<PAGE> 1
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, 1994
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No 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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------------------------ ------------------------
<S> <C>
$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
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(TITLE OF CLASS)
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
---- ----
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. X
---
THE COMPANY HAD 23,400,000 SHARES OF $25 PAR VALUE COMMON STOCK OUTSTANDING AT
FEBRUARY 28, 1995. THE COMPANY'S COMMON STOCK IS 100% OWNED BY GTE CORPORATION.
<PAGE> 2
TABLE OF CONTENTS
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Item Page
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<S> <C> <C>
PART I
1. Business 1
2. Properties 4
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 6
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
10. Directors and Executive Officers of the Registrant 34
11. Executive Compensation 38
12. Security Ownership of Certain Beneficial Owners
and Management 45
13. Certain Relationships and Related Transactions 46
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 47
</TABLE>
<PAGE> 3
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). GTECC contains the majority of the Company's nonregulated operations,
including the provision of terminal equipment and cellular mobile phones to
business and residential customers and other nonregulated telecommunication
services.
The Company provides a wide variety of communications services ranging from
local telephone service for the home and office to highly complex voice and data
services for industry. The Company provides local telephone service within its
franchise area and intraLATA (Local Access Transport Area) long distance service
between the Company's exchanges within the Tampa market area. 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 AT&T Corp. The number of access lines served has grown
steadily from 1,759,429 on January 1, 1990 to 2,121,040 on December 31, 1994.
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:
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Years Ended December 31
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1994 1993 1992
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(Thousands of Dollars)
<S> <C> <C> <C>
Local Network Services $ 578,535 $ 537,446 $ 498,151
% of Total Revenues 44% 44% 40%
Network Access Services $ 427,076 $ 406,244 $ 425,860
% of Total Revenues 33% 34% 34%
Long Distance Services $ 81,993 $ 74,646 $ 110,101
% of Total Revenues 6% 6% 9%
Equipment Sales and Services $ 110,633 $ 91,536 $ 89,436
% of Total Revenues 9% 8% 7%
Other $ 108,285 $ 101,243 $ 130,993
% of Total Revenues 8% 8% 10%
</TABLE>
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At December 31, 1994, the Company had 7,912 employees, both bargaining and
non-bargaining unit members. In 1994, there were no contracts expiring or
agreements reached. During 1995, one contract with the International Brotherhood
of Electrical Workers (IBEW) will expire.
Telephone Competition and Regulatory Developments
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 11 of the
Company's consolidated financial statements included in Item 8.
During 1994, the Company began implementation of a three-year $194 million
re-engineering plan. In the initial year of the plan, $44 million was expended
to implement this program. These expenditures were primarily associated with the
consolidation of certain customer service centers, separation benefits
associated with employee reductions and incremental expenditures to redesign and
streamline systems and processes. During 1995, the level of re-engineering
activities and related expenditures are expected to accelerate as pilot programs
are rolled out and other major initiatives are completed. The overall
re-engineering plan remains on schedule and is expected to be completed by the
end of 1996. Continued implementation of this program will position the Company
to accelerate delivery of a full array of voice, video and data services and to
reach its stated objective of being the easiest company to do business with in
the industry.
In late 1994, the FCC began to auction new licenses for radio spectrum in 51
major markets and 492 basic trading areas across the United States to encourage
the development of a new generation of wireless voice, data and messaging
services which are generally referred to as broadband Personal Communication
Services (PCS). PCS will compete with the Company's traditional wireline
services.
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. In 1994, GTE
announced plans to build a new video network over the next ten years which will
pass seven million homes in 66 key GTE markets. GTE has requested FCC approval
to construct facilities in the initial three markets, including St.
Petersburg/Clearwater, Florida, and expects to begin construction in 1995.
On January 13, 1995, the United States District Court for the Eastern District
of Virginia issued an injunction declaring that GTE has the right to provide
video programming to its in-franchise customers. The court's decision means that
GTE is now permitted to offer video programming over its own video dialtone
networks, as well as to compete as a franchised cable operator in the Company's
telephone territories.
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<PAGE> 5
During 1994, GTE unveiled its World Class Network in eight key markets,
including Tampa, Florida, to provide advanced communications for business
customers. This program includes sophisticated high-speed, digital fiber-optic
rings, a high-capacity switching network (known as SONET), and a new centralized
operations center that monitors the entire network. These SONET rings are an
integral part of the high-speed information network that enables GTE to provide
advanced services such as high-speed data transmission and video conferencing.
Federal and state regulatory activity directed toward changing the traditional
cost-based rate of return regulatory framework for intrastate and interstate
telephone services has continued. Regulatory authorities have adopted various
forms of alternative regulation, which provide economic incentives to telephone
service providers to improve productivity and provide the foundation for
implementing pricing flexibility necessary to address competitive entry into the
markets the Company serves.
Many states are currently investigating whether to authorize local and toll
competition. Several have concluded that competition is in the public interest
and five states, including Florida, have authorized plans that would allow
customers to pre-subscribe to a specific carrier to handle intraLATA toll calls.
GTE is challenging these orders primarily based on the lack of equality since
the Company is prohibited from providing interLATA toll service.
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 prices that the Company
may charge are increased or decreased each year by a price index based upon
inflation less a predetermined productivity target. The Company may, within
certain ranges, price individual services above or below the overall cap.
Under its price cap regulatory plan, the FCC 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 1992-1994, the FCC took a number of steps to increase competition for
local exchange carrier (LEC) access services. These steps, known as Expanded
Interconnection requirements, allow competing communications carriers to
interconnect to the local exchange network for the purpose of providing switched
access transport services and private line services. Expanded Interconnection
requires LECs to permit competitors to connect directly to LEC central offices
and the LEC network under negotiated terms and conditions. Competitors are
thereby able to compete more effectively than previously to replace LEC services
between large users and interexchange carriers (IXCs), or between large users
and the LEC switch. The FCC accompanied its Expanded Interconnection mandate
with a slight relaxation of the rigid pricing rules that govern how LECs price
their access services. In 1994, the FCC also reaffirmed the switched access rate
structure changes adopted in 1993 that allow LECs to better reflect the actual
cost characteristics of transport services and improve the LEC's ability to
compete with alternative access providers.
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<PAGE> 6
The GTE Consent Decree, which was issued in connection with the 1983 acquisition
of GTE Sprint and GTE Spacenet (both since divested), prohibits GTE's domestic
telephone operating subsidiaries from providing long distance service beyond the
boundaries of the LATA. This prohibition restricts the Company's 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 were lifted by the FPSC
in December 1994.
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 intends to continue
to respond aggressively to regulatory and legal developments that allow for
increased competition and opportunities in the marketplace. The Company expects
its financial results to benefit from reduced costs and the introduction of new
products and services that will result in increased usage of its networks.
However, it is likely that such improvements will be offset, in part, by
continued strategic pricing reductions and the effects of increased competition.
Item 2. Properties
The Company's property consists of network facilities (84%), company facilities
(12%), customer premises equipment (1%) and other (3%). From January 1, 1990 to
December 31, 1994, the Company made gross property additions of $1.4 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.
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<PAGE> 7
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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's common stock and preferred
stock is the First National Bank of Boston.
GTE Corporation
C/O Bank of Boston
P.O. Box 9191
Boston, MA 02205-9191
10-K REPORT
A copy of the 1994 annual report on Form 10-K filed with the Securities and
Exchange Commission may be obtained by writing to:
GTE Telephone Operations
External Reporting
P.O. Box 407, MC: INAAACG
Westfield, IN 46074
(317) 896-6464
PARENT COMPANY ANNUAL REPORT
A copy of the 1994 annual report of our parent company may be obtained by
writing to:
GTE Corporation
Corporate Secretary's Office
One Stamford Forum
Stamford, CT 06904
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<PAGE> 8
Item 6. Selected Financial Data
GTE Florida Incorporated and Subsidiary
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For the years ended December 31,
----------------------------------------------------------------------
1994 1993(b) 1992 1991 1990
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(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT ITEMS (a)
-----------------------------------
Operating revenues $1,306,522 $1,211,115 $1,254,541 $1,229,279 $1,222,311
Operating expenses 1,017,017 1,170,179 914,205 938,883 925,135
----------------------------------------------------------------------
Net operating income 289,505 40,936 340,336 290,396 297,176
Interest expense 61,152 69,529 74,856 79,001 72,992
Other - net 1,931 3,558 767 (42) 49
Income tax provision (benefit) 86,167 (16,924) 98,789 64,162 60,784
----------------------------------------------------------------------
Income (loss) before
extraordinary charge 140,255 (15,227) 165,924 147,275 163,351
Extraordinary charge -- 19,751 -- -- --
----------------------------------------------------------------------
Net income (loss) $ 140,255 $ (34,978) $ 165,924 $ 147,275 $ 163,351
======================================================================
Dividends declared on common stock $ 110,504 $ 70,017 $ 110,788 $ 114,284 $ 113,891
Dividends declared on preferred
stock 4,264 4,258 4,257 4,259 4,283
</TABLE>
<TABLE>
<CAPTION>
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As of December 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET ITEMS
----------------------------
Investment in property, plant
and equipment - net $2,552,102 $2,564,383 $2,557,031 $2,537,176 $2,499,815
Total assets 2,990,255 2,963,152 2,884,912 2,796,729 2,733,298
Long-term debt 729,754 747,946 782,843 804,165 803,888
Common stock, reinvested
earnings and other capital 1,138,263 1,112,776 1,222,029 1,171,150 1,142,418
</TABLE>
<TABLE>
<CAPTION>
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As of December 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED STATISTICS
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Access lines 2,121,040 1,978,220 1,904,302 1,832,059 1,801,081
Access line gain 142,820 73,918 72,243 30,978 41,652
Net investment in property, plant
and equipment per access line $ 1,203 $ 1,296 $ 1,343 $ 1,385 $ 1,388
Number of employees 7,912 8,210 8,637 8,850 9,464
Access lines per employee 268 241 220 207 190
Capital expenditures (thousands) $ 273,984 $ 275,933 $ 253,076 $ 293,653 $ 350,716
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</TABLE>
(a) Net share data is omitted since the Company's common stock is 100% owned by
GTE Corporation.
