<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1997
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 972-718-5600
(Former name, former address and former fiscal year, if changed
since last report)
The registrant, a wholly owned subsidiary of GTE Corporation, meets the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is
therefore filing this form with reduced disclosure format pursuant to General
Instruction H(2).
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
October 31, 1997. The Company's common stock is 100% owned by GTE Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION
GTE Northwest Incorporated and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local services $ 112,312 $ 102,551 $ 327,739 $ 301,964
Network access services 111,905 96,111 315,005 283,097
Toll services 21,173 29,700 77,150 87,579
Other services and sales 50,969 45,809 109,695 101,136
--------- --------- --------- ---------
Total revenues and sales 296,359 274,171 829,589 773,776
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Costs of services and sales 89,139 100,227 265,321 270,365
Selling, general and administrative 39,157 38,433 114,725 106,004
Depreciation and amortization 53,664 51,100 160,302 151,280
--------- --------- --------- ---------
Total operating costs and expenses 181,960 189,760 540,348 527,649
--------- --------- --------- ---------
OPERATING INCOME 114,399 84,411 289,241 246,127
OTHER (INCOME) EXPENSE
Interest - net 12,737 13,732 39,849 38,689
Gain on disposition of assets -- -- (5,101) --
Other - net -- -- 226 182
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 101,662 70,679 254,267 207,256
Income taxes 36,453 24,618 90,978 72,812
--------- --------- --------- ---------
NET INCOME $ 65,209 $ 46,061 $ 163,289 $ 134,444
========= ========= ========= =========
</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 Northwest Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Net income $ 163.3 $ 134.4
</TABLE>
Net income increased 22% or $28.9 for the nine months ended September 30, 1997,
compared to the same period in 1996, primarily due to strong revenue growth
from local and network access services and a $3.3 after-tax gain on the sale of
assets, partially offset by slightly higher operating costs and expenses.
REVENUES AND SALES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Local services $ 327.7 $ 302.0
Network access services 315.0 283.1
Toll services 77.2 87.6
Other services and sales 109.7 101.1
-------- --------
Total revenues and sales $ 829.6 $ 773.8
</TABLE>
Total revenues and sales increased 7% or $55.8 for the nine months ended
September 30, 1997, compared to the same period in 1996.
Local service revenues increased 9% or $25.7 for the nine months ended
September 30, 1997, compared to the same period in 1996, primarily as a result
of continued access line growth and demand for custom calling features and
other enhanced services. Access line growth of 7% generated additional
revenues of $9.2. Revenues from enhanced custom calling services, such as
SmartCall(R) and CLASS services, contributed $9.5 to the increase. Revenues
from enhanced data services such as Integrated Services Digital Network (ISDN)
and Digital Channel Services (DCS) were also higher by $4.2.
Network access service revenues increased 11% or $31.9 for the nine months
ended September 30, 1997, compared to the same period in 1996, largely due to
increased demand for access services by interexchange carriers and growing
demand for increased bandwidth services. Minutes of use grew 15% during the
period which increased revenues by $26.3. Demand for increased bandwidth
services by Internet Service Providers (ISP) and other high-capacity users
generated an additional $10.9 of special access revenues. The increase also
reflects $5.2 of higher support payments received from the National Exchange
Carrier Association (NECA) and $2.2 from meet point billing arrangements.
Year-to-date revenue growth was partially offset by an $8.5 decline in revenues
associated with the sharing provisions and rate changes relating to the Federal
Communication Commission's (FCC) 1996 and 1997 price caps. In addition, a $5.9
decrease resulted from the Company's authorization in January 1997 to operate
as the Primary Toll Carrier (PTC) for certain jurisdictions in Washington and
Oregon, which is offset by a corresponding increase in toll revenues.
2
<PAGE> 4
GTE Northwest Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Toll service revenues decreased 12% or $10.4 for the nine months ended
September 30, 1997, compared to the same period in 1996. The results reflect
lower toll revenues of $16.9 resulting from intraLATA (local access transport
area) toll competition, including 10XXX and 1+ presubscription, and the impact
of optional discount calling plans, which effectively lowered intrastate long
distance rates. This decrease was partially offset by $6 in favorable toll
settlements relating to the Company's PTC status in Washington and Oregon, as
discussed above.
