<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
Commission File Number 1-3090
GTE FLORIDA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0397520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 214-718-5600
Securities registered pursuant to Section 12(b) of the act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
$1.30 CUMULATIVE PREFERRED, SERIES B NEW YORK STOCK EXCHANGE
$1.25 CUMULATIVE PREFERRED NEW YORK STOCK EXCHANGE
8.16% CUMULATIVE PREFERRED NEW YORK STOCK EXCHANGE
FIRST MORTGAGE BONDS - 7 1/2% - SERIES O AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. X
---
THE COMPANY HAD 23,400,000 SHARES OF $25 PAR VALUE COMMON STOCK OUTSTANDING AT
FEBRUARY 29, 1996. THE COMPANY'S COMMON STOCK IS 100% OWNED BY GTE CORPORATION.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Item Page
<S> <C> <C>
Part I
1. Business 1
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
Part II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters 5
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
Part III
10. Directors and Executive Officers of the Registrant 36
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners and Management 47
13. Certain Relationships and Related Transactions 48
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 49
</TABLE>
<PAGE> 3
PART I
Item 1. Business
GTE Florida Incorporated (the Company) (formerly General Telephone Company of
Florida, formerly Peninsular Telephone Company) was incorporated on June 20,
1901, as a corporation for profit pursuant to the general corporation laws of
the state of Florida. The Company is a wholly-owned subsidiary of GTE
Corporation (GTE).
The Company has a wholly-owned subsidiary, GTE Communications Corporation
(GTECC). GTECC markets telecommunications customer premise equipment and other
products and services. In addition, the accounts of Televac, Inc. (Televac), a
wholly-owned subsidiary of GTE Corporation (GTE) and a special-purpose entity
which purchased the Company's customer and other accounts receivable, have
also been consolidated with the Company.
The Company's principal line of business is providing communications services
ranging from local telephone service for the home and office to highly complex
voice and data services for industry. The Company provides local telephone
service within its franchise area and intraLATA (Local Access Transport Area)
toll service between the Company's exchanges within the central-west coast
Florida market area. InterLATA service to other points in and out of Florida is
provided through connection with interexchange (long distance) common carriers.
These common carriers are charged fees (access charges) for interconnection to
the Company's local facilities. Business and residential customers also pay
access charges to connect to the local network to obtain long distance services.
The Company earns other revenues by leasing interexchange plant facilities and
providing such services as billing and collection and operator services to
interexchange carriers. At December 31, 1995, the Company served 2,262,748
access lines in its service territories.
At December 31, 1995, the Company had 7,508 employees.
The Company has written agreements with the International Brotherhood of
Electrical Workers (IBEW) covering substantially all hourly employees. The
current agreement between the Company and the IBEW expires in July 1996 and the
agreement between GTECC and the IBEW expires in May 1998.
REGULATORY AND COMPETITIVE TRENDS
The Company is subject to regulation by the Florida Public Service Commission
(FPSC) as to its intrastate business operations and by the Federal
Communications Commission (FCC) as to its interstate operations.
Advances in technology, together with a number of regulatory, legislative and
judicial actions, continue to accelerate and expand the level of competition and
opportunities available to the Company. Presently, the Company is subject to
competition from numerous sources, including competitive access providers (CAPs)
for network access services and specialized communications companies that have
constructed new systems in certain markets to bypass the local-exchange network.
In addition, competition from alternative local-exchange carriers (ALECs),
interexchange carriers (IXCs), wireless and cable TV companies, as well as more
recent entry by media and computer companies, is expected to increase in the
rapidly changing telecommunications marketplace.
On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect the
future development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law removes many of the statutory and court-ordered barriers
to competition between segments of the industry, enabling local-exchange, long
distance, wireless and cable companies to compete in offering voice, video and
information services.
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The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an agreement whereby WorldCom, Inc. will provide, on
a non-exclusive basis, a full array of telecommunications services in support of
GTE's entry into the interLATA long distance market. In March 1996, GTE, through
a separate subsidiary, began offering long distance to its customers in selected
markets. GTE plans to offer the service, marketed under the name GTE Easy
Savings Plan(sm), in all 28 states where it currently offers local telephone
service by December 1996.
The Telecommunications Act forbids states from imposing any barriers to entry
into local and toll competition. Through 1995, local competition has been
authorized in fifteen states, including Florida. In addition, eight states,
including Florida, have concluded that intraLATA 1+ competition is in the public
interest. These states have authorized plans that would allow customers to
pre-subscribe to a specific carrier to handle their intraLATA toll calls.
Pre-subscribed customers will simply dial "1" before the telephone number in
order to complete intraLATA calls. The Telecommunications Act requires GTE to
negotiate intraLATA dialing parity provisions with its competitors. In
subsequent negotiations, GTE will address implementation of 1+ in those states
which have not previously ordered implementation.
Federal and state regulatory activity directed toward changing the traditional
cost-based, rate-of-return regulatory framework for intrastate and interstate
telephone service has continued. Regulatory authorities have adopted various
forms of alternative regulation, which provide economic incentives to telephone
service providers to improve productivity and provide the foundation for
implementing pricing flexibility necessary to address competitive entry into GTE
markets.
For the provision of interstate access services, the Company operates under the
terms of the FCC's price cap incentive plan. The "price cap" mechanism serves to
limit the rates a carrier may charge, rather than just regulating the rate of
return which may be achieved. Under this approach, the maximum prices that the
local-exchange carrier (LEC) may charge are increased or decreased each year by
a price index based upon inflation less a predetermined productivity target.
LECs have limited pricing flexibility provided they do not exceed the allowed
price cap. The FCC is considering how the price cap plan should be modified in
the future in order to adapt the system to the emergence of competition.
Further information regarding the Company's activities with the various
regulatory agencies and revenue arrangements with other telephone companies is
discussed in Note 11 of the Company's consolidated financial statements included
in Item 8.
The Company continues to support greater competition in telecommunications,
provided that, overall, the actions to eliminate existing legal and regulatory
barriers benefit consumers by allowing an opportunity for all service providers
to participate equally in a competitive marketplace under comparable conditions.
The Company intends to continue to respond aggressively to regulatory and legal
developments that allow for increased competition and opportunities in the
marketplace. The Company expects its financial results to benefit from reduced
costs and the introduction of new products and services that will result in
increased usage of its telephone networks. However, it is likely that such
improvements will be offset, in part, by continued strategic pricing reductions
and the effects of increased competition.
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INITIATIVES
In 1995, the Company continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.
Restructuring and Cost Control
During 1995, the Company continued the implementation of its $194.3 million
re-engineering program. Since the program began in 1994, costs of $92.4 million
have been charged to the restructuring reserve -- $58.4 million related to
customer service processes, $10 million related to administrative processes and
$24 million related to the consolidation of facilities and operations and other
related costs. These costs were primarily associated with the closure and
relocation of various centers, software enhancements and separation benefits
associated with workforce reductions. The continued implementation of this
program positions the Company to accelerate delivery of a full array of voice,
video and data services and to reach its stated objective of being the easiest
company to do business with in the industry.
Video Services
The Telecommunications Act eliminates the telephone company programming ban and
allows GTE the flexibility to choose whether it will enter the video
distribution business through an open video platform arrangement or via a
standard cable television operation. The legislation also allows GTE to deploy
video networks which are fully integrated with its telephone operations. The FCC
will begin the process of formulating rules with respect to the open video
platform arrangement which will govern provision of such services. In addition,
the FCC has opened two rulemakings to evaluate its cable and telephone
home-wiring rules and other technical standards to reflect the growing
convergence of the telephone and cable industries.
In May 1995, GTE obtained approval from the FCC and began construction of its
video dialtone network in the Clearwater, Florida area. The network is scheduled
to begin delivery of video services to customers in 1996.
World Class Network
During 1995, the Company deployed its ISDN-based World Class Network in Tampa,
Florida, to provide advanced communications for business customers. This program
includes sophisticated high-speed, digital fiber-optic rings, a high-capacity
switching network (known as SONET), and a new centralized operations center that
monitors the entire network. These SONET rings are an integral part of the
high-speed information network that enables the Company to provide advanced
services such as high-speed data transmission and video conferencing.
ENVIRONMENTAL MATTERS
GTE maintains monitoring and compliance programs related to environmental
matters. Currently, the Company has been named as a potentially responsible
party at a number of "Superfund Sites". GTE has reviewed each site in which it
has an involvement to establish an expected remediation cost. Based on this
review, management believes the Company is not subject to administrative or
judicial proceedings which would result in a material adverse effect on the
Company's results of operations or financial position. The Company has
established adequate reserves for estimated remediation and cleanup costs.
The Company's annual expenditures for site cleanups and environmental compliance
have not been and are not expected to be material. Costs incurred include the
Company's share of cleanup expenses for Superfund Sites, outlays required to
keep existing operations in compliance with environmental regulations and an
underground storage tank replacement program.
3
<PAGE> 6
Item 2. Properties
The Company's property consists principally of land, structures and equipment
required to provide various telecommunications services. All of the
aforementioned properties, located in the Florida counties of Hillsborough,
Manatee, Pasco, Pinellas, Polk and Sarasota, are generally in good operating
condition and adequate to satisfy the needs of the business. Substantially all
of the Company's property is subject to the liens of its respective mortgages
securing funded debt. From January 1, 1991 to December 31, 1995, the Company
made capital expenditures of $1.4 billion for new plant and facilities required
to meet telecommunication service needs and to modernize plant and facilities.
These additions were equal to 35% of gross plant of $3.9 billion at December 31,
1995.
In response to recently enacted and pending legislation and the increasingly
competitive environment, the Company discontinued the use of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (FAS 71) in the fourth quarter of 1995.
In general, FAS 71 required the Company to depreciate its telephone plant and
equipment over lives approved by regulators which, in many cases, extended
beyond the assets' economic lives. FAS 71 also required the deferral of certain
costs based upon approvals received from regulators to recover such costs in the
future. As a result of these requirements, the recorded net book value of
certain assets and liabilities, primarily telephone plant and equipment, were in
many cases higher than that which would otherwise have been recorded based on
their economic lives. See Note 2 to the Company's consolidated financial
statements included elsewhere herein for further detail.
Item 3. Legal Proceedings
There are no pending legal proceedings, either for or against the Company, which
would have a material impact on the Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
4
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PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
Market information is omitted since the Company's common stock is wholly-owned
by GTE Corporation (GTE).
SHAREHOLDER SERVICES
The First National Bank of Boston, Transfer Agent and Registrar for GTE and the
Company's common stock and preferred stock, should be contacted with any
questions relating to shareholder accounts. This includes the following:
- - Account information
- - Dividends
- - Market prices
- - Transfer instructions
- - Statements and reports
- - Change of address
Shareholders may call toll-free at 1-800-225-5160 anytime, seven days a week.
Customer Service Representatives are available Monday through Friday between the
hours of 8 a.m. and 5 p.m. Eastern Time. Outside the United States call
1-617-575-2990.
Or write to:
Bank of Boston
c/o Boston EquiServe, L.P.
P.O. Box 9121
Mail Stop 45-02-60
Boston, MA 02205-9121
For overnight delivery services, use the following address:
Bank of Boston
c/o Boston EquiServe, L.P.
Blue Hills Office Park
150 Royall Street
Canton, MA 02021
The Bank of Boston address where shareholders, banks and brokers may deliver
certificates is One Exchange Place, 55 Broadway in New York City.
PARENT COMPANY ANNUAL REPORT
To obtain a copy of the 1995 annual report of our parent company or the annual
Form 10-K filed with the Securities and Exchange Commission, call
1-800-225-5160.
INFORMATION VIA THE INTERNET
Internet World Wide Web users can access information on GTE through the
following universal resource: http://www.gte.com
5
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Item 6. Selected Financial Data
GTE Florida Incorporated and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
Selected Income Statement Items (a) 1995 1994 1993(b) 1992 1991
-----------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Revenues and sales $ 1,401,948 $1,327,133 $ 1,246,531 $1,286,725 $1,244,453
Operating costs and expenses 1,058,263 1,040,478 1,210,721 947,803 955,371
----------- ---------- ----------- ---------- ----------
Operating income 343,685 286,655 35,810 338,922 289,082
Interest - net 63,600 60,233 67,961 74,209 77,645
Income taxes (benefit) 104,612 86,167 (16,924) 98,789 64,162
----------- ---------- ----------- ---------- ----------
Income (loss) before extraordinary charges 175,473 140,255 (15,227) 165,924 147,275
Extraordinary charges (c) (378,641) -- (19,751) -- --
----------- ---------- ----------- ---------- ----------
Net income (loss) $ (203,168) $ 140,255 $ (34,978) $ 165,924 $ 147,275
=========== ========== =========== ========== ==========
Dividends declared on common stock $ 137,357 $ 110,504 $ 70,017 $ 110,788 $ 114,284
Dividends declared on preferred stock 4,258 4,264 4,258 4,257 4,259
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------
Selected Balance Sheet Items 1995 1994 1993 1992 1991
-----------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Property, plant and equipment, net (c) $1,949,598 $2,552,102 $2,564,383 $2,557,031 $2,537,176
Total assets 2,444,771 2,990,255 2,963,152 2,884,912 2,796,729
Long-term debt 785,155 729,754 747,946 782,843 804,165
Shareholders' equity 903,576 1,198,359 1,172,872 1,282,125 1,231,246
- -- -----------------------------------------------------------------
</TABLE>
(a) Per share data is omitted since the Company's common stock is 100% owned by
GTE Corporation.
(b) Operating income in 1993 includes a $194.3 million pre-tax charge for
restructuring costs which reduced net income by $119.7 million.
(c) See Note 2 to the consolidated financial statements included in Item 8.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in Millions)
BUSINESS OPERATIONS
GTE Florida Incorporated (the Company), a wholly-owned subsidiary of GTE
Corporation (GTE), provides local- exchange, network access and toll services in
24 exchanges on the central-west coast of Florida. At December 31, 1995, the
Company served 2,262,748 access lines in its service territories.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ (203.2) $ 140.3 $ (35.0)
</TABLE>
The net loss for 1995 includes an extraordinary after-tax charge of $374.3 for
the discontinuance of Statement of Financial Accounting Standards No. 71
"Accounting for the Effects of Certain Types of Regulation" (FAS 71) in the
fourth quarter of 1995 and an extraordinary after-tax charge of $4.3 related to
the early retirement of debt. Excluding these charges, net income increased 25%
or $35.1 in 1995. This increase is primarily due to higher revenues and sales
resulting from continued customer growth, partially offset by increased
operating costs and expenses associated with video deployment and higher
depreciation costs.
Net income for 1993 includes one-time after-tax charges totaling $142 to
restructure operations and complete enhanced early retirement and voluntary
separation programs and for the early retirement of high-coupon debt. Excluding
these special items, net income increased 31% or $33 in 1994. The 1994 increase
is primarily the result of increased revenues and sales and decreased interest
expense as a result of refinancing high-coupon debt, partially offset by higher
operating costs and expenses.
REVENUES AND SALES
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Local services $ 615.6 $ 578.5 $ 537.5
Network access services 456.1 427.1 406.2
Toll services 80.8 82.0 74.6
Other services and sales 249.4 239.5 228.2
-------------- -------------- --------------
Total revenues and sales $ 1,401.9 $ 1,327.1 $ 1,246.5
</TABLE>
Total revenues and sales increased 6% or $74.8 and 6% or $80.6 in 1995 and 1994,
respectively.
Local service revenues are based on fees charged to customers for providing
local-exchange service within designated franchise areas. Local service revenues
increased 6% or $37.1 and 8% or $41 in 1995 and 1994, respectively. The number
of access lines increased by 4% in 1995, which generated additional revenues of
$15.6. The 1995 increase is also due to a $5.7 increase in revenues from
enhanced customer calling features, a $2.5 growth in private line revenue, a
$2.8 growth in revenues from operator services and a $6.4 growth in new services
revenues, including Integrated Services Digital Network (ISDN), a service that
permits rapid transmission of voice, data, image and text over one phone line.
