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 September 30, 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 0-1244
SPRINT-FLORIDA, INCORPORATED
(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)889-6016
(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 of 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 are no equity securities held by non-affiliates.
There are 6,500,000 common shares outstanding at September 30, 1997.
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SPRINT-FLORIDA, INCORPORATED
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Part I - Financial Information Page Number
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Item 1. Financial Statements
<S> <C>
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
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Item 1.
PART I.
SPRINT-FLORIDA, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash $ 2,048 $ 185,938
Accounts receivable
Customers and other, net of allowance for doubtful accounts of
$4,873 and $5,370 151,352 125,384
Interexchange carriers 53,570 59,432
Affiliated companies 16,338 12,907
Inventories 24,965 26,879
Prepaid expenses and other 7,067 8,171
- -------------------------------------------------------------------------------------------------------------------
Total current assets 255,340 418,711
Property, plant and equipment 3,573,070 3,411,797
Less accumulated depreciation 1,996,049 1,879,235
- -------------------------------------------------------------------------------------------------------------------
1,577,021 1,532,562
Deferred charges and other assets 58,000 49,411
- -------------------------------------------------------------------------------------------------------------------
$ 1,890,361 $ 2,000,684
------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements
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PART I.
Item 1.
SPRINT-FLORIDA, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
Liabilities and shareholder's equity
Current liabilities
<S> <C> <C>
Outstanding checks in excess of cash balances $ 14,116 $ 13,317
Advances from parent company 167,534 134,900
Current maturities of long-term debt 513 1,916
Accounts payable
Vendors and other 34,912 23,746
Interexchange carriers 30,080 32,017
Affiliated companies 24,946 202,425
Accrued taxes 26,589 15,178
Advance billings and customer deposits 31,178 28,802
Other 53,645 52,241
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 383,513 504,542
Long-term debt 454,947 455,108
Deferred credits and other liabilities
Deferred income taxes and investment tax credits 149,091 152,184
Postretirement and other benefit obligations 80,894 71,822
Other 9,308 15,990
- -------------------------------------------------------------------------------------------------------------------
239,293 239,996
Shareholder's equity
Common stock, par value $2.50 per share, authorized - 16,000
shares, issued and outstanding - 6,500 shares 16,250 16,250
Capital in excess of par value 229,298 229,298
Retained earnings 567,060 555,490
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812,608 801,038
- -------------------------------------------------------------------------------------------------------------------
$ 1,890,361 $ 2,000,684
------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements
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PART I.
Item 1.
SPRINT-FLORIDA, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands)
Quarter Ended Year to Date
September 30, September 30,
---------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Net operating revenues
<S> <C> <C> <C> <C>
Local service $ 139,721 $ 126,887 $ 411,267 $ 373,824
Network access 115,875 116,143 370,632 353,326
Toll service 9,588 18,642 32,154 61,062
Telecommunications equipment 19,158 15,591 45,358 37,375
Other 19,144 28,138 78,720 90,217
- ------------------------------------------------------------------------------------------------------------------
Total net operating revenues 303,486 305,401 938,131 915,804
- ------------------------------------------------------------------------------------------------------------------
Operating expenses
Plant operations 82,322 78,555 232,825 231,003
Depreciation and amortization 61,568 58,082 183,221 176,954
Customer operations 43,914 41,225 128,813 123,561
Corporate operations 26,452 27,696 76,626 82,822
Cost of telecommunications equipment
13,879 11,590 32,025 26,560
Other 11,391 7,426 27,839 22,969
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 239,526 224,574 681,349 663,869
- ------------------------------------------------------------------------------------------------------------------
Operating income 63,960 80,827 256,782 251,935
Interest expense (11,154) (11,489) (32,201) (34,184)
Other expense, net (260) (431) (684) (791)
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 52,546 68,907 223,897 216,960
Income taxes (19,603) (26,237) (85,252) (82,275)
- ------------------------------------------------------------------------------------------------------------------
Net income $ 32,943 $ 42,670 $ 138,645 $ 134,685
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
(in thousands)
Year to Date
September 30,
----------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------
Retained earnings at beginning of period $ 555,490 $ 492,766
Net Income 138,645 134,685
- ------------------------------------------------------------------------------------------------------------------
694,135 627,451
Dividends declared (127,075) (86,000)
- ------------------------------------------------------------------------------------------------------------------
Retained earnings at end of period $ 567,060 $ 541,451
- ------------------------------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements
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PART I.
