SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 26,
1994
(June 10,
1994)
. . . . . . . .
. .
GTE SOUTH INCORPORATED
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
(Exact name of registrant as specified in its charter)
Virginia 2-36292 56-
0656680
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
(State or other (Commission (IRS
Employer
jurisdiction of File Number)
Identification No.)
incorporation)
19845 N. U.S. 31, P.O. Box 407, Westfield, Indiana 46074
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 317-896-
6464
. . . .
. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
(Former name or former address, if changed since last
report)
GTE SOUTH INCORPORATED
FORM 8-K/A
GTE South Incorporated (the "Company") is filing this Current
Report on Form 8-K/A to amend the Company's Current Report on
Form 8-K dated June 10, 1994.
Included under Item 7 of this report are copies of the audited
financial statements of Contel of Kentucky, Inc., Contel of North
Carolina, Inc. and Contel of Virginia, Inc. for the years ended
December 31, 1993 and 1992. In addition, included are copies of
the unaudited pro forma condensed consolidating balance sheet as
of March 31, 1994 and the unaudited pro forma condensed
consolidating statements of income for the three months ended
March 31, 1994 and 1993, and for the years ended December 31,
1993-1991.
All pages in this filing are the same as previously reported,
except page 79. The Company amended information in the "Notes to
Unaudited Pro Forma Condensed Consolidating Financial
Statements", specifically the table in Note 2 presenting
summarized historical pro forma operating results.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
Page
(a) Financial Statements
CONTEL OF VIRGINIA, INC.
Report of Independent Public Accountants . . . . . . . . . . . . .
. . . . . . 3
Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . .
. . . . . . 4
Statements of Income and Reinvested Earnings for Each of the Two
Years in
the Period Ended December 31, 1993 . . . . . . . . . . . . . . .
. . . . . . 6
Statements of Cash Flows for Each of the Two Years in the Period
Ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . . . . . .
. . . . . . 8
Condensed Balance Sheet at March 31, 1994 (Unaudited) . . . . . .
. . . . . . 21
Condensed Statements of Income for the Three Months Ended March 31,
1994 and
1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 23
Condensed Statements of Cash Flows for the Three Months Ended March
31, 1994
and 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 24
Notes to Condensed Financial Statements (Unaudited) . . . . . . .
. . . . . . 25
CONTEL OF KENTUCKY, INC.
Report of Independent Public Accountants . . . . . . . . . . . . .
. . . . . . 26
Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . .
. . . . . . 27
Statements of Income and Reinvested Earnings for Each of the Two
Years in
the Period Ended December 31, 1993 . . . . . . . . . . . . . . .
. . . . . . 29
Statements of Cash Flows for Each of the Two Years in the Period
Ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 30
Notes to Financial Statements . . . . . . . . . . . . . . . . . .
. . . . . . 31
Condensed Balance Sheet at March 31, 1994 (Unaudited) . . . . . .
. . . . . . 44
Condensed Statements of Income for the Three Months Ended March 31,
1994 and
1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 46
Condensed Statements of Cash Flows for the Three Months Ended March
31, 1994
and 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 47
Notes to Condensed Financial Statements (Unaudited) . . . . . . .
. . . . . . 48
CONTEL OF NORTH CAROLINA, INC.
Report of Independent Public Accountants . . . . . . . . . . . . .
. . . . . . 49
Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . .
. . . . . . 50
Statements of Income and Reinvested Earnings for Each of the Two
Years in
the Period Ended December 31, 1993 . . . . . . . . . . . . . . .
. . . . . . 52
Statements of Cash Flows for Each of the Two Years in the Period
Ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 53
Notes to Financial Statements . . . . . . . . . . . . . . . . . .
. . . . . . 54
Condensed Balance Sheet at March 31, 1994 (Unaudited) . . . . . .
. . . . . . 67
Condensed Statements of Income for the Three Months Ended March 31,
1994 and
1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 69
Condensed Statements of Cash Flows for the Three Months Ended March
31, 1994
and 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 70
Notes to Condensed Financial Statements (Unaudited) . . . . . . .
. . . . . . 71
1
(b) Pro Forma Financial Information (Unaudited)
Page
Pro Forma Condensed Consolidating Balance Sheet as of March 31,
1994. . . . . 73
Pro Forma Condensed Consolidating Statement of Income for the Three
Months Ended March 31, 1994 . . . . . . . . . . . . . . . . . .
. . . . . . 74
Pro Forma Condensed Consolidating Statement of Income for the Three
Months Ended March 31, 1993 . . . . . . . . . . . . . . . . . .
. . . . . . 75
Pro Forma Condensed Consolidating Statement of Income for the Year
Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . .
. . . . . . 76
Pro Forma Condensed Consolidating Statement of Income for the Year
Ended December 31, 1992 . . . . . . . . . . . . . . . . . . . .
. . . . . . 77
Pro Forma Condensed Consolidating Statement of Income for the Year
Ended December 31, 1991 . . . . . . . . . . . . . . . . . . . .
. . . . . . 78
Notes to Pro Forma Condensed Consolidating Financial Statements .
. . . . . . 79
(c) Exhibits
2.1 Agreement of Merger, dated December 31, 1993, between GTE
South
Incorporated, Contel of Kentucky, Inc., Contel of North
Carolina, Inc.,
Contel of South Carolina, Inc. and Contel of Virginia, Inc.
23.1 Consent of Arthur Andersen & Co.
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Contel of Virginia, Inc.:
We have audited the accompanying balance sheets of Contel of
Virginia, Inc. (a Virginia corporation), d/b/a GTE Virginia (the
Company), as of December 31, 1993 and 1992, and the related
statements of income, reinvested earnings and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our 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 Contel of Virginia, Inc. as of December 31, 1993 and 1992, and
the results of its operations and its cash flows for the years
then ended 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.
3
CONTEL OF VIRGINIA, INC.
BALANCE SHEETS
ASSETS
December
31,
1993
1992
(Thousands of
Dollars)
Current assets:
Cash $ 9,252 $
1,940
Accounts receivable
Customers (including unbilled revenues) 81,732
63,229
Affiliated companies 133
3,903
Other 9,577
1,242
Allowance for uncollectible accounts (1,073)
(5,077)
Materials and supplies, at average cost 1,383
3,697
Deferred income tax benefits 7,349
- --
Prepayments and other 434
102
108,787
69,036
Property, plant and equipment:
Original cost 903,229
842,960
Accumulated depreciation (307,690)
(263,217)
595,539
579,743
Other assets 4,339
5,353
Total assets $ 708,665 $
654,132
See Notes to Financial Statements.
4
CONTEL OF VIRGINIA, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
December
31,
1993
1992
(Thousands of
Dollars)
Current liabilities:
Notes payable to affiliates $ 29,235 $
46,076
Current maturities of long-term debt 59,354
10,344
Accounts payable 30,916
29,908
Due to affiliated companies 17,647
15,418
Advanced billings and customer deposits 7,210
8,453
Accrued taxes 9,414
4,132
Accrued interest 2,301
1,682
Accrued payroll and vacations 6,317
4,451
Accrued dividends 10,000
1,700
Accrued restructuring costs and other 27,107
6,681
199,501
128,845
Long-term debt 129,349
160,465
Deferred credits:
Deferred income taxes 66,871
70,023
Deferred investment tax credits 8,776
10,722
Restructuring costs and other 62,601
33,625
138,248
114,370
Shareholder's equity:
Common stock (3,409,944 shares outstanding) 34,099
34,099
Other capital 35,775
35,775
Reinvested earnings 171,693
180,578
241,567
250,452
Total liabilities and shareholder's equity $ 708,665 $
654,132
See Notes to Financial Statements.
5
CONTEL OF VIRGINIA, INC.
STATEMENTS OF INCOME
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Operating revenues:
Local network services $ 108,008 $
110,182
Network access services 120,937
103,085
Long distance services 51,632
48,042
Equipment sales and services 12,442
10,201
Other 19,834
15,366
312,853
286,876
Operating expenses:
Cost of sales and services 77,745
77,704
Depreciation and amortization 57,454
49,596
Marketing, selling, general
and administrative 91,708
89,170
Restructuring costs 45,290
- --
272,197
216,470
Net operating income 40,656
70,406
Other deductions:
Interest expense 15,920
18,637
Other - net 678
6,973
Income before income taxes 24,058
44,796
Income taxes 7,643
14,417
Net income $ 16,415 $
30,379
STATEMENTS OF REINVESTED EARNINGS
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Balance at beginning of year $ 180,578 $
162,299
Add -
Net income 16,415
30,379
Deduct -
Cash dividends declared on common stock 25,300
12,100
Balance at end of year $ 171,693 $
180,578
See Notes to Financial Statements.
6
CONTEL OF VIRGINIA, INC.
STATEMENTS OF CASH FLOWS
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Cash flows from operating activities:
Net income $ 16,415 $
30,379
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 57,454
49,596
Restructuring costs 45,290
- --
Deferred income taxes and investment
tax credits (19,207)
6,473
Provision for uncollectible accounts 447
5,819
Changes in current assets and current
liabilities (15,258)
(17,923)
Other - net 8,526
(8,195)
Net cash from operating activities 93,667
66,149
Cash flows from investing activities:
Capital expenditures (69,806)
(70,726)
Other - net (602)
877
Net cash used in investing activities (70,408)
(69,849)
Cash flows from financing activities:
Long-term debt retired (22,106)
(38,239)
Long-term debt issued 40,000
- --
Dividends paid to shareholder (17,000)
(10,400)
Net change in affiliate notes (16,841)
53,586
Net cash used in financing activities (15,947)
4,947
Increase in cash 7,312
1,247
Cash:
Beginning of year 1,940
693
End of year $ 9,252 $
1,940
See Notes to Financial Statements.
7
CONTEL OF VIRGINIA, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Contel of Virginia, Inc., d/b/a GTE Virginia (the Company), is a
wholly-owned subsidiary of Contel Corporation (the Parent
Company). The Parent 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 approximately $18.7 million and $25.0
million for the years 1993 and 1992, respectively. Such
purchases are recorded in the accounts of the Company at cost,
including a normal return realized by the affiliates.
The Company is also billed for 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 $58.8 million
and $52.4 million for the years 1993 and 1992, respectively. The
amounts charged for these affiliated transactions are based on
management's best estimate of a proportional cost allocation
method.
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 Virginia State Corporation Commission
(VSCC). The provisions for depreciation and amortization were
equivalent to composite annual rates of 6.6% and 6.2% for the
years 1993 and 1992, respectively.
Regulatory Accounting
The Company follows the accounting prescribed by the Uniform
System of Accounts of the FCC and the VSCC 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
on the current regulatory and competitive environment.
8
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.
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 6, 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 values. 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 $15.0
million and $10.2 million, respectively.
Prior Year's Financial Statements
Reclassifications of prior year data have been made in the
financial statements to conform to the 1993 presentation.
9
2. Restructuring Costs
Results for 1993 include a one-time pretax restructuring charge
of $45.3 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 $18.6 million to upgrade or replace
existing customer service and administrative systems and enhance
network software, $21.0 million for employee separation benefits
associated with workforce reductions and $5.7 million primarily
for the consolidation of facilities and operations and other
related costs.
3. Common Stock
The authorized common stock of the Company consists of 5,000,000
shares with a par value of $10 per share. All outstanding shares
of common stock are held by the Parent Company.
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, $107.2 million of reinvested earnings was
restricted as to the payment of cash dividends on common stock
under the most restrictive terms of the Company's indentures.
10
4. Long-Term Debt
Long-term debt outstanding, exclusive of current maturities, is
as follows:
December 31
1993 1992
(Thousands of Dollars)
Rural Electrification Administration
2%, due 1998 $ 1,460 $ 2,220
First Mortgage Bonds
4.8% to 5.875%, through 1997 3,330 3,395
6.25% to 7.375%, through 1996 -- 360
8% to 9.875%, through 2009 58,862 73,444
10.54% due 2008 24,706 26,471
12.5% due 1994 -- 3,500
Unsecured Note Payable
8.25%, due 1997 800 860
Unsecured Promissory Note Payable
6.76%, due 1994 -- 50,000
4.4925%, due 1995 40,000 --
Capitalized Leases 191 215
Total long-term debt $ 129,349 $ 160,465
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.
