UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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, 1994
OR
[ ] 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 1-6793
CENTRAL TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0533677
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 11315, Kansas City, Missouri 64112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 624-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Convertible Junior Preferred Stock, with a stated value of $10
per share Cumulative Preferred Stock
$2.50 Dividend Series with a stated value of $50 per share
$1.24 Dividend Series with a stated value of $25 per share
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]
The aggregate market value of voting stock held by non-affiliates
at March 15, 1995 was $7,142,325 (preferred stock at stated value).
The number of shares of common stock, no par value, outstanding at
March 15, 1995 was 2,250,000.
No documents incorporated by reference.
CENTRAL TELEPHONE COMPANY
SECURITIES AND EXCHANGE COMMISSION
Annual Report on Form 10-K
Part I
Item 1. Business
Central Telephone Company (Central Telephone) was incorporated
December 14, 1970, under the laws of Delaware and is the successor
by merger on December 1, 1971, to a Delaware corporation of the
same name incorporated May 25, 1944. Central Telephone and its
subsidiaries (the Company) provide local exchange telephone service
in portions of Nevada, North Carolina, Florida, Illinois and
Virginia. In addition, intra-LATA toll service and access by other
carriers to the Company's local exchange facilities are provided.
Central Telephone is a subsidiary of Centel Corporation (Centel)
which, in addition to its ownership of all the common stock of
Central Telephone, has a subsidiary which provides local exchange
telephone service in portions of Texas, subsidiaries which provide
cellular communications services in various markets, and various
other subsidiaries. On March 9, 1993, Centel became a wholly-owned
subsidiary of Sprint Corporation (Sprint), a holding company with
subsidiaries in a number of telecommunications markets.
As of December 31, 1994, the Company served more than 1.6 million
access lines. All of the access lines are served through central
offices equipped with digital switching. Over 60 percent of the
access lines served are located in the following seven communities:
Community Access
Lines
Las Vegas, Nevada 573,465
Tallahassee, Florida 174,208
Des Plaines, Illinois 76,825
Charlottesville, Virginia 63,879
Fort Walton Beach, Florida 41,288
Hickory, North Carolina 39,652
Park Ridge, Illinois 34,757
1,004,074
The Company is providing and continuing to introduce new services
made possible by the enhancement of its facilities to a more
intelligent network. A new signaling system (SS7) routes calls
more efficiently and makes possible Custom Local Area Signaling
Services (CLASS) features such as automatic callback, automatic
recall, calling line identification/block (Caller ID), and customer
initiated trace.
Revenues from communications services constituted 88 percent of
operating revenues in 1994, with the remainder derived largely from
directory operations, equipment sales and billing and collection
services. The Company recovers its costs of providing telephone
services, as well as a return on investment, through a combination
of local rates and access charges. Access charge tariffs are the
principal means by which the Company is reimbursed for services
provided to interexchange carriers.
AT&T Corp. (AT&T), as the dominant long distance telephone company,
is the Company's largest customer for access services. In 1994, 15
percent of the Company's operating revenues was derived from
services provided to AT&T. While AT&T is a significant customer,
the Company does not believe its revenues are dependent upon AT&T
as customers' demand for inter-LATA long distance telephone service
is not tied to any one long distance carrier. Historically, as the
market share of AT&T's long distance competitors increases, the
percent of revenues derived from network access services provided
to AT&T decreases.
The Company is subject to the jurisdiction of the Federal
Communications Commission (FCC) and the utilities commissions of
each of the states in which it operates. In each state in which
the commission exercises authority to grant certificates of public
convenience and necessity, the Company has been granted such
certificates of indefinite duration to provide local exchange
telephone service in its current service areas.
The potential for more direct competition is increasing for the
Company. Illinois law allows alternative telecommunications
providers to obtain certificates of local exchange telephone
service authority in direct competition with existing local
exchange carriers (LECs) if certain showings are made to the
satisfaction of the Illinois Commerce Commission. Both MFS
Intelenet of Illinois, Inc. and TC Systems - Illinois, Inc. have
been granted Certificates of Service Authority to provide local
exchange services to customers located in portions of the Chicago
metropolitan area served by Illinois Bell Telephone Company and
Central Telephone's Illinois subsidiary.
Many states, including most of the states in which the Company
offers local exchange telephone service, allow limited competitive
entry into the intra-LATA long distance service market. Illinois
permits the resale of local exchange telephone service, and North
Carolina allows customers to participate in the sharing and resale
of local exchange telephone service under shared tenant
arrangements.
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. Additionally,
to facilitate competition in providing access to interexchange
carriers and end users, the FCC mandated that all Tier 1 (over $100
million annual operating revenues) LECs allow virtual collocation
of Competitive Access Provider (CAP) equipment in LEC central
offices.
New technology, as well as changes in state law and regulatory
decisions, are permitting expansion of the types of services
available through the local exchange and increasing the number of
competitors. Other means of communication, such as private
network, satellite, cellular and cable systems, permit bypass of
the local exchange. Although the extent to which bypass has
occurred cannot be precisely determined, management believes it has
not had a material adverse effect on the Company's operating
revenues.
The extent and ultimate impact of competition for the Company and
other LECs will continue to depend, to a considerable degree, on
FCC and state regulatory 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 the U.S. Congress. While both major political parties
are predicting that legislation will be passed, such predictions
have proven to be inaccurate in the past.
Effective January 1, 1991, the FCC adopted a price caps regulatory
format for the Bell Operating Companies (the LECs owned by AT&T
prior to divestiture) and the LECs owned by GTE Corporation. Other
LECs could volunteer to become subject to price caps regulation.
Under price caps, prices for network 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 did not originally elect price caps, but as a
result of Sprint's merger with Centel, adopted price caps effective
July 1, 1993. Under the form of the plan adopted, the Company
generally has an opportunity to earn up to a 14.25 percent rate of
return on investment. Certain of the Company's operations have
committed to produce higher than industry average productivity
gains, and as a result have an opportunity to earn up to a 15.25
percent rate of return on investment. The FCC is conducting a
scheduled review of all aspects of the price caps plan and the FCC
is expected to implement changes in 1995. Without further action
by the FCC, the current price caps plan will expire in 1995 and
will be replaced by rate of return regulation. It is expected that
the FCC will act and that there will not be a return to rate of
return regulation.
In June 1993, Central Telephone Company's Illinois subsidiary filed
with the Illinois Commerce Commission a petition to adjust its
rates and charges to provide revenue recovery for the added costs
related to the adoption of Statement of Financial Accounting
Standards (SFAS) No. 106 and to recognize the phases of the FCC
mandated jurisdictional cost shifts from interstate to intrastate.
An order was issued in May 1994, increasing annual local service
revenues by approximately $6 million. This order was appealed to
the Illinois Appellate Court by petitioners representing consumers.
The subsidiary subsequently filed a rate structure modification
with the Illinois Commerce Commission to reduce annual revenues by
approximately $3 million, effective in October 1994. The appeal of
the initial order is still pending.
The Company's environmental compliance and remediation expenditures
are primarily related to the operation of standby power generators
for its telecommunications equipment. The expenditures arise in
connection with permits, standards compliance or occasional
remediation, which may be associated with generators, batteries or
fuel storage. The Company's expenditures relating to environmental
compliance and remediation have not been material to the financial
statements or to the operations of the Company and are not expected
to have any future material effects.
As of December 31, 1994, the Company had approximately 5,700
employees, of whom approximately 78 percent are members of unions.
During 1994, the Company had no material work stoppages caused by
labor controversies.
Item 2. Properties
The properties of the Company consist principally of land,
structures, facilities and equipment and are in good operating
condition. All of the central office buildings are owned, except
eight which are leased. Substantially all of the telephone
property, plant and equipment is subject to the liens of the
indentures securing indebtedness. As of December 31, 1994, cable
and wire facilities represented 50 percent of total net property,
plant and equipment; central office equipment, 36 percent; land and
buildings, 6 percent; and other assets, 8 percent.
The following table sets forth the gross property additions and
retirements or sales during each of the five years in the period
ended December 31, 1994 (in millions):
Gross Property
Retirements
Year Additions or Sales
1994 $ 204.8 $ 40.5
1993 163.4 60.1
1992 168.1 173.1
1991 162.2 254.8 [1]
1990 214.7 54.3
[1] Includes $213 million related to the sale of the Company's
operations in Iowa and Minnesota.
Item 3. Legal Proceedings
There are no material pending legal proceedings, and the Company is
a party only to ordinary routine litigation incidental to its
business.
Item 4. Submission of Matters to a Vote of Security Holders
On November 3, 1994, Central Telephone convened its Annual Meeting
of Shareholders. The meeting was adjourned to November 15, 1994.
At the reconvened meeting, the shareholders elected seven directors
to serve a one year term and approved a proposal to amend the
Certificate of Incorporation to decrease the authorized shares of
common stock and declare a 1-for-4 reverse common stock split. A
proposal to amend the Certificate of Incorporation to decrease the
authorized shares of Cumulative Preferred Stock and a proposal to
amend the Certificate of Incorporation to decrease the authorized
shares of Convertible Junior Preferred Stock were defeated because
the proposals did not receive a sufficient number of affirmative
votes of the Cumulative Preferred Stock and the Convertible Junior
Preferred Stock, respectively.
The following votes were cast for each of the following nominees
for Director or were withheld with respect to such nominees:
For Withheld
Stephen M. Bailor 9,121,922 1,262
Don A. Jensen 9,121,922 1,262
William E. McDonald 9,121,922 1,262
D. Wayne Peterson 9,121,922 1,262
M. Jeannine Strandjord 9,121,922 1,262
Alan J. Sykes 9,121,922 1,262
Dianne Ursick 9,121,922 1,262
The following votes were cast with respect to the proposal to amend
the Certificate of Incorporation to decrease the authorized shares
of common stock and declare a 1-for-4 reverse common stock split:
Total Common
Shares
For 9,117,057 9,000,000
Against 4,119 --
Abstain 1,758 --
Broker Non-vote 70 --
The following votes were cast with respect to the proposal to amend
the Certificate of Incorporation to decrease the authorized shares
of Cumulative Preferred Stock:
Cumulative
Total Preferred
Shares Stock
For 9,107,697 95,251
Against 2,480 358
Abstain 1,964 1,690
Broker Non-vote 10,863 7,662
The following votes were cast with respect to the proposal to amend
the Certificate of Incorporation to decrease the authorized shares
of Convertible Junior Preferred Stock:
Convertible
Junior
Total Preferred
Shares Stock
For 9,106,009 12,456
Against 3,983 1,956
Abstain 2,149 430
Broker Non-vote 10,863 3,201
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
All shares of common stock of Central Telephone, representing 92.4
percent of the aggregate outstanding capital stock of Central
Telephone, are owned by Centel, a wholly-owned subsidiary of
Sprint. There is no established public trading market for the
common stock.
One series of voting convertible junior preferred stock and four
series of voting cumulative preferred stock of Central Telephone
are outstanding. Since issuance, quarterly dividends have been
paid on all series of the preferred stock at the respective
prescribed rates.
The junior preferred stock is publicly held and each share is
convertible to 6.47325 shares of Sprint common stock. There were
33,168 shares outstanding as of December 31, 1994. During 1994,
there were 2,360 shares converted. There is no established public
trading market for this particular issue.
There is no active market for shares of any of the series of
cumulative preferred stock.
Transfer Agent for all Conversion Agent for the Junior
Preferred Stocks Preferred Stock
First Chicago Trust Company of First Chicago Trust Company of
New York, New York New York, New York
Item 6. Selected Financial Data
Selected consolidated financial data as of and for the years ended
December 31, is as follows (in millions):
1994 1993 1992 1991 1990
Operating revenues $ 924.3 $ 868.6 $ 786.6 $ 808.9 $ 831.7
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles [1], [2] 101.9 41.4 71.6 143.3 100.9
Total assets 1,834.8 1,723.6 1,724.1 1,665.9 1,743.8
Long-term debt and
redeemable preferred
stock (including
current maturities) 521.2 470.5 518.9 527.2 545.9
[1] During 1993, nonrecurring charges of $77 million were
recorded related to the Company's portion of the transaction
costs associated with Sprint's merger with Centel and the expenses
of integrating and restructuring the operations of the companies.
Such charges reduced consolidated 1993 income before extraordinary
item and cumulative effect of changes in accounting principles by
$48 million.
[2] During 1991, gains of $92 million were recognized related
to the sale of the Company's Iowa and Minnesota operations, which
increased consolidated 1991 income before extraordinary item and
cumulative effect of changes in accounting principles by $64
million.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net operating revenues increased 6 percent in 1994, following a 10
percent increase in 1993. Local service revenues, derived from
providing local exchange telephone service, increased 8 percent and
11 percent in 1994 and 1993, respectively. These increases reflect
continued growth in the number of access lines served, add-on
services, such as custom calling, and increased Centrex revenues.
Access lines grew 5.6 percent in 1994 and 5.0 percent in 1993.
Rate increases also contributed to increased local service revenue
in 1993. Permanent annual increases granted by the Florida Public
Service Commission and the Public Service Commission of Nevada,
effective January 1993, increased 1993 local service revenue by $10
million.
Toll and access service revenues are derived from interexchange
long distance carriers use of the local network to complete calls,
and the provision of long distance services within specified
geographical areas. These revenues increased $15 million in 1994
largely due to increased minutes of use. Toll and access revenues
increased $37 million in 1993 as a result of increased traffic
volumes and the recognition of a portion of the merger, integration
and restructuring costs associated with the Sprint/Centel merger
for regulatory purposes in certain jurisdictions, partially offset
by periodic reductions in network access rates charged.
Other revenues, including revenues from directory publishing fees,
billing and collection services, and sales of telecommunications
equipment, increased $8 million in 1994 following a $4 million
increase in 1993. The increases are generally due to growth in
equipment sales in both years.
Operating expenses increased $36 million and $45 million in 1994
and 1993, respectively, primarily reflecting increases in the costs
of providing services resulting from access line growth and
increases in the costs associated with the growth in equipment
sales. In addition, the increase in 1993 partially resulted from
increases in systems development costs incurred to enhance the
efficiency and capabilities of the billing processes.
The increase in operating expenses in 1993 also reflects the impact
of changes in accounting principles. As a result of a change in
accounting principle relating to certain software costs, the
Company recognized additional expense in 1993 of $7 million. In
addition, increased postretirement benefits costs of approximately
$7 million was recognized as a result of the adoption of Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (see
Notes 1 and 2 of Notes to Consolidated Financial Statements for
additional information).
Transaction costs associated with the Sprint/Centel merger
(consisting primarily of investment banking and legal fees) and the
estimated expenses of integrating and restructuring the operations
of the 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
$77 million, which reduced 1993 net income by approximately $48
million.
Depreciation and amortization expense increased $3 million and $7
million in 1994 and 1993, respectively, generally due to plant
additions.
Interest expense was $39 million, $44 million and $43 million in
1994, 1993 and 1992, respectively. The decrease in 1994 is due to
lower interest rates on debt refinanced in 1993, partially offset
by increases in average levels of debt outstanding and advances
from affiliates. The increase in 1993 was generally related to
increased advances from affiliates.
The Company's income tax provisions for 1994, 1993 and 1992
resulted in effective tax rates of 34 percent, 25 percent and 29
percent, respectively. See Note 3 of Notes to Consolidated
Financial Statements for information regarding the differences
that cause the effective income tax rates to vary from the
statutory federal income tax
rates.
Effective January 1, 1993, the Company conformed its accounting
practices for certain software costs with the prevalent practice in
the industry and with the accounting method used by Sprint's local
communications services division. The Company now expenses these
costs as incurred. The cumulative effect of this change in
accounting principle reduced 1993 net income by $22 million, net of
related income tax benefits of $13 million.
Regulatory Activities
In June 1993, the Company's Illinois subsidiary filed with the
Illinois Commerce Commission a petition to adjust its rates and
charges such that annual intrastate revenues would increase by
approximately $6 million. This rate proceeding was required to
provide revenue recovery for the added costs related to the
adoption of SFAS No. 106 and to recognize the phases of the FCC
mandated jurisdictional cost shifts from interstate to intrastate.
An order was issued in May 1994, which was subsequently appealed to
the Illinois Appellate Court by petitioners representing consumers.
The subsidiary subsequently filed a rate structure modification
with the Illinois Commerce Commission to reduce annual revenues by
approximately $3 million, effective October 1994. The appeal of
the initial order is still pending.
Liquidity and Capital Resources
Cash Flows-Operating Activities
Cash flows from operating activities, which are the Company's
primary source of liquidity, were $217 million, $227 million and
$211 million in 1994, 1993 and 1992, respectively. The decrease in
1994 net cash provided by operating activities primarily reflected
increased working capital requirements. The improvement in 1993
operating cash flows reflects improved operating results, partially
offset by expenditures of $26 million related to the merger,
integration and restructuring actions.
Cash Flows-Investing Activities
Capital expenditures, which represent the Company's most
significant investing activity, were $205 million, $163 million and
$168 million in 1994, 1993 and 1992, respectively. Capital
expenditures were made to accommodate access line growth and to
expand the capabilities for providing enhanced telecommunications
services.
