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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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 1-3040
U S WEST Communications, Inc.
A Colorado Corporation IRS Employer No.
84-0273800
1801 California Street, Denver, Colorado 80202
Telephone Number (303) 896-3099
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF U S WEST, INC., MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) OF FORM 10-Q AND IS
THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION H(2).
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__
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U S WEST Communications, Inc.
Form 10-Q
TABLE OF CONTENTS
<TABLE>
Item Page
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
1. Financial Statements (Unaudited)
Consolidated Statements of Operations -
Three months ended March 31, 1994 and 1993. . . . . 3
Condensed Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993. . . . . . . 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1994 and 1993. . . . . 6
Notes to Consolidated Financial Statements. . . . . . 7
2. Management's Analysis - (Reduced disclosure format pursuant to
General Instruction H(2)) . . . . . . . . . . . 8
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K. . . . . . . . . . 12
</TABLE>
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Form 10-Q - Part I U S WEST Communications, Inc.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
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Three Months Ended
March 31,
(Dollars in millions) 1994 1993
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<S> <C> <C>
OPERATING REVENUES
Local service $985 $937
Interstate access service 562 538
Intrastate access service 174 170
Long distance network service 351 356
Other services 146 140
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Total operating revenues 2,218 2,141
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OPERATING EXPENSES
Employee-related costs 717 696
Other operating expenses 398 408
Taxes other than income taxes 97 96
Depreciation and amortization 465 442
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Total operating expenses 1,677 1,642
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Income from operations 541 499
Interest expense 80 99
Other income 14 -
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Income before income taxes 475 400
Provision for income taxes 178 133
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NET INCOME $297 $267
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See Notes to Consolidated Financial Statements.
</TABLE>
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Form 10-Q - Part I U S WEST Communications, Inc.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
<CAPTION>
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March 31, December 31,
(Dollars in millions) 1994 1993
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $45 $67
Accounts receivable 1,360 1,391
Materials and supplies 105 108
Other 386 351
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Total current assets 1,896 1,917
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Property, plant and equipment 28,249 28,012
Less: Accumulated depreciation 15,731 15,465
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Net property, plant and equipment 12,518 12,547
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Other 914 698
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Total assets $15,328 $15,162
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See Notes to Consolidated Financial Statements.
</TABLE>
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Form 10-Q - Part I U S WEST Communications, Inc.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
<CAPTION>
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March 31, December 31,
(Dollars in millions) 1994 1993
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<S> <C> <C>
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Short-term debt $1,240 $1,260
Accounts payable 689 935
Employee compensation 257 303
Other 1,509 1,314
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Total current liabilities 3,695 3,812
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Long-term debt 4,272 4,092
Postretirement benefit obligation 2,323 2,593
Deferred taxes and credits 1,642 1,525
Shareowner's equity
Common shares - one share
without par value 6,998 6,742
Accumulated deficit (3,602) (3,602)
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Total shareowner's equity 3,396 3,140
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Total liabilities and shareowner's
equity $15,328 $15,162
========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
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Form 10-Q - Part I U S WEST Communications, Inc.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
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Three Months Ended
March 31,
(Dollars in millions) 1994 1993
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $297 $267
Adjustments
Depreciation and amortization 465 442
Deferred income taxes and amortization
of investment tax credit 26 10
Changes in operating assets and
liabilities
Accounts receivable 31 (18)
Materials, supplies and other (41) (50)
Accounts payable and accrued
liabilities 33 40
Funding of postretirement benefit
obligation (288) (246)
Other - net (32) 86
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Cash provided by operating
activities 491 531
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INVESTING ACTIVITIES
Expenditures for property, plant
and equipment (605) (594)
Other - net 18 22
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Cash used for investing activities (587) (572)
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FINANCING ACTIVITIES
Net proceeds from short-term debt 71 330
Proceeds from long-term debt 182 111
Repayments of long-term debt (116) (229)
Dividends paid (319) (226)
Equity infusions from parent 256 49
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Cash provided by financing
activities 74 35
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CASH AND CASH EQUIVALENTS
Decrease (22) (6)
Beginning balance 67 53
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Ending balance $45 $47
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See Notes to Consolidated Financial Statements.
