UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 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
______________________
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -----------------------
Forty Year 3 1/4% Debentures due February 1, 1996 New York Stock Exchange
______________________
Securities registered pursuant to Section 12 (g) of the Act: None.
THE REGISTRANT, AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF U S WEST, INC., MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1) (a) AND (b) OF FORM 10-K
AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION J(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_
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. ***
*** Not applicable in that registrant is an indirect, wholly owned subsidiary.
The total number of pages contained in this report, including exhibits, is 62
and the exhibit index is on page 40.
38
3
U S WEST COMMUNICATIONS, INC.
FORM 10-K
TABLE OF CONTENTS
Item Description Page
- ---- --------------------------------------------------------------------------- ----
PART I
1. Business (Abbreviated pursuant to General Instruction J (2)) 3
2. Properties (Abbreviated pursuant to General Instruction J(2)) 4
3. Legal Proceeding 5
4. Submission of Matters to a Vote of Security Holders (Inapplicable).
PART II
5. Market for the Registrant's Common Equity and Related Shareowner
Matters (Inapplicable).
6. Selected Financial Data (Omitted pursuant to General Instruction J (2)).
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Omitted pursuant to General Instruction J (2).
See "Management's Discussion.") 6
8. Consolidated Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 39
PART III
10. Directors and Executive Officers of the Registrant (Omitted pursuant to
General Instruction J (2)).
11. Executive Compensation (Omitted pursuant to General Instruction J (2)).
12. Security Ownership of Certain Beneficial Owners and Management
(Omitted pursuant to General Instruction J (2)).
13. Certain Relationships and Related Transactions (Omitted pursuant to
General Instruction J(2)).
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40
U S WEST COMMUNICATIONS, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
General
U S WEST Communications, Inc. ("U S WEST Communications" or the "Company") is
incorporated under the laws of the State of Colorado and has its principal
offices at 1801 California Street, Denver, Colorado 80202, telephone number
(303) 896-3099. The Company is an indirect, wholly owned subsidiary of U S
WEST, Inc. ("U S WEST").
Company Operations
The Company provides telecommunications services to more than 25 million
residential and business customers in the states of Arizona, Colorado, Idaho,
Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South
Dakota, Utah, Washington and Wyoming (collectively, the "Region"). The
Company serves approximately 80 percent of the Region's population and
approximately 40 percent of its geographic area.
The principal types of telecommunications services offered by the Company are
(i) local service, (ii) exchange access service (which connects customers to
the facilities of interLATA service providers), and (iii) intraLATA
long-distance network service. For the year ended December 31, 1995, local
service, exchange access service and intraLATA long-distance network service
accounted for 47%, 34% and 13%, respectively, of the sales and other revenues
of the Company. At December 31, 1995, the Company had approximately
14,847,000 telephone network access lines in service, a 3.6% increase over
year-end 1994. Excluding the effect of the sale of approximately 95,000
rural telephone access lines during 1995, access lines increased 4.2% over
year-end 1994. In 1995, revenues from a single customer, AT&T, accounted for
approximately 12% of the sales and other revenues of the Company. The Company
expensed $14 million, $23 million and $42 million for research and development
costs in 1995, 1994 and 1993, respectively.
The Company incurred capital expenditures of approximately $2.7 billion in
1995 and expects to incur approximately $2.5 billion in 1996. The 1995
capital expenditures of the Company were substantially devoted to the
continued modernization of telephone plant, to improve customer services and
to accommodate additional line capability in several states.
ITEM 2. PROPERTIES
The properties of the Company do not lend themselves to description by
character and location of principal units. At December 31, 1995, the
percentage distribution of total net telephone plant by major category for the
Company was as follows:
a. Connecting lines not on customers'
premises . . . . . . . . . . . . . . . . . . . . . . . . 35%
b. Telephone network equipment . . . . . . . . . . . . 38%
c. Land and buildings (occupied
principally by central offices) . . . . . . . . . . . . . 14%
d. General purpose computers and other. . . . . . . . . 13%
At December 31, 1995, substantially all of the installations of central office
equipment were located in buildings owned by the Company situated on land
which it owns in fee, while many garages, and administrative and business
offices were in leased quarters.
Total investment in telephone plant increased to $31.0 billion at December 31,
1995, from $29.4 billion at December 31, 1994, after giving effect to
retirements, but before deducting accumulated depreciation. The Company's
1995 capital expenditures of $2.7 billion were substantially devoted to the
continued modernization of telephone plant, including investments in fiber
optic cable, to improve customer services and network productivity. 1996
capital expenditures are anticipated to be $2.5 billion and the majority of
these are expected to be financed through internally generated funds.
ITEM 3. LEGAL PROCEEDINGS
With respect to lawsuits, proceedings and other claims pending at year-end, it
is the opinion of management that after final disposition, any monetary
liability or financial impact to the Company beyond that provided at year-end,
would not be material to the consolidated financial position of the Company.
U S WEST COMMUNICATIONS, INC.
FORM 10-K
PART II
MANAGEMENT'S DISCUSSION. (Dollars in millions)
Results of Operations
Comparative details of income before extraordinary items for 1995 and 1994
follow:
Increase Increase
(Decrease) (Decrease)
1995(1) 1994(2) Dollars Percentage
-------- -------- ----------- -----------
Income before extraordinary items $ 1,219 $ 1,175 $ 44 3.7
Extraordinary items (8) - (8) -
-------- -------- ----------- -----------
Net income $ 1,211 $ 1,175 $ 36 3.1
======== ======== =========== ===========
<FN>
<F1>
(1) 1995 income before extraordinary items includes a gain of $85 on the sales
of certain rural telephone exchanges and $8 for costs associated with U S WEST,
Inc.'s November 1, 1995 recapitalization.
<F2>
(2) 1994 income before extraordinary items includes a gain of $51 on the sales
of certain rural telephone exchanges.
</FN>
The Company's 1995 income before extraordinary items, excluding the effects of
one-time items described in Note (1) to the table above, was $1,142, an
increase of $18, or 1.6 percent, compared with $1,124 in 1994, also excluding
the effects of one-time items. Total revenue growth of 3.2 percent was
largely offset by significantly higher costs incurred to improve customer
service and meet greater than expected business growth. Net income growth
will also be limited in 1996 while the Company continues to commit significant
resources to meet customer service objectives and broaden its range of product
and service offerings.
During 1995, the Company refinanced $145 of long-term debt. Expenses
associated with the refinancings resulted in extraordinary charges of $8, net
of tax benefits of $5.
Increased demand for the Company's services resulted in growth in earnings
before interest, taxes, depreciation, amortization and other ("EBITDA") of 5.2
percent as compared with 1994. 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 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 ("GAAP").
Operating Revenues
An analysis of changes in operating revenues follows:
Lower Incr. Incr.
Price (Higher) (Decr.) (Decr.)
1995 1994 Changes Refunds Demand Other Dollars Percent
------ ------ --------- --------- -------- ------- --------- --------
Local service $4,344 $4,067 $ 35 $ (10) $ 273 $ (21) $ 277 6.8
Interstate access 2,378 2,269 (66) (2) 191 (14) 109 4.8
Intrastate access 747 729 (31) 8 36 5 18 2.5
Long-distance network 1,189 1,329 (23) (1) (54) (62) (140) (10.5)
Other services 626 604 - - - 22 22 3.6
------ ------ --------- --------- -------- ------- --------- --------
Total $9,284 $8,998 $ (85) $ (5) $ 446 $ (70) $ 286 3.2
====== ====== ========= ========= ======== ======= ========= ========
Approximately 59 percent of the revenues of the Company are derived from the
states of Arizona, Colorado, Minnesota and Washington. Approximately 29
percent of the access lines in service are devoted to providing services to
business customers. The access line growth rate for business customers, who
tend to be heavier users of the network, has consistently exceeded the growth
rate of residential customers. During 1995, business access lines grew 5.4
percent while residential access lines increased 2.8 percent.
The primary factors that influence changes in revenues are customer demand for
products and services, price changes (including those related to regulatory
proceedings) and refunds. During 1995, revenues from new product and service
offerings were $491, an increase of 57 percent as compared with 1994. These
revenues primarily consist of caller identification, voice messaging, call
waiting and high-speed data network transmission services.
