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 March 31, 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 April 30, 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 . . . . . . .
. . . . 4
Condensed Consolidated Balance Sheets - Liabilities and
Shareholders' Equity . . . . . . . . . . . . . . . . . . .
. . . . 5
Condensed Consolidated Statements of Cash Flows . . . . . . .
. . . . 6
Notes to Condensed Consolidated Financial Statements . . . .
. . . . 7
PART II. OTHER INFORMATION
Items 1 through 6 . . . . . . . . . . . . . . . . . . . . . .
. . . . 8
Signature . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 9
PART I. FINANCIAL INFORMATION
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1994 1993
(Thousands of
Dollars)
OPERATING REVENUES:
Local network services $ 239,688 $ 241,600
Network access services 161,772 157,027
Long distance services 234,026 243,999
Equipment sales and services 36,677 40,522
Other 23,202 24,925
695,365 708,073
OPERATING EXPENSES:
Cost of sales and services 150,663 166,640
Depreciation and amortization 144,549 145,555
Marketing, selling, general and
administrative 200,738 196,871
495,950 509,066
Net operating income 199,415 199,007
OTHER (INCOME) DEDUCTIONS:
Interest expense 20,307 33,382
Other - net (1,074)
(1,722)
INCOME BEFORE INCOME TAXES 180,182 167,347
INCOME TAXES 73,226 64,558
NET INCOME $ 106,956 $ 102,789
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.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income increased 4% or $4.2 million for the three months
ended March 31, 1994 compared to the same period in 1993. The
increase is primarily the result of lower operating expenses due
to cost control efforts and lower interest expense due to lower
debt levels partially offset by lower revenues.
Operating Revenues
Operating revenues decreased 2% or $12.7 million for the three
months ended March 31, 1994.
Local network service revenues decreased 1% or $1.9 million for
the first quarter of 1994 compared to the same period in 1993.
The decrease is primarily due to a rate decrease related to the
annual price cap filing partially offset by continued customer
growth, as experienced through an increase in access lines, and
increased revenue from CentraNet (Registered Trademark) and other
enhanced features.
Network access service revenues increased 3% or $4.7 million for
the first quarter of 1994 compared to the same period in 1993.
The increase is primarily the result of higher carrier common
line rates partially offset by unfavorable pool settlements.
Long distance service revenues decreased 4% or $10 million for
the first quarter of 1994 compared to the same period in 1993.
The decrease is primarily due to the 1994 price cap index
adjustment.
Equipment sales and services revenues decreased 9% or $3.8
million for the first quarter of 1994 compared to the same period
in 1993. The decrease is primarily the result of a reduction in
revenues related to the Cerritos project, GTE's testing facility
in California for various video services, which is nearing
completion.
Other operating revenues decreased 7% or $1.7 million for the
first quarter of 1994 compared to the same period in 1993. The
decrease is primarily due to higher provisions for uncollectible
accounts.
Operating Expenses
Operating expenses decreased 3% or $13.1 million for the first
quarter of 1994 compared to the same period in 1993. The
decrease is primarily the result of ongoing quality and cost
control programs, modernization of facilities and a reduction in
workforce. The decrease is partially offset by higher cost
associated with other postretirement employee benefits.
Other Expenses
Interest expense decreased 39% or $13.1 million for the first
quarter of 1994 compared to the same period in 1993. The
decrease is due to lower average long-term debt levels and lower
average interest rates. In November 1993, the
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 13% or $8.7 million for the first quarter
of 1994 compared to the same period in 1993. The increase is
primarily due to higher pretax income.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first quarter of
1994 was cash flows from operating activities of $218 million
compared to $370 million for the same period in 1993. The
decrease primarily reflects the timing differences in the
collection of accounts receivable.
Capital expenditures represent a significant use of funds during
the first quarter of 1994 and the same period in 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 quarter of
1994 were $88 million compared to $108 million during the same
period in 1993. The Company's anticipated construction costs for
1994 are approximately $460 million.
Cash used for financing activities was $135 million for the first
quarter of 1994 compared to $268 million for the same period in
1993. This included dividend payments of $111 million for the
first quarter of 1994 compared to $49 million for the same period
in 1993. External financing included long-term borrowings of
$543 million in the first quarter of 1994 compared to
$150 million in the same period in 1993. Proceeds from these
borrowings were used primarily to reduce short-term debt. In
April 1994, the Company issued $250 million of 8.07% Debentures,
due 2024 to further reduce short-term debt.
During the first quarter of 1994 the Company began 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.
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 $3.9 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
March 31, December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 5,633 $ 6,620
Accounts and notes receivable, less allowances
of $43,495 and $51,980, respectively 526,877 519,170
Note receivable from affiliate 73,000 --
Materials and supplies, at average cost 36,394 37,361
Deferred income tax benefits 93,884 94,459
Prepayments and other 11,972 15,512
Total current assets 747,760 673,122
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,182,227 8,215,120
Accumulated depreciation (3,278,180)
(3,252,741)
Net property, plant and equipment 4,904,047 4,962,379
PREPAID PENSION COST 251,496 233,640
OTHER ASSETS 122,650 125,630
TOTAL ASSETS $ 6,025,953 $ 5,994,771
See Notes to Condensed Consolidated Financial Statements.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 285,463 $
693,724
Accounts payable 192,652 232,720
Accrued taxes 118,543 86,299
Accrued interest 16,408 8,746
Accrued payroll and vacations 91,305 81,777
Accrued dividends 83,461 111,046
Accrued restructuring costs and other 296,788 330,950
Total current liabilities 1,084,620 1,545,262
LONG-TERM DEBT 1,319,755 860,398
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 1,316,592 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 832,316 809,240
Total shareholders' equity 2,304,986 2,281,910
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,025,953 $
5,994,771
See Notes to Condensed Consolidated Financial Statements.
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 106,956 $ 102,789
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 144,549 145,555
Deferred income taxes and investment
tax credits 8,016 (15,082)
Provision for uncollectible accounts 18,856
16,544
Changes in current assets and current
liabilities (46,852)
66,442
Other - net (13,606)
53,687
Net cash from operating activities 217,919 369,935
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (87,646)
(108,094)
Other - net 4,013 132
Net cash used in investing activities (83,633)
(107,962)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued 542,594 149,601
Long-term debt retired (25,194)
(80)
Dividends paid to shareholders (111,465)
(48,570)
Net change in affiliate notes (41,108)
(132,932)
Decrease in short-term debt (500,100)
(236,209)
Net cash used in financing activities (135,273)
(268,190)
Decrease in cash and cash equivalents (987)
(6,217)
Cash and cash equivalents at beginning of period 6,620
12,768
Cash and cash equivalents at end of period $ 5,633 $
6,551
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 GTE and Contel and approving 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.
In addition to approving the merger, the decision established a
third phase in the proceeding in which the CPUC will consider the
issues of a start-up revenue requirement for the Company's
premerger operations and the integration of the Company's tariff
rates with those of Contel of California, Inc.
(3) 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 5 are not applicable for the quarter ended March
31, 1994.
Item 6. Exhibits and Reports on Form 8-K
GTE California Incorporated filed a report on Form 8-K dated
January 13, 1994 on January 14, 1994, under Item 5, "Other
Events." No financial statements were filed with this report.
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: May 12, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
