-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cjJeTqgSNhUN74f6K4i9kHeOUkAwHXes7uhkApIy0x7PHaWFLewnmaV/ASs/2nB/ 6Gkvhd/rvSmFWUlOBNqs/w== 0000084567-94-000039.txt : 19940822 0000084567-94-000039.hdr.sgml : 19940822 ACCESSION NUMBER: 0000084567-94-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCHESTER TELEPHONE CORP CENTRAL INDEX KEY: 0000084567 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 160613330 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04166 FILM NUMBER: 94543369 BUSINESS ADDRESS: STREET 1: ROCHESTER TEL CENTER STREET 2: 180 S CLINTON AVE CITY: ROCHESTER STATE: NY ZIP: 14646-0995 BUSINESS PHONE: 7167771000 10-Q 1 TEXT AND FINANCIALS FOR 10Q 2Q 94 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 June 30, 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 73,156,596 as of July 31, 1994 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. Consolidated Balance Sheet
June 30, December 31, 1994 1993 In thousands of dollars (Unaudited) - - ----------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 189,184 $ 31,284 Short-term investments 152 349 Accounts receivable 164,373 157,320 Material and supplies 10,576 11,208 Prepayments and other 21,531 21,583 - - ----------------------------------------------------------------------------------- Total Current Assets 385,816 221,744 - - ----------------------------------------------------------------------------------- Property, Plant and Equipment: Telephone plant in service 1,543,708 1,561,032 Telephone plant under construction 34,393 33,048 - - ----------------------------------------------------------------------------------- 1,578,101 1,594,080 Less-Accumulated depreciation 667,943 652,578 - - ----------------------------------------------------------------------------------- Net Telephone Plant 910,158 941,502 - - ----------------------------------------------------------------------------------- Telecommunication property 174,234 153,954 Less-Accumulated depreciation 77,133 68,265 - - ----------------------------------------------------------------------------------- Net Telecommunication Property 97,101 85,689 - - ----------------------------------------------------------------------------------- Goodwill 144,559 166,283 - - ----------------------------------------------------------------------------------- Deferred and Other Assets 89,537 94,983 - - ----------------------------------------------------------------------------------- Total Assets $1,627,171 $1,510,201 =================================================================================== Liabilities and Shareowners' Equity Current Liabilities Accounts payable $ 131,958 $ 147,152 Notes payable 106 303 Advance billings 10,543 12,572 Dividends payable 15,116 14,058 Long-term debt due within one year 3,290 3,962 Taxes accrued 14,253 14,729 Interest accrued 13,592 13,583 - - ----------------------------------------------------------------------------------- Total Current Liabilities 188,858 206,359 - - -----------------------------------------------------------------------------------
Consolidated Balance Sheet
June 30, December 31, 1994 1993 In thousands of dollars (Unaudited) - - ----------------------------------------------------------------------------------- Long-Term Debt 481,725 492,555 - - ----------------------------------------------------------------------------------- Deferred Income Taxes 117,592 116,967 - - ----------------------------------------------------------------------------------- Deferred Benefits 28,854 16,121 - - ----------------------------------------------------------------------------------- Minority Interests 11,380 3,100 - - ----------------------------------------------------------------------------------- Shareowners' Equity: Common stock 73,152 34,025 Capital in excess of par value 264,066 201,591 Retained earnings 438,767 418,889 - - ----------------------------------------------------------------------------------- 775,985 654,505 Less-Treasury stock, at cost - 2,191 - - ----------------------------------------------------------------------------------- Common Shareowners' Equity 775,985 652,314 Preferred stock 22,777 22,785 - - ----------------------------------------------------------------------------------- Total Shareowners' Equity 798,762 675,099 - - ----------------------------------------------------------------------------------- Total Liabilities and Shareowners' Equity $1,627,171 $1,510,201 =================================================================================== See accompany Notes to Consolidated Financial Statements.
