23
<PAGE>
================================================================
UNITED STATES
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, 1996
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.
<TABLE>
<CAPTION>
<S> <C>
A Colorado Corporation IRS Employer No. 84-0273800
</TABLE>
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 __
================================================================
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Item Page
- ------------------------------------------------------------------- ----
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
2. Management's Analysis - (Reduced disclosure format pursuant to
General Instruction H(2)) 9
PART II - OTHER INFORMATION
1. Legal Proceedings 17
6. Exhibits and Reports on Form 8-K 17
</TABLE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
Dollars in millions 1996 1995
- ------------------------------------------------- ------ ------
Operating revenues:
Local service $1,145 $1,050
Interstate access service 622 589
Intrastate access service 190 188
Long-distance network services 290 299
Other services 161 151
------ ------
Total operating revenues 2,408 2,277
Operating expenses:
Employee-related expenses 813 730
Other operating expenses 389 391
Taxes other than income taxes 95 103
Depreciation and amortization 511 494
------ ------
Total operating expenses 1,808 1,718
------ ------
Income from operations 600 559
Interest expense 103 91
Gain on sales of rural telephone exchanges - 63
Other expense - net 17 13
------ ------
Income before income taxes and cumulative effect
of change in accounting principle 480 518
Provision for income taxes 183 195
------ ------
Income before cumulative effect of change in
accounting principle 297 323
Cumulative effect of change in accounting
principle - net of tax 34 -
------ ------
NET INCOME $ 331 $ 323
====== ======
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
Dollars in millions 1996 1995
- ------------------------------------------------------------------- ----------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 47 $ 191
Accounts and notes receivable - net 1,454 1,546
Inventories and supplies 145 142
Deferred tax asset 230 240
Prepaid and other 81 43
----------- --------------
Total current assets 1,957 2,162
----------- --------------
Gross property, plant and equipment 31,472 30,988
Accumulated depreciation 17,772 17,540
----------- --------------
Property, plant and equipment - net 13,700 13,448
Other assets 703 740
----------- --------------
Total assets $ 16,360 $ 16,350
=========== ==============
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Short-term debt $ 912 $ 995
Accounts payable 775 864
Employee compensation 257 281
Current portion of restructuring charge 202 270
Other 1,267 1,081
----------- --------------
Total current liabilities 3,413 3,491
----------- --------------
Long-term debt 5,396 5,411
Postretirement and other postemployment benefit obligations 2,282 2,316
Deferred taxes, credits and other 1,430 1,386
Shareowner's equity:
Common shares - one share without par value 7,456 7,348
Cumulative deficit (3,617) (3,602)
----------- --------------
Total shareowner's equity 3,839 3,746
----------- --------------
Total liabilities and shareowner's equity $ 16,360 $ 16,350
=========== ==============
Contingencies (see Note B to the Consolidated Financial Statements)
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
Dollars in millions 1996 1995
- ---------------------------------------------------------------------- ------ ------
OPERATING ACTIVITIES
Net income $ 331 $ 323
Adjustments to net income:
Depreciation and amortization 511 494
Gain on sales of rural telephone exchanges - (63)
Deferred income taxes and amortization
of investment tax credits 22 37
Cumulative effect of change in accounting principle - net of tax (34) -
Changes in operating assets and liabilities:
Restructuring payments (42) (77)
Postretirement medical and life costs - net of cash fundings (34) (241)
Accounts and notes receivable 93 28
Inventories, supplies and other (31) (31)
Accounts payable and accrued liabilities 19 38
Other - net 2 (2)
------ ------
Cash provided by operating activities 837 506
------ ------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (637) (539)
Proceeds from sales of rural telephone exchanges - 88
Proceeds from (payments on) disposals of property, plant and
equipment (7) 5
------ ------
Cash (used for) investing activities (644) (446)
------ ------
FINANCING ACTIVITIES
Net (repayments of) proceeds from issuance of short-term debt (93) 225
Repayments of long-term debt (24) (18)
Dividends paid on common stock (308) (340)
Equity infusions from parent 88 -
------ ------
Cash (used for) financing activities (337) (133)
------ ------
CASH AND CASH EQUIVALENTS
Decrease (144) (73)
Beginning balance 191 114
------ ------
Ending balance $ 47 $ 41
====== ======
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1996 and 1995
(Dollars in millions)
(Unaudited)
A. Summary of Significant Accounting Policies
Consolidated Financial Statements
U S WEST Communications, Inc. (the "Company") is incorporated under the laws
of the State of Colorado and is an indirect wholly owned subsidiary
of U S WEST, Inc.
