CENTURYTEL INC
8-K, 2000-10-05
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported) September 29, 2000


                                CenturyTel, Inc.

             (Exact name of registrant as specified in its charter)


       Louisiana                     1-7784                     72-0651161
    (State or other             (Commission File              (IRS Employer
    jurisdiction of                  Number)                Identification No.)
    incorporation)

        100 Century Park Drive, Monroe, Louisiana                71203
         (Address of principal executive offices)             (Zip Code)


    Registrant's telephone number, including area code      (318) 388-9000


ITEM 2.  Acquisition or Disposition of Assets

      On September 29, 2000, CenturyTel, Inc. ("CenturyTel" or the "Company")
consummated the final two of its four acquisitions of assets from affiliates of
Verizon Communications, Inc. (successor to GTE Corporation). Collectively under
these four acquisitions, the Company acquired over 490,000 access lines for
approximately $1.5 billion in cash. The Company's Current Report on Form 8-K
dated July 31, 2000 describes the first two Verizon acquisitions.

     Under the September 29, 2000 transactions:

     o  The Company purchased approximately 70,500 telephone access lines and
        related local exchange assets comprising 42 exchanges throughout
        Wisconsin for approximately $194 million in cash.

     o  Telephone USA of Wisconsin,  LLC purchased  approximately  62,900
        telephone  access lines and related local exchange assets comprising 35
        exchanges  throughout  Wisconsin for approximately $170 million in cash.
        The Company owns 89% of Telephone USA, which was organized to acquire
        and own these Wisconsin  properties. At closing, the Company made an
        equity investment in Telephone USA of approximately $37.8 million and
        financed substantially all of the remainder of the purchase price.

     To finance these  September 29 acquisitions  on a short-term  basis,
the Company borrowed $357 million on a floating-rate  basis under its new
$1.5 billion credit facility with Bank of America, N.A. and Citibank, N.A.,
as lenders, and Banc of America  Securities LLC and Salomon Smith Barney Inc.,
as arrangers.

    The purchase price payable in connection with these  acquisitions is subject
to various  post-closing  adjustments to reflect, among  other  things,  the
actual  amount of  accounts  receivable  acquired  by us. We do not  expect  the
aggregate  effect of these adjustments to be material.

    In addition to the continued provision of traditional local exchange
telephone  services,  the Company intends to provide long distance, Internet
access and other  advanced  technology  services  in certain of the  acquired
Wisconsin markets.  The Company currently  offers long distance and Internet
access service in certain of the acquired Wisconsin markets, and plans to offer
high-speed Digital Subscriber Line Internet access service in selected markets.

    For additional information regarding all four Verizon acquisitions,  please
see the historical financial statements,  the pro forma financial information
and the other materials filed herewith under Item 7 below.


Item 5.    Other Events.

Third Quarter 2000 Operating Results

     On September 29, 2000, the Company announced that it expects third
quarter 2000 earnings per share, excluding one-time items, to equal or exceed
FirstCall consensus estimates of $0.42 per share and that revenues will likely
range from $470 million to $480 million for the quarter. For additional
information, please see Exhibit 99.1 filed herewith under Item 7 below.

Debt Ratings

     On September 19, 2000, Moody's Investors Service lowered CenturyTel's long-
term debt rating to Baa2 (with a stable outlook) from Baa1 and on September 20,
2000, Standard & Poor's affirmed its rating of CenturyTel's long-term debt of
BBB+ (with a negative outlook).

                               * * * * * * * * * *

Item 7.    Financial Statements and Exhibits

    (a)    Financial statements of properties acquired

           1.  Report of Independent Public Accountants - GTE Arkansas
               Operations.

           2.  Statements of Selected Assets, Liabilities and Parent Funding as
               of June 30, 2000, and December 31, 1999 - GTE Arkansas
               Operations.

           3.  Statements of Income for the six months ended June 30, 2000, and
               for the year ended December 31, 1999 - GTE Arkansas Operations.

           4.  Statements of Cash Flows for the six months ended June 30, 2000,
               and for the year ended December 31, 1999 - GTE Arkansas
               Operations.

           5.  Statement of Parent Funding for the year ended December 31, 1999
               - GTE Arkansas Operations.

           6.  Notes to Special Purpose Financial Statements - GTE Arkansas
               Operations.

           7.  Report of Independent Public Accountants - GTE Missouri
               Operations.

           8.  Statements of Selected Assets, Liabilities and Parent Funding as
               of June 30, 2000, and December 31, 1999 - GTE Missouri
               Operations.

           9.  Statements of Income for the six months ended June 30, 2000, and
               for the year ended December 31, 1999 - GTE Missouri
               Operations.

           10. Statements of Cash Flows for the six months ended June 30, 2000,
               and for the year ended December 31, 1999 - GTE Missouri
               Operations.

           11. Statement of Parent Funding for the year ended December 31, 1999
               - GTE Missouri Operations.

           12. Notes to Special Purpose Financial Statements - GTE Missouri
               Operations.

           13. Report of Independent Public Accountants - Verizon Wisconsin I
               Operations.

           14. Statements of Selected Assets, Liabilities and Parent Funding as
               of June 30, 2000, and December 31, 1999 - Verizon Wisconsin I
               Operations.

           15. Statements of Income for the six months ended June 30, 2000, and
               for the year ended December 31, 1999 - Verizon Wisconsin I
               Operations.

           16. Statements of Cash Flows for the six months ended June 30, 2000,
               and for the year ended December 31, 1999 - Verizon Wisconsin I
               Operations.

           17. Statement of Parent Funding for the year ended December 31, 1999
               - Verizon Wisconsin I Operations.

           18. Notes to Special Purpose Financial Statements - Verizon Wisconsin
               I Operations.

           19. Report of Independent Public Accountants - Verizon Wisconsin II
               Operations.

           20. Statements of Selected Assets, Liabilities and Parent Funding as
               of June 30, 2000, and December 31, 1999 - Verizon Wisconsin II
               Operations.

           21. Statements of Income for the six months ended June 30, 2000, and
               for the year ended December 31, 1999 - Verizon Wisconsin II
               Operations.

           22. Statements of Cash Flows for the six months ended June 30, 2000,
               and for the year ended December 31, 1999 - Verizon Wisconsin II
               Operations.

           23. Statement of Parent Funding for the year ended December 31, 1999
               - Verizon Wisconsin II Operations.

           24. Notes to Special Purpose Financial Statements - Verizon Wisconsin
               II Operations.

    (b)    Unaudited Pro Forma Consolidated Condensed Financial Information

           1.  Introduction.

           2.  Pro Forma Consolidated Condensed Balance Sheet as of
               June 30, 2000.

           3.  Pro Forma Consolidated Condensed Statement of Income
               for the six months ended June 30, 2000.

           4.  Pro Forma Consolidated Condensed Statement of Income
               for the year ended December 31, 1999.

           5.  Notes to Unaudited Pro Forma Consolidated Condensed Financial
               Information.

    (c)    Exhibits

           2.1  Amended and Restated Asset Purchase Agreement by and among GTE
                Arkansas Incorporated, GTE Midwest Incorporated, GTE Southwest
                Incorporated and CenturyTel, Inc. dated as of June 29, 1999
                (incorporated by reference to Exhibit 99 to our Quarterly Report
                on Form 10-Q for the quarter ended June 30, 1999).

           2.2  Asset Purchase Agreement by and between GTE Midwest Incorporated
                and Spectra Communications Group, LLC dated as of July 8, 1999
                (incorporated by reference to Exhibit 2.2 of our Current Report
                on Form 8-K dated July 31, 2000).

           2.3  Asset Purchase Agreement by and between GTE North Incorporated
                and Telephone USA of Wisconsin, LLC dated as of August 19, 1999.

           2.4  Asset Purchase Agreement by and between GTE North Incorporated
                and CenturyTel, Inc. dated as of October 11, 1999.

           23.1 Consent of Arthur Andersen LLP.

           23.2 Consent of Arthur Andersen LLP.

           99.1 Press release announcing (i) certain third quarter 2000 results
                and (ii) closing of Verizon properties in Wisconsin.



                            GTE Arkansas Operations

                      Special Purpose Financial Statements
                   As of June 30, 2000, and December 31, 1999

             Together with Report of Independent Public Accountants



Report of Independent Public Accountants


To the Board of Directors and Shareholders of
CenturyTel Incorporated,
GTE Arkansas Incorporated,
GTE Midwest Incorporated,
and GTE Southwest Incorporated:

We have  audited  the  accompanying  special  purpose  financial  statements  of
selected assets, liabilities, and parent funding of GTE Arkansas Operations (the
"Company") as of December 31, 1999, and the related statements of income, parent
funding and cash flows for the year then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit  provides a  reasonable  basis for our
opinion.

In our  opinion,  the special  purpose  financial  statements  referred to above
present fairly, in all material respects, the selected assets, liabilities,  and
parent  funding of the Company as of December 31,  1999,  and the results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP


Dallas, Texas,
September 13, 2000


The accompanying  notes are an integral part of these special purpose  financial
statements.

GTE Arkansas Operations
(As Described in Note 1)


         Statements of Selected Assets, Liabilities, and Parent Funding
                   As of June 30, 2000, and December 31, 1999
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000             1999
--------------------------------------------------------------------------------
                                                    (unaudited)      (audited)
<S>                                                 <C>             <C>

            SELECTED ASSETS
            ---------------

CURRENT ASSETS:
    Receivables, less allowance of $6,483
     and $4,608                                     $  23,762       $  31,014
    Inventories and supplies                              583             592
    Prepaid insurance and other                           360           1,714
--------------------------------------------------------------------------------
         Total current assets                          24,705          33,320
--------------------------------------------------------------------------------

PROPERTY, PLANT, AND EQUIPMENT, net                   195,531         202,862

EMPLOYEE BENEFIT PLANS                                 19,428          15,529

OTHER ASSETS                                              192             224
--------------------------------------------------------------------------------
         Total assets                               $ 239,856       $ 251,935
================================================================================

   SELECTED LIABILITIES AND PARENT FUNDING
   ---------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                $   7,364       $   4,960
    Advance billings and customer deposits              3,982           3,887
    Accrued payroll costs                               2,276           2,108
    Other                                               1,172             557
--------------------------------------------------------------------------------
         Total current liabilities                     14,794          11,512
--------------------------------------------------------------------------------

EMPLOYEE BENEFIT PLANS                                  7,840           7,828

OTHER LIABILITIES                                          78              91
--------------------------------------------------------------------------------
         Total liabilities                             22,712          19,431
--------------------------------------------------------------------------------

PARENT FUNDING                                        217,144         232,504
--------------------------------------------------------------------------------
         Total liabilities and parent funding       $ 239,856       $ 251,935
================================================================================
</TABLE>



GTE Arkansas Operations
(As Described in Note 1)


                              Statements of Income
                    For the Six Months Ended June 30, 2000,
                    And for the Year Ended December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (unaudited)      (audited)
<S>                                                 <C>             <C>
REVENUES AND SALES:
    Local services                                  $  28,878       $  55,267
    Network access services                            35,446          73,249
    Toll services                                       9,633          19,762
    Other services and sales                            9,063          20,541
--------------------------------------------------------------------------------
        Total revenues and sales                       83,020         168,819
--------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES:
    Cost of services and sales                         35,691          70,776
    Selling, general, and administrative                9,737          24,819
    Depreciation and amortization                      19,642          38,078
--------------------------------------------------------------------------------
         Total operating costs and expenses            65,070         133,673
--------------------------------------------------------------------------------

OPERATING INCOME                                       17,950          35,146

INTEREST EXPENSE, net                                   3,817           8,292
--------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                             14,133          26,854

INCOME TAXES                                            5,491          10,427
--------------------------------------------------------------------------------

NET INCOME                                          $   8,642       $  16,427
================================================================================
</TABLE>


GTE Arkansas Operations
(As Described in Note 1)


                            Statements of Cash Flows
                    For the Six Months Ended June 30, 2000,
                    And for the Year Ended December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (unaudited)       (audited)

<S>                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                        $   8,642       $  16,427
  Adjustments to reconcile net income
   to net cash provided by operating activities-
     Depreciation                                      19,003          37,320
     Employee pension plans                            (3,887)         (5,599)
     Provision for uncollectible accounts               2,716           6,946
     Change in current assets and current
      liabilities-
        Receivables                                     4,536          (7,164)
        Other current assets                            1,363           1,536
        Other current liabilities                       3,282         (13,956)
     Other, net                                            18          (3,731)
--------------------------------------------------------------------------------
        Net cash provided by operating activities      35,673          31,779
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                (11,671)        (24,541)
--------------------------------------------------------------------------------
        Net cash used in investing activities         (11,671)        (24,541)
--------------------------------------------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES:
  Net transfers to GTE Corporation                    (24,002)         (7,238)
--------------------------------------------------------------------------------
        Net cash used in financing activities         (24,002)         (7,238)
--------------------------------------------------------------------------------

INCREASE IN CASH AND CASH EQUIVALENTS                       -               -

CASH AND CASH EQUIVALENTS:
  Beginning of year                                         -               -
--------------------------------------------------------------------------------
  End of year                                       $       -       $       -
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.



GTE Arkansas Operations
(As Described in Note 1)

                          Statement of Parent Funding
                      For the Year Ended December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

<S>                                                                 <C>
BALANCE, December 31, 1998                                          $ 223,315

  Net income                                                           16,427

  Net transfers to GTE Corporation                                     (7,238)
--------------------------------------------------------------------------------
BALANCE, December 31, 1999                                          $ 232,504
================================================================================
</TABLE>


GTE Arkansas Operations
(As Described in Note 1)

                 Notes to Special Purpose Financial Statements

1.   Description of Business:

The  selected  local  telephone  exchanges  included  in these  special  purpose
financial  statements (the  "Exchanges")  serve  approximately  231,000 switched
access  lines in the state of  Arkansas.  The  Exchanges  represent  100% of the
assets of GTE Arkansas  Incorporated  ("GTE Arkansas") and a small percentage of
the  assets  of GTE  Midwest  Incorporated  ("GTE  Midwest")  and GTE  Southwest
Incorporated ("GTE  Southwest").  GTE Arkansas,  GTE Midwest,  and GTE Southwest
(collectively,  the "Company") are wholly owned  subsidiaries of GTE Corporation
(GTE),  which is a wholly owned subsidiary of Bell Atlantic  Corporation  ("Bell
Atlantic"),  d/b/a Verizon  Communications  ("Verizon")  (see Note 11).  Verizon
provides a wide variety of communications  services ranging from local telephone
service for the home and office to highly  complex  voice and data  services for
various industries.

On June 29, 1999, the Company entered into a purchase  agreement with CenturyTel
Incorporated  ("CenturyTel") to sell approximately 231,000 switched access lines
in the state of Arkansas to CenturyTel. The sale was completed on July 31, 2000.

2.   Basis of Presentation:

The  accompanying  special  purpose  financial  statements have been prepared in
accordance with accounting  principles  generally  accepted in the United States
using exchange  specific  information  where available  (e.g.,  most revenue and
property,  plant, and equipment (PP&E) related  accounts) and allocations  where
data is not maintained on an exchange  specific basis within the company's books
and records (e.g., most operating expenses, assets other than PP&E, liabilities,
and capital  accounts).  Because of the  significant  amount of allocations  and
estimates used to prepare these special purpose financial  statements,  they may
not reflect the  financial  position and results of  operations of the Exchanges
after the acquisition by CenturyTel.

