FILED PURSUANT TO RULE 424b(2)
FILE No. 333-65402
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 26, 2001)
70,000,000 SHARES
[LOGO] SPRINT(R)
[LOGO] Sprint(R)
Sprint PCS(R)
SPRINT CORPORATION
PCS COMMON STOCK, SERIES 1
----------------
We are offering 20,434,782 shares of our PCS common stock, series 1, and
NAB Nordamerika Beteiligungs Holding GmbH, a wholly owned subsidiary of
Deutsche Telekom AG, is offering 49,565,218 shares of our PCS common stock,
series 1.
The PCS common stock is intended to track the performance of our PCS
group. Holders of PCS common stock, however, are common stockholders of our
company and are subject to all of the risks of an equity investment in us and
all of our businesses, assets and liabilities.
The PCS common stock, series 1 is traded on the New York Stock Exchange,
or NYSE, under the symbol "PCS". On August 7, 2001, the last reported sales
price of the PCS common stock, series 1 as reported on the NYSE was $24.50 per
share.
Concurrently with this offering we are offering 60,000,000 equity units
(initially consisting of 60,000,000 corporate units) pursuant to a separate
prospectus supplement. Neither offering is contingent upon the closing of the
other offering.
INVESTING IN THE PCS COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS.
----------------
PER SHARE TOTAL
---------- --------------
Public offering price............................ $ 24.50 $1,715,000,000
Underwriting discount............................ $ .6125 $ 42,875,000
Proceeds, before expenses, to us................. $ 23.8875 $ 488,135,855
Proceeds, before expenses, to selling stockholder $ 23.8875 $1,183,989,145
We and the selling stockholder have granted the underwriters the right to
purchase up to an additional 3,065,218 and 7,434,782 shares, respectively, of
PCS common stock, series 1 at the public offering price less the underwriting
discount within 30 days of the date of this prospectus supplement in order to
cover overallotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The shares are expected to be ready for delivery in book-entry form only
through The Depository Trust Company on or about August 10, 2001.
----------------
JOINT BOOK-RUNNING MANAGERS
JPMORGAN MERRILL LYNCH & CO.
UBS WARBURG
----------------
ABN AMRO ROTHSCHILD LLC BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS
----------------
DAIN RAUSCHER WESSELS FIRST UNION SECURITIES, INC. ROBERTSON STEPHENS THE
WILLIAMS CAPITAL GROUP, L.P.
----------------
The date of this prospectus supplement is August 7, 2001.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About this Prospectus Supplement..................................... S-3
Prospectus Supplement Summary........................................ S-4
Sprint Corporation................................................. S-4
Recent Developments................................................ S-7
The Offering....................................................... S-9
Risk Factors....................................................... S-9
Use of Proceeds...................................................... S-10
Price Range of PCS Common Stock and Dividends........................ S-10
Capitalization....................................................... S-11
Selected Financial Data.............................................. S-12
Selling Stockholder.................................................. S-17
Description of Agreements with the Selling Stockholder............... S-18
Certain Federal Income Tax Consequences.............................. S-24
Underwriting......................................................... S-27
Legal Matters........................................................ S-30
PROSPECTUS
About this Prospectus................................................ 2
Where You Can Find More Information.................................. 2
Sprint Corporation................................................... 4
Sprint Capital Corporation........................................... 5
Risk Factors......................................................... 6
Special Note Regarding Forward-Looking Statements.................... 16
Use of Proceeds...................................................... 16
Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and
Preferred Stock Dividends.......................................... 17
Description of Debt Securities....................................... 19
Description of Convertible Subordinated Debt Securities.............. 27
Authorized Capital Stock............................................. 38
Description of Convertible Preferred Stock........................... 39
Description of PCS Common Stock...................................... 40
Description of Stock Purchase Contracts and Equity Units............. 47
Selling Stockholders................................................. 48
Plan of Distribution................................................. 49
Legal Matters........................................................ 51
Experts.............................................................. 51
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We and
the selling stockholder have not, and the underwriters have not, authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We and
the selling stockholder are not, and the underwriters are not, making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference is accurate only as of their respective dates; provided, however,
that any information that we file with the SEC after the date of this
prospectus supplement that is incorporated by reference in this prospectus
supplement and the accompanying prospectus will automatically update this
prospectus supplement and the accompanying prospectus. Our business, financial
condition, results of operations and prospects may have changed since those
dates. See "Where You Can Find More Information."
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part, which is this prospectus
supplement, describes the specific terms of this offering and other matters
relating to us, the selling stockholder and our financial condition. The second
part, which is the accompanying prospectus, gives more general information
about securities we and Sprint Capital Corporation, our wholly owned finance
subsidiary, may offer from time to time, some of which may not apply to the PCS
common stock offered by this prospectus supplement. If the description of this
offering varies between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
S-3
PROSPECTUS SUPPLEMENT SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS ABOUT US AND THE PCS COMMON STOCK OFFERED
PURSUANT TO THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. UNLESS
WE INDICATE OTHERWISE, ALL INFORMATION IN THIS PROSPECTUS SUPPLEMENT ASSUMES
THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVERALLOTMENT OPTION. UNLESS THE
CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO "WE,"
"US" AND "OUR" MEAN SPRINT CORPORATION AND ITS SUBSIDIARIES AND REFERENCES TO
"PCS COMMON STOCK" MEAN THE PCS COMMON STOCK, SERIES 1.
SPRINT CORPORATION
We are a global communications company and a leader in integrating
long-distance, local service and wireless communications. We are also one of
the largest carriers of Internet traffic using our tier one Internet protocol
network, which provides connectivity to any point on the Internet either
through our own network or via direct connections with another backbone
provider. We are the nation's third-largest provider of long distance services
and operate nationwide, all-digital long distance and tier one Internet
protocol networks using fiber-optic and electronic technology. In addition, our
local telecommunications division currently serves approximately 8.3 million
access lines in 18 states. We also operate the only 100% digital personal
communications service, or PCS, wireless network in the United States with
licenses to provide service nationwide using a single frequency band and a
single technology. We own PCS licenses to provide service to the entire United
States population, including Puerto Rico and the U.S. Virgin Islands. For the
year ended December 31, 2000, we had revenues of $23.6 billion and net income
of $93 million and served more than 23 million business and residential
customers. For the six months ended June 30, 2001, we had revenues of $12.7
billion and a net loss of $33 million.
In November 1998, we allocated all of our assets and liabilities into two
groups: the FON group and the PCS group. At the same time, we reclassified each
share of our publicly traded common stock into tracking stocks. Each share of
common stock was reclassified into one share of FON common stock and 1/2 share
of PCS common stock. Our business is divided into four lines of business: the
global markets division, the local telecommunications division, the product
distribution and directory publishing businesses and the PCS wireless telephony
products and services business. The FON group includes the global markets
division, the local telecommunications division and the product distribution
and directory publishing businesses, and the PCS group includes the PCS
wireless telephony products and services business. The PCS common stock is
intended to reflect the financial results and economic value of the PCS
wireless telephony products and services business. The FON common stock is
intended to reflect the financial results and economic value of the global
markets division, the local telecommunications division and the product
distribution and directory publishing businesses. Our tracking stocks present a
number of risks. See "Risks Factors--Risk Factors Relating to Tracking Stocks"
in the accompanying prospectus.
We were incorporated in 1938 under the laws of the State of Kansas. Our
principal executive offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and our telephone number is (913) 624-3000.
SPRINT'S PCS GROUP
The PCS group includes our wireless PCS operations. The PCS group, which
markets its wireless telephony products and services under the Sprint and
Sprint PCS brand names, operates the only 100% digital PCS wireless network in
the United States with licenses to provide service nationwide using a single
frequency band and a single technology. The PCS group owns licenses to provide
service to the entire United States population, including Puerto Rico and the
U.S. Virgin Islands.
S-4
The PCS group currently provides nationwide service through a combination of:
. operating its own digital network in major metropolitan areas,
. affiliating with other companies, primarily in and around small
metropolitan areas,
. roaming on analog cellular networks of other providers using
dual-band/dual-mode handsets, and
. roaming on other providers' digital PCS networks that use code
division multiple access technology.
The PCS group also provides wholesale PCS services to companies that
resell the services to their customers on a retail basis. These companies pay
the PCS group a discounted price for their customers' usage, but bear the costs
of acquisition and customer service. The PCS group also includes our investment
in Pegaso Telecomunicaciones, S.A. de C.V., a wireless PCS operation in Mexico.
This investment is accounted for using the equity method.
The PCS group's business goals include continually expanding network
coverage using superior technology and increasing market penetration by
aggressively marketing competitively priced PCS products and services under the
Sprint and Sprint PCS brand names, offering enhanced voice and data services
and seeking to provide superior customer service. The principal elements of the
PCS group's strategy for achieving these goals are:
. operating a nationwide digital wireless network;
. leveraging the operating scale of the PCS group's national network to
achieve significant cost advantages in purchasing power, operations
and marketing;
. leveraging our national brand to gain consumer confidence in, and
acceptance of, the PCS group's products and services;
. using state-of-the-art technology, including code division multiple
access technology, which is a digital spread-spectrum wireless
technology that allows a large number of users to access a single
frequency band that assigns a code to all speech bits, sends a
scrambled transmission of the enclosed speech over the air and
reassembles the speech into its original format;
. incorporating third generation technology into its network;
. delivering superior value and service to its customers;
. growing its customer base using multiple distribution channels;
. continuing to expand coverage; and
. offering PCS services in combination with FON group services.
Since launching its first commercial PCS service in the United States in
November 1995, the PCS group has experienced rapid customer growth, providing
service to approximately 11.5 million direct and resale customers as of June
30, 2001, representing an increase of more than 50% in the number of customers
served as of June 30, 2000. The PCS group affiliates also had approximately 1.3
million subscribers as of June 30, 2001. The service offered by the PCS group
and its affiliates now reaches nearly 239 million people. For the year ended
December 31, 2000, the PCS group had revenues of $6.3 billion, and for the six
months ended June 30, 2001, the PCS group had revenues of $4.3 billion.
S-5
SPRINT'S FON GROUP
The FON group includes our global markets division, local
telecommunications division, and product distribution and directory publishing
businesses.
Through our global markets division we provide 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 services
using various protocols such as Internet protocol and frame relay (a public
data service that transfers packets of data over our network) and managed
security services. Through this division we also provide broadband services,
including high-speed data transmission over our networks using fixed wireless
multipoint multichannel distribution service technology, which is a fixed
wireless network that distributes signals through microwave from a single
transmission point to multiple receiving points, and digital subscriber line
technology, which enables high-speed transmission of data over existing copper
telephone lines between the customer and the service provider.
Our local telecommunications division consists primarily of regulated
local exchange carriers serving approximately 8.3 million access lines in 18
states. Through this division we provide local voice and data services, long
distance services for customers within our local territories, and access for
other carriers to our local exchange facilities. This division also sells
telecommunications equipment. Our local telecommunications division has
embarked on a growth strategy to market our entire long distance and PCS
product portfolios as well as its core product line of local voice and advanced
network features and data products to our local customers.
Our product distribution and directory publishing businesses consist of
wholesale distribution of telecommunications equipment and the publishing and
marketing of white and yellow page telephone directories. We are one of the
nation's largest distributors of telecommunications equipment to wireline and
wireless service companies, cable television operators, and systems resellers.
S-6
RECENT DEVELOPMENTS
The following table sets forth selected financial data for our company,
the PCS group and the FON group for the six months ended June 30, 2000 and
2001. The following selected financial data for the six months ended June 30,
2000 and 2001 have been derived from our unaudited consolidated financial
statements and, in our opinion, reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the data for those periods.
Results of operations for the six months ended June 30, 2001 are not
necessarily indicative of results that may be expected for the full year. You
should read the table below in conjunction with our Current Report on Form 8-K
filed on July 24, 2001 and incorporated by reference in this prospectus
supplement and the accompanying prospectus.
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 2001
---------- ----------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
SPRINT CORPORATION:
Net operating revenues................................................... $11,350 $12,700
Operating income......................................................... 278 681
Loss from continuing operations.......................................... (156) (34)
Net income (loss)........................................................ 514 (33)
Diluted earnings (loss) per share from continuing operations:
PCS group............................................................. (1.02) (0.66)
FON group............................................................. 0.91 0.68
SPRINT'S PCS GROUP:
Net operating revenues................................................... $ 2,696 $ 4,315
Operating loss........................................................... (1,071) (339)
Loss from continuing operations.......................................... (966) (640)
Net loss................................................................. (969) (638)
SPRINT'S FON GROUP:
Net operating revenues
Global markets division............................................... $ 5,314 $ 5,130
Local telecommunications division..................................... 3,052 3,105
Product distribution and directory publishing......................... 932 968
Intercompany eliminations............................................. (448) (535)
------- -------
Total............................................................. 8,850 8,668
Operating income (loss)
Global markets division............................................... $ 505 $ (22)
Local telecommunications division..................................... 889 904
Product distribution and directory publishing......................... 135 157
Unallocated corporate operations and intercompany eliminations........ (180) (19)
------- -------
Total............................................................. 1,349 1,020
Income from continuing operations........................................ 810 606
Net income............................................................... 1,483 605
Ratio of earnings to fixed charges....................................... --(1) 1.03(2)
Ratio of earnings to combined fixed charges and preferred stock dividends --(1) 1.02(2)
--------
(1) For the six months ended June 30, 2000, our earnings were inadequate to
cover fixed charges by $172 million and were inadequate to cover combined
fixed charges and preferred stock dividends by $177 million. Earnings
included a nonrecurring charge of $187 million related to the proposed
WorldCom merger, which was terminated, net nonrecurring gains from the sale
of an independent directory publishing operation and investment activities
of $71 million and a net nonrecurring gain of $28 million from the sale of
network infrastructure and the right to manage customers to a PCS
affiliate. Excluding these items, earnings would have been inadequate to
cover fixed charges by $84 million and inadequate to cover combined fixed
charges and preferred stock dividends by $89 million.
S-7
(2) Earnings for the six months ended June 30, 2001 included net nonrecurring
gains from investment activities of $14 million. Excluding these gains, the
ratio of earnings to fixed charges would have been 1.01 and the ratio of
earnings to combined fixed charges and preferred stock dividends would have
been 1.00.
On June 29, 2001, we paid a dividend of 12.5 cents per share on our FON
common stock.
On June 4, 2001 we completed a registered secondary offering on behalf of
France Telecom and Deutsche Telekom in which they or their affiliates sold
174.8 million shares of our FON common stock (including 22.8 million shares to
cover overallotments), which represented an approximate 10% voting interest in
our company. We did not receive any of the proceeds from that offering.
On February 9, 2001, we announced updated terms relating to our alliance
with EarthLink, Inc. The new arrangement eliminates the original exclusivity
terms of the alliance and revises the governance terms. For financial reporting
purposes, we are no longer required to record our respective share of
EarthLink's losses.
On January 25, 2001, we issued $2.4 billion aggregate principal amount of
senior notes, including $750 million aggregate principal amount of 7 1/8% Notes
due 2006 and $1.65 billion aggregate principal amount of 7 5/8% Notes due 2011.
We received net proceeds of approximately $2.4 billion in connection with the
transaction, which were used to repay commercial paper.
In the first quarter of 2000, we sold our interest in Global One to
France Telecom and Deutsche Telekom. As a result of this sale, our gain on the
sale of Global One has been reported as a discontinued operation. In 2000, we
recorded an after-tax gain related to the sale of our interest in Global One of
$675 million.
S-8
THE OFFERING
PCS common stock:
offered by us...................................... 20,434,782 shares
offered by the selling stockholder................. 49,565,218 shares
total.......................................... 70,000,000 shares
PCS common stock outstanding as of July 31, 2001(1)... 981,358,397 shares
Overallotment option:
granted by us...................................... 3,065,218 shares
granted by the selling stockholder................. 7,434,782 shares
total.............................................. 10,500,000 shares
Use of proceeds to us................................. We expect to use the net proceeds from the sale of our
shares of PCS common stock in this offering for
general corporate purposes, including repaying debt,
making capital investments and funding working
capital requirements. We will not receive any
proceeds from the sale of the selling stockholder's
shares in this offering.
Concurrent offering................................... Concurrently with this offering we are offering
60,000,000 equity units (initially consisting of
60,000,000 corporate units) pursuant to a separate
prospectus supplement. Neither offering is contingent
upon the closing of the other offering.
New York Stock Exchange symbol........................ "PCS"
--------
(1)Includes shares of PCS common stock, series 1 issuable upon conversion of
shares of PCS common stock, series 2 and series 3, as well as shares of PCS
common stock, series 1 issuable in respect of shares of Class A common
stock. Does not include shares issuable upon exercise of outstanding
options, warrants and, other than as set forth in the immediately preceding
sentence, other convertible securities.
RISK FACTORS
Prospective investors in the PCS common stock should carefully consider
all of the information in this prospectus supplement and the accompanying
prospectus and, in particular, should evaluate the specific factors under "Risk
Factors" beginning on page 6 of the accompanying prospectus.
S-9
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of our shares
of PCS common stock in this offering of approximately $487.5 million
(approximately $560.7 million if the underwriters exercise their overallotment
option in full), after deducting the underwriting discount and estimated
offering expenses payable by us. We expect to use the net proceeds from this
offering for general corporate purposes, including repaying debt, making
capital investments and funding working capital requirements. We will not
receive any of the proceeds from the sale of the selling stockholder's shares
of PCS common stock offered by this prospectus supplement.
PRICE RANGE OF PCS COMMON STOCK AND DIVIDENDS
The following table sets forth for the periods indicated the intra-day
high and low sales prices per share of the PCS common stock as reported on the
NYSE composite transactions reporting system during the periods indicated, in
each case as adjusted for a two-for-one stock split in the first quarter of
2000.
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1999:
First Quarter................................. $24.16 $10.44
Second Quarter................................ 30.38 20.75
Third Quarter................................. 39.13 26.47
Fourth Quarter................................ 56.81 33.41
YEAR ENDED DECEMBER 31, 2000:
First Quarter................................. 66.94 42.56
Second Quarter................................ 66.00 44.06
Third Quarter................................. 65.88 27.81
Fourth Quarter................................ 39.19 19.38
YEAR ENDED DECEMBER 31, 2001:
First Quarter................................. 33.25 15.72
Second Quarter................................ 27.50 16.43
Third Quarter (through August 7, 2001)........ 27.00 22.70
On August 7, 2001, the last reported sale price of the PCS common stock
on the NYSE was $24.50 per share. As of August 7, 2001, there were
approximately 62,000 holders of record of the PCS common stock.
We have not declared any dividends on the PCS common stock and do not
intend to declare dividends on the PCS common stock in the foreseeable future.
Our board of directors periodically considers appropriate dividend policies and
practices relating to future dividends on the PCS common stock. Pursuant to the
board's existing tracking stock policies, dividends on the PCS common stock may
be declared and paid only out of the lesser of:
. the funds legally available therefor and
. the PCS group available dividend amount.
The PCS group available dividend amount is similar to the amount of
assets that would be available for payment of dividends on the PCS common stock
under the Kansas General Corporation Code if the PCS group were a separate
company. The board's tracking stock policies generally may be modified,
suspended, or rescinded and additions adopted or exceptions made at any time,
although the board has no present intention to do so. In the absence of this
dividend policy, our board could declare dividends on the PCS common stock or
on the FON common stock in excess of the respective available dividend amount
for each class, although the board could not in any case declare dividends in
excess of our funds legally available for the payment of dividends. See "Risk
Factors--Risk Factors Relating to Tracking Stocks" in the accompanying
prospectus.
S-10
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2001 (1)
on an actual basis and (2) as adjusted to give effect to the sale of 20,434,782
shares by us in this offering and the application of the net proceeds to us as
described under "Use of Proceeds" in this prospectus supplement and the sale of
the 60,000,000 equity units that we are offering pursuant to a separate
prospectus supplement concurrently with this offering and the application of
the net proceeds from that offering.
AS OF JUNE 30, 2001
----------------------------------------------------------
PCS FON ELIMINATIONS/
GROUP GROUP RECLASSIFICATIONS CONSOLIDATED AS ADJUSTED
------- ------- ----------------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Cash and equivalents........................... $ 136 $ 40 $ -- $ 176 $ 176
======= ======= ======== ======= =======
Short-term debt (includes current maturities of
long-term debt)(1)(2)........................ $ 2,996 $ 2,351 $ (69) $ 5,278 $ 3,342
Long-term debt(1)(2)........................... 13,063 3,262 (111) 16,214 17,747
Redeemable preferred stock(2).................. 526 10 (280) 256 256
Class A common stock:
$.50 par value; 200 million shares
authorized; 86.2 million shares issued
and outstanding (each share represents
the right to 1/2 PCS share)................. -- -- 43 43 43
FON common stock:
$2.00 par value; 4.2 billion shares
authorized; 886.6 million shares issued
and outstanding............................. -- -- 1,773 1,773 1,773
PCS common stock:
$1.00 par value; 4.6 billion shares
authorized; 937.4 million shares issued
and outstanding; 957.8 million shares
issued and outstanding as adjusted.......... -- -- 937 937 958
Other stockholders' equity..................... -- -- 10,809 10,809 11,230
Combined attributed net assets................. 940 12,631 (13,571) -- --
------- ------- -------- ------- -------
Total stockholders' equity(2)............... -- -- (9) 13,562 14,004
Total capitalization(2)................. $17,525 $18,254 $ (469) $35,310 $35,349
======= ======= ======== ======= =======
--------
(1)We manage financing activities for the FON group and the PCS group on a
centralized basis. Debt incurred by us on behalf of the FON group and the
PCS group is specifically allocated to and reflected in the financial
statements of the applicable group.
(2)The FON group holds certain interests in the PCS group in the form of
redeemable preferred interest and high yield debt securities. These
interests are eliminated in consolidation.
S-11
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for and as of the
years ended December 31, 1996 through 2000 are derived from our consolidated
financial statements for those years, which have been audited by Ernst & Young
LLP whose audit was based in part on the reports of Deloitte & Touche LLP on
the financial statements of Sprint Spectrum Holding Company, L.P., for the
years ended December 31, 1996, 1997 and 1998. The selected consolidated
financial data for the six months ended June 30, 2000 and 2001 have been
derived from our unaudited financial statements and, in our opinion, reflect
all adjustments (consisting of normal accruals) necessary to present fairly the
data for those periods. Our results of operations for the six months ended June
30, 2001 may not be indicative of results that may be expected for the full
year. You should read the table below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes thereto incorporated by
reference in this prospectus supplement and the accompanying prospectus.
Certain prior-year amounts have been reclassified to conform to the
current-year presentation. These reclassifications had no effect on the results
of operations as previously reported.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ -----------------
1996(1) 1997(1) 1998(1) 1999 2000 2000 2001
------- ------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net operating revenues.......................... $13,874 $14,947 $17,144 $20,265 $23,613 $11,350 $12,700
Operating income (loss) (2)..................... 2,267 2,451 190 (307) 505 278 681
Income (loss) from continuing
operations(2)(3)(5)(6)......................... 1,253 1,094 585 (745) (576) (156) (34)
Net income (loss) (2)(3)(5)(6)(7)............... 1,184 952 414 (935) 93 514 (33)
Earnings (loss) per common share from
continuing operations--diluted (2)(3)(4)
Sprint....................................... 2.93 2.51 2.19 -- -- -- --
FON group (5)(6)............................. -- -- 0.18 1.97 1.45 0.91 0.68
PCS group (5)(6)............................. -- -- (0.63) (2.71) (1.95) (1.02) (0.66)
Earnings (loss) per common share from
continuing operations--basic (2)(3)(4)
Sprint....................................... 2.97 2.54 2.23 -- -- -- --
FON group (5)(6)............................. -- -- 0.18 2.01 1.47 0.92 0.69
PCS group (5)(6)............................. -- -- (0.63) (2.71) (1.95) (1.02) (0.66)
Dividends per common share: (4)
Sprint....................................... 1.00 1.00 0.75 -- -- -- --
FON group.................................... -- -- 0.125 0.50 0.50 0.25 0.25
BALANCE SHEET DATA:
Total assets.................................... $16,915 $18,274 $33,257 $39,250 $42,601 $44,584
Property, plant and equipment, net.............. 10,464 11,494 18,983 21,969 25,316 27,584
Total debt (including long-term borrowings and
redeemable preferred stock).................... 3,086 3,891 12,445 17,028 18,975 19,794
Stockholders' equity............................ 8,520 9,025 12,202 13,313 13,716 13,562
--------
(1)In November 1998, we purchased the remaining ownership interests in Sprint
Spectrum Holding Company, L.P. and PhillieCo, L.P. (together, Sprint PCS),
other than a minority interest in Cox Communications PCS, L.P. Our 1998
results of operations include Sprint PCS's operating results on a
consolidated basis for the entire year. The cable partners' share of losses
through the PCS restructuring in November 1998, which is described in our
Annual Report on Form 10-K/A for the year ended December 31, 2000
incorporated by reference in this prospectus supplement and the accompanying
prospectus was reflected as "Other partners' loss in Sprint PCS" in our
consolidated statements of operations. The cable partners consist of
Tele-Communications, Inc., Comcast Corporation and Cox Communications.
Before 1998, our investment in Sprint PCS was accounted for using the equity
method. Sprint PCS's financial position at year-end 1998 has
S-12
also been reflected on a consolidated basis. As a result of the
recapitalization, earnings per share for Sprint common stock reflects
earnings through the recapitalization date, while earnings (loss) per share
for FON common stock and PCS common stock reflects results from that date to
year-end 1998.