("U S WEST").
The Consolidated Financial Statements have been prepared by the Company,
pursuant to the interim rules and regulations of the Securities and Exchange
Commission ("SEC"). 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, 1995.
Certain reclassifications within the Consolidated Financial Statements have
been made to conform to the current year presentation.
New Accounting Standard
Effective January 1, 1996, U S WEST adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
that long-lived assets and associated intangibles be written down to fair
value whenever an impairment review indicates that the carrying value cannot
be recovered on an undiscounted cash flow basis. SFAS No. 121 also requires
that a company no longer record depreciation expense on assets held for sale.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
New Accounting Standard (Continued)
Adoption of SFAS No. 121 resulted in income of $34 (net of tax of $22) from
the cumulative effect of reversing depreciation expense recorded in prior
years related to rural telephone exchanges held for sale. Depreciation
expense was reversed from the date the Company formally committed to a plan to
dispose of the rural exchange assets through January 1, 1996. The carrying
value of the rural exchange assets was approximately $338 at December 31,
1995. The income has been recorded as a cumulative effect of change in
accounting principle in accordance with SFAS No. 121. As a result of adopting
SFAS No. 121, first-quarter depreciation expense was reduced by $8 ($5 after
tax). In 1996, depreciation expense will decrease approximately $30 as a
result of adopting SFAS No. 121. The combined effects of lower depreciation
expense and the cumulative effect of adoption of the new standard will be
directly offset by lower recognized gains on future rural exchange sales.
B. Contingencies
There are pending regulatory actions in local regulatory jurisdictions that
call for price decreases, refunds or both. In one such instance, the Utah
Supreme Court has remanded a Utah Public Service Commission ("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 PSC's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $150.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
B. Contingencies (Continued)
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission") acted on the Company's 1995 rate
request. In February 1995, the Company sought to increase revenues by raising
rates for basic residential services over a four-year period. The two major
issues in this proceeding involve the Company's request for improved capital
recovery and elimination of the imputation of Yellow Pages revenue. Instead of
granting the Company's request, the Commission ordered approximately $91.5 in
annual revenue reductions, effective May 1, 1996. Based on the above ruling,
the Company filed a lawsuit with the King County Superior Court (the "Court")
for an appeal of the order, a temporary stay of the ordered rate reduction and
an authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decrease ordered by the WUTC. The
Court granted the stay for a period of six months or until a decision is made
on the Company's appeal. Effective May 1, 1996, the Company began collecting
revenues subject to refund with interest. The Company expects its appeal to be
successful and plans not to accrue any of the amounts subject to refund.
However, an adverse judgment on the appeal would have a significant impact on
the Company's future results of operations.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions)
Results of Operations
Comparative details of income before cumulative effect of change in accounting
principle for the three months ended March 31 follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three Months Ended March 31, 1996 1995 Percent
- ---------------------------------- ----- ----- --------
Change
--------
Income before cumulative effect of
change in accounting principle $ 297 $ 323 (8.0)
</TABLE>
Adjusted to exclude nonrecurring items, the Company's first-quarter 1996
income before cumulative effect of change in accounting principle was $292, an
increase of $8, or 2.8 percent, compared with first quarter 1995. The
nonrecurring items include the 1996 current year, after-tax impact of $5 from
adopting SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and an after-tax gain of $39 on the
sales of rural telephone exchanges in first quarter 1995.
Effective January 1, 1996, the Company adopted SFAS No. 121, which among other
things, requires that companies no longer record depreciation expense on
assets held for sale. Adoption of SFAS No. 121 resulted in a one-time gain of
$34 related to the cumulative effect of change in accounting principle. The
first-quarter, pretax effect of the SFAS No. 121 adoption resulted in a
decrease to depreciation expense of $8 ($5 after tax).
