 2004, Standard and Poor's placed Sprint's rating on
CreditWatch with positive implications. Moody's Investor Service currently rates
Sprint's long-term senior unsecured debt at Baa3 and on December 15, 2004,
changed the outlook to Developing.
Sprint's ability to fund its capital needs is ultimately impacted by the overall
capacity and terms of the bank, term-debt and equity markets. Given the
volatility in the markets, Sprint continues to monitor the markets closely and
to take steps to maintain financial flexibility and a reasonable capital
structure cost. Sprint currently plans to access the markets only for extension,
replacement or renewal of current credit arrangements.
Off-Balance Sheet Financing
Sprint does not participate in, or secure, financings for any unconsolidated,
special purpose entities. Sprint does have bankruptcy-remote entities which are
included in Sprint's Consolidated Financial Statements.
--------------------------------------------------------------------------------
Financial Strategies
--------------------------------------------------------------------------------
General Risk Management Policies
Sprint selectively enters into interest rate swap agreements to manage its
exposure to interest rate changes on its debt. Sprint also enters into forward
contracts and options in foreign currencies to reduce the impact of changes in
foreign exchange rates. Sprint seeks to minimize counterparty credit risk
through stringent credit approval and review processes, the selection of only
the most creditworthy counterparties, continual review and monitoring of all
counterparties, and thorough legal review of contracts. Sprint also controls
exposure to market risk by regularly monitoring changes in foreign exchange and
interest rate positions under normal and stress conditions to ensure they do not
exceed established limits.
Sprint's derivative transactions are used principally for hedging purposes. The
Sprint board of directors has authorized Sprint to enter into derivative
transactions, and all transactions comply with Sprint's risk management
policies.
Interest Rate Risk Management
Fair Value Hedges
Sprint enters into interest rate swap agreements to manage exposure to interest
rate movements and achieve an optimal mixture of floating and fixed-rate debt
while minimizing liquidity risk. The interest rate swap agreements designated as
fair value hedges effectively convert Sprint's fixed-rate debt to a floating
rate by receiving fixed rate amounts in exchange for floating rate interest
payments over the life of the agreement without an exchange of the underlying
principal amount. At March 31, 2005, Sprint had outstanding interest rate swap
agreements, which were designated as fair value hedges.
Cash Flow Hedges
Sprint enters into interest rate swap agreements designated as cash flow hedges
to reduce the impact of interest rate movements on future interest expense by
effectively converting a portion of its floating-rate debt to a fixed-rate. As
of March 31, 2005, Sprint had no outstanding interest rate cash flow hedges.
Other Derivatives
In certain business transactions, Sprint is granted warrants to purchase the
securities of other companies at fixed rates. These warrants are supplemental to
the terms of the business transaction and are not designated as hedging
instruments.
During 2002 and 2003, Sprint entered into variable prepaid forward contracts to
monetize equity securities held as available for sale. The derivatives have been
designated as cash flow hedges to reduce the variability in expected cash flows
related to the forecasted sale of the underlying equity securities. In the 2004
fourth quarter and the 2005 first quarter certain of the prepaid forward
contracts settled. The remaining contracts will be settling throughout 2005.
Foreign Exchange Risk Management
Sprint's foreign exchange risk management program focuses on reducing
transaction exposure to optimize consolidated cash flow. Sprint's primary
transaction exposure results from payments made to and received from overseas
telecommunications companies for completing international calls made by Sprint's
domestic customers and from the operation of its international subsidiaries.
These international operations were not material to the consolidated financial
position at March 31, 2005 or results of operations or cash flows for the
quarter ended March 31, 2005. Sprint has not entered into any significant
foreign currency forward contracts or other derivative instruments to reduce the
effects of adverse fluctuations in foreign exchange rates. As a result, Sprint
was not subject to material foreign exchange risk.
Part I.
Item 3
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The risk inherent in Sprint's market risk sensitive instruments and positions is
the potential loss arising from adverse changes in those factors. Sprint is
susceptible to certain risks related to changes in interest rates and foreign
currency exchange rate fluctuations. Sprint does not purchase or hold any
derivative financial instruments for trading purposes.
Interest Rate Risk
The communications industry is a capital intensive, technology driven business.
Sprint is subject to interest rate risk primarily associated with its
borrowings. Sprint selectively enters into interest rate swap agreements to
manage its exposure to interest rate changes on its debt.
Approximately 95% of Sprint's outstanding debt at March 31, 2005 is fixed-rate
debt, excluding interest rate swaps. While changes in interest rates impact the
fair value of this debt, there is no impact on earnings and cash flows because
Sprint intends to hold these obligations to maturity unless market conditions
are favorable.
