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
September 30, 1994
For the quarterly period ended.............................................
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification.)
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
September 30, 1994 and as of the date of filing of this report.
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
Condensed Notes to Consolidated Financial Statements 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a
Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
Exhibit 12 15
(3)
Part I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,667 $ 444
Receivables
Customers and other, net of allowance for doubtful
accounts of $1,821 ($1,744 at December 31, 1993) 40,999 39,882
Interexchange carriers, net of allowance for doubtful
accounts of $437 ($391 at December 31, 1993) 17,993 17,243
Affiliated companies 6,661 21,439
Property tax 6,158 24,632
Inventories 6,245 4,427
Prepaid expenses and other 8,227 4,257
88,950 112,324
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 58,275 57,560
Telephone network equipment and outside plant 904,490 886,975
Other 76,147 70,113
Construction in progress 24,583 15,885
1,063,495 1,030,533
Accumulated depreciation (597,989) (563,015)
465,506 467,518
PREPAID PENSION COSTS 36,816 30,984
DEFERRED CHARGES AND OTHER ASSETS 18,455 18,013
$ 609,727 $ 628,839
See accompanying condensed notes to consolidated financial statements
</TABLE>
(4)
Part I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 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 5,228 3,998
Interexchange carriers 21,867 17,283
Others 10,376 19,885
Advance billings 8,047 7,408
Accrued taxes 34,039 55,487
Accrued vacation pay 6,391 7,234
Accrued payroll 4,545 2,767
Other 8,824 9,392
99,317 125,041
LONG-TERM DEBT 163,830 163,705
DEFERRED CREDITS AND OTHER LIABILITIES
Income taxes 42,860 47,851
Investment tax credits 5,928 8,206
Postretirement and other benefit obligations 16,988 8,596
Other 8,671 12,127
74,447 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 200,384 191,564
272,133 263,313
$ 609,727 $ 628,839
See accompanying condensed notes to the consolidated financial statements
</TABLE>
(5)
Part I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended
September 30,
1994 1993
(Unaudited)
<S> <C> <C>
OPERATING REVENUES
Local service $ 43,768 $ 41,696
Network access service 37,701 34,423
Long-distance service 16,533 15,768
Other 12,156 9,368
110,158 101,255
OPERATING EXPENSES
Plant expense 29,289 29,979
Depreciation 20,184 19,272
Customer operations 11,579 12,439
Corporate operations 11,157 10,236
Other 3,613 1,625
Taxes:
Federal income:
Current 10,242 7,521
Deferred (2,248) (1,633)
Deferred investment tax credits (777) (825)
State, local and miscellaneous 8,419 7,838
91,458 86,452
OPERATING INCOME 18,700 14,803
INTEREST CHARGES
Long-term debt 2,862 3,040
Other 212 288
3,074 3,328
OTHER INCOME
Interest charged to construction 280 266
Other, net 189 10
469 276
NET INCOME $ 16,095 $ 11,751
See accompanying condensed notes to consolidated financial statements
</TABLE>
(6)
Part I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
(Unaudited)
<S> <C> <C>
OPERATING REVENUES
Local service $ 129,710 $ 122,514
Network access service 109,095 101,897
Long-distance service 47,854 44,921
Other 29,464 25,739
316,123 295,071
OPERATING EXPENSES
Plant expense 90,608 89,522
Depreciation 60,002 56,553
Customer operations 34,559 36,229
Corporate operations 34,744 31,394
Merger and integration costs 10,300
Other 7,242 5,416
Taxes:
Federal income:
Current 27,930 17,754
Deferred (9,502) (7,758)
Deferred investment tax credits (2,278) (2,473)
State, local and miscellaneous 25,821 24,423
269,126 261,360
OPERATING INCOME 46,997 33,711
INTEREST CHARGES
Long-term debt 8,342 9,355
Other 632 1,154
8,974 10,509
OTHER INCOME
Interest charged to construction 714 888
Other, net 345 97
1,059 985
NET INCOME $ 39,082 $ 24,187
See accompanying condensed notes to consolidated financial statements
</TABLE>
(7)
Part I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 39,082 $ 24,187
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 60,002 56,553
Deferred income taxes and
investment tax credits (11,789) (10,174)
Changes in operating assets and liabilities:
Receivables 31,385 13,806
Inventories (1,818) (1,448)
Other current assets (3,970) (1,138)
Accounts payable (3,695) (12,791)
Accrued expenses and other
current liabilities (20,442) (15,216)
Noncurrent assets and liabilities, net 5,226 4,135
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,981 57,914
INVESTING ACTIVITIES
