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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report - November 9, 1995
(Date of earliest event reported)
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
(Exact name of registrant as specified in its charter)
HAWAII
(State or other jurisdiction of incorporation or organization)
2-33059 99-0049500
(Commission File Number) (IRS Employer Identification No.)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-718-5600
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GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
On November 9, 1995, GTE Hawaiian Telephone Company Incorporated (the Company)
announced through its parent, GTE Corporation, that in response to recently
enacted and pending legislation and the increasingly competitive environment in
which the Company expects to operate, effective January 1, 1996, the Company is
discontinuing the use of accounting practices appropriate to regulated
enterprises. As a result of this decision, the Company will record a non-cash,
extraordinary charge of approximately $263.4 million after taxes during the
fourth quarter of 1995. This charge, which is based on the results of a
comprehensive study of the economic lives of the Company's telephone plant and
equipment, will have no effect on the Company's customers or its liquidity and
capital resources.
The Company has traditionally followed 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
required the Company to depreciate its plant and equipment over regulator
approved lives which may extend beyond the assets' actual economic lives. FAS
71 also required the deferral of certain costs based upon approvals received
from regulators to recover such costs in the future. As a result of these
requirements, the recorded net book value of certain assets and liabilities,
primarily telephone plant and equipment, was higher than that which would
otherwise have been recorded.
The charge will primarily represent an adjustment to the net book value of the
fixed assets of the Company, through an increase in accumulated depreciation,
and is not expected to have a significant effect on depreciation expense of
existing plant and equipment or earnings over the next several years. The
income statement effect of this change in accounting will be reflected in the
Company's consolidated statements of income as an extraordinary charge, net of
tax, under the provisions of Statement of Financial Accounting Standards No.
101, "Regulated Enterprises-Accounting for the Discontinuation of Application
of FASB Statement No. 71."
The accompanying pro forma statements of income for the nine months ended
September 30, 1995 and the year ended December 31, 1994, and the pro forma
balance sheet as of September 30, 1995 are based on historical condensed
consolidated financial statements, adjusted to give effect to the
discontinuance of FAS 71 as though it had occurred at the beginning of each
period presented. The pro forma financial information should be read in
conjunction with the historical consolidated financial statements and related
notes thereto. The pro forma financial information is not necessarily
indicative of the results that would have been attained had the discontinuance
of FAS 71 occurred in an earlier period.
In addition, the Company announced through its parent, GTE Corporation, that it
will refinance, on a long-term basis, approximately $145.0 million of long-term
debt issues. The positive impact of these redemptions is not expected to have
a significant effect on the Company's earnings over the next several years.
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GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
As Reported Pro Forma
Nine Months Nine Months
Ended Ended
September 30, Pro Forma September 30,
1995 Adjustments 1995
------------- --------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $454,473 $ 8,010 (1) $ 462,483
OPERATING EXPENSES
Cost of sales and services 199,173 199,173
Depreciation and amortization 90,391 90,391
Selling, general & administrative 77,151 8,010 (1) 85,161
-------- ---------- ----------
Total operating expenses 366,715 8,010 374,725
-------- ---------- ----------
OPERATING INCOME 87,758 -- 87,758
-------- ---------- ----------
OTHER DEDUCTIONS 28,879 28,879
-------- ---------- ----------
Income before income taxes 58,879 -- 58,879
INCOME TAXES 15,294 15,294
-------- ---------- ----------
Income before extraordinary charge 43,585 -- 43,585
EXTRAORDINARY CHARGE -- (263,419) (2) (263,419)
-------- ---------- ----------
Net income (loss) $ 43,585 $ (263,419) $ (219,834)
======== ========== ==========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
As Reported Pro Forma
Year Ended Year Ended
December 31, Pro Forma December 31,
1994 Adjustments 1994
------------- --------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $598,927 $ 5,284 (1) $ 604,211
OPERATING EXPENSES
Cost of sales and services 280,698 280,698
Depreciation and amortization 116,478 116,478
Selling, general & administrative 124,118 5,284 (1) 129,402
-------- ---------- ----------
Total operating expenses 521,294 5,284 526,578
-------- ---------- ----------
OPERATING INCOME 77,633 -- 77,633
-------- ---------- ----------
OTHER DEDUCTIONS 35,221 35,221
-------- ---------- ----------
Income before income taxes 42,412 -- 42,412
INCOME TAXES 12,613 12,613
-------- ---------- ----------
Income before extraordinary charge 29,799 -- 29,799
EXTRAORDINARY CHARGE -- (263,419)(2) (263,419)
-------- ---------- ----------
Net income (loss) $ 29,799 $ (263,419) $ (233,620)
======== ========== ==========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
As Reported Pro Forma
September 30, Pro Forma September 30,
1995 Adjustments 1995
------------- --------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 3,863 $ 3,863
Receivables, less allowance
of $9,908 145,466 145,466
Materials and supplies 12,290 12,290
Deferred income tax benefits 6,175 6,175
Prepayments and other 12,711 12,711
---------- ---------- -----------
Total current assets 180,505 180,505
---------- ---------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 1,956,346 1,956,346
Accumulated depreciation (750,810) $ (410,708) (3) (1,161,518)
---------- ---------- -----------
Net property, plant and equipment 1,205,536 (410,708) 794,828
---------- ---------- -----------
PREPAID PENSION COSTS 134,936 134,936
---------- ---------- -----------
OTHER ASSETS 26,749 (17,860) (4) 8,889
---------- ---------- -----------
Total Assets $1,547,726 $ (428,568) $ 1,119,158
========== ========== ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
As Reported Pro Forma
September 30, Pro Forma September 30,
1995 Adjustments 1995
------------- --------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 39,644 $ 39,644
Accounts payable 53,517 53,517
Accrued taxes 26,890 26,890
Accrued interest 8,374 8,374
Accrued payroll and vacations 29,889 29,889
Accrued restructuring costs and other 51,448 51,448
---------- --------- ----------
Total current liabilities 209,762 209,762
---------- --------- ----------
LONG-TERM DEBT 519,674 $ 2,630 (5) 522,304
---------- --------- ----------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 220,192 (167,779)(6) 52,413
Employee benefit obligations 24,855 24,855
Restructuring costs and other 29,994 29,994
---------- --------- ----------
Total reserves and deferred credits 275,041 (167,779) 107,262
---------- --------- ----------
SHAREHOLDER'S EQUITY:
Common stock 250,000 250,000
Other capital 41,864 41,864
Reinvested earnings (deficit) 251,385 (263,419)(2) (12,034)
---------- --------- ----------
Total shareholder's equity 543,249 (263,419) 279,830
---------- --------- ----------
Total Liabilities and Shareholder's Equity $1,547,726 $(428,568) $1,119,158
========== ========= ==========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
(1) Represents the reclassification of the provision for uncollectible accounts
to selling, general and administrative expenses, consistent with non-
regulated accounting practices.
(2) Represents the after-tax effect of the adjustments described in notes 3 - 5
below.
(3) Represents the write-down of property, plant and equipment, net due to an
impairment of such assets resulting from depreciation lives set by
regulators that are longer than the assets' economic lives.
(4) Represents the write-off of net regulatory assets and the write-off of the
original debt issuance costs associated with $145.0 million of long-term
debt that will be refinanced.
(5) Represents the costs associated with refinancing $145.0 million of
long-term debt.
(6) Represents the tax effect of the adjustments described in notes 3 - 5
above.
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SIGNATURES
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 13, 1995 By William M. Edwards III
-----------------------------------
William M. Edwards III
Controller
(Chief Accounting Officer)
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