<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
Commission File Number 2-33059
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
HAWAII 99-0049500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Hidden Ridge, HQE04B12 - Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 214-718-5600
Securities registered pursuant to Section 12(b) of the act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. X
---
THE COMPANY HAD 10,000,000 SHARES OF $25 PAR VALUE COMMON STOCK OUTSTANDING AT
FEBRUARY 29, 1996. THE COMPANY'S COMMON STOCK IS 100% OWNED BY GTE CORPORATION.
THE COMPANY MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
<S> <C>
Part I
1. Business 1
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders - This item
has been omitted in accordance with the relief provisions under
General Instruction J of Form 10-K
Part II
5. Market for the Registrant's Common Equity and Related 5
Shareholder Matters
6. Selected Financial Data - This item has been omitted in accordance
with the relief provisions under General Instruction J of Form
10-K
7. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on 31
Accounting and Financial Disclosure
Part III
The following items have been omitted in accordance with the relief provisions
under General Instruction J of Form 10-K:
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
</TABLE>
<PAGE> 3
PART I
Item 1. Business
GTE Hawaiian Telephone Company Incorporated (the Company) (formerly Hawaiian
Telephone Company) was incorporated under the laws of the Kingdom of Hawaii in
1883. The Company is a wholly-owned subsidiary of GTE Corporation (GTE) and
provides communications services in Hawaii and in the Pacific and Asia.
The Company owns a majority interest in the Micronesian Telecommunications
Corporation (MTC). MTC, which is headquartered on Saipan in the Commonwealth of
the Northern Marianas, provides local and international telecommunications
services on the islands of Saipan, Tinian and Rota. In addition, the Company has
a wholly-owned subsidiary, GTE Hawaiian Tel Insurance Company Incorporated,
which provides auto liability, general liability and workers' compensation
insurance to the Company on a direct basis.
The Company's principal line of business is providing communications services
ranging from local telephone service for the home and office to highly complex
voice and data services for various industries. The Company provides local
telephone service on each island in Hawaii and provides intraLATA (Local Access
and Transport Area) toll service among the islands. InterLATA toll services
between Hawaii and domestic points within the United States are provided by
interexchange carriers (IXCs) which connect to the Company's local facilities
for call origination and termination. The IXCs are charged fees (access charges)
for interconnection to the Company's local facilities. Business and residential
customers also pay access charges to connect to the local network to obtain long
distance service. The Company also provides interLATA toll service between
Hawaii and international termination points in competition with interLATA common
carriers. These international revenues are settled between the Company and
interLATA common carriers through revenue sharing arrangements. The Company
earns other revenues by leasing interexchange plant facilities and providing
such services as billing and collection and operator services to interexchange
carriers. At December 31, 1995, the Company served 780,580 access lines in its
service territories.
At December 31, 1995, the Company had 3,025 employees.
The Company has written agreements with the International Brotherhood of
Electrical Workers (IBEW) covering substantially all non-management employees.
In 1994, the contracts with the IBEW expired. An agreement has not yet been
reached and negotiations will continue during 1996.
REGULATORY AND COMPETITIVE TRENDS
The Company is subject to regulation by the Public Utilities Commission (PUC) of
the State of Hawaii as to its intrastate business operations and by the Federal
Communications Commission (FCC) as to its interstate and international
operations.
Advances in technology, together with a number of regulatory, legislative and
judicial actions, continue to accelerate and expand the level of competition and
opportunities available to the Company. Presently, the Company is subject to
competition from numerous sources, including competitive access providers (CAPs)
for network access services and specialized communications companies that have
constructed new systems in certain markets to bypass the local-exchange network.
In addition, competition from alternative local-exchange carriers (ALECs),
interexchange carriers (IXCs), wireless and cable TV companies, as well as more
recent entry by media and computer companies, is expected to increase in the
rapidly changing telecommunications marketplace.
On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect the
future development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law
1
<PAGE> 4
removes many of the statutory and court-ordered barriers to competition between
segments of the industry, enabling local-exchange, long distance, wireless and
cable companies to compete in offering voice, video and information services.
The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an agreement whereby WorldCom, Inc. will provide, on
a non-exclusive basis, a full array of telecommunications services in support of
GTE's entry into the interLATA long distance market. In March 1996, GTE, through
a separate subsidiary, began offering long distance service to its customers in
selected markets. GTE plans to offer the service, marketed under the name GTE
Easy Savings Plan(sm), in all 28 states where it currently offers local
telephone service by December 1996.
The Telecommunications Act forbids states from imposing any barriers to entry
into local and toll competition. Through 1995, local competition has been
authorized in fifteen states, including Hawaii. During the first quarter of
1995, the PUC authorized AT&T and Sprint Communications Company, L.P., d.b.a.
Long Distance/USA (Sprint) to provide interisland toll service on a 10XXX basis,
effective March 1, 1995. The PUC reserves the right to modify or rescind the
authority depending on the impact to the Company. On February 14, 1995, the PUC
approved the Company's request to lower its toll rates and make changes to its
various calling plans to keep them competitive with AT&T's rates. On February
22, 1995, the PUC granted MCI Communications Corporations' application to
provide interisland toll service on a 10XXX basis.
Federal and state regulatory activity continued to change the traditional
cost-based, rate-of-return regulatory framework for intrastate and interstate
telephone service. Regulatory authorities have adopted various forms of
alternative regulation, which provide economic incentives to telephone service
providers to improve productivity and provide the foundation for implementing
pricing flexibility necessary to address competitive entry into GTE markets.
For the provision of interstate and international access services, the Company
operates under the terms of the FCC's price cap incentive plan. The "price cap"
mechanism serves to limit the rates a carrier may charge, rather than just
regulating the rate of return which may be achieved. Under this approach, the
maximum prices that the local-exchange carrier (LEC) may charge are increased or
decreased each year by a price index based upon inflation less a predetermined
productivity target. LECs have limited pricing flexibility provided they do not
exceed the allowed price cap. The FCC is considering how the price cap plan
should be modified in the future in order to adapt the system to the emergence
of competition.
Further information regarding the Company's activities with the various
regulatory agencies and revenue arrangements with other telephone companies is
discussed in Note 10 of the Company's consolidated financial statements included
in Item 8.
The Company continues to support greater competition in telecommunications,
provided that, overall, the actions to eliminate existing legal and regulatory
barriers benefit consumers by allowing an opportunity for all service providers
to participate equally in a competitive marketplace under comparable conditions.
The Company intends to continue to respond aggressively to regulatory and legal
developments that allow for increased competition and opportunities in the
marketplace. The Company expects its financial results to benefit from reduced
costs and the introduction of new products and services that will result in
increased usage of its telephone networks. However, it is likely that such
improvements will be offset, in part, by continued strategic pricing reductions
and the effects of increased competition.
2
<PAGE> 5
INITIATIVES
In 1995, the Company continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.
Restructuring and Cost Control
During 1995, the Company continued the implementation of its $78.3 million
re-engineering program. Since the program began in 1994, costs of $38.9 million
have been charged to the restructuring reserve --$28.5 million related to
customer service processes, $3.9 million related to administrative processes and
$6.5 million related to the consolidation of facilities and operations and other
related costs. These costs were primarily associated with the closure and
relocation of various centers, software enhancements and separation benefits
associated with workforce reductions. The continued implementation of this
program positions the Company to accelerate delivery of a full array of voice,
video and data services and to reach its stated objective of being the easiest
company to do business with in the industry.
World Class Network
During 1995, the Company deployed its ISDN-based World Class Network in
Honolulu, Hawaii, to provide advanced communications for business customers.
This program includes sophisticated high-speed, digital fiber-optic rings, a
high-capacity switching network (known as SONET), and a new centralized
operations center that monitors the entire network. These SONET rings are an
integral part of the high-speed information network that enables the Company to
provide advanced services such as high-speed data transmission and video
conferencing.
ENVIRONMENTAL MATTERS
GTE maintains monitoring and compliance programs related to environmental
matters. The Company's annual expenditures for environmental compliance have not
been and are not expected to be material. Costs incurred include outlays
required to keep existing operations in compliance with environmental
regulations and an underground storage tank replacement program.
3
<PAGE> 6
Item 2. Properties
The Company's property consists of land, structures and equipment required to
provide various telecommunications services. All of the aforementioned
properties, located in the state of Hawaii and islands of Saipan, Tinian and
Rota, are generally in good operating condition and adequate to satisfy the
needs of the business. Substantially all of the Company's property is subject to
liens of its respective mortgages securing funded debt. From January 1, 1991 to
December 31, 1995, the Company made capital expenditures of $788 million for new
plant and facilities required to meet telecommunications service needs and to
modernize plant and facilities. These additions were equal to 39% of gross plant
of $2 billion at December 31, 1995.
In response to recently enacted and pending legislation and the increasingly
competitive environment, the Company discontinued the use of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (FAS 71) in the fourth quarter of 1995.
In general, FAS 71 required the Company to depreciate its telephone plant and
equipment over lives approved by regulators which, in many cases, extended
beyond the assets' economic lives. FAS 71 also required the deferral of certain
costs based upon approvals received from regulators to recover such costs in the
future. As a result of these requirements, the recorded net book value of
certain assets and liabilities, primarily telephone plant and equipment, were in
many cases higher than that which would otherwise have been recorded based on
their economic lives. See Note 2 to the Company's consolidated financial
statements included elsewhere herein for further detail.
Item 3. Legal Proceedings
There are no pending legal proceedings, either for or against the Company, which
would have a material impact on the Company's consolidated financial statements.
4
<PAGE> 7
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
Market information is omitted since the Company's common stock is wholly-owned
by GTE Corporation (GTE).
SHAREHOLDER SERVICES
The First National Bank of Boston, Transfer Agent and Registrar for GTE and the
Company's common stock, should be contacted with any questions relating to
shareholder accounts. This includes the following:
- - Account information
- - Dividends
- - Market prices
- - Transfer instructions
- - Statements and reports
- - Change of address
Shareholders may call toll-free at 1-800-225-5160 anytime, seven days a week.
Customer Service Representatives are available Monday through Friday between the
hours of 8 a.m. and 5 p.m. Eastern Time. Outside the United States call
1-617-575-2990.
Or write to:
Bank of Boston
c/o Boston EquiServe, L.P.
P.O. Box 9121
Mail Stop 45-02-60
Boston, MA 02205-9121
For overnight delivery services, use the following address:
Bank of Boston
c/o Boston EquiServe, L.P.
Blue Hills Office Park
150 Royall Street
Canton, MA 02021
The Bank of Boston address where shareholders, banks and brokers may deliver
certificates is One Exchange Place, 55 Broadway in New York City.
PARENT COMPANY ANNUAL REPORT
To obtain a copy of the 1995 annual report of our parent company or the annual
Form 10-K filed with the Securities and Exchange Commission, call
1-800-225-5160.
INFORMATION VIA THE INTERNET
Internet World Wide Web users can access information on GTE Corporation through
the following universal resource:
http://www.gte.com
5
<PAGE> 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in Millions)
BUSINESS OPERATIONS
GTE Hawaiian Telephone Company Incorporated (the Company), a wholly-owned
subsidiary of GTE Corporation (GTE), provides a full range of telecommunications
products and services in Hawaii and in the Pacific and Asia. The Company's
majority-owned subsidiary, Micronesian Telecommunications Corporation (MTC), is
headquartered on Saipan and provides local and international telecommunications
services on the islands of Saipan, Tinian and Rota. In addition, the Company has
a wholly-owned subsidiary, GTE Hawaiian Tel Insurance Company Incorporated,
which provides auto liability, general liability and workers' compensation
insurance to the Company on a direct basis. At December 31, 1995, the Company
served 780,580 access lines in its service territories.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Net income (loss) $(225.5) $29.8
</TABLE>
The net loss for 1995 includes an extraordinary after-tax charge of $263.4 for
the discontinuance of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71) in the
fourth quarter of 1995. Excluding this charge, net income increased 27% or $8.1
in 1995. The 1995 increase is primarily due to higher revenues and sales
resulting from continued customer growth and lower operating costs and expenses,
partially offset by increased depreciation and amortization expenses.
REVENUES AND SALES
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Local services $244.1 $225.9
Network access services 134.6 128.8
Toll services 96.3 121.9
Other services and sales 136.8 127.6
------ ------
Total revenues and sales $611.8 $604.2
</TABLE>
Total revenues and sales increased 1% or $7.6 in 1995.
Local service revenues are based on fees charged to customers for providing
local-exchange service within designated franchise areas. The Company has not
had a rate increase since 1985. For further discussion of rate matters, see Note
10 of the Company's consolidated financial statements included in Item 8. Local
service revenues increased 8% or $18.2 in 1995. This increase is primarily a
result of the Public Utility Commission (PUC) of the State of Hawaii allowing
recovery of the Company's accrual for Postretirement Benefits Other Than
Pensions (OPEB). The PUC approved the Company's plan to reflect an additional
$10.7 of OPEB expense in its rates, retroactive to January 1, 1995, resulting in
$10.7 of increased revenues for 1995. Revenues in 1995 also increased due to
continued customer growth as reflected by a 3% increase in access lines, which
generated $3.7 in additional revenues, and a $2.9 increase in sales of
nontraditional services including CentraNet(R), and data and custom calling
features, such as SmartCall(R).