Other services and sales increased 9% or $8.6 for the nine months ended
September 30, 1997, compared to the same period in 1996, primarily due to
revenue growth from paging, voice messaging, billing and collection, and DB800
services totaling $5.2. An increase in revenues from products and services
sold to ISPs was offset by a decline in equipment sales.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
------- -------
<S> <C> <C>
Costs of services and sales $ 265.3 $ 270.3
Selling, general and administrative 114.7 106.0
Depreciation and amortization 160.3 151.3
------- -------
Total operating costs and expenses $ 540.3 $ 527.6
</TABLE>
Total operating costs and expenses increased 2% or $12.7 for the nine months
ended September 30, 1997, compared to the same period in 1996. This small
increase reflects the impact of an $18 reserve recorded in the third quarter of
1996 for potential business and occupational taxes. Excluding this item, cost
of services and sales increased $12.9, primarily due to higher labor and
benefits costs required to support access line growth and customer demand for
products and services. Increased selling and marketing efforts, aimed at
stimulating sales of enhanced services and preserving market share in an
increasingly competitive environment, resulted in higher selling costs of
$11.1. Depreciation expense increased $9 as a result of additions to plant,
which reflects increased capital expenditures relating to the Company's primary
and second line growth and the modernization of interoffice facilities to
mitigate Internet congestion. The net change in total operating costs also
includes a $5.2 decline associated with administrative productivity gains
achieved during the nine month period.
OTHER (INCOME) EXPENSES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
------ ------
<S> <C> <C>
Interest - net $ 39.8 $ 38.7
Gain on disposition of assets (5.1) --
Income taxes 91.0 72.8
</TABLE>
Interest - net increased 3% or $1.1 for the nine months ended September 30,
1997, compared to the same period in 1996, primarily due to higher average
short-term debt levels.
In the first quarter of 1997, the Company recorded a $5.1 pre-tax gain on the
sale of three telephone exchanges in the state of Washington (representing 1,800
access lines).
3
<PAGE> 5
GTE Northwest Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Income taxes increased 25% or $18.2 for the nine months ended September 30,
1997, compared to the same period in 1996, primarily due to a corresponding
increase in pre-tax income.
OTHER MATTERS
Federal Regulatory Developments
In July 1997, the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit)
issued an opinion and order vacating significant portions of the FCC's rules
purporting to implement the local competition provisions of the
Telecommunications Act of 1996 (the Telecommunications Act). The Company's
parent, GTE, together with other incumbent local-exchange carriers (ILECs) and
a number of state commissions, had challenged various portions of the FCC
rules.
In its opinion, the Eighth Circuit ruled that the FCC had no jurisdiction to
promulgate rules setting the prices at which ILECs must make available to
competitors unbundled network elements (UNEs) and services for resale. In
addition, the Eighth Circuit made a number of other rulings favorable to GTE,
including that the FCC's rule allowing requesting carriers to pick and choose
among individual provisions of other interconnection agreements, rather than to
adopt the terms and conditions of a single agreement in its entirety, was
unlawful; that the FCC does not have the authority to review interconnection
agreements approved by state commissions or to enforce the terms of such
agreements; that the FCC rule requiring ILECs to provide interconnection and
UNEs at levels of quality that are superior to those levels at which the ILECs
provide them to themselves was unlawful; and that it is the requesting
carriers, not the ILECs, that must combine UNEs.
In addition, the Eighth Circuit rejected certain arguments advanced by GTE.
For example, it ruled that a requesting carrier may gain access to all of the
UNEs that, when combined by the requesting carrier, are sufficient to enable
the requesting carrier to provide a finished service, and it upheld most of the
standards applied by the FCC in determining which network elements an ILEC must
make available.
