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UNITED STATES
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 - December 20, 1996
(Date of earliest event reported)
GTE CALIFORNIA INCORPORATED
(Exact name of registrant as specified in its charter)
CALIFORNIA 1-6417 95-0510200
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 972-718-5600
(Former name or former address, if changed since last report)
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GTE CALIFORNIA INCORPORATED
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Event
On September 10, 1992, GTE California Incorporated, a California corporation
(the Company) entered into an Agreement of Merger with Contel of California,
Inc., a California corporation (Contel California). The agreement provides
that Contel California would merge with and into the Company, with the Company
to be the surviving corporation in the merger (the Merger). Contel California
is a wholly-owned subsidiary of GTE Corporation. Contel California provides
communications services in the states of California, Nevada and Arizona.
On October 5, 1995, the Governor of the State of California signed a law which
clarified the authority of the California Public Utilities Commission (CPUC) to
allocate the merger benefits between ratepayers and shareholders with not less
than 50% going to the ratepayers of the merged company. In accordance with the
enacted legislation, on April 10, 1996, the CPUC issued its decision for the
approval of the Merger. The Merger, which is currently anticipated to occur on
December 31, 1996, will be accounted for in a manner consistent with a transfer
of entities under common control which is similar to a "pooling of interests."
Included under Item 7 of this report are the unaudited pro forma condensed
consolidating balance sheet as of September 30, 1996, and the unaudited pro
forma condensed consolidating statements of income for the nine months ended
September 30, 1996 and for the year ended December 31, 1995.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements
The Company hereby incorporates by reference herein Contel California's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and the
Annual Report on Form 10-K for the year ended December 31, 1995 as filed with
the Securities and Exchange Commission (File No. 0-1245).
(b) Unaudited pro forma combined condensed financial statements of the Company
and Contel California.
<TABLE>
<CAPTION>
Page
<S> <C>
Pro Forma Condensed Consolidating Balance Sheet as of September 30, 1996 . . . . . . . . . . . . . . . 4
Pro Forma Condensed Consolidating Statement of Income for the Nine Months Ended September 30, 1996 . . 5
Pro Forma Condensed Consolidating Statement of Income for the Year Ended December 31, 1995 . . . . . . 6
Notes to Unaudited Pro Forma Condensed Consolidating Financial Statements. . . . . . . . . . . . . . . 7
</TABLE>
(c) Exhibit
2.1* Agreement of Merger, dated September 10, 1992, between GTE California
Incorporated and Contel of California, Inc. (Exhibit 2.1 of the Contel
of California, Inc. 1993 Form 10-K. File No. 0-1245).
* Denotes exhibits incorporated herein by reference to previous filings with
the Securities and Exchange Commission as designated.
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GTE CALIFORNIA INCORPORATED AND CONTEL OF CALIFORNIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidating Balance Sheet as of
September 30, 1996, gives effect to the proposed Merger as if it had occurred
as of the balance sheet date. The following Unaudited Pro Forma Condensed
Consolidating Statements of Income for the nine months ended September 30, 1996
and for the year ended December 31, 1995 give effect to the proposed Merger as
if it had occurred at the beginning of the respective periods presented. The
pro forma condensed consolidating financial statements give effect to the
Merger as a "pooling of interests" for accounting purposes and should be read
in conjunction with the historical financial statements and the related notes
thereto contained in the Company's Annual Report on Form 10-K and Contel
California's Annual Report on Form 10-K for the year ended December 31, 1995
and subsequent filings with the Securities and Exchange Commission. All
material intercompany transactions have been eliminated in the pro forma
statements.
The pro forma statements are presented for information purposes only and are
not necessarily indicative of the operating results or financial position that
would have occurred had the Merger been consummated at the dates indicated, nor
are they necessarily indicative of future operating results or financial
position. The costs to be incurred in connection with the Merger are not
expected to be material.
Extraordinary Charges
On November 9, 1995, the Company and Contel California announced through their
parent, GTE Corporation, that in response to enacted and pending legislation
and the increasingly competitive environment in which the Company and Contel
California expect to operate, effective January 1, 1996, the Company and Contel
California discontinued the use of Statement of Accounting Standards No. 71
"Accounting for the Effects of Certain Types of Regulation" (FAS 71). As a
result of this decision, the Company and Contel California recorded non-cash,
extraordinary charges of approximately $583.2 and $127.6 million after taxes
during the fourth quarter of 1995, respectively. These charges primarily
represented a reduction in the net book value of telephone plant and equipment
through an increase in accumulated depreciation. The amounts of the charges
were based on an analysis of discounted cash flows expected to be generated by
the embedded telephone plant and equipment over their remaining economic lives.
In addition, the Company redeemed, prior to stated maturity, $75 million of its
long-term debt. This redemption resulted in an after-tax extraordinary charge
of $0.2 million.
