Sprint reports increased earnings of $39 million

KANSAS CITY, Mo. -- Sprint Corp., facing a report its two top executives are being forced out over their use of a questionable type of tax shelter, reported earnings Wednesday of $39 million during the fourth quarter.

Meanwhile, a judge in Georgia said she'll decide within a week whether an executive from a Sprint rival can take over as chief executive of the Overland Park, Kan.-based telecommunications firm.

The $39 million profit is a substantial increase over the $1.2 billion loss the company reported during the same period a year earlier. The company credited cost-cutting measures, which have included 17,000 layoffs since Oct. 2001.

Sprint confirmed Sunday that William T. Esrey, its longtime chief executive and chairman, will be stepping down. The company has not said why or when Esrey, 63, will leave, but his resignation was not unexpected because he was diagnosed with lymphoma in November.

However, on Wednesday, The Wall Street Journal, citing unnamed sources, reported that Esrey and Ronald T. LeMay, Sprint's president and chief operating officer, were being forced out as part of a boardroom dispute over their use of a questionable type of tax shelter that is under scrutiny by the Internal Revenue Service. Esrey and LeMay reportedly used the shelter to defer tax payments when they exercised stock options in 1999 and 2000.

Sprint executives would not comment on the report.

"Management is focused on the operations and running of this company," Esrey said during a conference call with investors Wednesday morning. "If there's anything appropriate to say, we will say them at the appropriate time, but not on this call."

Sprint wants Gary Forsee, a vice chairman at BellSouth Corp. and former Sprint executive, to replace Esrey. Fulton County, Ga., Superior Court Judge Stephanie Manis said Wednesday she plans to issue a written ruling within a week on whether to dissolve the temporary restraining order that prevents Forsee from leaving BellSouth to take the top job at Sprint.

Cingular files lawsuit

Cingular Wireless, an affiliate of BellSouth, also filed a lawsuit Wednesday to prevent Forsee from leaving. Cingular wants to combine its lawsuit with BellSouth's.

BellSouth attorney James Bogan argued the temporary restraining order was necessary to prevent "immediate and irreparable injury or loss." BellSouth claims Forsee may divulge "intellectual capital," including company price plans and merger and acquisition information, to a competitor.

But Forsee's attorneys said their client never had any intention of disclosing sensitive information.

"I feel a strong sense of responsibility to the shareholders, directors and employees of BellSouth, and I have not and will not do anything to harm the company," Forsee said in a written statement after the hearing.

In trading on the New York Stock Exchange, shares of Sprint's wireline division, FON, rose 16 cents, or 1.3 percent, to close Wednesday at $12.52. Shares of it wireless division, PCS, gained 31 cents, or 8.4 percent, to $4.

Analysts said The Journal's report was not especially damaging to the company because there was no indication that what Esrey and LeMay did was illegal, and it did not affect Sprint's bottom line.

"There could have been accounting issues related to the company and it could have been a thousand times worse," Tim Horan, an analyst with CIBC World Markets.

But that "good news," said Jeff Kagan, an independent analyst based in Atlanta, is tempered by the distraction it's caused for the company.

"On top of that they don't have a CEO lined up to take the place, so there's a lot of uncertainty that swirls," Kagan said.

Meanwhile, Sprint FON reported earnings Wednesday of $294 million, or 33 cents per share, for the quarter that ended Dec. 31, compared with a loss of $904 million, or $1.02 per share a year earlier.

Excluding one-time charges, FON made 37 cents per share. Analysts had predicted earnings of 38 cents per share.

Sprint FON reported sales of $3.6 billion, down from the $3.8 billion it reported in the fourth quarter of 2001.

Sprint PCS lost $255 million, or 25 cents per share, compared with a loss of $332 million, or 32 cents per share during the fourth quarter of 2001.

Excluding one-time charges, PCS lost 18 cents per share. Analysts surveyed by Thomson First Call had expected a loss of 22 cents for PCS.

The wireless division reported operating revenues of $3 billion, up from $2.8 billion.

For the year, Sprint reported earnings of $630 million, up from a loss of $1.4 billion in 2001. FON made $1.2 billion, up from a $147 million loss, while PCS lost $528 million, compared with a loss of $1.2 billion the year before.

"This year has been significant on three major fronts -- improving our operating performance, vigilant cost containment and a significantly improved balance sheet," Esrey said in a news release. "Our progress in these areas positions us favorably in 2003."

The company said it expects earnings of $1.40 to $1.45 a share in its FON division in 2003. Sprint PCS expects gross customer additions to be in the low- to mid-6 million range.

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On the Net

www.sprint.com

www.bellsouth.com

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Associated Press Writer Louise Chu in Atlanta contributed to this report.