<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 20, 1994
Rochester Telephone Corporation
(Exact name of registrant as specified in its charter)
New York 1-4166 16-0613330
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
180 South Clinton Avenue
Rochester, New York 14646
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 777-7940
100 Midtown Plaza, Rochester, New York
(Previous address of principal executive offices)
Item 5 Other Events
The Registrant has announced its 1993 corporate
earnings.
As permitted by General Instruction F to Form 8-K, the
Registrant incorporates by reference the information contained
in the press release which is filed as an Exhibit to this
Report on Form 8-K, and its December 31, 1993 audited financial
statements.
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 of the undersigned hereunto
duly authorized.
Rochester Telephone Corporation
----------------------------------
(Registrant)
Dated: January 20, 1994 By: /s/ Louis L. Massaro
----------------------------
Louis L. Massaro
Corporate Vice President-
Finance and Treasurer
(42ED)
<PAGE>
ROCHESTER TEL CONTACT: Media:
Diana C. Melville
Media Relations 716-777-1090
716-777-1090 Investors:
Kristen H. Jenks
Fax: 716-325-4624 716-777-6422
FOR RELEASE: AFTER 3:00 P.M. ON MONDAY, JANUARY 17, 1994
SUMMARY: ROCHESTER TEL 1993 OPERATING INCOME HIGHEST IN HISTORY
Superior performance in long distance business
Contributes to 19 percent increase in net income
Rochester, New York -- January 17, 1994 -- Rochester
Telephone Corporation today reported one of the most profitable
years in its history. Net income was $82.7 million in 1993, a
19.1 percent increase over 1992, and earnings per common share
were $2.42, an increase of 18 percent over fiscal 1992.
Operating income reached an all-time high of $195 million, an
11.3 percent increase over 1992.
The company's results for 1993 were led by outstanding
performance in its long distance line of business and the
continued contribution of the telephone companies outside of
Rochester, NY.
"This was a truly outstanding year for the company and its
owners," stated Ronald L. Bittner, Chairman, President and
CEO. "Based on our earnings momentum these past few years, it
is clear that Rochester Tel is successfully making the
transformation from its utility heritage to a viable competitor
in our rapidly-changing industry." Bittner noted that the
company's net income was marginally higher only in 1989, a
year which included $21 million in one-time gains from the
sale of a paging company and minority cellular interests.
Bittner stated that for the first time, revenue from the
company's competitive businesses was greater than either the
Rochester, NY telephone operating company or the regional
telephone companies outside of Rochester. "Over 34 percent of
the company's revenue was derived from its deregulated
businesses in 1993," he said. Total revenues and sales were
$906 million for the year, a 12.7 percent improvement over
1992's results.
Contributing to the company's strong earnings performance
was net income of $25.6 million, or $.75 per common share, in
the fourth quarter of the year. The fourth quarter results
include a one-time, after-tax gain of $2.3 million on the sale
of a portion of the company's minority investment in a Canadian
long distance reseller.
--more--
<PAGE>
<PAGE>
For the quarter, revenues and sales were $242.1 million, a
15 percent improvement over 1992's results. Fourth quarter
operating income was $53.3 million, a 17.2 percent increase
over the fourth quarter of 1992. This compares favorably to
operating income increases of 9.8, 13.4, and 4.9 percent in the
first, second and third quarters of 1993 over the comparable
periods in 1992.
TELECOMMUNICATION SERVICES
Driven largely by the rapid expansion of the long distance
business, sales for the Telecommunication Services group
reached $312.6 million for the year, a 32 percent improvement
over 1992. The Telecommunications group grew profitably, with
operating income improving 32.8 percent over 1992.
The long distance business segment generated a 40.1
percent improvement in revenue over 1992 due to increased
market penetration and selected new products, including
revenues of $31 million from a new residential calling program.
By year-end, there were more than half-a-million long distance
customers.
Sales from wireless services increased 40.1 percent for
the year, reaching $29.6 million. Annual customer growth
remained very strong at 33 percent. During the year, the
company focused on the expansion of its wireless business with
the addition of a majority interest in the Utica-Rome, NY
cellular property, an agreement with NYNEX to form a New York
State cellular supersystem that Rochester Tel began to manage
in 1993, and higher marketing and sales expenses to grow the
customer base.
TELEPHONE OPERATIONS
Revenues in Telephone Operations were $593.9 million, an
increase of 4.7 percent over 1992, driven largely by increases
in telephone access lines of 3.9 percent during the year. For
the second half of the year, revenues from the regional
telephone companies surpassed that of the Rochester, NY
operating company for the first time.
Contributing to the revenue improvement were increases in
local service revenue due to rate increases at several
telephone companies outside of New York, and growth of 7.7
percent in overall minutes of use. Increased penetration of
enhanced services such as custom calling features and advanced
number identification products like Caller ID also contributed
to revenue growth.
1993 operating income for Telephone Operations rose 8.1
percent over 1992. The regional telephone companies continued
to realize expense savings related to consolidation of certain
functions across various companies and staff realignments.
This group improved their operating income by 22.7 percent in
1993.
--more--
<PAGE>
<PAGE>
At the Rochester, NY operating company, revenues improved
a modest 1.8 percent for the year and operating income declined
by 7.4 percent. Operating income was negatively affected by a
previously-reported $3.3 million write-off for a discontinued
software project, as well as a revenue reduction of nearly $5.0
million in anticipation of a rate stability agreement that was
later approved by the New York State Public Service Commission
on January 12, 1994. The agreement is intended to stabilize
rates for the period prior to the final decision and the
implementation of the company's Open Market Plan, which is
under consideration by the Commission.
OTHER EARNINGS FACTORS
In addition to the fourth quarter after-tax gain of $2.3
million on the sale of a portion of the company's minority
interest in the Canadian long distance company, Rochester Tel's
overall results for 1993 reflected several one-time items that
were reported previously. These included the $3.3 million
pre-tax software write-off at the Rochester, NY operating
company in the third quarter, partially offset by an after-tax
gain of nearly $1 million on the sale of S&A Telephone in
Kansas, which took place on September 16, 1993.
During the year, taxes increased by $2.0 million as a
result of the federal tax rate increase to 35 percent, as
mandated by the Revenue Reconciliation Act of 1993. Also,
effective January 1, 1993, the company adopted Financial
Accounting Standards Board Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions,"
(OPEB), electing to amortize the recognition of the transition
obligation over a 20-year period. The incremental expense
included in 1993 operating income was $11.9 million. However,
part of the increase was offset by a change in accounting for
pension for rate making purposes at the Rochester operating
company. The impact of these two items on 1993 earnings, net
of the income tax benefit, was an expense of $3.8 million.
On June 7, 1993, the Telecommunication Services group
acquired Budget Call Long Distance, Inc. for cash, and on
September 30, 1993, Mid Atlantic Telecom was acquired using
shares of common stock. Both transactions were accounted for
as purchase acquisitions.
Interest expense decreased $3.5 million, or 7.0 percent,
in 1993 as a result of both lower debt levels and interest
rates relative to 1992. During 1993, the company recalled
$115.4 million of debt.
Rochester Tel has operations that serve 1.5 million
customers through 49 telecommunications companies in 22
states. The company's principal lines of business include long
distance, network systems, wireless communications and
telephone operations. At December 31, 1993, the company had
931,650 customer access lines. Rochester Tel is headquartered
in Rochester, NY and was incorporated in 1920.