</TABLE>
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Form 10-Q - Part I U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
A. Condensed Financial Statements
The consolidated financial statements have been prepared by U S WEST
Communications, Inc. (the "Company") pursuant to the rules and regulations
of the SEC (Securities and Exchange Commission). Certain information and
footnote disclosures normally accompanying financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such SEC rules and regulations. In the opinion of
the Company's management, the consolidated financial statements include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial information set forth therein. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1993.
Certain reclassifications within the financial statements have been
made to conform to the current year presentation.
B. Contingencies
There are pending regulatory actions in local regulatory jurisdictions
which call for price decreases, refunds or both. In one such instance, the
Utah Supreme Court has remanded a Utah Public Service ("PSC") order to the
PSC for reconsideration, thereby establishing two exceptions to the rule
against retroactive ratemaking: 1) unforeseen and extraordinary events and
2) misconduct. The Commission's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. If the Commission finds that either of the exceptions apply, the
Company could be liable for refunds, although at this time any such amount
is not reasonably estimable since the case is still in the discovery process.
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Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (Dollars in millions)
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Details of operations for the first three months of 1994, including a
comparison to the prior year, are presented in the following table:
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1994 1993 % Change
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<S> <C> <C> <C>
Operating revenues $2,218 $2,141 3.6
Operating expenses
Employee-related costs 717 696 3.0
Other operating expenses 398 408 (2.5)
Taxes other than income taxes 97 96 1.0
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Earnings before interest, taxes,
depreciation and amortization, 1,006 941 6.9
and other (EBITDA)
Depreciation and amortization 465 442 5.2
Interest expense 80 99 (19.2)
Other income 14 - -
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Income before income taxes 475 400 18.8
Provision for income taxes 178 133 33.8
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Net income $297 $267 11.2
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</TABLE>
Revenue growth and continued cost controls in the first quarter of 1994
resulted in a 6.9% increase in the Company's earnings before interest,
taxes, depreciation and amortization, and other income ("EBITDA"). The
Company considers EBITDA an indicator of the operational strength of its
business. Net income, excluding the effects of the sale of certain rural
telephone exchanges increased 5.6%.
OPERATING REVENUES
Total operating revenues were $2,218 for the first three months of
1994, a $77 or 3.6% increase over the same period in 1993. In the tables
below, price changes primarily represent the aggregate effects of
regulatory proceedings and growth represents increased market penetration
through both increased access lines and additional sales to existing
customers. Different regulatory commissions govern the interstate and
intrastate jurisdictions, resulting in varying price and refund impacts.
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Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (Dollars in millions)
OPERATING REVENUES (continued)
<TABLE>
<CAPTION>
Local Service
Price Higher Increase
Changes Refunds Growth Other $ %
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<S> <C> <C> <C> <C> <C> <C>
$ 1 $ (5) $ 52 $ 0 $ 48 5.1
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Local service increased primarily due to business growth. The Company
added 490,000 customer access lines, net of the sale of 20,000 access lines
associated with rural telephone exchange sales, during the last twelve
months, a 3.6% increase over the March 31, 1993 level.
<CAPTION>
Access Services
Price Higher Increase
Changes Refunds Growth Other $ %
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<S> <C> <C> <C> <C> <C> <C>
Interstate
$ (15) $ (2) $ 43 $ (2) $ 24 4.5
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Intrastate
$ (3) $ (2) $ 9 $ 0 $ 4 2.4
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The increase in access services was a result of growth, partially offset
by the effects of price reductions. Total minutes of use increased 9.1% over
the same period in 1993.
<CAPTION>
Long Distance Network Service
Price Lower Decrease
Changes Refunds Growth Other $ %
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<S> <C> <C> <C> <C> <C> <C>
$ (1) $ 1 $ (5) $ 0 $ (5) (1.4)
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</TABLE>
Long distance network service decreased due to the ongoing impacts of
competition. IntraLATA toll, wide area telephone service ("WATS") and 800
markets continue to be impacted by competition.
Other Services
Revenues from other services increased primarily due to growth in voice
messaging services as a result of continued market penetration.
OPERATING EXPENSES
Operating expenses, exclusive of depreciation and amortization,
increased $12 or 1.0% over the prior year.
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Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (Dollars in millions)
OPERATING EXPENSES (continued)
Employee-related costs increased over the prior year due to the
elimination of the pension credit (resulting from changes in actuarial
assumptions) and additional costs associated with customer service
initiatives in the current year. Partially offsetting this increase was a
reduction in postretirement benefits expense.