The 1994 increase is due to customer growth experienced through access
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line gains of 7%, increased Centranet(R) sales, increased revenues from enhanced
custom calling features and an expansion of local calling zones in April 1994
with a related decrease reflected in toll revenues.
Network access service revenues are based on fees charged to interexchange
carriers that use the Company's local- exchange network in providing long
distance services. In addition, business and residential customers pay access
fees to connect to the local network to obtain long distance service. Network
access service revenues increased 7% or $29 and 5% or $20.9 in 1995 and 1994,
respectively. The 1995 increase is primarily due to an 8% increase in minutes of
use, which generated additional revenues of $25, and a $6.3 increase in end user
access charge revenues. The increase is also due to the net effect of the May
and August 1995 interstate rate changes that resulted in additional revenues of
$13.1 associated with the FCC Price Cap, as mentioned in Note 11 of the
consolidated financial statements included in Item 8. These increases are
partially offset by $14.1 of lower interstate access revenues associated with
the affiliate audit price reductions and a $2.5 decrease related to a reduction
in Universal Service Fund support payments received from the National Exchange
Carrier Association (NECA). The 1994 increase is primarily due to a 10% increase
in access minutes of use, partially offset by the reduction of rates to achieve
more competitive pricing. The 1994 increase is also slightly offset by the final
phase out of transitional support payments received from NECA. As of April 1,
1993, the Company no longer receives transitional support funds and has begun
making long-term support payments to NECA as required by the Federal
Communications Commission (FCC).
Toll service revenues are based on fees charged for service beyond a customer's
local calling area but within the local access transport area (LATA). Toll
service revenues decreased 1% or $1.2 in 1995 and increased 10% or $7.4 in 1994,
respectively. The 1995 decrease is primarily due to a $1.3 decline in toll
usage. The 1994 increase is primarily due to increased toll usage. The
expansion of local calling zones, which attributed to the increase in local
service revenues as mentioned above, partially offset the 1994 increase.
Other services and sales revenues increased 4% or $9.9 and 5% or $11.3 in 1995
and 1994, respectively. The 1995 increase is primarily due to a $5.2 increase in
revenues derived from sales of Personal Secretary voice messaging services, a
$3.8 growth in Radio Paging, a $2.9 increase in cellular operator services, a
$1.7 growth in directory revenues, a $1.1 growth in revenues derived from
DataBase 800 services and a $1 increase in billing and collection services
revenue. These increases are partially offset by a $6.1 decrease in equipment
sales. The 1994 increase is primarily due to increased sales of single-line
telephones, Personal Secretary voice messaging services, Radio Paging and
installation and sales of wiring and stand alone premise equipment. Rent revenue
of single-line telephones and Radio Paging also contributed to the 1994
increase. The 1994 increase is also due to higher DataBase 800 services revenue,
partially offset by a decrease in directory advertising revenue due to lower
directory sales.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cost of services and sales $ 540.1 $ 538.3 $ 526.3
Selling, general and administrative 232.6 225.0 228.5
Depreciation and amortization 285.6 277.2 261.6
Restructuring -- -- 194.3
-------------- -------------- --------------
Total operating costs and expenses $ 1,058.3 $ 1,040.5 $ 1,210.7
</TABLE>
Total operating costs and expenses increased 2% or $17.8 in 1995 and decreased
14% or $170.2 in 1994. The 1995 increase in operating costs and expenses is due
to an increase of approximately $6.4 in costs associated with the deployment of
the Company's video dialtone network in the Clearwater, Florida area, an $8.4
increase in
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depreciation costs, primarily related to higher gross plant balances and other
non-recurring adjustments, and $3.3 of higher costs associated with the
collection of interexchange carrier receivables. The increase is also due to a
$3.1 increase in rental costs, a $3.6 increase in advertising expenses, $2.4 of
higher digital switching software fees and a $3.4 increase in the provision for
uncollectibles. These increases are partially offset by $7.9 in nonrecurring
unfavorable settlement activities recorded in the second and third quarters of
1994, a $6.4 decrease in charges related to unbillable calling card calls and a
$5.5 settlement gain recorded in the second quarter of 1995 which resulted from
lump-sum payments from the Company's pension plans.
Excluding the one-time re-engineering charge, total operating costs and expenses
increased 2% or $24.1 in 1994. This increase is primarily due to higher costs
associated with product sales, increased installation and maintenance costs
reflecting a growth in customer base, higher amortization costs associated with
an amortization order increase that was effective January 1994 and higher
depreciation costs on cable/wire facilities. These increases were partially
offset by lower postretirement medical costs and decreased depreciation in
general support assets.
OTHER EXPENSES
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Interest - net $ 63.6 $ 60.2 $ 68.0
Income taxes (benefit) 104.6 86.2 (16.9)
</TABLE>
Interest - net increased 6% or $3.4 in 1995 and decreased 11% or $7.8 in 1994.
The 1995 increase is primarily due to $1.6 of additional interest on commercial
paper related to higher levels of commercial paper balances during 1995. The
increase is also due to interest expense from $200 of long-term debt issued in
October and November, 1995, partially offset by $74 of long-term debt retired in
November 1995. The 1994 decrease is primarily due to lower costs associated with
lower rates on long-term debt. In November 1993, the Company called $390 million
of bonds with rates ranging from 8 1/8% to 10% and refinanced these bonds in
December 1993 with 6.31% and 7.41% Debentures.
Income taxes increased $18.4 and $103.1 in 1995 and 1994, respectively. These
increases are primarily due to the corresponding increases in pre-tax income.
CAPITAL RESOURCES AND LIQUIDITY
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements for construction of
new plant, modernization of facilities and payment of dividends. The Company
generally funds its construction program from operations although external
financing is available. Short-term borrowings can be obtained through commercial
paper borrowings or borrowings from GTE. A $3,490 line of credit is available to
the Company through shared lines of credit with GTE and other affiliates to
support short-term financing needs.
The Company's primary source of funds during 1995 was cash flow from operations
of $385.9 compared to $398.4 for the same period in 1994. The year-to-year
decrease in cash from operations is primarily the result of an increase in
working capital, partially offset by improved results from operations. Cash from
operations is also being utilized to fund the Company's re-engineering plan.
The Company's capital expenditures during 1995 were $283 compared to $263.6
during the same period in 1994. The 1995 expenditures reflect the Company's
continued growth in access lines and modernization of current facilities and
introduction of new products and services, including broadband digital services
and switched digital
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services. In 1996, construction costs are expected to increase, reflecting the
Company's expanding network, the replacement of outdated technologies with
digital switches and fiber optic networks and the deployment of video dialtone
networks.
Cash used in financing activities was $110.4 in 1995 compared to $130.9 in 1994.
Financing included short-term borrowings of $107 in 1995 compared to $58.9 in
1994. In December 1995, the Company called $75.3 of long-term debt prior to
stated maturity with proceeds from short-term borrowings. The cost of calling
this debt is reflected as an after-tax charge of $4.3 in the consolidated
statements of income (as discussed in Note 2 of the consolidated financial
statements included in Item 8). The Company retired an additional $19.9 of
long-term debt in 1995 compared to total retirements of $71.6 in 1994. External
financing in 1995 included long-term borrowings of $197.1. The Company made
dividend payments of $151.3 in 1995 compared to $71.6 in 1994. In May 1995, the
Company received a capital contribution of $50 from GTE to improve the Company's
financial position.
REGULATORY AND COMPETITIVE TRENDS
The Company is subject to regulation by the Florida Public Service Commission
(FPSC) as to its intrastate business operations and by the Federal
Communications Commission (FCC) as to its interstate operations.
Advances in technology, together with a number of regulatory, legislative and
judicial actions, continue to accelerate and expand the level of competition and
opportunities available to the Company. Presently, the Company is subject to
competition from numerous sources, including competitive access providers (CAPs)
for network access services and specialized communications companies that have
constructed new systems in certain markets to bypass the local-exchange network.
In addition, competition from alternative local-exchange carriers (ALECs),
interexchange carriers (IXCs), wireless and cable TV companies, as well as more
recent entry by media and computer companies, is expected to increase in the
rapidly changing telecommunications marketplace.
On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect the
future development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law removes many of the statutory and court-ordered barriers
to competition between segments of the industry, enabling local-exchange, long
distance, wireless and cable companies to compete in offering voice, video and
information services.
The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an agreement whereby WorldCom, Inc. will provide, on
a non-exclusive basis, a full array of telecommunications services in support of
GTE's entry into the interLATA long distance market. In March 1996, GTE, through
a separate subsidiary, began offering long distance to its customers in selected
markets. GTE plans to offer the service, marketed under the name GTE Easy
Savings Plan(sm), in all 28 states where it currently offers local telephone
service by December 1996.
The Telecommunications Act forbids states from imposing any barriers to entry
into local and toll competition. Through 1995, local competition has been
authorized in fifteen states, including Florida. In addition, eight states,
including Florida, have concluded that intraLATA 1+ competition is in the public
interest. These states have
10
<PAGE> 13
authorized plans that would allow customers to pre-subscribe to a specific
carrier to handle their intraLATA toll calls. Pre-subscribed customers will
simply dial "1" before the telephone number in order to complete intraLATA
calls. The Telecommunications Act requires GTE to negotiate intraLATA dialing
parity provisions with its competitors. In subsequent negotiations, GTE will
address implementation of 1+ in those states which have not previously ordered
implementation.
Federal and state regulatory activity directed toward changing the traditional
cost-based, rate-of-return regulatory framework for intrastate and interstate
telephone service has continued. Regulatory authorities have adopted various
forms of alternative regulation, which provide economic incentives to telephone
service providers to improve productivity and provide the foundation for
implementing pricing flexibility necessary to address competitive entry into GTE
markets.
For the provision of interstate access services, the Company operates under the
terms of the FCC's price cap incentive plan. The "price cap" mechanism serves to
limit the rates a carrier may charge, rather than just regulating the rate of
return which may be achieved. Under this approach, the maximum prices that the
local-exchange carrier (LEC) may charge are increased or decreased each year by
a price index based upon inflation less a predetermined productivity target.
LECs have limited pricing flexibility provided they do not exceed the allowed
price cap. The FCC is considering how the price cap plan should be modified in
the future in order to adapt the system to the emergence of competition.
Further information regarding the Company's activities with the various
regulatory agencies and revenue arrangements with other telephone companies is
discussed in Note 11 of the Company's consolidated financial statements included
in Item 8.
The Company continues to support greater competition in telecommunications,
provided that, overall, the actions to eliminate existing legal and regulatory
barriers benefit consumers by allowing an opportunity for all service providers
to participate equally in a competitive marketplace under comparable conditions.
The Company intends to continue to respond aggressively to regulatory and legal
developments that allow for increased competition and opportunities in the
marketplace. The company expects its financial results to benefit from reduced
costs and the introduction of new products and services that will result in
increased usage of its telephone networks. However, it is likely that such
improvements will be offset, in part, by continued strategic pricing reductions
and the effects of increased competition.
INITIATIVES
In 1995, the Company continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.
Restructuring and Cost Control
During 1995, the Company continued the implementation of its $194.3
re-engineering program. Since the program began in 1994, costs of $92.4 have
been charged to the restructuring reserve -- $58.4 related to customer service
processes, $10 related to administrative processes and $24 related to the
consolidation of facilities and operations and other related costs. These costs
were primarily associated with the closure and relocation of various centers,
software enhancements and separation benefits associated with workforce
reductions. The continued implementation of this program positions the Company
to accelerate delivery of a full array of voice, video and data services and to
reach its stated objective of being the easiest company to do business with in
the industry.
11
<PAGE> 14
Video Services
The Telecommunications Act eliminates the telephone company programming ban and
allows GTE the flexibility to choose whether it will enter the video
distribution business through an open video platform arrangement or via a
standard cable television operation. The legislation also allows GTE to deploy
video networks which are fully integrated with its telephone operations. The FCC
will begin the process of formulating rules with respect to the open video
platform arrangement which will govern provision of such services. In addition,
the FCC has opened two rulemakings to evaluate its cable and telephone
home-wiring rules and other technical standards to reflect the growing
convergence of the telephone and cable industries.
In May 1995, GTE obtained approval from the FCC and began construction of its
video dialtone network in the Clearwater, Florida area. The network is
scheduled to begin delivery of video services to customers in 1996.
World Class Network
During 1995, the Company deployed its ISDN-based World Class Network in Tampa,
Florida, to provide advanced communications for business customers. This program
includes sophisticated high-speed, digital fiber-optic rings, a high-capacity
switching network (known as SONET), and a new centralized operations center that
monitors the entire network. These SONET rings are an integral part of the
high-speed information network that enables the Company to provide advanced
services such as high-speed data transmission and video conferencing.
ENVIRONMENTAL MATTERS
GTE maintains monitoring and compliance programs related to environmental
matters. Currently, the Company has been named as a potentially responsible
party at a number of "Superfund Sites". GTE has reviewed each site in which it
has an involvement to establish an expected remediation cost. Based on this
review, management believes the Company is not subject to administrative or
judicial proceedings which would result in a material adverse effect on the
Company's results of operations or financial position. The Company has
established adequate reserves for estimated remediation and cleanup costs.
The Company's annual expenditures for site cleanups and environmental compliance
have not been and are not expected to be material. Costs incurred include the
Company's share of cleanup expenses for Superfund Sites, outlays required to
keep existing operations in compliance with environmental regulations and an
underground storage tank replacement program.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121) in March 1995,
which is effective January 1, 1996. FAS 121 requires that an impairment loss be
recognized when circumstances indicate that the carrying amount of an asset may
not be recoverable. In discontinuing the application of FAS 71, the Company
used a methodology similar to FAS 121 in determining the amount of asset
impairments. Accordingly, the issuance of FAS 121 will not have a significant
impact on the Company's consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock- Based Compensation" (FAS 123). As permitted by FAS
123, the Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of FAS 123 beginning
in 1996. Accordingly, the issuance of FAS 123 will not impact the Company's
financial position or results of operations.
12
<PAGE> 15
INFLATION
The Company's management generally does not believe inflation has a significant
impact on the Company's earnings. However, increases in costs or expenses not
otherwise offset by increases in revenues could have an adverse effect on
earnings.
13
<PAGE> 16
Item 8. Financial Statements and Supplementary Data
GTE Florida Incorporated and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ----------------------- --------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues and sales (a):
Local services $ 615,646 $ 578,535 $ 537,446
Network access services 456,052 427,076 406,244
Toll services 80,825 81,993 74,646
Other services and sales 249,425 239,529 228,195
--------------- -------------- --------------
Total revenues and sales 1,401,948 1,327,133 1,246,531
--------------- -------------- --------------
Operating costs and expenses (b):
Cost of services and sales 540,082 538,271 526,336
Selling, general and administrative 232,555 224,971 228,493
Depreciation and amortization 285,626 277,236 261,562
Restructuring -- -- 194,330
--------------- -------------- --------------
Total operating costs and expenses 1,058,263 1,040,478 1,210,721
--------------- -------------- --------------
Operating income 343,685 286,655 35,810
Other expenses:
Interest - net 63,600 60,233 67,961
--------------- -------------- --------------
Income (loss) before income taxes 280,085 226,422 (32,151)
Income taxes (benefit) 104,612 86,167 (16,924)
--------------- -------------- --------------
Income (loss) before extraordinary charges 175,473 140,255 (15,227)
Extraordinary charges (378,641) -- (19,751)
--------------- -------------- --------------
Net income (loss) $ (203,168) $ 140,255 $ (34,978)
=============== ============== ==============
</TABLE>
(a) Includes billings to affiliates of $96,172, $94,765 and $105,942 for the
years 1995-1993, respectively.
(b) Includes billings from affiliates of $93,354, $85,340 and $75,911 for the
years 1995-1993, respectively.
See Notes to Consolidated Financial Statements.
