UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
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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
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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)
Registrant's telephone number, including area code 919-554-7900
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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
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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, 1995 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 subsidiaries, Carolina Telephone Long Distance, Inc. and SC One
Company.
The Company is engaged in the business of furnishing communications
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, 1995, the Company had an
investment in property, plant, and equipment of $1,818,491,000. Operating
revenues for the year 1995 amounted to $769,464,000. 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, chemicals, 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
substantial portion of the Company's expansion of long distance facilities.
At December 31, 1995, the Company served 992,046 access lines, distributed
among 145 exchange areas as follows: Fayetteville, 14.7 percent; Greenville,
5.3 percent; Rocky Mount, 4.5 percent; Jacksonville, 4.2 percent; Wilson, 3.1
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 communications services, principally telephone service,
constitute about 80.0 percent of the total 1995 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
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part I
Item 1. Business (continued)
revenues 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 for the periods indicated.
Access Lines
Change
Number at End of Period During Period
----------------------- -------------
Period Residence Business Total Number % Change
- ------ --------- -------- ----- ------ --------
1995 763,923 228,123 992,046 44,081 4.7
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
Toll Messages
Total For Year Average Messages Per Day
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Period Number % Change Number % Change
- ------ ------ -------- ------ --------
1995 536,211,752 11.7 1,469,073 11.7
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
On December 31, 1995, the Company had 3,494 employees, of which 2,002
or 57.3 percent were represented by the Communications Workers of America,
and 117 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.
The Company is subject to the jurisdiction of the Federal Communications
Commission (FCC) and the North Carolina Utilities Commission (Commission).
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part I
Item 1. Business (continued)
Effective January 1, 1991, the FCC adopted a price cap regulatory format
for the Regional Bell Operating Companies and the GTE local exchange
companies. Other local exchange companies could voluntarily become subject
to price cap 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 cap regulation. During 1995, the FCC adopted
modifications to the price cap plan to reset productivity elections, change
certain rate adjustment methods, address new service offerings, and generally
reduce regulatory requirements. Under these changes, the Company elected a
productivity factor that allows it to avoid sharing of interstate access
earnings.
Effective July 1, 1995, the North Carolina General Assembly (General
Assembly) enacted legislation that will enable local telephone companies such
as the Company to elect to have their intrastate rates, terms, and conditions
for services determined pursuant to a price cap form of regulation. The
Company filed a petition with the Commission in October 1995 to elect price
regulation, effective July 1, 1996 or sooner if ordered by the Commission.
The proposal includes planned rate reductions of approximately $25.0 million
over the life of the plan (5 years), of which 50.0 percent will become
effective at the inception of the plan. The proposed price cap plan will
remove the Company from rate of return regulation and Commission oversight
for capital recovery. It will allow the Company to adjust prices for basic,
interconnection, and non-basic services, using an inflation-based formula.
As a consumer safeguard, the Company proposes to cap basic services
(residence and single-line business) at their existing rates for the initial
three years of the plan.
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. With the General Assembly's
decision to allow competitive entry to the local exchange marketplace, it
also required the Commission to adopt rules (interim by year end 1996 and
final by mid-1998) ensuring the continuance of universally available telephone
service at reasonable rates. An important aspect of the Commission's
rulemaking will be to determine whether universal service should be funded
through interconnection rates or through an explicit funding mechanism.
The creation of an explicit universal service funding source will allow the
Company to more closely align its rates for competitive services with the cost
to provide these services.
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. Federal legislation
designed to stimulate local competition between local exchange service
providers and cable programming service providers in both markets has been
recently passed and signed into law. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion
of this legislation.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part I
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 40.0 percent
of the Company's investment in telephone plant in service; land and buildings
(occupied principally by central office equipment) represent 7.5 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 1.7 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 45.2
percent; and other telephone plant represents 5.6 percent. Of the 145
exchanges, 141 exchanges have central offices located on land owned by the
Company and served 84.4 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; and 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 14.7 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 retirements of
properties of the Company during the five years ended December 31,
(in thousands):
Gross
Additions Retirements
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1995 $146,146 $49,211
1994 146,110 39,761
1993 146,543 51,020
1992 143,057 89,179
1991 130,332 49,766
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 1995.
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.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 6. Selected Financial Data (in thousands)
December 31,
1995 1994 1993 1992 1991
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Operating revenues $ 769,464 $ 717,454 $ 638,541 $ 590,440 $552,986
Net income 57,508 94,944 47,168 72,800 77,420
Total assets 1,052,378 1,138,522 1,078,929 1,025,295 968,806
Long term debt
(excluding current
maturities) and
redeemable preferred
stock 248,309 260,736 269,087 240,535 224,398
Effective December 31, 1995, the Company determined that it no longer
met the criteria necessary for the continued application of the provisions of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." As a result of the decision to
discontinue the application of SFAS No. 71, the Company recorded a noncash
extraordinary charge of $42,424,000, net of income tax benefits of
$51,523,000.
During 1995, Sprint initiated a realignment and restructuring of its
local communications services division, including the elimination of
approximately 150 of the Company's positions. These actions resulted in a
nonrecurring charge to the Company of $8,079,000, which reduced net income by
$4,844,000.
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 (Centel). 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.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Telecommunications Legislation
- ------------------------------
In February 1996, the Telecommunications Act of 1996 (the Act) was
signed into law. The purpose of the Act is to promote competition in all
aspects of telecommunications. The Act requires telecommunications carriers
to interconnect with other carriers and to provide for resale, number
portability, dialing parity, access to rights-of-way and compensation for
reciprocal traffic. Additionally, incumbent local telephone companies are
required to provide nondiscriminatory unbundled access, resale at wholesale
rates and notice of changes that would affect interoperability of facilities
<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)
Telecommunications Legislation (continued)
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and networks. The FCC is to adopt mechanisms to ensure that essential
telecommunications services are affordable.
