<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 1-4166
- - -------------------------------------------------------------
ROCHESTER TELEPHONE CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0613330
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
180 South Clinton Avenue, Rochester, NY 14646-0700
(Address of principal executive offices) (Zip Code)
(716) 777-1000
(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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
$1.00 Par Value Common Stock 73,158,432 as of April 30, 1994
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Part I - Financial Information
==============================
Item 1 - Financial Statements
Presented on the following pages are the
consolidated financial statements of Rochester
Telephone Corporation. In the opinion of management,
the consolidated financial information reflects all
adjustments necessary for a fair presentation of the
financial statements for the interim periods included
herein. There have been no adjustments made in the
interim financial statements which are not of a normal
recurring nature.
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Consolidated Statement of Income (Unaudited)
3 Months Ended
March 31,
In thousands, except per share data 1994 1993
- - ----------------------------------------------------------------------------
Revenues and Sales:
Telephone Operations . . . . . . . . . . . . $150,999 $144,574
Telecommunication Services . . . . . . . . . 90,814 66,395
-------- --------
Total Revenues and Sales . . . . . . . . 241,813 210,969
-------- --------
Costs and Expenses:
Operating expenses . . . . . . . . . . . . . 142,403 121,638
Cost of goods sold . . . . . . . . . . . . . 6,380 5,028
Depreciation . . . . . . . . . . . . . . . . 29,072 28,928
Taxes other than income taxes. . . . . . . . 11,895 11,011
-------- --------
Total Costs and Expenses . . . . . . . . 189,750 166,605
-------- --------
Operating Income . . . . . . . . . . . . . . . 52,063 44,364
Interest expense . . . . . . . . . . . . . . . 10,969 11,810
Other income and expense:
Allowance for funds used during construction 276 370
Other income (expense), net. . . . . . . . . (5,679) (3,625)
-------- --------
Income Before Taxes and Cumulative Effect
of Change in Accounting Principle. . . . . . 35,691 29,299
Income taxes . . . . . . . . . . . . . . . . . 13,289 11,281
-------- --------
Income before cumulative effect of
change in accounting principle . . . . . . . 22,402 18,018
Cumulative effect of change in accounting
principle - accounting for post-employment
benefits . . . . . . . . . . . . . . . . . . (7,197) -
-------- --------
Consolidated Net Income. . . . . . . . . . . . 15,205 18,018
Dividends on preferred stock . . . . . . . . . 297 297
-------- --------
Income Applicable to Common Stock. . . . . . . $ 14,908 $ 17,721
======== ========
Dividends declared on common stock . . . . . . $ 14,815 $ 13,166
Dividends declared per common share. . . . . . $ .405 $ .395
Average common shares outstanding. . . . . . . 35,297 33,332
Earnings Per Common Share:
Primary:
Income before cumulative effect of change
in accounting principle . . . . . . . . $ .63 $ .53
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . (.21) -
-------- --------
Net Earnings Per Common Share . . . . . . $ .42 $ .53
======== ========
<PAGE>
<PAGE>
Fully diluted:
Income before cumulative effect of change
in accounting principle . . . . . . . . $ .62 $ .53
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . (.20) -
-------- --------
Net Earnings Per Common Share . . . . . . $ .42 $ .53
======== ========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Business Segment Information (Unaudited)
3 Months Ended
March 31,
In thousands of dollars 1994 1993
- - ------------------------------------------------------------------------------
Telephone Operations
- - --------------------
Revenues:
Local service . . . . . . . . . . . . . . $ 58,443 $ 55,520
Network access service. . . . . . . . . . 58,863 53,539
Long distance network service . . . . . . 5,816 6,520
Directory advertising, billing
services, and other . . . . . . . . . . 29,277 29,968
Less: Uncollectibles . . . . . . . . . . 1,400 973
---------- ----------
Total Revenues . . . . . . . . . . . . $ 150,999 $ 144,574
========== ==========
Operating Income . . . . . . . . . . . . . . $ 43,611 $ 38,137
========== ==========
Depreciation . . . . . . . . . . . . . . . . $ 25,428 $ 25,078
========== ==========
Construction Expenditures. . . . . . . . . . $ 12,847 $ 15,777
========== ==========
Identifiable Assets (1). . . . . . . . . . . $1,500,667 $1,418,632
========== ==========
Telecommunication Services
- - --------------------------
Sales:
Network Systems & Services:
Non-Affiliate. . . . . . . . . . . . . $ 82,086 $ 60,917
Affiliate. . . . . . . . . . . . . . . 1,893 787
Wireless Communications . . . . . . . . . 9,096 5,421
Eliminations. . . . . . . . . . . . . . . (2,261) (730)
---------- ----------
Total Sales. . . . . . . . . . . . . . $ 90,814 $ 66,395
========== ==========
Operating Income:
Network Systems & Services. . . . . . . . $ 7,680 $ 5,775
Wireless Communications . . . . . . . . . 753 433
Eliminations. . . . . . . . . . . . . . . 19 19
---------- ----------
Total Operating Income . . . . . . . . $ 8,452 $ 6,227
========== ==========
Depreciation . . . . . . . . . . . . . . . . $ 3,644 $ 3,850
========== ==========
Construction Expenditures. . . . . . . . . . $ 5,982 $ 1,174
========== ==========
Identifiable Assets (1). . . . . . . . . . . $ 296,733 $ 195,131
========== ==========
(1) Includes assets eliminated in consolidation of $189,243 in 1994 and
$113,190 in 1993.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Consolidated Balance Sheet
March 31, December 31,
1994 1993
In thousands of dollars (Unaudited)
- - ---------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . $ 137,909 $ 31,284
Short-term investments . . . . . . . . . 157 349
Accounts receivable. . . . . . . . . . . 162,351 157,320
Material and supplies, at cost . . . . . 10,468 11,208
Prepayments and other. . . . . . . . . . 23,009 21,583
---------- ----------
Total Current Assets . . . . . . . . . 333,894 221,744
---------- ----------
Property, Plant and Equipment:
Telephone plant in service . . . . . . . 1,569,801 1,561,032
Telephone plant under construction . . . 35,977 33,048
---------- ----------
1,605,778 1,594,080
Less-Accumulated depreciation. . . . . . 673,202 652,578
---------- ----------
Net Telephone Plant. . . . . . . . . . 932,576 941,502
---------- ----------
Telecommunications property. . . . . . . 156,364 153,954
Less-Accumulated depreciation. . . . . . 71,491 68,265
---------- ----------
Net Telecommunications Property. . . . 84,873 85,689
---------- ----------
Goodwill. . . . . . . . . . . . . . . . . . 165,157 166,283
---------- ----------
Deferred and Other Assets . . . . . . . . . 91,657 94,983
---------- ----------
Total Assets . . . . . . . . . . . . . $1,608,157 $1,510,201
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . $ 140,337 $ 147,152
Notes payable. . . . . . . . . . . . . . 106 303
Advance billings . . . . . . . . . . . . 11,073 12,572
Dividends payable. . . . . . . . . . . . 15,113 14,058
Long-term debt due within one year . . . 3,665 3,962
Taxes accrued. . . . . . . . . . . . . . 18,415 14,729
Interest accrued . . . . . . . . . . . . 12,447 13,583
---------- ----------
Total Current Liabilities. . . . . . . 201,156 206,359
---------- ----------
Long-Term Debt. . . . . . . . . . . . . . . 482,456 492,555
---------- ----------
Deferred Income Taxes . . . . . . . . . . . 111,723 116,967
---------- ----------
Deferred Benefits . . . . . . . . . . . . . 26,789 16,121
---------- ----------
Minority Interests. . . . . . . . . . . . . 3,257 3,100
---------- ----------
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Consolidated Balance Sheet
March 31, December 31,
1994 1993
In thousands of dollars (Unaudited)