As of March 31, 2005, Sprint held fair value interest rate swaps with a notional
value of $1 billion. These swaps were entered into as hedges of the fair value
of a portion of our senior notes. These interest rate swaps have maturities
ranging from 2008 to 2012. On a semiannual basis, Sprint pays a floating rate of
interest equal to the six-month LIBOR, plus a fixed spread, which averaged 5.7%
as of March 31, 2005, and received an average interest rate equal to the coupon
rates stated on the underlying senior notes of 7.2%. Assuming a one percentage
point increase in the prevailing forward yield curve, the fair value of the
interest rate swaps and the underlying senior notes would change by $42 million.
These interest rate swaps met all the requirements for perfect effectiveness
under derivative accounting rules; therefore, there is no impact on earnings and
cash flows for any fair value fluctuations.
Sprint performs interest rate sensitivity analyses on its variable-rate debt
including interest rate swaps. These analyses indicate that a one percentage
point change in interest rates would have an annual pre-tax impact of $12
million on the Statements of Operations and Consolidated Statements of Cash
Flows at March 31, 2005. While Sprint's variable-rate debt is subject to
earnings and cash flows impacts as interest rates change, it is not subject to
changes in fair values.
Sprint also performs a sensitivity analysis on the fair market value of its
outstanding debt. A 10% decrease in market interest rates would cause a $581
million increase in fair market value of its debt to $19 billion.
Foreign Currency Risk
Sprint also enters into forward and option contracts in foreign currencies to
reduce the impact of changes in foreign exchange rates. Sprint uses foreign
currency derivatives to hedge its foreign currency exposure related to
settlement of international telecommunications access charges and the operation
of international subsidiaries. The dollar equivalent of Sprint's net foreign
currency payables from international settlements was $45 million and net foreign
currency receivables from international operations was $18 million at March 31,
2005. The potential immediate pre-tax loss to Sprint that would result from a
hypothetical 10% change in foreign currency exchange rates based on these
positions would be approximately $2 million.
Part I
Item 4
Item 4. Controls and Procedures
In connection with the preparation of this Form 10-Q and as of March 31, 2005,
under the supervision and with the participation of Sprint's management,
including Sprint's Chief Executive Officer and Chief Financial Officer, Sprint
carried out an evaluation of the effectiveness of the design and operation of
Sprint's disclosure controls and procedures. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer each concluded that the design and
operation of the disclosure controls and procedures were effective as of March
31, 2005 in providing reasonable assurance that information required to be
disclosed in reports Sprint files or submits under the Securities Exchange Act
of 1934 is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure and in providing reasonable assurance
that the information is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms.
No changes were made in Sprint's internal controls over financial reporting
during the quarter ended March 31, 2005 that have materially affected, or are
reasonable likely to materially affect, Sprint's internal controls over
financial reporting.
Part II.
Other Information
Part II. - Other Information
Item 1. Legal Proceedings
As reported in Sprint's 2004 Annual Report on Form 10-K/A, in February
2005, the District Court of Johnson County, Kansas denied defendants'
motion to dismiss the complaint in the lawsuit against Sprint and
certain of its directors relating to the recombination of the tracking
stocks. The consolidated lawsuit alleges breach of fiduciary duty in
connection with allocations between the FON Group and the PCS Group
before the recombination of the tracking stocks and breach of fiduciary
duty in the recombination. All defendants have denied plaintiffs'
allegations and intend to vigorously defend this matter.
Various other suits, proceedings and claims, including purported class
actions, typical for a business enterprise, are pending against Sprint.
While it is not possible to determine the ultimate disposition of each
of these proceedings and whether they will be resolved consistent with
Sprint's beliefs, Sprint expects that the outcome of these proceedings,
individually or in the aggregate, will not have a material adverse
effect on the financial condition or results of operations of Sprint or
its business segments.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Unregistered Equity Securities
In March 2005, Sprint issued to certain of its directors and current
and former executive officers an aggregate of 4,828 unregistered
restricted stock units relating to shares of FON common stock. These
restricted stock units were the result of dividend equivalent rights
attached to restricted stock units granted to these directors and
officers in 2003. Each restricted stock unit represents the right to
one share of FON common stock once the unit vests. The restricted stock
units are scheduled to vest in 2005, 2006 and 2007. Delivery of the
shares may be delayed under certain circumstances.
Neither these restricted stock units nor the common stock issuable once
the units vest were registered under the Securities Act of 1933. The
issuance of the restricted stock units was exempt from registration
under the Securities Act in reliance on the exemption provided by
Section 4(2) of the Securities Act because the restricted stock units
were issued in transactions not involving a public offering.
