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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report - November 9, 1995
(Date of earliest event reported)
CONTEL OF CALIFORNIA, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
0-1245 95-1789511
(Commission File Number) (IRS Employer Identification No.)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-718-5600
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CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
On November 9, 1995, Contel of California, Inc. (the Company) announced through
GTE Corporation, that in response to recently enacted and pending legislation
and the increasingly competitive environment in which the Company expects to
operate, effective January 1, 1996, the Company is discontinuing the use of
accounting practices appropriate to regulated enterprises. As a result of this
decision, the Company will record a non-cash, extraordinary charge of
approximately $127.6 million after taxes during the fourth quarter of 1995.
This charge, which is based on the results of a comprehensive study of the
economic lives of the Company's telephone plant and equipment, will have no
effect on the Company's customers or its liquidity and capital resources.
The Company has traditionally followed the accounting for regulated enterprises
prescribed by Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" (FAS 71). In general, FAS 71
required the Company to depreciate its plant and equipment over regulator
approved lives which may extend beyond the assets' actual economic lives. FAS
71 also required the deferral of certain costs based upon approvals received
from regulators to recover such costs in the future. As a result of these
requirements, the recorded net book value of certain assets and liabilities,
primarily telephone plant and equipment, was higher than that which would
otherwise have been recorded.
The charge will primarily represent an adjustment to the net book value of the
fixed assets of the Company, through an increase in accumulated depreciation,
and is not expected to have a significant effect on depreciation expense of
existing plant and equipment or earnings over the next several years. The
income statement effect of this change in accounting will be reflected in the
Company's consolidated statements of income as an extraordinary charge, net of
tax, under the provisions of Statement of Financial Accounting Standards No.
101, "Regulated Enterprises-Accounting for the Discontinuation of Application
of FASB Statement No. 71."
The accompanying pro forma statements of income for the nine months ended
September 30, 1995 and the year ended December 31, 1994, and the pro forma
balance sheet as of September 30, 1995 are based on historical condensed
consolidated financial statements, adjusted to give effect to the
discontinuance of FAS 71 as though it had occurred at the beginning of each
period presented. The pro forma financial information should be read in
conjunction with the historical consolidated financial statements and related
notes thereto. The pro forma financial information is not necessarily
indicative of the results that would have been attained had the discontinuance
of FAS 71 occurred in an earlier period.
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CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
As Reported Pro Forma
Nine Months Nine Months
Ended Ended
September 30, Pro Forma September 30,
1995 Adjustments 1995
------------- ----------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 230,702 $ 1,554 (1) $ 232,256
OPERATING EXPENSES
Cost of sales and services 86,240 86,240
Depreciation and amortization 52,448 52,448
Selling, general & administrative 34,410 1,554 (1) 35,964
----------- ----------- -----------
Total operating expenses 173,098 1,554 174,652
----------- ----------- -----------
OPERATING INCOME 57,604 -- 57,604
----------- ----------- -----------
OTHER DEDUCTIONS 8,266 8,266
----------- ----------- -----------
Income before income taxes 49,338 -- 49,338
INCOME TAXES 21,587 21,587
----------- ----------- -----------
Income before extraordinary charge 27,751 -- 27,751
----------- ----------- -----------
EXTRAORDINARY CHARGE -- (127,620) (2) (127,620)
----------- ----------- -----------
Net income (loss) $ 27,751 $ (127,620) $ (99,869)
=========== =========== ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
As Reported Pro Forma Pro Forma
Year Ended Adjustments Year Ended
December 31, Pro Forma December 31,
1994 Adjustments 1994
----------- ----------- ------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 367,252 $ 4,672 (1) $ 371,924
OPERATING EXPENSES
Cost of sales and services 123,781 123,781
Depreciation and amortization 64,637 64,637
Selling, general & administrative 55,647 4,672 (1) 60,319
----------- ---------- ------------
Total operating expenses 244,065 4,672 248,737
----------- ---------- ------------
OPERATING INCOME 123,187 -- 123,187
----------- ---------- ------------
OTHER DEDUCTIONS 11,321 11,321
----------- ---------- ------------
Income before income taxes 111,866 -- 111,866
INCOME TAXES 46,120 46,120
----------- ---------- ------------
Income before extraordinary charge 65,746 -- 65,746
EXTRAORDINARY CHARGE -- (127,620) (2) (127,620)
----------- ---------- ------------
Net income (loss) $ 65,746 $ (127,620) $ (61,874)
=========== ========== ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
As Reported Pro Forma
September 30, Pro Forma September 30,
1995 Adjustments 1995
------------- ----------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 1,774 $ 1,774
Accounts receivable, less allowance
of $2,519 54,496 54,496
Materials and supplies 18 18
Deferred income tax benefits 5,490 5,490
Prepayments and other 1,113 1,113
----------- ----------- ---------
Total current assets 62,891 62,891
----------- ----------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 914,857 914,857
Accumulated depreciation (408,567) $ (200,653) (3) (609,220)
----------- ----------- ---------
Net property, plant and equipment 506,290 (200,653) 305,637
----------- ----------- ---------
OTHER ASSETS 14,985 (14,777) (4) 208
----------- ----------- ---------
Total Assets $ 584,166 $ (215,430) $ 368,736
=========== =========== =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
As Reported Pro Forma
September 30, Pro Forma September 30,
1995 Adjustments 1995
------------- ----------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to affiliates $ 40,042 $ 40,042
Accounts payable 3,746 3,746
Accrued taxes 5,083 5,083
Accrued dividends 10,663 10,663
Accrued payroll and vacations 9,189 9,189
Accrued restructuring costs and other 47,276 47,276
---------- ----------- ----------
Total current liabilities 115,999 115,999
---------- ----------- ----------
LONG-TERM DEBT 90,000 90,000
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 90,626 $ (87,810) (5) 2,816
Employee benefit obligations 64,004 64,004
Restructuring costs and other 9,710 9,710
---------- ----------- ----------
Total reserves and deferred credits 164,340 (87,810) 76,530
---------- ----------- ----------
SHAREHOLDER'S EQUITY:
Common stock 12,518 12,518
Other capital 78,917 78,917
Reinvested earnings (deficit) 122,392 (127,620) (2) (5,228)
---------- ----------- ----------
Total shareholder's equity 213,827 (127,620) 86,207
---------- ----------- ----------
Total Liabilities and Shareholder's Equity $ 584,166 $ (215,430) $ 368,736
========== =========== ==========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
(1) Represents the reclassification of the provision for uncollectible accounts
to selling, general and administrative expenses, consistent with non-regulated
accounting practices.
(2) Represents the after-tax effect of the adjustments described in notes 3 and
4 below.
(3) Represents the write-down of property, plant and equipment, net due to an
impairment of such assets resulting from depreciation lives set by regulators
that are longer than the assets' economic lives.
(4) Represents the write-off of net regulatory assets.
(5) Represents the tax effect of the adjustments described in notes 3 and 4
above.
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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 hereunto duly authorized.
CONTEL OF CALIFORNIA, INC.
(Registrant)
Date: November 13, 1995 By Michael W. Bollinger
-------------------------
Michael W. Bollinger
Assistant Vice President - Controller
(Principal Financial and Accounting
Officer)
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