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 September 30, 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: 1-3090
GTE FLORIDA INCORPORATED
(Exact name of registrant as specified in its charter)
FLORIDA 59-0397520
(State or other jurisdiction of (I.R.S.
Employer
Incorporation or organization)
Identification No.)
One Tampa City Center, Tampa, Florida 33602
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 813-224-
4011
(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 23,400,000 shares of $25 par value common stock
outstanding at October 31, 1994.
GTE FLORIDA INCORPORATED AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE
Condensed Consolidated Statements of Income. . . . . . . . .
. . . . 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .
. . . 2
Condensed Consolidated Balance Sheets - Assets . . . . . . .
. . . . 6
Condensed Consolidated Balance Sheets - Liabilities and
Shareholders' Equity. . . . . . . . . . . . . . . . . . . .
. . . 7
Condensed Consolidated Statements of Cash Flows. . . . . . .
. . . . 8
Notes to Condensed Consolidated Financial Statements . . . .
. . . . 9
PART II. OTHER INFORMATION
Items 1 through 6. . . . . . . . . . . . . . . . . . . . . .
. . . . 10
Signature. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 11
<TABLE>
PART I. FINANCIAL INFORMATION
GTE FLORIDA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine
Months Ended
September 30, September 30,
1994 1993 1994
1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 143,724 $ 132,628 $ 434,050 $ 401,179
Network access services 100,854 94,674 320,624 301,408
Long distance services 19,626 18,977 60,796 55,696
Equipment sales and services 26,183 23,838 75,425
65,548
Other 27,109 24,483 71,546 66,833
317,496 294,600 962,441 890,664
OPERATING EXPENSES:
Cost of sales and services 80,173 75,700 234,226
216,002
Depreciation and amortization 69,704 65,013 201,112
194,657
Marketing, selling, general
and administrative 108,085 102,117 328,124 308,754
257,962 242,830 763,462 719,413
Net operating income 59,534 51,770 198,979 171,251
OTHER (INCOME) DEDUCTIONS:
Interest expense 15,095 17,758 46,190 54,145
Other - net 1,603 212 1,083
(406)
INCOME BEFORE INCOME TAXES 42,836 33,800 151,706 117,512
INCOME TAXES 15,886 13,205 56,169 42,855
INCOME BEFORE EXTRAORDINARY
CHARGE 26,950 20,595 95,537
74,657
EXTRAORDINARY CHARGE - EARLY
RETIREMENT OF DEBT (net
of income taxes of $11,919) -- 19,751 --
19,751
NET INCOME $ 26,950 $ 844 $ 95,537 $ 54,906
</TABLE>
Per share data is omitted since the Company's common stock is
100% owned by GTE Corporation (Parent Company).
See Notes to Condensed Consolidated Financial Statements.
1
GTE FLORIDA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income was $27.0 million for the three months and $95.5
million for the nine months ended September 30, 1994 as compared
to $0.8 million and $54.9 million for the same periods in 1993.
Net income for 1993 includes an extraordinary charge (net of tax)
related to the early retirement of debt during the third quarter
of 1993 and a one-time after-tax charge of $2.4 million for the
enhanced early retirement and voluntary separation programs
recorded in the second quarter of 1993. Excluding these special
items, net income increased 31% or $6.4 million for the three
months and 24% or $18.5 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
increases are primarily the result of increased operating
revenues and decreased interest expense partially offset by
higher operating expenses.
Operating Revenues
Operating revenues increased 8% or $22.9 million for the three
months and 8% or $71.8 million for the nine months ended
September 30, 1994 compared to the same periods in 1993.
Local network revenues increased 8% or $11.1 million for the
three months and 8% or $32.9 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
increase is due to customer growth experienced through access
line gain and increased sales of Centranet (Registered Trademark)
and custom calling features. Effective April 1994, the
implementation of Extended Calling Services was expanded, which
contributed to the year-to-date increase.
Network access service revenues increased 7% or $6.2 million for
the three months and 6% or $19.2 million for the nine months
ended September 30, 1994 compared to the same periods in 1993.
The increases are primarily due to increased access minutes of
use, partially offset by the reduction of rates to achieve more
competitive pricing. The year-to-date increase is also slightly
offset by the final phase out of transitional support payments
received from the National Exchange Carrier Association (NECA).
As of April 1, 1993, the Company no longer receives transitional
support funds and has begun making long-term support payments to
NECA as required by the Federal Communications Commission.
Long distance service revenues increased 3% or $0.6 million for
the three months and 9% or $5.1 million for the nine months ended
September 30, 1994 compared to the same periods for 1993. The
increases are primarily due to increased volume.
2
GTE FLORIDA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Equipment sales and service revenues increased 10% or $2.3
million for the three months and 15% or $9.9 million for the nine
months ended September 30, 1994 compared to the same periods in
1993. The increases in equipment sales are due to increased
sales of single line telephones, radio paging, voice message
systems and installation and sales of wiring and stand alone
premise equipment. The three month increase is partially offset
by a decrease in sales of large private branch exchange systems.
