31
_______________________________________________________________________
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 June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-8611
U S WEST, Inc.
A Colorado Corporation IRS Employer No. 84-0926774
7800 East Orchard Road, Englewood, Colorado 80111-2526
Telephone Number 303-793-6500
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 __
At July 31, 1995, 470,810,118 shares were outstanding.
________________________________________________________________________
U S WEST, Inc.
Form 10-Q
TABLE OF CONTENTS
Item Page
----------------------------------------------------- ----
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income -
Three and six months ended June 30, 1995 and 1994 3
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and 1994 6
Consolidated Statements of Shareowners' Equity -
Six months ended June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
1. Legal Proceedings 27
4. Submission of Matters to a Vote of Security Holders 27
6. Exhibits and Reports on Form 8-K 28
Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) U S WEST, Inc.
Dollars in millions (except per share amounts)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
--------- --------- --------- ---------
Sales and other revenues $ 2,894 $ 2,708 $ 5,722 $ 5,349
Employee-related expenses 997 943 1,975 1,854
Other operating expenses 559 518 1,069 995
Taxes other than income taxes 113 105 227 213
Depreciation and amortization 562 507 1,122 1,010
Interest expense 139 110 267 219
Equity losses in unconsolidated ventures 33 22 90 57
Gains on sales of assets:
Rural telephone exchanges 15 24 78 48
Paging assets - 68 - 68
Other income - net 8 14 2 14
--------- --------- --------- ---------
Income before income taxes 514 609 1,052 1,131
Provision for income taxes 196 234 404 432
--------- --------- --------- ---------
NET INCOME 318 375 648 699
Preferred stock dividends 1 - 2 -
--------- --------- --------- ---------
Earnings available for common stock $ 317 $ 375 $ 646 $ 699
========= ========= ========= =========
EARNINGS PER COMMON SHARE $ 0.67 $ 0.83 $ 1.37 $ 1.56
DIVIDENDS PER COMMON SHARE $ 0.535 $ 0.535 $ 1.07 $ 1.07
AVERAGE COMMON SHARES
OUTSTANDING (thousands) 470,414 453,618 469,490 449,024
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (Unaudited) U S WEST, Inc.
Dollars in millions
June 30, December 31,
1995 1994
--------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 87 $ 209
Accounts and notes receivable 1,824 1,693
Inventories and supplies 212 189
Deferred tax asset 348 352
Other 341 323
--------- -------------
Total current assets 2,812 2,766
--------- -------------
Gross property, plant and equipment 31,733 31,014
Accumulated depreciation 17,644 17,017
--------- -------------
Property, plant and equipment - net 14,089 13,997
Investment in Time Warner Entertainment 2,510 2,522
Intangible assets - net 1,872 1,858
Investment in international ventures 1,131 881
Net investment in assets held for sale 422 302
Other assets 1,357 878
--------- -------------
Total assets $ 24,193 $ 23,204
========= =============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (Unaudited), Continued U S WEST, Inc.
Dollars in millions
June 30, December 31,
1995 1994
---------- --------------
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Short-term debt $ 4,364 $ 2,837
Accounts payable 771 944
Employee compensation 335 367
Dividends payable 252 251
Current portion of restructuring charges 354 337
Other 1,455 1,278
---------- --------------
Total current liabilities 7,531 6,014
---------- --------------
Long-term debt 4,626 5,101
Postretirement and other postemployment benefit
obligations 2,315 2,502
Deferred taxes, credits and other 1,991 2,154
Preferred stock subject to mandatory redemption 51 51
Common shareowners' equity
Common shares - no par, 2,000,000,000
authorized, 470,722,738 and 469,343,048
outstanding, respectively 8,123 8,056
Cumulative deficit (282) (458)
LESOP guarantee (157) (187)
Foreign currency translation adjustments (5) (29)
---------- --------------
Total common shareowners' equity 7,679 7,382
---------- --------------
Total liabilities and common shareowners' equity $ 24,193 $ 23,204
========== ==============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) U S WEST, Inc.
Dollars in millions
Six Months Ended June 30, 1995 1994
----------------------------------------------------- -------- --------
OPERATING ACTIVITIES
Net income $ 648 $ 699
Adjustments to net income
Depreciation and amortization 1,122 1,010
Gains on sales of assets
Rural telephone exchanges (78) (48)
Paging assets - (68)
Equity losses in unconsolidated ventures 90 57
Deferred income taxes and amortization
of investment tax credits 63 90
Changes in operating assets and liabilities
Restructuring payments (180) (63)
Postretirement medical and life costs, net of
cash fundings (144) (48)
Accounts and notes receivable (127) (53)
Inventories, supplies and other (68) (101)
Accounts payable and accrued liabilities 76 7
Other - net 27 56
-------- --------
Cash provided by operating activities 1,429 1,538
-------- --------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,265) (1,282)
Investment in international ventures (291) (151)
Proceeds from disposals of property, plant
and equipment 112 47
Cash (to) net investment in assets held for sale (37) -
Other - net (281) (90)
-------- --------
Cash (used) for investing activities (1,762) (1,476)
-------- --------
FINANCING ACTIVITIES
Net proceeds from short-term debt 1,103 212
Proceeds from issuance of long-term debt - 251
Repayments of long-term debt (390) (327)
Dividends paid on common stock (462) (440)
Proceeds from issuance of common stock 23 295
Purchases of treasury stock (63) -
-------- --------
Cash provided by (used for) financing activities 211 (9)
-------- --------
Cash (used for) provided by continuing operations (122) 53
-------- --------
Cash from discontinued operations - 48
-------- --------
CASH AND CASH EQUIVALENTS
Increase (decrease) (122) 101
Beginning balance 209 128
-------- --------
Ending balance $ 87 $ 229
======== ========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (Unaudited) U S WEST, Inc.
