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, 1995
-----------------------------------------
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:
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,
1996 was $6,579,925 (preferred stock at stated value). The number of shares of
common stock, no par value, outstanding at March 15, 1996 was 2,250,000.
No documents incorporated by reference.
<PAGE>
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, intraLATA 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
and various other subsidiaries. In March 1993, Centel became a wholly-owned
subsidiary of Sprint Corporation (Sprint), a company with subsidiaries in a
number of telecommunications markets.
As of December 31, 1995, the Company served more than 1.7 million access lines.
All of the access lines are served through central offices equipped with digital
switching. Over 65 percent of the access lines served are located in the
following seven communities:
<TABLE>
<CAPTION>
Community Access Lines
- -------------- ------------------------------------------------------------------------------ ----------------
<S> <C>
Las Vegas, Nevada 620,873
Fort Walton Beach, Florida 142,946
Tallahassee, Florida 112,196
Starke, Florida 101,916
Des Plaines, Illinois 79,001
Charlottesville, Virginia 67,318
Hickory, North Carolina 41,365
----------------
1,165,615
----------------
</TABLE>
The Company is providing and continuing to introduce new services made possible
by the enhancement of its facilities to a more intelligent network. The network
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 87 percent of operating
revenues in 1995, with the remainder derived largely from directory operations,
equipment sales and billing and collection services. A significant portion of
the Company's network access revenue is derived from network access billings to
AT&T Corp. (AT&T). In 1995, 14 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 interLATA 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 public service 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 certificates of indefinite duration to provide local exchange telephone
service in its current service areas.
1
<PAGE>
Effective January 1, 1991, the FCC adopted a price caps regulatory format for
the Bell Operating Companies (the local exchange carriers (LECs) owned by AT&T
prior to divestiture) and the LECs owned by GTE Corporation. Other LECs could
voluntarily 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. During
1995, the FCC adopted modifications to the price cap plan to reset productivity
elections, change certain rate adjustment methods, address new service offerings
and generally reduce regulatory requirements. Under these changes, the Company
elected a productivity factor that allows it to avoid sharing of interstate
access earnings. Interstate access revenues currently comprise approximately 55
percent of the Company's toll and access service revenues.
Federal legislation designed to stimulate local competition has been recently
passed and signed into law. See "Management's Discussion and Analysis -
Telecommunications Law" for a discussion of this legislation. In addition, the
states in which the Company operates allow competitive entry into the markets
served by the Company. In several of the states, other companies have been
granted certificates of service authority to provide local exchange services to
customers located in the areas served by the Company.
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 January 31, 1996, the Company had approximately 5,100 employees, of whom
approximately 78 percent are represented by unions. During 1995, the Company had
no material work stoppages caused by labor controversies. Several of the
Company's union contracts are scheduled to expire in 1996.
2
<PAGE>
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, 1995, cable and wire
facilities represented 41 percent of total net property, plant and equipment;
central office equipment, 42 percent; land and buildings, 7 percent; and other
assets, 10 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, 1995 (in
millions):
<TABLE>
<CAPTION>
Gross Property
----------------------------------
Retirements
Year Additions or Sales
- --------------------------------------------------------------------- -- --------------- -- ---------------
<S> <C> <C>
1995 $ 227.9 $ 59.9
1994 204.8 40.5
1993 163.4 60.1
1992 168.1 173.1
1991 162.2 254.8 [1]
[1] Includes $213 million related to the sale of the Company's operations in
Iowa and Minnesota.
</TABLE>
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 9, 1995, Central Telephone held its Annual Meeting of Shareholders.
At the meeting, the shareholders elected seven directors to serve a one year
term.
The following votes were cast for each of the following nominees for Director or
were withheld with respect to such nominees:
<TABLE>
<CAPTION>
For Withheld
---------------------------------- ----------------------------------
<S> <C> <C>
Stephen M. Bailor 2,250,000 0
Dianne Jett 2,250,000 0
Don A. Jensen 2,250,000 0
William E. McDonald 2,250,000 0
D. Wayne Peterson 2,250,000 0
M. Jeannine Strandjord 2,250,000 0
Alan J. Sykes 2,250,000 0
</TABLE>
3
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
All shares of common stock of Central Telephone, representing 93.8 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.
At December 31, 1995, one series of voting convertible junior preferred stock
and four series of voting cumulative preferred stock of Central Telephone were
outstanding. The convertible junior preferred stock was redeemed in January
1996. Prior to redemption, each share was convertible into 6.47325 shares of
Sprint common stock.
Since issuance, quarterly dividends have been paid on all series of the
preferred stock at the respective prescribed rates. There is no active market
for shares of any of the series of cumulative preferred stock.
- --------------------------------------------------------------------------------
Transfer Agent for all Preferred Stocks:
First Chicago Trust Company of 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):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------------------------------------ --- --------- --- --------- --- --------- --- ---------- -- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 1,003.5 $ 924.3 $ 868.6 $ 786.6 $ 808.9
Income before extraordinary item and
cumulative effect of changes in
accounting principles [1], [2],[3] 99.9 101.9 41.4 71.6 143.3
Total assets 1,583.5 1,834.8 1,723.6 1,724.1 1,665.9
Total debt and redeemable preferred
stock (including current maturities
and short-term borrowings) 496.7 521.2 470.5 518.9 527.2
- ------------------------------------------ --- --------- --- --------- --- --------- --- ---------- -- ----------
[1] During 1995, nonrecurring charges of $22 million were recorded related to a
restructuring of the Company's operations. Such charges reduced
consolidated 1995 income before extraordinary item and cumulative effect of
changes in accounting principles by $14 million.
[2] 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.
[3] 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.
</TABLE>
4
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Telecommunications Law
In February 1996, the Telecommunications Act of 1996 (the Act) was signed
into law. The purpose of the Act is to promote competition in all aspects of
telecommunications. The Act requires telecommunications carriers to interconnect
with other carriers and to provide for resale, number portability, dialing
parity, access to rights-of-way and compensation for reciprocal traffic.
Additionally, incumbent local telephone companies are required to provide
nondiscriminatory unbundled access, resale at wholesale rates and notice of
changes that would affect interoperability of facilities and networks. The FCC
is to adopt mechanisms to ensure that essential telecommunications services are
affordable.
