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 September 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 October 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. . . . . . . .
. . . . 6
Condensed Consolidated Balance Sheets - Liabilities and
Shareholder's Equity . . . . . . . . . . . . . . . . . . .
. . . . 7
Condensed Consolidated Statements of Cash Flows . . . . . . .
. . . . 8
Notes to Condensed Consolidated Financial Statements. . . . .
. . . . 9
PART II. OTHER INFORMATION
Items 1 through 6 . . . . . . . . . . . . . . . . . . . . . .
. . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .11
PART I. FINANCIAL INFORMATION
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine
Months Ended
September 30,
September 30,
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 56,564 $ 56,074 $ 167,834 $ 160,489
Network access services 31,799 29,739 96,120 82,523
Long distance services 33,144 30,474 92,491 82,829
Equipment sales and services 19,422 22,397 59,445
67,583
Other 180 (1,271) 40,044
36,862
141,109 137,413 455,934 430,286
OPERATING EXPENSES:
Cost of sales and services 40,005 41,254 129,408 120,452
Depreciation and amortization 28,267 26,562 82,913
77,661
Marketing, selling, general and
administrative 60,639 51,125 171,965 142,428
128,911 118,941 384,286 340,541
Net operating income 12,198 18,472 71,648 89,745
OTHER (INCOME) DEDUCTIONS:
Interest expense 9,168 7,826 26,417 22,962
Other - net (583) (14) (61)
(486)
INCOME BEFORE INCOME TAXES 3,613 10,660 45,292 67,269
INCOME TAXES 545 3,997 15,328 26,140
NET INCOME $ 3,068 $ 6,663 $ 29,964 $ 41,129
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>
1
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income was $3.1 million for the three months and $29.9
million for the nine months ended September 30, 1994 as compared
to $6.7 million and $41.1 million for the same periods in 1993.
Net income decreased 54% or $3.6 million for the three months and
27% or $11.2 million for the nine months ended September 30, 1994
compared to the same periods in 1993. The decrease for the third
quarter is the result of higher operating expenses, partially
offset by higher revenues. The year-to-date decrease is due to
the higher operating expenses mentioned above, and the
recognition of 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 3% or $3.7 million for the three
months and 6% or $25.6 million for the nine months ended
September 30, 1994.
Local network service revenues were essentially unchanged for the
three months and increased 5% or $7.3 million for the nine months
ended September 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 revenues increased 7% or $2.1 million for
the three months and 16% or $13.6 million for the nine months
ended September 30, 1994 compared to the same periods in 1993.
The increases are primarily the result of increased minutes of
use and favorable pooling settlements.
Long distance service revenues increased 9% or $2.7 million for
the three months and 12% or $9.7 million for the nine months
ended September 30, 1994 compared to the same periods in 1993.
The increases are primarily attributable to increased usage and
higher international toll revenues.
Equipment sales and services revenues decreased 13% or $3.0
million for the three months and 12% or $8.1 million for the nine
months ended September 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 $1.5 million for the three
months ended and $3.2 million for the nine months ended September
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 year-to-
date reflecting a change in 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 8% or $10.0 million for the three
months and 13% or $43.7 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
third quarter increase is primarily the result of higher
depreciation resulting from increased plant investment, higher
software costs and the final resolution of certain settlement
activities. The year-to-date increase is due to higher operating
expenses mentioned above and a settlement gain on the enhanced
early retirement and voluntary separation programs recorded in
the second quarter of 1993.
Restructuring
As previously reported, during the fourth quarter of 1993, the
Company recorded a one-time, pretax restructuring charge of $78.2
million primarily for incremental costs related to implementation
of its 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 reduce costs.
In connection with the re-engineering plan, in the first nine
months of 1994 expenditures of $4.7 million were incurred and
charged to the restructuring reserve. These costs primarily
reflect costs associated with the consolidation of customer
contact, network operations and operator service centers,
separation benefits associated with 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 1994 and
throughout 1995. There have been no significant changes made to
the overall re-engineering plan as originally reported.
Other (Income) Deductions
Interest expense increased 17% or $1.3 million for the three
months and 15% or $3.5 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
increases are due to higher average debt levels.
Income taxes decreased 86% or $3.5 million for the three months
and 41% or $10.8 million for the nine months ended September 30,
1994 compared to the same periods in 1993. The decreases are
primarily attributable to decreases in pretax income and a larger
portion of income from foreign operations.
3
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first nine
months of 1994 was cash flow from operating activities of $87.3
million compared to $96.9 million for the same period in 1993.
The decrease primarily reflects the timing difference in the
payment of taxes and decreased results from operations.
The Company's capital expenditures during the first nine months
of 1994 were $130.6 million compared to $111.8 million during the
same period 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
anticipated construction costs for 1994 are approximately $175
million.