Cash Flows-Financing Activities
The Company's financing activities provided $33 million of cash in
1994 and used cash of $65 million and $45 million in 1993 and 1992,
respectively. Increased dividend payments and capital expenditures
in 1994 were funded by operating cash flows and increased short-
term borrowings. Improved operating cash flows during 1993 and
1992 allowed the Company to fund capital expenditures internally
and reduce total debt outstanding.
During 1993 and 1992, a significant level of debt refinancing
occurred in order to take advantage of lower interest rates.
Accordingly, a majority of the proceeds from long-term borrowings
in 1993 and 1992 were used to finance the redemption prior to
scheduled maturities of $144 million and $148 million of debt,
respectively.
Financial Position, Liquidity and Capital Requirements
As of December 31, 1994, the Company's total capitalization
aggregated $1.22 billion, consisting of long-term debt (including
current maturities), advances from affiliates, redeemable preferred
stock, and common stock and other stockholders' equity. Debt
(including current maturities and advances from affiliates)
comprised 50 percent of total capitalization as of December 31,
1994, compared to 44 percent at year-end 1993.
During 1995, the Company anticipates funding estimated capital
expenditures of $215 million with cash flows from operating
activities. The Company expects its external cash requirements for
1995 to be approximately $30 million which is generally required to
pay scheduled long-term debt maturities and short-term borrowings.
The method of financing the cash requirements will depend on
prevailing market conditions during the year.
The Company, Sprint and Sprint Capital Corporation (a wholly-owned
subsidiary of Sprint) have a $1.1 billion revolving credit
agreement with a syndicate of domestic and international banks,
under which the Company can borrow up to an aggregate of $200
million. As of December 31, 1994, the Company had no borrowings
outstanding under this agreement. The revolving credit agreement
expires in July 1996 and, subject to the approval of the lenders,
may be extended for an additional year. Additionally, pursuant to
a shelf registration statement filed with the Securities and
Exchange Commission, up to $105 million of debt securities could be
offered for sale as of December 31, 1994.
Accounting Changes
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" (see Note 2 of
Notes to Consolidated Financial Statements for additional
information).
In 1993 the Company adopted SFAS No. 109, "Accounting for Income
Taxes", retroactive to January 1, 1992 (see Note 1 of Notes to
Consolidated Financial Statements for additional information).
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (see Note 2 of Notes to Consolidated Financial Statements
for additional information).
Effective January 1, 1993, the Company changed its method of accounting
for certain software costs (see Note 1 of Notes to Consolidated
Financial Statements for additional information).
Recent Accounting Developments
Consistent with most LECs, 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 and amortization based on estimated useful lives
prescribed by regulatory commissions rather than those which might
be utilized by non-regulated enterprises. Management believes the
Company's operations meet the criteria for the continued
application of SFAS No. 71. However, the Company operates in an
evolving environment in which the regulatory framework is changing
and the level and types of competition are increasing.
Accordingly, the Company constantly monitors and evaluates the
ongoing applicability of SFAS No. 71 by assessing the likelihood
that prices which provide for the recovery of specific costs can
continue to be charged to customers. In the event the Company
determines that its rate-regulated operations no longer qualify for
the application of the provisions of SFAS No. 71, the Company would
eliminate from its financial statements the effects of any actions
of regulators that had been recognized as assets and liabilities.
The resulting material noncash charge would be recorded as an
extraordinary item. See Note 7 of Notes to Consolidated Financial
Statements for information regarding the primary components and
estimated amounts of regulatory assets and liabilities as of
December 31, 1994.
Effects of Inflation
The effects of inflation on the Company's operations were not
significant during 1994, 1993 or 1992.
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Auditors - Ernst & Young LLP
Report of Independent Auditors - Arthur Andersen LLP
Consolidated Statements of Income and Retained Earnings for each of
the three years ended December 31, 1994
Consolidated Balance Sheets as of December 31, 1994 and 1993
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1994
Notes to Consolidated Financial Statements
Financial Statement Schedule for each of the three years ended
December 31, 1994:
VIII - Consolidated Valuation and Qualifying Accounts
Certain financial statement schedules are omitted because the
required information is not present, or because the information
required is included in the consolidated financial statements and
notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Central Telephone Company
We have audited the accompanying consolidated balance sheets of
Central Telephone Company (a wholly-owned subsidiary of Sprint
Corporation) as of December 31, 1994 and 1993, and the related
consolidated statements of income and retained earnings, and cash
flows for the years then ended. Our audit also included the 1994
and 1993 information in the financial statement schedule listed in
the Index to Financial Statements and Financial Statement Schedule.
These financial statements and the schedule are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our
audits. The financial statements and schedule of Central Telephone
Company for the year ended December 31, 1992, were audited by other
auditors whose report dated February 3, 1993, expressed an
unqualified opinion on those statements prior to restatement.
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 1994 and 1993 consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Central Telephone Company at
December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
As discussed in Notes 1 and 2 to the consolidated financial
statements, the Company changed its method of accounting for
postemployment benefits in 1994 and income taxes, software costs
and postretirement benefits in 1993.
We also audited the adjustments described in Note 1 that were
applied to restate the 1992 consolidated financial statements for
the change in the method of accounting for income taxes. In our
opinion, such adjustments are appropriate and have been properly
applied.
ERNST & YOUNG LLP
Kansas City, Missouri
January 31, 1995
REPORT OF INDEPENDENT AUDITORS
To the Shareowners of
Central Telephone Company
We have audited the consolidated statements of income, retained
earnings and cash flows of CENTRAL TELEPHONE COMPANY (a Delaware
corporation and wholly owned subsidiary of Centel Corporation) AND
SUBSIDIARIES for the year ended December 31, 1992, prior to the
restatement (and, therefore, are not presented herein) for the
change in the Company's method of accounting for income taxes as
described in Note 1 to the restated financial statements. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the consolidated financial statements (prior to restatement)
based on our audits.
We conducted our audit 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 misstatements. 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements (prior to restatement)
referred to above present fairly, in all material respects, the
results of operations and cash flows of Central Telephone Company
and Subsidiaries for the year ended December 31, 1992, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the
basic financial statements (prior to restatement) taken as a whole.
In connection with our audit, certain auditing procedures were
applied to the following schedule (prior to restatement) (and,
therefore, is not presented herein) which is required for purposes
of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements.
Schedule VIII - Consolidated Valuation and Qualifying Accounts
In our opinion, the information contained in the schedule (prior to
restatement) fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 3, 1993
CENTRAL TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
For the Years Ended
December 31,
1994 1993 1992
(In Millions)
OPERATING REVENUES
Local service $ 449.8 $ 416.9 $ 375.4
Toll and access service 360.5 345.8 309.1
Other 114.0 105.9 102.1
924.3 868.6 786.6
OPERATING EXPENSES
Operating expenses 594.5 558.9 514.4
Merger, integration and
restructuring costs -- 77.2 --
Depreciation and amortization 137.5 134.3 127.8
732.0 770.4 642.2
OPERATING INCOME 192.3 98.2 144.4
Interest expense (39.3) (43.6) (43.1)
Other income (expense), net 1.5 0.5 (0.6)
Income before income taxes,
extraordinary item and cumulative
effect of changes in accounting
principles 154.5 55.1 100.7
Income tax provision (52.6) (13.7) (29.1)
Income before extraordinary item
and cumulative effect of changes
in accounting principles 101.9 41.4 71.6
Extraordinary losses on early
extinguishments of debt, net -- (4.6) --
Cumulative effect of changes in
accounting principles, net (1.6) (21.6) (0.5)
NET INCOME 100.3 15.2 71.1
RETAINED EARNINGS AT BEGINNING OF
YEAR 244.9 257.3 216.7
Cash dividends
Common stock (93.0) (27.1) (30.0)
Preferred stock (0.5) (0.5) (0.5)
RETAINED EARNINGS AT END OF YEAR $ 251.7 $ 244.9 $ 257.3
PRO FORMA AMOUNTS ASSUMING THE
CHANGE IN ACCOUNTING FOR SOFTWARE
COSTS WAS RETROACTIVELY APPLIED
Income before extraordinary item $ 101.9 $ 41.4 $ 63.0
Net income $ 100.3 $ 36.8 $ 62.5
See accompanying Notes to Consolidated Financial Statements.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31,
1994 1993
(In Millions)
ASSETS
CURRENT ASSETS
Cash $ 19.2 $ 9.5
Receivables
Customers and other, net of allowance for
doubtful accounts of $0.5 million ($0.6
million in 1993) 95.4 84.0
Interexchange carriers 31.7 23.7
Affiliated companies 24.8 13.9
Advances to affiliates 38.2 3.3
Deferred income taxes 4.2 19.8
Prepaid expenses and other 15.8 13.2
Total current assets 229.3 167.4
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 119.2 116.4
Telephone network equipment and outside
plant 2,282.9 2,150.1
Other 136.3 138.8
Construction in progress 29.6 13.9
2,568.0 2,419.2
Less accumulated depreciation (1,026.6) (943.7)
1,541.4 1,475.5
DEFERRED CHARGES AND OTHER ASSETS 64.1 80.7
$ 1,834.8 $ 1,723.6
See accompanying Notes to Consolidated Financial Statements.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1994 1993
(In Millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of cash
balances $ 3.1 $ 17.5
Current maturities of long-term debt 4.3 22.7
Advances from affiliates 90.3 14.4
Accounts payable
Vendors and other 23.2 17.6
Interexchange carriers 35.7 32.2
Affiliated companies 41.2 32.2
Accrued merger, integration and
restructuring costs 17.7 24.3
Accrued interest 16.0 17.2
Advance billings 17.2 16.2
Accrued taxes 22.3 7.3
Accrued vacation pay 11.1 15.2
Other 25.5 35.4
Total current liabilities 307.6 252.2
LONG-TERM DEBT 510.2 440.9
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes and investment tax
credits 259.6 276.4
Postretirement and other benefit
obligations 64.8 71.6
Regulatory liability 52.1 59.1
Other 25.7 15.2
402.2 422.3
REDEEMABLE PREFERRED STOCK 6.7 6.9
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
Common stock, no par value, authorized,
issued and outstanding-2.3 million shares 354.4 354.4
Non-redeemable preferred stock 2.0 2.0
Retained earnings 251.7 244.9
608.1 601.3
$ 1,834.8 $ 1,723.6
See accompanying Notes to Consolidated Financial Statements.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
1994 1993 1992
(In Millions)
OPERATING ACTIVITIES
Net income $ 100.3 $ 15.2 $ 71.1
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 137.5 134.3 127.8
Deferred income taxes and investment
tax credits (6.9) (33.8) 2.1
Extraordinary losses on early
extinguishments of debt -- 7.6 --
Cumulative effect of changes in
accounting principles 1.6 21.6 0.5
Changes in operating assets and
liabilities
Receivables, net (27.0) (10.5) (2.5)
Other current assets (2.6) 0.3 (2.4)
Accounts payable and outstanding
checks in excess of cash balances (15.5) 0.9 12.3
Accrued expenses and other current
liabilities (5.8) 32.9 (14.1)
Noncurrent assets and liabilities,
net 35.4 55.6 16.2
Other, net 0.4 2.5 (0.4)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 217.4 226.6 210.6
INVESTING ACTIVITIES
Capital expenditures (204.8) (163.4) (168.1)
(Increase) decrease in advances to
affiliates (34.9) 3.7 19.5
Other, net (1.2) 0.6 (17.6)
NET CASH USED BY INVESTING ACTIVITIES (240.9) (159.1) (166.2)
FINANCING ACTIVITIES
Proceeds from long-term debt 0.7 118.6 157.1
Retirements of long-term debt (22.1) (147.5) (190.0)
Increase (decrease) in notes payable 72.0 (20.0) 20.0
Increase (decrease) in advances from
affiliates 75.9 14.4 (1.5)
Dividends paid (93.5) (27.6) (30.5)
Other, net 0.2 (3.2) (0.1)
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 33.2 (65.3) (45.0)
INCREASE (DECREASE) IN CASH 9.7 2.2 (0.6)
CASH AT BEGINNING OF YEAR 9.5 7.3 7.9
CASH AT END OF YEAR $ 19.2 $ 9.5 $ 7.3
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest $ 40.6 $ 39.4 $ 40.5
Cash paid for income taxes $ 52.1 $ 38.5 $ 39.1
See accompanying Notes to Consolidated Financial Statements.
CENTRAL TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Central
Telephone Company is presented to assist in understanding the
accompanying consolidated financial statements. The consolidated
financial statements and notes are representations of Central
Telephone Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform with
generally accepted accounting principles and reflect practices
appropriate to the industry in which Central Telephone Company
operates.
Basis of Consolidation and Presentation
The accompanying consolidated financial statements include the
accounts of Central Telephone Company and its wholly-owned
subsidiaries, Central Telephone Company of Florida, Central
Telephone Company of Virginia and Central Telephone Company of
Illinois (the Company). All significant intercompany transactions
have been eliminated. The Company is a wholly-owned subsidiary of
Centel Corporation (Centel); accordingly, earnings per share
information has been omitted. Centel became a wholly-owned
subsidiary of Sprint Corporation (Sprint) on March 9, 1993, in
connection with the Sprint/Centel merger (see Note 8). The Company
is engaged in the business of providing communications services,
principally local, network access and toll services in portions of
Florida, Illinois, Nevada, North Carolina and Virginia.
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 previously reported for prior periods have been
reclassified to conform to the current period presentation in the
accompanying consolidated financial statements. These
reclassifications had no effect on the results of operations or
shareholders' equity as previously reported.
Cash
As part of its cash management program, the Company utilizes
controlled disbursement banking arrangements. As of December 31,
1994 and 1993, outstanding checks in excess of cash balances of $3
million and $18 million, respectively, are included in current
liabilities. The Company had sufficient funds available to fund these
outstanding checks when they were presented for payment.
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.
Depreciation
The cost of property, plant and equipment is depreciated generally
on a straight-line basis over the estimated useful lives as
prescribed by regulatory commissions. Depreciation rate changes
granted by a state commission resulted in additional depreciation
expense in 1994 and 1993 of $1 million.
Income Taxes
Subsequent to the Sprint/Centel merger, operations of the Company
are included in the consolidated federal income tax returns of
Sprint. Prior to the merger, operations of the Company were
included in the consolidated federal income tax returns of Centel.
Federal income tax is calculated by the Company on the basis of its
filing a separate return.
In 1993, the Company retroactively 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. The new standard was adopted
retroactive to January 1, 1992; accordingly, the 1992 financial
statements were restated to reflect the change in 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 statement
purposes.
Investment tax credits (ITC) have been deferred and are being
amortized over the useful life of the related property.
Software Costs
Effective January 1, 1993, the Company changed its method of
accounting for certain software costs. The change was made to
conform the Company's accounting to the predominant practice among
local exchange carriers. Under the new method, such costs are
being expensed when incurred. The resulting nonrecurring, noncash
charge of $22 million, net of related income tax benefits of $13
million, is reflected as a change in accounting principle in the
1993 consolidated statement of income.
Interest Charged to Construction
In accordance with the Uniform System of Accounts, as prescribed by
the Federal Communications Commission (FCC), interest is
capitalized on those telephone plant construction projects for
which the estimated construction period exceeds one year. In
addition, the Public Service Commission of Nevada has ordered that
the Company's Nevada operations capitalize interest during
construction on short-term projects.
2. EMPLOYEE BENEFIT PLANS
Effective January 1, 1994, as a result of the Sprint/Centel merger,
corporate staff employees of Central Telephone Company and
employees of Central Telephone Company of Florida are considered
employees of the affiliates Sprint/United Management Company and
United Telephone Company of Florida, respectively. As a result,
the Company transferred the respective assets and liabilities
associated with the benefit plans for these active employees and
retirees to Sprint/United Management Company and United Telephone
Company of Florida. The Company reimbursed the affiliates $19
million for the net liabilities associated with these benefit plans.
Defined Benefit Pension Plans
Substantially all employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by Sprint.
Effective December 31, 1993, plans sponsored by Centel were merged
with the defined benefit pension plan sponsored by Sprint. For
participants of the plan represented by collective bargaining
agreements, 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, 1994, 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 costs and related weighted
average assumptions are as follows (in millions):
1994 1993 1992
Service cost -- benefits earned during
the period $ 6.2 $ 10.0 $ 8.8
Interest cost on projected benefit
obligation 17.4 20.8 18.7
Actual return on plan assets (0.1) (29.7) (18.3)
Net amortization and deferral (14.7) 5.8 (5.2)
Net pension cost $ 8.8 $ 6.9 $ 4.0
Discount rate 7.5% 8.0% 8.8%
Expected long-term rate of return on
plan assets 9.5% 9.5% 10.0%
Anticipated composite rate of future
increases in compensation 4.5% 5.5% 7.0%
In addition, the Company recognized pension curtailment losses of
$5 million during 1993 as a result of the integration and
restructuring actions (see Note 8).
