<PAGE> 1
Pursuant to Rule 424(b)(2)
Registration No. 33-51541
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 10, 1994
$250,000,000
(LOGO) GTE CALIFORNIA INCORPORATED
6 3/4% DEBENTURES, SERIES B, DUE 2004
---------------------
Interest on the 6 3/4% Debentures, Series B, Due 2004 (the "New
Debentures") is payable semi-annually on March 15 and September 15 of each year,
commencing September 15, 1994. The New Debentures will not be redeemable prior
to maturity. See "Supplemental Description of New Debentures."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------ ---------------
<S> <C> <C> <C>
Per New Debenture.......................... 98.808% .281% 98.527%
Total...................................... $247,020,000 $702,500 $246,317,500
</TABLE>
- ---------------
(1) Plus accrued interest from March 15, 1994.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting estimated expenses of $125,000 payable by the Company.
---------------------
The New Debentures are offered severally by the Underwriters as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the New Debentures
will be ready for delivery in New York, New York, on or about March 22, 1994.
GOLDMAN, SACHS & CO. SMITH BARNEY SHEARSON INC.
---------------------
The date of this Prospectus Supplement is March 15, 1994.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NEW DEBENTURES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------
RECENT DEVELOPMENTS
GTE California Incorporated (the "Company") announced on January 14, 1994
that its results for the fourth quarter of 1993 will include a one-time pre-tax
restructuring charge of $445.2 million related primarily to the implementation
of its re-engineering plan over the next three years. The restructuring charge
will reduce fourth quarter and full year 1993 net income by $274.2 million.
The re-engineering plan will redesign and streamline processes in order to
improve customer-responsiveness and product quality, reduce the time necessary
to introduce new products and services and further reduce costs. The
re-engineering plan includes $171.6 million to upgrade or replace existing
customer service and administrative systems and enhance network software, $193.4
million for employee separation benefits associated with workforce reductions
and $52.5 million primarily for the consolidation of facilities and operations
and other related costs. The charge for employee separation benefits includes
$97.9 million related to the recognition of previously deferred postretirement
health and life insurance costs for separating employees.
During 1993, the California Public Utilities Commission (the "CPUC")
approved a settlement agreement allowing the Company to retain 100% of any
earnings up to a 15.5% rate of return on investment and refund 100% of any
earnings above 15.5% beginning in 1994. Under its prior agreement, GTE was
required to share 50% of any earnings over a 13% rate of return and refund 100%
of any earnings over 16.5%. As part of this agreement and its normal annual
price cap filing, the Company will reduce its rates by about $100 million in
1994.
On September 14, 1992, the Company and Contel of California, Inc. ("Contel
California") joined with GTE Corporation and Contel Corporation in filing a
comprehensive plan with the CPUC to merge Contel California into the Company
(the "Merger"). It is anticipated, subject to receipt of final approvals from
the CPUC, that the Merger will be consummated in 1994. See "The Company" and
"Pro Forma Condensed Consolidating Financial Statements (Unaudited)" in the
accompanying Prospectus.
SUPPLEMENTAL DESCRIPTION OF NEW DEBENTURES
The following description of specific terms of the New Debentures offered
hereby supplements and should be read in conjunction with the description of the
general terms and provisions of the New Debentures set forth in the accompanying
Prospectus under the caption "The New Debentures." The following description
does not purport to be complete and is qualified in its entirety by reference to
the description in the accompanying Prospectus and the Indenture, dated as of
December 1, 1993 (the "Indenture"), between the Company and Bank of America
National Trust and Savings Association, as Trustee.
