<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 2-36292
GTE SOUTH INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 56-0656680
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 972-718-5600
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
The Company had 21,000,000 shares of $25 par value common stock outstanding at
October 31, 1996. The Company's common stock is 100% owned by GTE Corporation.
<PAGE> 2
PART I. FINANCIAL INFORMATION
GTE SOUTH INCORPORATED
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1996 1995 1996 1995
-------- -------- ---------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local services $139,944 $129,303 $ 412,108 $375,603
Network access services 148,566 126,622 424,094 368,794
Toll services 30,927 39,030 96,146 113,170
Other services and sales 42,348 40,404 126,021 122,428
-------- -------- ---------- --------
Total revenues and sales 361,785 335,359 1,058,369 979,995
-------- -------- ---------- --------
OPERATING COSTS AND EXPENSES
Costs of services and sales 122,205 121,469 366,007 345,532
Selling, general and administrative 47,101 47,034 145,579 143,562
Depreciation and amortization 69,982 68,967 208,182 206,429
-------- -------- ---------- --------
Total operating costs and expenses 239,288 237,470 719,768 695,523
-------- -------- ---------- --------
OPERATING INCOME 122,497 97,889 338,601 284,472
OTHER (INCOME) EXPENSE
Interest - net 11,971 14,408 33,605 44,164
Other - net -- (20,000) -- (20,000)
-------- -------- ---------- --------
INCOME BEFORE INCOME TAXES 110,526 103,481 304,996 260,308
Income taxes 41,631 39,543 115,844 99,419
-------- -------- ---------- --------
NET INCOME $ 68,895 $ 63,938 $ 189,152 $160,889
======== ======== ========== ========
</TABLE>
Per share data is omitted since the Company's common stock is 100%
owned by GTE Corporation (GTE).
See Notes to Condensed Financial Statements.
1
<PAGE> 3
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1996 1995 1996 1995
----- ----- ------ ------
<S> <C> <C> <C> <C>
Net income $68.9 $63.9 $189.2 $160.9
</TABLE>
Net income increased 8% or $5 and 18% or $28.3 for the three and nine months
ended September 30, 1996, respectively, compared to the same periods in 1995.
The increases are primarily due to higher revenues and sales, primarily local
and network access services, partially offset by higher operating costs and
expenses.
Revenues and Sales
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1996 1995 1996 1995
------ ------ -------- ------
<S> <C> <C> <C> <C>
Local services $139.9 $129.3 $ 412.1 $375.6
Network access services 148.6 126.6 424.1 368.8
Toll services 30.9 39.0 96.2 113.2
Other services and sales 42.4 40.4 126.0 122.4
------ ------ -------- ------
Total revenues and sales $361.8 $335.3 $1,058.4 $980.0
</TABLE>
Total revenues and sales increased 8% or $26.5 and 8% or $78.4 for the three
and nine months ended September 30, 1996, respectively, compared to the same
periods in 1995.
Local service revenues increased 8% or $10.6 and 10% or $36.5 for the three and
nine months ended September 30, 1996, respectively, compared to the same
periods in 1995. The number of switched access lines increased 5% for both the
three and nine months ended September 30, 1996, which generated revenues of
$3.2 and $12.6, respectively. The increase in local service revenues for both
periods of 1996 also reflects growth of $2.5 and $7.6 from enhanced custom
calling features, such as SmartCall(trademark), higher sales of
CentraNet(trademark) of $1 and $4.5, and increases in measured usage service
revenues of $1.5 and $4.4.
Network access service revenues increased 17% or $22 for the three months and
15% or $55.3 for the nine months ended September 30, 1996, compared to the same
periods in 1995. Minutes of use increased 11% and 12% for the three and nine
months ended September 30, 1996, generating revenues of $10.3 and $26.1,
respectively. Favorable interLATA access revenue adjustments of $7.8 and
$14.9, and growth in special access lines producing revenues of $3.3 and $7.5
also contributed to increased network access service revenues. In addition,
the increase reflects higher end user access charge revenues due to line growth
of $0.6 and $2.4 and an increase in the volume of cellular service providers
accessing the Company's network which generated revenues of $0.4 and $1.9.