(2)In 2000, the FON group recorded a nonrecurring charge principally related to
a write-down of goodwill in the global markets division, which reduced
operating income by $238 million and income from continuing operations by
$152 million. Also in 2000, we recorded a nonrecurring charge associated
with the proposed WorldCom merger, which was terminated. This charge reduced
the FON group's operating income by $163 million and income from continuing
operations by $105 million. This charge increased the PCS group's operating
loss by $24 million and loss from continuing operations by $16 million. In
1998, the PCS group recorded a nonrecurring charge to write off $179 million
of acquired in-process research and development costs related to the PCS
restructuring. This charge reduced operating income and income from
continuing operations by $179 million. The FON group recorded a nonrecurring
charge of $20 million in 1997 and $60 million in 1996 related to litigation.
These charges reduced income from continuing operations by $13 million in
1997 and $36 million in 1996.
(3)In 2000, the FON group recorded nonrecurring charges of $122 million related
to write-downs of certain equity investments. These charges increased the
loss from continuing operations by $109 million. Also in 2000, the FON group
recorded nonrecurring gains of $71 million from the sale of an independent
directory publishing operation and from investment activities. These gains
included income from continuing operations of $44 million. In 2000, the PCS
group recorded a net nonrecurring gain of $28 million from the sale of
network infrastructure and the right to manage customers to a PCS affiliate,
which reduced the PCS group's loss from continuing operations by $18
million. In 1999, the FON group recorded nonrecurring gains of $54 million
related to investment activities, which increased the FON group's income
from continuing operations by $35 million. In 1998, the FON group recorded
net nonrecurring gains of $104 million mainly from the sale of local
exchanges, which increased its income from continuing operations by $62
million. In 1997, the FON group recorded nonrecurring gains of $71 million
mainly from sales of local exchanges and certain investments, which
increased the FON group's income from continuing operations by $44 million.
(4)In the first quarter of 2000, we effected a two-for-one stock split of the
PCS common stock. In the 1999 second quarter, we effected a
two-for-one-stock split of the FON common stock. As a result, diluted and
basic earnings per common share and dividends for the FON common stock and
diluted and basic loss per common share for the PCS common stock have been
restated for periods before these stock splits.
(5)In the six months ended June 30, 2000, the FON group recorded a $163 million
nonrecurring charge, and the PCS group recorded a nonrecurring charge of $24
million, for costs associated with the proposed WorldCom merger, which was
terminated. These charges increased the loss from continuing operations by
$121 million.
(6)In the six months ended June 30, 2001, the FON group recorded net
nonrecurring gains from investment activities of $14 million, which reduced
the loss from continuing operations by $9 million. In the six months ended
June 30, 2000, the FON group recorded net nonrecurring gains from the sale
of an independent directory publishing operation and investment activities
of $71 million which reduced the loss from continuing operations by $44
million. In the six months ended June 30, 2000, the PCS group recorded a net
nonrecurring gain of $28 million from the sale of network infrastructure and
the right to manage customers to a PCS affiliate, which reduced the loss
from continuing operations by $18 million.
(7)In the first quarter of 2000, we sold our interest in Global One to France
Telecom and Deutsche Telekom. As a result of this sale, our gain on the sale
of Global One has been reported as a discontinued operation. In 2000, we
recorded an after-tax gain related to the sale of our interest in Global One
of $675 million.
S-13
The following table sets forth selected operating data for the PCS group.
You should read the table below in conjunction with the information in our
consolidated financial statements and notes thereto incorporated by reference
in this prospectus supplement and the accompanying prospectus.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- -------
(IN MILLIONS)
NET OPERATING REVENUES:.................................. $ 1,294 $ 3,373 $ 6,341 $ 2,696 $4,315
------- ------- ------- ------- ------
OPERATING EXPENSES:
Costs of services and products........................ 1,758 3,150 3,942 1,831 2,295
Selling, general and administrative................... 1,138 1,937 2,426 1,035 1,276
Depreciation.......................................... 670 1,060 1,339 611 839
Amortization.......................................... 119 463 538 266 244
Merger related costs.................................. -- -- 24 24 --
Acquired in-process research and
development costs................................... 179 -- -- -- --
------- ------- ------- ------- ------
Total operating expenses.......................... 3,864 6,610 8,269 3,767 4,654
------- ------- ------- ------- ------
OPERATING LOSS:.......................................... (2,570) (3,237) (1,928) (1,071) (339)
Interest expense......................................... (491) (698) (933) (444) (585)
Other partners' loss in Sprint PCS....................... 1,251 -- -- -- --
Minority interest........................................ 145 20 -- -- --
Other income (expense), net.............................. 34 46 (11) 17 (35)
------- ------- ------- ------- ------
Loss from continuing operations before income tax benefit (1,631) (3,869) (2,872) (1,498) (959)
Income tax benefit....................................... 541 1,388 1,004 532 319
------- ------- ------- ------- ------
LOSS FROM CONTINUING OPERATIONS.......................... (1,090) (2,481) (1,868) (966) (640)
Extraordinary items, net................................. (31) (21) (3) (3) --
Cumulative effect of change in accounting principle, net. -- -- -- -- 2
------- ------- ------- ------- ------
NET LOSS:................................................ $(1,121) $(2,502) $(1,871) $ (969) $ (638)
======= ======= ======= ======= ======
S-14
The following table sets forth selected consolidating financial data for
our company. You should read the table below in conjunction with the
information in our consolidated financial statements and notes thereto
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- -----------------
1996(1) 1997(1) 1998(1) 1999 2000 2000 2001
---------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS:
Net operating revenues:
Sprint FON group.......................................... $ 13,874 $14,947 $15,958 $17,160 $17,688 $ 8,850 $ 8,668
Sprint PCS group.......................................... -- -- 1,294 3,373 6,341 2,696 4,315
Eliminations.............................................. -- -- (108) (268) (416) (196) (283)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 13,874 $14,947 $17,144 $20,265 $23,613 $11,350 $12,700
--------- ------- ------- ------- ------- ------- -------
Operating income (loss)(3)(7):
Sprint FON group.......................................... $ 2,268 $ 2,470 $ 2,760 $ 2,930 $ 2,433 $ 1,349 $ 1,020
Sprint PCS Group.......................................... (1) (19) (2,570) (3,237) (1,928) (1,071) (339)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 2,267 $ 2,451 $ 190 $ (307) $ 505 $ 278 $ 681
--------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations(3)(4)(7)(8):
Sprint FON group.......................................... $ 1,373 $ 1,513 $ 1,675 $ 1,736 $ 1,292 $ 810 $ 606
Sprint PCS group.......................................... (120) (419) (1,090) (2,481) (1,868) (966) (640)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 1,253 $ 1,094 $ 585 $ (745) $ (576) $ (156) $ (34)
--------- ------- ------- ------- ------- ------- -------
EARNINGS PER SHARE AND DIVIDENDS:
Earnings per Sprint common share from continuing
operations(2)(3)(4)(7)(8):
Diluted................................................... $ 2.93 $ 2.51 $ 2.19 $ -- $ -- $ -- $ --
Basic..................................................... 2.97 2.54 2.23 -- -- -- --
Dividends per Sprint common share............................ 1.00 1.00 0.75 -- -- -- --
EARNINGS (LOSS) PER SHARE AND DIVIDENDS:
Earnings (loss) per common share from continuing
operations(2)(3)(4)(5):
Sprint FON group (diluted)................................ -- -- $ 0.18 $ 1.97 $ 1.45 $ 0.91 $ 0.68
Sprint FON group (basic).................................. -- -- 0.18 2.01 1.47 0.92 0.69
Sprint PCS group (diluted and basic)...................... -- -- (0.63) (2.71) (1.95) (1.02) (0.66)
Dividends per FON common share............................... -- -- 0.125 0.50 0.50 0.25 0.25
FINANCIAL POSITION:
Total Assets:
Sprint FON group.......................................... $ 15,655 $16,581 $19,001 $21,803 $23,649 $24,599
Sprint PCS group.......................................... 1,260 1,703 15,165 17,924 19,763 20,585
Eliminations.............................................. -- (10) (909) (477) (811) (600)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 16,915 $18,274 $33,257 $39,250 $42,601 $44,584
--------- ------- ------- ------- ------- ------- -------
Property, plant and equipment, net:
Sprint FON group.......................................... $ 10,464 $11,307 $12,464 $14,002 $15,833 $17,241
Sprint PCS group.......................................... -- 187 6,535 7,996 9,522 10,388
Eliminations.............................................. -- -- (16) (29) (39) (45)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 10,464 $11,494 $18,983 $21,969 $25,316 $27,584
--------- ------- ------- ------- ------- ------- -------
Total debt (including long-term borrowings and redeemable
preferred stock):
Sprint FON group.......................................... $ 3,086 $ 3,891 $ 4,452 $ 5,443 $ 4,518 $ 5,161
Sprint PCS group.......................................... -- -- 8,721 12,015 14,906 15,093
Eliminations.............................................. -- -- (728) (430) (449) (460)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 3,086 $ 3,891 $12,445 $17,028 $18,975 $19,794
--------- ------- ------- ------- ------- ------- -------
Stockholders' equity:
Sprint FON group.......................................... $ 7,332 $ 7,639 $ 9,024 $10,514 $12,343 $12,631
Sprint PCS group.......................................... 1,188 1,386 3,229 2,794 1,366 940
Eliminations.............................................. -- -- (51) 5 7 (9)
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 8,520 $ 9,025 $12,202 $13,313 $13,716 $13,562
--------- ------- ------- ------- ------- ------- -------
CASH FLOW DATA:
Net cash from operating activities--continuing operations(6):
Sprint FON group.......................................... $ 2,267 $ 2,899 $ 3,915 $ 3,713 $ 4,323 $ 1,615 $ 1,776
Sprint PCS group.......................................... (1) 38 (159) (1,692) (8) 294 (154)
Eliminations.............................................. 138 435 443 (69) -- -- --
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 2,404 $ 3,372 $ 4,199 $ 1,952 $ 4,315 $ 1,909 $ 1,622
--------- ------- ------- ------- ------- ------- -------
Capital expenditures:
Sprint FON group.......................................... $ 2,434 $ 2,709 $ 3,159 $ 3,534 $ 4,105 $ 1,751 $ 2,602
Sprint PCS group.......................................... -- 154 1,072 2,580 3,047 1,435 1,712
--------- ------- ------- ------- ------- ------- -------
Consolidated.............................................. $ 2,434 $ 2,863 $ 4,231 $ 6,114 $ 7,152 $ 3,186 $ 4,314
========= ======= ======= ======= ======= ======= =======
S-15
--------
(1)Our 1998 results of operations include Sprint PCS' operating results on a
consolidated basis for the entire year. The cable partners' share of losses
through the PCS restructuring date has been reflected as "Other partners'
loss in Sprint PCS" in our consolidated statements of operations. Before
1998, our investment in Sprint PCS was accounted for using the equity
method. Sprint PCS' financial position at year-end 1998 has also been
reflected on a consolidated basis. Cash flow data reflects Sprint PCS' cash
flows only after the PCS restructuring date.
(2)As a result of the recapitalization in 1998, earnings per share for Sprint
common stock reflects earnings through the recapitalization date, while
earnings (loss) per share for FON common stock and PCS common stock reflects
results from that date to year-end 1998.
(3)In 2000, the FON group recorded a nonrecurring charge of $238 million, which
principally represented a write-down of goodwill, and a $163 million
nonrecurring charge for costs associated with the proposed WorldCom merger,
which was terminated. The PCS group recorded costs associated with the
terminated WorldCom merger of $24 million. These charges reduced operating
income by $425 million and increased the loss from continuing operations by
$273 million. In 1998, the PCS group recorded a nonrecurring charge to write
off $179 million of acquired in-process research and development costs
related to the PCS restructuring, which reduced operating income and income
from continuing operations by $179 million. The FON group recorded
nonrecurring charges of $20 million on 1997 and $60 million in 1996 related
to litigation within the global markets division, which reduced income from
continuing operations by $13 million in 1997 and $36 million in 1996.
(4)In 2000, the FON group recorded nonrecurring charges of $122 million related
to write-downs of certain equity investments, which increased the loss from
continuing operations by $109 million. Also in 2000, the FON group recorded
net nonrecurring gains of $71 million from the sale of an independent
directory publishing operation and from investment activities, which reduced
the loss from continuing operations by $44 million. In 2000, the PCS group
recorded a net nonrecurring gain of $28 million from the sale of network
infrastructure and the right to manage customers to a PCS affiliate, which
reduced the loss from continuing operations by $18 million. In 1999, the FON
group recorded net nonrecurring gains of $54 million from investment
activities, which reduced the loss from continuing operations by $35
million. In 1998, the FON group recorded net nonrecurring gains of $104
million mainly from the sale of local exchanges, which increased income from
continuing operations by $62 million. In 1997, the FON group recorded
nonrecurring gains of $71 million mainly from sales of local exchanges and
certain investments, which increased income from continuing operations by
$44 million.
(5)In the 2000 first quarter, we effected a two-for-one stock split of the PCS
common stock. In the 1999 second quarter, we effected a two-for-one stock
split of the FON common stock. As a result, diluted and basic earnings per
common share and dividends for the FON common stock and diluted and basic
loss per common share for the PCS common stock have been restated for
periods before these stock splits.
(6)The 1996 amount was reduced by $600 million for cash required to terminate
an accounts receivable sales agreement.
(7)In the six months ended June 30, 2000, the FON group recorded a $163 million
nonrecurring charge, and the PCS group recorded a nonrecurring charge of $24
million, for costs associated with the proposed WorldCom merger, which was
terminated. These charges increased the loss from continuing operations by
$121 million.
(8)In the six months ended June 30, 2001, the FON group recorded net
nonrecurring gains from investment activities of $14 million, which reduced
the loss from continuing operations by $9 million. In the six months ended
June 30, 2000, the FON group recorded net nonrecurring gains from the sale
of an independent directory publishing operation and investment activities
of $71 million which reduced the loss from continuing operations by $44
million. In the six months ended June 30, 2000, the PCS group recorded a net
nonrecurring gain of $28 million from the sale of network infrastructure and
the right to manage customers to a PCS affiliate, which reduced the loss
from continuing operations by $18 million.
S-16
SELLING STOCKHOLDER
The following table sets forth, as of June 30, 2001, information
regarding the beneficial ownership of our PCS common stock, series 1 by NAB
Nordamerika Beteiligungs Holding GmbH (a wholly-owned subsidiary of Deutsche
Telekom AG), which we refer to as Deutsche Telekom. We refer to Deutsche
Telekom in this prospectus supplement as the selling stockholder. The selling
stockholder is selling PCS common stock, series 1 in this offering. Deutsche
Telekom's address is Friedrich-Ebert-Allee 140, D-53113 Bonn, Germany.
BEFORE OFFERING AFTER OFFERING
------------------------------- ------------------------------
PERCENT TOTAL PERCENT TOTAL
NUMBER OF OF VOTING SHARES NUMBER OF OF VOTING
SHARES CLASS(1) POWER(2) OFFERED SHARES CLASS(1) POWER(2)
---------- -------- -------- ---------- --------- -------- --------
PCS COMMON STOCK, SERIES 1:
Deutsche Telekom........ 57,372,340(3) 5.9% 3.8% 49,565,218(4) 7,807,122(5) * *
--------
* Less than 1%
(1)The calculation of the percent of class includes shares of all series of the
class outstanding or issuable in respect of outstanding shares of Class A
common stock. The method for calculating percent of class in the table above
differs from the method used to calculate percent of class in the table
under the caption "Security ownership of certain beneficial owners" in our
Form 10-K/A for the year ended December 31, 2000 in that the denominator
used to calculate the percent for the selling stockholder in the table above
includes shares of PCS common stock, series 1 issuable in respect of Class A
common stock held by the selling stockholder and France Telecom.
(2)Outstanding shares of PCS common stock, FON common stock, Class A common
stock and preferred stock generally vote together as a single class on
matters submitted to a vote of our stockholders. The calculation of the
total voting power percentages takes into account all shares of each series
of each class of our common and preferred stock outstanding as of June 30,
2001 and entitled to vote on matters submitted to a vote of our
stockholders. The following table sets forth the voting power per share for
such shares assuming a record date for determining voting power of June 29,
2001:
VOTES
CLASS AND SERIES PER SHARE
---------------- ---------
FON common stock, series 1........................................... 1.0000
PCS common stock, series 1........................................... 1.0880
PCS common stock, series 2........................................... 0.1088
PCS common stock, series 3........................................... 1.0880
Class A common stock................................................. 0.5440
Class A common stock--series DT...................................... 0.5440
Preferred stock--fifth series........................................ 1.0000
Preferred stock--seventh series, series 1 PCS underlying............. 70.7720
Preferred stock--seventh series, series 2 PCS underlying............. 7.0772
(3)Includes:
. 35,813,331 shares of PCS common stock, series 1, issuable upon
conversion on a one-for-one basis of the shares of PCS common stock,
series 3 beneficially owned by Deutsche Telekom and
. 21,559,009 shares of PCS common stock, series 1 issuable in respect
of the 43,118,018 shares of Class A common stock that Deutsche
Telekom beneficially owns.
Deutsche Telekom does not own any shares of FON common stock.
(4)If the underwriters exercise their overallotment option in full, Deutsche
Telekom will sell 57,000,000 shares.
(5)If the underwriters exercise their overallotment option in full, Deutsche
Telekom will own no shares of PCS common stock, series 3 and 43,118,018
shares of Class A common stock convertible into 372,340 shares of PCS common
stock upon completion of this offering.
S-17
DESCRIPTION OF AGREEMENTS WITH THE SELLING STOCKHOLDER
The following description summarizes the material contractual
arrangements between our company and Deutsche Telekom. As described below,
several of the material contractual agreements also include France Telecom as a
party to the agreements.
DEUTSCHE TELEKOM
As of June 30, 2001 (assuming a record date of June 29, 2001), Deutsche
Telekom owned shares in our company representing an approximate 3.8% voting
interest. Upon completion of this offering and assuming the underwriters do not
exercise their overallotment option, Deutsche Telekom will own shares in our
company representing an approximate 0.74% voting interest.
SUMMARY OF SECURITIES HELD
Deutsche Telekom currently owns shares of PCS common stock, series 3 and
Class A common stock--series DT, which we refer to as "Class A common stock."
France Telecom also owns Class A common stock, with no series designation,
which we also refer to as "Class A common stock." As of June 30, 2001, each
share of Class A common stock entitled the holder to one-half of a share of PCS
common stock, series 3 or series 1 issued to the holder. In general, holders of
shares of Class A common stock and PCS common stock, series 3 are entitled to
corresponding dividend, voting and liquidation rights as holders of PCS common
stock, series 1.
PCS common stock, series 1 and series 3 have substantially similar
rights. PCS common stock, series 1 and series 3 vote together as a single class
on most matters subject to stockholder approval. PCS common stock, series 1 is
not convertible; however, PCS common stock, series 3 is convertible at any time
into PCS common stock, series 1 on a share-for-share basis at the option of the
holder and will be automatically converted into PCS common stock, series 1
under the circumstances described below under "--Certain Conversion Rights." In
addition, PCS common stock, series 1 is publicly traded and PCS common stock,
series 3 is not publicly traded.
CERTAIN CONVERSION RIGHTS
Deutsche Telekom, as a holder of the PCS common stock, series 3 may at
any time convert its shares of PCS common stock, series 3 into PCS common
stock, series 1. This also applies to the shares of PCS common stock, series 3
that are issuable with respect to the Class A common stock.
Shares owned by Deutsche Telekom will convert automatically into shares
of PCS common stock, series 1 under the following circumstances:
. unauthorized transfers of these shares;
. material breach of the Deutsche Telekom and France Telecom investment
agreements with us.
PRIOR BOARD REPRESENTATION
Prior to April 28, 2000, Deutsche Telekom, together with France Telecom,
had the right to elect a number of directors to our board of directors based
upon the proportionate voting power of the shares of our stock owned by them.
From the time of Deutsche Telekom's and France Telecom's initial investment in
our company through April 28, 2000, our board of directors included three
representatives elected by Deutsche Telekom and France Telecom. Deutsche
Telekom and France Telecom also had the right (with limited exceptions) to
collectively designate a representative to serve on each committee of our board
of directors. Pursuant to the master transfer agreement described below,
Deutsche Telekom's and France Telecom's designees
S-18
resigned from our board of directors on April 28, 2000. In addition, the rights
of Deutsche Telekom and France Telecom to elect representatives to our board of
directors terminated on that date.
SPRINT MASTER TRANSFER AGREEMENT
On February 22, 2000, pursuant to the master transfer agreement dated
January 21, 2000, we completed the sale of our interests in the Global One
joint venture, an international telecommunications joint venture, to Deutsche
Telekom and France Telecom for a purchase price of $1.127 billion. Global One
also repaid loans aggregating $276 million made to it by us. Subsequently,
Global One was sold to France Telecom.
We entered into agreements with Global One which give us the right to
provide Global One's services to our customers under contract as of January 21,
2000, until the earlier of February 22, 2002 or the life of the customer
contract. We also have the right to sell Global One services to existing and
new customers until December 31, 2003 pursuant to a distribution agreement
which was signed as of January 21, 2000 and amended and restated on November 3,
2000. In addition, Global One will provide certain support services to our
customers.
STOCKHOLDERS' AGREEMENT
TRANSFER RESTRICTIONs. The stockholders' agreement among our company,
Deutsche Telekom and France Telecom provides that Deutsche Telekom and France
Telecom may transfer shares (in a single transaction or series of related
transactions) to a person or group that owns a number of shares representing
more than 5% of the voting power of our company immediately following the
transfer only in connection with a public offering in which:
. the transferring stockholder does not, to its knowledge, transfer
shares representing more than 2% of the voting power of our company
to a person or group that, before transfer, beneficially owned voting
securities representing 3% or more of our company's voting power;
. the transferring stockholder does not, to its knowledge, transfer to
a person or group shares representing more than 5% of our company's
voting power; and
. the transferring stockholder does not, to its knowledge, transfer to
a person or group that is required under Section 13(d) of the
Securities Exchange Act of 1934 to file a Schedule 13D with respect
to our company or, as a result of such transfer, will become a
Schedule 13D filer, subject to limited exceptions. The stockholders'
agreement also provides for other transfer restrictions.
These restrictions do not apply to any transfer pursuant to:
. unsolicited brokers' transactions or
. a transaction with a bona fide market-maker or dealer, provided that
(1) the transferring stockholder is not disposing in any single
transaction shares representing greater than 5% of the voting power
of our company and (2) the transferring stockholder shall have
instructed the market-maker or dealer to take all steps reasonably
practicable to avoid transferring shares to any person or group that
has filed a Schedule 13D on our company that is in effect.
The purpose of these restrictions is to prevent an ownership
concentration in one or a few stockholders resulting from the sale of any of
our stock by Deutsche Telekom and France Telecom. These restrictions shall
continue until the aggregate ownership percentage of Deutsche Telekom and
France Telecom is less than 3.5% of the total voting power of our company.
S-19
Shares of our stock owned by Deutsche Telekom and France Telecom
automatically convert to shares of PCS common stock, series 1 when sold to
third parties.
STANDSTILL AGREEMENT
We and Deutsche Telekom and France Telecom have entered into a standstill
agreement. Pursuant to the standstill agreement, each of Deutsche Telekom and
France Telecom has agreed that, before July 31, 2005, it will not acquire or
offer to acquire beneficial ownership of any of our capital stock such that our
capital stock beneficially owned in the aggregate by Deutsche Telekom and
France Telecom and their respective affiliates and associates would represent
in the aggregate more than 20% of the votes represented by our outstanding
capital stock.
In addition, each of Deutsche Telekom and France Telecom has agreed that,
before July 31, 2005, it will not acquire or offer to acquire beneficial
ownership of any PCS common stock or FON common stock such that the total
amount of PCS common stock or FON common stock beneficially owned by Deutsche
Telekom and France Telecom and their respective affiliates and associates would
represent more than 33% of the votes represented by our outstanding PCS common
stock or FON common stock. For purposes of making these calculations, we will
include the shares of our PCS common stock underlying the Class A common stock.
Deutsche Telekom and France Telecom and their respective affiliates
generally may, subject to our rights plan, increase their beneficial ownership
beyond the applicable percentage limitations to the extent required to match
the percentage ownership of our capital stock owned by any other stockholder;
provided that the beneficial ownership of Deutsche Telekom and France Telecom
and their respective affiliates does not exceed 33% of the voting power
represented by either outstanding PCS common stock or outstanding FON common
stock or 80% of the foreign ownership limitation.
The purpose of these restrictions is to prevent Deutsche Telekom and
France Telecom from substantially increasing their ownership positions or
voting power beyond their initial ownership percentages, except as necessary to
match the percentage ownership of another stockholder.
In addition, neither Deutsche Telekom nor France Telecom violate the
beneficial ownership restrictions if their beneficial ownership of our capital
stock exceeds the applicable percentage limitations:
. due to an acquisition of our capital stock by our company unless
Deutsche Telekom and France Telecom have previously been notified of
this acquisition,
. due to purchases by Deutsche Telekom and France Telecom of our
capital stock in reliance on information regarding the number of
shares outstanding of our capital stock provided by us to Deutsche
Telekom and France Telecom unless Deutsche Telekom and France Telecom
have previously been notified that this information is incorrect,
. in general, if the limitation was exceeded inadvertently, by no more
than 0.5%, and the acquisitions which resulted in Deutsche Telekom,
France Telecom and their respective affiliates and associates
exceeding the percentage limitation were undertaken in good faith,
. as a result of any readjustment in the relative voting power of PCS
common stock and FON common stock in accordance with the terms of our
articles of incorporation, or
. as a result of a redemption or conversion of any of PCS common stock
pursuant to our articles of incorporation.
In addition, Deutsche Telekom and France Telecom have the right to
require our company to enter into a separate standstill agreement with each of
them, on the same terms as the existing standstill agreement.
S-20
REGISTRATION RIGHTS
Deutsche Telekom and France Telecom have entered into a registration
rights agreement with us.
DEMAND REGISTRATIONS. Deutsche Telekom and France Telecom have the right
to require us to register their shares for sale under the Securities Act.
