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: 2-36292
GTE SOUTH INCORPORATED
(Exact name of registrant as specified in its charter)
VIRGINIA 56-0656680
(State or other jurisdiction of
(I.R.S. Employer
Incorporation or organization)
Identification No.)
19845 N. U.S. 31, P.O. BOX 407, Westfield, Indiana 46074
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 317-896-
6464
(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 18,936,000 shares of $25 par value common stock
outstanding at April 30, 1994.
GTE SOUTH INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION PAGE
Condensed Statements of Income. . . . . . .. . . . . . . . .
. . . . 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .
. . . 2
Condensed Balance Sheets - Assets. . . . . . . . . . . . . .
. . . . 4
Condensed Balance Sheets - Liabilities and
Shareholders' Equity. . . . . . . . . . . . . . . . . . . .
. . . 5
Condensed Statements of Cash Flows . . . . . . . . . . . . .
. . . . 6
Notes to Condensed Financial Statements . . . . . . . . . .
. . . . 7
PART II. OTHER INFORMATION
Items 1 through 6. . . . . . . . . . . . . . . . . . . . . .
. . . . 8
Signature. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 9
PART I. FINANCIAL INFORMATION
GTE SOUTH INCORPORATED
CONDENSED STATEMENTS OF INCOME
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
OPERATING REVENUES:
Local network services $ 72,053 $ 94,655
Network access services 73,206 100,591
Long distance services 6,426 8,396
Equipment sales and services 12,367 16,957
Other 26,907 25,334
190,959 245,933
OPERATING EXPENSES:
Cost of sales and services 47,663 51,007
Depreciation and amortization 42,590 52,811
Marketing, selling, general and administrative 58,396
72,589
148,649 176,407
Net operating income 42,310 69,526
OTHER (INCOME) DEDUCTIONS:
Interest expense 8,625 17,497
Other - net 3,818 (607)
INCOME BEFORE INCOME TAXES 29,867 52,636
INCOME TAXES 11,238 19,490
NET INCOME $ 18,629 $ 33,146
Per share data is omitted since the Company's common stock is
100% owned by GTE Corporation (Parent Company).
See Notes to Condensed Financial Statements.
1
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income decreased 44% or $14.5 million for the three months
ended March 31, 1994. This decrease is primarily the result of
property repositioning. On November 1, 1993, the Company
exchanged 244,000 access lines in Georgia for 38,000 access lines
in ALLTEL Corporation's Illinois operations. In addition, on
December 31, 1993, the Company sold 123,000 access lines in West
Virginia and Tennessee to Citizens Utilities Company. This
represented a net reduction in access lines of approximately 25%.
Operating Revenues
Operating revenues decreased 22% or $55.0 million for the three
months ended March 31, 1994 compared to the same period in 1993.
Net revenues decreased approximately $64 million due to the
property repositioning mentioned above. Also contributing to the
decrease was the final phase out of transitional support payments
received from the National Exchange Carrier Association (NECA).
On April 1, 1993, the Company no longer received transitional
support funds and began making long term support payments to NECA
as required by the FCC. In addition, during the first quarter of
1994 the Company had a change in pooling arrangements in several
jurisdictions which resulted in a slight decrease in net
revenues. Partially offsetting these decreases was increased
network usage, an increase in directory revenue due to timing of
publications and decreased provisions of uncollectible revenues.
Operating Expenses
Operating expenses decreased 16% or $27.8 million for the three
months ended March 31, 1994. Operating expenses decreased due to
property repositioning mentioned above. Partially offsetting
this decrease were depreciation rate order increases in North
Carolina and Kentucky that were effective January 1, 1994.
Other Expenses
Interest expense decreased 51% or $8.9 million in 1994. The 1994
decrease is primarily attributable to lower long-term debt
levels. During November and December 1993, the Company called
$394 million of high-coupon first mortgage bonds with proceeds
from the sale of properties in Georgia, Tennessee and West
Virginia.
Income taxes decreased 42% or $8.3 million for the three months
ended March 31, 1994 compared to 1993 primarily due to decreases
in pretax income. The decrease was partially offset by a
reduction in the amortization of deferred investment tax credits.
2
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first quarter of
1994 was cash flow from operations of $102.2 million compared to
$68.8 million for the same period in 1993.
Capital expenditures represent a significant use of funds during
1994 and 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 1994 were $35.5 million compared to $37.8 million during
the same period in 1993. The Company's anticipated construction
costs for 1994 are approximately $155 million. The Company paid
taxes of $170.7 million in 1994 related to the gain on the
disposition of properties sold in late 1993.
