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 June 30, 1995
---------------------------
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 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.
<PAGE>
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
INDEX
Part I - Financial Information Page
------------------------------ ----
Item 1.
-------
Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 5
Condensed Notes to Consolidated Financial Statements . . . . . . . . . 6
Item 2.
-------
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 7
Part II - Other InformationPart II - Other Information
------------------------------------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 11
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
1995 1994
ASSETS ------------ ------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 4,205 $ 9,473
Receivables:
Interexchange carriers 38,379 36,993
Customers and other 74,968 78,805
Unbilled toll 19,941 22,597
Affiliated companies 27,272 26,844
Allowance for uncollectible accounts (3,102) (3,318)
Inventories 25,175 27,426
Prepayments 4,181 6,158
Deferred tax asset 11,469 8,801
------------ ------------
202,488 213,779
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 152,198 149,033
Telephone network equipment and outside 2,197,747 2,160,156
Other 131,865 127,453
Construction in progress 55,247 40,954
------------ ------------
2,537,057 2,477,596
Less accumulated depreciation 1,147,261 1,076,007
------------ ------------
1,389,796 1,401,589
DEFERRED CHARGES AND OTHER ASSETS 51,403 49,926
------------ ------------
$ 1,643,687 $ 1,665,294
============ ============
1
<PAGE>
PART I.
Item 1.
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
CURRENT LIABILITIES (unaudited)
<S> <C> <C>
Outstanding checks in excess of cash $ 7,239 $ 3,215
Commercial paper 22,721 39,809
Current maturities of long-term debt 2,121 4,467
Accounts payable:
Interexchange carriers 61,376 56,170
Affiliated companies 28,293 39,816
Other 23,897 33,616
Advance billings 15,619 15,883
Accrued vacation pay 16,316 15,382
Accrued taxes 15,962 4,350
Other 36,103 37,653
------------ ------------
229,647 250,361
LONG-TERM DEBT 437,808 439,495
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 190,269 196,139
Deferred investment tax credits 18,124 19,636
Postretirement and other benefit obligations 54,199 46,712
Other 18,133 17,614
------------ ------------
280,725 280,101
REDEEMABLE PREFERRED STOCK
Series 1959, at redemption value 340 340
Series 1961, at redemption value 108 108
Series 1966, at redemption value 1,531 1,531
------------ ------------
1,979 1,979
COMMON STOCK AND OTHER STOCKHOLDER'S EQUITY
Common stock, authorized 16,000,000 shares,
par value $2.50, issued and outstanding
6,500,000 shares 16,250 16,250
Capital in excess of par value 166,448 166,448
Retained earnings 510,830 510,660
------------ ------------
693,528 693,358
------------ ------------
$ 1,643,687 $ 1,665,294
============ ============
See Accompanying Condensed Notes to Consolidated Financial Statements.
2
</TABLE>
<PAGE>
PART I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended
June 30,
------------------------------
1995 1994
---------- ----------
(Unaudited)
OPERATING REVENUES
<S> <C> <C>
Local service $ 89,898 $ 83,718
Network access service 80,422 81,032
Long distance service 20,293 20,029
Miscellaneous 32,280 29,652
---------- ----------
222,893 214,431
OPERATING EXPENSES
Plant expense 60,984 53,866
Depreciation 46,599 42,973
Customer operations 31,155 28,101
Corporate operations 19,765 20,900
Other operating expenses 5,458 7,097
Taxes:
Federal income:
Current 17,359 16,624
Deferred (2,855) (1,285)
Deferred investment tax credit, net (641) (832)
State, local and miscellaneous 8,821 8,799
---------- ----------
186,645 176,243
---------- ----------
OPERATING INCOME 36,248 38,188
INTEREST CHARGES
Interest on long-term debt 8,659 7,760
Interest on short-term debt 47 156
Other interest 861 630
---------- ----------
9,567 8,546
OTHER INCOME
Interest charged to construction - 151
Interest income 156 25
---------- ----------
156 176
---------- ----------
NET INCOME $ 26,837 $ 29,818
========== ==========
See Accompanying Condensed Notes to Consolidated Financial Statements.
