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, 1993
---------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from to
---------------------- -------------------
Commission File Number 1-7077
------------------------------------------------------
GTE SOUTHWEST INCORPORATED
__________________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-0573444
- - ------------------------------------ -------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
500 East Carpenter Freeway, Irving, Texas 75062
- - ------------------------------------------- -----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 214-717-7900
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
WAS REGISTERED
- - -------------------------------------------- -------------------------------
FIRST MORTGAGE BONDS-7 1/2%-SERIES, DUE 2002 AMERICAN STOCK EXCHANGE
FIRST MORTGAGE BONDS-7 3/4%-SERIES, DUE 2003 AMERICAN STOCK EXCHANGE
- - -------------------------------------------- -------------------------------
Securities registered pursuant to Section 12(g) of the Act:
4.60% SERIES CUMULATIVE PREFERRED STOCK $20 PAR VALUE
5.10% SERIES CUMULATIVE PREFERRED STOCK $20 PAR VALUE
- - ------------------------------------------------------------------------
(TITLE OF CLASS)
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. _____
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
THE COMPANY HAD 6,450,000 SHARES OF $100 STATED VALUE COMMON STOCK OUTSTANDING
AT FEBRUARY 28, 1994.
DOCUMENT INCORPORATED BY REFERENCE
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1993
(INCORPORATED IN PARTS I AND II).
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
- - ---- ----
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 5
Shareholder Matters
6. Selected Financial Data 5
7. Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
8. Financial Statements and Supplementary Data 5
9. Changes in and Disagreements with Accountants on 5
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 6
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial Owners and 17
Management
13. Certain Relationships and Related Transactions 18
PART IV
14. Exhibits, Financial Statement Schedules and Reports on 19
Form 8-K
<PAGE>
PART I
Item 1. Business
GTE Southwest Incorporated (the Company), was incorporated in Delaware in 1926.
The Company is a wholly-owned subsidiary of GTE Corporation (GTE) and provides
communications services in the states of Arkansas, New Mexico, Oklahoma and
Texas.
The Company provides local telephone service within its franchise areas and
intraLATA (Local Access Transport Area) long distance service between the
Company's facilities and the facilities of other telephone companies within the
Company's LATAs. InterLATA service to other points in and out of the states in
which the Company operates 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. End
user business and residential customers are also charged access charges for
access to the facilities of the long distance carriers. The Company also earns
other revenues by leasing interexchange plant facilities and providing such
services as billing and collection and operator services to interexchange
carriers, primarily the American Telephone and Telegraph Company (AT&T). The
number of access lines served has grown steadily from 1,310,342 on January 1,
1989 to 1,641,324 on December 31, 1993.
The following table denotes the access lines in the states in which the Company
operates as of December 31, 1993:
Access
State Lines Served
----- ------------
Texas 1,403,529
Oklahoma 117,668
Arkansas 78,092
New Mexico 42,035
---------
Total 1,641,324
_________
The Company's principal line of business is providing telecommunication
services. These services fall into six major classes including the Texas rate
case reserve: local network, network access, long distance, the Texas rate
case reserve, equipment sales and services and other. Revenues from each of
these classes over the last three years are as follows:
Years Ended December 31
--------------------------------------
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Local Network Services $ 421,004 $ 391,601 $ 363,292
% of Total Revenues 36% 33% 32%
Network Access Services $ 438,046 $ 482,636 $ 475,860
% of Total Revenues 38% 41% 42%
Long Distance Services $ 189,954 $ 204,708 $ 207,824
% of Total Revenues 16% 17% 18%
Equipment Sales and Services $ 72,394 $ 67,125 $ 69,593
% of Total Revenues 6% 6% 6%
Texas Rate Case Reserve $ (16,308) $ (25,498) $ (37,000)
% of Total Revenues (1)% (2)% (3)%
Other $ 57,275 $ 61,213 $ 54,459
% of Total Revenues 5% 5% 5%
At December 31, 1993, the Company had 7,184 employees. The Company has written
agreements with the Communications Workers of America (CWA) covering
approximately 5,156 of the Company's employees. The current agreements with
CWA units expire in August 1995.
Telephone Competition
The Company holds franchises, licenses and permits adequate for the conduct of
its business in the territories which it serves.
The Company is subject to regulation by the regulatory bodies of the states of
Arkansas, New Mexico, Oklahoma and Texas as to its intrastate business
operations and by the Federal Communications Commission (FCC) as to its
interstate business operations. Information regarding the Company's activities
with the various regulatory agencies and revenue arrangements with other
telephone companies can be found in Note 10 of the Company's Annual Report to
Shareholders for the year ended December 31, 1993, incorporated herein and
filed as Exhibit 13.
The year was marked by important changes in the U.S. telecommunications
industry. Rapid advances in technology, together with government and industry
initiatives to eliminate certain legal and regulatory barriers are accelerating
and expanding the level of competition and opportunities available to the
Company. As a result, the Company faces increasing competition in virtually
all aspects of its business. Specialized communications companies have
constructed new systems in certain markets to bypass the local exchange
network. Additional competition from interexchange carriers as well as
wireless companies continues to evolve for both intrastate and interstate
communications.
During 1994, the Company will begin implementation of a re-engineering plan
that will redesign and streamline processes. Implementation of its
re-engineering plan will allow the Company to continue to respond aggressively
to these competitive and regulatory developments through reduced costs,
improved service quality, competitive prices and new product offerings.
Moreover, implementation of this program will position the Company to accelerate
delivery of a full array of voice, video and data services. The re-engineering
program will be implemented over three years. During the year, the company
continued to introduce new business and consumer services utilizing advanced
technology, offering new features and pricing options while at the same time
reducing costs and prices.
During 1993, the FCC announced its decision to auction licenses during 1994 in
51 major markets and 492 basic trading areas across the United States to
encourage the development of a new generation of wireless personal
communications services (PCS). These services will both complement and compete
with the Company's traditional wireline services. The Company will be
permitted to fully participate in the license auctions in areas outside of
GTE's existing cellular service areas. Limited participation will be permitted
in areas in which GTE has an existing cellular presence.
In 1992, the FCC issued a "video dialtone" ruling that allows telephone
companies to transmit video signals over their networks. The FCC also
recommended that Congress amend the Cable Act of 1984 to permit telephone
companies to supply video programming in their service areas.
Activity directed toward changing the traditional cost-based rate of return
regulatory framework for intrastate and interstate telephone services has
continued. Various forms of alternative regulation have been adopted, which
provide economic incentives to telephone service providers to improve
productivity and provide the foundation for the pricing flexibility necessary
to address competitive entry into the markets the Company serves.
In September 1993, the FCC released an order allowing competing carriers to
interconnect to the local-exchange network for the purpose of providing
switched access transport services. This ruling complements similar
interconnect arrangements for private line services ordered during 1992. The
order encourages competition for the transport of telecommunications traffic
between local exchange carriers' (LECs) switching offices and interexchange
carrier locations. In addition, the order allows LECs flexibility in pricing
competitive services.
The GTE Consent Decree, which was issued in connection with the 1983 acquisition
of GTE Sprint (since divested) and GTE Spacenet, prohibits GTE's domestic
telephone operating subsidiaries from providing long distance service beyond
the boundaries of the LATA. This prohibition restricts their direct
provision of long distance service to relatively short distances. The degree
of competition allowed in the intraLATA market is subject to state regulation.
However, regulatory constraints on intraLATA competition are gradually being
relaxed. In fact, some form of intraLATA competition is authorized in many of
the states in which the Company provides service.
These and other actions to eliminate the existing legal and regulatory barriers,
together with rapid advances in technology, are facilitating a convergence
of the computer, media and telecommunications industries. In addition to
allowing new forms of competition, these developments are also creating new
opportunities to develop interactive communications networks. The Company
supports these initiatives to assure greater competition in
telecommunications, provided that overall the changes allow an opportunity for
all service providers to participate equally in a competitive marketplace under
comparable conditions.
Item 2. Properties
The Company's property consists of network facilities (77%), company facilities
(15%), customer premises equipment (6%) and other (2%). From January 1, 1989
to December 31, 1993, the Company made gross property additions of $1.3 billion
and property retirements of $0.7 billion. Substantially all of the Company's
property is subject to liens securing long-term debt. In the opinion of
management, the Company's telephone plant is substantially in good repair.
Item 3. Legal Proceedings
This item is herein incorporated by reference to Note 10 of the Company's Annual
Report to Shareholders for the year ended December 31, 1993, filed as Exhibit
13.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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.
Item 6. Selected Financial Data
Reference is made to the Registrant's Annual Report to Shareholders, page 28,
for the year ended December 31, 1993, incorporated herein and filed as Exhibit
13.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Reference is made to the Registrant's Annual Report to Shareholders, pages 24
to 27, for the year ended December 31, 1993, incorporated herein and filed as
Exhibit 13.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Registrant's Annual Report to Shareholders, pages 5 to
22, for the year ended December 31, 1993, incorporated herein and filed as
Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The names, ages and positions of all the directors and executive officers of the
Company as of March 1, 1994 are listed below along with their business
experience during the past five years.
a. Identification of Directors
Director
Name Age Since Business Experience
---- --- -------- ---------------------
John C. Appel 45 1993 State President-Texas, GTE Southwest
Incorporated; former Regional Vice
President-General Manager, GTE West Area;
former Assistant Vice President-Business
Services, GTE Telephone Operations.
Kent B. Foster 50 1994 Vice Chairman of the Board of Directors
of GTE Corporation, October 1993.
President, GTE Telephone Operations,
1989; Director, GTE Corporation, 1992;
Director, all GTE domestic telephone
subsidiaries, 1993; Director, BC Telecom,
Inc.; Director, Compania Anonima Nacional
Telefonos de Venezuela; Director,
National Bank of Texas.
Richard M. Cahill 55 1994 Vice President - General Counsel of GTE
Telephone Operations, 1988; Director, all
GTE domestic telephone subsidiaries,
1993; Director, GTE Vantage Incorporated,
1991; Director, GTE Intelligent Network
Services Incorporated, 1993.
Gerald K. Dinsmore 44 1994 Senior Vice President - Finance and
Planning for GTE Telephone Operations,
1994. Vice President - Finance, GTE
Telephone Operations, 1993; Vice
President - Intermediary Customer
Markets, GTE Telephone Operations, 1991.
President, South Area, GTE Telephone
Operations, 1992; Director, all GTE
domestic telephone subsidiaries, 1993.
Michael B. Esstman 47 1991 Executive Vice President-Operations, GTE
Telephone Operations, 1993; President,
Central Area, GTE Telephone Operations,
1991. President, Contel Eastern Region,
Telephone Operations Sector, 1983;
Director, AG Communications System;
Director, all GTE domestic telephone
subsidiaries, 1993.
Thomas W. White 47 1994 Executive Vice President of GTE Telephone
Operations, 1993; Senior Vice President -
General Office Staff, GTE Telephone
Operations, 1989; Director, all GTE
domestic telephone subsidiaries, 1993;
Director, Quebec-Telephone.
Directors are elected annually. The term of each director expires on the date
of the next annual meeting of shareholders, which may be held on any day during
March, as specified in the notice of the meeting.
There are no family relationships between any of the directors or executive
officers of the Company.
All of the directors, with the exception of Mr. Esstman, were appointed to the
board effective January 1, 1994 upon the resignation of Richard E. Bell, Joe I.
Cardenas, Ingram Hartje, III, Larry C. Squires, D.V.M., Kenneth F. Teasdale and
Dr. Frank Vandiver.
b. Identification of Executive Officers
Year
Assumed
Current
Name Age Position Position with Company (1)
------------------ ---- -------- -------------------------
John C. Appel (2) 45 1993 President
J. Bruce Cole 52 1987 State Vice President - Sales
Oscar C. Gomez 47 1987 State Vice President - External
Affairs
Gregory D. Jacobson 42 1992 State Vice President - Finance
Michael T. Metcalf (3) 47 1993 State Vice President - Human
Resources
William G. Mundy 44 1985 State Vice President - General
Counsel
Dennis F. Myers (4) 49 1993 State Vice President - Operations
Barry W. Paulson (5) 42 1993 State Vice President - General
Manager - Oklahoma/Arkansas
Charles J. Somes (6) 48 1994 Secretary
Year
Assumed
Current Position With
Name Age Positiom GTE Telephone Operations (7)
-------------------- --- --------- ----------------------------
Kent B. Foster 50 1989 President
Michael B. Esstman (8) 47 1993 Executive Vice President -
Operations
Thomas W. White 47 1989 Executive Vice President
Guillermo Amore 55 1990 Senior Vice President -
International
Gerald K. Dinsmore (9) 44 1993 Senior Vice President - Finance
and Planning
Robert C. Calafell (10) 52 1993 Vice President - Video Services
A. T. Jones 54 1992 Vice President - International
Brad M. Krall (11) 52 1993 Vice President - Centralized
Services
Don A. Hayes 56 1992 Vice President - Information
Technology
Richard L. Schaulin 51 1989 Vice President - Human Resources
Clarence F. Bercher 50 1991 Vice President - Sales
Mark S. Feighner 45 1991 Vice President - Product
Management
Geoff C. Gould 41 1989 Vice President - Regulatory and
Governmental Affairs
G. Bruce Redditt 43 1991 Vice President - Public Affairs
Richard M. Cahill 55 1989 Vice President and General Counsel
Leland W. Schmidt 60 1989 Vice President - Industry Affairs
Paul E. Miner 49 1990 Vice President - Regional
Operations Support
Katherine J. Harless 43 1992 Vice President- Intermediary
Markets
William M. Edwards, III(12) 45 1993 Controller
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.
NOTES:
(1) Titles were changed from Area/Regional Vice President to State Vice
President in 1993; however, the functions did not change.
(2) John C. Appel was appointed President effective October 22, 1993
replacing Michael B. Esstman who was appointed Executive Vice President -
Operations for GTE Telephone Operations.
(3) Michael T. Metcalf was appointed State Vice President - Human
Resources effective December 5, 1993 replacing Nicholas J. Doria who
resigned.
(4) Dennis F. Myers' title changed in 1993 from Regional Vice President -
General Manager/Southwest to State Vice President - Operations.
(5) Barry W. Paulson's title changed in 1993 from Regional Vice President
- General Manager/Midwest to State Vice President - General Manager -
Oklahoma/Arkansas.
(6) Charles J.Somes was appointed Secretary replacing Jerry L. Austin
who retired.
(7) Position is with, and duties are performed at, the GTE Telephone
Operations Headquarters in Irving, Texas.
(8) Michael B. Esstman was appointed Executive Vice President -
Operations effective April 25, 1993 replacing Charles A. Crain who retired
on April 1, 1993.
(9) Gerald K. Dinsmore was appointed Senior Vice President - Finance and
Planning effective November 21, 1993, replacing John L. Hume who retired.
(10) Robert C. Calafell was appointed Vice President - Video Services
effective March 28, 1993.
(11) Brad M. Krall was appointed Vice President - Centralized Services
effective November 7, 1993.
(12) William M. Edwards, III was appointed Controller effective November
7, 1993 replacing John D. Utzinger.
William E. Starkey retired November 21, 1993, George N. King retired May 21,
1993, Clark W. Barlow retired August 21, 1993, James A. Spriggs retired
November 18, 1993, Rex A. Timms retired November 18, 1993.
William D. Wilson resigned effective November 1, 1993 to accept a new position
in GTE South Incorporated and GTE North Incorporated as Area Vice President -
General Manager - East.
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.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, all persons subject to these reporting
requirements filed the required reports on a timely basis except Gerald
K. Dinsmore, who filed one initial statement of beneficial ownership
of securities late. Mr. Dinsmore does not own, and has never owned, any
shares of the Company's registered preferred stock (which is the only
registered class of the Company's equity securities).
