UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-6469
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CAROLINA TELEPHONE AND TELEGRAPH COMPANY
- - ---------------------------------------------------------------------------
(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
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(Address of principal executive offices) (Zip Code)
919-554-7900
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
This registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
There are 3,626,510 shares of common stock, par value $20, outstanding as of
March 31, 1996 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 Pages 6 - 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations Pages 8 - 10
Part II. Other Information
Item 1. Legal Proceedings Page 11
Item 2. Changes in Securities Page 11
Item 3. Defaults Upon Senior Securities Page 11
Item 4. Submission of Matters to a Vote of
Security Holders Page 11
Item 5. Other Information Page 11
Item 6. Exhibits and Reports on Form 8-K Page 11
Signatures Page 12
Exhibit 12
Exhibit 27
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 39 $ 54
Receivables, net of allowance for
doubtful accounts of $2,616
($2,348 in 1995):
Customers and other 81,737 81,710
Interexchange carriers 25,842 25,955
Affiliated companies 5,275 4,920
Inventories 10,865 6,884
Prepaid expenses and other 1,214 1,601
--------- ---------
124,972 121,124
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 137,219 136,486
Telephone network equipment and outside
plant 1,592,712 1,568,154
Other 99,141 93,859
Construction in progress 35,973 19,992
--------- ---------
1,865,045 1,818,491
Less accumulated depreciation 994,815 969,389
--------- ---------
870,230 849,102
DEFERRED CHARGES AND OTHER ASSETS 85,110 82,152
--------- ---------
$1,080,312 $1,052,378
========= =========
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(In Thousands)
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Outstanding checks in excess of cash
balances $ 3,594 $ 7,443
Short-term borrowings:
Commercial paper - 42,800
Advances from parent company 42,329 72
Current maturities of long-term debt 735 12,672
Accounts payable:
Vendors and other 25,339 14,532
Interexchange carriers 21,646 20,389
Affiliated companies 22,036 15,883
Accrued taxes 23,838 14,635
Advance billings and customer deposits 18,422 18,178
Accrued vacation pay 9,724 8,916
Other 19,003 17,717
--------- ---------
186,666 173,237
LONG-TERM DEBT 248,696 248,309
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 79,318 77,841
Postretirement and other benefit
obligations 54,724 51,824
Other 14,088 13,900
--------- ---------
148,130 143,565
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 352,299 342,746
--------- ---------
496,820 487,267
--------- ---------
$1,080,312 $1,052,378
========= =========
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended March 31,
1996 1995
--------- ---------
(Unaudited)
OPERATING REVENUES
Local service $ 81,877 $ 71,510
Network access service 57,456 51,756
Long distance service 18,944 25,144
Other 39,574 34,561
--------- ---------
197,851 182,971
OPERATING EXPENSES
Plant expense 51,730 54,961
Depreciation 33,420 32,170
Customer operations 31,481 26,516
Corporate operations 17,767 16,737
Other 8,850 7,488
Taxes:
Federal income:
Current 13,726 14,961
Deferred 977 (3,590)
Deferred investment tax credits - (546)
State, local and miscellaneous 8,202 7,398
--------- ---------
166,153 156,095
OPERATING INCOME 31,698 26,876
INTEREST EXPENSE
Short-term borrowings and
long-term debt 4,730 4,838
Other 999 488
--------- ---------
5,729 5,326
OTHER INCOME
Interest charged to construction 439 54
Other, net 3,709 180
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4,148 234
--------- ---------
NET INCOME $ 30,117 $ 21,784
========= =========
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
1996 1995
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(Unaudited)
OPERATING ACTIVITIES
Net income $ 30,117 $ 21,784
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 33,420 32,170
Deferred income taxes and investment
tax credits 1,681 (4,841)
Changes in operating assets and
liabilities:
Receivables, net (269) 5,646
Inventories and other current assets (3,558) 39
Accounts payable, accrued expenses
and other current liabilities 25,909 20,058
Noncurrent assets and liabilities, net 130 2,253
Other, net (181) (102)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 87,249 77,007
--------- ---------
INVESTING ACTIVITIES
Capital expenditures (53,774) (47,501)
Other, net (774) (768)
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NET CASH USED BY INVESTING ACTIVITIES (54,548) (48,269)
--------- ---------
FINANCING ACTIVITIES
Retirements of long-term debt (11,609) (8,048)
Net increase (decrease) in short-term
borrowings (543) 1,438
Dividends paid (20,564) (22,123)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (32,716) (28,733)
--------- ---------
INCREASE (DECREASE) IN CASH (15) 5
CASH AT BEGINNING OF PERIOD 54 16
--------- ---------
CASH AT END OF PERIOD $ 39 $ 21
========= =========
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The information contained in this Form 10-Q for the three-month interim
periods ended March 31, 1996 and 1995 has been prepared in accordance with
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments considered necessary, consisting only of
normal recurring accruals, to present fairly the consolidated financial
position, results of operations, and cash flows for such interim periods have
been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The results
of operations for the three months ended March 31, 1996 are not necessarily
indicative of the operating results that may be expected for the year ended
December 31, 1996.
