UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from . . . . . . . . . .to. . . . . . .. . . . . . .
Commission file number 1-7014
UNITED TELEPHONE COMPANY OF OHIO
(Exact name of registrant as specified in its charter)
OHIO 34-0971501
(State or other jurisdiction of incorporation or org.) (I.R.S. Employer ID No.)
Post Office Box 3555, Mansfield, Ohio 44907
(Address of principal executive offices) (Zip Code)
419/755-8011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
The registrant meets the conditions set forth in General Instruction J(1)
(a) and (b) of Form 10-K 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
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. [X]
There is no voting stock held by non-affiliates. There are 509,480 common
shares, $100 stated value, outstanding at February 28, 1994.
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from . . . . . . . . . .to. . . . . . . . . . . . .
Commission file number 1-7014
UNITED TELEPHONE COMPANY OF OHIO
(Exact name of registrant as specified in its charter)
OHIO 34-0971501
(State or other jurisdiction of incorporation or org.) (I.R.S. Employer ID No.)
Post Office Box 3555, Mansfield, Ohio
(Address of principal executive office) (Zip Code)
419/755-8011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
The registrant meets the conditions set forth in General Instruction J(1)
(a) and (b) of Form 10-K 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
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. [X]
There is no voting stock held by non-affiliates. There are 509,480
common shares, $100 stated value, outstanding at February 28, 1994.
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
Securities and Exchange Commission
Form 10-K, Part I, December 31, 1993
Item 1. Business
United Telephone Company of Ohio (Company), a wholly-owned subsidiary of
Sprint Corporation (Sprint), was incorporated under the laws of the State of
Ohio in 1965 and subsequently succeeded by acquisition or merger to the business
of several other telephone operating companies in Ohio.
In 1990, the Company combined its administrative offices with United
Telephone Company of Indiana, Inc. (United of Indiana), an affiliate. Each
company retains a separate legal identity.
The Company is engaged in the business of furnishing communications
services consisting mainly of local and long-distance services and network
access. It provides service to 507,111 access lines in 164 exchange areas. No
other company furnishes local telephone service in any of the exchange areas
served by the Company.
Revenues from telephone and other communications services constitute about
91% of the Company's total operating revenues. The remaining 9% of total
operating revenues is, in large part, contributed by directory advertising,
billing and collection services, operator services, facility leases, and non-
regulated sales. A significant portion of the Company's network access revenues
are derived from access charge billings to AT&T Communications, Inc. (AT&T).
The Company's operating area includes approximately 8,700 square miles or
21% of the geographical area of the State of Ohio and contains approximately 10%
of the State's population. Approximately 34% of the Company's 507,111 access
lines in service are located in the five exchange areas of Warren, Mansfield,
Lima, Wooster and Mount Vernon. The service areas contain a variety of both
large and commercial and agricultural businesses.
In addition to furnishing local service, the Company's central offices and
long-distance lines are connected with other independent telephone companies and
with the nationwide long-distance networks of interexchange carriers, primarily
AT&T. Long-distance calls may thus be made to any telephone in the United
States and most other countries. Other telecommunications services, for the
most part furnished in conjunction with other telephone companies, include
facilities for private line service, data transmission, mobile radio telephone
and wide area long-distance service.
The Company has two wholly-owned subsidiaries. United Telephone
Communications Services of Ohio, Inc. offers terminal equipment and inside
wire leasing and maintenance services to the residential and business markets.
United Telephone Long Distance, Inc. offers one-plus, interLATA long-distance
service.
(Page 2)
<PAGE>
<TABLE>
United of Ohio
Form 10-K, Part I
December 31, 1993
Item 1. Business (continued)
The following table summarizes access lines in service at the end of each
of the last five years, together with the number of originating long-distance
messages placed during those years.
<CAPTION>
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS OF SERVICE
Business
Access lines 71,376 64,418 57,865 53,879 50,385
Paystation 4,816 4,807 4,787 4,723 4,803
Trunks 34,652 33,967 33,362 32,081 30,868
----------- ----------- ----------- ----------- -----------
Total Business 110,844 103,192 96,014 90,683 86,056
----------- ----------- ----------- ----------- -----------
Residence
One party 374,188 359,575 345,863 336,737 329,178
Two party 7,492 7,840 8,948 10,272 11,323
Four party 14,587 18,719 22,315 25,943 30,571
----------- ----------- ----------- ----------- -----------
Total Residence 396,267 386,134 377,126 372,952 371,072
----------- ----------- ----------- ----------- -----------
Total Access Lines 507,111 489,326 473,140 463,635 457,128
=========== =========== =========== =========== ===========
Long-Distance
Messages Originated 275,556,965 262,504,896 221,736,855 215,964,203 199,895,161
=========== =========== =========== =========== ===========
On December 31, 1993, the Company had 2,767 employees, of which 1,315
employees are members of either the International Brotherhood of
Electrical Workers or the Communications Workers of America. The remaining
employees of the Company are not represented by any collective bargaining unit.
Compliance with federal, state and local provisions relating to the protection of
the environment has had no material effect upon capital expenditures or earnings
of the Company, and future effects are not expected to be significant.
Effective January 1, 1991, the Federal Communications Commission (FCC)
adopted a price caps regulatory format for the Regional Bell Operating Companies
and the GTE local exchange companies. Other local exchange companies
(LECs) could volunteer to become subject to the price caps regulation. Under
price caps, prices for access service must be adjusted annually to reflect
industry average productivity gains (as specified by the FCC), inflation and
certain allowed cost changes. The Company elected to be subject to price caps
regulation, and under the form of the plan adopted, the Company has an
opportunity to earn up to a 14.25 percent rate of return on investment.
The potential for more direct competition with LECs is increasing. At the
state level, the Public Utilities Commission of Ohio (PUCO) was challenged in
1990 with responding to the issue of franchise boundaries for LECs. The PUCO
was requested in two separate cases to rule on whether a LEC can provide dial
tone service to a customer located in the franchise territory of a different
LEC. The PUCO has not ruled on this issue but will be pressured to do so as the
future of the local exchange franchise continues to be questioned and as it is
faced with competition as a result of technological advancements.
(Page 3)
</TABLE>
<PAGE>
United of Ohio
Form 10-K,Part I
December 31, 1993
Item 1. Business (continued)
The PUCO also continued to debate extended area service (EAS) in 1993
regarding the definition of more stringent guidelines for specific EAS requests.
A generic docket is before the PUCO but has not been ruled upon. In the
meantime, the PUCO has continued to rule in favor of extended local calling (a
measured form of EAS), as recommended by the Company (resulting in the cost
causer being the cost payer), rather than traditional flat rate EAS.
At the interstate level, the FCC has revised its rules to permit connection
of customer-owned coin telephones to the local network, exposing LECs to direct
coin telephone competition in many states. Additionally, the FCC has assisted
Competitive Access Providers (CAPs) in providing access to interexchange
carriers and end users by mandating that all Tier 1 LECs (including the Company)
allow collocation of CAP equipment in LEC central offices. The FCC's decision
regarding collocation is under appeal to the U.S. Court of Appeals for the D.C.
