<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 June 30, 1998
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, 75038
Irving, Texas
(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
July 31, 1998. 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 Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local services $ 183,195 $ 177,007 $ 364,086 $ 350,994
Network access services 134,515 141,306 252,470 258,956
Toll services 11,490 15,996 23,512 33,184
Other services and sales 88,080 80,903 138,851 128,049
------------ ------------ ------------ ------------
Total revenues and sales 417,280 415,212 778,919 771,183
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Cost of services and sales 160,275 140,911 310,001 272,035
Selling, general and administrative 62,314 64,784 126,909 123,737
Depreciation and amortization 84,171 95,510 180,046 184,129
------------ ------------ ------------ ------------
Total operating costs and expenses 306,760 301,205 616,956 579,901
------------ ------------ ------------ ------------
OPERATING INCOME 110,520 114,007 161,963 191,282
OTHER (INCOME) EXPENSE
Interest - net 17,092 15,002 34,352 30,740
Other - net (118) 441 (118) 441
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 93,546 98,564 127,729 160,101
Income taxes 35,611 39,027 48,559 63,258
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY CHARGE 57,935 59,537 79,170 96,843
Extraordinary charge -- -- (3,400) --
------------ ------------ ------------ ------------
NET INCOME $ 57,935 $ 59,537 $ 75,770 $ 96,843
============ ============ ============ ============
</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 Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income $ 57.9 $ 59.5 $ 75.8 $ 96.8
</TABLE>
Net income decreased 3% or $1.6 during the three months ended June 30, 1998,
compared to the same period in 1997. Year-to-date net income includes an
extraordinary after-tax charge of $3.4 related to the early retirement of debt.
Excluding this charge, net income decreased 18% or $17.6 for the first six
months of 1998, compared to the same period in 1997. The three and six month
decline is primarily due to lower toll revenues and higher operating expenses,
partially offset by increased local service and other revenues.
REVENUES AND SALES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Local services $ 183.2 $ 177.0 $ 364.1 $ 351.0
Network access services 134.5 141.3 252.5 259.0
Toll services 11.5 16.0 23.5 33.2
Other services and sales 88.1 80.9 138.8 128.0
--------- --------- --------- ---------
Total revenues and sales $ 417.3 $ 415.2 $ 778.9 $ 771.2
</TABLE>
Total revenues and sales increased 1% or $2.1 during the second quarter of 1998
and 1% or $7.7 for the six months ended June 30, 1998, compared to the same
periods in 1997.
Local service revenues increased 4% or $6.2 and 4% or $13.1 for the three and
six months ended June 30, 1998, respectively, compared to the same periods in
1997. For the three months ended June 30, 1998, access line growth of 5%
generated increased revenues of $7.9 primarily from CentraNet(R). Year-to-date
access line growth of 5% generated increased revenues of $4 from basic local
services, $7.9 from CentraNet(R) and $1.9 from Integrated Services Digital
Network (ISDN) and Digital Channel Services (DCS). Partially offsetting the
year-to-date increases was a $3 decline in directory assistance and operator
services.
Network access service revenues decreased 5% or $6.8 and 3% or $6.5 for the
three and six months ended June 30, 1998, respectively, compared to the same
periods in 1997. The impact of interstate access rate reductions from the 1997
Federal Communications Commission (FCC) price cap resulted in a decrease in
network access service revenues of $12.2 in the second quarter and $24.4
2
<PAGE> 4
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
year-to-date compared to the same periods in 1997. Also, the FCC ordered
significant changes that altered the structure of access charges collected by
the Company. These changes, effective January 1, 1998, resulted in a $12.9
decrease in network access revenues during the second quarter of 1998 and a $17
decrease year-to-date. Offsetting these decreases was an increase in minutes of
use of 9% in the second quarter and 10% year-to-date, which resulted in higher
revenues of $9.8 and $20.8, respectively. Also, special access revenues grew
$8.5 and $14.1 for the three and six month periods, respectively, due to greater
demand for increased bandwidth by Internet Service Providers (ISPs) and other
high-capacity users.
