UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6793
CENTRAL TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 47-0533677
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
P.O. Box 11315, Kansas City, Missouri 64112
(Address of principal executive offices)
(913) 624-3000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
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
SHARES OF COMMON STOCK OUTSTANDING AT March 31, 1995 -- 2,250,000
CENTRAL TELEPHON COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Condensed Notes to Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Reports on Form 8-K
Signatures
Exhibits
PART 1.
Item 1.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
(In Millions)
As of As of
March 31, December 31,
1995 1994
(Unaudited)
Assets
Current assets
Cash $ 19.2 $ 19.2
Receivables
Customers and other, net of allowance
for doubtful accounts of $1.2 million
($0.5 million in 1994) 106.0 95.4
Interexchange carriers 34.3 31.7
Affiliated companies 22.7 24.8
Advances to affiliates 69.6 38.2
Deferred income taxes 2.8 4.2
Prepaid expenses and other 18.7 15.8
Total current assets 273.3 229.3
Property, plant and equipment
Land and buildings 119.7 119.2
Telephone network equipment and outside
plant 2,314.6 2,282.9
Other 137.5 136.3
Construction in progress 52.8 29.6
2,624.6 2,568.0
Less accumulated depreciation (1,057.7) (1,026.6)
1,566.9 1,541.4
Deferred charges and other assets 59.4 64.1
$ 1,899.6 $ 1,834.8
See accompanying condensed Notes to Consolidated Financial Statements.
PART 1.
Item 1.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(In Millions)
As of As of
March 31, December 31,
1995 1994
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities
Outstanding checks in excess of cash
balances $ 5.9 $ 3.1
Current maturities of long-term debt 4.2 4.3
Advances from affiliates 109.8 90.3
Accounts payable
Vendors and other 30.8 27.3
Interexchange carriers 48.8 35.7
Affiliated companies 42.6 37.1
Advance billings 16.8 17.2
Accrued taxes 33.5 22.3
Other 59.2 70.3
Total current liabilities 351.6 307.6
Long-term debt 524.7 510.2
Deferred credits and other liabilities
Deferred income taxes and investment tax
credits 250.2 259.6
Postretirement benefits obligations 68.5 64.8
Regulatory liabilities 51.0 52.1
Other 29.6 25.7
399.3 402.2
Redeemable preferred stock 5.4 6.7
Common stock and other stockholders' equity
Common stock, no par value, authorized,
issued and outstanding - 2.3 million
shares 353.1 353.1
Non-redeemable preferred stock 2.0 2.0
Capital in excess of stated value 1.6 1.3
Retained earnings 261.9 251.7
618.6 608.1
$ 1,899.6 $ 1,834.8
See accompanying condensed Notes to Consolidated Financial Statements.
PART I.
Item 1.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Millions)
Three Months
Ended
March 31,
1995 1994
Operating revenues
Local service $ 117.7 $ 109.1
Toll and access service 95.0 88.4
Other 29.8 25.1
Total operating revenues 242.5 222.6
Operating expenses
Plant operations 80.0 73.9
Depreciation and amortization 37.0 33.4
Customer operations 38.1 33.5
Other operations 35.7 32.9
Total operating expenses 190.8 173.7
Operating income 51.7 48.9
Interest expense (11.2) (8.7)
Other income, net 0.7 0.3
Income before income taxes and cumulative
effect of changes in accounting principles 41.2 40.5
Income tax provision (14.4) (13.7)
Income before cumulative effect of changes
in accounting principles 26.8 26.8
Cumulative effect of changes in accounting
principles, net -- (1.6)
Net income 26.8 25.2
Preferred stock dividends (0.1) (0.1)
Earnings applicable to common stock $ 26.7 $ 25.1
See accompanying condensed Notes to Consolidated Financial Statements.
PART I.
Item 1.
