<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 September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number 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 972-718-5600
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- ---------
The Company had 23,400,000 shares of $25 par value common stock outstanding at
October 31, 1997. 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 Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------- ------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local services $ 170,603 $ 158,061 $ 521,597 $ 483,784
Network access services 136,549 122,964 395,505 378,727
Toll services 12,648 17,390 45,832 54,550
Other services and sales 70,840 65,444 198,889 189,267
------------ ------------- ------------- --------------
Total revenues and sales 390,640 363,859 1,161,823 1,106,328
------------ ------------- ------------- --------------
OPERATING COSTS AND EXPENSES
Cost of services and sales 139,392 133,179 411,427 407,308
Selling, general and administrative 55,506 59,038 179,243 159,465
Depreciation and amortization 97,114 90,325 281,243 256,243
------------ ------------- ------------- --------------
Total operating costs and expenses 292,012 282,542 871,913 823,016
------------ ------------- ------------- --------------
OPERATING INCOME 98,628 81,317 289,910 283,312
OTHER EXPENSE
Interest - net 15,823 14,289 46,563 44,767
Other - net -- -- 441 --
------------ ------------- ------------- --------------
INCOME BEFORE INCOME TAXES 82,805 67,028 242,906 238,545
Income taxes 32,746 25,100 96,004 90,520
------------ ------------- ------------- --------------
NET INCOME $ 50,059 $ 41,928 $ 146,902 $ 148,025
============ ============= ============= ==============
</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 Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 50.1 $ 41.9 $ 146.9 $ 148.0
</TABLE>
Net income increased 20% or $8.2 and declined 1% or $1.1 for the three and nine
months ended September 30, 1997, respectively, compared to the same periods in
1996. The third quarter increase is largely the result of growth in revenues
from local and network access services, partially offset by higher operating
costs and expenses. Year-to-date net income remained slightly below the same
period in 1996, as the first quarter decline from higher operating costs was
partially offset by revenue growth in the second and third quarters.
REVENUES AND SALES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Local services $ 170.6 $ 158.1 $ 521.6 $ 483.8
Network access services 136.6 123.0 395.5 378.7
Toll services 12.6 17.4 45.8 54.5
Other services and sales 70.8 65.4 198.9 189.3
-------------- ------------- ------------- -------------
Total revenues and sales $ 390.6 $ 363.9 $ 1,161.8 $ 1,106.3
</TABLE>
Total revenues and sales increased 7% or $26.7 and 5% or $55.5 for the three and
nine months ended September 30, 1997, respectively, compared to the same periods
in 1996.
Local service revenues increased 8% or $12.5 and 8% or $37.8 for the three and
nine months ended September 30, 1997, respectively, compared to the same periods
in 1996. Continued access line growth and demand for custom calling features and
other enhanced services were the most significant factors behind the increases.
Access lines grew 6% in both periods, which generated additional revenues of
$6.9 in the third quarter and $16.3 year-to-date. Growth in SmartCall(R) and
CLASS services, driven primarily by demand for Caller ID and pay-per-use
services such as auto call return/redial, contributed $5 and $18.3 to the third
quarter and year-to-date increases, respectively. Revenues from enhanced data
services, such as Integrated Services Digital Network (ISDN) and Digital Channel
Services (DCS), were also higher by $3 in the third quarter and $9.3
year-to-date. These increases were partially offset by declines in revenues from
private dedicated lines of $1.4 and $5.6 for the three and nine month periods,
respectively, largely resulting from customer migration to ISDN and DCS
services. The year-to-date increase is also offset by a favorable settlement
from a previous rate case, which increased revenues in the first quarter of 1996
by $9.5.
Network access service revenues increased 11% or $13.6 and 4% or $16.8 for the
three and nine months ended September 30, 1997, respectively, compared to the
same periods in 1996. This growth is largely due to increased demand for access
services by interexchange carriers and growing demand for increased bandwidth
services. Minutes of use increased 10% in the third quarter and 9% year-to-date,
which resulted in higher revenues of $8.3 and $23.1, respectively. Special
access revenues grew $4.5 and $12.2 for the three and nine month periods,
respectively, due to greater demand for increased bandwidth services by Internet
Service Providers (ISPs) and other high-capacity
2
<PAGE> 4
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
users. End user access charge revenues, associated with access line growth,
increased $1.3 in the third quarter and $4.4 year-to-date. In addition, revenues
from cellular services increased $1.9 and $3.6 for the three and nine month
periods, respectively. These increases are partially offset by net decreases of
$8.7 and $30.3, respectively, associated with the sharing provisions and rate
changes relating to the Federal Communications Commission's (FCC) 1996 and 1997
price caps.