Maturities, installments and sinking fund requirements for the
five-year period from January 1, 1994 are summarized below (in
thousands of dollars):
1994 $ 59,354
1995 46,402
1996 5,812
1997 9,007
1998 7,387
Substantially all of the Company's telephone plant is subject to
the liens of the indentures under which the bonds listed above
were issued.
11
5. Notes Payable to Affiliates
The Company finances part of its construction program through the
use of interim short-term notes payable to affiliates, which are
generally refinanced at a later date by the issuance of long-term
debt or equity. During 1993 and 1992, the Company supplemented
its internal generation of cash with funds borrowed from GTE.
These arrangements require payment of interest based on GTE
Corporation's daily intercompany interest rate (which is based
primarily on the costs associated with the issuance of commercial
paper). In addition, a $2.3 billion line of credit is available
to the Company through shared lines with GTE and other
affiliates.
12
6. Income Taxes
The provision for income taxes is as follows:
1993 1992
(Thousands of Dollars)
Current
Federal $ 22,768 $ 6,735
State and local 4,082 1,209
Total 26,850 7,944
Deferred
Federal (14,626) 7,199
State and local (2,635) 1,581
Total (17,261) 8,780
Amortization of deferred
investment tax credits (1,946) (2,307)
Total $ 7,643 $ 14,417
The components of deferred income tax (benefit) expense are as
follows:
1993 1992
(Thousands of Dollars)
Depreciation and amortization $ 11,032 $ 5,903
Employee benefit obligations (13,926) (1,136)
Restructuring cost (17,393) --
Other - net 3,026 4,013
Total $ (17,261) $ 8,780
13
A reconciliation between the statutory Federal income tax rate
and the effective income tax rate is as follows:
1993 1992
Statutory Federal income tax rate 35.0% 34.0%
State and local income taxes, net of
Federal income tax benefits 3.9 4.1
Amortization of deferred investment
tax credits (8.1) (5.1)
Depreciation of telephone plant
construction costs previously
deducted for tax purposes - net 1.6 1.2
Rate differentials applied to
reversing temporary differences (3.1) (2.0)
Change in tax reserves 2.4 --
Other - net 0.1 --
Effective income tax rate 31.8% 32.2%
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 net unamortized
regulatory liability balances at December 31, 1993 and 1992
amounted to $15.7 million and $21.3 million, respectively. The
regulatory liabilities are reflected as other deferred credits 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 $ 91,547 $ 72,728
Employee benefit obligations (15,026) (4,693)
Restructuring cost (17,393) --
Other - net 3,063 3,630
Total $ 62,191 $ 71,665
14
7. Employee Benefit Plans
The Company participates in the Parent Company's trusteed pension
plan (the Plan), which covers substantially all employees. The
benefits are based on an employee's years of service and average
earnings for the five highest consecutive calendar years
preceding retirement. The Company's policy is to fund pension
cost in accordance with applicable regulations. Total pension
(credits) costs for 1993 and 1992 were $(3.3) million and $2.2
million, respectively.
The net assets available for benefits are maintained for the
total Plan and amounted to $782.6 million. The Plan's net assets
available for benefits exceeded projected benefit obligations by
$534.7 million as computed under SFAS No. 87 "Employers'
Accounting for Pensions" as of December 31, 1993.
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 $ 1,623
Interest cost on accumulated
postretirement benefit obligation 5,215
Amortization of transition obligation
and prior service cost 2,993
Postretirement benefit cost $ 9,831
During 1992, the cost of postretirement health care and life
insurance benefits on a pay-as-you-go basis was $2.0 million.
15
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 $ 42,739
Fully eligible active plan participants 4,302
Other active plan participants 19,642
Total accumulated postretirement benefit
obligation 66,683
Fair value of plan assets 82
Excess of accumulated obligation over plan
assets 66,601
Unrecognized transition obligation (44,668)
Unrecognized net loss (7,012)
Accrued postretirement benefit obligation $ 14,921
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 $1.1 million and the accumulated
postretirement benefit obligation at December 31, 1993 by $7.8
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 $8.7 million.
16
8. Commitments and Contingencies
The Company's anticipated construction costs in 1994 are
approximately $57.1 million, for which the Company had
substantial purchase commitments as of December 31, 1993.
The Company has noncancelable lease contracts covering certain
buildings, office space and equipment. The lease contracts
contain varying renewal options for terms up to 18 years.
Minimum rental commitments for noncancelable leases for periods
subsequent to December 31, 1993 are as follows (in thousands of
dollars):
1994 $ 471
1995 358
1996 240
1997 223
1998 223
Thereafter 6,623
Total minimum rental
commitments $ 8,138
The total amounts of rents charged to expense were $3.7 million
and $4.5 million for the years 1993 and 1992, respectively.
9. Property, Plant and Equipment
Telephone plant and equipment, including amounts for leases which
have been capitalized, consists of the following:
1993 1992
(Thousands of Dollars)
Land and buildings $ 51,369 $ 47,760
Plant in service 840,377 781,388
Plant under construction 6,402 6,565
Other 5,081 7,247
Total telephone plant 903,229 842,960
Accumulated depreciation (307,690) (263,217)
Net telephone plant $ 595,539 $ 579,743
17
10. Regulatory Matters
The Company is subject to regulation by the FCC for interstate
business and the VSCC for intrastate operations.
Intrastate Services
The Company provides long distance services within designated
geographic areas called Local Access and Transport Areas (LATAs).
For intraLATA network access service, the VSCC ordered the
implementation of the Originating Responsibility Toll
Compensation Plan. Under this plan, the toll rate billed to end
users for intraLATA toll calls originating in the Company's
service area are retained by the Company. The Company, in turn,
pays access charges to the carrier hauling and terminating the
call based on that carrier's approved access charge tariff.
Likewise, the Company receives access charges for terminating any
intraLATA toll call that originates outside of its service area
based on its approved access charge tariff. The Company records
this revenue on a bill-and-keep basis.
Intrastate-interLATA network access service revenue is recovered
through access charges paid by interexchange carriers for use of
the Company's facilities in originating and terminating
intrastate toll messages between LATAs. The Company records this
revenue on a bill-and-keep basis.
Interstate Services
For the provision of interstate services, the Company operates
under the terms of the FCC's price cap incentive plan. The
"price cap" mechanism serves to limit the rates a carrier may
charge, rather than just regulating the rate of return which may
be achieved. Under this approach, the maximum price that the
Local Exchange Carrier (LEC) may charge is increased or decreased
each year by a price index based upon inflation less a
predetermined productivity target. LECs 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.
18
Other Rate Matters
After reviewing its experimental incentive regulation plan, the
VSCC ordered on December 17, 1993 that several modifications to
the plan should be made effective January 1, 1994. The Company
has operated under the experimental plan since January 1, 1989.
These modifications include a lowering of the Company's
authorized Return on Equity from the current 12-14% range to
10.55-12.55% for 1994, with provisions for annual adjustments
beginning January 1, 1995. The VSCC also ordered that 25% of the
Company's yellow page advertising income should be used to
calculate its regulated earnings under the plan, but the Company
may file to restructure its rates on a revenue neutral basis
without filing a full rate case. This new plan will be in place
for an interim period, pending the completion of a new docket
commenced by the VSCC to investigate which changes should be made
on a permanent basis. The Company does not expect these
proceedings to have a material impact on its results of
operations.
Significant Customer
Revenues received from AT&T including access, billing and
collection and interexchange leased facilities during the years
1993 and 1992 under various arrangements amounted to $65.5
million and $61.5 million, respectively.
19
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
(Thousands of Dollars)
(Increase) decrease in current assets:
Accounts receivable - net $ (27,519) $
(15,210)
Materials and supplies 2,314
(1,415)
Prepayments and other (7,681) 7,496
Increase (decrease) in current liabilities:
Accounts payable 1,008 9,503
Due to affiliated companies 2,229
(3,409)
Advanced billings and customer deposits (1,243) 1,599
Accrued liabilities 14,088
(4,482)
Other 1,546
(12,005)
Total $ (15,258) $
(17,923)
Cash paid during the year for:
Interest $ 15,233 $ 18,383
Income taxes 20,644 9,358
12. Legal Entity Merger
On October 15, 1993 the Company filed an application to legally
merge into GTE South Incorporated, a subsidiary of GTE. The
merger of the Company into GTE South Incorporated will simplify
the corporate structure and will provide greater efficiency of
operations through consolidation of record keeping and control of
expenses. The new Company will have an enhanced market presence
both in the providing of competitive telecommunications services
and the procurement of capital. Pending regulatory approvals,
the Company expects the merger to be completed by July 1, 1994.
20
CONTEL OF VIRGINIA, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
ASSETS
March 31,
1994
(Thousands
of Dollars)
CURRENT ASSETS:
Cash $ 9,574
Receivables, less allowance of $879 98,444
Materials and supplies, at average cost 1,440
Deferred income tax benefits 4,834
Prepayments and other 505
Total current assets 114,797
PROPERTY, PLANT AND EQUIPMENT:
Original cost 913,066
Accumulated depreciation (318,311)
Net property, plant and equipment 594,755
OTHER ASSETS 1,335
TOTAL ASSETS $ 710,887
See Notes to Condensed Financial Statements.
21
CONTEL OF VIRGINIA, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31,
1994
(Thousands
of Dollars)
CURRENT LIABILITIES:
Notes payable to affiliates $ 29,121
Current maturities of long-term debt 99,355
Accounts payable 40,858
Accrued taxes 18,737
Accrued interest 4,128
Accrued payroll and vacations 5,008
Accrued restructuring costs and other 27,021
Total current liabilities 224,228
LONG-TERM DEBT 89,125
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 140,268
SHAREHOLDER'S EQUITY:
Common stock 34,099
Other capital 35,775
Reinvested earnings 187,392
Total shareholder's equity 257,266
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $
710,887
See Notes to Condensed Financial Statements.
22
CONTEL OF VIRGINIA, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1994 1993
(Thousands of
Dollars)
OPERATING REVENUES:
Local network services $ 29,741 $ 26,993
Network access services 34,649 32,913
Long distance services 14,423 12,480
Equipment sales and services 3,246 3,291
Other 3,002 2,474
85,061 78,151
OPERATING EXPENSES:
Cost of sales and services 19,659 18,704
Depreciation and amortization 15,167 12,781
Marketing, selling, general and
administrative 21,352 21,984
56,178 53,469
Net operating income 28,883 24,682
OTHER (INCOME) DEDUCTIONS:
Interest expense 3,880 4,119
Other - net (117)
(17)
INCOME BEFORE INCOME TAXES 25,120 20,580
INCOME TAXES 9,420 7,113
NET INCOME $ 15,700 $ 13,467
Per share data is omitted since the Company's common stock is
100% owned by
Contel Corporation (a wholly-owned subsidiary of GTE
Corporation).
See Notes to Condensed Financial Statements.
23
CONTEL OF VIRGINIA, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,700 $ 13,467
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 15,167 12,781
Deferred income taxes and investment
tax credits 1,042 397
Provision for uncollectible accounts 709
830
Changes in current assets and current
liabilities (14,072)
(13,918)
Other - net 5,738 11,348
Net cash from operating activities 24,284 24,905
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,567)
(9,587)
Other - net (58)
(1,320)
Net cash used in investing activities (13,625)
(10,907)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retired (223)
(934)
Dividends paid to shareholder (10,000)
(1,700)
Net change in affiliate notes (114)
(10,183)
Net cash used in financing activities (10,337)
(12,817)
Increase in cash 322 1,181
Cash at beginning of period 9,252 1,940
Cash at end of period $ 9,574 $ 3,121
See Notes to Condensed Financial Statements.
24
CONTEL OF VIRGINIA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion
of management of the Company, the condensed financial statements
include all adjustments, which consist only of normal recurring
accruals, necessary to present fairly the financial information
for such periods. These condensed financial statements should be
read in conjunction with the financial statements and the notes
thereto included in the Company's 1993 Financial Statements
included in this Form 8-K filing.
