<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 1-3090
GTE FLORIDA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0397520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 214-718-5600
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The Company had 23,400,000 shares of $25 par value common stock outstanding at
April 30, 1996. The Company's common stock is 100% owned by GTE Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION
GTE Florida Incorporated and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Revenues and sales:
Local services $168,423 $151,650
Network access services 131,372 114,805
Toll services 18,604 20,602
Other services and sales 39,562 39,048
-------- --------
Total revenues and sales 357,961 326,105
-------- --------
Operating costs and expenses:
Cost of services and sales 137,059 124,825
Selling, general and administrative 46,039 51,625
Depreciation and amortization 74,710 69,850
-------- --------
Total operating costs and expenses 257,808 246,300
-------- --------
Operating income 100,153 79,805
Interest - net 15,371 15,793
-------- --------
Income before income taxes 84,782 64,012
Income taxes 32,197 24,681
-------- --------
Net income $ 52,585 $ 39,331
======== ========
</TABLE>
Per share data is omitted since the Company's common stock is 100% owned by GTE
Corporation (GTE).
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE> 3
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Net income $52.6 $39.3
</TABLE>
Net income increased 34% or $13.3 for the three months ended March 31, 1996,
compared to the same period in 1995. The increase is primarily due to higher
revenues and sales, partially offset by higher operating costs and expenses.
REVENUES AND SALES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Local services $168.4 $151.7
Network access services 131.4 114.8
Toll services 18.6 20.6
Other services and sales 39.6 39.0
------ ------
Total revenues and sales $358.0 $326.1
</TABLE>
Total revenues and sales increased 10% or $31.9 for the three months ended
March 31, 1996, compared to the same period in 1995.
Local service revenues increased 11% or $16.7 for the three months ended March
31, 1996, compared to the same period in 1995. The number of switched access
lines increased 5% for the three months ended March 31, 1996, which generated
$4.9 of additional revenues. The increase also reflects $3.1 of growth in sales
of CentraNet(R) and custom calling features, such as SmartCall(R), and a $9.5
favorable settlement from a previous rate case as discussed in Other Matters.
Network access service revenues increased 14% or $16.6 for the three months
ended March 31, 1996, compared to the same period in 1995. Minutes of use
increased 8% for the three months ended March 31, 1996, which generated $6.7 of
additional revenues. The increase is also due to $1.5 of higher end user access
charge revenues associated with access line growth and a $1.9 increase in
private line revenues. The increase also reflects the net effect of the May and
August 1995 interstate rate changes associated with the FCC price cap which
resulted in $4.2 of additional revenues during the first quarter of 1996.
Toll service revenues decreased 10% or $2 for the three months ended March 31,
1996, compared to the same period in 1995, primarily due to lower toll volumes
resulting from 10XXX intraLATA toll competition.
Other services and sales revenues increased 2% or $0.6 for the three months
ended March 31, 1996, compared to the same period in 1995, primarily due to
growth in Personal Secretary voice messaging services.
2
<PAGE> 4
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Total operating costs and expenses $257.8 $246.3
</TABLE>
Total operating costs and expenses increased 5% or $11.5 for the three months
ended March 31, 1996, compared to the same period in 1995. The increase
primarily reflects a $4.9 increase in depreciation, mainly due to changes in
plant balances, a $3.1 increase in digital switching software upgrades and a $3
increase in end-user uncollectibles. These increases are partially offset by
$2.5 of settlement gains recorded in the first quarter of 1996 which resulted
from lump-sum payments from the Company's pension plans.
INCOME TAXES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Income taxes $32.2 $24.7
</TABLE>
Income taxes increased 30% or $7.5 for the three months ended March 31, 1996,
compared to the same period in 1995, primarily due to a corresponding increase
in pretax income.
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, at March 31,
1996, a $3,490 line of credit was 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 the first three months of 1996 was
cash from operations of $188.7 compared to $118.3 for the same period in 1995.
The year-to-year increase in cash from operations primarily reflects improved
results from operations and a decrease in the Company's working capital
requirements. Cash from operations is also being utilized to fund the Company's
re-engineering plan.