Circuit. In October 1992, the FCC adopted a new rate structure and new pricing
rules for LEC-provided switched transport. It is considered an interim rate
structure (approximately two years) while the FCC determines a long-term
structure. Rates were developed such that the impact of this new rate structure
will be revenue-neutral for the Company. The new rates went into effect on
December 30, 1993.
The extent and ultimate impact of competition on the Company will continue
to depend, to a considerable degree, on FCC and PUCO actions, court decisions
and possible federal or state legislation. Legislation designed to stimulate
local competition between local exchange service providers and cable programming
service providers, in both markets, is presently pending in both houses of the
U.S. Congress.
Item 2. Properties
The properties of the Company consist principally of land, structures,
facilities and equipment used in providing telephone service and are in
good operating condition. Substantially all of the telephone properties are
subject to the lien securing the Company's first mortgage bonds.
Of the Company's investment in telephone plant in service as of December
31, 1993, central office equipment represented approximately 37%; cable and wire
facilities, 45%; telephone instruments and related equipment installed on
subscribers' premises, 4%; land and buildings, 6%; and other telephone plant,
8%.
The following table shows gross additions to, and retirements of,
properties of the Company for each of the years in the five year period ended
December 31, 1993 (in thousands of dollars):
Gross Property Gross Gross Property
at Beginning Property Retirements at End
of Year Additions or Sales of Year
1993 $992,555 $74,587 $36,609 $1,030,533
1992 944,646 76,856 28,947 992,555
1991 902,252 76,131 33,737 944,646
1990 850,631 78,706 27,085 902,252
1989 818,228 62,686 30,283 850,631
(Page 4)
<PAGE>
United of Ohio
Form 10-K, Part I
December 31, 1993
Item 3. Legal Proceedings
No material legal proceedings are pending to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted under the provisions of General Instruction J.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Registrant is a wholly-owned subsidiary of Sprint, and consequently
its common stock is not traded.
Item 6. Selected Financial Data
The table set forth below presents significant financial data for each of
the years in the five year period ended December 31, 1993 (in thousands of
dollars):
1993 1992 1991 1990 1989
Operating Revenues $398,089 $371,806 $351,973 $343,005 $343,328
Net Income (1) $ 34,741 $ 42,896 $ 41,238 $40,969 $ 41,777
Total Assets $628,839 $596,282 $575,721 $557,214 $552,282
Long-Term Debt $163,705 $167,386 $121,780 $122,876 $130,282
(excludes current maturities)
(1) During 1993, nonrecurring charges of $12.8 million were recorded
representing the Company's portion of the costs associated with the merger of
Sprint and Centel Corporation. Such charges reduced 1993 net income by $8.3
million.
Earnings and dividend per share information has been omitted because the
Company is a wholly-owned subsidiary of Sprint.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Development - Sprint/Centel Merger
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation, a telecommunications company with local exchange and
cellular/wireless communications services operations (see Note 2 of "Notes to
Consolidated Financial Statements" for additional information). 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 a nonrecurring charge to Sprint during 1993. The
portion of such charge attributable to the Company was $12.8 million, which
reduced 1993 net income by approximately $8.3 million.
(Page 5)
<PAGE>
United of Ohio
Form 10-K, Part I
December 31, 1993
Item 7 Management's Discussion (continued)
Liquidity and Capital Resources
During 1993, cash from operating activities exceeded capital expenditures
by $2.8 million, continuing to indicate the Company's strong liquidity and
financial position. The Company maintains its commitment to provide its
subscribers the most technologically advanced telecommunications equipment.
Accordingly, the Company continually replaces and constructs new facilities, and
the 1993 construction program continued that emphasis. The actual expenditures
for property, plant and equipment were $74.6 million in 1993, $76.9 million in
1992, and $76.1 million in 1991. The planned construction expenditures in 1994
are expected to approximate $77.1 million, as the increasing demand for
interexchange access services requires the placement of high-capacity fiber
optic facilities. The Company anticipates that the funds for this program will
be supplied by operating activities and short-term borrowings.
The demand for telephone services is relatively constant and usually
generates a non-cyclical cash in-flow. During 1993, operating activities
generated cash of $77.4 million, compared to $111.1 million in 1992 and $109.4
million in 1991. The decrease from 1992 to 1993 is attributable to increased
accounts receivable, decreased accounts payable, and expenditures related to
merger and restructuring costs.
Adequate depreciation rates remain critical to the Company due to the
large investment in telecommunications plant and equipment. To ensure the
timely recovery of capital, the Company has historically sought to obtain
higher depreciation rates from the PUCO. Effective January 1, 1989, the PUCO
allowed a maximum ten-year period for amortizing a depreciation
reserve deficiency of $54.5 million, and gave the Company the option to
accelerate the amortization for book purposes. Included in depreciation expense
for 1993, 1992 and 1991 is amortization of $5.4 million each year. At December
31, 1993, $26.1 million of the reserve deficiency remains to beamortized at a
minimum of $5.4 million annually.
Net cash used by financing activities was $4.3 million. The Company issued
$40 million of First Mortgage Bonds, Series CC, due January 1, 2000. The
proceeds from this issuance were used to repay advances from the parent
company of $30 million, which were classified as long-term debt, and to fund
capital construction. The Company early retired $76.0 million in long-term debt
in 1993 with interest rates ranging from 6.875 percent to 9.0 percent. These
retirements were refinanced on a long-term basis with the issuance of Series DD,
due June 1, 2000 for $30 million and Series EE, due June 1, 2005 for $35 million
at rates of 6.5 percent and 7.25 percent, respectively. No dividends were
declared in 1993.
At December 31, 1993, the composition of the Company's capital structure
was 61.4 percent common equity and 38.6 percent long-term debt. This compares to
a year-end capital structure comprised of 57.6 percent common equity and 42.4
percent long-term debt in 1992.
(Page 6)
<PAGE>
United of Ohio
Form 10-K, Part I
December 31, 1993
Item 7 Management's Discussion (continued)
Results of Operations
Operating revenues consist of local service, network access, long-distance
network and miscellaneous. Local service revenues are derived from providing
local telephone exchange services and leasing equipment. Network access
revenues are derived from billing other carriers and telephone customers for
their use of the local network to complete long-distance calls in those
instances where the long-distance service is not provided by the Company. Long-
distance revenues are derived principally from providing long-distance services
within designated areas. Miscellaneous revenues primarily relate to directory
advertising, billing and collection services for interexchange carriers,
operator services, network facility leases and sales of telecommunications
equipment.
Operating revenues in 1993 increased by $26.3 million or 7.1 percent from
1992. This increase in total operating revenues was universal to all revenue
categories during the year.
Access lines in 1993 grew by 17,785 or 3.6 percent compared to 1992. This
growth trend was reflected in a 3.9 percent growth in local service revenue.
Basic subscriber line revenue increased $4.6 million or 3.8 percent.
Network access revenue increased by $9.7 million or 7.7 percent for the
year ended December 31, 1993 compared to 1992. Increased usage, as indicated by
a 5.0 percent growth in message volumes and a 7.2 percent growth in minutes of
use, accounted for the increase.
Long distance network revenue increased $4.8 million or 8.7 percent for
the year ended December 31, 1993 compared to 1992. The increase can be
attributed to increased volumes of messages and minutes of use in the current
year.
