UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required}
For the fiscal year ended December 31, 1993
---------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 19334 [Fee Required]
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
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH WAS REGISTERED
- -------------------------------------- ----------------------------------
$1.30 CUMULATIVE PREFERRED, SERIES B NEW YORK STOCK EXCHANGE
$1.25 CUMULATIVE PREFERRED NEW YORK STOCK EXCHANGE
8.16% CUMULATIVE PREFERRED NEW YORK STOCK EXCHANGE
FIRST MORTGAGE BONDS-7 1/2%-SERIES O AMERICAN STOCK EXCHANGE
- -------------------------------------- ----------------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
- -----------------------------------------------------------------------------
(TITLE OF CLASS)
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K. _____
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
FEBRUARY 28, 1994.
DOCUMENT INCORPORATED BY REFERENCE
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1993
(INCORPORATED IN PARTS I AND II).<PAGE>
TABLE OF CONTENTS
Item Page
- ----- ----
PART I
1. Business 1
2. Properties 3
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters 5
6. Selected Financial Data 5
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
8. Financial Statements and Supplementary Data 5
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 5
PART III
10. Directors and Executive Officers of the Registrant 6
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial Owners and
Management 17
13. Certain Relationships and Related Transactions 18
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 19<PAGE>
<PAGE>
PART I
Item 1. Business
GTE Florida Incorporated (the Company) (formerly General Telephone Company of
Florida, formerly Peninsular Telephone Company) was incorporated on June 20,
1901, as a corporation for profit pursuant to the general corporation laws of
the state of Florida. The Company is a wholly-owned subsidiary of GTE
Corporation (GTE).
The Company has a wholly-owned subsidiary, GTE Communications Corporation
(GTECC). In 1989, the assets of another subsidiary, GTE Ventures (GTEV), were
sold to affiliated companies at net book value. GTECC contains the majority
of the Company's nonregulated operations including the provision of terminal
equipment to business and residential customers, cellular mobile phones and
other nonregulated telecommunication services.
The Company provides local telephone service within its franchise area and
intraLATA (Local Access Transport Area) long distance service between the
Company's facilities and the facilities of other telephone companies within
the Company's LATAs. InterLATA service to other points in and out of Florida
is provided through connection with interexchange (long distance) common
carriers. These common carriers are charged fees (access charges) for
interconnection to the Company's local facilities. End user business and
residential customers are also charged access charges for access to the
facilities of the long distance carrier. The Company also earns other
revenues by leasing interexchange plant facilities and providing such services
as billing and collection and operator services to interexchange carriers,
primarily the American Telephone and Telegraph Company (AT&T). The number of
access lines served has grown steadily from 1,623,994 on January 1, 1989 to
1,978,220 on December 31, 1993.
The Company's principal line of business is providing telecommunication
services. These services fall into five major classes: local network, network
access, long distance, equipment sales and services and other. Revenues from
each of these classes over the last three years are as follows:
Years Ended December 31
----------------------------------------
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Local Network Services $ 537,446 $ 498,151 $ 450,489
% of Total Revenues 44% 40% 37%
Network Access Services $ 406,244 $ 425,860 $ 419,628
% of Total Revenues 34% 34% 34%
Long Distance Services $ 74,646 $ 110,101 $ 161,412
% of Total Revenues 6% 9% 13%
Equipment Sales and Services $ 91,536 $ 89,436 $ 92,267
% of Total Revenues 8% 7% 7%
Other $ 101,243 $ 130,993 $ 105,483<PAGE>
% of Total Revenues 8% 10% 9%
At December 31, 1993, the Company had 8,210 employees, both bargaining and
non-bargaining unit members. In 1993, an agreement was reached on one
contract with the international Brotherhood of Electrical Workers (IBEW).
During 1994, there are no contracts which will expire.
Telephone Competition
The Company holds franchises, licenses and permits adequate for the conduct of
its business in the territories which it serves.
The Company is subject to regulation by the Florida Public Service Commission
(FPSC) as to its intrastate business operations and the Federal Communications
Commission (FCC) as to its interstate business operations. Information
regarding the Company's activities with the various regulatory agencies and
revenue arrangements with other telephone companies can be found in Note 10 of
the Company's Annual Report to Shareholders for the year ended December 31,
1993, incorporated herein and filed as Exhibit 13.
The year was marked by important changes in the U.S. telecommunications
industry. Rapid advances in technology, together with government and industry
initiatives to eliminate certain legal and regulatory barriers are
accelerating and expanding the level of competition and opportunities
available to the Company. As a result, the Company faces increasing
competition in virtually all aspects of its business. Specialized
communications companies have constructed new systems in certain markets to
bypass the local-exchange network. Additional competition from interexchange
carriers as well as wireless companies continues to evolve for both intrastate
and interstate communications.
During 1994, the Company will begin implementation of a re-engineering plan
that will redesign and streamline processes. Implementation of its re-
engineering plan will allow the Company to continue to respond aggressively to
these competitive and regulatory developments through reduced costs, improved
service quality, competitive prices and new product offerings. Moreover,
implementation of this program will position the Company to accelerate
delivery of a full array of voice, video and data services. The re-
engineering program will be implemented over three years. During the year,
the Company continued to introduce new business and consumer services
utilizing advanced technology, offering new features and pricing options while
at the same time reducing costs and prices.
In 1993, GTE also continued to make progress in advanced telecommunications
technology. In Tampa, Florida, GTE concluded the largest market trial of
residential personal communication services (PCS) in the United States. The
knowledge and experience gained during this trial will enhance GTE's ability
to compete in this emerging market. During 1993, the FCC announced its
decision to auction licenses during 1994 in 51 major markets and 492 basic
trading areas across the United States to encourage the development of a new
generation of wireless PCS. These services will both complement and compete
with the Company's traditional wireline services. The Company will be
permitted to fully participate in the license auctions in areas outside of
GTE's existing cellular service areas. Limited participation will be
permitted in areas in which GTE has an existing cellular presence.
In 1992, the FCC issued a "video dialtone" ruling that allows telephone
companies to transmit video signals over their networks. The FCC also
recommended that Congress amend the Cable Act of 1984 to permit telephone
companies to supply video programming in their service areas.
Activity directed toward changing the traditional cost-based rate of return
regulatory framework for intrastate and interstate telephone services has
continued. Legislative activity to change the Florida regulatory scheme is
expected to evolve within the next year. The Company is continuing to pursue
favorable pricing arrangements through the FPSC.
In September 1993, the FCC released an order allowing competing carriers to
interconnect to the local-exchange network for the purpose of providing
switched access transport services. This ruling complements similar
interconnect arrangements for private line services ordered during 1992. The
order encourages competition for the transport of telecommunications traffic
between local exchange carriers' (LECs) switching offices and interexchange
carrier locations. In addition, the order allows LECs flexibility in pricing
competitive services.
The GTE Consent Decree, which was issued in connection with the 1983
acquisition of GTE Sprint (since divested) and GTE Spacenet, prohibits GTE's
domestic telephone operating subsidiaries from providing long distance service
beyond the boundaries of the LATA. This prohibition restricts their direct
provision of long distance service to relatively short distances. The degree
of competition allowed in the intraLATA market is subject to state regulation.
However, regulatory constraints on intraLATA competition are gradually being
relaxed. In fact, some form of intraLATA competition is authorized in
Florida.
These and other actions to eliminate the existing legal and regulatory
barriers, together with rapid advances in technology, are facilitating a
convergence of the computer, media and telecommunications industries. In
addition to allowing new forms of competition, these developments are also
creating new opportunities to develop interactive communications networks.
The Company supports these initiatives to assure greater competition in
telecommunications, provided that overall the changes allow an opportunity for
all service providers to participate equally in a competitive marketplace
under comparable conditions.
Item 2. Properties
The Company's property consists of network facilities (82%), company
facilities (13%), customer premises equipment (1%) and other (4%). From
January 1, 1989 to December 31, 1993, the Company made gross property
additions of $1.5 billion and property retirements of $1.3 billion.
Substantially all of the Company's property is subject to liens securing
long-term debt. In the opinion of management, the Company's telephone plant
is substantially in good repair.
Item 3. Legal Proceedings
There are no pending legal proceedings, either for or against the Company,
which would have a material impact on the Company's financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
Market information is omitted since the Company's common stock is wholly-owned
by GTE Corporation.
Item 6. Selected Financial Data
Reference is made to the Registrant's Annual Report to Shareholders, page 28,
for the year ended December 31, 1993, incorporated herein and filed as Exhibit
13.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Reference is made to the Registrant's Annual Report to Shareholders, pages 24
to 27, for the year ended December 31, 1993, incorporated herein and filed as
Exhibit 13.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Registrant's Annual Report to Shareholders, pages 5
to 22, for the year ended December 31, 1993, incorporated herein and filed as
Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The names, ages and positions of all the directors and executive officers of
the Company as of March 7, 1994 are listed below along with their business
experience during the past five years.
a. Identification of Directors
Director
Name Age Since Business Experience
- ------------------ --- -------- ----------------------------------------
Peter A. Daks 48 1994 State President - Florida; various
positions with GTE including Regional
Vice president-General Manager, Florida-
GTE South Area; Vice President-
Information Management, GTE Telephone
Operations; Assistant Vice President-
Business Systems Planning at GTE Service
Corporation in Stamford, CT; Vice
President-Information Management and
Information Management; Director-GTE
Southeast and Manager-System Development
at GTE Products Corporation.
Kent B. Foster 50 1994 Vice Chairman of the Board of Directors
of GTE Corporation, October 1993.
President, GTE Telephone Operations,
1989; Director, GTE Corporation, 1992;
Director, all GTE domestic telephone
subsidiaries, 1993; Director, BC
Telecom, Inc.; Director, Compania
Anonima Nacional Telefonos de Venezuela;
Director, National Bank of Texas.
Richard M. Cahill 55 1994 Vice President - General Counsel of GTE
Telephone Operations, 1988; Director,
all GTE domestic telephone subsidiaries,
1993; Director, GTE Vantage
Incorporated, 1991; Director, GTE
Intelligent Network Services
Incorporated, 1993.
Gerald K. Dinsmore 44 1992 Senior Vice President - Finance and
Planning for GTE Telephone Operations,
1994. Vice President - Finance, GTE
Telephone Operations, 1993; Vice
President - Intermediary Customer
Markets, GTE Telephone Operations, 1991.
President, South Area, GTE Telephone
Operations, 1992; Director, all GTE
domestic telephone subsidiaries, 1993.
Michael B. Esstman 47 1994 Executive Vice President-Operations, GTE
Telephone Operations, 1993; President,
Central Area, GTE Telephone Operations,
1991. President, Contel Eastern Region,
Telephone Operations Sector, 1983;
Director, AG Communications System;
Director, all GTE domestic telephone
subsidiaries, 1993.
Thomas W. White 47 1994 Executive Vice President of GTE
Telephone Operations, 1993; Senior Vice
President - General Office Staff, GTE
Telephone Operations, 1989; Director,
all GTE domestic telephone subsidiaries,
1993; Director, Quebec-Telephone.
Directors are elected annually. The term of each director expires on the date
of the next annual meeting of shareholders, which may be held on any day
during May, as specified in the notice of the meeting.
There are no family relationships between any of the directors or executive
officers of the Company.
All of the directors, with the exception of Mr. Dinsmore, were elected
January 1, 1994, following the resignations from the Board of Marsha Lewis
Brown, Raleigh W. Greene, Mia C. Hardcastle, A. Lamar Matthews Jr., Richard D.