The accompanying special purpose financial statements include only those assets,
liabilities, and related operations of the Exchanges as historically incurred by
the Company and exclude all other assets, liabilities, and related operations of
Verizon  and  its  subsidiaries,   specifically  cash,  accrued  interest,   and
tax-related balance sheet accounts.  These special purpose financial  statements
also include  expenses  related to employees who support the Exchanges,  some of
which are expected to remain employees of the Company.

Receivables  related to end-user  billings  were  identified  by exchange  using
billing  system  data.  Customer  Advances and  Deposits  were  allocated to the
Exchanges  based on total  revenue.  Receivables  related to  carrier  and other
miscellaneous  billings were allocated to the Exchanges in proportion to carrier
revenues.

Accounts  payable  were  allocated  based  on  operating  expenses  and  capital
expenditures. Accrued payroll costs were allocated based on employee head count.
Other current  liabilities  and other  liabilities  were allocated based on line
count.

The  Exchanges'  operating  expenses  include both amounts  incurred  within its
operating  territories  that  relate  directly  to its  exchanges  (the  "Direct
Expenses") and amounts  incurred in  centralized  Verizon  service  centers that
support  multiple  Verizon  companies  (the  "Indirect  Expenses").  The  Direct
Expenses correspond roughly with locally performed functions which will transfer
to a buyer of the  Exchanges.  The Indirect  Expenses  correspond to substantial
back-office,  support,  and  overhead  functions  which will not transfer to the
buyer,  but that the buyer will need to replace in some form in order to operate
the Exchanges.  The Indirect  Expenses have been  allocated to the Company,  and
further to specific  exchanges  within the Company  (including  the  Exchanges),
based on estimates of usage, or benefits received from such services.  The level
of allocated  Indirect  Expenses may not be  representative of a buyer's ongoing
expenses for these functions.  Depreciation and amortization  were calculated by
exchange using property, plant, and equipment data.

3.   Summary of Significant Accounting Policies and Other Disclosures:

The  notes  which  follow  contain  limited  disclosure  data  where  it  can be
reasonably estimated for the Exchanges.

Revenue Recognition

Revenues  are  recognized  when  earned.  This is  generally  based  on usage of
local-exchange networks or facilities. For other products and services, revenues
are generally recognized when services are rendered or products are delivered to
customers.

Verizon   maintains  its   accounting   records  for  revenues  at  the  Federal
Communications  Commission  (FCC) study area levels.  The  Exchanges  being sold
represent all operations in GTE's Arkansas  study areas.  Certain  revenues that
relate to  intra-company  activity or activity to be retained by Verizon are not
included in the accompanying special purpose financial statements.

Depreciation and Amortization

Assets are depreciated  using the remaining life  methodology and  straight-line
depreciation  rates.  This method  depreciates  the remaining net  investment in
telephone  plant,  less anticipated net salvage value,  over remaining  economic
asset  lives.   This  method  requires  the  periodic  review  and  revision  of
depreciation rates.

The economic asset lives used are as follows:

           Average lives (in years)
           ------------------------

           Fiber-optic cable                        20
           Copper wire                              15
           Switching equipment                      10
           Circuit equipment                         8

When  depreciable  telephone  plant is retired in the normal course of business,
the amount of such plant is deducted from the respective  plant and  accumulated
depreciation  accounts.  Gains or losses on dispositions  are amortized with the
remaining net investment in telephone plant.

Employee Benefit Plans

Pension and postretirement health care and life insurance benefits earned during
the year as well as  interest  on  projected  benefit  obligations  are  accrued
currently.  Prior  service  costs and  credits  resulting  from  changes in plan
benefits  are  amortized  over  the  average  remaining  service  period  of the
employees expected to receive benefits.  Curtailment gains and losses associated
with employee  separations are recognized when they occur.  Settlement gains and
losses  associated  with employee  separations  are recognized  when the pension
obligations are settled and the gain or loss is determinable.

Valuation of Assets

The  impairment  of tangible or  intangible  assets is assessed  when changes in
circumstances  indicate that their carrying value may not be recoverable.  Under
the  Financial  Accounting  Standards  Board's  (FASB)  Statement  of  Financial
Accounting   Standards  (SFAS)  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," a determination
of  impairment,  if any, is made based on estimated  future cash flows,  salvage
value,  or expected net sales  proceeds  depending on the  circumstances.  Asset
impairment  losses,  and any subsequent  adjustments to such losses as initially
recorded,  as well as net gains or losses on sales of assets are  recorded  as a
component of operating income.

Income Taxes

The Company's results are included in Verizon's  consolidated federal income tax
return.  The Company  participates  in a tax-sharing  agreement with Verizon and
remits tax payments to Verizon based on its tax liability on a separate  company
basis.

The Exchanges are not a taxable  entity.  The Exchanges'  operating  results are
included  with the  Company  for income tax  purposes.  Although  the  Exchanges
contribute significant plant-related temporary differences (including investment
tax  credits) to the  Company's  deferred  tax  balances,  the Company  does not
allocate  income tax expense,  income tax payables,  or deferred income taxes to
the Exchanges.  As the buyer will most likely have a different tax scenario,  no
deferred tax assets or liabilities  are presented  within these special  purpose
financial   statements.   The  provision  for  income  taxes   included  in  the
accompanying  special purpose financial statements for 1999 was calculated based
on the income of the Exchanges and the Company's effective tax rate adjusted for
permanent differences not attributable to the Exchanges.

Inventories and Supplies

Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.

Software

Software  costs are  recognized  in  accordance  with the American  Institute of
Certified  Public   Accountants   (AICPA)  Statement  of  Position  (SOP)  98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use," which became  effective in January 1999. The Company  capitalizes
costs associated with externally acquired software (including right-to-use fees)
for internal use. Capitalized software is generally amortized on a straight-line
basis over its useful life, not to exceed five years for non-network software or
three years for network software.

Comprehensive Income

The Company had no comprehensive  income  components for the year ended December
31, 1999; therefore,  comprehensive income is the same as net income for each of
the periods.

Recent Accounting Pronouncements

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities.  The statement requires
entities that use derivative  instruments  to measure these  instruments at fair
value and record them as assets or  liabilities  on the balance  sheet.  It also
requires  entities to reflect the gains or losses associated with changes in the
fair value of these  derivatives,  either in earnings or as a separate component
of comprehensive  income,  depending on the nature of the underlying contract or
transaction.  The Company is currently assessing the impact of adopting SFAS No.
133, as amended, which is effective January 1, 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements." SAB No. 101 provides  additional guidance on revenue recognition as
well as criteria  for when  revenue is  generally  realized  and earned and also
requires  the  deferral of  incremental  direct  selling  costs.  This  bulletin
currently  must be adopted by December 31, 2000, and will require the Company to
determine the effect of the accounting change as of January 1, 2000. The Company
is currently assessing the impact of SAB No. 101.

4.   Employee Benefit Plans:

Pursuant to SFAS No.  132,  "Employers'  Disclosures  about  Pensions  and Other
Postretirement  Benefits," certain disclosures  including  components of pension
credits,  postretirement  benefit  costs and the  funded  status  of the  plans,
including the actuarial present value of accumulated plan benefits,  accumulated
or projected benefit  obligation and the fair value of plan assets have not been
presented  because the structure of the Verizon plans does not permit the plans'
data to be readily disaggregated.

Pension Plans

The Company  participates  in  noncontributory  defined  benefit  pension  plans
sponsored by Verizon covering  substantially  all employees.  The benefits to be
paid under these  plans are  generally  based on years of  credited  service and
average final earnings. Verizon's funding policy, subject to the minimum funding
requirements of employee  benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to accumulate  funds sufficient to meet the
plans' benefit obligation to employees upon their retirement.  The assets of the
plans  consist  primarily  of corporate  equities,  government  securities,  and
corporate debt securities.

The  significant  weighted-average  assumptions  used by Verizon for the pension
measurements were as follows at December 31:

                                                     1999
                                                    ------
     Discount rate                                   8.00%
     Rate of compensation increase                   5.50%
     Expected return on plan assets                  9.00%

The Company's net periodic benefit credit was $106 million for 1999. The Verizon
plans  are  currently  funded  at levels  significantly  in excess of  projected
benefit obligations.  Included in the net periodic benefit credit for 1999 was a
net pension  gain of $58.8  million,  comprised  of  one-time  costs for special
termination  benefits  provided  under  voluntary  and  involuntary   separation
programs, curtailment losses, and settlement gains. These curtailment losses and
settlement  gains  are a  result  of the  separation  programs,  as  well as the
required  settlement gain or loss  recognition due to the fact that in 1999, the
Company's  lump sum pension  distributions  surpassed the  settlement  threshold
equal  to the sum of the  service  cost  and  interest  cost  components  of net
periodic pension cost.  Allocated on the basis of headcount,  the Exchanges' net
periodic  benefit  credit,   including   non-recurring   settlement  gains,  was
approximately  $2.69 million for 1999 and $1.6 million  (unaudited)  for the six
months ended June 30, 2000.

Postretirement Benefits Other than Pensions

Substantially  all of the Company's  employees are covered under  postretirement
healthcare  and  life  insurance   benefit  plans  sponsored  by  Verizon.   The
determination of benefit cost for postretirement health plans is generally based
on comprehensive  hospital,  medical, and surgical benefit plan provisions.  The
Company  intends  to  fund  amounts  for   postretirement   benefits  as  deemed
appropriate.

The weighted-average  assumptions used by Verizon in the actuarial  computations
for postretirement benefits were as follows at December 31:

                                                      1999
                                                     ------
     Discount rate                                    8.00%
     Expected return on plan assets                   8.00%


The Company's  postretirement benefit cost was $44.3 million for 1999. Allocated
on the basis of headcount, the Exchanges'  postretirement cost was approximately
$1.92 million for 1999.

Savings Plans

The Company sponsors employee savings plans under section 401(k) of the Internal
Revenue Code. The plans cover substantially all full-time  employees.  Under the
plans, the Company provides matching contributions in Verizon common stock based
on qualified employee  contributions up to a certain predefined limit.  Matching
contributions  attributable  to the Exchanges'  employees were included in these
special  purpose  financial  statements  and  may or may not  correspond  to the
matching benefits provided to the employees of the buyer.

5.   Property, Plant, and Equipment:

The company  maintains  continuing  property  records  which  identify  specific
property,  plant,  and equipment  (PP&E) balances,  depreciation  reserves,  and
annual  capital  expenditure  amounts  for the  Exchanges.  The  balances in the
accompanying statements are based on these exchange specific amounts, and do not
include any  allocations of common assets  utilized in providing the centralized
services described in Note 2.

PP&E is summarized as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>

                                                             1999
                                                         -----------
<S>                                                      <C>
    Land                                                 $       957
    Buildings                                                 23,317
    Plant and equipment                                      549,147
    Other                                                     19,943
                                                         -----------
         Total                                               593,364
    Less- Accumulated depreciation                          (390,502)
                                                         -----------
         Total property, plant, and equipment, net       $   202,862
                                                         ===========
</TABLE>

6.   Parent Funding and Interest Expense:

For purposes of these statements,  all funding requirements have been summarized
as "Parent  Funding,"  without regard to whether the funding  represents debt or
equity.  No  specific  debt  instruments  can be  directly  associated  with the
Exchanges,  nor are  separate  equity  accounts  maintained.  As such,  interest
expense of the Company was  allocated  to the  Exchanges  based on the  relative
percentage of the Exchanges gross property,  plant, and equipment balance to the
gross property, plant and equipment balance for the Company.

7.   Transactions with Affiliates:

Historically,  extensive  transactions  have occurred  between the Exchanges and
affiliate   entities.   These   transactions  have  included   construction  and
maintenance services,  data processing and management services,  financing,  and
directories agreements.

Verizon Supply (100% owned by Verizon)  provides  construction  and  maintenance
equipment,  supplies,  and electronic  repair  services to the  Exchanges.  Such
purchases and services are recorded at the lower of cost,  including a return or
fair market value.

The Exchanges are billed for data processing services and equipment rentals, and
receive management, consulting, research and development, and pension management
services  from  other  affiliated  companies.  The  Exchanges'  special  purpose
financial  statements also include allocated expenses resulting from the sharing
of  certain  executive,   administrative,   financial,  accounting,   marketing,
personnel,   engineering,   and  other  support   services  being  performed  at
consolidated  work  centers  within  Verizon.  The  amounts  charged  for  these
affiliated transactions are based on proportional cost allocation methodologies.

GTE Funding  Incorporated  (an  affiliate  of the Company)  provides  short-term
financing and investment vehicles and cash management services.  GTE Midwest and
GTE Southwest are  contractually  obligated to repay all amounts borrowed on its
behalf by GTE Funding Incorporated.

The Company has an agreement with Verizon Directories Corporation  (Directories)
(100% owned by  Verizon),  whereby the Company  provides its  subscriber  lists,
billing and  collection,  and other services to Directories.  In addition,  when
Directories  sells Yellow Page  directory  advertising  to customers  within the
Company's  franchise area, the Company records a portion of the sale as revenue.
Also, the Company is billed for certain printing and other costs associated with
telephone directories,  including the cost of customer contact information pages
which are included in the Company's White Pages directories.

8.   Regulatory and Competitive Matters:

The  Company's   intrastate  business  is  regulated  by  the  state  regulatory
commission in Arkansas. The Company is also subject to regulation by the FCC for
its interstate business operations.

During 1999,  regulatory and legislative  activity at both the state and federal
levels  continued to be a direct  result of the  Telecommunications  Act of 1996
(the "Telecommunications Act"). Along with promoting competition in all segments
of the  telecommunications  industry, the Telecommunications Act was intended to
preserve and advance universal service.

Significant Customer

The largest volume of the Company's services are provided to AT&T Corp. ("AT&T")
and include amounts for access, billing, and collection.  The Company's revenues
from  services  provided  to AT&T were 10% of total  revenues  for  1999.  These
concentrations  may  or  may  not  correspond  with  the  concentrations  of the
Exchanges.

9.   Commitments and Contingencies:

The Exchanges have  noncancelable  operating leases covering certain  buildings,
office space, and equipment.  The Exchanges'  rental expense was $3.7 million in
1999.   Minimum  rental  commitments  under  these   noncancelable   leases  are
approximately  $62,512,  $16,411,  $3,450,  and $2,550 for the years  2000-2003,
respectively, and $10,300 in 2004 and thereafter.

The Company is subject to a number of proceedings  arising out of the conduct of
its  business,  including  those  relating  to  regulatory  actions,  commercial
transactions, and environmental,  safety and health matters. Management believes
that the ultimate  resolution of these matters will not have a material  adverse
effect on the results of operations or the financial position of the Company.

10.  Segment Reporting:

The  Exchanges  do not have  separate  reportable  segments  of their  own.  The
Exchanges  are part of GTE  Arkansas,  GTE  Midwest,  and GTE  Southwest.  These
entities  are  part of the  Domestic  Wireline  segment  of  Verizon's  National
Operations.  The  Domestic  Wireline  segment  provides  wireline  communication
services within franchised areas. These services include local telephone service
and toll calls, as well as access services that enable long-distance carriers to
complete calls to or from locations  outside of the Exchanges'  operating areas.
This  segment  also  provides  complex  voice and data  services to  businesses,
billing   and   collection,   and   operator   assistance   services   to  other
telecommunications  companies and receives revenues in the form of a publication
right from an affiliate  that publishes  telephone  directories in its operating
areas.

11.  Bell Atlantic - GTE Merger:

On June 30, 2000,  Bell  Atlantic  and GTE  completed a merger of equals under a
definitive  merger  agreement dated as of July 27, 1998.  Under the terms of the
agreement,  GTE become a wholly  owned  subsidiary  of Bell  Atlantic.  With the
closing of the merger,  the  combined  company  began doing  business as Verizon
Communications.

