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, 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
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UNITED TELEPHONE COMPANY OF FLORIDA
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(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
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(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 March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the Three Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . 5
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . .6
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . .10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . .10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
<TABLE>
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
----------- ------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 2,999 $ 9,473
Receivables:
Interexchange carriers 42,652 36,993
Customers and other 78,975 78,805
Unbilled toll 22,804 22,597
Affiliated companies 31,529 26,844
Allowance for uncollectible accounts (3,446) (3,318)
Inventories 25,574 27,426
Prepayments 4,948 6,158
Deferred tax asset 11,056 8,801
----------- ------------
217,091 213,779
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 150,720 149,033
Telephone network equipment and outside 2,178,362 2,160,156
Other 129,830 127,453
Construction in progress 51,176 40,954
----------- ------------
2,510,088 2,477,596
Less accumulated depreciation 1,112,017 1,076,007
----------- ------------
1,398,071 1,401,589
DEFERRED CHARGES AND OTHER ASSETS 50,948 49,926
----------- ------------
$ 1,666,110 $ 1,665,294
=========== ============
1
<PAGE>
PART I.
Item 1.
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Outstanding checks in excess of cash $ 8,770 $ 3,215
Commercial paper 30,272 39,809
Current maturities of long-term debt 2,123 4,467
Accounts payable:
Interexchange carriers 62,205 56,170
Affiliated companies 33,302 39,816
Other 18,228 33,616
Advance billings 16,805 15,883
Accrued vacation pay 15,934 15,382
Accrued taxes 34,258 4,350
Other 33,315 37,653
------------ ------------
255,212 250,361
LONG-TERM DEBT 438,155 439,495
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 193,066 196,139
Deferred investment tax credits 18,765 19,636
Postretirement and other benefit obligations 50,643 46,712
Other 16,548 17,614
------------ ------------
279,022 280,101
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 16,250 16,250
Capital in excess of par value 166,448 166,448
Retained earnings 509,044 510,660
------------ ------------
691,742 693,358
------------ ------------
$ 1,666,110 $ 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
March 31,
-------------------------
1995 1994
---- ----
(Unaudited)
OPERATING REVENUES
<S> <C> <C>
Local service $ 89,155 $ 83,178
Network access service 83,691 79,237
Long distance service 20,883 21,968
Miscellaneous 33,460 27,153
---------- ----------
227,189 211,536
OPERATING EXPENSES
Plant expense 59,689 51,484
Depreciation 48,337 38,956
Customer operations 31,445 28,083
Corporate operations 19,882 21,484
Other operating expenses 6,692 5,282
Taxes:
Federal income:
Current 20,866 19,360
Deferred (5,105) (2,528)
Deferred investment tax credits (871) (704)
State, local and miscellaneous 8,930 9,026
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189,865 170,443
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OPERATING INCOME 37,324 41,093
INTEREST CHARGES
Interest on long-term debt 8,336 7,790
Interest on short-term debt 521 329
Other interest 825 634
---------- ----------
9,682 8,753
OTHER INCOME
Interest charged to construction - 113
Interest income 16 16
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16 129
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NET INCOME $ 27,658 $ 32,469
========== ==========
See Accompanying Condensed Notes to Consolidated Financial Statements
3
</TABLE>
<PAGE>
PART I.
Item 1.
<TABLE>
UNITED TELEPHONE COMPANY OF FLORIDA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
------------------------
1995 1994
-------- --------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 27,658 $ 32,469
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 48,337 38,956
Increase in deferred income taxes and
net investment tax credits (6,699) (4,795)
Changes in operating assets and liabilities:
Increase in accounts receivable (10,593) (3,736)
(Increase) decrease in inventories 1,852 (3,574)
(Increase) decrease in prepayments 1,210 (3,334)
Increase in accounts payable, accrued
expenses and other current liabilities 16,732 43,021
Increase (decrease) in noncurrent assets
and liabilities, net 1,250 (5,817)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 79,747 93,190
INVESTING ACTIVITIES
Additions to property, plant and equipment (45,110) (37,500)
Net salvage from plant and equipment retired 291 (491)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (44,819) (37,991)
FINANCING ACTIVITIES
Proceeds from long-term debt 70,000 -
Principal payments and retirements of long-term d (2,591) (66)
Decrease in commercial paper (79,537) (31,810)
Dividends paid (29,274) (22,451)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (41,402) (54,327)
INCREASE (DECREASE) IN CASH (6,474) 872
CASH AT BEGINNING OF PERIOD 9,473 2,353
-------- --------
CASH AT END OF PERIOD $ 2,999 $ 3,225
======== ========
See Accompanying Condensed Notes to Consolidated Financial Statements
4
</TABLE>
<PAGE>
PART I.
Item 1.
