UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark one) |
||||
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 |
|||
| 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
VERIZON FLORIDA INC.
| A Florida Corporation |
I.R.S. Employer Identification No. 59-0397520 |
1095 Avenue of the Americas, Room 3868, New York, New York 10036
Telephone Number (212) 395-2121
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Verizon Florida Inc.
| Page | ||||
| PART I |
Financial Information |
|||
| Item 1. |
Financial Statements |
|||
| Three Months Ended March 31, 2003 and 2002 |
1 | |||
| March 31, 2003 and December 31, 2002 |
2 | |||
| Three Months Ended March 31, 2003 and 2002 |
4 | |||
| 5 | ||||
| Item 2. |
Management’s Discussion and Analysis of Results of Operations |
9 | ||
| Item 4. |
15 | |||
| PART II |
Other Information |
|||
| Item 6. |
16 | |||
| 17 | ||||
| 18 | ||||
| 20 | ||||
Verizon Florida Inc.
PART I – FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended March 31, | ||||||
| (Dollars in Millions) (Unaudited) |
2003 |
2002 | ||||
| Operating Revenues (including $27.1 and $21.2 from affiliates) |
$ |
395.6 |
$ |
404.1 | ||
| Operating Expenses (including $76.1 and $65.7 to affiliates) |
||||||
| Cost of services and sales (exclusive of items shown below) |
|
119.2 |
|
108.0 | ||
| Selling, general and administrative expense |
|
101.4 |
|
93.6 | ||
| Depreciation and amortization |
|
81.1 |
|
83.7 | ||
| Total Operating Expenses |
|
301.7 |
|
285.3 | ||
| Operating Income |
|
93.9 |
|
118.8 | ||
| Other income, net (including $4.7 and $10.2 from affiliates) |
|
5.0 |
|
10.3 | ||
| Interest expense (including $10.1 and $8.4 to affiliates) |
|
23.9 |
|
26.7 | ||
| Income before provision for income taxes and cumulative effect of change in accounting principle |
|
75.0 |
|
102.4 | ||
| Provision for income taxes |
|
29.0 |
|
39.5 | ||
| Income Before Cumulative Effect of Change In Accounting Principle |
|
46.0 |
|
62.9 | ||
| Cumulative effect of change in accounting principle, net of tax |
|
46.0 |
|
— | ||
| Net Income |
$ |
92.0 |
$ |
62.9 | ||
See Notes to Condensed Consolidated Financial Statements.
1
Verizon Florida Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
| (Dollars in Millions) |
March 31, |
December 31, | ||||
| (Unaudited) |
||||||
| Current assets |
||||||
| Cash |
$ |
43.5 |
$ |
40.2 | ||
| Short-term investments |
|
45.1 |
|
67.1 | ||
| Notes receivable from affiliates |
|
1,006.4 |
|
843.1 | ||
| Accounts receivable: |
||||||
| Trade and other, net of allowances for uncollectibles of $61.8 and $61.8 |
|
194.6 |
|
221.0 | ||
| Affiliates |
|
46.1 |
|
178.5 | ||
| Material and supplies |
|
37.9 |
|
31.9 | ||
| Prepaid expenses |
|
1.8 |
|
17.4 | ||
| Deferred income taxes |
|
13.4 |
|
10.4 | ||
| Other |
|
49.8 |
|
50.2 | ||
|
|
1,438.6 |
|
1,459.8 | |||
| Plant, property and equipment |
|
5,386.8 |
|
5,354.3 | ||
| Less accumulated depreciation |
|
3,333.0 |
|
3,349.9 | ||
|
|
2,053.8 |
|
2,004.4 | |||
| Prepaid pension asset |
|
453.6 |
|
449.2 | ||
| Other assets |
|
106.0 |
|
108.0 | ||
| Total assets |
$ |
4,052.0 |
$ |
4,021.4 | ||
See Notes to Condensed Consolidated Financial Statements.
2
Verizon Florida Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREOWNER’S INVESTMENT
| (Dollars in Millions) |
March 31, 2003 |
December 31, 2002 | ||||
| (Unaudited) |
||||||
| Current liabilities |
||||||
| Debt maturing within one year: |
||||||
| Notes payable to affiliates |
$ |
997.8 |
$ |
810.9 | ||
| Accounts payable and accrued liabilities: |
||||||
| Affiliates |
|
84.4 |
|
313.5 | ||
| Other |
|
95.3 |
|
109.0 | ||
| Other current liabilities |
|
168.6 |
|
170.4 | ||
|
|
1,346.1 |
|
1,403.8 | |||
| Long-term debt |
|
1,040.4 |
|
1,040.4 | ||
| Employee benefit obligations |
|
290.6 |
|
284.5 | ||
| Deferred credits and other liabilities |
||||||
| Deferred income taxes |
|
363.3 |
|
322.3 | ||
| Other |
|
92.5 |
|
96.1 | ||
|
|
455.8 |
|
418.4 | |||
| Shareowner’s investment |
||||||
| Common stock – one share, without par value |
|
585.0 |
|
585.0 | ||
| Contributed capital |
|
191.3 |
|
191.2 | ||
| Reinvested earnings |
|
142.8 |
|
98.1 | ||
|
|
919.1 |
|
874.3 | |||
| Total liabilities and shareowner’s investment |
$ |
4,052.0 |
$ |
4,021.4 | ||
See Notes to Condensed Consolidated Financial Statements.