(b) Net operating income in 1993 includes a $194.3 million pretax charge for
restructuring costs which reduced net income by $119.7 million.
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<PAGE> 9
Item 7. 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 (GTE), provides local access and long distance services in 24
exchanges on the central-west coast of Florida.
RESULTS OF OPERATIONS
Net income was $140 million for the year ended December 31, 1994 compared to a
net loss of $35 million for the year ended December 31, 1993. The results for
1993 include one-time after-tax charges totaling $142 million to restructure
operations and complete enhanced early retirement and voluntary separation
programs and for the early retirement of high-coupon debt.
Excluding these special items, net income increased 31% or $33 million in 1994
and decreased 36% or $59 million in 1993. The 1994 increase was primarily the
result of increased operating revenues and decreased interest expense as a
result of refinancing high-coupon debt, partially offset by higher operating
expenses. The 1993 decrease reflects the impact of the adoption of Statement of
Financial Accounting Standards (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.
OPERATING REVENUES
Operating revenues were $1.3 billion for 1994 and $1.2 billion for 1993.
Operating revenues increased 8% or approximately $95 million for 1994 and
decreased 3% or $43 million for 1993.
Local network service revenues are comprised mainly of fees charged to customers
for providing local exchange service. Local network service revenues were $579
million and $537 million for 1994 and 1993, respectively. Local network service
revenues increased 8% or $42 million for 1994 and 8% or $39 million for 1993.
The increases in both years are due to customer growth experienced through
access line gains of 7% in 1994 and 4% in 1993, increased CentraNet(Registered
Trademark) sales and usage of custom calling features and an expansion of local
calling zones in March 1992 and April 1994 with a related decrease reflected in
long distance revenues.
Network access service revenues are fees charged to interexchange carriers that
use the local telecommunication network to provide long-distance services to
their customers. In addition, end users pay access fees to connect to the local
network to obtain long-distance service. Network access service revenues were
$427 million and $406 million for 1994 and 1993, respectively. Revenues derived
from network access services increased 5% or $21 million for 1994 and decreased
5% or $20 million for 1993. The 1994 increase is primarily due to a 10% increase
in access minutes of use, partially offset by the reduction of rates to achieve
more competitive pricing. The 1994 increase is also slightly offset by the final
phase out of transitional support payments received from the National Exchange
Carrier Association (NECA). As of April 1, 1993, the Company no longer receives
transitional support funds and has begun making long-term support payments to
NECA as required by the Federal
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<PAGE> 10
Communications Commission (FCC). The 1993 decrease was primarily the result of
voluntary reductions in interstate rates and the phase out of NECA transitional
support payments, partially offset by increased access minutes of use.
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 were $82
million and $75 million for 1994 and 1993, respectively. Long distance service
revenues increased 10% or $7 million for 1994 and decreased 32% or $35 million
for 1993. The 1994 increase is primarily due to increased toll message activity.
The expansion of local calling zones, which attributed to the increase in local
network service revenues as mentioned above, partially offset the 1994 increase
and contributed to the decrease in 1993. The 1993 decrease was also due to a
restructuring of private line tariffs and a reduction in end user toll rates,
both due to a Florida Public Service Commission rate case order dated January
21, 1993.
Equipment sales and services revenues were $111 million and $92 million for 1994
and 1993, respectively. Equipment sales and services revenues increased 21% or
$19 million for 1994 and 2% or $2 million for 1993. The 1994 increase is
primarily due to increased sales of single-line telephones, voice messaging
services, radio paging and installation and sales of wiring and stand alone
premise equipment. Rent revenue of single-line telephones and radio paging also
contributed to the 1994 increase. The 1993 increase was primarily due to
increased sales of single-line telephones and voice messaging services,
partially offset by lower installation revenue.
Other operating revenues were $108 million and $101 million for 1994 and 1993,
respectively. Other operating revenues increased 7% or $7 million for 1994 and
decreased 23% or $30 million for 1993. The 1994 increase is primarily due to a
lower provision for uncollectible accounts and higher Database 800 service
revenue. A decrease in directory advertising revenue due to lower directory
sales partially offset the 1994 increase and was the primary contributor to the
1993 decrease.
OPERATING EXPENSES
Cost of sales and services were $317 million and $292 million for 1994 and 1993,
respectively. Cost of sales and services increased 9% or $25 million for 1994
and 11% or $29 million for 1993. The 1994 increase is primarily due to higher
costs associated with product sales and increased installation and maintenance
costs reflecting a growth in customer base, partially offset by lower SFAS No.
106 costs. 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. The increases are
partially offset by lower right-to-use software costs.
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<PAGE> 11
Depreciation and amortization expenses were $277 million and $262 million for
1994 and 1993, respectively. Depreciation and amortization expense increased 6%
or $15 million for 1994 and 3% or $9 million for 1993. The 1994 increase is
primarily due to an amortization order increase that was effective January 1994
and higher depreciation costs on cable/wire facilities and central office
equipment, partially offset by decreases in general support assets. The 1993
increase was the result of an increase in plant activity and a depreciation rate
order increase effective January 15, 1993.
Marketing, selling, general and administrative costs were $422 million for 1994
and 1993. Expenses for marketing, selling, general and administrative costs
remained relatively unchanged for 1994 and increased 6% or $24 million in 1993.
During the second quarter of 1993, a one-time charge of $4 million was made
associated with the enhanced early retirement and voluntary separation programs
offered to employees. The 1993 increase also reflected costs of $9 million
associated with the adoption of SFAS No. 106.
OTHER DEDUCTIONS
Interest costs were $61 million and $70 million for 1994 and 1993, respectively.
Interest expense decreased 12% or $9 million for 1994 and 7% or $5 million for
1993. The 1994 decrease is primarily due to lower costs associated with lower
rates on long-term debt. In November 1993, the Company called $390 million of
bonds with rates ranging from 8 1/8% to 10% and refinanced these bonds in
December 1993 with 6.31% and 7.41% Debentures. The 1993 decrease was primarily
attributable to lower long-term debt levels and a decline in average rates on
short-term debt.
Other net expenses were $2 million and $4 million for 1994 and 1993,
respectively. Other net expenses decreased $2 million for 1994 and increased $3
million for 1993. The primary contributor to the fluctuation for both 1994 and
1993 is an environmental reserve. The initial reserve of $2 million was
established in 1993 to cover the cleanup costs of the Peak Oil environmental
waste site. The Company was named a Potentially Responsible Party, since Peak
Oil was the vendor who collected and recycled the Company's waste motor oil from
its fleet centers for the period from 1964 through mid-June 1979. During 1994,
the reserve was increased $1 million to cover the additional clean up costs of
the Bay Drums site, making the total reserve $3 million. Bay Drums is the vendor
who collected empty drums containing petroleum residue, for recycling, from the
Company's fleet centers. Based on current information, the Company believes the
reserve is adequate.
Income tax expense was $86 million in 1994 and the income tax benefit for 1993
was $17 million. Income taxes increased $103 million for 1994 and decreased $116
million for 1993. The changes are primarily due to changes in pretax income.
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<PAGE> 12
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 $2.8 billion line of
credit is available to the Company through shared lines of credit with GTE and
other affiliates to support short-term financing needs.
The Company's primary source of funds during 1994 was cash flow from operating
activities of $403 million compared to $371 million for the same period in 1993.
The increase primarily reflects improved operating results, lower interest
payments and timing differences in the payment of accounts payables.
The Company's capital expenditures during 1994 were $274 million compared to
$276 million during the same period in 1993, reflecting the Company's continued
growth in access lines, modernization of facilities and introduction of new
products and services. In 1995, capital expenditures are expected to increase
slightly from the 1994 level, reflecting deployment of new technologies.
Cash used for financing activities was $131 million in 1994 compared to $100
million in 1993. This included dividend payments of $72 million in 1994 compared
to $83 million in 1993 and a $59 million decrease in commercial paper borrowings
during 1994. 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%. 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.
REGULATORY AND COMPETITIVE TRENDS
REGULATORY DEVELOPMENTS
Fundamental changes continue to significantly impact the telecommunications
industry. During 1994, telecommunications legislation that would have changed
the way the industry does business passed the House of Representatives, but was
subsequently withdrawn from consideration. Telecommunications legislation has
been introduced again in 1995.
