UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7784
CENTURY TELEPHONE ENTERPRISES, INC.
A Louisiana Corporation I.R.S. Employer Identification
No. 72-0651161
100 Century Park Drive, Monroe, Louisiana 71203
Telephone number (318) 388-9500
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
par value $1.00
Exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of February 28, 1995, the aggregate market value of voting stock held
by non-affiliates (affiliates being for these purposes only directors
and executive officers) was approximately $1.8 billion.
As of February 28, 1995, there were 58,204,027 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement prepared in connection with the 1995
annual meeting of shareholders are incorporated in Part III of this
Report.
<PAGE>
PART I
Item 1. Business
General. Century Telephone Enterprises, Inc. ("Century") is a regional
diversified telecommunications company that is primarily engaged in
providing traditional telephone services and cellular telephone
communications services. For the year ended December 31, 1994, telephone
operations and mobile communications operations (substantially all of
which are comprised of the Company's cellular telephone operations)
provided 72% and 28%, respectively, of the consolidated revenues of
Century and its subsidiaries (the "Company"). All of the Company's
operations are conducted within the continental United States.
At December 31, 1994 the Company's telephone subsidiaries operated over
454,000 telephone access lines, primarily in rural, suburban and small
urban areas in 14 states, with the largest customer bases located in
Wisconsin, Louisiana, Michigan and Ohio. According to published sources,
the Company is the fifteenth largest local exchange telephone company in
the United States based on the number of access lines served.
Whenever used herein with respect to the Company, the term "pops" means
the population of licensed cellular telephone markets (based on
independent third-party population estimates) multiplied by the Company's
proportionate equity interests in the licensed operators thereof. The
term "MSA" means a Metropolitan Statistical Area for which the Federal
Communications Commission (the "FCC") has granted a cellular operating
license. The term "RSA" means a Rural Service Area for which the FCC has
granted a cellular operating license. The term "wireline license" refers
to the cellular operating license initially reserved by the FCC for
companies providing local telephone service in the licensed market and the
term "non-wireline license" refers to the license initially reserved for
licensees unaffiliated with such local telephone companies.
At December 31, 1994 the Company, through its cellular operations,
owned approximately 7.1 million pops (which includes approximately 300,000
pops the Company either sold during the first quarter of 1995 or which are
subject to sale pursuant to definitive agreements) in 28 MSAs, primarily
concentrated in Michigan, Louisiana, Mississippi and Texas, and 31 RSAs,
most of which are in Michigan, Louisiana and Arkansas. The Company is the
majority owner and operator in 19 of the MSAs and 12 of the RSAs, which
collectively represent 5.5 million pops, and has minority interests in the
other MSAs and RSAs, which collectively represent 1.6 million pops. Of
the Company's 7.1 million pops, approximately 76% are attributable to the
Company's MSA interests, with the balance attributable to its RSA
interests. According to data derived from published sources, at December
31, 1994 the Company was the seventeenth largest cellular telephone
company in the United States based on the Company's owned pops. At
December 31, 1994, the Company's majority-owned and operated cellular
systems had more than 211,000 cellular subscribers. Except for five MSAs,
all of the cellular systems operated by the Company are operated under
wireline licenses.
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Recent Acquisitions and Dispositions. In February 1994 the Company
acquired Celutel, Inc. ("Celutel"), which currently provides cellular
mobile telephone services to approximately 35,000 customers in three MSA
non-wireline cellular markets in Mississippi and two MSA non-wireline
cellular markets in Texas which have a combined population of 1.5 million.
Celutel's share of these pops is approximately 1.2 million. In March 1994
Century acquired a local exchange telephone company in Michigan which
currently serves approximately 2,600 telephone access lines and which owns
a 13% interest in a cellular partnership which has been operated by the
Company for several years. In November 1994 the Company exchanged its
Minnesota RSA 6 non-wireline cellular system for a 100% interest in the
Pine Bluff, Arkansas MSA wireline cellular system plus $10.5 million cash.
The Pine Bluff MSA has a population of approximately 85,000. In January
1995 Century acquired Tele-Max, Inc. and its affiliates. In connection
with this acquisition, Century acquired approximately 5,300 telephone
access lines in a suburban community north of Dallas, Texas and a one-half
of one percent interest in the Dallas MSA wireline cellular system (which
represents approximately 20,000 pops). In connection with its exercise of
first refusal purchase rights during 1994, the Company increased its
ownership in markets in which it already holds interests by approximately
35,000 pops.
In accordance with its strategy of clustering its telephone and
cellular businesses, Century sold its paging operations in October 1994.
In addition, during late 1994 the Company entered into definitive
agreements to sell its ownership interests in several RSAs located
primarily in western states and two MSAs located in the midwest, which in
the aggregate represent approximately 300,000 pops. Certain of these
transactions were consumated during the first quarter of 1995.
The Company is continually evaluating the possibility of acquiring
additional telephone access lines and cellular interests in exchange for
cash, securities or both. Although the Company's primary focus will
continue to be on acquiring telephone and cellular interests that are
proximate to its properties or that serve a customer base large enough for
the Company to operate efficiently, other communications interests may
also be acquired.
Other. The Company also provides long distance, operator and
interactive services in certain local and regional markets, as well as
certain printing and related services, and has recently entered the
competitive access business. During 1994 the Company's newly-formed
competitive access subsidiary obtained franchises and rights-of-way to
build a fiber optic network which will allow the Company to offer voice,
data and certain video services in Fort Worth and Arlington, Texas, along
with a portion of downtown Dallas. Century expects to begin offering
these services in the second quarter of 1995. The Company's competitive
access subsidiary has also obtained a franchise to provide similar
services in Austin, Texas and is currently attempting to obtain rights-of-
way in this market. The results of all of these other operations are
recorded for financial reporting purposes in "Other income and expense".
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<PAGE>
As of December 31, 1994, the Company employed approximately 3,000
persons, of which approximately 200 employees located in Ohio are covered
by a three-year collective bargaining agreement between the Company and
the Communications Workers of America. The agreement lapses on March 30,
1997.
Century was incorporated under Louisiana law in 1968 to serve as a
holding company for several telephone companies acquired over the previous
15 to 20 years. Century's principal executive offices are located at 100
Century Park Drive, Monroe, Louisiana 71203 and its telephone number is
(318) 388-9500.
TELEPHONE OPERATIONS
The Company is the fifteenth largest local exchange telephone company
in the United States, based on the more than 454,000 access lines it
served at December 31, 1994. Currently, the Company operates over 500
central office and remote switching centers in its telephone operating
areas. Over the past decade, Century has installed digital switching
platforms throughout much of its switching network. At December 31, 1994,
95% of Century's total access lines were digitally switched. Through its
operating telephone subsidiaries, Century provides services to
predominately rural, suburban and small urban markets in 14 states. The
table below sets forth certain information with respect to Century's
access lines as of December 31, 1994:
<TABLE>
<CAPTION>
Number of Percent of Percent
State access lines access lines digital
------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin 98,323 22% 92%
Louisiana 84,785 19 98
Michigan 80,032 18 100
Ohio 70,436 15 100
Arkansas 37,554 8 83
Texas 28,741 6 100
Tennessee 21,343 5 100
Mississippi 13,062 3 100
Colorado 5,763 1 100
New Mexico 4,713 1 74
Indiana 4,610 1 100
Idaho 3,949 1 100
Arizona 1,469 0 0
Iowa 183 0 100
----------------------------------------------------------------
454,963 100% 95%
================================================================
</TABLE>
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<PAGE>
As indicated in the following table, Century has experienced growth
in its telephone operations over the past several years, a substantial
portion of which was attributable to acquisitions of other telephone
companies and to the expansion of services:
Year Ended or As of December 31,
-----------------------------------------------------------------------
1994 1993 1992 1991
-----------------------------------------------------------------------
(Dollars in thousands)
Access lines 454,963 434,691 397,300 314,819
% Residential 79% 80 81 81
% Business 21% 20 19 19
Operating revenues $ 389,438 348,485 297,510 235,796
Capital expenditures $ 152,336 131,180 108,974 73,913
Future growth in telephone operations is expected to be derived from
(i) acquiring additional telephone companies, (ii) providing service to
new customers, (iii) upgrading existing customers to higher grades of
service, (iv) increasing network usage and (v) providing additional
services made possible by advances in technology and changes in
regulation. For information on developing competitive trends, see "-
Regulation and Competition."
Services
The Company's telephone subsidiaries derive revenue from providing (i)
local telephone services, (ii) network access and long distance services
and (iii) other related services. The following table reflects the
percentage of telephone operating revenues derived from these respective
services:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Local service 25.7% 25.4 26.3
Network access and long distance 62.6 62.3 61.4
Other 11.7 12.3 12.3
-------------------------------------------------------------------------
100.0% 100.0 100.0
=========================================================================
</TABLE>
Local service revenues are generated by the provision of local exchange
telephone services in the Company's franchised service areas.
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<PAGE>
Network access and long distance revenues primarily relate to services
provided by the Company to interexchange carriers (long distance carriers)
in connection with the use of the Company's facilities to originate and
complete interstate and intrastate long distance telephone calls.
Substantially all of the Company's interstate network access revenues are
derived through pooling arrangements administered by the National Exchange
Carrier Association ("NECA"). NECA receives access charges billed by the
Company and other participating local exchange carriers ("LECs") to
interstate long distance carriers and other LEC customers for use of the
participating LECs' local exchange networks to complete long distance
calls and subsequently distributes these revenues to such LECs based on
cost separation studies or average schedule settlement agreements. The
charges billed to the long distance carriers and other LEC customers are
based on tariffed access rates filed with the FCC by NECA on behalf of the
Company and other participating LECs. Interstate revenues as a percentage
of telephone operating revenues amounted to 33.7%, 32.1% and 31.4% in
1994, 1993 and 1992, respectively.
Certain of the Company's intrastate network access revenues are derived
through access charges billed by the Company directly to intrastate long
distance carriers and other LEC customers. Such intrastate network access
charges are based on access tariffs which are subject to state regulatory
commission approval. Additionally, certain of the Company's intrastate
network access revenues, along with intrastate long distance revenues, are
derived through state pooling arrangements and are determined based on
cost separation studies or special settlement arrangements.
The installation of digital switches and related software continues to
be an important component of the Company's growth strategy because it
allows the Company to offer new services (such as call forwarding,
conference calling, caller identification, selective call ringing and call
waiting) and to thereby increase utilization of existing access lines. In
1994 the Company continued to expand its list of premium services offered
in certain service areas and aggressively marketed these services. In
addition, with digital switching the Company has been able to construct
centralized electronic monitoring facilities that allow employees to
detect operating malfunctions in digital switches and, in many cases, to
correct the malfunctions without a site visit by the Company's personnel,
thereby reducing maintenance costs.
The Company is installing fiber optic cable in certain areas in which
it operates and has provided alternative routing of telephone service over
fiber optic cable networks in several of its strategic operating areas.
At December 31, 1994, the Company had approximately 1,360 miles of fiber
optic cable in place.
Other revenues include revenues related to (i) leasing, selling,
installing, maintaining and repairing customer premise telecommunications
equipment and wiring, (ii) providing billing and collection services for
interexchange carriers, (iii) leasing network facilities and (iv)
participating in the publication of local directories. Certain large
telecommunications companies for which the Company currently provides
billing and
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<PAGE>
collection services have indicated their desire to reduce
their billing and collection expenses, which may lead to reduced future
billing and collection revenues.
For further information on the regulation of the Company's revenues,
see "-Regulation and Competition."
Federal Financing Programs
Certain of the Company's telephone subsidiaries receive long-term
financing from the Rural Utilities Service ("RUS") (formerly the Rural
Electrification Administration or REA), the Rural Telephone Bank ("RTB")
and the Federal Financing Bank ("FFB"). The RUS has made long-term loans
to telephone companies since 1949 for the purpose of improving telephone
service in rural areas. The RUS continues to make new loans at interest
rates that range from 5% to 7% based on borrower qualifications and the
cost of money to the United States government. The RTB, established in
1971, makes long-term loans at interest rates based on its average cost of
funds as determined by statutory formula (such rates ranged from 6.05% to
6.35% for the fiscal year ended September 30, 1994), and in some cases
makes loans concurrently with RUS loans. In addition, the RUS guarantees
certain loans made to telephone companies by the FFB or other qualified
lenders. A significant portion of the Company's telephone plant is
pledged or mortgaged to secure obligations of the Company's telephone
subsidiaries to the RUS, RTB and FFB. The amount of common stock
dividends that may be paid by the Company's telephone subsidiaries is
limited by certain financial requirements set forth in the financing
agreements.
Certain of the Company's telephone subsidiaries have made applications
for additional loans from the RUS and intend to make further applications
as needs arise. There is no assurance that these applications will be
accepted or that the terms or interest rates of any future loan
commitments will remain favorable. Federal budget proposals which could
significantly reduce or eliminate the availability of new loan commitments
under the RUS and RTB programs were considered in recent years and are
expected to continue to be considered. If the Company's telephone
subsidiaries are unable to borrow additional funds through the RUS and RTB
programs and are forced to borrow from conventional lenders at market
rates, the Company's cost of new loans might increase.
For additional information regarding the Company's financing, see the
Company's consolidated financial statements included in Item 8 herein.
Regulation and Competition
Traditionally, LECs have operated as regulated monopolies.
Consequently, the majority of the Company's telephone operations are
regulated extensively by various state regulatory agencies (generally
called public
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<PAGE>
service commissions or public utility commissions) and by the FCC. As
discussed in greater detail below, various aspects of federal and state
regulation have recently been subject to extensive modification and re-
examination, which has generally relaxed the regulation of LECs. As
further discussed below, several legislative and regulatory initiatives
and technological changes have allowed competition in traditionally
monopolistic segments of the industry. Although Century anticipates that
these trends towards relaxed regulation and increased competition will
continue, the form and degree of future regulation and competition is
unknown.
State Regulation. The local service rates and intrastate access
charges of substantially all of the Company's telephone subsidiaries are
regulated by state regulatory commissions that traditionally have
regulated pricing through "rate of return" regulation that focuses on
authorized levels of earnings by LECs. Most of these commissions also (i)
regulate the purchase and sale of LECs, (ii) prescribe depreciation rates
and certain accounting procedures and (iii) regulate various other
matters, including certain service standards and operating procedures. In
certain states, construction and/or financing plans are also subject to
regulatory approval.
In recent years, Ohio, Michigan, Wisconsin, Louisiana and other state
legislatures and regulatory commissions have either begun to relax the
regulation of LECs or have announced their intention to review such
regulation, and it is expected that this trend will continue. This
relaxed regulatory oversight of certain of the Company's telephone
operations may allow the Company to offer new and competitive services
faster than under the traditional regulatory process. Coincident with
these efforts is the introduction of competition into traditionally
monopolistic segments of the industry. For a discussion of legislative,
regulatory and technological changes that have introduced competition into
the local exchange industry, see "-Developments Affecting Competition."
Substantially all of the state regulatory commissions have statutory
authority, the specific limits of which vary, to initiate and conduct
earnings reviews of the LECs that they regulate. As part of the movement
towards deregulation, several states are moving away from traditional rate
of return regulation towards price cap regulation and incentive regulation
(which are similar to the FCC regulations discussed below), and are
actively encouraging larger LECs to adopt these newer forms of price
regulation. The continuation of this trend may lead to fewer earnings
reviews in the future. Currently, however, most of the Company's LECs
continue to be regulated under rate of return regulation. After
initiating an informal earnings review during 1993 of all independent LECs
in Louisiana, the Louisiana Public Service Commission ("LPSC") recently
docketed a formal earnings review of such carriers. In addition, the
Public Service Commission of Wisconsin ("PSCW") is examining transactions
in which Century and its service subsidiaries provided various services
and materials to the Company's Wisconsin LECs. There is no assurance that
these reviews (or any other future review in these or other states) will
not lead to future revenue reductions or customer refunds. Moreover, in
light of the movement away from traditional rate of return regulation, no
assurance can be given that the Company's LECs will continue to earn the
same rate of return that they achieved in recent years.
7
<PAGE>
FCC Regulation. The FCC regulates the interstate services provided by
the Company's telephone subsidiaries primarily by regulating the
interstate access charges that are billed to interexchange carriers and
other LEC customers by the Company for use of its local network in
connection with the origination and termination of interstate telephone
calls. Additionally, the FCC has prescribed certain rules and regulations
for telephone companies, including regulations regarding the use of radio
frequencies; a uniform system of accounts; and rules regarding the
separation of costs between jurisdictions and, ultimately, between
services.
Effective January 1, 1991 the FCC adopted price-cap regulation relating
to interstate access rates for the Regional Bell Operating Companies
("RBOCs") and GTE. An annual opportunity to elect price-cap regulation is
available for other LECs. Under price-cap regulation, limits imposed on a
company's interstate rates will be adjusted periodically to reflect
inflation, productivity improvement and changes in certain non-
controllable costs. In May 1993 the FCC adopted an optional incentive
regulatory plan for LECs not subject to price-cap regulation. A LEC
electing the optional incentive regulatory plan would, among other things,
file tariffs based primarily on historical costs and not be allowed to
participate in the relevant NECA pooling arrangements. The Company has
not elected price-cap regulation or the incentive regulatory plan, but
will continue to evaluate its options on a periodic basis. Consequently,
the Company's telephone subsidiaries' authorized interstate access rate of
return is 11.25%, which is the authorized rate established by the FCC for
LECs not governed by price-cap regulation or the optional incentive
regulatory plan.
High-Cost Support Funds, Revenue Pools and Related Matters. A
significant number of the Company's telephone subsidiaries recover a
portion of their costs under federal and state cost recovery mechanisms
that traditionally have allowed LECs serving small communities and rural
areas to provide access to telecommunications services reasonably
comparable to those available in urban areas and at reasonably comparable
prices.
The FCC and certain state regulatory commissions have recently explored
or implemented initiatives to reduce, or at least review, the funding of
certain of these cost recovery mechanisms. In 1993 the eight-year phase-
in of the FCC's Universal Service Fund ("USF") was completed. In December
1993 the FCC adopted interim provisions which place certain limitations,
including a cap, on the USF growth rate during 1994 and 1995. The Company
anticipates that revenues from the USF under these interim provisions will
continue to increase in the near term, but at a lesser percentage rate
than that associated with recent prior periods. Since adopting these
interim measures, the FCC has instituted proceedings to study the
effectiveness of its high-cost assistance programs. In addition, certain
bills recently considered by Congress (which are further discussed below)
have sought review of federal high-cost assistance programs. Accordingly,
there is no assurance that cost recovery through these programs will
remain at current levels.
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Some of the Company's telephone subsidiaries operate in states where
traditional cost recovery mechanisms, including rate structures, are under
evaluation or have been modified. There can be no assurance that these
states will continue to provide for cost recovery at current levels.
As the customer bases of the Company's LECs grow, the revenues
determined under the FCC's cost separation studies may decrease as a
result of such growth. Under a graduated scale used in such studies, LECs
serving between 50,000 and 20,000 customers, between 20,000 and 10,000
customers, and less than 10,000 customers receive increasingly higher
weightings which result in higher interstate access revenues.
Most of the Company's LECs concur with the common line and traffic
sensitive tariffs filed by NECA and participate in the access revenue
pools administered by NECA for interstate services. All of the long
distance and intrastate network access revenues of the Company's LECs are
based on access charges, cost separation studies or special settlement
arrangements. See "-Services."
Certain long distance carriers continue to request that certain of the
Company's LECs reduce intrastate access tariffed rates. In March 1994 a
major long distance carrier filed a petition with the LPSC requesting that
the LPSC investigate and lower the rates for intrastate access charges
billed to long distance carriers by certain LECs, including the Company's
LECs that operate in Louisiana. There is no assurance that these requests
will not result in decreased intrastate access revenues.
Developments Affecting Competition. The communications industry is
currently undergoing fundamental changes which may have a significant
impact on the future operations and financial performance of
telecommunications companies. Primarily as a result of legislative and
regulatory initiatives and technological changes, competition has been
introduced and encouraged in certain sectors of the telephone industry,
including interstate and intrastate toll, special and switched access
services, pay phones, customer premise equipment and, most recently, local
service. As a result, the number of companies offering competitive
services has increased. As discussed below, far-reaching federal
legislation is currently being considered which could pre-empt current
initiatives of the FCC, state legislatures and state regulatory
commissions to promote competition, all of which are likely to continue if
federal legislation is delayed or defeated.
In 1994 the United States House of Representatives passed two
telecommunications bills that proposed to substantially alter the
regulatory framework of the telecommunications industry by, among other
things, promoting local exchange competition and removing certain barriers
of entry to several lines of telecommunications businesses. No companion
bill passed in the United States Senate. Legislation is expected to be
considered in 1995 that may promote competition and deregulation to a
greater degree than the bills that passed the House in 1994. Draft bills
currently pending before the Senate would, among other things, (i)
obligate LECs, upon request, to negotiate interconnection agreements
permitting competitors to use the LECs' facilities, (ii) authorize a joint
board to study and make recommendations regarding federal universal
service
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<PAGE>
systems, (iii) mandate states to remove all regulations that
prohibit any entity from providing telecommunications services and to
eliminate any rate-of-return regulations relating to common carriers in
markets where the FCC determines that local networks are open and
competitive, (iv) permit common carriers to provide video programming in
their existing markets, and (v) remove, under certain circumstances,
restrictions that prevent the RBOCs from providing long distance and other
services. There is no assurance that any such bills will be enacted, or
that the terms of any legislation ultimately enacted will not differ
materially from those outlined above. While it is currently impossible to
assess the ultimate effect of these and related initiatives, there can be
no assurance that they will not materially affect the Company's
operations.
Certain states have taken legislative and/or regulatory steps to
introduce competition into the local exchange business. Since January 1,
1995, customers in one upstate New York market have been permitted to
choose their local telephone service provider pursuant to a plan approved
in late 1994 by the New York Public Service Commission. Cable companies
are also providing, or preparing to provide, telephone service in a
limited number of other markets under plans approved by state regulators.
In 1994 Wisconsin, a state in which the Company operates, enacted
legislation which, among other things, requires the PSCW to authorize
cable television operators to provide local exchange service in larger
markets, including one of the Company's markets. Although no cable
television operator has requested authorization to provide local exchange
service in the Company's market, the Company anticipates that such a
request will be forthcoming. The Company anticipates that an increasing
number of states will, to some degree, allow local service competition
with LECs. Largely as a result of these trends towards liberalized
regulation, several well-established interexchange carriers and cable
television companies have accelerated their development of networks and
facilities designed to provide local exchange services, principally in
larger cities.
In 1992 the FCC took a step toward introducing competition in the local
exchange access business by ordering that competitive access providers,
interexchange carriers and others have the right to directly interconnect
facilities to the central offices of certain larger (Tier One) telephone
companies (which do not include the Company's LECs) for the provision of
interstate special transport access services. Although this 1992 order
was overturned by a federal appellate court in mid-1994, the FCC has
requested Tier One LECs to file tariffs for a less intrusive form of co-
location. Effective February 1994, the FCC ordered Tier One LECs to allow
competing carriers to interconnect to their local exchange networks for
the purpose of providing switched access transport services. The intent
of these orders and other related FCC decisions is to allow interstate
access competition with LECs and provide LECs with limited pricing
flexibility to enable LECs to better respond to the resulting competition.
Principally as a result of these and other regulatory actions, competition
from competitive access providers and others has increased and is expected
to continue to increase. Competitive access providers, which originally
were formed in the 1980's to provide redundancy services, now provide
access competition with LECs in most larger urban areas, principally by
targeting large business customers. One competitive access provider has
been granted co-carrier status to provide local telephone service in New
York City, and similar requests are expected to be made in other states.
Although there has
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been activity by competitive access providers in certain of the
Company's operating areas, such activity has thus far not
significantly affected the Company. The Company expects to increasingly
face competition from competitive access providers in its operating areas
located near larger urban areas and may face similar competition in its
other operating areas.
In addition to receiving services directly from competitive access
providers, interexchange carriers and other users of toll service may seek
other means to bypass LECs' switching services and local distribution
facilities, particularly if services are not strategically priced. There
are several ways which users of toll service may bypass the Company's
switching services. First, users may construct, modify or lease
facilities to transmit their traffic directly to an interexchange carrier.
Cable television companies, in particular, may be able to modify their
networks to partially or completely bypass the Company's local network.
Second, certain interexchange carriers provide services which allow users
to divert their traffic from LECs' usage-sensitive services to their flat-
rate services. Third, users may choose to use mobile communications
services to bypass LECs' switching services. Within the past two years,
each of the three largest interexchange carriers in the United States has
acquired or sought to acquire interests in mobile communications
companies, presumably in part to obtain bypass capabilities. Although
certain of the Company's telephone subsidiaries have experienced a loss of
traffic to such bypass, the impact of such loss on revenues has not been
significant. The Company and the LEC industry are seeking to address
bypass principally by adopting flexible pricing of access services where
appropriate and to the extent permitted by regulatory agencies. No
assurance can be given as to the ultimate outcome of these efforts.
Currently, cellular communications services complement traditional LEC
services. However, as the mobile communications industry matures, the
Company anticipates that existing and emerging mobile communications
technologies will increasingly compete with traditional LEC services.
Technological and regulatory developments in cellular telephone, personal
communications services, digital microwave, coaxial cable, fiber optics and
other wired and wireless technologies are expected to further permit the
development of alternatives to traditional landline services. For further
information on certain of these developments, see "Mobile Communications
Operations - Regulation and Competition."
In connection with the well-publicized convergence of
telecommunications, cable, video, computer and entertainment businesses,
several large companies have announced plans to offer products that would
significantly enhance current communications and data transmission services
and, in some instances, introduce new two-way video, entertainment, data,
consumer and other multimedia services. In particular, several large cable
television companies have announced plans that, if successfully
implemented, could provide significant competition with LECs' traditional
services. Other companies with wireline experience (including electric
utilities) are expected to explore opportunities in this market, along with
wireless companies and other emerging technology companies. Although the
development of new multimedia services is expected to initially have a
greater effect on larger urban areas, no assurance can be given as to how
the offering of these products or
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services by others will affect the Company. For information on the
effects of these developments on the Company's cellular operations,
see "Mobile Communications Operations - Regulation and Competition."
To the extent that the telephone industry is increasingly opened to
competition by federal or state initiatives, the size and resources of each
respective competitor may increasingly influence its prospects. Many
companies currently providing or planning to provide competitive
telecommunication services have greater assets and resources than the
Company, and several are not subject to the same regulatory constraints as
the Company. Moreover, several of these companies have formed joint
ventures or alliances to better prepare themselves for competition.
The Company anticipates that the traditional operations of LECs will be
increasingly impacted by continued technological developments as well as
legislative and regulatory initiatives affecting the ability of LECs to
provide new services and the capability of cable television companies,
interexchange carriers, competitive access providers and others to provide
competitive LEC services. The Company intends to actively monitor these
developments, to observe the effect of emerging competitive trends in
initial test markets (which are expected to be large urban areas) and to
continue to evaluate new business opportunities that may arise out of
future technological, legislative and regulatory developments. Although
competition relating to services traditionally provided solely by LECs is
expected to initially affect large urban areas to a greater extent than
rural, suburban and small urban areas such as those in which the Company
operates, there is no assurance that these developments will not have an
adverse effect on the Company in the future.
MOBILE COMMUNICATIONS OPERATIONS
According to data derived from published sources, at December 31, 1994
the Company was the seventeenth largest cellular telephone company in the
United States based on the Company's owned pops. The number of pops owned
by a cellular operator does not represent the number of users of cellular
service and is not necessarily indicative of the number of potential
subscribers. Rather, this term is frequently used as a basis for
comparing the size of cellular system operators. At December 31, 1994,
the Company owned approximately 7.1 million pops (which includes
approximately 300,000 pops the Company either sold during the first
quarter of 1995 or which are subject to sale pursuant to definitive
agreements), of which approximately 5.4 million (76%) were applicable to
MSAs and approximately 1.7 million (24%) were RSA pops.
Cellular Industry
The cellular telephone industry has been in existence for just over ten
years in the United States. Although the industry is relatively new, it
has grown significantly during this period. According to the Cellular
Telecommunications Industry Association, in February 1995 there were
estimated to be over 25 million cellular
12
<PAGE>
customers across the United States. Cellular service is now available
in substantially all areas of the United States.
Cellular mobile telephone technology was developed in response to
certain limitations of conventional mobile telephone systems. Compared to
such conventional systems, cellular mobile telephone service is capable of
high-quality, high-capacity communications to and from vehicle-mounted and
hand-held radio telephones. While conventional mobile systems limit the
number of people who can utilize the service simultaneously, cellular
systems, if properly designed and equipped, are capable of handling
thousands of calls at any given time and are capable of providing service
to tens of thousands of subscribers in a market.
In a cellular telephone system, the licensed service area is subdivided
into geographic areas, or cells. Each cell has its own transmitter and
receiver that communicates by radio signal with cellular telephones located
within the cell. Each cell is connected by a telephone circuit or
microwave to a Mobile Switching Center ("MSC"), which in turn is connected
to the worldwide telephone network.
Communications within a cellular system are controlled by the MSC
through a transfer process as a cellular telephone user moves from one cell
to another. In this process, when the signal strength of a call declines
to a predetermined level, the MSC determines if the signal strength from an
adjacent cell is greater and, if so, transfers the call to the adjacent
cell. Software which facilitates the transfer between adjacent cells of
different cellular systems using equipment of different manufacturers has
been implemented by the Company in certain markets.
Cellular telephone systems have higher subscriber capacity than
conventional mobile telephone systems because of the substantial frequency
spectrum allocated to these systems by the FCC and because frequencies can
be reused throughout the system. Frequency reuse is possible because the
transmission power of cell site equipment and mobile units is relatively
low. Therefore, signals on the same channel will not interfere with each
other if they are transmitted in cells that are sufficiently far apart.
Reuse multiplies the capacity of channels available to the system operator
and thereby increases the telephone calling capacity.
Until recently, substantially all radio transmissions of cellular
systems were conducted on an analog basis. Technological developments
involving the application of digital radio technology may offer certain
advantages over analog technologies, including expanding the capacity of
mobile communications systems, improving voice clarity, permitting the
introduction of new services, and otherwise making such systems more
efficient, more accessible, more private and eventually less expensive.
Providers of certain services competitive with cellular are currently
incorporating digital technology into their operations, and are expected to
continue to do so in the future. See "-Regulation and Competition-
Developments Affecting Mobile Communications Competition."
13
<PAGE>
In recent years certain cellular carriers have begun to install digital
cellular voice transmission facilities in certain larger markets. During
1993 and 1994 the Company upgraded certain portions of its cellular systems
to be capable of providing digital service in the future; the Company
currently plans to implement digital service in certain markets during 1995
using the TDMA digital standard. The Company will continue to monitor the
development and implementation of this technology to determine when it will
become beneficial for the Company to install digital voice transmission
facilities in other markets. See "-Regulation and Competition-Developments
Affecting Mobile Communications Competition."
Strategy
The Company's business development strategy for its cellular telephone
operations is to secure operating control of service areas that are
geographically clustered. Clustered cellular systems aid the Company's
marketing efforts and provide various operating and service advantages.
Approximately 53% of the Company's pops in markets operated by the Company
are in a single, contiguous cluster of eight MSAs and six RSAs in Michigan;
another 21% are in a cluster of five MSAs and seven RSAs in northern and
central Louisiana, southern Arkansas and eastern Texas. See "-The
Company's Cellular Interests."
Another component of the Company's strategy for cellular operations
includes capturing revenues from roaming service. Roaming service revenues
are derived from calls made in one cellular service area by subscribers
from other service areas. Roaming service is made possible by technical
standards requiring that cellular telephones be functionally compatible
with the cellular systems in all United States market areas. The Company
charges premium rates (compared to rates charged to the Company's
customers) for roaming service provided to most non-Company customers. The
Company's Michigan cellular properties include a significant portion of the
interstate highway corridor between Chicago and Detroit; its Louisiana
properties include an east-west interstate highway and a north-south
interstate highway which intersect in its Louisiana cellular service area;
and its Mississippi properties include two east-west interstate highways,
one of which intersects with a north-south interstate highway in Jackson,
Mississippi.
Marketing
The Company coordinates the marketing strategy for each cellular
system which it operates. The Company's cellular sales force consists of
approximately 250 independent agents, which generate a significant majority
of the Company's new subscribers, and approximately 120 sales employees.
Each sales employee and independent agent solicits cellular customers
exclusively for the Company. Company sales employees are compensated by
salary and commission and independent sales agents are paid commissions.
The Company advertises its services through various means, including direct
mail, billboard, magazine, radio, television and newspaper advertisements.
14
<PAGE>
During 1994 AT&T completed its acquisition of McCaw, the largest
cellular provider in the United States. Subject to certain regulatory
limitations, it is anticipated that AT&T will market McCaw's service under
the AT&T brand name. During 1994 several other large cellular providers
formed joint ventures to pool their cellular operating and marketing
resources.
Services, Customers and System Usage
There are a number of different types of cellular telephones, all of
which are currently compatible with cellular systems nationwide. The
Company sells a full range of vehicle-mounted, transportable, and hand-held
portable cellular telephones. Features offered in the cellular telephones
sold by the Company include hands-free calling, repeat dialing, horn alert
and others.
The Company's customers are able to choose from a variety of packaged
pricing plans which are designed to fit different calling patterns. The
Company typically charges its customers separately for custom-calling
features, air time in excess of the packaged amount, and toll calls.
Custom-calling features provided by the Company include call-forwarding,
call-waiting, three-way calling and no-answer transfer. The Company offers
a voice message service in many of its markets. This service, which
functions like a sophisticated answering machine, allows customers to
receive messages from callers when they are not available to take calls.
Cellular customers come from a wide range of occupations. They
typically include a large proportion of individuals who work outside of
their office, such as employees in the construction, real estate, wholesale
and retail distribution businesses, and professionals. More customers are
selecting portable and other transportable cellular telephones as these
units become more compact and fully featured, as well as more attractively
priced. It is anticipated that average revenue per customer will continue
to decline as additional non-commercial customers who generate fewer local
minutes of use are added as subscribers and as competitive pressures
intensify and place downward pressure on rates. See "-Regulation and
Competition."
Most cellular systems allow a customer to place or receive a call in a
cellular service area away from the customer's home market area. The
Company has entered into "roaming agreements" with operators of other
cellular systems covering virtually all systems in the United States; such
agreements offer the Company's customers the opportunity to roam in these
systems. These reciprocal agreements automatically pre-register the
customers of the Company's system in the other carriers' systems. Also, a
customer of a participating non-Company system traveling in a market
operated by the Company where this arrangement is in effect is able to
automatically make calls on the Company's system. The charge to a non-
Company customer for this service is typically at premium rates, and is
billed by the Company to the customer's home system, which then bills the
customer. Occasionally, the Company will enter into reciprocal agreements
with other cellular carriers to settle roaming usage at a rate different
from such premium rates. In some instances, based on competitive factors,
the Company may charge a lower amount to its customers than the amount
actually charged by another cellular
15
<PAGE>
carrier for roaming. The Company anticipates that competitive factors
and industry consolidation may place downward pressures on charging
premium roaming rates. For additional information on roaming revenue,
see "-Strategy."
The Company is a founding partner and participant in a national alliance
of certain leading wireline cellular operating companies which plans to
design, develop and implement a virtual national cellular network under the
name MobiLink. This cellular alliance intends to offer, among other
things, a customer satisfaction guarantee and certain quality standards.
During 1993 and 1994, the Company's cellular subsidiaries experienced
strong subscriber growth in the fourth quarter, primarily due to increased
holiday season sales. According to the Cellular Telecommunications
Industry Association, industry-wide cellular sales have been seasonally
strong in the fourth calendar quarter for the past several years.
The following table summarizes, among other things, certain information
about the Company's customers and market penetration:
<TABLE>
<CAPTION>
Year Ended or At December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Majority-owned and operated MSA and
RSA systems (Note 1):
Cellular systems operated 31 26 25
Total population of systems
operated (Note 2) 6,359,699 5,015,463 4,813,985
Customers (Note 3):
At beginning of period 116,484 73,084 51,083
Additions 110,636 62,564 32,622
Net acquisitions/dispositions 30,743 - 3,091
Disconnects 46,153 19,164 13,712
At end of period 211,710 116,484 73,084
Market penetration at end of
period (Note 4) 3.33% 2.32% 1.52%
Construction expenditures
(in thousands) $ 39,937 $ 56,070 $ 10,806
All operated MSA and RSA systems
(Note 5):
Cellular systems operated 36 31 31
Total population of systems
operated (Note 2) 7,445,571 6,084,794 5,997,360
Customers at end of period (Note 6) 227,140 124,908 77,106
Market penetration at end of
period (Note 4) 3.05% 2.05% 1.29%
- -------------------------
Notes:
1. Represents the number of systems in which the Company owned at
least a 50% interest and which it operated. The revenues and expenses of
these cellular markets are included in the Company's consolidated operating
revenues and operating expenses.
2. Based on independent third-party population estimates for each
respective year.
3. Represents the approximate number of revenue-generating cellular
telephones served by the cellular systems referred to in note 1.
4. Computed by dividing the number of customers at the end of the
period by the total population of systems operated.
5. Represents the total number of systems that the Company operated,
including systems in which it does not own a majority interest.
6. Represents the approximate number of revenue-generating cellular
telephones served in all systems that the Company operated, including
systems in which it does not own a majority interest.
</TABLE>
16
<PAGE>
The Company's Cellular Interests
The Company obtained the right to provide cellular service through
(i) the FCC's licensing process described below, under which it received
interests in wireline licenses, and (ii) its acquisition program, under
which it has acquired interests in both wireline and non-wireline
licenses. The table below sets forth certain information with respect to
the interests in cellular systems that the Company owned as of December
31, 1994:
<TABLE>
<CAPTION>
The Other
1994 Company's cellular
population Ownership pops at operator
(Note 1) percentage Dec. 31,1994 (Note 2)
==========================================================================
<S> <C> <C> <C> <C>
Majority-owned and operated MSAs
--------------------------------
Grand Rapids, MI 728,032 97.92% 712,889 AirTouch
Lansing, MI 502,701 99.00 497,674 AirTouch
Saginaw, MI 402,884 91.70 369,445 AirTouch
Kalamazoo, MI 299,643 97.92 293,410 Centennial
Battle Creek, MI 192,294 77.94 149,867 Centennial
Muskegon, MI 187,205 97.92 183,311 AirTouch
Benton Harbor, MI 161,613 97.92 158,251 Masters
Cellular
Jackson, MI 152,918 99.00 151,389 Centennial
Shreveport, LA 368,504 62.00 228,472 McCaw/AT&T
Alexandria, LA 150,324 100.00 150,324 Centennial
Monroe, LA 146,068 62.00 90,562 McCaw/AT&T
Jackson, MS (Note 4) 412,535 87.06 359,156 MCTA
Biloxi-Gulfport, MS (Note 4) 217,830 91.23 198,722 Cellular South
Pascagoula, MS (Note 4) 123,071 83.84 103,187 Cellular South
LaCrosse, WI 99,173 95.00 94,214 U. S. Cellular
Pine Bluff, AR 85,251 100.00 85,251 McCaw/AT&T
McAllen-Edinburg-Mission, TX
(Note 4) 431,348 67.28 290,228 SBC
Brownsville-Harlingen, TX
(Note 4) 286,245 77.81 222,738 SBC
Texarkana, AR/TX 137,052 89.00 121,976 McCaw/AT&T
-----------------------------------------------------------
5,084,691 4,461,066
-----------------------------------------------------------
Minority-owned MSAs
-------------------
Flint, MI 504,649 3.04% 15,341 Note 3
Detroit, MI 4,607,060 3.04 140,055 Note 3
Appleton/Oshkosh/Neenah, WI 468,255 10.83 50,712 Note 3
Duluth, MN/WI (Note 5) 243,518 16.33 39,766 Note 3
Owensboro, KY (Note 5) 89,993 5.73 5,157 Note 3
Little Rock, AR 535,862 36.00 192,910 Note 3
Evansville, IN (Note 5) 318,396 5.73 18,244 Note 3
Lafayette, LA 254,249 49.00 124,582 Note 3
Austin, TX 874,277 35.00 305,997 Note 3
-----------------------------------------------------------
7,896,259 892,764
-----------------------------------------------------------
Total MSAs 12,980,950 5,353,830
-----------------------------------------------------------
17
<PAGE>
Operated RSAs
-------------
Arizona 3 (Note 5) 147,449 58.70% 86,546 Sprint Cellular
Arkansas 2 79,030 82.00 64,805 McCaw/AT&T
Arkansas 3 103,547 82.00 84,909 McCaw/AT&T
Arkansas 11 67,626 89.00 60,187 McCaw/AT&T
Arkansas 12 188,823 80.00 151,058 McCaw/AT&T
Louisiana 1 112,305 62.00 69,629 McCaw/AT&T
Louisiana 2 112,573 62.00 69,795 Centennial
Louisiana 3 (B2) 92,574 62.00 57,396 Centennial
Louisiana 4 70,825 100.00 70,825 Centennial
Michigan 3 154,657 38.76 59,949 Unitel
Michigan 5 151,220 38.76 58,617 Unitel
Michigan 6 144,382 98.00 141,494 Centennial
Michigan 7 237,052 41.78 99,052 Centennial
Michigan 8 96,650 97.92 94,640 Allegan Cellular
Michigan 9 291,024 43.38 126,246 Centennial
New Mexico 1 (Note 5) 251,919 22.22 55,982 Sprint Cellular
Texas 7 (B6) 59,224 89.00 52,709 McCaw/AT&T
------------------------------------------------------------
2,360,880 1,403,839
------------------------------------------------------------
Non-operated RSAs
-----------------
Arizona 2 (Note 5) 230,120 21.30% 49,007 Note 3
Colorado 6 (Note 5) 68,119 25.00 17,030 Note 3
Colorado 7 ( Note 5) 45,689 20.00 9,138 Note 3
Iowa 13 (Note 5) 66,706 10.00 6,671 Note 3
Michigan 10 133,511 26.00 34,713 Note 3
Minnesota 11 204,128 13.01 26,553 Note 3
New Mexico 3 (Note 5) 78,980 25.00 19,745 Note 3
New Mexico 4W 126,918 35.71 45,328 Note 3
Texas 16 316,704 9.60 30,404 Note 3
Wisconsin 1 106,435 8.44 8,985 Note 3
Wisconsin 2 84,254 12.81 10,793 Note 3
Wisconsin 3 136,443 14.29 19,492 Note 3
Wisconsin 6 115,218 28.57 32,919 Note 3
Wisconsin 10 127,102 15.00 19,065 Note 3
------------------------------------------------------------
1,840,327 329,843
------------------------------------------------------------
Total RSAs 4,201,207 1,733,682
------------------------------------------------------------
17,182,157 7,087,512
============================================================
Notes:
1. Based on 1994 independent third-party population estimates.
2. Information provided to the best of the Company's knowledge.
3. Markets not operated by the Company.
4. Represents a non-wireline interest.
5. Either sold during the first quarter of 1995 or are subject to sale
pursuant to a definitive agreement.
</TABLE>
18
<PAGE>
The preceding table does not include approximately 20,000 pops which
the Company acquired in January 1995 upon acquisition of a one-half of one
percent interest in the licensed operator of the Dallas, Texas MSA
wireline cellular system.
Revenue
The following table reflects the major revenue categories for the
Company's mobile communications operations as a percentage of mobile
communications operating revenues in 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------
<S> <C> <C> <C>
Cellular access fees, toll revenues
and equipment sales 82.0% 80.5 78.6
Cellular roaming 16.1 14.5 14.3
Paging services (Note 1) 1.9 5.0 7.1
------------------------------
100.0% 100.0 100.0
==============================
</TABLE>
Note 1: The Company's paging operations were sold in October 1994.
For further information on these revenue categories, see "-Services,
Customers and System Usage."
Regulation And Competition
As discussed further below, the FCC and various state public utility
commissions regulate, among other things, the licensing, construction,
operation, interconnection arrangements, sale and acquisition of cellular
telephone systems.
Cellular Licensing Process. During the 1980's and early 1990's, the
FCC awarded two licenses to provide cellular service in each market. Each
licensee is required to provide service to a designated portion of the area
or population in its licensed area as a condition to maintaining that
license. Initially, one license was reserved for companies offering local
telephone service in the market (the wireline carrier) and one license was
available for firms unaffiliated with the local telephone company (the non-
wireline carrier). Since mid-1986, the FCC has permitted telephone
companies or their affiliates to acquire control of non-wireline licenses
in markets in which they do not hold interests in the wireline license.
The completion of acquisitions involving the transfer of control of a
cellular system requires prior FCC approval and, in certain cases, receipt
of other federal and state regulatory approvals. Acquisitions of minority
interests generally do not require FCC approval. Whenever FCC approval is
required, any interested party may file a petition to dismiss or deny the
application for approval of the proposed transfer.
19
<PAGE>
Initial operating licenses are granted for ten-year periods and are
renewable upon application to the FCC for periods of ten years. Licenses
may be revoked and license renewal applications denied for cause. There
may be competition for licenses upon the expiration of the initial ten-year
terms and there is no assurance that any license will be renewed, although
the FCC has issued a decision that grants a renewal expectancy during the
license renewal period to incumbent licensees that substantially comply
with the terms and conditions of their cellular authorizations and the
FCC's regulations. The licenses for the MSA markets operated by the
Company were initially granted between 1984 and 1987, and licenses for
operated RSAs were initially granted between 1989 and 1991. The Company
intends to file renewal applications for its licenses which will otherwise
expire in 1995.