The Act also provides that regional Bell Operating Companies (RBOCs) may
provide long distance service upon enactment that is out-of-region or incidental
to: (1) audio/video programming; (2) Internet for schools; (3) mobile services;
(4) information or alarm services; and (5) telecommunications signaling. In
order for an RBOC to provide in-region long distance service, the Act requires
the RBOC to comply with a comprehensive competitive checklist and expands the
role of the U.S. Department of Justice in the FCC's determination of whether the
entry of an RBOC into the competitive long distance market is in the public
interest. Additionally, there must be a real facilities-based competitor for
residential and business local telephone service (or the failure of potential
providers to request access) prior to an RBOC providing in-region long distance
service. RBOCs must provide long distance services through a separate subsidiary
for at least three years. Until the RBOCs are allowed into long distance or
three years have passed, long distance carriers with more than 5 percent of the
nation's access lines may not jointly market RBOC resold local telephone
service, and states may not require RBOCs to provide intraLATA dialing parity.
Telecommunications companies may also provide video programming and cable
operators may provide telephone service in the same service area. The Act
prohibits telecommunications carriers and cable operators from acquiring more
than 10 percent of each other, except in rural and other specified areas.
The impact of the Act on the Company is unknown because a number of
important implementation issues (such as the nature and extent of continued
subsidies for local rates) still need to be decided by state or federal
regulators. However, the historical prices and market shares of the Company are
likely to decline as a result of increased local competition.
Results of Operations
Net operating revenues increased 9 percent in 1995, following a 6 percent
increase in 1994. Local service revenues, derived from providing local exchange
telephone service, increased 8 percent in both 1995 and 1994. 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 5.7
percent in 1995 and 5.6 percent in 1994.
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
$32 million in 1995 and $15 million in 1994 largely due to increased minutes of
use. During the first quarter of 1995, the FCC announced a new interim
interstate price caps plan which became effective August 1, 1995. Under the new
plan, the Company adopted a rate formula based on the maximum productivity
factors that effectively removed 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.
Other revenues, including revenues from directory publishing fees, billing and
collection services, and sales of telecommunications equipment, increased $13
million in 1995 following an $8 million increase in 1994. The increases were
generally due to growth in equipment sales in both years.
Operating expenses increased $72 million and $38 million in 1995 and 1994,
respectively. The increases in plant operations expense related to the costs of
providing services resulting from access line growth. Depreciation and
amortization expense increased due to an increase in the asset base and the
implementation in 1995 of depreciation rate changes in Florida. The increases in
customer operations expense were due to increased marketing and expanded
customer services. Other operations expense increased as a result of costs
associated with the growth in equipment sales.
5
<PAGE>
In November 1995, the Company initiated a realignment and restructuring of its
operations, including the elimination of approximately 450 positions primarily
in the network and finance functions. The restructuring is intended to
streamline current processes in order to reduce costs in an increasingly
competitive marketplace. These actions resulted in a nonrecurring charge of $22
million. The accrued liability associated with this charge specifically relates
to the benefits that affected employees will receive upon termination.
Interest expense was $48 million, $39 million and $44 million in 1995, 1994 and
1993, respectively. The increase in 1995 was the result of increases in average
levels of debt outstanding and advances from affiliates. The decrease in 1994
was 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 Company's income tax provisions for 1995, 1994 and 1993 resulted in
effective tax rates of 35 percent, 34 percent and 25 percent, respectively. See
Note 4 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.
The Company adopted accounting principles for a competitive marketplace
effective December 31, 1995 and discontinued applying Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation." The accounting impact to the Company was a noncash,
extraordinary charge of $175 million, net of related income tax benefits. See
Note 2 of Notes to Consolidated Financial Statements for additional discussion.
The Company does not expect the discontinued application of SFAS No. 71 to have
a significant impact on 1996 depreciation expense. Additionally, future business
transactions will be recorded following their economic substance, and regulatory
assets and liabilities pursuant to SFAS No. 71 will no longer be recognized.
Regulatory Activities
In 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. An order was
issued in May 1994, which was appealed to the Illinois Appellate Court. The
court reversed the order and remanded the case to the Illinois Commerce
Commission for further proceedings which are pending. Following appeal of the
order, the subsidiary filed a rate structure modification with the Illinois
Commerce Commission to reduce annual revenues by approximately $3 million,
effective October 1994.
In 1995, the Company filed for a rate increase with the Nevada Public Service
Commission, which adopted a stipulation authorizing a rate increase of
approximately $4 million on an annual basis, effective January 1, 1996, and
authorizing the Company to operate under a 5-year plan of alternative
regulation. The plan provides for price regulation rather than rate-of-return
regulation and caps basic service rates for 5 years.
Liquidity and Capital Resources
Cash Flows-Operating Activities
Cash flows from operating activities, which are the Company's primary source of
liquidity, were $277 million, $217 million and $227 million in 1995, 1994 and
1993, respectively. The improvement in 1995 operating cash flows is largely due
to decreased working capital requirements. The decrease in 1994 net cash
provided by operating activities primarily reflected increased working capital
requirements.
Cash Flows-Investing Activities
Capital expenditures, which represent the Company's most significant investing
activity, were $228 million, $205 million and $163 million in 1995, 1994 and
1993, respectively. Capital expenditures were made to accommodate access line
growth and to expand the capabilities for providing enhanced telecommunications
services.
6
<PAGE>
Cash Flows-Financing Activities
The Company's financing activities used cash of $30 million in 1995, provided
$33 million of cash in 1994 and used cash of $65 million in 1993. Improved
operating cash flows during 1995 allowed the Company to fund capital
expenditures internally and reduce total debt outstanding in the fourth quarter.
Increased dividend payments and capital expenditures in 1994 were funded by
operating cash flows and increased short-term borrowings.
Financial Position, Liquidity and Capital Requirements
As of December 31, 1995, the Company's total capitalization aggregated $1.11
billion, consisting of long-term debt (including current maturities), short-term
borrowings, advances from affiliates, redeemable preferred stock, and common
stock and other stockholders' equity. Debt (including current maturities,
short-term borrowings and advances from affiliates) comprised 58 percent of
total capitalization as of December 31, 1995, compared to 50 percent at year-end
1994.
During 1996, the Company anticipates funding estimated capital expenditures of
$260 million with cash flows from operating activities. The Company expects its
external cash requirements for 1996 to be approximately $60 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 $1.5 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, 1995, the Company had no
borrowings outstanding under this agreement. The revolving credit agreement
expires in October 2000. 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, 1995.
Accounting Changes
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" (see Note 3 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).
Effects of Inflation
The effects of inflation on the Company's operations were not significant during
1995, 1994 or 1993.