Toll service revenues decreased 28% or $4.8 and 16% or $8.7 for the three and
nine months ended September 30, 1997, respectively, compared to the same periods
in 1996. These decreases are primarily due to lower toll volumes resulting from
intraLATA (local access transport area) toll competition, including 10XXX and 1+
presubscription.
Other services and sales revenues increased 8% or $5.4 and 5% or $9.6 for the
three and nine months ended September 30, 1997, respectively, compared to the
same periods in 1996. These increases are largely the result of increased
wireless activation commissions and related accessory sales totaling $1.4 in the
third quarter and $4.9 year-to-date, and a favorable billing and collection
contract rate negotiation resulting in additional revenues of $1.7 and $4.1 for
the three and nine month periods, respectively. Combined revenues from directory
advertising and voice messaging services contributed $1.7 to the third quarter
increase and $3.9 year-to-date. The year-to-date increase is partially offset by
an $8.3 decline from lower single-line rent revenues and equipment sales.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- -------------------------------
1997 1996 1997 1996
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost of services and sales $ 139.4 $ 133.2 $ 411.4 $ 407.3
Selling, general and administrative 55.5 59.0 179.2 159.5
Depreciation and amortization 97.1 90.3 281.3 256.2
-------------- -------------- ------------- -------------
Total operating costs and expenses $ 292.0 $ 282.5 $ 871.9 $ 823.0
</TABLE>
Total operating costs and expenses increased 3% or $9.5 in the third quarter of
1997 and 6% or $48.9 year-to-date, compared to the same periods in 1996.
The increase in cost of services and sales expense is primarily due to
growth-related increases in labor and benefits costs of $8.4 and $10.9 and
materials costs of $4.2 and $6.6 for the third quarter and year-to-date periods,
respectively. In addition, access charges incurred to terminate intraLATA toll
calls outside the Company's service territory increased $1.5 and $3.8 for the
three and nine month periods, respectively. Increased selling and marketing
efforts, aimed at stimulating sales of enhanced services and preserving market
share in an increasingly competitive environment, resulted in higher selling
expenses of $2.1 in the third quarter and $10.8 year-to-date. Depreciation
expense increased $6.8 and $25.1 for the three and nine month periods,
respectively, due to additions to plant and prospective rate changes reflecting
revised salvage values. The increase in total operating costs and expenses was
offset by a $10.1 pension settlement gain, recorded in the third quarter of
1997, which resulted from lump sum payments from the Company's pension plans.
Total pension settlement gains for the nine months ended September 30, 1997
amounted to $12.7, which are partially offset by $2.5 of settlement gains
recorded in the first quarter of 1996. The net change in total operating costs
also includes decreases of $6.2 and $7.7 associated with administrative
productivity gains achieved during the third quarter and year-to-date periods,
respectively.
3
<PAGE> 5
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest - net $ 15.8 $ 14.3 $ 46.6 $ 44.8
Income taxes 32.7 25.1 96.0 90.5
</TABLE>
Interest - net increased 10% or $1.5 and 4% or $1.8 for the three and nine
months ended September 30, 1997, respectively, compared to the same periods in
1996, primarily due to higher average short-term debt levels.
Income taxes increased 30% or $7.6 and 6% or $5.5 for the three and nine months
ended September 30, 1997, respectively, compared to the same periods in 1996.
These increases are primarily due to corresponding increases in pre-tax income
and investment tax credit amortization.
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 financings can be obtained through borrowings
from the Company's parent, GTE, or GTE Funding Incorporated (GTE Funding), a
wholly-owned subsidiary of the Company. GTE Funding provides short-term
financing and investment vehicles and cash management services for the Company
and six other of GTE's domestic telephone operating subsidiaries. On July 1,
1996, the Company began participating with other affiliates in a $1,500
syndicated line of credit to back up commercial paper borrowings.