INCOME STATEMENT AND BUSINESS SEGMENT INFORMATION FOLLOW.
<PAGE>
<PAGE>
<TABLE>
ROCHESTER TELEPHONE CORPORATION
Consolidated Statement of Income
(Unaudited)
<CAPTION>
3 Months Ended December 31, 12 Months Ended December 31,
In thousands, except per share data 1993 <F1><F2> 1992 1993 <F1><F2> 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and Sales
Telephone Operations $153,231 $146,771 $593,871 $567,272
Telecommunication Services 88,892 63,696 312,579 236,777
- ---------------------------------------------------------------------------------------------------------
Total Revenues and Sales 242,123 210,467 906,450 804,049
- ---------------------------------------------------------------------------------------------------------
Costs and Expenses
Operating expenses 142,001 117,681 525,488 448,422
Cost of goods sold 5,540 7,176 20,819 21,634
Depreciation 29,056 29,330 114,811 114,027
Taxes other than income taxes 12,267 10,852 47,087 44,832
Software write-off <F3> - - 3,300 -
- ---------------------------------------------------------------------------------------------------------
Total Costs and Expenses $188,864 165,039 711,505 628,915
- ---------------------------------------------------------------------------------------------------------
Operating Income 53,259 45,428 194,945 175,134
Interest expense 10,745 12,093 46,550 50,066
Other income and expense:
Allowance for funds used
during construction 368 287 1,330 1,309
Gain on sale on assets 3,495 - 4,449 -
Other income (expense), net (6,555) (3,533) (21,222) (14,347)
- ---------------------------------------------------------------------------------------------------------
Income Before Taxes and
Extraordinary Items 39,822 30,089 132,952 112,030
Income taxes 14,187 9,843 50,232 41,527
- ---------------------------------------------------------------------------------------------------------
Income Before Extraordinary Items 25,635 20,246 82,720 70,503
Extraordinary Items - (1,072) - (1,072)
- ---------------------------------------------------------------------------------------------------------
Consolidated Net Income 25,635 19,174 82,720 69,431
Dividends on preferred stock 297 297 1,187 1,188
- ---------------------------------------------------------------------------------------------------------
Income Applicable to Common Stock $ 25,338 $ 18,877 $ 81,533 $ 68,243
========================================================================================================
Dividends on common stock $ 13,773 $ 13,161 $ 53,900 $ 50,936
Average common shares outstanding 33,963 33,319 33,727 33,319
Earnings Per Common Share
Primary:
Income Before Extraordinary Items $ .75 $ .60 $ 2.42 $ 2.08
Extraordinary Items - (.03) - (.03)
- ---------------------------------------------------------------------------------------------------------
Earnings Per Common Share-Primary $ .75 $ .57 $ 2.42 $ 2.05
- ---------------------------------------------------------------------------------------------------------
Fully Diluted:
Income Before Extraordinary Items .74 .60 $ 2.41 $ 2.07
Extraordinary Items - (.03) - (.03)
- ---------------------------------------------------------------------------------------------------------
Earnings Per Common Share-Fully Diluted .74 .57 $ 2.41 $ 2.04
( see next page for footnotes )
<PAGE>
<PAGE>
<FN>
<F1> On January 1, 1993, the company adopted Financial Accounting Standards Board Statement No. 106 (FAS
106), "Employers' Accounting for Postretirement Benefits Other than Pensions," using the delayed
recognition of the transition obligation method. Net of a change in accounting for pension costs for
rate making purposes, at the Rochester Operating Company, additional operating expenses of $1.4 million
were recognized in the quarter and $5.9 million for the year.
<F2> As a result of the Revenue Reconciliation Act of 1993, the quarter and annual income tax provisions
include the impact of the federal tax rate increase to 35 percent. The impact amounts to approximately
$2 million for the year, of which approximately $400,000 is attributable to the fourth quarter.
<F3> As part of the Rochester Company's Settlement Agreement with the New York State Public Service
Commission, the Company agreed to write-off one-half of costs previously deferred as part of a project
to redesign customer accounts records, order flow and customer billing systems. The costs were
incurred from January 1990 to December 1992 and the project was abandoned after it was determined that
the cost to complete was substantially greater than initially estimated. The remaining one-half of the
costs previously deferred are being amortized to expense and recovered in rates.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ROCHESTER TELEPHONE CORPORATION
Business Segment Information
(Unaudited)
<CAPTION>
3 Months Ended December 31, 12 Months Ended December 31,
In thousands of dollars 1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telephone Operations
Revenues
Local service $ 58,271 $ 55,025 $ 231,676 $ 214,181
Network access service 55,961 54,279 220,196 203,768
Long distance network service 8,588 6,855 26,978 29,210
Directory advertising,
billing services, and other 32,242 31,481 120,459 123,112
Less: Uncollectibles 1,831 869 5,438 2,999
- -----------------------------------------------------------------------------------------------------
Total Revenues $ 153,231 $ 146,771 $ 593,871 $ 567,272
=====================================================================================================
Operating Income <F1> $ 44,412 $ 39,330 $ 164,271 $ 152,032
=====================================================================================================
Depreciation $ 26,117 $ 25,870 $ 99,995 $ 100,692
=====================================================================================================
Construction Expenditures $ 21,397 $ 39,994 $ 86,479 $ 114,930
=====================================================================================================
Identifiable Assets <F2> $1,398,019 $1,416,630 $1,398,019 $1,416,630
=====================================================================================================
Telecommunication Services
Sales
Network Systems and Services:
Non-Affiliate $ 79,683 $ 57,921 $ 282,747 $ 215,633
Affiliate 3,403 1,189 6,036 1,511
Wireless Communications 9,253 5,764 29,586 21,113
Eliminations (3,447) (1,178) (5,790) (1,480)
- -----------------------------------------------------------------------------------------------------
Total Sales $ 88,892 $ 63,696 $ 312,579 $ 236,777
=====================================================================================================
Operating Income
Network Systems and Services $ 7,724 $ 4,866 $ 27,344 $ 18,918
Wireless Communications 1,105 1,214 3,256 4,110
Eliminations 18 18 74 74
- -----------------------------------------------------------------------------------------------------
Total Operating Income <F1> $ 8,847 $ 6,098 $ 30,674 $ 23,102
=====================================================================================================
Depreciation $ 2,939 $ 3,460 $ 14,816 $ 13,335
=====================================================================================================
Construction Expenditures $ 7,930 $ 1,905 $ 15,677 $ 8,941
=====================================================================================================
Identifiable Assets <F2> $ 281,701 $ 191,989 $ 281,701 $ 191,989
=====================================================================================================
<FN>
<F1> See Notes (1) and (2) on Consolidated Statement of Income.
<F2> Includes assets eliminated in consolidation of $169,519 in 1993 and $94,722 in 1992.
</TABLE>
<PAGE>
Report of Independent Accountants
- ---------------------------------
To the Share Owners of
Rochester Telephone Corporation
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of income, shareowners'
equity and cash flows present fairly, in all material respects,
the financial position of Rochester Telephone Corporation and
its subsidiaries at December 31, 1993, 1992 and 1991, and the
results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility
of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 11 to the financial statements, during
the first quarter of 1993 the company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions."
