<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1997
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 972-718-5600
(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 21,000,000 shares of $25 par value common stock outstanding at
July 31, 1997. The Company's common stock is 100% owned by GTE Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION
GTE South Incorporated
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local services $ 145,565 $ 135,648 $ 277,302 $ 267,195
Network access services 150,787 141,307 292,728 275,528
Toll services 26,607 30,988 66,832 65,219
Other services and sales 42,760 36,563 95,364 88,642
---------- ---------- ---------- ----------
Total revenues and sales 365,719 344,506 732,226 696,584
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Costs of services and sales 123,181 121,772 239,721 243,802
Selling, general and administrative 52,708 50,835 102,622 98,478
Depreciation and amortization 72,078 68,668 142,411 138,200
---------- ---------- ---------- ----------
Total operating costs and expenses 247,967 241,275 484,754 480,480
---------- ---------- ---------- ----------
OPERATING INCOME 117,752 103,231 247,472 216,104
OTHER EXPENSES
Interest - net 12,221 11,421 24,807 21,634
Other - net 289 -- 289 --
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 105,242 91,810 222,376 194,470
Income taxes 40,074 35,313 84,569 74,213
---------- ---------- ---------- ----------
NET INCOME $ 65,168 $ 56,497 $ 137,807 $ 120,257
---------- ---------- ---------- ----------
</TABLE>
Per share data is omitted since the Company's common stock is 100% owned by GTE
Corporation (GTE).
See Notes to Condensed Financial Statements.
1
<PAGE> 3
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $65.2 $56.5 $137.8 $120.3
</TABLE>
Net income increased 15% or $8.7 and 15% or $17.5 for the three and six months
ended June 30, 1997, respectively, compared to the same periods in 1996. The
increases are primarily due to higher revenues and sales, primarily local and
network access services, partially offset by higher operating costs and
expenses and increased income taxes.
REVENUES AND SALES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
Local services $145.6 $135.6 $277.3 $267.2
Network access services 150.8 141.3 292.7 275.5
Toll services 26.6 31.0 66.8 65.2
Other services and sales 42.7 36.6 95.4 88.7
------ ------ ------ ------
Total revenues and sales $365.7 $344.5 $732.2 $696.6
</TABLE>
Total revenues and sales increased 6% or $21.2 and 5% or $35.6 for the three
and six months ended June 30, 1997, respectively, compared to the same periods
in 1996.
Local service revenues increased 7% or $10 and 4% or $10.1 for the three and
six months ended June 30, 1997, respectively, compared to the same periods in
1996. The number of access lines increased 5% for both the three and six
months ended June 30, 1997, which generated $3 and $5.7 of additional revenues,
respectively. The three and six month increases also reflect growth in
revenues of $3.4 and $4.9 from enhanced custom calling features, such as
SmartCall(R), and higher revenues from CentraNet(R) services of $0.8 and $2.1.
The increases also reflect the $3.4 growth in revenues for both periods from
sales of integrated services digital network (ISDN). ISDN enables rapid
transmission of voice, data, image and text, and facilitates Internet access.
The year-to-date increase in local service revenues is partially offset by the
$7.5 unfavorable impact of sharing provisions from the Virginia Alternative
Regulatory Framework.
Network access service revenues increased 7% or $9.5 for the three months and
6% or $17.2 for the six months ended June 30, 1997, compared to the same
periods in 1996. Minutes of use increased 10% and 9% for the three and six
months ended June 30, 1997, which generated $7.4 and $12.9 of revenues,
respectively. The increases are also due to special access revenue growth of
$4.8 and $8 related to customer demand for increased bandwidth services and
increases of $2.3 and $1.1 in revenues associated with access fees charged to
cellular service providers. These increases are partially offset by the impact
of favorable interLATA (local access and transport area) revenue adjustments of
$4.9 and $7.1 that were made during 1996.