                            GTE Missouri Operations

                      Special Purpose Financial Statements
                   As of June 30, 2000, and December 31, 1999

             Together with Report of Independent Public Accountants


Report of Independent Public Accountants

To the Board of Directors and Shareholders of Spectra  Communications  Group LLC
And GTE Midwest Incorporated:

We have  audited  the  accompanying  special  purpose  financial  statements  of
selected assets,  liabilities and parent funding of GTE Missouri Operations (the
"Company") as of December 31, 1999, and the related statements of income, parent
funding and cash flows for the year then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit  provides a  reasonable  basis for our
opinion.

In our  opinion,  the special  purpose  financial  statements  referred to above
present fairly, in all material respects,  the selected assets,  liabilities and
parent  funding of the Company as of December 31,  1999,  and the results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Dallas, Texas,
September 13, 2000

The accompanying  notes are an integral part of these special purpose  financial
statements.

GTE Missouri Operations
(As Described in Note 1)


         Statements of Selected Assets, Liabilities and Parent Funding
                   As of June 30, 2000, and December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)
<S>                                                 <C>             <C>
            SELECTED ASSETS
            ---------------

CURRENT ASSETS:
   Receivables, less allowances of $1,407
    and $1,261                                      $  12,167       $  16,938
   Inventories and supplies                                65              59
   Prepaid benefits and other                             205           1,028
--------------------------------------------------------------------------------
         Total current assets                          12,437          18,025
--------------------------------------------------------------------------------

PROPERTY, PLANT AND EQUIPMENT, net                    129,325         135,532

EMPLOYEE BENEFIT PLANS                                  5,304           3,984

OTHER ASSETS                                              207             268
--------------------------------------------------------------------------------
         Total assets                               $ 147,273       $ 157,809
================================================================================

    SELECTED LIABILITIES AND PARENT FUNDING
    ---------------------------------------

CURRENT LIABILITIES:
   Accounts payable                                 $   2,424       $   6,493
   Advance billings and customer deposits               1,583           1,509
   Accrued payroll costs                                  682             729
   Other                                                1,840             692
--------------------------------------------------------------------------------
         Total current liabilities                      6,529           9,423
--------------------------------------------------------------------------------

EMPLOYEE BENEFIT PLANS                                  2,312           2,247

OTHER LIABILITIES                                          63              63
--------------------------------------------------------------------------------
        Total liabilities                               8,904          11,733
--------------------------------------------------------------------------------

PARENT FUNDING                                        138,369         146,076
--------------------------------------------------------------------------------
         Total liabilities and parent funding       $ 147,273       $ 157,809
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.


GTE Missouri Operations
(As Described In Note 1)


                              Statements of Income
For the Six Months Ended June 30, 2000, and for the Year Ended December 31, 1999
                             (Dollars In Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)

<S>                                                 <C>             <C>
REVENUES AND SALES:
   Local services                                   $   9,279       $  17,987
   Network access services                             28,091          51,717
   Toll services                                        6,137          11,828
   Other services and sales                             3,279           7,334
--------------------------------------------------------------------------------
         Total revenues and sales                      46,786          88,866
--------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES:
   Cost of services and sales                          13,296          27,742
   Selling, general and administrative                  5,007          14,436
   Depreciation and amortization                       11,109          20,505
--------------------------------------------------------------------------------
         Total operating costs and expenses            29,412          62,683
--------------------------------------------------------------------------------

OPERATING INCOME                                       17,374          26,183

INTEREST EXPENSE, net                                   1,812           4,236
--------------------------------------------------------------------------------

INCOME  BEFORE INCOME TAXES                            15,562          21,947

INCOME TAXES                                            5,949           8,390
--------------------------------------------------------------------------------

NET INCOME                                          $   9,613       $  13,557
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.



GTE Missouri Operations
(As Described In Note 1)


                            Statements of Cash Flows
For the Six Months Ended June 30, 2000, and for the Year Ended December 31, 1999
                             (Dollars In Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)

<S>                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                       $   9,613       $  13,557
   Adjustments to reconcile net income
    to net cash provided by operating
    activities-
      Depreciation                                     10,734          19,956
      Employee pension plans                           (1,255)         (1,908)
      Provision for uncollectible accounts                691           1,671
      Change in current assets and current
       liabilities-
        Receivables                                     4,080          (9,223)
        Other current assets                              817              68
        Other current liabilities                      (2,894)          4,212
        Other, net                                         61           1,524
--------------------------------------------------------------------------------
         Net cash provided by operating activities     21,847          29,857
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                (4,527)         (9,303)
--------------------------------------------------------------------------------
         Net cash used in investing activities          4,527)         (9,303)
--------------------------------------------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES:
   Net transfers to GTE Corporation                   (17,320)        (20,554)
--------------------------------------------------------------------------------

         Net cash used in financing activities        (17,320)        (20,554)
--------------------------------------------------------------------------------

INCREASE IN CASH AND CASH EQUIVALENTS                       -               -

CASH AND CASH EQUIVALENTS:
    Beginning of year                                       -               -
--------------------------------------------------------------------------------
    End of year                                     $       -       $       -
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.

GTE Missouri Operations
(As Described In Note 1)


                          Statement of Parent Funding
                             (Dollars In Thousands)

<TABLE>
<CAPTION>
<S>                                                       <C>
BALANCE, December 31, 1998                                $  153,073
  Net income                                                  13,557
  Net transfers to GTE Corporation                           (20,554)
                                                          ------------
BALANCE, December 31, 1999                                $  146,076
                                                          ============
</TABLE>
The accompanying notes are an integral part of this special purpose financial
statement.


GTE Missouri Operations
(As Described In Note 1)

Notes to Special Purpose Financial Statements

1.   Description of Business:

The  selected  local  telephone  exchanges  included  in these  special  purpose
financial  statements (the  "Exchanges")  serve  approximately  127,000 switched
access lines in the state of Missouri. The Exchanges represent approximately 15%
of the assets of GTE Midwest Incorporated ("GTE Midwest" or the "Company").  GTE
Midwest is a wholly owned subsidiary of GTE Corporation (GTE), which is a wholly
owned subsidiary of Bell Atlantic  Corporation ("Bell Atlantic"),  d/b/a Verizon
Communications  ("Verizon")  (see Note 11).  Verizon  provides a wide variety of
communications  services  ranging from local telephone  service for the home and
office to highly complex voice and data services for various industries.

On July 8, 1999,  GTE Midwest  entered  into a purchase  agreement  with Spectra
Communications  Group LLC  ("Spectra") to sell  approximately  127,000  switched
access lines in the state of Missouri to Spectra. The sale was completed on July
31, 2000.

2.   Basis of Presentation:

The  accompanying  special  purpose  financial  statements have been prepared in
accordance with accounting  principles  generally  accepted in the United States
using exchange  specific  information  where available  (e.g.,  most revenue and
property,  plant and equipment  (PP&E) related  accounts) and allocations  where
data is not maintained on an exchange  specific basis within the Company's books
and records (e.g., most operating expenses, assets other than PP&E, liabilities,
and capital  accounts).  Because of the  significant  amount of allocations  and
estimates used to prepare these special purpose financial  statements,  they may
not reflect the  financial  position and results of  operations of the Exchanges
after the acquisition by Spectra.

The accompanying special purpose financial statements include only those assets,
liabilities, and related operations of the Exchanges as historically incurred by
the Company and exclude all other assets, liabilities, and related operations of
Verizon  and  its  subsidiaries,   specifically  cash,  accrued  interest,   and
tax-related balance sheet accounts.  These special purpose financial  statements
also include  expenses  related to employees who support the Exchanges,  some of
which are expected to remain employees of the Company.

Receivables  related to end-user  billings  were  identified  by exchange  using
billing  system  data.  Customer  Advances and  Deposits  were  allocated to the
Exchanges  based on total  revenue.  Receivables  related to  carrier  and other
miscellaneous  billings were allocated to the Exchanges in proportion to carrier
revenues.

Accounts  payable  were  allocated  based  on  operating  expenses  and  capital
expenditures. Accrued payroll costs were allocated based on employee head count.
Other current  liabilities  and other  liabilities  were allocated based on line
count.

The  Exchanges'  operating  expenses  include both amounts  incurred  within its
operating  territories  that  relate  directly  to its  exchanges  (the  "Direct
Expenses") and amounts  incurred in  centralized  Verizon  service  centers that
support  multiple  Verizon  companies  (the  "Indirect  Expenses").  The  Direct
Expenses correspond roughly with locally performed functions which will transfer
to the buyer of the Exchanges.  The Indirect Expenses  correspond to substantial
back-office,  support  and  overhead  functions  which will not  transfer to the
buyer,  but that the buyer will need to replace in some form in order to operate
the Exchanges.  The Indirect  Expenses have been  allocated to GTE Midwest,  and
further to specific  exchanges  within GTE Midwest  (including  the  Exchanges),
based on estimates of usage, or benefits received from such services.  The level
of allocated  Indirect Expenses may not be representative of the buyer's ongoing
expenses for these functions.  Depreciation and amortization  were calculated by
exchange using property, plant, and equipment data.

3.   Summary of Significant Accounting Policies and Other Disclosures:

The  notes  which  follow  contain  limited  disclosure  data  where  it  can be
reasonably estimated for the Exchanges.

Revenue Recognition

Revenues  are  recognized  when  earned.  This is  generally  based  on usage of
local-exchange networks or facilities. For other products and services, revenues
are generally recognized when services are rendered or products are delivered to
customers.

Revenues  arising  from the  provision  of local  exchange  services  billed  to
end-users  and  revenues  from  the  provision  of  access  services  billed  to
interexchange  carriers are  specifically  identifiable for the study areas that
encompass  GTE  Midwest  and the  Exchanges.  Revenues  arising  from  statewide
inter-carrier   agreements   and  settlement   processes,   and  from  sales  of
non-regulated products and services (collectively,  the "Indirect Revenues") are
identifiable  to a specific  study  area,  but not to  specific  exchanges.  The
Indirect  Revenues  have been  allocated to the  Exchanges  based on a number of
ratios.  Revenues from non-regulated  products,  including discounts and related
installation and maintenance  agreements were allocated based on business lines.
The revenues from public  telephones  were  allocated  based on number of public
telephones.  All  other  Indirect  revenues  were  allocated  based on the ratio
between Indirect Revenues and Direct Revenues for the Exchanges.

Depreciation and Amortization

Assets are depreciated  using the remaining life  methodology and  straight-line
depreciation  rates.  This method  depreciates  the remaining net  investment in
telephone  plant,  less anticipated net salvage value,  over remaining  economic
asset  lives.   This  method  requires  the  periodic  review  and  revision  of
depreciation rates.

The economic asset lives used are as follows:

           Average lives (in years)
           ------------------------
           Fiber-optic cable                        20
           Copper wire                              15
           Switching equipment                      10
           Circuit equipment                         8


When  depreciable  telephone  plant is retired in the normal course of business,
the amount of such plant is deducted from the respective  plant and  accumulated
depreciation  accounts.  Gains or losses on dispositions  are amortized with the
remaining net investment in telephone plant.

Employee Benefit Plans

Pension and postretirement health care and life insurance benefits earned during
the year as well as  interest  on  projected  benefit  obligations  are  accrued
currently.  Prior  service  costs and  credits  resulting  from  changes in plan
benefits  are  amortized  over  the  average  remaining  service  period  of the
employees expected to receive benefits.  Curtailment gains and losses associated
with employee  separations are recognized when they occur.  Settlement gains and
losses  associated  with employee  separations  are recognized  when the pension
obligations are settled and the gain or loss is determinable.

Valuation of Assets

The  impairment  of tangible or  intangible  assets is assessed  when changes in
circumstances  indicate that their carrying value may not be recoverable.  Under
the  Financial  Accounting  Standards  Board's  (FASB)  Statement  of  Financial
Accounting   Standards  (SFAS)  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," a determination
of  impairment,  if any, is made based on estimated  future cash flows,  salvage
value,  or expected net sales  proceeds  depending on the  circumstances.  Asset
impairment  losses,  and any subsequent  adjustments to such losses as initially
recorded,  as well as net gains or losses on sales of assets are  recorded  as a
component of operating income.

Income Taxes

The Company's results are included in Verizon's  consolidated federal income tax
return.  The Company  participates  in a tax-sharing  agreement with Verizon and
remits tax payments to Verizon based on its tax liability on a separate  company
basis.

The Exchanges are not a taxable  entity.  The Exchanges'  operating  results are
included  within the Company for income tax  purposes.  Although  the  Exchanges
contribute significant plant-related temporary differences (including investment
tax  credits) to the  Company's  deferred  tax  balances,  the Company  does not
allocate income tax expense, income tax payables or deferred income taxes to the
Exchanges.  As the buyer will most  likely  have a different  tax  scenario,  no
deferred tax assets or liabilities  are presented  within these special  purpose
financial   statements.   The  provision  for  income  taxes   included  in  the
accompanying  special purpose financial statements for 1999 was calculated based
on the income of the Exchanges and the Company's effective tax rate adjusted for
permanent differences not attributable to the Exchanges.

Inventories and Supplies

Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.

Software

Software  costs are  recognized  in  accordance  with the American  Institute of
Certified  Public   Accountants   (AICPA)  Statement  of  Position  (SOP)  98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use," which became  effective in January 1999. The Company  capitalizes
costs associated with externally acquired software (including right-to-use fees)
for internal use. Capitalized software is generally amortized on a straight-line
basis over its useful life, not to exceed five years for non-network software or
three years for network software.

Comprehensive Income

The Company had no comprehensive  income  components for the year ended December
31, 1999; therefore, comprehensive income is the same as net income for 1999.

Recent Accounting Pronouncements

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities.  The statement requires
entities that use derivative  instruments  to measure these  instruments at fair
value and record them as assets or  liabilities  on the balance  sheet.  It also
requires  entities to reflect the gains or losses associated with changes in the
fair value of these  derivatives,  either in earnings or as a separate component
of comprehensive  income,  depending on the nature of the underlying contract or
transaction.  The Company is  currently  assessing  the impact of adopting  SFAS
No.133, as amended, which is effective January 1, 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements." SAB No. 101 provides  additional guidance on revenue recognition as
well as criteria  for when  revenue is  generally  realized  and earned and also
requires  the  deferral of  incremental  direct  selling  costs.  This  bulletin
currently  must be adopted by December 31, 2000, and will require the Company to
determine the effect of the accounting change as of January 1, 2000. The Company
is currently assessing the impact of SAB No. 101.

4.   Employee Benefit Plans:

Pursuant to SFAS No.  132,  "Employers'  Disclosures  about  Pensions  and Other
Postretirement  Benefits," certain disclosures  including  components of pension
credits,  postretirement  benefit  costs and the  funded  status  of the  plans,
including the actuarial present value of accumulated plan benefits,  accumulated
or projected benefit  obligation and the fair value of plan assets have not been
presented  because the structure of the Verizon plans does not permit the plans'
data to be readily disaggregated.

Pension Plans

The Company  participates  in  noncontributory  defined  benefit  pension  plans
sponsored by Verizon covering  substantially  all employees.  The benefits to be
paid under these  plans are  generally  based on years of  credited  service and
average final earnings. Verizon's funding policy, subject to the minimum funding
requirements of employee  benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to accumulate  funds sufficient to meet the
plans' benefit obligation to employees upon their retirement.  The assets of the
plans  consist  primarily  of  corporate  equities,  government  securities  and
corporate debt securities.

