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, 1998
------------------------------------
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 11315, Kansas City, Missouri 64112
(Address of principal executive offices)
(913)624-3000
(Registrant's telephone number, including area code)
P.O. Box 165000, Altamonte Springs, Florida 32716-5000
- --------------------------------------------------------------------------------
(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 were 6,500,000 common shares outstanding at September 30, 1998.
<PAGE>
SPRINT-FLORIDA, INCORPORATED
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets 1
Consolidated Statements of Income and Retained Earnings 2
Consolidated Statements of Cash Flows 3
Condensed Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Part II - Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibits
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 1.
PART I.
CONSOLIDATED BALANCE SHEETS Sprint-Florida, Incorporated
(in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash $ 447 $ 25,470
Accounts receivable
Customers and other, net of allowance for doubtful accounts of
$4,375 and $5,515 149,272 149,317
Interexchange carriers 56,995 58,074
Affiliated companies 11,980 10,041
Inventories 24,424 25,114
Other 98 7,802
- -------------------------------------------------------------------------------------------------------------------
Total current assets 243,216 275,818
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 3,817,038 3,632,432
Less accumulated depreciation 2,134,760 2,028,184
- -------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 1,682,278 1,604,248
- -------------------------------------------------------------------------------------------------------------------
Deferred charges and other assets 84,620 59,203
- -------------------------------------------------------------------------------------------------------------------
Total $ 2,010,114 $ 1,939,269
------------------------------------------
Liabilities and Shareholder's Equity
Current liabilities
Outstanding checks in excess of cash balances $ 2,032 $ 10,801
Advances from parent 304,323 38,999
Current maturities of long-term debt 200 304
Accounts payable
Vendors and other 55,513 43,687
Interexchange carriers 29,795 26,663
Affiliated companies 42,398 220,354
Advance billings 29,824 26,636
Other 66,401 61,289
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 530,486 428,733
- -------------------------------------------------------------------------------------------------------------------
Long-term debt 340,533 455,011
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Deferred credits and other liabilities
Deferred income taxes and investment tax credits 158,185 152,120
Postretirement and other benefit obligations 107,723 83,332
Other 12,599 9,252
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Total deferred credits and other liabilities 278,507 244,704
- -------------------------------------------------------------------------------------------------------------------
Shareholder's equity
Common stock, par value $2.50 per share, 16,000 shares authorized,
6,500 shares issued and outstanding 16,250 16,250
Capital in excess of par value 229,298 229,298
Retained earnings 615,040 565,273
- -------------------------------------------------------------------------------------------------------------------
Total shareholder's equity 860,588 810,821
- -------------------------------------------------------------------------------------------------------------------
Total $ 2,010,114 $ 1,939,269
------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Sprint-Florida, Incorporated
(Unaudited)
(in thousands)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Quarter Ended Year-to-Date
September 30, September 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
<S> <C> <C> <C> <C>
Net Operating Revenues $ 323,672 $ 300,692 $ 967,706 $ 940,492
Operating Expenses
Costs of services and products 110,921 113,238 318,743 312,306
Selling, general and administrative 64,167 61,926 187,555 179,242
Depreciation and amortization 60,303 61,568 177,437 183,221
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Total operating expenses 235,391 236,732 683,735 674,769
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Operating Income 88,281 63,960 283,971 265,723
Interest expense (9,751) (11,154) (32,141) (32,201)
Other expense, net (1,033) (260) (3,111) (684)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Income before income taxes and
extraordinary item 77,497 52,546 248,719 232,838
Income taxes (29,637) (19,603) (95,467) (94,193)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Income before extraordinary item 47,860 32,943 153,252 138,645
Extraordinary item, net - - (4,437) -
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Net Income $ 47,860 $ 32,943 148,815 138,645
--- ------------- -- -------------
Retained Earnings at Beginning of Period 565,273 555,490
Dividends declared (99,048) (127,075)
- -------------------------------------------- --- ------------- -- ------------- --- ------------- -- -------------
Retained Earnings at End of Period $ 615,040 $ 567,060
--- ------------- -- -------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.