2
<PAGE> 4
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Toll service revenues decreased 14% or $4.4 for the three months ended June 30,
1997 and increased 2% or $1.6 for the six months ended therein, compared to the
same periods in 1996. The change in toll revenues is attributable to lower
toll volumes, primarily related to intraLATA toll competition, including 10XXX
and 1 + presubscription. The change also reflects the impact from optional
discount calling plans, which effectively lowered intrastate toll rates. Net
unfavorable settlement activities also reduced toll revenues by approximately
$1.7 for the three month period. Net favorable settlement activities increased
toll revenues by $3.2 for the six months ended June 30, 1997, compared to the
same period in 1996.
Other services and sales revenues increased 17% or $6.1 and 8% or $6.7 for the
three and six months ended June 30, 1997, respectively, compared to the same
periods in 1996. The increases are primarily due to the higher equipment
sales of $2.1 and $0.6 and increases in revenues from radio paging and voice
messaging services of $0.7 and $1.4, respectively.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total operating costs and $248.0 $241.3 $484.8 $480.5
expenses
</TABLE>
Total operating costs and expenses increased 3% or $6.7 and 1% or $4.3 for the
three and six months ended June 30, 1997, respectively, compared to the same
periods in 1996. The three and six month increases are primarily attributable
to higher depreciation charges of $3.4 and $4.2 associated with additions to
plant balances, higher advertising costs of $1.5 and $4.2 and higher access
charges incurred to terminate customers' intraLATA toll calls outside of the
Company's service territories of $2.5 and $5.8. These increases are partially
offset by lower labor and benefits costs of $1.3 and $3.3 and lower application
software costs of $2.5 and $3.8. The year-to-date increase is also partially
offset by the impact of $4.4 in pension settlement gains recorded in the first
quarter of 1997, partially offset by settlement gains of $3 recorded during the
same period of 1996.
OTHER EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest - net $12.2 $11.4 $24.8 $21.6
Income taxes 40.1 35.3 84.6 74.2
</TABLE>
Interest - net increased 7% or $0.8 and 15% or $3.2 for the three and six
months ended June 30, 1997, respectively, compared to the same periods in 1996.
The increases are primarily attributable to higher average short-term debt
levels.
Income taxes increased 14% or $4.8 for the three months and 14% or $10.4 for
the six months ended June 30, 1997, compared to the same periods in 1996,
primarily due to corresponding increases in pre-tax income.
3
<PAGE> 5
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
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
borrowings from GTE or GTE Funding Incorporated, an affiliate of the Company.
On July 1, 1996, the Company began participating with other affiliates in a
$1,500 syndicated line of credit. The Company currently has an existing shelf
registration statement outstanding for an additional $225 of debentures.
The Company's primary source of funds during the first six months of 1997 was
cash from operations of $240.4 compared to $215.2 for the same period in 1996.
The year-to-year increase in cash from operations is primarily the result of
improved results from operations, partially offset by an increase in working
capital requirements.
The Company's capital expenditures during the first six months of 1997 were
$120.3 compared to $119 for the same period in 1996. The 1997 expenditures
reflect the Company's continued access line growth and modernization of current
facilities to support new products and expanded services. The Company
anticipates capital expenditures to increase slightly during the remainder of
1997 compared to 1996, reflecting the continued expansion of existing networks.
Cash used in financing activities was $69.8 during the first six months of 1997
compared to $117.3 for the same period in 1996. This included dividend
payments of $126 during the first six months of 1997, compared to $50.1 for the
same period of 1996. Short-term financings, including the net change in
affiliate notes, increased $91.2 for the first six months of 1997, compared to
a decrease of $450.8 for the same period of 1996. During the first six months
of 1997, the Company paid a total of $35 for the retirement of debt and
preferred stock. This amount includes the $0.3 paid in premiums on the early
retirement of $22.3 of long-term debt, in May 1997. The Company also retired
an additional $12.4 of long-term debt and preferred stock, compared to total
retirements of $0.4 during the first six months of 1996. The Company issued
$375 of debentures in February and March of 1996. In 1996, the Company
realized a gain of approximately $14.8 on the settlement of forward contracts
related to the 1996 debt issuances. The gain is being amortized over the life
of the refinanced debt as an offset to interest expense.