Local service revenues include local telephone exchange, local private line
and public telephone services. In 1995, local service revenues increased
principally as a result of higher demand for new and existing services, and
demand for second lines. Local service revenues from new services increased
$92, or 78 percent, as compared with 1994. Reported total access lines
increased 511,000, or 3.6 percent, of which 161,000 were second lines. Second
line installations increased 25.5 percent as compared with 1994. Access line
growth was 4.2 percent adjusted for the sale of approximately 95,000 rural
telephone access lines during the last 12 months.
Operating Revenues (continued)
Access charges are collected primarily from interexchange carriers for their
use of the local exchange network. For interstate access services there is
also a fee collected directly from telephone customers. Approximately 33
percent of access revenues and 12 percent of total revenues are derived from
providing access service to AT&T.
Higher revenues from interstate access services were driven by an increase of
9.2 percent in interstate billed access minutes of use. The increased
business volume more than offset the effects of price reductions and refunds.
The Company reduced prices for interstate access services in both 1995 and
1994 as a result of Federal Communications Commission ("FCC") orders and
competitive pressures. Intrastate access revenues increased primarily due to
the impacts of increased business volume and the multiple toll carrier plans,
partially offset by the impacts of rate changes.
Long-distance revenues are derived from calls made within the LATA boundaries
of the Region. During 1995 and 1994, long-distance revenues were impacted by
the implementation of multiple toll carrier plans ("MTCPs") in Oregon and
Washington in May and July 1994, respectively. The MTCPs essentially allow
independent telephone companies to act as toll carriers. The 1995 impact of
the MTCPs was long-distance revenue losses of $62, partially offset by
increases in intrastate access revenues of $12 and decreases in other
operating expenses (i.e. access expense) of $42 as compared with 1994. These
regulatory arrangements have decreased annual net income by approximately $10.
Similar changes in other states could occur, though the impact on 1996 net
income would not be material.
Excluding the effects of the MTCPs, long-distance revenues decreased by 5.9
percent in 1995, primarily due to the effects of competition and rate
reductions. Long-distance revenues have declined over the last several years
as customers have migrated to interexchange carriers that have the ability to
offer these services on both an intraLATA and interLATA basis. A portion of
revenues lost to competition, however, are recovered through access charges
paid by the interexchange carriers. Erosion in long-distance revenue will
continue due to the loss of 1+ dialing in Minnesota, effective in February
1996, and in Arizona, effective in April 1996. Annual long-distance revenue
losses could approximate $30 as a result of these changes. The Company is
partially mitigating competitive losses through competitive pricing of
intraLATA long-distance services.
Revenues from other services primarily consist of billing and collection
services provided to interexchange carriers, voice messaging services,
high-speed data transmission services, and sales of service agreements related
to inside wiring .
Operating Revenues (continued)
During 1995, revenues from other services increased $22, primarily as a result
of continued market penetration in voice messaging services and sales of
high-speed data transmission services. Revenue growth from other services is
also attributable to maintenance contracts for inside wire services. These
increases were partially offset by a decrease of $20 in revenues from billing
and collection services. The decline in billing and collection revenues is
primarily related to lower contract prices and a decrease in the volume of
services provided to AT&T.
Costs and Expenses
Increase Increase
(Decrease) (Decrease)
1995 1994 Dollars Percentage
------ ------ ----------- -----------
Employee-related expenses $3,079 $2,930 $ 149 5.1
Other operating expenses 1,587 1,653 (66) (4.0)
Taxes other than income taxes 371 378 (7) (1.9)
Depreciation and amortization 2,022 1,887 135 7.2
Interest expense 386 331 55 16.6
Other expense - net 58 20 38 -
Employee-related expenses include basic salaries and wages, overtime, benefits
(including pension and health care), payroll taxes and contract labor. During
1995, improving customer service was the Company's first priority. Overtime
payments and contract labor expense associated with customer service
initiatives increased employee-related costs by approximately $178 compared
with 1994. Expenses related to the addition of approximately 2,800 employees
in 1995 (including the absorption of certain employee transfers from affiliate
companies) also increased employee-related costs. These expenses were
incurred to handle the higher than anticipated volume of business and to meet
new business opportunities. Partially offsetting these increases was a $32
reduction in the accrual for postretirement benefits, a $19 decrease in travel
expense and reduced expenses related to employee separations under
reengineering and streamlining initiatives. The Company will continue to add
employees to address customer service issues and growth in the core business.
Costs related to these work-force additions will partially offset the benefits
of employee separations achieved through restructuring. (See "Restructuring
Charge.")
Costs and Expenses (continued)
Other operating expenses include access charges (incurred for the routing of
long-distance traffic through the facilities of independent companies),
network software expenses and other general and administrative costs. During
1995, other operating expenses decreased primarily due to the effects of the
multiple toll carrier plans and a reduction in expenses related to project
funding at Bell Communications Research, Inc. ("Bellcore"), of which U S WEST
Communications has a one-seventh ownership interest. These decreases in other
operating expenses were partially offset by increases in costs associated with
increased sales of products and services, including bad debt expense.
Taxes other than income taxes, which consist primarily of property taxes,
decreased 1.9 percent in 1995, primarily due to favorable property tax
valuations and mill levies as compared with 1994. As a result of these
valuations and mill levies, 1995 fourth-quarter accruals decreased by $20 as
compared with fourth-quarter 1994.
Increased depreciation and amortization expense was attributable to the
effects of a higher depreciable asset base, partially offset by the effects of
the sales of certain rural telephone exchanges.
Interest expense increased primarily as a result of an increased use of debt
financing. The increase in other expense is largely attributable to $8 of
costs associated with U S WEST, Inc.'s November 1, 1995 recapitalization.
Provision for Income Taxes
Decrease Decrease
1995 1994 Dollars Percentage
------ ------ ---------- -----------
Provision for income taxes $ 698 $ 706 $ (8) (1.1)
Effective tax rate 36.4% 37.5% - -
The decrease in the effective tax rate resulted primarily from the effects of
a research and experimentation credit and adjustments for prior periods.
Restructuring Charge
The Company's 1993 results reflected an $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. As part of the Restructuring Plan, the Company is
developing new systems and enhanced system functionality that will enable it
to monitor networks to reduce the risk of service interruptions, activate
telephone service on demand, rapidly design and engineer products and services
for customers, and centralize its service centers. The Company has
consolidated its 560 customer service centers into 26 centers in 10 cities and
plans on reducing its work force by approximately 10,000 employees. All
service centers are operational and supported by new systems and system
functionality.
The Restructuring Plan is expected to be substantially completed by the end of
1997. Implementation of the Restructuring Plan has been impacted by growth in
the business and related service issues, new business opportunities, revisions
to system delivery schedules and productivity issues caused by the major
rearrangement of resources due to restructuring. These issues will continue
to affect the timing of employee separations.
The Company estimates that full implementation of the 1993 Restructuring Plan
will reduce employee-related expenses by approximately $400 per year. These
savings related to work-force reductions will be offset by the effects of
inflation and a variety of other factors. These factors include costs related
to the achievement of customer service objectives, and increased demand for
existing services. (See "Costs and Expenses.")
Following is a schedule of the costs included in the Restructuring Plan:
1994 1995 1996 1997
Actual Actual Estimate Estimate Total
------- ------- --------- --------- ------
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 1993 Restructuring Plan 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 a 1991 restructuring reserve
at December 31, 1993, aggregate $311.
</FN>
Restructuring Charge (continued)
Employee separation costs include severance payments, health-care coverage and
postemployment education benefits. Systems 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
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.
Employee Separation Under the Restructuring Plan, the Company anticipates the
separation of 10,000 employees. Approximately 1,000 employees that were
originally expected to relocate have chosen separation or other job
assignments and have been replaced. This increased the number of employee
separations to 10,000 from 9,000, and increased the estimated total cost for
employee separations to $311 from $281, as compared with the original
estimate. The $30 cost associated with these additional employee separations
was reclassified from relocation to the reserve for employee separations
during 1995.
