SPRINT CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 1-04721

SPRINT CORPORATION
(Exact name of registrant as specified in its charter)

KANSAS 48-0457967

(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

P.O. Box 11315, 64112
Kansas City, Missouri (Zip Code)
(Address of principal executive offices) (913) 624-3000
Registrant's telephone number,
including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------

FON Common Stock, Series 1, $2.00 par
value, and FON Group Rights New York Stock Exchange
PCS Common Stock, Series 1, $1.00 par
value, and PCS Group Rights New York Stock Exchange

Guarantees of Sprint Capital Corporation
6.875% Notes due 2028 New York Stock Exchange
Corporate Units New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file these reports), and (2) has been subject to
these filing requirements for the past 90 days. Yes __X__ No ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]

Aggregate market value of voting and non-voting stock held by non-affiliates at
February 22, 2002, was $19,874,360,163.
COMMON SHARES OUTSTANDING AT FEBRUARY 22, 2002:

FON COMMON STOCK 889,784,995
PCS COMMON STOCK 988,716,032
CLASS A COMMON STOCK 43,118,018

Documents incorporated by reference.

Registrant's definitive proxy statement filed under Regulation 14A promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, which definitive proxy statement is to be filed within 120 days after the
end of Registrant's fiscal year ended December 31, 2001, is incorporated by
reference in Part III hereof.

SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT ON FORM 10-K
Sprint Corporation

Part I

- --------------------------------------------------------------------------------
Item 1. Business
- --------------------------------------------------------------------------------

The Corporation

Sprint Corporation, incorporated in 1938 under the laws of Kansas, is mainly a
holding company, with its operations primarily conducted in its subsidiaries.

Sprint is a global communications company and a leader in integrating
long-distance, local service, and wireless communications. Sprint is also one
of the largest carriers of Internet traffic using its tier one Internet
Protocol network, which provides connectivity to any point on the Internet
either through its own network or via direct connections with other backbone
providers. Sprint is the nation's third-largest provider of long distance
services and operates nationwide, all-digital long distance and tier one
Internet protocol networks using fiber-optic and electronic technology. In
addition, Sprint's local division currently serves approximately 8.2 million
access lines in 18 states. Sprint also operates a 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. Sprint owns PCS licenses to provide service to the entire
United States population, including Puerto Rico and the U.S. Virgin Islands.
Sprint operates in industries that have been and continue to be subject to
consolidation and dynamic change. As part of its overall business strategy,
Sprint regularly evaluates opportunities to expand and complement its business
and may at any time be discussing or negotiating a transaction that, if
consummated, could have a material effect on its business, financial condition,
liquidity or results of operations.

In November 1998, Sprint's shareholders approved the allocation of all of
Sprint's assets and liabilities into two groups, the FON Group and the PCS
Group, as well as the creation of the FON stock and the PCS stock. In addition,
Sprint 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. (Cox PCS). Sprint acquired these
ownership interests from Tele-Communications, Inc. (TCI), Comcast Corporation
and Cox Communications, Inc. (the Cable Partners). In exchange, Sprint issued
the Cable Partners special low-vote PCS shares and warrants to acquire
additional PCS shares. Sprint also issued the Cable Partners shares of a new
class of preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring. In the 1999 second
quarter, Cox Communications, Inc. exercised a put option requiring Sprint to
purchase the remaining 40.8% interest in Cox PCS. Sprint issued additional low
vote PCS shares in exchange for this interest.

Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. In addition, the Class A common
shares owned by France Telecom (FT) and Deutsche Telekom AG (DT) were
reclassified into shares representing both FON and PCS stock. These
transactions are referred to as the Recapitalization.

At the end of 2001, FT no longer held FON shares, and DT no longer held either
FON or PCS shares.

FON common stock and PCS common stock are intended to reflect the financial
results and economic value of the FON and PCS Groups. However, they are classes
of common stock of Sprint, not of the group they are intended to track.
Accordingly, FON and PCS shareholders are subject to the risks related to an
equity investment in Sprint and all of Sprint's businesses, assets and
liabilities. Shares of FON common stock and PCS common stock do not represent a
direct legal interest in the assets and liabilities allocated to either group,
as Sprint owns all of the assets and liabilities of both of the groups.
Sprint's Board may, subject to the restrictions in Sprint's articles of
incorporation, change the allocation of the assets and liabilities that
comprise each of the FON Group and the PCS Group without shareholder approval.

Operating Segments

Sprint's business is divided into four lines of business: the global markets
division, the local 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 division and the
product distribution and directory publishing businesses. The FON common stock
is intended to reflect the financial results and economic value of the global
markets division, the local division and the product distribution and directory
publishing businesses. 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. For financial information relating to Sprint's segments,

1

see Note 17 to Sprint's consolidated financial statements under Item
8--Financial Statements and Supplementary Data in this Form 10-K.

Sprint FON Group

General Overview of the Sprint FON Group

The FON Group is comprised of the global markets division, the local division
and the product distribution and directory publishing businesses. The main
activities of the global markets division include domestic and international
long distance communications (except for consumer long distance services used
by customers within Sprint's local franchise territories), broadband fixed
wireless services and certain other ventures. The global markets division is
the nation's third-largest provider of long distance services. The activities
of the local division include local exchange communications and consumer long
distance services used by customers within Sprint's local franchise territories.

The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories. Sprint has retained investment
bankers to explore values that Sprint could obtain if it were to sell the
directory publishing business.

Global Markets Division

The global markets division's financial performance for 2001, 2000 and 1999 is
summarized as follows:

-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
(millions)

Net operating revenues $ 9,916 $10,528 $10,308
------------------------
Operating income (loss)/(1)/ $(2,049) $ 585 $ 1,175
------------------------

/(1)/ Includes a $1.7 billion one-time restructuring and asset impairment
charge in 2001. In 2000, a $238 million one-time asset impairment charge
is included.

General

The global markets division provides a broad suite of communications services
targeted to domestic business and residential customers, multinational
corporations and other communications companies. These services include
domestic and international voice, data communications using various protocols
such as Internet protocol and frame relay (a data service that transfers
packets of data over Sprint's network), and managed network services. In
addition, the global markets division is expanding its ability to provide web
and applications hosting, consulting services, and colocation services. Through
this division, Sprint also provides broadband services and digital subscriber
line services, which enable high-speed transmission of data over existing
copper telephone lines between the customer and the service provider.

The global markets division also includes the operating results of the cable TV
service operations of the broadband fixed wireless companies after their 1999
acquisition dates. During 2000, Sprint added high-speed data services in
several markets served by Multipoint Multichannel Distribution Services (MMDS)
capabilities in addition to cable TV services. MMDS is a fixed wireless network
that can be built either using a system of interconnected smaller cells or as a
single tower that distributes signals through microwave from a single
transmission point to multiple receiving points. The global markets division's
operating results reflect the development costs and the operating revenues and
expenses of these broadband fixed wireless services. In the 2001 fourth
quarter, Sprint announced it would halt further deployment of MMDS services
using current direct sight access technology. Current customers will continue
to receive service and Sprint will wait for development of second generation
technology and pursue alternative strategies to capture the value from these
assets.

The global markets division also reflects the costs of establishing
international operations beginning in 2000.

This division also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada;
Intelig Telecommunicacoes Ltda., a long distance provider in Brazil; and
certain other telecommunications investments and ventures.

Competition

The division competes with AT&T, WorldCom and other telecommunications
providers in all segments of the long distance communications market. AT&T
continues to have the largest market share of the domestic long distance
communications market. Some competitors are targeting the high-end data market
and are offering deeply discounted rates in exchange for high-volume traffic as
they attempt to fill their networks with traffic volume. The Regional Bell
Operating Companies (RBOCs) have obtained authorization to provide in-region
long distance service in certain states, which has heightened competition in
those states. As the RBOCs have entered the long distance service market, they
have proven to be formidable long distance competitors. In addition, long
distance services provided by wireless service providers are expected to
continue to adversely affect the global markets division. Competition in long
distance is based on price and pricing plans, the types of services offered,
customer service, and communications quality, reliability and availability. 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,

2

demographic trends, economic conditions, and pricing strategies.

Strategy

In order to achieve profitable market share growth in an increasingly
competitive long distance communications environment, the global markets
division intends to leverage its principal strategic assets: its high-capacity
national fiber-optic network, its tier one Internet Protocol network, its base
of business and residential customers, its established national brand, and
offerings available from other FON Group operating entities, the PCS Group and
other affinity relationships. The long distance operation will focus on
expanding its presence in the high-growth data communications markets and
aspires to become the provider of choice for delivery of end-to-end service to
business and residential customers. The global markets division continues to
deploy network and systems infrastructure which provides reliability, cost
effectiveness and technological improvements. In order to create integrated
product offerings for its customers, the global markets division is solidifying
the linkage of its long distance operation with Sprint's other operations such
as the local division and the PCS Group.

Local Division

General

The local division (LTD) consists mainly of regulated local phone companies
serving approximately 8.2 million access lines in 18 states. LTD provides local
voice and data services for customers within its franchise territories, access
by phone customers and other carriers to LTD's local network, consumer long
distance services to customers within its franchise territories, sales of
telecommunications equipment, and other long distance services within certain
regional calling areas, or LATAs.

LTD's financial performance for 2001, 2000 and 1999 is summarized as follows:

-------------------------------------------
2001 2000 1999
-------------------------------------------
(millions)

Net operating revenues $6,247 $6,155 $5,958
--------------------
Operating income/(1)/ $1,783 $1,763 $1,553
--------------------

/(1)/ Includes a $109 million one-time restructuring charge in 2001.

AT&T is LTD's largest customer for network access services. The percentage of
the division's net operating revenues from services (mainly network access
services) provided to AT&T were 7% in 2001, 8% in 2000 and 10% in 1999.
Revenues from AT&T were 2% of the FON Group's revenues in 2001, 3% in 2000 and
4% in 1999.

Competition

Because LTD operations are largely in rural markets, competition in its markets
is occurring more gradually. In urban areas, however, there is already
substantial competition for business customers, with varying levels of
competition in third tier and rural markets. Cable modems provide increasing
competition for second line and data services for residential customers, and
wireless services will continue to grow as an alternative to wireline services.
There continues to be significant competition in toll services. Certain mergers
or other combinations involving competitors may increase competition.
Competition in these services is based on price and pricing plans, the types of
services offered, customer service, and communications quality, reliability and
availability.

Strategy

LTD's strategy is to market to its local customers Sprint's entire product
portfolio as well as its core product line of local voice, advanced network
features and data products, including Digital Subscriber Line (DSL).

Product Distribution and Directory Publishing Businesses

The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.

The financial performance for the product distribution and directory publishing
businesses for 2001, 2000 and 1999 is summarized as follows:

-------------------------------------------
2001 2000 1999
-------------------------------------------
(millions)

Net operating revenues $1,762 $1,936 $1,758
--------------------
Operating income/(1)/ $ 284 $ 284 $ 242
--------------------

/(1)/ Includes a $7 million one-time restructuring charge in 2001.

Sprint PCS Group

General Overview of the Sprint PCS Group

The PCS Group includes Sprint's wireless personal communication services (PCS)
operations. At year-end 2001, the PCS Group, together with third party
affiliates, operated PCS systems in over 300 metropolitan markets, including
the 50 largest U.S. metropolitan areas. The PCS Group has licenses to serve the
entire U.S. population, including Puerto Rico and the U.S. Virgin Islands. The
service offered by the PCS Group and its third party affiliates now covers over
247 million people. The PCS Group provides nationwide service through a
combination of:

. operating its own digital network in major U.S. metropolitan areas,

3

. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,

. roaming on other providers' analog cellular networks using multi-mode
handsets, and

. roaming on other providers' digital networks that use code division
multiple access (CDMA), which is a digital spread-spectrum wireless
technology that allows a large number of users to access a single
frequency band by assigning a code to all speech bits, sending a
scrambled transmission of the encoded speech over the air and
reassembling the speech into its original format.

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 its investments in Pegaso Telecomunicaciones, S.A.
de C.V. (Pegaso), a wireless PCS operation in Mexico; SVC BidCo L.P., a joint
venture to acquire wireless spectrum rights; and Virgin Mobile U.S.A., a joint
venture to market wireless services. These investments are accounted for using
the equity method.

The financial performance for the PCS Group for 2001, 2000 and 1999 is
summarized as follows:

------------------------------------------------
2001 2000 1999
------------------------------------------------
(millions)

Net operating revenues $9,725 $ 6,341 $ 3,373
------------------------
Operating loss/(1)/ $ (647) $(1,928) $(3,237)
------------------------

/(1) Includes a $10 million one-time restructuring charge in 2001. Includes a
$24 million charge in 2000 for costs associated with the terminated merger
between Sprint and WorldCom. /

Competition

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 (ESMR), and PCS operators and resellers. A majority of the markets have
five or more commercial mobile radio service (CMRS) providers and each of the
top 50 metropolitan markets has at least two other PCS competitors in addition
to one ESMR competitor and two cellular incumbents. Many of these competitors
have been operating for a number of years and currently serve a substantial
subscriber base. The Federal Communications Commission (FCC) recently decided
to allow CMRS providers to own more spectrum, up to 55 MHz, in urban markets
and to eliminate its rule imposing spectrum limits in January 2003. Competition
may continue to increase to the extent that licenses are transferred from
smaller stand-alone operators to larger, better capitalized, and more
experienced wireless communications operators.

Strategy

The business objective of the PCS Group is to expand capacity and network
coverage and increase 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 Sprint's national brand to gain consumer confidence in, and
acceptance of, the PCS Group's products and services,

. using state-of-the-art technology, including CDMA,

. incorporating third generation (3G) technology into its network,

. delivering superior service to its customers,

. growing its customer base using multiple distribution channels,

. continuing to expand capacity and coverage and

. offering PCS Group services in combination with FON Group services.

Legislative and Regulatory Developments

Telecommunications services are subject to regulation at the federal level by
the FCC and at the state level by public utilities commissions. In general,
incumbent local exchange carriers (ILECs) such as Sprint's local phone
companies are subject to the most extensive regulation. Regulation not only
covers rates and service terms, but also the terms on which ILECs provide
connections and network elements to potential competitors known as competitive
local exchange carriers (CLECs). Long distance providers such as the global
markets division are subject to less regulation, but still must comply with
various statutory requirements and regulations. CMRS providers such as the PCS
Group are not regulated from a retail pricing standpoint but are subject to
various licensing and technical requirements imposed by the FCC and states.

Telecommunications has been and remains the subject of legislative initiatives
at both the federal and state levels. The Telecommunications Act of 1996
(Telecom Act) was the first comprehensive update of the Communications Act of
1934. Among other things,

4

the Telecom Act provided a framework for local competition, but required the
passage of implementing rules by the FCC and the states. These rules have been
the subject of numerous appeals to both the courts and to Congress. In
virtually every session of Congress since the adoption of the Telecom Act,
legislation has been proposed to amend it. In addition, members of Congress use
Congressional hearings and letters to emphasize points to regulators. This
Congressional participation in the development of regulatory policy and
enforcement makes the regulatory process less predictable and potentially
adverse to Sprint's interest. Similar legislative involvement occurs in various
states.

Sprint FON Group

Competitive Local Service

The Telecom Act was designed to promote competition in all aspects of
telecommunications. It eliminated legal and regulatory barriers to entry into
local phone markets. It also required ILECs to allow local resale at wholesale
rates, negotiate interconnection agreements, provide nondiscriminatory access
to unbundled network elements and allow colocation of interconnection equipment
by competitors. The rules implementing the Telecom Act are the subject of legal
challenges and uncertainty. Moreover, many of the CLECs that invested money to
participate in local competition have filed for bankruptcy. Thus, the future of
local competition remains unclear.

The FON Group is impacted by local competition rules from two perspectives:
primarily, as an ILEC for approximately 4% of the access lines in the United
States and, secondarily, as a potential CLEC for the remainder of the country's
access lines. The FON Group has largely terminated its CLEC efforts at this
point because entry into local markets as a reseller or through unbundled
network elements proved to be uneconomic. In addition, in the 2001 fourth
quarter, the FON Group terminated its efforts to offer an integrated voice and
data all-distance service known as Sprint ION. The FON Group continues to offer
DSL service targeted to business customers on a CLEC basis in selected cities.
Sprint also is implementing a metropolitan area network (MAN) strategy through
the lease and purchase of dark-fiber rings in key U.S. cities. This fiber-optic
infrastructure is expected to enable Sprint to reduce local access costs in the
future.

In 1999, the Supreme Court affirmed the authority of the FCC to establish rules
and prices relating to interconnection and unbundling of the ILECs' networks.
The FCC subsequently reaffirmed in large part the list of network elements
incumbents are required to provide on an unbundled basis, and strengthened
colocation requirements. It also took steps to speed the deployment of advanced
technologies such as DSL technology. DSL technology enables high-speed
transmission of data over existing copper telephone lines between the customer
and the service provider.

The FCC's order identifying the network elements required to be provided on an
unbundled basis and its order intended to speed the deployment of advanced
technologies have both been appealed to the D.C. Circuit Court of Appeals. In
addition, the FCC has commenced a review of its ILEC unbundled network element
rules and initiated proceedings to explore whether it should establish
performance measures for ILEC provision of unbundled network elements and
special access services.

In 2000, the U.S. Court of Appeals for the Eighth Circuit invalidated the
pricing standards the FCC had adopted for unbundled network elements and resale
of ILEC services. The court also refused to reconsider, in light of the Supreme
Court decision discussed above, the court's prior holding that ILECs could not
be required to combine unbundled network elements on behalf of other carriers.
In 2001, the U.S. Supreme Court granted certiorari of three issues from the
Eighth Circuit decision. The Supreme Court is reviewing whether the Telecom Act
forecloses the cost methodology adopted by the FCC for interconnection rates
with the ILECs. A related issue dealing with whether rejection of historical
costs is a constitutional taking is also being considered. Finally, the Supreme
Court is considering whether ILECs have a duty under the Telecom Act to combine
previously uncombined network elements when requested and for a fee. If the
Supreme Court affirms the Eighth Circuit's decision, the FCC or the state
regulatory commissions would have to formulate new pricing standards for
unbundled network elements and interconnection.

Separately, in a 2000 decision, the D.C. Circuit Court of Appeals remanded to
the FCC the issue of what types of equipment ILECs must allow competitors to
colocate in their offices. In July 2001, the FCC adopted an order revising the
test used to determine what equipment can be colocated, requiring ILECs to
cross connect competitor's colocated facilities and giving ILECs more control
over where colocation space will be provided. This order has been appealed to
the D.C. Circuit Court of Appeals.

The FCC has also convened a proceeding to determine the appropriate regulatory
requirements for ILEC provision of domestic broadband telecommunications.

RBOC Long Distance Entry

The Telecom Act also allows RBOCs to provide in-region long distance service
once they obtain state

5

certification of compliance with a competitive "checklist," have a
facilities-based competitor, and obtain an FCC ruling that the provision of
in-region long distance service is in the public interest. By year-end 2001,
Verizon Communications had entered the long distance market in New York,
Massachusetts, Connecticut and Pennsylvania, and SBC Communications had entered
the long distance market in Texas, Kansas, Oklahoma, Arkansas and Missouri.
Both have been successful in obtaining a significant market share in a short
period of time. The RBOCs may secure regulatory clearance to offer long
distance services in a significant number of their respective markets in the
near future. As the RBOCs have entered the market, they have proven to be
formidable long distance competitors. Some of the impact on Sprint may be
offset by wholesale revenues from those RBOCs which choose to resell Sprint
services.

Universal Service Requirements and Access Reform

The FCC continues to address issues related to universal service and access
reform. In 2000, the FCC adopted an access reform plan that substantially
reduced switched access charges paid by long distance carriers to the large
ILECs and created a new universal service fund that offsets a portion of this
reduction in access charges. In connection with its advocacy of this plan,
Sprint committed that it would flow through the reductions in switched access
costs over the five-year life of the plan to both business and residential
customers. Sprint also committed to certain other pricing actions, including
eliminating charges to residential and single-line business customers which had
been used to pass through certain access costs that were eliminated by this
plan, and maintaining, for the duration of the plan, at least one pricing
option that does not include a minimum usage charge. The FCC order adopting
this access reform plan requires Sprint to adhere to these commitments. The
FCC's order was appealed to the U.S. Court of Appeals for the Fifth Circuit.
The court upheld the majority of the FCC's order, but remanded that part of the
order creating a $650 million universal service support obligation and using a
6.5% access charge price adjustment.

The FCC and many states have established "universal service" programs to ensure
affordable, quality local telecommunications services for all U.S. residents.
The FON Group's assessment to fund these programs is typically a percentage of
interstate and international end-user revenues. Currently, management cannot
predict the extent of the FON Group's future federal and state universal
service assessments, or its ability to recover its contributions to the
universal service fund from its customers.

In May 2001, the FCC initiated a proceeding to determine whether the carrier
assessment program described in the preceding paragraph should be changed. In
the proceeding, the FCC will address whether to move from a carrier assessment
based on revenues to a customer per line assessment collected by carriers on a
bill and remit basis and how to adjust carrier contributions to account for
RBOC entry into long distance, the loss of market share by long distance
carriers, growth in wireless and Internet protocol telecommunications, and
increased bundling of telecommunications and non-telecommunications services.

Communications Assistance for Law Enforcement Act

The Communications Assistance for Law Enforcement Act (CALEA) was enacted in
1994 to preserve electronic surveillance capabilities authorized by federal and
state law. CALEA required telecommunications companies to meet certain
"assistance capability requirements" by June 30, 2000. LTD has agreed to a
CALEA deployment schedule with the Department of Justice (DOJ) and has obtained
an extension for CALEA compliance from the FCC until March 31, 2002. LTD has
also filed a petition, supported by the DOJ, for further extension until June
30, 2002. Where circuit-switched technology was installed before 1995,
reimbursement for hardware and software upgrades to facilitate CALEA compliance
was authorized. Currently, LTD uses circuit-switching for the bulk of its
traffic and most LTD switches were installed before 1995 and qualify for
reimbursement if upgrades are required by the DOJ.

Reallocation of Spectrum

The FCC has initiated a proceeding to identify additional spectrum for use by
3G wireless services. The FCC has issued an order refusing to relocate
incumbents, including Sprint, in the 2.5 GHz band, but it has proposed
allocating to this use certain spectrum (the 2150-2162 MHz band) currently used
by Sprint and others in the provisioning of its MMDS. Sprint has indicated a
willingness to relocate from the 2150-2162 MHz band if suitable replacement
spectrum can be found and if Sprint is reimbursed for its relocation costs.

MMDS License Conditions

The FCC auctioned certain MMDS licenses - those licensed on a basic trading
area (BTA) geographic basis - in 1996 for a term of ten years. Those licenses
will expire in 2006. The licenses may be renewed by the FCC for additional ten
year terms. The FCC rules require all licensees of auctioned MMDS spectrum to
meet certain buildout requirements in order to retain their licenses of this
spectrum. These licensees are required to construct stations to provide signals
capable of reaching at least two-thirds of the population of the applicable
service area by

6

August 16, 2003 or five years from the deadline specified on a conditional
license, whichever is later. Although Sprint believes it has met these
requirements in a number of its MMDS markets, it has not received confirmation
from the FCC. Failure to comply with FCC requirements in a given market could
result in the loss of the MMDS license for that part of the service area in
which the buildout requirements are not met.

Sprint PCS Group

The FCC sets rules, regulations and policies to, among other things:

. grant licenses for PCS frequencies and license renewals,

. rule on assignments and transfers of control of PCS licenses,

. govern the interconnection of PCS networks with other wireless and
wireline carriers,

. establish access and universal service funding provisions,

. impose fines and forfeitures for violations of any of the FCC's rules,

. regulate the technical standards governing wireless services, and

. impose other obligations that it determines to be in the public interest.

The FCC currently prohibits a single entity from having a combined attributable
interest (20% or greater interest in any license) in broadband PCS, cellular
and specialized mobile radio licenses totaling more than 55MHz in any
geographic area. This limitation on the ownership of spectrum terminates on
January 1, 2003.

The FCC is considering the reallocation of additional spectrum for 3G purposes.
After the FCC - in coordination with the National Telecommunications
Infrastructure Administration (NTIA) - identifies which spectrum bands should
be used for advanced wireless services, this spectrum will be auctioned. The
amount of spectrum that will be reallocated and the cost of moving incumbent
users cannot be determined at this time. In addition, the FCC plans to auction
spectrum in the 700 MHz band which is currently used for analog broadcasting.
It is not clear if the allocation of additional spectrum for 3G purposes and
the auction of 700 MHz spectrum for mobile services may impact the value of the
PCS Group's current spectrum licenses. At the present time the PCS Group
believes that it has adequate spectrum to implement its business plan and
deploy 3G services throughout the United States.

PCS License Transfers and Assignments

The FCC must approve any substantial changes in ownership or control of a PCS
license. Noncontrolling interests in an entity that holds a PCS license or
operates PCS networks generally may be bought or sold without prior FCC
approval. In addition, the FCC now requires only post-consummation notification
of certain proforma assignments or transfers of control.

PCS License Conditions

All PCS licenses are granted for 10-year terms if the FCC's construction
requirements are met. The licenses are subject to renewal. All 30 MHz broadband
major trading area (MTA) licensees must build PCS networks offering coverage to
1/3 of the population within five years and 2/3 within 10 years. In June
2000, the PCS Group met the five-year buildout requirement in all its MTA
markets. All 10 MHz and 15 MHz broadband PCS licensees must construct networks
offering coverage to at least 1/4 of the population or make a showing of
"substantial service" within five years of license grant. Sprint anticipates
that it will meet the 10/15 MHz five-year buildout requirement in all its BTA
markets by the April 2002 deadline. Licenses may be revoked if the FCC's
construction requirements are not met.

PCS licenses may be renewed for additional 10-year terms. Renewal applications
are not subject to auctions and the FCC will award a license renewal to a
licensee that can demonstrate it has provided "substantial service" during the
past license term and it has substantially complied with the FCC rules.

Other FCC Requirements

Broadband PCS providers cannot unreasonably restrict or prohibit other
companies from reselling their services. They also cannot unreasonably
discriminate against resellers. CMRS resale obligations expire in November 2002.

Local exchange carriers must program their networks to allow customers to
retain, at the same location, existing telephone numbers when switching from
one telecommunications carrier to another. This is referred to as local number
portability (LNP). By November 24, 2002, all covered CMRS providers must offer
a database solution for LNP, one that must be able to support roaming. Covered
CMRS providers must provide LNP in the 100 largest metropolitan statistical
areas, in compliance with certain FCC performance criteria, but only at the
request of another carrier (CMRS provider or local exchange carrier).

A number of CMRS carriers, including the PCS Group, have asked the FCC to delay
the date by which carriers must implement LNP. The LNP requirement will
increase the operating costs of all

7

CMRS carriers and may result in higher churn rates among carriers. At this
time, it is unclear whether the FCC will delay the LNP requirement. LNP would
disproportionately affect the largest carriers.

Broadband PCS and other CMRS providers must implement enhanced emergency 911
capabilities in a two-tiered manner. In the first phase, wireless carriers must
identify the base station from which a call originated. In the second phase,
wireless carriers must provide location within a radius as small as fifty
meters. Implementation of the second phase location requirements must generally
begin within six months of a valid request by a public safety organization. The
PCS Group has been granted a limited waiver of certain emergency 911
obligations. This waiver defers the obligation to implement the second phase
location technologies until December 31, 2002.

Communications Assistance for Law Enforcement Act

CALEA requires telecommunications carriers, including Sprint, to modify their
equipment, facilities and services to allow for authorized electronic
surveillance based on either industry or FCC standards. The FCC had adopted
rules implementing this statute, and has established various implementation
deadlines. Like other CMRS carriers, the PCS Group has sought certain
extensions of these deadlines, and these requests remain pending. Sprint
believes that the FCC will grant extensions of the deadlines; however, if the
extension requests are not granted, the PCS Group could be subjected to fines
if it is unable to comply with a surveillance request from a law enforcement
agency due to the failure to provide the required surveillance capabilities.

Other Federal Regulations

Wireless systems must comply with certain FCC and Federal Aviation
Administration (FAA) regulations about the siting, lighting and construction of
transmitter towers and antennas. In addition, FCC environmental regulations may
cause certain cell site locations to come under National Environmental Policy
Act (NEPA) and National Historic Preservation Act (NHPA) regulation. The FCC's
NEPA and NHPA rules require carriers to meet certain land use and radio
frequency standards. These requirements can delay or prevent siting in certain
areas.

Universal Service Requirements and Access Charges

The FCC and many states have established "universal service" programs to ensure
affordable, telecommunications services for all U.S. residents. The PCS Group's
"contribution" to these programs is, at present, typically a percentage of
end-user revenues. In May 2001, the FCC initiated a proceeding to reconsider
the manner in which carrier contributions to the federal universal service fund
are assessed. The FCC could adopt a new assessment methodology that would shift
more of the universal service funding burden to wireless carriers. Currently,
however, management cannot predict the extent of the PCS Group's future federal
and state universal service assessments, or its ability to recover its
contributions to the universal service fund from customers.

In April 2001, the FCC initiated a proceeding to consider a number of issues
regarding compensation arrangements between carriers that exchange local and
long distance traffic, including the issue of whether wireless carriers should
be allowed to charge long distance carriers for terminating long distance calls
to their wireless customers. Separately, in October 2001, the PCS Group and
AT&T filed petitions for a declaratory ruling with the FCC regarding the
lawfulness of the PCS Group's practice of charging AT&T for terminating AT&T's
long distance calls to the PCS Group's wireless customers. Sprint cannot
predict the outcome of these actions; however the FCC may reduce access charges
or determine that the PCS Group was not and/or is not entitled to charge for
access.

State and Local Regulation

The Telecom Act preempts state and local regulation of market entry or the
rates charged by a CMRS provider. States may, however, regulate "other terms
and conditions" of mobile service, such as billing practices and other
consumer-related issues.

The location and construction of radio towers and antennas are also subject to
a variety of state and local zoning, land use and regulatory requirements.
Therefore, the time needed to obtain zoning approvals for the construction of
additional wireless facilities varies from market to market and state to state.
Delays in the construction of facilities can have an adverse effect on the PCS
Group's ability to serve its customers.

The potential impact on Sprint, the FON Group and the PCS Group of material
regulatory developments is discussed under Risk Factors Relating to Sprint.

Environmental Compliance

Sprint's environmental compliance and remediation expenditures mainly result
from the operation of standby power generators for its telecommunications
equipment. The expenditures arise in connection with standards compliance,
permits or occasional remediation, which are usually related to generators,
batteries or fuel storage. Sprint has been identified as a potentially
responsible party at sites relating to discontinued power generation
operations. Sprint's

8

environmental compliance and remediation expenditures have not been material to
its financial statements or to its operations and are not expected to have any
future material adverse effects on the FON Group or the PCS Group.

Patents, Trademarks and Licenses

Sprint owns numerous patents, patent applications, service marks and trademarks
in the United States and other countries. Sprint expects to apply for and
develop trademarks, service marks and patents for the benefit of the groups in
the ordinary course of business. Sprint is a registered trademark of Sprint and
Sprint PCS is a registered service mark of Sprint. Sprint is also licensed
under domestic and foreign patents and trademarks owned by others. In total,
these patents, patent applications, trademarks, service marks and licenses are
of material importance to the business. Generally, Sprint's trademarks,
trademark licenses and service marks have no limitation on duration; Sprint's
patents and licensed patents have remaining terms generally ranging from one to
19 years.

Pursuant to certain of the PCS Group's third party supplier contracts, the PCS
Group has certain rights to use third party supplier trademarks in connection
with the buildout, marketing and operation of its network.

Employee Relations

At year-end 2001, Sprint had approximately 83,700 active employees.
Approximately 9,600 FON Group employees were represented by unions. During
2001, Sprint had no material work stoppages caused by labor controversies.

In the 2001 fourth quarter, Sprint terminated its efforts to provide its Sprint
ION offerings and announced plans to reduce operating costs. These decisions
included work force reductions in the FON Group and corporate functions. See
Note 4 of Notes to Consolidated Financial Statements, "Restructuring and Asset
Impairments," for more information on the impacts of these decisions.

In February 2002, Sprint announced it would close five of its smaller Sprint
PCS customer service call centers to reduce operating costs. The call center
closings will result in a workforce reduction of approximately 3,000 jobs.

Management

For information concerning the executive officers of Sprint, see ''Executive
Officers of the Registrant'' in this document.

Information as to Business Segments

For information required by this section, refer to Sprint's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
also refer to Note 17 of Sprint's "Notes to Consolidated Financial Statements"
section of the Financial Statements filed as part of this document.

Risk Factors Relating to Tracking Stocks

Unless the context otherwise requires, references to "Sprint," "we," "us," and
"our" mean Sprint Corporation and its subsidiaries.

- --------------------------------------------------------------------------------
Because the FON stock and the PCS stock are classes of common stock of Sprint,
not of the group they are intended to track, the holders of the FON stock and
PCS stock are subject to the risks related to an equity investment in Sprint
and all of Sprint's businesses, assets and liabilities. Therefore, the market
price of the FON stock could be adversely affected by the business of the PCS
Group and the market price of the PCS stock could be adversely affected by the
business of the FON Group.

- --------------------------------------------------------------------------------

FON stock and PCS stock are intended to track the performance of the FON Group
and the PCS Group, respectively. However, they do not represent a direct legal
interest in the assets and liabilities of the groups, but rather represent a
direct equity interest in our assets and liabilities as a whole. Therefore,
holders of FON stock and PCS stock are common stockholders of Sprint 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 and events affecting the business, assets,
or financial condition of the PCS Group could adversely affect the business,
assets or financial condition of the FON Group. Consequently, these events
could affect the market price of both the FON stock and the PCS stock.

- --------------------------------------------------------------------------------
The market price of the FON stock and the PCS stock may not accurately reflect
the performance of the group they are intended to track.
- --------------------------------------------------------------------------------

The market price for each stock may not reflect the reported financial results
and prospects of the group which it is intended to track or the dividend
policies established by our board of directors with respect to that class of
common stock. For example, if investors have negative expectations for the FON
Group or Sprint as a whole, the market price of the PCS stock could be
adversely affected without regard to the performance of the PCS Group.

9

- --------------------------------------------------------------------------------
The complex nature of the tracking stocks may adversely affect the market
prices of the FON stock and PCS stock.
- --------------------------------------------------------------------------------

The complex nature of the terms of the FON stock and the PCS stock, such as the
relative voting power and dividend policies applicable to each class of common
stock, and the difficulties investors may have in understanding these terms may
adversely affect the market prices of the FON stock and the PCS stock.

- --------------------------------------------------------------------------------
Holders of FON stock and PCS stock are stockholders of Sprint and generally do
not have specific rights related to the assets or business of the group they
are intended to track. Holders of FON stock and PCS stock vote together on most
matters submitted to a vote of our stockholders and the holders of the class of
common stock with the least votes will not be able to determine the outcome of
the vote.
- --------------------------------------------------------------------------------

Sprint is the issuer of both the FON stock and the PCS stock, and these stocks
do not represent a direct interest in either group. As a result, with few
exceptions, holders of FON stock and PCS 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 either group. For example,
holders of FON stock vote together with holders of PCS stock as a single class
on most matters, including the election of directors. The FON stock has one
vote per share. The vote per share of the PCS stock fluctuates, based on its
market price relative to the market price of a share of FON 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 PCS stock is greater than that of
the FON stock, the holders of the PCS stock 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 stock and the PCS stock.