The Act also provides that regional Bell Operating Companies (RBOCs) may
provide long distance service that is out-of-region or incidental to
audio/video programming, Internet for schools, mobile services, information
or alarm services and telecommunications signaling. In order for an RBOC to
provide in-region long distance service, the Act requires the RBOC to comply
with a comprehensive competitive checklist and expands the role of the U.S.
Department of Justice in the FCC's determination of whether the entry of an
RBOC into the competitive long distance market is in the public interest.
Additionally, there must be a real facilities-based competitor for residential
and business local telephone service (or the failure of potential providers
to request access) prior to an RBOC providing in-region long distance service.
RBOCs must provide long distance services through a separate subsidiary for
at least three years. Until the RBOCs are allowed into long distance or
three years have passed, long distance carriers with more than five percent
of the nation's access lines may not jointly market RBOC resold local
telephone service, and states may not require RBOCs to provide intralata
dialing parity.
Telecommunications companies may also provide video programming and
cable operators may provide telephone service in the same service area. The
Act prohibits telecommunications carriers and cable operators from acquiring
more than ten percent of each other, except in rural and other specified
areas.
The impact of the Act on the Company is unknown because a number of
important implementation issues (such as the nature and extent of continued
subsidies for local rates) still need to be decided by state or federal
regulators. However, the Company's historical prices and market share are
likely to decline as a result of increased local competition.
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 entirely 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, operator services, network facilities leases and
sales of telecommunications equipment.
<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)
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Operating revenues increased by $52,010,000 or 7.2 percent during the
year ended December 31, 1995 as compared to 1994, reflecting increases in
local service, network access service and other revenues.
Local service revenues increased $25,696,000 or 9.3 percent during the
year ended December 31, 1995 as compared to 1994. Basic area service revenues
contributed $17,364,000 to this increase, primarily attributable to a 4.7
percent growth in access lines during 1995 and to 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 the three local service options that best fits their personal
calling needs. For the same period, custom calling features increased
$5,557,000 as a result of access line gains and marketing promotions. Also
contributing to the increased local service revenues were higher maintenance
revenues related principally to inside wiring, key and PBX systems.
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 revenues increased $14,041,000 or 6.9 percent during the
year ended December 31, 1995 as compared to 1994. The increase was primarily
due to a 7.4 percent growth in interstate access minutes and a 9.6 percent
growth in intrastate access minutes.
Long distance revenues decreased $14,142,000 or 13.0 percent during the
year ended December 31, 1995 as compared to 1994. Carolina Telephone Long
Distance, Inc. experienced an 11.6 percent decrease in access lines due to
aggressive advertising campaigns of its competitors. In comparing the year
ended December 31, 1995 to the same period in 1994, $4,740,000 of additional
revenue was recognized in 1994 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. 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.
Other revenues increased $26,415,000 or 20.7 percent during the year
ended December 31, 1995 as compared to 1994. The equipment sales and
installation revenue increased $8,711,000 during 1995. The equipment sales
revenue related principally to telephone instruments, PBX, and key systems.
North Carolina Utility Services (NCUS), a non-regulated line of business
specializing in locating underground utility lines, contributed $13,355,000.
The increase in NCUS reflects an expansion of the service and an increase
<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)
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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. Operator
services revenue increased $2,453,000 during 1995. In May 1994, the Company
began providing operator services for two of its affiliates, Central Telephone
Company of Virginia and Central Telephone Company.
Plant expense increased $10,641,000 or 5.3 percent during the year ended
December 31, 1995 as compared to 1994. The Business Process Improvement
initiatives which began in October 1994 increased network administration
expenses. Pole rental expense increased due to a change in the classification
of expenses. Programming fees related to ongoing software development,
enhancements, and maintenance for field personnel dispatching, outside plant
mechanized mapping system, and other projects increased network
administration and general purpose computer expenses. The remainder of the
increase was due to upgrades of digital switches to provide enhanced services
and increased costs of providing services.
Depreciation expense decreased $1,618,000 or 1.2 percent during the year
ended December 31, 1995 as compared to 1994. In December 1994, special
amortization was granted by the Commission of $9,250,000 and 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
Equipment for Accounting Purposes." The impact to depreciation expense for
the increase in average depreciable plant for 1995 was less than the
nonrecurring charges in 1994 which resulted in the decrease to depreciation
expense for 1995 as compared to 1994.
Customer operations expense increased $24,606,000 or 25.3 percent during
the year ended December 31, 1995 as compared to 1994. NCUS expenses increased
$12,364,000 due to the expansion of its customer base and its new line of
business, Drop Administration Placement. Customer operations-marketing
expense increased $4,012,000 primarily due to a more aggressive sales
strategy as the Company continues to intensify its efforts to achieve an
increased market share and gain knowledge of its customer expectations to
differentiate the Company from competition. In May 1994, Central Telephone
Company, an affiliate, began providing directory assistance services on
behalf of the Company, resulting in an increase of $3,654,000 of expenses
during 1995. Business office operations expense increased $3,492,000
primarily due to increased resources utilized to meet customer demands.
In November 1995, Sprint initiated a realignment and restructuring of
its local communications services division, including the elimination of
approximately 150 of the Company's positions. This restructuring is intended
to streamline current processes in order to reduce costs in an increasingly
competitive marketplace. These actions resulted in a nonrecurring charge to
the Company of $8,079,000, which reduced net income by $4,844,000. The
accrued liability associated with this charge specifically relates to the
benefits that affected employees will receive upon termination.
<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)
- --------------------------------
Effective March 9, 1993, Sprint consummated its merger with Centel, 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.