2
<PAGE> 4
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Toll service revenues decreased 21% or $8.1 and 15% or $17 for the three and
nine months ended September 30, 1996, respectively, compared to the same
periods in 1995. The decreases are primarily a result of optional discount
calling plans and a decline in revenues resulting from lower toll volumes,
primarily relating to 10XXX intraLATA toll competition. The decreases are also
the result of unfavorable settlement activities reducing toll revenues by
approximately $6.3 and $9.
Other services and sales revenues increased 5% or $2 for the three months and
3% or $3.6 for the nine months ended September 30, 1996, compared to the same
periods in 1995. The three and nine month increases are due to $0.8 and $3
increases in directory advertising revenue resulting from the timing of
directory publications. In addition, growth in sales of voice messaging
service of $1.3 is reflected in the nine month revenue increase.
Operating Costs and Expenses
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total operating costs and expenses $239.3 $237.5 $719.8 $695.5
</TABLE>
Total operating costs and expenses increased 1% or $1.8 and 3% or $24.3 for the
three and nine months ended September 30, 1996, respectively, compared to the
same periods in 1995. Increased revenues and sales, as discussed above,
contributed to increases in operating costs and expenses resulting in higher
contractor costs of $2 and $8.7, respectively. The increase also includes
higher digital software costs of $0.4 and $8.6 and a reserve of $2.3 for inside
wire maintenance settlement costs recorded in the third quarter of 1996. The
three month increase is partially offset by actuarial adjustments to the
Company's benefit plans of $2.6 recorded in the third quarter of 1996. The
impact of $1.9 in pension settlement gains recorded in the second quarter of
1995 was offset by settlement gains of $3 recorded in the first quarter of 1996
which resulted from lump-sum payments from the Company's pension plans.
Other (Income) Expense
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest - net $ 12.0 $ 14.4 $ 33.6 $ 44.2
Other - net -- (20.0) -- (20.0)
Income taxes 41.6 39.5 115.8 99.4
</TABLE>
Interest - net decreased 17% or $2.4 and 24% or $10.6 for the three and nine
months ended September 30, 1996, respectively, compared to the same periods in
1995. The decreases are primarily due to lower interest expense reflecting
lower interest rates associated with the high-coupon debt refinancing program
initiated during the fourth quarter of 1995.
The 1995 income in other - net represents the reversal of $20 of representation
and warranty reserves related to certain 1993 property dispositions for which
the period of exposure had expired.
3
<PAGE> 5
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Income taxes increased 5% or $2.1 for the three months and 16% or $16.4 for the
nine months ended September 30, 1996, compared to the same periods in 1995,
primarily due to corresponding increases in pre-tax income.
CAPITAL RESOURCES AND LIQUIDITY
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements for construction of
new plant, modernization of facilities and payment of dividends. The Company
generally funds its construction program from operations, although external
financing is available. Short-term borrowings can be obtained through
commercial paper borrowings or borrowings from GTE. On July 1, 1996, the
Company began participating with other affiliates in a $1,500 syndicated line
of credit to back up commercial paper borrowings. Through this shared
arrangement, the Company can issue up to $300 of commercial paper.
The Company's primary source of funds during the first nine months of 1996 was
cash from operations of $370.1 compared to $310.4 for the same period in 1995.
The year-to-year increase in cash from operations is primarily the result of
improved results from operations. Cash from operations is also being utilized
to fund the Company's re-engineering plan.
The Company's capital expenditures during the first nine months of 1996 were
$196.2 compared to $175 for the same period in 1995. The 1996 expenditures
reflect the Company's continued growth in access lines and modernization of
current facilities and introduction of new products and services, including
broadband digital services and switched digital services. The Company
anticipates capital expenditures for 1996 to increase from the 1995 level,
reflecting the continuing modernization of facilities and anticipated growth.
Cash used in financing activities was $174 during the first nine months of 1996
compared to $125.4 for the same period in 1995. The Company issued $125 of 6%
debentures in February 1996 and $250 of 7.5% debentures in March 1996 to
refinance the debt called and redeemed in the fourth quarter of 1995. The
proceeds were subsequently used to reduce commercial paper. In addition, the
Company has invested funds with GTE, based on cash requirements under its 1996
capital program.
During 1995, the Company entered into forward contracts to sell $250 of
U.S.Treasury bonds in order to hedge against future changes in market interest
rates related to the debt the Company called and redeemed in the fourth quarter
of 1995, and subsequently refinanced in March 1996 (discussed above). A gain
of approximately $15 occurred upon settlement of the forward contracts and will
be amortized over the life of the associated refinanced debt as an offset to
interest expense.