<PAGE>
<TABLE>
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 Chief Executive Officer and each of the
other six most highly compensated executive officers of the Company for services in all capacities to the Company
and its subsidiary.
<CAPTION>
Long-Term Compensation
-------------------------------------------------------
Annual Compensation(1) Awards Payments
---------------------------------------- --------------------- ---------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Reserved
Name and Principal Other Annual Stock Options LTIP All Other
Position in Group Year Salary($)(1) Bonus($) Compensation($) Awards(#) SARS(#) Payments($) Compensations($)(7)
- - ---------------------- ---- ------------ -------- --------------- --------- -------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Appel (2) 1993 14,365 5,384 3,540 -- 7,300 -- 432
President
Dennis F. Myers (3) 1993 95,283 35,362 1,753 -- 2,700 --
State Vice President- 1992 89,695 44,094 23,038 -- -- -- --
Operations 1991 59,550 30,200 29,422 -- -- -- --
James A. Spriggs (4) 1993 93,270 33,008 65,878 -- 2,700 -- 4,709
Regional Vice Pres- 1992 92,028 44,600 1,741 -- -- -- 2,761
ident-General Manager 1991 108,925 59,500 3,822 -- 3,000 -- 1,985
South Central
Michael B. Esstman (5) 1993 64,845 61,075 2,003 -- 22,600 10,513 1,605
Executive Vice 1992 119,298 135,616 20,606 -- 16,200 22,810 20,267
President-Operations 1991 159,444 248,600 15,723 -- -- 20,500 21,319
Brad M. Krall (6) 1993 76,639 34,461 1,968 -- 4,900 -- 2,245
Area Vice President- 1992 76,277 47,907 1,688 -- 5,500 -- 2,288
General Manager 1991 66,768 30,200 751 -- 5,300 -- 4,311
J. Bruce Cole 1993 78,157 30,402 1,552 -- 4,000 -- 2,345
State Vice President- 1992 71,989 37,931 1,958 -- 4,400 -- 763
Sales 1991 135,931 65,500 1,370 -- 4,300 -- --
Kent B. Foster 1993 53,485 49,129 1,738 -- 58,800 10,820 601
President-GTE 1992 48,536 56,708 950 -- -- 17,654 618
Telephone Operations 1991 53,145 71,838 4,115 -- 133,300 29,975 614
<FN>
- - ------------
(1) Annual Compensation represents the Company's pro rata share of salaries,
bonuses and other annual compensation. Total annual cash compensation for
Messrs. Appel, Myers, Spriggs, Cole, Krall, Esstman and Foster, for whom
allocated amounts are shown above, is $225,772, $178,218, $246,829,
$202,820, $235,743, $574,442 and $1,129,356, respectively, for 1993.
(2) Mr. Appel became President in October 1993.
(3) Mr. Myers was appointed Area Vice President - General Manager/Southwest in
July 1991.
(4) Mr. Spriggs retired in November 1993. Other annual compensation in 1993
includes $63,689 of banked vacation pay.
(5) Mr. Esstman resigned as Area President in April 1993 and was appointed as
Executive Vice President - Operations.
(6) Mr. Krall resigned as Area Vice President - General Manager in November
1993.
(7) All Other Compensation includes Company contributions to defined
contribution plans.
</TABLE>
<PAGE>
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the named executive officers
of the Company in 1993. Pursuant to Securities and Exchange Commission (the
SEC) rules, the table also shows the value of the options granted at the end
of the option terms (ten years) if the stock price were to appreciate
annually by 5% and 10%, respectively. There is no assurance that the stock price
will appreciate at the rates shown in the table. The table also indicates
that if the stock price does not appreciate, there will be no increase in the
potential realizable value of the options granted.
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of Stock
Price Appreciation for
Individual Grants(1) Option Term
------------------------------------------------ ------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
Percent of
Total Options/
SARS Granted Exercise
Option/ To All GTE Or Base
SARS Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date 0% 5% 10%
_______ ___________ ____________ ________ __________ ___ ________ _________
<S> <C> <C> <C> <C> <C> <C> <C>
John C. Appel 4,000 0.20% $35.0625 02/15/03 $0 $ 88,202 $ 223,522
3,300 0.17 38.1250 10/10/03 0 79,123 200,513
Dennis F. Myers 2,700 0.14 35.0625 02/15/03 0 59,537 150,878
James A. Spriggs 2,700 0.14 35.0625 02/15/03 0 59,537 150,878
Michael B. Esstman 14,500 0.73 35.0625 02/15/03 0 319,734 810,269
8,100 0.41 35.5000 06/02/03 0 180,839 458,281
Brad M. Krall 4,900 0.25 35.0625 02/15/03 0 108,048 273,815
J. Bruce Cole 4,000 0.20 35.0625 02/15/03 0 88,202 223,522
Kent B. Foster 48,400 2.42 35.0625 02/15/03 0 1,067,249 2,704,621
10,400 0.52 37.6250 10/12/03 0 246,087 623,632
<FN>
- - -------------
(1) Under the Long-Term Incentive Plan, options are presently granted with
tandem stock appreciation rights ("SARs"). One-third of these grants vest
annually commencing one year after the date of grant.
</TABLE>
<PAGE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table provides information as to options and stock appreciation
rights exercised by each of the named executive officers of the Company during
1993 and the value of options and stock appreciation rights held by such
officers at year-end measured in terms of the closing price of GTE Common Stock
on December 31, 1993.
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised
Shares Number of 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>
John C. Appel 588 $ 6,875 1,000 8,300 $ 3,188 $ 3,188
Dennis F. Myers 3,080 57,673 6,418 4,013 80,761 9,834
James A. Spriggs 0 0 6,400 3,700 56,975 3,188
Michael B. Esstman 10,028 178,300 19,710 36,676 286,176 66,606
Brad M. Krall 0 0 5,366 10,334 18,848 18,404
J. Bruce Cole 0 0 8,732 8,368 64,042 13,190
Kent B. Foster 70,517 1,447,800 99,450 125,450 341,551 212,447
</TABLE>
Long-Term Incentive Plan - Awards in Last Fiscal Year
The GTE Long-Term Incentive Plan (LTIP) provides for awards, currently in the
form of stock options with tandem stock appreciation rights and cash bonuses,
to participating employees. The stock options and stock appreciation rights
awarded under the LTIP to the seven most highly compensated individuals in 1993
are shown in the table on page 10.
Under the LTIP, performance bonuses are paid in cash based on the achievement of
pre-established goals for GTE's return on equity (ROE) over a three-year award
cycle. Performance bonuses are denominated in units of GTE Common Stock
("Common Stock Units") and are maintained in a Common Stock Unit Account.
<TABLE>
At the time performance targets are established for the three-year cycle, a
Common Stock Unit Account is set up for each participant who is eligible to
receive a cash award under the LTIP. An initial dollar amount for each account
is determined based on the competitive performance bonus grant practices of
other major companies in the telecommunications industry and with other selected
corporations that are comparable to GTE in terms of revenue, market value and
other quantitative measures. That amount is then divided by the average market
price of GTE Common Stock for the calendar week preceding the day the account
is established to determine the number of Common Stock Units in the account.
The value of the account increases or decreases based on the market price of
the GTE Common Stock. An amount equal to the dividends declared on an
equivalent number of shares of GTE Common Stock is added each time a dividend
is paid. This amount is then converted into the number of Common Stock Units
obtained by dividing the amount of the dividend 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.
Esstman and Foster are the only individuals of the seven most highly compensated
individuals eligible to receive a cash award under the LTIP. The number of
Common Stock Units initially allocated in 1993 to their accounts and estimated
future payouts under the LTIP are shown in the following table.
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price Based Plans(1)
------------------------------------
(a) (b) (c) (d) (e) (f)
Performance
Number of Or Other
Shares, Units Period Until
Or Other Maturation
Name Rights Or Payout Threshold(2) Target(3) Maximum(4)
---- ------------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
John C. Appel 0 N/A 0 0
Dennis F. Myers 0 N/A 0 0
James G. Spriggs 0 N/A 0 0
Michael B. Esstman 2,000 3 years 468 2,341
789 32 months 182 912
486 20 months 106 532
189 8 months 39 197
Brad M. Krall 0 N/A 0 0
J. Bruce Cole 0 N/A 0 0
Kent B. Foster 6,100 3 years 1,428 7,139
670 2 years 149 743
326 1 year 69 343
1,620 26 months 365 1,827
854 14 months 183 913
119 2 months 24 121
<FN>
- - -----------
(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 31, 1993.
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 level of average ROE during the cycle which represents
minimum acceptable performance and which, if attained, results in payment
of 20% of the target award. Below the minimum acceptable performance
level, no award is earned.
(3) The average ROE target during the cycle which represents
outstanding GTE performance and which, if attained, results in payment of
100% of the target award.
(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 exceeds the targeted ROE. If GTE's average ROE during the cycle
exceeds the performance target, additional bonuses may be earned according
to the following schedule:
Performance Increment Above Added Percentage
Maximum ROE Performance Target to Maximum Awards
_____________________________ _________________
First and Second 0.1% +2%
Third and Fourth 0.1% +3%
Fifth and above 0.1% +4%
For example, if average ROE performance exceeds the ROE target by 0.5%, the
performance bonus will equal 114% of the target award.
</TABLE>
Executive Agreements
GTE has entered into agreements (the Agreements) with Messrs. Appel, Esstman,
Krall and Foster 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 this individual
separates from service and has a "good reason" for leaving or is 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 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. Appel, Esstman, Krall and Foster
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 and the Executive Retired Life
Insurance Plan. In addition, each executive 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. However,
there will be no duplication of benefits.
The Agreements remain in effect until the earlier of July 1 of each successive
year or the date on which the executive reaches age 65, unless the Agreement is
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 the 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.
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 and years of employment, are illustrated
in the table below:
PENSION PLAN TABLE
Years of Service
Final Average _____________________________________________________________
Earnings 15 20 25 30 35
_____________ _________ __________ __________ __________ ________
$ 150,000 $ 31,604 $ 42,138 $ 52,672 $ 63,207 $ 73,742
200,000 42,479 56,638 70,797 84,957 99,117
300,000 64,229 85,638 107,048 128,457 149,867
400,000 85,979 114,638 143,298 171,957 200,617
500,000 107,729 143,638 179,548 215,457 251,367
600,000 129,479 172,638 215,798 258,957 302,117
700,000 151,229 201,638 252,048 302,457 352,867
800,000 172,979 230,638 288,298 345,957 403,617
900,000 194,729 259,638 324,548 389,457 454,367
1,000,000 216,479 288,638 360,798 432,957 505,117
1,200,000 259,979 346,638 433,298 519,957 606,617
GTE Service Corporation, a wholly-owned subsidiary of GTE, maintains a
noncontributory pension plan for the benefit of GTE employees based on years of
service. Pension benefits to be paid from this plan and contributions to this
plan are related to basic salary exclusive of overtime, differentials, incentive
compensation (except as otherwise described) and other similar types of payment.
Under this 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 March 1, 1993, the credited years of service under the plan for Messrs.
Appel, Myers, Spriggs, Esstman, Krall, Cole and Foster are 22, 32, 37, 25, 27,
29 and 23, respectively.
Under Federal law, an employee's benefits under a qualified pension plan such as
the GTE Service Corporation plan are limited to certain maximum amounts. GTE
maintains a Supplemental Executive Retirement Plan (SERP), which supplements the
benefits of any participant in the qualified pension plan by direct payment of a
lump sum or by an annuity, on an unfunded basis, of the amount by which any
participant's benefits under the GTE Service Corporation pension 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 qualified pension plan on remuneration accrued under management
incentive plans as determined by the Executive Compensation and Organizational
Structure Committee.
Executive Retired Life Insurance Plan
The Executive Retired Life Insurance Plan (ERLIP) provides Messrs. Appel, Myers,
Spriggs, Esstman, Krall, Cole and Foster a maximum 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 may be paid as a
lump sum payment equal to the present value of the life insurance amount (based
on actuarial factors and the interest rate then in effect), as an annuity or as
installment payments. If an optional payment method is selected, the ERLIP
benefit will be based on the actuarial equivalent of the present value of the
insurance amount.
Directors' Compensation
The current directors, all of whom are employees of GTE, are not paid any fees
of renumeration, as such, for service on the Board.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners as of February 28, 1994:
Name and Shares of
Title Address of Beneficial Percent
of Class Beneficial Owner Ownership of Class
________ ________________ _________ ________
Common Stock of GTE Corporation 6,450,000 100%
GTE Southwest One Stamford Forum shares of
Incorporated Stamford, Connecticut record
06904
(b) Security Ownership of Management as of December 31, 1993:
Name of Director or Nominee
___________________________
Common Stock of
GTE Corporation John C. Appel 5,453 All less
Kent B. Foster 168,299 than 1%
Richard M. Cahill 37,188
Gerald K. Dinsmore 18,503
Michael B. Esstman 54,051
Thomas W. White 83,071
_______
366,565
=======
Executive Officers(1)(2)
_________________________
John C. Appel 5,453
Dennis F. Myers 14,631
James A. Spriggs 10,574
Michael B. Esstman 54,051
Brad M. Krall 13,311
J. Bruce Cole 12,153
Kent B. Foster 168,299
_______
278,472
=======
All directors and executive
officers as a group(1)(2) 762,690
=======
(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. Appel,
Myers, Spriggs, Esstman, Krall, Cole and Foster and all directors and
executive officers as a group are 2,333; 8,631; 7,300; 33,118; 8,832;
11,532; 115,583 and 516,250 shares, respectively, which such persons
have the right to acquire within 60 days pursuant to stock options.
(c) There were no changes in control of the Company during 1993.
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.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - Reference is made to the Registrant's Annual
Report to Shareholders, pages 5 - 22 for the year ended December 31,
1993, incorporated herein and filed as Exhibit 13.
Report of Independent Public Accountants.
Balance Sheets - December 31, 1993 and 1992.
Statements of Income for the years ended December 31, 1993-1991.
Statements of Reinvested Earnings for the years ended December 31,
1993-1991.
Statements of Cash Flows for the years ended December 31, 1993-1991.
Notes to Financial Statements.
(2) Financial Statement Schedules - Included in Part IV of this report for
the years ended December 31, 1993-1991:
Page(s)
-------
Report of Independent Public Accountants 21
Schedules:
V - Property, Plant and Equipment 22-24
VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment 25
VIII - Valuation and Qualifying Accounts 26
X - Supplementary Income Statement Information 27
Note: Schedules other than those 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 Articles of Incorporation and amended By-Laws (Exhibit 3 of the
1993 Form 10-K, File No. 1-7077).
4* Thirty-Seventh Supplemental Indenture (Exhibit 4 of the Form
10-K File No. 1-7077). Thirty-Eighth Supplemental Indenture,
File No. 33-43549.
13 Annual Report to Shareholders for the year ended December 31,
1993, filed herein as Exhibit 13.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
fourth quarter of 1993.
* Denotes exhibits incorporated herein by reference to previous
filings with the Securities and Exchange Commission as designated.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GTE Southwest Incorporated:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in GTE Southwest Incorporated's annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 28, 1994. Our report on the financial statements
includes an explanatory paragraph with respect to the change in the method of
accounting for income taxes in 1992 as discussed in Note 1 to the financial
statements. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed under Item 14 are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules 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 & CO.
Dallas, Texas
January 28, 1994.