Other operating expenses increased $6,986,000 or 23.0 percent during the
year ended December 31, 1995 as compared to 1994. This fluctuation was
primarily due to a $5,942,000 increase in the cost of equipment sales,
generally correlating with the overall trend in equipment sales.
Non-operating Items
- -------------------
Other Income
The other, net, portion of other income increased $8,279,000 during the
year ended December 31, 1995 as compared to 1994. In 1995, the Company
transferred its investment in Rural Service Area cellular partnerships to its
affiliate, Centel, in exchange for preferred stock issued by Centel. The
increase in other income was primarily due to dividends received on the
Centel preferred stock.
Extraordinary Items
As described in Note 2 of "Notes to Consolidated Financial Statements,"
the Company adopted accounting principles for a competitive marketplace and
discontinued applying SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation" effective December 31, 1995. The application of SFAS
No. 71 required the accounting recognition of the rate actions of regulators
where appropriate. The Company determined that it no longer met the criteria
for following SFAS No. 71 due to changes in the regulatory framework which
continues to evolve from rate-base regulation to price regulation as the
latter does not provide for the recovery of specific costs. In addition, the
Company operates in an evolving competitive environment in which the level
and types of competition are increasing such that they may no longer allow
for service and product pricing that provides for the recovery of specific
costs. As a result, the Company recorded a noncash, after-tax extraordinary
charge of $42,424,000, net of related income tax benefits.
Accounting Changes
Effective January 1, 1994, the Company changed its method of accounting
for postemployment benefits by adopting SFAS No. 112. See Note 3 of "Notes
to Consolidated Financial Statements" for additional information about this
<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)
Accounting Changes (continued)
accounting change which did not significantly impact the Company's financial
statements.
Inflation
- ---------
The effects of inflation on the operations of the Company were not
significant during 1995, 1994 or 1993.
Financial Condition
- -------------------
The Company's assets decreased $86,144,000 to $1,052,378,000 as of
December 31, 1995 compared to December 31, 1994. Property, plant and
equipment, net of accumulated depreciation, decreased $86,649,000 due
primarily to the discontinuation of the application of SFAS No. 71 effective
December 31, 1995, which resulted in a $103,277,000 increase in accumulated
depreciation. Deferred charges and other assets increased $10,016,000
primarily due to increased prepaid pension costs. Long-term debt (including
current maturities of long-term debt) as of December 31, 1995 decreased
$8,334,000 compared to December 31, 1994 due to scheduled debt maturities.
Postretirement and other benefit obligations increased $15,285,000 as of
December 31, 1995 compared to December 31, 1994, primarily due to the current
year's postretirement benefits costs. The Company's total capitalization at
December 31, 1995 totaled $791,120,000, consisting of long-term debt
(including current maturities), short-term borrowings, and common stock and
other shareholder's equity. Short-term borrowings and long-term debt
comprised 38.4 percent of total capitalization at December 31, 1995 compared
to 37.3 percent at December 31, 1994.
Liquidity and Capital Resources
- -------------------------------
Cash flows from operating activities are the Company's primary source of
liquidity. Net cash provided by operating activities increased $44,305,000
during the year ended December 31, 1995. The increase was attributable to a
decrease in accounts receivable, inventories and current assets, and an
increase in noncurrent liabilities.
Net cash used by investing activities decreased $5,675,000 during the
year ended December 31, 1995. In order to meet customer demands, the Company
must continually replace and construct new facilities. The Company's planned
construction expenditures for 1996 are $163,747,000 which includes
expenditures of $74,445,000 for central office equipment, $42,310,000 for
cable facilities, $14,007,000 for general support assets, and $32,985,000 for
other expenditures. The Company anticipates that the funds for these
expenditures will be supplied primarily by operating activities.
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
increased $49,938,000 during the year ended December 31, 1995 primarily due
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
Item 7. Managemen't Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- ------------------------------------------
to an increase in dividend payments to Sprint and an increase in the
retirement of long-term debt, partially offset by increased commercial paper
borrowings.
As of December 31, 1995, 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, 1995, no amounts were
borrowed against this credit facility; however, $42,800,000 of the bank lines
supported commercial paper outstanding at year end. The weighted average
interest rate on commercial paper was 5.92 percent, 4.59 percent and 3.24
percent in 1995, 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.
<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 14
Consolidated Balance Sheets as of
December 31, 1995 and 1994 Pages 15 - 16
Consolidated Statements of Income
for each of the three years
ended December 31, 1995 Page 17
Consolidated Statements of Retained
Earnings for each of the three
years ended December 31, 1995 Page 18
Consolidated Statements of Cash
Flows for each of the three years
ended December 31, 1995 Page 19
Notes to Consolidated Financial
Statements Page 20
<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 (the Company), a wholly-owned subsidiary of
Sprint Corporation, as of December 31, 1995 and 1994, and the related
consolidated statements of income, retained earnings, and cash flows for each
of the three years in the period ended December 31, 1995. 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 are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company at December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the
Company discontinued accounting for its operations in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," in 1995.
