-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, H7bFsjdOYJlKjbNeHyeUn4sV2RYD3KwOa2JFOgnCwbX1wFnXdRBa3Vp989RJazMj 2EWdAt4iJSsFL4ahL8kBXg== 0000084567-94-000014.txt : 19940712 0000084567-94-000014.hdr.sgml : 19940712 ACCESSION NUMBER: 0000084567-94-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCHESTER TELEPHONE CORP CENTRAL INDEX KEY: 0000084567 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 160613330 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04166 FILM NUMBER: 94517978 BUSINESS ADDRESS: STREET 1: ROCHESTER TEL CENTER STREET 2: 180 S CLINTON AVE CITY: ROCHESTER STATE: NY ZIP: 14646-0995 BUSINESS PHONE: 7167771000 10-K 1 FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1993 or [ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 [No Fee Required] For the transition period from to Commission file number 1-4166 ROCHESTER TELEPHONE CORPORATION (Exact Name of registrant as specified in its charter) New York 16-0613330 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 180 South Clinton Avenue 14646-0700 Rochester, New York (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (716) 777-7100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of Each Class on which registered ------------------- ----------------------- Common Stock, par value $1.00 New York Stock Exchange per share 4 3/4 Percent Convertible Debentures New York Stock Exchange Due March 1, 1994 Securities registered pursuant to Section 12(g) of the Act: None 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 aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1994 is $1,587,600,000. The number of shares outstanding of Rochester Telephone Corporation's common stock (Par Value $1.00 per share) as of the close of February 28, 1994 is 36,579,066 shares. 2 Documents Incorporated by Reference (1) Portions of the registrant's Annual Report to Shareowners for fiscal year ended December 31, 1993, as presented in Exhibit No. 13 of this Form 10-K, are incorporated by reference in Part II hereof. (2) Portions of the Notice of Annual Meeting and Proxy Statement issued by the registrant in connection with its Annual Meeting of Shareowners to be held April 27, 1994, as presented in Exhibit No. 99 of this Form 10-K, are incorporated by reference in Parts III and IV hereof. 3 PART I ITEM 1. BUSINESS ================= Rochester Telephone Corporation ("Rochester Tel" or the "Company") is a major U.S. diversified telecommunications firm with headquarters in Rochester, New York. The Company was incorporated in 1920 under the laws of New York State to take over and unify the properties of a predecessor company and certain properties of the New York Telephone Company which were located in the same general territory. Currently, the Company's principal lines of business are Telecommunication Services and Telephone Operations. Telecommunication Services consists of a major regional long distance company, cellular and paging operations, and equipment sales. Telephone Operations consists of 37 local telephone companies which serve, as of December 31, 1993, approximately 931,650 access lines in 14 states. Historically, Telephone Operations has provided the majority of the Company's revenues and income. However, an increasing percentage of Rochester Tel's revenues and income is being generated by the Company's long distance and wireless operations. In 1984, the Company made the strategic decision to enter the long distance business. It now provides long distance voice, video and data communication services throughout the United States with its major marketing and sales focus in New York State, New England, and the Mid-Atlantic and Midwest regions. The Company first began providing cellular communications services in the Rochester, New York metropolitan area in 1985. Today, it manages wireless communications operations which serve over 4.3 million potential subscribers in five states. Prior to 1988, the Company's Telephone Operations were heavily concentrated in New York State. Since 1988, the Company has acquired 29 local telephone companies and has significantly diversified its geographic base. The Company's largest telephone operation is in Rochester, New York and serves approximately 506,520 access lines. The Company refers to the other 36 telephone companies outside of Rochester, New York as "Regional Telephone Operations". This latter group now includes approximately 425,130 access lines and in 1993 reached an aggregate revenue level greater than the Rochester, New York Operating Company. A key strategy for the Company is to provide integrated communications services for its customers. These integrated services include long distance, wireless, and local telephone service as well as selected products and services that the Company will remarket to customers as a single source provider. Rochester Tel is committed to growing its business through expansion of its existing businesses, the development of value added products and services, and selected acquisitions. 4 On February 3, 1993, the Company filed a proposal with the New York State Public Service Commission (NYSPSC) to open its Rochester, New York local exchange market to competition. Adoption of the Company's plan would also result in the formation of a Holding Company that would own the various Rochester Tel companies. This filing is discussed in detail under the caption "Open Market Plan", at page 13, infra. Rochester Tel and NYNEX have agreed to form a joint venture, Upstate Partners, to manage and operate certain of their cellular properties located within New York State. This joint venture will serve a territory that includes approximately 4,543,000 potential customers and includes the cities of Buffalo, Syracuse, Rochester, Binghamton, Utica, Elmira and Watertown, New York. One of Rochester Tel's subsidiaries will serve as managing partner of Upstate Partners. This is described in more detail under the caption "Wireless Communications", at page 7, infra. On November 3, 1993, the Company announced a management reorganization to address the needs of specific market segments and to operate more cost effectively. The reorganization included the consolidation of redundant systems, a reduction in the number of customer service centers, and a continuing emphasis on streamlining and reducing management layers. Overall, the Company reduced its work force by 7 percent during 1993, and will continue to pursue further reductions in work force levels. On December 20, 1993, the Company announced two transactions. In Alabama, the Company increased its ownership interest in the South Alabama Cellular Partnership from 50.6 percent to 69.6 percent. In addition, the Company has reached a definitive agreement to sell the Minot Telephone Company of North Dakota, representing approximately 26,000 access lines. Both of these transactions are subject to various regulatory approvals. On February 1, 1994, the Company entered into a nonbinding letter of intent for the purchase of a partnership ("Minnesota Cellular") which owns the business and assets of a cellular company serving a Rural Service Area ("RSA") in Minnesota with a population of approximately 225,000 potential subscribers. The transaction is anticipated to involve the issuance of the Company's Common Stock. The transaction is contingent upon several factors, including the negotiation of a definitive agreement, approval of the Company's Board of Directors, and regulatory approvals. On February 15, 1994, the Company completed a public offering of its common stock. A total of 2,605,500 new shares were issued in connection with this offering. The public offering also included the sale of 2,885,000 shares that were held by a subsidiary of Sprint Corporation. The principal executive offices of the Company are located at 180 South Clinton Avenue, Rochester, New York 14646-0700. The telephone number is (716) 777-1000. 5 Telecommunication Services ========================== General - - - ------- The Telecommunication Services segment of Rochester Tel is comprised of Network Systems and Services, which provides long distance services, customer premises equipment, and wireless services. The Company's major deregulated business is long distance service. While regionally focused in the Northeast, Mid-Atlantic and Midwest states from a marketing and sales perspective, customers of the Company's long distance business enjoy nationwide and international connectivity. Telecommunication Services' revenues have increased significantly over the past few years and accounted for 34 percent of Rochester Tel's total revenues for the year ended December 31, 1993. The Company intends to expand Telecommunication Services by increasing its existing commercial and residential customer base, continuing to develop new products, and effecting selected acquisitions. Long Distance Services - - - ---------------------- The Company provides long distance services primarily through a subsidiary, RCI Long Distance, Inc. ("RCI"). RCI routes long distance traffic over its 100 percent digital state-of-the-art network and resells services obtained from other suppliers to route calls to areas where it does not have its own facilities. RCI currently owns and operates seven switching sites. These are located in Rochester, New York; New York City; Washington, D.C.; Philadelphia, Pennsylvania; Cleveland, Ohio; Burlington, Vermont; and Manchester, New Hampshire. RCI is installing a switch in Chicago, Illinois to handle its increased traffic volume in the Midwest. RCI's switched services include basic long distance or measured toll service which is accessible via "1 + dialing", 800 services, a variety of long distance products targeted at specific consumer and business segments, and value-added services such as travel cards, prepaid cards and information services. In addition, RCI provides flexible billing services such as multi-location billing, customized accounting codes and electronic billing features. RCI currently focuses its marketing efforts in New York State, New England and the Mid-Atlantic and Midwest regions. In these regions, RCI markets its products through a direct sales force, direct marketing campaigns, sales agents and affiliated local exchange carriers. The majority of RCI's revenues are derived from small to medium-sized business customers. RCI has introduced a number of programs designed to attract new long distance customers. For example, the "Budget Call" feature enables any telephone user to dial an access code and complete a call through RCI's long distance network. The cost of the call is invoiced by the customer's local telephone company. The rates for such calls are typically 10 percent lower than the rates charged by the major long distance carriers. Budget Call is currently available in five states. This program is anticipated to expand to as many as sixteen states by the end of 1994. 6 As part of the Company's overall service integration strategy, RCI has significantly increased residential usage through its "Visions Long Distance" program (as described in "Telephone Operations-General" at page 10) where RCI's long distance services are marketed through Company-owned as well as non-affiliated local exchange service providers. Through the Visions Long Distance program, the Company has achieved penetrations in excess of 50 percent in several markets as a result of customer preference for unified billing and service. Because residential long distance calling volumes peak in the evenings, on weekends and on holidays, when commercial traffic tends to be lowest, expanding the residential business increases revenues with virtually no need to increase existing switching and transmission facilities. RCI completed two acquisitions in 1993. In June 1993, the Company completed the purchase of Budget Call Long Distance Inc. ("Budget Call"), a long distance reseller in Pennsylvania. RCI then began to utilize the Budget Call program, described earlier in this section, throughout its long distance markets. On September 30, 1993, the Company completed the purchase of Mid Atlantic Telecom, Inc., ("Mid Atlantic"), an interexchange carrier headquartered in Washington D.C. with operations in New England and the Mid-Atlantic region. Mid Atlantic had more than tripled its revenue in the five years prior to the acquisition to approximately $21 million for the twelve months ended December 31, 1993. Both purchases served to implement RCI's strategy to expand its customer and market base. The Company intends to continue to pursue additional acquisitions to provide greater economies of size and scale to its operation and to extend its customer and market reach. The long distance industry is dominated on a volume basis by the nation's three largest long distance providers, AT&T, MCI and Sprint, which generate an aggregate of approximately 86 percent of the nation's long distance revenue of approximately $59 billion. In each of its markets RCI competes with AT&T, MCI and Sprint, as well as with other national and regional long distance companies, for intercity communications transmission services such as 1 +, dedicated access, 800 service and private line service. The primary bases for competition in the long distance business are pricing, product offering, and service. One element of service includes billing and customer information. The Company intends to continue to compete aggressively in the long distance business. 7 Wireless Communications - - - ----------------------- Since 1985, the Company has provided cellular service in the Rochester Metropolitan Statistical Area ("MSA"), which has a population of approximately one million, in a partnership with ALLTEL Corporation. Rochester Tel has an 85 percent interest in this partnership which currently operates and maintains 25 cell sites in the Rochester, New York MSA. In addition, in April 1993, the Company acquired a 70 percent interest in a cellular system serving the Utica-Rome, New York MSA. The Company also has investments in wireless properties elsewhere in New York State and in Alabama, Georgia, Illinois and Iowa. The Company, through its subsidiaries, is a member of the MobiLink marketing alliance, a nationwide consortium of wireless operators. The Company intends to continue to pursue additional investments in cellular or wireless operations. The Company's preference is to invest in properties which are adjacent to existing Company-owned properties or where a controlling interest can be obtained. Despite intense price competition during the construction of its network in the Rochester, New York market, the Company's cellular business has remained profitable since its first full year of service. This business has consistently increased its subscriber base while maintaining an efficient cost structure. On March 12, 1993, the Company and NYNEX signed a definitive agreement to form a joint venture, Upstate Partners, in upstate New York. This agreement was amended in December 1993 to add additional properties to the joint venture. A Rochester Tel subsidiary will operate the 50/50 joint venture, and has already assumed certain operational responsibilities under an interim consulting contract. Under the joint venture agreement, Rochester Tel will contribute its cellular properties in Rochester, New York, its Utica-Rome Partnership interest, as well as its Rochester, New York area paging operations. NYNEX will contribute its cellular properties in Buffalo, Syracuse, its own minority interests in Utica-Rome and New York State Rural Service Area ("RSA") No. 1, as well as the Binghamton and Elmira MSAs. By combining marketing and service efforts and integrating networks, the Company and NYNEX will be able to provide seamless cellular service to a population of more than 4.5 million potential subscribers in upstate New York. This joint venture has been approved by the New York State Public Service Commission ("NYSPSC") and is subject to approval of the Federal Communications Commission (the "FCC") and the receipt of waivers by NYNEX from the U.S. District Court for the District of Columbia. The Company anticipates receipt of all required approvals by mid-1994. 8 Cellular systems compete principally on the basis of network quality, customer service, price and coverage area. Each market currently has two cellular providers, and the Company's chief competition in each market is from the other cellular licensee in that market. The Company believes that its technological expertise, emphasis on customer service and development of new products and services make it a strong competitor. Several recent FCC initiatives indicate that the Company is likely to face greater wireless competition in the future. The FCC has licensed specialized mobile radio ("SMR") system operators to construct digital mobile communications systems on existing SMR frequencies in many metropolitan areas throughout the United States. Also, in September 1993, the FCC announced its decision to allocate radio frequency spectrum for personal communications services ("PCS"), a form of wireless communication using lower power and more cell sites than current cellular service. The FCC's decision will permit the grant of seven new licenses: two 30 MHz blocks, one 20 MHz block and four 10 MHz blocks. (By comparison, the two cellular carriers in each market currently have 25 MHz of spectrum each.) The Company has committed resources to evaluating the expansion of wireless communications to include PCS offerings and, depending upon the Company's economic evaluations, may participate in the bidding for these new licenses, which is expected to occur in 1994. 9 Cellular Property Ownership Table ================================= The Company owned the following cellular properties as of December 31, 1993: 1993 Current Pending Estimated Ownership Adjusted Proposed Adjusted Market Population Interest Population Interest Population - - - ------ ---------- -------- ---------- -------- ---------- New York Rochester *1,012,000 85.0% 860,200 42.5% 430,100 Orange- Poughkeepsie 600,000 15.0% 90,000 15.0% 90,000 Binghamton** 305,000 24.0% 73,200 32.5% 99,125 Utica-Rome* 313,000 70.0% 219,100 50.0% 156,500 RSA #2** 231,000 12.5% 28,875 12.5% 28,875 RSA #3* 477,000 22.5% 107,325 22.5% 107,325 Buffalo** 1,180,000 0.0% 0 50.0% 590,000 Syracuse** 665,000 0.0% 0 27.5% 182,875 Elmira** 96,000 0.0% 0 50.0% 48,000 RSA #1 ** 264,000 0.0% 0 20.0% 52,800 Alabama RSA #4 134,000 69.6% 93,264 69.6% 93,264 RSA #6 118,000 69.6% 82,128 69.6% 82,128 Georgia RSA #3 202,000 25.0% 50,500 25.0% 50,500 Illinois RSA #2 250,000 6.7% 16,750 6.7% 16,750 RSA #3 199,000 6.4% 12,736 6.4% 12,736 Iowa Des Moines 411,000 4.0% 16,440 4.0% 16,440 --------- --------- --------- Total 6,457,000 1,650,518 2,057,418 RTC Total 4,252,000 1,650,518 2,057,418 Total Managed Including Supersystem 4,543,000 1,288,700 1,695,600 * Company managed systems. ** Additional Company managed systems pending completion of the Supersystem in 1994. Customer Premises Equipment - - - --------------------------- Rotelcom Network Systems ("Rotelcom"), which was established in 1978, markets and services a wide range of telecommunications and data equipment for mid- to large-size business customers, and competes directly with other interconnect vendors that market telephone systems to businesses and other enterprises. Rotelcom's product line includes: private branch exchanges ("PBXs") from Siemens/ROLM and Northern Telecom; data communications equipment from leading manufacturers including Dowty and Newbridge; and videoconferencing equipment from PictureTel. The majority of Rotelcom's customers are in New York State. Rotelcom is also a partner in Anixter-Rotelcom, a joint venture telecommunication supply venture with Anixter Bros., Inc. 10 Telephone Operations ==================== General - - - ------- Through its Telephone Operations, the Rochester, New York Operating Company and the 36 other local exchange companies serve, as of December 31, 1993, approximately 931,650 access lines in 14 states. The local exchange carriers provide local, toll access and resale services; sell, install and maintain customer premises equipment; and provide directory services. Since the beginning of 1988, the Company has invested over $560 million in upgrading its Telephone Operations business and over $480 million for the acquisition of independent telephone companies. Over this period, the Company installed advanced digital switching platforms throughout much of its switching network. The Company's network in Rochester, New York is over 99 percent digital, making Rochester one of the largest cities in the United States to be served by a virtually all-digital network. In aggregate, the 36 local exchange companies outside of Rochester, New York have over 91 percent digital capability. This is illustrated in the "Access Line Table" located on page 11. The Company has also achieved substantial cost reductions through the elimination of duplicative services and procedures and the consolidation of administrative functions. As of December 31, 1993, Telephone Operations had 37 employees per ten thousand access lines. The Company has reduced the number of telephone employees per ten thousand access lines by over 20 percent since 1988. Rochester Tel believes that additional reductions in employee levels will be necessary to further improve the competitive position of its Telephone Operations. The Company intends to vigorously pursue additional gains in productivity through reengineering while simultaneously improving customer service. 11 Access Line Table ================= The table below sets forth certain information with respect to access lines as of December 31, 1993: Percent of Total Company Access Telephone Properties at Access Lines at Percent December 31, 1993 Lines December 31, 1993 Digital ======================= ======= ================= ======= Rochester, NY 506,522 54.4% 99.9% Other NY Companies 82,942 8.9% 100% ------- ------ ---- Total New York 589,464 63.3% 100% Alabama (1) 26,809 2.9% 100% Georgia 20,693 2.2% 100% Illinois (1) 18,187 2.0% 96% Indiana 4,506 0.5% 100% Iowa 50,582 5.4% 54% Michigan (1) 25,635 2.8% 89% Minnesota 96,680 10.4% 89% Mississippi 5,064 0.5% 100% North Dakota 26,292 2.8% 100% Pennsylvania 33,197 3.6% 100% Wisconsin 34,541 3.6% 100% ------- ------ ---- Total Other States 342,186 36.7% 91% Consolidated Access Lines 931,650 100.0% 96% ======= ====== ==== (1) These companies also have properties in one or more other states (Florida, Iowa and Ohio). The Company operates 71 central office and remote switching centers in Rochester, New York, and a total of 275 central office and remote switching centers in its other telephone territories. Of the 931,650 access lines in service on December 31, 1993, 669,512 were residence lines and 262,138 were business lines. Long distance network service to and from points outside of the telephone companies' operating territories is provided by interconnection with the lines of interexchange carriers. As part of the Company's continuing strategy to provide a greater selection of value-added products, the Rochester, New York Operating Company introduced advanced services such as Caller ID, distinctive ringing, directory-assisted call completion, and an enhanced voice mail platform during 1992 and 1993. The Company is introducing similar advanced services, where appropriate, at its other telephone properties. 12 The Company is pursuing several alternatives to provide expanded broadband services to its customers. To date, the Company has installed over 10,000 miles of fiber optic cable in the Rochester, New York area to provide its customers with enhanced capacity and product capability. Throughout its telephone operations, Rochester Tel has over 24,000 miles of fiber optic cable in place. The Company is also conducting marketing trials and testing new technologies such as a video on demand service utilizing a hybrid fiber-optic/coaxial cable network. The Company expects to market this technology to selected customers in its Rochester, New York service area during the second quarter of 1994. The Company is also providing expanded broadband services to select customers outside the Rochester, New York service area. These include video-distance learning arrangements at certain Midwest region telephone properties. In connection with its integration strategy, the Company has developed a new program known as "Visions Long Distance", where its local exchange companies resell RCI's long distance services. The Company believes that many customers prefer the convenience of obtaining their long distance service through their local telephone company and receiving a single bill. The Company introduced Visions Long Distance at nine local telephone exchange companies in 1993 and intends to extend the program to additional subsidiaries in 1994. The results of Visions Long Distance operations are included as part of the Telecommunication Services segment. Technological innovation and regulatory change are accelerating the level of competition in both local exchange and long distance services. New competitors now have the ability to provide basic local telephone service in some areas, including Rochester, New York. To benefit from these technological advances and broaden the scope and quality of its own product and service offerings, the Company has increased its fiber and digital switching capacity throughout its networks and is pursuing regulatory alternatives such as the Open Market Plan, which is described in more detail below. Currently, the Company may be considered the primary provider of basic local telephone service in its Rochester, New York property and may be considered the only provider of basic local exchange service in the various other geographic areas where it has telephone properties. 13 Open Market Plan - - - ---------------- On February 3, 1993, the Company filed its Open Market Plan with the New York State Public Service Commission ("NYSPSC"). The plan, if adopted, would open the Rochester, New York local exchange market to competition. Rochester Tel was the first communications company in the nation to propose such a plan for full open local competition. The Open Market Plan would enable customers to choose their local telephone service provider and have a broad selection of products, services and prices. It would also give Rochester Tel the flexibility to broaden the scope and quality of its own competitive service offerings. Under the proposed Open Market Plan, the Company's local exchange operations would be divided into two companies--a wholesale provider of basic network services ("R-Net") and a retail provider of telecommunication services ("R-Com"). R-Net and R-Com would be subsidiaries of the Company, which would become an unregulated parent holding company. The parent holding company structure would provide financial flexibility for the Company to continue the acquisition and diversification efforts that are necessary for its long-term growth. R-Net would be a regulated company and would sell basic network services such as access to the network, transport between offices, and switching services to R-Com and all other local telecommunication companies. These local telecommunication companies, including R-Com, would then package services for resale to local customers. R-Com would be an unregulated full service provider of a broad array of integrated telecommunication services, including local, long distance, cellular and, potentially, video and other value-added offerings. R-Com would also be able to package the network elements purchased from R-Net and other network providers with services such as flat rate service, measured rate service, Centrex and ISDN. The Company intends that R-Com would eventually offer products and services outside of the Rochester, New York market. The Open Market Plan must be approved by the NYSPSC. Negotiations among all interested parties began in 1993, and determinative action by the NYSPSC is expected during the second half of 1994. The Company will aggressively pursue approval of the Open Market Plan but cannot predict whether or when it will be approved by the NYSPSC, and, if so, in what form. 14 Regulatory Matters ================== Each of Rochester Tel's local telephone service companies is regulated by the public utility regulatory agency of the state in which that company provides local telephone service. The respective states are listed on the Access Line Table on page 11. The telecommunication industry has become more competitive over time. This evolution has also resulted in a more fluid state regulatory framework. In general, state regulatory agencies exercise authority over the prices charged for the provision of local telephone service and intrastate long distance service, the quality of service provided, the issuance of securities, the construction of facilities and other matters. Each of the Company's long distance and wireless companies may be regulated to a limited extent by the public utility regulatory agency of the state in which each is providing service. The Company's long distance and wireless service providers are also subject to FCC jurisdiction. (a) Royalty Proceeding. In 1984, the NYSPSC initiated a proceeding to investigate the issue of whether the Company's competitive subsidiaries should pay a royalty to the Rochester, New York local telephone service provider primarily for the alleged intangible benefits received from the use of the Rochester Telephone name and reputation. This proceeding remains unresolved and is discussed in more detail in Item 3, Legal Proceedings. (b) Stipulated Agreement. In 1986, the Company and the NYSPSC entered into an agreement which allowed the Company to pursue certain acquisitions and investments without further Commission approval. This agreement was amended three times, most recently in conjunction with the 1991 acquisition of the Vista Telephone properties in Minnesota and Iowa from Centel Corporation. Certain portions of that amendment expired in June 1993, and the Company requested an extension of the expiration to December 1993. That extension was granted by the Commission in August 1993. In anticipation of a 1994 resolution on the Open Market Plan, the Company has elected to not pursue any further amendment to this agreement at this time. NYSPSC approval is required to effect additional acquisitions by the Company. (c) Wireline Transfer. In August 1989, the Company filed a petition with the NYSPSC seeking approval of the transfer of the Rochester, New York Operating Company's interest in the Rochester, New York wireline cellular business to its wholly-owned subsidiary, Rochester Tel Mobile Communications Inc. This application was consolidated with the May 18, 1993 application to form a joint venture with NYNEX to create a "Supersystem" in upstate New York. The joint venture is described in more detail on page 4. The NYSPSC approved the application and transfer on December 10, 1993. 15 (d) Incentive Regulation. In January 1990, the NYSPSC approved an incentive regulation agreement for the Rochester, New York Operating Company. This agreement expired at the end of 1992, and the Company proposed a new incentive regulation agreement in January 1993. An interim settlement was approved by the NYSPSC in February 1994. The settlement reduces the Company's revenue requirement in 1993 by $5 million and by an additional $4.5 million in 1994. Each of these reductions is subject to adjustment for depreciation changes and the outcome in the Generic Financing Proceeding, which is discussed on page 17. The amount of allowable depreciation is the subject of a contested proceeding before the NYSPSC. Fifty percent of the Rochester, New York Operating Company's earnings in 1994 above the authorized return on equity of 10.9 percent (also subject to adjustment in the Generic Financing Proceeding which is described in more detail below) will be shared with ratepayers, with the specific form of the sharing to be determined by the NYSPSC as a part of the Open Market Plan deliberations. Customers of the Rochester, New York Operating Company will continue to receive service at a quality level no less than that enjoyed in 1992. In the event service deteriorates from this standard, the Rochester, New York Operating Company would be subject to a penalty of one-half of one percent of its local service revenues. (e) Ice Storm. In March 1991, Rochester, New York experienced a severe ice storm which caused the Rochester, New York Operating Company to spend approximately $9.7 million to repair and replace outside plant facilities and to provide customers billing credits for service disruptions. The Rochester, New York Operating Company filed a petition with the NYSPSC requesting that it be allowed to defer and amortize the portion of those costs which were intrastate expenses. In November 1991, the NYSPSC approved the deferral and amortization of $5.2 million of the intrastate local service expenses over a forty-eight month period beginning January 1, 1992 and the amortization of $1.6 million of the intrastate long distance service expenses through June 1993. The Rochester, New York Operating Company also filed a petition with the FCC requesting that it be allowed to defer and amortize the portion of the ice storm expenses that were allocated to or assigned the interstate jurisdiction. The FCC approved an order effective January 23, 1992, which permitted the Company to begin the amortization of $2.0 million of interstate expenses over an eighteen month period. In order to recover the expenses, the FCC permitted the Rochester, New York Operating Company to establish a temporary surcharge on interstate switched access charges to be billed to interexchange carriers and a monthly increase in the interstate customer access line charges applicable to Centrex and multiline business customers. 16 (f) Canton Telephone Company. The Pennsylvania Public Utility Commission issued an Order to Show Cause on May 29, 1992 against the Canton Telephone Company. The Order required Canton to show cause why Canton's rates were not unreasonable and therefore subject to modification. Canton reached a settlement with the parties. The settlement allows Canton to eliminate prospectively a state tax adjustment surcharge, to flow through state deferred taxes, and to amortize a $451,000 reserve deficiency over three years. Canton agreed to refrain from filing a rate case for three years and the other parties agreed that they would not seek a rate reduction from Canton during this three year period. The Pennsylvania Commission approved the settlement effective December 17, 1992. (g) FAS 106. The Company adopted Financial Accounting Standards Board Statement 106 (FAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions." The estimated accumulated postretirement benefit obligation as of January 1, 1993 is $125 million. The Company elected to defer the recognition of the accrued Transition Benefit Obligation over a period of twenty years. Each state regulatory agency may treat these obligations differently in the rate-making process. On September 7, 1993, the NYSPSC issued its Statement of Policy and Order concerning postretirement benefit and pension accounting. Consistent with this NYSPSC policy the Rochester, New York Operating Company included the FAS 106 costs in its incentive regulation settlement agreement discussed on page 15. Although the FCC originally rejected the Company's petition to recover the FAS 106 transition costs through the rate-making process, the FCC later allowed the Company, subject to an investigation that remains pending, to recover the portion of the FAS 106 cost associated with the Transition Benefit Obligation (the unrecorded postretirement benefit liability) amortized over a twenty year period. The Company has also appealed the FCC's original order, but cannot, at this time, predict the outcome of that proceeding. (h) Tariff Disaggregation Filing. Effective January 1, 1993, the FCC approved the Company's request to disaggregate the switched access rates contained in Rochester Tel's interstate access tariff. Prior to this time, with a few exceptions, Rochester Tel and its telephone company subsidiaries concurred in a uniform set of switched access rates. Effective with this disaggregation, the Company established two sets of switched access rates: one for the Rochester, New York Operating Company; and one for most of the subsidiary operating telephone companies. (Certain of the subsidiary companies continue to concur in the National Exchange Carrier Association tariff. In addition, Rochester Tel's Illinois subsidiaries and its Thorntown Telephone Company subsidiary provide interstate switched access services under company-specific rates.) On a consolidated basis, the change is revenue neutral. 17 (i) Open Market Plan. The Company filed a petition in February 1993 with the NYSPSC in which the Company requested approval to reorganize the corporation. This Open Market Plan is discussed in more detail on page 13. A series of meetings have been held with the Staff of the NYSPSC and all intervening parties. Negotiations are in process to reach a stipulated settlement. Although the Company cannot predict whether a settlement is likely to occur, a Commission decision is expected in the second half of 1994. (j) Vista Telephone Company of Minnesota. Vista Telephone Company of Minnesota filed a request to increase rates in March 1993 with the Minnesota Public Service Commission. A stipulated settlement was executed by all parties and was submitted for approval to the Minnesota Public Service Commission. The Administrative Law Judge recommended an annual regulated revenue increase of $4.5 million. The Company expects Commission approval during the first quarter of 1994. (k) Generic Financing Proceeding. In May 1993, the NYSPSC instituted a Generic Financing Proceeding to review its financial policy guidelines and to determine if there should be established a generic rate of return methodology for New York State local exchange companies. The Company favors a generic methodology because it would streamline the ratemaking process, provide all stakeholders a much greater sense of predictability, and create an environment more conducive to long term planning. The Company supports the implementation of a generic rate of return methodology, but it cannot, at this time, predict the outcome of this proceeding. (l) Vista Telephone Company of Iowa. Vista Telephone Company of Iowa filed in August 1993 for a rate increase in Iowa of approximately $4.5 million but with a temporary increase of $4.1 million. On February 11, 1994, the Iowa Utilities Board issued an order approving a proposed settlement of this case. Under the terms of the proposed order, the Board granted Vista Iowa an annual revenue increase of $2.9 million. (m) Undergrounding Proceeding. The NYSPSC, in an order dated September 21, 1993, stated that the Company's New York local exchange service providers should, for the next five years, accrue funds for the purposes of "undergrounding" construction of distribution plant in "visually significant areas." Any unspent amounts are to be carried over to the next year until expensed. The amount of the accrual is determined in accordance with a NYSPSC approved formula. The Company estimates the total amount of the accrual to be approximately $408,000 for all of its New York local exchange companies. The Company has filed for reconsideration, but cannot predict the outcome at this time. 18 Competition =========== Although traditionally considered a monopoly, the telecommunications industry has experienced a significant increase in competition in recent years. Rochester Tel is intent on meeting and taking advantage of the various business opportunities which competition provides in the markets where it operates. The Company is addressing competition by focusing on improved customer satisfaction, by developing and offering products and services, and by reducing its cost base and becoming more efficient. (a) Local Exchange Networks. Prior to 1968, the telephone industry alone provided and maintained the telephones and lines of the public switched telecommunication network. In that year, an FCC order declared unlawful certain AT&T tariffs which prohibited customers from attaching their own equipment to the telephone network. However, the telephone equipment provided by telephone companies which remained in place on customers' premises, remained regulated. By a subsequent FCC order, effective January 1, 1983, telephone companies were required to deregulate all new telephone equipment. Although Rochester Tel experiences different levels of network regulation throughout the geographic territory of its telephone properties, in general the Company is subject to numerous competitors in the provision of equipment and facilities used in connection with the local exchange network. Since the deregulation of telephone equipment, sales of telephone equipment has become commonplace throughout all geographic areas of the United States. The Rochester, New York Operating Company has responded to this competition through operation of its retail Phone Centers for the direct sale of telephone sets, inside wire and telephone outlets. The Phone Centers also perform as maintenance centers where customers who lease equipment from the company can pick up or exchange telephones and receive a credit on their bills if they bring in a telephone that needs repair. In 1982, the Rochester, New York Operating Company formed its Consumer Equipment Services division to maintain all company provided leased equipment as well as maintain customer-owned equipment on a fee for service or contract basis. Many of the Company's other local exchange companies also sell, lease and maintain telephone sets and equipment. Business consumer equipment needs are another segment of the telecommunication network equipment market. The Company's local exchange companies market equipment and facilities directly to business consumers in much the same way as they market to residential customers. In addition, Rotelcom Network Systems, which was established in 1978, markets and services a wide range of telecommunications and data equipment for mid-to large-size business customers, and competes directly with other interconnect vendors that offer for sale telephone systems to 19 businesses and other enterprises. Rotelcom's product line includes: private branch exchanges (PBX's) from ROLM, Siemens and Northern Telecom; data communications equipment from leading manufacturers including Dowty and Newbridge; and videoconferencing equipment from PictureTel. The majority of Rotelcom's customers are in New York State. Rotelcom is also a partner in Anixter-Rotelcom, a joint venture telecommunications supply venture with Anixter Bros., Inc. Although competitive providers of local exchange basic service are not expected to be active for the foreseeable future at the Company's smaller rural properties, local exchange basic service competition is occurring today in the Rochester, New York marketplace. For example, FiberNet, Inc. is an alternative local exchange service provider in Rochester. The Company is unaware of the exact revenues and market share of the local exchange market that FiberNet accounts for in the City of Rochester. On February 3, 1993, Rochester Tel filed a plan with the NYSPSC, to open the local telephone market in the Rochester, New York service area to competition. This plan will enable customers to choose their local telephone service company and have a broader selection of products, services and prices. It will also give the Company greater flexibility to broaden the scope and quality of its own competitive offerings. See the discussion on the Open Market Plan on page 13 and Regulatory Matters on page 17. Long distance companies largely access their end users through interconnection with local telephone companies. Those long distance companies pay access fees to the local telephone companies for this service. This is one reason the Company derives at least ten percent of its consolidated gross revenues from AT&T. The Company provides a number of other services to AT&T, such as billing and collection. Companies which provide alternative transmission media now exist and compete with local exchange companies to provide access services to long distance companies. Currently, FiberNet is the only Alternate Access Vendor active in the Rochester, New York area and no significant Alternate Access Vendors are active in any of the Company's other properties. 