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: 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 April 30, 1995. The Company's common stock is
100% owned by GTE Corporation.
PART I. FINANCIAL INFORMATION
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
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 $ 61,091
$ 54,227
Network access services 32,708
32,056
Long distance services 24,734
28,374
Equipment sales and services 15,663
17,969
Other 3,853
28,684
138,049
161,310
OPERATING EXPENSES:
Cost of sales and services 35,365
44,893
Depreciation and amortization 30,110
27,762
Marketing, selling, general and
administrative 51,108
52,519
116,583
125,174
Net operating income 21,466
36,136
OTHER (INCOME) DEDUCTIONS:
Interest expense 10,173
8,497
Other - net (378)
831
INCOME BEFORE INCOME TAXES 11,671
26,808
INCOME TAXES 4,016
10,143
NET INCOME $ 7,655
$ 16,665
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 HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Net income was $7.7 and $16.7 for the three months ended March
31, 1995 and 1994, respectively, representing a decrease of 54%
or $9.0. The decrease is primarily the result of lower operating
revenues due to a change in the timing of directory publication
dates, partially offset by lower operating expenses, primarily
cost of sales and services.
OPERATING REVENUES
Operating revenues were $138.0 and $161.3 for the three months
ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 14% or $23.3.
Local network services revenues were $61.1 and $54.2 for the
three months ended March 31, 1995 and 1994, respectively,
reflecting an increase of 13% or $6.9. This increase is
primarily a result of the Public Utility Commission (PUC) of the
State of Hawaii adopting accrual accounting for Postretirement
Benefits Other Than Pensions (OPEB) for ratemaking purposes. The
PUC approved the Company's plan to reflect an additional $10.7 of
OPEB expenses in its rates, retroactive to January 1, 1995,
resulting in $2.7 of increased revenues in the first three months
of 1995. Revenues in 1995 also increased due to continued
customer growth as reflected by a 4% increase in access lines,
which generated $1.1 in additional revenues, and a $1.6 increase
in sales of enhanced features such as custom calling and voice
messaging services.
Network access services revenues were $32.7 and $32.0 for the
three months ended March 31, 1995 and 1994, respectively,
reflecting an increase of 2% or $0.7. This increase is primarily
the result of an 11% increase in minutes of use, which generated
$2.0 in additional revenues, partially offset by a $1.2 decline
in revenues from unfavorable pooling settlements.
Long distance services revenues were $24.7 and $28.4 for the
three months ended March 31, 1995 and 1994, respectively,
reflecting a decrease of 13% or $3.7. This decrease is primarily
due to a $3.3 decline in revenues caused by lower domestic and
international toll volumes.
Equipment sales and services revenues were $15.7 and $18.0 for
the three months ended March 31, 1995 and 1994, respectively,
reflecting a decrease of 13% or $2.3. This decrease is primarily
due to a $3.0 decline in revenues from service contracts, which
were not renewed in 1995.
Other operating revenues were $3.9 and $28.7 for the three months
ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 87% or $24.8. This decrease is primarily due to a
$24.2 decline in directory revenues resulting from the delay of
certain directory publications until the second quarter of 1995.
- - -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 were $116.6 and $125.2 for the three months
ended March 31, 1995 and 1994, respectively, reflecting a
decrease of 7% or $8.6. The decrease is primarily due to a
$5.1 decrease in contractor costs and software upgrades
associated with projects completed in 1994 and a $3.6 decrease in
labor and benefits costs associated with the Company's re-
engineering plan initiated in 1994. Partially offsetting these
decreases is a $2.3 increase in depreciation and amortization
caused by an increase in plant balances, resulting, in part, from
the installation of interisland fiber optics in 1994.
OTHER DEDUCTIONS
Interest expense was $10.2 and $8.5 for the three months ended
March 31, 1995 and 1994, respectively, reflecting an increase of
20% or $1.7. The increase is due primarily to higher average
short-term debt levels, accompanied by higher short-term
borrowing rates, for the first three months of 1995 compared to
the same period in 1994.