ERNST & YOUNG LLP
Kansas City, Missouri
January 24, 1996
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In Thousands)
1995 1994
---------- ----------
Assets
Current assets
Cash $ 54 $ 16
Receivables, net of allowance for
doubtful accounts of $2,348 ($1,775
in 1994)
Customers and other 81,710 83,597
Interexchange carriers 25,955 24,488
Affiliated companies 4,920 5,971
Inventories 6,884 12,490
Prepaid expenses and other 1,601 4,073
--------- ---------
121,124 130,635
Property, plant and equipment
Land and buildings 136,486 132,610
Telephone network equipment and
outside plant 1,568,154 1,454,632
Other 93,859 86,520
Construction in progress 19,992 28,162
--------- ---------
1,818,491 1,701,924
Less accumulated depreciation 969,389 766,173
--------- ---------
849,102 935,751
Deferred charges and other assets 82,152 72,136
--------- ---------
$1,052,378 $1,138,522
========= =========
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In Thousands)
1995 1994
---------- ----------
Liabilities and Stockholder's Equity
Current liabilities
Outstanding checks in excess of
cash balances $ 7,443 $ 1,347
Short-term borrowings
Commercial paper 42,800 33,600
Advances from parent company 72 2,810
Current maturities of long-term debt 12,672 8,579
Accounts payable
Vendors and other 14,532 19,742
Interexchange carriers 20,389 24,909
Affiliated companies 15,883 15,855
Accrued taxes 14,635 18,396
Advance billings and customer deposits 18,178 19,853
Accrued vacation pay 8,916 8,862
Other 17,717 20,337
--------- ---------
173,237 174,290
Long-term debt 248,309 260,736
Deferred credits and other liabilities
Deferred income taxes 77,841 110,489
Deferred investment tax credits - 3,134
Postretirement and other benefit
obligations 51,824 36,539
Regulatory liability - 26,772
Other 13,900 12,520
--------- ---------
143,565 189,454
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 342,746 369,521
--------- ---------
487,267 514,042
--------- ---------
$1,052,378 $1,138,522
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
---------- ---------- ----------
Operating Revenues
Local service $302,228 $276,532 $257,050
Network access service 218,969 204,928 189,747
Long distance service 94,546 108,688 101,290
Other 153,721 127,306 90,454
-------- -------- --------
769,464 717,454 638,541
Operating Expenses
Plant expense 211,249 200,608 192,297
Depreciation 132,146 133,764 114,765
Customer operations 121,700 97,094 87,668
Corporate operations 68,514 65,815 64,400
Merger, integration and
restructuring costs 8,079 - 46,382
Other 37,350 30,364 19,247
Taxes
Federal income
Current 54,744 49,872 33,786
Deferred (5,777) (1,912) (9,064)
Deferred investment tax credits (1,938) (3,656) (4,040)
State, local and miscellaneous 29,654 28,779 22,352
-------- -------- --------
655,721 600,728 567,793
-------- -------- --------
Operating Income 113,743 116,726 70,748
Interest expense
Short-term borrowings and
long-term debt 20,562 20,484 21,033
Other 2,695 1,761 927
-------- -------- --------
23,257 22,245 21,960
Other income
Interest charged to construction 844 140 54
Other, net 8,602 323 644
-------- -------- --------
9,446 463 698
-------- -------- --------
Income before extraordinary items 99,932 94,944 49,486
Extraordinary items
Discontinuation of regulatory
accounting principles, net 42,424 - -
Early extinguishment of debt, net - - 2,318
-------- -------- --------
Net income $ 57,508 $ 94,944 $ 47,168
======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended December 31, 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
---------- ---------- ----------
Balance at Beginning of Year $369,521 $305,765 $297,184
Net income 57,508 94,944 47,168
Cash dividends on common stock (84,283) (31,188) (38,587)
--------- --------- ---------
Balance at End of Year $342,746 $369,521 $305,765
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
-------- -------- --------
Operating Activities
Net income $57,508 $94,944 $47,168
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 132,146 133,764 114,765
Deferred income taxes and
investment tax credits (8,738) (4,936) (14,695)
Extraordinary losses, net 42,424 - 2,318
Changes in operating assets and
liabilities:
Receivables, net 1,471 (26,029) (7,101)
Inventories and other current
assets 8,101 (5,886) (1,243)
Accounts payable, accrued
expenses and other current
liabilities (11,608) (7,599) 31,414
Noncurrent assets and
liabilities, net 14,350 9,607 23,597
Other, net 2,447 (69) (6,022)
Net cash provided by operating --------- --------- ---------
activities 238,101 193,796 190,201
Investing Activities
Capital expenditures (146,146) (146,110) (146,543)
Other, net (5,527) (11,238) (5,374)
Net cash used by investing --------- --------- ---------
activities (151,673) (157,348) (151,917)
Financing Activities
Proceeds from long-term debt - - 148,638
Retirements of long-term debt (8,569) (574) (127,521)
Net increase (decrease) in
short-term borrowings 9,200 (7,500) (14,400)
Net increase (decrease) in
advances from parent company (2,738) 2,810 (1,703)
Dividends paid (84,283) (31,188) (38,587)
Other, net - - (4,698)
Net cash used by financing --------- --------- ---------
activities (86,390) (36,452) (38,271)
--------- --------- ---------
Increase (Decrease) in Cash 38 (4) 13
Cash at Beginning of Year 16 20 7
--------- --------- ---------
Cash at End of Year $ 54 $ 16 $ 20
========= ========= =========
Noncash Activities
Exchange of investment in
affiliated partnership for
investment in affiliated
preferred stock $29,043 - -
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, 1995
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 subsidiaries,
Carolina Telephone Long Distance, Inc. and SC One Company, 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
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.
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.
Operations
- ----------
The Company is engaged in the business of providing communications
services, principally local, network access and long distance services in
North Carolina. The Company adopted accounting principles for a competitive
marketplace and discontinued accounting 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" effective
December 31, 1995 (see Note 2).
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
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
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 $105,000 and $2,822,000 at December 31, 1995
and 1994, 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
the composite group remaining life method of depreciation using straight-line
composite rates. In connection with the discontinuation of SFAS No. 71, the
Company will begin recording depreciation expense based on expected economic
useful lives in 1996. Previously, such lives relating to regulated property,
plant and equipment were those prescribed by regulatory commissions.
