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: 0-2908
GTE NORTHWEST INCORPORATED
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0466810
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1800 41st Street, Everett, Washington 98201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 206-261-5321
(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 17,230,272 shares of no par value common stock and 689,728
shares of $25 par value common stock outstanding at July 31, 1994.
GTE NORTHWEST 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 NORTHWEST 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 $ 84,920 $ 82,896 $ 168,911 $ 164,033
Network access services 97,669 91,431 195,854 186,750
Long distance services 8,900 3,929 12,555 7,657
Equipment sales and services 16,169 19,029 30,612 35,676
Other 16,611 13,730 27,311 32,896
224,269 211,015 435,243 427,012
OPERATING EXPENSES:
Cost of sales and services 53,316 53,016 101,437 104,862
Depreciation and amortization 42,824 41,069 84,574 83,801
Marketing, selling, general and
administrative 73,045 79,633 146,575 154,650
169,185 173,718 332,586 343,313
Net operating income 55,084 37,297 102,657 83,699
OTHER (INCOME) DEDUCTIONS:
Interest expense 13,129 13,627 23,980 28,774
Other - net (99) 1,167 (1,663) (469)
INCOME BEFORE INCOME TAXES 42,054 22,503 80,340 55,394
INCOME TAXES 15,578 7,829 29,733 19,351
NET INCOME $ 26,476 $ 14,674 $ 50,607 $ 36,043
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 NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income increased $11.8 million for the three months and $14.6 million for
the six months ended June 30, 1994 compared to the same periods in 1993.
Excluding the one-time charge associated with the enhanced early retirement
and voluntary separation programs offered to eligible employees during the
second quarter of 1993, net income increased 34% or $6.7 million for the three
months and 23% or $9.5 million for the six months ended June 30, 1994 compared
to the same periods in 1993. The increases are primarily the result of higher
operating revenues and lower interest expense and lower operating expenses due
to cost reduction efforts.
Operating Revenues
Operating revenues increased 6% or $13.3 million for the three months and 2%
or $8.2 million for the six months ended June 30, 1994.
Local network service revenues increased 2% or $2 million for the three months
and 3% or $4.9 million for the six months ended June 30, 1994 compared to the
same periods in 1993. The increases are primarily due to growth in optional
extended area service revenue.
Network access service revenue increased 7% or $6.2 million for the three
months and 5% or $9.1 million for the six months ended June 30, 1994 compared
to the same periods in 1993. The increases are due to increased minutes of
use reflecting growth in network activity and favorable pooling activity
partially offset by an additional rate reduction of $6.7 million in Washington
effective February 11, 1994. The increase was also partially offset due to
the change to bill and keep by Oregon in May 1994.
Long distance service revenues increased $5.0 million for the three months and
$4.9 million for the six months ended June 30, 1994 compared to the same
periods in 1993. The increases are primarily attributable to the change to
bill and keep in Oregon in May 1994.
Equipment sales and services revenues decreased 15% or $2.9 million for the
three months and 14% or $5.1 million for the six months ended June 30, 1994
compared to the same periods in 1993. The decreases are primarily due to lower
revenue from sales of large private branch exchanges and key telephone
systems.
Other operating revenues increased 21% or $2.9 million for the three months
ended and decreased 17% or $5.6 million for the six months ended June 30, 1994
compared to the same periods in 1993. The increase is primarily due to lower
provisions for uncollectible accounts resulting from a change in the method of
estimating the allowance. The decrease for the six months ended June 30, 1994
is due to lower directory advertising revenue in the first quarter reflecting
a change in the life of directories and the timing of publication dates,
partially offset by lower provisions for uncollectible accounts as previously
discussed.
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Operating Expenses
Operating expenses decreased 3% or $4.5 million for the three months and 3% or
$10.7 million for the six months ended June 30, 1994 compared to the same
periods in 1993. Excluding the one-time charge associated with the enhanced
early retirement and voluntary separation programs offered to eligible
employees during the second quarter of 1993, operating expenses increased 2%
or $3.3 million for the three months and decreased 1% or $2.9 million for the
six months ended June 30, 1994 compared to the same periods in 1993. The
increase in the second quarter is primarily due to higher depreciation
resulting from a prior year rate adjustment and higher switched access costs
resulting from the change to bill and keep in Oregon partially offset by lower
payroll costs due to lower headcount and other cost reduction efforts. The
decrease for the six months is primarily the result of lower product costs
reflecting a reduction in equipment sales and lower payroll costs due to the
reasons stated above.