Other revenues increased $5.6 million or 17.8 percent for the year ended
December 31, 1993 compared to 1992. Sales of telecommunication equipment
increased $4.1 million due to increased sales of structured wire and PBX
systems. Increased revenues from providing operator services also contributed
to the increase.
Operating expenses (including taxes) increased $34.0 million or 10.7
percent in 1993 compared to 1992. The major components of the current year's
increase were increases in plant expense, customer operations, and merger,
integration and restructuring costs.
Plant expense increased $7.4 million or 6.7 percent. Repairs of buried
cable increased $1.4 million due to the implementation of a new preventive cable
maintenance program. General purpose computer and generic software expense
increased $1.7 million resulting from increased purchases from Northern Telecom
for central office switch conversions. Other plant nonspecific expenses
increased $1.6 million, including network operations and access expense. Other
increases in plant expense occurred in rearrangement and change activity.
Customer operations expense increased $8.3 million or 20.6 percent for the
year ended December 31, 1993. Sales and advertising expense increased $4.2
million in the current year as the Company continues to intensify its efforts
to achieve increased market share in today's competitive environment. Call
completion, number services, and business operations expense increased $1.7
million which is directly related to the increase in revenues derived from
providing operator services.
(Page 7)
<PAGE>
United of Ohio
Form 10-K, Part I
December 31, 1993
Item 7 Management's Discussion (continued)
Merger, integration and restructuring costs were $12.8 million in 1993 as
discussed above.
Other operating expense was $4.1 million higher in 1993 when compared to
1992 due to an increase of $4.0 million in cost of equipment sales.
In addition to the increases discussed above, plant expense, customer
operations expense and corporate operations expense also increased as a result
of higher postretirement benefits costs due to the adoption of Statement of
Financial Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The incremental cost associated with this change
in accounting principle was approximately $6,550,000.
Effects of Inflation
The effects of inflation on the operations of the Company were not
significant during 1993, 1992 or 1991.
Recent Accounting Developments
Effective January 1, 1994, the Company will adopt Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits" (see Note 1 of "Notes to Consolidated Financial Statements" for
additional information).
Consistent with most local exchange carriers, the Company accounts for the
economic effects of regulation pursuant to 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 8)
<PAGE>
United of Ohio
Form 10-K, Part I
December 31, 1993
Item 8. Financial Statements and Supplementary Data
UNITED TELEPHONE COMPANY OF OHIO
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Auditors 10
Consolidated Balance Sheets at December 31, 1993 and
1992 11-12
Consolidated Statements of Income for each of the three
years ended December 31, 1993 13
Consolidated Statements of Retained Earnings for each of
the three years ended December 31, 1993 14
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1993 15
Notes to Consolidated Financial Statements 16-27
(Page 9)
<PAGE>
United of Ohio
Form 10-K, Part I
December 31, 1993
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
United Telephone Company of Ohio
We have audited the accompanying consolidated balance sheets of United
Telephone Company of Ohio, a wholly-owned subsidiary of Sprint Corporation, as
of December 31, 1993 and 1992, and the related consolidated statements of
income, retained earnings, and cash flows for each of the three years in the
period ended December 31, 1993. Our audits also included the financial
statement schedules listed in the Index at Item 14(a)2. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 United
Telephone Company of Ohio at December 31, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, United
Telephone Company of Ohio changed its method of accounting for postretirement
benefits in 1993.
ERNST & YOUNG
Kansas City, Missouri
January 21, 1994
(Page 10)
<PAGE>
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(In Thousands)
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 444 $ 6,971
Receivables
Customers and other, net of allowance for doubtful
accounts of $1,744 ($1,295 in 1992) 39,882 32,827
Interexchange carriers, net of allowance for doubtful
accounts of $391 ($75 in 1992) 17,243 15,375
Affiliated companies 21,439 4,277
Property tax 24,632 23,700
Inventories 4,427 5,077
Prepaid expenses and other 4,257 3,088
---------- ---------
112,324 91,315
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 57,560 56,378
Telephone network equipment and outside plant 886,975 854,467
Other 70,113 63,201
Construction in progress 15,885 18,509
--------- ---------
1,030,533 992,555
Less accumulated depreciation ( 563,015) ( 523,975)
DEFERRED CHARGES AND OTHER ASSETS 48,997 36,387
---------- ---------
$ 628,839 $ 596,282
========== =========
<FN>
(Page 11)
</TABLE>
<PAGE>
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(In Thousands)
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,587 $ 553
Accounts payable
Vendors and other 19,885 24,730
Interexchange carriers 17,283 16,659
Affiliated companies 3,998 5,115
Accrued taxes 55,487 53,167
Advance billings 7,408 7,411
Accrued vacation pay 7,234 6,860
Other 12,159 10,834
-------- --------
125,041 125,329
LONG-TERM DEBT 163,705 167,386
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 47,851 50,206
Deferred investment tax credits 8,206 11,503
Other 20,723 13,286
-------- --------
76,780 74,995
COMMITMENTS
COMMON STOCK AND OTHER STOCKHOLDER'S
EQUITY
Common stock, stated value $100 per share,
authorized-1,000,000 shares, issued and
outstanding-509,480 shares 50,948 50,948
Capital in excess of stated value 20,801 20,801
Retained earnings 191,564 156,823
-------- --------
263,313 228,572
-------- --------
$628,839 $596,282
======== ========
<FN>
See accompanying notes to consolidated financial statements.
(Page 12)
</TABLE>
<PAGE>
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1993, 1992 and 1991
(In Thousands)
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES
Local service $164,612 $158,450 $153,695
Network access service 135,946 126,284 117,846
Long distance service 60,309 55,472 53,620
Other 37,222 31,600 26,812
-------- -------- --------
398,089 371,806 351,973
OPERATING EXPENSES
Plant expense 118,856 111,408 112,661
Depreciation 76,454 74,487 72,960
Customer operations 48,753 40,415 32,352
Corporate operations 41,452 40,099 33,754
Merger, integration and restructuring costs 12,816
Other 9,388 5,249 4,720
Taxes
Federal income
Current 22,418 23,415 21,027
Deferred (8,868) (5,764) (2,756)
Deferred investment tax credits (3,298) (3,819) (4,029)
State, local and miscellaneous 32,831 31,321 30,017
-------- -------- --------
350,802 316,811 300,706
-------- -------- --------
OPERATING INCOME 47,287 54,995 51,267
INTEREST CHARGES
Short-term borrowings and long-term debt 12,354 10,480 10,874
Other 1,396 2,525 1,901
-------- --------- --------
13,750 13,005 12,775
OTHER INCOME
Interest charged to construction 1,044 874 1,622
Other, net 160 32 1,124
-------- --------- --------
1,204 906 2,746
-------- --------- --------
NET INCOME $ 34,741 $ 42,896 $ 41,238
======== ========= ========
See accompanying notes to consolidated financial statements.