Dollars in millions
Six Months Ended June 30, 1995 1994
----------------------------------------------- ----------- -----------
COMMON SHARES
Balance at beginning of period $ 8,056 $ 6,996
Issuance of common stock 63 126
Settlement of litigation - 210
Benefit trust contribution (OPEB) 61 185
Purchase of treasury stock (63) -
Other 6 (3)
----------- -----------
Balance at end of period 8,123 7,514
CUMULATIVE DEFICIT
Balance at beginning of period (458) (857)
Net income 648 699
Dividends declared (504) (486)
Market value adjustment for debt securities 32 (45)
----------- -----------
Balance at end of period (282) (689)
LESOP GUARANTEE
Balance (187) (243)
Activity 30 27
----------- -----------
Balance at end of period (157) (216)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS
Balance at beginning of period (29) (35)
Activity 24 23
----------- -----------
Balance at end of period (5) (12)
----------- -----------
TOTAL COMMON SHAREOWNERS' EQUITY $ 7,679 $ 6,597
=========== ===========
COMMON SHARES AUTHORIZED AT JUNE 30,
(Thousands) 2,000,000 2,000,000
=========== ===========
COMMON SHARES OUTSTANDING (Thousands)
Beginning balance 469,343 441,140
Issuance of common stock 1,585 3,053
Settlement of litigation - 5,506
Benefit trust contribution (OPEB) 1,500 4,600
Purchase of treasury stock (1,705) -
----------- -----------
Ending balance 470,723 454,299
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
A. Summary of Significant Accounting Policies
Consolidated Financial Statements
The Consolidated Financial Statements have been prepared by U S WEST, Inc. ("U
S WEST" or "Company"), pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). Certain information and footnote disclosures
normally accompanying financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. In the opinion of the Company's
management, the Consolidated Financial Statements include all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
the financial information set forth therein. It is suggested that these
Consolidated Financial Statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report for the
year ended December 31, 1994.
Certain reclassifications within the Consolidated Financial Statements have
been made to conform to the current year presentation.
B. Recapitalization Proposal
The Board of Directors of U S WEST, a Colorado corporation, has adopted a
proposal (the "Recapitalization Proposal") that would change the state of
incorporation of U S WEST from Colorado to Delaware and create two classes of
common stock that are intended to reflect separately the performance of the
Company's communications and multimedia businesses. Under the
Recapitalization Proposal, shareholders of the Company will be asked to
approve an Agreement and Plan of Merger between the Company and U S WEST,
Inc., a Delaware corporation and wholly owned subsidiary of U S WEST ("U S
WEST Delaware"), pursuant to which U S WEST would be merged (the "Merger")
with and into U S WEST Delaware with U S WEST Delaware continuing as the
surviving corporation. In connection with the Merger, the Certificate of
Incorporation of U S WEST Delaware would be amended and restated (as so
amended and restated, the "Restated Certificate") to, among other things,
designate two classes of common stock of U S WEST Delaware, one class of which
would be authorized as U S WEST Communications Group Common Stock
("Communications Stock"), and the other class of which would be authorized as
U S WEST Media Group Common Stock ("Media Stock"). Upon consummation of the
Merger, each share of existing common stock of the Company would be
automatically converted into one share of Communications Stock and one share
of Media Stock.
Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
The Communications Stock and Media Stock are designed to provide shareholders
with separate securities that are intended to reflect separately the
communications businesses of U S WEST Communications, Inc. ("U S WEST
Communications") and certain other subsidiaries of the Company (the
"Communications Group") and the Company's multimedia businesses (the "Media
Group" and, together with the Communications Group, the "Groups").
The Communications Group is comprised of U S WEST Communications, U S WEST
Communications Services, Inc., U S WEST Federal Services, Inc., U S WEST
Advanced Technologies, Inc. and U S WEST Business Resources, Inc.
The Media Group is comprised of U S WEST Marketing Resources Group, Inc., a
publisher of White and Yellow Pages telephone directories, and provider of
multimedia content and services, U S WEST New Vector Group, Inc., which
provides communications and information products and services over wireless
networks, U S WEST Multimedia Communications, Inc., which owns domestic cable
television operations and investments and U S WEST International Holdings,
Inc., which primarily owns investments in international cable and
telecommunications, wireless communications and directory publishing
operations.
Under the Recapitalization Proposal, dividends to be paid to the holders of
Communications Stock will initially be at a quarterly rate of $0.535 per
share. Dividends on the Communications Stock will be paid at the discretion
of the Board of Directors of U S WEST, based primarily upon the financial
condition, results of operations and business requirements of the
Communications Group and the Company as a whole. With regard to the Media
Stock, the Board of Directors of U S WEST currently intends to retain future
earnings if any, for the development of the Media Group's businesses and does
not anticipate paying dividends on the Media Stock in the foreseeable future.
A preliminary proxy statement on the Recapitalization Proposal was filed with
the Securities and Exchange Commission on May 12, 1995, and amendment one was
filed on June 30, 1995.
Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
C. Investment in Time Warner Entertainment
On September 15, 1993, U S WEST acquired 25.51 percent pro-rata priority
capital and residual equity interests in Time Warner Entertainment Company
L.P. ("TWE"). Summarized operating results for TWE follow:
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
--------- --------- --------- ---------
Revenues $ 2,392 $ 2,055 $ 4,438 $ 3,974
Operating expenses*<F1> 2,126 1,828 3,981 3,544
Interest and other - net**<F2> 185 159 361 310
--------- --------- --------- ---------
Income before income taxes $ 81 $ 68 $ 96 $ 120
========= ========= ========= =========
Net income $ 56 $ 56 $ 60 $ 104
========= ========= ========= =========
<FN>
<F1>
* Includes 1995 and 1994 depreciation and amortization of $275 and $240,
and $501 and $453 for the three and six months ended, respectively.