Item 1.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Sprint-Florida, Incorporated
(in thousands)
- -------------------------------------------------------------------------------------------------------------------
Year-to-date September 30, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C>
Net income $ 148,815 $ 138,645
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 177,437 183,221
Deferred income taxes and investment tax credits 12,837 (218)
Extraordinary item, net (1,664) -
Changes in assets and liabilities:
Receivables, net (815) (22,829)
Inventories and other current assets 2,284 1,797
Accounts payable, accrued expenses and other current liabilities 28,075 22,740
Other assets and liabilities, net 2,199 (10,125)
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Net cash provided by operating activities 369,168 313,231
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Investing Activities
Capital expenditures (254,482) (223,962)
Other, net (985) (3,718)
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Net cash used by investing activities (255,467) (227,680)
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Financing Activities
Increase in advances from parent 265,324 32,634
Sales of receivables (190,000) (175,000)
Payments on long-term debt (115,000) -
Dividends paid (99,048) (127,075)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (138,724) (269,441)
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Decrease in Cash and Equivalents (25,023) (183,890)
Cash and Equivalents at Beginning of Period 25,470 185,938
- -------------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 447 $ 2,048
-----------------------------------
Supplemental Cash Flow Information
Cash paid for interest, net of amounts capitalized $ 37,497 $ 36,640
-----------------------------------
Cash paid for income taxes $ 78,468 $ 97,576
-----------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
PART I.
Item 1.
CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) Sprint-Florida, Incorporated
The information in this Form 10-Q has been prepared according to Securities and
Exchange Commission rules and regulations. In our opinion, the consolidated
interim financial statements reflect all adjustments (consisting only of normal
recurring accruals) needed to fairly present Sprint-Florida, Incorporated's
consolidated financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared according to generally accepted accounting
principles (GAAP) have been condensed or omitted. As a result, you should read
these financial statements along with Sprint-Florida, Incorporated's 1997 Annual
Report on Form 10-K. Operating results for the 1998 year-to-date period do not
necessarily represent the results that may be expected for the year ending
December 31, 1998.
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1. Basis of Consolidation
- --------------------------------------------------------------------------------
The consolidated financial statements include the accounts of Sprint-Florida,
Incorporated and its wholly-owned subsidiary. 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
has been omitted.
The consolidated financial statements are prepared based on GAAP. These
principles require 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.
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.
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2. Repurchase of Accounts Receivable
- --------------------------------------------------------------------------------
In January 1998, Sprint-Florida repurchased $190 million of accounts receivable
sold to an affiliate in December 1997. As a result, the transaction was treated
as a borrowing in the 1997 year-end financial statements.
<PAGE>
PART I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS Sprint-Florida, Incorporated
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General
- --------------------------------------------------------------------------------
Sprint-Florida, Incorporated, with its wholly-owned subsidiary, 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 ensured. 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 or latitude allowed its
competitors by the Federal Communications Commission (FCC) or the
Florida Public Service Commission under the Telecommunications Act of
1996 (Telecom Act);
- unexpected results of litigation filed against Sprint-Florida;
- the impact of the Year 2000 issue and any related noncompliance; 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.
The words "estimate", "project", "intend", "expect", "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout Management's
Discussion and Analysis of Results of Operations. You should not place undue
reliance on these forward-looking statements, which speak only as of the date of
this document. Sprint-Florida undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events. Moreover, we may from time to time make forward-looking statements about
the matters described in this document or other matters concerning
Sprint-Florida.
- --------------------------------------------------------------------------------
Regulatory Developments
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In September 1998, the U.S. Court of Appeals voted to uphold the provisions of
the Telecom Act line-of-business restrictions on the Regional Bell Operating
Companies (RBOCs). Previously, a federal district court in Wichita Fall, Texas,
ruled that these restrictions unlawfully singled out the RBOCs for punishment.