/s/ Price Waterhouse
January 17, 1994
1900 Chase Square
Rochester, NY 14604
<PAGE>
<PAGE>
<TABLE>
BUSINESS SEGMENT INFORMATION
<CAPTION>
In thousands of dollars Years ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELEPHONE OPERATIONS
Revenues
Local service $ 231,676 $ 214,181 $ 184,872
Network access service 220,196 203,768 166,903
Long distance network service 26,978 29,210 34,999
Directory advertising, billing services, and other 120,459 123,112 115,166
Less: Uncollectibles 5,438 2,999 4,343
- -----------------------------------------------------------------------------------------------
Total Revenues $ 593,871 $ 567,272 $ 497,597
================================================================================================
Operating Income $ 164,271 $ 152,032 $ 131,741
================================================================================================
Depreciation $ 99,995 $ 100,692 $ 86,467
================================================================================================
Construction Expenditures $ 86,479 $ 114,906 $ 98,927
================================================================================================
Identifiable Assets <F1> $1,398,019 $1,416,630 $1,384,875
================================================================================================
TELECOMMUNICATION SERVICES
Sales
Network Systems and Services:
Non-Affiliate $ 282,747 $ 215,633 $ 198,616
Affiliate 6,036 1,511 9,620
Wireless Communications 29,586 21,113 17,038
Eliminations (5,790) (1,480) (9,312)
- ------------------------------------------------------------------------------------------------
Total Sales $ 312,579 $ 236,777 $ 215,962
================================================================================================
Operating Income
Network Systems and Services $ 27,344 $ 18,918 $ 13,153
Wireless Communications 3,256 4,110 3,412
Eliminations 74 74 62
- ------------------------------------------------------------------------------------------------
Total Operating Income $ 30,674 $ 23,102 $ 16,627
================================================================================================
Depreciation $ 14,816 $ 13,335 $ 12,081
================================================================================================
Construction Expenditures $ 15,677 $ 8,941 $ 9,657
================================================================================================
Identifiable Assets <F1> $ 281,701 $ 191,989 $ 208,308
================================================================================================
<FN>
<F1> Includes intercompany accounts that are eliminated in consolidation of $169,519, $94,722
and $96,446 in 1993, 1992 and 1991, respectively.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
In thousands of dollars, except per share data Years ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Revenues and Sales
Telephone Operations $593,871 $567,272 $497,597
Telecommunication Services 312,579 236,777 215,962
- --------------------------------------------------------------------------------------------------------------------------
Total Revenues and Sales 906,450 804,049 713,559
- --------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Operating expenses 525,488 448,422 402,344
Cost of goods sold 20,819 21,634 20,620
Depreciation 114,811 114,027 98,548
Taxes other than income taxes 47,087 44,832 43,679
Software write-off 3,300 - -
- --------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 711,505 628,915 565,191
- --------------------------------------------------------------------------------------------------------------------------
Operating Income 194,945 175,134 148,368
Interest expense 46,550 50,066 44,604
Other income and expense:
Allowance for funds used during construction 1,330 1,309 1,568
Gain on sale of assets 4,449 - 27,561
Other income (expense), net (21,222) (14,347) (10,534)
- --------------------------------------------------------------------------------------------------------------------------
Income Before Taxes and Extraordinary Items 132,952 112,030 122,359
Income taxes 50,232 41,527 47,070
- --------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Items 82,720 70,503 75,289
Extraordinary items, net of income taxes - (1,072) 3,757
- --------------------------------------------------------------------------------------------------------------------------
Net Income 82,720 69,431 79,046
Dividends on preferred stock 1,187 1,188 1,189
- --------------------------------------------------------------------------------------------------------------------------
Income Applicable to Common Stock $ 81,533 $ 68,243 $ 77,857
==========================================================================================================================
Earnings Per Common Share
Primary:
Income before extraordinary items $ 2.42 $ 2.08 $ 2.31
Extraordinary items - (.03) .12
- --------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share - Primary $ 2.42 $ 2.05 $ 2.43
==========================================================================================================================
Fully Diluted:
Income before extraordinary items $ 2.41 $ 2.07 $ 2.30
Extraordinary items - (.03) .12
- --------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share - Fully Diluted $ 2.41 $ 2.04 $ 2.42
==========================================================================================================================
93finls/2
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
In thousands of dollars December 31, 1993 1992 1991
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 31,284 $ 69,347 $ 44,698
Short-term investments 349 634 2,930
Accounts receivable 157,320 133,973 121,576
Material and supplies 11,208 15,892 19,145
Prepayments and other 21,583 21,821 22,607
Total Curent Assets 221,744 241,667 210,956
- ------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Telephone plant in service 1,561,032 1,577,985 1,508,240
Telephone plant under construction 33,048 36,619 28,461
- ------------------------------------------------------------------------------------------------------------
1,594,080 1,614,604 1,536,701
Less-Accumulated depreciation 652,578 657,682 594,975
- ------------------------------------------------------------------------------------------------------------
Net Telephone Plant 941,502 956,922 941,726
- ------------------------------------------------------------------------------------------------------------
Telecommunications property 153,954 140,476 137,365
Less-Accumulated depreciation 68,265 57,723 48,005
- ------------------------------------------------------------------------------------------------------------
Net Telecommunications Property 85,689 82,753 89,360
- ------------------------------------------------------------------------------------------------------------
Goodwill 166,283 135,964 145,360
- ------------------------------------------------------------------------------------------------------------
Deferred and Other Assets 94,983 96,591 109,335
- ------------------------------------------------------------------------------------------------------------
Total Assets $1,510,201 $1,513,897 $1,496,737
============================================================================================================
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET CONT.