- - ------------------------------------------------------------------------------
Shareowners' Equity:
Common stock . . . . . . . . . . . . . . 36,574 34,025
Capital in excess of par value . . . . . 304,434 201,591
Retained earnings. . . . . . . . . . . . 418,983 418,889
---------- ----------
759,991 654 505
Less - Treasury stock, at cost . . . . . - 2,191
---------- ----------
Common Shareowners' Equity . . . . . . 759,991 652,314
Preferred stock. . . . . . . . . . . . . 22,785 22,785
---------- ----------
Total Shareowners' Equity. . . . . . . 782,776 675,099
---------- ----------
Total Liabilities and Shareowners'
Equity. . . . . . . . . . . . . . $1,608,157 $1,510,201
========== ==========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
ROCHESTER TELEPHONE CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
<CAPTION>
3 Months Ended
March 31,
In thousands of dollars 1994 1993
- - --------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Income before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . $ 22,402 $ 18,018
Cumulative effect of change in accounting principle. . . . . . . (7,197) -
--------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 15,205 18,018
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 33,783 31,489
Gain on sale of assets. . . . . . . . . . . . . . . . . . . . . (467) (1,037)
Cumulative effect of change in accounting principle . . . . . . 11,072 -
Changes in operating assets and liabilities, exclusive
of impacts of purchase acquisitions:
(Increase) in accounts receivable. . . . . . . . . . . . . . . (1,816) (1,722)
Decrease in material and supplies. . . . . . . . . . . . . . . 740 418
(Increase)/Decrease in prepayments and other current assets. . (1,426) 1,202
(Increase) in deferred and other assets. . . . . . . . . . . . (6,314) (7,636)
(Decrease) in accounts payable . . . . . . . . . . . . . . . . (10,455) (10,825)
(Decrease) in advance billings . . . . . . . . . . . . . . . . (1,499) (1,683)
Increase in accrued interest and taxes . . . . . . . . . . . . 3,254 2,393
Increase in deferred postretirement benefits obligation. . . . 2,536 4,470
(Decrease) in deferred income taxes. . . . . . . . . . . . . . (604) (228)
-------- --------
Total Adjustments. . . . . . . . . . . . . . . . . . . . . . 28,804 16,841
-------- --------
Net Cash Provided by Operating Activities. . . . . . . . . . . . 44,009 34,859
-------- --------
Cash Flows from Investing Activities
Expenditures for property, plant and equipment, net. . . . . . . (19,359) (14,982)
Decrease in short-term investments. . . . . . . . . . . . . 192 98
Investment in cellular . . . . . . . . . . . . . . . . . . . . . (8) (993)
-------- --------
Net Cash (Used in) Investing Activities . . . . . . . . . . . . (19,175) (15,877)
-------- --------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ROCHESTER TELEPHONE CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
<CAPTION>
3 Months Ended
March 31,
In thousands of dollars 1994 1993
- - --------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Financing Activities
(Decrease)/Increase in notes payable . . . . . . . . . . . . . . (197) 109
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . - 34,700
Repayments of long-term debt . . . . . . . . . . . . . . . . . . (10,433) (41,244)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (14,056) (13,462)
Issuance of treasury stock . . . . . . . . . . . . . . . . . . . 2,302 -
Issuance of common stock . . . . . . . . . . . . . . . . . . . . 104,018 -
Minority interests . . . . . . . . . . . . . . . . . . . . . . . 157 68
-------- --------
Net Cash Provided by (Used in) Financing Activities . . . . . . 81,791 (19,829)
-------- --------
Net Increase/(Decrease) in Cash and Cash Equivalents. . . . . . . . 106,625 (847)
Cash and Cash Equivalents at Beginning of Period. . . . . . . . . . 31,284 69,347
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . . . . $137,909 $ 68,500
======================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1: Consolidation
-------------
The consolidated financial information includes the
accounts of Rochester Telephone Corporation and its
affiliates (the "Company"). The Company reports its
operations in two segments: Telephone Operations and
Telecommunication Services. Telephone Operations is
comprised of 37 local telephone operating companies.
Telecommunication Services is segregated within the
Business Segment Information into two general lines of
business: 1) Network Systems and Services and 2)
Wireless Communications. Intercompany transactions
have been eliminated except for intercompany profit on
regulated company purchases (affiliate sales) from
Telecommunication Services. In the opinion of
management, prices charged by Telecommunication
Services are comparable to prices the regulated
companies would be required to pay other suppliers.
Note 2: Income Taxes
------------
The Company files a consolidated federal income
tax return.
The provision for income taxes consists of the
following (in thousands):
3 Months Ended
March 31,
1994 1993
---- ----
Federal
Current $13,182 $ 9,801
Deferred (1,519) 218
------- -------
$11,663 $10,019
------- -------
State
Current $ 1,778 $ 1,251
Deferred (152) 11
------- -------
$ 1,626 $ 1,262
------- -------
Total $13,289 $11,281
======= =======
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 2: Income Taxes (Cont.)
--------------------
Deferred income taxes have not been provided by
Telephone Operations for flow-through of temporary
differences where the regulatory agencies permit only
taxes actually paid to be recognized. At March 31,
1994, the cumulative balance of tax reductions not
previously offset by provisions for deferred federal
income taxes amounted to $48 million. Similarly, the
cumulative balances of tax reductions not previously
offset by provisions for deferred state income taxes
amounted to $20 million at March 31, 1994. Consistent
with the provisions of Financial Accounting Standards
Board Statement No. 109 (FAS 109), "Accounting for
Income Taxes," a deferred tax liability and a long-term
deferred asset have been recorded to reflect the impact
applicable to these cumulative reductions and the future
revenue to be recovered when these taxes become payable.
Note 3: Cash Flows
----------
For purposes of the Statement of Cash Flows, the
Company considers all highly-liquid investments with a
maturity of three months or less when purchased to be
cash equivalents.
Actual interest paid was $12.1 million and $14.5
million for the three month periods ended March 31,
1994, and March 31, 1993, respectively. In addition,
actual income taxes paid were $6.9 million for the three
months ended March 31, 1994, and $2.4 million for the
three months ended March 31, 1993.
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 4: Stock Split
-----------
In November 1993, the Board of Directors approved
a 2-for-1 split of the Company's common stock effected
in the form of a 100 percent stock dividend with no
change in the $1.00 per share par value. The New York
State Public Service Commission approved the split in
March of 1994. The record date for the split was
April 15, 1994, and distribution of certificates began
on April 29, 1994.
Note 5: Earnings Per Share
------------------
Average common shares outstanding include amounts
for common stock equivalents resulting from stock
options outstanding at March 31, 1994, and March 31,
1993.
Primary earnings per common share amounts are
calculated by dividing Income Applicable to Common
Stock by the weighted average common shares and common
share equivalents outstanding, as applicable, during
each period. Earnings per share on a fully diluted
basis are computed as set forth in Exhibit 11.
Note 6: Stock Option Plans
------------------
In 1992 the Company implemented a Directors Stock
Option Plan and an Executive Stock Option Plan. Under
the plans, which were approved by shareowners in 1990,
the Company may issue a maximum of 400,000 shares of
common stock over a ten-year period.
