UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1994
( ) 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 0-1244
UNITED TELEPHONE COMPANY OF FLORIDA
(Exact name of registrant as specified in its charter)
FLORIDA 59-0248365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 165000, Altamonte Springs, Florida 32716-5000
(Address of principal executive offices)
(407) 889-6010
(Registrant's telephone number, including area code)
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 are 6,500,000 shares of common stock, par value $2.50, outstanding
as of the date of filing this report.
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
---------- ------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 2,337 $ 2,353
Receivables:
Interexchange carriers 37,230 34,919
Customers and other 75,283 68,475
Unbilled toll 17,863 22,179
Affiliated companies 8,943 9,262
Allowance for uncollectible accounts (2,853) (2,857)
Inventories 27,088 22,790
Prepayments 4,908 1,311
Deferred tax asset 16,163 10,305
-------- -------
186,962 168,737
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 146,559 146,378
Telephone network equipment and
outside plant 2,123,915 2,087,174
Other 112,410 107,214
Construction in progress 51,113 30,195
--------- ---------
2,433,997 2,370,961
Less accumulated depreciation 1,033,334 978,993
--------- ---------
1,400,663 1,391,968
DEFERRED CHARGES AND OTHER ASSETS 50,255 51,378
--------- ---------
$ 1,637,880 $ 1,612,083
========= =========
See Accompanying Notes to Consolidated Financial Statements
-1-
<CAPTION> PART I.
Item 1.
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
---------- ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Outstanding checks in excess of $ 10,144 $ 4,187
cash balances
Commercial paper 51,000 67,210
Current maturities of long-term debt 609 273
Accounts payable:
Interexchange carriers 52,314 37,926
Affiliated companies 23,923 27,032
Other 26,374 19,191
Advance billings 16,378 15,429
Accrued merger and integration costs 12,717 16,074
Accrued taxes 18,942 13,763
Other 51,245 38,760
------- -------
263,646 239,845
LONG-TERM DEBT 389,704 391,525
DEFERRED CREDITS AND OTHER LIABILITIES
Income taxes 196,923 194,347
Investment tax credits 21,233 22,913
Other 43,173 46,262
------- -------
261,329 263,522
REDEEMABLE PREFERRED STOCK
Series 1959, at redemption value 360 360
Series 1961, at redemption value 126 126
Series 1966, at redemption value 1,601 1,601
------- -------
2,087 2,087
COMMITMENTS AND CONTINGENCIES
COMMON STOCK AND OTHER STOCKHOLDER'S EQUITY
Common stock, authorized 16,000,000 shares,
par value $2.50, issued and outstanding 16,250 16,250
Capital in excess of par value 166,448 166,448
Retained earnings 538,416 532,406
--------- ---------
721,114 715,104
--------- ---------
$ 1,637,880 $ 1,612,083
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-2-
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION> Three Months Ended
June 30,
---------------------
1994 1993
----- -----
(Unaudited)
OPERATING REVENUES
<S> <C> <C>
Local service $ 83,718 $ 75,311
Network access service 81,032 75,840
Long distance service 20,029 20,984
Miscellaneous 29,652 23,967
------- -------
214,431 196,102
OPERATING EXPENSES
Plant expense 53,866 52,269
Depreciation 42,973 37,629
Customer operations 28,101 27,125
Corporate operations 20,900 18,089
Other operating expenses 7,097 4,811
Taxes:
Federal income:
Current 16,624 8,748
Deferred (1,285) 3,808
Deferred investment tax credit (832) (864)
State, local and miscellaneous 8,799 8,454
------- -------
176,243 160,069
OPERATING INCOME 38,188 36,033
INTEREST CHARGES
Interest on long-term debt 7,760 8,952
Interest on short-term debt 156 278
Other interest 630 326
----- -----
8,546 9,556
OTHER INCOME
Interest charged to construction 151 68
Interest income 25 10
---- -----
176 78
INCOME BEFORE EXTRAORDINARY ITEM 29,818 26,555
Extraordinary losses on early
extinguishments of debt, net of
related income tax benefits of $469 - (777)
-------- ---------
NET INCOME $ 29,818 $ 25,778
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
Six Months Ended
June 30,
--------------------
<CAPTION> 1994 1993
---- ----
(Unaudited)
OPERATING REVENUES
<C> <C> <C>
Local service $ 166,896 $ 150,567
Network access service 160,269 160,172
Long distance service 41,997 43,229
Miscellaneous 56,805 47,202
------- -------
425,967 401,170
OPERATING EXPENSES
Plant expense 105,350 111,912
Depreciation 81,929 74,681
Customer operations 56,184 53,064
Merger and integration costs - 40,000
Corporate operations 42,384 35,115
Other operating expenses 12,379 9,467
Taxes:
Federal income:
Current 35,984 15,630
Deferred (3,813) (1,929)
Deferred investment tax cred (1,536) (1,745)
State, local and miscellaneous 17,825 14,908
------ -------
346,686 351,103
OPERATING INCOME 79,281 50,067