Item 1.
SPRINT-FLORIDA, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Year to Date
September 30,
-----------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating activities
<S> <C> <C>
Net income $ 138,645 $ 134,685
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 183,221 176,954
Deferred income taxes and investment tax credits (218) 6,785
Changes in assets and liabilities:
Accounts receivable, net (23,537) (14,108)
Inventories and prepaid expenses 2,505 1,447
Accounts payable, accrued expenses and other current liabilities 22,740 (17,999)
Other assets and liabilities, net (5,833) 9,518
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 317,523 297,282
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Investing activities
Capital expenditures (223,962) (224,350)
Other, net (6,446) (1,839)
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Net cash used by investing activities (230,408) (226,189)
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Financing activities
Increase in advances from parent company 32,634 43,879
Repurchase of accounts receivable (175,000) -
Payments on long-term debt (1,564) (29,691)
Dividends paid (127,075) (86,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (271,005) (71,812)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash (183,890) (719)
Cash at beginning of period 185,938 11,473
- -------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 2,048 $ 10,754
-----------------------------------
Supplemental cash flow information
Cash paid for interest (excluding amounts capitalized) $ 36,640 $ 40,181
-----------------------------------
Cash paid for income taxes $ 97,576 $ 81,818
-----------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements
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PART I.
Item 1.
SPRINT-FLORIDA, INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997 and 1996
The information in this Form 10-Q has been prepared according to the rules and
regulations of the Securities and Exchange Commission. In management's opinion,
these 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 according to generally accepted accounting
principles (GAAP) have been condensed or omitted. These consolidated financial
statements should be read in connection with the Sprint-Florida, Incorporated
1996 annual report on Form 10-K. Operating results for the 1997 year-to-date
period 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 Sprint-Florida,
Incorporated and its wholly-owned subsidiaries (Sprint-Florida). All significant
intercompany transactions have been eliminated. Sprint-Florida is, indirectly, a
wholly-owned subsidiary of Sprint Corporation; as a result, earnings per share
information is not required.
The consolidated financial statements are prepared according to 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, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.
In December 1996, Central Telephone Company of Florida, which was, indirectly, a
wholly-owned subsidiary of Sprint, merged into Sprint-Florida. Certain prior
year amounts have been restated to reflect the new reporting entity. As a
result, net income increased $7 and $21 million for the 1996 third quarter and
year-to-date periods, respectively.
Certain prior year amounts have been reclassified to conform to the current
period presentation. These reclassifications had no effect on the results of
operations or shareholder's equity as previously reported.
2. Repurchase of Accounts Receivable
In January 1997, Sprint-Florida repurchased $175 million of accounts receivable,
which were sold without recourse in December 1996 to an affiliated company.
Sprint-Florida retained all ownership, management and control of the receivables
prior to the repurchase. As a result, the transaction was recorded as a
borrowing in the 1996 year-end financial statements.
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PART I.
Item 2.
SPRINT-FLORIDA, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
General
Sprint-Florida, Incorporated and its wholly-owned subsidiaries (Sprint-Florida)
includes certain estimates, projections and other forward-looking statements in
its reports, in presentations to analysts and others, and in other
publicly-available material. Future performance cannot be assured. 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 Sprint-Florida
operates;
- the impact of any unusual items resulting from ongoing evaluations of
Sprint-Florida's business strategies;
- requirements imposed on Sprint-Florida and its competitors by the
Federal Communications Commission (FCC) and the Florida Public Service
Commission under the Telecommunications Act of 1996 (Telecom Act);
- unexpected results of litigation filed against Sprint-Florida; and
- the possibility of one or more of the markets in which Sprint-Florida
competes being impacted by changes in political, economic or other
factors such as legal and regulatory changes or other external factors
over which Sprint-Florida has no control.
In December 1996 Central Telephone Company of Florida, which was, indirectly, a
wholly-owned subsidiary of Sprint Corporation (Sprint), merged into
Sprint-Florida. As a result, prior period financial information has been
restated to reflect the new reporting entity.
Regulatory Developments
In accordance with the Telecom Act, the FCC adopted detailed rules in 1996 to
govern interconnection to incumbent local networks by new market entrants. Some
local exchange carriers (LECs) and state public utility commissions (PUCs)
appealed these rules to the U.S. Court of Appeals, which prevented most of the
pricing rules from taking effect, pending a full review by the court.