ROCHESTER TELEPHONE CORPORATION Consolidated Statement of Income (Unaudited)
3 Months Ended June 30, 6 Months Ended June 30, In thousands, except per share data 1994 1993 1994 1993 - - ----------------------------------------------------------------------------------------------------- Revenues and Sales: Telephone Operations $154,905 $148,303 $305,904 $292,877 Telecommunication Services 96,922 74,549 187,736 140,944 - - ----------------------------------------------------------------------------------------------------- Total Revenues and Sales 251,827 222,852 493,640 433,821 - - ----------------------------------------------------------------------------------------------------- Costs and Expenses: Operating expenses 147,450 128,581 289,853 250,219 Cost of goods sold 5,534 5,889 11,914 10,917 Depreciation 30,531 27,883 59,603 56,811 Taxes other than income taxes 12,279 11,550 24,174 22,561 - - ----------------------------------------------------------------------------------------------------- Total Costs and Expenses 195,794 173,903 385,544 340,508 - - ----------------------------------------------------------------------------------------------------- Operating Income 56,033 48,949 108,096 93,313 Interest expense 10,886 12,190 21,855 24,000 Other income and expense: Allowance for funds used during construction 280 302 556 672 Gain on sale of subsidiary 12,933 - 12,933 - Other income (expense), net (4,944) (5,427) (10,623) (9,052) - - ----------------------------------------------------------------------------------------------------- Income Before Taxes and Cumulative Effect of Change in Accounting Principle 53,416 31,634 89,107 60,933 Income taxes 18,520 11,804 31,809 23,085 - - ----------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Principle 34,896 19,830 57,298 37,848 Cumulative Effect of Change in Accounting Principle - accounting for post-employment benefits - - (7,197) - - - ----------------------------------------------------------------------------------------------------- Consolidated Net Income 34,896 19,830 50,101 37,848 Dividends on preferred stock 296 296 593 593 - - ----------------------------------------------------------------------------------------------------- Income Applicable to Common Stock $ 34,600 $ 19,534 $ 49,508 $ 37,255 ===================================================================================================== See accompanying Notes to Consolidated Financial Statements.
ROCHESTER TELEPHONE CORPORATION Consolidated Statement of Income (Unaudited)
3 Months Ended June 30, 6 Months Ended June 30, In thousands, except per share data 1994 1993 1994 1993 - - ----------------------------------------------------------------------------------------------------- Dividends declared on common stock $ 14,815 $ 13,583 $ 29,630 $ 26,749 Dividends declared per common share $ .2025 $ .1975 $ .4050 $ .3950 Average common shares outstanding 73,227 67,502 71,910 67,084 Earnings Per Common Share Primary: Income before cumulative effect of change in accounting principle $ .47 $ .29 $ .79 $ .56 Cumulative effect of change in accounting principle - - (.10) - - - ----------------------------------------------------------------------------------------------------- Net Earnings Per Common Share $ .47 $ .29 $ .69 $ .56 - - ----------------------------------------------------------------------------------------------------- Fully Diluted: Income before cumulative effect of change in accounting principle $ .47 $ .29 $ .79 $ .55 Cumulative effect of change in accounting principle - - (.10) - - - ----------------------------------------------------------------------------------------------------- Net Earnings Per Common Share $ .47 $ .29 $ .69 $ .55 ===================================================================================================== See accompanying Notes to Consolidated Financial Statements.
ROCHESTER TELEPHONE CORPORATION Business Segment Information (Unaudited)
3 Months Ended June 30, 6 Months Ended June 30, In thousands of dollars 1994 1993 1994 1993 - - ----------------------------------------------------------------------------------------------------- Telephone Operations Revenues: Local service $ 61,309 $ 56,923 $ 119,752 $ 112,443 Network access service 58,205 55,038 117,068 108,577 Long distance network service 6,670 7,004 12,486 13,524 Directory advertising, billing services, and other 29,940 30,400 59,217 60,368 Less: Uncollectibles 1,219 1,062 2,619 2,035 - - ----------------------------------------------------------------------------------------------------- Total Revenues $ 154,905 $ 148,303 $ 305,904 $ 292,877 ====================================================================================================== Operating Income $ 45,660 $ 42,275 $ 89,271 $ 80,412 ====================================================================================================== Depreciation $ 25,483 $ 23,824 $ 50,911 $ 48,902 ====================================================================================================== Construction Expenditures $ 13,150 $ 26,613 $ 25,997 $ 42,390 ====================================================================================================== Identifiable Assets $1,526,089 $1,425,912 $1,526,089 $1,425,912 ====================================================================================================== Telecommunication Services Sales: Network Systems and Services: Non-Affiliate $ 85,339 $ 67,275 $ 167,425 $ 128,192 Affiliate 1,566 1,178 3,459 1,965 Wireless Communications 11,799 6,992 20,895 12,413 Eliminations (1,782) (896) (4,043) (1,626) - - ----------------------------------------------------------------------------------------------------- Total Sales $ 96,922 $ 74,549 $ 187,736 $ 140,944 ====================================================================================================== Operating Income: Network Systems and Services $ 9,279 $ 6,163 $ 16,959 $ 11,938 Wireless Communications 1,007 493 1,760 926 Eliminations 87 18 106 37 - - ----------------------------------------------------------------------------------------------------- Total Operating Income $ 10,373 $ 6,674 $ 18,825 $ 12,901 ====================================================================================================== Depreciation $ 5,048 $ 4,059 $ 8,692 $ 7,909 ====================================================================================================== Construction Expenditures $ 12,243 $ 3,147 $ 18,225 $ 4,321 ====================================================================================================== Identifiable Assets $ 296,047 $ 245,483 $ 296,047 $ 245,483 ====================================================================================================== Includes assets eliminated in consolidation of $194,965 in 1994 and $132,096 in 1993.
