<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 quarterly period ended March 31, 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
April 30, 1997. The Company's common stock is 100% owned by GTE Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION
GTE Florida Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
(Thousands of Dollars)
<S> <C> <C>
REVENUES AND SALES
Local services $177,748 $168,423
Network access services 117,650 131,372
Toll services 17,188 18,604
Other services and sales 43,385 39,562
-------- --------
Total revenues and sales 355,971 357,961
-------- --------
OPERATING COSTS AND EXPENSES
Cost of services and sales 131,124 137,059
Selling, general and administrative 58,953 46,039
Depreciation and amortization 88,619 74,710
-------- --------
Total operating costs and expenses 278,696 257,808
-------- --------
OPERATING INCOME 77,275 100,153
Interest - net 15,738 15,371
-------- --------
INCOME BEFORE INCOME TAXES 61,537 84,782
Income taxes 24,231 32,197
-------- --------
NET INCOME $ 37,306 $ 52,585
======== ========
</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 Subsidiaries
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,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Net income $ 37.3 $ 52.6
</TABLE>
Net income decreased 29% or $15.3 for the three months ended March 31, 1997,
compared to the same period in 1996. The decrease is primarily due to higher
operating costs and expenses coupled with slightly lower revenues and sales.
REVENUES AND SALES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Local services $ 177.7 $ 168.4
Network access services 117.7 131.4
Toll services 17.2 18.6
Other services and sales 43.4 39.6
-------- --------
Total revenues and sales $ 356.0 $ 358.0
</TABLE>
Total revenues and sales decreased less than 1% or $2 for the three months
ended March 31, 1997, compared to the same period in 1996.
Local service revenues increased 6% or $9.3 for the three months ended March
31, 1997, compared to the same period in 1996. The number of access lines
increased nearly 6% for the three months ended March 31, 1997, which generated
$3.5 of additional revenues. The increase also reflects: $9.3 of higher revenues
from CentraNet(R) and custom calling features, such as SmartCall(R) and CLASS
services, driven by caller ID growth and introduction of pay-per-use services
such as automatic call return/redial; $2.8 growth in revenues from digital
services, such as Integrated Services Digital Network (ISDN) and Digital Channel
Services (DCS); and $1.2 of higher nonrecurring revenues due to strong line
growth and CLASS market penetration. These increases were partially offset by a
favorable settlement from a previous rate case, which increased the first
quarter 1996 revenues by $9.5.
Network access service revenues decreased 10% or $13.7 for the three months
ended March 31, 1997, compared to the same period in 1996. The decrease is
primarily due to a $22.3 unfavorable impact from sharing provisions of the
Federal Communications Commission's (FCC) 1996 price cap. The decrease was
partially offset by an 8% increase in minutes of use for the three months ended
March 31, 1997, which generated $7.7 of additional revenues. The decrease was
also offset by a $3.9 increase in special access revenues reflecting growth in
dedicated lines.
Toll service revenues decreased 8% or $1.4 for the three months ended March 31,
1997, compared to the same period in 1996, primarily due to lower toll volumes
resulting from intraLATA (local access transport area) toll competition,
including 10XXX and 1+ presubscription.
2
<PAGE> 4
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Other services and sales revenues increased 10% or $3.8 for the three months
ended March 31, 1997, compared to the same period in 1996, primarily due to a
$1.1 growth in paging services, a $1.4 growth in commission revenues for
wireless activation and associated accessory sales and a $1.4 increase due to a
favorable billing and collection contract rate negotiation with AT&T.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Total operating costs and expenses $ 278.7 $ 257.8
</TABLE>
Total operating costs and expenses increased 8% or $20.9 for the three months
ended March 31, 1997, compared to the same period in 1996. The increase is
primarily due to a $13.9 increase in depreciation, mainly attributable to
prospective rate changes reflecting revised salvage values and additions to
plant balances. The increase also reflects a $2.9 increase in advertising
expenditures and a $2.3 increase in material costs. These increases were
partially offset by lower labor and benefit expenses of $3.2.
INCOME TAXES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Income taxes $ 24.2 $ 32.2
</TABLE>
Income taxes decreased 25% or $8 for the three months ended March 31, 1997,
compared to the same period in 1996, primarily due to a corresponding decrease
in pre-tax 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 financings can be obtained through
borrowings from 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 seven 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.
The Company's primary source of funds during the first three months of 1997 was
cash from operations of $231.2 compared to $188.7 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 three months of 1997 were
$67.7 compared to $37.3 for the same period in 1996. The 1997 expenditures
reflect the Company's continued access line growth and modernization of current
facilities to support new products and expanded services. The Company
anticipates capital expenditures to increase during the remainder of 1997
compared to 1996, reflecting the Company's continued
3
<PAGE> 5
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
expansion 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).
Net cash used in financing activities was $113.7 during the first three months
of 1997 compared to $149 for the same period in 1996. This included dividend
payments of $59.5 in the first three months of 1997 compared to $34.5 for the
same period in 1996. Short-term financing, including the net change in
affiliate notes, decreased $54.2 for the first three months of 1997, compared
to a decrease of $114.4 for the same period in 1996.
OTHER MATTERS
On May 7, 1997, in accordance with the Telecommunications Act, the FCC announced
its decisions concerning price caps, access charge reform and universal service.