Five years after initial operating licenses are granted, unserved areas
within markets previously granted to licensees may be applied for by any
qualified party. The FCC has rules that govern the procedures for filing
and granting such applications and has established requirements for
constructing and operating systems in such areas. The Company has not
lost, and does not expect to lose, any significant market areas as a result
of not providing service to such areas. In addition to regulation by the
FCC, cellular systems are subject to certain Federal Aviation
Administration tower height regulations respecting the siting and
construction of cellular transmitter towers and antennas.
Cellular operators are also subject to state and local regulation in
some instances. Although the FCC has pre-empted the states from exercising
jurisdiction in the areas of licensing, technical standards and market
structure, certain states require cellular operators to be certified. In
addition, some state authorities regulate certain aspects of a cellular
operator's business, including certain aspects of pricing, the resale of
long distance service to its customers, the technical arrangements and
charges for interconnection with the landline network, and the transfer of
interests in cellular systems. The LPSC has petitioned the FCC for
continued regulation of cellular operators; the FCC is expected to rule on
the petition in the second quarter of 1995. The siting and construction of
the cellular facilities may also be subject to state or local zoning, land
use and other local regulations.
Competition between cellular providers in each market is conducted
principally on the basis of services and enhancements offered, the
technical quality and coverage of the system, quality and responsiveness of
customer service, and price. Competition may be intense. For a listing of
the Company's competitors in cellular markets operated by the Company, see
"- The Company's Cellular Interests." Under applicable law, the Company is
required to permit the reselling of its services. In certain larger
markets and in certain market segments, competition from resellers may be
significant. There is also substantial competition for agents. Some of
the Company's competitors have greater assets and resources than the
Company.
20
<PAGE>
Developments Affecting Mobile Communications Competition. Continued
and rapid technological advances in the communications field, coupled with
legislative and regulatory uncertainty, make it impossible to (i) predict
the extent of future competition to cellular systems, (ii) determine which
emerging technologies pose the most viable alternatives to the Company's
cellular operations, or (iii) list each development that may ultimately
impact the Company's cellular operations. No assurance can be given that
current or future technological advances, or legislative or regulatory
changes, will not impact the Company's cellular operations.
Several recent FCC initiatives have resulted in the allocation of
additional radio spectrum or the issuance of experimental licenses for
emerging mobile communications technologies that will or may be competitive
with the Company's cellular and telephone operations, including personal
communication services ("PCS"). Although there is no universally
recognized definition of PCS, the term is generally used to refer to
wireless services to be provided by licensees operating in the 1850 MHz to
1990 MHz radio frequency band using microcells and high-capacity digital
technology. When offered commercially, PCS technology currently under
development may permit PCS operators to offer wireless data, image and
multimedia services. The extent to which PCS will offer services that are
complementary or competitive with cellular services is uncertain, and is
expected to be influenced by continuing developments in PCS and cellular
technologies and by FCC regulation.
The FCC has adopted rules to auction up to six PCS licenses per market.
Under these rules, two 30 MHz frequency blocks will be awarded for each of
the 51 Rand McNally Major Trading Areas ("MTAs"), while one 30 MHz and
three 10 MHz frequency blocks will be awarded for each of the 493 Rand
McNally Basic Trading Areas ("BTAs"). Subject to certain exceptions, the
Company will be permitted to freely pursue PCS licenses outside its
cellular markets, but will be limited to acquiring only one 10 MHz block in
licensed areas where it controls more than a 20% interest in a cellular
licensee and serves more than 10% of the population within the PCS licensed
area. The Company did not participate in the FCC's auction of the MTA
licenses. If attractive opportunities arise, the Company may participate
in the FCC's auctions of BTA licenses to be held in 1995. PCS service may
be commercially available in certain areas as early as 1996.
In addition to PCS, users and potential users of cellular systems may
find their communication needs satisfied by other current and developing
technologies, several of which may enjoy potential operational and service
advantages through their use of digital technology. The FCC has recently
authorized the licensees of certain specialized mobile radio service
("SMR") systems (which historically have generally been used by taxicabs
and tow truck operators) to configure their systems so as to operate in a
manner similar to cellular systems. The Company believes that SMR systems
are operating in a majority of its cellular markets. Certain well-
established SMR providers have announced their intention to create a
nationwide digital mobile communications system to compete with cellular
systems. Other similar communication services which have the technical
capability to handle mobile telephone calls may provide competition in
certain markets, although these services currently lack the subscriber
capacity of cellular systems. One-way paging or beeper services that
21
<PAGE>
feature voice message and data display as well as tones may be adequate for
potential subscribers who do not need to communicate with the caller.
Other two-way mobile services may also be competitive with the Company's
services. For example, the second generation of cordless telephone
technology ("CT-2") will permit the application of this technology to a
public environment. During 1994 the FCC auctioned additional spectrum
suitable for two-way paging and other wireless data services, which is
expected to lead to increased development of these services.
The FCC has taken various actions to authorize mobile satellite systems
in which transmissions from mobile units to satellites would supplement or
replace transmissions to land-based stations. Such satellite-based systems
are being studied and designed, including international systems, and no
assurance can be given that such systems will not ultimately be successful
in supplementing or replacing cellular systems which communicate directly
to land-based stations.
As described further under "Telephone Operations - Regulation and
Competition," in connection with the well-publicized convergence of
telecommunications, cable, video, computer and entertainment businesses,
several large companies have recently announced plans to offer products
that would significantly enhance current communications and data
transmissions services and, in some instances, introduce new services.
Although much of the resulting competition is expected to center on
wireline services, it is anticipated that these developments may also
increase competition in the mobile communications industry. Several
companies are currently developing and marketing small hand-held devices
that provide digital wireless data transmission services that compete with
similar analog services currently being provided by cellular companies.
As discussed further under "Telephone Operations - Regulation and
Competition," recently several bills have been filed in the U.S. Congress
that have the potential to significantly alter the telecommunications
industry, including bills that focus on the mobile communications industry.
Recently, several large cellular providers have merged with other
companies or formed joint ventures. The resulting entities will have
substantially greater assets and resources than the Company. These joint
ventures and others have also pooled their resources to bid on PCS
licenses. For more information, see "-Marketing."
Although it is uncertain how PCS, SMR, CT-2, mobile satellites and other
emerging technologies will ultimately affect the Company, they are not
anticipated to be significant sources of competition in the Company's
markets in the near term. Moreover, management believes that equipping its
current cellular networks with digital enhancements and applying new
microcellular technologies should permit its cellular systems to provide
services comparable with the emerging technologies described above,
although no assurances can be given that this will happen or that future
technological advances or legislative or regulatory changes will not create
additional sources of competition.
22
<PAGE>
Certain Considerations Regarding Cellular Telephone Operations
The cellular industry has a relatively limited operating history and
there continues to be uncertainty regarding its future. Among other
factors, there is uncertainty regarding (i) the continued growth in the
number of customers, (ii) the usage and pricing of cellular services,
particularly as market penetration increases and lower-usage customers
subscribe for service, (iii) the number of customers who will terminate
service each month, and (iv) the impact of changes in technology,
regulation and competition, any of which could have a material adverse
effect on the Company. See "- Regulation and Competition."
The market value of cellular interests is frequently determined on the
basis of the number of pops owned by a cellular provider. The population
of a particular cellular market, however, does not necessarily bear a
direct relationship to the number of subscribers or the revenues that may
be realized from the operation of the related cellular system. The future
market value of the Company's cellular interests will depend on, among
other things, the success of its cellular operations.
OTHER
The Company has certain obligations based on federal, state and local
laws relating to the protection of the environment. Costs of compliance
through 1994 have not been material and the Company currently has no reason
to believe that such costs will become material.
For additional information concerning the business and properties of
the Company, see notes 2, 3, 13, 16 and 17 of Notes to Consolidated
Financial Statements set forth in Item 8 elsewhere herein.
Item 2. Properties.
The Company's properties consist principally of (i) telephone lines,
central office equipment, telephone instruments and related equipment, and
land and building related to telephone operations and (ii) switching and
cell site equipment related to cellular telephone operations. As of
December 31, 1994, the Company's gross property, plant and equipment of
approximately $1.3 billion consisted of the following:
Telephone:
Cable and wire.................................... 44.1%
Central office equipment.......................... 23.7
General support................................... 7.0
Information origination/termination equipment..... 1.6
Construction in progress.......................... 5.1
Other............................................. .4
------
81.9
Mobile Communications ................................ 11.6
Other................................................. 6.5
------
100.0%
======
23
<PAGE>
"Cable and wire" facilities consist primarily of buried cable and
aerial cable, poles, wire, conduit and drops. "Central office equipment"
consists primarily of switching equipment, circuit equipment and related
facilities. "General support" consists primarily of land, buildings,
tools, furnishings, fixtures, motor vehicles and work equipment.
"Information origination/termination equipment" consists primarily of
premise equipment (private branch exchanges and telephones) for official
company use. "Construction in progress" includes property of the foregoing
categories that has not been placed in service because it is still under
construction. The properties of the Company's telephone subsidiaries are
subject to mortgages securing the funded debt of such companies. The
Company owns substantially all of the central office buildings, local
administrative buildings, warehouses, and storage facilities used in its
telephone operations. The Company leases most of the offices used in its
cellular operations; certain of its transmitter sites are leased while
others are owned by the Company. For further information on the location
and type of the Company's properties, see the descriptions of the Company's
telephone and mobile communications operations in Item 1.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation incidental to
its business, including administrative hearings of state public utility
commissions relating primarily to rate making, actions relating to employee
claims, occasional grievance hearings before labor regulatory agencies and
miscellaneous third party tort actions. Currently, there are no material
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
Information concerning Executive Officers, set forth at Item 10 in
Part III hereof, is incorporated in Part I of this Report by reference.
24
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Century's common stock is listed on the New York Stock Exchange and is
traded under the symbol CTL. The following table sets forth the high and
low sale prices, along with the quarterly dividends, for each of the
quarters indicated:
<TABLE>
<CAPTION>
Sale prices
----------- Dividend per
High Low common share
---- --- ------------
<S> <C> <C> <C> <C>
1993:
First quarter $ 33-3/8 26 .0775
Second quarter $ 33-1/8 28 .0775
Third quarter $ 31-5/8 27-1/8 .0775
Fourth quarter $ 30-3/8 23-1/4 .0775
1994:
First quarter $ 27-7/8 21-7/8 .08
Second quarter $ 27-5/8 22-5/8 .08
Third quarter $ 30-1/2 25 .08
Fourth quarter $ 32-1/4 27-1/2 .08
</TABLE>
Common stock dividends during 1993 and 1994 were paid each quarter.
As of February 28, 1995, there were approximately 7,000 stockholders of
record of Century's common stock.
Item 6. Selected Financial Data.
The following table presents certain selected consolidated financial
data as of and for each of the years ended in the five-year period ended
December 31, 1994:
<TABLE>
Selected Income Statement Data
Year ended December 31,
--------------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues
Telephone $ 389,438 348,485 297,510 235,796 215,771
Mobile Communications 150,802 84,712 62,092 46,731 34,594
----------------------------------------------------
Total operating revenues $ 540,240 433,197 359,602 282,527 250,365
====================================================
Operating income (loss)
Telephone $ 137,992 114,902 103,672 80,039 70,654
Mobile Communications 31,443 9,906 5,956 (4,952) (9,553)
----------------------------------------------------
Net operating income $ 169,435 124,808 109,628 75,087 61,101
====================================================
Income before cumulative
effect of changes in
accounting principles $ 100,238 69,004 59,973 37,419 31,098
Cumulative effect of changes
in accounting principles - - (15,668) - -
---------------------------------------------------
Net income $ 100,238 69,004 44,305 37,419 31,098
====================================================
25
<PAGE>
Fully diluted earnings per
share before cumulative
effect of changes in
accounting principles $ 1.80 1.32 1.22 .79 .66
Cumulative effect of changes
in accounting principles - - (.31) - -
----------------------------------------------------
Fully diluted earnings
per share $ 1.80 1.32 .91 .79 .66
====================================================
Dividends per common share $ .320 .310 .293 .287 .280
=====================================================
Average fully diluted
shares outstanding 58,135 55,892 48,653 47,432 46,944
=====================================================
Selected Balance Sheet Data
December 31,
1994 1993 1992 1991 1990
-----------------------------------------------------
(Dollars in thousands)
-----------------------------------------------------
Net property, plant and
equipment $ 947,131 827,776 675,878 534,998 490,957
Excess cost of net assets
acquired, net $ 441,436 297,158 217,688 114,258 110,013
Total assets $1,643,253 1,319,390 1,040,487 764,539 706,411
Long-term debt $ 518,603 364,433 346,944 205,453 230,715
Stockholders' equity $ 650,236 513,768 385,449 319,977 280,915
</TABLE>
The following table presents certain selected consolidated operating
data as of the end of each of the years in the five-year period ended
December 31, 1994:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Telephone access lines 454,963 434,691 397,300 314,819 304,915
Cellular units in service
in majority-owned
markets 211,710 116,484 73,084 51,083 35,815
</TABLE>
See Items 1 and 2 in Part I and notes 1, 9, 16 and 20 of Notes to
Consolidated Financial Statements set forth in Item 8 elsewhere herein for
additional information.
26
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
OVERVIEW
The 1994 net income of Century Telephone Enterprises, Inc. and
subsidiaries (the "Company") increased 45.3% to $100.2 million from
$69.0 million during 1993. Income before the cumulative effect of changes
in accounting principles during 1992 was $60.0 million.
Fully diluted earnings per share for 1994 increased 36.4% to $1.80 from
$1.32 during 1993. Fully diluted earnings per share in 1992 before the
cumulative effect of changes in accounting principles was $1.22. The
average number of fully diluted shares outstanding increased 4.0% and 5.8%
in 1994 and 1993, respectively, as a result of shares issued in connection
with acquisitions and the Company's dividend reinvestment, incentive and
benefit plans.
The Company is a regional diversified telecommunications company that
is primarily engaged in providing traditional telephone services and
cellular mobile telephone services. The Company's 1994 operating income
was $169.4 million, an increase of $44.6 million (35.8%) over 1993
operating income of $124.8 million. During 1994 the operating income of
the Company's telephone segment and its mobile communications segment
increased $23.1 million (20.1%) and $21.5 million (217.4%), respectively,
compared to 1993. The Company's operating income during 1992 was $109.6
million.
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Operating income
Telephone $ 137,992 114,902 103,672
Mobile Communications 31,443 9,906 5,956
--------------------------------------------------------------------------
169,435 124,808 109,628
Interest expense (42,577) (30,149) (27,166)
Income from unconsolidated
cellular entities 15,698 6,626 1,692
Gain on sales of assets 15,877 1,661 3,985
Other income and expense 3,105 3,310 4,433
Income tax expense (61,300) (37,252) (32,599)
--------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles 100,238 69,004 59,973
Cumulative effect of changes in
accounting principles - - (15,668)
--------------------------------------------------------------------------
Net income $ 100,238 69,004 44,305
==========================================================================
Fully diluted earnings per share:
Before cumulative effect of changes
in accounting principles $ 1.80 1.32 1.22
Cumulative effect of changes in
accounting principles - - (.31)
--------------------------------------------------------------------------
Fully diluted earnings per share $ 1.80 1.32 .91
==========================================================================
</TABLE>
27
<PAGE>
The operating income of the telephone segment includes the operations,
subsequent to each respective acquisition, of Century Telephone of Ohio,
Inc. ("Ohio"), acquired in April 1992, and Century Telephone of San
Marcos, Inc. ("San Marcos"), acquired in April 1993. See Note 16 of Notes
to Consolidated Financial Statements for additional information applicable
to these acquisitions.
The Company's mobile communications operations reflect the operations
of the cellular entities in which the Company has a majority interest.
The minority interest owners' share of the income or loss of such entities
is reflected as an expense in "Other income and expense." The operating
income of the mobile communications segment includes (i) the operations of
the Alexandria, Louisiana Metropolitan Statistical Area ("MSA") cellular
system ("Alexandria") subsequent to its acquisition in December 1992, (ii)
the operations of Celutel, Inc. ("Celutel") subsequent to its acquisition
in February 1994, and (iii) the Company's paging operations prior to their
sale in October 1994. See Notes 16 and 17 of Notes to Consolidated
Financial Statements for additional information.
According to data derived from published sources, as of December 31,
1993 the Company had the second highest ratio of owned cellular pops (the
population of licensed cellular telephone markets multiplied by the
Company's proportionate equity interests in the licensed operators
thereof) to telephone access lines among the 20 largest telephone
companies (based on access lines) in the United States. Accordingly, the
Company anticipates that its mobile communications operations will
continue to increasingly influence the Company's overall operations as the
cellular industry matures. Contributions to operating revenues and
operating income by the Company's telephone and mobile communications
operations for each of the three years ended December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
==========================================================================
<S> <C> <C> <C>
Operating revenues
Telephone operations 72.1% 80.4 82.7
Mobile Communications operations 27.9% 19.6 17.3
Operating income
Telephone operations 81.4% 92.1 94.6
Mobile Communications operations 18.6% 7.9 5.4
===========================================================================
</TABLE>
The Company's share of earnings or loss from the cellular entities in
which it has less than a majority interest is accounted for using the
equity method and is reflected in "Income from unconsolidated cellular
entities." The Company's share of income from such entities increased to
$15.7 million in 1994 from $6.6 million in 1993 and $1.7 million in 1992.
As of January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
The cumulative effect of the changes in accounting principles related to
SFAS 106 and SFAS 109 reduced 1992 net income by $14.8 million ($.30 per
fully diluted share) and $913,000 ($.01 per fully diluted share),
respectively.
28
<PAGE>
TELEPHONE OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands)
<S> <C> <C> <C>
Operating revenues
Local service $ 100,020 88,704 78,108
Network access and long distance 243,759 217,055 182,711
Other 45,659 42,726 36,691
--------------------------------------------------------------------------
389,438 348,485 297,510
--------------------------------------------------------------------------
Operating expenses
Plant operations 84,117 80,578 66,878
Customer operations 35,746 32,225 26,242
Corporate and other 58,408 55,605 46,791
Depreciation and amortization 73,175 65,175 53,927
--------------------------------------------------------------------------
251,446 233,583 193,838
--------------------------------------------------------------------------
Operating income $ 137,992 114,902 103,672
==========================================================================
</TABLE>
The Company's telephone operations are conducted in rural, suburban and
small urban communities in 14 states. Approximately 82% of the Company's
telephone access lines are in Wisconsin, Louisiana, Michigan, Ohio and
Arkansas.
Local Service Revenues
Local service revenues are derived from the provision of local exchange
telephone services in the Company's franchised service areas. The $11.3
million increase in such revenues in 1994 included $4.5 million due to the
increase in the number of customer access lines, $3.8 million from
increased rates for basic services and $1.2 million due to acquisitions.
Acquisitions contributed $7.5 million to the 1993 increase of $10.6
million; $2.7 million of the increase was due to the increase in access
lines. The remaining increases in 1994 and 1993 were primarily due to the
provision of custom calling features. Internal access line growth during
1994, 1993 and 1992 was 4.1%, 3.6% and 3.8%, respectively.
Network Access and Long Distance Revenues
Network access and long distance revenues primarily relate to services
provided to interexchange carriers (long distance carriers) in connection
with the completion of long distance telephone calls. Substantially all
of the Company's interstate network access revenues are received through
pooling arrangements administered by the National Exchange Carrier
Association ("NECA") based on cost separation studies and average schedule
settlement agreements. The NECA receives access charges billed by the
Company and other participating local exchange carriers ("LECs") to
interstate long distance carriers and other LEC customers for their use of
the local exchange network to complete long distance calls. These charges
to the long distance carriers and other LEC customers are based on
tariffed access rates filed with the Federal Communications Commission
("FCC")
29
<PAGE>
by the NECA on behalf of the Company and other participating LECs. Long
distance and intrastate network access revenues are based on access rates,
cost separation studies or special settlement arrangements with intrastate
long distance carriers.
Network access and long distance revenues increased $26.7 million
(12.3%) in 1994 and $34.3 million (18.8%) in 1993 due to the following
factors:
<TABLE>
<CAPTION>
1994 1993
Increase Increase
(decrease) (decrease)
========================================================================
(Dollars in thousands)
<S> <C> <C>
Acquisitions $ 5,734 19,737
Partial recovery of increased operating expenses
through revenue pools in which the Company
participates with other telephone companies
and return on rate base 8,834 7,326
Increased recovery from the FCC mandated
Universal Service Fund ("USF") 8,815 6,161
Increased minutes of use 2,409 3,444
Revision of prior year revenue settlement
agreements 2,537 (770)
Other, net (1,625) (1,554)
-------------------------------------------------------------------------
$ 26,704 34,344
=========================================================================
</TABLE>
Other, net in the preceding table reflects reductions of $2.3 million
and $1.0 million in 1994 and 1993, respectively, in certain settlements
received from a large local exchange operating company by the Company's
Louisiana subsidiaries. Also included in other, net in 1994 is a $1.9
million reduction in intrastate high cost assistance revenues as a result
of the phase-out of the Wisconsin state support fund, the loss of which
was offset by an increase in local rates in the same jurisdictions.
Other Revenues
Other revenues include revenues related to (i) leasing, selling,
installing, maintaining and repairing customer premise telecommunications
equipment and wiring, (ii) providing billing and collection services for
interexchange carriers, (iii) leasing network facilities and (iv)
participating in the publication of local directories. The increase in
other revenues during 1994 was primarily due to a $1.2 million increase in
directory advertising revenues and a $1.1 million increase in billing and
collection revenues. The 1993 increase was primarily due to acquisitions.
Certain large telecommuni-cations companies for which the Company
currently provides billing and collection services have indicated their
desire to reduce their billing and collection expenses which may lead to
reduced future billing and collection revenues.
30
<PAGE>
Operating Expenses
Plant operations expenses during 1994 and 1993 increased $3.5 million
(4.4%) and $13.7 million (20.5%), respectively. Operating expenses
attributable to acquisitions accounted for $2.3 million of the 1994
increase. A $1.2 million increase in salaries, wages and benefits during
1994 was partially offset by a $531,000 reduction in postemployment
benefit expense. Approximately $7.1 million of the 1993 increase was due
to operating expenses attributable to acquisitions. Increases in
salaries, wages and benefits during 1993 accounted for approximately $2.2
million. The remainder of the 1993 increase was due to increases in other
general operating expenses.
Expenses attributable to acquisitions contributed $2.1 million and
$11.0 million, respectively, to the 1994 increase of $6.3 million (7.2%)
and the 1993 increase of $14.8 million (20.3%) in customer operations,
corporate, and other expenses. Ad valorem taxes increased $1.0 million in
1994 and $601,000 in 1993 due to the increase in plant in service. The
remainder of the increases resulted from increases in other general
operating expenses.
Depreciation and amortization increased $8.0 million (12.3%) and $11.2
million (20.9%) in 1994 and 1993, respectively. Approximately $2.4
million and $5.4 million of the increases in 1994 and 1993, respectively,
were due to acquisitions. Depreciation expense included nonrecurring
additional depreciation charges approved by regulators in certain
jurisdictions which, exclusive of acquisitions, aggregated $3.3 million in
1993 and $2.9 million in 1992. In addition, the Company obtained higher
recurring depreciation rates for certain subsidiaries during the last
three years. Excluding acquisitions, the first-year effects of the higher
rates were approximately $5.6 million in 1994, $1.7 million in 1993 and
$770,000 in 1992. The remaining increases in depreciation and
amortization were due to higher levels of plant in service. The composite
depreciation rate for telephone properties, including the additional
depreciation charges, was 7.1%, 7.1% and 6.6% for 1994, 1993 and 1992,
respectively.
Other
For additional information regarding certain matters that have impacted
or may impact the Company's telephone operations, see Regulation and
Competition below.
31
<PAGE>
MOBILE COMMUNICATIONS OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Operating revenues
Cellular service $ 141,325 76,583 54,489
Equipment and other 9,477 8,129 7,603
--------------------------------------------------------------------------
150,802 84,712 62,092
--------------------------------------------------------------------------
Operating expenses
Cost of sales and other
operating expenses 31,859 19,681 14,313
General, administrative and
customer service 33,171 23,872 19,685
Sales and marketing 33,074 19,894 13,167
Depreciation and amortization 21,255 11,359 8,971
--------------------------------------------------------------------------
119,359 74,806 56,136
--------------------------------------------------------------------------
Operating income $ 31,443 9,906 5,956
==========================================================================
</TABLE>
The Company's mobile communications segment at December 31, 1994
consisted entirely of operations of the cellular entities in which the
Company has a majority interest. The Company's cellular customers are
located primarily in Louisiana, Michigan, Mississippi and Texas. The
Company's share of income from cellular entities in which it has less than
a majority interest (which is not included in the mobile communications
segment) was $15.7 million, $6.6 million and $1.7 million during 1994,
1993 and 1992, respectively, and is reflected in "Income from
unconsolidated cellular entities."
Operating Revenues
Cellular service revenues include monthly service fees for providing
access and airtime to customers, service fees for providing airtime to
users roaming through the Company's service areas and toll revenue.
Cellular service revenues during 1994 increased to $141.3 million from
$76.6 million in 1993 and $54.5 million in 1992.
The 1994 and 1993 increases in cellular service revenues were primarily
attributable to the significant increases in cellular customers resulting
principally from acquisitions, increased demand and expanded areas of
service. Cellular units in service in the Company's majority-owned
markets increased to 211,710 (of which 35,027 were in the Celutel markets)
as of December 31, 1994 from 116,484 as of December 31, 1993 and 73,084 as
of December 31, 1992. Exclusive of acquisitions, access and usage
revenues increased $27.2 million (48.3%) in 1994 and $14.6 million (36.9%)
in 1993 and roaming and toll revenues increased $9.8 million (54.9%) and
$3.0 million (22.3%) in 1994 and 1993, respectively. The remainder of the
1994 revenue increase was due substantially to the Celutel operations,
which increased revenues by $26.3 million, and the remainder of the 1993
increase was due to the Alexandria operations, which increased 1993
revenues by $3.6 million.
32
<PAGE>
The average monthly cellular service revenue per customer declined to
$69 in 1994 from $71 in 1993 and $75 in 1992. It has been an industry-
wide trend that early subscribers have normally been the heaviest users
and that a higher percentage of new subscribers tend to be lower usage
customers. The average monthly service revenue per customer may further
decline (i) as market penetration increases and additional lower usage
customers are activated and (ii) as competitive pressures intensify and
place downward pressure on rates. The Company will continue to focus on
customer service and attempt to stimulate cellular usage by promoting the
availability of certain enhanced services and by improving the quality of
its service through the construction of additional cell sites and
enhancements to its system.
Other revenues included $2.9 million and $4.2 million in 1994 and 1993,
respectively, of revenues attributable to the Company's paging operations,
which were sold in October 1994.
Operating Expenses
The $12.2 million increase in 1994 in cost of sales and other operating
expenses included $6.7 million of expenses of Celutel since its
acquisition in February 1994. Expenses incurred in 1993 as a result of
the December 1992 acquisition of Alexandria were $599,000. The remaining
increases in cost of sales and other operating expenses in 1994 and 1993
were primarily due to interconnecting and operating new cell sites which
were built to improve service in several existing markets and to initiate
and develop service in several rural markets. The Company operated 230
cell sites at December 31, 1994 in entities in which it has a majority
interest, compared to 158 at December 31, 1993 and 96 at December 31,
1992. Of the 1994 net increase of 72 cell sites, 29 were added through
acquisitions.
General, administrative and customer service expenses increased $9.3
million (39.0%) in 1994, $7.4 million of which was due to the Celutel
operations. The Alexandria operations contributed $1.2 million of costs
to the 1993 increase of $4.2 million (21.3%). The remaining increases
were primarily related to the increased number of customers.
During 1994 and 1993, sales and marketing expenses increased $13.2
million (66.3%) and $6.7 million (51.1%), respectively, of which $8.2
million in 1994 and $4.2 million in 1993 were due to increases in
commissions paid to agents for selling cellular services to new customers.
The remaining increase in 1994 was due to the Celutel operations. The
remaining increase during 1993 was primarily due to an $812,000 increase
in advertising costs and to $919,000 of costs incurred in the Alexandria
operations.
Depreciation and amortization increased $9.9 million (87.1%) in 1994
and $2.4 million (26.6%) in 1993 due to increases of $4.9 million and $2.4
million, respectively, applicable to higher levels of cellular plant in
service. Approximately $3.8 million of the 1994 increase was due to
amortization of goodwill attributable to the acquisition of Celutel.
33
<PAGE>
Other
The Company's paging operations, which contributed 2.5% of mobile
communications revenues from January 1994 through September 1994, were
sold in October 1994.
For additional information regarding certain matters that have impacted
or may impact the Company's mobile communications operations, see
Regulation and Competition below.
INTEREST EXPENSE
Interest expense increased $12.4 million (41.2%) in 1994 and $3.0
million (11.0%) in 1993. The increase during 1994 was primarily the
result of a 34% increase in average debt outstanding, a substantial amount
of which was incurred in connection with the acquisition of Celutel.
Higher interest expense incurred during 1993 due to a 24% increase in
average debt outstanding was substantially offset by the effect of lower
average interest rates.
INCOME FROM UNCONSOLIDATED CELLULAR ENTITIES
Earnings from unconsolidated cellular entities, net of the amortization
of associated goodwill, increased $9.1 million (136.9%) during 1994. An
increase of $2.9 million in the Company's share of income from the
partnership interests acquired in the San Marcos acquisition in April 1993
contributed to the 1994 increase. The remainder of the 1994 increase was
due to the improvement in profitability of other cellular entities in
which the Company owns less than a majority interest. The Company's share
of income from the partnership interests acquired in the San Marcos
acquisition contributed substantially to the $4.9 million (291.6%)
increase in income from unconsolidated cellular entities during 1993.
GAIN ON SALES OF ASSETS
The Company sold the assets comprising a cellular system in a Rural
Service Area ("RSA") in Minnesota in 1994 and recognized a pre-tax gain of
$14.7 million ($8.5 million after-tax; $.15 per fully diluted share). In
addition, the Company sold its paging operations in 1994 which resulted in
a pre-tax gain of $1.2 million ($756,000 after-tax; $.01 per fully diluted
share).
During 1993 the Company sold a minority investment in a telephone
company which resulted in a pre-tax gain of $1.7 million ($1.1 million
after-tax; $.02 per fully diluted share).
34
<PAGE>
During 1992 the Company consummated the sales of (i) two telephone
subsidiaries which served approximately 2,000 access lines, (ii) its
minority interests in an MSA cellular partnership and an RSA cellular
partnership, and (iii) its 100% interest in an RSA cellular market. The
sales resulted in an aggregate pre-tax gain of $4.0 million ($2.6 million
after-tax; $.05 per fully diluted share).
OTHER INCOME AND EXPENSE
Other income and expense during 1994 was $3.1 million compared to $3.3
million during 1993 and $4.4 million in 1992. The increased profitability
during 1994 of the Company's majority-owned and operated cellular entities
resulted in a corresponding increase of $2.9 million in the expense
recorded by the Company to reflect the minority interest owners' share of
the profits. Such increase in expense in 1994 was substantially offset by
an increase of $1.8 million in interest income, of which $1.5 million was
interest income earned on a $25.0 million note receivable issued to
Century in May 1994. For additional information, see Liquidity and
Capital Resources - Investing Activities. Other income and expense
decreased $1.1 million (25.3%) in 1993 primarily because of a decrease in
interest income.
Other income and expense includes the results of operations of
subsidiaries of the Company which are not included in telephone or mobile
communications operations, including, but not limited to, the Company's
competitive access subsidiary and the Company's nonregulated long distance
operations, the combined results of which were not significantly different
in 1994, 1993 and 1992.
INCOME TAX EXPENSE
The effective income tax rate was 37.9%, 35.1% and 35.2% in 1994, 1993
and 1992, respectively. The increase in the effective rate in 1994 was
primarily the result of (i) amortization of investment tax credits and the
SFAS 109 regulatory liability remaining relatively stable while income
before taxes increased and (ii) the effect of an increase in the
amortization of goodwill which is not tax deductible. The additional
federal income taxes incurred during 1993 as a result of the 1% increase
in the statutory federal income tax rate in accordance with the provisions
of the Omnibus Budget Reconciliation Act of 1993 (the "Act") was more than
offset by the tax benefit applicable to the deductibility of certain
intangible assets also provided by the Act.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted SFAS 106 as of January 1, 1992. SFAS 106 requires
that the expected cost of providing postretirement health care and life
insurance benefits be accrued during the years an employee renders service
to the Company. The cumulative effect of the change in accounting
principle related to SFAS 106 decreased net income for 1992 by $14.8
million ($.30 per fully diluted share).
35
<PAGE>
The Company also adopted SFAS 109 as of January 1, 1992, under which
the accounting for income taxes is based on an asset and liability
approach rather than the deferred method. The cumulative effect of the
change in accounting principle related to SFAS 109 decreased net income
for 1992 by $913,000 ($.01 per fully diluted share).
The Company adopted Statement of Financial Accounting Standards No. 112
("SFAS 112"), "Employers' Accounting for Postemployment Benefits," in the
first quarter of 1994. SFAS 112 addresses the accounting for workers
compensation, disability and other benefits provided after employment but
before retirement by requiring accrual of the expected cost when it is
probable that a benefit obligation has been incurred and the amount can be
reasonably estimated. Liabilities reflected in the consolidated balance
sheet as of December 31, 1993 for postemployment benefits were not
materially different than those required by SFAS 112; therefore, no
cumulative effect of change in accounting principle was recorded upon
adoption of SFAS 112.
INFLATION
The effects of increased costs historically have been mitigated by the
ability to recover certain costs applicable to the Company's regulated
telephone operations through the rate-making process. As operating
expenses in the nonregulated areas increase as a result of inflation, the
Company, to the extent permitted by competition, recovers the costs by
increasing prices for its services and equipment.
While the regulatory process does not consider replacement cost of
physical plant, the Company has historically been able to earn a return on
the increased cost of its net investment when facilities have been
replaced. Possible future regulatory changes may alter the Company's
ability to recover increased costs in its regulated operations. For
additional information regarding the current regulatory environment, see
Regulation and Competition below.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash
provided by operations to provide a substantial portion of its cash needs.
The Company's telephone operations have historically provided a stable
source of cash flow which has helped the Company continue its long-term
program of capital improvements. Cash provided by mobile communications
operations has increased each year since that segment became cash-flow
positive in 1991.
Operating Activities
Net cash provided by operating activities was $199.8 million, $166.8
million and $146.3 million in 1994, 1993 and 1992, respectively. The
Company's accompanying consolidated statements of cash flows identifies
36
<PAGE>
major differences between net income and net cash provided by operating
activities for each of these years. For additional information relating
to the telephone operations and mobile communications operations of the
Company, see Results of Operations.
Investing Activities
Net cash used in investing activities was $280.3 million and $248.7
million during 1994 and 1993, respectively. Capital expenditures for 1994
were $152.3 million for telephone operations, $39.9 million for mobile
communications operations and $8.6 million for other operations. Cash
used in connection with the February 1994 acquisition of Celutel
(exclusive of the refinancing of $41.7 million of Celutel's debt) was
$56.0 million. The remainder of the $106.0 million purchase price was
paid through the issuance of 1.9 million shares of Century common stock.
In connection with the corporate restructuring of an unaffiliated local
exchange telephone company which has been viewed from time to time as an
acquisition candidate, Century loaned the telephone company's holding
company $25.0 million in 1994. In 1993, another company had acquired
rights to purchase a controlling interest in the telephone company,
subject to the first refusal rights of the telephone company's principal
stockholder. Century's loan allowed this stockholder to exercise his
first refusal rights and preserved the future availability of the
telephone company as an acquisition candidate for Century. The loan is
collateralized by security interests in the capital stock of the holding
company and the telephone company and by a guaranty from the holding
company's principal stockholder. In connection with the loan, Century
obtained first refusal rights to acquire the stock of the holding company,
the stock of its subsidiaries and/or the assets of its subsidiaries under
various specified circumstances.
Net cash used in investing activities during 1993 was $22.5 million
less than during 1992 primarily because the amount of cash used for
acquisitions during 1993 was $97.9 million less than in the previous year.
Payments for property, plant and equipment during 1993 increased by $64.2
million.
Financing Activities
Net cash provided by financing activities during 1994 and 1993 was
$77.8 million and $81.9 million, respectively. During 1994 the Company
filed a shelf registration statement with the United States Securities and
Exchange Commission registering $400.0 million of senior unsecured debt
securities under which the Company issued $150.0 million of senior notes
in May 1994. See Note 3 of Notes to Consolidated Financial Statements.
The proceeds were used to discharge the Company's indebtedness under a
$90.0 million bridge loan incurred to fund substantially all of the
Company's cash requirements in connection with the acquisition of Celutel
in February 1994 (including the refinancing of $41.7 million of Celutel's
debt) and to reduce the Company's short-term bank indebtedness under
various floating-rate credit facilities. In connection with the
37
<PAGE>
offering, in the second quarter of 1994 Moody's upgraded Century's senior
unsecured debt rating to Baa1 and Standard & Poor's affirmed its BBB+
rating.
The $158.0 million of notes payable at December 31, 1994 reflects the
Company's continued utilization of borrowings under its credit facilities
to take advantage of favorable short-term interest rates. The Company
currently intends to continue to monitor market conditions for favorable
opportunities to refinance some or all of these borrowings with long-term
debt.
Cash provided by financing activities in 1993 was $41.0 million less
than in 1992 primarily because net borrowings, including long-term debt
and notes payable, were $38.4 million less than in 1992. The $88.3
million increase in notes payable outstanding in 1993 reflected the
Company's utilization of borrowings under its credit facilities as
discussed above. Proceeds from the issuance of debt during 1992 included
$115.0 million from the issuance of 6% convertible debentures in February
1992 to provide the major portion of the purchase price of Ohio.
Other
Budgeted capital expenditures for 1995 total $112.0 million for
telephone operations, $59.0 million for mobile communications operations
and $12.0 million for other operations. The Company anticipates that
capital expenditures in its telephone operations will continue to include
the installation of fiber optic cable, the replacement of mechanical
switches with digital switches and the upgrading of its plant and
equipment to provide enhanced services. Mobile communications capital
expenditures are expected to continue to focus primarily on constructing
additional cell sites and upgrading the Company's cellular systems to
increase capacity, to enhance the Company's ability to provide digital
service in the future and to begin providing digital service in certain
markets. Budgeted capital expenditures for other operations include
capital construction costs planned to be expended in the Company's
recently-formed competitive access operations.
The Company decided not to participate in the FCC's auction of Major
Trading Area broadband licenses to provide Personal Communications
Services ("PCS"). If attractive opportunities arise, the Company may
participate in the FCC's auctions of Basic Trading Area PCS licenses to be
held in 1995. Pending these auctions, the Company will continue to equip
its current cellular networks with digital enhancements which may, when
applied with new microcellular technologies, permit the Company's cellular
systems to provide services comparable with emerging PCS technologies.
The Company will continue its long-term strategy of pursuing the
acquisition of attractive communications properties in exchange for cash,
securities or both, and may require additional financing in connection
therewith. Approximately 1.2 million shares of Century common stock and
125,000 shares of Century
38
<PAGE>
preferred stock remain available for future issuance in connection with
acquisitions under an acquisition shelf registration statement.
As of December 31, 1994, Century's telephone subsidiaries had available
for use $124.0 million of commitments for long-term financing from the
Rural Utilities Service ("RUS") (formerly the Rural Electrification
Administration or REA) and the Company had $65.1 million of undrawn
committed bank lines of credit. In addition, approximately $28.0 million
of uncom-mitted credit facilities were available to Century at December
31, 1994. The Company also has access to debt and equity capital markets,
including its shelf registration statements mentioned above. Applications
for additional long-term financing for Century's telephone subsidiaries
have been filed with the RUS and are in various stages of processing. The
Company has experienced no significant problems in obtaining funds for
capital expenditures or other purposes.
On January 20, 1995 Century called for redemption all $115.0 million of
its outstanding 6% convertible debentures due 2007 at a redemption price
of 104.2% of principal plus accrued interest through February 21, 1995,
the redemption date. All of the debentures were converted into Century
common stock by the debenture holders on or before February 13, 1995 at a
conversion price of $25.33 per share.
Common stockholders' equity as a percentage of total capitalization was
48.4% and 48.5% at December 31, 1994 and 1993, respectively. If all of
the 6% convertible debentures discusssed in the preceding paragraph had
been converted into common stock at December 31, 1994, common
stockholders' equity as a percentage of total capitalization would have
been 57.0%.
REGULATION AND COMPETITION
The majority of the Company's telephone operations are regulated
extensively by various state regulatory agencies and by the FCC.
Primarily as a result of legislative, regulatory and technological
changes, competition has been introduced and encouraged in certain sectors
of the telephone industry. It is expected that upcoming legislation will
address the telecommunications industry and that regulation will decrease
and competition increase in the traditionally monopolistic portions of the
industry. While competition is not new to the Company's cellular
operations, the competitive environment for the cellular industry is also
experiencing change.
Recent Events Affecting the Company
Revenues from the USF increased approximately $9.7 million to $36.3
million during 1994 after increasing $6.2 million during 1993. In 1994
the FCC sought public comment on the effectiveness of high cost assistance
programs provided to LECs, including the USF. In addition, certain bills
recently considered by the United States Congress have sought changes to
Federal high cost assistance programs. Although there is no assurance
39
<PAGE>
that the current level of cost recovery from such programs will be
maintained, it is anticipated that mechanisms for high cost assistance
will continue to be provided.
In 1993 the Public Service Commission of Wisconsin ("PSCW") ordered the
Wisconsin state support fund existing at July 1, 1993 to be phased-out.
Certain of the Company's subsidiaries affected by the order have received
approval from the PSCW for increased local rates and other compensation
which offset the loss of the amounts that the Company's subsidiaries had
been receiving from the state support fund. In addition, the PSCW is
conducting an examination of transactions in which Century and its service
subsidiaries provided to the Company's Wisconsin telephone subsidiaries
various services and materials, including supplies and managerial,
technical and accounting services. While this examination may result in
refunds to customers, the Company does not believe that results of
operations will be materially affected.
In July 1994 the Wisconsin Telecommunications Act of 1993 was signed
into law. Among other things, the act requires the PSCW to authorize
cable television operators to provide local exchange service in larger
markets, including one of the Company's markets. Although no cable
television operator has requested authorization from the PSCW to provide
local exchange service in the Company's market, the Company anticipates
that such a request will be forthcoming. During 1994 certain other states
in which the Company operates took legislative and/or regulatory steps to
further introduce competition into the LEC business.
After initiating an informal earnings review during 1993 of all
independent local exchange carriers in Louisiana, the Louisiana Public
Service Commission ("LPSC") recently docketed a formal earnings review of
such carriers which could possibly lead to a reduction in earnings. As
19% of the Company's telephone access lines are in Louisiana, there is no
assurance that the impact of possible changes resulting from such review
will not have a material effect on future results of operations.
Certain long distance carriers continue to request that the Company
reduce intrastate access tariffed rates for certain of its telephone
subsidiaries. In March 1994 a major long distance carrier filed a
petition with the LPSC requesting that the commission investigate and
lower the rates for intrastate access charges charged to long distance
carriers by certain local exchange telephone companies, including the
Company's Louisiana subsidiaries. There is no assurance that these
requests will not result in reduced intrastate access revenues.
Events Affecting the Telecommunications Industry
The telecommunications industry is currently undergoing various
regulatory, competitive and technological changes that make it impossible
to determine the form or degree of future regulation and competition
affecting the Company's telephone and mobile communications operations.
The FCC and a number of state regulatory commissions have begun to reduce
the regulatory oversight of LECs. Coincident with this movement toward
reduced regulation is the introduction and encouragement of local exchange
40
<PAGE>
competition by the FCC, various state regulatory commissions and others.
These changes have accelerated the growth of certain companies providing
competitive access and other services that compete with LECs' services and
led to the announcement by certain interexchange carriers and cable
television companies of their desire to enter the local telephone
business, particularly in larger markets. Wireless telephone services are
also expected to increasingly compete with LECs. The FCC has recently
allocated additional frequency spectrum for mobile communications
technologies that will or may be competitive with cellular, including PCS
(for which the FCC began to auction operating licenses in late 1994) and
mobile satellite services. The FCC has also authorized certain
specialized mobile radio service licensees to configure their systems so
as to operate in a manner similar to cellular systems. Some of these
licensees have announced their intention to create a nationwide mobile
communications system to compete with cellular systems. In addition, in
connection with the well-publicized convergence of telecommunications,
cable, video, computer and other technologies, several large companies
have recently announced plans to offer products that would significantly
enhance current communications and data transmission services and, in some
instances, introduce new two-way video, entertainment, data, consumer and
other multimedia services.
In 1994 the United States House of Representatives passed two
telecommunications bills that proposed to substantially alter the
regulatory framework of the telecommunications industry by, among other
things, promoting local exchange competition and removing certain barriers
of entry to several lines of telecommunications businesses. A companion
bill failed to pass in the United States Senate. Legislation is expected
to be considered in 1995 that, among other things, will promote
competition and deregulation to a greater degree than the bills that
passed the House in 1994.
Competition to provide local exchange and access services is expected
to initially affect large urban areas to a greater extent than rural,
suburban and small urban areas such as those in which the Company's
telephone operations are located. The same expectation applies to
emerging competitive wireless technologies and the development of new
multimedia services. The Company does not believe such competition is
likely to materially affect it in the near term. The Company further
believes that it may benefit from having the opportunity to observe the
effects of these developments in large urban markets. The Company will
continue to monitor the ongoing changes in regulation, competition and
technology and consider which developments provide the most favorable
opportunities for the Company to pursue.