Under both plans, the exercise price is the fair
market value of the stock on the date of the grant of
the stock option. One third of the options become
exercisable on the first year anniversary of the grant
date. Another third become exercisable on the second
year anniversary and the final third become
exercisable on the third year anniversary of the grant
date. The options expire ten years after the date of
grant.
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 6: Stock Option Plan Cont.
-----------------------
Information with respect to options under the above
plans follows:
Option Price
Shares Per Share Aggregate
------ ------------ ---------
Outstanding at
Dec 31, 1993 171,360 $ 6,240,083
Granted 146,200 $42.375 6,195,225
Exercised (483) $31.50-$31.375 (15,173)
------- -----------
Outstanding at
March 31, 1994 317,077 $12,420,135
======= ============
At March 31, 1994, 48,215 shares were exercisable and
81,331 shares were available for future grant.
Note 7: Stock Offering
--------------
In February of 1994, the Company sold 5.4 million
shares of its common stock at $42 per share in a public
offering. As part of the offering, 2,549,000 new shares
were issued and sold directly by the Company and 2,885,000
shares were sold by C FON Corporation, a wholly-owned
subsidiary of Centel Corporation, which is a wholly-owned
subsidiary of Sprint Corporation.
If approved by the New York State Public Service
Commission (NYSPSC), net proceeds from the offering may be
used for general corporate purposes, including expansion of
the Company's lines of business.
Note 8: Postemployment Benefits
-----------------------
In 1992, the Financial Accounting Standards Board
released Statement No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112) which was required to be
implemented by January 1, 1994. FAS 112 requires that
projected future costs of providing postemployment but
pre-retirement benefits, such as disability, pre-pension
leave (salary continuation) and severance pay, be
recognized as an expense as employees render service rather
than when the benefits are paid.
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
The Company adopted the provisions of FAS 112
effective January 1, 1994. The Company recognized the
obligation for postemployment benefits through a
cumulative effect charge to net income of $7.2
million, net of taxes of $3.9 million. The adoption
of FAS 112 is not expected to significantly impact
future operating expense or the Company's cash flow.
Note 9: Commitments and Contingencies
-----------------------------
It is anticipated that the Company will expend
$80.0 million for additions to property, plant, and
equipment during 1994. In connection with this
construction program, the Company has made certain
commitments for the purchase of material and
equipment.
The NYSPSC issued an order on July 6, 1993 which
imposed a royalty on Rochester Tel in the amount of
two percent of the total capitalization of Rochester's
unregulated operations. Based upon an initial
interpretation of the Order, Rochester estimates that
its effect is in the range of $2.0 million per year.
The Company has filed a legal challenge to the
Commission's action on the royalty proposal in the
courts. If ultimately upheld in the courts, the
royalty would be treated as an offset to the
Rochester, New York operating company's regulated
revenue requirement from regulated intrastate
telephone operations. The Company is vigorously
contesting this case but cannot predict the outcome
with any certainty at this time.
In February 1993, the Company filed a petition for
reorganization with the NYSPSC. The request is
twofold, first establishing two new subsidiary
companies to be constituted from the operating assets
of the existing Rochester operating telephone
company. One company would be a competitive
telecommunications company which would provide an
array of services on a retail basis in the Rochester
marketplace. This company would have the flexibility
to price and introduce services as necessary to
compete. The second company would be a wholesale
network company which would be regulated and would
provide services to the new competitive subsidiary
<PAGE>
<PAGE>
ROCHESTER TELEPHONE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
company and all other telecommunications providers on
an equal basis. This configuration, unique in the
telecommunications industry, is being proposed to
better meet the current and emerging competition in
the marketplace.
The second aspect of the petition involves the
Company's request to reorganize into a holding company
structure. Under this approach, the Company would
create a new unregulated holding company for the
consolidated organization. This structure would
provide the financing flexibility to continue
acquisition and diversification efforts necessary for
the long-term growth of the business. The Company and
other interested parties are currently engaged in
settlement negotiations which may, if successful,
alter some of the provisions of the plan as originally
proposed in the February 1993 filing. The Company
will aggressively pursue approval of this plan of
reorganization or a reasonable settlement altering the
plan, but it cannot predict the outcome.
On March 12, 1993, the Company signed a definitive
agreement with a subsidiary of NYNEX Corporation to
form a cellular supersystem joint venture in upstate
and western New York State that will provide cellular
telephone customers with expanded geographic
coverage. The supersystem will include the cellular
markets in Buffalo, Rochester, Syracuse, Utica-Rome
and New York Rural Service Area #1, which includes
Jefferson, St. Lawrence and Lewis counties. The
proposed structure of the transaction is a 50/50 joint
venture partnership, with Rochester Tel Cellular as
the manager. The joint venture is expected
to begin operating in
the third quarter of 1994. On December 21, 1993, the
Company and NYNEX announced their intention to include
the Binghamton and Elmira areas in the supersystem.
<PAGE>
<PAGE>
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 1994 and 1993
==========================================
OVERVIEW
========
Consolidated operating income increased $7.7
million, or 17.4 percent, for the three months ended
March 31, 1994 over the comparable period in 1993.
Operating income from Telecommunication Services
increased $2.2 million or 35.7 percent, while
Telephone Operations increased $5.5 million, or 14.4
percent, over the respective period in 1993. Income
before the cumulative effect of a change in accounting
principle for the first quarter of 1994 was $22.4
reflecting an increase of $4.4 million, or 24.3
percent, when compared to the corresponding quarter in
1993. Consolidated net income, after the cumulative
effect of a change in accounting principle, of $15.2 million
for the first quarter of 1994 decreased $2.8 million,
or 15.6 percent, when compared to the corresponding
quarter in 1993.
In January 1994, the Company adopted Financial
Accounting Standards Board Statement No. 112 (FAS
112), "Employers' Accounting for Postemployment
Benefits." The Company recognized the obligation for
postemployment benefits through a cumulative effect
charge to net income of $7.2 million, net of taxes of
$3.9 million. The adoption of FAS 112 is not expected
to significantly impact future operating expense on
the Company's cash flow.
Primary earnings before the cumulative effect of a
change in accounting principle per average common
share were $.63 in the first quarter of 1994. This
represents an increase of $.10 per share or 18.9% over
the comparable quarter in 1993. The impact of the
adoption of FAS 112 on primary earnings was $.21 per
share during the first quarter of 1994. Primary
earnings after the cumulative effect of a change in
accounting principle per average common share were
$.42 in the first quarter of 1994. This represents a
decrease of $.11 per share over the comparable quarter
in 1993. Average common shares outstanding in the
first quarter of 1994 were 35.3 million, 2.0 million
shares more outstanding than the first quarter of
1993, chiefly as a result of the equity offering
described in Footnote 7 to the Financial Statements
set forth in Part I, Item 1.
<PAGE>
<PAGE>
FINANCIAL REVIEW
================
Revenues and Sales
- - ------------------
Total revenues and sales for the first quarter of
1994 were $241.8 million, an increase of $30.8
million, or 14.6 percent over 1993. Revenues from
Telephone Operations for the first quarter of 1994
increased $6.4 million, or 4.4 percent, over the
comparable period in 1993. Local telephone service
revenues increased $2.9 million, or 5.3 percent,
primarily as a result of an increase in access lines,
higher Custom Calling Features revenue and rate
increases received in Minnesota and Iowa. Network
access and long distance network service revenues
increased $4.6 million, or 7.7 percent, in the first
quarter of 1994, primarily due to higher switched
access revenue and higher toll service rates.