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PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
GTE Contel Surviving
California California Corporation
------------ ---------- ------------
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS
Receivables - net $ 574,683 $ 91,132 $ 665,815
Other current assets 121,961 4,553 126,514
------------ ---------- ------------
Total current assets 696,644 95,685 792,329
------------ ---------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 8,684,382 941,340 9,625,722
Accumulated depreciation (5,197,598) (661,019) (5,858,617)
------------ ---------- ------------
Total property, plant and equipment,net 3,486,784 280,321 3,767,105
OTHER ASSETS, primarily employee benefit plans 550,443 20,963 571,406
------------ ---------- ------------
Total assets $ 4,733,871 $ 396,969 $ 5,130,840
============ ========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 146,453 $ 15,508 $ 161,961
Other current liabilities 853,191 51,929 905,120
------------ ---------- ------------
Total current liabilities 999,644 67,437 1,067,081
------------ ---------- ------------
Long-term debt 1,265,094 80,000 1,345,094
Deferred income taxes 301,780 4,795 306,575
Other liabilities 552,533 80,911 633,444
------------ ---------- ------------
Total liabilities 3,119,051 233,143 3,352,194
------------ ---------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock 81,866 -- 81,866
Common shareholder's equity 1,532,954 163,826 1,696,780
------------ ---------- ------------
Total shareholders' equity 1,614,820 163,826 1,778,646
------------ ---------- ------------
Total liabilities and shareholders' equity $ 4,733,871 $ 396,969 $ 5,130,840
============ ========== ============
</TABLE>
See Notes to Pro Forma Condensed Consolidating Financial Statements.
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PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
GTE Contel Surviving
California California Corporation
----------- ---------- -----------
<S> <C> <C> <C>
REVENUES AND SALES
Local services $ 899,942 $ 106,422 $ 1,006,364
Network access services 557,166 88,071 645,237
Toll services 329,339 39,373 368,712
Other services and sales 255,210 23,447 278,657
------------ ---------- -----------
Total revenues and sales 2,041,657 257,313 2,298,970
------------ ---------- -----------
OPERATING COSTS AND EXPENSES
Cost of services and sales 724,704 81,368 806,072
Selling, general and administrative 337,539 25,339 362,878
Depreciation and amortization 456,490 45,437 501,927
------------ ---------- -----------
Total operating costs and expenses 1,518,733 152,144 1,670,877
------------ ---------- -----------
OPERATING INCOME 522,924 105,169 628,093
OTHER (INCOME) EXPENSE
Interest - net 68,200 5,834 74,034
Other - net (1,129) -- (1,129)
------------ ---------- -----------
INCOME BEFORE INCOME TAXES 455,853 99,335 555,188
Income taxes 177,918 43,704 221,622
------------ ---------- -----------
NET INCOME $ 277,935 $ 55,631 $ 333,566
============ ========== ===========
</TABLE>
See Notes to Pro Forma Condensed Consolidating Financial Statements.
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PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
GTE Contel Surviving
California California Corporation
<S> <C> <C> <C>
REVENUES AND SALES
Local services $ 1,253,896 $ 149,205 $ 1,403,101
Network access services 708,745 103,825 812,570
Toll services 448,796 61,854 510,650
Other services and sales 389,896 28,599 418,495
------------ ---------- -----------
Total revenues and sales 2,801,333 343,483 3,144,816
------------ ---------- -----------
OPERATING COSTS AND EXPENSES
Cost of services and sales 1,076,787 121,841 1,198,628
Selling, general and administrative 527,813 55,663 583,476
Depreciation and amortization 602,998 69,496 672,494
------------ ---------- -----------
Total operating costs and expenses 2,207,598 247,000 2,454,598
------------ ---------- -----------
OPERATING INCOME 593,735 96,483 690,218
Interest - net 100,910 10,913 111,823
------------ ---------- -----------
INCOME BEFORE INCOME TAXES 492,825 85,570 578,395
Income taxes 199,703 35,831 235,534
------------ ---------- -----------
INCOME BEFORE EXTRAORDINARY CHARGES 293,122 49,739 342,861
Extraordinary charges (1) (583,428) (127,620) (711,048)
------------ ---------- -----------
NET LOSS $ (290,306) $ (77,881) $ (368,187)
============ ========== ===========
</TABLE>
See Notes to Pro Forma Condensed Consolidating Financial Statements.
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GTE CALIFORNIA INCORPORATED AND CONTEL OF CALIFORNIA, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(1) Represents the after-tax charge related to the discontinuance of FAS 71
recorded in the fourth quarter of 1995 and an after-tax charge for the
redemption of long-term debt prior to stated maturity.
(2) Reclassifications of prior year data have been made in the condensed
consolidating financial statements, where appropriate, to conform to the
1996 presentation.
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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 hereunto duly authorized.
GTE CALIFORNIA INCORPORATED
---------------------------
(Registrant)
Date: December 20, 1996 William M. Edwards, III
----------------- -----------------------
William M. Edwards, III
Vice President - Controller
(Principal Accounting Officer)
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