6
<PAGE> 9
Network access service revenues are based on fees charged to interexchange
carriers that use the Company's local-exchange network in providing long
distance services to their customers. In addition, business and residential
customers pay end-user access fees to connect to the local network to obtain
long distance service. Network access service revenues increased 5% or $5.8 in
1995. This increase is primarily a result of an 8% increase in minutes of use,
which generated $7 in additional revenues. Partially offsetting these increases
are declines in interstate access revenues associated with price reductions of
$2.8.
The Company provides intraLATA (Local Access and Transport Area) toll service
among the islands. The Company also provides interLATA toll service between
Hawaii and international termination points in competition with interLATA common
carriers. These international revenues are settled between the Company and
interLATA common carriers through revenue sharing arrangements. Toll service
revenues decreased 21% or $25.6 in 1995. This decline is primarily due to lower
international toll volumes of $10.5 and lower domestic toll volumes of $6.1. The
lower domestic toll volumes are a result of economic conditions and competition
with long distance carriers who became authorized to provide interisland toll
service on a 10XXX basis. In anticipation of this competition, the Company
lowered its intraLATA toll rates by 11% which further reduced revenues by $4.7.
Other services and sales revenues increased 7% or $9.2 in 1995. This increase is
primarily a result of growth in Radio Paging services of $6.5 and revenues
recognized in 1995 for life extensions of 1994 directories of $5.7. Revenues
also increased $5 from international service contracts initiated in 1995.
Partially offsetting these increases are declines from international service
contracts, which were not renewed in 1995, of $9.0.
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Cost of services and sales $273.6 $280.7
Selling, general and administrative 122.6 128.2
Depreciation and amortization 123.9 116.5
------ ------
Total operating costs and expenses $520.1 $525.4
</TABLE>
Total operating costs and expenses decreased 1% or $5.3 in 1995. This decrease
is primarily due to higher costs in 1994 of $14.8 relating to the resolution of
certain amounts owed to and from interexchange carriers. Partially offsetting
these decreases are increases in depreciation and amortization of $7.4 primarily
resulting from increased plant investments in 1995 and higher provisions for
uncollectible customer and long distance carrier receivables of $2.9 in 1995.
OTHER EXPENSES
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Interest - net $39.5 $35.0
Income taxes 15.0 12.6
</TABLE>
Interest - net increased 13% or $4.5 in 1995. This increase is primarily due to
higher debt levels resulting from the issuance of long-term debt in August 1995
and higher average commercial paper levels and rates in 1995.
Income taxes increased 19% or $2.4 in 1995. This increase is a result of higher
pre-tax income and a smaller portion of income from nontaxable foreign
operations. Partially offsetting this increase were higher reversals of tax rate
differentials.
7
<PAGE> 10
REGULATORY AND COMPETITIVE TRENDS
The Company is subject to regulation by the Public Utilities Commission (PUC) of
the State of Hawaii as to its intrastate business operations and by the Federal
Communications Commission (FCC) as to its interstate and international
operations.
Advances in technology, together with a number of regulatory, legislative and
judicial actions, continue to accelerate and expand the level of competition and
opportunities available to the Company. Presently, the Company is subject to
competition from numerous sources, including competitive access providers (CAPs)
for network access services and specialized communications companies that have
constructed new systems in certain markets to bypass the local-exchange network.
In addition, competition from alternative local-exchange carriers (ALECs),
interexchange carriers (IXCs), wireless and cable TV companies, as well as more
recent entry by media and computer companies, is expected to increase in the
rapidly changing telecommunications marketplace.
On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect the
future development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law removes many of the statutory and court-ordered barriers
to competition between segments of the industry, enabling local-exchange, long
distance, wireless and cable companies to compete in offering voice, video and
information services.
The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an agreement whereby WorldCom, Inc. will provide, on
a non-exclusive basis, a full array of telecommunications services in support of
GTE's entry into the interLATA long distance market. In March 1996, GTE, through
a separate subsidiary, began offering long distance service to its customers in
selected markets. GTE plans to offer the service, marketed under the name GTE
Easy Savings Plan(sm), in all 28 states where it currently offers local
telephone service by December 1996.
The Telecommunications Act forbids states from imposing any barriers to entry
into local and toll competition. Through 1995, local competition has been
authorized in fifteen states, including Hawaii. During the first quarter of
1995, the PUC authorized AT&T and Sprint Communications Company, L.P., d.b.a.
Long Distance/USA (Sprint) to provide interisland toll service on a 10XXX basis,
effective March 1, 1995. The PUC reserves the right to modify or rescind the
authority depending on the impact to the Company. On February 14, 1995, the PUC
approved the Company's request to lower its toll rates and make changes to its
various calling plans to keep them competitive with AT&T's rates. On February
22, 1995, the PUC granted MCI Communications Corporations' application to
provide interisland toll service on a 10XXX basis.
Federal and state regulatory activity continued to change the traditional
cost-based, rate-of-return regulatory framework for intrastate and interstate
telephone service. Regulatory authorities have adopted various forms of
alternative regulation, which provide economic incentives to telephone service
providers to improve productivity and provide the foundation for implementing
pricing flexibility necessary to address competitive entry into GTE markets.
8
<PAGE> 11
For the provision of interstate and international access services, the Company
operates under the terms of the FCC's price cap incentive plan. The "price cap"
mechanism serves to limit the rates a carrier may charge, rather than just
regulating the rate of return which may be achieved. Under this approach, the
maximum prices that the local-exchange carrier (LEC) may charge are increased or
decreased each year by a price index based upon inflation less a predetermined
productivity target. LECs have limited pricing flexibility provided they do not
exceed the allowed price cap. The FCC is considering how the price cap plan
should be modified in the future in order to adapt the system to the emergence
of competition.
Further information regarding the Company's activities with the various
regulatory agencies and revenue arrangements with other telephone companies is
discussed in Note 10 of the Company's consolidated financial statements included
in Item 8.
The Company continues to support greater competition in telecommunications,
provided that, overall, the actions to eliminate existing legal and regulatory
barriers benefit consumers by allowing an opportunity for all service providers
to participate equally in a competitive marketplace under comparable conditions.
The Company intends to continue to respond aggressively to regulatory and legal
developments that allow for increased competition and opportunities in the
marketplace. The Company expects its financial results to benefit from reduced
costs and the introduction of new products and services that will result in
increased usage of its telephone networks. However, it is likely that such
improvements will be offset, in part, by continued strategic pricing reductions
and the effects of increased competition.
INITIATIVES
In 1995, the Company continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.
Restructuring and Cost Control
During 1995, the Company continued the implementation of its $78.3
re-engineering program. Since the program began in 1994, costs of $38.9 have
been charged to the restructuring reserve --$28.5 related to customer service
processes, $3.9 related to administrative processes and $6.5 related to the
consolidation of facilities and operations and other related costs. These costs
were primarily associated with the closure and relocation of various centers,
software enhancements and separation benefits associated with workforce
reductions. The continued implementation of this program positions the Company
to accelerate delivery of a full array of voice, video and data services and to
reach its stated objective of being the easiest company to do business with in
the industry.
World Class Network
During 1995, the Company deployed its ISDN-based World Class Network in
Honolulu, Hawaii, to provide advanced communications for business customers.
This program includes sophisticated high-speed, digital fiber-optic rings, a
high-capacity switching network (known as SONET), and a new centralized
operations center that monitors the entire network. These SONET rings are an
integral part of the high-speed information network that enables the Company to
provide advanced services such as high-speed data transmission and video
conferencing.
ENVIRONMENTAL MATTERS
GTE maintains monitoring and compliance programs related to environmental
matters. The Company's annual expenditures for environmental compliance have not
been and are not expected to be material. Costs incurred include outlays
required to keep existing operations in compliance with environmental
regulations and an underground storage tank replacement program.
9
<PAGE> 12
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121) in March 1995,
which is effective January 1, 1996. FAS 121 requires that an impairment loss be
recognized when circumstances indicate that the carrying amount of an asset may
not be recoverable. In discontinuing the application of FAS 71, the Company used
a methodology similar to FAS 121 in determining the amount of asset impairments.
Accordingly, the issuance of FAS 121 will not have a significant impact on the
Company's consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123). As permitted by FAS
123, the Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of FAS 123 beginning
in 1996. Accordingly, the issuance of FAS 123 will not impact the Company's
financial position or results of operations.
INFLATION
The Company's management generally does not believe inflation has a significant
impact on the Company's earnings. However, increases in costs or expenses not
otherwise offset by increases in revenues could have an adverse effect on
earnings.
10
<PAGE> 13
Item 8. Financial Statements and Supplementary Data
GTE Hawaiian Telephone Company Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ----------------------- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues and sales (a):
Local services $ 244,106 $225,913 $214,627
Network access services 134,588 128,840 112,712
Toll services 96,252 121,871 106,867
Other services and sales 136,814 127,587 142,227
--------- -------- --------
Total revenues and sales 611,760 604,211 576,433
--------- -------- --------
Operating costs and expenses (b):
Cost of services and sales 273,636 280,648 273,091
Selling, general and administrative 122,603 128,247 109,145
Depreciation and amortization 123,876 116,478 104,202
Restructuring -- -- 78,275
--------- -------- --------
Total operating costs and expenses 520,115 525,373 564,713
--------- -------- --------
Operating income 91,645 78,838 11,720
Other (income) expense:
Interest - net 39,500 35,039 27,107
Other - net (779) 1,387 (480)
--------- -------- --------
Income (loss) before income taxes 52,924 42,412 (14,907)
Income taxes (benefit) 15,023 12,613 (9,865)
--------- -------- --------
Income (loss) before extraordinary 37,901 29,799 (5,042)
charge
Extraordinary charge (263,419) -- --
--------- -------- --------
Net income (loss) $(225,518) $ 29,799 $ (5,042)
========= ======== ========
</TABLE>
(a) Includes billings to affiliates of $41,958, $38,420 and $38,198 for the
years 1995-1993, respectively.
(b) Includes billings from affiliates of $45,446, $37,322 and $33,174 for the
years 1995-1993, respectively.
See Notes to Consolidated Financial Statements.
11
<PAGE> 14
GTE Hawaiian Telephone Company Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 4,515 $ 7,709
Receivables, less allowances of $6,338 and $9,010 150,560 137,478
Inventories and supplies 8,829 7,998
Deferred income tax benefits 18,157 12,061
Prepaid taxes 11,707 12,507
Other 3,620 2,285
---------- ----------
Total current assets 197,388 180,038
---------- ----------
Property, plant and equipment, net 809,445 1,205,827
Prepaid pension costs 141,083 114,804
Other assets 6,899 26,580
---------- ----------
Total assets $1,154,815 $1,527,249
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term obligations, including current maturities $ 123,764 $ 211,929
Accounts payable 19,744 25,785
Affiliate payables and accruals 17,787 16,875
Advanced billings and customer deposits 17,762 16,764
Taxes payable 15,927 15,310
Accrued interest 11,786 7,341
Accrued payroll costs 31,351 24,497
Accrued restructuring costs 39,353 19,890
Other 13,009 18,527
---------- ----------
Total current liabilities 290,483 356,918
---------- ----------
Non-current liabilities:
Long-term debt 482,412 371,840
Deferred income taxes 78,114 214,548
Restructuring costs -- 40,926
Other liabilities 30,378 20,378
---------- ----------
Total non-current liabilities 590,904 647,692
---------- ----------
Shareholder's equity:
Common stock (10,000,000 shares issued) 250,000 250,000
Additional paid-in capital 41,146 41,146
Retained earnings (deficit) (17,718) 231,493
---------- ----------
Total shareholder's equity 273,428 522,639
---------- ----------
Total liabilities and shareholder's equity $1,154,815 $1,527,249
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE> 15
GTE Hawaiian Telephone Company Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ----------------------- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operations:
Income (loss) before extraordinary charge $ 37,901 $ 29,799 $ (5,042)
Adjustments to reconcile income (loss) before
extraordinary charge to net cash from operations:
Depreciation and amortization 123,876 116,478 104,202
Deferred income taxes 22,112 13,405 4,264
Restructuring costs -- -- 78,275
Provision for uncollectible accounts 9,119 5,673 12,679
Change in current assets and current liabilities:
Receivables - net (13,154) (19,362) (29,413)
Other current assets (1,366) (885) 1,767
Accrued taxes and interest 5,062 5,225 (430)
Other current liabilities (23,337) (20,408) 5,896
Other - net (22,189) (16,043) (36,755)
--------- --------- ---------
Net cash from operations 138,024 113,882 135,443
--------- --------- ---------
Investing:
Capital expenditures (130,127) (171,667) (190,612)
--------- --------- ---------
Cash used in investing (130,127) (171,667) (190,612)
--------- --------- ---------
Financing:
Common stock issued -- -- 40,000
Long-term debt issued 148,236 -- 123,466
Long-term debt retired (8,301) (12,702) (19,143)
Dividends (23,693) (20,631) (24,648)
Increase (decrease) in short-term obligations,
excluding current maturities (127,333) 98,019 (67,944)
--------- --------- ---------
Net cash from (used in) financing (11,091) 64,686 51,731
--------- --------- ---------
Increase (decrease) in cash and temporary investments (3,194) 6,901 (3,438)
Cash and temporary investments:
Beginning of year 7,709 808 4,246
--------- --------- ---------
End of year $ 4,515 $ 7,709 $ 808
========= ========= =========
Cash paid (refunded) during the year for:
Interest $ 37,321 $ 35,737 $ 28,459
Income taxes 9,945 4,960 (11,086)
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE> 16
GTE Hawaiian Telephone Company Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Shareholder's equity, December 31, 1992 $210,000 $40,809 $ 252,135 $ 502,944
Net loss (5,042) (5,042)
Dividends declared (29,768) (29,768)
Issuance of common stock 40,000 40,000
Other 12 12
-------- ------- -------- ---------
Shareholder's equity, December 31, 1993 250,000 40,821 217,325 508,146
Net income 29,799 29,799
Dividends declared (15,631) (15,631)
Other 325 325
-------- ------- -------- ---------
Shareholder's equity, December 31, 1994 250,000 41,146 231,493 522,639
Net loss (225,518) (225,518)
Dividends declared (23,693) (23,693)
-------- ------- -------- ---------
Shareholder's equity, December 31, 1995 $250,000 $41,146 $ (17,718) $ 273,428
======== ======= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
14
<PAGE> 17
GTE Hawaiian Telephone Company Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
GTE Hawaiian Telephone Company Incorporated (the Company) provides a wide
variety of communications services, in Hawaii and in the Pacific and Asia,
ranging from local telephone service for the home and office to highly complex
voice and data services for various industries. The Company owns a majority
interest in the Micronesian Telecommunications Corporation (MTC), headquartered
in Saipan, which provides local and international telecommunications services to
the islands of Saipan, Tinian and Rota. In addition, the Company has a
wholly-owned subsidiary, GTE Hawaiian Tel Insurance Company Incorporated, which
provides auto liability, general liability and workers' compensation insurance
to the Company on a direct basis. At December 31, 1995 the Company served
780,580 access lines in its service territories. The Company is a wholly-owned
subsidiary of GTE Corporation (GTE).