Pope, Jr., T. Terrell Sessums, Jan E. Smith and Gus A. Stavros.<PAGE>
b. Identification of Executive Officers
Year Assumed
Present
Name Age Position Position with Company
- ---------------------- --- ------------ ----------------------------
Peter A. Daks (1) 48 1994 President
James D. Bennett (2) 48 1994 State Vice President - Sales
M. Michael Foster (3) 50 1994 State Vice President -
Operations
Fassil Gabremariam (4) 49 1994 State Vice President - Finance
Donald W. McLeod (5) 53 1994 State Vice President -
External Affairs
Marceil Morrell (6) 44 1994 State Vice President - General
Counsel
David H. Richter (7) 44 1994 State Vice President - Human
Resources
Charles J. Somes (8) 48 1994 Secretary
Position with
GTE Telephone Operations (9)
-----------------------------
Kent B. Foster 50 1989 President
Michael B. Esstman (10) 47 1993 Executive Vice President -
Operations
Thomas W. White 47 1989 Executive Vice President
Guillermo Amore 55 1990 Senior Vice President -
International
Gerald K. Dinsmore (1) 44 1993 Senior Vice President -
Finance and Planning
Robert C. Calafell (11) 52 1993 Vice President - Video
Services
A. T. Jones 54 1992 Vice President - International
Brad M. Krall (12) 52 1993 Vice President - Centralized
Services
Donald A. Hayes 56 1992 Vice President - Information
Technology
Richard L. Schaulin 51 1989 Vice President - Human
Resources
Clarence F. Bercher 50 1991 Vice President - Sales
Mark S. Feighner 45 1991 Vice President - Product
Management
Geoff C. Gould 41 1989 Vice President - Regulatory
and Governmental Affairs
G. Bruce Redditt 43 1991 Vice President - Public
Affairs
Richard M. Cahill 55 1989 Vice President and General
Counsel
Leland W. Schmidt 60 1989 Vice President - Industry
Affairs
Paul E. Miner 49 1990 Vice President - Regional
Operations Support
Katherine J. Harless 43 1992 Vice President -
Intermediary Markets
William M. Edwards, III (13) 45 1993 Controller
Each of these executive officers has been an employee of the Company or an
affiliated company for the last five years.
Except for duly elected officers and directors, no other employees had a
significant role in decision making.
All officers are appointed for a term of one year.
NOTES:
(1) Peter A. Daks, previously Regional Vice President - General
Manager/Florida, was appointed President for GTE Florida Inc. replacing
Gerald K. Dinsmore who was appointed Senior Vice President - Finance and
Planning for GTE Telephone Operations effective March 7, 1994, replacing
John L. Hume who retired.
(2) James D. Bennett, previously Area Vice President - Sales, was appointed
State Vice President - Sales effective March 7, 1994.
(3) M. Michael Foster, previously Regional Vice President - General
Manager - Michigan, was appointed State Vice President - Operations
replacing Peter A. Daks who was appointed President.
(4) Fassil Gabremariam, previously Area Vice President - Finance was
appointed State Vice President - Finance effective March 7, 1994.
(5) Donald W. McLeod was appointed State Vice President - External Affairs
replacing Bruce M. Holmberg who retired and Jorge Jackson who was
appointed Area Vice President - Public Affairs - West.
(6) Marceil Morrell was appointed State Vice President - General Counsel
replacing James V. Carideo who retired effective March 7, 1994.
(7) David H. Richter was appointed State Vice President - Human Resources
replacing Margaret B. Haight who was appointed State Vice President -
General Manager - Kentucky for GTE South Incorporated effective March 7,
1994.
(8) Charles J. Somes was appointed Secretary replacing Jerry L. Austin who
retired effective March 7, 1994.
(9) Position is with, and duties are performed at, the GTE Telephone
Operations Headquarters in Irving, Texas.
(10) Michael B. Esstman was appointed Executive Vice President - Operations
effective April 25, 1993 replacing Charles A. Crain who retired on
April 1, 1993.
(11) Robert C. Calafell was appointed Vice President - Video Services
effective March 28, 1993.
(12) Brad M. Krall was appointed Vice President - Centralized Services
effective November 7, 1993.
(13) William M. Edwards, III, was appointed Controller effective November 21,
1993 replacing John D. Utzinger.
William E. Starkey retired November 21, 1993, George N. King retired May 21,
1993 and Clark W. Barlow retired August 21, 1993. Stephen A. Inkrott accepted
a position with GTE Telephone Operations as Assistant Vice President - Network
Planning.
The Federal securities laws require the Company's directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in
ownership of any equity securities of the Company.
To the Company's knowledge, none of the persons subject to these reporting
requirements filed the required initial statement of beneficial ownership
of securities on a timely basis, but the Company has determined that each
of its current directors and executive officers is in the process of
completing this filing. All of the Company's common stock is owned by GTE
and, to the Company's knowledge, none of South directors or executive
officers currently owns, or has ever owned, any shares of the Company's
registered preferred stock.
<PAGE>
Item 11. Executive Compensation
Executive Compensation Tables
The following tables provide information about executive compensation.
<TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation of the Chief
Executive Officer and each of the other four most highly compensated
executive officers of the Company for services in all capacities to the
Company and its subsidiary.
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation(2) Awards Payments
------------------------------------- ------------------ --------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Reserved
Name and Principal Other Annual Stock Options LTIP All Other
Position in Group(1) Year Salary($)(1) Bonus($) Compensation($) Awards(#) SARs(#) Payments($) Compensations($)(4)
- -------------------- ---- --------- -------- --------------- --------- ------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore (3) 1993 96,517 93,726 56,499 -- 14,500 6,704 2,107
President 1992 30,250 29,140 317 -- 16,200 -- 815
Peter A. Daks 1993 155,039 71,300 3,037 -- 7,300 -- 4,651
Regional Vice President - 1992 148,419 92,200 1,564 -- -- -- 4,453
General Manager/Florida 1991 126,132 87,000 1,546 -- 5,300 -- 4,038
Kent B. Foster 1993 59,621 54,765 2,897 -- 58,800 12,061 670
President 1992 54,341 63,491 1,064 -- -- 19,765 692
GTE Telephone Operations 1991 46,695 63,119 3,615 -- 133,300 26,335 682
Stephen A. Inkrott 1993 71,065 33,432 2,469 -- 4,900 -- 2,132
Area Vice President - 1992 69,410 41,508 10,249 -- 5,500 -- 2,082
General Manager 1991 39,503 21,442 11,362 -- 5,300 -- 1,082
Fassil Gabremariam 1993 66,924 19,162 464 -- 2,700 -- 2,008
Area Vice President - 1992 65,833 25,256 890 -- -- -- 1,975
Finance 1991 70,666 31,127 611 -- 3,000 -- 785
<FN>
- ----------
(1) Individual was an officer for GTE Florida Incorporated at December 31, 1993.
(2) Annual Compensation represents the Company's pro rata share of salaries,
bonuses and other annual compensation. Total annual cash compensation for
Messrs. Dinsmore, Daks, Foster, Inkrott and Gabremariam, for whom allocated
amounts are shown above, is $544,684, $229,376, $1,129,356, $236,127 and
$191,060 for 1993, respectively.
(3) Mr. Dinsmore became president in October 1992.
(4) All other compensation includes Company contributions to defined
contribution plans.
</TABLE>
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the named executive officers
of the Company in 1993. Pursuant to Securities and Exchange Commission (the
SEC) rules, the table also shows the value of the options granted at the end of
the option terms (ten years) if the stock price were to appreciate annually by
5% and 10%, respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table. The table also indicates that if
the stock price does not appreciate, there will be no increase in the potential
realizable value of the options granted.
Potential Realizable Value at
<CAPTION> Assumed Annual Rate of Stock
Price Appreciation For
Individual Grants(1) Option Term
----------------------------------------------------------- --------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Percent of
Total Options/
SARs Granted Exercise
to All GTE Or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/SH) Date 0% 5% 10%
- -------------------- ------------ -------------- ---------- ------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore 14,500 0.73% $35.0625 2/15/03 $0 $ 319,734 $ 810,269
Peter A. Daks 4,900 0.25 35.0625 2/15/03 0 108,048 273,815
2,400 0.12 30.1250 10/10/03 0 57,544 145,827
Kent B. Foster 48,400 2.42 35.0625 2/15/03 0 1,067,249 2,704,621
10,400 0.52 37.6250 10/12/03 0 246,087 623,632
Stephen A. Inkrott 4,900 0.25 35.0625 2/15/03 0 108,048 273,815
Fassil Gabremariam 2,700 0.14 35.0625 2/15/03 0 69,607 150,878
<FN>
- ----------
(1) Under the Long-Term Incentive Plan, options are presently granted with
tandem stock appreciation rights ("SARs"). One-third of these grants vest
annually commencing one year after the date of grant.
</TABLE>
<PAGE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table provides information as to options and stock appreciation
rights exercised by each of the named executive officers of the Company during
1993 and the value of options and stock appreciation rights held by such
officers at year-end measured in terms of the closing price of GTE Common Stock
on December 31, 1993.
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised
Shares Number of Unexercised In-the-Money Options/SARs
Acquired Value Options/SARs at FY-End At FY-End($)
Name On Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore 0 $ 0 9,732 27,468 $ 24,328 $ 27,947
Peter A. Daks 0 0 3,533 9,067 11,201 5,632
Kent B. Foster 70,517 1,447,800 99,450 125,450 341,551 212,447
Stephen A. Inkrott 0 0 9,788 10,334 85,426 15,403
Fassil Gabremariam 0 0 5,800 3,700 47,776 3,188
</TABLE>
Long-Term Incentive Plan - Awards in Last Fiscal Year
The GTE Long-Term Incentive Plan (LTIP) provides for awards, currently in the
form of stock options with tandem stock appreciation rights and cash bonuses, to
participating employees. The stock options and stock appreciation rights
awarded under the LTIP to the five most highly compensated individuals in 1993
are shown in the table on page 11.
Under the LTIP, performance bonuses are paid in cash based on the achievement of
pre-established goals for GTE's return on equity (ROE) over a three-year award
cycle. Performance bonuses are denominated in units of GTE Common Stock
("Common Stock Units") and are maintained in a Common Stock Unit Account.
At the time performance targets are established for the three-year cycle, a
Common Stock Unit Account is set up for each participant who is eligible to
receive a cash award under the LTIP. An initial dollar amount for each account
is determined based on the competitive performance bonus grant practices of
other major companies in the telecommunications industry and with other selected
corporations that are comparable to GTE in terms of revenue, market value and
other quantitative measures. That amount is then divided by the average market
price of GTE Common Stock for the calendar week preceding the day the account is
established to determine the number of Common Stock Units in the account. The
value of the account increases or decreases based on the market price of the GTE
Common Stock. An amount equal to the dividends declared on an equivalent number
of shares of GTE Common Stock is added each time a dividend is paid. This
amount is then converted into the number of Common Stock Units obtained by
dividing the amount of the dividend by the average price of the GTE Common Stock
on the composite tape of the New York Stock Exchange on the dividend payment
date and added to the Common Stock Unit Account. Messrs. Dinsmore, Daks and
Foster are the only individuals of the five most highly compensated individuals
eligible to receive a cash award under the LTIP. The number of Common Stock
Units initially allocated in 1993 to their accounts and estimated future payouts
under the LTIP are shown in the following table.
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price Based Plans(1)
------------------------------------
(a) (b) (c) (d) (e) (f)
Performance
Number of Or Other
Shares, Units Period Until
Or Other Maturation
Name Rights Or Payout Threshold(2) Target(3) Maximum(5)
- ---------------------- ------------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Gerald K. Dinsmore (4) 2,000 3 Years 468 2,341
Peter A. Daks 0 N/A 0 0
Kent B. Foster (6) 6,100 3 Years 1,428 7,139
670 2 Years 149 743
326 1 Year 69 343
1,620 26 Months 365 1,827
854 14 Months 183 913
119 2 Months 24 121
Stephen A. Inkrott 0 N/A 0 0
Fassil Gabremariam 0 N/A 0 0
<FN>
- ----------
(1) It is not possible to predict future dividends and, accordingly, estimated
Common Stock Unit accruals in this table are calculated for illustrative
purposes only and are based upon the dividend rate and price of GTE Common
Stock at the close of business on December 31, 1993. The target award is
the dollar amount derived by multiplying the Common Stock Unit balance at
the end of the award cycle by the price of GTE Common Stock.
(2) The level of average ROE during the cycle which represents minimum
acceptable performance and which, if attained, results in payment of 20% of
the target award. Below the minimum acceptable performance level, no award
is earned.
(3) The average ROE target during the cycle which represents outstanding GTE
performance and which, if attained, results in payment of 100% of the target
award.
(4) Mr. Dinsmore's Common Stock Unit Grants are prorated awards for the 1992-
1994 and 1991-1993 performance periods, respectively, made to him when he
was promoted to Area President - South.