OTHER MATTERS
Federal Regulatory Developments
In July 1997, the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit)
issued an opinion and order vacating significant portions of the Federal
Communication Commission's (FCC) rules purporting to implement the local
competition provisions of the Telecommunications Act of 1996 (the
Telecommunications Act). The Company's parent, GTE, together with other
incumbent local-exchange carriers (ILECs) and a number of state commissions, had
challenged various portions of the FCC rules.
In its opinion, the Eighth Circuit ruled that the FCC had no jurisdiction to
promulgate rules setting the prices at which ILECs must make available to
competitors unbundled network elements and services for resale. In addition,
the Eighth Circuit made a number of other rulings favorable to GTE, including
that the FCC's rule allowing requesting carriers to pick and choose among
individual provisions of other interconnection agreements, rather than
4
<PAGE> 6
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
to adopt the terms and conditions of a single agreement in its entirety, was
unlawful; that the FCC does not have the authority to review interconnection
agreements approved by state commissions or to enforce the terms of such
agreements; that the FCC rule requiring ILECs to provide interconnection and
unbundled network elements (UNEs) at levels of quality that are superior to
those levels at which the ILECs provide them to themselves was unlawful; and
that it is the requesting carriers, not the ILECs, that must combine UNEs.
On the other hand, the Eighth Circuit rejected certain arguments advanced by
GTE. For example, it ruled that a requesting carrier may gain access to all of
the UNEs that, when combined by the requesting carrier, are sufficient to
enable the requesting carrier to provide a finished service, and it upheld most
of the standards applied by the FCC in determining which network elements an
ILEC must make available.
The time for parties to seek rehearing before the Eighth Circuit has not yet
expired. In addition, the FCC has announced that it intends to seek Supreme
Court review of the Eighth Circuit's ruling.
In May 1997, the FCC issued orders on universal service and access charge
reform. GTE Midwest Incorporated, a separate subsidiary of GTE and affiliate
of the Company, has filed petitions for review of each of these orders in
Federal Court, and GTE is currently assessing the effect of these orders.
In its order on access charge reform, the FCC revised the price cap plan for
regulating ILECs by requiring price cap local-exchange carriers (LECs) to
increase their productivity factor to 6.5% retroactive to July 1996. The order
also eliminated the sharing requirements of the price cap rules. In June 1997,
in accordance with the order, the Company submitted its 1997 annual price cap
filing. The 1997 interstate access filing resulted in an annual price reduction
of $2.7, effective July 1, 1997. Prior to this order, the Company had submitted
a rate change filing in May 1997, as the Company's access rates were priced
significantly below the FCC's maximum price. This rate change filing resulted in
an annual price increase of $14.8, effective June 3, 1997. Overall, the net
effect of these access filings resulted in an annual price increase of $12.1.
In accordance with the Telecommunications Act, the Company is continuing to
negotiate with requesting carriers over the terms of interconnection, UNEs and
resale rates. In some cases, the parties have been unable to agree within the
statutory period for negotiation and have gone to arbitration before various
state regulatory commissions. Since December 1996, state commission decisions
determining the prices and terms of unresolved issues have been released in
Alabama, Illinois, Kentucky, North Carolina, South Carolina and Virginia.
Subsequent decisions are expected to be issued throughout 1997.
Interim rates for interconnection and UNEs have been established through
negotiation and arbitration decisions. These interim rates will be used until
permanent rates are established through state commission proceedings
investigating cost studies. The Company is expecting to begin filing cost
studies in the states in which it operates during the second half of 1997 and
throughout 1998.
