UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
-------------------- --------------------
Commission file number: 1-6469
---------------------------------------------------
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0931189
------------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14111 Capital Boulevard, Wake Forest, North Carolina 27587
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 919-554-7900
---------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
This registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K 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
------ ------
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]
There is no voting stock held by non-affiliates.
There are 3,626,510 shares of common stock, par value $20, outstanding at
December 31, 1994 and as of the date of filing of this report.
Documents incorporated by reference: None
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
Securities and Exchange Commission
Form 10-K, Part I
Item 1. Business
Carolina Telephone and Telegraph Company (the Company), a wholly-owned
subsidiary of Sprint Corporation (Sprint), was incorporated under the laws
of the State of North Carolina in 1968, and in 1969 acquired all of the
public utility assets of the predecessor company of the same name pursuant
to a plan of merger. The Company's principal offices are located at 14111
Capital Boulevard, Wake Forest, North Carolina 27587-5900 and its telephone
number is (919) 554-7900. The term Company herein refers to the present
Company and, as the context requires, its predecessor of the same name which
was incorporated in the State of North Carolina in 1900, as well as its wholly-
owned subsidiary, Carolina Telephone Long Distance, Inc.
The Company is engaged in the business of furnishing communication
services, mainly local and long distance services and network access, in 145
exchange areas serving all or part of 50 counties generally in the eastern
part of North Carolina. As of December 31, 1994, the Company had an
investment in property, plant, and equipment of $1,701,924,000. Operating
revenues for the year 1994 amounted to $717,454,000. No other company
furnishes local telephone service in any exchange area served by the Company.
The principal industries in the Company's service area are agriculture,
textiles, pulp and paper manufacturing, chemicals, fertilizer, and tourism.
Military installations, including Fort Bragg, Camp Lejeune, Cherry Point
Marine Corps Air Station, the U.S. Coast Guard Base at Elizabeth City and
Pope Air Force Base contribute significantly to the economy of the area.
Digital switching equipment and fiber optics cable represent a sub-
stantial portion of the Company's expansion of long distance facilities. At
December 31, 1994, the Company served 947,965 access lines, distributed among
145 exchange areas as follows: Fayetteville, 14.6 percent; Greenville, 5.6
percent; Rocky Mount, 4.6 percent; Jacksonville, 4.2 percent; Wilson, 3.1
percent; New Bern, 3.0 percent; and all other areas less than 3.0 percent
each.
In addition to furnishing local service, the Company's central offices
and toll lines are connected with other telephone companies and with the
nationwide toll networks of interexchange carriers. Toll calls may thus be
made from any telephone in the Company's service area to anywhere in the
United States and most other countries. Other telecommunications services,
for the most part furnished in conjunction with other telephone companies,
include facilities for private line service, data transmission, radio and
television program transmission, mobile radio telephone, cellular and wide
area telecommunications service.
Revenues from communication services, principally telephone service,
constitute about 82.1 percent of the total 1994 operating revenues of the
Company. Carolina Telephone Long Distance, Inc. offers zero-plus and
one-plus interlata long distance service. A significant portion of the
Company's network access revenues are derived from access charge billings to
AT&T Corporation (AT&T). However, 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. As the market
share of AT&T's long distance competitors increases, the percent of revenues
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part I
Item 1. Business (continued)
derived from network access services provided to AT&T decreases. Other
revenues are derived in large part from the sale of telephone directory
listings, the sale of telecommunications equipment, the lease of network
facilities, providing operator services, and processing customer toll billings
for interexchange carriers, primarily AT&T.
The following tables show certain information regarding access lines in
service and toll messages handled at the dates or for the periods indicated.
Access Lines
------------
Change
Number at End of Period During Period
----------------------- ----------------
Period Residence Business Total Number % Change
------ --------- -------- ----- ------ --------
1994 738,815 209,150 947,965 42,431 4.7
1993 710,977 194,557 905,534 42,693 4.9
1992 681,167 181,674 862,841 36,343 4.4
1991 655,375 171,123 826,498 36,532 4.6
1990 627,778 162,188 789,966 18,514 2.4
Toll Messages
-------------
Total For Year Average Messages Per Day
-------------- ------------------------
Period Number % Change Number % Change
------ ------ -------- ------ --------
1994 480,122,986 5.9 1,315,405 5.9
1993 453,494,308 6.9 1,242,450 7.2
1992 424,096,621 8.8 1,158,734 8.5
1991 389,952,486 16.5 1,068,363 16.5
1990 334,783,858 7.4 917,216 7.4
On December 31, 1994, the Company had 3,501 employees, of which 2,048 or
58.5 percent were represented by the Communications Workers of America, and
115 or 3.3 percent were represented by the International Brotherhood of
Electrical Workers for collective bargaining purposes. The Company had no
material work stoppages caused by labor controversies.
The Company's environmental compliance and remediation expenditures are
primarily related to the operation of standby power generators. The
expenditures arise in connection with permits, standards compliance, or
occasional remediation associated with generators, batteries, or fuel storage.
The Company's expenditures relating to environmental compliance and
remediation have had no significant effect upon capital expenditures or
earnings of the Company, and future effects are not expected to be material.
Effective January 1, 1991, the Federal Communications Commission (FCC)
adopted a price caps regulatory format for the Regional Bell Operating
Companies and the GTE local exchange companies. Other local exchange
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part I
Item 1. Business (continued)
companies (LECs) could volunteer to become subject to price caps regulation.
Under price caps, prices for 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 elected to be
subject to price caps regulation, and, under the form of the plan adopted, the
Company has an opportunity to earn up to a 14.25 percent rate of return on
investment. The FCC is conducting a scheduled review of all aspects of the
price caps plan, and the FCC is expected to implement changes in 1995. With-
out further action by the FCC, the current price caps plan will expire in
1995 and will be replaced by rate of return regulation. It is expected that
the FCC will act and that there will not be a recurrence of rate of return
regulation.
Areas of competition have emerged in the intralata marketplace. On
January 1, 1986, the intralata toll market in North Carolina was opened to
non-facilities based carriers (resellers), and on January 1, 1987, facilities-
based carriers were authorized to resell intralata toll. In February 1994,
the North Carolina Utilities Commission (Commission) issued an order
authorizing long distance companies to provide intralata toll service on a
limited basis. Effective July 1, 1994, customers were offered choices in
deciding which long distance companies they want to use by dialing 1-0 and a
designated 3-digit prefix code indicating the carrier of their choice.
In addition, the potential for more direct competition is increasing in
the local service market. In May 1988, the Commission issued an order which
allows customers to participate in the sharing and resale of local exchange
services under shared tenant arrangements.
At the interstate level, the FCC has revised its rules to permit
connection of customer-owned coin telephones to the local network, exposing
LECs to direct coin telephone competition. Additionally, the FCC has assisted
Competitive Access Providers (CAPs) in providing access to interexchange
carriers and end users by mandating that all Tier I (over $100 million annual
operating revenues) LECs permit virtual collocation of CAP equipment in LEC
central offices.
In October 1992, the FCC adopted a new rate structure and new pricing
rules for LEC-provided switched transport. LECs filed new access transport
tariffs with the FCC in September 1993, which contained rates that purportedly
reduced the costs of the largest interexchange carriers by less than 1 percent
and increased the costs of the smallest carriers by less than 2 percent. The
new rates, which went into effect on December 30, 1993, did not have a sig-
nificant impact on the Company.