BASIS OF PRESENTATION
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles which require that management make
estimates and assumptions that affect reported amounts. Actual results could
differ from those estimates.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany items have been eliminated.
The Company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (FAS 71), in the fourth quarter of 1995 (see Note 2). The 1995
financial presentation reflects account classifications consistent with
unregulated enterprises operating in a competitive environment. Specifically,
uncollectible revenue accounts have been reclassified from revenues and sales to
selling, general and administrative expenses. Reclassifications of prior-year
data have been made, where appropriate, to conform to the 1995 presentation.
TRANSACTIONS WITH AFFILIATES
Certain affiliated companies, which are not subsidiaries of the Company, supply
construction and maintenance equipment, supplies and electronic repair services
to the Company. These purchases and services amounted to $27.7 million, $27.1
million and $42.4 million for the years 1995-1993, respectively. Such purchases
and services are recorded in the accounts of the Company, at cost, which
includes a normal return realized by the affiliates.
The Company is billed for certain printing and other costs associated with
telephone directories, data processing services and equipment rentals, and
receives management, consulting, research and development and pension management
services from other affiliated companies. These charges amounted to $45.4
million, $37.3 million and $33.2 million for the years 1995-1993, respectively.
The amounts charged for these affiliated transactions are based on a
proportional cost allocation method.
The Company's consolidated financial statements include allocated expenses based
on the sharing of certain executive, administrative, financial, accounting,
marketing, personnel, engineering, and other support services being performed at
consolidated work centers among the domestic GTE Telephone Operating Companies.
The amounts charged for these affiliated transactions are based on a
proportional cost allocation method as filed with the Federal Communications
Commission.
15
<PAGE> 18
The Company has an agreement with GTE Directories Corporation (Directories)
(100% owned by GTE), whereby the Company provides its subscriber lists, billing
and collection and other services to Directories. Revenues from these activities
amounted to $42 million, $38.4 million and $38.2 million for the years
1995-1993, respectively.
DEPRECIATION AND AMORTIZATION
The Company has historically provided for depreciation on a straight-line basis
over asset lives approved by regulators. Beginning in 1996, the Company will
provide for depreciation on a straight-line basis over the estimated economic
lives of its assets (see Note 2). Maintenance and repairs of property are
charged to income as incurred. Additions to, replacements and renewals of
property are charged to telephone plant accounts. Property retirements are
charged in total to the accumulated depreciation account. No adjustment to
depreciation is made at the time properties are retired or otherwise disposed
of, except in the case of significant sales or extraordinary retirements of
property where profit or loss is recognized.
Franchises, goodwill and other intangibles are amortized on a straight-line
basis over the periods to be benefited, or 40 years, whichever is less.
REVENUE RECOGNITION
Revenues are recognized when earned. This is generally based on usage of the
Company's local-exchange networks or facilities. For other products and
services, revenues are generally recognized when services are rendered or
products are delivered to customers.
INVENTORIES AND SUPPLIES
Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.
EMPLOYEE BENEFIT PLANS
Pension and postretirement health care and life insurance benefits earned during
the year as well as interest on accumulated benefit obligations are accrued
currently. Prior service costs and credits resulting from changes in plan
benefits are amortized over the average remaining service period of the
employees expected to receive benefits. Material curtailment/settlement gains
and losses associated with employee separations are recognized in the period in
which they occur.
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), effective January
1, 1993. FAS 112 requires employers to accrue the future cost of benefits
provided to former or inactive employees and their dependents after employment
but before retirement. Previously, the cost of these benefits was charged to
expense as paid. The impact of this change in accounting on the Company's
results of operations was immaterial.
16
<PAGE> 19
INCOME TAXES
The Company's results are included in GTE's consolidated federal income tax
return. The Company participates in a tax-sharing agreement with GTE and remits
tax payments to GTE based on its tax liability on a separate company basis.
Deferred tax assets and liabilities are established for temporary differences
between financial and tax reporting bases and are subsequently adjusted to
reflect changes in tax rates expected to be in effect when the temporary
differences reverse. A valuation allowance is established for any deferred tax
asset for which realization is not likely. Deferred income taxes are not
provided on undistributed earnings of the Company's foreign subsidiary,
approximately $27 million at December 31, 1995, as such earnings are expected to
be permanently reinvested in the foreign subsidiary.
COMPUTER SOFTWARE
The cost of computer software for internal use, except initial operating system
software, is charged to expense as incurred. Initial operating system software
is capitalized and amortized over the life of the related hardware.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include investments in short-term, highly liquid
securities, which have maturities when purchased of three months or less.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121) in March 1995,
which is effective January 1, 1996. FAS 121 requires that an impairment loss be
recognized when circumstances indicate that the carrying amount of an asset may
not be recoverable. In discontinuing the application of FAS 71, the Company used
a methodology similar to FAS 121 in determining the amount of asset impairments.
Accordingly, the issuance of FAS 121 will not have a significant impact on the
Company's consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123). As permitted by FAS
123, the Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of FAS 123 beginning
in 1996. Accordingly, the issuance of FAS 123 will not impact the Company's
financial position or results of operations.
2. EXTRAORDINARY CHARGE
In response to recently enacted and pending legislation (see Note 10) and the
increasingly competitive environment, the Company discontinued the use of FAS 71
in the fourth quarter of 1995.
In general, FAS 71 required the Company to depreciate its telephone plant and
equipment over lives approved by regulators which, in many cases, extended
beyond the assets' economic lives. FAS 71 also required the deferral of certain
costs based upon approvals received from regulators to recover such costs in the
future. As a result of these requirements, the recorded net book value of
certain assets and liabilities, primarily telephone plant and equipment, were in
many cases higher than that which would otherwise have been recorded based on
their economic lives.
17
<PAGE> 20
As a result of the decision to discontinue FAS 71, the Company recorded a
non-cash, after-tax extraordinary charge of $263.4 million (net of tax benefits
of $167.8 million) in the fourth quarter of 1995. The charge primarily
represents a reduction in the net book value of telephone plant and equipment
through an increase in accumulated depreciation. The amount of the charge was
based on an analysis of the discounted cash flows expected to be generated by
the embedded telephone plant and equipment over their remaining economic lives.
In addition to the one-time charge, the Company, beginning in 1996, will shorten
the depreciable lives of its telephone plant and equipment as follows as a
result of the discontinuance of FAS 71:
<TABLE>
<CAPTION>
Depreciable Lives
---------------------------
Average
Asset Category Before After
-------------- ------ -----
<S> <C> <C>
Copper 20-30 15
Switching 17-19 10
Circuit 11-13 8
Fiber 25-30 20
</TABLE>
3. RESTRUCTURING COSTS
As previously reported, results for 1993 included a one-time pre-tax
restructuring charge of $78.3 million, which reduced net income by $48.2
million, primarily for incremental costs related to implementation of the
Company's three year re-engineering plan. The re-engineering plan will redesign
and streamline processes to improve customer-responsiveness and product quality,
reduce the time necessary to introduce new products and services and further
reduce costs. The major components of the estimated cost to implement the
re-engineering plan and activity since inception are as follows (dollars in
millions):
<TABLE>
<CAPTION>
December 31, December 31,
Component 1993 Activity 1995
- --------- ------------ -------- ------------
<S> <C> <C> <C>
Customer service $52.8 $(28.5) $24.3
Administrative 19.0 (3.9) 15.1
Other 6.5 (6.5) --
----- ------ -----
Total $78.3 $(38.9) $39.4
===== ====== =====
</TABLE>
Implementation of the re-engineering plan began during 1994 and is expected to
be substantially completed by the end of 1996. Costs of $38.9 million have been
incurred since the plan's inception. These expenditures were primarily
associated with the closure and relocation of various service centers, software
enhancements and separation benefits related to employee reductions.
4. COMMON STOCK
The authorized common stock of the Company consists of 18,000,000 shares with a
par value of $25 per share. The Company issued $40 million in common stock to
GTE in 1993. All outstanding shares of common stock are held by GTE.
There were no shares of common stock held by or for the account of the Company
and no shares were reserved for officers and employees, or for options,
warrants, conversions or other rights.
18
<PAGE> 21
5. DEBT
Long-term debt as of December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds:
4 1/2 % Series Q, due 1995 $ -- $ 5,000
5 5/8 % Series R, due 1997 16,000 16,000
6 3/4 % Series S, due 1998 20,000 20,000
8 3/4 % Series T, due 2000 35,000 35,000
8 % Series U, due 2001 20,000 20,000
8 1/2 % Series V, due 2006 35,000 35,000
9 % Series AA, due 2000 75,000 75,000
6 3/4 % Series BB, due 2005 125,000 125,000
Debentures:
7 % Series A, due 2006 150,000 --
Other:
5% Rural Utilities Services first mortgage bond, maturing through 2018 9,585 9,806
Rural Telephone Bank first mortgage bonds,
maturing through 2025, rates ranging from 5.43% to 7.5% 31,906 32,933
GTE Leasing Corporation financing agreements, maturing
through 2001, rates ranging from 8.8% to 10.32% 4,831 6,164
Other 801 1,520
-------- --------
Total principal amount 523,123 381,423
Less: discount and premium - net (2,911) (1,904)
-------- --------
Total 520,212 379,519
Less: current maturities of long-term debt (37,800) (7,679)
-------- --------
Total long-term debt $482,412 $371,840
======== ========
</TABLE>
In August 1995, the Company issued $150 million of 7% Series A Debentures, due
2006, toward the repayment of short-term debt incurred for the purpose of
financing the Company's construction program.
The aggregate principal amount of bonds and debentures that may be issued is
subject to the restrictions and provisions of the Company's indentures. None of
the securities shown above were held in sinking or other special funds of the
Company or pledged by the Company. Debt discount and premium on the Company's
outstanding long-term debt are amortized over the lives of the respective
issues. Substantially all of the Company's telephone plant is subject to the
liens of the indentures under which the bonds listed above were issued.
Estimated payments of long-term debt during the next five years are: $37.8
million in 1996; $18.6 million in 1997; $22 million in 1998; $2.1 million in
1999; and $77.2 million in 2000.
On March 1, 1996, the Company redeemed prior to stated maturity the $35 million
8 3/4% Series T first mortgage bond.
19
<PAGE> 22
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Commercial paper - average rate 5.9% $ -- $204,250
Notes payable to banks - average rate 6.1% 85,964 --
Current maturities of long-term debt 37,800 7,679
-------- --------
Total $123,764 $211,929
======== ========
</TABLE>
A $3.5 billion credit line is available to the Company through shared lines of
credit with GTE and other affiliates. Most of these arrangements require payment
of annual commitment fees of .1% of the unused lines of credit.
6. FINANCIAL INSTRUMENTS
The fair values of financial instruments, other than long-term debt, closely
approximate their carrying value. As of December 31, 1995, the estimated fair
value of long-term debt based on either quoted market prices or an option
pricing model, exceeded the carrying value by approximately $12 million. The
estimated fair value of long-term debt as of December 31, 1994 was lower than
the carrying value by approximately $26 million.
