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 - March 15, 1996
(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
(Address of principal executive offices) 75038
(Zip Code)
Registrant's telephone number, including area code 214-718-5600
GTE SOUTH INCORPORATED
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
GTE South Incorporated (the Company) announced today that 1995 net
income increased 57% or $74 million over 1994, excluding the impact of
$510 million of extraordinary charges for the previously announced
discontinuation of Statement of Financial Accounting Standards No. 71
(FAS 71) "Accounting for the Effects of Certain Types of Regulation" and
the early retirement of debt. The 1995 increase is primarily due to
continued customer growth, lower operating costs and expenses and the
reversal of $20 million of reserves related to expired warranties on
properties sold in 1993 partially offset by higher depreciation costs.
Income before extraordinary charges was $203 million and $129 million in
1995 and 1994, respectively. Net loss was $307 million for 1995
compared to net income of $129 million in 1994.
Revenues and sales were $1,319 million in 1995 compared to $1,250
million in 1994. The increase of 5% or $69 million is primarily due to
continued customer growth as evidenced by a 5% increase in access lines
and a 9% increase in minutes of use. The increase is also due to growth
in revenues from new services.
Operating income was $362 million and $268 million in 1995 and 1994,
respectively. The increase of $94 million is primarily due to higher
revenues and sales, lower costs reflecting the favorable effects of
ongoing cost-reduction programs from process re-engineering activities
and a decrease in provisions for uncollectible and unbillable accounts
partially offset by higher depreciation expense.
The Company is subject to regulation by the regulatory bodies of the
states of Alabama, Illinois, Kentucky, North Carolina, South Carolina
and Virginia as to its intrastate business operations and by the Federal
Communications Commission (FCC) as to its interstate operations.
Advances in technology, together with a number of regulatory,
legislative and judicial actions, continue to accelerate and expand the
level of competition and opportunities available to the Company.
Presently, the Company is subject to competition from numerous sources,
including competitive access providers for network access services and
specialized communications companies that have constructed new systems
in certain markets to bypass the local-exchange network. In addition,
competition from alternative local-exchange carriers, interexchange
carriers, wireless and cable TV companies, as well as more recent entry
by media and computer companies, is expected to increase in the rapidly
changing telecommunications marketplace.
On February 8, 1996, the Telecommunications Act of 1996 (the
Telecommunications Act) became law. This comprehensive
telecommunications reform legislation addresses a wide range of
competitive and regulatory issues that will affect the future
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development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition
as the chief way of assuring that telecommunications services are
delivered to customers. The new law removes many of the statutory and
court-ordered barriers to competition between segments of the industry,
enabling local-exchange, long distance, wireless and cable companies to
compete in offering voice, video and information services.
The Telecommunications Act requires the FCC and state commissions to set
new guidelines to open local-exchange markets and to set new guidelines
for interconnection, loosens restrictions barring local telephone
companies from entering the cable television market, and preserves
universal service while equalizing the responsibility for contribution
among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Corporation (GTE) Consent Decree which has kept
the Company from providing interLATA services. This action will
simplify GTE's ability to market local intraLATA and interLATA service
to its customers as a bundled service. In February 1996, GTE executed
an agreement whereby WorldCom, Inc. will provide, on a non-exclusive
basis, a full array of telecommunications services in support of GTE's
entry into the interLATA long distance market. In March 1996, GTE,
through a separate subsidiary, began offering long distance to its
customers in selected markets. GTE plans to offer the service, marketed
under the name GTE Easy Savings Plan, in all 28 states where it
currently offers local telephone service by December 1996.
The Telecommunications Act forbids states from imposing any barriers to
entry into local and toll competition. Through 1995, local competition
has been authorized in fifteen states, including Illinois, North
Carolina and Virginia. In addition, eight states, including Illinois
and Kentucky, have authorized plans that would allow customers to
pre-subscribe to a specific carrier to handle their intraLATA toll
calls. Pre-subscribed customers will simply dial "1" before the
telephone number in order to complete intraLATA calls. The
Telecommunications Act requires GTE to negotiate intraLATA dialing
parity provisions with its competitors. In subsequent negotiations, GTE
will address implementation of 1+ in those states which have not
previously ordered implementation.