<F2>
** Includes 1995 and 1994 corporate services of $15 and $30 for the three
and six months ended, respectively.
</FN>
The Company accounts for its investment in TWE under the equity method of
accounting. U S WEST's recorded share of TWE operating results represents
allocated TWE net income or loss adjusted for the amortization of the excess
of fair market value over the book value of the partnership net assets. The
Company's recorded share of TWE operating results was $2 and $6, and $(11) and
$(6) for the three and six months ended June 30, 1995 and 1994, respectively.
Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
D. Contingencies
At U S WEST Communications 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 $140.
E. Net Investment in Assets Held for Sale
Effective January 1, 1995, the capital assets segment has been accounted for
in accordance with Staff Accounting Bulletin No. 93, issued by the Securities
and Exchange Commission, which requires discontinued operations not disposed
of within one year of the measurement date to be accounted for prospectively
in continuing operations as "net investment in assets held for sale." The net
realizable value of the assets will be reevaluated on an ongoing basis with
adjustments to the existing reserve, if any, being charged to continuing
operations. Prior to January 1, 1995, the entire capital assets segment was
accounted for as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30.
Sales and other revenues of net investment in assets held for sale were $31
and $76, and $107 and $382 for the three and six months ended June 30, 1995
and 1994, respectively. Included are the sales of properties for
approximately $47 and $234 during the first half of 1995 and 1994,
respectively. The sales were in line with Company estimates.
Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
The components of net investment in assets held for sale follow:
June 30, December 31,
Dollars in millions 1995 1994
------------------------------------------------------ --------- -------------
ASSETS
Cash $ 55 $ 7
Finance receivables - net 1,016 1,073
Investment in real estate - net of valuation allowance 424 465
Bonds, at market value 165 155
Investment in FSA 365 329
Other assets 206 362
--------- -------------
Total assets 2,231 2,391
--------- -------------
LIABILITIES
Debt 965 1,283
Deferred income taxes 699 693
Accounts payable, accrued liabilities and other 135 103
Minority interests 10 10
--------- -------------
Total liabilities 1,809 2,089
--------- -------------
Net investment in assets held for sale $ 422 $ 302
========= =============
Selected financial data for U S WEST Financial Services follows:
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
--------- --------- --------- ---------
Operating revenues $ 12 $ 13 $ 21 $ 30
June 30, December 31,
1995 1994
--------- -------------
Net finance receivables $ 922 $ 981
Total assets 1,263 1,331
Total debt 447 533
Total liabilities 1,193 1,282
Shareowner's equity 70 49
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts)
Results of Operations
Comparative details of net income for the three and six months ended June 30
follow:
Three Three Three Six Six Six
Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1995 1994 Change 1995 1994 Change
---------- ---------- -------- ---------- ---------- --------
Communications Group:
U S WEST Communications, Inc. $ 289 $ 295 (2.0) $ 612 $ 592 3.4
Other 4 (6) - (4) (8) 50.0
---------- ---------- -------- ---------- ---------- --------
Total Communications Group 293 289 1.4 608 584 4.1
Media Group:
Consolidated:
Multimedia content and services 55 67 (17.9) 114 127 (10.2)
Wireless communications 17 51 (66.7) 32 51 (37.3)
Cable and telecommunications (3) - - (6) - -
Unconsolidated equity investments:
Time Warner Entertainment Company, L.P. - 1 - (13) (11) (18.2)
TeleWest Communications plc (4) (7) 42.8 (12) (14) 14.3
Mercury One-2-One (20) (14) (42.9) (39) (24) (62.5)
Other (20) (12) (66.7) (36) (14) -
---------- ---------- -------- ---------- ---------- --------
Total Media Group 25 86 (70.9) 40 115 (65.2)
---------- ---------- -------- ---------- ---------- --------
Net Income $ 318 $ 375 (15.2) $ 648 $ 699 (7.3)
========== ========== ======== ========== ========== ========
Earnings per common share $ 0.67 $ 0.83 (19.3) $ 1.37 $ 1.56 (12.2)
========== ========== ======== ========== ========== ========
U S WEST's second quarter 1995 net income was $308, a decrease of $10, or 3.1
percent, compared with second quarter 1994, excluding the effects of asset
sales in both periods. After tax gains on the sales of certain rural
telephone exchanges were $10 ($.02 per share) and $16 ($.04 per share) in
second quarter 1995 and 1994, respectively. An after tax gain on the sale of
paging assets in second quarter 1994 was $41 ($.09 per share).
The Communications Group's second quarter net income was $283, an increase of
$10, or 3.7 percent, compared with second quarter 1994, excluding the gains on
the sales of the rural telephone exchanges. Increased income at the
Communications Group is attributable to higher demand for services and access
line growth, and lower employee benefit costs, including the effects of
certain benefit cost true-ups, largely offset by an increase in operating
costs incurred to address current customer service issues.
The Media Group's second quarter net income was $25, a decrease of $20, or
44.4 percent, compared with second quarter 1994, excluding the effect of last
year's gain on the sale of paging assets. The decrease in Media Group income,
as adjusted for the asset sale, is primarily attributable to expansion of
international ventures, higher financing costs, including the use of debt to
partially finance acquisitions, and growth initiatives in multimedia content
and services.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Second quarter 1995 earnings per common share were $.65 compared with $.70 in
1994, excluding the effects of the asset sales. Earnings per common share
reflect approximately 17 million additional average shares outstanding,
including 12.8 million shares issued in connection with the December 1994
purchase of cable television properties in the Atlanta, Georgia area (the
"Atlanta Systems").