The Company's primary source of funds during the first nine months of 1997 was
cash from operations of $527.7 compared to $392.8 for the same period in 1996.
The year-to-year increase in cash from operations primarily reflects a decrease
in the Company's working capital requirements, partially offset by a slight
decline in results from operations.
The Company's capital expenditures during the first nine months of 1997 were
$273.4 compared to $187 for the same period in 1996. The 1997 expenditures
reflect the Company's continued growth in primary and secondary access lines and
the modernization of interoffice facilities to mitigate Internet congestion. The
Company anticipates capital expenditures to increase during the remainder of
1997 compared to 1996, in accordance with the Company's continued growth of
existing networks and upgrades associated with the support of expanded services
and compliance with the local number portability requirements of the
Telecommunications Act of 1996 (the Telecommunications Act).
In the third quarter of 1996, the Company transferred $10.4 of assets associated
with the Company's broadband video dialtone network in Clearwater, Florida to
GTE Media Ventures Incorporated, a separate subsidiary of GTE.
Cash used in financing activities was $148 during the first nine months of 1997
compared to $201.3 for the same period in 1996. Dividend payments totaled $176.3
in the first nine months of 1997 compared to $173.7 in 1996. In May 1997, the
Company paid $1.2 in premiums on the retirement of $103.9 of long-term debt and
preferred stock redeemed prior to stated maturity. Short-term financings,
including the net change in affiliate notes, increased $133.4 compared to an
increase of $43.5 in 1996.
4
<PAGE> 6
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On October 15, 1997, the Company's parent, GTE, proposed a merger with MCI
Communications Corporation (MCI) valued at approximately $28 billion. As a
result of the proposed merger, the rating agencies have placed GTE, the
Company and its affiliates on "Credit Watch" for possible rating reductions.
On November 10, 1997, MCI announced that it had reached an agreement to merge
with WorldCom, Inc. (WorldCom).
OTHER MATTERS
Federal Regulatory Developments
In July 1997, the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit)
issued an opinion and order vacating significant portions of the FCC's rules
purporting to implement the local competition provisions of the
Telecommunications Act. The Company's parent, GTE, together with other incumbent
local-exchange carriers (ILECs) and a number of state commissions, had
challenged various portions of the FCC rules.
In its opinion, the Eighth Circuit ruled that the FCC had no jurisdiction to
promulgate rules setting the prices at which ILECs must make available to
competitors unbundled network elements (UNEs) and services for resale. In
addition, the Eighth Circuit made a number of other rulings favorable to GTE,
including that the FCC's rule allowing requesting carriers to pick and choose
among individual provisions of other interconnection agreements, rather than to
adopt the terms and conditions of a single agreement in its entirety, was
unlawful; that the FCC does not have the authority to review interconnection
agreements approved by state commissions or to enforce the terms of such
agreements; that the FCC rule requiring ILECs to provide interconnection and
UNEs at levels of quality that are superior to those levels at which the ILECs
provide them to themselves was unlawful; and that it is the requesting carriers,
not the ILECs, that must combine UNEs.
In addition, the Eighth Circuit rejected certain arguments advanced by GTE. For
example, it ruled that a requesting carrier may gain access to all of the UNEs
that, when combined by the requesting carrier, are sufficient to enable the
requesting carrier to provide a finished service, and it upheld most of the
standards applied by the FCC in determining which network elements an ILEC must
make available.
In October 1997, the Eighth Circuit, granting a petition for rehearing filed by
GTE and others, further ruled that the Telecommunications Act "does not permit a
new entrant to purchase the ILEC's assembled platform(s) of combined network
elements (or any lesser existing combination of two or more elements) in order
to offer competitive telecommunications services." The FCC has announced plans
to seek Supreme Court review of the Eighth Circuit's rulings; it has until
January 12, 1998 to file a petition for certiorari.
In May 1997, the FCC issued orders on universal service and access charge
reform. GTE has filed petitions for review of these FCC orders with the U.S.
