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Sprint Corp. Replaces Auditor With KPMG

Posted on: Wednesday, 15 October 2003, 06:00 CDT

Responding to the demands of some shareholders and the AFL-CIO, Sprint Corp. replaced Ernst & Young as the company's auditor, a position the accouting firm held for nearly four decades.

Ernst & Young will complete Sprint's 2003 audit, then be replaced by KPMG as auditor in fiscal 2004, the Overland Park, Kan.-based telecommunications firm said Tuesday.

Since taking over as Sprint's auditor in 1965, Ernst & Young never had to compete for the duty. But after tax advice Ernst & Young offered Sprint's top two executives led to their departure, 38 percent of shareholders, an unusually high percentage, voted at Sprint's annual meeting in May against the firm's reappointment.

"We are impressed with KPMG's extensive experience in providing audit services to major corporations, especially the talented team that the firm has identified to handle the Sprint account," said Charles Rice, chairman of the audit committee.

Ernst & Young "enjoyed our relationship with Sprint over the past several decades, and we will work closely with the audit committee and management during the transition period," spokesman Charles Perkins said.

The AFL-CIO had called for Sprint to switch auditors, complaining that Ernst & Young had compromised its independence through its tax strategy advice for William T. Esrey, then the Sprint CEO, and chief operating officer Ron LeMay. The executives have said tax shelters for stock options were recommended to them by the accounting firm, which has continued to stand behind the tax advice.

Despite the controversy, Rice said the board was pleased with the auditing services Ernst & Young had provided.

Michael Garland, a spokesman for the AFL-CIO's investments office in Washington, called the switch "an important step to restore investor confidence in the company and its auditor."

Sprint also said Tuesday it would cap executives' severance packages at two times their base salaries and bonuses in the event another company bought Sprint. The policy was adopted in response to another shareholder vote.

Cornish F. Hitchcock, a Washington attorney for Amalgamated Bank's LongView investment fund, said he would like more details about the directors' new policy on "golden parachutes." The investment fund proposed a shareholder vote when any severance package is more than double the executives' base salary plus bonuses.

Hitchcock said he would like to see how the board defines salary and bonuses to determine what kind of agreements need shareholder approval.

Hitchcock said he also was concerned that the board's new policy applies only when there is a change of control, and "usually, that means there is a takeover."

Sprint also said Tuesday that the federal government has decided not to bar the company from new contracts. The General Services Administration had considered suspending business with Sprint because it overcharged the Justice Department more than $2 million.

Sprint's government contracts are worth more than $600 million each year.

Sprint also created a lead independent director position and added a committee to focus on corporate governance matters. The company expects to add new independent directors at a board meeting in December.

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On the Net:

Sprint Corp.: http://www.sprint.com

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