The holders of a majority of the shares may demand one registration in
any six month period, up to a maximum of ten registrations. Deutsche Telekom
and France Telecom have used one of these demand registration rights. We are
responsible for the registration expenses in connection with the first seven of
these registrations. The holders of the shares requesting registration are
responsible for the registration expenses in connection with the remaining
three registrations. Deutsche Telekom's and France Telecom's demand
registration rights extend to registrations of our shares that they own in
connection with sales of securities of theirs that are convertible into or
exchangeable for our shares.
PIGGYBACK REGISTRATION. Deutsche Telekom or France Telecom have the right
to require us to register their shares, subject to exceptions and limitations,
when we are registering shares for sale on our own behalf or for sale by
another stockholder. These rights do not apply to
. registrations on Forms S-4 or S-8
. registrations in connection with an exchange offer, or
. offerings solely to our existing stockholders or pursuant to dividend
reinvestment plans or dividend reinvestment and stock purchase plans.
Deutsche Telekom's participation in this offering is not the result of
the exercise of its demand or piggyback registration rights.
LIMITATIONS. We are not required to effect any registration unless the
market value of the stock requested to be registered exceeds $200 million,
unless the registration relates to shares of PCS common stock, series 3 that
were acquired after the completion of the initial public offering of PCS common
stock. If a request is made to register these shares of PCS common stock,
series 3.
. the aggregate market value of these shares must exceed $100 million
on the date of delivery of the request for registration and
. the registration must involve the lesser of (1) shares with an
aggregate market value of at least $200 million on the date of
delivery of the request for registration and (2) all of these shares
of PCS common stock, series 3.
DEMAND REGISTRATION PRIORITIES. In general, where Deutsche Telekom and
France Telecom have demanded that we register some of their shares, the
underwriter for an offering may decide that it must cut back the total number
of shares to be sold in the offering. This would happen if the shares to be
sold in the offering by Deutsche Telekom and France Telecom, together with
shares to be sold in the offering by us or other stockholders of our company,
exceeds the number that can be sold within a price range acceptable to Deutsche
Telekom and France Telecom.
If we or other investors in our company are also selling shares in an
underwritten offering where the underwriter determines to cut back the total
number of shares offered, then the rule for deciding which shares to be sold in
the offering have priority is the following:
. the shares to be sold by Deutsche Telekom and France Telecom have
first priority;
. any shares to be sold by the cable holders have second priority;
S-21
. any shares to be sold by us have third priority or, in some cases,
second priority along with the cable holders' shares; and
. shares to be sold by any other investors in our company have last
priority.
We have the option to move our priority to an equal status with that of
Deutsche Telekom and France Telecom. The cable holders would be next in
priority to that of us and Deutsche Telekom and France Telecom. Other investors
with registration rights, if any, would have priorities behind these. If we
elect the option to have an equal priority with Deutsche Telekom and France
Telecom, and the underwriters in fact cut back the number of shares to be
offered, as described above, then the registration will not count toward the
maximum of ten registrations provided to Deutsche Telekom and France Telecom
under the registration rights agreement.
In general, Deutsche Telekom and France Telecom will not have first
priority when exercising piggyback registration rights but will have certain
lower priorities. If the cable holders are exercising piggyback registration
rights in the same offering, the number of shares that they will be entitled to
have registered will be reduced on a pro rata basis with Deutsche Telekom and
France Telecom.
Notwithstanding these priorities, if at any time we propose to register
shares on our own behalf or for sale by another stockholder and Deutsche
Telekom and France Telecom exercise their piggyback registration rights and
they may otherwise sell their shares pursuant to Rule 144(k) (or any successor
provision) under the Securities Act, the lower priorities mentioned in the
paragraph above will be changed so that the shares proposed to be included by
Deutsche Telekom and France Telecom have the lowest priority of all securities
proposed to be registered in that registration.
OTHER PROVISIONS. The registration rights agreement contains other
provisions addressing:
. our ability to effect other public offerings near the effectiveness
of demand or incidental registrations,
. the filing of all reports required to be filed by our company under
the Securities Act and the Securities Exchange Act of 1934, and
. indemnification and contribution provisions.
Deutsche Telekom and France Telecom have the right to require us to enter into
a separate registration rights agreement with each of them, on the same terms
as the existing registration rights agreement.
OFFERING PROCESS AGREEMENT
On February 20, 2001, we entered into an agreement with Deutsche Telekom
and France Telecom that set forth the parties' agreements concerning the timing
and mechanics of our recent secondary offering of FON common stock, series 1 in
relation to this offering of PCS common stock. Under the agreement, both
Deutsche Telekom and France Telecom are required to refrain from disposing of,
or requesting that we register, their respective shares of PCS common stock,
subject to limited exceptions, until the earliest to occur of:
. 180 days following the closing of this offering, if this offering is
completed by December 31, 2001, and
. January 1, 2002, if this offering is not completed by December 31,
2001.
These restrictions were negotiated among us, Deutsche Telekom and France
Telecom. Their purpose is to provide us an adequate time period in which to
effect this offering, together with a 180 day lock-up arrangement following
this offering, balanced by the desire of Deutsche Telekom and France Telecom to
have the flexibility to sell their PCS common stock as soon as possible after
this offering or if this offering is not completed during
S-22
2001. France Telecom has agreed not to request that we include any of its
securities in this offering. Notwithstanding the restrictions agreed to by
Deutsche Telekom, we have agreed to allow Deutsche Telekom to participate as a
seller in this offering.
The agreement also amended the registration rights agreement between us and
Deutsche Telekom and France Telecom so that after an offering, the 90-day
prohibition on sales of securities, sometimes referred to as a lock-up
agreement, will apply only to the class of securities that are sold in that
offering.
Deutsche Telekom and France Telecom are permitted to (1) transfer their
securities to certain special purpose vehicles or financial intermediaries or
financial institutions for their benefit, so long as the transferees execute
agreements that provide for the same selling restrictions that apply to
Deutsche Telekom and France Telecom, (2) sell their securities pursuant to Rule
144 under the Securities Act of 1933 and/or enter into hedging transactions
with respect to such securities, in either case with the prior written consent
of us, which consent will not be unreasonably withheld, and (3) transfer, in a
manner consistent with the standstill agreement, their securities by tendering
their securities into a bona fide tender offer or exchange offer made to all
holders of our securities which does not involve a violation of the standstill
agreement.
S-23
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences of the acquisition, ownership and disposition of PCS common
stock. The following discussion does not address the effect of any applicable
state, local or foreign laws or any federal tax laws other than those
pertaining to the income tax. The discussion is based on the Internal Revenue
Code of 1986, as amended, regulations and rulings now in effect or proposed
thereunder, current administrative rulings and practice, and judicial
precedent, all of which are subject to change. In particular, Congress could
enact legislation affecting the treatment of stock with characteristics similar
to the PCS common stock or the Treasury Department could change the current law
in future regulations, including regulations issued pursuant to its broad
authority under Section 337(d) of the Internal Revenue Code. Any such change,
which may or may not be retroactive, could alter the tax consequences to us or
our stockholders discussed herein. This discussion is also based on certain
assumptions regarding the circumstances in existence at the time of the
recapitalization of our common stock into PCS common stock and FON common stock
in November 1998, which we refer to as the recapitalization, including certain
representations made or to be made by us and others. This discussion assumes
that our stockholders hold their shares as capital assets within the meaning of
Section 1221 of the Internal Revenue Code.
CLASSIFICATIONS OF PCS COMMON STOCK AS STOCK OF SPRINT
In the opinion of King & Spalding, our counsel, any outstanding stock
that is designated as common stock in our articles of incorporation, including
the PCS common stock, will constitute voting stock of Sprint for United States
federal income tax purposes.
The Internal Revenue Service announced in 1987 that it was studying and
would not issue advance rulings on the classification of an instrument that has
certain voting and liquidation rights in an issuing corporation but the
dividend rights of which are determined by reference to the earnings of a
segregated portion of the issuing corporation's assets, including assets held
by a subsidiary. In 1997 the IRS placed such instruments on its list of areas
in which rulings or determination letters will not be issued. There are no
court decisions or other authorities that bear directly on transactions similar
to the offering or the recapitalization. It is possible, therefore, that the
IRS could assert that the PCS common stock or the FON common stock or both
represent property other than our stock. If such stocks were treated as other
property, we or our subsidiaries would recognize a significant taxable gain on
the sale of PCS common stock and would have recognized significant taxable gain
on the recapitalization, in each case in an amount equal to the excess of the
fair market value of such stock constituting other property over its federal
income tax basis to us or our subsidiaries allocable to such other property. In
addition, we and the entities in the PCS group could lose our ability to file
consolidated federal income tax returns. As a result, the tax losses incurred
by the PCS group could not offset the taxable income earned by the FON group
and any dividends paid or deemed paid to us by the PCS group or FON group could
be taxable to us, subject to any applicable dividends received deduction.
Counsel believes that if the status for United States federal income tax
purposes of the PCS common stock or FON common stock were challenged, a court
would agree with counsel's conclusions that such stock represents our stock,
although there can be no assurance that a court would reach that result.
NON-U.S. STOCKHOLDERS
The following is a general discussion of certain United States federal
income tax consequences of the ownership and disposition of PCS common stock by
a non-U.S. stockholder. A non-U.S. stockholder is a holder who, for United
States federal income tax purposes, is a foreign corporation, a nonresident
alien individual or a foreign estate or trust.
S-24
DIVIDENDS
Dividend payments received by a non-U.S. stockholder on shares of PCS
common stock will generally be subject to the withholding of United States
federal income tax at a 30% rate, or such lower rate as may be specified by an
applicable income tax treaty. Dividends paid to a non-U.S. stockholder that are
effectively connected with a non-U.S. stockholder's conduct of a trade or
business within the United States will not be subject to the withholding tax,
but, instead, will be subject to regular U.S. federal income tax at the
graduated rates in the same manner as if the non-U.S. stockholder were a U.S.
resident, unless a tax treaty exemption applies to exclude such dividends from
U.S. tax. If the non-U.S. stockholder is a corporation, any effectively
connected income may also be subject to a "branch profits tax." A non-U.S.
stockholder may be required to satisfy certain certification requirements to
claim treaty benefits or otherwise claim a reduction of, or exemption from, the
withholding obligation described above.
SALE OR EXCHANGE OF PCS COMMON STOCK
A non-U.S. stockholder generally will not be subject to federal income
tax on any gain realized on the taxable sale or exchange of PCS common stock
unless:
. the gain is effectively connected with the conduct of a trade or
business of the non-U.S. stockholder within the United States,
. the gain is derived from sources within the United States and the
non-U.S. stockholder is a non-resident alien individual who is
present in the United States for 183 days or more in the taxable year
of such sale or exchange and has a "tax home" in the United States,
. the non-U.S. stockholder is subject to tax pursuant to the provisions
of the Internal Revenue Code applicable to certain United States
expatriates, or
. the non-U.S. stockholder has owned, directly or indirectly, more than
five percent of the value of the class of stock in question at any
time during the five-year period ending at the time of the sale or
exchange, and we are a "United States real property holding
corporation" (as defined in Section 897 of the Internal Revenue Code)
during the shorter of the period for which the non-U.S. stockholder
holds the PCS common stock or the five-year period ending at the time
of the sale or exchange.
We do not believe that we are a United States real property holding
corporation as of the date hereof, although it has not been determined or
established whether we will be a United States real property holding
corporation in the future.
INFORMATION REPORTING AND BACKUP WITHHOLDING FOR U.S. AND NON-U.S. STOCKHOLDERS
Certain non-corporate holders of PCS common stock may be subject to
backup withholding on the payment of dividends on such stock at a rate equal to
the fourth lowest income tax rate applicable to individuals (which is 30.5% for
2001, 30.0% for 2002 and 2003, 29.0% for 2004 and 2005, and 28.0% for 2006).
Backup withholding will apply only if the stockholder:
. fails to furnish his taxpayer identification number,
. furnishes an incorrect taxpayer identification number,
. is notified by the IRS that he has failed properly to report payments
of interest or dividends, or
. under certain circumstances, fails to certify, under penalties of
perjury, that he has furnished a correct taxpayer identification
number and has not been notified by the IRS that he is subject to
backup withholding for failure to report payments of interest or
dividends.
S-25
Generally, non-U.S. holders will not be subject to backup withholding on
the payment of dividends if they provide certain documentation of their foreign
status to us. In addition, a foreign partnership and certain foreign trusts
must provide additional documentation, which certifies that the individual
partners, beneficiaries, or owners of the partnership or trust are non-U.S.
holders and provides the individual partners', beneficiaries' or owners' names
and addresses.
Upon the sale or other taxable disposition of PCS common stock by a
stockholder to or through a United States office of a broker, the broker
generally must backup withhold at a rate equal to the fourth lowest income tax
rate applicable to individuals (which is 30.5% for 2001, 30.0% for 2002 and
2003, 29.0% for 2004 and 2005, and 28.0% for 2006) and report the sale to the
IRS, unless the holder certifies its taxpayer identification number or its
exempt non-U.S. status under penalties of perjury, or otherwise establishes an
exemption from backup withholding. Upon the sale or other taxable disposition
of PCS common stock by a non-U.S. stockholder to or through the foreign office
of a United States broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the IRS,
but not backup withhold, unless the broker has documentary evidence in its
files that the seller is a non-U.S. stockholder and/or certain other conditions
are met, or the holder otherwise establishes an exemption. Stockholders should
consult their tax advisors regarding their qualification for a tax exemption
from backup withholding and the procedure for obtaining such an exemption if
applicable.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules are generally allowable as credit against a
stockholder's U.S. federal income tax liability, if any, which may entitle such
stockholder to a refund, provided that the required information is furnished to
the IRS.
PROSPECTIVE PURCHASERS OF PCS COMMON STOCK ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
ACQUIRING, HOLDING, AND DISPOSING OF PCS COMMON STOCK AND POTENTIAL CHANGES IN
THE APPLICABLE TAX LAWS.
S-26
UNDERWRITING
We and the selling stockholder intend to offer the PCS common stock
through the underwriters. J.P. Morgan Securities Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and UBS Warburg LLC are acting as representatives
of the underwriters named below. Subject to the terms and conditions in an
underwriting agreement between us, the selling stockholder and the
underwriters, we and the selling stockholder have agreed to sell to the
underwriters, and the underwriters have severally agreed to purchase from us,
the number of shares of PCS common stock set forth opposite their names below.
NUMBER OF
UNDERWRITER SHARES
----------- ----------
J.P. Morgan Securities Inc................... 14,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................. 14,000,000
UBS Warburg LLC.............................. 14,000,000
ABN AMRO Rothschild LLC...................... 4,900,000
Banc of America Securities LLC............... 4,900,000
Credit Suisse First Boston Corporation....... 4,900,000
Lehman Brothers Inc.......................... 4,900,000
Dain Rauscher Incorporated................... 2,100,000
First Union Securities, Inc.................. 2,100,000
Robertson Stephens, Inc...................... 2,100,000
The Williams Capital Group, L.P.............. 2,100,000
----------
Total................................. 70,000,000
==========
The underwriters have agreed to purchase all of the shares of PCS common
stock sold pursuant to the underwriting agreement if any of the shares of PCS
common stock are purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the nondefaulting
underwriters may be increased or the underwriting agreement may be terminated.
We, the selling stockholder and the underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of those liabilities. In addition, we and the
selling stockholder have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, pursuant
to the registration rights agreement as amended by the master transfer
agreement.
The underwriters are offering the PCS common stock, subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the PCS common stock,
and other conditions contained in the underwriting agreement, such as the
receipt by the underwriters of officers' certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
The stockholders' agreement as amended restricts Deutsche Telekom's and
France Telecom's ability to transfer PCS common stock, series 1 (in a single
transaction or series of related transactions) to entities who they know would
hold greater than 5% of the aggregate number of our outstanding votes after the
transaction. See "Description of Agreements with the Selling
Stockholder--Stockholders' Agreement." The underwriters have agreed to
implement procedures in the offering to ensure Deutsche Telekom complies with
the transfer restrictions under the stockholders' agreement. These procedures
include limits on the total number of shares that can be sold to any particular
investor in the offering.
COMMISSIONS AND DISCOUNTS
The underwriters initially propose to offer the PCS common stock to the
public at the public offering price on the cover page of this prospectus
supplement and to dealers at that price less a concession not in excess
S-27
of $.37 per share. The underwriters may allow, and the dealers may reallow, a
discount not in excess of $.10 per share to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
We expect to incur expenses in connection with this offering, not
including the underwriting discount, of approximately $650,000.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholder to the
underwriters and proceeds before expenses to us and the selling stockholder.
The information is presented assuming either no exercise or full exercise by
the underwriters of the overallotment option.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- --------------
Public offering price.................... $ 24.50 $1,715,000,000 $1,972,250,000
Underwriting discount.................... $ .6125 $ 42,875,000 $ 49,306,250
Proceeds, before expenses, to us......... $23.8875 $ 488,135,855 $ 561,356,250
Proceeds, before expenses, to the selling
stockholder............................ $23.8875 $1,183,989,145 $1,361,587,500
OVERALLOTMENT OPTION
We and the selling stockholder have granted an option to the underwriters
to purchase up to an additional 3,065,218 and 7,434,782 shares, respectively,
of PCS common stock at the public offering price less the underwriting
discount. The underwriters may exercise this option for 30 days from the date
of this prospectus supplement solely to cover any overallotments. If the
underwriters exercise this option, each will be obligated, subject to
conditions contained in the underwriting agreement, to purchase a number of
additional shares of PCS common stock proportionate to that underwriter's
initial amount reflected in the table above.
NO SALE OF SIMILAR SECURITIES
We and the selling stockholder have agreed, with some exceptions, not to,
directly or indirectly, without the prior written consent of any two of J.P.
Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
UBS Warburg LLC, on behalf of the underwriters, for a period of 90 days after
the date of this prospectus supplement:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose
of directly or indirectly, any shares of any series of PCS common
stock or any securities convertible into or exercisable or
exchangeable for shares of any series of PCS common stock; or
. enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
the PCS common stock.
The restrictions described in this paragraph do not apply to:
. the sale of the shares to the underwriters;
. any transactions by us in connection with or pursuant to any employee
or director benefit plan in effect on the date of this prospectus
supplement, our registration of any such transaction or the issuance
by us of shares of capital stock under our rights plan in effect on
the date of this prospectus supplement;
. issuances by us of PCS common stock or securities convertible or
exchangeable into PCS common stock in connection with acquisitions or
mergers or in connection with strategic or other significant
investments in which the recipient of such PCS common stock or
securities convertible or exchangeable into PCS common stock agrees
to be bound by the restrictions described above for a 90-day period;
S-28
. issuance of PCS common stock upon conversion of outstanding shares of
preferred stock -- seventh series, convertible, or upon exercise of
outstanding warrants to purchase PCS common stock;
. registrations of PCS common stock for, or issuances of PCS common
stock to, Comcast Corporation, Cox Communications, Inc. and Liberty
PCS Trust (collectively, the "Cable Partners") upon any exercise of
their equity purchase rights or registration rights;
. issuances or registrations of shares of PCS common stock issuable to
or for the benefit of Deutsche Telekom, France Telecom, or any
affiliate or third parties in respect of the shares of our Class A
common stock and PCS common stock, series 3, held by Deutsche Telekom
and France Telecom on the date of this prospectus supplement;
. the sale of corporate units, including the purchase contracts to
purchase PCS common stock, to the underwriters in the offering being
conducted concurrently with this offering or, similarly, treasury
units or corporate units to be created or recreated upon substitution
of pledged securities, or shares of PCS common stock issuable upon
early settlement of the corporate units or the treasury units; and
. transfers by Deutsche Telekom of common stock to certain special
purpose vehicles or other financial intermediaries or financial
institutions, provided the recipient agrees to be bound by the
restrictions described above for the remainder of the 90-day period.
Any two of J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and UBS Warburg LLC, in their sole discretion, may jointly
release any of the securities subject to these lock-up agreements at any time
without notice.
NEW YORK STOCK EXCHANGE LISTING
The PCS common stock is traded on the NYSE under the symbol "PCS".
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the PCS common stock offered by this prospectus
supplement is completed, SEC rules may limit the underwriters and selling group
members from bidding for or purchasing shares of the PCS common stock. However,
the representatives may engage in transactions that stabilize the price of the
PCS common stock, such as bids or purchases that peg, fix or maintain the price
of the PCS common stock.
In connection with this offering, the representatives may make short
sales of our PCS common stock. Short sales involve the sale by the
underwriters, at the time of the offering, of a greater number of shares than
they are required to purchase in the offering. Covered short sales are sales
made in an amount not greater than the overallotment option. The underwriters
may close out any covered short position by either exercising the overallotment
option or purchasing shares of PCS common stock in the open market. In
determining the source of shares to close out the covered short position, the
representatives will consider, among other things, the price of shares of PCS
common stock available for purchase in the open market as compared to the price
at which they may purchase the shares of PCS common stock through the
overallotment option. Similar to other purchase transactions, purchases by the
representatives to cover syndicate short positions may have the effect of
raising or maintaining the market price of the PCS common stock or preventing
or retarding a decline in the market price of the PCS common stock. As a
result, the price of the PCS common stock may be higher than it would otherwise
be in the absence of these transactions.
Neither we, the selling stockholder nor any of the underwriters make any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the PCS common
stock. In addition, neither we, the selling stockholder nor any of the
underwriters make any representation that the representatives will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
S-29
UNITED KINGDOM REGULATIONS
Each underwriter has agreed that:
. it has not offered or sold, and, prior to the date six months after
the sale of the PCS common stock, will not offer or sell, any PCS
common stock to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
. it has complied, and will comply, with all applicable provisions of
the Financial Services Act 1986 of Great Britain with respect to
anything done by it in relation to the PCS common stock in, from or
otherwise involving the United Kingdom; and
. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
sale of the PCS common stock to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1998 (as amended) or is a person
to whom the document may otherwise lawfully be issued or passed on.
ELECTRONIC PROSPECTUS
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make internet distributions on the
same basis as other allocations. Merrill Lynch will be facilitating
distribution for this offering to certain of its internet subscription
customers. Merrill Lynch intends to allocate a limited number of shares for
sale to its online brokerage customers. An electronic preliminary prospectus
supplement is available on the internet website maintained by Merrill Lynch.
Other than the preliminary prospectus supplement in electronic format, the
information on the Merrill Lynch website is not intended to be part of this
prospectus supplement.
OTHER RELATIONSHIPS
The underwriters and their affiliates have performed certain investment
banking, advisory and general financing and banking services for us and the
selling stockholder and its affiliates from time to time for which they have
received customary fees and expenses. The underwriters and their affiliates
may, from time to time, be customers of, engage in transactions with and
perform services for us and the selling stockholder and its affiliates in the
ordinary course of their business. Certain of the underwriters and their
affiliates have in the past and may in the future act as lenders in connection
with our credit facilities and the credit facilities of the selling stockholder
and its affiliates
LEGAL MATTERS
The validity of the PCS common stock will be passed upon for us by Thomas
A. Gerke, Vice President, Corporate Secretary and Associate General Counsel of
our company. Certain legal matters relating to the offering will be passed upon
for us by King & Spalding and for the underwriters by Cravath, Swaine & Moore,
New York, New York. As of June 30, 2001, Thomas A. Gerke beneficially owned
approximately 16,100 shares of PCS common stock and 16,400 shares of FON common
stock and had options to purchase in excess of 75,000 shares of PCS common
stock and in excess of 135,000 shares of FON common stock.
S-30
PROSPECTUS
[LOGO] Sprint(R)
SPRINT CORPORATION
[LOGO] Sprint(R)
Sprint PCS(R)
Debt Securities
Guarantees
Convertible Subordinated Debt Securities
Convertible Preferred Stock
PCS Common Stock, Series 1
Stock Purchase Contracts
Equity Units
-----------------
SPRINT CAPITAL CORPORATION
Debt Securities
unconditionally guaranteed by
SPRINT CORPORATION
-----------------
We may offer from time to time debt securities, guarantees, convertible
subordinated debt securities, convertible preferred stock, PCS common stock,
series 1, stock purchase contracts and equity units, and Sprint Capital
Corporation may offer from time to time debt securities unconditionally
guaranteed by us, in an aggregate amount not to exceed $4,000,000,000. In
addition, one or more of our stockholders may offer from time to time up to
57,000,000 shares of PCS common stock, series 1. We or Sprint Capital
Corporation, as the case may be, will provide the specific terms of these
securities as applicable in supplements to this prospectus. You should read
this prospectus and the accompanying prospectus supplement carefully before you
invest.
The PCS common stock is intended to track the performance of our PCS group.
The PCS common stock is a class of common stock of our company and,
accordingly, holders of PCS common stock are subject to all the risks of an
equity investment in us and all of our businesses, assets and liabilities.
The PCS common stock, series 1 is listed on the New York Stock Exchange
under the symbol "PCS". Any PCS common stock sold pursuant to a prospectus
supplement will be listed on the New York Stock Exchange.
-----------------
Investing in our securities involves risks. See "Risk Factors" beginning on
page 6.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------
The date of this prospectus is July 26, 2001.