Federal and state regulatory activity directed toward changing the traditional
cost-based rate of return regulatory framework for intrastate and interstate
telephone services has also continued. Regulatory authorities have adopted
various alternative forms of regulation, which provide economic incentives to
telephone service providers to improve productivity and provide the foundation
for implementing pricing flexibility necessary to address competitive entry into
the markets the Company serves.
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<PAGE> 13
During 1992-1994, the FCC took a number of steps to increase competition for
local exchange carrier (LEC) access services. These steps, known as Expanded
Interconnection requirements, allow competing communications carriers to
interconnect to the local exchange network for the purpose of providing switched
access transport services and private line services. Expanded Interconnection
requires LECs to permit competitors to connect directly to LEC central offices
and the LEC network under negotiated terms and conditions. Competitors are
thereby able to compete more effectively than previously to replace LEC services
between large users and interexchange carriers (IXCs), or between large users
and the LEC switch. The FCC accompanied its Expanded Interconnection mandate
with a slight relaxation of the rigid pricing rules that govern how LECs price
their access services. In 1994, the FCC also reaffirmed the switched access rate
structure changes adopted in 1993 that allow LECs to better reflect the actual
cost characteristics of transport services and improve the LEC's ability to
compete with alternative access providers.
Further information regarding the Company's activities with the various
regulatory agencies is discussed in Note 11 of the Company's consolidated
financial statements included in Item 8.
COMPETITION
Recent judicial and regulatory developments, as well as the pace of
technological change, have continued to influence industry trends, including
accelerating and expanding the level of competition. As a result, the Company's
operations face increasing competition in virtually all aspects of its business.
Today, the Company is subject to competition from numerous sources, including
competitive access providers for network access services, specialized
communications companies that have constructed new systems in certain markets to
bypass the local exchange network and cellular telephone companies. Competition
from IXCs, wireless and cable TV companies, as well as more recent entry by
media and computer companies, is expected to increase in the rapidly changing
telecommunications marketplace.
In late 1994, the FCC began to auction new licenses for radio spectrum in 51
major markets and 492 basic trading areas across the United States to encourage
the development of a new generation of wireless voice, data and messaging
services which are generally referred to as broadband Personal Communications
Services (PCS). PCS will compete with the Company's traditional wireline
services.
The Company supports greater competition in telecommunications provided that,
overall, the actions to eliminate existing legal and regulatory barriers allow
an opportunity for all service providers to participate equally in a competitive
marketplace under comparable conditions.
INITIATIVES
The increasingly competitive environment provides the Company with both
challenges and opportunities. In order to respond aggressively to these
competitive developments and benefit from the new opportunities, the Company has
embarked on a series of initiatives.
-11-
<PAGE> 14
One such initiative involves the implementation of the Company's $194 million
re-engineering plan. During 1994, the initial year of the three-year plan, $44
million was expended as significant progress was made in implementing this
program. These expenditures were primarily associated with the consolidation of
customer contact, network operations and operator service centers, separation
benefits associated with employee reductions and incremental expenditures to
redesign and streamline systems and processes. During 1995, the level of
re-engineering activities and related expenditures are expected to accelerate as
pilot programs are rolled out and other major initiatives are completed.
Continued implementation of this program will position the Company to accelerate
delivery of a full array of voice, video and data services and to reach its
stated objective of being the easiest company to do business with in the
industry.
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. In 1994, GTE
announced plans to build a new video network over the next ten years which will
pass seven million homes in 66 key GTE markets. GTE has requested FCC
approval to construct facilities in the initial three markets, including St.
Petersburg/Clearwater, Florida, and expects to begin construction in 1995.
On January 13, 1995, the United States District Court for the Eastern District
of Virginia issued an injunction declaring that GTE has the right to provide
video programming to its in-franchise customers. The court's decision means that
GTE is now permitted to offer video programming over its own video dialtone
networks, as well as to compete as a franchised cable operator in the Company's
telephone territories.
During 1994, GTE unveiled its World Class Network in eight key markets,
including Tampa, Florida, to provide advanced communications for business
customers. This program includes sophisticated high-speed, digital fiber-optic
rings, a high-capacity switching network (known as SONET), and a new centralized
operations center that monitors the entire network. These SONET rings are an
integral part of the high-speed information network that enables GTE to provide
advanced services such as high-speed data transmission and video conferencing.
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 intends to continue
to respond aggressively to regulatory and legal developments that allow for
increased competition and opportunities in the marketplace. The Company expects
its financial results to benefit from reduced costs and the introduction of new
products and services that will result in increased usage of its networks.
However, it is likely that such improvements will be offset, in part, by
continued strategic pricing reductions and the effects of increased competition.
REGULATORY ACCOUNTING
The Company follows the accounting for regulated enterprises prescribed by
SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." In
general, SFAS No. 71 requires companies to depreciate plant and equipment over
-12-
<PAGE> 15
lives approved by regulators which may extend beyond the assets' actual economic
and technological lives. SFAS No. 71 also requires deferral of certain costs and
obligations based upon approvals received from regulators to permit recovery in
the future. Consequently, the recorded net book value of certain assets and
liabilities, primarily telephone plant and equipment, may be greater than that
which would otherwise be recorded by unregulated enterprises. On an ongoing
basis, the Company reviews the continued applicability of SFAS No. 71 based on
the current regulatory and competitive environment. Although recent developments
suggest that the telecommunications industry will become increasingly
competitive, the degree to which regulatory oversight of LECs, including the
Company, will be lifted and competition will be permitted to establish the cost
of service to the consumer is uncertain. As a result, the Company continues to
believe that accounting under SFAS No. 71 is appropriate. If the Company were to
determine that the use of SFAS No. 71 was no longer appropriate, it would be
required to write-off the deferred costs and obligations referred to above. It
may also be necessary for the Company to reduce the carrying value of its plant
and equipment to the extent that it exceeds fair market value. At this time, it
is not possible to estimate the amount of the Company's plant and equipment, if
any, that would be considered unrecoverable in such circumstances. The financial
impact of such a determination, however, 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.
-13-
<PAGE> 16
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME
GTE Florida Incorporated and Subsidiary
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
----------------------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES (a):
Local network services $ 578,535 $ 537,446 $ 498,151
Network access services 427,076 406,244 425,860
Long distance services 81,993 74,646 110,101
Equipment sales and services 110,633 91,536 89,436
Other 108,285 101,243 130,993
---------- ---------- ----------
1,306,522 1,211,115 1,254,541
---------- ---------- ----------
OPERATING EXPENSES (b):
Cost of sales and services 317,426 291,851 263,009
Depreciation and amortization 277,236 261,562 252,725
Marketing, selling, general and
administrative 422,355 422,436 398,471
Restructuring costs -- 194,330 --
---------- ---------- ----------
1,017,017 1,170,179 914,205
---------- ---------- ----------
NET OPERATING INCOME 289,505 40,936 340,336
---------- ---------- ----------
OTHER DEDUCTIONS:
Interest expense 61,152 69,529 74,856
Other - net 1,931 3,558 767
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 226,422 (32,151) 264,713
---------- ---------- ----------
INCOME TAX PROVISION (BENEFIT) 86,167 (16,924) 98,789
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE 140,255 (15,227) 165,924
EXTRAORDINARY CHARGE - EARLY RETIREMENT OF
DEBT (NET OF INCOME TAXES OF $11,919) -- 19,751 --
---------- ---------- ----------
NET INCOME (LOSS) $ 140,255 $ (34,978) $ 165,924
========== ========== ==========
</TABLE>
(a) Includes billings to affiliates of $94,765, $105,942 and $141,134 for the
years 1994-1992, respectively.
(b) Includes billings from affiliates of $85,340, $75,911 and $66,084 for the
years 1994-1992, respectively.