Increased income at the Company is attributable to higher demand for services.
Partially offsetting the effects of higher demand was an increase in operating
costs to address customer service issues, expenditures related to development
of new products and services, flood conditions in the Pacific Northwest,
increased depreciation expense and higher interest expense.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (Continued)
Increased demand for the Company's services resulted in growth in earnings
before interest, taxes, depreciation, amortization and other ("EBITDA") of 5.5
percent for first quarter 1996. EBITDA also excludes the gain on sales of
certain rural telephone exchanges in 1995. The Company believes EBITDA is an
important indicator of the operational strength of its businesses. EBITDA,
however, should not be considered as an alternative to operating or net income
as an indicator of the performance or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles.
Operating Revenues
An analysis of changes in the Company's operating revenues follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Higher (Higher) Increase Increase
Three Months Ended (Lower) Lower (Decrease) (Decrease)
March 31, 1996 1995 Prices Refunds Demand Other Dollars Percent
- --------------------- ------ ------ -------- --------- -------- ------- ----------- ----------
Local service $1,145 $1,050 $ 7 $ (4) $ 97 $ (5) $ 95 9.0
Interstate access 622 589 (16) - 55 (6) 33 5.6
Intrastate access 190 188 (7) - 11 (2) 2 1.1
Long-distance network 290 299 (3) - (5) (1) (9) (3.0)
Other services 161 151 - - - 10 10 6.6
------ ------ -------- --------- -------- ------- ----------- ----------
Total $2,408 $2,277 $ (19) $ (4) $ 158 $ (4) $ 131 5.8
====== ====== ======== ========= ======== ======= =========== ==========
</TABLE>
Local service revenues increased principally as a result of higher demand for
services. Total reported access lines increased 647,000, or 4.5 percent
during the last 12 months, of which 202,000 was attributed to second lines.
Second line installations increased 30 percent during the past year. Access
line growth was 4.8 percent when adjusted for sales of approximately 45,000
rural telephone access lines during the last 12 months. Also contributing to
the increase in local service revenues was expanded growth in new product and
service offerings such as caller identification and call waiting. Local
service revenues from new product and service offerings were approximately $40
for first-quarter 1996, an increase of approximately 120 percent compared to
the same period last year.
Higher revenues from interstate access services resulted from an increase of
9.5 percent in interstate billed access minutes of use, which more than offset
the effects of price reductions. Intrastate access revenues increased
slightly as higher demand was largely offset by the effects of price
reductions.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Operating Revenues (Continued)
Long-distance network revenues decreased primarily due to the effects of
competition and rate reductions. Erosion of long-distance revenue will
continue due to the loss of 1+ dialing in Minnesota, which became effective in
February 1996, and in Arizona, effective in April 1996.
Revenues from other services increased primarily as a result of continued
market penetration in voice messaging services and increases in inside wire
services, partially offset by decreases in billing and collection revenues.
Costs and Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three Months Ended March 31, 1996 1995 Percent Change
- ----------------------------- ----- ----- ---------------
Employee-related expenses $ 813 $ 730 11.4
Other operating expenses 389 391 (0.5)
Taxes other than income taxes 95 103 (7.8)
Depreciation and amortization 511 494 3.4
Interest expense 103 91 13.2
Other expense - net 17 13 30.8
</TABLE>
Employee-related expenses increased $83 compared to the prior year. The
increase is attributable to continued efforts to improve customer service and
to address business growth through expenditures on overtime, contract labor
and workforce additions. Costs related to workforce additions will partially
offset the benefits of employee separations achieved through restructuring.