The funded status and amounts recognized in the consolidated
balance sheets for the plan, as of December 31, are as follows (in
millions):
1994 1993
Actuarial present value of pension benefit
obligations
Vested benefit obligation $ (192.9) $ (262.8)
Accumulated benefit obligation $ (210.3) $ (304.4)
Projected benefit obligation $ (217.2) $ (317.4)
Plan assets at fair value 200.9 279.7
Projected benefit obligation in excess of
plan assets (16.3) (37.7)
Unrecognized net losses 8.0 39.4
Unrecognized prior service cost 47.9 59.5
Unamortized portion of transition asset (21.5) (31.9)
Prepaid pension cost $ 18.1 $ 29.3
The projected benefit obligations as of December 31, 1994 and 1993
were determined using a discount rate of 8.5 percent for 1994 and
7.5 percent for 1993, and anticipated composite rates of future
increases in compensation of 5.0 percent for 1994 and 4.5 percent
for 1993.
Defined Contribution Plans
Substantially all employees of the Company are covered by defined
contribution employee savings plans. Effective December 31, 1993,
the plan covering participants not represented by collective
bargaining agreements was merged with a defined contribution plan
sponsored by Sprint. Eligible employees may contribute a portion
of their compensation to the plans, and the Company makes matching
contributions up to specified levels. The Company's contributions
to the plans aggregated $6 million in 1994, and $10 million in 1993
and 1992.
Postretirement Benefits
The Company provides other postretirement benefits (principally
health care benefits) to certain retirees. Employees who retired
from the Company before specified dates became eligible for these
postretirement benefits at no cost to the retirees. Employees
retiring after specified dates are eligible for these benefits on a
shared cost basis. The Company funds the accrued costs as benefits
are paid.
Effective January 1, 1993, the Company modified its accrual method
of accounting for postretirement benefits provided to certain
retirees by adopting SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." As permitted by SFAS
No. 106, the Company elected to recognize its previously
unrecognized obligation for postretirement benefits as of January
1, 1993 by amortizing such obligation on a straight-line basis
generally over a period of 20 years, except in those jurisdictions
where shorter amortization periods have been authorized for
regulatory treatment.
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 net postretirement benefits cost are as
follows (in millions):
1994 1993
Service cost -- benefits earned during the
period $ 3.8 $ 4.5
Interest on accumulated benefits obligation 8.3 12.4
Net amortization and deferral 0.8 --
Amortization of transition obligation 3.4 5.9
Net postretirement benefits cost $ 16.3 $ 22.8
For measurement purposes, a weighted average 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 1 percent annual increase in the assumed health
care cost trend rate would have increased the 1994 net
postretirement benefits cost by approximately $4 million. The
discount rates for 1994 and 1993 were 7.5 percent and 8 percent,
respectively.
In addition, the Company recognized postretirement benefits
curtailment losses of $10 million during 1993 as a result of the
integration and restructuring actions (see Note 8).
The cost of providing health care and life insurance benefits to
retirees was $11 million in 1992. Such costs were being accrued
over the service periods of employees expected to receive the
benefits, with past service costs amortized over 30 years except in
those jurisdictions where shorter amortization periods had been
authorized for regulatory purposes.
The amounts recognized in the consolidated balance sheets as of
December 31 are as follows (in millions):
1994 1993
Accumulated postretirement benefits
obligation
Retirees $ 59.3 $ 79.0
Active plan participants -- fully eligible 16.8 34.3
Active plan participants -- other 57.9 64.2
134.0 177.5
Unrecognized net gains (losses) 3.0 (14.9)
Unrecognized transition obligation (73.1) (91.0)
Accrued postretirement benefits cost $ 63.9 $ 71.6
The accumulated benefits obligations as of December 31, 1994 and
1993 were determined using discount rates of 8.5 percent and 7.5
percent, respectively. An annual health care cost trend rate of 12
percent was assumed for 1995, gradually decreasing to 6 percent by
2001 and remaining constant thereafter. The effect of a 1 percent
annual increase in the assumed health care cost trend rate would
have increased the accumulated benefits obligation as of December
31, 1994 by approximately $16 million.
Postemployment Benefits
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." Upon
adoption, the Company recognized certain previously unrecorded
obligations for benefits being provided to former or inactive
employees and their dependents, after employment but before
retirement. Such postemployment benefits offered by the Company
include severance, disability, and workers' compensation benefits,
including the continuation of other benefits such as health care
and life insurance coverage. The resulting nonrecurring, noncash
charge of $2 million, net of related income tax benefits, is
reflected in the 1994 consolidated statement of income as a
cumulative effect of change in accounting principle. Adoption of
SFAS No. 112 had no significant impact on operating expenses in
1994.
3. INCOME TAXES
The components of the federal and state income tax provisions are
as follows (in millions):
1994 1993 1992
Current income tax provision
Federal $ 52.7 $ 42.7 $ 23.0
State 6.8 4.8 4.0
59.5 47.5 27.0
Deferred income tax provision
(benefit)
Federal (2.7) (26.8) 6.4
State 0.1 (2.5) 1.2
Amortization of deferred ITC (4.3) (4.5) (5.5)
(6.9) (33.8) 2.1
Total income tax provision $ 52.6 $ 13.7 $ 29.1
On August 10, 1993, the Revenue Reconciliation Act of 1993 was
enacted which, among other changes, raised the federal income tax
rate for corporations to 35 percent from 34 percent, retroactive to
January 1, 1993. 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.
The differences which cause the effective income tax rate to vary
from the statutory federal income tax rate of 35 percent in 1994
and 1993 and 34 percent in 1992 are as follows (in millions):
1994 1993 1992
Federal income tax provision at
the statutory rate $ 54.1 $ 19.3 $ 34.2
Less amortization of deferred ITC
Expected federal income tax (4.3) (4.5) (5.5)
provision after amortization of
deferred ITC 49.8 14.8 28.7
Effect of
Reversal of rate differentials (3.0) (3.2) (2.9)
State income tax, net of federal
income tax effect 4.5 1.5 3.4
Other, net 1.3 0.6 (0.1)
Income tax provision, including $ 52.6 $ 13.7 $ 29.1
ITC
Effective income tax rate 34% 25% 29%
During 1994 and 1993, income tax benefits allocated to other items
are as follows (in millions):
1994 1993
Cumulative effect of changes in accounting
principles $ 1.1 $ 12.5
Extraordinary losses on early
extinguishments of debt -- 3.0
Deferred income taxes are 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, 1994 and 1993,
along with the income tax effect of each, are as follows (in
millions):
1994 Deferred 1993 Deferred
Income Tax Income Tax
Assets Liabilities Assets Liabilities
Property, plant and
equipment $ -- $ 283.4 $ -- $ 272.1
Postretirement and
other benefits 24.0 -- 26.5 --
Expense accruals 8.4 -- 8.2 --
Regulatory liability 8.5 -- 2.6 --
Integration and
restructuring costs 7.2 -- 11.0 --
Other, net -- 5.5 -- 13.8
$ 48.1 $ 288.9 $ 48.3 $ 285.9
4. DEBT
Long-term debt as of December 31 is as follows (in millions):
1994 1993
Weighted Weighted
Amount Average Amount Average
Interest Interest
Rate Rate
Central Telephone
Company
First mortgage bonds,
due 1995 through 2021 $ 227.1 7.7% $ 245.2 7.6%
Capital leases -- -- 0.2 8.5%
Short-term borrowings
classified as long-term
debt 72.0 4.9% -- --
Subsidiaries
First mortgage bonds,
due 1995 through 2021 112.7 7.9% 115.5 7.9%
Notes, due 2002
through 2020 102.7 7.2% 102.7 7.2%
514.5 463.6
Less current maturities 4.3 22.7
Total long-term debt,
excluding current
maturities $ 510.2 $ 440.9
Long-term debt maturities during each of the next five years are as
follows (in millions):
1995 $ 4.3
1996 23.0
1997 24.0
1998 31.7
1999 26.8
The first mortgage bonds are secured by substantially all of the
Company's property, plant and equipment.
Provisions in certain debt agreements and charters restrict the
payment of dividends. Under the most restrictive of these
provisions, at any time the ratio of equity to total capitalization
falls below 50 percent, dividends are limited to a percentage, as
defined, of net income for the prior twelve month period. As a
result of this requirement, $242 million of retained earnings were
restricted from payment of dividends as of December 31, 1994. In
connection with dividend restrictions, $163 million of the related
subsidiaries' $170 million of retained earnings are restricted as
of December 31, 1994. The flow of cash in the form of advances
from the subsidiaries to Central Telephone is generally not
restricted.
Short-term borrowings of $72 million at December 31, 1994 are
classified as long-term debt due to the Company's intent and
ability to refinance such borrowings on a long-term basis.
The Company, Sprint and Sprint Capital Corporation (a wholly-owned
subsidiary of Sprint) have a $1.1 billion revolving credit
agreement with a syndicate of domestic and international banks,
under which the Company can borrow up to an aggregate of $200
million. The revolving credit agreement expires in July 1996 and,
subject to the approval of the lenders, may be extended for an
additional year. As of December 31, 1994, the Company did not have
any borrowings outstanding under the agreement.
The Company is in compliance with all restrictive or financial
covenants relating to its debt arrangements at December 31, 1994.
During 1993, the Company redeemed, prior to scheduled maturities,
$144 million of first mortgage bonds with interest rates ranging
from 7.5 percent to 8.6 percent. Except for amounts deferred as
allowed by the state commissions, the prepayment penalties incurred
in connection with the early extinguishments of debt and the write-
off of related debt issuance costs aggregated $5 million in 1993,
net of related income tax benefits, and are reflected as
extraordinary losses in the consolidated statement of income.
5. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments as of December 31, 1994 for all non-
cancelable operating leases, consisting principally of leases for
data processing equipment and real estate, are as follows (in
millions):
1995 $ 2.2
1996 2.1
1997 1.9
1998 0.2
1999 0.2
Thereafter 0.2
Gross rental expense aggregated $8 million in 1994, and $22 million
in 1993 and 1992.
6. RELATED PARTY TRANSACTIONS
Under agreements with Sprint and Centel, the Company reimburses
such affiliates for data processing services, other data related
costs and certain management costs which are incurred for the
Company's benefit. Total charges to the Company aggregated $83
million, $49 million and $45 million in 1994, 1993 and 1992,
respectively. The Company also has agreements with various Sprint
operating telephone companies in which it reimburses the affiliates
for certain management costs incurred for the Company's benefit.
Total charges to the Company were $90 million in 1994, and were not
significant in 1993 and 1992. The Company enters into cash advance
and borrowing transactions with such affiliates; generally, interest
on such transactions is computed based on the rate at which the Company
is able to obtain funds externally. Interest expense on advances from
such affiliates was $3 million and $1 million in 1994 and 1993,
respectively. Interest expense on advances from affiliates was not
significant in 1992. Interest income on advances to such
affiliates was $2 million in 1994 and $1 million in 1993 and 1992.
The Company purchases telecommunications equipment, construction
and maintenance equipment, materials and supplies from its
affiliate, North Supply. Total purchases for 1994 and 1993 were
$51 million and $13 million, respectively.
The Company provides various services to Sprint's long distance
communications services division, such as network access, billing
and collection services, operator services and the lease of network
facilities. The Company received $20 million in 1994 and 1993 for
these services. The Company paid Sprint's long distance
communications services division $1 million in 1994 and 1993 for
interexchange telecommunications services.
The CenDon partnership (CenDon), a general partnership between
Centel Directory Company, an affiliate, and The Reuben H. Donnelley
Corporation, pays the Company a fee for the right to publish
telephone directories in the Company's operating territories, for
the provision of listings and for billing and collections services
performed for CenDon by the Company. CenDon paid the Company $51
million in 1994 and $50 million in 1993 and 1992.
7. REGULATORY ACCOUNTING
Consistent with most local exchange carriers, the local
communications services division accounts for the economic effects
of regulation pursuant to SFAS No. 71. The application of SFAS No.
71 requires the accounting recognition of the rate actions of
regulators where appropriate, including the recognition of
depreciation and amortization based on estimated useful lives
prescribed by regulatory commissions rather than those that might
be utilized by non-regulated enterprises. The Company currently
believes its rate-regulated operations meet the criteria for the
continued application of the provisions of SFAS No. 71. However,
the Company operates in an evolving environment in which the
regulatory framework is changing and the level of competition is
increasing. Accordingly, the Company constantly monitors and
evaluates the ongoing applicability of SFAS No. 71 by assessing the
likelihood that prices which provide for the recovery of specific
costs can continue to be charged to customers.
The approximate amount of the Company's net regulatory assets at
December 31, 1994 was between $100 million and $300 million,
consisting primarily of property, plant and equipment partially
offset by deferred tax liabilities. The estimate for property,
plant and equipment was calculated based upon a projection of
useful remaining lives which are affected by the development of
competition, changes in regulation, and the expansion of broadband
services to be offered to customers.
8. MERGER, INTEGRATION AND RESTRUCTURING COSTS
Effective March 9, 1993, Sprint consummated its merger with Centel.
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
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 $77
million, which reduced 1993 net income by approximately $48
million.
9. 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, 1994 and 1993, of $515 million and $464 million, respectively,
and estimated fair values of $496 million and $511 million,
respectively. The fair values are estimated based on the present
value of estimated future cash flows using a discount rate
commensurate with the risks involved.
The Company has not invested in derivative financial instruments.
Major Customer Information
Operating revenues from AT&T Corp. resulting primarily from network
access, billing and collection services and the lease of network
facilities aggregated approximately $139 million, $137 million and
$150 million for 1994, 1993 and 1992, respectively.
10. SUPPLEMENTAL QUARTERLY INFORMATION - UNAUDITED
1994 Quarters Ended
March 31 June 30 September 30 December 31
(in millions)
Operating revenues $ 222.6 $ 223.9 $ 237.6 $ 240.2
Operating income 48.9 44.6 50.4 48.4
Income before
cumulative effect of
changes in
accounting principles 26.8 23.8 27.3 24.0
Net income 25.2 23.8 27.3 24.0
1993 Quarters Ended
March 31 June 30 September 30 December 31
(in millions)
Operating revenues $ 204.9 $ 215.4 $ 218.8 $ 229.5
Operating income
(loss)[1] (38.0) 48.0 47.3 40.9
Income (loss) before
extraordinary item
and cumulative
effect of changes in
accounting principles (28.9) 25.0 24.7 20.6
Net income (loss) (50.6) 25.0 20.9 19.9
[1] During the first, third and fourth quarters 1993, the
Company recognized nonrecurring charges of $68 million, $5
million and $4 million, respectively, associated with the
Sprint/Centel merger. Such charges reduced income before
extraordinary item and cumulative effect of changes in accounting
principles by $44 million, $2 million and $2 million,
respectively.
CENTRAL TELEPHONE COMPANY
SCHEDULE VIII -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994, 1993 and 1992
(In Millions)
Balance Additions Balance
beginning charged to Other end of
of year income deductions year
1994
Allowance for doubtful
accounts $0.6 $3.4 $ (3.5) $0.5
[1]
1993
Allowance for doubtful
accounts $0.5 $4.5 $ (4.4) $0.6
[1]
1992
Allowance for doubtful
accounts $0.6 $2.8 $ (2.9) $0.5
[1]
[1] Accounts charged off, net of collections.
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure
As reported in Central Telephone's Current Report on Form 8-K dated
April 28, 1993, following consummation of the Sprint/Centel merger,
Arthur Andersen & Co. was replaced with Ernst & Young as auditors
of the Company effective April 23, 1993.
Part III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to
those persons who currently serve as Director and/or Executive
Officer of the Registrant.
Officer Name Age
President and Chief Executive
Officer, Director D. Wayne Peterson (1) 59
Vice President-Chief Financial
Officer John P. Meyer (2) 44
Vice President-Controller Ralph J. Hodge (3) 42
Vice President-Treasurer,
Director M. Jeannine Strandjord (4) 49
Vice President, Director Stephen M. Bailor (5) 51
Vice President Peter W. Chehayl (6) 47
Vice President-Assistant
Secretary, Director Don A. Jensen (7) 59
Vice President A. Allan Kurtze (8) 50
Secretary Marion W. O'Neill (9) 54
President-North Carolina
Division, Director William E. McDonald (10) 52
President-Nevada Division,
Director Dianne Ursick (11) 45
Director Alan J. Sykes (12) 47
(1)Mr. Peterson has been President and Chief Executive Officer
since 1993. He has also served as President-Local
Telecommunications Division of Sprint since 1993. From 1980 to
1993, he served as President of Carolina Telephone and
Telegraph Company, a subsidiary of Sprint. Mr. Peterson has
been a Director since 1993.
(2)Mr. Meyer has been Vice President-Chief Financial Officer since
1993. Mr. Meyer has also served as Senior Vice President and
Controller of Sprint since 1993. He served as Vice President
and Controller of Centel from 1989 to 1993.
(3)Mr. Hodge has been Vice President-Controller since 1993. He
has also served as Assistant Vice President and Assistant
Controller of Sprint since 1993. He was Director of Earnings
Analysis and External Reporting for Sprint from 1992 to 1993.
He served as Treasurer of the companies comprising the Midwest
Group of local exchange companies of Sprint from 1991 to 1992
and Controller of the companies comprising the Midwest Group
from 1988 to 1991.