Cash provided from financing activities was $45.1 million for the
first nine months of 1994 compared to $15.6 million for the same
period in 1993. During the first nine months, the Company
increased short-term borrowings by $73.8 million primarily to
fund capital additions. Dividends of $16.9 million were paid to
shareholders in 1994 compared to $20.0 million in 1993.
During the third quarter of 1994, the Company's long-term debt
rating was reduced to "A" from "A+" by one of its rating
agencies. This remains a strong investment grade rating. The
Company's long-term debt ratings were not changed by other
agencies. The Company believes that its present ratings provide
it the financial flexibility necessary to fund its operations and
construction program.
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER MATTERS
The Company follows the accounting for regulated enterprises
prescribed by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("FAS
71"). In general, FAS 71 requires companies to depreciate plant
and equipment over lives approved by regulators. It also
requires deferral of certain costs and obligations based upon
approvals received from regulators. In the event that
recoverability of these costs becomes unlikely or uncertain,
whether resulting from actual or anticipated increases in
competition or specific regulatory, legislative or judical
actions, continued application of FAS 71 would no longer be
appropriate. If the Company no longer qualifies for the
provisions of FAS 71, the financial effects of the required
accounting change (which would be non-cash) could be material.
5
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 6,401 $ 808
Receivables, less allowances of
$9,159 and $9,072, respectively 133,733 119,467
Materials and supplies, at average cost 4,659 6,981
Deferred income tax benefits 19,649 14,203
Prepayments and other 14,050 14,924
Total current assets 178,492 156,383
PROPERTY, PLANT AND EQUIPMENT:
Original cost 1,884,406 1,823,848
Accumulated depreciation (689,724)
(678,175)
Net property, plant and equipment 1,194,682 1,145,673
PREPAID PENSION COST 110,119 96,209
OTHER ASSETS 27,908 27,680
TOTAL ASSETS $ 1,511,201 $ 1,425,945
See Notes to Condensed Consolidated Financial Statements.
6
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 182,455 $
113,999
Accounts payable 24,927 50,227
Accrued taxes 24,297 10,141
Accrued payroll and vacations 21,760 19,251
Accrued interest 6,842 7,285
Accrued dividends 3,693 5,000
Accrued restructuring costs and other 56,909 69,694
Total current liabilities 320,883 275,597
LONG-TERM DEBT 373,632 379,901
DEFERRED CREDITS AND RESERVES, primarily
deferred income taxes, investment tax
credits and restructuring costs 293,068 261,612
SHAREHOLDER'S EQUITY:
Common stock 250,000 250,000
Other capital 41,639 41,510
Reinvested earnings 231,979 217,325
Total shareholder's equity 523,618 508,835
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,511,201 $
1,425,945
See Notes to Condensed Consolidated Financial Statements.
7
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,964 $ 41,129
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 82,913 77,661
Deferred income taxes and investment
tax credits 5,989 (5,075)
Provision for uncollectible accounts 3,919 10,069
Changes in current assets and
current liabilities (36,852)
(2,935)
Other - net 1,348 (23,976)
Net cash from operating activities 87,281 96,873
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (130,619)
(111,800)
Other - net 3,853 (1,860)
Net cash used in investing activities (126,766)
(113,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued -- 40,000
Long-term debt issued -- 123,466
Long-term debt retired (11,825)
(19,256)
Dividends paid to shareholder (16,938)
(20,036)
Increase (decrease) in short-term debt 73,841 (108,567)
Net cash from financing activities 45,078 15,607
Increase (decrease) in cash 5,593 (1,180)
Cash at beginning of period 808 4,246
Cash at end of period $ 6,401 $ 3,066
See Notes to Condensed Consolidated Financial Statements.
8
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. On October 14,
1994, the Company filed a Notice of Intent to file a rate case
with the PUC in late December 1994. The Company also filed a
Motion for Waiver of Commission Rules and for Approval of 1995
Test Year.
(3) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
9
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
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
third
quarter of 1994.
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 HAWAIIAN TELEPHONE COMPANY
INCORPORATED
(Registrant)
Date: November 10, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 6,401
<SECURITIES> 0
<RECEIVABLES> 142,892
<ALLOWANCES> 9,159
<INVENTORY> 4,659
<CURRENT-ASSETS> 178,492
<PP&E> 1,884,406
<DEPRECIATION> 689,724
<TOTAL-ASSETS> 1,511,201
<CURRENT-LIABILITIES> 320,883
<BONDS> 373,632
<COMMON> 250,000
0
0
<OTHER-SE> 273,618
<TOTAL-LIABILITY-AND-EQUITY> 1,511,201
<SALES> 455,934
<TOTAL-REVENUES> 455,934
<CGS> 129,408
<TOTAL-COSTS> 384,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,417
<INCOME-PRETAX> 45,292
<INCOME-TAX> 15,328
<INCOME-CONTINUING> 29,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,964
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