(5) This column has intentionally been left blank because it is not possible to
determine the maximum award until the award cycle has been completed. The
maximum amount of the award is limited by the amount the actual ROE exceeds
the targeted ROE. If GTE's average ROE during the cycle exceeds the
performance target, additional bonuses may be earned according to the
following schedule:
Performance Increment Above Added Percentage
Maximum ROE Performance Target to Maximum Awards
------------------------------- -----------------
First and Second 0.1% +2%
Third and Fourth 0.1% +3%
Fifth and above 0.1% +4%
For example, if average ROE performance exceeds the ROE target by 0.5%, the
performance bonus will equal 114% of the target award.
(6) The award of 6,100 units to Mr. Foster represents the grant for the 1993 -95
performance period made while he was President - GTE Telephone Operations.
The other grants shown are incremental, prorated awards made when his
position was reclassified and when he was promoted to Vice Chairman - GTE
Corporation, as well as President - GTE Telephone Operations and apply to
the original targets under the 1993-95, 1992-94 and 1991-93 performance
periods.
</TABLE>
Executive Agreements
GTE has entered into agreements (the Agreements) with Messrs. Dinsmore, Daks and
Foster regarding benefits to be paid in the event of a change in control of GTE
(a "Change in Control").
A Change in Control is deemed to have occurred if a majority of the members of
the Board do not consist of members of the incumbent Board (as defined in the
Agreements) or if, in any 12-month period, three or more directors are elected
without the approval of the incumbent Board. An individual whose initial
assumption of office occurred pursuant to an agreement to avoid or settle a
proxy or other election contest is not considered a member of the incumbent
Board. In addition, a director who is elected pursuant to such a settlement
agreement will not be deemed a director who is elected or nominated by the
incumbent Board for purposes of determining whether a Change in Control has
occurred. A Change in Control will not occur in the following situations: (1)
certain merger transactions in which there is at least 50% GTE shareholder
continuity in the surviving corporation, at least a majority of the members of
the board of directors of the surviving corporation consists of members of the
Board of GTE and no person owns more than 20% (or under certain circumstances, a
lower percentage, not less than 10%) of the voting power of the surviving
corporation following the transaction, and (2) transactions in which GTE's
securities are acquired directly from GTE.
The Agreements provide for benefits to be paid in the event this individual
separates from service and has a "good reason" for leaving or is terminated
without "cause" within two years after a Change in Control of GTE.
Good reason for leaving includes but is not limited to the following events:
demotion, relocation or a reduction in total compensation or benefits, or the
new entity's failure to expressly assume obligations under the Agreements.
Termination for cause includes certain unlawful acts on the part of the
executive or a material violation of his or her responsibilities to the
Corporation resulting in material injury to the Corporation.
An executive who experiences a qualifying separation from service will be
entitled to receive up to two times the sum of (i) base salary and (ii) the
average of his or her other percentage awards under the EIP for the previous
three years. The executive will also continue to receive medical and life
insurance coverage for up to two years and will be provided with financial and
outplacement counseling.
In addition, the Agreements with Messrs. Dinsmore, Daks and Foster provide that
in the event of a separation from service, they will receive service credit in
the following amounts: two times years of service otherwise credited if the
executive has five or fewer years of credited service; 10 years if credited
service is more than five and not more than 10 years; and, if the executive's
credited service exceeds 10 years, the actual number of credited years of
service. These additional years of service will apply towards vesting,
retirement eligibility, benefit accrual and all other purposes under the
Supplemental Executive Retirement Plan and the Executive Retired Life Insurance
Plan. In addition, each executive will be considered to have not less than 76
points and 15 years of accredited service for the purpose of determining his or
her eligibility for early retirement benefits. However, there will be no
duplication of benefits.
The Agreements remain in effect until the earlier of July 1 of each successive
year or the date on which the executive reaches age 65, unless the Agreement is
terminated earlier pursuant to its terms. The Agreements will be automatically
renewed on each successive July 1 unless, not later than December 31 of the
preceding year, one of the parties notifies the other that he does not wish to
extend the Agreement. If a Change in Control occurs, the Agreements will remain
in effect until the obligations of GTE (or its successor) under the Agreements
have been satisfied.
Retirement Programs
Pension Plans
The estimated annual benefits payable, calculated on a single life annuity
basis, under GTE's defined benefit pension plans at normal retirement at age 65,
based upon final average earnings and years of employment, are illustrated in
the table below:
PENSION PLAN TABLE
Years of Service
Final Average -----------------------------------------------------------
Earnings 15 20 25 30 35
- ------------- -----------------------------------------------------------
$ 150,000 $ 31,604 $ 42,138 $ 52,672 $ 63,207 $ 73,742
200,000 42,479 56,638 70,797 84,957 99,117
300,000 64,229 85,638 107,048 128,457 149,867
400,000 85,979 114,638 143,298 172,957 200,617
500,000 107,729 143,638 179,548 215,457 251,367
600,000 129,479 172,638 215,798 258,957 302,117
700,000 151,229 201,638 252,048 302,457 352,867
800,000 172,979 230,638 288,298 345,957 403,617
900,000 194,729 259,638 324,548 389,457 454,367
1,000,000 216,479 288,638 360,798 432,957 505,117
1,200,000 259,979 346,638 433,298 519,957 606,617
GTE Service Corporation, a wholly-owned subsidiary of GTE, maintains a
noncontributory pension plan for the benefit of GTE employees based on years of
service. Pension benefits to be paid from this plan and contributions to this
plan are related to basic salary exclusive of overtime, differentials, incentive
compensation (except as otherwise described) and other similar types of payment.
Under this plan, pensions are computed on a two-rate formula basis of 1.15% and
1.45% for each year of service, with the 1.15% service credit being applied to
that portion of the average annual salary for the five highest consecutive years
that does not exceed the Social Security Integration Level (the portion of
salary subject to the Federal Security Act), and the 1.45% service credit being
applied to that portion of the average annual salary that exceeds said level.
As of March 7, 1993, the credited years of service under the plan for Messrs.
Dinsmore, Daks, Foster, Inkrott and Gabremariam are 18, 14, 23, 28 and 20,
respectively.
Under Federal law, an employee's benefits under a qualified pension plan such as
the GTE Service Corporation plan are limited to certain maximum amounts. GTE
maintains a Supplemental Executive Retirement Plan (SERP), which supplements the
benefits of any participant in the qualified pension plan by direct payment of a
lump sum or by an annuity, on an unfunded basis, of the amount by which any
participant's benefits under the GTE Service Corporation pension plan are
limited by law. In addition, the SERP includes a provision permitting the
payment of additional retirement benefits determined in a similar manner as
under the qualified pension plan on remuneration accrued under management
incentive plans as determined by the Executive Compensation and Organizational
Structure Committee.
Executive Retired Life Insurance Plan
The Executive Retired Life Insurance Plan (ERLIP) provides Messrs. Dinsmore,
Daks, Foster, Inkrott and Gabremariam a maximum postretirement life insurance
benefit of three times final base salary. Upon retirement, ERLIP benefits may
be paid as life insurance or optionally, an equivalent amount may be paid as a
lump sum payment equal to the present value of the life insurance amount (based
on actuarial factors and the interest rate then in effect), as an annuity or as
installment payments. If an optional payment method is selected, the ERLIP
benefit will be based on the actuarial equivalent of the present value of the
insurance amount.
Directors' Compensation
The current directors, all of whom are employees of GTE, are not paid any fees
of renumeration, as such, for services on the Board.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners as of February 28, 1994:
Name and Shares of
Title Address of Beneficial Percent
of Class Beneficial Owner Ownership of Class
- ---------------- --------------------- ----------- ---------
Common Stock of GTE Corporation 23,400,000 100%
GTE Florida One Stamford Forum shares of
Incorporated Stamford, Connecticut record
06904
(b) Security Ownership of Management as of December 31, 1993:
Common Stock of Name of Director or Nominee (1)
GTE Corporation ------------------------------- No director
Kent B. Foster 168,299 or nominee or
Thomas W. White 83,071 executive
Michael B. Esstman 54,051 officer owns
Richard M. Cahill 37,188 as much as
Gerald K. Dinsmore 18,503 1/10 of
Peter A. Daks 9,606 1 percent
-------
370,718
=======
Executive Officers(1)(2)
------------------------
Gerald K. Dinsmore 18,503
Peter A. Daks 9,606
Kent B. Foster 168,299
Stephen A. Inkrott 21,102
Fassil Gabremariam 15,733
-------
233,243
=======
All directors and executive Represents
officers as a group(1)(2) 743,055 less than 1/10
======= of 1 percent
of outstanding
common stock.
(1) Includes shares acquired through participation in GTE's Consolidated
Employee Stock Ownership Plan and/or the GTE Savings Plan.
(2) Included in the number of shares beneficially owned by Messrs. Dinsmore,
Daks, Foster, Inkrott and Gabremariam and all directors and executive
officers as a group are 16,798; 5,166; 115,583; 13,232; 6,500; and
509,655 shares, respectively, which such persons have the right to
acquire within 60 days pursuant to stock options.
(c) There were no changes in control of the Company during 1993.
Item 13. Certain Relationships and Related Transactions
The Company's executive officers or directors were not materially indebted to
the Company or involved in any material transaction in which they had a direct
or indirect material interest.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - Reference is made to the Registrant's Annual
Report to Shareholders, pages 5 - 22, for the year ended December 31,
1993, incorporated herein and filed as Exhibit 13.
Report of Independent Public Accountants.
Consolidated Balance Sheets - December 31, 1993 and 1992.
Consolidated Statements of Income for the years ended December 31,
1993-1991.
Consolidated Statements of Reinvested Earnings for the years ended
December 31, 1993-1991.
Consolidated Statements of Cash Flows for the years ended December 31,
1993-1991.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules - Included in Part IV of this report for
the years ended December 31, 1993-1991:
Page(s)
-------
Report of Independent Public Accountants 21
Schedules:
V - Property, Plant and Equipment 22-24
VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment 25
VIII - Valuation and Qualifying Accounts 26
X - Supplementary Income Statement Information 27
Note: Schedules other than those listed above are omitted as not applicable,
not required, or the information is included in the financial
statements or notes thereto.
(3) Exhibits - Included in this report or incorporated by reference.
3-1* Restated Articles of Incorporation dated May 1, 1989 (Exhibit
3-2 of 1989 Form 10-K, File No. 1-3090).
3-2* By-Laws (Exhibit 3-2, File No. 2-52735).
4* Indenture with Index, dated November 1, 1950, between the Company
and Chemical Bank and NCNB National Bank of Florida (formerly
Exchange Bank and Trust Company of Florida), Trustees, as
supplemented by 28 Supplemental Indentures (Exhibits 1 and 2, File
No. 1-3090; Exhibit 4(e), File No. 2-10839; Exhibit 4(f), File No.
2-11521; Exhibit 4-18a, File No. 2-13958; Exhibit 4-21, File No.
2-14633; Exhibit 2-3, File No. 2-16152; Exhibits 2-3 and 2-4, File
No. 2-23625; Exhibits 2-3 and 2-4, File No. 2-27412; Exhibit 2-3,
File No. 2-30311; Exhibit 4-3, File No. 2-39215; Exhibit 2-3, File
No. 2-45015; Exhibit 2-3, File No. 2-49304; Exhibit 4-3, File No.
2-51282; Exhibits 4-3 and 4-4, File No. 2-52735; Exhibit 2-3, File
No. 2-57428; Exhibits 2-3, 2-4, and 2-5, File No. 2-68285; Exhibit
20 of the 1980 Form 10-K, File No. 1-3090; Exhibit 15, File No.
33-4557; and File No. 33-20998).
13 Annual Report to Shareholders for the year ended December 31,
1993, filed herein as Exhibit 13.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
fourth quarter of 1993.
* Denotes exhibits incorporated herein by reference to previous filings
with the Securities and Exchange Commission as designated.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GTE Florida Incorporated:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in GTE Florida Incorporated and
subsidiary's annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 28, 1994. Our
report on the consolidated financial statements includes an explanatory
paragraph with respect to the change in the method of accounting for income
taxes in 1992 as discussed in Note 1 to the consolidated financial statements.
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedules listed under Item 14 are the responsibility of
the Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
Dallas, Texas
January 28, 1994.