Toll service revenues decreased 28% and 29% for the three and six months ended
June 30, 1998, compared to the same periods in 1997. These decreases, totaling
$4.5 and $9.7, respectively, 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 9% or $7.2 and 8% or $10.8 for the
three and six months ended June 30, 1998, respectively, compared to the same
periods in 1997. These increases are largely the result of an increase in
billing and collection service revenues of $2.2 in the second quarter and $4
year-to-date, and a $1.4 increase for both periods in revenues from voice
messaging services. The results also reflect an increase of $2.1 and $4 relating
to the FCC's order increasing payphone compensation from interexchange carriers
for the three and six months ended June 30, 1998, respectively.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Cost of services and sales $ 160.3 $ 140.9 $ 310.0 $ 272.0
Selling, general and administrative 62.3 64.8 126.9 123.8
Depreciation and amortization 84.2 95.5 180.1 184.1
--------- --------- -------- --------
Total operating costs and expenses $ 306.8 $ 301.2 $ 617.0 $ 579.9
</TABLE>
Total operating costs and expenses increased 2% or $5.6 in the second quarter of
1998 and 6% or $37.1 year-to-date, compared to the same periods in 1997. The
increases are primarily due to an increase in access charges incurred to
terminate intraLATA toll calls outside the Company's territory of $7.9 and $11.6
for the three and six month periods ended June 30, 1998, respectively.
Additional factors included a $2.8 and $15.3 rise in maintenance and repair
costs associated with storm damage within the Company's service territories and
a $6 and $11 increase in information page billings from directory publications
for the three and six month periods, respectively. Offsetting
3
<PAGE> 5
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
these increases was a decline in depreciation expense of $11.3 and $4.1 for the
three and six month periods, as a result of rate changes made in the second
quarter of 1997.
OTHER EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest - net $ 17.1 $ 15.0 $ 34.4 $ 30.7
Income taxes 35.6 39.0 48.6 63.3
Extraordinary charge -- -- 3.4 --
</TABLE>
Interest - net increased 14% or $2.1 in the second quarter of 1998 and 12% or
$3.7 year-to-date, compared to the same periods in 1997. The increase is
primarily due to an increase in interest expense due to higher average
short-term debt levels.
Income taxes decreased 9% or $3.4 in the second quarter of 1998 and 23% or $14.7
year-to-date, compared to the same periods in 1997. These decreases are
primarily due to corresponding decreases in pre-tax income and other tax
adjustments.
During the first quarter of 1998, the Company recorded an after-tax
extraordinary charge of $3.4, reflecting premiums paid on the redemption of
high-coupon debt prior to stated maturity.
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, each of which
is contractually obligated to repay all amounts borrowed by it from GTE Funding.
The Company participates with other affiliates in a $1,500, 364-day line of
credit. The Company has an existing shelf registration statement for an
additional $100 of debentures.
4
<PAGE> 6
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company's primary source of funds during the first six months of 1998 was
cash from operations of $558.2 compared to $404.5 for the same period in 1997.
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 six months of 1998 were
$217.4 compared to $166.8 for the same period in 1997. The 1998 expenditures
reflect the Company's continued access line growth and modernization of current
facilities to support new products and expanded services. Although the capital
expenditures during the first six months of 1998 were higher than the same
period in 1997, the overall anticipated capital expenditures for 1998 are
expected to be comparable to capital expenditures during 1997.
Cash used in financing activities was $328.9 during the first six months of 1998
compared to $216.2 for the same period in 1997. This included dividend payments
of $93.7 in the first half of 1998 compared to $138.5 for the same period in
1997. Short-term financings, including the net change in affiliate notes,
decreased $395 for the first six months of 1998, compared to an increase of
$27.4 for the same period in 1997. In 1998, the Company paid $3.4 in premiums on
the retirement of $125 of long-term debt redeemed prior to stated maturity,
compared to $1.2 in premiums on the retirement of $103.9 of long-term debt and
preferred stock redeemed prior to stated maturity in 1997. The Company issued
$300 of 6.86% Series E debentures in February 1998. The Company recognized an
interest rate hedge loss of approximately $8.8 on the settlement of forward
contracts related to that debt issuance. The loss is being amortized over the
life of the associated refinanced debt.
In its April 2, 1998 filing on Form 8-K, GTE stated that because the MCI
shareholders had accepted a competing offer, GTE's offer for MCI was no longer
outstanding. As a result, the Company and GTE were removed from "Credit Watch"
by all rating agencies. The Company believes that its present investment grade
credit rating provides ready access to the capital markets at reasonable rates
and provides the Company with the financial flexibility necessary to pursue
growth opportunities as they arise.