<PAGE>
<TABLE>
GTE SOUTHWEST INCORPORATED
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------------------- --------- --------- --------- --------- ---------
Other
Balance at Retirements Debits or Balance at
Beginning of Additions at or Sales (Credits) Close of
Classification Year Cost (Note 1) (Note 2) Year
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE PLANT
- - - stated at original cost:
Land $ 16,200 $ 150 $ -- $ (96) $ 16,254
Buildings 338,474 18,234 5,277 (5,783) 345,648
Central office equipment 1,383,244 136,876 116,685 (1,676) 1,401,759
Station apparatus 42,849 4,748 446 (2,735) 44,416
Station connections 195,909 -- -- -- 195,909
Cable, underground conduit, etc. 1,655,900 117,324 17,067 4,428 1,760,585
Furniture and office equipment 135,438 28,837 21,111 1,522 144,686
Vehicles and other work equipment 111,427 7,284 9,398 4,057 113,370
Telephone plant under construction 45,541 (17,214) -- 1 28,328
_________ _________ ________ _________ _________
Total Telephone Plant 3,924,982 296,239 169,984 (282) 4,050,955
NONREGULATED PLANT 71,004 4,377 3,698 (5,205) 66,478
_________ __________ ________ _________ __________
Total Property, Plant and Equipment $3,995,986 $ 300,616 $ 173,682 $ (5,487) $4,117,433
========== ========== ========== ========== ==========
<FN>
- - -----------------------
NOTE:
(1) All retirements or sales in Column D were charged to accumulated
depreciation (Schedule VI, Note 2).
</TABLE>
<PAGE>
<TABLE>
GTE SOUTHWEST INCORPORATED
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------------------- --------- --------- --------- --------- ---------
Other
Balance at Retirements Debits or Balance at
Beginning of Additions or Sales (Credits) Close of
Classification Year at Cost (Note 1) (Note 2) Year
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE PLANT
- - - stated at original cost:
Land $ 14,698 $ 1,547 $ -- $ (45) $ 16,200
Buildings 322,115 22,281 4,634 (1,288) 338,474
Central office equipment 1,240,952 171,427 46,965 17,830 1,383,244
Station apparatus 38,593 4,101 171 326 42,849
Station connections 209,223 -- 13,314 -- 195,909
Cable, underground conduit, etc. 1,587,088 102,193 42,756 9,375 1,655,900
Furniture and office equipment 119,174 22,090 2,139 (3,687) 135,438
Vehicles and other work equipment 112,614 11,800 7,748 (5,239) 111,427
Telephone plant under construction 91,996 (46,621) -- 166 45,541
Property held for future telephone use 53 (55) -- 2 --
___________ _________ __________ _______ __________
Total Telephone Plant 3,736,506 288,763 117,727 17,440 3,924,982
NONREGULATED PLANT 58,647 4,354 2,858 10,861 71,004
___________ _________ __________ _______ __________
Total property,
Plant and Equipment $3,795,153 $ 293,117 $ 120,585 $ 28,301 $3,995,986
========== ========== ========== ========= ==========
<FN>
- - -----------
NOTES:
(1) All retirements or sales in Column D were charged to accumulated
depreciation (Schedule VI, Note 2).
(2) Represents adjustments in 1992 due to the adoption of SFAS No. 109,
prior-year adjustments to conform to the current year presentation
and transfers in accordance with FCC Docket No. 86-111.
</TABLE>
<PAGE>
<TABLE>
GTE SOUTHWEST INCORPORATED
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(Thousands of Dollars)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------------------- --------- --------- --------- --------- ---------
Other
Balance at Retirements Debits or Balance at
Beginning Additions at or Sales (Credits) Close of
Classification of Year Cost (Note 1) (Note 2) Year
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TELEPHONE PLANT
- - - stated at original cost:
Land $ 15,058 $ -- $ -- $ (360) $ 14,698
Buildings 306,711 18,275 3,651 780 322,115
Central office equipment 1,252,735 70,911 82,693 (1) 1,240,952
Station apparatus 32,107 6,223 (263) -- 38,593
Station connections 227,584 49 18,410 -- 209,223
Cable, underground conduit, etc. 1,517,301 108,197 38,410 -- 1,587,088
Furniture and office equipment 103,113 17,954 1,877 (16) 119,174
Vehicles and other work equipment 97,053 25,172 8,751 (860) 112,614
Telephone plant under construction 57,631 33,618 -- 747 91,996
Property held for
future telephone use 52 2 -- (1) 53
Telephone plant acquisition
adjustment 29 (29) -- -- --
__________ __________ __________ _____ _________
Total Telephone Plant 3,609,374 280,372 153,529 289 3,736,506
NONREGULATED PLANT 54,467 5,266 797 (289) 58,647
_________ __________ __________ _______ __________
Total Property, Plant and Equipment $3,663,841 $ 285,638 $ 154,326 $ -- $3,795,153
=========== ========== ========== ======= ==========
<FN>
- - ----------------------------
NOTES:
(1) Represents: Retirements or sales charged to accumulated
depreciation (Schedule VI, Note 2) $ 154,354
Other (28)
__________
Total per Column D above $ 154,326
==========
Retirements include write-offs of customer premises equipment due
to deregulation by the FCC.
(2) Represents prior-year adjustments to conform to the
current year presentation and transfers in accordance with
FCC Docket No. 86-111.
</TABLE>
<PAGE>
<TABLE>
GTE SOUTHWEST INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
-------------------- --------- --------- --------- --------- ---------
Additions Other
Charged to Charges -
Balance at Costs and Retirements Add Balance at
Beginning of Expenses or Sales (Deduct) Close of
Classification Year (Note 1) (Note 2) (Note 3) Year
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accumulated depreciation
and amortization for
the year ended:
December 31, 1993 $1,528,632 $257,031 $173,682 $ (1,773) $1,610,208
========== ======== ======== ======== ==========
December 31, 1992 $1,388,181 $248,848 $120,569 $12,172 $1,528,632
========== ======== ======== ======== ==========
December 31, 1991 $1,264,184 $279,799 $154,354 $ (1,448) $1,388,181
========== ======== ======== ======== ===========
</TABLE>
<TABLE>
- - ----------
NOTES:
(1) Reference is made to Note 1 of Notes to Financial
Statements with respect to depreciation policy: 1993 1992 1991
_________ ___________ __________
<S> <C> <C> <C>
Total as shown in Statements of Income $ 254,457 $ 250,799 $ 276,008
General office allocations 2,479 228 (91)
Other 95 (2,179) 3,882
__________ __________ _________
Total as shown above $ 257,031 $ 248,848 $ 279,799
========== ========== ==========
(2) Represents: Retirements or sales credited
to property, plant and equipment
(Schedule V) $ 173,683 $ 120,585 $ 154,326
Other (1) (16) 28
__________ __________ __________
Total as shown above $ 173,682 $ 120,569 $ 154,354
========== ========== ==========
(3) Represents: Salvage $ 7,938 $ 10,853 $ 7,832
Removal costs (9,790) (8,983) (10,521)
Other 79 10,302 1,241
__________ __________ _________
Total as shown above $ (1,773) $ 12,172 $ (1,448)
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
GTE SOUTHWEST INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-------------------- --------- ------------------------ ---------- ----------
Additions
-----------------------
Charged Deductions
Balance at Charged to Other from Balance at
Beginning of to Accounts Reserves Close of
Description Year Income (Note 1) (Note 2) Year
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
accounts for the year ended:
December 31, 1993 $5,092 $21,424 $20,391 $28,763 $18,144
====== ======= ======= ======= =======
December 31, 1992 $4,120 $16,949 $22,263 $38,240 $ 5,092
====== ======= ======= ======= =======
December 31, 1991 $1,535 $12,971 $22,202 $32,588 $ 4,120
====== ======= ======= ======= =======
<FN>
- - ----------
NOTES:
(1) Recoveries of previously written-off amounts.
(2) Charges for purpose for which reserve was created. Represents write-offs of
receivable accounts.
</TABLE>
<PAGE>
GTE SOUTHWEST INCORPORATED
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)
- - -----------------------------------------------------------------------------
Column A Column B
--------- --------------------------------------------
Item Charged to Operating Expenses
- - -----------------------------------------------------------------------------
1993 1992 1991
----------- ---------- -----------
Maintenance and repairs $ 207,048 $ 186,486 $ 191,939
Taxes, other than payroll
and income taxes,
are as follows:
Real and personal property $ 38,343 $ 33,820 $ 36,643
Other 7,149 15,339 2,109
Portion of above taxes charged
to plant and other accounts (4,539) (4,764) (3,368)
__________ __________ __________
Total $ 40,953 $ 44,395 $ 35,384
========== ========== ==========
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GTE SOUTHWEST INCORPORATED
__________________________
(Registrant)
Date March 21, 1994 By JOHN C. APPEL
________________________
JOHN C. APPEL
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.
JOHN C. APPEL
- - ------------------------ President and Director March 21, 1994
JOHN C. APPEL (Principal Executive Officer)
GERALD K. DINSMORE
- - ------------------------ Senior Vice President - Finance March 21, 1994
GERALD K. DINSMORE and Planning and Director
(Principal Financial Officer)
WILLIAM M. EDWARDS, III
- - ------------------------ Controller March 21, 1994
WILLIAM M. EDWARDS, III (Principal Accounting Officer)
RICHARD M. CAHILL
- - ------------------------ Director March 21, 1994
RICHARD M. CAHILL
MICHAEL B. ESSTMAN
- - ------------------------ Director March 21, 1994
MICHAEL B. ESSTMAN
KENT B. FOSTER
- - ------------------------ Director March 21, 1994
KENT B. FOSTER
THOMAS W. WHITE
- - ------------------------ Director March 21, 1994
THOMAS W. WHITE
Exhibit 3
BY-LAWS
OF
GTE SOUTHWEST INCORPORATED
INCORPORATED UNDER THE LAWS OF THE
STATE OF
DELAWARE
<PAGE>
INDEX
ARTICLE I.
DEFINITIONS, ETC.
PAGE
Section 1. Definitions, Etc. . . . . . . . . . . . . . 1
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 2. Annual Meeting . . . . . . . . . . . . . . . 2
Section 3. Special Meetings . . . . . . . . . . . . . . 2
Section 4. Place of Meetings . . . . . . . . . . . . . . 2
Section 5. Notice of Meetings . . . . . . . . . . . . . . 2
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . 2
Section 7. Organization . . . . . . . . . . . . . . . . . 3
Section 8. Voting . . . . . . . . . . . . . . . . . . . . 3
Section 9. List of Stockholders . . . . . . . . . . . . . 4
ARTICLE 111.
BOARD OF DIRECTORS
Section 10. General Powers . . . . . . . . . . . . . . . . 4
Section 11. Number, Election and Term of Office . . . . . 4
Section 12. Meetings . . . . . . . . . . . . . . . . . . . 4
Section 13. Place of Meetings . . . . . . . . . . . . . . 5
Section 14. Notice of Meetings . . . . . . . . . . . . . . 5
Section 15. Quorum and Manner of Acting . . . . . . . . . 5
Section 16. Organization . . . . . . . . . . . . . . . . . 6
Section 17. Resignations . . . . . . . . . . . . . . . . . 6
Section 18. Removal of Directors . . . . . . . . . . . . . 6
Section 19. Vacancies . . . . . . . . . . . . . . . . . . 6
Section 20. Fees . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV.
OFFICERS
Section 21. Election, Term of Office and Qualifications . 7
Section 22. Other Officers . . . . . . . . . . . . . . . . 7
Section 23. Removal . . . . . . . . . . . . . . . . . . . 7
Section 24. Resignations . . . . . . . . . . . . . . . . . 7
Section 25. Vacancies . . . . . . . . . . . . . . . . . . 7
Section 26. President . . . . . . . . . . . . . . . . . . 7
Section 27. Vice Presidents . . . . . . . . . . . . . . . 8
Section 28. Secretary . . . . . . . . . . . . . . . . . . 8
Section 29. Assistant Secretaries . . . . . . . . . . . . 9
Section 30. Treasurer . . . . . . . . . . . . . . . . . . 9
Section 31. Assistant Treasurers . . . . . . . . . . . . . 9
Section 32. Vice President - Finance . . . . . . . . . . . 9
Section 33. Controller . . . . . . . . . . . . . . . . . . 10
Section 34. Salaries . . . . . . . . . . . . . . . . . . . 11
ARTICLE V.
EXECUTION OF INSTRUMENTS, ETC.
Section 35. Contracts, etc., How Executed . . . . . . . . 11
Section 36. Loans . . . . . . . . . . . . . . . . . . . . 11
Section 37. Deposits . . . . . . . . . . . . . . . . . . . 11
Section 38. Checks, Drafts, etc. . . . . . . . . . . . . . 11
Section 39. Sale or Transfer of Property . . . . . . . . . 11
ARTICLE VI.
SHARES AND THEIR TRANSFER: BOOKS
Section 40. Certificates of Stock . . . . . . . . . . . . 12
Section 41. Transfer of Shares . . . . . . . . . . . . . . 12
Section 42. Closing of Transfer Books . . . . . . . . . . 12
Section 43. Lost and Destroyed Certificates . . . . . . . 13
Section 44. Regulations . . . . . . . . . . . . . . . . . 13
Section 45. Place of Keeping Books and Records . . . . . . 13
ARTICLE VII.
NOTICE
Section 46. Waiver of Notice . . . . . . . . . . . . . . . 13
ARTICLE VIII.
MISCELLANEOUS
Section 47. Fiscal Year . . . . . . . . . . . . . . . . . 13
Section 48. Seal . . . . . . . . . . . . . . . . . . . . . 13
Section 49. Offices . . . . . . . . . . . . . . . . . . . 14
Section 49A. Indemnification . . . . . . . . . . . . . . . 14
ARTICLE IX.
Section 50. Amendments . . . . . . . . . . . . . . . . . . 14
<PAGE>
GTE SOUTHWEST INCORPORATED*
FORMERLY
GENERAL TELEPHONE COMPANY OF THE SOUTHWEST
_____________________________
BY-LAWS
Adopted March 29, 1939
As Amended January 25, 1950,
June 4, 1953, May 24, 1965,
August 20, 1971, February 20, 1976,
March 25, 1981, January 27, 1982,
May 26, 1982, May 27, 1987, and November 13, 1993
ARTICLE I.
DEFINITIONS, ETC.
SECTION 1. In these By-Laws, and for all purposes hereof, unless there
be something in the subject or context inconsistent therewith:
(a) "Charter" shall mean the Certificate of Incorporation of the
Corporation as from time to time amended.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) Whenever reference is made to a stockholder or stockholders
attending or being present at a meeting, such reference shall be deemed
to include a stockholder or stockholders present or attending in person
or by proxy appointed by instrument in writing and subscribed by such
stockholder or stockholders or by his or their attorney or attorneys
thereunto authorized; and, whenever reference is made to voting or other
action by any stockholder at or in connection with any such meeting,
such reference shall be deemed to include voting or taking such action
in person or by such proxy. No proxy shall be voted on after 3 years
from its date, unless the proxy provides for a longer period.
(d) All references herein to Articles and Sections are to the
corresponding Articles and Sections of these By-Laws; and the words
"herein," "hereof," "hereby" and "hereunder" and other equivalent words,
refer to these By-Laws and not to any particular subdivision hereof.
* Name change
effective as of
January 1, 1988
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 2. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly come before said meeting shall be held on the fourth Wednesday in
March in each year, at 9:00 a.m., Local Time, but if such Wednesday be a legal
holiday under the laws of the State where such meeting is held, then at the
same hour on the next succeeding day not a holiday under the laws of said
State. If the election of directors shall not be held on the day designated
herein therefor, the Board shall cause the election to be held as soon
thereafter as conveniently may be.
SECTION 3. Special Meetings. A special meeting of stockholders may be
called at any time by the President or by resolution of the Board or by any 2
directors or a stockholder or stockholders holding of record at least 10% of
the total number of shares of capital stock of the Corporation at the time
outstanding and entitled to vote at such meeting.