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
----------------------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 527,487 $ 636,740 $ 585,861
ADD -
Net income (loss) 140,255 (34,978) 165,924
DEDUCT -
Cash dividends declared on common stock 110,504 70,017 110,788
Cash dividends declared on
preferred stock 4,264 4,258 4,257
---------- ---------- ----------
BALANCE AT END OF YEAR $ 552,974 $ 527,487 $ 636,740
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-14-
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
GTE Florida Incorporated and Subsidiary
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 10,527 $ 6,688
Accounts receivable
Customers (including unbilled revenues) 297,720 269,538
Affiliated companies 5,513 3,827
Other 9,240 13,949
Allowance for uncollectible accounts (19,737) (25,229)
Note receivable from affiliate 8,495 8,680
Materials and supplies 15,713 22,511
Deferred income tax benefits 6,770 11,982
Prepayments and other 7,665 19,278
----------- -----------
341,906 331,224
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 3,781,735 3,769,672
Accumulated depreciation (1,229,633) (1,205,289)
----------- -----------
2,552,102 2,564,383
----------- -----------
OTHER ASSETS 96,247 67,545
----------- -----------
TOTAL ASSETS $ 2,990,255 $ 2,963,152
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 117,300 $ 176,400
Current maturities of long-term debt 20,208 630
Accounts payable 67,763 60,874
Affiliate payables and accruals 49,428 46,528
Advanced billings and customer deposits 31,835 28,630
Accrued taxes 32,073 9,630
Accrued interest 8,911 9,873
Accrued payroll and vacations 34,995 35,648
Accrued dividends 43,669 544
Accrued restructuring costs and other 67,860 110,317
----------- -----------
474,042 479,074
----------- -----------
LONG-TERM DEBT 729,754 747,946
----------- -----------
DEFERRED CREDITS:
Deferred income taxes 381,035 385,537
Employee benefit obligations 75,762 47,507
Restructuring costs and other 131,303 130,216
----------- -----------
588,100 563,260
----------- -----------
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 552,974 527,487
----------- -----------
1,198,359 1,172,872
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,990,255 $ 2,963,152
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-15-
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTE Florida Incorporated and Subsidiary
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
----------------------- ---------- ---------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before extraordinary
charge $ 140,255 $ (15,227) $ 165,924
Adjustments to reconcile income (loss)
before extraordinary charge to net
cash from operating activities:
Depreciation and amortization 277,236 261,562 252,725
Restructuring costs -- 194,330 --
Deferred income taxes and investment
tax credits 1,768 (56,801) 32,472
Provision for uncollectible accounts 23,973 37,309 33,479
Change in current assets and current
liabilities (46,393) (85,547) (50,593)
Other - net 6,569 35,084 (39,016)
---------- ---------- ----------
Net cash from operating activities 403,408 370,710 394,991
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (273,984) (275,933) (253,076)
Other - net 5,417 6,375 61
---------- ---------- ----------
Net cash used in investing activities (268,567) (269,558) (253,015)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issued 67 396,950 --
Long-term debt retired (511) (58,204) (16,053)
Early retirement of debt and related
call premium -- (408,167) --
Dividends paid to shareholders (71,643) (83,135) (145,079)
Net change in affiliate notes 185 (8,680) --
Increase (decrease) in short-term debt (59,100) 61,672 21,628
---------- ---------- ----------
Net cash used in financing activities (131,002) (99,564) (139,504)
---------- ---------- ----------
INCREASE IN CASH 3,839 1,588 2,472
CASH:
Beginning of year 6,688 5,100 2,628
---------- ---------- ----------
End of year $ 10,527 $ 6,688 $ 5,100
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-16-
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GTE Florida Incorporated and Subsidiary
1. SUMMARY OF SIGNIFICANT 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
Certain affiliated companies supply construction and maintenance equipment and
supplies to the Company. These purchases amounted to $70.6 million, $82.7
million and $74.3 million for the years 1994-1992, respectively. Such purchases
are recorded in the accounts of the Company at cost which includes a normal
return realized by the affiliates.
The Company is billed for certain printing and other costs associated with
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 $85.3
million, $75.9 million and $66.1 million for the years 1994-1992, respectively.
The amounts charged for these affiliated transactions are based on a
proportional cost allocation method.
The Company has an agreement with GTE Directories Corporation (Directories)
(100% owned by GTE), whereby the Company provides its subscriber lists, billing
and collection and other services to Directories. Revenues from these activities
amounted to $94.8 million, $105.9 million and $141.1 million for the years
1994-1992, 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 on a straight-line
basis over asset lives approved by regulators. Depreciation is 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 7.5%, 7.3% and 7.4% for the years
1994-1992, respectively.
-17-
<PAGE> 20
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. Accordingly, 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 to permit recovery of such amounts in future years. 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 services are rendered or products are
delivered to customers.
MATERIALS AND SUPPLIES
Materials and supplies are stated at the lower of cost (average 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 these 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 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
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes are established for all temporary differences between the amount of
assets and liabilities recognized for financial reporting purposes and for tax
purposes.
-18-
<PAGE> 21
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.
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.
FINANCIAL INSTRUMENTS
The fair values of financial instruments, other than long-term debt, closely
approximate their carrying value. As of December 31, 1994, the estimated fair
value of long-term debt based on either quoted market prices or an option
pricing model was lower than the carrying value by approximately $63 million.
The estimated fair value of long-term debt as of December 31, 1993 exceeded the
carrying value by approximately $21 million.
COMPUTER SOFTWARE
The cost of computer software for internal use, except initial operating system
software, is charged to expense as incurred. Initial operating system software
is capitalized and amortized over the life of the related hardware.
PRIOR YEARS' FINANCIAL STATEMENTS
Reclassifications of prior year data have been made in the financial statements
where appropriate to conform to the 1994 presentation.
2. RESTRUCTURING COSTS
Results for 1993 included a one-time pretax restructuring charge of $194.3
million, which reduced net income by $119.7 million, primarily for incremental
costs related to implementation of the Company's three-year re-engineering plan.
The re-engineering plan will redesign and streamline processes to improve
customer-responsiveness and product quality, reduce the time necessary to
introduce new products and services and further reduce costs. The re-engineering
plan included $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.
Implementation of the re-engineering plan began during 1994 and is expected to
be completed by the end of 1996. During 1994, expenditures of $43.5 million were
made in connection with the implementation of the re-engineering plan. These
expenditures were primarily associated with the consolidation of customer
contact, network operations and operator service centers, separation benefits
from employee reductions and incremental expenditures to redesign and streamline
processes. The level of re-engineering activities and related expenditures are
expected to accelerate in 1995.
-19-
<PAGE> 22
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.
3. PREFERRED STOCK
Cumulative preferred stock, not subject to mandatory redemption, exclusive of
amounts held in treasury, as of December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
AUTHORIZED
$ 25 par value 4,880,000
$100 par value 1,200,000
---------
6,080,000
<CAPTION>
OUTSTANDING Shares Amount*
--------- --------
<S> <C> <C>
$ 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
========= ========
</TABLE>
* Thousands of Dollars
There were no retirements, redemptions or other activity for the years
1994-1992.
In the event of non-payment of at least twelve months of accrued dividends, 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, 1994.
At December 31, 1994 and 1993, 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, 1994, $6.3 million of reinvested earnings was restricted as to
the payment of cash dividends on common stock under the terms of the Company's
Articles of Incorporation.
-20-
<PAGE> 23
5. LONG-TERM DEBT
Long-term debt outstanding, exclusive of current maturities, is as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ----------- -------
(Thousands of Dollars)
<S> <C> <C>
FIRST MORTGAGE BONDS:
4 5/8 % Series J, due 1995 $ -- $ 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 % Series N, due 2001 (a) 45,000 45,000
7 1/2 % Series O, due 2002 50,000 50,000
5 1/4 % Series Y, due 1996 30,000 30,000
8 3/8 % Series BB, due 2027 75,000 75,000
9 5/8 % Series DD, due 2030 75,000 75,000
----------- -----------
311,000 331,000
----------- -----------
SINKING FUND DEBENTURES:
6.31 % Series A, due 2002 200,000 200,000
7.41 % Series B, due 2023 200,000 200,000
----------- -----------
400,000 400,000
----------- -----------
PROMISSORY NOTE - AFFILIATED COMPANY:
7 3/4% Note payable to GTE Finance
Corporation, due 1996 25,000 25,000
OTHER:
8.625% Note, due 1999 325 413
CAPITALIZED LEASES 67 --
----------- -----------
Total principal amount 736,392 756,413
DISCOUNT AND PREMIUM - NET (6,638) (8,467)
----------- -----------
Total long-term debt $ 729,754 $ 747,946
=========== ===========
</TABLE>
(a) Includes $500,000 payable to GTE Finance Corporation.
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.
-21-
<PAGE> 24
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, 1995 are summarized below (in thousands of dollars):
1995 $ 20,208
1996 71,153
1997 20,111
1998 115
1999 8
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:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
DURING THE YEAR -
Maximum month-end balance $ 152,675 $ 554,125 $ 145,000
Average monthly balance $ 90,431 $ 170,184 $ 106,863
Weighted average interest rate 3.97% 2.85% 3.77%
AT DECEMBER 31 -
Balance outstanding -
Commercial paper $ 117,300 $ 176,400 $ 114,728
Average interest rate 5.90% 3.28% 3.48%
</TABLE>
Unused lines of credit of $2.8 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.