TABLE OF CONTENTS
About This Prospectus.......................................................................... 2
Where You Can Find More Information............................................................ 2
Sprint Corporation............................................................................. 4
Sprint Capital Corporation..................................................................... 5
Risk Factors................................................................................... 6
Special Note Regarding Forward-Looking Statements.............................................. 16
Use of Proceeds................................................................................ 16
Ratios of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends 17
Description of Debt Securities................................................................. 19
Description of Convertible Subordinated Debt Securities........................................ 27
Authorized Capital Stock....................................................................... 38
Description of Convertible Preferred Stock..................................................... 39
Description of PCS Common Stock................................................................ 40
Description of Stock Purchase Contracts and Equity Units....................................... 47
Selling Stockholder............................................................................ 48
Plan of Distribution........................................................................... 49
Legal Matters.................................................................................. 51
Experts........................................................................................ 51
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf process, we may sell
any combination of the following securities:
. debt securities,
. guarantees,
. convertible subordinated debt securities,
. convertible preferred stock,
. PCS common stock, series 1,
. stock purchase contracts, and
. equity units,
and Sprint Capital Corporation, or Sprint Capital, may sell:
. debt securities
in one or more offerings up to a total dollar amount of $4,000,000,000. In
addition, one or more of our stockholders may from time to time sell up to
57,000,000 shares of PCS common stock, series 1, in one or more offerings. This
prospectus provides you with a general description of the securities we or a
selling stockholder may sell. Each time we, Sprint Capital or a selling
stockholder sell securities, we or Sprint Capital will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement also may add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
caption "Where You Can Find More Information." We, Sprint Capital or a selling
stockholder may only use this prospectus to sell securities if it is
accompanied by a prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may
2
also read and copy any document we file with the SEC at its public reference
facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You can also obtain
copies of the documents at prescribed rates by writing to the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference facilities. Our SEC filings are also available at the office
of the New York Stock Exchange. For further information on obtaining copies of
our public filings at the New York Stock Exchange, you should call (212)
656-5060.
The SEC allows us to "incorporate by reference" the information that we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus and information that we subsequently file
with the SEC will automatically update and supercede information in this
prospectus and in our other filings with the SEC. We incorporate by reference
the documents listed below, which we have already filed with the SEC, and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until we sell all of the securities offered
by this prospectus:
. Annual Report on Form 10-K/A for the year ended December 31, 2000;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
. Current Report on Form 8-K filed on February 20, 2001;
. Current Report on Form 8-K filed on April 23, 2001;
. Current Report on Form 8-K filed on May 16, 2001;
. Current Report on Form 8-K filed on July 24, 2001;
. Amendment No.3 to Form 8-A registering the PCS common stock, series 1
under the Exchange Act, dated and filed on April 18, 2001; and
. Amendment No.2 to Form 8-A registering the PCS group rights under the
Exchange Act, dated and filed on July 26, 1999.
You may request a copy of these filings, other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing,
at no cost, by writing or calling us at the following address:
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
(800) 259-3755
Attention: Investor Relations
We and Sprint Capital have also filed a registration statement with the SEC
relating to the securities described in this prospectus. This prospectus is
part of the registration statement. You may obtain from the SEC a copy of the
registration statement and exhibits that we and Sprint Capital filed with the
SEC when we and Sprint Capital registered the securities. The registration
statement may contain additional information that may be important to you.
You should rely only on the information contained or incorporated by
reference in this prospectus or the applicable prospectus supplement. Neither
we nor Sprint Capital have authorized anyone else to provide you with
additional or different information. We and Sprint Capital are only offering
these securities in states where the offer is permitted. You should not assume
that the information in this prospectus or the applicable prospectus supplement
is accurate as of any date other than the dates on the front of those
documents.
Unless the context requires otherwise, references to "we," "us," and "our"
mean Sprint Corporation and its subsidiaries, including Sprint Capital
Corporation and references to Sprint Capital mean Sprint Capital Corporation,
our wholly owned finance subsidiary.
3
SPRINT CORPORATION
General
We are a global communications company and a leader in integrating
long-distance, local service and wireless communications. We are also one of
the largest carriers of Internet traffic using our tier one Internet protocol
network, which provides connectivity to any point on the Internet either
through our own network or via direct connections with another backbone
provider. We are the nation's third-largest provider of long distance services
and operate nationwide, all-digital long distance and tier one Internet
protocol networks using fiber-optic and electronic technology. In addition, our
local telecommunications division currently serves approximately 8.3 million
access lines in 18 states. We also operate the only 100% digital personal
communications service, or PCS, wireless network in the United States with
licenses to provide service nationwide using a single frequency band and a
single technology.
In November 1998, we allocated all of our assets and liabilities into two
groups: the FON group and the PCS group. At the same time, we reclassified each
share of our publicly traded common stock into tracking stocks. Each share of
common stock was reclassified into one share of FON common stock and 1/2 share
of PCS common stock. Our business is divided into four lines of business: the
global markets division, the local telecommunications division, the product
distribution and directory publishing businesses and the PCS wireless telephony
products and services business. The FON group includes the global markets
division, the local telecommunications division and the product distribution
and directory publishing businesses, and the PCS group includes the PCS
wireless telephony products and services business. The PCS common stock is
intended to reflect the financial results and economic value of the PCS
wireless telephony products and services business. The FON common stock is
intended to reflect the financial results and economic value of the global
markets division, the local telecommunications division and the product
distribution and directory publishing businesses.
We were incorporated in 1938 under the laws of the State of Kansas. Our
principal executive offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and our telephone number is (913) 624-3000.
Characteristics of Tracking Stock
Our PCS common stock and FON common stock are intended to reflect the
performance of the PCS and FON groups. However, they are classes of common
stock of our company, not of the group they are intended to track. Accordingly,
holders of PCS and FON common stock are subject to all of the risks of an
equity investment in us and all of our businesses, assets and liabilities.
Shares of PCS or FON common stock do not represent a direct equity or legal
interest in the assets and liabilities allocated to either group, but rather
represent a direct equity interest in our assets and liabilities as a whole.
Holders of PCS and FON common stock generally vote as a single class on all
matters submitted to a vote of our stockholders, including the election of
directors. The vote per share of PCS common stock is different than the vote
per share of FON common stock. The FON common stock has one vote per share. The
vote per share of the PCS common stock is based on the market price of a share
of PCS common stock relative to the market price of a share of FON common stock
for a period of time before the record date for a stockholder meeting. See
"Description of PCS Common Stock--Voting Rights."
The market price of the PCS common stock may not accurately reflect the
reported financial results and prospects of the PCS group or the dividend
policies established by our board with respect to the PCS common stock. The
market price of the FON common stock may not accurately reflect the reported
financial results and prospects of the FON group or the dividend policies
established by our board of directors with respect to the FON common stock.
Events affecting our company generally or the results of one group could
adversely affect the results of operations of the other group or the market
price of the stock tracking the other group. In addition, holders of PCS and
FON common stock may have conflicting interests, which could be resolved by our
board to the detriment of one group or the other. See "Risk Factors--Risk
Factors Relating to Tracking Stocks."
4
SPRINT CAPITAL CORPORATION
Sprint Capital is a wholly owned subsidiary of our company. We formed Sprint
Capital to engage in financing activities to provide funds for use by us and
our other subsidiaries, other than the local exchange companies in our local
telecommunications division. Sprint Capital raises funds through the sale of
debt securities, and then uses the net proceeds to make loans to, or
investments in, us or our other subsidiaries, other than the local exchange
companies in our local telecommunications division. Sprint Capital does not and
will not engage in any other business operations.
Sprint Capital was incorporated in 1993 under the laws of the State of
Delaware. Its principal offices are located at 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205, and its telephone number is (913) 624-3000.
5
RISK FACTORS
An investment in the securities described in this prospectus involves risks.
You should carefully consider the following risk factors and the other
information included or incorporated by reference in this prospectus before
deciding to invest in the securities.
Risk Factors Relating to our Company
Any failure by the PCS group to continue the buildout of its network and meet
capacity requirements of its customer growth will likely impair its financial
performance and negatively impact the market price of the PCS common stock
and our other securities.
The PCS group has additional network buildout and substantial capacity
additions to complete. As the PCS group continues the buildout and expansion of
its PCS network, it must:
. obtain rights to a large number of cell sites;
. obtain zoning variances or other approvals or permits for network
construction and expansion; and
. build and maintain additional network capacity to satisfy customer
growth.
Network buildout and expansion may not occur as scheduled or at the cost
that the PCS group has estimated. The Federal Communications Commission
requires certain levels of construction or "buildout" for licensees to retain
their PCS licenses. Moreover, delays or failure to add network capacity, or
increased costs of adding capacity, could limit our ability to increase the
revenues of, or cause a deterioration in the operating margin of, the PCS group
or our company as a whole.
The PCS group expects to continue to supplement its own network buildout
through affiliation arrangements with other companies. Under these
arrangements, these companies offer PCS services under the Sprint PCS brand
name, allow us to retain a portion of collected revenues, and complete network
buildout at the affiliates' expense. The related PCS networks are in various
stages of network buildout and launch. These companies may not be able to
complete and operate their networks.
Failure to satisfy our substantial capital requirements could cause us to
delay or abandon our expansion plans.
The PCS group and the FON group will continue to require substantial
additional capital to continue to expand their businesses. We may not be able
to arrange additional financing to fund our capital requirements on terms
acceptable to us. Our ability to arrange additional financing will depend upon,
among other factors, our financial performance, general economic conditions and
prevailing market conditions. Many of these factors are beyond our control.
Either of the PCS group's or the FON group's fund raising efforts may adversely
affect the other group's ability to raise additional capital. Failure to obtain
suitable financing could, among other things, result in the delay or
abandonment of the PCS group's expansion plans or the inability of the FON
group to continue to expand its business and meet competitive challenges.
We face intense competition that may reduce our market share and harm our
financial performance.
There is substantial competition in the telecommunications industry. The
traditional dividing lines between long distance, local, wireless and Internet
services are increasingly becoming blurred. Through mergers and various service
integration strategies, major providers, including us, are striving to provide
integrated solutions both within and across all geographical markets.
6
We expect competition to intensify as a result of the entrance of new
competitors and the rapid development of new technologies, products and
services. We cannot predict which of many possible future technologies,
products or services will be important to maintain our competitive position or
what expenditures will be required to develop and provide these technologies,
products or services. Our ability to compete successfully will depend on
marketing and on our ability to anticipate and respond to various competitive
factors affecting the industry, including new services that may be introduced,
changes in consumer preferences, demographic trends, economic conditions and
discount pricing strategies by competitors. To the extent we do not keep pace
with technological advances or fail to timely respond to changes in competitive
factors in our industry, we could lose market share or experience a decline in
our revenue and net income.
PCS group. Each of the markets in which the PCS group competes is served by
other two-way wireless service providers, including cellular, enhanced
specialized mobile radio and PCS operators and resellers. A majority of markets
have five or more commercial mobile radio service providers. Each of the top 50
metropolitan markets has at least two other PCS competitors in addition to two
cellular incumbents. Many of these competitors have been operating for a number
of years and currently serve a substantial subscriber base. Competition may
continue to increase to the extent that licenses are transferred from smaller
stand-alone operations to larger, better capitalized and more experienced
wireless communications operations. These larger wireless communications
operations may be able to offer customers network features not offered by the
PCS group. The actions of these larger wireless communications operations could
negatively impact the PCS group's customer churn, ability to attract new
customers, average revenue per user, cost to acquire customers and operating
costs per customer.
The PCS group relies on agreements with competitors to provide automatic
roaming capability to PCS group customers in many of the areas of the United
States not covered by the PCS group's network, which primarily serves
metropolitan areas. Certain competitors may be able to offer coverage in areas
not served by the PCS group's network or may be able to offer roaming rates
that are lower than those offered by the PCS group. Certain of our competitors
are seeking to reduce access to their networks through actions pending with the
Federal Communications Commission. Moreover, the standard for the dominant air
interface upon which PCS customers roam is currently being considered for
elimination by the Federal Communications Commission as part of a streamlining
proceeding. If the Federal Communications Commission eliminates this standard,
PCS customers may have difficulty roaming in certain markets.
Many cellular providers, some of which have an infrastructure in place and
have been operating for a number of years, have been upgrading their systems
and provide expanded and digital services to compete with the PCS group's
services. Many of these wireless providers require their customers to enter
into long term contracts, which may make it more difficult for the PCS group to
attract these customers away from these wireless providers.
We anticipate that market prices for two-way wireless voice services and
products generally will decline in the future as a result of increased
competition. We also expect to face increased competition for access to
distribution channels. Consequently, we may be forced to increase advertising
and promotion spending. All of this may lead to greater choices for customers,
possible consumer confusion and increased industry churn.
FON group. As the nation's third largest provider of long distance services,
the FON group competes with AT&T Corp., or AT&T, and WorldCom, Inc., as well as
a host of smaller competitors. A class of new entrants has emerged, such as
Qwest Communications International Inc. and Level 3 Communications, Inc., that
have built high-capacity fiber-optic networks capable of supporting tremendous
amounts of bandwidth. Although these new entrants have not captured a large
market share, they and others with a strategy of using Internet-based networks
claim certain cost structure advantages which, among other factors, may
position them well for the future. In addition, increased competition has
forced lower prices for long distance services. The significant increase in
capacity resulting from new networks may drive prices down further.
The Telecommunications Act of 1996 allows the Regional Bell Operating
Companies to provide long distance services in their respective regions if
certain conditions are met. Verizon Communications Inc. has entered the long
distance market in New York and SBC Communications Inc. has entered the long
distance market in Texas. Both have been successful in obtaining a significant
market share in a short period of time. SBC
7
Communications Inc. has also recently entered the long distance market in
Kansas and Oklahoma and Verizon Communications Inc. has recently entered the
long distance market in Massachusetts. A significant portion of the Regional
Bell Operating Companies may secure regulatory clearance to offer long distance
services in their respective markets in the next 12 months. As the Regional
Bell Operating Companies enter the market they should prove to be formidable
long distance competitors.
Because our local telecommunications division operates largely in rural
markets, competition in the local division's markets is occurring more
gradually. There is already significant competition for business and
residential customers in urban areas served by the local telecommunications
division of the FON group and for business customers located in most areas.
Certain combinations involving competitors may increase competition. In
addition, wireless services will continue to grow as an alternative to wireline
services as a means of reaching customers.
Demand for some of our communications products and services has been
adversely affected by a downturn in the United States economy as well as
changes in the global economy.
Demand for some of our communications products and services has been
adversely affected by a downturn in the United States economy as well as
changes in the global economy. A number of the FON group's wholesale customers
have struggled financially recently and some have filed for bankruptcy. As a
result, we have experienced lower than expected revenues for our wholesale
business in recent quarters. In addition, we have lowered our expectations for
near-term growth of our web hosting and related businesses due to lower demand.
As a result, we have recently reduced our financial forecast for our FON group
operations for the remainder of 2001.
Likewise, a number of our suppliers have recently experienced financial
challenges. If they cannot meet their commitments, we would have to use
different vendors and this could result in delays, interruptions or additional
expenses associated with the upgrade and expansion of our networks and the
offering of our products and services.
If current general economic conditions continue or worsen, the revenues,
cash flow and net income of the PCS group, the FON group and our company as a
whole could be adversely effected.
Our substantial leverage will reduce cash flow from operations available to
fund our business and may cause a decline in our credit rating and/or limit
our ability to raise additional capital.
We have substantial indebtedness. As of March 31, 2001, we had total
outstanding debt of $20.1 billion. We intend to incur additional indebtedness
in the future as we implement the business plans of the PCS group and the FON
group. In connection with the execution of our business strategies, we are
continuously evaluating acquisition opportunities with respect to both the PCS
group and the FON group, and we may elect to finance acquisitions by incurring
additional indebtedness. We must use a portion of our future cash flow from
operations to pay the principal and interest on our indebtedness, which will
reduce the funds available for our operations, including capital investments
and business expenses. This could hinder our ability to adjust to changing
market and economic conditions. If we incur significant additional
indebtedness, our credit rating could be adversely affected. As a result, our
borrowing costs would likely increase and our access to capital may be
adversely affected.
Any convertible subordinated debt securities will rank behind other
indebtedness.
Any convertible subordinated debt securities will rank behind all of our
existing and future senior debt (as defined in the indenture relating to the
convertible subordinated debt securities), including debt outstanding under our
credit facilities. As of March 31, 2001, we, excluding our subsidiaries, had
$16.9 billion of senior debt outstanding (including $86 million of letters of
credit and $15.5 billion of guarantees of debt of our subsidiaries). This
amount does not include approximately $2.7 billion that we had available to
borrow under our credit facilities, all of which would be senior debt if
borrowed. In addition, the convertible subordinated debt securities will be
effectively subordinated to all of the indebtedness and liabilities, including
trade payables, of our subsidiaries. As of March 31, 2001, our subsidiaries had
$28.2 billion of indebtedness and other liabilities, including trade payables,
outstanding. In the event of our bankruptcy, liquidation or reorganization, our
assets will be available to pay our obligations on the convertible subordinated
debt securities only after we have repaid
8
all of our senior debt in full. It is possible that sufficient assets would not
remain to make full payment on the convertible subordinated debt securities
after those payments are made. In addition, the subordination provisions of the
indenture provide that we cannot make cash payments on any convertible
subordinated debt securities while a payment default is continuing under any of
our senior debt. See "Description of Convertible Subordinated Debt
Securities--Subordination."
We are a holding company and, accordingly, will depend on the cash flow of
our subsidiaries to satisfy our obligations under our indebtedness.
We are primarily a holding company and have no material operations, sources
of income or assets other than our equity interest in our subsidiaries. Any
convertible subordinated debt securities will be exclusively our obligations
and will not be guaranteed by any of our subsidiaries. Because substantially
all of our operations are conducted by our subsidiaries, our operating cash
flow and our ability to service our indebtedness, including any convertible
subordinated debt securities, depends upon the cash flow of our subsidiaries
and their ability to make transfers to us in the form of loans, dividends or
otherwise. If we cannot obtain sufficient funds from our subsidiaries, we may
not be able to meet our obligations on the convertible subordinated debt
securities.
The PCS group has a history of operating losses.
If the PCS group does not achieve and maintain profitability on a timely
basis, the PCS group may be unable to make capital expenditures necessary to
implement its business plan, meet its debt service requirements or otherwise
conduct its business in an effective and competitive manner. This would require
us to divert cash from other uses, which may not be possible or may detract
from the growth of our PCS and FON groups' businesses. These events could limit
our ability to increase revenues and net income of the PCS group and our
company as a whole or cause these amounts to decline.
Significant change in the wireless industry could cause a decline in demand
for the PCS group's services.
The wireless telecommunications industry is experiencing significant
technological change, including improvements in the capacity and quality of
digital technology such as the move to third generation wireless technology.
This causes uncertainty about future customer demand for the PCS group's
services and the prices that we will be able to charge for these services. For
example, the demands for wireless data services provided by the PCS group may
be impacted by the proliferation of wireless local area networks using new
technologies. The rapid change in technology may lead to the development of
wireless telecommunications services or alternative services that consumers
prefer over PCS. There is also uncertainty as to the extent to which airtime
charges and monthly recurring charges may continue to decline. As a result, the
future prospects of the wireless industry and the PCS group and the success of
PCS and other competitive services remain uncertain.
A high rate of customer churn would likely impair the PCS group's financial
performance.
Historically, the PCS group experienced a high rate of customer churn.
Current strategies to address customer churn may not continue to be successful
and recent improvements in the rate of churn could reverse. A high rate of
customer churn would impair our ability to increase the revenues of, or cause a
deterioration in the operating margin of, the PCS group or our company as a
whole.
Government regulation could adversely affect the PCS group's prospects and
results of operations.
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the Federal Communications Commission and, depending on the
jurisdiction, state and local regulatory agencies. In addition, the Federal
Communications Commission, together with the Federal Aviation Administration,
regulates tower marking and lighting. Tower construction is also affected by
federal statutes addressing environmental protection and historic preservation.
The Federal Communications Commission, the Federal Aviation Administration or
other governmental
9
authorities having jurisdiction over the PCS group's business could adopt
regulations or take other actions that would adversely affect the business
prospects or results of operations of the PCS group.
Federal Communications Commission licenses to provide PCS services are
subject to renewal and revocation. The PCS group's metropolitan trading area
licenses will expire in 2005 and its basic trading area licenses will expire in
2007. Metropolitan trading areas are areas defined by the Federal
Communications Commission for the purpose of issuing licenses for PCS. Several
basic trading areas make up each metropolitan trading area. The licenses may be
renewed by the Federal Communications Commission for additional ten year terms;
however, there can be no guarantee that the PCS group's licenses will be
renewed. Federal Communications Commission rules require all PCS licensees to
meet certain buildout requirements. The PCS group may not continue to obtain
the requisite coverage in each metropolitan trading area market or obtain the
requisite coverage in each basic trading area market. Failure to comply with
Federal Communications Commission requirements in a given license area could
result in revocation of the PCS group's PCS license for that license area or
the imposition of fines on the PCS group by the Federal Communications
Commission.
Failure by various regulatory bodies to make telephone numbers available in
a timely fashion could result in the PCS group not having enough local numbers
to assign to new subscribers in certain markets. The Federal Communications
Commission has adopted rules to promote the efficient use of numbering
resources, including restrictions on the assignment of telephone numbers to
carriers, including wireless carriers. The Federal Communications Commission is
considering additional rules in this area. The Federal Communications
Commission has delegated to states the authority to assign, administer and
conserve telephone numbers. Depending on the actual rules adopted by the
states, the supply of available numbers could be adversely restricted. As a
result, the PCS group may:
. be required to assign subscribers non-local telephone numbers, which may
be a disincentive for potential customers to subscribe to PCS service,
. incur significant costs to either acquire new numbers or reassign
subscribers to new numbers and/or
. be unable to enroll new subscribers at projected rates.
Failure to complete development and rollout of new technology could impact
our ability to compete in the industry.
We are currently in the process of developing and rolling out various new
technologies intended to help us compete in the industry. We have entered into
several major contracts with vendors and undertaken other initiatives for the
provision of third generation technology to be included in our PCS network.
Successful implementation of this upgrade depends on the vendors meeting their
obligations in a timely manner. In addition, we have invested significant
amounts in the development of Sprint ION for the FON group. Sprint ION is still
in its development phase. For example, although we have deployed Sprint ION
using dedicated access and digital subscriber line technology, we are in the
process of developing our ability to deploy Sprint ION over our fixed wireless
multipoint multichannel distribution service technology. We are also working to
improve voice stability on the Sprint ION digital subscriber line platform. We
may not successfully complete the development and rollout of third generation
technology, Sprint ION or any other new technology in a timely manner and third
generation technology, Sprint ION or any other new technology may not be widely
accepted by customers. In either case, we may not be able to compete
effectively in the industry.
We could be required to move our broadband fixed wireless services to a
higher frequency or surrender some of the frequency we use to provide these
services, which would adversely affect our ability to provide these services.
The Federal Communications Commission and the National Telecommunications
and Information Administration in the Department of Commerce are seeking to
identify additional spectrum that can be used to
10
provide advanced wireless services. Among the spectrum bands under
consideration are the bands currently used by the FON group and others to
provide broadband fixed wireless services. The Federal Communications
Commission has initiated a proceeding to examine the issues raised by the
possibility of reallocating spectrum subject to its jurisdiction or reducing
the spectrum available to current licensees and is expected to issue an order
later this year. If the Federal Communications Commission orders reallocation
of the spectrum used by us or reduces our spectrum, it would substantially
increase our cost of providing broadband fixed wireless services and could make
it unprofitable to provide these services.
Risk Factors Relating to Tracking Stocks
Risks associated with the business of the FON group may adversely affect our
overall performance. Because PCS common stock represents an equity interest
in our company as a whole and not the PCS group separately, the market price
of the PCS common stock and any security convertible into or exercisable for
the PCS common stock could be adversely affected by the business of the FON
group.
Although the PCS common stock is intended to track the performance of our
PCS group, it does not represent a direct legal interest in the assets and
liabilities of the PCS group, but rather represents a direct equity interest in
our assets and liabilities as a whole. Therefore, holders of PCS common stock
are common stockholders of our company and as such are subject to the risks
related to all of our businesses, assets and liabilities. This means that
events affecting the business, assets or financial condition of the FON group
could also adversely affect the business, assets or financial condition of the
PCS group. Consequently, these events could affect the market price of the PCS
common stock and any security convertible into or exercisable for PCS common
stock.
The market price of the PCS common stock may not accurately reflect the
performance of the PCS group.
The market price for the PCS common stock may not reflect the reported
financial results and prospects of the PCS group or the dividend policies
established by our board of directors with respect to the PCS common stock. For
example, if investors have negative expectations for the FON group or our
company as a whole, the market price of the PCS common stock and any security
convertible into or exercisable for PCS common stock could be adversely
affected without regard to the performance of the PCS group.
The complex nature of the tracking stocks may adversely affect the market
prices of the PCS common stock and the FON common stock.
The complex nature of the terms of the PCS common stock and the FON common
stock, such as the relative voting power and dividend policies applicable to
each type of common stock, and the difficulties investors may have in
understanding these terms may adversely affect the market prices of the PCS
common stock and the FON common stock and any security convertible into or
exercisable for either of these stocks.
Holders of PCS common stock are stockholders of our company and generally do
not have specific rights related to the assets or business of the PCS group.
As such, they must vote with holders of FON and Class A common stock on
matters submitted to a vote of our stockholders and they may not be able to
determine the outcome of the vote.
We are the issuer of the PCS common stock, and the PCS common stock does not
represent a direct interest in the PCS group. As a result, with few exceptions,
holders of PCS common stock have only the rights customarily held by common
stockholders of a corporation and do not have rights specifically related to
the assets or business of the PCS group. For example, holders of PCS common
stock vote together with holders of FON common stock and Class A common stock
as a single class on most matters, including the election of directors. The FON
common stock has one vote per share. The vote per share of the PCS common stock
fluctuates, based on its market price relative to the market price of a share
of FON common stock for a period of time before the record date for a
stockholders' meeting. To the extent that the aggregate voting power of the
outstanding FON common stock and
11
Class A common stock is greater than that of the PCS common stock, the holders
of those stocks would be in a position to control the outcome of stockholder
votes, including the election of directors. This would be true even if the
matter to be voted upon involves a conflict in the interests of the holders of
the FON common stock and the PCS common stock.