For the six months ended June 30, 1995, net income was $599, a decrease of
$28, or 4.5 percent, excluding the gains on asset sales in both periods, and
related earnings per share were $1.27 compared with $1.40 in 1994. In
addition to the $41 ($.09 per share) after tax gain on the sale of paging
assets in second quarter 1994, gains on the sales of certain rural telephone
exchanges were $49 ($.10 per share) and $31 ($.07 per share) in the first half
of 1995 and 1994, respectively.
Excluding the gains on asset sales, Communications Group income was $559, an
increase of $6, or 1.1 percent, as compared with the first half of 1994.
Media Group income during the first half of 1995 was $40, a decrease of $34,
or 46 percent, as compared with the first half of 1994.
Increased demand for the Company's services resulted in growth in earnings
before interest, taxes, depreciation, amortization and other ("EBITDA") of 7.3
and 7.2 percent, for second quarter and the six months ended June 30, 1995,
respectively, as compared with the same periods in 1994. EBITDA also excludes
the effects of asset sales and equity losses. The Company believes EBITDA is
an important indicator of the operational strength of its businesses. EBITDA,
however, should not be considered as an alternative to operating or net income
as an indicator of the performance of U S WEST or as an alternative to cash
flows from operating activities as a measure of liquidity, in each case
determined in accordance with GAAP.
Sales and Other Revenues
An analysis of the change in U S WEST's consolidated sales and other revenues
follows:
Three Three Three Six Six Six
Months Ended Months Ended Months Ended Months Ended Months Ended Months Ended
June 30, June 30, Percent June 30, June 30, Percent
1995 1994 Change 1995 1994 Change
-------------- -------------- ------------- -------------- -------------- -------------
Communications Group $ 2,338 $ 2,281 2.5 $ 4,656 $ 4,534 2.7
Media Group 585 459 27.5 1,121 877 27.8
Intergroup eliminations (29) (32) (9.4) (55) (62) (11.3)
-------------- -------------- ------------- -------------- -------------- -------------
Total $ 2,894 $ 2,708 6.9 $ 5,722 $ 5,349 7.0
============== ============== ============= ============== ============== =============
The increase in sales and other revenues was primarily due to increased demand
for services at U S WEST Communications, the December 1994 acquisition of
the Atlanta Systems and continued subscriber growth in the Company's cellular
business.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Communications Group Revenue
An analysis of changes in the Communications Group's revenues follows:
Lower Increase Increase
Price (Higher) (Decrease) (Decrease)
1995 1994 Changes Refunds Demand Other Dollars Percent
------ ------ --------- --------- -------- ------- ----------- ----------
Local service
Second quarter $1,076 $1,016 $ 2 ($8) $ 66 $ - $ 60 5.9
Six months 2,126 2,001 4 - 121 - 125 6.2
Interstate access
Second quarter 591 556 (9) (1) 47 (2) 35 6.3
Six months 1,180 1,118 (18) (10) 90 - 62 5.5
Intrastate access
Second quarter 184 179 (7) 2 8 2 5 2.8
Six months 372 353 (12) 5 19 7 19 5.4
Long-distance network
Second quarter 294 345 (7) - (11) (33) (51) (14.8)
Six months 593 696 (15) - (28) (60) (103) (14.8)
Other services
Second quarter 193 185 - - - 8 8 4.3
Six months 385 366 - - - 19 19 5.2
------ ------ --------- --------- -------- ------- ----------- ----------
Total
Second quarter 2,338 2,281 (21) (7) 110 (25) 57 2.5
Six months $4,656 $4,534 $ (41) $ (5) $ 202 $ (34) $ 122 2.7
====== ====== ========= ========= ======== ======= =========== ==========
Local service revenues at U S WEST Communications increased principally as a
result of higher demand for services, as evidenced by an increase of 509,000
access lines, or 3.6 percent, during the last 12 months. Access line growth
was 4.2 percent as adjusted for the sale of approximately 82,000 rural
telephone access lines during the last 12 months.
Higher revenues from interstate access services resulted from an increase of
9.1 percent in interstate billed access minutes of use, for both the three and
six months ended June 30, 1995, as compared with the same periods in 1994,
which more than offset the effects of price reductions and refunds.
Multiple toll carrier plans ("MTCP") were implemented in Oregon and Washington
in May and July 1994, respectively. These regulatory arrangements allow
independent telephone companies to act as toll carriers. The impact on U S
WEST Communications in the second quarter and six months ended June 30, 1995,
was long-distance revenue losses of $31 and $62, respectively, partially
offset by increases in intrastate access revenue of $6 and $12, respectively,
and decreases in other operating expenses (i.e., access expense otherwise paid
to independent companies) of $21 and $42, respectively.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Adjusted for the effects of MTCP, long-distance network revenues decreased by
5.8 percent and 5.9 percent for the second quarter and first six months,
respectively, compared to the same periods last year. Long-distance network
revenues continue to be impacted by competition.
Revenues from other services increased primarily as a result of continued
market penetration in voice messaging services.
Media Group Revenue
An analysis of the Media Group's revenues follows:
Three Three Three Six Six Six
Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1995 1994 Change 1995 1994 Change
--------- --------- ------- --------- --------- -------
Multimedia content and services $ 292 $ 255 14.5 $ 564 $ 497 13.5
Wireless communications 228 197 15.7 430 365 17.8
Cable and telecommunications 55 - - 109 - -
Other 10 7 42.9 18 15 20.0
--------- --------- ------- --------- --------- -------
Total Media Group $ 585 $ 459 27.5 $ 1,121 $ 877 27.8
========= ========= ======= ========= ========= =======
Media Group - Multimedia Content and Services. Domestic revenues related to
Yellow Pages directory advertising increased approximately $16, or 6.6
percent, and $33, or 7.0 percent, for the three and six months ended June 30,
1995, respectively, as compared with the same periods in 1994. The increases
are due to pricing and an increase in Yellow Pages advertising volume.