20 (b) Interexchange Service. During the past two decades, rulings by the FCC and associated court decisions have restructured the market for the provision of interexchange telecommunication services and have opened up this market to competition. The Company recognized an opportunity to compete in this market. In 1984, RCI Long Distance was launched and a digital switching and transmission system was built throughout the Northeast. Today RCI operates in New York, New England and the Mid-Atlantic and Midwest regions, an area which accounts for nearly 25 percent of the nation's total interexchange revenues. Through arrangements with other interexchange carriers, RCI provides connectivity to the entire United States and to over 200 countries around the world. In addition to growing its customer base in its original operating territory, RCI has expanded its network coverage and customer base through the acquisition of long distance companies in the Northeast: RCI Long Distance New England Inc., operating as Long Distance North (January 1991) and Taconic Long Distance Service Corp. (July 1991). In 1993, the Company purchased Mid Atlantic Telecom, Inc., a $20 million regional long distance company headquartered in Washington, D.C., and Budget Call Long Distance, Inc., a long distance reseller in Pennsylvania. A number of companies, including AT&T, MCI, Sprint and smaller regional long distance companies, compete with RCI and offer interexchange services such as Wide Area Telephone Service ("WATS"), private line and switched message toll. Given the competitive nature of the interexchange service industry, RCI is not aware of its exact market share in any specific market, however RCI does not believe that it holds a dominant market position in any market in which it operates. (c) Wireless. The Company is the managing partner of Rochester Telephone Mobile Communications ("RTMC"), which is a partnership with ALLTEL Corporation. The partnership constructed and now operates a cellular system in all or a part of the five New York counties which comprise the Rochester, New York Metropolitan Statistical Area ("MSA") which has a population of approximately 1.1 million potential subscribers. The Company has an 85% interest in the Rochester MSA and ALLTEL Corporation has a 15% interest. Cellular service in the Rochester MSA began on June 5, 1985, and RTMC currently operates and maintains 25 cell sites in the Rochester, New York MSA. RTMC is one of two competing cellular systems in the Rochester, New York MSA. The other cellular system is Genesee Telephone Company ("GTC") which does business as Cellular One. A proposed sale to Southwestern Bell of a controlling interest in GTC was recently announced. In the cellular industry, competitive characteristics include the geographic coverage area, transmission clarity and the price of the service offerings. Both RTMC and, it is believed, its competitor are believed to be digitally capable, however neither currently provides digital service. Because RTC does not have information on GTC's customer base, it is unable to calculate any specific assessment of its market share. 21 In addition to RTMC, the Company has partnership interests in various other MSAs and RSAs (Rural Service Areas.) Please see the "Cellular Property Ownership Table" on page 9 for a breakdown of the Company's cellular ownership interests and the estimated population in each of the indicated cellular markets. Although in the future the Company may divest itself of selected cellular properties, the Company will continue to place a heavy emphasis on cellular service growth and expansion. To this end, the Company recently entered into a nonbinding letter of intent for the purchase of a partnership which owns the business and assets of a cellular provider in Minnesota. Please also see the discussion of the Upstate Partnership's "Supersystem" on page 7. Environmental and Other Matters =============================== Underground duct systems are often used to house telephone cable. Some of the existing ducts are made of a material containing asbestos. This material poses a potential removal and disposal problem if a realignment of the duct system is necessary due to road construction or similar projects. The Company is in the process of identifying the portions of the duct system that contain this material so if need be, action may be taken in a timely fashion to minimize the cost of removal and disposal of such material. The asbestos presents no health risk as long as it remains buried and undisturbed. It cannot be determined how much of the affected underground duct system will undergo future reconstruction and, therefore, an estimate of the cost of asbestos removal and disposal cannot be made at this time. See Item 3. Legal Proceedings, for discussion of environmental litigation. Employees and Labor Relations ============================= As of December 31, 1993, the Company had 4,376 employees, of which 3,444 were employees of the various Telephone Operations businesses, and 932 were employees of the various Telecommunication Services businesses. At the Rochester, New York Operating Company, 578 clerical and service workers were represented by the Rochester Telephone Workers Association (RTWA) and 719 craft and clerical employees were represented by the Communications Workers of America (CWA), Local 1170. Under the current three-year contract between the Rochester, New York Operating Company and the RTWA, effective August 15, 1993 bargaining unit employees received a 1.5 percent general increase plus a .678 percent "Cost of Living Allowance" increase. The RTWA contract will expire on August 11, 1994. The current three-year contract between the Rochester, New York Operating Company and the CWA granted bargaining unit employees a wage increase of up to 4.75 percent, effective 22 January 1, 1993. Effective January 1, 1994 employees received a wage increase of up to 4.5 percent. On January 1, 1995, employees will receive a wage increase of up to 4.25 percent plus a "Cost of Living Allowance" increase based on 70 percent of the movement of the Consumer Price Index above 9.25 percent during the period from November 1992 to November 1994. The CWA contract will expire on January 31, 1996. The International Brotherhood of Electrical Workers (IBEW) represents 155 employees at Highland, 16 employees at Sylvan Lake and 12 employees at AuSable Valley. Highland bargaining unit employees received a 3.85 percent increase in 1993. On May 25, 1993, Highland and the IBEW entered into a contract which expires February 13, 1997, and provides for an increase of 4% in September 1994, 4% in September 1995, and no increase thereafter until the contract is renegotiated. On September 29, 1992, Sylvan Lake and the IBEW entered into a three-year contract extension which provides for an increase of 3.0 percent in year one, 3.5 percent in year two, and 5.0 percent in year three of the contract. The current three-year contract between AuSable Valley and the IBEW granted bargaining unit employees an average wage increase of 3.6 percent effective May 1993, and also provides for an average 3.4 percent wage increase in the final year of the contract. That contract will expire May 10, 1995. The IBEW also represents 20 employees of C, C & S Telco, Inc. Their current contract, which expires in October 1994, granted bargaining unit employees a 3.0 percent increase in October 1993. The IBEW additionally represents 6 employees at Midland, 7 employees at Inland, 1 employee at Lakeside, 1 employee at Prairie, 4 employees at Mt. Pulaski and 19 employees at Minot. On November 1, 1991, Midland, Inland, Lakeside, Mt. Pulaski and Prairie entered into a three-year contract with the IBEW that provided for a 4.0 percent wage increase on November 1, 1993. Effective January 1, 1993, Minot and the IBEW entered into a one-year contract with the IBEW which provided for a 1.5 percent wage increase plus a 1.0 percent lump sum payment based on 1992 wages. A new one year contract between Minot and the IBEW, ratified December 8, 1993, provides for a lump sum payment equal to 3 percent of salary. The CWA, Local 7270, represents 179 employees at Vista Minnesota. On June 21, 1993, Vista Minnesota and the CWA entered into a three-year contract which provides for wage increases of 3.0 percent in June 1994, and a minimum of 2 percent in June 1995, with an opportunity to receive, also in June 1995, up to an additional 1.25 percent based upon the performance of the Vista Minnesota telephone operation. The CWA, Local 7171, represents 95 employees at Vista Iowa. On May 1, 1993, Vista Iowa and the CWA entered into a three-year contract which provides for wage increases of 2.7 percent in May 1994, and a minimum of 2 percent in May 1995, with an opportunity to receive, also in May 1995, up to an additional 1.25 percent based upon the performance of the Vista Iowa telephone operation. 23 In March, 1994, the Rochester, New York Operating Company announced a retirement incentive program which would add an additional five years of age and five years of service credit to covered employees. As of March 15, 1994, 112 management employees, and 69 members of the RTWA had announced their decision to take advantage of this retirement incentive. ITEM 2. PROPERTIES =================== The Company's local exchange service providers own, in their respective operating territories, telephone property which includes: connecting lines between customers' premises and the central offices; central office switching equipment; buildings, land and miscellaneous property; and customer premises equipment. The connecting lines include aerial and underground cable, conduit, poles and wires, and microwave equipment. These facilities are located on public streets and highways or on privately owned land. The Company has permission to use these lands pursuant to governmental consent or lease, permit, easement, or other agreement. The central office switching equipment includes electronic switches and peripheral equipment. The Company owns or leases the land and buildings in which its central offices, warehouse space, office and traffic headquarters are located. The consolidated Company's general headquarters are located in a leased seven story building at 180 South Clinton Avenue, Rochester, New York. The lease expires in 2003 and is renewable for two successive ten year periods. The Company's interexchange service providers own property in their respective operating territories which includes: fiber optic cable, switching equipment, microwave equipment, real estate and miscellaneous office and work equipment. The Company's wireless service providers own switching equipment, cell site towers and other site equipment, and miscellaneous office and work equipment. 24 ITEM 3. LEGAL PROCEEDINGS ========================== On June 11, 1992, a group of corporate plaintiffs consisting of Cooper Industries, Inc., Keystone Consolidated Industries, Inc., The Monarch Machine Tool Company, Niagara Mohawk Corporation, and Overhead Door Corporation commenced an action in the United States District Court for the Northern District of New York seeking contribution from Rotelcom Inc., a wholly-owned subsidiary of the registrant held through intervening subsidiaries, and fourteen other corporate defendants seeking contribution for environmental "response costs" in the approximate amount of $1.5 million incurred by the plaintiffs pursuant to a decree entered into by plaintiffs with the United States Environmental Protection Agency. The consent decree concerned the clean-up of an environmental Superfund site located in Cortland, New York. It is alleged that the corporate defendants disposed of hazardous substances at the site and are therefore liable under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The action is currently in discovery. Rotelcom Inc. has been vigorously defending this lawsuit. However, the Company is unable to predict the outcome at this time. In its Opinion and Order in Case 87-C-8959, issued July 6, 1993, the New York State Public Service Commission (NYSPSC), by a three-to-two vote, imposed a royalty upon the Company in the amount of two percent of the total capitalization of the Company's unregulated operations. The NYSPSC justified the royalty on two grounds: first, that ratepayers are entitled to protection from the potential for cost misallocations and increased risk that accompany diversification of the Company's basic telephone business; and second, that the Company's unregulated operations benefit from their use of the Rochester name and reputation. The NYSPSC rejected the Company's statutory and constitutional defenses and concluded that it possessed the authority under the Public Service Law to impose a royalty and that its imposition is not unconstitutional. Based upon an initial interpretation of the Order, the Company estimates that its potential effect is in the range of two million dollars per year. The royalty, if implemented, would be an imputation against the Rochester, New York Operating Company's revenue requirement from regulated intrastate operations. The NYSPSC ordered the Rochester, New York Operating Company to file, by August 5, 1993, an accounting plan to account for the royalty amount, together with a plan for returning such amount to ratepayers. Although the Rochester, New York Operating Company requested the NYSPSC to waive this requirement, the NYSPSC denied this request. In compliance with the order of the NYSPSC, on August 5, 1993, the Rochester, New York Operating Company filed its plan. On August 6, 1993, the Rochester, New York Operating Company filed with Supreme Court, Albany County, its petition pursuant to Article 78 of the New York Civil Practice Law and Rules seeking judicial review of the NYSPSC's Opinion and Order. By order dated October 7, 1993, this proceeding was transferred to the Appellate Division, Third Department. The Company filed its Brief on December 16, 1993. Respondents' briefs were filed on February 28, 1994, and reply briefs are currently due in mid-March. The Court has scheduled the case for oral argument at its April term. The Company is vigorously contesting this case and is of the opinion that it will ultimately prevail, but cannot predict the outcome with any certainty at this time. The Regulatory Matters discussion in management's discussion of Business in Part I, Item 1, on pages 3 through 4 is incorporated herein by reference. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The Company's common stock is traded on the New York Stock Exchange (Symbol - RTC). The information required by this item is as follows:
1993 1992 1991 ---- ---- ---- Quarter High Low High Low High Low ------- ---- --- ---- --- ---- --- Highest and lowest market prices for the 1st $38.88 $34.63 $34.00 $30.13 $30.38 $26.00 stock by quarter: 2nd 43.50 36.50 33.75 29.13 31.50 29.00 3rd 48.75 41.00 32.88 30.25 31.38 28.25 4th 50.25 43.38 35.75 30.63 34.00 29.75
Common stock dividends 1st $ .395 $ .385 $ .375 declared per share: 2nd .395 .385 .375 3rd .395 .385 .375 4th .405 .395 .385 ------ ------ ------ Total dividends per year $1.590 $1.550 $1.510 ====== ====== ====== Number of Shareowners (at December 31) Individuals 20,338 19,731 18,641 Brokers, nominees and institutions 421 400 259 ------ ------ ------ Total Shareowners 20,759 20,131 18,900 ====== ====== ====== 26 ITEM 6. SELECTED FINANCIAL DATA The information required by this item should be read in conjunction with the consolidated financial statements and related notes included in Item 14 contained herein, and is as follows (in thousands, except per share data):
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Net Revenues and Sales $ 906,450 $ 804,049 $ 713,559 $ 612,994 $ 590,345 Income from Continuing Operations $ 82,720 $ 70,503 $ 75,289 $ 51,935 $ 57,386 Consolidated Net Income $ 82,720 $ 69,431 $ 79,046 $ 51,935 $ 83,944 Earnings per Common Share: Income before Extra- Ordinary Items $ 2.42 $ 2.08 $ 2.31 $ 1.71 $ 1.94 Extraordinary Items $ - $ (.03) $ .12 $ - .92 Earnings per Common Share - Primary $ 2.42 $ 2.05 $ 2.43 $ 1.71 $ 2.86 Earnings per Common Share-Fully Diluted $ 2.41 $ 2.04 $ 2.42 $ 1.70 $ 2.83 Cash Dividends Declared per Common Share $ 1.590 $ 1.550 $ 1.510 $ 1.470 $ 1.430 Total Assets $1,510,201 $1,513,897 $1,496,737 $1,198,858 $1,122,147 Long-Term Debt $ 492,555 $ 525,597 $ 591,232 $ 363,020 $ 354,302
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is presented in pages 1 through 21 of Exhibit No. 13 of this Form 10-K and is incorporated herein by reference. Exhibit 13 consists of material located at pages 26 through 47 of the Company's Annual Report to Shareowners for the fiscal year ended December 31, 1993. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of Price Waterhouse dated January 17, 1994, is presented in pages 23 through 31 of Exhibit No. 13 to this Form 10-K and are incorporated herein by reference. Exhibit 13 consists of material located at pages 26 through 47 of the Company's Annual Report to Shareowners for the fiscal year ended December 31, 1993. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 27 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item for the Directors of Rochester Telephone Corporation is presented on pages 4 through 6 of the definitive Proxy Statement issued in connection with the Annual Meeting of Shareowners to be held April 27, 1994, which is Exhibit 99 to this Form 10-K and is incorporated herein by reference. That information is incorporated by reference into this Item 10. With respect to the Executive Officers, the following information is submitted. Other Positions Held Name Position and During the Past (Age) Offices Held Five Years ----- ------------ --------------------- Ronald L. Bittner Chairman, President President and Chief (52) and Chief Executive Executive Officer; Officer since April Executive Vice 1993 President - Tele- communications Group Jeremiah T. Carr Corporate Vice Corporate Vice (51) President and President and President President - Tele- Rochester Telephone phone Group since Operations; President November 1993 - Regional Telephone Operations; President of Rotelcom; Vice President - RCI Consumer Markets; President - RTMC Dale M. Gregory Corporate Vice Corporate Vice (45) President and President and Presi- President - Tele- dent-Network Systems communication and Services; Group since Corporate Vice November 1993 President and President - Telecommunication Services; President - RCI Network and Systems; Consultant; President and Chief Operating Officer, Advanced Telecommunications Inc. Louis L. Massaro Corporate Vice Corporate Vice (47) President-Finance President and Presi- and Treasurer dent-Rochester since February 1993 Operations; Vice President - Tele- communications Group 28 Frederick R. Pestorius Corporate Vice Corporate Vice (52) President and President and Presi- President-Rochester dent - Regional Business Markets Telephone Operations; since November 1993 Corporate Vice Presi- dent - Finance, Secretary and Treasurer John K. Purcell Corporate Vice Corporate Vice (50) President-Corporate President - Partnering and Planning and Presi- Alliances since dent - Wireless November 1993 Operations; Corporate Vice President - Development; Corporate Vice President and President - Telephone Subsidiaries Janet F. Sansone Corporate Vice Corporate Vice Presi- (48) President - Human dent - Human Resources Resources and and Excellence; Manager Corporate Services Management and Human since November 1993 Resources Education, General Electric Corporation; Manager Recruiting and University Development, General Electric Corporation Josephine S. Trubek Corporate Secretary General Counsel (51) since April 1993 and Secretary; Corporate Counsel and Assistant Secretary The Position and Offices held as set forth above indicates the capacities in which each Executive Officer serves as of March 1, 1994. Each Officer serves for a period of one year or until a successor is elected. Advanced Telecommunications, Inc. as of March 31, 1992, was the fourth largest interexchange service provider in the United States and its common stock was traded on the National Market System. General Electric is one of the largest and most diversified industrial companies in the world. Its businesses include interests in a vast array of industrial products, as well as technology, service and communication entities. 29 PART III ITEM 11. EXECUTIVE COMPENSATION The information required by this item is presented on pages 8 through 17 of the definitive Proxy Statement for the Annual Meeting of Shareowners to be held April 27, 1994, under the captions "Report of Committee on Management," "Performance Graph," "Compensation of Company Management" and "Compensation Committee Interlocks and Insider Participation in Compensation Decisions" and is incorporated in this report by reference. The Company's Proxy Statement is found at Exhibit 99 to this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is presented in the "Management Security Ownership Table" under the caption "Security Ownership of Management" on pages 6 through 7 of the definitive Proxy Statement for the Annual Meeting of Shareowners to be held April 27, 1994, and is incorporated in this report by reference. The Company's Proxy Statement is found at Exhibit 99 to this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is presented on page 17 of the definitive Proxy Statement for the Annual Meeting of Shareowners to be held April 27, 1994, under the caption "Certain Relationships and Related Transactions", together with the cross-reference to page 3 of that definitive Proxy Statement, and is incorporated in this report by reference. The Company's Proxy Statement is found at Exhibit 99 to this Form 10-K. 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Index to Financial Statements The financial statements and other information set forth below for the years 1991 through 1993 together with the report thereon of Price Waterhouse dated January 17, 1994, as presented on pages 23 through 31 of Exhibit No. 13 of this Form 10-K, are filed as part of this report: Report of Independent Accountants Business Segment Information Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareowners' Equity Notes to Consolidated Financial Statements Exhibit 13 consists of material located at pages 26 through 47 of the Company's Annual Report to Shareowners for the fiscal year ended December 31, 1993. 2. Index to Financial Statement Schedules for the years 1993, 1992 and 1991 The financial statement schedules listed below should be read in conjunction with the financial statements appearing on pages 24 through 31 of Exhibit No. 13 of this Form 10-K. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown on the financial statements or notes thereto. Report of Independent Accountants on Financial Statement Schedules Property, Plant and Equipment Sch. V Accumulated Depreciation and Amortization Sch. VI of Property, Plant and Equipment Valuation and Qualifying Accounts and Reserves Sch. VIII Supplementary Income Statement Information Sch. X Exhibit 13 consists of material located at pages 26 through 47 of the Company's Annual Report to Shareowners for the fiscal year ended December 31, 1993. 3. See Exhibit Index for list of exhibits filed with this report. (b) Reports on Form 8-K. The Company filed no Forms 8-K during the quarter ended December 31, 1993. 31 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Shareowners of Rochester Telephone Corporation Our audits of the consolidated financial statements referred to in our report dated January 17, 1994, appearing on page 23 of Exhibit No. 13 (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York January 17, 1994 32 ROCHESTER TELEPHONE CORPORATION TELEPHONE GROUP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (Table 1 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telephone plant in service: Land and buildings $ 96,206 $ - $ 2,014 $ 498 $ (172) $ 97,550 Local and toll service lines 718,866 - 30,030 5,089 (779) 743,028 Central office equipment 572,507 - 46,041 34,191 (429) 583,928 Station equipment 96,549 - 3,727 64,674 (862) 34,740 Furniture, office equipment, vehicles, tools, etc. 93,857 - 12,309 4,236 (144) 101,786 --------- --------- --------- -------- ---------- ---------- Subtotal $1,577,985 $ - $ 94,121 $108,688 $ (2,386) $1,561,032 Telephone plant under construction 36,619 - (1,198) 2,351 (22) 33,048 TOTAL $1,614,604 $ - $ 92,923 $111,039 $(2,408) $1,594,080 ========= ========= ========= ======== ========== ========== Includes adjustments, reclassifications and the sale of S&A Telephone Co.
33 ROCHESTER TELEPHONE CORPORATION TELEPHONE GROUP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (Table 2 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telephone plant in service: Land and buildings $ 91,942 $ - $ 4,434 $ 230 $ 60 $ 96,206 Local and toll service lines 678,871 - 44,440 5,236 791 718,866 Central office equipment 553,287 - 45,463 26,453 210 572,507 Station equipment 94,878 - 3,468 2,184 387 96,549 Furniture, office equipment, vehicles, tools, etc. 89,262 - 7,704 2,741 (368) 93,857 --------- --------- --------- -------- ---------- ---------- Subtotal $1,508,240 $ - $ 105,509 $ 36,844 $ 1,080 $ 1,577,985 Telephone plant under construction 28,461 - 13,091 3,663 (1,270) 36,619 --------- --------- --------- -------- ---------- ---------- TOTAL $1,536,701 $ - $ 118,600 $ 40,507 $ (190) $ 1,614,604 ========= ========= ========= ======== ========== ========== Includes adjustments and reclassifications.
34 ROCHESTER TELEPHONE CORPORATION TELEPHONE GROUP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (Table 3 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telephone plant in service: Land and buildings $ 74,821 $ 12,164 $ 5,728 $ 661 $ (110) $ 91,942 Local and toll service lines 533,589 105,866 44,960 5,462 (82) 678,871 Central office equipment 425,013 87,712 48,712 8,314 164 553,287 Station equipment 76,428 18,015 2,335 2,592 692 94,878 Furniture, office equipment, vehicles, tools, etc. 72,797 14,389 5,443 3,564 197 89,262 --------- --------- --------- -------- ---------- ---------- Subtotal $1,182,648 $238,146 $107,178 $ 20,593 $ 861 $1,508,240 Telephone plant under construction 27,564 2,273 (1,115) 706 445 28,461 --------- -------- --------- -------- ---------- ---------- TOTAL $1,210,212 $240,419 $106,063 $ 21,299 $ 1,306 $1,536,701 ========= ========= ========= ======== ========== ========== Includes adjustments and reclassifications.
35 ROCHESTER TELEPHONE CORPORATION TELECOMMUNICATIONS GROUP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (Table 1 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telecommunications plant in service: Land and buildings $ 9,722 $ 16 $ 496 $ 790 $ 171 $ 9,615 Switching and network facilities 90,218 4,501 8,931 567 67 103,150 Furniture, office equipment, vehicles, tools, etc. 38,674 246 4,882 5,237 (927) 37,638 Telecommunications plant under construction 2,781 - 1,377 - 228 4,386 --------- --------- --------- -------- ---------- ---------- TOTAL $141,395 $ 4,763 $ 15,686 $ 6,594 $ (461) 154,789 Less: Profit on intercompany purchases 919 - - 84 - 835 --------- --------- --------- -------- ---------- ---------- NET $140,476 $ 4,763 $ 15,686 $ 6,510 $ (461) $153,954 ========= ========= ========= ======== ========== =========== Includes adjustments and reclassifications.
36 ROCHESTER TELEPHONE CORPORATION TELECOMMUNICATIONS GROUP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (Table 2 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telecommunications plant in service: Land and buildings $ 7,519 $ - $ 848 $ 617 $ 1,972 $ 9,722 Switching and network facilities 88,145 - 3,897 829 (995) 90,218 Furniture, office equipment, vehicles, tools, etc. 40,922 - 1,355 1,845 (1,758) 38,674 Telecommunications plant under construction 1,782 - 999 - - 2,781 --------- --------- --------- -------- ---------- ---------- TOTAL $138,368 $ - $ 7,099 $ 3,291 $ (781) $ 141,395 Less: Profit on intercompany purchases 1,003 - - 84 - 919 --------- --------- -------- --------- ---------- --------- NET $137,365 $ - $ 7,099 $ 3,207 (781) $ 140,476 ========= ========= ========= ======== ========== =========== Includes adjustments and reclassifications.
37 ROCHESTER TELEPHONE CORPORATION TELECOMMUNICATIONS GROUP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (Table 3 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telecommunications plant in service: Land and buildings $ 6,357 $ - $ 1,356 $ 194 $ - $ 7,519 Switching and network facilities 79,834 2,276 6,861 826 - 88,145 Furniture, office equipment, vehicles, tools, etc. 35,232 280 5,847 437 - 40,922 Telecommunications plant under construction 4,788 - (3,006) - - 1,782 --------- --------- --------- -------- ---------- ----------- TOTAL $126,211 $ 2,556 $ 11,058 $ 1,457 $ - 138,368 Less: Profit on intercompany purchases 1,064 - 13 74 - 1,003 NET $125,147 $ 2,556 $ 11,045 $ 1,383 $ - $137,365 ========= ========= ========= ======== ========== ===========
38 ROCHESTER TELEPHONE CORPORATION TELEPHONE GROUP SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (Table 1 of 3)
In thousands of dollars Additions Balance at Property of charged to beginning Companies costs and Other changes - Balance at Classification of year Acquired expenses Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telephone plant in service: Buildings $ 30,557 $ - $ 3,435 $ 569 $ 310 $ 33,733 Local and toll service 262,454 - 32,055 4,889 (1,011) 288,609 Central office equipment 233,198 - 51,088 30,600 4,329 258,015 Station equipment 86,249 - 3,044 64,671 (458) 24,164 Furniture, office equipment, vehicles, tools, etc. 48,748 - 10,495 3,834 448 55,857 Unallocated depreciation reserve 8 - 17 - - 25 Retirement work in progress (3,532) - 8 4,302 1 (7,825) --------- --------- --------- -------- ---------- ---------- TOTAL $657,682 $ - $100,142 $108,865 $ 3,619 $652,578 ========= ========= ========= ======== ========== ======== Represents reclassifications, adjustments for salvage value and/or cost of removal, and the sale of S&A Telephone Co.
39 ROCHESTER TELEPHONE CORPORATION TELEPHONE GROUP SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (Table 2 of 3)
In thousands of dollars Additions Balance at Property of charged to beginning Companies costs and Other changes - Balance at Classification of year Acquired expenses Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telephone plant in service: Buildings $ 27,690 $ - $ 3,275 $ 341 $ (67) $ 30,557 Local and toll service lines 237,728 - 30,413 5,336 (351) 262,454 Central office equipment 209,411 - 50,048 25,505 (756) 233,198 Station equipment 84,352 - 3,454 2,165 608 86,249 Furniture, office equipment, vehicles, tools, etc. 37,741 - 13,290 2,583 300 48,748 Unallocated depreciation reserve 59 - 8 - (59) 8 Retirement work in progress (2,006) - (3) 1,434 (89) (3,532) --------- --------- --------- -------- ---------- ---------- TOTAL $594,975 $ - $100,485 $ 37,364 $ (414) $657,682 ========= ========= ========= ======== ========== ======== Represents reclassifications and adjustments for salvage value and/or cost of removal.
40 ROCHESTER TELEPHONE CORPORATION TELEPHONE GROUP SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (Table 3 of 3) In thousands of dollars Additions Balance at Property of charged to beginning Companies costs and Other changes - Balance at Classification of year Acquired expenses Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telephone plant in service: Buildings $ 22,130 $ 3,401 $ 2,852 $ 724 $ 31 $ 27,690 Local and toll service lines 176,658 39,302 27,411 4,733 (910) 237,728 Central office equipment 140,215 34,760 46,772 14,107 1,771 209,411 Station equipment 68,878 14,941 2,752 2,620 401 84,352 Furniture, office equipment, vehicles, tools, etc. 28,897 5,954 6,934 3,797 (247) 37,741 Unallocated depreciation reserve 16 46 (3) - - 59 Retirement work in progress (6,799) - - (4,789) 4 (2,006) --------- --------- --------- -------- ---------- ---------- TOTAL $429,995 $ 98,404 $ 86,718 $ 21,192 $1,050 $594,975 ========= ========= ========= ======== ========== ======== Represents reclassifications and adjustments for salvage value and/or cost of removal.
41 ROCHESTER TELEPHONE CORPORATION TELECOMMUNICATIONS GROUP SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (Table 1 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telecommunications plant in service: Buildings $ 3,450 $ 8 $ 811 $ 637 $ 110 $3,742 Switching and network facilities 28,420 2,296 7,100 285 153 37,684 Furniture, office equipment, vehicles, tools, etc. 25,853 49 5,889 4,341 (611) 26,839 --------- --------- --------- -------- ---------- ---------- TOTAL $57,723 $ 2,353 $13,800 $ 5,263 $ (348) $68,265 ========= ========= ========= ======== ========== =========== Includes adjustments and reclassifications.
42 ROCHESTER TELEPHONE CORPORATION TELECOMMUNICATIONS GROUP SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (Table 2 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telecommunications plant in service: Buildings $ 2,585 $ - $ 761 $ 497 $ 601 $ 3,450 Switching and network facilities 21,735 - 6,429 138 394 28,420 Furniture, office equipment, vehicles, tools, etc. 23,685 - 4,764 1,582 (1,014) 25,853 --------- --------- --------- ---------- ---------- ---------- TOTAL $48,005 $ - $11,954 $ 2,217 $ (19) $57,723 ========= ========= ========= ========== ========== =========== Includes adjustments and reclassifications.
43 ROCHESTER TELEPHONE CORPORATION TELECOMMUNICATIONS GROUP SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (Table 3 of 3)
In thousands of dollars Balance at Property of beginning Companies Additions Other changes - Balance at Classification of year Acquired at cost Retirements add/(deduct) end of year -------------- ---------- ----------- --------- ----------- ---------------- ----------- Telecommunications plant in service: Buildings $ 2,156 $ - $ 491 $ 62 $ - $2,585 Switching and network facilities 15,806 - 6,139 210 - 21,735 Furniture, office equipment, vehicles, tools, etc. 19,114 - 4,807 236 - 23,685 --------- --------- --------- ---------- ---------- ---------- TOTAL $37,076 $ - 11,437 508 $ - $48,005 ========= ========= ========= ========== ========== ===========
44 ROCHESTER TELEPHONE CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED DECEMBER 31, 1993 (Table 1 of 3)
In thousands of dollars Additions --------------------- Charged Balance at to costs Charged Balance beginning and to other at end Description of year expenses accounts Deductions of year -------------- ---------- ----------- --------- ----------- ------- Reserve for uncollectible accounts $ 2,455 $11,497 $ 8,531 $17,405 $ 5,078 ======== ======= ======= ======= ======= Reserve for inventory obsolescence and shrinkage $ 2,049 $ 1,542 $ (22) $ 1,906 $ 1,663 ======== ======= ======= ======= ======= Reserve for Insurance $ 526 $ (65) $ 9 $ 286 $ 184 ======== ======= ======= ======= ======= Recoveries of uncollectible accounts. Uncollectible accounts written off. Obsolete inventory written off.
45 ROCHESTER TELEPHONE CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED DECEMBER 31, 1992 (Table 2 of 3)
In thousands of dollars Additions ---------------------- Charged Balance at to costs Charged Balance beginning and to other at end Description of year expenses accounts Deductions of year -------------- ---------- ----------- --------- ----------- ------- Reserve for uncollectible accounts $ 3,144 $ 4,690 $ 5,238 $10,617 $ 2,455 ======== ======= ======= ======= ======= Reserve for inventory obsolescence and shrinkage $ 817 $ 2,310 $ (13) $ 1,065 $ 2,049 ======== ======= ======= ======= ======= Reserve for Insurance $ 572 $ 54 $ - $ 100 $ 526 ======== ======= ======= ======= ======= Recoveries of uncollectible accounts. Uncollectible accounts written off. Obsolete inventory written off. Payments to settle insurance cases.
46 ROCHESTER TELEPHONE CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED DECEMBER 31, 1991 (Table 3 of 3)
In thousands of dollars Additions ---------------------- Charged Balance at to costs Charged Balance beginning and to other at end Description of year expenses accounts Deductions of year -------------- ---------- ----------- --------- ----------- ------- Reserve for uncollectible accounts $ 2,392 $ 9,806 ) $ 2,377 $11,431 $ 3,144 ======== ======= ======= ======= ======= Reserve for inventory obsolescence and shrinkage $ 859 $ 1,085 $ 25 $ 1,152 $ 817 ======== ======= ======= ======= ======= Reserve for Insurance $ 210 $ 520 $ - $ 158 $ 572 ======== ======= ======= ======= ======= Includes balances as of the respective acquisition dates related to the following 1991 acquisitions: Minot Telephone Company (January 1991), DePue Telephone Company (March 1991), Vista Telephone Company of Minnesota (June 1991), Vista Telephone Company of Iowa (August 1991), RCI Long Distance New England, Inc. (January 1991) and Taconic Long Distance Service Corporation (July 1991). Recoveries of uncollectible accounts. Uncollectible accounts written off. Obsolete inventory written off. Payment to settle insurance case.