The extent and ultimate impact of competition for LECs will continue to
depend, to a considerable degree, on FCC and Commission actions, court
decisions and possible federal or state legislation. The Clinton Admin-
istration has indicated that it supports legislation which promotes local
telephone competition. Although federal legislation, designed to stimulate
local competition between local exchange service providers and cable
programming service providers in both markets, has been introduced several
times in recent years, bills have yet to be reported out of both the
House of Representatives and the Senate in a session. Legislation has been
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part I
Item 1. Business (continued)
introduced in Congress in 1995. While both major political parties are
predicting that legislation will be passed, such predictions have been proven
to be inaccurate in the past.
Item 2. Properties
The properties of the Company consist principally of land, structures,
facilities and equipment. Substantially all of the Company's property, plant
and equipment is restricted for use under the terms of long-term debt
indentures. Central office equipment represents approximately 38.5 percent
of the Company's investment in telephone plant in service; land and buildings
(occupied principally by central office equipment) represent 7.8 percent;
telephone instruments and related wiring and equipment including private
branch exchanges (PBX) (substantially all of which are located on the premises
of subscribers) represent 2.9 percent; connecting lines not on subscribers'
premises (the majority of which are on or under public highways and streets
and the remainder on or under private property) represent 45.4 percent; and
other telephone plant represents 5.4 percent. Of the 145 exchanges, 141
exchanges have central offices located on land owned by the Company and
served approximately 84.5 percent of the Company's access lines; 3 exchanges
have central offices located in leased facilities and served 0.9 percent of
the Company's access lines; 1 exchange (Fayetteville) has central offices,
some of which are located on land owned by the Company and some of which are
located in leased facilities, and served an aggregate of 14.6 percent of the
Company's access lines.
Standard practices prevailing in the telephone industry are followed by
the Company in the construction and maintenance of its plant and facilities;
and the Company considers that its plant and facilities are, as a whole, in
sound physical and operating condition.
The following table shows gross additions to and retirement of properties
of the Company during the five years ended December 31, (in thousands):
Gross
Additions Retirements
--------- -----------
1994 $146,110 $39,761
1993 146,543 51,020
1992 143,057 89,179
1991 130,332 49,766
1990 122,760 68,754
Item 3. Legal Proceedings
No material legal proceedings are pending to which the Company or its
subsidiary is a party or of which any of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 1994.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Registrant is a wholly-owned subsidiary of Sprint and consequently
its common stock is not traded.
Item 6. Selected Financial Data (in thousands)
December 31,
1994 1993 1992 1991 1990
---------------------------------------------------
Operating revenues $ 717,454 $ 638,541 $ 590,440 $ 552,986 $ 509,724
Net income 94,944 47,168 72,800 77,420 76,649
Total assets 1,138,522 1,078,929 1,025,295 968,806 920,489
Long Term Debt (excluding
current maturities) and
redeemable preferred stock 260,736 269,087 240,535 224,398 226,881
During 1993, nonrecurring charges of $46,382,000 were recorded representing
the portion of the costs attributable to the Company associated with the merger
of Sprint and Centel Corporation. Such charges reduced 1993 net income by
$27,765,000. In addition, extraordinary losses on early extinguishments of debt
were recorded in 1993, which reduced net income by $2,318,000.
Earnings and dividends per share information have been omitted because the
Company is a wholly-owned subsidiary of Sprint.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Sprint/Centel Merger
--------------------
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation, a telecommunications company with local exchange and cellular/
wireless communications services operations (see Note 8 of Notes to
Consolidated Financial Statements for additional information). The
transaction costs associated with the merger (consisting primarily of
investment banking and legal fees) and the estimated expenses of integrating
and restructuring the operations of the two companies (consisting primarily
of employee severance and relocation expenses and costs of eliminating
duplicative facilities) resulted in a nonrecurring charge to Sprint during
1993. The portion of such charge attributable to the Company was $46,382,000,
which reduced 1993 net income by approximately $27,765,000.
Financial Condition
-------------------
The Company's assets increased $59,593,000 to $1,138,522,000 as of
December 31, 1994 compared to December 31, 1993. Accounts receivable
increased $26,029,000 as of December 31, 1994 compared to December 31, 1993,
primarily due to a 12.4 percent increase in operating revenues and the timing
of sales activities and cash collections. This increase did not have a
significant impact on the Company's aging of accounts receivable. Property,
plant, and equipment, net of accumulated depreciation, increased $14,324,000
as of December 31, 1994 compared to December 31, 1993. This increase was
primarily a result of increasing capital expenditures to enhance and upgrade
the network and expand service capabilities. Deferred charges and other
assets increased $13,538,000 as a result of increased prepaid pension costs
and additional investments in cellular partnerships. Current maturities of
long-term debt as of December 31, 1994 increased $8,011,000 compared to
December 31, 1993 due to scheduled debt maturities. Postretirement and other
benefit obligations increased $13,997,000 as of December 31, 1994 compared to
December 31, 1993 as a result of a reduced unamortized transition obligation
due to the transfer of approximately 865 employees from the Company to SMAT
effective January 1, 1994. The Company's total capitalization at December
31, 1994 totaled $819,767,000, consisting of long-term debt (including
current maturities), short-term borrowings, and common stock and other
shareholder's equity. Long-term debt comprised 32.9 percent of total capital-
ization at December 31, 1994 compared to 35.4 percent at December 31, 1993.
Results of Operations
---------------------
Operating revenues are classified as local service, network access, long
distance network and other. Local service revenues come from providing local
telephone exchange services and leasing equipment. Network access revenues
are derived from billing other carriers and telephone customers for their use
of the local network to complete long distance calls in those instances where
the long distance service is not provided by the Company. Long distance
revenues are derived principally from providing long distance services within
designated areas. Other revenues primarily relate to directory advertising,
billing and collection services for interexchange long distance carriers,
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results (continued)
Results of Operations (continued)
---------------------------------
operator services, network facilities leases and sales of telecommunications
equipment.
Operating revenues increased by $78,913,000 or 12.4 percent during the
year ended December 31, 1994 as compared to 1993. All categories of operating
revenues increased during the year.
Local service revenues increased $19,482,000 or 7.6 percent during the
year ended December 31, 1994 as compared to 1993. Basic area service revenues
contributed $9,150,000 to this increase, primarily attributable to a 4.7
percent growth in access lines during 1994. For the same period, custom
calling, telephone instrument leases, service connections and touch tone
features added $9,051,000 as a result of access line gains and marketing
promotions.
Network access revenues increased $15,181,000 or 8.0 percent during the
year ended December 31, 1994 as compared to 1993 primarily due to an 8.7
percent growth in interstate access minutes and an 11.7 percent growth in
intrastate access minutes during 1994, partially offset by rate reductions
which went into effect July 1, 1994.
Long distance revenues increased $6,660,000 or 6.6 percent during the
year ended December 31, 1994 as compared to 1993. The increase is primarily
due to a change in intrastate intralata settlement methodologies in North
Carolina effective January 1, 1994. Effective January 1, 1994, toll revenues
are settled under an originating responsibility plan rather than a pool
arrangement.
Other revenues increased $37,590,000 or 41.5 percent during the year
ended December 31, 1994 as compared to 1993. The equipment sales and
installation revenue increased $16,294,000 during 1994. The equipment sales
revenue related principally to PBX, telephone instruments, key and data
systems. North Carolina Utility Services (NCUS), a non-regulated line of
business specializing in locating underground utility lines, increased
$9,977,000 due to the expansion of the service area and an increase in the
customer base in existing service areas. Rent revenues increased $9,400,000,
primarily due to the leasing of the Company's building and other assets to a
recently-formed affiliated management service company, Sprint Mid-Atlantic
Telecom, Inc. (SMAT), which provides services to the Company and four of its
affiliates.
