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 MARCH 31, 1994
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.
<TABLE> Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
ASSETS 1994 1993
--------- ------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 3,225 $ 2,353
Receivables:
Interexchange carriers 39,689 34,919
Customers and other 71,254 68,475
Unbilled toll 22,279 22,179
Affiliated companies 5,703 9,262
Allowance for uncollectible accounts (3,211) (2,857)
Inventories 26,364 22,790
Prepayments 4,645 1,311
Deferred tax asset 14,468 10,305
------ ------
184,416 168,737
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 146,065 146,378
Telephone network equipment and
outside plant 2,102,281 2,087,174
Other 108,652 107,214
Construction in progress 35,695 30,195
--------- --------
2,392,693 2,370,961
Less accumulated depreciation 1,001,690 978,993
--------- ---------
1,391,003 1,391,968
DEFERRED CHARGES AND OTHER ASSETS 50,679 51,378
$ 1,626,098 $ 1,612,083
========= =========
1
PART I.
Item I.
March 31, December
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
--------- --------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Outstanding checks in excess of cash $ 8,117 $ 4,187
Commercial paper 35,400 67,210
Current maturities of long-term debt 278 273
Accounts payable:
Interexchange carriers 54,555 37,926
Affiliated companies 26,194 27,032
Other 20,007 19,191
Advance billings 15,756 15,429
Accrued merger and integration cost 14,949 16,074
Customer deposits 8,032 7,717
Accrued interest 3,827 7,828
Accrued vacation pay 12,568 11,592
Accrued taxes 34,850 13,763
Other 16,528 11,623
------ -------
251,061 239,845
LONG-TERM DEBT 391,501 391,525
DEFERRED CREDITS AND OTHER LIABILITIES
Income taxes 195,495 194,347
Investment tax credits 22,066 22,913
Other 38,766 46,262
------- -------
256,327 263,522
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 542,424 532,406
------- --------
725,122 715,104
$ 1,626,098 $ 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>
Three Months Ended
March 31,
-------------------------
1994 1993
---- ----
(Unaudited)
OPERATING REVENUES
<S> <C> <C>
Local service $ 83,178 $ 75,256
Network access service 79,237 84,692
Long distance service 21,968 22,407
Miscellaneous 27,153 23,235
------- -------
211,536 205,590
OPERATING EXPENSES
Plant expense 51,484 59,643
Depreciation 38,956 37,052
Customer operations 28,083 25,939
Merger and integration costs - 40,000
Corporate operations 21,484 17,026
Other operating expenses 5,282 4,776
Taxes:
Federal income:
Current 19,360 6,632
Deferred (2,528) (5,319)
Deferred investment tax cre (704) (881)
State, local and miscellaneous 9,026 6,483
------- -------
170,443 191,351
OPERATING INCOME 41,093 14,239
INTEREST CHARGES
Interest on long-term debt 7,790 8,887
Interest on short-term debt 329 210
Other interest 634 398
----- ------
8,753 9,495
OTHER INCOME
Interest charged to construction 113 126
Interest income 16 6
----- ------
129 132
NET INCOME $ 32,469 $ 4,876
====== =====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
PART I.
<TABLE> Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
<CAPTION> March 31,
---------------------
1994 1993
---- ----
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 32,469 $ 4,876
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 38,956 37,052
Increase (decrease) in deferred income taxes
and net investment tax credit (4,795) (6,588)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,736) (4,352)
(Increase) decrease in inventory (3,574) 1,053
(Increase) decrease in prepayments (3,334) (1,058)
Increase (decrease) in accounts payable,
accrued expenses and other current
liabilities 43,021 43,305
Noncurrent assets and liabilities (5,817) (3,749)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,190 70,539
INVESTING ACTIVITIES
Additions to property, plant and equipment (37,500) (48,419)
Net salvage from plant and equipment retired (491) 422
------- --------
NET CASH USED BY INVESTING ACTIVITIES (37,991) (47,997)
FINANCING ACTIVITIES
Principal payments and retirements of
long-term debt (66) (64)
Increase (decrease) in commercial paper
and advances from parent company (31,810) 725
Dividends paid (22,451) (25,378)
-------- ----------
NET CASH USED BY FINANCING ACTIVITIES (54,327) (24,717)
INCREASE (DECREASE) IN CASH 872 (2,175)
CASH AT BEGINNING OF PERIOD 2,353 4,926
CASH AT END OF PERIOD $ 3,225 $ 2,751
===== =====
See Accompanying Notes to Consolidated Financial Statements.
4
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
The information contained in this Form 10-Q for the three month periods ended
March 31, 1994 and 1993 reflects all adjustments, consisting only of normal
recurring accruals and certain non-recurring accruals (see Note 2), 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 either year.
2. SPRINT/CENTEL MERGER
Effective March 9, 1993, 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 quarter of
1993. Such nonrecurring charges reduced first quarter 1993 net income by
approximately $21 million.
3. EARNINGS PER SHARE
Earnings per share information has been omitted because the Company is a
wholly-owned subsidiary of Sprint Corporation (Sprint).
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
</TABLE>
<TABLE>
4. SUPPLEMENTAL CASH FLOWS INFORMATION
The following are the supplemental disclosures required for the Consolidated
Statements of Cash Flows:
<CAPTION> Three Months Ended
March 31,
------------------
1994 1993
---- ----
Cash paid for: (In Thousands)
<S> <C> <C>
Interest, net of amounts
capitalized $12,576 $9,717
Income taxes $10,709 $6,737
</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 (DoR).
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.
6. SUBSEQUENT EVENT
On April 1, 1994, the Company called for the redemption, prior to scheduled
maturity, of its Winter Park 6.50% Series I Bonds, effective May 1, 1994,
with principal of $2.5 million and redemption premium of $11,138.
