United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 30, 1994
For the quarterly period ended..............................................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from........................to....................
1-7014
Commission file number......................................................
UNITED TELEPHONE COMPANY OF OHIO
.............................................................................
(Exact name of registrant as specified in its charter)
OHIO 34-0971501
.................................................. ................
(State or other jurisdiction of incorporation
or organization) Identification No.)
P.O. Box 3555, Mansfield, Ohio 44907
.............................................................................
(Address of principal executive offices)
419/755-8011
.............................................................................
(Registrant's telephone number, including area code)
.............................................................................
(Former name, former address and former fiscal year, if changed since
last report)
The registrant meets the conditions set forth in general Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
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 such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
There are 509,480 shares of common stock, par value $100, outstanding as of
June 30, 1994 and as of the date of filing of this report.
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(2)
UNITED TELEPHONE COMPANY OF OHIO
INDEX
Part I. Financial Information Page
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5 - 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
Exhibit 12 13
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(3) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,797 $ 444
Receivables
Customer and other, net of allowance for doubtful
accounts of $1,618 ($1,744 at December 31, 1993) 37,066 39,882
Interexchange carriers, net of allowance for doubtful 16,902 17,243
accounts of $505 ($391 at December 31, 1993)
Affiliated companies 14,222 21,439
Property tax 12,316 24,632
Inventories 6,551 4,427
Prepaid expenses and other 6,148 4,257
96,002 112,324
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 57,883 57,560
Telephone network equipment and outside plant 902,184 886,975
Other 76,332 70,113
Construction in progress 23,876 15,885
1,060,275 1,030,533
Accumulated depreciation (592,971) (563,015)
467,304 467,518
PREPAID PENSION COSTS 34,872 30,984
DEFERRED CHARGES AND OTHER ASSETS 16,785 18,013
$ 614,963 $ 628,839
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(4) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ $ 1,587
Accounts payable:
Affiliates 2,502 3,998
Interexchange carriers 18,136 17,283
Other 18,997 19,885
Advance billings 7,722 7,408
Accrued taxes 40,894 55,487
Accrued vacation pay 7,196 7,234
Accrued payroll 5,867 2,767
Other 7,780 9,392
109,094 125,041
LONG-TERM DEBT 163,792 163,705
DEFERRED CREDITS AND OTHER LIABILITIES
Income taxes 44,737 47,851
Investment tax credits 6,705 8,206
Other 24,178 20,723
75,620 76,780
COMMON STOCK AND OTHER STOCKHOLDER'S EQUITY
Common stock
Authorized 1,000,000 shares,
stated value $100 per share,
issued and outstanding 509,480 shares 50,948 50,948
Capital in excess of stated value 20,801 20,801
Retained earnings 194,708 191,564
266,457 263,313
$ 614,963 $ 628,839
See Notes to Consolidated Financial Statements.
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(5) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended
June 30,
1994 1993
(Unaudited)
<S> <C> <C>
OPERATING REVENUES
Local service $ 43,369 $ 40,957
Network access service 34,746 34,716
Long-distance service 15,148 14,556
Other 9,093 8,293
102,356 98,522
OPERATING EXPENSES
Plant expense 29,154 29,891
Depreciation 20,035 18,843
Customer operations 11,515 12,275
Corporate operations 10,572 10,591
Other 1,910 1,660
Taxes:
Federal income:
Current 9,081 5,493
Deferred (3,128) (1,389)
Deferred investment tax
credits (777) (825)
State, local and miscellaneous 8,744 8,171
87,106 84,710
OPERATING INCOME 15,250 13,812
INTEREST CHARGES
Long-term debt 2,796 3,228
Other 84 555
2,880 3,783
OTHER INCOME
Interest charged to construction 228 273
Other, net 102 9
330 282
NET INCOME $ 12,700 $ 10,311
See Notes to Consolidated Financial Statements.