INTEREST CHARGES
Interest on long-term debt 15,550 17,839
Interest on short-term debt 485 488
Other interest 1,264 724
------ ------
17,299 19,051
OTHER INCOME
Interest charged to construction 264 194
Interest income 41 16
------ -----
305 210
INCOME BEFORE EXTRAORDINARY ITEM 62,287 31,226
Extraordinary losses on early
extinguishments of debt, net of
related income tax benefits of $469 - (777)
------ ------
NET INCOME $ 62,287 $ 30,449
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-4-
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
Six Months Ended
<CAPTION> June 30,
-----------------
1994 1993
----- ----
(Unaudited)
<S> <C> <C>
Net income $ 62,287 $ 30,449
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 81,929 74,681
Extraordinary losses on early extinquishments
of debt - 1,246
Increase (decrease) in deferred income taxes
and net investment tax credits (6,772) (2,954)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (4,488) 5,191
(Increase) decrease in inventories (4,298) 4,219
(Increase) decrease in prepayments (3,597) 1,210
Increase (decrease) in accounts payable,
accrued expenses and other current liabilities 39,675 24,808
Noncurrent assets and liabilites, net (62) (2,892)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 164,674 135,958
INVESTING ACTIVITIES
Additions to property, plant and equipment (89,802) (104,582)
Net salvage from plant and equipment retired (822) (1,834)
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES (90,624) (106,416)
FINANCING ACTIVITIES
Proceeds from long-term borrowings - 67,936
Principal payments and retirements of
long-term debt (1,579) (106,890)
Increase (decrease) in commercial paper
and advances from parent company (16,210) 63,825
Dividends paid (56,277) (50,756)
-------- ---------
NET CASH USED BY FINANCING ACTIVITIES (74,066) (25,885)
-------- ---------
INCREASE (DECREASE) IN CASH (16) 3,657
CASH AT BEGINNING OF PERIOD 2,353 4,926
-------- ---------
CASH AT END OF PERIOD $ 2,337 $ 8,583
===== =====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-5-
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
The information contained in this Form 10-Q for the three and six
month periods ended June 30, 1994 and 1993 reflects all adjustments,
consisting only of normal recurring accruals and certain non-
recurring accruals (see Note 3), which are, in the opinion of
management, necessary for a fair statement of the results of
operations for such interim periods.
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the
operations of United Telephone Company of Florida and its wholly-
owned subsidiary, United Telephone Long Distance, Inc., collectively
referred to as the "Company." All significant intercompany
transactions have been eliminated.
Certain amounts in the accompanying consolidated financial statements
for 1993 have been reclassified to conform to the presentation of
amounts in the 1994 consolidated financial statements. These
reclassifications had no effect on net income in either year.
2. EARNINGS PER SHARE
Earnings per share information has been omitted because the Company
is a wholly-owned subsidiary of Sprint Corporation (Sprint).
3. SPRINT/CENTEL MERGER
Effective March 9, 1993, Sprint Corporation (Sprint) consummated its
merger with Centel Corporation (Centel), a telecommunications company
with local exchange and cellular/wireless communications services operations.
Centel's local exchange telephone businesses operate in six states: Florida,
North Carolina, Virginia, Illinois, Texas and Nevada. 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 nonrecurring charges to Sprint during 1993. The portion of such
charges attributable to the Company was $51 million, of which $40 million
was recorded during the first half of 1993. Such nonrecurring charges
reduced net income for the first half of 1993 by approximately $21 million.
-6-
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
4. SUPPLEMENTAL CASH FLOWS INFORMATION
The following are the supplemental disclosures required for the Consolidated
Statements of Cash Flows:
<TABLE>
Six Months Ended
<CAPTION> June 30,
-----------------
1994 1993
---- ----
(In Thousands)
Cash paid for:
<S> <C> <C>
Interest, net of amounts $17,381 $18,969
capitalized
Income taxes $52,603 $25,447
</TABLE>
5. CONTINGENCY
On January 10, 1994, the Company was sent a letter from AT&T claiming
that the Company is liable, under certain billing agreements, for the
refund of approximately $7 million, plus interest, of gross receipts
taxes collected and remitted on behalf of AT&T to the Florida Department
of Revenue. The Company is contesting this claim. Management cannot
predict the ultimate resolution of this but believes it will not result
in a material effect on the Company's consolidated financial statements.
