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 June 30, 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 July 31, 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
<TABLE>
<CAPTION>
Three Months Ended Six
Months Ended
June 30, June 30,
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 260,497 $ 243,039 $ 510,690 $ 483,901
Network access services 265,199 243,603 511,557 478,217
Long distance services 92,226 96,541 194,907 192,194
Equipment sales and services 32,869 24,343 66,281
51,188
Other 30,669 38,907 67,655 87,790
681,460 646,433 1,351,090 1,293,290
OPERATING EXPENSES:
Cost of sales and services 146,074 147,723 285,848 298,391
Depreciation and amortization 129,422 127,082 256,118
252,548
Marketing, selling, general and
administrative 214,631 212,402 418,140 422,241
490,127 487,207 960,106 973,180
Net operating income 191,333 159,226 390,984 320,110
OTHER (INCOME) DEDUCTIONS:
Interest expense 27,250 31,772 55,398 63,287
Other - net (93) (126) (175)
(531)
INCOME BEFORE INCOME TAXES 164,176 127,580 335,761 257,354
INCOME TAXES 61,622 46,619 126,120 94,320
NET INCOME $ 102,554 $ 80,961 $ 209,641 $ 163,034
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.
</TABLE>
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 operations, financial
position, and cash flows of GTE North Incorporated excluding
operations transferred to GTE Midwest Incorporated 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 27% or $21.6 million and 29% or $46.6
million for the three months and six months ended June 30, 1994,
respectively, compared to the same periods in 1993. The
increases reflect higher revenues from continued customer growth,
lower interest expense and a one-time charge of $4.3 million, net
of tax, associated with the enhanced early retirement and
voluntary separation programs offered to eligible employees
during the second quarter of 1993.
Operating Revenues
Operating revenues increased 5% or $35.0 million for the three
months ended June 30, 1994 and 4% or $57.8 million for the six
months ended June 30, 1994 compared to the same periods in 1993.
Local network service revenues increased 7% or $17.5 million for
the three months ended June 30, 1994 and 6% or $26.8 million for
the six months ended June 30, 1994 compared to the same periods
in 1993. The increases are primarily due to overall customer
growth and increased revenues from custom calling and other
enhanced features.
Network access service revenues increased 9% or $21.6 million for
the three months ended June 30, 1994 and 7% or $33.3 million for
the six months ended June 30, 1994 compared to 1993 primarily due
to increased minutes of use reflecting greater network usage.
Long distance revenue decreased 4% or $4.3 million and increased
1% or $2.7 million for the three months and six months ended June
30, 1994, respectively, as compared to the same periods in 1993.
The quarter-to-date and year-to-date variances are due to
settlement activity.
Equipment sales and service revenue increased 35% or $8.5 million
and 29% or $15.1 million for the three months and six months
ended June 30, 1994, respectively, compared to the same periods
in 1993. The increases are primarily due to increases in wiring
maintenance agreements 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 21% or $8.2 million for the
three months ended June 30, 1994 and 23% or $20.1 million for the
six months ended June 30, 1994 compared to the same periods in
1993. The decreases are due to lower directory advertising
revenue reflecting a change in the life of certain directories
and the timing of publication dates, lower rent revenue from
facilities shared with other GTE telephone operating companies
and higher provisions for uncollectible accounts.
Operating Expenses
Operating expenses increased 1% or $2.9 million and decreased 1%
or $13.1 million for the three months and six months ended June
30, 1994, respectively. Excluding the results of a one-time
charge of $7 million associated with the early retirement and
voluntary separation programs offered during the second quarter
of 1993, operating expenses increased 2% or $9.9 million and
decreased 1% or $6.1 million for the three and six months ended
June 30, 1994, respectively. The increase in the three months
ended June 30, 1994 was primarily due to increases in software
expenses, billing and collection expenses and depreciation costs
due to increased plant balances. The decrease in the six months
ended June 30, 1994 was primarily due to a decrease in product
sales costs and continuing cost reduction efforts associated with
headcount reductions. This decrease was partially offset by
increases in billing and collection expenses and depreciation
costs.