Product enhancements and the effect of improved marketing programs on business
volume also contributed to the increase in revenues. Non-Yellow Pages
revenues increased by $2 and $6 in the three and six months ended June 30,
1995, respectively, as compared to the same periods in 1994. Partially
offsetting these increases was the effect of last year's sale of certain
software development and marketing operations, which had contributed
approximately $5 in the first quarter of 1994. International directory
publishing revenue increased by $19 and $33 in the second quarter and first
half of 1995, respectively as compared with the same periods in 1994,
primarily due to the May 1994 purchase of Thomson Directories.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Media Group - Wireless Communications. Cellular service revenues increased by
$55, or 36.5 percent, and $107, or 37.4 percent, for the three and six months
ended June 30, 1995, respectively, as compared with the same periods in 1994.
The growth in cellular service revenues is a result of a 58 percent increase
in subscribers during the last twelve months, partially offset by a 13 percent
decrease in average revenue per subscriber to $63.00 per month at June 30,
1995. The increase in subscribers is due to lower costs for cellular phone
equipment and enhanced service offerings, which has resulted in a shift in the
wireless customer base from businesses to consumers. The decrease in average
revenue per subscriber is due to the continuing effects of nonbusiness user
market penetration.
Cellular equipment revenues decreased by $9, or 29.1 percent, and $14, or 26.7
percent, in the three and six months ended June 30, 1995, as compared with the
same periods in 1994. The decrease is primarily due to 12 and 16 percent
decreases in unit sales in the second quarter and first half of 1995,
respectively, due to the impacts of competition.
Revenues related to the paging sales and service operations, which were sold
in 1994, approximated $16 and $28 for the three and six months ended June 30,
1994, respectively.
Media Group - Cable and Telecommunications. Domestic cable and
telecommunications revenues reflect the December 1994 acquisition of the
Atlanta Systems.
Costs and Expenses
Three Three Three Six Six Six
Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1995 1994 Change 1995 1994 Change
--------- --------- -------- --------- --------- --------
Employee-related expenses $ 997 $ 943 5.7 $ 1,975 $ 1,854 6.5
Other operating expenses 559 518 7.9 1,069 995 7.4
Taxes other than income taxes 113 105 7.6 227 213 6.6
Depreciation and amortization 562 507 10.8 1,122 1,010 11.1
Interest expense 139 110 26.4 267 219 21.9
Equity losses in unconsolidated ventures 33 22 50.0 90 57 57.9
Other income-net 8 14 (42.9) 2 14 (85.7)
Communications Group employee-related expenses increased $26 and $61 for the
three and six months ended June 30, 1995, respectively, compared with the same
periods in 1994. Higher employee-related expenses at the Communications Group
are a result of business growth and related customer service issues, which
have been impacted by a temporary decline in productivity caused by a major
rearrangement of resources due to restructuring. Growth in employee-related
expenses at Communications Group is expected to continue throughout the
remainder of the year. Overtime payments and contract labor increased
employee-related expenses at the Communications Group by approximately $60 and
$95 for the second quarter and first six months of 1995, as compared to the
same periods in 1994. Partially offsetting these increases were lower
health-care benefit costs, including a reduction in the accrual for
postretirement benefits, and certain benefit cost true-ups.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Since December 1993, the Communications Group has separated 3,560 employees
under the Restructuring Plan. (See "Restructuring Charges.") These
separations have been partially offset by the addition of approximately 2,100
employees (a significant portion of which are temporary) primarily dedicated
to improving customer service and also developing new business opportunities.
Benefits from the net work-force reductions at Communications Group have
offset wage and salary increases.
The Company estimates that it will achieve employee reductions of 9,000 in
connection with the Restructuring Plan by the end of 1997. (See
"Restructuring Charges.") These employee reductions will be partially offset
by the planned addition of some employees at Communications Group by the end
of 1997 to accommodate business growth, including wireless and data
transmission services.
Employee-related expenses also increased due to the 1994 purchases of the
Atlanta Systems and Thomson Directories, and growth initiatives in the
multimedia content and services segment.
The 1994 purchases of the Atlanta Systems and Thomson Directories increased
other operating expenses by $42 and $75 for the second quarter and first six
months of 1995, respectively, as compared to the same periods in 1994.
Additionally, expansion of the cellular customer base increased other
operating expenses by $11 and $24 for the second quarter and first six months
of 1995, respectively, as compared to the same periods in 1994. Partially
offsetting these cost increases was the multiple toll carrier plan effect on
other operating expenses at U S WEST Communications.
Increased depreciation and amortization expense was attributable to the
effects of a higher depreciable asset base at U S WEST Communications and the
purchase of the Atlanta Systems.
Equity losses in unconsolidated ventures increased primarily due to increased
network expansion costs at Mercury One-2-One and the impacts of new
investments.
Interest expense increased primarily as a result of increased debt at U S WEST
Communications, the purchase of the Atlanta Systems, partially financed
through the issuance of short-term debt, and a reclassification of certain
debt to continuing operations from net investment in assets held for sale.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Liquidity and Capital Resources
Cash provided by operations decreased by $109 compared with the first six
months of 1994. The effect of business growth was more than offset by
increases of $96 in postretirement benefit funding, $117 in Restructuring Plan
expenditures and higher income tax payments related to prior periods,
including approximately $60 related to the sale of the Company's joint venture
interest in TeleWest.