PRINCIPAL AMOUNT, MATURITY AND INTEREST
The New Debentures will be limited to $250,000,000 aggregate principal
amount and will mature on March 15, 2004. Interest on the New Debentures will be
payable semi-annually on March 15 and September 15 of each year, commencing
September 15, 1994, to the persons in whose names the New Debentures are
registered at the close of business on the March 1 or September 1, as the case
may be, next preceding such interest payment date, subject to certain exemptions
provided for in the Indenture. (BOARD RESOLUTION)
REDEMPTION
The New Debentures will not be redeemable prior to maturity. (BOARD
RESOLUTION)
S-2
<PAGE> 3
USE OF PROCEEDS
The net proceeds from the offering and sale of the New Debentures,
exclusive of accrued interest, will be applied toward the repayment of
short-term borrowings incurred in connection with the redemption on November 8,
1993 of the following series of the Company's first mortgage bonds:
<TABLE>
<CAPTION>
ORIGINAL OUTSTANDING TOTAL PRINCIPAL
INTEREST MATURITY PRINCIPAL AMOUNT PREMIUM PAID AND PREMIUM
SERIES RATE DATE AT REDEMPTION AT REDEMPTION AT REDEMPTION
- ------ -------- -------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Z 8.875% 04/01/08 $ 50,000,000 $ 2,080,000 $ 52,080,000
SS 8.625% 12/01/16 100,000,000 4,640,000 104,640,000
Y 8.500% 04/01/07 125,000,000 5,062,500 130,062,500
---------------- ------------- ---------------
$275,000,000 $ 11,782,500 $ 286,782,500
---------------- ------------- ---------------
---------------- ------------- ---------------
</TABLE>
The balance of the funds required in connection with such redemptions was
obtained primarily from internal sources and short-term loans.
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement,
the Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase,
the principal amount of the New Debentures set forth after its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NEW DEBENTURES
----------- -----------------
<S> <C>
Goldman, Sachs & Co. .............................................. $ 235,000,000
Smith Barney Shearson Inc. ........................................ 15,000,000
-----------------
$ 250,000,000
-----------------
-----------------
</TABLE>
Under the terms and conditions of the Purchase Agreement, the Underwriters
are committed to take and pay for all of the New Debentures if any are taken.
The Underwriters propose to offer the New Debentures in part directly to
retail purchasers at the initial public offering price set forth on the cover
page of this Prospectus Supplement and in part to certain securities dealers at
such price less a concession of .250% of the principal amount of the New
Debentures. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed .125% of the principal amount of the New Debentures to
certain brokers and dealers. After the New Debentures are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The New Debentures are a new issue of securities with no established
trading market. The Underwriters have advised the Company that they intend to
make a market in the New Debentures but are not obligated to do so and may
discontinue such market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the New Debentures.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
S-3
<PAGE> 4
(LOGO) GTE CALIFORNIA INCORPORATED
DEBENTURES
------------------------
GTE California Incorporated (the "Company") intends to offer from time to
time up to $900,000,000 aggregate principal amount of its debentures (the "New
Debentures") in one or more series at prices and on terms to be determined at
the time or times of sale. The aggregate principal amount, rate and time of
payment of interest, maturity, initial public offering price, if any, redemption
provisions and other specific terms of each series of New Debentures will be set
forth in an accompanying prospectus supplement ("Prospectus Supplement").
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Company may sell the New Debentures through underwriters or agents, or
directly to one or more institutional purchasers. A Prospectus Supplement will
set forth the names of underwriters, if any, any applicable commissions or
discounts, the price of the New Debentures and the net proceeds to the Company
from any such sale or sales.
------------------------
THE DATE OF THIS PROSPECTUS IS JANUARY 10, 1994.
<PAGE> 5
STATEMENT OF AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "SEC"). These reports and other information can be inspected and
copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the following
Regional Offices: Seven World Trade Center, New York, New York 10048 and 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained from the public reference section of the SEC at its prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
1. The Annual Report on Form 10-K of the Company for the year ended
December 31, 1992;
2. The Quarterly Reports on Form 10-Q of the Company for the quarters
ended March 31, 1993, June 30, 1993 and September 30, 1993;
3. The Annual Report on Form 10-K of Contel of California, Inc.
("Contel California") for the year ended December 31, 1992; and
4. The Quarterly Reports on Form 10-Q of Contel California for the
quarters ended March 31, 1993, June 30, 1993 and September 30, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the New Debentures hereunder shall be deemed to
be incorporated by reference in this Prospectus and to be part hereof from the
date of filing of such documents.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, including any beneficial owner, a copy of any or all
of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates. Requests for such copies should be directed to
David S. Kauffman, Esq., Assistant Secretary of the Company, at One Stamford
Forum, Stamford, Connecticut 06904. Mr. Kauffman's telephone number is (203)
965-2986.
THE COMPANY
The Company was incorporated under the laws of the state of California in
1929 and provides telecommunications services in southern and central
California. All of the common stock of the Company, constituting approximately
99.6% of the total voting stock, is owned by GTE Corporation ("GTE"). The
Company's principal executive offices are located at One GTE Place, Thousand
Oaks, California 91362-3811, telephone number (805) 372-6000.
