<PAGE> 1
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)
GTE CALIFORNIA INCORPORATED
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
1-6417 95-0510200
(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
<PAGE> 2
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
On November 9, 1995, GTE California Incorporated (the Company) announced
through its parent, 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 $583.4 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.
In addition, the Company announced through its parent, GTE Corporation, that it
will refinance, on a long-term basis, approximately $75.0 million of its
long-term debt. The positive impact of these redemptions is not expected to
have a significant effect on the Company's earnings over the next several
years.
1
<PAGE> 3
GTE CALIFORNIA INCORPORATED 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 $ 2,016,978 $ 55,334 (1) $ 2,072,312
OPERATING EXPENSES
Cost of sales and services 779,399 779,399
Depreciation and amortization 448,035 448,035
Selling, general & administrative 304,640 55,334 (1) 359,974
------------- ------------ -------------
Total operating expenses 1,532,074 55,334 1,587,408
------------- ------------ -------------
OPERATING INCOME 484,904 -- 484,904
------------- ------------ -------------
OTHER DEDUCTIONS 75,159 75,159
------------- ------------ -------------
Income before income taxes 409,745 -- 409,745
INCOME TAXES 171,030 171,030
------------- ------------ -------------
Income before extraordinary charge 238,715 -- 238,715
EXTRAORDINARY CHARGE -- (583,428) (2) (583,428)
------------- ------------ -------------
Net income (loss) $ 238,715 $ (583,428) $ (344,713)
============= ============ =============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
2
<PAGE> 4
GTE CALIFORNIA INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
As Reported Pro Forma
Year Ended Year Ended
December 31, Pro Forma December 31,
1994 Adjustments 1994
-------------- ------------- ---------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 2,881,730 $ 66,217 (1) $ 2,947,947
OPERATING EXPENSES
Cost of sales and services 1,061,310 1,061,310
Depreciation and amortization 579,867 579,867
Selling, general & administrative 418,068 66,217 (1) 484,285
------------- ------------ ------------
Total operating expenses 2,059,245 66,217 2,125,462
------------- ------------ ------------
OPERATING INCOME 822,485 -- 822,485
------------- ------------ ------------
OTHER DEDUCTIONS 94,480 94,480
------------- ------------ ------------
Income before income taxes 728,005 -- 728,005
INCOME TAXES 293,465 293,465
------------- ------------ ------------
Income before extraordinary charge 434,540 -- 434,540
EXTRAORDINARY CHARGE -- (583,428) (2) (583,428)
------------- ------------ ------------
Net income (loss) $ 434,540 $ (583,428) $ (148,888)
============= ============ ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
3
<PAGE> 5
GTE CALIFORNIA INCORPORATED 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 $ 35,035 $ 35,035
Accounts and notes receivable, less allowance
of $49,973 511,074 511,074
Materials and supplies 35,806 35,806
Deferred income tax benefits 73,122 73,122
Prepayments and other 25,009 25,009
----------- ---------- ----------
Total current assets 680,046 680,046
----------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,598,499 8,598,499
Accumulated depreciation (3,911,731) $ (877,649) (3) (4,789,380)
----------- ---------- ----------
Net property, plant and equipment 4,686,768 (877,649) 3,809,119
----------- ---------- ----------
PREPAID PENSION COSTS 406,463 406,463
----------- ---------- ----------
OTHER ASSETS 147,700 (112,050) (4) 35,650
----------- ---------- ----------
Total Assets $ 5,920,977 $ (989,699) $4,931,278
=========== ========== ==========
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
4
<PAGE> 6
GTE CALIFORNIA INCORPORATED 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 SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term debt, including current
maturities $ 198,173 $ 198,173
Accounts payable 170,156 170,156
Accrued taxes 140,804 140,804
Accrued interest 22,804 22,804
Accrued payroll and vacations 95,614 95,614
Accrued dividends 82,726 82,726
Accrued restructuring costs and other 266,016 266,016
------------- -------------- ------------
Total current liabilities 976,293 976,293
------------- -------------- ------------
LONG-TERM DEBT 1,280,541 1,280,541
------------- -------------- ------------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 728,370 $ (406,271)(5) 322,099
Employee benefit obligations 97,147 97,147
Restructuring costs and other 487,494 487,494
------------- -------------- ------------
Total reserves and deferred credits 1,313,011 (406,271) 906,740
------------- -------------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock 81,866 81,866
Common stock 1,388,764 1,388,764
Other capital 2,040 2,040
Reinvested earnings 878,462 (583,428)(2) 295,034
------------- -------------- ------------
Total shareholders' equity 2,351,132 (583,428) 1,767,704
------------- -------------- ------------
Total Liabilities and Shareholders'
Equity $ 5,920,977 $ (989,699) $ 4,931,278
============= ============== ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
5
<PAGE> 7
GTE CALIFORNIA INCORPORATED 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 and the write-off of the
original debt issuance costs associated with $75.0 million of long-term debt
that will be refinanced.
(5) Represents the tax effect of the adjustments described in notes 3 and 4
below.
6
<PAGE> 8
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.
GTE CALIFORNIA INCORPORATED
(Registrant)
Date: November 13, 1995 By: William M. Edwards III
------------------------
William M. Edwards III
Controller
(Chief Accounting Officer)
7