<PAGE>
<TABLE>
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
---------------------- ------------ ----------- ----------- ---------- ----------
Other
Balance at Retirements Debits or Balance at
Beginning Additions or Sales (Credits) Close of
Classification of Year at Cost (Note 1) (Note 2) Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE PLANT, stated at original cost:
Land $ 21,158 $ 648 $ -- $ 936 $ 22,742
Buildings 222,829 9,825 5,711 (4,865) 222,078
Central office equipment 1,273,685 128,081 70,975 390 1,331,181
Station apparatus 50,080 4,469 2,340 (111) 52,098
Cable/underground conduit, etc. 1,668,229 96,844 16,534 1,904 1,750,443
Furniture and office equipment 158,506 25,945 (912) -- 185,363
Vehicles and other work equipment 64,403 3,811 1,711 158 66,661
Telephone plant under construction 54,884 (4,523) -- -- 50,361
---------- -------- ------- -------- ----------
Total Telephone Plant 3,513,774 265,100 96,359 (1,588) 3,680,927
NONREGULATED PLANT 80,328 10,833 2,318 (98) 88,745
---------- -------- ------- -------- ----------
Total Property, Plant and Equipment $3,594,102 $275,933 $98,677 $ (1,686) $3,769,672
========== ======== ======= ========= ==========
<FN>
- ----------
NOTES:
(1) All retirements or sales in Column D were charged to accumulated
depreciation (Schedule VI, Note 2).
(2) Represents adjustments to the reserve in 1993 due to the adoption of SFAS
No. 109 and transfers in accordance with FCC Docket No. 86-111.
</TABLE>
<PAGE>
<TABLE>
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
---------------------- ------------ ----------- ----------- ---------- ----------
Other
Balance at Retirements Debits or Balance at
Beginning Additions or Sales (Credits) Close of
Classification of Year at Cost (Note 1) (Note 2) Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE PLANT, stated at original cost:
Land $ 15,121 $ 6,037 $ -- $ -- $ 21,158
Buildings 213,709 11,189 2,280 211 222,829
Central office equipment 1,133,201 200,712 72,832 12,604 1,273,685
Station apparatus 46,665 3,935 1,020 500 50,080
Station connections 1 (1) -- -- --
Cable/underground conduit, etc. 1,589,290 113,682 45,295 10,552 1,668,229
Furniture and office equipment 143,116 20,144 5,317 563 158,506
Vehicles and other work equipment 64,846 1,693 1,986 (150) 64,403
Telephone plant under construction 169,584 (114,700) -- -- 54,884
Property held for future telephone use 820 (821) -- 1 --
---------- -------- ------- ------- ----------
Total Telephone Plant 3,376,353 241,870 128,730 24,281 3,513,774
NONREGULATED PLANT 84,054 11,206 15,206 274 80,328
---------- -------- -------- ------- ----------
Total Property, Plant and Equipment $3,460,407 $253,076 $143,936 $24,555 $3,594,102
========== ======== ======== ======= ==========
<FN>
- ----------
NOTES:
(1) All retirements or sales in Column D were charged to accumulated
depreciation (Schedule VI, Note 2).
(2) Represents adjustments to the reserve in 1992 due to adoption of SFAS No.
109 and transfers in accordance with FCC Docket No. 86-111.
</TABLE>
<PAGE>
<TABLE>
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
---------------------- ------------ ----------- ----------- ---------- ----------
Other
Balance at Additions Retirements Debits or Balance at
Beginning at Cost or Sales (Credits) Close of
Classification of Year (Note 1) (Note 2) (Note 3) Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE PLANT, stated at original cost:
Land $ 18,508 $ 2,699 $ -- $ (6,086) $ 15,121
Buildings 201,618 15,545 3,796 342 213,709
Central office equipment 1,149,723 137,666 154,174 (14) 1,133,201
Station apparatus 53,463 2,296 9,094 -- 46,665
Station connections 207,252 -- 207,251 -- 1
Cable/underground conduit, etc. 1,531,170 134,631 76,511 -- 1,589,290
Furniture and office equipment 132,545 11,825 1,315 61 143,116
Vehicles and other work equipment 63,748 6,258 5,120 (40) 64,846
Telephone plant under construction 189,221 (19,656) -- 19 169,584
Property held for future telephone use 1,090 -- -- (270) 820
---------- -------- ------- ------- ----------
Total Telephone Plant 3,548,338 291,264 457,261 (5,988) 3,376,353
NONREGULATED PLANT 114,287 8,764 38,610 (387) 84,054
---------- -------- --------- ------- ----------
Total Property, Plant and Equipment $3,662,625 $300,028 $ 495,871 $ (6,375) $3,460,407
========== ======== ========== ========= ==========
<FN>
- ----------
NOTES:
(1) Reconciliation of capital expenditures disclosed in Consolidated
Statements of Cash Flows:
Capital expenditures per Consolidated
Statements of Cash Flows $293,653
Prior-year adjustments 6,375
--------
Total adjustments per Column C above $300,028
========
(2) Represents: Retirements or sales charged to accumulated
depreciation (Schedule VI, Note 2) $495,865
Other 6
--------
$495,871
========
(3) Primarily represents prior-year adjustments and transfers in accordance with
FCC Docket No. 86-111.
</TABLE>
<PAGE>
<TABLE>
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
---------------------- ------------ ----------- ----------- ---------- ----------
Additions
Balance at Charged to Retirements Other Balance at
Beginning Income or Sales Changes Close of
Description of Year (Note 1) (Note 2) (Note 3) Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accumulated depreciation
and amortization for
the year ended:
December 31, 1993 $1,037,071 $262,923 $ 98,677 $3,972 $1,205,289
========== ======== ======== ====== ==========
December 31, 1992 $ 923,231 $250,680 $143,936 $7,096 $1,037,071
========== ======== ======== ====== ==========
December 31, 1991 $1,162,810 $249,918 $495,865 $6,368 $ 923,231
========== ======== ======== ====== ==========
<FN>
- ----------
NOTES:
(1) Reference is made to Note 1 of Notes to Consolidated Financial
Statements with respect to depreciation policy: 1993 1992 1991
-------- -------- --------
Total as shown in Consolidated Statements of Income $261,562 $252,725 $250,066
General office allocations -- (530) --
Other 1,361 (1,515) (148)
-------- -------- --------
Total as shown above $262,923 $250,680 $249,918
======== ======== ========
(2) Represents: Retirements or sales were credited to
property, plant and equipment (Schedule V) $ 98,677 $143,936 $495,871
Other -- -- (6)
-------- -------- --------
Total as shown above $ 98,677 $143,936 $495,865
======== ======== ========
(3) Represents: Salvage $ 14,793 $ 10,663 $ 19,793
Removal costs (11,965) (11,125) (15,214)
Other 1,144 7,558 1,789
-------- -------- --------
Total as shown above $ 3,972 $ 7,096 $ 6,368
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
---------------------- ------------ -------------------------- ---------- ----------
Additions
--------------------------
Charged Deductions
Balance at Charged to Other from Balance at
Beginning to Accounts Reserves Close of
Description of Year Income (Note 1) (Note 2) Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible accounts
for the year ended:
December 31, 1993 $19,184 $37,309 $26,340 $57,604 $25,229
======= ======= ======= ======= =======
December 31, 1992 $ 8,050 $33,479 $28,606 $50,951 $19,184
======= ======= ======= ======= =======
December 31, 1991 $ 4,163 $16,092 $16,583 $28,788 $ 8,050
======= ======= ======= ======= =======
<FN>
- ----------
NOTES:
(1) Recoveries of previously written-off amounts.
(2) Charges for purpose for which reserve was created. Represents write-offs of
receivable accounts.
</TABLE>
<PAGE>
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
Column A Column B
----------------- ----------------------------------------------
Item Charged to Operating Expenses
- -------------------------------------------------------------------------------
1993 1992 1991
-------- -------- --------
Maintenance and repairs $211,504 $188,653 $217,290
======== ======== ========
Taxes, other than payroll and
income taxes, are as follows:
Real and personal property $ 46,402 $ 41,012 $ 46,064
State gross receipts 15,944 15,961 12,793
Other 4,794 4,667 5,807
Portion of above taxes charged
to plant and other accounts (3,612) (4,006) (3,494)
-------- -------- --------
Total $ 63,528 $ 57,634 $ 61,170
======== ======== ========
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 FLORIDA INCORPORATED
-----------------------------------
(Registrant)
Date March 21, 1994 By PETER A. DAKS
-------------------- -------------------------------
PETER A. DAKS
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
PETER A. DAKS President and Director March 21, 1994
- ----------------------- (Principal Executive Officer)
PETER A. DAKS
GERALD K. DINSMORE Senior Vice President - Finance March 21, 1994
- ------------------------ and Planning and Director
GERALD K. DINSMORE (Principal Financial Officer)
WILLIAM M. EDWARDS, III Controller March 21, 1994
- ------------------------ (Principal Accounting Officer)
WILLIAM M. EDWARDS, III
RICHARD M. CAHILL Director March 21, 1994
- ------------------------
RICHARD M. CAHILL
MICHAEL B. ESSTMAN Director March 21, 1994
- ------------------------
MICHAEL B. ESSTMAN
KENT B. FOSTER Director March 21, 1994
- -------------------------
KENT B. FOSTER
THOMAS W. WHITE Director March 21, 1994
- -------------------------
THOMAS W. WHITE
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
of
GTE FLORIDA INCORPORATED
For the year ended December 31, 1993
<PAGE>
PRESIDENT'S REPORT
- -------------------------------------------------------------------------------
Quiet, uneventful years in the telecommunications industry are a thing of the
past. The Information Superhighway . . . the multimedia revolution . . . GTE's
own VIVID program - we are entering an era of unprecedented risk and
opportunity, and in 1993, GTE Florida proved its readiness to tackle those
challenges.
Many important events took place last year, but the highlight was establishing
the Florida State Operation as a stand-alone business unit of GTE Telephone
Operations.
As competitors continue to encroach into business areas that have been
traditionally secure, it is crucial that we focus on enhancing our leadership
position in our strongest business arenas. Our new organization recognizes that
the Florida market is a unique business environment requiring custom-tailored,
carefully crafted telecommunications solutions.
POSITIONING FOR THE COMPETITIVE MARKETPLACE
In addition to being a key market, Florida is the pacesetter for our "process
re-engineering" program, an aggressive plan to dramatically improve customer
service and streamline operations. The national "Alpha Site" in Sarasota is an
excellent forum for employees to test GTE's new, re-engineered processes. The
Customer Zone Concept, which gives field technicians greater ownership of their
jobs and enhances customer contact, is only one of the successes that made 1993
such an outstanding year for process re-engineering in Florida.
BUILDING THE FUTURE
Central to the success of our process re-engineering efforts and our future
success as a company, is our ability to provide advanced, state-of-the-art
telecommunications. Over the past four years, we have invested more than $1.2
billion in Florida to upgrade and expand our network. Right now, 96 percent of
our access lines are digital; we have 14 fiber rings in place, and we plan to
complete nine additional fiber rings by the end of 1994.
---------------------------
| |
| |
| |
| |
| |
| |
| |
---------------------------
Peter A. Daks
President
<PAGE>
Despite the challenges of working in a changing environment, our employees
remain committed to outstanding quality. For the fifth consecutive year, GTE
Florida won the GTE Telephone Operations President's Quality Cup, sharing the
award with GTE Pennsylvania. The President's Quality Cup is presented to the
business unit ranked highest by its customers for service
delivery.
IN TOUCH WITH CUSTOMERS
In line with our commitment to provide our customers with competitive rates and
advanced communications, GTE Florida introduced several new products and
services in 1993 and expanded others.
The Extended Calling Service program, launched successfully in 1992, was
expanded this year to include reduced rates for long-distance calls between New
Port Richey and Clearwater, Zephyrhills and Tampa, Tampa and Mulberry, Plant
City and Mulberry, and Sarasota and Palmetto.
In April, GTE Florida introduced Express Dialtone in North Tampa's University
exchange as part of a field trial to improve service and reduce costs. The
program, which allows customers to reach a GTE customer service representative
from a non-active residential phone line with the touch of any single-digit
number, has since been expanded to the Sarasota area.
GTE Florida's commitment to customer service in 1993 was well-rewarded in the
residential and business sales arenas. Time Customer Service, a subsidiary of
the Time Magazine Company, named GTE Florida an outstanding vendor for 1993.