CENTRAL TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Millions)
Three Months Ended
March 31,
1995 1994
Operating activities
Net income $ 26.8 $ 25.2
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 37.0 33.4
Cumulative effect of changes in accounting
principles -- 1.6
Deferred income taxes and investment tax
credits (9.1) (0.7)
Changes in operating assets and liabilities
Receivables, net (10.8) (6.4)
Other current assets (2.9) 2.2
Accounts payable, accrued expenses and other
current liabilities 24.6 (4.1)
Noncurrent assets and liabilities, net 12.3 10.0
Other, net (0.5) (0.1)
Net cash provided by operating activities 77.4 61.1
Investing activities
Capital expenditures (62.0) (44.2)
Increase in advances to affiliates (31.4) (16.9)
Other, net (0.4) 0.2
Net cash used by investing activities (93.8) (60.9)
Financing activities
Retirements of long-term debt (0.6) (0.4)
Increase in notes payable 15.0 30.0
Increase in advances from affiliates 19.5 13.6
Dividends paid (16.6) (43.8)
Other, net (0.9) 0.1
Net cash provided (used) by financing
activities 16.4 (0.5)
Decrease in cash -- (0.3)
Cash at beginning of period 19.2 9.5
Cash at end of period $ 19.2 $ 9.2
Supplemental cash flows information
Cash paid for interest $ 16.5 $ 14.7
Cash paid for income taxes $ 7.9 $ 1.6
See accompanying condensed Notes to Consolidated Financial Statements.
PART I.
Item 1.
CENTRAL TELEPHONE COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995 and 1994
The information contained in this Form 10-Q for the three-month
interim periods ended March 31, 1995 and 1994 has been prepared in
accordance with instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments
considered necessary, consisting only of normal recurring accruals,
to present fairly the consolidated financial position, results of
operations, and cash flows for such interim periods have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. The results of operations for the three months ended
March 31, 1995 are not necessarily indicative of the operating
results that may be expected for the year ended December 31, 1995.
1. Accounting Policies
Basis of 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
Sprint Corporation (Sprint); accordingly, earnings per share
information has been omitted. The Company is 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.
Accounting Change
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.
Reclassifications
Certain amounts in the accompanying consolidated financial
statements for 1994 have been reclassified to conform to the
presentation of amounts in the 1995 consolidated financial
statements. These reclassifications had no effect on the results
of operations.
2. Income Taxes
The differences which cause the effective income tax rate to vary
from the statutory federal income tax rate of 35 percent for the
three months ended March 31, 1995 and 1994, respectively, are as
follows (in millions):
Three Months Ended
March 31,
1995 1994
Income tax provision at the statutory rate $ 14.4 $ 14.2
Effect of:
Investment tax credits included in income (0.9) (1.1)
State income taxes, net of federal income
tax effect 1.4 1.2
Reversal of rate differentials (0.8) (0.9)
Other, net 0.3 0.3
Income tax provision $ 14.4 $ 13.7
Effective income tax rate 35.0% 33.8%
PART I.
Item 2.
CENTRAL TELEPHONE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash flows from operating activities, which are the Company's
primary source of liquidity, were $77 million during the first
three months of 1995 compared to $61 million during the first three
months of 1994. The increase in operating cash flows reflects
reduced working capital requirements.
The Company's investing activities used cash of $94 million and $61
million during the first three months of 1995 and 1994,
respectively. The increase in cash used for investing activities
was due to increased capital expenditures and increases in advances
to affiliates. Capital expenditures, which represent the Company's
most significant investing activity, were $62 million and $44
million during the first three months of 1995 and 1994,
respectively. Capital expenditures were made to accommodate access
line growth and to expand the capabilities for providing enhanced
telecommunications services.
Financing activities provided cash of $16 million in the first
three months of 1995 and used $1 million in the comparable 1994
period. The change in cash flows from financing activities is
largely due to a reduction in dividends paid.