<CAPTION>
In thousands of dollars December 31, 1993 1992 1991
<S> <C> <C> <C>
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Accounts payable $ 147,152 $ 125,518 $ 100,322
Notes payable 303 6,194 6,010
Advance billings 12,572 12,546 12,474
Dividends payable 14,058 13,462 12,920
Long-term debt due within one year 3,962 59,495 12,284
Taxes accrued 14,729 11,480 25,756
Interest accrued 13,583 16,434 14,817
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities 206,359 245,129 184,583
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt 492,555 525,597 591,232
- ------------------------------------------------------------------------------------------------------------
Deferred Income Taxes 116,967 118,876 113,973
- ------------------------------------------------------------------------------------------------------------
Postretirement Benefits Obligation 16,121 - -
- ------------------------------------------------------------------------------------------------------------
Minority interests 3,100 2,701 2,518
- ------------------------------------------------------------------------------------------------------------
Shareowners' Equity
Common stock 34,025 33,319 33,323
Capital in excess of par value 201,591 174,226 174,358
Retained earnings 418,889 391,256 373,949
- ------------------------------------------------------------------------------------------------------------
654,505 598,801 581,630
Less-Treasury stock, at cost 2,191 - 2
- ------------------------------------------------------------------------------------------------------------
Common Shareowners' Equity 652,314 598,801 581,628
Preferred stock 22,785 22,793 22,803
- ------------------------------------------------------------------------------------------------------------
Total Shareowners' Equity 675,099 621,594 604,431
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $1,510,201 $1,513,897 $1,496,737
============================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
In thousands of dollars Years ended December 31, 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income before extraordinary items $ 82,720 $ 70,503 $ 75,289
Extraordinary items - (1,072) 3,757
- --------------------------------------------------------------------------------------------------------
Net income 82,720 69,431 79,046
- --------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization 132,723 121,554 101,499
Gain on sale of assets (4,449) - (27,561)
Extraordinary items - 1,564 (6,187)
Changes in operating assets and liabilities, exclusive
of impacts of purchase acquisitions:
(Increase) decrease in accounts receivable (12,644) (12,822) 2,954
(Increase) decrease in material and supplies 4,728 3,253 1,624
(Increase) decrease in prepayments and other current assets 229 786 929
(Increase) decrease in deferred and other assets (3,719) 301 (16,126)
Increase (decrease) in accounts payable 11,516 26,509 5,929
Increase in advance billings 26 72 401
Increase (decrease) in accrued interest and taxes 1,498 (3,182) 8,954
Increase in deferred postretirement benefits 14,302 - -
Increase (decrease) in deferred income taxes 1,308 8,545 11,663
- --------------------------------------------------------------------------------------------------------
Total Adjustments 145,518 146,580 84,079
- --------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 228,238 216,011 163,125
- --------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Expenditures for property, plant and equipment (102,156) (123,847) (108,584)
(Increase) decrease in short-term investments 285 2,296 4,390
Investment in cellular (4,342) (665) (2,220)
Proceeds from sale of investment securities 8,325 684 -
Proceeds from asset sales 1,006 - -
Investment in nonaffiliated entities (1,161) - -
Purchase of companies (11,343) - (164,554)
Cash acquired in purchase acquisitions 264 - 614
- --------------------------------------------------------------------------------------------------------
Net Cash (Used in) Investing Activities (109,122) (121,532) (270,354)
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS CONT.
<CAPTION>
In thousands of dollars Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Financing Activities
Net increase (decrease) in notes payable $ (5,806) $ 184 $ -
Proceeds from long-term debt 35,500 980 239,083
Repayments of long-term debt (130,063) (19,585) (62,319)
Dividends paid (54,492) (51,582) (47,375)
Purchase of treasury stock (2,744) - (625)
Issuance of common stock 35 - -
Redemptions of preferred stock (8) (10) (8)
Minority interests 399 183 523
- -------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (157,179) (69,830) 129,279
- -------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (38,063) 24,649 22,050
Cash and Cash Equivalents at Beginning of Year 69,347 44,698 22,648
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 31,284 $ 69,347 $ 44,698
=================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHARE OWNERS' EQUITY
<CAPTION>
In thousands of dollars, except share data 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock
100,000,000 shares authorized, par value $1.00
Balance, January 1 (shares issued 1993-33,318,943;
1992-33,323,165; 1991-30,436,427) $ 33,319 $ 33,323 $ 30,436
Retirement of treasury stock (1992-63 shares) - - -
Other subsidiary acquisitions (1993-697,623 shares;
1992-4,850 shares; 1991-2,885,000 shares) 698 (5) 2,885
Exercise of stock options (1993-1,109 shares) 1 - -
Conversion of:
4 3/4% Convertible debentures (1993-6,857 shares;
1992-691 shares; 1991-1,738 shares) 7 1 2
- -------------------------------------------------------------------------------------------
Balance, December 31 (shares issued
1993-34,024,532; 1992-33,318,943;
1991-33,323,165 34,025 33,319 33,323
- -------------------------------------------------------------------------------------------
Capital in Excess of Par Value
Balance, January 1 174,226 174,358 93,050
Retirement of treasury stock - (2) -
Other subsidiary acquisitions/divestitures 27,259 (137) 81,290
Exercise of stock options 34 - -
Conversion of:
4 3/4% Convertible debentures 72 7 18
- -------------------------------------------------------------------------------------------
Balance, December 31 201,591 174,226 174,358
- -------------------------------------------------------------------------------------------
Retained Earnings
Balance, January 1 391,256 373,949 343,769
Net income 82,720 69,431 79,046
Dividends declared in cash:
Preferred stock at required annual rates (1,187) (1,188) (1,189)
Common stock (53,900) (50,936) (47,677)
- -------------------------------------------------------------------------------------------
Balance, December 31 418,889 391,256 373,949
- -------------------------------------------------------------------------------------------
Less-Treasury Stock, at Cost
Balance, January 1
(1992-63; 1991-94,800) - 2 2,575
Common shares repurchased for acquisitions
(1993-304,720; 1991-20,600) 12,572 - 625
Retirement of treasury stock (1992-63) - (2) -
Common shares reissued for acquisitions/divestitures
(1993-248,307; 1991-115,337) (10,381) - (3,198)
- -------------------------------------------------------------------------------------------
Balance, December 31 (1993-56,413 shares;
1991-63 shares) 2,191 - 2
- -------------------------------------------------------------------------------------------
Common Share Owners' Equity 652,314 598,801 581,628
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHARE OWNERS' EQUITY CONT.
<CAPTION>
In thousands of dollars, except share data 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance, January 1 (shares outstanding 1993-227,928;
1992-228,025; 1991-228,105) $ 22,793 $ 22,803 $ 22,811
Redemptions (8) (10) (8)
- -------------------------------------------------------------------------------------------
Balance, December 31 (shares outstanding 1993-227,848;
1992-227,928; 1991-228,025) 22,785 22,793 22,803
- -------------------------------------------------------------------------------------------
Total Share Owners' Equity $675,099 $621,594 $604,431
===========================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The accounting policies of Rochester Telephone Corporation
and its affiliates (the company) are in conformity with
generally accepted accounting principles and, where applicable,
conform to the accounting principles as prescribed by federal
and various state regulatory bodies.
Consolidation-The consolidated financial statements include
the accounts of Rochester Telephone Corporation and its
affiliates. The results of operations of Rotelcom Inc., RCI
Network Services, Inc., RCI Long Distance, Inc., RCI Long
Distance Canada, Ltd., RCI Long Distance New England, Inc.,
Taconic Long Distance Service Corporation, Mid Atlantic Telecom,
Inc., Budget Call Long Distance, Inc., Rochester Telephone
Mobile Communications (RTMC), a partnership in which the company
is a general partner with an 85 percent interest, Rochester
Telephone Mobile Communications, Inc., and Rochester Tel
Cellular Holding Corporation are disclosed in the Consolidated
Statement of Income and Business Segment Information under the
caption "Telecommunication Services." 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.
Material and Supplies-Material and supplies are stated at the
lower of cost or market, based on weighted average unit cost.
The caption "Cost of Goods Sold" relates to Rotelcom and RTMC
and includes sales associated with the cost of goods sold
amounting to $29.5 million, $32.2 million and $41.1 million in
1993, 1992, and 1991, respectively.
Telephone Plant-Additions to and replacements of telephone
plant are capitalized at original cost, including costs for
benefits and supervision applicable to construction labor. The
cost of depreciable property units
retired, plus removal costs, less salvage is charged to
accumulated depreciation. Replacements, renewals and
betterments of units of property are capitalized. Replacement
of items not considered units of property and all repairs and
maintenance are charged to operating expense.
Telecommunication Property-Property is recorded at cost.
Improvements that significantly add to productive capacity or
extend useful life are capitalized, while maintenance and
repairs are expensed. Upon retirement or disposal of assets,
the cost and related accumulated depreciation are removed from
the accounts and the gain or loss, if any, is reflected in
earnings for the period.