47 ROCHESTER TELEPHONE CORPORATION SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 In thousands of dollars 1993 1992 1991 ---- ---- ---- 1.) Taxes, other than payroll and income taxes: State and local property taxes $ 20,572 $ 20,645 $ 21,159 State and local taxes on gross revenues 25,813 23,508 22,900 -------- -------- -------- TOTAL $46,385 $ 44,153 $ 44,059 ======== ======== ======== 2.) Total maintenance and repairs expense $ 92,147 $100,889 $ 89,436 ======== ======== ======== 48 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. ROCHESTER TELEPHONE CORPORATION (Registrant) /s/ Ronald L. Bittner Date: March 22, 1994 By ---------------------------- Ronald L. Bittner Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald L. Bittner Date: March 22, 1994 By ---------------------------- Ronald L. Bittner Chairman, President and Chief Executive Officer and Director /s/ Louis L. Massaro Date: March 22, 1994 By ---------------------------- Louis L. Massaro Corporate Vice President- Finance and Treasurer (Principal Financial and Accounting Officer) 49 DIRECTORS * By --------------------------- Patricia C. Barron Date: March 22, 1994 * By --------------------------- John R. Block Date: March 22, 1994 * By --------------------------- Harlan D. Calkins Date: March 22, 1994 * By --------------------------- Brenda E. Edgerton Date: March 22, 1994 * By --------------------------- Jairo A. Estrada Date: March 22, 1994 * By --------------------------- Daniel E. Gill Date: March 22, 1994 * By --------------------------- Alan C. Hasselwander Date: March 22, 1994 * By --------------------------- Wolcott J. Humphrey, Jr. Date: March 22, 1994 * /s/ Louis L. Massaro By --------------------------- March 22, 1994 By ---------------------- Douglas H. McCorkindale Louis L. Massaro Date: March 22, 1994 as attorney-in-fact. * Manually signed powers of attorney By --------------------------- for each Director are attached Richard P. Miller, Jr. hereto and filed herewith pursuant Date: March 22, 1994 to Regulation S-K Item 601(b)25 as Exhibit 24. * By --------------------------- G. Dennis O'Brien Date: March 22, 1994 * * By --------------------------- By --------------------------- Dr. Leo J. Thomas Michael T. Tomaino Date: March 22, 1994 Date: March 22, 1994 50 EXHIBIT INDEX Exhibit Number Exhibit Reference - - - -------------- ------- --------- 3.1 Company's Restated Certificate Incorporated by reference of Incorporation with all to Exhibit 3 to Form 10-Q Amendments. for the quarter ended September 30, 1980. 3.2 Certificate of Amendment to Incorporated by reference Certificate of Incorporation. to Exhibit 3-2 to Form 10-K for the year ended December 31, 1984. 3.3 Company's By-Laws. Filed herewith. 3.4 Certificate of Change to Incorporated by reference to Certificate of Incorporation. Exhibit 3-4 to Form 10-K for the year ended December 31, 1988. 3.5 Certificates of Amendment to Incorporated by reference to Restated Certificate of Exhibit 3-5 to Form 10-K for Incorporation. the year ended December 31, 1990. 4.1 Copy of First Mortgage from the Incorporated by reference Company to Bankers Trust, as to Exhibits 5 and 5-A to Trustee, dated as of April 1, Registration Statement No. 1946 as supplemented by In- 2-6544. denture dated as of July 1, 1946. 4.2 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 2(b)-6 Reg- the Company to Bankers Trust istration Statement No. Company, as Trustee, dated as of 2-9544. October 1, 1952. 4.3 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 2(b)-5 to Reg- the Company to Bankers Trust istration Statement No. Company, as Trustee, dated as of 2-10547. November 1, 1954. 4.4 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 4(b)-4 to Reg- the Company to Bankers Trust istration Statement No. Company, as Trustee, dated as of 2-13091. January 1, 1958. 51 4.5 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 4(b)-5 to Reg- the Company to Bankers Trust istration Statement No. Company, as Trustee, dated as of 2-16822. September 1, 1960. 4.6 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 4-6 to Form 10-K the Company to Bankers Trust for the year ended December Company, as Trustee, dated as of 31, 1980. May 1, 1964. 4.7 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 2-B(7) to Reg- the Company to Bankers Trust istration Statement No. Company, as Trustee, dated 2-20488. March 1, 1971. 4.8 Copy of Supplemental Indenture Incorporated by reference to said First Mortgage, made by to Exhibit 2-B(8) to Reg- the Company to Bankers Trust istration Statement No. Company, as Trustee, dated as 2-50804. of March 1, 1975. 4.9 Copy of Indenture between the Incorporated by reference the Company and Morgan Guaranty to Exhibit 2(b) to Reg- Trust Company of New York, istration Statement No. Trustee, dated as of 2-20488. July 1, 1962. 4.10 Copy of Indenture between the Incorporated by reference the Company and Morgan Guaranty to Exhibit 2(b) to Reg- Trust Company of New York, istration Statement No. Trustee, dated as of 2-31753. March 1, 1969. 4.11 Agreement to furnish documents Filed herewith. of subsidiaries. 4.12 Copy of Indenture between the Incorporated by reference to Company and Manufacturers Exhibit 4-12 to Form Hanover Trust Company, Trustee, 10-K for the year ended dated as of September 1, 1986. December 31, 1986. 4.13 Copy of First Supplemental Incorporated by reference Indenture to said Indenture, to Exhibit 4(b) to made by the Company to Registration Statement Manufacturers Hanover Trust No. 33-32035. Company, as Trustee, dated as of December 1, 1989. 52 4.14 Agreement to Furnish Copies of Incorporated by reference Debt Instruments. to Exhibit 4(c) to Reg- istration Statement No. 33-20698. 4.15 Copy of 10.46% Non Negotiable Incorporated by reference Convertible Debenture due to Exhibit 4-14 to Form October 27, 2008 from the 10-K for the year ended Company to The Walters Trust. December 31, 1988. 4.16 Copy of 9% Debenture due Incorporated by reference August 15, 2021. to Exhibit 4-16 to Form 10-K for the year ended December 31, 1991. 10.1 Copy of the Company's Bonus Incorporated by reference Plan. to Exhibit 10-7 to Form 10-K for the year ended December 31, 1986. 10.2 Copy of the Company's Restated Incorporated by reference Management Investment and Savings to Exhibit 10-11 to Form Plan/Management Optional Salary 10-K for the year ended Treatment Plan and Amendment December 31, 1987. No. 1 thereto. 10.3 Copy of the Company's Long Term Incorporated by reference Disability Plan together with to Exhibit 10-15 to Form Amendment No. 1 thereto. 10-K for the year ended December 31, 1987. 10.4 Copy of the Company's Restated Incorporated by reference Management Pension Plan and to Exhibit 10-13 to Form Amendments Nos. 1-5 thereto. 10-K for the year ended December 31, 1988. 10.5 Copy of Amendments Nos. 2 and 3 Incorporated by reference to the Company's Restated Manage- to Exhibit 10-15 to Form ment Investment and Savings Plan/ 10-K for the year ended Management Optional Salary Treat- December 31, 1988. ment Plan. 10.6 Copy of the Company's Executive Incorporated by reference Pre-Pension Leave Plan. to Exhibit 10-18 to Form 10-K for the year ended December 31, 1988. 10.7 Form of management contracts with Filed herewith. each of Mr. Bittner, Mr. Gregory, Mr. Massaro and Mr. Purcell. 53 10.8 Copy of Amendments Nos. 4 and 5 Incorporated by reference to to the Company's Restated Exhibit 10-23 to Form 10-K Management Investment and for the year ended Savings Plan/Management December 31, 1989. Optional Salary Treatment Plan. 10.9 Copy of Amendments Nos. 6, 7, 8 Incorporated by reference to and 9 to the Company's Restated Exhibit 10-13 to Form 10-K Management Pension Plan. for the year ended December 31, 1990. 10.10 Copy of the Company's Restated Incorporated by reference to Supplemental Management Exhibit 10-14 to Form 10-K Pension Plan and Amendments Nos. 1 for the year ended and 2 thereto. December 31, 1990. 10.11 Copy of the Company's Restated Incorporated by reference to Performance Unit Plan. Exhibit 10-15 to Form 10-K for the year ended December 31, 1990. 10.12 Management contract with Filed herewith. Mr. Pestorius. 10.13 Copy of Joint Venture Agreement, Incorporated by reference to dated as of March 9, 1993, by and Exhibit 10-13 to Form 10-K between Rochester Tel Cellular for the year ended Holding Corporation and New York December 31, 1992. Cellular Geographic Service Area, Inc. together with Exhibit A thereto. 10.14 Copy of Cellular Consulting and Incorporated by reference to Other Services Agreement, dated as Exhibit 10-14 to Form 10-K of March 9, 1993, by and between for the year ended Rochester Tel Cellular Holding December 31, 1992. Corporation and New York Cellular Geographic Service Area, Inc. 10.15 Copy of Amendments Nos. 10 and Incorporated by reference to 11 to the Company's Restated Exhibit 10-19 to Form 10-K Management Pension Plan. for the year ended December 31, 1991. 10.16 Copy of Amendments Nos. 12 and 13 Incorporated by reference to to the Company's Restated Exhibit 10-16 to Form 10-K Management Pension Plan. for the year ended December 31, 1992. 10.17 Copy of Amendments Nos. 6, 7 and Incorporated by reference to 8 to the Company's Restated Exhibit 10-20 to Form 10-K Management Investment and Savings for the year ended Plan/Management Optional Salary December 31, 1991. Treatment Plan. 54 10.18 Copy of Amendment No. 9 to the Incorporated by reference to Company's Restated Exhibit 10-18 to Form 10-K Management Investment and Savings for the year ended Plan/Management Optional Salary December 31, 1992. Treatment Plan. 10.19 Copy of Amendment No. 1 to the Incorporated by reference to Company's Restated Performance Exhibit 10-21 to Form 10-K Unit Plan. for the year ended December 31, 1991. 10.20 Copy of Amendment No. 2 to the Incorporated by reference to Company's Restated Performance Exhibit 10-20 to Form 10-K Unit Plan. for the year ended December 31, 1992. 10.21 Copy of Amendment No. 3 to the Incorporated by reference to Company's Restated Supplemental Exhibit 10-22 to Form 10-K Management Pension Plan. for the year ended December 31, 1991. 10.22 Copy of Amendment No. 4 to the Incorporated by reference to Company's Supplemental Management Exhibit 10-22 to Form 10-K Pension Plan. for the year ended December 31, 1992. 10.23 Copy of the Company's Restated Incorporated by reference to Supplemental Retirement Savings Exhibit 10-23 to Form 10-K Plan and Amendment No. 1 thereto. for the year ended December 31, 1991. 10.24 Copy of Amendment No. 2 to the Incorporated by reference to Company's Supplemental Retirement Exhibit 10-24 to Form 10-K Savings Plan. for the year ended December 31, 1992. 10.25 Copy of the Company's Employee Incorporated by reference to Assistance Program. Exhibit 10-25 to Form 10-K for the year ended December 31, 1992. 10.26 Copy of the Company's Tel Flex Incorporated by reference to Plan. Exhibit 10-26 to Form 10-K for the year ended December 31, 1992. 10.27 Copy of the Company's Directors Incorporated by reference to Stock Option Plan. Exhibit 10-27 to Form 10-K for the year ended December 31, 1992. 10.28 Copy of the Company's Executive Incorporated by reference to Stock Option Plan and Amendment Exhibit 10-28 to Form 10-K No. 1 thereto. for the year ended December 31, 1992. 55 10.29 Copy of Amendment No. 3 to the Incorporated by Performance Unit Plan. reference to Exhibit 10-30 to Form 10Q for the quarter ended March 31, 1993. 10.30 Copy of amendments Nos. 14, 15 Incorporated by and 16 to the Company's Restated reference to Exhibits 10-31 Management Pension Plan. and 10-32 to Form 10Q for the quarter ended June 30, 1993. 10.31 Copy of Amendments Nos. 17 and 18 Filed herewith. to the Company's Restated Management Pension Plan. 10.32 Copy of Amendment No. 5 Incorporated by reference to the Supplemental Management to Exhibit 10-33 to Form 10Q Pension Plan. for the quarter ended June 30, 1993. 10.33 Copy of Amendment No. 6 Filed herewith. to the Supplemental Management Pension Plan. 10.34 Copy of Amendments Nos. 10 and 11 Incorporated by reference to the Management Investment and to Exhibit 10-34 to Form 10Q Savings Plan/Management Optional for the quarter ended Salary Treatment Plan. June 30, 1993. 10.35 Copy of the Employees' Retirement Filed herewith. Savings Plan. 10.36 Copy of Amendment No. 3 Incorporated by reference to the Supplemental Retirement to Exhibit 10-35 to Form 10Q Savings Plan. for the quarter ended June 30, 1993. 10.37 Copy of Amendment No. 2 Incorporated by reference to the Long Term Disability to Exhibit 10-36 to Form 10Q Benefit Plan. for the quarter ended June 30, 1993. 10.38 Copy of Amendment No. 3 Incorporated by reference to the Long Term Disability to Exhibit 10-40 to Form 10Q Benefit Plan. for the quarter ended September 30, 1993. 10.39 Copy of the Plan for the Deferral Filed herewith. of Directors Fees and Amendment No. 1 thereto. 10.40 Copy of the Company's Directors' Filed herewith. Common Stock Deferred Growth Plan 11 Computation of Fully Diluted Filed herewith. Earnings Per Share. 56 13 Portions of the Annual Report Filed herewith. to Shareowners for Fiscal 1993. 21 Subsidiaries of Rochester Filed herewith. Telephone Corporation. 23 Consent of Independent Filed herewith. Accountant as Experts. 24 Powers of Attorney for a Filed herewith. majority of Directors naming Louis L. Massaro attorney-in-fact. 28.1 Form 11-K Information for Filed herewith. the Company's Management Investment and Savings Plan Including the Management Optional Salary Treatment Plan. 28.2 Form 11-K Information for Filed herewith. the Company's Craft Savings Plan-I. 28.3 Form 11-K Information for Filed herewith. the Company's Craft Savings Plan-II. 28.4 Form 11-K Information for Filed herewith. the Company's Retirement Savings Program for Rochester Telephone Corporation Subsidiary Companies. 28.5 Form 11-K Information for the Filed herewith. Company's Vista Telephone Company Retirement Savings Plan. 28.6 Form 11-K Information for the Filed herewith. Company's Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees. 28.7 Form 11-K Information for the Filed herewith. Company's Retirement Savings Plan for Affiliated Companies of Rochester Telephone Corporation. 99 Proxy Statement for the Annual Filed herewith. Meeting of Shareowners to be held April 27, 1994. EX-3 2 EX 3.3 BYLAWS 1 EXHIBIT 3.3 ROCHESTER TELEPHONE CORPORATION By-Laws As Revised Effective 4/21/93 ARTICLE I SHAREHOLDERS Section 1 - Annual Meeting. An annual meeting of shareholders for the election of Directors and the transaction of other business shall be held at such time on any day in the month of April in each year or on such other date as shall be fixed by the Board of Directors. Section 2 - Special Meetings. Special Meetings of the shareholders may be called by the Board of Directors. Such meeting shall be held at such time as may be fixed in the notice of meeting. Section 3 - Place of Meeting. Meetings of shareholders shall be held at such place, within or without the State of New York, as may be fixed in the notice of meeting. Section 4 - Notice of Meeting. Notice of each meeting of shareholders shall be in writing and shall state the place, date and hour of the meeting and the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be given, personally, or by mail, not less than ten or more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at the shareholder's address as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary of the Corporation a written request that notices be mailed to some other address, then directed to the shareholder at such other address. 3/21/83 2 Section 5 - Inspectors of Election. The Board of Directors, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders' meeting may, and on the request of any shareholder entitled to vote at such meeting shall, appoint two inspectors. Each inspector, before entering upon the discharge of the inspector's duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of the inspector's ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote at such meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. Section 6 - List of Shareholders at Meeting. A list of shareholders as of the record date, certified by the Secretary or any Assistant Secretary or by the Transfer Agent, if any, shall be produced at the meeting of shareholders upon the request of any shareholder at such meeting or prior thereto. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding at such meeting, shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote at such meeting may vote at such meeting. 3/21/83 3 Section 7 - Qualification of Voters. Every shareholder of record of common stock of the Corporation shall be entitled at every meeting of shareholders to one vote for every share of common stock held by the shareholder in the shareholder's name on the record of shareholders, subject, however, to the voting rights granted to the holders of Cumulative Preferred Stock of the Corporation upon default in dividends thereon. Section 8 - Quorum of Shareholders. The holders of a majority of the shares entitled to vote at such meeting shall constitute a quorum at a meeting of shareholders for the transaction of any business, provided that when a specified item of business is required to be voted on by a class or series, voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum for the transaction of such specified item of business. The shareholders present, in person or by proxy, and entitled to vote may, by a majority of votes cast, adjourn the meeting despite the absence of a quorum. Section 9 - Vote of Shareholders. Directors shall, except as otherwise required by law, or by the certificate of incorporation as permitted by law, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law, or by the certificate of incorporation as permitted by law, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. 3/21/83 4 Section 10 - Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for that shareholder by proxy. Every proxy must be signed by the shareholder or the shareholder's attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it except in those cases where an irrevocable proxy permitted by statute has been given. Section 11 - Fixing Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. ARTICLE II BOARD OF DIRECTORS Section 1 - Power of Board and Qualification of Directors. The business of the Corporation shall be managed under the direction of its Board of Directors, each of whom shall be at least twenty-one years of age. 3/21/83 5 Section 2 - Number of Directors.* At the annual meeting of shareholders, the shareholders shall elect fourteen directors. Section 3 - Election, Term and Qualifications of Directors. At each annual meeting of shareholders, Directors shall be elected to hold office until the next annual meeting and until their successors have been elected and qualified. No person shall be eligible for election or reelection to the Board of Directors after reaching seventy years of age, or in the case of a retired Chairman of the Board of Directors or a retired President of the Corporation, after reaching sixty-seven years of age. The term of any Director who is also an Officer of the Corporation or any subsidiary of the Corporation, other than the Chairman of the Board or the President of the Corporation, shall end on the date of termination from active employment and such officer shall thereafter be ineligible for reelection to the Board of Directors. Section 4 - Quorum of the Board: Action by the Board. One-third of the entire Board of Directors shall constitute a quorum for the transaction of business, and the vote of a majority of the Directors present at the time of such vote, if a quorum is then present, shall be the act of the Board. Section 5 - Action Without a Meeting. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or of the committee consent in writing to the adoption of the resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. 3/21/83 *Revised 7/16/84, 2/17/86, 11/20/89, 2/19/90, 11/19/90, 4/24/91 6 Section 6 - Participation in Board Meetings by Conference Telephone. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 7 - Meetings of the Board. An annual meeting of the Board of Directors shall be held in each year directly after adjournment of the annual shareholders' meeting. Regular meetings of the Board shall be held at such times as may from time to time be fixed by resolution of the Board. Special meetings of the Board may be held at any time upon the call of the Chairman of the Board of Directors, if such there be, the President or any two Directors. Meetings of the Board of Directors shall be held at such place, within or without the State of New York, as from time to time may be fixed by resolution of the Board for annual and regular meetings and in the notice of meeting for special meetings. If no place is so fixed, meetings of the Board shall be held at the office of the Corporation in Rochester, New York. No notice need be given of annual or regular meetings of the Board of Directors. Notice of each special meeting of the Board shall be given by oral, telegraphic or written notice, duly given or sent or mailed to each Director not less than one (1) day before such meeting. Section 8 - Resignation. Any Director may resign at any time by giving written notice to the Chairman of the Board of Directors, if such there be, to the President or to the Secretary. Such resignation shall take effect at the time specified in such written notice, or if no time be specified, then on delivery. Unless otherwise specified in the written notice, the acceptance of such resignation by the Board of Directors shall not be needed to make it effective. 3/21/83 7 Section 9 - Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors may be filled by vote of the Board. If the number of the directors then in office is less than a quorum, such newly created directorships and vacancies may be filled by vote of a majority of the directors then in office. A director elected to fill a vacancy shall be elected to hold office for the unexpired term of such director's predecessor. Section 10 - Executive and Other Committees of Directors.* The Board of Directors, by resolution, adopted by a majority of the entire Board, shall designate from among its members an Executive Committee consisting of three or more Directors, a majority of whom are outside directors. The Executive Committee shall have all the authority of the Board, except that it shall not have authority as to the following matters: (1) The submission to shareholders of any action that needs shareholders' approval; (2) The filling of vacancies in the Board or in any committee; (3) The amendment or repeal of the By-Laws, or the adoption of new By-Laws; (4) The amendment or repeal of any resolution of the Board which, by its terms, shall not be so amendable or repealable; (5) The fixing of compensation of the directors for serving on the Board or on any Committee; (6) The fixing or amendment of the compensation, benefits and perquisites of the chief executive officer. 3/21/83 *Revised 11/19/84 Revised 4/22/87 Revised 4/29/92 Revised 4/21/93 8 The Board of Directors, by resolution by a majority of the entire Board, may designate from among its members an Audit Committee consisting of three or more outside directors. The Audit Committee shall, among other things, review the scope of audit activities, review with management significant issues concerning litigation, contingencies or other material matters which may result in either potential liability of the Company or significant exposure to the Company, review significant matters of corporate ethics, review security methods and procedures, review the financial reports and notes, and make reports and recommendations with respect to audit activities, findings, and reports of the independent public accountants and the internal audit staff of the Company. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members a Committee on Directors consisting of three or more outside directors. The Committee on Directors shall, among other things, review performance of incumbent directors, act as a nominating committee, and consider and report to the entire Board of Directors on all matters relating to the selection, qualification, compensation and duties of the members of the Board of Directors and any committees of the Board of Directors. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members a Committee on Management consisting of three or more outside directors. The Committee on Management shall, among other things, fix or amend the compensation, benefits and perquisites of all executive officers of the Company and recommend such for the chief executive officer, select and administer executive compensation plans and employee benefit plans which have Company stock as an investment option, review succession planning for the Company and review with management significant human resources issues. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members other committees each consisting of three or more directors. 3/21/83 9 Unless a greater proportion is required by the resolution designating a committee of the Board of Directors, a quorum for the transaction of business of a committee shall consist of (a) a majority of the entire authorized number of members of the Executive Committee or (b) one-third of the entire authorized number of members of any other committee of the Board of Directors, but in no event fewer than two persons. The vote of a majority of the members of a committee present at the time of the vote concerning the transaction of business of that committee or of any specified item of business of that committee if a quorum is present at such time, shall be the act of such committee. Any committee may fix the time and place of holding its regular meetings and, if so fixed, no notice of such regular meeting shall be necessary. Special meetings of any committee may be called at any time by the Chairman of the Board of Directors, if such there be, by the chief executive officer, by the President, by the Chairperson of that committee, or by any two members of that committee. Notice of each special meeting of any committee shall be given by oral, telegraphic or written notice, including notice via facsimile machine, duly given or sent or mailed to each member of that committee not less than one day before such meeting. Section 11 - Compensation of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any capacity. Section 12 - Indemnification.* (a) Generally. To the full extent authorized or permitted by law, the Corporation shall indemnify any person ("indemnified Person") made, or threatened to be made, a party to any action or proceeding, whether civil, at law, in equity, criminal, administrative, investigative or otherwise, including any action 3/21/83 *Revised 2/16/87 10 by or in the right of the Corporation, by reason of the fact that he, his testator or intestate, ("Responsible Person"), whether before or after adoption of this Section 12, (1) is or was a director or officer of the Corporation, or (2), if a director or officer of the Corporation, is serving or served, in any capacity, at the request of the Corporation, any other corporation, or any partnership, joint venture, trust, employee benefit plan or other enterprise, or (3), if not a director or officer of the Corporation, is serving or served, at the request of the Corporation, as a director or officer of any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, against all judgments, fines, penalties, amounts paid in settlement (provided the Corporation shall have given its prior consent to such settlement, which consent shall not be unreasonably withheld by it) and reasonable expenses, including attorneys' fees, incurred by such Indemnified Person with respect to any such threatened or actual action or proceeding, and any appeal therein, provided only that (x) acts of the Responsible Person which were material to the cause of action so adjudicated or otherwise disposed of were not (i) committed in bad faith or (ii) were not the result of active and deliberate dishonesty, and (y) the Responsible Person did not personally gain in fact a financial profit or other advantage to which he was not legally entitled. (b) Advancement of Expenses. All expenses reasonably incurred by an Indemnified Person in connection with a threatened or actual action or proceeding with respect to which such person is or may be entitled to indemnification under this Section 12 shall be advanced or promptly reimbursed by the Corporation to him in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by him or on his behalf to repay the amount of such advances, if any, as to which he is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent such advances exceed the indemnification to which he is entitled. Such person shall cooperate in good faith with any request by the Corporation that common counsel be used by the parties to an action or proceeding who are similarly situated unless to do so would be inappropriate due to an actual or potential conflict of interest. 3/21/83 11 (c) Procedure for Indemnification. (1) Not later than thirty (30) days following final disposition of an action or proceeding with respect to which the Corporation has received written request by an Indemnified Person for indemnification pursuant to this Section 12, if such indemnification has not been ordered by a court, the Board of Directors shall meet and find whether the Responsible Person met the standard of conduct set forth in paragraph (a) of this Section 12, and, if it finds that he did, or to the extent it so finds, shall authorize such indemnification. (2) Such standard shall be found to have been met unless (a) a judgment or other final adjudication adverse to the Indemnified Person establishes that subparagraphs (x) or (y) of paragraph (a) of this Section 12 were violated, or (b) if the action or proceeding was disposed of other than by judgment or other final adjudication, the Board finds in good faith that, if it had been disposed of by judgment or other final adjudication, such judgment or other final adjudication would have been adverse to the Indemnified Person and would have established a violation of subparagraphs (x) or (y) of paragraph (a) of this Section 12. (3) If indemnification is denied, in whole or part, because of an adverse finding by the Board in the absence of a judgment or other final adjudication, or because the Board believes the expenses for which indemnification is requested to be unreasonable, such action by the Board shall in no way affect the right of the Indemnified Person to make application therefor in any court having jurisdiction thereof, and in such action or proceeding the issue shall be whether the Responsible Person met the standard of conduct set forth in paragraph (a) of this Section 12, or whether the expenses were reasonable, as the case may be (not whether the finding of the Board with respect thereto was correct) and the determination of such issue shall not be affected by the Board's finding. If the judgment or other final adjudication in such action or proceeding establishes that the Responsible Person met the standard set 3/21/83 Revised 2/16/87 12 forth in paragraph (a) of this Section 12, or that the disallowed expenses were reasonable, or to the extent that it does, the Board shall then find such standard to have been met or the expenses to be reasonable, and shall grant such indemnification, and shall also grant to the Indemnified Person indemnification of the expenses incurred by him in connection with the action or proceeding resulting in the judgment or other final adjudication that such standard of conduct was met, or if pursuant to such court determination such person is entitled to less than the full amount of indemnification denied by the Corporation, the portion of such expenses proportionate to the amount of such indemnification so awarded. (4) A finding by the Board pursuant to this paragraph (c) that the standard of conduct set forth in paragraph (a) of this Section 12 has been met shall mean a finding of the Board or shareholders as provided by law. (d) Contractual Article. This Section 12 shall be deemed to constitute a contract between the Corporation and each person who is a Responsible Person at any time while this Section 12 is in effect. No repeal or amendment of this Section 12, insofar as it reduces the extent of the indemnification of any person who could be a Responsible Person shall without his written consent be effective as to such person with respect to any event, act or omission occurring or allegedly occurring prior to (1) the date of such repeal or amendment if on that date he is not serving in any capacity for which he could be a Responsible Person, or (2) the thirtieth (30th) day following delivery to him of written notice of such repeal or amendment as to any capacity in which he is serving on the date of such repeal or amendment, other than as a director or officer of the Corporation, for which he could be a Responsible Person, or (3) the later of the thirtieth (30th) day following delivery to him of such notice or the end of the term of office (for whatever reason) he is serving as director or officer of the Corporation when such repeal or amendment is adopted, with respect to being a Responsible Person in that capacity. No amendment of the Business Corporation Law shall, insofar as it reduces the permissible extent of the right of indemnification of a Responsible Person under this Section 12, be effective as to such person with respect to any event, act or omission occurring or allegedly occurring prior to the effective date of such amendment irrespective of the date of any claim or legal action in respect thereto. This Section 12 shall 3/21/83 13 be binding on any successor to the Corporation, including any corporation or other entity which acquires all or substantially all of the Corporation's assets. (e) Non-exclusivity. The indemnification provided by this Section 12 shall not be deemed exclusive of any other rights to which any person covered hereby may be entitled other than pursuant to this Section 12. The Corporation is authorized to enter into agreements with any such person or persons providing them rights to indemnification or advancement of expenses in addition to the provisions therefor in this Section 12 to the full extent permitted by law. ARTICLE III OFFICERS Section 1 - Officers. The Board of Directors, as soon as may be practicable after the annual election of directors, may elect a Chairman of the Board of Directors and shall elect a President, one or more Vice Presidents (one or more of whom may be designated Executive Vice President), a Secretary and a Treasurer, and such other officers as it may determine. Any two or more offices may be held by the same person, except the office of President and Secretary. Section 2 - Term of Office and Removal. Each officer shall hold office for the term for which each officer is elected or appointed, and until a successor has been elected or appointed and qualified. 3/2/83 14 Section 3 - Powers and Duties. The officers of the Corporation shall each have such powers and authority and perform such duties in the management of the Corporation as set forth in these By-Laws and as from time to time prescribed by the Board of Directors. To the extent not set forth in these By-Laws or so prescribed by the Board of Directors, they shall each have such powers and authority and perform such duties in the management of the Corporation, subject to the control of the Board, as generally pertain to their respective offices. In addition to the powers and authority above, each officer has the powers and duties set out below. (a) Chairman of the Board of Directors The Chairman of the Board of Directors, if such there be, shall preside at all meetings of the Board. The Chairman of the Board of Directors may be the chief executive officer of the Corporation, and if so designated, may preside at all meetings of shareholders. (b) President The President shall be the chief operating officer and shall have responsibility for the general management of the business of the Corporation, subject only to the supervision of the Board of Directors, the Executive Committee and the Chairman of the Board of Directors, as chief executive officer, if such there be. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not the chief executive officer, then the President shall be the chief executive officer of the Corporation. The President may preside at all meetings of shareholders, when present, and at meetings of the Board of Directors in the absence of the Chairman of the Board, if such there be. (c) Executive Vice President The Executive Vice President or the Executive Vice Presidents, if such there be, shall assist the President in the management of the Corporation and, as may be designated by the Board of Directors, in the event of the death, resignation, removal, disability or absence of the President, an Executive Vice President shall possess the powers and perform the duties of the President for the 3/21/83 15 period of such disability or absence or until the Board of Directors elects a President. (d) Vice President Each Vice President shall assist the President in the management of the Corporation and, in the absence or incapacity of the President and Executive Vice Presidents, and in order as fixed by the Board, possess the powers and perform the duties of the President for the period of such absence or incapacity, and shall possess such other powers and perform such other duties as the Board of Directors may prescribe. (e) Secretary The Secretary shall issue notices of all meetings of shareholders and directors where notices of such meetings are required by law or these By-Laws, and shall keep the minutes of such meetings. The Secretary shall sign such instruments and attest such documents as require signature or attestation and affix the corporate seal thereto where appropriate and shall possess such other powers and perform such other duties as usually pertain to the office or as the Board of Directors may prescribe. (f) Treasurer The Treasurer shall have general charge of, and be responsible for, the fiscal affairs of the Corporation and shall sign all instruments and documents as require such signature, and shall possess such other powers and perform such other duties as usually pertain to the office or as the Board of Directors may prescribe. (g) Assistant Officers Any Assistant Officer elected by the Board of Directors shall assist the designated officer and shall possess that officer's powers and perform that officer's duties as designated by that officer, and shall possess such other powers and perform such other duties as the Board of Directors may prescribe. 3/21/83 16 Section 4 - Records. The Corporation shall keep (a) correct and complete books and records of account; (b) minutes of the proceedings of the shareholders, Board of Directors and any committees of the Board; and (c) a current list of the directors and officers and their residence addresses. The Corporation shall also keep at its office in the State of New York or at the office of its transfer agent or registrar in the State of New York, if any, a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. Section 5 - Checks and Similar Instruments. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes and all acceptances, obligations and other instruments, for the payment of money, shall be signed by facsimile or otherwise on behalf of the Corporation by such officer or officers or agent or agents as shall be thereunto authorized from time to time by the Board of Directors. Section 6 - Voting Shares Held by the Corporation. Either the President or the Secretary may vote shares of stock held by the Corporation in other corporations and may execute proxies for and on behalf of the Corporation for such purpose. ARTICLE IV SHARE CERTIFICATES AND LOSS THEREOF - TRANSFER OF SHARES Section 1 - Form of Share Certificate. The shares of the Corporation shall be represented by certificates, in such forms as the Board of Directors may from time to time prescribe, signed by the Chairman of the Board if 3/21/83 17 such there be, or the President or a Vice President, and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer at the date of issue. Section 2 - Lost, Stolen or Destroyed Share Certificates. No certificate or certificates for shares of the Corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of the loss, theft or destruction, and upon such indemnification and payment of costs of the Corporation and its agents to such extent and in such manner as the Board of Directors may from time to time prescribe. The Board of Directors, in its discretion, and as a condition precedent to the issuance of any new certificate, may require the owner of any certificate alleged to have been lost, stolen or destroyed to furnish the Corporation with a bond, in such sum and with such surety or sureties as it may direct, as indemnity against any claim that may be made against the Corporation in respect of such lost, stolen or destroyed certificate. Section 3 - Transfer of Shares. Shares of the Corporation shall be transferable on the books of the Corporation by the registered holder thereof in person or by the registered holder's duly authorized attorney, by delivery for cancellation of a certificate or certificates for the same number of shares, with proper endorsement consisting of either a written assignment of the certificate or a power of attorney to sell, assign or transfer the same or the shares represented thereby, signed by the person appearing by 3/21/83 18 the certificate to be the owner of the shares represented thereby, either written thereon or attached thereto, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. Such endorsement may be either in blank or to a specified person, and shall have affixed thereto all stock transfer stamps required by law. ARTICLE V OTHER MATTERS Section 1 - Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and such other appropriate legend as the Board of Directors may from time to time determine. In lieu of the corporate seal, when so authorized by the Board, a facsimile thereof may be affixed or impressed or reproduced in any other manner. Section 2 - Amendments. By-Laws of the Corporation may be amended, repealed or adopted by vote of the holders of the shares at the time entitled to vote in the election of any directors. By-Laws may also be amended, repealed, or adopted by the Board of Directors, but any By-Law adopted by the Board may be amended or repealed by the shareholders entitled to vote thereon as hereinabove provided. If any By-Law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the By-Law so adopted, amended or repealed, together with a concise statement of the changes made. END 8ED EX-4 3 EX 4-11 AGMT FOR SUBS EXHIBIT 4.11 Rochester Telephone Corporation has not filed any instrument defining the rights of holders of long-term debt of its subsidiaries because the amounts authorized under any such instrument do not exceed ten percent (10%) of the total assets of Rochester Telephone Corporation and its subsidiaries on a consolidated basis. Rochester Telephone Corporation agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request. (50ED) EX-10 4 EX 10-7 1 EXHIBIT 10.7 FORM OF MANAGEMENT CONTRACT DATE Dear NAME: Rochester Telephone Corporation ("RTC"), as defined in Paragraph 7(a) hereof, a New York corporation, considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of RTC, its shareholders and its ratepayers. In this connection, RTC recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of RTC and its shareholders. Accordingly, the Board of Directors of RTC (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of certain members of RTC's management to their assigned duties without distraction in circumstances arising from the possibility of a change in control of RTC. In particular, the Board believes it important, should RTC or its shareholders receive a proposal for transfer of control of RTC, that you be able to assess and advise the Board whether such proposal would be in the best interests of RTC and its shareholders and to take such other action regarding such proposal as the Board might determine to be appropriate, without being influenced by the uncertainties of your own situation. In order to induce you to remain in the employ of RTC, this letter agreement, which has been approved by the Board, sets forth the severance benefits which RTC agrees will be provided to you in the event your employment with RTC is terminated subsequent to a "Change in Control" of RTC under the circumstances described below. 1. Agreement to Provide Services; Right to Terminate. a. Except as otherwise provided herein, RTC or you may terminate your employment at any time, subject to RTC's providing the benefits hereinafter specified in accordance with the terms hereof. b. In the event a tender offer or an exchange offer is made by a person (which shall include any individual, corporation, partnership, group, association or other "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) for 30% or more of RTC's then outstanding Common Stock, or in the event any person (as hereinbefore defined) announces an intention or proposal to commence, or actually commences, a proxy fight which could result in the Incumbent 2 Board (as that term is defined in Paragraph 3(a)(iv) hereof) ceasing to constitute at least a majority thereof, you agree that you will not leave the employ of RTC (other than as a result of Disability or Retirement) and will render the services contemplated in the recitals to this Agreement until such tender offer, exchange offer or proxy fight has been abandoned or terminated or a Change in Control of RTC, as defined in Paragraph 3(a) hereof, has occurred. c. In the event any person (as that term is used in Sections 13(d) and 14(d) of the Exchange Act) publicly announces an intention or proposal to consolidate or merge with RTC, to obtain by purchase, lease or any other form of transfer all or substantially all of the assets of RTC, or to effect a liquidation or dissolution of RTC, you agree that you will not leave the employ of RTC (other than as a result of Disability or Retirement) and will render the services contemplated in the recitals to this Agreement for the reasonable duration of the previously mentioned event or until such event has been abandoned or terminated or a Change in Control of RTC, as defined in Paragraph 3(a) hereof, has occurred. d. Following a Change in Control as defined in Paragraph 3(a), you agree to provide services to RTC or its successor for a minimum of three years. Such services shall be of authority and responsibility substantially commensurate to those you provided immediately before the Change in Control. 