Cash provided from financing activities was $102.6 million in
1994 compared to cash used for financing of $27.7 million in
1993. The Company used the proceeds from the repayment of a
$299.9 million affiliate note receivable in 1994 to fund dividend
payments of $281.4 million to its parent. Dividends of $3.9
million were paid in 1993.
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.
3
GTE SOUTH INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
March 31,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 7,247 $ 7,937
Receivables, less allowances of
$9,345 and $9,682, respectively 145,012 145,725
Note receivable from affiliate 28,400 328,328
Materials and supplies, at average cost 19,701 21,040
Deferred income tax benefits 6,120 47,935
Prepayments and other 9,695 7,895
Total current assets 216,175 558,860
PROPERTY, PLANT AND EQUIPMENT:
Original cost 2,387,635 2,369,401
Accumulated depreciation (901,281)
(874,564)
Net property, plant and equipment 1,486,354 1,494,837
OTHER ASSETS 99,647 109,403
TOTAL ASSETS $ 1,802,176 $ 2,163,100
See Notes to Condensed Financial Statements.
4
GTE SOUTH INCORPORATED
CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 116,165 $
24,652
Accounts payable 46,636 50,425
Accrued taxes 66,129 184,560
Accrued payroll and vacations 22,425 25,584
Accrued dividends 23,591 204,020
Accrued interest 1,527 241
Accrued restructuring costs and other 141,681 148,979
Total current liabilities 418,154 638,461
LONG-TERM DEBT 366,381 373,700
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 377,775 428,617
PREFERRED STOCK, subject to
mandatory redemption 3,135 3,225
SHAREHOLDERS' EQUITY:
Preferred stock 412 412
Common stock 473,400 473,400
Other capital 1,187 1,187
Reinvested earnings 161,732 244,098
Total shareholders' equity 636,731 719,097
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,802,176 $
2,163,100
See Notes to Condensed Financial Statements.
5
GTE SOUTH INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,629 $ 33,146
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 42,590 52,811
Deferred income taxes and investment
tax credits (53,186)
(3,631) Provision for
uncollectible accounts 3,253 4,744
Changes in current assets and
current liabilities 78,399 (15,187)
Other - net 12,509 (3,072)
Net cash provided from operating
activities 102,194 68,811
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (35,483)
(37,788)
Tax payments on disposition (170,684)
- - --
Other - net 731 (1,492)
Net cash used in investing activities (205,436)
(39,280)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt and preferred stock retired (252)
(392)
Dividends paid to shareholders (281,424)
(3,906)
Net change in affiliate notes 299,928 (6,700)
Increase (decrease) in short-term debt 84,300 (16,700)
Net cash provided from (used in)
financing activities 102,552 (27,698)
Increase (decrease) in cash (690)
1,833
Cash at beginning of period 7,937 4,863
Cash at end of period $ 7,247 $ 6,696
See Notes to Condensed Financial Statements.
6
GTE SOUTH INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) The condensed 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 financial statements
include all adjustments, which consist only of normal recurring
accruals, necessary to present fairly the financial information
for such periods. These condensed 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 November 1, 1993, the Company in a series of transactions
exchanged its telephone plant in service, materials and supplies
and customers (representing 244,000 access lines) in the state of
Georgia for similar assets (including 38,000 access lines) in
ALLTEL Corporation's Illinois operations and $446 million in
cash. This transaction was accounted for as a sale. The net
sales proceeds exceeded the book value of assets and liabilities
sold and therefore, a pretax gain of $29 million was recognized
on the transaction.
On December 31, 1993, the Company sold its telephone plant in
service, materials and supplies and customers (representing
123,000 access lines) in the states of West Virginia and
Tennessee to Citizens Utilities Company for $291 million in cash.
This transaction was accounted for as a sale. The net sales
proceeds exceeded book value and therefore, a pretax gain of $34
million was recognized on the transaction.
(3) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
7
GTE SOUTH INCORPORATED
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 South Incorporated filed a report on Form 8-K dated January
13, 1994 under Item 5, "Other Events." No financial statements
were filed with this report.
GTE South Incorporated filed amended reports on Form 8-K dated
November 1, 1993 on January 13, 1994 and February 23, 1994, under
Item 2, "Acquisition or Disposition of Assets." Pro Forma
Financial Statements were filed with this report.
8
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 SOUTH
INCORPORATED
(Registrant)
Date: May 12, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
9
