UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the period ended March 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-1210
GTE NORTH INCORPORATED
(Exact name of registrant as specified in its charter)
WISCONSIN 35-1869961
(State or other jurisdiction of
(I.R.S. Employer
Incorporation or organization)
Identification No.)
19845 N. U.S. 31, P.O. Box 407, Westfield, Indiana 46074
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 317-896-
6464
(Former name, former address and former fiscal year, if changed
since last report)
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
The Company had 978,351 shares of $1,000 stated value common
stock outstanding at April 30, 1994.
GTE NORTH INCORPORATED AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE
Condensed Consolidated Statements of Income . . . . . . . . .
. . . . 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . .
. . . . 2
Condensed Consolidated Balance Sheets - Assets. . . . . . . .
. . . . 5
Condensed Consolidated Balance Sheets - Liabilities and
Shareholders' Equity . . . . . . . . . . . . . . . . . . .
. . . . 6
Condensed Consolidated Statements of Cash Flows . . . . . . .
. . . . 7
Notes to Condensed Consolidated Financial Statements. . . . .
. . . . 8
PART II. OTHER INFORMATION
Items 1 through 6 . . . . . . . . . . . . . . . . . . . . . .
. . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 10
PART I. FINANCIAL INFORMATION
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
OPERATING REVENUES:
Local network services $ 250,193 $ 240,862
Network access services 246,358 234,614
Long distance services 102,681 95,653
Equipment sales and services 33,412 26,845
Other 36,986 48,883
669,630 646,857
OPERATING EXPENSES:
Cost of sales and services 139,774 150,668
Depreciation and amortization 126,696 125,466
Marketing, selling, general and
administrative 203,509 209,839
469,979 485,973
Net operating income 199,651 160,884
OTHER (INCOME) DEDUCTIONS:
Interest expense 28,148 31,515
Other - net (82)
(405)
INCOME BEFORE INCOME TAXES 171,585 129,774
INCOME TAXES 64,498 47,701
NET INCOME $ 107,087 $ 82,073
Per share data is omitted since the Company's common stock is
100% owned by
GTE Corporation (Parent Company).
See Notes to Condensed Consolidated Financial Statements.
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
On April 1, 1993, GTE North Incorporated merged with Contel of
Illinois, Inc., Contel of Indiana, Inc. and Contel of
Pennsylvania, Inc. (indirect, wholly-owned subsidiaries of GTE
Corporation). Prior to the merger, the properties of GTE North
Incorporated located in Iowa, Minnesota, Missouri and Nebraska
were transferred to a newly created entity, GTE Midwest
Incorporated. The merger was accounted for in a manner
consistent with a transfer of entities under common control which
is similar to that of a "pooling of interests." Accordingly, all
previously issued financial statements have been restated to
reflect the combined historical results of operation, financial
position, and cash flows of GTE North Incorporated excluding
operations transferred to GTE Midwest and including Contel of
Illinois, Inc., Contel of Indiana, Inc. and Contel of
Pennsylvania, Inc. All comparative data presented in this
discussion reflects such restatement.
Net income increased 30% or $25.0 million for the quarter ended
March 31, 1994 compared to the same period in 1993. The increase
reflects higher operating revenues from continued customer growth
and lower operating and interest expenses reflecting cost
reduction efforts, offset partially by an increase in income
taxes.
Operating Revenues
Operating revenues increased 4% or $22.8 million for the three
months ended March 31, 1994 compared to the same period in 1993.
Local network service revenues increased 4% or $9.3 million for
the three months ended March 31, 1994 compared to the same period
in 1993. The increase is due to overall customer growth. Also
contributing to the increase is a $6.2 million local service rate
increase in Wisconsin effective April 17, 1993.
Network access service revenues increased 5% or $11.7 million for
the first three months of 1994 compared to 1993 primarily due to
increased minutes of use reflecting greater network usage
partially offset by a $8.4 million rate reduction in Wisconsin
effective April 17, 1993 and the Company changing settlement
arrangements in Indiana in early 1993.
Long distance revenue increased 7% or $7.0 million for the three
months ended March 31, 1994 as compared to the same period in
1993. The increase is primarily due to increased toll usage, the
Company changing to a bill and keep arrangement in Indiana in
early 1993, and favorable settlement activity in 1994 partially
offset by a $3.0 rate reduction in Wisconsin effective
April 17, 1993.
Equipment sales and service revenue increased 24% or $6.6 million
for the three months ended March 31, 1994 as compared to the same
period in 1993. The increase is primarily due to increases in
maintenance agreement and billing and collection revenue.
GTE NORTH INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Other operating revenues decreased 24% or $11.9 million for the
three months ended March 31, 1994 compared to the same period in
1993. The decrease is due to lower directory advertising revenue
reflecting a change in the life of a directory and the timing of
publication dates.
Operating Expenses
Operating expenses decreased 3% or $16.0 million for the first
three months of 1994 compared to the same period in 1993. The
decrease is primarily due to a reduction in product sales costs
and lower maintenance and repair costs due to headcount
reductions and continuing cost reduction efforts, partially
offset by an increase in billing and collection expense.
Other Expenses
Interest expense decreased 11% or $3.4 million for the three
months ended March 31, 1994 compared to the same period in 1993.