Other Matters
The Company's regulated telephone operations are subject to the
provisions of Statement of Financial Accounting Standards No. 71 ("SFAS
71"), "Accounting for the Effects of Certain Types of Regulation," under
which the Company is required to account for the economic effects of the
rate-making process, including the recognition of depreciation of plant
and equipment over lives approved by regulators. The ongoing
applicability of SFAS 71 to the Company's regulated telephone operations
is being monitored due to the
41
<PAGE>
changing regulatory, competitive and legislative environments. Should the
regulated operations of the Company no longer qualify for the application of
SFAS 71 at some future date, the required accounting impact, the amount of
which has not been determined, would result in a material, extraordinary,
noncash charge against earnings. See Note 14 of Notes to Consolidated
Financial Statements for additional information.
The Company has certain obligations based on federal, state and local
laws relating to the protection of the environment. Costs of compliance
through 1994 have not been material and the Company currently has no
reason to believe that such costs will become material.
42
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Management
--------------------
To the Shareholders of
Century Telephone Enterprises, Inc.:
Management has prepared and is responsible for the Company's
consolidated financial statements. The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and necessarily include amounts determined using our best
judgments and estimates with consideration given to materiality.
The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that the accounting
records accurately reflect business transactions and that the transactions
are in accordance with management's authorization. The design, monitoring
and revision of the systems of internal control involve, among other
things, our judgment with respect to the relative cost and expected
benefits of specific control measures. Additionally, the Company
maintains an internal auditing function which independently evaluates the
effectiveness of internal controls, policies and procedures and formally
reports on the adequacy and effectiveness thereof.
The Company's consolidated financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, who have
expressed their opinion with respect to the fairness of the consolidated
financial statements. Their audit was conducted in accordance with
generally accepted auditing standards, which includes the consideration of
the Company's internal controls to the extent necessary to form an
independent opinion on the consolidated financial statements prepared by
management.
The Audit Committee of the Board of Directors is composed of directors
who are not officers or employees of the Company. The Committee meets
periodically with the independent certified public accountants, internal
auditors and management. The Committee considers the audit scope and
discusses internal control, financial and reporting matters. Both the
independent and internal auditors have free access to the Committee.
/s/ R. Stewart Ewing, Jr.
R. Stewart Ewing, Jr.
Senior Vice President and Chief Financial Officer
43
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Century Telephone Enterprises, Inc.:
We have audited the consolidated financial statements of Century
Telephone Enterprises, Inc. and subsidiaries as listed in Item 14a(i). In
connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule as listed in Item
14a(ii). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Century Telephone Enterprises, Inc. and subsidiaries as of December 31,
1994 and 1993, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
As discussed in notes 1 and 9 to the consolidated financial statements,
the Company adopted Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," and
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in 1992.
/s/ KPMG Peat Marwick LLP
Shreveport, Louisiana
February 6, 1995
44
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Income
Year ended December 31,
======================================================================
1994 1993 1992
----------------------------------------------------------------------
(Dollars in thousands,
except per share amounts)
OPERATING REVENUES
Telephone $ 389,438 348,485 297,510
Mobile Communications 150,802 84,712 62,092
----------------------------------------------------------------------
Total revenues 540,240 433,197 359,602
----------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and
operating expenses 276,375 231,855 187,076
Depreciation and amortization 94,430 76,534 62,898
----------------------------------------------------------------------
Total expenses 370,805 308,389 249,974
----------------------------------------------------------------------
OPERATING INCOME 169,435 124,808 109,628
----------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (42,577) (30,149) (27,166)
Income from unconsolidated
cellular entities 15,698 6,626 1,692
Gain on sales of assets 15,877 1,661 3,985
Other income and expense 3,105 3,310 4,433
----------------------------------------------------------------------
Total other income (expense) (7,897) (18,552) (17,056)
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 161,538 106,256 92,572
Income tax expense 61,300 37,252 32,599
----------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING
PRINCIPLES 100,238 69,004 59,973
Cumulative effect of changes
in accounting principles - - (15,668)
----------------------------------------------------------------------
NET INCOME $ 100,238 69,004 44,305
======================================================================
PRIMARY EARNINGS PER SHARE :
Before cumulative effect of
changes in accounting
principles $ 1.88 1.35 1.23
Cumulative effect of changes
in accounting principles - - (.32)
----------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE $ 1.88 1.35 .91
======================================================================
FULLY DILUTED EARNINGS PER SHARE :
Before cumulative effect of
changes in accounting
principles $ 1.80 1.32 1.22
Cumulative effect of changes
in accounting principles - - (.31)
----------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE $ 1.80 1.32 .91
======================================================================
DIVIDENDS PER COMMON SHARE $ .320 .310 .293
======================================================================
See accompanying notes to consolidated financial statements.
45
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Balance Sheets
December 31,
==========================================================================
1994 1993
--------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,154 9,777
Accounts receivable
Customers, less allowance for doubtful
accounts of $2,360 and $1,473 40,824 34,438
Other 23,180 21,771
Materials and supplies, at average cost 7,090 4,418
Other 2,980 2,068
--------------------------------------------------------------------------
Total current assets 81,228 72,472
--------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 947,131 827,776
--------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired,
less accumulated amortization
of $40,756 and $29,253 441,436 297,158
Other 173,458 121,984
--------------------------------------------------------------------------
Total investments and other assets 614,894 419,142
--------------------------------------------------------------------------
TOTAL ASSETS $1,643,253 1,319,390
==========================================================================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,718 14,233
Notes payable to banks 158,000 165,700
Accounts payable 52,331 49,506
Accrued expenses and other current liabilities
Salaries and benefits 17,884 15,990
Taxes 16,530 9,327
Interest 8,243 6,476
Other 9,237 5,162
Advance billings and customer deposits 11,725 9,312
--------------------------------------------------------------------------
Total current liabilities 286,668 275,706
--------------------------------------------------------------------------
LONG-TERM DEBT 518,603 364,433
--------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 187,746 165,483
--------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
100,000,000 shares, issued and outstanding
53,574,361 and 51,294,705 shares 53,574 51,295
Paid-in capital 319,235 262,294
Retained earnings 291,999 208,945
Unearned ESOP shares (16,840) (9,220)
Preferred stock - non-redeemable 2,268 454
--------------------------------------------------------------------------
Total stockholders' equity 650,236 513,768
--------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $1,643,253 1,319,390
==========================================================================
See accompanying notes to consolidated financial statements.
46
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Cash Flows
Year ended December 31,
=========================================================================
1994 1993 1992
-------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 100,238 69,004 44,305
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 103,591 85,209 70,367
Cumulative effect of changes in
accounting principles - - 15,668
Income from unconsolidated
cellular entities (15,698) (6,626) (1,692)
Deferred income taxes 7,423 6,781 (1,427)
Gain on sales of assets (15,877) (1,661) (3,985)
Changes in current assets and
current liabilities:
Increase in accounts receivable (1,581) (7,026) (2,307)
Increase (decrease) in accounts
payable (2,383) 11,024 11,694
Increase (decrease) in other
accrued taxes 8,347 (1,476) 3,115
Changes in other current assets and
other current liabilities, net 6,543 2,135 7,434
Increase in other noncurrent liabilities 7,469 8,536 148
Other, net 1,732 854 3,004
-------------------------------------------------------------------------
Net cash provided by
operating activities 199,804 166,754 146,324
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (200,776) (204,229) (140,057)
Acquisitions, net of cash acquired (55,979) (37,116) (134,999)
Note receivable (25,000) - -
Investments in unconsolidated
cellular entities (5,516) (3,605) (2,161)
Distributions from unconsolidated
cellular entities 5,969 1,587 395
Proceeds from sales of assets 10,475 - 5,049
Purchase of life insurance investment (7,664) (7,670) (6,160)
Other, net (1,764) 2,361 6,771
-------------------------------------------------------------------------
Net cash used in investing
activities (280,255) (248,672) (271,162)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 155,427 35,847 142,081
Payments of long-term debt (59,792) (32,564) (25,246)
Notes payable, net (7,700) 88,285 13,115
Proceeds from issuance of common stock 4,814 3,529 8,776
Cash dividends paid (17,184) (15,735) (14,119)
Other, net 2,263 2,562 (1,636)
-------------------------------------------------------------------------
Net cash provided by
financing activities 77,828 81,924 122,971
-------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,623) 6 (1,867)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 9,777 9,771 11,638
-------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,154 9,777 9,771
=========================================================================
See accompanying notes to consolidated financial statements.
47
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred
Total Stock
Common Stock- Unearned Non-
Shares holders' Common Paid-in Retained ESOP redeem-
Outstanding Equity Stock Capital Earnings Shares able
===========================================================================================
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
31,364,872 BALANCES, DECEMBER 31, 1991 $319,977 31,365 175,648 125,490 (12,980) 454
- Net income 44,305 - - 44,305 - -
Issuance of common stock
through dividend
reinvestment, incentive
490,275 and benefit plans 8,777 490 8,287 - - -
Issuance of common stock for
978,115 acquisitions 21,475 978 20,497 - - -
Amortization of unearned
- compensation and other 3,154 - 3,154 - - -
16,063,614 Three-for-two stock split - 16,064 (16,064) - - -
- Release of ESOP shares 1,880 - - - 1,880 -
Common stock dividends -
- $.293 per share (14,087) - - (14,087) - -
- Preferred stock dividends (32) - - (32) - -
-----------------------------------------------------------------------------------------
48,896,876 BALANCES, DECEMBER 31, 1992 385,449 48,897 191,522 155,676 (11,100) 454
- Net income 69,004 - - 69,004 - -
Issuance of common stock
through dividend
reinvestment, incentive
214,954 and benefit plans 3,529 215 3,314 - - -
Issuance of common stock for
2,182,875 acquisitions 68,172 2,183 65,989 - - -
Amortization of unearned
- compensation and other 1,469 - 1,469 - - -
- Release of ESOP shares 1,880 - - - 1,880 -
Common stock dividends -
- $.310 per share (15,703) - - (15,703) - -
- Preferred stock dividends (32) - - (32) - -
-----------------------------------------------------------------------------------------
51,294,705 BALANCES, DECEMBER 31, 1993 513,768 51,295 262,294 208,945 (9,220) 454
- Net income 100,238 - - 100,238 - -
Issuance of common stock
through dividend
reinvestment, incentive
276,657 and benefit plans 4,814 277 4,537 - - -
Issuance of preferred stock
- for acquisition 1,875 - - - - 1,875
Issuance of common stock for
2,000,578 acquisitions 52,311 2,000 50,311 - - -
Conversion of preferred stock
2,421 to common stock - 2 59 - - (61)
Amortization of unearned
- compensation and other 2,034 - 2,034 - - -
- Release of ESOP shares 2,380 - - - 2,380 -
- Commitment to ESOP (10,000) - - - (10,000) -
Common stock dividends -
- $.320 per share (17,084) - - (17,084) - -
- Preferred stock dividends (100) - - (100) - -
-----------------------------------------------------------------------------------------
53,574,361 BALANCES, DECEMBER 31, 1994 $650,236 53,574 319,235 291,999 (16,840) 2,268
=========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
Notes to Consolidated Financial Statements
December 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements of
Century Telephone Enterprises, Inc. and subsidiaries (the "Company")
include the accounts of Century Telephone Enterprises, Inc. ("Century")
and its majority-owned subsidiaries and partnerships. The Company's
regulated telephone operations are subject to the provisions of Statement
of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the
Effects of Certain Types of Regulation." Investments in cellular entities
where the Company does not own a majority interest are accounted for using
the equity method of accounting.
Revenue recognition - Revenues are recognized when earned. Certain of the
Company's telephone subsidiaries participate in revenue pools with other
telephone companies for interstate revenue and for certain intrastate
revenue. Such pools are funded by toll revenue and/or access charges
within state jurisdictions and by access charges in the interstate market.
Revenues earned through the various pooling processes are initially
recorded based on the Company's estimates.
Property, plant and equipment - Telephone plant is stated substantially at
original cost of construction. Normal retirements of telephone property
are charged against accumulated depreciation, along with the costs of
removal, less salvage, with no gain or loss recognized. Renewals and
betterments of plant and equipment are capitalized while repairs, as well
as renewals of minor items, are charged to operating expense.
Depreciation of telephone properties is provided on the straight line
method, using class or overall composite rates acceptable to the
regulatory authorities.
Non-telephone property is stated at cost and, when sold or retired, a
gain or loss is recognized. Depreciation of such property is provided on
the straight line method over estimated service lives ranging from three
to thirty years.
Excess cost of net assets acquired - The excess cost of net assets
acquired of substantially all of the Company's acquisitions accounted for
as purchases (goodwill) is being amortized over forty years. The carrying
value of goodwill is reviewed for impairment at least annually, or
whenever events or changes in circumstances indicate that such carrying
value may not be recoverable, by assessing the recoverability of such
carrying value through estimated undiscounted future net cash flows.
49
<PAGE>
Affiliated transactions - Certain service subsidiaries of Century provide
installation and maintenance services, materials and supplies, and
managerial, technical and accounting services to subsidiaries. In
addition, Century provides and bills management services to subsidiaries
and in certain instances makes interest bearing advances to finance
construction of plant and purchases of equipment. These purchases are
recorded by the Company's telephone subsidiaries at their cost to the
extent permitted by regulatory authorities. Intercompany profit on
transactions with regulated affiliates is limited to a reasonable return
on investment and has not been eliminated. Intercompany profit on
transactions with nonregulated affiliates has been eliminated.
Income taxes - Century files a consolidated federal income tax return with
its eligible subsidiaries. The Company uses the asset and liability
method of accounting for income taxes under which deferred tax assets and
liabilities are established for the future tax consequences attributable
to differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases. Investment tax credits
related to telephone plant have been deferred and are being amortized as a
reduction of federal income tax expense over the estimated useful lives of
the assets giving rise to the credits.
The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting For Income Taxes," as of January 1, 1992 and
reported an unfavorable $913,000 cumulative effect of the change in the
method of accounting for income taxes in the 1992 consolidated statement
of income.
Earnings per share - Primary earnings per share amounts are determined on
the basis of the weighted average number of common shares and common stock
equivalents outstanding during the year. The number of shares used in
computing primary earnings per share was 53.4 million in 1994, 51.2
million in 1993, and 48.5 million in 1992.
Fully diluted earnings per share amounts give further effect to
convertible securities, primarily Century's convertible debentures, which
are not common stock equivalents. For the computation of fully diluted
earnings per share for 1992, the debentures were excluded as their
inclusion would have been anti-dilutive. The number of shares used in
computing fully diluted earnings per share was 58.1 million, 55.9 million
and 48.7 million in 1994, 1993 and 1992, respectively. The number of
shares used in computing fully diluted earnings per share before the
cumulative effect of changes in accounting principles in 1992 was 52.8
million.
Cash equivalents - The Company considers short-term investments with a
maturity at date of purchase of three months or less to be cash
equivalents.
50
<PAGE>
Reclassifications - Certain amounts previously reported for prior years
have been reclassified to conform with the 1994 presentation.
(2) PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment at December 31, 1994 and 1993 was
composed of the following:
December 31, 1994 1993
==========================================================================
(Dollars in thousands)
Telephone, at original cost
Cable and wire $ 580,012 512,240
Central office 310,684 281,123
General support 91,722 85,303
Information origination/termination 21,478 36,925
Construction in progress 67,244 53,838
Other 5,356 10,020
--------------------------------------------------------------------------
1,076,496 979,449
Accumulated depreciation (295,255) (288,479)
--------------------------------------------------------------------------
781,241 690,970
--------------------------------------------------------------------------
Mobile Communications, at cost
Cell site 104,553 81,528
General support 34,235 22,974
Pagers - 3,166
Construction in progress 12,602 2,192
Other 915 3,392
--------------------------------------------------------------------------
152,305 113,252
Accumulated depreciation (38,552) (27,736)
--------------------------------------------------------------------------
113,753 85,516
--------------------------------------------------------------------------
Other, at cost
General support 81,932 77,011
Other 3,474 726
--------------------------------------------------------------------------
85,406 77,737
Accumulated depreciation (33,269) (26,447)
--------------------------------------------------------------------------
52,137 51,290
--------------------------------------------------------------------------
Net property, plant and equipment $ 947,131 827,776
==========================================================================
Depreciation expense was $92.1 million, $78.0 million and $64.3 million
in 1994, 1993 and 1992, respectively. The composite depreciation rate for
telephone properties was 7.1%, 7.1% and 6.6% for 1994, 1993 and 1992,
respectively.
51
<PAGE>
(3) LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 was composed of the
following:
December 31, 1994 1993
==========================================================================
(Dollars in thousands)
Century
6.0% convertible debentures, due 2007 $ 115,000 115,000
8.25% senior notes, due 2024 100,000 -
9.4%* senior notes, due through 2004 65,000 69,600
7.75% senior notes, due 2004 50,000 -
7.2%* Employee Stock Ownership
Plan commitment, due in installments
through 2004 16,840 9,220
10.7%* notes, due in installments through 2006 975 1,245
--------------------------------------------------------------------------
Total Century 347,815 195,065
--------------------------------------------------------------------------
Subsidiaries
First mortgage debt
5.8%* notes, payable to agencies of the
United States government and cooperative
lending associations, due in
installments through 2026 166,175 158,998
7.4%* bonds, due in installments through 2002 7,094 11,699
Other debt
9.0%* notes, due in installments through 2020 8,632 8,633
7.8%* capital lease obligations, due in
installments through 1997 1,605 4,271
--------------------------------------------------------------------------
Total subsidiaries 183,506 183,601
--------------------------------------------------------------------------
Total long-term debt 531,321 378,666
Less current maturities 12,718 14,233
--------------------------------------------------------------------------
Long-term debt, excluding current maturities $ 518,603 364,433
==========================================================================
* weighted average interest rate at December 31, 1994
The approximate annual debt maturities (including sinking fund
requirements) for the five years subsequent to December 31, 1994 are as
follows: 1995 - $12.7 million; 1996 - $43.7 million; 1997 - $13.6 million;
1998 - $11.4 million; and 1999 - $11.0 million.
The 6% convertible debentures are convertible into Century common stock
at a conversion price of $25.33 per share and may be redeemed by Century
on or after February 1, 1995 subject to a declining premium schedule. As
discussed in Note 20, Century has called the debentures for redemption at
a redemption price of 104.2% of principal.
52
<PAGE>
During the first quarter of 1994, Century filed a shelf registration
statement registering $400.0 million of senior unsecured debt securities
under which, in May 1994, Century issued $50.0 million of 10-year, 7.75%
senior notes and $100.0 million of 30-year, 8.25% senior notes. The
proceeds were used to reduce certain of the Company's short-term bank
indebtedness. Interest payments are due semi-annually and principal
payments are due in 2004 and 2024 upon maturity of the 10-year and 30-year
notes, respectively. The 30-year notes may be redeemed by Century on or
after May 1, 2004 subject to a premium schedule which declines from
103.62% as of May 1, 2004 to 100% as of May 1, 2014.
The Company's loan agreements contain various restrictions, among which
are limitations regarding issuance of additional debt, payment of cash
dividends, reacquisition of the Company's capital stock and other matters.
At December 31, 1994, all of the consolidated retained earnings reflected
on the balance sheet was available for the declaration of dividends.
The transfer of funds from certain consolidated subsidiaries to Century
is restricted by various loan agreements. Subsidiaries which have loans
from government agencies and cooperative lending associations, or have
issued first mortgage bonds, generally may not loan or advance any funds
to Century, but may pay dividends if certain financial ratios are met. At
December 31, 1994, restricted net assets of subsidiaries were $140.1
million. Subsidiaries' retained earnings in excess of amounts restricted
by debt covenants totaled $355.2 million.
Substantially all of the Company's telephone property, plant and
equipment is pledged to secure the long-term debt of subsidiaries.
At December 31, 1994 and 1993, Century had in place certain long-term
credit facilities more fully discussed in Note 5. Borrowings totaling
$96.5 million under such facilities at December 31, 1993 which were
classified as "Long-term debt" in previously issued financial statements
have been reclassified to "Notes payable to banks" due to subjective
acceleration clauses included in the facilities.
Century's telephone subsidiaries had approximately $124.0 million in
commitments for long-term financing from the Rural Utilities Service
available at December 31, 1994. Approximately $93.1 million of additional
borrowings, of which $28.0 million were under uncommitted facilities, were
available to the Company through lines of credit with various banks. In
addition, Century had $250.0 million of senior unsecured debt securities
under the 1994 shelf registration statement which had not been issued.
53
<PAGE>
(4) INVESTMENTS AND OTHER ASSETS
Investments and other assets at December 31, 1994 and 1993 were
composed of the following:
December 31, 1994 1993
=========================================================================
(Dollars in thousands)
Excess cost of net assets acquired,
less accumulated amortization $ 441,436 297,158
Investments in unconsolidated cellular entities 59,360 41,983
Cash surrender value of life insurance contracts 47,637 38,642
Note receivable, less current portion 24,167 -
Marketable equity securities 8,478 8,478
Other 33,816 32,881
--------------------------------------------------------------------------
$ 614,894 419,142
==========================================================================
Goodwill amortization of $10.6 million, $6.2 million and $5.0 million
for 1994, 1993 and 1992, respectively, is included in "Depreciation and
amortization."
In 1994 Century loaned an unaffiliated telephone holding company $25.0
million. The loan bears interest at prime plus 1.5%; interest is due
quarterly. Quarterly principal payments are scheduled to begin in August
1995 with the unpaid balance becoming due in May 1998. The loan is
collateralized by security interests in the capital stock of the holding
company and a subsidiary and by a guaranty from such company's principal
stockholder. In connection with the loan, Century obtained first refusal
rights to acquire certain properties under various specified circumstances.
For additional information, see the second paragraph of Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Investing Activities.
(5) REVOLVING CREDIT FACILITIES
At December 31, 1994 and 1993, Century had in place certain long-term
credit facilities, including a $50.0 million line of credit (two-year
revolver which expires in January 1996, convertible to a five-year term
loan) with interest at the rate chosen by the Company based on a number of
interest rate options and a $55.0 million line of credit (multi-year
revolving credit facility which expires in January 1998) with similar
interest rate options. Borrowings under such facilities are included in
"Notes payable to banks" on the accompanying balance sheets. The
facilities can be withdrawn by the lenders only upon an event of default as
defined in the respective agreements. The weighted average interest rate
for notes payable to banks was 6.5% and 3.9% as of December 31, 1994 and
1993, respectively. See Note 3 for additional information.
54
<PAGE>
(6) STOCKHOLDERS' EQUITY
Common stock - At December 31, 1994, unissued shares of Century common
stock were reserved as follows:
Number of shares
===================================================================
(In thousands)
Conversion of convertible debentures 4,540
Stock option plans 2,781
Acquisitions 1,178
Employee stock purchase plan 506
Dividend reinvestment plan 291
Conversion of convertible preferred stock 193
Other employee benefit plans 1,262
-------------------------------------------------------------------
10,751
===================================================================
Under Century's Articles of Incorporation each share of common stock
beneficially owned continuously by the same person since May 30, 1987
generally entitles the holder thereof to ten votes per share. All other
shares entitle the holder to one vote per share. At December 31, 1994,
8.9 million shares of common stock were entitled to ten votes per share.
Preferred stock - As of December 31, 1994, Century had 2.0 million shares
of preferred stock, $25 par value per share, authorized. At December 31,
1994 and 1993 there were 90,707 and 18,162, respectively, shares of
outstanding preferred stock. Holders of currently outstanding Century
preferred stock are entitled to (i) receive cumulative dividends, (ii)
receive preferential distributions equal to $25 per share plus unpaid
dividends upon Century's liquidation and (iii) vote as a single class with
the common stock. At December 31, 1994 and 1993, 4,260 shares of Century
preferred stock were redeemable at the option of the Company.
Shareholders' Rights Plan - In 1986 the Board of Directors declared a
dividend of one preferred stock purchase right for each common share
outstanding or that shall become outstanding prior to November 26, 1996.
With certain exceptions, if a person or group acquires beneficial
ownership of 15% or more of Century common shares or commences a tender or
exchange offer which upon consummation would result in ownership of 30% or
more of the common shares, each right held by shareholders, other than
such person or group, may be exercised to buy (i) eight twenty-sevenths of
one one-hundredth of a share of Series AA Junior Participating Preferred
Stock of Century at a price of $85 per one one-hundredth of a share or
(ii) in lieu thereof, subject to certain restrictions, the number of
shares of Century common stock having a market value equal to two times
such purchase price. The rights, which do not have voting rights, expire
on November 27, 1996 and may be redeemed by Century at a price of $.05 per
right at any time before they become exercisable. If, at any time the
rights are exercisable, Century is a party to a merger or other business
combination or certain other transactions occur, each right will entitle
its holder to purchase at the exercise price of the right a number of
shares of common stock of the surviving company having a fair market value
of two times the exercise price of the right.
55
<PAGE>
At December 31, 1994, 162,000 shares of Series AA Junior Participating
Preferred Stock were reserved for issuance under the Rights Plan.
(7) DEFERRED CREDITS AND OTHER LIABILITIES
Deferred credits and other liabilities at December 31, 1994 and 1993
were composed of the following:
December 31, 1994 1993
==========================================================================
(Dollars in thousands)
Deferred federal and state income taxes $ 73,966 60,122
Accrued postretirement benefit costs 41,126 36,642
Regulatory liability - income taxes 31,278 36,111
Minority interest 22,585 10,504
Deferred investment tax credits 8,175 10,431
Other 10,616 11,673
--------------------------------------------------------------------------
$187,746 165,483
==========================================================================
(8) INCOME TAXES
Income tax expense for the years ended December 31, 1994, 1993 and 1992
was allocated as follows:
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands)
Income before cumulative effect of
changes in accounting principles $ 61,300 37,252 32,599
Cumulative effect of changes in
accounting principles - - (8,272)
--------------------------------------------------------------------------
Net tax expense in the consolidated
statements of income 61,300 37,252 24,327
Stockholders' equity, primarily for compensation
expense for tax purposes in excess of amounts
recognized for financial reporting purposes (1,243) (800) (2,885)
--------------------------------------------------------------------------
$ 60,057 36,452 21,442
==========================================================================
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 were as follows:
December 31, 1994 1993
=========================================================================
(Dollars in thousands)
Deferred tax assets:
Postretirement benefit costs $ 12,908 10,809
Net operating loss carryforwards of
an acquired subsidiary 10,283 -
Regulatory liability 10,948 12,011
Deferred compensation 2,676 2,522
Deferred investment tax credits 2,658 3,465
Other employee benefits 4,205 3,842
Other 2,556 630
-------------------------------------------------------------------------
Total gross deferred tax assets 46,234 33,279
Less valuation allowance (10,283) -
-------------------------------------------------------------------------
Net deferred tax assets 35,951 33,279
-------------------------------------------------------------------------
56
<PAGE>
Deferred tax liabilities:
Property, plant and equipment, primarily due
to depreciation differences (97,073) (84,159)
Intercompany profits (3,497) (3,236)
Other (9,347) (6,006)
-------------------------------------------------------------------------
Total gross deferred tax liabilities (109,917) (93,401)
-------------------------------------------------------------------------
Net deferred tax liability $(73,966) (60,122)
=========================================================================
As a result of the acquisition of Celutel, Inc. ("Celutel") (see Note
16) the Company has $29.4 million of net operating loss carryforwards at
December 31, 1994 which relate to various entities acquired. The yearly
utilization of such loss carryforwards is limited to separate entity
taxable income; the loss carryforwards are further limited by certain
Internal Revenue Code regulations. Subsequently recognized tax benefits
applicable to the net operating loss carryforwards will reduce excess cost
of net assets acquired. The net operating loss carryforwards expire
between 2002 and 2008.
Income tax expense attributable to income before cumulative effect of
changes in accounting principles was as follows:
Year ended December 31, 1994 1993 1992
=========================================================================
(Dollars in thousands)
Federal
Current $ 47,969 26,409 29,100
Deferred 5,703 6,133 (1,742)
State
Current 5,908 4,062 4,926
Deferred 1,720 648 315
-------------------------------------------------------------------------
$ 61,300 37,252 32,599
=========================================================================
The following is a reconciliation from the statutory federal income tax
rate to the Company's effective income tax rate:
Year ended December 31, 1994 1993 1992
==========================================================================
(Percentage of pre-tax income)
Statutory federal income tax rate 35.0% 35.0 34.0
State income taxes, net of federal
income tax benefit 3.0 2.9 3.7
Amortization of nondeductible excess
cost of net assets acquired 2.1 1.2 2.0
Amortization of investment tax credits (1.4) (2.0) (2.3)
Amortization of regulatory liability (1.2) (1.8) (2.6)
Other, net .4 (.2) .4
--------------------------------------------------------------------------
Effective income tax rate 37.9% 35.1 35.2
==========================================================================
57
<PAGE>
(9) POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company sponsors defined benefit health care plans that provide
postretirement medical, life and dental benefits to substantially all
retired full-time employees.
The Company adopted Statement of Financial Accounting Standards No. 106
("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other
Than Pensions," as of January 1, 1992 and elected immediate recognition of
the transition obligation. In accordance with the provisions of SFAS 71
the Company deferred $3.5 million of the $27.4 million transition
obligation as a regulatory asset; such costs are being expensed in
connection with recovery through the rate-making process. The remaining
$23.9 million, net of tax benefits which aggregated $9.2 million, was
reported as the cumulative effect of a change in accounting principle.
Net periodic postretirement benefit cost for 1994, 1993 and 1992
included the following components:
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands)
Service cost $ 2,007 1,640 1,040
Interest cost 3,473 3,008 2,521
Amortization of unrecognized actuarial losses 447 365 -
Amortization of unrecognized prior service cost 121 86 -
--------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 6,048 5,099 3,561
==========================================================================
The following table sets forth the amounts recognized as liabilities
for postretirement benefits in the Company's consolidated balance sheets
at December 31, 1994 and 1993.
December 31, 1994 1993
==========================================================================
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees and retirees' dependents $ 19,079 20,451
Fully eligible active plan participants 8,300 6,753
Other active plan participants 16,430 18,555
--------------------------------------------------------------------------
Accumulated postretirement benefit obligation 43,809 45,759
Plan assets - -
Unrecognized prior service cost (1,546) (1,177)
Unrecognized net gain (loss) 173 (6,630)
--------------------------------------------------------------------------
Accrued postretirement benefit costs $ 42,436 37,952
==========================================================================
For calculation purposes, a 7% health care cost rate was assumed for
1995 through 1997; the rate was assumed to decrease to 6% thereafter. If
the assumed health care cost trend rate had been increased by one
percentage point in each year, the accumulated postretirement benefit
obligation as of December 31, 1994 would have increased $7.5 million and
the net periodic postretirement benefit cost for the year ended December
31, 1994 would have increased $694,000.
58
<PAGE>
The discount rates used in determining the accumulated postretirement
benefit obligation as of December 31, 1994 and 1993 were 8.5% and 7%,
respectively.
In the first quarter of 1994 the Company adopted Statement of Financial
Accounting Standards No. 112 ("SFAS 112"), "Employers' Accounting for
Postemployment Benefits." Liabilities for postemployment benefits in the
consolidated balance sheet as of December 31, 1993 were not materially
different than those required by SFAS 112; therefore, no cumulative effect
of change in accounting principle was recorded upon adoption of SFAS 112.
(10) STOCK OPTION AND INCENTIVE PROGRAMS
Century currently has two incentive compensation programs which allow
the Board of Directors, through the Compensation Committee, to grant
incentives to employees in any one or a combination of the following
forms: incentive stock options and non-qualified stock options; stock
awards; restricted stock; performance shares; and cash awards.
Stock option transactions during 1992, 1993 and 1994 were as follows:
Number Average
of options price
========================================================================
Outstanding December 31, 1991 1,988,628 $ 14.31
Exercised (516,398) 8.97
Granted at market price 960,639 27.67
--------------------------------------------------------
Outstanding December 31, 1992 2,432,869 20.72
Exercised (51,120) 9.90
--------------------------------------------------------
Outstanding December 31, 1993 2,381,749 20.96
Exercised (139,282) 11.10
Granted at market price 31,000 26.25
--------------------------------------------------------
Outstanding December 31, 1994 2,273,467 21.63
========================================================
Exercisable December 31, 1993 2,135,265 20.89
========================================================
Exercisable December 31, 1994 2,143,873 21.57
========================================================
All of the options expire ten years after the date of grant. As of
December 31, 1994, Century has reserved 2.8 million shares of common stock
which may be issued under the two incentive compensation programs.
59
<PAGE>
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of certain of the Company's financial instruments at December 31,
1994 and 1993.
Carrying Fair
amount value
===========================================================================
(Dollars in thousands)
December 31, 1994
---------------------------------------------------------------------------
Financial assets:
Investments
Note receivable (including current portion) $ 25,000 25,000 (1)
Marketable equity securities $ 8,478 10,127 (2)
Other $ 9,069 9,069 (1)
Financial liabilities:
Long-term debt (including current maturities) $531,321 520,151 (3)
---------------------------------------------------------------------------
December 31, 1993
---------------------------------------------------------------------------
Financial assets:
Investments
Marketable equity securities $ 8,478 11,444 (2)
Other $ 9,039 9,039 (1)
Financial liabilities:
Long-term debt (including current maturities) $378,666 406,612 (3)
===========================================================================
(1) Fair value was estimated by the Company.
(2) Fair value was based on quoted market prices.
(3) Fair value was estimated by discounting the scheduled payment streams
to present value based upon rates currently offered to the Company
for similar debt.
Cash and cash equivalents, accounts receivable, accounts payable and notes
payable to banks - The carrying amount approximates the fair value due to
the short maturity of these instruments.
(12) SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid interest of $40.8 million, $30.1 million and $24.0
million during 1994, 1993 and 1992, respectively. Income taxes paid were
$41.3 million in 1994, $37.1 million in 1993, and $30.5 million in 1992.
Century has consummated the acquisition of various telephone and
cellular operations, along with certain other assets, during the three
years ended December 31, 1994. In connection with these acquisitions, the
following assets were acquired, liabilities assumed and common and
preferred stock issued:
60
<PAGE>
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands)
Property, plant and equipment $ 11,301 33,020 67,514
Excess cost of net assets acquired 152,239 85,251 113,913
Investment in unconsolidated
cellular entities - 7,508 -
Long-term debt (46,478) (18,609) (20,271)
Deferred credits and other liabilities (5,706) (7,648) (9,652)
Other assets and liabilities, excluding cash
and cash equivalents (1,191) 5,766 4,970
Common stock issued (52,311) (68,172) (21,475)
Preferred stock issued (1,875) - -
--------------------------------------------------------------------------
Decrease in cash $ 55,979 37,116 134,999
==========================================================================
Century has consummated the disposition of various telephone and
cellular operations, along with certain other assets, during the three
years ended December 31, 1994. In connection with these dispositions, the
following assets were sold, liabilities eliminated, assets received and
gain recognized:
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands)
Property, plant and equipment $ (2,673) - (3,231)
Excess cost of net assets acquired (3,976) - (4,772)
Long-term debt - - 1,243
Other assets and liabilities, excluding cash
and cash equivalents 993 191 (1,312)
Assets of cellular system 11,058 - -
Marketable equity securities - 1,470 7,008
Gain on sales of assets (15,877) (1,661) (3,985)
--------------------------------------------------------------------------
Increase in cash $ (10,475) - (5,049)
==========================================================================
(13) BUSINESS SEGMENTS
The Company currently operates in two principal segments - traditional
telephone services and mobile communications services. The Company's
telephone operations are conducted in rural, suburban and small urban
communities in 14 states. Approximately 82% of the Company's telephone
access lines are in Wisconsin, Louisiana, Michigan, Ohio and Arkansas.
The Company's cellular customers are located primarily in Louisiana,
Michigan, Mississippi and Texas.
The effect of the change in accounting principle related to accounting
for postretirement benefits reduced 1992 operating income of the telephone
operations and mobile communications operations by $1.7 million and
$250,000, respectively. Other accounts receivable are primarily amounts
due from various long distance carriers, principally AT&T, and several
large local exchange operating companies.
61
<PAGE>
Mobile
Telephone Communications Total
==========================================================================
(Dollars in thousands)
Year ended December 31, 1994
--------------------------------------------------------------------------
Operating revenues $ 389,438 150,802 540,240
Depreciation and amortization $ 73,175 21,255 94,430
Operating income $ 137,992 31,443 169,435
Year ended December 31, 1993
--------------------------------------------------------------------------
Operating revenues $ 348,485 84,712 433,197
Depreciation and amortization $ 65,175 11,359 76,534
Operating income $ 114,902 9,906 124,808
Year ended December 31, 1992
--------------------------------------------------------------------------
Operating revenues $ 297,510 62,092 359,602
Depreciation and amortization $ 53,927 8,971 62,898
Operating income $ 103,672 5,956 109,628
==========================================================================
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands)
Operating income $169,435 124,808 109,628
Interest expense (42,577) (30,149) (27,166)
Income from unconsolidated
cellular entities 15,698 6,626 1,692
Gain on sales of assets 15,877 1,661 3,985
Other income and expense 3,105 3,310 4,433
--------------------------------------------------------------------------
Income before income taxes and
cumulative effect of changes
in accounting principles $161,538 106,256 92,572
==========================================================================
Income before income taxes $161,538 106,256 76,904
==========================================================================
Capital expenditures
Telephone $152,336 131,180 108,974
Mobile Communications $ 39,937 56,092 10,904
==========================================================================
Identifiable assets
Telephone $1,053,950 969,388 803,901
Mobile Communications 430,777 224,913 141,522
General corporate 88,305 62,827 54,733
Other 70,221 62,262 40,331
--------------------------------------------------------------------------
Total assets $1,643,253 1,319,390 1,040,487
==========================================================================
(14) ACCOUNTING FOR THE EFFECTS OF REGULATION
The Company's regulated telephone operations are subject to the
provisions of Statement of Financial Accounting Standards No. 71 ("SFAS
71"), "Accounting for the Effects of Certain Types of Regulation."
Actions of a regulator can provide reasonable assurance of the existence
of an asset, reduce or eliminate the
62
<PAGE>
value of an asset and impose a
liability on a regulated enterprise. SFAS 71 requires that, if a conflict
exists between the application of SFAS 71 and another authoritative
pronouncement, SFAS 71 is to be followed because other authoritative
pronouncements do not consider the economic effects of the rate-making
process. Therefore, regulatory assets and liabilities established by the
actions of a regulator are required to be recorded, and, accordingly,
reflected in the balance sheet of an entity subject to SFAS 71.
The Company's consolidated balance sheet as of December 31, 1994
included regulatory assets of approximately $9.2 million and regulatory
liabilities of approximately $31.3 million exclusive of (i) property,
plant and equipment, (ii) accumulated depreciation and (iii) deferred
income taxes and deferred investment tax credits associated with
regulatory assets and liabilities. The $9.2 million of regulatory assets
included assets established in connection with the adoption of SFAS 106
($2.4 million) and SFAS 109 ($3.7 million), extraordinary retirements
($542,000), compensated absences ($607,000) and deferred financing costs
($2.0 million). The $31.3 million of regulatory liabilities was
established in connection with the adoption of SFAS 109. Net deferred
income tax assets related to the regulatory assets and liabilities
quantified above were $12.2 million.
Property, plant and equipment of the Company's regulated telephone
operations has been depreciated using generally the straight line method
over lives approved by regulators. Such depreciable lives have generally
exceeded the depreciable lives used by nonregulated entities. In
addition, in accordance with regulatory accounting, retirements of
regulated telephone property have been charged to accumulated
depreciation, along with the costs of removal, less salvage, with no gain
or loss recognized. These regulatory accounting policies have resulted in
accumulated depreciation being significantly less than if the Company's
telephone operations had not been regulated.
Statement of Financial Accounting Standards No. 101 ("SFAS 101"),
"Regulated Enterprises - Accounting for the Discontinuance of Application
of FASB Statement No. 71," specifies the accounting required when an
enterprise ceases to meet the criteria for application of SFAS 71. SFAS
101 requires the elimination of the effects of any actions of regulators
that have been recognized as assets and liabilities in accordance with
SFAS 71 but would not have been recognized as assets and liabilities by
enterprises in general. SFAS 101 further provides that the carrying
amounts of property, plant and equipment are to be adjusted only to the
extent the assets are impaired and that impairment shall be judged in the
same manner as for enterprises in general. The Company has not determined
(i) the amount of additional accumulated depreciation which would have to
be recorded nor (ii) the amount, if any, by which property, plant and
equipment would be impaired if the Company's regulated operations cease to
become subject to SFAS 71. In addition, deferred tax liabilities and
deferred investment tax credits would be impacted based on the change in
the temporary differences for property, plant and equipment and
accumulated depreciation.
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<PAGE>
The ongoing applicability of SFAS 71 to the Company's regulated
telephone operations is being monitored due to the changing regulatory,
competitive and legislative environments. Should the regulated operations
of the Company no longer qualify for the application of SFAS 71 at some
future date, the net adjustments required would result in a material,
extraordinary, noncash charge against earnings. Telephone subsidiaries
accounting and reporting for regulatory purposes would not be affected by
the discontinued application of SFAS 71.
(15) RETIREMENT AND SAVINGS PLANS
Century sponsors an Outside Directors' Retirement Plan and a
Supplemental Executive Retirement Plan to provide directors and officers,
respectively, with supplemental retirement, death and disability benefits.
In addition, the bargaining unit employees of a subsidiary are provided
benefits under a defined benefit pension plan. At December 31, 1994 and
1993, the combined accumulated benefit obligation of the plans,
substantially all of which was vested, aggregated $15.2 million and $16.3
million, respectively. The projected benefit obligation in excess of plan
assets was $2.7 million and $7.4 million as of December 31, 1994 and 1993,
respectively. During 1994 and 1993 Century funded $3.0 million and
$340,000, respectively, of the obligations of the plans. Prepaid pension
cost was $525,000 at December 31, 1994; accrued pension cost was $1.6
million at December 31, 1993. The net periodic pension cost for 1994,
1993 and 1992 was $1.2 million, $1.1 million and $930,000, respectively.
Discount rates used in determining the year end liabilities were 8.5% for
1994 and ranged from 7.0% to 7.25% for 1993.
Century sponsors an Employee Stock Bonus Plan ("ESBP") and an Employee
Stock Ownership Plan ("ESOP"). These plans cover most employees with one
year of service with the Company and are funded by Company contributions
determined annually by the Board of Directors. Century also sponsors a
qualified profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") which is available to substantially all
employees of the Company. The Company's matching contributions to the
401(k) Plan for 1994, 1993 and 1992 were $2.4 million, $2.0 million and
$1.4 million, respectively.
The Company recorded contributions related to the ESBP in the amount of
$2.3 million, $1.8 million and $1.1 million during 1994, 1993 and 1992,
respectively. At December 31, 1994, the ESBP owned 4.4 million shares of
Century common stock.
The Company's contributions to the ESOP approximate the ESOP's debt
service less dividends received by the ESOP applicable to unallocated
shares. The ESOP shares initially were pledged as collateral for its
debt. As the debt is repaid, shares are released from collateral based on
the percentage of principal payment to outstanding debt before applying
the principal payment. As of each year end, such released shares are
allocated to active employees.
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<PAGE>
The ESOP had outstanding debt of $7.3 million at December 31, 1994
which was applicable to shares purchased prior to 1993. Interest incurred
by the ESOP on debt applicable to such shares was $571,000, $895,000 and
$1.1 million in 1994, 1993 and 1992, respectively. The Company
contributed and expensed $1.9 million, $2.6 million and $2.4 million
during 1994, 1993 and 1992, respectively, with respect to such shares.
Dividends on unallocated ESOP shares used for debt service by the ESOP
were $288,000 in 1994, $335,000 in 1993, and $375,000 in 1992. ESOP
shares as of December 31, 1994 and 1993 which were purchased prior to 1993
were as follows:
1994 1993
=======================================================================
Allocated shares 1,164,290 996,331
Unreleased shares 706,998 882,490
-----------------------------------------------------------------------
1,871,288 1,878,821
=======================================================================
The Company accounts for shares purchased subsequent to December 31,
1992 in accordance with Statement of Position 93-6 ("SOP 93-6").
Accordingly, as shares are released from collateral, the Company reports
compensation expense equal to the current market price of the shares and
the shares become outstanding for earnings per share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as a reduction
of debt. ESOP compensation expense for 1994 applicable to shares
purchased subsequent to 1992 was $605,000. The fair value of unreleased
ESOP shares accounted for under SOP 93-6 was $11.7 million at December 31,
1994. ESOP shares purchased subsequent to 1992 totaled 416,850, of which
20,842 were allocated and 396,008 were unreleased as of December 31, 1994.
(16) MAJOR ACQUISITIONS
In February 1994 the Company acquired Celutel for approximately $106.0
million in a stock and cash transaction accounted for as a purchase.
Approximately $56.0 million of the purchase price was paid in cash, with
the remainder paid through the issuance of approximately 1.9 million
shares of Century common stock. Celutel currently provides cellular
service to approximately 35,000 customers in five non-wireline provider
systems in Metropolitan Statistical Areas ("MSAs") in Mississippi and
Texas.
In April 1993 the Company acquired San Marcos Telephone Company, Inc.
("SMTC") in a stock and cash transaction and acquired SM Telecorp, Inc.,
an affiliate of SMTC, for cash. The total acquisition price for both
companies approximated $100.0 million (based on Century's common stock
price of $31-7/8 on the date of acquisition), the stock portion of which
was represented by approximately 2.2 million shares of Century common
stock. As a result of the acquisitions, which were accounted for as
purchases, the Company acquired approximately 22,500 telephone access
lines in and around San Marcos, Texas, along with a 35% ownership
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interest in the Austin, Texas, MSA wireline cellular market and a 9.6%
interest in the Texas Rural Service Area ("RSA") #16 wireline cellular
market.
In April 1992 the Company acquired Central Telephone Company of Ohio
("Central") for $120.0 million and changed Central's name to Century
Telephone of Ohio, Inc. ("Ohio"). Ohio is a local exchange telephone
company with approximately 70,400 access lines located in suburbs of
Cleveland, Ohio. In December 1992 the company acquired 100% of the
Alexandria, Louisiana, MSA wireline cellular market for $18.2 million.