The Company has a wholly-owned subsidiary, GTEL, which contains the majority
of the Company's non-regulated operations. These operations include the sale,
lease and maintenance of telecommunications equipment and other deregulated
products and services.
In March 1991, the merger of the Company's parent, GTE, and Contel
Corporation ("Contel") was consummated (the "Parent Merger"). In an interim
decision issued on March 13, 1991, the California Public Utilities Commission
(the "CPUC") approved a stipulation agreement which conditionally approved the
Parent Merger. The interim decision also established a second phase of the
proceeding in which GTE was directed to file documentation showing that the
Parent Merger meets certain California statutory requirements. GTE was also
ordered by the CPUC to submit a plan for the merger of any of the Contel and GTE
regulated California subsidiaries. On September 14, 1992, the Company and Contel
California joined with GTE and Contel in filing a comprehensive plan with the
CPUC to merge Contel California into the Company. The filing also contained
detailed information to demonstrate that the Parent Merger should be finally
approved.
Contel California provides telecommunications services in the states of
California, Nevada and Arizona. All of the common stock of Contel California is
indirectly owned by GTE. Contel California is significantly smaller in terms of
operating revenues, net income and total assets than the Company. It is
anticipated, subject to receipt of final approvals from the CPUC, that the
merger of Contel California into the Company will be consummated in April 1994.
2
<PAGE> 6
USE OF PROCEEDS
The net proceeds from the offering and sale of the New Debentures,
exclusive of accrued interest, will be applied toward the payment of short-term
borrowings incurred (i) in connection with the redemption on November 8, 1993 of
the following series of the Company's first mortgage bonds:
<TABLE>
<CAPTION>
ORIGINAL OUTSTANDING TOTAL PRINCIPAL
INTEREST MATURITY PRINCIPAL AMOUNT PREMIUM PAID AND PREMIUM
SERIES RATE DATE AT REDEMPTION AT REDEMPTION AT REDEMPTION
- ------ -------- -------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
NN 11.000% 06/15/15 $ 75,000,000 $ 4,365,000 $ 79,365,000
AA 10.125% 05/01/09 75,000,000 3,930,000 78,930,000
PP 9.375% 06/15/26 300,000,000 16,950,000 316,950,000
V 9.250% 12/01/99 60,000,000 1,272,000 61,272,000
Z 8.875% 04/01/08 50,000,000 2,080,000 52,080,000
SS 8.625% 12/01/16 100,000,000 4,640,000 104,640,000
Y 8.500% 04/01/07 125,000,000 5,062,500 130,062,500
---------------- ------------- ---------------
$785,000,000 $38,299,500 $ 823,299,500
---------------- ------------- ---------------
---------------- ------------- ---------------
</TABLE>
and (ii) for the purpose of financing the Company's construction program. At
September 30, 1993, the Company had short-term borrowings of $117,514,000 at an
annual average interest rate of 3.12%. The Company's construction budget is
currently estimated at approximately $510,000,000 for 1993 and approximately
$340,000,000 has been incurred through September 30, 1993, principally for
central office equipment, outside plant and land and buildings. The balance of
the funds for the completion of the 1993 construction program will be obtained
primarily from internal sources and short-term loans.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------
1993(A) 1992 1991 1990 1989 1988
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
(Unaudited)(b).................. 5.30 5.65 5.45 5.53 4.95 4.40
</TABLE>
- ---------------
(a) Reflects increased operating expenses related to the adoption, effective
January 1, 1993, of Statement of Financial Accounting Standards (SFAS) No.
106 "Employers' Accounting for Postretirement Benefits Other than Pensions"
and a one-time charge associated with the enhanced early retirement and
voluntary separation programs completed during the second quarter of 1993.
Excluding these items, the ratio of earnings to fixed charges for the nine
months ended September 30, 1993 would have been 6.05.
(b) Computed as follows: (1) "earnings" have been calculated by adding income
taxes and fixed charges to income from continuing operations; (2) "fixed
charges" include interest expense and the portion of rentals representing
interest.