Depreciation rate changes approved 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. In addition, as approved by
the Commission, the Company recorded nonrecurring charges to depreciation
expense in 1994 totaling $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 1995 and 1994 and 7.5 percent for 1993.
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.
Deferred income taxes are provided for certain temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes.
Investment tax credits (ITC) have been deferred and are being amortized
over the estimated useful lives of the related assets.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
2. ADOPTION OF ACCOUNTING PRINCIPLES FOR A COMPETITIVE MARKETPLACE
Effective December 31, 1995, the Company determined that it no longer
met the criteria necessary for the continued application of the provisions of
SFAS No. 71. As a result of the decision to discontinue the application of
SFAS No. 71, the Company recorded a noncash, extraordinary charge of
$42,424,000, net of income tax benefits of $51,523,000.
The Company's determination that it was no longer eligible for the
continued application of the accounting required by SFAS No. 71 was based on
changes in the regulatory framework, which continues to evolve from rate-base
regulation to price regulation and the convergence of competition in the
telecommunications industry. Based on these occurrences, the Company no
longer believes that it can be assured that prices will be maintained at
levels which will provide for the recovery of specific costs.
The components of the extraordinary charge recognized as a result of the
discontinued application of SFAS No. 71 are as follows (in thousands):
Pre-Tax After-Tax
------- ---------
Increase to the accumulated
depreciation balance $ 103,277 $ 61,926
Recognition of switch software asset (15,772) (9,457)
Elimination of other net regulatory assets 6,442 3,863
--------- ---------
Total $ 93,947 56,332
=========
Tax-related net regulatory liabilities (13,225)
Accelerated amortization of investment
tax credits (683)
---------
Extraordinary charge $ 42,424
=========
The adjustment to the accumulated depreciation balance was determined by
the completion of depreciation reserve and impairment studies. The
depreciation reserve study analyzed, by individual plant asset categories, the
impacts of regulator-prescribed depreciable asset lives compared to the
Company's estimated economic lives. The results identified the cumulative
under depreciation of certain asset categories. The impairment study, which
validated the results of the depreciation study, estimated the impact on
future revenues caused by price changes and developing industry competition,
and the resulting effects on cash flows.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
2. ADOPTION OF ACCOUNTING PRINCIPLES FOR A COMPETITIVE MARKETPLACE (continued)
The following is a summary of the telecommunications plant in service
asset balances and corresponding reserve adjustment (in thousands).
Pre-change Post-change
------------------------------------------- -----------
Category of Plant in Net Reserve Revised
Plant Asset Service Reserve Plant Adjustment Net Plant
-------- -------- -------- ---------- ----------
Cable $ 745,141 $433,704 $311,437 $ 23,251 $ 288,186
Circuit 297,074 151,194 145,880 30,180 115,700
Switching 432,822 142,236 290,586 42,850 247,736
Other 281,638 119,336 162,302 6,996 155,306
--------- ------- ------- ------- -------
Total Plant $1,756,675 $846,470 $910,205 $103,277 $ 806,928
========= ======= ======= ======= =======
The following is a summary of lives before and after the discontinued
application of SFAS No. 71.
Pre-Change
Composite of Post-Change
Regulator- Estimated
Approved Asset Economic
Category of Plant Asset Lives Asset Lives
-------------- -----------
Cable 18 15 - 20
Circuit 9 7 - 11
Switching 16 11 - 12
The discontinued application of SFAS No. 71 also required the Company to
eliminate from its consolidated balance sheet the effects of any actions of
regulators that had been recognized as assets and liabilities pursuant to
SFAS No. 71, but would not have been recognized as assets and liabilities by
enterprises in general.
The tax-related adjustments were required to adjust deferred income tax
amounts to the currently enacted statutory rates and to eliminate tax-related
regulatory assets and liabilities. The Company uses the deferral method of
accounting for investment tax credits and amortizes the credits as a
reduction to tax expense over the life of the asset that gave rise to the tax
credit. Since plant asset lives were shortened, the related investment tax
credits were adjusted to reduce the unamortized balance by a corresponding
amount.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
3. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
- ----------------------------
Substantially all employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by Sprint. For
participants of the plan represented by collective bargaining units, benefits
are based upon schedules of defined amounts as negotiated by the respective
parties. For participants not covered by collective bargaining agreements,
the plan provides pension benefits based upon years of service and
participants' compensation.
The Company's policy is to make contributions to the plan each year
equal to an actuarially determined amount consistent with applicable federal
tax regulations. The funding objective is to accumulate funds at a relatively
stable rate over the participants' working lives so that benefits are fully
funded at retirement. As of December 31, 1995, the plan's assets consisted
principally of investments in corporate equity securities and U.S. government
and corporate debt securities.
Pension costs or credits are determined for each subsidiary of Sprint
based on a direct calculation of service costs and projected benefit
obligations and an appropriate allocation of unrecognized prior service costs,
transition asset, and plan assets. Net periodic pension credits recorded by
the Company for the years ended December 31, 1995, 1994, and 1993 were
$7,341,000, $5,125,000 and $9,074,000, respectively.
Defined Contribution Plans
- --------------------------
Sprint sponsors defined contribution employee savings plans covering
substantially all employees of the Company. Participants may contribute
portions of their compensation to the plans. Contributions of participants
represented by collective bargaining units are matched by the Company based
upon defined amounts as negotiated by the respective parties. Contributions
of participants not covered by collective bargaining agreements are also
matched by the Company. For these participants, the Company provides matching
contributions in Sprint common stock equal to 50.0 percent of participants'
contributions up to 6.0 percent of their compensation and may, at the
discretion of Sprint's Board of Directors, provide additional matching
contributions based upon the performance of Sprint's common stock in
comparison to other telecommunications companies. The Company's matching
contributions aggregated $3,598,000, $3,258,000 and $3,278,000 in 1995, 1994
and 1993, respectively.