(Page 13)
</TABLE>
<PAGE>
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended December 31, 1993, 1992 and 1991
(In Thousands)
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $156,823 $156,951 $157,490
Net income 34,741 42,896 41,238
Cash dividends (43,024) (41,777)
-------- -------- --------
BALANCE AT END OF YEAR $191,564 $156,823 $156,951
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
(Page 14)
</TABLE>
<PAGE>
<TABLE>
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993, 1992 AND 1991
(In Thousands)
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 34,741 $ 42,896 $ 41,238
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 76,454 74,487 72,960
Deferred income taxes and investment tax credits (12,043) (9,443) (6,779)
Changes in operating assets and liabilities
Receivables, net (26,085) (2,335) (1,945)
Inventories 650 (565) 134
Other current assets (2,101) (1,289) (490)
Accounts payable (5,338) 13,056 (2,569)
Accrued expenses and other current liabilities 4,016 (219) 11,998
Noncurrent assets and liabilities, net 744 469 (5,175)
Other, net 6,391 (5,913)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 77,429 111,144 109,372
INVESTING ACTIVITIES
Capital expenditures (74,587) (76,856) (76,131)
Other, net (5,094) (4,779) (4,407)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (79,681) (81,635) (80,538)
FINANCING ACTIVITIES
Proceeds from long-term debt 105,000 60,000
Retirements of long-term debt (106,503) (44,938) (7,390)
Increase (decrease) in advances from parent company (1,170) 22,475
Dividends paid (43,024) (41,777)
Other, net (2,772) (550)
--------- --------- ---------
NET CASH USED BY FINANCING ACTIVITIES (4,275) (29,682) (26,692)
INCREASE (DECREASE)IN CASH AND EQUIVALENTS (6,527) (173) 2,142
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 6,971 7,144 5,002
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR $ 444 $ 6,971 $ 7,144
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
(Page 15)
</TABLE>
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
1. ACCOUNTING POLICIES
United Telephone Company of Ohio is engaged in the business of providing
communications services, principally local, network access and long distance
services in Ohio. The principal industries in its service area include a
variety of both large and small industrial, commercial and agricultural
businesses.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
United Telephone Company of Ohio, and its wholly-owned subsidiaries, United
Telephone Long Distance, Inc. (UTLD) and United Telephone Communications
Services of Ohio, Inc., collectively referred to as the "Company". All
significant intercompany transactions have been eliminated. The Company is a
wholly-owned subsidiary of Sprint Corporation (Sprint); accordingly, earnings
per share information has been omitted.
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", which requires the accounting
recognition of the rate actions of regulators where appropriate. Such actions
can provide reasonable assurance of the existence of an asset, reduce or
eliminate the value of an asset, or impose a liability on a regulated
enterprise.
Certain amounts in the accompanying consolidated financial statements for
1992 and 1991 have been reclassified to conform to the presentation of amounts
in the 1993 consolidated financial statements. These reclassifications had no
effect on net income in either year.
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less and are stated at cost, which approximates
market value.
Inventories
Inventories consist of materials and supplies, stated at average cost, and
equipment held for resale, stated at the lower of average cost or market. The
sales inventory balances were $377,000 and $291,000 at December 31, 1993 and
1992, respectively.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Retirements of
depreciable property are charged against accumulated depreciation with no gain
or loss recognized. Repairs and maintenance costs are expensed as incurred.
(Page 16)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
1. ACCOUNTING POLICIES (continued)
Depreciation
Depreciation expense is generally computed on a straight-line basis over
estimated useful lives as prescribed by regulatory commissions. As ordered by
the Public Utilities Commission of Ohio (PUCO), the Company recorded an
amortization of a reserve deficiency to depreciation expense in the amount of
$5,447,000 in 1993, 1992 and 1991, which reduced net income by $3,149,000,
$3,122,000 and $3,145,000, respectively. Average annual composite depreciation
rates, excluding the nonrecurring charges, were 7.5 percent for 1993, 7.3
percent for 1992 and 7.5 percent for 1991.
Income Taxes
Operations of the Company are included in the consolidated federal income
tax returns of Sprint. Federal income tax is calculated by the Company on the
basis of its filing a separate return.
Effective January 1, 1992, the Company changed its method of accounting for
income taxes by adopting SFAS No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to accounting for income taxes. Under
the provisions of SFAS No. 109, the Company adjusted existing deferred income
tax amounts, using current tax rates, for the estimated future tax effects
attributable to temporary differences between the tax bases of the Company's
assets and liabilities and their reported amounts in the financial statements.
The Company's principal temporary difference results from using different
depreciable lives and methods with respect to its property, plant and equipment
for tax and financial reporting purposes.
As a result of corporate income tax rate reductions in prior years and the
previous income tax accounting standards which did not permit accumulated
deferred income tax amounts to be adjusted for subsequent tax rate changes,
adoption of SFAS No. 109 resulted in a decrease in the amount of deferred
income tax liabilities recorded. However, because this decrease will accrue to
the benefit of the Company's customers through future telephone rates
established by the Company's regulators, this decrease in deferred income tax
liabilities has been reflected as a regulatory liability in the Company's
financial statements. Additionally, deferred income taxes were not provided
in prior years in those instances where the Company's regulators did not
recognize such deferred income taxes for ratemaking purposes. Upon adoption of
SFAS No. 109, the Company recognized deferred income tax liabilities for those
temporary differences for which deferred income taxes had not previously been
provided. Corresponding regulatory assets were also recorded by the Company to
reflect the anticipated recovery of such taxes in future telephone rates based
on actions of the Company's regulators.
Accordingly, the adoption of SFAS No. 109 had no significant effect upon
the Company's 1992 net income. As allowed by SFAS No. 109, prior years'
consolidated financial statements were not restated.
During 1991, in accordance with Accounting Principles Board Opinion (APB)
No. 11, deferred income taxes were provided for all differences in timing of
reporting income and expenses for financial statement and income tax purposes,
except for items that were not allowable by the Federal Communications
Commission (FCC) or the PUCO, as an expense for rate-making purposes.
(Page 17)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
1. ACCOUNTING POLICIES (continued)
Income Taxes (continued)
Investment tax credits (ITC) are deferred and amortized over the useful
life of the related property. The Tax Reform Act of 1986 effectively eliminated
ITC after December 31, 1985.
Postretirement Benefits
Effective January 1, 1993, the Company changed its method of accounting for
postretirement benefits (principally health care benefits) provided to certain
retirees by adopting SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires accrual of the expected
cost of providing postretirement benefits to employees and their dependents or
beneficiaries during the years employees earn the benefits. As permitted by
SFAS No. 106, the Company elected to recognize the obligation for postretirement
benefits already earned by its current retirees and active work force as of
January 1, 1993, by amortizing such obligation on a straight-line basis over a
period of twenty years.
During 1992 and 1991, the Company expensed postretirement benefits as such
costs were paid.
Postemployment Benefits
Effective January 1, 1994, the Company will adopt SFAS No 112, "Employers'
Accounting for Postemployment Benefits." Under the new standard, the Company is
required to recognize certain previously unrecorded obligations for benefits
provided to former or inactive employees and their dependents, after employment
but before retirement. Postemployment benefits offered by the Company include
severance, workers' compensation and disability benefits, including the
continuation of other benefits such as health care and life insurance coverage.
As required by the standard, the Company will recognize its obligations for
postemployment benefits through a cumulative adjustment in the consolidated
income statement. The resulting nonrecurring, non-cash charge will not
significantly impact the Company's 1994 net income. Adoption of this standard
is not expected to significantly impact future operating expenses.