3
<PAGE> 7
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
Following are a pro forma condensed consolidating balance sheet as of
September 30, 1993, and pro forma condensed consolidating statements of income
for the nine months ended September 30, 1993 and 1992 and for the years ended
December 31, 1992, 1991 and 1990. The pro forma condensed consolidating balance
sheet includes the amounts for the Company and Contel California (collectively,
the "Constituent Corporations") as of September 30, 1993, adjusted to account
for the merger at historical cost in a manner similar to that in "pooling of
interests" accounting, as if it had been consummated on that date. Each of the
pro forma condensed consolidating statements of income reflects the combined
historical amounts for the Constituent Corporations for the respective periods,
as if the merger had been consummated at the beginning of such periods on a
"pooling of interests" basis. Organizational costs to be incurred in connection
with the merger will be immaterial; therefore, the pro forma condensed
consolidating statements of income do not reflect any adjustments for such
costs. The corporation that will result from the merger of Contel California
into the Company, currently scheduled to occur (subject to receipt of final
approval from the CPUC) in April 1994, is hereinafter referred to as the "Merged
Company."
4
<PAGE> 8
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CONTEL MERGED
COMPANY CALIFORNIA ELIMINATIONS(A) COMPANY
----------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........... $ 20,941 $ 5,362 $ $ 26,303
Receivables, less allowances of
$56,642 and $4,458............... 456,361 76,191 (177) 532,375
Materials and supplies, at average
cost............................. 39,864 2,102 41,966
Deferred income tax benefits........ 33,536 1,460 34,996
Prepayments and other............... 27,461 782 28,243
----------- ---------- ------- -----------
Total current assets............. 578,163 85,897 (177) 663,883
----------- ---------- ------- -----------
Property, plant and equipment:
Original cost....................... 8,065,886 876,385 8,942,271
Accumulated depreciation............ (3,120,147) (339,052) (3,459,199)
----------- ---------- ------- -----------
Net property, plant and
equipment...................... 4,945,739 537,333 -- 5,483,072
----------- ---------- ------- -----------
Other assets.......................... 331,706 30,560 177 362,443
----------- ---------- ------- -----------
Total assets.......................... $ 5,855,608 $ 653,790 $ -- $ 6,509,398
----------- ---------- ------- -----------
----------- ---------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current
maturities....................... $ 203,118 $ 59,582 $ 262,700
Long-term debt expected to be
refinanced....................... 785,000 -- 785,000
Accounts payable.................... 152,165 39,794 191,959
Accrued taxes....................... 127,200 45,169 172,369
Accrued payroll and vacations....... 91,489 11,089 102,578
Accrued dividends................... 64,194 31,294 95,488
Accrued interest.................... 38,755 3,401 42,156
Other............................... 177,008 19,109 196,117
----------- ---------- ------- -----------
Total current liabilities........ 1,638,929 209,438 -- 1,848,367
----------- ---------- ------- -----------
Long-term debt........................ 547,075 96,200 643,275
----------- ---------- ------- -----------
DEFERRED CREDITS, primarily deferred
income taxes and investment tax
credits............................. 1,094,807 107,648 1,202,455
----------- ---------- ------- -----------
Preferred stock, subject to mandatory
redemption.......................... -- 1,710 1,710
----------- ---------- ------- -----------
Shareholders' equity:
Preferred stock..................... 81,866 -- 81,866
Common stock........................ 1,388,764 12,518 1,401,282
Other capital....................... 2,040 78,917 80,957
Reinvested earnings................. 1,102,127 147,359 1,249,486
----------- ---------- ------- -----------
Total shareholders' equity....... 2,574,797 238,794 -- 2,813,591
----------- ---------- ------- -----------
Total liabilities and shareholders'
equity.............................. $ 5,855,608 $ 653,790 $ -- $ 6,509,398
----------- ---------- ------- -----------
----------- ---------- ------- -----------
</TABLE>
- ---------------
(a) Reflects elimination of intercompany receivables and payables.