Annual employee separations and employee-separation amounts under the
Restructuring Plan follow:
1994 (1) 1994 (1) 1995 1995 1996 1997
Estimate Actual Estimate Actual Estimate(2) Estimate(2) Total
---------- --------- --------- ------- ------------- ------------ -------
Employee separations:
Managerial 1,061 497 612 682 202 1,357 2,738
Occupational 1,887 1,683 1,638 1,643 798 3,138 7,262
---------- --------- --------- ------- ------------- ------------ -------
Total 2,948 2,180 2,250 2,325 1,000 4,495 10,000
========== ========= ========= ======= ============= ============ =======
1994 (1) 1994 (1) 1995 1995 1996 1997
Estimate Actual Estimate Actual Estimate (2) Estimate(2) Total
Employee-separation amounts:
Managerial $ 22 $ 5 $ 21 $ 30 $ 9 $ 54 $ 98
Occupational 15 14 54 46 24 73 157
---------- --------- --------- ------- ------------- ------------ -------
Total 37 19 75 76 33 127 255
Remaining 1991 reserve 56 56 - - - - 56
---------- --------- --------- ------- ------------- ------------ -------
Total $ 93 $ 75 $ 75 $ 76 $ 33 $ 127 $ 311
========== ========= ========= ======= ============= ============ =======
<FN>
<F1>
(1) Includes the remaining employees and the separation amounts associated with the balance of a 1991
restructuring reserve at December 31, 1993.
<F2>
(2) 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>
Compared with the original estimates, employee reductions and separation
amounts shown above have been reduced by 1,600 employees and $53,
respectively, in 1996, and increased by 4,495 employees and $127,
respectively, in 1997.
Restructuring Charge (continued)
Systems Development The existing information management systems were largely
developed to support a monopoly environment. These systems were inadequate
due to the effects of increased competition, new forms of regulation and
changing technology that have driven consumer demand for new products and
services that can be delivered quickly, reliably and economically. The
Company believes that improved customer service, delivered at lower cost, can
be achieved by a combination of new systems and introducing new functionality
to existing systems. This is a change from the initial strategy which placed
more emphasis on the development of new systems.
The systems development program involves new systems and enhanced system
functionality for systems that support the following core processes:
Service Delivery - to support service on demand for all products and
services. These new systems and enhanced system functionality permit
customer calls to be directed to those service representatives who can meet
their requirements. This process will provide enhanced information to the
service representatives regarding the customer requests and the ability of
the Company to fulfill them.
Service Assurance - for performance monitoring from one location and remote
testing in the new environment, including identification and resolution of
faults prior to customer impact.
Capacity Provisioning - for integrated planning of future network capacity,
including the installation of software controllable service components.
Certain of the new systems and enhanced system functionality have been
implemented in the service centers and have simplified the labor-intensive
interfaces between systems processes in existence prior to the Restructuring
Plan. Enhanced system functionality introduced under the Restructuring Plan
since its inception includes the following:
- -- The ability to determine facilities' availability while the customer is
placing an order;
- -- Automated engineering of central office facilities and automated updating
of central office facilities' records;
- -- The ability to track the status of complex network design jobs from the
customer's perspective; and
Restructuring Charge (continued)
- -- Systems that accurately diagnose network problems and prepare repair
packages to correct the problems identified.
The direct, incremental and nonrecurring costs of providing new systems and
enhanced system functionality follow:
1994 1994 1995 1995 1996
Estimate Actual Estimate Actual Estimate Total
--------- ------- --------- ------- --------- ------
Service delivery $ 35 $ 21 $ 21 $ 19 $ 44 $ 84
Service assurance 45 12 24 22 26 60
Capacity provisioning 17 57 92 85 42 184
All other 8 28 8 3 1 32
--------- ------- --------- ------- --------- ------
Total $ 105 $ 118 $ 145 $ 129 $ 113 $ 360
========= ======= ========= ======= ========= ======
Systems expenses charged to current operations consist of costs associated
with the information management function, including planning, developing,
testing and maintaining databases for general purpose computers, in addition
to systems costs related to maintenance of telephone network applications.
Other systems expenses are for administrative (i.e. general purpose) systems
which include customer service, order entry, billing and collection, accounts
payable, payroll, human resources and property records. Ongoing systems costs
comprised approximately six percent of total operating expenses in 1995, 1994
and 1993. The Company expects systems costs charged to current operations as
a percent of total operating expenses to approximate the current level
throughout 1996. Systems costs could increase relative to other operating
costs as the business becomes more technology dependent.
Restructuring Charge (continued)
Progress Under the Restructuring Plan
Following is a reconciliation of restructuring reserve activity since
December 1993:
Reserve Reserve Reserve
Balance 1994 Balance 1995 Change in Balance
12/31/93 Activity 12/31/94 Activity Estimates 12/31/95
--------- --------- --------- --------- ----------- ---------
Employee separation:
Managerial $ 75 $ 5 $ 70 $ 30 $ 23 $ 63
Occupational 150 14 136 46 7 97
--------- --------- --------- --------- ----------- ---------
Total employee separation 225 19 206 76 30 160
Systems development:
Service delivery 73 21 52 19 11 44
Service assurance 64 12 52 22 (4) 26
Capacity provisioning 179 57 122 85 5 42
All other 44 28 16 3 (12) 1
--------- --------- --------- --------- ----------- ---------
Total systems development 360 118 242 129 - 113
Real estate 130 50 80 66 - 14
Relocation 105 21 84 21 (30) 33
Retraining and other 60 8 52 23 - 29
--------- --------- --------- --------- ----------- ---------
Total 1993 Restructuring Plan 880 216 664 315 - 349
Remaining 1991 plan expenditures 56 56 - - - -
--------- --------- --------- --------- ----------- ---------
Total $ 936 $ 272 $ 664 $ 315 $ - $ 349
========= ========= ========= ========= =========== =========
Cumulative
1994 1995 Separations at
Separations Separations Dec. 31, 1995
----------- ----------- --------------
Employee separation:
Managerial 497 682 1,179
Occupational 1,683 1.643 3,326
----------- ----------- --------------
Total 2,180 2,325 4,505
=========== =========== ==============
Regulatory Issues
On February 1, 1996, the House and Senate approved the Telecommunications Act
of 1996 (the "1996 Act") which is intended to promote competition between
local telephone companies, long-distance carriers and cable television
operators. The 1996 Act was signed into law on February 8, 1996, and replaces
the antitrust consent decree that broke up the "Bell System" in 1984. A major
provision of the legislation includes the preemption of state regulations that
govern competition by allowing local telephone companies, long-distance
carriers and cable television companies to enter each other's lines of
business. Consequently, the Regional Bell Operating Companies ("RBOCs") are
immediately permitted to offer wireline interLATA toll services out of their
regions. However, to participate in the interLATA long-distance market within
their regions, the RBOCs must first open their local networks to
facilities-based competition by satisfying a detailed checklist of
requirements, including requirements related to interconnection and number
portability.
Other key provisions of the 1996 Act: (1) eliminate most of the regulation of
cable television rates within three years and eliminate the ban on
cross-ownership between cable television and telephone companies in small
communities; (2) permit the RBOCs to develop new, competitive cable systems
within their regions and to acquire or build wireless cable systems; (3)
provide partial relief from the ban against manufacturing telecommunications
equipment by the RBOCs; and (4) permit wireless operators to provide interLATA
toll service in and out of region without a separate subsidiary and to jointly
market or resell cellular service.
The FCC and state regulators have been given latitude in interpreting and
overseeing the implementation of this legislation, including developing
universal service funding policy. The extent and timing of future
competition, including the Company's ability to offer in-region interLATA
long-distance services, will depend in part on the implementation guidelines
determined by the FCC and state regulators, and how quickly the Company can
satisfy requirements of the checklist. The Company estimates that fulfillment
of the checklist requirements could occur in the majority of its states within
12 to 18 months.
Regulatory Issues (continued)
The Company's interstate services have been subject to price cap regulation
since January 1991. Price caps are an alternative form of regulation designed
to limit prices rather than profits. However, the FCC's price cap plan
includes sharing of earnings in excess of authorized levels. In March 1995,
the FCC issued an interim order on price cap regulation. The price cap index
for most services is annually adjusted for inflation, productivity level and
exogenous costs and has resulted in reduced access prices paid by
interexchange carriers to local telephone companies. The interim order also
provides for three productivity options, including a no-sharing option, and
for increased flexibility for adjusting prices downward in response to
competition. In 1995, the Company selected the lowest productivity option,
while prior to this interim order, the Company used an optional higher
productivity factor in determining its prices. Consequently, the Company
expects the order to have no significant near-term impact.
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.