3
</TABLE>
<PAGE>
PART I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
------------------------------
1995 1994
---------- ----------
(Unaudited)
OPERATING REVENUES
<S> <C> <C>
Local service $ 179,053 $ 166,896
Network access service 164,113 160,269
Long distance service 41,176 41,997
Miscellaneous 65,740 56,805
---------- ----------
450,082 425,967
OPERATING EXPENSES
Plant expense 120,673 105,350
Depreciation 94,936 81,929
Customer operations 62,600 56,184
Corporate operations 39,647 42,384
Other operating expenses 12,150 12,379
Taxes:
Federal income:
Current 38,225 35,984
Deferred (7,960) (3,813)
Deferred investment tax credit,net (1,512) (1,536)
State, local and miscellaneous 17,751 17,825
---------- ----------
376,510 346,686
---------- ----------
OPERATING INCOME 73,572 79,281
INTEREST CHARGES
Interest on long-term debt 16,995 15,550
Interest on short-term debt 568 485
Other interest 1,686 1,264
---------- ----------
19,249 17,299
OTHER INCOME
Interest charged to construction - 264
Interest income 172 41
---------- ----------
172 305
---------- ----------
NET INCOME $ 54,495 $ 62,287
========== ==========
See Accompanying Condensed Notes to Consolidated Financial Statements.
4
</TABLE>
<PAGE>
PART I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
------------------------
1995 1994
--------- ---------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 54,495 $ 62,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 94,936 81,929
Increase in deferred income taxes and
net investment tax credits (10,920) (6,772)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 4,463 (4,488)
(Increase) decrease in inventories 2,251 (4,298)
(Increase) decrease in prepayments 1,977 (3,597)
Increase (decrease) in accounts payable,
accrued expenses and other current liabilities (1,280) 39,675
(Increase) decrease in noncurrent assets and liabilities, net 6,356 (62)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 152,278 164,674
INVESTING ACTIVITIES
Additions to property, plant and equipment (85,293) (89,802)
Net salvage from plant and equipment retired 2,150 (822)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (83,143) (90,624)
FINANCING ACTIVITIES
Proceeds from long-term debt 70,000 -
Principal payments and retirements of long-term debt (2,990) (1,579)
Decrease in commercial paper (87,088) (16,210)
Dividends paid (54,325) (56,277)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (74,403) (74,066)
DECREASE IN CASH (5,268) (16)
CASH AT BEGINNING OF PERIOD 9,473 2,353
--------- ---------
CASH AT END OF PERIOD $ 4,205 $ 2,337
========= =========
See Accompanying Condensed Notes to Consolidated Financial Statements.
5
</TABLE>
<PAGE>
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
The information contained in this Form 10-Q for the three and six month
interim periods ended June 30, 1995 and 1994 has been prepared in
accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
In the opinion of management, all adjustments considered necessary,
consisting only of normal recurring accruals to present fairly the
consolidated financial position, results of operations and cash flows for
such interim periods have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The results
of operations for the three and six months ended June 30, 1995 are not
necessarily indicative of the operating results that may be expected for
the year ended December 31, 1995.
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.
2. EARNINGS PER SHARE
Earnings per share information has been omitted because the Company is a
wholly-owned subsidiary of Sprint Corporation (Sprint).
<TABLE>
3. SUPPLEMENTAL CASH FLOWS INFORMATION
The following are the supplemental disclosures required for the
Consolidated Statements of Cash Flows:
<CAPTION>
Six Months Ended
June 30,
---------------------
1995 1994
-------- --------
(In Thousands)
Cash paid for:
<S> <C> <C>
Interest, net of
capitalized $15,661 $17,381
Income taxes $44,645 $52,603
</TABLE>
4. SUBSEQUENT EVENT
Effective July 1, 1995, the Company redeemed all of its outstanding
cumulative preferred stock. The principal, accumulated dividends, and
redemption premium amounted to $2,013,000.
6
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Regulatory Issues
-----------------
In June 1994, the Company entered into a stipulation with the Florida
Public Service Commission (FPSC) whereby the Company's intrastate rates
were reduced by $17.6 million on an annual basis beginning July 1, 1994.
Approximately $9.9 million of the rate reduction was in intrastate access
elements and was intended to bring the intrastate access rates more in line
with interstate rates. Approximately $5.0 million of the rate reduction
was in intraLATA toll rates, and $2.7 million in local service revenue. In
addition, the Company agreed to record additional depreciation of $2.8
million ($2.1 million intrastate), which was recognized in the second
quarter of 1994. The Company's allowed intrastate return on equity was
capped at 13.0 percent for 1994 with any earnings in excess of 13.0 percent
to be deferred to 1995 when the maximum allowed return reverted to 13.5
percent.