See accompanying Notes to Consolidated Financial Statements. Consolidated Statement of Cash Flows (Unaudited)
6 Months Ended June 30 In thousands of dollars 1994 1993 - - ----------------------------------------------------------------------------------------- Cash Flows from Operating Activities Income before cumulative effect of change in accounting principle $ 57,298 $ 37,848 Cumulative effect of change in accounting principle (7,197) - - - ----------------------------------------------------------------------------------------- Net Income 50,101 37,848 - - ----------------------------------------------------------------------------------------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 61,302 63,489 Gain on sale of assets (9,915) (1,987) Cumulative effect of change in accounting principle 11,072 - Changes in operating assets and liabilities, exclusive of impacts of purchase acquisitions and divestitures: (Increase) in accounts receivable (6,452) (7,418) Decrease in material and supplies 530 845 Decrease in prepayments and other current assets 1,163 3,225 (Increase) in deferred and other assets (14,367) (4,947) (Decrease) in accounts payable (17,000) (12,371) (Decrease) in advance billings (2,207) (1,848) Increase/(decrease) in accrued interest and taxes 6,019 (1,362) Increase in deferred benefits 1,515 7,444 (Decrease)/increase in deferred income taxes (2,366) 3,662 - - ----------------------------------------------------------------------------------------- Total Adjustments 29,294 48,732 - - ----------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 79,395 86,580 - - ----------------------------------------------------------------------------------------- Cash Flows from Investing Activities Expenditures for property, plant and equipment, net (44,028) (41,926) Decrease in short-term investments 197 115 Investment in cellular 1,174 (627) Proceeds from asset sales - 2,670 Proceeds from sale of company 55,689 - Investment in nonaffiliated entities - (3,321) Purchase of company - (7,377) Cash acquired in purchase acquisitions - 178 - - ----------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities 13,032 (50,288) - - -----------------------------------------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
6 Months Ended June 30 In thousands of dollars 1994 1993 - - ----------------------------------------------------------------------------------------- Cash Flows from Financing Activities (Decrease)/increase in notes payable (197) 109 Proceeds from long-term debt - 35,234 Repayments of long-term debt (11,547) (50,874) Dividends paid (29,206) (27,050) Purchases of treasury stock - (7,739) Redemptions of preferred stock (8) (8) Issuance of treasury stock 2,302 - Issuance of common stock 103,862 - Minority interests 267 201 - - ----------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities 65,473 (50,127) - - ----------------------------------------------------------------------------------------- Net Increase (decrease) in Cash and Cash Equivalents 157,900 (13,835) Cash and Cash Equivalents at Beginning of Period 31,284 69,347 - - ----------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $189,184 $55,512 =========================================================================================== See accompanying Notes to Consolidated Financial Statements.