Sales from Telecommunication Services increased
$24.4 million, or 36.8 percent, in the first quarter
of 1994 when compared to the corresponding quarter in
1993. An increase of $22.3 million, or 36.1 percent,
in Network Systems and Services was the major
contributor to this improvement. The increase in
revenues is due to increased usage, the growth of the
Casual Calling Program, price increases and the impact
of the acquisitions of Budget Call in June 1993 and
Mid Atlantic Telecom in September 1993.
Costs and Expenses
- - ------------------
Total consolidated costs and expenses increased
$23.1 million, or 13.9 percent, in the first quarter
of 1994 when compared to the same period in 1993.
Consolidated operating expenses increased $20.8
million, or 17.1 percent, primarily as a result of
higher access charges relating to the increase in long
distance revenues. Telephone operating expenses were
virtually flat quarter to quarter. Total costs and
expenses for the regional telephone companies
increased by only 2.6 percent in the quarter, a
reflection of continuing expense control and operating
synergies between the companies. Expenses at the
Rochester operating company decreased 1.3 percent, a
result of ongoing workforce reductions and
efficiencies.
<PAGE>
<PAGE>
Operating Income
- - ----------------
Operating income from Telephone Operations
increased $5.5 million, or 14.4 percent, in the first
quarter of 1994 when compared to the corresponding
quarter in 1993. The regional telephone companies led
the operating income performance in this business
segment with a 24.1 percent increase in operating
income primarily due to increased revenues in the
Midwest Region. This resulted in a 34.5 percent
operating margin, or a 4.2 percentage point
improvement over the first quarter of 1993. At the
Rochester operating company, operating income
increased 1.6 percent primarily due to lower wages and
benefits resulting from lower work force levels.
Operating income from Telecommunication Services
increased $2.2 million, or 35.7 percent, in the first
quarter of 1994 when compared to the corresponding
quarter in 1993. The Network Systems and Services
business segment operating income increased 33.0
percent in 1994 versus the first quarter of 1993 due
to the substantial increase in long distance
revenues. In the Wireless segment, operating income
increased modestly, as a result of lower operating
expenses and an increase in the customer base.
Interest Expense
- - ----------------
For the three months ended March 31, 1994, interest
charges decreased $.8 million, or 7.1 percent, over
the comparable period in 1993. This decrease is the
result of lower interest rates and lower debt balances
for the three month period ended March 31, 1994 when
compared to the same period in 1993.
Income Taxes
- - ------------
Consolidated income taxes increased $2.0 million,
or 17.8 percent, in the first quarter of 1994 when
compared to the corresponding period in 1993. The
majority of this increase is due to higher income.
The effective income tax rate was 37.2 percent for the
three month period ended March 31, 1994, as compared
to 38.5 percent for the period ended March 31, 1993.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
===============================
Cash and Cash Equivalents
- - -------------------------
At March 31, 1994, the Company had $137.9
million in cash and cash equivalents compared to
$31.2 million at December 31, 1993, an increase of
$106.7 million resulting mainly from the equity
offering as described in Footnote 7 to the
Financial Statements set forth in Part I, Item 1.
See the Consolidated Statement of Cash Flows for
additional information.
Debt
- - ----
Debt, including notes payable, totaled $486.2
million at March 31, 1994, a decrease of $10.6
million from December 31, 1993. This decrease was
a result of debt retirement during the first three
months of 1994.
Debt Ratio and Interest Coverage
- - --------------------------------
The Company's debt ratio (total debt as a
percent of total capitalization) was 38.3 percent
at the end of March 31, 1994, versus 42.4 percent
at the end of 1993. Pre-tax interest coverage
before the cumulative effect of a change in
accounting principle was 4.3 times for the first
three months ended March 1994 compared to 3.5
times at the end of 1993.
Construction Spending
- - ---------------------
The Company plans to spend a total of $80.0
million on capital expenditures in 1994.
Telephone Operations plans to spend $59.5 million
and Telecommunication Services plans to spend
$20.5 million. The Company has a number of
financing options available to fund its capital
expenditures, including the use of internally
generated funds and the issuance of additional
debt or equity.
Dividends
- - ---------
On March 21, 1994, the Board of Directors
declared the first quarter 1994 regular dividend
of 40.5 cents per share on the Company's common
stock, payable May 2, 1994, to shareowners of
record on April 15, 1994.
<PAGE>
<PAGE>
OTHER ITEMS
===========
Open Market Plan
- - ----------------
In February 1993, the Company filed a widely
recognized innovative proposal with the New York State
Public Service Commission that would result in opening
the Rochester, New York local exchange market to
competition and simultaneously allow Rochester Tel to
form a holding company. The Company's proposal is
called the "Open Market Plan". The plan would enable
customers in the Rochester, New York service territory
to select their local telephone service provider and
have a much broader selection of products, services
and prices.
The Company proposed to divide the current
Rochester, New York operating company into two
subsidiaries which would be wholly owned by an
unregulated parent holding company. One of the two
subsidiaries would be a regulated network facilities
provider that would sell and market wholesale network
services to retailers of telecommunication services.
The second subsidiary would be a retail company which
would provide an array of communication services on a
competitive basis to residential and business
customers in the Rochester, New York marketplace.
This structure would enable the Rochester, New York
operating company to respond more promptly to changes
in its marketplace and customer demands.
Informational meetings have been held with the Staff
of the New York State Public Service Commission and
all intervening parties. The Company and these
interested parties may reach a negotiated settlement
which would alter some of the provisions of the
original "Open Market Plan" filing as discussed
above. The Company will aggressively pursue approval
of the "Open Market Plan" but cannot predict whether
or when it will be approved by the Commission, and, if
so, in what form.
<PAGE>
<PAGE>
Regulatory Proceedings
- - ----------------------
In 1986, the Company and the New York State Public
Service Commission entered into an agreement which
allowed the Company to pursue certain acquisitions and
investments without further Commission approval. This
agreement was amended in 1987, 1989 and 1991. The
1991 amendment preceded the acquisition of the Vista
Telephone properties in Minnesota and Iowa from Centel
Corporation. Certain portions of the amendment
expired in June 1993, and at the request of the
Company, the Commission extended the amendment to
December 1993. It is anticipated that resolution of
the Company's Open Market Plan filing and the
associated provision allowing Rochester Tel to form a
Holding Company would eliminate the necessity of this
agreement. Until the Open Market Plan proposal is
resolved, effective January 1, 1994, the Company must
petition the Commission for approval of future
acquisitions.
In 1984, the New York State Public Service
Commission initiated a proceeding to investigate
whether or not the Company's unregulated subsidiaries
should pay a royalty to the Rochester, New York
operating company for alleged intangible benefits
received from the use of the Rochester Telephone name
and reputation. The proceeding was reopened in 1990.
In its Opinion and Order in Case 87-C-8959, issued
July 6, 1993, the Commission, by a three-to-two vote,
imposed a royalty in the amount of two percent of the
total capitalization of Rochester Tel's unregulated
operations. The Commission attempted to justify the
royalty on essentially two bases: first, that
ratepayers are entitled to protection from the
potential for cost miscalculations and the increased
risks that accompany diversification; and second, that
the Company's unregulated operations benefit from
their use of the Rochester Telephone name and
reputation. The Commission rejected the Company's
statutory and constitutional defenses and concluded
that it possessed the authority under the Public
Service Law to impose a royalty.