OTHER MATTERS
Federal Regulatory Developments
The Company filed interstate access revisions during 1997 that became effective
June 3, 1997 and July 1, 1997. Overall, these filings resulted in a net annual
price reduction of $49. In 1997, the FCC issued an order to file revised access
rates effective January 1, 1998, which resulted in additional interstate access
charge reductions of approximately $4.9 annually.
5
<PAGE> 7
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In 1997, the FCC also ordered significant changes that altered the structure of
access charges collected by the Company, effective January 1, 1998. Generally,
the FCC reduced and restructured the per minute charges paid by long distance
carriers and implemented new per line charges. The FCC also created an access
charge structure that resulted in different access charges for residential
primary and secondary lines and single line and multi-line business access
lines. In aggregate, the annual reductions in usage sensitive access charges of
$17.3 paid by long distance carriers were offset by $17.9 of new per line
charges and the charges paid by end-users. Effective July 1, 1998, access
charges were further reduced by $12.3 annually in compliance with FCC
requirements to restate the impacts of access charge reform.
In May 1997, the FCC released a major decision relating to implementation of the
Telecommunications Act's provision on universal service. GTE and numerous other
parties have challenged the FCC's decision before the U.S. Court of Appeals for
the Fifth Circuit on the grounds that the FCC did not follow the requirements of
the Telecommunications Act to develop a sufficient, explicit and competitively
neutral universal service program. Oral argument is not expected until
mid-September 1998 at the earliest, with a final decision to be issued by
mid-1999.
On March 9, 1998, the FCC adopted a Memorandum Opinion and Order (MO&O)
clarifying the payphone-specific coding digit requirements set forth in the
previous payphone orders and granting limited waivers of the requirement that
local exchange carriers (LECs) provide payphone-specific coding digits to
payphone service providers (PSPs), and that PSPs provide payphone-specific
coding digits from their payphones to interexchange carriers (IXCs), before PSPs
can receive per-call compensation from IXCs for subscriber 800 and access code
calls. GTE was granted waivers through 1998 in this order for Flex-ANI (Flexible
Automatic Number Identification) implementation due to technical problems
associated with switch conversions.
On April 3, 1998, the FCC issued another MO&O which granted the IXCs a waiver of
the per-call compensation requirement so that they may pay per-phone instead of
per-call compensation for the payphones for which the FCC had granted technology
waivers. GTE will receive per-phone compensation under this waiver until the
Flex-ANI capable offices are activated. Qualifying payphone calls from Flex-ANI
capable switches will then be eligible for per-call compensation rather than
per-phone.
In a related court case between MCI and the FCC, the U.S. Court of Appeals,
District of Columbia Circuit, upheld the fundamental premise underlying the
FCC's
6
<PAGE> 8
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
approach to setting the per-call compensation rate for uncompensated payphone
calls, thereby supporting the ordered per-call compensation rate noted in the
March 9th order. At the same time, however, the Court held that the FCC had
failed to clearly explain its methodology on the development of that same
per-call compensation rate. The Court remanded this portion back to the FCC.
State Regulatory Developments
Florida Statutes, enacted in 1995 and revised in 1998, have replaced earnings
regulation with price regulation and opened the local-exchange to competition.
The Company became subject to price regulation effective January 3, 1996. Under
the price regulation provisions, basic service, multi-line business
local-exchange service and intrastate access rates are capped until January 1,
2000 and will continue to be capped for an additional two years unless the
Florida Public Service Commission determines that the level of competition
justifies the elimination of the cap. Subsequent to the price cap period, prices
for basic services can be increased by an inflation factor less 1% annually.
Rates for non-basic services, defined as services other than basic,
interconnection and network access, can increase by up to 6% per year if no
competition exists and up to 20% if there is more than one certified provider of
the service. Also, a change to the statutes eliminates a provision that had
required the Company to reduce intrastate access rates by at least 5% annually
until parity with 1994 interstate rates is attained. It has been replaced by a
provision that requires a reduction to intrastate access rates of 5% on July 1,
1998 and an additional 10% on October 1, 1998 with no further reductions
required. The estimated 1998 impact is an $8.8 revenue reduction and the future
estimated annual impact is a $26.4 reduction.