Interest Charged to Construction
In accordance with the Uniform System of Accounts, as prescribed by the
FCC, interest is capitalized on those telephone plant construction projects for
which the estimated construction period exceeds one year. In addition, the PUCO
has ordered that the Company also capitalize interest during construction on
short-term projects.
2. MERGER AND INTEGRATION COSTS
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. Pursuant to the Agreement and Plan of Merger dated
May 27, 1992, Sprint issued 1.37 shares of its common stock in exchange for each
outstanding share of Centel common stock.
(Page 18)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
2. MERGER AND INTEGRATION COSTS (continued)
The operations of the merged companies are being integrated and
restructured to achieve efficiencies which are expected to yield significant
operational synergies and cost savings. The transaction costs associated with
the merger and the estimated expenses of integrating and restructuring the
operations of the two companies resulted in nonrecurring charges to Sprint
during 1993. The portion of such charges attributable to the Company was
$12,816,000, which reduced 1993 net income by approximately $8,300,000.
3. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
Substantially all employees of the Company are covered by a noncontributory
defined benefit pension plan. For participants of the plan represented by
collective bargaining units, benefits are based upon schedules of defined
amounts as negotiated by the respective parties. For participants not covered
by collective bargaining agreements, the plan provides pension benefits based
upon years of service and participants' compensation.
The Company's policy is to make contributions to the plan each year equal
to an actuarially determined amount consistent with applicable federal tax
regulations. The funding objective is to accumulate funds at a relatively
stable rate over the participants' working lives so that benefits are fully
funded at retirement. As of December 31, 1993, the plan's assets consisted
principally of investments in corporate equity securities and U.S. government
and corporate debt securities.
The components of the net pension credits and related assumptions are as
follows (in thousands):
1993 1992 1991
Service cost - benefits earned during the period $ 3,222 $ 3,044 $ 2,948
Interest cost on projected benefit obligation 8,972 8,513 7,912
Actual return on plan assets (27,975) (10,400) (44,237)
Net amortization and deferral 7,391 (6,914) 27,854
--------- --------- --------
Net pension credit $ (8,390) $ (5,757) $(5,523)
========= ========= ========
Discount rate 8.00% 8.50% 8.50%
Expected long-term rate of return on plan assets 9.50% 8.25% 8.25%
Anticipated composite rate of future increases in
compensation 5.50% 6.33% 7.02%
(Page 19)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
3. EMPLOYEE BENEFIT PLANS (continued)
Defined Benefit Pension Plan (continued)
The funded status and amounts recognized in the consolidated balance sheets
for the plan, as of December 31, are as follows (in thousands):
1993 1992
Actuarial present value of pension benefit obligations
Vested benefit obligation $(112,517) $ (96,112)
--------- ---------
Accumulated benefit obligation $(126,977) $(106,179)
--------- ---------
Projected benefit obligation $(135,615) $(114,879)
Plan assets at fair value 231,371 209,165
Plan assets in excess of the projected --------- ---------
benefit obligation 95,756 94,286
Unrecognized net gains (38,781) (36,062)
Unrecognized prior service cost (benefit) 4,956 (2,681)
Unamortized portion of transition asset (29,654) (32,949)
--------- ---------
Prepaid pension cost $ 32,277 $ 22,594
========= =========
The projected benefit obligations as of December 31, 1993 and 1992, were
determined using a discount rate of 7.50% for 1993 and of 8.00% for 1992, and
anticipated composite rates of future increases in compensation of 4.50% for
1993 and of 5.50% for 1992.
Defined Contribution Plans
Sprint sponsors two defined contribution employee savings plans covering
substantially all employees of the Company. Participants may contribute
portions of their compensation to the plans. Contributions of participants
represented by collective bargaining units are matched by the Company based upon
defined amounts as negotiated by the respective parties. Contributions of
participants not covered by collective bargaining agreements are also matched by
the Company. For these participants, the Company provides matching
contributions equal to 50 percent of participants' contributions up to 6 percent
of their base compensation and may, at the discretion of Sprint's Board of
Directors, provide additional matching contributions based upon the performance
of Sprint's common stock price in comparison to other telecommunications
companies. The Company's contributions to the plans aggregated $2,280,000,
$1,612,000 and $1,651,000 in 1993, 1992 and 1991, respectively.
Postretirement Benefits
The Company provides other postretirement benefits (principally health care
benefits) to certain retirees. Substantially all employees who retired from the
Company before January 1, 1991, became eligible for these postretirement
benefits at no cost to the retirees. Employees retiring after such date, who
meet specified age and years of service requirements, are eligible for these
benefits on a shared cost basis, with the Company's portion of the cost
determined by the retirees' years of credited service at retirement. The
Company funds the accrued costs as benefits are paid.
(Page 20)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
3. EMPLOYEE BENEFITS PLAN (continued)
Postretirement Benefits (continued)
For regulatory purposes, the FCC permits recognition of net postretirement
benefits costs, including amortization of the transition obligation, in
accordance with SFAS No. 106.
The components of the 1993 net postretirement benefits cost are as follows
(in thousands):
Service cost -- benefits earned during the period $ 1,857
Interest on accumulated postretirement benefits obligation 5,325
Amortization of transition obligation 3,395
-------
Net postretirement benefits cost $10,577
=======
For measurement purposes, an annual health care cost trend rate of 13
percent was assumed for 1993, gradually decreasing to 6 percent by 2001 and
remaining constant thereafter. The effect of a one percent annual increase in
the assumed trend rate would have increased the 1993 net postretirement benefits
cost by approximately $1,721,000. The weighted average discount rate for 1993
was 8 percent.
The cost of providing health care benefits to retirees was $2,016,000 and
$1,698,000 in 1992 and 1991, respectively.
The amount recognized in the consolidated balance sheet as of December 31,
1993, is as follows (in thousands):
Accumulated postretirement benefits obligation
Retirees $25,224
Active plan participants -- fully eligible 19,382
Active plan participants -- other 26,499
-------
71,105
Unrecognized net gains 2,005
Unrecognized transition obligation (64,514)
Accrued postretirement benefits cost $ 8,596
The accumulated benefits obligation as of December 31, 1993, was determined
using a discount rate of 7.5 percent. An annual health care cost trend rate of
12 percent was assumed for 1994, gradually decreasing to 6 percent by 2001 and
remaining constant thereafter. The effect of a one percent annual increase in
the assumed health care cost trend rate would have increased the accumulated
benefits obligations as of December 31, 1993, by approximately $10,239,000.