2. Term This Agreement shall remain in effect unless terminated upon sixty (60) days prior written notice delivered by one party to the other party, except that: a. this Agreement shall terminate immediately i. upon the termination of your active employment with RTC based on your death, Retirement (as defined in Paragraph 3(b) hereof), or Disability (as defined in Paragraph 3(c) hereof), or Voluntary Termination (as defined in Paragraph 3(f) hereof), or for Cause (as defined in 3 Paragraph 3(d) hereof), or upon your termination of your employment other than (i) for Good Reason (as defined in Paragraph 3(e) hereof) or (ii) during the Window Period (as defined in Paragraph 3(g) hereof); or ii. three (3) years from the date of a Change in Control if you have not terminated your employment for Good Reason, and you have not been terminated by RTC other than for Cause, before such time; and b. this Agreement may not be terminated subsequent to a Change in Control except as provided in Paragraphs 2(a)(i) and (ii) hereof, or subsequent to a tender offer, exchange offer, proxy fight or announcement of an event (as described in Paragraphs 1(b) and 1(c) hereof) unless and until the offer or proxy fight is abandoned or terminated, or such announcement is abandoned or terminated or the event is given reasonable time to occur, or a Change in Control occurs (and if such a Change in Control occurs this Agreement may be terminated only as provided in Paragraphs 2(a)(i) and (ii) hereof). 3. Definitions Whenever used in this Agreement, the following terms shall have the meanings set forth below: a. "Change in Control" shall be deemed to have occurred if i. there shall be consummated A. any consolidation or merger of RTC in which RTC is not the continuing or surviving corporation or pursuant to which any shares of RTC's Common Stock are to be converted into cash, securities or other property, provided that, the consolidation or merger is not with a corporation which was a wholly-owned subsidiary of RTC immediately before the consolidation or merger; or B. any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of RTC; or 4 ii. the stockholders of RTC approve any plan or proposal for the liquidation or dissolution of RTC; or iii. any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of RTC's then outstanding Common Stock, provided that, such person shall not be a wholly-owned subsidiary of RTC immediately before it becomes such 30% beneficial owner; or iv. individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by RTC's shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of RTC in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (iv), considered as though such person were a member of the Incumbent Board. b. "Retirement" means a voluntary or involuntary termination of employment after age 65 or any voluntary termination at age 65 or earlier that entitles you to receive a normal or early retirement service pension under Sections 5.1 through 5.3 of the RTC Management Pension Plan (or any successor or substitute plan or plans of RTC put into effect prior to a Change in Control). c. "Disability" means a physical or mental condition which permanently prevents you from satisfactorily performing your usual duties for RTC. In the event RTC asserts that you are disabled for the purposes of this Agreement and you challenge that assertion, you shall have the right to pursue all legal remedies and you shall be entitled to receive all payments pursuant to Paragraph 9 of this Agreement. 5 d. "Cause" means (i) the willful and continued failure by you to perform substantially your duties with RTC (other than any such failure resulting from your incapacity due to physical or mental illness) after a demand for substantial performance is delivered to you by the Committee on Management Chairman or the Executive Committee Chairman of RTC's Board of Directors, or RTC's Chief Executive Officer or President, which specifically identifies the manner in which such person believes that you have not substantially performed your duties, or (ii) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to RTC. For the purposes of this paragraph (d), no act, or failure to act, on your part shall be construed as "willful" unless done, or omitted to be done, by you in bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interest of RTC. e. "Good Reason" means (without your express written consent) i. the assignment to you of duties and responsibilities materially diminished from your duties and responsibilities with RTC as the same existed immediately prior to a Change in Control (except that you understand that the mere facts that, subsequent to a Change in Control, RTC carries on its business as a subsidiary or division of another company, and/or RTC's Common Stock is no longer publicly traded, are not, in and of themselves, sufficient to constitute Good Reason due to a change in duties); or ii. a reduction by RTC in your base salary as in effect immediately prior to a Change in Control; or iii. any failure by RTC to continue in effect any benefit or incentive plan or arrangement in which you are participating at the time of a Change in Control (except that a replacement plan or arrangement with at least substantially similar terms may be provided to you) unless that plan or arrangement expires in accordance with its terms in effect at the time of a Change in Control or legal requirements; or 6 iv. the taking of any action by RTC which would adversely affect your participation in or materially reduce your benefits under any such plan or arrangement or deprive you of any other material benefit (including any miscellaneous benefit which is not represented and protected by a written plan document or a trust) enjoyed by you at the time of a Change in Control; or v. changing your job reporting location to a site more than sixty (60) miles from your job location immediately prior to the Change in Control; or vi. any material breach by RTC of any provision of this Agreement; or vii. any failure by RTC to comply with and satisfy Paragraph 7(a). f. "Voluntary Termination" means you voluntarily terminate your current position with RTC for reasons other than death, Retirement, Disability, Cause or Good Reason. No termination during the Window Period shall be considered a Voluntary Termination. g. "Window Period" means the 30-day period immediately following the first anniversary of a Change in Control. 4. Termination Following Change in Control a. If a Change in Control shall occur while you are still an active employee of RTC, you shall be entitled to the compensation provided in Paragraph 5 upon the subsequent termination of your employment with RTC by you or by RTC, unless such termination is as a result of your: i. death; ii. Retirement (as defined in Paragraph 3(b) hereof); iii. Disability (as defined in Paragraph 3(c) hereof); 7 iv. termination by RTC for Cause (as defined in Paragraph 3(d) hereof); v. decision to terminate your employment other than (i) for Good Reason (as defined in Paragraph 3(e) hereof) or (ii) during the Window Period (as defined in Paragraph 3(g) hereof); or vi. Voluntary Termination (as defined in Paragraph 3(f) hereof). b. Notice of Termination. Any termination by RTC pursuant to Paragraph 4(a), shall be communicated by delivery of a Notice of Termination. For the purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. 5. Severance Compensation a. If your employment with RTC shall terminate after a Change in Control other than pursuant to Paragraph 4(a)(i), (ii), (iii), (iv) or (vi), or if you shall terminate your employment after a Change in Control for Good Reason, or if you shall terminate your employment during the Window Period without any reason, then RTC shall: i. continue to provide Health Care, Extraordinary Medical Expense, Employee Medical Reimbursement and Group Life Insurance benefits to you of the same nature and extent as are made available to retirees of RTC pursuant to the RTC benefit plans in existence immediately prior to a Change in Control, except that such benefits shall cease after three years; and ii. pay to you as severance pay, in cash, an amount, or amounts, the aggregate present value of which shall equal three (3) times the aggregate annual salary and bonus paid to you by RTC, or any of its subsidiaries, during the most recent expired calendar year; provided, however, that such amount be reduced by the present value (determined as 8 provided in Section 280G(d)(4) of the Internal Revenue Code of 1986 as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by you upon termination of your employment under any severance plan, policy or arrangement of RTC. b. Pursuant to your election, any amount, or amounts, which become payable to you pursuant to Paragraph 5(a)(ii) hereof shall be paid to you within five business days of your date of termination. All payments shall be net of any federal, state or local income or employment taxes to which payments of this type are customarily subject. 6. Certain Additional Payments by the Company. a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by RTC to or for your benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Paragraph 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by you with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. b. Subject to the provisions of Paragraph 6(c), all determinations required to be made under this Paragraph 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the auditors for RTC for the fiscal year in which the Change of Control occurs (the 9 "Accounting Firm") who shall provide detailed supporting calculations, together with a written opinion with respect to the accuracy of such calculations, both to RTC and you within 15 business days of the receipt of notice from you that there has been a Payment or such earlier time as is requested by RTC. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change in Control) as accountant or auditor for the individual, entity or group effecting the Change of Control or any affiliate thereof, you may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by RTC. Any Gross-Up Payment, as determined pursuant to this Paragraph 6, shall be paid by RTC to you within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by you, it shall furnish you with a written opinion that failure to report the Excise Tax on your applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon RTC and you. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by RTC should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that RTC exhausts its remedies pursuant to Paragraph 6(c) and you thereafter are required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by RTC to or for your benefit. c. You shall notify RTC in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by RTC of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after you are informed in writing of such claim and shall apprise RTC of the nature of such claim and the date on which such claim in requested to be paid. You shall not pay such claim prior to the expiration of the 30-day period following the 10 date on which you give such notice to RTC (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If RTC notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (i) give RTC any information reasonably requested by RTC relating to such claim, (ii) take such action in connection with contesting such claim as RTC shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by RTC, (iii) cooperate with RTC in good faith in order effectively to contest such claim, and (iv) permit RTC to participate in any proceedings relating to such claim; provided, however, that RTC shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Paragraph 6(c), RTC shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as RTC shall determine; provided, however, that if RTC directs you to pay such claim and sue for a refund, RTC shall advance the amount of such payment to you, on an interest-free basis and shall indemnify and hold you harmless, on an after-tax basis from any Excise Tax or income tax (including interest or penalties with respect 11 thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for your taxable year with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, RTC's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. d. If, after the receipt by you of an amount advanced by RTC pursuant to Paragraph 6(c), you become entitled to receive any refund with respect to such claim, you shall (subject to RTC's complying with the requirements of Paragraph 6(c)) promptly pay to RTC the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by you of an amount advanced by RTC pursuant to Paragraph 6(c), a determination is made that you shall not be entitled to any refund with respect to such claim and RTC does not notify you in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. Successor to RTC a. RTC will require any successor or assign to all or substantially all of the business and/or assets of RTC, by agreement in form and substance satisfactory to you, to assume and agree to perform this Agreement in the same manner and to the same extent that RTC would be required to perform it if no such succession or assignment had taken place. Any such assumption and agreement must be express, absolute and unconditional. Any failure of RTC to obtain such agreement at least 3 business days prior to the effective date of any such succession or assignment shall be a material breach of this Agreement and shall entitle you to terminate your employment for Good Reason. As used in this Agreement, "RTC" shall mean RTC as 12 hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 7 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. b. This Agreement shall inure to the benefit of, and be enforceable by, your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts are still payable to you hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there is no such designee, to your estate. 8. Confidentiality and Non-Competition You agree to retain in confidence any and all confidential information known to you concerning RTC and its business so long as such information is not otherwise publicly disclosed. You agree that you will not engage in any activity inimical to the interests of RTC within three years of your termination. 9. Legal Fees and Expenses RTC shall pay all reasonable legal fees and expenses which you may incur as a result of (a) RTC's contesting the validity or enforceability of this Agreement or (b) your seeking to obtain or enforce any right or benefit provided by this Agreement, unless a court deems your action frivolous. 10. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights a. You shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer after your termination, or otherwise. b. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish your existing rights, or rights which would accrue 13 up to your termination date solely as a result of the passage of time, under any employment agreement or any RTC benefit or incentive plan or arrangement, including, but not limited to, the RTC Management Pension Plan. 11. Notice For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to RTC: Rochester Telephone Corporation 180 South Clinton Avenue Rochester, New York 14646 Attn: Chairman of the Committee on Management If to you: NAME Address City, State Zip or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Miscellaneous No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and RTC. No waiver by either party hereto at any time of any breach by the other party hereto of compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 14 13. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to me the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, ROCHESTER TELEPHONE CORPORATION By: ------------------------------ Agreed to this day of , 199 . NAME 51ED EX-10 5 EX 10-12 1 EXHIBIT 10.12 ROCHESTER TEL LETTERHEAD December 23, 1993 Mr. F. R. Pestorius 3496P Sandy Beach Drive Canandaigua, New York 14424 Dear Dutch: This letter is to confirm our discussion concerning your decision to retire; our agreement with respect to the terms and conditions of your termination of employment; and our desire to have you work for us until no later than July 1, 1994. In consideration of $250,000 paid to you, payment of which is made pursuant to paragraph 7 and which is hereby acknowledged by you, we agree as follows: 1. Covenant Not to Compete - You agree that for a period beginning with the effective date of this agreement and ending five (5) years after your date of retirement, you shall not, directly or indirectly, in any capacity, engage in or assist another to engage in any work or activity in any way connected with the development, manufacture or sale of any product or service which in any way directly competes with any product or service of Rochester Telephone in its markets or which in any way directly competes with the pursuit of the strategic direction of Rochester Telephone. Rochester Telephone as used in this agreement includes the parent Rochester Telephone and each of its subsidiaries. 2. Vacation - You are entitled to five (5) weeks of vacation as of January 1, 1994 and twenty-five (25) days of banked vacation. The cash equivalent of the unused vacation plus banked vacation will be paid to you in a lump sum with respect to the payroll period immediately following your last day of actual employment. This vacation period will be added to the last day of your actual employment to determine your last day of active employment. 3. Pre-pension Leave and Executive Pre-pension Leave - Your pension date will be the day after the Effective Date of Retirement as hereinafter defined. A pre-pension leave amount equal to four (4) months of your base salary of $179,000 will be paid to you in semi-monthly installments over the four (4) month period following your last day of active employment. 2 Immediately following the conclusion of these payments, you will be paid an executive pre-pension leave amount equal to eight (8) months of your base salary in a single lump sum payment. The amounts you actually receive will be net of FICA, federal and state taxes and other normal withholdings, as applicable. 4. Short Term Bonus - A short term bonus for 1993 performance which is expected to be approximately $125,000 will be paid to you during January 1994 after completion of the necessary approval process. The amount of the bonus will be based upon results calculated for corporate vice presidents and modified by the Regional Telephone Business Unit results. You will also be paid a short term pro rata bonus for your months of 1994 performance through July 1, 1994, the amount of which will be determined in the manner consistent with the 1994 method and your current position. 5. Performance Unit Plan - You will be entitled to participate fully in the 1991-1993 Performance Unit Plan. You will be entitled to participate in the 1992-1994 and 1993-1995 Performance Unit Plans based upon the portion of the period covered by each plan that ends with your last day of active employment. 6. Stock Options - Your stock options granted prior to July 1, 1994 will be treated under the terms and conditions of the Executive Stock Option Plan in effect as of July 1, 1994. 7. Payment Terms - You agree that the payment of the $250,000 is to be paid in six (6) installments as follows: July 1, 1994 $ 50,000 January 1, 1995 100,000 January 1, 1996 50,000 January 1, 1997 25,000 January 1, 1998 15,000 January 1, 1999 10,000 In the event of a change in control as defined in the Performance Unit Plan, all remaining payments hereunder shall accelerate and be immediately payable in a lump sum. 8. Other Benefits - You will receive all full benefits for which officers of Rochester Telephone are eligible during vacation and for a period beginning at the Effective Date of Retirement and continuing for six months, unless you accept a position, either as an owner or an employee, with an entity which provides medical and other benefits. 3 9. Other Perquisites - You will receive all the perquisites (such as cellular service, club dues, automobile) for which officers of Rochester Telephone are eligible during vacation and for a period beginning at the Effective Date of Retirement and continuing for six months, unless you accept a position, either as an owner or an employee, with an entity, and in such case, you will receive the cash equivalent for the remainder of the period. 10. Rights to Benefits Unsecured - Your right and, if applicable, the right of your estate to receive benefits under the provisions of this Agreement shall be an unsecured claim against the general assets of the Company. Any amounts that the Company may set aside for paying benefits under this Agreement are a part of the Company's general assets and, for tax purposes, are reachable by the creditors of the Company. 11. Pension - Your pension payments will be as computed under the Management Pension Plan, the Supplemental Management Pension Plan, and the Supplemental Executive Retirement Plan. Nothing in this letter modifies the terms of those Plans. 12. Assignability - Your right to receive benefits under this Agreement are not transferable or assignable except by will or by the laws of descent and distribution. 13. Governing Law - This Agreement shall be interpreted and enforced in accordance with the laws of the State of New York. 14. Severability - The provision of this Agreement shall be deemed severable and the invalidity or unenforceability of any one or more of the provisions shall not affect the validity and enforceability of the other provisions. 15. Non-Disclosure - Neither you nor the Company shall divulge the contents of this Agreement to any person other than your own legal and financial advisors without the express written consent of the other, except pursuant to a valid court order. 16. Effective Date of Retirement. Effective Date of Retirement as used elsewhere in this letter is defined to mean a mutually agreed upon date in 1994 when an adequate replacement person has been retained by the Company, but in no case later than July 1, 1994 plus the allowed vacation and pre-pension leave. 17. Release - In consideration for the payments provided above, except as provided in this Agreement, the Employee releases and 4 discharges the Employer, its officers, agents, employees, subsidiaries, and successors, from all claims of any kind, which the Employee, or his agents, executors, heirs, or assigns ever had or now have, whether known or unknown, up to and including his termination of employment with the Employer. This release includes, but is not limited to, the following: any action or cause of action asserted or which could have been asserted under the Age Discrimination in Employment Act of 1967, as amended, Title VII of the Civil Rights Act of 1964, the New York Human Rights Law, the Employee Retirement Income Security Act or the Americans with Disabilities Act; claims for wrongful discharge, unjust dismissal, or constructive discharge; claims for breach of any alleged oral, written or implied contract of employment; claims for salary or severance payments; claims for benefits; claims for attorneys fees; and any other claims under any federal, state or local statute, law, rule or regulation; provided that in any event all such actions or claims relate to employment or benefits matters. IN EXECUTING THIS AGREEMENT, YOU ACKNOWLEDGE THAT YOU HAVE BEEN GIVEN AT LEAST 21 DAYS IN WHICH TO CONSIDER SIGNING THIS AGREEMENT AND THE RELEASE CONTAINED IN THIS PARAGRAPH 15. YOU ACKNOWLEDGE THAT YOU HAVE CONSULTED WITH AN ATTORNEY OF YOUR CHOICE CONCERNING THIS AGREEMENT AND RELEASE. YOU HAVE CAREFULLY READ AND FULLY UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT AND RELEASE, AND ARE ENTERING INTO THIS AGREEMENT AND RELEASE VOLUNTARILY. YOU ACKNOWLEDGE THAT THE CONSIDERATION YOU ARE RECEIVING IN EXCHANGE FOR EXECUTING THIS AGREEMENT AND RELEASE IS GREATER THAN THAT WHICH YOU WOULD BE ENTITLED TO IN THE ABSENCE OF THIS AGREEMENT AND RELEASE. YOU HAVE NOT RELIED UPON ANY REPRESENTATION OR STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS DOCUMENT. YOU ACKNOWLEDGE THAT THIS DOCUMENT SETS FORTH THE ENTIRE AGREEMENT BETWEEN YOU AND THE EMPLOYER AND THAT IT MAY NOT BE CHANGED ORALLY. YOU UNDERSTAND THAT YOU HAVE THE RIGHT TO REVOKE THIS AGREEMENT WITHIN 7 DAYS OF SIGNING IT, AND THAT THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THIS 7 DAY PERIOD HAS EXPIRED. YOU AGREE THAT IF YOU EXERCISE YOUR RIGHT TO REVOKE THIS AGREEMENT WITHIN 7 DAYS, YOU WILL RETURN THE CONSIDERATION RECITED HEREIN TO THE EMPLOYER. If you agree with the terms of this Agreement, please signify your consent by signing this letter in the place provided below and returning it to me in the post paid envelope I have provided. In consideration of your signing this Agreement, you 5 will receive a payment in the amount of $50,000 on July 1, 1994, in accordance with the schedule in paragraph 7. Very truly yours, /s/ R. L. Bittner Ronald L. Bittner Chairman, President & CEO I have reviewed this Agreement and agree with its terms and conditions. The effective date of this agreement is 12-28-93. /s/ F. R. Pestorius Date: December 21, 1993 --------------------------------- F. R. Pestorius 52ED EX-10 6 EX 10-31 1 EXHIBIT 10.31 ROCHESTER TELEPHONE CORPORATION MANAGEMENT PENSION PLAN Amendment No. 17 to the January 1, 1987 Restatement Pursuant to Article XI, Section 2.11 is amended, effective January 1, 1994, by deleting the number $200,000 in the last sentence thereof and substituting in its place $150,000. IN WITNESS WHEREOF, the Employer has caused its duly authorized officer to execute this Amendment on its behalf this 15th day of November, 1993. ROCHESTER TELEPHONE CORPORATION By: /s/ Josephine S. Trubek ------------------------- Corporate Secretary (53ED) 2 EXHIBIT 10.31 ROCHESTER TELEPHONE CORPORATION MANAGEMENT PENSION PLAN Amendment No. 18 to the January 1, 1987 Restatement Pursuant to Article XI, the Plan is amended, effective January 1, 1994, as follows: 1. Section 3.1 is amended by deleting the second paragraph thereof and substituting in its place the following: Notwithstanding the above, this Plan does not cover any Employee who (1) is in a unit of employees covered by a collective bargaining agreement unless such agreement provides for the application of this Plan to the employees in such unit, (2) is not in a collective bargaining unit but is in a non-exempt hourly status, (3) is a temporary employee, or (4) is a Leased Employee. 2. Section 4.1 is amended by adding to the end of the first paragraph thereof the following new sentence: The five year average compensation factor used in (1) above shall be the higher of the average obtained using calendar years of service or the average obtained using 12-consecutive-month years of service ending on a Participant's date of retirement or any anniversary thereof. 3. Section 4.3 is amended by adding to the end thereof the following new subsection (c): (c) TRANSFERS FROM UPSTATE PARTNERS. A Participant may elect to transfer his accrued benefit from the Upstate Partners Pension Plan to this Plan in accordance with the terms of the Upstate plan. In this event, the Participant shall be credited for all purposes under this Plan with all service and compensation he has with both the Employer and, to the extent taken into account in determining his accrued benefit, the Upstate Partners. The Participant's Accrued Benefit shall be determined under the terms of this Plan taking into account such aggregate service and compensation provided that in no event shall the Accrued Benefit be less than the aggregate of the accrued benefit transferred from the Upstate Partners 3 Pension Plan plus the Accrued Benefit under the Plan, if any, immediately preceding the transfer of the accrued benefit from the Upstate Partners Pension Plan to this Plan. 4. Section 5.12 is amended by deleting the first sentence thereof and substituting in its place the following: Neither an eligible Employee under Section 3.1 who continues working beyond Normal Retirement Age nor an eligible Employee under Section 3.1 who has commenced receiving Plan benefits and is subsequently re-employed by the Employer shall be entitled to receive benefits from this Plan during his period of employment with the Employer. 5. Article V is amended by adding to the end thereof the following new Section 5.18: Enhanced SECTION 5.18 (a) ELIGIBLE PARTICIPANTS. This Retire- Section 5.18 provides enhanced benefits for ment Participants who are in the active employ of the Option Employer, on January 3, 1994, including Participants on vacation, and who, without application of the terms of this Section, have at least five Years of Service on this date. Notwithstanding the foregoing, this Section does not cover persons who on January 3, 1994 are on pre-pension leave or who are executive officers of the Employer. (b) INCREASE IN ACCRUED BENEFIT. Each eligible Participant's Accrued Benefit determined as of January 3, 1994 shall be calculated by adding five years to the Participant's actual age on such date and by adding five Years of Service to the Participant's actual Years of Service on such date. Notwithstanding the above, an eligible Participant whose last day of work is on or before March 31, 1994 shall have the additional five Years of Service added to his actual Years of Service determined as of his or her retirement date. All other factors used in computing a Participant's Accrued Benefit on January 3, 1994 shall be those actually in effect on this date. Any Participant who becomes entitled to receive a benefit from the Plan on and after January 3, 1994, shall receive the higher of his or her Accrued Benefit determined under this Section as of such date or the benefit calculated under other applicable Plan provisions using relevant factors on the determination date without the addition of the five years of age and service provided for in this Section. 4 (c) INCREASE IN AGE AND SERVICE FOR BENEFIT ENTITLEMENT PURPOSES. As of January 3, 1994, each eligible Participant shall have five years added to his or her actual age on such date and five years to his or her actual Years of Service on such date for purposes of determining eligibility to receive a normal or an early retirement service pension under Sections 5.1, 5.2 or 5.3 of the Plan. In determining whether a Participant has the requisite age or service to retire on and after January 3, 1994, an eligible Participant shall be considered to have the higher of his or her age and service as determined under this provision on January 3, 1994 or his or her actual age and service on the date the determination is made. (d) IMPACT ON VESTING. Service credit granted under this Section 5.18 shall not be taken into account for determining the portion of a Participant's benefit that is vested. IN WITNESS WHEREOF, the Employer has caused its duly authorized officer to execute this Amendment on its behalf this 10th day of February, 1994. ROCHESTER TELEPHONE CORPORATION By: /s/ Josephine S. Trubek ------------------------- Josephine S. Trubek Corporate Secretary (53ED) EX-10 7 EX 10-33 EXHIBIT 10.33 ROCHESTER TELEPHONE CORPORATION SUPPLEMENTAL MANAGEMENT PENSION PLAN Amendment No. 6 to September 1, 1989 Restatement Pursuant to Article Six, the Plan is amended as follows: 1. Section 3.1 is amended, effective for benefits payable on and after November 1, 1993, by deleting the last paragraph thereof and substituting in its place the following: An otherwise eligible Employee who, without the consent of the Board, engages in any activity inimical to the interests of any Participating Company within three years (five years in the case of an executive officer of the Company) of retirement shall cease being eligible to receive any further benefits after commencing such activity, provided that upon a Change in Control this sentence shall have no effect. For purposes of the foregoing, the term "inimical" shall include but not be limited to the following activities: engaging directly or indirectly in the performance of services for any telecommunications business or any other business concern that offers services or products which compete with those offered by any company within the Rochester Tel Group of companies or with Upstate Partners (collectively referred to below as "Rochester Tel"), making disparaging remarks publicly about Rochester Tel, disclosing confidential business information concerning Rochester Tel, soliciting any person to leave the employ of Rochester Tel, engaging in any activity of a nature similar to the foregoing activities or engaging in any other activity that the Committee may from time to time determine in its sole discretion to be inimical to the interests of Rochester Tel. 2. Section 4.1(c) is amended, effective January 1, 1993, by deleting the present provision in its entirety and substituting in its place the following: (c) if in the discretion of the Committee, upon the recommendation of the Chief Executive Officer, the factors so warrant, the service factor shall take into account the eligible Employee's service with any prior employer, provided that after a Change in Control the Committee may not change a prior decision to allow an eligible Employee's service factor to take into account service with another company; 2 3. Article Four is amended, effective January 1, 1993, by adding to the end thereof the following new Section 4.8: 4.8 If the amount of a death benefit payable under Section 7.4 of the Funded Plan is limited because of the compensation cap imposed by Code Section 401(a)(17) or because of any other Code limitation on the Funded Plan's death benefits there shall be payable under this Plan the difference between the benefit payable under Section 7.4 of the Funded Plan without regard to any Code-imposed limits and the amount of the death benefit actually payable by the Funded Plan. Except for the amount, the payment of the benefit under this Section 4.8 shall conform to the terms and conditions of Section 7.4 of the Funded Plan. 4. Article Six is amended, effective November 1, 1993, by adding to the end thereof the following new Section 6.3: 6.3 The terms of this Plan cannot be amended, waived or otherwise modified by any other plan, contract or agreement that addresses an employee's or former employee's terms and conditions of employment or the termination of such employment. IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Amendment on its behalf this 15th day of November, 1993. ROCHESTER TELEPHONE CORPORATION By: /s/ Josephine S. Trubek -------------------------- Corporate Secretary (54ED) EX-10 8 EX 10-35 EXHIBIT 10.35 ROCHESTER TEL GROUP EMPLOYEES' RETIREMENT SAVINGS PLAN TABLE OF CONTENTS Page INTRODUCTION 1 ARTICLE I - Definitions 2 ARTICLE II - Eligibility 8 ARTICLE III - Participation and Participant Contributions 9 ARTICLE IV - Participating Company Contributions 13 ARTICLE V - Investment of Contributions 18 ARTICLE VI - Participant Accounts 20 ARTICLE VII - Retirement or Other Termination of Employment 23 ARTICLE VIII - Death 25 ARTICLE IX - Payment of Benefits 26 ARTICLE X - Withdrawals and Loans During Employment 30 ARTICLE XI - Plan Admininistration 35 ARTICLE XII - Amendment and Termination 39 ARTICLE XIII - Top-Heavy Provisions 40 ARTICLE XIV - General Provisions 43 Appendix A - Participating Companies Appendix B - Plan Features Unique to Participating Companies 1 INTRODUCTION This Employees' Retirement Savings Plan is hereby established, effective as of March 1, 1994 by the merger of the following plans within the Rochester Tel Group of companies into MISP/MOST: Retirement Savings Plan for Affiliated Companies, Telco Subsidiaries' 401(k) Plan, Vista Management Retirement Savings Plan, RCI Long Distance New England, Inc. Profit Sharing 401(k) Plan, Thorntown 401(k) Plan, Mid Atlantic Telecom, Inc. Employees' 401(k) Plan and the Seneca-Gorham Savings Plan. It is anticipated that in the future other 401(k) and savings plans within the Rochester Tel Group will be merged into this Plan. All Participants in this Plan are subject to identical terms and conditions of participation except as set forth in Appendix B, with respect to each Participating Company. The merger of any plan into this Plan shall not reduce any Participant's accrued benefit in effect immediately preceding the merger. This Plan is intended to qualify as a profit sharing plan pursuant to the provisions of Code sections 401(a) and 401(k). 2 ARTICLE I Definitions 1.1 "Affiliated Company" means Rochester Telephone Corporation (the "Company") and (a) any other company which is included within a "controlled group of corporations" within which the Company is also included, as determined under section l563 of the Code without regard to subsections (a)(4) and (e)(3)(C) of said section l563; or (b) any other trades or businesses (whether or not incorporated) with which the Company is affiliated which, based on principles similar to those defining a "controlled group of corporations" for the purposes of (a) above, are under common control; or (c) any other entities required to be aggregated with the Company pursuant to Code section 414. 1.2 "Basic Contributions" means a Participant's contributions to the Plan in any whole percentage of Compensation up to a 6 percent of Compensation maximum in accordance with Section 3.2 and, where applicable, Appendix B. 1.3 "Beneficiary" means the Participant's surviving spouse or, in the event there is no surviving spouse or the surviving spouse elects in writing not to receive any death benefits under the Plan, the person or persons (including a trust) designated by a Participant to receive any death benefit which shall be payable under this Plan. 1.4 "Board" means the Board of Directors of the Company or any committee of the Board of Directors authorized to act on behalf of the Board. Any such Board committee shall be composed of at least three members of the Board of Directors. As used in this Plan the term "Board-appointed committee" means the Committee and any other committee appointed by the Board which need not be comprised of at least three Board members but may include or consist entirely of management personnel who are not members of the Board. 1.5 "Code" means the Internal Revenue Code of 1986, as amended. 3 1.6 "Committee" means the Employees' Benefit Committee appointed pursuant to Article XI to administer the Plan. 1.7 "Company" means Rochester Telephone Corporation, a New York corporation, its predecessor or its successor. 1.8 "Company Discretionary Contributions" means the contributions of a Participating Company that are not contingent on the level of Participant contributions and are specified, if any, in Appendix B for each Participating Company. 1.9 "Company Matching Contributions" means the contributions of a Participating Company that are contingent upon a Participant's Basic Contributions in an amount specified for the Participating Company in Appendix B. 1.10 "Company Stock" means Rochester Telephone Corporation common stock. 1.11 "Compensation" means the total of a Participant's basic salary or wages, bonuses and commissions paid by a Participating Company for services actually rendered by the Participant to a Participating Company. A Participant's Compensation shall not include overtime, pension payments or any other form of extra remuneration of whatever nature except bonuses and commissions included under the preceding sentence, nor any annual remuneration in excess of $150,000 (adjusted for cost of living increases as permitted under the Code). For any Participant receiving disability pay from a Participating Company during a payroll period (other than a disability pension), the term "Compensation" means such disability pay. For any Employee who is making Pre-Tax Contributions pursuant to Section 3.7, or pre-tax contributions under a Participating Company's cafeteria (section 125) plan, the term Compensation shall be based on his wages, salary, commissions and bonuses, all as defined above, prior to any salary reduction. 1.12 "Early Retirement Age" means age 55. 1.13 "Effective Date" means January 1, 1994, provided that provisions having other effective dates shall be effective as may be expressly provided by such provisions. 1.14 "Election Period" means the period of time during which a Participant can elect, with the consent of his 4 spouse, to waive the Qualified Joint and Survivor Annuity or the Qualified Pre-Retirement Survivor Annuity or can elect to revoke such a waiver. In the case of a Qualified Joint and Survivor Annuity, the Election Period is the 90 day period preceding the annuity starting date. In the case of a Qualified Pre-Retirement Survivor Annuity, the Election Period begins on the first day of the Plan Year in which a Participant attains age 35 and ends on the date of the Participant's death, provided that if a Participant terminates employment prior to age 35, his Election Period shall begin on his termination date. 1.15 "Employee" means any individual who is employed by a Participating Company. 1.16 "ERISA" means the Employee Retirement Income Security Act of l974, as amended from time to time, and any regulations issued pursuant thereto. 1.17 "Forfeiture" means that portion of a Participant's Restricted Company Contribution Account which is forfeited before full vesting. 1.18 "Highly Compensated Employee" means an Employee who is highly compensated as defined in Code section 414(q). Subject to the special limitations and definitions contained in section 414(q), a Highly Compensated Employee is any Employee who during the current or preceding Plan Year: (a) was a five percent owner of a Participating Company; (b) received compensation from a Participating Company in excess of $75,000; (c) received compensation from a Participating Company in excess of $50,000 and is in the top 20 percent of the Participating Company's employees ranked on the basis of compensation; or (d) was at any time an officer of a Participating Company and received compensation in excess of 50% of the defined benefit dollar limitation for the Plan Year under Code section 415(b)(1)(A). In making this determination, an employee who does not satisfy (b), (c) or (d) in the preceding Plan Year shall not be considered as satisfying (b), (c) or (d) for the current Plan Year unless he meets the requirements of those subsections for the current year 5 and is among the top 100 employees paid the greatest compensation during the current Plan Year. For purposes of the Highly Compensated Employee definition, the term Participating Company includes any Affiliated Company whether or not such Affiliated Company has adopted this Plan. This Section's dollar amounts shall be adjusted for cost of living increases as provided under the Code. 1.19 "Investment Manager" means any individual or corporation selected by the Board or by any Board-appointed committee having the authority to select such person who (i) is registered as an investment adviser under the Investment Advisers Act of 1940; or (ii) is a bank, as defined in that Act; or (iii) is an insurance company qualified to manage, acquire or dispose of plan assets under the laws of more than one state and each individual or corporation acknowledges in writing that he or the corporation, as the case may be, is a fiduciary with respect to the Plan. 1.20 "Leased Employee" means any person who is not otherwise an Employee and who, pursuant to an agreement between a Participating Company and any other person or organization, has performed services for the Participating Company, or for the Participating Company and related persons (determined in accordance with section 414(n)(6) of the Code), on a basis whereby if such person were an Employee, such person would have become an eligible Employee hereunder either in the initial eligibility computation period or any Plan Year thereafter, and such services are of a type historically performed by employees in the business field of the Participating Company, provided, that a person shall not be treated as a Leased Employee for any Plan Year if, during such Plan Year: (i) such person is covered by a money purchase pension plan described in section 414(n)(5)(B) of the Code, and (ii) not more than 20% of the Employees who are not Highly Compensated Employees are Leased Employees. Once a person is classified as a Leased Employee, such person shall remain a Leased Employee for every Plan Year for which the person completes at least 1000 Hours of Service. 1.21 "Non-Highly Compensated Employee" means an Employee who is not a Highly Compensated Employee. 1.22 "Normal Retirement Age" means age 65. 6 1.23 "Participant" means an Employee who meets the eligibility requirements set forth in Section 2.l and who elects to participate in the Plan. 1.24 "Participant Account" means, as of any Valuation Date, the then amount of a Participant's contributions and the Participating Company's contributions allocated on behalf of the Participant adjusted to reflect any investment earnings and losses attributable to such contributions, withdrawals and distributions, at the then market value of the Trust. Where appropriate a Participant Account shall have the following subaccounts: a Restricted Company Contribution Account to record Company Matching and Discretionary Contributions, a Participant Pre-Tax Contribution Account to record Pre-Tax Contributions, a Participant Post-Tax Contribution Account to record Post-Tax Contributions and a Rollover Account to record rollover contributions. Earnings associated with each type of contribution shall be allocated to the account to which the associated contributions are allocated. 