The decrease is due to the Company calling $316 million of high-
coupon first mortgage bonds in late 1993 with proceeds from
commercial paper. The commercial paper was refinanced on a long-
term basis at lower current interest rates in February 1994.
Income taxes increased 35% or $16.8 million for the three months
ended March 31, 1994 compared to 1993. The increase is primarily
attributable to the increase in pretax income.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first three
months of 1994 was cash flow from operating activities of $296.8
million compared to $259.0 million for the same period in 1993.
Capital expenditures represent a significant use of funds during
1994 and 1993, reflecting the Company's continued growth in
access lines, modernization of current facilities and
provisioning for new products and services. The Company's
capital expenditures during the first three months of 1994 were
$113.9 million compared to $126.9 million during the same period
in 1993. The Company's anticipated construction costs for 1994
are approximately $640 million.
Cash used for financing activities was $158.5 million in 1994
compared to $119.2 million for the same period in 1993. No
dividends were paid to the common shareholder during the first
quarter of 1994 as compared to $128.2 million in 1993. Financing
activities in 1994 included the issuance of $447.1 million of
long-term debt primarily to redeem short-term debt.
GTE NORTH INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
During the first quarter of 1994 the Company began implementation
of its re-engineering plan. This plan will allow the Company to
continue to respond aggressively to competitive and regulatory
developments through reduced costs, improved service quality,
competitive prices and new product offerings. Moreover,
implementation of this program over the next three years will
position the Company to accelerate delivery of a full array of
voice, video and data services.
Management believes that the Company has adequate internal and
external resources available to meet ongoing operating
requirements for construction of new plant, modernization of
facilities and payment of dividends. The Company generally funds
its construction program from operations, although external
financing is available through the issuance of short-term or long-
term debt. Short-term borrowings can be obtained through
commercial paper borrowings or borrowings for the parent, GTE.
In addition, a $3.9 billion line of credit is available to the
Company through shared lines of credit with GTE and other
affiliates to support short-term financing needs.
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash and temporary investments $ 29,279 $ 5,722
Receivables, less allowances of
$12,593 and $25,173, respectively 498,879 568,730
Materials and supplies, at average cost 39,910 40,949
Prepaid taxes 41,162 40,707
Deferred income tax benefits 65,948 66,984
Prepayments and other 37,529 17,236
Total current assets 712,707 740,328
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,394,442 8,335,305
Accumulated depreciation (3,733,318)
(3,654,967)
Net property, plant and equipment 4,661,124 4,680,338
PREPAID PENSION 349,991 335,874
OTHER ASSETS 124,938 124,299
TOTAL ASSETS $ 5,848,760 $ 5,880,839
See Notes to Condensed Consolidated Financial Statements.
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 16,618 $
163,750
Accounts payable 173,150 208,283
Accrued taxes 177,640 144,788
Accrued payroll and vacations 78,797 84,021
Accrued dividends 383 9,392
Accrued interest 27,034 14,855
Accrued restructuring costs and other 323,907 328,173
Total current liabilities 797,529 953,262
LONG-TERM DEBT 1,464,490 1,467,045
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 1,292,027 1,272,238
PREFERRED STOCK, subject to
mandatory redemption 19,544 19,544
SHAREHOLDERS' EQUITY:
Preferred stock 29,030 29,030
Common stock 978,351 978,351
Other capital 43,018 43,018
Reinvested earnings 1,224,771 1,118,351
Total shareholders' equity 2,275,170 2,168,750
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,848,760 $
5,880,839
See Notes to Condensed Consolidated Financial Statements.
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 107,087 $ 82,073
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 126,696 125,466
Deferred income taxes and investment
tax credits 15,471 (223)
Provision for uncollectible accounts 7,815
8,334
Changes in current assets and current
liabilities 40,555 (12,158)
Other - net (823)
55,518
Net cash from operating activities 296,801 259,010
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (113,904)
(126,873)
Other - net (862)
395
Net cash used in investing activities (114,766)
(126,478)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued 447,093 --
Long-term debt retired -- (13,454)
Dividends paid to shareholders (9,677)
(128,234)
Net change in affiliate notes 2,181 52,950
Decrease in short-term debt (598,075)
(30,425)
Net cash used in financing activities (158,478)
(119,163)
Increase in cash and temporary investments 23,557
13,369
Cash and temporary investments at beginning
of period 5,722 5,079
Cash and temporary investments at end
of period $ 29,279 $ 18,448
See Notes to Condensed Consolidated Financial Statements.
GTE NORTH INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, in
the opinion of management of the Company, the condensed
consolidated financial statements include all adjustments, which
consist only of normal recurring accruals, necessary to present
fairly the financial information for such periods. These
condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's 1993 Annual Report to Shareholders
incorporated by reference in the Annual Report on Form 10-K.
GTE NORTH INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable for the quarter ended March
31, 1994.
Item 6. Exhibits and Reports on Form 8-K
GTE North Incorporated filed a report on Form 8-K dated January
13, 1994 on January 14, 1994, under Item 5, "Other Events." No
financial statements were filed with this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GTE NORTH INCORPORATED
(Registrant)
Date: May 12, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