UNITED TELEPHONE COMPANY OF FLORIDA
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
The information contained in this Form 10-Q for the three month interim
periods ended March 31, 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 months ended March 31, 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>
Three Months Ended
March 31,
------------------------
1995 1994
-------- --------
(In Thousands)
Cash paid for:
<S> <C> <C>
Interest, net of amounts
capitalized $ 12,576 $ 11,216
Income taxes $ 407 $ 10,709
</TABLE>
5
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
MARCH 31, 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 not
expected until late 1995 or early 1996.
In December 1994, the FPSC approved the Company's proposal for additional
intrastate and other 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.
6
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
MARCH 31, 1995
Liquidity and Capital Resources
Net cash provided by operating activities decreased to $79.7 million for
the three months ended March 31, 1995, compared to $93.2 million for the
same period in 1994. The decrease in net cash generated is primarily due
to a reduction in accounts payable and an increase in accounts receivable,
partially offset by increased accrued taxes.
Cash used by investing activities increased to $44.8 million for the three
months ended March 31, 1995, compared to $38.0 million for the same period
in 1994. This is due to an increase in additions to property, plant and
equipment in order to accommodate access line growth.
Cash used by financing activities decreased to $41.4 million for the three
months ended March 31, 1995, compared to $54.3 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 March 31, 1995, the Company's lines of credit totaled $105
million, of which $74.7 million was unused.
The Company's ratio of common equity to total capital was 59.4 percent at
March 31, 1995, compared to 58.8 percent at December 31, 1994, and 62.8
percent at March 31, 1994. The short-term debt to total capital ratio was
2.6 percent at March 31, 1995, compared to 3.4 percent at December 31,
1994, and 3.1 percent at March 31, 1994.
7
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
MARCH 31, 1995
Results of Operations
Local service revenues are derived from providing telephone exchange
services. Local service revenues increased $6.0 million for the three
months ended March 31, 1995, 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 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 $4.5
million for the three months ended March 31, 1995, primarily due to
increased usage of the network, partially offset by access rate reductions
that went into effect July 1, 1994 and January 1, 1995.
Long distance revenues are derived principally from providing long distance
services within designated areas. Revenues decreased $1.1 million for the
three months ended March 31, 1995 primarily due to rate reductions
effective July 1, 1994 and January 1, 1995.
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 increase in miscellaneous revenues
of $6.3 million for the three months ended March 31, 1995, was primarily
due to increases in equipment sales, direct marketing services and
directory revenues.
Plant expenses increased $8.2 million for the three months ended March 31,
1995, due to increased access line growth and movement and repairs of cable
and wire. Additionally, the level of central office software expense
increased $1.4 million for the three months ended March 31, 1995.
Depreciation expense increased $9.4 million for the three months ended
March 31, 1995, primarily due to the implementation of new interim
depreciation rates effective January 1, 1995 as well as an increase in the
depreciable asset base.
Customer operations expense increased $3.4 million for the three months
ended March 31, 1995, primarily due to increases in sales expense
associated with increased equipment sales and to expanded hours of business
office operations and increases in the number of customer contacts.
8
<PAGE>
PART I.
Item 2.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
MARCH 31, 1995
Results of Operations (Continued)
Corporate operations expense decreased $1.6 million for the three months
ended March 31, 1995, due to a decrease in postretirement benefits costs,
resulting from new demographic assumptions, as well as a decrease in
advertising costs.
Other operating expenses increased $1.4 million for the three months ended
March 31, 1995, primarily due to an increase in the cost of sales of key
and PBX equipment and telephone instruments consistent with higher sales of
these products.
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
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 currently believes its
operations meet the criteria for the continued application of the
provisions of SFAS No. 71. However, the Company operates in an evolving
environment in which the regulatory framework is changing and the level and
types of competition are increasing. Accordingly, the Company constantly
monitors and evaluates the ongoing applicability of SFAS No. 71 by
assessing the likelihood that prices which provide for the recovery of
specific costs can continue to be 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.
9
<PAGE>
PART II.
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED MARCH 31, 1995
OTHER INFORMATION
Item 1. Legal Proceedings
There were no reportable events during the quarter ended March
31, 1995.
Item 2. Changes in Securities
There were no reportable events during the quarter ended March
31, 1995.
Item 3. Defaults Upon Senior Securities
There were no reportable events during the quarter ended March
31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
On February 28, 1995, the shareholders, at their annual meeting,
approved an amendment to the bylaws which revised the existing
provision indemnifying officers and directors to align the
provision with current Florida law and insurance coverage
maintained by the corporation.
Item 5. Other Information
There were no reportable events during the quarter ended March
31, 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 March 31, 1995.
10
<PAGE>
UNITED TELEPHONE COMPANY OF FLORIDA
FORM 10-Q
QUARTER ENDED MARCH 31, 1995
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 May 11, 1995 By /s/ J. I. Lehman
-----------------------------------
Controller & Chief Accounting Officer
11
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