5
<PAGE> 9
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1993
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CONTEL MERGED
COMPANY CALIFORNIA COMPANY
---------- -------- ----------
<S> <C> <C> <C>
Revenues:
Local Network......................................... $ 709,308 $ 70,501 $ 779,809
Network Access........................................ 466,332 105,345 571,677
Long Distance Network................................. 755,812 93,653 849,465
Equipment Sales & Services............................ 123,134 8,881 132,015
Miscellaneous......................................... 83,764 9,441 93,205
---------- -------- ----------
Total Revenues.......................................... 2,138,350 287,821 2,426,171
---------- -------- ----------
Operating Expenses:
Cost of Sales & Service............................... 506,377 55,094 561,471
Depreciation & Amortization........................... 433,805 41,791 475,596
Marketing, Selling, General & Administrative.......... 649,090 70,635 719,725
---------- -------- ----------
Total Operating Expenses................................ 1,589,272 167,520 1,756,792
---------- -------- ----------
Net Operating Income.................................... 549,078 120,301 669,379
---------- -------- ----------
Other (Income) Deductions:
Interest Expense...................................... 98,002 9,259 107,261
Other -- Net.......................................... (4,476) (733) (5,209)
---------- -------- ----------
Income Before Income Taxes.............................. 455,552 111,775 567,327
---------- -------- ----------
Income Taxes............................................ 179,916 46,063 225,979
---------- -------- ----------
Income Before Extraordinary Charge...................... 275,636 65,712 341,348
Extraordinary Charge -- Early Retirement of Debt........ 20,214 -- 20,214
---------- -------- ----------
Net Income......................................... $ 255,422 $ 65,712 $ 321,134
---------- -------- ----------
---------- -------- ----------
</TABLE>
6
<PAGE> 10
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1992
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CONTEL MERGED
COMPANY CALIFORNIA COMPANY
---------- -------- ----------
<S> <C> <C> <C>
Revenues:
Local Network......................................... $ 699,483 $ 70,809 $ 770,292
Network Access........................................ 499,561 98,604 598,165
Long Distance Network................................. 771,647 98,364 870,011
Equipment Sales & Services............................ 133,361 34,107 167,468
Miscellaneous......................................... 81,519 9,406 90,925
---------- -------- ----------
Total Revenues.......................................... 2,185,571 311,290 2,496,861
---------- -------- ----------
Operating Expenses:
Cost of Sales & Service............................... 489,665 77,154 566,819
Depreciation & Amortization........................... 420,275 37,795 458,070
Marketing, Selling, General & Administrative.......... 662,830 77,462 740,292
---------- -------- ----------
Total Operating Expenses................................ 1,572,770 192,411 1,765,181
---------- -------- ----------
Net Operating Income.................................... 612,801 118,879 731,680
---------- -------- ----------
Other (Income) Deductions:
Interest Expense...................................... 97,727 10,140 107,867
Other -- Net.......................................... (7,214) (1,496) (8,710)
---------- -------- ----------
Income Before Income Taxes.............................. 522,288 110,235 632,523
---------- -------- ----------
Income Taxes............................................ 196,521 46,250 242,771
---------- -------- ----------
Net Income......................................... $ 325,767 $ 63,985 $ 389,752
---------- -------- ----------
---------- -------- ----------
</TABLE>
7
<PAGE> 11
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CONTEL MERGED
COMPANY CALIFORNIA COMPANY
---------- -------- ----------
<S> <C> <C> <C>
Revenues:
Local Network......................................... $ 937,797 $ 93,752 $1,031,549
Network Access........................................ 663,154 139,171 802,325
Long Distance Network................................. 1,022,330 133,926 1,156,256
Equipment Sales....................................... 180,281 37,220 217,501
Miscellaneous......................................... 117,456 9,893 127,349
---------- -------- ----------
Total Revenues.......................................... 2,921,018 413,962 3,334,980
---------- -------- ----------
Operating Expenses:
Cost of Sales & Service............................... 649,905 92,485 742,390
Depreciation & Amortization........................... 563,540 53,440 616,980
Marketing, General & Administrative................... 928,084 101,724 1,029,808
---------- -------- ----------
Total Operating Expenses................................ 2,141,529 247,649 2,389,178
---------- -------- ----------
Net Operating Income.................................... 779,489 166,313 945,802
---------- -------- ----------
Other (Income) Deductions:
Interest Expense...................................... 131,527 13,419 144,946
Other -- Net.......................................... (18,733) (1,537) (20,270)
---------- -------- ----------
Income Before Income Taxes.............................. 666,695 154,431 821,126
---------- -------- ----------
