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, 1995
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, 1995. The Company's common stock
is 100% owned by GTE Corporation.
PART I. FINANCIAL INFORMATION
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three
Months Ended
March
31,
1995
1994
(Thousands of
Dollars)
<S> <C>
<C>
OPERATING REVENUES:
Local network services $ 263,519
$ 250,193
Network access services 263,211
246,358
Long distance services 94,722
102,681
Equipment sales and services 27,985
33,412
Other 30,342
36,986
679,779
669,630
OPERATING EXPENSES:
Cost of sales and services 129,254
139,774
Depreciation and amortization 140,642
126,696
Marketing, selling, general and
administrative 195,151
203,509
465,047
469,979
Net operating income 214,732
199,651
OTHER (INCOME) DEDUCTIONS:
Interest expense 29,097
28,148
Other - net (365)
(82)
INCOME BEFORE INCOME TAXES 186,000
171,585
INCOME TAXES 70,045
64,498
NET INCOME $ 115,955
$ 107,087
Per share data is omitted since the Company's common stock is
100% owned by GTE Corporation (GTE).
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -1-
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Net income was $ 116.0 and $107.1 for the three months ended
March 31, 1995 and 1994 respectively, reflecting an increase of
8% or $8.9. The increase is primarily due to higher operating
revenues, primarily network access services revenues and local
network services revenues, and cost savings generated from the
Company's re-engineering plan, partially offset by an increase in
depreciation expense.
OPERATING REVENUES
Operating revenues were $679.8 and $669.6 for the three months
ended March 31, 1995 and 1994, respectively, reflecting an
increase of 2% or $10.2.
Local network service revenues were $263.5 and $250.2 for the
three months ended March 31, 1995 and 1994 respectively,
reflecting an increase of 5% or $13.3. The increase is primarily
due to continued customer growth as reflected by a 4% increase in
access lines, which generated $7.4 in additional revenues, and
increased revenues of approximately $6.3 related to optional
extended area service calling plans, E911 surcharges and custom
calling features.
Network access services revenues were $263.2 and $246.4 for the
three months ended March 31, 1995 and 1994, respectively,
reflecting an increase of 7% or $16.8. The increase is primarily
due to a 10% increase in minutes of use, which generated $21.9 in
additional revenues. The increase is partially offset by rate
reductions of $7.0 associated with an Illinois rate case, the
Wisconsin price cap and voluntary price reductions.
Long distance service revenues were $94.7 and $102.7 for the
three months ended March 31, 1995 and 1994, respectively,
reflecting a decrease of 8% or $8.0. The decrease is primarily
due to a decline in toll message volume, which generated a
revenue reduction of $5.1, rate reductions of approximately $1.5
and lower revenues of $1.1 associated with growth in extended
area service calling plans.
Equipment sales and services were $28.0 and $33.4 for the three
months ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 16% or $5.4. The decrease is due to a $5.8 reduction
in billing and collection services revenue, partially offset by a
$1.0 increase in revenues derived from sales of Radio Paging
services.
Other operating revenues were $30.3 and $37.0 for the three
months ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 18% or $6.7. The decrease is primarily due to a $3.6
reduction in directory revenues, attributable to the timing of
directory publications and a decline in directory revenues in
Wisconsin, and a $2.1 decrease in revenues from shared
facilities.
- -2-
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES
Operating expenses were $465.0 and $470.0 for the three months
ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 1% or $5.0. The decrease primarily reflects a $28.9
decline in labor and benefit costs reflecting reductions in
workforce associated with the Company's re-engineering plan
initiated in 1994. These decreases were partially offset by a
$13.9 increase in depreciation, primarily due to rate adjustments
in Illinois and Michigan and increased plant balances, and
increased software costs of $11.1.
OTHER DEDUCTIONS
Income taxes were $70.0 and $64.5 for the three months ended
March 31, 1995 and 1994, respectively, reflecting an increase of
9% or $5.5. The increase is primarily due to corresponding
increases in pretax income.
