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
For the quarterly period ended.......................March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer
or organization) Identification No.)
P.O. Box 3555, Mansfield, Ohio 44907
.........................................................................
(Address of principal executive offices)
419/755-8011
........................................................................
(Registrant's telephone number, including area code)
........................................................................
(Former name, former address and former fiscal year,
if changed since last report)
The registrant meets the conditions set forth in general Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
There are 509,480 shares of common stock, par value $100, outstanding as of
March 31, 1994 and as of the date of filing of this report.
<PAGE>
(2)
UNITED TELEPHONE COMPANY OF OHIO
INDEX
Part I. Financial Information Page
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a
Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
Exhibit 12 12
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(3) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
1994 1993
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,172 $ 444
Receivables
Customer and other, net of allowance for doubtful
accounts of $1,634 ($1,744 at December 31, 1993) 33,431 39,882
Interexchange carriers, net of allowance for doubtful 18,219 17,243
accounts of $301 ($391 at December 31, 1993)
Affiliated companies 26,647 21,439
Property tax 18,474 24,632
Inventories 5,905 4,427
Prepaid expenses and other 5,676 4,257
------- -------
111,524 112,324
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 57,620 57,560
Telephone network equipment and outside plant 893,688 886,975
Other 73,216 70,113
Construction in progress 18,240 15,885
--------- ---------
1,042,764 1,030,533
Accumulated depreciation (577,524) (563,015)
--------- ---------
465,240 467,518
PREPAID PENSION COSTS 32,928 30,984
DEFERRED CHARGES AND OTHER ASSETS 16,560 18,013
--------- ---------
$ 626,252 $ 628,839
========= =========
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<TABLE>
(4) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, 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 $ 4,605 3,998
Interexchange carriers 14,712 17,283
Other 21,517 19,885
Advance billings 7,716 7,408
Accrued taxes 50,491 55,487
Accrued vacation pay 7,332 7,234
Other 11,982 12,159
------- -------
118,355 125,041
LONG-TERM DEBT 163,755 163,705
DEFERRED CREDITS AND OTHER LIABILITIES
Income taxes 45,907 47,851
Investment tax credits 7,482 8,206
Other 24,997 20,723
------ ------
78,386 76,780
COMMITMENTS
COMMON STOCK AND OTHER STOCKHOLDER'S EQUITY
Common stock
Authorized 1,000,000 shares,
stated value $100 per share,
issued and outstanding 509,480 shares 50,948 50,948
Capital in excess of stated value 20,801 20,801
Retained earnings 194,007 191,564
------- -------
265,756 263,313
--------- ---------
$ 626,252 $ 628,839
========= =========
See Notes to Consolidated Financial Statements.
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<TABLE>
(5) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended
1994 1993
------ ------
(Unaudited)
<S> <C> <C>
OPERATING REVENUES
Local service $ 42,573 $ 39,861
Network access service 36,648 32,758
Long-distance service 16,173 14,597
Other 8,215 8,078
-------- --------
103,609 95,294
OPERATING EXPENSES
Plant expense 32,165 29,652
Depreciation 19,783 18,438
Customer operations 11,465 11,516
Corporate operations 13,015 10,568
Merger and integration costs 10,300
Other 1,719 2,131
Taxes:
Federal income:
Current 8,607 4,740
Deferred (4,126) (4,736)
Deferred investment tax
credits (724) (824)
State, local and miscellaneous 8,658 8,414
-------- --------
90,562 90,199
OPERATING INCOME 13,047 5,095
INTEREST CHARGES
Long-term debt 2,684 3,059
Other 336 339
------- --------
3,020 3,398
OTHER INCOME
Interest charged to construction 206 348
Other, net 54 78
------- --------
260 426
--------- ---------
NET INCOME $ 10,287 $ 2,123
========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
(6) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,287 $ 2,123
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 19,783 18,438
Deferred income taxes and investment
tax credits (4,827) (5,533)
Changes in operating assets and liabilities:
Receivables 6,425 (3,565)
Inventories (1,478) (698)
Other current assets (1,419) 1,741
Accounts payable (332) (1,985)
Accrued expenses and other current liabilities (4,767) (9,461)
Noncurrent assets and liabilities, net 3,028 4,343
Other, net 2,159 2,124
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,859 7,527
--------- -------
INVESTING ACTIVITIES
Capital expenditures (17,439) (19,581)
Net salvage (cost) from plant and equipment retired (66) 114
Other, net 805 (821)
--------- -------
NET CASH USED BY INVESTING ACTIVITIES (16,700) (20,288)
--------- -------
FINANCING ACTIVITIES
Proceeds from long-term debt 40,000
Retirements of long-term debt (1,587)
Decrease in advances from parent company (30,000)
Dividends paid (7,844)
--------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (9,431) 10,000
--------- -------
INCREASE (DECREASE) IN CASH 2,728 (2,761)
CASH AT BEGINNING OF PERIOD 444 6,971
--------- -------
CASH AT END OF PERIOD $ 3,172 $ 4,210
========= =======
See Notes to Consolidated Financial Statements.