Capital expenditures (58,143) (57,691)
Net salvage (cost) from plant and
equipment retired 153 (756)
Other, net (1,908) (3,707)
NET CASH USED BY INVESTING ACTIVITIES (59,898) (62,154)
FINANCING ACTIVITIES
Proceeds from long-term debt 105,000
Retirements of long-term debt (1,587) (76,503)
Decrease in advances from parent company (25,685)
Dividends paid (30,262)
Other (11) (2,726)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (31,860) 86
INCREASE (DECREASE) IN CASH 2,223 (4,154)
CASH AT BEGINNING OF PERIOD 444 6,971
CASH AT END OF PERIOD $ 2,667 $ 2,817
See accompanying condensed notes to consolidated financial statements
</TABLE>
(8)
Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The information contained in this Form 10-Q for the three and nine-
month interim periods ended September 30, 1994 and 1993 has been
prepared in accordance with instructions to Form 10-Q and Rule 10-
01 of Regulation S-X. In the opinion of management, all
adjustments considered necessary, consisting only of normal
recurring and certain nonrecurring accruals (see Note 2), to
present fairly the consolidated financial position, results of
operations, and cash flows for such interim periods have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles (GAAP) have been condensed
or omitted. The results of operations for the nine months ended
September 30, 1994 are not necessarily indicative of the operating
results that may be expected for the year ended December 31, 1994.
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 nine months ended September
30, 1993. Such nonrecurring charges reduced net income for the
nine months ended September 30, 1993 by approximately $6.1 million.
(9)
Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. SUPPLEMENTAL CASH FLOW INFORMATION
The following are the supplemental disclosures required for the
Consolidated Statements of Cash Flows (in thousands of dollars):
Nine Months Ended September 30,
1994 1993
Cash paid for:
Interest (net of amounts capitalized) $ 7,216 $ 6,696
Income taxes 27,928 18,462
(10)
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 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 nine months ended September 30, 1993. Such nonrecurring
charges reduced net income for the nine months ended September 30,
1993 by approximately $6.1 million.
Liquidity and Capital Resources
During the first nine months of 1994, operating activities
generated cash of $94.0 million, an increase of $36.1 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 and a smaller decrease in accounts payable than in the
1993 period.
Capital expenditures for the first nine months of 1994 totaled
$58.1 million, which was $452,000 more than the comparable 1993
period. The Company anticipates total capital expenditures for the
year to be approximately $80.4 million.
During the first nine months of 1994, the Company retired $1.6
million in long-term debt with interest rates of 4.75 percent and
4.97 percent. Dividends paid this quarter were $10.4 million.
The capital structure at September 30, 1994 was 62.4 percent common
equity and 37.6 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 $14.9 million for the nine months ended
September 30, 1994 in comparison to the same period in 1993.
Merger and integration costs of $10.3 million were recorded during
the nine months ended September 30, 1993.
Local service revenues increased $7.2 million or 5.9 percent for
the nine months ended September 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 18,663 access lines for the
twelve month period ended September 30, 1994. This access line
growth generated $4.4 million more in basic subscriber revenue.
Other local service revenues reflected a $2.8 million increase for
the first nine months of 1994 compared to the same period in 1993
primarily due to increased revenues from moves, changes and
maintenance of customer premise equipment.
Network access revenue increased $7.2 million or 7.1 percent for
the first nine months of 1994 compared to the same period in 1993.
Increased usage, as indicated by a 7.4 percent growth in minutes of
use for the nine months ended September 30, 1994, compared to the
same period in 1993, accounted for this increase.
(11)
Part 1.
Item 2.
UNITED TELEPHONE COMPANY OF OHIO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Result of Operations (continued)
Long-distance network revenue increased $2.9 million or 6.5 percent
in the first nine months of 1994 compared to the same period in
1993. Increased usage, as reflected by a 14.1 percent increase in
originated long distance messages, accounted for the increase.
