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 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: 2-33059
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
(Exact name of registrant as specified in its charter)
Hawaii 99-0049500
(State or other jurisdiction of
(I.R.S. Employer
Incorporation or organization)
Identification No.)
1177 Bishop Street, Honolulu, Hawaii 96813
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 808-546-
4511
(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 10,000,000 shares of $25 par value common stock
outstanding at July 31, 1994.
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
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
Shareholder's 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
<TABLE>
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<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 $ 57,043 $ 52,333 $ 111,270 $ 104,415
Network access services 32,265 27,050 64,321 52,784
Long distance services 30,973 26,532 59,347 52,355
Equipment sales and services 22,054 24,336 40,023
45,186
Other 11,180 9,501 39,864 38,133
153,515 139,752 314,825 292,873
OPERATING EXPENSES:
Cost of sales and services 44,510 40,153 89,403 79,198
Depreciation and amortization 26,884 26,109 54,646
51,099
Marketing, selling, general and
administrative 58,807 43,520 111,326 91,303
130,201 109,782 255,375 221,600
Net operating income 23,314 29,970 59,450 71,273
OTHER (INCOME) DEDUCTIONS:
Interest expense 8,752 7,768 17,249 15,136
Other - net (309) (140) 522
(472)
INCOME BEFORE INCOME TAXES 14,871 22,342 41,679 56,609
INCOME TAXES 4,640 8,448 14,783 22,143
NET INCOME $ 10,231 $ 13,894 $ 26,896 $ 34,466
</TABLE>
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.
1
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income decreased 26% or $3.7 million for the three months and
22% or $7.6 million for the six months ended June 30, 1994
compared to the same periods in 1993. The decreases are
primarily the result of higher operating expenses, a settlement
gain on the enhanced early retirement and voluntary separation
programs offered to eligible employees during the second quarter
of 1993 partially offset by higher revenues.
Operating Revenues
Operating revenues increased 10% or $13.8 million for the three
months and 8% or $22.0 million for the six months ended June 30,
1994.
Local network service revenues increased 9% or $4.7 million for
the three months and 7% or $6.9 million for the six months ended
June 30, 1994 compared to the same periods in 1993. The
increases are primarily due to continued customer growth as
reflected by an increase in access lines and higher revenue from
the start up of 911 service in the second quarter of 1994.
Network access service revenue increased 19% or $5.2 million for
the three months and 22% or $11.5 million for the six months
ended June 30, 1994 compared to the same periods in 1993. The
increases are primarily the result of higher carrier common line
rates, favorable pooling settlements and increased minutes of
use.
Long distance service revenues increased 17% or $4.4 million for
the three months and 13% or $7.0 million for the six months ended
June 30, 1994 compared to the same periods in 1993. The
increases are primarily attributable to increased usage and
higher international revenues.
Equipment sales and services revenues decreased 9% or $2.3
million for the three months and 11% or $5.2 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.
Other operating revenues increased 18% or $1.7 million for the
three months and 5% or $1.7 million for the six months ended June
30, 1994 compared to the same periods in 1993. The increases are
primarily due to lower provisions for uncollectible accounts
partially offset by lower directory advertising revenue in the
first quarter reflecting a change in the life of directories and
the timing of publication dates.
2
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Operating Expenses
Operating expenses increased 19% or $20.4 million for the three
months and 15% or $33.8 million for the six months ended June 30,
1994 compared to the same periods in 1993. The increases are
primarily the result of a settlement gain on the enhanced early
retirement and voluntary separation programs offered to eligible
employees during the second quarter of 1993, higher software
costs, higher information management costs, and higher
depreciation resulting from increased plant investments.
Other Expenses
Interest expense increased 13% or $1.0 million for the three
months and 14% or $2.1 million for the six months ended June 30,
1994 compared to the same periods in 1993. The increases are due
to higher average debt levels.
Income taxes decreased 45% or $3.8 million for the three months
and 33% or $7.4 million for the six months ended June 30, 1994
compared to the same periods in 1993. The decreases are
primarily attributable to the decrease in pretax income and a
larger portion of income from nontaxable foreign operations.