Additional state commission proceedings have begun to establish rules and
procedures to implement state universal service funds (USF). USF proceedings
have begun in Alabama, Kentucky, North Carolina and South Carolina and
additional proceedings are scheduled to begin during the remainder of 1997 and
into 1998. USF decisions are expected to begin during the fourth quarter of
1997 and throughout 1998.
5
<PAGE> 7
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
State Regulatory Developments
Alabama
On February 12, 1997, the Alabama Public Service Commission (APSC) issued its
decision in the Company's arbitration with AT&T to determine interconnection,
resale and unbundling terms and conditions. The interim wholesale discount
rate for retail services was set at 23%. The Company filed for reconsideration
of this order. Oral arguments on this matter were heard by the APSC on May 1,
1997. On May 14, 1997, the APSC issued its final decision, in which no
material changes were made to its original order. On June 4, 1997, the Company
and AT&T filed a composite agreement pursuant to the APSC's directive. Both
parties have filed letters with the APSC objecting to certain language
contained in the composite agreement. The APSC is expected to issue a final
order on the composite agreement in the near future.
The Company has participated in the optional price regulation plan that was
established by the APSC on September 20, 1995. Participants of the plan were
required to reduce intrastate access prices effective July 1, 1997. As such,
the Company reduced its annual intrastate access revenues by $1.5.
Kentucky
On September 26, 1996, the Kentucky Public Service Commission (KPSC) issued an
order pertaining to local competition and universal service concerns in
Kentucky. The KPSC established a competitively neutral, portable intrastate
Universal Service Fund (USF), funded by all telecommunications providers in
Kentucky, to cover the incumbent LEC's non-traffic sensitive (NTS) costs and
the cost of a new statewide Lifeline service offering. As a result, the
Company would reduce access and toll rates and recover its NTS costs from the
USF. The timing and details of implementation of the USF were to be determined
in industry workshops held during 1997. However, on April 11, 1997, the KPSC
issued an order amending the USF order, stating that a formal proceeding will
be held in lieu of workshops, with two hearings to be held during the third and
fourth quarters of 1997. On June 17, 1997, the KPSC issued a further order
which indicates that its 1996 decision to transfer the LEC's NTS costs to the
USF will be reconsidered in the 1997 formal proceeding.
On December 23, 1996, the KPSC issued its decision in the Company's arbitration
with MCI Communications Corporation (MCI) to determine interconnection, resale,
and unbundling terms and conditions. The interim wholesale discount rate was
set at 18.81%. The Company filed a lawsuit in the U.S. District Court
challenging portions of the KPSC's arbitration determinations. On April 25,
1997, the lawsuit was dismissed without prejudice to refiling. Pursuant to the
KPSC's orders, the Company has filed a composite agreement with MCI. The KPSC
is expected to issue a final decision on the composite agreement in the near
future.
North Carolina
The North Carolina Utilities Commission (NCUC) issued its decision in the
Company's arbitration with AT&T and MCI on February 4, 1997, and on April 7,
1997 with Sprint, to determine interconnection, resale and unbundling terms and
conditions. The interim discount rate for the Company's resold services was
set at 19.97%. On July 17, 1997 and August 1, 1997, the Company filed
composite agreements with Sprint and MCI, respectively, pursuant to the NCUC's
directive. The Company also intends to file a composite agreement with AT&T
on August 15, 1997.
6
<PAGE> 8
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
South Carolina
On March 17, 1997, the South Carolina Public Service Commission (SCPSC) issued
its decision in the Company's arbitration with AT&T to determine
interconnection, resale and unbundling terms and conditions. The interim
wholesale discount rate for retail services was set at 18.66%. On May 16,
1997, the Company filed a composite agreement with the SCPSC incorporating the
provisions of the SCPSC's order. On May 28, 1997, the Company filed a letter
with the SCPSC objecting to certain language contained in the composite
agreement. The SCPSC is expected to issue a final decision on the composite
agreement in the near future.