Court of Appeals for the Tenth Circuit. GTE anticipates that those petitions
will be decided in 1998.
In its order on access charge reform, the FCC revised the price cap plan for
regulating ILECs by requiring price cap local-exchange carriers (LECs) to
increase their productivity factor to 6.5%. The order also eliminated the
sharing requirements of the price cap rules. In June 1997, in accordance with
the order, the Company submitted its 1997 annual price cap filing. The 1997
interstate access filing resulted in an annual price reduction of $69, effective
July 1, 1997. Prior to this order, the Company had submitted a rate change
filing in May 1997, as the Company's access rates were priced significantly
below the FCC's maximum allowable price. This rate change filing resulted in an
annual price increase of $20, effective June 3, 1997. Overall, the net effect of
these access filings resulted in an annual price reduction of $49.
On June 4, 1996, the FCC issued the first Report and Order implementing Section
276 of the Telecommunications Act. As part of the overall goal of promoting
competition among payphone service providers (PSPs), this order mandated
compensation to all PSPs for all calls originating from payphones, including
"dial-around" access calls and toll-free subscriber calls for which PSPs were
not previously compensated. This compensation was to occur in two separate
phases. During phase one, from April 15, 1997 through October 6, 1997, PSPs were
to be paid a monthly,
5
<PAGE> 7
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
flat-rate compensation from interexchange carriers (IXCs). During phase two,
beginning October 7, 1997, PSPs were to be compensated on a per-call basis, with
the prevailing local coin rate of 35 cents established as the default rate.
On July 19, 1997, the U.S. Court of Appeals in Washington, D.C. vacated the
FCC's directive concerning per-call compensation, stating that the FCC had not
shown that the 35 cent rate was a reasonable surrogate for fair compensation.
The court also set aside the FCC's flat-rate compensation mandate. Subsequently,
on October 9, 1997, the FCC issued a second Report and Order to address those
issues vacated by the court. In this second order, the FCC established a new
per-call rate of 28.4 cents for phase two compensation. The FCC also tentatively
concluded that this per-call rate should also be used to calculate phase one
compensation obligations. It is likely, however, that the entire phase one
compensation directive will be revisited in a subsequent order.
In accordance with the Telecommunications Act, the Company is continuing to
negotiate with requesting carriers over the terms of interconnection, UNEs and
resale rates. In some cases, the parties have been unable to agree within the
statutory period for negotiation and have gone to arbitration before various
state regulatory commissions. Since January 1997, state commission decisions
determining the prices and terms of unresolved issues have been released in
Florida.
The Company has exercised its right under the Telecommunications Act to
challenge state regulatory commission arbitration orders that govern agreements
between the Company and its competitors. The Company filed a lawsuit in federal
district court in Florida, which was dismissed without prejudice on the grounds
that it was filed before the arbitrated agreement had received final approval
from the Florida Public Service Commission (FPSC). The Company refiled its
complaint after final approval was received.
Additionally, the Company has made appropriate filings with the state and
Federal District Courts requesting that the Eighth Circuit's favorable rulings
be taken into consideration in connection with any future arbitration rulings or
complaint actions.
State Regulatory Developments
The Florida Public Service Commission (FPSC) issued its decision in the
Company's arbitration with AT&T and MCI on January 17, 1997, and with Sprint on
February 26, 1997, to determine interconnection, resale, and unbundling terms
and conditions. The discount rate for the Company's resold services was set at
13.04%. On January 31, 1997, the Company filed a lawsuit in U.S. District Court
challenging portions of the FPSC's arbitration determinations. On May 8, 1997,
the case was dismissed without prejudice to refiling because approval of an
arbitrated agreement had not been received from the FPSC. The Company refiled
its complaints against MCI and Sprint on June 3 and June 24, 1997, respectively.
On August 15, 1997, AT&T filed a complaint against the Company and the FPSC
challenging the FPSC's decision in the AT&T arbitration. The Company raised its
own challenges to this decision in its counterclaim/crossclaim filed on
September 8, 1997.