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 36 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 6 Months Ended June 30, June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Federal Current $17,236 $ 9,803 $30,418 $19,604 Deferred (544) 650 (2,063) 868 ------- ------- ------- ------- $16,692 $10,453 $28,355 $20,472 ------- ------- ------- ------- State Current $ 1,979 $ 1,096 $ 3,757 $ 2,347 Deferred (151) 255 (303) 266 ------- ------- ------- ------- $ 1,828 $ 1,351 3,454 2,613 ------- ------- ------- ------- Total $18,520 $11,804 $31,809 $23,085 ======= ======= ======= ======= ROCHESTER TELEPHONE CORPORATION Notes to Consolidated Financial Statements (Unaudited) 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 June 30, 1994, the cumulative balance of tax reductions not previously offset by provisions for deferred federal income taxes amounted to $46 million. Similarly, the cumulative balances of tax reductions not previously offset by provisions for deferred state income taxes amounted to $20 million at June 30, 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 $21.8 million and $24.8 million for the six month periods ended June 30, 1994, and June 30, 1993, respectively. In addition, actual income taxes paid were $37.9 million for the six months ended June 30, 1994, and $22.5 million for the six months ended June 30, 1993. 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 ROCHESTER TELEPHONE CORPORATION Notes to Consolidated Financial Statements (Unaudited) value. The New York State Public Service Commission (NYSPSC) 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. Historical share and per share data have been retroactively adjusted to reflect the split where appropriate. Note 5: Earnings Per Share ------------------ Average common shares outstanding include amounts for common stock equivalents resulting from stock options outstanding at June 30, 1994, and June 30, 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 ("Plans"). Under the original plans, which were approved by shareowners in 1990, the Company was authorized to issue a maximum of 400,000 shares of common stock over a ten-year period. At the April 1994 Annual Meeting, shareowners approved amendments to both plans which increased the total number of option shares to 1,500,000. The amendments also provided for automatic increases in the number of shares that may be issued as a result of a stock split. Consequently, since the stock was split (see Note 4) subsequent to the 1994 Annual Meeting, there are currently 3,000,000 option shares available for issuance. 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. ROCHESTER TELEPHONE CORPORATION Notes to Consolidated Financial Statements (Unaudited) Information with respect to options under the above plans follows: Option Price Shares Per Share Aggregate ------ ------------ --------- Outstanding at March 31, 1994 634,154 $12,420,135 Second Quarter Activity: Granted 116,000 $22.688 2,631,750 Exercised (3,997) $15.688-$19.750 (69,784) Cancelled (2,000) $21.188-$22.688 (42,975) --------- ------------ Outstanding at June 30, 1994 744,157 $14,939,126 ======= =========== At June 30, 1994, 102,115 shares were exercisable and 2,248,662 shares were available for future grant. Shares and option price per share were adjusted for the 2-for-1 split in April, 1994. 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 primary 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. All share and per share data is prior to the 2-for-1 stock split in April, 1994. The net proceeds from the primary shares sold during the offering, subject to approval by the NYSPSC, 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, 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. 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: Divestitures: ------------ On May 16, 1994, the Company completed the sale of Minot Telephone Company in Minot, North Dakota to a subsidiary of the Souris River Telecommunications Cooperative. Minot Telephone was the Company's only holding in North Dakota and the Company had reassessed its prospects for expansion in North Dakota. The sale of Minot Telephone Company resulted in a $9.5 million after-tax gain, or $.13 per share, included in the second quarter results. Note 10: Commitments and Contingencies ---------------------------- It is anticipated that the Company will expend approximately $82 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 filed a legal challenge to the Commission's action on the royalty proposal in the courts. On June 30, 1994, the Appellate Division of the New York State Supreme Court upheld the NYSPSC decision of July 6, 1993. The Company filed, on July 29, 1994, a Notice of Appeal and Motion for Leave To Appeal with the New York Court of Appeals. 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. The Company's Open Market Plan, discussed in the following paragraph, also includes a proposal to resolve the royalty issue for the duration of the Open Market Plan Agreement. ROCHESTER TELEPHONE CORPORATION Notes to Consolidated Financial Statements (Unaudited) In February 1993, the Company filed a petition for reorganization with the NYSPSC. The petition became known as the Company's Open Market Plan and Corporate Restructuring Proposal. The request was 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, was being proposed to better meet the current and emerging competition in the marketplace. The second aspect of the petition involved 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 the acquisition and diversification efforts necessary for the long-term growth of the business. On May 17, 1994 the Company reached a Joint Stipulation and Agreement with the Staff of the NYSPSC, Time Warner Communications and the Communications Workers of America on the terms of this Open Market Plan and Corporate Restructuring. Subsequently, on August 1, 1994 the New York State Department of Economic Development also officially endorsed the Plan. The Joint Stipulation and Agreement included operational modifications to the Company's original proposal as well as a rate reduction of $21 million over seven years and a form of price cap regulation for at least five years. The Company and other interested parties are currently pursuing final approval by the NYSPSC, and the NYSPSC has adopted a hearing and briefing schedule running through August 1994. The Company is aggressively pursuing approval of the Joint Stipulation but cannot predict the outcome at this time. 