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<PAGE>
(7) Part I.
Item 1.
UNITED TELEPHONE COMPANY OF OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The information contained in this Form 10-Q for the three month interim
periods ended March 31, 1994 and 1993 reflects all adjustments, consisting only
of normal recurring and certain nonrecurring accruals (see Note 3), which are,
in the opinion of management, necessary to a fair statement of the operations
for such interim periods.
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
United Telephone Company of Ohio and its wholly-owned subsidiaries, United
Telecommunications Services of Ohio, Inc. and United Telephone Long Distance,
Inc., collectively referred to as the "Company". All significant intercompany
transactions have been eliminated.
Certain amounts in the accompanying consolidated financial statements for
1993 have been reclassified to conform to the presentation of amounts in the
1994 consolidated financial statements. These reclassifications had no effect
on 1993 net income.
Earnings Per Share
Earnings per share information has been omitted because the Company is a
wholly-owned subsidiary of Sprint Corporation (Sprint).
2. SPRINT/CENTEL MERGER
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation (Centel), a telecommunications company with local exchange and
cellular/wireless communications services operations. Centel's local exchange
telephone businesses operate in six states: Florida, North Carolina, Virginia,
Illinois, Texas and Nevada. The transaction costs associated with the merger
(consisting primarily of investment banking and legal fees) and the estimated
expenses of integration and restructuring the operations of the two companies
(consisting primarily of employee severance and relocation expenses and costs
of eliminating duplicative facilities) resulted in nonrecurring charges to
Sprint during 1993. The portion of such charges attributable to the Company was
$12,816,000, of which $10,300,000 was recorded during the 1993 first quarter.
Such nonrecurring charges reduced first quarter 1993 net income by
approximately $6.7 million.
3. SUPPLEMENTAL CASH FLOW INFORMATION
The following are the supplemental disclosures required for the Consolidated
Statements of Cash Flows (in thousands of dollars):
Three Months Ended March 31,
----------------------------
1994 1993
------ ------
Cash paid for:
Interest (net of amounts capitalized) $ 1,948 $ 4,328
Income taxes 2,353 3,250
<PAGE>
(8) Part I.
Item 2.
UNITED TELEPHONE COMPANY OF OHIO
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 operations of the merged companies continue to
be integrated and restructured to achieve efficiencies which have begun to yield
operational synergies and cost savings. The transaction costs associated with
the merger (consisting primarily of investment banking and legal fees) and the
estimated expenses of integrating and restructuring the operations of the two
companies (consisting primarily of employee severance and relocation expenses
and costs of eliminating duplicative facilities) resulted in nonrecurring
charges to Sprint during 1993. The portion of such charges attributable to the
Company was $12.8 million, of which $10.3 million was recorded during the 1993
first quarter. Such nonrecurring charges reduced first quarter 1993 net income
by approximately $6.7 million.
Liquidity and Capital Resources
During the first three months of 1994, operating activities generated cash
of $28.9 million, an increase of $21.3 million compared to the same period in
1993. The increase in cash flows was primarily due to an increase in net income
adjusted for depreciation and deferred income taxes, as well as a decrease in
receivables.
Capital expenditures for the first three months of 1994 totaled $17.4
million, which was $2.1 million less than the comparable 1993 period. Dividends
paid this quarter were $7.8 million.
The Company retired in the first three months of 1994, $1,587,000 in long-
term debt with interest rates of 4.75 percent and 4.97 percent.
The capital structure at March 31, 1994 was 61.9 percent common equity and
38.1 percent long-term debt. This compares to the 1993 year-end capital
structure of 61.4% equity and 38.6% debt.
Results of Operations
Net income increased $8.2 million for the three months ended March 31, 1994
in comparison to the same period in 1993.
