UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-6469
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CAROLINA TELEPHONE AND TELEGRAPH COMPANY
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(Exact name of registrant as specified in its charter)
North Carolina 56-0931189
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14111 Capital Boulevard, Wake Forest, North Carolina 27587
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(Address of principal executive offices) (Zip Code)
919-554-7900
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Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
This registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
There are 3,626,510 shares of common stock, par value $20, outstanding as
of March 31, 1995 and as of the date of filing of this report.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
INDEX
Page Reference
--------------
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets Pages 2 - 3
Consolidated Statements of Income Page 4
Consolidated Statements of Cash Flows Page 5
Condensed Notes to Consolidated
Financial Statements Page 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations Pages 7 - 9
Part II. Other Information
Item 1. Legal Proceedings Page 10
Item 2. Changes in Securities Page 10
Item 3. Defaults Upon Senior Securities Page 10
Item 4. Submission of Matters to a Vote of
Security Holders Page 10
Item 5. Other Information Page 10
Item 6. Exhibits and Reports on Form 8-K Page 10
Signatures Page 11
Exhibit 12
Exhibit 27
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1995 1994
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 21 $ 16
Receivables, net of allowance for
doubtful accounts of $2,397
($1,775 in 1994):
Customers and other 74,359 83,597
Interexchange carriers 27,150 24,488
Affiliated companies 6,901 5,971
Inventories 11,658 12,490
Prepaid expenses and other 4,866 4,073
--------- ---------
124,955 130,635
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 133,343 132,610
Telephone network equipment and outside
plant 1,489,130 1,454,632
Other 89,460 86,520
Construction in progress 31,594 28,162
--------- ---------
1,743,527 1,701,924
Less accumulated depreciation 791,677 766,173
--------- ---------
951,850 935,751
DEFERRED CHARGES AND OTHER ASSETS 75,223 72,136
--------- ---------
$1,152,028 $1,138,522
========= =========
See Accompanying Condensed Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(In Thousands)
March 31, December 31,
1995 1994
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of cash
balances $ 2,832 $ 1,347
Short-term borrowings:
Commercial paper 36,800 33,600
Advances from parent company 1,048 2,810
Current maturities of long-term debt 12,547 8,579
Accounts payable:
Vendor and other 27,490 19,742
Interexchange carriers 29,217 24,909
Affiliated companies 12,409 15,855
Accrued taxes 30,632 18,396
Advance billings and customer deposits 18,368 19,853
Accrued vacation pay 9,472 8,862
Other 18,939 20,337
--------- ---------
199,754 174,290
LONG-TERM DEBT 248,779 260,736
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 106,485 110,489
Deferred investment tax credits 2,588 3,134
Postretirement and other benefit
obligations 39,876 36,539
Regulatory liability 26,320 26,772
Other 14,523 12,520
--------- ---------
189,792 189,454
COMMON STOCK AND OTHER STOCKHOLDER'S EQUITY
Common stock, par value $20 per share,
authorized-5,000,000 shares, issued
and outstanding-3,626,510 shares 72,530 72,530
Capital in excess of par value 71,991 71,991
Retained earnings 369,182 369,521
--------- ---------
513,703 514,042
--------- ---------
$1,152,028 $1,138,522
========= =========
See Accompanying Condensed Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended March 31,
1995 1994
------ ------
(Unaudited)
OPERATING REVENUES
Local service $ 71,510 $ 67,104
Network access service 51,756 48,730
Long distance service 24,796 26,772
Other 34,909 25,982
-------- --------
182,971 168,588
OPERATING EXPENSES
Plant expense 54,961 51,388
Depreciation 32,170 29,907
Customer operations 26,516 23,153
Corporate operations 16,737 17,368
Other 7,488 4,836
Taxes:
Federal income:
Current 14,961 11,123
Deferred (3,590) (642)
Deferred investment tax credits (546) (945)
State, local and miscellaneous 7,398 6,785
-------- --------
156,095 142,973
OPERATING INCOME 26,876 25,615
Interest expense
Short-term borrowings and
long-term debt 4,838 5,026
Other 488 265
-------- --------
5,326 5,291
Other income
Interest charged to construction 54 37
Other, net 180 209
-------- --------
234 246
-------- --------
NET INCOME $ 21,784 $ 20,570
======== ========
See Accompanying Condensed Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
1995 1994
-------- --------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 21,784 $ 20,570
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 32,170 29,907
Deferred income taxes and investment
tax credits (4,813) (1,284)
Changes in operating assets and
liabilities:
Receivables, net 5,646 (2,158)
Inventories and other current assets 39 1,052
Accounts payable, accrued expenses
and other current liabilities 20,058 18,561
Noncurrent assets and liabilities, net 4,009 831
Other, net 197 101
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 79,090 67,580
INVESTING ACTIVITIES
Capital expenditures (47,501) (43,231)
Other, net (2,851) (1,917)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (50,352) (45,148)
FINANCING ACTIVITIES
Retirements of long-term debt (8,048) (51)
Net increase (decrease) in short-term
borrowings 1,438 (16,361)
Dividends paid (22,123) (5,985)
Other, net - (41)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (28,733) (22,438)
INCREASE (DECREASE) IN CASH 5 (6)
CASH AT BEGINNING OF YEAR 16 20
--------- ---------
CASH AT END OF YEAR $ 21 $ 14
========= =========
See Accompanying Condensed Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The information contained in this Form 10-Q for the three-month interim
periods ended March 31, 1995 and 1994 has been prepared in accordance with
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments considered necessary, consisting only of normal
recurring accruals, to present fairly the consolidated financial position,
results of operations, and cash flows for such interim periods have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The results
of operations for the three months ended March 31, 1995 are not necessarily
indicative of the operating results that may be expected for the year ended
December 31, 1995.