<PAGE>
<PAGE>
Based upon an initial interpretation of the Order,
Rochester Tel estimates that the effect of the Order
is in the range of $2 million per year. The royalty
would reduce the Rochester, New York operating
company's revenue requirement from regulated
intrastate telephone operations. The Commission
ordered Rochester Telephone to file an accounting plan
for the royalty amount, together with a plan for
returning such amount to ratepayers. The Company
vigorously disagrees with the Commission's
determination and has sought judicial review of the
Commission's Opinion and Order. The timing and
outcome of the appeal process cannot be predicted.
The Company intends to fully prosecute its appeal in
the courts.
On March 12, 1993, the Company signed a definitive
agreement to form a joint venture with New York
Cellular Geographic Service Area, Inc., a subsidiary
of NYNEX Corporation, to create an upstate New York
cellular supersystem that will include the Buffalo,
Rochester, Syracuse, Utica-Rome and NY Rural Service
Area #1 markets. The parties have sought a waiver of
the interLATA prohibition contained in the AT&T
consent decree, United States V. American Telephone
and Telegraph Co., 552 F. Supp. 131 (D.D.C. 1982),
aff'd mem., 460 U.S. 1001 (1983). Approval on the
waiver request is anticipated in mid 1994.
On May 18, 1993, the Company filed for approval to
form the venture from the New York State Public
Service Commission. This filing included a petition
to transfer the Rochester, New York operating
company's interest in the Rochester wireless cellular
business to its wholly-owned subsidiary, Rochester Tel
Mobile Communications Inc. The Commission approved
the entire transaction and transfer at its open
session on November 10, 1993 and issued an order dated
December 10, 1993.
In addition, the joint venture parties filed
applications with the Federal Communications
Commission to transfer various radio licenses
associated with the cellular properties. These
applications were approved in April 1994. Rochester Tel Mobile
Communications, Inc. and NYNEX have signed an agreement allowing
RTMC to manage the combined properties. The joint venture is
expected to begin operating in the third quarter of 1994.
<PAGE>
<PAGE>
Incentive Regulation
- - --------------------
The incentive regulation agreement which the New
York State Public Service Commission approved in
January 1990 for the Rochester, New York operating
company expired at the end of 1992. The Rochester,
New York operating company proposed a new incentive
regulation agreement in January 1993 to the Commission
staff, and reached a settlement, which was approved by
the Commission on February 17, 1994. The settlement
reduces the Rochester, New York operating company's
revenue requirement by $5 million in 1993 and $9.5
million in 1994. Each of these reductions is subject
to adjustment for depreciation changes and the outcome
of the New York State Public Service Commission's
Generic Financing Proceeding. In 1994, fifty percent
of the Rochester, New York operating company's
earnings above the authorized return on equity will be
shared with ratepayers. The authorized return is
currently 10.9% and is subject to adjustment based on
the results of the Generic Financing Proceeding.
Also, if the Rochester, New York operating company's
service levels in 1994 drop below 1992 levels, the
Company will be subject to a penalty of one-half of
one percent of its local service and intraLATA toll
revenues.
Part II - Other Information
===========================
Item 1 - Legal Proceedings
On June 11, 1992, a group of corporate plaintiffs
consisting of Cooper Industries, Inc., Keystone
Consolidated Industries, Inc., The Monarch Machine
Tool Company, Niagara Mohawk Corporation, and Overhead
Door Corporation commenced an action in the United
States District Court for the Northern District of New
York seeking contribution from Rotelcom Inc., a
wholly-owned subsidiary of the registrant held through
intervening subsidiaries, and fourteen other corporate
defendants seeking contribution for environmental
"response costs" in the approximate amount of $1.5
million incurred by the plaintiffs pursuant to a
decree entered into by plaintiffs with the United
States Environmental Protection Agency.
The consent decree concerned the clean-up of an
environmental Superfund site located in Cortland, New
York. It is alleged that the corporate defendants
disposed of hazardous substances at the site and are
therefore liable under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA).
The action is currently in discovery. Rotelcom Inc.
has been vigorously defending this lawsuit. However,
the Company is unable to predict the outcome at this
time.
<PAGE>
<PAGE>
In its Opinion and Order in Case 87-C-8959, issued
July 6, 1993, the New York State Public Service
Commission (NYSPSC), by a three-to-two vote, imposed a
royalty upon the Company in the amount of two percent
of the total capitalization of the Company's
unregulated operations. The NYSPSC justified the
royalty on two grounds: first, that ratepayers are
entitled to protection from the potential for cost
misallocations and increased risk that accompany
diversification of the Company's basic telephone
business; and second, that the Company's unregulated
operations benefit from their use of the Rochester
name and reputation. The NYSPSC rejected the
Company's statutory and constitutional defenses and
concluded that it possessed the authority under the
Public Service Law to impose a royalty and that its
imposition is not unconstitutional. Based upon an
initial interpretation of the Order, the Company
estimates that its potential effect is in the range of
two million dollars per year. The royalty, if
implemented, would be an imputation against the
Rochester, New York operating company's revenue
requirement from regulated intrastate operations. The
NYSPSC ordered the Rochester, New York operating
company to file, by August 5, 1993, an accounting plan
to account for the royalty amount, together with a
plan for returning such amount to ratepayers.
Although the Rochester, New York operating company
requested the NYSPSC to waive this requirement, the
NYSPSC denied this request. In compliance with the
order of the NYSPSC, on August 5, 1993, the Rochester,
New York operating company filed its plan.
On August 6, 1993, the Rochester, New York
operating company filed with Supreme Court, Albany
County, its petition pursuant to Article 78 of the New
York Civil Practice Law and Rules seeking judicial
review of the NYSPSC's Opinion and Order. By order
dated October 7, 1993, this proceeding was transferred
to the Appellate Division, Third Department. The
Company filed its Brief on December 16, 1993.
Respondents' briefs were filed on February 28, 1994,
and reply briefs were filed on March 16, 1994. Oral
argument was held on April 26, 1994. The Company is
vigorously contesting this case and is of the opinion
that it will ultimately prevail, but cannot predict
the outcome with any certainty at this time.
<PAGE>
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Share Owners held on April
27, 1994, the shareowners voted on the election of 12
Directors (constituting the entire Board of Directors)
and the independent auditors for the year 1994. The
results were as follows:
Election of Directors For Withheld
- - --------------------- ---------- --------
1. Patricia C. Barron 29,365,420 335,488
2. Ronald L. Bittner 29,474,347 226,561
3. John R. Block 29,238,107 462,801
4. Harlan D. Calkins 29,322,611 378,297
5. Brenda E. Edgerton 29,352,640 348,268
6. Jairo A. Estrada 29,534,985 165,923
7. Daniel E. Gill 29,389,733 311,175
8. Alan C. Hasselwander 29,540,002 160,906
9. Douglas H. McCorkindale 29,353,700 347,208
10. Richard P. Miller, Jr. 29,379,529 321,379
11. Leo J. Thomas 29,519,173 181,735
12. Michael T. Tomaino 29,383,319 317,589
Election of Price Waterhouse as independent auditors
for the fiscal year 1994.
For Against Abstain
--- ------- -------
29,325,483 270,583 104,572
Amendment No. 3 to the Supplemental Retirement Savings
Plan to add Company common stock as an investment
vehicle for Plan participants.
