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: 0-2908
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 April 30, 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. . . . . . . . . . . . 4
Condensed Consolidated Balance Sheets - Liabilities and
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . . . . . 7
PART II. OTHER INFORMATION
Items 1 through 6 . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART I. FINANCIAL INFORMATION
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
OPERATING REVENUES:
Local network services $ 83,991 $ 81,137
Network access services 98,185 95,319
Long distance services 3,655 3,728
Equipment sales and services 14,443 16,647
Other 10,700 19,166
210,974 215,997
OPERATING EXPENSES:
Cost of sales and services 48,121 51,846
Depreciation and amortization 41,750 42,732
Marketing, selling, general and
administrative 73,530 75,017
163,401 169,595
Net operating income 47,573 46,402
OTHER (INCOME) DEDUCTIONS:
Interest expense 10,851 15,147
Other - net (1,564) (1,636)
INCOME BEFORE INCOME TAXES 38,286 32,891
INCOME TAXES 14,155 11,522
NET INCOME $ 24,131 $ 21,369
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 NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income increased 13% or $2.8 million for the quarter ended March 31, 1994
compared to the same period in 1993. The increase reflects lower operating
and interest expenses due to cost reduction efforts partially offset by lower
operating revenues primarily due to a change in directory publication dates.
Operating Revenues
Operating revenues decreased 2% or $5.0 million for the three months ended
March 31, 1994 compared to the same period in 1993.
Local network service revenues increased 4% or $2.9 million for the three
months ended March 31, 1994 compared to the same period in 1993. The increase
is primarily due to growth in optional extended area service revenue.
Network access service revenues increased 3% or $2.9 million for the first
three months of 1994 compared to 1993. The increase is 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.
Long distance revenue was relatively unchanged for the three months ended
March 31, 1994 as compared to the same period in 1993.
Equipment sales and services revenues decreased 13% or $2.2 million for the
three months ended March 31, 1994 compared to the same period in 1993. The
decrease is due to lower private branch exchange sales and a reduction in
single-line telephone rent revenue.
Other operating revenues decreased 44% or $8.5 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
directories and the timing of publication dates.
Operating Expenses
Operating expenses decreased 4% or $6.2 million for the first three months of
1994 compared to the same period in 1993. The decrease is primarily due to
lower product costs reflecting a reduction in equipment sales and lower
payroll, benefit and computer expenses due to lower headcount and other cost
reduction efforts.
Other Expenses
Interest expense decreased 28% or $4.3 million for the first three months of
1994 compared to the same period in 1993. The decrease is due to the
redemption of $125 million of high-coupon first mortgage bonds in late 1993
with proceeds from commercial paper. The Company refinanced the commercial
paper on a long-term basis in May 1994 at 7 3/8%.
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Income taxes increased 23% or $2.6 million for the three months ended
March 31, 1994. The increase is primarily due to the increase in pretax income
and also due to 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 three months of 1994
was cash flow from operating activities of $73.8 million compared to
$82.0 million for the same period in 1993.
Capital expenditures represent the largest use of funds during 1994 and 1993,
reflecting the Company's continued growth in access lines, modernization of
current facilities and the introduction of new products and services. The
Company's capital expenditures during the first three months of 1994 were
$56.9 million compared to $47.4 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 ($25.0 million),
the Idaho properties of Contel of the West, Inc., an affiliate.
Cash used for financing activities was $9.0 million in 1994 and 1993. The
proceeds from the issuance of $20.0 million of commercial paper in 1994 were
used to retire $13.8 million long-term debt and preferred stock. The Company
issued $15.1 million of affiliate notes during 1994 compared to $28.1 million
in 1993. The proceeds from the issuance of $125 million of 6 1/8% First
Mortgage Bonds in February 1993 were used to pay down short-term debt. In May
1994, the Company issued $200 million of 7 3/8% First Mortgage Bonds to
refinance short-term borrowings.
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 for 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 $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 NORTHWEST INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 10,554 $ 2,535
Receivables, less allowances
of $4,702 and $6,602, respectively 176,554 199,769
Note receivable from affiliate 15,065 --
Materials and supplies, at average cost 16,892 12,375
Deferred income tax benefits 13,772 16,598
Net assets held for sale 10,013 10,013
Prepayments and other 3,698 6,487
Total current assets 246,548 247,777
PROPERTY, PLANT AND EQUIPMENT:
Original cost 2,913,658 2,886,310
Accumulated depreciation (901,389) (887,035)
Net property, plant and equipment 2,012,269 1,999,275
OTHER ASSETS 58,496 56,517
TOTAL ASSETS $ 2,317,313 $ 2,303,569
See Notes to Condensed Consolidated Financial Statements.
GTE NORTHWEST 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 $ 212,271 $ 192,323
Accounts payable 89,945 129,152
Accrued taxes 61,346 54,776
Accrued payroll and vacations 18,459 15,994
Accrued dividends 13,670 54
Accrued interest 11,543 11,304
Accrued restructuring costs and other 98,660 97,395
Total current liabilities 505,894 500,998
LONG-TERM DEBT 461,157 473,241
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 439,993 427,894
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 402,182 391,749
Total shareholder's equity 907,869 897,436
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,317,313 $ 2,303,569
See Notes to Condensed Consolidated Financial Statements.
GTE NORTHWEST 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 $ 24,131 $ 21,369
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 41,750 42,732
Deferred income taxes and investment
tax credits 11,311 3,640
Provision for uncollectible accounts 1,698 2,709
Changes in current assets and
current liabilities (8,928) 4,359
Other - net 3,813 7,152
Net cash from operating activities 73,775 81,961
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (56,934) (47,380)
Acquisition -- (25,039)
Other - net 138 (24)
Net cash used in investing activities (56,796) (72,443)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued -- 123,730
Long-term debt and preferred stock retired (13,761) (2,031)
Dividends paid to shareholders (82) (29,704)
Net change in affiliate notes (15,065) (28,144)
Increase (decrease) in short-term debt 19,948 (73,000)
Net cash used in financing activities (8,960) (9,149)
Increase in cash 8,019 369
Cash at beginning of period 2,535 1,641
Cash at end of period $ 10,554 $ 2,010
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 whereby the Company will sell all of their local exchange properties
in Montana to Citizens Utilities Company ("Citizens"). The parties intend to
close on the properties in 1994. The net assets held for sale of $10 million
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 5 are not applicable for the quarter ended March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
GTE Northwest 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 NORTHWEST INCORPORATED
(Registrant)
Date: May 12, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