In October 1997, the Eighth Circuit, granting a petition for rehearing filed by
GTE and others, further ruled that the Telecommunications Act "does not permit
a new entrant to purchase the ILEC's assembled platform(s) of combined network
elements (or any lesser existing combination of two or more elements) in order
to offer competitive telecommunications services." The FCC has announced plans
to seek Supreme Court review of the Eighth Circuit's rulings; it has until
January 12, 1998 to file a petition for certiorari.
In May 1997, the FCC issued orders on universal service and access charge
reform. GTE has filed petitions for review of these FCC orders with the U.S.
Court of Appeals for the Tenth Circuit. GTE anticipates that those petitions
will be decided in 1998.
In its order on access charge reform, the FCC revised the price cap plan for
regulating ILECs by requiring price cap local-exchange carriers (LECs) to
increase their productivity factor to 6.5%. The order also eliminated the
sharing requirements of the price cap rules. In June 1997, in accordance with
the order, the Company submitted its 1997 annual price cap filing. The 1997
interstate access filing resulted in an annual price reduction of $14,
effective July 1, 1997. Prior to this order, the Company had submitted a rate
change filing in May 1997, as the Company's access rates were priced
significantly below the FCC's maximum allowable price. This rate change filing
resulted in an annual price increase of $8, effective June 3, 1997. Overall,
the net effect of these access filings resulted in an annual price reduction of
$6.
4
<PAGE> 6
GTE Northwest Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On June 4, 1996, the FCC issued the first Report and Order implementing Section
276 of the Telecommunications Act. As part of the overall goal of promoting
competition among payphone service providers (PSPs), this order mandated
compensation to all PSPs for all calls originating from payphones, including
"dial-around" access calls and toll-free subscriber calls for which PSPs were
not previously compensated. This compensation was to occur in two separate
phases. During phase one, from April 15, 1997 through October 6, 1997, PSPs
were to be paid a monthly, flat-rate compensation from interexchange carriers
(IXCs). During phase two, beginning October 7, 1997, PSPs were to be
compensated on a per-call basis, with the prevailing local coin rate of 35
cents established as the default rate.
On July 19, 1997, the U.S. Court of Appeals in Washington, D.C. vacated the
FCC's directive concerning per-call compensation, stating that the FCC had not
shown that the 35 cent rate was a reasonable surrogate for fair compensation.
The court also set aside the FCC's flat-rate compensation mandate.
Subsequently, on October 9, 1997, the FCC issued a second Report and Order to
address those issues vacated by the court. In this second order, the FCC
established a new per-call rate of 28.4 cents for phase two compensation. The
FCC also tentatively concluded that this per-call rate should also be used to
calculate phase one compensation obligations. It is likely, however, that the
entire phase one compensation directive will be revisited in a subsequent
order.
In accordance with the Telecommunications Act, the Company is continuing to
negotiate with requesting carriers over the terms of interconnection, UNEs and
resale rates. In some cases, the parties have been unable to agree within the
statutory period for negotiation and have gone to arbitration before various
state regulatory commissions. Since December 1996, state commission decisions
determining the prices and terms of unresolved issues have been released in
Oregon and Washington. Subsequent decisions are expected to be issued
throughout the remainder of 1997 and 1998.
The Company has exercised its right under the Telecommunications Act to
challenge state regulatory commission arbitration orders that govern agreements
between the Company and its competitors. The Company has filed lawsuits in
federal district courts in Washington and Oregon. A number of these complaints
have been dismissed without prejudice on the grounds that they were filed
before the arbitrated agreements had received final approval from the state
commission. In such cases, the Company is refiling complaints after final
approval has occurred.
Additionally, the Company has made appropriate filings with the states and
Federal District Courts requesting that the Eighth Circuit's favorable rulings
be taken into consideration in connection with any future arbitration rulings
or complaint actions.
Interim rates for interconnection and UNEs have been established through
negotiation and arbitration decisions. These interim rates will be used until
permanent rates are established through state commission proceedings
investigating cost studies. The Company filed cost studies in Washington
during the first quarter of 1997, with additional filings to begin in the other
states in which it operates during the remainder of 1997 and throughout 1998.