(4)Ms. Strandjord has been Vice President-Treasurer since 1993.
She has also served as Senior Vice President and Treasurer of
Sprint since 1990. She served as Vice President and Controller
of Sprint from 1986 to 1990. Ms. Strandjord has been a
Director since 1993.
(5)Mr. Bailor has been Vice President since 1993. Mr. Bailor
served as Vice President and Controller of Central Telephone
from 1989 to 1993. He has also served as Vice President-
Financial and Local Billing Services of Sprint's Finance
Division since 1993. Mr. Bailor has been a Director since
1993.
(6)Mr. Chehayl has been Vice President since 1993. He has also
served as Vice President and Assistant Treasurer of Sprint
since 1991. He was Vice President and Treasurer of Alert
Holdings, Inc., a provider of security alarm monitoring
services, during part of 1990, and from 1988 to 1990 he was
Treasurer of Firestone Tire & Rubber Company (now known as
Bridgestone/Firestone, Inc.), a manufacturer and retailer of
tires and a retailer of automotive services.
(7)Mr. Jensen has been Vice President-Assistant Secretary since
1993. He has also served as Vice President and Secretary of
Sprint since 1975. Mr. Jensen has been a Director since 1993.
(8)Mr. Kurtze has been Vice President since 1991. Mr. Kurtze has
also served as Senior Vice President of Sprint/United
Management Company, a subsidiary of Sprint, since 1993. He
served as Executive Vice President of Centel from 1991 to 1993
and as Senior Vice President-Planning and Technology of Centel
from 1986 to 1991.
(9)Ms. O'Neill has been Secretary since 1993. She has been an
attorney for Sprint for more than five years.
(10)Mr. McDonald has been President of the Company's North
Carolina Division since 1993. He has also served as President
of the other four companies comprising the Mid-Atlantic Group
of local exchange companies of Sprint since 1993. From 1988 to
1993, he served as President of the two companies comprising
the Eastern Group of local exchange companies of Sprint. Mr.
McDonald has been a Director since 1993.
(11)Ms. Ursick has been President of the Company's Nevada
Division since 1993. From 1989 to 1993, she was General
Regulatory Manager of the Company's Nevada Division. Ms.
Ursick has been a Director since 1993.
(12)Mr. Sykes, has been Vice President of Revenues of Sprint's
Local Telecommunications Division since 1987. Mr. Sykes has
been a Director since 1993.
Item 11. Executive Compensation
The following tables set forth the annual compensation of the Chief
Executive Officer of Central Telephone and the other executive
officers of Central Telephone who earned at least $100,000 in
salary and bonus for services to the Company during 1994 (the Named
Officers).
Summary Compensation Table
The following table reflects the cash and non-cash compensation for
the Named Officers. Annual salary and bonus amounts shown are
amounts attributed to the Company by Sprint. The individuals
designated as Named Officers also had responsibilities during 1994
relating to Sprint, Centel and other subsidiaries of Sprint and
Centel. Except for amounts shown in the "Salary" and "Bonus"
columns, the compensation stated reflects all compensation earned
by the individuals in all his or her capacities with Sprint,
Centel, and their subsidiaries.
Long-Term Compensation
Annual Compensation Awards Payouts
All
Other Restric Securities Other
Annual ted Underly- Compen-
Name and Compen- Stock ing LTIP sation
Principal Year Salary Bonus sation Award(s) Options/ Payouts ($)(1)
Position Year ($) ($) ($) ($) SARs ($)
(#)
D. Wayne 1994 67,412 69,714 36,426 (3) 0 94,970 107,633 35,780
Peterson(2)
Chief 1993 27,985 19,762 24,166 372,500 (4) 11,000 89,783 42,431
Executive
Officer
William E. 1994 64,220 41,321 44,357 (6) 0 14,000 66,048 79,659
McDonald(5)
President 1993 21,121 14,229 10,286 0 11,000 61,098 12,874
- North
Carolina
Division
Dianne 1994 162,598 117,419 0 0 5,000 0 4,519
Ursick(7)
President 1993 74,808 41,156 4,587 0 5,000 0 6,060
Nevada
Division
Notes:
(1) Consists of the following amounts for 1994: (a) $6,195,
$5,503 and $4,080 contributed on behalf of Mr. Peterson, Mr.
McDonald and Ms. Ursick, respectively, as company contributions
under Sprint's Retirement Savings Plan; (b) $439 in dividends on
Centel Employees' Stock Ownership Plan shares for Ms. Ursick; (c)
$28,935 and $65,911 in relocation expenses for Mr. Peterson and
Mr. McDonald, respectively; (d) $650 and $8,245 for Mr. Peterson
and Mr. McDonald, respectively, representing the portion of
interest credits on deferred compensation accounts under Sprint's
Executive Deferred Compensation Plan that are deemed by
Securities and Exchange Commission (SEC) rules to be at above-
market rates.
(2) Mr. Peterson first became an executive officer of Central
Telephone on September 28, 1993.
(3) Includes the cost of providing tax and financial services of
$9,625 and automobile allowance of $12,500.
(4) The value of the restricted stock shown is based on the
closing price of Sprint common stock on October 20, 1993, the
date of the grant. As of December 31, 1994, Mr. Peterson held
10,000 restricted shares valued at $276,250, based on the closing
price of Sprint common stock on December 31, 1994, equal to
$27.625. Mr. Peterson has the right to vote and receive
dividends on the restricted shares. Twenty-five percent of the
award vests on July 12, 1996, 25% on July 12, 1997, and 50% on
July 12, 1998.
(5) Mr. McDonald first became an executive officer of Central
Telephone on September 28, 1993.
(6) Includes the cost of providing club memberships of $12,110 and
automobile allowance of $12,000.
(7) Ms. Ursick first became an executive officer of Central
Telephone on March 9, 1993.
Option Grants
The following table summarizes options granted to the Named
Officers during 1994 for the purchase of shares of Sprint common
stock under Sprint's stock option plans. The option grants relate
to compensation earned by the Named Officers for all
responsibilities with Sprint, Centel and their subsidiaries. The
amounts shown as potential realizable values on these options are
based on arbitrarily assumed annualized rates of appreciation in
the price of Sprint common stock of five percent and ten percent
over the term of the options, as set forth in SEC rules. The Named
Officers will realize no gain on these options without an increase
in the price of Sprint common stock. No stock appreciation rights
were granted during 1994.
Option Grants in Last Fiscal Year
% of Potential
Total Realizable
Number of Options Exercise Value at Assumed
Securities Granted or Expira- Annual Rates of
Name Underlying to Base tion Stock Price
Options Employees Price Date Appreciation for
Granted in Fiscal ($/Sh) Option Term (2)
(#)(1) Year 0% 5% 10%
D. Wayne 30,000 1.1% $36.6875 02/11/04 $0 $692,177 $1,754,113
Peterson
30,000 1.1% 35.8125 07/12/04 0 675,669 1,712,277
1,892 0.1% 36.5625 04/23/95 0 4,093 8,220
3,525 0.1% 36.5625 04/22/96 0 14,450 29,735
4,041 0.1% 36.5625 04/13/97 0 24,551 51,750
4,895 0.2% 36.5625 02/12/98 0 38,425 82,720
3,512 0.1% 32.1875 02/12/98 0 19,721 41,721
10,444 0.4% 32.1875 02/17/99 0 78,665 170,754
6,661 0.2% 32.1875 02/15/01 0 77,212 176,594
William E. 14,000 0.5% 36.6875 02/11/04 0 323,016 818,586
McDonald
Dianne 5,000 0.2% 36.6875 02/11/04 0 115,363 292,352
Ursick
_____
Notes:
(1) The options shown for each Named Officer include both option
awards and "reload" option grants. The first two grants shown
for Mr. Peterson are option awards and the remaining grants are
reload grants. Each grant for Mr. McDonald and Ms. Ursick is an
option award.
Twenty-five percent of the first option grants shown for each
Named Officer became exercisable on February 11, 1995, and an
additional 25% will become exercisable on February 11 of each of
the three successive years. Twenty-five percent of the second
option grant shown for Mr. Peterson will become exercisable on
July 12, 1995, and an additional 25% will become exercisable on
July 12 of each of the three successive years. The option awards
each have a reload feature.
A reload option is an option granted when an optionee exercises
a stock option and makes payment of the purchase price using
shares of previously owned Sprint common stock. A reload option
is granted for the number of shares equal to the number of shares
utilized in payment of the purchase price and tax withholding, if
any. The option price for a reload option is equal to the market
price of Sprint common stock on the date of exercise of the
original option. The expiration date of a reload option is the
same as the expiration date of the option that was exercised. A
reload option becomes exercisable one year from the date the
original option was exercised, provided the shares acquired on
the exercise of the original option are held by the optionee for
at least six months. The reload feature is designed to encourage
early exercise of options, without foregoing the opportunity for
further appreciation, and to promote retention of the Sprint
common stock acquired.
(2) The dollar amounts in these columns are the result of
calculations at the five percent and ten percent rates set by the
SEC and are not intended to forecast future appreciation of
Sprint common stock.
Option Exercises and Fiscal Year-End Values
The following table summarizes the net value realized on the
exercise of options in 1994, and the value of the outstanding
options at December 31, 1994, for the Named Officers.
Aggregated Option Exercises in 1994 and Year-end Option Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at 12/31/94(2)
12/31/94
Shares Value Exercis- Unexer- Exercis- Unexer-
Name Acquired on Realized able cisable able cisable
Exercise(#) (1) ($) (#) (#) ($) ($)
D. Wayne 45,650 $704,188 18,050 111,470 $11,419 $14,953
Peterson
William E. 0 0 45,750 28,250 259,375 10,875
McDonald
Dianne 0 0 2,483 8,750 0 0
Ursick
__________
Notes:
(1) The value realized upon exercise of an option is the
difference between the fair market value of the shares of Sprint
common stock received upon the exercise, valued on the exercise
date, and the exercise price paid.
(2) The value of unexercised, in-the-money options is the
difference between the exercise price of the options and the fair
market value of Sprint common stock at December 31, 1994
($27.625).
Long-Term Incentive Plan Awards
The following table represents awards to the Named Officers
(relating to all their responsibilities with Sprint, Centel and
their subsidiaries) under Sprint's long-term incentive plan which,
subject to Sprint's right to amend the plan at any time prior to
the approval of payouts by the Organization and Compensation
Committee of Sprint's Board of Directors, can be earned by the
achievement of certain financial objectives over the three year
period ending December 31, 1996. Payouts of awards (which
represent items of compensation attributable to Sprint as a whole)
are tied to achieving certain non-financial business objectives for
the local Operating Telephone Company and specified levels of
performance criteria, based on certain financial objectives, within
the Long Distance Division (LDD), the Local Telecommunications
Division (LTD), the local Operating Telephone Company (OTC) and the
Cellular Division (CD). The relative weight given to the
performance criteria of these divisions in computing an executive's
payout is based on the executive's responsibilities with Sprint.
The portion of the payout applicable to the LDD is tied to
achieving specified levels of operating margin and net collectible
revenue growth. The portion of the payout applicable to the LTD
and the OTC is tied to achieving specified levels of earnings
before interest, taxes and depreciation as a percent of net
revenues, and return on assets. The portion of the payout
applicable to the CD is tied to achieving specified levels of
operating income and net collectible revenue. The target amount
will be earned if 100% of the targeted levels of such criteria is
achieved and an award payout will not be earned for the portion of
the payout applicable to the LDD criteria for performance below the
threshold.
The portion of the payout applicable to the OTC nonfinancial
business objectives is tied to efforts and results in the
regulatory area and in improvements in employee attitude survey
results.
The calculated payout, based on the achievement of the above
financial criteria, is adjusted (increased or decreased) by the
percent change in the market price of Sprint common stock as
determined by the change in the average of the high and low prices
on January 1, 1994 and December 31, 1996. If stock price increases
over the three-year performance period, the payout is adjusted by
the percentage increase in stock price. Conversely, if the stock
price decreases over the three-year performance period, the payout
is reduced by the percentage decrease in stock price. Upon
approval of the payouts by the Organization and Compensation
Committee, each payout will be paid as specified by the executive
in restricted or unrestricted shares of Sprint common stock, or
deferred under the Executive Deferred Compensation Plan.
Long-Term Incentive Plans - Awards in Last Fiscal Year
Estimated Future Payouts
under Non-Stock Price Based
Plans(1)
Performance
or
Other Period
Name Until
Maturation Threshold Target Maximum
or Payout ($) ($) ($)
D. Wayne 1/1/94-
Peterson 12/31/96 $27,278 $109,110 $186,305
William E. 1/1/94-
McDonald 12/31/96 17,044 68,175 109,966
Dianne Ursick 1/1/94-
12/31/96 10,100 40,000 65,165
_________
(1) Awards are based on a percentage of the Named
Officers' average base salary midpoint over the three-year
performance cycle which ends December 31, 1996. In calculating
the average base salary midpoint, the table assumes the base
salary midpoint for 1995 and 1996 will equal the 1994 base salary
midpoint. In addition, the estimated future payouts shown assume
that the average of the high and low price of Sprint common stock
on December 31, 1996 will be the same as it was on January 1,
1994.
Pension Plans
Under the Sprint Retirement Pension Plan, employees earn a benefit
equal to 1.5% of actual yearly salary and bonus. Prior to 1990,
however, the Sprint plan provided pension benefits based on an
employee's five highest consecutive years' compensation in the last
ten years before retirement. The benefit was determined by taking
1.2% of the average compensation over such five year period plus
.35% of such average compensation in excess of a certain amount
($23,400 in 1995) and multiplying the result by the individual's
years of credited service. Employees who retire before the year
2000 will have their pension benefit calculated under both the new
and old formulas and will receive the greater of the two benefits.
Because the benefit for Mr. Peterson and Mr. McDonald is expected
to be greater under the old formula, the table below reflects the
estimated annual pension benefit payable to an individual retiring
in 1994 at age 65 under the old formula. The amounts include all
prospective benefits under Sprint's plans, whether tax-qualified or
not. Mr. Peterson has an agreement with Sprint that if his
employment is discontinued after July 31, 1996, through no fault of
his own, he will not incur any penalty for early retirement.
The following table reflects the estimated annual pension
benefit payable to an individual retiring in 1995 at age 65. The
amounts include all prospective benefits under Sprint's plans,
whether tax-qualified or not.
Pension Plan Table
Remuneration Years of Service (2)
(1)
15 20 25 30 35
125,000 27,834 37,112 46,390 55,668 64,946
150,000 33,647 44,862 56,078 67,293 78,509
175,000 39,459 52,612 65,765 78,918 92,071
200,000 45,272 60,362 75,453 90,543 105,634
225,000 51,084 68,112 86,140 102,168 119,196
250,000 56,897 75,862 94,828 113,793 132,759
275,000 62,709 83,612 104,515 125,418 146,321
300,000 68,522 91,362 114,203 137,043 159,884
__________
(1) Compensation, for purposes of estimating a pension benefit,
includes salary and bonus as reflected under Annual Compensation
in the Summary Compensation Table. The calculation of benefits
under the pension plans generally is based upon average
compensation for the highest five consecutive years of the ten
years preceding retirement.
(2) These amounts are straight life annuity amounts and would
not be subject to reduction because of Social Security benefits.
For purposes of estimating a pension benefit, the years of
service credited are 37 years for Mr. Peterson and 27 years for
Mr. McDonald.
Ms. Ursick's pension benefit is determined primarily by a career
average formula and is not disclosed under the table above.
Assuming she continues in her current position with the Company at
current compensation levels and retires at age 65, her annual
pension benefit payable would be approximately $102,025. This
amount is a straight life annuity amount.
Employment Contracts
Mr. Peterson has signed a non-competition agreement with Sprint
which provides that he will not associate himself with a competitor
for an 18-month period following termination of employment. In
addition, the agreement provides that he will receive 18 months of
compensation and benefits following an involuntary termination of
employment.
Sprint has a Key Management Benefit Plan providing for a survivor
benefit in the event of the death of a participant or, in the
alternative, a supplemental retirement benefit. Under the plan, if
a participant dies prior to retirement, the participant's
beneficiary will receive ten annual payments each equal to 25% of
the participant's highest annual salary during the five-year period
immediately prior to the time of death. If a participant dies
after retiring or becoming permanently disabled, the participant's
beneficiary will receive a benefit equal to 300% (or a reduced
percentage if the participant retires before age 60) of the
participant's highest annual salary during the five-year period
immediately prior to the time of retirement or disability, payable
either in a lump sum or in installments at the election of the
participant. Prior to reaching age 60 and at least 13 months
before retirement, a participant may elect a supplemental
retirement benefit in lieu of all or a portion of the survivor
benefit. Messrs. Peterson and McDonald are participants in the
plan.
Directors' Compensation
All Directors of Central Telephone are employed by Sprint or its
subsidiaries and receive no compensation for serving as a Director
of Central Telephone.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information about the only known
beneficial owner of more than five percent of Central Telephone's
outstanding voting securities as of December 31, 1994.
