UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the period ended June 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-6417
GTE CALIFORNIA INCORPORATED
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-0510200
(State or other jurisdiction of
(I.R.S. Employer
Incorporation or organization)
Identification No.)
One GTE Place, Thousand Oaks, California
91362-3811
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 805-372-
6000
(Former name, former address and former fiscal year, if changed
since last report)
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
The Company had 69,438,190 shares of $20 stated value common
stock outstanding at July 31, 1994.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE
Condensed Consolidated Statements of Income . . . . . . . . .
. . . . 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . .
. . . . 2
Condensed Consolidated Balance Sheets - Assets . . . . . . .
. . . . 5
Condensed Consolidated Balance Sheets - Liabilities and
Shareholders' Equity . . . . . . . . . . . . . . . . . . .
. . . . 6
Condensed Consolidated Statements of Cash Flows . . . . . . .
. . . . 7
Notes to Condensed Consolidated Financial Statements . . . .
. . . . 8
PART II. OTHER INFORMATION
Items 1 through 6 . . . . . . . . . . . . . . . . . . . . . .
. . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 10
PART I. FINANCIAL INFORMATION
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six
Months Ended
June 30, June 30,
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 230,887 $ 247,942 $ 470,575 $ 489,542
Network access services 168,562 148,446 330,334 305,473
Long distance services 245,428 249,643 479,454 493,642
Equipment sales and services 34,129 43,894 70,806
84,416
Other 9,857 32,368 33,059 57,293
688,863 722,293 1,384,228 1,430,366
OPERATING EXPENSES:
Cost of sales and services 146,309 169,186 296,972 335,826
Depreciation and amortization 143,397 146,887 287,946
292,442
Marketing, selling, general and
administrative 217,736 234,988 418,474 431,859
507,442 551,061 1,003,392 1,060,127
Net operating income 181,421 171,232 380,836 370,239
OTHER DEDUCTIONS:
Interest expense 26,681 32,497 46,988 65,879
Other - net (1,535) (1,679) (2,609)
(3,401)
INCOME BEFORE INCOME TAXES 156,275 140,414 336,457 307,761
INCOME TAXES 63,537 54,414 136,763 118,972
NET INCOME $ 92,738 $ 86,000 $ 199,694 $ 188,789
Per share data is omitted since the Company's common stock is 100%
owned by GTE
Corporation (Parent Company).
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income increased 8% or $6.7 million for the three months and
6% or $10.9 million for the six months ended June 30, 1994
compared to the same periods in 1993. Excluding the one-time
charge associated with the enhnaced early retirement and
voluntary separation programs offered to eligible employees
during the second quarter of 1994, net income decreased 14% or
$14.5 million for the three months and 5% or $10.3 million for
the six months ended June 30, 1994 compared to the same periods
in 1993. The decreases are primarily due to lower revenues
partially offset by lower operating expenses due to cost control
efforts and decreased interest expense due to lower average long-
term debt levels and interest rates.
Operating Revenues
Operating revenues decreased 5% or $33.4 million for the three
months and 3% or $46.1 million for the six months ended June 30,
1994 compared to the same periods in 1993.
Local network service revenues decreased 7% or $17.1 million for
the three months and 4% or $19.0 million for the six months ended
June 30, 1994 compared to the same periods in 1993. The
decreases are primarily due to a rate reduction related to the
price cap index and the new regulatory framework (NRF) review.
Also contributing to the second quarter decrease in revenues, was
that the Company suspended reconnect charges for customers in the
earthquake damaged area. These decreases were partially offset
by continued customer growth, as reflected in an increase in
access lines and increased revenue from enhanced features.
Network access service revenue increased 14% or $20.1 million for
the three months and 8% or $24.9 million for the six months ended
June 30, 1994 compared to the same periods in 1993. The
increases are primarily the result of higher carrier common line
rates and increased minutes of use partially offset by
unfavorable pool settlements in the first quarter of 1994.
Long distance service revenues decreased 2% or $4.2 million for
the three months and 3% or $14.2 million for the six months ended
June 30, 1994 compared to the same periods in 1993. The
decreases are primarily due to rate reductions related to the
above mentioned price cap index and NRF review.