Income tax expense was $4.0 and $10.1 for the three months ended
March 31, 1995 and 1994, respectively, representing a decrease of
60% or $6.1. This decrease is primarily due to the decrease in
pretax income, partially offset by the lower reversal of tax rate
differentials on deferred tax balances.
CAPITAL RESOURCES AND LIQUIDITY
Management believes that the Company has adequate internal and
external resources available to meet 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,
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 operations of $48.8 compared to
$19.4 for the same period in 1994. The increase is primarily due
to the timing of payments of accounts payable, partially offset
by lower results from operations.
The Company's capital expenditures during the first three months
of 1995 were $32.1 compared to $37.4 for the same period in 1994.
The 1995 expenditures reflect the Company's continued growth in
access lines and modernization of current facilities and
introduction of new products and services including Video Connect
(an interactive and broadcast video product utilized in the
broadcast, educational and business markets), broadband digital
services and switched digital services. The Company's
construction costs in 1995 are
- - -3-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
expected to increase slightly from $174.3 of capital expenditures
incurred during 1994, reflecting the Company's expanding network
and the replacement of outdated technologies with digital
switches and fiber-optic networks.
Cash used in financing activities was $19.9 for the first three
months of 1995, compared to cash provided for the same period in
1994 of $19.0. The Company decreased its outstanding short-term
borrowings by $19.8 during the first quarter of 1995, compared to
an increase in short-term borrowings of $22.6 during the same
period in 1994. In addition, dividends of $5.0 were paid in the
first quarter of 1994.
OTHER MATTERS
As previously reported, results for 1993 included a one-time
pretax restructuring charge of $78.3, which reduced net income by
$48.2, 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. The major components of the estimated cost to
implement the re-engineering plan and activity since inception
are as follows (dollars in millions):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
March 31,
Component 1993 Activity 1994 Activity
1995
<S> <C> <C> <C> <C>
<C>
Separation benefits $ 35.4 $ (0.7) $ 34.7 $ (0.2)
$ 34.5
Systems 31.3 (13.3) 18.0 (2.0)
16.0
Consolidation of
facilities 9.6 (1.5) 8.1 (0.7)
7.4
Other 2.0 (2.0) -- --
- - --
Total $ 78.3 $ (17.5) $ 60.8 $ (2.9)
$ 57.9
</TABLE>
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,
$23.1 of the restructuring reserve 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.
- - -4-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
On May 11, 1993, the Public Utilities Commission (PUC) of the
State of Hawaii initiated a communications infrastructure
proceeding which was intended to investigate such issues as:
what markets should be opened to competition; who should be
allowed to compete in those markets; and what rules, if any,
should apply. Following the initiation of the docket, the PUC
allowed parties to seek intervenor or participant status. To
date, over 35 parties representing a wide range of interest have
been granted either intervenor or participant status. The
majority of the effort in the proceeding has been directed toward
developing a list of issues to be addressed. Two reports were
submitted to the PUC on June 9, 1994 and January 11, 1995
identifying the issues to be addressed and recommending that the
proceeding be divided into phases. Parties filed opening
testimony on these matters on March 24, 1995 and rebuttal
testimony on April 28, 1995. Evidential hearings are to commence
on May 24, 1995.
During the first quarter of 1995, the PUC authorized AT&T Corp.
and Sprint Corporation to provide interisland toll service on a
10XXX basis, effective March 1, 1995. AT&T Corp. and Sprint
Corporation will be required to report on the impact of its
service on the interisland toll business. The PUC reserves the
right to modify or rescind the authority depending on the impact
to the Company. On February 14, 1995, the PUC approved the
Company's request to lower its toll rates and make changes to its
various calling plans to keep them competitive with AT&T Corp.'s
rates. The PUC granted MCI Communications Corporation (MCI) a
Certificate of Public Convenience and Necessity (CPCN) on
February 22, 1995; however, MCI must seek approval to provide new
add-on services, including interisland toll service on a 10XXX
basis.
