Stock Recombination

Sprint to Recombine Tracking Stocks and Return to Single Common Stock
February 29, 2004 12:00:00 PM ET


OVERLAND PARK, Kan., Feb. 29 /PRNewswire-FirstCall/ -- Sprint (NYSE: FON,
PCS) announced today that its board of directors has decided to recombine
the company's "tracking stocks" and return to a single common stock. As a
result, the PCS common stock will be eliminated and each share of PCS common
stock will convert automatically into .50 shares of FON common stock on
April 23, 2004.

(Logo: http://www.newscom.com/cgi-bin/prnh/20001013/SPRINTLOGO )

In the board's view, the recombination will:

-- Facilitate Sprint's transformation into a company focused on the
needs
of two customer types -- business and consumer -- by removing
barriers
to its ability to target more effectively its customers with a full
suite of integrated products and services.
-- More closely align Sprint's capital structure with the company's
evolving integrated operational focus in view of increased
convergence
of wireless and wireline offerings throughout the telecommunications
industry.
-- Maintain investor understanding of Sprint's capital structure and
financial performance and assure continued clarity of Sprint's
financial reporting.
The Sprint board, working with financial and legal advisors, followed a
rigorous process and conducted a thorough analysis of financial,
operational, structural and strategic factors before reaching the decision
to recombine the stocks. The board and its capital stock committee,
comprised of independent directors, also conducted extensive analyses to
determine a conversion ratio fair to the holders of the PCS common stock and
the FON common stock, each taken as a separate class.

The Sprint board expects to declare the regular dividend of 12.5 cents per
share on all outstanding shares of FON common stock, including those issued
in the recombination, at its meeting in April 2004, payable to shareholders
of record on a date in June 2004. As in the past, the Sprint board will
continue to make its dividend decisions on a quarter-by-quarter basis.

Background

Sprint created the tracking stocks in 1998 in connection with its
acquisition of 100 percent ownership of Sprint PCS. Although Sprint created
two tracking stocks, it has remained a single corporation with a single
board of directors.

The FON shares that will be held following the recombination will not be a
tracking stock, but instead will reflect the financial results and economic
value of all of Sprint's operations. As of Feb. 26, 2004, there were
approximately 1,036,400,000 shares of PCS common stock outstanding and
approximately 906,200,000 shares of FON common stock outstanding. Using the
numbers above, following the recombination there will be approximately
1,424,400,000 shares of FON common stock outstanding.

Current holders of PCS common stock, FON common stock and securities
convertible into PCS stock will receive a written notice explaining the
recombination in greater detail. A copy of the notice is also available at
http://www.sprint.com/sprint/ir/. PCS shareholders will receive cash for any
fractional shares of FON common stock resulting from the recombination.
Holders of PCS common stock, FON common stock and securities convertible
into PCS stock will not recognize income, gain or loss as a result of the
recombination, except with respect to cash received by holders of PCS common
stock in lieu of fractional shares of FON common stock.

There are no regulatory approvals or other conditions that must be satisfied
prior to the recombination becoming effective. As provided in the company's
articles of incorporation, there is no shareholder vote on the
recombination.

As required by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," Sprint expects to recognize
approximately $55 million of non-cash pre-tax expense in 2004 and
approximately $45 million in 2005 related to the conversion of PCS stock
options into FON stock options. This expense recognition primarily reflects
application of stock option expensing to PCS stock options granted before
Jan. 1, 2003.

Lehman Brothers Inc. acted as the financial advisor to the board and to its
capital stock committee.

Updated Financial Profile

Sprint reported GAAP consolidated loss from continuing operations of $367
million for the full-year 2003 and GAAP consolidated income from continuing
operations of $471 million for the full-year 2002. Excluding special items,
Adjusted Income from Continuing Operations* would have been $904 million for
the full-year 2003 and $581 million for the full-year 2002. Assuming the
recombination of Sprint's equities had occurred as of Dec. 31, 2001 at an
identical conversion ratio, pro-forma GAAP loss per share from continuing
operations would have been 27 cents for full-year 2003 and pro-forma GAAP
earnings per share from continuing operations would have been 32 cents for
full-year 2002. Adjusted for special items, pro forma full-year Adjusted
Earnings Per Share* would have been 63 cents for 2003 and 40 cents for full-
year 2002.