7
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page Number
----------------
<S> <C>
Report of Independent Auditors - Ernst & Young LLP 9
Consolidated Statements of Income and Retained Earnings for each of the three years ended
December 31, 1995 10
Consolidated Balance Sheets as of December 31, 1995 and 1994 11
Consolidated Statements of Cash Flows for each of the three years ended December 31, 1995 13
Notes to Consolidated Financial Statements 14
Financial Statement Schedule for each of the three years ended December 31,
1995:
II - Consolidated Valuation and Qualifying Accounts 23
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.
</TABLE>
8
<PAGE>
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, 1995 and 1994, and the related consolidated statements of income
and retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. Our audit also included 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.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Central
Telephone Company at December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, 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 Note 2 to the consolidated financial statements, the Company
discontinued accounting for its operations in accordance with Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," in 1995. As discussed in Notes 1 and 3 to the consolidated
financial statements, the Company changed its method of accounting for
postemployment benefits in 1994 and software costs in 1993.
ERNST & YOUNG LLP
Kansas City, Missouri
February 14, 1996
9
<PAGE>
CENTRAL TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
----------- --- ----------- --- -----------
1995 1994 1993
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
(In Millions)
OPERATING REVENUES
<S> <C> <C> <C>
Local service $ 484.0 $ 449.8 $ 416.9
Toll and access service 392.5 360.5 345.8
Other 127.0 114.0 105.9
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
1,003.5 924.3 868.6
OPERATING EXPENSES
Plant operations 326.6 300.5 288.5
Depreciation and amortization 153.2 137.5 134.3
Customer operations 154.1 153.1 138.5
Other operations 148.7 140.9 131.9
Merger, integration and restructuring costs 21.5 -- 77.2
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
804.1 732.0 770.4
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
OPERATING INCOME 199.4 192.3 98.2
Interest expense (47.6) (39.3) (43.6)
Other income, net 0.8 1.5 0.5
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
Income before income taxes, extraordinary item and
cumulative effect of changes in accounting principles 152.6 154.5 55.1
Income tax provision (52.7) (52.6) (13.7)
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
Income before extraordinary item and cumulative effect of
changes in accounting principles 99.9 101.9 41.4
Extraordinary item, net (175.2) -- (4.6)
Cumulative effect of changes in accounting principles, net -- (1.6) (21.6)
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
NET INCOME (LOSS) (75.3) 100.3 15.2
RETAINED EARNINGS AT BEGINNING OF YEAR 251.7 244.9 257.3
Cash dividends
Common stock (64.1) (93.0) (27.1)
Preferred stock (0.4) (0.5) (0.5)
- -------------------------------------------------------------- -- ----------- --- ----------- --- -----------
RETAINED EARNINGS AT END OF YEAR $ 111.9 $ 251.7 $ 244.9
-- ----------- --- ----------- --- -----------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
10
<PAGE>
CENTRAL TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
---------------------------
----------- --- -----------
1995 1994
- ------------------------------------------------------------------------------- --- ----------- --- -----------
(In Millions)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 8.3 $ 19.2
Receivables
Customers and other, net of allowance for doubtful accounts of $2.3 million
($0.5 million in 1994) 109.2 95.4
Interexchange carriers 33.8 31.7
Affiliated companies 11.6 24.8
Advances to affiliates 67.7 38.2
Deferred income taxes 8.6 4.2
Prepaid expenses and other 23.3 15.8
- ------------------------------------------------------------------------------- --- ----------- --- -----------
Total current assets 262.5 229.3
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 124.1 119.2
Telephone network equipment and outside plant 2,468.8 2,282.9
Other 145.4 136.3
Construction in progress 46.7 29.6
- ------------------------------------------------------------------------------- --- ----------- --- -----------
2,785.0 2,568.0
Less accumulated depreciation (1,494.8) (1,026.6)
- ------------------------------------------------------------------------------- --- ----------- --- -----------
1,290.2 1,541.4
DEFERRED CHARGES AND OTHER ASSETS 30.8 64.1
- ------------------------------------------------------------------------------- --- ----------- --- -----------
$ 1,583.5 $ 1,834.8
--- ----------- --- -----------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
11
<PAGE>
CENTRAL TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1995 1994
- ------------------------------------------------------------------------------- --- ----------- --- -----------
(In Millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Outstanding checks in excess of cash balances $ 4.3 $ 3.1
Current maturities of long-term debt 34.3 4.3
Short-term borrowings 58.1 --
Advances from affiliates 149.4 90.3
Accounts payable
Vendors and other 34.2 27.3
Interexchange carriers 36.9 35.7
Affiliated companies 35.7 37.1
Accrued merger, integration and restructuring costs 14.0 17.7
Accrued interest 17.6 16.0
Advance billings 18.2 17.2
Accrued taxes 14.1 22.3
Accrued vacation pay 11.3 11.1
Other 24.9 25.5
- ------------------------------------------------------------------------------- --- ----------- --- -----------
Total current liabilities 453.0 307.6
LONG-TERM DEBT 399.2 510.2
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes and investment tax credits 140.7 259.6
Postretirement and other benefit obligations 79.3 64.8
Regulatory liability -- 52.1
Other 37.6 25.7
- ------------------------------------------------------------------------------- --- ----------- --- -----------
257.6 402.2
REDEEMABLE PREFERRED STOCK 5.1 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 111.9 251.7
- ------------------------------------------------------------------------------- --- ----------- --- -----------
468.6 608.1
- ------------------------------------------------------------------------------- --- ----------- --- -----------
$ 1,583.5 $ 1,834.8
--- ----------- --- -----------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
12
<PAGE>
CENTRAL TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
(In Millions)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (75.3) $ 100.3 $ 15.2
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 153.2 137.5 134.3
Deferred income taxes and investment tax credits (9.4) (6.9) (33.8)
Extraordinary item 175.2 -- 7.6
Cumulative effect of changes in accounting principles -- 1.6 21.6
Changes in operating assets and liabilities
Receivables, net (1.6) (27.0) (10.5)
Other current assets (7.5) (2.6) 0.3
Accounts payable and outstanding checks in excess of cash balances 7.9 (15.5) 0.9
Accrued expenses and other current liabilities (9.7) (5.8) 32.9
Noncurrent assets and liabilities, net 46.7 35.4 55.6
Other, net (2.2) 0.4 2.5
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 277.3 217.4 226.6
INVESTING ACTIVITIES
Capital expenditures (227.9) (204.8) (163.4)
(Increase) decrease in advances to affiliates (29.5) (34.9) 3.7
Other, net (1.2) (1.2) 0.6
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
NET CASH USED BY INVESTING ACTIVITIES (258.6) (240.9) (159.1)
FINANCING ACTIVITIES
Proceeds from long-term debt -- 0.7 118.6
Retirements of long-term debt (9.0) (22.1) (147.5)
Increase (decrease) in notes payable (13.9) 72.0 (20.0)
Increase in advances from affiliates 59.1 75.9 14.4
Dividends paid (64.5) (93.5) (27.6)
Other, net (1.3) 0.2 (3.2)
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (29.6) 33.2 (65.3)
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
INCREASE (DECREASE) IN CASH (10.9) 9.7 2.2
CASH AT BEGINNING OF YEAR 19.2 9.5 7.3
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
CASH AT END OF YEAR $ 8.3 $ 19.2 $ 9.5
--- --------- --- --------- --- ---------
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest $ 39.0 $ 37.2 $ 39.4
Cash paid for income taxes $ 66.9 $ 52.1 $ 38.5
- ------------------------------------------------------------------------ --- --------- --- --------- --- ---------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
13
<PAGE>
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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1995 and 1994, outstanding
checks in excess of cash balances of $4 million and $3 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 was depreciated generally on a
straight-line basis over the estimated useful lives as prescribed by regulatory
commissions. In connection with the discontinuance of Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation," the Company will begin recording depreciation expense based on
estimated economic useful lives rather than those prescribed by regulatory
commissions (see Note 2).