(2) On April 13, 1994, the Virginia State Corporate Commission
approved the merger of the Company into GTE South Incorporated
effective on or after July 1, 1994. The merger of the Company
into GTE South Incorporated will simplify the corporate structure
and will provide greater efficiency of operations through
consolidation of record keeping and control of expenses. The new
Company will have enhanced market presence both in the providing
of competitive telecommunications services and the procurement of
capital.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Contel of Kentucky, Inc.:
We have audited the accompanying balance sheets of Contel of
Kentucky, Inc. (a Kentucky corporation), d/b/a GTE Kentucky (the
Company), as of December 31, 1993 and 1992, and the related
statements of income, reinvested earnings and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our 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 Contel of Kentucky, Inc. as of December 31, 1993 and 1992, and
the results of its operations and its cash flows for the years
then ended 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.
26
CONTEL OF KENTUCKY, INC.
BALANCE SHEETS
ASSETS
December
31,
1993
1992
(Thousands of
Dollars)
Current assets:
Cash $ 105 $
46
Accounts receivable
Customers (including unbilled revenues) 8,964
7,422
Affiliated companies 307
1,655
Other 2,722
958
Allowance for uncollectible accounts (100)
(404)
Materials and supplies, at average cost 313
106
Prepayments and other 1,697
466
14,008
10,249
Property, plant and equipment:
Original cost 202,393
182,083
Accumulated depreciation (72,818)
(67,685)
129,575
114,398
Other assets 2,038
3,357
Total assets $ 145,621 $
128,004
See Notes to Financial Statements.
27
CONTEL OF KENTUCKY, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
December
31,
1993
1992
(Thousands of
Dollars)
Current liabilities:
Notes payable to affiliates $ 19,775 $
13,990
Current maturities of long-term debt 935
734
Accounts payable 3,909
7,559
Due to affiliated companies 7,817
2,815
Advanced billings and customer deposits 1,090
1,607
Accrued interest 616
86
Accrued payroll and vacations 632
493
Accrued dividends 5,000
- --
Accrued restructuring costs and other 5,047
1,730
44,821
29,014
Long-term debt 24,484
25,536
Deferred credits:
Deferred income taxes 12,906
11,257
Deferred investment tax credits 2,423
2,981
Restructuring costs and other 11,038
6,361
26,367
20,599
Shareholder's equity:
Common stock (266,124 shares outstanding) 1,331
1,331
Other capital 13,547
13,547
Reinvested earnings 35,071
37,977
49,949
52,855
Total liabilities and shareholder's equity $ 145,621 $
128,004
See Notes to Financial Statements.
28
CONTEL OF KENTUCKY, INC.
STATEMENTS OF INCOME
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Operating revenues:
Local network services $ 19,640 $
19,259
Network access services 32,223
24,899
Long distance services 722
497
Equipment sales and services 3,448
2,802
Other 4,078
3,807
60,111
51,264
Operating expenses:
Cost of sales and services 9,946
9,868
Depreciation and amortization 11,266
11,214
Marketing, selling, general
and administrative 15,212
13,110
Restructuring costs 6,530
- --
42,954
34,192
Net operating income 17,157
17,072
Other deductions:
Interest expense 2,544
2,637
Other - net 120
803
Income before income taxes 14,493
13,632
Income taxes 5,399
4,665
Net income $ 9,094 $
8,967
STATEMENTS OF REINVESTED EARNINGS
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Balance at beginning of year $ 37,977 $
32,510
Add -
Net income 9,094
8,967
Deduct -
Cash dividends declared on common stock 12,000
3,500
Balance at end of year $ 35,071 $
37,977
See Notes to Financial Statements.
29
CONTEL OF KENTUCKY, INC.
STATEMENTS OF CASH FLOWS
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Cash flows from operating activities:
Net income $ 9,094 $
8,967
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 11,266
11,214
Restructuring costs 6,530
- --
Deferred income taxes and investment
tax credits (1,166)
(242)
Provision for uncollectible accounts 413
839
Changes in current assets and current
liabilities (866)
(805)
Other - net 2,697
(2,095)
Net cash from operating activities 27,968
17,878
Cash flows from investing activities:
Capital expenditures (25,102)
(20,998)
Other - net (741)
(216)
Net cash used in investing activities (25,843)
(21,214)
Cash flows from financing activities:
Long-term debt retired (851)
(2,802)
Dividends paid to shareholder (7,000)
(3,500)
Increase in notes payable to affiliates 5,785
9,038
Net cash (used in) from financing
activities (2,066)
2,736
Increase (decrease) in cash 59
(600)
Cash:
Beginning of year 46
646
End of year $ 105 $
46
See Notes to Financial Statements.
30
CONTEL OF KENTUCKY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Contel of Kentucky, Inc., d/b/a GTE Kentucky (the Company), is a
wholly-owned subsidiary of Contel Corporation (the Parent
Company). The Parent 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 approximately $9.3 million and $4.7 million
for the years 1993 and 1992, respectively. Such purchases are
recorded in the accounts of the Company at cost, including a
normal return realized by the affiliates.
The Company is also billed for 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 $14.1 million
and $11.5 million for the years 1993 and 1992, respectively. The
amounts charged for these affiliated transactions are based on
management's best estimate of a proportional cost allocation
method.
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 Kentucky Public Service Commission
(KPSC). The provisions for depreciation and amortization were
equivalent to composite annual rates of 5.9% and 6.5% for the
years 1993 and 1992, respectively.
Regulatory Accounting
The Company follows the accounting prescribed by the Uniform
System of Accounts of the FCC and the KPSC 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
on the current regulatory and competitive environment.
31
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.
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 6, 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 values. 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 $1.6 million
and $0.2 million, respectively.
Prior Year's Financial Statements
Reclassifications of prior year data have been made in the
financial statements to conform to the 1993 presentation.
32
2. Restructuring Costs
Results for 1993 include a one-time pretax restructuring charge
of $6.5 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 $2.7 million to upgrade or replace
existing customer service and administrative systems and enhance
network software, $3.0 million for employee separation benefits
associated with workforce reductions and $0.8 million primarily
for the consolidation of facilities and operations and other
related costs.
3. Common Stock
The authorized common stock of the Company consists of 300,000
shares with a par value of $5 per share. All outstanding shares
of common stock are held by the Parent Company.
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, $20.9 million of reinvested earnings was
restricted as to the payment of cash dividends on common stock
under the most restrictive terms of the Company's indentures.
33
4. Long-Term Debt
Long-term debt outstanding, exclusive of current maturities, is
as follows:
December 31
1993 1992
(Thousands of Dollars)
Rural Electrification Administration
2%, due 2009 $ 2,192 $ 2,594
Federal Financing Bank
7.391% to 10.910%, through 2022 22,292 22,942
Total long-term debt $ 24,484 $ 25,536
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.
Maturities, installments and sinking fund requirements for the
five-year period from January 1, 1994 are summarized below (in
thousands of dollars):
1994 $ 935
1995 916
1996 1,334
1997 1,038
1998 1,083
Substantially all of the Company's telephone plant is subject to
the liens of the indentures under which the bonds listed above
were issued.
34
5. Notes Payable to Affiliates
The Company finances part of its construction program through the
use of interim short-term notes payable to affiliates, which are
generally refinanced at a later date by the issuance of long-term
debt or equity. During 1993 and 1992, the Company supplemented
its internal generation of cash with funds borrowed from GTE.
These arrangements require payment of interest based on GTE
Corporation's daily intercompany interest rate (which is based
primarily on the costs associated with the issuance of commercial
paper). In addition, a $2.3 billion line of credit is available
to the Company through shared lines with GTE and other
affiliates.
35
6. Income Taxes
The provision for income taxes is as follows:
1993 1992
(Thousands of Dollars)
Current
Federal $ 5,142 $ 3,893
State and local 1,423 1,014
Total 6,565 4,907
Deferred
Federal (402) 247
State and local (206) 142
Total (608) 389
Amortization of deferred
investment tax credits (558) (631)
Total $ 5,399 $ 4,665
The components of deferred income tax expense (benefit) are as
follows:
1993 1992
(Thousands of Dollars)
Depreciation and amortization $ 3,211 $ (47)
Employee benefit obligations (2,025) (156)
Restructuring cost (2,506) --
Other-net 712 592
Total $ (608) $ 389
36
A reconciliation between the statutory Federal income tax rate
and the effective income tax rate is as follows:
1993 1992
Statutory Federal income tax rate 35.0% 34.0%
State and local income taxes, net of
Federal income tax benefits 5.5 5.6
Amortization of deferred investment
tax credits (3.9) (4.6)
Depreciation of telephone plant
construction costs previously
deducted for tax purposes - net 0.6 0.9
Rate differentials applied to
reversing temporary differences (0.9) (1.7)
Other - net 1.0 --
Effective income tax rate 37.3% 34.2%
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 net unamortized
regulatory liability balances at December 31, 1993 and 1992
amounted to $2.9 million and $3.8 million, respectively. The
regulatory liabilities are reflected as other deferred credits 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 $ 15,468 $ 11,146
Employee benefit obligations (1,548) (1,130)
Restructuring cost (2,506) --
Other - net 558 1,454
Total $ 11,972 $ 11,470
37
7. Employee Benefit Plans
The Company participates in the Parent Company's trusteed pension
plan (the Plan), which covers substantially all employees. The
benefits are based on an employee's years of service and average
earnings for the five highest consecutive calendar years
preceding retirement. The Company's policy is to fund pension
cost in accordance with applicable regulations. Total pension
(credits) costs for 1993 and 1992 were $(477,000) and $267,000,
respectively.
The net assets available for benefits are maintained for the
total Plan and amounted to $632.9 million. The Plan's net assets
available for benefits exceeded projected benefit obligations by
$433.6 million as computed under SFAS No. 87 "Employers'
Accounting for Pensions" as of December 31, 1993.
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 $ 195
Interest cost on accumulated
postretirement benefit obligation 875
Amortization of transition obligation
and prior service cost 491
Postretirement benefit cost $ 1,561
During 1992, the cost of postretirement health care and life
insurance benefits on a pay-as-you-go basis was $365,000.
38
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 $ 7,129
Fully eligible active plan participants 323
Other active plan participants 1,771
Total accumulated postretirement benefit
obligation 9,223
Fair value of plan assets --
Excess of accumulated obligation over plan
assets 9,223
Unrecognized transition obligation (6,163)
Unrecognized net loss (873)
Accrued postretirement benefit obligation $ 2,187
The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.5% at December 31, 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 $178,000 and the accumulated
postretirement benefit obligation at December 31, 1993 by
$677,000.
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 $4.0 million.
39
8. Commitments and Contingencies
The Company's anticipated construction costs for 1994 are
approximately $13.8 million, for which the Company had
substantial purchase commitments as of December 31, 1993.
The Company has noncancelable lease contracts covering certain
buildings, office space and equipment. The lease contracts
contain varying renewal options for terms up to 8 years.
Minimum rental commitments for noncancelable leases for periods
subsequent to December 31, 1993 are as follows (in thousands of
dollars):
1994 $ 30
1995 18
1996 11
1997 10
1998 10
Thereafter 31
Total minimum rental
commitments $ 110
The total amounts of rents charged to expense were $0.6 million
for 1993 and 1992.
9. Property, Plant and Equipment
Telephone plant and equipment consists of the following:
1993 1992
(Thousands of Dollars)
Land and buildings $ 7,275 $ 8,096
Plant in service 185,751 171,674
Plant under construction 9,013 1,690
Other 354 623
Total telephone plant 202,393 182,083
Accumulated depreciation (72,818) (67,685)
Net telephone plant $ 129,575 $ 114,398
40
10. Regulatory Matters
The Company is subject to regulation by the FCC for interstate
business and the KPSC for intrastate operations.
Intrastate Services
The Company provides long distance services within designated
geographic areas called Local Access and Transport Areas (LATAs).
The Company receives access revenues from the primary toll
carrier within the LATA.