Depreciation-Depreciation is computed on the straight-line
method using estimated service lives of the various classes of
plant. The range of service lives for property, plant and
equipment is as follows:
<PAGE>
<PAGE>
Furniture and fixtures 4 to 20 years
Central office, switches and
network equipment 5 to 30 years
Local and toll service lines 27 to 35 years
Station equipment 10 to 15 years
Buildings and building improvements 10 to 35 years
Goodwill-The excess of the cost of companies purchased over
net assets acquired is being amortized on a straight-line basis
over 25 to 40 years. Accumulated amortization is $15.6 million,
$10.4 million and $6.7 million at the end of 1993, 1992, and
1991, respectively.
Employees' Service Pensions and Benefits-The company has
contributory and noncontributory plans providing for service
pensions and certain death benefits for substantially all
employees. The plans also provide disability pensions and
sickness, accident and death benefits (resulting from accidents
occurring during employment) for all employees, which are paid
and charged to current operating expense. The company's
provisions for service pensions and certain death benefits are
remitted, at least annually, to the trustees. In addition to
providing pension benefits, the company provides health care,
life insurance, and certain other retirement benefits for
substantially all employees.
Fair Value of Financial Instruments - Cash and cash
equivalents are valued at their carrying amounts, which are
reasonable estimates of fair value. The fair value of long-term
debt is estimated using rates currently available to the company
for debt with similar terms and maturities. The fair value of
all other financial instruments approximates cost as stated.
Federal Income Taxes-The company files a consolidated
federal income tax return.
Tax deferrals resulting from the elimination of gross
profit on affiliate sales in the consolidated tax return are
recorded by Rotelcom and are amortized to offset income taxes to
be paid over the cost recovery periods of telephone plant.
Deferred income taxes are provided by the unregulated
operations on items recognized for financial reporting purposes
in different periods than are recognized for income tax
purposes. Deferred income taxes are recorded by regulated
operations in compliance with the normalization provisions of
current tax law and regulatory orders. The major temporary
differences reflected in the deferred tax liability are
depreciation and investment tax credits. Excess deferred taxes
applicable to Telephone Operations are amortized in compliance
with the normalization provisions of current tax law and
regulatory orders. This amortization is normalized over the
same time period as the related asset generating the deferral.
<PAGE>
<PAGE>
Deferred income taxes have not been provided by Telephone
Operations for flow-through of temporary differences where the
regulatory agencies permit only income taxes actually paid to be
recognized. At December 31, 1993, the cumulative balance of tax
reductions not previously offset by provisions for deferred
federal income taxes amounted to $51 million. Similarly, the
cumulative balance of tax reductions not previously offset by
provision for deferred state income taxes amounted to $15
million at December 31, 1993. 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.
Allowance for Funds Used During Construction- The company
includes in its telephone plant accounts an imputed cost of debt
and equity funds used for the construction of telephone plant
and credits such amounts to other income. The rates used in
determining the allowance for funds used during construction are
based on the assumption that construction funds are provided
from sources of capital in the same proportion as each telephone
company's capital structure.
The rates used to calculate the allowance for funds used
during construction for companies in Telephone Operations during
1993 ranged from 6 percent to 11.96 percent.
Earnings Per Share-Primary earnings applicable to each
share of common stock and common stock equivalent are based on
the weighted average number of shares outstanding during each
year. The average number of common shares outstanding for each
period was: 33,726,719 in 1993, 33,318,952 in 1992 and
32,102,724 in 1991.
Computations of earnings per share on a fully diluted basis
are determined by increasing the average outstanding common
shares for contingent issuances that would reduce earnings per
share. In computing the per share effect of the assumed
conversions, convertible debenture interest (net of income
taxes) has been added to income applicable to common stock. The
number of common shares used to compute earnings per share on a
fully diluted basis for each period was: 33,986,008 in 1993,
33,582,756 in 1992 and 32,367,770 in 1991.
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 $49.4 million in 1993, $48.4
million in 1992 and $38.9 million in 1991. Actual income taxes
paid were $46.6 million in 1993, $37.2 million in 1992 and $36.8
million in 1991.
<PAGE>
<PAGE>
Stock Split - In November 1993, the Board of Directors approved
a 2-for-1 common stock split effected in the form of a 100
percent stock dividend with no change in the $1.00 per share par
value of the stock. The split will be effective upon approvals
by the New York State Public Service Commission (NYSPSC) and the
listing with the New York Stock Exchange of the new shares
created by the split. The record distribution dates will be
established after these approvals have been obtained.
2. Acquisitions
On April 15, 1993, the company acquired 70 percent ownership
of the Utica-Rome Cellular Partnership using 702,737 shares of
original issue common stock. The transaction was accounted for
as a purchase acquisition. In addition, in 1993
Telecommunication Services acquired Budget Call Long Distance,
Inc. on June 7, 1993 for $7.5 million in cash and Mid Atlantic
Telecom, Inc. on September 30, 1993 using 143,587 shares of
treasury stock. Both transactions were accounted for as
purchase acquisitions.
During 1992 the company acquired the Statesboro Telephone
Company and accounted for the acquisition as a pooling of
interests. Prior years' financial statements have been restated
to reflect the accounts and operations of Statesboro. Revenues
and net income for the period January 1, 1992 to the acquisition
date for Statesboro were $6.1 million and $1.2 million,
respectively. A total of 1.5 million shares of common stock
were exchanged for all of the outstanding stock of Statesboro.
During 1991 the company acquired six companies. All
acquisitions were accounted for as purchases. Telephone
Operations acquired the telephone properties of Northern States
Power Company, now named Minot Telephone Company, DePue
Telephone Company, the Minnesota telephone properties of Centel
Corporation, now named Vista Telephone Company of Minnesota, and
the Iowa telephone properties of Centel Corporation, now named
Vista Telephone Company of Iowa. Telecommunication Services
acquired the assets of the Burlington Telephone Company of
Burlington, Vermont and Taconic Long Distance Service
Corporation. The purchased companies were included in the
consolidated financial statements as of their respective dates
of acquisition. A total of 2.9 million original issue shares,
115,000 shares of treasury stock valued at $3.3 million, $164.6
million in cash and certain minority ownership interests in
cellular properties were exchanged for the 1991 acquired
companies.
<PAGE>
<PAGE>
3. Other Income (Expense), Net
The major components included in this caption are as follows
(amounts in thousands):
Income (Expense)
1993 1992 1991
Interest income $ 1,659 $ 2,257 $ 2,279
Joint venture income 727 1,682 1,038
Goodwill amortization (3,928) (3,692) (2,734)
Corporate expenses (14,707) (10,267) (8,178)
Miscellaneous income
(expense), net (4,973) (4,327) (2,939)
--------- --------- ----------
TOTAL $(21,222) $(14,347) $(10,534)
======== ======== ========
<PAGE>
<PAGE>
4. Extraordinary and Unusual Items
As part of the Rochester Company's Settlement Agreement with
the NYSPSC finalized in the third quarter of 1993, the company
agreed to write-off one-half of the costs ($3.3 million)
previously deferred as part of a project to redesign customer
accounts records, order flow and customer billing systems. The
costs were incurred from January 1990 to December 1992 and the
project was abandoned after it was determined that the cost to
complete it was substantially greater than initially estimated.