(Page 21)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
4. INCOME TAXES
The components of federal and state income tax expense are as follows (in
thousands):
1993 1992 1991
------- ------- -------
Federal income taxes
Current $22,418 $23,415 $21,027
Deferred (8,868) (5,764) (2,756)
Amortization of deferred ITC (3,298) (3,819) (4,029)
------- ------- -------
10,252 13,832 14,242
------- ------- -------
State income taxes
Current (341) 118 203
Deferred 123 140 24
------- ------- -------
(218) 258 227
------- ------- -------
Total income tax expense $10,034 $14,090 $14,469
======= ======= =======
The differences which cause the effective income tax rate to vary from the
statutory federal income tax rate of 35 percent in 1993 and 34 percent in 1992
and 1991 are as follows (in thousands):
1993 1992 1991
------- ------- -------
Federal income tax at the statutory rate $15,671 $19,375 $18,940
Less amortization of deferred ITC (3,298) (3,819) (4,038)
Expected federal income tax provision after ------- ------- -------
amortization of deferred ITC 12,373 15,556 14,902
Effect of
Differences required to be flowed through
by regulatory commissions 457 509 607
Reversal of rate differentials (2,187) (2,725) (2,482)
Tax examination adjustments 1,087
Other, net (609) 750 355
------- ------- -------
Income tax expense, including ITC $10,034 $14,090 $14,469
======= ======= =======
Effective income tax rate 22.4% 24.7% 26.0%
======= ======= =======
(Page 22)
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
4. INCOME TAXES (continued)
During 1993 and 1992, in accordance with SFAS No. 109, deferred income
taxes were provided for the temporary differences between the carrying amounts
of the Company's 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 as of December 31, along with the income tax
effect of each, are as follows (in thousands):
1993 1992
Deferred Income Tax Deferred Income Tax
Assets Liabilities Assets Liabilities
------- ------------ ------- -----------
Property, plant and equipment $44,291 $49,520
Allowance for doubtful
accounts 575 234
Expense accruals 6,894 3,937
Deferred ITC 8,206 11,503
Other, net (3,909) (3,485)
------- ------- ------ -------
$56,057 $61,709
On August 10, 1993, the Revenue Reconciliation Act of 1993 (the Act) was
enacted which, among other changes, raised the federal income tax rate for
corporations to 35 percent from 34 percent, retroactive to the beginning of the
year. Pursuant to SFAS No. 71, the resulting adjustments to the Company's
deferred income tax assets and liabilities to reflect the revised rate have
generally been reflected as reductions to the related regulatory liabilities.
During 1991, in accordance with APB No. 11, deferred income tax provisions
resulted from the differences in the timing of recognizing certain revenues and
expenses for financial statement and income tax purposes. The sources of the
differences, along with the income tax effect of each, were as follows (in
thousands):
Property, plant and equipment $(4,424)
Allowance for doubtful accounts (207)
Expense accruals 2,585
Other, net (686)
-------
$(2,732)
=======
(Page 23)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
5. LONG-TERM DEBT
Long-term debt as of December 31, excluding current maturities, is as
follows (in thousands):
1993 1992
----------------------- -------
Weighted
Average
Amount Interest Rate Amount
-------- ------------- --------
First mortgage bonds,
maturities 2000 to 2005 $165,000 6.85% $137,537
Advances from parent company
classified as long-term debt 30,000
Less: Unamortized discount on
first mortgage bonds 1,295 151
-------- --------
$163,705 $167,386
======== ========
Advances from parent company were classified as long-term debt at December
31, 1992, as they were replaced with $40,000,000 of 7.11% series CC seven-year
First Mortgage Bonds issued in February 1993.
Long-term debt maturities during the next five years consist of $1,587,000
scheduled for repayment in 1994.
The first mortgage bonds are secured by substantially all of the Company's
property, plant, and equipment.
Under the most restricted terms of the Company's first mortgage bond
indentures, $56,629,000 of retained earnings were restricted from payment of
dividends at December 31, 1993.
As of December 31, 1993, the Company had lines of credit with banks
totalling $20,000,000, all of which was available at year end. The bank lines,
which renew annually on various dates, provide for short-term borrowings at
market rates of interest and require annual commitment fees based on the unused
portion. Lines of credit may be withdrawn by the banks if there is a material
adverse change in the financial condition of the Company.
During 1993, the Company redeemed prior to scheduled maturities $75,950,000
of first mortgage bonds with interest rates from 6.875 percent to 9.0 percent.
During 1992, the Company redeemed, prior to scheduled maturities, $43,850,000 of
first mortgage bonds with interest rates ranging from 8.875 percent to 10.25
percent. The payment penalties related to these early extinguishments of debt
were not significant.
(Page 24)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
6. COMMITMENTS
Gross rental expense aggregated $5,490,000 in 1993, $5,676,000 in 1992 and
$5,963,000 in 1991.
The Company's planned capital expenditures for the year ending December 31,
1994 are approximately $77,118,000. Normal purchase commitments have been or
will be made for these planned expenditures.
7. RELATED PARTY TRANSACTIONS
The Company purchases telecommunications equipment, construction and
maintenance equipment, and materials and supplies from its affiliate, North
Supply Company. Total purchases for 1993, 1992, and 1991 were $25,612,000,
$23,207,000 and $20,420,000, respectively.
Under an agreement with Sprint, the Company reimburses Sprint for data
processing services, other data related costs and certain management costs which
are incurred for the Company's benefit. A credit resulting from deferred income
taxes on intercompany profits is also allocated by Sprint to affiliated
companies. Total charges to the Company aggregated $30,628,000, $27,091,000 and
$23,065,000 in 1993, 1992 and 1991, respectively, and the credit relating to
deferred income taxes was $596,000, $630,000 and $704,000 in 1993, 1992 and
1991, respectively. The Company enters into cash advance and borrowing
transactions with Sprint; generally, interest on such transactions is computed
based on the prior month's thirty-day average commercial paper index, as
published in the Federal Reserve Statistical Release H.15, plus forty-five basis
points. Interest expense on such advances from Sprint was $429,000, $1,256,000
and $1,057,000 in 1993, 1992 and 1991, respectively. Interest income on such
advances to Sprint was $162,000, $63,000 and $357,000 in 1993, 1992 and 1991,
respectively.
Sprint Publishing & Advertising, an affiliate, pays the Company a fee for
the right to publish telephone directories in the Company's operating territory,
a listing fee, and a fee for billing and collection services performed for
Sprint Publishing & Advertising by the Company. For 1993, 1992 and 1991, Sprint
Publishing & Advertising paid the Company a total of $8,622,000, $8,549,000 and
$8,512,000, respectively. The Company paid Sprint Publishing & Advertising
$850,000, $788,000 and $1,572,000 in 1993, 1992 and 1991, respectively, for its
costs of publishing the white page portion of the directories.
The Company provides various services to Sprint's long distance
communications services division, such as network access, operator and billing
and collection services, and the lease of network facilities. The Company
received $10,094,000, $9,227,000 and $8,454,000 in 1993, 1992 and 1991,
respectively, for these services. The Company paid Sprint's long distance
communications services division $4,648,000, $4,540,000 and $4,109,000 in 1993,
1992 and 1991, respectively, for interexchange telecommunications services.
Beginning in 1991, the Company provided interstate interexchange carrier
operator services to nine affiliated local telephone companies. The Company
billed the affiliated companies a total of $5,665,000 and $5,301,000 in 1993 and
1992, respectively. The amount billed in 1991 was insignificant.
(Page 25)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
7. RELATED PARTY TRANSACTIONS (continued)
The Company is reimbursed by United Telephone Company of Indiana, Inc. for
certain salaries and other costs which are incurred by the Company for the
benefit of the affiliate. Similarly, the Company reimburses the affiliate for
certain costs incurred by the affiliate for the Company's benefit. These
reimbursements represent the cost of such items as determined by the Company and
its affiliates. Such reimbursable charges, net of amounts reimbursed by the
Company, totalled $23,955,000, $21,651,000 and $18,584,000 in 1993, 1992 and
1991, respectively.