The Company from time to time engages in discussions regarding acquisitions.
The Company may fund such acquisitions with internally generated funds, debt
or equity. The incurrence of indebtedness to fund such acquisitions and/or
the assumption of indebtedness in connection with acquisitions, if
significant, could result in a downgrading of the credit rating of the Company
and/or U S WEST Communications.
U S WEST invested approximately $290 in international businesses in the first
six months of 1995, primarily in Malaysia, the Czech Republic and at Mercury
One-2-One in the UK.
In March 1995, PCS PrimeCo, L.P. ("PCS PrimeCo") was awarded PCS licenses in
11 markets. The Company's share of the cost of the licenses was $268, all of
which was funded by June 30, 1995. Under the PCS PrimeCo partnership
agreement, the company is required to fund 25 percent of PCS PrimeCo's
operating and capital costs, including licensing costs. The Company
anticipates that its total funding obligations to PCS PrimeCo during the next
four years will be significant.
In the first six months of 1995, U S WEST received cash proceeds of $114 from
the sale of certain rural telephone exchanges as compared to proceeds of $51
in the same period last year.
During the first six months of 1995, debt increased by $1,052 and the
debt-to-capital ratio increased from 51.8 percent at December 31, 1994, to
53.9 percent at June 30, 1995. The increase in debt and the debt-to-capital
ratio was primarily related to cash fundings for a portion of the Company's
postretirement obligation, international investments and PCS licenses, and the
reclassification of certain debt from net investment in assets held for sale
to continuing operations.
During the first quarter of 1995, U S WEST purchased 1,704,700 shares of U S
WEST Common Stock for $63, at an average price of $37.02 per share.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Restructuring Charges
The Company's 1993 results reflected a $1 billion 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 services
for customers and centralize its service centers. The Company is
consolidating its 560 customer service centers into 26 centers in 10 cities
and reducing its total work force by approximately 9,000 employees.
The Restructuring Plan is scheduled to be completed by the end of 1997.
Implementation to date has been driven by growth in the business and related
service issues, revisions to system delivery schedules and productivity issues
caused by the major rearrangement of resources due to restructuring. These
issues may continue to affect the timing of the implementation of the
Restructuring Plan.
Following is a schedule of the costs included in the Restructuring Plan:
Actual Actual Estimate Estimate Estimate
1993 1994 1995 1996 1997 Total
------- ------- --------- --------- --------- ------
Cash expenditures:
Employee separation (1)<F1> $ - $ 19 $ 68 $ 107 $ 66 $260
Systems development - 127 161 112 - 400
Real estate - 50 77 3 - 130
Relocation - 21 52 2 5 80
Retraining and other - 16 30 12 7 65
------- ------- --------- --------- --------- ------
Total cash expenditures - 233 388 236 78 935
Asset write-down 65 - - - - 65
------- ------- --------- --------- --------- ------
Total Plan 65 233 388 236 78 1,000
Remaining 1991 plan
employee costs (1)<F1> - 56 - - - 56
------- ------- --------- --------- --------- ------
Total (2)<F2> $ 65 $ 289 $ 388 $ 236 $ 78 $1,056
======= ======= ========= ========= ========= ======
<FN>
<F1>
(1) Employee separation costs, including the balance of the 1991 restructuring reserve
at December 31, 1993, aggregate $316.
<F2>
(2) The Restructuring Plan also provides for capital expenditures of $490 over the life
of the Restructuring Plan.
</FN>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Employee separation costs include severance payments, health-care coverage and
postemployment education benefits. System development costs include new
systems and the application of enhanced system functionality to existing
single purpose systems to provide integrated, end-to-end customer service. A
substantial portion of the work-force reductions will be enabled by developing
new systems and enhanced system functionality, which will simplify the
current, labor-intensive interfaces between existing processes. 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 Company estimates that full implementation of the Restructuring Plan will
reduce employee-related expenses by approximately $400 per year. These
savings are expected to be offset by the effects of inflation. Future
operating costs also will be impacted by business growth.
Employee Separation. Net employee reductions will total 9,000 under the
Restructuring Plan. While the Company will separate 10,000 employees,
approximately 1,000 employees that were originally expected to relocate have
chosen separation or other job assignments and will be replaced. The
estimated total cost for employee separations is $316, compared with $286 in
the original estimate. The $30 cost associated with these additional employee
separations has been reclassified from relocation to the reserve for employee
separations.
The following estimates of employee separations and related amounts reflect
the extension of employee reductions into 1997:
Estimate Actual Estimate Estimate Estimate
1994 1994 (1) 1995 1996 1997 Total
-------- -------- -------- -------- -------- ------
Employee separations
Managerial 1,061 497 862 840 521 2,720
Occupational 1,887 1,683 1,288 2,660 1,649 7,280
-------- -------- -------- -------- -------- ------
Total 2,948 2,180 2,150 3,500 2,170 10,000
======== ======== ======== ======== ======== ======
Estimate Actual Estimate Estimate Estimate
1994 1994 (1) 1995 1996 1997 Total
--------- --------- --------- --------- --------- ------
Employee separation amounts
Managerial $ 25 $ 5 $ 32 $ 33 $ 20 $ 90
Occupational 15 14 36 74 46 170
--------- --------- --------- --------- --------- ------
Total 40 19 68 107 66 260
Remaining 1991 reserve 56 56 - - - 56
--------- --------- --------- --------- --------- ------
Total $ 96 $ 75 $ 68 $ 107 $ 66 $ 316
========= ========= ========= ========= ========= ======
<FN>
<F1>
(1) Includes the remaining employees and the separation amounts associated with the
balance of the 1991 restructuring reserve at December 31, 1993.