14
<PAGE> 17
GTE Florida Incorporated and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1995 1994
- -----------
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 3,066 $ 10,527
Receivables, less allowances of $17,717 and $19,737 332,842 292,736
Note receivable from affiliate 5,412 8,495
Inventories and supplies 17,733 15,713
Deferred income tax benefits 9,394 6,770
Other 7,961 12,595
-------------- --------------
Total current assets 376,408 346,836
-------------- --------------
Property, plant and equipment, net 1,949,598 2,552,102
Other assets 118,765 91,317
-------------- --------------
Total assets $ 2,444,771 $ 2,990,255
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 78,634 $ 137,508
Accounts payable 71,104 67,763
Affiliate payables and accruals 54,331 49,428
Advanced billings and customer deposits 33,682 31,835
Taxes payable 876 32,073
Accrued interest 9,111 8,911
Accrued payroll costs 38,177 40,466
Dividends payable 34,027 43,669
Accrued restructuring costs 101,905 47,190
Other 14,252 15,199
-------------- --------------
Total current liabilities 436,099 474,042
-------------- --------------
Non-current liabilities:
Long-term debt 785,155 729,754
Deferred income taxes 199,598 381,035
Employee benefit obligations 117,050 75,762
Restructuring costs -- 103,641
Other liabilities 3,293 27,662
-------------- --------------
Total non-current liabilities 1,105,096 1,317,854
-------------- --------------
Shareholders' equity:
Preferred stock 60,096 60,096
Common stock (23,400,000 shares issued) 585,000 585,000
Additional paid-in capital 50,289 289
Retained earnings 208,191 552,974
-------------- --------------
Total shareholders' equity 903,576 1,198,359
-------------- --------------
Total liabilities and shareholders' equity $ 2,444,771 $ 2,990,255
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE> 18
GTE Florida Incorporated and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ----------------------- --------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operations:
Income (loss) before extraordinary charges $ 175,473 $ 140,255 $ (15,227)
Adjustments to reconcile income (loss) before extraordinary
charges to net cash from operations:
Depreciation and amortization 285,626 277,236 261,562
Deferred income taxes 27,786 1,768 (56,357)
Restructuring costs -- -- 194,330
Provision for uncollectible accounts 27,444 23,956 33,523
Change in current assets and current liabilities:
Receivables - net (67,550) (54,606) (28,664)
Other current assets 2,614 16,441 (20,476)
Accrued taxes and interest (29,331) 23,935 (19,245)
Other current liabilities (33,580) (32,215) (21,107)
Other - net (2,622) 1,589 38,174
--------------- -------------- --------------
Net cash from operations 385,860 398,359 366,513
--------------- -------------- --------------
Investing:
Capital expenditures (282,957) (263,572) (265,361)
--------------- -------------- --------------
Cash used in investing (282,957) (263,572) (265,361)
--------------- -------------- --------------
Financing:
Long-term debt issued 197,131 -- 396,950
Long-term debt retired (95,228) (392) (448,204)
Dividends (151,257) (71,642) (83,135)
Capital contribution from GTE 50,000 -- --
Increase (decrease) in short-term obligations, excluding
current maturities (106,694) (58,914) 52,992
Other - net (4,316) -- (18,167)
--------------- -------------- --------------
Net cash used in financing (110,364) (130,948) (99,564)
--------------- -------------- --------------
Increase (decrease) in cash and temporary investments (7,461) 3,839 1,588
Cash and temporary investments:
Beginning of year 10,527 6,688 5,100
--------------- -------------- --------------
End of year $ 3,066 $ 10,527 $ 6,688
=============== ============== ==============
Cash paid during the year for:
Interest $ 64,485 $ 59,842 $ 75,776
Income taxes 99,388 59,460 30,629
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE> 19
GTE Florida Incorporated and Subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings Total
------------ ------------ ------------- ------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Shareholders' equity, December 31, 1992 $ 60,096 $ 585,000 $ 289 $ 636,740 $ 1,282,125
Net loss (34,978) (34,978)
Dividends declared (74,275) (74,275)
----------- ----------- ------------ ------------ ------------
Shareholders' equity, December 31, 1993 60,096 585,000 289 527,487 1,172,872
Net income 140,255 140,255
Dividends declared (114,768) (114,768)
----------- ----------- ------------ ------------ ------------
Shareholders' equity, December 31, 1994 60,096 585,000 289 552,974 1,198,359
Net loss (203,168) (203,168)
Dividends declared (141,615) (141,615)
Capital contribution from GTE 50,000 -- 50,000
----------- ----------- ------------ ------------ ------------
Shareholders' equity, December 31, 1995 $ 60,096 $ 585,000 $ 50,289 $ 208,191 $ 903,576
=========== =========== ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE> 20
GTE Florida Incorporated and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
GTE Florida Incorporated (the Company) 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. At December 31, 1995,
the Company served 2,262,748 access lines in 24 exchanges on the central-west
coast of Florida. The Company is a wholly-owned subsidiary of GTE Corporation
(GTE).
BASIS OF PRESENTATION
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles which require that management make
estimates and assumptions that affect reported amounts. Actual results could
differ from those estimates.
The consolidated financial statements include the accounts of GTE Florida
Incorporated and its wholly-owned subsidiary, GTE Communications Corporation
(GTECC). In addition, the accounts of Televac, Inc. (Televac), a wholly-owned
subsidiary of GTE and a special-purpose entity which purchased the Company's
customer and other accounts receivable, have also been consolidated with the
Company. All significant intercompany transactions have been eliminated.
The Company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (FAS 71), in the fourth quarter of 1995 (see Note 2). The 1995
financial presentation reflects account classifications consistent with
unregulated enterprises operating in a competitive environment. Specifically,
uncollectible revenue accounts have been reclassified from revenues and sales to
selling, general and administrative expenses. Reclassifications of prior-year
data have been made, where appropriate, to conform to the 1995 presentation.
TRANSACTIONS WITH AFFILIATES
Certain affiliated companies, which are not subsidiaries of the Company, supply
construction and maintenance equipment, supplies and electronic repair services
to the Company. These purchases and services amounted to $86.6 million, $70.6
million and $82.7 million for the years 1995-1993, respectively. Such purchases
and services are recorded in the accounts of the Company at cost which includes
a normal profit realized by the affiliates.
The Company is billed for certain printing and other costs associated with
telephone directories, data processing services and equipment rentals, and
receives management, consulting, research and development and pension management
services from other affiliated companies. These charges amounted to $93.4
million, $85.3 million and $75.9 million for the years 1995-1993, respectively.
The amounts charged for these affiliated transactions are based on a
proportional cost allocation method.
The Company's financial statements include allocated expenses based on the
sharing of certain executive, administrative, financial, accounting, marketing,
personnel, engineering and other support services being performed at
consolidated work centers among the domestic GTE Telephone Operating Companies.
The amounts charged for these affiliated transactions are based on a
proportional cost allocation method as filed with the Federal Communications
Commission (FCC).
18
<PAGE> 21
The Company has an agreement with GTE Directories Corporation (Directories)
(100% owned by GTE), whereby the Company provides its subscriber lists, billing
and collection and other services to Directories. Revenues from these activities
amounted to $96.2 million, $94.8 million and $105.9 million for the years
1995-1993, respectively.
TELEPHONE PLANT
The Company has historically provided for depreciation on a straight-line basis
over asset lives approved by regulators. Beginning in 1996, the Company will
provide for depreciation on a straight-line basis over the estimated economic
lives of its assets (see Note 2). Maintenance and repairs are charged to income
as incurred. Additions to, replacements and renewals of property are charged to
telephone plant accounts. Property retirements are charged in total to the
accumulated depreciation account. No adjustment to depreciation is made at the
time properties are retired or otherwise disposed of, except in the case of
significant sales or extraordinary retirements of property where profit or loss
is recognized.
REVENUE RECOGNITION
Revenues are recognized when earned. This is generally based on usage of the
Company's local-exchange networks or facilities. For other products and
services, revenues are generally recognized when services are rendered or
products are delivered to customers.
INVENTORIES AND SUPPLIES
Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.
EMPLOYEE BENEFIT PLANS
Pension and postretirement health care and life insurance benefits earned during
the year as well as interest on accumulated 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. Material curtailment/settlement gains
and losses associated with employee separations are recognized in the period in
which they occur.
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), effective January
1, 1993. FAS 112 requires employers to accrue the future cost of benefits
provided to former or inactive employees and their dependents after employment
but before retirement. Previously, the cost of these benefits was charged to
expense as paid. The impact of this change in accounting on the Company's
results of operations was immaterial.
INCOME TAXES
The Company's results are included in GTE's consolidated federal income tax
return. The Company participates in a tax-sharing agreement with GTE and remits
tax payments to GTE based on its tax liability on a separate company basis.
Deferred tax assets and liabilities are established for temporary differences
between financial and tax reporting bases and are subsequently adjusted to
reflect changes in tax rates expected to be in effect when the temporary
differences reverse. A valuation allowance is established for any deferred tax
asset for which realization is not likely.
19
<PAGE> 22
COMPUTER SOFTWARE
The cost of computer software for internal use, except initial operating system
software, is charged to expense as incurred. Initial operating system software
is capitalized and amortized over the life of the related hardware.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include investments in short-term, highly liquid
securities, which have maturities when purchased of three months or less.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121) in March 1995,
which is effective January 1, 1996. FAS 121 requires that an impairment loss be
recognized when circumstances indicate that the carrying amount of an asset may
not be recoverable. In discontinuing the application of FAS 71, the Company
used a methodology similar to FAS 121 in determining the amount of asset
impairments. Accordingly, the issuance of FAS 121 will not have a significant
impact on the Company's consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123). As permitted by FAS
123, the Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of FAS 123 beginning
in 1996. Accordingly, the issuance of FAS 123 will not impact the Company's
financial position or results of operations.
2. EXTRAORDINARY CHARGES
In response to recently enacted and pending legislation (see Note 11) and the
increasingly competitive environment, the Company discontinued the use of FAS 71
in the fourth quarter of 1995.
In general, FAS 71 required the Company to depreciate its telephone plant and
equipment over lives approved by regulators which, in many cases, extended
beyond the assets' economic lives. FAS 71 also required the deferral of certain
costs based upon approvals received from regulators to recover such costs in the
future. As a result of these requirements, the recorded net book value of
certain assets and liabilities, primarily telephone plant and equipment, were in
many cases higher than that which would otherwise have been recorded based on
their economic lives.
As a result of the decision to discontinue FAS 71, the Company recorded a
non-cash, after-tax extraordinary charge of $374.3 million (net of tax benefits
of $235.2 million) in the fourth quarter of 1995. The charge primarily
represents a reduction in the net book value of telephone plant and equipment
through an increase in accumulated depreciation. The amount of the charge was
based on an analysis of the discounted cash flows expected to be generated by
the embedded telephone plant and equipment over their remaining economic lives.
In addition to the one-time charge, the Company, beginning in 1996, will shorten
the depreciable lives of its telephone plant and equipment as follows as a
result of the discontinuance of FAS 71:
<TABLE>
<CAPTION>
Depreciable Lives
-------------------------------------------
Average
Asset Category Before After
----------------------------------- ----------------- -----------------
<S> <C> <C>
Copper 20-30 15
Switching 17-19 10
Circuit 11-13 8
Fiber 25-30 20
</TABLE>
20
<PAGE> 23
In addition, during 1995, the Company redeemed prior to stated maturity,
approximately $75.3 million of long-term debt. These redemptions resulted in an
after-tax extraordinary charge of $4.3 million (net of tax benefits of $2.7
million).
During 1993, the Company redeemed prior to stated maturity, $390 million of
high-coupon first-mortgage bonds. These redemptions resulted in an after-tax
extraordinary charge of $19.8 million (net of tax benefits of $11.9 million).
3. RESTRUCTURING COSTS
Results for 1993 include one-time pre-tax restructuring costs of $194.3 million,
which reduced net income by $119.7 million, primarily for incremental costs
related to implementation of the Company's three-year re-engineering plan. The
re-engineering plan will redesign and streamline processes to improve
customer-responsiveness and product quality, reduce the time necessary to
introduce new products and services and further reduce costs. The implementation
of the plan is expected to result in costs of $125.2 million to re-engineer
customer service processes and $45.1 million to re-engineer administrative
processes. The restructuring costs also include $24 million primarily for the
consolidation of facilities and operations and other related costs.
Implementation of the re-engineering plan began during 1994 and is expected to
be substantially completed by the end of 1996.
Costs of $92.4 million have been incurred since the plan's inception including
$58.4 million related to customer service processes, $10 million related to
administrative processes and $24 million related to the consolidation of
facilities and operations and other related costs. These expenditures were
primarily associated with the closure and relocation of various service centers,
software enhancements and separation benefits related to employee reductions.
During 1993, the Company offered various voluntary separation programs to its
employees. These programs resulted in a pre-tax charge of $3.8 million which
reduced 1993 net income by $2.4 million.
21
<PAGE> 24
4. PREFERRED STOCK
Cumulative preferred stock, not subject to mandatory redemption, exclusive of
amounts held in treasury, as of December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Shares
--------------
<S> <C>
Authorized
$ 25 par value 4,880,000
$ 100 par value 1,200,000
--------------
6,080,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Amount
-------------- --------------
(Thousands of
Dollars)
<S> <C> <C>
Outstanding
$ 25 par value --
$ 1.30 Series B 475,900 $ 11,897
$ 1.25 Series 371,900 9,298
$100 par value --
8.16 % Series 389,010 38,901
-------------- --------------
Total 1,236,810 $ 60,096
============== ==============
</TABLE>
There were no retirements, redemptions or other activity for the years
1995-1993.
In the event of non-payment of at least twelve months of accrued dividends, each
class of preferred shareholders, voting as a class, will be entitled to elect
two directors in addition to those directors elected by GTE. Otherwise, the
preferred shareholders have no voting rights. The Company is not in arrears in
its dividend payments at December 31, 1995.
At December 31, 1995 and 1994, the Company held 3,130 shares as treasury stock.
No shares of preferred stock were reserved for officers and employees, or for
options, warrants, conversions or other rights.
5. COMMON STOCK
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $25 per share. All outstanding shares of common stock are held by
GTE.
There were no shares of common stock held by or for the account of the Company
and no shares were reserved for officers and employees, or for options,
warrants, conversions or other rights.
At December 31, 1995, $8.5 million of retained earnings were restricted as to
the payment of cash dividends on common stock under the terms of the Company's
Articles of Incorporation.
22
<PAGE> 25
6. DEBT
Long-term debt as of December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- --------------
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds:
4.625% Series J, due 1995 $ -- $ 20,000
5 3/8 % Series K, due 1996 16,000 16,000
6 1/2 % Series L, due 1997 20,000 20,000
8.0 % Series N, due 2001 45,000 45,000
7 1/2 % Series O, due 2002 50,000 50,000
5 1/4 % Series Y, due 1996 30,000 30,000
8 3/8 % Series BB, due 2027 75,000 75,000
9 5/8 % Series DD, due 2030 -- 75,000
Debentures:
6.31 % Series A, due 2002 200,000 200,000
7.41 % Series B, due 2023 200,000 200,000
7.25 % Series C, due 2025 100,000 --
6.25 % Series D, due 2005 100,000 --
Promissory note - affiliated company:
7 3/4 % Note payable to GTE Finance Corporation, due 1996 25,000 25,000
Other 372 600
--------------- --------------
Total principal amount 861,372 756,600
Less: discount and premium - net (5,106) (6,638)
--------------- --------------
Total 856,266 749,962
Less: current maturities of long-term debt (71,111) (20,208)
--------------- --------------
Total long-term debt $ 785,155 $ 729,754
=============== ==============
</TABLE>
The aggregate principal amount of bonds and debentures that may be issued is
subject to the restrictions and provisions of the Company's indentures. None of
the securities shown above were held in sinking or other special funds of the
Company or pledged by the Company. Debt discount and premium on the Company's
outstanding long-term debt are amortized over the lives of the respective
issues. Substantially all of the Company's telephone plant is subject to the
liens of the indentures under which the bonds listed above were issued.