Plant expense increased by $8,311,000 or 4.3 percent during the year
ended December 31, 1994 as compared to 1993. Land and building rent expense
increased $4,315,000, primarily due to the Company's expenses for the use of a
portion SMAT's leased land and buildings. Generic software expense increased
$909,000 due to upgrades of digital switches to provide enhanced services.
An increase in telephone instrument maintenance costs, generally corresponding
with the overall trend in equipment sales, and additional preventive
maintenance increased repair/rearrangement expenses by $1,675,000.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
---------------------------------
The network administration expense increased due to the conversion and
integration of two systems for a modernized customer facilities database.
Depreciation expense increased $18,999,000 or 16.6 percent during the
year ended December 31, 1994 as compared to 1993. In December 1994, special
amortization was granted by the Commission of $9,250,000. An additional
$2,579,000 of depreciation expense was booked as a result of FCC Responsible
Accounting Officer Letter 21, "Classification of Remote Central Office Equip-
ment for Accounting Purposes." The remaining increase is the result of an
increase in the average depreciable plant.
Customer operations expense increased $9,426,000 or 10.8 percent during
the year ended December 31, 1994 as compared to 1993. As a result of continued
expansions of its customer base, NCUS experienced an increase in expenses of
$7,628,000.
Other operating expenses increased $11,117,000 or 57.8 percent during the
year ended December 31, 1994 as compared to 1993. This fluctuation was
primarily due to an $11,906,000 increase in cost of equipment sales, generally
corresponding with the overall trend in equipment sales.
Federal income tax and state, local, miscellaneous taxes increased
$30,049,000 or 69.8 percent during the year ended December 31, 1994 as compared
to 1993. The increase primarily resulted from increased taxable income.
Inflation
---------
The effects of inflation on the operations of the Company were not
significant during 1994, 1993 or 1992.
Liquidity and Capital Resources
-------------------------------
Cash flows from operating activities are the Company's primary source of
liquidity. Net cash provided by operating activities increased $3,595,000
during the year ended December 31, 1994. Improved operating results were
offset by decreases in current liabilities and an increase in accounts
receivable, which was due primarily to increased operating revenues.
Net cash used by investing activities increased $5,431,000 during the
year ended December 31, 1994. In order to meet customer demands, the Company
must continually replace and construct new facilities. The Company's planned
construction expenditures for 1995 are $141,507,000 which includes expenditures
of $72,494,000 for central office equipment, $44,954,000 for cable facilities,
$13,973,000 for general support assets and $10,086,000 for other expenditures.
The Company anticipates that the funds for these expenditures will be supplied
primarily by operating activities.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
The primary source of financing for the Company has been long-term debt.
In addition, the Company periodically receives cash advances from Sprint and
issues commercial paper to banks. Net cash used by financing activities
decreased $1,819,000 during the year ended December 31, 1994 primarily due to
a reduction in dividend payments in 1994 and a decrease in short-term
borrowings of $7,500,000 in 1994 compared to $14,400,000 decrease in 1993,
partially offset by the 1993 increase in long-term debt.
As of December 31, 1994, the Company had a total of $60,000,000 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 or the Company. As of December 31, 1994, no amounts were
borrowed against this credit facility; however, $33,600,000 of the bank lines
supported commercial paper outstanding at year end. The weighted average
interest rate on commercial paper was 4.59 percent and 3.24 percent in 1994
and 1993, respectively.
The Company is also authorized to issue and sell an additional $75,000,000
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.
The Company's ratio of common equity to total capital was 62.7 percent in
1994, 59.2 percent in 1993 and 59.1 percent in 1992. The Company's ratio of
long-term debt to total capital was 32.9 percent in 1994, 35.4 percent in 1993
and 33.2 percent in 1992. The Company's ratio of short-term debt to total
capital was 4.4 percent in 1994, 5.4 percent in 1993 and 7.7 percent in 1992.
Recent Accounting Developments
------------------------------
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits" (see Note 2 of Notes to Consolidated Financial Statements for
additional information).
Consistent with most LECs, the Company accounts for the economic effects
of regulation pursuant to SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation." The application of SFAS No. 71 requires 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
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Recent Accounting Developments (continued)
------------------------------------------
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 effects 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. See Note 6 of Notes to Consolidated Financial Statements for additional
information regarding the primary components and estimated amounts of
regulatory assets and liabilities as of December 31, 1994.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 8. Financial Statements and Supplementary Data
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Reference
--------------
Report of Independent Auditors Page 12
Consolidated Balance Sheets as of
December 31, 1994 and 1993 Pages 13-14
Consolidated Statements of Income for
each of the three years ended December
31, 1994 Page 15
Consolidated Statements of Retained
Earnings for each of the three years
ended December 31, 1994 Page 16
Consolidated Statements of Cash Flows for
each of the three years ended December
31, 1994 Page 17
Notes to Consolidated Financial Statements Pages 18-31
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Carolina Telephone and Telegraph Company
We have audited the accompanying consolidated balance sheets of Carolina
Telephone and Telegraph Company, a wholly-owned subsidiary of Sprint
Corporation, as of December 31, 1994 and 1993, and the related consolidated
statements of income, retained earnings, and cash flows for each of the three
years in the period ended December 31, 1994. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and 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 and related
schedule are free from 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 Carolina Telephone and Telegraph Company at December 31, 1994 and 1993, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial state-
ments taken as a whole, presents fairly in all material respects the infor-
mation set forth therein.
As discussed in Note 2 to the consolidated financial statements, Carolina
Telephone and Telegraph Company changed its method of accounting for post-
retirement benefits in 1993.