Per the legislative amendment dated May 29, 1996 that allows local competition
and alternative regulation, the SCPSC established an Interim Local-Exchange
Carrier Fund (ILF). As of April 1, 1997, the Company reduced its intrastate
switched access rate to that of BellSouth's rate in South Carolina and began
receiving payment from the ILF in an amount equal to the revenue reduction.
The ILF is funded by those companies that realize a benefit from the rate
reduction.
Virginia
On February 23, 1995, legislation was enacted in Virginia which allowed
local-exchange competition, effective January 1, 1996. On June 9, 1995, the
Company filed a rate case application with the Virginia State Corporation
Commission (VSCC) seeking to restructure and rebalance its prices in Virginia
in anticipation of this local competition and the VSCC's impending approval of
intraLATA toll competition. Evidentiary hearings regarding this application
were held in June 1996 and a final VSCC decision is expected in the third
quarter of 1997.
On March 14, 1997, the Hearing Examiner, appointed by the VSCC to review the
Company's application for revisions to its local-exchange, access and intraLATA
long distance rates, issued his report to the VSCC. The report recommends that
the Company's gross annual operating revenues be reduced by $26.9 and that only
minimal rebalancing of the Company's local- exchange, access and intraLATA long
distance rates be permitted. The Company has filed detailed exceptions to the
report and has requested oral argument before the full commission. On August
7, 1997, the VSCC issued its order in this case. The VSCC adopted the majority
of the Hearing Examiner's recommendations, but also made two minor
modifications which changed the revenue reduction amount from $26.9 to $27.4.
New rates reflecting this decrease in annual operating revenues will become
effective October 6, 1997. The Company is currently reviewing the VSCC's order
to determine the correct response, including potential appeal to the Virginia
Supreme Court.
Illinois
On October 6, 1996, the Illinois Commerce Commission (ICC) initiated its
investigation into the Company's total element long run incremental cost
(TELRIC ) studies and to establish rates for interconnection, UNEs and
transport and termination of traffic. The docket will address wholesale rates
separately from UNEs, with each issue having a separate procedural schedule.
The determination of wholesale rates is expected to conclude in the first
quarter of 1998. The filing for UNEs is scheduled to occur in January 1998.
Hearings are tentatively scheduled to take place during the second quarter of
1998.
7
<PAGE> 9
GTE South Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Other Developments
In May 1997, the Company's parent, GTE, announced initiatives to become a
leading national provider of telecommunications service, including the
acquisition of BBN Corporation, a leading provider of end-to-end Internet
solutions. In addition, GTE announced a strategic alliance with Cisco Systems,
Inc. to jointly develop enhanced data and Internet services for customers; and,
the purchase of a national, state-of-the-art fiber-optic network from Qwest
Communications.
8
<PAGE> 10
GTE South Incorporated
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- -------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66,837 $ 16,491
Accounts receivable, less allowances of $17,486 and $17,884 235,920 213,227
Note receivable from affiliate -- 28,836
Inventories and supplies 25,990 16,054
Other 39,494 15,768
---------- ----------
Total current assets 368,241 290,376
---------- ----------
Property, plant and equipment, at cost 4,192,020 4,136,862
Accumulated depreciation (2,629,289) (2,548,824)
---------- ----------
Total property, plant and equipment, net 1,562,731 1,588,038
Employee benefit plans and other assets 142,121 126,894
---------- ----------
Total assets $2,073,093 $2,005,308
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 86,408 $ 98,500
Notes payable to affiliate 63,919 --
Accounts payable 98,592 96,326
Taxes payable 18,982 8,416
Accrued interest 15,438 15,463
Accrued payroll costs 28,687 35,448
Dividends payable 65,551 45,968
Deferred income tax liabilities 24,304 21,156
Other 112,023 105,215
---------- ----------
Total current liabilities 513,904 426,492
---------- ----------
Long-term debt 613,817 635,944
Deferred income taxes 88,412 88,635