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 $61.9 million
compared to $62.7 million for the same period in 1993.
Capital expenditures represent a significant use of funds during
the first six months of 1994 and 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 $84.0 million compared to $68.3 million during the same
period in 1993. The Company's anticipated construction costs for
1994 are approximately $170.0 million.
Cash provided from financing activities was $26.3 million for the
first six months of 1994 compared to $5.2 million for the same
period in 1993. The Company increased short-term borrowings by
$37.5 million primarily to fund capital additions. External
financing included the issuance of long-term borrowings of $123
million in the first six months of 1993. The proceeds were used
to primarily retire short-term debt. Dividends of $10.0 million
were paid to shareholders in 1994 compared to $14.9 million in
1993.
3
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 borrowings can be obtained
through commercial paper borrowings or borrowings 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.
4
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 6,730 $ 808
Receivables, less allowances of
$7,923 and $9,072, respectively 131,561 119,467
Materials and supplies, at average cost 3,860 6,981
Deferred income tax benefits 15,085 14,203
Prepayments and other 16,872 14,924
Total current assets 174,108 156,383
PROPERTY, PLANT AND EQUIPMENT:
Original cost 1,857,625 1,823,848
Accumulated depreciation (683,345)
(678,175)
Net property, plant and equipment 1,174,280 1,145,673
PREPAID PENSION 105,434 96,209
OTHER ASSETS 25,215 27,680
TOTAL ASSETS $ 1,479,037 $ 1,425,945
See Notes to Condensed Consolidated Financial Statements.
5
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 151,368 $
113,999
Accounts payable 26,406 50,227
Accrued taxes 16,867 10,141
Accrued payroll and vacations 23,471 19,251
Accrued interest 7,297 7,285
Accrued dividends 6,938 5,000
Accrued restructuring costs and other 62,737 69,694
Total current liabilities 295,084 275,597
LONG-TERM DEBT 378,911 379,901
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 280,871 261,612
SHAREHOLDER'S EQUITY:
Common stock 250,000 250,000
Other capital 41,566 41,510
Reinvested earnings 232,605 217,325
Total shareholder's equity 524,171 508,835
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,479,037 $
1,425,945
See Notes to Condensed Consolidated Financial Statements.
6
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,896 $ 34,466
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 54,646 51,099
Deferred income taxes and investment
tax credits 9,884 (3,383)
Provision for uncollectible accounts 2,095 5,353
Changes in current assets and
current liabilities (32,836)
(6,671)
Other - net 1,192 (18,187)
Net cash from operating activities 61,877 62,677
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (84,005)
(68,335)
Other - net 1,784 (1,759)
Net cash used in investing activities (82,221)
(70,094)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued -- 40,000
Long-term debt issued -- 123,466
Long-term debt retired (1,228)
(12,504)
Dividends paid to shareholder (10,000)
(14,850)
Increase (decrease) in short-term debt 37,494 (130,886)
Net cash provided from financing activities 26,266
5,226
Increase (decrease) in cash 5,922 (2,191)
Cash at beginning of period 808 4,246
Cash at end of period $ 6,730 $ 2,055
See Notes to Condensed Consolidated Financial Statements.
7
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
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 Shareholder
incorporated by reference in the Annual Report on Form 10-K.
(2) On May 11, 1993, the Company filed a general rate increase
application with the Public Utilities Commission of the State of
Hawaii (PUC) requesting approval to increase intrastate revenues
by $50.4 million. This represents a 15.9% increase over
intrastate revenues for 1993 at current rates, and is the first
rate increase application the Company has filed since 1985. The
Company's rate restructure proposal and earnings review
investigation were incorporated into a rate case docket.
Hearings took place in March and April 1994. A final decision is
expected in late 1994.
(3) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
8
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
Items 1 through 6 are not applicable for the quarter ended June
30, 1994.
9
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 HAWAIIAN TELEPHONE COMPANY
INCORPORATED
(Registrant)
Date: August 12, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
10