14
<PAGE>
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.
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.
2. ADOPTION OF ACCOUNTING PRINCIPLES FOR A COMPETITIVE MARKETPLACE
Effective December 31, 1995, the Company determined that it no longer met the
criteria necessary for the continued application of the provisions of SFAS No.
71. As a result of the decision to discontinue the application of SFAS No. 71,
the Company recorded a noncash, extraordinary charge of $175 million, net of
income tax benefits of $154 million.
The Company's determination that it was no longer eligible for the continued
application of the accounting required by SFAS No. 71 was based on changes in
the regulatory framework, which continues to evolve from rate-base regulation to
price regulation and the convergence of competition in the telecommunications
industry. Based on these occurrences, the Company no longer believes that it can
be assured that prices will be maintained at levels which will provide for the
recovery of specific costs.
The components of the extraordinary charge recognized as a result of the
discontinued application of SFAS No. 71 are as follows (in millions):
<TABLE>
<CAPTION>
Pre-tax After-tax
- -------------------------------------------------------------------------- -- --------------- --- ---------------
<S> <C> <C>
Increase to the accumulated depreciation balance $ 346.8 $ 214.3
Elimination of net regulatory assets, liabilities and other (18.0) (11.1)
- -------------------------------------------------------------------------- -- --------------- --- ---------------
Total $ 328.8 203.2
-- ---------------
Tax-related net regulatory liabilities (23.8)
Accelerated amortization of investment tax credits (4.2)
--- ---------------
Extraordinary charge $ 175.2
--- ---------------
</TABLE>
The adjustment to the accumulated depreciation balance was determined by the
completion of depreciation reserve and impairment studies. The depreciation
reserve study analyzed, by individual plant asset categories, the impacts of
regulator-prescribed depreciable asset lives compared to the Company's estimated
economic lives. The results identified the cumulative under depreciation of
certain asset categories. The impairment study, which validated the results of
the depreciation study, estimated the impact on future revenues caused by price
changes and developing industry competition, and the resulting effects on cash
flows.
15
<PAGE>
The following is a summary of the telecommunications plant in service asset
balances and corresponding reserve adjustment (in millions).
<TABLE>
<CAPTION>
Pre-Change Post-Change
------------------------------------------- ----------------
Plant in Net Reserve Revised
Category of Asset Service Reserve Plant Adjustment Net Plant
- --------------------------- -- ----------- --- ----------- --- ----------- -- --------------- --- ----------------
<S> <C> <C> <C> <C> <C>
Cable $ 1,061.6 $ 413.1 $ 648.5 $ 260.6 $ 387.9
Circuit 313.6 133.5 180.1 31.4 148.7
Switching 769.4 340.7 428.7 40.2 388.5
Other 496.4 185.2 311.2 14.6 296.6
- --------------------------- -- ----------- --- ----------- --- ----------- -- --------------- --- ----------------
Total Plant $ 2,641.0 $ 1,072.5 $ 1,568.5 $ 346.8 $ 1,221.7
-- ----------- --- ----------- --- ----------- -- --------------- --- ----------------
</TABLE>
The following is a summary of lives before and after the discontinued
application of SFAS No. 71.
<TABLE>
<CAPTION>
Pre-Change
Composite of Post-Change
Regulator- Estimated
Approved Asset Economic
Category of Plant Asset Lives Asset Lives
- -------------------------------------------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Cable 18 - 40 15 - 20
Circuit 9 - 13 7 - 11
Digital Switching 12 - 20 11 - 12
- -------------------------------------------------------------- ------------------------- -------------------------
</TABLE>
The discontinued application of SFAS No. 71 also required the Company to
eliminate from its consolidated balance sheet the effects of any actions of
regulators that had been recognized as assets and liabilities pursuant to SFAS
No. 71, but would not have been recognized as assets and liabilities by
enterprises in general.
The tax-related adjustments were required to adjust deferred income tax amounts
to the currently enacted statutory rates and to eliminate tax-related regulatory
assets and liabilities. The Company uses the deferral method of accounting for
investment tax credits and amortizes the credits as a reduction to tax expense
over the life of the asset that gave rise to the tax credit. Since plant asset
lives were shortened, the investment tax credits were adjusted to reduce the
unamortized balance by a corresponding amount.
3. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
Substantially all employees of the Company are covered by a noncontributory
defined benefit pension plan sponsored by Sprint. For participants of the plan
represented by collective bargaining units, benefits are based upon schedules of
defined amounts as negotiated by the respective parties. For participants not
covered by collective bargaining agreements, the plan provides pension benefits
based upon years of service and participants' compensation.
The Company's policy is to make contributions to the plan each year equal to an
actuarially determined amount consistent with applicable federal tax
regulations. The funding objective is to accumulate funds at a relatively stable
rate over the participants' working lives so that benefits are fully funded at
retirement. As of December 31, 1995, the plan's assets consisted principally of
investments in corporate equity securities and U.S.
government and corporate debt securities.
