Item 1. Business
GTE Hawaiian Telephone Company Incorporated (the Company) (formerly Hawaiian Telephone Company) was incorporated under the laws of the Kingdom of Hawaii in 1883. The Company is a wholly-owned subsidiary of GTE Corporation (GTE) and provides communications services in Hawaii and throughout the Pacific and Asia.
The Company owns a majority interest in the Micronesian Telecommunications Corporation (MTC). MTC, which is headquartered on Saipan in the Commonwealth of the Northern Marianas, provides local and international telecommunications services on the islands of Saipan, Tinian and Rota. In addition, the Company has a wholly-owned subsidiary, Hawaiian Tel Insurance Company, which provides auto liability, general liability and workers' compensation insurance to the Company on a direct basis.
The Company provides local telephone service on each Island in Hawaii and long distance service between the Islands. InterLATA services between Hawaii and domestic points within the United States are provided by interexchange (long distance) common carriers which connect to the Company's local facilities for call origination and termination. The Company provides interLATA service between Hawaii and international termination points in competition with these carriers. These common carriers are charged fees (access charges) for interconnection to the Company's local facilities. End user business and residential customers are also charged access charges for access to the facilities of the long distance carriers. The Company also earns other revenues by leasing interexchange plant facilities and interexchange carriers, primarily the American Telephone and Telegraph Company (AT&T). The number of access lines served by the Company has grown steadily from 525,808 on January 1, 1989 to 725,029 on December 31, 1993.
The Company's principal line of business is providing telecommunication services. These services fall into five major classes: local network, network access, long distance, equipment sales and services and other. Revenues from each of these classes over the last three years are as follows:
Years Ended December 31 --------------------------------------- 1993 1992 1991 ---- ---- ---- (Thousands of Dollars)
Local Network Services $214,627 $ 203,908 $ 194,973 % of Total Revenues 38% 37% 36%
Network Access Services $112,712 $ 107,347 $ 102,304 % of Total Revenues 20% 19% 19%
Long Distance Services $106,867 $ 111,254 $ 106,721 % of Total Revenues 19% 20% 20%
Equipment Sales and Services $ 95,653 $ 101,948 $ 106,430 % of Total Revenues 17% 18% 19%
Other $ 35,030 $ 34,565 $ 35,482 % of Total Revenues 6% 6% 6%
At December 31, 1993, the Company had 3,320 employees. The Company has written agreements with the International Brotherhood of Electrical Workers (IBEW) covering substantially all non-management employees. One of the agreements with the IBEW unit expires April 30, 1994 and provides for approximately a 5% general wage increase per annum. The agreement for MTC employees expires July 1, 1995 and provides for general wage increases of 5% per annum for 1994 and 1995.
Telephone Competition
The Company holds franchises, licenses and permits adequate for the conduct of its business in the territories which it serves.
The Company is subject to regulation by the Public Utilities Commission (PUC) of the State of Hawaii as to its intrastate business operations and by the Federal Communications Commission (FCC) as to its interstate and international business operations. Information regarding the Company's activities with the various regulatory agencies and revenue arrangements with other telephone companies can be found in Note 9 of the Company's Annual Report to Shareholder for the year ended December 31, 1993, incorporated herein and filed as Exhibit 13.
The year was marked by important changes in the U.S. telecommunications industry. Rapid advances in technology, together with government and industry initiatives to eliminate certain legal and regulatory barriers are accelerating and expanding the level of competition and opportunities available to the Company. As a result, the Company faces increasing competition in virtually all aspects of its business. Specialized communications companies have constructed new systems in certain markets to bypass the local-exchange network. Additional competition from interexchange carriers as well as wireless companies continues to evolve for both intrastate and interstate communications.
During 1994, the Company will begin implementation of a re-engineering plan that will redesign and streamline processes. Implementation of its re-engineering plan will allow the Company to continue to respond aggressively to these competitive and regulatory developments through reduced costs, improved service quality, competitive prices and new product offerings. Moreover, implementation of this program will position the Company to accelerate delivery of a full array of voice, video and data services. The re-engineering program will be implemented over three years. During the year, the Company continued to introduce new business and consumer services utilizing advanced technology, offering new features and pricing options while at the same time reducing costs and prices.
During 1993, the FCC announced its decision to auction licenses during 1994 in 51 major markets and 492 basic trading areas across the United States to encourage the development of a new generation of wireless personal communications services (PCS). These services will both complement and compete with the Company's traditional wireline services. The Company will be permitted to fully participate in the license auctions in areas outside of GTE's existing cellular service areas. Limited participation will be permitted in areas in which GTE has an existing cellular presence.
In 1992, the FCC issued a "video dialtone" ruling that allows telephone companies to transmit video signals over their networks. The FCC also recommended that Congress amend the Cable Act of 1984 to permit telephone companies to supply video programming in their service areas.
Activity directed toward changing the traditional cost-based rate of return regulatory framework for intrastate and interstate telephone services has continued. Various forms of alternative regulation have been adopted, which provide economic incentives to telephone service providers to improve productivity and provide the foundation for the pricing flexibility necessary to address competitive entry into the markets the Company serves.
The GTE Consent Decree, which was issued in connection with the 1983 acquisition of GTE Sprint (since divested) and GTE Spacenet, prohibits GTE's domestic telephone operating subsidiaries from providing long distance service beyond the boundaries of the LATA. However, the Company is permitted to provide services between Hawaii and international points. This prohibition restricts their direct provision of long distance service to relatively short distances. The degree of competition allowed in the intraLATA market is subject to state regulation. However, regulatory constraints on intraLATA competition are gradually being relaxed.