SECTION 4. Place of Meetings. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Delaware, or at
such other place within or without the State of Delaware as may from time to
time be fixed by the Board or as may be designated in the respective notices
thereof or in the respective waivers of notice thereof and consents thereto
signed by all of the stockholders; PROVIDED, HOWEVER, that the place of meeting
for the election of directors shall not be changed within 60 days next before
the day on which the election is to be held and, at least 20 days before the
election is held, a notice of any change of such place of meeting shall be
given to each stockholder in person or by letter mailed to his last known post
office address.
SECTION 5. Notice of Meetings. Notice of each meeting of stockholders
shall be given to each stockholder entitled to vote at such meeting, in the
manner provided by law, or may be given by mailing a written or printed notice
of such meeting to each such stockholder, or by delivering such notice to him
personally, at least 15 days before the day on which the meeting is to be
held, unless some other period shall be required by statute, and if mailed, such
notice shall be enclosed in a postage prepaid envelope, addressed to each such
stockholder at his post office address as it appears on the stock books of the
Corporation, unless he shall have filed with the Secretary a written request
that notices intended for him be mailed to some other address, in which
event it shall be directed to the address so designated in such request. Failure
to give notice of any annual meeting or any irregularity in any notice thereof
shall not affect the validity of such annual meeting or of any proceedings at
such meeting. Except as otherwise expressly required by statute, no
publication of any notice of a meeting of stockholders shall be required.
Every notice of a special meeting of stockholders, besides stating the time
and place of the meeting, shall state briefly the purposes thereof. No notice
of any adjourned meeting of stockholders need be given, unless expressly
required by statute.
SECTION 6. Quorum. Except as otherwise provided by statute or by the
Charter, at each meeting of stockholders, the holders of a majority in number
of the issued and outstanding shares of the Corporation having voting power,
shall be present to constitute a quorum for the transaction of business.
Whether or not there is a quorum at any meeting, the stockholders present and
entitled to cast a majority of the votes thereat may adjourn the meeting from
time to time. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Shares of its own capital stock belonging to the Corporation shall not be
deemed issued and outstanding shares for the purpose of determining the
presence of a quorum at any meeting of stockholders.
SECTION 7. Organization. At every meeting of the stockholders, the
Chairman of the Board, or, in his absence, the President, or, in the absence of
both of them, the ranking Vice President present, or, if neither the Chairman
of the Board nor the President nor any Vice President be present, a Chairman
chosen by the stockholders present and entitled to cast a majority of the votes
thereat, shall act as Chairman. The Secretary of the Corporation shall act as
secretary of each meeting of the stockholders. In the absence at any such
meeting of the Secretary, the chairman of such meeting shall appoint an
Assistant Secretary, or, if none be present, some other person to act as
secretary of the meeting.
SECTION 8. Voting. Subject to the provisions of the Charter, at every
meeting of stockholders, each holder of record of stock present shall, in
respect of all questions upon which such stock shall have voting power, be
entitled to 1 vote for each share of stock of the Corporation held by him and
registered in his name on the books of the Corporation
(a) at the close of business on the record date fixed as provided in
SECTION 42, or
(b) if no such record date shall have been fixed, then at the date and
time of the meeting as fixed in the notice or waiver of notice pursuant
to which such meeting is held.
Except where the transfer books of the Corporation shall have been closed
or a date shall have been fixed as a record date for the determination of the
stockholders entitled to vote, as hereinafter in SECTION 42 provided, no
share of stock shall be voted at any election for directors, which shall have
been transferred on the books of the Corporation within 20 days next
preceding such election of directors.
Voting shall be by ballot whenever expressly required by statute and
whenever any qualified voter shall demand that any vote be by ballot. Each
ballot shall be signed by the stockholder voting, and shall state the number
of shares voted thereby.
Shares of its own capital stock belonging to the Corporation shall not be
voted directly or indirectly.
Except as otherwise provided by law or by the Charter or by SECTIONS 11, 18
AND 19, all matters which shall properly come before any meeting of stockholders
shall be decided by the affirmative vote of stockholders present and entitled to
cast a majority of the votes thereat, a quorum being present.
Persons holding stock in a fiduciary capacity shall be entitled to vote
the shares so held, and persons whose stock is pledged shall be entitled to
vote, unless in the transfer by the pledgor on the books of the Corporation he
shall have expressly empowered the pledgee to vote thereon, in which case only
the pledgee and his proxy may represent said stock and vote thereon.
SECTION 9. List of Stockholders. It shall be the duty of the
Secretary or other officer who shall have charge of the stock ledger to
prepare and make, at least 10 days before every election of directors, a
complete list of stockholders entitled to vote at said election, arranged in
alphabetical order. Such list shall be open for said 10 days at the place
where said election is to be held, to the examination of any stockholder, and
shall be produced and kept at the time and place of the election during the
whole time thereof, and subject to the inspection of any stockholder who may
be present. Upon the willful neglect or refusal of the directors to produce
such list at any election they shall be ineligible to any office at such
election. The original or duplicate stock ledger shall be the only evidence
as to who are stockholders entitled to examine such list or the books of the
Corporation or to vote at such election.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 10. General Powers. The business of the Corporation, except as
otherwise expressly provided by law or by the Charter, shall be managed by the
Board.
SECTION 11. Number, Election and Term of Office. A Board of not less
than 3 directors shall be elected by a plurality of the votes at the annual
meeting of stockholders and each director shall hold office until the next
annual meeting of stockholders and until his successor shall have been elected
and qualified or until his death, resignation, disqualification or removal.
The number of directors shall be fixed at each annual meeting of stockholders
at which a Board is elected, but the number so fixed may be increased within
the limit, if any, prescribed by the Charter, or may be diminished to not less
than 3 at any special meeting of stockholders called for the purpose. Directors
need not be stockholders.
Any officer of the Corporation or of any subsidiary or affiliate who may
be elected as a director of the Corporation shall automatically cease to be a
director of the Corporation upon his retirement or termination of his employment
for any reason as an officer of the Corporation or such subsidiary or affiliate.
The Board may, at any regular meeting or any special meeting duly called,
choose from its membership a Chairman of the Board, whose duties shall be
determined by the Board.
SECTION 12. Meetings. The President shall call the first regular
meeting of each Board within 2 weeks after the meeting of the stockholders at
which such Board shall have been elected, at such time and place as may be
designated by the President, for the purpose of organization and the election
of officers, and for the transaction of such other business as may be required
by law or by these By-Laws or designated by the Board. In case the President
shall fail to call such meeting, it may be called by any director and shall be
held at the principal office of the Corporation in the State of Delaware.
The Board by resolution may provide for the holding of other regular
meetings and may fix the time and place of holding such meetings.
Special meetings shall be held whenever called by the President, a Vice
President, the Secretary, or by any 2 directors.
As provided by the Delaware Corporation laws, any action required or
permitted to be taken at any meeting of the Board of Directors or any Committee
thereof may be taken without a meeting if all members of the Board or
Committees, as the case may be, consent thereto in writing, and the
writings are filed with the minutes of the proceedings of the Board or
Committee.
Members of the Board of Directors of this Corporation or any Committee
designated by this Board may participate in a meeting of the Board or Committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.
SECTION 13. Place of Meetings. The Board may hold its meetings at such
place or places, within or without the State of Delaware, as the Board from
time to time may determine, or as may be designated in waivers of notice thereof
signed by all the directors; except that the first meeting of each Board shall
be held as provided in SECTION 12.
SECTION 14. Notice of Meetings. Notice need not be given of any
regular meeting of the Board, except the first regular meeting if the time and
place of holding such regular meeting is specified in a resolution of the
Board adopted and incorporated in the minutes of a meeting of the Board at least
20 days prior to the holding of such regular meeting and if notice of the
adoption of such resolution is given, in the manner herein provided for giving
notice of meetings of the Board, to each director who was absent from the
meeting at which such resolution was adopted. Except as otherwise required
by law, notice of the time and place of each other meeting of the Board,
including the first regular meeting, shall be mailed to each director, postage
prepaid addressed to him at his residence or usual place of business, or at
such other address as he may have designated in a written request filed with
the Secretary, at least 2 days before the day on which the meeting is to
be held, or shall be sent to him at such address by telegram or cablegram or
given personally or by telephone, at least 24 hours before the time at which
such meeting is to be held. Notice of a meeting of the Board need not state
the purposes thereof, except as otherwise required by law or by SECTION 50
expressly provided.
SECTION 15. Quorum and Manner of Acting. A majority of the total
number of directors shall be present in person at any meeting of the Board in
order to constitute a quorum for the transaction of business thereat, and
(except as otherwise provided by statute or in the Charter or in SECTIONS 19, 23
AND 50) the act of a majority of the directors present at any such meeting at
which a quorum is present shall be the act of the Board. Whether or not
there is a quorum at any meeting, a majority of the directors who are present
may adjourn the meeting from time to time to a day certain. No notice of an
adjourned meeting need be given. The directors shall act only as a Board, and
the individual directors shall have no power as such.
SECTION 16. Organization. At every meeting of the Board, the Chairman
of the Board, or, in his absence, the President, or, if neither the Chairman of
the Board nor the President be present, a Chairman (who may be a Vice
President, if any be present) chosen by a majority of the directors present,
shall preside. The Secretary of the Corporation shall act as Secretary of the
meetings of the Board. In the absence of the Secretary at any meeting of the
Board, the Chairman of such meeting shall appoint an Assistant Secretary, or,
if none is present, some other person to act as Secretary of the meeting.
SECTION 17. Resignations. Any director may resign at any time by
giving written notice to the President or to the Secretary of the Corporation
or to the Board. Such resignation shall take effect at the time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 18. Removal of Directors. Any director may be removed, either
with or without cause, at any time, by the affirmative vote of the holders of a
majority in interest of the outstanding stock of the Corporation having voting
power for the election of directors, at a special meeting of the stockholders
called for that purpose.
SECTION 19. Vacancies. Except as otherwise provided by statute or by
the Charter, any vacancy in the Board arising at any time from any cause,
including the failure of the stockholders to elect a full Board or an increase
in the number of directors, may be filled by the vote of a majority of the
directors remaining in office; or any such vacancy may be filled by the
stockholders entitled to vote for the election of directors at the next annual
meeting held or at the special meeting of stockholders at which such vacancy
was created, or at a special meeting of stockholders called for the purpose of
filling such vacancy. The directors so appointed or elected shall hold office
until the next annual election and until their successors have been duly elected
and qualified.
SECTION 20. Fees. Unless otherwise provided in the Charter, the Board
shall have the authority to fix the compensation of directors for services in
any capacity. Directors may also be entitled by resolution of the Board to be be
reimbursed for expenses incurred in attending meetings of the Board. Nothing
herein contained shall be construed to preclude any director from serving in
any other capacity or receiving compensation for such service.
ARTICLE IV.
OFFICERS
SECTION 21. Election, Term of Office and Qualifications. The Board
shall choose annually from its membership the President of the Corporation. It
shall also choose annually (who need not be members of the Board of Directors)
a Secretary, a Treasurer and a Vice President - Finance and may also elect
one or more Vice Presidents and any other officers. Each of such officers
shall hold office until the next annual election and until his successor is
chosen and qualified. Any two of said offices except those of President and
Vice President may be held, and the duties thereof may be performed, by one
person, except that no person holding the office of President shall hold the
office of Treasurer. No person may hold more than two of said offices. No
instrument required to be signed by more than one officer shall be signed by
the same individual in more than one capacity.
SECTION 22. Other Officers. The Board may elect such officers or
agents as the Board may deem necessary or advisable, including one or more
Assistant Treasurers and one or more Assistant Secretaries, each of whom shall
hold office for such period, having such powers and perform such duties as are
provided in these By-Laws or as the Board may from time to time determine.
Any such officer, if required to do so by the Board, shall give bond for the
faithful discharge of his duty, in such sum and with such surety and sureties as
the Board shall require.
SECTION 23. Removal. Any officer may be removed, either with or
without cause, at any time, by resolution adopted by a majority of the whole
Board, at any meeting of the Board, or by any officer upon whom such power of
removal has been conferred by resolution adopted by a majority of the whole
Board.
SECTION 24. Resignations. Any officer may resign at any time by giving
written notice to the President or to the Secretary or to the Board. Any such
resignation shall take effect at the time specified therein and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 25. Vacancies. A vacancy in any office arising from any cause
shall be filled for the unexpired portion of the term in the manner prescribed
in these By-Laws for regular election to such office.
SECTION 26. President. The President shall be the chief executive
officer of the Corporation and shall have general supervision of the business of
the Corporation, and over its several officers, subject, however, to the
control of the Board. In the absence of the Chairman of the Board, the
President, when present, shall preside at all meetings of the stockholders and
at all meetings of the Board. He may sign and execute, in the name of the
Corporation, deeds, mortgages, bonds, contracts or other instruments authorized
by the Board, except in cases where the signing and execution thereof shall
be expressly delegated by the Board to some other officer or agent of the
Corporation; and, in general shall perform all duties incident to the office of
President, and such other duties as from time to time may be assigned to him
by the Board.
He may, unless otherwise directed by the Board, attend in person or by
substitute or proxy appointed by him and act and vote in behalf of the
Corporation at all meetings of the stockholders of any corporation in which
this Corporation holds stock.
He shall, whenever it may in his opinion be necessary, prescribe the
duties of officers and employees of the Corporation whose duties are not
otherwise defined.
SECTION 27. Vice Presidents. At the request of the President, or in his
absence or disability, the senior Vice President available to act, shall
perform all the duties of the President, and, when so acting, shall have all the
powers of the President. Any Vice President may sign and execute, in the name
of the Corporation, deeds, mortgages, bonds or other instruments authorized by
the Board, except in cases where the signing and execution thereof shall
be expressly delegated by the Board to some other officer or agent of the
Corporation; may, in the absence of the President or in case of the failure of
the President to appoint a substitute or proxy as provided in SECTION 26
unless otherwise directed by the Board, attend in person or by substitute or
proxy appointed by him and act and vote in behalf of the Corporation at
all meetings of the stockholders of any corporation in which this Corporation
holds stock; and shall perform such other duties as from time to time may be
assigned to him by the Board or by the President.
If at any time there be more than one Vice President, the order of rank
of such Vice Presidents shall be as determined by the Board, or, in the absence
of such determination, shall be the order in which such Vice Presidents were
elected as such.
SECTION 28. Secretary. The Secretary shall
(a) keep the minutes of all meetings of the stockholders and of
the Board, in books to be kept for the purpose;
(b) see that all notices are duly given in accordance with these
By-Laws or as required by law;
(c) be custodian of the records (other than financial) and have
charge of the seal of the Corporation and see that it is used upon all
papers and documents whose execution in behalf of the Corporation under
its seal is required by law or duly authorized in accordance with these
By-Laws;
(d) have charge of and keep or cause to be properly kept and filed
the stock books of the Corporation as provided in SECTION 41 and all
other books, reports, statements, certificates and all other documents and
records required by law;
(e) perform the duties defined in SECTION 9.
(f) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to
him by the President or by the Board.
SECTION 29. Assistant Secretaries. At the request of the Secretary, or
in his absence or disability, an Assistant Secretary designated by the Secretary
or by the President or by the Board shall perform all the duties of the
Secretary and, when so acting, shall have all the powers of the Secretary. Each
Assistant Secretary shall perform such other duties as from time to time may be
assigned to him by the Secretary or by the President or by the Board.
SECTION 30. Treasurer. The Treasurer, if required by the Board, shall
give a bond for the faithful discharge of his duty, in such sum and with such
surety or sureties as the Board shall require. The Treasurer shall
(a) have charge of and be responsible for, the collection,
receipt, custody and disbursement of the funds of the Company, and shall
deposit its funds in the name of the Company, in such banks, trust
companies, or safe deposit vaults as the Board may direct;
(b) have the custody of such books, receipted vouchers, and other
books and papers as in the practical business operations of the Company
shall naturally belong in the office or custody of the Treasurer, or as
shall be placed in his custody by the Board;
(c) have charge of the safe keeping of all stocks, bonds,
mortgages, and other securities belonging to the Company, but such stocks,
bonds, mortgages, and other securities shall be deposited for safe
keeping in a safe deposit vault to be approved by the Board, in a box or
boxes, access to which shall be had as may be provided by the resolution
of the Board;
(d) sign checks, drafts, and other papers providing for the
payment of money by the Company for approved purposes in the usual course
of business, and shall have such other powers and duties as are commonly
incidental to the office of Treasurer, or as may be prescribed for him by
the President or by the Board.