The  significant  weighted-average  assumptions  used by Verizon for the pension
measurements were as follows at December 31:

                                                              1999
                                                             ------
     Discount rate                                            8.00%
     Rate of compensation increase                            5.50%
     Expected return on plan assets                           9.00%

The  Company's  net  periodic  benefit  credit was $18.9  million for 1999.  The
Verizon  plans  are  currently  funded  at  levels  significantly  in  excess of
projected benefit  obligations.  Included in the net periodic benefit credit for
1999 was a net pension gain of $10.4  million,  comprised of one-time  costs for
special termination benefits provided under voluntary and involuntary separation
programs,  curtailment losses and settlement gains. These curtailment losses and
settlement  gains  are a  result  of the  separation  programs,  as  well as the
required  settlement gain or loss  recognition due to the fact that in 1999, the
Company's  lump sum pension  distributions  surpassed the  settlement  threshold
equal  to the sum of the  service  cost  and  interest  cost  components  of net
periodic pension cost.  Allocated on the basis of headcount,  the Exchanges' net
periodic  benefit  credit,   including   non-recurring   settlement  gains,  was
approximately  $1.2  million for 1999 and $1.3 million  (unaudited)  for the six
months ended June 30, 2000.

Postretirement Benefits Other than Pensions

Substantially  all of the Company's  employees are covered under  postretirement
healthcare  and  life  insurance   benefit  plans  sponsored  by  Verizon.   The
determination of benefit cost for postretirement health plans is generally based
on comprehensive  hospital,  medical and surgical  benefit plan provisions.  The
Company  intends  to  fund  amounts  for   postretirement   benefits  as  deemed
appropriate.

The weighted-average  assumptions used by Verizon in the actuarial  computations
for postretirement benefits were as follows at December 31:

                                                              1999
                                                             ------
     Discount rate                                            8.00%
     Expected return on plan assets                           8.00%


The Company's  postretirement  benefit cost was $8.4 million for 1999. Allocated
on the basis of headcount, the Exchanges'  postretirement cost was approximately
$.5 million for 1999.

Savings Plans

GTE Midwest sponsors employee savings plans under section 401(k) of the Internal
Revenue Code. The plans cover substantially all full-time  employees.  Under the
plans, the Company provides matching contributions in Verizon common stock based
on qualified employee  contributions up to a certain predefined limit.  Matching
contributions  attributable  to the Exchanges'  employees were included in these
special  purpose  financial  statements  and  may or may not  correspond  to the
matching benefits provided to the employees of the buyer.

5.   Property, Plant and Equipment:

The Company  maintains  continuing  property  records  which  identify  specific
property, plant and equipment (PP&E) balances,  depreciation reserves and annual
capital expenditure  amounts for the Exchanges.  The balance in the accompanying
statements is based on these exchange  specific amounts and does not include any
allocations  of common  assets  utilized in providing the  centralized  services
described in Note 2.

PP&E is summarized as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
                                                               1999
                                                            ----------
<S>                                                       <C>
    Plant and equipment                                   $   335,830
    Buildings                                                  13,848
    Land                                                          613
    Other                                                         699
--------------------------------------------------------------------------------
         Total                                                350,990
    Less - Accumulated depreciation                          (215,458)
--------------------------------------------------------------------------------
         Total property, plant and equipment, net         $   135,532
================================================================================
</TABLE>

6.   Parent Funding and Interest Expense:

For purposes of these statements,  all funding requirements have been summarized
as "Parent  Funding,"  without regard to whether the funding  represents debt or
equity.  No  specific  debt  instruments  can be  directly  associated  with the
Exchanges,  nor are  separate  equity  accounts  maintained.  As such,  interest
expense of the Company was  allocated  to the  Exchanges  based on the  relative
percentage of the Exchanges gross PP&E balance to the gross PP&E balance for the
Company.

7.   Transactions with Affiliates:

Historically,  extensive  transactions  have occurred  between the Exchanges and
affiliate   entities.   These   transactions  have  included   construction  and
maintenance services,  data processing and management services and financing and
directories agreements.

Verizon Supply (100% owned by Verizon)  provides  construction  and  maintenance
equipment,  supplies  and  electronic  repair  services to the  Exchanges.  Such
purchases  and services  are  recorded at the lower of cost,  including a return
realized by Verizon Supply, or fair market value.

The Exchanges are billed for data processing services and equipment rentals, and
receive management,  consulting, research and development and pension management
services  from  other  affiliated  companies.  The  Exchanges'  special  purpose
financial  statements also include allocated expenses resulting from the sharing
of  certain  executive,   administrative,   financial,  accounting,   marketing,
personnel,   engineering   and  other  support   services  being   performed  at
consolidated  work  centers  within  Verizon.  The  amounts  charged  for  these
affiliated transactions are based on proportional cost allocation methodologies.

GTE Funding  Incorporated  (an  affiliate  of the Company)  provides  short-term
financing and investment vehicles and cash management  services.  The Company is
contractually  obligated  to repay all  amounts  borrowed  on its  behalf by GTE
Funding Incorporated.

The Company has an agreement with Verizon Directories Corporation  (Directories)
(100% owned by  Verizon),  whereby the Company  provides its  subscriber  lists,
billing and  collection  and other services to  Directories.  In addition,  when
Directories  sells Yellow Page  directory  advertising  to customers  within the
Company's  franchise area, the Company records a portion of the sale as revenue.
Also, the Company is billed for certain printing and other costs associated with
telephone directories,  including the cost of customer contact information pages
which are included in the Company's White Pages directories.

8.   Regulatory and Competitive Matters:

The  Company's   intrastate  business  is  regulated  by  the  state  regulatory
commissions  in  Missouri.  The  Company is also  subject to  regulation  by the
Federal Communications Commission (FCC) for its interstate business operations.

During 1999,  regulatory and legislative  activity at both the state and federal
levels  continued to be a direct  result of the  Telecommunications  Act of 1996
(the "Telecommunications Act"). Along with promoting competition in all segments
of the  telecommunications  industry, the Telecommunications Act was intended to
preserve and advance universal service.

In March 1998, the Missouri Public Service Commission (MPSC) initiated a generic
universal  service  fund (USF)  proceeding  to  establish  a USF  mechanism  and
rebalance  rates.  In December  1999,  the MPSC issued an order  requesting  the
information  on the size of the fund and the amount to be assessed under various
scenarios.  The  information  was filed in  February  2000.  A June  2000  order
established  a series of workshops to begin in the third  quarter 2000 to decide
these issues.

The Company  became  subject to state price cap regulation in February 1999. The
first year of the plan allows for increases up to $1.50 per month to residential
and business  one-party  services  with  corresponding  reductions in intrastate
access  rates to a level not to exceed 150 percent of the  Company's  interstate
rates for similar  services.  In addition,  a 10 percent reduction in intrastate
toll rates is required in the first year of the plan.  The Company plans to file
the rebalancing  plan with the MPSC in the third quarter of 2000.  After January
2000, the Company is mandated to adjust local rates by the percent change in the
Consumer Price Index.  This adjustment will be incorporated into the rebalancing
filing to minimize customer confusion.

Significant Customer

The largest volume of the Company's services are provided to AT&T Corp. ("AT&T")
and include amounts for access and billing and collection.  The Company revenues
from  services  provided  to AT&T  were 14% of total  revenues  for  1999.  This
concentration  may  or  may  not  correspond  with  the  concentrations  of  the
Exchanges.

9.   Commitments and Contingencies:

The Exchanges have  noncancelable  operating leases covering certain  buildings,
office space and equipment.  The  Exchanges'  rental expense was $1.7 million in
1999.   Minimum  rental  commitments  under  these   noncancelable   leases  are
approximately  $35,810,  $10,595,  $2,560,  and  $360 for the  years  2000-2003,
respectively, and $2,190 in 2004 and thereafter.

The Company is subject to a number of proceedings  arising out of the conduct of
its  business,  including  those  relating  to  regulatory  actions,  commercial
transactions, and environmental,  safety and health matters. Management believes
that the ultimate  resolution of these matters will not have a material  adverse
effect on the results of operations or the financial  position of the Company or
the Exchanges.

10.  Segment Reporting:

The  Exchanges  do not have  separate  reportable  segments  of their  own.  The
Exchanges  are  part of GTE  Midwest,  which  is part of the  Domestic  Wireline
segment of Verizon's National Operations. The Domestic Wireline segment provides
wireline  communication services within franchised areas. These services include
local  telephone  service and toll calls, as well as access services that enable
long-distance  carriers to complete  calls to or from  locations  outside of the
Exchanges'  operating  areas.  This segment also provides complex voice and data
services to businesses,  billing and collection and operator assistance services
to other  telecommunications  companies  and receives  revenues in the form of a
publication right from an affiliate that publishes telephone  directories in its
operating areas.

11.  Bell Atlantic - GTE Merger:

On June 30, 2000,  Bell  Atlantic  and GTE  completed a merger of equals under a
definitive  merger  agreement dated as of July 27, 1998.  Under the terms of the
agreement,  GTE became a wholly  owned  subsidiary  of Bell  Atlantic.  With the
closing of the merger,  the  combined  company  began doing  business as Verizon
Communications.



Verizon Wisconsin I Operations

Special Purpose Financial Statements
As of June 30, 2000, and December 31, 1999

Together with Report of Independent Public Accountants


Report of Independent Public Accountants

To the Board of Directors and  Shareholders  of Telephone USA of Wisconsin,  LLC
And Verizon North Inc.:

We have  audited  the  accompanying  special  purpose  financial  statements  of
selected  assets,   liabilities  and  parent  funding  of  Verizon  Wisconsin  I
Operations (the  "Company") as of December 31, 1999, and the related  statements
of  income,  parent  funding  and cash  flows  for the year  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit  provides a  reasonable  basis for our
opinion.

In our  opinion,  the special  purpose  financial  statements  referred to above
present fairly, in all material respects,  the selected assets,  liabilities and
parent  funding of the Company as of December 31,  1999,  and the results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Dallas, Texas,
September 13, 2000

The accompanying  notes are an integral part of these special purpose  financial
statements.

Verizon Wisconsin I Operations
(As Described in Note 1)


         Statements of Selected Assets, Liabilities and Parent Funding
                   As of June 30, 2000, and December 31, 1999
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)
<S>                                                 <C>             <C>
              SELECTED ASSETS
              ---------------
CURRENT ASSETS
    Receivables, less allowances of $335
     and $ 352                                      $   5,007       $   5,552
    Inventories and supplies                               54              65
    Prepaid benefits and other                            479             607
--------------------------------------------------------------------------------
         Total current assets                           5,540           6,224
--------------------------------------------------------------------------------

PROPERTY, PLANT AND EQUIPMENT, net                     63,909          63,130

EMPLOYEE BENEFIT PLANS                                 10,140           8,432

OTHER ASSETS                                              285             171
--------------------------------------------------------------------------------
         Total assets                               $  79,874       $  77,957
================================================================================

   SELECTED LIABILITIES AND PARENT FUNDING
   ---------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                $   3,046       $     437
    Advance billings and customer deposits              1,013             980
    Accrued payroll costs                                 743             820
    Other                                                 754             515
--------------------------------------------------------------------------------
         Total current liabilities                      5,556           2,752
--------------------------------------------------------------------------------

EMPLOYEE BENEFIT PLANS                                  2,379           2,350

OTHER LIABILITIES                                         181              34
--------------------------------------------------------------------------------
         Total liabilities                              8,116           5,136
--------------------------------------------------------------------------------

PARENT FUNDING                                         71,758          72,821
--------------------------------------------------------------------------------
         Total liabilities and parent funding       $  79,874       $  77,957
================================================================================
</TABLE>



Verizon Wisconsin I Operations
(As Described in Note 1)

                              Statements of Income
For the Six Months Ended June 30, 2000, and for the Year Ended December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000             1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)
<S>                                                 <C>             <C>
REVENUES AND SALES:
    Local services                                  $   8,801       $  17,657
    Network access services                             6,608          14,874
    Toll services                                       1,082           1,770
    Other services and sales                            2,177           4,906
--------------------------------------------------------------------------------
         Total revenues and sales                      18,668          39,207
--------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES:
    Cost of services and sales                          6,076          13,777
    Selling, general and administrative                    33           3,181
    Depreciation and amortization                       4,938           9,775
--------------------------------------------------------------------------------
         Total operating costs and expenses            11,047          26,733
--------------------------------------------------------------------------------

OPERATING INCOME                                        7,621          12,474

INTEREST EXPENSE, net                                   1,124           2,622
--------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                              6,497           9,852

INCOME TAXES                                            2,628           3,986
--------------------------------------------------------------------------------

NET INCOME                                          $   3,869           5,866
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.


Verizon Wisconsin I Operations
(As Described in Note 1)

                            Statements of Cash Flows
For the Six Months Ended June 30, 2000, and for the Year Ended December 31, 1999
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)
<S>                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                       $   3,869       $   5,866
   Adjustments to reconcile net income
    to net cash provided by operating
    activities-
     Depreciation                                       4,904           9,739
     Employee pension plans                            (1,679)         (2,373)
     Provision for uncollectible accounts                 133             402
     Change in current assets and current
      liabilities-
       Receivables                                        413             236
       Other current assets                               140            (111)
       Other current liabilities                        2,803             177
     Other, net                                            33            (264)
--------------------------------------------------------------------------------
         Net cash provided by operating activities     10,616          13,672
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                (5,684)        (16,726)
--------------------------------------------------------------------------------
         Net cash used in investing activities         (5,684)        (16,726)
--------------------------------------------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES:
   Net transfers from (to) GTE Corporation             (4,932)          3,054
--------------------------------------------------------------------------------
         Net cash provided by (used in)
          financing activities                         (4,932)          3,054
--------------------------------------------------------------------------------

INCREASE IN CASH AND CASH EQUIVALENTS                       -               -

CASH AND CASH EQUIVALENTS:
   Beginning of year                                        -               -
--------------------------------------------------------------------------------
   End of year                                      $       -       $       -
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.


Verizon Wisconsin I Operations
(As Described in Note 1)

                          Statement of Parent Funding
                      For the Year Ended December 31, 1999
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
<S>                                                         <C>
BALANCE, December 31, 1998                                  $ 63,901
    Net income                                                 5,866
    Net transfers from GTE Corporation                         3,054
--------------------------------------------------------------------------------
BALANCE, December 31, 1999                                  $ 72,821
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.


Verizon Wisconsin I Operations
(As Described in Note 1)

Notes to Special Purpose Financial Statements

1.   Description of Business:

The  selected  local  telephone  exchanges  included  in these  special  purpose
financial  statements  (the  "Exchanges")  serve  approximately  61,500 switched
access lines in the state of Wisconsin. The Exchanges represent approximately 1%
of the assets of Verizon North Inc. ("Verizon North" or the "Company"), formerly
GTE  North  Incorporated.  Verizon  North is a wholly  owned  subsidiary  of GTE
Corporation  (GTE),  which  is  a  wholly  owned  subsidiary  of  Bell  Atlantic
Corporation ("Bell  Atlantic"),  d/b/a Verizon  Communications  ("Verizon") (see
Note 11).  Verizon  provides a wide variety of  communications  services ranging
from local telephone service for the home and office to highly complex voice and
data services for various industries.

On August  19,  1999,  Verizon  North  entered  into a purchase  agreement  with
Telephone USA of Wisconsin,  LLC ("Telephone USA") to sell approximately  61,500
switched  access lines in the state of  Wisconsin to Telephone  USA. The sale is
expected to close during 2000.