1.25 "Participating Company" means the Company and each Affiliated Company that has adopted this Plan for the benefit of its eligible Employees. Participating Companies are listed in Appendix A. 1.26 "Plan" means this Rochester Tel Group Employees' Retirement Savings Plan as set forth herein and as it may be amended from time to time. 1.27 "Plan Year" means the calendar year. The Plan Year shall be the limitation year as this term is used in ERISA. 1.28 "Post-Tax Contributions" means a Participant's contributions which are non-deductible for income tax purposes at the time they are made. 1.29 "Predecessor Company" means any organization which was acquired by the Company or an Affiliated Company. 1.30 "Pre-Tax Contributions" means a Participant's contributions which are not included in his income for income tax purposes at the time they are made. 1.31 "Qualified Joint and Survivor Annuity" means an annuity for the life of the Participant with a survivor annuity for the life of the Participant's spouse which is 50 percent of the amount which is 7 payable during the joint lives of the Participant and the Participant's spouse and which is purchased from an insurance company with the Participant's account balance. 1.32 "Qualified Pre-Retirement Survivor Annuity" means a life annuity payable to the surviving spouse of a deceased Participant which is purchased from an insurance company with the Participant's account balance. 1.33 "Restricted Stock" means Company Stock that has been allocated to a Participant's Restricted Company Contribution Account for a period of less than five years from the date of the initial allocation. 1.34 "Supplemental Contributions" means a Participant's contributions to the Plan in excess of his Basic Contributions in accordance with Section 3.2. 1.35 "Trust" or "Trust Fund" means the amounts held in trust in accordance with this Plan and consists of such investment options as from time to time may be designated by a Board-appointed Committee. 1.36 "Trust Agreement" means any agreement entered into between the Company and any Trustee to carry out the purposes of the Plan, which agreement shall constitute a part of this Plan. 1.37 "Trustee" means any bank or trust company selected by the Board or a Board committee to serve as Trustee pursuant to the provisions of the Trust Agreement. 1.38 "Valuation Date" means the last day the Trust may have been valued provided that the Trust shall be valued no less frequently than on the last day of each calendar quarter. 8 ARTICLE II Eligibility 2.1 Eligibility Requirements. An Employee who fits within the eligible class set forth in Appendix B for his Participating Company and who is not excluded pursuant to the following sentence is eligible to become a Participant on his employment date with the Participating Company. An Employee is not eligible to participate in this Plan if (1) the Employee is in a unit of employees covered by a collective bargaining agreement in which retirement benefits were the subject of good faith bargaining unless such collective bargaining agreement expressly provides for participation in this Plan; (2) the Employee is a temporary or summer employee; or (3) the Employee is a Leased Employee. In the discretion of the Committee, an eligible Employee of a Participating Company that has adopted this Plan who is transferred to an Affiliated Company that has not adopted this Plan may participate in the Plan under such arrangements as the Committee may prescribe. 2.2 Reemployment. If an Employee terminates employment and is subsequently reemployed by a Participating Company, he will be eligible to begin participation in this Plan immediately upon his return to employment. All service of such an Employee with a Participating Company or any Affiliated Company prior to termination of employment shall be credited to such Employee for purposes of the vesting provisions of Section 7.2. 9 ARTICLE III Participation and Participant Contributions 3.1 Participation. An eligible Employee may become a Participant by filing a written application with the Committee. The application shall indicate the amount of his initial Basic and Supplemental Contributions and whether he intends to have such Contributions made as Post-Tax Contributions or as Pre-Tax Contributions. Except as the Committee in its discretion may otherwise determine, participation will commence with the first payroll period as is administratively practicable to meet following the date such written election is received by the Committee. Participation shall thereafter continue until all amounts in the Participant's Account have been distributed even though current contributions may be suspended. 3.2 Amount of Contributions. Contributions may be made by any Participant who has enough Compensation during any payroll period to make a contribution by payroll deduction. Each Participant may contribute, at his option, Basic Contributions in any whole percentage of his Compensation during a payroll period with a minimum contribution of 1 percent of Compensation and a maximum contribution of 6 percent of Compensation. If a Participant is making Basic Contributions at the maximum rate of 6 percent of his Compensation, he may also elect to make Supplemental Contributions of any whole percentage of from l to l0 percent of his Compensation during a payroll period. All Participant contributions will be in cash in the form of Employee-authorized payroll deductions on either a post-tax basis or, pursuant to Section 3.7, on a pre- tax basis. 3.3 Change in Amount of Contributions. The percentage, or percentages if more than one, of Compensation designated by the Participant as his contribution rate will continue in effect, notwithstanding any change in his Compensation, until he elects to change such percentage. A Participant, by filing a written election form furnished by the Committee, may change his percentage of contributions as frequently during the Plan Year and pursuant to such rules as the Committee may prescribe. Any such change will become effective on the first payroll period as is administratively practicable to meet after the date such written election is received by the Committee. If a Participant's total contribution rate is in excess of 6 percent of his Compensation, any such change will first be applied to adjust the amount of 10 his Supplemental Contributions and then, if necessary, to adjust the amount of his Basic Contributions. If a Participant's total contribution rate is less than 6 percent of his Compensation, any such change will first be applied to adjust the amount of his Basic Contributions and then, if necessary, to provide for Supplemental Contributions. 3.4 Suspension of Participant Contributions. A Participant, by filing a written election with the Committee, may elect to suspend either his Basic or Supplemental Contributions, or both, at any time. Any such suspension will become effective with the first payroll period as is administratively practicable to meet after the date such written election is received by the Committee. A suspension of all Basic Contributions will automatically suspend all Supplemental Contributions. In order to resume making contributions, the Participant must follow the procedure outlined in Section 3.l as though he were a new Participant. A Participant will not be permitted to make up suspended contributions. Participant contributions will be suspended automatically for any payroll period in which the Participant is not in receipt of Compensation. Such automatic suspension shall be lifted beginning with the next payroll period that the Participant receives Compensation. The suspension of Supplemental Contributions, in the absence of an election to the contrary, will not affect Basic Contributions. 3.5 Remittance of Participant Contributions to the Trustee. Participant contributions will be remitted as soon as administratively practicable to the Trustee. 3.6 Termination of Participant Contributions. A Participant's contributions will terminate effective with the payroll period that ends or includes the date the Participant terminates employment for any reason, including retirement or death. 3.7 Pre-Tax Contributions Option. A Participant shall have the option of having his Basic and Supplemental Contributions to the Plan made on a tax-deferred basis pursuant to the terms of this Section. Basic and Supplemental Pre-Tax Contributions may be made solely pursuant to a salary reduction agreement between an individual Participant and his employer. Under this agreement the Participant agrees to reduce his Compensation by a specified percentage (as outlined in Section 3.2) and the Participating Company agrees to 11 contribute to the Plan the identical amount on behalf of the Participant. The agreement shall be in such form and subject to such rules as the Committee may prescribe. The Committee, in its sole discretion, may limit the number of salary reduction agreements a Participant may make during a Plan Year, except that an agreement may be terminated at any time, in which event the Participant shall specify whether all of his contributions shall cease or continue to be made as Post-Tax Contributions. 3.8 Lump Sum Contributions. Notwithstanding the foregoing provisions, in accordance with such rules as the Committee may prescribe on a non-discriminatory basis, a Participant may make lump sum Post-Tax or Pre-Tax Contributions at such times and in accordance with such rules as the Committee may prescribe. Such lump sum contributions may be made in addition to or as an alternative to any salary deduction contributions made pursuant to other provisions of this Plan. A lump sum Post-Tax Contribution may be made by any method approved by the Committee, including payroll deduction or direct contribution. A lump sum Pre-Tax Contribution can be made only pursuant to a salary reduction agreement between the Participant and a Participating Company. A Participant may make such lump sum contributions in any dollar amount or in any percentage of Compensation that the Participant may designate, provided that (1) all such contributions are subject to the ERISA limitations set forth in Section 4.4 of the Plan; and (2) a lump sum Pre-Tax Contribution cannot exceed the Participant's Compensation for the period covered by the salary reduction agreement. 3.9 Rollovers to This Plan. Notwithstanding the limitations on contributions set forth in the preceding Sections of this Article III, a Participant may make rollover contributions (as defined in sections 402(c)(4), 403(a)(4) and 408(d)(3) of the Code) to the extent the Committee in its discretion may permit and in accordance with rules it shall establish. In addition, the Committee in its sole discretion may arrange for a Participant's account in any other tax- qualified plan to be transferred directly to this Plan. No rollover contribution or transfer shall be permitted if it could adversely affect the tax qualification of this Plan. All rollovers and transfers to this Plan shall be credited to a Participant's Rollover Account. 3.10 Direct Rollovers from this Plan. Notwithstanding any provision of the Plan to the contrary that would 12 otherwise limit a Participant's election under this Section, a Participant may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the Participant except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Company securities). An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Participant's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. For these purposes, a Participant includes an Employee or former Employee who has an account balance in the Plan. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are Participants with respect the interest of the spouse or former spouse. A direct rollover is a payment by the Plan to the eligible retirement plan specified by the Participant. 13 ARTICLE IV Participating Company Contributions 4.1 Company Contributions. Subject to the limitations of Section 4.4, each Participating Company will contribute Company Matching Contributions, or Company Discretionary Contributions, or both, as specified in Appendix B for such Participating Company. All Participating Company contributions will be made in cash which shall be used by the Trustee to purchase Company Stock as soon as reasonably practicable. 4.2 Remittance of Company Contributions. Company Matching Contributions shall be remitted to the Trustee on a regular and periodic basis following the payroll period to which they relate but in no event shall they be made less frequently than quarterly. Company Discretionary Contributions for a Plan Year shall be remitted to the Trustee by a Participating Company no later than the date the Participating Company's tax return is due for the year within which ends the Plan Year to which the contributions relate. 4.3 Effect of Suspension of Participant Contributions on Company Contributions. During any period in which a Participant's Basic Contributions are suspended, Company Matching Contributions on his behalf will also be suspended. 4.4 Maximum Contributions. Notwithstanding the contribution levels specified in Article III and the preceding Sections of this Article IV, no contributions will be permitted in excess of the limits set forth below: 1. Limits on Employee Pre-Tax Contributions. A Participant's Pre-Tax Contributions to this Plan and any tax-deferred contributions under any other 401(k) plan in which he may participate shall not exceed $8,994 (adjusted for cost of living increases for years after 1993 as provided under the Code) in any taxable year of the Participant. To meet this limit, no contribution to this Plan in excess of $8,994 (as adjusted) shall be accepted on behalf of any Participant during a calendar year. If a Participant participates in more than one plan, he shall notify the Committee of any excess contribution in a calendar year by March 1 of the following year. The Committee shall then cause the portion of such excess allocated to this Plan to be returned to the Participant by April 15 following the calendar year to which the excess contribution relates. 14 In addition to the individual limits, the Plan's contributions shall, if necessary, also be limited so as to meet one of the following tests: (a) For each Plan Year, the actual deferral percentage for the Highly Compensated Employees may not be more than the actual deferral percentage for the Non-Highly Compensated Employees multiplied by 1.25; or (b) For each Plan Year, the excess of the actual deferral percentage for the Highly Compensated Employees over the actual deferral percentage for the Non-Highly Compensated Employees may not be more than two percentage points and the actual deferral percentage for the Highly Compensated Employees may not be more than the actual deferral percentage for the Non-Highly Compensated Employees multiplied by 2.0. In applying these tests, the actual deferral percentages for the Highly Compensated Employees and the Non-Highly Compensated Employees for a Plan Year shall be the average of the percentages, calculated separately for each eligible Employee in the group, obtained by dividing the sum of the Employee's Pre-Tax Contributions by the Employee's compensation (as required under Code section 414(s)) for the Plan Year. The Committee shall have the responsibility for monitoring compliance with these tests and shall have the power to take any steps it deems appropriate to ensure compliance, including limiting the amount of salary reduction permitted by the Highly Compensated Employees or requiring that the contributions for the Highly Compensated Employees be delayed or held in escrow before being paid over to the Trustee until such time as the Committee determines that contributions can be made on behalf of the Highly Compensated Employees without violating the requirements of Code section 401(k). Within two and one-half months (otherwise within 12 months) following the end of a Plan Year the Committee shall distribute to Highly Compensated Employees such contributions (and earnings thereon) as may be in excess of the amounts required to satisfy the special nondiscrimination tests. 2. Limits on Employee Post-Tax Contributions and Company Matching Contributions. Pursuant to Internal Revenue Code section 401(m) the combination of Employee Post-Tax Contributions and Company Matching Contributions shall, if necessary, be limited so as to 15 ensure that in each Plan Year the actual contribution percentage for eligible Highly Compensated Employees does not exceed the greater of: (a) 125 percent of the contribution percentage of all eligible Non-Highly Compensated Employees; or (b) the lesser of twice the contribution percentage of eligible Non-Highly Compensated Employees or the contribution percentage of eligible Non-Highly Compensated Employees plus two percentage points. In applying these tests, the contribution percentages for Highly Compensated Employees and Non-Highly Compensated Employees for a Plan Year shall be the average of the percentages for each group, calculated separately for each employee in each group, obtained by dividing the sum of a Participant's Post-Tax Contributions and the Company Matching Contributions on his behalf by the Participant's compensation (as required by Code section 414(s)) for the Plan Year. At the election of the Committee, the contribution percentages can be determined by also taking into account a Participant's Pre-Tax Contributions. If the foregoing test is not satisfied for any Plan Year, the Committee shall direct the excess aggregate contributions which cause the failure to be distributed to the Highly Compensated Employees. Such distributions shall be made in accordance with the provisions of Code section 401(m) prior to the end of the Plan Year following the Plan Year in which occurred the failure to satisfy the test. 3. Code Section 415 Limits. Pursuant to Code section 415, the total of the Employee and Participating Company contributions on behalf of a Participant for each Plan Year (his "annual additions") shall not exceed the lesser of $30,000 (or such larger amounts as reflect cost of living increases pursuant to section 415 of the Code) or 25 percent of the Participant's total compensation for such Plan Year. For purposes of this Section, the term "annual additions" means the total each Plan Year of a Participating Company's contributions, the Employee's contributions and Forfeitures. Rollover contributions and loan repayments are not annual additions for this purpose. For purposes of applying these limitations, the term "compensation" shall have the meaning ascribed to it in regulations under Code section 415. In general, these regulations define compensation to mean an Employee's W-2 compensation from a 16 Participating Company but excluding income derived from the exercise of stock options, from the disqualification of an incentive stock option, from restricted stock or from income imputed from the payment of life insurance premiums. In addition to the amounts calculated under this Plan, annual additions shall include such amounts, similarly calculated, that are contributed with respect to the Participant to any other defined contribution plan maintained by a Participating Company or by any Affiliated Company and Participating Company contributions to an individual medical account as described in Code sections 415(1) and 419A(d)(2). In determining whether a corporation is an Affiliated Company for this purpose only, the percentage control test set forth in section 1563(a) of the Code shall be a 50 percent test in place of the 80 percent test each place the 80 percent test appears in said Code section. If Plan contributions exceed the limits of this Section, first the Participant's contributions shall be reduced, as necessary, to eliminate the excess, in the following order of priority: Post-Tax Supplemental Contributions; Post-Tax Basic Contributions; Pre-Tax Supplemental Contributions; and Pre-Tax Basic Contributions. Post-Tax and Pre-Tax Contributions which cause the excess, plus the earnings attributable to the contributions may be returned to the Participant in the event the excess is caused by a reasonable error in estimating a Participant's annual compensation or any other cause which is acceptable under Treasury Regulation section 1.415-6(b)(6). Any such excess shall be returned to the Participant by March 1 following the end of the Plan Year to which the excess relates. If an excess still exists, the Participating Company's contribution shall be reduced as necessary. If a person participates at any time in both a defined benefit plan and a defined contribution plan maintained by a Participating Company or an Affiliated Company, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any Plan Year may not exceed 1.0. For purposes of this Section, the defined contribution plan fraction for any Plan Year is a fraction the numerator of which is the person's annual additions in such Plan Year and all prior years of employment, as determined above, and the denominator of which is the lesser of the following amounts for such Year and for each prior Year: (a) 1.25 times the dollar limitation of Code section 415(c)(1)(A) for the pertinent Year or (b) 1.4 times the amount that could be taken into account 17 under the limitation of Code section 415(c)(1)(B) for the Participant. The defined benefit plan fraction for any Plan Year is a fraction the numerator of which is the Participant's projected annual benefit under all plans maintained by a Participating Company or an Affiliated Company and the denominator of which is the lesser of the following amounts for such Year: (a) 1.25 times the dollar limitation of Code section 415(b)(1)(A) for such Year or (b) 1.4 times the amount that could be taken into account under the percentage limitation of Code section 415(b)(1)(B) for the Participant for such Year. The Committee shall monitor the contributions and benefits with respect to each Participant under all plans maintained by a Participating Company and any Affiliated Company. The Committee, in its sole discretion, shall reduce any such contributions or benefits to prevent the combined fractions from exceeding 1.0. 18 ARTICLE V Investment of Contributions 5.1 Investment Funds. The Trustee shall establish a Company Stock fund and such other investment funds as shall be designated from time to time by any Board- appointed committee authorized to select investment funds. 5.2 Investment of Company Contributions. All Participating Company contributions and the earnings thereon shall be invested initially in Company Stock. All Company Stock so invested shall remain in the Company Stock fund until the fifth anniversary of the date of investment (the "Restricted Stock"). At the expiration of the five year period the Restricted Stock in a Participant's Account shall lose its investment restriction and may be invested by the Participant, pursuant to Section 5.5 and any rules established by the Committee thereunder, in any other fund option or left in the Company Stock fund. 5.3 Investment of Participant Contributions. Each Participant will direct, at the time he elects to become a Participant under the Plan, that his Participant contributions be invested in one or more available fund options in accordance with any rules the Committee in its discretion may establish. In the event no election is made, all contributions will be invested in a fixed income fund option designated by the Committee for this purpose. 5.4 Changing the Current Investment Election. A Participant's investment election for his Participant contributions will continue in effect until changed by the Participant. A Participant may change his current investment election as to his future Participant contributions effective no later than the first payroll period as is administratively practicable after the date such election to change is received by the Committee or its designee. Such changes may be made only as frequently as the Committee in its sole discretion may permit and in accordance with any rules the Committee in its discretion may establish. 5.5 Changing the Investment of Accumulated Contributions. A Participant may change his investment election as to some or all of his entire Participant Account balance except for the Restricted Stock. Such changes may be elected only as frequently as the Committee in its sole discretion may permit and in accordance with any rules the Committee in its discretion may establish. 19 5.6 Voting Rights with Respect to Company Stock. Each Participant shall have the right to vote all shares of Company Stock held in the Participant's Account. Each Participant shall also have the right to direct the Trustee whether to tender such shares of Company Stock in the event an offer is made by any person other than the Company to purchase such shares. The Committee shall make any such arrangements with the Trustee as may be appropriate to pass such voting or tender offer rights through to a Participant. In the event a Participant fails to vote his shares or fails to indicate his preference with respect to a tender offer, the Trustee shall vote the Participant's shares or tender his shares in the same proportions as those Plan Participants who did respond, cast their votes or tendered their shares. 20 ARTICLE VI Participant Accounts 6.1 Individual Accounts. The Committee shall create and maintain (or direct to be created and maintained) individual accounts as records for disclosing the interest in the Trust of each Participant, former Participant and Beneficiary. Such accounts shall record credits and charges in the manner herein described. When appropriate, a Participant shall have four separate accounts, a Restricted Company Contribution Account, a Participant Pre-Tax Contribution Account, a Participant Post-Tax Contribution Account and a Rollover Account. The maintenance of individual accounts is only for accounting purposes, and a segregation of the assets of the Trust to each account shall not be required. 6.2 Account Adjustments. Participant Accounts shall be adjusted as follows: (a) Earnings: The earnings (including losses as well as gains) of the Trust shall be allocated to the Participant Accounts of Participants who have balances in their Accounts on each Valuation Date. The allocation shall be made in the proportion that the amounts in each Participant Account bear to the total amounts in all of the Participant Accounts similarly invested. In determining the value of Plan assets, each valuation shall be based on the fair market value of assets in the Trust on the Valuation Date. (b) Participating Company contributions: As of the end of each month the Company Matching and Discretionary Contributions on behalf of a Participant during the month shall be allocated to the Participant's Restricted Company Contribution Account. (c) Participant contributions: A Participant's contributions made during a month shall be allocated to his Pre-Tax or Post-Tax Contribution Account, as the case may be, as of the end of each month. (d) Distributions and withdrawals: Distributions and withdrawals from a Participant's Account shall be charged to the Account as of the date paid. (e) Forfeitures: As of the end of each Plan Year, Forfeitures which have become available during 21 such Plan Year and are not required for allocation under Section 6.2(f) below shall be used to reduce the Participating Company's current or its next succeeding contributions to the Plan. (f) Forfeiture Account: In the event a Participant is entitled to receive a vested benefit pursuant to the terms of Section 7.2 but later returns to the service of a Participating Company prior to incurring five consecutive one year breaks in service, the nonforfeitable amount in his pre- termination Restricted Company Contribution Account plus the amount of his Forfeiture at the time of termination shall be credited to a separate account as of the end of the Plan Year when he returns. The restoration of the Forfeiture shall be made, first, from any other Forfeitures arising in such Year prior to disposition under Section 6.2(e) and, if not available from such Forfeitures, from Participating Company contributions for the Year. At any relevant time, the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula: X = P(AB + (R x D)) - (R x D) For purposes of applying this formula: P is the nonforfeitable percentage at the relevant time; AB is the account balance at the relevant time; D is the amount of the distribution; and R is the ratio of the account balance at the relevant time to the account balance after distribution. The separate account need not be maintained after a Participant has incurred five consecutive one year breaks in service after the distribution of benefits to him. For purposes of this Section a one year break in service means a Plan Year during which an Employee performs no services for a Participating Company or an Affiliated Company. 6.3 Statements to Participants. On a periodic basis, but no less frequently than once during each Plan Year, the Committee (or its designee) will provide each Participant with a statement showing his interests in the Plan's various investment funds. The statement may show a Participant's interest in the Company Stock fund in terms of the number of shares of Company Stock, their dollar value, or both. As an alternative to showing the dollar or stock value of each Account, 22 the Committee in its discretion may express each Participant's interest in terms of units. The statement shall also indicate the portion of his Account that is vested and if there is none, the earliest date on which vesting shall occur. 23 ARTICLE VII Retirement or Other Termination of Employment 7.1 Retirement or Disability. If a Participant's employment with a Participating Company is terminated (i) at or after his Normal Retirement Age, (ii) at or after his Early Retirement Age, or (iii) at an earlier age because of disability, the Participant's accounts shall all be fully vested and he shall be entitled to receive the entire balance of such accounts in accordance with the provisions of Article IX. For purposes of this Section 7.1 the term "disability" means a physical or mental condition which, in the judgment of the Committee, based on medical reports and other evidence satisfactory to the Committee, will permanently prevent an Employee from satisfactorily performing his usual duties for a Participating Company and which entitle the Employee to receive Social Security disability benefits. If a Participant terminates employment, whether voluntarily or involuntarily, prior to suffering a disability or prior to age 55, he shall receive only that portion of his accounts that have become vested under Section 7.2. 7.2 Vested Benefits. If a Participant terminates employment with a Participating Company before he reaches age 55 or suffers a disability, he shall be entitled to receive the entire amount credited to his Participant Pre-Tax Contribution Account, his Participant Post-Tax Contribution Account and his Rollover Account plus the amount in his Restricted Company Contribution Account which has become vested. The vested amount in the Restricted Company Contribution Account shall be determined in accordance with the following schedule: Length of Percent of Percent of Service Account Vested Account Forfeited less than 6 months 0% 100% 6 months or more 100% 0% If any Plan amendment changes the Plan's vesting schedule, each Participant in the Plan as of the date the new schedule is adopted shall have his vested percentage determined under the vesting schedule which provides him with the greatest vested benefit at any particular point in time. 24 Any Forfeiture that may arise by virtue of the application of this Section shall be treated in accordance with the provisions of Section 6.2(e). 25 ARTICLE VIII Death 8.1 Death While Actively Employed. If a Participant dies while actively employed, the Participant's Beneficiary will be entitled to receive l00 percent of the value of his Participant Account. This amount shall consist of the Account's value as of the Valuation Date next following the date of the Participant's death. 8.2 Death After Retirement. If a Participant dies after retirement, any benefit payable to the Participant's Beneficiary will depend upon the method that has been employed to distribute the value of his Participant Account in accordance with Article IX. 8.3 Beneficiary. If a Participant is married, his Beneficiary shall be his spouse who shall be entitled to receive his remaining account balance, upon the Participant's death. Upon the written election of the Participant, with his spouse's written consent, a Participant may designate another Beneficiary. This election and spousal consent must either be notarized or be witnessed by a Plan representative and returned to the Committee. If such election has been made or if the Participant is not married, the Participant will designate the Beneficiary (along with alternate Beneficiaries) to whom, in the event of his death, any benefit is payable hereunder. Each Participant has the right, subject to the spousal consent requirement noted above, to change any designation of Beneficiary. A designation or change of Beneficiary must be in writing on forms supplied by the Committee and any change of Beneficiary will not become effective until such change of Beneficiary is filed with the Committee, whether or not the Participant is alive at the time of such filing; provided, however, that any such change will not be effective with respect to any payments made by the Trustee in accordance with the Participant's last designation and prior to the time such change was received by the Committee. The interest of any Beneficiary who dies before the Participant will terminate unless otherwise provided. If a Beneficiary is not validly designated, or is not living or cannot be found at the date of payment, any amount payable pursuant to this Plan will be paid to the spouse of the Participant if living at the time of payment, otherwise in equal shares to such children of the Participant as may be living at the time of payment; provided, however, that if there is no surviving spouse or child at the time of payment, such payment will be made to the estate of the Participant. 26 ARTICLE IX Payment of Benefits 9.1 Form of Payment. Except as may be restricted by Sections 9.2 and 9.3, any Participant or, if the choice is his, any Beneficiary who is entitled to receive benefits under Articles VII or VIII may elect to receive the amount in the Participant Account in accordance with one of the following elections, all of which shall be actuarial equivalents: OPTION A: A lump sum. OPTION B: Periodic payments of substantially equal amounts for a specified number of years not in excess of twenty. Such periodic payments shall be made at least annually. In the event periodic payments are elected, the Participant shall direct in writing how the remaining balance of his account is to be invested. OPTION C: For any amounts transferred to this Plan from another plan containing payment options in addition to Options A & B, any option available under the other plan as set forth in Appendix B. Payments under this Option C shall be available only with respect to the transferred funds. Amounts allocated to a Participant Account after the transfer date shall be paid out only under Option A or Option B. 9.2 Option C Requirements for Married Participants. If a married Participant elects an annuity under Option C, unless he makes a written election, as outlined below, to the contrary his form of benefit shall be a Qualified Joint and Survivor Annuity. If benefits become payable on account of the death of a married Participant to whom an annuity option is available under Option C, the normal form of benefit shall be a Qualified Pre-Retirement Survivor Annuity. These benefits shall become automatically payable unless the Participant or his spouse, as the case may be, makes a written election within the Election Period to receive one of the alternate forms of benefits specified in Section 9.1 or Appendix B. An election by the Participant must be consented to by his spouse in writing. The spouse's consent shall acknowledge the effect of the election and shall be either notarized or witnessed by a Plan representative. Failure to obtain the spouse's consent or the revocation of a previously designated optional method of payment shall result in payment of benefits in the form of a Qualified Joint and Survivor Annuity or a Qualified 27 Pre-Retirement Survivor Annuity, as the case may be, unless another election is made. To assist the Participant and his spouse in making any election with respect to waiving the Qualified Joint and Survivor Annuity, the Committee shall provide the Participant, not less than 30 nor more than 90 days before his 55th birthday a retirement application form describing the normal and optional forms of benefit payments, including their relative financial effects in terms of dollars per annuity payment on the Participant and his spouse. This form shall provide a place for the Participant to indicate his annuity starting date and the form of benefit he desires. In the case of a Qualified Pre-Retirement Survivor Annuity, a substantially similar notice shall be provided to the Participant during the period beginning on the first day of the Plan Year in which the Participant attains age 32 and ending on the last day of the Plan Year preceding the Plan Year in which the Participant attains age 35. 9.3 Payments from Company Stock Fund. If a recipient elects a lump sum payment under Option A of Section 9.1 or installment payments under Option B of Section 9.1, payment from the Participant's Company Stock fund account may be made either in cash or in Company Stock. If a person elects, or pursuant to Section 9.2 is required, to receive any annuity option under Section 9.2 or Option C, the amounts in his Company Stock fund shall be liquidated and combined with his amounts in all other investment funds to purchase an annuity contract pursuant to which only cash benefits will be paid. 9.4 Time of Payment. A Participant or Beneficiary who becomes entitled to receive a benefit at any time when the Participant Account is $3,500 or less will be cashed out for the full amount of the account balance as soon as administratively practicable. If the account balance is in excess of $3,500 it shall be paid prior to Normal Retirement Age only with the written consent of the Participant and, if married, with the consent of the Participant's spouse in a writing which acknowledges the effect of such consent and which is witnessed by a Plan representative or is notarized. In the case of death, the written consent of the Participant's Beneficiary shall be required for amounts in excess of $3,500. Benefit payments shall normally begin not later than the April l following the calendar year during which the event giving rise to the eligibility for payment 28 shall have occurred. In no event shall benefits begin later than sixty days after the close of the Plan Year in which the latest of the following occurs: (1) the Participant's attainment of age 65; (2) the 10th anniversary of the year in which the Participant commenced participation in this Plan; (3) the termination of the Participant's service with a Participating Company; or (4) the date specified in writing to the Committee by the Participant (but not later than the year in which he attains age 70 1/2). In no event, however, shall benefit payments commence later than the April 1 following the calendar year in which a Participant attains age 70 1/2 even if he continues in employment with a Participating Company. Notwithstanding any direction by the Participant to the contrary, all payments must be payable pursuant to a schedule whereby the entire amount in the Participant's Account is paid over a period that does not extend beyond the life of the Participant or over the lives of the Participant and any individual he has designated as his Beneficiary (or over the life expectancies of the Participant and his designated individual Beneficiary). In addition, unless the benefit is payable as a Qualified Joint and Survivor Annuity, the payment method selected must provide that more than 50 percent of the present value of the payments projected to be paid to the Participant and his Beneficiary will be paid to the Participant during his life expectancy. In the event of the death of a Participant, former Participant or Beneficiary while benefits are being paid under a schedule which meets the requirements of the preceding paragraph, payments shall continue pursuant to a schedule which is at least as rapid as the period selected. In the event of the death of a Participant or former Participant before benefit payments have commenced, any death benefit shall be distributed within five years of death unless the following conditions are met: (i) payments are made to an individual Beneficiary designated by the Participant; (ii) payments are made for the life of such individual Beneficiary or over a period not extending beyond his life expectancy; and (iii) payments commence within one year of death. If the designated Beneficiary is the Participant's spouse, payments will be paid within a reasonable period of time after the Participant's death, but may 29 be delayed until the date the Participant would have attained age 70 1/2, if the Beneficiary so elects. If the spouse dies before payments begin, the rules of this paragraph shall be applied as if the spouse were the Participant. Notwithstanding the provisions of this Section the distribution requirements of Code section 401(a)(9) and the regulations thereunder are hereby incorporated by this reference and shall supersede any conflicting Plan provisions. 9.5 Death of Participant Prior to Receiving Full Distribution. Except as provided in Section 8.2, if a Participant dies after having terminated employment and prior to receiving a distribution of his Participant Account, then the payments that would otherwise have been made to the Participant will be made to his Beneficiary. 9.6 QDROs. Benefits shall be payable under this Plan to an alternate payee pursuant to the terms of any qualified domestic relations order. The Committee has the responsibility for determining if a domestic relations order is qualified and whether its payment terms are consistent with the terms of the Plan. If appropriate, the amounts subject to a QDRO may be segregated from the Participant's Account and placed in a separate account for the benefit of the alternate payee who shall thereupon be treated for Plan purposes as a Participant. Any amounts payable to an alternate payee may, at the alternate payee's request, be paid from the Plan immediately pursuant to the terms of the QDRO and this Plan. 30 ARTICLE X Withdrawals and Loans During Employment 10.1 Age 59 1/2 Withdrawals. A Participant who has reached age 59 1/2 but who has not yet terminated employment may withdraw all or a portion of his vested accumulated account balance under the Plan subject to the limitations specified in Section 10.4. 10.2 Participant Post-Tax Contributions. A Participant may, by filing a written request with the Committee, signed by the Participant and the Participant's spouse, elect to withdraw amounts in his Participant Post-Tax Contribution Account as follows: (a) Contributions. A withdrawal of up to 100 percent of Participant Post-Tax Contributions or, if less, l00 percent of the then value of such contributions may be made from the Plan. (b) Earnings. A withdrawal of up to 100 percent of the earnings on Post-Tax Contributions may be made by a Participant from the Plan. 10.3 Participant Pre-Tax Contributions. No earnings in a Participant's Pre-Tax Contribution Account may be withdrawn prior to age 59 1/2. A Participant may withdraw his Pre-Tax Contributions from his Participant Pre-Tax Contribution Account prior to age 59 1/2 only if the withdrawal is made on account of an immediate and heavy financial need of the Participant that cannot be satisfied from other resources available to the Participant. For purposes of this Section an immediate and heavy financial need shall mean (1) expenses incurred for medical care or necessary to obtain medical care for a Participant, a Participant's spouse or a Participant's dependent; (2) the purchase of a Participant's principal residence; (3) tuition and related educational fees for post-secondary education but only for the next 12 months for a Participant, a Participant's spouse or a Participant's dependent, or remedial school tuition; (4) prevention of eviction or mortgage foreclosure; (5) expenses arising from the death of a spouse or dependent; (6) financial loss due to a sudden catastrophe; (7) extraordinary legal expenses; (8) adoption expenses; or (9) any other need recognized by the IRS in documents of general applicability. A Participant will be deemed to lack other resources if all of the following conditions are satisfied: (1) the Participant must have obtained all distributions (except hardship) and all nontaxable loans available from all plans of any Participating Company; (2) the 31 Participant may not make any contributions to any plan of any Participating Company for at least 12 months following the hardship withdrawal and (3) the dollar limit on pre-tax contributions ($8,994 as indexed for inflation after 1993) for the calendar year following the hardship shall be reduced by the amount of the hardship withdrawal. If the foregoing conditions are not satisfied, the Committee may reasonably rely on statements and representations made by the Participant with respect to his lack of other financial resources. The amount of the withdrawal cannot exceed the amount required to relieve the financial need (including any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the distribution). 