Additional state commission proceedings have begun to establish rules and
procedures to implement state universal service funds (USF). USF proceedings
have begun in Idaho and additional proceedings are scheduled to begin during
the remainder of 1997 and into 1998.
State Regulatory Developments
Effective January 1, 1997, the Company began operating as a Primary Toll
Carrier (PTC) in the interstate/intraLATA jurisdictions in both Washington and
Oregon, and temporarily entered into a "bill and keep" billing arrangement
during the period of transition from a secondary carrier in those jurisdictions
to the PTC.
5
<PAGE> 7
GTE Northwest Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On November 2, 1996, the Washington Utility and Transportation Committee (WUTC)
opened a generic cost docket to develop a cost methodology and establish
permanent rates for interconnection, UNEs, resale and number portability.
Hearings were completed on July 28, 1997. A commission order is expected late
in the fourth quarter of 1997 with new permanent rates effective January 1,
1998. The revenue impacts are not known at this time.
Other Developments
The Company has reviewed and estimated its current and planned expenditures to
become Year 2000 compliant. These costs are currently estimated to be $15.9
over the next three years.
On October 15, 1997, the Company's parent, GTE, announced its proposal to
acquire MCI Communications Corporation (MCI) in a transaction valued at
approximately $28 billion in cash or 40 dollars per share. On November 10,
1997,MCI announced that it had reached an agreement to merge with WorldCom,
Inc. (WorldCom). GTE is continuing to monitor the situation and may reevaluate
its position depending on a number of factors, including the relative stock
performance of both WorldCom and MCI, the financial and operating results of
MCI and the ongoing status of the regulatory approval process, as well as other
pertinent information.
In May 1997, GTE announced initiatives to become a leading national provider of
telecommunications service, including the acquisition of BBN Corporation (BBN),
a leading provider of end-to-end Internet solutions. In addition, GTE
announced a strategic alliance with Cisco Systems, Inc. to jointly develop
enhanced data and Internet services for customers; and, the purchase of a
national, state-of-the-art fiber-optic network from Qwest Communications. As
of September 30, 1997, GTE had completed the acquisition of BBN.
6
<PAGE> 8
GTE Northwest Incorporated and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ----------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,918 $ 2,074
Receivables, less allowances of $17,720 and $17,384 236,151 258,275
Inventories and supplies 27,484 14,361
Deferred income tax benefits 5,560 2,744
Other 13,561 17,749
---------- ----------
Total current assets 284,674 295,203
---------- ----------
Property, plant and equipment, at cost 3,369,462 3,258,268
Accumulated depreciation (2,128,626) (2,067,357)
---------- ----------
Total property, plant and equipment, net 1,240,836 1,190,911
---------- ----------
Employee benefit plans and other assets 101,308 84,266
---------- ----------
Total assets $1,626,818 $1,570,380
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 14,482 $ 60,879
Notes payable to affiliates 49,483 --
Accounts payable 86,747 93,558
Taxes payable 46,303 24,614
Accrued interest 16,316 10,602
Accrued payroll costs 18,900 25,834
Dividends payable 48,220 27,753
Other 85,319 73,686
---------- ----------
Total current liabilities 365,770 316,926
---------- ----------
Long-term debt 682,997 697,242
Deferred income taxes 56,442 45,982
Employee benefit plans 68,842 62,873
Other liabilities 8,409 25,311
---------- ----------
Total liabilities 1,182,460 1,148,334
---------- ----------
Shareholder's equity:
Common stock (17,920,000 shares issued) 448,000 448,000
Additional paid-in capital 57,671 57,671
Retained deficit (61,313) (83,625)
---------- ----------
Total shareholder's equity 444,358 422,046
---------- ----------
Total liabilities and shareholder's equity $1,626,818 $1,570,380
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE> 9
GTE Northwest Incorporated and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
------- -------
(Thousands of Dollars)
<S> <C> <C>
OPERATIONS
Net income $163,289 $134,444
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 160,302 151,280
Deferred income taxes (470) 27,435
Gain on disposition of assets (5,101) --
Provision for uncollectible accounts 12,657 12,612
Change in current assets and current liabilities 5,653 (68,754)
Other - net (31,570) (16,349)
-------- --------
Net cash from operations 304,760 240,668
-------- --------
INVESTING
Capital expenditures (184,180) (130,848)
Proceeds from disposition of assets 11,389 --
Other - net -- 1,724
-------- --------
Net cash used in investing (172,791) (129,124)
-------- --------
FINANCING
Long-term debt issued -- 171,656
Long-term debt retired, including premiums paid on early retirement (21,105) (2,221)
Dividends (120,510) (115,849)
Increase (decrease) in short-term obligations, excluding current
maturities 9,490 (197,797)
Other - net -- 17,468
-------- --------
Net cash used in financing (132,125) (126,743)
-------- --------
Decrease in cash and cash equivalents (156) (15,199)
-------- --------
Cash and cash equivalents:
Beginning of period 2,074 16,310
-------- --------
End of period $ 1,918 $ 1,111
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE> 10
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 (SEC). 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 period. These condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's 1996 Annual Report on Form 10-K.