In November 1994, in compliance with FPSC regulations, the Company filed
its triennial depreciation study seeking an increase in annual depreciation
expense of approximately $16.3 million effective January 1, 1995. The
Company seeks shorter service lives to recognize obsolescence caused by
emerging technologies required to meet customer demands for more
sophisticated voice and data facilities. On January 17, 1995, the FPSC
allowed the Company to implement, on a preliminary basis, the proposed
rates, reduced by a one-time depreciation charge of $3.2 million ($2.4
million intrastate) recorded in 1994 which served to bring the Company's
1994 intrastate return on equity below the 13.0 percent cap noted above.
On March 1, 1995, the Office of Public Counsel filed a petition for a
hearing in protest of the FPSC's approval of the early implementation of
the depreciation rates. A final ruling on depreciation rates is expected
in late 1995.
In December 1994, the FPSC approved the Company's proposal for additional
intrastate rate reductions with an effective date of January 1, 1995. The
total proposed revenue reduction is projected to be $10.6 million in 1995,
$9.0 million of which is in switched access charge reductions and the
remainder in cellular interconnection usage rates and intraLATA toll rates.
On July 1, 1995, telecommunications reform legislation became law in
Florida. In summary, it allows competition in the local telephone
marketplace beginning January 1, 1996, while replacing rate of return
regulation with price regulation. While the Company cannot predict the
ultimate effect of competition on its operations, it does not expect a
material adverse impact in the near term. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Other Matters"
for discussion regarding the potential impact of evolving regulation and
and competition on the ongoing applicability of Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain
Types of Regulation."
7
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1995
Liquidity and Capital Resources
-------------------------------
Net cash provided by operating activities decreased to $152.3 million for
the six months ended June 30, 1995, compared to $164.7 million for the same
period in 1994. The decrease in net cash generated is primarily due to a
decrease in accounts payable, partially offset by decreased accounts
receivable and inventories and increased accrued taxes.
Cash used by investing activities decreased to $83.1 million for the six
months ended June 30, 1995, compared to $90.6 million for the same period
in 1994. This is due to a decrease in additions to property, plant and
equipment. The Company's planned construction expenditures for
modernization and growth in 1995 are approximately $182 million.
Cash used by financing activities increased to $74.4 million for the six
months ended June 30, 1995, compared to $74.1 million for the same period
in 1994. In January 1995, the Company issued $70 million of 8.375 percent
Series HH bonds. These proceeds were offset by a decrease in commercial
paper outstanding. As of December 31, 1994, $70 million of the commercial
paper outstanding had been reclassified as long-term debt due to the
anticipated January 1995 refinancing of such borrowings on a long-term
basis. At June 30, 1995, the Company's lines of credit totaled $100
million, of which $77.3 million was unused.
The Company's ratio of common equity to total capital was 59.9 percent at
June 30, 1995, compared to 58.8 percent at December 31, 1994, and 61.9
percent at June 30, 1994. The short-term debt to total capital ratio was
2.0 percent at June 30, 1995, compared to 3.4 percent at December 31, 1994,
and 4.4 percent at June 30, 1994.
Financial Condition
-------------------
The Company's consolidated assets totaled $1.6 billion at June 30, 1995
compared to $1.7 billion at December 31, 1994. During that period,
accounts receivable decreased $4.5 million due primarily to the timing of
sales activities and cash collections. At the same time, property, plant
and equipment, net of accumulated depreciation, decreased $11.8 million due
primarily to higher depreciation charges as a result of the implementation
of new interim depreciation rates effective January 1, 1995. Also,
accounts payable decreased $16.0 million generally due to the timing of
cash disbursements. Commercial paper decreased $17.1 million primarily due
to the use of the proceeds from the issuance of the new Series HH bonds and
accrued taxes increased $11.6 million due to the timing of payments.
8
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1995
Results of Operations
---------------------
Local service revenues are derived from providing telephone exchange
services. Local service revenues increased $6.2 million and $12.2 million
for the three and six months ended June 30, 1995, respectively, primarily
due to access line growth and increases in demand for custom calling
features and inside wire maintenance contracts.
Network access service revenues are derived from billing othercarriers 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
$610,000 and increased $3.8 million for the three and six months ended June
30, 1995, respectively. Access rate reductions that went into effect July
1, 1994 and January 1, 1995, were somewhat offset in the three month period
and more than offset in the six month period by increased minutes of use
and by increased expense recovery under the interstate price cap agreement
with the Federal Communication Commission (FCC).
Long distance revenues are derived principally from providing long distance
services within designated areas. Revenues were relatively unchanged for
the three and six months ended June 30, 1995, primarily due to the rate
reductions which were effective July 1, 1994 and January 1, 1995, being
offset by increased message volumes.