Equipment sales and services revenues decreased 22% or $9.8
million for the three months and 16% or $13.6 million for the six
months ended June 30, 1994 compared to the same periods in 1993.
The decreases are primarily the result of a reduction in revenues
related to the Cerritos project, GTE's testing facility in
California for various video services, and the CALNET project, a
large government contract for the installation of a private
network between state office buildings, both of which are
partially complete.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Other operating revenues decreased 70% or $22.5 million for the
three months ended and 42% or $24.2 million for the six months
ended June 30, 1994 compared to the same periods in 1993. The
decreases are primarily due to lower directory advertising
revenue in the second quarter reflecting a change in the life of
directories and timing of publication dates, partially offset by
lower regulated provisions for uncollectible accounts.
Operating Expenses
Operating expenses decreased 8% or $43.6 million for the three
months and 5% or $56.7 million for the six months ended June 30,
1994 compared to the same periods in 1993. Excluding the one-
time charge associated with the enhanced early retirement and
voluntary separation programs offered to eligible employees
during the second quarter of 1994, operating expenses decreased
2% or $9.0 million for the three months and 2% or $22.1 million
for the six months ended June 30, 1994 compared to the same
period in 1993. The decreases are primarily the result of
ongoing quality and cost control programs, modernization of
facilities, and a reduction in work force.
Other Expenses
Interest expense decreased 18% or $5.8 million for the three
months and 29% or $18.9 million for the six months ended June 30,
1994 compared to the same periods in 1993. The decreases are due
to lower average long-term debt levels and lower average interest
rates. In November 1993, the Company called $785 million of
bonds with rates ranging from 8.5% to 11% and refinanced these
bonds in early 1994 with 5 5/8%, 6 3/4% and 8.07% Debentures.
Income taxes increased 17% or $9.1 million for the three months
and 15% or $17.8 million for the six months ended June 30, 1994
compared to the same periods in 1993. The increases are
primarily due to higher pretax income, adjustments to prior
years' tax provisions and the declining effects of amortization
of deferred investment tax credits.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first six months
of 1994 was cash flow from operating activities of $428.2 million
compared to $565.9 million for the same period in 1993. The
decrease primarily reflects the timing differences in the
collection of accounts receivable, payment of affiliated payables
and employee benefits.
Capital expenditures represent a significant use of funds during
the first six months of 1994 and 1993 reflecting the Company's
continued growth in access lines, modernization of current
facilities and introduction of new products and services. The
Company's capital expenditures during the first six months of
1994 were $176.3 million compared to $223.6 million during the
same period in 1993. The Company's anticipated construction
costs for 1994 are approximately $460 million.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash used in financing activities was $251.7 million for the
first six months of 1994 compared to $303.3 million for the same
period in 1993. This included dividend payments of $194.8
million for the first six months of 1994 compared to
$133.6 million for the same period in 1993. External financing
included long-term borrowings of $840.4 million in the first six
months of 1994 compared to $149.6 million in the same period in
1993. Proceeds from these borrowings were used primarily to
reduce short-term borrowings which were obtained to refinance
high coupon debt called in 1993.
During the second quarter of 1994 the Company continued
implementation of its re-engineering plan. This plan will allow
the Company to continue to respond aggressively to competitive
and regulatory developments through reduced costs, improved
service quality, competitive prices and new product offerings.
Moreover, implementation of this program over the next three
years will position the Company to accelerate delivery of a full
array of voice, video and data services. Cash requirements for
the implementation of the re-engineering plan during 1994 are
expected to be largely offset by cost savings.
