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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 NORTH INCORPORATED
(Exact name of registrant as specified in its charter)
WISCONSIN
(State or other jurisdiction of incorporation or organization)
0-1210 35-1869961
(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
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GTE NORTH INCORPORATED AND SUBSIDIARY
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
On November 9, 1995, GTE North 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 $1,254.0 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 $200.7 million of its
long-term debt issues. The positive impact of these redemptions is not
expected to have a significant effect on the Company's earnings over the next
several years.
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GTE NORTH 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 $ 2,085,519 $ 23,057 (1) $ 2,108,576
OPERATING EXPENSES
Cost of sales and services 749,380 749,380
Depreciation and amortization 421,033 421,033
Selling, general & administrative 259,842 23,057 (1) 282,899
------------- ------------- -------------
Total operating expenses 1,430,255 23,057 1,453,312
------------- ------------- -------------
OPERATING INCOME 655,264 -- 655,264
------------- ------------- -------------
OTHER DEDUCTIONS 86,262 86,262
------------- ------------- -------------
Income before income taxes 569,002 -- 569,002
INCOME TAXES 209,810 209,810
------------- ------------- -------------
Income before extraordinary charge 359,192 -- 359,192
EXTRAORDINARY CHARGE -- (1,253,959) (2) (1,253,959)
------------- ------------- -------------
Net income (loss) $ 359,192 $ (1,253,959) $ (894,767)
============= ============= =============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE NORTH 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 $ 2,759,905 $ 34,560 (1) $ 2,794,465
OPERATING EXPENSES
Cost of sales and services 914,567 914,567
Depreciation and amortization 533,907 533,907
Selling, general & administrative 441,375 34,560 (1) 475,935
------------- ------------- -------------
Total operating expenses 1,889,849 34,560 1,924,409
------------- ------------- -------------
OPERATING INCOME 870,056 -- 870,056
------------- ------------- -------------
OTHER DEDUCTIONS 109,487 109,487
------------- ------------- -------------
Income before income taxes 760,569 -- 760,569
INCOME TAXES 284,293 284,293
------------- ------------- -------------
Income before extraordinary charge 476,276 -- 476,276
EXTRAORDINARY CHARGE -- (1,253,959) (2) (1,253,959)
------------- ------------- -------------
Net income (loss) $ 476,276 $ (1,253,959) $ (777,683)
============= ============= =============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE NORTH 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 $ 39,935 $ 39,935
Receivables, less allowance of $27,214 584,031 584,031
Materials and supplies 47,012 47,012
Deferred income tax benefits 40,009 40,009
Prepayments and other 85,788 85,788
------------- ------------- -------------
Total current assets 796,775 796,775
------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 8,840,068 8,840,068
Accumulated depreciation (4,064,834) $ (1,977,869) (3) (6,042,703)
------------- ------------- -------------
Net property, plant and equipment 4,775,234 (1,977,869) 2,797,365
------------- ------------- -------------
PREPAID PENSION COSTS 531,836 531,836
------------- ------------- -------------
OTHER ASSETS 66,440 (28,830) (4) 37,610
------------- ------------- -------------
Total Assets $ 6,170,285 $ (2,006,699) $ 4,163,586
============= ============= =============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE NORTH 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 $ 317,756 $ 317,756
Accounts payable 161,321 161,321
Accrued taxes 123,588 123,588
Accrued payroll and vacations 151,150 151,150
Accrued interest 24,097 24,097
Accrued dividends 76,876 76,876
Accrued restructuring costs and other 248,236 248,236
------------- ------------- -------------
Total current liabilities 1,103,024 1,103,024
------------- ------------- -------------
LONG-TERM DEBT 1,318,615 $ 12,884 (5) 1,331,499
------------- ------------- -------------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 891,766 (765,624) (6) 126,142
Employee benefit obligations 246,483 246,483
Restructuring costs and other 108,912 108,912
------------- ------------- -------------
Total reserves and deferred credits 1,247,161 (765,624) 481,537
------------- ------------- -------------
PREFERRED STOCK, subject to mandatory
redemption 17,624 17,624
------------- ------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock 29,033 29,033
Common stock 978,351 978,351
Other capital 43,110 43,110
Reinvested earnings 1,433,367 (1,253,959) (2) 179,408
------------- ------------- -------------
Total shareholders' equity 2,483,861 (1,253,959) 1,229,902
------------- ------------- -------------
Total Liabilities and Shareholders' Equity $ 6,170,285 $ (2,006,699) $ 4,163,586
============= ============= =============
</TABLE>
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Information.
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GTE NORTH 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 - 5
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 $200.7 million of long-term debt
that will be refinanced.
(5) Represents the costs associated with refinancing $200.7 million of
long-term debt.
(6) Represents the tax effect of the adjustments described in notes 3 - 5
above.
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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 NORTH INCORPORATED
(Registrant)
Date: November 13, 1995 By William M. Edwards III
----------------------
William M. Edwards III
Controller
(Chief Accounting Officer)
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