- --------------------------------------------------------------------------------
Under applicable corporate law, Sprint's board of directors does not owe
separate duties to the holders of the FON stock or to the holders of the PCS
stock.
- --------------------------------------------------------------------------------

Under applicable corporate law, Sprint's board of directors owes its fiduciary
duties to all of Sprint's stockholders. There is only a single board of
directors and no separate board represents solely the interests of the holders
of the FON stock or PCS stock. Consequently, there is no board of directors
that owes separate duties to the holders of either the FON stock or the PCS
stock. Our tracking stock policies provide that our board, in resolving
material matters in which the holders of FON stock and PCS stock have
potentially divergent interests, will act in the best interest of Sprint and
all of its common stockholders after giving fair consideration to the
potentially divergent interests of the holders of the separate classes of
common stock. These tracking policies may be changed by the board of directors
without stockholder approval.

- --------------------------------------------------------------------------------
Conflicts of interest between holders of FON stock and PCS stock in
transactions between the FON Group and the PCS Group or in our dealings with
third parties could be resolved by our board of directors to the detriment of
the holders of one or the other class of common stock.
- --------------------------------------------------------------------------------

Holders of FON stock and PCS stock may have interests that differ from or
conflict with the interests of holders of the other 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 stock into shares of FON
stock, which our board of directors may do any time,

. payment of dividends on FON stock or PCS stock,

. sale of the assets of either the FON Group or the PCS Group to a third
party,

. transfer of assets from one group to the other group,

. allocation of consideration in a merger among holders of FON stock and
PCS 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 FON Group and the PCS Group, and

. 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 Sprint or any member of the the FON
Group. This provision applies regardless of the interest rate at which the
loaned funds are borrowed by Sprint or the FON Group. We anticipate that the
interest rates payable by the PCS Group will continue to be higher than those
payable by Sprint or the FON Group for the foreseeable future.

Sprint's tracking stock policies also provide guidelines for addressing
material conflicts. Sprint's board of

10

directors has appointed a committee, consisting of outside board members, to
interpret and oversee implementation of these policies. Subject to these
policies, the resolution of conflicts by the board may benefit, or appear to
benefit, one group at the expense of the other group.

- --------------------------------------------------------------------------------
Our directors generally own more FON stock than PCS 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 arrangement could be less than
expected, and our board of directors could change the terms of the tax sharing
arrangement 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 arrangement. 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 Sprint's consolidated
federal and state taxable income and related tax liability and tax credit
positions. Significant payments pursuant to the tax sharing arrangement 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. Sprint's board of directors could change the terms
of the tax sharing arrangement in a way that would benefit one group over the
other group.

- --------------------------------------------------------------------------------
Sprint's board of directors has the discretion to change the allocation of the
assets and liabilities that comprise each of the FON Group and the PCS Group
without the approval of Sprint's stockholders.
- --------------------------------------------------------------------------------

Sprint's board of directors, subject to the restrictions in Sprint's articles
of incorporation, has the discretion to change the allocation of the assets and
liabilities that comprise each of the FON Group and the PCS Group without the
approval of Sprint's stockholders. It is possible that a change in the existing
allocation of the assets and liabilities between the groups could adversely
affect the FON Group or the PCS 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 FON stock and the PCS stock may not
reflect a change until the change is disclosed by us.

- --------------------------------------------------------------------------------
Sprint's board of directors could change its established policies relating to
the holders of FON stock to the detriment of the FON Group or could change its
established policies relating to the holders of PCS stock to the detriment of
the PCS Group.
- --------------------------------------------------------------------------------

Sprint's board of directors may change its tracking stock policies without the
approval of Sprint's stockholders. Sprint's board of directors may also adopt
additional policies depending upon the circumstances. The 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 common stock, including the holders of FON stock and the
holders of PCS stock. However, new policies and changes to the existing
policies could have different impacts upon holders of FON stock and PCS stock
and could affect one common stock negatively in relation to the other common
stock.

- --------------------------------------------------------------------------------
The structure of the tracking stocks may impede an acquisition of either group.
- --------------------------------------------------------------------------------

If either group were a stand-alone entity, a person that did not wish to
negotiate with our management could seek to acquire that group by means of a
tender offer or proxy contest involving only the stockholders of that entity.
However, because each group is a part of Sprint, acquiring either group without
negotiation with our management would require a proxy contest or tender offer
to gain control of Sprint as a whole and would probably require solicitations
to holders of both FON stock and PCS stock. This may hinder potential acquirers
of the assets of either group and thereby prevent holders of either class of
common stock from achieving additional return on their investment related to
such acquisitions.

- --------------------------------------------------------------------------------
Holders of either class of common stock may receive less in an acquisition of
the assets of the group than they would if the group were a separate company.
- --------------------------------------------------------------------------------

If either group were a stand-alone entity and its shares were acquired by
another person, certain

11

costs, including corporate level taxes, might not be payable in connection with
the acquisition. As a result, holders of FON stock might receive more
consideration in an acquisition of the FON Group if the FON Group were an
independent company. Similarly, holders of PCS 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 either common stock would receive as a result of a disposition of the assets
of the group tracked by that class of common stock might be less than the
market value per share of that common stock before or after the announcement of
such disposition.

Risk Factors Relating to Sprint

- --------------------------------------------------------------------------------
Failure to satisfy Sprint's 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. Sprint may not be able to
arrange additional financing to fund its capital requirements on terms
acceptable to us. Our ability to arrange additional financing will depend on,
among other factors, our financial performance, general economic conditions,
and prevailing market conditions. Many of these factors are beyond Sprint's
control. Either of the PCS Group's or the FON Group's financing 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 inability
of the PCS Group and/or the FON Group to continue to expand their businesses
and meet competitive challenges.

- --------------------------------------------------------------------------------
Sprint's substantial leverage will reduce cash flow from operations available
to fund our business, could cause a decline in our credit rating, and could
limit our ability to raise additional capital.
- --------------------------------------------------------------------------------

We have substantial indebtedness. 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
continually 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
future borrowing costs would likely increase, our access to capital could be
adversely affected and, depending on the severity of the downgrade, we would
have to repay certain financing arrangements and provide additional security in
connection with other financing arrangements.

- --------------------------------------------------------------------------------
The PCS Group has a history of operating losses and the FON Group has
experienced declining revenues and net income. If the PCS Group does not
achieve and maintain profitability or if the FON Group continues to experience
declining operating revenues and net income, our ability to compete effectively
and our credit rating will likely be adversely affected.
- --------------------------------------------------------------------------------

If the PCS Group does not achieve and maintain profitability on a timely basis,
the PCS Group may be unable to make the 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 other businesses. These events could limit our ability
to increase revenues and net income of the PCS Group, the FON Group, and Sprint
as a whole or cause these amounts to decline.

The FON Group has experienced declining operating revenues and net income for
the past several quarters. In the 2001 fourth quarter, we announced plans to
improve the FON Group's competitive position and reduce its costs, but we have
not yet fully completed these actions. If we fail to successfully implement
these plans, or if the FON Group cannot increase its revenues and net income,
the FON Group may be unable to make the capital expenditures necessary to
implement its business plan or otherwise conduct its business in an effective
and competitive manner. This could further damage our ability to maintain or
increase revenues and net income of the FON Group and of Sprint as a whole.

If the PCS Group does not achieve and maintain profitability on a timely basis
or if the FON Group continues to experience declining operating revenues and
net income, our credit rating will likely be adversely affected. If our credit
rating is adversely affected, our future borrowing costs would likely increase,
our access to capital may be adversely affected and, depending on the severity
of the downgrade, we would have to repay certain financing arrangements and
provide additional security in connection with other financing arrangements.

- --------------------------------------------------------------------------------
Sprint faces intense competition that may reduce its market share and harm its
financial performance.
- --------------------------------------------------------------------------------

There is substantial competition in the telecommunications industry. The
traditional dividing

12

lines between long distance, local, wireless, and Internet services are
increasingly becoming blurred. Through mergers and various service integration
strategies, major providers, including Sprint, are striving to provide
integrated solutions both within and across all geographical markets.

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
revenue and net income.

PCS Group. Each of the markets in which the PCS Group competes is served by
other wireless service providers, including cellular, enhanced specialized
mobile radio (ESMR), and PCS operators and resellers. A majority of markets
have five or more CMRS providers. Each of the top 50 metropolitan markets has
at least two other PCS competitors in addition to one ESMR competitor and two
cellular incumbents. Many of these competitors have been operating for a number
of years and currently serve a substantial subscriber base. The FCC recently
decided to allow CMRS providers to own more spectrum, up to 55 MHz, in urban
markets and to eliminate its rule imposing spectrum limits in January 2003.
However, the FCC plans to continue to review proposed mergers and combinations
involving spectrum after the spectrum limits are eliminated. Competition may
continue to increase to the extent that licenses are transferred from smaller
stand-alone operators to larger, better capitalized, and more experienced
wireless communications operators. These larger wireless communications
operators may be able to offer customers network features not offered by the
PCS Group. The actions of these larger wireless communications operators could
negatively affect 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
FCC. Moreover, the engineering standard (AMPS) for the dominant air interface
on which PCS customers roam is currently being considered for elimination by
the FCC as part of a streamlining proceeding. If the FCC eliminates this
mandatory standard and cellular operators cease to offer their AMPS networks
for roaming, some PCS customers may have difficulty roaming in certain markets.

Many wireless 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
customers away from these wireless providers.

We anticipate that market prices for wireless voice services and products
generally will continue to 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 spending for
advertising and promotions. All of this may lead to greater choices for
customers, possible consumer confusion, and increased industry churn.

FON Group. The FON Group competes with AT&T, WorldCom and Qwest Communications
International, as well as a host of smaller competitors, in the provision of
long distance services. Companies such as Qwest Communications International
have built high-capacity fiber-optic networks capable of supporting large
amounts of bandwidth. Although these companies 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 RBOCs to provide long distance
services in their respective regions if certain conditions are met. By year-end
2001, Verizon Communications had entered the long distance market in New York,
Massachusetts, Connecticut and Pennsylvania, and SBC Communications had entered
the long distance market in Texas, Kansas, Oklahoma, Arkansas and Missouri.
Both have been successful in obtaining a significant market share in a short
period of time. The RBOCs may secure regulatory clearance to offer long

13

distance services in a significant number of their respective markets in the
next 12 months. As the RBOCs have entered the market, they have proven to be
formidable long distance competitors. In addition, long distance services
provided by wireless service providers are expected to continue to adversely
affect the global markets division.

Because our local division operates largely in rural markets, competition in
the local division's markets is occurring more gradually. In urban areas,
however, there is already substantial competition for business customers, with
varying levels of competition in third tier and rural markets. Cable modems
provide increasing competition for second line and data services for
residential customers, and wireless services will continue to grow as an
alternative to wireline services. These competitive inroads, combined with the
current economic downturn, have resulted in some decline in access lines served
by the local division and in its switched access minutes. Certain mergers or
other combinations involving our competitors may increase competition.

- --------------------------------------------------------------------------------
Demand for some of Sprint's 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 Sprint's 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 and some have filed for bankruptcy. As a result, we
have experienced lower than expected revenues for our wholesale business in
recent quarters.

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 operating results of the PCS Group, the FON Group, and our company as
a whole could be adversely affected.

- --------------------------------------------------------------------------------
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 adversely affect Sprint's results of operations.
- --------------------------------------------------------------------------------

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 FCC 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 Sprint 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 and complete network buildout at their own expense. In most cases, the PCS
Group pays these companies a fee based on collected revenues for operating the
network on its behalf. These affiliated PCS networks are in various stages of
buildout. These companies may not be able to add capacity and operate in a
manner that is beneficial to the PCS Group.

- --------------------------------------------------------------------------------
Significant changes 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 3G 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 affected by
the proliferation of wireless local area networks using new technologies or the
enactment of new laws or regulations restricting use of wireless handsets. 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.

14

- --------------------------------------------------------------------------------
A high rate of customer churn would likely impair the PCS Group's financial
performance.
- --------------------------------------------------------------------------------

A key element in the economic success of wireless carriers is the rate of
customer churn. Customer churn for the PCS Group for the year 2001 was lower
than it was for the year 2000. However, customer churn in the fourth quarter of
2001 was higher than the third quarter of 2001. Current strategies to reduce
customer churn may not be successful. 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 Sprint as a whole.

- --------------------------------------------------------------------------------
Government regulation could adversely affect the prospects and results of
operations of the PCS Group and the FON Group.
- --------------------------------------------------------------------------------

PCS Group. The licensing, construction, operation, sale, and interconnection
arrangements of wireless telecommunications systems are regulated by the FCC
and, depending on the jurisdiction, state and local regulatory agencies. The
Communications Act of 1934 preempts state and local regulation of market entry
by, and the rates charged by, CMRS providers. States may, however, regulate
such things as billing practices and consumer-related issues. The FCC, together
with the FAA, also regulates tower marking and lighting. In addition, tower
construction is affected by federal statutes addressing environmental
protection and historic preservation. The FCC, the FAA, or other governmental
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.

FCC 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 and
basic trading areas are areas defined by the FCC 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 FCC for additional ten year terms, but
there is no guarantee that the PCS Group's licenses will be renewed. FCC rules
require all PCS licensees to meet certain buildout requirements to retain their
licenses. The PCS Group may not continue to obtain the requisite coverage.
Failure to comply with FCC 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.

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 FCC 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
FCC has delegated to states the authority to assign, administer, and conserve
telephone numbers. The FCC recently lifted its prohibition on area codes
designated only for customers using a specific technology, such as an area code
for only those using wireless technology, and will now consider proposals
submitted by state commissions seeking to implement this change. Depending on
the 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,

. may incur significant costs to either acquire new numbers or reassign
subscribers to new numbers, and

. may be unable to enroll new subscribers at projected rates.

FON Group. FCC licenses to provide MMDS are subject to renewal and revocation.
The FCC auctioned certain MMDS licenses--those licensed on a basic trading area
geographic basis--in 1996 for a term of ten years. Those licenses will expire
in 2006. The licenses may be renewed by the FCC for additional ten year terms,
but there is no guarantee that Sprint's MMDS licenses will be renewed. The FCC
rules require all licensees of auctioned MMDS spectrum to meet certain buildout
requirements in order to retain their licenses of this spectrum. These
licensees are required to construct stations to provide signals capable of
reaching at least two-thirds of the population of the applicable service area
by August 16, 2003 or five years from the deadline specified on a conditional
license, whichever is later. Although the FON Group believes it has met these
requirements in a number of its MMDS markets, it has not received confirmation
from the FCC. Failure to comply with FCC requirements in a given market could
result in the loss of the MMDS license for that part of the service area in
which the buildout requirements are not met or the imposition of fines.

- --------------------------------------------------------------------------------
Failure to complete development and rollout of new technology could affect
Sprint's 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 3G technology to be included in our PCS network, and we are
negotiating other major contracts. Successful

15

implementation of this upgrade depends on the success of the contract
negotiations and the vendors meeting their obligations in a timely manner. We
may not successfully complete the development and rollout of 3G technology or
any other new technology in a timely manner, and 3G technology 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.

- --------------------------------------------------------------------------------
Item 2. Properties
- --------------------------------------------------------------------------------

Sprint's gross property, plant and equipment totaled $48.7 billion at year-end
2001. Of this amount $17.7 billion relates to the FON Group's local
communications services, $14.4 billion relates to the FON Group's global
markets communications services, $14.6 billion relates to the PCS Group's
services and the remainder relates to the FON Group's product distribution and
directory publishing businesses' properties and general support assets.

The FON Group's gross property, plant and equipment totaled $34.1 billion at
year-end 2001. These properties mainly consist of land, buildings, digital
fiber-optic network, switching equipment, microwave radio and cable and wire
facilities. Sprint leases certain switching equipment and several general
office facilities. The long distance operation has been granted easements,
rights-of-way and rights-of-occupancy, mainly by railroads and other private
landowners, for its fiber-optic network. See Note 15 of the Notes to
Consolidated Financial Statements.

The product distribution and directory publishing businesses' properties mainly
consist of office and warehouse facilities to support the business units in the
distribution of telecommunications products and publication of telephone
directories.

The PCS Group's properties consist of leased and owned office space for its
corporate operations, network monitoring personnel, customer care centers and
retail stores, and PCS network assets including base transceiver stations,
switching equipment and towers. The PCS Group leases space for base station
towers and switch sites for its PCS network. At year-end 2001, the PCS Group
had under lease (or options to lease) approximately 21,000 cell sites.

Sprint owns its corporate headquarters building and is in the process of
building a corporate campus in the greater Kansas City metropolitan area.

Gross property, plant and equipment totaling $15.5 billion is either pledged as
security for first mortgage bonds and certain notes or is restricted for use as
mortgaged property.

- --------------------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------

In December 2000, Amalgamated Bank, an institutional shareholder, filed a
derivative action purportedly on behalf of Sprint against certain of its
current and former officers and directors in the Jackson County, Missouri,
Circuit Court. The complaint alleges that the individual defendants breached
their fiduciary duties to Sprint and were unjustly enriched by making
undisclosed amendments to Sprint's stock option plans, by failing to disclose
certain information concerning regulatory approval of the proposed merger of
Sprint and WorldCom, and by overstating Sprint's earnings for the first quarter
of 2000. The plaintiff seeks damages, to be paid to Sprint, in an unspecified
amount. Two additional, substantially identical, derivative actions by other
shareholders of Sprint have been filed.

The PCS Group has been involved in legal proceedings in various states
concerning the suspension of the processing or approval of permits for wireless
telecommunications towers, the denial of applications for permits and other
issues arising in connection with tower siting. There can be no assurance that
such litigation and similar actions taken by others seeking to block the
construction of individual cell sites of the PCS Group's network will not, in
the aggregate, significantly delay further expansion of the PCS Group's network
coverage.

Sprint is involved in various other legal proceedings incidental to the conduct
of its business.

While it is not possible to determine the ultimate disposition of each of these
proceedings, Sprint believes that the outcome of such proceedings, individually
or in the aggregate, will not have a material adverse effect on Sprint's, the
FON Group's or the PCS Group's financial conditions or results of operations.
For additional information see Note 15 of the Notes to Consolidated Financial
Statements.

- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------

No matter was submitted to a vote of security holders during the fourth quarter
of 2001.

16

- --------------------------------------------------------------------------------
Item 10(b). Executive Officers of the Registrant
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------
Office Name Age
- ------------------------------------------------------------------------------------------------

Chairman and Chief Executive Officer William T. Esrey/(1)/ 62
President and Chief Operating Officer Ronald T. LeMay/(2)/ 56
President--Local Telecommunications Division Michael B. Fuller/(3)/ 57
President--Global Markets Division Len J. Lauer/(4)/ 44
President--Sprint PCS Charles E. Levine/(5)/ 48
Executive Vice President--General Counsel and External Affairs J. Richard Devlin/(6)/ 51
Executive Vice President--Chief Financial Officer Arthur B. Krause/(7)/ 60
Senior Vice President and Treasurer Gene M. Betts/(8)/ 49
Senior Vice President--Public Relations and Brand Management Forrest E. Mattix/(9)/ 48
Senior Vice President and Controller John P. Meyer/(10)/ 51
Senior Vice President--Strategic Planning and Corporate Development Liane J. Pelletier/(11)/ 44
Senior Vice President--Human Resources I. Benjamin Watson/(12)/ 53

/(1)/ Mr. Esrey was elected Chairman in 1990. He was elected Chief Executive
Officer and a member of the Board of Directors in 1985.

/(2)/ Mr. LeMay was first elected President and Chief Operating Officer in
1996. From July 1997 to October 1997, he served as Chairman and Chief
Executive Officer of Waste Management, Inc., a provider of comprehensive
waste management services. He was re-elected President and Chief
Operating Officer of Sprint effective October 1997. Mr. LeMay served on
Sprint's Board of Directors from 1993 until he went to work for Waste
Management, Inc. He was re-elected to Sprint's Board of Directors in
December 1997.

/(3)/ Mr. Fuller was elected President--Local Telecommunications Division in
1996.

/(4)/ Mr. Lauer became President--Global Markets Division in September 2000. He
had been elected President--Sprint Business in June 2000. Mr. Lauer
served as President--Consumer Services Group of Sprint/United Management
Company from 1999 to 2000. He joined Sprint in 1998 as Senior Vice
President--Quality, Development and Public Relations. From 1995 to 1998,
he had been President and Chief Executive Officer of Bell Atlantic--New
Jersey, a telecommunications company.

/(5)/ Mr. Levine was elected President--Sprint PCS in February 2001. He had
served as Chief Operating Officer--PCS since October 2000. He had served
as Chief Sales and Marketing Officer of Sprint Spectrum Holding Company
since 1998. Mr. Levine joined Sprint Spectrum Holding Company in 1997 as
Chief Marketing Officer. Before joining Sprint Spectrum Holding Company,
he was President of Octel Link, a voice mail equipment and services
provider, and Senior Vice President of Octel Services from 1994 to 1996.

/(6)/ Mr. Devlin was elected Executive Vice President--General Counsel and
External Affairs in 1989.

/(7)/ Mr. Krause was elected Executive Vice President--Chief Financial Officer
in 1988.

/(8)/ Mr. Betts was elected Senior Vice President in 1990. He was elected
Treasurer in 1998.

/(9)/ Mr. Mattix was elected Senior Vice President--Public Relations and Brand
Management in August 2000. He had served as Chief Public Relations
Officer of Sprint Spectrum Holding Company since 1996.

/(10)/ Mr. Meyer was elected Senior Vice President--Controller in 1993.

/(11)/ Ms. Pelletier was elected Senior Vice President--Strategic Planning and
Corporate Development in August 2000. She had served as Vice
President--Corporate Strategy of Sprint/United Management Company since
1995.

/(12)/ Mr. Watson was elected Senior Vice President--Human Resources in 1993.

There are no known family relationships between any of the persons named above
or between any of these persons and any outside directors of Sprint. Officers
are elected annually.

17

Part II

- --------------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------

Common Stock Data

- --------------------------------------------------------------------------------

2001 Market Price
--------------------
End of
High Low Period
----------------------------------------

FON Stock, Series 1
First quarter $29.31 $20.34 $21.99
Second quarter 23.87 19.06 21.36
Third quarter 24.60 19.50 24.01
Fourth quarter 24.39 18.50 20.08
PCS Stock, Series 1
First quarter 33.25 15.72 19.00
Second quarter 27.50 16.43 24.15
Third quarter 27.10 22.25 26.29
Fourth quarter 29.05 21.50 24.41

- --------------------------------------------------------------------------------

2000 Market Price
--------------------
End of
High Low Period
---------------------------------------------

FON Stock, Series 1
First quarter $67.81 $55.13 $63.00
Second quarter 67.00 50.98 51.50
Third quarter 54.81 24.31 29.31
Fourth quarter 29.56 19.63 20.31
PCS Stock, Series 1/(1)/
First quarter 66.94 42.56 65.50
Second quarter 66.00 44.06 59.50
Third quarter 65.88 27.81 35.13
Fourth quarter 39.19 19.38 20.44

/(1)/ In the 2000 first quarter, Sprint effected a two-for-one stock split of
its Sprint PCS common stock. Market prices before the split have been
restated.

As of February 22, 2002, Sprint had approximately 67,800 FON stock, series 1
record holders, 60,600 PCS stock, series 1 record holders, four PCS stock,
series 2 record holders, one PCS stock, series 3 record holder, and one Class A
common stock record holder. The principal trading market for Sprint's FON
stock, Series 1 and PCS stock, Series 1 is the New York Stock Exchange. The PCS
stock, Series 2 and 3 and the Class A common stock are not publicly traded.
Sprint paid a FON stock dividend of $0.125 per share in each of the quarters of
2001 and 2000. Sprint paid Class A common stock dividends of $0.125 per share
in the first quarter of 2001 and in each of the quarters of 2000. Sprint does
not intend to pay dividends on the PCS stock in the foreseeable future.

On November 2, 2001, Sprint Capital Corporation, Sprint's finance subsidiary,
sold $1.75 billion of its 6% notes due 2007, unconditionally guaranteed by
Sprint, that were not registered under the Securities Act of 1933. The sale of
the notes by Sprint Capital Corporation was exempt from registration under the
Securities Act in reliance on the exemption provided by Section 4(2) of the
Securities Act because the notes were sold in transactions not involving a
public offering. The aggregate offering price was $1.74 billion and the
aggregate discount was $6 million. Banc of America Securities LLC and Lehman
Brothers Inc. acted as joint book running managers for the offering. The other
investment banking firms that purchased the notes were Banc One Capital
Markets, Inc., BNP Paribas Securities Corp., Deutsche Banc Alex. Brown, and The
Williams Capital Group, L.P. These institutions then sold the notes to
"qualified institutional buyers" as defined in rule 144A under the Securities
Act, in reliance on rule 144A, and to persons in offshore transactions in
reliance on Regulation S under the Securities Act.

As a condition to the sale of the notes, Sprint Capital Corporation agreed to
conduct an exchange offer. Sprint Capital Corporation registered substantially
identical 6% notes due 2007 with the SEC on a Form S-4 Registration Statement
(No. 333-75578). The exchange offer terminated on February 21, 2002.

18

- --------------------------------------------------------------------------------
Item 6. Selected Financial Data
- --------------------------------------------------------------------------------

Consolidated Selected Financial Data

- --------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998/(1)/ 1997/(1)/
- --------------------------------------------------------------------------------------------------------------------------------
(millions, except per share data)

Results of Operations
- --------------------------------------------------------------------------------------------------------------------------------
Net operating revenues $26,071 $23,613 $20,265 $17,144 $14,947
Operating income (loss)/(3)/ (662) 505 (307) 190 2,451
Income (Loss) from continuing operations/(3),(4)/ (1,402) (576) (745) 585 1,094

Earnings per Share and Dividends
- --------------------------------------------------------------------------------------------------------------------------------
Earnings per Sprint common share from continuing operations:/(2),(3),(4)/
Diluted $ NA $ NA $ NA $ 2.19 $ 2.51
Basic NA NA NA 2.23 2.54
Dividends per Sprint common share NA NA NA 0.75 1.00

Earnings (Loss) per Share and Dividends
- --------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) per common share from continuing operations:/(2),(3),(4),(5),(6)/
Sprint FON Group (diluted) $ (0.16) $ 1.45 $ 1.97 $ 0.18 $ NA
Sprint FON Group (basic) (0.16) 1.47 2.01 0.18 NA
Sprint PCS Group (diluted and basic) (1.27) (1.95) (2.71) (0.63) NA
Dividends per FON common share 0.50 0.50 0.50 0.125 NA

Financial Position
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $45,793 $43,068 $39,721 $33,257 $18,274
Property, plant and equipment, net 28,977 25,316 21,969 18,983 11,494
Total debt (including long-term borrowings, equity unit notes and
redeemable preferred stock) 22,883 18,975 17,028 12,445 3,891
Shareholders' equity 12,616 13,716 13,313 12,202 9,025

Cash Flow Data
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities--continuing operations $ 4,691 $ 4,297 $ 1,939 $ 4,199 $ 3,372
Capital expenditures 9,046 7,152 6,114 4,231 2,863

Certain prior-year amounts have been reclassified to conform to the
current-year presentation. These reclassifications had no effect on the results
of operations or shareholders' equity as previously reported.

See footnotes following Consolidating Selected Financial Data.

NA = Not applicable

19

- --------------------------------------------------------------------------------
Item 6. Selected Financial Data (continued)
- --------------------------------------------------------------------------------

Consolidating Selected Financial Data

- ----------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998/(1)/ 1997/(1)/
- ----------------------------------------------------------------------------------------------------------------
(millions)

Results of Operations
- ----------------------------------------------------------------------------------------------------------------
Net operating revenues
Sprint FON Group $16,924 $17,688 $17,160 $15,958 $14,947
Sprint PCS Group 9,725 6,341 3,373 1,294 --
Eliminations (578) (416) (268) (108) --
-------------------------------------------
Consolidated $26,071 $23,613 $20,265 $17,144 $14,947
-------------------------------------------
Operating income (loss)/(3)/
Sprint FON Group $ (15) $ 2,433 $ 2,930 $ 2,760 $ 2,470
Sprint PCS Group (647) (1,928) (3,237) (2,570) (19)
-------------------------------------------
Consolidated $ (662) $ 505 $ (307) $ 190 $ 2,451
-------------------------------------------
Income (Loss) from continuing operations/(3),(4)/
Sprint FON Group $ (146) $ 1,292 $ 1,736 $ 1,675 $ 1,513
Sprint PCS Group (1,249) (1,868) (2,481) (1,090) (419)
Eliminations (7) -- -- -- --
-------------------------------------------
Consolidated $(1,402) $ (576) $ (745) $ 585 $ 1,094
-------------------------------------------
Financial Position
- ----------------------------------------------------------------------------------------------------------------
Total assets
Sprint FON Group $24,164 $24,089 $22,247 $18,975 $16,581
Sprint PCS Group 22,190 19,763 17,924 15,165 1,703
Eliminations (561) (784) (450) (883) (10)
-------------------------------------------
Consolidated $45,793 $43,068 $39,721 $33,257 $18,274
-------------------------------------------
Property, plant and equipment, net
Sprint FON Group $17,508 $15,833 $14,002 $12,464 $11,307
Sprint PCS Group 11,516 9,522 7,996 6,535 187
Eliminations (47) (39) (29) (16) --
-------------------------------------------
Consolidated $28,977 $25,316 $21,969 $18,983 $11,494
-------------------------------------------
Total debt (including long-term borrowings, equity unit notes and
redeemable preferred stock)
Sprint FON Group $ 5,324 $ 4,518 $ 5,443 $ 4,452 $ 3,891
Sprint PCS Group 17,839 14,906 12,015 8,721 --
Eliminations (280) (449) (430) (728) --
-------------------------------------------
Consolidated $22,883 $18,975 $17,028 $12,445 $ 3,891
-------------------------------------------
Shareholders' equity
Sprint FON Group $11,704 $12,343 $10,514 $ 9,024 $ 7,639
Sprint PCS Group 912 1,366 2,794 3,229 1,386
Eliminations -- 7 5 (51) --
-------------------------------------------
Consolidated $12,616 $13,716 $13,313 $12,202 $ 9,025
-------------------------------------------
Cash Flow Data
- ----------------------------------------------------------------------------------------------------------------
Net cash from operating activities--continuing operations
Sprint FON Group $ 4,585 $ 4,305 $ 3,700 $ 3,915 $ 2,899
Sprint PCS Group 106 (8) (1,692) (159) 38
Eliminations -- -- (69) 443 435
-------------------------------------------
Consolidated $ 4,691 $ 4,297 $ 1,939 $ 4,199 $ 3,372
-------------------------------------------
Capital expenditures
Sprint FON Group $ 5,295 $ 4,105 $ 3,534 $ 3,159 $ 2,709
Sprint PCS Group 3,751 3,047 2,580 1,072 154
-------------------------------------------
Consolidated $ 9,046 $ 7,152 $ 6,114 $ 4,231 $ 2,863
-------------------------------------------

Certain prior-year amounts have been reclassified to conform to the
current-year presentation. These reclassifications had no effect on the results
of operations or shareholders' equity as previously reported.

See footnotes following Consolidating Selected Financial Data.

20

================================================================================
Item 6. Selected Financial Data (continued)
- --------------------------------------------------------------------------------

/(1)/ Sprint's 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 the results of operations. Before 1998,
Sprint's 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General" for more information relating to the November 1998
PCS Restructuring.

/(2)/ As discussed in Note 1 of Notes to Consolidated Financial Statements, the
Recapitalization occurred in November 1998. As a result, 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 2001, Sprint recorded a restructuring and asset impairment charge of
$1,814 million representing the termination of Sprint ION, as well as
additional steps to reduce overall operating costs. The charge to the FON
Group was $1,804 million. The charge to the PCS Group was $10 million. In
2001, the FON Group also recorded a charge for litigation of $24 million
for the global markets division. These charges reduced Sprint's operating
income by $1,838 million to an operating loss and increased the loss from
continuing operations by $1,151 million. In 2000, the FON Group recorded
a $238 million asset impairment representing the write-down of the Global
Markets Division's Paranet operations, and a $163 million one-time 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 Sprint's operating
income by $425 million and increased the loss from continuing operations
by $273 million. In 1998, the PCS Group recorded a one-time 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 one-time charge of $20 million in 1997 related to
litigation within the global markets division. This charge reduced income
from continuing operations by $13 million.

/(4)/ In 2001, the FON Group recorded in Other expense, net, one-time charges
of $62 million which increased the loss from continuing operations by $90
million. These amounts included a write-down of an equity investment of
$157 million which increased the loss from continuing operations by the
same amount, and a loss on the sale of an investment of $25 million which
increased the loss from continuing operations by $8 million.
Additionally, Sprint modified certain retirement plan benefits resulting
in a curtailment gain of $120 million which reduced the loss from
continuing operations by $75 million. Also in 2001, the FON Group
recorded net gains on investment activities of $14 million which reduced
the loss from continuing operations by $9 million. In 2000, the FON Group
recorded one-time 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 net one-time 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 one-time gain of $28
million from the sale of customers and network infrastructure to a PCS
third party affiliate. This gain reduced the loss from continuing
operations by $18 million. In 1999, the FON Group recorded net one-time
gains of $54 million from investment activities which reduced the loss
from continuing operations by $35 million. In 1998, the FON Group
recorded net one-time gains of $104 million mainly from the sale of local
exchanges. This increased income from continuing operations by $62
million. In 1997, the FON Group recorded one-time gains of $71 million
mainly from sales of local exchanges and certain investments. These gains
increased income from continuing operations by $44 million.

/(5)/ In the 2000 first quarter, Sprint effected a two-for-one stock split of
Sprint's PCS common stock. In the 1999 second quarter, Sprint effected a
two-for-one stock split of its Sprint FON common stock. As a result,
diluted and basic earnings per common share and dividends for Sprint FON
common stock and diluted and basic loss per common share for Sprint PCS
common stock have been restated for periods before these stock splits.

/(6)/ As the effects of including the incremental shares associated with
options and Employees Stock Purchase Plan shares are antidilutive, both
basic loss per share and diluted loss per share reflect the same
calculation for the PCS Group for all periods presented and for the year
ended December 31, 2001 for the FON Group.

21

- --------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Forward-looking Information
- --------------------------------------------------------------------------------

Sprint includes certain estimates, projections and other forward-looking
statements in its reports, in presentations to analysts and others, and in
other publicly available material. Future performance cannot be ensured. Actual
results may differ materially from those in the forward-looking statements.
Some factors that could cause actual results to differ include:

. the effects of vigorous competition in the markets in which Sprint
operates;

. the costs and business risks associated with providing new services and
entering new markets 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 Sprint's strategic investments;

. the impact of any unusual items resulting from ongoing evaluations of
Sprint's business strategies;

. the impact of new technologies on Sprint's business;

. unexpected results of litigation filed against Sprint;

. the possibility of one or more of the markets in which Sprint competes
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 (Telecom Act), or other external factors
over which Sprint has no control; and

. other risks referenced from time to time in Sprint's filings with the
Securities and Exchange Commission (SEC).

The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are found throughout Management's Discussion and
Analysis. The reader should not place undue reliance on forward-looking
statements, which speak only as of the date of this report. Sprint is not
obligated to publicly release any revisions to forward-looking statements to
reflect events after the date of this report or unforeseen events.

- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------

Sprint is a global communications company and a leader in integrating
long-distance, local service, and wireless communications. Sprint is also one
of the largest carriers of Internet traffic using its tier one Internet
protocol network, which provides connectivity to any point on the Internet
either through its own network or via direct connections with other backbone
providers. Sprint is the nation's third-largest provider of long distance
services and operates nationwide, all-digital long distance and tier one
Internet protocol networks using fiber-optic and electronic technology. In
addition, the local division currently serves approximately 8.2 million access
lines in 18 states. Sprint also operates a 100% digital PCS, wireless network
in the United States with licenses to provide service nationwide using a single
frequency band and a single technology. Sprint owns PCS licenses to provide
service to the entire United States population, including Puerto Rico and the
U.S. Virgin Islands.

In November 1998, Sprint's shareholders approved the allocation of all of
Sprint's assets and liabilities into two groups, the FON Group and the PCS
Group, as well as the creation of the FON stock and the PCS stock. In addition,
Sprint 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. (Cox PCS). Sprint acquired these
ownership interests from Tele-Communications, Inc., Comcast Corporation and Cox
Communications, Inc. (the Cable Partners). In exchange, Sprint issued the Cable
Partners special low-vote PCS shares and warrants to acquire additional PCS
shares. Sprint also issued the Cable Partners shares of a new class of
preferred stock convertible into PCS shares. The purchase of the Cable
Partners' interests is referred to as the PCS Restructuring. In the 1999 second
quarter, Cox Communications, Inc. exercised a put option requiring Sprint to
purchase the remaining 40.8% interest in Cox PCS. Sprint issued additional low
vote PCS shares in exchange for this interest.

Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. In addition, the Class A common
shares owned by FT and DT were reclassified into shares representing both FON
stock and PCS stock. These transactions are referred to as the Recapitalization.

In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares (pre-split basis).

22

At the end of 2001, FT no longer held FON shares, and DT no longer held either
FON or PCS shares.

Operating Segments

Sprint's business is divided into four lines of business: the global markets
division, the local 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 division and the
product distribution and directory publishing businesses. The PCS Group
includes 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 division and the product distribution
and directory publishing businesses. The PCS common stock is intended to
reflect the financial results and economic value of the PCS wireless telephony
products and services business.

Board Discretion Regarding Tracking Stocks

FON common stock and PCS common stock are intended to reflect the financial
results and economic value of the FON and PCS Groups. However, they are classes
of common stock of Sprint, not of the group they are intended to track.
Accordingly, FON and PCS shareholders are subject to the risks related to an
equity investment in Sprint and all of Sprint's businesses, assets and
liabilities. Shares of FON common stock and PCS common stock do not represent a
direct legal interest in the assets and liabilities allocated to either group,
as Sprint owns all of the assets and liabilities of both of the groups.

Sprint's Board has the discretion to, among other things, make operating and
financial decisions that could favor one group over the other and, subject to
the restrictions in Sprint's articles of incorporation, to change the
allocation of the assets and liabilities that comprise each of the FON Group
and the PCS Group without stockholder approval. Under the applicable corporate
law, Sprint's Board owes its fiduciary duties to all of Sprint's shareholders
and there is no board of directors that owes separate duties to the holders of
either the FON common stock or the PCS common stock. The Tracking Stock
Policies provide that the Board, in resolving material matters in which the
holders of FON common stock and PCS common stock have potentially divergent
interests, will act in the best interests of Sprint and all of its common
shareholders after giving fair consideration to the potentially divergent
interests of the holders of the separate classes of Sprint common stock. These
policies may be changed by the Board without shareholder approval. Given the
Board's discretion in these matters, it may be difficult to assess the future
prospects of each group based on past performance.

Critical Accounting Policies

The fundamental objective of financial reporting is to provide useful
information that allows a reader to comprehend the business activities of
Sprint. To aid in that understanding, management has identified Sprint's
"critical accounting policies". These policies have the potential to have a
more significant impact on Sprint's financial statements, either because of the
significance of the financial statement item to which they relate, or because
they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in nature.

. Allocation Policies between Tracking Stocks--As discussed previously, the
FON common stock is intended to reflect the financial results and
economic value of the FON Group and the PCS common stock is intended to
reflect the financial results and economic value of the PCS Group. The
FON common stock and the PCS common stock are both classes of common
stock of Sprint, and together, the groups reflect 100% of Sprint's
business activities.

. Allocation policies regarding shared activities are critical to the
understanding of Sprint's business, as well as the business and results
of the FON Group and the PCS Group. The allocation of assets, financial
resources and certain costs requires judgment by management and the
allocation methods used are subject to the discretion of the Board of
Directors in its fulfillment of its fiduciary duties to all of Sprint's
shareholders. These policies are discussed in Part 1, Item 1. Business,
Risk Factors Relating to Tracking Stocks, in Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A), Nonoperating Items, Allocation of Group Financing,
as well as in Note 1 of the Notes to Consolidated Financial Statements.

. Revenue Recognition Policies--As discussed in Note 1 of the Notes to
Consolidated Financial Statements, Sprint recognizes operating revenues
as services are rendered or as products are delivered to customers. In
connection with recording revenue, estimates and assumptions are required
in determining the expected conversion of the revenue streams to cash
collected. The reserve estimation process requires that management make
assumptions based on historical results, future expectations, the
economic and competitive environment, changes in the credit worthiness of
our customers, and other relevant factors. A more detailed discussion of
the policies by which Sprint recognizes

23

reserves and adjustments to revenue streams and related reserves and
provisions for uncollectible customer accounts is included in our
discussion of Segmental Results of Operations within MD&A.

. Employee Benefit Plan Assumptions-- Retirement Benefits are a significant
cost of doing business and yet represent obligations that will be settled
far in the future. Retirement benefit accounting is intended to reflect
the recognition of future benefit costs over the employee's approximate
service period based on the terms of the plans and the investment and
funding decisions made by a company. The accounting requires that
management make assumptions regarding such variables as the return on
assets, the discount rate, and future health care costs. Changes in these
key assumptions can have a significant impact on the projected benefit
obligations, funding requirements and periodic benefit cost incurred by
the company. Sprint's policies and key assumptions are included in our
discussion of Other Income (Expense), Net within MD&A, as well as in Note
8 of the Notes to Consolidated Financial Statements.

. Long-lived Asset Recovery--Long-lived assets, consisting primarily of
property, plant and equipment and intangibles, comprise a significant
portion of Sprint's total assets. Changes in technology or changes in
Sprint's intended use of these assets may cause the estimated period of
use or the value of these assets to change. Sprint performs annual
internal studies to confirm the appropriateness of estimated economic
useful lives for each category of current property, plant and equipment.
Additionally, long-lived assets, including goodwill and intangibles, are
reviewed for impairment whenever events or changes in circumstances have
indicated that their carrying amounts may not be recoverable. Estimates
and assumptions used in both setting depreciable lives and testing for
recoverability require both judgment and estimation. Sprint's policies
regarding accounting for these assets and assessing their recoverability
are included in our Discussion of Segmental Results of Operations within
MD&A, as well as in Notes 1 and 18 of the Notes to Consolidated Financial
Statements.

- --------------------------------------------------------------------------------
General Overview of the Sprint FON Group
- --------------------------------------------------------------------------------

Global Markets Division

The global markets division provides a broad suite of communications services
targeted to domestic business and residential customers, multinational
corporations and other communications companies. These services include
domestic and international voice; data communications using various protocols
such as Internet protocol (IP) and frame relay (a data service that transfers
packets of data over Sprint's network), and managed network services. In
addition, the global markets division is expanding its ability to provide web
and applications hosting, consulting services, and colocation services. Through
this division Sprint also provides broadband services and digital subscriber
line (DSL) services, which enable high-speed transmission of data over existing
copper telephone lines.

The global markets division also includes the operating results of the cable TV
service operations of the broadband fixed wireless companies after their 1999
acquisition dates. During 2000, Sprint converted several markets served by
Multipoint Multichannel Distribution Services (MMDS) capabilities from cable TV
services to high-speed data services. MMDS is a fixed wireless network that can
be built either using a system of interconnected smaller cells or as a single
tower that distributes signals through microwave from a single transmission
point to multiple receiving points. The global markets division's operating
results reflect the development costs and the operating revenues and expenses
of these broadband fixed wireless services. In the 2001 fourth quarter Sprint
announced it would halt further deployment of MMDS services using current
direct sight access technology. Current customers will continue to receive
service and Sprint will wait for development of second generation technology.
Sprint will also pursue alternative strategies for the spectrum leases and
licenses.

The global markets division also reflects the costs of establishing
international IP operations beginning in 2000.

This division also includes the FON Group's investments in EarthLink, Inc., an
Internet service provider; Call-Net, a long distance provider in Canada;
Intelig Telecommunicacoes Ltda. (Intelig), a long distance provider in Brazil;
and certain other telecommunications investments and ventures.

Local Division

The local division (LTD) consists mainly of regulated local phone companies
serving approximately 8.2 million access lines in 18 states. LTD provides local
voice and data services, including DSL, for customers within its franchise
territories, access by phone customers and other carriers to LTD's local
network, consumer long distance services to customers within its franchise
territories, sales of telecommunications equipment, and other long distance
services within certain regional calling areas, or LATAs.

24

Product Distribution and Directory Publishing Businesses

The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.

- --------------------------------------------------------------------------------
General Overview of the Sprint PCS Group
- --------------------------------------------------------------------------------

The PCS Group includes Sprint's wireless PCS operations. It operates a 100%
digital PCS wireless network in the United States with licenses to provide
service nationwide using a single frequency and a single technology. At
year-end 2001, the PCS Group, together with third party affiliates, operated
PCS systems in over 300 metropolitan markets, including the 50 largest U.S.
metropolitan areas. The PCS Group has licenses to serve the entire U.S.
population including Puerto Rico and the U.S. Virgin Islands. The PCS Group's
service, including third party affiliates, now reaches over 247 million people.
The PCS Group provides nationwide service through:

. operating its own digital network in major U.S. metropolitan areas,

. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,

. roaming on other providers' analog cellular networks using multi-mode
handsets, and

. roaming on other providers' digital networks that use code division
multiple access (CDMA).

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 its investment in Pegaso Telecomunicaciones, S.A.
de C.V. (Pegaso), a wireless PCS operation in Mexico, SVC BidCo L.P., a joint
venture to acquire wireless spectrum rights, and Virgin Mobile U.S.A., a joint
venture to market wireless services. These investments are accounted for using
the equity method.

The wireless industry, including the PCS Group, typically generates a
significantly higher number of subscriber additions and handset sales in the
fourth quarter of each year compared to the remaining quarters. This is due to
the use of retail distribution, which is dependent on the holiday shopping
season; the timing of new products and service introductions; and aggressive
marketing and sales promotions.

- --------------------------------------------------------------------------------
Consolidated Results of Operations
- --------------------------------------------------------------------------------

Total net operating revenues were as follows:

--------------------------------------------------
2001 2000 1999
--------------------------------------------------
(millions)

FON Group $16,924 $17,688 $17,160
PCS Group 9,725 6,341 3,373
Intergroup eliminations (578) (416) (268)
--------------------------------------------------
Net operating revenues $26,071 $23,613 $20,265
-------------------------

Income (Loss) from continuing operations was as follows:

---------------------------------------------------------
2001 2000 1999
---------------------------------------------------------
(millions)

FON Group (146) $ 1,292 $ 1,736
PCS Group (1,249) (1,868) (2,481)
Intergroup eliminations (7) -- --
---------------------------------------------------------
Loss from continuing operations (1,402) $ (576) $ (745)
------------------------

Income (loss) from continuing operations as presented in the above table
includes the after-tax impacts of the one-time items discussed in the following
paragraphs.

In the 2001 fourth quarter, Sprint recorded a one-time restructuring charge and
asset impairment of $1,136 million representing the termination of Sprint ION,
as well as additional steps to reduce overall operating costs. Additionally, in
the 2001 fourth quarter, Sprint recorded a one-time litigation charge of $15
million. The 2001 one-time items also include a write-down of the FON Group's
equity method investment in Intelig of $157 million which had an other than
temporary decline in market value, a loss on the sale of a portion of the FON
Group's investment in EarthLink of $8 million, a benefit plan curtailment gain
of $75 million and net gains from other investment activities of $9 million.
Excluding one-time items, loss from continuing operations would have been $170
million.

In the 2000 fourth quarter, Sprint completed analyses of the valuation of
various FON Group assets and equity method investments resulting from its
reassessment of the FON Group's business strategies in response to changes in
the overall telecommunications industry. These analyses resulted in one-time
charges of $152 million primarily related to a write-down of goodwill
associated with the FON Group's Paranet operations, $87 million for the
write-down of the FON Group's equity method investment in Call-Net, which had
an other than temporary decline in market value, and $22 million for the
write-down of certain FON Group investment securities, which had an other than
temporary decline in market value. The 2000 one-time items also include charges
of $121 million for costs associated with the terminated WorldCom merger, net
gains of $44 million from the sale of an independent directory publishing

25

operation and investment activities in the FON Group, and an $18 million gain
from the sale of customers and network infrastructure to a PCS third party
affiliate. Excluding one-time items, loss from continuing operations would have
been $256 million.

In 1999, one-time items include a gain of $35 million from investment
activities in the FON Group. Excluding the one-time item, loss from continuing
operations would have been $780 million.

- --------------------------------------------------------------------------------
Segmental Results of Operations
- --------------------------------------------------------------------------------

Sprint's business is divided into four lines of business: the global markets
division, the local 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 division and the
product distribution and directory publishing businesses. The PCS Group
includes 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 division and the product distribution
and directory publishing businesses. The PCS common stock is intended to
reflect the financial results and economic value of the PCS wireless telephony
products and services business.

Global Markets Division

--------------------------------------------------
2001 2000 1999
--------------------------------------------------
(millions)

Net operating revenues
Voice $ 6,644 $ 7,094 $ 7,445
Data 1,956 1,937 1,696
Internet 1,003 920 615
Other 313 577 552
--------------------------------------------------
Total net operating
revenues 9,916 10,528 10,308
--------------------------------------------------
Operating expenses
Costs of services
and products 6,004 5,558 4,947
Selling, general and
administrative 2,955 3,026 3,141
Depreciation and
amortization 1,318 1,121 1,045
Restructuring and
asset impairment 1,688 238 --
--------------------------------------------------
Total operating
expenses 11,965 9,943 9,133
--------------------------------------------------
Operating income
(loss) $(2,049) $ 585 $ 1,175
-------------------------
Operating margin NM 5.6% 11.4%
-------------------------
Capital expenditures $ 3,580 $ 2,294 $ 1,774
-------------------------

The global markets division faced significant challenges in 2001. The economic
downturn coupled with industry-wide pricing pressures and excess capacity
contributed to a 6% decline in net operating revenues and an operating loss for
the year. In the 2001 fourth quarter, a decision was made to abandon the ION
initiative and restructure operations resulting in a $1.7 billion charge. These
actions were taken to respond to the unprecedented changes in the industry in
an effort to better focus on enterprise data and Internet services and
aggressively manage costs. Sprint expects continued downward pressure on
revenues in 2002 due to the economy and price competition. Some year over year
improvement in operating results is expected from the elimination of ION
related costs and other cost reduction efforts. Further improvements in
operations are largely dependent on the timing and extent of the economic
recovery and the degree of growth achieved in the enterprise data and Internet
services markets.

Net Operating Revenues

Net operating revenues decreased 6% in 2001 and increased 2% in 2000. Minute
growth of 20% in 2001 and 18% in 2000, driven in part by the increase in
business minutes sold to the PCS Group, was more than offset by a highly
competitive pricing environment, as well as the current economic downturn. The
decrease in net operating revenues also reflects year-over-year declines in
dial-up Internet service provider-related revenues, cable capacity sales,
professional services and legacy data services.

Voice Revenues

Voice revenues decreased 6% in 2001 and 5% in 2000. The 2001 decrease includes
a decline in business and consumer voice revenues as a result of a more
competitive pricing environment and continued wireless substitution. Business
voice revenues also declined in 2001 as the revenue mix shifted toward lower
yield customers, including affiliate sales and generally lower market pricing.
The 2000 decrease was largely due to a decline in consumer voice revenues as a
result of a more competitive pricing environment, lower calling card usage due
to the increased use of wireless phones, and reductions in access cost
pass-throughs resulting from the implementation of the Coalition for Affordable
Local and Long Distance Service proposal (CALLS).

Data Revenues

Data revenues reflect sales of current-generation data services including
asynchronous transfer mode (ATM) and frame relay services. These revenues were
flat in 2001 and increased 14% in 2000. Results in 2001 were flat due to
increased sales in ATM being offset by a decline in frame relay. Data revenues
in 2001 were generally impacted by aggressive pricing in the marketplace and
the current economic downturn. The 2000 increase was largely due to increased
sales as a result of an increased emphasis on these services.

26

Internet Revenues

Internet revenues increased 9% in 2001 and 50% in 2000. The 2001 increase is a
result of growth in dedicated IP, web hosting and security. These gains were
partially offset by a decline in dial-up Internet service provider-related
revenues driven by pricing declines with Sprint's largest customer for these
services. The increase in 2000 was due to strong growth in dial-up Internet
service provider-related revenues and dedicated service revenues.

Other Revenues

Other revenues decreased 46% in 2001 and increased 5% in 2000. The 2001
decrease reflects a lack of cable capacity sales, as well as declines in
professional services and legacy data services. The 2000 increase was due to
sales of ownership rights to transoceanic cable capacity and the inclusion of a
full year of revenues from the cable TV service operations of the broadband
fixed wireless companies purchased in 1999 largely offset by a decline in
legacy data services.

During the 2001, 2000 and 1999 periods, cable capacity sales and sales of
ownership rights to transoceanic cable represented less than 0.2%, 1% and 0.03%
of net operating revenues, respectively. These transactions were executed
primarily with Global One, and were in accordance with our transition services
agreement.

Equipment sales completed in each of the periods discussed were routine in
nature, were completed to support a customer's purchase of related
telecommunications services, and represented less than 3%, 6% and 4% of net
operating revenues for the 2001, 2000 and 1999 periods, respectively.

Revenue Reserves

All revenues are recognized when the earnings process is complete in accordance
with SEC Staff Accounting Bulletin No. 101 - Revenue Recognition in Financial
Statements (SAB101). Significant estimates and assumptions are required,
however, to determine the expected conversion of these revenues into cash
collected. Because of this, the global markets division recognizes several
types of reserves and adjustments against revenue. These reserves include:

. billing adjustment reserves for pricing changes and usage disputes with
customers (principally related to our business and wholesale customer
base),

. discount reserves for special pricing agreements and volume based
incentives, and

. fraud reserves for unauthorized usage.

Each of these reserves requires management's judgment and are based on
historical trending, industry norms, regulatory decisions and recognition of
current market indicators regarding general economic conditions.

Costs of Services and Products

Costs of services and products include interconnection costs paid to local
phone companies, other domestic service providers and foreign phone companies
to complete calls made by the division's domestic customers, costs to operate
and maintain the long distance network, costs of equipment, and costs related
to the development and deployment of Sprint ION. Costs of services and products
increased 8% in 2001 and 12% in 2000.

Interconnection costs increased 16% in 2001 and remained flat in 2000. The 2001
increase was primarily due to a corresponding increase in call volumes.
Reductions in per-minute international access costs as well as domestic access
costs offset the impact of increased calling volumes in 2000. The domestic rate
reductions were generally due to the FCC-mandated access rate reductions that
took effect in July 1999, July 2000, and July 2001. The access rate reductions
in July 2000 included the implementation of CALLS.

All other costs of services and products decreased 5% in 2001 and increased 42%
in 2000. The 2001 decrease is related to lower sales of ownership rights to
capacity on transoceanic cable offset by increased network costs of the long
distance operation and costs associated with Sprint ION. The 2000 increase was
largely due to the expansion of Sprint ION business services nationwide and the
launch of consumer services in select markets as well as increased sales of
ownership rights to capacity on transoceanic cable and growth in data services.

Total costs of services and products for global markets division were 60.5% of
net operating revenues in 2001, 52.8% in 2000 and 48.0% in 1999.

Excluding Sprint ION related costs, total costs of services and products for
the global markets division were 58.2% of net operating revenues in 2001, 50.5%
in 2000 and 47.6% in 1999.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expense decreased 2% in 2001 and 4%
in 2000. The 2001 decrease is due to a reduction in advertising and promotion
costs in both the consumer and business markets and a strong emphasis on cost
control, partly offset by increased marketing and promotions of Internet
services and an increase in bad debt expense primarily related to wholesale
customers. In addition,

27

SG&A in 2001 was impacted by the one-time litigation charge of $24 million.

The reserve for bad debts requires management's judgment and is based on
customer specific indicators, as well as historical trending, industry norms
and recognition of current market indicators about general economic conditions.
Bad debt expense as a percentage of net revenues was 3.8% in 2001, 2.6% in 2000
and 2.9% in 1999. Reserve for bad debt as a percent of outstanding accounts
receivable was 12.7% in 2001, 10.5% in 2000, and 8.3% in 1999.

The 2000 decrease in total SG&A expense is due to a strong emphasis on cost
control.

Total SG&A expense for the global markets division was 29.8% of net operating
revenues in 2001, 28.7% in 2000 and 30.5% in 1999.

Excluding Sprint ION related costs, SG&A expense for the global markets
division was 28.0% of net operating revenues in 2001, 26.7% in 2000 and 28.1%
in 1999.

Depreciation and Amortization Expense

Estimates and assumptions are used both in setting depreciable lives and
testing for recoverability. Assumptions are based on internal studies of use,
industry data on lives, recognition of technological advancements and
understanding of business strategy. Depreciation and amortization expense
increased 18% in 2001 and 7% in 2000. The increases mainly reflect an increased
asset base to enhance network reliability, meet increased demand for voice and
data-related services as well as an increased asset base for growth of IP
services and other growth initiatives. Depreciation and amortization expense
was 13.3% of net operating revenues in 2001, 10.6% in 2000 and 10.1% in 1999.

Excluding Sprint ION related costs, depreciation and amortization expense for
the global markets division was 12.1% of net operating revenues in 2001, 9.9%
in 2000 and 9.5% in 1999.

Restructuring and Asset Impairment

In the 2001 fourth quarter, Sprint terminated its efforts to provide its Sprint
ION consumer and business offerings and announced a restructuring of the
remaining global markets division business. This decision resulted in a
one-time charge of $1.7 billion associated with asset write-offs, termination
of supplier agreements, real estate leases, and other contractual obligations,
as well as work force reduction severance costs.

Local Division

----------------------------------------------------
2001 2000 1999
----------------------------------------------------
(millions)

Net operating revenues
Local service $2,939 $2,846 $2,677
Network access 2,032 1,987 1,918
Long distance 731 717 611
Other 545 605 752
----------------------------------------------------
Total net operating revenues 6,247 6,155 5,958
----------------------------------------------------
Operating expenses
Costs of services and
products 1,955 1,965 2,016
Selling, general and
administrative 1,280 1,288 1,320
Depreciation 1,120 1,139 1,069
Restructuring and asset
impairment 109 -- --
----------------------------------------------------
Total operating expenses 4,464 4,392 4,405
----------------------------------------------------
Operating income $1,783 $1,763 $1,553
----------------------
Operating margin 28.5% 28.6% 26.1%
----------------------
Capital expenditures $1,271 $1,371 $1,354
----------------------

In 2001, the local division was impacted by the economic slow down and growing
competition resulting in a decline in access lines and minutes of use. Despite
these pressures on revenue growth, the local division achieved steadily
improving operating results by effectively managing costs. In the 2001 fourth
quarter, the local division realigned its operations to further reduce costs
and increase its effectiveness. These actions resulted in a $109 million charge
to operations. Sprint expects that the economy and competition will continue to
adversely impact access lines and minutes of use in 2002. However, revenues are
expected to improve slightly and operating income is expected to be at a level
consistent with 2001. Again, results are dependent on the timing and extent of
the economic recovery.

Beginning in July 2000, Sprint changed its transfer pricing for certain
transactions between FON Group entities to more accurately reflect market
pricing. The main effect of this change was a reduction in the local division's
''Net Operating Revenues--Other Revenues.'' In addition, Sprint's local
division transferred a customer service and telemarketing organization to the
PCS Group at the beginning of the 2000 second quarter. For comparative
purposes, the following discussion of local division results assumes the
transfer pricing change and the transfer of the customer service and
telemarketing organization occurred at the beginning of 1999. Adjusting for
these changes, operating margins would have been 28.5% in 2001, 28.4% in 2000
and 25.7% in 1999.

Net Operating Revenues

Net operating revenues increased 2% in 2001 and 5% in 2000. These increases
mainly reflect increased special access revenue and increased sales of

28

network-based services such as Caller ID and Call Waiting. Sales of
network-based services and long distance services increased due to strong
demand for bundled services which combine local service, network-based features
and long distance calling. The local division ended 2001 with 8.2 million
switched access lines, a decrease of 1% in 2001. Access lines increased 4% in
2000. The decrease in 2001 is driven by the economic slowdown, wireless and
cable substitution and losses to competitive local providers. Net operating
revenues were $6.2 billion in 2001, $6.1 billion in 2000 and $5.8 billion in
1999.

Local Service Revenues

Local service revenues, derived from local exchange services, grew 3% in 2001
and 6% in 2000 due to continued demand for network-based services as well as
increased equipment maintenance revenue. Revenue growth in 2000 also reflects
increased revenues from access line growth.

Network Access Revenues

Network access revenues, derived from long distance phone companies using the
local network to complete calls, increased 2% in 2001 and 4% in 2000. These
increases mainly reflect strong growth in special access services. Volume
growth in both periods was offset by FCC-mandated access rate reductions.
Revenue growth in 2000 also reflects a 2% increase in minutes of use, however,
revenue growth in 2001 is offset by a 3% reduction in minutes of use.

Long Distance Revenues

Long distance revenues are mainly derived from providing consumer long distance
services to customers within Sprint's local franchise territories and other
long distance services within specified regional calling areas, or LATAs, that
are beyond the local calling area. These revenues increased 2% in 2001 and 17%
in 2000. These increases reflect the success of bundled services, however, the
2001 growth is offset by a decline in intra-LATA long distance services.

Other Revenues

Other revenues decreased 2% in 2001 and 11% in 2000. These decreases were
driven by a decline in equipment sales of 9% in 2001 and 20% in 2000 offset by
an increase in colocation and data base revenues. The decreases in equipment
sales were a result of both a planned shift in focus to selling higher margin
products and the economic slowdown causing a reduction in customer demand for
equipment.

Revenue Reserves

All revenues are recognized when the earnings process is complete in accordance
with SAB101. Significant estimates and assumptions are required, however, to
determine the expected conversion of these revenues into cash collected.
Because of this, the local division recognizes several types of reserves and
adjustments against revenues. These reserves include:

. billing adjustment reserves for pricing changes, volume discounts and
usage disputes with customers (principally related to our business and
wholesale customer base),

. fraud reserves for unauthorized usage and

. return and rebate reserves for equipment sales.

Each of these reserves requires management's judgment and is based on
historical trending, industry norms, regulatory decisions and recognition of
current market indicators about general economic conditions.

Costs of Services and Products

Costs of services and products include costs to operate and maintain the local
network and costs of equipment sales. These costs were flat in 2001 and
decreased 1% in 2000. In 2001, declines in equipment sales and the success of
cost control initiatives were offset by increases in access expense. The 2000
decrease was due to a decline in equipment sales. Costs of services and
products were 31.3% of net operating revenues in 2001, 31.9% in 2000 and 33.8%
in 1999.

Selling, General and Administrative Expense

Despite increases in bad debt expense, SG&A expense remained flat in 2001 and
declined 1% in 2000 due to a strong emphasis on cost control. In 2001, a
continuing emphasis on cost control, partly offset by an increase in bad debt
expense accounted for these expenses being flat. The reserve for bad debts
requires management's judgment and is based on historical trending, industry
norms and recognition of current market indicators about general economic
conditions. Bad debt expense as a percentage of net revenues was 2.5% in 2001,
1.5% in 2000, and 1.1% in 1999. Reserve for bad debt expense as a percent of
outstanding accounts receivable was 6.9% in 2001, 4.8% in 2000, and 6.4% in
1999.

SG&A expense was 20.4% of net operating revenues in 2001, 21.0% in 2000 and
22.3% in 1999.

Depreciation and Amortization Expense

Estimates and assumptions are used both in setting depreciable lives and
testing for recoverability. Assumptions are based on internal studies of use,
industry data on lives, recognition of technological

29

advancements and understanding of business strategy. Depreciation and
amortization expense decreased 2% in 2001 and increased 7% in 2000. The 2001
decrease is primarily due to a decrease in metallic cable depreciation rates.
The decrease is due to metallic cable proving to be adequate in carrying higher
bandwidth services such as DSL, thus extending its life. The 2000 increase was
mainly due to increased capital expenditures in switching and transport
technologies which have shorter asset lives. Depreciation and amortization
expense was 18.0% of net operating revenues in 2001, 18.5% in 2000 and 18.2% in
1999.

Restructuring and Asset Impairment

In the fourth quarter of 2001, Sprint announced plans to take steps to improve
its competitive position and reduce operating costs in the business units that
comprise its FON Group. These efforts included consolidation and streamlining
of marketing and network operations, as well as streamlining of corporate
support functions. This decision resulted in a one-time charge of $109 million
associated with the severance costs of the work force reductions and
contractual obligations.

Product Distribution and Directory Publishing Businesses

------------------------------------------------
2001 2000 1999
------------------------------------------------
(millions)

Net operating revenues $1,762 $1,936 $1,758
Operating expenses
Costs of services and
products 1,276 1,460 1,345
Selling, general and
administrative 174 176 154
Depreciation and
amortization 21 16 17
Restructuring charge 7 -- --
------------------------------------------------
Total operating expenses 1,478 1,652 1,516
------------------------------------------------
Operating income $ 284 $ 284 $ 242
----------------------
Operating margin 16.1% 14.7% 13.8%
----------------------
Capital expenditures $ 111 $ 8 $ 36
----------------------

In 2001, the product distribution business was impacted by the economic slow
down. The cut back in capital spending in the telecommunications industry
caused a significant reduction in non-affiliated sales. Sprint expects the
demand for equipment to continue to be soft in 2002.

Net Operating Revenues

Net operating revenues decreased 9% in 2001 and increased 10% in 2000.
Nonaffiliated revenues accounted for over 60% of revenues in 2001, 2000 and
1999. These revenues decreased 14% in 2001 and increased 11% in 2000. The
decrease in 2001 nonaffiliated revenues was mainly due to significant decreases
in equipment sales resulting from the economic slowdown causing reduced
customer demand for equipment. The increase in nonaffiliated revenues in 2000
was mainly due to the consolidation of a directory publishing partnership. In
the second half of 2000, the directory publishing partnership, previously
accounted for as an equity method investment, was fully consolidated due to a
restructuring in the partnership management. Sales to affiliates were flat in
2001, but increased 8% in 2000 due to changes in the local division's capital
program.

Operating Expenses

Costs of services and products decreased 13% in 2001 and increased 9% in 2000.
The 2001 decrease reflects a decrease in equipment sales. The 2000 increase was
due to the consolidation of the directory publishing partnership. SG&A expense
decreased 1% in 2001 and increased 14% in 2000. The 2000 increase was due to
costs related to the transformation of the product distribution business to a
web-enabled business as well as the consolidation of the directory publishing
partnership.

In the fourth quarter of 2001, Sprint announced plans to take steps to improve
its competitive position and reduce operating costs in the business units that
comprise its FON Group. These efforts included consolidation and streamlining
of marketing and network operations, as well as streamlining of corporate
support functions. This decision resulted in a charge of $7 million associated
with the severance costs of the work force reductions and contractual
obligations.

PCS Group

-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
(millions)

Net operating revenues $ 9,725 $ 6,341 $ 3,373
-----------------------------------------------------
Operating expenses
Costs of services and
products 5,295 3,942 3,150
Selling, general and
administrative 2,917 2,426 1,937
Depreciation and
amortization 2,150 1,877 1,523
Restructuring and asset
impairment 10 -- --
Merger related costs -- 24 --
-----------------------------------------------------
Total operating expenses 10,372 8,269 6,610
-----------------------------------------------------
Operating loss $ (647) $(1,928) $(3,237)
-------------------------
Loss from continuing
operations $(1,249) $(1,868) $(2,481)
-------------------------
Capital expenditures $ 3,751 $ 3,047 $ 2,580

In 2001, the PCS Group led the industry in customer growth for the third year
in a row resulting in a 53% increase in net operating revenues and a $1.28
billion

30

improvement in operating results. For much of 2001, the impact of the economic
downturn had not extended to the wireless industry. However, in the fourth
quarter, there were signs of weakening in customer growth for both the wireless
industry and the PCS Group. Based on an industry-consensus view that about 17
million new wireless subscribers will be added in 2002, Sprint would expect to
add about 3 million net customers in 2002 while continuing to focus on
profitability.

The PCS Group markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Equipment
sales to one retail chain and the subsequent service revenues generated by
sales to its customers accounted for 24% of net operating revenues in 2001 and
2000, and 27% in 1999.

Net Operating Revenues

-----------------------------------------------
2001 2000 1999
-----------------------------------------------

Customers at year-end
(millions) 13.6 9.5 5.7
---------------
Average monthly service revenue
per user (ARPU) $ 61 $ 59 $ 58
---------------

Net operating revenues include service revenues and sales of handsets and
accessory equipment. Service revenues consist of monthly recurring charges,
usage charges and activation fees. Service revenues increased 58% in 2001
mainly reflecting an increase in the average number of customers and an
increase in ARPU. The improvement in ARPU in 2001 was mainly due to customers
subscribing to higher usage service plans, an increase in billed minutes over
plan and the implementation of activation charges in the second quarter of 2000.

The PCS Group assesses access charges to long distance carriers for the
termination of landline originated calls. Though regulations generally entitle
a carrier that terminates a call on the behalf of another to be compensated for
providing that service, these regulations were developed in a period where
services of this nature were provided exclusively by local exchange carriers.
Certain long distance carriers have disputed the PCS Group's assessment of
these charges as well as the corresponding rate at which the charges were
determined. The issue is currently pending before the FCC. Management cannot
predict, with certainty, the final outcome of this action, but believes
adequate provisions have been recorded in the PCS Group's results of operations.

The PCS Group added 4.0 million customers in 2001 to end the year with over
13.6 million customers in more than 300 metropolitan markets nationwide.
Service revenues from resale customers declined in 2001 mainly due to the
discontinuation of one reseller program, which reduced the reseller customer
base by 91,000 to 219,000 in 2001 from 310,000 in 2000. The PCS Group third
party affiliates added more than 1.2 million customers in 2001, bringing the
total number of customers served on the PCS network, including resale
customers, to more than 15.8 million.

Service revenues increased 94% in 2000 mainly reflecting an increase in the
average number of customers. The PCS Group added 3.8 million customers in 2000
to end the year with over 9.5 million customers in more than 300 metropolitan
markets nationwide. The increase in ARPU in 2000 was partly due to the
implementation of activation charges in the second quarter. Subscriber revenues
were also aided by the increase in resale customers. The companies that the PCS
Group serves on a wholesale basis added 238,000 customers in 2000, ending the
year with approximately 310,000 customers.

In 2001, the customer churn rate improved to 2.6% from 2.8% in 2000 and 3.4% in
1999. The churn rate improved from 1999 through the first half of 2001,
reaching as low as 2.2% in the quarter ended June 30, 2001. This improvement
reflected expanded network coverage, increased percentage of customers under
contract and the success of several customer retention initiatives. The
increase in the churn rate for the last half of 2001 resulted from customer
fulfillment of contract terms, the softness of the economy, and the impact of a
new program targeting sub-prime customers. The PCS Group expects customer churn
rate to continue to increase during the beginning of 2002, but decline to an
annual average of approximately 3%.