Other liabilities, primarily employee benefit plans 183,335 172,551
---------- ----------
Total liabilities 1,399,468 1,323,622
---------- ----------
Preferred stock, subject to mandatory redemption 2,459 2,739
---------- ----------
Shareholders' equity:
Preferred stock 412 412
Common stock (21,000,000 shares issued) 525,000 525,000
Additional paid-in capital 58,338 58,320
Retained earnings 87,416 95,215
---------- ----------
Total shareholders' equity 671,166 678,947
---------- ----------
Total liabilities and shareholders' equity $2,073,093 $2,005,308
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
9
<PAGE> 11
GTE South Incorporated
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1997 1996
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
OPERATIONS
Net income $137,807 $120,257
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 142,411 138,200
Deferred income taxes 5,179 2,817
Provision for uncollectible accounts 10,424 12,335
Changes in current assets and current liabilities (52,353) (46,787)
Other - net (3,074) (11,635)
---------- ----------
Net cash from operations 240,394 215,187
---------- ----------
INVESTING
Capital expenditures (120,276) (119,028)
Other - net 26 --
---------- ----------
Cash used in investing (120,250) (119,028)
---------- ----------
FINANCING
Long-term debt issued -- 369,126
Long-term debt and preferred stock retired, including premiums paid
on early retirement (34,958) (357)
Dividends (126,023) (50,077)
Net change in affiliate notes 91,183 (64,100)
Decrease in short-term obligations, excluding current maturities -- (386,700)
Other - net -- 14,846
---------- ----------
Net cash used in financing (69,798) (117,262)
---------- ----------
Increase (decrease) in cash and cash equivalents 50,346 (21,103)
Cash and cash equivalents:
Beginning of period 16,491 31,271
---------- ----------
End of period $66,837 $10,168
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
10
<PAGE> 12
GTE South Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) The unaudited condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). 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 1996 Annual Report on Form 10-K.
(2) In January 1997, the SEC issued amendments to its rules which clarify
and expand disclosure requirements for derivative financial instruments.
As of June 30, 1997, there has been no significant change in the market
risk, or accounting policy associated with derivative financial
instruments as stated in the Company's 1996 Annual Report on Form 10-K.
(3) Reclassifications of prior year data have been made, where appropriate,
to conform to the 1997 presentation.
11
<PAGE> 13
GTE South Incorporated
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
12 Statement re: Calculation of the Ratio of Earnings to Fixed
Charges
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the second quarter of
1997.
12
<PAGE> 14
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: August 13, 1997 William M. Edwards, III
------------------------------------
William M. Edwards, III
Vice President - Controller
(Principal Accounting Officer)
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
12 Statement re: Calculation of the Ratio of Earnings to
Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 12
GTE South Incorporated
STATEMENT OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
----------------
<S> <C>
Net earnings available for fixed charges:
Income from continuing operations $137,807
Add - Income taxes 84,569
- Fixed charges 29,342
--------
Adjusted earnings $251,718
========
Fixed charges:
Interest expense $26,271
Portion of rent expense
representing interest 3,071
-------
Adjusted fixed charges $29,342
=======
RATIO OF EARNINGS TO FIXED CHARGES 8.58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 66,837
<SECURITIES> 0
<RECEIVABLES> 253,406
<ALLOWANCES> 17,486
<INVENTORY> 25,990
<CURRENT-ASSETS> 368,241
<PP&E> 4,192,020
<DEPRECIATION> 2,629,289
<TOTAL-ASSETS> 2,073,093
<CURRENT-LIABILITIES> 513,904
<BONDS> 613,817
2,459
412
<COMMON> 525,000
<OTHER-SE> 145,754
<TOTAL-LIABILITY-AND-EQUITY> 2,073,093
<SALES> 732,226
<TOTAL-REVENUES> 732,226
<CGS> 239,721
<TOTAL-COSTS> 484,754
<OTHER-EXPENSES> 289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,807
<INCOME-PRETAX> 222,376
<INCOME-TAX> 84,569
<INCOME-CONTINUING> 137,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,807
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