The Company is subject to varying degrees of federal and state regulation.
The Company's regulatory strategy includes working to:
- -- Achieve accelerated capital recovery;
- -- Reprice local services to cover costs and ensure these services are
subsidy free, while lowering toll and access rates to meet competition; and
- -- Ensure that the new rules associated with the Telecommunications Act of
1996 concerning the unbundling of interconnection, resale of services and
universal service do not advantage one competitor over another.
The Company is currently working with state regulators to gain approval of
these initiatives.
Interest Rate Risk Management
The Company is exposed to market risks arising from changes in interest rates.
Derivative financial instruments are used to manage this risk. The Company
does not use derivative financial instruments for trading purposes.
The objective of the interest rate risk management program is to minimize the
total cost of debt. Interest rate swaps are used to adjust the ratio of fixed-
to variable-rate debt. The market value of the debt portfolio including
interest rate swaps, is monitored and compared with predetermined benchmarks
to evaluate the effectiveness of the risk management program.
Notional amounts of interest rate swaps outstanding were $784 and $781 at
December 31, 1995 and 1994, respectively, with various maturities extending to
2001. The estimated effect of the Company's interest rate derivative
transactions was to adjust the level of fixed-rate debt from 89 percent to 98
percent of the total debt portfolio at December 31, 1995 and from 74 percent
to 86 percent of the total debt portfolio at December 31, 1994.
In conjunction with the 1993 debt refinancing, the Company executed forward
contracts to sell U.S. Treasury bonds to lock in the U.S. Treasury rate
component of $1.5 billion of the future debt issue. At December 31, 1995,
deferred credits of $8 and deferred charges of $51 on closed forward contracts
are included as part of the carrying value of the underlying debt. The
deferred credits and charges are being recognized as a yield adjustment over
the life of the debt, which matures at various dates through 2043. The net
deferred charge is directly offset by the lower coupon rate achieved on the
new debt.
Other Items
In connection with U S WEST's February 27, 1996 announcement of a planned
merger with Continental Cablevision, U S WEST, Inc.'s credit rating is being
reviewed by credit rating agencies, which may result in a downgrading. The
credit rating of the Company was not placed under review by Moody's, has been
reaffirmed by Duff and Phelps, and is under review by Fitch and Standard &
Poors.
Other Items (continued)
On October 2, 1995, union members approved a new three-year contract with U S
WEST. The contract provides for salary increases of 10.6 percent over three
years effective January 1 of each year. The contract also provides employees
with a lump sum payment of $1,500 in lieu of wage increases becoming effective
in August of each year. This lump sum payment is being recognized over the
life of the contract. The agreement covers approximately 30,000
Communications Workers of America members who work for the Company.
U S WEST COMMUNICATIONS, INC.
FORM 10-K
PART II
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowner and Board of Directors of U S WEST Communications, Inc.
We have audited the consolidated financial statements and the
consolidated financial statement schedule of U S WEST Communications, Inc.
listed in the index on page 40 of this Form 10-K. The financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of U S WEST
Communications, Inc. as of December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 4 of the Notes to Consolidated Financial Statements, the
Company discontinued accounting for its operations in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," in 1993.
Coopers & Lybrand L.L.P.
Denver, Colorado
February 12, 1996
U S WEST COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATION
- ---------------------------------------------------------------- --------- Year Ended December 31, -------
------------------------
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------- ----------- ------------------------ ---------
Operating revenues:
Local service $ 4,344 $ 4,067 $ 3,829
Interstate access service 2,378 2,269 2,147
Intrastate access service 747 729 682
Long-distance network services 1,189 1,329 1,442
Other services 626 604 556
----------- ------------------------ ---------
Total operating revenues 9,284 8,998 8,656
Operating expenses:
Employee-related expenses 3,079 2,930 2,870
Other operating expenses 1,587 1,653 1,646
Taxes other than income taxes 371 378 380
Depreciation and amortization 2,022 1,887 1,806
Restructuring charge - - 880
----------- ------------------------ ---------
Total operating expenses 7,059 6,848 7,582
----------- ------------------------ ---------
Income from operations 2,225 2,150 1,074
Interest expense 386 331 374
Gains on sales of rural telephone exchanges 136 82 -
Other expense - net 58 20 13
----------- ------------------------ ---------
Income before income taxes and extraordinary items 1,917 1,881 687
Provision for income taxes 698 706 252
----------- ------------------------ ---------
Income before extraordinary items 1,219 1,175 435
Extraordinary items:
Discontinuance of SFAS No. 71, net of tax - - (3,041)
Early extinguishment of debt, net of tax (8) - (77)
----------- ------------------------ ---------
NET INCOME (LOSS) $ 1,211 $ 1,175 $ (2,683)
=========== ======================== =========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
Dollars in millions 1995 1994
- -------------------------------------------------------------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 191 $ 114
Accounts and notes receivable, less allowance for credit losses
of $30 and $28, respectively 1,546 1,450
Materials and supplies 142 120
Deferred tax asset 240 280
Prepaid and other 43 48
-------------- --------------
Total current assets 2,162 2,012
-------------- --------------
Property, plant and equipment, net 13,448 12,962
Other assets 740 726
-------------- --------------
Total assets $ 16,350 $ 15,700
============== ==============
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Short-term debt $ 995 $ 1,485
Accounts payable 864 883
Employee compensation 281 283
Dividends payable 299 125
Current portion of restructuring charge 270 317
Advanced billing and customer deposits 223 211
Other 559 547
-------------- --------------
Total current liabilities 3,491 3,851
-------------- --------------
Long-term debt 5,411 4,242
Postretirement and other postemployment benefit obligations 2,316 2,393
Deferred income taxes 749 599
Unamortized investment tax credits 199 231
Deferred credits and other 438 700
Shareowner's equity
Common shares - one share without par value, owned by parent 7,348 7,286
Cumulative deficit (3,602) (3,602)
-------------- --------------
Total shareowner's equity 3,746 3,684
-------------- --------------
Total liabilities and shareowner's equity $ 16,350 $ 15,700
============== ==============
Contingencies (see Note 11 to the Consolidated Financial Statements)
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
Dollars in millions 1995 1994 1993
- -------------------------------------------------------------------------- -------- -------- --------
OPERATING ACTIVITIES
Net income (loss) $ 1,211 $ 1,175 $(2,683)
Adjustments to net income (loss):
Discontinuance of SFAS No. 71 - - 3,041
Restructuring charge - - 880
Depreciation and amortization 2,022 1,887 1,806
Gains on sales of rural telephone exchanges (136) (82) -
Deferred income taxes and amortization of investment tax credits 158 223 (204)
Changes in operating assets and liabilities:
Postretirement medical and life costs, net of cash fundings (93) (198) (132)
Restructuring payments (315) (272) (104)
Accounts receivable (96) (59) (67)
Materials, supplies and other (45) (53) (76)
Accounts payable and accrued liabilities 24 (116) 130
Other - net 27 (4) 112
-------- -------- --------
Cash provided by operating activities 2,757 2,501 2,703
-------- -------- --------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (2,437) (2,230) (2,190)
Proceeds from (payments on) disposals of property, plant and equipment (18) 3 42
Proceeds from sale of rural telephone exchanges 214 93 -
-------- -------- --------
Cash (used for) investing activities (2,241) (2,134) (2,148)
-------- -------- --------
FINANCING ACTIVITIES
Net (repayments of) proceeds from issuance of short-term debt (778) 342 708
Proceeds from issuance of long-term debt 1,647 251 2,282
Repayments of long-term debt (327) (285) (2,948)
Dividends paid on common stock (1,037) (1,172) (852)
Equity infusions from parent 56 544 269
-------- -------- --------
Cash provided by (used for) financing activities (439) (320) (541)
-------- -------- --------
CASH AND CASH EQUIVALENTS
Increase 77 47 14
Beginning balance 114 67 53
-------- -------- --------
Ending balance $ 191 $ 114 $ 67
======== ======== ========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The Consolidated Financial Statements include the
accounts of U S WEST Communications, Inc., and its wholly owned subsidiaries
(the "Company"). The Company is an indirect, wholly owned subsidiary of U S
WEST, Inc. ("U S WEST"). The Company was formed as a result of the January 1,
1991, merger of The Mountain States Telephone and Telegraph Company,
Northwestern Bell Telephone Company and Pacific Northwest Bell Telephone
Company. The merger was accounted for as a transfer of assets among entities
under common control similar to that of a pooling-of-interests.
