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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 SOUTH INCORPORATED
(Exact name of registrant as specified in its charter)
VIRGINIA
(State or other jurisdiction of incorporation or organization)
2-36292 56-0656680
(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 SOUTH INCORPORATED
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
On November 9, 1995, GTE South 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 $509.9 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.
In addition, the Company announced through its parent, GTE Corporation, that it
will refinance, on a long-term basis, approximately $248.6 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 SOUTH 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 $ 966,796 $ 13,199 (1) $ 979,995
OPERATING EXPENSES
Cost of sales and services 351,576 351,576
Depreciation and amortization 206,429 206,429
Selling, general & administrative 124,319 13,199 (1) 137,518
------------ ----------- -----------
Total operating expenses 682,324 13,199 695,523
------------ ----------- -----------
OPERATING INCOME 284,472 -- 284,472
------------ ----------- -----------
OTHER DEDUCTIONS 24,164 24,164
------------ ----------- -----------
Income before income taxes 260,308 -- 260,308
INCOME TAXES 99,419 99,419
------------ ----------- -----------
Income before extraordinary charge 160,889 -- 160,889
EXTRAORDINARY CHARGE -- (509,881)(2) (509,881)
------------ ----------- -----------
Net income (loss) $ 160,889 $ (509,881) $ (348,992)
============ =========== ===========
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
2
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GTE SOUTH 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 $ 1,221,418 $ 28,986 (1) $ 1,250,404
OPERATING EXPENSES
Cost of sales and services 506,921 506,921
Depreciation and amortization 262,877 262,877
Selling, general & administrative 183,272 28,986 (1) 212,258
------------ ------------ -------------
Total operating expenses 953,070 28,986 982,056
------------ ------------ -------------
OPERATING INCOME 268,348 -- 268,348
------------ ------------ -------------
OTHER DEDUCTIONS 61,853 61,853
------------ ------------ -------------
Income before income taxes 206,495 -- 206,495
INCOME TAXES 77,308 77,308
------------ ------------ -------------
Income before extraordinary charge 129,187 -- 129,187
EXTRAORDINARY CHARGE -- (509,881) (2) (509,881)
------------ ------------ -------------
Net income (loss) $ 129,187 $ (509,881) $ (380,694)
============ ============ =============
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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GTE SOUTH 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 $ 16,615 $ 16,615
Receivables, less allowance
of $18,356 173,316 173,316
Materials and supplies 23,132 23,132
Deferred income tax benefits 20,567 20,567
Prepayments and other 17,748 17,748
------------ ------------- -----------
Total current assets 251,378 251,378
------------ ------------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 3,928,529 3,928,529
Accumulated depreciation (1,552,368) $ (824,343) (3) (2,376,711)
------------ ------------- -----------
Net property, plant and equipment 2,376,161 (824,343) 1,551,818
------------ ------------- -----------
PREPAID PENSION COSTS 76,941 76,941
------------ ------------- -----------
OTHER ASSETS 30,144 (4,197) (4) 25,947
------------ ------------- -----------
Total Assets $ 2,734,624 $ (828,540) $ 1,906,084
============ ============= ===========
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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GTE SOUTH 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 $ 108,370 $ 108,370
Accounts payable 87,940 87,940
Accrued taxes 59,917 59,917
Accrued payroll and vacations 31,034 31,034
Accrued dividends 56,969 56,969
Accrued interest 12,119 12,119
Accrued restructuring costs and other 127,769 127,769
------------ ------------ ------------
Total current liabilities 484,118 484,118
------------ ------------ ------------
LONG-TERM DEBT 593,374 $ 12,708 (5) 606,082
------------ ------------ ------------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 376,033 (331,367)(6) 44,666
Employee benefit obligations 130,881 130,881
Restructuring costs and other 73,894 73,894
------------ ------------ ------------
Total reserves and deferred credits 580,808 (331,367) 249,441
------------ ------------ ------------
PREFERRED STOCK, subject to mandatory
redemption 2,757 2,757
------------ ------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock 412 412
Common stock 525,000 525,000
Other capital 58,320 58,320
Reinvested earnings (deficit) 489,835 (509,881)(2) (20,046)
------------ ------------ ------------
Total shareholders' equity 1,073,567 (509,881) 563,686
------------ ------------ ------------
Total Liabilities and Shareholders' Equity $ 2,734,624 $ (828,540) $ 1,906,084
============ ============ ============
</TABLE>
See Notes to Unaudited Condensed Pro Forma Financial Information.
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GTE SOUTH 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 - 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 $248.6 million of long-term debt
that will be refinanced.
(5) Represents the costs associated with refinancing $248.6 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 SOUTH INCORPORATED
(Registrant)
Date: November 13, 1995 By William M. Edwards III
--------------------------
William M. Edwards III
Controller
(Chief Accounting Officer)
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