</FN>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Compared with the original estimates, employee reduction and separation
amounts shown above have been reduced by 1,319 employees and $35,
respectively, in 1995, and increased by 900 employees and $20 in 1996 and
2,170 employees and $66 in 1997, respectively.
Systems Development. U S WEST Communications' existing information management
systems were largely developed to support a monopoly environment. These
systems have become increasingly inadequate due to the effects of increased
competition, new forms of regulation and changing technology that have driven
consumer demand for new 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 Company's
initial strategy which placed more emphasis on the development of new systems.
The Restructuring Plan is now less dependent on development of entirely new,
untested systems and related technology.
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 will permit one customer
service representative to handle all facets of a customer's requirements as
contrasted to the numerous points of customer interface required today.
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.
The direct, incremental and nonrecurring costs of providing new systems and
enhanced system functionality follow:
Estimate Actual Estimate Estimate
1994 1994 1995 1996 Total
--------- ------- --------- --------- ------
Service delivery $ 35 $ 21 $ 21 $ 31 $ 73
Service assurance 45 12 24 28 64
Capacity provisioning 17 57 92 30 179
All other 28 37 24 23 84
--------- ------- --------- --------- ------
Total $ 125 $ 127 $ 161 $ 112 $ 400
========= ======= ========= ========= ======
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
The Company continues to review its estimates of systems expenditures under
the Restructuring Plan. Management does not anticipate any material revisions
in total estimated expenditures. However, should expenditures exceed the
remaining reserve, additional amounts would be expensed as incurred.
Systems expenses charged to current operations at U S WEST Communications
consist of costs associated with the information management function,
including planning, developing, testing and maintaining data bases for general
purpose computers, in addition to systems costs related to maintenance of
telephone network applications. The key related administrative (i.e. general
purpose) systems 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 at U S WEST Communications in 1994, 1993 and 1992. U S WEST
Communications expects systems costs charged to current operations as a
percent of total operating expenses to approximate the current level
throughout the life of the Restructuring Plan. However, systems costs could
increase relative to other operating costs as the business becomes more
technology dependent.
Progress Under the Restructuring Plan:
Following is a reconciliation of restructuring reserve activity since December
1993.
Change in
First Relocation/ Reserve
Reserve Reserve Half Employee Balance
Balance 1994 Balance 1995 Separation June 30,
Dec. 1993 Activity Dec. 1994 Activity Estimates 1995
---------- --------- ---------- --------- ------------- ---------
Employee separations
Managerial $ 80 $ 5 $ 75 $ 11 $ 7 $ 71
Occupational 150 14 136 28 23 131
---------- --------- ---------- --------- ------------- ---------
Total separations 230 19 211 39 30 202
Systems Development
Service delivery 73 21 52 7 45
Service assurance 64 12 52 11 41
Capacity provisioning 179 57 122 47 75
All other 84 37 47 7 - 40
---------- --------- ---------- --------- ------------- ---------
Total systems 400 127 273 72 201
Real estate 130 50 80 50 30
Relocation 110 21 89 10 (30) 49
Retraining and other 65 16 49 9 - 40
---------- --------- ---------- --------- ------------- ---------
Total 935 233 702 180 - 522
Remaining 1991 Plan
expenditures 56 56 - - - -
---------- --------- ---------- --------- ------------- ---------
Total $ 991 $ 289 $ 702 $ 180 $ - $ 522
========== ========= ========== ========= ============= =========
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Cumulative
First Half Separations
1994 Separations 1995 Separations At June 30, 1995
---------------- ---------------- ----------------
Employee separations
Managerial 497 324 821
Occupational 1,683 1,056 2,739
---------------- ---------------- ----------------
Total 2,180 1,380 3,560
================ ================ ================
Recapitalization Proposal
The Board of Directors of U S WEST has adopted a proposal that would change
the state of incorporation of U S WEST from Colorado to Delaware and create
two classes of common stock, the Communications Stock and the Media Stock,
which are intended to reflect separately the performance of the communications
and multimedia businesses. A preliminary proxy statement on the
Recapitalization Proposal was filed with the Securities and Exchange
Commission on May 12, 1995, and amendment one was filed on June 30, 1995. For
a more complete discussion on the Recapitalization Proposal see Footnote B in
the Notes to the Consolidated Financial Statements.
AirTouch Communications Joint Venture
On July 25, 1994, AirTouch Communications, Inc. ("AirTouch") and U S WEST
announced a definitive agreement to combine their domestic wireless
operations. The initial equity ownership of the wireless joint venture will
be approximately 70 percent by AirTouch and approximately 30 percent by U S
WEST. The transaction is expected to close in the third quarter of 1995.
After closing, the earnings of the Company will reflect its 30 percent
interest in the joint venture. The wireless operations of both parties will
initially continue operating as separate entities owned by the individual
partners, but will receive support services on a contract basis from a joint
wireless management company. Following the combination of the wireless
operations of the two companies, the assets, liabilities and operations of the
domestic wireless operations of the Media Group will no longer be
consolidated, but will be reported based on the equity method of accounting
for less than majority-owned entities.
Had the Company recognized 30 percent of the combined earnings of the joint
venture beginning January 1, 1994, U S WEST's net income for the year ended
December 31, 1994, would have increased by approximately $30.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Personal Communications Services ("PCS") Alliance
In October 1994, AirTouch and U S WEST agreed to form a strategic wireless
alliance with Bell Atlantic and NYNEX. As part of this alliance, the
AirTouch-U S WEST PCS Partnership and a partnership formed between Bell
Atlantic and NYNEX formed PCS PrimeCo, L.P. ("PCS PrimeCo") for the purpose of
bidding on PCS licenses being auctioned by the FCC. The objective of PCS
PrimeCo is to build and operate PCS networks where its partners do not operate
cellular networks, thus enabling them to establish a national wireless
alliance. In the FCC auction, which concluded in March 1995, PCS PrimeCo was
awarded PCS licenses in 11 markets covering 57 million POPs including licenses
in Chicago, Dallas, Tampa, Houston, Miami and New Orleans. The Company's
share of the cost of the licenses was $268, all of which was funded by June
30, 1995. PCS PrimeCo will be governed by an executive committee made up of
three Bell Atlantic-NYNEX representatives and three AirTouch-U S WEST
representatives.