The nine month increase is partially offset by a decrease in rent
revenue from single line telephones.
Other operating revenues increased 11% or $2.6 million for the
three months and 7% or $4.7 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
increases are primarily due to a lower provision for
uncollectible accounts and higher Database 800 service revenue,
partially offset by a decrease in directory advertising revenue
due to lower directory sales.
Operating Expenses
Operating expenses increased 6% or $15.1 million for the three
months and 6% or $44.0 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
increases are due to higher costs associated with product sales,
increased installation and maintenance costs associated with
digital equipment and buried cable, and increased costs related
to the final resolution of certain settlement activities. These
increases are partially offset by decreases in labor and benefit
costs and lower right-to-use software costs. Partially
offsetting the nine month increase was the absence of the $3.8
million charge for enhanced early retirement and voluntary
separation programs recorded in the second quarter of 1993.
Restructuring
As previously reported, during the fourth quarter of 1993, the
Company recorded a restructuring charge of $194.4 million
primarily for incremental costs related to implementation of its
three year re-engineering plan. The re-engineering plan will
redesign and streamline processes to improve customer
responsiveness and product quality, reduce the time necessary to
introduce new products and services and reduce costs.
In connection with the re-engineering plan, in the first nine
months of 1994 expenditures of $10.2 million were incurred and
charged to the restructuring reserve. These costs primarily
reflect costs associated with the consolidation of customer
contact, network operations and operator service centers,
separation benefits associated with employee reductions and
incremental expenditures to redesign and streamline processes.
The level of re-engineering activities and related expenditures
are expected to accelerate during the remainder of 1994 and
throughout 1995. There have been no significant changes made to
the overall re-engineering plan as originally reported.
3
GTE FLORIDA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Other (Income) Deductions
Interest expense decreased 15% or $2.7 million for the three
months and 15% or $8.0 million for the nine months ended
September 30, 1994 compared to the same periods in 1993. The
decreases are primarily attributable to lower rates on long-term
debt. In November 1993, the Company called $390 million of bonds
with rates ranging from 8 1/8% to 10% and refinanced these bonds
in December 1993 with 6.31% and 7.41% Debentures.
Other net expenses increased $1.4 million for the three months
and $1.5 million for the nine months ended September 30, 1994
compared to the same periods for 1993. The increases are due to
an increase in the environmental reserve. This reserve was
initially established to cover the cleanup costs of the Peak Oil
environmental waste site. The Company was named a Potentially
Responsible Party, since Peak Oil was the vendor who collected
and recycled the Company's waste motor oil from its fleet centers
for the period from 1964 through mid-June 1979. During the third
quarter of 1994, the reserve was increased $1.4 million to cover
the additional clean up costs of the Bay Drums site, making the
total reserve $3.4 million. Bay Drums is the vendor who
collected empty drums containing petroleum residue, for
recycling, from the Company's fleet centers. Based on current
information, the Company believes that the reserve is adequate.
Income taxes increased 20% or $2.7 million for the three months
and 31% or $13.3 million for the nine months ended September 30,
1994 compared to the same periods in 1993. The increases are
primarily due to increases in pretax income and the declining
effects of amortization of deferred investment tax credits.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during 1994 was cash flow
from operating activities of $360.3 million compared to $256.6
million for the same period in 1993. The increase is the result
of improved operating results and the favorable timing of tax and
other payments.
The Company's capital expenditures during 1994 were $180.2
million compared to $187.6 million during the same period in
1993, reflecting the Company's continued growth in access lines,
modernization of facilities and introduction of new products and
services. The Company's anticipated construction costs for 1994
are approximately $268 million.
Cash used in financing activities was $193.2 million in 1994
compared to $73.6 million in 1993. This included dividend
payments of $46.6 million in 1994 compared to $68.6 million in
1993 and a $137.1 million decrease in debt during 1994.
4
GTE FLORIDA INCORPORATED AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 $2.8 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.
OTHER MATTERS
The Company follows the accounting for regulated enterprises
prescribed by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulations"
("FAS 71"). In general, FAS 71 requires companies to depreciate
plant and equipment over lives approved by regulators. It also
requires deferral of certain costs and obligations based upon
approvals received from regulators. In the event that
recoverability of these costs becomes unlikely or uncertain,
whether resulting from actual or anticipated increases in
competition or specific regulatory, legislative or judicial
actions, continued application of FAS 71 would no longer be
appropriate. If the Company no longer qualifies for the
provisions of FAS 71, the financial effects of the required
accounting change (which would be non-cash) could be material.