The following pro forma information represents the consolidated results
of operations of the Company as if each major acquisition had been
combined with the Company as of January 1 of (i) the year in which the
acquisition was consummated and (ii) the year prior to the acquisition.
Year ended December 31, 1994 1993 1992
==========================================================================
(Dollars in thousands,
except per share amounts)
(unaudited)
Operating revenues $543,768 467,862 395,033
Income before cumulative effect of
changes in accounting principles $ 98,958 62,516 58,324
Net income $ 98,958 62,516 42,656
Fully diluted earnings per share before
cumulative effect of changes in
accounting principles $ 1.77 1.15 1.12
Fully diluted earnings per share $ 1.77 1.15 .85
==========================================================================
The pro forma information is not necessarily indicative of the
operating results that would have occured if each major acquisition had
been consummated as of January 1 of each respective period, nor is it
necessarily indicative of future operating results. The actual results of
operations of an acquired company are included in the Company's
consolidated financial statements only from the date of acquisition.
(17) SALES OF ASSETS
In 1994 the Company sold the assets comprising an RSA cellular system
in Minnesota; the Company received (i) the assets of the Pine Bluff,
Arkansas, MSA wireline cellular system and (ii) $10.5 million cash. The
transaction resulted in a pre-tax gain of $14.7 million ($8.5 million
after-tax). The Company also sold the assets of its paging operations
during 1994 and recognized a gain of $1.2 million ($756,000 after-tax).
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<PAGE>
During 1993 the Company sold a minority investment in a telephone
company which resulted in a pre-tax gain of $1.7 million ($1.1 million
after-tax).
During 1992 the Company sold (i) two telephone subsidiaries which
served approximately 2,000 access lines, (ii) its minority interest in an
MSA cellular partnership and its minority interest in an RSA cellular
partnership, and (iii) its 100% interest in an RSA cellular market. The
sales prices totaled $12.2 million and the transactions resulted in an
aggregate pre-tax gain of $4.0 million ($2.6 million after-tax).
(18) INVESTMENTS IN UNCONSOLIDATED CELLULAR ENTITIES
The Company's share of earnings from cellular entities in which it does
not own a majority interest was $16.9 million, $7.6 million and $2.1
million in 1994, 1993 and 1992, respectively, and is included, net of $1.2
million, $966,000 and $395,000 of amortization of goodwill attributable to
such investments, in "Income from unconsolidated cellular entities." Over
70% of the 1994 income from unconsolidated cellular entities was
attributable to the following investments:
Ownership interest
========================================================================
GTE Mobilnet of Austin Limited Partnership 35%
Alltel Cellular Associates of Arkansas Limited Partnership 36%
Lafayette MSA Limited Partnership 49%
========================================================================
Consolidated retained earnings at December 31, 1994 which represented
undistributed earnings of unconsolidated cellular entities was $15.4
million.
The following summarizes the unaudited combined assets, liabilities and
equity, and the unaudited combined results of operations of the cellular
entities in which the Company's investments are accounted for by the
equity method.
December 31, 1994 1993
======================================================================
(Dollars in thousands)
(unaudited)
Assets
Current assets $ 76,191 52,273
Property and other noncurrent assets 277,269 234,512
----------------------------------------------------------------------
$ 353,460 286,785
======================================================================
Liabilities and equity
Current liabilities $ 48,144 47,814
Noncurrent liabilities 11,080 9,627
Equity 294,236 229,344
----------------------------------------------------------------------
$ 353,460 286,785
======================================================================
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<PAGE>
Year ended December 31, 1994 1993 1992
======================================================================
(Dollars in thousands)
(unaudited)
Results of operations
Revenues $ 329,907 236,230 151,978
Operating income $ 93,512 52,742 26,683
Income before cumulative effect of
changes in accounting principles $ 92,446 53,617 29,148
Net income $ 92,446 53,607 25,971
======================================================================
(19) COMMITMENTS AND CONTINGENCIES
Construction expenditures and investments in vehicles, buildings and
other work equipment during 1995 are estimated to be $112.0 million for
telephone operations, $59.0 million for mobile communications operations
and $12.0 million for other operations.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
(20) SUBSEQUENT EVENT
On January 20, 1995 Century announced that it was calling for
redemption all $115.0 million of its outstanding 6% convertible debentures
due 2007 at a redemption price of 104.2% of principal plus accrued
interest from February 1, 1995 to February 21, 1995, the redemption date.
The debentures may be converted into Century common stock by the debenture
holders on or before February 13, 1995 at a conversion price of $25.33 per
share.
The debentures were issued in February 1992. If Century had issued
common stock instead of the debentures, primary earnings per share for the
years ended December 31, 1994 and 1993 would have been $1.81 and $1.32,
respectively; primary earnings per share before the cumulative effect of
changes in accounting principles in 1992 would have been $1.22.
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<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
Consolidated Quarterly Income Information (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
========================================================================
(Dollars in thousands, except per share amounts)
1994
------------------------------------------------------------------------
Operating revenues $ 120,980 132,880 141,515 144,865
Operating income $ 35,886 41,713 45,781 46,055
Net income $ 19,201 21,485 24,613 34,939
Fully diluted earnings
per share $ .35 .39 .44 .62
========================================================================
1993
------------------------------------------------------------------------
Operating revenues $ 96,825 107,338 112,765 116,269
Operating income $ 28,267 31,343 33,477 31,721
Net income $ 15,740 16,517 17,596 19,151
Fully diluted earnings
per share $ .31 .32 .33 .36
========================================================================
Fully diluted earnings per share for the fourth quarter of 1994 includes
$.16 per share of gain on the sales of assets; such increase in fully
diluted earnings per share was partially offset by a decrease of $.03 per
share related to cellular commissions incurred (during the fourth quarter
of 1994 as compared to the average of the first three quarters of 1994) as
a result of the significant increase in the number of cellular subscribers
activated during the quarter.
Fully diluted earnings per share for the fourth quarter of 1993
reflects a decrease of $.04 per share related to cellular commissions
incurred (during the fourth quarter of 1993 as compared to the average of
the first three quarters of 1993) as a result of the significant increase
in the number of cellular subscribers activated during the quarter; such
decrease was offset by non-recurring favorable income tax adjustments of
$.04 per share.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers
The name, age and office(s) held by each of the Registrant's executive
officers are shown below. Each of the executive officers listed below
serves at the pleasure of the Board of Directors, except Mr. Williams who
has entered into an employment agreement with the Registrant effective
through May 1996 and from year to year thereafter subject to the right of
Mr. Williams or the Company to terminate such agreement.
Name Age Office(s) held with Century
-----------------------------------------------------------------------
Clarke M. Williams 73 Chairman of the Board
of Directors
Glen F. Post, III 42 Vice Chairman of the
Board of Directors, President
and Chief Executive Officer
R. Stewart Ewing, Jr. 43 Senior Vice President and Chief
Financial Officer
W. Bruce Hanks 40 President - Telecommunications
Services
Harvey P. Perry 50 Senior Vice President, General
Counsel and Secretary
Kenneth R. Cole 47 President - Telephone Group
Each of the Registrant's executive officers has served as an officer
of the Registrant and/or one or more of its subsidiaries in varying
capacities for more than the past 5 years. Mr. Cole has served as
President-Telephone Group since January 1995 and as Vice President from
1983 to 1994.
The balance of the information required by Item 10 is incorporated by
reference to the Registrant's definitive proxy statement relating to its
1995 annual meeting of stockholders (the "Proxy Statement"), which Proxy
Statement will be filed pursuant to Regulation 14A within 120 days after
the end of the last fiscal year.
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<PAGE>
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to
the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to
the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to
the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
a. Financial Statements
(i) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated Financial
Statements and Financial Statement Schedule
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets - December 31, 1994
and 1993
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
71
<PAGE>
Consolidated Quarterly Income Information (unaudited)
(ii) Schedules:*
I Condensed Financial Information of Registrant
* Those Schedules not listed above are omitted as not
applicable or not required.
b. Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth
quarter of 1994.
c. Exhibits:
3(i) Restated Articles of Incorporation of Registrant, dated
September 30, 1994 (incorporated by reference to
Exhibit 3(i) to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994).
3(ii) Registrant's Bylaws, as amended through August 23, 1994
(incorporated by reference to Exhibit 3(ii) to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994).
4.1 Loan Agreement, dated January 3, 1990, between Registrant
and National Bank of Detroit, First National Bank of
Commerce and Bank One, Texas, National Association
(incorporated by reference to Exhibit 4.1 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989) and amendment thereto dated
May 15, 1992 (incorporated by reference to Exhibit 4.1
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992) and the second amendment
thereto dated March 31,1993 (incorporated by reference
to Exhibit 19.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993).
4.2 Note Purchase Agreement, dated September 1, 1989, between
Registrant, Teachers Insurance and Annuity Association
of America and the Lincoln
72
<PAGE>
National Life Insurance
Company (incorporated by reference to Exhibit 4.23 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989).
4.3 Agreement, dated November 27, 1977, among Registrant, The
Travelers Insurance Company and The Travelers
Indemnity Company, and form of Warrant (incorporated
by reference to Exhibits 4 and 5 to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1977).
4.10 Form of Indenture dated May 1, 1940 among Century
Telephone of Wisconsin, Inc. (formerly La Crosse
Telephone Corporation) and the First National Bank of
Chicago and the Co-Trustee named therein (incorporated
by reference to Exhibit 4.12 to Registration No. 2-
48478).
4.11 Supplemental Indenture No. 12 (incorporated by reference
to Exhibit 5.12 to Registration No. 2-62172) and
Supplemental Indentures 13 and 14 (incorporated by
reference to Exhibit 5.11 to Registration No. 2-
68731), each of which are supplemental indentures to
the Form of Indenture dated May 1, 1940 listed above
as Exhibit 4.10.
4.12 Amended and Restated Rights Agreement dated as of
November 17, 1986 between Century Telephone
Enterprises, Inc. and the Rights Agent named therein
(incorporated by reference to Exhibit 4.1 to
Registrant's Current Report on Form 8-K dated December
20, 1988), the Amendment thereto dated March 26, 1990
(incorporated by reference to Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990) and the Second Amendment
thereto dated February 23, 1993 (incorporated by
reference to Exhibit 4.12 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992).
4.16 Note Purchase Agreement, dated May 6, 1986, among
Registrant, Teachers Insurance and Annuity Association
of America, Aetna Life Insurance Company, the Aetna
Casualty and Surety Company and Lincoln National
Pension Insurance Company (incorporated by reference
to Exhibit 4.23 to Registration No. 33-5836),
Amendatory Agreement dated November 1, 1986
(incorporated by reference to Exhibit 4.2 to
Registrant's Annual Report on Form 10-K for the year
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<PAGE>
ended December 31, 1986), amendment thereto dated
November 1, 1987 (incorporated by reference to Exhibit
4.2 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1987) and Modification Letter
dated September 1, 1989 (incorporated by reference to
Exhibit 19.6 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1989).
4.22 Form of common stock certificate of the Registrant
(incorporated by reference to Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
4.23 Indenture, dated February 1, 1992, between Registrant and
Regions Bank (formerly First American Bank and Trust
of Louisiana) (incorporated by reference to Exhibit
4.23 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
4.24 Revolving Credit Facility Agreement, dated February 7,
1992 between Registrant and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 4.24 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991), amendment thereto dated
April 8, 1993 (incorporated by reference to Exhibit
19.2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1993), amendment thereto
dated July 9, 1993 (incorporated by reference to
Exhibit 4.24 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1993) and amendment
thereto dated August 15, 1994 (incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1994).
4.26 Resolutions adopted by the Executive Committee of the
Board of Directors on April 29, 1994 designating the
terms and conditions of the Company's 7-3/4% Senior
Notes, Series A, due 2004 and 8-1/4% Senior Notes,
Series B, due 2024 ("Senior Notes") (incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1994).
4.27 Form of Senior Notes (incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on
Form S-3, Registration No. 33-52915).
74
<PAGE>
4.28 Indenture dated as of March 31, 1994 between the Company
and Regions Bank (formerly First American Bank & Trust
of Louisiana), as Trustee (incorporated by reference
to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, Registration No. 33-52915).
10.1* Employment Agreement, dated May 24, 1993, by and between
Clarke M. Williams and Registrant (incorporated by
reference to Exhibit 19.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1993).
10.2* Form of agreement that the registrant has entered into
with each Executive Officer other than Mr. Williams
(incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.3* Registrant's Outside Directors' Retirement Plan, dated
November 19, 1984 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1985), amendment thereto dated
February 21, 1989 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988) and amendment thereto dated
May 17, 1991 (incorporated by reference to Exhibit
10.3 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.4* Registrant's Amended and Restated Supplemental Executive
Retirement Plan, as amended and restated July 1, 1994
and amendment thereto dated February 10, 1995,
included elsewhere herein.
10.5* Registrant's 1983 Restricted Stock Plan, dated February
21, 1984 (incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1985).
10.6* Registrant's Key Employee Incentive Compensation Plan,
dated January 1, 1984 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1985).
75
<PAGE>
10.7* The Century Telephone Enterprises, Inc. Dollars & Sense
Plan and Trust, as amended and restated, generally
effective April 1, 1992, included elsewhere herein.
10.8* Century Telephone Enterprises, Inc. Employee Stock
Ownership Plan and Trust, dated March 20, 1987
(incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1986), amendment thereto dated February 29, 1988
(incorporated by reference to Exhibit 10.9 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987), amendments thereto dated
March 21, 1991 and April 15, 1991 (incorporated by
reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1991), amendments thereto dated March 31, 1992
(incorporated by reference to Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992) and amendments thereto dated
June 1, 1993 and June 10, 1993 (incorporated by
reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1993).
10.9* Registrant's 1988 Incentive Compensation Program as
amended and restated August 22, 1989 (incorporated by
reference to Exhibit 19.8 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1989).
10.10* Form of Stock Option Agreement entered into in 1988 by
the Registrant, pursuant to 1988 Incentive
Compensation Program, with certain of its officers
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988) and amendment thereto
(incorporated by reference to Exhibit 4.6 to
Registrant's Registration No. 33-31314).
10.11* Registrant's 1990 Incentive Compensation Program, dated
March 15, 1990 (incorporated by reference to Exhibit
19.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990).
10.12* Form of Stock Option Agreement entered into in 1990 by
the Registrant, pursuant to 1990 Incentive
Compensation Program, with certain of its officers
76
<PAGE>
(incorporated by reference to Exhibit 19.3 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990).
10.13* Form of Stock Option Agreement entered into in 1992 by
the Registrant, pursuant to 1990 Incentive
Compensation Program, with certain of its officers and
employees (incorporated by reference to Exhibit 10.17
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.15 Agreement and Plan of Merger dated as of September 24,
1992, as amended by Amendment No. 1 thereto, by and
among Registrant, San Marcos Telephone Company,
Incorporated, SM Telecorp, Inc., SMTC Acquisition
Corp. and SMT Acquisition Corp. (incorporated by
reference to Exhibit 2 of Registrant's Registration on
Form S-4 dated February 3, 1993, Registration No. 33-
57838).
10.16* Registrant's Amended and Restated Salary Continuation
(Disability) Plan for Officers, dated November 26,
1991 (incorporated by reference to Exhibit 10.16 of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
10.18* Form of Performance Share Agreement Under the 1990
Incentive Compensation Program, entered into in 1993
with certain of its officers and employees
(incorporated by reference to Exhibit 28.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.19* Form of Restricted Stock Agreement and Performance Share
Agreement Under the 1988 Incentive Compensation
Program, entered into in 1993 with certain of its
officers and employees (incorporated by reference to
Exhibit 28.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993).
10.20 Agreement and Plan of Merger dated October 8, 1993, as
amended by Amendment No. 1 thereto dated January 5,
1994 by and among Registrant, Celutel Acquisition
Corp., Celutel, Inc. and the Principal Stockholders of
Celutel, Inc. (incorporated by reference to Appendix I
of Registrant's Prospectus forming a part of its
Registration Statement No. 33-50791 filed January 12,
1994 pursuant to Rule 424(b)(5)).
77
<PAGE>
10.21* Registrant's Amended and Restated Supplemental Defined
Contribution Plan, dated as of January 1, 1994,
included elsewhere herein.
10.22* Registrant's Amended and Restated Supplemental Dollars &
Sense Plan, effective as of January 1, 1995, included
elsewhere herein.
10.23 Loan Agreement and Grant of Rights of First Refusal to
Acquire Assets and/or Capital Stock of MillTenn, Inc.
and its Subsidiaries (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994).
10.24* Agreement, dated December 31, 1994, by and between Jim D.
Reppond and Registrant, included elsewhere herein.
10.25* The Century Telephone Enterprises, Inc. Stock Bonus Plan,
PAYSOP and Trust, as amended and restated September
10, 1987 and amendment thereto dated February 29, 1988
(incorporated by reference to Exhibit 4.21 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987), amendments thereto dated
March 21, 1991 and April 15, 1991, (incorporated by
reference to Exhibit 4.21 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1991), amendment thereto dated March 31, 1992
(incorporated by reference to Exhibit 4.21 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992) and amendments thereto dated
June 1, 1993 and June 10, 1993 (incorporated by
reference to Exhibit 4.21 to Regis-trant's Annual
Report on Form 10-K for the year ended December 31,
1993).
11 Computations of Earnings Per Share, included elsewhere
herein.
21 Subsidiaries of the Registrant, included elsewhere herein.
23 Independent Auditors' Consent, included elsewhere herein.
27 Financial Data Schedule, included elsewhere herein.
* Management contract or compensatory plan or arrangement.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CENTURY TELEPHONE ENTERPRISES, INC.
Date: March 17, 1995 By: /s/ Clarke M. Williams
Clarke M. Williams
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
/s/ Clarke M. Williams Chairman of the Board
Clarke M. Williams of Directors March 17, 1995
Vice Chairman of the
Board of Directors,
/s/ Glen F. Post, III President, and Chief
Glen F. Post, III Executive Officer March 17, 1995
Senior Vice President
/s/ R. Stewart Ewing, Jr. and Chief Financial
R. Stewart Ewing, Jr. Officer March 17, 1995
Senior Vice President,
/s/ Harvey P. Perry Secretary, General
Harvey P. Perry Counsel and Director March 17, 1995
/s/ W. Bruce Hanks President - Telecommunications
W. Bruce Hanks Services and Director March 17, 1995
/s/ Murray H. Greer Controller (Principal
Murray H. Greer Accounting Officer) March 17, 1995
/s/ William R. Boles, Jr. Director
William R. Boles, Jr. March 17, 1995
79
<PAGE>
/s/ Virginia Boulet Director
Virginia Boulet March 17, 1995
/s/ Ernest Butler, Jr. Director
Ernest Butler, Jr. March 17, 1995
/s/ Calvin Czeschin Director
Calvin Czeschin March 17, 1995
/s/ James B. Gardner Director
James B. Gardner March 17, 1995
/s/ R. L. Hargrove, Jr. Director
R. L. Hargrove, Jr. March 17, 1995
/s/ Johnny Hebert Director
Johnny Hebert March 17, 1995
/s/ F. Earl Hogan Director
F. Earl Hogan March 17, 1995
/s/ C. G. Melville, Jr. Director
C. G. Melville, Jr. March 17, 1995
/s/ Jim D. Reppond Director
Jim D. Reppond March 17, 1995
80
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
STATEMENTS OF INCOME
Year ended December 31,
=========================================================================
1994 1993 1992
-------------------------------------------------------------------------
(Dollars in thousands)
REVENUES $ 6,190 5,860 6,562
-------------------------------------------------------------------------
EXPENSES
Operating expenses 5,400 6,014 6,281
Depreciation and amortization 6,603 5,877 4,086
-------------------------------------------------------------------------
Total expenses 12,003 11,891 10,367
-------------------------------------------------------------------------
OPERATING LOSS (5,813) (6,031) (3,805)
-------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (34,463) (20,678) (18,630)
Interest income 24,088 10,696 10,080
-------------------------------------------------------------------------
Total other income (expense) (10,375) (9,982) (8,550)
-------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES, CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES AND
EQUITY IN SUBSIDIARIES' EARNINGS (16,188) (16,013) (12,355)
Income tax benefit 3,205 5,037 2,173
-------------------------------------------------------------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES AND EQUITY
IN SUBSIDIARIES' EARNINGS (12,983) (10,976) (10,182)
Cumulative effect of changes in
accounting principles - - 1,292
-------------------------------------------------------------------------
LOSS BEFORE EQUITY IN
SUBSIDIARIES' EARNINGS (12,983) (10,976) (8,890)
Equity in subsidiaries' earnings 113,221 79,980 53,195
-------------------------------------------------------------------------
NET INCOME $ 100,238 69,004 44,305
=========================================================================
81
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
BALANCE SHEETS
December 31,
===========================================================================
1994 1993
---------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,097 2,975
Receivables from subsidiaries 126,821 53,638
Other receivables 941 7,330
Prepayments and other 844 857
---------------------------------------------------------------------------
Total current assets 131,703 64,800
---------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Property and equipment 932 1,192
Accumulated depreciation (524) (772)
---------------------------------------------------------------------------
Net property, plant and equipment 408 420
---------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Investments in subsidiaries (at equity) 1,032,991 771,062
Receivables from subsidiaries 155,156 130,568
Note receivable 24,167 -
Deferred charges and other 33,518 28,728
---------------------------------------------------------------------------
Total investments and other assets 1,245,832 930,358
---------------------------------------------------------------------------
TOTAL ASSETS $1,377,943 995,578
===========================================================================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 5,481 4,450
Notes payable to banks 158,000 150,500
Payables to subsidiaries 155,551 93,540
Accrued interest 7,345 5,431
Other accrued liabilities 11,420 3,656
---------------------------------------------------------------------------
Total current liabilities 337,797 257,577
---------------------------------------------------------------------------
LONG-TERM DEBT 342,334 190,615
---------------------------------------------------------------------------
PAYABLES TO SUBSIDIARIES 34,197 25,696
---------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 13,379 7,922
---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
100,000,000 shares, issued and outstanding
53,574,361 and 51,294,705 shares 53,574 51,295
Paid-in capital 319,235 262,294
Retained earnings 291,999 208,945
Unearned ESOP shares (16,840) (9,220)
Preferred stock - non-redeemable 2,268 454
---------------------------------------------------------------------------
Total stockholders' equity 650,236 513,768
---------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $1,377,943 995,578
===========================================================================
82
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
STATEMENTS OF CASH FLOWS
Year ended December 31,
===========================================================================
1994 1993 1992
---------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 100,238 69,004 44,305
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,603 5,877 4,086
Deferred income taxes 5,918 (451) 2,886
Earnings of subsidiaries (113,221) (79,980) (53,195)
Cumulative effect of changes in
accounting principles - - (1,292)
Gain on sale of subsidiary - - (641)
Changes in current assets and
current liabilities:
(Increase) decrease in other
receivables 7,078 (6,692) (500)
Increase in other accrued liabilities 5,063 1,203 1,075
Change in other current assets and
other current liabilities, net 6,014 102 3,806
Other, net 766 1,934 635
---------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 18,459 (9,003) 1,165
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions (55,979) (33,209) (135,131)
Capital contributions to subsidiaries (47,516) (16,819) (14,881)
Dividends received from subsidiaries 3,841 908 12,030
Increase in receivables from subsidiaries (98,917) (13,024) (6,020)
Increase in payables to subsidiaries 70,512 23,848 20,471
Note receivable (25,000) - -
Purchase of Industrial Development
Revenue bonds - (19,000) -
Other, net (3,292) (2,893) 9,932
---------------------------------------------------------------------------
Net cash used in investing activities (156,351) (60,189) (113,599)
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 147,754 - 112,987
Payments of long-term debt (4,870) (6,697) (10,118)
Notes payable, net 7,500 88,500 14,700
Proceeds from issuance of common stock 4,814 3,529 8,776
Cash dividends paid (17,184) (15,735) (14,119)
---------------------------------------------------------------------------
Net cash provided by financing
activities 138,014 69,597 112,226
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 122 405 (208)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,975 2,570 2,778
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,097 2,975 2,570
===========================================================================
83
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CENTURY TELEPHONE ENTERPRISES, INC.
(Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(A) LONG-TERM DEBT
The approximate annual debt maturities (including sinking fund
requirements) for the five years subsequent to December 31, 1994 are as
follows:
1995- $5.5 million
1996- $35.5 million
1997- $5.0 million
1998- $4.7 million
1999- $4.3 million
(B) GUARANTEES
As of December 31, 1994, Century has guaranteed a promissory note for
a subsidiary of $2.7 million, as well as the applicable interest and
premium. Century has also guaranteed $1.1 million in Industrial
Development Revenue Bonds originally issued by a subsidiary; such bonds
were assumed by the purchaser of the subsidiary's assets.
(C) DIVIDENDS FROM SUBSIDIARIES
Dividends paid to Century by consolidated subsidiaries were $3.8
million, $908,000, and $12.0 million during 1994, 1993 and 1992,
respectively.
(D) INCOME TAXES AND INTEREST PAID
Income taxes paid by Century (including amounts reimbursed from
subsidiaries) were $35.0 million, $31.5 million and $26.5 million during
1994, 1993 and 1992, respectively.
Interest paid by Century was $32.0 million, $20.9 million and $15.7
million during 1994, 1993 and 1992, respectively.
(E) CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Century adopted Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions"
and Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," as of January 1, 1992.
(F) AFFILIATED TRANSACTIONS
Century provides and bills management services to subsidiaries and in
certain instances makes interest bearing advances to finance construction
of plant and purchases of equipment. Century recorded intercompany
interest income of $22.2 million, $10.6 million and $9.4 million in 1994,
1993 and 1992, respectively.
84
<PAGE>
CENTURY TELEPHONE ENTERPRISES, INC.
INDEX TO EXHIBITS
December 31, 1994
Exhibit
Number
-------
3(i) Restated Articles of Incorporation of Registrant, dated September 30,
1994 (incorporated by reference to Exhibit 3(i) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
3(ii) Registrant's Bylaws, as amended through August 23, 1994 (incorporated
by reference to Exhibit 3(ii) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
4.1 Loan Agreement, dated January 3, 1990, between Registrant and
National Bank of Detroit, First National Bank of Commerce and Bank
One, Texas, National Association (incorporated by reference to
Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989) and amendment thereto dated May 15, 1992
(incorporated by reference to Exhibit 4.1 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992) and the
second amendment thereto dated March 31,1993 (incorporated by
reference to Exhibit 19.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993).
4.2 Note Purchase Agreement, dated September 1, 1989, between Registrant,
Teachers Insurance and Annuity Association of America and the
Lincoln National Life Insurance Company (incorporated by reference
to Exhibit 4.23 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989).
4.3 Agreement, dated November 27, 1977, among Registrant, The Travelers
Insurance Company and The Travelers Indemnity Company, and form of
Warrant (incorporated by reference to Exhibits 4 and 5 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1977).
4.10 Form of Indenture dated May 1, 1940 among Century Telephone of
Wisconsin, Inc. (formerly La Crosse Telephone Corporation) and the
First National Bank of Chicago and the Co-Trustee named therein
(incorporated by reference to Exhibit 4.12 to Registration No. 2-
48478).
4.11 Supplemental Indenture No. 12 (incorporated by reference to Exhibit
5.12 to Registration No. 2-62172) and Supplemental Indentures 13
and 14 (incorporated by reference to Exhibit 5.11 to Registration
No. 2-68731), each of which are supplemental indentures to the Form
of Indenture dated May 1, 1940 listed above as Exhibit 4.10.
4.12 Amended and Restated Rights Agreement dated as of November 17, 1986
between Century Telephone Enterprises, Inc. and the Rights Agent
named therein (incorporated by reference to Exhibit 4.1 to
Registrant's Current Report on Form 8-K dated December 20, 1988),
the Amendment thereto dated March 26, 1990 (incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1990) and the Second Amendment
thereto dated February 23, 1993 (incorporated by reference to
Exhibit 4.12 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
4.16 Note Purchase Agreement, dated May 6, 1986, among Registrant,
Teachers Insurance and Annuity Association of America, Aetna Life
Insurance Company, the Aetna Casualty and Surety Company and
Lincoln National Pension Insurance Company (incorporated by
reference to Exhibit 4.23 to Registration No. 33-5836), Amendatory
Agreement dated November 1, 1986 (incorporated by reference to
Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986), amendment thereto dated November 1, 1987
(incorporated by reference to Exhibit 4.2 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987) and
Modification Letter dated September 1, 1989 (incorporated by
reference to Exhibit 19.6 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1989).
4.22 Form of common stock certificate of the Registrant (incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
4.23 Indenture, dated February 1, 1992, between Registrant and Regions
Bank (formerly First American Bank and Trust of Louisiana)
(incorporated by reference to Exhibit 4.23 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991).
4.24 Revolving Credit Facility Agreement, dated February 7, 1992 between
Registrant and NationsBank of Texas, N.A. (incorporated by
reference to Exhibit 4.24 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1991), amendment thereto dated
April 8, 1993 (incorporated by reference to Exhibit 19.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993), amendment thereto dated July 9, 1993 (incorporated
by reference to Exhibit 4.24 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993) and amendment thereto
dated August 15, 1994 (incorporated by reference to Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
4.26 Resolutions adopted by the Executive Committee of the Board of
Directors on April 29, 1994 designating the terms and conditions of
the Company's 7-3/4% Senior Notes, Series A, due 2004 and 8-1/4%
Senior Notes, Series B, due 2024 ("Senior Notes") (incorporated by
reference to Exhibit 4.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994).
4.27 Form of Senior Notes (incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-3, Registration No. 33-
52915).
4.28 Indenture dated as of March 31, 1994 between the Company and Regions
Bank (formerly First American Bank & Trust of Louisiana), as
Trustee (incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-3, Registration No. 33-52915).
10.1 Employment Agreement, dated May 24, 1993, by and between Clarke M.
Williams and Registrant (incorporated by reference to Exhibit 19.1
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
10.2 Form of agreement that the registrant has entered into with each
Executive Officer other than Mr. Williams (incorporated by
reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1990).
10.3 Registrant's Outside Directors' Retirement Plan, dated November 19,
1984 (incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1985), amendment thereto
dated February 21, 1989 (incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988)
and amendment thereto dated May 17, 1991 (incorporated by reference
to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991).
10.4 Registrant's Amended and Restated Supplemental Executive Retirement
Plan, as amended and restated July 1, 1994 and amendment thereto
dated February 10, 1995, included herein.
10.5 Registrant's 1983 Restricted Stock Plan, dated February 21, 1984
(incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended December 31, 1985).
10.6 Registrant's Key Employee Incentive Compensation Plan, dated January
1, 1984 (incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1985).
10.7 The Century Telephone Enterprises, Inc. Dollars & Sense Plan and
Trust, as amended and restated, generally effective April 1, 1992,
included herein.
10.8 Century Telephone Enterprises, Inc. Employee Stock Ownership Plan and
Trust, dated March 20, 1987 (incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1986), amendment thereto dated February 29, 1988 (incorporated
by reference to Exhibit 10.9 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987), amendments thereto
dated March 21, 1991 and April 15, 1991 (incorporated by reference
to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991), amendments thereto dated March 31,
1992 (incorporated by reference to Exhibit 10.8 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992)
and amendments thereto dated June 1, 1993 and June 10, 1993
(incorporated by reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993).
10.9 Registrant's 1988 Incentive Compensation Program as amended and
restated August 22, 1989 (incorporated by reference to Exhibit 19.8
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1989).
10.10 Form of Stock Option Agreement entered into in 1988 by the
Registrant, pursuant to 1988 Incentive Compensation Program, with
certain of its officers (incorporated by reference to Exhibit 10.10
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988) and amendment thereto (incorporated by reference
to Exhibit 4.6 to Registrant's Registration No. 33-31314).
10.11 Registrant's 1990 Incentive Compensation Program, dated March 15,
1990 (incorporated by reference to Exhibit 19.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990).
10.12 Form of Stock Option Agreement entered into in 1990 by the
Registrant, pursuant to 1990 Incentive Compensation Program, with
certain of its officers (incorporated by reference to Exhibit 19.3
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990).
10.13 Form of Stock Option Agreement entered into in 1992 by the
Registrant, pursuant to 1990 Incentive Compensation Program, with
certain of its officers and employees (incorporated by reference to
Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.15 Agreement and Plan of Merger dated as of September 24, 1992, as
amended by Amendment No. 1 thereto, by and among Registrant, San
Marcos Telephone Company, Incorporated, SM Telecorp, Inc., SMTC
Acquisition Corp. and SMT Acquisition Corp. (incorporated by
reference to Exhibit 2 of Registrant's Registration on Form S-4
dated February 3, 1993, Registration No. 33-57838).
10.16 Registrant's Amended and Restated Salary Continuation (Disability)
Plan for Officers, dated November 26, 1991 (incorporated by
reference to Exhibit 10.16 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1991).
10.18 Form of Performance Share Agreement Under the 1990 Incentive
Compensation Program, entered into in 1993 with certain of its
officers and employees (incorporated by reference to Exhibit 28.1
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.19 Form of Restricted Stock Agreement and Performance Share Agreement
Under the 1988 Incentive Compensation Program, entered into in 1993
with certain of its officers and employees (incorporated by
reference to Exhibit 28.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993).
10.20 Agreement and Plan of Merger dated October 8, 1993, as amended by
Amendment No. 1 thereto dated January 5, 1994 by and among
Registrant, Celutel Acquisition Corp., Celutel, Inc. and the
Principal Stockholders of Celutel, Inc. (incorporated by reference
to Appendix I of Registrant's Prospectus forming a part of its
Registration Statement No. 33-50791 filed January 12, 1994 pursuant
to Rule 424(b)(5)).
10.21 Registrant's Amended and Restated Supplemental Defined Contribution
Plan, dated as of January 1, 1994, included herein.
10.22 Registrant's Amended and Restated Supplemental Dollars & Sense Plan,
effective as of January 1, 1995, included herein.
10.23 Loan Agreement and Grant of Rights of First Refusal to Acquire Assets
and/or Capital Stock of MillTenn, Inc. and its Subsidiaries
(incorporated by reference to Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1994).
10.24 Agreement, dated December 31, 1994, by and between Jim D. Reppond and
Registrant, included herein.
10.25 The Century Telephone Enterprises, Inc. Stock Bonus Plan, PAYSOP and
Trust, as amended and restated September 10, 1987 and amendment
thereto dated February 29, 1988 (incorporated by reference to
Exhibit 4.21 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1987), amendments thereto dated March 21,
1991 and April 15, 1991, (incorporated by reference to Exhibit 4.21
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991), amendment thereto dated March 31, 1992
(incorporated by reference to Exhibit 4.21 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992) and
amendments thereto dated June 1, 1993 and June 10, 1993
(incorporated by reference to Exhibit 4.21 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993).
11 Computations of Earnings Per Share, included herein.
21 Subsidiaries of the Registrant, included herein.
23 Independent Auditors' Consent, included herein.
27 Financial Data Schedule, included herein.
Exhibit 10.4
CENTURY TELEPHONE ENTERPRISES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1994 AMENDMENT AND RESTATEMENT
I. Purpose of the Plan
This Supplemental Executive Retirement Plan (the "Plan") is intended
to provide Century Telephone Enterprises, Inc. (the "Company") and its
subsidiaries a method for attracting and retaining key employees; to
provide a method for recognizing the contributions of such personnel; and
to promote executive and managerial flexibility, thereby advancing the
interests of the Company and its stockholders. In addition, the Plan is
intended to provide a more adequate level of retirement benefits in
combination with the Company's general retirement program.
II. Definitions
As used in this Plan, the following terms shall have the meanings
indicated, unless the context otherwise specifies or requires:
2.01 "ACCRUED BENEFIT", as of a given date, shall mean an amount
equal to the basic monthly benefit to which a Participant is entitled on
his Normal Retirement Date in accordance with Section 5.01 using his
Average Monthly Compensation, Estimated Primary Insurance Amount and
Credited Service determined as of such given date, in lieu of the
corresponding amounts determined as of his Normal Retirement Date.
2.02 "ACTUARIAL EQUIVALENT" shall mean the amount of pension of a
different type or payable at a different age that has the same value as
computed by the Actuary on the basis of interest and mortality tables.
Mortality will be based on the UP84 Mortality Table. The interest rate
will be equal to the Pension Benefit Guaranty Corporation's published
interest rate for immediate annuities on the date of pension commencement.
2.03 "AVERAGE MONTHLY COMPENSATION" shall mean the average of the
36 consecutive months' Compensation of a Participant which produce the
highest average out of the last 120 months of employment. No compensation
will be considered during a period of Leave of Absence for purposes of
determining Average Monthly Compensation.
2.04 "BOARD OF DIRECTORS" shall mean not less than a quorum of the
whole Board of Directors of Century Telephone Enterprises, Inc.
2.05 "COMMITTEE" shall mean three or more members of the Board of
Directors as described in Section 14.01 of the Plan, or the Board if no
Committee has been appointed.
2.06 "COMPANY" shall mean Century Telephone Enterprises, Inc., any
Subsidiary thereof, and any affiliate designated by the Company as a
participating employer under this Plan.
2.07 "COMPENSATION" shall mean the sum of a Participant's Salary,
determined under Section 2.18 and Incentive Compensation, determined under
Section 2.13, for a particular month.
2.08 "CREDITED SERVICE" shall mean employment for which a
Participant is entitled to receive service credit for accrual of benefit
and for eligibility for benefits under the Plan in accordance with the
provisions of Section 4.01.
2.09 "DISABILITY" shall mean a condition which makes a Participant
unable to perform each of the material duties of his regular occupation
where he is likely to remain thus incapacitated continuously and
permanently.
2.10 "EFFECTIVE DATE" of this Amendment and Restatement shall mean
July 1, 1994. Specifically, the survivor annuity provided under Article
IX hereof shall only apply to Participants who have not retired as of July
1, 1994 and whose date of death is on or after July 1, 1994.
Notwithstanding the foregoing, the amendment to the definition of
Compensation hereunder shall apply to Compensation paid on or after
January 1, 1994. In addition, the benefits provided hereunder for Jim D.
Reppond and C. Kenneth Conrad shall be computed without regard to the
amendment to the definition of Compensation and the provision of the
survivor annuity referenced in the preceding sentence.
2.11 "EMPLOYER" shall mean Century Telephone Enterprises, Inc., any
Subsidiary thereof, and any affiliate designated by the Company as a
participating employer under this Plan.
2.12 "ESTIMATED PRIMARY INSURANCE AMOUNT" shall mean the monthly
primary insurance amount calculated to be available at age 65 based on the
Social Security law in effect on the Participant's Normal Retirement Date
or earlier date of termination. The primary insurance amount of a
Participant who terminates prior to Normal Retirement Date shall be based
on the assumption that the Participant earns no compensation between his
termination date and his Normal Retirement Date.
2.13 "INCENTIVE COMPENSATION" shall mean the monthly equivalent of
the amount awarded to a Participant under the Company's Key Employee
Incentive Compensation Program or other incentive compensation arrangement
maintained by the Company, including the amount of any stock award in its
cash equivalent at the time of conversion of the award from cash to stock.
A Participant's Incentive Compensation shall be determined on a monthly
basis by dividing the amount of the Incentive Compensation award by the
number of months to which the award relates. Each award of Incentive
Compensation shall, for purposes of this Plan, be allocated to the month
or months to which the award relates, i.e., that period of time during
which the award was earned.
2.14 "LEAVE OF ABSENCE" shall mean any extraordinary absence
authorized by the Employer under the Employer's standard personnel
practices.
2.15 "NORMAL RETIREMENT DATE" shall mean the first day of the month
coincident with or next following a Participant's 65th birthday.
2.16 "PARTICIPANT" shall mean any officer of the Employer who is
granted participation in the Plan in accordance with the provisions of
Article III.
2.17 "PLAN" shall mean the Century Telephone Enterprises, Inc.
Supplemental Executive Retirement Plan, as amended and restated herein.
2.18 "SALARY" shall mean the monthly equivalent of a Participant's
annual rate of pay as of the date of determination of benefits hereunder,
exclusive, however, of bonus payments, overtime payments, commissions,
imputed income on life insurance, vehicle allowances, relocation expenses,
severance payments, and any other extra compensation.
2.19 "SUBSIDIARY" shall mean any corporation in which the Company
owns, directly or indirectly through subsidiaries, at least fifty percent
(50%) of the combined voting power of all classes of stock.
III. Participation
3.01 Any officer who is either one of the key employees of the
Company in a position to contribute materially to the continued growth and
future financial success of the Company, or one who has made a significant
contribution to the Company's operations, thereby meriting special
recognition, shall be eligible to participate provided the following
requirements are met:
a. The officer is employed on a full-time basis by Century
Telephone Enterprises, Inc., any Subsidiary thereof, or any affiliate
designated by the Company as a participating employer under this Plan.
b. The officer is compensated for full-time employment by a
regular salary;
c. The coverage of the officer is duly approved by the
Board of Directors of Century Telephone Enterprises, Inc.
It is intended that participation in this Plan shall be extended only to
those officers who are members of a select group of management and highly
compensated employees, as determined by the Committee.
3.02 Any officer who is currently a Participant in the Plan shall
continue to be a Participant in the Plan as amended and restated.
3.03 Any officer who met the requirements defined in Section 3.01,
who was age 60 as of November 21, 1983, and who was employed by the
Company on January 1, 1990, will receive benefits equal to the greater of:
a. the benefit determined under this Plan, or
b. a monthly benefit equal to sixty-five percent (65%) of
Average Monthly Compensation offset by retirement income payable to the
individual executive from:
1. Social Security (Primary Insurance Amount only)
determined as of date of retirement under the Social Security Act.
2. The Company's Stock Bonus Plan and PAYSOP (in
which case the Stock Bonus Plan and PAYSOP accumulation at date of
determination will be converted to a monthly annuity on a straight life
basis based upon actuarial assumptions with respect to mortality and
investment return). The mortality assumptions will be based upon the 1971
Group Annuity Mortality Table. The investment return assumption will
reflect current market conditions as measured by the 52-week Treasury bill
rate as determined monthly.
3. Benefits payable from any qualified or
nonqualified plan attributable to prior employment for those officers who
are hired on or after attainment of age 55 (in which case the benefit(s)
will be expressed in terms of a monthly annuity on a straight life basis
payable at date of retirement).
IV. Credited Service
4.01 A Participant will receive credit for each year of employment,
calculated in completed years and months regardless of the number of hours
worked. Credited service will include all years of service prior to
becoming an officer of the Company, years of service following Normal
Retirement Date, and years of service with
any Subsidiary or any affiliate designated by the Company as a
participating employer under this Plan. In addition, periods of Leave of
Absence and periods during which severance pay is provided shall count as
periods of service. A fraction of a year of Credited Service will be
given for completed months during the year of termination.
4.02 At the discretion of the Board of Directors, service with a
predecessor employer may be credited for purposes of this Plan. If such
service is credited to a Participant, the benefit payable under this Plan
shall be reduced by any benefit payable from the prior employer. The
Board of Directors shall make a determination whether service with a
predecessor employer will be credited to a Participant prior to the
Participant's commencement of participation in this Plan, and such
determination, once made, shall be irrevocable. If no determination is
made by the Board of Directors prior to a Participant's commencement of
participation in this Plan, service with a predecessor employer by such
Participant shall not be credited for purposes of this Plan.
V. Normal Retirement
5.01 Except as provided in Section 3.03, the monthly retirement
benefit payable to a Participant on his Normal Retirement Date shall be
equal to (a) less (b), where:
(a) is 1 1/2% of Average Monthly Compensation multiplied by
Credited Service, not greater than 30 years.
(b) is 3 1/3% of Estimated Primary Insurance Amount,
multiplied by Credited Service, not greater than 30 years.
5.02 The normal form of payment of a Participant's normal
retirement benefit shall be an annuity payable for the life of the
Participant.
VI. Late Retirement
6.01 If a Participant remains employed beyond his Normal Retirement
Date, his late retirement date will be the first day of the month
coincident with or next following his actual date of retirement.
6.02 A Participant's late retirement benefit will be calculated in
accordance with Section 5.01, based on his Average Monthly Compensation
and Credited Service as of his late retirement date. His Primary
Insurance Amount will be computed as of his Normal Retirement Date.
VII. Early Retirement
7.01 A Participant who has attained age 55, and who has completed
15 or more years of service, is eligible for early retirement. An
eligible Participant's early retirement date is the first day of the month
coincident with or next following the date he terminates employment.
7.02 A Participant's early retirement benefit is 100% of his
Accrued Benefit computed as of his early retirement date, payable at his
Normal Retirement Date.
7.03 A Participant may elect to receive his early retirement
benefit prior to Normal Retirement Date, in which event the benefit
payable will be reduced according to the following schedule:
Age at CommencementPercentage of Accrued Benefit
55 50%
56 53 1/3%
57 56 2/3%
58 60%
59 63 1/3%
60 66 2/3%
61 73 1/3%
62 80%
63 86 2/3%
64 93 1/3%
65 100%
7.04 The Board of Directors, at its sole discretion, may grant to a
Participant 100% of his Accrued Benefit, payable at his early retirement
date without such benefit being subject to the reductions set forth in
Section 7.03, provided the Participant has met the requirements of Section
7.01.
VIII. Disability
8.01 A Participant who becomes disabled, as defined in Section
2.09, prior to retirement or termination of service will be entitled to a
disability benefit computed in accordance with Section 8.02.
8.02 A Participant's disability benefit will be calculated in
accordance with Section 5.01 based on (1) his Average Monthly Compensation
projected to Normal Retirement Date assuming his Compensation as of the
date of his disability remains constant, (2) his projected service to
Normal Retirement Date and (3) his Estimated Primary Insurance Amount
based on the Social Security law in effect on the date of his disability.