The remaining one-half of the costs previously deferred are
being amortized to expense and recovered in rates. This charge
is reflected on the consolidated statement of income in the
caption "Software write-off".
On December 14, 1992, the Executive Committee of the Board
of Directors approved the refinancing of the $40 million Series
H, 9 1/2% first mortgage bonds. The company recorded a charge
of $1.1 million (net of taxes of $.5 million) in 1992 relating
to the write-off of the call premium, the remaining initial
discount and associated expenses of the transaction. The bonds
were retired in January 1993 using internally generated cash and
the private placement of $35 million of debt at a telephone
subsidiary.
The company's 1991 results were positively impacted by a
gain relating to the transfer of cellular properties as part of
the acquisition of Centel Corporation's Minnesota telephone
operations on June 28, 1991. A portion of the gain relating to
the sale of certain cellular properties acquired within two
years prior to the sale is reflected as an extraordinary gain of
$3.8 million (net of taxes of $2.4 million) with the remainder
recorded as an ordinary gain.
<PAGE>
<PAGE>
5. Stock Option Plan
In 1992 the company implemented a Directors Stock Option
Plan and an Executive Stock Option Plan. Under the plans, which
were approved by share owners in 1990, a maximum of 400,000
shares of common stock over a ten-year period may be issued.
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.
Information with respect to options under the above plans
follows:
Option Price
Shares Per Share Aggregate
------ ------------ ---------
Outstanding at
August 1, 1992 - -
Granted 48,200 $31.50-$31.375 $1,515,925
------ ----------
Outstanding at
Dec 31, 1992 48,200 1,515,925
Granted 129,019 $39.50-$36.875 4,935,175
Cancelled (4,750) $38.125-$31.50 (176,125)
Exercised (1,109) $31.50-$31.375 (34,892)
------- ----------
Outstanding at
Dec 31, 1993 171,360 $6,240,083
======= ==========
At December 31, 1993, 14,806 shares were exercisable and
227,531 shares were available for future grant.
<PAGE>
<PAGE>
<TABLE>
6. Preferred Stock (Cumulative)-Par Value $100
<CAPTION>
In thousands of dollars, except share data 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rochester Telephone Corporation-850,000 shares authorized
5.00% Series-redeemable at $101 per share
Shares Outstanding 100,000 100,000 100,000
Amount Outstanding $ 10,000 $ 10,000 $ 10,000
5.65% Series-redeemable at $101 per share
Shares Outstanding 50,000 50,000 50,000
Amount Outstanding $ 5,000 $ 5,000 $ 5,000
4.60% Series-redeemable at $101 per share
Shares Outstanding 50,000 50,000 50,000
Amount Outstanding $ 5,000 $ 5,000 $ 5,000
Highland Telephone Company-40,000 shares authorized
5.875% Series A-redeemable at par
Shares Outstanding 18,694 18,694 18,694
Amount Outstanding $ 1,869 $ 1,869 $ 1,869
7.80% Series B-redeemable at $100.80-$105.00 per share
Shares Outstanding 6,400 6,480 6,560
Amount Outstanding $ 640 $ 648 $ 656
AuSable Valley Telephone Company, Inc.-4,000 shares authorized
5.50% Series - redeemable at par
Shares Outstanding 2,754 2,754 2,754
Amount Outstanding $ 276 $ 276 $ 276
Seneca-Gorham Telephone Corporation-2,500 shares authorized
5.00% Series - redeemable at par
Shares Outstanding - - 17
Amount Outstanding - - $ 2
- ----------------------------------------------------------------------------------------------------
Total Shares Outstanding 227,848 227,928 228,025
====================================================================================================
Total Amount Outstanding $ 22,785 $ 22,793 $ 22,803
====================================================================================================
</TABLE>
<PAGE>
<PAGE>
<TABLE>
7. Long-Term Debt
<CAPTION>
In thousands of dollars At December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Mortgage Bonds
Series E, 4 3/4%, due September 1, 1993 - $ 12,000 <F1> $ 12,000
Series F, 4 1/2%, due May 1, 1994 - 18,000 <F1> 18,000
Series G, 7 5/8%, due March 1, 2001 - 30,000 <F1> 30,000
Series H, 9 1/2%, due March 1, 2005 - 40,000 <F2> 40,000
Vista Senior Notes, 7.61%, due February 1, 2003 $ 35,000 - -
Rural Electrification Administration debt, 2%-9.1% due 1994 to 2025 80,667 85,048 88,349
Other debt issued by affiliates, 7.5%-12 3/4%, due 1991 to 2006 - 15,840 24,946
- ------------------------------------------------------------------------------------------------------------
115,667 <F3> 200,888 213,295
- ------------------------------------------------------------------------------------------------------------
Debentures
4 3/4% Convertible, due March 1, 1994 - 137 <F4> 145
10.46% Convertible, due October 27, 2008 5,300 <F5> 5,300 5,300
9%, due January 1, 2020 100,000 100,000 100,000
9%, due August 15, 2021 100,000 100,000 100,000
- ------------------------------------------------------------------------------------------------------------
205,300 205,437 205,445
- ------------------------------------------------------------------------------------------------------------
Medium-Term Notes, 8.77% - 9.30%, due 1991 to 2004 179,000 179,000 179,000
Revolving Credit and Term Loan Agreement - 3,200 9,400
- ------------------------------------------------------------------------------------------------------------
Sub-total 499,967 <F6> 588,525 607,140
Less-Discount on long-term debt, net of premium 3,450 3,433 3,624
Current portion of long-term debt 3,962 59,495 12,284
- ------------------------------------------------------------------------------------------------------------
Total Long-Term Debt $492,555 $525,597 $591,232
=============================================================================================================
<FN>
<F1> In July 1993 the company redeemed all of its Series E, F and G First Mortgage Bonds.
<F2> In December 1992, the company entered into an agreement to repurchase its Series H $40 million, 9 1/2%,
First Mortgage Bonds on January 15, 1993. The bonds were originally due March 1, 2005. As such, these bonds
were reclassified from long-term to short-term at December 31, 1992. (See Note 4.)
<F3> Certain assets of Telephone Operations are pledged as security for Mortgage Bonds, Rural
Electrification Administration debt and other debt.
<F4> In December 1992, the company called its 4 3/4% convertible debentures. As such, they have been
reclassified from long-term to short-term at December 31, 1992. The redemption of these debentures occurred
in January 1993. Prior to redemption, debentures were convertible at any time into common stock at $11.50
per share subject to certain adjustments. During 1993, 1992 and 1991, $79,000, $8,000 and $20,000 face value
of debentures were converted into 6,857, 691 and 1,738 shares of common stock, respectively.
<F5> The debenture is convertible into common stock at any time after October 26, 1998 for $21.075 per
share. A total of 251,483 shares of common stock are reserved for such conversion.
<F6> In accordance with Financial Accounting Standards Board Statement No. 107, "Disclosures about Fair
Value of Financial Instruments," the company estimates that the fair value of the debt, based on rates
currently available to the company for debt with similar terms and remaining maturities, is $559.7 million.