10.4 Limitations on In-Service Withdrawals. (a) No more than two in-service withdrawals are permitted in any one Plan Year. (b) No withdrawal will be permitted under this Article unless the amount to be withdrawn is at least $200 or l00% of the aggregate value of the Participant's relevant account from which withdrawals are being requested if such value is less than $200. (c) Unless otherwise specified by the Participant, any withdrawal of Participant contributions from his Participant Post-Tax Contribution Account will be satisfied first by a withdrawal of his pre-1987 contributions, if any, and then by a withdrawal of his post-1986 contributions. (d) The withdrawal of any amounts from the Company Stock fund by a Participant who is an "officer," "director" or the "beneficial owner of more than 10 percent of any class of equity security" of the Company within the meaning of these terms under section 16 of the Securities Exchange Act of 1934 shall result in such Participant's automatic suspension from making Plan contributions into the Company Stock fund for a period of six months from the date of the withdrawal. (e) Any withdrawal from a Participant's Post-Tax Contribution Account will result in an automatic 32 suspension of the Participant's right to make future Plan contributions for a period of six months from the date of the withdrawal. During the period of suspension, Company matching contributions will also be suspended. Finally, after the Participant resumes making contributions to the Plan, no make-up contributions will be permitted for the period of the suspension. 10.5 Fund to be Charged with Withdrawal. A Participant may specify the investment fund or combination of funds to which a withdrawal is to be charged. If the Participant fails to make any designation, a distribution will be made out of the Participant's interest in each of the funds in proportion to the Participant's share in these funds. 10.6 Loans to Participants. The Trustee shall, if the Committee directs, make a loan to a Participant from any or all of the Participant's accounts subject to such rules as the Committee may prescribe and subject to the following conditions: (a) An application for a loan by a Participant shall be made in writing to the Committee; (b) A loan must be for a minimum of $500, only two loans (only one for the purchase of a principal residence) may be outstanding at any one time, only one loan refinancing per year will be permitted; (c) No loan shall be made to the extent that such loan when added to all other loans to the Participant would exceed the lesser of (1) 50 percent of the vested amounts in all of the Participant's accounts under the Plan or (2) $50,000 reduced by the excess, if any, of the highest outstanding balance of loans during the one year period ending on the day before the loan is made over the outstanding balance of loans to the Participant on the date the loan is made. In determining whether the foregoing loan limits are satisfied all loans from all plans of a Participating Company and of any Affiliated Company shall be aggregated. (d) The period of repayment for any loan shall be arrived at by mutual agreement between the Committee and the borrower, but such period in no event shall exceed five years except that a loan 33 may be granted for a period not to exceed 25 years if the proceeds are used to purchase the Participant's principal residence; (e) All loans must be repaid under a substantially level amortization period with payments being made at least quarterly; (f) Each loan shall be made against collateral being the assignment of 50 percent of the borrower's entire right, title and interest in and to the Trust Fund, supported by the borrower's collateral promissory note for the amount of the loan, including interest, payable to the order of the Trustee and/or such other collateral as the Committee may require; (g) Each loan shall bear interest at a rate fixed by the Committee. The rate shall be commensurate with the rates charged by persons in the business of lending money for loans which would be made under similar circumstances. Interest rates granted at different times and to Participants in differing circumstances may vary depending on such differences; (h) A loan shall be treated as a directed investment by the borrower with respect to his accounts. The interest paid on the loan shall be credited to the borrower's accounts and he shall not share in the earnings of the Plan's assets with respect to the amounts borrowed and not yet repaid; (i) A loan to a married Participant requires the written, notarized consent of the Participant's spouse; (j) No distribution shall be made to any Participant, former Participant or Beneficiary unless and until all unpaid loans, including accrued interest thereon, have been liquidated or offset against the account; and (k) A loan from the Company Stock fund account of a Participant who is an "officer," "director" or the "beneficial owner of more than 10 percent of any class of equity security" of the Company within the meaning of these terms under section 16 of the Securities Exchange Act of 1934 shall result in such Participant's automatic suspension from making Plan contributions into the Company 34 Stock fund for a period of six months from the date of the loan. In addition, no repayment of any such loan shall be credited to a Participant's Company Stock fund. 35 ARTICLE XI Plan Administration 11.1 Appointment of Committee. The Board shall appoint an Employees' Benefit Committee to administer the Plan. Any person, including an officer or other employee of a Participating Company, is eligible for appointment as a member of the Committee. Such members shall serve at the pleasure of the Board. Any member may resign by delivering his written resignation to the Board. Vacancies in the Committee shall be filled by the Board. 11.2 Named Fiduciary and Plan Administrator. The Committee shall be the Named Fiduciary and Plan Administrator as these terms are used in ERISA. The Committee shall appoint a Secretary who shall also be the agent for the service of legal process. 11.3 Powers and Duties of Committee. The Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan, except such powers as are specifically reserved to the Board or some other person. The Committee's powers include the power to make and publish such rules and regulations as it may deem necessary to carry out the provisions of the Plan. The Committee shall interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan. The Committee shall notify the Trustee of the liquidity and other requirements of the Plan from time to time. 11.4 Operation of Committee. The Committee shall act by a majority of its members at the time in office, and such action may be taken either by a vote at a meeting or without a meeting. Any action taken without a meeting shall be reflected in a written instrument signed by a majority of the members of the Committee. A member of the Committee who is also a Participant shall not vote on any question relating specifically to himself. Any such question shall be decided by the majority of the remaining members of the Committee. The Committee may authorize any one or more of its members to execute any document on behalf of the Committee, in which event the Committee shall notify the Trustee in writing of such action and the name or names of its member or members so designated. The Trustee thereafter shall accept and rely upon any document executed by such member or members as representing action by the Committee until the Committee shall file with the Trustee a written 36 revocation of such designation. The Committee may adopt such by-laws or regulations as it deems desirable for the conduct of its affairs. The Committee shall keep a record of all its proceedings and acts and shall keep all such books of account, records, and other data as may be necessary for the proper administration of the Plan. 11.5 Power to Appoint Advisers. The Committee may appoint such actuaries, accountants, attorneys, consultants, other specialists and such other persons as it deems necessary or desirable in connection with the administration of this Plan. Such persons may, but need not, be performing services for a Participating Company. The Committee shall be entitled to rely upon any opinions or reports which shall be furnished to it by any such actuary, accountant, attorney, consultant or other specialist. 11.6 Expenses of Plan Administration. The members of the Committee shall serve without compensation for their services as such, but their reasonable expenses shall be paid by the Company. To the extent not paid from Fund assets, as determined from time to time by any Board-appointed committee, all reasonable expenses of administering the Plan shall be paid by the Company, including, but not limited to, fees of the Trustee, accountants, attorneys, consultants, and other specialists. 11.7 Duties of Fiduciaries. All fiduciaries under the Plan and Trust shall act solely in the interests of the Participants and their Beneficiaries and in accordance with the terms and provisions of the Plan and Trust Agreement insofar as such documents are consistent with ERISA, and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. Any person may serve in more than one fiduciary capacity with respect to the Plan and Trust. 11.8 Liability of Members. No member of the Committee shall incur any liability for any action or failure to act, excepting only liability for his own breach of fiduciary duty. To the extent not covered by insurance, the Company shall indemnify each member of the Committee and any Board-appointed committee and any employee acting on their behalf against any and 37 all claims, loss, damages, expense and liability arising from any action or failure to act. 11.9 Allocation of Responsibility. The Board, Trustee, Investment Manager and the committees established to administer the Plan possess certain specified powers, duties, responsibilities and obligations under the Plan and Trust. It is intended under this Plan that each be solely responsible for the proper exercise of its own functions and that each shall not be responsible for any act or failure to act of another, unless otherwise responsible as a breach of its own fiduciary duty. a. Generally, the Board shall be responsible for appointing the members of the committees it may establish to administer this Plan. If this Plan shall at any time permit employees to invest any portion of Plan assets in Company securities, the Board shall have sole authority to terminate this Plan and to make any discretionary amendments, while any Board-appointed committee given such authority shall have authority for making non-discretionary amendments and for recommending to the Board any other Plan amendments it deems appropriate. b. The Board-appointed committees so authorized shall have the responsibilities of making Plan amendments not specifically reserved to the Board in the preceding subsection, including sole discretion to amend the Plan if employees are not authorized to invest Plan assets in Company securities, to select Investment Managers, to direct the Trustee and the Investment Managers with respect to all matters relating to the investment of Plan assets, to review and report to the Board on the investment policy and performance of Plan assets and generally to administer the Plan according to its terms. c. The Trustee or the Investment Manager, as the case may be, is responsible for the management and control of the Plan's assets as specifically provided in the Trust Agreement or investment manager agreement. d. The Board may dissolve any committee it appoints or reserve to itself any of its 38 powers previously delegated to a Board-appointed committee. In addition, the Board may reorganize the committees it establishes from time to time and reallocate their responsibilities among them or assign them to other persons or committees provided that the Employees' Benefit Committee shall at all times continue as plan administrator and named fiduciary as these terms are defined in ERISA unless the Board formally amends the Plan to reallocate these responsibilities. The Board and the various committees may designate persons, including committees, other than named fiduciaries to carry out their responsibilities (other than trustee responsibilities) under the Plan. 11.10 Claims Review Procedure. The Committee shall maintain a procedure under which any Participant or Beneficiary may assert a claim for benefits under the Plan. Any such claim shall be submitted in writing to the Committee within such reasonable period as the rules of the Committee may provide. The Committee shall take action on the claim within 60 days following its receipt and if it is denied shall at such time give the claimant written notice which clearly sets forth the specific reason or reasons for such denial, the specific Plan provision or provisions on which the denial is based, any additional information necessary for the claimant to perfect the claim, if possible, an explanation of why such additional information is needed, and an explanation of the Plan's claims review procedure. The review procedure shall allow a claimant at least 60 days after receipt of the written notice of denial to request a review of such denied claim, and the Committee shall make its decision based on such review within 60 days (l20 days if special circumstances require more time) of its receipt of the request for review. The decision on review shall be in writing and shall clearly describe the reasons for the Committee's decision. 39 ARTICLE XII Amendment and Termination 12.1 Right to Amend or Terminate. Any amendment may be made to this Plan which does not cause any part of the Plan's assets to be used for, or diverted to, any purpose other than the exclusive benefit of Participants, former Participants, or Beneficiaries, provided however, that any amendment may be made, with or without retroactive effect, if such amendment is necessary or desirable to comply with applicable law. Except in the case where approved by the Secretary of Labor because of substantial business hardship, as provided in section 412(c)(8) of the Code, no amendment shall be made to the Plan if it would decrease the accrued benefit of any Participant, eliminate or reduce an early retirement benefit or eliminate an optional form of benefit as may be provided in regulations under Code section 411(d)(6). If any provisions of this Plan relating to the percentage of a Participant's accrued benefit that is vested are changed, any Participant with at least three years of service may elect, by filing a written request with the Committee within 60 days after the later of (1) the date the amendment was adopted, (2) the date the amendment was effective, or (3) the date the Participant received written notice of such amendment, to have his vested interest computed under the provisions of this Plan as in effect immediately prior to such amendment. 12.2 Full Vesting Upon Termination of Plan. Upon full or partial termination of the Plan or upon complete discontinuance of Participating Company contributions, each affected Participant will become l00 percent vested in the value of his Participant Account as of the Valuation Date next following such termination or discontinuance. 40 ARTICLE XIII Top-Heavy Provisions 13.1 Rules to Apply if Plan is Top-Heavy. Notwithstanding any other relevant provision of this Plan to the contrary, the following rules will apply for any Plan Year that the Plan becomes "top-heavy" (as defined in Section 13.2): (a) Vesting. Vesting will remain 100 percent at all times after completion of six months' service. (b) Minimum Contributions. For each top-heavy Plan Year the minimum contribution allocated to the Participant Account of each non-key employee shall be equal to or greater than the lesser of the following amounts: (i) 3 percent of such non-key employee's compensation; or (ii) the highest percentage-of-compensation allocation made to the Participant Account of any key employee. If the highest rate allocated to a key employee is less than 3% of compensation, amounts contributed as a result of a salary reduction agreement shall be included in determining the rate of contribution on behalf of key employees. For purposes of this subsection, "compensation" shall have the same meaning as in Section 4.4. Minimum contributions will be made to Participant's Account without regard to his level of compensation or his hours of service during a Plan Year. (c) Limitation on Benefits. In applying the dollar limitations under section 415(e) of the Code, the 1.25 limitation shall be supplanted by a 1.0 limitation for each year during which the Plan is top-heavy. (d) Maximum Compensation. The maximum annual compensation of each employee that may be taken into account under the Plan shall not exceed $150,000 (or such larger amount based on cost of living adjustments as may be permitted under the Code). 13.2 Top-Heavy Definition. For purposes of this Section, the Plan will be considered "top-heavy" if on any 41 given determination date (the last day of the preceding Plan Year or, in the case of the Plan's first year, the last day of such Year) the sum of the account balances for key employees is more than 60 percent of the sum of the account balances of all employees, excluding former key employees. The account balances shall include distributions made during any given Plan Year containing the determination date and the preceding four Plan Years but shall not include the account balances for any person who has not received any compensation from any Participating Company at any time during the five-year period ending on the determination date. The method of determining the top-heavy ratio shall be made in accordance with Code section 4l6. In making the top-heavy calculation, (a) all the Company's plans in which a key employee participates shall be aggregated with all other Participating Company plans which enable a plan in which a key employee participates to satisfy the Code's non-discrimination requirements; and (b) all Participating Company plans not included in subparagraph (a), above, may be aggregated with the Participating Company's plans included in subparagraph (a), above, if all of the aggregated plans would be comparable and satisfy the Code's non-discrimination requirements. 13.3 Key Employee Definition. A key employee will be, for the purpose of this Article, any employee or former employee who at any time during the Plan Year containing the determination date or the four preceding Plan Years is such within the meaning of Code section 416. As of the effective date, the term key employee includes the following individuals: (i) an officer (but not more than 50 persons or, if lesser, the greater of 3 or 10 percent of employees and not including persons who earn 150 percent or less of the dollar limitation for contributions to defined contribution plans as specified in Code section 4l5(c)(l)(A)); (ii) one of 10 employees who has annual compensation from the Participating Company of more than the amount in effect under Code section 415(c)(1)(A) owning the largest interests of the Participating Company. The employee having the greater annual compensation from the Participating Company shall be considered to own the larger interest in the Participating Company if two or more employees 42 had the same ownership interest in the Participating Company; (iii) a five-percent owner of the Participating Company; and (iv) a one-percent owner of the Participating Company whose annual compensation from the Participating Company exceeds $l50,000. 13.4 Relationship of the Normal and the Top-Heavy Vesting Schedules. If the Plan's top-heavy status changes and this change alters the Plan's normal vesting schedule, no Participant's vested accrued benefit immediately prior to such change in status shall be diminished on account of the change in the vesting schedule. In addition, the vesting for each Participant in the Plan at the time of the change in status shall be determined under whichever schedule provides the greatest vested benefit at any particular point in time. 13.5 Participation in Other Plans. A non-key employee who participates in both a defined contribution plan and a defined benefit plan of the Participating Company shall not be entitled to receive minimum benefits and/or minimum contributions under all such plans. Instead, the employee shall receive a minimum benefit equal to the lesser of 20 percent of such non-key employee's average compensation or 2 percent of his average compensation multiplied by his number of Years of Service, as set forth in such defined benefit plan. 43 ARTICLE XIV General Provisions 14.1 Employment Relationship. Nothing contained herein will be deemed to give any Employee the right to be retained in the service of a Participating Company or to interfere with the rights of a Participating Company to discharge any Employee at any time. 14.2 Non-Alienation of Benefits. Except as provided in Section 10.6, benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability which arises from the Participant's bankruptcy, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Trust shall not in any manner be liable for, or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. Nothing in this Section shall preclude payment of Plan benefits pursuant to a qualified domestic relations order pursuant to Section 9.6. 14.3 Use of Masculine and Feminine; Singular and Plural. Wherever used in this Plan, the masculine gender will include the feminine gender and the singular will include the plural, unless the context indicates otherwise. 14.4 Plan for Exclusive Benefit of Employees. No part of the corpus or income of the Trust will be used for, or diverted to, purposes other than the exclusive benefit of Participants and their Beneficiaries. Anything in the foregoing to the contrary notwithstanding, the Plan and Trust are established on the express condition that they will be considered, by the Internal Revenue Service, as initially qualifying under the provisions of the Internal Revenue Code. In the event that the Internal Revenue Service issues an unfavorable determination with respect to a timely request for a determination that the amended and restated Plan and Trust qualify under the Internal Revenue Code, the Plan and Trust will be of no effect and the value of all contributions made by a Participating Company and Participants since the amendment and restatement will be returned to the 44 Participating Company and Participants, respectively, within one year from the date of the denial of the determination request. Furthermore, if, or to the extent that, a Participating Company's tax deduction for contributions made to the Plan is disallowed, the Participating Company will have the right to obtain the return of any such contributions (to the extent disallowed) for a period of one year from the date of disallowance. All Participating Company contributions to this Plan are contingent upon their deductibility under the Code. Finally, if a Participating Company's contribution to the Plan is made by a mistake in fact, the Participating Company will have the right to obtain the return of such contribution for a period of one year from the date the contribution was made. 14.5 Merger or Consolidation of Plan. There will be no merger or consolidation with, or transfer of any assets or liabilities to, any other plan, unless each Participant will be entitled to receive a benefit immediately after such merger, consolidation, or transfer as if this Plan were then terminated which is at least equal to the benefit he would have been entitled to receive immediately before such merger, consolidation, or transfer as if this Plan had been terminated. 14.6 Payments to Minors and Incompetents. If a Participant or Beneficiary entitled to receive any benefits hereunder is a minor or is deemed by the Committee, or is adjudged to be, legally incapable of giving valid receipt and discharge for such benefits, they will be paid to such persons as the Committee might designate or to the duly appointed guardian. 14.7 Governing Law. To the extent that New York law has not been preempted by ERISA, the provisions of the Plan will be construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Plan document on its behalf this 15th day of November, 1993. ROCHESTER TELEPHONE CORPORATION By /s/ Josephine S. Trubek -------------------------- Josephine S. Trubek Corporate Secretary APPENDIX A Participating Companies AuSable Valley Telephone Company, Inc. Breezewood Telephone Company Canton Telephone Company Citizens Telephone Company, Inc. Distributed Solutions, Inc. Enterprise Telephone Company Fairmount Telephone Company, Inc. Highland Telephone Company Lakeshore Telephone Company Lakewood Telephone Company Lamar County Telephone Company, Inc. Mid Atlantic Telecom, Inc. Mid-South Telephone Company, Inc. Minot Telephone Company Ontonagon County Telephone Company Oswayo River Telephone Company RCI Long Distance, Inc. RCI Long Distance New England, Inc. Rochester Telephone Corporation Rotelcom Inc. Seneca-Gorham Telephone Corporation Sylvan Lake Telephone Company, Inc. St. Croix Telephone Company The Thorntown Telephone Company, Inc. Urban Telephone Corporation Viroqua Telephone Company Vista Telephone Company of Iowa Vista Telephone Company of Minnesota APPENDIX B Plan Features Unique to Participating Companies Class of Eligible Matching Discretionary Payment Employees Contributions Contributions Option C Name of Company (Sec. 2.1) (Sec. 4.1) (Sec. 4.1) (Sec. 9.1) - - - --------------- --------- ------------- ------------- -------- AuSable Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Breezewood Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Breezewood Telco Nonmanagement None See Fn 2 Straight Life Ann. 3 Canton Telco Management 75% See Fn 1 See Fn 2 See Fn 2 Canton Telco Nonmanagement None See Fn 2 Straight Life Ann. 4 Citizens Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Citizens Telco Nonmanagement None See Fn 2 Straight Life Ann. 4 DSI All Employees 75% See Fn 1 See Fn 2 See Fn 3 Enterprise Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Enterprise Telco Nonmanagement None See Fn 2 Straight Life Ann. 4 Fairmount Telco All Employees None See Fn 2 Straight Life Ann. 4 Highland Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Lakeshore Telco All Employees None See Fn 2 Straight Life Ann. 4 Lakewood Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Lakewood Telco Nonmanagement None See Fn 2 Straight Life Ann. 4 Lamar Telco All Employees None See Fn 2 Straight Life Ann. 4 Mid Atlantic All Employees 75% See Fn 1 See Fn 2 None Mid-South Telco All Employees None See Fn 2 Straight Life Ann. 4 Minot Telco All Employees None See Fn 2 Straight Life Ann. 4 Ontonagon Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Oswayo Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Oswayo Telco Nonmanagement None See Fn 2 Straight Life Ann. 4 RCI LD Management 75% See Fn 1 See Fn 2 See Fn 3 RCI LD Nonmanagement 75% See Fn 1 See Fn 2 None RCI LD NE All Employees 75% See Fn 1 See Fn 2&5 None Class of Eligible Matching Discretionary Payment Employees Contributions Contributions Option C Name of Company (Sec 2.1) (Sec 4.1) (Sec 4.1) (Sec 9.1) - - - --------------- --------- ------------- ------------- -------- Rotelcom Management 75% See Fn 1 See Fn 2 See Fn 3 Rotelcom Nonmanagement 75% See Fn 1 See Fn 2 None Rochester Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Seneca-Gorham Telco Management 75% See Fn 1 See Fn 2 See Fn 2 Seneca-Gorham Telco Nonmanagement 75% See Fn 1 See Fn 2 Straight Life Ann 4. St. Croix Telco All Employees None See Fn 2 Straight Life Ann. 3 Sylvan Lake Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Thorntown Telco Management 75% See Fn 1 See Fn 2 See Fn 3 Thorntown Telco Nonmanagement 75% See Fn 1 See Fn 2&6 None Urban Telco All Employees None See Fn 2 Straight Life Ann. 3 Viroqua Telco All Employees None See Fn 2 Straight Life Ann. 3 Vista Telcos Management 70% See Fn 6 See Fn 2&7 None - - - ---------------------------------- 1/ 75% of the first 6% of Compensation that a Participant contributes to the Plan during a Plan Year. 2/ A Participating Company may contribute each year in its discretion the same flat dollar amount for each of its eligible employees. The amount, if any, need not be identical for each Participating Company each year.l 3/ The following additional payment options are available to a Participant under Option C: - A straight life annuity. - A reduced retirement income payable monthly during his life with the provision that in the event of his death prior to receiving one hundred twenty (120) monthly installments, the remainder thereof shall be paid to his beneficiary. - A reduced retirement income, payable during his life, with the provision that after his death such reduced income shall be continued during the life of, and shall be paid to, a contingent annuitant. - A reduced retirement income, payable during his life, with the provision that after his death an income at 3/4 the rate of his reduced income shall be continued during the life of, and shall be paid to, a contingent annuitant. - A reduced retirement income payable during his life with the provision that after his death an income at 1/2 the rate of his reduced income shall be continued during the life of, and shall be paid to, a contingent annuitant. 4/ A straight life annuity on the life of the participant is the only Option C benefit available. 5/ Discretionary contributions, if any, are allocated to Participants' accounts on the basis that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. 6/ 70% of the first 6% of Compensation that a Participant contributes to the Plan during a payroll period. 7/ A minimum contribution of 1% of a Participant's Compensation for a Plan Year is contributed by the Participating Company for each Participant. Additional contributions are made in the discretion of the Participating Company. EX-10 9 EX 10-39 EXHIBIT 10.39 ROCHESTER TELEPHONE CORPORATION PLAN FOR THE DEFERRAL OF DIRECTORS FEES Amendment No. 1 Pursuant to Section 13, the Plan is hereby amended, effective November 1, 1993, by adding the following new Section 8 immediately following current Section 7 and by renumbering the remaining Sections accordingly: 8. TRANSFER OF PARTICIPANT ACCOUNTS A Participant may make a one-time election at any time on or after November 1, 1993, to transfer all or a portion of the value of his or her Participant Account from this Plan to the Company's Directors Common Stock Deferred Growth Plan. In such event, future earnings on the transferred amounts shall be based on the terms of the Directors Common Stock Deferred Growth Plan and payment from that Plan shall be made in whatever medium (e.g., cash or property) may be provided for the payment of benefits from that plan. However, the timing, method of payment and all other elections selected by the Participant on his or her Deferred Election Form under this Plan shall remain irrevocable and shall continue to apply to the transferred amounts. No amounts held in the Directors Common Stock Deferred Growth Plan may be transferred to this Plan, including amounts previously transferred to such plan from this Plan pursuant to this Section 8. IN WITNESS WHEREOF, the Board of Directors has caused this Amendment to be executed on its behalf this 1st day of November, 1993. ROCHESTER TELEPHONE CORPORATION /s/ Josephine S. Trubek By:-------------------------- Josephine S. Trubek Corporate Secretary (56ED) ROCHESTER TELEPHONE CORPORATION PLAN FOR THE DEFERRAL OF DIRECTORS FEES 1. PURPOSES Rochester Telephone Corporation (the "Company") has adopted this Plan for the Deferral of Directors Fees (the "Plan") to assist its directors with their individual tax and retirement income planning and to permit the Company to remain competitive in attracting and retaining its directors. 2. PLAN ADMINISTRATOR The Executive Committee of the Company's Board of Directors shall be the Plan's administrator (the "Administrator"). The Administrator shall have the authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement the provisions of this Plan, including eligibility for benefits prior to any change in control of the Company. 3. ELIGIBILITY Any director of the Company who is not an employee of the Company or of any subsidiary of the Company may elect to participate in this Plan. 4. AMOUNT OF DEFERRAL A participant may elect to defer receipt of all or a specified portion of the fees otherwise payable to the participant for serving on the Company's Board of Directors or any committee thereof. 5. TIME FOR ELECTING DEFERRAL Any election to defer directors fees must be made prior to the beginning of the calendar year that such fees are to be earned by the participant, provided that in the first year of eligibility a deferral election for that year must be made within 30 days of commencing employment on the Board. An election to commence a deferral may be made at any time in accordance with the procedures set forth in Section 6 and any election so made shall remain in effect until the participant elects in writing to change his or her election for future fees. -2- 6. MANNER OF ELECTING DEFERRAL A participant shall elect a deferral by giving written notice to the Administrator in a form substantially the same as the Election Form attached hereto. The notice shall include (1) the amount to be deferred; (2) the time as of which the deferral is to commence; (3) whether the deferred amounts plus the earnings thereon will be paid within 30 days of termination from the Board or 30 days following the end of year in which termination occurs; and (4) an election of either a lump sum payment or the number of monthly installments (not to exceed 60) for the payment of the deferred amounts. 7. PARTICIPANT ACCOUNTS There shall be established for each participant a Participant Account which shall be credited with the participant's deferrals plus earnings as may be credited from time to time on investments under any trust arrangement established to hold deferrals. If no trust arrangement has been established, the deferrals will be credited with simple interest on any unpaid account balance at the rate fixed from time to time for the payment of funds deposited with the Company by its customers. The value of each Participant Account shall be adjusted no less frequently than annually to reflect contributions to the account, payments from the account as hereinafter provided, and earnings. All amounts credited to Participant Accounts shall be fully vested at all times. Except for the possible claims of the Company's general creditors, they shall not be subject to forfeiture on account of any action by a participant or by the Company, including termination of service on the Board. 8. PAYMENT OF DEFERRED AMOUNTS No withdrawal may be made from a Participant Account except as provided in this Section 8. Payments from an Account shall either commence or be made in a lump sum within 30 days following termination from the Board or within 30 days following the close of the year in which termination occurs in accordance with a participant's election form. Payments from a Participant Account shall be made only in cash. -3- Payments may be made in the form of either a lump sum payment or monthly installments over a period of years not to exceed five. Where payments are made in monthly installments, the balance credited to a Participant Account shall continue to be adjusted for earnings as provided in Section 7. If installment payments are elected, the first installment shall equal the value of the Participant Account at such time multiplied by a fraction, the numerator of which is one and the denominator of which is the total number of monthly installments to be made. All subsequent installments shall equal the value of the Participant Account as of the last valuation date preceding the installment which is to be paid multiplied by a fraction, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments already paid. In the event of a participant's death before he or she has received all of the deferred payments to which he or she is entitled hereunder, the remaining value of the Participant Account shall be paid to the participant's estate in a lump sum no later than 30 days following the end of the year in which the participant died. Notwithstanding a participant's election of installment payments, the Company, in its sole discretion, shall have a right to accelerate any such payments or to make payment of the balance of a Participant Account in a lump sum. 9. PARTICIPANT'S RIGHTS UNSECURED The maintenance of individual Participant Accounts is for bookkeeping purposes only. The Company may, but is not obligated to, acquire or set aside any particular assets for the discharge of its obligations, nor is any participant to have any property rights in any particular assets held by the Company, whether or not held for the purpose of funding the Company's obligations. The right of any participant or his or her estate to receive future installments under the provisions of this Plan shall be an unsecured claim against the general assets of the Company. -4- 10. CHANGE IN CONTROL In the event of a Change in Control, as defined in the trust agreement, amounts credited to Participant Accounts shall be paid out in accordance with the terms of the trust agreement and any participant elections. If no trust agreement is in effect, change in control shall have the meaning given this term in the Company's Supplemental Management Pension Plan and benefits shall be paid in accordance with participant elections. 11. STATEMENT OF ACCOUNT Statements will be sent to participants no less frequently than annually as to the value of their Participant Accounts. 12. ASSIGNABILITY No right to receive payments hereunder shall be transferable or assignable by a participant, except by will or by the laws of descent and distribution. 13. AMENDMENT This Plan may at any time or from time to time be amended, modified or terminated by the Board of Directors of the Company. No amendment, modification or termination shall accelerate payment of amounts previously deferred, provide for additional benefits, or, without the consent of a participant, adversely affect such participant's accruals in his or her Participant Account. 14. GOVERNING LAW This Plan and any participant elections hereunder shall be interpreted and enforced in accordance with the laws of the State of New York. 15. EFFECTIVE DATE The effective date of this Plan is January 1, 1990. IN WITNESS WHEREOF, the Board of Directors has caused its duly authorized member to execute this Plan document on its behalf this 22nd day of December, 1989. ROCHESTER TELEPHONE CORPORATION By: /s/ F. R. Pestorius -------------------------- Its Vice President-Finance -------------------------- (56ED) EX-10 10 EX 10-40 1 EXHIBIT 10.40 ROCHESTER TELEPHONE CORPORATION DIRECTORS COMMON STOCK DEFERRED GROWTH PLAN 1. Purposes Rochester Telephone Corporation (the "Company") hereby establishes the Directors Common Stock Deferred Growth Plan (the "Plan") to assist its directors with their individual tax and retirement income planning, to permit the Company to remain competitive in attracting and retaining its directors and to authorize deferred fees to be invested in Company securities. 2. Plan Administrator The Committee on Directors of the Company's Board of Directors shall be the Plan's administrator (the "Administrator"). The Administrator shall have the authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement the provisions of this Plan, including eligibility for benefits. 3. Eligibility Any director of the Company who is not an employee of the Company or of any subsidiary of the Company may elect to participate in this Plan. 4. Amount of Deferral A participant may elect to defer receipt of all or a specified portion of the fees otherwise payable to the participant for serving on the Company's Board of Directors or any committee thereof. 5. Time for Electing Deferral Any election to defer directors fees must be made prior to the beginning of the calendar year that such fees are to be earned by the participant, provided that in the first year of eligibility a deferral election for that year must be made within 30 days of commencing employment on the Board. An election to commence a deferral may be made at any time in accordance with the procedures set forth in section 6 and any election so made shall remain in effect until the participant elects in writing to change his or her election for future fees, but any such change with respect to an investment in Company securities will not be effective until six months after so elected. 2 6. Manner of Electing Deferral A participant shall elect a deferral by giving written notice to the Administrator in a form substantially the same as the Election Form attached hereto. The notice shall include (1) the amount to be deferred; (2) the time as of which the deferral is to commence; and (3) whether the deferred amounts plus the earnings thereon will be paid within 30 days of termination from the Board or 30 days following the end of year in which termination occurs. 7. Participant Accounts If a trust arrangement has been established, each participant shall have an account (the "Participant Account") to reflect his or her investment election as specified on the Election Form. Amounts deferred into a Participant Account shall be invested by the trustee in such securities of the Company as shall be specified by the Administrator. The trustee shall purchase such securities on the open market at their fair market value at the time of purchase. Earnings paid on securities allocated to a Participant Account shall be used to purchase additional securities of the Company. Funds allocated to a Participant Account that cannot be invested in Company securities may be invested in any fund or funds designated by the Administrator. If no trust arrangement has been established, all deferrals will be credited with simple interest on any unpaid account balance at the rate fixed from time to time for the payment of funds deposited with the Company by the customers. The value of each Participant Account shall be adjusted no less frequently than annually to reflect deferrals into the account, payments from the account as hereinafter provided, earnings on investments and changes in the market value of investments. All amounts credited to Participant Accounts shall be fully vested at all times. Except for the possible claims of the Company's general creditors, they shall not be subject to forfeiture on account of any action by a participant or by the Company, including termination of service on the Board. 8. Transfer of Participant Accounts A Participant may transfer to this Plan a participant account held under the Company's Plan for the Deferral of Directors Fees. In the event of any such transfer, the amounts will be invested in accordance with the terms of 3 this Plan and shall be paid out in the medium provided for payments from this Plan. The Participant's deferral election under the Plan for the Deferral of Directors Fees shall otherwise remain irrevocable and shall govern the time and method of payment of the transferred amounts. No amounts held in this Plan, including amounts transferred to it pursuant to the foregoing paragraph may be transferred from this Plan to the Plan for the Deferral of Directors Fees. 9. Payment of Deferred Amounts No withdrawal may be made from a Participant Account except as provided in this section 9. Payments from an Account shall be made in a lump sum within 30 days following termination from the Board or within 30 days following the close of the year in which termination occurs in accordance with a participant's Election Form. Payments from a Participant Account that has been invested in Company securities shall be made only in whole shares of such securities with any fractional share made in cash. Each participant or beneficiary shall execute any documents deemed necessary by the Administrator to comply with any applicable securities laws. 10. Participant's Rights Unsecured The maintenance of individual Participant Accounts is for bookkeeping purposes only. The Company may, but is not obligated to, acquire or set aside any particular assets for the discharge of its obligations, nor is any participant to have any property rights in any particular assets held by the Company, whether or not held for the purpose of funding the Company's obligations. The right of any participant or his or her estate to receive future payments under the provisions of this Plan shall be an unsecured claim against the general assets of the Company. 11. Change in Control In the event of a Change in Control, as defined in the trust agreement, amounts credited to Participant Accounts shall be paid out in accordance with the terms of the trust agreement and any participant elections. If no trust agreement is in effect, change in control shall have the meaning given this term in the Company's Supplemental Management Pension Plan and benefits shall be paid in 4 accordance with participant elections. Notwithstanding the foregoing, shares of Company securities purchased with deferred fees shall not be paid out until six months after the date of election pursuant to which such purchase was made. 12. Statement of Account Statements will be sent to participants no less frequently than annually as to the value of their Participant Accounts. 13. Assignability No right to receive payments hereunder shall be transferable or assignable by a participant, except by will or by the laws of descent and distribution. 14. Amendment This Plan may at any time or from time to time be amended, modified or terminated by the Board of Directors of the Company. No amendment, modification or termination shall accelerate payment of amounts previously deferred, provide for additional benefits, or, without the consent of a participant, adversely affect such participant's accruals in his or her Participant Account. 15. Governing Law This Plan and any participant elections hereunder shall be interpreted and enforced in accordance with the laws of the State of New York. 16. Effective Date The effective date of this Plan is November l, 1993. IN WITNESS WHEREOF, the Board of Directors has caused its duly authorized member to execute this Plan document on its behalf this 1st day of November, 1993. ROCHESTER TELEPHONE CORPORATION /s/ Josephine S. Trubek By --------------------------- Josephine S. Trubek Its Corporate Secretary 57ED EX-11 11 EX 11 Exhibit 11 ROCHESTER TELEPHONE CORPORATION CONSOLIDATED COMPUTATION OF NET INCOME PER AVERAGE SHARE OF COMMON STOCK ON A FULLY DILUTED BASIS In thousands, except per share data.