Management believes that the Company has adequate internal and
external resources available to meet ongoing operating
requirements for construction of new plant, modernization of
facilities and payment of dividends. The Company generally funds
its construction program from operations although external
financing is available. Short-term borrowings can be obtained
through commercial paper borrowings or borrowings from GTE. In
addition, a $2.8 billion line of credit is available to the
Company through shared lines of credit with GTE and other
affiliates to support short-term financing needs.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 12,284 $ 6,620
Accounts and notes receivable, less allowances
of $59,501 and $51,980, respectively 564,382 519,170
Materials and supplies, at average cost 39,359 37,361
Deferred income tax benefits 93,308 94,459
Prepayments and other 5,466 15,512
Total current assets 714,799 673,122
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,245,583 8,215,120
Accumulated depreciation (3,395,336)
(3,252,741)
Net property, plant and equipment 4,850,247 4,962,379
PREPAID PENSION COST 279,674 233,640
OTHER ASSETS 113,555 125,630
TOTAL ASSETS $ 5,958,275 $ 5,994,771
See Notes to Condensed Consolidated Financial Statements.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 131,656 $
693,724
Accounts payable 183,542 232,720
Accrued taxes 108,805 86,299
Accrued interest 23,815 8,746
Accrued payroll and vacations 81,271 81,777
Accrued dividends 84,088 111,046
Accrued restructuring costs and other 296,557 330,950
Total current liabilities 909,734 1,545,262
LONG-TERM DEBT 1,369,829 860,398
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 1,364,900 1,307,201
SHAREHOLDERS' EQUITY:
Preferred stock 81,866 81,866
Common stock 1,388,764 1,388,764
Other capital 2,040 2,040
Reinvested earnings 841,142 809,240
Total shareholders' equity 2,313,812 2,281,910
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,958,275 $
5,994,771
See Notes to Condensed Consolidated Financial Statements.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 199,694 $ 188,789
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 287,946 292,442
Deferred income taxes and investment
tax credits 17,814 (37,955)
Provision for uncollectible accounts 39,432
39,369
Changes in current assets and current
liabilities (123,098)
34,948
Other - net 6,384 48,271
Net cash from operating activities 428,172 565,864
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (176,279)
(223,648)
Other - net 5,442 1,983
Net cash used in investing activities (170,837)
(221,665)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued 840,406 149,601
Long-term debt retired (85,221)
(176,036)
Dividends paid to shareholders (194,750)
(133,577)
Decrease in short-term debt (812,106)
(143,255)
Net cash used in financing activities (251,671)
(303,267)
Increase in cash and cash equivalents 5,664 40,932
Cash and cash equivalents at beginning of period 6,620
12,768
Cash and cash equivalents at end of period $ 12,284 $
53,700
See Notes to Condensed Consolidated Financial Statements.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, in
the opinion of management of the Company, the condensed
consolidated financial statements include all adjustments, which
consist only of normal recurring accruals, necessary to present
fairly the financial information for such periods. These
condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's 1993 Annual Report to Shareholders
incorporated by reference in the Annual Report on Form 10-K.
(2) On April 20, 1994 the CPUC issued a decision giving final
approval to the merger of Contel of California, Inc. into the
Company. The decision requires the merging companies to flow
through to their ratepayers all of the estimated savings that
will be produced from the merger. This flow through requirement
is based on the CPUC's interpretation of certain statutory
requirements. The CPUC, however, provided the parties with the
opportunity to supplement the evidentiary record to show why the
estimated merger savings should be apportioned between ratepayers
and shareholders. That filing was made on April 29, 1994. By
making the filing, the effective date of the decision approving
the mergers has been delayed until such time as the Commission
has the opportunity to review and issue a new decision based on
the new evidence.
On June 17, 1994, the CPUC issued a ruling canceling all dates
relative to the filing of testimony and evidentiary hearings.
The Company expects the CPUC will establish a procedural schedule
in 1994.
(3) In July 1994, the CPUC proposed an order aimed at
rebalancing local phone companies' rates and introducing new
competition in the local toll market beginning January 1, 1995.
A final order is expected in September 1994. While this order is
intended to be revenue neutral, its ultimate effect will depend,
in part, on the extent to which toll and access rate reductions
result in increased calling volumes.
(4) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
Items 1 through 6 are not applicable for the quarter ended June
30, 1994.
SIGNATURE
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.
GTE CALIFORNIA INCORPORATED
(Registrant)
Date: August 12, 1994 WILLIAM M. EDWARDS, III
. . . . . . . . . . . . . . . . . . .
. .
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