Income Taxes............................................ 251,325 60,733 312,058
---------- -------- ----------
Net Income......................................... $ 415,370 $ 93,698 $ 509,068
---------- -------- ----------
---------- -------- ----------
</TABLE>
8
<PAGE> 12
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CONTEL MERGED
COMPANY CALIFORNIA COMPANY
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Local Network......................................... $ 960,224 $ 88,631 $1,048,855
Network Access........................................ 667,525 146,577 814,102
Long Distance Network................................. 1,010,236 126,746 1,136,982
Equipment Sales & Services............................ 177,891 12,468 190,359
Miscellaneous......................................... 148,167 16,282 164,449
---------- ---------- ----------
Total Revenues.......................................... 2,964,043 390,704 3,354,747
---------- ---------- ----------
Operating Expenses:
Cost of Sales & Service............................... 677,041 76,451 753,492
Depreciation & Amortization........................... 591,287 50,762 642,049
Marketing, Selling, General & Administrative.......... 878,886 100,372 979,258
---------- ---------- ----------
Total Operating Expenses................................ 2,147,214 227,585 2,374,799
---------- ---------- ----------
Net Operating Income.................................... 816,829 163,119 979,948
---------- ---------- ----------
Other (Income) Deductions:
Interest Expense...................................... 140,977 14,596 155,573
Other -- Net.......................................... (9,330) (1,964) (11,294)
---------- ---------- ----------
Income Before Income Taxes.............................. 685,182 150,487 835,669
---------- ---------- ----------
Income Taxes............................................ 242,724 59,855 302,579
---------- ---------- ----------
Net Income............................................ $ 442,458 $ 90,632 $ 533,090
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
9
<PAGE> 13
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1990
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CONTEL MERGED
COMPANY CALIFORNIA COMPANY
---------- -------- ----------
<S> <C> <C> <C>
Revenues:
Local Network......................................... $ 937,620 $ 85,742 $1,023,362
Network Access........................................ 657,707 151,136 808,843
Long Distance Network................................. 1,034,596 107,916 1,142,512
Equipment Sales & Services............................ 200,315 14,586 214,901
Miscellaneous......................................... 142,108 12,748 154,856
---------- -------- ----------
Total Revenues.......................................... 2,972,346 372,128 3,344,474
---------- -------- ----------
Operating Expenses:
Cost of Sales & Service............................... 706,807 76,031 782,838
Depreciation & Amortization........................... 602,243 50,955 653,198
Marketing, Selling, General & Administrative.......... 854,706 92,987 947,693
---------- -------- ----------
Total Operating Expenses................................ 2,163,756 219,973 2,383,729
---------- -------- ----------
Net Operating Income.................................... 808,590 152,155 960,745
---------- -------- ----------
Other (Income) Deductions:
Interest Expense...................................... 139,674 15,279 154,953
Other -- Net.......................................... (23,027) (3,304) (26,331)
---------- -------- ----------
Income Before Income Taxes.............................. 691,943 140,180 832,123
---------- -------- ----------
Income Taxes............................................ 248,078 62,229 310,307
---------- -------- ----------
Net Income......................................... $ 443,865 $ 77,951 $ 521,816
---------- -------- ----------
---------- -------- ----------
</TABLE>
10
<PAGE> 14
THE NEW DEBENTURES
The New Debentures are to be issued as one or more series of the Company's
debentures (the "Debentures") under an Indenture, dated as of December 1, 1993
(the "Indenture"), between the Company and Bank of America National Trust and
Savings Association, as Trustee (the "Trustee"). By resolution of the Board of
Directors of the Company specifically authorizing each new series of Debentures
(a "Board Resolution"), the Company will designate the title of each series,
aggregate principal amount, date or dates of maturity, dates for payment and
rate of interest, redemption dates, prices, obligations and restrictions, if
any, and any other terms with respect to each such series. The following summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by express reference to, the cited Articles
and Sections of the Indenture and the form of Board Resolution, which are filed
as exhibits to the Registration Statement.
FORM AND EXCHANGE
The New Debentures are to be issued in registered form only in
denominations of $1,000 and integral multiples thereof and will be exchangeable
for New Debentures of the same series of other denominations of a like aggregate
principal amount without charge except for reimbursement of taxes, if
any. (ARTICLE TWO)
MATURITY, INTEREST AND PAYMENT
Information concerning the maturity, interest rate and payment dates of
each series of the New Debentures will be contained in a Prospectus Supplement
relating to that series of New Debentures.