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 $2.6 million and $8.9 million for the three and six months ended June
30, 1995, respectively, were primarily due to increases in directmarketing
services and directory revenues, partially offset by a decrease in
equipment sales.
Plant expenses increased $7.1 million and $15.3 million for the three and
six months ended June 30, 1995, respectively, due to increased access line
growth, movement and repairs of cable and wire and general purpose computer
expense. Additionally, the level of central office software expense
increased $1.4 million and $2.7 million for the three and six months ended
June 30, 1995, respectively.
Depreciation expense increased $3.6 million and $13.0 million forthe three
and six months ended June 30, 1995, respectively, primarily due to the
implementation of new interim depreciation rates effective January 1, 1995,
as well as an increase in the depreciable asset base. These increases were
partially offset by additional depreciation of $2.8 million recorded in the
second quarter of 1994 as ordered by the FPSC.
Customer operations expense increased $3.1 million and $6.4million for the
three and six months ended June 30, 1995, respectively, primarily due to
increases in expenses associated with expanded hours of business office
operations and increases in the number of customer contacts.
9
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
JUNE 30, 1995
Results of Operations (Continued)
---------------------
Corporate operations expense decreased $1.1 million and $2.7 million for
the three and six months ended June 30, 1995, respectively, due to a
decrease in advertising and general and administrative services provided by
Sprint.
Other operating expenses decreased $1.6 million and $229,000 for the three
and six months ended June 30, 1995, respectively, primarily due to a
decrease in the cost of sales associated with a decrease in equipment
sales.
Non-Operating Items
-------------------
In May 1994, the FPSC staff, citing the immateriality of interest
capitalized on long-term construction projects, filed comments with the FCC
supporting the elimination of interest charged to construction. In
addition, the FPSC directed the Company to cease recognizing interest
charged to construction effective November 1, 1994. In February 1995, the
FCC issued an order which not only upheld the calculation of interest
during construction on long-term construction projects, but ordered that
such interest be calculated on all projects whose estimated gross additions
exceed $100,000. The Company has until September 1995 to comply with the
order.
Other Matters
-------------
The Company accounts for the economic effects of regulation pursuant to
SFAS No. 71. The application of this accounting standard 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 is in the process of
assessing the impact of recently adopted legislation regarding competition
and price regulation (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Regulatory Issues") on its operations.
While this assessment is not yet complete, management believes it is
increasingly likely that the Company will discontinue accounting under SFAS
No. 71 due to potential impacts of regulation and anticipated competition
on prices charged to customers. In the event the Company determines that
its operations no longer qualify for the application of the provisions of
SFAS No. 71, the Company would eliminate from its financial statements the
effects of any actions of regulators that had been recognized as assets and
liabilities. The resulting material noncash charge would be recorded as an
extraordinary item.
10
<PAGE>
PART II.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED JUNE 30, 1995
OTHER INFORMATION
Item 1. Legal Proceedings
There were no reportable events during the quarter ended June 30,
1995.
Item 2. Changes in Securities
There were no reportable events during the quarter ended June 30,
1995.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended June 30,
1995.
Item 4. Submission of Matters to a Vote of Security Holders
There were no reportable events during the quarter ended June 30,
1995.
Item 5. Other Information
There were no reportable events during the quarter ended June 30,
1995.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were required to be filed during the
quarter ended June 30, 1995.
11
<PAGE>
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED JUNE 30, 1995
SIGNATURE
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 August 14, 1995 By /s/ J. I. Lehman
-------------------------------------
J. I. Lehman
Controller & Chief Accounting Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000037664
<NAME> UNITED TELEPHONE COMPANY OF FLORIDA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,205
<SECURITIES> 0
<RECEIVABLES> 160,560
<ALLOWANCES> 3,102
<INVENTORY> 25,175
<CURRENT-ASSETS> 202,488
<PP&E> 2,537,057
<DEPRECIATION> 1,147,261
<TOTAL-ASSETS> 1,643,687
<CURRENT-LIABILITIES> 229,647
<BONDS> 437,808
<COMMON> 16,250
1,979
0
<OTHER-SE> 677,278
<TOTAL-LIABILITY-AND-EQUITY> 1,643,687
<SALES> 0
<TOTAL-REVENUES> 450,082
<CGS> 0
<TOTAL-COSTS> 278,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,249
<INCOME-PRETAX> 100,999
<INCOME-TAX> 33,736
<INCOME-CONTINUING> 54,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,495
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