Certain of the RBOCs have filed a petition asking the U.S. Supreme Court to
consider whether the restrictions violate the U.S. Constitution.
<PAGE>
<TABLE>
<CAPTION>
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Results of Operations
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Selected Operating Results
---------------------------------------------------------------------
Year-to-Date
September 30, Variance
---------------------------------- ------------------------------
1998 1997 $ %
- -------------------------------------------- --- ------------- -- ------------- --- ------------- ----------------
(in thousands)
Net Operating Revenues
<S> <C> <C> <C> <C>
Local service $ 451,573 $ 411,267 $ 40,306 9.8%
Network access 379,362 370,632 8,730 2.4%
Toll service 22,450 32,154 (9,704) (30.2)%
Other 114,321 126,439 (12,118) (9.6)%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Net operating revenues 967,706 940,492 27,214 2.9%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating Expenses
Costs of services and products 318,743 312,306 6,437 2.1%
Selling, general and administrative 187,555 179,242 8,313 4.6%
Depreciation and amortization 177,437 183,221 (5,784) (3.2)%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Total operating expenses 683,735 674,769 8,966 1.3%
- -------------------------------------------- --- ------------- -- ------------- --- -------------
Operating Income $ 283,971 $ 265,723 $ 18,248 6.9%
--- ------------- -- ------------- --- -------------
Operating Margin 29.3% 28.3%
--- ------------- -- -------------
</TABLE>
Net Operating Revenues
Net operating revenues increased 3% in the 1998 year-to-date period from the
same 1997 period. This increase mainly reflects customer access line growth of
6.4% during the past 12 months, offset by decreases in toll service and other
revenues.
Local service revenues, derived from local exchange services, increased 10% in
the 1998 year-to-date period from the same 1997 period. Local service revenues
increased because of access line growth and continued demand for network-based
services. This increase also reflects increased sales of private line services
and maintenance of customer wiring and equipment.
Network access revenues, derived from long distance companies using
Sprint-Florida's local network to complete calls, increased 2% for the 1998
year-to-date period from the same 1997 period. These revenues reflect a 9%
increase in minutes of use, partly offset by FCC-mandated access rate
reductions. Access rate reductions impacting the periods reported took effect in
July 1997 and January and July 1998.
Toll service revenues are mainly derived from providing long distance services
within specified regional calling areas that are beyond the local calling area.
These revenues decreased 30% in the 1998 year-to-date period from the same 1997
period, reflecting extended local calling areas and increased competition in the
intrastate long distance market. These losses were, in part, offset by increases
in the local service revenues since local calling areas have been expanded and
by increases in network access revenues paid by competitors.
Other revenues include telecommunications equipment sales, directory sales and
listing services, and billing and collection services. Other revenues decreased
10% in the 1998 year-to-date period from the same 1997 period. This decrease
mainly reflects a July 1997 change in transfer pricing for certain transactions
between Sprint-Florida and Sprint's product distribution and directory
publishing division to more accurately reflect market pricing. This decrease was
partly offset by increased equipment sales.
<PAGE>
Operating Expenses
Costs of services and products includes costs to operate and maintain the local
network and costs of equipment sales. These expenses increased 2% in the 1998
year-to-date period from the same period a year ago. This reflects continued
cost control, while still supporting customer access line growth and increased
equipment sales. Costs of services and products for 1998 also includes costs
related to Sprint-Florida's efforts to achieve Year 2000 compliance for its
telecommunications network and operating systems. Costs of services and products
was 32.9% of net operating revenues in the 1998 year-to-date period versus 33.2%
for the same period a year ago.
Selling, general and administrative (SG&A) expense increased 5% in the 1998
year-to-date period from the same 1997 period. This increase was mainly due to
increased customer service costs related to access line growth and marketing
costs to promote new products and services. SG&A for 1998 also includes costs
related to Sprint-Florida's efforts to achieve Year 2000 compliance for computer
systems and other items such as billing, customer service, and other
administrative systems. SG&A expense was 19.4% of net operating revenues for the
1998 year-to-date period versus 19.1% for the same period a year ago.