Name and Address Title of Number Percent
of Beneficial Owner Class of Shares of Class
Centel Corporation Common Stock 2,250,000 100%
2330 Shawnee Mission
Parkway
Westwood, Kansas 66205
The following table sets forth information as of December 31, 1994,
with respect to the shares of Sprint common stock owned by each
current Director, each of the executive officers named in the
executive compensation tables, and by all Directors and executive
officers as a group. No Director or executive officer owns any
equity security of Central Telephone.
Sprint Common
Name of Individual or Stock
Identity of Group Beneficially
Owned (1)
Number of
Shares
Stephen M. Bailor 49,543 (2)(3)
Don A. Jensen 39,341 (2)
William E. McDonald 71,350 (2)
D. Wayne Peterson 87,343 (2)
M. Jeannine Strandjord 53,530 (2)
Alan J. Sykes 32,707 (2)(3)
Dianne Ursick 18,954 (2)
All Directors and executive officers
as a group (12 persons) 656,364 (2)(4)
___________
Notes:
(1) Unless otherwise noted, the persons for whom the information
is provided had sole voting and investment power over the
shares of stock shown as beneficially owned.
(2) Includes shares which may be acquired upon the exercise of
stock options exercisable on or within 60 days after December
31, 1994, under Sprint's stock option plans as follows:
39,117, 19,359, 53,250, 45,403, 40,250, 26,500 and 3,733
shares for Mr. Bailor, Mr. Jensen, Mr. McDonald, Mr. Peterson,
Ms. Strandjord, Mr. Sykes and Ms. Ursick, respectively, and
463,601 shares for all Directors and executive officers as a
group.
(3) Includes shares held by or for the benefit of family members
in which beneficial ownership has been disclaimed: 1,095
shares held by Mr. Bailor as custodian for his daughters, and
89 shares held by Mr. Sykes as custodian for his son.
(4) Represents less than 1% of class.
Item 13. Certain Relationships and Related Transactions
None.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. The consolidated financial statements of the Company and
supplementary financial information are listed in the Index
to Financial Statements and Financial Statement Schedule
included at Item 8 of this report.
2. The consolidated financial statement schedule of the
Company is listed in the Index to Financial Statements and
Financial Statement Schedule included at Item 8 of this
report.
3. The following exhibits are filed as part of this report.
3(a) Certificate of Incorporation of Central Telephone
Company, as amended.
3(b) Bylaws of Central Telephone Company, as amended
(Incorporated by reference to Exhibit No. 3(b) to Central
Telephone Company Annual Report on Form 10-K for the year
ended December 31, 1993).
4(a) Indenture dated June 1, 1944, between Central
Telephone Company and The First National Bank of Chicago
and Robert L. Grinnell, as Trustees (under which J. G.
Finley is successor to Robert L. Grinnell), as amended and
supplemented by indentures supplemental thereto through
and including a Thirty-third Supplemental Indenture dated
as of August 15, 1982 (Incorporated by reference to
Exhibit No. 4A to Central Telephone Company's Registration
Statement No. 33-10475 filed December 1, 1986).
4(b) Thirty-fourth Supplemental Indenture, dated as of
December 15, 1986 (Incorporated by reference to Exhibit
No. 4B to Central Telephone Company's Registration
Statement No. 33-35411 filed June 14, 1990).
4(c) Thirty-fifth Supplemental Indenture, dated as of
October 15, 1990 (Incorporated by reference to Central
Telephone Company's Current Report on Form 8-K dated
October 26, 1990).
4(d) Thirty-sixth Supplemental Indenture, dated as of March
15, 1991 (Incorporated by reference to Central Telephone
Company's Current Report on Form 8-K dated June 14, 1991).
4(e) Thirty-seventh Supplemental Indenture dated as of
August 15, 1992 (Incorporated by reference to Exhibit No.
4(e) to Central Telephone Company Annual Report on Form 10-
K for the year ended December 31, 1993).
21 Subsidiaries of the Registrant.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Central Telephone will furnish to the Securities and Exchange
Commission, upon request, a copy of the instruments, other
than the indentures listed as Exhibits 4(a), (b), (c), (d)
and (e), defining the rights of holders of its long-term debt
and the long-term debt of its subsidiaries. The total amount
of securities authorized under any of said other instruments
does not exceed 10 percent of the total assets of Central
Telephone and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
1994.
(c) Exhibits are listed in Item 14(a).
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.
CENTRAL TELEPHONE COMPANY
(Registrant)
By /s/ D. Wayne Peterson
D. Wayne Peterson
President and Chief
Executive Officer
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the
29th day of March, 1995.
/s/ D. Wayne Peterson
D. Wayne Peterson
President and Chief
Executive Officer
/s/ John P. Meyer
John P. Meyer
Vice President - Chief
Financial Officer
/s/ Ralph J. Hodge
Ralph J. Hodge
Vice President - Controller
SIGNATURES
CENTRAL TELEPHONE COMPANY
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the
29th day of March, 1995.
/s/ Stephen M. Bailor
Stephen M. Bailor, Director
/s/ Don A. Jensen
Don A. Jensen, Director
/s/ William E. McDonald
William E. McDonald, Director
/s/ D. Wayne Peterson
D. Wayne Peterson, Director
/s/ Alan J. Sykes
Alan J. Sykes, Director
/s/ M. Jeannine Strandjord
M. Jeannine Strandjord, Director
/s/ Dianne Ursick
Dianne Ursick, Director
EXHIBIT INDEX
EXHIBIT
NUMBER
3(a) Certificate of Incorporation of Central Telephone
Company, as amended.
3(b) Bylaws of Central Telephone Company, as amended
(Incorporated by reference to Exhibit No. 3(b) to Central
Telephone Company Annual Report on Form 10-K for the year
ended December 31, 1993).
4(a) Indenture dated June 1, 1944, between Central
Telephone Company and The First National Bank of Chicago
and Robert L. Grinnell, as Trustees (under which J. G.
Finley is successor to Robert L. Grinnell), as amended and
supplemented by indentures supplemental thereto through
and including a Thirty-third Supplemental Indenture dated
as of August 15, 1982 (Incorporated by reference to
Exhibit No. 4A to Central Telephone Company's Registration
Statement No. 33-10475 filed December 1, 1986).
4(b) Thirty-fourth Supplemental Indenture, dated as of
December 15, 1986 (Incorporated by reference to Exhibit
No. 4B to Central Telephone Company's Registration
Statement No. 33-35411 filed June 14, 1990).
4(c) Thirty-fifth Supplemental Indenture, dated as of
October 15, 1990 (Incorporated by reference to Central
Telephone Company's Current Report on Form 8-K dated
October 26, 1990).
4(d) Thirty-sixth Supplemental Indenture, dated as of March
15, 1991 (Incorporated by reference to Central Telephone
Company's Current Report on Form 8-K dated June 14, 1991).
4(e) Thirty-seventh Supplemental Indenture dated as of
August 15, 1992 (Incorporated by reference to Exhibit No.
4(e) to Central Telephone Company Annual Report on Form 10-
K for the year ended December 31, 1993).
21 Subsidiaries of the Registrant.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
<PAGE>
Exhibit 3(a)
CERTIFICATE OF INCORPORATION
of
CENTRAL TELEPHONE COMPANY
Original Certificate of Incorporation
Filed under the Name of New Centel, Inc.
December 14,1970
(Amended January 19, 1995)
First: The name of the corporation (which is
hereinafter referred to as the "Corporation") is
CENTRAL TELEPHONE COMPANY
Second: The principal office of the Corporation in the
State of Delaware is to be located at 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of
its resident agent therein is The Corporation Trust Company,
and the address of said resident agent is 1209 Orange
Street, in said City, County and State.
Third: The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
Fourth: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
three million two hundred seventy-two thousand one hundred
forty-three (3,272,143) shares, of which nine hundred
seventyone thousand one hundred ninety-nine (971,199) shares
shall be Cumulative Preferred Stock without par value, fifty
thousand nine hundred forty-four (50,944) shares shall be
Convertible Junior Preferred Stock without par value and two
million two hundred fifty thousand (2,250,000) shares shall
be Common Stock without par value.
A description of said different classes of stock and a
statement of the relative rights of the holders of stock of
such classes and the designations, preferences and
participating, voting, optional or other special rights and
the qualifications, limitations or restrictions thereof, of
the stock of such classes are as follows:
(1) The authorized shares of Cumulative Preferred
Stock
without par value shall be issued in series, as follows:
35,000 shares of the stated value of $50 per share
as Cumulative Preferred Stock, $2.50
Dividend Series,
141,225 shares of the stated value of $25 per share
as Cumulative Preferred Stock, $1.24
Dividend Series,
4,852 shares of the stated value of $100 per share
as Cumulative Preferred Stock, $5 Dividend Series,
25,200 shares of the stated value of $100 per share
as Cumulative Preferred Stock, $4.70
Dividend Series,
and the authorized shares of Cumulative Preferred Stock
without par value not so issued shall be issued in one or
more other series and with such designation for each such
series sufficient to distinguish the shares thereof from the
shares of all other series and classes as shall be stated
and expressed in the resolution or resolutions providing for
the issue of each such series adopted by the Board of
Directors. Authority is hereby expressly vested in the Board
of Directors to divide, and to provide for the issue from
time to time of, authorized and unissued Cumulative
Preferred Stock in series and to fix, prior to the issue of
any shares of such series, to the extent permitted by the
law of the State of Delaware, the voting powers,
designations, preferences and relative, participating,
optional or other rights not fixed herein or in an amendment
hereto of shares of such series. All shares of Cumulative
Preferred Stock of any one series shall be identical with
each other share of the same series in all respects, except
that if issued at different times such shares of the same
series may, as hereinafter in Section (2) in this Article
Fourth provided, differ as to the dates from which dividends
thereon shall be cumulative.
The shares of Cumulative Preferred Stock of all series
are for convenience of reference sometimes collectively
designated in this Certificate of Incorporation as
"Cumulative Preferred Stock."
All authorized shares of Convertible Junior Preferred
Stock shall be issued as one class of the stated value of
$10 per share.
(2) The holders of the Cumulative Preferred Stock of
each series shall be entitled to receive out of the net
profits or the net assets in excess of capital or any
surplus of the Corporation at the time legally available for
the payment of dividends under the law of the State of
Delaware, hereinafter in this Certificate of Incorporation
referred to as "net profits or surplus", but only as and
when declared by the Board of Directors, dividends on each
share at the rate fixed for such series herein or in the
resolution or resolutions providing for the issue of such
series adopted by the Board of Directors, and no more,
payable in cash. Such dividends shall be payable quarterly
on the last days of March, June, September and December in
each year. Such dividends may be declared and/or paid
before, during or after the period with respect to which
they are payable, but shall not be in arrears until after
the date as of which such dividends for any such period are
payable.
Such dividends on the Cumulative Preferred Stock shall
be deemed to accrue from day to day, whether or not earned
or declared, and shall commence to accrue on each share
thereof:
(a) from such date, if any, as may be fixed by
the Board of Directors prior to the issue thereof; or
(b) if no such date is fixed, then from the date
of issue thereof;
and shall be cumulative from the date on which such
dividends commence to accrue.
If cumulative dividends shall not have been fully paid
or declared and set apart for payment on each share of the
Cumulative Preferred Stock, the amount of the deficiency
(without interest) shall be fully paid, or dividends in such
amount declared and set apart for payment, before any
dividends are paid or declared or set apart for payment on
the Convertible Junior Preferred Stock or the Common Stock
and before any sum or sums shall be paid or set apart for
the purchase, retirement or redemption of any shares of any
class of stock of the Corporation. No dividend shall be
declared or paid on any share of Cumulative Preferred Stock
at any time when less than the full amount of cumulative
dividends which have accrued and become payable on all
shares of the Cumulative Preferred Stock have been paid or
declared and set apart for payment on such shares, unless
the same proportion of the amount of the dividends then
accrued and which have become payable on each share of the
Cumulative Preferred Stock is paid or declared and set apart
for payment on each such share.
Dividends on the Convertible Junior Preferred Stock
shall, in like manner as in respect of the Cumulative
Preferred Stock, be cumulative quarterly at the rate fixed
therefor herein, so that in case quarterly dividends at said
rate on each share of the Convertible Junior Preferred Stock
shall not have been fully paid or declared and set apart for
payment from the date dividends commence to accrue thereon,
as hereinafter provided, the amount of the deficiency
(without interest), together with the current quarterly
dividend, shall be fully paid, or dividends in such amount
declared and set apart for payment, before any dividends are
paid or declared or set apart for payment on the Common
Stock and before any sum or sums are paid or set apart for
the purchase, retirement or redemption of any shares of
Convertible Junior Preferred Stock or Common Stock. At any
time less than full cumulative dividends then accrued on
each share of Convertible Junior Preferred Stock are
declared and paid, no dividends shall be declared or paid on
any share of Convertible Junior Preferred Stock unless the
same proportionate amount of the dividends then accrued is
declared and paid on each share of the Convertible Junior
Preferred Stock.
Such dividends on the Convertible Junior Preferred
Stock shall be deemed to accrue from day to day, whether or
not earned or declared, and shall commence to accrue on each
share thereof
(a) from such date, if any, as may be fixed by
the Board of Directors prior to the issue thereof; or
(b) if no such date is fixed, then from the date
of issue thereof;
and shall be cumulative from the date on which such
dividends commence to accrue. Such dividends shall be
payable quarterly on the last days of March, June, September
and December in each year, if declared by the Board of
Directors. They may be declared and/or paid before, during
or after the period with respect to which they are payable,
but shall not be in arrears until after the date as of which
such dividends for any such period are payable.
(3) Out of any net profits or surplus of the
Corporation remaining after cumulative dividends upon the
Cumulative Preferred Stock for all past dividend periods,
together with the current quarterly dividends, shall have
been
fully paid or declared and set apart for payment and
provided that the Corporation shall not be in default in
respect of any sinking or purchase fund requirement
applicable in respect of any of the Cumulative Preferred
Stock, then and not otherwise and subject to such
limitations as may be provided herein for the benefit of any
series of Cumulative Preferred Stock or in the resolution or
resolutions of the Board of Directors providing for the
issue of any series of Cumulative Preferred Stock, (i) the
Board of Directors may declare and pay dividends upon the
Convertible Junior Preferred Stock of the Corporation, and
no holder of Cumulative Preferred Stock as such shall be
entitled to share in such dividends, and (ii) if cumulative
dividends as aforesaid upon the Convertible Junior Preferred
Stock for all past dividend periods, together with the
current quarterly dividend, shall have been fully paid or
declared and set apart for payment, and all other conditions
thereto hereinabove referred to have been met, then the
Board of Directors may declare and pay dividends or declare
and make distributions upon the Common Stock of the
Corporation, and no holder of Cumulative Preferred Stock or
of Convertible Junior Preferred Stock shall, as such, be
entitled to share in such dividends or distributions.
(4) The Cumulative Preferred Stock shall be preferred
over the Convertible Junior Preferred Stock and the
Convertible Junior Preferred Stock shall be preferred over
the Common Stock as to both earnings and assets, and in the
event of any liquidation, dissolution or winding up of the
Corporation or any reduction of its capital resulting in the
distribution of any of its assets to its stockholders, the
holders of the Cumulative Preferred Stock shall be entitled
to receive for each share thereof an amount equal to the
stated value thereof, if such liquidation, dissolution,
winding up or reduction of capital be involuntary, and the
current redemption price thereof payable upon redemption at
the option of the Corporation (unless any such shares shall
not be redeemable at the option of the Corporation, in which
case the stated value thereof shall be distributable in
respect of such shares) if such liquidation, dissolution,
winding up or reduction of capital be voluntary, together in
all cases with an amount equal to cumulative dividends
accrued and unpaid thereon to the date of distribution,
before any distribution of any assets shall be made to the
holders of the Convertible Junior Preferred Stock or the
Common Stock; and after payment to the holders of the
Cumulative Preferred Stock, as aforesaid, the holders of the
Convertible Junior Preferred Stock shall be entitled to
receive for each share thereof an amount equal to the
current redemption price thereof payable upon redemption at
the option of the Corporation whether such liquidation,
dissolution, winding up or reduction of capital be voluntary
or involuntary, together with an amount equal to cumulative
dividends accrued and unpaid thereon to the date of
distribution, before any distribution of any assets shall be
made to the holders of the Common Stock. After receipt in
the order and of the amounts to which they are respectively
entitled, as aforesaid, the holders of the Cumulative
Preferred Stock and the Convertible Junior Preferred Stock
shall be entitled to no further participation in such
distribution and the holders of the Common Stock shall be
entitled, to the exclusion of the holders of the Cumulative
Preferred Stock and the holders of the Convertible Junior
Preferred Stock, to share, ratably, in all assets of the
Corporation remaining. If, upon any such liquidation,
dissolution, winding up or reduction of its capital
resulting in the distribution of any of its assets to its
stockholders, the assets distributable among the holders of
the Cumulative
Preferred Stock shall be insufficient to permit the payment
in full to such holders of the full preferential amounts
aforesaid, then the entire assets of the Corporation to be
distributed shall be distributed among the holders of the
Cumulative Preferred Stock then outstanding, ratably, in
proportion to the full preferential amounts to which they
are respectively entitled; and, similarly, if after payment
to the holders of the Cumulative Preferred Stock, of the
full preferential amounts to which they are entitled, the
remaining assets shall be insufficient to permit the payment
in full to the holders of the Convertible Junior Preferred
Stock of the amounts to which they are entitled in priority
to the holders of the Common Stock, then said remaining
assets shall be distributed among the holders of the
Convertible Junior Preferred Stock then outstanding,
ratably, in proportion to the amounts to which they are
entitled in priority to the holders of the Common Stock.