REDEMPTION PROVISIONS, SINKING FUND AND DEFEASANCE
Each series of the New Debentures may be redeemed upon not less than 30
days' notice at the redemption prices and subject to the conditions that will be
set forth in a Board Resolution and in a Prospectus Supplement relating to that
series of New Debentures. (ARTICLE THREE) If a sinking fund is established
with respect to any series of the New Debentures, a description of the terms of
such sinking fund will be set forth in a Board Resolution and in a Prospectus
Supplement relating to that series of New Debentures. The Indenture provides
that each series of the New Debentures is subject to defeasance. (SECTION
11.02)
RESTRICTIONS
The New Debentures will not be secured. The Indenture provides, however,
that if the Company shall at any time mortgage or pledge any of its property,
the Company will secure the New Debentures, equally and ratably with the other
indebtedness or obligations secured by such mortgage or pledge, so long as such
other indebtedness or obligations shall be so secured. There are certain
exceptions to the foregoing, among them that the Debentures need not be secured:
(i) in the case of (a) purchase money mortgages, (b) conditional sales
agreements or (c) mortgages existing at the time of purchase, on property
acquired after the date of the Indenture;
(ii) with respect to certain deposits or pledges to secure the
performance of bids, tenders, contracts or leases or in connection with
worker's compensation and similar matters;
(iii) with respect to mechanics' and similar liens in the ordinary
course of business;
(iv) with respect to the Company's first mortgage bonds outstanding on
the date of the Indenture, issued and secured by the Company and its
predecessors in interest under various security instruments, all of which
have been assumed by the Company (collectively, the "First Mortgage
Bonds"), and any replacement or renewal (without increase in principal
amount or extension of final maturity date) of such outstanding First
Mortgage Bonds;
(v) with respect to First Mortgage Bonds which may be issued by the
Company in connection with the consolidation or merger of the Company with
or into certain affiliates of the Company in exchange for or otherwise in
substitution for long-term senior indebtedness of any such affiliate
("Affiliate Debt")
11
<PAGE> 15
which by its terms (x) is secured by a mortgage on all or a portion of the
property of such affiliate, (y) prohibits long-term senior secured
indebtedness from being incurred by such affiliate, or a successor thereto,
unless the Affiliate Debt shall be secured equally and ratably with such
long-term senior secured indebtedness or (z) prohibits long-term senior
secured indebtedness from being incurred by such affiliate; or
(vi) with respect to indebtedness required to be assumed by the
Company in connection with the merger or consolidation of certain
affiliates of the Company with or into the Company. (SECTION 4.05)
The Indenture does not limit the amount of debt securities which may be
issued or the amount of debt which may be incurred by the Company. (SECTION
2.01) However, while the restriction in the Indenture described above would not
afford holders of the New Debentures protection in the event of a highly
leveraged transaction in which unsecured indebtedness was incurred, the issuance
of most debt securities by the Company, including the New Debentures, does
require state regulatory approval (which may or may not be granted). In
addition, in the event of a highly leveraged transaction in which secured
indebtedness was incurred, the above restriction would require the New
Debentures to be secured equally and ratably with such secured indebtedness,
subject to the exceptions described above. It is unlikely that a leveraged
buyout initiated or supported by the Company, the management of the Company or
an affiliate of either party would occur, because all of the common stock of the
Company, constituting approximately 99.6% of the total voting stock, is owned by
GTE, which has no intention of selling its ownership in the Company.
MODIFICATIONS OF INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures of any series at the time outstanding and
affected by such modification, to modify the Indenture or any supplemental
indenture affecting that series of the Debentures or the rights of the holders
of that series of Debentures. However, no such modification shall (i) extend the
fixed maturity of any Debenture, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
premium payable upon the redemption thereof, without the consent of the holder
of each Debenture so affected, or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of each holder of Debentures then
outstanding and affected thereby. (SECTION 9.02)
The Company and the Trustee may execute, without the consent of any holder
of Debentures, any supplemental indenture for certain other usual purposes
including the creation of any new series of Debentures. (SECTIONS 2.01, 9.01 and
10.01)
EVENTS OF DEFAULT
The Indenture provides that the following described events constitute
"Events of Default" with respect to each series of the Debentures thereunder:
(a) failure for 30 business days to pay interest on the Debentures of that
series when due; (b) failure to pay principal or premium, if any, on the
Debentures of that series when due, whether at maturity, upon redemption, by
declaration or otherwise, or to make any sinking fund payment with respect to
that series; (c) failure to observe or perform any other covenant (other than
those specifically relating to another series) in the Indenture for 90 days
after notice with respect thereto; or (d) certain events in bankruptcy,
insolvency or reorganization. (SECTION 6.01)
The holders of a majority in aggregate outstanding principal amount of any
series of the Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee for that