Estimated payments of long-term debt during the next five years are: $71.1
million in 1996; $20.1 million in 1997; and do not exceed $0.1 million in
1998-2000.
23
<PAGE> 26
Total short-term obligations at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Commercial paper - average rate 5.9% $ -- $ 117,300
Notes payable to affiliate - average rate 6.1% 7,523 --
Current maturities of long-term debt 71,111 20,208
------------- --------------
Total $ 78,634 $ 137,508
============= ==============
</TABLE>
A $3.5 billion credit line is available to the Company through shared lines of
credit with GTE and other affiliates. Most of these arrangements require payment
of annual commitment fees of .1% of the unused lines of credit.
7. FINANCIAL INSTRUMENTS
The fair values of financial instruments, other than long-term debt, closely
approximate their carrying value. As of December 31, 1995, the estimated fair
value of long-term debt based on either reference to quoted market prices or an
option pricing model, exceeded the carrying value by approximately $22 million.
The estimated fair value of long-term debt as of December 31, 1994 was lower
than the carrying value by approximately $63 million.
24
<PAGE> 27
8. INCOME TAXES
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Current:
Federal $ 64,469 $ 71,291 $ 37,907
State 12,357 13,108 1,971
--------------- -------------- --------------
76,826 84,399 39,878
--------------- -------------- --------------
Deferred:
Federal 27,490 5,077 (47,213)
State 4,686 2,246 (3,469)
--------------- -------------- --------------
32,176 7,323 (50,682)
--------------- -------------- --------------
Amortization of deferred investment tax credits - net (4,390) (5,555) (6,120)
--------------- -------------- --------------
Total $ 104,612 $ 86,167 $ (16,924)
=============== ============== ==============
</TABLE>
A reconciliation between taxes computed by applying the statutory federal income
tax rate to pre-tax income and income taxes provided in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Amounts computed at statutory rates $ 96,539 $ 79,248 $ (11,253)
State income taxes, net of federal income tax benefits 11,078 9,980 (989)
Amortization of deferred investment tax credits (4,390) (5,555) (6,120)
Depreciation of telephone plant construction costs
previously deducted for tax purposes - net 1,797 2,581 2,316
Rate differentials applied to reversing temporary differences (2,875) (1,622) (1,980)
Other differences - net 2,463 1,535 1,102
--------------- -------------- --------------
Total provision (benefit) $ 104,612 $ 86,167 $ (16,924)
=============== ============== ==============
</TABLE>
The tax effects of temporary differences that give rise to the deferred income
tax benefits and deferred income tax liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Depreciation and amortization $ 223,766 $ 425,414
Employee benefit obligations (53,183) (34,095)
Prepaid pension costs 36,896 24,334
Restructuring costs (39,316) (58,191)
Revenue and expense recognition: directory publications 22,412 23,710
Investment tax credits 1,667 6,410
Other - net (2,038) (13,317)
-------------- --------------
Total $ 190,204 $ 374,265
============== ==============
</TABLE>
25
<PAGE> 28
9. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company sponsors noncontributory defined benefit pension plans covering
substantially all employees. The benefits to be paid under these plans are
generally based on years of credited service and average final earnings. The
Company's funding policy, subject to the minimum funding requirements of U.S.
employee benefit and tax laws, is to contribute such amounts as are determined
on an actuarial basis to provide the plans with assets sufficient to meet the
benefit obligations of the plans. The assets of the plans consist primarily of
corporate equities, government securities and corporate debt securities.
The components of the net pension credit for 1995-1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Benefits earned during the year $ 16,083 $ 19,154 $ 20,939
Interest cost on projected benefit obligations 42,713 39,581 44,428
Return on plan assets:
Actual (181,297) 1,374 (141,365)
Deferred 109,493 (71,412) 71,662
Other - net (16,429) (14,831) (15,272)
--------------- -------------- --------------
Total - net $ (29,437) $ (26,134) $ (19,608)
=============== ============== ==============
</TABLE>
The expected long-term rate of return on plan assets was 8.5% for 1995 and 1994,
and 8.25% for 1993.
The funded status of the plans and the net prepaid pension costs at December 31
were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Vested benefit obligations $ 377,788 $ 313,393
============== ==============
Accumulated benefit obligations $ 451,830 $ 373,623
============== ==============
Plan assets at fair value $ 998,213 $ 867,439
Less: projected benefit obligations 598,476 504,392
-------------- --------------
Excess of assets over projected benefit obligations 399,737 363,047
Unrecognized net transition asset (51,466) (60,131)
Unrecognized net gain (251,823) (232,067)
-------------- --------------
Total - net $ 96,448 $ 70,849
============== ==============
</TABLE>
Assumptions used to develop the projected benefit obligations at December 31
were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Discount rate 7.50% 8.25%
Rate of compensation increase 5.25% 5.50%
</TABLE>
26
<PAGE> 29
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). FAS 106 requires that the expected costs of these benefits
be charged to expense during the years that the employees render service. The
Company elected to adopt this new accounting standard on the delayed recognition
method and commencing January 1, 1993, began amortizing the estimated unrecorded
accumulated postretirement benefit obligation over twenty years. Prior to the
adoption of FAS 106, the cost of these benefits was charged to expense as paid.
Substantially all of the Company's employees are covered under postretirement
health care and life insurance benefit plans. The health care benefits paid
under the plans are generally based on comprehensive hospital, medical and
surgical benefit provisions. The Company funds amounts for postretirement
benefits as deemed appropriate from time to time.
The postretirement benefit cost for 1995-1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Benefits earned during the year $ 6,895 $ 7,777 $ 8,581
Interest cost on accumulated postretirement benefit obligations 26,038 25,012 25,017
Amortization of transition obligation 12,884 13,059 15,432
Other 645 (1,136) --
--------------- -------------- --------------
Total - net $ 46,462 $ 44,712 $ 49,030
=============== ============== ==============
</TABLE>
The following table sets forth the plans' funded status and the accrued
postretirement benefit obligations as of December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees $ 183,525 $ 167,748
Fully eligible active plan participants 7,055 6,124
Other active plan participants 179,605 151,470
-------------- --------------
Total accumulated postretirement benefit obligations 370,185 325,342
Less: fair value of plan assets -- --
-------------- --------------
Excess of accumulated obligations over plan assets 370,185 325,342
Unrecognized transition obligation (215,532) (234,972)
Unrecognized net loss (41,379) (18,271)
-------------- --------------
Total $ 113,274 $ 72,099
============== ==============
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligations were 7.5% at December 31, 1995 and 8.25% at December 31,
1994. The assumed health care cost trend rates in 1995 and 1994 were 11% and
12%, respectively, for pre-65 participants and 8.5% and 9.0%, respectively, for
post-65 retirees, each rate declining on a graduated basis to an ultimate rate
in the year 2004 of 6%. A one percentage point increase in the assumed health
care cost trend rates for each future year would have increased 1995 costs by
$5.2 million and the accumulated postretirement benefit obligations at December
31, 1995 by $51.8 million.
27
<PAGE> 30
During 1993, the Company made certain changes to its postretirement health care
and life insurance benefits for non-union employees retiring on or after January
1, 1995. These changes include, among others, newly established limits to the
Company's annual contribution to postretirement medical costs and a revised cost
sharing schedule based on a retiree's years of service.
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 GTE Common Stock based on
qualified employee contributions. Matching contributions charged to income were
$8 million, $6 million and $5.4 million in 1995-1993, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is summarized as follows at December
31:
<TABLE>
<CAPTION>
1995 1994
----------------- ------------------
(Thousands of Dollars)
<S> <C> <C>
Land $ 21,135 $ 21,443
Buildings 208,668 210,491
Plant & equipment 3,368,946 3,220,856
Other 336,331 328,945
----------------- ------------------
Total 3,935,080 3,781,735
Accumulated depreciation (see Note 2) 1,985,482 1,229,633
----------------- ------------------
Total property, plant and equipment - net $ 1,949,598 $ 2,552,102
================= ==================
</TABLE>
Depreciation provisions in 1995-1993 were equivalent to a composite average
percentage of 7.6%, 7.5% and 7.3%, respectively.
28
<PAGE> 31
11. REGULATORY AND COMPETITIVE MATTERS
The Company's intrastate business is regulated by the Florida Public Service
Commission (FPSC). The Company is subject to regulation by the Federal
Communications Commission (FCC) for interstate business.
INTRASTATE SERVICES
The Company provides local-exchange services to customers within its designated
franchise area. The Company provides toll services within designated geographic
areas called Local Access and Transport Areas (LATAs) in conformity with state
commission orders. The Company also provides long distance access services
directly to interexchange carriers and other customers who provide services
between LATAs. The FPSC has approved extended area calling plans for certain
intraLATA long distance routes. Under these plans, residential customers pay a
flat rate per message and business customers pay a reduced rate per minute for
these calls. Revenues from calls under the extended area calling plans are
classified as local network services.
On January 21, 1993, the FPSC issued an order effective January 6, 1993 to
reduce rates $14.5 million. This order established a midpoint return on equity
of 12.2% for 1993 and beyond for all state ratemaking purposes. The Company
filed a motion for reconsideration of the rate order and the FPSC lowered the
rate reduction by $0.8 million. The Company filed an appeal of various aspects
of the FPSC's rate case decision with the Florida Supreme Court. Oral arguments
were heard by the Court on January 31, 1994. On July 7, 1994, the Court issued
its opinion accepting the Company's argument that the FPSC should not have made
a $4.8 million adjustment for expenses associated with affiliate transactions
and remanded this issue to the FPSC. Effective May 2, 1995, the FPSC approved a
$4.8 million increase to certain local rates; however, it did not approve a
surcharge to recover lost revenues of approximately $11 million for the period
that the wrongful decision was in effect. Consequently, the Company filed an
appeal of the surcharge issue with the Florida Supreme Court. On February 29,
1996, the Florida Supreme Court reversed the FPSC's surcharge decision, finding
that the Company is entitled to recovery of revenues for the period May 23,
1993 to May 3, 1995; approximately $9.1 million. The Court order remands the
case to the FPSC for further action.
On February 13, 1995, the FPSC ordered implementation of intraLATA 1+
presubscription which will allow customers to choose their primary carrier for
short haul toll calls. Currently, the local phone company carries all short haul
toll calls when the customer dials one plus the called number. In the future,
the customer will be able to choose the local telephone company, or other
company, to carry these calls. Necessary system changes to implement the order
are required to be completed by the end of 1997; however, the Company currently
anticipates all its required system changes will be made by January 31, 1997.
Effective July 1, 1995, the Florida Legislature passed a bill which replaces
earnings regulation with price regulation and opens the local-exchange to
competition. The Company became subject to price regulation effective January 3,
1996. Under the price regulation provisions, basic service, multi-line business
local-exchange service and intrastate access rates are capped for three years,
until January 1, 1999. Basic service rates can continue to be capped for an
additional two years if the level of competition does not justify elimination of
the cap. Subsequent to the price cap period, prices for basic services can be
increased by an inflation factor (measured by GDP-PI) less 1% annually. Rates
for non-basic services, defined as services other than basic, interconnection
and network access, can increase by up to 6% per year if no competition exists
and up to 20% if there is more than one certified provider of the service.
Additionally, intrastate access rates that are higher than interstate access
rates must be reduced by at least 5% annually until parity with 1994 interstate
rates is attained. The estimated impact of the intrastate access rate reductions
to the Company is a loss of $3.5 million of revenues annually. Other provisions
of this legislation included the following: (1) interconnection prices, terms
and conditions will be negotiated between the companies, with the FPSC to
resolve the matter if an agreement cannot be reached; (2) local-exchange
carriers (LECs) must unbundle services to the extent that it is technically and
economically feasible; (3) LECs retain carrier of last resort responsibility
until January 1, 2000; (4) lifeline funding, which is designed to support low
income customers, is required, of which the Company is expected to fund
approximately $3 million annually; (5) a temporary number portability solution
was reached by the FPSC; and (6) LECs subject to price regulation are allowed to
set their own depreciation rates.
29
<PAGE> 32
In January 1996, the Company signed its first interconnection agreement with
Intermedia Communications of Florida, Inc. (ICI), an alternative local-exchange
carrier (ALEC), under the provisions of the Florida Statute. The agreement,
which will be effective for two years, will allow the ALEC to provide
local-exchange service within the Company's service territory. The Company is
currently negotiating interconnection agreements with other ALECs under these
provisions.
INTERSTATE SERVICES
For the provision of interstate services, the Company operates under the terms
of the FCC's price cap incentive plan. The "price cap" mechanism serves to limit
the rates a carrier may charge, rather than just regulating the rate of return
which may be achieved. Under this approach, the maximum price that the
local-exchange carrier (LEC) may charge is increased or decreased each year by a
price index based upon inflation less a predetermined productivity target. LECs
have limited pricing flexibility provided they do not exceed the allowed price
cap.
In March 1995, the FCC adopted interim rules to be utilized by LECs, including
the Company, for their 1995 Annual Price Cap Filing. The interim rules allowed
LECs to select from three productivity/sharing options for each tariff entity.
Each of the three options reflected an increase to the 3.3% productivity factor
used since 1991. The Company selected a 4.0% productivity factor for use in the
1995-1996 tariff year. The Company must share with customers 50% of returns over
a 12.25% ROR and up to a 13.25% ROR, and share with customers 100% of returns
over a 13.25% ROR. Since the Company's access fees were priced significantly
below the FCC's maximum price, the Company was permitted to file tariffs
effective May 24, 1995 to increase rates $30.2 million, annually. In addition,
the Company filed tariffs effective August 1, 1995 under the interim rules to
reduce rates $13.4 million, annually. On September 20, 1995, the FCC released
its proposed rulemaking proceeding on price caps which proposes specific changes
to reflect and encourage emerging competition in local and access services
markets and to establish the path towards decreased regulation of LECs'
services. On September 27, 1995, the FCC solicited comments on a number of
specific issues regarding methods for establishing the price caps, such as
productivity measurements, sharing, the common line formula, and exogenous
costs. The Company anticipates the FCC will issue an order prior to the July
1996 annual filing.
In May 1995, the FCC approved GTE's applications to construct a new fiber optic
and coaxial-cable video dialtone network in four markets, including the
Clearwater, Florida area. GTE expects to submit tariffs that set the rates for
use of its video network to the FCC for approval. Construction was initiated in
the third quarter of 1995 with full deployment occurring over the next two to
three years.
On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect the
future development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law removes many of the statutory and court-ordered barriers
to competition between segments of the industry, enabling local-exchange, long
distance, wireless and cable companies to compete in offering voice, video and
information services.
The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an
30
<PAGE> 33
agreement whereby WorldCom, Inc. will provide, on a non-exclusive basis, a full
array of telecommunications services in support of GTE's entry into the
interLATA long distance market. In March 1996, GTE, through a separate
subsidiary, began offering long distance to its customers in selected markets.
GTE plans to offer the service, marketed under the name GTE Easy Savings
Plan(sm), in all 28 states where it currently offers local telephone service by
December 1996.
SIGNIFICANT CUSTOMER
Revenues received from AT&T Corp. include amounts for access, billing and
collection and interexchange leased facilities during the years 1995-1993 under
various arrangements and amounted to $194.2 million, $182.1 million and $184.5
million, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company has noncancelable leases covering certain buildings, office space
and equipment. The majority of lease commitments relate to the lease of the
Company's headquarters building at One Tampa City Center. Rental expense was
$27.4 million in 1995 and 1994 and $21.8 million in 1993. Minimum rental
commitments under noncancelable leases through 2000 do not exceed $18.5 million
annually and aggregate $25.2 million 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/or 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.
Recent judicial and regulatory developments, as well as the pace of
technological change, have continued to influence industry trends, including
accelerating and expanding the level of competition. As a result, the Company's
operations face increasing competition in virtually all aspects of its business.
The Company supports greater competition in telecommunications provided that,
overall, the actions to eliminate existing legal and regulatory barriers allow
an opportunity for all service providers to participate equally in a competitive
marketplace under comparable conditions.