The Company's capital expenditures during the first three months of 1996 were
$37.3 compared to $56.8 for the same period in 1995. The 1996 expenditures
reflect the Company's continued access line growth and modernization of current
facilities and introduction of new products and services, including broadband
digital services and switched digital services. The Company anticipates capital
expenditures to increase during the remainder of 1996 compared to 1995,
reflecting the Company's expanding network and the deployment of video dialtone
networks.
3
<PAGE> 5
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash used in financing activities was $149 during the first three months of
1996 compared to $71.4 for the same period in 1995. This included dividend
payments of $34.5 in the first three months of 1996 compared to $44.2 for the
same period in 1995. Short-term financing, including the net change in
affiliate notes, decreased $114.4 for the first three months of 1996, compared
to a decrease of $27.5 for the same period in 1995.
OTHER MATTERS
In connection with the re-engineering plan, during the first three months of
1996, costs of approximately $17.8 have been incurred, including $12.9 to
re-engineer customer service processes and $4.9 to re-engineer administrative
processes. Since the plan's inception at the beginning of 1994, costs of
approximately $110.2 have been incurred, including $71.3 to re-engineer
customer service processes and $14.9 to re-engineer administrative processes.
The restructuring costs also include $24 to consolidate facilities and
operations and other related costs. These expenditures were primarily
associated with the closure and relocation of various service centers, software
enhancements and separation benefits associated with employee reductions.
Implementation of the re-engineering plan is expected to be substantially
completed by the end of 1996. As of March 31, 1996, $84.1 remains in the
restructuring reserve which management believes is adequate to cover future
expenditures.
In 1996, GTE, through a separate subsidiary, began offering long distance
service to its customers in selected states, including Florida, marketed under
the name GTE Easy Savings Plan(SM). GTE plans to offer this service in all 28
states where it currently offers local telephone service by December 1996.
The Company submitted its 1996 annual interstate access filing on April 2,
1996, utilizing the FCC's interim price cap rules. Overall, the proposed rates
result in a $1.1 price reduction, effective July 1, 1996. The Company
anticipates the FCC will issue an order prior to the effective date, which may
require changes to the Company's annual filing.
On January 21, 1993, the Florida Public Service Commission (FPSC) issued an
order effective January 6, 1993 to reduce rates by $14.5. 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 FPSC lowered the rate reduction by $0.8. 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 FPSC should not have made a $4.8 adjustment for expenses associated with
affiliate transactions and remanded this issue to the FPSC. Effective May 2,
1995, the FPSC approved a $4.8 increase to certain local rates; however, it did
not approve a surcharge to recover lost revenues for the period that the
wrongful decision was in effect. Consequently, the Company filed an appeal of
the surcharge issue with the Florida Supreme Court. On February 29, 1996, the
Florida Supreme Court reversed the FPSC's surcharge decision, finding that the
Company is entitled to recovery of its erroneously disallowed expenses for the
period of May 27, 1993, through May 3, 1995. On remand, the FPSC approved a
one-time surcharge of $8.65 (in whole dollars) per line. Based on this decision,
the Company recorded $9.5 of revenues in the first quarter of 1996.
In July 1995, the Florida Legislature passed a bill which replaces earnings
regulation with price regulation and opens the local-exchange to competition.
In April 1996, the FPSC issued an order which established the rates, terms and
conditions for interconnection between the Company and alternative
local-exchange carriers (ALECs). The Company anticipates the FPSC to rule on
the resale of the Company's services by ALECs during the second quarter of
1996.
