<PAGE> 1
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 September 30, 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.)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-718-5600
-----------------------------
- --------------------------------------------------------------------------------
(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 September 30, 1995. The Company's common stock is 100% owned by GTE
Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating revenues:
Local network services $274,530 $261,613 $804,888 $772,303
Network access services 260,654 262,728 792,914 774,285
Long distance services 93,158 105,070 279,079 299,977
Equipment sales and services 44,606 38,492 100,564 104,773
Other 36,337 35,138 108,074 102,793
-------- -------- -------- --------
709,285 703,041 2,085,519 2,054,131
-------- -------- -------- --------
Operating expenses:
Cost of sales and services 269,139 269,141 749,380 791,369
Depreciation and amortization 140,783 138,176 421,033 394,294
Selling, general and administrative 88,860 38,223 259,842 221,508
-------- -------- -------- --------
498,782 445,540 1,430,255 1,407,171
-------- -------- -------- --------
Net operating income 210,503 257,501 655,264 646,960
-------- -------- -------- --------
Interest expense - net 29,963 27,239 86,262 80,937
-------- -------- -------- --------
Income before income taxes 180,540 230,262 569,002 566,023
Income taxes 66,527 85,679 209,810 211,799
-------- -------- -------- --------
Net income $114,013 $144,583 $359,192 $354,224
======== ======== ======== ========
</TABLE>
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.
1
<PAGE> 3
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $114.0 $144.6 $359.2 $354.2
</TABLE>
Net income decreased 21% or $30.6 and increased 1% or $5.0 for the three and
nine months ended September 30, 1995, respectively, compared to the same
periods in 1994. The three month decrease is primarily due to settlement gains
of $62.0 recorded in the third quarter of 1994 which resulted from lump-sum
payments from the Company's pension plans, partially offset by higher operating
revenues, primarily local network and equipment sales and services revenues.
The nine month increase is primarily due to higher operating revenues,
primarily local network and equipment sales and services revenues and
settlement gains of $10.5 recorded in the second quarter of 1995 which resulted
from lump-sum payments from the Company's pension plans. The nine month
increase is partially offset by the above mentioned $62.0 of pension settlement
gains recorded in the third quarter of 1994 and an increase in depreciation
expense.
OPERATING REVENUES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Local network services $274.5 $261.6 $804.9 $772.3
Network access services 260.7 262.7 792.9 774.3
Long distance services 93.2 105.1 279.1 300.0
Equipment sales & services 44.6 38.5 100.5 104.7
Other 36.3 35.1 108.1 102.8
-------- -------- -------- --------
Total operating revenues $709.3 $703.0 $2,085.5 $2,054.1
</TABLE>
Operating revenues increased 1% or $6.3 and 2% or $31.4 for the three and nine
months ended September 30, 1995, respectively, compared to the same periods in
1994.
Local network services revenues increased 5% or $12.9 and 4% or $32.6 for the
three and nine months ended September 30, 1995, respectively, compared to the
same periods in 1994. The number of access lines increased 4% for the three
and nine months ended September 30, 1995, compared to the same periods in 1994.
This growth generated additional revenues of $9.0 and $23.8, respectively. The
three and nine month increases are also due to a $3.3 and $9.4 growth in
revenues from enhanced custom calling features (e.g. SmartCall(Trademark), CLASS
Services, etc.), and Integrated Services Digital Network (ISDN), a service
that permits rapid transmission of voice, data, image and text over one phone
line. These increases are also due to growth of $2.1 and $3.2 in E911 revenues
and higher extended area service revenues of $0.7 and $1.9. These increases
are partially offset by a $0.7 and $1.9 decline in revenues associated with
rate reductions.
2
<PAGE> 4
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Network access services revenues decreased less than 1% or $2.0 for the three
months and increased 2% or $18.6 for the nine months ended September 30, 1995,
compared to the same periods in 1994. The three month decrease is primarily
due to lower interstate revenues of $11.2 associated with price reductions,
partially offset by a 4% increase in minutes of use, which generated $5.0 in
additional revenues, a $2.6 increase in private line revenues and higher
revenues of $1.3 due to end user access charge revenues associated with growth
in access lines. The nine month increase is primarily due to a 7% increase in
minutes of use, which generated $31.0 of additional revenues, a $6.3 increase
in end user access charge revenues associated with growth in access lines and a
$2.6 growth in private line revenues.