16
<PAGE>
Pension costs or credits are determined for each subsidiary of Sprint based on a
direct calculation of service costs and projected benefit obligations and an
appropriate allocation of unrecognized prior service costs, transition asset,
and plan assets. Net periodic pension costs recorded by the Company for the
years ended December 31, 1995, 1994, and 1993 were $9 million, $9 million and $7
million, respectively.
Defined Contribution Plans
Sprint sponsors defined contribution employee savings plans covering
substantially all employees of the Company. Participants may contribute portions
of their compensation to the plans. Contributions of participants represented by
collective bargaining units are matched by the Company based upon defined
amounts as negotiated by the respective parties. Contributions of participants
not covered by collective bargaining agreements are also matched by the Company.
For these participants, the Company provides matching contributions in Sprint
common stock equal to 50 percent of participants' contributions up to 6 percent
of their compensation and may, at the discretion of Sprint's Board of Directors,
provide additional matching contributions based upon the performance of Sprint's
common stock in comparison to other telecommunications companies. The Company's
matching contributions aggregated $5 million, $6 million and $10 million in
1995, 1994 and 1993, respectively.
Postretirement Benefits
Sprint sponsors postretirement benefit (principally health care benefits)
arrangements covering substantially all employees of the Company. Employees who
retired before specified dates are eligible for these benefits at no cost.
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.
Net postretirement benefit costs are determined for each subsidiary of Sprint
based on a direct calculation of service costs and accumulated postretirement
benefit obligations and an appropriate allocation of unrecognized prior service
costs, unrecognized net gains and transition obligation. Net postretirement
benefit costs recorded by the Company for the years ended December 31, 1995,
1994 and 1993 were $20 million, $16 million and $23 million, respectively.
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. 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. 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.
17
<PAGE>
4. INCOME TAXES
The components of the federal and state income tax provisions are as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Current income tax provision
<S> <C> <C> <C>
Federal $ 54.3 $ 52.7 $ 42.7
State 7.8 6.8 4.8
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
62.1 59.5 47.5
Deferred income tax provision (benefit)
Federal (5.8) (2.7) (26.8)
State -- 0.1 (2.5)
Amortization of deferred ITC (3.6) (4.3) (4.5)
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
(9.4) (6.9) (33.8)
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Total income tax provision $ 52.7 $ 52.6 $ 13.7
-- ------------- --- ------------- -- -------------
</TABLE>
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 were generally recorded as reductions to
the related regulatory liabilities and have subsequently been eliminated in
connection with the Company's discontinued application of SFAS No. 71 (see Note
2).
The differences which cause the effective income tax rate to vary from the
statutory federal income tax rate of 35 percent in 1995, 1994 and 1993 are as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
<S> <C> <C> <C>
Federal income tax provision at the statutory rate $ 53.4 $ 54.1 $ 19.3
Less amortization of deferred ITC (3.6) (4.3) (4.5)
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Expected federal income tax provision after amortization of
deferred ITC 49.8 49.8 14.8
Effect of
Reversal of rate differentials (3.5) (3.0) (3.2)
State income tax, net of federal income tax effect 5.1 4.5 1.5
Other, net 1.3 1.3 0.6
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
Income tax provision, including ITC $ 52.7 $ 52.6 $ 13.7
-- ------------- --- ------------- -- -------------
-- ------------- --- ------------- -- -------------
Effective income tax rate 35% 34% 25%
-- ------------- --- ------------- -- -------------
</TABLE>
The income tax benefits allocated to other items are as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
<S> <C> <C> <C>
Extraordinary loss on discontinuance of SFAS No. 71 $ 153.6 $ -- $ --
Cumulative effect of changes in accounting principles -- 1.1 12.5
Extraordinary losses on early extinguishments of debt -- -- 3.0
- -------------------------------------------------------------- -- ------------- --- ------------- -- -------------
</TABLE>
18
<PAGE>
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, 1995 and 1994,
along with the income tax effect of each, are as follows (in millions):
<TABLE>
<CAPTION>
1995 Deferred Income Tax 1994 Deferred Income Tax
---------------------------------- -- ----------------------------------
-- ------------- --- ------------- --- ------------- -- -------------
Assets Liabilities Assets Liabilities
- ----------------------------------------- -- ------------- --- ------------- -- --- ------------- -- -------------
<S> <C> <C> <C> <C>
Property, plant and equipment $ -- $ 179.9 $ -- $ 283.4
Postretirement and other benefits 29.5 -- 24.0 --
Expense accruals 11.1 -- 8.4 --
Revenue reserves 8.0 -- 8.5 --
Integration and restructuring costs 9.6 -- 7.2 --
Other, net -- 6.1 -- 5.5
- ----------------------------------------- -- ------------- --- ------------- -- --- ------------- -- -------------
$ 58.2 $ 186.0 $ 48.1 $ 288.9
-- ------------- --- ------------- -- --- ------------- -- -------------
</TABLE>
5. DEBT
Long-term debt as of December 31 is as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
Weighted Weighted
Average Average
Amount Interest Rate Amount Interest Rate
- -------------------------------------------- --- ----------- -- --------------- ----------- --- --------------
Central Telephone Company
<S> <C> <C> <C> <C>
First mortgage bonds, due 1996 through
2021 $ 226.8 7.7% $ 227.1 7.7%
Short-term borrowings classified as
long-term debt -- -- 72.0 4.9%
Subsidiaries
First mortgage bonds, due 1996 through
2021 104.0 8.0% 112.7 7.9%
Notes, due 2002 through 2020 102.7 7.2% 102.7 7.2%
- -------------------------------------------- --- ----------- --- -----------
433.5 514.5
Less current maturities 34.3 4.3
- -------------------------------------------- --- ----------- --- -----------
Total long-term debt, excluding current
maturities $ 399.2 $ 510.2
--- ----------- --- -----------
</TABLE>
Long-term debt maturities during each of the next five years are as follows (in
millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------- -- -----------
<S> <C>
1996 $ 34.3
1997 23.5
1998 31.3
1999 15.2
2000 60.1
- --------------------------------------------------------------------------------------------------- -- -----------
</TABLE>
The first mortgage bonds are secured by substantially all of the Company's
property, plant and equipment.
19
<PAGE>
Provisions in certain debt agreements 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, $34 million of retained earnings were restricted
from payment of dividends as of December 31, 1995. In connection with dividend
restrictions, $49 million of the related subsidiaries' $90 million of retained
earnings are restricted as of December 31, 1995. The flow of cash in the form of
advances from the subsidiaries to Central Telephone is generally not restricted.