2.   Basis of Presentation:

The  accompanying  special  purpose  financial  statements have been prepared in
accordance with accounting  principles  generally  accepted in the United States
using exchange  specific  information  where available  (e.g.,  most revenue and
property,  plant and equipment  (PP&E) related  accounts) and allocations  where
data is not maintained on an exchange  specific basis within the Company's books
and records (e.g., most operating expenses, assets other than PP&E, liabilities,
and capital  accounts).  Because of the  significant  amount of allocations  and
estimates used to prepare these special purpose financial  statements,  they may
not reflect the  financial  position and results of  operations of the Exchanges
after the acquisition by Telephone USA.

The accompanying special purpose financial statements include only those assets,
liabilities, and related operations of the Exchanges as historically incurred by
the Company and exclude all other assets, liabilities, and related operations of
Verizon  and  its  subsidiaries,   specifically  cash,  accrued  interest,   and
tax-related  balance sheet accounts.  The special purpose  financial  statements
also include  expenses  related to employees who support the Exchanges,  some of
which are expected to remain employees of the Company.

Receivables  related to end-user  billings  were  identified  by exchange  using
billing  system  data.  Customer  Advances and  Deposits  were  allocated to the
Exchanges  based on total  revenue.  Receivables  related to  carrier  and other
miscellaneous  billings were allocated to the Exchanges in proportion to carrier
revenues.

Accounts  payable  were  allocated  based  on  operating  expenses  and  capital
expenditures. Accrued payroll costs were allocated based on employee head count.
Other current  liabilities  and other  liabilities  were allocated based on line
count.

The  Exchanges'  operating  expenses  include both amounts  incurred  within its
operating  territories  that  relate  directly  to its  exchanges  (the  "Direct
Expenses") and amounts  incurred in  centralized  Verizon  service  centers that
support  multiple  Verizon  companies  (the  "Indirect  Expenses").  The  Direct
Expenses correspond roughly with locally performed functions which will transfer
to the buyer of the Exchanges.  The Indirect Expenses  correspond to substantial
back-office,  support  and  overhead  functions  which will not  transfer to the
buyer,  but that the buyer will need to replace in some form in order to operate
the  Exchanges.  The Indirect  Expenses have been allocated to Verizon North and
further to specific  exchanges  within Verizon North  (including the Exchanges),
based on estimates of usage, or benefits received from such services.  The level
of allocated  Indirect Expenses may not be representative of the buyer's ongoing
expenses for these functions.  Depreciation and amortization  were calculated by
exchange using property, plant, and equipment data.

3.   Summary of Significant Accounting Policies and Other Disclosures:

The  notes  which  follow  contain  limited  disclosure  data  where  it  can be
reasonably estimated for the Exchanges.

Revenue Recognition

Revenues  are  recognized  when  earned.  This is  generally  based  on usage of
local-exchange networks or facilities. For other products and services, revenues
are generally recognized when services are rendered or products are delivered to
customers.

Revenues  arising  from the  provision  of local  exchange  services  billed  to
end-users  and  revenues  from  the  provision  of  access  services  billed  to
interexchange  carriers are  specifically  identifiable for the study areas that
encompass  Verizon  North and the  Exchanges.  Revenues  arising from  statewide
inter-carrier   agreements   and  settlement   processes,   and  from  sales  of
non-regulated products and services (collectively,  the "Indirect Revenues") are
identifiable  to a specific  study  area,  but not to  specific  exchanges.  The
Indirect  Revenues  have been  allocated to the  Exchanges  based on a number of
ratios.  Revenues from non-regulated  products,  including discounts and related
installation and maintenance  agreements were allocated based on business lines.
The revenues from public  telephones  were  allocated  based on number of public
telephones.  All  other  Indirect  revenues  were  allocated  based on the ratio
between Indirect Revenues and Direct Revenues for the Exchanges.

Depreciation and Amortization

Assets are depreciated  using the remaining life  methodology and  straight-line
depreciation  rates.  This method  depreciates  the remaining net  investment in
telephone  plant,  less anticipated net salvage value,  over remaining  economic
asset  lives.   This  method  requires  the  periodic  review  and  revision  of
depreciation rates.

The economic asset lives used are as follows:

           Average lives (in years)
           ------------------------

           Fiber-optic cable                        20
           Copper wire                              15
           Switching equipment                      10
           Circuit equipment                         8



When  depreciable  telephone  plant is retired in the normal course of business,
the amount of such plant is deducted from the respective  plant and  accumulated
depreciation  accounts.  Gains or losses on dispositions  are amortized with the
remaining net investment in telephone plant.

Employee Benefit Plans

Pension and postretirement health care and life insurance benefits earned during
the year as well as  interest  on  projected  benefit  obligations  are  accrued
currently.  Prior  service  costs and  credits  resulting  from  changes in plan
benefits  are  amortized  over  the  average  remaining  service  period  of the
employees expected to receive benefits.  Curtailment gains and losses associated
with employee  separations are recognized when they occur.  Settlement gains and
losses  associated  with employee  separations  are recognized  when the pension
obligations are settled and the gain or loss is determinable.

Valuation of Assets

The  impairment  of tangible or  intangible  assets is assessed  when changes in
circumstances  indicate that their carrying value may not be recoverable.  Under
the  Financial  Accounting  Standards  Board's  (FASB)  Statement  of  Financial
Accounting   Standards  (SFAS)  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," a determination
of  impairment,  if any, is made based on estimated  future cash flows,  salvage
value,  or expected net sales  proceeds  depending on the  circumstances.  Asset
impairment  losses,  and any subsequent  adjustments to such losses as initially
recorded,  as well as net gains or losses on sales of assets are  recorded  as a
component of operating income.

Income Taxes

The Company's results are included in Verizon's  consolidated federal income tax
return.  The Company  participates  in a tax-sharing  agreement with Verizon and
remits tax payments to Verizon based on its tax liability on a separate  company
basis.

The Exchanges are not a taxable  entity.  The Exchanges'  operating  results are
included  within the Company for income tax  purposes.  Although  the  Exchanges
contribute significant plant-related temporary differences (including investment
tax  credits) to the  Company's  deferred  tax  balances,  the Company  does not
allocate income tax expense, income tax payables or deferred income taxes to the
Exchanges.  As the buyer will most  likely  have a different  tax  scenario,  no
deferred tax assets or liabilities  are presented  within these special  purpose
financial   statements.   The  provision  for  income  taxes   included  in  the
accompanying  special purpose financial statements for 1999 was calculated based
on the income of the Exchanges and the Company's effective tax rate adjusted for
permanent differences not attributable to the Exchanges.

Inventories and Supplies

Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.

Software

Software  costs are  recognized  in  accordance  with the American  Institute of
Certified  Public   Accountants   (AICPA)  Statement  of  Position  (SOP)  98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use," which became  effective in January 1999. The Company  capitalizes
costs associated with externally acquired software (including right-to-use fees)
for internal use. Capitalized software is generally amortized on a straight-line
basis over its useful life, not to exceed five years for non-network software or
three years for network software.

Comprehensive Income

The Company had no comprehensive  income  components for the year ended December
31, 1999; therefore, comprehensive income is the same as net income for 1999.

Recent Accounting Pronouncements

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities.  The statement requires
entities that use derivative  instruments  to measure these  instruments at fair
value and record them as assets or  liabilities  on the balance  sheet.  It also
requires  entities to reflect the gains or losses associated with changes in the
fair value of these  derivatives,  either in earnings or as a separate component
of comprehensive  income,  depending on the nature of the underlying contract or
transaction.  The Company is  currently  assessing  the impact of adopting  SFAS
No.133, as amended, which is effective January 1, 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements." SAB No. 101 provides  additional guidance on revenue recognition as
well as criteria  for when  revenue is  generally  realized  and earned and also
requires  the  deferral of  incremental  direct  selling  costs.  This  bulletin
currently  must be adopted by December 31, 2000, and will require the Company to
determine the effect of the accounting change as of January 1, 2000. The Company
is currently assessing the impact of SAB No. 101.

4.   Employee Benefit Plans:

Pursuant to SFAS No.  132,  "Employers'  Disclosures  about  Pensions  and Other
Postretirement  Benefits," certain disclosures  including  components of pension
credits,  postretirement  benefit  costs and the  funded  status  of the  plans,
including the actuarial present value of accumulated plan benefits,  accumulated
or projected benefit  obligation and the fair value of plan assets have not been
presented  because the structure of the Verizon plans does not permit the plans'
data to be readily disaggregated.

Pension Plans

The Company  participates  in  noncontributory  defined  benefit  pension  plans
sponsored by Verizon covering  substantially  all employees.  The benefits to be
paid under these  plans are  generally  based on years of  credited  service and
average final earnings. Verizon's funding policy, subject to the minimum funding
requirements of employee  benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to accumulate  funds sufficient to meet the
plans' benefit obligation to employees upon their retirement.  The assets of the
plans  consist  primarily  of  corporate  equities,  government  securities  and
corporate debt securities.

The  significant  weighted-average  assumptions  used by Verizon for the pension
measurements were as follows at December 31:

                                                               1999
                                                              ------
     Discount rate                                             8.00%
     Rate of compensation increase                             5.50%
     Expected return on plan assets                            9.00%


The  Company's  net periodic  benefit  credit was $280.6  million for 1999.  The
Verizon  plans  are  currently  funded  at  levels  significantly  in  excess of
projected benefit  obligations.  Included in the net periodic benefit credit for
1999 was a net pension gain of $131.7  million,  comprised of one-time costs for
special termination benefits provided under voluntary and involuntary separation
programs,  curtailment losses and settlement gains. These curtailment losses and
settlement  gains  are a  result  of the  separation  programs,  as  well as the
required  settlement gain or loss  recognition due to the fact that in 1999, the
Company's  lump sum pension  distributions  surpassed the  settlement  threshold
equal  to the sum of the  service  cost  and  interest  cost  components  of net
periodic pension cost.  Allocated on the basis of headcount,  the Exchanges' net
periodic  benefit  credit,   including   non-recurring   settlement  gains,  was
approximately  $1.6  million for 1999 and $1.6 million  (unaudited)  for the six
months ended June 30, 2000.

Postretirement Benefits Other than Pensions

Substantially  all of the Company's  employees are covered under  postretirement
healthcare  and  life  insurance   benefit  plans  sponsored  by  Verizon.   The
determination of benefit cost for postretirement health plans is generally based
on comprehensive  hospital,  medical and surgical  benefit plan provisions.  The
Company  intends  to  fund  amounts  for   postretirement   benefits  as  deemed
appropriate.

The weighted-average  assumptions used by Verizon in the actuarial  computations
for postretirement benefits were as follows at December 31:

                                                               1999
                                                              ------

     Discount rate                                             8.00%
     Expected return on plan assets                            8.00%


The Company's  postretirement benefit cost was $67.5 million for 1999. Allocated
on the basis of headcount, the Exchanges'  postretirement cost was approximately
$.4 million for 1999.

Savings Plans

Verizon  North  sponsors  employee  savings  plans under  section  401(k) of the
Internal Revenue Code. The plans cover  substantially  all full-time  employees.
Under the plans, the Company provides  matching  contributions in Verizon common
stock  based on  qualified  employee  contributions  up to a certain  predefined
limit.  Matching  contributions  attributable  to the Exchanges'  employees were
included  in  these  special  purpose  financial  statements  and may or may not
correspond to the matching benefits provided to the employees of the buyer.

5.   Property, Plant and Equipment:

The Company  maintains  continuing  property  records  which  identify  specific
property, plant and equipment (PP&E) balances,  depreciation reserves and annual
capital expenditure  amounts for the Exchanges.  The balance in the accompanying
statements is based on these exchange  specific amounts and does not include any
allocations  of common  assets  utilized in providing the  centralized  services
described in Note 2.

PP&E is summarized as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
                                                              1999
                                                            --------
           <S>                                           <C>
           Land                                          $       374
           Buildings                                           7,452
           Plant and equipment                               162,007
           Other                                               6,276
--------------------------------------------------------------------------------
                      Total                                  176,109
           Less- Accumulated depreciation                   (112,979)
--------------------------------------------------------------------------------
    Total property, plant, and equipment, net            $    63,130
================================================================================
</TABLE>

6.   Parent Funding and Interest Expense:

For purposes of these statements,  all funding requirements have been summarized
as "Parent  Funding,"  without regard to whether the funding  represents debt or
equity.  No  specific  debt  instruments  can be  directly  associated  with the
Exchanges,  nor are  separate  equity  accounts  maintained.  As such,  interest
expense of the Company was  allocated  to the  Exchanges  based on the  relative
percentage of the Exchanges gross PP&E balance to the gross PP&E balance for the
Company.

7.   Transactions with Affiliates:

Historically,  extensive  transactions  have occurred  between the Exchanges and
affiliate   entities.   These   transactions  have  included   construction  and
maintenance services,  data processing and management services and financing and
directories agreements.

Verizon Supply (100% owned by Verizon)  provides  construction  and  maintenance
equipment,  supplies  and  electronic  repair  services to the  Exchanges.  Such
purchases  and services  are  recorded at the lower of cost,  including a return
realized by Verizon Supply, or fair market value.

The Exchanges are billed for data processing services and equipment rentals, and
receive management,  consulting, research and development and pension management
services  from  other  affiliated  companies.  The  Exchanges'  special  purpose
financial  statements also include allocated expenses resulting from the sharing
of  certain  executive,   administrative,   financial,  accounting,   marketing,
personnel,   engineering   and  other  support   services  being   performed  at
consolidated  work  centers  within  Verizon.  The  amounts  charged  for  these
affiliated transactions are based on proportional cost allocation methodologies.

GTE Funding  Incorporated  (an  affiliate  of the Company)  provides  short-term
financing and investment vehicles and cash management  services.  The Company is
contractually  obligated  to repay all  amounts  borrowed  on its  behalf by GTE
Funding Incorporated.

The Company has an agreement with Verizon Directories Corporation  (Directories)
(100% owned by  Verizon),  whereby the Company  provides its  subscriber  lists,
billing and  collection  and other services to  Directories.  In addition,  when
Directories  sells Yellow Page  directory  advertising  to customers  within the
Company's  franchise area, the Company records a portion of the sale as revenue.
Also, the Company is billed for certain printing and other costs associated with
telephone directories,  including the cost of customer contact information pages
which are included in the Company's White Pages directories.

8.   Regulatory and Competitive Matters:

The  Company's   intrastate  business  is  regulated  by  the  state  regulatory
commissions in Wisconsin. Interstate operations are subject to regulation by the
Federal Communications Commission.

During 1999,  regulatory and legislative  activity at both the state and federal
levels  continued to be a direct  result of the  Telecommunications  Act of 1996
(the "Telecommunications Act"). Along with promoting competition in all segments
of the  telecommunications  industry, the Telecommunications Act was intended to
preserve and advance universal service.

Significant Customer

The largest volume of the Company's services are provided to AT&T Corp. ("AT&T")
and include amounts for access and billing and collection.  The Company revenues
from  services  provided  to AT&T  were 9% of  total  revenues  for  1999.  This
concentration  may  or  may  not  correspond  with  the  concentrations  of  the
Exchanges.

9.   Commitments and Contingencies:

The Exchanges have  noncancelable  operating leases covering certain  buildings,
office space and equipment.  The Exchanges'  rental expense was $95,270 in 1999.
Minimum rental  commitments under these  noncancelable  leases are approximately
$21,311, $10,291, $8,631, and $3,366 for the years 2000-2003,  respectively, and
$1,850 in 2004 and thereafter.

The Company is subject to a number of proceedings  arising out of the conduct of
its  business,  including  those  relating  to  regulatory  actions,  commercial
transactions, and environmental,  safety and health matters. Management believes
that the ultimate  resolution of these matters will not have a material  adverse
effect on the results of operations or the financial  position of the Company or
the Exchanges.