Long distance services decreased 11% or $11.9 and 7 % or $20.9 for the three
and nine months ended September 30, 1995, respectively, compared to the same
periods in 1994. The three and nine month decreases are primarily due to a
decline in toll message volume, which resulted in revenue reductions of $4.3
and $11.4, respectively. These decreases are also due to price reductions of
$3.0 and $6.7, respectively, and lower revenues of $0.7 and $1.9 due to
increased extended area service revenues mentioned above in the discussion of
local network services revenues.
Equipment sales and services revenues increased 16% or $6.1 for the three
months and decreased 4 % or $4.2 for the nine months ended September 30, 1995,
respectively, compared to the same periods in 1994. The three month increase
is primarily due to $8.0 of additional Telephone Sales and Services (TSS)
revenues generated from the sale of products and services previously marketed
through GTE Telecom Marketing Incorporated (TMC). See the Notes to Condensed
Consolidated Financial Statements for further discussion. The three month
increase is also due to higher revenues of $3.3 from business equipment sales,
primarily private branch exchange phone systems sales and the associated
maintenance contracts, and growth of $3.3 in voice messaging and Radio Paging
revenues, partially offset by a $5.9 reduction in billing and collection
revenues. The nine month decrease is primarily due to a $16.3 reduction in
billing and collection revenues, partially offset by $8.0 of additional TSS
revenues mentioned above and a $3.7 growth in revenues from voice messaging and
Radio Paging.
Other operating revenues increased 3 % or $1.2 and 5 % or $5.3 for the three
and nine months ended September 30, 1995, respectively, compared to the same
periods in 1994. These three and nine month increases are primarily due to a
$2.4 and $7.8, respectively, reduction in the provision for uncollectibles,
partially offset by a $1.7 and $3.6, respectively, reduction in directory
revenues attributable to the timing of directory publications.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1995 1994 1995 1994
------ ------ -------- --------
<S> <C> <C> <C> <C>
Operating expenses $498.8 $445.5 $1,430.2 $1,407.2
</TABLE>
Operating expenses increased 12 % or $53.3 and 2 % or $23.0 for the three and
nine months ended September 30, 1995, respectively, compared to the same
periods in 1994.
The three month increase is primarily due to $62.0 of settlement gains recorded
in the third quarter of 1994 which resulted from lump-sum payments from the
Company's pension plans, higher contractor costs of $9.0, a $3.0 increase in
postage costs and a $2.6 increase in depreciation primarily related to rate
adjustments and plant balance changes. These increases were partially offset
by a $25.7 decrease in data processing costs and $4.5 of lower labor and
benefit costs, reflecting reductions in workforce associated with the Company's
re-engineering plan.
3
<PAGE> 5
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The nine month increase is primarily due to $62.0 of pension settlement gains
discussed above recorded in the third quarter of 1994, $32.9 of higher contract
or costs, a $26.7 increase in depreciation primarily due to rate adjustments and
changes in plant balances, higher postage costs of $9.6 and a $6.5 increase in
pole rental costs. These increases were partially offset by a $61.6 decline in
data processing costs, $42.1 of lower labor and benefit costs, reflecting
reductions in workforce associated with the Company's re-engineering plan and
$10.5 of settlement gains recorded in the second quarter of 1995 which resulted
from lump-sum payments from the Company's pension plans.
OTHER DEDUCTIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense-net $30.0 $27.2 $86.3 $80.9
Income taxes 66.5 85.7 209.8 211.8
</TABLE>
Interest expense-net increased 10% or $2.8 and 7% or $5.4 for the three and
nine months ended September 30, 1995, respectively, compared to the same
periods in 1994. These increases are primarily due to higher average
commercial paper levels and higher average short-term interest rates.
Income taxes decreased 22% or $19.2 and 1% or $2.0 for the three and nine
months ended September 30, 1995, respectively, compared to the same periods in
1994. The three month decrease is primarily due to a corresponding decrease in
pretax income. The nine month decrease is primarily due to adjustments to
prior years' tax liabilities, partially offset by a corresponding increase in
pretax income.
CAPITAL RESOURCES AND LIQUIDITY
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. Short-term borrowings can be obtained through
commercial paper borrowings or borrowings from GTE. In addition, at September
30, 1995, a $3,490 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 nine months of 1995 was
cash from operations of $666.2 compared to $749.4 for the same period in 1994.