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(6)
Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
1994 1993
(Unaudited)
<S> <C> <C>
OPERATING REVENUES
Local service $ 85,942 $ 80,818
Network access service 71,394 67,474
Long-distance service 31,321 29,153
Other 17,308 16,371
205,965 193,816
OPERATING EXPENSES
Plant expense 61,319 59,543
Depreciation 39,818 37,281
Customer operations 22,980 23,790
Corporate operations 23,587 21,159
Merger and integration costs 10,300
Other 3,629 3,791
Taxes:
Federal income:
Current 17,688 10,233
Deferred (7,254) (6,125)
Deferred investment tax
credits (1,501) (1,648)
State, local and miscellaneous 17,402 16,585
177,668 174,909
OPERATING INCOME 28,297 18,907
INTEREST CHARGES
Long-term debt 5,480 6,315
Other 420 866
5,900 7,181
OTHER INCOME
Interest charged to construction 434 622
Other, net 156 87
590 709
NET INCOME $ 22,987 $ 12,435
See Notes to Consolidated Financial Statements.
</TABLE>
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(7)
Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
1994 1993
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 22,987 $ 12,435
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 39,818 37,281
Deferred income taxes and investment
tax credits (8,701) (7,731)
Changes in operating assets and liabilities:
Receivables 22,690 10,653
Inventories (2,124) (2,269)
Other current assets (1,891) (920)
Accounts payable (1,531) (5,539)
Accrued expenses and other current liabilities (12,829) (13,132)
Noncurrent assets and liabilities, net 1,101 (2,682)
Other, net 4,087 4,257
NET CASH PROVIDED BY OPERATING ACTIVITIES 63,607 32,353
INVESTING ACTIVITIES
Capital expenditures (39,675) (39,262)
Net salvage (cost) from plant and equipment retired 71 (92)
Other, net (209) (903)
NET CASH USED BY INVESTING ACTIVITIES (39,813) (40,257)
FINANCING ACTIVITIES
Proceeds from long-term debt 105,000
Retirements of long-term debt (1,587) (76,480)
Decrease in advances from parent company (23,760)
Dividends paid (19,843)
Other (11)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (21,441) 4,760
INCREASE (DECREASE) IN CASH 2,353 (3,144)
CASH AT BEGINNING OF PERIOD 444 6,971
CASH AT END OF PERIOD $ 2,797 $ 3,827
See Notes to Consolidated Financial Statements.
</TABLE>
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(8)
Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The information contained in this Form 10-Q for the three and six month
interim periods ended June 30, 1994 and 1993 reflects all adjustments,
consisting only of normal recurring and certain nonrecurring accruals
(see Note 2), which are, in the opinion of management, necessary for a fair
statement of the operations for such interim periods.
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
United Telephone Company of Ohio and its wholly-owned subsidiaries, United
Telecommunications Services of Ohio, Inc. and United Telephone Long Distance,
Inc., collectively referred to as the "Company". All significant intercompany
transactions have been eliminated.
Certain amounts in the accompanying consolidated financial statements for
1993 have been reclassified to conform to the presentation of amounts in the
1994 consolidated financial statements. These reclassifications had no effect on
1993 net income.
Earnings Per Share
Earnings per share information has been omitted because the Company is a
wholly-owned subsidiary of Sprint Corporation (Sprint).
2. SPRINT/CENTEL MERGER
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation (Centel), a telecommunications company with local exchange and
cellular/wireless communications services operations. Centel's local exchange
telephone businesses operate in six states: Florida, North Carolina, Virginia,
Illinois, Texas and Nevada. The transaction costs associated with the merger
(consisting primarily of investment banking and legal fees) and the estimated
expenses of integration and restructuring the operations of the two companies
(consisting primarily of employee severance and relocation expenses and costs of
eliminating duplicative facilities) resulted in nonrecurring charges to Sprint
during 1993. The portion of such charges attributable to the Company was $12.8
million, of which $10.3 million was recorded during the six months ended
June 30, 1993. Such nonrecurring charges reduced net income for the six months
ended June 30, 1993 by approximately $6.7 million.