ERNST & YOUNG LLP
Kansas City, Missouri
January 25, 1995
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
(In Thousands)
1994 1993
---------- ----------
Assets
Current assets
Cash $ 16 $ 20
Receivables, net of allowance for
doubtful accounts of $1,742 ($1,895
in 1993)
Customers and other 83,597 63,090
Interexchange carriers 24,488 20,238
Affiliated companies 5,971 4,699
Inventories 12,490 9,807
Prepaid expenses and other 4,073 870
---------- ----------
130,635 98,724
Property, plant and equipment
Land and buildings 132,610 128,635
Telephone network equipment and outside
plant 1,454,632 1,371,788
Other 86,520 77,615
Construction in progress 28,162 17,228
---------- ----------
1,701,924 1,595,266
Less accumulated depreciation 766,173 673,839
---------- ----------
935,751 921,427
Deferred charges and other assets 72,136 58,778
---------- ----------
$ 1,138,522 $ 1,078,929
========== ==========
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
December 31, 1994 and 1993
(In Thousands)
1994 1993
---------- ----------
Liabilities and Stockholder's Equity
Current liabilities
Outstanding checks in excess of cash
balances $ 1,347 $ 9,322
Short-term borrowings
Commercial paper 33,600 41,100
Advances from parent company 2,810 -
Current maturities of long-term debt 8,579 568
Accounts payable
Vendors and other 19,742 20,742
Interexchange carriers 24,909 22,950
Affiliated companies 15,855 10,866
Accrued merger and integration costs 2,539 17,035
Accrued taxes 18,396 13,298
Advance billings and customer deposits 19,853 11,653
Accrued vacation pay 8,862 10,550
Other 17,798 20,484
---------- ----------
174,290 178,568
Long-term debt 260,736 269,087
Deferred credits and other liabilities
Deferred income taxes 110,489 113,399
Deferred investment tax credits 3,134 6,790
Postretirement and other benefit
obligations 36,539 22,542
Regulatory liability 26,772 26,338
Other 12,520 11,919
---------- ----------
189,454 180,988
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 369,521 305,765
---------- ----------
514,042 450,286
---------- ----------
$ 1,138,522 $ 1,078,929
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1994, 1993 and 1992
(In Thousands)
1994 1993 1992
---------- ---------- ----------
Operating Revenues
Local service $ 276,532 $ 257,050 $ 236,548
Network access service 204,928 189,747 170,287
Long distance service 107,923 101,263 99,688
Other 128,071 90,481 83,917
---------- ---------- ----------
717,454 638,541 590,440
Operating Expenses
Plant expense 200,608 192,297 181,658
Depreciation 133,764 114,765 109,865
Customer operations 97,094 87,668 74,289
Corporate operations 65,815 64,400 58,300
Merger and integration costs - 46,382 -
Other 30,364 19,247 16,411
Taxes
Federal income
Current 49,872 33,786 34,218
Deferred (1,912) (9,064) 1,797
Deferred investment tax credit (3,656) (4,040) (4,925)
State, local and miscellaneous 28,779 22,352 25,094
---------- ---------- ----------
600,728 567,793 496,707
Operating Income 116,726 70,748 93,733
Interest expense
Short-term borrowings and
long-term debt 20,484 19,232 18,735
Other 1,761 2,728 3,432
---------- ---------- ----------
22,245 21,960 22,167
Other income
Interest charged to construction 140 54 632
Other, net 323 644 602
---------- ---------- ----------
463 698 1,234
Income before extraordinary item 94,944 49,486 72,800
Extraordinary losses on early
extinguishments of debt, net - 2,318 -
---------- ---------- ----------
Net income $ 94,944 $ 47,168 $ 72,800
========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended December 31, 1994, 1993 and 1992
(In Thousands)
1994 1993 1992
---------- ---------- ----------
Balance at Beginning of Year $ 305,765 $ 297,184 $ 272,262
Net income 94,944 47,168 72,800
Common stock dividends (31,188) (38,587) (47,869)
Preferred stock dividends - - (9)
---------- ---------- ----------
Balance at End of Year $ 369,521 $ 305,765 $ 297,184
========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
(In Thousands)
1994 1993 1992
--------- --------- ---------
Operating Activities
Net income $ 94,944 $ 47,168 $ 72,800
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 133,764 114,765 109,865
Extraordinary losses on early
extinguishments of debt - 3,836 -
Deferred income taxes and
investment tax credits (4,936) (14,695) (2,030)
Changes in operating assets
and liabilities:
Receivables, net (26,029) (7,101) (3,714)
Inventories and other current
assets (5,886) (1,243) 283
Accounts payable, accrued
expenses and other current
liabilities (7,599) 31,414 (12,531)
Noncurrent assets and
liabilities, net 9,607 23,597 1,000O
Other, net (69) (7,540) (5,722)
--------- --------- ---------
Net cash provided by operating
activities 193,796 190,201 159,951
Investing Activities
Capital expenditures (146,110) (146,543) (143,057)
Other, net (11,238) (5,374) (9,471)
--------- --------- --------
Net cash used by investing
activities (157,348) (151,917) (152,528)
Financing Activities
Proceeds from long-term debt - 148,638 49,382
Retirements of long-term debt (574) (127,521) (27,537)
Net increase (decrease) in
short-term borrowings (7,500) (14,400) 25,500
Redemption of preferred stock - - (100)
Increase (decrease) in advances
from parent company 2,810 (1,703) (6,797)
Dividends paid (31,188) (38,587) (47,878)
Other, net - (4,698) -
--------- --------- ---------
Net cash used by financing activities (36,452) (38,271) (7,430)
Increase (Decrease) in Cash (4) 13 (7)
Cash at Beginning of Year 20 7 14
--------- --------- ---------
Cash at End of Year $ 16 $ 20 $ 7
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Carolina Telephone and
Telegraph Company is presented to assist in understanding the accompanying
consolidated financial statements. The consolidated financial statements and
notes are representations of 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 Carolina Telephone and Telegraph Company operates.
Basis of Presentation
---------------------
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.
The Company is a wholly-owned subsidiary of Sprint Corporation (Sprint);
accordingly, earnings per share information has been omitted.
Certain amounts previously reported for prior periods have been re-
classified 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.
Operations
----------
The Company is engaged in the business of providing communication
services, principally local, network access and long distance services in
North Carolina. The Company accounts for the economic effects of regulation
pursuant to Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation," which requires
accounting recognition of the rate actions of regulators where appropriate.
Such actions can provide reasonable assurance of the existence of an asset,
reduce or eliminate the value of an asset, or impose a liability on a regulated
enterprise.
Cash
----
As part of its cash management program, the Company utilizes controlled
disbursement banking arrangements. Outstanding checks in excess of cash
balances are reflected as a current liability on the balance sheet. The
Company had sufficient funds available to fund these outstanding checks when
they were presented for payment.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
-----------
Inventories consist of materials and supplies, stated at average cost,
and equipment held for resale, stated at the lower of average cost or market.
The sales inventory balances were $2,822,000 and $2,604,000 at December 31,
1994 and 1993, respectively.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost. Retirements of
depreciable property are charged against accumulated depreciation with no gain
or loss recognized. Repairs and maintenance costs are expensed as incurred.
Depreciation
------------
The cost of property, plant and equipment is depreciated generally on a
straight-line basis over the estimated useful lives prescribed by regulatory
commissions. Depreciation rate changes granted by the North Carolina Utilities
Commission (Commission) resulted in a reduction of depreciation expense in
1994 of $130,400 which increased net income by $80,000. Depreciation rate
changes granted in 1992 resulted in additional depreciation expense of
$19,365,000 which reduced net income by $11,245,000. In addition, as ordered
by the Commission, the Company recorded nonrecurring charges to depreciation
expense in 1994 of $9,250,000, which reduced net income by $5,652,000.
Average annual composite depreciation rates, excluding the nonrecurring
charges, were 7.7 percent for 1994, 7.5 percent for 1993 and 7.6 percent for
1992.
Income Taxes
------------
Operations of the Company are included in the consolidated federal income
tax returns of Sprint. 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 estimated useful life of the related assets.
Interest Charged to Construction
--------------------------------
In accordance with the Uniform System of Accounts, as prescribed by the
Federal Communications Commission (FCC), interest is capitalized only on those
telephone plant construction projects for which the estimated construction
period exceeds one year.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
2. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
----------------------------
The pension and other postemployment benefit liabilities for approxi-
mately 865 employees were transferred from the Company to the affiliated
management service company, Sprint Mid-Atlantic Telecom, Inc. (SMAT). The
1994 transfer was estimated using actuarial data and was effective January 1,
1994. The transferred amount represented the Company's employees who became
SMAT's employees on January 1, 1994. The 1994 pension credit/cost and other
postemployment benefit costs do not include costs associated with employees
transferred to SMAT.
Substantially all employees of the Company are covered by a non-
contributory defined benefit pension plan. 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, 1994, the plan's assets consisted
principally of investments in corporate equity securities and U.S. government
and corporate debt securities.