31
<PAGE> 34
13. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized 1995 and 1994 quarterly financial data is as follows:
<TABLE>
<CAPTION>
Revenues Operating Net Income
and Sales Income (Loss)
-------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
1995
First Quarter $ 326,105 $ 79,805 $ 39,331
Second Quarter 360,267 101,041 53,816
Third Quarter 343,600 68,047 31,774
Fourth Quarter (a) 371,976 94,792 (328,089)
-------------- -------------- --------------
Total $ 1,401,948 $ 343,685 $ (203,168)
============== ============== ==============
1994
First Quarter $ 307,718 $ 43,391 $ 17,828
Second Quarter 347,328 96,225 50,759
Third Quarter 320,763 57,685 26,950
Fourth Quarter 351,324 89,354 44,718
-------------- -------------- --------------
Total $ 1,327,133 $ 286,655 $ 140,255
============== ============== ==============
</TABLE>
(a) Net income includes $378.6 million of extraordinary charges for the
discontinuance of FAS 71 and the early retirement of debt as discussed in Note
2. Income before extraordinary charges was $50.6 million.
32
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
GTE Florida Incorporated:
We have audited the accompanying consolidated balance sheets of GTE Florida
Incorporated (a Florida corporation and wholly-owned subsidiary of GTE
Corporation) and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements and the schedule and exhibit referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule and exhibit based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Florida Incorporated and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 2 of the consolidated financial statements, in 1995 the
Company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation".
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supporting schedule and exhibit listed under
Item 14 are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. The supporting schedule and exhibit have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
January 24, 1996
33
<PAGE> 36
MANAGEMENT REPORT
To Our Shareholders:
The management of the Company is responsible for the integrity and objectivity
of the financial and operating information contained in this Annual Report on
Form 10-K, including the consolidated financial statements covered by the Report
of Independent Public Accountants. These statements were prepared in conformity
with generally accepted accounting principles and include amounts that are based
on the best estimates and judgments of management.
The Company has a system of internal accounting controls which provides
management with reasonable assurance that transactions are recorded and executed
in accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that financial records are maintained so as to permit
preparation of financial statements in accordance with generally accepted
accounting principles. This system includes written policies and procedures, an
organizational structure that segregates duties, and a comprehensive program of
periodic audits by the internal auditors. The Company has also instituted
policies and guidelines which require employees to maintain the highest level of
ethical standards.
PETER A. DAKS
President
GERALD K. DINSMORE
Senior Vice President-Finance and Planning
34
<PAGE> 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
35
<PAGE> 38
PART III
Item 10. Directors and Executive Officers of the Registrant
a. Identification of Directors
The names, ages and positions of the directors of the Company as of March 1,
1996 are listed below along with their business experience during the past five
years.
<TABLE>
<CAPTION>
Name Age Director Since Business Experience
- ------------------------- ------- ------------------- ----------------------------------------------------------
<S> <C> <C> <C>
John C. Appel 47 1996 Executive Vice President - Network Operations, GTE
Telephone Operations, 1996; Executive Vice President -
Network Operations, all GTE domestic telephone
subsidiaries of which he is not President, 1996; Director,
all GTE domestic telephone subsidiaries, 1996; President -
GTE South Incorporated and GTE North Incorporated,
1995; Senior Vice President - Regulatory Operations, GTE
Telephone Operations, 1994; President - GTE Southwest
Incorporated, 1994; State President - Texas/New Mexico,
1993; Vice President and General Manager - California,
GTE Telephone Operations West Area, 1992; Assistant
Vice President - Business Services, GTE Telephone
Operations, 1991.
Richard M. Cahill 57 1993 Vice President - General Counsel, GTE Telephone
Operations, 1988; Director, all GTE domestic telephone
subsidiaries, 1993 and/or 1994; Director, GTE Vantage
Incorporated, 1991; Vice President - General Counsel, all
GTE domestic telephone subsidiaries, 1995.
Gerald K. Dinsmore 46 1993 Senior Vice President - Finance and Planning, GTE
Telephone Operations, 1994; Senior Vice President -
Finance and Planning, all GTE domestic telephone
subsidiaries, 1994; Vice President - Finance, GTE
Telephone Operations, 1993; Vice President -
Intermediary Customer Markets, GTE Telephone
Operations, 1988; President of all South Area Companies,
GTE Telephone Operations, 1992; Director, GTE Florida
Incorporated and GTE South Incorporated, 1992; Director,
all other GTE domestic telephone subsidiaries, 1993
and/or 1994.
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
Name Age Director Since Business Experience
- ------------------------- ------- ------------------- ----------------------------------------------------------
<S> <C> <C> <C>
Michael B. Esstman 49 1993 Executive Vice President - Customer Segments, GTE
Telephone Operations, 1994; Executive Vice President -
Operations, GTE Telephone Operations, 1993; President
of all Central Area Companies, GTE Telephone
Operations, 1991; President, Contel Eastern Region,
Telephone Operations Sector, 1983; Director, AG
Communications Systems; Director of all Central Area
Companies, 1991; Director, all other GTE domestic
telephone subsidiaries, 1993 and/or 1994.
Thomas W. White 49 1993 President, GTE Telephone Operations, 1995; Executive
Vice President - Network Operations, GTE Telephone
Operations, 1994; Executive Vice President - GTE
Telephone Operations, 1993; Senior Vice President -
General Office Staff, GTE Telephone Operations, 1989;
Director, all GTE domestic telephone subsidiaries, 1993
and/or 1994; Director, Quebec-Telephone.
</TABLE>
Directors are elected annually. There are no family relationships between any of
the directors or executive officers of the Company.
37
<PAGE> 40
b. Identification of Executive Officers
The Company's policies are established not only by the Company's executive
officers, but also by the executive officers of GTE Telephone Operations.
Accordingly, the list below contains the names, ages and positions of the
executive officers of both the Company and GTE Telephone Operations (Telops) as
of March 1, 1996.
<TABLE>
<CAPTION>
Year Assumed
Present Position
---------------------------
the
Name Age Telops Company Position
- ----------------------- ------- ------------ ------------ --------------------------------------------------
<S> <C> <C> <C> <C>
Thomas W. White (1) 49 1995 -- President of GTE Telephone Operations
John C. Appel (2) 47 1996 1996 Executive Vice President - Network Operations of
GTE Telephone Operations and the Company
Mary Beth Bardin 41 1994 1995 Vice President - Public Affairs of GTE Telephone
Operations and the Company
C. F. Bercher 52 1994 1995 Vice President - Consumer Markets of GTE Telephone
Operations and the Company
Richard M. Cahill 57 1988 1995 Vice President - General Counsel of GTE Telephone
Operations and the Company
Peter A. Daks 50 -- 1994 President of the Company
Gerald K. Dinsmore 46 1994 1994 Senior Vice President - Finance and Planning of GTE
Telephone Operations and the Company
William M. Edwards, III 47 -- 1993 Controller of the Company
Michael B. Esstman 49 1994 -- Executive Vice President - Customer Segments of GTE
Telephone Operations
Gregory D. Jacobson 44 -- 1994 Treasurer of the Company
Brad M. Krall 54 1993 1995 Vice President - Centralized Operations of GTE
Telephone Operations and the Company
Michael J. McDonough 46 1994 1995 Vice President - Business Markets of GTE Telephone
Operations and the Company
Richard L. Schaulin 53 1989 1995 Vice President - Human Resources of GTE Telephone
Operations and the Company
Charles J. Somes 49 -- 1994 Secretary of the Company
Larry J. Sparrow 52 1994 1995 Vice President - Carrier Markets of GTE Telephone
Operations and the Company
Alex Stadler 45 1994 1995 Vice President - Strategy and Technology Planning of
GTE Telephone Operations and the Company
</TABLE>
(1) Thomas W. White was appointed President of GTE Telephone Operations
replacing Kent W. Foster, who was appointed President of GTE
Corporation.
(2) John C. Appel was appointed Executive Vice President - Network
Operations of GTE Telephone Operations, replacing Thomas W. White, who
was appointed President of GTE Telephone Operations.
Each of these executive officers has been an employee of the Company or an
affiliated company for the last five years. Except for duly elected officers and
directors, no other employees had a significant role in decision making.
All officers are appointed for a term of one year.
38
<PAGE> 41
Item 11. Executive Compensation
Executive Compensation Tables
The following tables provide information about executive compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation of the 1995
Principal Executive Officer of the Company and each of the other four most
highly compensated executive officers (the named executive officers) of GTE
Telephone Operations in 1995. The information in this table under the caption
"Annual Compensation" sets forth all compensation paid to the named executive
officers by GTE Telephone Operations. The caption "Long- Term Compensation" in
this table sets forth all long-term compensation paid to the named executive
officers under employee benefit plans administered by GTE Corporation or GTE
Service Corporation. Footnote 1 to this table sets forth the actual 1995 annual
compensation for each of the named executive officers that was allocated to the
Company.
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------------
Annual Compensation (1) Awards Payouts
-------------------------------- ----------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Stock Options/ Payouts Compensation
Position in Group Year ($) (2) ($) ($) Awards (#) SARs (#) ($) (3) ($) (4)
- --------------------------- ---- -------- ------- ------------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter A. Daks 1995 184,315 127,200 -- -- 16,900 99,400 8,294
President 1994 175,469 130,900 -- -- 14,300 14,600 4,390
1993 155,039 71,300 -- -- 7,300 -- 4,651
Kent B. Foster (5) 1995 381,302 476,600 -- -- 187,900 848,300 10,613
President 1994 687,608 837,900 -- -- 138,100 397,800 7,075
GTE Telephone Operations 1993 603,659 531,700 -- -- 58,800 117,100 6,502
Thomas W. White 1995 418,884 443,800 -- -- 98,800 331,800 10,613
President 1994 353,508 368,200 -- -- 53,700 164,100 7,075
GTE Telephone Operations 1993 328,696 282,600 -- -- 22,600 52,700 7,067
Michael B. Esstman 1995 350,731 349,400 -- -- 63,500 305,900 7,238
Executive Vice President - 1994 327,546 358,200 -- -- 53,700 158,300 4,998
Customer Segments 1993 287,830 268,400 -- -- 22,600 46,200 7,056
GTE Telephone Operations
Gerald K. Dinsmore 1995 265,125 255,600 -- -- 36,400 211,300 10,613
Senior Vice President - 1994 248,438 233,800 -- -- 30,900 97,800 7,075
Finance and Planning 1993 213,061 206,900 -- -- 14,500 14,800 6,207
GTE Telephone Operations
</TABLE>
(1) Annual Compensation represents the total annual cash compensation of
salaries, bonuses and other compensation. The Company's allocated share
for Messrs. Daks, Foster, White, Esstman and Dinsmore, for whom total
annual amounts are shown above, is $311,515; $89,015; $88,855; $73,528
and $54,687, respectively.
39
<PAGE> 42
(2) The data in the table includes fees of $20,604, $22,896 and $21,944,
respectively, received by Mr. Foster when he served as a director of BC
TEL during 1995, 1994 and 1993, and fees of $289 and $2,869,
respectively, for serving as a director of CANTV during 1994 and 1993.
Mr. White received fees of $16,607 for serving as director of BC TEL
during 1995. Both BC TEL and CANTV are indirectly-owned subsidiaries of
GTE Corporation.
(3) 1995 Long-Term Incentive Plan (LTIP) Payouts include transition awards
for the 1994-1995 performance period, which were established by the
Committee as a special grant to allow for the smooth transitioning from
a single measure of long-term performance (return on equity) to a
combined measure (return on equity and operating cash flow margin).
(4) All other compensation for 1995 includes company contributions to the
GTE Savings Plan of $6,750 for each of Messrs. Daks, Foster, White and
Dinsmore and $3,375 for Mr. Esstman. Also included are company
contributions to the GTE Executive Salary Deferral Plan of $1,544 for
Mr. Daks and $3,863 for each of Messrs. Foster, White, Esstman and
Dinsmore.
(5) Mr. Foster served as President of GTE Telephone Operations through June
1995 at which time he was elected President of GTE Corporation. Mr.
White replaced Mr. Foster as President of GTE Telephone Operations.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options and tandem stock appreciation
rights (SARs) to the named executive officers of the Company in 1995, whether or
not specifically allocated to the Company. The options and SARs were granted
under the Long-Term Incentive Plan (LTIP). Pursuant to Securities and Exchange
Commission (the SEC) rules, the table also shows the value of the options
granted at the end of the option terms (ten years) if the stock price were to
appreciate annually by 5% and 10%, respectively. There is no assurance that the
stock price will appreciate at the rates shown in the table. The table also
indicates that if the stock price does not appreciate, there will be no increase
in the potential realizable value of the options granted.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of Stock
Price Appreciation For
Individual Grants (1) Option Term
---------------------------------------------------------- --------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Percent of
Number of Total Options/
Securities SARs Granted Exercise
Underlying to All GTE Or Base
Options/SARs Employees in Price Expiration
Name Granted (1) Fiscal Year ($/SH) Date 0% 5% 10%
- ---------------------- ---------------- ---------------- ----------- ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter A. Daks 16,900 0.30% $ 33.38 02/14/05 $ -- $ 354,720 $ 898,931
Kent B. Foster 163,100 2.89% 33.38 02/13/05 -- 3,423,364 8,675,477
24,800 0.44% 34.44 07/02/05 -- 536,922 1,360,557
Thomas W. White 63,500 1.12% 33.38 02/13/05 -- 1,332,824 3,377,638
35,300 0.62% 35.75 07/30/05 -- 793,375 2,010,409
Michael B. Esstman 63,500 1.11% 33.38 02/14/05 -- 1,332,824 3,377,638
Gerald K. Dinsmore 36,400 0.64% 33.38 02/14/05 -- 764,013 1,936,158
</TABLE>
(1) Each option was granted in tandem with a SAR, which will expire upon
exercise of the option. Under the LTIP, one-third of these grants vest
annually commencing one year after the date of grant.
40
<PAGE> 43
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table provides information as to options and SARs exercised by
each of the named executive officers of the Company during 1995. The table sets
forth the value of options and SARs held by such officers at year-end measured
in terms of the closing price of GTE Corporation (GTE) Common Stock on December
29, 1995.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/SARs
Acquired Value Options/SARs at FY-End at FY-End ($)
------------------------------ ------------------------------
Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------- -------------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Daks -- $ -- 14,932 28,868 $ 156,424 $ 305,495
Kent B. Foster -- -- 251,331 299,569 2,836,272 3,071,409
Thomas W. White 19,800 227,700 105,566 142,134 1,227,717 1,428,689
Michael B. Esstman -- -- 49,166 106,834 526,500 1,141,425
Gerald K. Dinsmore 29,833 142,354 12,833 61,834 117,248 660,412
</TABLE>
Long-Term Incentive Plan - Awards in Last Fiscal Year
The LTIP provides for awards, currently in the form of stock options with tandem
SARs, other stock-based awards and dollar denominated awards, to participating
employees. The stock options and tandem SARs awarded under the LTIP to the named
executive officers are shown in the table on page 40.
The named executive officers are eligible to receive annual grants of
performance bonuses which are earned during a 36-month performance cycle. Awards
for the three-year performance cycle ending in 1995 were based on GTE's
financial performance during the relevant cycle as measured by GTE's average
Return on Equity (ROE) against pre-established target levels. In 1994, the
Executive Compensation and Organizational Structure Committee of the Board of
Directors of GTE (the Committee) established an additional measure of corporate
performance - operating cash flow margin (OCFM). To transition from awards based
solely on performance against ROE targets to awards based on a combination of
ROE and OCFM performance and to bring opportunities to company levels, the
Committee established a special performance period of two-years to run
concurrently with the final two years of the three-year ROE performance cycle
ending in 1995. The awards for the additional period were based on GTE's
performance against ROE and OCFM goals for the two-year period. The Committee
authorized grants for the three-year performance cycle ending in 1997. The
payments under this cycle will be based on GTE's performance against the ROE and
OCFM targets established for the full three-year cycle. 75% of the award is
determined based on ROE performance and 25% of the award will be determined
based on OCFM performance.