For Against Abstain
--- ------- -------
28,082,195 1,035,913 582,800
Restated Executive Stock Option Plan which, among
other modifications, increased from 300,000 to
1,000,000 the number of authorized shares which are
available for option grants.
For Against Abstain
--- ------- -------
26,174,920 2,920,018 605,970
<PAGE>
<PAGE>
Amendment No. 1 to the Directors Stock Option Plan
which, among other modifications, increased the annual
grant to outside Directors from 1,000 to 2,000 options
and increased from 100,000 to 500,000 the number of
authorized shares which are available for option
grants.
For Against Abstain
--- ------- -------
25,913,449 3,147,134 640,325
Directors' Common Stock Deferred Growth Plan which
allows Directors to defer Board compensation in
Company common stock.
For Against Abstain
--- ------- -------
27,721,950 1,384,023 594,935
There was no other action taken at the meeting.
<PAGE>
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10-41 - Copy of Restated Executive Stock
Option Plan
10-42 - Copy of Amendment No. 1 to the
Directors Stock Option Plan
10-43 - Copy of Amendment No. 1 to the
Directors Common Stock Deferred
Growth Plan
10-44 - Copy of Amendment No. 2 to the Plan
for the Deferral of Directors Fees
11 - Computation of Earnings per Share
of Common Stock on a Fully Diluted
Basis (Unaudited)
(b) Reports on Form 8-K
The Company filed one Form 8-K during the
quarter ended March 31, 1994 and through the
filing date of this Form 10-Q as follows:
SEC Filing Date Item No. Financial Statements
--------------- -------- --------------------
January 19, 1994 Item 5 Audited consolidated
balance sheets and
consolidated
statements of
income, shareowners'
equity and cash
flows as of December
31, 1993, 1992 and
1991.
<PAGE>
<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.
ROCHESTER TELEPHONE CORPORATION
-------------------------------
(Registrant)
Dated: May 12, 1994 By /s/Louis L. Massaro
--------------------------------
Louis L. Massaro
Corporate Vice President-
Finance and Treasurer
(and Principal
Financial Officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- - ------- -----------
10-41 Copy of Restated Filed herewith
Executive Stock Option Plan
10-42 Copy of Amendment No. 1 Filed herewith
to the Directors Stock
Option Plan
10-43 Copy of Amendment No. 1 Filed herewith
to the Directors Common
Stock Deferred Growth Plan
10-44 Copy of Amendment No. 2 Filed herewith
to the Plan for the
Deferral of Directors Fees
11 Computation of Earnings Filed herewith
per Share of Common Stock
on a Fully Diluted Basis
(Unaudited)
<PAGE>
<PAGE>1
EXHIBIT 10-41
ROCHESTER TELEPHONE CORPORATION
RESTATED EXECUTIVE STOCK OPTION PLAN
1. PURPOSE
The purpose of this amended and restated Rochester
Telephone Corporation Executive Stock Option Plan (the "Plan")
is to enable the Company to attract and retain key employees
and provide them with an incentive to maintain and enhance the
Company's long-term performance record. It is intended that
this purpose will best be achieved by granting eligible key
employees incentive stock options ("ISO's") and/or
non-qualified stock options ("NQSO's") under this Plan pursuant
to the rules set forth in Sections 83 and 422 of the Internal
Revenue Code, as amended from time to time.
2. ADMINISTRATION
The Plan shall be administered by a committee
consisting of two or more members of the Company's Board of
Directors (the "Committee") none of which during the twelve
months prior to commencement of service on the Committee, or
during such service, has been granted or awarded any equity,
security or derivative security of the Company pursuant to the
Plan or, except as permitted by Rule 16 b-3 (c)(2)(i) pursuant
to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any other plan of the Company. Subject to the
provisions of the Plan, the Committee shall possess the
authority, in its discretion, (a) to determine the key
employees of the Company to whom, and the time or times at
which, ISO's and/or NQSO's (collectively referred to as
"options") shall be granted and the number of shares to be
subject to each option; (b) to determine at the time of grant
whether an option will be an ISO or a NQSO; (c) to prescribe
the form of the option agreements and any appropriate terms and
conditions applicable to the options; (d) to interpret the
Plan; (e) to make and amend rules and regulations relating to
the Plan; and (f) to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's
determinations shall be conclusive and binding. No member of
the Committee shall be liable for any action taken or decision
made in good faith relating to the Plan or any option granted
hereunder.
<PAGE>
<PAGE>2
3. ELIGIBLE KEY EMPLOYEES
Options may be granted under the Plan only to key
employees of the Company and its subsidiaries (which shall
include all corporations of which at least fifty percent of the
voting stock is owned by the Company directly or through one or
more corporations at least fifty percent of the voting stock of
which is so owned) who have the capability of making a
substantial contribution to the success of the Company.
Beneficial owners of more than five percent of the common stock
of the Company are not eligible to receive any options under
this Plan.
4. SHARES AVAILABLE
An aggregate of 1,000,000 shares of the Common
Stock (par value $1.00 per share) of the Company (subject to
substitution or adjustment as provided in Section 8 hereof)
shall be available for the grant of options under the Plan.
Such shares may be authorized and unissued shares. If an
option expires, terminates or is cancelled without being
exercised, new options may thereafter be granted covering such
shares. No option may be granted more than ten years after the
effective date of the Plan.
5. TERMS AND CONDITIONS OF ISO's
Each ISO granted under the Plan shall be
evidenced by an ISO option agreement in such form as the
Committee shall approve from time to time, which agreement
shall conform with this Plan and contain the following terms
and conditions:
(a) Exercise Price. The exercise price under
each option shall equal the fair market value of the
Common Stock at the time such option is granted, or,
if there was no trading in such stock on the date of
such grant, the closing price on the last preceding
day on which there was such trading.
(b) Duration of Option. Each option by its
terms shall not be exercisable after the expiration
of ten years from the date such option is granted.
(c) Options Nontransferable. Each option by its
terms shall not be transferable by the optionee
otherwise than by will or the laws of descent and
distribution, and shall be exercisable, during the
optionee's lifetime, only by the optionee, the
optionee's guardian or the optionee's legal
representative.
<PAGE>
<PAGE>3
(d) Exercise Terms. Each option granted under
the Plan shall become exercisable with respect to
33 1/3 percent of the shares subject thereto on the
first anniversary of the date of grant and with
respect to an additional 33 1/3 percent of such shares
on each of the second and third anniversaries of such
date of grant. Options may be partially exercised
from time to time during the period extending from the
time they first become exercisable until the tenth
anniversary of the date of grant.
No outstanding option may be exercised by
any person if the Employee to whom the option is
granted is, or at any time after the date of grant has
been, in competition with the Company or an affiliated
company, including Upstate Partners. The Committee
has the sole discretion to determine whether an
employee's actions constitute competition with the
Company or an affiliated company, including Upstate
Partners. The Committee may impose such other terms
and conditions on the exercise of options as it deems
appropriate to serve the purposes for which this Plan
has been established.
(e) Maximum Value of ISO Shares. No ISO shall
be granted to an employee under this Plan or any other
ISO plan of the Company or its subsidiaries to
purchase shares as to which the aggregate fair market
value (determined as of the date of grant) of the
Common Stock which first become exercisable by the
employee in any calendar year exceeds $100,000.