Local service revenues increased $2.7 million or 6.8 percent for the three
months ending March 31, 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 over
18,800 access lines for the twelve month period ended March 31, 1994. This
access line growth generated $2.2 million more in basic subscriber revenue.
Other local service revenues reflected a slight increase for the first three
months of 1994 compared to the same period in 1993.
Network access revenue increased $3.9 million or 11.9 percent for the first
three months of 1994 compared to the same period of 1993. Increased usage, as
indicated by an 8.9 percent growth in minutes of use for the three months ended
March 31, 1994, compared to the same period in 1993, accounted for this
increase.
<PAGE>
(9) Part I.
Item 2.
UNITED TELEPHONE COMPANY OF OHIO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations (continued)
Long-distance network revenue increased $1.6 million or 10.8 percent in the
first three months of 1994 compared to the same period in 1993. Increased
usage, as reflected by a 15.4 percent increase in originated long distance
messages, accounted for the increase.
Total operating expenses other than taxes for the first three months of
1994 decreased $4.5 million or 5.4 percent over the same period of 1993.
Decreased merger and integration costs combined with increases in plant expense,
corporate operations expense, and other operating expense contributed to this
decrease.
During the period ended March 31, 1994, plant expense, comprised primarily
of maintenance and other related expenses, increased $2.5 million or 8.5 percent
from the same period in 1993 primarily due to a generic software expense
increase of $2,241,000 resulting from special purchases from Northern Telcom of
software for central office switch conversions.
Corporate operations expense for the first three months of 1994 increased
$2.4 million, or 23.2 percent compared to the same period in 1993 primarily due
to adjustments to employee benefits liabilities, as well as increases in
external relations and information management expenses.
Other operating expenses for the first three months of 1994 decreased
$412,000 or 19.3 percent, when compared to the same period in 1993. This was due
primarily to decreases in cost of equipment sold resulting from decreased sales
volume.
Interest charges decreased $378,000 or 11.1 percent in the first quarter
of 1994 compared to the same period in 1993. This is reflecting the results of
the refinancing activity of our long-term debt during 1993.
Other Matters
Consistent with most local exchange carriers, the Company accounts for the
economic effects of regulation pursuant to Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." The application of SFAS No. 71 requires the accounting recognition
of the rate actions of regulators where appropriate, including the recognition
of depreciation based on estimated useful lives prescribed by regulatory
commissions rather than those which might be utilized by non-regulated
enterprises. The Company's management believes that the Company's operations
meet the criteria for the continued application of the provisions of
SFAS No, 71. With increasing competition and the changing nature of regulation
in the telecommunications industry, the ongoing applicability of SFAS No. 71
must, however, be constantly monitored and evaluated. Should the Company no
longer qualify for the application of the provisions of SFAS No. 71 at some
future date, the accounting impact could result in the recognition of a
material, extraordinary, non-cash charge.
<PAGE>
(10) Part II.
UNITED TELEPHONE COMPANY OF OHIO
Item 1 - Legal Proceedings
There were no reportable events during the quarter ended March 31, 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 5.42 and 1.27 for
the three months ended March 31, 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 $10,300,000 of nonrecurring charges related to the
Sprint/Centel merger, the ratio of earnings to fixed charges for the first
quarter of 1993 would have been 4.06.
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 three months ended
March 31, 1994.
<PAGE>
(11)
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)
By: /s/ Paul J. Weitzel
Paul J. Weitzel
Controller
Date: May 12, 1994
<PAGE>
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(12) EXHIBIT 12
UNITED TELEPHONE COMPANY OF OHIO
COMPUTATIONS OF RATIOS
OF EARNINGS TO FIXED CHARGES
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
------------------
1994 1993
------ ------
(Unaudited)
<S> <C> <C>
Net income $ 10,287 $ 2,123
Capitalized interest (206) (348)
Income tax provision (benefit) 3,718 (791)
--------- ---------
Subtotal 13,799 984
--------- ---------
Fixed charges:
Interest charges 3,020 3,398
Interest factor of operating rents 104 229
--------- ---------
Total fixed charges 3,124 3,627
--------- ---------
Earnings, as adjusted $ 16,923 $ 4,611
========= =========
Ratio of earnings to fixed charges 5.42 (1) 1.27
========= =========
(1) In the absence of the Company's recognition of $10,300,000 of nonrecurring charges
related to the Sprint/Centel merger, the ratio of earnings to fixed charges for the
first quarter of 1993 would have been 4.06.
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>