Other Developments
The Company is managing a class action lawsuit involving disputes over amounts
billed for rental telephones. In July 1997, a tentative settlement was reached
with the plaintiff. 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 1997. 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. On December 16, 1997, the Court issued a final order
approving the settlement, certifying the class, overruling the objections of the
second class action suit that had
7
<PAGE> 9
GTE Florida Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
been filed in June and dismissing the case with prejudice. The appeal of the
Court's order by the plaintiff in the second lawsuit was dismissed and the
settlement became effective on June 3, 1998. The Company is in the process of
implementing the settlement.
In July 1997, Time Warner Communications (Time Warner) sued the Company and GTE
Media Ventures (GTEMV), an affiliate of the Company, for damages allegedly
arising out of the Company's construction of a video dialtone network which was
subsequently transferred to GTEMV for construction of a competing cable network.
In the lawsuit, Time Warner alleges that both the Company and GTEMV moved Time
Warner's facilities without authorization during installation of their
respective networks. In doing so, Time Warner alleges that the Company and GTEMV
violated the National Electric Safety Code, breached various pole attachment
agreements and damaged Time Warner's facilities. Time Warner's motion for a
temporary injunction was denied. The parties are presently engaged in settlement
discussions.
RECENT DEVELOPMENTS
On July 27, 1998, GTE and Bell Atlantic entered into a merger agreement
providing for the combination of the two companies in a merger of equals
transaction. Under terms of the definitive agreement, which was unanimously
approved by the board of directors of both companies, GTE shareholders will
receive 1.22 shares of Bell Atlantic stock for each GTE share they own. The
merger is expected to be accounted for as a pooling of interests, is subject to
shareholder and regulatory approval, and is expected to be completed during the
second half of 1999. For additional information regarding the merger, refer to
the Form 8-K filed by GTE dated July 27, 1998.
In April 1998, GTE announced a series of actions designed to further sharpen its
strategic focus and improve its competitive position by repositioning
non-strategic properties and reducing costs. GTE expects to generate after-tax
proceeds of $2,000 to $3,000 by selling non-strategic or under-performing
operations and plans to reduce annual costs by more than $500 through improved
efficiencies and productivity while it continues to invest in new high-growth
opportunities. The impact of this announcement on the Company is unknown at this
time. GTE's management is currently assessing its options and, as decisions are
finalized regarding the sale of non-strategic operations and cost reductions,
the Company could be affected.
8
<PAGE> 10
GTE Florida Incorporated and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 69,581 $ 57,675
Receivables, less allowances of $28,294 and $30,172 256,023 510,425
Notes receivable from affiliates 1,233,645 1,167,253
Inventories and supplies 32,447 31,006
Prepaid taxes 6,699 17,381
Prepaid insurance 11,502 728
Other 8,454 10,133
------------ ------------
Total current assets 1,618,351 1,794,601
------------ ------------
Property, plant and equipment, at cost 4,570,116 4,384,458
Accumulated depreciation (2,617,440) (2,470,494)
------------ ------------
Total property, plant and equipment, net 1,952,676 1,913,964
------------ ------------
Prepaid pension costs 182,039 169,869
Other assets 36,180 15,788
------------ ------------
Total assets $ 3,789,246 $ 3,894,222
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 1,313,771 $ 1,294,261
Notes payable to affiliates 24,048 72,287
Accounts payable 170,309 161,348
Taxes payable 25,739 2,980
Accrued interest 17,002 11,444
Accrued payroll costs 45,419 37,823
Dividends payable 53,878 40,853
Other 113,236 87,721
------------ ------------
Total current liabilities 1,763,402 1,708,717
------------ ------------
Long-term debt 889,299 1,021,064
Deferred income taxes 206,424 203,924
Employee benefit plans 196,387 196,076
Other liabilities 7,038 6,803
------------ ------------
Total liabilities 3,062,550 3,136,584
------------ ------------
Shareholders' equity:
Preferred stock 21,195 21,195
Common stock (23,400,000 shares issued) 585,000 585,000
Additional paid-in capital 50,289 50,289
Retained earnings 70,212 101,154
------------ ------------
Total shareholders' equity 726,696 757,638
------------ ------------
Total liabilities and shareholders' equity $ 3,789,246 $ 3,894,222
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
9
<PAGE> 11
GTE Florida Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1998 1997
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
OPERATIONS
Income before extraordinary charge $ 79,170 $ 96,843
Adjustments to reconcile income before extraordinary
charge to net cash from operations:
Depreciation and amortization 180,046 184,129
Deferred income taxes 4,284 (17,167)
Provision for uncollectible accounts 18,459 16,496
Changes in current assets and current liabilities 261,093 112,649
Other - net 15,185 11,521
------------ ------------
Net cash from operations 558,237 404,471
------------ ------------
INVESTING
Capital expenditures (217,385) (166,841)
------------ ------------
Cash used in investing (217,385) (166,841)
------------ ------------
FINANCING
Long-term debt issued 297,069 --
Long-term debt and preferred stock retired,
including premiums paid on early retirement (128,472) (105,186)
Dividends (93,687) (138,466)
Increase (decrease) in short-term obligations, excluding
current maturities (280,418) 1,353,400
Net change in affiliate notes (114,630) (1,325,956)
Other - net (8,808) --
------------ ------------
Net cash used in financing (328,946) (216,208)
------------ ------------
Increase in cash and cash equivalents 11,906 21,422
Cash and cash equivalents:
Beginning of period 57,675 365
------------ ------------
End of period $ 69,581 $ 21,787
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
10
<PAGE> 12
GTE Florida Incorporated and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
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 consolidated financial statements and the notes thereto included in
the Company's 1997 Annual Report on Form 10-K.
