UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[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. Employee
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
Three Months Ended
March 31,
1995 1994
(Thousands of Dollars)
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.
-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)
(DOLLARS IN MILLIONS)
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 expected to increase slightly from
-3-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN MILLIONS)
$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):
December 31, 1994 December 31, 1995 March 31,
Component 1993 Activity 1994 Activity 1995
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
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)
(DOLLARS IN MILLIONS)
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
March 31, December 31,
1995 1994
(Thousands of Dollars)
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.
-6-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31, December 31,
1995 1994
(Thousands of Dollars)
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.
-7-
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1995 1994
(Thousands of Dollars)
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.
-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-
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