The year-to-year decrease in cash from operations is primarily the result of an
increase in working capital, partially offset by improved results from
operations. Cash from operations is also being utilized to fund the Company's
re-engineering plan.
The Company's capital expenditures during the first nine months of 1995 were
$408.0 compared to $428.4 for the same period in 1994. The 1995 expenditures
reflect the Company's continued growth in access lines and modernization of
current facilities and introduction of new products and services. The Company
anticipates construction costs for 1995 to approximate capital expenditures of
$656.4 incurred during 1994.
4
<PAGE> 6
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
On August 30, 1995 the Company purchased certain assets from GTE Telecom
Marketing Incorporated (TMC), an affiliated non-regulated telephone sales and
services company, for $5.2. The Company used cash from operations to fund the
purchase.
Cash used in financing activities was $243.7 during the first nine months of
1995 compared to $260.7 for the same period in 1994. This included dividend
payments of $217.7 in the first nine months of 1995 compared to $95.8 for the
same period in 1994 and an increase in short-term debt of $28.6 in the first
nine months of 1995 compared to a decrease of $598.1 for the same period in
1994. The Company retired $54.6 of long-term debt and preferred stock during
the first nine months of 1995 compared to $13.8 for the same period in 1994.
The Company also issued $447.0 of long-term debt in the first nine months of
1994.
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 $238.6 have been made since
inception of the re-engineering plan, including $95.0 during the first nine
months of 1995. These expenditures were primarily associated with the
consolidation of customer contact, network operations and operator service
centers, separation benefits associated with workforce 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 September 30, 1995, $136.0 remains in the restructuring
reserve which management believes is adequate to cover future expenditures.
In March 1995, the Federal Communications Commission (FCC) adopted interim
rules to be utilized by local exchange carriers (LECs), including the Company,
for their 1995 Annual Price Cap Filing. The interim rules allowed LECs to
select from three productivity/sharing options for each tariff entity. Each of
the three options required an increase to the 3.3% productivity factor elected
by the Company since 1991. The Company selected the following productivity
factors and sharing thresholds for use in the 1995-1996 tariff year:
<TABLE>
<CAPTION>
Sharing Parameters
Tariff Productivity ----------------------------------------
Entity Factor 50% 100%
------------------------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Michigan 4.0% 12.25-13.25% ROR Over 13.25% ROR
Illinois, Indiana, Ohio, 5.3% None None
Pennsylvania, Wisconsin
</TABLE>
Under the interim rules, the Company filed tariffs to reduce rates by $34.1
annually, effective August 1, 1995. On September 20, 1995, the FCC released
its proposed rulemaking proceeding on price caps which proposes specific
changes to reflect and encourage emerging competition in local and access
services markets and to establish the path towards decreased regulation of
LECs' services. On September 27, 1995 the FCC solicited comments on a number
of specific issues regarding methods for establishing the price caps, such as
productivity measurements, sharing, the common line formula, and exogenous
costs. The Company anticipates the FCC will issue an order prior to the July
1996 annual filing.
5
<PAGE> 7
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Federal telecommunications legislation has been passed by both the Senate and
House of Representatives. The bills must now be reconciled by the joint
Senate/House conference committee.
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 manner in
which the Company can provide 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 April 7, 1995 the Illinois Commerce Commission (ICC) issued its order in the
Ameritech Customer First Plan (CFP) authorizing Ameritech Corporation to file
tariffs for unbundled services, terms and conditions of interconnection and
other matters. In addition, the ICC directed that proceedings be initiated to
address the following: (1) termination of the Primary Toll Carrier (PTC)
arrangements; (2) resale restrictions and the role of resellers in exchange
competition; (3) regulatory rules applicable to new LECs; (4) preservation of
Universal Service; and (5) number portability. An interim ruling was made in
the above mentioned CFP Order that incumbent LEC's "obligation to serve" will
be enforced during the transition to a competitive market. On October 3, 1995
the Company was ordered to implement intraLATA 1+ dialing parity within six
months of a bona fide request (BFR) or by November 1, 1996 whichever is later.
The Company was also ordered to unbundle loops and ports within 180 days after
receiving a BFR. This order effectively results in local competition. At this
time no LECs have requested a facility-based certification for local service in
any of the Company's Illinois operating areas.
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.