Under the applicable corporate law, our board of directors does not owe
separate duties to the holders of the PCS common stock or to the holders of
the FON common stock.
Under the applicable corporate law, our board of directors owes its
fiduciary duties to all of our stockholders. Neither the PCS group nor the FON
group has a separate board of directors to represent solely the interests of
the holders of the PCS common stock or FON common stock. Consequently, there is
no board of directors that owes separate duties to the holders of either the
PCS common stock or the FON common stock. Our tracking stock policies provide
that our board, in resolving material matters in which the holders of PCS
common stock and FON common stock have potentially divergent interests, will
act in the best interest of our company and all of our common stockholders
after giving fair consideration to the potentially divergent interests of the
holders of the separate classes of our common stock. These tracking policies
may be changed by the board without stockholder approval.
Conflicts of interest between holders of PCS common stock and FON common
stock in transactions between the PCS group and the FON group or in our
dealings with third parties could be resolved by our board to the detriment
of PCS stockholders.
Holders of PCS common stock may have interests that differ from or conflict
with the interests of holders of FON common stock. For example, conflicts could
arise with respect to decisions by our board of directors with respect to,
among other things, the following matters:
. conversion of the outstanding shares of PCS common stock into shares of
FON common stock, which our board of directors may do any time after
November 23, 2001;
. payment of dividends on PCS common stock or FON common stock;
. sale of the assets of either the PCS or FON group to a third party;
. transfer of assets from one group to the other group;
. allocation of consideration in a merger among holders of PCS common
stock and FON common stock;
. intercompany loans from one group to the other group;
. formulation of public policy positions that could have different effects
on the interests of the PCS group and the FON group; and
. the effects on each group of operational and financial decisions.
Policies adopted by our board of directors with respect to our tracking
stocks provide that loans from the FON group to the PCS group will be made at
interest rates and on terms and conditions substantially equivalent to the
interest rates and terms and conditions that the PCS group would be able to
obtain from third parties, including the public markets, as a wholly-owned
subsidiary, but without the benefit of any guaranty from us or the FON group.
This provision applies regardless of the interest rate at which the loaned
funds are borrowed by us or the FON group. We anticipate that the interest
rates payable by the PCS group will continue to be higher than those payable by
us or the FON group for the foreseeable future.
These tracking stock policies also provide guidelines for addressing
material conflicts. Our board of directors has appointed a committee,
consisting of outside board members, to interpret and oversee the
implementation of these policies. Subject to these policies, the resolution of
conflicts by our board may benefit, or appear to benefit, one group at the
expense of the other group.
12
Our directors generally own more FON common stock than PCS common stock,
which could give rise to claims of conflict of interest.
In general, members of our board of directors have a greater economic
interest in the FON group than in the PCS group. This difference in ownership
could give rise to claims of conflict of interest when our board of directors
makes decisions on matters where the interests of the FON group and the PCS
group diverge.
Payments to the PCS group under the tax sharing agreement could be less than
expected, and our board of directors could change the terms of the tax
sharing agreement to the detriment of the PCS group.
Federal and state income taxes incurred by us are allocated between the
groups in accordance with a tax sharing agreement entered into by us when we
created the FON group and the PCS group. These allocations are based
principally on the taxable income and tax credits contributed by each group.
Allocations to or from the PCS group are intended to reflect its actual
incremental cumulative effect (positive or negative) on our consolidated
federal and state taxable income and related tax liability and tax credit
positions, subject to certain adjustments. Significant payments pursuant to the
tax sharing agreement have been made by the FON group to the PCS group and we
expect that significant payments will continue to be made by the FON group to
the PCS group in the near future, in light of the operating losses that the PCS
group has incurred or is expected to incur during this time. It is possible
that these payments will be more or less than expected. For example, PCS group
losses or FON group income could be less than anticipated, in which case the
payments to the PCS group would be less than expected.
The initial tax sharing agreement applies to tax years ending on or before
December 31, 2001. For periods after December 31, 2001, our board of directors
will adopt a tax sharing arrangement that will be designed to continue to
allocate tax benefits and burdens fairly between the FON group and the PCS
group. We expect that tax benefits that cannot be used by a group generating
those benefits but can be used on a consolidated basis will continue to result
in payments to the group that generated the benefits. In addition, we expect
that any tax benefits relating to tax loss or tax credit carry forwards
generated by the PCS group but not used as of the expiration of the initial tax
sharing agreement will continue to result in payments to the PCS group when the
tax benefits are used. Our board of directors could change the terms of the tax
sharing agreement in a way that would decrease the benefit (or increase the
cost) of the agreement to the PCS group.
Our board of directors has the discretion to change the allocation of the
assets and liabilities that comprise each of the PCS group and the FON group
without the approval of our stockholders.
Our board of directors, subject to the restrictions in our articles of
incorporation, has the discretion to change the allocation of the assets and
liabilities that comprise each of the PCS group and the FON group without the
approval of our stockholders. It is possible that a change in the existing
allocation of our assets and liabilities between the groups could adversely
affect the PCS group or the FON group. We intend to disclose any change in this
allocation in our reports filed with the SEC; however, this disclosure is not
required and the timing and content of this disclosure is at our discretion.
Because our stockholders would not be entitled to vote on any change in the
allocations, the market prices of the PCS common stock and the FON common stock
and any security convertible into or exercisable for either of these stocks may
not reflect a change until the change is disclosed by us.
Our board of directors could change its established policies relating to the
holders of PCS common stock to the detriment of the PCS group.
Our board of directors may change its tracking stock policies without the
approval of our stockholders. Our board of directors may also adopt additional
policies depending upon the circumstances. Our board of directors may adopt new
policies and change existing policies in a manner consistent with its fiduciary
duties after giving fair consideration to the potentially divergent interests
and all other relevant interests of the holders of the separate classes of our
common stock, including the holders of PCS common stock and the holders of FON
13
common stock. However, new policies and changes to the existing policies could
have different impacts upon holders of PCS common stock and FON common stock
and could affect one common stock negatively in relation to the other common
stock. See "Description of PCS Common Stock--Dividend Rights and Restrictions."
The structure of the tracking stocks may impede an acquisition of the PCS
group.
If the PCS group were a stand-alone entity, a person that did not wish to
negotiate with our management could seek to acquire the PCS group by means of a
tender offer or proxy contest involving only the PCS group stockholders.
However, because the PCS group is a part of our company, acquiring it without
negotiation with our management would require a proxy contest or tender offer
to gain control of our company as a whole and would probably require
solicitations to holders of both PCS common stock and FON common stock. This
may hinder potential acquirers of the PCS group assets and thereby prevent
holders of PCS common stock from achieving additional return on their
investment related to such acquisitions.
Holders of PCS common stock may receive less in an acquisition of the PCS
group's assets than they would if the PCS group were a separate company.
If the PCS group were an independent company and its shares were acquired by
another person, certain costs, including corporate level taxes, might not be
payable in connection with the acquisition. As a result, holders of PCS common
stock might receive more consideration in an acquisition of the PCS group if
the PCS group were an independent company. In addition, the after-tax proceeds
per share that holders of PCS common stock would receive as a result of a
disposition of PCS group assets might be less than the market value per share
of the PCS common stock before or after the announcement of such disposition.
Potential sales of large amounts of PCS common stock into the market could
lower the market price of the PCS common stock.
As of June 30, 2001, we had approximately 980.6 million shares of PCS common
stock outstanding (including shares of PCS common stock underlying the Class A
common stock held by France Telecom and Deutsche Telekom). Of these shares, an
aggregate of approximately 113.4 million were held by France Telecom and
Deutsche Telekom, and an aggregate of 324.2 million were held by Liberty PCS
Trust, Comcast Corporation and Cox Communications, Inc. In addition, as of June
30, 2001 Liberty PCS Trust, Comcast and Cox held shares of our preferred stock
that were convertible into an aggregate of approximately 16.1 million shares of
PCS common stock and warrants to purchase approximately 24.9 million shares of
PCS common stock.
Comcast, Cox and Tele-Communications, Inc., or TCI, which we refer to
together with Liberty PCS Trust as the cable holders, received PCS common
stock, series 2 as part of the purchase price in our acquisition of their
interests in entities that are now part of the PCS group. TCI transferred its
shares to Liberty PCS Trust in connection with the acquisition of TCI by AT&T
in March 1999.
These stockholders have significant registration rights. Sales of a
substantial number of these shares of PCS common stock, or the perception that
such sales may occur, could cause the market price of the PCS common stock and
any security convertible into or exercisable for PCS common stock to decline
and impede our ability to raise capital through sales of PCS common stock or
securities convertible into or exercisable for PCS common stock.
On February 20, 2001, we entered into an agreement with France Telecom and
Deutsche Telekom that sets forth the parties' agreements concerning the timing
and mechanics of our recent secondary offering of FON common stock, series 1 in
relation to an offering by us of PCS common stock, which we refer to as the PCS
offering. Under the agreement, unless waived by us, each of France Telecom and
Deutsche Telekom is required to refrain from disposing of, or requesting that
we register, its shares of PCS common stock, subject to limited exceptions,
until the earliest to occur of:
. 180 days following the closing of the PCS offering, if the PCS offering
is completed by December 31, 2001,
14
. November 15, 2001, if we have not publicly announced our intention to
commence the PCS offering by that date, and
. January 1, 2002, if the PCS offering is not completed by December 31,
2001.
Any sale of PCS common stock by the cable holders to the public or other
unaffiliated parties will result in conversion of their shares of PCS common
stock, series 2 into the same number of shares of PCS common stock, series 1.
Each share of PCS common stock, series 1 possesses ten times the vote of each
share of PCS common stock, series 2, except in the case of a class vote. Thus,
any sales of PCS common stock, series 2 to the public or other unaffiliated
parties will dilute the voting power of the shares of PCS common stock, series
1 that are outstanding immediately before the sale.
In connection with AT&T's acquisition of TCI, the U.S. Department of Justice
required TCI to transfer its shares of PCS common stock to the Liberty PCS
Trust for disposition within a five-year period. Other elements and
requirements of the trust included the following:
. the trustee must divest sufficient shares of PCS common stock to cause
its holdings to amount to no more than 10% of the PCS common stock on a
fully diluted basis on or before May 23, 2002,
. the trustee must divest the remaining shares on or before May 23, 2004,
. the trustee must accomplish the divestiture only in a manner reasonably
calculated to maximize the value of the PCS common stock held by the
selling stockholder, and
. there are no specified limits on the number of shares that may be sold
in any given period.
15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference "forward-looking
statements" within the meaning of the securities laws. All statements that are
not historical facts are "forward-looking statements." The words "estimate,"
"project," "intend," "expect," "believe," "anticipate" and similar expressions
identify forward-looking statements. These forward-looking statements include
statements regarding the expected financial position, business, financing
plans, business prospects, revenues, working capital, liquidity, capital needs,
interest costs and income, in each case relating to the PCS group and the FON
group as well as our company as a whole.
Forward-looking statements are estimates and projections reflecting our best
judgment and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements. Although we and Sprint Capital believe that the estimates and
projections reflected in the forward-looking statements are reasonable, our
expectations may prove to be incorrect. Important factors that could cause
actual results to differ materially from estimates or projections contained in
the forward-looking statements include:
. the effects of vigorous competition in the markets in which we operate;
. the costs and business risks associated with providing new services and
entering new markets necessary to provide nationwide or global services;
. the ability of the PCS group to continue to grow a significant market
presence;
. the effects of mergers and consolidations within the telecommunications
industry;
. the uncertainties related to our strategic investments;
. the impact of any unusual items resulting from ongoing evaluations of
our business strategies;
. unexpected results of litigation filed against us;
. the possibility of one or more of the markets in which we compete being
impacted by changes in political, economic 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
we have no control; and
. those factors listed in this prospectus under "Risk Factors."
We and Sprint Capital believe these forward-looking statements are
reasonable; however, undue reliance should not be placed on any forward-looking
statements, which are based on current expectations. Further, forward-looking
statements speak only as of the date they are made.
USE OF PROCEEDS
Unless the applicable prospectus supplement states otherwise, we and Sprint
Capital will use the net proceeds from the sale of any securities for general
corporate purposes, including repaying debt, making capital investments and
funding working capital requirements.
We will not receive any of the proceeds from the sale, if any, of PCS common
stock, series 1, by any selling stockholder.
16
RATIOS OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
The following table shows the ratios of earnings to fixed charges and to
combined fixed charges and preferred stock dividends for our company, which
includes our subsidiaries, on a consolidated basis. The following table does
not show the ratio of earnings to fixed charges for Sprint Capital on a
stand-alone basis because it is not meaningful.
For purposes of calculating the ratios,
(1)earnings include:
. income (loss) from continuing operations before taxes, plus
. equity in the net losses of less-than-50% owned entities, less
. capitalized interest; and
(2)fixed charges include:
. interest on all debt of continuing operations, including capitalized
interest;
. amortization of debt issuance costs; and
. the interest component of operating rents.
For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, preferred stock dividends include the amount of
pre-tax earnings required to pay the dividends on outstanding preferred stock.
The ratio of earnings to fixed charges is calculated as follows:
(earnings) + (fixed charges)
----------------------------
(fixed charges)
The ratio of earnings to combined fixed charges and preferred stock
dividends is calculated as follows:
(earnings) + (fixed charges)
-------------------------------------------------------------------------------
(fixed charges) + (pretax earnings required to cover preferred stock dividends)
Pretax earnings required to cover preferred stock dividends are calculated
as follows:
preferred stock dividends, as adjusted for the tax benefits related to unallocated shares
-----------------------------------------------------------------------------------------
1 - (our effective income tax rate)
Three Months
Ended
Year Ended December 31, March 31,
--------------------------------------- ---------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- ------ ------ ------ ------
Ratio of earnings to fixed charges............. 5.96(1) 6.67(2) 1.79(3) -- (4) -- (5) -- (6) -- (7)
Ratio of earnings to combined fixed charges and
preferred stock dividends.................... 5.93(1) 6.64(2) 1.78(3) -- (4) -- (5) -- (6) -- (7)
--------
(1)Earnings, as defined above, include a nonrecurring charge related to
litigation of $60 million. Excluding this charge, the ratio of earnings to
fixed charges would have been 6.10 for 1996 and the ratio of earnings to
combined fixed charges and preferred stock dividends would have been 6.08
for 1996.
(2)Earnings, as defined above, include a nonrecurring litigation charge of $20
million and nonrecurring net gains of $71 million mainly from sales of local
exchanges and certain investments. Excluding these items, the ratio of
earnings to fixed charges would have been 6.54 for 1997 and the ratio of
earnings to combined fixed charges and preferred stock dividends would have
been 6.51 for 1997.
17
(3)Earnings, as defined above, include a nonrecurring charge to write off $179
million of acquired in-process research and development costs related to the
PCS restructuring and nonrecurring net gains of $104 million mainly relating
to sales of local exchanges. Excluding these items, the ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends would have been 1.85 for 1998.
(4)Earnings, as defined above, were inadequate to cover fixed charges by $1.1
billion and inadequate to cover combined fixed charges and preferred stock
dividends by $1.2 billion in 1999. Earnings, as defined above, include a net
nonrecurring gain of $54 million from investment activities. Excluding this
gain, earnings, as defined above, would have been inadequate to cover fixed
charges, and inadequate to cover combined fixed charges and preferred stock
dividends, by $1.2 billion.
(5)Earnings, as defined above, were inadequate to cover fixed charges by $621
million and inadequate to cover combined fixed charges and preferred stock
dividends by $632 million in 2000. Earnings, as defined above, include:
. nonrecurring charges of $238 million principally representing a
write-down of goodwill, $187 million for costs associated with the
terminated WorldCom merger and $122 million for the write-downs of
certain equity investments;
. net nonrecurring gains of $71 million from the sale of an independent
directory publishing operation and from investment activities; and
. a nonrecurring gain of $28 million from the sale of network
infrastructure and the right to manage customers to a PCS affiliate.
Excluding these items, earnings, as defined above, would have been
inadequate to cover fixed charges by $173 million and inadequate to cover
combined fixed charges and preferred stock dividends by $184 million.
(6)Earnings, as defined above, were inadequate to cover fixed charges by $72
million and inadequate to cover combined fixed charges and preferred stock
dividends by $75 million in the quarter ending March 31, 2000. Earnings, as
defined above, include a net nonrecurring gain of $26 million from
investment activities. Excluding this gain, earnings, as defined above,
would have been inadequate to cover fixed charges by $98 million and
inadequate to cover combined fixed charges and preferred stock dividends by
$101 million.
(7)Earnings, as defined above, were inadequate to cover fixed charges by $62
million and inadequate to cover combined fixed charges and preferred stock
dividends by $65 million in the quarter ending March 31, 2001. Earnings, as
defined above, include a nonrecurring gain of $14 million from investment
activities. Excluding this gain, earnings, as defined above, would have been
inadequate to cover fixed charges by $76 million and inadequate to cover
combined fixed charges and preferred stock dividends by $79 million.
18
DESCRIPTION OF DEBT SECURITIES
Debt securities issued by us will be issued pursuant to an indenture dated
as of October 1, 1998 between us and Bank One, N.A., as trustee, as
supplemented by a first supplemental indenture dated as of January 15, 1999. We
refer to this indenture as so supplemented as the Sprint indenture. Debt
securities issued by Sprint Capital will be issued under an indenture dated as
of October 1, 1998 among us, Sprint Capital and Bank One, N.A., as trustee, as
supplemented by a first supplemental indenture dated as of January 15, 1999. We
refer to this indenture as so supplemented as the Sprint Capital indenture. We
refer to the Sprint indenture and the Sprint Capital indenture collectively as
the indentures.
We have summarized the material provisions of the indentures below. The
forms of the indentures have been filed as exhibits to the registration
statement and you should read the indentures for provisions that may be
important to you. In the summary below, we have included references to section
numbers of the indentures so that you can easily locate these provisions.
Capitalized terms used in the summary have the meaning specified in the
indentures. You can obtain copies of the indenture by following the directions
described under the caption "Where You Can Find More Information." In this
section, references to "our", "we" and similar terms mean Sprint Corporation,
excluding its subsidiaries.
General
The indentures do not limit the aggregate principal amount of debt
securities that we and Sprint Capital may issue and provide that we and Sprint
Capital may issue debt securities from time to time in one or more series, in
each case with the same or various maturities, at par or at a discount. We may
issue additional debt securities of a particular series without the consent of
the holders of the debt securities of that series outstanding at the time of
the issuance. Any additional debt securities, together with all other
outstanding debt securities of that series, will constitute a single series of
debt securities under the applicable indenture. The indentures also do not
limit our ability or the ability of Sprint Capital to incur other debt and do
not contain financial or similar restrictive covenants, except as described
below. Debt securities issued by us will be our senior unsecured obligations,
and debt securities issued by Sprint Capital will be its senior unsecured
obligations and will be fully and unconditionally guaranteed by us.
A prospectus supplement relating to a series of debt securities being
offered will include specific terms relating to the offering. These terms will
include some or all of the following:
. the title of the debt securities;
. any limit on the total principal amount of the debt securities;
. the maturity date or dates of the debt securities;
. the rate or rates of interest, which may be fixed or variable, per annum
at which the debt securities will bear interest, or the method of
determining the rate or rates, if any;
. the date or dates from which interest, if any, will accrue;
. the dates on which interest will be payable and the related record
dates;
. whether payments of principal or interest will be determined by any
index, formula or other method and the manner of determining the amount
of these payments;
. the place or places where the principal of, premium, if any, and
interest on the debt securities will be payable if other than the
location specified in this prospectus;
. any redemption dates, prices, rights, obligations and restrictions on
the debt securities;
. any mandatory or optional sinking fund, purchase fund or similar
provisions;
. the denominations in which the debt securities will be issuable if other
than denominations of $ 1,000 and integral multiples of $ 1,000;
19
. the portion of the principal amount of the debt securities payable upon
the acceleration of the maturity of the debt securities if other than
the principal amount;
. the currency or currency unit in which principal and interest will be
paid if other than U.S. dollars;
. whether the debt securities will be issued in permanent global form and
the circumstances under which the permanent global debt security may be
exchanged;
. any deletions from, changes in or additions to the events of default or
the covenants specified in the indenture; and
. any other material terms of the debt securities not specified in this
prospectus (Section 301).
We and Sprint Capital may issue debt securities at a substantial discount
below their stated principal amount. We refer to these securities as original
issue discount securities, which means any security that initially provides for
an amount less than its principal amount to be due and payable upon the
acceleration of its maturity. We or Sprint Capital, as applicable, will
describe the federal income tax consequences and other special considerations
applicable to any original issue discount securities in the applicable
prospectus supplement.
Unless the applicable prospectus supplement states otherwise, debt
securities will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000 (Sections 301 and
302). Holders of debt securities will not pay any service charge for any
registration of transfer or exchange of the debt securities, but we or Sprint
Capital may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with the registration of transfer or
exchange (Section 305).
Unless the applicable prospectus supplement states otherwise, the covenants
contained in the indentures, the debt securities and guarantees would not
necessarily afford holders protection in the event of a highly leveraged or
other transaction involving us that may adversely affect holders.
Payment; Transfer
Unless the applicable prospectus supplement states otherwise, principal of,
premium, if any, and interest, if any, on the debt securities will be payable,
and the debt securities will be transferable, at the corporate trust office of
the applicable trustee. However, interest may be paid at our or Sprint
Capital's option by check mailed to the address of the holder entitled to the
interest as it appears on the applicable security register. We and Sprint
Capital will have the right to require a holder of any debt security, in
connection with any payment on the debt security, to certify information to us
or, in the absence of certification, we or Sprint Capital, as the case may be,
may rely on any legal presumption to enable us to determine our obligation, if
any, to deduct or withhold taxes, assessments or governmental charges from the
payment.
Guarantees
We will unconditionally guarantee the due and punctual payment of the
principal and any premium and interest on the debt securities issued by Sprint
Capital when and as it becomes due and payable, whether at maturity or
otherwise (Sprint Capital indenture, Section 311). The guarantees will rank
equally with all our other unsecured and unsubordinated indebtedness. The
guarantees provide that in the event of a default in payment of principal or
any premium or interest on a debt security, the holder of the debt security may
institute legal proceedings directly against us to enforce the guarantees
without first proceeding against Sprint Capital. The Sprint Capital indenture
provides that we may under certain circumstances assume all rights and
obligations of Sprint Capital under the Sprint Capital indenture with respect
to a series of debt securities issued by Sprint Capital.
Restrictive Covenants
Sprint. Under the indentures, we may not, and may not permit our Restricted
Subsidiaries to, create, incur or allow to exist any Lien upon any property or
assets now owned or acquired at a later time unless:
. the Lien is a Permitted Lien; or
20
. the outstanding debt securities and, in the case of debt securities
issued by Sprint Capital, the outstanding guarantees are equally and
ratably secured by the Lien; or
. the aggregate principal amount of indebtedness secured by the Lien and
any other Lien, other than Permitted Liens, plus the Attributable Debt
in respect of any Sale and Leaseback Transaction does not exceed 15% of
our Consolidated Net Tangible Assets (Sprint indenture, Section 1008,
Sprint Capital indenture, Section 1012).
Sprint Capital. Sprint Capital may not create, issue, assume or guarantee
any unsecured funded debt ranking prior to the debt securities issued by Sprint
Capital (Sprint Capital indenture, Section 1009).
Unless the applicable prospectus supplement states otherwise, Sprint Capital
may not create, assume or suffer to exist any Lien upon any of its property or
assets, now owned or acquired at a later time, without equally and ratably
securing any outstanding debt securities issued by Sprint Capital with any and
all other obligations and indebtedness secured by the Lien, subject to certain
exceptions (Sprint Capital indenture, Section 1008).
Definitions. Under the indentures:
"Attributable Debt" of a Sale and Leaseback Transaction means, at any date,
the total net amount of rent required to be paid under the lease during the
remaining term of the lease, excluding any subsequent renewal or other
extension options held by the lessee, discounted from the respective due dates
of the amounts to the date of determination at the rate of interest per annum
implicit in the terms of the lease, as determined in good faith by us,
compounded annually. The net amount of rent required to be paid under any lease
during the remaining term will be the amount of rent payable by the lessee with
respect to this period, after excluding amounts required to be paid on account
of maintenance and repairs, insurance, taxes, assessments, water rates and
similar charges and contingent rents.
"Capital Lease Obligations" means indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with generally accepted accounting principles. The
amount of indebtedness will be the capitalized amount of the obligations
determined in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Net Tangible Assets" means our and our subsidiaries'
consolidated total assets as reflected in our most recent balance sheet
preceding the date of determination prepared in accordance with generally
accepted accounting principles consistently applied, less
. current liabilities, excluding current maturities of long-term debt and
Capital Lease Obligations, and
. goodwill, tradenames, trademarks, patents, minority interests of others,
unamortized debt discount and expense and other similar intangible
assets, excluding any investments in permits or licenses issued, granted
or approved by the Federal Communications Commission.
"Lien" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, lien, charge, easement or
zoning restriction, encumbrance, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever on or
with respect to property including any Capital Lease Obligation, conditional
sale or other title retention agreement having substantially the same economic
effect as any of the foregoing or any Sale and Leaseback Transaction.