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
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
3. EMPLOYEE BENEFIT PLANS (continued)
Postretirement Benefits (continued)
- ----------------------------------
these benefits on a shared cost basis. The Company funds the accrued costs
as benefits are paid.
Net postretirement benefit costs are determined for each subsidiary of
Sprint based on a direct calculation of service costs and accumulated
postretirement benefit obligations and an appropriate allocation of
unrecognized prior service costs, unrecognized net gains and transition
obligation. Net postretirement benefits costs recorded by the Company for
the years ended December 31, 1995, 1994 and 1993 were $17,457,000,
$14,121,000 and $18,025,000, respectively. In addition, the Company recorded
postretirement benefit curtailment losses of $2,963,000 in 1993 as a result of
merger and integration actions (see Note 8).
Postemployment Benefits
- -----------------------
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Upon adoption, the Company
recognized certain previously unrecorded obligations for benefits being
provided to former or inactive employees and their dependents, after
employment but before retirement. The resulting charge did not significantly
impact the Company's financial statements. Such postemployment benefits
offered by the Company include severance, disability and worker's
compensation benefits, including the continuation of other benefits such as
health care and life insurance coverage.
4. INCOME TAXES
The components of income tax expense are as follows (in thousands):
1995 1994 1993
---- ---- ----
Current income tax expense
Federal $ 54,744 $ 49,872 $ 33,786
State 12,504 11,240 7,746
------- ------- -------
67,248 61,112 41,532
Deferred income tax expense (benefit)
Federal (5,777) (1,912) (9,064)
State (1,023) 632 (1,591)
Amortization of deferred ITC (1,938) (3,656) (4,040)
------- -------- --------
(8,738) (4,936) (14,695)
------- -------- --------
Total income tax expense $ 58,510 $ 56,176 $ 26,837
======== ======== ========
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
4. INCOME TAXES (continued)
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.
The resulting adjustments to the Company's deferred income tax assets and
liabilities to reflect the revised rate were generally reflected as reductions
to the related regulatory liabilities and have been subsequently eliminated in
connection with the Company's discontinued application of SFAS No. 71 (see
Note 2).
The differences which cause the effective income tax rate to vary from
the statutory federal income tax rate of 35 percent in 1995, 1994 and 1993
are as follows (in thousands):
1995 1994 1993
---- ---- ----
Federal income tax expense at the
statutory rate $ 55,455 $ 52,892 $ 26,713
Less ITC included in income 1,938 3,656 4,040
------ ------ ------
Expected federal income tax expense
after ITC 53,517 49,236 22,673
Effect of
State income tax, net of federal
income tax effect 7,463 7,717 4,001
Differences required to be flowed
through by regulatory commissions 511 506 543
Reversal of rate differentials (862) (972) (1,096)
Other, net (2,119) (311) 716
------- ------- -------
Income tax expense, including ITC $ 58,510 $ 56,176 $ 26,837
======= ======= =======
Effective income tax rate 36.9% 37.2% 35.2%
===== ===== =====
In 1995, income tax benefits of $51,523,000 associated with the
extraordinary charge for the discontinuation of regulatory accounting
principles were reflected as a reduction of such charge in the consolidated
statement of income. In 1993, income tax benefits of $1,518,000, associated
with the extraordinary charges for the early extinguishments of debt were
reflected as reductions of such charges in the consolidated statement of
income.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
4. INCOME TAXES (continued)
The sources of the differences that give rise to the deferred income tax
assets and liabilities as of December 31, 1995 and 1994 along with the income
tax effect of each, are as follows (in thousands):
1995 Deferred Income Tax 1994 Deferred Income Tax
Assets Liabilities Assets Liabilities
------------------------ ------------------------
Property, plant and
equipment $ - $ 90,520 $ - $ 118,932
Allowance for doubtful
accounts 691 - 514 -
Expense accruals 9,407 - 8,764 -
Deferred ITC - - - 3,134
Postretirement and
other benefits 19,814 - 13,804 -
Prepaid pension costs - 17,233 - 15,937
------- -------- ------- --------
Total $ 29,912 $ 107,753 $ 23,082 $ 138,003
5. LONG-TERM DEBT
Long-term debt as of December 31 is as follows (in thousands):
1995 1994
------------------------------ --------
Weighted Average
Amount Interest Rate Amount
-------- ------------------ --------
Debentures, maturities
1997 - 2016 $ 263,498 6.97% $ 272,012
Other notes, maturities
1996 - 1998 22 3.77 77
Unamortized debt discount (2,539) (2,774)
--------- ---------
260,981 269,315
Less current maturities 12,672 8,579
--------- ---------
Long-term debt $ 248,309 $ 260,736
========= =========
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
5. LONG-TERM DEBT (continued)
Long-term debt maturities during each of the next five years are as
follows (in thousands):
Year Amount
---- ------
1996 $ 12,672
1997 841
1998 6
1999 -
2000 -
The first mortgage bonds and notes are secured by substantially all of
the Company's property, plant and equipment.
As of December 31, 1995, the Company had lines of credit with banks
totaling $60,000,000; no borrowings were outstanding. The weighted average
interest rate on commercial paper was 5.92 percent, 4.59 percent, and 3.24
percent in 1995, 1994 and 1993, respectively. The bank lines, which are
renewable in May 1996, 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 both outstanding commercial paper and notes
payable to banks, may be withdrawn by the banks if there is a material
adverse change in the financial condition of Sprint and the Company.
The Company is in compliance with all restrictive or financial covenants
relating to its debt arrangements at December 31, 1995.