20
<PAGE> 23
7. INCOME TAXES
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Current:
Federal $ 709 $ 3,195 $ (6,730)
State (7,798) (3,987) (7,399)
------- ------- --------
(7,089) (792) (14,129)
------- ------- --------
Deferred:
Federal 14,101 8,253 88
State 8,869 5,970 5,247
------- ------- --------
22,970 14,223 5,335
------- ------- --------
Amortization of deferred investment tax credits (858) (818) (1,071)
------- ------- --------
Total $15,023 $12,613 $ (9,865)
======= ======= ========
</TABLE>
A reconciliation between taxes computed by applying the statutory federal income
tax rate to pre-tax income and income taxes provided in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Amounts computed at statutory rates $18,523 $14,844 $(5,217)
State income taxes, net of federal income tax benefits 696 1,288 (6,554)
Amortization of deferred investment tax credits (858) (818) (1,071)
Depreciation of telephone plant construction costs
previously deducted for tax purposes - net 1,297 1,516 1,728
Rate differentials applied to reversing temporary differences (1,752) (1,267) (1,046)
Undistributed earnings of foreign subsidiary (2,259) (4,154) (2,424)
Other differences - net (624) 1,204 4,719
------- ------- -------
Total provision (benefit) $15,023 $12,613 $(9,865)
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to the current deferred
income tax benefits and deferred income tax liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Depreciation and amortization $ 11,958 $160,418
Employee benefit obligations (15,552) (9,278)
Prepaid pension costs 52,563 42,390
Restructuring costs (15,312) (23,664)
Investment tax credits 3,569 5,193
Capital goods excise tax credits 30,434 24,523
Other - net (7,703) 2,905
-------- --------
Total $ 59,957 $202,487
======== ========
</TABLE>
21
<PAGE> 24
8. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company sponsors noncontributory defined benefit plans covering
substantially all employees. The benefits to be paid under these plans are
generally based on years of credited service and average final earnings. The
Company's funding policy, subject to the minimum funding requirements of U.S.
employee benefit and tax laws, is to contribute such amounts as are determined
on an actuarial basis to provide the plans with assets sufficient to meet the
benefit obligations of the plans. The assets of the plans consist primarily of
corporate equities, government securities and corporate debt securities.
The components of the net pension credit for 1995-1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Benefits earned during the year $ 9,915 $ 11,988 $ 13,919
Interest cost on projected benefit obligations 28,421 26,565 31,254
Return on plan assets:
Actual (130,646) 1,168 (98,181)
Deferred 79,499 (49,374) 48,102
Other - net (11,779) (9,087) (11,429)
--------- -------- --------
Total - net $ (24,590) $(18,740) $(16,335)
========= ======== ========
</TABLE>
The expected long-term rate of return on plan assets was 8.5% for 1995 and 1994,
and 8.25% for 1993.
The funded status of the plans and the net prepaid pension costs at December 31,
were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Vested benefit obligations $(303,917) $(254,739)
========= =========
Accumulated benefit obligations $(313,751) $(264,373)
========= =========
Plan assets at fair value $ 721,656 $ 607,449
Less: projected benefit obligations 402,635 346,595
--------- ---------
Excess of assets over projected benefit obligations 319,021 260,854
Unrecognized net transition asset (28,216) (36,322)
Unrecognized net gain (149,722) (109,728)
--------- ---------
Total - net $ 141,083 $ 114,804
========= =========
</TABLE>
Assumptions used to develop the projected benefit obligations at December 31,
were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate 7.50% 8.25%
Rate of compensation increase 5.25% 5.50%
</TABLE>
22
<PAGE> 25
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). FAS 106 requires that the expected costs of these benefits
be charged to expense during the years that the employees render service. The
Company elected to adopt this new accounting standard on the delayed recognition
method and commencing January 1, 1993, began amortizing the estimated unrecorded
accumulated postretirement benefit obligation over twenty years. Prior to the
adoption of FAS 106, the cost of these benefits was charged to expense as paid.
Substantially all of the Company's employees are covered under postretirement
health care and life insurance benefit plans. The health care benefits paid
under the plans are generally based on comprehensive hospital, medical and
surgical benefit provisions. The Company funds amounts for postretirement
benefits as deemed appropriate from time to time.
The postretirement benefit cost for 1995-1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Benefits earned during the year $ 1,862 $ 2,595 $ 3,275
Interest cost on accumulated postretirement benefit obligations 15,458 16,374 15,320
Actual return on plan assets (5,705) 1,086 (925)
Amortization of transition obligation 7,500 7,598 11,466
Other - net 4,416 (722) --
------- ------- -------
Total - net $23,531 $26,931 $29,136
======= ======= =======
</TABLE>
The following table sets forth the plans' funded status and the accrued
postretirement benefit obligations as of December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees $ 100,385 $ 105,544
Fully eligible active plan participants 104,801 86,350
Other active plan participants 22,157 23,485
--------- ---------
Total accumulated postretirement benefit obligations 227,343 215,379
Less: fair value of plan assets 51,102 35,193
--------- ---------
Excess of accumulated obligations over plan assets 176,241 180,186
Unrecognized transition obligation (126,421) (135,971)
Unrecognized prior service cost (12,252) (13,629)
Unrecognized net loss (13,192) (19,161)
--------- ---------
Total $ 24,376 $ 11,425
========= =========
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligations were 7.5% at December 31, 1995 and 8.25% at December 31,
1994. The assumed health care cost trend rates in 1995 and 1994 were 11% and
12%, respectively, for pre-65 participants and 8.5% and 9.0%, respectively, for
post-65 retirees, each rate declining on a graduated basis to an ultimate rate
in the year 2004 of 6%. A one percentage point increase in the assumed health
care cost trend rates for each future year would have increased 1995 costs by $3
million and the accumulated postretirement benefit obligations at December 31,
1995 by $35.5 million.
23
<PAGE> 26
During 1993, the Company made certain changes to its postretirement health care
and life insurance benefits for non-union employees retiring on or after January
1, 1995. These changes include, among others, newly established limits to the
Company's annual contribution to postretirement medical costs and a revised cost
sharing schedule based on a retiree's years of service. The resulting
unrecognized prior service benefits are being amortized over the remaining
service lives of the employees.
SAVINGS PLANS
The Company sponsors employee savings plans under section 401(k) of the Internal
Revenue Code. The plans cover substantially all full-time employees. Under the
plans, the Company provides matching contributions in GTE common stock based on
qualified employee contributions. Matching contributions charged to income were
$3 million, $3 million and $3.5 million in 1995-1993, respectively.
9. PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is summarized as follows at December
31:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Land $ 11,551 $ 10,782
Buildings 155,302 150,120
Plant & equipment 1,583,187 1,521,458
Other 217,761 226,063
---------- ----------
Total 1,967,801 1,908,423
Accumulated depreciation (see Note 2) 1,158,356 702,596
---------- ----------
Total property, plant and equipment - net $ 809,445 $1,205,827
========== ==========
</TABLE>
Depreciation provisions in 1995-1993 were equivalent to a composite average
percentage of 6.3%, 6.5% and 6.2%, respectively.
24
<PAGE> 27
10. REGULATORY AND COMPETITIVE MATTERS
The Company is subject to regulation by the Public Utilities Commission (PUC) of
the State of Hawaii with respect to intrastate business operations and by the
Federal Communications Commission (FCC) for its interstate and international
business operations, earth station ownership and the use of authorized radio
frequencies.
INTRASTATE SERVICES
Rate Matters
On May 11, 1993, the Company filed a general rate increase application with the
PUC, requesting approval to increase intrastate revenues by $50.4 million. This
represented a 15.9% increase over intrastate revenues for 1993 at current rates,
and was the first rate increase application the Company has filed since 1985.
The Company's rate restructure proposal and earnings investigation which were in
progress were incorporated into the rate case docket. Hearings took place in
March and April 1994. On June 14, 1994, the PUC ordered that the Company
continue its rates at existing levels and denied the Consumer Advocate's
recommendation for an interim revenue decrease.
On October 14, 1994, the Company filed a Notice of Intent to file another rate
case with the PUC. The Company also filed a Motion for Waiver of Commission
Rules and for approval of 1995 to be the test year. The waiver requested that
the Company be allowed the option to file its rate case application in early
1995 without having to use a split 1995/1996 test year. On November 29, 1994,
the PUC approved the Company's request for the waiver of its test year rules.
On November 29, 1994, the PUC issued an order approving the adoption of accrual
accounting for Postretirement Benefits Other Than Pensions (FAS 106) for
ratemaking purposes. The PUC's order directed the Company to file plans for
reflecting the full impact of FAS 106 in rates to be effective January 1, 1995.
The PUC approved on January 19, 1995, the Company's plan to reflect an
additional $10.7 million of Postretirement Benefits Other Than Pensions in its
rates, retroactive to January 1, 1995.
On June 9, 1995, the PUC issued a decision on the Company's 1993 Rate Case. The
PUC ordered that the Company's existing rate of return, rate base, and rate
structure remain unchanged until the next rate case. The Company notified the
PUC on July 10, 1995 that it would appeal the decision to the Supreme Court and
the Intermediate Court of Appeals of the State of Hawaii. It is anticipated that
the PUC may take up to one year to prepare the record for the court, from which
time the Company will have forty days to file its brief. Anticipated resolution
will take approximately one to two years.
On September 29, 1995, the Company filed an application to increase its rates by
$74 million in its 1995 Rate Case. The PUC approved bifurcation of the
proceeding into a revenue requirement phase (Phase I) and a rate design phase
(Phase II). The PUC held public hearings on Phase I in late 1995. The Department
of Defense (DOD), AT&T Communications of Hawaii (AT&T) and Pacwest
Telecommunications Corporation (Pacwest) filed motions to intervene in this
proceeding. On January 12, 1996, the PUC granted the DOD intervention in both
phases but limited AT&T and Pacwest to participating in the formulation of
issues for Phase I. The PUC indicated that after the issues are approved, AT&T
and Pacwest may file motions to intervene if it appears that the issues will
significantly impact their interests. They will also have the opportunity to
file for intervention in Phase II after public hearings for that phase are held.
The Company anticipates that it will file its Phase II proposal in mid-1996.
Other
On May 11, 1993, the PUC initiated a communications infrastructure proceeding
which was intended to investigate such issues as: what markets should be opened
to competition; who should be allowed to compete in those markets; and what
rules, if any, should apply. Parties filed opening testimony on these matters on
March 24, 1995 and rebuttal testimony on April 28, 1995. Evidentiary hearings
were held beginning May 22, 1995 and concluding on June 7, 1995. A
25
<PAGE> 28
position statement and reply were filed on June 22, 1995 and July 7, 1995,
respectively. On October 26, 1995, the PUC issued draft rules that will govern
the introduction of and transition to competition in the intrastate
telecommunications market, and the implementation of a state universal service
fund, under the PUC's direction and oversight. Parties submitted suggested
revisions and comments on the draft rules on November 15, 1995. Public hearings
on the proposed rules occurred during the first quarter of 1996. A final
resolution is expected in 1996.
During the first quarter of 1995, the PUC authorized AT&T and Sprint
Communications Company, L.P., d.b.a. Long Distance/USA (Sprint) to provide
interisland toll service on a 10XXX basis, effective March 1, 1995. The PUC
reserves the right to modify or rescind the authority depending on the impact to
the Company. On February 14, 1995, the PUC approved the Company's request to
lower its toll rates and make changes to its various calling plans to keep them
competitive with AT&T's rates. On February 22, 1995, the PUC granted MCI
Communication Corporations' application to provide interisland toll service on a
10XXX basis.
On March 20, 1995, the PUC authorized the expansion of the operating authority
of Pacwest to allow Pacwest to provide both data and voice digital transmission
services on a point-to-point basis. Pacwest is now seeking approval to provide
intrastate telecommunications services within the state. On August 17, 1995, the
PUC granted the application of Time Warner Communications of Hawaii, L.P.,
d.b.a. Oceanic Communications (Oceanic) to provide digital and analog intrastate
dedicated transport in the City & County of Honolulu. Thereafter, on November
27, 1995, the PUC granted Oceanic's request to expand its geographic authority
to provide dedicated transport services within the entire state. On September
29, 1995, Oceanic submitted an application to expand its authority to provide
direct and resold local-exchange services within the state. After granting the
Company's motion to intervene, the PUC stayed the proceedings until further
notice.
In September 1992, the PUC initiated an investigation of the Company's provision
of telephone service in the rural areas in the state. On November 2, 1994, the
PUC issued its ruling in this proceeding, requesting the Company to convert all
existing rural multi-party lines to single-party over a three-year period. The
ruling further allowed the Company to collect one-half of the cost of conversion
from existing multi-party customers choosing to convert to single-party service.
The estimated remaining costs of up to $20.2 million will be recovered from
general ratepayers statewide through a three-year monthly surcharge. On February
24, 1995, the PUC approved the Company's Rural Service Plan (RSP). On September
1, 1995, the Company began assessing a three-year general ratepayer surcharge,
while issuing its first offers to convert customers to single-line service in
those rural areas that were upgraded pursuant to the RSP 1995 construction
schedule. Construction activities under the RSP will continue through 1997.
The PUC opened a docket on December 12, 1994, and ordered the Company to show
cause why the PUC should not authorize an alternate telecommunications provider
for the rural areas of the state. On December 13, 1995, the PUC issued a
decision allowing a telecommunications carrier other than the Company to seek
authorization to provide service in the Ka'u area on the island of Hawaii. The
PUC plans to accept bid proposals through May 15, 1996 from carriers --
including the Company -- who are interested in serving the first rural area for
which an alternative telecommunications provider may be authorized. A provider
for the Ka'u area will be selected by the PUC shortly thereafter.
INTERSTATE AND INTERNATIONAL SERVICES
For the provision of interstate and international services, the Company operates
under the terms of the FCC's price cap incentive plan. The "price cap" mechanism
serves to limit the rates a carrier may charge, rather than just regulating the
rate of return which may be achieved. Under this approach, the maximum price
that the LEC may charge is increased or decreased each year by a price index
based upon inflation less a predetermined productivity target. LECs have limited
pricing flexibility provided they do not exceed the allowed price cap.
26
<PAGE> 29
In March 1995, the FCC adopted interim rules to be utilized by LECs including
the Company for their 1995 Annual Price Cap Filing. The interim rules allowed
LECs to select from three productivity/sharing options for each tariff entity.