</TABLE>
At December 31, 1993, aggregate debt maturities were:
In thousands of dollars 1994 1995 1996 1997 1998
- ---------------------------------------------------------------
$3,962 $3,658 $3,746 $3,577 $3,518
<PAGE>
<PAGE>
8. Notes Payable and Lines of Credit
At December 31, the company had outstanding notes payable as
follows:
In thousands of dollars Amount Interest Rate
- --------------------------------------------------------------
1991 $ 6,010 5.56%- 7.00%
1992 $ 6,194 4.00%- 9.00%
1993 $ 303 6.00%- 9.00%
Also at December 31, 1993, the Rochester company has $50
million of unused bank lines of credit, which are available to
provide support for commercial paper borrowings. These lines of
credit are available for general Corporate purposes. No
compensating balances are required and the commitment fees are
not material. In addition, Highland Telephone Company has an
agreement for an unsecured line of credit of $8 million. No
fees or compensating balances are required.
<PAGE>
<PAGE>
<TABLE>
9. Income Taxes
The provision for income taxes consists of the following:
<CAPTION>
In thousands of dollars 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $45,013 $28,394 $31,051
Deferred 391 8,253 9,522
- ---------------------------------------------------------------------------------------------------------------
Federal:
45,404 36,647 40,573
- ---------------------------------------------------------------------------------------------------------------
State:
Current 3,911 4,663 5,543
Deferred 917 217 954
- ---------------------------------------------------------------------------------------------------------------
4,828 4,880 6,497
- ---------------------------------------------------------------------------------------------------------------
Total income taxes $50,232 $41,527 $47,070
===============================================================================================================
</TABLE>
The reconciliation of the federal statutory income tax rate with the
effective income tax rate reflected in the financial statements is
as follows:
<TABLE>
<CAPTION>
In thousands of dollars 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax expense at statutory rate $44,844 35.0% $36,431 34.0% $39,393 34.0%
Accelerated depreciation 2,656 2.0 2,415 2.3 2,660 2.3
Investment tax credit (2,044) (1.6) (2,223) (2.1) (2,652) (2.3)
Miscellaneous ( 52) - 24 - 1,172 1.0
- ---------------------------------------------------------------------------------------------------------------
Total federal income tax $45,404 35.4% $36,647 34.2% $40,573 35.0%
===============================================================================================================
</TABLE>
<PAGE>
<PAGE>
9. Income Taxes Cont.
As a result of the Revenue Reconciliation Act of 1993, the
1993 Income Tax provision includes the impact of the federal tax
rate increase from 34 percent to 35 percent. The impact amounts
to approximately $2 million, of which approximately $400,000 is
attributable to prior years.
Deferred tax liabilities (assets) are comprised of the following at December
31:
In thousands of dollars 1993 1992
- ---------------------------------------------------------------------
Accelerated depreciation $153,910 $152,230
Investment tax credit 6,828 8,047
Miscellaneous 8,734 10,137
- ---------------------------------------------------------------------
Gross deferred tax liabilities 169,472 170,414
- ---------------------------------------------------------------------
Basis adjustment - purchased telephone companies (42,741) (45,368)
Inventory reserves (113) (883)
Postretirement Benefits Obligation (5,415) -
Deferred compensation (1,648) (1,081)
Other (2,588) (4,206)
- ----------------------------------------------------------------------
Gross deferred tax assets (52,505) (51,538)
- ----------------------------------------------------------------------
Total Deferred Income Taxes $116,967 $118,876
======================================================================
Gross profit on affiliate sales to telephone companies is deferred by
Telecommunication Services and is amortized to offset income taxes to be paid
over the cost recovery periods of the telephone plant. The amortization of
gross profit deferred in prior years exceeded current year deferrals by
$558,000 in 1993, $927,000 in 1992 and $1,355,000 in 1991 resulting in deferred
tax reversals of $195,000, $315,000 and $461,000, respectively.
<PAGE>
<PAGE>
10. Employees' Service Pensions and Benefits
The company, through various contributory and non-contributory defined
benefit pension plans, provides retirement benefits for substantially all
employees. Benefits, in general, are based on years-of-service and average
salary.
The plans' funded status is as follows:
In thousands of dollars December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $283,567 $243,307 $227,317
- -----------------------------------------------------------------------------
Accumulated benefit obligation $307,016 $257,893 $242,464
=============================================================================
Plan assets at fair value, primarily fixed
income securities and common stock $397,841 $370,711 $351,498
Projected benefit obligation 354,065 316,335 304,730
- -----------------------------------------------------------------------------
Funded status 43,776 54,376 46,768
Unrecognized net (gain) loss (28,729) (42,572) (40,247)
Unrecognized net transition asset (5,442) (4,941) (6,512)
Unrecognized prior service cost 9,227 7,071 12,554
- -----------------------------------------------------------------------------
Pension asset included in
Consolidated Balance Sheet $ 18,832 $ 13,934 $ 12,563
=============================================================================
The net periodic pension cost consists of the following:
In thousands of dollars Year Ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
Service cost - benefits earned during the period $ 7,758 $ 7,033 $ 5,464
Interest cost on projected benefit obligation 23,932 23,123 21,702
Actual return on plan assets (40,484) (24,860) (63,059)
Net amortization and deferral 7,623 (9,033) 37,006
- -----------------------------------------------------------------------------
Net periodic pension cost determined under FAS 87 (1,171) (3,737) 1,113
Amount expensed due to regulatory agency actions (1,537) 6,787 2,223
- -----------------------------------------------------------------------------
Net periodic pension cost recognized $ (2,708) $ 3,050 $ 3,336
=============================================================================
The projected benefit obligation at December 31, 1993 was determined using
an assumed weighted average discount rate of 7.25 percent and an assumed
weighted average rate of increase in future compensation levels of 5.0
percent. The weighted average expected long-term rate of return on plan
assets was assumed to be 8.75 percent. The unrecognized net transition asset
as of January 1, 1987 is being amortized over the estimated remaining service
lives of employees, ranging from 12 to 26 years.
The company's funding policy is to make contributions for pension benefits
based on actuarial computations which reflect the long-term nature of the
pension plan. However, under Financial Accounting Standards Board Statement
No. 87 (FAS 87), "Employers' Accounting for Pensions," the development of the
projected benefit obligation essentially is computed for financial reporting
purposes and may differ from the actuarial determination for funding due to
varying assumptions and methods of computation.
<PAGE>
<PAGE>
During 1993, 1992 and 1991, the company funded $.2 million,
$4.8 million and $4.0 million, respectively, for employees'
service pensions and certain death benefits.
The company also sponsors a number of defined contribution
plans. The most significant plan covers substantially all
management employees, who make contributions via payroll
deduction. The company matches 75 percent of that contribution
up to 6 percent of gross compensation. Total cost recognized
for all defined contribution plans during 1993 was $4.1 million.
On November 30, 1992, a voluntary pension incentive plan was
offered to Rochester Tel employees who were pension-eligible and
retired on or before December 31, 1992. A 7.5 percent
additional pension benefit will supplement the normal pension
benefit for up to five years or until age 65, whichever is
earlier. Accordingly, pension costs for the fourth quarter of
1992 include a one-time charge of $.8 million. Payments will be
made from pension plan assets.