The Committee established minimum and target award opportunities for each cycle
based upon competitive practices. In establishing the targeted performance
objectives for ROE and OCFM, the Committee considered past performance, the
strategic goals of GTE and the plans for implementing those goals. The
established targets are designed to facilitate implementing strategic plans and
improving performance.
At the time performance targets for the current LTIP cycles were established, a
Common Stock Unit account was set up for each participant in the LTIP. An
initial dollar amount for each account (target award) was determined based on
the competitive performance bonus grant practices of the market comparator
group. That amount was then divided by the average market price for GTE Common
Stock for the calendar week preceding the day the account was established to
determine the number of Common Stock Units in the account. The value of the
account increased or decreased based on the market price of the GTE Common
Stock. An amount equal to the dividends paid on an equivalent number of shares
of GTE Common Stock was added on each dividend payment date. This amount was
then converted into a number of Common Stock Units obtained by dividing the
amount of the dividend
41
<PAGE> 44
by the average price of the GTE Common Stock on the composite tape of the New
York Stock Exchange on the dividend payment date and added to the Common Stock
Unit account. Messrs. Daks, Foster, White, Esstman and Dinsmore are each
eligible to receive a cash award under the LTIP. The number of Common Stock
Units initially allocated in 1995 to the named executive officers' accounts and
estimated future payouts under the LTIP are shown in the following table:
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price Based Plans (1)
---------------------------------------------------
(a) (b) (c) (d) (e) (f)
Performance
Or Other Period
Number of Until
Shares, Units Maturation
Name Or Other Rights Or Payout Threshold (2) Target (3) Maximum (4)
- --------------------------- --------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Peter A. Daks 1,900 3 Years 400 1,998
Kent B. Foster 15,400 3 Years 3,527 17,633
2,415 30 Months 538 2,690
1,450 18 Months 310 1,548
610 6 Months 125 624
Thomas W. White 5,900 3 Years 1,351 6,755
2,495 29 Months 556 2,779
1,465 17 Months 313 1,564
370 5 Months 76 378
Michael B. Esstman 5,900 3 Years 1,241 6,204
Gerald K. Dinsmore 3,800 3 Years 799 3,996
</TABLE>
(1) It is not possible to predict future dividends and, accordingly,
estimated Common Stock Unit accruals in this table are calculated for
illustrative purposes only and are based upon the dividend rate and
price of GTE Common Stock at the close of business on December 29,
1995. The target award is the dollar amount derived by multiplying the
Common Stock Unit balance at the end of the award cycle by the price of
GTE Common Stock.
(2) The Threshold is the level of the average ROE and the average OCFM
during the relevant cycle which represents the minimum acceptable
performance level for both the ROE and OCFM performance measures. If
the Threshold is attained with respect to both performance measures,
the award will be equal to 20% of the combined target award for ROE and
OCFM. Because ROE and OCFM are separate performance measures, it is
possible to receive an award if the Threshold is achieved with respect
to only one of the performance measures. If the actual results for one,
but not both, performance measures is at the Threshold level, the
portion of the award determined by the measure performing at the
Threshold level will be at 20% of the target award for that performance
measure, and no award will be made for the portion of the award
determined by the measure performing at less than the Threshold level.
However, if the actual results for both performance measures are below
the minimum acceptable performance level, no award will be earned.
42
<PAGE> 45
(3) The Target is the level of the average ROE and the average OCFM during
the cycle which represents outstanding performance for both the ROE and
OCFM performance measures. If the Target is attained with respect to
both performance measures, the award will be equal to 100% of the
target award for ROE and OCFM. If the actual results for one, but not
both, performance measures is at the Target level, the portion of the
award determined by the measure performing at the Target level will be
at 100% of the target award for that performance measure, and the
portion of the award determined by the measure performing at less than
100% will be determined accordingly.
(4) This column has intentionally been left blank because it is not
possible to determine the maximum award until the award cycle has been
completed. The maximum amount of the award is limited by the amount the
actual ROE and the actual OCFM exceed the targeted ROE and the targeted
OCFM. If GTE's average ROE and OCFM during the cycle exceed their
respective performance targets, additional bonuses may be earned
according to the following schedule:
<TABLE>
<CAPTION>
Performance Increment Above
Maximum Performance Target Added Percentage to Maximum Awards
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First and Second .1% +2%
Third and Fourth .1% +3%
Fifth and above .1% +4%
</TABLE>
For example, if average ROE and OCFM performance each exceed the ROE and OCFM
targets by 0.5%, respectively, the performance bonus will equal 114% of the
combined target award.
43
<PAGE> 46
Executive Agreements
GTE has entered into agreements (the Agreements) with Messrs. Foster, White,
Esstman and Dinsmore regarding benefits to be paid in the event of a change in
control of GTE (a Change in Control).
A Change in Control is deemed to have occurred if a majority of the members of
the Board do not consist of members of the incumbent Board (as defined in the
Agreements) or if, in any 12-month period, three or more directors are elected
without the approval of the incumbent Board. An individual whose initial
assumption of office occurred pursuant to an agreement to avoid or settle a
proxy or other election contest is not considered a member of the incumbent
Board. In addition, a director who is elected pursuant to such a settlement
agreement will not be deemed a director who is elected or nominated by the
incumbent Board for purposes of determining whether a Change in Control has
occurred. A Change in Control will not occur in the following situations: (1)
certain merger transactions in which there is at least 50% GTE shareholder
continuity in the surviving corporation, at least a majority of the members of
the board of directors of the surviving corporation consists of members of the
Board of GTE and no person owns more than 20% (or under certain circumstances, a
lower percentage, not less than 10%) of the voting power of the surviving
corporation following the transaction, and (2) transactions in which GTE's
securities are acquired directly from GTE.
The Agreements provide for benefits to be paid in the event these individuals
separate from service and have a "good reason" for leaving or are terminated
without "cause" within two years after a Change in Control of GTE.
Good reason for leaving includes, but is not limited to, the following events:
demotion, relocation or a reduction in total compensation or benefits, or the
new entity's failure to expressly assume obligations under the Agreements.
Termination for cause includes certain unlawful acts on the part of the
executive or a material violation of his or her responsibilities to the
Corporation resulting in material injury to the Corporation.
An executive who experiences a qualifying separation from service will be
entitled to receive up to two times the sum of (i) base salary and (ii) the
average of his or her other percentage awards under the Executive Incentive Plan
(EIP) for the previous three years. The executive will also continue to receive
medical and life insurance coverage for up to two years and will be provided
with financial and outplacement counseling.
In addition, the Agreements with Messrs. Foster, White, Esstman and Dinsmore
provide that in the event of a separation from service, they will receive
service credit in the following amounts: two times years of service otherwise
credited if the executive has five or fewer years of credited service; 10 years
if credited service is more than five and not more than 10 years; and, if the
executive's credited service exceeds 10 years, the actual number of credited
years of service. These additional years of service will apply towards vesting,
retirement eligibility, benefit accrual and all other purposes under the
Supplemental Executive Retirement Plan (SERP) and the GTE Corporation Executive
Retired Life Insurance Plan (ERLIP). In addition, each executive covered under
an Agreement will be considered to have not less than 76 points and 15 years of
accredited service for the purpose of determining his or her eligibility for
early retirement benefits. The Agreements provide that there will be no
duplication of benefits.
Each of the Agreements remain in effect until July 1, 1999 unless terminated
earlier pursuant to its terms. The Agreements will be automatically renewed on
each successive July 1 unless, not later than December 31 of the preceding year,
one of the parties notifies the other that he does not wish to extend his
respective Agreement. If a Change in Control occurs, the Agreements will remain
in effect until the obligations of GTE (or its successor) under the Agreements
have been satisfied.
44
<PAGE> 47
Retirement Programs
Pension Plans
The estimated annual benefits payable, calculated on a single life annuity
basis, under GTE's defined benefit pension plans at normal retirement at age 65,
based upon final average earnings (integrated with social security as described
below) and years of service, is illustrated in the following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Final Average -----------------------------------------------------------------------------------
Earnings 15 20 25 30 35
- ---------------------- -----------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 150,000 $ 31,460 $ 41,946 $ 52,433 $ 62,919 $ 73,406
200,000 42,335 56,446 70,558 84,669 98,781
300,000 64,085 85,446 106,808 128,169 149,531
400,000 85,835 114,446 143,058 171,669 200,281
500,000 107,585 143,446 179,308 215,169 251,031
600,000 129,335 172,446 215,558 258,669 301,781
700,000 151,085 201,446 251,808 302,169 352,531
800,000 172,835 230,446 288,058 345,669 403,281
900,000 194,585 259,446 324,308 389,169 454,031
1,000,000 216,335 288,446 360,558 432,669 504,781
1,200,000 259,835 346,446 433,058 519,669 606,281
1,500,000 325,085 433,446 541,808 650,169 758,531
2,000,000 433,835 578,446 723,058 867,669 1,012,281
</TABLE>
GTE Service Corporation, a wholly-owned subsidiary of GTE, maintains the GTE
Service Corporation Plan for Employees' Pensions (the Service Corporation Plan),
a noncontributory pension plan for the benefit of all GTE employees based on
years of service. Pension benefits to be paid from the Service Corporation Plan
and contributions to the Service Corporation Plan are related to basic salary
exclusive of overtime, differentials, incentive compensation (except as
otherwise described) and other similar types of payment. Under the Service
Corporation Plan, pensions are computed on a two-rate formula basis of 1.15% and
1.45% for each year of service, with the 1.15% service credit being applied to
that portion of the average annual salary for the five highest consecutive years
that does not exceed the Social Security Integration Level (the portion of
salary subject to the Federal Security Act), and the 1.45% service credit being
applied to that portion of the average annual salary that exceeds said level. As
of December 31, 1995, the credited years of service under the plan for Messrs.
Daks, Foster, White, Esstman and Dinsmore are 17, 25, 28, 26 and 20,
respectively.
Under Federal law, an employee's benefits under a qualified pension plan, such
as the Service Corporation Plan are limited to certain maximum amounts. GTE
maintains a SERP, which supplements the benefits of any participant in the
Service Corporation Plan, in an amount by which any participant's benefits under
the Service Corporation Plan are limited by law. In addition, the SERP includes
a provision permitting the payment of additional retirement benefits determined
in a similar manner as under the Service Corporation Plan on remuneration
accrued under management incentive plans as determined by the Committee. SERP
benefits are payable in a lump sum or an annuity.
45
<PAGE> 48
Executive Retired Life Insurance Plan
The ERLIP provides Messrs. Daks, Foster, White, Esstman and Dinsmore a
postretirement life insurance benefit of three times final base salary. Upon
retirement, ERLIP benefits may be paid as life insurance, or optionally, an
equivalent amount equal to the present value of the life insurance amount (based
on actuarial factors and the interest rate then in effect), as a lump sum
payment, as an annuity or as installment payments.
Directors' Compensation
The current directors, all of whom are employees of GTE, are not paid any fees
or remuneration, as such, for service on the Board.
46
<PAGE> 49
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners as of February 29, 1996:
<TABLE>
<CAPTION>
Name and Address of Shares of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
-------------------------- ------------------------------- ----------------------- ------------------
<S> <C> <C>
Common Stock of GTE GTE Corporation 23,400,000 100%
Florida Incorporated One Stamford Forum shares of record
Stamford, Connecticut 06904
</TABLE>
(b) Security Ownership of Management as of December 31, 1995:
<TABLE>
<CAPTION>
Title of Class Name of Director or Nominee (1) (2) (3)
-------------------------- -------------------------------------------------------
<S> <C> <C>
Common Stock of GTE Richard M. Cahill 54,481
Corporation Gerald K. Dinsmore 29,667
Michael B. Esstman 107,586
Thomas W. White 119,761
---------------
311,495
===============
<CAPTION>
Executive Officers (1) (2) (3)
-----------------------------------------------
<S> <C> <C>
Peter A. Daks 29,801
Kent B. Foster 432,173
Thomas W. White 119,761
Michael B. Esstman 107,586
Gerald K. Dinsmore 29,667
---------------
718,988
===============
All directors and executive
officers as a group (1) (2) (3) 1,460,468
===============
</TABLE>
(1) Includes shares acquired through participation in GTE's Consolidated
Employee Stock Ownership Plan and/or the GTE Savings Plan.
(2) Included in the number of shares beneficially owned by Messrs. Cahill,
Dinsmore, Esstman, White, Daks and Foster and all directors and
executive officers as a group are 49,733; 27,267; 93,066; 106,699;
26,966; 367,865 and 1,212,885 shares, respectively, which such persons
have the right to acquire within 60 days pursuant to sock options.
(3) No director, nominee for director or executive officer owns as much as
one-tenth of one percent of the total outstanding shares of GTE Common
Stock, and all directors and executive officers as a group own less
than one-fifth of one percent of the total outstanding shares of GTE
Common Stock.
(c) There were no changes in control of the Company during 1995.
The Federal securities laws require the Company's directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of any equity
securities of the Company.
47
<PAGE> 50
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and representations that no other reports were
required, all persons subject to these reporting requirements filed the required
reports on a timely basis. All of the Company's common stock is owned by GTE
and, to the Company's knowledge, none of such directors or executive officers
currently owns, or has ever owned, any shares of the Company's registered
preferred stock (which is the only registered class of the Company's equity
securities).
Item 13. Certain Relationships and Related Transactions
The Company's executive officers or directors were not materially indebted to
the Company or involved in any material transaction in which they had a direct
or indirect material interest. None of the Company's directors were involved in
any business relationships with the Company.
48
<PAGE> 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) (1) Financial Statements - See GTE Florida Incorporated's
consolidated financial statements and report of independent
accountants thereon in the Financial Statements section
included elsewhere herein.
(2) Financial Statement Schedules - Schedules supporting the
financial statements for the years ended December 31,
1995-1993 (as required):
II - Valuation and Qualifying Accounts
Note: Schedules other than the one listed above are omitted as not
applicable, not required, or the information is included in
the financial statements or notes thereto.
(3) Exhibits - Included in this report or incorporated by
reference.
3.1* Amended Articles of Incorporation (Exhibit 3.1 of the
September 30, 1995 Form 10-Q, File No. 1-3090)
3.2* Amended Bylaws (Exhibit 3.2 of the September 30, 1995
Form 10-Q, File No. 1-3090)
4* Indenture dated as of November 1, 1993 between GTE
Florida Incorporated and NationsBank of Georgia,
National Association, as Trustee (Exhibit 4.1 of the
Company's Registration Statement on Form S-3, File
No. 33-50711)
10 Material Contracts - Agreements Between GTE and
Certain Executive Officers
12 Statement re: Calculation of the Consolidated Ratio
of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
On November 13, 1995, the Company filed a report on Form 8-K dated
November 9, 1995, under Item 5 "Other Events". Financial information
was filed with this report.
The Company filed a report on Form 8-K, dated November 14, 1995 under
Item 7 "Financial Statements and Exhibits", which included computations
of the Company's consolidated ratios of earnings to fixed charges.
* Denotes exhibits incorporated herein by reference to previous filings
with the Securities and Exchange Commission as designated.
49
<PAGE> 52
GTE Florida Incorporated and Subsidiary
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(Thousands of Dollars)
- -------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------
Additions
----------------------------------
Deductions
Balance at from
Beginning Charged to Charged to Reserves Balance at
Description of Year Income Other Accounts (Note 1) Close of Year
- -------------------------------------------------------------------------------------------------------------------
Allowance for uncollectible accounts for the years ended:
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 19,737 $ 27,444 $ 35,928(2) $ 65,392 $ 17,717
===================================================================================
December 31, 1994 $ 25,229 $ 23,973 $ 11,665(2) $ 41,130 $ 19,737
===================================================================================
December 31, 1993 $ 19,184 $ 37,309 $ 26,340(2) $ 57,604 $ 25,229
===================================================================================
<CAPTION>
Accrued restructuring costs for the years ended (Note 3):
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 150,831 $ -- $ -- $ 48,926 $ 101,905
===================================================================================
December 31, 1994 $ 194,330 $ -- $ -- $ 43,499 $ 150,831
===================================================================================
December 31, 1993 $ -- $ 194,330 $ -- $ -- $ 194,330
===================================================================================
</TABLE>
NOTES:
(1) Charges for purpose for which reserve was created.