Basis of Presentation
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The accompanying consolidated financial statements include the accounts
of Carolina Telephone and Telegraph Company and its wholly-owned subsidiaries,
Carolina Telephone Long Distance, Inc. and SC One Company, collectively
referred to as the "Company." All significant intercompany transactions have
been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts previously reported for the prior period 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 (Sprint).
<PAGE>
Form 10-Q Part I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
2. SUPPLEMENTAL CASH FLOW INFORMATION
The supplemental disclosures for the consolidated statements of cash
flows for the three months ended March 31 are as follows (in thousands):
1996 1995
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Cash paid for
Interest, net of amounts capitalized $ 4,168 $ 4,170
Income taxes 1,401 1,697
<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
- - ---------------------
The Company adopted accounting principles for a competitive marketplace
effective December 31, 1995 and discontinued applying Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain
Types of Regulation." The primary effects of the Company's discontinued
application of SFAS No. 71 were that certain accumulated depreciation
balances were increased, plant asset lives were shortened from
regulator-prescribed lives to estimated economic lives, switch software costs
which had previously been expensed as incurred are now being capitalized and
amortized, and the effects of any actions of regulators that had been
recognized as assets and liabilities pursuant to SFAS No. 71, but which would
not have been recognized as such by enterprises in general, were eliminated
from the consolidated balance sheet. It is not expected that the discontinued
application of SFAS No. 71 will have a significant impact on 1996 operating
results.
Local service revenues increased $10.4 million or 14.5 percent for the
three-month period ended March 31, 1996 compared to the same period in 1995.
Basic area service revenues contributed $7.1 million to this increase,
primarily attributable to a 5.0 percent growth in access lines and the
implementation of Expanded Local Calling Service (ELCS). ELCS, which includes
exchanges within an approximately 40-mile radius of a central office, allows
customers to choose one of three local service options that best fits their
personal calling needs. The implementation of ELCS changed the category of
this revenue from long distance service revenues to local service revenues.
For the same period, revenue from custom calling features increased as a
result of access line gains and marketing promotions. Translink, Digilink,
and the North Carolina Information Highway project contributed to an increase
in local private line revenues. Translink is an interexchange digital
channel service which provides access transport between a customer's premises
and the local serving office on a channelized basis over a high-capacity
digital facility. Digilink is a digital transmission service designed to
transmit signals, end to end, over digital facilities routed through central
offices. As part of the North Carolina Information Highway project, the
Company is providing equipment to the state government to provide link-up
capabilities for different schools and institutions.
Network access service revenues increased $5.7 million or 11.0 percent
for the three-month period ended March 31, 1996 compared to the same period
in 1995. The increase was primarily due to a 12.6 percent growth in
interstate access minutes and a 12.9 percent growth in intrastate access
minutes.
Long distance service revenues decreased $6.2 million or 24.7 percent
for the three-month period ended March 31, 1996 compared to the same period
in 1995. Carolina Telephone Long Distance, Inc. experienced an 8.2 percent
decrease in access lines due to aggressive advertising campaigns of its
competitors. The remaining decrease is the result of the implementation of
ELCS, which changed the category of this revenue from long distance service
revenues to local service revenues.