Other operating expenses decreased over the same period last year due
to a reduction in general operating expenses including access charges paid
to independent companies. Taxes other than income taxes remained
essentially flat compared to the same period last year. Depreciation and
amortization expense increased primarily due to the aggregate effects of a
higher depreciable plant base and the discontinuance of Statement of
Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects
of Certain Types of Regulation."
Restructuring Charges
The Company's September 1993 restructuring plan of $880 (pre-tax) is
designed to provide faster, more responsive customer services while reducing
the costs of providing these services. As part of the plan, the Company is
developing new systems that will enable it to monitor networks to reduce the
risk of service interruptions, activate telephone service on demand, provide
automated inventory systems and centralize its service centers so that
customers can have their telecommunications needs resolved with one phone
call. The Company will also reduce its work force by approximately 8,000
employees (in addition to the remaining employee reductions pursuant to the
restructuring plan announced in 1991) by the end of 1996.
The Company has begun the time intensive staffing process necessary to
consolidate the operations of its existing 560 customer centers into 26
customer centers in ten cities. Charges amounting to $2 and $8 for center
moves and systems development, respectively, have been charged against the
reserve. These charges will accelerate over the remainder of 1994 as the
Company continues consolidation of the customer service centers and the
development of the new systems.
The Company's 1991 restructuring plan was established to partially
offset the effects of future wage, salary and benefit increases. The plan
will result in a workforce reduction of approximately 6,000 employees, of
which approximately 5,200 employees have left the Company as of March 31,
1994. The 1991 restructuring charge was $240, of which approximately $45
is unused at March 31, 1994. The remaining balance of the restructuring
reserve will be used by the end of 1994.
INTEREST EXPENSE AND OTHER
Interest expense decreased as a result of the refinancing of debt in
the prior year to take advantage of lower interest rates. A reclassifica-
tion of capitalized interest costs also contributed to the decrease.
Pursuant to the discontinuance of SFAS No. 71, interest capitalized as a
component of plant construction is being offset against interest expense.
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Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (Dollars in millions)
INTEREST EXPENSE AND OTHER (continued)
Other income increased as a result of a pre-tax gain of $24 from the
sale of certain rural telephone exchanges in the first quarter of 1994.
Partially offsetting this gain was the reclassification of capitalized
interest as a component of interest expense.
PROVISION FOR INCOME TAXES
The effective tax rate was 37.5 percent in the first quarter compared
to 33.3 percent in the same period last year. This increase is primarily
a result of the effects of discontinuing the application of SFAS No. 71 in
the third quarter of 1993, the 1993 federally-mandated increase in income
tax rates and an increase in income before income taxes.
OTHER ITEMS
There are pending regulatory actions in local regulatory jurisdictions
which call for price decreases, refunds or both. In one such instance, the
Utah Supreme Court has remanded a Utah Public Service ("PSC") order to the
PSC for reconsideration, thereby establishing two exceptions to the rule
against retroactive ratemaking: 1) unforeseen and extraordinary events and
2) misconduct. The Commission's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. If the Commission finds that either of the exceptions apply, the
Company could be liable for refunds, although at this time any such amount
is not reasonably estimable since the case is still in the discovery process.
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Form 10-Q - Part II U S WEST Communications, Inc.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits identified in parentheses below, on file with the
Securities and Exchange Commission, are incorporated by reference
as exhibits hereto.
Exhibit
Number
12 Statement regarding computation of earnings to fixed charges ratio
of U S WEST Communications, Inc.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of 1994.
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Form 10-Q U S WEST Communications, Inc.
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 thereunto duly authorized.
U S WEST Communications, Inc.
/s/ David R. Laube
May 12, 1994 _____________________________
David R. Laube
Vice President-Controller
and Treasurer
13
EXHIBIT 12
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<TABLE>
U S WEST COMMUNICATIONS, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<CAPTION>
Quarter Ended
3/31/94 3/31/93
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<S> <C> <C>
Income before income taxes $475 $400
Interest expense (net of amounts capitalized) 80 99
Interest factor on rentals (1/3) 18 17
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Earnings $573 $516
Interest expense 86 99
Interest factor on rentals (1/3) 18 17
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Fixed charges $104 $116
Ratio of earnings to fixed charges 5.51 4.44
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</TABLE>