The components of the net pension credits and related weighted average
assumptions are as follows (in thousands):
1994 1993 1992
-------- -------- --------
Service cost -- benefits earned
during the period $ 4,240 $ 5,505 $ 4,739
Interest cost on projected
benefit obligation 13,573 15,654 14,745
Actual return on plan assets (136) (41,636) (15,461)
Net amortization and deferral (22,802) 11,403 (9,789)
--------- --------- ---------
Net pension credit $ (5,125) $ (9,074) $ (5,766)
========= ========= =========
Discount rate 7.50% 8.00% 8.50%
Expected long-term rate of return
on plan assets 9.50% 9.50% 8.25%
Anticipated composite rate of
future increases in compensation 4.50% 5.50% 6.33%
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
2. EMPLOYEE BENEFIT PLANS (continued)
Defined Benefit Pension Plan (continued)
----------------------------------------
The funded status and amounts recognized in the consolidated balance
sheets for the plan, as of December 31, are as follows (in thousands):
1994 1993
----------- -----------
Actuarial present value of benefit obligations
Vested benefit obligation $ (156,856) $ (207,186)
=========== ===========
Accumulated benefit obligation $ (166,839) $ (231,695)
=========== ===========
Projected benefit obligation $ (172,838) $ (241,000)
Plan assets at fair value 242,122 344,187
----------- -----------
Plan assets in excess of the projected benefit
obligation 69,284 103,187
Unrecognized net gains (13,568) (35,769)
Unrecognized prior service cost 8,521 5,464
Unamortized portion of transition asset (26,466) (40,236)
----------- -----------
Prepaid pension cost $ 37,771 $ 32,646
=========== ===========
The projected benefit obligations as of December 31, 1994 and 1993 were
determined using discount rates of 8.5 percent and 7.5 percent, respectively,
and anticipated composite rates of future increases in compensation of 5.0
percent and 4.5 percent, respectively.
Defined Contribution Plans
--------------------------
Sprint sponsors three 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 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 contributions to the plans aggregated $3,258,000,
$3,278,000 and $2,195,000 in 1994, 1993 and 1992, respectively.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
2. EMPLOYEE BENEFIT PLANS (continued)
Postretirement Benefits
-----------------------
Sprint sponsors postretirement benefits (principally health care benefits)
arrangements covering substantially all employees of the Company. Employees
who retired before specified dates are eligible for these benefits at reduced
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.
Effective January 1, 1993, the Company changed its method of accounting
for postretirement benefits by adopting SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." As permitted by SFAS
No. 106, the Company elected to recognize the obligation for postretirement
benefits already earned by its current retirees and active work force as of
January 1, 1993 by amortizing such obligation on a straight-line basis over a
period of twenty years. For regulatory purposes, the FCC permits recognition
of net postretirement benefit costs, including amortization of the transition
obligation, in accordance with SFAS No. 106. The Company is also recording
postretirement benefits costs in accordance with SFAS No. 106 for state
regulatory purposes, pending direction from the Commission in future
rate-making procedures.
During 1992, the cost of providing postretirement benefits to the Company's
retirees was expensed as such costs were paid.
The components of the net postretirement benefits costs are as follows
(in thousands):
1994 1993
----------- -----------
Service cost -- benefits earned during the
period $ 1,961 $ 2,514
Interest on accumulated benefit obligation 7,574 9,599
Net amortization and deferral 140 -
Amortization of transition obligation 4,446 5,912
----------- -----------
Net postretirement benefits cost $ 14,121 $ 18,025
=========== ===========
For measurement purposes, weighted average annual health care cost trend
rates of 12.0 percent and 13.0 percent were assumed for 1994 and 1993,
respectively, gradually decreasing to 6.0 percent by 2001 and remaining
constant thereafter. The effect of a 1.0 percent annual increase in the
assumed trend rate would have increased the 1994 net postretirement benefits
cost by approximately $3,623,000. The discount rates for 1994 and 1993 were
7.5 percent and 8.0 percent, respectively.
In addition, the Company recognized postretirement benefits curtailment
losses of $2,963,000 during 1993 as a result of merger and integration actions
(see Note 8).
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
2. EMPLOYEE BENEFIT PLANS (continued)
Postretirement Benefits (continued)
-----------------------------------
The cost of providing postretirement benefits was $2,383,000 in 1992.
The amounts recognized in the consolidated balance sheets as of December
31 are as follows (in thousands):
1994 1993
---------- ----------
Accumulated postretirement benefits obligation
Retirees $ 54,571 $ 52,590
Active plan participants -- fully eligible 23,999 32,830
Active plan participants -- other 33,499 45,727
---------- ----------
112,069 131,147
Unrecognized net gains 12,347 3,387
Unrecognized transition obligation (89,356) (111,992)
---------- ----------
Accrued postretirement benefits cost $ 35,060 $ 22,542
========== ==========
The accumulated benefits obligations as of December 31, 1994 and 1993
were determined using discount rates of 8.5 percent and 7.5 percent,
respectively. An annual health care cost trend rate of 12.0 percent was
assumed for 1995, gradually decreasing to 6.0 percent by 2001 and remaining
constant thereafter. The effect of a 1.0 percent annual increase in the
assumed health care cost trend rate would have increased the accumulated
benefits obligation as of December 31, 1994 by approximately $13,682,000.
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 retire-
ment. The resulting charge did not significantly impact the Company's 1994
net income. 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.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
3. INCOME TAXES
The components of income tax expense are as follows (in thousands):
1994 1993 1992
---------- ---------- ----------
Current income tax expense
Federal $ 49,872 $ 33,786 $ 34,218
State 11,240 7,746 8,242
--------- --------- ---------
61,112 41,532 42,460
Deferred income tax expense
(benefit)
Federal (1,912) (9,064) 1,797
State 632 (1,591) 1,098
Amortization of deferred ITC (3,656) (4,040) (4,925)
--------- --------- ---------
(4,936) (14,695) (2,030)
--------- --------- ---------
Total income tax expense $ 56,176 $ 26,837 $ 40,430
========= ========= =========
In 1993, income tax benefits of $1,518,000 associated with the extra-
ordinary losses incurred related to the early extinguishments of debt were
reflected as reductions of such losses in the consolidated statements of
income.
On August 10, 1993, the Revenue Reconciliation Act of 1993 was enacted
which, among other changes, raised the federal income tax rate for corporations
to 35 percent from 34 percent, retroactive to January 1, 1993. Pursuant to
SFAS No. 71, the resulting adjustments to the Company's deferred income tax
assets and liabilities to reflect the revised rate have generally been reflected
as reductions to the related regulatory liabilities.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
3. INCOME TAXES (continued)
The differences which cause the effective income tax rate to vary from
the statutory federal income tax rate of 35 percent in 1994 and 1993 and 34
percent in 1992 are as follows (in thousands):
1994 1993 1992
--------- --------- ---------
Federal income tax expense at the
statutory rate $ 52,892 $ 26,713 $ 38,498
Less ITC included in income 3,656 4,040 4,925
--------- --------- ---------
Expected federal income tax expense
after ITC 49,236 22,673 33,573
Effect of
State income tax, net of federal
income tax effect 7,717 4,001 6,164
Differences required to be flowed
through by regulatory commissions 506 543 673
Reversal of rate differentials (972) (1,096) (1,496)
Other, net (311) 716 1,516
--------- --------- ---------
Income tax expense, including ITC $ 56,176 $ 26,837 $ 40,430
========= ========= =========
Effective income tax rate 37.2% 35.2% 35.7%
Deferred income taxes are provided for the temporary differences between
the carrying amounts of the Company's assets and liabilities for financial
statement purposes and their tax bases. The sources of the differences that
give rise to the deferred income tax assets and liabilities as of December 31,
1994 and 1993 along with the income tax effect of each, are as follows (in
thousands):
1994 Deferred 1993 Deferred
Income Tax Income Tax
--------------------- ---------------------
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
Property, plant and equipment $ - $ 118,932 $ - $ 122,697
Allowance for doubtful accounts 514 - 373 -
Expense accruals 8,764 - 16,702 -
Deferred ITC - 3,134 - 6,790
Postretirement and other benefits 13,804 - 5,726 -
Prepaid pension costs - 15,937 - 13,907
-------- --------- -------- ---------
Total $ 23,082 $ 138,003 $ 22,801 $ 143,394
======== ========= ======== =========
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
4. LONG-TERM DEBT
Long-term debt as of December 31, excluding current maturities, is as
follows (in thousands):
1994 1993
----------------------- ---------
Weighted
Average
Interest
Amount Rate Amount
---------- ---------- ----------
Debentures, maturities
1996 - 2016 $ 263,433 6.88% $ 271,878
Other notes, maturities
1996 - 1997 77 7.04% 219
Unamortized debt discount (2,774) (3,010)
---------- ----------
Long-term debt $ 260,736 $ 269,087
========== ==========
Long-term debt maturities during each of the next five years are as
follows (in thousands):
Year Amount
------ --------
1995 $ 8,579
1996 12,663
1997 841
1998 6
1999 -
The bonds and notes are secured by substantially all of the Company's
property, plant and equipment.
