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: 0-2908
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 17,920,000 shares of no par value common stock
outstanding at April 30, 1995. The Company's common stock is
100% owned by GTE Corporation.
PART I. FINANCIAL INFORMATION
GTE NORTHWEST 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 $ 91,940
$ 83,991
Network access services 87,545
98,185
Long distance services 29,373
3,655
Equipment sales and services 14,865
14,443
Other 4,543
10,700
228,266
210,974
OPERATING EXPENSES:
Cost of sales and services 49,716
48,121
Depreciation and amortization 51,424
41,750
Marketing, selling, general and
administrative 69,448
73,530
170,588
163,401
Net operating income 57,678
47,573
OTHER (INCOME) DEDUCTIONS:
Interest expense 13,964
10,851
Other - net (182)
(1,564)
INCOME BEFORE INCOME TAXES 43,896
38,286
INCOME TAXES 15,354
14,155
NET INCOME $ 28,542
$ 24,131
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 NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Net income was $28.5 and $24.1 for the three months ended March
31, 1995 and 1994, respectively, reflecting an increase of 18% or
$4.4. The increase is primarily due to higher revenues
associated with customer growth, partially offset by increased
depreciation and amortization costs.
OPERATING REVENUES
Operating revenues were $228.3 and $211.0 for the three months
ended March 31, 1995 and 1994, respectively, reflecting an
increase of 8% or $17.3.
Local network service revenues were $91.9 and $84.0 for the three
months ended March 31, 1995 and 1994, respectively, reflecting an
increase of 9% or $7.9. The increase is primarily due to
continued customer growth as reflected by an 8% increase in
access lines, which generated additional revenues of $3.6, and
increases of $5.7 related to growth in optional extended area
service revenue, increased sales of custom calling features (e.g.
Smart Call, CLASS services, etc.), and higher installation
revenues. These increases were partially offset by a $1.3
reduction in basic area rates in Oregon.
Network access services revenues were $87.5 and $98.2 for the
three months ended March 31, 1995 and 1994, respectively,
reflecting a decrease of 11% or $10.7. The decrease is primarily
due to a $13.2 reduction in access revenues associated with the
conversion by Oregon and Washington in May 1994 and July 1994,
respectively, to a Primary Toll Carrier (PTC) plan. Before
transitioning to the PTC plan, all intraLATA toll was remitted to
US WEST, Inc. In turn, US WEST, Inc. paid the Company access
charges for intraLATA toll that was originated or terminated by
the Company. Under the PTC plan, the Company keeps the revenue
from originating toll calls, records them as long distance
service revenues and remits access charges to the local exchange
carriers (LEC's). Therefore, under the PTC plan, the Company
only receives access revenues for intraLATA toll calls that are
terminated by the Company. On an overall basis, the PTC plan is
intended to be income neutral to the Company since decreases in
access revenues are offset by increases in toll revenues and
corresponding access charge expenses. The decrease is also due
to a decrease of $2.4 associated with rate reductions. These
decreases are partially offset by a 11% increase in minutes of
use which generated additional revenues of $5.4.
Long distance services revenues were $29.4 and $3.7 for the three
months ended March 31, 1995 and 1994, respectively, reflecting an
increase of $25.7. This increase is primarily due to a $25.0
increase in intraLATA toll revenues due to conversion to the PTC
plan mentioned above.
Other operating revenues were $4.5 and $10.7 for the three months
ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 58% or $6.2.
- -2-
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The decrease is primarily due to $6.5 in lower billing and
collection revenues associated with the conversion to the PTC
plan mentioned above, partially offset by a $1.5 increase in
directory advertising revenues attributable to the timing of
directory publications.
OPERATING EXPENSES
Operating expenses were $170.6 and $163.4 for the three months
ended March 31, 1995 and 1994, respectively, reflecting an
increase of 4% or $7.2. The increase is primarily due to $7.0 in
higher access charges associated with the transition to the PTC
plan and increased depreciation and amortization rate adjustments
of $7.0 in Oregon and Washington. The increases were partially
offset by $2.1 in lower property tax expenses, a $3.1 decline in
installation and maintenance costs and $2.4 in lower labor and
benefits costs reflecting reductions in workforce associated with
the Company's re-engineering plan initiated in 1994.
OTHER DEDUCTIONS
Interest expense was $14.0 and $10.9 for the three months ended
March 31, 1995 and 1994, respectively, reflecting an increase of
29% or $3.1. The increase is primarily due to higher long-term
debt levels.
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, 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 operating activities of $137.9
compared to $73.6 for the same period in 1994. The increase is
primarily due to favorable timing differences in the payment of
taxes and the collection of receivables, as well as improved
operating results.
The Company's capital expenditures during the first three months
of 1995 were $47.8 compared to $56.6 for the same period in 1994.
The 1995 capital 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 be lower than capital
expenditures of $263.1 incurred during 1994.