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 to provide cellular telephone customers with expanded geographic coverage. The supersystem, which began operations on July 1, 1994, initially includes 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 supersystem is a 50/50 joint venture partnership, with Rochester Tel Cellular as the manager. The Company's share of the joint venture earnings will be accounted for under the equity method. On December 21, 1993, the Company and NYNEX announced their intention to include the Binghamton and Elmira areas in the supersystem, following receipt of the necessary approvals and satisfaction of other preconditions. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended June 30, 1994 and 1993 ========================================== OVERVIEW ======== Consolidated operating income increased $7.1 million, or 14.5 percent, for the three months ended June 30, 1994, over the comparable period in 1993. Operating income from Telecommunication Services increased $3.7 million, or 55.4 percent, while operating income from Telephone Operations increased $3.4 million, or 8.0 percent, for the three months ended June 30, 1994 over the respective period in 1993. Consolidated net income was $34.9 million for the quarter, which includes a $9.5 million after-tax gain from the completed sale of Minot Telephone Company. Exclusive of this gain, consolidated net income increased $5.5 million, or 27.9 percent, over the second quarter of 1993. Primary earnings per average common shares were $.47 in the second quarter of 1994, of which $.13 is associated with the gain from the sale of Minot Telephone Company. Net of the gain, this represents an increase of $.05 per share, or 17.2 percent, over the comparable quarter in 1993. Average common shares outstanding in the second quarter of 1994 were 73.2 million, an increase of 5.7 million shares over the second quarter of 1993. This increase is due mainly to the issuance of 2.5 million additional shares from the February 1994 equity offering and the 2-for-1 stock split that was effected in April 1994. See Notes 4 and 7 to the Financial Statements set forth in Part I, Item 1 for additional information. FINANCIAL REVIEW ================ Revenues and Sales - - ------------------ Total revenues and sales for the second quarter of 1994 were $251.8 million, an increase of $29.0 million, or 13.0 percent, over 1993. Revenues from Telephone Operations for the second quarter of 1994 increased $6.6 million, or 4.5 percent, over the comparable period in 1993. Local telephone service revenues increased $4.4 million, or 7.7 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 $2.8 million, or 4.6 percent, in the second quarter of 1994 primarily due to higher switched access revenue and higher toll service rates. Sales from Telecommunication Services increased $22.4 million, or 30.0 percent, in the second quarter of 1994 when compared to the corresponding quarter in 1993. An increase of $18.5 million, or 27.0 percent, in Long Distance revenues was the major contributor to this improvement. This increase is due to increased usage, the growth of the Company's Residential Calling Program, price increases and the impact of the acquisitions of Budget Call Long Distance, Inc. in June 1993 and Mid Atlantic Telecom, Inc. in September 1993. Costs and Expenses - - ------------------ Total consolidated costs and expenses increased $21.9 million, or 12.6 percent, in the second quarter of 1994 when compared to the same period in 1993. Consolidated operating expenses increased $18.9 million, or 14.7 percent, primarily as a result of higher access charges relating to the increase in long distance revenues. Telephone operating expenses increased 1.6 percent over the second quarter of 1993. Operating expenses for the regional telephone companies increased 4.1 percent in the quarter due mainly to increased plant related expenses resulting from higher sales volumes. Operating expenses at the Rochester operating company decreased 1.8 percent primarily as a result of force level reductions. Operating Income - - ---------------- Operating income from Telephone Operations increased $3.4 million, or 8.0 percent, in the second 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 9.8 percent increase in operating income primarily due to increased revenues in the Midwest Region. This resulted in a 34.6 percent regional telephone operating margin, compared to 33.4 percent for the second quarter of 1993. At the Rochester operating company, operating income increased 5.9 percent primarily due to lower wages and benefits resulting from lower work force levels. Operating income from Telecommunication Services increased $3.7 million, or 55.4 percent, in the second quarter of 1994 when compared to the corresponding quarter in 1993. The Network Systems and Services business segment operating income increased 50.6 percent in the second quarter of 1994 versus the second quarter of 1993 due to the substantial increase in long distance revenues. In the Wireless segment, operating income increased $.5 million, or 104.3 percent, primarily as a result of the consolidation of the Alabama wireless properties, in which Rochester Tel recently acquired a controlling interest. Interest Expense - - ---------------- For the three months ended June 30, 1994, interest