Each of the three options required an increase to the 3.3% productivity factor
elected by the Company since 1991. The Company selected the following
productivity factors and sharing thresholds for use in the 1995-1996 tariff
year:
<TABLE>
<CAPTION>
Sharing Parameters
Tariff Productivity -------------------------------------
Entity Factor 50% 100%
- ---------- ------------ ------------------ ---------------
<S> <C> <C> <C>
Hawaii 4.0% 12.25 - 13.25% ROR Over 13.25% ROR
Micronesia 5.3% None None
</TABLE>
Since the Company's access fees were priced below the FCC's maximum price, the
near-term impact of productivity increases are not expected to be significant.
Under the interim rules, the Company filed tariffs to reduce rates by $5 million
annually, effective August 1, 1995. On September 20, 1995, the FCC released its
proposed rulemaking proceeding on price caps which proposes specific changes to
reflect and encourage emerging competition in local and access service markets
and to establish the path towards decreased regulation of LECs' services. On
September 27, 1995, the FCC solicited comments on a number of specific issues
regarding methods for establishing the price caps, such as productivity
measurements, sharing, the common line formula, and exogenous costs. The Company
anticipates the FCC will issue an order prior to the July 1996 annual filing.
On February 8, 1996, the Telecommunications Act of 1996 (the Telecommunications
Act) became law. This comprehensive telecommunications reform legislation
addresses a wide range of competitive and regulatory issues that will affect the
future development of local and long distance services, cable television and
information services. The Telecommunications Act overhauls 62 years of
telecommunications law, replacing government regulation with competition as the
chief way of assuring that telecommunications services are delivered to
customers. The new law removes many of the statutory and court-ordered barriers
to competition between segments of the industry, enabling local-exchange, long
distance, wireless and cable companies to compete in offering voice, video and
information services.
The Telecommunications Act requires the FCC and state commissions to set new
guidelines to open local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves Universal Service while
equalizing the responsibility for contribution among all carriers.
A key provision of the Telecommunications Act also eliminates the legal
restraints of the GTE Consent Decree which has kept the Company from providing
interLATA services. This action will simplify GTE's ability to market local
intraLATA and interLATA service to its customers as a bundled service. In
February 1996, GTE executed an agreement whereby WorldCom, Inc. will provide, on
a non-exclusive basis, a full array of telecommunications services in support of
GTE's entry into the interLATA long distance market. In March 1996, GTE, through
a separate subsidiary, began offering long distance service to its customers in
selected markets. GTE plans to offer the service, marketed under the name GTE
Easy Savings Plan(sm), in all 28 states where it currently offers local
telephone service by December 1996.
SIGNIFICANT CUSTOMER
Revenues received from AT&T Corp. include amounts for access, billing and
collection and interexchange leased facilities during the years 1995-1993 under
various arrangements and amounted to $47.5 million, $46 million, and $44
million, respectively.
27
<PAGE> 30
11. COMMITMENTS AND CONTINGENCIES
The Company has noncancelable leases covering certain buildings, office space
and equipment. Rental expense was $12.8 million, $15.7 million, and $14 million
in 1995-1993, respectively. Minimum rental commitments under noncancelable
leases through 2000 do not exceed $3.1 million annually and aggregate $43.8
million thereafter.
The Company is subject to a number of proceedings arising out of the conduct of
its business, including those relating to regulatory actions, commercial
transactions and/or environmental, safety and health matters. Management
believes that the ultimate resolution of these matters will not have a material
adverse effect on the results of operations or the financial position of the
Company.
Recent judicial and regulatory developments, as well as the pace of
technological change, have continued to influence industry trends, including
accelerating and expanding the level of competition. As a result, the Company's
operations face increasing competition in virtually all aspects of its business.
The Company supports greater competition in telecommunications provided that,
overall, the actions to eliminate existing legal and regulatory barriers allow
an opportunity for all service providers to participate equally in a competitive
marketplace under comparable conditions.
28
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
GTE Hawaiian Telephone Company Incorporated:
We have audited the accompanying consolidated balance sheets of GTE Hawaiian
Telephone Company Incorporated (a Hawaii corporation and wholly-owned subsidiary
of GTE Corporation) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholder's equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements and the schedule and exhibit referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule and exhibit based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Hawaiian Telephone Company
Incorporated and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, in 1995, the
Company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation".
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supporting schedule and exhibit listed under
Item 14 are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. The supporting schedule and exhibit have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
January 24, 1996
29
<PAGE> 32
MANAGEMENT REPORT
To Our Shareholder:
The management of the Company is responsible for the integrity and objectivity
of the financial and operating information contained in this Annual Report on
Form 10-K, including the consolidated financial statements covered by the Report
of Independent Public Accountants. These statements were prepared in conformity
with generally accepted accounting principles and include amounts that are based
on the best estimates and judgments of management.
The Company has a system of internal accounting controls which provides
management with reasonable assurance that transactions are recorded and executed
in accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that financial records are maintained so as to permit
preparation of financial statements in accordance with generally accepted
accounting principles. This system includes written policies and procedures, an
organizational structure that segregates duties, and a comprehensive program of
periodic audits by the internal auditors. The Company has also instituted
policies and guidelines which require employees to maintain the highest level of
ethical standards.
WARREN H. HARUKI
President
GERALD K. DINSMORE
Senior Vice President - Finance and Planning
30
<PAGE> 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
31
<PAGE> 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) (1) Financial Statements - See GTE Hawaiian Telephone Company
Incorporated's consolidated financial statements and report of
independent accountants thereon in the Financial Statements
section included elsewhere herein.
(2) Financial Statement Schedules - Schedules supporting the
consolidated financial statements for the years ended December
31, 1995-1993 (as required):
II - Valuation and Qualifying Accounts
Note: Schedules other than the one listed above are omitted as not
applicable, not required, or the information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits - Included in this report or incorporated by
reference.
3.1* Articles of Incorporation and Bylaws (Exhibit 3.2 of
the 1987 Form 10-K, File No. 2- 33059)
3.2* Amended By-laws (Exhibit 3.2 of the 1994 Form 10-K,
File No. 2-33059)
10 Material Contracts - Agreements Between GTE and
Certain Executive Officers
12 Statements re: Calculation of the Consolidated Ratio
of Earnings to Fixed Charges
23 Consent of Independent Public Accountants
26 Revised Form of Invitation for Bids pertaining to
Registration Statement on Form S-3 (File No.
33-57743)
27 Financial Data Schedule
(b) Reports on Form 8-K
On November 13, 1995, the Company filed a report on Form 8-K
dated November 9, 1995, under Item 5 "Other Events". Financial
information was filed with this report.
* Denotes exhibits incorporated herein by reference to previous filings with
the Securities and Exchange Commission as designated.
32
<PAGE> 35
GTE Hawaiian Telephone Company Incorporated and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
(Thousands of Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
Deductions
Balance at from
Beginning Charged to Charged to Reserves Balance at
Description of Year Income Other Accounts (Note 1) Close of Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible accounts
for the years ended:
December 31, 1995 $ 9,010 $ 9,119 $ 4,673 (2) $16,464 $ 6,338
====================================================================
December 31, 1994 $ 9,072 $ 5,673 $ 8,817 (2) $14,552 $ 9,010
====================================================================
December 31, 1993 $ 8,368 $12,679 $22,600 (2) $34,575 $ 9,072
====================================================================
Accrued restructuring costs for the
years ended (Note 3):
December 31, 1995 $60,816 $ -- $ -- $21,463 $39,353
====================================================================
December 31, 1994 $78,275 $ -- $ -- $17,459 $60,816
====================================================================
December 31, 1993 $ -- $78,275 $ -- $ -- $78,275
====================================================================
</TABLE>
NOTES:
(1) Charges for purpose for which reserve was created.
(2) Recoveries of previously written-off amounts.
(3) See Note 3 to the consolidated financial statements included elsewhere
herein.
33
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GTE HAWAIIAN TELEPHONE COMPANY
INCORPORATED
------------------------------
(Registrant)
Date March 26, 1996 By Warren H. Haruki
--------------------- ------------------------------
Warren H. Haruki
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Warren H. Haruki President and Director March 26, 1996
- --------------------------- (Principal Executive Officer)
Warren H. Haruki
Gerald K. Dinsmore Senior Vice President - Finance and March 26, 1996
- --------------------------- Planning and Director
Gerald K. Dinsmore (Principal Financial Officer)
William M. Edwards, III Controller March 26, 1996
- --------------------------- (Principal Accounting Officer)
William M. Edwards, III
John C. Appel Director March 26, 1996
- ---------------------------
John C. Appel
Richard M. Cahill Director March 26, 1996
- ---------------------------
Richard M. Cahill
Michael B. Esstman Director March 26, 1996
- ---------------------------
Michael B. Esstman
Thomas W. White Director March 26, 1996
- ---------------------------
Thomas W. White
</TABLE>
34
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------------ ----------------------------------------------------------------------------------------
<S> <C>
10 Material Contracts - Agreements Between GTE and Certain Executive Officers
12 Statements re: Calculation of the Ratio of Earnings to Fixed Charges
23 Consent of Independent Public Accountants
26 Revised Form of Invitation for Bids pertaining to Registration Statement on
Form S-3 (File No. 33-57743)
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10
EXECUTIVE SEVERANCE AGREEMENT
This AGREEMENT ("Agreement") dated as of January 8, 1996, by and
between GTE Service Corporation, a New York corporation (the "Company"), and
the "Executive".
W I T N E S S E T H:
WHEREAS, the Company recognizes the valuable services that the
Executive has rendered thereto and desires to be assured that the Executive
will continue to attend to the business and affairs of the Company without
regard to any potential or actual change in control of GTE Corporation, a New
York corporation and the Company's sole shareholder ("GTE"); and
WHEREAS, the Executive is willing to continue to serve the Company,
but desires assurance that he will not be materially disadvantaged by a change
in control of GTE;
NOW, THEREFORE, in consideration of the Executive's continued service
to the Company and the mutual agreements herein contained, the Company and the
Executive hereby agree as follows:
ARTICLE I
ELIGIBILITY FOR BENEFITS
Section 1.1. Qualifying Termination. The Company shall not be
required to provide any benefits to the Executive pursuant to this Agreement
unless a Qualifying Termination occurs before the Agreement expires in
accordance with Section 6.1 hereof. For purposes of this Agreement, a
Qualifying Termination shall occur only if
(a) a Change in Control occurs, and
(b) (i) within two years after the Change in Control, the Company
terminates the Executive's employment other than for Cause; or
(ii)(A) within two years after the Change in Control, a Good
Reason arises, and (B) the Executive terminates employment
with the Company within (I) six months after the Good Reason
arises or (II) two years after the Change in Control,
whichever occurs later;
provided, that a Qualifying Termination shall not occur if the Executive's
employment with the Company terminates by reason of the Executive's Retirement,
Disability, or death. A Qualifying Termination may occur even though the
Executive retires from employment with the Company other than by reason of
Retirement or Disability.
Section 1.2. Change in Control. Except as provided below, a
Change in Control shall be deemed to occur when and only when the first of the
following events occurs:
(a) an acquisition (other than directly from GTE) of securities of
GTE by any Person, immediately after which such Person,
together with all Affiliates and Associates of such Person,
shall be the Beneficial Owner of securities of GTE
representing 20 percent or more of the Voting Power or such
lower percentage of the Voting Power that, from time to time,
would cause the Person to constitute an "Acquiring Person" (as
such term is defined in the Rights Plan); provided that, in
determining whether a Change in Control has occurred, the
acquisition of securities of GTE in a Non-Control Acquisition
shall not constitute an acquisition that would cause a Change
in Control; or
(b) three or more directors, whose election or nomination for
election is not approved by a majority of the members of the
"Incumbent Board" (as defined below) then serving as members
of the Board, are elected within any single 12-month period to
serve on the Board; provided that an individual whose election
or nomination for election is approved as a result of either
an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Securities Exchange Act of
1934, as amended from time to time) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest"),
including by
<PAGE> 2
reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest, shall be deemed not to have
been approved by a majority of the Incumbent Board for
purposes hereof; or
(c) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board; "Incumbent Board"
shall mean individuals who, as of the close of business on
April 19, 1995, are members of the Board; provided that, if
the election, or nomination for election by GTE's
shareholders, of any new director was approved by a vote of at
least three-quarters of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board; provided further that no
individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of
either an actual or threatened Election Contest or other
actual or threatened Proxy Contest, including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(d) approval by shareholders of GTE of:
(i) a merger, consolidation, or reorganization involving
unless
(A) the shareholders of GTE, immediately before
the merger, consolidation, or reorganization, own, directly or
indirectly immediately following such merger, consolidation,
or reorganization, at least 50 percent of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger, consolidation, or reorganization
(the "Surviving Corporation") in substantially the same
proportion as their ownership of the voting securities
immediately before such merger, consolidation, or
reorganization;
(B) individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation, or reorganization
constitute at least a majority of the board of directors of
the Surviving Corporation; and
(C) no Person (other than GTE or any subsidiary
of GTE, any employee benefit plan (or any trust forming a part
thereof) maintained by GTE, the Surviving Corporation, or any
subsidiary of GTE, or any Person who, immediately prior to
such merger, consolidation, or reorganization, had Beneficial
Ownership of securities representing 20 percent (or such lower
percentage the acquisition of which would cause a Change in
Control pursuant to paragraph (a) of this definition of
"Change in Control") or more of the Voting Power) has
Beneficial Ownership of securities representing 20 percent (or
such lower percentage the acquisition of which would cause a
Change in Control pursuant to paragraph (a) of this definition
of "Change in Control") or more of the combined Voting Power
of the Surviving Corporation's then outstanding voting
securities;
(ii) a complete liquidation or dissolution of GTE; or
(iii) an agreement for the sale or other disposition of all
or substantially all of the assets of GTE to any Person (other
than a transfer to a subsidiary of GTE).