8.03 A Participant's disability benefit will commence at his Normal
Retirement Date, and the normal form of benefit payment will be an annuity
payable for the life of the Participant.
IX. Death Benefit
9.01 Upon the death of a Participant who is actively employed or on
Leave of Absence at the time of his death or who has retired or become
disabled prior to the commencement of benefit payments hereunder, a
Participant's beneficiary (as determined under Section 9.02) will be
entitled to receive a death benefit determined in accordance with Section
9.03.
9.02 The beneficiary of a Participant who is married on the date of
his death shall be his spouse. The beneficiary of an unmarried
Participant shall be his living children as of his date of death.
9.03 The monthly death benefit payable to the beneficiary of a
Participant shall be equal to (a) less (b), where:
(a) is 36% of Average Monthly Compensation projected to his
Normal Retirement Date assuming his Compensation as of his date of death
remains constant until his Normal Retirement Date.
(b) the amount of primary Social Security benefits received
by the beneficiary, or to which the beneficiary may be entitled, as
determined by the Committee. The Committee's determination hereunder
shall be binding and conclusive.
9.04 The death benefit shall be paid to the surviving spouse, if
any, of the Participant for his or her life. If the Participant is
unmarried at the date of death, or if the surviving spouse dies subsequent
to the Participant's death, the death benefit shall be paid to the
Participant's surviving child or children (or legal representative of any
minor child) in equal shares. The death benefit payable to a child shall
terminate upon the later of the child's attainment of age 19 or age 23, if
a full-time student at an accredited educational institution, and such
share shall thereafter revert to and be payable equally to the remaining
surviving children of the Participant until the interest of each such
surviving child has terminated.
9.05 If a Participant has no surviving spouse or children at the
date of his or her death, no death benefit shall be paid under this Plan.
X. Termination of Service
10.01 If a Participant terminates service prior to death, disability
or retirement, his Accrued Benefit determined under Section 2.01 shall be
vested in accordance with the following schedule:
Years of Service Vested %
less than 5 0%
5 or more 100%
10.02 A Participant's vested Accrued Benefit is payable at his
Normal Retirement Date. A Participant may elect to have his benefit
commence prior to age 65 but after age 55 if he meets the service
requirements for early retirement pursuant to Section 7.01. If the
benefit commences before age 65, the amount of monthly benefit will be
reduced according to the schedule set forth in Section 7.03.
XI. Form of Benefit Payment
11.01 The normal form of benefit payment is a monthly lifetime
annuity, payable in accordance with the Company's standard payroll
practices.
11.02 A Participant may, prior to commencement of participation in
the Plan, elect an optional form of payment which is the Actuarial
Equivalent of a Participant's basic monthly pension, as follows:
Option 1: A reduced monthly pension payable for the lifetime
of the Participant with a minimum of sixty (60) monthly payments
guaranteed.
Option 2: A reduced monthly pension payable for the lifetime
of the Participant with a minimum of one hundred twenty (120) monthly
payments guaranteed.
Option 3: A reduced monthly pension payable for the lifetime
of the Participant with a minimum of one hundred eighty (180) monthly
payments guaranteed.
Option 4: A reduced monthly pension, payable to the
Participant for the life of the Participant, with monthly payments of one-
half (1/2) the reduced amount that was payable monthly to the Participant
payable after the Participant's death for the life of the Participant's
spouse.
Option 5: A reduced monthly pension payable to the
Participant for the life of the Participant, with reduced monthly payments
of two thirds (2/3) of the reduced amount that was payable monthly to the
Participant payable after the Participant's death for the life of the
Participant's spouse.
Option 6: A reduced monthly pension payable to the
Participant for the life of the Participant, with reduced monthly payments
of three fourths ( 3/4 ) of the reduced amount that was payable monthly to
the Participant payable after the Participant's death for the life of the
Participant's spouse.
Option 7: A reduced monthly pension payable to the
Participant for the life of the Participant, with the same monthly pension
payable after the Participant's death for the life of the Participant's
spouse.
11.03 If a Participant does not elect an optional form of benefit
payment under Section 11.02 prior to the commencement of participation in
the Plan, such Participant's benefits shall be paid in the normal form
provided in Section 11.01.
XII. Reemployment of Participants
12.01 If a Participant retires or otherwise terminates employment
with the Employer and such Participant is reemployed by the Employer, his
entitlement to any benefits will be determined on the basis of the
provisions of the Plan in effect on his subsequent termination date. The
benefit will be based on the Average Monthly Compensation, Estimated
Primary Insurance Amount and Credited Service as of the date of subsequent
termination, taking into account all Credited Service prior to the
Participant's reemployment date. For purposes of calculating Average
Monthly Compensation, the average of the 36 consecutive months'
Compensation which produce the highest average out of the last 120 months
of employment will be considered, without regard to the break in service.
12.02 If a Participant is reemployed after benefit commencement, the
payment of any benefit to such Participant under the Plan on account of
his retirement or severance shall be suspended by reason of such
reemployment. The amount of his benefit at his subsequent termination
will be calculated in accordance with Section 12.01 but reduced by the
Actuarial Equivalent of any benefit payments received prior to subsequent
termination.
12.03 The form of monthly benefit payment upon subsequent
termination shall be the form of payment that was in effect prior to
reemployment. If the Participant was married at the time of benefit
commencement, and if the Participant's spouse dies prior to subsequent
commencement of benefit payments, such form of payment shall remain
applicable (as though he were married to his deceased spouse) with no
further payments upon his death.
XIII. Additional Restrictions on Benefit Payments
13.01 In no event will there be a duplication of benefits payable
under the Plan because of employment by more than one participating
Employer.
XIV. Administration and Interpretation
14.01 The Plan shall be administered by the Board of Directors
through a Committee which shall consist of three or more members of the
Board of Directors of the Company. No individual who is or has ever been
a member of the Committee shall be eligible to be designated as a
participant or receive payments under this Plan. The Committee shall have
full power and authority to interpret and administer the Plan and, subject
to the provisions herein set forth, to prescribe, amend and rescind rules
and regulations and make all other determinations necessary or desirable
for the administration of the Plan. The Board may from time to time
appoint additional members of the Committee or remove members and appoint
new members in substitution for those previously appointed and to fill
vacancies however caused.
14.02 The decision of the Committee relating to any question
concerning or involving the interpretation or administration of the Plan
shall be final and conclusive, and nothing in the Plan shall be deemed to
give any employee any right to participate in the Plan, except to such
extent, if any, as the Committee may have determined or approved pursuant
to the provisions of the Plan.
XV. Nature of the Plan
Benefits under the Plan shall generally be payable by the Company
from its own funds, and such benefits shall not (i) impose any obligation
upon the trust(s) of the other employee benefit programs of the Company;
(ii) be paid from such trust(s); nor (iii) have any effect whatsoever upon
the amount or payment of benefits under the other employee benefit
programs of the Company. Participants have only an unsecured right to
receive benefits under the Plan from the Company as general creditors of
the Company. The Company may deposit amounts in the Century Telephone
Enterprises, Inc. Supplemental Executive Retirement Trust (the "Trust")
established by the Company for the purpose of funding the Company's
obligations under the Plan. Participants and their beneficiaries,
however, have no secured interest or special claim to the assets of the
Trust, and the assets of the Trust shall be subject to the payment of
claims of general creditors of the Company upon the insolvency or
bankruptcy of the Company, as provided in the Trust.
XVI. Employment Relationship
An employee shall be considered to be in the employment of the
Company and its subsidiaries as long as he remains an employee of either
the Company, any Subsidiary of the Company, or any corporation to which
substantially all of the assets and business of the Company are
transferred. Nothing in the adoption of this Plan nor the designation of
any Participant shall confer on any employee the right to continued
employment by the Company or a Subsidiary of the Company, or affect in any
way the right of the Company or such Subsidiary to terminate his
employment at any time. Any question as to whether and when there has
been a termination of an employee's employment, and the cause, notice or
other circumstances of such termination, shall be determined by the Board,
and its determination shall be final.
XVII. Amendment and Termination of Plan
The Board of Directors of the Company in its sole discretion may
terminate the Plan at any time, and shall have the right to alter or amend
the Plan or any part thereof from time to time, except that the Board of
Directors shall not terminate the Plan or make any alteration or amendment
thereto which would impair any rights or benefits of a Participant
previously accrued.
XVIII. Binding Effect
This Plan shall be binding on the Company, each Subsidiary, and any
affiliate designated by the Company as a participating employer under this
Plan, the successors and assigns thereof, and any entity to which
substantially all of the assets or business of the Company, a Subsidiary,
or a participating affiliate are transferred.
XIX. Reimbursement to Participants
The Company shall reimburse any Participant, or beneficiary thereof,
for all expenses, including attorney's fees, actually and reasonably
incurred by the Participant or beneficiary in any proceeding to enforce
any of their rights under this Plan.
XX. Construction
The masculine gender, where appearing in the Plan, shall be deemed
to include the feminine gender, and the singular may indicate the plural,
unless the context clearly indicates the contrary. The words "hereof",
"herein", "hereunder" and other similar compounds of the word "here"
shall, unless otherwise specifically stated, mean and refer to the entire
Plan, not to any particular provision or Section. Article and Section
headings are included for convenience of reference and are not intended to
add to, or subtract from, the terms of the Plan.
IN WITNESS WHEREOF, Century Telephone Enterprises, Inc. has executed
this Plan in its corporate name and its corporate seal to be hereunto
affixed this 20th day of December, 1994.
ATTEST: CENTURY TELEPHONE ENTERPRISES, INC.
/s/ Connie Walden By: /s/ R. Stewart Ewing, Jr.
R. Stewart Ewing, Jr.
Senior Vice President and
Chief Financial Officer
AMENDMENT TO THE
CENTURY TELEPHONE ENTERPRISES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1994 AMENDMENT AND RESTATEMENT
This Amendment to the Century Telephone Enterprises, Inc.
Supplemental Executive Retirement Plan, 1994 Amendment and Restatement, is
executed this 10th day of February, 1995, effective as if included in the
1994 Amendment and Restatement.
1. Delete the first three lines of Article III, Section
3.03(b) in their entirety and insert the following in lieu thereof:
b. a monthly benefit equal to sixty-five percent
(65%) of the highest Salary out of the last five (5) years of employment
offset by retirement income payable to the individual executive from:
IN WITNESS WHEREOF, Century Telephone Enterprises, Inc. has executed
this amendment in its corporate name on the date indicated above.
CENTURY TELEPHONE ENTERPRISES, INC.
BY: /s/ R.Stewart Ewing, Jr.
R. Stewart Ewing, Jr.
Senior Vice President and
Chief Financial Officer
Exhibit 10.7
CENTURY TELEPHONE
ENTERPRISES, INC.
DOLLARS AND SENSE PLAN
Plan and Trust Agreement
Second Complete
Amendment and Restatement
Generally Effective April 1, 1992
Century Telephone Enterprises, Inc. Dollars and Sense Plan and Trust
Second Complete Amendment and Restatement
Generally Effective April 1, 1992
Century Telephone Enterprises, Inc. previously established the Century
Telephone Enterprises, Inc. Dollars and Sense Plan for the benefit of
eligible employees of the Company and its participating Related Companies.
The Plan is intended to constitute a qualified profit sharing plan, as
described in Code section 401(a), which includes a qualified cash or
deferred arrangement, as described in Code section 401(k). Effective July
1, 1993, the San Marcos Telephone Company, Inc. and SM Telecorp Companies
Retirement Plan was merged into this Plan.
The provisions of this Plan and Trust relating to the Trustee constitute
the trust agreement which is entered into by and between Century Telephone
Enterprises, Inc. and Wells Fargo Bank, National Association. The Trust
is intended to be tax exempt as described under Code section 501(a).
The Plan constitutes an amendment and restatement of the Century Telephone
Enterprises, Inc. Dollars and Sense Plan, which was originally established
effective as of May 1, 1986, and its related trust agreement.
The Century Telephone Enterprises, Inc. Dollars and Sense Plan and Trust,
as set forth in this document, is hereby amended and restated generally
effective as of April 1, 1992.
Date: December 7 , 1994 Century Telephone Enterprises, Inc.
By: /s/ R. Stewart Ewing, Jr.
Title: Sr. Vice President & CFO
The trust agreement set forth in those provisions of this Plan and Trust
which relate to the Trustee is hereby executed.
Date: December 12, 1994 Wells Fargo Bank, National Association
By: /s/ Dolores Upton
Title: Vice President
Date: December 12, 1994 Wells Fargo Bank, National Association
By: /s/ Gwyn E. Slack
Title: Vice President
TABLE OF CONTENTS
1 DEFINITIONS................................................. 1
2 ELIGIBILITY................................................. 9
2.1 Eligibility........................................... 9
2.2 Ineligible Employees.................................. 9
2. Ineligible or Former Participants..................... 9
3 PARTICIPANT CONTRIBUTIONS................................... 10
3.1 Employee Pre-Tax Contribution Election................ 10
3.2 Changing a Contribution Election...................... 10
3.3 Revoking and Resuming a Contribution Election......... 10
3.4 Contribution Percentage Limits........................ 10
3.5 Refunds When Contribution Dollar Limit Exceeded....... 11
3.6 Timing, Posting and Tax Considerations................ 11
4 ROLLOVERS & TRUST-TO-TRUST TRANSFERS........................ 12
4.1 Rollovers............................................. 12
4.2 Transfers From Other Qualified Plans.................. 12
5 EMPLOYER CONTRIBUTIONS...................................... 13
5.1 Employer Match Contributions.......................... 13
5.2 Additional Match Contributions........................ 13
5.3 Discretionary Match Contributions..................... 14
6 ACCOUNTING.................................................. 15
6.1 Individual Participant Accounting..................... 15
6.2 Sweep Account is Transaction Account.................. 15
6.3 Trade Date Accounting and Investment Cycle............ 15
6.4 Accounting for Investment Funds....................... 15
6.5 Payment of Fees and Expenses.......................... 15
6.6 Accounting for Participant Loans...................... 16
6.7 Error Correction...................................... 16
6.8 Participant Statements................................ 17
6.9 Special Accounting During Conversion Period........... 17
6.10 Accounts for QDRO Beneficiaries....................... 17
7 INVESTMENT FUNDS AND ELECTIONS.............................. 18
7.1 Investment Funds...................................... 18
7.2 Investment Fund Elections............................. 18
7.3 Responsibility for Investment Choice.................. 19
7.4 Default if No Election................................ 19
7.5 Timing................................................ 19
7.6 Investment Fund Election Change Fees.................. 19
8 VESTING & FORFEITURES....................................... 20
8.1 Fully Vested Contribution Accounts.................... 20
9 PARTICIPANT LOANS........................................... 21
9.1 Participant Loans Permitted........................... 21
9.2 Loan Application, Note and Security................... 21
9.3 Spousal Consent....................................... 21
9.4 Loan Approval......................................... 21
9.5 Loan Funding Limits................................... 21
9.6 Maximum Number of Loans............................... 22
9.7 Source and Timing of Loan Funding..................... 22
9.8 Interest Rate......................................... 22
9.9 Repayment............................................. 22
9.10 Repayment Hierarchy................................... 23
9.11 Repayment Suspension.................................. 23
9.12 Loan Default.......................................... 23
9.13 Call Feature.......................................... 23
10 IN-SERVICE WITHDRAWALS...................................... 24
10.1 In-Service Withdrawals Permitted...................... 24
10.2 In-Service Withdrawal Application and Notice.......... 24
10.3 Spousal Consent....................................... 24
10.4 In-Service Withdrawal Approval........................ 24
10.5 Minimum Amount, Payment Form and Medium............... 24
10.6 Source and Timing of In-Service Withdrawal Funding.... 25
10.7 Hardship Withdrawals.................................. 25
10.8 After-Tax Account Withdrawals......................... 26
10.9 Rollover Account Withdrawals.......................... 26
10.10 Over Age 70-1/2 Withdrawals........................... 27
11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS OR AS REQUIRED BY LAW ... 28
11.1 Benefit Information, Notices and Election............. 28
11.2 Spousal Consent....................................... 28
11.3 Payment Form and Medium............................... 28
11.4 Distribution of Small Amounts......................... 29
11.5 Source and Timing of Distribution Funding............. 29
11.6 Latest Commencement Permitted......................... 29
11.7 Payment Within Life Expectancy........................ 29
11.8 Incidental Benefit Rule............................... 30
11.9 Payment to Beneficiary................................ 30
11.10 Beneficiary Designation............................... 30
12 ADP AND ACP TESTS........................................... 31
12.1 Contribution Limitation Definitions................... 31
12.2 ADP and ACP Tests..................................... 34
12.3 Correction of ADP and ACP Tests....................... 34
12.4 Multiple Use Test..................................... 35
12.5 Correction of Multiple Use Test....................... 35
12.6 Adjustment for Investment Gain or Loss................ 35
12.7 Testing Responsibilities and Required Records......... 36
12.8 Separate Testing...................................... 36
13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS................ 37
13.1 "Annual Addition" Defined............................. 37
13.2 Maximum Annual Addition............................... 37
13.3 Avoiding an Excess Annual Addition.................... 37
13.4 Correcting an Excess Annual Addition.................. 37
13.5 Correcting a Multiple Plan Excess..................... 38
13.6 "Defined Benefit Fraction" Defined.................... 38
13.7 "Defined Contribution Fraction" Defined............... 38
13.8 Combined Plan Limits and Correction................... 38
14 TOP HEAVY RULES............................................. 39
14.1 Top Heavy Definitions................................. 39
14.2 Special Contributions................................. 40
14.3 Adjustment to Combined Limits for Different Plans..... 41
15 PLAN ADMINISTRATION......................................... 42
15.1 Plan Delineates Authority and Responsibility.......... 42
15.2 Fiduciary Standards................................... 42
15.3 Company is ERISA Plan Administrator................... 42
15.4 Administrator Duties.................................. 43
15.5 Advisors May be Retained.............................. 43
15.6 Delegation of Administrator Duties.................... 44
15.7 Committee Operating Rules............................. 44
16 MANAGEMENT OF INVESTMENTS................................... 45
16.1 Trust Agreement....................................... 45
16.2 Investment Funds...................................... 45
16.3 Authority to Hold Cash................................ 46
16.4 Trustee to Act Upon Instructions...................... 46
16.5 Administrator Has Right to
Vote Registered Investment Company Shares............. 46
16.6 Custom Fund Investment Management .................... 46
16.7 Authority to Segregate Assets......................... 47
16.8 Maximum Permitted Investment in Company Stock......... 47
16.9 Voting, Tendering and Exchanging Company Stock........ 47
16.10 Registration and Disclosure for Company Stock......... 49
16.11 Master Company Stock Fund............................. 49
17 TRUST ADMINISTRATION........................................ 50
17.1 Trustee to Construe Trust............................. 50
17.2 Trustee To Act As Owner of Trust Assets............... 50
17.3 United States Indicia of Ownership.................... 50
17.4 Tax Withholding and Payment........................... 51
17.5 Trustee Duties and Limitations........................ 51
17.6 Trust Accounting...................................... 51
17.7 Valuation of Certain Assets........................... 52
17.8 Legal Counsel......................................... 52
17.9 Fees and Expenses..................................... 52
18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION........... 53
18.1 Plan Does Not Affect Employment Rights................ 53
18.2 Limited Return of Contributions....................... 53
18.3 Assignment and Alienation............................. 53
18.4 Facility of Payment................................... 54
18.5 Reallocation of Lost Participant's Accounts........... 54
18.6 Claims Procedure...................................... 54
18.7 Construction.......................................... 55
18.8 Jurisdiction and Severability......................... 55
18.9 Indemnification by Employer........................... 55
19 AMENDMENT, MERGER AND TERMINATION........................... 56
19.1 Amendment............................................. 56
19.2 Merger................................................ 56
19.3 Plan Termination...................................... 56
19.4 Amendment and Termination Procedures.................. 57
19.5 Termination of Employer's Participation............... 57
19.6 Replacement of the Trustee............................ 58
19.7 Final Settlement and Accounting of Trustee............ 58
APPENDIX A - INVESTMENT FUNDS.................................... 59
APPENDIX B - PAYMENT OF PLAN FEES AND EXPENSES................... 60
APPENDIX C - LOAN INTEREST RATE.................................. 61
1. DEFINITIONS
When capitalized, the words and phrases below have the following
meanings unless different meanings are clearly required by the context:
1.1 "Account". The records maintained for purposes of accounting
for a Participant's interest in the Plan. "Account" may
refer to one or all of the following accounts which have been
created on behalf of a Participant to hold specific types of
Contributions under the Plan:
Effective April 1, 1992
(a) "Employee Pre-Tax Account". An account created to hold
Employee Pre-Tax Contributions.
(b) "Rollover Account". An account created to hold
Rollover Contributions.
(c) "Employer Match Account". An account created to hold
Employer Match Contributions.
(d) "Additional Match Account". An account created to hold
Additional Match Contributions.
(e) "Discretionary Match Account". An account created to
hold Discretionary Match Contributions.
Effective July 1, 1993
(a) "Employee Pre-Tax Account". An account created to hold
Employee Pre-Tax Contributions.
(b) "After-Tax Account". An account created to hold After-
Tax Contributions.
(c) "Rollover Account". An account created to hold
Rollover Contributions.
(d) "Employer Match Account". An account created to hold
Employer Match Contributions.
(e) "Additional Match Account". An account created to hold
Additional Match Contributions.
(f) "Discretionary Match Account". An account created to
hold Discretionary Match Contributions.
(g) "Prior Match Account". An account created to hold
Prior Match Contributions.
1.2 "ACP" or "Average Contribution Percentage". The percentage
calculated in accordance with Section 12.1.
1.3 "Administrator". The Company, which may delegate all or a
portion of the duties of the Administrator under the Plan to
a Committee in accordance with Section 15.6.
1.4 "ADP" or "Average Deferral Percentage". The percentage
calculated in accordance with Section 12.1.
1.5 "Beneficiary". The person or persons who is to receive
benefits after the death of the Participant pursuant to the
"Beneficiary Designation" paragraph in Section 11, or as a
result of a QDRO.
1.6 "Code". The Internal Revenue Code of 1986, as amended.
Reference to any specific Code section shall include such
section, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation amending,
supplementing or superseding such section.
1.7 "Committee". If applicable, the committee which has been
appointed by the Company to administer the Plan in accordance
with Section 15.6.
1.8 "Company". Century Telephone Enterprises, Inc. or any
successor by merger, purchase or otherwise.
1.9 "Company Stock". Shares of voting common stock, $1 par
value, issued by the Company.
1.10 "Compensation". The sum of a Participant's Taxable Income
and salary reductions, if any, pursuant to Code sections 125,
402(e)(3), 402(h), 403(b), 414(h)(2) or 457.
For purposes of determining benefits under this Plan,
Compensation is limited to $200,000 (as indexed for the cost
of living pursuant to Code sections 401(a)(17) and 415(d))
per Plan Year. For purposes of determining benefits under
this Plan for Plan Years beginning after December 31, 1993,
Compensation is limited to $150,000 (as indexed for the cost
of living pursuant to Code sections 401(a)(17) and 415(d))
per Plan Year. For purposes of the preceding sentences, in
the case of an HCE who is a 5% Owner or one of the 10 most
highly compensated Employees, (i) such HCE and such HCE's
family group (as defined below) shall be treated as a single
employee and the Compensation of each family group member
shall be aggregated with the Compensation of such HCE, and
(ii) the limitation on Compensation shall be allocated among
such HCE and his or her family group members in proportion to
each individual's Compensation before the application of this
sentence. For purposes of this Section, the term "family
group" shall mean an Employee's spouse and lineal descendants
who have not attained age 19 before the close of the year in
question.
For the purpose of determining HCEs and key employees,
Compensation for the entire Plan Year shall be used. For the
purpose of determining ADP and ACP, Compensation shall be
limited to amounts paid to an Eligible Employee while a
Participant.
1.11 "Contribution". An amount contributed to the Plan by the
Employer or an Eligible Employee, and allocated by
contribution type to Participants' Accounts, as described in
Section 1.1. Specific types of contribution include:
Effective April 1, 1992
(a) "Employee Pre-Tax Contribution". An amount contributed
by the Employer on an eligible Participant's behalf in
conjunction with a Participant's Code section 401(k)
salary deferral election.
(b) "Rollover Contribution". An amount contributed by an
Eligible Employee which originated from another
employer's qualified plan.
(c) "Employer Match Contribution". An amount contributed
by the Employer on an eligible Participant's behalf
based upon the amount contributed by the eligible
Participant.
(d) "Additional Match Contribution". An amount contributed
by the Employer on an eligible Participant's behalf
based upon the Employer Match Contribution allocated to
such eligible Participant.
(e) "Discretionary Match Contribution". An amount
contributed by the Employer on an eligible
Participant's behalf based upon the Employer Match
Contribution allocated to such eligible Participant.
Effective July 1, 1993
(a) "Employee Pre-Tax Contribution". An amount contributed
by the Employer on an eligible Participant's behalf in
conjunction with a Participant's Code section 401(k)
salary deferral election.
(b) "After-Tax Contribution". An amount previously
contributed by a Participant on an after-tax basis
under former Plan provisions, which continue to be
accounted for in the Plan.
(c) "Rollover Contribution". An amount contributed by an
Eligible Employee which originated from another
employer's qualified plan.
(d) "Employer Match Contribution". An amount contributed
by the Employer on an eligible Participant's behalf
based upon the amount contributed by the eligible
Participant.
(e) "Additional Match Contribution". An amount contributed
by the Employer on an eligible Participant's behalf
based upon the Employer Match Contribution allocated to
such eligible Participant.
(f) "Discretionary Match Contribution". An amount
contributed by the Employer on an eligible
Participant's behalf based upon the Employer Match
Contribution allocated to such eligible Participant.
(g) "Prior Match Contribution". An amount previously
contributed by the Employer on an eligible
Participant's behalf based upon the amount contributed
by the Participant under former Plan provisions, which
continue to be accounted for in the Plan.
1.12 "Contribution Dollar Limit". The annual limit placed on each
Participant's Employee Pre-Tax Contributions, which shall be
$7,000 per calendar year (as indexed for the cost of living
pursuant to Code sections 402(g)(5) and 415(d)). For
purposes of this Section, a Participant's Employee Pre-Tax
Contributions shall include (i) any employer contribution
made under any qualified cash or deferred arrangement as
defined in Code section 401(k) to the extent not includible
in gross income for the taxable year under Code section
402(e)(3) or 402(h)(1)(B) (determined without regard to Code
section 402(g)), and (ii) any employer contribution to
purchase an annuity contract under Code section 403(b) under
a salary reduction agreement (within the meaning of Code
section 3121(a)(5)(D)).
1.13 "Direct Rollover". A payment from the Plan to an Eligible
Retirement Plan specified by a Distributee.
1.14 "Distributee". An Employee or former Employee, the surviving
spouse of an Employee or former Employee and a spouse or
former spouse of an Employee or former Employee determined to
be an alternate payee under a QDRO.
1.15 "Effective Date". April 1, 1992, unless stated otherwise and
except as specifically set forth below. The date upon which
the provisions of this document become effective. In
general, the provisions of this document only apply to
Participants who are Employees on or after the Effective
Date. However, investment and distribution provisions apply
to all Participants with Account balances to be invested or
distributed after the Effective Date.
(a) The provisions included to comply with the technical
corrections to the Deficit Reduction Act of 1984
(DEFRA) and the Retirement Equity Act of 1984 (REA)
contained in the Tax Reform Act of 1986 (TRA) are
effective as if included in the respective laws to
which the corrections apply.
(b) The provisions included to comply with the provisions
of the Tax Reform Act of 1986 other than the technical
corrections to DEFRA and REA are effective as of the
dates specified in the law.
(c) The provisions included to comply with the provisions
of the Omnibus Budget Reconciliation Act of 1986 (OBRA
86) are effective as of the dates specified in the law.
(d) The provisions included to comply with the provisions
of the Omnibus Budget Reconciliation Act of 1987 (OBRA
87) are effective as of the dates specified in the law.
(e) The provisions included to comply with the final
regulations on optional forms of benefit issued July
11, 1988, are effective as of the effective date
prescribed by such regulations.
(f) The provisions included to comply with the final REA
regulations issued August 22, 1988, are effective as of
the effective date prescribed by such regulations.
(g) The provisions included to comply with the provisions
of the Technical and Miscellaneous Revenue Act of 1988
are effective as of the dates specified in the law.
(h) The provisions included to comply with the provisions
of the Omnibus Budget Reconciliation Act of 1989 (OBRA
89) are effective as of the dates specified in the law.
(i) The provisions of Section 16.9 are effective June 1,
1992.
1.16 "Eligible Employee". An Employee of an Employer, except any
Employee:
(a) whose compensation and conditions of employment are
covered by a collective bargaining agreement to which
an Employer is a party unless the agreement calls for
the Employee's participation in the Plan;
(b) who is classified as an associate Employee; or
(c) who is a temporary Employee hired specifically to fill
temporary or occasional needs.
1.17 "Eligible Retirement Plan". An individual retirement account
described in Code section 408(a), an individual retirement
annuity described in Code section 408(b), an annuity plan
described in Code section 403(a), or a qualified trust
described in Code section 401(a), that accepts a
Distributee's Eligible Rollover Distribution, except that
with regard to an Eligible Rollover Distribution to a
surviving spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement
annuity.
1.18 "Eligible Rollover Distribution". A distribution of all or
any portion of the balance to the credit of a Distributee,
excluding a distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of a
Distributee or the joint lives (or joint life expectancies)
of a Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten years or more;
a distribution to the extent such distribution is required
under Code section 401(a)(9); and the portion of a
distribution that is not includible in gross income
(determined without regard to the exclusion for net
unrealized appreciation with respect to Employer securities).
1.19 "Employee". An individual who is:
(a) directly employed by any Related Company and for whom
any income for such employment is subject to
withholding of income or social security taxes, or
(b) a Leased Employee.
1.20 "Employer". The Company and any Subsidiary or other Related
Company of either the Company or a Subsidiary which adopts
this Plan with the approval of the Company.
1.21 "ERISA". The Employee Retirement Income Security Act of
1974, as amended. Reference to any specific section shall
include such section, any valid regulation promulgated
thereunder, and any comparable provision of any future
legislation amending, supplementing or superseding such
section.
1.22 "HCE" or "Highly Compensated Employee". An Employee
described as a Highly Compensated Employee in Section 12.
1.23 "Ineligible". The Plan status of an individual during the
period in which he or she is (1) an Employee of a Related
Company which is not then an Employer, (2) an Employee, but
not an Eligible Employee, or (3) not an Employee.
1.24 "Investment Fund" or "Fund". An investment fund as described
in Section 16.2. The Investment Funds authorized by the
Administrator to be offered as of the Effective Date to
Participants and Beneficiaries are as set forth in Appendix
A.
1.25 "Leased Employee". An individual who is deemed to be an
employee of any Related Company as provided in Code section
414(n) or (o).
1.26 "Leave of Absence". A period during which an individual is
deemed to be an Employee, but is absent from active
employment, provided that the absence:
(a) was authorized by a Related Company; or
(b) was due to military service in the United States armed
forces and the individual returns to active employment
within the period during which he or she retains
employment rights under federal law.
1.27 "NHCE" or "Non-Highly Compensated Employee". An Employee
described as a Non-Highly Compensated Employee in Section 12.
1.28 "Normal Retirement Date". The date of a Participant's 65th
birthday.
1.29 "Owner". A person with an ownership interest in the capital,
profits, outstanding stock or voting power of a Related
Company within the meaning of Code section 318 or 416 (which
exclude indirect ownership through a qualified plan).
1.30 "Participant". An Eligible Employee who begins to
participate in the Plan after completing the eligibility
requirements as described in Section 2.1. A Participant's
participation continues until his or her employment with all
Related Companies ends and his or her Account is distributed
or forfeited.
1.31 "Pay". The base pay, and effective April 1, 1993,
commissions paid to salespersons who receive both a salary
and commissions, paid to an Eligible Employee by an Employer
while a Participant during the current period.
Pay is neither increased nor decreased by any salary credit
or reduction pursuant to Code sections 125 or 402(e)(3). Pay
is limited to $200,000 (as indexed for the cost of living
pursuant to Code sections 401(a)(17) and 415(d)) per Plan
Year. Pay is limited to $150,000 (as indexed for the cost of
living pursuant to Code sections 401(a)(17) and 415(d)) per
Plan Year effective for Plan Years beginning after December
31, 1993.
1.32 "Plan". The Century Telephone Enterprises, Inc. Dollars and
Sense Plan set forth in this document, as from time to time
amended.
1.33 "Plan Year". The annual accounting period of the Plan and
Trust which ends on each December 31.
1.34 "QDRO". A domestic relations order which the Administrator
has determined to be a qualified domestic relations order
within the meaning of Code section 414(p).
1.35 "Related Company". With respect to any Employer, that
Employer and any corporation, trade or business which is,
together with that Employer, a member of the same controlled
group of corporations, a trade or business under common
control, or an affiliated service group within the meaning of
Code section 414(b), (c), (m) or (o).
1.36 "Settlement Date". For each Trade Date, the Trustee's next
business day.
1.37 "Spousal Consent". The written consent given by a spouse to
a Participant's election or waiver of a specified form of
benefit, including a loan or in-service withdrawal, or
Beneficiary designation. The spouse's consent must
acknowledge the effect on the spouse of the Participant's
election, waiver or designation and be duly witnessed by a
Plan representative or notary public. Spousal Consent shall
be valid only with respect to the spouse who signs the
Spousal Consent and only for the particular choice made by
the Participant which requires Spousal Consent. A
Participant may revoke (without Spousal Consent) a prior
election, waiver or designation that required Spousal Consent
at any time before payments begin. Spousal Consent also
means a determination by the Administrator that there is no
spouse, the spouse cannot be located, or such other
circumstances as may be established by applicable law.
1.38 "Subsidiary". A company which is 50% or more owned, directly
or indirectly, by the Company.
1.39 "Sweep Account". The subsidiary Account for each Participant
through which all transactions are processed, which is
invested in interest bearing deposits of the Trustee.
1.40 "Sweep Date". The cut off date and time for receiving
instructions for transactions to be processed on the next
Trade Date.
1.41 "Taxable Income". Compensation in the amount reported by the
Employer as "Wages, tips, other compensation" on Form W-2, or
any successor method of reporting under Code section 6041(d).
1.42 "Trade Date". Each day the Investment Funds are valued,
which is normally every day the assets of such Funds are
traded.
1.43 "Trust". The legal entity created by those provisions of
this document which relate to the Trustee. The Trust is part
of the Plan and holds the Plan assets which are comprised of
the aggregate of Participants' Accounts and any unallocated
funds invested in deposit or money market type assets pending
allocation to Participants' Accounts or disbursement to pay
Plan fees and expenses.
1.44 "Trustee". Wells Fargo Bank, National Association.
2. ELIGIBILITY
2.1 Eligibility
All Participants as of April 1, 1992 shall continue their
eligibility to participate. Each other Eligible Employee
shall become a Participant on the first day of employment as
an Eligible Employee.
2.2 Ineligible Employees
If an Employee completes the above eligibility requirements,
but is Ineligible at the time participation would otherwise
begin (if he or she were not Ineligible), he or she shall
become a Participant on the first subsequent date on which he
or she is an Eligible Employee.
2.3 Ineligible or Former Participants
A Participant may not make or share in Plan Contributions,
nor generally be eligible for a new Plan loan, during the
period he or she is Ineligible, but he or she shall continue
to participate for all other purposes. An Ineligible
Participant or former Participant shall automatically become
an active Participant on the date he or she again becomes an
Eligible Employee.
3. PARTICIPANT CONTRIBUTIONS
3.1 Employee Pre-Tax Contribution Election
Upon becoming a Participant, an Eligible Employee may elect
to reduce his or her Pay by an amount which does not exceed
the Contribution Dollar Limit, within the limits described in
the Contribution Percentage Limits paragraph of this Section
3, and have such amount contributed to the Plan by the
Employer as a Employee Pre-Tax Contribution. The election
shall be made as a whole percentage of Pay in such manner and
with such advance notice as prescribed by the Administrator.
In no event shall an Employee's Employee Pre-Tax
Contributions under the Plan and comparable contributions to
all other plans, contracts or arrangements of all Related
Companies exceed the Contribution Dollar Limit for the
Employee's taxable year beginning in the Plan Year.
3.2 Changing a Contribution Election
A Participant who is an Eligible Employee may change his or
her Employee Pre-Tax Contribution election as of any January
1, April 1, July 1 or October 1 in such manner and with such
advance notice as prescribed by the Administrator, and such
election shall be effective with the first payroll period
commencing after such date. Participants' Contribution
election percentages shall automatically apply to Pay
increases or decreases.
3.3 Revoking and Resuming a Contribution Election
A Participant may revoke his or her Contribution election at
any time in such manner and with such advance notice as
prescribed by the Administrator, and such election shall be
effective with the first payroll period commencing after such
date.
A Participant may resume Contributions by making a new
Contribution election at the same time in which a Participant
may change his or her election in such manner and with such
advance notice as prescribed by the Administrator, and such
election shall be effective with the first payroll period
commencing after such date.
3.4 Contribution Percentage Limits
The Administrator may establish and change from time to time,
without the necessity of amending this Plan and Trust
document, the minimum, if applicable, and maximum Employee
Pre-Tax Contribution percentages, prospectively or
retrospectively (for the current Plan Year), for all
Participants. In addition, the Administrator may establish
any lower percentage limits for Highly Compensated Employees
as it deems necessary. As of the Effective Date, the
Employee Pre-Tax Contribution maximum percentage is 10%.
Irrespective of the limits that may be established by the
Administrator in accordance with this paragraph, in no event
shall the contributions made by or on behalf of a Participant
for a Plan Year exceed the maximum allowable under Code
section 415.
3.5 Refunds When Contribution Dollar Limit Exceeded
A Participant who makes Employee Pre-Tax Contributions for a
calendar year to this Plan and comparable contributions to
any other qualified defined contribution plan in excess of
the Contribution Dollar Limit may notify the Administrator in
writing by the following March 1 (or as late as April 14 if
allowed by the Administrator) that an excess has occurred.
In this event, the amount of the excess specified by the
Participant, adjusted for investment gain or loss, shall be
refunded to him or her by April 15 and shall not be included
as an Annual Addition under Code section 415 for the year
contributed. Refunds shall not include investment gain or
loss for the period between the end of the applicable Plan
Year and the date of distribution. However, for Plan Years
ending before December 31, 1993, refunds shall include
investment gain or loss for the period between the end of the
applicable Plan Year and the date of distribution. Any
Employer Match, and for the Plan Year ending December 31,
1993, Prior Match Contributions attributable to refunded
excess Employee Pre-Tax Contributions as described in this
Section shall be deemed a Contribution made by reason of a
mistake of fact and removed from the Participant's Account.
3.6 Timing, Posting and Tax Considerations
Participants' Contributions, other than Rollover
Contributions, may only be made through payroll deduction.
Such amounts shall be paid to the Trustee in cash and posted
to each Participant's Account(s) as soon as such amounts can
reasonably be separated from the Employer's general assets
and balanced against the specific amount made on behalf of
each Participant. In no event, however, shall such amounts
be paid to the Trustee more than 90 days after the date
amounts are deducted from a Participant's Pay. Employee Pre-
Tax Contributions shall be treated as Employer Contributions
in determining tax deductions under Code section 404(a).
4. ROLLOVERS & TRUST-TO-TRUST TRANSFERS
4.1 Rollovers
The Administrator may authorize the Trustee to accept a
rollover contribution in cash, within the meaning of Code
section 402(c) or 408(d)(3)(A)(ii), directly from an Eligible
Employee or effective January 1, 1993, as a Direct Rollover
from another qualified plan on behalf of the Eligible
Employee. The Employee shall be responsible for furnishing
satisfactory evidence, in such manner as prescribed by the
Administrator, that the amount is eligible for rollover
treatment. A rollover contribution received directly from an
Eligible Employee must be paid to the Trustee in cash within
60 days after the date received by the Eligible Employee from
a qualified plan or conduit individual retirement account.
Contributions described in this paragraph shall be posted to
the applicable Employee's Rollover Account as of the date
received by the Trustee.
If it is later determined that an amount contributed pursuant
to the above paragraph did not in fact qualify as a rollover
contribution under Code section 402(c) or 408(d)(3)(A)(ii),
the balance credited to the Employee's Rollover Account shall
immediately be (1) segregated from all other Plan assets, (2)
treated as a nonqualified trust established by and for the
benefit of the Employee, and (3) distributed to the Employee.
Any such nonqualifying rollover shall be deemed never to have
been a part of the Plan.
4.2 Transfers From Other Qualified Plans
The Administrator may instruct the Trustee to receive assets
in cash or in kind directly from another qualified plan. The
Trustee may refuse the receipt of any transfer if:
(a) the Trustee finds the in-kind assets unacceptable;
(b) instructions for posting amounts to Participants'
Accounts are incomplete;
(c) any amounts are not exempted by Code section
401(a)(11)(B) from the annuity requirements of Code
section 417; or
(d) any amounts include benefits protected by Code section
411(d)(6) which would not be preserved under applicable
Plan provisions.
Such amounts shall be posted to the appropriate Accounts of
Participants as of the date received by the Trustee.
5. EMPLOYER CONTRIBUTIONS
5.1 Employer Match Contributions
(a) Frequency and Eligibility. For each period for which
Participants' Contributions are made, the Employer
shall make Employer Match Contributions as described in
the following Allocation Method paragraph on behalf of
each Participant who contributed during the period.
(b) Allocation Method. The Employer Match Contributions
for each period shall total 40% of each eligible
Participant's Employee Pre-Tax Contributions for the
period, provided that no Employer Match Contributions
shall be made based upon a Participant's Contributions
in excess of 6% of his or her Pay and except that 25%
shall be substituted for the preceding reference to 40%
with regard to an eligible Participant who is a
corporate officer of the Company.
Effective January 1, 1993, the percentage matching rate
may be determined by the Board of Directors of the
Employer by a resolution thereof, and shall remain in
effect until changed by a subsequent resolution
thereof, provided that no Employer Match Contributions
shall be made based upon a Participant's Contributions
in excess of 6% of his or her Pay. The matching
percentage rate in effect as of January 1, 1993 is as
stated in the preceding paragraph.
(c) Timing, Medium and Posting. The Employer shall make
each period's Employer Match Contribution in cash as
soon as is feasible, and not later than the Employer's
federal tax filing date, including extensions, for
deducting such Contribution. The Trustee shall post
such amount to each Participant's Employer Match
Account once the total Contribution received has been
balanced against the specific amount to be credited to
each Participant's Employer Match Account.
5.2 Additional Match Contributions
(a) Frequency and Eligibility. For each Plan Year, the
Employer may make Additional Match Contributions as
described in the following Allocation Method paragraph
on behalf of each Participant who contributed during
the period and was an Eligible Employee on the last day
of the period.
(b) Allocation Method. The Additional Match Contributions
for each period shall be in an amount determined by the
Employer and allocated among eligible Participants in
direct proportion to their Employer Match Contributions
for the period.
(c) Timing, Medium and Posting. The Employer shall make
each period's Additional Match Contribution in cash as
soon as is feasible, and not later than the Employer's
federal tax filing date, including extensions, for
deducting such Contribution. The Trustee shall post
such amount to each Participant's Additional Match
Account once the total Contribution received has been
balanced against the specific amount to be credited to
each Participant's Additional Match Account.
5.3 Discretionary Match Contributions
(a) Frequency and Eligibility. For each Plan Year, the
Employer may make a Discretionary Match Contribution on
behalf of each Non-Highly Compensated Employee
Participant who contributed during the period and was
an Eligible Employee on the last day of the period.
(b) Allocation Method. The Discretionary Match
Contribution for each period shall be in an amount
determined by the Employer and allocated among eligible
Participants in direct proportion to their Employer
Match Contributions for the period.
(c) Timing, Medium and Posting. The Employer shall make
each period's Discretionary Match Contribution in cash
as soon as is feasible, and not later than the
Employer's federal tax filing date, including
extensions, for deducting such contribution.
Notwithstanding, for purposes of satisfying the tests
described in Sections 12.2 and 12.4 Discretionary Match
Contributions must be made before the end of the Plan
Year following the Plan Year being tested. The Trustee
shall post such amount to each Participant's
Discretionary Match Contribution Account once the total
Contribution received has been balanced against the
specific amount to be credited to each Participant's
Discretionary Match Contribution Account.
6. ACCOUNTING
6.1 Individual Participant Accounting
The Administrator shall maintain an individual set of
Accounts for each Participant in order to reflect
transactions both by type of Contribution and investment
medium. Financial transactions shall be accounted for at the
individual Account level by posting each transaction to the
appropriate Account of each affected Participant.
Participant Account values shall be maintained in shares for
the Investment Funds and in dollars for their Sweep and
Participant loan Accounts. At any point in time, the Account
value shall be determined using the most recent Trade Date
values provided by the Trustee.
6.2 Sweep Account is Transaction Account
All transactions related to amounts being contributed to or
distributed from the Trust shall be posted to each affected
Participant's Sweep Account. Any amount held in the Sweep
Account will be credited with interest up until the date on
which it is removed from the Sweep Account.
6.3 Trade Date Accounting and Investment Cycle
Participant Account values shall be determined as of each
Trade Date. For any transaction to be processed as of a
Trade Date, the Trustee must receive instructions for the
transaction by the Sweep Date. Such instructions shall apply
to amounts held in the Account on that Sweep Date. Financial
transactions of the Investment Funds shall be posted to
Participants' Accounts as of the Trade Date, based upon the
Trade Date values provided by the Trustee, and settled on the
Settlement Date.