Certain reclassifications within the Consolidated Financial Statements have
been made to conform to the current year presentation.
Industry Segment The Company primarily provides regulated communications
services to more than 25 million residential and business customers in the
Company's region (the "Region"). The Region includes the states of Arizona,
Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Oregon, South Dakota, Utah, Washington and Wyoming. Services offered by the
Company include local telephone services, exchange access services (which
connect customers to the facilities of carriers, including long-distance
providers and wireless operators), and long-distance services within Local
Access and Transport Areas ("LATAs") in the Region. The Company provides
other products and services, including custom calling, voice messaging, caller
identification and high-speed data applications.
Approximately 59 percent of the Company's revenues are derived from the states
of Arizona, Colorado, Minnesota and Washington.
Significant Concentrations The largest volume of the Company's services are
provided to AT&T. During 1995, 1994 and 1993, revenues related to those
services provided to AT&T were $1,085, $1,130 and $1,159, respectively.
Related accounts receivable at December 31, 1995 and 1994 totaled $91 and $98,
respectively. As of December 31, 1995, the Company is not aware of any other
significant concentration of business transacted with a particular customer,
supplier or lender that could, if suddenly eliminated, severely impact
operations.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents Cash and cash equivalents include highly liquid
investments with original maturities of three months or less that are readily
convertible into cash and are not subject to significant risk from
fluctuations in interest rates.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Materials and Supplies New and reusable materials of the Company are carried
at average cost, except for significant individual items that are valued based
on specific costs. Nonreusable material is carried at its estimated salvage
value.
Property, Plant and Equipment The investment in property, plant and equipment
is carried at cost, less accumulated depreciation. Additions, replacements
and substantial betterments are capitalized. Costs for normal repair and
maintenance of property, plant and equipment are expensed as incurred.
The Company's provision for depreciation of property, plant and equipment is
based on various straight-line group methods using remaining useful (economic)
lives based on industry-wide studies. In third quarter 1993, the Company
discontinued accounting for its regulated telephone operations under Statement
of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects
of Certain Types of Regulation." (See Note 4 to the Consolidated Financial
Statements.) Prior to discontinuing SFAS No. 71, depreciation was based on
lives specified by regulators.
When the depreciable property, plant and equipment of the Company is retired
or sold, the original cost less the net salvage value is generally charged to
accumulated depreciation.
Interest related to qualifying construction projects is capitalized and is
reflected as a reduction of interest expense. Prior to discontinuing SFAS No.
71, capitalized interest was included as an element of other income. Amounts
capitalized by the Company were $39, $36 and $19 in 1995, 1994 and 1993,
respectively.
Revenue Recognition Local telephone service revenues are generally billed
monthly, in advance, and revenues are recognized the following month when
services are provided. Revenues derived from exchange access and
long-distance services are billed and recorded monthly as services are
provided.
Financial Instruments Net interest received or paid on interest rate swaps is
recognized over the life of the swaps as an adjustment to interest expense.
Gains and losses on forward contracts are deferred and recognized as an
adjustment to interest expense over the life of the underlying debt. Currency
swaps entered into to convert foreign debt to dollar-denominated debt are
combined with the foreign currency debt and accounted for as if fixed-rate,
dollar-denominated debt were issued directly.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Computer Software The cost of computer software, whether purchased or
developed internally, is charged to expense with two exceptions. Initial
operating systems software is capitalized and amortized over the life of the
related hardware, and initial network applications software is capitalized and
amortized over three years. Subsequent upgrades to capitalized software are
expensed. Capitalized computer software of $181 and $146 at December 31, 1995
and 1994, respectively, is recorded in property, plant and equipment.
Amortization of capitalized computer software costs totaled $69, $61 and $37
in 1995, 1994 and 1993, respectively.
Income Taxes The provision for income taxes consists of an amount for taxes
currently payable and an amount for tax consequences deferred to future
periods in accordance with SFAS No. 109. The Company implemented SFAS No.
109, "Accounting for Income Taxes," in 1993. Adoption of the new standard did
not have a material effect on the financial position or results of operations,
primarily because of the Company's earlier adoption of SFAS No. 96.
For financial statement purposes, investment tax credits are being amortized
over the economic lives of the related property, plant and equipment in
accordance with the deferred method of accounting for such credits.
New Accounting Standards In 1996, the Company will adopt 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. The Company
expects that the adoption of SFAS No. 121 will not have a material effect on
its financial position or results of operations.
NOTE 2: RELATED PARTY TRANSACTIONS
The Company purchases various services, as noted, from affiliated companies.
The amount paid by the Company for these services is determined in accordance
with FCC and state cost allocation rules, which prescribe various cost
allocation methodologies that are dependent upon the service provided.
Management believes that such cost allocation methods are reasonable. The
cost of those services are billed to the regulated company.
It is not practicable to provide a detailed estimate of the expenses which
would be recognized on a stand-alone basis. However, the Company believes
that corporate services, including those related to shareholder relations,
procurement, tax, legal and human resources, are obtained more economically
through affiliates than they would be on a stand-alone basis, since the
Company absorbs only a portion of the total costs. Additionally, through its
one-seventh ownership interest in Bellcore (see footnote (1) below), the
Company obtains benefits associated with research and development activities
which exceed the Company's share of the total costs.
NOTE 2: RELATED PARTY TRANSACTIONS (CONTINUED)
The Company's operations include the following charges for these services:
Year Ended December 31, 1995 1994 1993
- ---------------------------- ----- ----- -----
Research and development (1) $ 178 $ 266 $ 177
Procurement 120 114 107
Corporate services 117 97 101
Marketing services 74 66 66
Telecommunications 10 13 16
Leased office space 10 12 11
Other 18 36 34
----- ----- -----
Total $ 527 $ 604 $ 512
===== ===== =====
<FN>
<F1>
(1) Includes charges related to research, development and maintenance of
existing technologies performed by Bellcore, a telecommunications research
entity in which the Company has a one-seventh ownership interest.
</FN>
NOTE 3: RESTRUCTURING CHARGE
The Company's 1993 results reflected an $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. As part of the Restructuring Plan, the Company is
developing new systems and enhanced system functionality that will enable it
to monitor networks to reduce the risk of service interruptions, activate
telephone service on demand, rapidly design and engineer new products and
services for customers, and centralize its service centers. The Company has
consolidated its 560 customer service centers into 26 centers in 10 cities and
plans on reducing its work force by approximately 10,000 employees.
Approximately 1,000 employees that were originally expected to relocate have
chosen separation or other job assignments and have been replaced. This
increased the number of employee separations to 10,000 from 9,000, and
increased the estimated total cost for employee separations to $311, compared
with $281 in the original estimate. The $30 cost associated with these
additional employee separations was reclassified from relocation to the
reserve for employee separations during 1995.
NOTE 3: RESTRUCTURING CHARGES (CONTINUED)
Following is a schedule of the costs included in the 1993 restructuring
charge:
1993 Change December 31,
Restructuring in 1995
Charge Estimate Estimate
-------------- ---------- -------------
Employee separation (1) $ 225 $ 30 $ 255
Systems development 360 - 360
Real estate 130 - 130
Relocation 105 (30) 75
Retraining and other 60 - 60
-------------- ---------- -------------
Total $ 880 $ - $ 880
============== ========== =============
<FN>
<F1>
(1) Employee-separation costs, including the balance of a 1991 restructuring
reserve at December 31, 1993, aggregate $311.
</FN>
Employee separation costs include severance payments, health-care coverage and
postemployment education benefits. System development costs include new
systems and the application of enhanced systems 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
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.
The following table shows amounts charged to the restructuring reserve:
1993 Change December 31,
Restructuring 1994 1995 in 1995
Charge Activity Activity Estimate Balance
-------------- --------- --------- ---------- -------------
Employee separation (1) $ 281 $ 75 $ 76 $ 30 $ 160
Systems development 360 118 129 - 113
Real estate 130 50 66 - 14
Relocation 105 21 21 (30) 33
Retraining and other 60 8 23 - 29
-------------- --------- --------- ---------- -------------
Total $ 936 $ 272 $ 315 $ - $ 349
============== ========= ========= ========== =============
<FN>
<F1>
(1) Includes $56 associated with work-force reductions under a 1991 restructuring plan.