SECTION 31. Assistant Treasurers. Each Assistant Treasurer, if
required so to do by the Board, shall give bond for the faithful discharge of
his duty, in such sum and with such surety or sureties as the Board shall
require. At the request of the Treasurer, or in his absence or disability, an
Assistant Treasurer designated by the Treasurer or by the President or by the
Board shall perform all the duties of the Treasurer, and, when so acting, shall
have all the powers of the Treasurer. Each Assistant Treasurer shall perform
such other duties as from time to time may be assigned to him by the Treasurer
or by the President or by the Board.
SECTION 32. Vice President - Finance. The Vice President - Finance
shall be the principal accounting officer of the Corporation. The Vice
President - Finance, if required by the Board, shall give bond for the faithful
discharge of his duty, in such form and with such surety or sureties as the
Board shall require. The Vice President - Finance shall
(a) keep or cause to be kept full and complete books of accounts
of all operations of the Corporation and of its assets and liabilities;
(b) exhibit at all reasonable times his books of account and
records to any of the directors of the Corporation upon application during
business hours at the office of the Corporation where such books and
records are kept;
(c) render reports of the operations and business and of the
conditions of the finances of the Corporation at all regular meetings of
the Board, if called upon to do so, and at such other times as may be
requested by the Board or by any director, and render a full financial
report at the annual meeting of the stockholders, if called upon to do
so;
(d) have general supervision over all books and accounts of the
Company relating to receipts and disbursements, except those records
provided to be kept by the Secretary; shall arrange the form of all
vouchers, accounts, reports and returns required by the various
departments, shall examine the accounts of all officers and employees
from time to time and as often as practicable, and shall see that proper
returns are made of all receipts from all sources, and that correct
vouchers are turned over to him for all disbursements for any purpose. At
such times in each month as may be found practicable all bills for the
previous month, properly made in detail and certified, shall be
submitted to him, and he shall audit and approve the same, if found
satisfactory and correct, but he shall not approve any voucher unless it
has been previously certified to by the head of the Department in which
the expenditure originated, nor unless satisfied of its propriety and
correctness;
(e) have full access to all contracts, correspondence, and all
other papers and records of the company relating to its business matters,
shall have the custody of its account books and other papers relating
to the accounts of the company, except such as in the practicable business
operations of the company shall naturally belong in the custody of the
Secretary or shall be placed in the custody of the Secretary by the
President or by the Board;
(f) in general, perform all the duties incident to the office of
Vice President - Finance, and such other duties as from time to time may
be assigned to him by the President or by the Board.
SECTION 33. Controller. The Controller, if required so to do by
the Board, shall give bond for the faithful discharge of his duty, in such sum
and with such surety or sureties as the Board shall require. At the request of
the Vice President - Finance, or in his absence or disability, the Controller
designated by the Vice President - Finance or by the President or by the Board
shall perform all the duties of the Vice President - Finance, and, when so
acting shall have all the powers of the Vice President - Finance. The
Controller shall perform such other duties as from time to time may be
assigned to him by the Vice President - Finance or by the President or by the
Board.
SECTION 34. Salaries. The salaries of the officers shall be fixed from
time to time by the Board, and no officer shall be precluded from receiving
such salary by reason of the fact that he is also a director of the Corporation.
ARTICLE V.
EXECUTION OF INSTRUMENTS, ETC.
SECTION 35. Contracts, etc., How Executed. The Board, subject to the
provisions of Section 21 and 40, may authorize any officer or officers, agent
or agents to enter into any contract or to execute and deliver any instrument
in the name of and in behalf of the Corporation, and such authority may be
general or confined to specific instances.
SECTION 36. Loans. No loans shall be contracted in behalf of the
Corporation unless authorized by the Board, subject in every case to the
restrictions in the Charter. When such authorization has been given by the
Board, any officer or agent of the Corporation thereunto authorized may effect
loans and advances at any time for the Corporation from any institution, firm
or individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds, or other evidences of indebtedness of the Corporation
and, as security for the payment of any and all loans, advances, indebtedness
and liabilities of the Corporation, may (subject to such authorization)
pledge, hypothecate or transfer any and all stocks, securities and other
property at any time owned by the Corporation and to that end endorse, assign
and deliver the same. Such authority may be general or confined to specific
instances.
SECTION 37. Deposits. Funds of the Corporation may be deposited from
time to time to the credit of the Corporation with such depositaries as may be
selected by the Board or by any officer or officers, agent or agents of the
Corporation to whom such power may be delegated from time to time by the Board.
SECTION 38. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes acceptances, or other evidences of indebtedness
issued in the name of the Corporation, shall be signed by such officer or
officers, agent or agents of the Corporation, and in such manner, as shall be
determined from time to time by resolution of the Board. Unless otherwise
provided by resolution of the Board, endorsements for deposit to the credit of
the Corporation in any of its duly authorized depositaries may be made,
without countersignature, by the President or any Vice President or the
Treasurer, or by any other officer or agent of the Corporation to whom such
power shall have been delegated by the Board, or may be made by hand-stamped
impression in the name of the Corporation.
SECTION 39. Sale or Transfer of Property. Stock certificates, bonds or
other securities held or owned by the Corporation may, subject in every case to
the restrictions in the Charter, be sold, transferred or otherwise disposed of
pursuant to authorization by the Board, and in any such event, the stock
certificates, registered bonds or other securities, deeds and transfers of
real estate and other personal property so authorized to be sold, transferred
or otherwise disposed of may be assigned or transferred from the name of the
Corporation by the signature of the President or any Vice President.
ARTICLE VI.
SHARES AND THEIR TRANSFER: BOOKS
SECTION 40. Certificates of Stock. Certificates for shares of stock of
the Corporation of whatever class shall be in such form, not inconsistent with
law or with the Charter, as shall be approved by the Board. They shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary; provided, however,
that where such Certificate is countersigned by a transfer agent or by a
transfer clerk acting on behalf of the Corporation and by a registrar, the
signatures of the President, Vice President, Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary may be facsimiles.
SECTION 41. Transfer of Shares. Transfer of shares of the stock of the
Corporation shall be made on the stock books of the Corporation by the holder of
record of such shares or by his attorney thereunto duly authorized, and on
surrender of the certificate or certificates for such shares, but no shares
shall be transferred until all previous calls thereon shall have been fully
paid in. A person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof as regards the Corporation;
PROVIDED HOWEVER, that whenever any transfer of shares shall be made for
collateral security, and not absolutely, and written notice thereof shall be
given to the Secretary of the Corporation or to its transfer agent, if any,
such fact shall be stated in the entry of the transfer.
SECTION 42. Closing of Transfer Books. The Board shall have power to
close the stock transfer books for a period not more than 40 days before the
date of any stockholders' meeting or the date for the payment of any dividend or
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period of not more
than 30 days in connection with obtaining the consent of stockholders for any
purpose; or the Board may in its discretion fix in advance a date, not more
than 40 days before the date of any stockholders' meeting or the date for the
payment of any dividend or for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of and to vote at any
such meeting and any adjournment thereof, or entitled to receive such dividend
or rights, or to exercise the rights in respect of any such change, conversion
or exchange of capital stock, or to give such consent, and in such case such
stockholders and only such stockholders as shall be stockholders of record at
the close of business on the date so fixed shall be entitled to notice of and
to receive such dividend or rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
SECTION 43. Lost and Destroyed Certificates. The holder of record of
any certificate of stock who shall claim that such certificate is lost or
destroyed may make an affidavit or affirmation of that fact and advertise the
same, if required to do so by the Board, in such manner as the Board may
require and furnish a bond, if required to do so by the Board, in form and with
one or more sureties satisfactory to the Board and to the Transfer Agent and/or
Registrar, if any, in such sum as the Board may direct, sufficient to
indemnify the Corporation and the Transfer Agent and/or Registrar, if any,
against any claim that may be made against them, or any of them, on account of
such certificate, whereupon one or more new certificates may be issued of the
same tenor and for the same aggregate number of shares as the one alleged to
be lost or destroyed. The Board may delegate to any officer authority to
administer the provisions of this section.
SECTION 44. Regulations. The Board may make such rules and regulations
as it may deem expedient concerning the issuance, transfer and registration of
certificates of stock. It may appoint one or more transfer agents or registrars
of transfer or both, and may require all certificates of stock to bear the
signature of either or both.
SECTION 45. Place of Keeping Books and Records. Insofar as permitted
by law, the stock ledgers, books and other records of the Corporation may, at
the option of the officer or officers in charge of the same, be kept at any
office of the Corporation within or without the State of Delaware, unless
otherwise directed by the Board.
ARTICLE VII.
NOTICE
SECTION 46. Waiver of Notice. No notice of the time, place or purpose
of any meeting of stockholders or directors, or any publication thereof, whether
prescribed by law, by the Charter, or by these By-Laws, need be given to any
person who attends such meetings, or who, in writing, executed either before
or after the holding thereof, waives such notice, and such attendance or
waiver shall be deemed equivalent to notice.
ARTICLE VIII.
MISCELLANEOUS
SECTION 47. Fiscal Year. The fiscal year of the Corporation shall be
the calendar year.
SECTION 48. Seal. The corporate seal shall be a device containing the
name of the Corporation, and the word "Delaware." The corporate seal may be
used by printing, engraving, lithographing, stamping or otherwise making,
placing or affixing, or causing to be printed, engraved, lithographed, stamped
or otherwise made, placed or affixed, upon any paper or document, by any process
whatsoever, an impression, FACSIMILE, or other reproduction of said corporate
seal.
SECTION 49. Offices. The Corporation shall have an office at such
place in the State of Delaware, and may have one or more other offices at such
place or places within or without the State of Delaware as the Board shall from
time to time determine.
SECTION 49A. Indemnification. The Corporation shall indemnify its
officers, directors, employees and agents, and shall advance expenses (including
attorneys' fees) incurred by any such person in defending any action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such advancements if it shall ultimately be determined that such person
is not entitled to indemnification, to the extent permitted by the General
Corporation Law of the State of Delaware, as amended from time to time.
ARTICLE IX.
AMENDMENTS
SECTION 50. Amendments. The power to make and alter the By-Laws of the
Corporation having been conferred upon the directors by the Charter, these
By-Laws may be altered or repealed by the directors or stockholders as provided
by law. Such alteration or repeal by the stockholders may be effected at any
annual meeting, or at any special meeting if notice of the proposed
alteration or repeal is included in the notice of such special meeting; and
such alteration or repeal by the Board may be effected by the affirmative vote
of a majority of the whole Board given at any meeting, the notice whereof
mentions such alteration or repeal as one of the purposes of such meeting.
The time and place for the election of directors shall not be changed within 60
days next before the day on which the election is to be held and notice of any
change of such time or place shall be given each stockholder at least 20 days
before the election is held, in person or by letter mailed to his last known
post office address.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of
the By-Laws of GTE SOUTHWEST INCORPORATED (formerly GENERAL TELEPHONE COMPANY
OF THE SOUTHWEST), a corporation of the State of Delaware, as in effect on the
date hereof.
Witness my hand and seal of said Corporation this 23rd day of March,
1994.
Linda K. Watson
_________________________________
Assistant Secretary
of
GTE SOUTHWEST INCORPORATED
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
of
GTE SOUTHWEST INCORPORATED
For the year ended December 31, 1993
<PAGE>
PRESIDENT'S REPORT
- - -------------------------------------------------------------------------------
1993 was a year of positioning for GTE Southwest as we continued the
transition to a more competitive marketplace.
The Company took several important steps to continue as a key player in the
telecommunications arena and ensure an optimistic outlook for the Company's
long-term profitability.
Actions included a significant commitment to "re-engineering" the Company's
business processes over the next three years, including consolidating and
automating various business processes and introducing new technology to
become more competitive. These efforts will dramatically reduce costs,
enhance customer service, and accelerate the rollout of new products and
services.
GTE Southwest's process re-engineering initiatives directly impacted 1993
financial results, with the Company recording a one-time after-tax
restructuring charge of $106 million in the fourth quarter. In addition, the
Company incurred a one-time after-tax charge of $31 million associated with
the early redemption of high-coupon debt. These charges contributed to a
$19 million net loss for the year. Excluding these items, net income from
operations would have been $118 million, or a 20 percent decrease from the
prior year. This year-to-year decline is primarily attributable to increased
annual expenses of $39 million associated with a new accounting
standard for postretirement benefits.
Overall, GTE Southwest continues to maintain a positive financial outlook.
Cash flow from operations was up 16 percent over 1992.
SALES AND REVENUE
The number of access lines in service in GTE Southwest's territory
increased by 5.7 percent, compared to a 3.1 percent average growth reported
by the Regional Bell Operating Companies. In addition, minutes of use
on our network increased 7.0 percent. These volume increases were more
than offset by strategic price reductions which the Company initiated
in response to increased competition in key market segments. The net
result was a decrease in revenues of slightly less than two percent from 1992.
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JOHN C. APPEL
President
COST AND EXPENSE REDUCTIONS
The Company continued to focus on reducing costs and gaining
competitive agility. During 1993, GTE Southwest refinanced $501 million
high-coupon debt, which will result in annual interest cost savings of more
than $16 million.
GTE Southwest reduced its workforce by 8% and will realize the cost savings
resulting from these employee reductions in the future. However, the
impact of these cost cutting efforts in the current year was largely offset
by the adoption of the previously mentioned new accounting standard for
postretirement benefits.
ECONOMIC DEVELOPMENT
The Company demonstrated its ongoing commitment to economic
development by providing eight communities it serves with marketing packages
which promote their assets and capabilities to prospective businesses. Those
efforts were instrumental in persuading businesses to locate in GTE Southwest
communities, creating more than 4,200 jobs.
REGULATORY
The professional working relationships GTE has forged with regulators and
their staffs remain strong. In Texas, we were disappointed that the Texas
Legislature failed to make necessary changes to the Public Utility Regulatory
Act. However, we were encouraged by their commitment to establish an
interim study committee to review legislation governing the
telecommunications industry. The Company will continue to strive for fair
regulation to allow GTE Southwest to conduct business on an equal footing with
its competitors.
OUR FUTURE
We have a number of challenging projects planned for 1994. Increased
competition in many facets of our business and re-engineering of our business
processes present both challenges and exciting opportunities for the Company.
GTE Southwest intends to take all necessary actions to prepare for
competition in a fashion that recognizes the needs of investors,
customers, employees and communities.
As the new President, I support the actions taken in 1993, and I am confident
that with the strength of our management team and continuing dedication of our
employees, GTE Southwest has a bright future.
