<PAGE>
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 June 30, 1995
---------------------------------------------
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
June 30, 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)
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 21 $ 16
Receivables, net of allowance for
doubtful accounts of $2,421
($1,775 in 1994):
Customers and other 76,634 83,597
Interexchange carriers 27,833 24,488
Affiliated companies 6,003 5,971
Inventories 9,792 12,490
Prepaid expenses and other 4,788 4,073
--------- ---------
125,071 130,635
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 134,650 132,610
Telephone network equipment and outside
plant 1,509,500 1,454,632
Other 92,993 86,520
Construction in progress 41,825 28,162
--------- ---------
1,778,968 1,701,924
Less accumulated depreciation 815,866 766,173
--------- ---------
963,102 935,751
DEFERRED CHARGES AND OTHER ASSETS 79,063 72,136
--------- ---------
$1,167,236 $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)
June 30, December 31,
1995 1994
---------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of cash
balances $ 759 $ 1,347
Short-term borrowings:
Commercial paper 60,000 33,600
Notes payable to banks 19,500 -
Advances from parent company - 2,810
Current maturities of long-term debt 12,696 8,579
Accounts payable:
Vendors and other 21,049 19,742
Interexchange carriers 29,568 24,909
Affiliated companies 14,181 15,855
Accrued taxes 10,294 18,396
Advance billings and customer deposits 18,355 19,853
Accrued vacation pay 9,791 8,862
Other 20,082 20,337
--------- ---------
216,275 174,290
LONG-TERM DEBT 248,227 260,736
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 106,748 110,489
Deferred investment tax credits 2,024 3,134
Postretirement and other benefit
obligations 43,209 36,539
Other 42,372 39,292
--------- ---------
194,353 189,454
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 363,860 369,521
--------- ---------
508,381 514,042
--------- ---------
$1,167,236 $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 Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
OPERATING REVENUES
Local service $ 74,511 $ 68,885 $146,021 $135,989
Network access service 53,299 51,513 105,055 100,243
Long distance service 25,166 29,343 50,310 56,253
Other 39,553 31,469 74,114 57,313
-------- -------- -------- --------
192,529 181,210 375,500 349,798
OPERATING EXPENSES
Plant expense 52,837 47,994 107,798 99,382
Depreciation 33,130 30,426 65,300 60,333
Customer operations 29,869 23,226 56,385 46,379
Corporate operations 17,353 17,114 34,090 34,482
Other 8,878 7,873 16,366 12,709
Taxes:
Federal income:
Current 12,931 15,199 27,892 26,322
Deferred (136) (822) (3,726) (1,464)
Deferred investment tax
credits (564) (885) (1,110) (1,830)
State, local and
miscellaneous 7,741 7,774 15,139 14,559
-------- -------- -------- --------
162,039 147,899 318,134 290,872
-------- -------- -------- --------
OPERATING INCOME 30,490 33,311 57,366 58,926
Interest Expense
Short-term borrowings and
long-term debt 5,172 5,023 10,010 10,049
Other 857 328 1,345 593
-------- -------- -------- --------
6,029 5,351 11,355 10,642
Other Income
Interest charged to
construction 61 34 115 71
Other, net 184 216 364 425
-------- -------- -------- --------
245 250 479 496
-------- -------- -------- --------
NET INCOME $ 24,706 $ 28,210 $ 46,490 $ 48,780
======== ======== ======== ========
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)
Six Months Ended
June 30,
---------------------------
1995 1994
--------- ---------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 46,490 $ 48,780
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 65,300 60,333
Deferred income taxes and investment
tax credits (5,308) (3,073)
Changes in operating assets and
liabilities:
Receivables, net 3,586 (12,495)
Inventories and other current assets 1,983 (3,475)
Accounts payable, accrued expenses
and other current liabilities (5,222) 16,451
Noncurrent assets and liabilities, net 7,856 5,491
Other, net 731 177
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 115,416 112,189
-------- --------
INVESTING ACTIVITIES
Capital expenditures (92,071) (95,890)
Other, net (5,769) (4,449)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (97,840) (100,339)
-------- --------
FINANCING ACTIVITIES
Retirements of long-term debt (8,510) (104)
Net increase in short-term borrowings 43,090 222
Dividends paid (52,151) (11,968)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (17,571) (11,850)
-------- --------
INCREASE IN CASH 5 -
CASH AT BEGINNING OF PERIOD 16 20
-------- --------
CASH AT END OF PERIOD $ 21 $ 20
======== ========
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- and six-month
interim periods ended June 30, 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 six months ended June 30, 1995 are not necessarily
indicative of the operating results that may be expected for the year ended
December 31, 1995.
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.
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
------------------
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 six months ended June 30 are as follows (in thousands):
1995 1994
------ ------
Cash paid for
Interest, net of amounts capitalized $ 10,831 $ 11,455
Income taxes 38,091 22,657
<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
---------------------
Local service revenues increased $10.0 million or 7.4 percent for the
six-month period ended June 30, 1995 compared to the same period in 1994.
Basic area service revenues contributed $6.5 million to this increase,
primarily attributable to a 5.4 percent growth in access lines. For the same
period, custom calling features added $2.6 million as a result of marketing
promotions.
Network access service revenues increased $4.8 million or 4.8 percent
for the six-month period ended June 30, 1995 compared to the same period in
1994. The increase was primarily due to a 6.5 percent growth in interstate
access minutes and a 10.2 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 $5.9 million or 10.6 percent
for the six-month period ended June 30, 1995 compared to the same period in
1994. Carolina Telephone Long Distance, Inc. experienced a 15.1 percent
decrease in access lines due to aggressive advertising campaigns of its
competitors. In the 1994 period, $2.8 million of additional revenue was
recognized related to the Revenue Distribution Plan and intralata
compensation payments. The Revenue Distribution Plan was an interim settlement
plan implemented after the pooling arrangement methodology and before the
originating responsibility plan methodology.