</FN>
NOTE 3: RESTRUCTURING CHARGES (CONTINUED)
Employee separations under the Restructuring Plan in 1995 and 1994 were as
follows:
Cumulative
1994 1995 Separations
Separations Separations At December 31, 1995
----------- ----------- --------------------
Employee separations:
Managerial 497 682 1,179
Occupational 1,683 1,643 3,326
----------- ----------- --------------------
Total 2,180 2,325 4,505
=========== =========== ====================
The Restructuring Plan is expected to be substantially completed by the end of
1997. Implementation of the Restructuring Plan has been impacted by growth in
the business and related service issues, new business opportunities, revisions
to system delivery schedules and productivity issues caused by the major
rearrangement of resources due to restructuring. These issues will continue
to affect the timing of employee separations.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment follows:
December 31, 1995 1994
------- -------
Land and buildings $ 2,413 $ 2,438
Telephone network equipment 12,019 11,622
Telephone outside plant 12,353 11,897
General purpose computers and other 3,437 2,858
Construction in progress 766 591
------- -------
30,988 29,406
------- -------
Less accumulated depreciation
Buildings 675 655
Telephone network equipment 7,221 6,733
Telephone outside plant 7,851 7,442
General purpose computers and other 1,793 1,614
------- -------
17,540 16,444
------- -------
Property, plant and equipment - net $13,448 $12,962
======= =======
In 1995, the Company sold certain rural telephone exchanges with a cost basis
of $258. The Company received consideration for the sales of $388, including
$214 in cash. In 1994, the Company sold certain rural telephone exchanges
with a cost basis of $122 and received consideration for the sales of $204,
including $93 in cash.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
DISCONTINUANCE OF SFAS NO. 71
The Company incurred a noncash, extraordinary charge of $3.0 billion, net of
an income tax benefit of $2.3 billion, in conjunction with its decision to
discontinue accounting for its operations in accordance with SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," as of September
30, 1993. SFAS No. 71 generally applies to regulated companies that meet
certain requirements, including a requirement that a company be able to
recover its costs, notwithstanding competition, by charging its customers at
prices established by its regulators. The Company's decision to discontinue
application of SFAS No. 71 was based on the belief that competition, market
conditions and technological advances, more than prices established by
regulators, will determine the future cost recovery by the Company. As a
result of this change, the remaining asset lives of the Company's plant were
shortened to more closely reflect the useful (economic) lives of such plant.
Following is a list of the major categories of telephone property, plant and
equipment and the manner in which depreciable lives were affected by the
discontinuance of SFAS No. 71:
Average Life (years)
--------------------
Before After
Category Discontinuance Discontinuance
- ------------------------- -------------------- --------------
Digital switch 17-18 10
Digital circuit 11-13 10
Aerial copper cable 18-28 15
Underground copper cable 25-30 15
Buried copper cable 25-28 20
Fiber cable 30 20
Buildings 27-49 27-49
General purpose computers 6 6
The Company employed two methods to determine the amount of the extraordinary
charge. The "economic life" method assumed that a portion of the
plant-related effect is a regulatory asset that was created by the
under-depreciation of plant under regulation. This method yielded the
plant-related adjustment that was confirmed by the second method, a discounted
cash flows analysis.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Following is a schedule of the nature and amounts of the after-tax charge
recognized as a result of the Company's discontinuance of SFAS No. 71:
Plant related $3,124
Tax-related regulatory assets and liabilities (208)
Other regulatory assets and liabilities 125
-------
Total $3,041
=======
NOTE 5: DEBT
SHORT-TERM DEBT
The components of short-term debt follow:
December 31, 1995 1994
----- ------
Commercial paper $ 542 $1,321
Current portion of long-term debt 453 164
----- ------
Total $ 995 $1,485
===== ======
The weighted average interest rate on commercial paper was 5.79 percent and
5.92 percent at December 31, 1995 and 1994, respectively.
The Company maintains a commercial paper program to finance short-term cash
flow requirements, as well as to maintain a presence in the short-term debt
market. Additionally, the Company, which conducts its own borrowing
activities, is permitted to borrow up to $600 under short-term formal lines of
credit, all of which was available at December 31, 1995.
NOTE 5: DEBT (CONTINUED)
LONG-TERM DEBT
Interest rates and maturities of long-term debt at December 31 follow:
Maturities Total Total
-----------
Interest rates 1997 1998 1999 2000 Thereafter 1995 1994
- ------------------------------------ ----- ----- ----------- ----- ----------- ------- -------
Up to 5% $ - $ 35 $ - $ 90 $ 150 $ 275 $ 275
Above 5% to 6% - 300 - - 261 561 561
Above 6% to 7% - - 71 257 1,916 2,244 1,361
Above 7% to 8% 16 - - - 1,646 1,662 1,282
Above 8% to 9% - - - - 250 250 250
Above 9% to 10% - - - 175 - 175 320
Variable rate debt indexed to two-
and ten-year constant maturity
Treasury rates 25 - 155 - - 180 180
----- ----- ----------- ----- ----------- ------- -------
$ 41 $ 335 $ 226 $ 522 $ 4,223 5,347 4,229
===== ===== =========== ===== ===========
Capital lease obligations and other 187 135
Unamortized discount - net (123) (122)
------- -------
Total $5,411 $4,242
======= =======
Long-term debt consists principally of debentures and medium-term notes.
During 1995, the Company refinanced $1.5 billion of commercial paper to take
advantage of favorable long-term interest rates. In addition to the
commercial paper, the Company refinanced $145 of long-term debt. Expenses
associated with the refinancing of long-term debt resulted in extraordinary
charges to income of $8, net of tax benefits of $5.
During 1993, the Company refinanced long-term debt issues aggregating $2.7
billion in principal amount. Expenses associated with the refinancing
resulted in an extraordinary charge to income of $77, net of a tax benefit of
$48.
Interest payments, net of amounts capitalized, were $367, $344 and $386 in
1995, 1994 and 1993, respectively.
INTEREST RATE RISK MANAGEMENT
The Company enters into interest rate swap agreements to effectively convert
existing commercial paper to fixed-rate debt. This allows the Company to
achieve interest savings over issuing fixed-rate debt directly.
NOTE 5: DEBT (CONTINUED)
Under an interest rate swap, the Company agrees with another party to exchange
interest payments at specified intervals over a defined term. Interest
payments are calculated by reference to the notional amount based on the
fixed- and variable-rate terms of the swap agreements. The net interest
received or paid as part of the interest rate swap is accounted for as an
adjustment to interest expense.
During 1995 and 1994, the Company entered into currency swaps to convert Swiss
franc-denominated debt to dollar-denominated debt. This allowed the Company
to achieve interest savings over issuing fixed-rate, dollar-denominated debt.
The currency swap and foreign currency debt are combined and accounted for as
if fixed-rate, dollar-denominated debt were issued directly.
The following table summarizes terms of swaps pertaining to the Company as of
December 31, 1995 and 1994. Variable rates are indexed to two- and ten-year
constant maturity treasury and 30-day commercial paper rates.
1995 1994
---------- ----------
Weighted Weighted Weighted Weighted
Average Average Average Average
Notional Rate Rate Notional Rate Rate
-------- -------- -------- --------
Amount Maturities Receive Pay Amount Maturities Receive Pay
--------- ---------- -------- -------- --------- ---------- -------- --------
Variable to fixed $ 580 1996-1999 5.70 6.56 $ 710 1995-1999 6.14 6.19
Currency 204 1999-2001 - 6.55 71 1999 - 6.53
In 1993, the Company executed forward contracts to sell U.S. Treasury bonds to
lock in the U.S. Treasury rate component of the future debt issue. At
December 31, 1995, deferred credits of $8 and deferred charges of $51 on
closed forward contracts are included as part of the carrying value of the
underlying debt. The deferred credits and charges are being recognized as a
yield adjustment over the life of the debt, which matures at various dates
through 2043. The net deferred charge is directly offset by the lower coupon
rate achieved on the debt issuance. At December 31, 1995, there were no open
forward contracts.
The counterparties to these interest rate contracts are major financial
institutions. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. The Company manages this exposure by
monitoring the credit standing of the counterparty and establishing dollar and
term limitations which correspond to the respective credit rating of each
counterparty. The Company does not have significant exposure to an individual
counterparty and does not anticipate nonperformance by any counterparty.