5
GTE FLORIDA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 2,032 $ 6,688
Receivables, less allowances of
$16,275 and $25,229, respectively 257,602 262,085
Note receivable from affiliate 18,149 8,680
Materials and supplies, at average cost 25,009 22,511
Prepayments and other 30,263 31,260
Total current assets 333,055 331,224
PROPERTY, PLANT AND EQUIPMENT:
Original cost 3,784,360 3,769,672
Accumulated depreciation (1,252,298)
(1,205,289)
Net property, plant and equipment 2,532,062 2,564,383
OTHER ASSETS 86,145 67,545
TOTAL ASSETS $ 2,951,262 $ 2,963,152
See Notes to Condensed Consolidated Financial Statements.
6
GTE FLORIDA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Short-term debt, including current maturities $ 59,867 $
177,030
Accounts payable 94,845 107,402
Accrued taxes 54,084 9,630
Accrued payroll and vacations 26,571 35,648
Accrued interest 15,683 9,873
Accrued dividends 24,518 544
Accrued restructuring costs and other 133,487 138,947
Total current liabilities 409,055 479,074
LONG-TERM DEBT 729,314 747,946
DEFERRED CREDITS AND RESERVES, primarily
deferred income taxes, investment tax
credits and restructuring costs 615,063 563,260
SHAREHOLDERS' EQUITY:
Preferred stock 60,096 60,096
Common stock 585,000 585,000
Other capital 289 289
Reinvested earnings 552,445 527,487
Total shareholders' equity 1,197,830 1,172,872
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,951,262 $
2,963,152
See Notes to Condensed Consolidated Financial Statements.
7
GTE FLORIDA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary charge $ 95,537 $ 74,657
Adjustments to reconcile income before
extraordinary charge to net cash from
operating activities:
Depreciation and amortization 201,112 194,657
Deferred income taxes and investment
tax credits 23,251 (6,524)
Provision for uncollectible accounts 15,585
24,912
Changes in current assets and
current liabilities 12,706 (60,304)
Other - net 12,155 29,239
Net cash from operating activities 360,346 256,637
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (180,219)
(187,554)
Other - net 8,439 2,224
Net cash used in investing activities (171,780)
(185,330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retired (450)
(58,160)
Dividends paid to shareholders (46,605)
(68,645)
Net change in affiliate notes (9,469)
- --
Increase (decrease) in short-term debt (136,698)
53,222
Net cash used in financing activities (193,222)
(73,583)
Decrease in cash (4,656)
(2,276)
Cash at beginning of period 6,688 5,100
Cash at end of period $ 2,032 $ 2,824
See Notes to Condensed Consolidated Financial Statements.
8
GTE FLORIDA INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited condensed consolidated financial statements
included herein have been prepared by the Company, 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 consolidated
financial statements include all adjustments, which consist only
of normal recurring accruals, necessary to present fairly the
financial information for such periods. These condensed
consolidated 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 January 21, 1993, the Florida Public Service Commission
(FPSC) issued an order effective January 6, 1993 to reduce rates
by $14.5 million on a permanent basis. This order established a
midpoint return on equity of 12.2% for 1993 and beyond for all
state ratemaking purposes. The Company filed a motion for
reconsideration of the rate order and the Commission lowered the
rate reduction by $0.8 million. The Company filed an appeal of
various aspects of the FPSC's rate case decision with the Florida
State Supreme Court. Oral arguments were heard by the Court on
January 31, 1994. On July 7, 1994, the Court issued its opinion
accepting the Company's argument that the Commission should not
have made a $4.6 million adjustment for expenses associated with
affiliate transactions. The case has been remanded to the
Commission. It is not possible to determine what action the
Commission will take at this time.
(3) During the third quarter of 1993, the Company called $390
million of high-coupon first-mortgage bonds. As a result, a
pretax extraordinary charge of $31.7 million was recorded to
reflect the expenses of calling these bonds. The after-tax
extraordinary charge amounted to $19.7 million.
(4) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
9
GTE FLORIDA INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(27) Financial Data Schedule.
(b) The Company filed no reports on Form 8-K during the
third
quarter of 1994.
10
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 hereunto duly authorized.
GTE FLORIDA
INCORPORATED
(Registrant)
Date: November 10, 1994 WILLIAM M. EDWARDS, III
WILLIAM M. EDWARDS, III
Controller
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 2,032
<SECURITIES> 0
<RECEIVABLES> 273,877
<ALLOWANCES> 16,275
<INVENTORY> 25,009
<CURRENT-ASSETS> 333,055
<PP&E> 3,784,360
<DEPRECIATION> 1,252,298
<TOTAL-ASSETS> 2,951,262
<CURRENT-LIABILITIES> 409,055
<BONDS> 729,314
<COMMON> 585,000
0
60,096
<OTHER-SE> 552,734
<TOTAL-LIABILITY-AND-EQUITY> 2,951,262
<SALES> 962,441
<TOTAL-REVENUES> 962,441
<CGS> 234,226
<TOTAL-COSTS> 763,462
<OTHER-EXPENSES> 1,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,190
<INCOME-PRETAX> 151,706
<INCOME-TAX> 56,169
<INCOME-CONTINUING> 95,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,537
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