GTE Florida also became the first region in which every GTE Phone Mart achieved
$1 million in revenue. Four of our 19 stores exceeded the $2 million mark. The
Customer Service Order Center had a banner year as well.
GTE Florida employees became more involved in increasing revenue through the
Sell One More program, which provides sales incentives for non-sales employees.
Sell One More revenues in Florida tripled last year.
In the business market, several major sales stand out, including a large
CentraNet R sale to the City of Tampa, a major data services sale to Discount
Auto Parts, and a PBX sale to St. Joseph's Health Services.
In July, the International Brotherhood of Electrical Workers (IBEW) members
voted to ratify a contract with GTE Florida calling for a ten percent wage
increase over three years, plus target incentive payouts. This marks the first
time IBEW ratified an agreement with GTE Florida on a first vote and prior to
expiration of an existing contract.
Due largely to the one-time restructuring charge and refinancing costs of high-
coupon debt, GTE Florida reported a net loss of $35 million.
TAKING CARE OF EMPLOYEES . . . AND THE COMMUNITY
As part of our commitment to the welfare of our employees and to help hold down
health care costs, GTE established two GTE Family Health Centers (FHC) in
Florida. With facilities in Tampa and Clearwater, the FHC offers employees in
the Tampa Bay area, dependents and retirees cost-effective, high-quality
medical care.
Continuing our commitment to improving public education through technology, GTE
Florida teamed up with the National Football League to introduce Project PASS
in Hillsborough County Schools. This unique, hands-on education program teaches
students challenging math concepts by combining the excitement of the NFL with
interactive, multimedia technology.
GTE Florida employees reported nearly 66,000 volunteer hours which were matched
by almost $278,000 in grants to non-profit organizations through the Company's
Volunteer Initiatives Program. The Company also contributed $1.48 million to
charitable organizations that help improve the quality of life in West Central
Florida.
MEETING THE CHALLENGES
Through a combination of hard work, dedication and teamwork, our employees
helped GTE Florida position itself to compete successfully in an era of
tremendous change. By continuing to focus on our three primary initiatives -
delivering excellent service, at competitive prices, with the best people - GTE
Florida is strengthening its position as the market leader. Our employees have
demonstrated their ability to turn obstacles into opportunities, and with their
support, we look forward to great success in 1994.
PETER A. DAKS
President
<PAGE>
--------------------------------
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
--------------------------------
EXECUTIVE OFFICES
One Tampa City Center
Tampa, Florida 33602
TRANSFER AGENT AND REGISTRAR
GTE Corporation
c/o Bank of Boston
P.O. Box 9191
Boston, Massachusetts 02205-9191
FOR A COPY OF THE 1993 ANNUAL REPORT OF OUR
PARENT COMPANY, PLEASE WRITE TO:
GTE Corporation
One Stamford Forum
Stamford,Connecticut 06904
FOR A COPY OF THE 1993 ANNUAL FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, PLEASE WRITE TO:
GTE Telephone Operations
Financial Reporting
P.O. Box 407, MC INAAACG
Westfield, IN 46074
(317) 896-6464
<PAGE>
LEADERSHIP
- --------------------------------------------------------------------------------
Officers
Peter A. Daks
President
James D. Bennett
State Vice President-Sales
Gerald K. Dinsmore
Senior Vice President-Finance and
Planning
M. Michael Foster
State Vice President-Operations
Fassil Gabremariam
State Vice President-Finance
Donald W. McLeod
State Vice President-External Affairs
Marceil Morrell
State Vice President-General Counsel
David H. Richter
State Vice President-Human Resources
William M. Edwards, III
Controller
Charles J. Somes
Secretary
- --------------------------------------------------------------------------------
Board of Directors
Richard M. Cahill
Vice President-General Counsel
GTE Telephone Operations
Peter A. Daks
President
GTE Florida Incorporated
Gerald K. Dinsmore
Senior Vice President-Finance
and Planning
GTE Telephone Operations
Michael B. Esstman
Executive Vice President-
Operations
GTE Telephone Operations
Kent B. Foster
President
GTE Telephone Operations
Thomas W. White
Executive Vice President
GTE Telephone Operations
<PAGE>
FINANCIAL REPORT
- --------------------------------------------------------------------------------
Consolidated Statements of Income
Years ended December 31 1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Operating revenues (a):
Local network services $ 537,446 $ 498,151 $ 450,489
Network access services 406,244 425,860 419,628
Long distance services 74,646 110,101 161,412
Equipment sales and services 91,536 89,436 92,267
Other 101,243 130,993 105,483
- -------------------------------------------------------------------------------
1,211,115 1,254,541 1,229,279
- -------------------------------------------------------------------------------
Operating expenses (b):
Cost of sales and services 291,851 263,009 297,799
Depreciation and amortization 261,562 252,725 250,066
Marketing, selling, general and
administrative 422,436 398,471 391,018
Restructuring costs 194,330 _ _
- -------------------------------------------------------------------------------
1,170,179 914,205 938,883
- -------------------------------------------------------------------------------
Net operating income 40,936 340,336 290,396
- -------------------------------------------------------------------------------
Other (income) deductions:
Interest expense 69,529 74,856 79,001
Other - net 3,558 767 (42)
- -------------------------------------------------------------------------------
Income (loss) before income taxes (32,151) 264,713 211,437
- -------------------------------------------------------------------------------
Income tax expense (benefit) (16,924) 98,789 64,162
- -------------------------------------------------------------------------------
Income (loss) before extraordinary charge (15,227) 165,924 147,275
- -------------------------------------------------------------------------------
Extraordinary charge - early retirement of
debt (net of income taxes of $11,919) 19,751 _ _
- -------------------------------------------------------------------------------
Net income (loss) $ (34,978) $ 165,924 $ 147,275
- -------------------------------------------------------------------------------
(a) Includes billings to affiliates of $105,942, $141,134 and $98,530 for the
years 1993-1991, respectively.
(b) Includes billings from affiliates of $69,981, $82,574 and $107,382 for the
years 1993-1991, respectively.
Consolidated Statements of Reinvested Earnings
- -------------------------------------------------------------------------------
Years ended December 31 1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Balance at beginning of year $636,740 $585,861 $557,129
Add -
Net income (loss) (34,978) 165,924 147,275
Deduct -
Cash dividends declared on common stock 70,017 110,788 114,284
Cash dividends declared on preferred
stock 4,258 4,257 4,259
- -------------------------------------------------------------------------------
BALANCE AT END OF YEAR $527,487 $636,740 $585,861
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Balance Sheets
December 31 1993 1992
- -------------------------------------------------------------------------------
(Thousands of Dollars)
ASSETS
Current assets:
Cash $ 6,688 $ 5,100
Accounts receivable
Customers (including unbilled revenues) 269,538 228,834
Affiliated companies 12,507 15,034
Other 13,949 12,948
Allowance for uncollectible accounts (25,229) (19,184)
Materials and supplies, at average cost 22,511 21,859
Deferred income tax benefits 11,982 _
Prepayments and other 9,648 3,472
- -------------------------------------------------------------------------------
321,594 268,063
- -------------------------------------------------------------------------------
Property, plant and equipment:
Original cost 3,769,672 3,594,102
Accumulated depreciation (1,205,289) (1,037,071)
- -------------------------------------------------------------------------------
2,564,383 2,557,031
- -------------------------------------------------------------------------------
Other assets 67,545 59,818
- -------------------------------------------------------------------------------
Total assets $2,953,522 $2,884,912
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 176,400 $ 114,728
Current maturities of long-term debt 630 8,225
Accounts payable 60,874 83,120
Affiliate payables and accruals 46,528 52,972
Advanced billings and customer deposits 28,630 33,053
Accrued taxes _ 23,002
Accrued interest 9,873 18,597
Accrued payroll and vacations 35,648 24,475
Accrued dividends 544 9,404
Accrued restructuring costs and other 110,317 13,793
- -------------------------------------------------------------------------------
469,444 381,369
- -------------------------------------------------------------------------------
Long-term debt 747,946 782,843
- -------------------------------------------------------------------------------
Deferred credits:
Deferred income taxes 373,572 362,547
Deferred investment tax credits 11,965 18,085
Restructuring costs and other 177,723 57,943
- -------------------------------------------------------------------------------
563,260 438,575
- -------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock 60,096 60,096
Common stock (23,400,000 shares outstanding) 585,000 585,000
Other capital 289 289
Reinvested earnings 527,487 636,740
- -------------------------------------------------------------------------------
1,172,872 1,282,125
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,953,522 $2,884,912
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Cash Flows
Years ended December 31 1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Cash flows from operating activities:
Income (loss) before extraordinary
charge $ (15,227) $ 165,924 $ 147,275
Adjustments to reconcile income (loss)
before extraordinary charge to net cash
from operating activities:
Depreciation and amortization 261,562 252,725 250,066
Restructuring costs 194,330 _ _
Deferred income taxes and investment
tax credits (56,802) 32,472 6,044
Provision for uncollectible accounts 37,309 33,479 16,092
Change in current assets and current
liabilities (94,226) (50,593) (34,277)
Other - net 35,084 (39,016) 7,850
- -------------------------------------------------------------------------------
Net cash from operating activities 362,030 394,991 393,050
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (275,933) (253,076) (293,653)
Other - net 6,375 61 5,131
- -------------------------------------------------------------------------------
Net cash used in investing
activities (269,558) (253,015) (288,522)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt issued 396,950 _ _
Long-term debt retired (58,204) (16,053) (15,541)
Early retirement of debt and related
call premium (408,167) _ _
Dividends paid to shareholders (83,135) (145,079) (118,411)
Increase in short-term debt 61,672 21,628 31,635
- -------------------------------------------------------------------------------
Net cash used in financing
activities (90,884) (139,504) (102,317)
- -------------------------------------------------------------------------------
Increase in cash 1,588 2,472 2,211
Cash:
Beginning of year 5,100 2,628 417
- -------------------------------------------------------------------------------
End of year $ 6,688 $ 5,100 $ 2,628
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
Notes To Consolidated Financial Statements
1. Summary of Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of GTE Florida
Incorporated (the Company) and its wholly-owned subsidiary, GTE Communications
Corporation (GTECC). All significant intercompany transactions have been
eliminated. The Company is a wholly-owned subsidiary of GTE Corporation (GTE).
TRANSACTIONS WITH AFFILIATES
PURCHASES
Certain affiliated companies supply construction and maintenance materials,
supplies and equipment to the Company. These purchases amounted to $82.7
million, $74.3 million and $105.3 million for the years 1993-1991,
respectively. Such purchases are recorded in the accounts of the Company at
cost including a normal return realized by the affiliates.
The Company is billed for printing and other costs for the production of
telephone directories, data processing services and equipment rentals, and
receives management, consulting, research and development and pension
management services from other affiliated companies. These charges amounted to
$70.0 million, $82.6 million and $107.4 million for the years 1993-1991,
respectively. The amounts charged for these affiliated transactions are based
on a proportional cost allocation method which reflects management's best
estimate.
REVENUES
The Company has an agreement with GTE Directories Corporation (100% owned by
GTE), whereby the Company provides its subscriber lists, billing and collection
and other services. Revenues from these services amounted to $105.9 million,
$141.1 million and $98.5 million for the years 1993-1991, respectively.
TELEPHONE PLANT
Maintenance and repairs are charged to income as incurred. Additions to,
replacements and renewals of property are charged to telephone plant
accounts. Property retirements are charged in total to the accumulated
depreciation account. No adjustment to depreciation is made at the time
properties are retired or otherwise disposed of, except in the case of
significant sales of property where profit or loss is recognized.
The Company provides for depreciation on telephone plant over the estimated
useful lives of the assets using the straight-line method, based upon rates
prescribed by the Federal Communications Commission (FCC) and the Florida
Public Service Commission (FPSC). The provisions for depreciation and
amortization were equivalent to composite annual rates of 7.3%, 7.4% and 7.4%
for the years 1993-1991, respectively.
REGULATORY ACCOUNTING
The Company follows the accounting prescribed by the Uniform System of Accounts
of the FCC and the FPSC and Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation." This
accounting recognizes the economic effects of rate regulation by recording costs
and a return on investment as such amounts are recovered through rates
authorized by regulatory authorities. The Company annually reviews the continued
applicability of SFAS No. 71 based upon the current regulatory and competitive
environment.
