<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 SOUTHWEST INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1-7077 75-0573444
(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 SOUTHWEST INCORPORATED
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
On November 9, 1995, GTE Southwest 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 $488.1 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 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
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
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.
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GTE SOUTHWEST INCORPORATED
UNAUDITED CONDENSED 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 $ 954,400 $ 18,281 (1) $ 972,681
OPERATING EXPENSES
Cost of sales and services 389,458 389,458
Depreciation and amortization 216,739 216,739
Selling, general & administrative 142,643 18,281 (1) 160,924
--------- ---------- ----------
Total operating expenses 748,840 18,281 767,121
--------- ---------- ----------
OPERATING INCOME 205,560 -- 205,560
--------- ---------- ----------
OTHER DEDUCTIONS 14,425 14,425
--------- ---------- ----------
Income before income taxes 191,135 -- 191,135
INCOME TAXES 64,180 64,180
--------- ---------- ----------
Income before extraordinary charge 126,955 -- 126,955
EXTRAORDINARY CHARGE -- (488,097) (2) (488,097)
--------- ---------- ----------
Net income (loss) $ 126,955 $ (488,097) $ (361,142)
========= ========== ==========
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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GTE SOUTHWEST INCORPORATED
UNAUDITED CONDENSED 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 $1,210,620 $ 25,154 (1) $1,235,774
OPERATING EXPENSES
Cost of sales and services 538,876 538,876
Depreciation and amortization 272,294 272,294
Selling, general & administrative 182,804 25,154 (1) 207,958
---------- ---------- ----------
Total operating expenses 993,974 25,154 1,019,128
---------- ---------- ----------
OPERATING INCOME 216,646 -- 216,646
---------- ---------- ----------
OTHER DEDUCTIONS 32,906 32,906
---------- ---------- ----------
Income before income taxes 183,740 -- 183,740
INCOME TAXES 60,354 60,354
---------- ---------- ----------
Income before extraordinary charge 123,386 -- 123,386
EXTRAORDINARY CHARGE -- (488,097) (2) (488,097)
---------- ---------- ----------
Net income (loss) $ 123,386 $ (488,097) $ (364,711)
========== ========== ==========
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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<PAGE> 5
GTE SOUTHWEST INCORPORATED
UNAUDITED CONDENSED 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 $ 24,500 $ 24,500
Receivables, less allowance
of $20,003 213,079 213,079
Materials and supplies 28,235 28,235
Deferred income tax benefits 13,429 13,429
Net assets held for sale 7,096 7,096
Prepayments and other 15,860 15,860
------------ ----------- ------------
Total current assets 302,199 302,199
------------ ----------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 4,148,384 4,148,384
Accumulated depreciation (1,668,288) $ (769,335) (3) (2,437,623)
------------ ----------- ------------
Net property, plant and equipment 2,480,096 (769,335) 1,710,761
------------ ----------- ------------
PREPAID PENSION COSTS 62,822 62,822
------------ ----------- ------------
OTHER ASSETS 23,283 23,283
------------ ----------- ------------
Total Assets $ 2,868,400 $ (769,335) $ 2,099,065
============ =========== ============
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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GTE SOUTHWEST INCORPORATED
UNAUDITED CONDENSED 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 $ 62,028 $ 62,028
Accounts payable 114,108 114,108
Accrued taxes 32,066 32,066
Accrued interest 15,665 15,665
Accrued payroll and vacations 48,686 48,686
Accrued dividends 6,242 6,242
Accrued restructuring costs and other 237,462 237,462
---------- --------- ----------
Total current liabilities 516,257 516,257
---------- --------- ----------
LONG-TERM DEBT 664,505 664,505
---------- --------- ----------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 365,174 $(268,642) (5) 96,532
Employee benefit obligations 113,808 113,808
Restructuring costs and other 105,771 (12,596) (4) 93,175
---------- --------- ----------
Total reserves and deferred credits 584,753 (281,238) 303,515
---------- --------- ----------
PREFERRED STOCK, subject to mandatory
redemption 10,190 10,190
---------- --------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock 7,600 7,600
Common stock 645,000 645,000
Reinvested earnings (deficit) 440,095 (488,097) (2) (48,002)
---------- --------- ----------
Total shareholders' equity 1,092,695 (488,097) 604,598
---------- --------- ----------
Total Liabilities and Shareholders' Equity $2,868,400 $(769,335) $2,099,065
========== ========= ==========
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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GTE SOUTHWEST INCORPORATED
NOTES TO UNAUDITED CONDENSED 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 liabilities.
(5) Represents the tax effect of the adjustments described in notes 3 and 4
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 SOUTHWEST INCORPORATED
(Registrant)
Date: November 13, 1995 By William M. Edwards III
----------------------
William M. Edwards III
Controller
(Chief Accounting Officer)
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