charges decreased $1.3 million, or 10.7 percent, over the comparable period in 1993. This decrease is the result of lower debt balances for the three month period ended June 30, 1994 when compared to the same period in 1993. Gain on Sale of Assets - - ---------------------- On May 16, 1994, the Company completed the sale of Minot Telephone Company in Minot, North Dakota. This transaction resulted in a pre-tax gain of $12.9 million. Income Taxes - - ------------ Consolidated income taxes increased $6.7 million, or 56.9 percent, in the second quarter of 1994 when compared to the corresponding period in 1993. Taxes associated with the sale of Minot Telephone Company accounted for $3.4 million of this increase. The remainder of this increase is due to higher income. The effective income tax rate was 34.7 percent for the three month period ended June 30, 1994, as compared to 37.3 percent for the period ended June 30, 1993. Six Months Ended June 30, 1994 and 1993 ========================================== OVERVIEW ======== Consolidated operating income increased $14.8 million, or 15.8 percent, for the six months ended June 30, 1994 over the comparable period in 1993. Operating income from Telecommunication Services increased $5.9 million, or 45.9 percent, while Telephone Operations increased $8.9 million, or 11.0 percent, over the respective period in 1993. Income before the cumulative effect of a change in accounting principle for the six months ended June 30, 1994 was $57.3 million reflecting an increase of $19.5 million, or 51.4 percent, when compared to the corresponding period in 1993. Excluding the cumulative effect of a change in accounting principle and the after-tax gain on the sale of the Minot Telephone subsidiary, consolidated net income was $47.8 million for the first six months of 1994, an increase of $9.9 million, or 26.2 percent, when compared to the corresponding period 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 or the Company's cash flow. Primary earnings before the cumulative effect of a change in accounting principle per average common share were $.79 for the six months ended June 30, 1994. This represents an increase of $.23 per share, or 41.1 percent, over the comparable period in 1993. The adoption of FAS 112 negatively impacted primary earnings by $.10 per share for the six months ended June 30, 1994. Primary earnings after the cumulative effect of a change in accounting principle per average common share were $.69 for the six months ended June 30, 1994. This represents an increase of $.13 per share over the comparable period in 1993. Average common shares outstanding for the six months ended June 30, 1994 were 71.9 million, 4.8 million shares more than the comparable period of 1993, chiefly as a result of the equity offering and the subsequent 2-for-1 stock split described in Notes 4 and 7 to the Financial Statements set forth in Part I, Item 1. All share and per share data have been adjusted for the 2-for-1 stock split. FINANCIAL REVIEW ================ Revenues and Sales - - ------------------ Total revenues and sales for the six months ended June 30, 1994 were $493.6 million, an increase of $59.8 million, or 13.8 percent, over 1993. Revenues from Telephone Operations for the first six months of 1994 increased $13.0 million, or 4.4 percent, over the comparable period in 1993. Local telephone service revenues increased $7.3 million, or 6.5 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 $7.5 million, or 6.1 percent, for the six months ended June 30, 1994, primarily due to higher switched access revenue and higher toll service rates. Sales from Telecommunication Services increased $46.8 million, or 33.2 percent, for the first six months of 1994 when compared to the corresponding period in 1993. An increase of $40.7 million, or 31.3 percent, in Long Distance revenues was the major contributor to this improvement. This increase is due to increased usage, the growth of the Company's Residential Calling Program, price increases and the impact of the acquisitions of Budget Call Long Distance, Inc. in June 1993 and Mid Atlantic Telecom, Inc. in September 1993. Costs and Expenses - - ------------------ Total consolidated costs and expenses increased $45.0 million, or 13.2 percent, in the first six months of 1994 when compared to the same period in 1993. Consolidated operating expenses increased $39.6 million, or 15.8 percent, primarily as a result of higher access charges relating to the increase in long distance revenues. Telephone operating expenses for the six months ended June 30, 1994 increased 1.1 percent compared to the same period in 1993. Operating expenses for the regional telephone companies increased 3.9 percent in the first six months of 1994 when compared to the same period in 1993, due mainly to increased plant related expenses resulting from higher sales volumes. Operating expenses at the Rochester operating company decreased 2.5 percent primarily as a result of force level reductions. Operating Income - - ---------------- Operating income from Telephone Operations increased $8.9 million, or 11.0 percent, for the six months ended June 30, 1994 when compared to the corresponding period in 1993. The regional telephone companies led the operating income performance in this business segment with a 16.5 percent increase in operating income primarily due to increased revenues in the Midwest Region. This resulted in a 34.5 percent operating margin, compared to 31.9 percent for the first six months of 1993. At the Rochester operating company, operating income increased 3.9 percent primarily due to lower wages and benefits resulting from lower work force levels. Operating income from Telecommunication Services increased $5.9 million, or 45.9 percent, for the first six months ended June 30, 1994, when compared to the corresponding period in 1993. The Network Systems and Services business segment operating income