Other Expenses
Interest expense decreased 4% or $0.5 million for the three months and 17% or
$4.8 million for the six months ended June 30, 1994 compared to the same
periods in 1993. The decreases are due to the Company calling $125 million of
high-coupon first mortgage bonds in late 1993 with proceeds from commercial
paper and refinanced in May 1994 with $200 million 7.375% Debentures.
Income taxes increased $7.7 million for the three months and $10.4 million for
the six months ended June 30, 1994 compared to the same periods in 1993. The
increases are primarily due to increases in pretax income and the declining
effects of the amortization of deferred investment tax credits.
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 $126.1 million compared to $128.7
million for the same period in 1993.
Capital expenditures represent a significant use of funds during the first six
months of 1994 and in 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 $126.0 million compared to $103.1 million during the same period
in 1993. The Company's anticipated construction costs for 1994 are
approximately $250 million. In 1993 the Company acquired for book value ($25
million), the Idaho properties of Contel of the West, Inc., an affiliate.
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash provided from financing activities was $16.1 million for the first six
months of 1994 compared to $2.8 million for the same period in 1993. In May
1994, the Company issued $200 million of 7 3/8% First Mortgage Bonds to
refinance short-term borrowings. The proceeds from the issuance of $125
million of 6 1/8% First Mortgage Bonds in February 1993 were also used to
refinance short-term borrowings. Dividends to shareholders were $13.8 million
for the first six months of 1994 compared to $46.9 million in 1993. A
dividend of $15.2 million is payable in the third quarter of 1994.
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. Short-term borrowing can be obtained through
commercial paper borrowing or borrowing from 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 NORTHWEST INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 18,853 $ 2,535
Receivables, less allowances
of $1,397 and $6,602, respectively 187,308 199,769
Materials and supplies, at average cost 16,132 12,375
Deferred income tax benefits 16,714 16,598
Net assets held for sale 10,013 10,013
Prepayments and other 906 6,487
Total current assets 249,926 247,777
PROPERTY, PLANT AND EQUIPMENT:
Original cost 2,952,490 2,886,310
Accumulated depreciation (911,992) (887,035)
Net property, plant and equipment 2,040,498 1,999,275
OTHER ASSETS 61,732 56,517
TOTAL ASSETS $ 2,352,156 $ 2,303,569
See Notes to Condensed Consolidated Financial Statements.
GTE NORTHWEST 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 $ 36,871 $ 192,323
Accounts payable 91,269 129,152
Accrued taxes 42,173 54,776
Accrued payroll and vacations 18,340 15,994
Accrued dividends 15,155 54
Accrued interest 13,515 11,304
Accrued restructuring costs and other 92,640 97,395
Total current liabilities 309,963 500,998
LONG-TERM DEBT 660,928 473,241
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 460,152 427,894
PREFERRED STOCK, subject to
mandatory redemption 2,400 4,000
SHAREHOLDER'S EQUITY:
Common stock 448,000 448,000
Other capital 57,687 57,687
Reinvested earnings 413,026 391,749
Total shareholder's equity 918,713 897,436
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,352,156 $ 2,303,569
See Notes to Condensed Consolidated Financial Statements.
GTE NORTHWEST 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 $ 50,607 $ 36,043
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 84,574 83,801
Deferred income taxes and investment
tax credits 17,308 7,316
Provision for uncollectible accounts 2,149 6,505
Changes in current assets and
current liabilities (38,548) (6,506)
Other - net 9,982 1,557
Net cash from operating activities 126,072 128,716
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (125,969) (103,118)
Acquisition -- (25,039)
Other - net 106 (193)
Net cash used in investing activities (125,863) (128,350)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued 198,476 123,730
Long-term debt and preferred stock retired (3,948) (2,481)
Dividends paid to shareholders (13,769) (46,915)
Decrease in short-term debt (164,650) (71,555)
Net cash from financing activities 16,109 2,779
,
Increase in cash 16,318 3,145
Cash at beginning of period 2,535 1,641
Cash at end of period $ 18,853 $ 4,786
See Notes to Condensed Consolidated Financial Statements.
GTE NORTHWEST 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) On May 18, 1993, GTE Corporation and GTE Northwest Incorporated (the
Company) entered into asset purchase agreements with Citizens Utilities
Company ("Citizens") whereby the Company will sell all of their local exchange
properties in Montana to Citizens. The parties intend to close on the
properties in late 1994. The net assets of $10 million held for sale
represent primarily property, plant and equipment.
(3) Reclassifications of prior year data have been made in the financial
statements where appropriate to conform to the 1994 presentation.
GTE NORTHWEST 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 NORTHWEST INCORPORATED
(Registrant)
Date: August 12, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