(2) Recoveries of previously written-off amounts.
(3) See Note 3 to the consolidated financial statements included elsewhere
herein.
50
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GTE FLORIDA INCORPORATED
---------------------------------------
(Registrant)
Date March 27, 1996 By Peter A. Daks
--------------------- --------------------------------------
Peter A. Daks
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Peter A. Daks President March 27, 1996
- --------------------------- (Principal Executive Officer)
Peter A. Daks
Gerald K. Dinsmore Senior Vice President - Finance and March 27, 1996
- --------------------------- Planning and Director
Gerald K. Dinsmore (Principal Financial Officer)
William M. Edwards, III Controller March 27, 1996
- --------------------------- (Principal Accounting Officer)
William M. Edwards, III
John C. Appel Director March 27, 1996
- ---------------------------
John C. Appel
Richard M. Cahill Director March 27, 1996
- ---------------------------
Richard M. Cahill
Michael B. Esstman Director March 27, 1996
- ---------------------------
Michael B. Esstman
Thomas W. White Director March 27, 1996
- ---------------------------
Thomas W. White
</TABLE>
51
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------------ ----------------------------------------------------------------------------------------
<S> <C>
10 Material Contracts - Agreements Between GTE and Certain Executive Officers
12 Statements re: Calculation of the Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10
EXECUTIVE SEVERANCE AGREEMENT
This AGREEMENT ("Agreement") dated as of January 8, 1996, by and
between GTE Service Corporation, a New York corporation (the "Company"), and
the "Executive".
W I T N E S S E T H:
WHEREAS, the Company recognizes the valuable services that the
Executive has rendered thereto and desires to be assured that the Executive
will continue to attend to the business and affairs of the Company without
regard to any potential or actual change in control of GTE Corporation, a New
York corporation and the Company's sole shareholder ("GTE"); and
WHEREAS, the Executive is willing to continue to serve the Company,
but desires assurance that he will not be materially disadvantaged by a change
in control of GTE;
NOW, THEREFORE, in consideration of the Executive's continued service
to the Company and the mutual agreements herein contained, the Company and the
Executive hereby agree as follows:
ARTICLE I
ELIGIBILITY FOR BENEFITS
Section 1.1. Qualifying Termination. The Company shall not be
required to provide any benefits to the Executive pursuant to this Agreement
unless a Qualifying Termination occurs before the Agreement expires in
accordance with Section 6.1 hereof. For purposes of this Agreement, a
Qualifying Termination shall occur only if
(a) a Change in Control occurs, and
(b) (i) within two years after the Change in Control, the Company
terminates the Executive's employment other than for Cause; or
(ii)(A) within two years after the Change in Control, a Good
Reason arises, and (B) the Executive terminates employment
with the Company within (I) six months after the Good Reason
arises or (II) two years after the Change in Control,
whichever occurs later;
provided, that a Qualifying Termination shall not occur if the Executive's
employment with the Company terminates by reason of the Executive's Retirement,
Disability, or death. A Qualifying Termination may occur even though the
Executive retires from employment with the Company other than by reason of
Retirement or Disability.
Section 1.2. Change in Control. Except as provided below, a
Change in Control shall be deemed to occur when and only when the first of the
following events occurs:
(a) an acquisition (other than directly from GTE) of securities of
GTE by any Person, immediately after which such Person,
together with all Affiliates and Associates of such Person,
shall be the Beneficial Owner of securities of GTE
representing 20 percent or more of the Voting Power or such
lower percentage of the Voting Power that, from time to time,
would cause the Person to constitute an "Acquiring Person" (as
such term is defined in the Rights Plan); provided that, in
determining whether a Change in Control has occurred, the
acquisition of securities of GTE in a Non-Control Acquisition
shall not constitute an acquisition that would cause a Change
in Control; or
(b) three or more directors, whose election or nomination for
election is not approved by a majority of the members of the
"Incumbent Board" (as defined below) then serving as members
of the Board, are elected within any single 12-month period to
serve on the Board; provided that an individual whose election
or nomination for election is approved as a result of either
an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Securities Exchange Act of
1934, as amended from time to time) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest"),
including by
<PAGE> 2
reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest, shall be deemed not to have
been approved by a majority of the Incumbent Board for
purposes hereof; or
(c) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board; "Incumbent Board"
shall mean individuals who, as of the close of business on
April 19, 1995, are members of the Board; provided that, if
the election, or nomination for election by GTE's
shareholders, of any new director was approved by a vote of at
least three-quarters of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board; provided further that no
individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of
either an actual or threatened Election Contest or other
actual or threatened Proxy Contest, including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(d) approval by shareholders of GTE of:
(i) a merger, consolidation, or reorganization involving
unless
(A) the shareholders of GTE, immediately before
the merger, consolidation, or reorganization, own, directly or
indirectly immediately following such merger, consolidation,
or reorganization, at least 50 percent of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger, consolidation, or reorganization
(the "Surviving Corporation") in substantially the same
proportion as their ownership of the voting securities
immediately before such merger, consolidation, or
reorganization;
(B) individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation, or reorganization
constitute at least a majority of the board of directors of
the Surviving Corporation; and
(C) no Person (other than GTE or any subsidiary
of GTE, any employee benefit plan (or any trust forming a part
thereof) maintained by GTE, the Surviving Corporation, or any
subsidiary of GTE, or any Person who, immediately prior to
such merger, consolidation, or reorganization, had Beneficial
Ownership of securities representing 20 percent (or such lower
percentage the acquisition of which would cause a Change in
Control pursuant to paragraph (a) of this definition of
"Change in Control") or more of the Voting Power) has
Beneficial Ownership of securities representing 20 percent (or
such lower percentage the acquisition of which would cause a
Change in Control pursuant to paragraph (a) of this definition
of "Change in Control") or more of the combined Voting Power
of the Surviving Corporation's then outstanding voting
securities;
(ii) a complete liquidation or dissolution of GTE; or
(iii) an agreement for the sale or other disposition of all
or substantially all of the assets of GTE to any Person (other
than a transfer to a subsidiary of GTE).
For purposes of this Section, the following terms shall have the
definitions set forth below:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended from time to time.
"Board" means the Board of Directors of GTE.
"Non-Control Acquisition" means an acquisition by (1) an employee
benefit plan (or a trust forming a part thereof) maintained by GTE or any of
its subsidiaries, (2) GTE or any of its subsidiaries, or (3) any Person in
connection with a "Non-Control Transaction."
"Non-Control Transaction" means a transaction described in clauses (A)
through (C) of paragraph (d)(i) of the definition of "Change in Control"
herein.
"Person" shall mean any individual, firm, corporation, partnership,
joint venture, association, trust, or other entity.
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(x) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(y) which such Person or any of such Person's Affiliates or
Associates has (i) the right or obligation to acquire (whether
such right or obligation is exercisable or effective
immediately or only after the passage of time) pursuant to any
agreement, arrangement, or understanding (whether or not in
<PAGE> 3
writing) or upon the exercise of conversion rights, exchange
rights, rights (other than the rights granted pursuant to the
Rights Plan), warrants or options, or otherwise; provided that
a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (ii) the right to vote
pursuant to any agreement, arrangement, or understanding
(whether or not in writing); provided that a Person shall not
be deemed the "Beneficial Owner" of, or to "beneficially own,"
any security under this clause (ii) if the agreement,
arrangement, or understanding to vote such security (A) arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the
Securities Exchange Act of 1934, as amended from time to time,
and (B) is not also then reported by such person on Schedule
13D under the Securities Exchange Act of 1934, as amended from
time to time (or any comparable or successor report); or
(z) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with
which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement, or understanding
(whether or not in writing), or with which such Person or any
of such Person's Affiliates or Associates have otherwise
formed a group for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in clause
(ii)(A) of subparagraph (y), above), or disposing of any
securities of GTE.
"Rights Plan" means the Rights Agreement, dated as of December 7,
1989, between GTE and State Street Bank and Trust Company (now administered by
the First National Bank of Boston), as it may be amended from time to time, or
any successor thereto.
"Voting Power" means the voting power of all securities of GTE then
outstanding generally entitled to vote for the election of directors of GTE.
Section 1.3. Termination for Cause. The Company shall have Cause
to terminate the Executive for purposes of Section 1.1 hereof only if the
Executive (a) engages in unlawful acts intended to result in the substantial
personal enrichment of the Executive at the Company's expense, or (b) engages
(except by reason of incapacity due to illness or injury) in a material
violation of his responsibilities to the Company that results in a material
injury to the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a notice, consisting of a copy of a resolution duly
adopted by the affirmative vote of not less than three quarters of the entire
membership of GTE's Board of Directors at a duly held meeting of the Board of
Directors (with reasonable notice to the Executive and an opportunity for the
Executive, together with counsel, to be heard before the Board of Directors)
("Notice of Termination"), finding that the Executive has engaged in the
conduct set forth above in this Section 1.3 and specifying the particulars
thereof in detail. GTE's Board of Directors may not delegate or assign its
duties under this Section 1.3.
Section 1.4. Termination for Good Reason. The Executive shall
have a Good Reason for terminating employment with the Company only if one or
more of the following occurs after a Change in Control:
(a) a change in the Executive's status or position(s) with the
Company that, in the Executive's reasonable judgment,
represents a demotion from the Executive's status or
position(s) in effect immediately before the Change in
Control;
(b) the assignment to the Executive of any duties or
responsibilities that, in the Executive's reasonable judgment,
are inconsistent with the Executive's status or position(s) in
effect immediately before the Change in Control;
(c) layoff or involuntary termination of the Executive's
employment, except in connection with the termination of the
Executive's employment for Cause or as a result of the
Executive's Retirement, Disability, or death;
(d) a reduction by the Company in the Executive's total
compensation (which shall be deemed, for this purpose, to be
equal to his base salary plus the greater of (i) the most
recent award that he has earned under the GTE Corporation
Executive Incentive Plan, as amended from time to time, or any
successor thereto (the "EIP"), or (ii) an EIP award equal to
the Executive's Average Percentage of the annual value (i.e.,
the dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal payment
being those that are in effect under the EIP immediately
before the date on which the Change in Control occurs for the
Executive's salary level immediately before the date on which
the Change in Control occurs)). For
<PAGE> 4
purposes of this paragraph (d), the Executive's "Average
Percentage" means the average of the Executive's Annual
Percentages for the Determination Years. For purposes of this
paragraph (d), the Executive's "Annual Percentage" for each
Determination Year means a fraction (expressed as a
percentage), the numerator of which is the EIP award earned by
the Executive for such Determination Year, and the denominator
of which is the annual value of the normal payment under the
EIP for the Executive's salary level (such annual value and
normal payment being those that were in effect under the EIP
for such Determination Year for the Executive's salary level
for such Determination Year). For purposes of this paragraph
(d), a "Determination Year" means each of the last three EIP
plan years ending before the date on which the Change in
Control occurs (or, if less, the number of those three plan
years during which the Executive was a participant in the
EIP);
(e) a material increase in the Executive's responsibilities or
duties without a commensurate increase in total compensation;
(f) the failure by the Company to continue in effect any Plan in
which the Executive is participating at the time of the Change
in Control (or plans or arrangements providing the Executive
with substantially equivalent benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control;
(g) any action or inaction by the Company that would adversely
affect the Executive's continued participation in any Plan on
at least as favorable a basis as was the case on the date of
the Change in Control, or that would materially reduce the
Executive's benefits in the future under the Plan or deprive
him of any material benefits that he enjoyed at the time of
the Change in Control, except to the extent that such action
or inaction by the Company is required by the terms of the
Plan as in effect immediately before the Change in Control, or
is necessary to comply with applicable law or to preserve the
qualification of the Plan under section 401(a) of the Internal
Revenue Code, and except to the extent that the Company
provides the Executive with substantially equivalent benefits;
(h) the Company's failure to provide and credit the Executive with
the number of days of paid vacation, holiday, or leave to
which he is then entitled in accordance with the Company's
normal vacation, holiday, or leave policy in effect
immediately before the Change in Control;
(i) the imposition of any requirement that the Executive be based
anywhere other than within 25 miles of where his principal
office was located immediately before the Change in Control;
(j) a material increase in the frequency or duration of the
Executive's business travel;
(k) the Company's failure to obtain the express assumption of this
Agreement by any successor to the Company as provided by
Section 6.3 hereof;
(l) any attempt by the Company to terminate the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 1.3 hereof
or that does not afford the Executive the procedural
protections prescribed by that Section; or
(m) any violation by the Company of any agreement (including this
Agreement) between it and the Executive.
Notwithstanding the foregoing, no action by the Company shall give rise to a
Good Reason if it results from the Executive's termination for Cause,
Retirement, or death, and no action by the Company specified in paragraphs (a)
through (d) of the preceding sentence shall give rise to a Good Reason if it
results from the Executive's Disability. A Good Reason shall not be deemed to
be waived by reason of the Executive's continued employment as long as the
termination of the Executive's employment occurs within the time prescribed by
Section 1.1(b)(ii)(B) hereof. For purposes of this Section 1.4, "Plan" means
any compensation plan, such as an incentive, stock option, or restricted stock
plan, or any employee benefit plan, such as a thrift, pension, profit-sharing,
stock bonus, long-term performance award, medical, disability, accident, or
life insurance plan, or a relocation plan or policy, or any other plan, program
or policy of the Company that is intended to benefit employees.
Section 1.5. Retirement. For purposes of this Agreement,
"Retirement" shall mean the Executive's termination of employment upon or after
attaining age 65.
Section 1.6. Disability. For purposes of this Agreement,
"Disability" shall mean an illness or injury that prevents the Executive from
performing his duties (as they existed immediately before the illness or
injury) on a full- time basis for six consecutive months.
Section 1.7. Notice. If a Change in Control occurs, the Company
shall notify the Executive of the
<PAGE> 5
occurrence of the Change in Control within two weeks after the Change in
Control.
ARTICLE II
BENEFITS AFTER A QUALIFYING TERMINATION
Section 2.1. Basic Severance Payment.
(a) If the Executive incurs a Qualifying Termination, the Company
shall pay to the Executive a cash amount equal to 200% of the
Base Amount. The Base Amount shall be an amount equal to the
greater of:
(A) the sum of (I) the Executive's base annual
salary immediately before the Change in Control plus (II) the
Executive's Average Percentage of the annual value (i.e., the
dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal payment
being those that are in effect under the EIP immediately
before the date on which the Change in Control occurs for the
Executive's salary level immediately before the date on which
the Change in Control occurs). For purposes of this paragraph
(A), the Executive's "Average Percentage" means the average of
the Executive's Annual Percentages for the Determination
Years. For purposes of this paragraph (A), the Executive's
"Annual Percentage" for each Determination Year means a
fraction (expressed as a percentage), the numerator of which
is the EIP award earned by the Executive for such
Determination Year, and the denominator of which is the annual
value of the normal payment under the EIP for the Executive's
salary level (such annual value and normal payment being those
that were in effect under the EIP for such Determination Year
for the Executive's salary level for such Determination Year).
For purposes of this paragraph (A), a "Determination Year"
means each of the last three EIP plan years ending before the
date on which the Change in Control occurs (or, if less, the
number of those three plan years during which the Executive
was a participant in the EIP); or
(B) the sum of (I) the Executive's base annual
salary immediately before the Qualifying Termination plus (II)
the Executive's Average Percentage of the annual value (i.e.,
the dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal
payment being those that are in effect under the EIP
immediately before the date on which the Qualifying
Termination occurs for the Executive's salary level
immediately before the date on which the Qualifying
Termination occurs). For purposes of this paragraph (B), the
Executive's "Average Percentage" means the average of the
Executive's Annual Percentages for the Determination Years.