10.  Segment Reporting:

The  Exchanges  do not have  separate  reportable  segments  of their  own.  The
Exchanges  are part of Verizon  North,  which is part of the  Domestic  Wireline
segment of Verizon's National Operations. The Domestic Wireline segment provides
wireline  communication services within franchised areas. These services include
local  telephone  service and toll calls, as well as access services that enable
long-distance  carriers to complete  calls to or from  locations  outside of the
Exchanges'  operating  areas.  This segment also provides complex voice and data
services to businesses,  billing and collection and operator assistance services
to other  telecommunications  companies  and receives  revenues in the form of a
publication right from an affiliate that publishes telephone  directories in its
operating areas.

11.  Bell Atlantic - GTE Merger:

On June 30, 2000,  Bell  Atlantic  and GTE  completed a merger of equals under a
definitive  merger  agreement dated as of July 27, 1998.  Under the terms of the
agreement,  GTE became a wholly  owned  subsidiary  of Bell  Atlantic.  With the
closing of the merger,  the  combined  company  began doing  business as Verizon
Communications.


Verizon Wisconsin II Operations

Special Purpose Financial Statements
As of June 30, 2000, and December 31, 1999

Together with Report of Independent Public Accountants


                    Report of Independent Public Accountants


To the Board of Directors and Shareholders of
CenturyTel Incorporated
And Verizon North Inc.:

We have  audited  the  accompanying  special  purpose  financial  statements  of
selected  assets,  liabilities  and  parent  funding  of  Verizon  Wisconsin  II
Operations (the  "Company") as of December 31, 1999, and the related  statements
of  income,  parent  funding  and cash  flows  for the year  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit  provides a  reasonable  basis for our
opinion.

In our  opinion,  the special  purpose  financial  statements  referred to above
present fairly, in all material respects,  the selected assets,  liabilities and
parent  funding of the Company as of December 31,  1999,  and the results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Dallas, Texas,
September 13, 2000

The accompanying  notes are an integral part of these special purpose  financial
statements.


Verizon Wisconsin II Operations
(As Described in Note 1)


         Statements of Selected Assets, Liabilities and Parent Funding
                   As of June 30, 2000, and December 31, 1999
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000            1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)
<S>                                                 <C>             <C>
           SELECTED ASSETS
           ---------------

CURRENT ASSETS:
    Receivables, less allowances of
     $362 and $381                                  $   5,154       $   5,754
    Inventories and supplies                                8               8
    Prepaid benefits and other                            533             672
--------------------------------------------------------------------------------
         Total current assets                           5,695           6,434
--------------------------------------------------------------------------------

PROPERTY, PLANT AND EQUIPMENT, net                     58,149          57,556

EMPLOYEE BENEFIT PLANS                                  8,424           7,005

OTHER ASSETS                                              317             190
--------------------------------------------------------------------------------
         Total assets                               $  72,585       $  71,185
================================================================================

  SELECTED LIABILITIES AND PARENT FUNDING
  ---------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                $   2,192       $     314
    Advance billings and customer deposits              1,096           1,060
    Accrued payroll costs                                 617             681
    Other                                                 839             574
--------------------------------------------------------------------------------
         Total current liabilities                      4,744           2,629
--------------------------------------------------------------------------------

EMPLOYEE BENEFIT PLANS                                  1,977           1,952

OTHER LIABILITIES                                         202              38
--------------------------------------------------------------------------------
         Total liabilities                              6,923           4,619
--------------------------------------------------------------------------------

PARENT FUNDING                                         65,662          66,566
--------------------------------------------------------------------------------

         Total liabilities and parent funding       $  72,585       $  71,185
================================================================================
</TABLE>
The accompanying  notes are an integral part of these special purpose  financial
statements.


Verizon Wisconsin II Operations
(As Described in Note 1)

                              Statements of Income
For the Six Months Ended June 30, 2000, and for the Year Ended December 31, 1999
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000             1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)

<S>                                                 <C>             <C>
REVENUES AND SALES:
    Local services                                  $  10,365       $  20,265
    Network access services                             5,779          15,930
    Toll services                                       1,015           1,638
    Other services and sales                            2,060           4,598
--------------------------------------------------------------------------------
         Total revenues and sales                      19,219          42,431
--------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES:
    Cost of services and sales                          6,785          15,350
    Selling, general and administrative                    13           3,523
    Depreciation and amortization                       4,546           8,976
--------------------------------------------------------------------------------
         Total operating costs and expenses            11,344          27,849
--------------------------------------------------------------------------------

OPERATING INCOME                                        7,875          14,582

INTEREST EXPENSE, net                                   1,035           2,413
--------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                              6,840          12,169

INCOME TAXES                                            2,767           4,922
--------------------------------------------------------------------------------

NET INCOME                                          $   4,073       $   7,247
================================================================================
</TABLE>
The accompanying  notes are an integral part of these special purpose  financial
statements.


Verizon Wisconsin II Operations
(As Described in Note 1)

                            Statements of Cash Flows
For the Six Months Ended June 30, 2000, and for the Year Ended December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       2000             1999
--------------------------------------------------------------------------------
                                                   (Unaudited)       (Audited)
<S>                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                       $   4,073       $   7,247
   Adjustments to reconcile net income
    to net cash provided by operating activities-
      Depreciation                                      4,509           8,936
      Employee pension plans                           (1,394)         (1,936)
      Provision for uncollectible accounts                144             435
      Change in current assets and current
       liabilities-
        Receivables                                       456             141
        Other current assets                              140             (86)
        Other current liabilities                       2,115             130
      Other, net                                           36            (286)
--------------------------------------------------------------------------------
         Net cash provided by operating activities     10,079          14,581
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                (5,102)        (15,235)
--------------------------------------------------------------------------------
         Net cash used in investing activities         (5,102)        (15,235)
--------------------------------------------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES:
   Net transfers from (to) GTE Corporation             (4,977)            654
--------------------------------------------------------------------------------
         Net cash provided by (used in) financing
          activities                                   (4,977)            654
--------------------------------------------------------------------------------

INCREASE IN CASH AND CASH EQUIVALENTS                       -               -

CASH AND CASH EQUIVALENTS:
   Beginning of year                                        -               -
--------------------------------------------------------------------------------
   End of year                                      $       -       $       -
================================================================================
</TABLE>
The  accompanying  notes are an integral part of this special purpose  financial
statement.


Verizon Wisconsin II Operations
(As Described in Note 1)

                          Statement of Parent Funding
                      For the Year Ended December 31, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
<S>                                                         <C>
BALANCE, December 31, 1998                                  $ 58,665
    Net income                                                 7,247
    Net transfers from GTE Corporation                           654
--------------------------------------------------------------------------------
BALANCE, December 31, 1999                                  $ 66,566
================================================================================
</TABLE>
The accompanying  notes are an integral part of these special purpose  financial
statements.


Notes to Special Purpose Financial Statements

Verizon Wisconsin II Operations
(As Described in Note 1)

Notes to Special Purpose Financial Statements

1.   Description of Business:

The  selected  local  telephone  exchanges  included  in these  special  purpose
financial  statements  (the  "Exchanges")  serve  approximately  68,500 switched
access lines in the state of Wisconsin. The Exchanges represent approximately 1%
of the assets of Verizon North Inc. ("Verizon North" or the "Company"), formerly
GTE  North  Incorporated.  Verizon  North is a wholly  owned  subsidiary  of GTE
Corporation  (GTE),  which  is  a  wholly  owned  subsidiary  of  Bell  Atlantic
Corporation ("Bell  Atlantic"),  d/b/a Verizon  Communications  ("Verizon") (see
Note 11).  Verizon  provides a wide variety of  communications  services ranging
from local telephone service for the home and office to highly complex voice and
data services for various industries.

On October 11,  1999,  Verizon  North  entered  into a purchase  agreement  with
CenturyTel  Incorporated  ("CenturyTel") to sell  approximately  68,500 switched
access lines in the state of Wisconsin  to  CenturyTel.  The sale is expected to
close during 2000.

2.   Basis of Presentation:

The  accompanying  special  purpose  financial  statements have been prepared in
accordance with accounting  principles  generally  accepted in the United States
using exchange  specific  information  where available  (e.g.,  most revenue and
property,  plant and equipment  (PP&E) related  accounts) and allocations  where
data is not maintained on an exchange  specific basis within the Company's books
and records (e.g., most operating expenses, assets other than PP&E, liabilities,
and capital  accounts).  Because of the  significant  amount of allocations  and
estimates used to prepare these special purpose financial  statements,  they may
not reflect the  financial  position and results of  operations of the Exchanges
after the acquisition by CenturyTel.

The accompanying special purpose financial statements include only those assets,
liabilities, and related operations of the Exchanges as historically incurred by
the Company and exclude all other assets, liabilities, and related operations of
Verizon  and  its  subsidiaries,   specifically  cash,  accrued  interest,   and
tax-related  balance sheet accounts.  The special purpose  financial  statements
also include  expenses  related to employees who support the Exchanges,  some of
which are expected to remain employees of the Company.

Receivables  related to end-user  billings  were  identified  by exchange  using
billing  system  data.  Customer  Advances and  Deposits  were  allocated to the
Exchanges  based on total  revenue.  Receivables  related to  carrier  and other
miscellaneous  billings were allocated to the Exchanges in proportion to carrier
revenues.

Accounts  payable  were  allocated  based  on  operating  expenses  and  capital
expenditures. Accrued payroll costs were allocated based on employee head count.
Other current  liabilities  and other  liabilities  were allocated based on line
count.

The  Exchanges'  operating  expenses  include both amounts  incurred  within its
operating  territories  that  relate  directly  to its  exchanges  (the  "Direct
Expenses") and amounts  incurred in  centralized  Verizon  service  centers that
support  multiple  Verizon  companies  (the  "Indirect  Expenses").  The  Direct
Expenses correspond roughly with locally performed functions which will transfer
to the buyer of the Exchanges.  The Indirect Expenses  correspond to substantial
back-office,  support  and  overhead  functions  which will not  transfer to the
buyer,  but that the buyer will need to replace in some form in order to operate
the  Exchanges.  The Indirect  Expenses have been allocated to Verizon North and
further to specific  exchanges  within Verizon North  (including the Exchanges),
based on estimates of usage, or benefits received from such services.  The level
of allocated  Indirect Expenses may not be representative of the buyer's ongoing
expenses for these functions.  Depreciation and amortization  were calculated by
exchange using property, plant, and equipment data.

3.   Summary of Significant Accounting Policies and Other Disclosures:

The  notes  which  follow  contain  limited  disclosure  data  where  it  can be
reasonably estimated for the Exchanges.

Revenue Recognition

Revenues  are  recognized  when  earned.  This is  generally  based  on usage of
local-exchange networks or facilities. For other products and services, revenues
are generally recognized when services are rendered or products are delivered to
customers.

Revenues  arising  from the  provision  of local  exchange  services  billed  to
end-users  and  revenues  from  the  provision  of  access  services  billed  to
interexchange  carriers are  specifically  identifiable for the study areas that
encompass  Verizon  North and the  Exchanges.  Revenues  arising from  statewide
inter-carrier   agreements   and  settlement   processes,   and  from  sales  of
non-regulated products and services (collectively,  the "Indirect Revenues") are
identifiable  to a specific  study  area,  but not to  specific  exchanges.  The
Indirect  Revenues  have been  allocated to the  Exchanges  based on a number of
ratios.  Revenues from non-regulated  products,  including discounts and related
installation and maintenance  agreements were allocated based on business lines.
The revenues from public  telephones  were  allocated  based on number of public
telephones.  All  other  Indirect  revenues  were  allocated  based on the ratio
between Indirect Revenues and Direct Revenues for the Exchanges.

Depreciation and Amortization

Assets are depreciated  using the remaining life  methodology and  straight-line
depreciation  rates.  This method  depreciates  the remaining net  investment in
telephone  plant,  less anticipated net salvage value,  over remaining  economic
asset  lives.   This  method  requires  the  periodic  review  and  revision  of
depreciation rates.

The economic asset lives used are as follows:

           Average lives (in years)
           ------------------------

           Fiber-optic cable                        20
           Copper wire                              15
           Switching equipment                      10
           Circuit equipment                         8

When  depreciable  telephone  plant is retired in the normal course of business,
the amount of such plant is deducted from the respective  plant and  accumulated
depreciation  accounts.  Gains or losses on dispositions  are amortized with the
remaining net investment in telephone plant.

Employee Benefit Plans

Pension and postretirement health care and life insurance benefits earned during
the year as well as  interest  on  projected  benefit  obligations  are  accrued
currently.  Prior  service  costs and  credits  resulting  from  changes in plan
benefits  are  amortized  over  the  average  remaining  service  period  of the
employees expected to receive benefits.  Curtailment gains and losses associated
with employee  separations are recognized when they occur.  Settlement gains and
losses  associated  with employee  separations  are recognized  when the pension
obligations are settled and the gain or loss is determinable.

Valuation of Assets

The  impairment  of tangible or  intangible  assets is assessed  when changes in
circumstances  indicate that their carrying value may not be recoverable.  Under
the  Financial  Accounting  Standards  Board's  (FASB)  Statement  of  Financial
Accounting   Standards  (SFAS)  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," a determination
of  impairment,  if any, is made based on estimated  future cash flows,  salvage
value,  or expected net sales  proceeds  depending on the  circumstances.  Asset
impairment  losses,  and any subsequent  adjustments to such losses as initially
recorded,  as well as net gains or losses on sales of assets are  recorded  as a
component of operating income.

Income Taxes

The Company's results are included in Verizon's  consolidated federal income tax
return.  The Company  participates  in a tax-sharing  agreement with Verizon and
remits tax payments to Verizon based on its tax liability on a separate  company
basis.

The Exchanges are not a taxable  entity.  The Exchanges'  operating  results are
included  within the Company for income tax  purposes.  Although  the  Exchanges
contribute significant plant-related temporary differences (including investment
tax  credits) to the  Company's  deferred  tax  balances,  the Company  does not
allocate income tax expense, income tax payables or deferred income taxes to the
Exchanges.  As the buyer will most  likely  have a different  tax  scenario,  no
deferred tax assets or liabilities  are presented  within these special  purpose
financial   statements.   The  provision  for  income  taxes   included  in  the
accompanying  special purpose financial statements for 1999 was calculated based
on the income of the Exchanges and the Company's effective tax rate adjusted for
permanent differences not attributable to the Exchanges.

Inventories and Supplies

Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.

Software

Software  costs are  recognized  in  accordance  with the American  Institute of
Certified  Public   Accountants   (AICPA)  Statement  of  Position  (SOP)  98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use," which became  effective in January 1999. The Company  capitalizes
costs associated with externally acquired software (including right-to-use fees)
for internal use. Capitalized software is generally amortized on a straight-line
basis over its useful life, not to exceed five years for non-network software or
three years for network software.

Comprehensive Income

The Company had no comprehensive  income  components for the year ended December
31, 1999; therefore, comprehensive income is the same as net income for 1999.

Recent Accounting Pronouncements

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities.  The statement requires
entities that use derivative  instruments  to measure these  instruments at fair
value and record them as assets or  liabilities  on the balance  sheet.  It also
requires  entities to reflect the gains or losses associated with changes in the
fair value of these  derivatives,  either in earnings or as a separate component
of comprehensive  income,  depending on the nature of the underlying contract or
transaction.  The Company is  currently  assessing  the impact of adopting  SFAS
No.133, as amended, which is effective January 1, 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements." SAB No. 101 provides  additional guidance on revenue recognition as
well as criteria  for when  revenue is  generally  realized  and earned and also
requires  the  deferral of  incremental  direct  selling  costs.  This  bulletin
currently  must be adopted by December 31, 2000, and will require the Company to
determine the effect of the accounting change as of January 1, 2000. The Company
is currently assessing the impact of SAB No. 101.