Intrastate-interLATA network access service revenues are
recovered through access charges paid by interexchange carriers
for use of the Company's facilities in originating and
terminating intrastate toll messages between LATAs. The Company
records this revenue on a bill-and-keep basis.
On December 15, 1993, the KPSC approved the Company's request to
become a primary toll carrier under an Originating Responsibility
Plan, effective March 1, 1994. Under this type of arrangement,
the toll rates billed to end users for intraLATA toll calls
originating in the Company's service area will be retained by the
Company on a bill-and-keep basis. The Company, in turn, will pay
access charges to the carrier hauling and terminating the call
based on that carrier's approved access charge tariff. Likewise,
the Company will receive access charges for terminating any
intraLATA toll call that originates outside of its service area
based on its approved access charge tariff. The Company will
receive transitional support payments for any revenue loss
created by this change in compensation arrangement under the
terms of an industry agreement.
Interstate Services
For the provision of interstate services, the Company operates
under the terms of the FCC's price cap incentive plan. The
"price cap" mechanism serves to limit the rates a carrier may
charge, rather than just regulating the rate of return which may
be achieved. Under this approach, the maximum price that the
Local Exchange Carrier (LEC) may charge is increased or decreased
each year by a price index based upon inflation less a
predetermined productivity target. LECs 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.
41
Other Rate Matters
On August 1, 1993, the KPSC approved the Company's request to
reduce its local service revenue by $2.1 million to bring the
Company's tariffed rates to the same rate levels as GTE South.
This rate reduction was required by the KPSC as a condition for
approval of the planned merger of the Company into GTE South
Incorporated.
Significant Customer
Revenues received from AT&T including access, billing and
collection and interexchange leased facilities during the years
1993 and 1992 under various arrangements amounted to $7.1 million
and $6.6 million, respectively.
42
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
(Thousands of Dollars)
(Increase) decrease in current assets:
Accounts receivable - net $ (2,675) $
(3,394)
Materials and supplies (207) 342
Prepayments and other (1,231)
(316)
Increase (decrease) in current liabilities:
Accounts payable (3,650) 4,034
Due to affiliated companies 5,002 353
Advanced billings and customer deposits (517) 819
Accrued liabilities 2,345
(2,310)
Other 67
(333)
Total $ (866) $
(805)
Cash paid during the year for:
Interest $ 3,030 $ 2,110
Income taxes 8,201 5,322
12. Legal Entity Merger
On September 27, 1993 the Company filed an application to legally
merge into GTE South Incorporated, a subsidiary of GTE. The
merger of the Company into GTE South Incorporated will simplify
the corporate structure and will provide greater efficiency of
operations through consolidation of record keeping and control of
expenses. The new Company will have an enhanced market presence
both in the providing of competitive telecommunications services
and the procurement of capital. Pending regulatory approvals,
the Company expects the merger to be completed by July 1, 1994.
43
CONTEL OF KENTUCKY, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
ASSETS
March 31,
1994
(Thousands
of Dollars)
CURRENT ASSETS:
Cash $ 58
Receivables, less allowances of $367 12,510
Materials and supplies, at average cost 356
Deferred income tax benefits 943
Prepayments and other 11
Total current assets 13,878
PROPERTY, PLANT AND EQUIPMENT:
Original cost 206,128
Accumulated depreciation (75,091)
Net property, plant and equipment 131,037
OTHER ASSETS 1,319
TOTAL ASSETS $ 146,234
See Notes to Condensed Financial Statements.
44
CONTEL OF KENTUCKY, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31,
1994
(Thousands
of Dollars)
CURRENT LIABILITIES:
Notes payable to affiliates $ 29,764
Accounts payable 8,032
Accrued dividends 2,526
Accrued restructuring costs and other 6,335
Total current liabilities 46,657
LONG-TERM DEBT 24,123
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 26,206
SHAREHOLDER'S EQUITY:
Common stock 1,331
Other capital 13,547
Reinvested earnings 34,370
Total shareholder's equity 49,248
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $
146,234
See Notes to Condensed Financial Statements.
45
CONTEL OF KENTUCKY, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1994 1993
(Thousands of
Dollars)
OPERATING REVENUES:
Local network services $ 4,723 $ 4,965
Network access services 6,731 6,896
Long distance services 147 178
Equipment sales and services 936 791
Other 923 1,225
13,460 14,055
OPERATING EXPENSES:
Cost of sales and services 3,194 2,373
Depreciation and amortization 3,496 2,750
Marketing, selling, general and
administrative 3,104 3,583
9,794 8,706
Net operating income 3,666 5,349
OTHER (INCOME) DEDUCTIONS:
Interest expense 753 612
Other - net (9)
(6)
INCOME BEFORE INCOME TAXES 2,922 4,743
INCOME TAXES 1,096 1,639
NET INCOME $ 1,826 $ 3,104
Per share data is omitted since the Company's common stock is
100% owned by
Contel Corporation (a wholly-owned subsidiary of GTE
Corporation).
See Notes to Condensed Financial Statements.
46
CONTEL OF KENTUCKY, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,826 $ 3,104
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 3,496 2,750
Deferred income taxes and investment
tax credits 288 (524)
Provision for uncollectible accounts 76
56
Changes in current assets and current
liabilities (4,736)
1,294
Other - net (807)
3,243
Net cash from operating activities 143 9,923
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,932)
(5,401)
Other - net 108 (120)
Net cash used in investing activities (4,824)
(5,521)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retired (355)
(240)
Dividends paid to shareholder (5,000)
- --
Net change in affiliate notes 9,989 (4,158)
Net cash from (used in) financing
activities 4,634 (4,398)
Increase (decrease) in cash (47)
4
Cash at beginning of period 105 46
Cash at end of period $ 58 $ 50
See Notes to Condensed Financial Statements.
47
CONTEL OF KENTUCKY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion
of management of the Company, the condensed financial statements
include all adjustments, which consist only of normal recurring
accruals, necessary to present fairly the financial information
for such periods. These condensed financial statements should be
read in conjunction with the financial statements and the notes
thereto included in the Company's 1993 Financial Statements
included in this Form 8-K filing.
(2) On September 27, 1993 the Company filed an application to
legally merge into GTE South Incorporated, a subsidiary of GTE.
The merger of the Company into GTE South Incorporated will
simplify the corporate structure and will provide greater
efficiency of operations through consolidation of record keeping
and control of expenses. The new Company will have an enhanced
market presence both in the providing of competitive
telecommunications services and the procurement of capital.
Approval for the merger by the KPSC (Kentucky Public Service
Commission) was obtained on March 28, 1994 effective on or after
July 1, 1994.
48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Contel of North Carolina, Inc.:
We have audited the accompanying balance sheets of Contel of
North Carolina, Inc. (a North Carolina corporation), d/b/a GTE
North Carolina (the Company), as of December 31, 1993 and 1992,
and the related statements of income, reinvested earnings and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our 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 Contel of North Carolina, Inc. as of December 31, 1993 and
1992, and the results of its operations and its cash flows for
the years then ended 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.
49
CONTEL OF NORTH CAROLINA, INC.
BALANCE SHEETS
ASSETS
December
31,
1993
1992
(Thousands of
Dollars)
Current assets:
Cash $ 465 $
259
Accounts receivable
Customers (including unbilled revenues) 11,167
8,519
Affiliated companies 171
1,036
Other 5,260
2,220
Allowance for uncollectible accounts (448)
(225)
Notes receivable from affiliate --
12,645
Prepayments 1,635
125
Materials and supplies and other 490
609
18,740
25,188
Property, plant and equipment:
Original cost 227,277
218,114
Accumulated depreciation (91,536)
(82,796)
135,741
135,318
Other assets 2,442
4,410
Total assets $ 156,923 $
164,916
See Notes to Financial Statements.
50
CONTEL OF NORTH CAROLINA, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
December
31,
1993
1992
(Thousands of
Dollars)
Current liabilities:
Notes payable to affiliates $ 5,727 $
- --
Current maturities of long-term debt 10,084
1,208
Accounts payable 8,650
5,727
Due to affiliated companies 4,026
3,090
Advanced billings and customer deposits 2,107
2,048
Accrued taxes 952
6,776
Accrued payroll and vacations 1,022
634
Accrued rent 1,169
473
Accrued dividends --
14,000
Accrued restructuring costs and other 5,198
1,553
38,935
35,509
Long-term debt 29,465
39,519
Deferred credits:
Deferred income taxes 18,596
15,440
Deferred investment tax credits 2,588
3,302
Restructuring costs and other 15,710
10,605
36,894
29,347
Shareholder's equity:
Common stock (1,350,637 shares outstanding) 6,753
6,753
Other capital 15,709
15,709
Reinvested earnings 29,167
38,079
51,629
60,541
Total liabilities and shareholder's equity $ 156,923 $
164,916
See Notes to Financial Statements.
51
CONTEL OF NORTH CAROLINA, INC.
STATEMENTS OF INCOME
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Operating revenues:
Local network services $ 28,763 $
27,444
Network access services 46,400
44,583
Equipment sales and services 4,322
3,278
Other 1,076
1,666
80,561
76,971
Operating expenses:
Cost of sales and services 14,086
13,098
Depreciation and amortization 13,530
14,571
Marketing, selling, general
and administrative 20,582
19,703
Restructuring costs 9,860
- --
58,058
47,372
Net operating income 22,503
29,599
Other deductions:
Interest expense 4,292
4,140
Other - net 267
696
Income before income taxes 17,944
24,763
Income taxes 6,456
8,768
Net income $ 11,488 $
15,995
STATEMENTS OF REINVESTED EARNINGS
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Balance at beginning of year $ 38,079 $
41,984
Add -
Net income 11,488
15,995
Deduct -
Cash dividends declared on common stock 20,400
19,900
Balance at end of year $ 29,167 $
38,079
See Notes to Financial Statements.
52
CONTEL OF NORTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
Years
ended
December
31,
1993
1992
(Thousands of
Dollars)
Cash flows from operating activities:
Net income $ 11,488 $
15,995
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 13,530
14,571
Restructuring costs 9,860
- --
Deferred income taxes and investment
tax credits (2,470)
(2,961)
Provision for uncollectible accounts 986
505
Changes in current assets and current
liabilities (6,815)
1,699
Other - net 4,023
(911)
Net cash from operating activities 30,602
28,898
Cash flows from investing activities:
Capital expenditures (12,905)
(11,273)
Other - net (285)
(264)
Net cash used in investing activities (13,190)
(11,537)
Cash flows from financing activities:
Long-term debt retired (1,178)
(1,189)
Dividends paid to shareholder (34,400)
(5,900)
Net change in affiliate notes 18,372
(11,074)
Net cash used in financing activities (17,206)
(18,163)
Increase (decrease) in cash 206
(802)
Cash:
Beginning of year 259
1,061
End of year $ 465 $
259
See Notes to Financial Statements.
53
CONTEL OF NORTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Contel of North Carolina, Inc., d/b/a GTE North Carolina (the
Company), is a wholly-owned subsidiary of Contel Corporation (the
Parent Company). The Parent 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 approximately $3.3 million and $3.9 million
for the years 1993 and 1992, respectively. Such purchases are
recorded in the accounts of the Company at cost, including a
normal return realized by the affiliates.
The Company is also billed for 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 $17.7 million
and $14.1 million for the years 1993 and 1992, respectively. The
amounts charged for these affiliated transactions are based on
management's best estimate of a proportional cost allocation
method.
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 North Carolina Public Utilities
Commission (NCPUC). The provisions for depreciation and
amortization were equivalent to composite annual rates of 6.1%
and 6.7% for the years 1993 and 1992, respectively.
Regulatory Accounting
The Company follows the accounting prescribed by the Uniform
System of Accounts of the FCC and the NCPUC 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
on the current regulatory and competitive environment.
54
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. Cost of materials and supplies is determined by the
average cost method of inventory valuation.
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.
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 6, 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.
55
Financial Instruments
The fair values of financial instruments other than long-term
debt, closely approximate their carrying values. 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 $2.3 million
and $2.6 million, respectively.