Sprint provided FON Group and PCS Group financial guidance in a press
release on Feb. 4, 2004. In light of today's announcement we are issuing
consolidated guidance to reflect the new stock structure. The targets for
consolidated operations are presented on a pro forma basis assuming the
combination of Sprint equities had occurred as of Dec. 31, 2003, except for
Free Cash Flow* which reflects three quarters of dividends for the
recombined stock and one quarter of dividends for the FON tracking stock in
2004 and four quarters of dividends for the recombined stock in 2005.
Consolidated targets incorporate the additional stock option expenses noted
above and advisory fees associated with the recombination. These fees are
expected to be dilutive to 2004 EPS by less than one cent per share. We are
reiterating our previous targets for revenue growth, Adjusted Operating
Income*, Adjusted EBITDA* and capital spending for our three reporting
segments -- the local division, the global markets division and the PCS
wireless telephony products and services business.

Consolidated targets

-- Total net operating revenue growth of 2 to 3 percent in 2004.
-- Adjusted Operating Income* in a range of $3.0 billion to $3.1
billion
in 2004.
-- Adjusted EBITDA* in a range of $8.1 billion to $8.2 billion in 2004
and mid to high single digit growth for the full year 2005.
-- Adjusted EPS* in a range of 70 cents to 75 cents in 2004 and $1.05
to
$1.15 in 2005. These estimates assume average outstanding FON
shares
on a diluted basis of approximately 1.47 billion in 2004 and 1.49
billion in 2005.
-- Free Cash Flow* of approximately $1.8 billion in 2004 and $2.9
billion
in 2005.
-- Capital expenditures of $4.0 billion in 2004 and 2005.
Sprint will host a conference call with investors on Friday, March 5, 2004,
to discuss the recombination. Presentation materials and directions on how
to access the call will be available at http://www.sprint.com/sprint/ir/
starting Tuesday, March 2, 2004.

*Non-GAAP Reconciliations

Sprint Corporation
Adjusted Income from Continuing Operations
(millions, except per share data)

Year Ended December
31,
2003 2002

GAAP Net income $1,215 $630

Discontinued operation (1,324)
(159)
Cumulative effect of a change
in accounting principle (258) --
Income (loss) from continuing operations (367) 471
Special items
Restructuring and asset impairments 1,235 230
Executive separation agreements 22 --
WorldCom bad debt (31) 23
Long-term disability 72 --
Shareholder litigation charge 9 --
Premium on early retirement of debt 13 --
Tax benefits (49)
(292)
EarthLink impairment -- 241
Sale of customer contracts --
(25)
Pegaso sale --
(67)

Adjusted Income from Continuing Operations $904 $581
Sprint Corporation
Pro Forma Adjusted Earnings Per Share

Year Ended December
31,
2003 2002

Pro forma GAAP earnings per share $0.85 $0.43

Discontinued operation (0.94)
(0.11)
Cumulative effect of a change
in accounting principle (0.18) --
Earnings (loss) from continuing operations (0.27) 0.32
Special items 0.90 0.08
Pro forma Adjusted Earnings Per Share $0.63 $0.40
Pro forma diluted weighted average
common shares outstanding* 1,415.3 1,439.1
* Pro forma assuming the recombination of Sprint's equities had occurred
as of December 31, 2001 at an identical conversion ratio.
As the effects of including incremental potential shares are
antidilutive, basic weighted average shares outstanding and diluted
weighted average shares outstanding are the same in 2003.
Description of Special Items

The difference between Sprint Corporation's reported income (loss) from
continuing operations and Adjusted Income from Continuing Operations* and
reported EPS and Adjusted EPS*, is the result of the following special items
in 2003:

-- Discontinued operation -- reflects the operational activity and gain
on sale of Sprint's directory publishing business.
-- Cumulative effect of a change in accounting principle -- a pre-tax
gain of $420 million was recorded upon adoption of Statement of
Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations.
-- Restructuring and asset impairments -- net pre-tax charges of $1,951
million were recorded primarily related to a revaluation of the fair
value of Sprint's MMDS spectrum, the decision to wind down Sprint's
Web Hosting business, the termination of the development of a new
billing platform, severance costs associated with Sprint's
transformation to a customer-focused organizational design and the
termination of other software development projects. Charges from
these actions were partially offset by true-ups related to the
finalization of Sprint's 2001 and 2002 restructuring activities.
-- Executive separation agreements -- a pre-tax charge of $36 million
was
recorded for charges associated with executive separation
agreements.
-- WorldCom bad debt -- a pre-tax benefit of $50 million was recorded
as
a result of a bankruptcy settlement reached with MCI (WorldCom).
-- Long-term disability -- a pre-tax charge of $114 million was
recorded
after determining an understatement of costs for medical coverage
for
participants in the long-term disability plan occurred in periods
before 2003.
-- Shareholder litigation charge -- a net pre-tax charge of $15 million
was recorded for a shareholder litigation settlement, net of related
insurance settlements.
-- Premium on early retirement of debt -- pre-tax charges of $21
million
were recorded related to the early retirement of long-term debt.
-- Tax benefits -- tax benefits of $49 million were recorded related to
the recognition of certain federal and state income tax credits and
the cumulative impact of changes in state income tax apportionments.
The difference between Sprint Corporation's reported income (loss) from
continuing operations and Adjusted Income from Continuing Operations* and
reported EPS and Adjusted EPS*, is the result of the following special items
in 2002:

-- Restructuring and asset impairments -- pre-tax charges of $389
million
were recorded primarily related to the termination of high-speed
data
services, Sprint's consolidation of Network, Information Technology,
Billing and Accounts Receivable organizations, the closing of five
customer solution centers, efforts to create a more competitive cost
structure, as well as an asset impairment for abandoned projects.
Charges from these actions were partially offset by an adjustment to
finalize a prior year restructuring charge and favorable accounting
true-ups.
-- WorldCom bad debt -- a pre-tax charge of $36 million was recorded
related to the expected loss on receivables due to WorldCom's
bankruptcy declaration.
-- Tax benefit -- a tax benefit of $292 million was recorded related to
capital losses that were previously not recognizable.
-- EarthLink impairment -- a pre-tax charge of $241 million was
recorded
due to declining market value.
-- Sale of customer contracts -- a pre-tax gain of $40 million was
recorded related to the sale of customer contracts.
-- Pegaso sale -- a pre-tax gain of $67 million was recorded related to
the sale of the investment in Pegaso.
*Financial Measures

Sprint provides our readers financial measures generated using generally
accepted accounting principles (GAAP) and using adjustments to GAAP (non-
GAAP). The non-GAAP financial measures reflect industry conventions, or
standard measures of liquidity, profitability or performance commonly used
by the investment community for comparability purposes. The financial
measures used in this release include the following:

Adjusted Income from Continuing Operations is defined as income (loss) from
continuing operations plus special items (detailed in the previous section).
This non-GAAP measure should be used in addition to, but not as a substitute
for, the analysis provided in the statement of operations.

Adjusted Earnings Per Share is defined as diluted earnings (loss) per share
from continuing operations plus special items (detailed in the previous
section). This non-GAAP measure should be used in addition to, but not as a
substitute for, the analysis provided in the statement of operations.

Free Cash Flow is defined as the change in cash and equivalents less the
change in discontinued operations, debt, investment in debt securities and
other financing activities, net. This non-GAAP measure should be used in
addition to, but not as a substitute for, the analysis provided in the
statement of cash flows.

Adjusted Operating Income is defined as operating income plus special items.
This non-GAAP measure should be used in addition to, but not as a substitute
for, the analysis provided in the statement of operations.

Adjusted EBITDA is defined as operating income plus depreciation,
amortization and special items. This non-GAAP measure should be used in
addition to, but not as a substitute for, the analysis provided in the
statement of cash flows.