CAPITAL RESOURCES AND LIQUIDITY
Management believes that the Company has adequate internal and
external resources available to meet operating requirements for
construction of plant, modernization of facilities, payment of
dividends and funding of its re-engineering plan. The Company
generally funds its construction program from operations although
external financing is available. Short-term borrowings can be
obtained through commercial paper borrowings or borrowings from
GTE. In addition, at March 31, 1995, a $3,500 line of credit was
available to the Company through shared lines of credit with GTE
and other affiliates to support short-term financing needs.
The Company's primary source of funds during the first three
months of 1995 was cash from operations of $369.1 compared to
$287.6 for the same period in 1994. The increase is primarily
due to the favorable timing of collection of accounts receivable
and the payment of accounts payable, as well as improved
operating results.
The Company's capital expenditures during the first three months
of 1995 were $114.8 compared to $105.5 for the same period in
1994. The 1995 expenditures reflect the Company's continued
growth in access lines, modernization of current facilities and
provisioning for new products and services. The Company's
construction costs in 1995 are expected to increase slightly from
the capital expenditures of $656.4 incurred during 1994,
reflecting the Company's expanding network and the replacement of
outdated technologies with digital switches and fiber-optic
networks.
Cash used in financing activities was $270.7 for the first three
months of 1995 compared to $158.5 for the same period in 1994.
This included dividend payments of $54.8 in the first quarter of
1995 compared to $9.7 for the same period in 1994 and decreases
in short-term debt and affiliate notes of $215.1 in the first
quarter of 1995 compared to $595.9 for the same period in 1994.
- -3-
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER MATTERS
As previously reported, results for 1993 included a one-time
pretax restructuring charge of $374.6, which reduced net income
by $230.8, primarily for incremental costs related to
implementation of the Company's three-year re-engineering plan.
The re-engineering plan will redesign and streamline processes to
improve customer-responsiveness and product quality, reduce the
time necessary to introduce new products and services and further
reduce costs.
Implementation of the re-engineering plan began during 1994 and
is expected to be completed by the end of 1996. Expenditures of
$166.6 have been made since inception of the re-engineering plan,
including $23.1 during the first three months of 1995. These
expenditures were primarily associated with the consolidation of
customer contact, network operations and operator service
centers, separation benefits from employee reductions and
incremental expenditures to redesign and streamline processes.
There have been no significant changes made to the overall re-
engineering plan as originally reported. As of March 31, 1995,
$208.0 remains in the restructuring reserve, of which $92.4 is
classified as a current liability. Management believes the
reserve is adequate to cover future expenditures.
In March 1995, the Federal Communications Commission (FCC)
increased the local-exchange carrier (LEC) productivity factors
associated with its interstate price cap plan to provide three
different options, on an interim basis, regarding the
determination and use of productivity factors. These changes
will be reflected in the LECs' annual tariff filing, effective
August 1, 1995. The FCC is expected to continue to consider
permanent changes to its price cap plan in a future rulemaking
proceeding. GTE believes the impact of the interim rules will be
minimized in the near-term because GTE has reduced its access
fees in previous years to amounts below the FCC's maximum price.
In April 1995, GTE filed a motion with the U.S. District Court
for the District of Columbia to remove the 1984 Consent Decree,
which restricts the Company from providing interLATA services.
GTE believes that the Consent Decree is no longer required since
GTE has since divested its interests in the entities whose
purchase gave rise to the Consent Decree.
On February 24, 1994, the Michigan Public Service Commission
(MPSC) issued an order on the rehearing matter of intraLATA 1+
dialing parity. The order requires that intraLATA dialing parity
shall be implemented no later than January 1, 1996. On March 10,
1995, the MPSC issued an order detailing the procedures to
implement intraLATA dialing parity. The Company has appealed the
MPSC's order to the Michigan Court of Appeals.
- -4-
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
On March 1, 1995, the Company filed a package of proposed access,
toll and local rate reductions with the Public Utilities
Commission of Ohio (PUCO) in the amount of $22.0 on an annual
basis. The Company's proposal also included a commitment to
eliminate multi-party services by 1998 and to install digital
switches in all exchanges by 1999. On April 13, 1995, the PUCO
approved the Company's proposal in its entirety.