Salaries and wages, overtime payments and contract labor increased
employee-related expenses by approximately $72 for the first quarter as
compared with the same period last year. Approximately $15 of the overtime
and contract labor increase was attributed to severe flooding in Washington
and Oregon. Additionally, current year employee-related expenses increased as
a result of absorbing certain employee transfers from affiliate companies
during 1995. Partially offsetting these increases was a reduction in the
postretirement benefits accrual and lower travel and conference expenses.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Costs and Expenses (Continued)
The decrease in other operating expenses of $2 is primarily due to lower
affiliate expenses offset by increased uncollectibles and higher advertising
costs. Taxes other than income taxes decreased $8 compared to the prior year
primarily as a result of lower than expected tax assessments and mill levies.
Increased depreciation and amortization expense was attributable to the
effects of a higher depreciable asset base, partially offset by the effects of
1995 sales of rural telephone exchanges and the adoption of SFAS No. 121.
Interest expense increased primarily due to higher interest rates associated
with refinancing commercial paper in the latter part of 1995. Slightly higher
debt levels also contributed to the increase in interest expense.
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Restructuring Charge
The Company's 1993 results reflected a $880 restructuring charge (pretax).
The related restructuring plan (the "Restructuring Plan") is designed to
provide faster, more responsive customer services while reducing the costs of
providing these services.
Following are schedules of the costs and planned workforce reductions included
in the Restructuring Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual Actual Estimate Estimate
Restructuring Plan Costs 1994 1995 1996 1997 Total
- -------------------------------------- ------- ------- --------- --------- ------
Cash expenditures:
Employee separation (1) $ 19 $ 76 $ 33 $ 127 $ 255
Systems development 118 129 113 - 360
Real estate 50 66 14 - 130
Relocation 21 21 20 13 75
Retraining and other 8 23 22 7 60
Total cash expenditures 216 315 202 147 880
Remaining 1991 plan employee costs (1) 56 - - - 56
Total $ 272 $ 315 $ 202 $ 147 $ 936
<FN>
<F1>
(1) Employee separation costs, including the balance of the 1991 restructuring reserve
at
December 31, 1993, aggregate $311.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual Actual Estimate Estimate
Workforce Reductions 1994 1995 1996 1997 Total
- --------------------- ------ ------ -------- -------- ------
Employee separations
Managerial 497 682 202 1,357 2,738
Occupational 1,683 1,643 798 3,138 7,262
------ ------ -------- -------- ------
Total 2,180 2,325 1,000 4,495 10,000
====== ====== ======== ======== ======
<FN>
<F1>
(1) A significant number of the employee reductions originally scheduled for
1996 will be delayed while the Company focuses on overtime and contract-labor
expenses. The Restructuring Plan is expected to be substantially complete by
the end of 1997.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Restructuring Charge (Continued)
Employee separation costs include severance payments, health-care coverage and
postemployment education benefits associated with the planned reduction of
10,000 employees. System development costs include new systems and the
application of enhanced system functionality to existing single-purpose
systems to provide integrated, end-to-end customer service. Real estate costs
include preparation costs for the new service centers. The Company has
consolidated its 560 customer service centers into 26 centers in 10 cities.
The relocation and retraining costs are related to moving employees to the new
service centers and retraining employees on the methods and systems required
in the new, restructured mode of operation.
Progress Under the Restructuring Plan:
Following is a reconciliation of restructuring reserve activity during first
quarter 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Reserve Balance Reserve Balance
December 31, 1995 1996 Activity March 31, 1996
------------------ -------------- ----------------
Employee separations
Managerial $ 63 $ 7 $ 56
Occupational 97 6 91
------------------ -------------- ----------------
Total separations 160 13 147
Systems development
Service delivery 44 8 36
Service assurance 26 1 25
Capacity provisioning 42 11 31
All other 1 1 -
------------------ -------------- ----------------
Total systems 113 21 92
Real estate 14 2 12
Relocation 33 1 32
Retraining and other 29 5 24
------------------ -------------- ----------------
Total $ 349 $ 42 $ 307
================== ============== ================
</TABLE>
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Restructuring Charge (Continued)
Progress Under the Restructuring Plan (Continued):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
First-Quarter Cumulative
------------- --------------
1994 1995 1996 Separations
----------- ----------- ------------- --------------
Separations Separations Separations March 31, 1996
----------- ----------- ------------- --------------
Employee separations
Managerial 497 682 107 1,286
Occupational 1,683 1,643 142 3,468
----------- ----------- ------------- --------------
Total 2,180 2,325 249 4,754
=========== =========== ============= ==============
</TABLE>
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
OTHER ITEMS
Contingencies
There are pending regulatory actions in local regulatory jurisdictions that
call for price decreases, refunds or both. In one such instance, the Utah
Supreme Court has remanded a Utah Public Service Commission ("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 PSC's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $150.
