Sprint Corp. said it expects to report an approximately 20-cents-per-share charge against its FON Group earnings in the second quarter related to the elimination of its Web hosting business. In addition, Sprint said it expects to report a 1-cent-per-share charge during the quarter against both its FON Group and PCS Group earnings related to separation agreements with three former executives.
Sprint said it will recognize a $36 million pre-tax charge in connection to separation agreements with William Esrey, former chairman and chief executive officer; Ronald LeMay, former president and chief operating officer; and Richard Devlin, former executive vice president. Sprint also said it expects to recognize $6 million in pre-tax charges during the next four quarters related to the consulting and non-compete components of the separation agreements.
The Sprint executives agreed to leave the company following allegations that Sprint’s auditing firm set up tax shelters that were used to defer taxes on stock options.
The charges include $15 million of non-cash expense associated with accounting for modification to certain terms of stock options. Sprint noted most of the FON options have exercise prices that are approximately two times the current market price of around $14 per share, while most of the PCS options have exercise prices that are approximately five times the current market price of around $5 per share.
The telecommunications company said the hosting actions would result in a pre-tax charge ranging from $400 million to $475 million and would include approximately $300 million related to the impairment of hosting assets.
As part of the action, Sprint said it plans to transition its current hosting customers to preferred third-party providers or strategic partners; will no longer pursue direct sales of hosting; plans to phase out operations at eight customer care centers in Atlanta, Boston, Dallas, Denver, Los Angeles, New York City, and Sacramento and Santa Clara, Calif.; and plans to transition two customer care centers in the Kansas City, Kan., and Reston, Va., areas to corporate data centers designed to support other Sprint operations.
The actions are expected to affect approximately 500 employees during the course of the migration plan, with most of the job cuts completed by the end of this year.