For purposes of this Section, the following terms shall have the
definitions set forth below:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended from time to time.
"Board" means the Board of Directors of GTE.
"Non-Control Acquisition" means an acquisition by (1) an employee
benefit plan (or a trust forming a part thereof) maintained by GTE or any of
its subsidiaries, (2) GTE or any of its subsidiaries, or (3) any Person in
connection with a "Non-Control Transaction."
"Non-Control Transaction" means a transaction described in clauses (A)
through (C) of paragraph (d)(i) of the definition of "Change in Control"
herein.
"Person" shall mean any individual, firm, corporation, partnership,
joint venture, association, trust, or other entity.
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(x) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(y) which such Person or any of such Person's Affiliates or
Associates has (i) the right or obligation to acquire (whether
such right or obligation is exercisable or effective
immediately or only after the passage of time) pursuant to any
agreement, arrangement, or understanding (whether or not in
<PAGE> 3
writing) or upon the exercise of conversion rights, exchange
rights, rights (other than the rights granted pursuant to the
Rights Plan), warrants or options, or otherwise; provided that
a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (ii) the right to vote
pursuant to any agreement, arrangement, or understanding
(whether or not in writing); provided that a Person shall not
be deemed the "Beneficial Owner" of, or to "beneficially own,"
any security under this clause (ii) if the agreement,
arrangement, or understanding to vote such security (A) arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the
Securities Exchange Act of 1934, as amended from time to time,
and (B) is not also then reported by such person on Schedule
13D under the Securities Exchange Act of 1934, as amended from
time to time (or any comparable or successor report); or
(z) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with
which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement, or understanding
(whether or not in writing), or with which such Person or any
of such Person's Affiliates or Associates have otherwise
formed a group for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in clause
(ii)(A) of subparagraph (y), above), or disposing of any
securities of GTE.
"Rights Plan" means the Rights Agreement, dated as of December 7,
1989, between GTE and State Street Bank and Trust Company (now administered by
the First National Bank of Boston), as it may be amended from time to time, or
any successor thereto.
"Voting Power" means the voting power of all securities of GTE then
outstanding generally entitled to vote for the election of directors of GTE.
Section 1.3. Termination for Cause. The Company shall have Cause
to terminate the Executive for purposes of Section 1.1 hereof only if the
Executive (a) engages in unlawful acts intended to result in the substantial
personal enrichment of the Executive at the Company's expense, or (b) engages
(except by reason of incapacity due to illness or injury) in a material
violation of his responsibilities to the Company that results in a material
injury to the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a notice, consisting of a copy of a resolution duly
adopted by the affirmative vote of not less than three quarters of the entire
membership of GTE's Board of Directors at a duly held meeting of the Board of
Directors (with reasonable notice to the Executive and an opportunity for the
Executive, together with counsel, to be heard before the Board of Directors)
("Notice of Termination"), finding that the Executive has engaged in the
conduct set forth above in this Section 1.3 and specifying the particulars
thereof in detail. GTE's Board of Directors may not delegate or assign its
duties under this Section 1.3.
Section 1.4. Termination for Good Reason. The Executive shall
have a Good Reason for terminating employment with the Company only if one or
more of the following occurs after a Change in Control:
(a) a change in the Executive's status or position(s) with the
Company that, in the Executive's reasonable judgment,
represents a demotion from the Executive's status or
position(s) in effect immediately before the Change in
Control;
(b) the assignment to the Executive of any duties or
responsibilities that, in the Executive's reasonable judgment,
are inconsistent with the Executive's status or position(s) in
effect immediately before the Change in Control;
(c) layoff or involuntary termination of the Executive's
employment, except in connection with the termination of the
Executive's employment for Cause or as a result of the
Executive's Retirement, Disability, or death;
(d) a reduction by the Company in the Executive's total
compensation (which shall be deemed, for this purpose, to be
equal to his base salary plus the greater of (i) the most
recent award that he has earned under the GTE Corporation
Executive Incentive Plan, as amended from time to time, or any
successor thereto (the "EIP"), or (ii) an EIP award equal to
the Executive's Average Percentage of the annual value (i.e.,
the dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal payment
being those that are in effect under the EIP immediately
before the date on which the Change in Control occurs for the
Executive's salary level immediately before the date on which
the Change in Control occurs)). For
<PAGE> 4
purposes of this paragraph (d), the Executive's "Average
Percentage" means the average of the Executive's Annual
Percentages for the Determination Years. For purposes of this
paragraph (d), the Executive's "Annual Percentage" for each
Determination Year means a fraction (expressed as a
percentage), the numerator of which is the EIP award earned by
the Executive for such Determination Year, and the denominator
of which is the annual value of the normal payment under the
EIP for the Executive's salary level (such annual value and
normal payment being those that were in effect under the EIP
for such Determination Year for the Executive's salary level
for such Determination Year). For purposes of this paragraph
(d), a "Determination Year" means each of the last three EIP
plan years ending before the date on which the Change in
Control occurs (or, if less, the number of those three plan
years during which the Executive was a participant in the
EIP);
(e) a material increase in the Executive's responsibilities or
duties without a commensurate increase in total compensation;
(f) the failure by the Company to continue in effect any Plan in
which the Executive is participating at the time of the Change
in Control (or plans or arrangements providing the Executive
with substantially equivalent benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control;
(g) any action or inaction by the Company that would adversely
affect the Executive's continued participation in any Plan on
at least as favorable a basis as was the case on the date of
the Change in Control, or that would materially reduce the
Executive's benefits in the future under the Plan or deprive
him of any material benefits that he enjoyed at the time of
the Change in Control, except to the extent that such action
or inaction by the Company is required by the terms of the
Plan as in effect immediately before the Change in Control, or
is necessary to comply with applicable law or to preserve the
qualification of the Plan under section 401(a) of the Internal
Revenue Code, and except to the extent that the Company
provides the Executive with substantially equivalent benefits;
(h) the Company's failure to provide and credit the Executive with
the number of days of paid vacation, holiday, or leave to
which he is then entitled in accordance with the Company's
normal vacation, holiday, or leave policy in effect
immediately before the Change in Control;
(i) the imposition of any requirement that the Executive be based
anywhere other than within 25 miles of where his principal
office was located immediately before the Change in Control;
(j) a material increase in the frequency or duration of the
Executive's business travel;
(k) the Company's failure to obtain the express assumption of this
Agreement by any successor to the Company as provided by
Section 6.3 hereof;
(l) any attempt by the Company to terminate the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 1.3 hereof
or that does not afford the Executive the procedural
protections prescribed by that Section; or
(m) any violation by the Company of any agreement (including this
Agreement) between it and the Executive.
Notwithstanding the foregoing, no action by the Company shall give rise to a
Good Reason if it results from the Executive's termination for Cause,
Retirement, or death, and no action by the Company specified in paragraphs (a)
through (d) of the preceding sentence shall give rise to a Good Reason if it
results from the Executive's Disability. A Good Reason shall not be deemed to
be waived by reason of the Executive's continued employment as long as the
termination of the Executive's employment occurs within the time prescribed by
Section 1.1(b)(ii)(B) hereof. For purposes of this Section 1.4, "Plan" means
any compensation plan, such as an incentive, stock option, or restricted stock
plan, or any employee benefit plan, such as a thrift, pension, profit-sharing,
stock bonus, long-term performance award, medical, disability, accident, or
life insurance plan, or a relocation plan or policy, or any other plan, program
or policy of the Company that is intended to benefit employees.
Section 1.5. Retirement. For purposes of this Agreement,
"Retirement" shall mean the Executive's termination of employment upon or after
attaining age 65.
Section 1.6. Disability. For purposes of this Agreement,
"Disability" shall mean an illness or injury that prevents the Executive from
performing his duties (as they existed immediately before the illness or
injury) on a full- time basis for six consecutive months.
Section 1.7. Notice. If a Change in Control occurs, the Company
shall notify the Executive of the
<PAGE> 5
occurrence of the Change in Control within two weeks after the Change in
Control.
ARTICLE II
BENEFITS AFTER A QUALIFYING TERMINATION
Section 2.1. Basic Severance Payment.
(a) If the Executive incurs a Qualifying Termination, the Company
shall pay to the Executive a cash amount equal to 200% of the
Base Amount. The Base Amount shall be an amount equal to the
greater of:
(A) the sum of (I) the Executive's base annual
salary immediately before the Change in Control plus (II) the
Executive's Average Percentage of the annual value (i.e., the
dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal payment
being those that are in effect under the EIP immediately
before the date on which the Change in Control occurs for the
Executive's salary level immediately before the date on which
the Change in Control occurs). For purposes of this paragraph
(A), the Executive's "Average Percentage" means the average of
the Executive's Annual Percentages for the Determination
Years. For purposes of this paragraph (A), the Executive's
"Annual Percentage" for each Determination Year means a
fraction (expressed as a percentage), the numerator of which
is the EIP award earned by the Executive for such
Determination Year, and the denominator of which is the annual
value of the normal payment under the EIP for the Executive's
salary level (such annual value and normal payment being those
that were in effect under the EIP for such Determination Year
for the Executive's salary level for such Determination Year).
For purposes of this paragraph (A), a "Determination Year"
means each of the last three EIP plan years ending before the
date on which the Change in Control occurs (or, if less, the
number of those three plan years during which the Executive
was a participant in the EIP); or
(B) the sum of (I) the Executive's base annual
salary immediately before the Qualifying Termination plus (II)
the Executive's Average Percentage of the annual value (i.e.,
the dollar amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and normal
payment being those that are in effect under the EIP
immediately before the date on which the Qualifying
Termination occurs for the Executive's salary level
immediately before the date on which the Qualifying
Termination occurs). For purposes of this paragraph (B), the
Executive's "Average Percentage" means the average of the
Executive's Annual Percentages for the Determination Years.
For purposes of this paragraph (B), the Executive's "Annual
Percentage" for each Determination Year means a fraction
(expressed as a percentage), the numerator of which is the EIP
award earned by the Executive for such Determination Year, and
the denominator of which is the annual value of the normal
payment under the EIP for the Executive's salary level (such
annual value and normal payment being those that were in
effect under the EIP for such Determination Year for the
Executive's salary level for such Determination Year). For
purposes of this paragraph (B), a "Determination Year" means
each of the last three EIP plan years ending before the date
on which the Qualifying Termination occurs (or, if less, the
number of those three plan years during which the Executive
was a participant in the EIP).
(b) The Company shall make the payment to the Executive pursuant
to subsection (a) of this Section 2.1 in a lump sum within 30
days of the Qualifying Termination.
Section 2.2. Insurance. If the Executive incurs a Qualifying
Termination, the Company shall provide the Executive, at the Company's expense,
for a period beginning on the date of the Qualifying Termination, the same
medical insurance and life insurance coverage as was in effect immediately
before the Change in Control (or, if greater, as in effect immediately before
the Qualifying Termination occurs); such coverage shall end upon the earlier of
(a) the expiration of 24 months after the Qualifying Termination or (b)(i) with
respect to medical insurance coverage, the date on which the Executive first
becomes eligible for medical insurance coverage provided by a firm that employs
him following the Qualifying Termination, or (ii) with respect to life
insurance coverage, the date on which the Executive first becomes eligible for
life insurance coverage provided by such firm.
<PAGE> 6
Section 2.3. Outplacement Counseling. If the Executive incurs a
Qualifying Termination, the Company shall make available to the Executive, at
the Company's expense, outplacement counseling that is at least equivalent to
the outplacement counseling that the Company provided to its terminated senior
executives during 1995. Subject to the foregoing, the Executive may select
the organization that will provide the outplacement counseling; provided, that
this sentence shall not require the Company to provide the Executive with
outplacement counseling that is more costly to the Company than the
outplacement counseling that this Section 2.3 otherwise requires the Company to
provide to the Executive.
Section 2.4. Financial Counseling. If the Executive incurs a
Qualifying Termination, the Company shall, within 30 days of the Qualifying
Termination, make available to the Executive three individual financial
counseling sessions, of at least two hours each and at times and locations that
are convenient to the Executive, with a nationally recognized financial
counseling firm. At the financial counseling sessions, the financial
counseling firm shall provide the Executive with detailed financial advice that
is tailored to the Executive's particular personal and financial situation.
The Company shall specify to the Executive the information regarding his
personal and financial situation that he must provide to the financial
counseling firm in order for the firm to provide the counseling services
required by this Section 2.4. The Company shall take all reasonable and
appropriate measures to assure that the financial counseling firm preserves the
confidentiality of all information conveyed by the Executive to the counseling
firm.