For purposes of this paragraph (B), the Executive's "Annual
Percentage" for each Determination Year means a fraction
(expressed as a percentage), the numerator of which is the EIP
award earned by the Executive for such Determination Year, and
the denominator of which is the annual value of the normal
payment under the EIP for the Executive's salary level (such
annual value and normal payment being those that were in
effect under the EIP for such Determination Year for the
Executive's salary level for such Determination Year). For
purposes of this paragraph (B), a "Determination Year" means
each of the last three EIP plan years ending before the date
on which the Qualifying Termination occurs (or, if less, the
number of those three plan years during which the Executive
was a participant in the EIP).
(b) The Company shall make the payment to the Executive pursuant
to subsection (a) of this Section 2.1 in a lump sum within 30
days of the Qualifying Termination.
Section 2.2. Insurance. If the Executive incurs a Qualifying
Termination, the Company shall provide the Executive, at the Company's expense,
for a period beginning on the date of the Qualifying Termination, the same
medical insurance and life insurance coverage as was in effect immediately
before the Change in Control (or, if greater, as in effect immediately before
the Qualifying Termination occurs); such coverage shall end upon the earlier of
(a) the expiration of 24 months after the Qualifying Termination or (b)(i) with
respect to medical insurance coverage, the date on which the Executive first
becomes eligible for medical insurance coverage provided by a firm that employs
him following the Qualifying Termination, or (ii) with respect to life
insurance coverage, the date on which the Executive first becomes eligible for
life insurance coverage provided by such firm.
<PAGE> 6
Section 2.3. Outplacement Counseling. If the Executive incurs a
Qualifying Termination, the Company shall make available to the Executive, at
the Company's expense, outplacement counseling that is at least equivalent to
the outplacement counseling that the Company provided to its terminated senior
executives during 1995. Subject to the foregoing, the Executive may select
the organization that will provide the outplacement counseling; provided, that
this sentence shall not require the Company to provide the Executive with
outplacement counseling that is more costly to the Company than the
outplacement counseling that this Section 2.3 otherwise requires the Company to
provide to the Executive.
Section 2.4. Financial Counseling. If the Executive incurs a
Qualifying Termination, the Company shall, within 30 days of the Qualifying
Termination, make available to the Executive three individual financial
counseling sessions, of at least two hours each and at times and locations that
are convenient to the Executive, with a nationally recognized financial
counseling firm. At the financial counseling sessions, the financial
counseling firm shall provide the Executive with detailed financial advice that
is tailored to the Executive's particular personal and financial situation.
The Company shall specify to the Executive the information regarding his
personal and financial situation that he must provide to the financial
counseling firm in order for the firm to provide the counseling services
required by this Section 2.4. The Company shall take all reasonable and
appropriate measures to assure that the financial counseling firm preserves the
confidentiality of all information conveyed by the Executive to the counseling
firm.
Section 2.5. Benefit Credit. If the Executive incurs a Qualifying
Termination,
(a) the Executive shall receive service credit, for the purpose of
receiving benefits and for vesting, retirement eligibility,
benefit accrual, and all other purposes, under all employee
benefit plans sponsored by the Company (including, but not
limited to, health, life insurance, pension, savings, stock,
and stock ownership plans, but excluding the Company's
short-term and long-term disability plans) in which he
participated immediately before the Change in Control, for 24
months;
(b) for purposes of determining the Executive's benefits under all
defined benefit pension plans maintained by the Company,
including the GTE Service Corporation Supplemental Executive
Retirement Plan ("SERP"), the Executive's compensation shall
include the amount payable to the Executive pursuant to
Section 2.1 hereof, and for purposes of this subsection (b),
the Executive shall be deemed to have received such amount in
monthly installments, each equal to 1/24th of the amount
payable to the Executive pursuant to Section 2.1 hereof; and
(c) the Executive shall be considered to have not less than 76
points and 15 years of Accredited Service for purposes of
determining his eligibility for early retirement benefits
under the Company's defined benefit pension plans (including,
but not limited to, the SERP) and for purposes of determining
his eligibility for benefits under the GTE Executive Retired
Life Insurance Plan (or any predecessor or successor thereto).
Notwithstanding the service credit granted under subsection (a) of this
Section 2.5 and the compensation recognized under subsection (b) of this
Section 2.5, nothing in this Section 2.5 shall prevent the Executive from
receiving any benefits to which the Executive is entitled under any defined
benefit or defined contribution pension plan maintained by the Company,
including the SERP (as such benefits are modified by this Agreement) in any
form permitted by such plans (including but not limited to a lump-sum
distribution) immediately following the Executive's Qualifying Termination. To
the extent that the Company's tax-qualified retirement plans cannot provide the
benefits specified by this Section 2.5 without jeopardizing the tax
qualification of such plans, the Company shall provide such benefits under the
SERP.
Section 2.6. Nonduplication.
(a) Nothing in this Agreement shall require the Company to make
any payment or to provide any benefit or service credit that
GTE or the Company is otherwise required to provide under any
other contract, agreement, policy, plan, or arrangement.
Section 2.7. Prior Agreement. This Agreement supersedes any prior
Executive Severance Agreement entered into between the Company and the
Executive ("Prior Agreement"). On and after the date of this Agreement, such
Prior Agreement shall have no force or effect.
<PAGE> 7
ARTICLE III
EFFECT ON HUMAN RESOURCES POLICY 104
Section 3.1. Effect on Policy 104. If the Executive becomes
entitled to receive benefits hereunder, the Executive shall not be entitled to
any benefits under GTE Human Resources Policy 104, as amended from time to
time, or any successor policy, or under any other Company severance or salary
continuation policy (including but not limited to any benefits pursuant to an
involuntary separation program or similar program maintained under a pension
plan sponsored by the Company).
ARTICLE IV
TAX MATTERS
Section 4.1. Withholding. The Company may withhold from any
amounts payable to the Executive hereunder all federal, state, city or other
taxes that the Company may reasonably determine are required to be withheld
pursuant to any applicable law or regulation.
ARTICLE V
COLLATERAL MATTERS
Section 5.1. Nature of Payments. All payments to the Executive
under this Agreement shall be considered either payments in consideration of
his continued service to the Company or severance payments in consideration of
his past services thereto.
Section 5.2. Legal Expenses. The Company shall pay all legal fees
and expenses that the Executive may incur as a result of the Company's
contesting the validity, the enforceability or the Executive's interpretation
of, or determinations under, this Agreement; provided, that this Section 5.2
shall be operative only if and to the extent that (a) the Company fails to
establish a trust that defrays all such legal fees and expenses or (b) the
Company establishes such a trust, but the trust fails to pay all such legal
fees and expenses.
Section 5.3. Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement either by
seeking other employment or otherwise. The amount of any payment provided for
herein shall not be reduced by any remuneration that the Executive may earn
from employment with another employer or otherwise following his Qualifying
Termination.
Section 5.4. Interest. If the Company fails to make, or cause to
be made, any payment provided for herein within 30 days of the date on which
the payment is due, the Company shall make such payment together with interest
thereon. The interest shall accrue and be compounded monthly. The interest
rate shall be equal to 120 percent of the prime rate as reported by The Wall
Street Journal for the first business day of each month, effective for the
ensuing month. The interest rate shall be adjusted at the beginning of each
month.
Section 5.5. Authority. The execution of this Agreement has been
authorized by the Board of Directors of the Company and by the Board of
Directors of GTE.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Term of Agreement. This Agreement shall become
effective on the date hereof and shall continue in effect until the earliest of
(a) July 1, 1999, if no Change in Control has occurred before that date; (b)
the termination of the Executive's employment with the Company for any reason
prior to a Change in Control; (c) the Company's termination of the Executive's
employment for Cause, or the Executive's resignation for other than Good
<PAGE> 8
Reason, following a Change in Control and the Company's and the Executive's
fulfillment of all of their obligations hereunder; and (d) the expiration
following a Change in Control of two years and six months and the fulfillment
by the Company and the Executive of all of their obligations hereunder.
Notwithstanding the foregoing, commencing on July 1, 1999, and on July 1 of
each year thereafter, the expiration date prescribed by clause (a) of the
preceding sentence shall automatically be extended for an additional year
unless, not later than December 31 of the immediately preceding year, one of
the parties hereto shall have given notice to the other party hereto that it
(or he) does not wish to extend the term of this Agreement. Furthermore,
nothing in this Article VI shall cause this Agreement to terminate before both
the Company and the Executive have fulfilled all of their obligations
hereunder.
Section 6.2. Governing Law. Except as otherwise expressly
provided herein, this Agreement and the rights and obligations hereunder shall
be construed and enforced in accordance with the laws of the State of New York.
Section 6.3. Successors to the Company. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Company and any successor thereto, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or
substantially all of the business or assets of the Company, whether by merger,
consolidation, sale or otherwise, but shall not otherwise be assignable by the
Company. Without limitation of the foregoing sentence, the Company shall
require any successor (whether direct or indirect, by merger, consolidation,
sale or otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form satisfactory to the Executive, expressly,
absolutely and unconditionally to assume and to agree to perform this Agreement
in the same manner and to the same extent as the Company would have been
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as heretofore defined and any
successor to all or substantially all of its business or assets that executes
and delivers the agreement provided for in this Section 6.3 or that becomes
bound by this Agreement either pursuant to this Agreement or by operation of
law. As used in this Agreement, "GTE" shall mean GTE as heretofore defined and
any successor to all or substantially all of its business or assets.
Section 6.4. Noncorporate Entities. If any provision of this
Agreement refers to the board of directors of an entity that has no board of
directors, the reference to board of directors shall be deemed to refer to the
body, committee, or person that has duties and responsibilities with respect to
the entity that most closely approximate those of a board of directors of a
corporation.
Section 6.5. Successor to the Executive. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Executive and his personal and legal representatives, executors,
administrators, heirs, distributees, legatees and, subject to Section 6.6
hereof, his designees ("Successors"). If the Executive should die while
amounts are or may be payable to him under this Agreement, references hereunder
to the "Executive" shall, where appropriate, be deemed to refer to his
Successors; provided, that nothing in this Section 6.5 shall supersede the
terms of any plan or arrangement (other than this Agreement) that is affected
by this Agreement.
Section 6.6. Nonalienability. No right of or amount payable to
the Executive under this Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance, charge, execution, attachment, levy or similar process or to
setoff against any obligations or to assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall be void. However, this Section 6.6 shall
not prohibit the Executive from designating one or more persons, on a form
satisfactory to the Company, to receive amounts payable to him under this
Agreement in the event that he should die before receiving them.
Section 6.7. Notices. All notices provided for in this Agreement
shall be in writing. Notices to the Company shall be deemed given when
personally delivered or sent by certified or registered mail or overnight
delivery service to GTE Service Corporation, One Stamford Forum, Stamford,
Connecticut 06904, Attention: Corporate Secretary. Notices to the Executive
shall be deemed given when personally delivered or sent by certified or
registered mail or overnight delivery service to the last address for the
Executive shown on the records of the Company. Either the Company or the
Executive may, by notice to the other, designate an address other than the
foregoing for the receipt of subsequent notices.
Section 6.8. Amendment. No amendment to this Agreement shall be
effective unless in writing and signed by both the Company and the Executive.
Section 6.9. Waivers. No waiver of any provision of this
Agreement shall be valid unless approved in writing by the party giving such
waiver. No waiver of a breach under any provision of this Agreement shall be
deemed to be a waiver of such provision or any other provision of this
Agreement or any subsequent breach. No failure on the part of either the
Company or the Executive to exercise, and no delay in exercising, any right or
remedy
<PAGE> 9
conferred by law or this Agreement shall operate as a waiver of such right or
remedy, and no exercise or waiver, in whole or in part, of any right or remedy
conferred by law or herein shall operate as a waiver of any other right or
remedy.
Section 6.10. Severability. If any provision of this Agreement
shall be held unlawful or otherwise invalid or unenforceable in whole or in
part, such unlawfulness, invalidity or unenforceability shall not affect any
other provision of this Agreement or part thereof, each of which shall remain
in full force and effect. If the making of any payment or the provision of any
other benefit required under this Agreement shall be held unlawful or otherwise
invalid or unenforceable, such unlawfulness, invalidity or unenforceability
shall not prevent any other payment or benefit from being made or provided
under this Agreement, and if the making of any payment in full or the provision
of any other benefit required under this Agreement in full would be unlawful or
otherwise invalid or unenforceable, then such unlawfulness, invalidity or
unenforceability shall not prevent such payment or benefit from being made or
provided in part, to the extent that it would not be unlawful, invalid or
unenforceable, and the maximum payment or benefit that would not be unlawful,
invalid or unenforceable shall be made or provided under this Agreement.
Section 6.11. Agents. The Company may make arrangements to cause
any agent or other party, including an affiliate of the Company, to make any
payment or to provide any benefit that the Company is required to make or to
provide hereunder; provided, that no such arrangement shall relieve or
discharge the Company of its obligations hereunder except to the extent that
such payments or benefits are actually made or provided.
Section 6.12. Definitions. All upper case terms used herein shall
have the meaning set forth in this Agreement.
Section 6.13. Captions. The captions to the respective articles
and sections of this Agreement are intended for convenience of reference only
and have no substantive significance.
Section 6.14. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original but all
of which together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GTE SERVICE CORPORATION
By: J. Randall MacDonald
----------------------
J. Randall MacDonald
Senior VP-Human Resources
and Administration
By: Marianne Drost
----------------------
Marianne Drost
VP and Associate General
Counsel-Finance & Corporate
Secretary
<PAGE> 1
Exhibit 12
GTE Florida Incorporated and Subsidiary
STATEMENTS OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1993(a) 1992 1991
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed charges:
Income (loss) before extraordinary
charges $ 175,473 $ 140,255 $ 106,908 $ (15,227) $ 165,924 $ 147,275
Add - Income taxes (benefit) 104,612 86,167 59,076 (16,924) 98,789 64,162
- Fixed charges 74,226 70,285 76,786 76,786 82,184 85,640
---------- ---------- ----------- ---------- ---------- -----------
Adjusted earnings: $ 354,311 $ 296,707 $ 242,770 $ 44,635 $ 346,897 $ 297,077
========== ========== =========== ========== ========== ===========
Fixed charges:
Interest expense $ 65,078 $ 61,152 $ 69,529 $ 69,529 $ 74,856 $ 79,001
Portion of rent expense
representing interest 9,148 9,133 7,257 7,257 7,328 6,639
---------- ---------- ----------- ---------- ---------- -----------
Adjusted fixed charges: $ 74,226 $ 70,285 $ 76,786 $ 76,786 $ 82,184 $ 85,640
========== ========== =========== ========== ========== ===========
RATIO OF EARNINGS TO FIXED
CHARGES: 4.77 4.22 3.16 -- 4.22 3.47
</TABLE>
(a) Results for 1993 include an after-tax restructuring charge of approximately
$120 million for the implementation of a re-engineering plan and a one-time
after-tax charge of approximately $2 million related to the enhanced early
retirement and voluntary separation programs offered to eligible employees in
1993. Earnings were not adequate to cover fixed charges in 1993. The amount of
such deficiency was approximately $32 million for the year ended December 31,
1993.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3066
<SECURITIES> 0
<RECEIVABLES> 355971
<ALLOWANCES> 17717
<INVENTORY> 17733
<CURRENT-ASSETS> 376408
<PP&E> 3935080
<DEPRECIATION> 1985482
<TOTAL-ASSETS> 2444771
<CURRENT-LIABILITIES> 436099
<BONDS> 785155
0
60096
<COMMON> 585000
<OTHER-SE> 258480
<TOTAL-LIABILITY-AND-EQUITY> 2444771
<SALES> 1401948
<TOTAL-REVENUES> 1401948
<CGS> 540082
<TOTAL-COSTS> 1058263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63600
<INCOME-PRETAX> 280085
<INCOME-TAX> 104612
<INCOME-CONTINUING> 175473
<DISCONTINUED> 0
<EXTRAORDINARY> 378641
<CHANGES> 0
<NET-INCOME> (203168)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
