-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tts4zxHWJhOZ2ZcQY9+jTjoz2En+2U0BY0xnjjYNoZ1Vi58qMBX5UBmFHuDlyzOX MoKJUwQnw6Ufq1nWCF+xiw== 0000068622-94-000005.txt : 19940513 0000068622-94-000005.hdr.sgml : 19940513 ACCESSION NUMBER: 0000068622-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S WEST COMMUNICATIONS INC CENTRAL INDEX KEY: 0000068622 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 840273800 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03040 FILM NUMBER: 94527424 BUSINESS ADDRESS: STREET 1: 7800 EAST ORCHARD ROAD STREET 2: SUITE 480 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 303-793-66 MAIL ADDRESS: STREET 1: 7800 EAST ORCHARD ROAD STREET 2: SUITE 480 CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: MOUNTAIN STATES TELEPHONE & TELEGRAPH CO DATE OF NAME CHANGE: 19910109 10-Q 1 USWC FORM 10-Q 3/31/94 1 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 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__ ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2 U S WEST Communications, Inc. Form 10-Q TABLE OF CONTENTS Item Page
PART I - FINANCIAL INFORMATION 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
2 3 Form 10-Q - Part I U S WEST Communications, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
--------------------------------------------------------------------------- Three Months Ended March 31, (Dollars in millions) 1994 1993 --------------------------------------------------------------------------- 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 ---------- ---------- Total operating revenues 2,218 2,141 ---------- ---------- OPERATING EXPENSES Employee-related costs 717 696 Other operating expenses 398 408 Taxes other than income taxes 97 96 Depreciation and amortization 465 442 ---------- ---------- Total operating expenses 1,677 1,642 ---------- ---------- Income from operations 541 499 Interest expense 80 99 Other income 14 - ---------- ---------- Income before income taxes 475 400 Provision for income taxes 178 133 ---------- ---------- NET INCOME $297 $267 ========== ========== See Notes to Consolidated Financial Statements.
3 4 Form 10-Q - Part I U S WEST Communications, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
---------------------------------------------------------------------------- March 31, December 31, (Dollars in millions) 1994 1993 ---------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $45 $67 Accounts receivable 1,360 1,391 Materials and supplies 105 108 Other 386 351 ---------- ---------- Total current assets 1,896 1,917 ---------- ---------- Property, plant and equipment 28,249 28,012 Less: Accumulated depreciation 15,731 15,465 ---------- ---------- Net property, plant and equipment 12,518 12,547 ---------- ---------- Other 914 698 ---------- ---------- Total assets $15,328 $15,162 ========== ========== See Notes to Consolidated Financial Statements.
4 5 Form 10-Q - Part I U S WEST Communications, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
---------------------------------------------------------------------------- March 31, December 31, (Dollars in millions) 1994 1993 ---------------------------------------------------------------------------- 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 ---------- ---------- Total current liabilities 3,695 3,812 ---------- ---------- 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) --------- ---------- Total shareowner's equity 3,396 3,140 ---------- ---------- Total liabilities and shareowner's equity $15,328 $15,162 ========== ========== See Notes to Consolidated Financial Statements.
5 6 Form 10-Q - Part I U S WEST Communications, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
---------------------------------------------------------------------------- Three Months Ended March 31, (Dollars in millions) 1994 1993 ---------------------------------------------------------------------------- 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 ---------- ---------- Cash provided by operating activities 491 531 ---------- ---------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (605) (594) Other - net 18 22 ---------- ---------- Cash used for investing activities (587) (572) ---------- ---------- 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 ---------- ---------- Cash provided by financing activities 74 35 ---------- ---------- CASH AND CASH EQUIVALENTS Decrease (22) (6) Beginning balance 67 53 ---------- ---------- Ending balance $45 $47 ========== ========== See Notes to Consolidated Financial Statements.
6 7 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. 7 8 Form 10-Q - Part I U S WEST Communications, Inc. Item 2. Management's Analysis (Dollars in millions)
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: --------------------------------------------------------------------------- 1994 1993 % Change --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- 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 - - --------------------------------------------------------------------------- Income before income taxes 475 400 18.8 Provision for income taxes 178 133 33.8 --------------------------------------------------------------------------- Net income $297 $267 11.2 ===========================================================================
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. 8 9 Form 10-Q - Part I U S WEST Communications, Inc. Item 2. Management's Analysis (Dollars in millions) OPERATING REVENUES (continued)
Local Service Price Higher Increase Changes Refunds Growth Other $ % ---------------------------------------------------------------------------- $ 1 $ (5) $ 52 $ 0 $ 48 5.1 ---------------------------------------------------------------------------- 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. Access Services Price Higher Increase Changes Refunds Growth Other $ % ---------------------------------------------------------------------------- Interstate $ (15) $ (2) $ 43 $ (2) $ 24 4.5 ---------------------------------------------------------------------------- Intrastate $ (3) $ (2) $ 9 $ 0 $ 4 2.4 ---------------------------------------------------------------------------- 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. Long Distance Network Service Price Lower Decrease Changes Refunds Growth Other $ % ---------------------------------------------------------------------------- $ (1) $ 1 $ (5) $ 0 $ (5) (1.4) ----------------------------------------------------------------------------
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. 9 11 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. 10 11 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. 11 12 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. 12 13 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 EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 1 U S WEST COMMUNICATIONS, Inc. RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions)
Quarter Ended 3/31/94 3/31/93 - ----------------------------------------------------------- ----------- Income before income taxes $475 $400 Interest expense (net of amounts capitalized) 80 99 Interest factor on rentals (1/3) 18 17 ----------- ---------- Earnings $573 $516 Interest expense 86 99 Interest factor on rentals (1/3) 18 17 ----------- ---------- Fixed charges $104 $116 Ratio of earnings to fixed charges 5.51 4.44 - ---------------------------------------------------------- -----------
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