series. (SECTION 6.06) The Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of any particular series of the
Debentures may declare the principal due and payable immediately on default with
respect to such series, but the holders of a majority in aggregate outstanding
principal amount of such series may rescind and annul such declaration and waive
the default if the default has been cured and a sum sufficient to pay all
matured installments of interest and principal and any premium has been
deposited with the Trustee. (SECTION 6.01)
12
<PAGE> 16
The holders of a majority in aggregate outstanding principal amount of any
series of the Debentures may, on behalf of the holders of all the Debentures of
such series, waive any past default except a default in the payment of
principal, premium, if any, or interest. (SECTION 6.06) The Company is
required to file annually with the Trustee a certificate as to whether or not
the Company is in compliance with all the conditions and covenants under the
Indenture. (SECTION 5.03)
CONCERNING THE TRUSTEE
The Trustee, prior to an Event of Default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after the occurrence
of an Event of Default, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his own affairs. (SECTION
7.01) Subject to such provision, the Trustee is under no obligation to exercise
any of the powers vested in it by the Indenture at the request of any holders of
Debentures, unless offered reasonable security or indemnity by such security
holders against the costs, expenses and liabilities which might be incurred
thereby. (SECTION 7.02) The Trustee is not required to expend or risk its own
funds or incur personal financial liability in the performance of its duties if
the Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (SECTION 7.01)
The Company maintains a banking relationship with the Trustee. The Trustee
serves as trustee under the indenture pursuant to which First Mortgage Bonds are
outstanding.
EXPERTS AND LEGAL OPINIONS
The financial statements and schedules included or incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 and Contel California's Annual Report on Form 10-K for the
year ended December 31, 1992, which are incorporated by reference in this
Prospectus, have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports. Reference is made to said reports on financial statements
of the Company and Contel California, which include 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 financial statements.
The statements of law and legal conclusions under "The New Debentures" have
been reviewed by Kenneth K. Okel, Esq., Area Vice President-General Counsel and
Secretary of the Company, and are included upon his authority as an expert.
Certain legal matters in connection with the New Debentures will be passed upon
for the Company by Mr. Okel, and for the underwriters, agents or institutional
purchasers by Milbank, Tweed, Hadley & McCloy of New York, New York.
PLAN OF DISTRIBUTION
The Company may sell any series of the New Debentures in one or more of the
following ways: (i) to underwriters for resale to the public or to institutional
purchasers; (ii) directly to institutional purchasers; or (iii) through Company
agents to the public or to institutional purchasers. The Prospectus Supplement
with respect to each series of New Debentures will set forth the terms of the
offering of such New Debentures, including the name or names of any underwriters
or agents, the purchase price of such New Debentures and the proceeds to the
Company from such sale, any underwriting discounts or agency fees and other
items constituting underwriters' or agents' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers and any securities exchanges on which such New Debentures may be listed.
If underwriters are used in the sale, such New Debentures will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
13
<PAGE> 17
Unless otherwise set forth in the Prospectus Supplement, the obligations of
the underwriters to purchase any series of New Debentures will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all such New Debentures if any are purchased. In the event of a default of one
or more of the underwriters involving not more than 10% of the aggregate
principal amount of the New Debentures offered for sale, the non-defaulting
underwriters would be required to purchase the New Debentures agreed to be
purchased by such defaulting underwriter or underwriters. In the event of a
default in excess of 10% of the aggregate principal amount of the New
Debentures, the Company may, at its option, sell less than all the New
Debentures offered.
Underwriters and agents may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribution with respect to payments which the underwriters or agents may be
required to make in respect thereof. Underwriters and agents may be customers
of, engage in transactions with, or perform services for, the Company in the
ordinary course of business.
14
<PAGE> 18
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments................... S-2
Supplemental Description of New
Debentures.......................... S-2
Use of Proceeds....................... S-3
Underwriting.......................... S-3
PROSPECTUS
Statement of Available Information.... 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 2
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Pro Forma Condensed Consolidating
Financial Statements (Unaudited).... 4
The New Debentures.................... 11
Experts and Legal Opinions............ 13
Plan of Distribution.................. 13
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$250,000,000
(LOGO) GTE CALIFORNIA
INCORPORATED
6 3/4% DEBENTURES,
SERIES B, DUE 2004
------------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------
GOLDMAN, SACHS & CO.
SMITH BARNEY SHEARSON INC.
- ------------------------------------------------------
- ------------------------------------------------------