OTHER MATTERS
In connection with the re-engineering plan, during the first nine months of
1996, costs of approximately $20.6 have been incurred, including $17.6 to
re-engineer customer service processes and $3 to re-engineer administrative
processes. Since the plan's inception at the beginning of 1994, costs of
approximately $109.3 have been incurred, including $81.8 to re-engineer
customer service processes and $14.1 to re-engineer administrative processes.
The restructuring costs also include $13.4 to consolidate facilities and
operations and other related costs. These expenditures were primarily
associated with the closure and relocation of various service centers, software
enhancements and separation benefits associated with employee reductions.
Implementation of the re-engineering plan is expected to be substantially
completed by the end of 1996. As of September 30, 1996, $53.7 remains in the
restructuring reserve which management believes is adequate to cover future
expenditures.
4
<PAGE> 6
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
On August 8, 1996, the Federal Communications Commission (FCC) published its
Report and Order (Order) containing rules implementing Section 251 of the
Telecommunications Act of 1996 (the Telecommunications Act) dealing with
interconnection, unbundling of network elements and wholesale prices and other
terms for competitive entry into local-exchange service (Competitive Entry
Terms). On August 9, 1996, the FCC released its Second Report and Order
implementing the provision of number portability and dialing parity in accord
with the Telecommunications Act.
GTE believes that if the Order were implemented as drafted, it would cause
irreparable harm to local-exchange carriers (LECs) by providing unfair
advantages to other carriers who will compete with the LECs in providing local
service in the LEC's local territory.
On September 16, 1996, GTE filed an appeal and motion for stay of the Order
with the United States Court of Appeals for the District of Columbia. This
appeal argued that the FCC had no jurisdiction to impose national pricing rules
for what is essentially local service. This appeal was subsequently transferred
to the Court of Appeals for the Eighth Circuit together with appeals by other
LECs and state regulatory commissions. On October 15, 1996, the Eighth Circuit
granted a partial stay. The stay delays implementation of the Order's pricing
provisions and associated rules, as well as the rules requiring GTE and other
LECs to permit requesting carriers to select terms and conditions from various
agreements between them and other carriers for purposes of interconnection.
Additionally, the Court scheduled oral argument on the merits for the week of
January 13, 1997. On November 12, 1996, the Supreme Court denied applications
to vacate the stay filed by the FCC and various companies seeking to enter the
local-exchange business.
While GTE cannot predict the outcome of the Court's final decision, GTE intends
to continue to vigorously present its position in Court.
GTE is continuing to negotiate with requesting carriers over the terms of
interconnection, unbundled network elements and resale rates. In some cases,
the parties have been unable to agree within the statutory period for
negotiation and have gone to arbitration before various state regulatory
commissions, including Alabama, Illinois, Kentucky, North Carolina and
Virginia. Arbitration hearings began in late October 1996 to determine the
prices and terms of unresolved issues. State commission decisions are expected
to be issued over a period extending through the first quarter of 1997.
The Company submitted its 1996 annual interstate access filing on April 2,
1996, utilizing the FCC's interim price cap rules. In doing so, the Company
changed its productivity factor from 5.3% to 4.0% for its Kentucky (Contel) and
Virginia (GTE) tariff entities. On June 24, 1996, the FCC ordered all LECs
subject to price cap regulation, including the Company, to update their GDP-PI
inflation factors through the fourth quarter of 1995. Overall, the final 1996
interstate access filing resulted in an annual price reduction of $1.3,
effective July 1, 1996.
The Company's intrastate business is regulated by the state regulatory
commissions in Alabama, Illinois, Kentucky, North Carolina, South Carolina and
Virginia.
Effective June 24, 1996, the Company began operating under an intrastate price
regulation plan in North Carolina. The plan eliminates earnings regulation and
regulation of depreciation rates, provides a price index mechanism to increase
service rates, allows contract service arrangements (CSA) without commission
approval, and shortens the tariff approval period. The commission will review
the operation of the plan within five years of its effective date. Also, the
Company may file for a new plan or modifications to the existing plan, when
circumstances warrant.