Revenues from sales of handsets and accessories were approximately 12% of net
operating revenues in 2001, 14% in 2000 and 17% in 1999. As part of the PCS
Group's marketing plans, handsets are normally sold at prices below the PCS
Group's cost.

Revenue Reserves

All revenues are recognized when the earnings process is complete in accordance
with SAB101. Significant estimates and assumptions are required, however, to
determine the expected conversion of these revenues into cash collected.
Because of this, the PCS Group recognizes several types of reserves and
adjustments against revenue. These reserves include:

. billing adjustment reserves for disputes with customers,

. fraud reserves for unauthorized usage,

. access reserves for disputed charges with local exchange carriers and
inter-exchange carriers, and

. return and rebate reserves for equipment sales.

31

Each of these reserves requires management's judgment and are based on
historical trending, industry norms, regulatory decisions and recognition of
current market indicators about general economic conditions.

Operating Expenses

Costs of services and products mainly include handset and accessory costs,
switch and cell site expenses and other network-related costs. These costs
increased 34% in 2001 and 25% in 2000 reflecting the significant growth in
customers and expanded market coverage, partly offset by a reduction in handset
unit costs.

SG&A expense mainly includes customer care and marketing costs to promote
products and services as well as salary and benefit costs. SG&A expense
increased 20% in 2001 and 25% in 2000 reflecting an expanded workforce to
support subscriber growth and increased marketing and selling costs.

---------------------------------------------------
2001 2000 1999
---------------------------------------------------
(millions)

Acquisition costs per gross customer
addition (CPGA) $340 $370 $450
--------------
Monthly cash costs per user (CCPU) $ 33 $ 35 $ 48
--------------

CPGA is a measure of the sales and marketing efforts computed as the costs of
acquiring a new subscriber, including equipment subsidies and marketing costs
divided by handset activations. CPGA improved approximately 7% in 2001 and 19%
in 2000. Lower handset unit costs and scale benefits from greater customer
additions have contributed to the improvement.

CCPU is a measure of the cash costs to operate the business on a per user basis
consisting of costs of service revenues, service delivery and other general and
administrative costs divided by average subscribers. CCPU improved
approximately 6% in 2001 and 27% in 2000. The improvements realized in 2001
were driven by lower network, information technology, and administrative costs
partially offset by higher cost of service. The improvements in 2000 reflect
successful expense management and scale benefits resulting from the increased
customer base.

Economic conditions in 2001 required greater scrutiny of bad debt expense. The
reserve for bad debts requires judgment and is based on historical trending,
industry norms and recognition of current market indicators. Bad debt expense
as a percentage of net revenues was constant at 3.9% in 2000 and 2001, and was
5.7% in 1999. Reserve for bad debt as a percent of outstanding accounts
receivable was 13.0% in 2001, 11.1% in 2000, and 8.5% in 1999.

Estimates and assumptions are used both in setting depreciable lives and
testing for recoverability. Assumptions are based on internal studies of use,
industry data on lives, recognition of technological advancements and
understanding of business strategy. Depreciation and amortization expense
consists mainly of depreciation of network assets and amortization of
intangible assets. The intangible assets include goodwill, PCS licenses,
customer base, microwave relocation costs and assembled workforce.

Depreciation and amortization expense increased 15% in 2001 and 23% in 2000
mainly reflecting depreciation of the network assets placed in service during
2001 and 2000. Additionally, the PCS Group increased depreciation of certain
network assets in the 2001 first quarter to reflect the accelerated replacement
of the assets to accommodate network technology upgrades. In May 2001, a
significant portion of the value assigned to acquired customer base became
fully amortized which caused a $168 million decrease in 2001 compared to the
same 2000 period. The 2000 increase also reflects amortization of intangible
assets acquired in the Cox PCS purchase in the 1999 second quarter.

In the fourth quarter of 2001, Sprint announced plans to take steps to improve
its competitive position and reduce operating costs in the business units that
comprise its FON Group. These efforts included consolidation and streamlining
of marketing and network operations, as well as streamlining of corporate
support functions. The decision to streamline corporate functions resulted in a
one-time charge of $10 million to PCS Group associated with the severance costs
of the work force reductions and contractual obligations.

In 2000, operating expenses include a one-time charge of $24 million for costs
associated with the terminated WorldCom merger. This charge increased the loss
from continuing operations by $16 million.

In 2000, loss from continuing operations includes a one-time gain of $18
million from the sale of customers and network infrastructure to a PCS Group
third party affiliate.

Employee Benefit Plan Assumptions

Significant estimates and assumptions are required in determining the
liabilities and costs associated with Sprint's pension and other post
retirement benefit plans and the results can vary significantly with changes in
key assumptions. Sprint works closely with its independent actuary to determine
the appropriateness of the various assumptions. Sprint has consistently used
benchmark rates tied to high quality investment funds with lives closely
matching the pension liability in assessing its assumptions for

32

the applicable discount rate. The expected rate of return on plan assets is
based on the mix of assets held by the plan and their historical long-term
rates of return. Reasonable anticipation of future medical care cost trends are
also provided by Sprint's independent actuary. A more detailed discussion of
Sprint's policies and status of its plans is included in Note 8 of the Notes to
Consolidated Financial Statements.

- --------------------------------------------------------------------------------
Nonoperating Items
- --------------------------------------------------------------------------------

Interest Expense

The effective interest rates in the following table reflect interest expense on
long-term debt only. Interest costs on short-term borrowings classified as
long-term debt, deferred compensation plans and customer deposits have been
excluded so as not to distort the effective interest rates on long-term debt.

---------------------------------------------------
2001 2000 1999
---------------------------------------------------

Effective interest rate on long-term
debt 6.7% 6.9% 7.0%
-------------

Sprint's effective interest rate on long-term debt decreased in 2000 and 2001
due to additional fixed-rate debt with lower interest rates and lower interest
rates on variable-rate debt.

Allocation of Group Financing

Financing activities for the groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the groups is specifically
allocated to and reflected in the financial statements of the applicable group.
Interest expense is allocated to the PCS Group based on an interest rate that
is substantially equal to the rate it would be able to obtain from third
parties as a direct or indirect wholly owned Sprint subsidiary, but without the
benefit of any guarantee by Sprint or any member of the FON Group. That
interest rate is higher than the rate Sprint obtains on borrowings. The
difference between Sprint's actual interest rate and the rate charged to the
PCS Group is reflected as a reduction in the FON Group's interest expense and
totaled $288 million in 2001, $237 million in 2000 and $168 million in 1999.
These amounts are reflected in the "Intergroup interest charge" on the
Consolidated Statements of Operations.

The FON Group earned intergroup interest income and the PCS Group incurred
intergroup interest expense of $15 million in 2001, $19 million in 2000 and $20
million in 1999 primarily related to the FON Group's ownership of PCS Group
debt securities.

Sprint redeemed these securities in the 2001 fourth quarter. As a result of
this redemption, the FON Group recognized an $11 million pre-tax gain to other
non-operating income and the PCS Group recorded a $7 million after-tax
extraordinary loss related to an early redemption premium payment made by the
PCS Group to the FON Group.

Under Sprint's centralized cash management program, one group may advance funds
to the other group. These advances are accounted for as short-term borrowings
between the groups and bear interest at a market rate that is substantially
equal to the rate that group would be able to obtain from third parties on a
short-term basis.

The allocation of group financing activities may change at the discretion of
the Sprint board and does not require shareholder approval.

Other Income (Expense), Net

Other income (expense) consisted of the following:

------------------------------------------------------
2001 2000 1999
------------------------------------------------------
(millions)

Dividend and interest income $ 33 $ 30 $ 23
Equity in net losses of affiliates (157) (238) (72)
Net losses from investments (188) (102) (15)
Gains on sales of other assets 10 92 102
Benefit plan curtailment gain 120 -- --
Other, net (1) 1 37
------------------------------------------------------
Total $(183) $(217) $ 75
------------------

Dividend and interest income for all years reflects dividends earned on cost
method investments and interest earned on temporary investments.

In 2001, investments accounted for using the equity method mainly consisted of
the FON Group's investment in Intelig, a long distance operation in Brazil, and
the PCS Group's investment in Pegaso, a wireless PCS operation in Mexico.
Pegaso is currently experiencing financial difficulties and is evaluating
various restructuring alternatives. In 1999 and 2000, investments accounted for
using the equity method also included the FON Group's investments in EarthLink,
Inc., an Internet service provider, and Call-Net, a long distance provider in
Canada. In the first quarter of 2001, Sprint modified its relationship with
EarthLink which resulted in its investment in common stock no longer being
accounted for using the equity method. In the fourth quarter of 2000, Sprint
wrote down its investment in Call-Net and is no longer required to recognize
any related equity in losses. The 2001 equity in net losses of affiliates
decreased due to fewer equity losses following the write-down of the
investments in Call-Net and Intelig. These decreases were partially offset by
increased Pegaso losses. The 2000 increase is mainly due to increased Intelig
losses and losses from Pegaso after the PCS Group's 2000 second quarter initial
investment.

Net losses from investments in 2001 mainly include a $162 million write-down of
an equity investment in

33

Intelig and a $25 million loss on the partial sale of EarthLink shares. The
2000 loss includes an $87 million write-down of an equity investment in
Call-Net, and a $35 million write-down of warrants held in Purchase Pro.com.
The 1999 loss includes a $102 million write-down of an investment in Iridium
partially offset by a $90 million gain on sale of AOL Time Warner stock.

Gains on sales of other assets in 2001 resulted from the sale of PCS customers
to a PCS third party affiliate. The 2000 gains include the sale of an
independent publishing operation and the sale of certain wireless customers and
associated network infrastructure. The 1999 gains include a gain on the sale of
an investment security and a gain on the sale of network infrastructure.

The benefit plan curtailment gain in 2001 resulted from an amendment of certain
medical retirement plan benefits.

Income Taxes

Sprint's consolidated effective tax rates were 30.8% in 2001, 17.9% in 2000 and
30.5% in 1999. See Note 9 of Notes to Consolidated Financial Statements for
information about the differences that caused the effective income tax rates to
vary from the statutory federal rate for income taxes related to continuing
operations.

Discontinued Operation, Net

In the 2000 first quarter, Sprint sold its interest in Global One to France
Telecom and Deutsche Telekom AG. Sprint received $1.1 billion in cash and was
repaid $276 million for advances for its entire stake in Global One. As a
result of Sprint's sale of its interest in Global One, Sprint's gain on sale
and its equity share of the results of Global One have been reported as a
discontinued operation for all periods presented.

In 2000, Sprint recorded an after-tax gain related to the sale of its interest
in Global One of $675 million. Sprint recorded after-tax losses related to
Global One of $130 million in 1999.

Extraordinary Items, Net

In 2001, Sprint redeemed, before scheduled maturities, $18 million of debt
allocated to the FON Group and $558 million of debt allocated to the PCS Group.
These borrowings had interest rates ranging from 9.9% to 12.5%. This resulted
in a $1 million after-tax extraordinary loss for Sprint.

In 2000, Sprint redeemed, before scheduled maturities, $25 million of debt
allocated to the FON Group and $127 million of debt allocated to the PCS Group.
These borrowings had interest rates ranging from 7.8% to 9.7%. This resulted in
a $4 million after-tax extraordinary loss for Sprint.

In 1999, Sprint redeemed, before scheduled maturities, $575 million of the
broadband fixed wireless companies' debt assumed by the FON Group and $2.2
billion of revolving credit facilities and other borrowings allocated to the
PCS Group. These borrowings had interest rates ranging from 5.6% to 14.5%. This
resulted in a $60 million after-tax extraordinary loss for Sprint.

- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------

-----------------------------------------
2001 2000
-----------------------------------------
(millions)

FON Group $24,164 $24,089
PCS Group 22,190 19,763
Intergroup eliminations (561) (784)
-----------------------------------------
Consolidated assets $45,793 $43,068

----------------

Sprint's consolidated assets increased $2.7 billion in 2001. Net property,
plant and equipment increased $3.7 billion reflecting capital expenditures to
support the PCS network expansion and fill-in, the build-out of the IP network,
and long distance and local network enhancements, partly offset by depreciation
and network asset sales. Investments in affiliates decreased $319 million,
mainly reflecting equity in net losses of those affiliates and the write-down
of certain equity method investments. The rating agencies generally give some
form of equity treatment for equity unit notes in determining
debt-to-total-capital ratios. The Sprint debt-to-total-capital ratio was 59.9%
at year-end 2001 versus 57.3% at year-end 2000, assuming that the Sprint equity
unit notes are treated as 80% equity and 20% debt. Accordingly, the
debt-to-total-capital ratio for Sprint is calculated defining "debt" as
short-term borrowings, long-term debt, capital lease obligations and 20% of the
equity unit notes value. Total capital is defined as "debt", plus the remaining
80% of the equity unit notes value, redeemable preferred stock and total
shareholders' equity. See "Liquidity and Capital Resources" for more
information about changes in Sprint's Consolidated Balance Sheets.

- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------------------------------------------------------

Sprint's Board exercises discretion regarding the liquidity and capital
resource needs of each group. This includes the ability to prioritize the use
of capital and debt capacity, to determine cash management policies and to make
decisions regarding the timing and amount of capital expenditures. The actions
of the Board of Directors are subject to its fiduciary duties to all
shareholders of Sprint and not just to the holders of a particular class of
common stock. Given the Board's discretion in these matters, it may be
difficult to assess each group's liquidity and capital resource needs and
future prospects based on past performance.

34

Operating Activities

-----------------------------------------------
2001 2000 1999
-----------------------------------------------
(millions)

FON Group $4,585 $4,305 $ 3,700
PCS Group 106 (8) (1,692)
Intergroup eliminations -- -- (69)
-----------------------------------------------
Cash flows provided by
operating activities $4,691 $4,297 $ 1,939
----------------------

Operating cash flows increased $394 million in 2001 and $2.4 billion in 2000.
The 2001 increase reflects improved operating results in the PCS Group partly
offset by a decline in FON Group operating results. The 2001 increase also
reflects decreases in working capital requirements in the FON Group partly
offset by increases in working capital requirements in the PCS Group. The
decrease in FON Group working capital requirements was caused primarily by the
reduction in accounts receivable which resulted from the global markets
division revenue decline and increased billing adjustments, bad debt and cash
collections. Also causing the decrease was accrued restructuring costs not paid
at year-end 2001. The increase in PCS Group working capital requirements was
caused primarily by the increase in accounts receivable, which resulted mainly
from larger revenues associated with subscriber growth. The 2000 increase in
operating cash flows reflects decreases in working capital requirements in both
the FON Group and the PCS Group and improved operating results of the PCS
Group. The 2000 decrease in working capital requirements was caused primarily
by increases in accounts payable and other current liabilities associated with
purchases of equipment to support subscriber growth and the adoption of SAB101.
These increases more than offset increases in accounts receivable and
inventories associated with subscriber growth.

Investing Activities

-------------------------------------------------------
2001 2000 1999
-------------------------------------------------------
(millions)

FON Group $(5,036) $(3,335) $(4,336)
PCS Group (3,742) (3,054) (2,509)
Intergroup eliminations -- -- (299)
-------------------------------------------------------
Cash flows used by investing
activities $(8,778) $(6,389) $(7,144)
-------------------------

The FON Group's capital expenditures totaled $5.3 billion in 2001, $4.1 billion
in 2000 and $3.5 billion in 1999. Global markets division capital expenditures
were incurred mainly to enhance network reliability, meet increased demand for
voice and data-related services, upgrade capabilities for providing new
products and services and to continue development and hardware deployment of
Sprint ION before the termination of this initiative. The local division
incurred capital expenditures to accommodate voice-grade equivalent growth,
expand capabilities for providing enhanced services and continue the build-out
of high-speed DSL services. Other FON Group capital expenditures were incurred
mainly for Sprint's World Headquarters Campus. PCS Group capital expenditures,
totaling $3.8 billion in 2001, $3.0 billion in 2000 and $2.6 billion in 1999,
were incurred to support the continued PCS network expansion and fill-in. The
2001 amount also includes approximately $600 million of expenditures related to
deployment of 3G technology which is expected to be operational in the middle
of 2002.

Investing activities also include proceeds from sales of other assets totaling
$301 million in 2001, $258 million in 2000 and $243 million in 1999. In 2000,
investing activities also include $1.4 billion of proceeds from the sale of the
FON Group's interest in Global One. In 1999, Sprint purchased several broadband
fixed wireless companies for $618 million excluding assumed debt.

"Investments in and loans to affiliates, net" were $66 million in 2001, $889
million in 2000 and $135 million in 1999. These amounts were mainly for
investments in EarthLink, Intelig and Pegaso. See Note 3 of Notes to
Consolidated Financial Statements for more information on investments.

Financing Activities

---------------------------------------------
2001 2000 1999
---------------------------------------------
(millions)

FON Group $ 463 $ (952) $ 308
PCS Group 3,698 3,163 4,044
Intergroup eliminations -- -- 368
---------------------------------------------
Cash flows provided by
financing activities $4,161 $2,211 $4,720
---------------------

Financing activities reflect net borrowings of $4.0 billion in 2001, $2.3
billion in 2000 and $4.0 billion in 1999. Financing activities also reflect net
proceeds from the issuance of common stock of $608 million in 2001, $269
million in 2000 and $957 million in 1999. Proceeds from these borrowings and
common stock issuances were used mainly to fund capital investments and working
capital requirements. Sprint paid dividends of $451 million in 2001, $448
million in 2000 and $441 million in 1999.

Also included in financing activities are proceeds from Sprint's employee stock
purchase plan of $108 million in 2001, $182 million in 2000 and $136 million in
1999.

Capital Requirements

Sprint's 2002 investing activities, mainly consisting of capital expenditures
and investments in affiliates, are expected to total $6.4 billion. This
excludes any funding for NextWave spectrum, as the company

35

believes this auction will be either significantly delayed or terminated. FON
Group capital expenditures are expected to be $3.0 billion. PCS Group capital
expenditures are expected to be $3.4 billion. Sprint continues to review
capital expenditure requirements closely and will adjust spending and capital
investment in concert with growth. Investments in affiliates are expected to be
less than $50 million. Dividend payments are expected to approximate $459
million in 2002. After considering cash generated from operations, our
incremental cash needs in 2002 are expected to be $1.0 billion.

In connection with the PCS Restructuring, Sprint adopted a tax sharing
agreement providing for the allocation of income taxes between the FON Group
and the PCS Group. That agreement expired with the 2001 tax year, and Sprint
has adopted a continuation of that tax sharing arrangement except for the
elimination of provisions addressing certain types of acquisitions or
restructurings, which never became operable under the original arrangement.
Sprint expects the FON Group to continue to make significant payments to the
PCS Group under this arrangement because of expected PCS Group operating losses
in the near future and from using the PCS Group's net operating loss
carryforwards. These payments reflect the PCS Group's incremental cumulative
effect on Sprint's consolidated federal and state tax liability and tax credit
position. The PCS Group received payments from the FON Group totaling $292
million in 2001, $872 million in 2000, and $764 million in 1999. See Note 1 of
Notes to Consolidated Financial Statements, ''Allocation of Federal and State
Income Taxes,'' for more details.

Liquidity

Sprint currently uses commercial paper to fund most of its short-term working
capital needs. Sprint also uses the long-term bond market as well as other debt
markets to fund its needs. Sprint intends to continue borrowing funds through
the U.S. and international money and capital markets and bank credit markets to
fund capital expenditures and operating and working capital requirements.

Sprint currently has revolving credit facilities with syndicates of domestic
and international banks totaling $5 billion; $3 billion of which is a 364-day
facility, expiring in August 2002, and $2 billion of which is a five year
facility expiring in August 2003. These facilities are unused, however,
Sprint's commercial paper borrowings are supported by these revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility of $500 million which expires in December 2002. At year-end 2001,
Sprint had total unused lines of credit of $1.9 billion assuming Sprint's
commercial paper borrowings as outstanding on these credit facilities. In
addition, Sprint had standby letters of credit serving as a backup to various
obligations totaling $133 million at year-end 2001.

Any borrowings Sprint may incur are ultimately limited by certain debt
covenants. Sprint could borrow up to an additional $3.1 billion at year-end
2001 under the most restrictive of its debt covenants. Sprint is currently in
compliance with all debt covenants associated with its borrowings.

In March 2002, Sprint signed a commitment letter for a $1 billion term loan
facility. This commitment, which is fully incremental to the $5 billion
revolving credit facilities, is for a nine month loan secured by the assets of
Sprint's directory publishing business. This term loan facility is expected to
fully fund Sprint's 2002 incremental cash needs.

In the 2001 fourth quarter, Sprint issued $1.75 billion of debt securities
through a private debt placement. These borrowings have an interest rate of
6.0% and mature in 2007. The proceeds were allocated to both the FON and PCS
Groups and used to repay debt and to fund capital investments and working
capital requirements. As a condition to the sale of these securities, Sprint
agreed to conduct an exchange offer that allowed the original securities to be
exchanged for substantially identical securities that are registered with the
SEC. The exchange offer terminated on February 21, 2002.

In the 2001 third quarter, Sprint completed a registered offering of 23.5
million shares of its Series 1 PCS common stock. Net proceeds from the issuance
were approximately $561 million after deducting the underwriting discount and
other offering expenses. The proceeds were used to repay debt, and to fund
capital investments and working capital requirements.

In the 2001 third quarter, Sprint completed a registered offering of 69 million
equity units, each with a stated amount of $25. Net proceeds from the issuance
were approximately $1.7 billion after deducting the underwriting discount and
other offering expenses. The proceeds were allocated to the PCS Group and used
to repay debt, and to fund capital investments and working capital
requirements. See Note 11 of Notes to Consolidated Financial Statements,
"Equity Unit Offering" for a more detailed description of the equity units.

In the 2001 first quarter, Sprint issued $2.4 billion of debt securities.
Sprint had $2 billion of unissued securities under its existing shelf
registration statement with the SEC, and registered an additional $400 million
before the issuance. These borrowings have interest rates ranging from 7.1% to
7.6% and mature in 2006 and 2011. The proceeds were allocated to the PCS Group
and used to repay debt, and to fund capital investments and working capital
requirements.

36

In the 2000 second quarter, Sprint issued $1.25 billion of debt securities
under its $4 billion shelf registration statement with the SEC. These
borrowings mature in 2002 and have interest rates ranging from 6.9% to 7.6%.
The proceeds were allocated to the PCS Group and used to repay debt and to fund
capital investments and working capital requirements.

Sprint believes it has access to other sources of liquidity such as the capital
markets and the monetization of non-core assets, such as the directory
publishing business.

Moody's Investors Service and Standard & Poor's Corporate Ratings currently
rate Sprint's long-term senior unsecured debt at Baa1 and BBB+, respectively. A
downgrade of either rating may increase the cost of future borrowings. If a
downgrade of the long-term senior unsecured debt triggered a commercial paper
rating downgrade, access to the commercial paper market may become limited. A
ratings downgrade to below Baa3 or BBB- would result in the acceleration of at
least $250 million in debt and potentially as much as $1.1 billion. Management
maintains frequent communication with the rating agencies and considers a
downgrade below Baa3 or BBB- to be unlikely.

In January 2002, Moody's Investors Service placed the "Baa1" long-term ratings
of Sprint and Sprint Capital Corporation under review for possible downgrade.

In February 2002, Fitch Ratings downgraded Sprint's senior unsecured debt and
equity unit security to "BBB" from "BBB+". After the downgrade, the rating
outlook for the senior debt of both Sprint and Sprint Capital Corporation
changed to Stable from Negative.

Sprint's ability to fund its capital needs is ultimately impacted by the
overall capacity and terms of the commercial paper, bank, term-debt and equity
markets. There is significant volatility in the markets at this time caused by
the economic downturn, recent business failures and reduced confidence in the
financial accounting process. Sprint is monitoring the markets closely and is
taking steps to maintain as much financial flexibility as possible, while
maintaining a reasonable capital structure cost.

Sprint's contractual obligations, including commitments for future payments
under non-cancelable lease arrangements and short and long- term debt
arrangements, are summarized below and are fully disclosed in Notes 10, 11, and
15 to Sprint's Consolidated Financial Statements. Sprint does not participate
in, nor secure, financings for any unconsolidated, limited purpose entities
(SPE).

Payments Due by Period
---------------------------------------------
Less than After 5
Total 1 year 1-3 years 4-5 years years
- -------------------------------------------------------------------------------------------------
(millions)

Notes payable and commercial paper $ 3,833 $3,833 $ -- $ -- $ --
Notes, bonds, debentures and other debt instruments 15,870 1,682 2,504 868 10,816
Trade receivables securitization 820 820 -- -- --
Equity unit notes 1,725 -- -- 1,725 --
Capital lease obligations 379 66 134 155 24
Operating leases 2,793 815 1,026 507 445
Unconditional purchase obligations 2,463 1,133 1,167 -- 163
- -------------------------------------------------------------------------------------------------
Total contractual cash obligations $27,883 $8,349 $4,831 $3,255 $11,448
---------------------------------------------

- --------------------------------------------------------------------------------
Regulatory Developments
- --------------------------------------------------------------------------------

See ''Regulatory Developments'' in Part I. of this filing.

- --------------------------------------------------------------------------------
Financial Strategies
- --------------------------------------------------------------------------------

General Hedging Policies

Sprint selectively enters into interest rate swap and cap agreements to manage
its exposure to interest rate changes on its debt. Sprint also enters into
forward contracts and options in foreign currencies to reduce the impact of
changes in foreign exchange rates. Sprint seeks to minimize counterparty credit
risk through stringent credit approval and review processes, the selection of
only the most creditworthy counterparties, continual review and monitoring of
all counterparties, and thorough legal review of contracts. Sprint also
controls exposure to market risk by regularly monitoring changes in foreign
exchange and interest rate positions under normal and stress conditions to
ensure they do not exceed established limits.

Sprint's derivative transactions are used for hedging purposes only and comply
with Board-approved policies. Senior management receives frequent status
updates of all outstanding derivative positions.

Interest Rate Risk Management

Sprint's interest rate risk management program focuses on minimizing exposure
to interest rate movements, setting an optimal mixture of floating- and
fixed-rate debt, and minimizing liquidity risk. Sprint uses simulation analysis
to assess its interest rate

37

exposure and establish the desired ratio of floating- and fixed-rate debt. To
the extent possible, Sprint manages interest rate exposure and the
floating-to-fixed ratio through its borrowings, but sometimes uses interest
rate swaps and caps to adjust its risk profile.

Sprint does not have significant interest rate swap or cap activity to hedge
the effects of adverse fluctuations in interest rates at December 31, 2001.

Foreign Exchange Risk Management

Sprint's foreign exchange risk management program focuses on hedging
transaction exposure to optimize consolidated cash flow. Sprint's main
transaction exposure results from net payments made to overseas
telecommunications companies for completing international calls made by
Sprint's domestic customers. These international operations were not material
to the consolidated financial position, results of operations or cash flows at
year-end 2001. In addition, foreign currency transaction gains and losses were
not material to Sprint's 2001 results of operations. Sprint has not entered
into any significant foreign currency forward contracts or other derivative
instruments to hedge the effects of adverse fluctuations in foreign exchange
rates. As a result, Sprint was not subject to material foreign exchange risk.

- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
- --------------------------------------------------------------------------------
See Note 18 of Notes to Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements.

- --------------------------------------------------------------------------------
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------------------
The risk inherent in Sprint's market risk sensitive instruments and positions
is the potential loss arising from adverse changes in those factors. Sprint is
susceptible to certain risks related to changes in interest rates and foreign
currency exchange rate fluctuations. Sprint does not purchase or hold any
derivative financial instruments for trading purposes.

Interest Rate Risk

The communications industry is a capital intensive, technology driven business.
Sprint is subject to interest rate risk primarily associated with its
borrowings. Sprint selectively enters into interest rate swap and cap
agreements to manage its exposure to interest rate changes on its debt.
Approximately 71% of Sprint's debt at December 31, 2001 is fixed-rate debt.
While changes in interest rates impact the fair value of this debt, there is no
impact to earnings and cash flows because Sprint intends to hold these
obligations to maturity unless refinancing conditions are favorable.

Sprint performs interest rate sensitivity analyses on its variable rate debt.
These analyses indicate that a 1% change in interest rates would have a $57
million pre-tax impact on the consolidated statements of operations and cash
flows at December 31, 2001. While Sprint's variable-rate debt is subject to
earnings and cash flows impacts as interest rates change, it is not subject to
changes in fair values.

Sprint also prepared a value-at-risk analysis to assess the worst-case impact
of past market movements on Sprint's 2002 long-term debt portfolio. Based on
that analysis, which used average interest rates from 1980 to present, Sprint
is 95% confident that the fair value of outstanding debt would not increase
above Sprint's book value over the next six months.

Foreign Currency Risk

Sprint also enters into forward contracts and options in foreign currencies to
reduce the impact of changes in foreign exchange rates. Sprint uses foreign
currency derivatives to hedge its net foreign currency payable related to
settlement of international telecommunications access charges. The dollar
equivalent of Sprint's net foreign currency payables was $3 million at December
31, 2001. The potential immediate pre-tax loss to Sprint that would result from
a hypothetical 10% change in foreign currency exchange rates based on these
positions would be approximately $635 thousand.

- --------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
The information required by Item 8 is incorporated by reference to the section
beginning on page F-1.

- --------------------------------------------------------------------------------
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
No reportable items.

Part III

- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information relating to
Directors of Sprint required by Item 10 is incorporated by reference from
Sprint's definitive proxy statement which is to be filed pursuant to Regulation
14A within 120 days after the end of Sprint's fiscal year ended December 31,
2001.

For information pertaining to Executive Officers of Sprint, as required by
Instruction 3 of Paragraph (b) of Item 401 of Regulation S-K, refer to the
''Executive

38

Officers of the Registrant'' section of Part I of this document.

Pursuant to Instruction G(3) to Form 10-K, the information relating to
compliance with Section 16(a) required by Item 10 is incorporated by reference
from Sprint's definitive proxy statement which is to be filed pursuant to
Regulation 14A within 120 days after the end of Sprint's fiscal year ended
December 31, 2001.

- --------------------------------------------------------------------------------
Item 11. Executive Compensation
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 11
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 2001.

- --------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 12
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 2001.

- --------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 13
is incorporated by reference from Sprint's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end of
Sprint's fiscal year ended December 31, 2001.

39

Part IV

- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------------

(a) 1. The consolidated financial statements of Sprint filed as part of this
report are listed in the Index to Financial Statements, Financial
Statement Schedule and Exhibits.

2. The consolidated financial statement schedule of Sprint filed as part of
this report is listed in the Index to Financial Statements, Financial
Statement Schedule and Exhibits.

3. The following exhibits are filed as part of this report:

EXHIBITS

(3) Articles of Incorporation and Bylaws:
(a) Articles of Incorporation, as amended.

(b) Bylaws, as amended (filed as Exhibit 3(b) to Sprint Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
and incorporated herein by reference).

(4) Instruments defining the Rights of Sprint's Security Holders:

(a) The rights of Sprint's equity security holders are defined in the
Fifth, Sixth, Seventh and Eighth Articles of Sprint's Articles of
Incorporation. See Exhibit 3(a).

(b) Rights Agreement dated as of November 23, 1998, between Sprint
Corporation and UMB Bank, n.a. (filed as Exhibit 4.1 to Amendment
No. 1 to Sprint Corporation's Registration Statement on Form 8-A
registering Sprint's PCS Group Rights, filed November 25, 1998,
and incorporated herein by reference).

(c) Tracking Stock Policies of Sprint Corporation, as amended.

(d) Amended and Restated Standstill Agreement dated November 23, 1998,
by and among Sprint Corporation, France Telecom and Deutsche
Telekom AG (filed as Exhibit 4E to Post-Effective Amendment No. 2
to Sprint Corporation's Registration Statement on Form S-3 (No.
33-58488) and incorporated herein by reference) as amended by the
Master Transfer Agreement dated January 21, 2000 between and among
France Telecom, Deutsche Telekom AG, NAB Nordamerika Beteiligungs
Holding GmbH, Atlas Telecommunications, S.A., Sprint Corporation,
Sprint Global Venture, Inc. and the JV Entities set forth in
Schedule II thereto (filed as Exhibit 2 to Sprint Corporation's
Current Report on Form 8-K dated January 26, 2000 and incorporated
herein by reference).

(e) Indenture, dated as of October 1, 1998, among Sprint Capital
Corporation, Sprint Corporation and Bank One, N.A., as Trustee
(filed as Exhibit 4(b) to Sprint Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, and
incorporated herein by reference), as supplemented by the First
Supplemental Indenture, dated as of January 15, 1999, among Sprint
Capital Corporation, Sprint Corporation and Bank One, N.A., as
Trustee (filed as Exhibit 4(b) to Sprint Corporation's Current
Report on Form 8-K dated February 2, 1999 and incorporated herein
by reference), and as supplemented by the Second Supplemental
Indenture dated as of October 15, 2001, among Sprint Capital
Corporation, Sprint Corporation and Bank One, N.A. as Trustee
(filed as Exhibit 99 to Sprint Corporation's Current Report on
Form 8-K/A dated October 17, 2001 and incorporated herein by
reference).

(f) Indenture, dated as of October 1, 1998, between Sprint Corporation
and Bank One, N.A., as Trustee (filed as Exhibit 4(a) to Sprint
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by reference), as
supplemented by the First Supplemental Indenture, dated as of
January 15, 1999, between Sprint Corporation and Bank One, N.A.,
as Trustee (filed as Exhibit 4(a) to Sprint Corporation's Current
Report on Form 8-K dated February 2, 1999 and incorporated herein
by reference).

(g) Purchase Contract Agreement, dated as of August 10, 2001, between
Sprint Corporation and Bank One, National Association, as purchase
contract agent (filed as Exhibit 4(e) to Sprint Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001 and incorporated herein by reference).

40

(h) Form of Corporate Units Certificates, including the form of
Purchase Contract (included as Exhibit A to the Purchase Contract
Agreement filed as Exhibit 4(g)) (filed as Exhibit 4(f) to Sprint
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001 and incorporated herein by reference).

(i) Pledge Agreement, dated as of August 10, 2001, among Sprint
Corporation and Bank One, National Association, as collateral
agent and as purchase contract agent (filed as Exhibit 4(g) to
Sprint Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001 and incorporated herein by reference).

(j) Remarketing Agreement, dated as of August 10, 2001, among Sprint
Corporation, Sprint Capital Corporation, Bank One, National
Association, as purchase contract agent, and UBS Warburg LLC, as
remarketing agent (filed as Exhibit 4(h) to Sprint Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001 and incorporated herein by reference).

(k) Terms of 6% notes due 2006, including form of note (filed as
Exhibit 4(i) to Sprint Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001 and incorporated herein
by reference).

(10) Material Agreements

(a) Amended and Restated Stockholders' Agreement among France Telecom,
Deutsche Telekom AG and Sprint Corporation, dated as of November
23, 1998 (filed as Exhibit 10(c) to Sprint Corporation Annual
Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference) as amended by the Master
Transfer Agreement dated January 21, 2000 between and among France
Telecom, Deutsche Telekom AG, NAB Nordamerika Beteiligungs Holding
GmbH, Atlas Telecommunications, S.A., Sprint Corporation, Sprint
Global Venture, Inc. and the JV Entities set forth in Schedule II
thereto (filed as Exhibit 2 to Sprint Corporation's Current Report
on Form 8-K dated January 26, 2000 and incorporated herein by
reference).