Section 2.5. Benefit Credit. If the Executive incurs a Qualifying
Termination,
(a) the Executive shall receive service credit, for the purpose of
receiving benefits and for vesting, retirement eligibility,
benefit accrual, and all other purposes, under all employee
benefit plans sponsored by the Company (including, but not
limited to, health, life insurance, pension, savings, stock,
and stock ownership plans, but excluding the Company's
short-term and long-term disability plans) in which he
participated immediately before the Change in Control, for 24
months;
(b) for purposes of determining the Executive's benefits under all
defined benefit pension plans maintained by the Company,
including the GTE Service Corporation Supplemental Executive
Retirement Plan ("SERP"), the Executive's compensation shall
include the amount payable to the Executive pursuant to
Section 2.1 hereof, and for purposes of this subsection (b),
the Executive shall be deemed to have received such amount in
monthly installments, each equal to 1/24th of the amount
payable to the Executive pursuant to Section 2.1 hereof; and
(c) the Executive shall be considered to have not less than 76
points and 15 years of Accredited Service for purposes of
determining his eligibility for early retirement benefits
under the Company's defined benefit pension plans (including,
but not limited to, the SERP) and for purposes of determining
his eligibility for benefits under the GTE Executive Retired
Life Insurance Plan (or any predecessor or successor thereto).
Notwithstanding the service credit granted under subsection (a) of this
Section 2.5 and the compensation recognized under subsection (b) of this
Section 2.5, nothing in this Section 2.5 shall prevent the Executive from
receiving any benefits to which the Executive is entitled under any defined
benefit or defined contribution pension plan maintained by the Company,
including the SERP (as such benefits are modified by this Agreement) in any
form permitted by such plans (including but not limited to a lump-sum
distribution) immediately following the Executive's Qualifying Termination. To
the extent that the Company's tax-qualified retirement plans cannot provide the
benefits specified by this Section 2.5 without jeopardizing the tax
qualification of such plans, the Company shall provide such benefits under the
SERP.
Section 2.6. Nonduplication.
(a) Nothing in this Agreement shall require the Company to make
any payment or to provide any benefit or service credit that
GTE or the Company is otherwise required to provide under any
other contract, agreement, policy, plan, or arrangement.
Section 2.7. Prior Agreement. This Agreement supersedes any prior
Executive Severance Agreement entered into between the Company and the
Executive ("Prior Agreement"). On and after the date of this Agreement, such
Prior Agreement shall have no force or effect.
<PAGE> 7
ARTICLE III
EFFECT ON HUMAN RESOURCES POLICY 104
Section 3.1. Effect on Policy 104. If the Executive becomes
entitled to receive benefits hereunder, the Executive shall not be entitled to
any benefits under GTE Human Resources Policy 104, as amended from time to
time, or any successor policy, or under any other Company severance or salary
continuation policy (including but not limited to any benefits pursuant to an
involuntary separation program or similar program maintained under a pension
plan sponsored by the Company).
ARTICLE IV
TAX MATTERS
Section 4.1. Withholding. The Company may withhold from any
amounts payable to the Executive hereunder all federal, state, city or other
taxes that the Company may reasonably determine are required to be withheld
pursuant to any applicable law or regulation.
ARTICLE V
COLLATERAL MATTERS
Section 5.1. Nature of Payments. All payments to the Executive
under this Agreement shall be considered either payments in consideration of
his continued service to the Company or severance payments in consideration of
his past services thereto.
Section 5.2. Legal Expenses. The Company shall pay all legal fees
and expenses that the Executive may incur as a result of the Company's
contesting the validity, the enforceability or the Executive's interpretation
of, or determinations under, this Agreement; provided, that this Section 5.2
shall be operative only if and to the extent that (a) the Company fails to
establish a trust that defrays all such legal fees and expenses or (b) the
Company establishes such a trust, but the trust fails to pay all such legal
fees and expenses.
Section 5.3. Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement either by
seeking other employment or otherwise. The amount of any payment provided for
herein shall not be reduced by any remuneration that the Executive may earn
from employment with another employer or otherwise following his Qualifying
Termination.
Section 5.4. Interest. If the Company fails to make, or cause to
be made, any payment provided for herein within 30 days of the date on which
the payment is due, the Company shall make such payment together with interest
thereon. The interest shall accrue and be compounded monthly. The interest
rate shall be equal to 120 percent of the prime rate as reported by The Wall
Street Journal for the first business day of each month, effective for the
ensuing month. The interest rate shall be adjusted at the beginning of each
month.
Section 5.5. Authority. The execution of this Agreement has been
authorized by the Board of Directors of the Company and by the Board of
Directors of GTE.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Term of Agreement. This Agreement shall become
effective on the date hereof and shall continue in effect until the earliest of
(a) July 1, 1999, if no Change in Control has occurred before that date; (b)
the termination of the Executive's employment with the Company for any reason
prior to a Change in Control; (c) the Company's termination of the Executive's
employment for Cause, or the Executive's resignation for other than Good
<PAGE> 8
Reason, following a Change in Control and the Company's and the Executive's
fulfillment of all of their obligations hereunder; and (d) the expiration
following a Change in Control of two years and six months and the fulfillment
by the Company and the Executive of all of their obligations hereunder.
Notwithstanding the foregoing, commencing on July 1, 1999, and on July 1 of
each year thereafter, the expiration date prescribed by clause (a) of the
preceding sentence shall automatically be extended for an additional year
unless, not later than December 31 of the immediately preceding year, one of
the parties hereto shall have given notice to the other party hereto that it
(or he) does not wish to extend the term of this Agreement. Furthermore,
nothing in this Article VI shall cause this Agreement to terminate before both
the Company and the Executive have fulfilled all of their obligations
hereunder.
Section 6.2. Governing Law. Except as otherwise expressly
provided herein, this Agreement and the rights and obligations hereunder shall
be construed and enforced in accordance with the laws of the State of New York.
Section 6.3. Successors to the Company. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Company and any successor thereto, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or
substantially all of the business or assets of the Company, whether by merger,
consolidation, sale or otherwise, but shall not otherwise be assignable by the
Company. Without limitation of the foregoing sentence, the Company shall
require any successor (whether direct or indirect, by merger, consolidation,
sale or otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form satisfactory to the Executive, expressly,
absolutely and unconditionally to assume and to agree to perform this Agreement
in the same manner and to the same extent as the Company would have been
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as heretofore defined and any
successor to all or substantially all of its business or assets that executes
and delivers the agreement provided for in this Section 6.3 or that becomes
bound by this Agreement either pursuant to this Agreement or by operation of
law. As used in this Agreement, "GTE" shall mean GTE as heretofore defined and
any successor to all or substantially all of its business or assets.
Section 6.4. Noncorporate Entities. If any provision of this
Agreement refers to the board of directors of an entity that has no board of
directors, the reference to board of directors shall be deemed to refer to the
body, committee, or person that has duties and responsibilities with respect to
the entity that most closely approximate those of a board of directors of a
corporation.
Section 6.5. Successor to the Executive. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Executive and his personal and legal representatives, executors,
administrators, heirs, distributees, legatees and, subject to Section 6.6
hereof, his designees ("Successors"). If the Executive should die while
amounts are or may be payable to him under this Agreement, references hereunder
to the "Executive" shall, where appropriate, be deemed to refer to his
Successors; provided, that nothing in this Section 6.5 shall supersede the
terms of any plan or arrangement (other than this Agreement) that is affected
by this Agreement.
Section 6.6. Nonalienability. No right of or amount payable to
the Executive under this Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance, charge, execution, attachment, levy or similar process or to
setoff against any obligations or to assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall be void. However, this Section 6.6 shall
not prohibit the Executive from designating one or more persons, on a form
satisfactory to the Company, to receive amounts payable to him under this
Agreement in the event that he should die before receiving them.
Section 6.7. Notices. All notices provided for in this Agreement
shall be in writing. Notices to the Company shall be deemed given when
personally delivered or sent by certified or registered mail or overnight
delivery service to GTE Service Corporation, One Stamford Forum, Stamford,
Connecticut 06904, Attention: Corporate Secretary. Notices to the Executive
shall be deemed given when personally delivered or sent by certified or
registered mail or overnight delivery service to the last address for the
Executive shown on the records of the Company. Either the Company or the
Executive may, by notice to the other, designate an address other than the
foregoing for the receipt of subsequent notices.
Section 6.8. Amendment. No amendment to this Agreement shall be
effective unless in writing and signed by both the Company and the Executive.
Section 6.9. Waivers. No waiver of any provision of this
Agreement shall be valid unless approved in writing by the party giving such
waiver. No waiver of a breach under any provision of this Agreement shall be
deemed to be a waiver of such provision or any other provision of this
Agreement or any subsequent breach. No failure on the part of either the
Company or the Executive to exercise, and no delay in exercising, any right or
remedy
<PAGE> 9
conferred by law or this Agreement shall operate as a waiver of such right or
remedy, and no exercise or waiver, in whole or in part, of any right or remedy
conferred by law or herein shall operate as a waiver of any other right or
remedy.
Section 6.10. Severability. If any provision of this Agreement
shall be held unlawful or otherwise invalid or unenforceable in whole or in
part, such unlawfulness, invalidity or unenforceability shall not affect any
other provision of this Agreement or part thereof, each of which shall remain
in full force and effect. If the making of any payment or the provision of any
other benefit required under this Agreement shall be held unlawful or otherwise
invalid or unenforceable, such unlawfulness, invalidity or unenforceability
shall not prevent any other payment or benefit from being made or provided
under this Agreement, and if the making of any payment in full or the provision
of any other benefit required under this Agreement in full would be unlawful or
otherwise invalid or unenforceable, then such unlawfulness, invalidity or
unenforceability shall not prevent such payment or benefit from being made or
provided in part, to the extent that it would not be unlawful, invalid or
unenforceable, and the maximum payment or benefit that would not be unlawful,
invalid or unenforceable shall be made or provided under this Agreement.
Section 6.11. Agents. The Company may make arrangements to cause
any agent or other party, including an affiliate of the Company, to make any
payment or to provide any benefit that the Company is required to make or to
provide hereunder; provided, that no such arrangement shall relieve or
discharge the Company of its obligations hereunder except to the extent that
such payments or benefits are actually made or provided.
Section 6.12. Definitions. All upper case terms used herein shall
have the meaning set forth in this Agreement.
Section 6.13. Captions. The captions to the respective articles
and sections of this Agreement are intended for convenience of reference only
and have no substantive significance.
Section 6.14. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original but all
of which together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GTE SERVICE CORPORATION
By: J. Randall MacDonald
----------------------
J. Randall MacDonald
Senior VP-Human Resources
and Administration
By: Marianne Drost
----------------------
Marianne Drost
VP and Associate General
Counsel-Finance & Corporate
Secretary
<PAGE> 1
Exhibit 12
GTE Hawaiian Telephone Company Incorporated
STATEMENTS OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1995 1994 1993 1993(a) 1992 1991
---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed
charges:
Income before extraordinary $37,901 $29,799 $43,175 $(5,042) $ 43,590 $ 46,698
charges
Add - Income taxes 15,023 12,613 20,193 (9,865) 24,228 16,115
- Fixed charges 46,063 41,328 36,327 36,327 34,214 38,243
------- ------- ------- ------- -------- --------
Adjusted earnings: $98,987 $83,740 $99,695 $21,420 $102,032 $101,056
======= ======= ======= ======= ======== ========
Fixed charges:
Interest expense $41,789 $36,104 $31,660 $31,660 $ 29,214 $ 33,843
Portion of rent expense
representing interest 4,274 5,224 4,667 4,667 5,000 4,400
------- ------- ------- ------- -------- --------
Adjusted fixed charges: $46,063 $41,328 $36,327 $36,327 $ 34,214 $ 38,243
======= ======= ======= ======= ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES: 2.15 2.03 2.74 -- 2.98 2.64
</TABLE>
(a) Results for 1993 include an after-tax restructuring charge of approximately
$48 million for the implementation of a re-engineering plan. Earnings were
not adequate to cover fixed charges in 1993. The amount of such deficiency
was $15 million for the year ended December 31, 1993.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated January 24, 1996 on the consolidated financial statements
and supporting schedule of GTE Hawaiian Telephone Company Incorporated and
subsidiaries included in this Form 10-K, into the Registration Statement filed
on Form S-3 (File No. 33-57743)
ARTHUR ANDERSEN LLP
Dallas, Texas
March 26, 1996
<PAGE> 1
Exhibit 26
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
Invitation For Bids For the Purchase of
$___,000,000 _____% Debentures, Series _, Due ____
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED (the "Company") is inviting
bids from certain investment banks ("Invited Bidders"), each of whom may bid
either individually (a "Sole Bidder") or as part of a group of bidders for which
the Invited Bidder serves as the representative of such group (the
"Representative"), subject to the terms and conditions stated herein, for the
purchase from it of $___,000,000 aggregate principal amount of its ____%
Debentures, Series _, Due ____ (the "Debentures").
1. Information Respecting the Company and the Debentures.
Invited Bidders may examine, at the office of the Secretary of the
Company, 600 Hidden Ridge, Irving, Texas 75038, or at the office of GTE Service
Corporation, 10th Floor, One Stamford Forum, Stamford, Connecticut 06904
(Telephone (203) 965-2986), on any business day between 10:00 A.M. and 4:00
P.M., the following:
(a) the Registration Statement on Form S-3 (including the
Prospectus, documents incorporated by reference and exhibits), with
respect to the Debentures;
(b) the Restated Articles of Incorporation of the Company, as
amended;
(c) a copy of the Indenture dated as of February 1, 1995
(herein called the "Indenture") under which the Debentures are to be
issued, together with the resolution of the Board of Directors of the
Company specifically authorizing the issuance of the Debentures;
(d) the form of Purchase Agreement (including the Standard
Purchase Agreement Provisions (February 1995 Edition)) to be used in
submitting bids for the purchase of the Debentures;
(e) the form of questionnaire to be provided by each of the
bidders; and
(f) memoranda prepared by counsel to the Company with respect
to the status of the Debentures under securities or blue sky laws of
certain jurisdictions.