Depreciation and amortization expense decreased 3% in the 1998 year-to-date
period from the same 1997 period. This decrease reflects lower depreciation
rates resulting from longer asset lives, partly offset by an increase in capital
expenditures. Depreciation and amortization expense was 18.4% of net operating
revenues in the 1998 year-to-date period versus 19.4% for the same period a year
ago.
Extraordinary Item
In the 1998 first quarter, Sprint-Florida redeemed, prior to maturity, $115
million of debt with a 9.25% interest rate. This resulted in a $4 million
after-tax loss.
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Year 2000 Issue
- --------------------------------------------------------------------------------
The "Year 2000" issue affects Sprint Corporation's, which includes
Sprint-Florida, installed computer systems, network elements, software
applications, and other business systems that have time-sensitive programs that
may not properly reflect or recognize the year 2000. Because many computers and
computer applications define dates by the last two digits of the year, "00" may
not be properly identified as the year 2000. This error could result in
miscalculations or system errors. The Year 2000 issue may also affect the
systems and applications of Sprint's customers, vendors or resellers.
Sprint started a program in 1996 to identify and address the Year 2000 issue. It
has completed an inventory and Year 2000 assessment of its principal computer
systems, network elements, software applications and other business systems.
Sprint expects to substantially complete the renovation of these computer
systems, software applications and the majority of the network elements and
other business systems by year-end 1998. Year 2000 testing commenced in the
third quarter of 1998 and will be completed during 1999. Sprint is using both
internal and external sources to identify, correct or reprogram, and test its
systems for Year 2000 compliance. Sprint is also contacting others with whom it
conducts business to receive the appropriate warranties and assurances that
those third parties are or will be Year 2000 compliant.
Sprint expects to incur approximately $250 million in 1998 and 1999 to complete
its Year 2000 compliance program. These estimates include costs for Sprint and
all of its subsidiaries. If compliance is not achieved in a timely manner by
Sprint or any significant related third party, the Year 2000 issue could have a
material adverse effect on the operations of Sprint and its subsidiaries. Sprint
is focusing on identifying and addressing all aspects of its operations that may
be affected by the Year 2000 issue and is addressing the most critical
applications first. Although Sprint intends to develop and, if necessary,
implement appropriate contingency plans to mitigate to the extent possible the
effects of any significant Year 2000 noncompliance, such plans may not be
adequate and the cost of Year 2000 compliance may be higher than $250 million.
<PAGE>
PART I
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK Sprint-Florida, Incorporated
Omitted under the provisions of General Instruction H.
<PAGE>
PART II.
Other Information
Item 1. Legal Proceedings
There were no reportable events during the quarter ended September 30,
1998.
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,
1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
SIGNATURES
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 13, 1998
<PAGE>
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-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 447
<SECURITIES> 0
<RECEIVABLES> 210,642
<ALLOWANCES> 4,375
<INVENTORY> 24,424
<CURRENT-ASSETS> 243,216
<PP&E> 3,817,038
<DEPRECIATION> 2,134,760
<TOTAL-ASSETS> 2,010,114
<CURRENT-LIABILITIES> 530,486
<BONDS> 340,533
0
0
<COMMON> 16,250
<OTHER-SE> 844,338
<TOTAL-LIABILITY-AND-EQUITY> 2,010,114
<SALES> 0
<TOTAL-REVENUES> 967,706
<CGS> 0
<TOTAL-COSTS> 496,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,366
<INCOME-PRETAX> 248,719
<INCOME-TAX> 95,467
<INCOME-CONTINUING> 153,252
<DISCONTINUED> 0
<EXTRAORDINARY> (4,437)
<CHANGES> 0
<NET-INCOME> 148,815
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