TeleWest Communications plc. Acquisition
In June 1995, TeleWest Communications plc. ("TeleWest"), announced that it had
entered into an agreement in principle to acquire SBC CableComms (UK) in
exchange for shares of TeleWest. Upon completion of the acquisition, which is
expected in September 1995, U S WEST will recognize a pretax gain of
approximately $150, and will own 26.7 percent of the combined company. The
new entity (New TeleWest) will be the largest cable television and cable
telephony operator in the UK.
Broadband
In early 1994, U S WEST Communications filed applications with the FCC to
install Broadband Network architecture in Denver; Minneapolis-St. Paul; Salt
Lake City; Boise; and Portland, Oregon (collectively, the "Broadband
Applications"). In May 1995, however, in order to fully assess the results of
the Omaha trials and examine alternative technologies, including wireless
cable and direct broadcast satellite services, U S WEST Communications
withdrew the Broadband Applications. The Communications Group plans to
incorporate the results of the Omaha trials , as well as applicable new
technologies, into its Broadband Network architecture in order to develop an
advanced Broadband Network that is responsive to the needs of customers.
Form 10-Q - Part I
Item 2. Management's' Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Regulatory
Though Congress failed to pass telecommunications reform legislation in 1994,
new telecommunications legislation has been introduced in both houses in 1995.
The Senate passed a bill on June 16, 1995, and the House of Representatives
passed a bill on August 4, 1995. The thrust of this legislation is to open up
the network of local exchange carriers to further competition and to eliminate
certain prohibitions upon local exchange carriers entering into other lines of
business. The proposed legislation would (i) open local exchange service to
competition and preempt states from imposing barriers preventing such
competition, (ii) impose new unbundling and interconnection requirements on
local exchange carrier networks, (iii) remove the MFJ prohibitions on
interLATA services and manufacturing if certain competitive conditions are
met, (iv) transfer any remaining MFJ requirements (including the MFJ's
nondiscrimination provisions) to the FCC's jurisdiction, (v) impose
requirements to conduct certain competitive activities only through
structurally separate affiliates, and (vi) eliminate many of the remaining
cable and telephone company cross-ownership restrictions. There is, however,
uncertainty concerning the outcome of such legislation and whether key
differences between the House and Senate bills could be resolved in Conference
Committee. The passing of such legislation would significantly change the
competitive landscape of the telecommunications industry as a whole.
Contingencies
At U S WEST Communications, 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
certain 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 an interexchange carrier and other parties that
relates 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 $140.
Form 10-Q - Part II
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders on May 5, 1995, shareholders
voted their shares as follows for the purpose of electing four individuals as
directors of the Company:
Director Shares Voted For Shares Withheld
--------------------- ---------------- ---------------
Richard B. Cheney 393,952,326 12,277,315
Remedios Diaz-Oliver 394,395,963 11,833,678
Grant A. Dove 394,330,081 11,899,560
Shirley M. Hufstedler 393,856,027 12,373,614
Coopers & Lybrand L.L.P. was confirmed as the Company's independent
auditors with 396,668,832 shares voting for, 6,318,868 voting against and
3,241,941 abstaining.
The shareholders voted as follows to approve the amendment of the 1994
Stock Plan:
For Against Abstain Broker No Vote
----------- ---------- --------- --------------
337,374,514 61,242,213 7,612,914 62,147,456
The shareholders also considered and rejected two shareholder proposals at
the annual meeting as follows:
Proposal No. For Against Abstain Broker No Vote
------------ ----------- ----------- ---------- --------------
1 108,763,030 249,229,081 9,216,511 101,168,475
2 78,453,655 273,623,934 15,133,425 101,166,083
Proposal 1 was to eliminate the classified board of directors, and proposal 2
was to initiate cumulative voting for the election of directors.
Form 10-Q - Part II
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- ---------------------------------------------------------------------------------------------------------------------------
10a Form of U S WEST, Inc. Restricted Stock Agreement
10b Form of U S WEST, Inc. Non-Qualified Stock Option Agreement
10c Agreement for Services between U S WEST, Inc. and A. Gary Ames.
10d Assignment Agreement between A. Gary Ames and U S WEST Overseas Operations, Inc.
11 Statement regarding computation of earnings per share of U S WEST, Inc.
12 Statement regarding computation of earnings to combined fixed charges and preferred stock dividends ratio of U S WEST, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the second quarter
(i) report dated April 10, 1995, concerning U S WEST's announcement
with respect to its plans to create two classes of Common Stock;
(ii) report dated April 18, 1995, concerning the release of earnings
for the first quarter ended March 31, 1995, and related exhibits;
(iii) report dated May 23, 1995, filing financial statements for Time
Warner Entertainment Company, L.P., Mercury Personal Communications, Georgia
Cable Holdings Limited Partnership and subsidiary partnerships, and Wometco
Cable Corp. and subsidiaries; and
(iv) report dated June 20, 1995, concerning U S WEST's announcement
with respect to key executive changes.
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, Inc.
/S/ James M. Osterhoff
James M. Osterhoff
Executive Vice President
and Chief Financial Officer
August 9, 1995