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, 1997
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-6469
- -------------------------------------------------------------------------------
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0931189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14111 Capital Boulevard, Wake Forest, North Carolina 27587
- -------------------------------------------------------------------------------
(Address of principal executive offices)
919-554-7900
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
There is no common stock held by non-affiliates.
There are 3,626,510 shares of common stock outstanding as of March 31, 1997
and as of the date of filing of this report.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 3
Consolidated Statements of Retained Earnings 3
Consolidated Statements of Cash Flows 4
Condensed Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of Operations 6
Part II - Other Information
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 404 $ 414
Receivables
Customers and other, net of allowance for doubtful
accounts of $3,379 and $3,506 103,705 107,193
Interexchange carriers 23,922 23,174
Affiliated companies 7,796 8,847
Inventories 9,459 9,118
Prepaid expenses and other 1,563 5,011
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 146,849 153,757
Property, plant and equipment 1,976,573 1,939,608
Less accumulated depreciation 1,086,967 1,062,982
- -----------------------------------------------------------------------------------------------------------------------
889,606 876,626
Investment in affiliated preferred stock 29,043 29,043
Deferred charges and other assets 61,284 58,618
- -----------------------------------------------------------------------------------------------------------------------
$ 1,126,782 $ 1,118,044
---------------------------------------
See accompany Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Outstanding checks in excess of cash balances $ 5,899 $ 2,956
Advances from parent company 129,431 137,002
Current maturities of long-term debt 842 842
Accounts payable
Vendors and other 21,140 17,993
Interexchange carriers 21,187 18,911
Affiliated companies 9,392 18,902
Accrued taxes 18,521 6,132
Advance billings and customer deposits 17,449 16,869
Accrued vacation 9,329 9,021
Accrued interest 1,444 1,232
Accrued payroll and commissions 3,079 6,226
Other 7,717 8,395
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 245,430 244,481
Long-term debt 198,674 198,631
Deferred credits and other liabilities
Deferred income taxes 91,464 89,513
Postretirement and other benefit obligations 65,138 62,740
Other 4,748 7,939
- -----------------------------------------------------------------------------------------------------------------------
161,350 160,192
Common stock and other shareholder's equity
Common stock, par value $20 per share, authorized - 5,000 shares,
issued and outstanding 3,627 shares 72,530 72,530
Capital in excess of par value 75,744 75,744
Retained earnings 373,054 366,466
- -----------------------------------------------------------------------------------------------------------------------
521,328 514,740
- -----------------------------------------------------------------------------------------------------------------------
$ 1,126,782 $ 1,118,044
---------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands)
Three Months Ended
March 31,
-----------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET OPERATING REVENUES
Local service $ 93,691 $ 81,877
Network access 57,183 57,456
Toll service 9,987 18,944
Telecommunications equipment 14,437 13,107
Other 30,840 26,467
- -----------------------------------------------------------------------------------------------------------------
Total net operating revenues 206,138 197,851
- -----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Plant operations 52,912 51,730
Depreciation and amortization 34,557 33,420
Customer operations 36,900 31,481
Corporate operations 18,169 17,767
Cost of telecommunications equipment 9,826 8,710
Other 4,849 4,646
- -----------------------------------------------------------------------------------------------------------------
Total operating expenses 157,213 147,754
- -----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 48,925 50,097
Interest expense (5,318) (5,290)
Other income, net 3,888 3,570
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 47,495 48,377
Income tax provision (17,879) (18,260)
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 29,616 $ 30,117
- -----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
(in thousands)
Three Months Ended
March 31,
-----------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS AT BEGINNING OF PERIOD $ 366,466 $ 342,746
Net Income 29,616 30,117
- -----------------------------------------------------------------------------------------------------------------
396,082 372,863
Dividends (23,028) (20,564)
- -----------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS AT END OF PERIOD $ 373,054 $ 352,299
- -----------------------------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Three Months Ended
March 31,
---------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 29,616 $ 30,117
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34,557 33,420
Deferred income taxes and investment tax credits 5,429 1,681
Changes in operating assets and liabilities:
Receivables, net 3,791 (269)
Inventories and other current assets (505) (3,558)
Accounts payable and other current liabilities 8,520 25,909
Noncurrent assets and liabilities, net (3,000) 130
Other, net 134 (181)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 78,542 87,249
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (46,736) (53,774)
Other, net (1,260) (774)
- ----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (47,996) (54,548)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in advances from parent company (7,571) 42,257
Retirements of long-term debt - (11,609)
Decrease in short-term borrowings - (42,800)
Dividends paid (23,028) (20,564)
Other, net 43 -
- ----------------------------------------------------------------------------------------------------------
Net cash used by financing activities (30,556) (32,716)
- ----------------------------------------------------------------------------------------------------------
DECREASE IN CASH (10) (15)
CASH AT BEGINNING OF PERIOD 414 54
- ----------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 404 $ 39
-------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 5,106 $ 4,168
Cash paid (refunded) for taxes $ (4,851) $ 1,401
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
PART I.
Item 1.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997 and 1996
The information contained in this Form 10-Q has been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission. In
management's opinion, the consolidated interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the consolidated financial position, results of operations and cash flows
for the periods presented.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles (GAAP) have been condensed or omitted. These consolidated financial
statements should be read in connection with Carolina Telephone and Telegraph
Company's 1996 annual report on Form 10-K. The results of operations for the
1997 first quarter are not necessarily indicative of the operating results that
may be expected for the year ending December 31, 1997.
1. Basis of Consolidation
The consolidated financial statements include the accounts of Carolina Telephone
and Telegraph Company and its wholly-owned subsidiaries (the Company). All
significant intercompany transactions have been eliminated. The Company is a
wholly-owned subsidiary of Sprint Corporation; accordingly, earnings per share
information has been omitted.