-22-
<PAGE> 25
7. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
CURRENT
Federal $ 71,291 $ 37,907 $ 63,269
State 13,108 1,971 3,048
-------------- -------------- --------------
Total 84,399 39,878 66,317
-------------- -------------- --------------
DEFERRED
Federal 5,077 (47,213) 27,628
State 2,246 (3,469) 12,419
-------------- -------------- --------------
Total 7,323 (50,682) 40,047
-------------- -------------- --------------
AMORTIZATION OF DEFERRED
INVESTMENT TAX CREDITS (5,555) (6,120) (7,575)
-------------- -------------- --------------
Total $ 86,167 $ (16,924) $ 98,789
============== ============== ==============
</TABLE>
The components of deferred income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Depreciation and
amortization $ 6,200 $ 30,319 $ 13,306
Employee benefit obligation (12,795) (14,846) (2,155)
Prepaid pension costs 9,839 8,832 5,306
Restructuring costs 11,313 (69,504) --
Revenues 1,326 794 17,372
Other - net (8,560) (6,277) 6,218
-------------- -------------- --------------
Total $ 7,323 $ (50,682) $ 40,047
============== ============== ==============
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
AMOUNTS COMPUTED AT
STATUTORY RATES $ 79,248 $ (11,253) $ 90,002
State income taxes, net
of federal income tax
benefits 9,980 (989) 10,208
Amortization of deferred
investment tax credits (5,555) (6,120) (7,575)
Depreciation of telephone
plant construction costs,
previously deducted for
tax purposes - net 2,581 2,316 2,334
Rate differentials applied
to reversing temporary
differences (1,622) (1,980) (2,469)
Other differences - net 1,535 1,102 6,289
-------------- -------------- -------------
TOTAL PROVISION (BENEFIT) $ 86,167 $ (16,924) $ 98,789
============== ============== =============
</TABLE>
-23-
<PAGE> 26
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, 1994 and 1993 amounted to $24.3
million and $24.2 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:
<TABLE>
<CAPTION>
1994 1993
--------- -------
(Thousands of Dollars)
<S> <C> <C>
Depreciation and amortization $ 425,414 $ 419,979
Employee benefit obligations (34,095) (21,300)
Prepaid pension costs 24,334 14,495
Restructuring costs (58,191) (69,504)
Revenues 23,710 22,384
Investment tax credits 6,410 11,965
Other - net (13,317) (4,464)
--------- ---------
Total $ 374,265 $ 373,555
========= =========
</TABLE>
-24-
<PAGE> 27
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 components of the net pension credit for 1994-1992 were as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Benefits earned during the year $ 19,154 $ 20,939 $ 20,350
Interest cost on projected
benefit obligations 39,581 44,428 42,338
Return on plan assets:
Actual 1,374 (141,365) (49,229)
Deferred (71,412) 71,662 (15,818)
Other - net (14,831) (15,272) (14,025)
--------- --------- ---------
Net pension credit $ (26,134) $ (19,608) $ (16,384)
========= ========= =========
</TABLE>
The expected long-term rate of return on plan assets was 8.5% for 1994 and 8.25%
for 1993 and 1992.
The funded status of the plans and the prepaid pension costs at December 31,
1994 and 1993 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Plan assets at fair value $ 867,439 $ 904,013
Projected benefit obligations 504,392 536,199
--------- ---------
Excess of assets over projected benefit
obligations 363,047 367,814
Unrecognized net transition asset (60,131) (67,496)
Unrecognized net gain (232,067) (259,894)
--------- ---------
Prepaid pension costs $ 70,849 $ 40,424
========= =========
</TABLE>
The projected benefit obligations at December 31, 1994 and 1993 include
accumulated benefit obligations of $373.6 million and $401.3 million and vested
benefit obligations of $313.4 million and $343.5 million, respectively.
Assumptions used to develop the projected benefit obligations at December 31,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------ -----
<S> <C> <C>
Discount rate 8.25% 7.50%
Rate of compensation increase 5.50% 5.25%
</TABLE>
-25-
<PAGE> 28
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. The Company funds amounts for postretirement
benefits as deemed appropriate from time to time.
The postretirement benefit cost for 1994 and 1993 included the following
components (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Benefits earned during the year $ 7,777 $ 8,581
Interest cost on accumulated postretirement
benefit obligations 25,012 25,017
Amortization of transition obligation 13,059 15,432
Other-net (1,136) --
--------- ---------
Postretirement benefit cost $ 44,712 $ 49,030
========= =========
</TABLE>
During 1992, the cost of postretirement health care and life insurance benefits
on a pay-as-you-go basis was $8.0 million.
The following table sets forth the plans' funded status and the accrued
obligations as of December 31, 1994 and 1993 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees $ 167,748 $ 173,478
Fully eligible active plan participants 6,124 2,851
Other active plan participants 151,470 156,848
--------- ---------
Total accumulated postretirement benefit
obligations 325,342 333,177
Fair value of plan assets -- 194
--------- ---------
Excess of accumulated obligations over
plan assets 325,342 332,983
Unrecognized transition obligation (234,972) (256,701)
Unrecognized net loss (22,217) (33,893)
--------- ---------
Accrued postretirement benefit obligations $ 68,153 $ 42,389
========= =========
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligations were 8.25% at December 31, 1994 and 7.5% at December 31,
1993. The assumed health care cost trend rates in 1994 and 1993 were 12.0% and
13% for pre-65 participants and 9.0% 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 1994 costs by $5.0 million and the accumulated
postretirement benefit obligations at December 31, 1994 by $43.4 million.
-26-
<PAGE> 29
During 1993, the Company made certain changes to its postretirement health care
and life insurance benefits for non-union employees retiring on or after January
1, 1995. These changes, among others, include newly established limits to the
Company's annual contribution to postretirement medical costs and a revised cost
sharing schedule based on a retiree's years of service. The net effect of these
changes reduced the accumulated postretirement benefit obligations at December
31, 1993 by $46.0 million.
SAVINGS PLANS
The Company sponsors employee 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
$6.0 million, $5.4 million and $6.0 million in 1994-1992, respectively.
9. LEASE COMMITMENTS
The Company has noncancelable leases covering certain buildings, office space
and equipment that contain varying renewal options for terms up to 17 years. The
majority of lease commitments relate to the lease of the Company's headquarters
building at One Tampa City Center. Rental expense was $27.4 million, $21.8
million and $22.0 million in 1994-1992, respectively. Minimum rental commitments
under noncancelable leases through 1999 do not exceed $9.4 million annually and
aggregate $22.1 million thereafter.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which is stated at cost, is summarized as follows
at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- --------
(Thousands of Dollars)
<S> <C> <C>
Land $ 21,443 $ 22,742
Buildings 210,491 212,948
Central office equipment 1,347,054 1,331,181
Outside plant 1,861,577 1,802,542
Other 341,170 400,259
---------- ----------
Total property, plant and equipment 3,781,735 3,769,672
Accumulated depreciation 1,229,633 1,205,289
---------- ----------
Net property, plant and equipment $2,552,102 $2,564,383
========== ==========
</TABLE>
11. REGULATORY MATTERS
The Company is subject to regulation by the FCC for interstate business and the
FPSC with respect to intrastate operations.
-27-
<PAGE> 30
INTRASTATE SERVICES
The Company provides long distance services within designated geographic areas
called Local Access and Transport Areas (LATAs) in conformity with state
commission orders. The Company also provides long distance access services
directly to interexchange carriers and other customers who provide services
between LATAs. The FPSC has approved extended area calling plans for certain
intraLATA long distance routes. Under these plans, residential customers pay a
flat rate per message and business customers 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. This order established a midpoint return on equity
of 12.2% for 1993 and beyond for all state ratemaking purposes. The Company
filed a motion for reconsideration of the rate order and the Commission lowered
the rate reduction by $0.8 million. The Company filed an appeal of various
aspects of the FPSC's rate case decision with the Florida Supreme Court. Oral
arguments were heard by the Court on January 31, 1994. On July 7, 1994, the
Court issued its opinion accepting the Company's argument that the Commission
should not have made a $4.8 million adjustment for expenses associated with
affiliate transactions. The case has been remanded to the Commission and is now
on the Commission's agenda in April 1995. It is not possible to determine the
outcome of this proceeding at this time.
In December 1994, the FPSC adopted changes which will allow customers to choose
their primary carrier for regional long distance calls. Currently, the local
phone company carries all regional long distance calls when the customer dials
1+ the called number. In the future, the customer will be able to choose the
local phone company, or another company, to carry these calls. On February 13,
1995, the FPSC issued an order requiring implementation of intraLATA 1+
pre-subscription. The Company will be required to complete all necessary system
changes required to implement the order by the end of 1996. The Company will be
entitled to recover the implementation cost over three years via a separate
LEC-specific rate element applied to all originating interLATA access minutes of
use. Tariffs must be filed by July 1, 1995 to be effective September 1, 1995.
Quarterly progress reports are required to monitor costs and recovery. If the
Company fully recovers its costs before the end of three years, it must file a
tariff eliminating the rate element. Any over-recovery is to be returned to the
IXCs within three months of full cost recovery. On February 28, 1995, the
Company filed a motion with the FPSC for reconsideration of the order and a
request for stay.
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.
-28-
<PAGE> 31
As a safeguard under its price cap regulatory plan, the FCC 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 the prospective prices. During 1995, 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 Corp. include amounts for access, billing and
collection and interexchange leased facilities during the years 1994-1992 under
various arrangements and amounted to $182.1 million, $184.5 million and $206.7
million, respectively.