Other revenues increased $16.8 million or 29.3 percent for the six-month
period ended June 30, 1995 compared to the same period in 1994. The equipment
sales and installation revenue increased $7.1 million. North Carolina Utility
Services (NCUS), a non-regulated line of business specializing in locating
underground utility lines, contributed $6.4 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. In May 1994, the
Company began providing operator services for two of its affiliates, Central
Telephone Company of Virginia and Central Telephone Company - North Carolina
Division resulting in additional revenue. Pole attachment rent revenues also
contributed to the increase.
Plant expense increased $8.4 million or 8.5 percent for the six-month
period ended June 30, 1995 compared to the same period in 1994. The increase
was primarily due to increased costs of providing services resulting from
access line growth. In addition, generic software expense increased due to
upgrades of digital switches to provide enhanced services. General purpose
computer expense also increased, primarily due to license charges for
software and data hardware expenses for a new interactive voice response
system for the business offices. The remainder of the increase was due to
several individually insignificant expenses.
<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)
---------------------------------
Depreciation expense increased $5.0 million or 8.2 percent for the
six-month period ended June 30, 1995 compared to the same period in 1994 as
a result of an increase in the average depreciable plant.
Customer operations expense increased $10.0 million or 21.6 percent for
the six-month period ended June 30, 1995 compared to the same period in 1994.
NCUS expenses increased $6.3 million due to the expansion of its customer
base and its new line of business, Drop Administration Placement. In May 1994,
Central Telephone Company - North Carolina Division, an affiliate, began
providing directory assistance services on behalf of the Company, resulting
in additional expenses.
Other operating expenses increased $3.7 million or 28.8 percent for the
six-month period ended June 30, 1995 compared to the same period in 1994.
This fluctuation was due to a $5.2 million increase in cost of equipment
sales, generally correlating with the overall trend in equipment sales. This
increase was partially offset by improved operating results associated with
nonregulated activities.
Liquidity and Capital Resources
-------------------------------
Cash flows from operating activities are the Company's primary source of
liquidity. Net cash provided by operating activities increased $3.2 million
for the six-month period ended June 30, 1995 compared to the same period in
1994. The increase was primarily attributable to decreases in receivables
and inventories, partially offset by increased accounts payable in the 1994
period.
Net cash used by investing activities decreased $2.5 million for the
six-month period ended June 30, 1995 compared to the same period in 1994.
This increase was impacted by a $3.8 million decrease in telecommunications
plant additions, partially offset by 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 $5.7 million for the
six-month period ended June 30, 1995 compared to the same period in 1994
primarily due to an increase in retirements of long-term debt and an increase
in dividend payments. These payments, as well as tax payments, increased
short-term borrowings.
As of June 30, 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 or the Company. As of June 30, 1995, no amounts were
borrowed against this credit facility; however, $60.0 million of the bank
lines supported commercial paper outstanding at June 30, 1995.
<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 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.
The Company's ratio of common equity to total capital was 59.9 percent
at June 30, 1995 and 62.7 percent at December 31, 1994. The Company's ratio
of long-term debt to total capital was 30.7 percent at June 30, 1995 and 32.9
percent at December 31, 1994.
Accounting Developments
-----------------------
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." 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 would be required to
discontinue accounting under SFAS No. 71 if the existing and anticipated
levels of competition no longer allow for service and product pricing that
provides for the recovery of specific costs. SFAS No. 71 would also be
required to be discontinued if the existing regulatory framework continues
to evolve from rate-base regulation to price regulation, as the latter does
not provide for the recovery of specific costs.
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
transitioning to price regulation 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. If the current regulatory and competitive trends continue, it
is increasingly likely that the Company will discontinue accounting under
SFAS No. 71 due to the effect of one or both of these conditions. In the
event the Company determines its operations no longer qualify for the
application of the provisions of SFAS No. 71, the Company would eliminate
from its financial statements the effects of any actions of regulators that
had been recognized as assets and liabilities. The resulting material noncash
charge would be recorded as an extraordinary item.
<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
June 30, 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 7.03
and 9.38 for the three months ended and 7.01 and 7.85 for the
six months ended June 30, 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 exhibit is 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 June 30, 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 08-11-95 By s/F. E. Westmeyer
-------- ------------------------------------------------
F. E. Westmeyer, Vice President-Finance
(Principal Financial Officer)
Date 08-11-95 By s/T. J. Geller
-------- ------------------------------------------------
T. J. Geller, Controller
(Principal Accounting Officer)
<PAGE>
<PAGE>
Exhibit 12
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
Three Months Ending Six Months Ending
June 30, June 30,
------------------- -----------------
(Unaudited) (Unaudited)
1995 1994 1995 1994
---- ---- ---- ----
Net income $ 24,706 $ 28,210 $ 46,490 $ 48,780
Capitalized interest (61) (34) (115) (71)
Income tax provision 15,275 19,421 28,871 29,172
-------- -------- -------- --------
Subtotal 39,920 47,597 75,246 77,881
Fixed charges
Interest charges 6,029 5,351 11,355 10,642
Interest factor of operating
rents 592 328 1,155 728
-------- -------- -------- --------
Total fixed charges 6,621 5,679 12,510 11,370
-------- -------- -------- --------
Earnings, as adjusted $ 46,541 $ 53,276 $ 87,756 $ 89,251
======== ======== ======== ========
Ratio of earnings to fixed
charges 7.03 9.38 7.01 7.85
==== ==== ==== ====
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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<NAME> CAROLINA TELEPHONE & TELEGRAPH COMPANY
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<COMMON> 72530
0
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<OTHER-SE> 435851
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