As of December 31, 1994, the Company had lines of credit with banks
totaling $60,000,000. At December 31, 1994, no amounts were borrowed against
these lines of credit; however, $33,600,000 of the bank lines support
commercial paper outstanding at year end. The weighted average interest rate
on commercial paper was 4.59 percent and 3.24 percent in 1994 and 1993,
reespectively. The bank lines, which are renewable in April 1995, provide
for short-term borrowings at market rates of interest and require annual
commitment fees based on the unused portion. Lines of credit, which support
outstanding commercial paper, may be withdrawn by the banks if there is a
material adverse change in the financial condition of Sprint or the Company.
The Company is in compliance with all restrictive or financial covenants
relating to its debt arrangements at December 31, 1994.
During 1993, the Company redeemed or called for redemption prior to
scheduled maturities $120,209,000 of debentures with interest rates ranging
from 7.75 percent to 11.75 percent. Prepayment penalties incurred in
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
4. LONG-TERM DEBT (continued)
connection with early extinguishment of debt and the write-off of related
debt issuance costs, net of the related income tax benefits, are reflected as
extraordinary losses in the consolidated statements of income.
5. COMMITMENTS
Gross rental expense aggregated $4,614,000 in 1994, $6,959,000 in 1993
and $6,145,000 in 1992. Minimum rental commitments as of December 31, 1994
for non-cancelable operating leases are not significant.
The Company's planned capital expenditures for the year ending December
31, 1995 are approximately $141,507,000. Normal purchase commitments have
been or will be made for these planned expenditures.
6. REGULATORY ACCOUNTING
Consistent with most local exchange carriers, the Company accounts for
the economic effects of regulation pursuant to SFAS No. 71. 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 of competition is increasing. Accordingly, the Company constantly
monitors and evaluates the ongoing applicability of SFAS No. 71 by assessing
the likelihood that prices which provide for the recovery of specific costs
can continue to be charged to customers.
The approximate amount of the Company's net regulatory assets at December
31, 1994 was between $25,000,000 and $100,000,000, consisting primarily of
property, plant and equipment, partially offset by deferred tax liabilities.
The estimate for property, plant and equipment was calculated based upon a
projection of useful remaining lives which are affected by the development of
competition, changes in regulation, and the expansion of broadband services
to be offered to customers.
7. RELATED PARTY TRANSACTIONS
The Company purchases telecommunications equipment, construction and
maintenance equipment, and materials and supplies from its affiliate, North
Supply Company. Total purchases for 1994, 1993 and 1992 were $55,609,000,
$47,401,000 and $45,272,000, respectively.
Under an agreement with Sprint, the Company reimburses Sprint for data
processing services, other data related costs and certain management costs
which are incurred for the Company's benefit. A credit resulting from
deferred income taxes on intercompany profits is also allocated by Sprint to
affiliated companies. Total charges to the Company aggregated $52,119,000,
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
7. RELATED PARTY TRANSACTIONS (continued)
$55,885,000 and $43,481,000 in 1994, 1993 and 1992, respectively, and the
credit relating to deferred income taxes, $852,500 and $714,000 in 1993 and
1992, respectively. The credit related to deferred income taxes was eliminated
in 1994. The Company enters into cash advance and borrowing transactions
with Sprint; generally, interest on such transactions is computed based on the
prior month's thirty-day average commercial paper index, as published in the
Federal Reserve Statistical Release H.15, plus 45 basis points. Interest
expense on such advances from Sprint was $19,800 and $402,000 in 1993 and 1992,
respectively. There was no interest expense on such advances from Sprint in
1994. Interest income on such advances to Sprint was $7,200, $51,000 and
$9,100 in 1994, 1993 and 1992, respectively.
Sprint Publishing & Advertising, Inc., an affiliate, pays the Company a
fee for the right to publish telephone directories in the Company's operating
territory, a listing fee, and a fee for billing and collection services
performed for Sprint Publishing & Advertising, Inc. by the Company. For 1994,
1993 and 1992, Sprint Publishing & Advertising, Inc. paid the Company a total
of $21,607,000, $21,759,000 and $21,526,000, respectively. The Company paid
Sprint Publishing & Advertising, Inc. $1,667,000, $1,543,000 and $1,515,000
in 1994, 1993 and 1992, respectively, for its costs of publishing the white
page portion of the directories.
The Company provides various services to Sprint's long distance
communications services division, such as network access, operator and billing
and collection services, and the lease of network facilities. The Company
received $20,558,000, $18,017,000 and $16,698,000 in 1994, 1993 and 1992,
respectively, for these services. The Company paid Sprint's long distance
communications services division $15,532,000, $25,000,000 and $22,811,000 in
1994, 1993 and 1992, respectively, for interexchange telecommunications
services.
The Company provides services such as operator assistance, directory
assistance, end user trouble report processing and payment processing for
United Telephone-Southeast, Inc. (an affiliate) and United Telephone Company
of the Carolinas (an affiliate). The Company recognized income of $3,175,000,
$3,324,000 and $2,525,000 during 1994, 1993 and 1992, respectively.
In 1994, SMAT was formed which provides services to the Company and
four of its affiliates (United Telephone Company of the Carolinas, United
Telephone-Southeast, Inc., Central Telephone Company of Virginia, and Central
Telephone Company). Sprint Mid-Atlantic Telecom, Inc. is reimbursed by the
Company and these four affiliates for certain salaries and other costs
incurred by SMAT on behalf of the Company and these affiliates. Similarly,
the Company is reimbursed by SMAT for certain costs incurred by Company on
behalf of these affiliates. The reimbursements represent the cost of such
items as determined by the Company and these affiliates. The reimbursements
to SMAT by the Company totaled $48,420,000 in 1994.