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission") acted on the Company's 1995 rate
request. In February 1995, the Company sought to increase revenues by raising
rates for basic residential services over a four-year period. The two major
issues in this proceeding involve the Company's request for improved capital
recovery and elimination of the imputation of Yellow Pages revenue. Instead of
granting the Company's request, the Commission ordered approximately $91.5 in
annual revenue reductions, effective May 1, 1996. Based on the above ruling,
the Company filed a lawsuit with the King County Superior Court (the "Court")
for an appeal of the order, a temporary stay of the ordered rate reduction and
an authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on the Company's appeal. Effective May 1, 1996, the Company began
collecting revenues subject to refund with interest. The Company expects its
appeal to be successful and plans not to accrue any of the amounts subject to
refund. However, an adverse judgment on the appeal would have a significant
impact on the Company's future results of operations.
In connection with the WUTC's $91.5 rate reduction order, the Company's debt
securities have been placed on rating watch by Duff & Phelps. The credit
rating of the Company's debt securities was not placed under review by Moody's
and is under review by Fitch and Standard & Poors.
<PAGE>
Form 10-Q - Part II U S WEST Communications, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission" ) acted on U S WEST Communications'
1995 rate request. In February 1995, U S WEST Communications sought to
increase revenues by raising rates for basic residential services over a
four-year period. The two major issues in this proceeding involve U S WEST
Communications' requests for improved capital recovery and elimination of the
imputation of Yellow Pages revenue. Instead of granting U S WEST
Communications' request, the Commission ordered approximately $91.5 in annual
revenue reductions, effective May 1, 1996. Based on the above ruling, U S
WEST Communications filed a lawsuit with the King County Superior Court (the
"Court") for an appeal of the order, a temporary stay of the ordered rate
reduction and authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST
Communications began collecting revenues subject to refund with interest. U S
WEST Communications expects its appeal to be successful and plans not to
accrue any of the amounts subject to refund. However, an adverse judgment on
the appeal would have a significant impact on U S WEST Communications' future
results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
12 Statement regarding computation of earnings to fixed charges ratio of U S
WEST Communications, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K Filed During the First Quarter of 1996:
No reports on Form 8-K have been filed for the Company during the first
quarter of 1996.
<PAGE>
Form 10-Q - Part II 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/ Barbara M. Japha
______________________________
Barbara M. Japha
Vice President, Chief Financial
Officer and Treasurer
May 14, 1996
<PAGE>
EXHIBIT 12
U S WEST Communications, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended
3/31/96 3/31/95
- ------------------------------------------------- --------- ---------
<S> <C> <C>
Income before income taxes and cumulative effect
of change in accounting principle $480 $518
Interest expense (net of amounts capitalized) 103 91
Interest factor on rentals (1/3) 13 15
--------- ---------
Earnings $596 $624
Interest expense 116 99
Interest factor on rentals (1/3) 13 15
--------- ---------
Fixed charges $129 $114
Ratio of earnings to fixed charges 4.62 5.47
- ------------------------------------------------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000068622
<NAME> U S WEST COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 1,454
<ALLOWANCES> 0
<INVENTORY> 145
<CURRENT-ASSETS> 1,957
<PP&E> 31,472
<DEPRECIATION> 17,772
<TOTAL-ASSETS> 16,360
<CURRENT-LIABILITIES> 3,413
<BONDS> 5,396
0
0
<COMMON> 7,456
<OTHER-SE> (3,617)
<TOTAL-LIABILITY-AND-EQUITY> 16,360
<SALES> 2,408
<TOTAL-REVENUES> 2,408
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 480
<INCOME-TAX> 183
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 34
<NET-INCOME> 331
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>