4
<PAGE> 6
GTE Florida Incorporated and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 5,476 $ 3,066
Receivables, less allowances of $16,018 and $17,717 297,138 332,842
Notes receivable from affiliate 112,319 5,412
Inventories and supplies 19,264 17,733
Deferred income tax benefits 3,496 9,394
Other 7,160 7,961
----------- -----------
Total current assets 444,853 376,408
----------- -----------
Property, plant and equipment, at cost 3,959,018 3,935,080
Accumulated depreciation (2,045,974) (1,985,482)
----------- -----------
Total property, plant and equipment, net 1,913,044 1,949,598
----------- -----------
Other assets, primarily employee benefit plans 114,499 118,765
----------- -----------
Total assets $ 2,472,396 $ 2,444,771
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 71,110 $ 78,634
Accounts payable 110,198 125,435
Taxes payable 43,469 876
Accrued interest 16,772 9,111
Accrued payroll costs 38,313 38,177
Dividends payable 64,987 34,027
Accrued restructuring costs 84,057 101,905
Other 36,668 47,934
----------- -----------
Total current liabilities 465,574 436,099
----------- -----------
Non-current liabilities:
Long-term debt 785,686 785,155
Deferred income taxes 198,494 199,598
Employee benefit plans 125,238 117,050
Other liabilities 6,750 3,293
----------- -----------
Total non-current liabilities 1,116,168 1,105,096
----------- -----------
Shareholders' equity:
Preferred stock 60,096 60,096
Common stock (23,400,000 shares issued) 585,000 585,000
Additional paid-in capital 50,289 50,289
Retained earnings 195,269 208,191
----------- -----------
Total shareholders' equity 890,654 903,576
----------- -----------
Total liabilities and shareholders' equity $ 2,472,396 $ 2,444,771
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 7
GTE Florida Incorporated and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
--------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operations:
Net income $ 52,585 $ 39,331
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 74,710 69,850
Deferred income taxes 4,794 5,860
Provision for uncollectible accounts 7,473 5,303
Changes in current assets and current liabilities 49,733 (5,936)
Other - net (575) 3,937
--------- ---------
Net cash from operations 188,720 118,345
--------- ---------
Investing:
Capital expenditures (37,303) (56,829)
--------- ---------
Cash used in investing (37,303) (56,829)
--------- ---------
Financing:
Long-term debt retired (30) (49)
Dividends (34,547) (44,189)
Decrease in short-term obligations, excluding current maturities -- (28,536)
Net change in affiliate notes (114,430) 1,073
Other - net -- 272
--------- ---------
Net cash used in financing (149,007) (71,429)
--------- ---------
Increase (decrease) in cash and temporary investments 2,410 (9,913)
Cash and temporary investments:
Beginning of period 3,066 10,527
--------- ---------
End of period $ 5,476 $ 614
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 8
GTE Florida Incorporated and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited condensed consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of management
of the Company, the condensed consolidated financial statements include all
adjustments, which consist only of normal recurring accruals, necessary to
present fairly the financial information for such periods. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's 1995
Annual Report on Form 10-K.
(2) Reclassifications of prior year data have been made, where appropriate, to
conform to the 1996 presentation.
7
<PAGE> 9
GTE Florida Incorporated and Subsidiary
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
12 Statement re: Calculation of the Consolidated Ratio of Earnings
to Fixed Charges
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the first quarter of
1996.
8
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GTE Florida Incorporated
-----------------------------
(Registrant)
Date: May 14, 1996 William M. Edwards, III
---------------- -----------------------------
William M. Edwards, III
Controller
(Principal Accounting Officer)
9
<PAGE> 11
EXHIBIT INDEX
Exhibit
Number Description
------- ----------------------------------------------------
12 Statement re: Calculation of the Consolidated Ratio
of Earnings to Fixed Charges
27 Financial Data Schedule
<PAGE> 1
Exhibit 12
GTE Florida Incorporated and Subsidiary
STATEMENT OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1996
------------
<S> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 52,585
Add - Income taxes 32,197
- Fixed charges 18,471
--------
Adjusted earnings $103,253
========
Fixed charges:
Interest expense $ 16,136
Portion of rent expense
representing interest 2,335
--------
Adjusted fixed charges $ 18,471
========
RATIO OF EARNINGS TO FIXED CHARGES 5.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,476
<SECURITIES> 0
<RECEIVABLES> 313,156
<ALLOWANCES> 16,018
<INVENTORY> 19,264
<CURRENT-ASSETS> 444,853
<PP&E> 3,959,018
<DEPRECIATION> 2,045,974
<TOTAL-ASSETS> 2,472,396
<CURRENT-LIABILITIES> 465,574
<BONDS> 785,686
<COMMON> 585,000
0
60,096
<OTHER-SE> 245,558
<TOTAL-LIABILITY-AND-EQUITY> 2,472,396
<SALES> 357,961
<TOTAL-REVENUES> 357,961
<CGS> 137,059
<TOTAL-COSTS> 257,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,371
<INCOME-PRETAX> 84,782
<INCOME-TAX> 32,197
<INCOME-CONTINUING> 52,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,585
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