Certain directors and officers of the Company are also directors or
officers of banks at which the Company conducts borrowings and related
transactions. The terms are comparable with other banks at which the Company
has similar transactions.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
8. MERGER AND INTEGRATION COSTS
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation (Centel), a telecommunications company with local exchange and
cellular/wireless communications services operations. Centel's local exchange
telephone businesses operate in six states: Florida, North Carolina, Virginia,
Illinois, Texas and Nevada. Pursuant to the Agreement and Plan of Merger dated
May 27, 1992, Sprint issued 1.37 shares of its common stock in exchange for
each outstanding share of Centel common stock. The transaction costs
associated with the merger (consisting primarily of investment banking and
legal fees) and the expenses of integrating and restructuring the operations
of the two companies (consisting primarily of employee severance and
relocation expenses and costs of eliminating duplicative facilities) resulted
in nonrecurring charges to Sprint during 1993. The portion of such charges
attributable to the Company was $46,382,000, which reduced 1993 net income
by approximately $27,765,000.
9. ADDITIONAL FINANCIAL INFORMATION
Major Customer Information
--------------------------
Operating revenues from AT&T Corporation resulting primarily from network
access, billing and collection services, and the lease of network facilities
aggregated approximately $109,074,000, $105,225,000 and $101,418,000 for 1994,
1993 and 1992, respectively.
The Company's customer and other accounts receivable are not subject to
significant concentration of credit risk due to the large number of customers
in the Company's customer base.
The principal industries in the Company's service area include agri-
culture, textiles, pulp and paper manufacturing, chemicals, fertilizer, and
tourism. Military installations, including Fort Bragg, Camp Lejeune, Cherry
Point Marine Corps Air Station, the U.S. Coast Guard Base in Elizabeth City,
and Pope Air Force Base contribute significantly to the economy of the area.
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, 1994, 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.
The Company's financial instruments primarily consist of long-term debt,
including current maturities, with carrying amounts as of December 31, 1994
and 1993 of $269,315,000 and $269,655,000, respectively, and estimated fair
values of $248,259,000 and $288,871,000, respectively. The fair values are
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
9. ADDITIONAL FINANCIAL INFORMATION (continued)
Financial Instruments Information (continued)
---------------------------------------------
estimated based on quoted market prices for publicly-traded issues, and based
on the present value of estimated future cash flows using a discount rate
commensurate with the risks involved for all other issues.
The carrying values of the Company's other financial instruments
(principally short-term borrowings) approximate fair value as of December 31,
1994 and 1993.
The Company has not invested in derivative financial instruments.
Supplemental Cash Flows Information
-----------------------------------
The supplemental disclosures required for the consolidated statements of
cash flows for the years ended December 31, are as follows (in thousands):
1994 1993 1992
------- ------- -------
Cash paid for
Interest, net of amounts capitalized $21,967 $20,395 $22,884
Income taxes 57,189 42,051 44,884
10. SUPPLEMENTAL QUARTERLY INFORMATION - UNAUDITED
(in thousands)
1994 Quarters Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues $ 168,588 $ 181,210 $ 184,998 $ 182,658
Operating income 25,615 33,311 30,771 27,029
Net income 20,570 28,210 24,564 21,600
1993 Quarters Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Operating revenues $ 152,282 $ 159,756 $ 163,536 $ 162,967
Operating income (loss) (1,869) 23,895 28,038 20,684
Income (loss) before
extraordinary item (7,464) 18,436 23,147 15,367
Net income (loss) (7,464) 17,070 22,195 15,367
During 1993, Sprint consummated its merger with Centel. The transaction
costs associated with the merger and the expenses of integrating and
restructuring the operations of the two companies resulted in nonrecurring
charges to Sprint. The portion of such charges attributable to the Company
was $41,700,000 and $4,682,000 in the first and fourth quarters of 1993,
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Parts II/III/IV
10. SUPPLEMENTAL QUARTERLY INFORMATION - UNAUDITED (continued)
respectively, which reduced net income by approximately $25,346,000 and
$2,419,000, respectively.
The Company recorded additional depreciation expense of approximately
$9,250,000 during the fourth quarter of 1994 as a result of nonrecurring
charges to depreciation expense granted by the Commission. The effect of
this adjustment on 1994 fourth quarter net income was $5,652,000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 10. Directors and Executive Officers of the Registrant
Omitted under the provisions of General Instruction J.
Item 11. Executive Compensation
Omitted under the provisions of General Instruction J.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted under the provisions of General Instruction J.
Item 13. Certain Relationships and Related Transactions
Omitted under the provisions of General Instruction J.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The consolidated financial statements of the Company filed as
part of this report are listed in the Index to Consolidated
Financial Statements on page 11.
2. The consolidated financial statement schedule of the Company
filed as part of this report are listed in the index to
Consolidated Financial Statement Schedules on page 32.
(b) The Registrant was not required to file a report on Form 8-K
during the last quarter of 1994.
(c) The exhibits filed as part of this report are listed in the
Index to Exhibits on pages 34 - 36.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(ITEM 14(a)2.)
Page
For each of the three years in the period ended December 31, 1994: Reference
------------------------------------------------------------------ ---------
Schedule VIII - Valuation and Qualifying Accounts - Consolidated Page 33
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the notes thereto.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS - CONSOLIDATED
Years Ended December 31, 1994, 1993 and 1992
(In Thousands)
Deductions
Accounts
Balance at Additions charged off Balance
beginning Charged to net of end
of year expense collections of year
---------- ---------- ----------- -------
Year ended December 31, 1994
----------------------------
Deducted from assets:
Allowance for uncollectible
accounts $1,895 $2,371 $2,524 $1,742
Year ended December 31, 1993
----------------------------
Deducted from assets:
Allowance for uncollectible
accounts $1,415 $1,965 $1,485 $1,895
Year ended December 31, 1992
----------------------------
Deducted from assets:
Allowance for uncollectible
accounts $1,319 $1,613 $1,517 $1,415
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
INDEX TO EXHIBITS
ITEM 14(c)
Exhibit No.
3 Articles of incorporation and by-laws (filed as Exhibit 3 to 1980
Annual Report Form 10-K and incorporated herein by reference).
4 Instruments defining the rights of security holders, including
indentures, contained in documents previously filed with the
Securities and Exchange Commission are incorporated herein by
reference.
4(A) Indenture dated as of February 1, 1963, from the Company to
Bankers Trust Company, Trustee (See Current Report Form 8-K
for February 1963, Exhibit 4-F).
4(B) Indenture dated as of March 1, 1965, from the Company to
Bankers Trust Company, Trustee (See Current Report Form 8-K
for February 1965, Exhibit A).
4(C) Indenture dated as of March 1, 1966, from the Company to
Bankers Trust Company, Trustee (See Current Report Form 8-K
for March 1966, Exhibit A).
4(D) Indenture dated as of January 15, 1968, from the Company to
North Carolina National Bank as Trustee (See Registration
No. 2-27816, Exhibit 4-J).
4(E) Indenture dated as of October 1, 1970, from the Company to
Bankers Trust Company, as Trustee (See Registration
No. 2-38292, Exhibit 4-J).
4(F) Supplemental Indenture from the Company to Bankers Trust
Company dated as of March 28, 1969 supplementing Indenture
dated as of July 1, 1948 (See Registration No. 2-34018,
Exhibit 4-K).
4(G) Supplemental Indenture from the Company to Bankers Trust
Company dated as of March 28, 1969 supplementing Indenture
dated as of August 1, 1952 (See Registration No. 2-34018,
Exhibit 4-L).
4(H) Supplemental Indenture from the Company to Bankers Trust
Company dated as of March 28, 1969 supplementing Indenture
dated as of August 1, 1957 (See Registration No. 2-34018,
Exhibit 4-M).
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
INDEX TO EXHIBITS (CONTINUED)
ITEM 14(c)
Exhibit No.