12. 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:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
(INCREASE) DECREASE IN CURRENT ASSETS:
Accounts receivable - net $(54,624) $(61,762) $(73,858)
Materials and supplies 6,798 (652) 7,420
Prepayments and other current assets 11,613 942 834
INCREASE (DECREASE) IN CURRENT LIABILITIES:
Accounts payable 6,889 (22,246) 28,599
Affiliate payables and accruals 2,900 (6,444) 14,590
Advanced billings and customer deposits 3,205 (4,423) (3,082)
Accrued liabilities 20,828 516 (5,180)
Other (44,002) 8,522 (19,916)
-------- -------- --------
Total $(46,393) $(85,547) $(50,593)
======== ======== ========
CASH PAID DURING THE YEAR FOR:
Interest $ 59,842 $ 75,776 $ 72,272
Income taxes 59,460 30,629 63,791
</TABLE>
-29-
<PAGE> 32
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized 1994 and 1993 quarterly financial data is as follows:
<TABLE>
<CAPTION>
Net
Operating Operating Net
Revenues Income(Loss) Income(Loss)
----------- ----------- ------------
(Thousands of Dollars)
<S> <C> <C> <C>
1994
FIRST QUARTER $ 303,177 $ 42,643 $ 17,828
SECOND QUARTER 341,768 96,802 50,759
THIRD QUARTER 317,496 59,534 26,950
FOURTH QUARTER 344,081 90,526 44,718
----------- ----------- -----------
TOTAL $ 1,306,522 $ 289,505 $ 140,255
=========== =========== ===========
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)
=========== =========== ===========
</TABLE>
(a) Net income includes a $19.8 million extraordinary charge for the early
retirement of debt. Income before extraordinary charge was $20.6 million.
(b) Net operating income includes a $194.3 million pretax charge for
restructuring costs which reduced net income by $119.7 million.
-30-
<PAGE> 33
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, 1994 and 1993, and the related
consolidated statements of income, reinvested earnings and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule 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, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated 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.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supporting schedule listed under Item 14 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This supporting schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states 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 LLP
Dallas, Texas
January 25, 1995.
-31-
<PAGE> 34
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
-32-
<PAGE> 35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-33-
<PAGE> 36
PART III
Item 10. Directors and Executive Officers of the Registrant
a. Identification of Directors
The names, ages and positions of the directors of the Company as of March 24,
1995 are listed below along with their business experience during the past five
years.
<TABLE>
<CAPTION>
Director
Name Age Since Business Experience
---- --- ----- ----------------------------------------------------------
<S> <C> <C> <C>
Kent B. Foster 51 1994 Vice Chairman of the Board of Directors, GTE Corporation,
October 1993; President, GTE Telephone Operations, 1989;
Director, GTE Corporation, 1992; Director, all GTE
domestic telephone subsidiaries, 1993 and/or 1994;
Director, BC Telecom, Inc.; Director, Compania Anonima
Nacional Telefonos de Venezuela; Director, NationsBank of
Texas; Director, Dallas Symphony Orchestra.
Richard M. Cahill 56 1994 Vice President - General Counsel, GTE Telephone
Operations, 1988; Director, all GTE domestic telephone
subsidiaries, 1993 and/or 1994; former Director, GTE
Vantage Incorporated, 1991.
Gerald K. Dinsmore 45 1992 Senior Vice President - Finance and Planning, GTE
Telephone Operations, 1994; former Vice President -
Finance, GTE Telephone Operations, 1993; former Vice
President - Intermediary Customer Markets, GTE Telephone
Operations, 1988; former President of all South Area
companies, GTE Telephone Operations, 1992; Director, GTE
Florida Incorporated and GTE South Incorporated, 1992;
Director, all other GTE domestic telephone subsidiaries,
1993 and/or 1994.
</TABLE>
-34-
<PAGE> 37
<TABLE>
<CAPTION>
Director
Name Age Since Business Experience
---- --- ----- -------------------------------------------------------
<S> <C> <C> <C>
Michael B. Esstman 48 1994 Executive Vice President - Customer Segments, GTE
Telephone Operations, 1994; former Executive Vice
President - Operations, GTE Telephone Operations, 1993;
former President and Director of all Central Area
companies, GTE Telephone Operations, 1991; former
President, Contel Eastern Region, Telephone Operations
Sector, 1983; Director, AG Communications Systems;
Director, all other GTE domestic telephone subsidiaries,
1993 and/or 1994.
Thomas W. White 48 1994 Executive Vice President - Network Operations, GTE
Telephone Operations, 1994; former Executive Vice
President - Telephone Operations, GTE Telephone
Operations, 1993; former Senior Vice President - General
Office Staff, GTE Telephone Operations, 1989; Director,
all GTE domestic telephone subsidiaries, 1993 and/or 1994;
Director, Quebec - Telephone.
</TABLE>
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
March, as specified in the notice of the meeting.
There are no family relationships between any of the directors or executive
officers of the Company.
b. Identification of Executive Officers
The Company's policies are established not only by the Company's executive
officers, but also by the executive officers of GTE Telephone Operations.
Accordingly, the list below contains the names, ages and positions of the
executive officers of both the Company and GTE Telephone Operations (Telops) as
of March 24, 1995.
<TABLE>
<CAPTION>
Year Assumed
Present Position
----------------
the
Name Age Telops Company Position
---- --- ------ ------- ------------------------------
<S> <C> <C> <C> <C>
Kent B. Foster 51 1989 -- President of GTE Telephone
Operations
John C. Appel 46 1994 1995 Senior Vice President -
Regional Operations of GTE
Telephone Operations and the
Company
</TABLE>
-35-
<PAGE> 38
<TABLE>
<CAPTION>
Year Assumed
Present Position
----------------
the
Name Age Telops Company Position
---- --- ------ ------- --------
<S> <C> <C> <C> <C>
Mary Beth Bardin (1) 40 1994 1995 Vice President - Public Affairs
of GTE Telephone Operations
and the Company
Clarence F. Bercher 51 1994 1995 President - Consumer Markets of
GTE Telephone Operations and
Vice President - Consumer
Markets of the Company
Richard M. Cahill 56 1989 1995 Vice President - General
Counsel of GTE Telephone
Operations and the Company
Robert C. Calafell 53 1993 -- Vice President - Video Services
of GTE Telephone Operations
Peter A. Daks 49 -- 1994 President of the Company
Gerald K. Dinsmore 45 1994 1994 Senior Vice President - Finance
and Planning of GTE Telephone
Operations and the Company
William M. Edwards, III 46 -- 1993 Controller of the Company
Michael B. Esstman 48 1994 -- Executive Vice President -
Customer Segments of GTE
Telephone Operations
Bruce E. Haddad 41 1994 -- Senior Vice President -
International of GTE
Telephone Operations
Donald A. Hayes 57 1992 -- Vice President - Information
Technology of GTE Telephone
Operations
Gregory D. Jacobson 43 -- 1994 Treasurer of the Company
Andrew T. Jones 54 1992 -- Vice President - International
of GTE Telephone Operations
Brad M. Krall 53 1993 1995 Vice President - Centralized
Operations of GTE Telephone
Operations and the Company
Michael J. McDonough 45 1994 1995 President - Business Markets of
GTE Telephone Operations and
Vice President - Business
Markets of the Company
Paul E. Miner 50 1993 1995 Vice President - Network
Operations Support of GTE
Telephone Operations and the
Company
Richard L. Schaulin 52 1989 1995 Vice President - Human
Resources of GTE Telephone
Operations and the Company
Leland W. Schmidt 61 1989 -- Vice President - Industry
Affairs of GTE Telephone
Operations
Charles J. Somes 49 -- 1994 Secretary of the Company
Larry J. Sparrow 51 1994 1995 President - Carrier Markets of
GTE Telephone Operations and
Vice President - Carrier
Markets of the Company
</TABLE>
-36-
<PAGE> 39
<TABLE>
<CAPTION>
Year Assumed
Present Position
the
Name Age Telops Company Position
---- --- ------ ------- --------
<S> <C> <C> <C> <C>
Alex Stadler 44 1994 1995 Vice President - Strategy &
Technology Planning of GTE
Telephone Operations and the
Company
Thomas W. White 48 1994 -- Executive Vice President -
Network Operations of GTE
Telephone Operations
</TABLE>
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) Mary Beth Bardin was elected Vice President - Public Affairs of GTE
Telephone Operations replacing G. Bruce Redditt who was appointed Vice
President - Public Affairs and Communications, GTE Corporation.
During 1994, the organizational structure of GTE Telephone Operations was
restructured to include 11 regions, eliminating the previous Area management
structure.
-37-
<PAGE> 40
Item 11. Executive Compensation
Executive Compensation Tables
The following tables provide information about executive compensation.
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 (the named executive officers) of the Company in 1994 for services in
all capacities to the Company and its subsidiary.
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ----------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Salary Compensation Stock Options/ Payouts Compensation
Position in Group Year ($) Bonus($) ($) Awards(#) SARs(#) ($)(1) ($)(2)
----------------- ---- -------- -------- ------------ ----------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter A. Daks 1994 175,469 130,900 -- -- 14,300 14,600 4,390
President - Florida 1993 155,039 71,300 -- -- 7,300 -- 4,651
1992 148,419 92,200 -- -- -- -- 4,453
James D. Bennett(3)(4) 1994 140,131 66,800 -- -- 4,000 -- 803
State Vice President - 1993 70,698 26,584 -- -- 4.000 -- 1,484
Sales 1992 57,124 32,009 -- -- 4,400 -- --
Fassil Gabremariam(3)(5) 1994 149,100 49,600 -- -- 2,600 -- 4,473
Area Vice President - 1993 66,924 19,162 -- -- 2,700 -- 2,008
Finance 1992 65,833 25,256 -- -- -- -- 1,975
Donald W. McLeod(3)(6) 1994 137,515 52,900 -- -- 4,000 -- 4,125
State Vice President - 1993 62,912 14,759 -- -- 1,500 -- 1,871
External Affairs 1992 53,827 16,207 -- -- -- -- --
M. Michael Foster(7) 1994 115,457 50,665 -- -- 4,000 -- 3,467
State Vice President -
Operations
</TABLE>
(1) 1994 Long-Term Incentive Plan (LTIP) Payouts include transition awards for
the 1994 period, which were established by the Committee as a special grant
to allow for the smooth transitioning from a single long-term performance
measure (return on equity) to a combined measure (return on equity and
operating cash flow margin).