(f) Payment of Exercise Price. An option shall
be exercised upon written notice to the Company
accompanied by payment in full for the shares being
acquired. The payment shall be made in cash, by check
or, if the option agreement so permits, by delivery of
shares of Common Stock of the Company registered in
the name of the optionee, duly assigned to the Company
with the assignment guaranteed by a bank, trust
company or member firm of the New York Stock Exchange,
or by a combination of the foregoing. Any such shares
so delivered shall be deemed to have a value per share
equal to the fair market value of the shares on such
date. For this purpose, fair market value shall equal
the closing price of the Company's Common Stock on the
New York Stock Exchange on the date the option is
exercised, or, if there was no trading in such stock
on the date of such exercise, the closing price on the
last preceding day on which there was such trading.
<PAGE>
<PAGE>4
(g) General Restriction. The Company shall not be
required to deliver any certificate upon the exercise
of an option until it has been furnished with such
opinion, representation or other document as it may
reasonably deem necessary to insure compliance with
any law or regulation of the Securities and Exchange
Commission or any other governmental authority having
jurisdiction under this Plan. Certificates delivered
upon such exercise may bear a legend restricting
transfer absent such compliance. Each option shall be
subject to the requirement that, if at any time the
Committee shall determine, in its discretion, that the
listing, registration or qualification of the shares
subject to such option upon any securities exchange or
under any state or federal law, or the consent or
approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in
connection with, the granting of such option or the
issue or purchase of shares thereunder, such option
may not be exercised in whole or in part unless such
listing, registration, qualification, consent or
approval shall have been effected or obtained free of
any conditions not acceptable to the Committee of
Directors in the exercise of its reasonable judgment.
6. TERMS AND CONDITIONS FOR NQSO'S
Each NQSO granted under the Plan shall be
evidenced by a NQSO option agreement in such form as the
Committee shall approve from time to time, which agreement
shall conform to this Plan and contain the same terms and
conditions as the ISO option agreements except that the maximum
value of share rules of Section 5(e) shall not apply to NQSO
grants. To the extent an option initially designated as an ISO
exceeds the value limit of Section 5(e), it shall be deemed a
NQSO and shall otherwise remain in full force and effect.
7. TERMINATION OF EMPLOYMENT
If the employment of an optionee terminates by
reason of the optionee's death, any option may be exercised by
the optionee's designated beneficiary (or personal
representative if there is no designated beneficiary) at any
time prior to the earlier of the expiration date of the option
or the expiration of three years after the date of death, but
only if, and to the extent that, the optionee was entitled to
exercise the option at the date of death. If the employment of
an optionee terminates at any time on or after the optionee is
<PAGE>
<PAGE>5
entitled to receive an early retirement service pension or a
normal service pension under Sections 5.1, 5.2, or 5.3 of the
Management Pension Plan, or the equivalent plan if the optionee
is not a participant in the Management Pension Plan, the
optionee may exercise any options pursuant to the terms of the
option agreement governing such options. Upon termination of
the optionee's employment for any reason other than retirement
or death, all options held by the optionee, whether vested or
not, shall be forfeited. An option that remains exercisable
after the expiration of three months from termination of
employment shall be treated as a NQSO after three months even
if it would have been treated as an ISO if exercised within
three months of termination. Notwithstanding the foregoing, an
option may not be exercised after retirement if the Committee
reasonably determines that the termination of employment of
such optionee resulted from willful acts, or failure to act, by
the optionee detrimental to the Company or any of its
subsidiaries.
Unless otherwise determined by the Committee, an
authorized leave of absence shall not constitute a termination
of employment for purposes of this Plan.
For purposes of this Section 7, optionees who
transfer employment within the Rochester Tel Group of
companies, including Upstate Partners, shall not be considered
to have terminated employment. Any such transferred optionees
shall remain eligible to exercise previously granted options in
accordance with their terms as if no termination occurred and
shall be eligible to receive additional options pursuant to the
terms of employment with their new employer.
8. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of
the Company by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights
offering to purchase Common Stock at a price substantially
below fair market value, or of any similar change affecting the
Common Stock, the number and kind of shares authorized under
Section 4, the number and kind of shares which thereafter are
subject to an option under the Plan and the number and kind of
shares set forth in options under outstanding agreements and
the price per share shall be adjusted automatically consistent
with such change to prevent substantial dilution or enlargement
of the rights granted to, or available for, participants in the
Plan.
<PAGE>
<PAGE>6
9. WITHHOLDING TAXES
Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, the
Company shall have the right to require the optionee to remit
to the Company an amount sufficient to satisfy any federal,
state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares.
Whenever under the Plan payments are to be made in cash, such
payments shall be net of an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements.
10. NO EMPLOYMENT RIGHTS
The Plan and any options granted under the Plan
shall not confer upon any optionee any right with respect to
continuance as an employee of the Company or any subsidiary,
nor shall they interfere in any way with the right of the
Company or any subsidiary to terminate the optionee's position
as an employee at any time.
11. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall
have no rights as a shareholder with respect thereto unless and
until certificates for shares of Common Stock are issued to the
recipient.
12. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated
by the shareholders of the Company or by the Committee on
Management, except that the Committee may not, without approval
of the shareholders, materially increase the benefits accruing
to participants under the Plan, increase the maximum number of
shares as to which options may be granted under the Plan,
change the minimum exercise price, change the class of eligible
persons, extend the period for which options may be granted or
exercised, or withdraw the authority to administer the Plan
from the Committee or a committee of the Committee consisting
solely of disinterested Committee members. Notwithstanding the
foregoing, to the extent permitted by law, the Committee may
amend the Plan without the approval of shareholders, to the
extent it deems necessary to cause the Plan to comply with
Securities and Exchange Commission Rule 16b-3 or any successor
rule, as it may be amended from time to time. Except as
required by law, no amendment, modification, or termination of
the Plan may, without the written consent of an optionee to
whom any option shall theretofore have been granted, adversely
affect the rights of such optionee under such option.
<PAGE>
<PAGE>7
13. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the
Plan, in the event of a change in control of the Company (as
defined in subsection (c) below), all of an optionee's options
shall become immediately vested and exercisable, unless
directed otherwise by a resolution of the Committee adopted
prior to and specifically relating to the occurrence of such
change in control.
(b) In the event of a change in control each
optionee of an exercisable option (i) shall have the right at
any time thereafter during the term of such option to exercise
the option in full notwithstanding any limitation or
restriction in any option agreement or in the Plan, and (ii)
may, subject to Committee approval and after written notice to
the Company within 60 days after the change in control, or, if
the optionee is an officer subject to Section 16 of the
Exchange Act, during the period ending the twelfth business day
following the first release for publication by the Company
after such change of control of a quarterly or annual summary
statement of earnings, which release occurs at least six months
following grant of the option, whichever period is longer,
receive, in exchange for the surrender of the option or any
portion thereof to the extent the option is then exercisable in
accordance with clause (i), an amount of cash equal to the
difference between the fair market value (as determined by the
Committee) on the date of surrender of the Common Stock covered
by the option or portion thereof which is so surrendered and
the option price of such Common Stock under the option.