The text of the universal service order was released on May 8, 1997. The FCC
price cap and access reform orders are expected to be released by May 20, 1997.
GTE is currently assessing the effect of these recent decisions.
The Company is continuing to negotiate with requesting carriers over the terms
of interconnection, unbundled network elements 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 the state regulatory
commission. Since January 1997, state commission decisions determining the
prices and terms of unresolved issues have been released in Florida. Subsequent
decisions are expected to be issued over a period extending through the third
quarter of 1997.
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%. The FPSC also established prices for unbundled network elements and
ordered the Company to provide real-time and interactive access to its
operation support systems by January 1, 1997. On January 31, 1997, the Company
filed a lawsuit in the 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. As such approval is obtained, the Company will refile
its complaint.
In May 1997, the Company's parent, GTE, announced initiatives to become a
leading national provider of telecommunications services, including the
acquisition of BBN Corporation, 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,
purchase of a national, state-of-the-art fiber-optic network from Qwest
Communications.
4
<PAGE> 6
GTE Florida Incorporated and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50,088 $ 365
Accounts receivable, less allowances of
$29,981 and $33,486 255,652 339,578
Notes receivable from affiliates 201,670 2,227
Inventories and supplies 28,984 22,350
Other 22,492 4,793
----------- -----------
Total current assets 558,886 369,313
----------- -----------
Property, plant and equipment, at cost 4,137,368 4,088,813
Accumulated depreciation (2,290,142) (2,211,691)
----------- -----------
Total property, plant and equipment, net 1,847,226 1,877,122
----------- -----------
Employee benefit plans and other assets 154,299 152,458
----------- -----------
Total assets $ 2,560,411 $ 2,398,893
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 20,113 $ 140,710
Notes payable to affiliates 306,102 37,990
Accounts payable 87,394 103,470
Taxes payable 36,465 10,614
Accrued interest 15,277 8,960
Accrued payroll costs 38,256 40,520
Dividends payable 78,544 59,004
Deferred tax liabilities 6,355 4,845
Other 109,596 84,284
----------- -----------
Total current liabilities 698,102 490,397
----------- -----------
Long-term debt 766,109 766,096
Deferred income taxes 168,069 181,882
Employee benefit plans 184,733 175,675
Other liabilities 6,814 6,501
----------- -----------
Total liabilities 1,823,827 1,620,551
----------- -----------
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 41,199 82,957
----------- -----------
Total shareholders' equity 736,584 778,342
----------- -----------
Total liabilities and shareholders' equity $ 2,560,411 $ 2,398,893
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 7
GTE Florida Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
(Thousands of Dollars)
<S> <C> <C>
OPERATIONS
Net income $ 37,306 $ 52,585
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 88,619 74,710
Deferred income taxes (8,426) 4,794
Provision for uncollectible accounts 7,441 7,473
Changes in current assets and current liabilities 99,633 49,733
Other - net 6,602 (575)
--------- ---------
Net cash from operations 231,175 188,720
--------- ---------
INVESTING
Capital expenditures (67,742) (37,303)
--------- ---------
Cash used in investing (67,742) (37,303)
--------- ---------
FINANCING
Long-term debt retired (28) (30)
Dividends (59,524) (34,547)
Decrease in short-term obligations, excluding current maturities (120,600) --
Net change in affiliate notes 66,442 (114,430)
--------- ---------
Net cash used in financing (113,710) (149,007)
--------- ---------
Increase in cash and cash equivalents 49,723 2,410
Cash and cash equivalents:
Beginning of period 365 3,066
--------- ---------
End of period $ 50,088 $ 5,476
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 8
GTE Florida Incorporated and Subsidiaries
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.
7
<PAGE> 9
GTE Florida Incorporated and Subsidiaries
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
1997.
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, 1997 William M. Edwards, III
----------------------------- -----------------------------------
William M. Edwards, III
Vice President - 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
10
<PAGE> 1
Exhibit 12
GTE Florida Incorporated and Subsidiaries
STATEMENT OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1997
------------
<S> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 37,306
Add - Income taxes 24,231
- Fixed charges 18,221
------------
Adjusted earnings $ 79,758
============
Fixed charges:
Interest expense $ 16,099
Portion of rent expense
representing interest 2,122
------------
Adjusted fixed charges $ 18,221
============
RATIO OF EARNINGS TO FIXED CHARGES 4.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 50,088
<SECURITIES> 0
<RECEIVABLES> 487,303
<ALLOWANCES> 29,981
<INVENTORY> 28,984
<CURRENT-ASSETS> 558,886
<PP&E> 4,137,368
<DEPRECIATION> 2,290,142
<TOTAL-ASSETS> 2,560,411
<CURRENT-LIABILITIES> 698,102
<BONDS> 766,109
585,000
0
<COMMON> 60,096
<OTHER-SE> 91,488
<TOTAL-LIABILITY-AND-EQUITY> 2,560,411
<SALES> 355,971
<TOTAL-REVENUES> 355,971
<CGS> 131,124
<TOTAL-COSTS> 278,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,738
<INCOME-PRETAX> 61,537
<INCOME-TAX> 24,231
<INCOME-CONTINUING> 37,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,306
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