(b) Amended and Restated Registration Rights Agreement, dated as of
November 23, 1998, among Sprint Corporation, France Telecom and
Deutsche Telekom A.G. (filed as Exhibit 10.1 to Amendment No. 1 to
Sprint Corporation Registration Statement on Form S-3 (No.
333-64241) and incorporated herein by reference) as amended by the
Master Transfer Agreement dated January 21, 2000 between and among
France Telecom, Deutsche Telekom AG, NAB Nordamerika Beteiligungs
Holding GmbH, Atlas Telecommunications, S.A., Sprint Corporation,
Sprint Global Venture, Inc. and the JV Entities set forth in
Schedule II thereto (filed as Exhibit 2 to Sprint Corporation's
Current Report on Form 8-K dated January 26, 2000 and incorporated
herein by reference) and as further amended by the Offering
Process Agreement dated as of February 20, 2001 between and among
France Telecom, Deutsche Telekom AG, NAB Nordamerika Beteiligungs
Holding GmbH and Sprint Corporation (filed as Exhibit 10(b) to
Sprint Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by reference).

(c) Registration Rights Agreement, dated as of November 23, 1998,
among Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc. (filed as Exhibit 10.2 to
Amendment No. 1 to Sprint Corporation Registration Statement on
Form S-3 (No. 333-64241) and incorporated herein by reference).

(d) Standstill Agreements, dated May 26, 1996, between Sprint
Corporation and each of Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc. (filed as Exhibit 10(g)
to Sprint Corporation Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference).

(e) 364-Day Credit Agreement, dated as of August 3, 2001, among Sprint
Corporation and Sprint Capital Corporation, as Borrowers, and the
initial Lenders named therein, as Initial Lenders, and Citibank,
N.A., as Administrative Agent, and Salomon Smith Barney Inc. and
J.P. Morgan Securities, Inc., as Joint Lead Arrangers and Book
Managers, and The Chase Manhattan Bank, as Syndication Agent, and
Bank of America, N.A., Deutsche Bank A.G. New York Branch and
First United National Bank, as Documentation Agents (filed as
Exhibit 10(a) to Sprint Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001 and incorporated
herein by reference).

(f) Five-Year Credit Agreement, dated as of August 7, 1998, among
Sprint Corporation and Sprint Capital Corporation, as Borrowers,
and the initial Lenders named therein, as Initial Lenders, and

41

Citibank, N.A., as Administrative Agent, and Morgan Guaranty Trust
Company of New York, as Syndication Agent, and Bank of America
National Trust and Savings Association and The Chase Manhattan
Bank, as Documentation Agents (filed as Exhibit 10.24 to Sprint
Corporation Registration Statement on Form S-3 (No. 333-64241) and
incorporated herein by reference).

(10) Executive Compensation Plans and Arrangements:

(g) 1990 Stock Option Plan, as amended (filed as Exhibit 99-B to
Sprint Corporation's Registration Statement on Form S-8 (No.
333-75664) and incorporated herein by reference).

(h) 1990 Restricted Stock Plan, as amended (filed as Exhibit 10(h) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 3, 1999 and incorporated herein by reference).

(i) Executive Deferred Compensation Plan, as amended (filed as Exhibit
10(i) to Sprint Corporation Annual Report on Form 10-K for the
year ended December 31, 1999 and incorporated herein by
reference). Summary of Amendments to the Executive Deferred
Compensation Plan (filed as Exhibit 10(i) to Sprint Corporation's
Annual Report on Form 10-K for the year ended December 31, 2000
and incorporated herein by reference).

(j) Management Incentive Stock Option Plan, as amended (filed as
Exhibit 99-A to Sprint Corporation's Registration Statement on
Form S-8 (No. 333-75664) and incorporated herein by reference).

(k) 1997 Long-Term Stock Incentive Program, as amended.

(l) Sprint Supplemental Executive Retirement Plan, as amended.

(m) Amended and Restated Centel Directors Deferred Compensation Plan
(filed as Exhibit 10(m) to Sprint Corporation Annual Report on
Form 10-K for the year ended December 31, 1999 and incorporated
herein by reference).

(n) Executive Long-Term Incentive Plan (filed as Exhibit 10(j) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).

(o) Executive Management Incentive Plan (filed as Exhibit 10(k) to
Sprint Corporation Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).

(p) Long-Term Incentive Compensation Plan, as amended (filed as
Exhibit 10(i) to Sprint Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, and incorporated herein
by reference).

(q) Management Incentive Plan, as amended (filed as Exhibit 10(r) to
Sprint Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by reference).

(r) Retirement Plan for Directors, as amended (filed as Exhibit 10(u)
to Sprint Corporation Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference).

(s) Key Management Benefit Plan, as amended (filed as Exhibit 10(g) to
Sprint Corporation Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference).

(t) Agreements Regarding Special Compensation and Post Employment
Restrictive Covenants between Sprint Corporation and certain of
its Executive Officers (filed as Exhibit 10(d) to Sprint
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, Exhibit 10(h) to Sprint Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, and Exhibit 10(w) to Sprint Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated
herein by reference).

(u) Director's Deferred Fee Plan, as amended (filed as Exhibit 10(v)
to Sprint Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999 and incorporated herein by reference).

(v) Form of Contingency Employment Agreements between Sprint
Corporation and certain of its executive officers (filed as
Exhibit 10(h) to Sprint Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000 and incorporated
herein by reference).

42

(w) Form of Indemnification Agreements between Sprint Corporation
(formerly United Telecommunications, Inc.) and its Directors and
Officers (filed as Exhibit 10(s) to Sprint Corporation's Annual
Report on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference).

(x) Summary of Executive Officer Benefits and Board of Directors
Benefits and Fees (filed as Exhibit 10(b) to Sprint Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001 and incorporated herein by reference).

(y) Executive agreement dated as of July 30, 2001 by and among Sprint
Corporation, Sprint/United Management Company, and Charles E.
Levine (filed as Exhibit 10(c) to Sprint Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001 and
incorporated herein by reference).

(z) Special Incentive Plan (filed as Exhibit 10(g) to Sprint
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 and incorporated herein by reference).

(aa)Employment Agreements dated as of February 26, 2001 by and among
Sprint Corporation, Sprint/United Management Company and William
T. Esrey and Ronald T. LeMay (filed as Exhibit 10(bb) to Sprint
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by reference).

(bb)Executive Agreement dated as of July 30, 2001 by and among Sprint
Corporation, Sprint/United Management Company, and Len Lauer.

(12) Computation of Ratio of Earnings to Fixed Charges

(21) Subsidiaries of Registrant

(23) Consent of Ernst & Young LLP

Sprint will furnish to the Securities and Exchange Commission, upon request, a
copy of the instruments defining the rights of holders of its long-term debt.
The total amount of securities authorized under any of said instruments (other
than those listed above) does not exceed 10% of the total assets of Sprint.

(b) Reports on Form 8-K

Sprint filed a Current Report on Form 8-K/A dated October 17, 2001 in
which it reported that it had announced third quarter 2001 results and
that it had announced that it will terminate its effort's to develop and
provide Sprint ION services along with additional steps to improve the
competitive positioning and reduce operating costs in the FON Group.

The news release regarding third quarter 2001 results, which was included
in the Current Report, included the following financial information:

Sprint Corporation Consolidated Statements of Operations
Sprint Corporation Selected Operating Results
Sprint Corporation Consolidated Balance Sheets
Sprint Corporation Condensed Consolidated Cash Flow Information
Sprint Corporation Pro Forma Selected Operating Results
Sprint Corporation PCS Group Net Customer Additions

On February 7, 2002, Sprint filed a Current Report on Form 8-K dated
February 4, 2002, in which it reported that it had announced fourth
quarter 2001 and calendar year 2001 results.

The news release regarding fourth quarter 2001 and calendar year 2001
results, which was included in the Current Report, included the following
financial information:

Sprint Corporation Consolidated Statements of Operations
Sprint Corporation Selected Operating Results
Sprint Corporation Consolidated Balance Sheets
Sprint Corporation Condensed Consolidated Cash Flow Information
Sprint FON Group Summary Financial Information
Sprint Corporation Pro Forma Selected Operating Results
Sprint Corporation PCS Group Net Customer Additions

43

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

SPRINT CORPORATION
(Registrant)

By /s/ W. T. Esrey
------------------------------------
William T. Esrey
Chairman and Chief Executive Officer

Date: March 4, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 4th day of March, 2002.

/s/ W. T. Esrey
------------------------------------
William T. Esrey
Chairman and Chief Executive Officer

/s/ Arthur B. Krause
------------------------------------
Arthur B. Krause
Executive Vice President and
Chief Financial Officer

/s/ John P. Meyer
------------------------------------
John P. Meyer
Senior Vice President and Controller
Principal Accounting Officer

44

SIGNATURES

SPRINT CORPORATION
(Registrant)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 4th day of March, 2002.

/s/ DuBose Ausley /s/ Linda K. Lorimer
- --------------------------------- --------------------------
DuBose Ausley, Director Linda K. Lorimer, Director

/s/ Warren L. Batts /s/ Charles E. Rice
- --------------------------------- --------------------------
Warren L. Batts, Director Charles E. Rice, Director

/s/ W. T. Esrey /s/ Louis W. Smith
- --------------------------------- --------------------------
William T. Esrey, Director Louis W. Smith, Director

/s/ Irvine O. Hockaday, Jr. /s/ Stewart Turley
- --------------------------------- --------------------------
Irvine O. Hockaday, Jr., Director Stewart Turley, Director

/s/ Ronald T. LeMay
- ---------------------------------
Ronald T. LeMay, Director

45

- --------------------------------------------------------------------------------
Index to Financial Statements, Financial Statement Schedule and Exhibits
- --------------------------------------------------------------------------------

Page
SPRINT CORPORATION Reference
- ------------------ ---------

Consolidated Financial Statements (including Consolidating Information)

Management Report F-2
Report of Independent Auditors F-3
Consolidated Statements of Operations for each of the three years ended December 31, 2001 F-4
Consolidated Statements of Comprehensive Income (Loss) for each of the three years ended December 31, 2001 F-6
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-8
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2001 F-12
Consolidated Statements of Shareholders' Equity for each of the three years ended December 31, 2001 F-14
Notes to Consolidated Financial Statements F-16

Financial Statement Schedule
Schedule II--Consolidated Valuation and Qualifying Accounts for each of the three years ended December 31,
2001 F-44

Exhibits

(12)--Computation of Ratio of Earnings to Fixed Charges
(21)--Subsidiaries of Registrant
(23)--Consent of Ernst & Young LLP

F-1

MANAGEMENT REPORT

Sprint Corporation's management is responsible for the integrity and
objectivity of the information contained in this document. Management is
responsible for the consistency of reporting this information and for ensuring
that accounting principles generally accepted in the United States are used.

In discharging this responsibility, management maintains a comprehensive system
of internal controls and supports an extensive program of internal audits, has
made organizational arrangements providing appropriate divisions of
responsibility and has established communication programs aimed at assuring
that its policies, procedures and principles of business conduct are understood
and practiced by its employees.

The financial statements included in this document have been audited by Ernst &
Young LLP, independent auditors. Their audits were conducted using auditing
standards generally accepted in the United States and their report is included
herein.

The Board of Director's responsibility for these financial statements is
pursued mainly through its Audit Committee. The Audit Committee, composed
entirely of directors who are not officers or employees of Sprint, meets
periodically with the internal auditors and independent auditors, both with and
without management present, to assure that their respective responsibilities
are being fulfilled. The internal and independent auditors have full access to
the Audit Committee to discuss auditing and financial reporting matters.

/s/ W. T. Esrey
- --------------------------------------------------------------------------------
William T. Esrey
Chairman and Chief Executive Officer

/s/ Arthur B. Krause
- --------------------------------------------------------------------------------
Arthur B. Krause
Executive Vice President and Chief Financial Officer

F-2

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Sprint Corporation

We have audited the accompanying consolidated balance sheets of Sprint
Corporation (Sprint) as of December 31, 2001 and 2000, and the related
consolidated statements of operations, comprehensive income (loss), cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 2001. Our audits also included the financial statement schedule
listed in the Index to Financial Statements, Financial Statement Schedule and
Exhibits. These financial statements and the schedule are the responsibility of
the management of Sprint. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sprint at
December 31, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Kansas City, Missouri
February 4, 2002

F-3

CONSOLIDATED STATEMENTS OF OPERATIONS
(millions)

Sprint Corporation
-------------------------
Consolidated
- ----------------------------------------------------------------------------------------
Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------------------------------------

Net Operating Revenues $26,071 $23,613 $20,265
- ---------------------------------------------------------------------------------------
Operating Expenses
Costs of services and products 12,995 11,620 10,363
Selling, general and administrative 7,325 6,919 6,557
Depreciation 4,217 3,538 3,146
Amortization 382 606 506
Restructuring and asset impairments 1,814 238 --
Merger related costs -- 187 --
- ---------------------------------------------------------------------------------------
Total operating expenses 26,733 23,108 20,572
- ---------------------------------------------------------------------------------------
Operating Income (Loss) (662) 505 (307)
Interest expense (1,181) (990) (860)
Intergroup interest charge -- -- --
Minority interest -- -- 20
Other income (expense), net (183) (217) 75
- ---------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes (2,026) (702) (1,072)
Income tax (expense) benefit 624 126 327
- ---------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations (1,402) (576) (745)
Discontinued operation, net -- 675 (130)
Extraordinary items, net (1) (4) (60)
Cumulative effect of changes in accounting principles, net 2 (2) --
- ---------------------------------------------------------------------------------------
Net Income (Loss) (1,401) 93 (935)
- ---------------------------------------------------------------------------------------
Preferred stock dividends (paid) received (7) (7) (8)
- ---------------------------------------------------------------------------------------
Earnings (loss) applicable to common stock $(1,408) $ 86 $ (943)
-------------------------
Diluted Earnings (Loss) per Common Share/(1),(2)/
Continuing operations
Discontinued operations
Extraordinary items
- ---------------------------------------------------------------------------------------
Total
Diluted weighted average common shares/(2)/

Basic Earnings (Loss) per Common Share/(1)/
Continuing operations
Discontinued operations
Extraordinary items
- ---------------------------------------------------------------------------------------
Total
Basic weighted average common shares/(2)/

DIVIDENDS PER COMMON SHARE
FON common stock/(1)/
Class A common stock

/(1) In the 2000 first quarter, Sprint effected a two-for-one stock split of
its PCS common stock. In the 1999 second quarter, Sprint effected a
two-for-one stock split of its Sprint FON common stock. As a result, basic
and diluted earnings (loss) per common share, weighted average common
shares and dividends for Sprint FON common stock and Sprint PCS common
stock have been restated for periods prior to these stock splits. /
/(2) As the effects of including the incremental shares associated with options
and Employees Stock Purchase Plan shares are antidilutive, both basic loss
per share and diluted loss per share reflect the same calculation in these
consolidated statements of operations for the PCS Group for all periods
presented and for the year ended December 31, 2001 for the FON Group. /

See accompanying Notes to Consolidated Financial Statements.

F-4

Eliminations/Reclassifications Sprint FON Group Sprint PCS Group
- ----------------------------- ------------------------- -------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
- ----------------------------- ------------------------- -------------------------

$(578) $(416) $(268) $16,924 $17,688 $17,160 $ 9,725 $ 6,341 $ 3,373
- ----------------------------- ------------------------- -------------------------

(578) (416) (268) 8,278 8,094 7,481 5,295 3,942 3,150
-- -- -- 4,408 4,493 4,620 2,917 2,426 1,937
-- -- -- 2,431 2,199 2,086 1,786 1,339 1,060
-- -- -- 18 68 43 364 538 463
-- -- -- 1,804 238 -- 10 -- --
-- -- -- -- 163 -- -- 24 --
- ----------------------------- ------------------------- -------------------------
(578) (416) (268) 16,939 15,255 14,230 10,372 8,269 6,610
- ----------------------------- ------------------------- -------------------------
-- -- -- (15) 2,433 2,930 (647) (1,928) (3,237)
15 19 20 (345) (313) (350) (851) (696) (530)
-- -- -- 288 237 168 (288) (237) (168)
-- -- -- -- -- -- -- -- 20
(26) (19) (20) (56) (187) 49 (101) (11) 46
- ----------------------------- ------------------------- -------------------------
(11) -- -- (128) 2,170 2,797 (1,887) (2,872) (3,869)
4 -- -- (18) (878) (1,061) 638 1,004 1,388
- ----------------------------- ------------------------- -------------------------
(7) (146) 1,292 1,736 (1,249) (1,868) (2,481)
-- -- -- -- 675 (130) -- -- --
7 -- -- (1) (1) (39) (7) (3) (21)
-- -- -- -- (2) -- 2 -- --
- ----------------------------- ------------------------- -------------------------
-- -- -- (147) 1,964 1,567 (1,254) (1,871) (2,502)
- ----------------------------- ------------------------- -------------------------
-- -- -- 7 7 7 (14) (14) (15)
- ----------------------------- ------------------------- -------------------------
$ -- $ -- $ -- $ (140) $ 1,971 $ 1,574 $(1,268) $(1,885) $(2,517)
- ----------------------------- ------------------------- -------------------------
$ (0.16) $ 1.45 $ 1.97 $ (1.27) $ (1.95) $ (2.71)
-- 0.76 (0.15) -- -- --
-- -- (0.04) (0.01) -- (0.02)
- ----------------------------- ------------------------- -------------------------
$ (0.16) $ 2.21 $ 1.78 $ (1.28) $ (1.95) $ (2.73)
------------------------- -------------------------
886.8 892.4 887.2 989.7 966.5 920.4
------------------------- -------------------------
$ (0.16) $ 1.47 $ 2.01 $ (1.27) $ (1.95) $ (2.71)
-- 0.77 (0.15) -- -- --
-- -- (0.05) (0.01) -- (0.02)
- ----------------------------- ------------------------- -------------------------
$ (0.16) $ 2.24 $ 1.81 $ (1.28) $ (1.95) $ (2.73)
------------------------- -------------------------
886.8 880.9 868.0 989.7 966.5 920.4
------------------------- -------------------------
$ 0.50 $ 0.50 $ 0.50 $ -- $ -- $ --
------------------------- -------------------------
$ 0.125 $ 0.50 $ 0.625 $ -- $ -- $ --
------------------------- -------------------------

F-5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(millions)

Sprint Corporation
--------------------
Consolidated
--------------------
Years Ended December 31, 2001 2000 1999
- ----------------------------------------------------------------------------------------------

Net Income (Loss) $(1,401) $ 93 $(935)
- ----------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss)
Net unrealized holding gains (losses) on securities (net of consolidated
income tax (expense) benefit of $(5), $23, and $(20)) 7 (41) 34
Total net reclassification adjustments for gains included in net income
(loss) (net of consolidated income tax expense of $9, $5, and $32) (15) (10) (57)
- ----------------------------------------------------------------------------------------------
Total net unrealized holding gains (losses) on securities (8) (51) (23)
Foreign currency translation adjustments (17) (9) --
Reclassification adjustment for losses included in net income (loss) 31 -- --
- ----------------------------------------------------------------------------------------------
Total foreign currency translation adjustments 14 (9) --
Net unrealized losses on qualifying cash flow hedges (4) -- --
Cumulative effect of change in accounting principle (9) -- --
- ----------------------------------------------------------------------------------------------
Total other comprehensive income (loss) (7) (60) (23)
- ----------------------------------------------------------------------------------------------
Comprehensive Income (Loss) $(1,408) $ 33 $(958)
--------------------

See accompanying Notes to Consolidated Financial Statements.

F-6

Eliminations/Reclassifications Sprint FON Group Sprint PCS Group
- ------------------------------ --------------------- -------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
- ------------------------------ --------------------- -------------------------

$ -- $ -- $ -- $(147) $1,964 $1,567 $(1,254) $(1,871) $(2,502)
- ------------------------------ --------------------- -------------------------

5 -- 8 2 (44) 21 -- 3 5

7 -- -- (22) (2) (57) -- (8) --
- ------------------------------ --------------------- -------------------------
12 -- 8 (20) (46) (36) -- (5) 5
-- -- -- (16) (12) -- (1) 3 --
-- -- -- 31 -- -- -- -- --
- ------------------------------ --------------------- -------------------------
-- -- -- 15 (12) -- (1) 3 --
-- -- -- (4) -- -- -- -- --
-- -- -- (9) -- -- -- -- --
- ------------------------------ --------------------- -------------------------
12 -- 8 (18) (58) (36) (1) (2) 5
- ------------------------------ --------------------- -------------------------
$ 12 $ -- $ 8 $(165) $1,906 $1,531 $(1,255) $(1,873) $(2,497)
- ------------------------------ --------------------- -------------------------

F-7

CONSOLIDATED BALANCE SHEETS
Sprint Corporation
(millions) ------------------
Consolidated
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2001 2000
- ------------------------------------------------------------------------------------------------------------------------

Assets
Current assets
Cash and equivalents $ 313 $ 239
Accounts receivable, net of consolidated allowance for doubtful accounts of $484 and $406 3,806 4,028
Inventories 690 949
Prepaid expenses 388 366
Receivable from the PCS Group -- --
Current tax benefit receivable from the FON Group -- --
Other 365 391
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 5,562 5,973
Property, plant and equipment
FON Group 34,113 30,998
PCS Group 14,634 12,117
- ------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 48,747 43,115
Accumulated depreciation (19,770) (17,799)
- ------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 28,977 25,316
Investments in and advances to affiliates 288 607
Intangibles
Goodwill 4,737 4,739
PCS licenses and microwave relocation costs 3,429 3,470
Other intangibles 2,405 2,490
- ------------------------------------------------------------------------------------------------------------------------
Total intangibles 10,571 10,699
Accumulated amortization (1,509) (1,134)
- ------------------------------------------------------------------------------------------------------------------------
Net intangibles 9,062 9,565
Other assets 1,904 1,607
- ------------------------------------------------------------------------------------------------------------------------
Total $ 45,793 $ 43,068
------------------

See accompanying Notes to Consolidated Financial Statements.

F-8

Eliminations/Reclassifications Sprint FON Group Sprint PCS Group
------------------------------ ------------------ -----------------
2001 2000 2001 2000 2001 2000
----------------------------- ------------------ -----------------

$ -- $ -- $ 134 $ 122 $ 179 $ 117
-- -- 2,415 3,126 1,391 902
-- -- 248 434 442 515
-- -- 253 276 135 90
(234) (334) 234 334 -- --
-- (26) -- -- -- 26
-- (2) 201 193 164 200
----------------------------- ------------------ -----------------
(234) (362) 3,485 4,485 2,311 1,850

-- -- 34,113 30,998 -- --
-- -- -- -- 14,634 12,117
----------------------------- ------------------ -----------------
-- -- 34,113 30,998 14,634 12,117
(47) (39) (16,605) (15,165) (3,118) (2,595)
----------------------------- ------------------ -----------------
(47) (39) 17,508 15,833 11,516 9,522
(280) (383) 417 842 151 148

-- -- 31 31 4,706 4,708
-- -- -- -- 3,429 3,470
-- -- 1,613 1,697 792 793
----------------------------- ------------------ -----------------
-- -- 1,644 1,728 8,927 8,971
-- -- (77) (57) (1,432) (1,077)
----------------------------- ------------------ -----------------
-- -- 1,567 1,671 7,495 7,894
-- -- 1,187 1,258 717 349
----------------------------- ------------------ -----------------
$(561) $(784) $ 24,164 $ 24,089 $22,190 $19,763
----------------------------- ------------------ -----------------

F-9

CONSOLIDATED BALANCE SHEETS (continued)
(millions, except per share data)

Sprint Corporation
-----------------
Consolidated
- -------------------------------------------------------------------------------------
December 31, 2001 2000
- ------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings and current maturities of
long-term debt $ 4,401 $ 1,205
Accounts payable 2,113 2,285
Construction obligations 577 997
Accrued interconnection costs 569 547
Accrued taxes 468 440
Advance billings 731 607
Accrued restructuring costs 390 --
Payroll and employee benefits 569 498
Accrued interest 309 255
Payables to the FON Group -- --
Other 1,309 1,134
- ------------------------------------------------------------------------------------
Total current liabilities 11,436 7,968
Noncurrent liabilities
Long-term debt and capital lease obligations 16,501 17,514
Equity unit notes 1,725 --
Deferred income taxes and investment tax credits 1,553 1,827
Postretirement and other benefit obligations 948 1,077
Other 758 710
- ------------------------------------------------------------------------------------
Total noncurrent liabilities 21,485 21,128
Redeemable preferred stock 256 256
Shareholders' equity
Common stock
Class A FT, par value $.50 and $2.50 per share,
100.0 shares authorized, 43.1 and 43.1 shares
issued and outstanding 22 108
Class A DT, par value $0.00 and $2.50 per share,
100.0 shares authorized, 0.0 and 43.1 shares
issued and outstanding -- 108
FON, par value $2.00 per share, 4,200.0 shares
authorized, 888.8 and 798.8 shares issued and
888.8 and 798.4 shares outstanding 1,778 1,598
PCS, par value $1.00 per share, 4,600.0 and 2,350.0
shares authorized, 986.7 and 933.1 shares issued
and outstanding 987 933
Capital in excess of par or stated value 10,076 9,380
Retained earnings (deficit) (261) 1,578
Treasury stock, at cost, 0.0 and 0.4 shares -- (10)
Accumulated other comprehensive income 14 21
Combined attributed net assets -- --
- ------------------------------------------------------------------------------------
Total shareholders' equity 12,616 13,716
- ------------------------------------------------------------------------------------
Total $45,793 43,068
-----------------

See accompanying Notes to Consolidated Financial Statements.

F-10

Eliminations/Reclassifications Sprint FON Group Sprint PCS Group
----------------------------- ---------------- ----------------
2001 2000 2001 2000 2001 2000
----------------------------- ---------------- ----------------

$ -- $ (65) $ 2,056 $ 1,026 $ 2,345 $ 244
-- -- 1,432 1,598 681 687
-- -- -- -- 577 997
-- -- 569 547 -- --
-- (27) 239 264 229 203
-- -- 499 462 232 145
-- -- 390 -- -- --
-- -- 449 377 120 121
-- -- 47 109 262 146
(234) (269) -- -- 234 269
(47) (40) 617 594 739 580
----------------------------- ---------------- ----------------
(281) (401) 6,298 4,977 5,419 3,392
-- (104) 3,258 3,482 13,243 14,136

-- -- -- -- 1,725 --
-- (6) 1,552 1,743 1 90
-- -- 948 1,077 -- --
-- -- 394 457 364 253
----------------------------- ---------------- ----------------
-- (110) 6,152 6,759 15,333 14,479
(280) (280) 10 10 526 526

22 108 -- -- -- --

-- 108 -- -- -- --

1,778 1,598 -- -- -- --

987 933 -- -- -- --
10,076 9,380 -- -- -- --
(261) 1,578 -- -- -- --
-- (10) -- -- -- --
14 21 -- -- -- --
(12,616) (13,709) 11,704 12,343 912 1,366
----------------------------- ---------------- ----------------
-- 7 -- -- -- --
----------------------------- ---------------- ----------------
$ (561) $ (784) $24,164 $24,089 $22,190 $19,763
----------------------------- ---------------- ----------------

F-11

CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)

Sprint Corporation
-------------------------
Consolidated
- -------------------------------------------------------------------------------------
Years Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------------

Operating Activities
Net income (loss) $(1,401) $ 93 $ (935)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Discontinued operation, net -- (675) 130
Extraordinary items, net 1 4 60
Equity in net losses of affiliates 175 256 70
Depreciation and amortization 4,599 4,144 3,652
Deferred income taxes and investment tax credits (695) (205) (333)
Non-cash portion of restructuring charge 59 -- --
Benefit plan curtailment gain (120) -- --
Net losses (gains) on sales of assets 4 (130) (183)
Net losses on write-down of assets 1,491 365 102
Changes in assets and liabilities:
Accounts receivable, net 222 (640) (700)
Inventories and other current assets 133 146 (778)
Accounts payable and other current liabilities 366 947 906
Current tax benefit receivable from the FON Group -- -- --
Affiliate receivables and payables, net -- -- --
Noncurrent assets and liabilities, net (131) (26) (63)
Other, net (12) 18 11
- ------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 4,691 4,297 1,939
- ------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (9,046) (7,152) (6,114)
Repayments from Sprint PCS -- -- --
Investments in and loans to other affiliates, net (66) (889) (135)
Net proceeds from sales of assets 301 258 243
Purchase of broadband fixed wireless companies, net of
cash acquired -- -- (618)
Other, net 33 (9) (136)
- ------------------------------------------------------------------------------------
Net cash used by continuing operations (8,778) (7,792) (6,760)
Proceeds from sale of investment in Global One -- 1,403 --
Net investing activities of discontinued operation -- -- (384)
- ------------------------------------------------------------------------------------
Net cash used by investing activities (8,778) (6,389) (7,144)
- ------------------------------------------------------------------------------------
Financing Activities
Proceeds from debt 7,652 3,596 6,921
Payments on debt (5,389) (1,339) (2,949)
Proceeds from equity unit notes 1,725 -- --
Proceeds from common stock issued 608 269 957
Proceeds from treasury stock issued 3 12 134
Dividends paid (451) (448) (441)
Treasury stock purchased -- (61) (48)
Other, net 13 182 146
- ------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 4,161 2,211 4,720
- ------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Equivalents 74 119 (485)
- ------------------------------------------------------------------------------------
Cash and Equivalents at Beginning of Period 239 120 605
- ------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 313 $ 239 $ 120
-------------------------

See accompanying Notes to Consolidated Financial Statements.

F-12

Eliminations/Reclassifications Sprint FON Group Sprint PCS Group
- ----------------------------- ------------------------- -------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
- ----------------------------- ------------------------- -------------------------

$ -- $ -- $ -- $ (147) $ 1,964 1,567 $(1,254) $(1,871) $(2,502)

-- -- -- -- (675) 130 -- -- --
(7) -- -- 1 1 39 7 3 21
-- -- -- 64 201 70 111 55 --
-- -- -- 2,449 2,267 2,129 2,150 1,877 1,523
-- -- -- (238) 386 220 (457) (591) (553)
-- 56 -- -- 3 -- --
-- -- -- (120) -- -- -- -- --
-- -- -- 18 (83) (158) (14) (47) (25)
-- -- -- 1,491 365 102 -- -- --
-- -- -- 711 (316) (459) (489) (324) (241)

(2) 411 (411) 118 39 (130) 17 (304) (237)
24 (144) 268 359 444 275 (17) 647 363
(26) (267) 123 -- -- -- 26 267 (123)
-- -- -- 54 (155) (35) (54) 155 35
1 -- -- (186) (103) (76) 54 77 13
10 -- (49) (45) (30) 26 23 48 34
- ----------------------------- ------------------------- -------------------------
-- -- (69) 4,585 4,305 3,700 106 (8) (1,692)
- ----------------------------- ------------------------- -------------------------

-- -- -- (5,295) (4,105) (3,534) (3,751) (3,047) (2,580)
-- -- (314) -- -- 314 -- -- --
-- -- -- (37) (686) (135) (29) (203) --
-- -- -- 263 51 90 38 207 153

-- -- -- -- -- (618) -- -- --
-- -- 15 33 2 (69) -- (11) (82)
- ----------------------------- ------------------------- -------------------------
-- -- (299) (5,036) (4,738) (3,952) (3,742) (3,054) (2,509)
-- -- -- -- 1,403 -- -- -- --
-- -- -- -- -- (384) -- -- --
- ----------------------------- ------------------------- -------------------------
-- -- (299) (5,036) (3,335) (4,336) (3,742) (3,054) (2,509)
- ----------------------------- ------------------------- -------------------------

-- -- -- 2,625 344 1,020 5,027 3,252 5,901
-- -- 314 (1,604) (932) (529) (3,785) (407) (2,734)
-- -- -- -- -- -- 1,725 -- --
-- -- -- 21 148 52 587 121 905
-- -- -- 3 12 134 -- -- --
-- -- -- (437) (433) (426) (14) (15) (15)
-- -- -- -- (61) (48) -- -- --
-- -- 54 (145) (30) 105 158 212 (13)
- ----------------------------- ------------------------- -------------------------
-- -- 368 463 (952) 308 3,698 3,163 4,044
- ----------------------------- ------------------------- -------------------------
-- -- -- 12 18 (328) 62 101 (157)
- ----------------------------- ------------------------- -------------------------
-- -- -- 122 104 432 117 16 173
- ----------------------------- ------------------------- -------------------------
$ -- $ -- $ -- $ 134 $ 122 $ 104 $ 179 $ 117 $ 16
- ----------------------------- ------------------------- -------------------------

F-13

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Sprint Corporation
(millions)

- -----------------------------------------------------------------------------------------------

Class A FT Class A DT FON PCS
Common Common Common Common
Stock Stock Stock Stock
- -----------------------------------------------------------------------------------------------

Beginning 1999 balance $ 108 $ 108 $ 701 $ 375
Net income (loss) -- -- -- --
FON common stock dividends -- -- -- --
Class A common stock dividends -- -- -- --
PCS preferred stock dividends -- -- -- --
FON Series 3 common stock issued -- -- 2 --
PCS Series 1 common stock issued -- -- -- 27
PCS Series 2 common stock issued -- -- -- 24
PCS Series 3 common stock issued -- -- -- 7
Two-for-one stock splits -- -- 873 477
Treasury stock purchased -- -- -- --
Treasury stock issued -- -- -- --
Tax benefit from stock compensation -- -- -- --
Other, net -- -- -- --
- -----------------------------------------------------------------------------------------------
Ending 1999 balance 108 108 1,576 910
Net income (loss) -- -- -- --
FON common stock dividends -- -- -- --
Class A common stock dividends -- -- -- --
PCS preferred stock dividends -- -- -- --
FON Series 1 common stock issued -- -- 22 --
PCS Series 1 common stock issued -- -- -- 23
Treasury stock purchased -- -- -- --
Treasury stock issued -- -- -- --
Tax benefit from stock compensation -- -- -- --
Intergroup stock compensation -- -- -- --
Other, net -- -- -- --
- -----------------------------------------------------------------------------------------------
Ending 2000 balance 108 108 1,598 933
Net loss -- -- -- --
FON common stock dividends -- -- -- --
Class A common stock dividends -- -- -- --
PCS preferred stock dividends -- -- -- --
Conversion of common stock underlying Class A common stock (86) (108) 172 22
FON Series 1 common stock issued -- -- 8 --
PCS Series 1 common stock issued -- -- -- 32
Treasury stock issued -- -- -- --
Fair value of contract adjustment payment liability -- -- -- --
Tax benefit from stock compensation -- -- -- --
Intergroup stock compensation -- -- -- --
Other, net -- -- -- --
- -----------------------------------------------------------------------------------------------
Ending 2001 balance $ 22 $ -- $1,778 $ 987
------------------------------------
Shares Outstanding
- -----------------------------------------------------------------------------------------------
Beginning 1999 balance 43.1 43.1 344.5 372.7
FON Series 3 common stock issued -- -- 1.2 --
PCS Series 1 common stock issued -- -- -- 27.1
PCS Series 2 common stock issued -- -- -- 24.3
PCS Series 3 common stock issued -- -- -- 6.9
Two-for-one stock splits -- -- 433.5 476.7
Treasury stock purchased -- -- (0.6) --
Treasury stock issued -- -- 9.4 2.7
- -----------------------------------------------------------------------------------------------
Ending 1999 balance 43.1 43.1 788.0 910.4
FON Series 1 common stock issued -- -- 10.8 --
PCS Series 1 common stock issued -- -- -- 22.7
Treasury stock purchased -- -- (2.0) --
Treasury stock issued -- -- 1.6 --
- -----------------------------------------------------------------------------------------------
Ending 2000 balance 43.1 43.1 798.4 933.1
Conversion of common stock underlying Class A common stock -- -- 86.2 21.6
Cancellation of Class A DT common stock stock -- (43.1) -- --
FON Series 1 common stock issued -- -- 3.8 --
PCS Series 1 common stock issued -- -- -- 32.0
Treasury stock issued -- -- 0.4 --
- -----------------------------------------------------------------------------------------------
Ending 2001 balance 43.1 -- 888.8 986.7
------------------------------------

See accompanying Notes to Consolidated Financial Statements.