3
Verizon Florida Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, |
||||||||
| (Dollars in Millions) (Unaudited) |
2003 |
2002 |
||||||
| Net Cash Provided by Operating Activities |
$ |
60.8 |
|
$ |
104.8 |
| ||
| Cash Flows from Investing Activities |
||||||||
| Capital expenditures (including capitalized network and non-network software) |
|
(52.6 |
) |
|
(80.1 |
) | ||
| Net change in short-term investments |
|
22.0 |
|
|
21.4 |
| ||
| Change in notes receivable from affiliates |
|
(163.3 |
) |
|
(163.8 |
) | ||
| Other, net |
|
(.1 |
) |
|
.1 |
| ||
| Net cash used in investing activities |
|
(194.0 |
) |
|
(222.4 |
) | ||
| Cash Flows from Financing Activities |
||||||||
| Change in notes payable to affiliates |
|
186.9 |
|
|
95.9 |
| ||
| Dividends paid |
|
(47.3 |
) |
|
(45.0 |
) | ||
| Net change in outstanding checks drawn on controlled disbursement accounts |
|
(3.1 |
) |
|
15.3 |
| ||
| Net cash provided by financing activities |
|
136.5 |
|
|
66.2 |
| ||
| Net change in cash |
|
3.3 |
|
|
(51.4 |
) | ||
| Cash, beginning of period |
|
40.2 |
|
|
89.6 |
| ||
| Cash, end of period |
$ |
43.5 |
|
$ |
38.2 |
| ||
See Notes to Condensed Consolidated Financial Statements.
4
Verizon Florida Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Verizon Florida Inc. is a wholly owned subsidiary of GTE Corporation (GTE), which is a wholly owned subsidiary of Verizon Communications Inc. (Verizon). The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial position for the interim periods shown including normal recurring accruals. The results for the interim periods are not necessarily indicative of results for the full year. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements included in our 2002 Annual Report on Form 10-K.
We have reclassified certain amounts from prior year’s data to conform to the 2003 presentation.
2. Adoption of New Accounting Standards
Stock-Based Compensation
We participate in employee compensation plans sponsored by Verizon with awards of Verizon common stock. Prior to 2003, Verizon accounted for stock-based employee compensation under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and followed the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.” In accordance with APB Opinion No. 25, no stock-based employee compensation expense for our fixed stock option plans is reflected in our 2002 net income as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.
Effective January 1, 2003, Verizon adopted the fair value recognition provisions of SFAS No. 123, using the prospective method (as permitted under SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”) to all new awards granted, modified or settled after January 1, 2003. Under the prospective method, employee compensation expense in the first year will be recognized for new awards granted, modified, or settled. The options generally vest over a term of three years, therefore the expense related to stock-based employee compensation included in the determination of net income for the first quarter of 2003 is less than what would have been recorded if the fair value method was also applied to previously issued awards. The following table illustrates the effect on net income if the fair value method had been applied to all outstanding and unvested options in each period:
| Three Months Ended |
||||||||
| (Dollars in Millions) |
2003 |
2002 |
||||||
| Net income, as reported |
$ |
92.0 |
|
$ |
62.9 |
| ||
| Add: Stock option-related employee compensation expense included in reported net income, net of related tax effects |
|
— |
|
|
— |
| ||
| Deduct: Total stock option-related employee compensation expense determined under fair value based method for all awards, net of related tax effects |
|
(.1 |
) |
|
(1.0 |
) | ||
| Pro forma net income |
$ |
91.9 |
|
$ |
61.9 |
| ||
After-tax compensation expense for other stock-based compensation included in net income as reported for the three months ended March 31, 2003 and 2002 was not material.
Asset Retirement Obligations
Effective January 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” This standard provides the accounting for the cost of legal obligations associated with the retirement of long-lived assets. SFAS No. 143 requires that companies recognize the fair value of a liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as part of the book value of the long-lived asset. We have determined that we do not have a material legal obligation to remove long-lived assets as describ