Basis of Presentation
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The accompanying consolidated financial statements include the accounts
of Carolina Telephone and Telegraph Company and its wholly-owned subsidiary,
Carolina Telephone Long Distance, Inc., collectively referred to as the
"Company." All significant intercompany transactions have been eliminated.
Certain amounts previously reported for prior periods have been
reclassified to conform to the current period presentation in the accompanying
consolidated financial statements. Such reclassifications had no effect on
the results of operations or stockholder's equity as previously reported.
Earnings Per Share
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Earnings per share information has been omitted because the Company is a
wholly-owned subsidiary of Sprint Corporation.
2. SUPPLEMENTAL CASH FLOW INFORMATION
The supplemental disclosures for the consolidated statements of cash
flows for the three months ended March 31 are as follows (in thousands):
1995 1994
------ ------
Cash paid for
Interest, net of amounts capitalized $ 4,037 $ 5,187
Income taxes 1,697 400
<PAGE>
Form 10-Q Part I.
Item 2.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Local service revenues increased $4.4 million or 6.6 percent for the
three-month period ended March 31, 1995 compared to the same period in 1994.
Basic area service revenues contributed $3.0 million to this increase,
primarily attributable to a 4.7 percent growth in access lines. For the same
period, custom calling features added $1.3 million as a result of marketing
promotions.
Network access service revenues increased $3.0 million or 6.2 percent
for the three-month period ended March 31, 1995 compared to the same period
in 1994. The increase was primarily due to an 8.8 percent growth in
interstate access minutes and a 12.1 percent growth in intrastate access
minutes. These increases were partially offset by rate reductions which went
into effect July 1, 1994.
Long distance service revenues decreased $2.0 million or 7.4 percent for
the three-month period ended March 31, 1995 compared to the same period in
1994. Carolina Telephone Long Distance, Inc. experienced a 19.9 percent
decrease in access lines due to aggressive advertising campaigns of its
competitors.
Other revenues increased $8.9 million or 34.4 percent for the three-month
period ended March 31, 1995 compared to the same period in 1994. The
equipment sales and installation revenue increased $3.5 million. North
Carolina Utility Services (NCUS), a non-regulated line of business
specializing in locating underground utility lines, contributed $3.3 million.
The increase in NCUS revenues reflects an expansion of the service area and
an increase in the customer base in existing service areas, as well as
revenues attributable to Drop Administration Placement, a new line of business
of NCUS specializing in administering the placement of buried service wires.
The Company began providing operator services for two of its affiliates,
Central Telephone Company of Virginia and Central Telephone Company - North
Carolina Division, which also contributed to the increased revenues.
Plant expense increased $3.6 million or 7.0 percent for the three-month
period ended March 31, 1995 compared to the same period in 1994. Generic
software expense increased due to upgrades of digital switches to provide
enhanced services. The remainder of the increase was due to several
individually insignificant expenses associated with repairs and
rearrangements/changes including an accounting change for pole rentals and an
increase in contractor utilization.
<PAGE>
Form 10-Q Part I.
Item 2.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
- - - - - - ---------------------------------
Customer operations expense increased $3.4 million or 14.5 percent for
the three-month period ended March 31, 1995 compared to the same period in
1994. North Carolina Utility Services expenses increased $2.5 million due to
the expansion of its customer base and its new line of business, Drop
Administration Placement. Product management and sales expenses increased as
the Company continues to intensify its efforts to achieve an increased market
share and gain knowledge of its customer expectations.
Other operating expenses increased $2.7 million or 54.8 percent for the
three-month period ended March 31, 1995 compared to the same period in 1994.
This fluctuation was primarily due to a $2.6 million increase in cost of
equipment sales, generally correlating with the overall trend in equipment
sales.
Liquidity and Capital Resources
- - - - - - -------------------------------
Cash flows from operating activities are the Company's primary source of
liquidity. Net cash provided by operating activities increased $11.5 million
for the three-month period ended March 31, 1995 compared to the same period
in 1994. The increase was attributable to a decrease in receivables and an
increase in accrued expenses and other current liabilities.