Other operating revenues increased $3.7 million or 14.5 percent in
the first nine months of 1994 compared to the same period in 1993.
This is due to an increase in equipment sales and installment
revenues.
Total operating expenses other than taxes for the first nine months
of 1994 decreased $2.3 million or 1.0 percent from the same period
in 1993. The absence of merger and integration costs and a
decrease in customer operations expense, partially offset by
increases in plant expense, corporate operations expense, and other
expense, contributed to this decrease.
During the nine months ended September 30, 1994, plant expense,
comprised primarily of maintenance and other related expenses,
increased $1.1 million or 1.2 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.
Customer operations expense decreased $1.7 million or 4.6 percent
in the first nine months of 1994 compared to the same period in
1993 primarily due to a decrease in billing services expense
resulting from costs in the 1993 period related to development of a
new mechanized billing system.
Corporate operations expense for the first nine months of 1994
increased $3.4 million, or 10.7 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.
Other operating expense increased $1.8 million or 33.7 percent for
the first nine months of 1994 compared to the same period in 1993
generally due to the cost of increased equipment sales.
Interest charges decreased $1.5 million or 14.6 percent in the
first nine 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.
(12)
Part 1.
Item 2.
UNITED TELEPHONE COMPANY OF OHIO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 that might be utilized by
non-regulated enterprises. The Company currently believes that its
operations meet the criteria for the continued application of the
provisions of SFAS No. 71. However, the Company operates in an
evolving environment in which the regulatory framework is
changing and the level of competition is increasing. Accordingly,
the Company constantly monitors and evaluates the ongoing
applicability of SFAS No. 71 by assessing the likelihood that
prices which provide for the recovery of specific costs can
continue to be charged to customers. In the event the Company
determines that its operations no longer qualify for the application of
the provisions of SFAS No. 71, the Company would eliminate from its
financial statements the effects of any actions of regulators that
had been recognized as assets and liabilities, resulting in
the recognition of a material, extraordinary, noncash charge, the
amount of which is not known at the present time.
(13)
Part II.
UNITED TELEPHONE COMPANY OF OHIO
Item 1 - Legal Proceedings
There were no reportable events during the quarter ended September 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 8.25 and 5.63 for
the three months ended and 6.88 and 3.74 for the nine months ended,
September 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 nine
months ended September 30, 1993 would have been 4.57.
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 quarter ended
September 30, 1994.
(14)
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)
Paul J. Weitzel
By: Paul J. Weitzel
Controller
Date: November 11, 1994
(15)
Exhibit 12
UNITED TELEPHONE COMPANY OF OHIO
COMPUTATION OF RATIOS
OF EARNINGS TO FIXED CHARGES
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(Unaudited) (Unaudited)
Net income $ 16,095 $ 11,751 $ 39,082 $ 24,187
Capitalized interest (280) (266) (714) (888)
Income tax provision 7,215 4,980 16,202 7,351
Subtotal 23,030 16,465 54,570 30,650
Fixed charges:
Interest charges 3,074 3,328 8,974 10,509
Interest factor of
operating rents 104 229 312 687
Total fixed charges 3,178 3,557 9,286 11,196
Earnings, as adjusted $ 26,208 $ 20,022 $ 63,856 $ 41,846
Ratio of earnings to
fixed charges 8.25 5.63 6.88 3.74 (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 nine
months ended September 30, 1993 would have been 4.57.
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> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 2667
<SECURITIES> 0
<RECEIVABLES> 74069
<ALLOWANCES> 2258
<INVENTORY> 6245
<CURRENT-ASSETS> 88950
<PP&E> 1063495
<DEPRECIATION> 597989
<TOTAL-ASSETS> 609727
<CURRENT-LIABILITIES> 99317
<BONDS> 163830
<COMMON> 50948
0
0
<OTHER-SE> 221185
<TOTAL-LIABILITY-AND-EQUITY> 609727
<SALES> 0
<TOTAL-REVENUES> 316123
<CGS> 0
<TOTAL-COSTS> 185169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8974
<INCOME-PRETAX> 88968
<INCOME-TAX> 41971
<INCOME-CONTINUING> 39082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39082
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