Certain directors and officers of the Company are also directors or
officers of banks at which the Company conducts borrowings and related
transactions. The terms are comparable with other banks at which the Company
has similar transactions.
8. ADDITIONAL FINANCIAL INFORMATION
Financial Instruments Information
The Company's financial instruments consist of long-term debt, including
current maturities, with carrying amounts as of December 31, 1993 and 1992 of
$165,292,000 and $167,939,000, respectively, and estimated fair values of
$172,977,000 and $168,339,000, respectively. The fair values are estimated
based on quoted market prices for publicly-traded issues, and based on the
present value of estimated future cash flows using a discount rate commensurate
with the risks involved for all other issues.
The carrying values of the Company's other financial instruments
(principally cash equivalents) approximate fair value as of December 31, 1993
and 1992.
Supplemental Cash Flows Information
The supplemental disclosures required for the consolidated statements of
cash flows for the years ended December 31, are as follows (in thousands):
1993 1992 1991
Cash paid for
Interest, net of amounts capitalized $10,166 $11,568 $10,404
Income taxes $24,578 $25,679 $18,119
Major Customer Information
Operating revenues from American Telephone & Telegraph resulting primarily
from network access, billing and collection services, and the lease of network
facilities aggregated approximately $70,090,000, $68,740,000 and $66,842,000 for
1993, 1992 and 1991, respectively.
(Page 26)
<PAGE>
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
9. SUPPLEMENTAL QUARTERLY INFORMATION - UNAUDITED
(in thousands)
1993 Quarters Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues $95,294 $98,522 $101,255 $103,018
Operating income 5,095 13,812 14,803 13,577
Net income 2,123 10,312 11,751 10,555
1992 Quarters Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues $90,656 $92,214 $91,409 $97,527
Operating income 13,731 13,858 13,066 14,340
Net income 10,878 10,821 9,697 11,500
In the first and fourth quarters of 1993, the Company recorded merger and
integration costs of $10,300,000 and $2,516,000, respectively, as a result of
the merger of Sprint and Centel. Such charges reduced net income by
approximately $6,700,000 and $1,600,000, respectively.
(Page 27)
<PAGE>
United Telephone of Ohio
Form 10-K, Part II/Part III
December 31, 1993
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item 10. Directors and Executive Officers of the Registrant
Omitted under the provisions of General Instruction J.
Item 11. Executive Compensation
Omitted under the provisions of General Instruction J.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted under the provisions of General Instruction J.
Item 13. Certain Relationships and Related Transactions
Omitted under the provisions of General Instruction J.
(Page 28)
<PAGE>
United Telephone of Ohio
Form 10-K, Part II/Part III
December 31, 1993
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The consolidated financial statements of the Company filed as part
of this report are listed in the Index to Consolidated Financial
Statements on page 9.
2. The consolidated financial statement schedules of the Company filed
as part of this report are listed in the Index to Consolidated
Financial Statement Schedules on page 30.
(b) The exhibits filed as part of this report as required by Item 601 of
Regulation S-K are listed in the Index to Exhibits on page 39.
(Page 29)
<PAGE>
United of Ohio
Form 10-K, Part IV
December 31, 1993
UNITED TELEPHONE COMPANY OF OHIO
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(Item 14(a) 2)
Page Reference
For the three years ended December 31, 1993, 1992 and 1991
Schedule V - Property, Plant and Equipment. . . . . . . . . . . . . 31-33
Schedule VI - Accumulated Depreciation. . . . . . . . . . . . . . . 34-36
Schedule VIII - Valuation and Qualifying Accounts . . . . . . . . . 37
Schedule X - Supplementary Income Statement Information . . . . . . 38
All other schedules have been omitted since the required information is
not present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the notes thereto.
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT-CONSOLIDATED
Year Ended December 31, 1993
(Thousands of Dollars)
<CAPTION>
Balance at Constructed
beginning of additions Retirements Balance at
Classification year at cost or sales end of year
<S> <C> <C> <C> <C>
Land and buildings $ 56,378 $ 1,468 $ 286 $ 57,560
Other general support assets 53,382 9,947 3,427 59,902
Central office assets 372,740 29,016 17,840 383,916
Information origination/
termination assets 36,548 6,578 6,613 36,513
Cable and wire facilities assets 445,179 29,582 8,215 466,546
Amortizable assets 1,666 113 3 1,776
Telephone plant under construction 18,509 (2,624) 15,885
Nonoperating and other plant 8,153 507 225 8,435
$992,555 $74,587 $36,609 $1,030,533
Depreciation expense is computed on a straight line basis. The average annual composite plant
depreciation rate for the Company, excluding special short-term amortizations, was 7.5% in 1993.
</TABLE>
(Page 31)
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT-CONSOLIDATED
Year Ended December 31, 1992
(Thousands of Dollars)
<CAPTION>
Balance at Constructed
beginning of additions Retirements Balance at
Classification year at cost or sales end of year
<S> <C> <C> <C> <C>
Land and buildings $ 54,788 $ 2,224 $ 634 $ 56,378
Other general support assets 46,671 9,414 2,703 53,382
Central office assets 355,842 31,111 14,213 372,740
Information origination/
termination assets 34,857 5,828 4,137 36,548
Cable and wire facilities assets 427,518 24,770 7,109 445,179
Amortizable assets 1,209 423 (34) 1,666
Telephone plant under construction 15,729 2,780 18,509
Nonoperating and other plant 8,032 306 185 8,153
$944,646 $76,856 $28,947 $992,555
Depreciation expense is computed on a straight line basis. The average annual composite plant
depreciation rate for the Company, excluding special short-term amortizations, was 7.3% in 1992.
</TABLE>
(Page 32)
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT-CONSOLIDATED
Year Ended December 31, 1991
(Thousands of Dollars)
<CAPTION>
Balance at Constructed
beginning of additions Retirements Balance at
Classification year at cost or sales end of year
<S> <C> <C> <C> <C>
Land and buildings $ 53,225 $ 1,800 $ 237 $ 54,788
Other general support assets 40,894 8,212 2,435 46,671
Central office assets 344,139 29,702 17,999 355,842
Information origination/
termination assets 35,049 4,211 4,403 34,857
Cable and wire facilities assets 406,963 28,941 8,386 427,518
Amortizable assets 800 519 110 1,209
Telephone plant under construction 13,941 1,788 15,729
Nonoperating and other plant 7,241 958 167 8,032
$902,252 $76,131 $33,737 $944,646
Depreciation expense is computed on a straight line basis. The average annual composite plant
depreciation rate for the Company, excluding special short-term amortizations, was 7.5% in 1991.