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
- - -------------------------------
Net cash provided by operating activities increased to $93.2 million for the
three months ended March 31, 1994, compared to $70.5 million for the same
period in 1993. The increase in cash receipts is primarily due to an
increase in income adjusted for depreciation and deferred income taxes, as
well as an increase in interexchange carrier payables. These increases were
partially offset by cash payments for merger and integration costs in the
first quarter of 1994.
Cash used by investing activities decreased to $38.0 million for the three
months ended March 31, 1994, compared to $48.0 million for the same period
in 1993. This decrease is primarily due to a decrease in additions to
property, plant and equipment. The Company continues to expect capital
expenditures to be approximately $190 million in 1994.
Cash used by financing activities increased to $54.3 million for the three
months ended March 31, 1994, compared to $24.7 million for the same period
in 1993. This increase is primarily attributed to a decrease in commercial
paper, partially offset by a decrease in dividends paid. The Company has
lines of credit of $70 million at March 31, 1994, $34.6 million of which was
unused.
On April 1, 1994, the Company called for the redemption, prior to scheduled
maturity, of its Winter Park 6.50% Series I Bonds, effective May 1, 1994,
with principal of $2.5 million and redemption premium of $11,138.
The Company's ratio of common equity to total capital was 62.8 percent at
March 31, 1994, compared to 60.8 percent at December 31, 1993, and 60.0
percent at March 31, 1993. The short-term debt to total capital ratio was
3.1 percent at March 31, 1994, compared to 5.7 percent at December 31, 1993,
and 4.6 percent at March 31, 1993.
Sprint/Centel Merger
- - --------------------
Effective March 9, 1993, 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 the first
quarter of 1993. Such nonrecurring charges reduced first quarter 1993 net
income by approximately $21.3 million.
Results of Operations
- - ---------------------
Local service revenues are derived from providing telephone exchange services.
Increases in revenues of $3.1 million resulted primarily from access line
growth of 64,246 or 5.4 percent for the twelve month period ended March
31, 1994. 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 decreased primarily due to
decreased expenses recovered under the interstate access service price cap
agreement with the Federal Communications Commission as well as rate
reductions. These decreases are partially offset by increased minutes of use
and end user activity.
Miscellaneous revenues include revenues related to directory publishing fees,
providing billing and collection services and operator services for
interexchange carriers, sales of telecommunication equipment and leasing of
network facilities. The increase in miscellaneous revenues is primarily due to
increases in directory revenues, direct marketing services, MessageLine
revenues, and equipment sales.
Plant expense decreased due to decreases in central office SS7/ExpressTouch
related software expenses, a reduction in trouble reports and other planned
reductions.
Depreciation expense increased primarily due to an increase in the
depreciable asset base from March 31, 1993 to March 31, 1994.
Customer operations expense increased due to increases for marketing and
business office operations resulting from higher sales salaries, commissions,
and related expenses associated with the marketing of new products and
services.
Corporate operations expense increased due to increases in information
management systems, and advertising.
Other operating expenses increased primarily due to an increase in the cost
of data terminal equipment sales, local area network sales and telephone
instrument sales.
Other Matters
- - -------------
Consistent with most local exchange carriers, the Company accounts for the
economic effects of regulation pursuant to 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.
PART II.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED MARCH 31, 1994
OTHER INFORMATION
Item 1. Legal Proceedings
There were no reportable events during the quarter ended
March 31, 1994.
Item 2. Changes in Securities
There were no reportable events during the quarter ended
March 31, 1994.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended
March 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
There were no reportable events during the quarter ended
March 31, 1994.
Item 5. Other Information
The Company's ratios of earnings to fixed charges were 6.26 and
1.56 for the three months ended March 31, 1994 and 1993,
respectively. In the absence of the Company's recognition of
$40 million of non-recurring charges related to the Sprint/Centel
merger, the ratio of earnings to fixed charges for the first
quarter of 1993 would have been 5.62. These ratios have been
computed by dividing fixed charges into the sum of (a) net income
less capitalized interest included in income, (b) income taxes, and
(c) fixed charges. Fixed charges consist of interest on all
indebtedness (including amortization of debt issuance expenses) and
the interest factor of operating rents.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
(12) Computation of ratio of earnings to fixed charges.
(b) No reports on Form 8-K were required to be filed during
the quarter ended March 31, 1994.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED MARCH 31, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED TELEPHONE COMPANY OF FLORIDA
-----------------------------------
(Registrant)
Date May 16, 1994 By /s/ J. I. Lehman
----------------------
J. I. Lehman
Controller & Chief Accounting Officer
Exhibit 12
<TABLE>
UNITED TELEPHONE COMPANY OF FLORIDA
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands)
<CAPTION> Three Months Ended
March 31,
------------------------
1994 1993 (1)
---- -----
(Unaudited)
<S> <C> <C>
Net income $ 32,469 $ 4,876
Capitalized interest (113) (126)
Income tax provision 19,031 792
------ -----
Subtotal 51,387 5,542
Fixed charges:
Interest charges 8,753 9,495
Interest factor of operating rents 1,012 371
----- -----
Total fixed charges 9,765 9,866
----- -----
Earnings, as adjusted $ 61,152 $ 15,408
====== ======
Ratio of earnings to fixed charges 6.26 1.56
==== ====
(1) In the absence of the Company's recognition of $40 million of charges
related to the Sprint/Centel merger, the ratio of earnings to fixed
charges for the first quarter of 1993 would have been 5.62.
NOTE: The above ratios have been computed by dividing fixed charges into
the sum of (a) net income less capitalized interest included in income,
(b) income taxes, and (c) fixed charges. Fixed charges consist of interest
on all indebtedness (including amortization of debt issuance expenses) and
the interest factor of operating rents.
</TABLE>