"Permitted Liens" means:
(1) Liens existing on October 1, 1998;
(2) Liens on property existing at the time of acquisition of the property
or to secure the payment of all or any part of the purchase price of the
property or to secure any indebtedness incurred before, at the time of or
within 270 days after the acquisition of the property for the purpose of
financing all or any part of the purchase price of the property;
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(3) Liens securing indebtedness owing by a Restricted Subsidiary to us or
any of our wholly owned subsidiaries;
(4) Liens on property of any entity, or on the stock, indebtedness or
other obligations of any entity, existing at the time
. the entity becomes a Restricted Subsidiary,
. the entity is merged into or consolidated with us or a Restricted
Subsidiary, or
. we or a Restricted Subsidiary acquires all or substantially all
of the assets of the entity,
as long as the Liens do not extend to any other property of ours or property
of any other Restricted Subsidiary;
(5) Liens on property to secure any indebtedness incurred to provide
funds for all or any part of the cost of development of or improvements to
the property;
(6) Liens on our property or the property of any of our Restricted
Subsidiaries securing
. nondelinquent performance of bids or contracts, other than for
borrowed money, obtaining of advances or credit or the securing
of debt,
. contingent obligations on surety and appeal bonds, and
. other nondelinquent obligations of a similar nature,
in each case, incurred in the ordinary course of business;
(7) Liens securing Capital Lease Obligations, provided that
. the Liens attach to the property within 270 days after the
acquisition thereof, and
. the Liens attach solely to the property so acquired;
(8) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds, as long as the deposit
account is not a dedicated cash collateral account and is not subject to
restrictions against access by us or a Restricted Subsidiary, as applicable,
in excess of those set forth by regulations promulgated by the Federal
Reserve Board and the deposit account is not intended by us or the
Restricted Subsidiary to provide collateral to the depository institution;
(9) pledges or deposits under worker's compensation laws, unemployment
insurance laws or similar legislation;
(10) statutory and tax Liens for sums not yet due or delinquent or which
are being contested or appealed in good faith by appropriate proceedings;
(11) Liens arising solely by operation of law, such as mechanics',
materialmen's, warehouseman's and carriers' Liens and Liens of landlords or
of mortgages of landlords, on fixtures and movable property located on
premises leased in the ordinary course of business;
(12) Liens on personal property, other than shares of stock or
indebtedness of any Restricted Subsidiary, to secure loans maturing not more
than one year from the date of the creation of the loan and on accounts
receivable associated with a receivables financing program of ours or any of
our Restricted Subsidiaries;
(13) any Lien created by or resulting from litigation or other proceeding
against us or any Restricted Subsidiary, or upon property of ours or of a
Restricted Subsidiary, or any lien for workmen's compensation awards or
similar awards, so long as the finality of the judgment or award is being
contested and execution on the judgment or award is stayed or the Lien
relates to a final unappealable judgment which is satisfied
22
within 30 days of the judgment or any Lien incurred by us or any Restricted
Subsidiary for the purpose of obtaining a stay or discharge in the course of
any litigation or other proceeding, as long as the judgment or award does
not constitute an Event of Default under clause (5) of "Events of Default"
below;
(14) Liens on our real property or the real property of a Restricted
Subsidiary which constitute minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights of way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of the real
property, as long as all of the liens referred to in this clause (14) in the
aggregate do not at any time materially detract from the value of the real
property or materially impair its use in the operation of our business or
the business of our subsidiaries;
(15) Liens on our property or the property of a Restricted Subsidiary
securing indebtedness or other obligations issued by the United States of
America or any state or any department, agency or instrumentality or
political subdivision of the United States of America or any state, or by
any other country or any political subdivision of any other country, to
finance all or any part of the purchase price of, or, in the case of real
property, the cost of construction on or improvement of, any property or
assets subject to the Liens, including Liens incurred in connection with
pollution control, industrial revenue or similar financings; and
(16) any renewal, extension or replacement of any Lien permitted pursuant
to (1), (2), (4), (5), (7) and (15) above or of any indebtedness secured by
any such Lien, as long as the extension, renewal or replacement Lien is
limited to all or any part of the same property that secured the Lien
extended, renewed or replaced, plus improvements on the property, and the
principal amount of indebtedness secured by the Lien and not otherwise
authorized by clauses (1), (2), (4), (5), (7) and (15) does not exceed the
principal amount of indebtedness plus any premium or fee payable in
connection with the renewal, extension or replacement so secured at the time
of the renewal, extension or replacement.
"Receivables Subsidiary" means a special purpose wholly owned subsidiary
created in connection with any transactions that may be entered into by us or
any of our subsidiaries pursuant to which we or any of our subsidiaries may
sell, convey, grant a security interest in or otherwise transfer undivided
percentage interests in its receivables.
"Restricted Subsidiary" means any subsidiary of ours, other than a
Receivables Subsidiary or Sprint Capital, if:
. the subsidiary has substantially all of its property in the United
States, other than its territories and possessions; and
. at the end of our most recent fiscal quarter preceding the date of
determination, the aggregate amount, determined in accordance with generally
accepted accounting principles consistently applied, of securities of, loans
and advances to, and other investments in, the subsidiary held by us and our
other subsidiaries, less any securities of, loans and advances to, and other
investments in us and our other subsidiaries held by the subsidiary or any
of its subsidiaries, exceeded 15% of our Consolidated Net Tangible Assets.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
pursuant to which property is sold or transferred by us or a Restricted
Subsidiary and is thereafter leased back from the purchaser or transferee by us
or the Restricted Subsidiary.
Events of Default
Definition. The indentures define an Event of Default with respect to debt
securities of any series as any one of the following events:
(1) failure to pay principal of or any premium on any debt security of
that series at maturity;
(2) failure to pay any interest on any debt security of that series when
due, continued for 30 days;
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(3) failure to deposit any sinking fund payment, when due, in respect of
any debt security of that series;
(4) failure to perform any other covenant or warranty in the applicable
indenture, other than a covenant included solely for the benefit of series
of debt securities other than that series, continued for 60 days after
written notice as provided in that indenture;
(5) default resulting in acceleration of more than $50 million in
aggregate principal amount of any indebtedness for money borrowed by us or
Sprint Capital or any other subsidiary of ours under the terms of the
instrument under which that indebtedness is issued or secured, if that
indebtedness is not discharged or acceleration is not rescinded or annulled
within 10 days after written notice as provided in the indentures;
(6) certain events of bankruptcy, insolvency or reorganization; and
(7) any other Event of Default provided with respect to debt securities
of that series (Section 501).
Remedies. If an Event of Default with respect to debt securities of any
series at the time outstanding occurs and is continuing, either the applicable
trustee or the holders of at least 25% in principal amount of the outstanding
debt securities of that series may declare the principal amount (or, if any of
the debt securities of that series are original issue discount securities, such
portion of the principal amount as may be specified in the terms of that
series) of all the debt securities of that series to be due and payable
immediately by written notice as provided in the applicable indenture.
Notwithstanding the foregoing, unless the applicable prospectus supplement
states otherwise, if an Event of Default described in clause (6) with respect
to any debt securities of any series occurs and is continuing, then all of the
debt securities of that series shall become immediately due and payable without
any further act by us, Sprint Capital, any holder or the applicable trustee. At
any time after a declaration of acceleration with respect to debt securities of
any series has been made and before a judgment or decree for payment of the
money due based on acceleration has been obtained, the holders of a majority in
principal amount of the outstanding debt securities of that series may, in
accordance with the applicable indenture, rescind and annul the acceleration
(Section 502).
Obligations of Trustee. Each indenture provides that the trustee will be
under no obligation, subject to the duty of the trustee during default to act
with the required standard of care, to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders, unless
the holders offer reasonable indemnity to the trustee (Sections 601 and 603).
Subject to the provisions for indemnification of the applicable trustee, the
holders of a majority in principal amount of the outstanding debt securities of
any series will have the right, in accordance with applicable law, to direct
the time, method and place of conducting any proceeding for any remedy
available to the trustee, or exercising any trust or power conferred on the
trustee, with respect to the debt securities of that series (Section 512).
Under the indentures we and Sprint Capital must furnish to the applicable
trustee annually a statement regarding the performance of our respective
obligations under the applicable indentures and as to any default in
performance (Section 1004).
Modification and Waiver
Modifications and Amendments. We and the applicable trustee may modify and
amend the Sprint indenture, in most cases with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
affected by the modification or amendment.
We, Sprint Capital and the applicable trustee may modify and amend the
Sprint Capital indenture, in most cases with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
affected by the modification or amendment.
Unless the applicable prospectus supplement states otherwise, however,
neither we nor Sprint Capital may, without the consent of the holder of each
outstanding debt security affected:
. change the date specified in the debt security for the payment of the
principal of, or any installment of principal of or interest on, the
debt security,
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. reduce the principal amount of, or any premium or interest on, any debt
security,
. reduce the amount of principal of an original issue discount security or
any other debt security payable upon acceleration of the maturity of
that debt security,
. change the place or currency of payment of principal of, or any premium
or interest on, any debt security,
. impair the right to institute suit for the enforcement of any payment on
or with respect to any debt security or
. reduce the percentage in principal amount of outstanding debt securities
of any series, the consent of whose holders is required to modify or
amend the indenture or to waive compliance with certain provisions of
the applicable indenture or for waiver of certain defaults (Section
902).
In addition, unless the applicable prospectus supplement states otherwise,
we, Sprint Capital and the trustee may not, without the consent of the holder
of each outstanding debt security affected, modify or amend the terms and
conditions of, or our obligations under, the guarantees in any manner adverse
to the holders of any debt security.
Waivers. The holders of a majority in principal amount of the outstanding
debt securities of any series issued under the indentures may on behalf of the
holders of all debt securities of that series waive, insofar as that series is
concerned, compliance by us or Sprint Capital, as the case may be, with certain
restrictive provisions of the indenture (Sprint indenture, Section 1009, Sprint
Capital indenture, Sections 1010 and 1013). The holders of a majority in
principal amount of the outstanding debt securities of any series may on behalf
of the holders of all debt securities of that series waive any past default
under the applicable indenture with respect to that series, except a default in
the payment of the principal of or any premium or interest on any debt security
of that series or in respect of a covenant or provision which under the
indentures cannot be modified or amended without the consent of the holder of
each outstanding debt security of that series affected (Section 513).
Consolidation, Merger and Conveyances
Neither we nor, in the case of the Sprint Capital indenture, Sprint Capital
may consolidate with or merge into any other person or convey, transfer or
lease all or substantially all of our properties and assets in any one
transaction or series of transactions, and neither we nor, in the case of the
Sprint Capital indenture, Sprint Capital may permit any person to consolidate
with or merge into us or Sprint Capital or convey, transfer or lease all or
substantially all of its properties and assets in any one transaction or series
of transactions to us or Sprint Capital, unless:
. the successor person is organized under the laws of any United States
jurisdiction and assumes our obligations or the obligations of Sprint
Capital, as applicable, under the debt securities, the guarantees and
the applicable indenture,
. after giving effect to the transaction no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, has happened and is continuing, and
. certain other conditions specified in the indentures are met.
Thereafter, if we or Sprint Capital are not the successor person, all of our
obligations and the obligations of Sprint Capital terminate (Sections 801 and
802).
Defeasance
Unless the applicable prospectus supplement states otherwise, the following
defeasance provisions will apply to the debt securities.
The indentures provide that we and Sprint Capital, in the case of debt
securities issued under the Sprint Capital indenture, may elect either:
. to defease and be discharged from any and all obligations with respect
to the debt securities and the guarantees of those debt securities, with
certain limited exceptions described below, which we refer to as full
defeasance, or
25
. to be released from our respective obligations with respect to the debt
securities under the restrictive covenants in the indentures and the
related Events of Default as well as the cross-default to other
indebtedness Event of Default, which we refer to as covenant defeasance.
In order to accomplish full defeasance or covenant defeasance, we or Sprint
Capital must deposit with the applicable trustee, or other qualifying trustee,
in trust, money and/or U.S. government obligations which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of and any premium and interest on the
debt securities on the scheduled due dates for the payments. Such a trust may
be established only if, among other things, we or Sprint Capital deliver to the
applicable trustee an opinion of counsel to the effect that the holders of the
debt securities will not recognize gain or loss for federal income tax purposes
as a result of full defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if full defeasance or covenant defeasance had
not occurred. The opinion, in the case of full defeasance, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after October 1, 1998. Obligations not
discharged in a full defeasance include those relating to the rights of holders
of outstanding debt securities to receive, solely from the trust fund described
above, payments in respect of the principal of and any premium and interest on
debt securities when due as set forth in Section 1304 of the indentures, and
obligations to register the transfer or exchange of the debt securities, to
replace temporary or mutilated, destroyed, lost or stolen debt securities, to
maintain an office or agency in respect of the debt securities, to hold moneys
for payment in trust and to compensate, reimburse and indemnify the trustee
(Article Thirteen).
The applicable prospectus supplement may further describe additional
provisions, if any, permitting defeasance or covenant defeasance with respect
to the debt securities of a particular series.
Regarding the Trustee
We have a normal business banking relationship with the trustee, including
the maintenance of accounts and the borrowing of funds. The trustee may own
debt securities.
Governing Law
New York law, without regard to principles of conflicts of law, will govern
the indentures, the debt securities and the guarantees.
Global Securities
Unless otherwise provided in the applicable prospectus supplement, each
series of the debt securities will be issued in the form of one or more global
securities that will be deposited with, or on behalf of, The Depository Trust
Company, as depositary. Interests in the global securities will be issued only
in denominations of $1,000 or integral multiples thereof. Unless and until it
is exchanged in whole or in part for debt securities in definitive form, a
global security may not be transferred except as a whole to a nominee of the
depositary for such global security, or by a nominee of the depositary to the
depositary or another nominee of the depositary, or by the depositary or any
such nominee to a successor depositary or a nominee of such successor
depositary.
Book-Entry System
Initially, the debt securities will be registered in the name of Cede & Co.,
the nominee of the depositary. Accordingly, beneficial interests in the debt
securities will be shown on, and transfers of the debt securities will be
effected only through, records maintained by the depositary and its
participants. For further discussion of the provisions we expect will apply to
depositary arrangements, see "Description of Convertible Subordinated Debt
Securities--Book-Entry Securities."
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DESCRIPTION OF CONVERTIBLE SUBORDINATED DEBT SECURITIES
The convertible subordinated debt securities will be issued under an
indenture between us and a trustee. The name of the trustee will be set forth
in the applicable prospectus supplement. We have summarized the material
provisions of the indenture below. The form of the indenture has been filed as
an exhibit to the registration statement and you should read the indenture for
provisions that may be important to you. In the summary below, we have included
references to section numbers of the indenture so that you can easily locate
these provisions. Capitalized terms used in the summary have the meaning
specified in the indenture. You can obtain copies of the indenture by following
the directions described under the caption "Where You Can Find More
Information." In this section, references to "our", "we" and similar terms mean
Sprint Corporation, excluding its subsidiaries.
General
The indenture does not limit the aggregate principal amount of convertible
subordinated debt securities that we may issue and provides that we may issue
convertible subordinated debt securities from time to time in one or more
series, in each case with the same or various maturities, at par or at a
discount. We may issue additional convertible subordinated debt securities of a
particular series without the consent of the holders of the convertible
subordinated debt securities of that series outstanding at the time of the
issuance. Any additional convertible subordinated debt securities, together
with all other outstanding convertible subordinated debt securities of that
series, will constitute a single series of convertible subordinated debt
securities under the indenture. The indenture also does not limit our ability
to incur other debt and does not contain financial or similar restrictive
covenants. The convertible subordinated debt securities will be subordinated in
right of payment to all of our Senior Debt as described below.
A prospectus supplement relating to a series of convertible subordinated
debt securities being offered will include specific terms relating to the
offering. These terms will include some or all of the following:
. the title of the convertible subordinated debt securities;
. any limit on the total principal amount of the convertible subordinated
debt securities;
. the maturity date or dates of the convertible subordinated debt
securities;
. the rate or rates of interest, which may be fixed or variable, per annum
at which the convertible subordinated debt securities will bear
interest, or the method of determining the rate or rates, if any;
. the date or dates from which interest, if any, will accrue;
. the dates on which interest will be payable and the related record
dates;
. whether payments of principal or interest will be determined by any
index, formula or other method and the manner of determining the amount
of these payments;
. the place or places where the principal of, premium, if any, and
interest on the convertible subordinated debt securities will be payable
if other than the location specified in this prospectus;
. any redemption dates, prices, rights, obligations and restrictions on
the convertible subordinated debt securities;
. any mandatory or optional sinking fund, purchase fund or similar
provisions;
. the denominations in which the convertible subordinated debt securities
will be issuable if other than denominations of $1,000 and integral
multiples of $1,000;
. the portion of the principal amount of the convertible subordinated debt
securities payable upon the acceleration of the maturity of the
convertible subordinated debt securities if other than the principal
amount;
27
. the currency or currency unit in which principal and interest will be
paid if other than U.S. dollars;
. whether we will issue the convertible subordinated debt securities in
permanent global form and the circumstances under which the permanent
global debt security may be exchanged;
. whether subordination provisions different from those summarized below
will apply to the convertible subordinated debt securities;
. any special tax implications of the convertible subordinated debt
securities;
. any deletions from, changes in or additions to the events of default or
the covenants specified in the indenture; and
. any other material terms of the convertible subordinated debt securities
not specified in this prospectus (Section 301).
We may issue convertible subordinated debt securities at a substantial
discount below their stated principal amount. We refer to these securities as
original issue discount securities, which means any security that initially
provides for an amount less than its principal amount to be due and payable
upon the acceleration of its maturity. We will describe the federal income tax
consequences and other special considerations applicable to any original issue
discount securities in the applicable prospectus supplement.
Unless the applicable prospectus supplement states otherwise, the
convertible subordinated debt securities will be issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. Holders of convertible subordinated debt securities will
not pay any service charge for any registration of transfer or exchange of the
convertible subordinated debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with the registration of transfer or exchange.
Payment; Transfer
Unless the applicable prospectus supplement states otherwise, principal of,
premium, if any, and interest, if any, on the convertible subordinated debt
securities will be payable, and the convertible subordinated debt securities
will be transferable, at the corporate trust office of the trustee. However,
interest may be paid at our option by check mailed to the address of the holder
entitled to the interest as it appears on the security register. We will have
the right to require a holder of any convertible subordinated debt security, in
connection with any payment on the convertible subordinated debt security, to
certify information to us or, in the absence of certification, we may rely on
any legal presumption to enable us to determine our obligation, if any, to
deduct or withhold taxes, assessments or governmental charges from the payment.
Conversion Rights
General. Unless the applicable prospectus supplement states otherwise, the
holder of any convertible subordinated debt security of any series will have
the right, at the holder's option, to convert any portion of the principal
amount of the security that is an integral multiple of $1,000 into shares of
common stock, as defined, at any time following the last original issue date of
the convertible subordinated debt securities of that series and before the
close of business on the maturity date at the conversion rate per $1,000
principal amount of the convertible subordinated debt security set forth in the
applicable prospectus supplement. Unless the applicable prospectus supplement
states otherwise, the conversion rate will be subject to adjustment as
described below. The right to convert a convertible subordinated debt security
called for redemption or delivered for repurchase will terminate at the close
of business on the redemption date or repurchase date for that convertible
subordinated debt security (Sections 203 and 1501).
Definition of Common Stock. Under the indenture, the term "common stock"
initially refers to our PCS common stock, series 1. However, if we convert all
outstanding shares of PCS common stock into FON common
28
stock as described under the caption "Description of PCS Common
Stock--Conversion of PCS Common Stock at our Option" or "--Mandatory Dividend,
Redemption or Conversion of PCS Common Stock," each convertible subordinated
debt security then outstanding will thereafter be convertible into the number
of shares of FON common stock that would have been issuable in respect of that
security if it had been converted into PCS common stock immediately before the
conversion of PCS common stock into FON common stock. See "--Adjustments to
Conversion Rate" below. In this circumstance, the term "common stock" as used
in the indenture will thereafter refer to FON common stock.
If we redeem all outstanding shares of PCS common stock in exchange for
common stock of one or more of our subsidiaries as described under the caption
"Description of PCS Common Stock--Redemption of PCS Common Stock in Exchange
for Stock of a Subsidiary," each convertible subordinated debt security then
outstanding will thereafter be convertible into the number of shares of common
stock of the subsidiary or subsidiaries that would have been issuable in
respect of that security if it had been converted into PCS common stock
immediately before the redemption. See "--Adjustments to Conversion Rate"
below. In this circumstance, the term "common stock" as used in the indenture
will thereafter refer to the common stock of our subsidiary or subsidiaries.
Exercise of Conversion Rights. Unless the applicable prospectus supplement
states otherwise, the holder of any convertible subordinated debt security will
be able to exercise its right of conversion by delivering the convertible
subordinated debt security at the specified office of the conversion agent,
accompanied by a duly signed and completed notice of conversion. You will be
able to obtain a copy of the form of conversion notice from the trustee. The
conversion date will be the date on which the convertible subordinated debt
security and the duly signed and completed notice of conversion and all other
required items are so delivered. As promptly as practicable on or after the
conversion date, we will issue and deliver to the conversion agent a
certificate for the number of full shares of common stock issuable upon
conversion. Shares of common stock issued upon conversion of the convertible
subordinated debt securities will be fully paid and nonassessable.
Unless the applicable prospectus supplement states otherwise, any holder
that surrenders a convertible subordinated debt security for conversion on a
date that is not an interest payment date will not be entitled to any interest
for the period from the preceding interest payment date to the date of
conversion, except as described in this paragraph. The holder of any
convertible subordinated debt security on a regular record date, including a
convertible subordinated debt security that is subsequently converted after the
regular record date, will receive the interest payable on the interest payment
date. However, any holder surrendering a convertible subordinated debt security
for conversion during the period from the close of business on a regular record
date to the opening of business on the next interest payment date must be
accompanied by payment of an amount equal to the interest payable on that
interest payment date on the principal amount of the convertible subordinated
debt security surrendered for conversion. Notwithstanding this requirement, a
holder need not make that payment if it is converting a convertible
subordinated debt security that we have called for redemption or are required
to repurchase, if the right to convert the subordinated debt security would
terminate between the regular record date and the close of business on the next
interest payment date because of the redemption or repurchase.We will pay
interest in respect of any convertible subordinated debt security surrendered
for conversion on or after an interest payment date and before the next regular
record date to the holder of that convertible subordinated debt security as of
the next preceding regular record date, notwithstanding the exercise of the
conversion right.
We will not make any other payment or adjustment for interest, or for any
dividends in respect of common stock, upon conversion. Holders of common stock
issued upon conversion of convertible subordinated debt securities will not
receive any dividends payable to holders of common stock as of any record time
before the close of business on the conversion date relating to such
convertible subordinated debt securities. We will not issue any fractional
shares upon conversion and instead will pay fractional shares in cash or, at
our option, we will round up the shares issued to the next whole number of
shares.
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A holder delivering a convertible subordinated debt security for conversion
need not pay any transfer or similar taxes or duties in respect of the issue or
delivery of common stock on conversion but must pay any tax or duty payable in
respect of any transfer involved in the issue of the common stock. We will not
deliver certificates representing shares of common stock unless the person
requesting delivery has paid to us the amount of any tax or duty that is
payable or has established to our satisfaction that the tax or duty has been
paid (Sections 1502 and 1508).
Adjustments to Conversion Rate. Unless the applicable prospectus supplement
states otherwise, we will adjust the conversion rate in certain events,
including:
(1) dividends and other distributions payable in common stock on shares
of our capital stock;
(2) the issuance to all holders of common stock of rights, options or
warrants to subscribe for or purchase common stock at less than the then
current market price (determined as provided in the indenture) as of the
record date for stockholders entitled to receive those rights, options or
warrants;
(3) subdivisions, combinations and reclassifications of our common stock;
(4) distributions to all holders of common stock of evidences of our
indebtedness, shares of capital stock, cash or assets (including securities,
but excluding those dividends, rights, options, warrants and distributions
referred to in clauses (1) and (2) above, dividends and distributions paid
exclusively in cash and in mergers and consolidations to which the third
succeeding paragraph applies);
(5) cash distributions (excluding any cash portion of distributions
referred to in clause (4) above or cash distributed upon a merger or
consolidation to which the third succeeding paragraph applies) to all
holders of common stock in an aggregate amount that, together with:
. other cash distributions made within the preceding 12 months to all
holders of common stock in respect of which no adjustment has been
made, and
. any cash and the fair market value of other consideration payable in
respect of any tender offer by us or any of our subsidiaries for
common stock concluded within the preceding 12 months in respect of
which no adjustment has been made,
exceeds 10% of the market capitalization of the common stock on the record
date for that distribution;
(6) the successful completion of a tender offer by us or any of our
subsidiaries for common stock that involves an aggregate consideration that,
together with:
. any cash and other consideration payable in a tender offer by us or
any of our subsidiaries for common stock expiring within the 12
months preceding the expiration of the tender offer in respect of
which no adjustment has been made, and
. the aggregate amount of any cash distributions referred to in clause
(5) above to all holders of common stock within the 12 months
preceding the expiration of the tender offer in respect of which no
adjustments have been made,
exceeds 10% of the market capitalization of the common stock on the
expiration of that tender offer; and
(7) the conversion of all outstanding shares of PCS common stock into
shares of FON common stock or common stock of a subsidiary as described
under the caption "Description of PCS Common Stock-- Conversion of PCS
Common Stock at our Option, "--Mandatory Dividend, Redemption or Conversion
of PCS Common Stock" or "--Redemption of PCS Common Stock in Exchange for
Stock of a Subsidiary."
In addition, we reserve the right to make increases in the conversion rate
that we consider advisable so that any event treated for federal income tax
purposes as a dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock will not be taxable to the
recipients.
We will not adjust the conversion rate until the cumulative adjustments
amount to 1.0% or more of the conversion rate (Section 1504). We will also not
duplicate any adjustment when an event falls into more than one of the
categories described above. We will compute any adjustments to the conversion
rate and will give notice to the holders of the convertible subordinated debt
securities of any adjustments (Section 1505).
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In case of:
(1) our consolidation or merger with or into another person, or
(2) any merger of another person into us, other than a merger which does
not result in any reclassification, conversion, exchange or cancellation of
the common stock, or
(3) any sale or transfer of all or substantially all of our assets,
each convertible subordinated debt security then outstanding will become
convertible only into the securities, cash and other property receivable upon
the consolidation, merger, sale or transfer by a holder of the number of shares
of common stock into which that convertible subordinated debt security could be
converted immediately before the event, assuming:
. the holder of common stock failed to exercise any rights of election
with respect to the consolidation, merger, sale or transfer, and
. that the convertible subordinated debt security was then convertible
(Section 1511).