</TABLE>
(Page 33)
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE VI - ACCUMULATED DEPRECIATION-CONSOLIDATED
Year Ended December 31, 1993
(Thousands of Dollars)
<CAPTION>
Additions
Balance Charged Salvage
at to net of Balance
beginning depreciation cost of Retirements at end
Description of year expense removal and other of year
<S> <C> <C> <C> <C> <C>
Buildings $ 19,295 $ 1,629 $ (93) $ 284 $ 20,547
Other general support assets 25,839 6,067 430 3,427 28,909
Central office assets 193,552 30,769 (102) 17,840 206,379
Information origination/
termination assets 26,883 3,605 828 6,613 24,703
Cable and wire facilities assets 254,790 33,253 (1,902) 8,215 277,926
Amortizable assets 764 364 (7) 1,135
Nonoperating and other plant 2,852 767 13 216 3,416
$523,975 $76,454 $(826) $36,588 $563,015
</TABLE>
(Page 34)
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE VI - ACCUMULATED DEPRECIATION-CONSOLIDATED
Year Ended December 31, 1992
(Thousands of Dollars)
<CAPTION>
Additions
Balance Charged Salvage
at to net of Balance
beginning depreciation cost of Retirements at end
Description of year expense removal and other of year
<S> <C> <C> <C> <C> <C>
Buildings $ 18,483 $ 1,582 $ (136) $ 634 $ 19,295
Other general support assets 22,772 5,431 338 2,702 25,839
Central office assets 179,288 28,389 88 14,213 193,552
Information origination/
termination assets 28,411 2,195 380 4,103 26,883
Cable and wire facilities assets 227,899 35,847 (1,846) 7,110 254,790
Amortizable assets 373 391 764
Nonoperating and other plant 2,369 652 16 185 2,852
$479,595 $74,487 $(1,160) $28,947 $523,975
</TABLE>
(Page 35)
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE VI - ACCUMULATED DEPRECIATION-CONSOLIDATED
Year Ended December 31, 1991
(Thousands of Dollars)
<CAPTION>
Additions
Balance Charged Salvage
at to net of Balance
beginning depreciation cost of Retirements at end
Description of year expense removal and other of year
<S> <C> <C> <C> <C> <C>
Buildings $ 17,288 $ 1,538 $ (106) $ 237 $ 18,483
Other general support assets 20,240 4,706 262 2,436 22,772
Central office assets 164,958 31,725 604 17,999 179,288
Information origination/
termination assets 29,407 2,830 577 4,403 28,411
Cable and wire facilities assets 207,072 31,359 (2,146) 8,386 227,899
Amortizable assets 91 279 112 109 373
Nonoperating and other plant 2,013 523 167 2,369
$441,069 $72,960 $ (697) $33,737 $479,595
</TABLE>
(Page 36)
<PAGE>
<TABLE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS-CONSOLIDATED
Years Ended December 31, 1993, 1992 and 1991
(Thousands of Dollars)
<CAPTION>
Balance Additions Deductions
at Charged Charged Accounts charged Balance
beginning to to off-net of at end
of year expense other accounts collections of year
<S> <C> <C> <C> <C> <C>
Deducted from assets:
Allowance for uncol-
lectible accounts
Year Ended
December 31, 1993 $1,370 $1,712 $1,826 $2,773 $2,135
Year Ended
December 31, 1992 $2,488 $ 6 $1,300 $2,424 $1,370
Year Ended
December 31, 1991 $1,933 $1,808 $1,582 $2,835 $2,488
</TABLE>
(Page 37)
<PAGE>
United Telephone of Ohio
Form 10-K, Part IV
December 31, 1993
PART IV
UNITED TELEPHONE COMPANY OF OHIO
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION-CONSOLIDATED
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Taxes other than payroll and income tax:
Property taxes . . . . . . . . . . . . $22,933 $21,931 $20,608
Gross receipts taxes . . . . . . . . . 8,991 7,862 8,134
Other state and local taxes. . . . . . 1,125 1,270 1,047
$33,049 $31,063 $29,789
</TABLE>
[TEXT]
Maintenance expense is the primary component of plant expense which is
shown separately on the Consolidated Statements of Income. The Company had no
significant advertising or royalty expenses during 1993, 1992, and 1991.
(Page 38)
<PAGE>
United of Ohio
Form 10-K, Part IV
December 31, 1993
UNITED TELEPHONE COMPANY OF OHIO
INDEX TO EXHIBITS
(Item 14(c))
Exhibit No.
(3A) Amended Articles of Incorporation (incorporated herein by reference
to Exhibit 3-A to Registration Statement of the Company on Form S-1,
No. 2-39684).
(3B) Amendment to Amended Articles of Incorporation (incorporated herein
by reference to Exhibit 3-B to Registration Statement of the Company
on Form S-1, No. 2-52845).
(3C) Code of Regulations (incorporated herein by reference to Exhibit 3-C
to Registration Statement of the Company on Form S-1, No. 2-34454).
(4A) Indenture of Mortgage and Deed of Trust dated as of April 1, 1968
and Supplemental Indentures First through Seventh (filed as Exhibit
4-A to Registration Statement No. 2-45070, Exhibit 2-H to
Registration Statement No. 2-62515 and Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
1982), and the Eighth Supplemental Indenture dated as of October 1,
1982, from Company to the Huntington National Bank, Trustee (filed
as Exhibit 4J to the Company's Registration Statement on Form S-3,
No. 33-50818), and incorporated herein by reference.
(4B) Ninth Supplemental Indenture dated as of October 1, 1992, from the
Company to the Huntington National Bank, Trustee, filed with this
Annual Report on Form 10-K for the year ended December 31, 1992.
(Filed as an exhibit to Company's Registration statement on Form
S-3 No. 33-50818 and incorporated herein by reference.)
(4C) Tenth Supplemental Indenture dated as of January 1, 1993, from the
Company to the Huntington National Bank, Trustee, filed with this
Annual Report on Form 10-K for the year ended December 31, 1992.
(4D) Eleventh supplemental Indenture dated as of May 15, 1993 from the
Company to the Huntington National Bank, Trustee, filed with this
Annual Report on Form 10-K for the year ended December 31, 1993.
(Filed as an exhibit to the Company's Registration statement on
Form S-3 No. 33-61024 and incorporated herein by reference.)
23 Consent of Independent Auditors
(Page 39)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
United Telephone Company of Ohio
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-61024) of United Telephone Company of Ohio and in the related
Prospectus of our report dated January 21, 1994, with respect to the
consolidated financial statements and schedules of United Telephone Company of
Ohio included in this Annual Report (Form 10-K) for the year ended December 31,
1993.
ERNST & YOUNG
Kansas City, Missouri
March 30, 1994
(Page 40)
<PAGE>
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.
UNITED TELEPHONE COMPANY OF OHIO
(Registrant)
March 3, 1994 ________________________________
I. C. Oberlin
Vice President-Finance and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
____________________________ President and Director March 3, 1994
J. D. Kelley
____________________________ Vice President-Network March 3, 1994
L. V. Sprouse Operations
____________________________ Controller March 3, 1994
P. J. Weitzel
____________________________ Director March 3, 1994
J. O. Basford
____________________________ Director March 3, 1994
J. W. Gillis
____________________________ Director March 3, 1994
J. S. Gorman
(Page 41)
<PAGE>
Signature Title Date
____________________________ Director March 3, 1994
B. L. Laramore
____________________________ Director March 3, 1994
N. E. McCann
____________________________ Director March 3, 1994
D. W. Peterson
____________________________ Director March 3, 1994
R. W. Platt
____________________________ Director March 3, 1994
J. E. Schafstall
____________________________ Director March 3, 1994
J. B. Schomaeker
____________________________ Director March 3, 1994
G. L. White
____________________________ Director March 3, 1994
R. L. Zielsdorf
(Page 42)