REVENUE RECOGNITION
Revenues are recognized when earned. This is generally based on usage of the
Company's local exchange networks or facilities. For other products and
services, revenue is recognized when products are delivered or services are
rendered to customers.
MATERIALS AND SUPPLIES
Materials and supplies are stated at the lower of cost or market value.
EMPLOYEE BENEFIT PLANS
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The new standard
requires that the expected costs of postretirement benefits be charged to
expense during the years that the employees render service. The Company elected
to adopt this new accounting standard on the delayed recognition method and
commencing January 1, 1993, began amortizing the estimated unrecorded
accumulated postretirement benefit obligation over twenty years. Prior to the
adoption of SFAS No. 106, the cost of these benefits was charged to expense as
paid.
The Company also adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. SFAS No. 112 requires employers to accrue
the future cost of benefits provided to former or inactive employees and their
dependents after employment but before retirement. Previously, the cost of these
benefits was charged to expense as paid. The impact of this change in accounting
on the Company's results of operations was immaterial.
INCOME TAXES
Investment tax credits were repealed by the Tax Reform Act of 1986 (the Act).
Those credits claimed prior to the Act were deferred and are being amortized
over the lives of the properties giving rise to the credits.
As further explained in Note 7, during the fourth quarter of 1992, the Company
adopted SFAS No. 109, "Accounting for Income Taxes," retroactive to January 1,
1992. SFAS No. 109 changed the method by which companies account for income
taxes. Among other things, the Statement requires that deferred tax balances be
adjusted to reflect new tax rates when they are enacted into law. The impact of
this change in accounting on the Company's results of operations was
immaterial.
FINANCIAL INSTRUMENTS
The fair values of financial instruments other than long-term debt, closely
approximate their carrying value. The estimated fair value of long-term debt at
December 31, 1993 and 1992, based on either reference to quoted market prices
or an option pricing model, exceeded the carrying value by approximately $21
million and $29 million, respectively.
PRIOR YEARS' FINANCIAL STATEMENTS
Reclassifications of prior year data have been made in the financial statements
to conform to the 1993 presentation.
2. Restructuring and Merger Costs
Results for 1993 include a one-time pretax restructuring charge of $194.3
million related to the Company's re-engineering plan over the next three years.
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 further reduce costs. The re-
engineering plan includes $74.3 million to upgrade or replace existing customer
service and administrative systems and enhance network software, $84.0 million
for employee separation benefits associated with workforce reductions and $22.7
million primarily for the consolidation of facilities and operations and other
related costs.
During 1993, the Company offered various voluntary separation programs to its
employees. These programs resulted in a pretax charge of $3.8 million which
reduced net income by $2.4 million.
In March 1991, the merger of the Company's parent, GTE, and Contel Corporation
(Contel) was consummated. GTE Telephone Operations is in the process of
integrating and restructuring the merged operations.
<PAGE>
3. Preferred Stock
Cumulative preferred stock, not subject to mandatory redemption, exclusive of
amounts held in treasury, as of December 31, 1993 and 1992 is as follows:
Shares Amount*
- -------------------------------------------------------------------------------
Authorized
$ 25 par value 4,880,000
$100 par value 1,200,000
- -------------------------------------------------------------------------------
6,080,000
- -------------------------------------------------------------------------------
Outstanding
$ 25 par value -
$1.30 Series B 475,900 $ 11,897
$1.25 Series 371,900 9,298
$100 par value -
8.16% Series 389,010 38,901
- -------------------------------------------------------------------------------
Total 1,236,810 $ 60,096
- -------------------------------------------------------------------------------
*Thousands of Dollars
There were no retirements, redemptions or other activity for the years 1993-
1991.
In the event of default in the payment of accrued dividends in an amount equal
to the accrued dividends for a period of at least twelve months, each class of
preferred shareholders, voting as a class, will be entitled to elect two
directors in addition to those directors elected by GTE. Otherwise, the
preferred shareholders have no voting rights. The Company is not in arrears in
its dividend payments at December 31, 1993.
At December 31, 1993 and 1992, the Company held 3,130 shares as treasury stock.
No shares of preferred stock were reserved for officers and employees, or for
options, warrants, conversions or other rights.
4. Common Stock
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $25 per share. All outstanding shares of common stock are held by
GTE.
There were no shares of common stock held by or for the account of the Company
and no shares were reserved for officers and employees, or for options,
warrants, conversions or other rights.
At December 31, 1993, $6.3 million of reinvested earnings was restricted for
the payment of cash dividends on common stock under the terms of the Company's
Articles of Incorporation.
<PAGE>
5. Long-Term Debt
Long-term debt outstanding, exclusive of current maturities, is as follows:
1993 1992
- -------------------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
4-5/8 % Series J, due 1995 $ 20,000 $ 20,000
5-3/8 % Series K, due 1996 16,000 16,000
6-1/2 % Series L, due 1997 20,000 20,000
8-5/ % Series M, due 2000 _ 40,000
8 % Series N, due 2001 (a) 45,000 45,000
7-1/2 % Series O, due 2002 50,000 50,000
8-1/8 % Series P, due 2003 _ 50,000
9-3/8 % Series S, due 2005 _ 50,000
8-1/4 % Series T, due 2006 _ 50,000
5-1/4 % Series Y, due 1996 30,000 30,000
8-3/4 % Series Z, due 2026 _ 125,000
7-3/4 % Series AA, due 1996 _ 50,000
8-3/8 % Series BB, due 2027 75,000 75,000
10 % Series CC, due 2028 _ 75,000
9-5/8 % Series DD, due 2030 75,000 75,000
- -------------------------------------------------------------------------------
331,000 771,000
- -------------------------------------------------------------------------------
Debentures:
6.31% Series A, due 2002 200,000 _
7.41% Series B, due 2023 200,000 _
- -------------------------------------------------------------------------------
400,000 _
- -------------------------------------------------------------------------------
Promissory Note - Affiliated Company:
7-3/4% Note payable to GTE Finance
Corporation, due 1996 25,000 25,000
Other:
Various notes and mortgages with
interest rates ranging from 8-5/8% to 9%
maturing between 1993 and 1999 413 1,022
- -------------------------------------------------------------------------------
Total principal amount 756,413 797,022
- -------------------------------------------------------------------------------
Discount and premium - net (8,467) (14,179)
- -------------------------------------------------------------------------------
Total long-term debt $747,946 $782,843
- -------------------------------------------------------------------------------
(a) Includes $500,000 payable to GTE Finance Corporation.
<PAGE>
All outstanding Series AA, 7-3/4% First Mortgage Bonds were retired in 1993 with
proceeds from borrowings of commercial paper.
In November 1993, the Company called $390 million of high-coupon first mortgage
bonds with proceeds from commercial paper borrowings. These bonds had coupons
ranging from 8-1/8% to 10%. In December 1993, the Company issued $200 million of
6.31% Debentures, due 2002 and $200 million of 7.41% Debentures, due 2023 to
refinance these bonds. The cost of calling these bonds is reflected as an
extraordinary after-tax charge of $19.8 million in the Consolidated Statements
of Income.
The aggregate principal amount of bonds and debentures that may be issued is
subject to the restrictions and provisions of the Company's indentures.
None of the securities shown above were held in sinking or other special funds
of the Company or pledged by the Company.
Debt discount and premium on the Company's outstanding long-term debt are
amortized over the lives of the respective issues.
Maturities, installments and sinking fund requirements for the five-year period
from January 1, 1994 are summarized below (in thousands of dollars):
- --------------------------------------------------------
1994 $ 630
1995 20,089
1996 71,097
1997 20,105
1998 115
- --------------------------------------------------------
Substantially all of the Company's telephone plant is subject to the liens of
the indentures under which the bonds listed above were issued
6. Short-Term Debt
The Company finances part of its construction program through the use of
interim short-term loans, primarily commercial paper, which are generally
refinanced at a later date by issues of long-term debt or equity. Information
relating to short-term borrowings is as follows:
1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
During the year -
Maximum month-end balance $ 554,125(a) $ 145,000 $ 100,000
Average monthly balance $ 170,184 $ 106,863 $ 80,037
Weighted average interest rate (b) 2.85% 3.77% 5.96%
At December 31 -
Balance outstanding -
Commercial paper $ 176,400 $ 114,728 $ 93,100
Average interest rate 3.28% 3.48% 4.68%
- -------------------------------------------------------------------------------
(a) Includes commercial paper borrowings used to call $390 million of long-term
debt in November 1993.
(b) Calculated by dividing the annualized interest expense by the average of
the balances of the debt outstanding at the end of each month.
Unused lines of credit of $2.3 billion are available to the Company to support
outstanding commercial paper and other short-term financing needs through
shared lines of credit with GTE and other affiliates. Most of these
arrangements require payment of annual commitment fees of .1% of the unused
lines of credit.
<PAGE>
7. Income Taxes
The provision (benefit) for income taxes is as follows:
1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Current
Federal $ 37,907 $ 63,269 $ 55,258
State and local 1,971 3,048 2,860
- -------------------------------------------------------------------------------
Total 39,878 66,317 58,118
- -------------------------------------------------------------------------------
Deferred
Federal (47,213) 27,628 3,543
State and local (3,469) 12,419 9,535
- -------------------------------------------------------------------------------
Total (50,682) 40,047 13,078
- -------------------------------------------------------------------------------
Amortization of deferred
investment tax credits (6,120) (7,575) (7,034)
- -------------------------------------------------------------------------------
Total $ (16,924) $ 98,789 $ 64,162
- -------------------------------------------------------------------------------
The components of deferred income tax expense (benefit) are as follows:
1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Depreciation and amortization $ 30,319 $ 13,306 $ 3,519
Employee benefit obligation (14,846) (2,155) (402)
Prepaid pension cost 8,832 5,306 2,194
Restructuring cost (69,504) _ _
Revenues 794 17,372 3,573
Other (6,277) 6,218 4,194
- -------------------------------------------------------------------------------
Total $ (50,682) $ 40,047 $ 13,078
- -------------------------------------------------------------------------------
A reconciliation between taxes computed by applying the statutory Federal
income tax rate to pretax income and income taxes provided in the Consolidated
Statements of Income is as follows:
1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Amounts computed at statutory rates $ (11,253) $ 90,002 $ 71,889
State and local income tax, net of
Federal income tax benefits (989) 10,208 8,181
Amortization of deferred investment
tax credits (6,120) (7,575) (6,838)
Depreciation of telephone plant
construction costs previously
deducted for tax purposes - net 2,316 2,334 2,994
Rate differentials applied to
reversing temporary differences (1,980) (2,469) (7,284)
Other differences - net 1,102 6,289 (4,780)
- -------------------------------------------------------------------------------
Total provision (benefit) $ (16,924) $ 98,789 $ 64,162
- -------------------------------------------------------------------------------
<PAGE>
As a result of implementing SFAS No. 109, the Company recorded additional
deferred income tax liabilities primarily related to temporary differences
which had not previously been recognized in accordance with established rate-
making practices. Since the manner in which income taxes are treated for rate-
making has not changed, pursuant to SFAS No. 71 a corresponding regulatory
asset was also established. In addition, deferred income taxes were adjusted
and a regulatory liability established to give effect to the current statutory
Federal income tax rate and for unamortized investment tax credits. The net
unamortized regulatory liability balances at December 31, 1993 and 1992
amounted to $24.2 million and $54.6 million, respectively, and are reflected as
other deferred credits in the accompanying Consolidated Balance Sheets. These
amounts are being amortized over the lives of the related depreciable assets
concurrent with recovery in rates and in conformance with the provisions of the
Internal Revenue Code. The assets and liabilities established in accordance
with SFAS No. 71 have been increased for the tax effect of future revenue
requirements.
The tax effects of all temporary differences that give rise to the deferred tax
liability and deferred tax asset at December 31 are as follows:
1993 1992
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Depreciation and
amortization $ 419,979 $ 356,683
Employee benefit
obligations (21,300) (6,454)
Prepaid pension cost 12,370 3,538
Restructuring
cost (69,504) _
Revenues 22,384 21,590
Other - net (2,339) 3,939
- -------------------------------------------------------------------------------
Total $ 361,590 $ 379,296
- -------------------------------------------------------------------------------
<PAGE>
8. Employee Benefit Plans
RETIREMENT PLANS
The Company has trusteed, noncontributory, defined benefit pension plans
covering substantially all employees. The benefits to be paid under these plans
are generally based on years of credited service and average final earnings.