(2) All other compensation includes Company contributions to defined
contribution plans.
(3) During 1994, the individual held a position in which his annual compensation
was fully allocated to the Company. During 1993 and 1992, the Company was
included in the South Area management structure; thus, the individual's
compensation was allocated among the South Area.
(4) Mr. Bennett served as State Vice President - Sales until February 1995. In
September 1994, he was also appointed the Vice President - General Manager
Branch Sales -( East), GTE Telephone Operations.
(5) Mr. Gabremariam served as Area Vice President - Finance until February 1995.
In September 1994, he was also appointed Assistant Controller - Support
Operations Projects, GTE Telephone Operations.
(6) Mr. McLeod served as State Vice President - External Affairs until February
1995. In September 1994, he was also appointed Assistant Vice President -
Regional Regulatory and Governmental Affairs -(Eastern Region), GTE
Telephone Operations.
(7) Mr. Foster was elected State Vice President - Operations in March 1994.
Prior to this election, he served as an officer of GTE North Incorporated.
Mr. Foster served as State Vice President - Operations until February 1995.
In August 1994, he was also appointed Assistant Vice President - Customer
and Network Operations, GTE Telephone Operations.
-38-
<PAGE> 41
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options and tandem stock appreciation
rights (SARs) to the named executive officers of the Company in 1994, whether or
not specifically allocated to the Company. The options and SARs were granted
under the LTIP. Pursuant to Securities and Exchange Commission 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.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of Stock
Price Appreciation For
Individual Grants(1) Option Term
------------------------------------------------------ -------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Percent of
Number of Total Options/
Securities SARs Granted Exercise
Underlying to All GTE Or Base
Option/SARs Employees in Price Expiration
Name Granted(1) Fiscal Year ($/SH) Date 0% 5% 10%
---- ---------- ------------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter A. Daks 14,300 0.35 32.44 02/16/04 -- 291,616 738,953
James D. Bennett 4,000 0.10 32.44 02/16/04 -- 81,571 206,700
Fassil Gabremariam 2,600 0.06 32.44 02/16/04 -- 53,021 134,355
Donald W. McLeod 4,000 0.10 32.44 02/16/04 -- 81,571 206,700
M. Michael Foster 4,000 0.10 32.44 02/16/04 -- 81,571 206,700
</TABLE>
(1) Each option was granted in tandem with a SAR, which will expire upon
exercise of the option. Under the LTIP, one-third of these grants vest
annually commencing one year after the date of grant.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table provides information as to options and SARs exercised by
each of the named executive officers of the Company during 1994. The table sets
forth the value of options and SARs held by such officers at year-end measured
in terms of the closing price of GTE Corporation (GTE) common stock on December
30, 1994.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/SARs
Acquired Value Options/SARs at FY-End At FY-End($)
Name On Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Daks -- $ -- 7,733 19,167 $ -- $ --
James D. Bennett -- -- 8,566 8,134 -- --
Fassil Gabremariam -- -- 7,500 4,400 24,750 --
Donald W. McLeod -- -- 2,100 5,000 -- --
M. Michael Foster -- -- 7,500 5,800 24,750 --
</TABLE>
-39-
<PAGE> 42
Long-Term Incentive Plan - Awards in Last Fiscal Year
The GTE 1991 LTIP provides for awards, currently in the form of stock options
with tandem SARs and cash bonuses, to participating employees. The primary
purpose of the LTIP is to offer participants an incentive to cause GTE to
achieve superior financial performance, thereby helping to assure superior
performance for the shareholders. The stock options and tandem SARs awarded
under the LTIP to the named executive officers in 1994 are shown in the table on
page 38.
The named executive officers are eligible to receive annual grants of
performance bonuses which are earned during a 36-month performance cycle. The
performance bonuses are paid in cash. Awards for the three-year performance
cycle ending in 1994 are based on GTE's financial performance during the
relevant cycle as measured by GTE's average return on equity (ROE) against
pre-established target levels. In 1994, the Executive Compensation and
Organizational Structure Committee of the Board of Directors of GTE (the
Committee) established an additional measure of corporate performance -
operating cash flow margin (OCFM). The Committee views OCFM as an excellent
complement to ROE due to its capacity to accurately measure profitable revenue
growth, a key determinant of financial strength, especially for high growth
businesses. To transition from awards based solely on performance against ROE
targets to awards based on a combination of ROE and OCFM performance, the
Committee established two performance periods - a one-year period to run
concurrently with the final year of the three-year ROE performance cycle ending
in 1994 and a two-year period to run concurrently with the final two years of
the three-year ROE performance cycle ending in 1995. The awards for the two
award periods will be based on GTE's performance against ROE and OCFM
performance for the one- and two-year periods. Awards for the three-year
performance cycle ending in 1996 will be based on GTE's performance against the
ROE and OCFM targets established for the full three-year cycle. Seventy-five
percent of the award is determined based on ROE performance and 25% of the award
is determined based on OCFM performance.
At the time performance targets for the current LTIP cycles are established, a
Common Stock Unit account is set up for each participant in the LTIP. An initial
dollar amount for each account (target award) is determined based on the
competitive performance bonus grant practices of other major companies in the
telecommunications industry and with practices of other major corporations not
involved in the telecommunications industry that have a reputation for
excellence, are comparable to GTE in terms of such quantitative measures as
revenues, market value and total shareholder return and are viewed as direct
competitors for executive talent in the overall labor market, as well as GTE's
past and projected financial performance. 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 paid on an
equivalent number of shares of GTE Common Stock is added on each dividend
payment date. 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
-40-
<PAGE> 43
York Stock Exchange on the dividend payment date and added to the Common Stock
Unit account. Mr. Daks is the only individual of the named executive officers
eligible to receive a cash award under the LTIP. The number of Common Stock
Units initially allocated in 1994 to the named executive officers' 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(4)
------------- ------------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Peter A. Daks 1,900 3 years 457 2,283
1,250 2 years 283 1,413
600 1 year 128 638
James D. Bennett -- N/A -- --
Fassil Gabremariam -- N/A -- --
Donald W. McLeod -- N/A -- --
M. Michael Foster -- N/A -- --
</TABLE>
(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 30, 1994. 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 Threshold is the level of the average ROE and the average OCFM during
the relevant cycle which represents the minimum acceptable performance level
for both the ROE and OCFM performance measures. If the Threshold is attained
with respect to both performance measures, the award will be equal to 20% of
the combined target award for ROE and OCFM. Because ROE and OCFM are
separate performance measures, it is possible to receive an award if the
Threshold is achieved with respect to only one of the performance measures.
If the actual results for one, but not both, performance measures is at the
Threshold level, the portion of the award determined by the measure
performing at the Threshold level will be at 20% of the target award for
that performance measure, and no award will be made for the portion of the
award determined by the measure performing at less than the Threshold level.
However, if the actual results for both performance measures are below the
minimum acceptable performance level, no award will be earned.
(3) The Target is the level of the average ROE and the average OCFM during the
cycle which represents outstanding performance for both the ROE and OCFM
performance measures. If the Target is attained with respect to both
performance measures, the award will be equal to 100% of the target award
for ROE and OCFM. If the actual results for one, but not both, performance
measures is at the Target level, the portion of the award determined by the
measure performing at the Target level will be at 100% of the target award
for that performance measure, and the portion of the award determined by the
measure performing at less than 100% will be determined accordingly.
-41-
<PAGE> 44
(4) 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 and the
actual OCFM exceed the targeted ROE and the targeted OCFM. If GTE's average
ROE and OCFM during the cycle exceed their performance targets, additional
bonuses may be earned according to the following schedule:
<TABLE>
<CAPTION>
Performance Increment Above Added Percentage
Maximum ROE and OCFM Performance Targets to Maximum Awards
----------------------------------------------------------------------
<S> <C>
First and Second 0.1% +2%
Third and Fourth 0.1% +3%
Fifth and above 0.1% +4%
</TABLE>
For example, if average ROE and OCFM performance each exceed the ROE and
OCFM target by 0.5%, respectively, the performance bonus will equal 114%
of the combined target award.
Executive Agreements
GTE has entered into an agreement (the Agreement) with Mr. Daks 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
Agreement) 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 Agreement provides 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 Agreement.
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.
-42-
<PAGE> 45
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 Agreement with Mr. Daks provides that in the event of a
separation from service, he 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; ten years if credited service is more than
five and not more than ten years; and, if the executive's credited service
exceeds ten 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 (SERP) 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. The Agreement provides that there
will be no duplication of benefits.