(c) For purposes of this section "change in
control" means:
1) there shall be consummated
i. any consolidation or merger of the Company
in which the Company is not the continuing
or surviving corporation or pursuant to
which any shares of the Company's common
stock are to be converted into cash,
securities or other property, provided that
the consolidation or merger is not with a
corporation which was a wholly-owned
subsidiary of the Company immediately before
the consolidation or merger; or
ii. any sale, lease, exchange or other transfer
(in one transaction or a series of related
transactions) of all, or substantially all,
of the assets of the Company; or
<PAGE>
<PAGE>8
2) the shareholders of the Company approve any plan
or proposal for the liquidation or dissolution of
the Company; or
3) any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act shall become
the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or
indirectly, of 30% or more of the Company's then
outstanding common stock, provided that such
person shall not be a wholly-owned subsidiary of
the Company immediately before it becomes such
30% beneficial owner; or
4) individuals who constitute the Committee on the
date hereof (the "Incumbent Committee") cease for
any reason to constitute at least a majority
thereof, provided that any person becoming a
director subsequent to the date hereof whose
election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least three quarters of the directors
comprising the Incumbent Committee (either by a
specific vote or by approval of the proxy
statement of the Company in which such person is
named as a nominee for director, without
objection to such nomination) shall be, for
purposes of this clause (d), considered as though
such person were a member of the Incumbent
Committee.
14. EFFECTIVE DATE
The effective date of the Plan shall be the date
this Plan is both approved by the Company's shareholders and
the New York State Public Service Commission has released an
order authorizing the issuance of Common Stock pursuant to this
Plan.
15. DEFINITIONS
Any terms or provisions used herein which are
defined in Sections 83, 421, or 422 of the Internal Revenue
Code as amended, or the regulations thereunder or corresponding
provisions of subsequent laws and regulations in effect at the
time options are made hereunder, shall have the meanings as
therein defined.
<PAGE>
<PAGE>9
16. GOVERNING LAW
To the extent not inconsistent with the
provisions of the Internal Revenue Code that relate to
incentive stock options and non-qualified stock options, this
Plan and any option agreement adopted pursuant to it shall be
construed under the laws of the State of New York.
Dated: 11/15/93 ROCHESTER TELEPHONE CORPORATION
Shareowner approval 4/27/94
/s/ Josephine S. Trubek
By ----------------------------
Josephine S. Trubek
Its: Corporate Secretary
(76ED)
<PAGE>
<PAGE>1
EXHIBIT 10-42
ROCHESTER TELEPHONE CORPORATION
DIRECTORS STOCK OPTION PLAN
Amendment No. 1
Pursuant to Section 10, the Board hereby amends the
Plan, effective as of the date the amendment is both approved
by the Company's shareholders and the New York State Public
Service Commission has released an order authorizing the
amendment, as follows:
1. Sections 4 and 5(a) are amended to increase,
respectively, the number of authorized shares from 100,000 to
500,000 and the number of shares subject to an option from 1000
to 2000.
2. Effective for any individual who is an active
director on or after April 1, 1994, Section 6 is amended to
afford retiring directors additional rights to exercise options
after leaving the Board by deleting the current provision in
its entirety and substituting in its place the following:
6. TERMINATION OF EMPLOYMENT
If an optionee dies, either before or after
termination as a director, resigns from the Board as a
result of a conflict of interest or is removed from
the Board for cause, any option may be exercised by
the optionee or by the optionee's personal
representative, as the case may be, at any time prior
to the earlier of the expiration date of the option or
the first anniversary of the optionee's date of death,
resignation or removal but only if, and to the extent
that, the optionee was entitled to exercise the option
at the date of death, resignation or removal. If an
optionee's employment as a director terminates for any
reason other than death, resignation due to a conflict
or removal for cause, option rights shall continue to
vest in accordance with the terms of the option
agreement without regard to the termination of
employment and may be exercised by the optionee
pursuant to the terms of that agreement.
3. Section 7 is amended by deleting the current
provision in its entirety and substituting in its place the
following:
<PAGE>
<PAGE>2
7. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock
of the Company by reason of any stock dividend, stock
split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of
shares, or rights offering to purchase Common Stock at
a price substantially below fair market value, or of
any similar change affecting the Common Stock, the
number and kind of shares authorized under Section 4,
the number and kind of shares which thereafter are
subject to an option under the Plan and the number and
kind of shares set forth in options under outstanding
agreements and the price per share shall be adjusted
automatically consistent with such change to prevent
substantial dilution or enlargement of the rights
granted to, or available for, participants in the Plan.
IN WITNESS WHEREOF, the Board of Directors has caused
its duly authorized member to execute this amendment on its
behalf this 1st day of November, 1993.
Shareowner approval 4/27/94
ROCHESTER TELEPHONE CORPORATION
By /S/ Josephine S. Trubek
---------------------------
Josephine S. Trubek
Its: Corporate Secretary
(76ED)
<PAGE>
<PAGE>1
EXHIBIT 10-43
ROCHESTER TELEPHONE CORPORATION
DIRECTORS COMMON STOCK DEFERRED GROWTH PLAN
Amendment No. 1
Pursuant to Section 14, the Plan is hereby amended,
effective April 1, 1994, by adding the following new paragraph
to the end of Section 9:
Notwithstanding the provisions of this Section 9
or a participant's Election Form regarding the time
for payment of benefits, the Administrator may, in its
sole discretion, accelerate payments in the light of
an unforeseeable emergency. For this purpose, an
unforeseeable emergency is an unanticipated emergency
that is caused by an event beyond the control of the
participant and that would result in severe financial
hardship to the participant if early withdrawal were
not permitted. Any early withdrawal pursuant to this
Section 9 is limited to the amount needed to meet the
emergency.
IN WITNESS WHEREOF, the Board of Directors has caused
this amendment to be executed on its behalf this 27th day of
April, 1994.
ROCHESTER TELEPHONE CORPORATION
By: /s/ Josephine S. Trubek
------------------------
Its: Corporate Secretary
(76ED)
<PAGE>
<PAGE>1
EXHIBIT 10-44
ROCHESTER TELEPHONE CORPORATION
PLAN FOR THE DEFERRAL OF DIRECTORS FEES
Amendment No. 2
Pursuant to Section 13, the Plan is hereby amended,
effective April 1, 1994, by deleting the last paragraph of
Section 8 and adding in its place the following new paragraph:
Notwithstanding the provisions of this Section 8
or a participant's Election Form regarding the time
for payment of benefits, the Administrator may, in its
sole discretion, accelerate payments in the light of
an unforeseeable emergency. For this purpose, an
unforeseeable emergency is an unanticipated emergency
that is caused by an event beyond the control of the
participant and that would result in severe financial
hardship to the participant if early withdrawal were
not permitted. Any early withdrawal pursuant to this
Section 8 is limited to the amount needed to meet the
emergency.
IN WITNESS WHEREOF, the Board of Directors has caused
this amendment to be executed on its behalf this 27th day of
April, 1994.
ROCHESTER TELEPHONE CORPORATION
By: /s/ Josephine S. Trubek
------------------------
Its: Corporate Secretary
(76ED)
<PAGE>
Exhibit 11
Rochester Telephone Corporation
Computation of Earnings per Share of Common Stock
on a Fully Diluted Basis (Unaudited)
3 Months Ended
March 31,
(In thousands, except per share data) 1994 1993
- - ----------------------------------------------------------------------------
Income applicable to common stock . . . . . . . 14,908 17,721
Add: Interest on convertible
debentures. . . . . . . . . . . . . . 139 138
------- -------
15,047 17,859
Less: Increase in related federal
income taxes . . . . . . . . . . . . 49 47
------- -------
Adjusted income applicable to common stock. . $14,998 $17,812
======= =======
Total adjusted common shares assuming
conversion at beginning of each
period of outstanding convertible
debentures. . . . . . . . . . . . . . . . . . 35,549 33,585
======= =======
Earnings per share of common
stock on a fully diluted basis . . . . . . . $ .42 $ .53
======= =======
<PAGE>