Neither the consolidation nor merger of the Corporation
with or into any other corporation or corporations, nor the
sale of all or substantially all of the assets of the
Corporation, shall be deemed to be a liquidation,
dissolution or distribution of assets within the meaning of
any of the provisions of this Certificate of Incorporation;
provided, however, that this paragraph shall not be
construed to be a limitation of or a restriction upon the
preferential rights of the holders of the Cumulative
Preferred Stock or the holders of the Convertible Junior
Preferred Stock.
(5) Subject to the limitations imposed by Section (2)
of this Article Fourth and to any other limitations as to
any series provided herein or in the resolution or
resolutions providing for the issue of such series adopted
by the Board of Directors, at the election of the
Corporation, to be exercised by resolution of its Board of
Directors, the whole or any part of any one or more series
of the Cumulative Preferred Stock or the whole or any part
of the Convertible Junior Preferred Stock (but not sooner,
in the case of the Convertible Junior Preferred Stock, than
five years and thirty days after the initial issue of shares
of such class) may be redeemed at any time and from time to
time upon not less than thirty nor more than sixty days'
previous notice given in such manner as may be prescribed by
the by-laws or by resolution of the Board of Directors at
the price for the shares to be redeemed fixed herein or in
the resolution or resolutions providing for the issue of
such shares adopted by the Board of Directors and, in all
cases, plus an amount equal to all cumulative dividends
accrued and unpaid on such shares to the date of redemption,
but without interest on the amount so payable. In the event
that a part and not the whole of any series of the
Cumulative Preferred Stock or a part and not the whole of
the Convertible Junior Preferred Stock shall be redeemed,
the shares to be redeemed shall be determined in such
manner, either by lot or pro rata among the holders of
shares of such series or of the Convertible Junior Preferred
Stock, as the case may be or otherwise, as shall be
prescribed herein or, in the absence of such prescription,
by the by-laws or by resolution of the Board of Directors.
The Board of Directors shall have the authority to increase
or decrease the amount to be redeemed from any holder so as
to avoid fractional shares. From and after the date fixed
in any such notice as the date of redemption, unless default
shall be made by the Corporation in the payment of the
redemption price not later than the redemption date so
fixed, all dividends on the shares so called for redemption
shall cease to accumulate or accrue, and all rights of the
holders thereof as stockholders of the
Corporation, except the right to receive the redemption
price, including all cumulative dividends accrued and unpaid
to the date of redemption (without interest thereon as
aforesaid), shall cease and determine. At any time before
the redemption date the Corporation may deposit in trust the
funds necessary for such redemption with a bank or trust
company, to be designated in the notice of such redemption,
doing business in the City of Chicago and State of Illinois
or in the City and State of New York, and having capital,
surplus and undivided profits aggregating at least
$5,000,000. In the event such deposit is made so that the
deposited funds shall be forthwith available to the holders
of the shares to be redeemed upon surrender of the
certificates evidencing such shares, then, upon the giving
of the notice of such redemption, as herein above provided,
or upon the earlier delivery to such bank or trust company
of irrevocable authorization and direction so to give such
notice, all shares with respect to the redemption of which
such deposit shall have been made and the giving of such
notice effected or authorization therefor given shall,
whether or not the certificates for such shares shall be
surrendered for cancellation, be deemed to be no longer
outstanding for any purpose and all rights with respect to
such shares shall thereupon cease and terminate, except only
the right of the holders of the certificates for such shares
(i) to receive, out of the funds so deposited in trust, from
and after the time of such deposit, the amount payable upon
the redemption thereof, without interest, or (ii) to
exercise any privilege of conversion which shall not
theretofore have terminated. Any funds so deposited, which
shall not be required for the payment of the redemption
price of such shares by reason of the exercise of any right
of conversion subsequent to the date of such deposit shall
be paid over to the Corporation forthwith. At the
expiration of six years after the redemption date, any such
funds then remaining on deposit with such bank or trust
company shall be paid over to the Corporation, free of
trust, and thereafter the holders of the certificates for
such shares shall have no claims against such bank or trust
company, but only claims as unsecured creditors against the
Corporation for amounts equal to their pro rata portion of
the funds so paid over, without interest. Any interest or
other accretions to funds deposited with such bank or trust
company shall belong to the Corporation.
The provisions of this Section (5) with respect to the
method and effect of redemption shall be applicable to the
redemption of shares pursuant to any sinking fund created
for any series of the Cumulative Preferred Stock as well as
to the optional redemption of shares of Cumulative Preferred
Stock or Convertible Junior Preferred Stock, except to the
extent, if any, that the terms of such sinking fund, as
fixed herein or in the resolution or resolutions providing
for the issue of such series adopted by the Board of
Directors, shall expressly otherwise provide. Subject to
the provisions hereof, the Board of Directors shall have
power to prescribe from time to time the manner in which
Cumulative Preferred Stock or Convertible Junior Preferred
Stock shall be redeemed.
(6) Subject to the limitations imposed by Section (2)
of this Article Fourth, nothing herein contained shall limit
the right of the Corporation to purchase any shares of the
Cumulative Preferred Stock or any shares of the Convertible
Junior Preferred Stock for any legal purpose.
(7) So long as any shares of the Cumulative Preferred
Stock shall be outstanding:
(a) the Corporation shall not, without the
affirmative vote or the written consent of the holders
of two-thirds of all shares of the Cumulative Preferred
Stock, as one class, outstanding at the time or as of a
record date fixed by the Board of Directors or by the
bylaws, create or authorize any stock of any class
which shall be prior in rank to such shares of the
Cumulative Preferred Stock with respect to the payment
of dividends or the distribution of assets, or amend
this Certificate of Incorporation so as adversely to
affect any of the preferences or other rights of the
holders of the Cumulative Preferred Stock; provided,
that if any such amendment would adversely affect any
of the preferences or other rights of the holders of
one or more, but less than all, of the respective
series of the Cumulative Preferred Stock, the holders
of two-thirds or more of the shares of the Cumulative
Preferred Stock outstanding and voting affirmatively
for or consenting to such amendment, as required, shall
include the holders of at least twothirds of the shares
of each such series so adversely affected; and
(b) the Corporation shall not, without the
affirmative vote or the written consent of the holders
of a majority of the shares of the Cumulative Preferred
Stock, as one class, outstanding at the time or as of a
record date fixed by the Board of Directors or by the
bylaws, (i) create or authorize any stock of any class
ranking on a parity with the Cumulative Preferred Stock
with respect to the payment of dividends or the
distribution of assets or increase the number of
authorized shares of the Cumulative Preferred Stock, or
(ii) dissolve, liquidate or wind up the Corporation or
its affairs or consolidate with or merge into any other
corporation under applicable statutory procedure or
make any sale, transfer, lease or exchange of the
property and business of the Corporation as or
substantially as an entirety, but this provision shall
not be applicable to a mortgage or pledge.
(8) If no dividends or less than full cumulative
dividends shall have been paid for four quarterly dividend
periods, whether or not such periods are consecutive, on any
of the Cumulative Preferred Stock or if the Corporation
shall fail in any year to fulfill the requirements of the
sinking fund or purchase fund with respect to any series of
the Cumulative Preferred Stock entitled to the benefit of a
sinking fund or purchase fund and the terms of such sinking
fund or purchase fund shall so provide, the holders of the
Cumulative Preferred Stock, as a class, shall, at all
meetings held for the election of directors until full
cumulative dividends for all past quarterly dividend periods
and the current quarterly dividend period on all of the
Cumulative Preferred Stock shall have been paid or declared
and set apart for payment and until all such sinking fund or
purchase fund requirements which have matured shall have
been fulfilled, possess voting power to the exclusion of the
holders of the Convertible Junior Preferred Stock and the
Common Stock to elect the smallest number constituting a
majority of the directors to be elected and the holders of
the Convertible Junior Preferred Stock and the Common Stock,
as if they were one class, shall possess voting power to the
exclusion of the holders of the Cumulative Preferred Stock
to elect the largest number constituting a minority of the
directors then to be elected. Whenever the holders of
shares of the Cumulative Preferred Stock shall acquire the
right to elect a majority of
the directors, a special meeting of the stockholders shall
be called by or on the order of a majority of the directors
or by or on the written request of any holder of shares of
the Cumulative Preferred Stock then outstanding who has held
his stock for a period of not less than six months, for the
purpose of electing a new Board of Directors, such meeting
to be held on not less than fifteen nor more than thirty
days' notice, provided, however, that no such special
meeting shall be called if an annual meeting of the
stockholders is to be held within sixty days after the
holders of shares of the Cumulative Preferred Stock shall
have become entitled to exercise such right of election.
The terms of office of all persons who may be directors of
the Corporation at the time shall terminate upon any
election of directors by the holders of shares of the
Cumulative Preferred Stock in accordance with the foregoing
provisions, regardless of whether or not the holders of
shares of the Convertible Junior Preferred Stock and the
Common Stock shall have elected the remaining directors of
the Corporation; and unless and until such remaining
directors of the Corporation shall be elected by the holders
of shares of the Convertible Junior Preferred Stock and the
Common Stock, the number of directors, for the purpose of
determining the existence of a quorum or the validity of any
action taken, shall, notwithstanding any other provision
hereof, be deemed to be the number of directors elected by
the holders of shares of the Cumulative Preferred Stock.
Whenever the right of the holders of shares of the
Cumulative Preferred Stock to elect a majority of the
directors shall terminate, a special meeting of the
stockholders shall be called by or on the order of a
majority of the directors or by or on the written request of
any holder of shares of the Convertible Junior Preferred
Stock or the Common Stock then outstanding who has held his
stock for a period of not less than six months, for the
purpose of electing a new Board of Directors, such meeting
to be held on not less than fifteen nor more than thirty
days' notice, provided, however, that no such special
meeting shall be called if an annual meeting of the
stockholders is to be held within sixty days after the right
of the holders of shares of the Cumulative Preferred Stock
to elect a majority of the directors shall terminate. The
terms of office of all persons who may be directors of the
Corporation at the time shall terminate upon the election of
directors by the holders of shares of the Cumulative
Preferred Stock, the Convertible Junior Preferred Stock and
the Common Stock with equal voting rights per share in
respect of all the directors then to be elected. If, during
any interval between meetings of stockholders for the
election of directors while the holders of shares of the
Cumulative Preferred Stock shall be entitled to elect a
majority of the directors, the number of directors in office
who have been elected by the holders of shares of the
Cumulative Preferred Stock or the Convertible Junior
Preferred Stock and the Common Stock, as the case may be,
shall become less than the total number of directors which
the holders of shares of such class are entitled to elect,
whether by reason of the resignation, death or removal of
any director or directors, or an increase in the total
number of directors, the vacancy or vacancies shall be
filled by a majority vote of the directors then in office
who were elected by the holders of the shares of such class
or whose predecessors were so elected. Any director may be
removed from office by vote of the holders of a majority of
the shares of the class of stock voted for his election or
for his predecessor in cases where such director was elected
by other directors. A special meeting of the holders of
shares of either class may be called by a majority of the
directors then in office who were elected by the holders of
the shares of
such class or whose predecessors were so elected, for the
purpose of removing a director in accordance with the
foregoing provisions and shall be called by or on the
written request of the holders of not less than 15% of the
outstanding shares of the class entitled to vote with
respect to the removal of any such director, such meeting to
be held on not less than fifteen nor more than thirty days'
notice. At any meeting of stockholders when the holders of
shares of the Cumulative Preferred Stock shall be entitled
to vote for the election of a majority of the directors, the
absence of a quorum of the holders of shares of the
Cumulative Preferred Stock or of the holders of shares of
the Convertible Junior Preferred Stock and the Common Stock
shall not prevent an election at any such meeting or
adjournment thereof of directors by the other such class if
the necessary quorum of the holders of shares of such other
class is present in person or by proxy at such meeting. For
the purposes of such election, a quorum shall consist of
holders of not less than a majority of the issued and
outstanding shares of the class. In the absence of a quorum
of the holders of shares of either such class, a majority of
those holders of shares of such class who are present in
person or by proxy shall have power to adjourn the election
of the directors to be elected by such class from time to
time without notice other than announcement at the meeting
until the holders of the requisite number of shares of such
class shall be present in person or by proxy.
(9) Except as otherwise specifically provided in this
Article Fourth or as may be provided by the Board of
Directors in respect of any series of Cumulative Preferred
Stock prior to the issue of any shares of such series
pursuant to the authority vested in the Board of Directors
by Section (1) of this Article Fourth or as required by law,
each share of each class of stock of the Corporation shall
represent one vote which may be voted upon all measures,
including the election of directors. The election of
directors need not be by ballot unless so provided in the by-
laws. Except as otherwise expressly provided in this
Article Fourth or by law, at all meetings of stockholders a
quorum for the transaction of any business shall consist of
the holders of such number of shares, represented in person
or by proxy, as shall be entitled to cast a majority of the
votes which might be cast by the holders of all of the
shares of the Corporation issued, outstanding and entitled
to be voted upon such business and, except as otherwise
expressly provided in this Article Fourth or by law, the
affirmative vote of a majority of such quorum shall suffice
to adopt any measure.
(10) Additional terms of the respective series of
Cumulative Preferred Stock and of the Convertible Junior
Preferred Stock are:
A.
THE CUMULATIVE PREFERRED STOCK, $2.50 DIVIDEND SERIES
1. The dividend rate on the Cumulative Preferred
Stock, $2.50 Dividend Series, shall be $2.50 per annum.
2. The price payable upon redemption at the option of
the Corporation of Cumulative Preferred Stock, $2.50
Dividend Series, shall be Fifty Two Dollars and Fifty Cents
($52.50) per share.
B.
THE CUMULATIVE PREFERRED STOCK, $1.24 DIVIDEND SERIES
1. The dividend rate on the Cumulative Preferred
Stock, $1.24 Dividend Series, shall be $1.24 per annum.
2. The price payable upon redemption at the option of
the Corporation of Cumulative Preferred Stock, $1.24
Dividend Series, shall be Twenty-six Dollars ($26) per share
to and including September 30, 1972, and Twenty-five Dollars
and Fifty Cents ($25.50) per share thereafter.
3. At least twenty (20) and not more than sixty (60)
days prior to October 31 of each year the Corporation shall
mail to each holder of shares of Cumulative Preferred Stock,
$1.24 Dividend Series, of record as of a date not more than
fifty (50) days preceding such mailing, at the address of
such holder then appearing on the books of the Corporation,
a notice in writing of its intention to accept tenders of
not more than thirty-seven hundred fifty (3,750) shares of
Cumulative Preferred Stock, $1.24 Dividend Series, tendered
to the Corporation on or before such October 31 for purchase
at a price per share not exceeding Twenty Five Dollars
($25.00) plus accrued dividends (the "maximum purchase
price"). Not later than October 31 of each year the
Corporation shall, out of any funds from which dividends
might lawfully be paid, deposit with a bank or trust company
doing business in the City of Chicago, State of Illinois,
selected by the Corporation and designated in the aforesaid
notice as the place to which tenders shall be delivered, a
sum equal to the maximum purchase price of thirty-seven
hundred fifty (3,750) shares of Cumulative Preferred Stock,
$1.24 Dividend Series.
Tenders shall be accepted on October 31 in the order of
the prices at which they are made; those shares tendered at
the lowest price to be the first purchased. Among tenders
at the same price the Corporation may make selection of the
shares which it will purchase so that as nearly as may be
tenders may be accepted in their entirety rather than
partially. The Corporation may make partial acceptance of
one or more tenders so that the total number of shares
purchased will not exceed thirty-seven hundred fifty
(3,750). If the Corporation shall purchase less than all of
the shares represented by any certificate, a new certificate
for the shares not purchased will be issued to the holder of
such shares.
If after notice has been given and deposit of funds
made as aforesaid, less than thirty-seven hundred fifty
(3,750) shares of Cumulative Preferred Stock, $1.24 Dividend
Series, shall be tendered for purchase at not more than the
maximum purchase price, the purchase of such number of
shares as shall have been so tendered at not more than the
maximum purchase price shall constitute compliance by the
Corporation for such year with the provisions hereof. Any
funds deposited for the purpose of compliance with the
provisions hereof and not required for such purpose shall be
returned to the Corporation upon such compliance.
Shares will not be deemed tendered unless and until the
certificate or certificates therefor have been received by
the bank or trust company designated for the purpose nor
unless, if payment upon acceptance of tender thereof is to
be made other than to the record holder, such certificate or
certificates have been duly endorsed or are otherwise in
proper form for transfer, with all transfer taxes in respect
thereof paid or provided for.