<PAGE>
<PAGE>
11. Postretirement Benefits Other Than Pensions
The company provides health care, life insurance, and
certain other retirement benefits for substantially all
employees. Effective January 1, 1993, the company adopted
Financial Accounting Standards Board Statement No. 106 (FAS 106)
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." FAS 106 requires that employers reflect in current
expenses an accrual for the cost of providing postretirement
benefits to current and future retirees. Prior to 1993, the
company recognized these costs as they were paid. The cost of
postretirement benefits was recognized as determined under the
projected unit credit actuarial method. Plan assets consist
principally of life insurance policies.
In adopting FAS 106, the company elected to defer the
recognition of the accrued obligation of $125 million over a
period of twenty years. For 1993, the adoption of this standard
resulted in additional operating expenses in the amount of $7.8
million, net of a deferred income tax benefit of $4.1 million.
However, a substantial portion of this increase was offset by a
change in accounting for pensions for rate making purposes at
the Rochester company. The change requires that the company
amortize, over a ten year period, the cumulative amount of
pension funding from January 1, 1987 over the amount of pension
expense which would have been recognized through December 31,
1992 under FAS 87, reducing pension expense throughout the
amortization period. The net impact of adopting FAS 106 and
recording the accounting change for FAS 87 actually resulted in
only $3.8 million of additional operating expenses, net of the
income tax benefit, in 1993.
The funded status of the plans as of December 31, 1993
follows:
Accumulated postretirement benefit
obligation (APBO) attributable to:
Retirees $ 63,749
Fully eligible plan participants 44,399
Other active plan participants 34,892
--------
Total APBO 143,040
Plan Assets at Fair Value 3,944
--------
APBO in Excess of Plan Assets 139,096
Unrecognized Transition Obligation (117,706)
Unrecognized Net Prior Service Cost (1,458)
Unrecognized Net Loss (3,811)
--------
Accrued Postretirement Benefit Obligation $ 16,121
========
The components of the estimated postretirement benefit cost
for 1993 follow:
Service Cost $ 2,746
Interest on Accumulated Postretirement
Benefit Obligation 10,046
Amortization of Transition Obligation 6,241
Return on Plan Assets (290)
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Net Postretirement Benefit Cost $18,743
=======
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To estimate these costs, health care costs were assumed to
increase 12.0 percent in 1994 with the rate of increase
declining consistently to 5.25 percent by 2006 and thereafter.
The weighted discount rate and salary increase rate were assumed
to be 7.25 percent and 6.0 percent, respectively. The expected
long-term rate of return on plan assets was 7.4 percent. If the
health care cost trend rates were increased by one percentage
point, the accumulated postretirement benefit health care
obligation as of December 31, 1993 would increase by $19.4
million while the sum of the service and interest cost
components of the net postretirement benefit health care cost
for 1993 would increase by $2.1 million.
12. Postemployment Benefits
In 1992 the Financial Accounting Standards Board released
Statement No. 112, "Employers' Accounting for Postemployment
Benefits" (FAS 112), which is 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.
The company will adopt the provisions of FAS 112 effective
January 1, 1994 by recognizing its obligation for postemployment
benefits through a cumulative effect charge to net income. This
nonrecurring, noncash charge is expected to reduce 1994's net
income by up to $5.9 million. Adoption of FAS 112 is not
expected to significantly impact future operating expense or the
company's cash flow.
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13. Leases and License Agreements
The company leases buildings, land, office space, fiber
optic network, computer hardware and other equipment, and has
license agreements for rights-of-way for the construction and
operation of a fiber optic communications system. Total rental
expense amounted to $15.5 million in 1993, $16.4 million in 1992
and $15.4 million in 1991.
Minimum annual rental commitments under non-cancellable
operating leases and license agreements in effect on December
31, 1993 were as follows:
In thousands of dollars Non-Cancellable Leases License
Years Buildings Equipment Agreements
------------------------------------------------------------------
1994 $ 7,600 $ 5,965 $ 5,964
1995 6,955 6,058 6,115
1996 6,670 4,965 6,108
1997 6,425 2,017 6,015
1998 6,129 389 5,846
1999 and thereafter 26,434 3 30,769
--------------------------------------------------------------------
Total $60,213 $19,397 $60,817
14. Business Segment Information
Revenues and sales, operating income, depreciation,
construction expenditures and identifiable assets by business
segment are set forth in the Business Segment Information
included on page 2 of this report.
15. Commitments and Contingencies
It is anticipated that the company will expend $73.7 million
for additions to property, plant, and equipment during 1994. In
connection with this construction program, certain commitments
for the purchase of material and equipment have been made.
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15. Commitments and Contingencies Cont.
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 disputes the justification for the royalty
proposal which 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 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 remaining
assets of the existing Rochester company, primarily investments
in subsidiaries, which would remain with the newly 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 will aggressively
pursue approval of this plan of reorganization but 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 transaction is expected to close
in the first quarter of 1994, subject to various governmental
approvals and third party consents. On December 21, 1993, the
company and NYNEX announced their intention to include the
Binghamton and Elmira areas in the supersystem.
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<TABLE>
16. Interim Data (Unaudited)
Selected quarterly data follow:
<CAPTION>
Revenues and Sales Income Per Share
--------------------------------------- ----------------- -----------------------------
Earnings
Before Market Price
(In thousands of dollars,Telecommunication Telephone Operating Net Extraordinary
except per share data) Services Operations Total Income Income Items Earnings High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 First Quarter $ 66,395 $144,574 $210,969 $ 44,364 $ 18,018 $ .53 $ .53 $38.88 $34.63
Second Quarter 74,549 148,303 222,852 48,949 19,830 .58 .58 $43.50 $36.50
Third Quarter 82,743 147,763 230,506 48,373 19,237 .56 .56 $48.75 $41.00
Fourth Quarter 88,892 153,231 242,123 53,259 25,635 .75 .75 $50.25 $43.375
Full Year $312,579 $593,871 $906,450 $194,945 $ 82,720 $2.42 $2.42
========================================================
1992 First Quarter $ 55,802 $137,708 $193,510 $ 40,412 $ 15,291 $ .45 $ .45 $34.00 $30.13
Second Quarter 57,801 140,677 198,478 43,176 16,518 .49 .49 $33.75 $29.13
Third Quarter 59,478 142,116 201,594 46,118 18,448 .54 .54 $32.88 $30.25
Fourth Quarter 63,696 146,771 210,467 45,428 19,174<F1> .60 .57 $35.75 $30.63
Full Year $236,777 $567,272 $804,049 $175,134 $ 69,431 $2.08 $2.05
=======================================================
1991 First Quarter $ 52,865 $109,517 $162,382 $ 32,651 $ 13,327 $ .43 $ .43 $30.38 $26.00
Second Quarter 52,122 114,639 166,761 34,008 31,900<F2> .90 1.02 $31.50 $29.00
Third Quarter 54,875 131,690 186,565 39,069 16,384<F3> .47 .48 $31.38 $28.25
Fourth Quarter 56,100 141,751 197,851 42,640 17,435 .51 .51 $34.00 $29.75
Full Year $215,962 $497,597 $713,559 $148,368 $ 79,046 $2.31 $2.43
=======================================================
<FN>
<F1> Includes extraordinary loss on retirement of debt of $1.1 million. (See Note 4.)
<F2> Includes ordinary and extraordinary gain on sale of cellular, net of taxes, of $18.7 million. (See Note 4.)
<F3> Includes ordinary and extraordinary gain on sale of cellular, net of taxes, of $.8 million. (See Note 4.)
</TABLE>
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