6.4 Accounting for Investment Funds
Investments in each Investment Fund shall be maintained in
shares. The Trustee is responsible for determining the share
values of each Investment Fund as of each Trade Date. To the
extent an Investment Fund is comprised of collective
investment funds of the Trustee, or any other fiduciary to
the Plan, the share values shall be determined in accordance
with the rules governing such collective investment funds,
which are incorporated herein by reference. All other share
values shall be determined by the Trustee. The share value
of each Investment Fund shall be based on the fair market
value of its underlying assets.
6.5 Payment of Fees and Expenses
Except to the extent Plan fees and expenses related to
Account maintenance, transaction and Investment Fund
management and maintenance, as set forth below, are paid by
the Employer directly, or indirectly, such fees and expenses
shall be paid as set forth below. The Employer may pay a
lower portion of the fees and expenses allocable to the
Accounts of Participants who are no longer Employees or who
are not Beneficiaries, unless doing so would result in
discrimination.
(a) Account Maintenance: Account maintenance fees and
expenses, may include but are not limited to,
administrative, Trustee, government annual report
preparation, audit, legal, nondiscrimination testing,
and fees for any other special services. Account
maintenance fees shall be charged to Participants on a
per Participant basis provided that no fee shall reduce
a Participant's Account balance below zero.
(b) Transaction: Transaction fees and expenses, may include
but are not limited to, recurring payment, Investment
Fund election change and loan fees. Transaction fees
shall be charged to the Participant's Account involved
in the transaction provided that no fee shall reduce a
Participant's Account balance below zero.
(c) Investment Fund Management and Maintenance: Management
and maintenance fees and expenses related to the
Investment Funds shall be charged at the Investment
Fund level and reflected in the net gain or loss of
each Fund.
As of the Effective Date, a breakdown of which Plan fees and
expenses shall generally be borne by the Trust (and charged
to individual Participants' Accounts) and those that shall be
paid by the Employer, directly or indirectly, is set forth in
Appendix B and may be changed from time to time, without the
necessity of amending this Plan and Trust Document.
The Trustee shall have the authority to pay any such fees and
expenses, which remain unpaid by the Employer for 60 days,
from the Trust.
6.6 Accounting for Participant Loans
Participant loans shall be held in a separate Account of the
Participant and accounted for in dollars as an earmarked
asset of the borrowing Participant's Account.
6.7 Error Correction
The Administrator may correct any errors or omissions in the
administration of the Plan by restoring any Participant's
Account balance with the amount that would be credited to the
Account had no error or omission been made. Funds necessary
for any such restoration shall be provided through payment
made by the Employer, or by the Trustee to the extent the
error or omission is attributable to actions or inactions of
the Trustee.
6.8 Participant Statements
The Administrator shall provide Participants with statements
of their Accounts as soon after the end of each quarter of
the Plan Year as is administratively feasible.
6.9 Special Accounting During Conversion Period
The Administrator and Trustee may use any reasonable
accounting methods in performing their respective duties
during the period of converting the prior accounting system
of the Plan and Trust to conform to the individual
Participant accounting system described in this Section.
This includes, but is not limited to, the method for
allocating net investment gains or losses and the extent, if
any, to which contributions received by and distributions
paid from the Trust during this period share in such
allocation.
6.10 Accounts for QDRO Beneficiaries
A separate Account shall be established for an alternate
payee entitled to any portion of a Participant's Account
under a QDRO as of the date and in accordance with the
directions specified in the QDRO. In addition, a separate
Account may be established during the period of time the
Administrator, a court of competent jurisdiction or other
appropriate person is determining whether a domestic
relations order qualifies as a QDRO. Such a separate Account
shall be valued and accounted for in the same manner as any
other Account.
(a) Distributions Pursuant to QDROs. If a QDRO so
provides, the portion of a Participant's Account
payable to an alternate payee may be distributed, in a
form as permissible under the Distributions Once
Employment Ends Section, to the alternate payee at the
time specified in the QDRO, regardless of whether the
Participant is entitled to a distribution from the Plan
at such time.
(b) Participant Loans. Except to the extent required by
law, an alternate payee, on whose behalf a separate
Account has been established, shall not be entitled to
borrow from such Account. If a QDRO specifies that the
alternate payee is entitled to any portion of the
Account of a Participant who has an outstanding loan
balance, all outstanding loans shall generally continue
to be held in the Participant's Account and shall not
be divided between the Participant's and alternate
payee's Accounts.
(c) Investment Direction. Where a separate Account has
been established on behalf of an alternate payee and
has not yet been distributed, the alternate payee may
direct the investment of such Account in the same
manner as if he or she were a Participant.
7. INVESTMENT FUNDS AND ELECTIONS
7.1 Investment Funds
Except for Participants' Sweep and loan Accounts, the Trust
shall be maintained in various Investment Funds. The
Administrator shall select the Investment Funds offered to
Participants and may change the number or composition of the
Investment Funds, subject to the terms and conditions agreed
to with the Trustee. As of the Effective Date, a list of the
Investment Funds offered to Participants is set forth in
Appendix A, and may be changed from time to time, without the
necessity of amending this Plan and Trust document.
7.2 Investment Fund Elections
Each Participant shall direct the investment of all of his or
her Contribution Accounts except for these Accounts:
Employer Match Account
Additional Match Account
Discretionary Match Account
which shall be entirely invested in the Investment Fund
specified by the Administrator, which Investment Fund as of
the Effective Date is set forth in Appendix A.
Effective April 1, 1994, a Participant who has attained age
55 may direct the investment of the balances in his or her
Employer Match, Additional Match and Discretionary Match
Accounts. Future amounts allocated to his or her Employer
Match, Additional Match and Discretionary Match Accounts will
continue to be entirely invested in the Investment Fund
specified by the Administrator, until otherwise directed by
the Participant.
A Participant shall make his or her investment election in
any combination of one or any number of the Investment Funds
offered in accordance with the procedures established by the
Administrator and Trustee. However, during the period of
converting the prior accounting system of the Plan and Trust
to conform to the individual Participant accounting system
described in Section 6, Trust assets may be held in any
investment vehicle permitted by the Plan, as directed by the
Administrator, irrespective of Participant investment
elections.
The Administrator may set a maximum percentage of the total
election that a Participant may direct into any specific
Investment Fund, which maximum, if any, is set forth in
Appendix A, and may be changed from time to time, without the
necessity of amending this Plan and Trust document.
7.3 Responsibility for Investment Choice
Each Participant shall be solely responsible for the
selection of his or her Investment Fund choices. No
fiduciary with respect to the Plan is empowered to advise a
Participant as to the manner in which his or her Accounts are
to be invested, and the fact that an Investment Fund is
offered shall not be construed to be a recommendation for
investment.
7.4 Default if No Election
The Administrator shall specify an Investment Fund for the
investment of that portion of a Participant's Account which
is not yet held in an Investment Fund and for which no valid
investment election is on file. The Investment Fund
specified as of the Effective Date is as set forth in
Appendix A, and may be changed from time to time, without the
necessity of amending this Plan and Trust document.
7.5 Timing
A Participant shall make his or her initial investment
election upon becoming a Participant and may change his or
her election at any time in accordance with the procedures
established by the Administrator and Trustee. Investment
elections received by the Trustee by the Sweep Date will be
effective on the following Trade Date.
7.6 Investment Fund Election Change Fees
A reasonable processing fee may be charged directly to a
Participant's Account for Investment Fund election changes in
excess of a specified number per year as determined by the
Administrator.
8. VESTING & FORFEITURES
8.1 Fully Vested Contribution Accounts
A Participant shall be fully vested in all Accounts at all
times.
9. PARTICIPANT LOANS
9.1 Participant Loans Permitted
Loans to Participants are permitted pursuant to the terms and
conditions set forth in this Section.
9.2 Loan Application, Note and Security
A Participant shall apply for any loan in such manner and
with such advance notice as prescribed by the Administrator.
All loans shall be evidenced by a promissory note, secured
only by the portion of the Participant's Account from which
the loan is made, and the Plan shall have a lien on this
portion of his or her Account.
9.3 Spousal Consent
A Participant is not required to obtain Spousal Consent in
order to take out a loan under the Plan.
9.4 Loan Approval
The Administrator, or the Trustee if otherwise authorized by
the Administrator and agreed to by the Trustee, is
responsible for determining that a loan request conforms to
the requirements described in this Section and granting such
request.
9.5 Loan Funding Limits
The loan amount must meet all of the following limits as
determined as of the Sweep Date the loan is processed:
(a) Plan Minimum Limit. The minimum amount for any loan is
$1,000.
(b) Plan Maximum Limit. Subject to the legal limit
described in (c) below, the maximum a Participant may
borrow, including the outstanding balance of existing
Plan loans, is 100% of the following Accounts which are
fully vested:
Employee Pre-Tax Account
Rollover Account
After-Tax Account
(c) Legal Maximum Limit. The maximum a Participant may
borrow, including the outstanding balance of existing
Plan loans, is 50% of his or her vested Account
balance, not to exceed $50,000. However, the $50,000
maximum is reduced by the Participant's highest
outstanding loan balance during the 12 month period
ending on the day before the Sweep Date as of which the
loan is made. For purposes of this paragraph, the
qualified plans of all Related Companies shall be
treated as though they are part of this Plan to the
extent it would decrease the maximum loan amount.
9.6 Maximum Number of Loans
A Participant may have only one loan outstanding at any given
time.
9.7 Source and Timing of Loan Funding
A loan to a Participant shall be made solely from the assets
of his or her own Accounts. The available assets shall be
determined first by Account type and then by investment type
within each type of Account. The hierarchy for loan funding
by type of Account shall be the order listed in the preceding
Plan Maximum Limit paragraph. Within each Account used for
funding a loan, amounts shall first be taken from the Sweep
Account and then taken by type of investment in direct
proportion to the market value of the Participant's interest
in each Investment Fund as of the Trade Date on which the
loan is processed.
Loans will be funded on the Settlement Date following the
Trade Date as of which the loan is processed. The Trustee
shall make payment to the Participant as soon thereafter as
administratively feasible.
9.8 Interest Rate
The interest rate charged on Participant loans shall be a
fixed reasonable rate of interest, determined from time to
time by the Administrator, which provides the Plan with a
return commensurate with the prevailing interest rate charged
by persons in the business of lending money for loans which
would be made under similar circumstances. As of the
Effective Date, the interest rate is determined as set forth
in Appendix C, and may be changed from time to time, without
the necessity of amending this Plan and Trust document.
9.9 Repayment
Substantially level amortization shall be required of each
loan with payments made at least monthly, generally through
payroll deduction. Loans may be prepaid in full or in part
at any time. The Participant may choose the loan repayment
period, not to exceed 5 years. However, the term may be for
any period not to exceed 10 years if the purpose of the loan
is to acquire the Participant's principal residence.
9.10 Repayment Hierarchy
Loan principal repayments shall be credited to the
Participant's Accounts in the inverse of the order used to
fund the loan. Loan interest shall be credited to the
Participant's Accounts in direct proportion to the principal
payment. Loan payments are credited by investment type based
upon the Participant's current investment election for new
Contributions.
9.11 Repayment Suspension
The Administrator may agree to a suspension of loan payments
for up to 12 months for a Participant who is on a Leave of
Absence without pay. During the suspension period interest
shall continue to accrue on the outstanding loan balance. At
the expiration of the suspension period all outstanding loan
payments and accrued interest thereon shall be due unless
otherwise agreed upon by the Administrator.
9.12 Loan Default
A loan is treated as a default if scheduled loan payments are
more than 90 days late. A Participant shall then have 30
days from the time he or she receives written notice of the
default and a demand for past due amounts to cure the default
before it becomes final.
In the event of default, the Administrator may direct the
Trustee to report the default as a taxable distribution. As
soon as a Plan withdrawal or distribution to such Participant
would otherwise be permitted, the Administrator may instruct
the Trustee to execute upon its security interest in the
Participant's Account by distributing the note to the
Participant.
9.13 Call Feature
The Administrator shall have the right to call any
Participant loan once a Participant's employment with all
Related Companies has terminated or if the Plan is
terminated.
10. IN-SERVICE WITHDRAWALS
10.1 In-Service Withdrawals Permitted
In-service withdrawals to a Participant who is an Employee
are permitted pursuant only to the terms and conditions set
forth in this Section and as required by law as set forth in
Section 11.
10.2 In-Service Withdrawal Application and Notice
A Participant shall apply for any in-service withdrawal in
such manner and with such advance notice as prescribed by the
Administrator. Effective for in-service withdrawals applied
for after December 31, 1992, the Participant shall be
provided the notice prescribed by Code section 402(f).
If an in-service withdrawal is one to which Code sections
401(a)(11) and 417 do not apply, such in-service withdrawal
may commence less than 30 days after the aforementioned
notice is provided, if:
(a) the Participant is clearly informed that he or she has
the right to a period of at least 30 days after receipt
of such notice to consider his or her option to elect
or not elect a Direct Rollover for the portion, if any,
of his or her in-service withdrawal which will
constitute an Eligible Rollover Distribution; and
(b) the Participant after receiving such notice,
affirmatively elects a Direct Rollover for the portion,
if any, of his or her in-service withdrawal which will
constitute an Eligible Rollover Distribution or
alternatively elects to have such portion made payable
directly to him or her, thereby not electing a Direct
Rollover.
10.3 Spousal Consent
A Participant is not required to obtain Spousal Consent in
order to make an in-service withdrawal under the Plan.
10.4 In-Service Withdrawal Approval
The Administrator, or the Trustee if otherwise authorized by
the Administrator and agreed to by the Trustee, is
responsible for determining that an in-service withdrawal
request conforms to the requirements described in this
Section and granting such request.
10.5 Minimum Amount, Payment Form and Medium
There is no minimum amount for any type of withdrawal.
For withdrawals made after December 31, 1992, with regard to
the portion of a withdrawal representing an Eligible Rollover
Distribution, a Participant may elect a Direct Rollover. The
form of payment for an in-service withdrawal shall be a
single lump sum and payment shall be made in cash.
10.6 Source and Timing of In-Service Withdrawal Funding
An in-service withdrawal to a Participant shall be made
solely from the assets of his or her own Accounts and will be
based on the Account values as of the Trade Date the in-
service withdrawal is processed. The available assets shall
be determined first by Account type and then by investment
type within each type of Account. Within each Account used
for funding an in-service withdrawal, amounts shall first be
taken from the Sweep Account and then taken by type of
investment in direct proportion to the market value of the
Participant's interest in each Investment Fund (which
excludes Participant loans) as of the Trade Date on which the
in-service withdrawal is processed.
In-Service withdrawals will be funded on the Settlement Date
following the Trade Date as of which the in-service
withdrawal is processed. The Trustee shall make payment as
soon thereafter as administratively feasible.
10.7 Hardship Withdrawals
(a) Requirements. A Participant who is an Employee may
request the withdrawal of up to the amount necessary to
satisfy a financial need including amounts necessary to
pay any federal, state or local income taxes or
penalties reasonably anticipated to result from the
withdrawal. Only requests for withdrawals (1) on
account of a Participant's "Deemed Financial Need", and
(2) which are "Deemed Necessary" to satisfy the
financial need will be approved.
(b) "Deemed Financial Need". Financial commitments
relating to:
(1) the payment of unreimbursable medical expenses
described under Code section 213(d) incurred (or
to be incurred) by the Employee, his or her
spouse or dependents;
(2) the payment of unreimbursable tuition and related
educational fees for up to the next 12 months of
post-secondary education for the Employee, his or
her spouse or dependents;
(3) the payment of funeral expenses of an Employee's
family member; or
(4) the payment of amounts necessary for the Employee
to prevent losing his or her principal residence
through eviction or foreclosure on the mortgage.
(c) "Deemed Necessary". A withdrawal is "deemed necessary"
to satisfy the financial need only if the withdrawal
amount does not exceed the financial need and all of
these conditions are met:
(1) the Employee has obtained all other possible
withdrawals and nontaxable loans available from
all plans maintained by Related Companies;
(2) the Administrator shall suspend the Employee from
making any contributions to this Plan, all other
qualified and nonqualified plans of deferred
compensation and all stock option or stock
purchase plans maintained by Related Companies
for 12 months from the date the withdrawal
payment is made; and
(3) the Administrator shall reduce the Contribution
Dollar Limit for the Employee for the calendar
year next following the calendar year of the
withdrawal by the amount of the Employee's
Employee Pre-Tax Contributions for the calendar
year of the withdrawal.
(d) Account Sources for Withdrawal. All available amounts
must first be withdrawn from a Participant's After-Tax
Account. The remaining withdrawal amount shall come
only from the Participant's fully vested Accounts, in
the following priority order:
Rollover Account
Employee Pre-Tax Account
The amount that may be withdrawn from a Participant's
Employee Pre-Tax Account shall not include any earnings
credited to his or her Employee Pre-Tax Contribution
Account.
(e) Permitted Frequency. There is no restriction on the
number of Hardship withdrawals permitted to a
Participant.
10.8 After-Tax Account Withdrawals
No in-service withdrawals are permitted from a Participant's
After-Tax Account except as provided elsewhere in this
Section.
10.9 Rollover Account Withdrawals
No in-service withdrawals are permitted from a Participant's
Rollover Account except as provided elsewhere in this
Section.
10.10 Over Age 70-1/2 Withdrawals
(a) Requirements. A Participant who is an Employee and
over age 70-1/2 may withdraw from the Accounts listed in
paragraph (b) below.
(b) Account Sources for Withdrawal. The withdrawal amount
shall come only from the Participant's fully vested
Accounts, in the following priority order with the
exception that the Participant may instead choose to
have amounts taken from his or her After-Tax Account
first:
Rollover Account
Employee Pre-Tax Account
Discretionary Match Account
Employer Match Account
Additional Match Account
Prior Match Account
After-Tax Account
(c) Permitted Frequency. The maximum number of Over Age
70-1/2 withdrawals (other than an Over Age 70-1/2 with-
drawal necessary to comply with Code section 401(a)(9))
permitted to a Participant is one.
(d) Suspension from Further Contributions. An Over Age 70-1/2
withdrawal shall not affect a Participant's ability to
make or be eligible to receive further Contributions.
11. DISTRIBUTIONS ONCE EMPLOYMENT ENDS OR AS REQUIRED BY LAW
11.1 Benefit Information, Notices and Election
A Participant, or his or her Beneficiary in the case of his
or her death, shall be provided with information regarding
all optional times and forms of distribution available, to
include the notices prescribed by Code section 402(f),
effective January 1, 1993, and Code section 411(a)(11).
Subject to the other requirements of this Section, a
Participant, or his or her Beneficiary in the case of his or
her death, may elect, in such manner and with such advance
notice as prescribed by the Administrator, to have his or her
vested Account balance paid to him or her beginning upon any
Settlement Date following the Participant's termination of
employment with all Related Companies or, if earlier, at the
time required by law as set forth in Section 11.6.
If a distribution is one to which Code sections 401(a)(11)
and 417 do not apply, such distribution may commence less
than 30 days after the aforementioned notices are provided,
if:
(a) the Participant is clearly informed that he or she has
the right to a period of at least 30 days after receipt
of such notices to consider the decision as to whether
to elect a distribution and if so to elect a particular
form of distribution and to elect or not elect a Direct
Rollover for all or a portion, if any, of his or her
distribution which will constitute an Eligible Rollover
Distribution; and
(b) the Participant after receiving such notice,
affirmatively elects a distribution and a Direct
Rollover for all or a portion, if any, of his or her
distribution which will constitute an Eligible Rollover
Distribution or alternatively elects to have all or a
portion made payable directly to him or her, thereby
not electing a Direct Rollover for all or a portion
thereof.
11.2 Spousal Consent
A Participant is not required to obtain Spousal Consent in
order to receive a distribution under the Plan.
11.3 Payment Form and Medium
A Participant shall be paid in the form of a single lump sum.
Notwithstanding, a Participant who is an Employee at the time
he or she is required by law to commence distribution, or
anytime thereafter, may instead elect to be paid annually in
a lump sum an amount sufficient to comply with Code section
401(a)(9).
Distributions shall generally be made in cash.
Alternatively, a lump sum payment may be made in a
combination of cash and whole shares of Company Stock (to the
extent invested in the Company Stock Fund). For
distributions made after December 31, 1992, with regard to
the portion of a distribution representing an Eligible
Rollover Distribution, a Distributee may elect a Direct
Rollover for all or a portion of such amount.
11.4 Distribution of Small Amounts
If, at the time a Participant's employment with all Related
Companies ends, the Participant's vested Account balance is
$3,500 or less, the Participant's benefit may be paid as a
single lump sum, without his or her consent, after his or her
employment with all Related Companies ends in accordance with
procedures prescribed by the Administrator.
11.5 Source and Timing of Distribution Funding
A distribution to a Participant shall be made solely from the
assets of his or her own Accounts and will be based on the
Account values as of the Trade Date the distribution is
processed. The available assets shall be determined first by
Account type and then by investment type within each type of
Account. Within each Account used for funding a
distribution, amounts shall first be taken from the Sweep
Account and then taken by type of investment in direct
proportion to the market value of the Participant's interest
in each Investment Fund as of the Trade Date on which the
distribution is processed.
Distributions will be funded on the Settlement Date following
the Trade Date as of which the distribution is processed.
The Trustee shall make payment as soon thereafter as
administratively feasible.
11.6 Latest Commencement Permitted
In addition to any other Plan requirements and unless a
Participant elects otherwise, his or her benefit payments
will begin not later than 60 days after the end of the Plan
Year in which he or she attains his or her Normal Retirement
Date or retires, whichever is later. However, if the amount
of the payment or the location of the Participant (after a
reasonable search) cannot be ascertained by that deadline,
payment shall be made no later than 60 days after the
earliest date on which such amount or location is ascertained
but in no event later than as described below.
Benefit payments shall begin by the April 1 immediately
following the end of the calendar year in which the
Participant attains age 70-1/2 (whether or not he or she is an
Employee).
11.7 Payment Within Life Expectancy
The Participant's payment election must be consistent with
the requirement of Code section 401(a)(9) that all payments
are to be completed within a period not to exceed the lives
or the joint and last survivor life expectancy of the
Participant and his or her Beneficiary. The life
expectancies of a Participant and his or her Beneficiary may
not be recomputed annually.
11.8 Incidental Benefit Rule
The Participant's payment election must be consistent with
the requirement that, if the Participant's spouse is not his
or her sole primary Beneficiary, the minimum annual
distribution for each calendar year, beginning with the year
in which he or she attains age 70-1/2, shall not be less than
the quotient obtained by dividing (a) the Participant's
vested Account balance as of the last Trade Date of the
preceding year by (b) the applicable divisor as determined
under the incidental benefit requirements of Code section
401(a)(9).
11.9 Payment to Beneficiary
Payment to a Beneficiary must be completed by the end of the
calendar year that contains the fifth anniversary of the
Participant's death, except that:
(a) If the Participant dies after the April 1 immediately
following the end of the calendar year in which he or
she attains age 70-1/2, payment to his or her Beneficiary
must be made at least as rapidly as provided in the
Participant's distribution election;
(b) If the surviving spouse is the Beneficiary, payments
need not begin until the end of the calendar year in
which the Participant would have attained age 70-1/2 and
must be completed within the spouse's life or life
expectancy; and
(c) If the Participant and the surviving spouse who is the
Beneficiary die (1) before the April 1 immediately
following the end of the calendar year in which the
Participant would have attained age 70-1/2 and (2) before
payments have begun to the spouse, the spouse will be
treated as the Participant in applying these rules.
11.10 Beneficiary Designation
Each Participant may complete a beneficiary designation form
indicating the Beneficiary who is to receive the
Participant's remaining Plan interest at the time of his or
her death. The designation may be changed at any time.
However, a Participant's spouse shall be the sole primary
Beneficiary unless the designation includes Spousal Consent
for another Beneficiary. If no proper designation is in
effect at the time of a Participant's death or if the
Beneficiary does not survive the Participant, the Beneficiary
shall be, in the order listed, the:
(a) Participant's surviving spouse,
(b) Participant's children, in equal shares, per stirpes
(by right of representation), or
(c) Participant's estate.
12. ADP AND ACP TESTS
12.1 Contribution Limitation Definitions
The following definitions are applicable to this Section 12
(where a definition is contained in both Sections 1 and 12,
for purposes of Section 12 the Section 12 definition shall be
controlling):
(a) "ACP" or "Average Contribution Percentage". The
Average Percentage calculated using Contributions
allocated to Participants as of a date within the Plan
Year.
(b) "ACP Test". The determination of whether the ACP is in
compliance with the Basic or Alternative Limitation for
a Plan Year (as defined in Section 12.2).
(c) "ADP" or "Average Deferral Percentage". The Average
Percentage calculated using Deferrals allocated to
Participants as of a date within the Plan Year.
(d) "ADP Test". The determination of whether the ADP is in
compliance with the Basic or Alternative Limitation for
a Plan Year (as defined in Section 12.2).
(e) "Average Percentage". The average of the calculated
percentages for Participants within the specified
group. The calculated percentage refers to either the
"Deferrals" or "Contributions" (as defined in this
Section) made on each Participant's behalf for the Plan
Year, divided by his or her Compensation for the
portion of the Plan Year in which he or she was an
Eligible Employee while a Participant. (Employee Pre-
Tax Contributions to this Plan or comparable
contributions to plans of Related Companies which will
be refunded solely because they exceed the Contribution
Dollar Limit are included in the percentage for the HCE
Group but not for the NHCE Group.)
(f) "Contributions" shall include Employer Match,
Additional Match and for the Plan Year ending December
31, 1993, Prior Match Contributions. In addition,
Contributions may include Employee Pre-Tax and
Discretionary Match Contributions, but only to the
extent that (1) the Employer elects to use them, (2)
they are not used or counted in the ADP Test, (3)
Discretionary Match Contributions are fully vested when
made and not withdrawable by an Employee before he or
she attains age 59-1/2, and (4) Employee Pre-Tax
Contributions are necessary to meet the ACP Test
Alternative Limitation (defined in Section 12.2 (b)) or
the Multiple Use Test.
(g) "Deferrals" shall include Employee Pre-Tax
Contributions. In addition, Deferrals may include
Employer Match, Additional Match and Discretionary
Match Contributions, but only to the extent that (1)
the Employer elects to use them, (2) they are not used
or counted in the ACP Test, and (3) such Contributions
are fully vested when made and not withdrawable by an
Employee before he or she attains age 59-1/2.
(h) "Family Member". An Employee who is, at any time
during the Plan Year or Lookback Year, a spouse, lineal
ascendant or descendant, or spouse of a lineal
ascendant or descendant of (1) an active or former
Employee who at any time during Plan Year or Lookback
Year is a more than 5% Owner (within the meaning of
Code section 414(q)(3)), or (2) an HCE who is among the
10 Employees with the highest Compensation for such
Year.
(i) "HCE" or "Highly Compensated Employee". With respect
to each Employer and its Related Companies, an Employee
during the Plan Year or Lookback Year who (in
accordance with Code section 414(q)):
(1) Was a more than 5% Owner at any time during the
Lookback Year or Plan Year;
(2) Received Compensation during the Lookback Year
(or in the Plan Year if among the 100 Employees
with the highest Compensation for such Year) in
excess of (i) $75,000 (as adjusted for such Year
pursuant to Code sections 414(q)(1) and 415(d)),
or (ii) $50,000 (as adjusted for such Year
pursuant to Code sections 414(q)(1) and 415(d))
in the case of a member of the "top-paid group"
(within the meaning of Code section 414(q)(4))
for such Year), provided, however, that if the
conditions of Code section 414(q)(12)(B)(ii) are
met, the Company may elect for any Plan Year to
apply clause (i) by substituting $50,000 for
$75,000 and not to apply clause (ii);
(3) Was an officer of a Related Company and received
Compensation during the Lookback Year (or in the
Plan Year if among the 100 Employees with the
highest Compensation for such Year) that is
greater than 50% of the dollar limitation in
effect under Code section 415(b)(1)(A) and (d)
for such Year (or if no officer has Compensation
in excess of the threshold, the officer with the
highest Compensation), provided that the number
of officers shall be limited to 50 Employees (or,
if less, the greater of three Employees or 10% of
the Employees); or
(4) Was a Family Member at any time during the
Lookback Year or Plan Year, in which case the
Contributions and Compensation of the HCE and his
or her Family Members shall be aggregated and
they shall be treated as a single HCE.
A former Employee shall be treated as an HCE if (1)
such former Employee was an HCE when he separated from
service, or (2) such former Employee was an HCE in
service at any time after attaining age 55.
The determination of who is an HCE, including the
determinations of the number and identity of Employees
in the top-paid group, the top 100 Employees and the
number of Employees treated as officers shall be made
in accordance with Code section 414(q).
(j) "HCE Group" and "NHCE Group". With respect to each
Employer and its Related Companies, the respective
group of HCEs and NHCEs who are eligible to have
amounts contributed on their behalf for the Plan Year,
including Employees who would be eligible but for their
election not to participate or to contribute, or
because their Pay is greater than zero but does not
exceed a stated minimum.
(1) If the Related Companies maintain two or more
plans which are subject to the ADP or ACP Test
and are considered as one plan for purposes of
Code sections 401(a)(4) or 410(b), all such plans
shall be aggregated and treated as one plan for
purposes of meeting the ADP and ACP Tests,
provided that, for Plan Years beginning after
December 31, 1989, plans may only be aggregated
if they have the same Plan Year.
(2) If an HCE, who is one of the top 10 paid
Employees or a more than 5% Owner, has any Family
Members, the Deferrals, Contributions and
Compensation of such HCE and his or her Family
Members shall be combined and treated as a single
HCE. Such amounts for all other Family Members
shall be removed from the NHCE Group percentage
calculation and be combined with the HCE's.
(3) If an HCE is covered by more than one cash or
deferred arrangement maintained by the Related
Companies, all such plans shall be aggregated and
treated as one plan for purposes of calculating
the separate percentage for the HCE which is used
in the determination of the Average Percentage.
(k) "Lookback Year". Pursuant to Code section 414(q), the
Company elects as the Lookback Year the current
calendar year (ending with the Plan Year).
(l) "Multiple Use Test". The test described in Section
12.4 which a Plan must meet where the Alternative
Limitation (described in Section 12.2(b)) is used to
meet both the ADP and ACP Tests.
(m) "NHCE" or "Non-Highly Compensated Employee". An
Employee who is not an HCE.
12.2 ADP and ACP Tests
For each Plan Year, the ADP and ACP for the HCE Group must
meet either the Basic or Alternative Limitation when compared
to the respective ADP and ACP for the NHCE Group, defined as
follows:
(a) Basic Limitation. The HCE Group Average Percentage may
not exceed 1.25 times the NHCE Group Average
Percentage.
(b) Alternative Limitation. The HCE Group Average
Percentage is limited by reference to the NHCE Group
Average Percentage as follows:
If the NHCE Group Then the Maximum HCE
Average Percentage is Group Average Percentage is
--------------------- ---------------------------
Less than 2% 2 times NHCE Group Average %
2% to 8% NHCE Group Average % plus 2%
More than 8% NA - Basic Limitation applies
12.3 Correction of ADP and ACP Tests
If the ADP or ACP Tests are not met, the Administrator shall
determine, no later than the end of the next Plan Year, a
maximum percentage to be used in place of the calculated
percentage for all HCEs that would reduce the ADP and/or ACP
for the HCE group by a sufficient amount to meet the ADP and
ACP Tests.
(a) ADP Correction. Employee Pre-Tax Contributions shall,
by the end of the next Plan Year, be refunded
(including amounts previously refunded because they
exceeded the Contribution Dollar Limit) to the
Participant in an amount equal to the actual Deferrals
minus the product of the maximum percentage and the
HCE's Compensation. Any Employer Match, and for the
Plan Year ending December 31, 1993, Prior Match
Contributions attributable to refunded excess Employee
Pre-Tax Contributions as described in this Section
12.3(a) shall be deemed a Contribution made by reason
of a mistake of fact and removed from the Participant's
Account.
(b) ACP Correction. Contributions shall, by the end of the
next Plan Year, be refunded to the Participant in an
amount equal to the actual Contributions minus the
product of the maximum percentage and the HCE's
Compensation. The excess amounts shall first be taken
from Additional Match, then for the Plan Year ending
December 31, 1993 from Prior Match and then from
Employer Match Contributions.
(c) Investment Fund Sources. Once the amount of excess
Deferrals and/or Contributions is determined and with
regard to excess Contributions, allocated by type of
Contribution, amounts shall then be taken by type of
investment in direct proportion to the market value of
the Participant's interest in each Investment Fund
(which excludes Participant loans) at the time the
correction is made.
(d) Family Member Correction. To the extent any reduction
is necessary with respect to an HCE and his or her
Family Members that have been combined and treated for
testing purposes as a single Employee, the excess
Deferrals and Contributions from the ADP and/or ACP
Test shall be prorated among each such Participant in
direct proportion to his or her Deferrals or
Contributions included in each Test.
12.4 Multiple Use Test
If the Alternative Limitation (defined in Section 12.2) is
used to meet both the ADP and ACP Tests, the ADP and ACP for
the HCE Group must also comply with the requirements of Code
section 401(m)(9). Such Code section requires that the sum of
the ADP and ACP for the HCE Group (as determined after any
corrections needed to meet the ADP and ACP Tests have been
made) not exceed the sum (which produces the most favorable
result) of:
(a) the Basic Limitation (defined in Section 12.2) applied
to either the ADP or ACP for the NHCE Group, and
(b) the Alternative Limitation applied to the other NHCE
Group percentage.
12.5 Correction of Multiple Use Test
If the multiple use limit is exceeded, the Administrator
shall determine a maximum percentage to be used in place of
the calculated percentage for all HCEs that would reduce
either or both the ADP or ACP for the HCE Group by a
sufficient amount to meet the multiple use limit. Any excess
shall be handled in the same manner that the distribution of
excess Deferrals or Contributions are handled.
12.6 Adjustment for Investment Gain or Loss
Any excess Deferrals or Contributions to be refunded to a
Participant in accordance with Section 12.3 or 12.5 shall be
adjusted for investment gain or loss. Refunds shall not
include investment gain or loss for the period between the
end of the applicable Plan Year and the date of distribution.
However, for Plan Years ending before December 31, 1993,
refunds shall include investment gain or loss for the period
between the end of the applicable Plan Year and the date of
distribution.
12.7 Testing Responsibilities and Required Records
The Administrator shall be responsible for ensuring that the
Plan meets the ADP Test, the ACP Test and the Multiple Use
Test and that the Contribution Dollar Limit is not exceeded.
In carrying out its responsibilities, the Administrator shall
have sole discretion to limit or reduce Deferrals or
Contributions at any time. The Administrator shall maintain
records which are sufficient to demonstrate that the ADP
Test, the ACP Test and the Multiple Use Test have been met
for each Plan Year for at least as long as the Employer's
corresponding tax year is open to audit.
12.8 Separate Testing
(a) Multiple Employers: The determination of HCEs, NHCEs,
and the performance of the testing and any corrective
action resulting therefrom shall be made separately
with regard to the Employees of each Employer (and its
Related Companies) that is not a Related Company with
the other Employer(s).
(b) Collective Bargaining Units: For Plan Years beginning
before 1993, Employees who are eligible to participate
in the Plan as a result of a collective bargaining
agreement shall be excluded from the HCE and NHCE
Groups. For Plan Years beginning after 1992, the
performance of the ADP Test, and if applicable, the ACP
Test and Multiple Use Test and any corrective action
resulting therefrom shall be applied separately to
Employees who are eligible to participate in the Plan
as a result of a collective bargaining agreement.
In addition, separate testing may be applied, at the
discretion of the Administrator and to the extent permitted
under Treasury regulations, to any group of Employees for
whom separate testing is permissible.
13. MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS
13.1 "Annual Addition" Defined
The sum of all amounts allocated to the Participant's Account
for a Plan Year. Amounts include contributions (except for
rollovers or transfers from another qualified plan),
forfeitures and, if the Participant is a Key Employee
(pursuant to Section 14) for the applicable or any prior Plan
Year, medical benefits provided pursuant to Code section
419A(d)(1). For purposes of this Section 13.1, "Account"
also includes a Participant's account in all other defined
contribution plans currently or previously maintained by any
Related Company. The Plan Year refers to the year to which
the allocation pertains, regardless of when it was allocated.
The Plan Year shall be the Code section 415 limitation year.
13.2 Maximum Annual Addition
The Annual Addition to a Participant's accounts under this
Plan and any other defined contribution plan maintained by
any Related Company for any Plan Year shall not exceed the
lesser of (1) 25% of his or her Taxable Income or (2) the
greater of $30,000 or one-quarter of the dollar limitation in
effect under Code section 415(b)(1)(A).
13.3 Avoiding an Excess Annual Addition
If, at any time during a Plan Year, the allocation of any
additional Contributions would produce an excess Annual
Addition for such year, Contributions to be made for the
remainder of the Plan Year shall be limited to the amount
needed for each affected Participant to receive the maximum
Annual Addition.
13.4 Correcting an Excess Annual Addition
Upon the discovery of an excess Annual Addition to a
Participant's Account (resulting from forfeitures,
allocations, reasonable error in determining Participant
compensation or the amount of elective contributions, or
other facts and circumstances acceptable to the Internal
Revenue Service) the excess amount (adjusted to reflect
investment gains) shall first be returned to the Participant
to the extent of his or her Employee Pre-Tax Contributions
(however to the extent Employee Pre-Tax Contributions were
matched, the applicable Employer Match, and for the Plan Year
ending December 31, 1993, Prior Match Contributions shall be
forfeited in proportion to the returned matched Employee Pre-
Tax Contributions) and the remaining excess, if any, shall be
forfeited by the Participant and together with forfeited
Employer Match, and for the Plan Year ending December 31,
1993, Prior Match Contributions used to reduce subsequent
Contributions as soon as is administratively feasible.
13.5 Correcting a Multiple Plan Excess
If a Participant, whose Account is credited with an excess
Annual Addition, received allocations to more than one
defined contribution plan, the excess shall be corrected by
reducing the Annual Addition to this Plan only after all
possible reductions have been made to the other defined
contribution plans.
13.6 "Defined Benefit Fraction" Defined
The fraction, for any Plan Year, where the numerator is the
"projected annual benefit" and the denominator is the greater
of 125% of the "protected current accrued benefit" or the
normal limit which is the lesser of (1) 125% of the maximum
dollar limitation provided under Code section 415(b)(1)(A)
for the Plan Year or (2) 140% of the amount which may be
taken into account under Code section 415(b)(1)(B) for the
Plan Year, where a Participant's:
(a) "projected annual benefit" is the annual benefit
provided by the Plan determined pursuant to Code
section 415(e)(2)(A), and
(b) "protected current accrued benefit" in a defined
benefit plan in existence (1) on July 1, 1982, shall be
the accrued annual benefit provided for under Public
Law 97-248, section 235(g)(4), as amended, or (2) on
May 6, 1986, shall be the accrued annual benefit
provided for under Public Law 99-514, section
1106(i)(3).
13.7 "Defined Contribution Fraction" Defined
The fraction where the numerator is the sum of the
Participant's Annual Addition for each Plan Year to date and
the denominator is the sum of the "annual amounts" for each
year in which the Participant has performed service with a
Related Company. The "annual amount" for any Plan Year is
the lesser of (1) 125% of the Code section 415(c)(1)(A)
dollar limitation (determined without regard to subsection
(c)(6)) in effect for the Plan Year and (2) 140% of the Code
section 415(c)(1)(B) amount in effect for the Plan Year,
where:
14. each Annual Addition is determined pursuant to the Code
section 415(c) rules in effect for such Plan Year, and
15. the numerator is adjusted pursuant to Public Law 97-
248, section 235(g)(3), as amended, or Public Law 99-
514, section 1106(i)(4).
13.8 Combined Plan Limits and Correction
If a Participant has also participated in a defined benefit
plan maintained by a Related Company, the sum of the Defined
Benefit Fraction and the Defined Contribution Fraction for
any Plan Year may not exceed 1.0. If the combined fraction
exceeds 1.0 for any Plan Year, the Participant's benefit
under any defined benefit plan (to the extent it has not been
distributed or used to purchase an annuity contract) shall be
limited so that the combined fraction does not exceed 1.0
before any defined contribution limits will be enforced.
14 TOP HEAVY RULES
14.1 Top Heavy Definitions
When capitalized, the following words and phrases have the
following meanings when used in this Section:
(a) "Aggregation Group". The group consisting of each
qualified plan of an Employer (and its Related
Companies) (1) in which a Key Employee is a participant
or was a participant during the determination period
(regardless of whether such plan has terminated), or
(2) which enables another plan in the group to meet the
requirements of Code sections 401(a)(4) or 410(b). The
Employer may also treat any other qualified plan as
part of the group if the group would continue to meet
the requirements of Code sections 401(a)(4) and 410(b)
with such plan being taken into account.
(b) "Determination Date". The last Trade Date of the
preceding Plan Year or, in the case of the Plan's first
year, the last Trade Date of the first Plan Year.
(c) "Key Employee". A current or former Employee (or his
or her Beneficiary) who at any time during the five
year period ending on the Determination Date was:
(1) an officer of a Related Company whose
Compensation (i) exceeds 50% of the amount in
effect under Code section 415(b)(1)(A) and (ii)
places him within the following highest paid
group of officers:
Number of Employees Number of
not Excluded Under Code Highest Paid
Section 414(q)(8) Officers Included
----------------- -----------------
Less than 30 3
30 to 500 10% of the number of
Employees not excluded
under Code section 414(q)(8)
(2) a more than 5% Owner,
(3) a more than 1% Owner whose Compensation exceeds
$150,000, or
(4) a more than 0.5% Owner who is among the 10
Employees owning the largest interest in a
Related Company and whose Compensation exceeds
the amount in effect under Code section
415(c)(1)(A).
(d) "Plan Benefit". The sum as of the Determination Date
of (1) an Employee's Account, (2) the present value of
his or her other accrued benefits provided by all
qualified plans within the Aggregation Group, and (3)
the aggregate distributions made within the five year
period ending on such date. Plan Benefits shall
exclude rollover contributions and plan to plan
transfers made after December 31, 1983 which are both
employee initiated and from a plan maintained by a non-
related employer.
(e) "Top Heavy". The Plan's status when the Plan Benefits
of Key Employees account for more than 60% of the Plan
Benefits of all Employees who have performed services
at any time during the five year period ending on the
Determination Date. The Plan Benefits of Employees who
were, but are no longer, Key Employees (because they
have not been an officer or Owner during the five year
period), are excluded in the determination.
14.2 Special Contributions
(a) Minimum Contribution Requirement. For each Plan Year
in which the Plan is Top Heavy, the Employer shall not
allow any contributions (other than a Rollover
Contribution) to be made by or on behalf of any Key
Employee unless the Employer makes a contribution
(other than Employee Pre-Tax and Employer Match
Contributions) on behalf of all Participants who were
Eligible Employees as of the last day of the Plan Year
in an amount equal to at least 3% of each such
Participant's Taxable Income. The Administrator shall
remove any such contributions (including applicable
investment gain or loss) credited to a Key Employee's
Account in violation of the foregoing rule and return
them to the Employer or Employee to the extent
permitted by the Limited Return of Contributions
paragraph of Section 18.
(b) Overriding Minimum Benefit. Notwithstanding,
contributions shall be permitted on behalf of Key
Employees if the Employer also maintains a defined
benefit plan which automatically provides a benefit
which satisfies the Code section 416(c)(1) minimum
benefit requirements, including the adjustment provided
in Code section 416(h)(2)(A), if applicable. If this
Plan is part of an aggregation group in which a Key
Employee is receiving a benefit and no minimum is
provided in any other plan, a minimum contribution of
at least 3% of Taxable Income shall be provided to the
Participants specified in the preceding paragraph. In
addition, the Employer may offset a defined benefit
minimum by contributions (other than Employee Pre-Tax
and Employer Match Contributions) made to this Plan.
14.3 Adjustment to Combined Limits for Different Plans
For each Plan Year in which the Plan is Top Heavy, 100% shall
be substituted for 125% in determining the Defined Benefit
Fraction and the Defined Contribution Fraction.
15 PLAN ADMINISTRATION
15.1 Plan Delineates Authority and Responsibility
Plan fiduciaries include the Company, the Administrator, the
Committee and/or the Trustee, as applicable, whose specific
duties are delineated in this Plan and Trust. In addition,
Plan fiduciaries also include any other person to whom
fiduciary duties or responsibility is delegated with respect
to the Plan. Any person or group may serve in more than one
fiduciary capacity with respect to the Plan. To the extent
permitted under ERISA section 405, no fiduciary shall be
liable for a breach by another fiduciary.
15.2 Fiduciary Standards
Each fiduciary shall:
(a) discharge his or her duties in accordance with this
Plan and Trust to the extent they are consistent with
ERISA;
(b) use that degree of care, skill, prudence and diligence
that a prudent person acting in a like capacity and
familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims;
(c) act with the exclusive purpose of providing benefits to
Participants and their Beneficiaries, and defraying
reasonable expenses of administering the Plan;
(d) diversify Plan investments, to the extent such
fiduciary is responsible for directing the investment
of Plan assets, so as to minimize the risk of large
losses, unless under the circumstances it is clearly
prudent not to do so; and
(e) treat similarly situated Participants and Beneficiaries
in a uniform and nondiscriminatory manner.
15.3 Company is ERISA Plan Administrator
The Company is the plan administrator, within the meaning of
ERISA section 3(16), which is responsible for compliance with
all reporting and disclosure requirements, except those that
are explicitly the responsibility of the Trustee under
applicable law. The Administrator and/or Committee shall
have any necessary authority to carry out such functions
through the actions of the Administrator, duly appointed
officers of the Company, and/or the Committee.