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 orders to the Michigan Court of Appeals. In anticipation of intraLATA
1+ competition, the Company filed a proposal with the MPSC to restructure
rates. The filing was made primarily to seek a local rate increase of $18.0
million for competitive intraLATA toll rate reductions. On October 6, 1995,
all parties to the filing signed a stipulation that would allow for local rates
to be increased by $12.9 to offset toll rate decreases of at least $12.9. The
Company intends to reduce toll rates by $18.0. A commission order following
the stipulation is expected by November 1995.
LECs have been under price cap regulation in the state of Michigan since
January 1, 1992. Legislation that established this form of regulation sunsets
December 31, 1995. The future mode of regulation for Michigan LECs is
currently under review by the Michigan legislature.
6
<PAGE> 8
GTE NORTH INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
On March 2, 1995, the Company filed its infrastructure plan with the Public
Service Commission (PSC) of Wisconsin. The plan was filed in compliance with
the 1994 legislation allowing LECs to elect price regulation. The Company
stated that it would make capital investments within the range of $235-$290
over a six year period (1995-2000). The actual amount spent will depend on the
demand for new services such as Frame Relay, ISDN and Video Broadband services.
The plan also stated that the Company would provide schools and public
libraries with credits towards the purchase of GTE provided enhanced services.
On May 23, 1995, the PSC of Wisconsin approved the plan as filed, which
completes the approval process to operate under the alternative price
regulation plan established by the Wisconsin legislature. The Company will
meet with the PSC staff on a quarterly basis to facilitate monitoring of the
plan.
REGULATORY ACCOUNTING
The Company follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" (FAS 71). In general, FAS 71 requires
companies to depreciate plant and equipment over lives approved by regulators
which may extend beyond the assets' actual economic life. FAS 71 also requires
deferral of certain costs based upon approvals received from regulators to
recover such costs in the future. Consequently, the carrying value of certain
assets and liabilities, primarily telephone plant and equipment, may be greater
than that which would otherwise be recorded by unregulated enterprises.
In connection with an ongoing review of the continued applicability of FAS 71,
the Company has commenced a study of the economic lives of its telephone plant
and equipment. The study is expected to be completed by the end of the fourth
quarter of 1995. If the Company were to discontinue the application of FAS 71
and compute the effect on its telephone plant and equipment in a manner similar
to the seven Regional Bell Operating Companies which have discontinued FAS 71,
the after-tax charge resulting from the reduction in carrying value of the
Company's property, plant and equipment, which would be non-cash in nature, is
estimated to be between $1,000 and $1,300. This potential accounting charge
will have no effect on the Company's customers or its liquidity and capital
resources. Management expects that such a charge, which would be recorded
primarily as a reduction of the net book value of the fixed assets of the
Company, would not significantly affect depreciation expense on existing plant
and equipment in the near future.
7
<PAGE> 9
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------- ---------
(Thousands of Dollars)
<S> <C> <C>
Current assets:
Cash $39,935 $30,373
Receivables, less allowances
of $27,214 and $23,241, respectively 584,031 631,222
Materials and supplies 47,012 29,201
Deferred income tax benefits 40,009 94,535
Prepayments and other 85,788 61,233
---------- ----------
Total current assets 796,775 846,564
---------- ----------
Property, plant and equipment:
Original cost 8,840,068 8,598,565
Accumulated depreciation (4,064,834) (3,818,486)
---------- ----------
Net property, plant and equipment 4,775,234 4,780,079
---------- ----------
Prepaid pension costs 531,836 458,065
---------- ----------
Other assets 66,440 35,305
---------- ----------
Total assets $6,170,285 $6,120,013
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE> 10
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Current liabilities:
Short-term debt, including current maturities $317,756 $296,898
Accounts payable 161,321 194,279
Accrued taxes 123,588 143,889
Accrued payroll and vacations 151,150 127,662
Accrued interest 24,097 25,589
Accrued dividends 76,876 54,507
Accrued restructuring costs and other 248,236 252,643
---------- ----------
Total current liabilities 1,103,024 1,095,467
---------- ----------
Long-term debt 1,318,615 1,365,781
---------- ----------
Reserves and deferred credits:
Deferred income taxes 891,766 895,962
Employee benefit obligations 246,483 187,707
Restructuring costs and other 108,912 191,823
---------- ----------
Total reserves and deferred credits 1,247,161 1,275,492