As of December 31, 1995, $58 million of notes payable with a weighted average
interest rate of 5.9 percent were classified as short-term borrowings. Notes
payable of $72 million at December 31, 1994 with a weighted average interest
rate of 4.9 percent were 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 $1.5 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 October
2000. As of December 31, 1995, 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, 1995.
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.
6. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments as of December 31, 1995 for all non-cancelable
operating leases, consisting principally of leases for data processing equipment
and real estate, are as follows (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------- -- -------------
<S> <C>
1996 $ 2.9
1997 2.5
1998 0.7
1999 0.6
2000 0.3
Thereafter 0.2
- ------------------------------------------------------------------------------------------------- -- -------------
</TABLE>
Gross rental expense aggregated $8 million in 1995 and 1994 and $22 million in
1993.
20
<PAGE>
7. 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 in both 1995 and 1994 and $49 million in 1993. 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 $98 million and $90 million
in 1995 and 1994, respectively, and were not significant in 1993. 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 $7 million, $3 million and $1 million in 1995, 1994 and
1993, respectively. Interest income on advances to such affiliates was $3
million in 1995, $2 million in 1994 and $1 million in 1993.
The Company purchases telecommunications equipment, construction and maintenance
equipment, materials and supplies from its affiliate, North Supply. Total
purchases for 1995, 1994 and 1993 were $54 million, $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 $25
million in 1995 and $20 million in both 1994 and 1993 for these services. The
Company paid Sprint's long distance communications services division $2 million
in 1995 and $1 million in both 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 $58
million in 1995, $51 million in 1994 and $50 million in 1993.
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
Realignment and Restructuring Charge
During 1995, Sprint initiated a realignment and restructuring of its local
communications services division, including the elimination of approximately 450
of the Company's positions. These actions resulted in a nonrecurring charge to
the Company of $22 million, which reduced net income by $14 million.
Financial Instruments Information
The Company estimates the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Accordingly, the estimates presented herein are not necessarily indicative of
the values the Company could realize in a current market exchange. Although
management is not aware of any factors that would affect the estimated fair
value amounts presented as of December 31, 1995, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and therefore, estimates of fair value subsequent to that date may differ
significantly from the amounts presented herein.
21
<PAGE>
The Company's financial instruments consist primarily of long-term debt,
including current maturities, and short-term borrowings with aggregate carrying
amounts as of December 31, 1995 and 1994, of $492 million and $515 million,
respectively, and estimated fair values of $537 million and $496 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 carrying values of the Company's other financial instruments approximate
fair value as of December 31, 1995 and 1994.
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 $136 million, $139 million and $137 million for 1995, 1994 and
1993, respectively.
10. SUPPLEMENTAL QUARTERLY INFORMATION - UNAUDITED
<TABLE>
<CAPTION>
1995 Quarters Ended
------------ -- ------------- --- ---------------- --- ----------------
March 31 June 30 September 30 December 31
- --------------------------------------- -- ------------ -- ------------- --- ---------------- --- ----------------
(in millions)
<S> <C> <C> <C> <C>
Operating revenues $ 242.5 $ 247.2 $ 254.0 $ 259.8
Operating income (1) 51.7 54.1 56.9 36.7
Income before extraordinary item and
cumulative effect of changes in
accounting principles (1) 26.8 28.1 29.5 15.5
Net income (loss) (1), (2) 26.8 28.1 29.5 (159.7)
- --------------------------------------- -- ------------ -- ------------- --- ---------------- --- ----------------
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
- --------------------------------------- -- ------------ -- ------------- --- ---------------- --- ----------------
(1) During fourth quarter 1995, nonrecurring charges of $22 million were
recorded related to a restructuring of the Company's operations. Such
charges reduced net income by $14 million. See Note 9 of Notes to
Consolidated Financial Statements for additional information.
(2) During fourth quarter 1995, the Company adopted accounting principles for a
competitive marketplace and discontinued the application of SFAS No. 71. As
a result, the Company recorded a noncash, after-tax extraordinary charge of
$175 million. See Note 2 of Notes to Consolidated Financial Statements for
additional information.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TELEPHONE COMPANY
SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993
(In Millions)
Additions
------------------------------
Balance Charged Balance
Beginning Charged to other Other end of
of year to income accounts deductions year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Allowance for doubtful accounts $ 0.5 $ 5.7 $ 1.1 $ (5.0) (1) $ 2.3
-----------------------------------------------------------------------------
1994
Allowance for doubtful accounts $ 0.6 $ 3.4 $ -- $ (3.5) (1) $ 0.5
-----------------------------------------------------------------------------
1993
Allowance for doubtful accounts $ 0.5 $ 4.5 $ -- $ (4.4) (1) $ 0.6
-----------------------------------------------------------------------------
(1) Accounts charged off, net of collections.
</TABLE>
23
<PAGE>
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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.
<TABLE>
<CAPTION>
Officer Name Age
- ---------------------------------------------------------- ---------------------------------- ---------
<S> <C> <C>
President and Chief Executive Officer, Director D. Wayne Peterson (1) 60
Senior Vice President-Network William C. Prout (2) 47
Vice President-Chief Financial Officer John P. Meyer (3) 45
Vice President-Controller Ralph J. Hodge (4) 43
Vice President-Treasurer, Director M. Jeannine Strandjord (5) 50
Vice President-Assistant Secretary, Director Don A. Jensen (6) 60
Secretary Michael T. Hyde (7) 54
President-North Carolina Division, Director William E. McDonald (8) 53
President-Nevada Division, Director Dianne Jett (9) 46
Director Alan J. Sykes (10) 48
</TABLE>
(1) Mr. Peterson has been President and Chief Executive Officer since 1993. He
has also served as President-Local Communications 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. Prout was elected Senior Vice President-Network in March 1996. Mr.
Prout has also served as Senior Vice President-Network of Sprint's Local
Communications Division since November 1995. From 1990 to 1995, he served
as Vice President-Engineering and Operations of Sprint's Local
Communications Division.
(3) 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.
(4) 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.
(5) Ms. Strandjord has been Vice President-Treasurer since 1993. She has also
served as Senior Vice President and Treasurer of Sprint since 1990. Ms.
Strandjord has been a Director since 1993.
(6) 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.
(7) Mr. Hyde has been Secretary since January 1996. He has also served as
Assistant Secretary of Sprint since 1980.
(8) Mr. McDonald has been President of Central Telephone's North Carolina
Division since 1993. He has also served as President of the other companies
comprising the Mid-Atlantic Group of local exchange companies of Sprint
since 1993. From 1988 to 1993, he served as President of the companies
comprising the Eastern Group of local exchange companies of Sprint. Mr.