F-14

- ------------------------------------------------------------------------------------------------
Capital In
Excess of
Par or Retained Combined Attributed Net Assets
Stated Earnings Treasury Consolidated --------------------------------
Value (deficit) Stock Other Total Eliminations Sprint FON Group Sprint PCS Group
- -----------------------------------------------------------------------------------------------

$ 7,586 $ 3,651 $(426) $ 99 $12,202 $(51) $ 9,024 $ 3,229
-- (935) -- -- (935) -- 1,567 (2,502)
-- (380) -- -- (380) -- (380) --
-- (54) -- -- (54) -- (54) --
-- (8) -- -- (8) -- 7 (15)
50 -- -- -- 52 -- 52 --
674 -- -- -- 701 -- -- 701
1,122 -- -- -- 1,146 -- -- 1,146
210 -- -- -- 217 -- -- 217
(1,350) -- -- -- -- -- -- --
-- -- (48) -- (48) -- (48) --
-- (315) 472 -- 157 -- 157 --
254 -- -- -- 254 -- 223 31
23 2 -- (16) 9 56 (34) (13)
- -----------------------------------------------------------------------------------------------
8,569 1,961 (2) 83 13,313 5 10,514 2,794
-- 93 -- -- 93 -- 1,964 (1,871)
-- (398) -- -- (398) -- (398) --
-- (44) -- -- (44) -- (44) --
-- (7) -- -- (7) -- 7 (14)
180 -- -- -- 202 -- 202 --
207 -- -- -- 230 -- -- 230
-- -- (61) -- (61) -- (61) --
-- (29) 53 -- 24 -- 24 --
424 -- -- -- 424 -- 276 148
-- -- -- -- -- -- (80) 80
-- 2 -- (62) (60) 2 (61) (1)
- -----------------------------------------------------------------------------------------------
9,380 1,578 (10) 21 13,716 7 12,343 1,366
-- (1,401) -- -- (1,401) -- (147) (1,254)
-- (433) -- -- (433) -- (433) --
-- (11) -- -- (11) -- (11) --
-- (7) -- -- (7) -- 7 (14)
-- -- -- -- -- -- -- --
78 -- -- -- 86 -- 86 --
671 -- -- -- 703 -- -- 703
-- (3) 10 -- 7 -- 7 --
(53) -- -- -- (53) -- -- (53)
17 -- -- -- 17 -- 9 8
-- -- -- -- -- -- (160) 160
(17) 16 -- (7) (8) (7) 3 (4)
- -----------------------------------------------------------------------------------------------
$10,076 $ (261) $ -- $ 14 $12,616 $ -- $11,704 $ 912
- ----------------------------------------------------------------------------------------------

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sprint Corporation

- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------

Tracking Stock Formation

In November 1998, Sprint's shareholders approved the allocation of all of
Sprint's assets and liabilities into two groups, the FON Group and the PCS
Group, as well as the creation of the FON common stock and the PCS common
stock. In addition, Sprint 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. (Cox PCS).
Sprint acquired these ownership interests from Tele-Communications, Inc.,
Comcast Corporation and Cox Communications, Inc. (the Cable Partners). In
exchange, Sprint issued the Cable Partners special low-vote PCS shares and
warrants to acquire additional PCS shares. Sprint also issued the Cable
Partners shares of a new class of preferred stock convertible into PCS shares.
The purchase of the Cable Partners' interests is referred to as the PCS
Restructuring. In the 1999 second quarter, Sprint acquired the remaining
minority interest in Cox PCS.

Also in November 1998, Sprint reclassified each of its publicly traded common
shares into one share of FON stock and 1/2 share of PCS stock. This
recapitalization was tax-free to shareholders. In addition, the Class A common
shares owned by France Telecom (FT) and Deutsche Telekom AG (DT) were
reclassified into shares representing both FON stock and PCS stock. These
transactions are referred to as the Recapitalization.

In connection with the PCS Restructuring, FT and DT purchased 5.1 million
additional PCS shares (pre-split basis).

At the end of 2001, FT no longer held FON shares and DT no longer held either
FON or PCS shares.

FON common stock and PCS common stock are intended to reflect the financial
results and economic value of the FON and PCS Groups. However, they are classes
of common stock of Sprint, not of the group they are intended to track.
Accordingly, FON and PCS shareholders are subject to the risks related to an
equity investment in Sprint and all of Sprint's businesses, assets and
liabilities. Shares of FON common stock and PCS common stock do not represent a
direct legal interest in the assets and liabilities allocated to either group,
as Sprint owns all of the assets and liabilities of both of the groups.
Sprint's Board may, subject to the restrictions in Sprint's articles of
incorporation, change the allocation of the assets and liabilities that
comprise each of the FON Group and the PCS Group without shareholder approval.

Board Discretion Regarding Tracking Stocks

Sprint's Board has the discretion to, among other things, make operating and
financial decisions that could favor one group over the other and, subject to
the restrictions in Sprint's articles of incorporation, to change the
allocation of the assets and liabilities that comprise each of the FON Group
and the PCS Group without shareholder approval. Under the applicable corporate
law, Sprint's Board owes its fiduciary duties to all of Sprint's shareholders
and there is no board of directors that owes separate duties to the holders of
either the FON common stock or the PCS common stock. The Tracking Stock
Policies provide that the Board, in resolving material matters in which the
holders of FON common stock and PCS common stock have potentially divergent
interests, will act in the best interests of Sprint and all of its common
shareholders after giving fair consideration to the potentially divergent
interests of the holders of the separate classes of Sprint common stock. These
policies may be changed by the Board without shareholder approval. Given the
Board's discretion in these matters, it may be difficult to assess the future
prospects of each group based on past performance.

Basis of Consolidation and Presentation

The consolidated financial statements include the accounts of Sprint, its
wholly owned subsidiaries and subsidiaries it controls. Investments in entities
in which Sprint exercises significant influence, but does not control, are
accounted for using the equity method (see Note 3).

The consolidated financial statements are prepared using accounting principles
generally accepted in the United States. These principles require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

Certain prior-year amounts have been reclassified to conform to the
current-year presentation. These reclassifications had no effect on the results
of operations or shareholders' equity as previously reported.

Classification of Operations

The PCS stock is intended to reflect the performance of Sprint's wireless PCS
operations. The FON stock is intended to reflect the performance of all of
Sprint's other operations. Sprint operates in four lines of business: the
global markets division, the local telecommunications division, the product
distribution

F-16

and directory publishing businesses and the PCS wireless telephony products and
services business, known as the PCS Group.

Global Markets Division

The global markets division provides a broad suite of communications services
targeted to domestic business and residential customers, multinational
corporations and other communications companies. These services include
domestic and international voice; data communications using various protocols
such as Internet Protocol and frame relay (a data service that transfers
packets of data over Sprint's network), and managed network services. In
addition, the global markets division is expanding its ability to provide web
and applications hosting, consulting services, and colocation services. Through
this division Sprint also provides broadband services and digital subscriber
line services, which enable high-speed transmission of data over existing
copper telephone lines between the customer and the service provider.

The global markets division also includes the operating results of the cable TV
service operations of the broadband fixed wireless companies after their 1999
acquisition dates. During 2000, Sprint converted several markets served by
Multipoint Multichannel Distribution Services (MMDS) capabilities from cable TV
services to high-speed data services. The global markets division's operating
results reflect the development costs and the operating revenues and expenses
of these broadband fixed wireless services. In the 2001 fourth quarter Sprint
announced it would halt further deployment of MMDS services using current
direct sight access technology. Current customers will continue to receive
service and Sprint will wait for development of second generation technology
and pursue alternative strategies for the spectrum leases and licenses.

Included in the global markets division are the costs of establishing
international operations beginning in 2000.

This division also includes the FON Group's investments in EarthLink, Inc.
(EarthLink), an Internet service provider; Call-Net, a long distance provider
in Canada operating under the Sprint brand name; Intelig Telecommunicacoes
Ltda., (Intelig), a long distance provider in Brazil; and certain other
telecommunications investments and ventures.

Local Division

The local division consists mainly of regulated local phone companies serving
approximately 8.2 million access lines in 18 states. It provides local voice
and data services, access by phone customers and other carriers to the local
network, consumer long distance services to customers within its franchise
territories, sales of telecommunications equipment, and other long distance
services within certain regional calling areas, or LATAs.

Product Distribution & Directory Publishing Businesses

The product distribution business provides wholesale distribution services of
telecommunications products. The directory publishing business publishes and
markets white and yellow page phone directories.

Sprint PCS Group

The PCS Group includes Sprint's wireless PCS operations. It operates a 100%
digital PCS wireless network in the United States with licenses to provide
service nationwide using a single frequency and a single technology. At
year-end 2001, the PCS Group, together with third party affiliates, operated
PCS systems in over 300 metropolitan markets, including the 50 largest U.S.
metropolitan areas.

The PCS Group has licenses to serve the entire U.S. population, including
Puerto Rico and the U.S. Virgin Islands. The service offered by the PCS Group
and its third party affiliates now covers more than 247 million people. The PCS
Group provides nationwide service through a combination of:

. operating its own digital network in major U.S. metropolitan areas,

. affiliating with other companies, mainly in and around smaller U.S.
metropolitan areas,

. roaming on other providers' analog cellular networks using multi-mode
handsets, and

. roaming on other providers' digital networks that use code division
multiple access technology (CDMA).

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 its investments in Pegaso Telecomunicaciones, S.A.
de C.V. (Pegaso), a wireless PCS operation in Mexico, BidCo, a joint venture to
acquire wireless spectrum rights, and Virgin Mobile U.S.A., a joint venture to
market wireless services. These investments are accounted for using the equity
method.

F-17

Intergroup Transactions and Allocations

Intergroup Transactions

The PCS Group uses the long distance operation of the FON Group as its
interexchange carrier and purchases wholesale long distance for resale to its
customers. Additionally, the FON Group provides the PCS Group with Caller ID
services and various other goods and services. Charges to the PCS Group for
these items totaled $570 million in 2001, $392 million in 2000 and $276 million
in 1999. Also included in these amounts are charges for goods capitalized by
the PCS Group. These capitalized charges totaled $12 million in 2001, $15
million in 2000 and $16 million in 1999. The service charges less capitalized
charges are included in the FON Group's net operating revenues.

The PCS Group provides the FON Group with access to its network and
telemarketing and various other services. Charges to the FON Group for these
items totaled $20 million in 2001, $39 million in 2000 and $8 million in 1999.
These amounts are included in PCS Group's net operating revenues.

The FON Group provides printing, mailing and warehousing services to the PCS
Group. Charges to the PCS Group for these services totaled $236 million in
2001, $150 million in 2000 and $65 million in 1999. These amounts are included
in PCS Group's operating expenses.

Related Party Transactions

The Cable Partners advanced PhillieCo, L.P. $26 million in 1998. These advances
were repaid in the 1999 first quarter.

Sprint loaned Sprint PCS $114 million in 1998, which was repaid in the 1999
first quarter.

Allocation of Shared Services

Sprint directly assigns, where possible, certain general and administrative
costs to the FON Group and the PCS Group based on their actual use of those
services. Where direct assignment of costs is not possible, or practical,
Sprint uses other indirect methods, including time studies, to estimate the
allocation of costs to each group. Cost allocation methods other than time
studies include factors (general, marketing or headcount) derived from the
operating unit's relative share of the predefined category referenced (e.g.
headcount). Sprint believes that the costs allocated are comparable to the
costs that would be incurred if the groups would have been operating on a
stand-alone basis. Costs for shared services totaled approximately $542 million
in 2001, $605 million in 2000 and $654 million in 1999. The percentage of these
costs allocated to the PCS Group were approximately 23% in 2001, 15% in 2000
and 8% in 1999 with the balance allocated to the FON Group. The allocation of
shared services may change at the discretion of Sprint's board and does not
require shareholder approval.

Allocation of Group Financing

Financing activities for the groups are managed by Sprint on a centralized
basis. Debt incurred by Sprint on behalf of the groups is specifically
allocated to and reflected in the financial statements of the applicable group.
Interest expense is allocated to the PCS Group based on an interest rate that
is substantially equal to the rate it would be able to obtain from third
parties as a direct or indirect wholly owned Sprint subsidiary, but without the
benefit of any guarantee by Sprint or any member of the FON Group. That
interest rate is higher than the rate Sprint obtains on borrowings. The
difference between Sprint's actual interest rate and the rate charged to the
PCS Group is reflected as a reduction in the FON Group's interest expense and
totaled $288 million in 2001, $237 million in 2000 and $168 million in 1999.
These amounts are reflected in the "Intergroup interest charge" on the
Consolidated Statements of Operations.

The FON Group earned intergroup interest income and the PCS Group incurred
intergroup interest expense of $15 million in 2001, $19 million in 2000 and $20
million in 1999 primarily related to the FON Group's ownership of PCS Group
debt securities. Sprint redeemed these securities in the 2001 fourth quarter.
As a result of this redemption, the FON Group recognized an $11 million pre-tax
gain to other income (expense), net and the PCS Group recorded a $7 million
after-tax extraordinary loss.

Under Sprint's centralized cash management program, one group may advance funds
to the other group. These advances are accounted for as short-term borrowings
between the groups and bear interest at a market rate that is substantially
equal to the rate that group would be able to obtain from third parties on a
short-term basis.

The allocation of group financing activities may change at the discretion of
Sprint's board and does not require shareholder approval.

Allocation of Federal and State Income Taxes

Sprint files a consolidated federal income tax return and certain state income
tax returns which include FON Group and PCS Group results. In connection with
the PCS Restructuring, Sprint adopted a tax sharing agreement which provided
for the allocation of income taxes between the two groups. The FON Group's
income taxes are calculated as if it files returns which exclude the PCS Group.
The PCS Group's income taxes reflect the PCS Group's

F-18

incremental cumulative impact on Sprint's consolidated income taxes. Intergroup
tax payments are satisfied on the date Sprint's related tax payment is due to
or the refund is received from the applicable tax authority.

The tax sharing agreement applied to tax years ending on or before December 31,
2001. In December 2001, Sprint adopted a continuation of this tax sharing
arrangement except for the elimination of certain provisions addressing certain
types of acquisitions or restructurings, which never became operable under the
original agreement.

Income Taxes

Sprint records deferred income taxes based on temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their tax bases.

Revenue Recognition

Sprint recognizes operating revenues as services are rendered or as products
are delivered to customers. Service activation and certain installation fees
are deferred and amortized over the average life of the service. Sprint's
directory publishing business recognizes revenues for directory services over
the life of the related directory (amortization method).

Advertising Expense

Sprint recognizes advertising expense as incurred. These expenses include
production, media and other promotional and sponsorship costs. Total
advertising expenses totaled $1.1 billion in 2001, $1.2 billion in 2000 and
$1.2 billion in 1999.

Cash and Equivalents

Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value. Sprint uses controlled disbursement banking arrangements as part
of its cash management program. Outstanding checks in excess of cash balances,
which were included in accounts payable, totaled $568 million at year-end 2001
and $636 million at year-end 2000. Sprint had sufficient funds available to
fund the outstanding checks when they were presented for payment.

Investments in Equity Securities

Investments in marketable equity securities are classified as available for
sale and reported at fair value (estimated based on quoted market prices).
Gross unrealized holding gains and losses are reflected in the Consolidated
Balance Sheets as adjustments to ''Shareholders' equity--Accumulated other
comprehensive income,'' net of related income taxes.

Inventories

Inventories for the FON Group are stated at the lower of cost (principally
first-in, first-out method) or market value. Inventories for the PCS Group are
stated at the lower of cost (principally first-in, first-out) or replacement
value.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. The cost of property, plant and equipment is generally
depreciated on a straight-line basis over estimated economic useful lives.
Repair and maintenance costs are expensed as incurred.

- --------------------------------------------------------------------------------

December 31,
---------------
2001 2000
---------------------------------------------------
(millions)

FON Group
Global markets division $14,393 $12,512
Local division 17,676 16,835
Other 2,044 1,651
---------------------------------------------------
Total FON Group 34,113 30,998
PCS Group 14,634 12,117
---------------------------------------------------
Total property, plant and equipment $48,747 $43,115
---------------

Capitalized Interest

Capitalized interest totaled $174 million in 2001, $175 million in 2000 and
$151 million in 1999. Capitalized interest for the FON Group totaled $30
million in 2001, $22 million in 2000, and $43 million in 1999. Capitalized
interest for the PCS Group totaled $144 million in 2001, $153 million in 2000,
and $108 million in 1999. Capitalized interest is incurred in connection with
the PCS Group's network buildout and the FON Group's construction of capital
assets.

Intangibles

Sprint evaluates the recoverability of intangible assets when events or
circumstances indicate that such assets might be impaired. Sprint determines
impairment by comparing an asset's respective carrying value to estimates of
fair value using the best information available, which requires the use of
estimates, judgments, and projections. In the event impairment exists, a loss
is recognized based on the amount by which the carrying value exceeds the fair
value of the asset. See Note 18 for additional information regarding treatment
following the implementation of Statement of Financial Accounting

F-19

Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets".

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is amortized over five to 40 years using the straight-line method.
Accumulated amortization totaled $348 million at year-end 2001 and $233 million
at year-end 2000. See Note 18 for additional information regarding treatment
following the implementation of SFAS No. 142.

PCS Licenses and Microwave Relocation Costs

The PCS Group acquired licenses from the Federal Communications Commission to
operate as a PCS service provider. Additionally, the PCS Group incurred costs
related to microwave relocation in constructing the PCS network. These licenses
are granted for up to 10-year terms with renewals for additional 10-year terms
if license obligations are met. These licenses are recorded at cost and are
amortized on a straight-line basis over 40 years when service begins in a
specific geographic area. Accumulated amortization totaled $317 million at
year-end 2001 and $230 million at year-end 2000. See Note 18 for additional
information regarding treatment following the implementation of SFAS No. 142.

Earnings per Share

Earnings per share (EPS) was calculated on a consolidated basis until the PCS
stock and FON stock were created as part of the November 1998 PCS Restructuring
and Recapitalization. From that time forward, EPS is computed individually for
the FON Group and PCS Group. As a part of the Recapitalization, each Class A
common share owned by FT and DT was reclassified such that each share
represented a right to one share of FON stock and 1/2 share of PCS stock.
During 2001, both FT and DT sold the FON stock underlying their shares of Class
A common stock, and DT sold the PCS stock underlying its shares of Class A
common stock. In order to give effect to this interest when determining
earnings per share, the number of equivalent shares underlying the shares of
Class A common stock are included in the calculation of the weighted average
FON and PCS common stock outstanding.

In the 2000 first quarter, Sprint effected a two-for-one stock split of its PCS
common stock. In the 1999 second quarter, Sprint effected a two-for-one split
of its FON common stock. As a result, basic and diluted earnings per common
share and weighted average common shares for Sprint FON common stock and Sprint
PCS common stock and dividends for Sprint FON common stock have been restated
for periods prior to these stock splits.

The FON Group's convertible preferred dividends totaled $1 million in 2000 and
1999 and dilutive securities (mainly options) totaled 11.5 million shares in
2000 and 19.2 million shares in 1999. In 2001, dilutive securities did not have
a dilutive effect on loss per share because the FON Group incurred a net loss.
Dilutive securities for the PCS Group mainly include options, warrants and
convertible preferred stock. These securities did not have a dilutive effect on
loss per share because the PCS Group incurred net losses for 2001, 2000 and
1999. As a result, diluted loss per share equaled basic loss per share.

Stock-based Compensation

Sprint adopted the pro forma disclosure requirements under Statement of
Financial Accounting Standards (SFAS) No. 123, "Stock-based Compensation," and
continues to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations to its stock option and
employee stock purchase plans.

- --------------------------------------------------------------------------------
2. Business Combinations
- --------------------------------------------------------------------------------

Broadband Fixed Wireless Companies

In the second half of 1999, Sprint acquired People's Choice TV Corp. (PCTV),
American Telecasting, Inc. (ATI), Videotron USA and the operating subsidiaries
of WBS America, LLC. These companies own broadband fixed wireless licenses in
the Midwest, Southwest, North Central, Western and Southeastern United States.
Sprint paid $618 million for the companies' outstanding stock and assumed $575
million of the companies' debt. These notes were redeemed, prior to scheduled
maturities, in the 1999 fourth quarter (see Note 10).

These acquisitions were accounted for as purchases. The results of these
companies have been included in Sprint's consolidated financial statements
after the acquisition dates. The excess of the purchase price over the net
liabilities acquired was allocated to spectrum licenses, which are being
amortized on a straight-line basis over 40 years and are included in other
intangibles in Sprint's Consolidated Balance Sheets.

See Note 18 for additional information regarding the treatment of intangibles
following the implementation of SFAS No. 142.

Cox PCS

In the 1999 second quarter, Cox Communications, Inc. exercised a put option
requiring Sprint to purchase the remaining 40.8% interest in Cox PCS. Sprint's
existing 59.2% interest in Cox PCS was reflected in Sprint's consolidated
financial statements on a consolidated basis. Sprint issued 24.3 million

F-20

shares of low-vote PCS stock (pre-split basis) in exchange for the remaining
interest. The shares were valued at $1.1 billion. Sprint accounted for the
transaction as a purchase.

The excess of the purchase price over the fair value of the net liabilities
acquired was allocated as follows:

- ---------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------
(millions)

Purchase price $1,146
Net liabilities acquired 99
Fair value assigned to customer base acquired (45)
Fair value assigned to PCS licenses (99)
Deferred taxes established on acquired assets and liabilities 88
- ---------------------------------------------------------------------------
Goodwill $1,189
------

Goodwill is being amortized on a straight-line basis over 40 years through
2001. See Note 18 for additional information regarding goodwill treatment
following implementation of SFAS No. 142.

- --------------------------------------------------------------------------------
3. Investments
- --------------------------------------------------------------------------------

Investments in Securities

The cost of investments in securities, which are included in "other assets",
was $445 million at year-end 2001 and $549 million at year-end 2000. Gross
unrealized holding gains were $40 million at year-end 2001 and $53 million at
year-end 2000.

The accumulated unrealized gains on investments in securities, net of income
taxes were $26 million at year-end 2001 and $33 million at year-end 2000 and
are included in "Accumulated other comprehensive income" in the Sprint
Consolidated Balance Sheets.

In the 2001 third quarter, Sprint sold 12.5 million of its common shares in
EarthLink for $155 million and converted and sold 6.2 million shares of its
Series B Convertible Preferred Stock in EarthLink for $73 million. The net loss
on the sale was $25 million and is included in "Other income (expense), net" in
Sprint's Consolidated Statements of Operations. In the 2001 fourth quarter,
Sprint converted 3.1 million shares of EarthLink Series A Convertible Preferred
Stock into 3 million shares of EarthLink common stock.

In the 2000 fourth quarter, Sprint recorded a write-down of securities with a
cost basis of $48 million due to a decline in market value that was considered
other than temporary. The $48 million charge was included in "Other income
(expense), net" in Sprint's Consolidated Statements of Operations.

During 2000, Sprint used equity securities with a cost basis of $94 million to
retire debt instruments (see Note 10). Sprint recorded a $45 million gain
associated with the transaction which was included in "Other income (expense),
net" in Sprint's Consolidated Statements of Operations.

During 1999, Sprint sold available-for-sale securities with a cost basis of $14
million for $104 million. The $90 million gain was included in "Other income
(expense), net" in Sprint's Consolidated Statements of Operations.

Investments in and Advances to Affiliates

At year-end 2001, investments accounted for using the equity method consisted
of the FON Group's various strategic investments and the PCS Group's investment
in Pegaso Telecomunicaciones, S.A. de C.V., SVC BidCo L.P., and Virgin Mobile,
U.S.A.

At year-end 2000, investments accounted for using the equity method consisted
of the FON Group's investments in Intelig, EarthLink and other strategic
investments and the PCS Group's investment in Pegaso Telecomunicaciones, S.A.
de C.V., and SVC BidCo L.P.

In the 2001 fourth quarter, the PCS Group entered into a joint venture with
Virgin Mobile, USA. The PCS Group has agreed to contribute $50 million in
future services.

In the 2001 third quarter, Sprint completed an analysis of the valuation of its
investment in Intelig that resulted in a $157 million write-down. This charge
was included in "Other income (expense), net" in Sprint's Consolidated
Statement of Operations.

In the 2001 first quarter, Sprint modified its relationship with EarthLink
which resulted in its investment in common stock no longer being accounted for
using the equity method.

In the 2000 fourth quarter, Sprint completed an analysis of the valuation of
its equity method investments in response to changes in the overall
telecommunications industry. The analysis resulted in an $87 million charge for
the write-down of its investment in Call-Net which was included in "Other
income (expense), net" in Sprint's Consolidated Statements of Operations.

F-21

Combined, unaudited, summarized financial information (100% basis) of entities
accounted for using the equity method was as follows:

- --------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------
(millions)

Results of operations
Net operating revenues $ 581 $ 2,195 $1,571
-----------------------
Operating loss $ (418) $ (826) $ (192)
-----------------------
Net loss $ (608) $(1,062) $ (329)
-----------------------
Financial position
Current assets $ 541 $ 1,470 $1,524
Noncurrent assets 1,585 2,900 2,749
- --------------------------------------------------------------------------
Total $2,126 $ 4,370 $4,273
-----------------------
Current liabilities $ 714 $ 1,102 $ 599
Noncurrent liabilities 776 533 1,644
Owners' equity 636 2,735 2,030
- --------------------------------------------------------------------------
Total $2,126 $ 4,370 $4,273
-----------------------

- --------------------------------------------------------------------------------
4. Restructuring and Asset Impairment
- --------------------------------------------------------------------------------

In the 2001 fourth quarter, Sprint terminated its efforts to provide its Sprint
ION consumer and business offerings and announced plans to reduce operating
costs in the business units that comprise its FON Group. These efforts included
consolidation and streamlining of marketing and network operations, as well as
streamlining corporate support functions. Operating losses generated by ION
were approximately $500 million for each of the 2001 and 2000 periods and less
than $400 million for the 1999 period.

These decisions resulted in $1,814 million pre-tax charge consisting of asset
write-offs, severance costs associated with work force reductions, termination
of supplier agreements, real estate leases, and other contractual obligations.
The charge for asset abandonments was $1,327 million, severance costs totaled
$231 million, and the remaining $256 million was accrued for other exit costs
associated with the restructuring. Sprint expects to pay the severance and
other exit costs in the next twelve months.

The severance charge is associated with the involuntary employee separation of
approximately 6,000 employees. At year-end, nearly 5,000 of the employee
separations have been completed.

Activity related to the restructuring in the 2001 fourth quarter is summarized
as follows:

- --------------------------------------------------------------------------------

Activity
-------------
December 31,
Total 2001
Restructuring Liability
Charge Cash Non-cash Balance
- ---------------------------------------------------------------------------------
(millions)

Severance $231 $(31) $(40) $160
Other exit costs 256 (7) (19) 230
- ---------------------------------------------------------------------------------
Total $487 $(38) $(59) $390
-----------------------------------------

In the 2000 fourth quarter, Sprint completed its analysis of the valuation of
various FON Group assets resulting from its reassessment of the FON Group's
business strategies in response to recent changes within the overall
telecommunications industry. This analysis resulted in a $238 million pre-tax
charge, primarily related to the impairment of goodwill associated with the
global markets division's Paranet operations.

- --------------------------------------------------------------------------------
5. Merger Termination
- --------------------------------------------------------------------------------

On July 13, 2000, Sprint and WorldCom, Inc. announced that the boards of
directors of both companies terminated their merger agreement, previously
announced in October 1999, as a result of regulatory opposition to the merger.
In the 2000 second quarter, Sprint recognized a one-time, pre-tax charge of
$187 million for costs associated with the merger. The FON Group recognized
$163 million while the PCS Group recognized $24 million.

- --------------------------------------------------------------------------------
6. Discontinued Operation
- --------------------------------------------------------------------------------

In the 2000 first quarter, Sprint sold its interest in Global One to France
Telecom and Deutsche Telekom AG. Sprint received $1.1 billion in cash and was
repaid $276 million for advances for its entire stake in Global One. As a
result of Sprint's sale of its interest in Global One, Sprint's gain on the
sale and equity share of the results of Global One have been reported as a
discontinued operation for all periods presented.

In 2000, Sprint recorded an after-tax gain related to the sale of its interest
in Global One of $675 million. Sprint recorded after-tax losses related to
Global One totaling $130 million in 1999.

- --------------------------------------------------------------------------------
7. Cumulative Effect of Changes in Accounting Principles
- --------------------------------------------------------------------------------

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging
Activities." This Statement became effective for Sprint on January 1, 2001 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities and requires recognition of all derivatives on the balance
sheet at fair value, regardless of the

F-22

hedging relationship designation. Accounting for the changes in the fair value
of the derivative instruments depends on whether the derivatives qualify as
hedge relationships and the types of the relationships designated are based on
the exposures hedged. Changes in fair value of derivatives designated as fair
value hedges are recognized in earnings along with fair value changes of the
hedged item. Changes in fair value of derivatives designated as cash flow
hedges are recorded in other comprehensive income and are recognized in
earnings when the hedged item affects earnings. Changes in fair value of
derivative instruments that do not qualify for hedge relationship designation
are recognized in earnings.

Upon adoption of SFAS No. 133, Sprint recorded a cumulative adjustment to net
income of $2 million (net of tax of $1 million) and a cumulative reduction in
other comprehensive income of $9 million. The $2 million cumulative adjustment
was due to recognizing the fair value of the stock warrants held by the PCS
Group that are not designated as hedging instruments and is recorded in
"Cumulative effect of changes in accounting principles, net" in Sprint's
Consolidated Statements of Operations. The total fair value of the stock
warrants held by the FON Group on the date of adoption was not material and
required no transition adjustment to earnings. The reduction in other
comprehensive income results from recognizing the fair value of cash flow
hedges held by the FON Group and is recorded in "Cumulative effect of change in
accounting principle" in Sprint's Consolidated Statements of Comprehensive
Income (Loss). The net derivative losses included in accumulated other
comprehensive income as of December 31, 2001 are expected to be reclassified
into earnings within the next 12-month period because they mature in 2002.

Sprint implemented SEC Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements," during the fourth quarter of 2000, effective as of
the beginning of the year. This bulletin requires activation and installation
fee revenues that do not represent a separate earnings process to be deferred
and recognized over the estimated service period. Associated incremental direct
costs may also be deferred, but only to the extent of revenues subject to
deferral. The FON Group recorded a $2 million charge for the cumulative effect
of change in accounting principle in 2000.

- --------------------------------------------------------------------------------
8. Employee Benefit Plans
- --------------------------------------------------------------------------------

Defined Benefit Pension Plan

Most FON Group and PCS Group employees are covered by a noncontributory defined
benefit pension plan. Benefits for plan participants belonging to unions are
based on negotiated schedules. For non-union participants, pension benefits are
based on years of service and the participants' compensation.

Sprint's policy is to make plan contributions equal to an actuarially
determined amount consistent with federal tax regulations. The funding
objective is to accumulate funds at a relatively stable rate over the
participants' working lives so benefits are fully funded at retirement.

The following table shows the changes in the projected benefit obligation:

- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(millions)

Beginning balance $2,634 $2,401
Service cost 92 77
Interest cost 209 194
Amendments 12 8
Termination benefits 40 --
Actuarial loss 162 90
Benefits paid (144) (136)
- --------------------------------------------------------------------------------
Ending balance $3,005 $2,634
--------------

The following table shows the changes in plan assets:

- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(millions)

Beginning balance $3,376 $3,669
Actual loss on plan assets (236) (157)
Benefits paid (144) (136)
- --------------------------------------------------------------------------------
Ending balance $2,996 $3,376
--------------

At year-end, the funded status and amounts recognized in the Consolidated
Balance Sheets for the plan were as follows:

- -----------------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------------
(millions)

Plan assets in excess (deficiency) of the projected benefit
obligation $ (9) $ 742
Unrecognized net (gains) losses 381 (396)
Unrecognized prior service cost 95 96
Unamortized transition asset (24) (47)
- -----------------------------------------------------------------------------
Prepaid pension cost $ 443 $ 395
-------------
Discount rate 7.50% 8.00%
-------------
Expected long-term rate of return on plan assets 9.50% 10.00%
-------------
Expected blended rate of future pay raises 4.25% 4.50%
-------------

Amounts included for the plan in the Consolidated Balance Sheets include
prepaid pension expense of $474 million at year-end 2001 and $407 million at
year-end 2000 for the FON Group, and accrued pension expense of $31 million at
year-end 2001 and $12 million at year-end 2000 for the PCS Group.

F-23

The net pension credit consisted of the following:

- ------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------
(millions)

Service cost--benefits earned during the year $ 92 $ 77 $ 86
Interest on projected benefit obligation 209 194 177
Expected return on plan assets (353) (336) (300)
Amortization of unrecognized transition asset (23) (25) (25)
Recognition of prior service cost 13 12 12
Recognition of actuarial gains (26) (37) (8)
Termination benefits associated with the fourth
quarter restructuring 40 -- --
- ------------------------------------------------------------------------------
Net pension credit $ (48) $ (115) $ (58)
----------------------
Discount rate 8.00% 8.25% 7.00%
----------------------
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
----------------------
Expected blended rate of future pay raises 4.50% 5.25% 4.00%
----------------------

Net periodic pension income for the FON Group was $66 million in 2001, $122
million in 2000, and $63 million in 1999. Net periodic pension expense for the
PCS Group was $18 million in 2001, $7 million in 2000, and $5 million in 1999.

Defined Contribution Plans

Sprint sponsors defined contribution employee savings plans covering most FON
Group and PCS Group employees. Participants may contribute portions of their
pay to the plans. For union employees, Sprint matches contributions based on
negotiated amounts. Sprint also matches contributions of non-union employees in
FON stock and PCS stock. The matching is equal to 50% of participants'
contributions up to 6% of their pay. In addition, Sprint may, at the discretion
of its Board of Directors, provide additional matching contributions based on
the performance of FON stock and PCS stock compared to other telecommunications
companies' stock. Sprint's matching contributions were $103 million in 2001 and
in 2000, and $83 million in 1999. The FON Group recorded expenses of $85
million in 2001, $86 million in 2000, and $73 million in 1999 for Sprint's
matching contributions, and the PCS Group recorded expenses of $18 million in
2001, $17 million in 2000, and $10 million in 1999. At year-end 2001, the plans
held 40 million FON shares with a market value of $806 million and dividends
reinvested into the plan of $20 million. At year-end 2001, the plans held 36
million PCS shares with a market value of $877 million.