3. SUPPLEMENTAL CASH FLOW INFORMATION
The following are the supplemental disclosures required for the
Consolidated Statements of Cash Flows (in thousands of dollars):
Six Months Ended June 30,
1994 1993
Cash paid for:
Interest (net of amounts capitalized) $ 5,311 $ 4,913
Income taxes 19,704 12,588
<PAGE>
(9) Part I.
Item 2.
UNITED TELEPHONE COMPANY OF OHIO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sprint/Centel Merger
Effective March 9, 1993, Sprint Corporation (Sprint) consummated its merger
with Centel Corporation (Centel), a telecommunications company with local
exchange and cellular/wireless communications services operations. Centel's
local exchange telephone businesses operate in six states: Florida, North
Carolina, Virginia, Illinois, Texas and Nevada. The operations of the merged
companies continue to be integrated and restructured to achieve efficiencies
which have begun to yield operational synergies and cost savings. The
transaction costs associated with the merger (consisting primarily of investment
banking and legal fees) and the estimated expenses of integrating and
restructuring the operations of the two companies (consisting primarily of
employee severance and relocation expenses and costs of eliminating duplicative
facilities) resulted in nonrecurring charges to Sprint during 1993. The portion
of such charges attributable to the Company was $12.8 million, of which $10.3
million was recorded during the six months ended June 30, 1993. Such
nonrecurring charges reduced net income for the six months ended June 30, 1993
by approximately $6.7 million.
Liquidity and Capital Resources
During the first six months of 1994, operating activities generated cash
of $63.6 million, an increase of $31.3 million compared to the same period in
1993. The increase in cash flows was primarily due to an increase in net income
adjusted for depreciation and deferred income taxes, as well as a decrease in
receivables.
Capital expenditures for the first six months of 1994 totaled $39.7
million, which was $400,000 more than the comparable 1993 period.
The Company retired in the first six months of 1994, $1.6 million in long-
term debt with interest rates of 4.75 percent and 4.97 percent. Dividends paid
this quarter were $12.0 million.
The capital structure at June 30, 1994 was 61.9 percent common equity and
38.1 percent long-term debt. This compares to the 1993 year-end capital
structure of 61.4 percent equity and 38.6 percent debt.
Results of Operations
Net income increased $10.6 million for the six months ended June 30, 1994
in comparison to the same period in 1993.
Local service revenues increased $5.1 million or 6.3 percent for the six
months ended June 30, 1994 compared to the same period in 1993. This increase
was driven, in part, by a larger customer base as indicated by a gain of 18,270
access lines for the twelve month period ended June 30, 1994. This access line
growth generated $3.1 million more in basic subscriber revenue. Other local
service revenues reflected a $2.1 million increase for the first six months of
1994 compared to the same period in 1993. The remainder of the increase was
primarily due to increased revenues from moves, changes and maintenance of
customer premise equipment.
<PAGE>
(10)
Part I.
Item 2.
UNITED TELEPHONE COMPANY OF OHIO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued)
Network access revenue increased $3.9 million or 5.8 percent for the first
six months of 1994 compared to the same period in 1993. Increased usage, as
indicated by a 6.4 percent growth in minutes of use for the six months ended
June 30, 1994, compared to the same period in 1993, accounted for this increase.
Long-distance network revenue increased $2.2 million or 7.4 percent in the
first six months of 1994 compared to the same period in 1993. Increased usage,
as reflected by a 15.2 percent increase in originated long distance messages,
accounted for the increase.
Total operating expenses other than taxes for the first six months of 1994
decreased $4.5 million or 2.9 percent from the same period in 1993. The absence
of merger and integration costs, partially offset by increases in plant expense
and corporate operations expense, contributed to this decrease.
During the six months ended June 30, 1994, plant expense, comprised
primarily of maintenance and other related expenses, increased $1.8 million or
3.0 percent from the same period in 1993 primarily due to a generic software
expense increase of $2.2 million resulting from special purchases from Northern
Telecom of software for central office switch conversions.
Corporate operations expense for the first six months of 1994 increased
$2.4 million, or 11.5 percent compared to the same period in 1993 primarily due
to adjustments to employee termination payments and retiree benefits, as well as
an increase in external relations expense.