<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)
- - ---------------------------------
Other revenues increased $5.0 million or 14.5 percent for the three-month
period ended March 31, 1996 compared to the same period in 1995. The
increase primarily represents increases in equipment sales and installation
revenue, general support asset rent revenue, and revenue from North Carolina
Utility Services (NCUS), a non-regulated line of business specializing in
locating underground utility lines. 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.
Plant expense decreased $3.2 million or 5.9 percent for the three-month
period ended March 31, 1996 compared to the same period in 1995. In
conjunction with the adoption of accounting principles for a competitive
marketplace, switch software costs which had previously been expensed as
incurred are now being capitalized and amortized, which resulted in a
decrease in plant expense. This decrease was partially offset by increases
in both furniture and general purpose computer expenses.
Customer operations expense increased $5.0 million or 18.7 percent for
the three-month period ended March 31, 1996 compared to the same period in
1995. NCUS expenses increased due to the expansion of its customer base and
its new line of business, Drop Administration Placement. Customer operations
expense also reflects increases in directory assistance services provided by
Central Telephone Company - North Carolina Division (an affiliate), increased
resources in business office operations required to meet customer demands,
and developmental expenses incurred for a new standard marketing billing
system which is expected to be implemented in 1997.
The other, net, portion of other income increased $3.5 million for the
three-month period ended March 31, 1996 compared to the same period in 1995.
In 1995, the Company transferred its investment in Rural Service Area cellular
partnerships to its affiliate, Centel Corporation (Centel), in exchange for
preferred stock issued by Centel. This increase in other income was primarily
due to dividends received on the Centel preferred stock.
Liquidity and Capital Resources
- - -------------------------------
Cash flows from operating activities are the Company's primary source of
liquidity. Net cash provided by operating activities increased $10.2 million
for the three-month period ended March 31, 1996 compared to the same period
in 1995, primarily due to improved operating results in the 1996 period.
Net cash used by investing activities increased $6.3 million for the
three-month period ended March 31, 1996 compared to the same period in 1995
primarily due to telecommunications plant additions. The Company's planned
expenditures for 1996 are $163.7 million.
<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)
- - -------------------------------------------
Net cash used by financing activities increased $4.0 million for the
three-month period ended March 31, 1996 compared to the same period in 1995
primarily due to an increase in retirements of long-term debt and a decrease
in short-term borrowings, partially offset by a decrease in dividend payments.
As of March 31, 1996, 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 March 31, 1996, no amounts were
borrowed against this credit facility. Currently, all borrowing transactions
are made with the parent company; therefore, no commercial paper was
outstanding at March 31, 1996.
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 63.0 percent
at March 31, 1996 and 61.6 percent at December 31, 1995. The Company's ratio
of long-term debt to total capital was 31.6 percent at March 31, 1996 and
33.0 percent at December 31, 1995.
<PAGE>
Form 10-Q Part II.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
OTHER INFORMATION
Item 1. Legal Proceedings
There were no reportable events during the quarter ended
March 31, 1996.
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 8.61
and 7.00 for the three months ended March 31, 1996 and 1995,
respectively. These ratios have been computed by dividing
fixed charges into the sum of (a) net income less capitalized
interest included in income, (b) income taxes and (c) fixed
charges. Fixed charges consist of interest on all indebtedness
(including amortization of debt issuance expenses) and the
interest factor of operating rents.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(12) Computation of ratios of earnings to fixed charges.
(27) Financial data schedule.
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1996.
<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 5-15-96 By s/F. E. Westmeyer
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F. E. Westmeyer, Vice President-Finance
(Principal Financial Officer)
Date 5-15-96 By s/T. J. Geller
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T. J. Geller, Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 12
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands)
Three Months Ended
March 31,
---------------------
(Unaudited)
1996 1995
---- ----
Net income $ 30,117 $ 21,784
Capitalized interest (439) (54)
Income tax provision 18,530 13,596
------- -------
Subtotal 48,208 35,326
Fixed charges
Interest charges 5,729 5,326
Interest factor of operating rents 607 563
------- -------
Total fixed charges 6,336 5,889
------- -------
Earnings, as adjusted $ 54,544 $ 41,215
======= =======
Ratio of earnings to fixed charges 8.61 7.00
==== ====
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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