Copies of said documents in reasonable quantities (except the Restated
Articles of Incorporation of the Company, the Indenture, and other exhibits to
the Registration Statement) will be supplied upon request, so long as available,
to Invited Bidders.
The Company reserves the right to amend the Registration Statement
(including exhibits thereto) and Prospectus and to supplement the Prospectus in
such manner as shall not be unsatisfactory to Messrs. Milbank, Tweed, Hadley &
McCloy. The Company will make copies of any such amendments or supplements
available for examination at the above offices in Irving and Stamford.
<PAGE> 2
-2-
2. Information Regarding the Bidders to be Furnished to the Company.
In the case of a bid by a group of bidders, the Representative shall be
designated and authorized as the representative of the several bidders in such
group in the questionnaires filed by the members of the group.
In the case of a bid by a group of bidders, the Representative shall
provide to the Company in writing a list of the names of any potential bidder in
its group no later than 10:00 A.M. on the business day immediately preceding the
date scheduled for the submission of bids. No bid by a group of bidders will be
accepted by the Company if such group contains a member to which the Company has
objected prior to 5:00 P.M. on the business day immediately preceding the date
scheduled for the submission of bids. Additional members may be added to a group
of bidders after 10:00 A.M. on the business day immediately preceding the date
scheduled for the submission of bids only with the consent of the Company.
No bid will be considered unless the Sole Bidder, or in the case of a
group of bidders, each member of the group through the Representative, shall
have furnished to the Company, and the Company shall have received, two signed
copies of the form of questionnaire referred to above, properly filled out by
the Sole Bidder or by each member of the group of bidders (the Company
reserving, however, the right to waive the form of the questionnaire or any
irregularity which it deems to be immaterial in any such questionnaire and to
extend either generally or in specific instances the time for furnishing
questionnaires, and specifically reserving the right to obtain all required
bidder information by telegraph or other means of communication). Such copies
shall be furnished to the Company at the office of GTE Service Corporation, 10th
Floor, One Stamford Forum, Stamford, CT 06904, Attention: David S. Kauffman,
Esq., before 5:00 P.M., New York City time on the business day immediately
preceding the date scheduled for the submission of bids (or on such later date
as may be determined pursuant to Section 5 hereof). Notwithstanding the
furnishing of such questionnaires to the Company, any Sole Bidder, or the
Representative on behalf of a group of bidders, thereafter may determine,
without liability to the Company, not to bid, or any of the several members of a
group (other than the Representative) may withdraw therefrom at or before the
time of submission of the bid of such group.
3. Obligations of a Representative to a Group of Bidders
In the case of a group of bidders, the Representative shall (i)
distribute to the members of the group any due diligence materials received by
it from the Company and (ii) upon the request of any member of such group,
request from the Company and deliver to such member of the group copies of the
documents listed in Section 1 hereof.
4. Form and Contents of Bids.
Each bid shall be for the purchase of all of the Debentures.
In case the bid of a group of bidders is accepted, the obligations of
the members of the group to purchase the respective principal amounts of
Debentures indicated in the bid shall be several and not joint. Such bidders
shall act through the Representative, who shall be empowered to bind the bidders
in the group. No bidder may submit or participate in more than one bid.
5. Submission of Bids and Delivery of Confirmation of Bids.
All bids must be submitted by telephone and confirmed in writing in the
manner set forth in Exhibit A, Confirmation of Bid, attached, signed by the
<PAGE> 3
-3-
Sole Bidder or the Representative on behalf of the members of a group of
bidders. Each bid must specify: (a) the interest rate, which shall be a multiple
of 1/8 of 1%; and (b) the price to be paid to the Company for the Debentures,
which shall be expressed as a percentage of the principal amount of the
Debentures and shall not be less than 98% thereof nor more than 101% thereof.
The Confirmation of Bid shall specify the same interest rate and price specified
in the telephonic bid.
The Company reserves the right in its discretion from time to time to
postpone the time and the date for submission of bids for an aggregate period of
not exceeding thirty days, and will give notice of any such postponement to each
Invited Bidder, specifying in such notice the changes in the times and dates set
forth in the Purchase Agreement occasioned by such postponement. In the event
that any such postponement should be for a period of more than three full
business days after the date of sending or delivering such notice, the time for
filing of questionnaires by prospective bidders under Section 2 hereof shall by
such notice be postponed to 5:00 P.M., New York City time, at the place of
delivery specified in Section 2 hereof, on the business day immediately
preceding the newly scheduled date for the submission of bids.
6. Acceptance or Rejection of Bids.
The Company may reject all bids, but if any bid for the Debentures is
accepted the Company will accept that bid which shall result in the lowest
"annual cost of money" to the Company for the Debentures, and any bid not so
accepted by the Company shall, unless such bid shall be involved in rebidding as
hereinafter provided, be deemed to have been rejected. The lowest annual cost of
money to the Company for the Debentures shall be determined by the Company and
such determination shall be final. In case the lowest annual cost of money to
the Company is provided by two or more such bids, the Company (unless it shall
reject all bids) will give the makers of such identical bids an opportunity (the
duration of which the Company may in its sole discretion determine) to improve
their bids. The Company will accept, unless it shall reject all bids, the
improved bid providing the Company with the lowest annual cost of money for the
Debentures. If upon such rebidding the lowest annual cost of money to the
Company is again provided by two or more improved bids, the Company may without
liability to the maker of any other bid accept any one of such improved bids in
its sole discretion, or may reject all bids. If no improved bid is made within
the time fixed by the Company, the Company may without liability to the maker of
any other bid accept any one of the initially submitted bids providing the
lowest annual cost of money to the Company, or may reject all bids.
The Company further reserves the right to reject the bid of any Sole
Bidder or group of bidders if the Company, in the opinion of its counsel, may
not lawfully sell the Debentures to such bidder or to any member of such group,
unless, in the case of a group of bidders, prior to 1:00 P.M., New York City
time, on the date on which the bids are submitted, the member or members to
which, in the opinion of the Company's counsel, the Debentures may not be
lawfully sold have withdrawn from the group and the remaining members have
agreed to purchase the Debentures which such withdrawing member or members had
offered to purchase.
7. Purchase Agreement and Completion of Registration Statement.
The Company will signify its acceptance of a bid by signing the
Purchase Agreement. The Company shall, upon request, execute the acceptance on
additional number of copies of the Purchase Agreement as shall be reasonably
requested by the Representative of the successful bidders. Upon the
<PAGE> 4
-4-
acceptance of a bid, the successful Sole Bidder, or, in the case of a bid by a
group of bidders, the Representative on behalf of the successful bidders, shall
furnish to the Company, in writing, all information regarding the bidder or
bidders and the public offering, if any, of the Debentures required in
connection with the prospectus supplement to the Registration Statement, any
further information regarding the bidders and the public offering, if any, to be
made by them, which may be required to complete the applications filed by the
Company with public authorities having jurisdiction over the Company, and other
information required by law in respect of the purchase or sale of the Debentures
as herein contemplated.
8. Delivery of the Debentures.
The Debentures will be delivered in temporary or definitive form, at
the election of the Company, to the purchasers of the Debentures at the place,
at the time and in the manner indicated in the Purchase Agreement, against
payment of the purchase price therefor as provided in the Purchase Agreement.
9. Opinion of Counsel for the Purchasers.
Messrs. Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New
York, N.Y. 10005, have been requested by the Company to act as counsel for the
successful bidder or bidders of the Debentures and to give to the purchasers an
opinion as outlined in the Purchase Agreement. Such counsel has reviewed or will
review, from the standpoint of possible purchasers of the Debentures, the form
of the Registration Statement and the Prospectus and competitive bidding papers,
including the Purchase Agreement, and has reviewed or will review the corporate
proceedings with respect to the issue and sale of the Debentures. Invited
Bidders may confer with Messrs. Milbank, Tweed, Hadley & McCloy with respect to
any of the foregoing matters at the offices of said firm, 1 Chase Manhattan
Plaza, New York, N.Y. 10005, Attn.: Robert W. Mullen, Jr., Esq. The successful
bidders are to pay the compensation and disbursements of such counsel, except as
otherwise provided in the Purchase Agreement. Such counsel will, on request,
advise any Sole Bidder who has, or the Representative of any group of bidders
who have, furnished questionnaires as provided in Section 2 hereof, of the
amount of such compensation and of the estimated amount of such disbursements.
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
______, 199_
<PAGE> 5
EXHIBIT A
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
(the "Company")
CONFIRMATION OF BID FOR
$___,000,000 ____% Debentures, Series _, Due ____
(the "Debentures")
TERMS
Maturity: ________________.
Interest Payable: Semi-annually on _____ and _____, commencing ______,
____.
Redemption Provisions:
[The Debentures will not be redeemable prior to maturity.]
OR
[The New Debentures will not be redeemable prior to ______. Thereafter,
the New Debentures will be redeemable on not less than 30 nor more than 60 days'
notice given as provided in the Indenture, as a whole or in part, at the option
of the Company at the redemption price set forth below. The "initial regular
redemption price" will be the initial public offering price as defined below
plus the rate of interest on the Debentures. The redemption price during the
twelve month period beginning _______ and during the twelve month periods
beginning on each ___________ thereafter through the twelve month period ended
__________ will be determined by reducing the initial regular redemption price
by an amount determined by multiplying (a) 1/_ of the amount by which such
initial regular redemption price exceeds 100% by (b) the number of such full
twelve month periods which shall have elapsed between _________ and the date
fixed for redemption; and thereafter the redemption prices during the twelve
month periods beginning _________ shall be 100%; provided, however, that all
such prices will be specified to the nearest 0.01% or if there is no nearest
0.01%, then to the next higher 0.01%.
For the purpose of determining the redemption prices of the Debentures,
the initial public offering price of the Debentures shall be the price,
expressed in percentage of principal amount (exclusive of accrued interest), at
which the Debentures are to be initially offered for sale to the public; if
there is not a public offering of the Debentures, the initial public offering
price of the Debentures shall be deemed to be the price, expressed in percentage
of principal amount (exclusive of accrued interest), to be paid to the Company
by the Purchasers.]
NAME OF BIDDER: _________________________________________________________
TELEPHONE NUMBER TO BE USED TO CALL IN BID: _____________________________
<PAGE> 6
-2-
TIME AND DATE BID RECEIVED: ___________________________________________________
(to be completed by GTE Service Corporation on behalf of the Company)
By submitting this bid, the bidder named above agrees to the following terms
and conditions:
- - Each bid shall be for the purchase of all of the Debentures.
- - Each bid may be made by a single bidder or by a group of bidders.
- - The bidder acknowledges that it (and all members of the bidding group it
represents) has received a copy of the Prospectus dated _________________.
- - If the bid is made by a group of bidders, the undersigned represents and
warrants that it is fully authorized by all bidders in the group to act on their
behalf and to bind them to the terms of the Purchase Agreement relating to the
Debentures.
- - Each bid shall specify:
- the annual interest rate on the Debentures, which rate shall be a
multiple of 1/8%;
- the price (exclusive of accrued interest) to be paid to the Company
for the Debentures, which price shall not be less than 98% and not more than
101% of the principal amount of the Debentures, and that accrued interest on the
Debentures from _______________, to the date of payment of the Debentures and
the delivery thereof will be paid to the Company by the purchaser or purchasers;
and
- in the case of a bid by a group of bidders, the name of, and amount
to be purchased by each bidder;
- - Bids must be received by 10:00 A.M., New York City time, on ____________,
____, or such later time and/or date as the Company may specify (the "Bid
Time").
- - Bids shall be irrevocable for one (1) hour after the Bid Time.
- - The winning bid shall be selected on the basis of the lowest "annual cost of
money" to the Company.
- - Whether or not this bid is accepted by the Company, an executed copy of this
Confirmation of Bid must be sent promptly by facsimile to GTE Service
Corporation on behalf of the Company at 203-965-3746 or 203-965-2830.
- - If this bid is accepted, upon acceptance the undersigned agrees to promptly
furnish to the Company a signed copy of the Purchase Agreement relating to the
Debentures and a copy of all information required to be included in the
Prospectus relating to the Debentures.
- - Closing Date: __________________ at 10:00 A.M., New York City time.
<PAGE> 7
-3-
BID:
Interest Rate %
----------------
Price to be paid to the Company
%
- ----------------
-----------------------------------
(Name of Bidder)
-----------------------------------
(Authorized Signature)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,515
<SECURITIES> 0
<RECEIVABLES> 156,898
<ALLOWANCES> 6,338
<INVENTORY> 8,829
<CURRENT-ASSETS> 197,388
<PP&E> 1,967,801
<DEPRECIATION> 1,158,356
<TOTAL-ASSETS> 1,154,815
<CURRENT-LIABILITIES> 290,483
<BONDS> 482,412
0
0
<COMMON> 250,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,154,815
<SALES> 611,760
<TOTAL-REVENUES> 611,760
<CGS> 273,636
<TOTAL-COSTS> 520,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,500
<INCOME-PRETAX> 52,924
<INCOME-TAX> 15,023
<INCOME-CONTINUING> 37,901
<DISCONTINUED> 0
<EXTRAORDINARY> 263,419
<CHANGES> 0
<NET-INCOME> (225,518)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