Default by the Corporation in complying with the
provisions of this paragraph 3 shall preclude the
declaration or the payment of dividends or the making of any
other distribution whatsoever upon the Convertible Junior
Preferred Stock and the Common Stock of the Corporation
until the Corporation shall have cured such default by
soliciting tenders and depositing the funds necessary to the
purchase in the manner and upon the terms herein provided of
such number of shares of Cumulative Preferred Stock, $1.24
Dividend Series, as shall equal the difference between (a)
the product of thirty-seven hundred fifty (3,750) multiplied
by the number of full twelve month periods elapsed since
October 31, 1970; and (b) the product of thirty-seven
hundred fifty (3,750) multiplied by the number of full
twelve month periods since October 31, 1970 for which the
Corporation has complied with the provisions of this
paragraph 3; but neither the holder of any shares of
Cumulative Preferred Stock, $1.24 Dividend Series, as such,
nor the holders of all shares of Cumulative Preferred Stock,
$1.24 Dividend Series, as a class, shall be entitled to
apply to any court of law or equity for a money judgment or
a decree of specific performance or similar relief or remedy
on account of any such default other than to restrain the
Corporation from the declaration or payment of dividends or
the making of any distribution upon the Convertible Junior
Preferred Stock and the Common Stock of the Corporation
until such default shall have been cured.
4. Shares of Cumulative Preferred Stock, $1.24
Dividend Series, redeemed, purchased upon tender, or
otherwise reacquired by the Corporation shall be canceled
and upon such cancellation shall be deemed to be authorized
and unissued shares of Cumulative Preferred Stock, but shall
not be reissued as shares of the same or any theretofore
outstanding series.
5. So long as any shares of Cumulative Preferred
Stock, $1.24 Dividend Series, shall be outstanding (and
unless the vote or assent of a greater number of shares of
such series shall then be required by law), without the
assent, given by vote at a meeting thereof called for the
purpose, of the holders of a majority in interest of the
outstanding shares of Cumulative Preferred Stock, $1.24
Dividend Series, the Corporation shall not issue any shares
of "preferred stock" or issue any "funded debt" unless the
"net earnings" of the Corporation for 12 consecutive
calendar months during the 15 months immediately preceding
the month in which such issue is to be made are at least one
and one-half (1-1/2) times the aggregate of the annual
interest charges on all indebtedness for borrowed money and
the annual dividend requirements on all preferred stock of
the Corporation to be outstanding immediately after the
proposed issue.
As used in this paragraph 5, "preferred stock" means
the Cumulative Preferred Stock, $1.24 Dividend Series, and
all shares of any class of stock ranking in respect of
dividends or assets equally with or prior to the Cumulative
Preferred Stock, $1.24 Dividend Series; "funded debt" means
all indebtedness for borrowed money of the Corporation
maturing one year or more after the date of issuance thereof
(excluding renewals in such computations of time); and "net
earnings" means net income after depreciation, Federal
income taxes and other appropriate charges, but before
interest charges and dividends on preferred computed in
accordance with generally accepted accounting principles and
without recognition of any charges or credits to earned
surplus and after excluding from
the computation of such net income all profits realized and
losses sustained from the sale or other disposition of
capital assets and resulting increases in and reductions of
taxes based on income. If notice of redemption of
securities has been given or irrevocably authorized to be
given by or on behalf of the Corporation and the funds
necessary to effect the redemption of such securities have
been irrevocably deposited in trust for such purpose, such
securities shall not be deemed to be outstanding for
purposes of this paragraph 5.
C.
THE CUMULATIVE PREFERRED STOCK, $5 DIVIDEND SERIES
1. The dividend rate on the Cumulative Preferred
Stock, $5 Dividend Series, shall be $5 per annum.
2. The price payable upon redemption at the option of
the Corporation of Cumulative Preferred Stock, $5 Dividend
Series, shall be One Hundred Two Dollars ($102) per share.
D.
THE CUMULATIVE PREFERRED STOCK, $4.70 DIVIDEND SERIES
1. The dividend rate on the Cumulative Preferred
Stock, $4.70 Dividend Series, shall be $4.70 per annum.
2. The price payable upon redemption at the option of
the Corporation of Cumulative Preferred Stock, $4.70
Dividend Series, shall be One Hundred Three Dollars and
Fifty Cents ($103.50) to and including June 30, 1972; One
Hundred Three Dollars ($103) and One Hundred Two Dollars and
Fifty Cents ($102.50) in each of the two (2) succeeding
twelve month periods, respectively; and One Hundred Two
Dollars ($102) after June 30, 1974.
3. At least twenty (20) and not more than sixty (60)
days prior to July 31 of each year, the Corporation shall
mail to each holder of shares of Cumulative Preferred Stock,
$4.70 Dividend Series, of record as of a date not more than
fifty (50) days preceding such mailing, at the address of
such holder then appearing on the books of the Corporation,
a notice in writing of its intention to accept tenders of
not more than twelve hundred (1,200) shares of Cumulative
Preferred Stock, $4.70 Dividend Series, tendered to the
Corporation on or before such July 31 for purchase at a
price per share not exceeding $100 plus accrued dividends
(the "maximum purchase price"). Not later than July 31 of
each year the Corporation shall, out of any funds from which
dividends might lawfully be paid, deposit with a bank or
trust company doing business in the City of Chicago,
selected by the Corporation and designated in the aforesaid
notice as the place to which tenders shall be delivered, a
sum equal to the maximum purchase price of twelve hundred
(1,200) shares of Cumulative Preferred Stock, $4.70 Dividend
Series.
Tenders shall be accepted on July 31 in the order of
the prices at which they are made; those shares tendered at
the lowest price to be the first purchased. Among tenders
at the same price the Corporation may prorate the available
funds according to the number of shares held or the number
of shares tendered by each holder making a tender at such
price or may make selection of the shares which it will
purchase so that as nearly as may be tenders may be accepted
in their entirety rather than partially. The Corporation
may make partial
acceptance of one or more tenders so that the total number
of shares purchased will not exceed twelve hundred (1,200).
If the Corporation shall purchase less than all of the
shares represented by any certificate, a new certificate for
the shares not purchased will be issued to the holder of
such shares.
If after notice has been given and deposit of funds
made as aforesaid, less than twelve hundred (1,200) shares
of Cumulative Preferred Stock, $4.70 Dividend Series, shall
be tendered for purchase at not more than the maximum
purchase price, the purchase of such number of shares as
shall have been so tendered at not more than the maximum
purchase price shall constitute compliance by the
Corporation for such year with the provisions hereof. Any
funds deposited for the purpose of compliance with the
provisions hereof and not required for such purpose shall be
returned to the Corporation upon such compliance.
Shares will not be deemed tendered unless and until the
certificate or certificates therefor have been received by
the bank or trust company designated for the purpose nor
unless, if payment upon acceptance of tender thereof is to
be made other than to the record holder, such certificate or
certificates have been duly endorsed or are otherwise in
proper form for transfer, with all transfer taxes due in
respect thereof paid or provided for.
Default by the Corporation in complying with the
provisions of this paragraph 3 shall preclude the
declaration or the payment of dividends or the making of any
other distribution whatsoever upon the Convertible Junior
Preferred Stock and the Common Stock of the Corporation
until the Corporation shall have cured such default by
soliciting tenders and depositing the funds necessary to the
purchase in the manner and upon the terms herein provided of
such number of shares of Cumulative Preferred Stock, $4.70
Dividend Series, as shall equal the difference between (a)
the product of twelve hundred (1,200) multiplied by the
number of full twelve month periods elapsed from and after
July 31, 1970, and (b) the product of twelve hundred (1,200)
multiplied by the number of full twelve month periods from
and after July 31, 1970 for which the Corporation has
complied with the provisions of this paragraph 3; but
neither the holder of any shares of Cumulative Preferred
Stock, $4.70 Dividend Series, as such, nor the holders of
all shares of Cumulative Preferred Stock, $4.70 Dividend
Series, as a class, shall be entitled to apply to court of
law or equity for a money judgment or a decree of specific
performance or similar relief or remedy on account of any
such default other than to restrain the Corporation from the
declaration or payment of dividends or the making of any
distribution upon the Convertible Junior Preferred Stock and
the Common Stock of the Corporation until such default shall
have been cured.
4. Shares of Cumulative Preferred Stock, $4.70
Dividend Series, purchased upon tender as herein provided
shall be canceled and shall not be reissued.
5. So long as any shares of Cumulative Preferred
Stock, $4.70 Dividend Series, shall be outstanding (and
unless the vote or assent of a greater number of shares of
such series shall then be required by law), without the
assent, given by vote at a meeting thereof called for the
purpose, of the holders of a majority in interest of the
outstanding shares of Cumulative Preferred Stock, $4.70
Dividend Series, the
Corporation shall not issue any shares of "preferred stock"
or issue any "funded debt" unless the "net earnings" of the
Corporation for 12 consecutive calendar months during the 15
months immediately preceding the month in which such issue
is to be made are at least one and one-half (1-1/2) times
the aggregate of the annual interest charges on all
indebtedness for borrowed money and the annual dividend
requirements on all preferred stock of the Corporation to be
outstanding immediately after the proposed issue. As used
in this paragraph 5, "preferred stock" means the Cumulative
Preferred Stock, $4.70 Dividend Series, and all shares of
any class of stock ranking in respect of dividends or assets
equally with or prior to the Cumulative Preferred Stock,
$4.70 Dividend Series; "funded debt" means all indebtedness
for borrowed money of the Corporation maturing one year or
more after the date of issuance thereof (excluding renewals
in such computations of time); and "net earnings" means net
income after depreciation, Federal income taxes and other
appropriate charges, but before interest charges and
dividends on preferred stock, computed in accordance with
generally accepted accounting principles and without
recognition of any charges or credits to earned surplus and
after excluding from the computation of such net income all
profits realized and losses sustained from the sale or other
disposition of capital assets and resulting increases in and
reductions of taxes based on income. If notice of
redemption of securities has been given or irrevocably
authorized to be given by or on behalf of the Corporation
and the funds necessary to effect the redemption of such
securities have been irrevocably deposited in trust for such
purpose, such securities shall not be deemed to be
outstanding for purposes of this paragraph 5.
E.
THE CONVERTIBLE JUNIOR PREFERRED STOCK
1. The dividend rate on the Convertible Junior
Preferred Stock shall be $2 per annum.
2. The price payable upon redemption at the option
of
the Corporation of Convertible Junior Preferred Stock shall
be $25 per share.
3. (a) The shares of Convertible Junior Preferred
Stock (hereinafter in this subdivision E sometimes called
the "Convertible Preferred") shall be convertible at the
option of the respective holders thereof into fully paid and
nonassessable shares of Common Stock (hereinafter sometimes
called "Sprint Common Stock") of the par value of $2.50 per
share of Sprint Corporation, a Kansas corporation
(hereinafter in this paragraph 3 sometimes called 'Sprint"),
at the initial conversion price as of March 9, 1993 (taking
the shares of the Convertible Preferred at $25 per share) of
$3.86 per share of Sprint Common Stock (a basis of 6.47325
shares of Sprint Common Stock for each share of the
Convertible Preferred). In order to exercise the conversion
privilege, the holder of any share or shares of Convertible
Preferred that is or are to be converted shall surrender the
certificate or certificates therefor to the Corporation at
the designated office of the Conversion Agent in the city of
Chicago, Illinois, accompanied by written notice to the
Corporation that such holder elects to convert such share or
shares of Convertible Preferred. Such notice shall state the
name (with address) of the holder of such share or shares of
Convertible Preferred and the name (with address) in which
the certificate or certificates for shares of Sprint Common
Stock that shall be issuable on such
conversion shall be issued. Each certificate for a share or
shares of Convertible Preferred surrendered for conversion
into shares of Sprint Common Stock to be issued in a
different name shall also be accompanied by a proper
instrument of transfer thereof endorsed in blank. As
promptly as practicable after the receipt of such notice and
the surrender of such certificate or certificates, as
aforesaid, the Corporation shall deliver at the designated
office of the Conversion Agent to such holder or upon his
written order a certificate or certificates for the number
of full shares of Sprint Common Stock issuable upon the
conversion of such share or shares of Convertible Preferred
in accordance with the provisions of this paragraph 3 and
cash, as hereinafter provided, in respect of any fraction of
a share of Sprint Common Stock otherwise issuable upon such
conversion. Subject to the exceptions hereinafter made,
such conversion shall be deemed to have been effected on the
date on which such notice shall have been received by the
Corporation and the certificate or certificates for the
share or shares of Convertible Preferred to be converted
shall have been surrendered, as aforesaid, and the person or
persons in whose name or names any certificate or
certificates for shares of Sprint Common Stock shall be
issuable upon such conversion shall be deemed to have become
on said date the holder or holders of record of the shares
represented thereby. No adjustment shall be made for
dividends on any shares of Convertible Preferred that shall
be converted or for dividends on any Sprint Common Stock
that shall be issued upon the conversion of such share or
shares of Convertible Preferred. In case less than all of
the shares of Convertible Preferred represented by one
certificate are to be converted, there shall be issued and
delivered to or upon the order of the holder of such
certificate a new certificate for the number of shares of
Convertible Preferred not converted.
The Corporation shall not be required to deliver
certificates for shares of Sprint Common Stock upon
conversion while Sprint's stock transfer books are closed
for any meeting of stockholders or for the payment of
dividends, or for any other purpose, and the person or
persons in whose name or names any certificate for shares of
Sprint Common Stock are issuable upon such conversion shall
not be deemed to have become the holder or holders of record
of such shares of Sprint Common Stock until the date on
which such transfer books shall be reopened; provided,
however, that such certificate or certificates for shares of
Sprint Common Stock shall be issued and delivered as soon as
the stock transfer books shall again be opened.
No fractions of shares of Sprint Common Stock will be
issued upon conversions. The number of full shares of
Sprint Common Stock that shall be issuable upon conversion
of shares of Convertible Preferred shall be computed on the
basis of the aggregate number of shares represented by the
certificate or certificates surrendered for conversion or
such lesser number of shares as the holder shall specify in
the notice of conversion. If any fractional interest in a
share of Sprint Common Stock would otherwise be issuable
upon the conversion of any share or shares of Convertible
Preferred, the Corporation shall pay cash equal to the
product of (i) the closing sale price per share of Sprint
Common Stock on the New York Stock Exchange on the trading
day next preceding the date of conversion and (ii) the
fraction of a share of Sprint Common Stock to which the
holder would otherwise have been entitled.
For the purposes of this paragraph 3:
(i) The "conversion prices" or the
"applicable conversion price" means the initial
conversion price as of March 9, 1993, or such
conversion price as adjusted and at the time in effect.
The conversion price shall never be stated in terms of
a fraction of a cent but shall always be rounded to the
nearest full cent, or, if there is no nearest full
cent, to the next full cent upward;
(ii) A "change" in the conversion price
means any difference between the applicable conversion
price and the amount resulting from a recomputation
pursuant to such formula provided in subparagraph (c)
of this paragraph 3 as shall be applicable under the
circumstances; and
(iii) An "adjustment" in the conversion
price means a required reduction or increase in the
applicable conversion price. A reduction or increase
in the conversion price (i.e., an adjustment in the
conversion price) will be required in the event of a
change which, together with all cumulated changes, if
any, is an amount not less than 50 cents. In the cumulation
of changes, upward and downward changes will be offset
and only the net amount of changes will be given effect
in determining whether an adjustment in the conversion
price should be made.
(b) At any time and from time to time a change in
the conversion price shall be made:
(i) If Sprint shall issue
(A) any additional shares of Sprint Common
Stock without receiving therefor a consideration, if
any, per share at least equal to the then applicable
conversion price;
(B) any shares convertible into shares of
Sprint Common Stock, or any obligations so convertible,
for a consideration, if any, which together with the
consideration, if any, to be received by Sprint upon
conversion thereof into shares of Sprint Common Stock,
shall be less per share of Sprint Common Stock issuable
upon conversion thereof than the conversion price
applicable immediately prior to the issuance of such
convertible shares or obligations; or
(C) any options or warrants, subject to the
specific exceptions hereinafter provided, to purchase
or subscribe for any shares of Sprint Common Stock for
a consideration, if any, which, together with the
consideration, if any, received by Sprint for such
options or warrants shall be less per share of Sprint
Common Stock issuable upon exercise of such options or
warrants than the conversion price applicable
immediately prior to the issuance of such options or
warrants;
(ii) Upon the termination of the right to convert
into shares of Sprint Common Stock any convertible shares or
obligations issued by Sprint or upon the expiration of any
options or warrants issued by Sprint to purchase or
subscribe for shares of Sprint Common Stock, if at any time
a change in the conversion price was made on account thereof
and if upon such termination or expiration the number of
shares
theretofore issued upon conversions of such convertible
shares or obligations or upon exercise of such options or
warrants is less than the maximum number (or such number as
adjusted by antidilution provisions) of shares of Sprint
Common Stock deemed issued at the time such change in the
conversion price was made;
(iii) If, except as the result of antidilution
provisions, there shall be an increase or decrease in the
amount of Sprint Common Stock issuable upon conversion of
one convertible share issued by Sprint or a specified
principal amount of convertible obligations issued by Sprint
or an increase or decrease in the purchase or subscription
price of shares of Sprint Common Stock to be paid upon
exercise of options or warrants; provided that a change in
the conversion price was made upon the issuance of such
convertible shares or obligations or such options or
warrants or that a change in the conversion price would be
required to be made if such convertible shares or
obligations or such options or warrants were then being
issued;
(iv) In case of any combination, subdivision,
reclassification or other reorganization of the Sprint
Common Stock (excluding such events in respect of which
other specific provisions are made herein).