Issuer Purchases of Equity Securities
---------------- --- ----------------- -- ------------- -----------------
Total Number Maximum Number
of Shares (or Approximate
Purchased Dollar Value)
as Part of of Shares that
Publicly May Yet Be
Total Number Average Price Announced Purchased Under
of Shares Paid Plans or the Plans or
Period Purchased(1) Per Share(2),(3) Programs Programs
---------------- --- ----------------- -- ------------- -----------------
January 1 through January 31
FON common stock 2,012 $ 24.188 - -
February 1 through February 28
FON common stock 253 $ 23.871 - -
March 1 through March 31
FON common stock 46,419 $ 23.659 - -
(1) All acquisitions of equity securities during the 2005 first
quarter were the result of the operation of the terms of Sprint's
shareholder approved equity compensation plans (the Management
Incentive Stock Option Plan and the 1997 Long-Term Stock Incentive
Program) and the terms of the equity grants pursuant to those
plans, as follows: the forfeiture of restricted stock; the
surrender of restricted stock to pay required minimum income,
Medicare and FICA tax withholding on the vesting of restricted
stock; the delivery by attestation of previously owned shares
owned by the grantee to pay the exercise price of options; and the
delivery of previously owned shares owned by the grantee to pay
additional income tax withholding on (i) the vesting of restricted
stock, (ii) the delivery of shares underlying restricted stock
units, and (iii) the exercise of options. Excludes shares used for
required minimum tax withholding on the exercise of options and
the delivery of shares underlying restricted stock units since
only the net shares are issued.
(2) Excludes the amount paid in the 2005 first quarter for fractional
shares of FON common stock acquired in the 2004 second quarter
recombination of the PCS common stock and FON common stock.
Pursuant to Sprint's Articles of Incorporation, the cash value per
share is determined by averaging the high and low reported sales
price of the FON common stock on the fifth trading day before the
date on which the payment is made. The payment is made when the
certificates for PCS common stock are surrendered for exchange. In
the 2005 first quarter, payment was made for an aggregate of 143.5
shares of FON common stock at an average price per share of
$24.14.
(3) Excludes forfeited restricted stock since the purchase price was
zero. The purchase price of a share of stock used for the exercise
price of options is the market price of the stock on the date of
the exercise of the option. The purchase price of a share of stock
used for tax withholding is the amount of withholding paid per
share used for that purpose, which is the market price of the
stock on the date of vesting of the restricted stock, the delivery
date of the stock underlying restricted stock units, and the date
of the exercise of the option.
No options may be granted pursuant to the Management Incentive Stock
Option Plan after April 18, 2005. No awards may be granted pursuant to
the 1997 Long-Term Stock Incentive Program after April 15, 2007.
Options, restricted stock awards and restricted stock unit awards
outstanding on those dates may continue to be outstanding after those
dates. Sprint cannot estimate how many shares will be acquired in the
manner described in footnote (1) to the table above through operation
of these plans.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended March 31,
2005.
Item 4. Submission of Matters to a Vote of Security Holders
There were no reportable events during the quarter ended March 31,
2005.
Item 5. Other Information
Ratios of Earnings to Fixed Charges
Sprint's ratio of earnings to fixed charges was 2.86 in the 2005 first
quarter and 1.82 in the 2004 first quarter. The ratio of earnings to
fixed charges was computed by dividing fixed charges into the sum of
earnings, after certain adjustments, and fixed charges. Earnings
include income from continuing operations before income taxes plus net
losses in equity method investees, less capitalized interest. Fixed
charges include interest on all debt of continuing operations,
including amortization of debt issuance costs, and the interest
component of operating rents.
Item 6. Exhibits
(a) The following exhibits are filed as part of this report:
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation
or Succession
(a) Agreement and Plan of Merger, dated as of December 15,
2004, by and among Sprint Corporation, Nextel
Communications, Inc. and S-N Merger Corp. (filed as
Exhibit 2 to Sprint Corporation Current Report on Form
8-K filed December 17, 2004 and incorporated herein by
reference).
(3) Articles of Incorporation and Bylaws:
(a) Restated Articles of Incorporation, dated as of
December 9, 2003 (filed as Exhibit 3(a) to Sprint
Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 and incorporated herein by
reference).
(b) Certificate of Designation, Preferences and Rights of
Preferred Stock-Sixth Series, dated as of April 23,
2004 (filed as Exhibit 3(b) to Sprint Corporation's
quarterly Report on Form 10-Q for the quarter ended
March 31, 2004 and incorporated herein by reference).
(c) Certificate of Elimination of Designations of Preferred
Stock-Eighth Series, dated as of April 23, 2004 (filed
as Exhibit 3(c) to Sprint Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31,
2004 and incorporated herein by reference).
(d) Amended and Restated Bylaws (filed as Exhibit 3(d) to
Sprint Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2004 and incorporated
herein by reference).