4.   Employee Benefit Plans:

Pursuant to SFAS No.  132,  "Employers'  Disclosures  about  Pensions  and Other
Postretirement  Benefits," certain disclosures  including  components of pension
credits,  postretirement  benefit  costs and the  funded  status  of the  plans,
including the actuarial present value of accumulated plan benefits,  accumulated
or projected benefit  obligation and the fair value of plan assets have not been
presented  because the structure of the Verizon plans does not permit the plans'
data to be readily disaggregated.

Pension Plans

The Company  participates  in  noncontributory  defined  benefit  pension  plans
sponsored by Verizon covering  substantially  all employees.  The benefits to be
paid under these  plans are  generally  based on years of  credited  service and
average final earnings. Verizon's funding policy, subject to the minimum funding
requirements of employee  benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to accumulate  funds sufficient to meet the
plans' benefit obligation to employees upon their retirement.  The assets of the
plans  consist  primarily  of  corporate  equities,  government  securities  and
corporate debt securities.

The  significant  weighted-average  assumptions  used by Verizon for the pension
measurements were as follows at December 31:

                                                               1999
                                                              ------
     Discount rate                                             8.00%
     Rate of compensation increase                             5.50%
     Expected return on plan assets                            9.00%

The  Company's  net periodic  benefit  credit was $280.6  million for 1999.  The
Verizon  plans  are  currently  funded  at  levels  significantly  in  excess of
projected benefit  obligations.  Included in the net periodic benefit credit for
1999 was a net pension gain of $131.7  million,  comprised of one-time costs for
special termination benefits provided under voluntary and involuntary separation
programs,  curtailment losses and settlement gains. These curtailment losses and
settlement  gains  are a  result  of the  separation  programs,  as  well as the
required  settlement gain or loss  recognition due to the fact that in 1999, the
Company's  lump sum pension  distributions  surpassed the  settlement  threshold
equal  to the sum of the  service  cost  and  interest  cost  components  of net
periodic pension cost.  Allocated on the basis of headcount,  the Exchanges' net
periodic  benefit  credit,   including   non-recurring   settlement  gains,  was
approximately  $1.3  million for 1999 and $1.3 million  (unaudited)  for the six
months ended June 30, 2000.

Postretirement Benefits Other than Pensions

Substantially  all of the Company's  employees are covered under  postretirement
healthcare  and  life  insurance   benefit  plans  sponsored  by  Verizon.   The
determination of benefit cost for postretirement health plans is generally based
on comprehensive  hospital,  medical and surgical  benefit plan provisions.  The
Company  intends  to  fund  amounts  for   postretirement   benefits  as  deemed
appropriate.

The weighted-average  assumptions used by Verizon in the actuarial  computations
for postretirement benefits were as follows at December 31:

                                                               1999
                                                              ------
     Discount rate                                             8.00%
     Expected return on plan assets                            8.00%


The Company's  postretirement benefit cost was $67.5 million for 1999. Allocated
on the basis of headcount, the Exchanges'  postretirement cost was approximately
$.3 million for 1999.

Savings Plans

Verizon  North  sponsors  employee  savings  plans under  section  401(k) of the
Internal Revenue Code. The plans cover  substantially  all full-time  employees.
Under the plans, the Company provides  matching  contributions in Verizon common
stock  based on  qualified  employee  contributions  up to a certain  predefined
limit.  Matching  contributions  attributable  to the Exchanges'  employees were
included  in  these  special  purpose  financial  statements  and may or may not
correspond to the matching benefits provided to the employees of the buyer.

5.   Property, Plant and Equipment:

The Company  maintains  continuing  property  records  which  identify  specific
property, plant and equipment (PP&E) balances,  depreciation reserves and annual
capital expenditure  amounts for the Exchanges.  The balance in the accompanying
statements is based on these exchange  specific amounts and does not include any
allocations  of common  assets  utilized in providing the  centralized  services
described in Note 2.

PP&E is summarized as follows at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
                                                             1999
--------------------------------------------------------------------------------
           <S>                                             <C>
           Land                                            $     191
           Buildings                                           5,775
           Plant and equipment                               151,441
           Other                                               4,690
--------------------------------------------------------------------------------
                      Total                                  162,097
           Less- Accumulated depreciation                   (104,541)
--------------------------------------------------------------------------------
     Total property, plant, and equipment, net             $  57,556
================================================================================
</TABLE>

6.   Parent Funding and Interest Expense:

For purposes of these statements,  all funding requirements have been summarized
as "Parent  Funding,"  without regard to whether the funding  represents debt or
equity.  No  specific  debt  instruments  can be  directly  associated  with the
Exchanges,  nor are  separate  equity  accounts  maintained.  As such,  interest
expense of the Company was  allocated  to the  Exchanges  based on the  relative
percentage of the Exchanges gross PP&E balance to the gross PP&E balance for the
Company.

7.   Transactions with Affiliates:

Historically,  extensive  transactions  have occurred  between the Exchanges and
affiliate   entities.   These   transactions  have  included   construction  and
maintenance services,  data processing and management services and financing and
directories agreements.

Verizon Supply (100% owned by Verizon)  provides  construction  and  maintenance
equipment,  supplies  and  electronic  repair  services to the  Exchanges.  Such
purchases  and services  are  recorded at the lower of cost,  including a return
realized by Verizon Supply, or fair market value.

The Exchanges are billed for data processing services and equipment rentals, and
receive management,  consulting, research and development and pension management
services  from  other  affiliated  companies.  The  Exchanges'  special  purpose
financial  statements also include allocated expenses resulting from the sharing
of  certain  executive,   administrative,   financial,  accounting,   marketing,
personnel,   engineering   and  other  support   services  being   performed  at
consolidated  work  centers  within  Verizon.  The  amounts  charged  for  these
affiliated transactions are based on proportional cost allocation methodologies.

GTE Funding  Incorporated  (an  affiliate  of the Company)  provides  short-term
financing and investment vehicles and cash management  services.  The Company is
contractually  obligated  to repay all  amounts  borrowed  on its  behalf by GTE
Funding Incorporated.

The Company has an agreement with Verizon Directories Corporation  (Directories)
(100% owned by  Verizon),  whereby the Company  provides its  subscriber  lists,
billing and  collection  and other services to  Directories.  In addition,  when
Directories  sells Yellow Page  directory  advertising  to customers  within the
Company's  franchise area, the Company records a portion of the sale as revenue.
Also, the Company is billed for certain printing and other costs associated with
telephone directories,  including the cost of customer contact information pages
which are included in the Company's White Pages directories.

8.   Regulatory and Competitive Matters:

The  Company's   intrastate  business  is  regulated  by  the  state  regulatory
commissions in Wisconsin. Interstate operations are subject to regulation by the
Federal Communications Commission.

During 1999,  regulatory and legislative  activity at both the state and federal
levels  continued to be a direct  result of the  Telecommunications  Act of 1996
(the "Telecommunications Act"). Along with promoting competition in all segments
of the  telecommunications  industry, the Telecommunications Act was intended to
preserve and advance universal service.

Significant Customer

The largest volume of the Company's services are provided to AT&T Corp. ("AT&T")
and include amounts for access and billing and collection.  The Company revenues
from  services  provided  to AT&T  were 9% of  total  revenues  for  1999.  This
concentration may or may not correspond with concentrations of the Exchanges.

9.   Commitments and Contingencies:

The Exchanges have  noncancelable  operating leases covering certain  buildings,
office space and equipment.  The Exchanges'  rental expense was $68,460 in 1999.
Minimum rental  commitments under these  noncancelable  leases are approximately
$11,969 $4,141, $1,405, and $200 for the years 2000-2003, respectively.

The Company is subject to a number of proceedings  arising out of the conduct of
its  business,  including  those  relating  to  regulatory  actions,  commercial
transactions, and environmental,  safety and health matters. Management believes
that the ultimate  resolution of these matters will not have a material  adverse
effect on the results of operations or the financial  position of the Company or
the Exchanges.

10.  Segment Reporting:

The  Exchanges  do not have  separate  reportable  segments  of their  own.  The
Exchanges  are part of Verizon  North,  which is part of the  Domestic  Wireline
segment of Verizon's National Operations. The Domestic Wireline segment provides
wireline  communication services within franchised areas. These services include
local  telephone  service and toll calls, as well as access services that enable
long-distance  carriers to complete  calls to or from  locations  outside of the
Exchanges'  operating  areas.  This segment also provides complex voice and data
services to businesses,  billing and collection and operator assistance services
to other  telecommunications  companies  and receives  revenues in the form of a
publication right from an affiliate that publishes telephone  directories in its
operating areas.

11.  Bell Atlantic - GTE Merger:

On June 30, 2000,  Bell  Atlantic  and GTE  completed a merger of equals under a
definitive  merger  agreement dated as of July 27, 1998.  Under the terms of the
agreement,  GTE became a wholly  owned  subsidiary  of Bell  Atlantic.  With the
closing of the merger,  the  combined  company  began doing  business as Verizon
Communications.

                                * * * * * * * * * *

                                CenturyTel, Inc.
        Unaudited Pro Forma Consolidated Condensed Financial Information

                                  Introduction


Background.  On July 31, 2000 and September 29, 2000,  affiliates of CenturyTel,
Inc. (the "Company") acquired over 490,000  telephone access lines and related
assets from Verizon  Communications,  Inc.  (successor  to GTE  Corporation)
("Verizon") in four separate transactions for approximately $1.5 billion in
cash.

Under these transactions:

      o   On July 31, 2000,  the Company  purchased  approximately  231,000
          telephone  access lines and related local exchange assets comprising
          106 exchanges throughout Arkansas for approximately $843 million in
          cash.

      o   On July 31, 2000,  Spectra  Communications  Group,  LLC ("Spectra")
          purchased  approximately  127,000  telephone access lines and related
          local exchange assets comprising 107 exchanges throughout Missouri for
          approximately $297 million cash. The Company owns 57.1% of Spectra,
          which was organized to acquire and operate  these  Missouri
          properties. At closing, the Company made a preferred equity investment
          in Spectra of approximately $55 million and financed substantially all
          of the remainder of the purchase price.

      o   On September 29, 2000, the Company purchased  approximately  70,500
          telephone access lines and related local exchange assets comprising 42
          exchanges throughout Wisconsin for approximately $194 million in cash.

      o   On September 29, 2000,  Telephone USA of Wisconsin,  LLC ("TelUSA")
          purchased approximately 62,900 telephone access lines and related
          local exchange assets comprising 35 exchanges throughout Wisconsin for
          approximately  $170 million in cash.  The Company  owns 89% of
          Telephone  USA,  which was  organized  to acquire and own these
          Wisconsin properties.  At closing,  the Company  made an equity
          investment in  Telephone  USA of  approximately  $37.8  million and
          financed substantially all of the remainder of the purchase price.

To finance these  acquisitions on a short-term  basis, the Company borrowed
$1.157 billion on a floating-rate  basis under its new $1.5 billion credit
facility with Bank of America,  N.A. and Citibank,  N.A., as lenders,  and Banc
of America  Securities LLC and Salomon Smith Barney Inc., as arrangers,  and
borrowed $300 million on a  floating-rate  basis under its existing  credit
facility with Bank of America, N.A.

The orders of the Arkansas and Wisconsin public service commissions approving
the purchases of the Arkansas and Wisconsin assets remain subject to appeal, but
those orders (and each other regulatory order necessary to authorize the Verizon
acquisitions) are in full force and effect.  The Company expects that the order
of the Wisconsin Public Service Commission, when issued in writing, will contain
several requirements relating to rates, service standards and other matters.
In connection with authorizing the Wisconsin acquisitions, the Wisconsin Public
Service Commission indicated its intent to review the possibility of regulating
all of the Company's Wisconsin local exchange carriers on an unitary basis,
which would reduce the Company's revenues in Wisconsin (unless and to the extent
these reductions could be mitigated through rate adjustments or other revenue
enhancements approved by the Wisconsin Public Service Commission).

In addition to the continued provision of traditional local exchange telephone
services, the Company intends to provide long distance, Internet access
(including high-speed Digital Subscriber Line Internet access service) and other
advanced technology services in certain of the acquired service areas. The
Company currently offers long distance and Internet access service in certain
Arkansas and Wisconsin communities adjacent to the acquired service areas.

Pro forma information. The following unaudited pro forma consolidated condensed
balance sheet as of June 30, 2000 and the unaudited pro forma consolidated
condensed statements of income for the year ended December 31, 1999 and the six
months ended June 30, 2000 are based on the historical results of operations and
financial condition of CenturyTel, Inc., and its subsidiaries (the "Company")
and the Verizon properties acquired and reflects the effects of the
transactions described above. Pro forma adjustments, and the assumptions
on which they are based, are described in the accompanying notes to the
unaudited pro forma consolidated condensed financial information.

The pro forma financial information has been prepared assuming that the
aggregate purchase price of $1.504 billion will be financed with $1.0 billion of
proceeds from the issuance of senior long-term debt securities, $300 million of
bank indebtedness due in 2002, $157 million of proceeds from a commercial
paper issuance and $47 million of available cash.

The pro forma financial information related to the Verizon acquisitions has been
prepared using the purchase method of accounting and is based on the assumptions
that the purchase of all of the Verizon properties took place as of June 30,
2000 for purposes of the pro forma balance sheet and as of January 1, 1999 for
purposes of the pro forma statements of income. In accordance with the purchase
method of accounting,  the actual consolidated financial statements of the
Company will reflect the Verizon acquisitions only from and after their
respective dates of acquisition.

This unaudited pro forma consolidated condensed financial data does not give
effect to any potential revenue enhancements or cost synergies or other
operating efficiencies that could result from the asset acquisitions including,
but not limited to (i) charging higher access rates than those authorized for
Verizon with respect to the acquired Arkansas properties, (ii) offering long
distance, Internet access and other advanced technology services to an increased
number of customers in the acquired markets and (iii) cost savings associated
with operating and administering the acquired properties with the Company's
existing personnel and operating assets.

The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have  occurred if such  transactions  had been  consummated  on the dates and in
accordance  with  the  assumptions   described  above,  nor  is  it  necessarily
indicative of future operating results or financial position.  The historical
Verizon financial information reflects the operating and management structure
of Verizon and is not necessarily indicative of the results of operations that
may be obtained with respect to the acquired properties under the Company's
operating and management structure.

You are urged to read the financial information below along with (i) the
Company's publicly available historical consolidated financial statements and
accompanying notes and (ii) the special purpose financial statements of the
Verizon acquired operations, which are included elsewhere in this Current Report
on Form 8-K.