Reclassifications of prior year data have been made, where appropriate,
to conform to the 1998 presentation.
(2) EXTRAORDINARY CHARGE:
During the first quarter of 1998, the Company recorded an after-tax
extraordinary charge of $3.4 million, reflecting premiums paid on the
redemption of high-coupon debt prior to stated maturity.
(3) DEBT:
In February 1998, the Company issued $300 million of 6.86% Series E
Debentures, due 2028. The net proceeds were used to finance the
Company's construction program and for general corporate purposes. The
Company recognized an interest rate hedge loss of approximately $8.8
million on the settlement of forward contracts related to that debt
issuance. The loss is being amortized over the life of the associated
refinanced debt.
(4) RECENT ACCOUNTING PRONOUNCEMENTS:
Computer Software
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1 defines internal-use software and establishes accounting
standards for the costs of such software. The Company is currently
assessing the impact of adopting SOP 98-1, and intends to implement as
of January 1, 1999.
11
<PAGE> 13
GTE Florida Incorporated and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. The Company has not yet assessed the impact
of adopting FAS 133.
12
<PAGE> 14
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 second quarter of
1998.
13
<PAGE> 15
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: August 13, 1998 /s/ STEPHEN L. SHORE
---------------------- --------------------------------
Stephen L. Shore
Controller
(Principal Accounting Officer)
14
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------------- -----------------------------------------------------------------------------------------
<S> <C>
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 Subsidiaries
STATEMENT OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1998(a)
---------------- ----------------
<S> <C> <C>
Net earnings available for fixed charges:
Income before extraordinary charge $ 79,170 $ 79,170
Add - Income taxes 48,559 48,559
- Fixed charges 94,794 40,214
---------------- ----------------
Adjusted earnings $ 222,523 $ 167,943
================ ================
Fixed charges:
Interest expense $ 88,821 $ 34,241
Portion of rent expense
representing interest 5,973 5,973
---------------- ----------------
Adjusted fixed charges $ 94,794 $ 40,214
================ ================
RATIO OF EARNINGS TO FIXED CHARGES 2.35 4.18
</TABLE>
(a) Excludes $54.6 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 approximately equal to the
interest income received by the Company on affiliate notes between GTE
Funding and such 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 69,581
<SECURITIES> 0
<RECEIVABLES> 284,317
<ALLOWANCES> 28,294
<INVENTORY> 32,447
<CURRENT-ASSETS> 1,618,351
<PP&E> 4,570,116
<DEPRECIATION> 2,617,440
<TOTAL-ASSETS> 3,789,246
<CURRENT-LIABILITIES> 1,763,402
<BONDS> 889,299
0
21,195
<COMMON> 585,000
<OTHER-SE> 120,501
<TOTAL-LIABILITY-AND-EQUITY> 3,789,246
<SALES> 778,919
<TOTAL-REVENUES> 778,919
<CGS> 310,001
<TOTAL-COSTS> 616,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,352
<INCOME-PRETAX> 127,729
<INCOME-TAX> 48,559
<INCOME-CONTINUING> 79,170
<DISCONTINUED> 0
<EXTRAORDINARY> 3,400
<CHANGES> 0
<NET-INCOME> 75,770
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