On July 6, 1997, MCI filed a complaint with the FPSC, claiming that the
Company's intrastate switched access rates are too high and thus
anti-competitive. MCI requested the FPSC to order the Company to make access
charge reductions as necessary, alleging that the Company's access revenues in
Florida exceed its costs by $130. The complaint also alleges that the Company is
subsidizing its toll and discretionary services operations with access revenues,
but it does not claim the Company has violated any cross-subsidy prohibitions.
The Company filed a motion to dismiss MCI's complaint on July 29, 1997, arguing
that only the legislature, and not the FPSC, has the
6
<PAGE> 8
GTE Florida Incorporated and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
authority to reduce access charges under current law and that access charges
have intentionally been set at levels to subsidize below-cost basic residential
service in Florida. On October 21, 1997 the FPSC voted to dismiss MCI's
complaint.
Other Developments
The Company has reviewed and estimated its current and planned expenditures to
become Year 2000 compliant. These costs are currently estimated to be $21.9 over
the next three years.
On October 15, 1997, the Company's parent, GTE, announced its proposal to
acquire MCI in a transaction valued at approximately $28 billion in cash or 40
dollars per share. On November 10, 1997, MCI announced that it had reached an
agreement to merge with WorldCom. GTE is continuing to monitor the situation
and may reevaluate its position depending on a number of factors, including the
relative stock performance of both WorldCom and MCI, the financial and
operating results of MCI and the ongoing status of the regulatory approval
process, as well as other pertinent information.
On July 1, 1997, a tentative settlement was reached with the plaintiff's counsel
in a class action lawsuit involving disputes over amounts billed for rental
telephones. An order was issued conditionally certifying the class,
preliminarily approving the settlement, preliminarily enjoining all other
actions affecting the class, approving the class notice, and establishing a
fairness hearing for November 26, 1997. The class notice was included in
residential bills in August. A similar class action was filed in June 1997 and
enjoined by the preliminary injunction. Having been denied intervention in the
first class action, the plaintiff in the second lawsuit has filed objections to
the proposed settlement. Management believes that the Company has adequately
provided for these disputes in its financial statements for the three and nine
month periods ended September 30, 1997.
In May 1997, GTE announced initiatives to become a leading national provider of
telecommunications service, including the acquisition of BBN Corporation (BBN),
a leading provider of end-to-end Internet solutions. In addition, GTE announced
a strategic alliance with Cisco Systems, Inc. to jointly develop enhanced data
and Internet services for customers; and, the purchase of a national,
state-of-the-art fiber-optic network from Qwest Communications. As of September
30, 1997, GTE had completed the acquisition of BBN.
7
<PAGE> 9
GTE Florida Incorporated and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------ ------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 106,654 $ 365
Receivables, less allowances of $23,083 and $33,486 302,065 339,578
Notes receivable from affiliates 1,073,490 2,227
Inventories and supplies 40,396 22,350
Other 8,533 4,793
------------------ ------------------
Total current assets 1,531,138 369,313
------------------ ------------------
Property, plant and equipment, at cost 4,304,256 4,088,813
Accumulated depreciation (2,442,883) (2,211,691)
------------------ ------------------
Total property, plant and equipment, net 1,861,373 1,877,122
------------------ ------------------
Employee benefit plans and other assets 182,955 152,458
------------------ ------------------
Total assets $ 3,575,466 $ 2,398,893
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 986,622 $ 140,710
Notes payable to affiliates 79,015 37,990
Accounts payable 166,338 103,470
Taxes payable 49,583 10,614
Accrued interest 17,795 8,960
Accrued payroll costs 44,041 40,520
Dividends payable 46,359 59,004
Deferred income tax liabilities 11,670 4,845
Other 85,430 84,284
------------------ ------------------
Total current liabilities 1,486,853 490,397
------------------ ------------------
Long-term debt 1,021,061 766,096
Deferred income taxes 147,252 181,882
Employee benefit plans 190,994 175,675
Other liabilities 7,459 6,501
------------------ ------------------
Total liabilities 2,853,619 1,620,551
------------------ ------------------
Shareholders' equity:
Preferred stock 21,195 60,096
Common stock (23,400,000 shares issued) 585,000 585,000