15.4 Administrator Duties
The Administrator shall have the discretionary authority to
construe this Plan and Trust, other than the provisions which
relate to the Trustee, and to do all things necessary or
convenient to effect the intent and purposes thereof, whether
or not such powers are specifically set forth in this Plan
and Trust. Actions taken in good faith by the Administrator
shall be conclusive and binding on all interested parties,
and shall be given the maximum possible deference allowed by
law. In addition to the duties listed elsewhere in this Plan
and Trust, the Administrator's authority shall include, but
not be limited to, the discretionary authority to:
(a) determine who is eligible to participate, if a
contribution qualifies as a rollover contribution, the
allocation of Contributions, and the eligibility for
loans, withdrawals and distributions;
(b) provide each Participant with a summary plan
description no later than 90 days after he or she has
become a Participant (or such other period permitted
under ERISA section 104(b)(1)), as well as informing
each Participant of any material modification to the
Plan in a timely manner;
(c) make a copy of the following documents available to
Participants during normal work hours: this Plan and
Trust (including subsequent amendments), all annual and
interim reports of the Trustee related to the entire
Plan, the latest annual report and the summary plan
description;
(d) determine the fact of a Participant's death and of any
Beneficiary's right to receive the deceased
Participant's interest based upon such proof and
evidence as it deems necessary;
(e) establish and review at least annually a funding policy
bearing in mind both the short-run and long-run needs
and goals of the Plan. To the extent Participants may
direct their own investments, the funding policy shall
focus on which Investment Funds are available for
Participants to use; and
(f) adjudicate claims pursuant to the claims procedure
described in Section 18.
15.5 Advisors May be Retained
The Administrator may retain such agents and advisors
(including attorneys, accountants, actuaries, consultants,
record keepers, investment counsel and administrative
assistants) as it considers necessary to assist it in the
performance of its duties. The Administrator shall also
comply with the bonding requirements of ERISA section 412.
15.6 Delegation of Administrator Duties
The Company, as Administrator of the Plan, has appointed a
Committee to administer the Plan on its behalf. The Company
shall provide the Trustee with the names and specimen
signatures of any persons authorized to serve as Committee
members and act as or on its behalf. Any Committee member
appointed by the Company shall serve at the pleasure of the
Company, but may resign by written notice to the Company.
Committee members shall serve without compensation from the
Plan for such services. Except to the extent that the
Company otherwise provides, any delegation of duties to a
Committee shall carry with it the full discretionary
authority of the Administrator to complete such duties.
15.7 Committee Operating Rules
(a) Actions of Majority. Any act delegated by the Company
to the Committee may be done by a majority of its
members. The majority may be expressed by a vote at a
meeting or in writing without a meeting, and a majority
action shall be equivalent to an action of all
Committee members.
(b) Meetings. The Committee shall hold meetings upon such
notice, place and times as it determines necessary to
conduct its functions properly.
(c) Reliance by Trustee. The Committee may authorize one
or more of its members to execute documents on its
behalf and may authorize one or more of its members or
other individuals who are not members to give written
direction to the Trustee in the performance of its
duties. The Committee shall provide such authorization
in writing to the Trustee with the name and specimen
signatures of any person authorized to act on its
behalf. The Trustee shall accept such direction and
rely upon it until notified in writing that the
Committee has revoked the authorization to give such
direction. The Trustee shall not be deemed to be on
notice of any change in the membership of the
Committee, parties authorized to direct the Trustee in
the performance of its duties, or the duties delegated
to and by the Committee until notified in writing.
16. MANAGEMENT OF INVESTMENTS
16.1 Trust Agreement
All Plan assets shall be held by the Trustee in trust, in
accordance with those provisions of this Plan and Trust which
relate to the Trustee, for use in providing Plan benefits and
paying Plan expenses not paid directly by the Employer. Plan
benefits will be drawn solely from the Trust and paid by the
Trustee as directed by the Administrator. Notwithstanding,
the Administrator may appoint, with the approval of the
Trustee, another trustee to hold and administer Plan assets
which do not meet the requirements of Section 16.2.
16.2 Investment Funds
The Administrator is hereby granted authority to direct the
Trustee to invest Trust assets in one or more Investment
Funds. The number and composition of Investment Funds may be
changed from time to time, without the necessity of amending
this Plan and Trust document. The Trustee may establish
reasonable limits on the number of Investment Funds as well
as the acceptable assets for any such Investment Fund. Each
of the Investment Funds may be comprised of any of the
following:
(a) shares of a registered investment company, whether or
not the Trustee or any of its affiliates is an advisor
to, or other service provider to, such company;
(b) collective investment funds maintained by the Trustee,
or any other fiduciary to the Plan, which are available
for investment by trusts which are qualified under Code
sections 401(a) and 501(a);
(c) individual equity and fixed income securities which are
readily tradeable on the open market;
(d) guaranteed investment contracts issued by a bank or
insurance company;
(e) interest bearing deposits of the Trustee; and
(f) Company Stock.
Any Investment Fund assets invested in a collective
investment fund, shall be subject to all the provisions of
the instruments establishing and governing such fund. These
instruments, including any subsequent amendments, are
incorporated herein by reference.
16.3 Authority to Hold Cash
The Trustee shall have the authority to cause the investment
manager of each Investment Fund to maintain sufficient
deposit or money market type assets in each Investment Fund
to handle the Fund's liquidity and disbursement needs. Each
Participant's and Beneficiary's Sweep Account, which is used
to hold assets pending investment or disbursement, shall
consist of interest bearing deposits of the Trustee.
16.4 Trustee to Act Upon Instructions
The Trustee shall carry out instructions to invest assets in
the Investment Funds as soon as practicable after such
instructions are received from the Administrator,
Participants, or Beneficiaries. Such instructions shall
remain in effect until changed by the Administrator,
Participants or Beneficiaries.
16.5 Administrator Has Right to Vote Registered Investment Company
Shares
The Administrator shall be entitled to vote proxies or
exercise any shareholder rights relating to shares held on
behalf of the Plan in a registered investment company.
Notwithstanding, the authority to vote proxies and exercise
shareholder rights related to such shares held in a Custom
Fund is vested as provided otherwise in Section 16.
16.6 Custom Fund Investment Management
The Administrator may designate, with the consent of the
Trustee, an investment manager for any Investment Fund
established by the Trustee solely for Participants of this
Plan (a "Custom Fund"). The investment manager may be the
Administrator, Trustee or an investment manager pursuant to
ERISA section 3(38). The Administrator shall advise the
Trustee in writing of the appointment of an investment
manager and shall cause the investment manager to acknowledge
to the Trustee in writing that the investment manager is a
fiduciary to the Plan.
A Custom Fund shall be subject to the following:
(a) Guidelines. Written guidelines, acceptable to the
Trustee, shall be established for a Custom Fund. If a
Custom Fund consists solely of collective investment
funds or shares of a registered investment company (and
sufficient deposit or money market type assets to
handle the Fund's liquidity and disbursement needs),
its' underlying instruments shall constitute the
guidelines.
(b) Authority of Investment Manager. The investment
manager of a Custom Fund shall have the authority to
vote or execute proxies, exercise shareholder rights,
manage, acquire, and dispose of Trust assets.
Notwithstanding, the authority to vote proxies and
exercise shareholder rights related to shares of
Company Stock held in a Custom Fund is vested as
provided otherwise in Section 16.
(c) Custody and Trade Settlement. Unless otherwise agreed
to by the Trustee, the Trustee shall maintain custody
of all Custom Fund assets and be responsible for the
settlement of all Custom Fund trades. For purposes of
this section, shares of a collective investment fund,
shares of a registered investment company and
guaranteed investment contracts issued by a bank or
insurance company, shall be regarded as the Custom Fund
assets instead of the underlying assets of such
instruments.
(d) Limited Liability of Co-Fiduciaries. Neither the
Administrator nor the Trustee shall be obligated to
invest or otherwise manage any Custom Fund assets for
which the Trustee or Administrator is not the
investment manager nor shall the Administrator or
Trustee be liable for acts or omissions with regard to
the investment of such assets except to the extent
required by ERISA.
16.7 Authority to Segregate Assets
The Company may direct the Trustee to split an Investment
Fund into two or more funds in the event any assets in the
Fund are illiquid or the value is not readily determinable.
In the event of such segregation, the Company shall give
instructions to the Trustee on what value to use for the
split-off assets, and the Trustee shall not be responsible
for confirming such value.
16.8 Maximum Permitted Investment in Company Stock
If the Company provides for a Company Stock Fund directly or
through a Master Company Stock Fund the Fund shall be
comprised of Company Stock and sufficient deposit or money
market type assets to handle the Fund's liquidity and
disbursement needs. The Fund may be as large as necessary to
comply with Participants' and Beneficiaries' investment
elections as well the total investment of Participants' and
Beneficiaries' Employer Match, Additional Match and
Discretionary Accounts.
16.9 Voting, Tendering and Exchanging Company Stock
(a) Participants are Named Fiduciaries. Each Participant
in the Plan (or, in the event of the Participant's
death, the Participant's Beneficiary) is, for purposes
of this Section 16.9, hereby designated a "named
fiduciary" within the meaning of Section 403(a)(1) of
ERISA.
(b) Instructed Share Voting. Each Participant, as a named
fiduciary, shall be entitled to direct the Plan and
Trustee as to the manner in which Company Stock
attributable to such Participant's Account in the
Company Stock Fund is to be voted on each matter
brought before an annual or special stockholders'
meeting of the Company. Before each such meeting of
stockholders, the Trustee shall cause to be furnished
to each Participant (or Beneficiary) a copy of the
proxy solicitation material, together with a form
requesting confidential directions on how such shares
of Company Stock allocated to such Participant's
Account in the Company Stock Fund shall be voted on
each such matter. Upon timely receipt of such
directions, the Trustee shall on each such matter, vote
as directed the number of votes attributable, as
provided in (c) below, to such Participant.
(c) Determination of Votes. The number of votes
attributable to each Participant shall be determined as
follows:
(1) first, the total number of votes attributable to
Company Stock held in the Company Stock Fund
shall be determined;
(2) second, the number of votes determined under (1),
above, shall be attributed to each Participant,
in the ratio which the number of shares of
Company Stock allocated to such Participant's
Account in the Company Stock Fund as of the
record date bears to the total number of shares
of Company Stock held in the Company Stock Fund
as of such date.
(d) Undirected Share Voting. Each Participant, as a named
fiduciary, shall also be entitled to separately direct
the vote of a portion of the number of votes with
respect to which a signed voting-direction instrument
is not timely received from other Participants
("Undirected Votes"). Such direction with respect to
each Participant who timely elects to direct the vote
of Undirected Votes as a named fiduciary shall be with
respect to a number of Undirected Votes equal to the
total number of Undirected Votes multiplied by a
fraction, the numerator of which is the total number of
votes attributable to such Participant and the
denominator of which is the total number of votes
attributable to all Participants who timely elect to
vote Undirected Votes as a named fiduciary.
(e) Responding to Tender and Exchange Offers. Each
Participant, as a named fiduciary, shall have the
right, to the extent of the number of shares of Company
Stock attributable to such Participant's Account in the
Company Stock Fund, to direct the Trustee in writing as
to the manner in which to respond to such tender or
exchange offer with respect to shares of Company Stock.
The Trustee shall use its best efforts to timely
distribute or cause to be distributed to each
Participant (or Beneficiary) such information as will
be distributed to stockholders of the Company in
connection with any such tender or exchange offer.
Upon timely receipt of such instructions, the Trustee
shall respond as instructed with respect to shares of
Company Stock allocated to such Participant's Account
in the Company Stock Fund. If the Trustee shall not
receive timely instructions from a Participant (or
Beneficiary) as to the manner in which to respond to
such a tender or exchange offer, the Trustee shall not
tender or exchange any shares of Company Stock with
respect to which such Participant has the right of
direction. In effecting the foregoing, to the extent
possible, the Trustee shall tender or exchange shares
of Company Stock entitled to one vote per share prior
to shares of Company Stock having greater than one vote
per share.
(f) Confidentiality. Any instructions received by the
Trustee from Participants pursuant to this Section 16.9
shall be held by the Trustee in strict confidence and
shall not be divulged or released to any person,
including officers or Employees of the Employer or a
Related Company; provided, however, that to the extent
necessary for the operation of the Plan, such
instructions may be relayed by the Trustee to a
recordkeeper, auditor or other person providing
services to the Plan if such person (i) is not the
Employer, a Related Company or any Employee, officer or
director thereof, and (ii) agrees not to divulge such
directions to any other person, including Employees,
officers and directors of the Employer and its Related
Companies.
16.10 Registration and Disclosure for Company Stock
The Administrator shall be responsible for determining the
applicability (and, if applicable, complying with) the
requirements of the Securities Act of 1933, as amended, the
California Corporate Securities Law of 1968, as amended, and
any other applicable blue sky law. The Administrator shall
also specify what restrictive legend or transfer restriction,
if any, is required to be set forth on the certificates for
the securities and the procedure to be followed by the
Trustee to effectuate a resale of such securities.
16.11 Master Company Stock Fund
The Trustee may establish, at the direction of the Company, a
single Company Stock Investment Fund (the "Master Company
Stock Fund"), for the benefit of this Plan and any other plan
of a Related Company for which the Trustee acts as trustee
pursuant to a plan and trust document that contains a
provision substantially identical to this Section 16.11. The
assets of this Plan, to the extent invested in the Master
Company Stock Fund, shall consist only of that percentage of
the assets of the Master Company Stock Fund represented by
the shares held by this Plan.
17. TRUST ADMINISTRATION
17.1 Trustee to Construe Trust
The Trustee shall have the discretionary authority to
construe those provisions of this Plan and Trust which relate
to the Trustee and to do all things necessary or convenient
to the administration of the Trust, whether or not such
powers are specifically set forth in this Plan and Trust.
Actions taken in good faith by the Trustee shall be
conclusive and binding on all interested parties, and shall
be given the maximum possible deference allowed by law.
17.2 Trustee To Act As Owner of Trust Assets
Subject to the specific conditions and limitations set forth
in this Plan and Trust, the Trustee shall have all the power,
authority, rights and privileges of an absolute owner of the
Trust assets and, not in limitation but in amplification of
the foregoing, may:
(a) receive, hold, manage, invest and reinvest, sell,
tender, exchange, dispose of, encumber, hypothecate,
pledge, mortgage, lease, grant options respecting,
repair, alter, insure, or distribute any and all
property in the Trust;
(b) borrow money, participate in reorganizations, pay calls
and assessments, vote or execute proxies, exercise
subscription or conversion privileges, exercise options
and register any securities in the Trust in the name of
the nominee, in federal book entry form or in any other
form as will permit title thereto to pass by delivery;
(c) renew, extend the due date, compromise, arbitrate,
adjust, settle, enforce or foreclose, by judicial
proceedings or otherwise, or defend against the same,
any obligations or claims in favor of or against the
Trust; and
(d) lend, through a collective investment fund, any
securities held in such collective investment fund to
brokers, dealers or other borrowers and to permit such
securities to be transferred into the name and custody
and be voted by the borrower or others.
17.3 United States Indicia of Ownership
The Trustee shall not maintain the indicia of ownership of
any Trust assets outside the jurisdiction of the United
States, except as authorized by ERISA section 404(b).
17.4 Tax Withholding and Payment
(a) Withholding. Effective for taxable distributions made
on or before December 31, 1992 the Trustee shall
calculate and withhold federal (and, if applicable,
state) income taxes in accordance with the
Participant's withholding election or as required by
law if no election is made. Effective for taxable
distributions made after December 31, 1992, the Trustee
shall calculate and withhold federal (and, if
applicable, state) income taxes with regard to any
Eligible Rollover Distribution that is not paid as a
Direct Rollover in accordance with the Participant's
withholding election or as required by law if no
election is made or the election is less than the
amount required by law. With regard to any taxable
distribution that is not an Eligible Rollover
Distribution, the Trustee shall calculate and withhold
federal (and, if applicable, state) income taxes in
accordance with the Participant's withholding election
or as required by law if no election is made.
(b) Taxes Due From Investment Funds. The Trustee shall pay
from the Investment Fund any taxes or assessments
imposed by any taxing or governmental authority on such
Fund or its income, including related interest and
penalties.
17.5 Trustee Duties and Limitations
Unless otherwise agreed to by the Trustee, the Trustee's
duties shall be confined to construing the terms of the Plan
and Trust as they relate to the Trustee, receiving funds on
behalf of and making payments from the Trust, safeguarding
and valuing Trust assets, and investing and reinvesting Trust
assets in the Investment Funds as directed by the
Administrator or Participants. The Trustee shall have no
duty or authority to ascertain whether Contributions are in
compliance with the Plan, to enforce collection or to compute
or verify the accuracy or adequacy of any amount to be paid
to it by the Employer. The Trustee shall not be liable for
the proper application of any part of the Trust with respect
to any disbursement made at the direction of the
Administrator.
17.6 Trust Accounting
(a) Annual Report. Within 60 days (or other reasonable
period) following the close of the Plan Year, the
Trustee shall provide the Administrator with an annual
accounting of Trust assets and information to assist
the Administrator in meeting ERISA's annual reporting
and audit requirements.
(b) Periodic Reports. The Trustee shall maintain records
and provide sufficient reporting to allow the
Administrator to properly monitor the Trust's assets
and activity.
(c) Administrator Approval. Approval of any Trustee
accounting will automatically occur 90 days after such
accounting has been received by the Administrator,
unless the Administrator files a written objection with
the Trustee within such time period. Such approval
shall be final as to all matters and transactions
stated or shown therein and binding upon the
Administrator.
17.7 Valuation of Certain Assets
If the Trustee determines the Trust holds any asset which is
not readily tradable and listed on a national securities
exchange registered under the Securities Exchange Act of
1934, as amended, the Trustee may engage a qualified
independent appraiser to determine the fair market value of
such property, and the appraisal fees shall be paid from the
Investment Fund containing the asset.
17.8 Legal Counsel
The Trustee may consult with legal counsel of its choice,
including counsel for the Employer or counsel of the Trustee,
upon any question or matter arising under this Plan and
Trust. When relied upon by the Trustee, the opinion of such
counsel shall be evidence that the Trustee has acted in good
faith.
17.9 Fees and Expenses
The Trustee's fees for its services as Trustee shall be such
as may be mutually agreed upon by the Company and the
Trustee. Trustee fees and all reasonable expenses of counsel
and advisors retained by the Trustee shall be paid in
accordance with Section 6.
18. RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION
18.1 Plan Does Not Affect Employment Rights
The Plan does not provide any employment rights to any
Employee. The Employer expressly reserves the right to
discharge an Employee at any time, with or without cause,
without regard to the effect such discharge would have upon
the Employee's interest in the Plan.
18.2 Limited Return of Contributions
Except as provided in this paragraph, (1) Plan assets shall
not revert to the Employer nor be diverted for any purpose
other than the exclusive benefit of Participants or their
Beneficiaries; and (2) a Participant's vested interest shall
not be subject to divestment. As provided in ERISA section
403(c)(2), the actual amount of a Contribution made by the
Employer (or the current value of the Contribution if a net
loss has occurred) may revert to the Employer if:
(a) such Contribution is made by reason of a mistake of
fact;
(b) initial qualification of the Plan under Code section
401(a) is not received and a request for such
qualification is made within the time prescribed under
Code section 401(b) (the existence of and Contributions
under the Plan are hereby conditioned upon such
qualification); or
(c) such Contribution is not deductible under Code section
404 (such Contributions are hereby conditioned upon
such deductibility) in the taxable year of the Employer
for which the Contribution is made.
The reversion to the Employer must be made (if at all) within
one year of the mistaken payment of the Contribution, the
date of denial of qualification, or the date of disallowance
of deduction, as the case may be. A Participant shall have
no rights under the Plan with respect to any such reversion.
18.3 Assignment and Alienation
As provided by Code section 401(a)(13) and to the extent not
otherwise required by law, no benefit provided by the Plan
may be anticipated, assigned or alienated, except:
(a) to create, assign or recognize a right to any benefit
with respect to a Participant pursuant to a QDRO, or
(b) to use a Participant's vested Account balance as
security for a loan from the Plan which is permitted
pursuant to Code section 4975.
18.4 Facility of Payment
If a Plan benefit is due to be paid to a minor or if the
Administrator reasonably believes that any payee is legally
incapable of giving a valid receipt and discharge for any
payment due him or her, the Administrator shall have the
payment of the benefit, or any part thereof, made to the
person (or persons or institution) whom it reasonably
believes is caring for or supporting the payee, unless it has
received due notice of claim therefor from a duly appointed
guardian or conservator of the payee. Any payment shall to
the extent thereof, be a complete discharge of any liability
under the Plan to the payee.
18.5 Reallocation of Lost Participant's Accounts
If the Administrator cannot locate a person entitled to
payment of a Plan benefit after a reasonable search, the
Administrator may at any time thereafter treat such person's
Account as forfeited and use such amount to offset any
Employer Contributions. If such person subsequently presents
the Administrator with a valid claim for the benefit, such
person shall be paid the amount treated as forfeited, plus
the interest that would have been earned in the Sweep Account
to the date of determination. The Administrator shall pay
the amount through an additional Employer Contribution.
18.6 Claims Procedure
(a) Right to Make Claim. An interested party who disagrees
with the Administrator's determination of his or her
right to Plan benefits must submit a written claim and
exhaust this claim procedure before legal recourse of
any type is sought. The claim must include the
important issues the interested party believes support
the claim. The Administrator, pursuant to the
authority provided in this Plan, shall either approve
or deny the claim.
(b) Process for Denying a Claim. The Administrator's
partial or complete denial of an initial claim must
include an understandable, written response covering
(1) the specific reasons why the claim is being denied
(with reference to the pertinent Plan provisions) and
(2) the steps necessary to perfect the claim and obtain
a final review.
(c) Appeal of Denial and Final Review. The interested
party may make a written appeal of the Administrator's
initial decision, and the Administrator shall respond
in the same manner and form as prescribed for denying a
claim initially.
(d) Time Frame. The initial claim, its review, appeal and
final review shall be made in a timely fashion, subject
to the following time table:
Days to Respond
Action From Last Action
Administrator determines benefit NA
Interested party files initial request 60 days
Administrator's initial decision 90 days
Interested party requests final review 60 days
Administrator's final decision 60 days
However, the Administrator may take up to twice the
maximum response time for its initial and final review
if it provides an explanation within the normal period
of why an extension is needed and when its decision
will be forthcoming.
18.7 Construction
Headings are included for reading convenience. The text
shall control if any ambiguity or inconsistency exists
between the headings and the text. The singular and plural
shall be interchanged wherever appropriate. References to
Participant shall include Beneficiary when appropriate and
even if not otherwise already expressly stated.
18.8 Jurisdiction and Severability
The Plan and Trust shall be construed, regulated and
administered under ERISA and other applicable federal laws
and, where not otherwise preempted, by the laws of the State
of California. If any provision of this Plan and Trust shall
become invalid or unenforceable, that fact shall not affect
the validity or enforceability of any other provision of this
Plan and Trust. All provisions of this Plan and Trust shall
be so construed as to render them valid and enforceable in
accordance with their intent.
18.9 Indemnification by Employer
The Employers hereby agree to indemnify all Plan fiduciaries
against any and all liabilities resulting from any action or
inaction, (including a Plan termination in which the Company
fails to apply for a favorable determination from the
Internal Revenue Service with respect to the qualification of
the Plan upon its termination), in relation to the Plan or
Trust (1) including (without limitation) expenses reasonably
incurred in the defense of any claim relating to the Plan or
its assets, and amounts paid in any settlement relating to
the Plan or its assets, but (2) excluding liability resulting
from actions or inactions made in bad faith, or resulting
from the negligence or willful misconduct of the Trustee.
The Company shall have the right, but not the obligation, to
conduct the defense of any action to which this Section
applies. The Plan fiduciaries are not entitled to indemnity
from the Plan assets relating to any such action.
19. AMENDMENT, MERGER AND TERMINATION
19.1 Amendment
The Company reserves the right to amend this Plan and Trust
at any time, to any extent and in any manner it may deem
necessary or appropriate. The Company (and not the Trustee)
shall be responsible for adopting any amendments necessary to
maintain the qualified status of this Plan and Trust under
Code sections 401(a) and 501(a). If the Committee is acting
as the Administrator in accordance with Section 15.6, it
shall have the authority to adopt Plan and Trust amendments
which have no substantial adverse financial impact upon any
Employer or the Plan. All interested parties shall be bound
by any amendment, provided that no amendment shall:
(a) become effective unless it has been adopted in
accordance with the procedures set forth in Section
19.4;
(b) except to the extent permissible under ERISA and the
Code, make it possible for any portion of the Trust
assets to revert to an Employer or to be used for, or
diverted to, any purpose other than for the exclusive
benefit of Participants and Beneficiaries entitled to
Plan benefits and to defray reasonable expenses of
administering the Plan;
(c) decrease the rights of any Employee to benefits accrued
(including the elimination of optional forms of
benefits) to the date on which the amendment is
adopted, or if later, the date upon which the amendment
becomes effective, except to the extent permitted under
ERISA and the Code; nor
(d) permit an Employee to be paid the balance of his or her
Pre-Tax Account unless the payment would otherwise be
permitted under Code section 401(k).
19.2 Merger
This Plan and Trust may not be merged or consolidated with,
nor may its assets or liabilities be transferred to, another
plan unless each Participant and Beneficiary would, if the
resulting plan were then terminated, receive a benefit just
after the merger, consolidation or transfer which is at least
equal to the benefit which would be received if either plan
had terminated just before such event.
19.3 Plan Termination
The Company may, at any time and for any reason, terminate
the Plan in accordance with the procedures set forth in
Section 19.4, or completely discontinue contributions. Upon
either of these events, or in the event of a partial
termination of the Plan within the meaning of Code section
411(d)(3), the Accounts of each affected Employee who has not
yet incurred a Break in Service shall be fully vested.
Complete distributions or withdrawals will be made in
accordance with the terms of the Plan as in effect at the
time of the Plan's termination or as thereafter amended
provided that a post-termination amendment will not be
effective to the extent that it violates Section 19.1 unless
it is required in order to maintain the qualified status of
the Plan upon its termination. The Trustee's and Employer's
authority shall continue beyond the Plan's termination date
until all Trust assets have been liquidated and distributed.
19.4 Amendment and Termination Procedures
The following procedural requirements shall govern the
adoption of any amendment or termination (a "Change") of this
Plan and Trust:
(a) The Company may adopt any Change by action of its board
of directors in accordance with its normal procedures.
(b) The Committee, if acting as Administrator in accordance
with Section 15.6, may adopt any amendment within the
scope of its authority provided under Section 19.1 and
in the manner specified in Section 15.7(a).
(c) Any Change must be (1) set forth in writing, and (2)
signed and dated by a corporate officer of the Company
or, in the case of an amendment adopted by the
Committee, at least one of its members.
(d) If the effective date of any Change is not specified in
the document setting forth the Change, it shall be
effective as of the date it is signed by the last
person whose signature is required under clause (2)
above, except to the extent that another effective date
is necessary to maintain the qualified status of this
Plan and Trust under Code sections 401(a) and 501(a).
(e) No change shall become effective until it is accepted
and signed by the Trustee (which acceptance shall not
unreasonably be withheld).
19.5 Termination of Employer's Participation
Any Employer may, at any time and for any reason, terminate
its Plan participation by action of its board of directors in
accordance with its normal procedures. Written notice of
such action shall be signed and dated by a corporate officer
of the Employer and delivered to the Company. If the
effective date of such action is not specified, it shall be
effective on, or as soon as reasonably practicable, after the
date of delivery. Upon the Employer's request, the Company
may instruct the Trustee and Administrator to spin off all
affected Accounts and underlying assets into a separate
qualified plan under which the Employer shall assume the
powers and duties of the Company. Alternatively, the Company
may treat the event as a partial termination described above
or continue to maintain the Accounts under the Plan.
19.6 Replacement of the Trustee
The Trustee may resign as Trustee under this Plan and Trust
or may be removed by the Company at any time upon at least 90
days written notice (or less if agreed to by both parties).
In such event, the Company shall appoint a successor trustee
by the end of the notice period. The successor trustee shall
then succeed to all the powers and duties of the Trustee
under this Plan and Trust. If no successor trustee has been
named by the end of the notice period, the Company's chief
executive officer shall become the trustee, or if he or she
declines, the Trustee may petition the court for the
appointment of a successor trustee.
19.7 Final Settlement and Accounting of Trustee
(a) Final Settlement. As soon as is administratively
feasible after its resignation or removal as Trustee,
the Trustee shall transfer to the successor trustee all
property currently held by the Trust. However, the
Trustee is authorized to reserve such sum of money as
it may deem advisable for payment of its accounts and
expenses in connection with the settlement of its
accounts or other fees or expenses payable by the
Trust. Any balance remaining after payment of such
fees and expenses shall be paid to the successor
trustee.
(b) Final Accounting. The Trustee shall provide a final
accounting to the Administrator within 90 days of the
date Trust assets are transferred to the successor
trustee.
(c) Administrator Approval. Approval of the final
accounting will automatically occur 90 days after such
accounting has been received by the Administrator,
unless the Administrator files a written objection with
the Trustee within such time period. Such approval
shall be final as to all matters and transactions
stated or shown therein and binding upon the
Administrator.
APPENDIX A - INVESTMENT FUNDS
I. Investment Funds Available
The Investment Funds offered to Participants and Beneficiaries as of
the Effective Date include this set of daily valued funds:
Category Funds
Money Market Money Market
Income Bond Index
Balanced Asset Allocation
Equity Company Stock
Growth Stock
S&P 500 Stock
II. Default Investment Fund
The default Investment Fund as of the Effective Date is the Money
Market Fund.
III. Contribution Accounts For Which Investment is Restricted
A Participant or Beneficiary may direct the investment of his or her
entire Account except for the following Contribution Accounts, and
except as otherwise provided in Section 7, which shall be invested
as of the Effective Date as follows:
Employer Match Account Company Stock Fund
Additional Match Account Company Stock Fund
Discretionary Match Account Company Stock Fund
IV. Maximum Percentage Restrictions Applicable to Certain Investment
Funds
As of the Effective Date, there are no maximum percentage
restrictions applicable to any Investment Funds.
APPENDIX B - PAYMENT OF PLAN FEES AND EXPENSES
As of the Effective Date, payment of Plan fees and expenses shall be as
follows:
1) Investment Management Fees: These are paid by Participants in that
management fees reduce the investment return reported and credited
to Participants, except that the Employer shall pay the fees related
to the Company Stock Fund. These are paid by the Employer on a
quarterly basis.
2) Recordkeeping Fees: These are paid by the Employer on a quarterly
basis.
3) Loan Fees: A $3.50 per month fee is assessed and billed/collected
quarterly from the Account of each Participant who has an
outstanding loan balance.
4) Investment Fund Election Changes: For each Investment Fund election
change by a Participant, in excess of 4 changes per year, a $10 fee
will be assessed and billed/collected quarterly from the
Participant's Account.
5) Additional Fees Paid by Employer: All other Plan related fees and
expenses shall be paid by the Employer. To the extent that the
Administrator later elects that any such fees shall be borne by
Participants, estimates of the fees shall be determined and
reconciled, at least annually, and the fees will be assessed monthly
and billed/collected from Accounts quarterly.
APPENDIX C - LOAN INTEREST RATE
As of the Effective Date, the interest rate charged on Participant loans
shall be equal to the Trustee's prime rate, plus 3%.
Exhibit 10.21
AMENDED AND RESTATED
CENTURY TELEPHONE ENTERPRISES, INC.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
I. Purpose of the Plan
This Amended and Restated Supplemental Defined Contribution Plan
(the "Plan") is intended to provide Century Telephone Enterprises, Inc.
(the "Company") and its subsidiaries a method for attracting and retaining
key employees; to provide a method for recognizing the contributions of
such personnel; and to promote executive and managerial flexibility,
thereby advancing the interests of the Company and its stockholders. In
addition, the Plan is intended to provide a more adequate level of
retirement benefits in combination with the Company's general retirement
program.
II. Definitions
As used in this Plan, the following terms shall have the meanings
indicated, unless the context otherwise specifies or requires:
2.01 "ACCOUNT" shall mean the account established under this Plan
in accordance with Section 4.01.
2.02 "ACCOUNT BALANCE", as of a given date, shall mean the fair
market value of a Participant's Account, as determined by the Committee.
2.03 "BOARD OF DIRECTORS" shall mean not less than a quorum of the
whole Board of Directors of Century Telephone Enterprises, Inc.
2.04 "COMMITTEE" shall mean three or more members of the Board of
Directors as described in Section 11.01 of the Plan, or the Board if no
Committee has been appointed.
2.05 "COMMON STOCK" shall mean the common stock, $1.00 par value
per share, of the Company.
2.06 "COMPANY" shall mean Century Telephone Enterprises, Inc., any
Subsidiary thereof, and any affiliate designated by the Company as a
participating employer under this Plan.
2.07 "COMPENSATION" shall mean a sum of Participant's Salary,
determined under Section 2.20 and Incentive Compensation, determined under
Section 2.11, for a particular year. The determination of a Participant's
Compensation for purposes of this Plan shall be made by the Committee, in
its sole discretion.
2.08 "DISABILITY" shall mean a condition which makes a Participant
unable to perform each of the material duties of his regular occupation
where he is likely to remain thus incapacitated continuously and
permanently.
2.09 "EFFECTIVE DATE" of this Plan shall mean January 1, 1994.
2.10 "EMPLOYER" shall mean Century Telephone Enterprises, Inc., any
Subsidiary thereof, and any affiliate designated by the Company as a
participating employer under this Plan.
2.11 "INCENTIVE COMPENSATION" shall mean the amount awarded to a
Participant under the Company's Key Employee Incentive Compensation
Program or other executive incentive compensation arrangement maintained
by the Company, including the amount of any stock award in its cash
equivalent at the time of conversion of the award from cash to stock. A
Participant's Incentive Compensation shall be determined on an annual
basis and shall, for purposes of this Plan, be allocated to the year or
years to which the award relates, i.e., the period of time during which
the award was earned.
2.12 "LEAVE OF ABSENCE" shall mean any extraordinary absence
authorized by the Employer under the Employer's standard personnel
practices.
2.13 "NORMAL RETIREMENT AGE" shall mean age sixty-five (65).
2.14 "NORMAL RETIREMENT DATE" shall mean the first day of the month
coincident with or next following a Participant's sixty-fifth (65th)
birthday. Normal Retirement Age shall mean age sixty-five (65).
2.15 "PARTICIPANT" shall mean any officer of the Employer who is
granted participation in the Plan in accordance with the provisions of
Article III.
2.16 "PHANTOM STOCK UNIT" shall mean a unit, the value of which is
equal to the value of a share of Common Stock, but does not represent
actual shares of Common Stock.
2.17 "PLAN" shall mean the Century Telephone Enterprises, Inc.
Supplemental Defined Contribution Plan, as amended and restated herein.
2.18 "PLAN CONTRIBUTIONS" shall mean the total dollar amount of
contributions made, directly or indirectly, on behalf of a Participant
under the Company's Stock Bonus Plan, PAYSOP and Trust and the Company's
Employee Stock Ownership Plan and Trust.
2.19 "PLAN CONTRIBUTION PERCENTAGE" shall mean the estimated total
of the percentage of compensation of employees of the Company contributed
by the Company to its Stock Bonus Plan, PAYSOP and Trust and its Employee
Stock Ownership Plan and Trust, as determined by dividing Plan
Contributions for a particular year by estimated compensation taken into
account under such plans for the year. The Committee, in its sole
discretion, shall determine the Plan Contribution Percentage for each
year, and such determination shall be binding and conclusive.
2.20 "SALARY" shall mean a Participant's actual pay for the
calendar year, exclusive, however, of bonus payments, overtime payments,
commissions, imputed income on life insurance, vehicle allowances,
relocation expenses, severance payments, and any other extra compensation.
2.21 "SUBSIDIARY" shall mean any corporation in which the Company
owns, directly or indirectly through subsidiaries, at least fifty percent
(50%) of the combined voting power of all classes of stock.
III. Participation
3.01 Any officer who is either one of the key employees of the
Company in a position to contribute materially to the continued growth and
future financial success of the Company, or one who has made a significant
contribution to the Company's operations, thereby meriting special
recognition, shall be eligible to participate provided the following
requirements are met:
a. The officer is employed on a full-time basis by Century
Telephone Enterprises, Inc., any Subsidiary thereof or any affiliate
designated by the Company as a participating employer under this Plan;
b. The officer is compensated for full-time employment by a
regular salary;
c. The coverage of the officer is duly approved by the
Board of Directors of Century Telephone Enterprises, Inc.
It is intended that participation in this Plan shall be extended only to
those officers who are members of a select group of management and highly
compensated employees, as determined by the Committee.
IV. Accounts and Investments
4.01 An Account shall be established on behalf of each Participant
who receives an allocation of Phantom Stock Units pursuant to Article V
hereof. Each Participant's Account shall be credited with such
allocation, and shall be debited with any expenses properly chargeable
thereto. Any cash dividends paid on the Common Stock will be deemed to be
paid on the Phantom Stock Units and will be deemed to be invested in
additional Phantom Stock Units.
4.02 Each Participant shall be furnished with a statement of his
Account, in such form as the Committee shall determine, within a
reasonable period of time after the end of each year.
V. Allocations to Accounts
5.01 For each calendar year in which this Plan is in effect, each
Participant's Account shall be credited with that number of Phantom Stock
Units equal in value to that number of shares of Common Stock that could
be purchased with an amount determined according to the following formula:
(a) Compensation,
times
(b) Plan Contribution Percentage,
less
(c) Plan Contributions.
For purposes of this Section 5.01 the Common Stock shall be valued
at the closing price of the Common Stock on the New York Stock Exchange on
the trading day immediately preceding the date specified in Section 5.02.
5.02 The amount determined under Section 5.01 shall be credited to
a Participant's account as of the later of the date on which the credit to
the Participant's Account for the year under Section 5.01 is determined,
or the date on which an amount representing such credit is contributed
under the Plan, and shall be considered a part of the Participant's
Account Balance as of such date.
VI. Vesting of Account
6.01 A Participant's Account shall be fully vested upon:
(a) attainment of age 55.
(b) death.
(c) disability as defined in Section 2.07.
6.02 If a Participant terminates service for reasons other than as
listed in Section 6.01(a), (b), or (c), his Account Balance shall be
vested in accordance with the following schedule:
Years of Service Vested %
less than 5 0%
5 or more 100%
VII. Years of Service
7.01 A Participant will receive credit for a year of service for
each calendar year in which he completes at least one thousand (1000)
hours of service. Years of service will include all years of service
prior to becoming an officer of the Company, years of service following
Normal Retirement Date, and years of service with any Subsidiary or any
affiliate designated by the Company as a participating employer under this
Plan.. In addition, periods of Leave of Absence and periods during which
severance pay is provided shall be counted for determining years of
service.
VIII. Time of Payment and Beneficiaries
8.01 Except as provided in Section 8.02, a Participant's vested
Account Balance is payable upon termination of employment.
8.02 Payment of the Account Balance of a deceased Participant shall
commence within ninety (90) days of his death, and shall be made to his
beneficiary designated on a form provided for such purpose by the Plan
Administrator. If the Participant fails to designate a beneficiary, his
Account Balance shall be payable to his surviving spouse or, if none, to
his surviving child or children (or legal representative of any minor
child or child who has been declared incompetent or incapable of handling
his affairs) in equal shares. The Account Balance of a Participant who
dies leaving no spouse or children shall be paid to his estate.
IX. Form of Benefit Payment
9.01 The normal form of payment of a Participant's Account Balance
is a lump sum cash payment.
9.02 A Participant may, prior to termination of employment, elect
to receive payment of his Account Balance in monthly, quarterly, or annual
cash installments of approximately equal amounts, over a period not to
exceed ten (10) years.
X. Additional Restrictions on Benefit Payments
10.01 In no event will there be a duplication of benefits payable
under the Plan because of employment by more than one participating
Employer.
XI. Administration and Interpretation
11.01 The Plan shall be administered by the Board of Directors
through a Committee which shall consist of three or more members of the
Board of Directors of the Company. No individual who is or has ever been
a member of the Committee shall be eligible to be designated as a
participant or receive payments under this Plan. The Committee shall have
full power and authority to interpret and administer the Plan and, subject
to the provisions herein set forth, to prescribe, amend and rescind rules
and regulations and make all other determinations necessary or desirable
for the administration of the Plan. The Board may from time to time
appoint additional members of the Committee or remove members and appoint
new members in substitution for those previously appointed and to fill
vacancies however caused.
11.02 The decision of the Committee relating to any question
concerning or involving the interpretation or administration of the Plan
shall be final and conclusive, and nothing in the Plan shall be deemed to
give any employee any right to participate in the Plan, except to such
extent, if any, as the Committee may have determined or approved pursuant
to the provisions of the Plan.
XII. Nature of the Plan
12.01 Benefits under the Plan shall generally be payable by the
Company from its own funds, and such benefits shall not (i) impose any
obligation upon the trust(s) of the other employee benefit programs of the
Company; (ii) be paid from such trust(s); nor (iii) have any effect
whatsoever upon the amount or payment of benefits under the other employee
benefit programs of the Company. Participants have only an unsecured
right to receive benefits under the Plan from the Company as general
creditors of the Company. The Company may deposit amounts in a trust
established by the Company for the purpose of funding the Company's
obligations under the Plan. Participants and their beneficiaries,
however, have no secured interest or special claim to the assets of such
trust, and the assets of the trust shall be subject to the payment of
claims of general creditors of the Company upon the insolvency or
bankruptcy of the Company, as provided in the trust.
XIII. Employment Relationship
13.01 An employee shall be considered to be in the employment of the
Company and its subsidiaries as long as he remains an employee of either
the Company, any Subsidiary of the Company, or any corporation to which
substantially all of the assets and business of the Company are
transferred. Nothing in the adoption of this Plan nor the designation of
any Participant shall confer on any employee the right to continued
employment by the Company or a Subsidiary of the Company, or affect in any
way the right of the Company or such Subsidiary to terminate his
employment at any time. Any question as to whether and when there has
been a termination of an employee's employment, and the cause, notice or
other circumstances of such termination, shall be determined by the Board,
and its determination shall be final.
XIV. Amendment and Termination of Plan
14.01 The Board of Directors of the Company in its sole discretion
may terminate the Plan at any time and shall have the right to alter or
amend the Plan or any part thereof from time to time, except that the
Board of Directors shall not terminate the Plan or make any alteration or
amendment thereto which would impair any rights or benefits of a
Participant previously accrued.
XV. Binding Effect
15.01 This Plan shall be binding on the Company, each Subsidiary and
any affiliate designated by the Company as a participating employer under
this Plan, the successors and assigns thereof, and any entity to which
substantially all of the assets or business of the Company, a Subsidiary,
or a participating affiliate are transferred.
XVI. Reimbursement of Participants
16.01 The Company shall reimburse any Participant, or beneficiary
thereof, for all expenses, including attorney's fees, actually and
reasonably incurred by the Participant or beneficiary in any proceeding to
enforce any of their rights under this Plan.
XVII. Construction
17.01 The masculine gender, where appearing in the Plan, shall be
deemed to include the feminine gender, and the singular may indicate the
plural, unless the context clearly indicates the contrary. The words
"hereof", "herein", "hereunder" and other similar compounds of the word
"here" shall, unless otherwise specifically stated, mean and refer to the
entire Plan, not to any particular provision or Section. Article and
Section headings are included for convenience of reference and are not
intended to add to, or subtract from, the terms of the Plan.
IN WITNESS WHEREOF, Century Telephone Enterprises, Inc. has executed
this Plan in its corporate name and its corporate seal to be hereunto
affixed this 20th day of December, 1994.
ATTEST: CENTURY TELEPHONE ENTERPRISES, INC.
/s/ Connie Walden By: /s/ R. Stewart Ewing, Jr.
R. Stewart Ewing, Jr.
Senior Vice President and
Chief Financial Officer
Exhibit 10.22
AMENDED AND RESTATED
CENTURY TELEPHONE ENTERPRISES, INC.
SUPPLEMENTAL DOLLARS & SENSE PLAN
I. Purpose of the Plan
This Amended and Restated Supplemental Dollars & Sense Plan is
established by Century Telephone Enterprises, Inc. (the "Company") and its
subsidiaries and designated affiliates to provide to certain select
management employees the opportunity to defer a portion of their
compensation in excess of the deferrals permissible under the terms of the
Century Telephone Enterprises, Inc. Dollars & Sense Plan and Trust (the
"Dollars & Sense Plan") maintained by the Company and to allow the Company
to make matching contributions based on such deferrals in excess of those
permissible under such plan. This Plan is not intended to constitute a
qualified plan under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), and is designed to be exempt from the
participation, vesting, funding and fiduciary responsibility rules of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
II. Definitions
As used in this Plan, the following terms shall have the meanings
indicated, unless the context otherwise specifies or requires:
2.01 "ACCOUNT" shall mean the account established under this Plan
in accordance with Section 4.01.
2.02 "ACCOUNT BALANCE", as of a given date, shall mean the fair
market value of a Participant's Account, as determined by the Committee.
2.03 "BENEFICIARY" shall mean the person or persons designated by
the Participant to receive benefits after the death of the Participant.
2.04 "BOARD OF DIRECTORS" shall mean not less than a quorum of the
whole Board of Directors of the Company.
2.05 "COMMITTEE" shall mean three or more members of the Board of
Directors of the Company as described in Section 11.01 of the Plan, or the
Board if no Committee has been appointed.
2.06 "DISABILITY" shall mean a condition which makes a Participant
unable to perform each of the material duties of his regular occupation
where he is likely to remain thus incapacitated continuously and
permanently.
2.07 "EFFECTIVE DATE" of this Plan shall mean the first day of the
first payroll period commencing on or after January 1, 1995.