(4) Instruments defining the Rights of Sprint's Security Holders:
(a) The rights of Sprints' equity security holders are
defined in the Fifth, Sixth, Seventh and Eighth
Articles of Sprint's Articles of Incorporation. See
Exhibits 3(a), 3(b) and 3(c).
(b) Provision regarding Kansas Control Share Acquisition
Act is in Article II, Section 5 of the Bylaws.
Provisions regarding Stockholders' Meetings are set
forth in Article III of the Bylaws. See Exhibit 3(d).
(c) Second Amended and Restated Rights Agreement between
Sprint Corporation and UMB Bank, n.a., as Rights Agent,
dated as of March 16, 2004 and effective as of April
23, 2004 (filed as Exhibit 1 to Amendment No. 5 to
Sprint Corporation's Registration Statement on Form 8-A
relating to Sprint's Rights, filed April 12, 2004, and
incorporated herein by reference).
(10) Material Agreements
(a) Agreement to Contribute, Lease and Sublease, dated as
of February 14, 2005, among Sprint Corporation, certain
subsidiaries of Sprint Corporation and Global Signal
Inc., including as Exhibit D the Form of Lease and
Sublease Agreement (filed as Exhibit 10 to Sprint
Corporation Current Report on Form 8-K dated February
14, 2005 and incorporated herein by reference).
(b) Letter Agreement dated December 14, 2004 among Nextel
Communications, Inc., Motorola, Inc. and Motorola SMR,
Inc. (filed as Exhibit 10 to Motorola, Inc.'s Schedule
13D/A filed on December 20, 2004, and incorporated
herein by reference).
(10) Executive Compensation Plans and Arrangements:
(c) Amendment No. 2, dated as of March 15, 2005, to the
Employment Agreement dated as of March 19, 2003, as
amended by Amendment No. 1, by and among Sprint
Corporation, Sprint/United Management Company and Gary
D. Forsee.
(d) Form of Award Agreement (awarding stock options and
restricted stock units) with Gary D. Forsee and Len J.
Lauer (filed as Exhibit 10.2 to Sprint Corporation
Current Report on Form 8-K dated March 15, 2005 and
incorporated herein by reference).
(e) Form of Amended and Restated Stock Option Agreement
with Mr. Ausley, an outside director (filed as Exhibit
10.1 to Sprint Corporation Current Report on Form 8-K
dated April 19, 2005 and incorporated herein by
reference).
(f) Director's Deferred Fee Plan, as amended (filed as
Exhibit 10.1 to Sprint Corporation Current Report on
Form 8-K dated February 8, 2005 and incorporated herein
by reference).
(g) Form of 2005 Award Agreement (awarding restricted stock
units) with Directors (filed as Exhibit 10.2 to Sprint
Corporation Current Report on Form 8-K dated February
8, 2005 and incorporated herein by reference).
(h) Form of 2005 Award Agreement (awarding stock options
and restricted stock units) with Messrs. Forsee and
Lauer (filed as Exhibit 10(dd) to Sprint Corporation
Annual Report on Form 10-K for the year ended December
31, 2004 and incorporated herein by reference).
(i) Form of 2005 Award Agreement (awarding stock options
and restricted stock units) with Mr. Fuller (filed as
Exhibit 10(ee) to Sprint Corporation Annual Report on
Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference).
(j) Form of 2005 Award Agreement (awarding stock options
and restricted stock units) with other Executive
Officers (filed as Exhibit 10(ff) to Sprint Corporation
Annual Report on Form 10-K for the year ended December
31, 2004 and incorporated herein by reference).
(k) Summary of 2005 Salaries and Short-Term Incentive
Compensation of Named Executive Officers (filed as
Exhibit 10(j) to Sprint Corporation Annual Report on
Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference).
(l) Summary of Executive Officer Benefits and Board of
Directors Benefits and Fees (filed as Exhibit 10.6 to
Sprint Corporation Current Report on Form 8-K dated
February 8, 2005 and incorporated herein by reference).
(m) Summary of Sprint Retention Program (filed as Exhibit
10(v) to Sprint Corporation Annual Report on Form 10-K
for the year ended December 31, 2004 and incorporated
herein by reference).
(12) Computation of Ratios of Earnings to Fixed Charges
(31) (a) Certification of Chief Executive Officer Pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a).
(b) Certification of Chief Financial Officer Pursuant to
Securities Exchange Act of 1934 Rule 13a-14(a).
(32) (a) Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Sprint will furnish to the Securities and Exchange Commission, upon request, a
copy of the instruments defining the rights of holders of long-term debt that
does not exceed 10% of the total assets of Sprint.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPRINT CORPORATION
-----------------------------------
(Registrant)
By /s/ John P. Meyer
-----------------------------------
John P. Meyer
Senior Vice President - Controller
Principal Accounting Officer
Dated: May 9, 2005