Unless the applicable prospectus supplement states otherwise, from time to
time we may increase the conversion rate relating to any series of convertible
subordinated debt securities by any amount for any period of at least 20 days
if our board of directors determinates that the increase would be in our best
interests. This determination will be conclusive. We will give holders at least
15 days' notice of any increase of this kind.
If at any time we make a distribution of property to our stockholders that
would be taxable to those stockholders as a dividend for federal income tax
purposes and, pursuant to the anti-dilution provisions of the indenture, the
number of shares into which convertible subordinated debt securities of any
series are convertible is increased, that increase may be deemed for federal
income tax purposes to be the payment of a taxable dividend to holders of
convertible subordinated debt securities.
Termination of Conversion Rights. Under our articles of incorporation, if we
dispose of all or most of the PCS group's assets and elect to redeem all or
most of the outstanding shares of PCS common stock, series 1 as described under
the caption "Description of PCS Common Stock--Mandatory Dividend, Redemption or
Conversion of PCS Common Stock," we will mail notice of the redemption to all
holders of convertible subordinated debt securities at least 30 days prior to
the redemption date, which we refer to as the PCS stock redemption date. The
right to convert convertible subordinated debt securities into shares of common
stock will terminate at the close of business on the day immediately preceding
the PCS stock redemption date. After the PCS stock redemption date, outstanding
convertible subordinated securities will no longer be convertible into any
securities of our company.
Subordination
The convertible subordinated debt securities will be subordinate and junior
in right of payment to all of our Senior Debt. The convertible subordinated
debt securities will also be effectively subordinated in right of payment to
all indebtedness and other liabilities of our subsidiaries. As of March 31,
2001, we had $16.9 billion of Senior Debt outstanding (including $86 million of
letters of credit and $15.5 billion of guarantees of debt of our subsidiaries),
and our subsidiaries had an aggregate of $28.2 billion of indebtedness and
other liabilities outstanding.
Under the indenture, Senior Debt means:
(1) our indebtedness for money borrowed or evidenced by credit or loan
agreements, bonds, debentures, notes or similar instruments,
(2) all our obligations evidenced by a note or similar instrument or
written agreement given in connection with the acquisition of any
businesses, properties or assets, including the acquisition of securities,
(3) our obligations as lessee under leases capitalized on the balance
sheet of the lessee under generally accepted accounting principles,
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(4) our obligations under interest rate and currency swaps, caps, floors,
collars, hedge agreements, forward contracts, or similar agreements or
arrangements intended to protect us against fluctuations in interest or
currency exchange rates or commodity prices,
(5) all our reimbursement obligations with respect to letters of credit,
bankers' acceptances or similar facilities issued for our account,
(6) indebtedness of others of the kinds described in the preceding
clauses (1), (2), (3), (4) and (5) that we have assumed, guaranteed or
otherwise assured the payment of, directly or indirectly, and/or
(7) deferrals, renewals, extensions and refundings of, or bonds,
debentures, notes or other evidences of indebtedness issued in exchange for,
or amendments, modifications or supplements to, or covenants and our other
obligations in connection with, the indebtedness described in the preceding
clauses (1) through (6) whether or not there is notice to or consent of the
holders of convertible subordinated debt securities; except:
. indebtedness and advances among us and our direct and indirect
subsidiaries; and
. any particular indebtedness that expressly provides that it is not
Senior Debt (Sections 101).
As a result of these subordination provisions, no payment on account of the
principal of, premium, if any, or interest on the convertible subordinated debt
securities may be made if:
. a payment default with respect to any Senior Debt exists and any
applicable grace period has expired or,
. any other event of default has occurred with respect to any Senior Debt
that permits the holders to accelerate the maturity of the Senior Debt
and is continuing after written notice to us and the trustee, which we
refer to as a payment blockage notice (Section 1603).
If payments on the convertible subordinated debt securities have been
blocked by a payment default on Senior Debt, payments on the convertible
subordinated debt securities may resume when the payment default has been cured
or waived. If payments on the convertible subordinated debt securities have
been blocked by a nonpayment default, payments on the convertible subordinated
debt securities may resume on the earlier of:
. the date the nonpayment default is cured or waived, or
. 179 days after the payment blockage notice is received.
No nonpayment default that existed on the day a payment blockage notice was
delivered to the trustee can be used as the basis for any subsequent payment
blockage notice. In addition, once any holder of Senior Debt has blocked
payment on the convertible subordinated debt securities by giving a payment
blockage notice, no new period of payment blockage can be commenced by any
holder of Senior Debt until 365 days have elapsed since the effectiveness of
the immediately prior payment blockage notice.
Upon the acceleration of the principal due on the convertible subordinated
debt securities or payment or distribution of our assets to creditors upon any
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due on all Senior Debt must be
paid in full in cash before the holders of the convertible subordinated debt
securities may receive any payment. As a result of these subordination
provisions, in the event of our insolvency, our creditors who hold Senior Debt
may recover more, ratably, than the holders of the convertible subordinated
debt securities, and the subordination may reduce or limit payments to the
holders of the convertible subordinated debt securities (Section 1602).
Events of Default
Definition. The indenture defines an Event of Default with respect to
convertible subordinated debt securities of any series as any one of the
following events:
(1) failure to pay any interest on any convertible subordinated debt
security of that series when due and payable, continued for 30 days;
32
(2) failure to pay principal of or any premium on any convertible
subordinated debt security of that series when due;
(3) failure to deposit any sinking fund payment, when due, in respect of
any convertible subordinated debt security of that series;
(4) failure to perform any other covenant or warranty in the indenture
(other than a covenant included in the indenture solely for the benefit of a
series of convertible subordinated debt securities other than that series),
continued for 60 days after written notice as provided in the indenture;
(5) any indebtedness for money borrowed by us in an aggregate principal
amount in excess of $50 million is not paid at final maturity or the
maturity of which is accelerated and the default in payment or acceleration
is not cured or rescinded within 10 days after written notice;
(6) the entry of a decree or order for relief in respect of our company
by a court having jurisdiction in the premises in an involuntary case under
federal or state bankruptcy laws and the continuance of any decree or order
unstayed and in effect for a period of 60 consecutive days;
(7) the commencement by us of a voluntary case under federal or state
bankruptcy laws or the consent by us to the entry of a decree or order for
relief in an involuntary case under any bankruptcy law; and
(8) any other Event of Default provided with respect to convertible
subordinated debt securities of that series (Section 501).
Remedies. If an Event of Default with respect to convertible subordinated
debt securities of any series occurs and is continuing, then either the trustee
or the holders of at least 25% in aggregate principal amount of the outstanding
convertible subordinated debt securities of that series may declare by notice
in writing to us the principal amount (or, if the convertible subordinated debt
securities of that series are original issue discount securities, that portion
of the principal amount as may be specified in the terms of that series) of all
the convertible subordinated debt securities of that series to be due and
payable immediately. Notwithstanding the foregoing, unless the applicable
prospectus supplement states otherwise, if an Event of Default described in
clauses (6) or (7) with respect to convertible subordinated debt securities of
any series occurs and is continuing, then all of the convertible subordinated
debt securities of that series shall become immediately due and payable without
any further act by us, any holder or the trustee. At any time after a judgment
or decree based on acceleration has been obtained, the holders of a majority in
aggregate principal amount of outstanding convertible subordinated debt
securities of that series may, under certain circumstances, rescind and annul
the acceleration (Section 502).
In the event of a payment or covenant default with respect to convertible
subordinated debt securities, the trustee, subject to certain limitations and
conditions, may institute judicial proceedings to enforce the payment of any
amount due or the performance of that covenant or any other proper remedy
(Section 503). Under certain circumstances, the trustee may withhold notice to
the holders of the convertible subordinated debt securities of a default if the
trustee in good faith determines that withholding notice is in the best
interest of the holders (Section 602).
Obligations of Trustee. The indenture provides that, subject to the duty of
the trustee during default to act with the required standard of care, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders, unless
the holders shall have offered to the trustee reasonable security or indemnity
(Section 603). Subject to the provisions for the indemnification of the trustee
and to certain other conditions, the holders of a majority in aggregate
principal amount of the outstanding convertible subordinated debt securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee with respect
to the convertible subordinated debt securities of that series. However, the
trustee may decline to act if the holders' direction violates any law or the
indenture, would unduly prejudice the right of other holders or subject the
trustee to personal liability (Section 512).
33
No holder of any convertible subordinated debt security of any series will
have any right to institute any proceeding with respect to the indenture, or
for the appointment of a receiver or trustee or for any remedy, unless:
. the holder has given the trustee written notice of a continuing Event of
Default with respect to the convertible subordinated debt securities of
that series;
. the holders of not less than 25% in aggregate principal amount of the
outstanding convertible subordinated debt securities of that series have
made written request, and offered reasonable indemnity, to the trustee
to institute the proceeding as trustee;
. the trustee has not received an inconsistent direction from the holders
of a majority in principal amount of the outstanding convertible
subordinated debt securities of that series; and
. the trustee has failed to institute the requested proceeding within 60
days (Section 507).
However, the holder of any convertible subordinated debt security will have
an absolute right to receive payment of the principal of, premium, if any, and
interest on that convertible subordinated debt security on the due dates
expressed in that convertible subordinated debt security and to institute suit
for the enforcement of any payment (Section 508).
Under the indenture we must furnish to the trustee annually a statement
regarding our performance of certain of our obligations under the indenture and
as to any default in performance (Section 1005).
Defeasance and Covenant Defeasance
Unless the applicable prospectus supplement states otherwise, the indenture
provides that we may choose to deposit in trust with the trustee cash and/or
government securities in an amount sufficient, without reinvestment, to pay all
sums due on any series of convertible subordinated debt securities. If we make
this deposit, then, at our option, we:
(1) will be deemed to have satisfied and paid all of our obligations in
respect of the convertible subordinated debt securities of a particular
series, which is referred to as full defeasance; or
(2) will not need to comply with certain restrictive covenants contained
in the indenture, and the occurrence of a covenant default with respect to
those restrictive covenants, as well as the cross-default to other
indebtedness, will no longer be Events of Default with respect to that
series of convertible subordinated debt securities, which is referred to as
covenant defeasance.
We will, however, be required, among other things, to continue to effect
conversions of convertible subordinated debt securities.
A trust of this kind may only be established if, among other things,
. no Event of Default exists or occurs as a result of the deposit; and
. we deliver an opinion of counsel to the effect that the holders will not
recognize income, gain or loss for federal income tax purposes as a
result of the deposit.
If we exercise either defeasance option with respect to any series of
convertible subordinated debt securities and the maturity of that series is
accelerated upon an Event of Default, the amount of cash and government
securities on deposit with the trustee may not be sufficient to pay amounts due
on these convertible subordinated debt securities at the time of the
acceleration. If we have elected covenant defeasance, we will remain liable
with respect to these payments. However, if we have elected full defeasance, we
will not remain liable with respect to these payments (Article 13).
34
Modification and Waiver
Modifications and Amendments. We and the trustee may modify and amend the
indenture with the consent of the holders of a majority in aggregate principal
amount of the outstanding convertible subordinated debt securities of each
series affected by the modification or amendment. Unless the applicable
prospectus supplement states otherwise, however, we may not, without the
consent of the holder of each outstanding convertible subordinated debt
security affected:
. change the maturity date of the principal of, or interest on, any
convertible subordinated debt security,
. reduce the principal amount of, or any premium or rate of interest on,
any convertible subordinated debt security,
. reduce the amount of principal of an original issue discount security
payable upon acceleration of the maturity thereof,
. change the place or currency of payment of principal of, premium, if
any, or interest on, any debt security,
. impair the right to institute suit for the enforcement of any payment on
or with respect to any convertible subordinated debt security,
. modify the conversion privilege or the subordination provisions with
respect to any convertible subordinated debt security in a manner
adverse to the holder thereof, or
. reduce the percentage in principal amount of outstanding convertible
subordinated debt securities of any series required to modify or amend
the indenture or to waive compliance with certain provisions of, or
defaults under, the indenture (Section 902).
Notwithstanding the foregoing, without the consent of any holder of
convertible subordinated debt securities, we and the trustee may modify and
amend the indenture:
. to evidence the succession of another person to us and the assumption by
the successor of our obligations under the indenture;
. to make any change that would provide any additional rights or benefits
to the holders of the convertible subordinated debt securities of any
series or that does not adversely affect the legal rights of any holder
under the indenture;
. to add any additional Events of Default;
. to permit the issuance of convertible subordinated debt securities in
bearer form;
. to change the provisions of the indenture in respect of any series of
convertible subordinated debt securities not yet issued;
. to secure the convertible subordinated debt securities of any series;
. to make provisions with respect to the conversion rights of holders of
convertible subordinated debt securities of any series in the event of a
consolidation, merger or sale of assets as required by the indenture;
. to establish the form or terms of the convertible subordinated debt
securities of any series as permitted by the indenture;
. to evidence and provide for the acceptance of the appointment under the
indenture of a successor trustee; or
. to cure any ambiguity, defect or inconsistency, provided that the
interests of the holders of outstanding convertible subordinated debt
securities of any series are not adversely affected in any material
respect (Section 901).
Waivers. The holders of at least a majority in aggregate principal amount of
the outstanding convertible subordinated debt securities of each series may, on
behalf of all holders of convertible subordinated debt securities of that
series, waive, insofar as that series is concerned, our compliance with certain
restrictive provisions of the indenture (Section 1006).
35
The holders of at least a majority in aggregate principal amount of the
outstanding convertible subordinated debt securities of any series may, on
behalf of all holders of convertible subordinated debt securities of that
series, waive any past default under the indenture, except:
. a default in the payment of principal of, premium, if any, or interest
on, any convertible subordinated debt security of that series; or
. a default in respect of a covenant or provision which under the
indenture cannot be modified or amended without the consent of the
holder of each convertible subordinated debt security of the series
affected (Section 513).
Consolidation, Merger and Conveyances
We may consolidate with or merge into any corporation, or transfer our
assets substantially as an entirety to any person, organized under the laws of
the U.S., any state in the U.S. or the District of Columbia, provided that:
. the successor person assumes our obligations on the convertible
subordinated debt securities and under the indenture;
. after giving effect to the transaction no Event of Default, and no event
which, after notice or lapse of time, would become an Event of Default,
will have occurred and be continuing; and
. certain other conditions under the indenture are met (Section 801).
Trustee
The trustee may resign or be removed with respect to one or more series of
convertible subordinated debt securities and a successor trustee may be
appointed to act with respect to that series (Section 610). In the event that
two or more persons are acting as trustee with respect to different series of
convertible subordinated debt securities, each trustee shall be a trustee of a
trust under the indenture separate and apart from the trust administered by any
other trustee, and any action described herein to be taken by the "trustee" may
then be taken by each trustee with respect to, and only with respect to, the
one or more series of convertible subordinated debt securities for which it is
trustee (Section 611).
Book-Entry Securities
The convertible subordinated debt securities of a series may be issued in
the form of one or more book-entry securities that will be deposited with a
depositary or its nominee identified in the applicable prospectus supplement
(Section 301). In this case, one or more book-entry securities will be issued
in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of convertible subordinated debt securities of the
series to be represented by the book-entry security or securities. Unless and
until it is exchanged in whole or in part for convertible subordinated debt
securities in definitive registered form, a book-entry security may not be
transferred except as a whole by the depositary for that book-entry security to
a nominee of the depositary or by a nominee of the depositary to the depositary
or another nominee of the depositary or by the depositary or any nominee to a
successor of the depositary or a nominee of the successor (Section 305).
The specific terms of the depositary arrangement with respect to any portion
of a series of convertible subordinated debt securities to be represented by a
book-entry security will be described in the applicable prospectus supplement.
We anticipate that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a book-entry security, the depositary for that
book-entry security or its nominee will credit, on its book-entry registration
and transfer system, the respective principal amounts of the convertible
subordinated debt securities represented by that book-entry security to the
accounts of persons that have accounts with that depositary, or participants.
Those accounts will be designated by the underwriters or agents with respect to
the convertible subordinated debt securities or by us if the convertible
subordinated debt securities are offered and sold directly by us. Participants
include securities brokers and dealers, banks and trust companies, clearing
36
corporations and certain other organizations. Access to the depositary's system
is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with
participants either directly or indirectly, which we refer to as indirect
participants. Persons who are not participants may beneficially own book-entry
securities held by the depositary only through participants or indirect
participants.
Ownership of beneficial interests in any book-entry security will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the depositary or its nominee with respect to interests of
participants in that book-entry security and on the records of participants
with respect to interests of indirect participants. The laws of some states
require that certain purchasers of securities take physical delivery of the
securities in definitive form. These laws, as well as the limits on
participation in the depositary's book-entry system, may impair the ability to
transfer beneficial interests in a book-entry security.
So long as the depositary or its nominee is the registered owner of a
book-entry security, the depositary or its nominee will be considered the sole
owner or holder of the convertible subordinated debt securities represented by
that book-entry security for all purposes under the indenture. Except as
provided below, owners of beneficial interests in convertible subordinated debt
securities represented by book-entry securities will not be entitled to have
convertible subordinated debt securities of the series represented by that
book-entry security registered in their names, will not receive or be entitled
to receive physical delivery of the convertible subordinated debt securities in
definitive form, and will not be considered the owners or holders of the
convertible subordinated debt security under the indenture.
Payments of principal of, premium, if any, and interest on convertible
subordinated debt securities registered in the name of the depositary or its
nominee will be made to the depositary or its nominee, as the case may be, as
the registered owner of the book-entry security representing those convertible
subordinated debt securities. We expect that the depositary for a series of
convertible subordinated debt securities or its nominee, upon receipt of any
payment of principal, premium or interest, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the book-entry
security for those convertible subordinated debt securities, as shown on the
records of the depositary or its nominee. We also expect that payments by
participants and indirect participants to owners of beneficial interests in the
book-entry security held through those persons will be governed by standing
instructions and customary practices, as is now the case with securities
registered in "street name", and will be the responsibility of the participants
and indirect participants. None of us, the trustee, any authenticating agent,
any paying agent, or the security registrar for the convertible subordinated
debt securities will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the book-entry security for those convertible subordinated debt
securities or for maintaining, supervising or reviewing any records relating to
those beneficial ownership interests (Section 311).
If the depositary for convertible subordinated debt securities of a series
notifies us that it is unwilling or unable to continue as depositary or if at
any time the depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, we have agreed to appoint a successor
depositary. If a successor is not appointed by us within 90 days, we will issue
convertible subordinated debt securities of that series in definitive
registered form in exchange for the book-entry security representing that
series of convertible subordinated debt securities. In addition, we may at any
time and in our sole discretion determine that the convertible subordinated
debt securities of any series issued in the form of one or more book-entry
securities will no longer be represented by that book-entry security or
securities and, in that event, we will issue convertible subordinated debt
securities of that series in definitive registered form in exchange for the
book-entry security or securities. Further, if we so specify with respect to
the convertible subordinated debt securities of a series, or if an Event of
Default, or an event which with notice, lapse of time or both would be an Event
of Default, with respect to the convertible subordinated debt securities of
that series has occurred and is continuing, an owner of a beneficial interest
in a book-entry security representing convertible subordinated debt securities
of that series may receive convertible subordinated debt securities of that
series in definitive registered form. In that case, an owner of a beneficial
interest in a book-entry security will be entitled to physical delivery in
definitive registered form of convertible subordinated debt securities of the
series represented by that book-entry security equal in principal amount to
that beneficial interest and to have those convertible subordinated debt
securities registered in its name (Section 305).
37
AUTHORIZED CAPITAL STOCK
Pursuant to our articles of incorporation, we have 9,020,000,000 shares of
authorized capital stock, which are divided into three classes of common stock
and one class of preferred stock. The common stock consists of the FON common
stock, the PCS common stock and the Class A common stock. Each class of common
stock is divided into two or more series, as follows:
Our FON common stock includes the following authorized shares:
. 2,500,000,000 shares of FON common stock, series 1, par value $2.00 per
share,
. 500,000,000 shares of FON common stock, series 2, par value $2.00 per
share, and
. 1,200,000,000 shares of FON common stock, series 3, par value $2.00 per
share.
Our PCS common stock includes the following authorized shares:
. 3,000,000,000 shares of PCS common stock, series 1, par value $1.00 per
share,
. 1,000,000,000 shares of PCS common stock, series 2, par value $1.00 per
share, and
. 600,000,000 shares of PCS common stock, series 3, par value $1.00 per
share.
Our Class A common stock includes the following authorized shares:
. 100,000,000 shares of Class A common stock, having no series
designation, par value $0.50 per share, and
. 100,000,000 shares of Class A common stock, series DT, par value $0.50
per share.
In addition, we have 20,000,000 authorized shares of preferred stock, no par
value. Of these shares, 3,050,095 have been designated and 246,861 have been
issued. See "Description of Preferred Stock--Designated and Outstanding
Preferred Stock." With respect to our undesignated shares of preferred stock,
our board of directors may issue shares in one or more series, with the voting
powers (full or limited or without voting power), designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions on those rights, as our board may
fix and determine by resolution.
The FON common stock, series 3, the PCS common stock, series 3, and the two
series of Class A common stock are all shares of stock that are referred to
collectively as Class A stock. Shares of Class A stock have been issued, and
will be issued, only to France Telecom or Deutsche Telekom, or to certain
majority owned subsidiaries of France Telecom and/or Deutsche Telekom.
Following the completion of the secondary offering of all of the FON common
stock owned by France Telecom and Deutsche Telekom, including the FON common
stock underlying their shares of Class A common stock, on June 4, 2001, each
share of Class A common stock entitles the holder to have one-half of a share
of PCS common stock, series 3 issued to the holder. The issuance of the
underlying shares of FON common stock, series 3 in the secondary offering did
not change the number of outstanding shares of Class A common stock. Similarly,
the issuance of the underlying shares of PCS common stock, series 3 will not
change the number of outstanding shares of Class A common stock. Instead, the
issuance of the underlying stock reduces the number of underlying shares that
the holder is entitled to have issued, which in turn affects the per share
dividend rights, voting rights and liquidation rights of the Class A common
stock. In addition, the par value of the shares of Class A common stock is
reduced by the aggregate par value of the underlying shares issued. For
example, the par value of the Class A common stock was reduced to $0.50 per
share from $2.50 per share as a result of the issuance of the underlying FON
common stock.
The FON common stock, series 1 and the PCS common stock, series 1 are both
listed and traded on the New York Stock Exchange.
38
DESCRIPTION OF CONVERTIBLE PREFERRED STOCK
The terms of any series of convertible preferred stock will be set forth in
a certificate of designation adopted by our board of directors. The applicable
prospectus supplement will describe the material terms of the series of
convertible preferred stock offered by that prospectus supplement. If we issue
any series of convertible preferred stock, we will file the applicable
certificate of designation as an exhibit to the registration statement and you
should read the certificate of designation for provisions that may be important
to you. In addition, our articles of incorporation and bylaws govern the rights
of all of our stockholders generally. Our articles of incorporation and bylaws
have been filed as exhibits to the registration statement and you should read
our articles of incorporation and bylaws for provisions that may be important
to you. You can obtain copies of any certificate of designation and our
articles of incorporation and bylaws by following the directions described
under the caption "Where You Can Find More Information."
General
Under our articles of incorporation, our board of directors has the
authority, without further stockholder action, to issue a maximum of 20,000,000
shares of preferred stock, or 16,949,905 shares of preferred stock in addition
to the 3,050,095 shares of preferred stock already designated. See
"--Designated and Outstanding Preferred Stock" below. Our board of directors
has the authority to determine or fix the voting powers (full or limited or
without voting powers), designations, preferences and relative, participating,
optional or other special rights of, and any qualifications, limitations or
restrictions on, any series of convertible preferred stock, which we will
describe in the applicable prospectus supplement. These powers, designations,
preferences and rights may include the following:
. the number of shares and designation or title of the shares;
. dividend rights;
. any redemption dates, prices, rights, obligations and restrictions;
. the terms of any purchase, retirement or sinking fund;
. voting rights, if any;
. the rights of the holders upon our dissolution or upon the distribution
of our assets, including any liquidation preference; and
. any other preferences, rights, limitations or restrictions of the
series.
The applicable prospectus supplement will also describe the terms and
conditions of the conversion rights of the series of convertible preferred
stock being offered by that prospectus supplement.
Designated and Outstanding Preferred Stock
As of June 30, 2001, we had the following series of preferred stock
designated and outstanding:
. 95 shares of preferred stock-fifth series, no par value, designated and
95 shares outstanding;
. 1,500,000 shares of preferred stock-sixth series, no par value,
designated and no shares outstanding;
. 300,000 shares of preferred stock-seventh series, convertible, no par
value, designated and 246,766 shares outstanding; and
. 1,250,000 shares of preferred stock-eighth series, no par value,
designated and no shares outstanding.
39
DESCRIPTION OF PCS COMMON STOCK
We have summarized the material terms of our PCS common stock below. Our
articles of incorporation and bylaws have been filed as an exhibit to the
registration statement and you should read our articles of incorporation and
bylaws for provisions that may be important to you. You can obtain copies of
our articles of incorporation and bylaws by following the directions described
under the caption "Where You Can Find More Information."
Dividend Rights and Restrictions
We will pay dividends on the PCS common stock when declared by our board of
directors. We do not anticipate that our board will declare dividends on the
PCS common stock in the foreseeable future.
Our board may declare dividends on the FON common stock and not the PCS
common stock, or it may declare dividends on the PCS common stock and not the
FON common stock. If the board declares a dividend on one series of the PCS
common stock, it must declare the same dividend on all three series of PCS
common stock. In addition, it must declare an equivalent dividend on the PCS
common stock underlying the outstanding Class A common stock.