2.08 "EMPLOYER" shall mean the Company, any Subsidiary thereof, and
any affiliate designated by the Company as a participating employer under
this Plan.
2.09 "EXCESS SALARY" shall mean the amount of a Participant's
compensation upon which the Participant can no longer make deferral
contributions under the Dollars & Sense Plan due to the application of
either Code Section 401(a)(17) or 402(g).
2.10 "INCENTIVE COMPENSATION" shall mean the amount awarded to a
Participant under the Company's Key Employee Incentive Compensation
Program or other executive incentive compensation arrangement maintained
by the Company, including the amount of any stock award in its cash
equivalent at the time of conversion of the award from cash to stock. A
Participant's Incentive Compensation shall be determined on an annual
basis and shall, for purposes of this Plan, be allocated to the year in
which the award is paid to the Participant.
2.11 "LEAVE OF ABSENCE" shall mean any extraordinary absence
authorized by the Employer under the Employer's standard personnel
practices.
2.12 "NORMAL RETIREMENT AGE" shall mean age sixty-five (65).
2.13 "NORMAL RETIREMENT DATE" shall mean the first day of the month
coincident with or next following a Participant's sixty-fifth (65th)
birthday.
2.14 "PARTICIPANT" shall mean any officer of the Company, any
Subsidiary thereof, and any designated affiliate, who is granted
participation in the Plan in accordance with the provisions of Article
III.
2.15 "PLAN" shall mean the Century Telephone Enterprises, Inc.
Supplemental Dollars & Sense Plan, as amended and restated herein.
2.16 "PLAN YEAR" shall mean the calendar year.
2.17 "SUBSIDIARY" shall mean any corporation in which the Company
owns, directly or indirectly through subsidiaries, at least fifty percent
(50%) of the combined voting power of all classes of stock.
III. Participation
3.01 Any officer who is either one of the key employees of the
Employer in a position to contribute materially to the continued growth
and future financial success of the Employer, or one who has made a
significant contribution to the Employer's operations, thereby meriting
special recognition, shall be eligible to participate provided the
following requirements are met:
a. The officer is employed on a full-time basis by the
Company, any Subsidiary thereof, or any designated affiliate;
b. The officer is compensated for full-time employment by a
regular salary;
c. The coverage of the officer is duly approved by the
Board of Directors of the Company.
It is intended that participation in this Plan shall be extended only to
those officers who are members of a select group of management and highly
compensated employees, as determined by the Committee.
IV. Accounts and Investments
4.01 An Account shall be established on behalf of each Participant
who receives an allocation pursuant to Article VI hereof. Each
Participant's Account shall be credited with such allocation, and earnings
and gains on his Account Balance, and shall be debited with distributions,
losses, and any expenses properly chargeable thereto.
4.02 Each Participant shall have the same rights with respect to
investment of amounts in his Account hereunder as are available from time
to time under the Dollars & Sense Plan, as to permissible investment
funds, except as provided below. Investment in the Century Stock Fund and
the Stagecoach Bond Index Fund will not be available under the Plan. The
investment rights of each Participant hereunder shall extend to all
amounts in his Account, including deferral contributions and matching
contributions.
4.03 The Accounts of Participants in the Plan shall be revalued as
of the last day of each calendar quarter, and each Participant shall be
furnished with a statement of his Account, in such form as the Committee
shall determine, within a reasonable period of time after the end of each
quarter.
V. Participant Salary Deferrals
5.01 Each Participant shall make separate written elections, prior
to the first day of each Plan Year (or, as to Participants who first
become Participants as of a day other than January 1, prior to such date)
to defer a portion of his (i) Excess Salary and/or (ii) Incentive
Compensation. The amount of allowable deferral pursuant to each of the
Participant's elections shall be a whole percentage, not to exceed ten
percent (10%). An election to defer Excess Salary shall provide for a
deferral to be made from each paycheck. An election to defer Incentive
Compensation shall provide for a deferral based on the total Incentive
Compensation award, including stock, as determined under Section 2.10,
with the amount of such deferral to be made from the bonus check
representing the cash portion of such award.
5.02 Any agreement made under the terms of Section 5.01 shall be
irrevocable until the succeeding January 1, except that a salary deferral
election under the terms of this Plan may be changed, amended or suspended
at the same time and in the same manner as elections under the Dollars &
Sense Plan.
5.03 If a Participant does not make new elections for a succeeding
Plan Year under Section 5.01, his elections in effect for the current Plan
Year shall be deemed to continue in force and effect as if made for such
succeeding Plan Year.
VI. Allocations to Participant's Accounts
6.01 The Employer shall allocate to each Participant's Account the
amount of Excess Salary and/or Incentive Compensation deferred by such
Participant pursuant to an election made under Section 5.01. The
allocation hereunder shall be made as of the date of the paycheck or bonus
check to which the deferral by the Participant relates.
6.02 The Employer shall allocate a matching contribution to each
Participant's Account under this Plan each Plan Year equal to the total
matching percentage (including matching and additional matching
contributions) for the year provided by the Dollars & Sense Plan
multiplied by the Participant's deferrals under this Plan not in excess of
six percent (6%) of the Participant's Excess Salary and/or Incentive
Compensation, applied to each separately.
VII. Vesting of Account
7.01 A Participant's Account Balance shall be fully vested at all
times.
VIII. Time of Payment and Beneficiaries
8.01 Except as provided in Section 8.02, a Participant's Account
Balance is payable upon termination of employment.
8.02 Payment of the Account Balance of a deceased Participant shall
commence within ninety (90) days after his death, and shall be made to his
beneficiary designated on a form provided for such purpose by the Plan
Administrator. If the Participant fails to designate a beneficiary, his
Account Balance shall be payable to his surviving spouse or, if none, to
his surviving child or children (or legal representative of any minor
child or child who has been declared incompetent or incapable of handling
his affairs) in equal shares. The Account Balance of a Participant who
dies leaving no spouse or children shall be paid to his estate.
IX. Form of Benefit Payment
9.01 The normal form of payment of a Participant's Account Balance
is a lump sum cash payment.
9.02 A Participant may, prior to termination of employment, elect
to receive payment of his Account Balance in monthly, quarterly, or annual
cash installments of approximately equal amounts, over a period not to
exceed ten (10) years.
X. Additional Restrictions on Benefit Payments
10.01 In no event will there be a duplication of benefits payable
under the Plan because of employment by more than one participating
Employer.
XI. Administration and Interpretation
11.01 The Plan shall be administered by the Board of Directors of
the Company through a Committee which shall consist of three or more
members of such Board. No individual who is or has ever been a member of
the Committee shall be eligible to be designated as a participant or
receive payments under this Plan. The Committee shall have full power and
authority to interpret and administer the Plan and, subject to the
provisions herein set forth, to prescribe, amend and rescind rules and
regulations and make all other determinations necessary or desirable for
the administration of the Plan. The Board may from time to time appoint
additional members of the Committee or remove members and appoint new
members in substitution for those previously appointed and to fill
vacancies however caused.
11.02 The decision of the Committee relating to any question
concerning or involving the interpretation or administration of the Plan
shall be final and conclusive, and nothing in the Plan shall be deemed to
give any employee any right to participate in the Plan, except to such
extent, if any, as the Committee may have determined or approved pursuant
to the provisions of the Plan.
XII. Nature of the Plan
12.01 Benefits under the Plan shall generally be payable by the
Company from its own funds, and such benefits shall not (i) impose any
obligation upon the trust(s) of the other employee benefit programs of the
Company; (ii) be paid from such trust(s); nor (iii) have any effect
whatsoever upon the amount or payment of benefits under the other employee
benefit programs of the Company. Participants have only an unsecured
right to receive benefits under the Plan from the Company as general
creditors of the Company. The Company may deposit amounts in a trust
established by the Company for the purpose of funding the Company's
obligations under the Plan. Participants and their beneficiaries,
however, have no secured interest or special claim to the assets of such
trust, and the assets of the trust shall be subject to the payment of
claims of general creditors of the Company upon the insolvency or
bankruptcy of the Company, as provided in the trust.
XIII. Employment Relationship
13.01 An employee shall be considered to be in the employment of the
Employer as long as he remains an employee of either the Company, any
Subsidiary of the Company, any designated affiliate, or any corporation to
which substantially all of the assets and business of any of such entities
are transferred. Nothing in the adoption of this Plan nor the designation
of any Participant shall confer on any employee the right to continued
employment by the Employer, or affect in any way the right of the Employer
to terminate his employment at any time. Any question as to whether and
when there has been a termination of an employee's employment, and the
cause, notice or other circumstances of such termination, shall be
determined by the Board, and its determination shall be final.
XIV. Amendment and Termination of Plan
14.01 The Board of Directors of the Company in its sole discretion
may terminate the Plan at any time and shall have the right to alter or
amend the Plan or any part thereof from time to time, except that the
Board of Directors shall not terminate the Plan or make any alteration or
amendment thereto which would impair the rights of a Participant
previously accrued.
XV. Binding Effect
15.01 This Plan shall be binding on the Company, each Subsidiary and
any designated affiliate, the successors and assigns thereof, and any
entity to which substantially all of the assets or business of the
Company, a Subsidiary, or a designated affiliate are transferred.
XVI. Reimbursement of Participants
16.01 The Company shall reimburse any Participant, or beneficiary
thereof, for all expenses, including attorney's fees, actually and
reasonably incurred by the Participant or beneficiary in any proceeding to
enforce any of his rights under this Plan.
XVII. Construction
17.01 The masculine gender, where appearing in the Plan, shall be
deemed to include the feminine gender, and the singular may indicate the
plural, unless the context clearly indicates the contrary. The words
"hereof", "herein", "hereunder" and other similar compounds of the word
"here" shall, unless otherwise specifically stated, mean and refer to the
entire Plan, not to any particular provision or Section. Article and
Section headings are included for convenience of reference and are not
intended to add to, or subtract from, the terms of the Plan.
IN WITNESS WHEREOF, Century Telephone Enterprises, Inc. has executed
this Plan this 22nd day of December, 1994.
ATTEST: CENTURY TELEPHONE ENTERPRISES, INC.
/s/ Connie Walden By:_ /s/ R. Stewart Ewing, Jr.
R. Stewart Ewing, Jr.
Senior Vice President and
Chief Financial Officer
Exhibit 10.24
AGREEMENT
This AGREEMENT (the "Agreement"), which is dated as of December 31,
1994, is by and between Century Telephone Enterprises, Inc., a Louisiana
corporation (the "Company"), and Jim D. Reppond ("Employee").
WITNESSETH:
WHEREAS, Employee has been employed by the Company and its
predecessor companies for over 34 years, most recently as President-
Telephone Group;
WHEREAS, Employee has served as a Director of the Company since 1986
and has served for several years as a Director of various subsidiaries of
the Company; and
WHEREAS, Employee and the Board of Directors of the Company (the
"Board") agree that it is desirable and in the Company's best interests to
name Employee's successor as President-Telephone Group ("Successor") and
to provide for an orderly transition of duties between Employee and
Successor, all on the terms and conditions specified herein;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to
be legally bound hereby, the parties hereto agree as follows:
1. RESIGNATION AND INTERIM EMPLOYMENT
1.01 Resignation. Effective as of the date hereof, Employee hereby
resigns from his position as President-Telephone Group of the Company and
resigns from all his positions as a director, officer or employee of each
direct or indirect subsidiary of the Company. Nothing herein shall be
construed as an obligation of Employee to resign from the Board.
1.02 Interim Employment. Effective as of the date hereof and
subject to the terms and conditions of this Agreement and applicable law,
the Company hereby agrees to employ Employee, and Employee hereby agrees
to serve, as Vice President of the Company until his 55th birthday on July
2, 1996, at which time he will retire as Vice President of the Company.
At all times during which Employee is employed hereunder, Employee shall
(i) assist Successor in assuming his duties, (ii) report to, be subject to
the supervision of, and perform such duties (in connection with special
projects or otherwise) as may be assigned by, the Company's President, and
(iii) subject to the foregoing, exercise such powers and authority as
specified in the Company's Bylaws. The Company agrees to permit Employee,
to the maximum extent possible, to discharge his duties hereunder from his
principal residence.
1.03 Early Retirement. Employee's retirement at age 55 on July 2,
1996 will be deemed to constitute early retirement approved by the Company
and its Board for purposes of each of the Company's benefit plans.
1.04 Term. Unless Employee's employment is terminated at an
earlier date under Section , all terms and conditions contained in
Sections 2 and 3 shall continue in full force and effect through July 2,
1996, at which time all such terms and conditions shall lapse. The period
between the date hereof and such termination date shall be referred to
herein as the "Interim Employment Period."
2. COMPENSATION AND RELATED MATTERS
DURING INTERIM EMPLOYMENT PERIOD
In consideration of the services and duties to be performed by
Employee during the Interim Employment Period, the Company agrees to pay
and provide for Employee the compensation and benefits described below:
2.01 Salary. During the Interim Employment Period, the Company
shall pay to Employee a salary of $123,000 per annum in equal biweekly
installments.
2.02 Expenses. During the Interim Employment Period, Employee
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by Employee in performing services hereunder, provided
that such expenses are incurred and accounted for in accordance with the
Company's policies and procedures then in effect.
2.03 Benefit Plans. (a) Except as otherwise provided in
paragraphs (b) and (c), during the Interim Employment Period Employee
shall be entitled to participate in any employee benefit plans or
arrangements that the Company makes generally available now or in the
future to its employees or non-executive officers, on the same basis and
subject to the same requirements, limitations and qualifications that are
or may be made applicable to other employees or non-executive officers.
(b) Employee shall not be entitled to (i) continue to
participate in the Company's 1983 Restricted Stock Plan, Key Employee
Incentive Compensation Plan, 1988 Incentive Compensation Program or 1990
Incentive Compensation Program or any successor incentive compensation
plan (other than with respect to receiving benefits for services prior to
the date hereof), (ii) receive the benefits of the amendments dated July
1, 1994 to the Company's Supplemental Executive Retirement Plan providing
for an expanded definition of compensation and pre-retirement survivor
benefits, or (iii) participate in the Company's Supplemental Defined
Contribution Plan or Supplemental Dollars & Sense Plan.
(c) Notwithstanding any provisions in the Company's benefit
plans to the contrary, during the Interim Employment Period the death
benefit payable upon Employee's death under the life insurance provided by
the Company shall equal $865,600.
3. TERMINATION OF INTERIM EMPLOYMENT
3.01 Death. Employee's employment shall terminate upon his death,
in which case Section 4.1 hereof shall be applicable.
3.02 Disability. If a duly qualified physician chosen by the
Company and reasonably acceptable to Employee or his legal representatives
certifies in writing that Employee is incapable of discharging the
essential functions of his job as Vice President for a period of 60
consecutive days because of physical or mental impairment, then Employee
shall be deemed disabled and the Company shall have the continuing right
and option during the period such disability continues to terminate
Employee's services hereunder by providing Employee with a Notice of
Termination as contemplated by Section 3.05. Upon any such termination of
Employee's services, Employee shall be entitled to the rights specified in
Section 4.2 hereof.
3.03 With or Without Cause. Subject to Section 3.05, the Company
may terminate Employee's employment with or without Cause, in which case
Employee shall be entitled to the rights specified in Section 4.3 or 4.4
hereof, as applicable. For purposes of this Agreement, the Company shall
have "Cause" in the event of Employee's habitual intoxication, abuse of or
addiction to a controlled substance, or conviction of a felony.
3.04 Termination by Employee. Subject to Section 3.05, Employee
may terminate his employment at any time and for any reason, including for
Good Reason, in which case Employee shall be entitled to the rights
specified in Section 4.3 or 4.4 hereof, as applicable. For purposes of
this Agreement, "Good Reason" shall mean (i) the failure by the Company to
pay to Employee any amounts owed under this Agreement or to comply with
any other material provision of this Agreement, which failure continues
for a period of 10 days after Employee gives the Company notice thereof,
(ii) the issuance of any directive requiring Employee to move from his
principal residence, or (iii) any change, following a Change in Control of
the Company (as defined below), in Employee's duties, responsibilities or
position in the management of the Company, including without limitation
(A) the assignment to Employee of duties or responsibilities that are
inconsistent with Employee's position as Vice President of the Company,
(B) the demotion of Employee without Cause or (C) any directive requiring
Employee to perform more duties, engage in more travel or otherwise
discharge more responsibilities than previously performed, engaged in or
discharged by Employee prior to the Change in Control of the Company. For
purposes hereof, a "Change in Control of the Company" shall mean an event
with respect to the Company that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Securities Exchange Act of 1934 as in effect on the date hereof.
3.05 Notice of Termination. Any termination of Employee's
employment by the Company or by Employee (other than upon death) shall be
communicated by written Notice of Termination delivered to the other party
hereto as provided in Section 7.01. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination of Employee's employment under the provision so
indicated. For purposes of this Agreement, "Date of Termination" shall
mean the date specified in the Notice of Termination, provided, however,
that if, within 30 days after any Notice of Termination is given, a
dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual
written agreement of the parties or by a final and nonappealable judgment,
order or decree of a court of competent jurisdiction. For purposes of
this Agreement, "Applicable Benefit Plans" means all benefit plans of the
Company in which Employee participates on the Date of Termination pursuant
to Section 2.03 hereof.
4. COMPENSATION UPON TERMINATION
OF INTERIM EMPLOYMENT
4.01 Death. If Employee's employment is terminated by his death,
in addition to all other death benefits provided by the Company, the
Company shall pay to Employee's spouse or, if he leaves no spouse, to his
estate, in a lump sum in cash within 30 days of Employee's death the sum
of the pro rata amount of Employee's annual base salary earned through the
date of death to the extent due but not paid and any compensation
previously deferred by Employee and any accrued vacation pay, in each case
to the extent not previously paid (collectively, "Accrued Obligations").
The Company shall also timely furnish to Employee any other amounts or
benefits payable upon death under any Applicable Benefit Plan.
4.02 Disability. During any period that Employee is deemed to be
disabled under Section 3.02, Employee shall continue to receive his full
annual base salary hereunder without any offsets or reductions, provided
that following any termination of Employee's services pursuant to Section
3.02 such payments may be reduced by the sum of the amounts, if any,
payable to Employee under disability benefit plans of the Company. Upon
termination of Employee's services under Section 3.02, the Company shall
timely furnish to Employee all other amounts or benefits payable upon
disability under any Applicable Benefit Plan and, to the extent that any
of the benefits contemplated by Section 5 hereof shall not become payable
upon Employee's disability under the Applicable Benefit Plans, the Company
shall also timely furnish to Employee, to the greatest extent possible
under applicable law and at the earliest date practicable, each of the
benefits contemplated by Section 5, provided, however, that (i) Employee
shall not be obligated to execute any consulting agreement or perform any
services to be entitled to the payments contemplated under the form of
agreement referred to in Section 5.01 and (ii) Employee shall be entitled
to receive promptly cash payments that compensate him for any economic
loss suffered by him as a result of being unable under applicable law to
receive the full benefit of any provision of Section 5.
4.03 Termination for Cause or Without Good Reason. If Employee's
employment shall be terminated for Cause by the Company, or voluntarily
terminated by Employee other than for Good Reason, the Company shall have
no obligations to Employee under Sections 1 or 2 hereof other than for
Accrued Obligations, which shall be paid in a lump sum in cash within 30
days of the Date of Termination, and for any other amounts or benefits
payable upon such termination under any Applicable Benefit Plan, which the
Company shall timely furnish to Employee.
4.04 Termination Without Cause or for Good Reason. If during the
Interim Employment Period the Company shall terminate Employee's
employment, other than for death, disability or Cause, or Employee shall
terminate his employment for Good Reason, then, in addition to all amounts
or compensation to which he is entitled pursuant to the Company's
termination policies and other Applicable Benefit Plans then in effect,
Employee shall receive:
(a) 200% of his annual base salary, payable in a lump sum in
cash within 30 days of the Date of Termination; and
(b) to the greatest extent possible under applicable law and
at the earliest date practicable, each of the benefits contemplated by
Section 5 hereof, provided, however, that (i) Employee shall not be
obligated to execute any consulting agreement or perform any services to
be entitled to the payments contemplated under the form of agreement
referred to in Section 5.01 and (ii) Employee shall be entitled to receive
promptly cash payments that compensate him for any economic loss suffered
by him as a result of being unable under applicable law to receive the
full benefit of any provision of Section 5.
5. BENEFITS AND OBLIGATIONS UPON EMPLOYEE'S
EARLY RETIREMENT AT AGE 55
If Employee remains employed through his early retirement on July 2,
1996, then the following benefits will accrue to Employee as of July 2,
1996:
5.01 Consulting Agreement. Employee and the Company shall enter
into a consulting agreement substantially in the form of Exhibit A hereto
(the "Consulting Agreement").
5.02 Supplemental Executive Retirement Plan. Pursuant to the
powers delegated under Section 7.04 to the Company's Supplemental
Executive Retirement Plan, the Company shall pay, or cause to be paid, to
Employee 100% of Employee's accrued benefits under such plan on the terms
and conditions specified therein (subject to the limitations specified in
Section 2.03(b)(ii) hereof). Notwithstanding anything in such plan to the
contrary, all amounts payable by the Company under such plan after the
first anniversary of the initial payment shall be increased annually at
the rate of 3% per annum.
5.03 Restricted Stock; Performance Shares; Options.
Notwithstanding any term or condition contained in any agreement between
Employee and the Company to the contrary (each of which shall be deemed to
be amended by operation of this Section 5.03), the Company agrees that:
a. all shares of Restricted Stock issued to Employee under
the Company's benefit plans shall vest and all restrictions (other than
those arising under the federal securities laws) on Employee's rights to
transfer or enjoy the full benefits of such shares shall lapse;
b. all Performance Shares issued to Employee under the
Company's 1990 Incentive Compensation Program shall be accelerated and
become immediately earned and payable; and
c. all options issued to Employee under the Company's
incentive compensation programs shall be accelerated and become
immediately vested and exercisable in full, provided that Employee
exercises his purchase rights thereunder prior to the earlier of July 2,
1998 or the tenth anniversary of the option's grant date.
5.04 Distribution of Qualified Benefit Plan Assets; Issuance of
Stock Certificates. The Company shall make such certifications and take
all such other actions as may be necessary to (i) distribute all stock,
cash or other assets payable to Employee pursuant to the Company's Dollars
& Sense Plan and Trust, Employee Stock Bonus Plan and PAYSOP Trust, and
Employee Stock Ownership Plan and Trust, all in accordance with the terms
and conditions of each such respective plan applicable upon an employee's
early retirement at age 55, and (ii) deliver certificates representing all
shares of the Company's common stock to which Employee shall become
entitled pursuant to Section 5.03(a) and (b), all of which shall be free
of any restrictive legends.
5.05 Outside Directors' Retirement Plan. Employee shall be granted
participation in the Company's Outside Directors' Retirement Plan,
provided he is eligible.
5.06 Welfare Benefits. Employee shall be entitled to receive any
post-retirement benefits that the Company makes generally available now or
in the future to its employees or non-executive officers, on the same
basis and subject to the same requirements, limitations and qualifications
that are applicable to other similarly-situated employees or non-executive
officers retiring on the same or a substantially similar date, provided,
however, that notwithstanding the foregoing (i) Employee shall be entitled
to participate in and receive the benefits payable under the Company's
medical reimbursement plan and (ii) the death benefit payable under the
life insurance to be provided by the Company shall equal $432,800.
Notwithstanding any provision to the contrary in the foregoing sentence or
elsewhere in this Agreement, the Company agrees to maintain in effect for
the benefit of Employee post-retirement benefits no less favorable than
those to which Employee would be entitled were he to retire on the date
hereof.
5.07 Car. The Company shall sell to Employee the car previously
provided by the Company to Employee at a price of $1, and shall execute
any title certificate, bill of sale or other instruments necessary or
appropriate to evidence the transfer of ownership.
6. SUCCESSORS; ASSIGNMENT
6.01 Successors. (a) Except for the amounts payable to Employee
under Section 2.01 or 5.01 (which shall be personal), this Agreement and
all rights and obligations of Employee hereunder shall be binding upon and
inure to the benefit of and be enforceable by Employee and his personal or
legal representatives, executors, administrators, heirs, distributees,
devises, legatees, successors and permitted assigns.
(b) This Agreement shall be binding upon and inure to the
benefit of the Company and any of its successors or assigns. In addition,
the Company shall require any successor or assign (whether direct or
indirect and whether by purchase of all or substantially all of the
Company's assets or capital stock, merger, consolidation, share exchange
or otherwise) to (i) assume unconditionally and expressly this Agreement
and (ii) agree to perform all of the obligations under this Agreement in
the same manner and to the same extent as would have been required of the
Company had no assignment or succession occurred, such assumption to be
set forth in writing reasonably satisfactory to Employee. In the event of
any such assignment or succession, the term "Company" as used in this
Agreement shall refer also to such successor or assign.
6.02 Assignment by Employee. Without the written consent of the
Company, neither this Agreement nor any rights or obligations hereunder
may be assigned by Employee other than such rights as may be transferred
by will or the laws of descent and distribution.
7. MISCELLANEOUS
7.01 Notice. Any notice permitted or required to be delivered
under this Agreement by one party shall be in writing and shall be
delivered by hand, overnight delivery service or U.S. registered or
certified mail, postage prepaid with return receipt requested, to the
other party at the address set forth opposite such party's name on the
signature page hereof until notice of a change in address is delivered as
provided in this Section 7.01. Notices shall be deemed to be duly given,
in the case of (i) by hand delivery, upon receipt; (ii) overnight delivery
service, on the business day after timely delivery to a recognized
overnight delivery service; and (iii) U.S. mail, upon the third business
day after deposit with the U.S. mail.
7.02 Release. Other than the right to receive the payments or
benefits specified herein, the right to receive fees and reimbursements
for service as a director of the Company, and the right of continued
coverage under the Company's health plan that may be offered to him at the
end of the Interim Employment Period pursuant to Section 4980B(f) of the
Internal Revenue Code of 1986, Employee acknowledges that he has no claims
against the Company or its affiliates, or their respective officers,
directors, employees, agents, representatives, successors, assigns or
insurance liability carriers, and hereby irrevocably and perpetually
releases and discharges each such party from all claims whatsoever, in law
or equity, against any such party or its assets, whether arising under
contract law, tort law, civil rights laws, federal or state laws regarding
employment (including age, retirement and discrimination laws) or
otherwise, whether known or unknown, and whether arising directly or
indirectly out of his association with the Company and its affiliates as
an officer, director, employee or otherwise, including without limitation
claims arising out of matters provided for in this Agreement. Without
limiting the generality of the foregoing, Employee specifically agrees to
release such parties from any claims under the Age Discrimination in
Employment Act of 1967. Employee acknowledges that he has had at least 21
days to consider the release in the preceding sentence and has seven days
to revoke such release after execution of this Agreement.
7.03 Waiver. The failure by any party to enforce any of its rights
hereunder shall not be deemed to be a waiver of such rights, unless such
waiver is an express written waiver. Waiver of any one breach shall not
be deemed to be a waiver of any other breach of the same or any other
provision hereof.
7.04 Entire Agreement. This Agreement (including the Consulting
Agreement) sets forth the entire understanding and agreement between the
parties hereto with respect to the subject matter hereof, all prior
agreements and understandings being superceded hereby.
7.05 Representation of Company. The Company represents and
warrants that (i) the Compensation Committee of the Board has duly
approved this Agreement (including the Consulting Agreement), (ii) the
Board has ratified the terms and conditions of this Agreement (including
the Consulting Agreement) other than those that are solely within the
province of the Compensation Committee of the Board, and (iii) no other
corporate proceedings are necessary to authorize the Company's execution,
delivery or performance of this Agreement or its exhibit.
7.06 Indemnification Agreement. The Company acknowledges and
confirms that the indemnification agreement dated May 16, 1988 by and
between the Company and Employee shall remain in effect indefinitely.
7.07 Severance Agreement. The force and effect of each provision
of the severance agreement dated May 24, 1990 by and between the Company
and Employee, and all rights and obligations arising thereunder, are
hereby terminated and revoked in their entirety as of the date hereof.
7.08 Further Assurances. The parties hereto agree to execute and
deliver to each other such other certificates or documents and to do such
other acts and things as the other party hereto may at any time reasonably
request for the purpose of carrying out the intent of this Agreement and
any other documents referred to herein.
7.09 Withholding. The Company shall be entitled to withhold from
any payments made hereunder, or to collect as a condition of payment, any
taxes required by law to be withheld.
7.10 Choice of Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Louisiana.
7.11 Amendment. This Agreement may be amended only by a written
instrument signed by both parties.
7.12 Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
7.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
7.14 Confidentiality. The parties agree that the terms and
conditions of this Agreement (including the Consulting Agreement) shall be
maintained in confidence, except that any party may reveal such terms and
conditions to his or its professional advisors or representatives or to
the extent required by applicable law.
7.15 Acknowledgement. Employee hereby acknowledges that he has
read, understands and expressly agrees to the terms of this Agreement, and
has been advised and has had an opportunity to consult with an attorney of
his choice before executing this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
CENTURY TELEPHONE ENTERPRISES, INC.
Century Telephone Enterprises, Inc.
100 Century Park Drive
Monroe, Louisiana 71203 By: /s/ Glen F. Post, III
Attention: Glen F. Post, III Glen F. Post, III
Vice Chairman of the Board,
President and Chief Executive
Officer
Jim D. Reppond
823 Strozier Road
West Monroe, Louisiana 71291 /s/ Jim D. Reppond
Jim D. Reppond
EXHIBIT A
CONSULTING AGREEMENT
This CONSULTING AGREEMENT, which is dated as of July 2, 1996 (the
"Agreement"), is by and between Century Telephone Enterprises, Inc., a
Louisiana corporation (the "Company"), and Jim D. Reppond ("Consultant").
WITNESSETH:
WHEREAS, Consultant has been employed by the Company and its
predecessor companies for over 36 years, most recently as Vice President;
WHEREAS, Consultant and the Company have entered into an agreement
dated December 31, 1994 (the "1994 Agreement"), which provides that
Consultant will retire as of the date hereof; and
WHEREAS, after the date hereof Consultant desires to assist the
Company, and the Company desires to engage Consultant, upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein and in the 1994 Agreement, the parties hereto
agree as follows:
III. Consulting Services to be Performed; Term; Compensation and
Benefits. (a) The Company hereby engages Consultant to serve as its
consultant and Consultant agrees to so serve for a period commencing on
the date hereof and ending on the tenth anniversary of the date hereof.
Consultant agrees to perform services regarding such matters and at such
times as will be referred to him by the President of the Company,
including without limitation assisting the executive officer or officers
of the Company that are responsible for duties previously performed by
Consultant. Consultant agrees to devote such of his time, skill, labor
and attention to the performance of such services as may be necessary or
desirable to render the prompt and effective performance of his duties
hereunder, provided, however, that in no event shall Consultant be
obligated to (i) work more than 15 hours per week or 150 hours per year or
(ii) work from any location other than his principal residence, except for
such trips to the Company's principal or regional offices that the
President of the Company deems in good faith to be necessary or
appropriate, which shall not exceed six trips per year.
(b) Except as the Company may otherwise permit, Consultant
shall maintain in strict confidence and shall not disclose, directly or
indirectly, any non-public or proprietary information relating to the
Company or its affiliates ("Confidential Information") that Consultant (i)
acquired in any manner during the course of his employment by the Company
or (ii) receives or acquires in the course of rendering consulting
services under this Agreement. Consultant agrees that all Confidential
Information is proprietary to the Company. Consultant further agrees that
he shall use all Confidential Information (regardless of when and how
acquired) solely in connection with the rendering of consulting services
under this Agreement. Consultant further agrees that during the term of
this Agreement, neither Consultant nor anyone acting in concert with
Consultant will solicit or induce, either directly or indirectly, any
employee of the Company or its affiliates to leave such employment.
(c) In exchange for Consultant's covenants and agreements
hereunder, the Company shall pay Consultant the following annual fees,
payable annually in advance, commencing with the initial annual payment
which has been made simultaneously with the execution of this Agreement:
Year Year
Ending Fee Ending Fee
July 1 July 1
1997 $14,000 2002 $16,230
1998 14,420 2003 16,717
1999 14,853 2004 17,218
2000 15,298 2005 17,735
2001 15,757 2006 18,267
(d) Consultant shall be entitled to reimbursement for all
travel and other out-of-pocket expenses reasonably incurred by him in the
performance of his duties hereunder, subject to his observance of any
policies of general application with respect thereto maintained by the
Company.
IV. Status of Consultant. (a) The Company and Consultant
understand and agree that Consultant is an independent contractor for
withholding and other employment tax purposes and is not an employee of
the Company. Accordingly, Consultant acknowledges and agrees that (i) he
will not be treated as an employee for purposes of any federal or state
law regarding income tax withholding or for purposes of contributions
required under any unemployment, insurance or compensatory program and
(ii) he will be solely responsible for the payment of any taxes or
assessments imposed on account of the payment of compensation to or the
performance of consulting services by him pursuant to this Agreement,
including, without limitation, any unemployment insurance taxes, federal,
state or local income taxes, federal social security payments, or state
disability insurance taxes, all of which he expressly agrees to pay when
such taxes or assessments may become due.
(b) Consultant will not and has no authority to represent to
others that he is an employee of the Company. Except as expressly
authorized in writing by the Company, Consultant has no authority to bind
or obligate the Company, to participate in the management of the Company,
to use the name of the Company or any of its affiliates in any manner
whatsoever, or to represent to others that he has any such authority.
(c) Consultant shall indemnify and hold harmless the Company
from any liabilities, claims, losses or expenses arising out of his breach
of this Section 2.
V. Termination of Consultancy Period. (a) Unless earlier
terminated pursuant to the provisions of paragraph (b), the terms and
provisions of this Agreement shall terminate on the tenth anniversary of
the date hereof.
(b) Notwithstanding anything to the contrary contained
herein, this Agreement may be terminated:
(i) Upon the parties' mutual written consent;
(ii) By the Company upon (A) Consultant's death, (B)
the Company's good faith determination that
Consultant has engaged in a pattern of habitual
intoxication, has abused or become addicted to a
controlled substance or has been convicted of a
felony or (C) Consultant's willful, unreasonable
and uncorrected refusal to provide the consulting
services contemplated hereunder, but not less than
45 days after a written demand for performance is
made by the Company; or
(iii) By Consultant upon (A) the Company's failure to
pay Consultant any amounts owed hereunder, which
failure continues for a period of 45 days after
Consultant gives the Company notice thereof, or
(B) any directive, following a Change in Control
of the Company (as defined in the 1994 Agreement),
requiring Consultant to perform more duties,
engage in more travel or otherwise discharge more
responsibilities than previously performed,
engaged in or discharged by Consultant prior to
the Change in Control of the Company.
(c) Upon any termination of this Agreement under paragraph
3(b)(iii), all payments under Section 1(c) not previously paid to
Consultant shall accelerate and shall become due and payable on the fifth
business day following Consultant's delivery of a notice terminating this
Agreement. If any court of competent jurisdiction finds that the Company
has breached its obligations to make any payment required under this
paragraph (c), the amount payable hereunder shall be trebled.
(d) Sections 1(b), 2(c), 3(d), 4 and 5 shall survive any
termination of this Agreement, all of which shall be binding upon
Consultant and his personal or legal representatives, executors,
administrators, heirs, devises, legatees and permitted assigns.
4. Release. Consultant hereby reaffirms the representations,
warranties, covenants and agreements made by him under Section 7.02 of the
1994 Agreement, pursuant to which Consultant, among other things, released
the Company from various claims.
VI. Miscellaneous. (a) Any notice permitted or required to be
delivered under this Agreement by one party shall be in writing and shall
be delivered by hand, overnight delivery service or U.S. registered or
certified mail, postage prepaid with return receipt requested, to the
other party at the address set forth opposite such party's name on the
signature page hereof until notice of a change in address is delivered as
provided in this Section 5(a). Notices shall be deemed to be given, in
the case of (i) by hand delivery, upon receipt; (ii) overnight delivery
service, on the business day after timely delivery to a recognized
overnight delivery service; and (iii) U.S. mail, upon the third business
day after deposit with the U.S. mail.
(b) This Agreement constitutes the entire understanding
between the Company and Consultant with respect to the matters provided
for herein, and all prior discussions, negotiations, commitments, writings
and understandings related hereto are hereby superseded. This Agreement
shall not be amended or modified except by the written agreement of the
parties hereto.
(c) This Agreement shall be binding and inure to the benefit
of the Company and its successors and assigns. Consultant may not assign
either his rights or obligations hereunder without the prior written
consent of the Company.
(d) The construction and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the
laws of the State of Louisiana.
(e) The failure by any party to enforce any of its rights
hereunder shall not be deemed to be a waiver of such rights, unless such
waiver is an express written waiver. Waiver of any one breach shall not
be deemed to be a waiver of any other breach of the same or any other
provision hereof.
(f) The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
(g) Consultant hereby acknowledges that he has read,
understands and expressly agrees to the terms of this Agreement, and has
been advised and has had an opportunity to consult with an attorney of his
choice before executing this Agreement.
* * * * * * * *
[signature blocks intentionally omitted]
EXHIBIT 11
CENTURY TELEPHONE ENTERPRISES, INC.
COMPUTATIONS OF EARNINGS PER SHARE
Year ended December 31,
==========================================================================
1994 1993 1992
--------------------------------------------------------------------------
(Dollars, except per share
amounts,and shares
expressed in thousands)
Income before cumulative effect of changes
in accounting principles $ 100,238 69,004 59,973
Dividends applicable to preferred stock (93) (24) (24)
--------------------------------------------------------------------------
Income before cumulative effect of changes
in accounting principles applicable
to common stock 100,145 68,980 59,949
Dividends applicable to preferred stock 93 24 24
Interest on 6% convertible debentures,
net of taxes 4,595 4,583 4,201
--------------------------------------------------------------------------
Income before cumulative effect of changes
in accounting principles as adjusted
for purposes of computing fully
diluted earnings per share $ 104,833 73,587 64,174
==========================================================================
Net income $ 100,238 69,004 44,305
Dividends applicable to preferred stock (93) (24) (24)
--------------------------------------------------------------------------
Net income applicable to common stock 100,145 68,980 44,281
Dividends applicable to preferred stock 93 24 24
Interest on 6% convertible debentures,
net of taxes 4,595 4,583 -
--------------------------------------------------------------------------
Net income as adjusted for purposes of
computing fully diluted earnings per share $ 104,833 73,587 44,305
==========================================================================
Weighted average number of shares:
Outstanding during period 53,139 50,512 47,982
Common stock equivalent shares 580 694 518
Employee Stock Ownership Plan shares
not committed to be released (300) - -
--------------------------------------------------------------------------
Number of shares for computing primary
earnings per share 53,419 51,206 48,500
Incremental common shares attributable
to additional dilutive effect of
convertible securities 4,716 4,686 4,314
--------------------------------------------------------------------------
Number of shares as adjusted for purposes
of computing fully diluted earnings
per share before cumulative effect of
changes in accounting principles 58,135 55,892 52,814
Less antidilutive effect of 6% convertible
debentures - - (4,161)
--------------------------------------------------------------------------
Number of shares as adjusted for purposes of
computing fully diluted earnings per share 58,135 55,892 48,653
==========================================================================
Primary earnings per share:
Income before cumulative effect of changes
in accounting principles $ 1.88 1.35 1.23
Cumulative effect of changes in accounting
principles - - (.32)
--------------------------------------------------------------------------
Primary earnings per share $ 1.88 1.35 .91
==========================================================================
Fully diluted earnings per share:
Income before cumulative effect of changes
in accounting principles $ 1.80 1.32 1.22
Cumulative effect of changes in accounting
principles - - (.31)
--------------------------------------------------------------------------
Fully diluted earnings per share $ 1.80 1.32 .91
==========================================================================
EXHIBIT 21
CENTURY TELEPHONE ENTERPRISES, INC.
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1994
State of
Subsidiary incorporation
---------- -------------
Brownsville Cellular Telephone Co., Inc. * Delaware
Celutel, Inc. Delaware
Celutel of Biloxi, Inc. * Delaware
Central Indiana Telephone Company, Inc. Indiana
Century Area Long Lines (CALL), Inc. Wisconsin
Century Business Communications, Inc. Louisiana
Century Cellunet, Inc. Louisiana
Century Cellunet of Alexandria, Inc. Louisiana
Century Cellunet of Battle Creek, Inc. Louisiana
Century Cellunet of Jackson, Inc. Louisiana
Century Cellunet of LaCrosse, Inc. Louisiana
Century Cellunet of Lansing, Inc. Delaware
Century Cellunet of Michigan RSAs, Inc. Louisiana
Century Cellunet of North Arkansas, Inc. Louisiana
Century Cellunet of North Louisiana, Inc. Louisiana
Century Cellunet of Pine Bluff, Inc. Arkansas
Century Cellunet of Saginaw, Inc. Louisiana
Century Cellunet of Shreveport, Inc. Louisiana
Century Cellunet of South Arkansas, Inc. Louisiana
Century Cellunet of Southern Michigan, Inc. Delaware
Century Cellunet of Texarkana, Inc. Louisiana
Century Investments, Inc. Louisiana
Century Paging, Inc. Louisiana
Century Service Group, Inc. Louisiana
Century Supply Group, Inc. Louisiana
Century Telecommunications, Inc. Texas
Century Telelink, Inc. Louisiana
Century Telephone Midwest, Inc. Michigan
Century Telephone of Adamsville, Inc. Tennessee
Century Telephone of Arkansas, Inc. Arkansas
Century Telephone of Central Louisiana, Inc. Louisiana
Century Telephone of Chatham, Inc. Louisiana
Century Telephone of Claiborne, Inc. Tennessee
Century Telephone of East Louisiana, Inc. Louisiana
Century Telephone of Evangeline, Inc. Louisiana
Century Telephone of Idaho, Inc. Delaware
Century Telephone of Michigan, Inc. Michigan
Century Telephone of North Louisiana, Inc. Louisiana
Century Telephone of North Mississippi, Inc. Mississippi
Century Telephone of Northern Michigan, Inc. Michigan
Century Telephone of Northwest Louisiana, Inc. Louisiana
Century Telephone of Ohio, Inc. Ohio
Century Telephone of Ooltewah-Collegedale, Inc. Tennessee
Century Telephone of Port Aransas, Inc. Texas
Century Telephone of San Marcos, Inc. Texas
Century Telephone of Southeast Louisiana, Inc. Louisiana
Century Telephone of Southwest Louisiana, Inc. Louisiana
Century Telephone of Wisconsin, Inc. Wisconsin
Chester Telephone Company Iowa
Forestville Telephone Company, Inc. Wisconsin
Interactive Communications, Inc. Louisiana
Jackson Cellular Telephone Co., Inc. * Delaware
Larsen-Readfield Telephone Company Wisconsin
The McAllen Cellular Telephone Co., Inc. * Nevada
Metro Access Networks, Inc. Delaware
Monroe County Telephone Company Wisconsin
Mountain Home Telephone Co., Inc. Arkansas
Odon Telephone Co., Inc. Indiana
Pascagoula Cellular Telephone Company, Inc. * Delaware
Redfield Telephone Company, Inc. Arkansas
Solon Springs Telephone Co. Wisconsin
Union Telephone Company, Inc. Arkansas
Universal Cellular for Arizona RSA #3-B, Inc. Arizona
Universal Telephone, Inc. Wisconsin
Universal Telephone Company of Colorado Colorado
Universal Telephone Company of Northern Wisconsin, Inc. Wisconsin
Universal Telephone Company of Southwest New Mexico
* Conduct business in the name of Century Cellunet
Certain of the Company's smaller subsidiaries have been intentionally
omitted from this exhibit pursuant to rules and regulations of the
Securities and Exchange Commission.
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
Century Telephone Enterprises, Inc.:
We consent to incorporation by reference in the Registration Statements
(No. 33-17114, No. 33-47211, and No. 33-52915) on Form S-3, the
Registration Statements (No. 33-5836, No. 33-17113, No. 33-46562, and No.
33-48554) on Form S-8, the Registration Statements (No. 33-31314 and No.
33-46473) on combined Form S-8 and Form S-3, and the Registration
Statements (No. 33-39196, No. 33-48956, and No. 33-50791) on Form S-4 of
Century Telephone Enterprises, Inc. of our report dated February 6, 1995,
relating to the consolidated balance sheets of Century Telephone
Enterprises, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, stockholders' equity, and
cash flows and related financial statement schedule for each of the years
in the three-year period ended December 31, 1994, which report appears in
the December 31, 1994 annual report on Form 10-K of Century Telephone
Enterprises, Inc. Our report refers to changes in the methods of
accounting for income taxes and postretirement benefits other than
pensions in 1992.
/s/ KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET OF CENTURY TELEPHONE ENTERPRISES, INC. & SUBSIDIARIES
AS OF DECEMBER 31, 1994 & THE RELATED AUDITED CONSOLIDATED STATEMENTS OF INCOME,
STOCKHOLDERS' EQUITY & CASH FLOWS FOR THE TWELVE MONTH PERIOD THEN ENDED & IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,154
<SECURITIES> 0
<RECEIVABLES> 43,184
<ALLOWANCES> 2,360
<INVENTORY> 7,090
<CURRENT-ASSETS> 81,228
<PP&E> 1,314,207
<DEPRECIATION> 367,076
<TOTAL-ASSETS> 1,643,253
<CURRENT-LIABILITIES> 286,668
<BONDS> 518,603
<COMMON> 53,574
0
2,268
<OTHER-SE> 594,394
<TOTAL-LIABILITY-AND-EQUITY> 1,643,253
<SALES> 0
<TOTAL-REVENUES> 540,240
<CGS> 0
<TOTAL-COSTS> 370,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,577
<INCOME-PRETAX> 161,538
<INCOME-TAX> 61,300
<INCOME-CONTINUING> 100,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 100,238
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