-7-
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1994
Regulatory Issues
- - -----------------
The Company entered into a stipulation with the Florida Public Service
Commission (FPSC) in June 1994, whereby the Company's intrastate rates
were reduced by $17.6 million on an annual basis beginning July 1, 1994.
Approximately $10 million of the rate reductions are in intrastate access
elements and are intended to bring the intrastate access rates more in
line with interstate rates and another $5 million are a reduction in
intraLATA toll rates. In addition, the Company agreed to record
approximately $2.1 million in additional intrastate depreciation
which has been recognized in the second quarter. The Company's allowed
intrastate return on equity was capped at 13.0% for 1994 with any earnings
in excess of 13.0% to be deferred to 1995 when, absent further commission
action, the maximum allowed return reverts to 13.5%.
Sprint/Centel Merger
- - --------------------
Effective March 9, 1993, Sprint Corporation (Sprint) consummated its
merger with Centel Corporation (Centel), a telecommunications company
with local exchange and cellular/wireless communications services
operations. Centel's local exchange telephone businesses operate in six
states: Florida, North Carolina, Virginia, Illinois, Texas and Nevada.
The operations of the merged companies continue to be integrated and
restructured to achieve efficiencies which have begun to yield operational
synergies and cost savings. 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 nonrecurring charges to Sprint during 1993. The portion of
such charges attributable to the Company was $51 million, of which $40
million was recorded during the first half of 1993. Such nonrecurring
charges reduced net income for the first half of 1993 by approximately
$21.3 million.
-8-
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1994
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- - -------------------------------
Net cash provided by operating activities increased to $164.7 million for
the six months ended June 30, 1994, compared to $136.0 million for the
same period in 1993. The increase in cash receipts is primarily due to
improved operating results and an increase in payables and accrued expenses
in the current period.
Cash used by investing activities decreased to $90.6 million for the six
months ended June 30, 1994, compared to $106.4 million for the same period
in 1993. This is due to a decrease in additions to property, plant and
equipment. The Company expects capital expenditures to be approximately
$178 million in 1994.
Cash used by financing activities increased to $74.1 million for the six
months ended 1994, compared to $25.9 million for the same period in 1993.
This increase is primarily attributed to decreases in 1994 in commercial
paper and proceeds received in the 1993 period from long-term borrowings,
partially offset by a decrease in retirements of long-term debt. The Company
has lines of credit of $70.0 million at June 30, 1994, $19.0 million of
which were unused.
On May 1, 1994, the Company redeemed, prior to scheduled maturity,
its Winter Park 6.50% Series I Bonds for $2.5 million, including
principal and redemption premium.
The Company's ratio of common equity to total capital was 61.9 percent at
June 30, 1994, compared to 60.8 percent at December 31, 1993, and 58.7
percent at June 30, 1993. The short-term debt to total capital ratio was
4.4 percent at June 30, 1994, compared to 5.7 percent at December 31, 1993,
and 9.9 percent at June 30, 1993.
-9-
Results of Operations
- - ---------------------
Local service revenues are derived from providing telephone exchange
services. Local service revenues increased $8.4 million and $16.3 million
for the three and six months ended June 30, 1994, respectively, primarily
due to access line growth. Also contributing were increases in revenue
for custom calling features, Centrex and Touch-Tone services. Inside wire
maintenance revenue increased due to increased rates effective June 1, 1993,
and telephone instrument lease revenue increased due to higher customer
demand.
Network access service 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 long distance service is not
provided entirely by the Company. Network access revenues increased
$5.2 million for the three month period ended June 30, 1994, primarily
due to increased minutes of use. These increases were partially offset
by rate reductions and decreased expense recovery under the interstate
access service price cap agreement with the Federal Communications
Commission. Network access revenues were relatively unchanged for the
six month period ended June 30, 1994, primarily due to decreased expense
recovery under the interstate price cap agreement and a reduction of rates,
offset by increased minutes of use.
Long distance revenues are derived principally from providing long distance
services within designated areas. Revenues decreased $955,000 and $1.2
million for the three and six months ended June 30, 1994, respectively,
due to the Company's exit from the intraLATA toll private line pool
effective June, 1993.
Miscellaneous revenues include revenues related to directory publishing fees,
the provision of billing and collection services and operator services for
interexchange carriers, sales of telecommunication equipment and leasing of
network facilities. The increases in miscellaneous revenues of $5.7 million
and $9.6 million for the three and six months ended June 30, 1994,
respectively, were primarily due to increases in directory revenues.
Collection of customer late payment charges, direct marketing services,
MessageLine revenues, and equipment sales also contributed to the increase in
miscellaneous revenues.