Federal and state regulatory activity continued to change the
traditional cost-based, rate-of-return regulatory framework for
intrastate and interstate telephone service. Regulatory authorities
have adopted various forms of alternative regulation, which provide
economic incentives to telephone service providers to improve
productivity and provide the foundation for implementing pricing
flexibility necessary to address competitive entry into GTE markets.
For the provision of interstate access services, the Company operates
under the terms of the FCC's price cap incentive plan. The "price cap"
mechanism serves to limit the rates a carrier may charge, rather than
just regulating the rate of return which may be achieved. Under this
approach, the maximum prices that the local-exchange carrier (LEC) may
charge are increased or decreased each year by a price index based upon
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inflation less a predetermined productivity target. LECs have limited
pricing flexibility provided they do not exceed the allowed price cap.
The FCC is considering how the price cap plan should be modified in the
future in order to adapt the system to the emergence of competition.
The Company continues to support greater competition in
telecommunications, provided that, overall, the actions to eliminate
existing legal and regulatory barriers benefit consumers by allowing an
opportunity for all service providers to participate equally in a
competitive marketplace under comparable conditions.
The Company intends to continue to respond aggressively to regulatory
and legal developments that allow for increased competition and
opportunities in the marketplace. The Company expects its financial
results to benefit from reduced costs and the introduction of new
products and services that will result in increased usage of its
telephone networks. However, it is likely that such improvements will be
offset, in part, by continued strategic pricing reductions and the
effects of increased competition.
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GTE SOUTH INCORPORATED
SELECTED FINANCIAL DATA
Selected Income Statement Items:
For the Years Ended December 31,
1995 1994
Revenues and sales $1,319,110 $1,250,404
Operating costs and expenses 956,958 982,056
Operating income 362,152 268,348
Interest - net 57,656 57,653
Other - net (20,000) 4,200
Income taxes 121,897 77,308
Income before extraordinary charges 202,599 129,187
Extraordinary charges (a) (509,880) -
Net income (loss) $ (307,281) $ 129,187
Selected Balance Sheet Items:
As of December 31,
1995 1994
Property, plant and equipment, net $ 1,566,183 $ 2,402,927
Total assets 1,902,748 2,762,128
Long-term debt and preferred stock,
subject to mandatory redemption 726,060 597,213
Shareholders' equity 605,358 1,030,678
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GTE SOUTH INCORPORATED
SELECTED FINANCIAL DATA - (Continued)
Other Items:
For the Years Ended December 31,
1995 1994
Cash from operations $ 437,035 $ 278,060
Cash used in investing 248,469 279,791
Cash used in financing 163,844 9,530
Operating cash flow (b) 636,518 531,225
Dividends declared on common stock 117,892 168,660
Dividends declared on
preferred stock 157 171
(a) Extraordinary charges for 1995 are for the discontinuation of FAS 71
and the early retirement of debt.
(b) Represents operating income before depreciation and amortization.
Item 7. Financial Statements and Exhibits
(a) Financial Statements -- None.
(b) Pro Forma Financial Information -- None.
(c) Exhibits
12 Statements re Computation of Ratios.
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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)
By William M. Edwards III
William M. Edwards III
(Chief Accounting Officer)
Date: March 15, 1996
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<TABLE>
Exhibit 12
GTE SOUTH INCORPORATED
STATEMENTS OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Years Ended December 31,
1995 1994 1993(a) 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed charges:
Income before extraordinary charges $202,599 $129,187 $205,898 $ 99,735 $195,090 $162,857
Add -
Income taxes 121,897 77,308 151,757 85,712 108,869 76,718
Fixed charges 64,164 66,105 99,716 99,716 100,382 101,997
Adjusted earnings available
for fixed charges $388,660 $272,600 $457,371 $285,163 $404,341 $341,572
Fixed Charges:
Interest expense $ 58,553 $ 60,038 $ 92,822 $ 92,822 $ 93,731 $ 94,642
Portion of rent expense representing
interest 5,611 6,067 6,894 6,894 6,651 7,355
Adjusted fixed charges $ 64,164 $ 66,105 $ 99,716 $ 99,716 $100,382 $101,997
Ratio of Earnings to Fixed Charges 6.06 4.12 4.59 2.86 4.03 3.35
(a) Results for 1993 exclude an after-tax restructuring charge of
approximately $100 million for the implementation of a re-engineering plan, a
one-time after-tax charge of approximately $6 million related to the enhanced
early retirement and voluntary separation programs offered to eligible
employees in 1993.
</TABLE>