Net cash used by investing activities increased $5.2 million for the
three-month period ended March 31, 1995 compared to the same period in 1994.
This increase was impacted by a $4.3 million increase in telecommunications
plant additions, as well as increases in non-regulated investment additions.
The Company's planned construction expenditures for 1995 are $141.5 million.
Net cash used by financing activities increased $6.3 million for the
three-month period ended March 31, 1995 compared to the same period in 1994
primarily due to an increase in dividend payments and an increase in
retirements of long-term debt, partially offset by an increase in short-term
borrowings.
As of March 31, 1995, the Company had a total of $60 million in one-year
bank commitments. The bank lines provide for short-term borrowings at market
rates of interest and require annual commitment fees based on the unused
portion. Such lines of credit, which support commercial paper, may be
withdrawn by the banks if there is a material adverse change in the financial
condition of Sprint of the Company. As of March 31, 1995, no amounts were
borrowed against this credit facility; however, $36.8 million of the bank
lines supported commercial paper outstanding at March 31, 1995.
The Company is also authorized to issue and sell an additional $75
million in debentures. The debentures must be due within thirty years of
the date of issue and cannot exceed an interest rate of 7.25 percent.
<PAGE>
Form 10-Q Part I.
Item 2.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
- - - - - - -------------------------------------------
The Company's ratio of common equity to total capital was 63.2 percent
at March 31, 1995 and 62.7 percent at December 31, 1994. The Company's ratio
of long-term debt to total capital was 32.1 percent at March 31, 1995 and
32.9 percent at December 31, 1994.
Accounting Developments
- - - - - - -----------------------
Consistent with most local exchange carriers, the Company accounts for
the economic effects of regulation pursuant to SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation." The application of SFAS No. 71
requires accounting recognition of the rate actions of regulators where
appropriate, including the recognition of depreciation based on estimated
useful lives prescribed by regulatory commissions rather than those that might
be utilized by non-regulated enterprises. The Company currently believes its
operations meet the criteria for the continued application of the provisions
of SFAS No. 71. However, the Company operates in an evolving environment in
which the regulatory framework is changing and the level and types of
competition are increasing. Accordingly, the Company constantly monitors and
evaluates the ongoing applicability of SFAS No. 71 by assessing the likelihood
that prices which provide for the recovery of specific costs can continue to
be charged to customers.
In the event the Company determines that its operations no longer qualify
for the application of the provisions of SFAS No. 71, the Company will
eliminate from its financial statements the effect of any actions of
regulators that had previously been recognized as assets and liabilities.
The resulting material noncash charge would be recorded as an extraordinary
item.
<PAGE>
Form 10-Q Part II.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
OTHER INFORMATION
Item 1. Legal Proceedings
There were no reportable events during the quarter ended
March 31, 1995.
Item 2. Changes in Securities
Omitted under the provisions of General Instruction H.
Item 3. Defaults Upon Senior Securities
Omitted under the provisions of General Instruction H.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted under the provisions of General Instruction H.
Item 5. Other Information
The Company's ratios of earnings to fixed charges were 7.00
and 6.32 for the three months ended March 31, 1995, and 1994,
respectively. These ratios have been computed by dividing
fixed charges into the sum of (a) net income less capitalized
interest included in income, (b) income taxes and (c) fixed
charges. Fixed charges consist of interest on all indebtedness
(including amortization of debt issuance expenses) and the
interest factor of operating rents.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(12) Computation of ratios of earnings to fixed charges.
(27) Financial data schedule.
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1995.
<PAGE>
Form 10-Q Part II.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Carolina Telephone and Telegraph Company
----------------------------------------
Registrant
Date 05-15-95 By s/F. E. Westmeyer
-------- ----------------------------------------
F. E. Westmeyer, Vice President-Finance
(Principal Financial Officer)
Date 05-15-95 By s/T. J. Geller
-------- ----------------------------------------
T. J. Geller, Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 12
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands)
Three Months Ended
March 31,
----------------------
(Unaudited)
1995 1994
------ ------
Net income $ 21,784 $ 20,570
Capitalized interest (54) (37)
Income tax provision 13,596 9,751
-------- --------
Subtotal 35,326 30,284
Fixed charges
Interest charges 5,326 5,291
Interest factor of operating rents 563 400
-------- --------
Total fixed charges 5,889 5,691
-------- --------
Earnings, as adjusted $ 41,215 $ 35,975
======== ========
Ratio of earnings to fixed charges 7.00 6.32
==== ====
NOTE: The above ratios have been computed by dividing fixed charges into
the sum of (a) net income less capitalized interest included in
income, (b) income taxes, and (c) fixed charges. Fixed charges
consist of interest on all indebtedness (including amortization of
debt issuance expenses) and the interest component of operating rents.
<PAGE>
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