Plant expenses increased $1.6 million for the three month period due to an
increase in access line movement. Plant expense decreased $6.6 million for
the six months ended June 30, 1994 due to decreases in central office related
software expenses, a reduction in repair activity and other planned
reductions.
Depreciation expense increased $5.3 million and $7.2 million for the three
and six months ended June 30, 1994, respectively, primarily due to an
increase in the depreciable asset base and an FPSC approved depreciation
adjustment which increased expense by $2.8 million.
-10-
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1994
Results of Operations (Continued)
- - ---------------------------------
Customer operations expense increased $976,000 and $3.1 million for the three
and six months ended June 30, 1994, respectively, due to increases for
marketing and business office operations resulting from higher salaries,
commissions, and related expenses associated with the marketing of
new products and services.
Corporate operations expense increased $2.8 million and $7.3 million for the
three and six months ended June 30, 1994, respectively, due to increases in
information management systems and advertising costs.
Other operating expenses increased $2.3 million and $2.9 million for the
three and six months ended June 30, 1994, respectively, primarily due to
an increase in the cost of sales of data terminal equipment, local area
network and telephone instruments.
Other Matters
- - -------------
Consistent with most local exchange carriers, the Company accounts for the
economic effects of regulation pursuant to Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." The application of SFAS No. 71 requires the accounting
recognition of the rate actions of regulators where appropriate, including
the recognition of depreciation based on estimated useful lives prescribed
by regulatory commissions rather than those which might be utilized by
non-regulated enterprises. The Company's management believes that the
Company's operations meet the criteria for the continued application of the
provisions of SFAS No. 71. With increasing competition and the changing
nature of regulation in the telecommunications industry, the ongoing
applicability of SFAS No. 71 must, however, be constantly monitored and
evaluated. Should the Company no longer qualify for the application of the
provisions of SFAS No. 71 at some future date, the accounting impact could
result in the recognition of a material, extraordinary, non-cash charge.
-11-
PART II.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
OTHER INFORMATION
Item 1. Legal Proceedings
There were no reportable events during the quarter ended
June 30, 1994.
Item 2. Changes in Securities
There were no reportable events during the quarter ended
June 30, 1994.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended
June 30, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
There were no reportable events during the quarter ended
June 30, 1994.
Item 5. Other Information
The Company's ratios of earnings to fixed charges were 5.11
and 4.83 for the three months ended June 30, 1994 and 1993,
respectively. The ratios of earnings to fixed charges were
5.64 and 3.24 for the six months ended June 30, 1994 and 1993,
respectively. In the absence of the Company's recognition of
$40 million of nonrecurring charges related to the Sprint/Centel
merger, the ratio of earnings to fixed charges would have been
4.94 for the six months ended June 1993. These 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 factor
of operating rents.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
(12) Computation of ratio of earnings to fixed charges.
(b) No reports on Form 8-K were required to be filed during
the quarter ended June 30, 1994.
-12-
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
SIGNATURE
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.
UNITED TELEPHONE COMPANY OF FLORIDA
-----------------------------------
(Registrant)
Date August 11, 1994 By /s/ J. I. Lehman
--------------- ---------------------------------
J.I. Lehman
Contoller & Chief Accounting Officer
-13-
Exhibit 12
UNITED TELEPHONE COMPANY OF FLORIDA
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In Thousands)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- -----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income before extraordinary item $ 29,818 $ 26,555 $ 62,287 $ 31,226 (1)
Capitalized interest (151) (68) (264) (194)
Income tax provision 17,156 13,785 36,187 14,577
------- ------ ------- -------
Subtotal 46,823 40,272 98,210 45,609
------- ------ ------- -------
Fixed charges:
Interest charges 8,546 9,556 17,299 19,051
Interest factor of operating rents 2,846 959 3,858 1,330
----- ----- ------ -------
Total fixed charges $ 11,392 10,515 21,157 20,381
------ ------ ------ -------
Earnings, as adjusted $ 58,215 $ 50,787 $ 119,367 $ 65,990
====== ====== ======= ======
Ratio of earnings to fixed charges 5.11 4.83 5.64 3.24 (2)
====== ====== ======= ======
(1) Net income for the six months ended June 30, 1993, reflects a reduction
of approximately $21 million resulting from the portion of the Sprint/
Centel merger and integration costs attributable to the Company. In
the absence of recognition of such costs, net income would have been
$52,850.
(2) In the absence of the company's recognition of $40 million of nonrecurring
charges related to the Sprint/Centel merger, the ratio of earnings to fixed
charges would have been 4.94 for the six months ended June 30, 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 factor of operating rents.
</TABLE> -14-