The consideration, if any, received for the issuance of any
additional shares of Sprint Common Stock or any shares
convertible into shares of Sprint Common Stock or any
obligations so convertible or any options or warrants to
purchase or subscribe for shares of Sprint Common Stock
shall at all times be deemed to be the proceeds thereof to
Sprint, without deducting from the total amount received any
expenses incurred or any underwriting commissions or
concessions paid or allowed by Sprint in connection
therewith. If the consideration received by Sprint shall be
in a form other than cash, the amount of such consideration
shall be deemed to be the fair value thereof, as determined
by the Board of Directors of Sprint at or before the time of
issuance of the shares, obligations, options or warrants
issued for such consideration.
For the purposes of this paragraph 3, there shall at
all times be deemed to have been issued and to be
outstanding as of March 9, 1993, all shares of Sprint Common
Stock reserved for issuance:
(x) upon the conversion of any
convertible debt outstanding as of March 9, 1993;
(y) pursuant to any Sprint stock
purchase program in effect as of March 9, 1993; and
(z) pursuant to options granted or
which may be granted under any Sprint stock option plan
in effect as of March 9, 1993.
There are excepted from the operation of these
antidilution provisions and no change in the conversion
price shall be required as a result of the issuance after
March 9, 1993 of:
Subscription rights for shares of Sprint Common
Stock or the issuance of shares of Common Stock
pursuant to further employees' stock purchase programs
substantially similar to such programs heretofore
established by Sprint, not involving an offering of
shares in any one fiscal year of Sprint in a number
exceeding 1% of the number of shares of Sprint Common
Stock outstanding at the beginning of such fiscal year;
Options to purchase shares of Sprint Common Stock
or the issuance of shares of Common Stock upon exercise
of such options, pursuant to any Stock Option Plan
hereafter approved pursuant to the provisions of the
Internal Revenue Code as then in force by the Sprint
stockholders under which the option price shall be at
least 100% of market value at the date of grant of such
options; or
Shares of Sprint Common Stock payable as a
dividend upon the Common Stock of Sprint; provided that
the maximum number of shares of Sprint Common Stock
issuable in payment of such dividend, together with the
number of shares of Sprint Common Stock theretofore
issued as a dividend or dividends upon the Common Stock
of Sprint within the same fiscal year of Sprint, shall
not exceed 2% of the shares of Sprint Common Stock
outstanding at the record date or other date for the
determination of the holders of shares of Sprint Common
Stock entitled to participate in such dividend.
(c) Upon the occurrence of any of the events
specified above as requiring a change in the conversion
price because additional shares of Sprint Common Stock are
issued or deemed to be issued or because a revision of the
number of such shares of Common Stock so deemed to be issued
is required, such change shall be computed by
(i) multiplying the total number of shares of
Sprint Common Stock outstanding (or deemed to be
outstanding for the purposes of this paragraph 3)
immediately prior to such event by the then applicable
conversion price;
(ii) adding to the product the total amount of the
consideration, if any, received (or deemed to have been
received) by Sprint upon the issuance of the additional
number of shares of Sprint Common Stock issued (or
deemed to have been issued for the purposes of this
paragraph 3) upon such event; and
(iii) dividing the resulting sum by the total
number of shares of Sprint Common Stock outstanding (or
deemed to be outstanding for the purpose of this
paragraph 3) immediately after such event.
For the purposes of the foregoing formula there shall
(except as otherwise provided in subparagraph (b) of this
paragraph 3) be deemed to have been issued at the time of
issuance of any shares convertible into shares of Sprint
Common Stock or any obligations so convertible or any
options or warrants to purchase or subscribe for any shares
of Sprint Common Stock the aggregate maximum number of
shares of Sprint Common Stock issuable upon conversion of
such shares or obligations or upon the exercise of such
options or warrants. The consideration received for the
shares of Sprint Common Stock deemed to have been issued
upon the issuance of such convertible shares or obligations
or such options or warrants shall be deemed to be the
consideration, if any, received by Sprint for such
convertible shares or obligations or options or warrants
plus the minimum consideration, if any, to be received by
Sprint upon conversion into shares of Sprint Common Stock of
such
convertible shares or obligations or upon the exercise of
such options or warrants.
Upon the termination of the right to convert into
shares of Sprint Common Stock any convertible shares or
obligations issued by Sprint, or the expiration of any
options or warrants issued by Sprint, to purchase or
subscribe for shares of Sprint Common Stock (if at any time
a change in the conversion price was made on account
thereof), a change in the conversion price shall forthwith
be made to such conversion price as would then be applicable
had the change in the conversion price been made upon the
basis of the delivery of only the number of shares of Sprint
Common Stock actually delivered upon conversions of such
shares or obligations or upon exercise of such options or
warrants.
If, except as the result of antidilution provisions
applicable thereto, there shall be an increase or decrease
in the amount of Sprint Common Stock issuable upon
conversion of one convertible share issued by Sprint or a
specified principal amount of convertible obligations issued
by Sprint or an increase or decrease in the purchase or
subscription price of shares of Sprint Common Stock to be
paid upon exercise of options or warrants issued by Sprint
and if a change in the conversion price was made upon the
issuance of such convertible shares, obligations, options or
warrants or would be required to be made if such convertible
shares or obligations or such options or warrants were at
the time being issued, then any such increase or decrease in
the amount of Sprint Common Stock issuable upon conversion
of one convertible share or a specified principal amount of
convertible obligations shall be deemed to effect the
termination of the right to convert at the former rate any
such convertible shares or obligations remaining unconverted
and to effect the issuance of such remaining convertible
shares or obligations as a new issue of shares or
obligations convertible at the new rate, and any such
increase or decrease in the purchase or subscription price
to be paid upon exercise of such options or warrants shall
be deemed to effect the expiration of any unexercised
options or warrants to purchase or subscribe at the former
price and to effect the issuance of such unexercised options
or warrants as a new issue of options or warrants to
purchase at the new price.
In case of a distribution of securities or assets to
the holders of Sprint Common Stock (excluding cash dividends
payable out of earned surplus and distributions in respect
of which other specific provisions are made herein), a
change in the conversion price shall be made reducing it by
an amount equal to the fair value of the portion of such
distribution applicable to one share of such Sprint Common
Stock as determined by the Board of Directors of Sprint (or,
if they shall not have made such determination, by the Board
of Directors of the Corporation), whose determination, in
the absence of fraud, shall be final and conclusive.
Upon a combination, reclassification or reorganization
of the shares of Common Stock of Sprint into a smaller
number of shares, an upward change shall be made in the
conversion price which shall bear the same relationship to
the conversion price prior to such change as the reduction
in the number of shares of Common Stock of Sprint
outstanding (and deemed to be outstanding for the purposes
of this paragraph 3) immediately prior to such event bears
to the number of shares of Sprint Common Stock outstanding
(and deemed to be outstanding for the purposes of this
paragraph 3) immediately after such
combination, reclassification or reorganization.
(d) As promptly as practicable after it has
knowledge of any occurrence which will or may result in a
change in the conversion price, the Corporation shall make
an estimate of such change in the conversion price and of
the date as of which such change will or may become
effective and shall notify the Conversion Agent in writing
accordingly. If it appears from such notice that such
change will or may result in an adjustment in the conversion
price, the Conversion Agent shall, upon surrender to it of
Convertible Preferred for conversion, give written advice to
the holder of such Convertible Preferred of the notice
received from the Corporation. Such holder may, at any time
within five days after the mailing by the Conversion Agent
of such written advice, withdraw such holder's notice of
election to convert such Convertible Preferred, but if no
such withdrawal shall have been made within such five days,
such Convertible Preferred shall, subject to compliance with
all conditions precedent to conversion herein provided, be
deemed to have been converted on the date such notice of
election to convert was filed with the Conversion Agent.
(e) Whenever the conversion price is required to
be changed or adjusted as herein provided:
(i) the Corporation shall forthwith file with the
Conversion Agent a report setting forth such change and
showing in detail the events upon which such change is
based, including a statement of the consideration, if
any, received or to be received by Sprint for, and the
number of, any additional shares of Sprint Common Stock
issued (or deemed to have been issued) since the last
preceding change; and
(ii) if such change shall result in an adjustment
in the conversion price, the Corporation shall
forthwith cause a notice stating that such adjustment
has been effected and of the adjusted conversion price
to be mailed first-class, postage prepaid, to each
holder of Convertible Preferred of record at a date not
more than 30 days prior to such mailing at his address
appearing on the stock records.
(f) Sprint has agreed with the Corporation for
the benefit of the holders of the Convertible Preferred that
if Sprint shall be consolidated with or merged into or shall
sell or dispose of all or substantially all of its property
and assets to any other corporation, Sprint will cause
proper provision to be made as part of the terms of such
consolidation, merger or sale or otherwise whereby the
holders of the Convertible Preferred shall thereafter be
entitled to such conversion rights with respect to
securities of the corporation resulting from such
consolidation or merger or to which such sale shall be made
as shall be substantially equivalent to the conversion
rights herein granted. Notice thereof shall be given to the
holders of the Convertible Preferred as in the case of an
adjustment in the conversion price.
(g) The issuance of any certificates for Sprint
Common Stock on conversion of any share or shares of
Convertible Preferred shall be made without charge to the
holder of the Convertible Preferred so converted for any tax
in respect of the issuance of such certificates. The
Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in
the issuance or delivery of Sprint Common Stock in any name
other than that of the holder of the Convertible Preferred
converted, and the Corporation shall not be required to
deliver any such certificate for the Sprint Common Stock
unless and until the person or persons requesting the
issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(h) Sprint has agreed with the Corporation for
the benefit of the holders of the Convertible Preferred that
it will at all times reserve and keep available out of its
authorized but unissued stock, for the purpose of making the
same available for effecting the conversions of the
Convertible Preferred, such number of its duly authorized
shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding
Convertible Preferred; and if at any time the number of
authorized but unissued shares of Common Stock of Sprint
shall not be sufficient to effect the conversion of all
outstanding Convertible Preferred at the conversion price
then applicable, Sprint has agreed that it will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized shares of Common Stock
to such number of shares as shall be sufficient for such
purpose.
(i) If any shares of Sprint Common Stock,
reserved or to be reserved, for the purpose of conversion of
the Convertible Preferred hereunder, require registration
with or approval of any governmental authority under any
federal or state law before such shares may be validly
issued upon conversion, then Sprint has agreed with the
Corporation for the benefit of the holders of the
Convertible Preferred that it will in good faith and as
expeditiously as possible endeavor to secure such
registration or approval, as the case may be.
(j) The Corporation covenants that all shares of
Sprint Common Stock which may be issued upon conversion of
Convertible Preferred will upon issuance be fully paid and
nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof.
(k) In case at any time
(i) Sprint shall declare any dividend payable in
stock upon its Common Stock or make any distribution
(other than cash dividends) to the holders of its
Common Stock; or
(ii) Sprint shall offer for subscription to the
holders of its Common Stock, as a class, any additional
shares of stock of any class or grant to such holders,
as a class, any other rights or options; or
(iii) of any reclassification of Sprint Common
Stock or change, merger, consolidation, sale or
conveyance entitling the holders of the Convertible
Preferred to a security different from Sprint Common
Stock; or
(iv) of the liquidation, dissolution or winding-up
of Sprint;
then the Corporation shall give notice of any such action at
least 10 days prior to the date on which the Sprint stock
transfer books shall close or a record is to be taken for
such stock dividend, distribution, offering or granting of
rights or options, or such reclassification, change, merger,
consolidation, sale, conveyance, liquidation, dissolution or
winding-up is to be effective, as the case may be, by mail,
first-class postage prepaid, to the Conversion Agent and to
all holders of Convertible Preferred of record at a date not
more than 30 days prior to such mailing, at their addresses
as the same appear on the stock records.
(l) The Corporation hereby appoints First Chicago
Trust Company of New York, Chicago, Illinois, as the
Conversion Agent. The Conversion Agent may resign at any
time upon 60 days' written notice to the Corporation and may
be removed by the Corporation at any time upon 60 days'
written notice to the Conversion Agent. The Corporation
shall, within 20 days after notice of resignation or removal
of the Conversion Agent, appoint a successor Conversion
Agent, which shall be a bank or trust company organized
under the laws of the United States or any state thereof
having a combined capital and surplus of at least
$5,000,000, and having an office in the City of Chicago and
State of Illinois. Notice of such appointment and of the
effective date thereof shall be given by the Corporation, at
least 30 days prior to such effective date, by mail, first-
class postage prepaid, to the Conversion Agent, the
successor Conversion Agent and all holders of Convertible
Preferred of record at a date not more than 30 days prior to
such mailing, at their addresses as the same appear on the
stock records.
4. Shares of the Convertible Preferred redeemed,
purchased, converted or otherwise reacquired by the
Corporation shall be canceled and retired and shall not be
reissued.
Fifth: The Board of Directors is expressly authorized
to make, amend, alter, change, add to or repeal the by-laws
of the Corporation without any action on the part of the
stockholders. By-laws made by the directors may, however,
be amended, altered, changed, added to or repealed at any
annual meeting of the stockholders or at any special meeting
of the stockholders called for that purpose, at which a
quorum shall be present, by the holders of a majority of
each class of stock entitled to vote thereat.
Sixth: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of
them and/or between this Corporation and its stockholders or
any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or
stockholder thereof, or on the application of any receiver
or receivers appointed for this Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code,
or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware
Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be
summoned in such manner as the said Court directs. If a
majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation,
as the case may be, agree to any compromise or arrangement
and to any reorganization of this Corporation as consequence
of such
compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned
by the Court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this
Corporation.
Seventh: In order to induce the directors, officers,
employees and agents of the Corporation and each person
(including a director, officer, employee or agent of the
Corporation) who, at the request of the Corporation, acts as
a director or officer of any other corporation in which the
Corporation has an interest to protect, to continue to serve
as such and in order to induce such other persons as may
hereafter be elected or appointed directors, officers,
employees or agents of the Corporation or such other
corporation to serve as such, and in consideration of such
service and as additional compensation therefor:
(1) No director of the Corporation shall be
personally liable to the Corporation or its
stockholders for breach of fiduciary duty as a
director; provided, however, that this Article Seventh
shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(c) under the provisions of Section 174 of the Delaware
General Corporation Law and amendments thereto, or (d)
for any transaction from which the director derived an
improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate
action further eliminating or limiting the personal
liability of directors, then the liability of a
director of the Corporation shall be eliminated or
limited to the maximum extent permitted by the Delaware
General Corporation Law, as so amended.
(2) The Corporation shall have the power to
indemnify any person, advance expenses and purchase and
maintain insurance on behalf of any person to the
fullest extent permitted, from time to time, by the
Delaware General Corporation Law.
(3) Any repeal or modification of this Article
Seventh shall not adversely affect any right or
protection of a director of the Corporation existing at
the time of such repeal or modification.
<PAGE>
Exhibit 21
CENTRAL TELEPHONE COMPANY AND ITS SUBSIDIARIES
State of Incorporation
Central Telephone Company . . . . . . . . . . . Delaware
Central Telephone Company of Florida . . . . Florida
Central Telephone Company of Illinois. . . . Illinois
Central Telephone Company of Virginia. . . . Virginia
EXHIBIT 23(a)
CENTRAL TELEPHONE COMPANY
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3, No. 33-50820) of Central Telephone Company and
the related Prospectus of our report dated January 31, 1995, with
respect to the consolidated financial statements and schedule of
Central Telephone Company included in this Annual Report (Form 10-
K) for the year ended December 31, 1994.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Kansas City, Missouri
March 27, 1995
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
inclusion in this Form 10-K of our report dated February 3, 1993,
covering the consolidated statements of income, retained earnings
and cash flows and schedule of Central Telephone Company and
Subsidiaries for the year ended December 31, 1992, incorporated by
reference into Central Telephone Company's previously filed
Registration Statement No. 33-50820.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1995
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 19,200
<SECURITIES> 0
<RECEIVABLES> 152,400
<ALLOWANCES> 500
<INVENTORY> 0
<CURRENT-ASSETS> 229,300
<PP&E> 2,568,000
<DEPRECIATION> 1,026,600
<TOTAL-ASSETS> 1,834,800
<CURRENT-LIABILITIES> 307,600
<BONDS> 510,200
<COMMON> 354,400
6,700
2,000
<OTHER-SE> 251,700
<TOTAL-LIABILITY-AND-EQUITY> 1,834,800
<SALES> 0
<TOTAL-REVENUES> 924,300
<CGS> 0
<TOTAL-COSTS> 591,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,300
<INCOME-PRETAX> 154,500
<INCOME-TAX> 52,600
<INCOME-CONTINUING> 101,900
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<CHANGES> (1,600)
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