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.
In May 1995, the FCC approved GTE's applications to construct a
new fiber-optic and coaxial-cable video network in four markets,
including Honolulu, Hawaii. GTE expects to submit tariffs that
set the rates for use of its video network to the FCC for
approval and to commence the initial deployment of the network in
late 1995 and early 1996.
- - -5-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
December 31,
1995
1994
(Thousands of
Dollars)
<S> <C>
<C>
CURRENT ASSETS:
Cash $ 4,461
$ 7,709
Receivables, less allowances
of $9,156 and $9,010, respectively 110,718
137,478
Materials and supplies 9,599
7,998
Deferred income tax benefits 11,308
12,061
Prepayments and other 13,154
14,792
Total current assets 149,240
180,038
PROPERTY, PLANT AND EQUIPMENT:
Original cost 1,945,565
1,908,423
Accumulated depreciation (738,496)
(702,596)
Net property, plant and equipment 1,207,069
1,205,827
PREPAID PENSION COSTS 119,897
114,804
OTHER ASSETS 25,762
26,580
TOTAL ASSETS $ 1,501,968
$ 1,527,249
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- - -6-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31,
December 31,
1995
1994
(Thousands of
Dollars)
<S> <C>
<C>
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 191,846 $
211,929
Accounts payable 27,074
42,660
Accrued taxes 14,817
15,310
Accrued interest 6,944
7,341
Accrued payroll and vacations 26,683
24,497
Accrued dividends 16,693
- - --
Accrued restructuring costs and other 53,502
55,181
Total current liabilities 337,559
356,918
LONG-TERM DEBT 371,547
371,840
DEFERRED CREDITS AND RESERVES, primarily
deferred income taxes, investment tax
credits and restructuring costs 278,446
275,055
SHAREHOLDER'S EQUITY:
Common stock 250,000
250,000
Other capital 41,961
41,943
Reinvested earnings 222,455
231,493
Total shareholder's equity 514,416
523,436
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,501,968 $
1,527,249
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- - -7-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
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 $ 7,655 $
16,665
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 30,110
27,762
Deferred income taxes and investment
tax credits 3,539
5,570
Provision for uncollectible accounts 2,493
1,380
Changes in current assets and
current liabilities 1,876
(32,960)
Other - net 3,143
1,003
Net cash from operating activities 48,816
19,420
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,119)
(37,410)
Cash used in investing activities (32,119)
(37,410)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retired (635)
(585)
Dividends paid to shareholders --
(5,000)
Net change in affiliate notes 492
1,987
Increase (decrease) in short-term debt (19,802)
22,553
Net cash from (used in) financing
activities (19,945)
18,955
Increase (decrease) in cash (3,248)
965
Cash at beginning of period 7,709
808
Cash at end of period $ 4,461 $
1,773
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
- - -8-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
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 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
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 HAWAIIAN TELEPHONE COMPANY
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> 4,461
<SECURITIES> 0
<RECEIVABLES> 119,874
<ALLOWANCES> 9,156
<INVENTORY> 9,599
<CURRENT-ASSETS> 149,240
<PP&E> 1,945,565
<DEPRECIATION> 738,496
<TOTAL-ASSETS> 1,501,968
<CURRENT-LIABILITIES> 337,559
<BONDS> 371,547
<COMMON> 250,000
0
0
<OTHER-SE> 264,416
<TOTAL-LIABILITY-AND-EQUITY> 1,501,968
<SALES> 138,049
<TOTAL-REVENUES> 138,049
<CGS> 35,365
<TOTAL-COSTS> 116,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,173
<INCOME-PRETAX> 11,671
<INCOME-TAX> 4,016
<INCOME-CONTINUING> 7,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,655
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