---------- ----------
Preferred stock, subject to mandatory redemption 17,624 18,616
---------- ----------
Shareholders' equity:
Preferred stock 29,033 29,033
Common stock 978,351 978,351
Other capital 43,110 43,018
Reinvested earnings 1,433,367 1,314,255
---------- ----------
Total shareholders' equity 2,483,861 2,364,657
---------- ----------
Total liabilities and shareholders' equity $6,170,285 $6,120,013
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
9
<PAGE> 11
GTE NORTH INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1995 1994
--------- ---------
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $359,192 $354,224
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 421,033 394,294
Deferred income taxes 45,957 47,274
Provision for uncollectible accounts 24,739 31,065
Changes in current assets and current liabilities (113,718) (7,301)
Other - net (71,024) (70,130)
--------- ---------
Net cash from operating activities 666,179 749,426
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $(408,007) $(428,350)
Acquisition of assets (5,200) --
Other - net 334 --
--------- ---------
Net cash used in investing activities (412,873) (428,350)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued -- 446,970
Long-term debt and preferred stock retired (54,633) (13,803)
Dividends paid to shareholders (217,711) (95,792)
Increase (decrease) in short-term debt 28,600 (598,075)
--------- ---------
Net cash used in financing activities (243,744) (260,700)
--------- ---------
Increase in cash 9,562 60,376
Cash at beginning of period 30,373 5,722
--------- ---------
Cash at end of period $39,935 $66,098
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
10
<PAGE> 12
GTE NORTH INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(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) On August 30, 1995 the Company purchased certain assets from GTE Telecom
Marketing Incorporated (TMC), an affliliated non-regulated telephone sales and
services company, for $5.2. The company used cash from operations to fund the
purchase.
(3) The Company follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" (FAS 71). In general, FAS 71 requires
companies to depreciate plant and equipment over lives approved by regulators
which may extend beyond the assets' actual economic life. FAS 71 also requires
deferral of certain costs based upon approvals received from regulators to
recover such costs in the future. Consequently, the carrying value of certain
assets and liabilities, primarily telephone plant and equipment, may be greater
than that which would otherwise be recorded by unregulated enterprises.
In connection with an ongoing review of the continued applicability of FAS 71,
the Company has commenced a study of the economic lives of its telephone plant
and equipment. The study is expected to be completed by the end of the fourth
quarter of 1995. If the Company were to discontinue the application of FAS 71
and compute the effect on its telephone plant and equipment in a manner similar
to the seven Regional Bell Operating Companies which have discontinued FAS 71,
the after-tax charge resulting from the reduction in carrying value of the
Company's property, plant and equipment, which would be non-cash in nature, is
estimated to be between $1,000 and $1,300. This potential accounting charge
will have no effect on the Company's customers or its liquidity and capital
resources. Management expects that such a charge, which would be recorded
primarily as a reduction of the net book value of the fixed assets of the
Company, would not significantly affect depreciation expense on existing plant
and equipment in the near future.
(4) Reclassifications of prior year data have been made in the financial
statements where appropriate to conform to the 1995 presentation.
11
<PAGE> 13
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) GTE North Incorporated filed a report on Form 8-K dated September
28, 1995 on October 2, 1995, under Item 5 "Other Events". No
financial statements were filed with this report.
12
<PAGE> 14
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.
<TABLE>
<S> <C>
GTE NORTH INCORPORATED
----------------------
(Registrant)
Date: October 31, 1995 William M. Edwards, III
----------------------- -------------------------------------------
William M. Edwards, III
Controller
(Chief Accounting Officer)
</TABLE>
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
(27) Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 39,935
<SECURITIES> 0
<RECEIVABLES> 611,245
<ALLOWANCES> 27,214
<INVENTORY> 47,012
<CURRENT-ASSETS> 796,775
<PP&E> 8,840,068
<DEPRECIATION> 4,064,834
<TOTAL-ASSETS> 6,170,285
<CURRENT-LIABILITIES> 1,103,024
<BONDS> 1,318,615
<COMMON> 978,351
17,624
29,033
<OTHER-SE> 1,476,477
<TOTAL-LIABILITY-AND-EQUITY> 6,170,285
<SALES> 2,085,519
<TOTAL-REVENUES> 2,085,519
<CGS> 749,380
<TOTAL-COSTS> 1,430,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,262
<INCOME-PRETAX> 569,002
<INCOME-TAX> 209,810
<INCOME-CONTINUING> 359,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359,192
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