In July 1997, the court struck down the FCC's pricing rules. It ruled that the
Telecom Act left jurisdiction over pricing matters to the PUCs. The court also
struck down certain other FCC rules on jurisdictional or substantive grounds.
The court's decision adds to the uncertainty, delay and complexity surrounding
local competition. The FCC plans to appeal the decision to the U.S. Supreme
Court.
In May 1997, the FCC issued important decisions on the structure and level of
access charges and universal service. These decisions will impact the industry
in several ways, including the following:
- an additional subsidy was created to support telecommunications
services for schools, libraries and rural health care providers. Funding
for this program, which is estimated to cost $2.7 billion per year,
will be assessed against all carriers providing telecommunications
services. However, it is expected that LECs will be able to pass their
portion of these costs on to long distance carriers;
- interstate access rates charged by LECs will decline by an estimated
$1.4 billion per year beginning July 1997;
- certain monthly flat-rate charges paid by some local telephone customers
will increase beginning in 1998;
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- certain per-minute access charges paid by long distance companies
were converted to flat monthly charges based on pre-subscribed lines;
and
- a basis has been established for replacing implicit access subsidies
with an explicit interstate universal service fund beginning in 1999.
A number of LECs, long distance companies and others have appealed some or all
of the FCC's orders. The effective date of the orders has not been delayed, but
the appeals are expected to take a year or more to conclude. The impact of these
FCC decisions on Sprint-Florida is difficult to determine, but is not expected
to be material.
Results of Operations
Year-to-date net operating revenues for 1997 increased 2% compared with the same
period a year ago. This increase was mainly due to increased local service and
network access revenues, partly offset by decreases in toll service and other
revenues.
Local service revenues, derived from local exchange services, increased 10% for
the 1997 year-to-date period compared with the same 1996 period. This increase
was mainly due to access line growth of 6.3% during the last 12 months and
extended local area calling plans. The increase also reflects increased demand
for custom calling features, such as Caller ID, call waiting and call
forwarding, and increased revenues from residential and business wire
maintenance.
Network access revenues are derived from interexchange long distance carriers'
use of the local network to complete calls. These revenues increased 5% for the
1997 year-to-date period compared with the same 1996 period. The increase was
mainly due to a 9% increase in interstate and intrastate calling volumes, partly
offset by FCC-mandated access rate reductions effective July 1997 - see
"Regulatory Developments" for further discussion.
Toll service revenues are mainly derived from providing long distance services
within specified geographical areas. Year-to-date toll service revenues for 1997
decreased 47% compared with the same period a year ago. The decrease was mainly
due to reduced revenues from reselling interexchange long distance services,
which were phased out through early 1997, and extended local area calling plans.
Year-to-date other revenues decreased 13% in 1997 compared with the same period
a year ago. This decrease was mainly due to a change in transfer pricing for
certain transactions between Sprint-Florida and Sprint's directory publishing
division beginning in July 1997 to more accurately reflect market pricing.
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PART II.
Other Information
Item 1. Legal Proceedings
There were no reportable events during the quarter ended September 30,
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
There were no reportable events during the quarter ended September 30,
1997.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
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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.
SPRINT-FLORIDA, INCORPORATED
(Registrant)
By /s/ John I. Lehman
John I. Lehman
Controller & Chief Accounting Officer
By /s/ Douglas B. Lynn
Douglas B. Lynn
Assistant Vice President
Date: November 10, 1997
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EXHIBIT INDEX
EXHIBIT
NUMBER
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 2,048
<SECURITIES> 0
<RECEIVABLES> 226,133
<ALLOWANCES> 4,873
<INVENTORY> 24,965
<CURRENT-ASSETS> 255,340
<PP&E> 3,573,070
<DEPRECIATION> 1,996,049
<TOTAL-ASSETS> 1,890,361
<CURRENT-LIABILITIES> 383,513
<BONDS> 454,947
0
0
<COMMON> 16,250
<OTHER-SE> 796,358
<TOTAL-LIABILITY-AND-EQUITY> 1,890,361
<SALES> 0
<TOTAL-REVENUES> 938,131
<CGS> 0
<TOTAL-COSTS> 544,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,201
<INCOME-PRETAX> 223,897
<INCOME-TAX> 85,252
<INCOME-CONTINUING> 138,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,645
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