Prior Year's Financial Statements
Reclassifications of prior year data have been made in the
financial statements to conform to the 1993 presentation.
2. Restructuring Costs
Results for 1993 include a one-time pretax restructuring charge
of $9.9 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 $4.0 million to upgrade or replace
existing customer service and administrative systems and enhance
network software, $4.6 million for employee separation benefits
associated with workforce reductions and $1.3 million primarily
for the consolidation of facilities and operations and other
related costs.
3. Common Stock
The authorized common stock of the Company consists of 2,000,000
shares with a par value of $5 per share. All outstanding shares
of common stock are held by the Parent Company.
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, $16.1 million of reinvested earnings was
restricted as to the payment of cash dividends on common stock
under the most restrictive terms of the Company's indentures.
56
4. Long-Term Debt
Long-term debt outstanding, exclusive of current maturities, is
as follows:
December 31
1993 1992
(Thousands of Dollars)
Rural Electrification Administration
2%, due 1997 $ 981 $ 1,299
Rural Telephone Bank
7.5% to 9.5%, through 2011 17,083 17,173
Federal Financing Bank
8.686% to 12.201%, through 2014 7,786 7,908
First Mortgage Bonds
8.25% to 9.5%, through 2002 2,725 4,598
10% to 10.25%, due 1996 890 1,035
12.5%, due 1994 -- 7,500
Capitalized Leases -- 6
Total long-term debt $ 29,465 $ 39,519
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.
Maturities, installments and sinking fund requirements for the
five-year period from January 1, 1994 are summarized below (in
thousands of dollars):
1994 $ 10,084
1995 1,589
1996 2,053
1997 1,295
1998 488
Substantially all of the Company's telephone plant is subject to
the liens of the indentures under which the bonds listed above
were issued.
57
5. Notes Payable to Affiliates
The Company finances part of its construction program through the
use of interim short-term notes payable to affiliates, which are
generally refinanced at a later date by the issuance of long-term
debt or equity. During 1993 and 1992, the Company supplemented
its internal generation of cash with funds borrowed from GTE.
These arrangements require payment of interest based on GTE
Corporation's daily intercompany interest rate (which is based
primarily on the costs associated with the issuance of commercial
paper). In addition, a $2.3 billion line of credit is available
to the Company through shared lines with GTE and other
affiliates.
58
6. Income Taxes
The provision for income taxes is as follows:
1993 1992
(Thousands of Dollars)
Current
Federal $ 7,636 $ 9,354
State and local 1,290 2,375
Total 8,926 11,729
Deferred
Federal (1,857) (1,796)
State and local 99 (374)
Total (1,758) (2,170)
Amortization of deferred
investment tax credits (712) (791)
Total $ 6,456 $ 8,768
The components of deferred income tax benefit are as follows:
1993 1992
(Thousands of Dollars)
Depreciation and amortization $ 3,026 $ (2,695)
Employee benefit obligations (2,185) 113
Restructuring cost (3,787) --
Other-net 1,188 412
Total $ (1,758) $ (2,170)
59
A reconciliation between the statutory Federal income tax rate
and the effective income tax rate is as follows:
1993 1992
Statutory Federal income tax rate 35.0% 34.0%
State and local income taxes, net of
Federal income tax benefits 5.0 5.3
Amortization of deferred investment
tax credits (4.0) (3.2)
Depreciation of telephone plant
construction costs previously
deducted for tax purposes - net 0.3 0.4
Rate differentials applied to
reversing temporary differences (1.4) (1.1)
Other - net 1.1 --
Effective income tax rate 36.0% 35.4%
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 net unamortized
regulatory liability balances at December 31, 1993 and 1992
amounted to $5.9 million and $8.7 million, respectively. The
regulatory liabilities are reflected as other deferred credits 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 $ 21,493 $ 14,998
Employee benefit obligations (1,262) (809)
Restructuring cost (3,787) --
Other - net 917 1,461
Total $ 17,361 $ 15,650
60
7. Employee Benefit Plans
The Company participates in the Parent Company's trusteed pension
plan (the Plan), which covers substantially all employees. The
benefits are based on an employee's years of service and average
earnings for the five highest consecutive calendar years
preceding retirement. The Company's policy is to fund pension
cost in accordance with applicable regulations. Total pension
(credits) costs for 1993 and 1992 were $(0.4) million and $0.4
million, respectively.
The net assets available for benefits are maintained for the
total Plan and amounted to $782.6 million. The Plan's net assets
available for benefits exceeded projected benefit obligations by
$534.7 million as computed under SFAS No. 87 "Employers'
Accounting for Pensions" as of December 31, 1993.
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 $ 268
Interest cost on accumulated
postretirement benefit obligation 1,106
Actual return on plan assets (57)
Amortization of transition obligation
and prior service cost 763
Postretirement benefit cost $ 2,080
During 1992, the cost of postretirement health care and life
insurance benefits on a pay-as-you-go basis was $0.4 million.
61
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 $ 7,501
Fully eligible active plan participants 1,439
Other active plan participants 4,638
Total accumulated postretirement benefit
obligation 13,578
Fair value of plan assets 709
Excess of accumulated obligation over plan
assets 12,869
Unrecognized transition obligation (9,168)
Unrecognized net loss (1,620)
Accrued postretirement benefit obligation $ 2,081
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 $0.2 million and the accumulated
postretirement benefit obligation at December 31, 1993 by $1.9
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 $1.9 million.
62
8. Commitments and Contingencies
The Company's anticipated construction costs for 1994 are
approximately $21.1 million, for which the Company had
substantial purchase commitments as of December 31, 1993.
The Company has noncancelable lease contracts covering certain
buildings, office space and equipment. The lease contracts
contain varying renewal options for terms up to 97 years.
Minimum rental commitments for noncancelable leases for periods
subsequent to December 31, 1993 are as follows (in thousands of
dollars):
1994 $ 45
1995 44
1996 84
1997 84
1998 84
Thereafter 2,928
Total minimum rental
commitments $ 3,269
The total amounts of rents charged to expense were $1.2 million
and $1.5 million for the years 1993 and 1992, respectively.
9. Property, Plant and Equipment
Telephone plant and equipment, including amounts for leases which
have been capitalized, consists of the following:
1993 1992
(Thousands of Dollars)
Land and buildings $ 9,810 $ 8,911
Plant in service 213,694 207,806
Plant under construction 3,258 611
Other 515 786
Total telephone plant 227,277 218,114
Accumulated depreciation (91,536) (82,796)
Net telephone plant $ 135,741 $ 135,318
63
10. Regulatory Matters
The Company is subject to regulation by the FCC for interstate
business and the NCPUC for intrastate operations.
Intrastate Services
The Company provides long distance services within designated
geographic areas called Local Access and Transport Areas (LATAs).
The Company receives intrastate-intraLATA network access service
revenue through participation in an access charge based pool.
The Company remits intraLATA end user toll billings to the pool,
and bills the pool access charges.
Intrastate-interLATA network access service revenue is recovered
through access charges paid by interexchange carriers for use of
the Company's facilities in originating and terminating
intrastate toll messages between LATAs. The Company records this
revenue on a bill-and-keep basis.
Effective January 1, 1994, the Company will implement and receive
intraLATA compensation through an Originating Responsibility Plan
(ORP). Under this plan, the toll rates billed to end users for
intraLATA toll calls originating in the Company's service area
will be retained by the Company. The Company, in turn, will pay
access charges to the carrier hauling and terminating the call
based on that carrier's approved access charge tariff. Likewise
the Company will receive access charges for terminating any
intraLATA toll call that originates outside of its service area
based on its approved access charge tariff. The Company will
record this revenue on a bill-and-keep basis and will receive
transitional support payments for any revenue loss created by
this change in compensation arrangement under the terms of an
industry agreement.
Interstate Services
For the provision of interstate services, the Company operates
under the terms of the FCC's price cap incentive plan. The
"price cap" mechanism serves to limit the rates a carrier may
charge, rather than just regulating the rate of return which may
be achieved. Under this approach, the maximum price that the
Local Exchange Carrier (LEC) may charge is increased or decreased
each year by a price index based upon inflation less a
predetermined productivity target. LECs 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
return 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.
64
Other Rate Matters
In 1994, the NCPUC approved the Company's request to reduce local
basic service rates by $4.6 million on an annual basis. The new
rates are effective June 1, 1994.
Significant Customer
Revenues received from AT&T including access, billing and
collection and interexchange leased facilities during the years
1993 and 1992 under various arrangements amounted to $16.2
million and $12.7 million, respectively.
65
11. Notes Receivable from Affiliate
During 1993 and 1992, the Company provided excess funds to GTE
Corporation. These funds were available on demand and treated as
cash investments. The investments earn interest based on GTE
Corporation's daily intercompany interest rate (which is based
primarily on the costs associated with issuing commercial paper)
and are reported by the Company as Notes receivable from
affiliate.
12. 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
(Thousands of Dollars)
(Increase) decrease in current assets:
Accounts receivable - net $ (5,586) $
(3,514)
Materials and supplies, prepayments
and other (1,391)
(310)
Increase (decrease) in current liabilities:
Accounts payable 2,923 2,417
Due to affiliated companies 936 235
Advanced billings and customer deposits 59 307
Accrued liabilities (3,638) 3,556
Other (118)
(992)
Total $ (6,815) $ 1,699
Cash paid during the year for:
Interest $ 4,245 $ 4,207
Income taxes 14,507 7,090
13. Legal Entity Merger
On October 1, 1993 the Company filed an application to legally
merge into GTE South Incorporated, a subsidiary of GTE. The
merger of the Company into GTE South Incorporated will simplify
the corporate structure and will provide greater efficiency of
operations through consolidation of record keeping and control of
expenses. The new Company will have an enhanced market presence
both in the providing of competitive telecommunications services
and the procurement of capital. Pending regulatory approvals,
the Company expects the merger to be completed by July 1, 1994.
66
CONTEL OF NORTH CAROLINA, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
ASSETS
March 31,
1994
(Thousands
of Dollars)
CURRENT ASSETS:
Cash $ 225
Receivables, less allowances of $551 15,655
Materials and supplies, at average cost 225
Deferred income tax benefits 1,263
Prepayments and other 55
Total current assets 17,423
PROPERTY, PLANT AND EQUIPMENT:
Original cost 228,812
Accumulated depreciation (93,881)
Net property, plant and equipment 134,931
OTHER ASSETS 2,137
TOTAL ASSETS $ 154,491
See Notes to Condensed Financial Statements.
67
CONTEL OF NORTH CAROLINA, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31,
1994
(Thousands
of Dollars)
CURRENT LIABILITIES:
Notes payable to affiliates $ 4,715
Current maturities of long-term debt 10,094
Accounts payable 7,030
Accrued taxes 2,578
Accrued interest 427
Accrued payroll and vacations 862
Accrued restructuring costs and other 7,607
Total current liabilities 33,313
LONG-TERM DEBT 29,281
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 36,579
SHAREHOLDER'S EQUITY:
Common stock 6,753
Other capital 15,709
Reinvested earnings 32,856
Total shareholder's equity 55,318
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $
154,491
See Notes to Condensed Financial Statements.
68
CONTEL OF NORTH CAROLINA, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1994 1993
(Thousands of
Dollars)
OPERATING REVENUES:
Local network services $ 7,289 $ 6,950
Network access services 8,699 12,106
Long distance services 1,797 251
Equipment sales and services 872 849
Other 251 429
18,908 20,585
OPERATING EXPENSES:
Cost of sales and services 3,897 3,026
Depreciation and amortization 3,540 3,379
Marketing, selling, general and
administrative 4,528 4,331
11,965 10,736
Net operating income 6,943 9,849
OTHER (INCOME) DEDUCTIONS:
Interest expense 1,047 1,060
Other - net (3)
(37)
INCOME BEFORE INCOME TAXES 5,899 8,826
INCOME TAXES 2,211 3,051
NET INCOME $ 3,688 $ 5,775
Per share data is omitted since the Company's common stock is
100% owned by
Contel Corporation (a wholly-owned subsidiary of GTE
Corporation).