Dividends on the FON common stock, the PCS common stock and the Class A
common stock may be declared only out of our net income or earned surplus. Net
losses of either the PCS group or the FON group, and dividends and
distributions on, or repurchases of, PCS common stock, FON common stock or
Class A common stock, will reduce funds legally available for the payment of
dividends on all three classes of common stock.
The tracking stock policies adopted by our board of directors require that
dividends on the PCS common stock, including the PCS common stock underlying
the Class A common stock, may be paid only out of the lesser of
. the funds of our company that are legally available for the payment of
dividends and
. the PCS group available dividend amount, which is similar to the amount
of assets that would be available for the payment of dividends on the
PCS common stock, including the PCS common stock underlying the Class A
common stock, under the Kansas General Corporation Code if the PCS group
were a separate company.
Our board of directors may not declare a dividend or distribution consisting
of shares of FON common stock on the PCS common stock. The board may only
declare a dividend or distribution of shares of PCS common stock on the FON
common stock if the shares to be issued represent an inter-group interest of
the FON group in the PCS group.
Before any dividends on the PCS common stock or any other class of our
common stock may be paid or declared and set apart for payment, we must pay or
declare and set apart for payment full cumulative dividends on all outstanding
series of preferred stock.
If we fail to purchase the preferred stock--fifth series upon tender by the
holders, we are precluded from declaring or paying dividends on our PCS common
stock or any other class of common stock until we have deposited the funds
necessary for the purchase of the preferred stock-fifth series. If all of the
shares of preferred stock-fifth series were tendered, the purchase price would
be $9.5 million plus accrued dividends.
Upon the issuance of a new series of preferred stock, our board may provide
for dividend restrictions on the PCS common stock as to that series of
preferred stock.
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Voting Rights
Votes Per Share. The holders of PCS common stock vote together with the
holders of the FON common stock, Class A common stock and preferred stock as a
single class on most matters. When all classes are voting as a single class,
the holders have the following number of votes:
. The holders of the FON common stock, series 1, the FON common stock,
series 3 and the preferred stock--fifth series have one vote per share.
. The holders of the PCS common stock, series 1 and PCS common stock,
series 3 have a number of votes per share equal to the number obtained
by dividing the average trading price of one share of PCS common stock,
series 1 by the average trading price of one share of FON common stock,
series 1, computed as of the tenth trading day before the record date
for determining the stockholders entitled to vote. For these purposes,
the average trading price is defined as the average closing price of the
stock determined over the 20 trading days immediately preceding the date
of determination. If the "ex-dividend" date for a dividend or
distribution on either the PCS common stock, series 1 or the FON common
stock, series 1 occurs during this 20 trading day period, or the
effective date of any subdivision or combination of the PCS common
stock, series 1 or FON common stock, series 1 occurs during this 20
trading day period, an appropriate adjustment is made to the closing
prices used in the calculation. The vote per share of the PCS common
stock, series 1 and PCS common stock, series 3 is expressed as a decimal
fraction rounded to the nearest three decimal places. By way of example,
if the average trading price of one share of PCS common stock, series 1
is determined to be $35 and the average trading price of one share of
FON common stock, series 1 is determined to be $30, each share of PCS
common stock, series 1 and PCS common stock, series 3 would have 1.167
votes.
. The holders of the PCS common stock, series 2 have 1/10 of the vote per
share that the holders of the PCS common stock, series 1 and the PCS
common stock, series 3 have.
. The holders of the preferred stock--seventh series have the number of
votes per share equal to the aggregate number of votes of the shares of
PCS common stock, series 1 or PCS common stock, series 2 into which a
share of the preferred stock--seventh series may be converted. At June
30, 2001, each share of preferred stock--seventh series was convertible
into 65.04784 shares of PCS common stock, series 1 or PCS common stock,
series 2, depending on who held the share of preferred stock--seventh
series.
. The holders of shares of Class A common stock have the number of votes
per share equal to the votes represented by the PCS common stock
underlying each share of Class A common stock.
On each matter to be voted on by the holders of the PCS common stock and
Class A common stock voting together as a single class, the holders of shares
of each series of PCS common stock are entitled to one vote per share. The
holders of the Class A common stock are entitled to the vote per share
represented by the shares or fraction of a share of PCS common stock, series 3
underlying each share of Class A common stock, assuming that the PCS common
stock, series 3 has one vote per share.
If the PCS common stock is entitled to vote on a matter as a separate class,
each share will be entitled to one vote. If a particular series of PCS common
stock, such as the PCS common stock, series 1, is voting as a separate series,
each share will be entitled to one vote.
Our articles of incorporation provide that the affirmative vote of the
holders of a majority of the votes represented by the PCS common stock and
Class A common stock voting together as a single class is required
(1)to adopt any amendment to our articles of incorporation that would:
. increase or decrease the number of authorized shares of PCS common
stock;
. increase or decrease the par value of shares of PCS common stock;
41
. change the powers, preference or special rights of the shares of PCS
common stock so as to affect them adversely; and
(2)to amend the provisions of our bylaws relating to the capital stock
committee before November 23, 2002.
The tracking stock policies adopted by our board of directors provide that
the consent of the holders of a majority of the outstanding shares of PCS
common stock, voting as a separate class, and the consent of the holders of a
majority of the outstanding shares of FON common stock, voting as a separate
class, is required to approve any acquisition by the FON group of more than 33%
of the assets of the PCS group.
Special Adjustment in Voting Power of the Class A Stock. If there is an
increase in the per share vote of any of our voting securities due to the
transfer of the voting securities and the increase occurs on or after the tenth
trading day preceding a record date for purposes of determining the
stockholders entitled to vote or to receive the payment of a dividend, then the
per share vote of the Class A stock will be increased. The vote per share will
be increased so that the percentage of the voting power represented by the
shares of Class A stock held by each holder of Class A stock will not be
diluted as a result of the increase in votes due to the transfer of voting
securities until the day immediately following the date of the stockholders
meeting or the date of the dividend payment. When PCS common stock, series 2 is
transferred by a cable holder to a non-affiliate, it is automatically converted
into PCS common stock, series 1, which has a higher per share vote.
Special Voting Rights of the Preferred Stock. The preferred stock is
entitled to vote as a class with respect to certain matters affecting
preferences of the preferred stock or an increase in the authorized shares of
the class.
If we do not pay dividends or pay less than full cumulative dividends on the
preferred stock--fifth series for each of four consecutive dividend periods, or
if arrearages in the payment of dividends on the preferred stock--fifth series
have cumulated in an amount equal to full cumulative dividends on the preferred
stock--fifth series for six quarterly dividend periods, the holders of the
preferred stock--fifth series, acting alone, will be entitled to elect the
smallest number constituting a majority of our directors then to be elected
until all arrears in those dividends are paid or set aside for payment.
The affirmative vote of two-thirds of the votes to which the holders of the
outstanding shares of the preferred stock--seventh series are entitled is
necessary for authorizing or effecting the amendment, alteration or repeal of
any of the provisions of our articles of incorporation which would materially
and adversely affect the voting powers, preferences, rights, powers or
privileges, qualifications, limitations and restrictions of the preferred
stock--seventh series.
Classified Board; No Cumulative Voting. Our board of directors is divided
into three classes, with each class consisting, as nearly as possible, of
one-third of the total number of the directors. Only one class is elected each
year for a three-year term. The holders of all currently outstanding classes
and series of stock are entitled to vote in the election of these directors.
However, our board of directors could authorize a new series of preferred stock
that does not have voting rights in the election of directors.
Our stockholders are not entitled to cumulative voting rights in the
election of directors.
Redemption of Common Stock
Our articles of incorporation permit the redemption of shares of FON common
stock, series 1, PCS common stock, series 1, PCS common stock, series 2 and, in
certain circumstances, Class A stock held by aliens if necessary to comply with
the foreign ownership limitations set forth in Section 310 of the
Communications Act of
42
1934, as amended. The provisions permit FON common stock, series 1, PCS common
stock, series 1 and PCS common stock, series 2 to be redeemed at a price equal
to the fair market value of the shares, except that the redemption price in
respect of shares purchased by any alien after November 21, 1995 and within one
year of the redemption date would not, unless otherwise determined by our
board, exceed the purchase price paid for those shares by the alien.
Conversion of PCS Common Stock at our Option
At any time after November 23, 2001, our board of directors may convert each
share of PCS common stock, series 1 into shares of FON common stock, series 1.
If the conversion takes place before November 23, 2002, each share of PCS
common stock, series 1 will convert into the number of shares of FON common
stock, series 1 equal to 110% of the optional conversion ratio computed as of
the fifth trading day before the date that notice of conversion is sent to
holders of PCS common stock. The optional conversion ratio is the ratio of the
average trading price of a share of PCS common stock, series 1 to the average
trading price of a share of FON common stock, series 1. See the discussion of
the vote per share of PCS common stock, series 1 under "--Voting Rights--Votes
Per Share" above for a definition of the term "average trading price." We must
compute the optional conversion ratio over a 60 trading day period if the
20-trading day period normally used to determine the average trading price is
less than 90% of the ratio as determined over a 60-trading day period.
If the conversion takes place on or after November 23, 2002, our board of
directors will determine the conversion ratio, subject to the requirement that
it must make independent determinations as to the fairness of the conversion
ratio to the holders of the PCS common stock, taken as a separate class, and to
the holders of the FON common stock, taken as a separate class.
At the same time as the board converts the PCS common stock, series 1 into
FON common stock, series 1, it must convert the PCS common stock, series 2 into
FON common stock, series 2 and the PCS common stock, series 3 into FON common
stock, series 3. In addition, the unissued shares of PCS common stock
underlying the Class A common stock will convert into unissued shares of FON
common stock on an equivalent basis.
Other Conversion Rights
The PCS common stock, series 2 converts into PCS common stock, series 1 when
it is transferred by a cable holder to a non-affiliate of the cable holders.
The PCS common stock, series 2 also converts into PCS common stock, series 1
when the total number of votes represented by the outstanding shares of PCS
common stock, series 2, calculated as though the PCS common stock, series 2 has
the same vote as the PCS common stock, series 1, is below 1% of our outstanding
voting power.
The holders of the FON common stock, series 3 may at any time convert their
shares of FON common stock, series 3 into shares of FON common stock, series 1
and the holders of the PCS common stock, series 3 may at any time convert their
shares of PCS common stock, series 3 into shares of PCS common stock, series 1.
This also applies to the shares of PCS common stock, series 3 that are issuable
with respect to the Class A common stock.
Mandatory Dividend, Redemption or Conversion of PCS Common Stock
If we dispose of all of the assets of the PCS group, or if we dispose of at
least 80% of the assets of the PCS group on a then-current market value basis,
we must use all of the net proceeds to pay a dividend on the PCS common stock
or redeem all or a portion of the PCS common stock or we must convert the PCS
common stock into FON common stock. There are certain exceptions to this rule;
for example, we do not have to pay a dividend on the PCS common stock, redeem
the PCS common stock or convert the PCS common stock into FON common
43
stock when we receive in exchange for the assets primarily equity securities of
an entity engaged, or proposing to engage, in a business similar or
complementary to the business of the PCS group.
If our board determines to convert the PCS common stock into FON common
stock in these circumstances, we will convert each share of PCS common stock
into a number of shares of FON common stock at a ratio equal to 110% of the
average market value of one share of PCS common stock, series 1 to the average
market value of one share of FON common stock, series 1 computed over a
10-trading day period beginning on the 16th trading day after the consummation
of the disposition. The market value is defined as the average of the high and
low reported sales prices regular way. Appropriate adjustments are made if an
ex-dividend date or an effective date for a subdivision or combination of the
relevant shares occurs during the measurement period.
If our board determines to pay a dividend on the PCS common stock or redeem
PCS common stock, we will distribute to holders of PCS common stock and to
holders of Class A common stock, based on the PCS common stock underlying the
Class A common stock, cash or securities, other than our common equity
securities, or other property, or a combination of cash and securities and
other property, equal to the fair value of the net proceeds after deducting
amounts necessary to pay transaction costs, taxes on the disposition,
liabilities of the PCS group, and any amount corresponding to any inter-group
interest in the PCS group held by the FON group. If the payment of the dividend
or redemption price occurs before November 23, 2001, the board may also convert
each share of PCS common stock remaining outstanding into shares of FON common
stock on the same basis as conversion of PCS common stock into FON common stock
after November 23, 2001 and before November 23, 2002 described above under
"--Conversion of PCS Common Stock at Our Option." The conversion of PCS common
stock into FON common stock can occur under these circumstances only if the
conversion date occurs before the first anniversary of the payment of the
dividend or redemption price.
Redemption of PCS Common Stock in Exchange for Stock of a Subsidiary
We may redeem all of the outstanding shares of PCS common stock in exchange
for the outstanding shares of common stock of one or more wholly-owned
subsidiaries that hold all of the assets and liabilities attributed to the PCS
group if one of the following conditions is met:
. the redemption is tax free to the holders of PCS common stock; or
. after deducting related taxes, holders of PCS common stock are in a
position that is substantially equivalent economically to the position
they would be in if the redemption were tax free.
Liquidation Rights
In the event of the liquidation of Sprint, the prior rights of creditors and
the aggregate liquidation preference of any preferred stock then outstanding
must first be satisfied. The holders of FON common stock, PCS common stock and
Class A common stock will be entitled to share in the remaining assets of our
company in accordance with the per share liquidation units attributable to each
class or series of common stock. The holders of PCS common stock have no
special claim to the assets attributed to the PCS group. The liquidation units
attributable to each class of common stock are as follows:
. each share of FON common stock is attributed one liquidation unit;
. each share of PCS common stock is attributed 0.2046 liquidation units;
and
. each share of a series of Class A common stock is entitled to a number
of liquidation units equal to the sum of the liquidation units
associated with the unissued shares of PCS common stock underlying that
series of Class A common stock at the time of the liquidation, divided
by the aggregate number of outstanding shares of that series of Class A
common stock.
The number of liquidation units for each share of FON common stock and each
share of PCS common stock will be adjusted for stock splits, reverse stock
splits and other corporate events affecting the FON common stock or the PCS
common stock.
44
Preemptive Rights
No holder of PCS common stock or any other capital stock of our company is
entitled to preemptive rights or subscription rights, other than pursuant to
the rights issued pursuant to our rights agreement. At the time of the
acquisition of their shares of PCS common stock, series 2, Tele-Communications,
Inc., Comcast Corporation and Cox Communications, Inc. were given contractual
rights to purchase additional shares of PCS common stock, series 2 under
certain circumstances to enable them to maintain certain ownership levels.
Fully Paid
The outstanding shares of PCS common stock are fully paid and nonassessable.
Transfer Agent And Registrar
The transfer agent and registrar for PCS common stock and FON common stock
is UMB Bank, n.a., Kansas City, Missouri.
Anti-Takeover Provisions
The Kansas General Corporation Code and our articles of incorporation and
bylaws contain provisions which could discourage or make more difficult a
change in control of our company without the support of our board of directors.
A summary of these provisions follows.
Vote Required for Certain Business Combinations. Our articles of
incorporation require that certain business combinations initiated by a
beneficial owner of 10% or more of our voting stock must be approved by the
holders of 80% of the outstanding voting stock.
Restriction on Purchase of Equity Securities by Sprint. If the beneficial
owner of 5% or more of a class of our equity securities has held any of the
securities for less than two years, our articles of incorporation prohibit us
from purchasing equity securities of the same class as the securities held for
less than two years from the 5% security holder at a premium over market price
unless we either:
. obtain the approval of the holders of a majority of the voting power of
our outstanding capital stock, excluding the shares held by the 5%
security holder, or
. make a tender or exchange offer to purchase securities of the same class
on the same terms to all holders of those equity securities.
The approval of stockholders is not required in connection with purchases,
redemptions or other acquisitions by us of our capital stock held by France
Telecom, Deutsche Telekom, certain of their designated subsidiaries or certain
other qualified holders of the Class A stock pursuant to the investment
agreements entered into with France Telecom and Deutsche Telekom or our
articles of incorporation. The approval of stockholders is also not required in
connection with purchases, redemptions, conversions or other acquisitions of
PCS common stock from a holder of that stock pursuant to our articles of
incorporation.
Classified Board; Removal of Directors. In addition to providing for a
classified board of directors, discussed above under "Voting Rights--Classified
Board; No Cumulative Voting," our articles of incorporation provide that
directors may be removed only for cause. Removal for cause requires the
affirmative vote of the holders of a majority of the votes represented by the
shares entitled to vote on the election of that director. The provisions for a
classified board, together with the limitation on the removal of directors,
makes it more difficult to remove directors.
45
Notice Provisions Relating to Stockholder Proposals and Nominees. Our bylaws
contain provisions requiring our stockholders to give advance written notice to
us of a proposal or director nomination in order to have the proposal or the
nominee considered at a meeting of stockholders. The notice must usually be
given not less than 50 days and not more than 75 days before the meeting. Under
our bylaws, our stockholders may require that a special meeting of stockholders
be called only if the holders of a majority of the shares of stock issued and
outstanding and entitled to vote request that the meeting be called.
Rights Plan. Our board of directors has adopted a rights agreement. Pursuant
to the terms of the rights agreement, rights are attached to the FON common
stock, the PCS common stock and the Class A common stock. For a description of
the FON group rights attached to the FON common stock, see Amendment No. 3 to
our Registration Statement on Form 8-A relating to the FON group rights, filed
with the SEC on August 4, 1999 and incorporated by reference into this
prospectus. For a description of the PCS group rights attached to the PCS
common stock, see Amendment No. 2 to our Registration Statement on Form 8-A
relating to the PCS group rights, filed with the SEC on July 26, 1999 and
incorporated by reference into this prospectus. See "Where You Can Find More
Information."
Business Combination Statute. Kansas has a Business Combination Statute that
limits certain business combinations between Kansas corporations, like our
company, and interested stockholders, who are certain persons beneficially
owning a significant percentage of the voting stock of the corporation.
However, business combinations with a stockholder who became an interested
stockholder in a transaction approved by the corporation's board of directors
are exempted from these provisions.
Control Share Acquisition Statute. Kansas also has a Control Share
Acquisition Statute that provides that persons who acquire beneficial ownership
of the voting stock of a corporation in excess of certain thresholds lose the
right to vote the shares acquired in the transaction resulting in the person
exceeding one of the thresholds, unless the acquisition is approved by:
. a majority of the outstanding voting shares of the corporation, and
. a majority of the outstanding voting shares of the corporation excluding
the shares owned by the person making the acquisition, shares held by
the officers of the corporation and shares held by directors of the
corporation who are also employees of the corporation.
The thresholds are 20%, 33 1/3% and 50% of the voting power. Shares acquired
directly from the issuing corporation are not subject to the statute.
46
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND EQUITY UNITS
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or equity units offered by that prospectus supplement. If we
issue any stock purchase contracts or equity units, we will file the form of
stock purchase contract and equity unit as exhibits to the registration
statement and you should read these documents for provisions that may be
important to you. You can obtain copies of any form of stock purchase contract
and equity unit by following the directions described under the caption "Where
You Can Find More Information."
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of PCS common stock, series 1, or other securities
at a future date or dates. We may fix the price and number of securities
subject to the stock purchase contracts at the time we issue the stock purchase
contracts or we may provide that the price and number of securities will be
determined pursuant to a formula set forth in the stock purchase contracts. The
stock purchase contracts may be issued separately or as part of units
consisting of a stock purchase contract and debt securities or debt obligations
of third parties, including U.S. treasury securities, securing the obligations
of the holders of the units to purchase the securities under the stock purchase
contracts. We refer to these units as equity units. The stock purchase
contracts will require holders to secure their obligations under the stock
purchase contracts. The stock purchase contracts also may require us to make
periodic payments to the holders of the equity units or vice versa, and those
payments may be unsecured or refunded on some basis.
47
SELLING STOCKHOLDER
One or more of our stockholders may from time to time offer up to 57,000,000
shares of PCS common stock, series 1.
The prospectus supplement for any offering of PCS common stock, series 1 by
a selling stockholder will include, in addition to any other relevant material
information, the following information about the selling stockholder:
. the name of the selling stockholder;
. the nature of any position, office or other material relationship
between the selling stockholder and us, our affiliates or predecessors
during the last three years;
. the number of shares of PCS common stock, series 1 offered by the
selling stockholder under the prospectus supplement; and
. the number of shares of PCS common stock, series 1 owned by the selling
stockholder before and after the offering and, if one percent or more,
the percentage of PCS common stock, series 1 owned by the selling
stockholder after the offering.
48
PLAN OF DISTRIBUTION
We and any selling stockholder may sell any securities:
. through underwriters or dealers;
. through agents; or
. directly to one or more purchasers.
The distribution of the securities may be effected from time to time in one
or more transactions:
. at a fixed price or prices, which may be changed from time to time;
. at market prices prevailing at the time of sale;
. at prices related to prevailing market prices; or
. at negotiated prices.
For each series of securities, the applicable prospectus supplement will set
forth the terms of the offering including:
. the initial public offering price;
. the names of any underwriters, dealers or agents;
. the purchase price of the securities;
. our proceeds from the sale of the securities;
. any underwriting discounts, agency fees, or other compensation payable
to underwriters or agents;
. any discounts or concessions allowed or reallowed or repaid to dealers;
and
. the securities exchanges on which the securities will be listed, if any.
If we or any selling stockholder use underwriters in the sale, they will buy
the securities for their own account. The underwriters may then resell the
securities in one or more transactions at a fixed public offering price or at
varying prices determined at or after the time of sale. The obligations of the
underwriters to purchase the securities will be subject to certain conditions.
The underwriters will be obligated to purchase all the securities offered if
they purchase any securities. Any initial public offering price and any
discounts or concessions allowed or re-allowed or paid to dealers may be
changed from time to time. In connection with an offering, underwriters and
selling group members and their affiliates may engage in transactions to
stabilize, maintain or otherwise affect the market price of the securities in
accordance with applicable law.
If we or any selling stockholder use dealers in the sale, we or any selling
stockholder will sell securities to those dealers as principals. The dealers
may then resell the securities to the public at varying prices to be determined
by the dealers at the time of resale. If we or any selling stockholder use
agents in the sale, they will use their reasonable best efforts to solicit
purchases for the period of their appointment. If we or any selling stockholder
sell directly, no underwriters or agents would be involved. We are not making
an offer of securities in any state that does not permit an offer of these
securities.
Underwriters, dealers and agents that participate in the securities
distribution may be deemed to be underwriters as defined in the Securities Act
of 1933. Any discounts, commissions, or profit they receive when they resell
the securities may be treated as underwriting discounts and commissions under
the Securities Act of 1933. We or any selling stockholder may have agreements
with underwriters, dealers and agents to indemnify them against certain civil
liabilities, including certain liabilities under the Securities Act of 1933, or
to contribute with respect to payments that they may be required to make.
49
We or any selling stockholder may authorize underwriters, dealers or agents
to solicit offers from certain institutions where the institution contractually
agrees to purchase the securities from us or the selling stockholder on a
future date at a specific price. This type of contract may be made only with
institutions that we or the selling stockholder specifically approve. These
institutions could include banks, insurance companies, pension funds,
investment companies and educational and charitable institutions. The
underwriters, dealers or agents will not be responsible for the validity or
performance of these contracts.
The securities, other than any PCS common stock, will be new issues of
securities with no established trading market and unless otherwise specified in
the applicable prospectus supplement, we will not list any series of the
securities (other than the PCS common stock) on any exchange. It has not
presently been established whether the underwriters, if any, of the securities
will make a market in the securities. If the underwriters make a market in the
securities, the market making may be discontinued at any time without notice.
We cannot provide any assurance as to the liquidity of the trading market for
the securities.
50
LEGAL MATTERS
The validity of the convertible preferred stock and the PCS common stock,
series 1 will be passed upon for us by Thomas A. Gerke, Vice President,
Corporate Secretary and Associate General Counsel of our company. The validity
of the debt securities, guarantees, convertible subordinated debt securities,
stock purchase contracts and equity units will be passed upon for us by King &
Spalding. As of June 30, 2001, Thomas A. Gerke beneficially owned approximately
16,100 shares of PCS common stock and 16,400 shares of FON common stock and had
options to purchase in excess of 75,000 shares of PCS common stock and in
excess of 135,000 shares of FON common stock.
EXPERTS
Ernst & Young LLP, our independent auditors, have audited Sprint
Corporation's consolidated financial statements and schedule, as amended, and
the combined financial statements, as amended, of the PCS group and the FON
group included in Sprint Corporation's Annual Report on Form 10-K/A for the
year ended December 31, 2000, as set forth in their reports, which are
incorporated by reference in this prospectus and which, as to the year 1998 for
our consolidated financial statements and for the combined financial statements
of the PCS group, are based in part on the report of Deloitte & Touche LLP,
independent auditors. These financial statements and schedule are incorporated
by reference in reliance on the reports, given on the authority of such firms
as experts in accounting and auditing.
The consolidated financial statements of Sprint Spectrum Holdings Company,
L.P. and subsidiaries and the related financial statement schedule for the year
ended December 31, 1998 incorporated in this prospectus by reference from
Sprint Corporation's Annual Report on Form 10-K/A for the year ended December
31, 2000 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
51
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70,000,000 SHARES
[LOGO] SPRINT(R) [LOGO] Sprint(R)
Sprint PCS(R)
SPRINT CORPORATION
PCS COMMON STOCK, SERIES 1
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
JPMORGAN
MERRILL LYNCH & CO.
UBS WARBURG
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ABN AMRO ROTHSCHILD LLC
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
DAIN RAUSCHER WESSELS
FIRST UNION SECURITIES, INC.
ROBERTSON STEPHENS
THE WILLIAMS CAPITAL GROUP, L.P.
AUGUST 7, 2001
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