Additional paid-in capital 50,289 50,289
Retained earnings 65,363 82,957
------------------ ------------------
Total shareholders' equity 721,847 778,342
------------------ ------------------
Total liabilities and shareholders' equity $ 3,575,466 $ 2,398,893
================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE> 10
GTE FLORIDA INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------
1997 1996
------------------ ------------------
(Thousands of Dollars)
<S> <C> <C>
OPERATIONS
Net income $ 146,902 $ 148,025
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 281,243 256,243
Deferred income taxes (23,927) 8,635
Provision for uncollectible accounts 25,008 31,888
Change in current assets and current liabilities 108,285 (54,945)
Other - net (9,791) 2,992
------------------ ------------------
Net cash from operations 527,720 392,838
------------------ ------------------
INVESTING
Capital expenditures (273,395) (187,039)
Proceeds from the transfer of assets -- 10,434
------------------ ------------------
Net cash used in investing (273,395) (176,605)
------------------ ------------------
FINANCING
Long-term debt and preferred stock retired, including premiums paid
on early retirement (105,124) (71,090)
Dividends (176,347) (173,745)
Increase in short-term obligations, excluding current maturities 1,165,900 12,500
Net change in affiliate notes (1,032,465) 31,002
------------------ ------------------
Net cash used in financing (148,036) (201,333)
------------------ ------------------
Increase in cash and cash equivalents 106,289 14,900
Cash and cash equivalents:
Beginning of period 365 3,066
------------------ ------------------
End of period $ 106,654 $ 17,966
================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
9
<PAGE> 11
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 1996 Annual Report on Form 10-K.
(2) Long-term debt as of September 30, 1997 includes $300 million of
commercial paper which the Company anticipates refinancing during the
first half of 1998.
(3) Reclassifications of prior year data have been made, where appropriate,
to conform to the 1997 presentation.
10
<PAGE> 12
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 third quarter of
1997.
11
<PAGE> 13
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: November 13, 1997 William M. Edwards, III
----------------------------- --------------------------------------
William M. Edwards, III
Vice President - Controller
(Principal Accounting Officer)
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
Number Description
- ------------ ---------------------------------------------------------------
12 Statement re: Calculation of the Consolidated Ratio of Earnings
to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 12
GTE Florida Incorporated and Subsidiary
STATEMENT OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997(a) September 30, 1997
----------------------- -----------------------
<S> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 146,902 $ 146,902
Add - Income taxes 96,004 96,004
- Fixed charges 47,806 97,594
----------------------- -----------------------
Adjusted earnings $ 290,712 $ 340,500
======================= =======================
Fixed charges:
Interest expense $ 40,254 $ 90,042
Portion of rent expense
representing interest 7,552 7,552
----------------------- -----------------------
Adjusted fixed charges $ 47,806 $ 97,594
======================= =======================
RATIO OF EARNINGS TO FIXED CHARGES 6.08 3.49
</TABLE>
(a) Excludes $49.8 million of interest expense associated with commercial
paper issued by the Company's wholly-owned subsidiary, GTE Funding
Incorporated (GTE Funding), on behalf of GTE's other domestic telephone
operating subsidiaries. This interest is refunded to the Company through
interest income on affiliate notes between GTE Funding and the domestic
telephone operating subsidiaries. GTE Funding provides short-term
financing and investment vehicles and cash management services for the
Company and six other of GTE's domestic telephone operating subsidiaries.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 106,654
<SECURITIES> 0
<RECEIVABLES> 1,398,638
<ALLOWANCES> 23,083
<INVENTORY> 40,396
<CURRENT-ASSETS> 1,531,138
<PP&E> 4,304,256
<DEPRECIATION> 2,442,883
<TOTAL-ASSETS> 3,575,466
<CURRENT-LIABILITIES> 1,486,853
<BONDS> 1,021,061
0
21,195
<COMMON> 585,000
<OTHER-SE> 115,652
<TOTAL-LIABILITY-AND-EQUITY> 3,575,466
<SALES> 1,161,823
<TOTAL-REVENUES> 1,161,823
<CGS> 411,427
<TOTAL-COSTS> 871,913
<OTHER-EXPENSES> 441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,563
<INCOME-PRETAX> 242,906
<INCOME-TAX> 96,004
<INCOME-CONTINUING> 146,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,902
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