Year Ended December 31, 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Income applicable to common stock $81,533 $68,243 $77,857 $50,743 $82,749 Add: Interest on convertible debentures 553 561 562 594 611 ------- ------- ------- ------- ------- $82,086 $68,804 $78,419 $51,337 $83,360 Less: Increase in related federal income taxes 194 191 191 202 208 ------- ------- ------- ------- ------- Adjusted income applicable to common stock $81,892 $68,613 $78,228 $51,135 $83,152 ======= ======= ======= ======= ======= Total common shares assuming conversion at beginning of each period of outstanding Convertible Debentures and outstanding Convertible Preferred Stock and Stock Options (1) 33,986 33,583 32,368 30,012 29,426 Net income per average share of common stock on a fully diluted basis $ 2.41 $2.04 $2.42 $1.70 2.83 (1) As set forth in Notes 5, 6 and 7 of the Notes to Consolidated Financial Statements.
EX-13 12 EX 13 MDA 1 EXHIBIT 13 Management's Discussion of Results of Operations and Analysis of Financial Condition OVERVIEW - - - -------- Rochester Tel is pleased to report that 1993 was an excellent year for the company and its shareowners. The principal contributors to the company's positive results were outstanding performances by our long distance operations and the regional telephone companies outside of Rochester, New York. Consolidated operating income in 1993 reached the highest level in the company's history at $195 million, an increase of $19.8 million, or 11.3 percent, over 1992. Operating income for the Telecommunication Services segment improved 32.8 percent over 1992, largely driven by results from the company's long distance operations. Operating Income for our Telephone Operations segment improved 8.1 percent. The regional telephone companies outside of Rochester, New York, improved their operating income by 22.7 percent, while the Rochester, New York operating company's operating income declined by 7.4 percent. By comparison, consolidated operating income in 1992 was $175.1 million, an increase of $26.8 million, or 18.0 percent, over 1991. Excluding the impact of our 1991 purchase accounting acquisitions, operating income improved $13.7 million, or 10.1 percent. Operating income for Telephone Operations improved 15.4 percent over 1991. Telecommunication Services' operating income rose 38.9 percent for the same period. Net income was $82.7 million in 1993, a 19.1 percent increase over 1992. Earnings per common share were $2.42 in 1993, an increase of 18 percent over 1992. In 1992, net income was $69.4 million and earnings per common share were $2.05, reflecting decreases of 12.2 percent and 15.6 percent, respectively, when compared to 1991. Effective January 1, 1993, the company adopted Financial Accounting Standards Board Statement No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," (OPEB) using the delayed recognition of the transition obligation method. The incremental expense included in 1993 operating income was $11.9 million. However, a substantial portion, 50.7 percent, of the increase was offset by a change in accounting for pensions for rate-making purposes at the Rochester, New York operating company. The impact of these two items on 1993 earnings, net of the income tax benefit, was $3.8 million. (See Note 11 to the Consolidated Financial Statements.) 2 Nonrecurring Items The financial results for the years 1991 through 1993 include the impact of five nonrecurring items: 1. Tax Rate Change --------------- The 1993 income tax provision includes the retroactive impact of the federal income tax rate increase from 34 to 35 percent. The overall impact of the tax rate change was approximately $2 million and includes approximately $400,000 attributable to years prior to 1993. (See Note 9 to the Consolidated Financial Statements.) 2. Software Writeoff ----------------- As part of the Rochester, New York operating company's Settlement Agreement with the New York State Public Service Commission (the Commission) the company agreed to write off one-half of the costs ($3.3 million) previously deferred as part of a project to redesign customer account records, order flow and customer billing systems. The after-tax impact of the charge is $2.1 million. (See Note 4 to the Consolidated Financial Statements.) 3 3. Sale of Assets/Investments -------------------------- During the third quarter of 1993, the company sold its interest in the S&A Telephone Company of Kansas. In the fourth quarter, the company sold a substantial portion of its investment in a Canadian long distance company. The transactions resulted in pre-tax gains totaling $4.4 million, as reflected on the Consolidated Statement of Income under the caption "Gain on Sale of Assets". 4. First Mortgage Bond Refinancing ------------------------------- On December 14, 1992, the Executive Committee of the Board of Directors approved the refinancing of the $40 million Series H, 9 1/2% first mortgage bonds. The company recorded an after-tax charge of $1.1 million, or $.03 per share, in 1992 relating to the call premium, the write-off of the remaining initial discount and associated expenses of the transaction. The bonds were retired during January 1993 using internally generated cash and the private placement of $35 million of debt at a telephone subsidiary. 5. Gain on Sale of Cellular ------------------------ During 1991, the company realized a gain from the transfer of cellular interests as part of the acquisition of the Vista Minnesota properties from Centel. The gain, net of taxes, was $19.5 million. Approximately $15.7 million of the gain was recorded as a net ordinary gain on the sale of assets. The balance of $3.8 million was recorded as an extraordinary gain because it related to cellular properties acquired in pooling transactions within two years of the transfer. The transfer of cellular properties did not represent any diminishment in the company's strategic plans for wireless services. The company held a minority interest in each of the properties transferred, with no reasonable expectation of gaining a majority interest or managing role. Consolidated income and earnings per share before nonrecurring items for the three years ended December 31, 1993 are summarized in the following table. 4 (All dollars, except per share amounts, are in thousands) 1993 1992 1991 ---- ---- ---- Income, as stated $82,720 $69,431 $79,046 Adjustments, net of taxes 1. Tax rate change 400 - - 2. Software write-off 2,145 - - 3. Gain on sale of assets ( 3,293) - - 4. Early retirement of debt - 1,072 - 5. Cellular gain - - (19,500) ------- ------- -------- Income, after adjustment $ 81,972 $70,503 $59,546 ======== ======= ======= Earnings per share, as stated $2.42 $2.05 $2.43 Adjustments 1. Tax rate change .01 - - 2. Software write-off .06 - - 3. Gain on sale of assets (.10) - - 4. Early retirement of debt - .03 - 5. Cellular gain - - (.61) ------- ------- -------- Earnings per share, after adjustments $ 2.39 $2.08 $1.82 ======== ======= ======= The following sections of this report provide more specific information and should be read together with the financial statements for the three years ended December 31, 1993 found on pages 24 through 31. 5 MAJOR EVENTS Open Market Plan - - - ---------------- In February 1993, the company filed a widely-recognized innovative proposal with the New York State Public Service Commission that would result in opening the Rochester, New York local exchange market to competition and simultaneously allow Rochester Tel to form a holding company. The company's proposal is called the "Open Market Plan". The plan would enable customers in the Rochester, New York service territory to select their local telephone service provider and have a much broader selection of products, services and prices. The company proposes to divide the current Rochester, New York operating company into two subsidiaries which would be wholly owned by an unregulated parent holding company. One of the two subsidiaries would be a regulated network facilities provider that would sell and market wholesale network services to retailers of telecommunication services. The second subsidiary would be a retail company which would provide an array of communication services on a competitive basis to residential and business customers in the Rochester, New York marketplace. This structure will enable the Rochester, New York operating company to respond more promptly to changes in its marketplace and customer demands. Informational meetings have been held with the Staff of the New York State Public Service Commission and all intervening parties. Negotiations were underway as of January 1994 to reach a stipulated settlement on the proposal. The company will aggressively pursue approval of the "Open Market Plan" but cannot predict whether or when it will be approved by the Commission, and, if so, in what form. 6 Regulatory Proceedings - - - ---------------------- In 1986, the company and the New York State Public Service Commission entered into an agreement which allowed the company to pursue certain acquisitions and investments without further Commission approval. This agreement was amended in 1987, 1989 and 1991. The 1991 amendment preceded the acquisition of the Vista Telephone properties in Minnesota and Iowa from Centel Corporation. Certain portions of the amendment expired in June 1993, and at the request of the company, the Commission extended the amendment to December 1993. It is anticipated that resolution of the company's Open Market Plan filing and the associated provision allowing Rochester Tel to form a holding company would eliminate the necessity of this agreement. Until the Open Market Plan proposal is resolved, effective January 1, 1994, the company must petition the Commission for approval of future acquisitions. In 1984, the New York State Public Service Commission initiated a proceeding to investigate whether or not the company's unregulated subsidiaries should pay a royalty to the Rochester, New York operating company for alleged intangible benefits received from the use of the Rochester Telephone name and reputation. The proceeding was reopened in 1990. In its Opinion and Order in Case 87-C-8959, issued July 6, 1993, the Commission, by a three-to-two vote, imposed a royalty in the amount of two percent of the total capitalization of Rochester Tel's unregulated operations. The Commission attempted to justify the royalty on essentially two bases: first, that ratepayers are entitled to protection from the potential for cost misallocations and the increased risks that accompany diversification; and second, that the company's unregulated operations benefit from their use of the Rochester Telephone name and reputation. The Commission rejected the company's statutory and constitutional defenses and concluded that it possessed the authority under the Public Service Law to impose a royalty. 7 Based upon an initial interpretation of the Order, Rochester Tel estimates that the effect of the Order is in the range of $2 million per year. The royalty would reduce the Rochester, New York operating company's revenue requirement for regulated intrastate telephone operations. The Commission ordered Rochester Telephone to file an accounting plan for the royalty amount, together with a plan for returning such amount to ratepayers. The company vigorously disagrees with the Commission's determination and has sought judicial review of the Commission's Opinion and Order. The timing and outcome of the appeal process cannot be predicted. The company intends to fully prosecute its appeal in the courts. During 1993, the company took specific pricing action to allow it to compete more effectively. The company believes it must be able to flexibly price its services to be successful in a competitive marketplace. The Federal Communications Commission approved the company's request to de-average interstate access charges between the Rochester, New York operating company and the combined subsidiary local telephone companies. This action allowed the company to establish two sets of rates: one based on the specific costs incurred by the Rochester, New York operating company; and one based on the combined cost of the subsidiary local telephone companies, which primarily serve geographic areas currently less subject to competition than the Rochester, New York operating company. On a consolidated basis, the change is initially revenue neutral. Effective January 1, 1993, the company adopted FAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and petitioned the FCC to recover the FAS 106 costs through the rate-making process. Although the FCC originally rejected the company's petition, the FCC later allowed the company to recover the portion of the FAS 106 cost associated with the Transition Benefit Obligation (the unrecorded postretirement benefit liability) 8 amortized over a twenty year period, pending the FCC's investigation as to whether this cost should be recoverable by price cap regulated companies. Rates reflecting this expense went into effect on July 2, 1993. The FCC's investigation remains pending. On March 12, 1993, the company signed a definitive agreement to form a joint venture with New York Cellular Geographic Service Area, Inc., a subsidiary of NYNEX Corporation, to create an upstate New York cellular supersystem that will include the Buffalo, Rochester, Syracuse, Utica-Rome and NY Rural Service Area #1 markets. The parties have sought a waiver of the interLATA prohibition contained in the AT&T consent decree, United States V. American Telephone and Telegraph Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd mem., 460 U.S. 1001 (1983). Approval on the waiver request is anticipated in early 1994. On May 18, 1993, the company filed for approval to form the joint venture from the New York State Public Service Commission. This filing included a petition to transfer the Rochester, New York operating company's interest in the Rochester wireless cellular business to its wholly-owned subsidiary, Rochester Tel Mobile Communications Inc. The Commission approved the entire transaction and transfer at its open session on November 10, 1993 and issued an order dated December 10, 1993. In addition, the joint venture parties filed applications with the Federal Communications Commission to transfer various radio licenses associated with the cellular properties and anticipate that the approvals will be granted in early 1994. Pending the remaining approvals, Rochester Tel Mobile Communications, Inc. (RTMC) and NYNEX have signed an agreement allowing RTMC to manage the combined properties. 9 Vista Telephone Company of Minnesota filed a request to increase rates in March 1993 with the Minnesota Public Service Commission. A stipulated settlement was executed by all parties and was submitted for approval to the Minnesota Public Service Commission. The Administrative Law Judge recommended an annual regulated revenue increase of $4.5 million. The company expects Commission approval during the first quarter of 1994. The Vista Telephone Company of Iowa filed in August 1993 for a permanent rate increase of approximately $4.5 million and a temporary rate increase of $4.1 million. On November 5, 1993, the Iowa State Utilities Board approved the temporary rate increase as submitted. This resulted in an approximate 21 percent across-the-board increase in local service rates. A final order is expected in the second quarter of 1994. Incentive Regulation - - - -------------------- The incentive regulation agreement which the New York State Public Service Commission approved in January 1990 for the Rochester, New York operating company expired at the end of 1992. The Rochester, New York operating company proposed a new incentive regulation agreement in January 1993 to the Commission staff, and reached a settlement, which was approved by the Commission on January 12, 1994. The settlement reduces the Rochester, New York operating company's revenue requirement by $5 million in 1993 and $9.5 million in 1994. Each of these reductions is subject to adjustment for depreciation changes. In 1994, fifty percent of the Rochester, New York operating company's earnings above the authorized return on equity will be shared with ratepayers. The authorized return is currently 10.9 percent and is subject to adjustment based on the results of the Generic Financing Proceeding. Also, if the Rochester, New York operating company's service levels in 1994 drop below 1992 levels, the company will be subject to a penalty of one-half of one percent of its local service revenues. 10 Acquisitions and Divestitures - - - ----------------------------- On April 15, 1993, the company acquired a 70 percent ownership of the Utica-Rome Cellular Partnership using 702,737 shares of original issue common stock. The transaction was accounted for as a purchase acquisition. In December 1993, the company increased its cellular ownership from 50.6 percent to 69.6 percent in the South Alabama cellular partnership. This later transaction gave the company the right to manage two cellular properties, Alabama RSA #4 and #6, which serve a territory with a population of approximately 252,000. On June 7, 1993, the Telecommunication Services Group acquired Budget Call Long Distance, Inc. for $7.5 million in cash. On September 30, 1993, Mid Atlantic Telecom, Inc. was acquired using 143,587 shares of treasury stock. Both transactions were accounted for as purchase acquisitions. Statesboro Telephone Company of Statesboro, Georgia, with more than 15,000 access lines, was acquired on August 31, 1992. The transaction was accounted for as a pooling of interests. During 1991, four telephone companies representing more than 160,000 access lines were acquired. (See Note 2 to the Consolidated Financial Statements.) 11 In September 1993, the company sold its interest in the S&A Telephone Company (824 access lines) and its related minority cellular interest in a Topeka, Kansas cellular partnership. In December 1993, the company announced that it had reached a definitive agreement to sell the Minot Telephone Company in North Dakota. Minot serves approximately 25,000 access lines and is the company's only operation in North Dakota. The sale is subject to regulatory approvals and is expected to be finalized during the second quarter of 1994. Both transactions represented the company's only holdings in each state and it was not expected that our base in those states could be expanded. The company will continue to pursue opportunities to increase the size of its long distance, wireless, and telephone operations through internal growth, acquisitions, partnerships and joint ventures. Growth in all segments is necessary to achieve the economies of scale and scope necessary for long-term success. 12 FINANCIAL REVIEW Consolidated Operations - - - ----------------------- Historically, the company's Telephone Operations have provided the majority of the overall company's revenues and income. Telephone Operations provided 66 percent of total revenues and 84 percent of operating income for the year ended December 31, 1993. Telephone Operations revenues are derived from local service and toll access fees, directory advertising, billing services and other services such as sales of telephone equipment and voice mail. An increasing percentage of the company's revenues and income is being generated by its Telecommunication Services businesses. Telecommunication Services revenues include long distance revenues based on billable minutes of long distance usage, and wireless access and usage charges. Operating income from the deregulated businesses represented 16 percent of the company's total operating income in 1993, compared with just 8 percent five years ago. The company's Telephone Operations expenses are primarily related to the development and maintenance of its local exchange networks. Additional Telephone Operations expenses include costs associated with customer service and billing. The company's principal Telecommunication Services expenses are related to the leasing of transmission facilities and the payment of local access charges for its long distance business; and charges for interconnection of cellular and paging operations with telephone companies, costs of cellular telephones and paging units sold and other wireless network-related expenses. Revenues and expenses derived from the company's majority-owned cellular operations are currently, and will continue to be, reflected in the company's consolidated financial statements. The company's minority interests and, following its commencement, the proposed 50/50 cellular joint venture with NYNEX, are accounted for using the equity method. The company will recognize 13 its proportional share of the net income (loss) of the cellular operations following the commencement of the proposed joint venture with NYNEX in the line item entitled "Equity in net income (loss) of unconsolidated partnerships and corporations." Consolidated revenues and sales were $906 million in 1993, a $102 million, or 12.7 percent increase, over 1992. This followed a 12.7 percent, or $90.5 million, increase in 1992 over 1991. Of the $102 million increase in 1993, $15 million related to additional revenues associated with 1993 purchase accounting acquisitions. Of the $90.5 million increase in 1992, $56.7 million was related to additional revenues associated with 1991 purchase accounting acquisitions. (See Note 2 to the Consolidated Financial Statements for further details about the purchase accounting acquisitions.) Excluding the impact of these acquisitions, revenues and sales rose 10.9 percent in 1993 and 5.2 percent in 1992. Consolidated costs and expenses were $711.5 million, $628.9 million and $565.2 million in 1993, 1992 and 1991, respectively, reflecting 13.1 percent and 11.3 percent increases in 1993 and 1992, respectively. Purchase accounting acquisitions accounted for $16.9 million of the increase in 1993 and $43.7 million in 1992. Consolidated costs and expenses, excluding the impact of purchase accounting acquisitions, increased 10.4 percent in 1993 and 3.9 percent in 1992. As a result of the company's continuing focus on cost controls and operating synergies, consolidated operating margins improved steadily over the past three years, from 20.8 percent in 1991, to 21.8 percent in 1992 and 21.9 percent in 1993 after excluding the impact of the software write-off at the Rochester Telephone, New York operating company. 14 Telephone Operations - - - -------------------- Telephone Operations revenues increased $26.6 million to $593.9 million in 1993 representing an increase of 4.7 percent over 1992. For 1992 versus 1991, revenues increased 14.0 percent to $567.3 million. Excluding purchase accounting acquisitions, revenue increased by 4.2 percent in 1992. Revenue growth was partly driven by robust increases in telephone access lines of 3.9 percent in 1993 and 3.3 percent in 1992. The company's total access lines in service reached a level of 931,650 by year end 1993. Growth in long distance usage also contributed substantially to revenue growth, with minutes of use increasing by 7.7 percent in 1993 and 18.8 percent in 1992. In general, the prices charged to long distance companies for access usage declined slightly to address the telephone operating companies' need to be competitive in this market sector and are expected to decline further in 1994. Local service revenue increased due to rate increases implemented in 1993 and 1992 at a selected number of non-New York State telephone companies, offset in part by a regulatory revenue reduction at the Rochester, New York operating company. Increased market penetration of enhanced services such as custom calling features and advanced number identification products like Caller ID also contributed to revenue growth in 1993 and 1992. Costs and expenses for Telephone Operations rose $14.4 million in 1993 and $49.4 million in 1992. In 1992, $35.4 million of the increase was related to the incremental costs and expenses associated with the telephone companies acquired in 1991. Adjusting for these acquisition-related expenses, total costs and expenses increased 3.8 percent in 1992. The primary reasons for expense increases in 1993 were: the $3.3 million write-off of deferred software expenses at the Rochester, New York operating company; an increase in wages and benefits; an increase in severance and other expenses associated with streamlining operations to arrive at a reduced cost structure; and an increase in right-to-use fees associated with network 15 software upgrades. In 1992, expenses increased due to higher depreciation expenses and the amortization of costs associated with the March 1991 ice storm in Rochester, New York. Operating margins for Telephone Operations were 27.7 percent in 1993, 26.8 percent in 1992 and 26.5 percent in 1991. Excluding the write-off of the deferred software expense, the operating margin in 1993 was 28.2 percent. The composite depreciation rate for Telephone Operations was 6.2 percent in 1993, compared with 6.4 percent in 1992 and 6.3 percent in 1991. The company continues to pursue alignment of depreciation rates with the economic lives of depreciable property. Telecommunication Services - - - -------------------------- Telecommunication Services sales were $312.6 million in 1993, representing a $75.8 million, or 32 percent, increase over 1992. In 1992, sales increased $20.8 million, or 9.6 percent, over 1991. Excluding the impact of purchase accounting acquisitions, sales rose 25.7 percent, or $60.9 million in 1993. The improvements in both years resulted primarily from the growth in Network Systems and Services, where sales in the long distance business were $262.5 million in 1993 and $187.3 million in 1992. The growth in long distance revenue is due to increased usage and market penetration, price increases and new products. Sales from wireless communications increased $8.5 million, or 40.1 percent, in 1993 and $4.1 million, or 23.9 percent, in 1992 and continue to improve as a result of the company's acquisition of the Utica-Rome partnership in 1993, price increases and a growing customer base. Costs and expenses in 1993 for Telecommunication Services amounted to $281.9 million, increasing $68.2 million, or 31.9 percent, over 1992. Adjusting for the impact of the 1993 acquisitions, expenses increased by $51.3 million, or 24.0 percent. The increase in expenses is primarily due to the increased volume of long distance traffic carried by the company and the associated costs to originate and terminate the traffic on local telephone company facilities. 16 The increase in costs and expenses in 1992 over 1991 was $14.3 million, or 7.2 percent. Normalizing for the impact of the 1991 acquisitions, costs and expenses rose 4.5 percent, driven primarily by access costs. These results, which compare favorably to the increases in sales, produced operating margins for the three-year period of 7.7 percent in 1991, 9.8 percent in 1992, and 9.8 percent in 1993. This positive trend was achieved through a continuation of operating synergies, new product offerings and a growing customer base. Interest Expense - - - ---------------- Interest expense decreased $3.5 million, or 7.0 percent, in 1993 as a result of lower debt levels than in 1992. During 1993, the company recalled $115.4 million of debt. In 1992, interest expense increased $5.5 million, or 12.2 percent, primarily due to the issuance of new debt in 1991 which was used to finance acquisitions. Gain on Sale of Assets - - - ---------------------- In 1993, the company recognized gains on sales of the S&A Telephone Company and a portion of the company's minority investment in a Canadian long distance company. In 1991, the gain represents the ordinary gain on sale of cellular interests as part of the purchase of the Vista Minnesota properties from Centel. Other Income (Expense), Net - - - --------------------------- In 1993, other income (expense), on a net basis increased $6.9 million, or 47.9 percent, over 1992. This increase is primarily the result of additional administrative expenses associated with the reorganization petition filed with the New York State Public Service Commission, refinancing expenses and acquisition expenses. 17 In 1992, the net change was an increase in expense of $3.8 million, or 36.2 percent, over 1991, primarily due to lower equity earnings in cellular partnerships and increased goodwill amortization relating to purchase acquisitions. Income Taxes - - - ------------ The effective federal tax rate in 1993 was 35.4 percent, compared to 34.2 percent in 1992 and 35.0 percent in 1991. (See Note 9 in Notes to the Consolidated Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES =============================== Management's overall objective is to maximize shareowner value. One of the most important items in evaluating management's success is its use of the company's financial resources. While increasing net income is an important component of the process, management believes that the primary source of value over the long term is cash generation over and above investment requirements. Key management decisions are made based on the value added to our shareowner's investment. Corporate performance, strategies, capital projects and acquisitions are evaluated and measured using cash flows and are expected to provide a return on investment that exceeds the risk-adjusted cost of capital of the company, or specific business unit, as appropriate. Management has three options for the use of excess cash generated. It can pay dividends, repurchase stock or reinvest in the business. Key financial data that can be used to monitor management's progress in maximizing the use of cash are shown below. 18 Key Financial Data ($'s in millions, except per share data) 1993 1992 1991 ---- ---- ---- Total debt $ 497 $ 591 $ 610 Total capital $1,172 $1,213 $1,214 Debt ratio 42.4% 48.8% 50.2% Operating margin 21.5% 21.8% 20.8% Pre-tax interest coverage 3.9x 3.2x 3.9x Construction $ 102 $ 124 $ 109 Dividends declared per share $ 1.59 $ 1.55 $ 1.51 Dividends paid per share $ 1.58 $ 1.54 $ 1.50 Dividend yield 3.6% 4.4% 4.8% Dividend payout ratio 65.3% 75.1% 61.7% Total shareowner return 31.1% 15.7% 15.0% Year-end stock price $45.13 $35.63 $32.13 As reflected in the Consolidated Statement of Cash Flows, net cash provided by operating activities increased $12.2 million in 1993, from $216 million to $228.2 million, and $52.9 million in 1992, from $163.1 million to $216 million. The increase in both years is the result of increases in net income, after excluding the 1991 cellular gains and depreciation and amortization; and in 1992, an increase of $26.5 million in accounts payable which is directly related to the timing of purchases associated with the company's construction program. 19 Net cash used in investing activities decreased $12.4 million in 1993, from $121.5 million to $109.1 million, and $148.8 million in 1992, from $270.3 million to $121.5 million. The decline in 1993 was caused by a reduction in construction expenditures offset, in part, by an increase in purchase accounting acquisitions. The decline in 1992 is due primarily to a $164.6 million decrease in purchase accounting acquisitions, offset, in part by an increase of $15.3 million in construction expenditures. The net cash used in financing activities increased $87.3 million in 1993, from $69.8 million to $157.1 million. Net cash provided by financing activities amounted to $129.3 million in 1991. The changes in 1992 and 1993 are associated with the repayment/retirement of long-term debt and the issuance of $239 million of long-term debt in 1991 to support the company's acquisition program. The company's periodic deficit in working capital is largely driven by its construction program. The timing of plant additions has a significant impact on the accounts payable balance until it is refinanced or liquidated using internally generated funds, as was the case at the end of 1992. The company must generate adequate amounts of cash to meet both short-term and long-term needs. The company's liquidity is a function of its construction program, debt service requirements, internal generation of funds and access to securities markets. On November 30, 1993, the company filed a registration statement with the Securities and Exchange Commission to sell up to $100 million of unsecured debt securities. The company intends to use the proceeds for general corporate purposes which may include the replacement of debt retired in 1993 and the financing of possible future acquisitions. At December 31, 1993, no debt had been issued. 20 On December 21, 1993, the company filed a registration statement for a public underwritten offering of at least five million shares of its common stock. Approximately 2.1 million shares will be sold by the company and the remainder will be sold by a wholly-owned subsidiary of Sprint Corporation, which acquired the shares when Rochester Tel purchased several telephone properties in 1991. The net proceeds from the offering will be used for general corporate purposes, including potential expansion of the company's existing lines of business or investing in new lines of business. The use of the proceeds is subject to approval by the New York State Public Service Commission, which approved the issuance of the equity on January 12, 1994. It is expected that the public offering of the equity will be completed in the first quarter of 1994. The financing needs associated with telephone company acquisitions and network modernization programs have stabilized. The company has in place a switching network that is essentially 100 percent digital. The company has nearly 27,000 miles of fiber in place with its telephone and long distance operating territories. The company will continue to deploy fiber facilities where it is economically justified. Management will continue to focus on building the profitability of the existing businesses by increasing revenues and operating efficiencies, and by partnering or entering into joint ventures when appropriate. The company will also continue to evaluate acquisition opportunities and technology deployment such as multimedia, with a focus on improving shareowner value. 21 Total gross expenditures for property, plant and equipment in 1994 are anticipated to be $73.7 million. Telephone Operations expects to spend $58.3 million on its construction program and Telecommunication Services, $15.4 million. At December 31, 1993, aggregate debt maturities were $3.96 million in 1994, $3.66 million in 1995 and $3.75 million in 1996. (See Note 7 to the Consolidated Financial Statements.) The company's bond ratings remain constant and are strong investment grade ratings. Also, on November 15, 1993, the Board of Directors increased the quarterly dividend paid on common stock by one cent to $0.405 per share, payable February 1, 1994, to shareowners of record on January 14, 1994. This action raises the annualized common stock dividend to $1.62 per share. 22 Report of Management - - - -------------------- The integrity and objectivity of the financial information presented in this Annual Report is the responsibility of the management of Rochester Telephone Corporation. The financial statements report on management's accountability for corporate operations and assets. To this end management maintains a highly developed system of internal controls and procedures designed to provide reasonable assurance that the company's assets are protected and that all transactions are accounted for in conformity with generally accepted accounting principles. The system includes documented policies and guidelines, augmented by a comprehensive program of internal and independent audits conducted to monitor overall accuracy of financial information and compliance with established procedures. Price Waterhouse, independent accountants, provides an objective assessment of the degree to which management meets its responsibility for financial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures they consider necessary to express an opinion that the financial statements present fairly the financial position of the company. Louis L. Massaro Corporate Vice President-Finance and Treasurer Report of Audit Committee Chairman The Audit Committee of the Board of Directors is comprised of four independent directors who are not officers or employees of the corporation. The committee oversees the company's financial reporting process on behalf of the Board of Directors. The Audit Committee recommends to the Board of Directors the independent accountants for election by the shareowners. The committee also meets regularly with management and the independent accountants and internal auditors to review accounting, auditing, internal accounting controls, pending litigation and financial reporting matters. As a matter of policy, the internal auditors and independent accountants periodically meet alone with the Audit Committee and have access to the Audit Committee. Douglas H. McCorkindale Chairman, Audit Committee 23 Report of Independent Accountants - - - --------------------------------- To the Shareowners of Rochester Telephone Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareowners' equity and cash flows present fairly, in all material respects, the financial position of Rochester Telephone Corporation and its subsidiaries at December 31, 1993, 1992 and 1991, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 11 to the financial statements, during the first quarter of 1993 the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." January 17, 1994 1900 Chase Square Rochester, NY 14604 /s/ PRICE WATERHOUSE PRICE WATERHOUSE 24 BUSINESS SEGMENT INFORMATION
In thousands of dollars Years ended December 31, 1993 1992 1991 - - - ------------------------------------------------------------------------------------------------ TELEPHONE OPERATIONS Revenues Local service $ 231,676 $ 214,181 $ 184,872 Network access service 220,196 203,768 166,903 Long distance network service 26,978 29,210 34,999 Directory advertising, billing services, and other 120,459 123,112 115,166 Less: Uncollectibles 5,438 2,999 4,343 - - - ----------------------------------------------------------------------------------------------- Total Revenues $ 593,871 $ 567,272 $ 497,597 ================================================================================================ Operating Income $ 164,271 $ 152,032 $ 131,741 ================================================================================================ Depreciation $ 99,995 $ 100,692 $ 86,467 ================================================================================================ Construction $ 86,479 $ 114,906 $ 98,927 ================================================================================================ Identifiable Assets $1,398,019 $1,416,630 $1,384,875 ================================================================================================ TELECOMMUNICATION SERVICES Sales Network Systems and Services: Non-Affiliate $ 282,747 $ 215,633 $ 198,616 Affiliate 6,036 1,511 9,620 Wireless Communications 29,586 21,113 17,038 Eliminations (5,790) (1,480) (9,312) - - - ------------------------------------------------------------------------------------------------ Total Sales $ 312,579 $ 236,777 $ 215,962 ================================================================================================ Operating Income Network Systems and Services $ 27,344 $ 18,918 $ 13,153 Wireless Communications 3,256 4,110 3,412 Eliminations 74 74 62 - - - ------------------------------------------------------------------------------------------------ Total Operating Income $ 30,674 $ 23,102 $ 16,627 ================================================================================================ Depreciation $ 14,816 $ 13,335 $ 12,081 ================================================================================================ Construction $ 15,677 $ 8,941 $ 9,657 ================================================================================================ Identifiable Assets (1) $ 281,701 $ 191,989 $ 208,308 ================================================================================================ Includes intercompany accounts that are eliminated in consolidation of $169,519, $94,722 and $96,446 in 1993, 1992 and 1991, respectively. See accompanying Notes to Consolidated Financial Statements.