Cautionary Statement Regarding Forward-Looking Information

This news release includes "forward-looking statements" within the meaning
of securities laws. The statements in this news release regarding business
outlook and expected performance, as well as other statements that are not
historical facts, are forward-looking statements.

Forward-looking statements are estimates and projections reflecting
management's judgment based on currently available information. These
statements, include, but are not limited to, statements about the levels of
expected expense related to the recombination, declarations of dividends and
financial performance targets. With respect to these forward-looking
statements, Sprint has made assumptions regarding, among other things,
customer and network usage, customer growth and retention, pricing,
operating costs and the economic environment.

Forward-looking statements involve a number of risks and uncertainties that
could cause actual results to differ materially from those suggested by the
forward-looking statements. Important factors that could cause actual
results to differ materially from estimates or projections contained in the
forward-looking statements include:

-- extent and duration of any economic downturn;
-- the effects of vigorous competition in the markets in which Sprint
operates;
-- the costs and business risks associated with providing new services
and entering new markets;
-- adverse change in the ratings afforded Sprint's debt securities by
ratings agencies;
-- the ability of Sprint's wireless operations and the global markets
division to continue to grow a significant market presence;
-- the ability of Sprint's wireless operations to continue to improve
profitability;
-- the ability of the global markets division and the local division to
improve cash flow generation;
-- the effects of mergers and consolidations in the telecommunications
industry and unexpected announcements or developments from others in
the telecommunications industry;
-- the uncertainties related to the outcome of bankruptcies affecting
the
telecommunications industry;
-- the impact of financial difficulties of third-party affiliates on
Sprint's wireless network coverage;
-- the uncertainties related to Sprint's investments in networks,
systems, and other businesses;
-- the uncertainties related to the implementation of Sprint's business
strategies, including Sprint's initiative to realign services to
enhance the focus on business and consumer customers;
-- the impact of new, emerging and competing technologies on Sprint's
business;
-- unexpected results of litigation filed against Sprint;
-- the impact of wireless local number portability on Sprint's wireless
operation's growth and churn rates, revenues and expenses;
-- 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, including the impact
of
the Telecommunications Act of 1996, or other external factors over
which Sprint has no control; and
-- other risks referenced from time to time in Sprint's filings with
the
Securities and Exchange Commission (SEC).
The words "estimate," "project," "intend," "expect," "believe," "target" and
similar expressions identify forward-looking statements. Sprint believes
these forward-looking statements are reasonable; however, you should not
place undue reliance on forward-looking statements, which are based on
current expectations and speak only as of the date of this release. Sprint
is not obligated to publicly release any revisions to forward-looking
statements to reflect events after the date of this release. Sprint provides
a detailed discussion of risk factors in periodic SEC filings, including its
2002 Form 10-K, and you are encouraged to review these filings.

About Sprint

Sprint is a global integrated communications provider serving more than 26
million customers in over 100 countries. With approximately 67,000 employees
worldwide and over $26 billion in annual revenues in 2003, Sprint is widely
recognized for developing, engineering and deploying state-of-the-art
network technologies, including the United States' first nationwide
all-digital, fiber-optic network and an award-winning Tier 1 Internet
backbone. Sprint provides local communications services in 39 states and the
District of Columbia and operates the largest 100-percent digital,
nationwide PCS wireless network in the United States. For more information,
visit www.sprint.com.

© 2004 PRNewswire

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By setting PCS stock as worth 1/2 share of FON stock, that locks in the higher
price for PCS stock, and makes all the Stock Options of biggies at Sprint PCS
worth millions.

Its just an Enron kind of thing.

Wrong. You have it exactly backward.
PCS stock is being undervalued in that transaction.
---JRC---

"Cell merger" <[email protected]> wrote in message =
news:[email protected]...
> By setting PCS stock as worth 1/2 share of FON stock, that locks in =
the higher
> price for PCS stock, and makes all the Stock Options of biggies at =
Sprint PCS
> worth millions.
>=20
> Its just an Enron kind of thing.