McDonald has been a Director since 1993.
24
<PAGE>
(9) Ms. Jett has been President of Central Telephone's Nevada Division since
1993. From 1989 to 1993, she was General Regulatory Manager of Central
Telephone's Nevada Division. Ms. Jett has been a Director since 1993.
(10) Mr. Sykes has been Vice President of Revenues of Sprint's Local
Communications 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 $100,000 in salary and bonus for services to the
Company during 1995 (the Named Officers).
Summary Compensation Table
The following table reflects the cash and non-cash compensation for the Named
Officers. Annual salary and bonus amounts shown are amounts allocated to the
Company by Sprint. The individuals designated as Named Officers also had
responsibilities during 1995 relating to Sprint, Centel and other subsidiaries
of Sprint and Centel. Except for amounts shown in the "Salary" and "Bonus"
columns, the compensation stated reflects all compensation earned by the
individuals in all his or her capacities with Sprint, Centel, and their
subsidiaries.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
-------------------------------- --------------------- --------
Other Securities
Name Annual Restricted Underlying All Other
and Compen- Stock Options/ LTIP Compen-
Principal sation Award(s) SARs Payouts sation
Position Year Salary ($) Bonus ($) ($) (1) ($) (2) (#) ($) ($) (3)
- ------------------- ----- ---------- ----------- --------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Wayne Peterson 1995 70,891 78,792 38,486 0 40,309 213,519 14,729
Chief Executive 1994 67,412 69,714 36,426 0 94,970 107,633 35,780
Officer 1993 27,985 19,762 24,166 372,500 11,000 89,783 42,431
Dianne Jett 1995 171,611 103,945 0 0 11,000 52,692 5,737
President - Nevada 1994 162,598 117,419 0 0 5,000 0 4,519
Division 1993 74,808 41,156 4,587 0 5,000 0 6,060
William E. McDonald 1995 68,235 64,885 47,260 0 17,000 109,589 16,439
President - 1994 64,220 41,321 44,357 0 14,000 66,048 79,659
Carolina Division 1993 21,121 14,229 10,286 0 11,000 61,098 12,874
- ----------
</TABLE>
Notes:
(1) Includes the following amounts for 1995: (a) the cost of providing club
memberships of $9,167 and $21,077 for Messrs. Peterson and McDonald,
respectively; and (b) automobile allowance of $13,200 and $12,000 for
Messrs. Peterson and McDonald, respectively.
(2) 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, 1995, Mr. Peterson held 13,633 restricted shares valued at
$540,208, based on the closing price of Sprint common stock on December 31,
1995, equal to $39.625. Mr. Peterson has the right to vote and receive
dividends on the restricted shares. The award during 1993 to Mr. Peterson
vests as follows: 50% on July 12, 1996, 25% on July 12, 1997, and 25% on
July 12, 1998.
25
<PAGE>
(3) Consists of the following amounts for 1995: (a) $6,750, $4,951 and $5,805
contributed on behalf of Mr. Peterson, Ms. Jett and Mr. McDonald,
respectively, as company contributions under Sprint's Retirement Savings
Plan; (b) $439 in dividends on Centel Employees' Stock Ownership Plan
shares for Ms. Jett; (c) $7,979, $347 and $10,634 for Mr. Peterson, Ms.
Jett and Mr. McDonald, respectively, representing the portion of interest
credits on deferred compensation accounts under Sprint's Executive Deferred
Compensation Plan that are at above-market rates.
Option Grants
The following table summarizes options granted to the Named Officers during 1995
for the purchase of shares of Sprint common stock under Sprint's stock option
plans. The option grants relate to compensation earned by the Named Officers for
all responsibilities with Sprint, Centel and their subsidiaries. The amounts
shown as potential realizable values on these options are based on arbitrarily
assumed annualized rates of appreciation in the price of Sprint common stock of
five percent and ten percent over the term of the options, as set forth in
Securities and Exchange Commission (SEC) rules. The Named Officers will realize
no gain on these options without an increase in the price of Sprint common
stock. No stock appreciation rights were granted during 1995.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for
Underlying Employees or Base Expiration Option Term (2)
Name Options Granted in Fiscal Price Date
(#)(1) Year ($/Sh) 0% 5% 10%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Wayne Peterson 30,000 0.9% $29.6250 02/17/05 $0 $558,930 $1,416,439
10,309 0.3% 33.8125 02/15/01 0 108,114 242,287
Dianne Jett 11,000 0.3% 29.6250 02/17/05 0 204,941 519,361
William E. McDonald 17,000 0.5% 29.6250 02/17/05 0 316,727 802,649
- ----------
</TABLE>
Notes:
(1) The options shown for each Named Officer include both option awards and
"reload" option grants. The first grant shown for Mr. Peterson is an option
award and the second grant is a reload grant. Each grant for Ms. Jett and
Mr. McDonald is an option award.
Twenty-five percent of the option grants shown for each Named Officer
became exercisable on February 17, 1996, and an additional 25% will become
exercisable on February 17 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.
26
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table summarizes the net value realized on the exercise of options
in 1995, and the value of the outstanding options at December 31, 1995, for the
Named Officers.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1995 and Year-end Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at 12/31/95 Options at 12/31/95(2)
--------------------------- -------------------------------
Shares Value Exercisable Unexercisable Exercisable Unexercisable
Name Acquired Realized (#) (#) ($) ($)
on Exercise(#) (1) ($)
- --------------------- --------------- ----------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
D. Wayne Peterson 11,800 $94,400 55,078 101,059 $314,876 $626,843
Dianne Jett 0 0 4,983 17,250 37,961 143,047
William E. McDonald 0 0 56,000 35,000 846,500 276,938
- ----------
</TABLE>
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, 1995 ($39.625).
Long-Term Incentive Plan Awards
The following table represents potential 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,
Compensation and Nominating 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, 1997. Payouts of awards (which represent items of
compensation attributable to Sprint as a whole) are tied to achieving 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), the Cellular Division (CD) and
Sprint consolidated economic value added (EVA). The relative weight given to the
performance criteria 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, net collectible revenue growth and improvement in
EVA within the LDD. The portion of the payout applicable to the LTD is tied to
achieving specified levels of return on assets, nonregulated net collectible
revenues, nonregulated operating income and improvement in EVA within the LTD.