4(I) Supplemental Indenture from the Company to Bankers Trust
Company dated as of March 28, 1969 supplementing Indenture
dated as of February 1, 1963 (See Registration No. 2-34018,
Exhibit 4-N).
4(J) Supplemental Indenture from the Company to Bankers Trust
Company dated as of March 28, 1969 supplementing Indenture
dated as of March 1, 1965 (See Registration No. 2-34018,
Exhibit 4-O).
4(K) Supplemental Indenture from the Company to Bankers Trust
Company dated as of March 28, 1969 supplementing Indenture
dated as of March 1, 1966 (See Registration No. 2-34018,
Exhibit 4-P).
4(L) Supplemental Indenture from the Company to North Carolina
National Bank dated as of March 28, 1969 supplementing
Indenture dated as of January 15, 1968 (See Registration
No. 2-34018, Exhibit 4-Q).
4(M) Indenture dated as of August 1, 1969, from the Company to
Bankers Trust Company (See Registration No. 2-34018, Exhibit
4-A).
4(N) Indenture dated as of October 1, 1971, from the Company to
Bankers Trust Company (See Registration No. 2-41721, Exhibit
2-A).
4(O) Indenture dated as of November 1, 1973, from the Company to
Bankers Trust Company (See Registration No. 2-49251,
Exhibit 2-A).
4(P) Indenture dated as of May 1, 1978, from the Company to
Bankers Trust Company (See Registration No. 2-61151,
Exhibit 2-A).
4(Q) Indenture dated as of October 26, 1978, from the Company to
Bankers Trust Company (See Administrative Proceeding File
No. 3-5541, Exhibit 5).
4(R) Indenture dated as of December 27, 1979 from the Company to
Bankers Trust Company (See the Company's Application, File
Nos. 2-34018, 2-38292, 2-41721, 2-49251, and 2-61151,
Exhibit 5).
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
INDEX TO EXHIBITS (CONTINUED)
ITEM 14(c)
Exhibit No.
4(S) Indenture dated as of May 15, 1986 from the Company to
Bankers Trust Company (See Amendment No. 1 to Registration
No. 33-5350, Exhibit 4-A).
4(T) Indenture dated as of December 1, 1992 from the Company to
Bankers Trust Company (See Registration No. 33-54936,
Exhibit 4).
4(U) Indenture dated as of August 15, 1993 from the Company to
Bankers Trust Company (See Registration No. 33-64476,
Exhibit 4).
10 Incentive Compensation Plan (filed as Exhibit 10(c) (vi) to United
Telecommunications, Inc., Registration Statement No. 2-72988 and
incorporated herein by reference).
12 Computation of Ratio of Earnings to Fixed Charges.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
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.
CAROLINA TELEPHONE & TELEGRAPH COMPANY
Date: March 17, 1995 By s/F. E. Westmeyer
-------------- ----------------------------------------
F. E. Westmeyer, Vice President-Finance
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 and on the dates indicated.
Date Signature and Title
March 17, 1995 s/ W. E. McDonald
-------------- ----------------------------------------
W. E. McDonald, President, Director
and Chief Executive Officer
March 17, 1995 s/ F. E. Westmeyer
-------------- ----------------------------------------
F. E. Westmeyer, Vice President-Finance
March 17, 1995 s/ T. J. Geller
-------------- ----------------------------------------
T. J. Geller, Controller
March 17, 1995 s/ F. J. Boling, Jr.
-------------- ----------------------------------------
F. J. Boling, Jr., Director
March 17, 1995 s/ T. G. Crewe, Jr.
-------------- ----------------------------------------
T. G. Crewe, Jr., Director
March 17, 1995 s/ N. B. DeFriece
-------------- ----------------------------------------
N. B. DeFriece, Director
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
SIGNATURES (CONTINUED)
Date Signature and Title
March 17, 1995 s/C. D. Evans
-------------- ----------------------------------------
C. D. Evans, Director
March 17, 1995 s/J. A. Hackney, III
-------------- ----------------------------------------
J. A. Hackney, III, Director
March 17, 1995 s/ W. P. Hendricks
-------------- ----------------------------------------
W. P. Hendricks, Director
March 17, 1995 s/ J. W. Jones, Jr.
-------------- ----------------------------------------
J. W. Jones, Jr., Director
March 17, 1995 s/ J. A. Laughery
-------------- ----------------------------------------
J. A. Laughery, Director
March 17, 1995 s/ G. W. Little
-------------- ----------------------------------------
G. W. Little, Director
March 17, 1995 s/ B. R. McCain
-------------- ----------------------------------------
B. R. McCain, Director
March 17, 1995 s/ J. M. Mead
-------------- ----------------------------------------
J. M. Mead, Director
March 17, 1995 s/ M. K. Norris
-------------- ----------------------------------------
M. K. Norris, Director
March 17, 1995 s/ D. W. Peterson
-------------- ----------------------------------------
D. W. Peterson, Director
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
SIGNATURES (CONTINUED)
Date Signature and Title
March 17, 1995 s/ J. J. Powell
-------------- ----------------------------------------
J. J. Powell, Director
March 17, 1995 s/ D. L. Ward, Jr.
-------------- ----------------------------------------
D. L. Ward, Jr., Director
<PAGE>
Exhibit 12
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
Years ended December 31,
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Income before extra-
ordinary item $ 94,944 $ 49,486 $ 72,800 $ 77,420 $ 76,649
Capitalized interest (140) (54) (632) (87) (49)
Income tax provision 56,176 26,837 40,430 43,748 37,770
Subtotal 150,980 76,269 112,598 121,081 114,370
-------- -------- -------- -------- --------
Fixed charges
Interest charges 22,245 21,960 22,167 20,042 19,621
Interest factor of
operating rents 1,039 2,320 2,048 2,322 1,859
-------- -------- -------- -------- --------
Total fixed charges 23,284 24,280 24,215 22,364 21,480
-------- -------- -------- -------- --------
Earnings, as adjusted $174,264 $100,549 $136,813 $143,445 $135,850
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 7.48 4.14* 5.65 6.41 6.32
======== ======== ======== ======== ========
* In the absence of $46,382,000 of nonrecurring merger and integration
costs related to the merger of Sprint and Centel, income before extra-
ordinary item would have been $77,251,000, and the ratio of earnings
to fixed charges would have been 6.05 for the year ended December 31,
1993.
NOTE: The above ratios have been computed by dividing fixed charges into
the sum of (a) income before extraordinary item 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>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Carolina Telephone and Telegraph Company
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-64476) of Carolina Telephone and Telegraph Company
and in the related Prospectus of our report dated January 25, 1995, with
respect to the consolidated financial statements and schedule of Carolina
Telephone and Telegraph Company included in this Annual Report (Form 10-K)
for the year ended December 31, 1994.
ERNST & YOUNG LLP
Kansas City, Missouri
March 30, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000275177
<NAME> CAROLINA TELEPHONE & TELEGRAPH COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 115798
<ALLOWANCES> 1742
<INVENTORY> 12490
<CURRENT-ASSETS> 130635
<PP&E> 1701924
<DEPRECIATION> 766173
<TOTAL-ASSETS> 1138522
<CURRENT-LIABILITIES> 174290
<BONDS> 260736
<COMMON> 72530
0
0
<OTHER-SE> 441512
<TOTAL-LIABILITY-AND-EQUITY> 1138522
<SALES> 0
<TOTAL-REVENUES> 717454
<CGS> 0
<TOTAL-COSTS> 431466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22245
<INCOME-PRETAX> 0
<INCOME-TAX> 73083
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94944
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