- -3-
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash used in financing activities was $71.8 for the first three
months of 1995 compared to $9.0 for the same period in 1994.
This included retirement of long-term debt of $11.7 in the first
quarter of 1995 compared to $4.6 for the same period in 1994,
decreases in short-term debt and affiliate notes of $49.3 in the
first quarter of 1995 compared to $4.4 for the same period in
1994 and $10.7 in dividend payments during the first quarter of
1995.
OTHER MATTERS
As previously reported, results for 1993 included a one-time
pretax restructuring charge of $125.0, which reduced net income
by $77.0, 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
$31.7 have been made since inception of the re-engineering plan,
including $6.3 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.
The level of re-engineering activities and related expenditures
are expected to accelerate during the remainder of 1995. There
have been no significant changes made to the overall re-
engineering plan as originally reported. As of March 31, 1995,
$93.3 remains in the restructuring reserve, of which $35.8 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.
The Company began a major Extended Area Service (EAS) offering in
the Portland metropolitan area in November 1991. This non-
optional EAS offering provides
- -4-
GTE NORTHWEST INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
expanded local calling to customers in Portland's metropolitan
EAS region allowing customers to choose between flat rate,
measured, or a combination of flat rate and measured EAS calling
plans. On August 29, 1994 the Oregon Public Utilities Commission
(OPUC) ordered the expansion of the Portland Metro area to add
new EAS routes, three of which involved the Company's exchanges.
In addition, the OPUC ordered the addition of new EAS routes in
other parts of the state, eight of which involved the Company's
exchanges. The EAS expansion is expected to reduce net revenue
by $2.4 annually.
- -5-
GTE NORTHWEST 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 $ 19,239
$ 953
Receivables, less allowances
of $7,945 and $7,745, respectively 189,928
231,884
Materials and supplies 12,858
11,915
Deferred income tax benefits 6,323
7,459
Prepayments and other 30,971
3,922
Total current assets 259,319
256,133
PROPERTY, PLANT AND EQUIPMENT:
Original cost 2,979,729
2,989,912
Accumulated depreciation (927,988)
(910,694)
Net property, plant and equipment 2,051,741
2,079,218
OTHER ASSETS 68,257
70,682
TOTAL ASSETS $ 2,379,317
$ 2,406,033
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -6-
GTE NORTHWEST 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 $ 2,505
$ 58,278
Accounts payable 98,044
106,053
Accrued taxes 60,221
55,845
Accrued payroll and vacations 24,058
17,569
Accrued interest 17,247
13,617
Accrued dividends 30,303
10,693
Accrued restructuring costs and other 87,831
84,903
Total current liabilities 320,209
346,958
LONG-TERM DEBT 658,149
658,040
DEFERRED CREDITS AND RESERVES, primarily
deferred income taxes, investment tax
credits and restructuring costs 437,500
433,739
PREFERRED STOCK, subject to
mandatory redemption 800
2,400
SHAREHOLDER'S EQUITY:
Common stock 448,000
448,000
Other capital 57,687
57,687
Reinvested earnings 456,972
459,209
Total shareholder's equity 962,659
964,896
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,379,317
$ 2,406,033
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -7-
GTE NORTHWEST 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 $ 28,542
$ 24,131
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 51,424
41,750
Deferred income taxes and investment
tax credits 8,213
8,448
Provision for uncollectible accounts 3,768
1,698
Changes in current assets and
current liabilities 34,953
(2,854)
Other - net 10,994
434
Net cash from operating activities 137,894
73,607
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (47,843)
(56,934)
Other - net 16
366
Net cash used in investing activities (47,827)
(56,568)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt and preferred stock retired (11,772)
(4,564)
Dividends paid to shareholders (10,709)
(82)
Net change in affiliate notes (3,700)
(15,124)
Increase (decrease) in short-term debt (45,600)
10,750
Net cash used in financing activities (71,781)
(9,020)
Increase in cash 18,286
8,019
Cash at beginning of period 953
2,535
Cash at end of period $ 19,239
$ 10,554
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- -8-
GTE NORTHWEST 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 NORTHWEST 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 NORTHWEST
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> 19,239
<SECURITIES> 0
<RECEIVABLES> 197,873
<ALLOWANCES> 7,945
<INVENTORY> 12,858
<CURRENT-ASSETS> 259,319
<PP&E> 2,979,729
<DEPRECIATION> 927,988
<TOTAL-ASSETS> 2,379,317
<CURRENT-LIABILITIES> 320,209
<BONDS> 658,149
<COMMON> 448,000
800
0
<OTHER-SE> 514,659
<TOTAL-LIABILITY-AND-EQUITY> 2,379,317
<SALES> 228,266
<TOTAL-REVENUES> 228,266
<CGS> 49,716
<TOTAL-COSTS> 170,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,964
<INCOME-PRETAX> 43,896
<INCOME-TAX> 15,354
<INCOME-CONTINUING> 28,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,542
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