See Notes to Condensed Financial Statements.
69
CONTEL OF NORTH CAROLINA, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,688 $ 5,775
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 3,540 3,379
Deferred income taxes and investment
tax credits 21 (529)
Provision for uncollectible accounts 237
108
Changes in current assets and current
liabilities (3,780)
(3,762)
Other - net (176)
2,223
Net cash from operating activities 3,530 7,194
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,595)
(1,351)
Other - net 11 (353)
Net cash used in investing activities (2,584)
(1,704)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retired (174)
(221)
Dividends paid to shareholders -- (14,000)
Net change in affiliate notes (1,012)
8,642
Net cash used in financing activities (1,186)
(5,579)
Decrease in cash (240)
(89)
Cash at beginning of period 465 259
Cash at end of period $ 225 $ 170
See Notes to Condensed Financial Statements.
70
CONTEL OF NORTH CAROLINA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion
of management of the Company, the condensed financial statements
include all adjustments, which consist only of normal recurring
accruals, necessary to present fairly the financial information
for such periods. These condensed financial statements should be
read in conjunction with the financial statements and the notes
thereto included in the Company's 1993 Financial Statements
included in this Form 8-K filing.
(2) On April 25, 1994, the North Carolina Utility Commission
(NCUC) approved the merger of the Company into GTE South
Incorporated effective on or after July 1, 1994. The merger of
the Company into GTE South Incorporated will simplify the
corporate structure and will provide greater efficiency of
operations through consolidation of record keeping and control of
expenses. The new Company will have enhanced market presence
both in the providing of competitive telecommunications services
and the procurement of capital. In addition, tariff revisions
were filed with the NCUC on February 25, 1994 to reduce revenue
by $6.6 million, effective June 1, 1994.
71
GTE SOUTH INCORPORATED AND CONTEL SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidating Balance
Sheet at March 31, 1994, gives effect to the proposed Merger as
if it had occurred as of the balance sheet date. The following
Unaudited Pro Forma Condensed Consolidating Statements of Income
for the three month periods ended March 31, 1994 and 1993 and for
the years ended December 31, 1993, 1992 and 1991 give effect to
the proposed Merger as if it had occurred at the beginning of
each of the respective periods presented. The pro forma
consolidating financial statements give effect to the Merger as a
"pooling of interests" for accounting purposes and should be read
in conjunction with the historical consolidated financial
statements and the related notes contained in the GTE South
Incorporated Annual Reports on Form 10-K for the year ended
December 31, 1993 and subsequent filings with the SEC.
The pro forma data are presented for informational purposes only
and are not necessarily indicative of the operating results or
financial position that would have occurred had the Merger been
consummated at the dates indicated, nor are they necessarily
indicative of future operating results or financial position.
72
<TABLE>
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 1994
(Thousand of Dollars)
<CAPTION>
Contel Contel
GTE Contel Contel North South
Surviving
South Virginia Kentucky Carolina Carolina
Eliminations(a) Corporation
---------- ---------- ---------- ---------- ---------
- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
<C>
Accounts Receivable - Net $ 145,012 $ 98,444 $ 12,510 $ 15,655 $ 3,173 $
(3,655) $ 271,139
Other Current Assets 71,163 16,353 1,368 1,768 333
90,985
Property, Plant & Equipment 2,387,635 913,066 206,128 228,812 31,620
3,767,261
Less: Accumulated Depreciation
and Amortization (901,281) (318,311) (75,091) (93,881) (8,073)
(1,396,637)
Other Assets 99,647 1,335 1,319 2,137 131
104,569
---------- ---------- ---------- ---------- --------- -----
- ---- ----------
Total Assets $1,802,176 $ 710,887 $ 146,234 $ 154,491 $ 27,184 $
(3,655) $2,837,317
========== ========== ========== ========== =========
========= ==========
Accounts Payable $ 46,636 $ 40,858 $ 8,032 $ 7,030 $ 3,090 $
(3,655) $ 101,991
Other Current Liabilities 371,518 183,370 38,625 26,283 4,588
624,384
Long-Term Borrowings 366,381 89,125 24,123 29,281 6,261
515,171
Deferred Taxes & Credits 377,775 140,268 26,206 36,579 5,027
585,855
Preferred Stock Subject to
Mandatory Redemption 3,135 -- -- -- --
3,135
Shareholders' Equity:
Common Shareholder's Equity 636,319 257,266 49,248 55,318 8,218
1,006,369
Preferred Stock 412 -- -- -- --
412
---------- ---------- ---------- ---------- --------
- --------- ----------
Total Shareholders' Equity 636,731 257,266 49,248 55,318 8,218
- -- 1,006,781
---------- ---------- ---------- ---------- --------
- --------- ----------
Total Liabilities and
Shareholders' Equity $1,802,176 $ 710,887 $ 146,234 $ 154,491 $ 27,184 $
(3,655) $2,837,317
========== ========== ========== ========== =========
========= ==========
<FN>
(a) Elimination of Intercompany receivables and payables.
The accompanying notes are an integral part of these pro forma statements.
</TABLE>
73
<TABLE>
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 1994
(Thousand of Dollars)
<CAPTION>
Contel Contel
GTE Contel Contel North South
Surviving
South Virginia Kentucky Carolina Carolina
Corporation
---------- ---------- ---------- ---------- --------- ------
- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 72,053 $ 29,741 $ 4,723 $ 7,289 $ 1,358 $
115,164
Network access services 73,206 34,649 6,731 8,699 1,145
124,430
Long distance services 6,426 14,423 147 1,797 62
22,855
Equipment sales and services 12,367 3,246 936 872 174
17,595
Other 26,907 3,002 923 251 34
31,117
---------- ---------- ---------- ---------- ---------
- -----------
190,959 85,061 13,460 18,908 2,773
311,161
---------- ---------- ---------- ---------- ---------
- -----------
OPERATING EXPENSES:
Cost of sales and services 47,663 19,659 3,194 3,897 1,031
75,444
Depreciation and amortization 42,590 15,167 3,496 3,540 534
65,327
Marketing, selling, general
and administrative 58,396 21,352 3,104 4,528 841
88,221
---------- ---------- ---------- ---------- ---------
- -----------
148,649 56,178 9,794 11,965 2,406
228,992
---------- ---------- ---------- ---------- ---------
- -----------
NET OPERATING INCOME 42,310 28,883 3,666 6,943 367
82,169
---------- ---------- ---------- ---------- ---------
- -----------
OTHER (INCOME) DEDUCTIONS:
Interest expense 8,625 3,880 753 1,047 145
14,450
Other-net 3,818 (117) (9) (3) (2)
3,687
---------- ---------- ---------- ---------- ---------
- -----------
INCOME BEFORE INCOME TAXES 29,867 25,120 2,922 5,899 224
64,032
INCOME TAXES 11,238 9,420 1,096 2,211 84
24,049
---------- ---------- ---------- ---------- ---------
- -----------
NET INCOME $ 18,629 $ 15,700 $ 1,826 $ 3,688 $ 140 $
39,983
========== ========== ========== ========== =========
===========
<FN>
The accompanying notes are an integral part of these pro forma statements.
</TABLE>
74
<TABLE>
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 1993
(Thousand of Dollars)
<CAPTION>
Contel Contel
GTE Contel Contel North South
Surviving
South Virginia Kentucky Carolina Carolina
Corporation
---------- ---------- ---------- ---------- --------- ------
- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 94,655 $ 26,993 $ 4,965 $ 6,950 $ 1,389 $
134,952
Network access services 100,591 32,913 6,896 12,106 1,223
153,729
Long distance services 8,396 12,480 178 251 388
21,693
Equipment sales and services 16,957 3,291 791 849 159
22,047
Other 25,334 2,474 1,225 429 76
29,538
---------- ---------- ---------- ---------- ---------
- -----------
245,933 78,151 14,055 20,585 3,235
361,959
---------- ---------- ---------- ---------- ---------
- -----------
OPERATING EXPENSES:
Cost of sales and services 51,007 18,704 2,373 3,026 545
75,655
Depreciation and amortization 52,811 12,781 2,750 3,379 573
72,294
Marketing, selling, general
and administrative 72,589 21,984 3,583 4,331 827
103,314
---------- ---------- ---------- ---------- ---------
- -----------
176,407 53,469 8,706 10,736 1,945
251,263
---------- ---------- ---------- ---------- ---------
- -----------
NET OPERATING INCOME 69,526 24,682 5,349 9,849 1,290
110,696
---------- ---------- ---------- ---------- ---------
- -----------
OTHER (INCOME) DEDUCTIONS:
Interest expense 17,497 4,119 612 1,060 138
23,426
Other-net (607) (17) (6) (37) (2)
(669)
---------- ---------- ---------- ---------- ---------
- -----------
INCOME BEFORE INCOME TAXES 52,636 20,580 4,743 8,826 1,154
87,939
INCOME TAXES 19,490 7,113 1,639 3,051 398
31,691
---------- ---------- ---------- ---------- ---------
- -----------
NET INCOME $ 33,146 $ 13,467 $ 3,104 $ 5,775 $ 756 $
56,248
========== ========== ========== ========== =========
===========
<FN>
The accompanying notes are an integral part of these pro forma statements.
</TABLE>
75
<TABLE>
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended December 31, 1993
(Thousand of Dollars)
<CAPTION>
Contel Contel
GTE Contel Contel North South
Surviving
South Virginia Kentucky Carolina Carolina
Corporation
---------- ---------- ---------- ---------- --------- ------
- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 379,533 $ 108,008 $ 19,640 $ 28,763 $ 5,337 $
541,281
Network access services 395,480 120,937 32,223 46,400 4,736
599,776
Long distance services 28,783 51,632 722 -- 1,752
82,889
Equipment sales and services 75,141 12,442 3,448 4,322 598
95,951
Other 74,360 19,834 4,078 1,076 175
99,523
---------- ---------- ---------- ---------- ---------
- -----------
953,297 312,853 60,111 80,561 12,598
1,419,420
---------- ---------- ---------- ---------- ---------
- -----------
OPERATING EXPENSES:
Cost of sales and services 207,570 77,745 9,946 14,086 2,585
311,932
Depreciation and amortization 207,324 57,454 11,266 13,530 2,193
291,767
Marketing, selling, general
and administrative 305,968 91,708 15,212 20,582 3,415
436,885
Restructuring costs (a) 99,583 45,290 6,530 9,860 1,730
162,993
---------- ---------- ---------- ---------- ---------
- -----------
820,445 272,197 42,954 58,058 9,923
1,203,577
---------- ---------- ---------- ---------- ---------
- -----------
NET OPERATING INCOME 132,852 40,656 17,157 22,503 2,675
215,843
---------- ---------- ---------- ---------- ---------
- -----------
OTHER (INCOME) DEDUCTIONS:
Interest expense 69,519 15,920 2,544 4,292 547
92,822
Gain on disposition of assets (b) (63,112) -- -- -- --
(63,112)
Other-net (414) 678 120 267 35
686
--------- ---------- ---------- ---------- ---------
- -----------
INCOME BEFORE INCOME TAXES 126,859 24,058 14,493 17,944 2,093
185,447
INCOME TAXES 65,513 7,643 5,399 6,456 701
85,712
--------- ---------- ---------- ---------- ---------
- -----------
NET INCOME $ 61,346 $ 16,415 $ 9,094 $ 11,488 $ 1,392 $
99,735
========= ========== ========== ========== =========
===========
<FN>
(a) Reflects expenses related to a one-time restructuring charge for the implementation of a re-
engineering
plan.
(b) Reflects the pre-tax gain on the disposition of properties in Georgia, Tennessee and West Virginia
representing
367,000 access lines. See Note 2 to the pro forma financial statements.
The accompanying notes are an integral part of these pro forma statements.