increased 42.1 percent for the six months ended June 30, 1994 versus the corresponding period of 1993 due to the substantial increase in long distance revenues. In the Wireless segment, operating income increased $.8 million, or 90.0 percent, as a result of the Utica Rome acquisition in April of 1993 and the consoli- dation of the Alabama wireless properties. Interest Expense - - ---------------- For the six months ended June 30, 1994, interest charges decreased $2.1 million, or 8.9 percent, over the comparable period in 1993. This decrease is the result of lower debt balances for the six month period ended June 30, 1994 when compared to the same period in 1993. Gain on Sale of Assets - - ---------------------- On May 16, 1994, the Company completed the sale of Minot Telephone Company in Minot, North Dakota. This transaction resulted in a pre-tax gain of $12.9 million. Income Taxes - - ------------ Consolidated income taxes increased $8.7 million, or 37.8 percent, for the six months ended June 30, 1994 when compared to the corresponding period in 1993. Taxes associated with the sale of Minot Telephone Company accounted for $3.4 million of this increase. The remainder of this increase is due to higher income. The effective income tax rate was 35.7 percent for the six month period ended June 30, 1994, as compared to 37.9 percent for the period ended June 30, 1993. LIQUIDITY AND CAPITAL RESOURCES =============================== Cash and Cash Equivalents - - ------------------------- At June 30, 1994, the Company had $189.2 million in cash and cash equivalents compared to $31.3 million at December 31, 1993, an increase of $157.9 million resulting mainly from the equity offering as described in Note 7 to the Financial Statements set forth in Part I, Item 1, and the sale of Minot Telephone Company in May of 1994 as described in Note 9 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 $485.1 million at June 30, 1994, a decrease of $11.7 million from December 31, 1993. This decrease was a result of the early retirement of high cost subsidiary debt during the first six months of 1994 in addition to the normal paydown of debt through June 30, 1994. Debt Ratio and Interest Coverage - - -------------------------------- The Company's debt ratio (total debt as a percent of total capitalization) was 37.8 percent at the end of June 30, 1994, versus 42.4 percent at the end of 1993. This change is primarily due to the common stock issuance during the first quarter. Pre-tax interest coverage before the cumulative effect of a change in accounting principle was 5.1 times for the first six months ended June 1994 compared to 3.9 times at the end of 1993. Construction Spending - - --------------------- The Company plans to spend a total of approximately $82 million on capital expenditures in 1994. Telephone Operations plans to spend approximately $57 million and Telecommunication Services plans to spend approximately $25 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 June 21, 1994, the Board of Directors declared the second quarter 1994 regular dividend of 20.25 cents per share on the Company's common stock, payable August 1, 1994, to shareowners of record on July 15, 1994. OTHER ITEMS =========== Acquisitions - - ------------ Effective July 6, 1994, the Company definitively agreed to purchase the Minnesota Cellular Telephone Company ("MSCTC") in a tax-deferred stock-for-stock transaction. MSCTC is the non-wireline cellular provider of service in Minnesota RSA #10 which is south of Minneapolis. Regulatory approvals are pending. The acquisition is expected to be completed in the first quarter of 1995 and will be accounted for as a pooling of interests. Open Market Plan - - ---------------- In February 1993, the Company filed a widely recognized innovative proposal with the NYSPSC 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". Under the proposal, two new companies would be formed 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, was being proposed to better meet the current and emerging competition in the marketplace. The second aspect of the petition involved 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. On May 17, 1994, the Company reached a Joint Stipulation and Agreement with the Staff of the NYSPSC, Time Warner Communications and the Communications Workers of America on the terms of this Open Market Plan and Corporate Restructuring. Subsequently, on August 4, 1994 the New York State Department of Economic Development also officially endorsed the Plan. The Joint Stipulation and Agreement included operational modifications to the Company's original proposal as well as a rate reduction of $21 million over seven years and a form of price cap regulation for at least five years. The Company and other interested parties are currently pursuing final approval by the NYSPSC, and the NYSPSC has adopted a hearing and briefing schedule running through August 1994. The Company is aggressively pursuing approval of the Joint Stipulation but cannot predict the outcome at this time. If approved by the NYSPSC, implementation is expected to begin in January of 1995. Regulatory Proceedings - - ---------------------- In 1986, the Company and the NYSPSC 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 NYSPSC 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. 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 Company vigorously disagrees with the Commission's determination and has sought judicial review of the Commission's Opinion and Order. See Part II, Item 1, Legal Proceedings, for more information. 