5
<PAGE> 7
GTE SOUTH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Under the plan, residential basic local service rates are capped at their
initial rates for three years, and switched access and carrier common line
rates are capped in the aggregate for the life of the plan. Increases in rates
for other services are limited to both service category and service specific
price indexes (calculated from an inflation index), except for CentraNet
(trademark), billing and collection, and enhanced digital switch service rates
which are not limited.
For those services subject to the price indexes, the Company may increase
prices at any time, but only one increase per year is permitted. Tariffs must
be filed with documentation demonstrating that all price changes comply with
the price indexes. Also, the Company must file annually to update the indexes.
Local competition has been authorized in North Carolina, South Carolina,
Virginia and Illinois. The local competition docket for Kentucky is pending.
On September 26, 1996, the Kentucky Public Service Commission (KPSC) issued an
order pertaining to local competition and universal service concerns in
Kentucky. With regard to the local competition issues of interconnection and
unbundling, the KPSC declined to issue specific rules, instead deferring to the
process of negotiations and arbitration contemplated by the Telecommunications
Act. Regarding the resale of local services, the KPSC adopted some resale
restrictions, and also adopted the FCC's proposed proxy rates for wholesale
pricing purposes on an interim basis until Kentucky-specific resale discount
rates could be determined. The Company filed a Petition for Rehearing with the
KPSC on October 17, 1996 regarding the use of the FCC's proxy rates. The KPSC
established a competitively neutral, portable intrastate Universal Service Fund
(USF) to cover the incumbent LECs non-traffic sensitive (NTS) costs and the
cost of a new statewide Lifeline service offering. As a result, the Company
will reduce access and toll rates approximately $25 to remove NTS costs, and
will instead recover this amount from the USF. The USF will be funded by all
telecommunications providers operating in Kentucky. The KPSC will also allow
all incumbent LECs to combine their current touch call rates into the basic
local-exchange rate structure. All of these rate changes are expected to be
revenue neutral for the Company. The timing and further details of the
implementation of the USF will be determined in an industry workshop over the
next four to six months.
In addition, Kentucky, North Carolina, South Carolina and Illinois have
concluded that intraLATA 1+ competition is in the public interest. The Company
plans to convert all capable offices to 1+ in North Carolina by February 1997,
and in Kentucky and South Carolina by March 1997. The Company converted all
capable offices in Illinois by November 1, 1996. IntraLATA 1+ conversion
schedules in Alabama and Virginia have been suspended pending state commission
action.
In 1996, GTE, through a separate subsidiary, began offering long distance
service to its customers in selected states, including Alabama, Kentucky, North
Carolina, South Carolina, Virginia and Illinois, marketed under the name GTE
Easy Savings Plan(service mark). GTE plans to offer this service by December
31, 1996 in all 50 states, including the 28 states where it currently offers
local telephone service.
Eleven separate class action lawsuits have been brought against the Company and
five of its affiliates relating to the provision of inside wire maintenance
services. All cases are in different stages in the various legal systems. On
August 8, 1996, a preliminary settlement was reached in one of the cases. The
Court has conditionally certified this case as a national class of plaintiffs
for settlement purposes. While all cases have not yet been consolidated, it is
GTE's intent to consolidate all pending lawsuits and effect a nationwide
settlement of all inside wire claims. A fairness hearing will be held on
December 18, 1996. This hearing will allow for any objections to the
settlement and could finally approve the settlement. If accepted, all pending
lawsuits would be dismissed and future lawsuits would be precluded from 1987 to
the date of settlement. Management believes that the Company has adequately
provided for this settlement in its financial statements.