In September 1993, the FCC released an order allowing competing carriers to interconnect to the local-exchange network for the purpose of providing switched access transport services. This ruling complements similar interconnect arrangements for private line services ordered during 1992. The order encourages competition for the transport of telecommunications traffic between local exchange carriers' (LECs) switching offices and interexchange carrier locations. In addition, the order allows LECs flexibility in pricing competitive services.
These and other actions to eliminate the existing legal and regulatory barriers, together with rapid advances in technology, are facilitating a convergence of the computer, media and telecommunications industries. In addition to allowing new forms of competition, these developments are also creating new opportunities to develop interactive communications networks. The Company supports these initiatives to assure greater competition in telecommunications, provided that overall the changes allow an opportunity for all service providers to participate equally in a competitive marketplace under comparable conditions.
Item 2.
Item 2. Properties
The Company's property consists of network facilities (75%), company facilities (14%), customer premises equipment (2%) and other (9%). From January 1, 1989 to December 31, 1993, the Company made gross property additions of $0.7 billion and property retirements of $0.3 billion. Substantially all of the Company's property is subject to liens securing long-term debt. In the opinion of management, the Company's telephone plant is substantially in good repair.
Item 3.
Item 3. Legal Proceedings
There are no pending legal proceedings, either for or against the Company, which would have a material impact on the Company's financial statements.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters
Market information is omitted since the Company's common stock is wholly-owned by GTE Corporation.
Item 6.
Item 6. Selected Financial Data
Reference is made to the Registrant's Annual Report to Shareholder, page 27, for the year ended December 31, 1993, incorporated herein and filed as Exhibit 13.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Reference is made to the Registrant's Annual Report to Shareholder, pages 23 to 26, for the year ended December 31, 1993, incorporated herein and filed as Exhibit 13.
Item 8.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Registrant's Annual Report to Shareholder, pages 5 to 21, for the year ended December 31, 1993, incorporated herein and filed as Exhibit 13.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - Reference is made to the Registrant's Annual Report to Shareholder, pages 5 - 21, for the year ended December 31, 1993, incorporated herein and filed as Exhibit 13.
Report of Independent Public Accountants.
Consolidated Balance Sheets - December 31, 1993 and 1992.
Consolidated Statements of Income for the years ended December 31, 1993-1991.
Consolidated Statements of Reinvested Earnings for the years ended December 31, 1993-1991.
Consolidated Statements of Cash Flows for the years ended December 31, 1993-1991.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules - Included in Part IV of this report for the years ended December 31, 1993-1991:
Page(s) ------- Report of Independent Public Accountants 8
Schedules:
V - Property, Plant and Equipment 9-11
VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment 12
VIII - Valuation and Qualifying Accounts 13
X - Supplementary Income Statement Information 14
Note: Schedules other than those listed above are omitted as not applicable, not required, or the information is included in the financial statements or notes thereto.
(3) Exhibits - Included in this report or incorporated by reference.
3.1* Amended Articles of Incorporation and By-laws (Exhibit 3.2 of the 1987 Form 10-K, File No. 2-33059).
4* First Mortgage Indenture dated January 15, 1941 amended to and including amendments through September 27, 1962; Supplemental Indenture File No. 33-57416.
13 Annual Report to Shareholder for the year ended December 31, 1993, filed herein as Exhibit 13.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the fourth quarter of 1993.
* Denotes exhibits incorporated herein by reference to previous filings with the Securities and Exchange Commission as designated.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GTE Hawaiian Telephone Company Incorporated:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in GTE Hawaiian Telephone Company Incorporated and subsidiaries' annual report to shareholder incorporated by reference in this Form 10-K, and have issued our report thereon dated January 28, 1994. Our report on the consolidated financial statements includes an explanatory paragraph with respect to the change in the method of accounting for income taxes in 1992 as discussed in Note 1 to the consolidated financial statements. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed under Item 14 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Dallas, Texas January 28, 1994.
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Thousands of Dollars)
- --------------------------------------------------------------------------- Column A 	 Column B --------------- ----------------------------------------------- Item	 Charged to Operating Expenses - --------------------------------------------------------------------------- 1993 	 1992 	 1991 ----------- ----------- ----------- Maintenance and repairs $ 119,382	$ 113,031	$ 109,761 =========== =========== =========== Taxes, other than payroll And income, are as follows:
Real and personal property	$ 917	$ 274	$ 335 State gross receipts	 20,735	 20,180	 20,262 Other	 4,883	 6,109	 6,384 Portion of above taxes charged to plant and other accounts	 (2,392)	 (2,320)	 (1,544) ----------- ----------- ------------ Total	 $ 24,143	$ 24,243	$ 25,437 =========== =========== ============
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.
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED ------------------------------------------- (Registrant)
LARRY J. SPARROW Date March 21, 1994 By ------------------------------------- LARRY J. SPARROW Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
LARRY J. SPARROW Chairman of the Board, March 21, 1994 - ------------------------ Chief Executive Officer, LARRY J. SPARROW and Director (Principal Executive Officer)
WARREN H. HARUKI President and Director March 21, 1994 - ------------------------ WARREN H. HARUKI
GERALD K. DINSMORE Senior Vice President - Finance March 21, 1994 - ------------------------ and Planning and Director GERALD K. DINSMORE (Principal Financial Officer)
WILLIAM M. EDWARDS Controller March 21, 1994 - ------------------------ (Principal Accounting Officer) WILLIAM M. EDWARDS
RICHARD M. CAHILL Director March 21, 1994 - ------------------------ RICHARD M. CAHILL
MICHAEL B. ESSTMAN Director March 21, 1994 - ------------------------ MICHAEL B. ESSTMAN
KENT B. FOSTER Director March 21, 1994 - ------------------------ KENT B. FOSTER
THOMAS W. WHITE Director March 21, 1994 - ------------------------ THOMAS W. WHITE