Interest charges decreased $1.3 million or 17.8 percent in the first six
months of 1994 compared to the same period in 1993. This decrease was a result
of the refinancing activity of long-term debt during 1993.
Other Matters
Consistent with most local exchange carriers, the Company accounts for the
economic effects of regulation pursuant to Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." The application of SFAS No. 71 requires the accounting recognition
of the rate actions of regulators where appropriate, including the recognition
of depreciation based on estimated useful lives prescribed by regulatory
commissions rather than those which might be utilized by non-regulated
enterprises. The Company's management believes that the Company's operations
meet the criteria for the continued application of the provisions of SFAS
No, 71. With increasing competition and the changing nature of regulation in
the telecommunications industry, the ongoing applicability of SFAS No. 71 must,
however, be constantly monitored and evaluated. Should the Company no longer
qualify for the application of the provisions of SFAS No. 71 at some future
date, the accounting impact could result in the recognition of a material,
extraordinary, non-cash charge.
<PAGE>
(11) Part II.
UNITED TELEPHONE COMPANY OF OHIO
Item 1 - Legal Proceedings
There were no reportable events during the quarter ended June 30, 1994.
Item 2 - Changes in Securities
Omitted under the provisions of General Instruction H.
Item 3 - Defaults Upon Senior Securities
Omitted under the provisions of General Instruction H.
Item 4 - Submission of Matters to a Vote of Security Holders
Omitted under the provisions of General Instruction H.
Item 5 - Other Information
The Company's ratios of earnings to fixed charges were 6.90 and 4.29 for
the three months ended and 6.16 and 2.86 for the six months ended,
June 30, 1994 and 1993, respectively. These ratios have been computed by
dividing fixed charges into the sum of (a) net income less capitalized
interest included in income, (b) income taxes, and (c) fixed charges.
Fixed charges consist of interest on all indebtedness (including
amortization of debt issuance expense) and the interest factor of
operating rents. In the absence of the Company's recognition of $10.3
million of nonrecurring charges related to the Sprint/Centel merger
recorded during the first quarter of 1993, the ratio of earnings to fixed
charges for the six months ended June 30, 1993 would have been 4.18.
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report.
(12) Computation of ratio of earnings to fixed charges.
(b) No reports on Form 8-K were filed during the six months ended
June 30, 1994.
<PAGE>
(12)
UNITED TELEPHONE COMPANY OF OHIO
SIGNATURES
Pursuant to the requirements 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.
UNITED TELEPHONE COMPANY OF OHIO
(Registrant)
/s/ Paul J. Weitzel
By: ________________________
Paul J. Weitzel
Controller
Date: August 10, 1994
<PAGE>
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(13) EXHIBIT 12
UNITED TELEPHONE COMPANY OF OHIO
COMPUTATION OF RATIOS
OF EARNINGS TO FIXED CHARGES
(In Thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 12,700 $ 10,311 $ 22,987 $ 12,435
Capitalized interest (228) (273) (434) (622)
Income tax provision 5,131 3,167 8,987 2,376
Subtotal 17,603 13,205 31,540 14,189
Fixed charges:
Interest charges 2,880 3,783 5,900 7,181
Interest factor of
operating rents 104 229 208 458
Total fixed charges 2,984 4,012 6,108 7,639
Earnings, as adjusted $ 20,587 $ 17,217 $ 37,648 $ 21,828
Ratio of earnings to
fixed charges 6.90 4.29 6.16 2.86 (1)
(1) In the absence of the Company's recognition of $10.3 million of nonrecurring
charges related to the Sprint/Centel merger recorded during the first quarter of
1993, the ratio of earnings to fixed charges for the six months ended June 30,
1993 would have been 4.18.
NOTE: The above ratios have been computed by dividing fixed charges into the sum
of (a) net income less capitalized interest included in income, (b) income
taxes, and (c) fixed charges. Fixed charges consist of interest on all
indebtedness (including amortization of debt issuance expenses) and the interest
factor of operating rents.
</TABLE>