6
<PAGE> 8
GTE SOUTH INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 31,167 $ 31,271
Accounts receivable, less allowances of $17,760 and $17,081 169,031 171,593
Note receivable from affiliate 89,142 --
Inventories and supplies 23,566 17,510
Deferred income tax benefits 2,575 13,361
Other 14,442 12,288
----------- -----------
Total current assets 329,923 246,023
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost 4,068,186 3,927,849
Accumulated depreciation (2,511,766) (2,361,666)
----------- -----------
Total property, plant and equipment, net 1,556,420 1,566,183
OTHER ASSETS, primarily employee benefit plans 115,876 90,542
----------- -----------
Total assets $ 2,002,219 $ 1,902,748
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations, including current maturities $ 16,999 $ 16,140
Accounts payable 85,560 92,290
Taxes payable 58,934 35,711
Accrued interest 8,926 8,213
Accrued payroll costs 28,059 35,621
Dividends payable 59,426 18
Accrued restructuring costs 53,705 74,254
Other 93,344 90,729
----------- -----------
Total current liabilities 404,953 352,976
----------- -----------
Long-term debt 721,486 723,304
Deferred income taxes 65,940 78,722
Employee benefit plans 148,437 135,327
Other liabilities 5,348 4,305
----------- -----------
Total liabilities 1,346,164 1,294,634
----------- -----------
PREFERRED STOCK, subject to mandatory redemption 2,660 2,756
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock 412 412
Common stock (21,000,000 shares issued) 525,000 525,000
Additional paid-in capital 58,320 58,320
Retained earnings 69,663 21,626
----------- -----------
Total shareholders' equity 653,395 605,358
----------- -----------
Total liabilities and shareholders' equity $ 2,002,219 $ 1,902,748
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
7
<PAGE> 9
GTE SOUTH INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1996 1995
--------- ---------
(Thousands of Dollars)
<S> <C> <C>
OPERATIONS
Net income $ 189,152 $ 160,889
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 208,182 206,429
Deferred income taxes (1,996) 11,867
Provision for uncollectible accounts 15,784 14,845
Change in current assets and current liabilities (26,373) (47,085)
Other - net (14,689) (36,534)
--------- ---------
Net cash from operations 370,060 310,411
--------- ---------
INVESTING
Capital expenditures (196,183) (174,980)
--------- ---------
Cash used in investing (196,183) (174,980)
--------- ---------
FINANCING
Long-term debt issued 369,126 --
Long-term debt and preferred stock retired (404) (57,634)
Dividends (81,707) (61,331)
Change in affiliate note (89,142) --
Decrease in short-term obligations, excluding current maturities (386,700) (6,400)
Other - net 14,846 --
--------- ---------
Net cash used in financing (173,981) (125,365)
--------- ---------
Increase (decrease) in cash and temporary investments (104) 10,066
Cash and temporary investments:
Beginning of period 31,271 6,549
--------- ---------
End of period $ 31,167 $ 16,615
========= =========
</TABLE>
See Notes to Condensed Financial Statements.
8
<PAGE> 10
GTE SOUTH INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) The unaudited condensed financial statements included herein have been
prepared by the Company 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 1995 Annual Report on Form 10-K.
(2) Reclassifications of prior year data have been made, where appropriate,
to conform to the 1996 presentation.
9
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(12) Statement re: Calculation of the Ratio of Earnings to
Fixed Charges
(27) Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the third quarter
of 1996.
10
<PAGE> 12
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: November 13, 1996 William M. Edwards, III
----------------------- ------------------------------
William M. Edwards, III
Vice President - Controller
(Principal Accounting Officer)
11
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
--------- ----------------------------------------------------------------
<S> <C>
12 Statement re: Calculation of the Ratio of Earnings to Fixed
Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 12
GTE SOUTH INCORPORATED
STATEMENT OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
<S> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 189,152
Add - Income taxes 115,844
- Fixed charges 42,528
----------
Adjusted earnings $ 347,524
==========
Fixed charges:
Interest expense $ 37,926
Portion of rent expense
representing interest 4,602
----------
Adjusted fixed charges $ 42,528
==========
RATIO OF EARNINGS TO FIXED CHARGES 8.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 31,167
<SECURITIES> 0
<RECEIVABLES> 186,791
<ALLOWANCES> 17,760
<INVENTORY> 23,566
<CURRENT-ASSETS> 329,923
<PP&E> 4,068,186
<DEPRECIATION> 2,511,766
<TOTAL-ASSETS> 2,002,219
<CURRENT-LIABILITIES> 404,953
<BONDS> 721,486
2,660
412
<COMMON> 525,000
<OTHER-SE> 127,983
<TOTAL-LIABILITY-AND-EQUITY> 2,002,219
<SALES> 1,058,369
<TOTAL-REVENUES> 1,058,369
<CGS> 366,007
<TOTAL-COSTS> 719,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,605
<INCOME-PRETAX> 304,996
<INCOME-TAX> 115,844
<INCOME-CONTINUING> 189,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,152
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