During 1993, the Company redeemed 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
connection with early extinguishments 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 statement of income.
6. COMMITMENTS
Gross rental expense aggregated $6,171,000 in 1995, $4,614,000 in 1994
and $6,959,000 in 1993. Minimum rental commitments as of December 31, 1995
for non-cancelable operating leases are not significant.
The Company's planned capital expenditures for the year ending December
31, 1996 are approximately $163,747,000. Normal purchase commitments have
been or will be made for these planned expenditures.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
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 1995, 1994, and 1993 were $42,274,000,
$55,609,000 and $47,401,000, 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 was also allocated by Sprint to
affiliated companies through 1993. The credit was eliminated in 1994. Total
charges to the Company aggregated $51,606,000, $52,119,000 and $55,885,000 in
1995, 1994 and 1993, respectively, and the credit relating to deferred income
taxes was $852,500 in 1993.
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 15 basis points. Interest
expense on such advances from Sprint was $491,000 and $19,800 in 1995 and
1993, respectively. There was no interest expense on such advances from
Sprint in 1994. Interest income on such advances to Sprint was $95,000,
$7,200 and $51,000 in 1995, 1994 and 1993, respectively.
Sprint Publishing & Advertising, 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 by the Company. For 1995, 1994
and 1993, Sprint Publishing & Advertising paid the Company a total of
$22,448,000, $21,607,000 and $21,759,000, respectively. The Company paid
Sprint Publishing & Advertising $1,513,000, $1,667,000 and $1,543,000 in 1995,
1994 and 1993, 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 $21,715,000, $20,558,000 and $18,017,000 in 1995, 1994
and 1993, respectively, for these services. The Company paid Sprint's long
distance communications services division $8,063,000, $15,669,000 and
$25,000,000 in 1995, 1994 and 1993, respectively, for interexchange
telecommunications services.
In 1994, Sprint Mid-Atlantic Telecom, Inc. (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). SMAT is
reimbursed by the Company and these four affiliates for certain salaries and
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
7. RELATED PARTY TRANSACTIONS (continued)
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
the Company on behalf of these affiliates. The reimbursements to SMAT by the
Company totaled $59,153,000 and $48,420,000 in 1995 and 1994, respectively.
The Company is reimbursed by affiliated companies (United Telephone
Company of the Carolinas, United Telephone - Southeast, Inc., Central
Telephone Company of Virginia, Central Telephone Company, and SMAT) for
certain salaries which are incurred by the Company for the benefit of its
affiliates. Similarly, the Company reimburses its affiliates for certain
costs incurred by its affiliates for the Company's benefit. These
reimbursements represent the costs of such items as determined by the Company
and its affiliates. The Company's reimbursements received from its
affiliates, net of reimbursements paid by the Company to its affiliates,
totaled $4,691,000 and $690,000 in 1995 and 1994, respectively.
The Company is reimbursed by affiliated companies (United Telephone
Company of the Carolinas, United Telephone - Southeast, Inc., Central
Telephone Company of Virginia, and Central Telephone Company) for operator
services which are incurred by the Company for the benefit of its affiliates.
Similarly, the Company reimburses its affiliates for operator services and
telemarketing services incurred by its affiliates for the Company's benefit.
These reimbursements represent the costs of such items as determined by the
Company and its affiliates. The Company's reimbursements received from its
affiliates, net of reimbursements paid by the Company to its affiliates,
totaled $2,105,000, $1,971,000, and $3,324,000 in 1995, 1994 and 1993,
respectively.
In 1995, the Company transferred its investment in Rural Service Areas
to an affiliated company in exchange for preferred stock equal to the net
book value of the investment of $29,043,000. During 1995, the Company
received $6,632,000 in dividends on the preferred stock which is included in
the other, net, portion of other income.
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.
8. MERGER AND INTEGRATION COSTS
Effective March 9, 1993, Sprint consummated its merger with Centel
Corporation. 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 companies
(consisting primarily of employee severance and relocation expenses and costs
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
8. MERGER AND INTEGRATION COSTS (continued)
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
Realignment and Restructuring Charge
- ------------------------------------
During 1995, Sprint initiated a realignment and restructuring of its
local communications services division, including the elimination of
approximately 150 of the Company's positions. These actions resulted in a
nonrecurring charge to the Company of $8,079,000, which reduced net income by
$4,844,000. The accrued liability associated with this charge specifically
relates to the benefits that affected employees will receive upon termination.
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 $107,605,000, $109,074,000 and
$105,225,000 for 1995, 1994 and 1993, 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
agriculture, textiles, chemicals, 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, 1995, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date, and therefore, estimates of fair value subsequent to that date may
differ significantly from the amounts presented herein.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
9. ADDITIONAL FINANCIAL INFORMATION (continued)
Financial Instruments Information (continued)
- --------------------------------------------
The Company's financial instruments primarily consist of long-term
debt, including current maturities, with carrying amounts as of December 31,
1995 and 1994 of $260,981,000 and $269,315,000, respectively, and estimated
fair values of $281,173,000 and $248,259,000, respectively. The fair values
are 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,
1995 and 1994.
The Company has not invested in derivative financial instruments.
Supplemental Cash Flows Information
- -----------------------------------
The supplemental disclosure required for the consolidated statements of
cash flows for the years ended December 31, are as follows (in thousands):
1995 1994 1993
---- ---- ----
Cash paid for
Interest, net of amounts capitalized $22,994 $22,504 $20,843
Income taxes 70,714 57,189 42,051
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part II
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
10. SUPPLEMENTAL QUARTERLY INFORMATION - UNAUDITED
(in thousands)
1995 Quarters Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
Operating revenues $ 182,971 $ 192,529 $ 197,932 $ 196,032
Operating income 26,876 30,490 31,029 25,348
Income before
extraordinary items 21,784 24,706 29,593 23,849
Net income (loss) 21,784 24,706 29,593 (18,575)
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
During 1995, Sprint initiated a realignment and restructuring of its
local communications services division, including the elimination of
approximately 150 of the Company's positions. These actions resulted in a
nonrecurring charge to the Company of $8,079,000 in the fourth quarter of
1995, which reduced net income by $4,844,000.