                                CENTURYTEL, INC.
                 Pro Forma Consolidated Condensed Balance Sheet
                                 June 30, 2000
                                  (Unaudited)
<TABLE>
<CAPTION>
                                               As reported
----------------------------------------------------------------  Pro forma   Pro forma
                                          CenturyTel   Verizon   adjustments consolidated
------------------------------------------------------------------------------------------
                                                       (Dollars in thousands)
                                                             (See Notes A and B)
<S>                                        <C>                                  <C>
ASSETS

CURRENT ASSETS
   Cash and cash equivalents             $    49,685               (27,000)        22,685
   Accounts receivable                       207,733    46,090                    253,823
   Materials and supplies,
    at average cost                           24,699       710                     25,409
   Other                                      10,484     1,577                     12,061
-----------------------------------------------------------------------------------------
     Total current assets                    292,601    48,377     (27,000)       313,978
-----------------------------------------------------------------------------------------

NET PROPERTY, PLANT AND EQUIPMENT          2,235,891   446,914     162,773      2,845,578
-----------------------------------------------------------------------------------------

INVESTMENTS AND OTHER ASSETS
   Excess cost of net assets acquired      1,621,491               886,250      2,507,741
   Other                                     571,884    44,297     (43,296)       572,885
-----------------------------------------------------------------------------------------
     Total investments and other assets    2,193,375    44,297     842,954      3,080,626
-----------------------------------------------------------------------------------------

TOTAL ASSETS                             $ 4,721,867   539,588     978,727      6,240,182
=========================================================================================

LIABILITIES AND EQUITY

CURRENT LIABILITIES
   Short-term debt and current
    maturities of long-term debt         $    75,022               157,000        232,022
   Accounts payable                          110,186    15,026     (15,026)       110,186
   Accrued expenses and other liabilities    117,269     8,923      (8,923)       117,269
   Advance billing and customer deposits      34,235     7,674                     41,909
-----------------------------------------------------------------------------------------
     Total current liabilities               336,712    31,623     133,051        501,386
-----------------------------------------------------------------------------------------

LONG-TERM DEBT                             1,953,844             1,300,000      3,253,844
-----------------------------------------------------------------------------------------

DEFERRED CREDITS AND OTHER LIABILITIES       483,760    15,032      38,609        537,401
-----------------------------------------------------------------------------------------

PARENT FUNDING                                         492,933    (492,933)
-----------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY
   Common stock                              140,540                              140,540
   Paid in capital                           502,971                              502,971
   Unrealized holding gain on investments,
    net of taxes                              59,359                               59,359
   Retained earnings                       1,240,706                            1,240,706
   Unearned ESOP shares                       (4,000)                              (4,000)
   Preferred stock - non-redeemable            7,975                                7,975
-----------------------------------------------------------------------------------------
     Total stockholders' equity            1,947,551                            1,947,551
-----------------------------------------------------------------------------------------

TOTAL LIABILITIES AND EQUITY             $ 4,721,867   539,588     978,727      6,240,182
=========================================================================================
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
information.


                                CenturyTel, Inc.
              Pro Forma Consolidated Condensed Statement of Income
                     For the Six Months Ended June 30, 2000
                                   (Unaudited)
<TABLE>
<CAPTION>
                                               As reported
----------------------------------------------------------------  Pro forma   Pro forma
                                          CenturyTel   Verizon   adjustments consolidated
------------------------------------------------------------------------------------------
                                                       (Dollars in thousands)
                                                             (See Notes A and C)
<S>                                          <C>       <C>         <C>          <C>
OPERATING REVENUES
   Telephone                             $   553,014   167,693                    720,707
   Wireless                                  211,546                              211,546
   Other                                      71,552                               71,552
-----------------------------------------------------------------------------------------
     Total operating revenues                836,112   167,693                  1,003,805
-----------------------------------------------------------------------------------------

OPERATING EXPENSES
   Cost of sales and operating expenses      429,218    76,638                    505,856
   Depreciation and amortization             170,580    40,235      19,848        230,663
-----------------------------------------------------------------------------------------
     Total operating expenses                599,798   116,873      19,848        736,519
-----------------------------------------------------------------------------------------

OPERATING INCOME                             236,314    50,820     (19,848)       267,286
-----------------------------------------------------------------------------------------

OTHER INCOME AND EXPENSE
   Interest expense                          (71,309)   (7,788)    (52,313)      (131,410)
   Income from unconsolidated cellular
    entities                                   8,016                                8,016
   Minority interest                          (5,163)                  637         (4,526)
   Gain on sale of assets                      9,910                                9,910
   Other income and expense                    6,613                                6,613
-----------------------------------------------------------------------------------------
     Total other income (expense)            (51,933)   (7,788)    (51,676)      (111,397)
-----------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAX EXPENSE             184,381    43,032     (71,524)       155,889

Income tax expense                            77,252    16,835     (28,610)        65,477
-----------------------------------------------------------------------------------------

NET INCOME                               $   107,129    26,197     (42,914)        90,412
=========================================================================================

BASIC EARNINGS PER SHARE                 $      0.76                                 0.64
=========================================================================================

DILUTED EARNINGS PER SHARE               $      0.76                                 0.64
=========================================================================================

AVERAGE BASIC SHARES OUTSTANDING             139,874                              139,874
=========================================================================================

AVERAGE DILUTED SHARES OUTSTANDING           141,729                              141,729
=========================================================================================
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed
financial information.


                                CENTURYTEL, INC.
              Pro Forma Consolidated Condensed Statement of Income
                      For the year ended December 31, 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                               As reported
----------------------------------------------------------------  Pro forma   Pro forma
                                          CenturyTel   Verizon   adjustments consolidated
------------------------------------------------------------------------------------------
                                                       (Dollars in thousands)
                                                             (See Notes A and D)
<S>                                      <C>          <C>          <C>          <C>
OPERATING REVENUES
   Telephone                             $ 1,126,112   339,323                  1,465,435
   Wireless                                  422,269                              422,269
   Other                                     128,288                              128,288
-----------------------------------------------------------------------------------------
     Total operating revenues              1,676,669   339,323                  2,015,992
-----------------------------------------------------------------------------------------

OPERATING EXPENSES
   Cost of sales and operating expenses      819,784   173,604                    993,388
   Depreciation and amortization             348,816    77,334      42,558        468,708
-----------------------------------------------------------------------------------------
     Total operating expenses              1,168,600   250,938      42,558      1,462,096
-----------------------------------------------------------------------------------------

OPERATING INCOME                             508,069    88,385     (42,558)       553,896
-----------------------------------------------------------------------------------------

OTHER INCOME AND EXPENSE
   Interest expense                         (150,557)  (17,563)   (102,640)      (270,760)
   Income from unconsolidated
    cellular entities                         27,675                               27,675
   Minority interest                         (27,913)                4,853        (23,060)
   Gain on sale of assets                     62,808                               62,808
   Other income and expense                    9,190                                9,190
-----------------------------------------------------------------------------------------
     Total other income (expense)            (78,797)  (17,563)    (97,787)      (194,147)
-----------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAX EXPENSE             429,272    70,822    (140,345)       359,749

Income tax expense                           189,503    27,725     (56,138)       161,090
-----------------------------------------------------------------------------------------

NET INCOME                               $   239,769    43,097     (84,207)       198,659
=========================================================================================

BASIC EARNINGS PER SHARE                 $      1.72                                 1.43
=========================================================================================

DILUTED EARNINGS PER SHARE               $      1.70                                 1.41
=========================================================================================

AVERAGE BASIC SHARES OUTSTANDING             138,848                              138,848
=========================================================================================

AVERAGE DILUTED SHARES OUTSTANDING           141,432                              141,432
=========================================================================================
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
information.


     Notes to Unaudited Pro Forma Consolidated Condensed Financial Information

(A)    Purchase of Verizon assets.

Costs of  acquisition.  The total cash  purchase  price of the  Verizon
assets has been assumed to be approximately $1.504 billion.

Operations.  As explained further above, the pro forma  adjustments  do
not  consider the effect of possible revenue enhancements or cost synergies that
may occur in connection with combining the operations of the acquired
properties with the Company's operations.

Other transactions.  The pro forma adjustments do not reflect the effects of
the Company's acquisitions and dispositions of certain other properties during
1999 and 2000, the aggregate effect of which is not material for pro forma
purposes.

(B)    June 30, 2000 Balance Sheet Pro Forma Adjustments.

The pro forma adjustments applicable to the acquisition of the Verizon
properties with respect to the unaudited pro forma consolidated condensed
balance sheet as of June 30, 2000, as set forth below, reflect preliminary
allocations of the aggregate purchase price to the acquired properties. (These
adjustments are in addition to those summarized below to reflect the effect of
FAS 71, which is defined below).  The preliminary estimates of the fair value of
the noncurrent assets and liablities are subject to change upon completion of
our valuation analysis, which could result in some of Verizon's intangible
assets being amortized over a shorter life than the 40-year goodwill
amortization period assumed hereunder.  The pro forma financial information has
been prepared assuming that the aggregate purchase price of $1.504 billion will
be financed with $1.0 billion of proceeds from the issuance of senior long-term
debt securities, $300 million of bank indebtedness due in 2002, $157 million
of proceeds from a commercial paper issuance and $47 million of available cash.
For pro forma purposes, the weighted average interest rate of the Company's
financings is assumed to be 8.25%.

<TABLE>
<CAPTION>
                                                                 Short-term
                                                                  debt and
                                 Net      Excess                  current                 Accrued                Deferred
                              property,   cost of    Investments  maturities            expenses and    Long-    credits
                              plant and  net assets   and other   of long-    Accounts     other        term    and other    Parent
   Adjustment       Cash      equipment   acquired     assets     term debt    payable   liabilities    debt   liabilities   funding
------------------------------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in thousands)

<S>             <C>            <C>       <C>           <C>         <C>        <C>          <C>       <C>          <C>      <C>
(1) (a)         $ 1,457,000                                        157,000                           1,300,000
    (b)          (1,504,000)             1,504,000

(2)                                       (492,933)                                                                        (492,933)

(3)                                         43,296     (43,296)

(4)                            162,773    (162,773)

(5)                                        (23,949)                           (15,026)     (8,923)

(6)                  20,000                 18,609                                                                38,609
------------------------------------------------------------------------------------------------------------------------------------
                $   (27,000)   162,773     886,250     (43,296)    157,000    (15,026)     (8,923)   1,300,000    38,609   (492,933)
====================================================================================================================================
</TABLE>

Adjustment:

(1)  Reflects (a) borrowing $1.457 billion and (b) delivery of $1.504 billion to
     purchase assets of Verizon.

(2)  Reflects the elimination of Verizon's parent debt and equity funding and
     excess cost of net assets acquired.

(3)  Reflects the elimination of excess pension assets, as such amounts are
     retained by Verizon.  The Company has not reflected in the Pro Forma
     Consolidated Condensed Statements of Income any adjustments reflecting any
     income generated by these excess pension assets.

(4)  Reflects the increase in net property, plant and equipment and the related
     decrease in excess cost of net assets acquired resulting from conforming
     the net book value of the acquired assets to the amounts that would be
     required to be recorded if such assets had been accounted for under
     Statement of Financial Accounting Standards No. 71, "Accounting for the
     Effects of Certain Types of Regulation" ("FAS 71").

(5)  Reflects the elimination of Verizon's accounts payable and accrued expenses
     and other liabilities, as such liabilities are retained by Verizon.

(6)  Reflects the receipt of $20 million from minority investors and the
     establishment of minority interest liability to reflect the share of
     equity of Spectra (42.9%) and TelUSA (11%) attributable to the minority
     investors.


(C)    June 30, 2000 Income Statement Pro Forma Adjustments.

Set forth below are the pro forma  adjustments  applicable to the acquisition of
the  Verizon  assets  with  respect  to the  unaudited  pro  forma  consolidated
condensed statement of income for the six-month period ended June 30, 2000:


<TABLE>
<CAPTION>

                                                   Depreciation
                                                       and        Interest   Minority   Income
      Adjustment                                   amortization   expense    interest  tax expense
--------------------------------------------------------------------------------------------------
                                                              (Dollars in thousands)
<S>                                                 <C>            <C>          <C>       <C>
Amortization of excess cost of net
 assets acquired (assuming a 40-year
 amortization period)                               $  10,329

Adjust depreciation expense to reflect
 the application of FAS 71                              9,519

Interest on borrowings of $1.457 billion at
 an assumed rate of 8.25% (1)                                      60,101

Eliminate Verizon interest expense
 on parent funding                                                 (7,788)

Record minority interest to reflect the
 share of the pro forma losses of Spectra (42.9%)
 and TelUSA (11%) attributable to the
 minority investors                                                             (637)

Tax benefit relating to pro forma
 adjustments (assuming a 40% tax rate)                                                   (28,610)
--------------------------------------------------------------------------------------------------
                                                    $  19,848      52,313       (637)    (28,610)
==================================================================================================
</TABLE>

(1) Use of an assumed rate .125% higher or lower than 8.25% would have changed
    net income by approximately $546,000.


(D)    December 31, 1999 Income Statement Pro Forma Adjustments.

Set forth below are the pro forma  adjustments  applicable to the acquisition of
the  Verizon  assets  with  respect  to the  unaudited  pro  forma  consolidated
condensed statement of income for the year ended December 31, 1999:

<TABLE>
<CAPTION>

                                                   Depreciation
                                                       and        Interest   Minority   Income
         Adjustment                                amortization    expense   interest  tax expense
--------------------------------------------------------------------------------------------------
                                                              (Dollars in thousands)
<S>                                                  <C>          <C>         <C>        <C>
Amortization of excess cost of net
 assets acquired (assuming a 40-year
 amortization period)                                $ 20,659

Adjust depreciation expense to reflect the
 application of FAS 71                                 21,899

Interest on borrowings of $1.457 billion at
 an assumed rate of 8.25% (1)                                     120,203

Eliminate Verizon interest expense
 on parent funding                                                (17,563)

Record minority interest to reflect the
 share of the pro forma losses of Spectra (42.9%)
 and TelUSA (11%) attributable to the
 minority investors                                                           (4,853)

Tax benefit relating to pro forma
 adjustments (assuming a 40% tax rate)                                                   (56,138)
--------------------------------------------------------------------------------------------------
                                                     $ 42,558     102,640     (4,853)    (56,138)
==================================================================================================
</TABLE>
(1) Use of an assumed rate .125% higher or lower than 8.25% would have changed
    net income by approximately $1.1 million.


(E)    Reclassifications.

Certain reclassifications have been made to the historical financial information
to conform to the presentation of the condensed pro forma information.

(F)    Verizon Historical Results.

All amounts reflected above under the headings "As Reported - Verizon"
are based on special purpose financial statements of the Verizon acquired
operations. In connection with the preparation of these special purpose
financial statements, Verizon made numerous assumptions and allocations where
specific data was not available pertaining  to the acquired assets.  Because
of the significant amount of allocations and estimates used to prepare these
special purpose financial statements, they may not reflect the financial
position and results of operations of the acquired properties after such
properties are acquired by the Company.  For additional information, see the
special purpose financial statements, and the notes thereto, filed in connection
with this Current Report on Form 8-K.


                      FORWARD-LOOKING STATEMENTS

In addition to historical information, this Current Report on Form 8-K includes
certain forward-looking statements regarding events and financial trends that
may affect the Company's future operating results and financial position.  Such
forward-looking statements are subject to uncertainties that could cause the
Company's actual results to differ materially from such statements.  Such
uncertainties include, but are not limited to: the Company's ability to
effectively manage its growth, including obtaining adequate financing on
attractive terms, integrating newly acquired properties into its operations,
hiring adequate numbers of qualified staff and successfully upgrading our
billing and other information systems; the risks inherent in rapid technological
change; the effects of ongoing changes in the regulation of the communications
industry; the effects of greater than anticipated competition in our markets;
possible changes in the demand for, and pricing of, our products and services;
the Company's ability to successfully introduce new product or service offerings
on a timely and cost-effective basis; and the effects of more general factors
such as changes in general market conditions or in legislation, regulation
or public policy.  These and other uncertanties related to the business are
described in greater detail in Item 1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999.  You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.  The Company undertakes no obligation to update any of its forward-
looking statements for any reason.



                                    SIGNATURE

   Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                        CenturyTel, Inc.

                                   By:  /s/ Neil A. Sweasy
                                       -------------------------
                                       Neil A. Sweasy
                                       Vice President and Controller



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