As of March 31, 1995, the Company's total capitalization aggregated
$1.26 billion, consisting of long-term debt (including current
maturities), advances from affiliates, redeemable preferred stock,
and common stock and other stockholder's equity. Long-term debt
(including current maturities and advances from affiliates)
comprised 50.6 percent of total capitalization as of March 31, 1995
compared to 49.6 percent at year-end 1994.
During 1995, the Company anticipates funding estimated capital
expenditures of $215 million with cash flows from operating
activities. The Company continues to expect its external cash
requirements for 1995 to be approximately $40 million which is
generally required to pay scheduled long-term debt maturities. The
method of financing the cash requirements will depend on prevailing
market conditions during the year.
Results of Operations
Net operating revenues increased 8.9 percent in the first quarter
of 1995 over the comparable 1994 period. Local service revenues,
derived from providing local exchange telephone service, increased
7.9 percent in the first quarter of 1995 over the comparable 1994
period. This increase reflects continued growth in the number of
access lines served, add-on services such as custom calling
features, and increased Centrex revenues. The number of access
lines served grew 5.1 percent during the past twelve months.
Toll and access service revenues, 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, increased $7 million during the first quarter
of 1995 relative to the comparable 1994 period as a result of
increased traffic volumes. During the first quarter of 1995, the
Federal Communications Commission announced a new interim
interstate price caps plan which is effective August 1, 1995.
Under the new plan, the Company will have the option of choosing a
rate formula based on productivity that will effectively remove the
earnings cap on the Company's interstate access revenues.
Interstate access revenues currently comprise approximately 55
percent of the Company's toll and access service revenues.
Operating expenses increased $17 million in the first quarter of
1995 from the comparable 1994 period. The increase is primarily
due to an increase in plant operations expense related to the costs
of providing services resulting from access line growth. Customer
operations expense increased due to expanded customer services.
Interest expense was $11 million and $9 million in the first
quarter of 1995 and 1994, respectively. The increase in the first
quarter of 1995 was generally due to an increase in average levels
of debt outstanding.
The Company's income tax provisions for the first quarter of 1995
and 1994 resulted in effective tax rates of 35.0 percent and 33.8
percent, respectively. See Note 2 of condensed 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.
Other Matters
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The
cumulative effect of this change in accounting principle resulted
in a charge of $2 million, net of related income tax benefits.
Consistent with most local exchange carriers, the Company accounts
for the economic effects of regulation pursuant to SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." The
application of SFAS No. 71 requires the accounting recognition of
the rate actions of regulators where appropriate, including the
recognition of depreciation and amortization based on estimated
useful lives prescribed by regulatory commissions rather than those
which might be utilized by non-regulated enterprises. Management
currently 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 on-going 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.
PART II.
Other Information
Item 1. Legal Proceedings
There were no reportable events during the quarter ended March
31, 1995.
Item 2. Changes in Securities
There were no reportable events during the quarter ended March
31, 1995.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended March
31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
There were no reportable events during the quarter ended March
31, 1995.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
SIGNATURE
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)
/s/Ralph J. Hodge
Ralph J. Hodge
Vice President - Controller
Dated: May 9, 1995
EXHIBIT INDEX
EXHIBIT
NUMBER
(27) Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,200
<SECURITIES> 0
<RECEIVABLES> 164,200
<ALLOWANCES> 1,200
<INVENTORY> 0
<CURRENT-ASSETS> 273,300
<PP&E> 2,624,600
<DEPRECIATION> 1,057,700
<TOTAL-ASSETS> 1,899,600
<CURRENT-LIABILITIES> 351,600
<BONDS> 524,700
<COMMON> 353,100
5,400
2,000
<OTHER-SE> 1,600
<TOTAL-LIABILITY-AND-EQUITY> 1,899,600
<SALES> 0
<TOTAL-REVENUES> 242,500
<CGS> 0
<TOTAL-COSTS> 155,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,200
<INCOME-PRETAX> 41,200
<INCOME-TAX> 14,400
<INCOME-CONTINUING> 26,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,800
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