During the fourth quarter of 1995, the Company adopted accounting
principles for a competitive marketplace and discontinued the application of
SFAS No. 71. As a result, the Company recorded a noncash, after-tax
extraordinary charge of $42,424,000. See Note 2 for additional information.
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.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Parts II/III
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
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.
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
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 13.
2. The consolidated financial statement schedule of the Company
filed as part of this report is listed in the Index to
Consolidated Financial Statement Schedules on page 36.
(b) The Registrant was not required to file a report on Form 8-K
during the last quarter of 1995.
(c) The exhibits filed as part of this report are listed in the
Index to Exhibits on pages 38 - 40.
<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, 1995: Reference
- ----------------------------------------------------------------- ---------
Schedule II - Valuation and Qualifying Accounts - Consolidated Page 37
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 II - VALUATION AND QUALIFYING ACCOUNTS - CONSOLIDATED
Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
Deductions
----------
Accounts
Balance at Additions charged off Balance
beginning Charged to net of at end
of year expense collections of year
---------- ---------- ----------- -------
Year ended December 31, 1995
- ----------------------------
Deducted from assets:
Allowance for uncollectible
accounts $1,775 $3,474 $2,901 $2,348
Year ended December 31, 1994
- ----------------------------
Deducted from assets:
Allowance for uncollectible
accounts $1,938 $2,371 $2,534 $1,775
Year ended December 31, 1993
- ----------------------------
Deducted from assets:
Allowance for uncollectible
accounts $1,463 $1,965 $1,490 $1,938
<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 1, 1996 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 1, 1996 s/ W. E. McDonald
- ------------- ---------------------------------------
W. E. McDonald, President, Director
and Chief Executive Officer
March 1, 1996 s/ F. E. Westmeyer
- ------------- ---------------------------------------
F. E. Westmeyer, Vice President-Finance
March 1, 1996 s/ T. J. Geller
- ------------- ---------------------------------------
T. J. Geller, Controller
March 1, 1996 s/ F. J. Boling, Jr.
- ------------- ---------------------------------------
F. J. Boling, Jr., Director
March 1, 1996 s/ T. G. Crewe, Jr.
- ------------- ---------------------------------------
T. G. Crewe, Jr., Director
March 1, 1996 s/ N. B. DeFriece
- ------------- ---------------------------------------
N. B. DeFriece, Director
March 1, 1996 s/ C. D. Evans
- ------------- ---------------------------------------
C. D. Evans, Director
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
SIGNATURES (CONTINUED)
Date Signature and Title
---- -------------------
March 1, 1996 s/ J. A. Hackney, III
- ------------- ---------------------------------------
J. A. Hackney, III
March 1, 1996 s/ W. P. Hendricks
- ------------- ---------------------------------------
W. P. Hendricks, Director
March 1, 1996 s/ J. W. Jones, Jr.
- ------------- ---------------------------------------
J. W. Jones, Jr., Director
March 1, 1996 s/ J. A. Laughery
- ------------- ---------------------------------------
J. A. Laughery, Director
March 1, 1996 s/ G. W. Little
- ------------- ---------------------------------------
G. W. Little, Director
March 1, 1996 s/ B. R. McCain
- ------------- ---------------------------------------
B. R. McCain, Director
March 1, 1996 s/ J. M. Mead
- ------------- ---------------------------------------
J. M. Mead, Director
March 1, 1996 s/ M. K. Norris
- ------------- ---------------------------------------
M. K. Norris, Director
March 1, 1996 s/ D. W. Peterson
- ------------- ---------------------------------------
D. W. Peterson, Director
March 1, 1996 s/ J. J. Powell
- ------------- ---------------------------------------
J. J. Powell, Director
<PAGE>
Carolina Telephone & Telegraph Company
Form 10-K Part IV
SIGNATURES (CONTINUED)
Date Signature and Title
---- -------------------
March 1, 1996 s/ D. L. Ward, Jr.
- ------------- ---------------------------------------
D. L. Ward, Jr., Director
March 1, 1996 s/ P. H. Wood
- ------------- ---------------------------------------
P. H. Wood, Director
<PAGE>
Exhibit 12
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
Years ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Income before extra-
ordinary item $ 99,932 $ 94,944 $ 49,486 $ 72,800 $77,420
Capitalized interest (844) (140) (54) (632) (87)
Income tax provision 58,510 56,176 26,837 40,430 43,748
------- ------- ------- ------- -------
Subtotal 157,598 150,980 76,269 112,598 121,081
Fixed charges
Interest charges 23,257 22,245 21,960 22,167 20,042
Interest factor of
operating rents 1,280 1,039 2,320 2,048 2,322
------- ------- ------- ------- -------
Total fixed charges 24,537 23,284 24,280 24,215 22,364
Earnings, as adjusted $182,135 $174,264 $100,549 $136,813 $143,445
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 7.42* 7.48 4.14** 5.65 6.41
==== ==== ==== ==== ====
* In the absence of $8,079,000 of nonrecurring realignment and restructuring
costs, income before extraordinary item would have been $104,776,000, and
the ratio of earnings to fixed charges would have been 7.75 for the year
ended December 31, 1995.
** 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 24, 1996, 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, 1995.
ERNST & YOUNG LLP
Kansas City, Missouri
March 28, 1996
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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