The portion of the payout applicable to the CD is tied to achieving specified
levels of operating income, net collectible revenue and improvement in EVA
within the CD. The portion of the payout applicable to EVA is tied to Sprint's
consolidated economic value added which measures the return on investment that
enhances shareholder value. The target amount will be earned if 100% of the
targeted levels of such criteria is achieved. An award payout will not be earned
for performance below the threshold.
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, 1995 and December 31, 1997. 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,
Compensation and Nominating 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.
27
<PAGE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts
under Non-Stock Price Based Plans(1)
------------------------------------------------
Performance or
Other Period
Until Maturation Threshold Target Maximum
Name or Payout ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
D. Wayne Peterson 1/1/95-12/31/97 $27,863 $111,450 $193,017
Dianne Jett 1/1/95-12/31/97 10,290 41,160 67,811
William E. McDonald 1/1/95-12/31/97 17,125 68,500 112,854
- ---------
</TABLE>
(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,
1997. In calculating the average base salary midpoint, the table assumes
the base salary midpoint for 1996 and 1997 will equal the 1995 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,
1997 will be the same as it was on January 1, 1995.
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 ($24,600 in 1996) 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 is expected to be greater under the old
formula, the table below reflects the estimated annual pension benefit payable
to an individual retiring in 1996 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 1996 at age 65. The amounts include all prospective
benefits under Sprint's plans, whether tax-qualified or not.
Pension Plan Table
<TABLE>
<CAPTION>
Remuneration(1) Years of Service (2)
---------------------
15 20 25 30 35
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $27,771 $37,028 $46,285 $55,542 $64,799
150,000 33,584 44,778 55,973 67,167 78,362
175,000 39,396 52,528 65,660 78,792 91,924
200,000 45,209 60,278 75,348 90,417 105,487
225,000 51,021 68,028 85,035 102,042 119,049
250,000 56,834 75,778 94,723 113,667 132,612
275,000 62,646 83,528 104,410 125,292 146,174
300,000 68,459 91,278 114,098 136,917 159,737
325,000 74,271 99,028 123,785 148,542 173,299
350,000 80,084 106,778 133,473 160,167 186,862
</TABLE>
- ----------
(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 38 years for Mr.
Peterson and 28 years for Mr. McDonald.
28
<PAGE>
Ms. Jett'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 $94,702. 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, 1995.
<TABLE>
<CAPTION>
- ------ -------------------------------------------- ----------------------- -------------------- ----------------------
Name and Address Title of Number Percent
of Beneficial Owner Class of Shares of Class
- ------ -------------------------------------------- ----------------------- -------------------- ----------------------
<S> <C> <C>
Centel Corporation Common Stock 2,250,000 100%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
</TABLE>
29
<PAGE>
The following table sets forth information as of December 31, 1995, 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.
<TABLE>
<CAPTION>
- ------ ---------------------------------------------------------------------- ---------------------------- ----------
Sprint Common Stock
Name of Individual or Beneficially Owned (1)
Identity of Group Number of Shares
- ------ ---------------------------------------------------------------------- --------------- ------------ ----------
<S> <C> <C>
Don A. Jensen................................................. 57,558 (2)
Dianne Jett................................................... 24,884 (2)
William E. McDonald........................................... 84,328 (2)
D. Wayne Peterson............................................. 121,104 (2)
M. Jeannine Strandjord........................................ 78,578 (2)
Alan J. Sykes................................................. 39,414 (2)(3)
All Directors and executive officers
as a group (10 persons).................................. 552,501 (2)(3)(4)
- -----------
</TABLE>
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, 1995, under Sprint's
stock option plans as follows: 36,793, 8,983, 65,750, 72,828, 62,500 and
33,500 shares for Mr. Jensen, Ms. Jett, Mr. McDonald, Mr. Peterson, Ms.
Strandjord and Mr. Sykes, respectively, and 386,767 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: 91 shares held by Mr. Sykes as
custodian for his son, and 1,011 shares for all Directors and executive
officers as a group. (4) Represents less than 1% of class.
Item 13. Certain Relationships and Related Transactions
None.
30
<PAGE>
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 Consent of Ernst & Young 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 1995.
(c) Exhibits are listed in Item 14(a).
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTRAL TELEPHONE COMPANY
(Registrant)
By /s/ D. Wayne Peterson
D. Wayne Peterson
President and Chief Executive Officer
Date: March 29, 1996
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, 1996.
/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
32
<PAGE>
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, 1996.
/s/ Don A. Jensen
Don A. Jensen, Director
/s/ Dianne Jett
Dianne Jett, 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
33
<PAGE>
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 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
Exhibit 3(a)
RESTATED
CERTIFICATE OF INCORPORATION
of
CENTRAL TELEPHONE COMPANY
Original Certificate of Incorporation
Filed under the Name of
New Centel, Inc.
December 14,1970
Duly Adopted by the Board of Directors in Accordance with
the Provisions of Delaware General Corporation Code Section 245.
This Restated Certificate only restates and integrates and does not further
amend the provisions of the Corporation's Certificate of Incorporation as
previously amended and supplemented, and there is no discrepancy between the
Certificate of Incorporation as amended and supplemented and the provisions of
this Restated Certificate.
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 nineteen
thousand nine hundred ninety-nine (3,219,999) shares, of which nine hundred
sixty- nine thousand nine hundred ninety-nine (969,999) shares shall be
Cumulative Preferred Stock without par value, and two million two hundred fifty
thousand (2,250,000) shares shall be Common Stock without par value.
<PAGE>
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,
86,675 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,
24,000 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."
(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.
<PAGE>
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 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.
(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, if all 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 shall, as such, be entitled to share in
such dividends or distributions.
<PAGE>
(4) The Cumulative 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 Common Stock. After receipt of
the amounts to which they are entitled, as aforesaid, the holders of the
Cumulative 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, 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.
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.
<PAGE>
(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 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 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 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
<PAGE>
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, 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 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 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 by-
laws, 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
<PAGE>
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 two-
thirds 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 by-
laws, (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 Common Stock to elect the smallest number constituting a majority of the
directors to be elected and the holders of the Common Stock 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
<PAGE>
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
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 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 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 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 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
<PAGE>
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 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.
<PAGE>
(10) Additional terms of the respective series of
Cumulative 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
<PAGE>
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 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 Common Stock of
the Corporation until such default shall have been cured.
<PAGE>
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.
<PAGE>
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
<PAGE>
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 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 Common Stock of the
Corporation until such default shall have been cured.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
(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.
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
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 February 14, 1996, 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, 1995.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Kansas City, Missouri
March 26, 1996
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