The Agreement remains 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 Agreement 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 Agreement will remain
in effect until the obligations of GTE (or its successor) under the Agreement
has 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:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
Final Average -------------------------------------------------------------------
Earnings 15 20 25 30 35
------------ -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 150,000 $ 31,532 $ 42,042 $ 52,553 $ 63,063 $ 73,574
200,000 42,407 56,542 70,678 84,813 99,949
300,000 64,157 85,542 106,928 128,313 149,699
400,000 85,907 114,542 143,178 171,813 200,449
500,000 107,657 143,542 179,428 215,313 251,199
</TABLE>
GTE Service Corporation, a wholly-owned subsidiary of GTE, maintains the GTE
Service Corporation Plan for Employees' Pensions (the Service Corporation Plan),
a noncontributory pension plan for the benefit of GTE employees based on years
of service. Pension benefits to be paid from the Service Corporation
-43-
<PAGE> 46
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 the Service Corporation 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 February 15,
1995, the credited years of service under the plan for Messrs. Daks, Bennett,
Gabremariam, McLeod and Foster are 15, 23, 21, 28 and 26, respectively.
Under Federal law, an employee's benefits under a qualified pension plan such as
the Service Corporation Plan are limited to certain maximum amounts. GTE
maintains a SERP, which supplements, on an unfunded basis, the benefits of any
participant in the Service Corporation Plan in an amount by which any
participant's benefits under the Service Corporation 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 Service
Corporation Plan on remuneration accrued under management incentive plans as
determined by the Committee. SERP benefits are payable in a lump sum or an
annuity.
Executive Retired Life Insurance Plan
The Executive Retired Life Insurance Plan (ERLIP) provides Mr. Daks a maximum
postretirement life insurance benefit of three times final base salary,
Messrs. Bennett and Foster a postretirement life insurance benefit of one
and one-half times final base salary and Messrs. Gabremariam and McLeod a
postretirement life insurance benefit of one times final base salary. Upon
retirement, ERLIP benefits may be paid as life insurance, or optionally, an
equivalent amount equal to the present value of the life insurance amount
(based on actuarial factors and the interest rate then in effect), as a lump
sum payment, as an annuity or as installment payments.
Directors' Compensation
The current directors, all of whom are employees of GTE, are not paid any fees
or remuneration, as such, for services on the Board.
-44-
<PAGE> 47
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners as of February 28, 1995:
<TABLE>
<CAPTION>
Name and Shares of
Title Address of Beneficial Percent
of Class Beneficial Owner Ownership of Class
-------- ---------------- ---------- --------
<S> <C> <C> <C>
Common Stock of GTE Corporation 23,400,000 100%
GTE Florida One Stamford Forum shares of
Incorporated Stamford, Connecticut record
06904
</TABLE>
(b) Security Ownership of Management as of December 31, 1994:
<TABLE>
<CAPTION>
Name of Director or Nominee (1)(2)
----------------------------------
<S> <C> <C> <C>
Common Stock of Kent B. Foster 268,305 No director
GTE Corporation Richard M. Cahill 36,287 or nominee
Gerald K. Dinsmore 41,529 or executive
Michael B. Esstman 67,631 officer owns
Thomas W. White 120,994 as much as
--------- 1/10 of
534,746 1 percent
=========
Executive Officers(1)(2)
----------------------------------
Peter A. Daks 16,695
James D. Bennett 13,909
Fassil Gabremariam 18,267
Donald W. McLeod 4,662
M. Michael Foster 5,437
---------
58,970
=========
All directors and executive Represents
officers as a group(1)(2) 1,198,351 less than 1/5
========= of 1 percent
of outstanding
common stock
</TABLE>
(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.
K. Foster, Cahill, Dinsmore, Esstman, White, Daks, Bennett,
Gabremariam, McLeod and M. Foster and all directors and executive
officers as a group are 214,539; 32,616; 39,499; 46,466; 109,299;
14,132; 12,699; 9,266; 3,933; 0; and 920,592 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 1994.
-45-
<PAGE> 48
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, based solely on review of the copies of such reports
furnished to the Company and representations that no other reports were
required, all persons subject to these reporting requirements filed the required
reports on a timely basis. All of the Company's common stock is owned by GTE
and, to the Company's knowledge, none of such directors or executive officers
currently owns, or has ever owned, any shares of the Company's registered
preferred stock (which is the only registered class of the Company's equity
securities).
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.
-46-
<PAGE> 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - See GTE Florida Incorporated's
consolidated financial statements and report of independent
accountants thereon in the Financial Statements section included
elsewhere herein.
(2) Financial Statement Schedules - Schedules supporting the
consolidated financial statements for the years ended December
31, 1994-1992 (as required):
II - Valuation and Qualifying Accounts
Note: Schedules other than the one listed above are omitted as not
applicable, not required, or the information is included in the
consolidated 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 3.1 of 1989 Form 10-K, File No. 1-3090).
3.2* By-Laws (Exhibit 3.2, File No. 2-52735).
4* Indenture dated as of November 1, 1993 between GTE
Florida Incorporated and NationsBank of Georgia,
National Association, as Trustee (Exhibit 4.1 of the
Company's Registration Statement on Form S-3, File
No. 33-50711).
27 Financial Data Schedule.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the fourth quarter of 1994.
* Denotes exhibits incorporated herein by reference to previous filings
with the Securities and Exchange Commission as designated.
-47-
<PAGE> 50
GTE FLORIDA INCORPORATED AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Thousands of Dollars)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
--------------------------------------------------------------------------------------------------------------------
Additions
-----------------------
Deductions
Balance at Charged Charged from Balance at
Beginning to to Other Reserves Close of
Description of Year Income Accounts (Note 1) Year
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible accounts
for the year ended:
December 31, 1994 $ 25,229 $ 23,973 $ 11,665(2) $ 41,130 $ 19,737
==========================================================================
December 31, 1993 $ 19,184 $ 37,309 $ 26,340(2) $ 57,604 $ 25,229
==========================================================================
December 31, 1992 $ 8,050 $ 33,479 $ 28,606(2) $ 50,951 $ 19,184
==========================================================================
Accrued restructuring costs
for the year ended (Note 3):
December 31, 1994 $ 194,330 $ 0 $ 0 $ 43,499 $ 150,831
==========================================================================
December 31, 1993 $ 0 $ 194,330 $ 0 $ 0 $ 194,330
==========================================================================
December 31, 1992 $ 0 $ 0 $ 0 $ 0 $ 0
==========================================================================
</TABLE>
-----------------------
NOTES:
(1) Charges for purpose for which reserve was created.
(2) Recoveries of previously written-off amounts.
(3) See Note 2 to the Consolidated Financial Statements included elsewhere
herein.
-48-
<PAGE> 51
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 24, 1995 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.
<TABLE>
<S> <C> <C>
PETER A. DAKS President March 24, 1995
----------------------------- (Principal Executive Officer)
PETER A. DAKS
GERALD K. DINSMORE Senior Vice President - Finance March 24, 1995
----------------------------- and Planning and Director
GERALD K. DINSMORE (Principal Financial Officer)
WILLIAM M. EDWARDS, III Controller March 24, 1995
----------------------------- (Principal Accounting Officer)
WILLIAM M. EDWARDS, III
RICHARD M. CAHILL Director March 24, 1995
-----------------------------
RICHARD M. CAHILL
MICHAEL B. ESSTMAN Director March 24, 1995
-----------------------------
MICHAEL B. ESSTMAN
KENT B. FOSTER Director March 24, 1995
-----------------------------
KENT B. FOSTER
THOMAS W. WHITE Director March 24, 1995
-----------------------------
THOMAS W. WHITE
</TABLE>
-49-
<PAGE> 52
EXHIBIT INDEX
-------------
3.1* Restated Articles of Incorporation dated May 1, 1989
(Exhibit 3.1 of 1989 Form 10-K, File No. 1-3090).
3.2* By-Laws (Exhibit 3.2, File No. 2-52735).
4* Indenture dated as of November 1, 1993 between GTE
Florida Incorporated and NationsBank of Georgia,
National Association, as Trustee (Exhibit 4.1 of the
Company's Registration Statement on Form S-3, File
No. 33-50711).
27 Financial Data Schedule.
* Denotes exhibits incorporated herein by reference to previous filings
with the Securities and Exchange Commission as designated.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 10,527
<SECURITIES> 0
<RECEIVABLES> 312,473
<ALLOWANCES> 19,737
<INVENTORY> 15,713
<CURRENT-ASSETS> 341,906
<PP&E> 3,781,735
<DEPRECIATION> 1,229,633
<TOTAL-ASSETS> 2,990,255
<CURRENT-LIABILITIES> 474,042
<BONDS> 729,754
<COMMON> 585,000
0
60,096
<OTHER-SE> 553,263
<TOTAL-LIABILITY-AND-EQUITY> 2,990,255
<SALES> 1,306,522
<TOTAL-REVENUES> 1,306,522
<CGS> 317,426
<TOTAL-COSTS> 1,017,017
<OTHER-EXPENSES> 1,931
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,152
<INCOME-PRETAX> 226,422
<INCOME-TAX> 86,167
<INCOME-CONTINUING> 140,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,255
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