</TABLE>
76
<TABLE>
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended December 31, 1992
(Thousand of Dollars)
<CAPTION>
Contel Contel
GTE Contel Contel North South
Surviving
South Virginia Kentucky Carolina Carolina
Corporation
---------- ---------- ---------- ---------- --------- ------
- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 371,535 $ 110,182 $ 19,259 $ 27,444 $ 5,258 $
533,678
Network access services 412,604 103,085 24,899 44,583 3,673
588,844
Long distance services 47,947 48,042 497 -- 2,538
99,024
Equipment sales and services 79,431 10,201 2,802 3,278 529
96,241
Other 63,451 15,366 3,807 1,666 211
84,501
---------- ---------- ---------- ---------- ----------
- ----------
974,968 286,876 51,264 76,971 12,209
1,402,288
---------- ---------- ---------- ---------- ----------
- ----------
OPERATING EXPENSES:
Cost of sales and services 204,825 77,704 9,868 13,098 2,232
307,727
Depreciation and amortization 206,905 49,596 11,214 14,571 2,322
284,608
Marketing, selling, general
and administrative 279,689 89,170 13,110 19,703 3,166
404,838
---------- ---------- ----------- --------- ----------
- ----------
691,419 216,470 34,192 47,372 7,720
997,173
---------- ---------- ---------- ---------- ----------
- ----------
NET OPERATING INCOME 283,549 70,406 17,072 29,599 4,489
405,115
---------- ---------- ---------- ---------- ----------
- ----------
OTHER (INCOME) DEDUCTIONS:
Interest expense 67,778 18,637 2,637 4,140 539
93,731
Other-net (1,174) 6,973 803 696 127
7,425
---------- ---------- ---------- ---------- ----------
- ----------
INCOME BEFORE INCOME TAXES 216,945 44,796 13,632 24,763 3,823
303,959
INCOME TAXES 79,691 14,417 4,665 8,768 1,328
108,869
---------- ---------- ---------- ---------- ----------
- ----------
NET INCOME $ 137,254 $ 30,379 $ 8,967 $ 15,995 $ 2,495 $
195,090
========== ========== ========== ========== ==========
==========
<FN>
The accompanying notes are an integral part of these pro forma statements.
</TABLE>
77
<TABLE>
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended December 31, 1991
(Thousand of Dollars)
<CAPTION>
Contel Contel
GTE Contel Contel North South
Surviving
South Virginia Kentucky Carolina Carolina
Corporation
---------- ---------- ---------- ---------- --------- ------
- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network services $ 359,419 $ 105,214 $ 18,581 $ 26,111 $ 4,975 $
514,300
Network access services 340,539 99,256 24,114 34,035 3,813
501,757
Long distance services 138,249 48,019 232 11,936 1,739
200,175
Equipment sales and services 79,857 9,391 2,403 2,681 663
94,995
Other 45,359 17,956 5,869 3,159 475
72,818
---------- ---------- ----------- --------- ---------
- -----------
963,423 279,836 51,199 77,922 11,665
1,384,045
---------- ---------- ----------- --------- ---------
- -----------
OPERATING EXPENSES:
Cost of sales and services 220,457 100,381 10,664 13,413 2,468
347,383
Depreciation and amortization 203,108 44,432 10,502 16,596 2,175
276,813
Marketing, selling, general
and administrative 301,943 86,335 14,923 21,401 3,811
428,413
---------- ---------- ----------- --------- ---------
- -----------
725,508 231,148 36,089 51,410 8,454
1,052,609
---------- ---------- ----------- --------- ---------
- -----------
NET OPERATING INCOME 237,915 48,688 15,110 26,512 3,211
331,436
---------- ---------- ----------- --------- ---------
- -----------
OTHER (INCOME) DEDUCTIONS:
Interest expense 69,648 17,649 2,496 4,309 540
94,642
Other-net (2,293) (108) 10 (334) (56)
(2,781)
---------- ---------- ----------- --------- ---------
- -----------
INCOME BEFORE INCOME TAXES 170,560 31,147 12,604 22,537 2,727
239,575
INCOME TAXES 56,388 7,900 4,158 7,434 838
76,718
---------- ---------- ----------- --------- ---------
- -----------
NET INCOME $ 114,172 $ 23,247 $ 8,446 $ 15,103 $ 1,889 $
162,857
========== ========== =========== ========= =========
===========
<FN>
The accompanying notes are an integral part of these pro forma statements.
</TABLE>
78
GTE SOUTH INCORPORATED AND CONTEL SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS
1. Basis of Presentation
The pro forma condensed consolidating financial statements give
effect to the Merger as a "pooling of interests" and are based on
historical amounts. All material intercompany items have been
eliminated in the pro forma statements.
The pro forma balance sheets have been prepared as though the
Merger occurred as of the balance sheet date. The pro forma
income statements have been prepared as though the Merger
occurred as of the beginning of the period presented. The pro
forma results do not give effect to any synergies that might have
occurred had the Merger been consummated at the dates indicated,
nor are they necessarily indicative of future operating results
or financial position.
Organizational and other costs to be incurred in connection with
the Merger are not expected to be material.
2. Acquisition and Disposition of Assets
On November 1, 1993, GTE South Incorporated (the "Company") in a
series of transactions with ALLTEL Corporation exchanged its
telephone plant in service, materials and supplies and customers
(representing 244,000 access lines) in the State of Georgia for
similar assets (including 38,000 access lines) in Illinois and
$446 million in cash (the ALLTEL transaction). This transaction
was accounted for as a sale and a gain was recognized.
On December 31, 1993, the Company sold its telephone plant in
service, materials and supplies and customers (representing
123,000 access lines) in the states of West Virginia and
Tennessee to Citizens Utilities Company for $291 million in cash
(the Citizens transaction). This transaction was accounted for
as a sale and a gain was recognized.
The proceeds from these transactions were used to pay down $402
million of debt and pay $281 million of dividends to GTE
Corporation (GTE), the Company's parent. The remainder was
advanced to GTE in the form of an interest bearing loan.
The accompanying pro forma condensed consolidating statements of
income include the operating results of the properties sold to
ALLTEL and Citizens through the date of sale. For comparability,
the table below includes adjustments to remove the operating
results of those properties and to include the operating results
of properties acquired, including interest, as if the ALLTEL and
Citizens transactions occurred as of the beginning of each period
presented.
Three Months Ended
Year Ended
Thousands of Dollars)
3/31/94 3/31/93
12/31/93 12/31/92 12/31/91
Operating Revenues $311,161 $300,065 $1,181,562
$1,147,729 $1,130,476
Net Operating Income 82,169 94,965 160,068(a)
340,520 278,654
Net Income 39,983 51,405 61,557(a)(b)172,300
156,831
(a) Net operating income and net income in 1993 include one-time
restructuring costs of $162,993 ($100,411 after tax).
(b) Net income in 1993 also excludes after-tax gains of $36,171
related to the ALLTEL and Citizens transactions.
79
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GTE SOUTH INCORPORATED
(Registrant)
Date: October 26, 1994 WILLIAM M. EDWARDS,
III
WILLIAM M. EDWARDS,
III
Controller
(Chief Accounting
Officer)
80
Exhibit
2.1
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER dated as of this 31st day of
December, 1993, is entered into between GTE SOUTH INCORPORATED, a
Virginia corporation ("GTE South"), CONTEL OF KENTUCKY, INC., a
Kentucky corporation ("Contel Kentucky"), CONTEL OF NORTH
CAROLINA, INC., a North Carolina corporation ("Contel North
Carolina"), CONTEL OF SOUTH CAROLINA, INC., a South Carolina
corporation ("Contel South Carolina"), and CONTEL OF VIRGINIA,
INC., a Virginia corporation ("Contel Virginia").
I. RECITALS
A. GTE Corporation, a New York corporation ("GTE"), now
owns or will own at all times pertinent hereto, including the
Effective Date of the merger, all of the common stock of GTE
South, Contel Kentucky, Contel North Carolina, Contel South
Carolina and Contel Virginia.
B. GTE South, Contel Kentucky, Contel North Carolina,
Contel South Carolina and Contel Virginia desire that GTE South,
Contel Kentucky, Contel North Carolina, Contel South Carolina and
Contel Virginia be merged into GTE South and that GTE South be
the surviving corporation. The laws of the states of Virginia,
Kentucky, North Carolina and South Carolina permit this merger.
C. The outstanding capital stock of GTE South consists of
18,936,000 shares of common stock.
D. The outstanding capital stock of Contel Kentucky
consists of 266,124 shares of common stock.
E. The outstanding capital stock of Contel North Carolina
consists of 1,350,637 shares of common stock.
F. The outstanding capital stock of Contel South Carolina
consists of 6,212 shares of common stock.
G. The outstanding capital stock of Contel Virginia
consists of 3,409,944 shares of common stock.
II. MERGER
A. The manner of converting the shares of each of the
constituent corporations into shares of the surviving corporation
and such other provisions as are deemed necessary or desirable to
accomplish the merger are appended hereto as the Plan of Merger
contained in Exhibit 1.
B. On the Effective Date of the merger, as defined
hereafter in paragraph C., the assets and liabilities of GTE
South, Contel Kentucky, Contel North Carolina, Contel South
Carolina and Contel Virginia shall be carried on the books of the
surviving corporation at the amounts at which they respectively
were carried on such date on the books of GTE South, Contel
Kentucky, Contel North Carolina, Contel South Carolina and Contel
Virginia. The capital surplus and earned surplus of the
surviving corporation shall be the sum of the respective capital
surpluses and earned surpluses of GTE South, Contel Kentucky,
Contel North Carolina, Contel South Carolina and Contel Virginia
subject in each case to such adjustment, eliminations or
transfers as may be required to give effect to the merger.
Except as from time to time restricted by contract or by statute,
the aggregate amount of the net assets of GTE South, Contel
Kentucky, Contel North Carolina, Contel South Carolina and Contel
Virginia which was legally available for the payment of dividends
immediately prior to the merger shall continue to be legally
available for the payment of dividends by the surviving
corporation.
C. This merger shall become effective upon the date of
issuance of a Certificate of Merger by the Corporation Commission
of the Commonwealth of Virginia, where the surviving corporation
is domiciled, which date is herein called the "Effective Date."
D. The merger may be abandoned and terminated at any time
by mutual agreement of the Boards of Directors of the merging
companies.
E. This Agreement embodies the entire agreement and
understanding of the parties relating to its subject matter and
supersedes any prior agreements and understandings relating
thereto.
F. For the convenience of the parties, this Agreement may
be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same document.
IN WITNESS WHEREOF, this Agreement of Merger has been signed
by the President or a Vice President and the Secretary or an
Assistant Secretary of each of the corporations and each of the
corporations has caused the corporate seal to be hereunto
affixed, all as of the day first above written, pursuant to the
approval and authority duly given by resolutions adopted by their
respective boards of directors.
GTE SOUTH INCORPORATED,
ATTEST: a Virginia corporation
J. WILMA ALY By: GERALD K. DINSMORE
__________________________
___________________________
Assistant Secretary Gerald K. Dinsmore
President
CONTEL OF KENTUCKY, INC.,
ATTEST: a Kentucky corporation
J. WILMA ALY By: GERALD K. DINSMORE
__________________________
___________________________
Assistant Secretary Gerald K. Dinsmore
President
CONTEL OF NORTH CAROLINA,
INC.,
ATTEST: a North Carolina corporation
J. WILMA ALY By: GERALD K. DINSMORE
__________________________
___________________________
Assistant Secretary Gerald K. Dinsmore
President
CONTEL OF SOUTH CAROLINA,
INC.,
ATTEST: a South Carolina corporation
J. WILMA ALY By: GERALD K. DINSMORE
__________________________
___________________________
Assistant Secretary Gerald K. Dinsmore
President
CONTEL OF VIRGINIA, INC.,
ATTEST: a Virginia corporation
J. WILMA ALY By: GERALD K. DINSMORE
__________________________
___________________________
Assistant Secretary Gerald K. Dinsmore
President
PLAN OF MERGER EXHIBIT 1
OF
CONTEL OF KENTUCKY, INC.,
CONTEL OF NORTH CAROLINA, INC.,
CONTEL OF SOUTH CAROLINA, INC., AND
CONTEL OF VIRGINIA, INC.
INTO
GTE SOUTH INCORPORATED
I.