The Company's funding policy, subject to the minimum funding requirements of
U.S. employee benefit and tax laws, is to contribute such amounts as are
determined on an actuarial basis to provide the plans with assets sufficient to
meet the benefit obligations of the plans. The assets of the plans consist
primarily of corporate equities, government securities and corporate debt
securities.
The net pension credits for 1993-1991 include the following components:
1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Service cost-benefits earned during
the period $ 20,939 $ 20,350 $ 20,781
Interest cost on projected benefit
obligations 44,428 42,338 39,261
Actual return on plan assets (141,365) (49,229) (156,517)
Other - net 56,390 (29,843) 88,822
- -------------------------------------------------------------------------------
Net pension credit $ (19,608) $ (16,384) $ (7,653)
- -------------------------------------------------------------------------------
The expected long-term rate of return on plan assets was 8.25% for 1993 and
1992 and 8.0% in 1991.
The funded status of the plans at December 31, 1993 and 1992 was as follows:
1993 1992
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Plan assets at fair value $ 904,013 $ 887,966
Projected benefit obligation 536,199 554,270
- -------------------------------------------------------------------------------
Excess of assets over projected
obligation 367,814 333,696
Unrecognized net transition asset (67,496) (84,249)
Unrecognized net gain (259,894) (228,944)
- -------------------------------------------------------------------------------
Prepaid pension cost $ 40,424 $ 20,503
- -------------------------------------------------------------------------------
The projected benefit obligations at December 31, 1993 and 1992 include
accumulated benefit obligations of $401.3 million and $374.4 million and vested
benefit obligations of $343.5 million and $315.2 million, respectively.
Assumptions used to develop the projected benefit obligations at December 31,
1993 and 1992 were as follows:
1993 1992
- -------------------------------------------------------------------------------
Discount rate 7.5 % 8.0%
Rate of compensation increase 5.25% 6.0%
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As described in Note 1, effective January 1, 1993, the Company adopted SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
Substantially all of the Company's employees are covered under postretirement
health care and life insurance benefit plans. The health care benefits paid
under the plans are generally based on comprehensive hospital, medical and
surgical benefit provisions, while the life insurance benefits are currently
based on annual earnings at the time of retirement. The Company funds amounts
for postretirement benefits as deemed appropriate from time to time.
The postretirement benefit cost for 1993 includes the following components (in
thousands of dollars):
1993
- --------------------------------------------------------
Service cost-benefits earned
during the period $ 8,581
Interest cost on accumulated
postretirement benefit
obligation 25,017
Amortization of transition
obligation 15,432
- --------------------------------------------------------
Postretirement benefit
cost $49,030
- --------------------------------------------------------
During 1992 and 1991, the cost of postretirement health care and life insurance
benefits on a pay-as-you-go basis was $8.0 million and $7.5 million,
respectively.
The following table sets forth the plans' funded status and the accrued
obligation as of December 31, 1993 (in thousands of dollars):
1993
- --------------------------------------------------------
Accumulated postretire-
ment benefit obligation
attributable to:
Retirees $173,478
Fully eligible active
plan participants 2,851
Other active plan
participants 156,848
- --------------------------------------------------------
Total accumulated
postretirement benefit
obligation 333,177
Fair value of plan assets 194
- --------------------------------------------------------
Excess of accumulated
obligation over plan assets 332,983
Unrecognized transition
obligation (256,701)
Unrecognized net loss (33,893)
- --------------------------------------------------------
Accrued postretirement
benefit obligation $ 42,389
- --------------------------------------------------------
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 7.5% at December 31, 1993. The expected long-term rate
of return on plan assets was 8.25% for 1993. The assumed health care cost trend
rate in 1993 was 13% for pre-65 participants and 9.5% for post-65 retirees,
each rate declining on a graduated basis to an ultimate rate in the year 2004
of 6%. A one percentage point increase in the assumed health care cost trend
rate for each future year would have increased 1993 costs by $5.6 million and
the accumulated postretirement benefit obligation at December 31, 1993 by $45.4
million.
During 1993, the Company made certain changes to its postretirement health care
and life insurance benefits for non-union employees that are effective January
1, 1995. These changes include, among others, newly established limits to the
Company's annual contribution to postretirement medical costs and a revised
sharing schedule based on a retiree's years of service. The net effect of these
changes reduced the accumulated benefit obligation at December 31, 1993 by
$46.0 million.
SAVINGS PLANS
The Company sponsors savings plans under section 401(k) of the Internal Revenue
Code. The plans cover substantially all full-time employees. Under the plans,
the Company provides matching contributions in GTE common stock based on
qualified employee contributions. Matching contributions charged to income were
$5.4 million, $6.0 million and $5.7 million in the years 1993-1991,
respectively.
<PAGE>
9. Commitments and Contingencies
The Company's anticipated construction costs for 1994 are approximately $300
million, for which the Company had substantial purchase commitments as of
December 31, 1993.
The Company has noncancelable lease contracts covering certain buildings,
office space and equipment. The lease contracts contain varying renewal options
for terms up to 17 years. The majority of the amount remaining after 1996 is
related to the lease of the Company's headquarters building at One Tampa City
Center.
Minimum rental commitments for non-cancelable leases for periods subsequent to
December 31, 1993 are as follows (in thousands of dollars):
1994 $10,642
1995 9,271
1996 8,408
1997 8,215
1998 7,354
Thereafter 29,419
--------------------------------------------------------
Total minimum rental
commitments $73,309
--------------------------------------------------------
The total amount of rents charged to expense was $21.8 million, $22.0 million
and $22.0 million for the years 1993-1991, respectively.
<PAGE>
10. Regulatory Matters
The Company is subject to regulation by the FCC for interstate business and the
FPSC with respect to intrastate operations.
INTRASTATE SERVICES
The Company provides long distance services within designated geographic areas
called Local Access and Transport Areas (LATAs) or as a provider of long
distance services directly to the customers in their exchanges. The FPSC has
approved extended area calling plans for certain intraLATA long distance
routes. Under these plans, residential customers will pay a flat rate per
message and business customers will pay a reduced rate per minute for these
calls. Revenues from calls under the extended area calling plans are classified
as local network services.
On January 21, 1993, the FPSC issued an order effective January 6, 1993 to
reduce rates $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 has
subsequently 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. It is not possible to determine the outcome of this
proceeding at this time.
INTERSTATE SERVICES
For the provision of interstate 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 price that the
local exchange carrier (LEC) may charge is increased or decreased each year by
a price index based upon inflation less a predetermined productivity target.
LECs may within certain ranges price individual services above or below the
overall cap.
As a safeguard under its new price cap regulatory plan, the FCC has also
adopted a productivity sharing feature. Because of this feature, under the
minimum productivity-gain option, the Company must share equally with its
ratepayers any realized interstate return above 12.25% up to 16.25%, and all
returns higher than 16.25%, by temporarily lowering prospective prices. During
1994, the FCC is scheduled to review the LEC price cap plan to determine
whether it should be continued or modified.
In 1992, the Company's rates were voluntarily reduced by $7.1 million effective
July 1, 1992, $2.2 million effective July 17, 1992, $14.0 million effective
October 2, 1992 and $6.4 million effective December 15, 1992.
SIGNIFICANT CUSTOMER
Revenues received from AT&T include amounts for access, billing and collection
and interexchange leased facilities during the years 1993-1991 under various
arrangements and amounted to $184.5 million, $206.7 million and $211.9 million,
respectively.
<PAGE>
11. Supplemental Cash Flow Disclosures
Set forth below is information with respect to changes in current assets and
current liabilities, and cash paid for interest and income taxes:
1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
(Increase) decrease in current
assets:
Accounts receivable - net $ (70,442) $ (73,858) $ (48,818)
Materials and supplies (652) 7,420 (3,705)
Other current assets 10,572 834 288
Increase (decrease) in current
liabilities:
Accounts payable (22,246) 28,599 (8,509)
Affiliate payables and accruals (6,444) 14,590 (1,983)
Advanced billings and customer
deposits (4,423) (3,082) 2,498
Accrued liabilities (9,113) (5,180) 2,181
Other 8,522 (19,916) 23,771
- -------------------------------------------------------------------------------
Total $ (94,226) $ (50,593) $ (34,277)
- -------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 75,776 $ 72,272 $ 80,435
Income taxes 30,629 63,791 62,308
<PAGE>
12. Quarterly Financial Data (Unaudited)
Summarized 1993 and 1992 quarterly financial data is as follows:
Operating Net Operating
Revenues Income Net Income
- -------------------------------------------------------------------------------
(Thousands of Dollars)
1993
First Quarter $ 286,125 $ 60,936 $ 27,810
Second Quarter 309,939 58,545 26,252
Third Quarter (a) 294,600 51,770 844
Fourth Quarter (b) 320,451 (130,315) (89,884)
- --------------------------------------------------------------------------------
Total $1,211,115 $ 40,936 $ (34,978)
- -------------------------------------------------------------------------------
1992
First Quarter $ 309,417 $ 82,715 $ 41,575
Second Quarter 306,036 71,753 35,518
Third Quarter (c) 330,324 101,110 53,827
Fourth Quarter 308,764 84,758 35,004
- -------------------------------------------------------------------------------
Total $1,254,541 $ 340,336 $165,924
- -------------------------------------------------------------------------------
(a) Net income includes a $19.8 million extraordinary charge for the early
retirement of debt. Income before extraordinary charge is $20.6 million.
(b) Net operating income includes a $194.3 million pretax charge for
restructuring costs which reduces net income by $119.7 million.
(c) Reflects increased directory advertising revenue. In late 1991, the Company
began recognizing the full year impact of directory advertising revenue on
the publication date as opposed to the previous recognition of revenue as
billed over a twelve-month period. A significant portion of the Company's
directories are published during the third quarter.
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
GTE Florida Incorporated:
We have audited the accompanying consolidated balance sheets of GTE Florida
Incorporated (a Florida corporation and wholly-owned subsidiary of GTE
Corporation) and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of income, reinvested earnings and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Florida Incorporated and
subsidiary as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for postretirement benefits other
than pensions. Also as discussed in Note 1, effective January 1, 1992, the
Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN & CO.
Dallas, Texas
January 28, 1994.
<PAGE>
Management Report
To Our Shareholders:
The management of the Company is responsible for the integrity and objectivity
of the financial and operating information contained in this Annual Report,
including the consolidated financial statements covered by the Report of
Independent Public Accountants. These statements were prepared in conformity
with generally accepted accounting principles and include amounts that are
based on the best estimates and judgments of management.
The Company has a system of internal accounting controls which provides
management with reasonable assurance that transactions are recorded and
executed in accordance with its authorizations, that assets are properly
safeguarded and accounted for, and that financial records are maintained so as
to permit preparation of financial statements in accordance with generally
accepted accounting principles. This system includes written policies and
procedures, an organizational structure that segregates duties, and a
comprehensive program of periodic audits by the internal auditors. The Company
has also instituted policies and guidelines which require employees to maintain
the highest level of ethical standards.
PETER A. DAKS
President
GERALD K. DINSMORE
Senior Vice President-Finance and
Planning
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
BUSINESS OPERATIONS
GTE Florida Incorporated (the Company), a wholly-owned subsidiary of GTE
Corporation, provides local exchange access and long distance services in 24
exchanges on the central-west coast of Florida and serves approximately 2
million access lines in its operating territory.
RESULTS OF OPERATIONS
Net income decreased $201 million for the year ended December 31, 1993 compared
to the same period in 1992. The 1993 results include a one-time restructuring
charge of $120 million, net of tax, related primarily to a re-engineering plan.
The re-engineering plan will design and streamline processes in order to
improve customer-responsiveness and product quality, reduce the time necessary
to introduce new products and services and reduce costs. The results also
include an extraordinary charge of $20 million, net of tax, related to the
early extinguishment of debt. In November 1993, the Company called several
issues of high-coupon first mortgage bonds. These bonds were refinanced in
December 1993 on a long-term basis at lower current interest rates.
Excluding the above charges, net income decreased 37% or $61 million in 1993.