Postretirement Benefits

Sprint provides postretirement benefits (mainly medical and life insurance) to
most FON Group and PCS Group employees. Employees retiring before certain dates
are eligible for benefits at no cost, or at a reduced cost. Employees retiring
after certain dates are eligible for benefits on a shared-cost basis. Sprint
funds the accrued costs as benefits are paid.

In the 2001 third quarter, Sprint adopted amendments to two postretirement
benefit plans. As a result of the amendments, the life insurance benefit is
eliminated for employees retiring after 2003 and the postretirement medical
insurance plan is replaced with a Sprint-funded account to be managed by the
employee. The plan amendment to the Sprint retiree medical insurance plan
reduced the accumulated postretirement benefit obligation and reduced employee
benefits attributed to employee service already rendered. Sprint recognized a
curtailment gain from this amendment of $120 million, $75 million after tax.

The following table shows the changes in the accumulated postretirement benefit
obligation:

---------------------------------------------------
2001 2000
---------------------------------------------------
(millions)

Beginning balance $ 910 $ 876
Service cost 18 17
Interest cost 68 71
Amendments (230) --
Actuarial (gains) losses 166 (2)
Benefits paid (54) (52)
---------------------------------------------------
Ending balance $ 878 $ 910
-------------

Amounts included in the Consolidated Balance
Sheets at year-end were as follows:
---------------------------------------------------
2001 2000
---------------------------------------------------
(millions)
Accumulated postretirement benefit
obligation $ 878 $ 910
Plan assets (39) (41)
Unrecognized transition obligation 11 11
Unrecognized prior service benefit 177 104
Unrecognized net gain (loss) (97) 75
---------------------------------------------------
Accrued postretirement benefits cost $ 930 $1,059
-------------
Discount rate 7.50% 8.00%
-------------

The amount of accrued postretirement benefit costs included in the Consolidated
Balance Sheets are $927 million at year-end 2001 and $1,058 million at year-end
2000 for the FON Group, and $3 million at year-end 2001 and $1 million at
year-end 2000 for the PCS Group.

The assumed 2002 annual health care cost trend rates are 8.5% before Medicare
eligibility and 9.0% after Medicare eligibility. Both rates gradually decrease
to an ultimate level of 5% by 2010. A 1% increase in the rates would have
increased the 2001 accumulated postretirement benefit obligation by an
estimated $72 million. A 1% decrease would have reduced the obligation by an
estimated $62 million.

F-24

The net postretirement benefits cost consisted of the following:

- ------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------
(millions)

Service cost--benefits earned during the year $ 18 $ 17 $ 21
Interest on accumulated postretirement
benefit obligation.......................... 68 71 59
Expected return on assets (4) (3) (3)
Recognition of transition obligation......... (1) (1) (1)
Recognition of prior service cost (33) (8) (8)
Recognition of actuarial gains (2) (14) (13)
- ------------------------------------------------------------------
Net periodic postretirement benefits cost $ 46 $ 62 $ 55
-------------------
Curtailment gain $(120) $ -- $ --
-------------------
Discount rate 8.00% 8.25% 7.00%
-------------------

The FON Group recorded net periodic benefit expense of $45 million in 2001, $62
million in 2000, and $54 million in 1999. The PCS Group recorded net periodic
benefit expense of $1 million in 2001, $0.2 million in 2000, and $1 million in
1999.

For measurement purposes, the assumed 2001 weighted average annual health care
cost trend rates were 9.0% before Medicare eligibility and 9.5% after Medicare
eligibility. Both rates gradually decrease to an ultimate level of 5.0% by
2010. A 1.0% increase in the rates would have increased the 2001 postretirement
benefits service and interest costs by an estimated $13 million. A 1.0%
decrease would have reduced the 2001 postretirement benefits service and
interest costs by an estimated $9 million.

- --------------------------------------------------------------------------------
9. Income Taxes
- --------------------------------------------------------------------------------

Income tax expense (benefit) allocated to continuing operations consists of the
following:

- -----------------------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
2001 Consolidated Group Group
- -----------------------------------------------------------------------
(millions)

Current income tax expense (benefit)
Federal $ (4) $ 188 $(188)
State 75 68 7
- -----------------------------------------------------------------------
Total current 71 256 (181)
- -----------------------------------------------------------------------
Deferred income tax benefit
Federal (559) (189) (370)
State (136) (49) (87)
- -----------------------------------------------------------------------
Total deferred (695) (238) (457)
- -----------------------------------------------------------------------
Total $(624) $ 18 $(638)
-------------------------

------------------------------------------------

Sprint Sprint Sprint
Corporation FON PCS
2000 Consolidated Group Group
------------------------------------------------
(millions)

Current income tax
expense (benefit)
Federal $ 24 $ 429 $ (405)
State 55 63 (8)
------------------------------------------------
Total current 79 492 (413)
------------------------------------------------
Deferred income tax
expense (benefit)
Federal (173) 338 (511)
State (32) 48 (80)
------------------------------------------------
Total deferred (205) 386 (591)
------------------------------------------------
Total $(126) $ 878 $(1,004)
---------------------------

Sprint Sprint Sprint
Corporation FON PCS
1999 Consolidated Group Group
------------------------------------------------
(millions)
Current income tax
expense (benefit)
Federal $ (34) $ 776 $ (810)
State 40 65 (25)
------------------------------------------------
Total current 6 841 (835)
------------------------------------------------
Deferred income tax
expense (benefit)
Federal (309) 170 (479)
State (24) 50 (74)
------------------------------------------------
Total deferred (333) 220 (553)
------------------------------------------------
Total $(327) $1,061 $(1,388)
---------------------------

The differences that caused Sprint's effective income tax rates to vary from
the 35% federal statutory rate for income taxes related to continuing
operations were as follows:

--------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
2001 Consolidated Group Group
--------------------------------------------------------
(millions)

Income tax benefit at the
federal statutory rate $(709) $ (45) $(660)
Effect of:
State income taxes, net
of federal income tax
effect (40) 12 (52)
Equity in losses of
foreign joint ventures 40 1 39
Write down of equity
method investment 57 57 --
Goodwill amortization 44 6 38
Other, net (16) (13) (3)
--------------------------------------------------------
Income tax expense
(benefit) $(624) $ 18 $(638)
----------------------------
Effective income tax rate 30.8% (14.1)% 33.8%
----------------------------

F-25

- --------------------------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
2000 Consolidated Group Group
- --------------------------------------------------------------------------
(millions)

Income tax expense (benefit) at the federal
statutory rate $(246) $ 759 $(1,005)
Effect of:
State income taxes, net of federal income
tax effect 15 72 (57)
Equity in losses of foreign joint ventures 48 25 23
Write down of equity method investment 30 30 --
Goodwill amortization 52 14 38
Other, net (25) (22) (3)
- --------------------------------------------------------------------------
Income tax expense (benefit) $(126) $ 878 $(1,004)
----------------------------
Effective income tax rate 17.9% 40.5% 35.0%
----------------------------
- --------------------------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
1999 Consolidated Group Group
- --------------------------------------------------------------------------
(millions)
Income tax expense (benefit) at the federal
statutory rate $(375) $ 979 $(1,354)
Effect of:
State income taxes, net of federal income
tax effect 11 75 (64)
Equity in losses of foreign joint ventures 18 18 --
Goodwill amortization 37 3 34
Other, net (18) (14) (4)
- --------------------------------------------------------------------------
Income tax expense (benefit) $(327) $1,061 $(1,388)
----------------------------
Effective income tax rate 30.5% 37.9% 35.9%
----------------------------

Income tax expense (benefit) allocated to other items was as follows:

- ------------------------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
2001 Consolidated Group Group
- ------------------------------------------------------------------------
(millions)

Extraordinary items $ (1) $ -- $(1)
Unrealized holding losses on investments/(1)/ (5) (11) --
Stock ownership, purchase and option
arrangements/(2)/ (17) (9) (8)
- ------------------------------------------------------------------------

- ------------------------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
2000 Consolidated Group Group
- ------------------------------------------------------------------------
(millions)

Discontinued operation $ 370 $ 370 $ --
Extraordinary items (3) (1) (2)
Unrealized holding losses on investments/(1)/ (29) (26) (3)
Stock ownership, purchase and option
arrangements/(2)/ (424) (276) (148)
- ------------------------------------------------------------------------

- ------------------------------------------------------------------------
Sprint Sprint Sprint
Corporation FON PCS
1999 Consolidated Group Group
- ------------------------------------------------------------------------
(millions)
Discontinued operation $(111) $(111) $ --
Extraordinary items (34) (23) (11)
Unrealized holding gains (losses) on
investments/(1)/ (13) (20) 3
Stock ownership, purchase and option
arrangements/(2)/ (254) (223) (31)
- ------------------------------------------------------------------------

/(1)/ These amounts have been recorded directly to "Shareholders'
equity--Accumulated other comprehensive income" in the Consolidated
Balance Sheets.

/(2)/ These amounts have been recorded directly to "Shareholders'
equity--Capital in excess of par or stated value" in the Consolidated
Balance Sheets.

F-26

Sprint recognizes deferred income taxes for the temporary differences between
the carrying amounts of its assets and liabilities for financial statement
purposes and their tax bases. The sources of the differences that give rise to
the deferred income tax assets and liabilities at year-end 2001 and 2000, along
with the income tax effect of each, were as follows:

- -------------------------------------------------------------------------------------------------
Sprint Corporation
Consolidated Sprint FON Group Sprint PCS Group
2001 Deferred 2001 Deferred 2001 Deferred
Income Tax Income Tax Income Tax
------------------ ------------------ ------------------
Assets Liabilities Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------
(millions)

Property, plant and equipment $ -- $3,304 $ -- $1,698 $ -- $1,606
Intangibles -- 866 -- 462 -- 404
Postretirement and other benefits 379 -- 379 -- -- --
Reserves and allowances 356 -- 250 -- 106 --
Unrealized holding gains on investments -- 15 -- 15 -- --
Operating loss carryforwards 2,685 -- 246 -- 2,439 --
Tax credit carryforwards 176 -- -- -- 176 --
Other, net 202 -- 136 -- 66 --
- ------------------------------------------------------------------------------------------------
3,798 4,185 1,011 2,175 2,787 2,010
Less valuation allowance 686 -- 353 -- 333 --
- ------------------------------------------------------------------------------------------------
Total $3,112 $4,185 $ 658 $2,175 $2,454 $2,010
--------------------------------------------------------

- ------------------------------------------------------------------------------------------------
Sprint Corporation
Consolidated Sprint FON Group Sprint PCS Group
2000 Deferred 2000 Deferred 2000 Deferred
Income Tax Income Tax Income Tax
------------------ ------------------ ------------------
Assets Liabilities Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------
(millions)
Property, plant and equipment $ -- $3,161 $ -- $1,891 $ -- $1,270
Intangibles -- 853 -- 467 -- 386
Postretirement and other benefits 428 -- 428 -- -- --
Reserves and allowances 214 -- 175 -- 39 --
Unrealized holding gains on investments -- 20 -- 26 -- --
Operating loss carryforwards 2,011 -- 217 -- 1,794 --
Tax credit carryforwards 127 -- -- -- 127 --
Other, net 163 -- 144 -- 18 --
- ------------------------------------------------------------------------------------------------
2,943 4,034 964 2,384 1,978 1,656
Less valuation allowance 598 -- 273 -- 325 --
- ------------------------------------------------------------------------------------------------
Total $2,345 $4,034 $ 691 $2,384 $1,653 $1,656
--------------------------------------------------------

Management believes it is more likely than not that these deferred income tax
assets, net of the valuation allowance, will be realized based on current
income tax laws and expectations of future taxable income stemming from the
reversal of existing deferred tax liabilities or ordinary operations.
Uncertainties surrounding income tax law changes, shifts in operations between
state taxing jurisdictions and future operating income levels may, however,
affect the ultimate realization of all or some of these deferred income tax
assets.

The valuation allowance related to deferred income tax assets increased $88
million in 2001 and $118 million in 2000.

The foreign component of income (loss) from continuing operations totaled
$(234) million, $(236) million, and $(73) million in 2001, 2000 and 1999,
respectively.

In 1999, Sprint acquired approximately $193 million of potential tax benefits
related to net operating loss carryforwards in the acquisitions of the
broadband fixed wireless companies. In 1998, Sprint acquired approximately $229
million of potential tax benefits related to net operating loss carryforwards
in the PCS Restructuring. The benefits from the acquisitions and PCS
Restructuring are subject to certain realization restrictions under various tax
laws. A valuation allowance was provided for the total of these benefits. If
these benefits are subsequently recognized, they will reduce goodwill or
intangibles resulting from the application of the purchase method of accounting
for these transactions.

In connection with the PCS Restructuring, the PCS Group is required to
reimburse the FON Group and the Cable Partners for net operating loss and tax
credit carryforward benefits generated before the PCS Restructuring if
realization by the PCS Group

F-27

produces a cash benefit that would not otherwise have been realized. The
reimbursement will equal 60% of the net cash benefit received by the PCS Group
and will be made to the FON Group in cash and to the Cable Partners in shares
of Series 2 PCS stock. The carryforward benefits subject to this requirement
total $259 million, which includes the $229 million acquired in the PCS
Restructuring.

At year-end 2001, Sprint had federal operating loss carryforwards of
approximately $6.4 billion and state operating loss carryforwards of
approximately $10 billion. Related to these loss carryforwards are federal tax
benefits of $2.2 billion and state tax benefits of $696 million. In addition,
Sprint had available, for income tax purposes, federal alternative minimum tax
credit carryforwards of $33 million, state alternative minimum tax credit
carryforwards of $5 million, federal alternative minimum tax net operating loss
carryforwards of $4.2 billion and state alternative minimum tax net operating
loss carryforwards of $1 billion. The loss carryforwards expire in varying
amounts through 2021.

- --------------------------------------------------------------------------------
10. Long-term Debt and Capital Lease Obligations
- --------------------------------------------------------------------------------

Sprint's consolidated long-term debt and capital lease obligations at year-end
was as follows:

- --------------------------------------------------------------------------------

2001 2000
--------------------------- ---------------------------
FON PCS FON PCS
Maturing Group Group Consolidated Group Group Consolidated
- -----------------------------------------------------------------------------------------------------
(millions)

Senior notes
5.7% to 7.6%/(1)/ 2001 to 2028 $1,355 $12,545 $13,900 $1,105 $ 9,395 $10,500
8.1% to 9.8% 2001 to 2003 350 -- 350 382 -- 382
11.0% to 12.5%/(2)/ 2001 to 2006 -- -- -- -- 776 607
Debentures and notes
6.1% to 9.3% 2003 to 2022 500 -- 500 500 -- 500
Notes payable and
commercial paper
Variable rates/(3)/ -- 1,118 2,715 3,833 157 3,797 3,954
First mortgage bonds
6.3% to 9.9% 2002 to 2025 1,064 -- 1,064 1,085 -- 1,085
Trade receivables securitization
Variable rates/(4)/ 2002 820 -- 820 900 -- 900
Capital lease obligations
2.3% to 14.0% 2001 to 2007 55 324 379 61 408 469
Other
2.0% to 15.0% 2001 to 2006 52 4 56 318 4 322
- -----------------------------------------------------------------------------------------------------
5,314 15,588 20,902 4,508 14,380 18,719
Less: current maturities of
long-term debt/(2)/ 1,258 1,310 2,568 1,026 244 1,205
Less: short-term borrowings 798 1,035 1,833 -- -- --
- -----------------------------------------------------------------------------------------------------
Long-term debt and capital lease
obligations/(2)/ $3,258 $13,243 $16,501 $3,482 $14,136 $17,514
-------------------------------------------------------

/(1)/ These borrowings were incurred by Sprint and allocated to the applicable
group. Sprint's weighted average effective interest rate related to these
borrowings was 6.8% for the year-ended 2001 and 6.7% for the year-ended
2000. The weighted average effective interest rate related to the
borrowings allocated to the PCS Group was approximately 8.7% for the
year-ended 2001 and 8.8% for the year-ended 2000. See Note 1 for a more
detailed description of how Sprint allocates financing to each of the
groups.

/(2)/ In 2000, consolidated debt does not equal the total of PCS Group and FON
Group debt due to intergroup debt eliminated in consolidation. The FON
Group had ownership of the PCS Group's Senior Discount notes totaling
$169 million at year-end 2000, including $65 million classified as
current.

/(3)/ Notes payable had a weighted average interest rate of 2.7% at year-end
2001 and 7.1% at year-end 2000. The weighted average interest rate of
commercial paper was 3.2% at year-end 2001 and 7.5% at year-end 2000.
/(4)/ These borrowings were incurred under a financing agreement, entered into
in 1999, to sell, on a continuous basis with recourse, undivided
percentage ownership interests in a designated pool of FON Group trade
accounts receivable. Subsequent collections of receivables sold to
investors are typically reinvested in new receivables. Sprint's weighted
average interest rate related to these borrowings was 4.5% for the
year-ended 2001 and 6.9% for the year-ended 2000.

F-28

Scheduled principal payments, excluding reclassified short-term borrowings,
during each of the next five years are as follows:

- ---------------------------------------------------------------------------
Sprint Sprint
FON PCS
Group Group Sprint
- ---------------------------------------------------------------------------
(millions)

2002 $1,258 $1,310 $2,568
2003 372 1,060 1,432
2004 144 1,062 1,206
2005 122 61 183
2006 10 830 840
- ---------------------------------------------------------------------------

Included in the above schedule are payments to be made in Japanese yen. A
substantial amount of the yen needed to satisfy the obligations are currently
held on deposit and included in "Other assets" on the Consolidated Balance
Sheets. The yen payments included in the above schedule are $1 million in 2003,
$20 million in 2004, $43 million in 2005 and $81 million in 2006.

Short-term Borrowings

Sprint had bank notes payable totaling $635 million at year-end 2001 and $676
million at year-end 2000. In addition, Sprint had commercial paper borrowings
totaling $3.2 billion at year-end 2001 and $3.3 billion at year-end 2000.
Though these borrowings are renewable at various dates during the year, Sprint
reclassifies short-term borrowings to long-term debt because of Sprint's intent
and ability to refinance these borrowings on a long-term basis. Sprint's
ability to refinance these borrowings is limited to Sprint's unused credit
facilities expiring after 2002. Accordingly, the amount of commercial paper
borrowings and other bank notes reclassified to long-term debt was limited to
$2.0 billion. The commercial paper borrowings that remained in current
liabilities were $1.8 billion at December 31, 2001.

Sprint currently has revolving credit facilities with syndicates of domestic
and international banks totaling $5 billion; $3 billion of which is a 364 day
facility expiring in August 2002, and $2 billion of which is a five year
facility expiring in August 2003. These facilities are unused, however,
Sprint's commercial paper borrowings are supported by these revolving credit
facilities. Certain other notes payable relate to a separate revolving credit
facility of $500 million which expires in December 2002. At year-end 2001,
Sprint had total unused lines of credit of $1.9 billion, assuming Sprint's
commercial paper borrowings used these credit facilities. In addition, Sprint
had standby letters of credit serving as a backup to various obligations
totaling $133 million at year-end 2001.

Long-term Debt

In the 2001 fourth quarter, Sprint issued $1.75 billion of debt securities
through a private placement. These borrowings have an interest rate of 6.0% and
mature in 2007. The proceeds were allocated to both the FON and PCS Groups and
used to repay debt and to fund capital investments and working capital
requirements. As a condition to the sale of the securities, Sprint conducted an
exchange offer that allowed the original securities to be exchanged for
substantially identical securities registered with the Securities and Exchange
Commission (SEC). The exchange offer terminated on February 21, 2002.

In the 2001 fourth quarter, Sprint redeemed, before scheduled maturities, $558
million of senior notes and senior discount notes of the PCS Group. These notes
had interest rates ranging from 11.0% to 12.5%. This resulted in an after-tax
extraordinary loss for Sprint of less than $1 million.

In the 2001 first quarter, Sprint repaid, before scheduled maturities, $18
million of first mortgage bonds allocated to the FON Group. These bonds had an
interest rate of 9.9%. This resulted in a $1 million after-tax extraordinary
loss for Sprint.

In the 2001 first quarter, Sprint issued $2.4 billion of debt securities.
Sprint had $2 billion of unissued securities under its existing shelf
registration statement with the SEC, and registered an additional $400 million
before the issuance. These borrowings have interest rates ranging from 7.1% to
7.6% and mature in 2006 and 2011. The proceeds were allocated to the PCS Group
and used to repay debt, and to fund capital investments and working capital
requirements.

In the 2000 fourth quarter, Sprint redeemed, before scheduled maturities, $25
million of debt allocated to the FON Group. These borrowings had a weighted
average interest rate of 9.6%. This resulted in a $1 million after-tax
extraordinary loss for Sprint.

In the 2000 second quarter, Sprint issued $1.25 billion of debt securities
under its $4 billion shelf registration statement with the SEC. These
borrowings mature in 2002 and have interest rates ranging from 6.9% to 7.6%.
The proceeds were allocated to the PCS Group and used to repay debt and to fund
capital investments and working capital requirements.

In the 2000 first quarter, Sprint exchanged 6.6 million common shares of SBC
Communications, Inc. for certain notes payable allocated to the FON Group. The
notes had a market value of $275 million on the maturity date. The notes had an
interest rate of 8.3%.

In the 2000 first quarter, Sprint repaid, before scheduled maturities, $127
million of notes payable allocated to the PCS Group. These notes had an
interest rate of 7.8%. This resulted in a $3 million after-tax extraordinary
loss for Sprint.

In the 1999 fourth quarter, Sprint redeemed, before scheduled maturities, $575
million of the assumed

F-29

broadband fixed wireless companies' debt with interest rates ranging from 13.1%
to 14.5%. This resulted in a $39 million after-tax extraordinary loss for
Sprint.

In 1999, Sprint repaid, before scheduled maturities, $2.2 billion of its
revolving credit facilities and other borrowings allocated to the PCS Group.
This resulted in a $21 million after-tax extraordinary loss for Sprint.

Other

Sprint gross property, plant and equipment totaling $15.5 billion was either
pledged as security for first mortgage bonds and certain notes or is restricted
for use as mortgaged property.

Sprint has complied with all restrictive and financial covenants relating to
its debt arrangements at year-end 2001.

- --------------------------------------------------------------------------------
11. Equity Unit Offering
- --------------------------------------------------------------------------------

In the 2001 third quarter, Sprint completed a registered offering of 69 million
equity units, each with a stated amount of $25. Net proceeds from the issuance
were approximately $1.7 billion after deducting the underwriting discount and
other offering expenses. The proceeds were allocated to the PCS Group and used
to repay debt, and to fund capital investments and working capital requirements.

Each equity unit initially consists of a corporate unit. Each corporate unit
consists of a purchase contract and $25 principal amount of senior notes
(Notes) of Sprint's wholly owned subsidiary, Sprint Capital Corporation. The
corporate unit may be converted by the holder into a treasury unit consisting
of the purchase contract and a treasury portfolio of zero-coupon U.S. treasury
securities by substituting the treasury securities for the Notes. The holder of
the equity unit will own the underlying Notes or treasury portfolio, but will
pledge the Notes or portfolio to Sprint to secure its obligations under the
purchase contract.

Purchase Contract

As a component of the equity unit, the purchase contract obligates the holder
to purchase, and obligates Sprint to sell, on August 17, 2004, a variable
number of newly issued shares of PCS common stock ranging from approximately 58
million to 70 million shares depending on the market price of PCS common stock.
Sprint will make quarterly contract adjustment payments of 1.125% on the $25
stated amount per year until the purchase contract is settled, although it has
the right to defer these payments until August 17, 2004. The fair value of this
obligation is classified as an other liability on the Consolidated Balance
Sheets.

These contingently issuable shares have not been included in the diluted
earnings per share calculation because their effect is currently antidilutive.

Notes

The Notes initially bear interest, payable quarterly in arrears, at the rate of
6% per annum. Sprint is obligated to remarket the Notes in 2004, at which time
the interest rate will be reset. The Notes mature August 17, 2006.

The corporate units are listed on the New York Stock Exchange under the symbol
"SDE".

- --------------------------------------------------------------------------------
12. Redeemable Preferred Stock
- --------------------------------------------------------------------------------

The redeemable preferred stock outstanding, at year-end, is as follows:

2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
(millions, except per share
and share data)

Seventh series preferred stock--stated value $1,000 per share, 246,766 shares, voting, cumulative
$6.73 quarterly dividend rate $246 $246
Fifth series preferred stock--stated value $100,000 per share, 95 shares--voting, cumulative 6%
annual dividend rate 10 10
- -----------------------------------------------------------------------------------------------------------------------------
$256 $256
---------------------------

Seventh Series Preferred Stock

As part of the PCS Restructuring, Sprint issued to the Cable Partners a new
class of convertible preferred stock convertible into PCS shares. If not
converted by the holder or earlier redeemed by Sprint, the Seventh series
preferred stock will become mandatorily redeemable on the tenth anniversary of
the PCS Restructuring.

Fifth Series Preferred Stock

Sprint's Fifth series preferred stock must be redeemed in full in 2003. If less
than full dividends have been paid for four consecutive dividend periods, or if
dividends in arrears exceed an amount equal to the dividends for six dividend
periods, the Fifth series preferred shareholders may elect a majority of
directors standing for election until all dividends in arrears have been paid.

F-30

- --------------------------------------------------------------------------------
13. Common Stock
- --------------------------------------------------------------------------------

In the 2001 fourth quarter, 0.4 million shares of PCS common stock underlying
Class A DT common stock were converted into shares of Series 1 PCS common
stock. After this conversion, the Class A DT shares were cancelled.

In the 2001 third quarter, Sprint completed a registered offering of 23.5
million shares of its Series 1 PCS common stock. Net proceeds from the issuance
were approximately $561 million after deducting the underwriting discount and
other offering expenses. The proceeds were used to repay debt, and to fund
capital investments and working capital requirements.

In conjunction with the above offering, DT sold 57 million shares of PCS common
stock, which represented an approximate 4% voting interest in Sprint
Corporation. Sprint did not receive any of the proceeds from the sale of shares
by DT. Upon the sale, 21.2 million shares of PCS common stock underlying Class
A DT common stock and 35.8 million shares of Series 3 PCS common stock were
converted into shares of Series 1 PCS common stock.

In the 2001 second quarter, Sprint completed a registered offering on behalf of
FT and DT in which they sold 174.8 million shares of FON common stock, which
represented an approximate 10% voting interest in Sprint. Sprint did not
receive any proceeds from this offering. Upon the sale, 86.2 million shares of
FON common stock underlying Class A common stock and 88.6 million shares of
Series 3 FON common stock were converted into shares of Series 1 FON common
stock.

In the 1999 fourth quarter, the Sprint Board of Directors authorized a
two-for-one stock split of Sprint's PCS common stock in the form of a stock
dividend. The dividend was distributed in February 2000 to the PCS
shareholders. Series 3 PCS common stock was issued to FT and DT in lieu of
adjusting the PCS common stock underlying Class A common stock.

In the 1999 second quarter, Cox Communications Inc. exercised a put option
requiring Sprint to purchase the remaining 40.8% interest in Cox PCS. Sprint
issued 24.3 million shares of Series 2 PCS common stock (pre-split basis) in
exchange for the remaining interest. The shares were valued at $1.1 billion.

In the 1999 second quarter, the Sprint Board of Directors authorized a
two-for-one stock split of Sprint's FON common stock in the form of a stock
dividend. The dividend was distributed in June 2000 to the FON shareholders.
Series 3 FON common stock was issued to FT and DT in lieu of adjusting the FON
common stock underlying Class A common stock.

In the 1999 first quarter, Sprint completed a registered offering of 24.4
million shares of its Series 1 PCS common stock (pre-split basis). In
connection with this offering, FT and DT purchased 6.1 million shares of Series
3 PCS common stock (pre-split basis). Net proceeds from the issuance were
approximately $672 million after deducting the underwriting discount and other
offering expenses. Proceeds from FT and DT were approximately $169 million.
These proceeds were used for the continued buildout of the PCS network and
other working capital needs.

Classes of Common Stock

Series 1 FON common stock -- Designated for general public -- At the end of
2001, authorized shares totaled 2.5 billion, issued and outstanding shares
totaled 888.8 million.

Series 1 PCS common stock -- Designated for general public -- At the end of
2001, authorized shares totaled 3.0 billion, issued and outstanding shares
totaled 646.4 million.

Series 2 FON common stock -- Designated for Cable Partners -- At the end of
2001, authorized shares totaled 500 million. There have been no shares issued.

Series 2 PCS common stock -- Designated for Cable Partners -- At the end of
2001, authorized shares totaled 1.0 billion, issued and outstanding shares
totaled 305.9 million

Series 3 FON common stock -- Designated for FT and DT -- At the end of 2001,
authorized shares totaled 1.2 billion. There are no outstanding shares.

Series 3 PCS common stock -- Designated for FT and DT -- At the end of 2001,
authorized shares totaled 600 million, issued and outstanding shares totaled
34.4 million, all of which are owned by FT.

Class A FT common stock -- At the end of 2001, authorized shares totaled 100
million, issued and outstanding shares totaled 43.1 million. Each share
represents the right to 50% of a share of Series 1 PCS common stock.

Class A DT common stock -- At the end of 2001, authorized shares totaled 100
million. There are no outstanding shares.

F-31

Common Stock Reserved for Future Grants

At year-end 2001, common stock reserved for future grants under stock option
plans or for future issuances under various other arrangements was as follows:

Sprint FON Group

----------------------------------------------------------
Shares
----------------------------------------------------------
(millions)

Employees Stock Purchase Plan 7.3
Employee savings plans 3.7
Automatic Dividend Reinvestment Plan 2.3
Officer and key employees' and directors' stock
options 6.1
Other 1.5
----------------------------------------------------------
20.9
----

Sprint PCS Group

----------------------------------------------------------
Shares
----------------------------------------------------------
(millions)

Employees Stock Purchase Plan 9.8
Employee savings plans 3.0
Officer and key employees' and directors' stock
options 9.1
Warrants issued to Cable Partners 24.9
Conversion of preferred stock and other 16.8
Purchase contract underlying Equity Unit Notes 70.4
----------------------------------------------------------
134.0
-----

Shareholder Rights Plan

Under Sprint's Shareholder Rights Plan, one half of a preferred stock purchase
right is attached to each share of FON stock and PCS stock and one preferred
stock purchase right is attached to each share of Class A common stock. The
rights may be redeemed by Sprint at $0.01 per right and will expire in June
2007, unless extended. The rights are exercisable only if certain takeover
events occur and are entitled to the following:

. Each FON stock right entitles the holder to purchase 1/1,000 of a share
(Unit) of a no par Preferred Stock-Sixth Series at $275 per Unit.

. Each PCS stock right entitles the holder to purchase a Unit of a no par
Preferred Stock-Eighth Series at $150 per Unit.

. Each Class A right entitles the holder to purchase 1/4 Unit of Preferred
Stock-Eighth Series at $37.50 per 1/4 Unit.

Preferred Stock-Sixth Series is voting, cumulative and accrues dividends on a
quarterly basis generally equal to the greater of $100 per share or 2,000 times
the total per share amount of all FON common stock dividends. Preferred
Stock-Eighth Series has the same features as the Sixth Series, but applies to
PCS shares. No Preferred Stock-Sixth Series or Preferred Stock-Eighth Series
were issued or outstanding at year-end 2001 or 2000.

Other

The indentures and financing agreements of certain of Sprint's subsidiaries
contain provisions limiting cash dividend payments on subsidiary common stock
held by Sprint. As a result, $556 million of those subsidiaries' $1.5 billion
total retained earnings was restricted at year-end 2001. The flow of cash in
the form of advances from the subsidiaries to Sprint is generally not
restricted.

- --------------------------------------------------------------------------------
14. Stock-based Compensation
- --------------------------------------------------------------------------------

After the FON and PCS stock splits, the number of shares and the related
exercise prices of outstanding options and Employees Stock Purchase Plan (ESPP)
share elections were adjusted to maintain the total intrinsic value of the
options and the value of share elections.

During 2001, the FON Group paid $160 million to the PCS Group to compensate for
the net amount of PCS stock-based compensation granted to FON Group employees
less FON stock-based compensation granted to PCS Group employees. The FON Group
paid $80 million to the PCS Group in 2000 for stock-based compensation. The
value paid for stock-based compensation is determined at the time of the grants.

During 2000, options and restricted stock outstanding for more than one year at
the date of shareholder approval of Sprint's proposed merger with WorldCom
became fully vested as of that date.

During 2000, the Sprint Board of Directors approved an Exchange Program to give
Sprint employees an election to cancel stock options granted to them in 2000 in
exchange for an equal number of new options to be granted in the future with
generally more extended vesting schedules. No members of Sprint's Board of
Directors were eligible for the Exchange Program. Under the terms of the
Exchange Program, 16.2 million FON options and 13.1 million PCS options were
cancelled on November 10, 2000. The new options were granted on May 11, 2001,
and the exercise price was the market price on that date. A total of 15.7
million FON options and 12.4 million PCS options were granted.

Management Incentive Stock Option Plan

Under the Management Incentive Stock Option Plan (MISOP), Sprint grants stock
options to employees who are eligible to receive annual incentive compensation.
Eligible employees may elect to receive stock options in lieu of a portion of
their target

F-32

incentive under Sprint's annual incentive compensation plans. The options
generally become exercisable on December 31 of the year granted and have a
maximum term of 10 years. Under the MISOP, Sprint also grants stock options to
executives in lieu of long-term incentive compensation (LTIP-MISOP options).
The LTIP-MISOP options generally become exercisable on the third December 31
following the grant date and have a maximum term of 10 years. MISOP options are
granted with exercise prices equal to the market price of the underlying common
stock on the grant date. At year-end 2001, this plan authorized options to buy
approximately 34.4 million FON shares and approximately 23.9 million PCS
shares. The authorized number of shares was increased by approximately 8.0
million FON shares and 8.6 million PCS shares on January 1, 2002.

Stock Option Plan

Under Sprint's 1990 Stock Option Plan (SOP), Sprint grants stock options to
officers and key employees. The options generally become exercisable at the
rate of 25% per year, beginning one year from the grant date, and have a
maximum term of 10 years. SOP options are granted with exercise prices equal to
the market price of the underlying common stock on the grant date. At year-end
2001, this plan authorized options to buy approximately 67.6 million FON shares
and approximately 54.2 million PCS shares.

In 2001, Sprint entered into new employment contracts with Mr. Esrey and Mr.
LeMay designed to insure their long-term employment with Sprint, to provide
competitive compensation, and to link their compensation to shareholder value.
The employment contracts combine, supercede, and amend several earlier
agreements between Sprint and each of Messrs. Esrey and LeMay. In return for
these agreements, Sprint granted stock options with extended vesting schedules
(Employment) to Mr. Esrey and Mr. LeMay.

In 2000, Sprint granted special stock options (Retention) to executives who
agreed to defer the benefit of the accelerated vesting of stock options until
the close or cancellation of the proposed WorldCom merger. The agreement was
designed to retain these executives following Sprint's special meeting of
shareholders in connection with the proposed WorldCom merger. In addition,
Sprint granted a portion of the annual option grants (Accelerated) normally
expected to be made in early 2001 to officers and key employees. The granting
of these options was accelerated to help retain employees.

In 1997, Sprint granted performance-based stock options to certain key
executives. The FON Group expensed $5 million in 2000 and $9 million in 1999,
and the PCS Group expensed $3 million in 2000 and $5 million in 1999, related
to these performance-based stock options. The 2000 amount reflects expense
through the date of the shareholder approval of the proposed WorldCom merger.
At that time, all of these options became vested. An additional $29 million of
expense related to these options was included in "Merger related costs" in
Sprint's 2000 Consolidated Statements of Operations.