JOHN C. APPEL
President
<PAGE>
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EXECUTIVE OFFICES
500 East Carpenter Freeway
Irving, Texas 75062
TRANSFER AGENT AND REGISTRAR
GTE Corporation
c/o Bank of Boston
P.O. Box 9191
Boston, Massachusetts 02205-9191
FOR A COPY OF THE 1993 ANNUAL REPORT OF
OUR PARENT COMPANY, PLEASE WRITE TO:
GTE Corporation
One Stamford Forum
Stamford,Connecticut 06904
FOR A COPY OF THE 1993 ANNUAL FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, PLEASE WRITE TO:
GTE Telephone Operations
Financial Reporting
P.O.Box 407, MC INAAACG
Westfield, IN 46074
(317) 896-6464
<PAGE>
LEADERSHIP
- - ----------------------------------------------------------------------------
Officers
John C. Appel
President
J.Bruce Cole
State Vice President-Sales
Gerald K. Dinsmore
Senior Vice President-Finance and
Planning
Oscar C. Gomez
State Vice President-External Affairs
Gregory D.Jacobson
State Vice President-Finance
Michael T. Metcalf
State Vice President-Human Resources
William G. Mundy
State Vice President-General Counsel
Dennis F. Myers
State Vice President-Operations
Barry W.Paulson
State Vice President-General
Manager-Oklahoma/Arkansas
William M.Edwards, III
Controller
Charles J. Somes
Secretary
- - --------------------------------------------------------------------------
Board of Directors
John C. Appel
President
GTE Southwest Incorporated
Richard M. Cahill
Vice President-General Counsel
GTE Telephone Operations
Gerald K. Dinsmore
Senior Vice President-Finance
and Planning
GTE Telephone Operations
Michael B. Esstman
Executive Vice President-
Chief Operating Officer
GTE Telephone Operations
Kent B. Foster
President
GTE Telephone Operations
Thomas W. White
Executive Vice President
GTE Telephone Operations
<PAGE>
FINANCIAL REPORT
- - -------------------------------------------------------------------------
Statements of Income
Years ended December 31 1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Operating revenues (a):
Local network services $ 421,004 $ 391,601 $ 363,292
Network access services 438,046 482,636 475,860
Long distance services 189,954 204,708 207,824
Equipment sales and services 72,394 67,125 69,593
Texas rate case reserve (16,308) (25,498) (37,000)
Other 57,275 61,213 54,459
- - -------------------------------------------------------------------------
1,162,365 1,181,785 1,134,028
- - -------------------------------------------------------------------------
Operating expenses (b):
Cost of sales and services 280,841 253,601 272,080
Depreciation and amortization 254,457 250,799 276,008
Marketing, selling, general
and administrative 398,056 378,719 383,522
Restructuring costs 171,954 _ _
- - -------------------------------------------------------------------------
1,105,308 883,119 931,610
- - -------------------------------------------------------------------------
Net operating income 57,057 298,666 202,418
- - -------------------------------------------------------------------------
Other (income) deductions:
Interest expense 73,874 76,177 79,284
Other - net 1,635 2,390 (2,754)
- - -------------------------------------------------------------------------
Income (loss) before income taxes (18,452) 220,099 125,888
- - -------------------------------------------------------------------------
Income tax expense (benefit) (30,661) 72,720 24,757
- - -------------------------------------------------------------------------
Income before extraordinary charge 12,209 147,379 101,131
- - -------------------------------------------------------------------------
Extraordinary charge - early
retirement of debt (net of
income taxes of $16,098) 31,250 _ _
- - -------------------------------------------------------------------------
Net income (loss) $ (19,041) $ 147,379 $ 101,131
- - -------------------------------------------------------------------------
(a) Includes billings to affiliates of $37,803, $47,492 and $33,706
for the years 1993-1991, respectively.
(b) Includes billings from affiliates of $26,445, $68,553 and $99,335
for the years 1993-1991, respectively.
Statements of Reinvested Earnings
Years ended December 31 1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Balance at beginning of year $ 480,865 $ 479,057 $ 444,774
ADD -
Net income (loss) (19,041) 147,379 101,131
DEDUCT -
Cash dividends declared on
common stock 77,548 143,983 65,145
Cash dividends declared on
preferred stock 1,409 1,588 1,703
- - -------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 382,867 $ 480,865 $ 479,057
- - -------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Balance Sheets
December 31 1993 1992
- - -------------------------------------------------------------------------
(Thousands of Dollars)
ASSETS
Current assets:
Cash $ 2,888 $ 2,967
Accounts receivable
Customers (including unbilled revenues) 135,548 145,227
Affiliated companies 15,748 29,609
Other 33,744 26,902
Allowance for uncollectible accounts (18,144) (5,092)
Materials and supplies, at average cost 24,426 31,445
Deferred income tax benefits 29,915 2,459
Prepayments and other 3,378 4,251
227,503 237,768
Property, plant and equipment:
Original cost 4,117,433 3,995,986
Accumulated depreciation (1,610,208) (1,528,632)
2,507,225 2,467,354
Other assets 54,392 56,088
Total assets $2,789,120 $2,761,210
- - -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 47,800 $ 26,000
Current maturities of long-term debt 6,165 10,778
Accounts payable 72,358 72,694
Affiliate payables and accruals 18,573 21,069
Advanced billings and customer deposits 30,435 32,329
Accrued taxes 31,463 40,423
Accrued interest 6,311 12,210
Accrued payroll and vacations 43,830 29,672
Accrued dividends 262 78,482
Reserve for rate refunds 98,362 69,807
Accrued restructuring costs and other 95,756 15,730
451,315 409,194
Long-term debt 703,137 704,965
Deferred credits:
Deferred income taxes 350,834 349,511
Deferred investment tax credits 36,041 44,637
Restructuring costs and other 200,056 105,228
586,931 499,376
Preferred stock, subject to
mandatory redemption 12,270 14,210
Shareholders' equity:
Preferred stock 7,600 7,600
Common stock (6,450,000 shares outstanding) 645,000 645,000
Reinvested earnings 382,867 480,865
1,035,467 1,133,465
Total liabilities and shareholders' equity $2,789,120 $2,761,210
- - -------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Statement of Cash Flows
Years ended December 31 1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Cash flows from operating activities:
Income before extraordinary charge $12,209 $147,379 $101,131
Adjustments to reconcile income before
extraordinary charge to net cash from
operating activities:
Depreciation and amortization 254,457 250,799 276,008
Restructuring costs 171,954 _ _
Deferred income taxes and investment
tax credits (94,084) 3,778 (30,754)
Provision for uncollectible accounts 21,424 16,949 12,971
Change in current assets and current
liabilities 61,055 (1,986) 18,947
Other - net 41,588 (13,247) (4,917)
Net cash from operating activities 468,603 403,672 373,386
Cash flows from investing activities:
Capital expenditures (300,616) (293,117) (285,638)
Other - net 4,788 1,877 (554)
Net cash used in investing
activities (295,828) (291,240) (286,192)
Cash flows from financing activities:
Long-term debt issued 496,666 _ 98,970
Early retirement of debt and related
call premium (521,578) _ _
Long-term debt and preferred
stock retired (12,565) (60,774) (18,866)
Dividends paid to shareholders (157,177) (81,591) (93,042)
Increase (decrease) in short-term
debt 21,800 26,000 (85,000)
Net cash used in financing
activities (172,854) (116,365) (97,938)
Decrease in cash (79) (3,933) (10,744)
Cash:
Beginning of year 2,967 6,900 17,644
End of year $ 2,888 $ 2,967 $ 6,900
- - -------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
1. Summary of Accounting Policies
GTE Southwest Incorporated (the Company) is a wholly-owned subsidiary
of GTE Corporation (GTE).
TRANSACTIONS WITH AFFILIATES
PURCHASES
Certain affiliated companies supply construction and maintenance
materials, supplies and equipment to the Company. These purchases amounted
to $108.0 million, $122.1 million and $86.0 million for the years 1993-1991,
respectively. Such purchases are recorded in the accounts of the Company at
cost including a normal return realized by the affiliates.
The Company is billed for printing and other costs for the production of
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 $26.4
million, $68.6 million and $99.3 million for the years 1993-1991,
respectively. The amounts charged for these affiliated transactions are
based on a proportional cost allocation method which reflects management's
best estimate.
REVENUES
The Company has an agreement with GTE Directories Corporation (100% owned by
GTE), whereby the Company provides its subscriber lists, billing and
collection and other services. Revenues from these services amounted to
$37.8 million, $47.5 million and $33.7 million for the years 1993-1991,
respectively.
TELEPHONE PLANT
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 of property where profit or loss is recognized.
The Company provides for depreciation on telephone plant over the estimated
useful lives of the assets using the straight-line method, based upon rates
prescribed by the Federal Communications Commission (FCC) and the state
regulatory commissions. The provisions for depreciation and amortization
were equivalent to composite annual rates of 6.4%, 6.6% and 7.6% for the
years 1993-1991, respectively.
REGULATORY ACCOUNTING
The Company follows the accounting prescribed by the Uniform System of Accounts
of the FCC and the regulatory commissions in each of the Company's
operating jurisdictions and Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation."
This accounting recognizes the economic effects of rate regulation by
recording costs and a return on investment as such amounts are recovered
through rates authorized by regulatory authorities. The Company annually
reviews the continued applicability of SFAS No. 71 based upon the current
regulatory and competitive environment.
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, revenue is recognized when products are delivered or services
are rendered to customers.
MATERIALS AND SUPPLIES
Materials and supplies are stated at the lower of cost or market value.
EMPLOYEE BENEFIT PLANS
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." The new standard requires that the expected costs of
postretirement 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 SFAS No. 106, the
cost of these benefits was charged to expense as paid.
The Company also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" effective January 1, 1993. SFAS No. 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
Investment tax credits were repealed by the Tax Reform Act of 1986 (the
Act). Those credits claimed prior to the Act were deferred and are being
amortized over the lives of the properties giving rise to the credits.
As further explained in Note 7, during the fourth quarter of 1992, the Company
adopted SFAS No. 109, "Accounting for Income Taxes," retroactive to
January 1, 1992. SFAS No. 109 changed the method by which companies account
for income taxes. Among other things, the Statement requires that deferred
tax balances be adjusted to reflect new tax rates when they are enacted into
law. The impact of this change in accounting on the Company's results of
operations was immaterial.
FINANCIAL INSTRUMENTS
The fair values of financial instruments other than long-term debt, closely
approximate their carrying value. The estimated fair value of long-term debt
at December 31, 1993 and 1992, based on either reference to quoted market
prices or an option pricing model, exceeded the carrying value by
approximately $17 million and $30 million, respectively.
PRIOR YEARS' FINANCIAL STATEMENTS
Reclassifications of prior year data have been made in the financial
statements to conform to the 1993 presentation.
2. Restructuring and Merger Costs
Results for 1993 include a one-time pretax restructuring charge of $172.0
million related to the Company's re-engineering plan over the next three years.
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
re-engineering plan includes $68.8 million to upgrade or replace existing
customer service and administrative systems and enhance network software,
$77.8 million for employee separation benefits associated with workforce
reductions and $21.0 million primarily for the consolidation of facilities
and operations and other related costs.
During 1993, the Company offered various voluntary separation programs to its
employees. These programs resulted in a pretax charge of $9.2 million which
reduced net income by $6.4 million.
In March 1991, the merger of the Company's parent, GTE, and Contel
Corporation (Contel) was consummated. GTE Telephone Operations is in the
process of integrating and restructuring the merged operations to achieve
efficiencies.
3. Preferred Stock
The authorized cumulative preferred stock, not subject to mandatory
redemption, consists of 2,060,758 shares. Shares outstanding at December
31, 1993 and 1992 are as follows:
- - -------------------------------------------------------------------------
Shares Amount*
- - -------------------------------------------------------------------------
Outstanding
$2.20 no par value 32,000 $1,600
5.10% $20 par value 300,000 6,000
- - -------------------------------------------------------------------------
Total 332,000 $7,600
- - -------------------------------------------------------------------------
Cumulative preferred stock, subject to mandatory redemption, is as
follows:
- - -------------------------------------------------------------------------
December 31 1993 1992
- - -------------------------------------------------------------------------
Shares Amount* Shares Amount*
- - -------------------------------------------------------------------------
Authorized
4.60% $20 par value 350,000 350,000
$8.10 no par value 300,000 300,000
- - -------------------------------------------------------------------------
650,000 650,000
- - -------------------------------------------------------------------------
Outstanding
4.60% $20 par value 103,500 $ 2,070 110,500 $ 2,210
$8.10 no par value 102,000 10,200 120,000 12,000
- - -------------------------------------------------------------------------
Total 205,500 $12,270 230,500 $14,210
- - -------------------------------------------------------------------------
*Thousands of Dollars
The 4.60% Series sinking fund provisions require the Company to redeem 7,000
shares at $20 per share on April 1 of each year. The Company redeemed 7,000
shares in 1993 to meet the 1993 requirement. The 1992 and 1991 requirements
were met with the purchase of 7,000 shares in both 1991 and 1990, respectively.
The $8.10 Series sinking fund provisions require the redemption of 9,000
shares at $100 per share on November 1 of each year. The Company redeemed 18,000
shares in each of the years 1991 through 1993.
The preferred shareholders are entitled to voting rights (on an equal basis with
the common shareholder) in the event dividends in arrears equal or exceed the
annual dividends on all preferred stock. Otherwise, the preferred shareholders
have no voting rights. The Company is not in arrears in its dividend payments
at December 31, 1993.
The aggregate redemption requirements of preferred stock subject to mandatory
redemption are $1 million in each of the years 1994 through 1998.
No shares of preferred stock were 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.
4. Common Stock
The authorized common stock of the Company consists of 6,450,000 shares
with a stated value of $100 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, 1993, $2.6 million of reinvested earnings were
restricted as to the payment of cash dividends on common stock under the terms
of the Company's Certificate of Incorporation.
5. Long-Term Debt
Long-term debt outstanding, exclusive of current maturities, is as follows:
- - -------------------------------------------------------------------------
December 31 1993 1992
- - -------------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
4-5/8% Series, due 1994 $ $ 6,000
5-3/8% Series, due 1996 9,000 9,000
8-1/8% Series, due 1996 _ 75,000
6-7/8% Series, due 1998 25,000 25,000
9-1/4% Series, due 2000 _ 26,000
7-7/8% Series, due 2001 _ 40,000
7-1/2% Series, due 2002 40,000 40,000
7-3/4% Series, due 2003 30,000 30,000
9-7/8% Series, due 2005 _ 45,000
8-3/8% Series, due 2007 _ 35,000
11-3/4% Series, due 2015 _ 75,000
10-1/8% Series, due 2015 _ 75,000
8-7/8% Series, due 2016 _ 50,000
10-3/8% Series, due 2017 _ 80,000
8-1/2% Series, due 2031 100,000 100,000
Debentures:
5.82% Series A, due 1999 250,000 _
6.54% Series B, due 2005 250,000 _
- - -------------------------------------------------------------------------
704,000 711,000
- - -------------------------------------------------------------------------
Other 159 171
- - -------------------------------------------------------------------------
Total principal amount 704,159 711,171
- - -------------------------------------------------------------------------
Discount (1,022) (6,206)
- - -------------------------------------------------------------------------
Total long-term debt $ 703,137 $704,965
- - -------------------------------------------------------------------------
In November 1993, the Company called $501 million of high-coupon first mortgage
bonds with proceeds from commercial paper borrowings. These bonds had coupons
ranging from 7.875% to 11.75%. In December 1993, the Company issued $250
million of 5.82% Debentures, due 1999 and $250 million of 6.54% Debentures,
due 2005 to refinance these bonds. The cost of calling these bonds is reflected
as an extraordinary after-tax charge of $31.3 million in the Statements of
Income.
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 on the Company's outstanding long-term debt is amortized over the
lives of the respective issues.
Maturities, installments and sinking fund requirements for the five-year
period from January 1, 1994 are summarized below (in thousands of dollars):
- - -------------------------
1994 $ 6,165
1995 87
1996 9,072
1997 _
1998 25,000
- - -------------------------
Substantially all of the Company's telephone plant is subject to the liens of
the indentures under which the bonds listed above were issued.
6. Short-Term Debt
The Company finances part of its construction program through the use of
interim short-term loans, primarily commercial paper, which are generally
refinanced at a later date by issues of long-term debt or equity. Information
relating to short-term borrowings is as follows:
- - -------------------------------------------------------------------------
1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
During the year -
Commercial paper -
Maximum month-end balance $ 590,100(a) $39,600 $143,440
Average monthly balance $ 113,514 $20,923 $ 97,006
Weighted average interest
rate (b) 3.12% 3.52% 6.02%
At December 31 -
Balance outstanding -
Commercial paper $ 47,800 $26,000 $ _
Average interest rate 3.20% 3.45% _
- - -------------------------------------------------------------------------
(a) Includes commercial paper borrowings used to call $501 million of
long-term debt in November 1993.