Other Expenses
Interest expense decreased 14% or $4.5 million and 12% or $7.9
million for the three and six months ended June 30, 1994,
respectively. These decreases are due primarily 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 tax expense increased 32% or $15.0 million and 34% or
$31.8 million for the three months and six months ended June 30,
1994, respectively, compared to 1993. These changes are
primarily attributable to increases in taxable income.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first six months
of 1994 was cash flow from operating activities of $479.1 million
compared to $381.7 million for the same period in 1993. The year-
to-year increase in cash flow from operations is the result of
improved operating results and an increase in the collection of
customer receivables.
GTE NORTH INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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
introduction of new products and services. The Company's capital
expenditures during the first six months of 1994 were
$269.8 million compared to $251.9 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 $163.3 million in 1994
compared to $127.0 million for the same period in 1993. This
included dividend payments of $10.3 million to shareholders
during the first six months of 1994 as compared to $193.5 million
in 1993. Dividends of $84.7 million were declared during the
quarter ending June 30, 1994, to be paid to common shareholders
in the third quarter. Financing activities in 1994 included the
issuance of $447.4 million of long-term debt primarily to redeem
short-term debt.
During the second quarter of 1994, the Company continued
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. Cash requirements for
the implementation of the re-engineering plan during 1994 are
expected to be largely offset by cost savings.
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 from the parent, GTE.
In addition, a $2.8 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
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash and temporary investments $ 52,242 $ 5,722
Receivables, less allowances of
$19,310 and $25,173, respectively 518,556 568,730
Materials and supplies, at average cost 42,264 40,949
Prepaid taxes 46,079 40,707
Deferred income tax benefits 64,931 66,984
Prepayments and other 8,749 17,236
Total current assets 732,821 740,328
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,506,753 8,335,305
Accumulated depreciation (3,818,872)
(3,654,967)
Net property, plant and equipment 4,687,881 4,680,338
PREPAID PENSION 385,899 335,874
OTHER ASSETS 64,273 56,473
TOTAL ASSETS $ 5,870,874 $ 5,813,013
See Notes to Condensed Consolidated Financial Statements.
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 14,372 $
163,750
Accounts payable 106,963 208,283
Accrued taxes 147,374 144,788
Accrued payroll and vacations 102,304 84,021
Accrued dividends 85,165 9,392
Accrued interest 25,244 14,855
Accrued restructuring costs and other 332,620 328,173
Total current liabilities 814,042 953,262
LONG-TERM DEBT 1,463,541 1,467,045
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 1,282,242 1,204,412
PREFERRED STOCK, subject to
mandatory redemption 18,774 19,544
SHAREHOLDERS' EQUITY:
Preferred stock 29,032 29,030
Common stock 978,351 978,351
Other capital 43,018 43,018
Reinvested earnings 1,241,874 1,118,351
Total shareholders' equity 2,292,275 2,168,750
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,870,874 $
5,813,013
See Notes to Condensed Consolidated Financial Statements.
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 209,641 $ 163,034
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 256,118 252,548
Deferred income taxes and investment
tax credits 5,868 (37,695)
Provision for uncollectible accounts 21,995
16,467
Changes in current assets and current
liabilities (37,816)
(81,717)
Other - net 23,277 69,061
Net cash from operating activities 479,083 381,698
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (269,822)
(251,861)
Other - net 589 573
Net cash used in investing activities (269,233)
(251,288)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued 447,443 --
Long-term debt retired (4,535)
(25,654)
Dividends paid to shareholders (10,344)
(193,535)
Net change in affiliate notes 2,181 (9,945)
Increase (decrease) in short-term debt (598,075)
102,100
Net cash used in financing activities (163,330)
(127,034)
Increase in cash and temporary investments 46,520
3,376
Cash and temporary investments at beginning
of period 5,722 5,079
Cash and temporary investments at end
of period $ 52,242 $ 8,455
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.
(2) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
GTE NORTH INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
Items 1 through 6 are not applicable for the quarter ended June
30, 1994.
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: August 15, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)