(2) In the first quarter of 1997, the Company sold three telephone exchanges in
the state of Washington (representing 1,800 access lines) to Pend Oreille
Telephone Company for $7.6 million in cash. A pre-tax gain of $5.1 million
was recorded on the sale.
(3) In May 1997, the Company paid $0.2 million in premiums on the retirement
of $20 million of long-term debt redeemed prior to stated maturity.
(4) Long-term debt as of September 30, 1997 includes $20 million of affiliate
notes payable which the Company anticipates refinancing during the first
half of 1998. These affiliate notes payable represent notes payable to
GTE Funding Incorporated, an affiliate company that provides short-term
financing and investment vehicles and cash management services for the
Company and six of its affiliates.
(5) In January 1997, the SEC issued amendments to its rules which clarify and
expand disclosure requirements for derivative financial instruments. As
of September 30, 1997, there has been no significant change in the market
risk, or accounting policy associated with derivative financial
instruments as stated in the Company's 1996 Annual Report on Form 10-K.
(6) Reclassifications of prior year data have been made, where appropriate, to
conform to the 1997 presentation.
9
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(12) Statement re: Calculation of the Consolidated Ratio
of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the third
quarter of 1997.
10
<PAGE> 12
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: November 13, 1997 William M. Edwards, III
-------------------------- --------------------------
William M. Edwards, III
Vice President - Controller
(Principal Accounting Officer)
11
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------- -----------------------------------------------------
<S> <C>
12 Statement re: Calculation of the Consolidated Ratio
of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 12
GTE Northwest Incorporated and Subsidiary
STATEMENT OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1997
------------------
<S> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 163,289
Add - Income taxes 90,978
- Fixed charges 43,295
------------------
Adjusted earnings $ 297,562
==================
Fixed charges:
Interest expense $ 40,746
Portion of rent expense
representing interest 2,549
------------------
Adjusted fixed charges $ 43,295
==================
RATIO OF EARNINGS TO FIXED CHARGES 6.87
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,918
<SECURITIES> 0
<RECEIVABLES> 253,871
<ALLOWANCES> 17,720
<INVENTORY> 27,484
<CURRENT-ASSETS> 284,674
<PP&E> 3,369,462
<DEPRECIATION> 2,128,626
<TOTAL-ASSETS> 1,626,818
<CURRENT-LIABILITIES> 365,770
<BONDS> 682,997
0
0
<COMMON> 448,000
<OTHER-SE> 3,642
<TOTAL-LIABILITY-AND-EQUITY> 1,626,818
<SALES> 829,589
<TOTAL-REVENUES> 829,589
<CGS> 265,321
<TOTAL-COSTS> 540,348
<OTHER-EXPENSES> 226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,849
<INCOME-PRETAX> 254,267
<INCOME-TAX> 90,978
<INCOME-CONTINUING> 163,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,289
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