(b) Calculated by dividing the annualized interest expense by the
average of the balances of the debt outstanding at the end of each
month.
Unused lines of credit available to the Company to support outstanding
commercial paper and other short-term financing needs are $20.1 million.
In addition, a $2.3 billion 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. Income Taxes
The provision (benefit) for income taxes is as follows:
- - -------------------------------------------------------------------------
1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Current
Federal $ 61,821 $ 67,002 $ 53,533
State 1,602 1,940 1,978
- - -------------------------------------------------------------------------
Total 63,423 68,942 55,511
- - -------------------------------------------------------------------------
Deferred
Federal (84,410) 11,105 (18,921)
State (1,078) 204 (770)
- - -------------------------------------------------------------------------
Total (85,488) 11,309 (19,691)
- - -------------------------------------------------------------------------
Amortization of
deferred investment
tax credits (8,596) (7,531) (11,063)
- - -------------------------------------------------------------------------
Total $ (30,661) $ 72,720 $ 24,757
- - -------------------------------------------------------------------------
The components of deferred income tax expense (benefit) are as follows:
- - -------------------------------------------------------------------------
1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Depreciation and amortization $1,016 $ (1,489) $ (18,332)
Employee benefit obligations (23,019) (608) (1,452)
Prepaid pension cost 5,203 3,716 2,244
Restructuring cost (64,370) _ _
Other - net (4,318) 9,690 (2,151)
- - -------------------------------------------------------------------------
Total $(85,488) $ 11,309 $ (19,691)
- - -------------------------------------------------------------------------
A reconciliation between taxes computed by applying the statutory
Federal income tax rate to pretax income and income taxes provided in
the Statements of Income is as follows:
- - -------------------------------------------------------------------------
1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Amounts computed at statutory
rates $ (6,458) $ 74,834 $ 42,802
State income tax, net
of Federal income
tax benefits 341 1,415 796
Amortization of deferred
investment tax credits (8,596) (7,531) (10,986)
Depreciation of telephone plant
construction costs previously
deducted for tax purposes
- net 3,124 4,102 7,129
Rate differentials applied to
reversing temporary
differences (4,221) (4,797) (12,230)
Other differences, including
settlements of prior year
tax issues (14,851) 4,697 (2,754)
- - -------------------------------------------------------------------------
Total provision (benefit) $ (30,661) $ 72,720 $ 24,757
- - -------------------------------------------------------------------------
As a result of implementing SFAS No. 109, the Company recorded
additional deferred income tax liabilities primarily related to temporary
differences which had not previously been recognized in accordance with
established rate-making practices. Since the manner in which income taxes are
treated for rate-making has not changed, pursuant to SFAS No. 71 a
corresponding regulatory asset was also established. In addition, deferred
income taxes were adjusted and a regulatory liability established to give
effect to the current statutory Federal income tax rate and for unamortized
investment tax credits. The unamortized regulatory asset and regulatory
liability balances at December 31, 1993 amounted to $1.1 million and $45.5
million, respectively, and the net unamortized regulatory liability balance
at December 31, 1992 amounted to $101.3 million. The regulatory assets
and liabilities are reflected as other assets and other deferred credits,
respectively, in the accompanying Balance Sheets. These amounts are being
amortized over the lives of the related depreciable assets concurrent with
recovery in rates and in conformance with the provisions of the Internal
Revenue Code. The assets and liabilities established in accordance with SFAS
No. 71 have been increased for the tax effect of future revenue requirements.
The tax effects of all temporary differences that give rise to the deferred
tax liability and deferred tax asset at December 31 are as follows:
- - -----------------------------------------------------------
1993 1992
- - -----------------------------------------------------------
(Thousands of Dollars)
Depreciation and amortization $ 393,898 $ 333,526
Employee benefit obligations (30,882) (7,863)
Prepaid pension cost 8,844 3,641
Restructuring cost (64,370) _
Other - net 13,429 17,748
- - -----------------------------------------------------------
Total $ 320,919 $ 347,052
- - -----------------------------------------------------------
8. Employee Benefit Plans
Retirement Plans
The Company has trusteed, 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 net pension credits for 1993-1991 include the following
components:
- - -------------------------------------------------------------------------
1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Service cost-benefits earned
during the period $ 19,768 $ 17,513 $ 18,552
Interest cost on
projected benefit obligations 40,662 36,128 33,642
Actual return on plan assets (123,030) (41,371) (132,991)
Other - net 47,016 (23,699) 76,256
- - -------------------------------------------------------------------------
Net pension credit $(15,584) $(11,429) $ (4,541)
- - -------------------------------------------------------------------------
The expected long-term rate of return on plan assets was 8.25% for 1993 and 1992
and 8.0% in 1991.
The funded status of the plans at December 31, 1993 and 1992 was as follows:
- - -------------------------------------------------------------------------
1993 1992
- - -------------------------------------------------------------------------
(Thousands of Dollars)
Plan assets at fair value $ 807,283 $ 753,511
Projected benefit obligation 490,554 482,973
- - -------------------------------------------------------------------------
Excess of assets over projected
obligation 316,729 270,538
Unrecognized net transition asset (62,698) (78,333)
Unrecognized net gain (226,014) (173,895)
- - -------------------------------------------------------------------------
Prepaid pension cost $ 28,017 $ 18,310
- - -------------------------------------------------------------------------
The projected benefit obligations at December 31, 1993 and 1992 include
accumulated benefit obligations of $375.0 million and $335.8 million and
vested benefit obligations of $331.2 million and $293.0 million, respectively.
Assumptions used to develop the projected benefit obligations at
December 31, 1993 and 1992 were as follows:
- - ------------------------------------------------
1993 1992
- - ------------------------------------------------
Discount rate 7.5 % 8.0%
Rate of compensation increase 5.25% 6.0%
- - ------------------------------------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As described in Note 1, effective January 1, 1993, the Company adopted SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
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, while the life insurance
benefits are currently based on annual earnings at the time of retirement. The
Company funds amounts for postretirement benefits as deemed appropriate from
time to time.
The postretirement benefit cost for 1993 includes the following
components (in thousands of dollars):
- - -----------------------------------------------------------------------
1993
- - -----------------------------------------------------------------------
Service cost-benefits earned during the period $ 8,724
Interest cost on accumulated postretirement benefit obligation 25,017
Amortization of transition obligation 15,480
- - -------------------------------------------------------------------------
Postretirement benefit cost $49,221
- - -------------------------------------------------------------------------
During 1992 and 1991, the cost of postretirement health care and life insurance
benefits on a pay-as-you-go basis was $5.2 million and $4.8 million,
respectively.
The following table sets forth the plans' funded status and the accrued
obligation as of December 31, 1993 (in thousands of dollars):
- - -------------------------------------------------------------------------
1993
- - -------------------------------------------------------------------------
Accumulated postretirement benefit obligation attributable to:
Retirees $186,362
Fully eligible active plan participants 6,393
Other active plan participants 140,463
- - -------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 333,218
Fair value of plan assets 1,598
- - -------------------------------------------------------------------------
Excess of accumulated obligation over plan assets 331,620
Unrecognized transition obligation (258,247)
Unrecognized net loss (23,301)
- - -------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 50,072
- - -------------------------------------------------------------------------
The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.5% at December 31, 1993. The expected
long-term rate of return on plan assets was 8.25% for 1993. The assumed
health care cost trend rate in 1993 was 13% for pre-65 participants and 9.5%
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 rate for each future year would have increased 1993
costs by $5.6 million and the accumulated postretirement benefit obligation at
December 31, 1993 by $43.9 million.
During 1993, the Company made certain changes to its postretirement health
care and life insurance benefits for non-union employees that are effective
January 1, 1995. These changes include, among others, newly established
limits to the Company's annual contribution to postretirement medical costs
and a revised sharing schedule based on a retiree's years of service. The net
effect of these changes reduced the accumulated benefit obligation at
December 31, 1993 by $44.7 million.
SAVINGS PLANS
The Company sponsors 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 contributions. Matching contributions charged to
income were $4.8 million, $4.8 million and $4.3 million in the years
1993-1991, respectively.
9. Commitments and Contingencies
The Company's anticipated construction costs for 1994 are
approximately $300 million, for which the Company had substantial purchase
commitments as of December 31, 1993.
The Company has noncancelable lease contracts covering certain land and
buildings, office space and equipment. The lease contracts contain varying
renewal options for terms up to 43 years.
Minimum rental commitments for noncancelable leases for periods
subsequent to December 31, 1993 are as follows (in thousands of dollars):
1994 $ 2,208
1995 1,746
1996 1,144
1997 388
1998 103
Thereafter 987
--------------------------------
Total minimum rental
commitments $ 6,576
-------------------------------
The total amount of rents charged to expense was $13.0 million, $14.3 million
and $15.7 million for the years 1993-1991, respectively.
10. Regulatory Matters
The Company is subject to regulation by the FCC for interstate business
and is regulated by the state regulatory commissions in Arkansas, New
Mexico, Oklahoma and Texas for intrastate business.
INTRASTATE SERVICES
The Company provides long distance 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 Public Utility Commission of Texas (PUC)
approved a rulemaking procedure on December 17, 1991, with an effective date
of January 1, 1991, allowing the Company and other local exchange carriers
(LECs) to exit the toll pool with transition payments from Southwestern Bell
Telephone Company to be received through 1997.
An access charge restructuring plan was approved by the PUC on April 1, 1992.
The implementation of this plan resulted in a $40.6 million annual rate
reduction, effective September 1, 1992. Effective September 1, 1993,
the Company implemented an additional rate reduction of $29.0 million
representing the second step of a three year phase-out of certain access
charges under the access charge restructuring plan. The final phase will be
effective September 1, 1994 with an additional rate reduction of $33.0
million.
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 LEC may charge is increased or decreased each year by a
price index based upon inflation less a predetermined productivity target.
LECs may within certain ranges price individual services above or below the
overall cap.
As a safeguard under its new price cap regulatory plan, the FCC has also
adopted a productivity sharing feature. Because of this feature, under the
minimum productivity-gain option, the Company must share equally with its
ratepayers any realized interstate returns above 12.25% up to 16.25%, and
all returns higher than 16.25%, by temporarily lowering prospective prices.
During 1994, the FCC is scheduled to review the LEC price cap plan to
determine whether it should be continued or modified.
In 1992, the Company's rates were voluntarily reduced by $0.9 million effective
July 1, 1992, $3.5 million effective July 17, 1992, $9.0 million effective
October 2, 1992 and $10.9 million effective December 15, 1992.
OTHER RATE MATTERS
TEXAS RATE CASE
On June 19, 1991 the Texas Third District Court of Appeals (Court of Appeals)
affirmed in part and reversed in part a decision by the District Court of
Travis County (District Court) regarding the Company's rate proceeding -
Docket No. 5610. The Court of Appeals affirmed that portion of the District
Court's order which determined that the PUC had no authority to retroactively
adjust the Company's rates. That portion of the PUC's order would have resulted
in customer refunds of approximately $140.0 million. The Court of Appeals
also affirmed the District Court's determination relating to the manner in
which the PUC had calculated the Company's rate of return in setting its
rates. The Court of Appeals, however, reversed the District Court's
determination that the PUC had made appropriate findings related to
payments made by the Company to two of its affiliates. In addition, the
Court of Appeals reversed the District Court's determination related to
the PUC's treatment of the Company's federal income tax expense. The Court of
Appeals remanded the case to the PUC for proceedings consistent with the
court's decision.
On April 15, 1992, the Company filed a Motion for Rehearing with the Court of
Appeals which was denied without comment on August 26, 1992. On October 2, 1992,
the Company filed an application for Writ of Error with the Texas Supreme
Court. The Supreme Court denied all Writs of Error on December 31, 1992.
On January 15, 1993, the Company filed a Motion for Rehearing with the Texas
Supreme Court. On June 9, 1993, the Supreme Court granted all Motions for
Rehearing and the Company's application for Writ of Error. On September 13,
1993, the Supreme Court heard oral arguments of the issues. The Company filed
additional briefs in October 1993 and February 1994 with the Supreme Court.
The Court will review the issues and a decision is expected to be reached
sometime in 1994.
The Company, as a result of the Court of Appeals' decision,
established in June 1991 a reserve of $33.3 million (including interest)
which resulted in a $22.0 million after-tax charge to 1991 net income. Of
this amount, approximately $17.0 million after-tax related to the period
prior to 1991. Beginning July 1991, the Company recorded monthly additional
pretax reserves of approximately $1.3 million. As a result of the Texas
Supreme Court's denial of the Company's Writ of Error, the Company
established, in December 1992, an additional pretax reserve of $14.3 million
(including interest). This reserve combined with the monthly reserves
previously established, resulted in a total of $30.7 million (including
interest) in reserves established during 1992. The after-tax charge to 1992 net
income was $20.3 million. Of this amount, approximately $7.0 million
after-tax related to the period prior to 1992. The after-tax charge to 1993
net income is $14.3 million.
Management is of the opinion that the current reserve is reasonable and
prudent and it is unlikely that this issue will have any further material
adverse effect on the Company's financial statements.
OKLAHOMA PROCEEDING
On October 22, 1986, a proceeding was initiated before the Oklahoma
Corporation Commission to inquire into the effects of the 1986 Tax Reform
Act on Oklahoma utilities. A settlement was reached with the commission staff
on December 5, 1991, in which the Company agreed to refund $8.0 million over
a three month period beginning January 1, 1992 in the form of credits on
customer bills. The $8.0 million refund has been reflected in the accompanying
Statements of Income for the year ended December 31, 1991. The
stipulation also required prospective access reductions totaling $1.1
million annually, effective January 1, 1992.
SIGNIFICANT CUSTOMER
Revenues received from AT&T include amounts for access, billing and
collection and interexchange leased facilities during the years 1993-1991
under various arrangements and amounted to $172.9 million, $197.6 million and
$221.3 million, respectively.
11. Supplemental Cash Flow Disclosures
Set forth below is information with respect to changes in current assets
and current liabilities and cash paid for interest and income taxes:
- - -------------------------------------------------------------------------
1993 1992 1991
- - -------------------------------------------------------------------------
(Thousands of Dollars)
(Increase) decrease in current
assets:
Accounts and note receivable - net $ 8,326 $(21,448) $(65,776)
Materials and supplies 7,019 5,393 17,861
Other current assets 873 (1,649) 3,161
Increase (decrease) in current
liabilities:
Accounts payable (336) 8,126 7,660
Affiliate payables and accruals (2,496) (3,209) 15,967
Advanced billings and customer
deposits (1,894) 1,259 251
Accrued liabilities 14,471 5,963 (36,620)
Reserve for rate refunds 28,555 6,191 63,616
Other 6,537 (2,612) 12,827
- - -------------------------------------------------------------------------
Total $ 61,055 $ (1,986) $ 18,947
- - -------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 72,857 $ 69,711 $ 76,650
Income taxes 46,162 71,539 67,119
12. Quarterly Financial Data (Unaudited)
Summarized 1993 and 1992 quarterly financial data is as follows:
- - -------------------------------------------------------------------------
Operating Net Operating
Revenues Income Net Income
- - -------------------------------------------------------------------------
(Thousands of Dollars)
1993
First Quarter $ 282,739 $ 56,264 $ 26,146
Second Quarter 279,123 39,745 13,615
Third Quarter (a) 295,394 68,226 3,686
Fourth Quarter (b) 305,109 (107,178) (62,488)
- - -------------------------------------------------------------------------
Total $ 1,162,365 $ 57,057 $(19,041)
- - -------------------------------------------------------------------------
1992
First Quarter $ 285,414 $ 67,557 $ 31,775
Second Quarter 302,352 80,644 41,490
Third Quarter (c) 314,049 93,721 50,142
Fourth Quarter (d) 279,970 56,744 23,972
- - -------------------------------------------------------------------------
Total $1,181,785 $ 298,666 $ 147,379
- - -------------------------------------------------------------------------
(a) Net income includes a $31.3 million extraordinary charge for the
early retirement of debt. Income before extraordinary charge is
$34.9 million.