The consolidated financial statements are prepared in conformity with GAAP. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, as well as the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
Certain amounts previously reported have been reclassified to conform to the
current period presentation in the consolidated financial statements. These
reclassifications had no effect on the results of operations or shareholder's
equity as previously reported.
<PAGE>
PART I.
Item 2.
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
General
Carolina Telephone and Telegraph Company and its wholly-owned subsidiaries (the
Company) include certain estimates, projections and other forward-looking
statements in their reports, as well as in presentations to analysts and others,
and in other material disseminated to the public. There can be no assurances of
future performance. Actual results may differ materially from those in the
forward-looking statements. Factors that could cause actual results to differ
materially from estimates or projections contained in the forward-looking
statements include:
* the effects of vigorous competition in the markets in which the
Company operates;
* the impact of any unusual items resulting from ongoing evaluations of
the Company's business strategies;
* requirements imposed on the Company and its competitors by the
Federal Communications Commission and North Carolina Utilities
Commission under the Telecommunications Act of 1996;
* unexpected results of litigation filed against the Company; and
* the possibility of one or more of the markets in which the Company
competes being impacted by variations in political, economic or other
factors such as legal and regulatory changes or other external factors
over which the Company has no control.
Results of Operations
Total net operating revenues increased 4% for the 1997 first quarter compared
with the same 1996 period. The increase was mainly due to increased local
service revenues, partly offset by reduced toll service revenues. The increase
in other revenues reflects growth in locating underground utility lines due to
an increase in the customer base in existing service areas.
Local service revenues, derived from local exchange services, increased 14% for
the 1997 first quarter compared with the same 1996 period. The increase was
primarily due to continued residential and business growth in both the number of
access lines served and custom calling features, including Caller ID, voice
dialing and return call. The number of access lines served grew 4.9% during the
past twelve months. Revenue from custom calling features increased 28% for the
1997 first quarter due to the increase in access lines served and marketing
promotions. In addition, local service revenues increased due to extended local
area calling plans, which include exchanges within an approximate 40-mile radius
of a central office. The plans allow residential customers to choose one of
three local service options and business customers to choose one of two local
service options.
Toll service revenues, mainly derived from providing long distance services
within specified geographical areas, decreased $9 million for the 1997 first
quarter compared with the same 1996 period. The decrease is mainly due to
extended local area calling plans. In the 1996 first quarter, the Company was
reselling interexchange long distance services. This service was phased out
through early 1997. The decline in toll service revenues due to extended local
area calling plans was partly offset by increased local service revenues.
<PAGE>
Total operating expense increased 6% for the 1997 first quarter compared with
the same 1996 period mainly due to increased customer operations expense.
Customer operations expense includes costs related to business office
operations, billing services, marketing costs, and customer services, including
operator and directory assistance. Customer operations expense increased 17% for
the 1997 first quarter compared with the same 1996 period. The increase was
mainly due to the expanded operations of locating underground utility lines and
increased marketing costs to promote products and services. Customer operations
expense also reflects increased business office operations and developmental
expenses incurred for a new standard marketing billing system which is expected
to be implemented this year. The 1996 first quarter includes costs related to
reselling interexchange long distance services. This service was phased out
through early 1997.
<PAGE>
PART II.
Other Information
Item 1. Legal Proceedings
There were no reportable events during the quarter ended March 31,
1997.
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 9.07 and 8.57
for the 1997 and 1996 first quarters, respectively. These ratios were computed
by dividing fixed charges into the sum of (a) income before taxes, less
capitalized interest, and (b) fixed charges. Fixed charges consist of interest
on all indebtedness (including amortization of debt issuance expenses) and the
interest component 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 Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended March
31, 1997.
<PAGE>
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)
By /s/ F. E. Westmeyer
F. E. Westmeyer, Vice President-Finance
(Principal Financial Officer)
By /s/ T. J. Geller
T. J. Geller, Controller
(Principal Accounting Officer)
Date: May 13, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
CAROLINA TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31,
----------------------------------
1997 1996
- ------------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Earnings
Income before income taxes $ 47,495 $ 48,377
Capitalized interest (38) (439)
- ------------------------------------------------------------------------------- ----------------- ----------------
Subtotal 47,457 47,938
----------------- ----------------
Fixed charges
Interest charges 5,356 5,729
Interest factor of operating rents 525 607
- ------------------------------------------------------------------------------- ----------------- ----------------
Total fixed charges 5,881 6,336
----------------- ----------------
Earnings, as adjusted $ 53,338 $ 54,274
----------------- ----------------
Ratio of earnings to fixed charges 9.07 8.57
----------------- ----------------
Note: The above ratios were computed by dividing fixed charges into the sum of (a)income before taxes, less
capitalized interest, and (b)fixed charges. Fixed charges consist of interest on all indebtedness
(including amortization of debt issuance expenses) and the interest component of operating rents.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 404
<SECURITIES> 0
<RECEIVABLES> 138,802
<ALLOWANCES> 3,379
<INVENTORY> 9,459
<CURRENT-ASSETS> 146,849
<PP&E> 1,976,573
<DEPRECIATION> 1,086,967
<TOTAL-ASSETS> 1,126,782
<CURRENT-LIABILITIES> 245,430
<BONDS> 198,674
0
0
<COMMON> 72,530
<OTHER-SE> 448,798
<TOTAL-LIABILITY-AND-EQUITY> 1,126,782
<SALES> 0
<TOTAL-REVENUES> 206,138
<CGS> 0
<TOTAL-COSTS> 124,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,318
<INCOME-PRETAX> 47,495
<INCOME-TAX> 17,879
<INCOME-CONTINUING> 29,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,616
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