- -5-
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
December 31,
1995
1994
(Thousands of
Dollars)
<S> <C>
<C>
CURRENT ASSETS:
Cash $ 13,889
$ 30,373
Receivables, less allowances of
$28,047 and $23,241, respectively 494,518
631,222
Materials and supplies 32,145
29,201
Deferred income tax benefits 51,970
94,535
Prepayments and other 83,521
61,233
Total current assets 676,043
846,564
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,689,968
8,598,565
Accumulated depreciation (3,936,045)
(3,818,486)
Net property, plant and equipment 4,753,923
4,780,079
PREPAID PENSION COSTS 471,460
458,065
OTHER ASSETS 45,754
35,305
TOTAL ASSETS $ 5,947,180
$ 6,120,013
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -6-
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
December 31,
1995
1994
(Thousands of
Dollars)
<S> <C>
<C>
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 115,598
$ 296,898
Accounts payable 145,413
194,279
Accrued taxes 207,612
143,889
Accrued interest 23,904
25,589
Accrued payroll and vacations 127,880
127,662
Accrued dividends 77,094
54,507
Accrued restructuring costs and other 236,249
252,643
Total current liabilities 933,750
1,095,467
LONG-TERM DEBT 1,348,993
1,365,781
DEFERRED CREDITS AND RESERVES, primarily
deferred income taxes, investment tax
credits and restructuring costs 1,242,588
1,275,492
PREFERRED STOCK, subject to
mandatory redemption 18,616
18,616
SHAREHOLDERS' EQUITY:
Preferred stock 29,033
29,033
Common stock 978,351
978,351
Other capital 43,018
43,018
Reinvested earnings 1,352,831
1,314,255
Total shareholders' equity 2,403,233
2,364,657
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,947,180
$ 6,120,013
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -7-
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Ended
March
31,
1995
1994
(Thousands
of Dollars)
<S> <C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 115,955
$ 107,087
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 140,642
126,696
Deferred income taxes and investment
tax credits 15,545
16,081
Provision for uncollectible accounts 8,318
7,815
Changes in current assets and current
liabilities 97,578
51,072
Other - net (8,926)
(21,170)
Net cash from operating activities 369,112
287,581
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (114,847)
(105,546)
Cash used in investing activities (114,847)
(105,546)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued --
447,093
Long-term debt retired (860)
- --
Dividends paid to shareholders (54,792)
(9,677)
Net change in affiliate notes (17,697)
2,181
Decrease in short-term debt (197,400)
(598,075)
Net cash used in financing activities (270,749)
(158,478)
Increase (decrease) in cash (16,484)
23,557
Cash at beginning of period 30,373
5,722
Cash at end of period $ 13,889
$ 29,279
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -8-
GTE NORTH INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited condensed consolidated financial statements
included herein have been prepared by the Company 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 1994 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 1995
presentation.
- -9-
GTE NORTH INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(27) Financial Data Schedule.
(b) The Company filed no reports on Form 8-K during the
first quarter
of 1995.
- -10-
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 hereunto duly authorized.
GTE NORTH
INCORPORATED
(Registrant)
Date: May 11, 1995 WILLIAM M. EDWARDS,
III
WILLIAM M. EDWARDS,
III
Controller
(Chief Accounting
Officer)
- -11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 13,889
<SECURITIES> 0
<RECEIVABLES> 522,565
<ALLOWANCES> 28,047
<INVENTORY> 32,145
<CURRENT-ASSETS> 676,043
<PP&E> 8,689,968
<DEPRECIATION> 3,936,045
<TOTAL-ASSETS> 5,947,180
<CURRENT-LIABILITIES> 933,750
<BONDS> 1,348,993
<COMMON> 978,351
18,616
29,033
<OTHER-SE> 1,395,849
<TOTAL-LIABILITY-AND-EQUITY> 5,947,180
<SALES> 679,779
<TOTAL-REVENUES> 679,779
<CGS> 129,254
<TOTAL-COSTS> 465,047
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,097
<INCOME-PRETAX> 186,000
<INCOME-TAX> 70,045
<INCOME-CONTINUING> 115,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,955
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>