(b) Net operating income includes a $172.0 million pretax charge for
restructuring costs which reduces net income by $105.9 million.
(c) Includes an $11.8 million pretax increase to revenue for the
reduction of a revenue reserve.
(d) Includes a $14.3 million pretax charge (including interest)
relating to the Texas rate order as described in Note 10.
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
GTE Southwest Incorporated:
We have audited the accompanying balance sheets of GTE Southwest
Incorporated (a Delaware corporation and wholly-owned subsidiary of
GTE Corporation) as of December 31, 1993 and 1992, and the related
statements of income, reinvested earnings and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 Southwest
Incorporated as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for postretirement
benefits other than pensions. Also as discussed in Note 1, effective January
1, 1992, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN & CO.
Dallas, Texas
January 28, 1994.
<PAGE>
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, including the 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.
JOHN C. APPEL
President
GERALD K. DINSMORE
Senior Vice President-Finance and Planning
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
BUSINESS OPERATIONS
GTE Southwest Incorporated (the Company), a wholly-owned subsidiary of GTE
Corporation, provides local exchange, network access and long distance
telecommunications services in nine operating divisions in the states of
Arkansas, New Mexico, Oklahoma and Texas. The Company also markets
telecommunications systems and equipment. The Company serves over 1.6 million
access lines in its operating territory, with 85% of these lines in Texas.
RESULTS OF OPERATIONS
Net income decreased $166 million for the year ended December 31, 1993. Of
the net income decrease, $143 million is attributable to one-time charges. The
largest of these charges is a one-time restructuring charge of $106 million,
net of tax, related primarily to a re-engineering plan. The re-engineering
plan will redesign and streamline processes in order to improve
customer-responsiveness and product quality, reduce the time necessary to
introduce new products and services and further reduce costs. The
results also reflect an extraordinary charge of $31 million, net of tax,
related to the early extinguishment of debt. In November 1993, the Company
called several issues of high-coupon first mortgage bonds. These bonds
were refinanced in December 1993 on a long-term basis at lower current
interest rates. Also included in the 1993 results is a one-time charge of $6
million, net of tax, associated with the enhanced early retirement and
voluntary separation programs completed during the second quarter.
Excluding the above charges, net income decreased $23 million for 1993.
Net income in 1992 increased $46 million. The 1993 decrease reflects lower
operating revenues due to voluntary rate reductions in an ongoing effort to
price services more competitively and the impact of the adoption of
SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" effective January 1, 1993. The 1992 increase reflects
higher operating revenues due to growth in access lines and minutes of use and
lower operating expenses resulting from continued cost reduction efforts.
Lower depreciation expense also contributed to the increase in 1992 net income.
Local network service revenues, which are comprised mainly of fees charged
to customers for providing local exchange service, increased 8% or $29 million
during 1993 and 8% or $28 million during 1992. The 1993 increase is primarily
the result of the expansion of the local calling zones and a 6% growth in
access lines. The 1992 increase was primarily the result of a 5% growth in
access lines and increased revenue from custom calling features.
Network access service revenues represent the local telephone
companies' charge to end users for access to the facilities of long distance
carriers and the charge to long distance carriers for interconnection to
local facilities. Revenues derived from network access services decreased 9%
or $45 million during 1993 and increased 1% or $7 million during 1992. The
1993 decrease is primarily the result of an access charge restructuring plan
approved by the Public Utility Commission of Texas (PUC) on April 1, 1992. The
implementation of this plan resulted in a $41 million annual reduction,
effective September 1, 1992 and an additional $29 million effective September 1,
1993. In addition, the Company's annual interstate rates were
voluntarily reduced by $1 million effective July 1, 1992, $4 million effective
July 17, 1992, $9 million effective October 2, 1992 and $11 million effective
December 15, 1992. These reductions are partially offset by a 7% increase in
minutes of use. The 1992 increase was the result of higher network usage
experienced from a 7% growth in minutes of use. This increase was offset by
lower settlements from pooling arrangements with other local exchange carriers.
The Company's revenues for long distance services from designated
geographical areas are provided under bill and keep arrangements or
settlement arrangements with various telephone companies. Long distance
service revenues decreased 7% or $15 million during 1993 and 1% or $3
million during 1992. The 1993 and 1992 decreases are primarily the result
of lower settlements.
Revenues derived from equipment sales and services increased 8% or $5 million
in 1993 compared to a decrease of 4% or $2 million in 1992. The 1993
increase is due to higher sales of nonregulated equipment, such as large
private branch exchange equipment, data base listing services, video
messaging services and maintenance agreements. The 1992 decrease was due to
lower contract rates with AT&T for billing and collection services and
lower sales of nonregulated equipment, such as large private branch exchange
equipment. Partially offsetting this 1992 decrease was an increase in sales of
key telephone systems and premise wiring.
The Texas rate case reserve reflected in 1991, 1992 and 1993
represents the results of the Texas Court of Appeals decision
concerning the 1989 Texas rate order (see Note 10). The Company continues
to record a monthly provision for the potential refund of revenue currently
being collected.
Other operating revenues decreased 6% or $4 million in 1993 compared to an
increase of 12% or $7 million in 1992. The 1993 decrease is primarily due
to lower directory revenues and higher provisions for uncollectible accounts,
partially offset by increased operator service and rental revenue. The 1992
increase was primarily due to higher directory advertising revenue partially
offset by higher provisions for uncollectible accounts.
Cost of sales and services increased 11% or $27 million in 1993 and decreased
7% or $18 million in 1992. The 1993 increase reflects costs associated with the
adoption of SFAS No. 106 effective January 1, 1993. As a result of the adoption
of the new standard, cost of sales and services increased $24 million.
During 1992, the Company's continued cost reduction efforts, productivity
improvement programs and work force reductions resulted in lower costs of
services.
Depreciation and amortization expense increased 1% or $4 million in 1993
compared to a decrease of 9% or $25 million in 1992. The 1993 increase is
primarily due to higher depreciation rates in several jurisdictions as well
as increased plant balances. The 1992 decrease was primarily due to the full
retirement in 1991 of customer premise wire in all jurisdictions except Texas.
Expenses for marketing, selling, general and administrative costs increased
5% or $19 million in 1993 compared to a decrease of 1% or $5 million in 1992.
The 1993 increase reflects costs of $15 million associated with the adoption
of SFAS No. 106. The increase is also due to a one-time charge of $9 million
associated with the enhanced early retirement and voluntary separation
programs offered to eligible employees during the second quarter of 1993 in
addition to higher data processing costs due to system conversions. These
increases are partially offset by lower advertising expenses and lower
franchise taxes. The 1992 decrease was primarily due to a reserve for merger
costs of $7 million associated with the merger of GTE Corporation and Contel
Corporation reflected in 1991. During the third quarter of 1992, updates
to the actuarial valuation of certain employee costs associated with the
merger reserve resulted in a $5 million expense credit. In addition, lower
data processing costs reflecting cost efficiencies in processing fees
contributed to the decrease. Partially offsetting these decreases was $9
million in additional franchise taxes.
Restructuring costs reflect a one-time charge related to the Company's
re-engineering plan over the next three years. The re-engineering plan will
redesign and streamline processes in order to improve customer-responsiveness
and product quality, reduce the time necessary to introduce new products
and services, resulting in cumulative savings in excess of the one-time charge.
The re-engineering plan includes $69 million to upgrade or replace
existing customer service and administrative systems and enhance network
software, $78 million for employee separation benefits associated with
workforce reductions and $21 million primarily for the consolidation of
facilities and operations and other related costs. The charge for employee
separation benefits includes $39 million related to the recognition of
previously deferred postretirement health and life insurance costs for
separating employees.
Interest expense decreased 3% or $2 million in 1993 and 4%or $3 million in 1992.
The 1993 decrease is due to lower average long-term debt levels and lower
average interest rates offset by higher average short-term debt levels. The 1992
decrease was due to lower average interest rates on short-term debt and lower
average debt levels.
Income taxes decreased $103 million in 1993 and increased $48 million in 1992.
The decrease in 1993 is primarily due to decreases in pretax income and
settlements of prior years' tax issues. The increase in 1992 was due
primarily to increases in pretax income, in addition to adjustments to prior
years' tax liabilities, lower reversal of tax rate differentials on deferred
tax liabilities, and the declining effects of amortization of deferred
investment tax credits.
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. In addition, a $2.3
billion 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 1993 was cash flow from
operations of $469 million compared to $404 million for 1992. The increase
is primarily due to timing differences in the collection of accounts
receivable.
Capital expenditures represent a significant use of funds during 1993 and
1992, reflecting the Company's continued growth in access lines and
modernization of current facilities and introduction of new products and
services. Cash requirements to implement the re-engineering plan are
expected to be largely offset by cost savings. The Company's capital
expenditures during 1993 were $301 million compared to $293 million
during 1992. The Company's anticipated construction costs for 1994 are
approximately $300 million.
Cash used for financing activities was $173 million in 1993 compared to $116
million in 1992. This included dividend payments of $157 million in 1993
compared to $82 million in 1992. The increase reflects a timing difference in
the payment of dividends in 1993 compared to 1992. External financing included
short-term borrowings of $22 million in 1993, compared to $26 million in
1992. The Company retired $13 million of long-term debt in 1993 compared to
$61 million in 1992. In addition, in November 1993, the Company called $501
million of high-coupon first mortgage bonds with proceeds from
commercial paper borrowings. These bonds had coupons ranging from 7.875% to
11.75%. In December 1993, the Company issued $250 million of 5.82%
debentures, due 1999 and $250 million of 6.54% debentures due 2005 to
refinance these bonds. The cost of calling these bonds is reflected as an
extraordinary after-tax charge of $31 million in the Statements of Income.
COMPETITION AND REGULATORY TRENDS
The year was marked by important changes in the U.S.
telecommunications industry. Rapid advances in technology, together with
government and industry initiatives to eliminate certain legal and regulatory
barriers are accelerating and expanding the level of competition and
opportunities available to the Company. As a result, the Company faces
increasing competition in virtually all aspects of its business. Specialized
communications companies have constructed new systems in certain markets to
bypass the local-exchange network. Additional competition from interexchange
carriers as well as wireless companies continues to evolve for both
intrastate and interstate communications.
Implementation of its re-engineering plan will allow the Company to continue
to respond aggressively to these competitive and regulatory developments
through reduced costs, improved service quality, competitive prices and
new product offerings. Moreover, implementation of this program will position
the Company to accelerate delivery of a full array of voice, video and data
services. During the year, the Company continued to introduce new business
and consumer services utilizing advanced technology, offering new features
and pricing options while at the same time reducing costs and prices.
During 1993, the Federal Communications Commission (FCC)announced its decision
to auction licenses during 1994 in 51 major markets and 492 basic trading
areas across the United States to encourage the development of a new
generation of wireless personal communications services (PCS). These services
will both complement and compete with the Company's traditional wireline
services. The Company will be permitted to fully participate in the
license auctions in areas outside of GTE's existing cellular service
areas. Limited participation will be permitted in areas in which GTE has an
existing cellular presence.
In 1992, the FCC issued a "video dialtone" ruling that allows telephone
companies to transmit video signals over their networks. The FCC also
recommended that Congress amend the Cable Act of 1984 to permit telephone
companies to supply video programming in their service areas.
Activity directed toward changing the traditional cost-based rate of return
regulatory framework for intrastate and interstate telephone services has
continued. Various forms of alternative regulation have been adopted, which
provide economic incentives to telephone service providers to improve
productivity and provide the foundation for the pricing flexibility
necessary to address competitive entry into the markets we serve.
In September 1993, the FCC released an order allowing competing carriers
to interconnect to the local-exchange network for the purpose of providing
switched access transport services. This ruling complements similar
interconnect arrangements for private line services ordered during 1992.
The order encourages competition for the transport of telecommunications
traffic between local exchange carriers' (LECs) switching offices and
interexchange carrier locations. In addition, the order allows LECs
flexibility in pricing competitive services.
These and other actions to eliminate the existing legal and regulatory barriers,
together with rapid advances in technology, are facilitating a convergence
of the computer, media and telecommunications industries. In addition
to allowing new forms of competition, these developments are also creating
new opportunities to develop interactive communications networks. The
Company supports these initiatives to assure greater competition in
telecommunications, provided that overall the changes allow an opportunity for
all service providers to participate equally in a competitive marketplace
under comparable conditions.
The Company follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS No. 71). In general,
SFAS No. 71 requires companies to depreciate plant and equipment over lives
approved by regulators. It also requires deferral of certain costs and
obligations based upon approvals received from regulators. In the event
that recoverability of these costs becomes unlikely or uncertain, whether
resulting from actual or anticipated competition or specific
regulatory, legislative or judicial actions, continued application of SFAS No.
71 would no longer be appropriate. If the Company no longer qualifies for the
provisions of SFAS No. 71, the financial effects of the required accounting
change (which would be non-cash) could be material.
<TABLE>
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.
Selected Financial Data
<CAPTIONS>
1993 1992 1991 1990 1989
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Selected Income Statement
Items (a)
Total operating revenues $1,162,365 $1,181,785 $1,134,028 $1,143,273 $1,205,993
Total operating expenses 1,105,308 883,119 931,610 911,992 943,905
Net operating income 57,057 298,666 202,418 231,281 262,088
Interest expense 73,874 76,177 79,284 73,894 76,320
Other - net 1,635 2,390 (2,754) 15,437 23,547
Income tax expense
(benefit) (30,661) 72,720 24,757 31,245 23,468
Income before
extraordinary charge 12,209 147,379 101,131 110,705 138,753
Extraordinary charge 31,250 _ _ _ _
Net income $ (19,041) $ 147,379 $ 101,131 $ 110,705 $ 138,753
- - ------------------------ ---------------------------------------------------------------------
Dividends declared on
common stock $ 77,548 $ 143,983 $ 65,145 $ 103,522 $ 130,613
Dividends declared on
preferred stock 1,409 1,588 1,703 1,900 2,023
- - ------------------------ ---------------------------------------------------------------------
(Thousands of Dollars)
Selected Balance Sheet Items
Investment in property,
plant and
equipment - net $2,507,225 $2,467,354 $2,406,972 $2,399,657 $2,399,694
Total assets 2,789,120 2,761,210 2,697,727 2,658,866 2,741,366
Long-term debt and
preferred stock,
subject to mandatory
redemption 715,407 719,175 780,136 690,934 777,744
Common stock and reinvested
earnings 1,027,867 1,125,865 1,124,057 1,089,774 1,084,491
- - -----------------------------------------------------------------------------------------------
Selected Statistics
Access lines 1,641,324 1,553,539 1,475,743 1,423,073 1,365,164
Access line gain 87,785 77,796 52,670 57,909 54,822
Net investment in
property, plant
and equipment per
access line $ 1,528 $ 1,588 $ 1,631 $ 1,686 $ 1,758
Number of employees 7,184 7,809 7,673 8,219 8,728
Access lines per employee 228 199 192 173 156
Gross plant additions
(thousands) $ 300,616 $ 293,117 $ 285,638 $ 270,407 $ 188,232
- - -----------------------------------------------------------------------------------------------
(a) Per share data is omitted since the Company's common stock is 100%
owned by GTE Corporation.
</TABLE>