NOTE 6: FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash equivalents, other current amounts receivable and payable,
and short-term debt approximate carrying values due to their short-term
nature.
The fair values of interest rate swaps are based on estimated amounts the
Company would receive or pay to terminate such agreements taking into account
current interest rates and creditworthiness of the counterparties.
The fair values of long-term debt are based on quoted market prices where
available or, if not available, are based on discounting future cash flows
using current interest rates.
1995 1995 1994 1994
Carrying Fair Carrying Fair
- ------------------------------------------- Value Value Value Value
--------- ------- --------- -------
Debt (includes short-term portion) $ 6,406 $6,700 $ 5,727 $5,215
Interest rate swap agreements - assets - (19) - (15)
Interest rate swap agreements - liabilities - 17 - -
--------- ------- --------- -------
Debt - net $ 6,406 $6,698 $ 5,727 $5,200
========= ======= ========= =======
NOTE 7: LEASING ARRANGEMENTS
The Company has entered into operating leases for office facilities, equipment
and real estate. Rent expense under operating leases was $179, $194 and $184
in 1995, 1994 and 1993, respectively. Minimum future lease payments as of
December 31, 1995, under noncancelable operating leases, follow:
Year
- ----------
1996 $ 83
1997 83
1998 77
1999 68
2000 65
Thereafter 365
----
Total $741
====
NOTE 8: COMMON SHAREOWNER'S EQUITY
Transactions affecting shareowner's equity follow:
Common Cumulative
Shares Deficit Total
------- ------------ --------
Balance at December 31, 1992 $ 6,457 $ - $ 6,457
- ---------------------------- ------- ------------ --------
Net loss (2,683) (2,683)
Dividend declared - (919) (919)
Equity infusions 285 - 285
------- ------------ --------
Balance at December 31, 1993 6,742 (3,602) 3,140
- ---------------------------- ------- ------------ --------
Net income - 1,175 1,175
Dividends declared - (1,175) (1,175)
Equity infusions 544 - 544
------- ------------ --------
Balance at December 31, 1994 7,286 (3,602) 3,684
- ---------------------------- ------- ------------ --------
Net income - 1,211 1,211
Dividends declared - (1,211) (1,211)
Equity infusions 62 - 62
------- ------------ --------
Balance at December 31, 1995 $ 7,348 ($3,602) $ 3,746
- ---------------------------- ======= ============ ========
NOTE 9: EMPLOYEE BENEFITS
PENSION PLAN
The Company participates in a defined benefit pension plan sponsored by U S
WEST, which covers substantially all management and occupational employees.
Benefits for management employees are based on a final pay formula, while
occupational benefits are based on a flat benefit formula. The projected unit
credit method is used for financial reporting purposes and the aggregate cost
method for funding purposes. No funding was required in 1995, 1994 or 1993.
Net pension costs for 1995, 1994 and 1993 were $(2), $0 and $(66),
respectively.
NOTE 9: EMPLOYEE BENEFITS (CONTINUED)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company participates in plans sponsored by U S WEST which provide certain
health care and life insurance benefits to retired employees. In conjunction
with the Company's 1992 adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," U S WEST elected to immediately
recognize the accumulated postretirement benefit obligation for current and
future retirees. However, the Federal Communications Commission and certain
state jurisdictions permit amortization of the transition obligation over the
average remaining service period of active employees for regulatory accounting
purposes with most jurisdictions requiring funding as a stipulation for rate
recovery.
The Company used the projected unit credit method for the determination of
postretirement medical and life costs for financial reporting purposes. Net
postretirement benefit costs for 1995, 1994 and 1993 were $183, $220 and $248,
respectively. The amount funded by the Company is based on regulatory
accounting requirements.
NOTE 10: INCOME TAXES
The components of the provision for income taxes follow:
Year Ended December 31, 1995 1994 1993
- ------------------------------- ------ ------ ------
Federal
Current $ 467 $ 415 $ 394
Deferred 157 228 (122)
Investment tax credits - net (38) (47) (56)
------ ------ ------
586 596 216
------ ------ ------
State and local
Current 73 68 62
Deferred 39 42 (26)
------ ------ ------
112 110 36
------ ------ ------
Provision for income taxes $ 698 $ 706 $ 252
====== ====== ======
The unamortized balance of investment tax credits at December 31, 1995 and
1994, was $199 and $231, respectively.
Amounts paid for income taxes were $530, $551 and $338 in 1995, 1994 and
1993, respectively.
NOTE 10: INCOME TAXES (CONTINUED)
The effective tax rate differs from the statutory tax rate as follows:
Year Ended December 31,
In percent 1995 1994 1993
- ---------------------------------------------------- ----- ----- -----
Federal statutory tax rate 35.0 35.0 35.0
Investment tax credit amortization (1.3) (1.6) (3.3)
State income taxes - net of federal effect 3.8 3.8 3.9
Rate differential on reversing temporary differences - - (2.4)
Depreciation on capitalized overheads - net - - 1.5
Tax law change - catch-up adjustment - - 3.5
Restructuring charge - - (1.5)
Other (1.1) 0.3 (0.1)
----- ----- -----
Effective tax rate 36.4 37.5 36.6
===== ===== =====
The components of the net deferred tax liability follow:
December 31, 1995 1994
- -------------------------------------------- ------ ------
Property, plant and equipment $1,431 $1,380
State deferred taxes - net of federal effect 186 181
Other 64 74
------ ------
Deferred tax liabilities 1,681 1,635
------ ------
Postemployment benefits, including pension 664 692
Restructuring and other 119 229
Unamortized investment tax credit 70 81
State deferred taxes - net of federal effect 130 146
Other 189 167
------ ------
Deferred tax assets 1,172 1,315
------ ------
Net deferred tax liability $ 509 $ 320
====== ======
The current portion of the deferred tax asset was $240 and $280 at December
31, 1995 and 1994, respectively, resulting primarily from restructuring
charges and compensation related items.
On August 10, 1993, federal legislation was enacted which increased the
corporate tax rate from 34 percent to 35 percent retroactive to January 1,
1993. The cumulative effect on deferred taxes of the 1993 increase in income
tax rates was $54.
NOTE 11: 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 to U S WEST Communications is $0
to $150.
NOTE 12: QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1995
Operating revenues $ 2,277 $ 2,298 $ 2,334 $ 2,375
Income before income taxes and
extraordinary item 518 464 478 457
Net income 323 289 300 299
1994
Operating revenues $ 2,218 $ 2,243 $ 2,267 $ 2,270
Income before income taxes 475 472 457 477
Net income 297 295 285 298
1995 first-quarter net income includes $39 for a gain on the sales of certain
rural telephone exchanges. 1995 second-quarter net income includes $10 for a
gain on the sales of certain rural telephone exchanges. 1995 third-quarter
net income includes $21 for a gain on the sales of certain rural telephone
exchanges and $5 for expenses associated with U S WEST, Inc.'s November 1,
1995 recapitalization. 1995 third-quarter net income also includes $5 for the
early extinguishment of debt. 1995 fourth-quarter net income includes $15 for
a gain on the sales of certain rural telephone exchanges and other charges of
$6 including an extraordinary charge of $3 for the early extinguishment of
debt and $3 for costs associated with the recapitalization.
1994 first-quarter net income includes $15 for a gain on the sales of certain
rural telephone exchanges. 1994 second-quarter net income includes a gain of
$16 for the sales of certain rural telephone exchanges. 1994 fourth-quarter
net income includes a gain of $20 for the sales of certain rural telephone
exchanges.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Coopers & Lybrand L.L.P. has served as the Company's independent auditor, and
Arthur Andersen L.L.P. has served as the primary auditing firm for certain
major subsidiaries of U S WEST, since 1984. In view of the targeted stock
structure adopted by U S WEST in 1995, U S WEST determined, following a
recommendation of its Audit Committee, that it will be more efficient and
effective for U S WEST to have a single firm perform the auditing function for
its entire business, including the Company.