Employees Stock Purchase Plan

Under Sprint's ESPP, employees may elect to purchase FON common stock or PCS
common stock at a price equal to 85% of the market value on the grant or
exercise date, whichever is less. At year-end 2001, this plan authorized for
purchase approximately 10.2 million FON shares and approximately 15.1 million
PCS shares.

Sprint PCS Long-term Incentive Plan

Before 1999, PCS Group employees meeting certain eligibility requirements were
included in the Sprint PCS' long-term incentive plan (LTIP). Under this plan,
participants received units whose initial value was based on independent
appraisals. Appreciation on the units was based on annual independent
appraisals. The 1997 plan year appreciation units vested 25% per year beginning
one year from the grant date and also expire after 10 years.

In connection with the PCS Restructuring, Sprint discontinued the Sprint PCS
LTIP. The appreciation units were converted to PCS shares and options to buy
PCS shares, based on a formula designed to replace the appreciated value of the
units at the beginning of July 1998. For vested units at year-end 1998,
participants could elect to receive the appreciation in cash, or in shares and
options. Most elected to receive shares and options.

In 1999, Sprint began issuing the shares, and the options became exercisable
based on the vesting
requirements of the converted units. At the end of 2000, all replacement
options and shares were fully vested.

Pro Forma Disclosures

Pro forma net income (loss) and earnings (loss) per share have been determined
as if Sprint had used
the fair value method of accounting for its stock option grants and ESPP share
elections. Under this method, compensation expense is recognized over the
applicable vesting periods and is based on the shares under option and their
related fair values on the grant date.

Sprint's pro forma net loss was $1,751 million for 2001, $467 million for 2000
and $1,144 million for 1999.

The FON Group's pro forma net loss was $291 million for 2001, and pro forma net
income was $1,668

F-33

million for 2000 and $1,434 million for 1999. Pro forma diluted loss per share
was $0.32 for 2001, and pro forma diluted earnings per share was $1.88 for 2000
and $1.63 for 1999. The FON Group's pro forma net income was reduced by $10
million or $0.01 per FON share in 2000 and 1999 due to additional compensation
resulting from modifications to terms of options and ESPP share elections
related to the Recapitalization.

The PCS Group's pro forma net loss was $1,460 million in 2001, $2,135 million
in 2000 and $2,578 million in 1999 and pro forma diluted loss per share was
$1.49 in 2001, $2.22 in 2000 and $2.82 in 1999.

Fair Value Disclosures

The following tables reflect the weighted average fair value per option
granted, as well as the significant weighted average assumptions used in
determining those fair values using the Black-Scholes pricing model.

In 2001, two SOP grants are presented. This is a result of the Exchange
Program. Those individuals that did not accept (or were excluded from) the
Exchange Program were granted 2001 SOP options in January, while those that
accepted the Exchange Program were granted both the 2000 and 2001 SOP options
in May in accordance with the terms of the offer.

FON Common Stock

-----------------------------------------------
2001 MISOP SOP (Jan)
-----------------------------------------------

Fair value on grant date $ 7.11 $ 8.78
Risk-free interest rate 4.9% 4.9%
Expected volatility 33.7% 32.6%
Expected dividend yield 2.3% 1.9%
Expected life (years) 6 6
-----------------------------------------------
2001 SOP (May) Employment
-----------------------------------------------
Fair value on grant date $ 7.11 $ 7.46
Risk-free interest rate 4.9% 4.8%
Expected volatility 33.7% 33.5%
Expected dividend yield 2.3% 2.2%
Expected life (years) 6 6
-----------------------------------------------
2000 MISOP SOP
-----------------------------------------------
Fair value on grant date $24.24 $23.86
Risk-free interest rate 6.8% 6.1%
Expected volatility 26.7% 26.6%
Expected dividend yield 0.8% 0.8%
Expected life (years) 6 6
-----------------------------------------------
2000 Accelerated Retention
-----------------------------------------------
Fair value on grant date $13.77 $22.92
Risk-free interest rate 6.1% 6.6%
Expected volatility 33.2% 26.7%
Expected dividend yield 1.4% 0.8%
Expected life (years) 6 6

---------------------------------------
1999 MISOP SOP
---------------------------------------

Fair value on grant date $9.86 $12.09
Risk-free interest rate 4.8% 4.8%
Expected volatility 26.6% 26.6%
Expected dividend yield 1.3% 1.3%
Expected life (years) 4 6

PCS Common Stock

-----------------------------------------------
2001 MISOP SOP (Jan)
-----------------------------------------------

Fair value on grant date $16.91 $18.50
Risk-free interest rate 4.9% 4.9%
Expected volatility 74.3% 75.4%
Expected dividend yield -- --
Expected life (years) 6 6
-----------------------------------------------
2001 SOP (May) Employment
-----------------------------------------------
Fair value on grant date $16.91 $17.52
Risk-free interest rate 4.9% 4.8%
Expected volatility 74.3% 75.5%
Expected dividend yield -- --
Expected life (years) 6 6
-----------------------------------------------
2000 MISOP SOP
-----------------------------------------------
Fair value on grant date $33.06 $33.93
Risk-free interest rate 6.8% 6.1%
Expected volatility 63.2% 67.7%
Expected dividend yield -- --
Expected life (years) 6 6
-----------------------------------------------
2000 Accelerated Retention
-----------------------------------------------
Fair value on grant date $35.30 $34.83
Risk-free interest rate 6.1% 6.6%
Expected volatility 63.8% 63.2%
Expected dividend yield -- --
Expected life (years) 6 6
-----------------------------------------------
1999 MISOP SOP
-----------------------------------------------
Fair value on grant date $ 8.55 $10.12
Risk-free interest rate 4.8% 4.8%
Expected volatility 67.7% 67.7%
Expected dividend yield -- --
Expected life (years) 4 6

Employees Stock Purchase Plan

During the 2001 ESPP offering, FON Group and PCS Group employees elected to
purchase 2.0 million FON and 5.5 million PCS shares. Using the Black-Scholes
pricing model, the weighted average fair value was $4.37 per share for each FON
election and $7.92 per share for each PCS election.

During the 2000 ESPP offering, FON Group and PCS Group employees elected to
purchase 2.3 million FON and 5.4 million PCS shares. Using the Black-Scholes
pricing model, the weighted average fair value was $12.99 per share for each
FON election and $20.68 per share for each PCS election.

During the 1999 ESPP offering, FON Group and PCS Group employees elected to
purchase 1.3 million

F-34

FON and 6.5 million PCS shares. Using the Black-Scholes pricing model, the
weighted average fair value was $11.12 per share for each FON election and
$8.08 per share for each PCS election.

Stock Options

Activity under the SOP and MISOP was as follows:

FON Common Stock

-----------------------------------------------
Weighted
Average
Sprint per Share
FON Exercise
Shares Price
-----------------------------------------------
(millions)

Outstanding, year-end 1998 47.4 $21.03
Granted 20.9 41.51
Exercised (13.5) 18.93
Forfeited/Expired (2.8) 28.61
-----
Outstanding, year-end 1999 52.0 29.48
Granted 24.3 58.61
Exercised (11.5) 26.32
Forfeited/Expired (20.0) 58.48
-----
Outstanding, year-end 2000 44.8 33.12
Granted 43.8 25.06
Exercised (0.8) 14.10
Forfeited/Expired (7.6) 43.49
-----
Outstanding, year-end 2001 80.2 $27.95
--------------------

PCS Common Stock

-----------------------------------------------
Weighted
Average
Sprint per Share
PCS Exercise
Shares Price
-----------------------------------------------
(millions)

Outstanding, year-end 1998 29.2 $ 5.20
Granted 21.8 17.67
Exercised (9.2) 6.05
Forfeited/Expired (2.0) 9.64
-----
Outstanding, year-end 1999 39.8 11.64
Granted 19.1 52.68
Exercised (16.2) 10.84
Forfeited/Expired (15.8) 52.08
-----
Outstanding, year-end 2000 26.9 17.43
Granted 35.3 26.01
Exercised (2.7) 9.75
Forfeited/Expired (3.4) 43.17
-----
Outstanding, year-end 2001 56.1 $21.70
--------------------

The following tables summarize outstanding and exercisable options at year-end
2001:

FON Common Stock

- --------------------------------------------------------------------------------

Options Outstanding
--------------------------------
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
------------------------------------------------
(millions) (years)

$ 5.00-$ 9.99 0.0 0.2 $ 8.29
10.00- 19.99 7.6 4.3 16.82
20.00- 29.99 51.8 8.1 22.90
30.00- 39.99 14.0 6.9 38.53
40.00- 49.99 2.3 4.9 44.64
50.00- 59.99 0.6 4.5 53.69
60.00- 69.99 3.5 6.8 64.68
70.00- 79.99 0.4 4.7 74.01
------------------------------------------------

- --------------------------------------------------------------------------------

Options Exercisable
--------------------
Weighted
Average
Range of Number Exercise
Exercise Prices Exercisable Price
------------------------------------
(millions)

$ 5.00-$ 9.99 0.0 $ 8.29
10.00- 19.99 7.5 16.77
20.00- 29.99 27.2 23.36
30.00- 39.99 13.6 38.60
40.00- 49.99 2.3 44.63
50.00- 59.99 0.6 53.69
60.00- 69.99 2.6 64.22
70.00- 79.99 0.4 74.01
------------------------------------

PCS Common Stock

- --------------------------------------------------------------------------------

Options Outstanding
--------------------------------
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
------------------------------------------------
(millions) (years)

$ 2.00-$ 9.99 9.8 5.3 $ 5.19
10.00- 19.99 9.6 7.0 15.62
20.00- 29.99 32.8 8.9 24.78
30.00- 39.99 0.2 5.4 32.99
40.00- 49.99 0.4 5.2 46.44
50.00- 59.99 2.9 7.3 53.12
60.00- 69.99 0.4 6.3 62.82

- --------------------------------------------------------------------------------

Options Exercisable
--------------------
Weighted
Average
Range of Number Exercise
Exercise Prices Exercisable Price
------------------------------------
(millions)

$ 2.00-$ 9.99 9.8 $ 5.19
10.00- 19.99 9.6 15.60
20.00- 29.99 11.0 24.63
30.00- 39.99 0.2 33.02
40.00- 49.99 0.4 46.47
50.00- 59.99 2.0 53.41
60.00- 69.99 0.4 62.82

F-35

- --------------------------------------------------------------------------------
15. Commitments and Contingencies
- --------------------------------------------------------------------------------

Litigation, Claims and Assessments

A number of putative class action cases that allege Sprint failed to obtain
easements from property owners during the installation of its fiber optic
network are in process, some of them seeking certification as nationwide
classes. Settlement negotiations directed to a nationwide, industry-wide
settlement of these claims have resulted in an agreement, not yet approved by
all parties involved in the actions or by the Court. Sprint recorded a charge
for estimated settlement costs of $24 million in the fourth quarter of 2001.

In December 2000, Amalgamated Bank, an institutional shareholder, filed a
derivative action purportedly on behalf of Sprint against certain of its
current and former officers and directors in the Jackson County, Missouri,
Circuit Court. The complaint alleges that the individual defendants breached
their fiduciary duties to Sprint and were unjustly enriched by making
undisclosed amendments to Sprint's stock option plans, by failing to disclose
certain information concerning regulatory approval of the proposed merger of
Sprint and WorldCom, and by overstating Sprint's earnings for the first quarter
of 2000. The plaintiff seeks damages, to be paid to Sprint, in an unspecified
amount. Two additional, substantially identical, derivative actions by other
shareholders have been filed.

Various other suits arising in the ordinary course of business are pending
against Sprint.

Management cannot predict the final outcome of these actions but believes they
will not be material to Sprint's consolidated financial statements.

Commitments

The PCS Group has purchase commitments with various vendors to purchase
handsets and other equipment through 2007. Outstanding commitments at year-end
2000 were approximately $800 million. Outstanding commitments at year-end 2001
were approximately $2 billion.

The FON Group has purchase commitments with various vendors for network
equipment through 2004. Outstanding commitments at year-end 2001 were
approximately $489 million. There were no outstanding commitments at year-end
2000.

Operating Leases

Sprint's minimum rental commitments at year-end 2001 for all noncancelable
operating leases, consisting mainly of leases for data processing equipment,
real estate, cell and switch sites, and office space, are as follows:

- --------------------------------------------------------------------------------

(millions)

2002 $815
2003 600
2004 426
2005 311
2006 196
Thereafter 445
---------------------

Sprint's gross rental expense totaled $1.2 billion in 2001, $1.0 billion in
2000 and $890 million in 1999. Rental commitments for subleases, contingent
rentals and executory costs were not significant. The table excludes renewal
options related to certain cell and switch site leases. These renewal options
generally have five-year terms and may be exercised from time to time.

- --------------------------------------------------------------------------------
16. Financial Instruments
- --------------------------------------------------------------------------------

Fair Value of Financial Instruments

Sprint estimates the fair value of its financial instruments using available
market information and appropriate valuation methodologies. As a result, the
following estimates do not necessarily represent the values Sprint could
realize in a current market exchange. These amounts have not been
comprehensively revalued for purposes of these financial statements since
December 31, 2001. Therefore, estimates of fair value after year-end 2001 may
differ significantly from the amounts presented below.

The carrying amounts and estimated fair values of Sprint's financial
instruments at year-end were as follows:

- --------------------------------------------------------------------------------

2001
-------------------
Carrying Estimated
Amount Fair Value
----------------------------------------------
(millions)

Cash and equivalents $ 313 $ 313
Investments in securities 486 390
Japanese yen/(1)/ 140 140
Total debt 20,902 20,664
Equity units/(2)/ 1,774 1,753
Redeemable preferred stock 256 431
----------------------------------------------

- --------------------------------------------------------------------------
2000
-------------------
Carrying Estimated
Amount Fair Value
- --------------------------------------------------------------------------
(millions)

Cash and equivalents $ 239 $ 239
Investments in securities 602 236
Japanese yen/(1)/ 158 158
Total debt 18,719 17,823
Redeemable preferred stock 256 385
- --------------------------------------------------------------------------

/(1)/ Yen are held on deposit to satisfy certain capital lease obligations. See
Note 10 for additional information.

/(2)/ Equity units include senior notes of $1,725 million and the purchase
contract adjustment payment liability of $49 million. See Note 11 for
more information on equity units.

F-36

The carrying amounts of Sprint's cash and equivalents approximate fair value at
year-end 2001 and 2000. The estimated fair value of investments in securities
was based on quoted market prices. The estimated fair value of long-term debt
was based on quoted market prices for publicly traded issues. The estimated
fair value of all other issues was based on either the Black-Scholes pricing
model or the present value of estimated future cash flows using a discount rate
based on the risks involved.

Accounting for Derivative Instruments

Accounting Standard

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging
Activities." This Statement became effective for Sprint on January 1, 2001 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities and requires recognition of all derivatives on the balance
sheet at fair value, regardless of the hedging relationship designation.
Accounting for the changes in the fair value of the derivative instruments
depends on whether the derivatives qualify as hedge relationships and the types
of the relationships designated are based on the exposures hedged. Changes in
fair value of derivatives designated as fair value hedges are recognized in
earnings along with fair value changes of the hedged item. Changes in fair
value of derivatives designated as cash flow hedges are recorded in other
comprehensive income and are recognized in earnings when the hedged item
affects earnings. Changes in fair value of derivative instruments that do not
qualify for hedge relationship designation are recognized in earnings.

Risk Management Policies

Sprint selectively enters into interest rate swap and cap agreements to manage
its exposure to interest rate changes on its debt. Sprint also enters into
forward contracts and options in foreign currencies to reduce the impact of
changes in foreign exchange rates. Sprint's derivative transactions are used
principally for hedging purposes and comply with Board-approved policies.

Sprint enters into interest rate swap agreements to minimize exposure to
interest rate movements and achieve an optimal mixture of floating and
fixed-rate debt while minimizing liquidity risk. The interest rate swap
agreements designated as fair value hedges effectively convert Sprint's
fixed-rate debt to a floating rate by receiving fixed-rate amounts in exchange
for floating-rate interest payments over the life of the agreement without an
exchange of the underlying principal amount.

Sprint enters into interest rate swap agreements designated as cash flow hedges
to reduce the impact of interest rate movements on future interest expense
by effectively converting a portion of its floating-rate debt to a fixed rate.

In certain business transactions, Sprint is granted warrants to purchase the
securities of other companies at fixed rates. These warrants are supplemental
to the terms of the business transactions and are not designated as hedging
instruments.

Sprint's foreign exchange risk management program focuses on reducing
transaction exposure to optimize consolidated cash flow. Sprint's primary
transaction exposure results from net payments made to overseas
telecommunications companies for completing international calls made by
Sprint's domestic customers. Forward contracts, which function as natural
hedges, are used to offset the impact of foreign currency fluctuations in these
payments.

Derivative Accounting under the Standard

The derivative instruments Sprint holds are interest rate swaps, stock warrants
and foreign currency forward contracts. The interest rate swaps meet all the
required criteria of SFAS No. 133 for the assumption of perfect effectiveness
resulting in no recognition of changes in their fair value in earnings upon
adoption or during the life of the swap. The stock warrants are not designated
as hedging instruments and changes in the fair value of these derivative
instruments are recognized in earnings during the period of change. Forward
contracts held during the period are not designated as hedges and, accordingly,
not affected by the adoption of SFAS No. 133.

Upon adoption of SFAS No. 133, Sprint recorded a cumulative adjustment to net
income of $2 million (net of tax of $1 million) and a cumulative reduction in
other comprehensive income of $9 million. The $2 million cumulative adjustment
was due to recognizing the fair value of the stock warrants that are not
designated as hedging instruments and is recorded in "Cumulative effect of
changes in accounting principles, net" in Sprint's Consolidated Statements of
Operations. The reduction in other comprehensive income results from
recognizing the fair value of interest rate swap cash flow hedges and is
recorded in "Cumulative effect of change in accounting principle" in Sprint's
Consolidated Statements of Comprehensive Income (Loss). The net derivative
losses included in other accumulated comprehensive income as of December 31,
2001 are expected to be reclassified into earnings within the next 12-month
period because they mature in 2002.

Sprint recorded net derivative gains of $2 million (net of tax benefit of $1
million) for the year ended December 31,

F-37

2001 due to changes in the fair value of the stock warrants that are not
designated as hedging instruments. The net derivative gains are included in
Other income (expense), net on the Consolidated Statements of Operations.
Sprint recorded a $4 million reduction in other comprehensive income for the
year ended December 31, 2001 resulting from losses on interest rate swap cash
flow hedges. The reduction in other comprehensive income is included in "Net
unrealized losses on qualifying cash flow hedges" on the Consolidated
Statements of Comprehensive Income (Loss).

Foreign Currency Contracts

As part of its foreign currency exchange risk management program, Sprint
purchases and sells over-the-counter forward contracts and options in various
foreign currencies. Sprint had outstanding open forward contracts to buy
various foreign currencies of $3 million at year-end 2001 and $26 million at
year-end 2000. The forward contracts and options open at year-end 2001 and 2000
all had original maturities of six months or less. The net gain or loss
recorded to reflect the fair value of these contracts is recorded in the period
incurred. Including hedge costs, a net loss of $0.8 million was recorded in
2001, a net gain of $0.4 million was recorded in 2000, and a net loss of $0.3
million was recorded in 1999.

Concentrations of Credit Risk

Sprint's accounts receivable are not subject to any concentration of credit
risk. Sprint controls credit risk of its interest rate swap agreements and
foreign currency contracts through credit approvals, dollar exposure limits and
internal monitoring procedures. In the event of nonperformance by the
counterparties, Sprint's accounting loss would be limited to the net amount it
would be entitled to receive under the terms of the applicable interest rate
swap agreement or foreign currency contract. However, Sprint does not
anticipate nonperformance by any of the counterparties to these agreements.

- --------------------------------------------------------------------------------
17. Additional Financial Information
- --------------------------------------------------------------------------------

Segment Information

Sprint is divided into four lines of business: the global markets division, the
local division, the product distribution and directory publishing businesses
and the PCS wireless telephony products and services business, also known as
the PCS Group.

Sprint manages its segments to the operating income (loss) level of reporting.
Items below that level are held at a corporate level and only attributed to the
group level. The reconciliation from operating income to net income is shown on
the face of the Consolidated Statements of Operations in the consolidation
information.

Sprint generally accounts for transactions between segments based on fully
distributed costs, which Sprint believes approximate fair value.

F-38

Segment financial information was as follows:

- -----------------------------------------------------------------------------------------------------------------
Product
Global Distribution & Corporate
Markets Local Directory PCS and
Division Division Publishing Group Eliminations/(1)/ Consolidated
- -----------------------------------------------------------------------------------------------------------------
(millions)

2001
Net operating revenues $ 9,916 $6,247 $1,762 $ 9,725 $(1,579) $26,071
Affiliated revenues 581 283 695 20 (1,579) --
Depreciation and amortization 1,318 1,120 21 2,150 (10) 4,599
Restructuring and asset impairments/(2)/ 1,688 109 7 10 -- 1,814
Operating expenses 11,965 4,464 1,478 10,372 (1,546) 26,733
Operating income (loss) (2,049) 1,783 284 (647) (33) (662)
Operating margin NM 28.5% 16.1% NM -- NM
Capital expenditures 3,580 1,271 111 3,751 333 9,046
Total assets 12,651 9,343 719 22,190 891 45,793

2000
Net operating revenues $10,528 $6,155 $1,936 $ 6,341 $(1,347) $23,613
Affiliated revenues 424 190 694 39 (1,347) --
Depreciation and amortization 1,121 1,139 16 1,877 (9) 4,144
Merger related costs/(3)/ -- -- -- 24 163 187
Asset impairment/(2)/ 238 -- -- -- -- 238
Operating expenses 9,943 4,392 1,652 8,269 (1,148) 23,108
Operating income (loss) 585 1,763 284 (1,928) (199) 505
Operating margin 5.6% 28.6% 14.7% NM -- 2.1%
Capital expenditures 2,294 1,371 8 3,047 432 7,152
Total assets 12,509 9,219 845 19,763 732 43,068

1999
Net operating revenues $10,308 $5,958 $1,758 $ 3,373 $(1,132) $20,265
Affiliated revenues 289 192 643 8 (1,132) --
Depreciation and amortization 1,045 1,069 17 1,523 (2) 3,652
Operating expenses 9,133 4,405 1,516 6,610 (1,092) 20,572
Operating income (loss) 1,175 1,553 242 (3,237) (40) (307)
Operating margin 11.4% 26.1% 13.8% NM -- NM
Capital expenditures 1,774 1,354 36 2,580 370 6,114
Total assets 11,133 8,641 652 17,924 1,371 39,721

NM = Not meaningful

/(1)/ Revenues eliminated in consolidation consist primarily of local access
charged to the global markets division, equipment purchases from the
product distribution business, interexchange services provided to the
local division, long distance services provided to the PCS Group for
resale to PCS customers and for internal business use, caller ID services
provided by the local division and access to the PCS network. Corporate
capital expenditures were incurred mainly for Sprint's World Headquarters
Campus.

/(2)/ In the fourth quarter of 2001, Sprint recognized a one-time, pre-tax
charge of $1,814 million for restructuring and asset impairment. In the
2000 fourth quarter, Sprint recognized a one-time, pre-tax charge of $238
million for asset impairment. See Note 4 of Notes to Consolidated
Financial Statements of additional information.

/(3)/ In the 2000 second quarter, Sprint recognized a one-time, pre-tax charge
associated with the terminated WorldCom merger.

In 2001, more than 94% of Sprint's revenues were from equipment and services
provided within the United States. In 2000 and 1999, equipment and services
provided within the United States generated more than 95% of Sprint's revenues.

More than 99% of Sprint's property, plant, and equipment is in the United
States.

Equipment sales to one retail chain and the subsequent service revenues
generated by sales to its customers represent approximately 24% of the PCS
Group's net operating revenues in 2001, 24% in 2000 and 27% in 1999.

F-39

Net operating revenues by product and services were as follows:

- ----------------------------------------------------------------------------------------------
Product
Global Distribution &
Markets Local Directory PCS
Division Division Publishing Group Eliminations Consolidated
- ----------------------------------------------------------------------------------------------
(millions)

2001
Voice $ 6,644 -- -- $ -- $ (581) $ 6,063
Data 1,956 -- -- -- -- 1,956
Internet 1,003 -- -- -- -- 1,003
Local service -- 2,939 -- -- (4) 2,935
Network access -- 2,032 -- -- (220) 1,812
Long distance -- 731 -- -- -- 731
Product distribution -- -- 1,206 -- (695) 511
Directory publishing -- -- 556 -- -- 556
Wireless services -- -- -- 9,725 (20) 9,705
Other 313 545 -- -- (59) 799
-----------------------------------------------------------------
Total net operating revenues $ 9,916 $6,247 $1,762 $9,725 $(1,579) $26,071
-----------------------------------------------------------------

2000
Voice $ 7,094 $ -- $ -- $ -- $ (424) $ 6,670
Data 1,937 -- -- -- -- 1,937
Internet 920 -- -- -- -- 920
Local service -- 2,846 -- -- (2) 2,844
Network access -- 1,987 -- -- (138) 1,849
Long distance -- 717 -- -- -- 717
Product distribution -- -- 1,468 -- (694) 774
Directory publishing -- -- 468 -- -- 468
Wireless services -- -- -- 6,341 (39) 6,302
Other 577 605 -- -- (50) 1,132
-----------------------------------------------------------------
Total net operating revenues $10,528 $6,155 $1,936 $6,341 $(1,347) $23,613
-----------------------------------------------------------------

1999
Voice $ 7,445 $ -- $ -- $ -- $ (289) $ 7,156
Data 1,696 -- -- -- -- 1,696
Internet 615 -- -- -- -- 615
Local service -- 2,677 -- -- (2) 2,675
Network access -- 1,918 -- -- (132) 1,786
Long distance -- 611 -- -- -- 611
Product distribution -- -- 1,350 -- (643) 707
Directory publishing -- -- 408 -- -- 408
Wireless services -- -- -- 3,373 (8) 3,365
Other 552 752 -- -- (58) 1,246
-----------------------------------------------------------------
Total net operating revenues $10,308 $5,958 $1,758 $3,373 $(1,132) $20,265
-----------------------------------------------------------------

F-40

Supplemental Cash Flows Information

Sprint's cash paid (received) for interest and income taxes was as follows:

- --------------------------------------------------------------------------------

2001 2000 1999
- ------------------------------------------------------------------------------
(millions)

Interest (net of capitalized interest) $1,119 $1,013 $ 707
----------------------
Income taxes $ 12 $ (386) $(131)
----------------------

Sprint's noncash activities included the following:

- --------------------------------------------------------------------------------

2001 2000 1999
- -----------------------------------------------------------------------------------
(millions)

Common stock issued under Sprint's employee benefit stock
plans $189 $255 $ 144
----------------------
Fair value of purchase contract adjustment payment liability $ 53 $ -- $ --
----------------------
Contribution to equity investment $ 43 $ -- $ --
----------------------
Tax benefit from stock options exercised $ 17 $424 $ 254
----------------------
Stock received for stock options exercised $ 4 $ 69 $ 118
----------------------
Extinguishment of debt $ -- $275 $ 78
----------------------
Common stock issued for Cox PCS acquisition $ -- $ -- $ 1,146
----------------------
Debt assumed in the broadband fixed wireless acquisitions $ -- $ -- $ 575
----------------------
Capital lease obligations $ -- $ -- $ 77
----------------------

See Note 2 for more details about the assets and liabilities acquired in
business combinations.

- --------------------------------------------------------------------------------
18. Recently Issued Accounting Pronouncements
- --------------------------------------------------------------------------------

In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective for fiscal
years beginning after December 15, 2001. This new standard, when in effect,
will supersede SFAS Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for the Long-Lived Assets to Be Disposed Of", providing
one accounting model for the review of asset impairment. Statement No. 144
retains much of the recognition and measurement provisions of Statement No.
121, but removes goodwill from its scope. Sprint will adopt this standard
effective January 1, 2002 and does not expect a material impact on Sprint's
consolidated financial statements.

In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This standard provides accounting guidance for legal
obligations associated with the retirement of long-lived assets. The fair value
of a liability for the asset retirement obligation will be required to be
recognized in the period in which it is incurred. When the liability is
initially recognized, the asset retirement costs should also be capitalized by
increasing the carrying amount of the related long-lived asset.

Sprint is currently assessing its obligations to determine the potential impact
because of this change in accounting. This statement is effective for fiscal
years beginning after June 15, 2002. Sprint will adopt this standard effective
January 1, 2003.

In June 2001, the FASB issued Statement No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Other Intangible Assets."

Statement No. 141 supercedes APB Opinion No. 16, "Business Combinations," and
Statement No. 38, "Accounting for Pre-acquisition Contingencies of Purchased
Enterprises." This statement requires accounting for all business combinations
using the purchase method and changes the criteria for recognizing intangible
assets apart from goodwill. This statement is effective for all business
combinations initiated after June 30, 2001.

Statement No. 142 supercedes APB Opinion No. 17, "Intangible Assets," and
addresses how to account for purchased intangibles upon acquisition. The
standard prescribes the necessary accounting for both identifiable intangibles
and goodwill after initial recognition. Amortization of goodwill and indefinite
lived intangibles will cease upon adoption of this standard and periodic
impairment testing will be required. Amortization of definite lived intangibles
will continue over their useful life.

Sprint will adopt this standard effective January 1, 2002. In the fourth
quarter of 2001, Sprint evaluated its goodwill and other specifically
identifiable intangibles in accordance with the standard's guidance. Based upon
the results of this evaluation, Sprint does not expect an impairment of
goodwill or other specifically identifiable intangibles.

Sprint believes that FCC spectrum licenses including microwave relocation costs
qualify as indefinite life intangibles under the new standard. Amortization of
goodwill, spectrum licenses and trademarks will accordingly cease as of January
1, 2002. Annualized amortization of goodwill and indefinite life intangibles
was approximately $382 million in 2001.

At December 31, 2001, the net book value of goodwill was $4.4 billion and the
net book value of other specifically identifiable intangibles was $4.7 billion.

F-41

- --------------------------------------------------------------------------------
19. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------

Quarter
--------------------------------
2001 1st 2nd 3rd 4th/(1)/
- --------------------------------------------------------------------------------------------------
(millions, except per share data)

Net operating revenues $6,280 $6,420 $6,715 $ 6,656
Operating income (loss) 250 431 306 (1,649)
Income (Loss) from continuing operations (77) 43 (134) (1,234)
Net income (loss) (76) 43 (134) (1,234)
Earnings (Loss) per common share from continuing operations/(3)/
FON common stock
Diluted 0.36 0.33 0.18 (1.02)
Basic 0.36 0.33 0.18 (1.02)
PCS common stock
Diluted and Basic (0.40) (0.26) (0.29) (0.33)
- --------------------------------------------------------------------------------------------------

Quarter
--------------------------------
2000 1st 2nd 3rd 4th/(1)/
- --------------------------------------------------------------------------------------------------
(millions, except per share data)
Net operating revenues/(2)/ $5,529 $5,821 $6,040 $ 6,223
Operating income (loss) 156 122 357 (130)
Loss from continuing operations (65) (91) (6) (414)
Net income (loss)/(2)/ 605 (91) (6) (415)
Earnings (Loss) per common share from continuing operations
FON common stock
Diluted 0.50 0.41 0.43 0.11
Basic 0.51 0.42 0.44 0.11
PCS common stock
Diluted and Basic/(3)/ (0.54) (0.48) (0.41) (0.53)
- --------------------------------------------------------------------------------------------------

/(1)/ See Notes 3 and 4 of Notes to Consolidated Financial Statements for
information about one-time items recorded in the 2001 and 2000 fourth
quarters.

/(2)/ In the 2000 first quarter, Sprint adopted SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements," (SAB 101). As
required by SAB 101, 2000 net operating revenues have been restated from
amounts reported in the 2000 quarterly reports on Form 10-Q. Net
operating revenues were reduced by $4 million in the 2000 first quarter,
$31 million in the 2000 second quarter and $33 million in the 2000 third
quarter. Sprint also restated the 2000 first quarter net income by
recording a $2 million loss for the cumulative effect of change in
accounting principle at the effective adoption date of SAB 101.

/(3)/ As the effects of including the incremental shares associated with
options and ESPP shares are antidilutive, both basic earnings per share
and diluted earnings per share reflect the same calculation in these
condensed statements of consolidated operations for FON reported in the
fourth quarter ended December 31, 2001 and for PCS reported periods in
2001.

F-42

- --------------------------------------------------------------------------------
20. Subsequent Events (Unaudited)
- --------------------------------------------------------------------------------

Corporate Action

In January 2002, Sprint's Articles of Incorporation were amended to eliminate
any authorized shares of Class A DT common stock. As a result, the number of
authorized shares of Class A DT common stock has been reduced from 100 million
to zero shares.

Dividend Declaration

In February 2002, Sprint's Board of Directors declared dividends of 12.5 cents
on the FON Common Stock. Dividends will be paid March 29, 2002.

PCS Restructuring

In February 2002, Sprint announced it would close five of its smaller Sprint
PCS customer service call centers to reduce operating costs. The restructuring
charge associated with this announcement is expected to be a pre-tax charge of
approximately $25 million.

Industry Activity

In January 2002, two telecom companies, Global Crossing Ltd. and McLeodUSA
Incorporated, filed for Chapter 11 bankruptcy protection. Sprint's exposure to
these events as a creditor is less than $20 million as of December 31, 2001.

Investment in Call-Net

In February 2002, Call-Net, a Canadian long-distance provider, announced a
comprehensive recapitalization proposal that would alter Sprint's existing
ownership in this investment which is currently carried at zero value. Sprint
has committed to invest approximately $20 million in new Call-Net shares as
part of this proposal and would continue to carry them as an equity method
investment. Additionally, Sprint and Call-Net have agreed in principle to a new
ten year branding and technology services agreement.

Term Loan Facility

In March 2002, Sprint signed a commitment letter with Citibank N.A. and
Deutsche Bank AG for a $1 billion term loan facility. The commitment, which is
fully incremental to Sprint's existing $5 billion revolving line of credit, is
for a nine-month loan secured by the assets of Sprint's directory publishing
business.

F-43

SPRINT CORPORATION

SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999

Additions (Deductions)
-----------------
Balance Charged
Beginning Charged to Other Other Balance
of Year to Income Accounts Deductions End of Year
- ----------------------------------------------------------------------------------------------------------------

(millions)
2001
Allowance for doubtful accounts $406 $1,146 $ 70 $(1,138)/(1)/ $484
-----------------------------------------------------------
Valuation allowance--deferred income tax assets $598 $ 88 $ -- $ -- $686
-----------------------------------------------------------
2000
Allowance for doubtful accounts $281 $ 678 $ 8 $ (561)/(1)/ $406
-----------------------------------------------------------
Valuation allowance--deferred income tax assets $480 $ 115 $ 3 $ -- $598
-----------------------------------------------------------
1999
Allowance for doubtful accounts $202 $ 585 $ 3 $ (509)/(1)/ $281
-----------------------------------------------------------
Valuation allowance--deferred income tax assets $249 $ 47 $193/(2)/ $ (9) $480
-----------------------------------------------------------

/(1)/ Accounts written off, net of recoveries.

/(2)/ Represents a valuation allowance for deferred income tax assets relating
to the net operating loss carryforwards acquired in the purchase of the
broadband fixed wireless companies.

F-44