The Corporations Proposing to Merge
Contel of Kentucky, Inc. (hereinafter referred to as "Contel
Kentucky"), a Kentucky corporation, Contel of North Carolina,
Inc. (hereinafter referred to as "Contel North Carolina"), a
North Carolina corporation, Contel of South Carolina, Inc.
(hereinafter referred to as "Contel South Carolina"), a South
Carolina corporation, and Contel of Virginia, Inc. (hereinafter
referred to as "Contel Virginia"), a Virginia corporation, will
be merged into GTE South Incorporated (hereinafter referred to as
"GTE South"), a Virginia corporation, the latter being the
surviving corporation which is already qualified to transact
business as a foreign corporation in the States of Kentucky,
North Carolina and South Carolina.
The foregoing corporations are hereinafter sometimes
referred to collectively as the "constituent corporations."
II.
Terms and Conditions of the Merger
The terms and conditions of the merger are as follows:
(a) Prior to the effective date, Contel Corporation will
distribute one hundred percent (100%) of the shares of Contel
Kentucky, Contel North Carolina, Contel South Carolina and Contel
Virginia to GTE Corporation.
(b) On the effective date, Contel Kentucky, Contel North
Carolina, Contel South Carolina and Contel Virginia will be
merged into GTE South, and GTE South will exchange 2,064,000
shares of its common stock with GTE Corporation for all of the
outstanding shares of common stock of Contel Kentucky (266,124
shares), Contel North Carolina (1,350,637 shares), Contel South
Carolina (6,212 shares), and Contel Virginia (3,409,944 shares).
(c) No later than the effective date, the following
securities of Contel Kentucky, Contel North Carolina, Contel
South Carolina and Contel Virginia will be assumed by GTE South:
Description of the Security Outstanding
Amount
as of June 30, 1993
Contel Kentucky
2% REA Deferred Interest $ 300
2% REA Note Due 03/31/2004 2,902,720
7.391% FFB Note Due 12/31/20 3,489,863
7.739% FFB Note Due 12/31/18 1,959,082
7.927% FFB Note Due 12/31/16 1,329,134
7.975% FFB Note Due 12/31/14 2,751,424
8.331% FFB Note Due 12/31/12 2,218,856
8.541% FFB Note Due 12/31/12 892,860
9.209% FFB Note Due 12/31/2017 2,433,954
9.406% FFB Note Due 12/31/2022 2,500,000
9.994% FFB Note Due 06/30/15 1,414,494
10.209% FFB Note Due 12/31/13 1,399,515
10.910% FFB Note Due 12/31/13 2,493,451
Contel North Carolina
2% A REA Bond Due 11/30/97 $1,451,180
7.5% B RTB Bond Due 04/19/2008 275,416
8.686% C-1 FFB Bond Due 03/31/2013 1,794,189
10.734% C-4 FFB Bond Due 12/31/14 1,424,040
10.910% C-2 FFB Bond Due 12/31/13 2,805,970
10.910% C-3 FFB Bond Due 12/31/14 947,195
12.201% C-5 FFB Bond Due 12/31/14 960,849
9.5% I Mortgage Bond Due 06/01/95 637,500
9.25% J Mortgage Bond Due 04/01/96 575,500
8.25% K Mortgage Bond Due 10/01/97 930,000
8.75% L Mortgage Bond Due 05/31/94 1,480,000
10.25% M Mortgage Bond Due 06/01/96 810,000
8.625% N Mortgage Bond Due 12/01/20 1,200,000
10.0% Q Mortgage Bond Due 06/01/96 225,000
12.5% T Mortgage Bond Due 12/31/94 7,500,000
9.5% U-1 RTB Bond Due 3/18/2023 10,769,573
9.5% U-2 RTB Bond Due 3/18/2023 6,216,627
Contel South Carolina
2% REA Note Due 02/19/2006 $ 906,935
2% REA Deferred Interest 427
7% RTB Note Due 02/08/2012 745,767
7% RTB Note Due 02/28/2012 1,668,250
7% RTB Note Due 02/28/2018 595,732
9.50% Unsecured Note Due 3/01/2010 3,000,000
Contel Virginia
6.76% Promissory Note (GTE) Due 12/06/94 $50,000,000
8.25% Unsecured Note Due 01/15/97 860,000
2% A REA Bond Due 12/31/98 2,220,000
5.875% K Mortgage Bond Due 07/15/97 770,000
4.8% Q Mortgage Bond Due 09/01/95 690,000
8.5% U Mortgage Bond Due 06/01/2001 1,462,000
8.0% V Mortgage Bond Due 04/01/2003 2,200,000
5.875% EE Mortgage Bond Due 06/30/97 1,975,000
8.0% FF Mortgage Bond Due 06/30/99 1,975,000
8.375% GG Mortgage Bond Due 12/30/2001 1,600,000
8.0% II Mortgage Bond Due 09/30/98 3,010,000
8.375% JJ Mortgage Bond Due 02/15/2004 2,150,000
8.625% OO Mortgage Bond Due 12/15/2002 4,000,000
9.875% PP Mortgage Bond Due 09/30/2009 9,100,000
12.5% TT Mortgage Bond Due 12/31/94 6,800,000
10.54% VV Mortgage Bond Due 11/30/2008 28,235,294
8.88% WW Mortgage Bond Due 11/30/2009 40,000,000
III.
Articles of Incorporation and Surviving Corporation
The Articles of Incorporation of the surviving corporation
will not be affected by the merger.
IV.
Bylaws of Surviving Corporation
The Bylaws of the surviving corporation will not be affected
by this merger.
V.
Additional Description of Surviving Corporation
On the Effective Date, the directors of GTE South shall
become the directors of the surviving corporation.
VI.
Approval of the Plan
This Plan will be submitted for consideration to the Board
of Directors of each of the constituent corporations. If the
Plan is duly approved by resolution of the Board of Directors of
each of the constituent corporations, then the Plan will be
submitted for approval by the respective stockholders in the
manner required by the laws of the respective states of
incorporation. In the event the Plan is duly approved by the
stockholders, the Plan, together with other appropriate
documentation, will be filed, and the merger will become
effective, in accordance with the laws of the state of Virginia.
THE STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BE IT REMEMBERED that on this 31st day of December, 1993,
personally came before me, a Notary Public in and for the State
of Texas, Gerald K. Dinsmore and J. Wilma Aly, President and
Assistant Secretary, respectively, of GTE SOUTH INCORPORATED, a
corporation of the State of Virginia, the corporation described
in and which executed the foregoing Agreement of Merger and Plan
of Merger, known to me to personally be such, and they, and each
of them, duly executed said Agreement of Merger and Plan of
Merger before me and acknowledged the said Agreement of Merger
and Plan of Merger to be their act and deed and the act and deed
of the corporation; that the signatures of the said President and
Assistant Secretary of the corporation to the foregoing Agreement
of Merger and Plan of Merger are in the handwriting of the said
President and Assistant Secretary of said corporation,
respectively, and that the seal affixed to said Agreement of
Merger and Plan of Merger is the corporate seal of the
corporation, and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
day and year aforesaid.
C. K. RUDOLPH-FEASLEY
______________________________
C. K. Rudolph-Feasley
Notary Public, State of Texas
My Commission Expires:
November 14, 1997.
_____________________
THE STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BE IT REMEMBERED that on this 31st day of December, 1993,
personally came before me, a Notary Public in and for the State
of Texas, Gerald K. Dinsmore and J. Wilma Aly, President and
Assistant Secretary, respectively, of CONTEL OF KENTUCKY, INC., a
corporation of the State of Kentucky, the corporation described
in and which executed the foregoing Agreement of Merger and Plan
of Merger, known to me to personally be such, and they, and each
of them, duly executed said Agreement of Merger and Plan of
Merger before me and acknowledged the said Agreement of Merger
and Plan of Merger to be their act and deed and the act and deed
of the corporation; that the signatures of the said President and
Assistant Secretary of the corporation to the foregoing Agreement
of Merger and Plan of Merger are in the handwriting of the said
President and Assistant Secretary of said corporation,
respectively, and that the seal affixed to said Agreement of
Merger and Plan of Merger is the corporate seal of the
corporation, and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
day and year aforesaid.
C. K. RUDOLPH-FEASLEY
______________________________
C. K. Rudolph-Feasley
Notary Public, State of Texas
My Commission Expires:
November 14, 1997.
_____________________
THE STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BE IT REMEMBERED that on this 31st day of December, 1993,
personally came before me, a Notary Public in and for the State
of Texas, Gerald K. Dinsmore and J. Wilma Aly, President and
Assistant Secretary, respectively, of CONTEL OF NORTH CAROLINA,
INC., a corporation of the State of North Carolina, the
corporation described in and which executed the foregoing
Agreement of Merger and Plan of Merger, known to me to personally
be such, and they, and each of them, duly executed said Agreement
of Merger and Plan of Merger before me and acknowledged the said
Agreement of Merger and Plan of Merger to be their act and deed
and the act and deed of the corporation; that the signatures of
the said President and Assistant Secretary of the corporation to
the foregoing Agreement of Merger and Plan of Merger are in the
handwriting of the said President and Assistant Secretary of said
corporation, respectively, and that the seal affixed to said
Agreement of Merger and Plan of Merger is the corporate seal of
the corporation, and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
day and year aforesaid.
C. K. RUDOLPH-FEASLEY
______________________________
C. K. Rudolph-Feasley
Notary Public, State of Texas
My Commission Expires:
November 14, 1997.
_____________________
THE STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BE IT REMEMBERED that on this 31st day of December, 1993,
personally came before me, a Notary Public in and for the State
of Texas, Gerald K. Dinsmore and J. Wilma Aly, President and
Assistant Secretary, respectively, of CONTEL OF SOUTH CAROLINA,
INC., a corporation of the State of South Carolina, the
corporation described in and which executed the foregoing
Agreement of Merger and Plan of Merger, known to me to personally
be such, and they, and each of them, duly executed said Agreement
of Merger and Plan of Merger before me and acknowledged the said
Agreement of Merger and Plan of Merger to be their act and deed
and the act and deed of the corporation; that the signatures of
the said President and Assistant Secretary of the corporation to
the foregoing Agreement of Merger and Plan of Merger are in the
handwriting of the said President and Assistant Secretary of said
corporation, respectively, and that the seal affixed to said
Agreement of Merger and Plan of Merger is the corporate seal of
the corporation, and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
day and year aforesaid.
C. K. RUDOLPH-FEASLEY
______________________________
C. K. Rudolph-Feasley
Notary Public, State of Texas
My Commission Expires:
November 14, 1997.
_____________________
THE STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BE IT REMEMBERED that on this 31st day of December, 1993,
personally came before me, a Notary Public in and for the State
of Texas, Gerald K. Dinsmore and J. Wilma Aly, President and
Assistant Secretary, respectively, of CONTEL OF VIRGINIA, INC., a
corporation of the State of Virginia, the corporation described
in and which executed the foregoing Agreement of Merger and Plan
of Merger, known to me to personally be such, and they, and each
of them, duly executed said Agreement of Merger and Plan of
Merger before me and acknowledged the said Agreement of Merger
and Plan of Merger to be their act and deed and the act and deed
of the corporation; that the signatures of the said President and
Assistant Secretary of the corporation to the foregoing Agreement
of Merger and Plan of Merger are in the handwriting of the said
President and Assistant Secretary of said corporation,
respectively, and that the seal affixed to said Agreement of
Merger and Plan of Merger is the corporate seal of the
corporation, and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
day and year aforesaid.
C. K. RUDOLPH-FEASLEY
______________________________
C. K. Rudolph-Feasley
Notary Public, State of Texas
My Commission Expires:
November 14, 1997.
_____________________
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
in this Form 8-K/A of our reports dated January 28, 1994, related
to the December 31, 1992 and 1993 financial statements of Contel
of Virginia, Inc., Contel of Kentucky, Inc. and Contel of North
Carolina, Inc. It should be noted that we have not audited any
financial statements of these companies subsequent to December
31, 1993 or performed any audit procedures subsequent to the date
of our reports.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 26, 1994.