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 to provide cellular telephone customers with expanded geographic coverage. The supersystem, which began operations on July 1, 1994, initially includes 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 supersystem is a 50/50 joint venture partnership, with Rochester Tel Cellular as the manager. The Company's share of the joint venture earnings will be accounted for under the equity method. On December 21, 1993, the Company and NYNEX announced their intention to include the Binghamton and Elmira areas in the supersystem, following receipt of the necessary approvals and satisfaction of other preconditions. Incentive Regulation - - -------------------- An incentive regulation agreement which the NYSPSC 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. In 1994, fifty percent of the Rochester, New York operating company's earnings above the authorized return on equity are subject to sharing with ratepayers. Under the proposed May 17, 1994 Joint Stipulation and Agreement (the Open Market Plan), the 1994 amounts would be credited to the Company's depreciation reserve. The authorized return is currently 10.9 percent 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 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. In its Opinion and Order in Case 87-C-8959, issued July 6, 1993, the 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 $2 million 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. On June 30, 1994, the Appellate Division unanimously upheld the Commission's Order. On July 29, 1994, the Company filed a Notice of Appeal and a Motion for Leave To Appeal with the New York Court of Appeals. 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. The Company's Open Market Plan, as discussed in Note 10 to the Financial Statements set forth in Part I, Item 1, also includes a proposal to resolve the royalty issue for the duration of the Open Market Plan Agreement. 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 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. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10-45 - Copy of Amendment No. 7 to the Supplemental Management Pension Plan 11 - Computation of Earnings per Share of Common Stock on a Fully Diluted Basis (Unaudited) (b) Reports on Form 8-K The Company filed three (3) Forms 8-K during the quarter ended June 30, 1994 and through the filing date of this Form 10-Q as follows: Financial SEC Filing Date Item No. Statements --------------- -------- ---------- May 17, 1994 Item 5 None July 1, 1994 Item 5 None July 14, 1994 Item 5 None 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: August 12, 1994 By /s/Louis L. Massaro ---------------------------- Louis L. Massaro Corporate Vice President and Treasurer (and Principal Financial Officer) INDEX TO EXHIBITS Exhibit Number Description - - ------- ----------- 10-45 Copy of Amendment No. 7 Filed herewith to the Company's Supplemental Management Pension Plan 11 Computation of Earnings Filed herewith per Share of Common Stock on a Fully Diluted Basis (Unaudited) EX-10 2 EXHIBIT 10-45 SMPP AMENDMENT 7 EXHIBIT 10-45 ROCHESTER TELEPHONE CORPORATION SUPPLEMENTAL MANAGEMENT PENSION PLAN Amendment No. 7 to September 1, 1989 Restatement Pursuant to Article Six, the Plan is amended, effective January 1, 1994, by adding the following new Section 4.2 immediately following Section 4.1 and by renumbering the remaining provisions of Article Four accordingly: 4.2 Subject to the conditions set forth below, an eligible Employee who terminates employment on or after reaching age 50 with at least five years of service while holding the position of Corporate Vice President or higher shall be entitled to receive a benefit equal to (a) minus (b) below where (a) equals the sum of (1) for each of the eligible Employee's first 15 years of service, 2.5 percent times his average annual compensation during the three consecutive years of service with the Company that produce the highest such average plus (2) for each of the next 15 years of service 1.5 percent times his average annual compensation during the three consecutive years of service with the Company that produce the highest such average, provided that in no event shall the amount under this subsection (a) exceed 60 percent of the eligible Employee's highest three years' average compensation; minus (b) equals the sum of the straight life annuity benefit payable under Section 4.1 of this Plan and the straight life annuity benefit payable under the Funded Plan. The normal form of benefit payable under this Section 4.2 is a straight life annuity commencing as of the eligible Employee's date of retirement and shall not be subject to actuarial reduction even if the benefit payable from the Funded Plan is subject to such reduction. - - - 2 - IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Amendment on its behalf this 15th day of November 1993. ROCHESTER TELEPHONE CORPORATION By /s/ Josephine S.Trubek ----------------------------------------- Josephine S. Trubek, Corporate Secretary EX-11 3 EXHIBIT 11 FOR 10Q2Q94 Exhibit 11 Rochester Telephone Corporation Computation of Earnings per Share of Common Stock on a Fully Diluted Basis (Unaudited)
3 Months Ended 6 Months Ended June 30, June 30, (In thousands, except per share data) 1994 1993 1994 1993 - - ------------------------------------------------------------------------------------------ Income applicable to common stock . . . . . . . $34,600 $19,534 $49,508 $ 37,255 Add: Interest on convertible debentures. . . . . . . . . . . . . . 139 138 277 276 ------- ------- ------- -------- 34,739 19,672 49,785 37,531 Less: Increase in related federal income taxes . . . . . . . . . . . . 49 47 97 94 ------- ------- ------- -------- Adjusted income applicable to common stock. . $34,690 $19,625 $49,688 $ 37,437 ======= ======= ======= ======== Total adjusted common shares assuming conversion at beginning of each period of outstanding convertible debentures and stock options. . . . . . . . . 73,737 68,040 72,427 67,614 ======= ======= ======= ======== Earnings per share of common stock on a fully diluted basis . . . . . . . $ .47 $ .29 $ .69 $ .55 ======= ======= ======= ======== 112q94asc
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