Net income increased 13% or $19 million in 1992. The 1993 decrease reflects the
impact of the adoption of SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" effective January 1, 1993 and
lower operating revenues due to voluntary rate reductions in an ongoing effort
to price services more competitively. Increased operating revenues due to
customer growth and reduced operating expenses and interest led to the increase
in net income in 1992. This was partially offset by higher income taxes.
Local network service revenues, which are comprised mainly of fees charged to
customers for providing local exchange service, increased 8% or $39 million for
1993 and 11% or $48 million for 1992. Local revenues increased both years due
to customer growth experienced through access line gain. The increases were
also due to an expansion of local calling zones in March 1992 with a related
decrease reflected in long distance revenues. Revenues in 1993 also increased
due to increased CentraNet R sales and nonrecurring billings. Increased usage
of custom calling and other enhanced features contributed to the 1992
increase.
Network access service revenues represent the local telephone companies' charge
to end users for access to the facilities of long distance carriers and the
charge to long distance carriers for interconnection to local facilities.
Revenues derived from network access services decreased 5% or $20 million for
1993 and increased 1% or $6 million during 1992. The 1993 decrease is primarily
the result of voluntary reductions in interstate rates in an ongoing effort to
price services more competitively. In 1992, the Company's interstate rates were
voluntarily reduced by $7 million effective July 1, 1992, $2 million effective
July 17, 1992, $14 million effective October 2, 1992 and $6 million effective
December 15, 1992. A reduction in revenues received from pooling arrangements
with the National Exchange Carrier Association also contributed to the decline
in 1993. Offsetting the decline in 1993 and contributing to the 1992 increase
were increased network usage and access line growth.
The Company's revenues for long distance services from designated geographical
areas are provided from customer billings as well as settlement arrangements
with various telephone companies. Long distance service revenues decreased 32%
or $35 million in 1993 and decreased 32% or $51 million in 1992. These
decreases reflect the expansion of local calling zones which were offset by
increases in local network service revenues, as mentioned above. A
restructuring of private line tariffs and a reduction in end user toll rates,
both due to the Florida Public Service Commission rate case order dated January
21, 1993, also contributed to the 1993 decrease. An unfavorable pooling
settlement also contributed to the 1992 decrease.
Equipment sales and services revenues increased 2% or $2 million for 1993 and
decreased 3% or $3 million in 1992. The 1993 increase is due to increased sales
of single-line telephones and voice messaging services partially offset by
lower installation revenue. The 1992 decrease was due to a reduction in billing
and collection revenues due to lower contract rates with AT&T. The 1992 results
were also impacted by lower equipment sales, including private branch
exchanges, partially offset by higher installation revenues.
Other operating revenues decreased 23% or $30 million for 1993 and increased
24% or $26 million in 1992. The 1993 decrease is due to lower directory
advertising revenues. The 1992 increase was due to the reduction of a revenue
reserve. This increase was partially offset by increased provisions for
uncollectible accounts.
Cost of sales and services increased 11% or $29 million in 1993 and decreased
12% or $35 million in 1992. The 1993 increase reflects costs associated with
the adoption of SFAS No. 106 effective January 1, 1993. As a result of the
adoption of the new standard, cost of sales and services increased $23 million.
Partially offsetting these increases is lower software right-to-use fees. The
1992 decrease reflected lower maintenance costs due to the benefits of ongoing
quality programs, modernization of local network and increased efficiencies in
labor.
Depreciation and amortization expense increased 3% or $9 million in 1993
compared to a 1% or $3 million increase in 1992. The 1993 increase is the
result of an increase in plant activity and a rate order increase that was
effective January 15, 1993. The 1992 increase was the result of a rate order
increase that was effective January 1, 1992.
Expenses for marketing, selling, general and administrative costs increased 6%
or $24 million in 1993 compared to a 2% or $7 million increase in 1992. The
1993 increase reflects costs of $9 million associated with the adoption of SFAS
No. 106. In addition, costs increased due to a one-time charge of $4 million
associated with the enhanced early retirement and voluntary separation programs
offered to employees during the second quarter of 1993. The 1992 increase was
partially due to increased severance pay associated with headcount reductions
and increased expenses for billing and collection from customer operations and
lower data processing costs. The 1992 increase was partially offset by reduced
labor and benefit costs associated with the reduction in headcount and cost
control.
Restructuring costs reflect a one-time charge related to the Company's re-
engineering plan over the next three years. The re-engineering plan will
redesign and streamline processes in order to improve customer-responsiveness
and product quality, reduce the time necessary to introduce new products and
services, resulting in cumulative savings in excess of the one-time charge. The
re-engineering plan includes $74 million to upgrade or replace existing
customer service and administrative systems and enhance network software, $84
million for employee separation benefits associated with workforce reductions
and $23 million primarily for the consolidation of facilities and operations
and other related costs. The charge for employee separation benefits includes
$23 million related to the recognition of previously deferred postretirement
health and life insurance costs for separating employees.
Interest expense decreased 7% or $5 million in 1993 and 5% or $4 million in
1992. The 1993 and 1992 decreases are primarily attributable to lower long-term
debt levels and a decline in average rates on short-term debt.
Income taxes decreased $116 million in 1993 and increased $35 million in 1992.
The decrease in 1993 is primarily due to decreases in pretax income. The
increase in 1992 was primarily due to higher pretax income, lower reversal of
tax rate differentials on deferred tax balances, and the impact on nonregulated
operations of implementing SFAS No. 109 which accounted for $6 million of the
increase.
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
commercial paper borrowings or borrowings from GTE. In addition, a $2.3 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.
The Company's primary source of funds during 1993 was cash flow from operations
of $362 million compared to $395 million for the same period in 1992. The
decrease primarily reflects lower revenues due to rate reductions.
Capital expenditures represent a significant use of funds during 1993 and 1992
reflecting the Company's continued growth in access lines and modernization of
current facilities and introduction of new products and services. Cash
requirements to implement the re-engineering plan are expected to be largely
offset by cost savings. The Company's capital expenditures during 1993 were
$276 million compared to $253 million during the same period in 1992. The
Company's anticipated construction costs for 1994 are approximately $300
million.
Cash used for financing activities was $91 million in 1993 compared to $140
million in 1992. This included dividend payments of $83 million in 1993
compared to $145 million in 1992. External financing included short-term debt
borrowings of $62 million in 1993 to supplement funds from operations and to
retire $58 million of long-term debt in 1993 compared to $16 million in 1992.
In addition, in November 1993, the Company called $390 million of high-coupon
first mortgage bonds with proceeds from commercial paper borrowings. These
bonds have coupons ranging from 8.125% to 10%. The cost of calling these bonds
is reflected as an extraordinary after-tax charge of $20 million in the
Consolidated Statements of Income. In December 1993, the Company issued $200
million of 6.31% Debentures, due 2002 and $200 million of 7.41% Debentures, due
2023 to refinance these bonds.
COMPETITION AND REGULATORY TRENDS
The year was marked by important changes in the U.S. telecommunications
industry. Rapid advances in technology, together with government and industry
initiatives to eliminate certain legal and regulatory barriers are accelerating
and expanding the level of competition and opportunities available to the
Company. As a result, the Company faces increasing competition in virtually all
aspects of its business. Specialized communications companies have constructed
new systems in certain markets to bypass the local-exchange network. Additional
competition from interexchange carriers as well as wireless companies continues
to evolve for both intrastate and interstate communications.
Implementation of its re-engineering plan will allow the Company to continue to
respond aggressively to these competitive and regulatory developments through
reduced costs, improved service quality, competitive prices and new product
offerings. Moreover, implementation of this program will position the Company
to accelerate delivery of a full array of voice, video and data services.
During the year, the Company continued to introduce new business and consumer
services utilizing advanced technology, offering new features and pricing
options while at the same time reducing costs and prices.
In 1993, GTE also continued to make progress in advanced telecommunications
technology. In Tampa, Florida, GTE concluded the largest market trial of
residential personal communication services (PCS)in the United States. The
knowledge and experience gained during this trial will enhance GTE's ability to
compete in this emerging market. During 1993, the Federal Communications
Commission (FCC) announced its decision to auction licenses during 1994 in 51
major markets and 492 basic trading areas across the United States to encourage
the development of a new generation of wireless PCS. These services will both
complement and compete with the Company's traditional wireline services. The
Company will be permitted to fully participate in the license auctions in areas
outside of GTE's existing cellular service areas. Limited participation will be
permitted in areas in which GTE has an existing cellular presence.
In 1992, the FCC issued a "video dialtone" ruling that allows telephone
companies to transmit video signals over their networks. The FCC also
recommended that Congress amend the Cable Act of 1984 to permit telephone
companies to supply video programming in their service areas.
Activity directed toward changing the traditional cost-based rate of return
regulatory framework for intrastate and interstate telephone services has
continued. Legislative activity to change the Florida regulatory scheme is
expected to evolve within the next year. The Company is continuing to pursue
favorable pricing arrangements through the FPSC.
In September 1993, the FCC released an order allowing competing carriers to
interconnect to the local-exchange network for the purpose of providing
switched access transport services. This ruling complements similar
interconnect arrangements for private line services ordered during 1992. The
order encourages competition for the transport of telecommunications traffic
between local exchange carriers' (LECs) switching offices and interexchange
carrier locations. In addition, the order allows LECs flexibility in pricing
competitive services.
These and other actions to eliminate existing legal and regulatory barriers,
together with rapid advances in technology, are facilitating a convergence of
the computer, media and telecommunications industries. In addition to allowing
new forms of competition, these developments are also creating new
opportunities to develop interactive communications networks. The Company
supports these initiatives to assure greater competition in telecommunications,
provided that overall the changes allow an opportunity for all service
providers to participate equally in a competitive marketplace under comparable
conditions.
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 Regulation" (SFAS No. 71). In general, SFAS No. 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
competition or specific regulatory, legislative or judicial actions, continued
application of SFAS No. 71 would no longer be appropriate. If the Company no
longer qualifies for the provisions of SFAS No. 71, the financial effects of
the required accounting change (which would be non-cash) could be material.
INFLATION
The Company's management generally does not believe inflation has a significant
impact on the Company's earnings. However, increases in costs or expenses not
otherwise offset by increases in revenues could have an adverse effect on
earnings.
<PAGE>
<TABLE>
Selected Financial Data
<CAPTION>
1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Selected Income Statement Items (a)
Total operating revenues $1,211,115 $1,254,541 $1,229,279 $1,222,311 $1,230,955
Total operating expenses 1,170,179 914,205 938,883 925,135 997,082
- --------------------------------------------------------------------------------------------------------------
Net operating income 40,936 340,336 290,396 297,176 233,873
Interest expense 69,529 74,856 79,001 72,992 71,675
Other - net 3,558 767 (42) 49 2,089
Income tax expense (benefit) (16,924) 98,789 64,162 60,784 27,618
- --------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge (15,227) 165,924 147,275 163,351 132,491
Extraordinary charge 19,751 _ _ _ _
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (34,978) $ 165,924 $ 147,275 $ 163,351 $ 132,491
- --------------------------------------------------------------------------------------------------------------
Dividends declared on common stock $ 70,017 $ 110,788 $ 114,284 $ 113,891 $ 93,940
Dividends declared on preferred stock 4,258 4,257 4,259 4,283 4,283
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Items
Investment in property, plant and
equipment - net $2,564,383 $2,557,031 $2,537,176 $2,499,815 $2,396,451
Total assets 2,953,522 2,884,912 2,796,729 2,733,298 2,634,444
Long-term debt 747,946 782,843 804,165 803,888 745,029
Common stock, reinvested earnings
and other capital 1,112,776 1,222,029 1,171,150 1,142,418 1,082,214
- --------------------------------------------------------------------------------------------------------------
Selected Statistics
Access lines 1,978,220 1,904,302 1,832,059 1,801,081 1,759,429
Access line gain 73,918 72,243 30,978 41,652 135,435
Net investment in property, plant
and equipment per access line $ 1,296 $ 1,343 $ 1,385 $ 1,388 $ 1,362
Number of employees 8,210 8,637 8,850 9,464 10,268
Access lines per employee 241 220 207 190 171
Gross plant additions (thousands) $ 275,933 $ 253,076 $ 293,653 $ 350,716 $ 368,109
- --------------------------------------------------------------------------------------------------------------
(a) Per share data is omitted since the Company's common stock is 100% owned by
GTE Corporation.
</TABLE>