During the Company's two most recent fiscal years ended December 31, 1995 and
December 31, 1994, the reports of Coopers & Lybrand L.L.P. on the Company's
financial statements contained no adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope or
accounting principles. In addition, during such fiscal years and the interim
periods thereafter: (1) no disagreements with Coopers & Lybrand L.L.P. have
occurred on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Coopers & Lybrand L.L.P., would have
caused it to make reference to the subject matter of the disagreement in
connection with its report on the Company's financial statements; (2) no
reportable events involving Coopers & Lybrand L.L.P. have occurred that must
be disclosed under applicable securities laws; and (3) the Company has not
consulted with Arthur Andersen L.L.P. on items that concerned the application
of accounting principles to a specific transaction, either completed or
proposed, or on the type of audit opinion that might be rendered on the
Company's financial statements.
U S WEST COMMUNICATIONS, INC.
FORM 10-K
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this report: Page
(1) Report of Independent Accountants 19
(2) Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 20
Consolidated Balance Sheets as of December 31, 1995 and 1994 21
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 22
Notes to Consolidated Financial Statements 23
Supplementary Financial Data (Unaudited) 38
(3) Consolidated Financial Statement Schedules:
II - Valuation and Qualifying Accounts 44
Financial statement schedules other than those listed above have been omitted
because the required information is contained in the Consolidated Financial
Statements and notes thereto, or because such schedules are not required or
applicable.
(b) Reports on Form 8-K
(i) report dated June 20, 1995, relating to a press release issued
June 19, 1995 announcing key executive changes;
(ii) report dated September 14, 1995, filing a Form of Note
concerning the Company's $50,000,000 6_5/8% Notes due 2005 and a Form of
Debenture concerning the Company's $50,000,000 7-1/4% Debentures due 2025;
(iii) report dated October 13, 1995, filing a Form of Debenture
concerning the Company's 7-1/4% Debentures due October 15, 2035 and a Form
of Note concerning the Company's 6-3/5% Notes due October 15, 2002;
(iv) report dated October 27, 1995, reporting a change in the
Company's certifying accountant; and
(v) report dated November 9, 1995, filing a Form of Debenture
concerning the Company's 7.20% Debentures due November 10, 2026.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(c) Exhibits
Exhibits identified in parentheses below, on file with the United States
Securities and Exchange Commission ("SEC"), are incorporated herein by
referenced as exhibits hereto.
Exhibit
Number
(2a) Articles of Merger including the Plan of Merger between The Mountain
States Telephone and Telegraph Company (renamed U S WEST Communications,
Inc.) and Northwestern Bell Telephone Company. (Incorporated herein by
this reference to Exhibit 2a to Form SE filed on January 8, 1991, File
No. 1-3040.)
(2b) Articles of Merger including the Plan of Merger between The Mountain
States Telephone and Telegraph Company (renamed U S WEST Communications,
Inc.) and Pacific Northwest Bell Telephone Company. (Incorporated herein
by this reference to Exhibit 2b to Form SE filed on January 8, 1991, File
No. 1-3040.)
3a Restated Articles of Incorporation of the Registrant as filed with the
Colorado Secretary of State on December 19, 1995.
3b Bylaws of the Registrant as adopted July 1, 1995.
(4) No instrument which defines the rights of holders of long and
intermediate term debt of the Registrant is filed herewith pursuant to
Regulation S-K, Item 601(b) (4) (iii) (A). Pursuant to this regulation,
the Registrant hereby agrees to furnish a copy of any such instrument to
the SEC upon request.
(10a) Reorganization and Divestiture Agreement dated as of November 1,
1983, between American Telephone and Telegraph Company, U S WEST Inc.,
and certain of their affiliated companies, including The Mountain States
Telephone and Telegraph Company, Northwestern Bell Telephone Company,
Pacific Northwest Bell Telephone Company and NewVector Communications,
Inc. (Exhibit 10a to Form 10-K for the period ended December 31, 1983,
File No. 1-3040.)
(10b) Shared Network Facilities Agreement dated as of January 1, 1984,
between American Telephone and Telegraph Company, AT&T Communications of
the Midwest, Inc. and The Mountain States Telephone and Telegraph
Company. (Exhibit 10b to Form 10-K for the period ended December 31,
1983, File No. 1-3040.)
(10c) Agreement Concerning Termination of the Standard Supply Contract
effective December 31, 1983, between American Telephone and Telegraph
Company, Western Electric Company, Incorporated, The Mountain States
Telephone and Telegraph Company and Central Services Organization.
(Exhibit 10d to Form 10-K for the period ended December 31, 1983, File
No. 1-3040.)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(c) Exhibits (continued)
(10d) Agreement Concerning Certain Centrally Developed Computer Systems
effective December 31, 1983, between American Telephone and Telegraph
Company, Western Electric Company, Incorporated, The Mountain States
Telephone and Telegraph Company and Central Services Organization
(Exhibit 10e to Form 10-K for the period ended December 31, 1983, File
No. 1-3040).
(10e) Agreement Concerning Patents, Technical Information and Copyrights
effective December 31, 1983, between American Telephone and Telegraph
Company and U S WEST, Inc. (Exhibit 10f to Form 10-K for the period
ended December 31, 1983, File No. 1-3040).
(10f) Agreement Concerning Liabilities, Tax Matters and Termination of
Certain Agreements dated as of November 1, 1983, between American
Telephone and Telegraph Company, U S WEST, Inc., The Mountain States
Telephone and Telegraph Company and certain of their affiliates (Exhibit
10g to Form 10-K for the period ended December 31, 1983, File No.
1-3040).
(10g) Agreement Concerning Trademarks, Trade Names and Service Marks
effective December 31, 1983, between American Telephone and Telegraph
Company, American Information Technologies Corporation, Bell Atlantic
Corporation, BellSouth Corporation, Cincinnati Bell, Inc., NYNEX
Corporation, Pacific Telesis Group, The Southern New England Telephone
Company, Southwestern Bell Corporation and U S WEST, Inc. (Exhibit 10i
to Form 10-K for the period ended December 31, 1984, File No. 1-3040).
(10h) Shareholders' Agreement dated as of January 1, 1988, between
Ameritech Services, Inc., Bell Atlantic Management Services, Inc.,
BellSouth Services, Incorporated, NYNEX Service Company, Pacific Bell,
Southwestern Bell Telephone Company, The Mountain States Telephone and
Telegraph Company, Northwestern Bell Telephone Company and Pacific
Northwest Bell Telephone Company (Exhibit 10h to Form SE dated March 5,
1992, File No. 1-3040).
12 Computation of Ratio of Earnings to Fixed Charges.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Denver,
State of Colorado, on March 28,1996.
U S WEST COMMUNICATIONS, INC.
/S/ BARBARA M. JAPHA*
By ______________________________
Barbara M. Japha
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the date indicated.
Principal Executive Officer:
Solomon D. Trujillo, President and Chief Executive Officer
Principal Financial Officer:
Barbara M. Japha, Vice President and Chief Financial Officer
Directors:
/s/ James T. Anderson*
/s/ Barbara M. Japha*
/s/ Solomon D. Trujillo*
/S/ STEPHEN E. BRILZ
*By___________________________
Stephen E. Brilz
(for himself and as Attorney-in-Fact)
Dated: March 28,1996
U S WEST COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
Balance Balance
at Charged Charged at
beginning to to other end of
of period expense accounts Deductions period
---------- -------- -------- ----------- --------
ALLOWANCE FOR CREDIT LOSSES
Year 1995 $ 28 $ 66 (a) - $ 64 (b) $ 30
Year 1994 27 55 (a) - 54 (b) 28
Year 1993 27 55 (a) - 55 (b) 27
RESERVES RELATED TO 1993 BUSINESS
RESTRUCTURING, INCLUDING FORCE AND
FACILITY CONSOLIDATION
Year 1995 $ 664 - - $ 315 $ 349
Year 1994 880 - - 216 664
Year 1993 - $ 880 - - 880
RESERVES RELATED TO 1991 BUSINESS
RESTRUCTURING, INCLUDING FORCE
REDUCTIONS
Year 1995 - - - - -
Year 1994 $ 56 - - $ 56 $ 0
Year 1993 160 - - 104 56
<FN>
<F1>
Note: Certain reclassifications within the schedule have been made to conform to the current year
presentation.
<F2>
(a) Does not include amounts charged directly to expense. These amounts were $6, $10 and $10 for
1995, 1994 and 1993, respectively.
<F3>
(b) Represents credit losses written off during the period, less collection of amounts previously
written off.
</FN>