25 CONSOLIDATED STATEMENT OF INCOME
In thousands of dollars, except per share data Years ended December 31, 1993 1992 1991 Revenues and Sales Telephone Operations $593,871 $567,272 $497,597 Telecommunication Services 312,579 236,777 215,962 - - - -------------------------------------------------------------------------------------------------------------------------- Total Revenues and Sales 906,450 804,049 713,559 - - - -------------------------------------------------------------------------------------------------------------------------- Costs and Expenses Operating expenses 525,488 448,422 402,344 Cost of goods sold 20,819 21,634 20,620 Depreciation 114,811 114,027 98,548 Taxes other than income taxes 47,087 44,832 43,679 Software write-off 3,300 - - - - - -------------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses 711,505 628,915 565,191 - - - -------------------------------------------------------------------------------------------------------------------------- Operating Income 194,945 175,134 148,368 Interest expense 46,550 50,066 44,604 Other income and expense: Allowance for funds used during construction 1,330 1,309 1,568 Gain on sale of assets 4,449 - 27,561 Other income (expense), net (21,222) (14,347) (10,534) - - - -------------------------------------------------------------------------------------------------------------------------- Income Before Taxes and Extraordinary Items 132,952 112,030 122,359 Income taxes 50,232 41,527 47,070 - - - -------------------------------------------------------------------------------------------------------------------------- Income Before Extraordinary Items 82,720 70,503 75,289 Extraordinary items, net of income taxes - (1,072) 3,757 - - - -------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income 82,720 69,431 79,046 Dividends on preferred stock 1,187 1,188 1,189 - - - -------------------------------------------------------------------------------------------------------------------------- Income Applicable to Common Stock $ 81,533 $ 68,243 $ 77,857 ========================================================================================================================== Earnings Per Common Share Primary: Income before extraordinary items $ 2.42 $ 2.08 $ 2.31 Extraordinary items - (.03) .12 - - - -------------------------------------------------------------------------------------------------------------------------- Earnings Per Common Share - Primary $ 2.42 $ 2.05 $ 2.43 ========================================================================================================================== Fully Diluted: Income before extraordinary items $ 2.41 $ 2.07 $ 2.30 Extraordinary items - (.03) .12 - - - -------------------------------------------------------------------------------------------------------------------------- Earnings Per Common Share - Fully Diluted $ 2.41 $ 2.04 $ 2.42 ========================================================================================================================== See accompanying Notes to Consolidated Financial Statements.
26 CONSOLIDATED BALANCE SHEET
In thousands of dollars December 31, 1993 1992 1991 ASSETS Current Assets Cash and cash equivalents $ 31,284 $ 69,347 $ 44,698 Short-term investments 349 634 2,930 Accounts receivable 157,320 133,973 121,576 Material and supplies 11,208 15,892 19,145 Prepayments and other 21,583 21,821 22,607 - - - ------------------------------------------------------------------------------------------------------------- Total Curent Assets 221,744 241,667 210,956 - - - ------------------------------------------------------------------------------------------------------------ Property, Plant and Equipment Telephone plant in service 1,561,032 1,577,985 1,508,240 Telephone plant under construction 33,048 36,619 28,461 - - - ------------------------------------------------------------------------------------------------------------ 1,594,080 1,614,604 1,536,701 Less-Accumulated depreciation 652,578 657,682 594,975 - - - ------------------------------------------------------------------------------------------------------------ Net Telephone Plant 941,502 956,922 941,726 - - - ------------------------------------------------------------------------------------------------------------ Telecommunications property 153,954 140,476 137,365 Less-Accumulated depreciation 68,265 57,723 48,005 - - - ------------------------------------------------------------------------------------------------------------ Net Telecommunications Property 85,689 82,753 89,360 - - - ------------------------------------------------------------------------------------------------------------ Goodwill 166,283 135,964 145,360 - - - ------------------------------------------------------------------------------------------------------------ Deferred and Other Assets 94,983 96,591 109,335 - - - ------------------------------------------------------------------------------------------------------------ Total Assets $1,510,201 $1,513,897 $1,496,737 ============================================================================================================
27 CONSOLIDATED BALANCE SHEET CONT.
In thousands of dollars December 31, 1993 1992 1991 LIABILITIES AND SHAREOWNERS' EQUITY Current Liabilities Accounts payable $ 147,152 $ 125,518 $ 100,322 Notes payable 303 6,194 6,010 Advance billings 12,572 12,546 12,474 Dividends payable 14,058 13,462 12,920 Long-term debt due within one year 3,962 59,495 12,284 Taxes accrued 14,729 11,480 25,756 Interest accrued 13,583 16,434 14,817 - - - ------------------------------------------------------------------------------------------------------------ Total Current Liabilities 206,359 245,129 184,583 - - - ------------------------------------------------------------------------------------------------------------ Long-Term Debt 492,555 525,597 591,232 - - - ------------------------------------------------------------------------------------------------------------ Deferred Income Taxes 116,967 118,876 113,973 - - - ------------------------------------------------------------------------------------------------------------ Postretirement Benefits Obligation 16,121 - - - - - ------------------------------------------------------------------------------------------------------------ Minority interests 3,100 2,701 2,518 - - - ------------------------------------------------------------------------------------------------------------ Shareowners' Equity Common stock 34,025 33,319 33,323 Capital in excess of par value 201,591 174,226 174,358 Retained earnings 418,889 391,256 373,949 - - - ------------------------------------------------------------------------------------------------------------ 654,505 598,801 581,630 Less-Treasury stock, at cost 2,191 - 2 - - - ------------------------------------------------------------------------------------------------------------ Common Shareowners' Equity 652,314 598,801 581,628 Preferred stock 22,785 22,793 22,803 - - - ------------------------------------------------------------------------------------------------------------ Total Shareowners' Equity 675,099 621,594 604,431 - - - ------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareowners' Equity $1,510,201 $1,513,897 $1,496,737 ============================================================================================================ See accompanying Notes to Consolidated Financial Statements.
28 CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands of dollars Years ended December 31, 1993 1992 1991 - - - -------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Income before extraordinary items $ 82,720 $ 70,503 $ 75,289 Extraordinary items - (1,072) 3,757 - - - -------------------------------------------------------------------------------------------------------- Net income 82,720 69,431 79,046 - - - -------------------------------------------------------------------------------------------------------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 132,723 121,554 101,499 Gain on sale of assets (4,449) - (27,561) Extraordinary items - 1,564 (6,187) Changes in operating assets and liabilities, exclusive of impacts of purchase acquisitions: (Increase) decrease in accounts receivable (12,644) (12,822) 2,954 Decrease in material and supplies 4,728 3,253 1,624 Decrease in prepayments and other current assets 229 786 929 (Increase) decrease in deferred and other assets (3,719) 301 (16,126) Increase in accounts payable 11,516 26,509 5,929 Increase in advance billings 26 72 401 Increase (decrease) in accrued interest and taxes 1,498 (3,182) 8,954 Increase in deferred postretirement benefits obligation 14,302 - - Increase in deferred income taxes 1,308 8,545 11,663 - - - -------------------------------------------------------------------------------------------------------- Total Adjustments 145,518 146,580 84,079 - - - -------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 228,238 216,011 163,125 - - - -------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Expenditures for property, plant and equipment (102,156) (123,847) (108,584) Decrease in short-term investments 285 2,296 4,390 Investment in cellular (4,342) (665) (2,220) Proceeds from sale of investment securities 8,325 684 - Proceeds from asset sales 1,006 - - Investment in nonaffiliated entities (1,161) - - Purchase of companies (11,343) - (164,554) Cash acquired in purchase acquisitions 264 - 614 - - - -------------------------------------------------------------------------------------------------------- Net Cash (Used in) Investing Activities (109,122) (121,532) (270,354) - - - --------------------------------------------------------------------------------------------------------
29 CONSOLIDATED STATEMENT OF CASH FLOWS CONT.
In thousands of dollars Years ended December 31, 1993 1992 1991 - - - ------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Net increase (decrease) in notes payable $ (5,806) $ 184 $ - Proceeds from long-term debt 35,500 980 239,083 Repayments of long-term debt (130,063) (19,585) (62,319) Dividends paid (54,492) (51,582) (47,375) Purchase of treasury stock (2,744) - (625) Issuance of common stock 35 - - Redemptions of preferred stock (8) (10) (8) Minority interests 399 183 523 - - - ------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities (157,179) (69,830) 129,279 - - - ------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (38,063) 24,649 22,050 Cash and Cash Equivalents at Beginning of Year 69,347 44,698 22,648 - - - ------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 31,284 $ 69,347 $ 44,698 ================================================================================================= See accompanying Notes to Consolidated Financial Statements.
30 CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
In thousands of dollars, except share data 1993 1992 1991 - - - ------------------------------------------------------------------------------------------- Common Stock 100,000,000 shares authorized, par value $1.00 Balance, January 1 (shares issued 1993-33,318,943; 1992-33,323,165; 1991-30,436,427) $ 33,319 $ 33,323 $ 30,436 Retirement of treasury stock (1992-63 shares) - - - Other subsidiary acquisitions (1993-697,623 shares; 1992-4,850 shares; 1991-2,885,000 shares) 698 (5) 2,885 Exercise of stock options (1993-1,109 shares) 1 - - Conversion of: 4 3/4% Convertible debentures (1993-6,857 shares; 1992-691 shares; 1991-1,738 shares) 7 1 2 - - - ------------------------------------------------------------------------------------------- Balance, December 31 (shares issued 1993-34,024,532; 1992-33,318,943; 1991-33,323,165) 34,025 33,319 33,323 - - - ------------------------------------------------------------------------------------------- Capital in Excess of Par Value Balance, January 1 174,226 174,358 93,050 Retirement of treasury stock - (2) - Other subsidiary acquisitions/divestitures 27,259 (137) 81,290 Exercise of stock options 34 - - Conversion of: 4 3/4% Convertible debentures 72 7 18 - - - ------------------------------------------------------------------------------------------- Balance, December 31 201,591 174,226 174,358 - - - ------------------------------------------------------------------------------------------- Retained Earnings Balance, January 1 391,256 373,949 343,769 Net income 82,720 69,431 79,046 Dividends declared in cash: Preferred stock at required annual rates (1,187) (1,188) (1,189) Common stock (53,900) (50,936) (47,677) - - - ------------------------------------------------------------------------------------------- Balance, December 31 418,889 391,256 373,949 - - - ------------------------------------------------------------------------------------------- Less-Treasury Stock, at Cost Balance, January 1 (1992-63; 1991-94,800) - 2 2,575 Common shares repurchased for acquisitions (1993-304,720; 1991-20,600) 12,572 - 625 Retirement of treasury stock (1992-63) - (2) - Common shares reissued for acquisitions/divestitures (1993-248,307; 1991-115,337) (10,381) - (3,198) - - - ------------------------------------------------------------------------------------------- Balance, December 31 (1993-56,413 shares; 1991-63 shares) 2,191 - 2 - - - ------------------------------------------------------------------------------------------- Common Shareowners' Equity 652,314 598,801 581,628 - - - -------------------------------------------------------------------------------------------
31 CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY CONT.
In thousands of dollars, except share data 1993 1992 1991 - - - ------------------------------------------------------------------------------------------- Preferred Stock Balance, January 1 (shares outstanding 1993-227,928; 1992-228,025; 1991-228,105) $ 22,793 $ 22,803 $ 22,811 Redemptions (8) (10) (8) - - - ------------------------------------------------------------------------------------------- Balance, December 31 (shares outstanding 1993-227,848; 1992-227,928; 1991-228,025) 22,785 22,793 22,803 - - - ------------------------------------------------------------------------------------------- Total Shareowners' Equity $675,099 $621,594 $604,431 =========================================================================================== See accompanying Notes to Consolidated Financial Statements.
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies The accounting policies of Rochester Telephone Corporation and its affiliates (the company) are in conformity with generally accepted accounting principles and, where applicable, conform to the accounting principles as prescribed by federal and various state regulatory bodies. Consolidation-The consolidated financial statements include the accounts of Rochester Telephone Corporation and its affiliates. The results of operations of Rotelcom Inc., RCI Network Services, Inc., RCI Long Distance, Inc., RCI Long Distance Canada, Ltd., RCI Long Distance New England, Inc., Taconic Long Distance Service Corporation, Mid Atlantic Telecom, Inc., Budget Call Long Distance, Inc., Rochester Telephone Mobile Communications (RTMC), a partnership in which the company is a general partner with an 85 percent interest, Rochester Telephone Mobile Communications, Inc., and Rochester Tel Cellular Holding Corporation are disclosed in the Consolidated Statement of Income and Business Segment Information under the caption "Telecommunication Services." Intercompany transactions have been eliminated except for intercompany profit on regulated company purchases (affiliate sales) from Telecommunication Services. In the opinion of management, prices charged by Telecommunication Services are comparable to prices the regulated companies would be required to pay other suppliers. Material and Supplies-Material and supplies are stated at the lower of cost or market, based on weighted average unit cost. The caption "Cost of Goods Sold" relates to Rotelcom and RTMC and includes sales associated with the cost of goods sold amounting to $29.5 million, $32.2 million and $41.1 million in 1993, 1992, and 1991, respectively. Telephone Plant-Additions to and replacements of telephone plant are capitalized at original cost, including the costs for benefits and supervision applicable to construction labor. The cost of depreciable property units retired, plus removal costs, less salvage is charged to accumulated depreciation. Replacements, renewals and betterments of units of property are capitalized. Replacement of items not considered units of property and all repairs and maintenance are charged to operating expense. 33 Telecommunication Property-Property is recorded at cost. Improvements that significantly add to productive capacity or extend useful life are capitalized, while maintenance and repairs are expensed. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the accounts and the gain or loss, if any, is reflected in earnings for the period. Depreciation-Depreciation is computed on the straight-line method using estimated service lives of the various classes of plant. The range of service lives for property, plant and equipment is as follows: Furniture and fixtures 4 to 20 years Central office, switches and network equipment 5 to 30 years Local and toll service lines 27 to 35 years Station equipment 10 to 15 years Buildings and building improvements 10 to 35 years Goodwill-The excess of the cost of companies purchased over the net assets acquired is being amortized on a straight-line basis over 25 to 40 years. Accumulated amortization is $15.6 million, $10.4 million and $6.7 million at the end of 1993, 1992, and 1991, respectively. 34 Service Pensions and Benefits-The company has contributory and noncontributory plans providing for service pensions and certain death benefits for substantially all employees. The plans also provide disability pensions and sickness, accident and death benefits (resulting from accidents occurring during employment) for all employees, which are paid and charged to current operating expense. The company's provisions for service pensions and certain death benefits are remitted, at least annually, to the trustees. In addition to providing pension benefits, the company provides health care, life insurance, and certain other retirement benefits for substantially all employees. Fair Value of Financial Instruments-Cash and cash equivalents are valued at their carrying amounts, which are reasonable estimates of fair value. The fair value of long-term debt is estimated using rates currently available to the company for debt with similar terms and maturities. The fair value of all other financial instruments approximates cost as stated. Federal Income Taxes-The company files a consolidated federal income tax return. Tax deferrals resulting from the elimination of gross profit on affiliate sales in the consolidated tax return are recorded by Rotelcom and are amortized to offset income taxes to be paid over the cost recovery periods of telephone plant. Deferred income taxes are provided by the unregulated operations on items recognized for financial reporting purposes in different periods than are recognized for income tax purposes. Deferred income taxes are recorded by regulated operations in compliance with the normalization provisions of current tax law and regulatory orders. The major temporary differences reflected in the deferred tax liability are depreciation and investment tax credits. Excess deferred taxes applicable to Telephone Operations are amortized in compliance with the normalization provisions of current tax law and regulatory orders. This amortization is normalized over the same time period as the related asset generating the deferral. Deferred income taxes have not been provided by Telephone Operations for the flow-through of temporary differences where the regulatory agencies permit only income taxes actually paid to be recognized. At December 31, 1993, the cumulative balance of tax reductions not previously offset by provisions for deferred federal income taxes amounted to $51 million. Similarly, the cumulative balance of tax reductions not previously offset by provision for deferred state income taxes amounted to $15 million at December 31, 1993. A deferred tax liability and a long-term deferred asset have been recorded to reflect the impact applicable to these cumulative reductions and the future revenue to be recovered when these taxes become payable. 35 Allowance for Funds Used During Construction-The company includes in its telephone plant accounts an imputed cost of debt and equity funds used for the construction of telephone plant and credits such amounts to other income. The rates used in determining the allowance for funds used during construction are based on the assumption that construction funds are provided from sources of capital in the same proportion as each telephone company's capital structure. The rates used to calculate the allowance for funds used during construction for companies in Telephone Operations during 1993 ranged from 6 percent to 11.96 percent. 36 Earnings Per Share-Primary earnings applicable to each share of common stock and common stock equivalent are based on the weighted average number of shares outstanding during each year. The average number of common shares outstanding for each period was: 33,726,719 in 1993, 33,318,952 in 1992 and 32,102,724 in 1991. Computations of earnings per share on a fully diluted basis are determined by increasing the average outstanding common shares for contingent issuances that would reduce earnings per share. In computing the per share effect of the assumed conversions, convertible debenture interest (net of income taxes) has been added to income applicable to common stock. The number of common shares used to compute earnings per share on a fully diluted basis for each period was: 33,986,008 in 1993, 33,582,756 in 1992 and 32,367,770 in 1991. Cash Flows-For purposes of the Statement of Cash Flows, the company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Actual interest paid was $49.4 million in 1993, $48.4 million in 1992 and $38.9 million in 1991. Actual income taxes paid were $46.6 million in 1993, $37.2 million in 1992 and $36.8 million in 1991. Stock Split-In November 1993, the Board of Directors approved a 2-for-1 split of the common stock of the company effected in the form of a 100 percent stock dividend with no change in the $1.00 per share par value. The split will be effective upon receiving the approval of the New York State Public Service Commission (NYSPSC) and the listing with the New York Stock Exchange of the new shares created by the split. The record and distribution dates will be established after these approvals have been obtained. 37 2. Acquisitions On April 15, 1993, the company acquired 70 percent ownership of the Utica-Rome Cellular Partnership using 702,737 shares of original issue common stock. The transaction was accounted for as a purchase accounting acquisition. In addition, in 1993 Telecommunication Services acquired Budget Call Long Distance, Inc. on June 7, 1993 for $7.5 million in cash and Mid Atlantic Telecom, Inc. on September 30, 1993 using 143,587 shares of treasury stock. Both transactions were accounted for as purchase accounting acquisitions. During 1992 the company acquired the Statesboro Telephone Company and accounted for the acquisition as a pooling of interests. Prior years' financial statements have been restated to reflect the accounts and operations of the Statesboro Company. Revenues and net income for the period January 1, 1992 to the acquisition date for Statesboro were $6.1 million and $1.2 million, respectively. A total of 1.5 million shares of common stock were exchanged for all of the outstanding stock of Statesboro. During 1991 the company acquired six companies. All acquisitions were accounted for on a purchase accounting basis. Telephone Operations acquired the telephone properties of Northern States Power Company, now named Minot Telephone Company, DePue Telephone Company, the Minnesota telephone properties of Centel Corporation, now named Vista Telephone Company of Minnesota, and the Iowa telephone properties of Centel Corporation, now named Vista Telephone Company of Iowa. Telecommunication Services acquired the assets of the Burlington Telephone Company of Burlington, Vermont and Taconic Long Distance Service Corporation. The purchased companies were included in the consolidated financial statements as of their respective dates of acquisition. A total of 2.9 million original issue shares, 115,000 shares of treasury stock valued at $3.3 million, $164.6 million in cash and certain minority ownership interests in cellular properties were exchanged for the 1991 acquired companies. 38 3. Other Income (Expense), Net The major components included in this caption are as follows (amounts in thousands): Income (Expense) --------------------------------- 1993 1992 1991 Interest income $ 1,659 $ 2,257 $ 2,279 Joint venture income 727 1,682 1,038 Goodwill amortization (3,928) (3,692) (2,734) Corporate expenses (14,707) (10,267) (8,178) Miscellaneous income (expense), net (4,973) (4,327) (2,939) - - - ------------------------------------------------------------------------------ TOTAL $(21,222) $(14,347) $(10,534) ======== ======== ======== 39 4. Extraordinary and Unusual Items As part of the Rochester, New York operating company's Settlement Agreement with the NYSPSC finalized in the third quarter of 1993, the company agreed to write-off one-half of the costs ($3.3 million) previously deferred as part of a project to redesign customer accounts records, order flow and customer billing systems. The costs were incurred from January 1990 to December 1992 and the project was abandoned after it was determined that the cost to complete it was substantially greater than initially estimated. The remaining one-half of the costs previously deferred are being amortized to expense and recovered in rates. This charge is reflected on the consolidated statement of income in the caption "Software write-off". On December 14, 1992, the Executive Committee of the Board of Directors approved the refinancing of the $40 million Series H, 9 1/2% first mortgage bonds. The company recorded a charge of $1.1 million (net of taxes of $.5 million) in 1992 relating to the write-off of the call premium, the remaining initial discount and associated expenses of the transaction. The bonds were retired in January 1993 using internally generated cash and the private placement of $35 million of debt at a telephone subsidiary. The company's 1991 results were positively impacted by a gain relating to the transfer of cellular properties as part of the acquisition of Centel Corporation's Minnesota telephone operations on June 28, 1991. A portion of the gain relating to the sale of certain cellular properties acquired within two years prior to the sale is reflected as an extraordinary gain of $3.8 million (net of taxes of $2.4 million) with the remainder recorded as an ordinary gain. 40 5. Stock Option Plans In 1992 the company implemented a Directors Stock Option Plan and an Executive Stock Option Plan. Under the plans, which were approved by shareowners in 1990, the company may issue a maximum of 400,000 shares of common stock over a ten-year period. Under both plans, the exercise price is the fair market value of the stock on the date of the grant of the stock option. One third of the options become exercisable on the first year anniversary of the grant date. Another third become exercisable on the second year anniversary and the final third become exercisable on the third year anniversary of the grant date. The options expire ten years after the date of grant. Information with respect to options under the above plans follows: Option Price Shares Per Share Aggregate ------ ------------ --------- Outstanding at August 1, 1992 - - Granted in 1992 48,200 $31.50-$31.375 $1,515,925 ------ ---------- Outstanding at December 31, 1992 48,200 1,515,925 Granted in 1993 129,019 $39.50-$36.875 4,935,175 Cancelled in 1993 (4,750) $38.125-$31.50 (176,125) Exercised in 1993 (1,109) $31.50-$31.375 (34,892) ------- --------- Outstanding at December 31, 1993 171,360 $6,240,083 ======= ========== At December 31, 1993, 14,806 shares were exercisable and 227,531 shares were available for future grant. 41 6. Preferred Stock (Cumulative)-Par Value $100
In thousands of dollars, except share data 1993 1992 1991 - - - ---------------------------------------------------------------------------------------------------- Rochester Telephone Corporation-850,000 shares authorized 5.00% Series-redeemable at $101 per share Shares Outstanding 100,000 100,000 100,000 Amount Outstanding $ 10,000 $ 10,000 $ 10,000 5.65% Series-redeemable at $101 per share Shares Outstanding 50,000 50,000 50,000 Amount Outstanding $ 5,000 $ 5,000 $ 5,000 4.60% Series-redeemable at $101 per share Shares Outstanding 50,000 50,000 50,000 Amount Outstanding $ 5,000 $ 5,000 $ 5,000 Highland Telephone Company-40,000 shares authorized 5.875% Series A-redeemable at par Shares Outstanding 18,694 18,694 18,694 Amount Outstanding $ 1,869 $ 1,869 $ 1,869 7.80% Series B-redeemable at $100.80-$105.00 per share Shares Outstanding 6,400 6,480 6,560 Amount Outstanding $ 640 $ 648 $ 656 AuSable Valley Telephone Company, Inc.-4,000 shares authorized 5.50% Series-redeemable at par Shares Outstanding 2,754 2,754 2,754 Amount Outstanding $ 276 $ 276 $ 276 Seneca-Gorham Telephone Corporation-2,500 shares authorized 5.00% Series-redeemable at par Shares Outstanding - - 17 Amount Outstanding - - $ 2 - - - ---------------------------------------------------------------------------------------------------- Total Shares Outstanding 227,848 227,928 228,025 ==================================================================================================== Total Amount Outstanding $ 22,785 $ 22,793 $ 22,803 ====================================================================================================
42 7. Long-Term Debt
In thousands of dollars At December 31, 1993 1992 1991 - - - ------------------------------------------------------------------------------------------------------------ First Mortgage Bonds Series E, 4 3/4%, due September 1, 1993 - $ 12,000 $ 12,000 Series F, 4 1/2%, due May 1, 1994 - 18,000 18,000 Series G, 7 5/8%, due March 1, 2001 - 30,000 30,000 Series H, 9 1/2%, due March 1, 2005 - 40,000 40,000 Vista Senior Notes, 7.61%, due February 1, 2003 $ 35,000 - - Rural Electrification Administration debt, 2%-9.1% due 1994 to 2025 80,667 85,048 88,349 Other debt issued by affiliates, 7.5%-12 3/4%, due 1991 to 2006 - 15,840 24,946 - - - ------------------------------------------------------------------------------------------------------------ 115,667 200,888 213,295 - - - ------------------------------------------------------------------------------------------------------------ Debentures 4 3/4% Convertible, due March 1, 1994 - 137 145 10.46% Convertible, due October 27, 2008 5,300 5,300 5,300 9%, due January 1, 2020 100,000 100,000 100,000 9%, due August 15, 2021 100,000 100,000 100,000 - - - ------------------------------------------------------------------------------------------------------------ 205,300 205,437 205,445 - - - ------------------------------------------------------------------------------------------------------------ Medium-Term Notes, 8.77% - 9.30%, due 1991 to 2004 179,000 179,000 179,000 Revolving Credit and Term Loan Agreement - 3,200 9,400 - - - ------------------------------------------------------------------------------------------------------------ Sub-total 499,967 588,525 607,140 Less-Discount on long-term debt, net of premium 3,450 3,433 3,624 Current portion of long-term debt 3,962 59,495 12,284 - - - ------------------------------------------------------------------------------------------------------------ Total Long-Term Debt $492,555 $525,597 $591,232 ============================================================================================================= In July 1993 the company redeemed all of its Series E, F and G First Mortgage Bonds. In December 1992, the company entered into an agreement to repurchase its Series H $40 million, 9 1/2%, First Mortgage Bonds on January 15, 1993. The bonds were originally due March 1, 2005. As such, these bonds were reclassified from long-term to short-term at December 31, 1992. (See Note 4.) Certain assets of Telephone Operations are pledged as security for Mortgage Bonds, Rural Electrification Administration debt and other debt. In December 1992, the company called its 4 3/4% convertible debentures. As such, they have been reclassified from long-term to short-term at December 31, 1992. The redemption of these debentures occurred in January 1993. Prior to redemption, debentures were convertible at any time into common stock at $11.50 per share subject to certain adjustments. During 1993, 1992 and 1991, $79,000, $8,000 and $20,000 face value of debentures were converted into 6,857, 691 and 1,738 shares of common stock, respectively. The debenture is convertible into common stock at any time after October 26, 1998 for $21.075 per share. A total of 251,483 shares of common stock are reserved for such conversion. In accordance with Financial Accounting Standards Board Statement No. 107, "Disclosures about Fair Value of Financial Instruments," the company estimates that the fair value of the debt, based on rates currently available to the company for debt with similar terms and remaining maturities, is $559.7 million.
At December 31, 1993, aggregate debt maturities were: In thousands of dollars 1994 1995 1996 1997 1998 - - - --------------------------------------------------------------- $3,962 $3,658 $3,746 $3,577 $3,518 43 8. Notes Payable and Lines of Credit At December 31, the company had outstanding notes payable as follows: In thousands of dollars Amount Interest Rate - - - -------------------------------------------------------------- 1991 $ 6,010 5.56% - 7.00% 1992 $ 6,194 4.00% - 9.00% 1993 $ 303 6.00% - 9.00% Also at December 31, 1993, the company has $50 million of unused bank lines of credit, which are available to provide support for commercial paper borrowings. These lines of credit are available for general Corporate purposes. No compensating balances are required and the commitment fees are not material. In addition, the Highland Telephone Company has an agreement for an unsecured line of credit of $8 million. No fees or compensating balances are required. 44 9. Income Taxes The provision for income taxes consists of the following:
In thousands of dollars 1993 1992 1991 - - - --------------------------------------------------------------------------------------------------------------- Federal: Current $45,013 $28,394 $31,051 Deferred 391 8,253 9,522 - - - --------------------------------------------------------------------------------------------------------------- 45,404 36,647 40,573 - - - --------------------------------------------------------------------------------------------------------------- State: Current 3,911 4,663 5,543 Deferred 917 217 954 - - - --------------------------------------------------------------------------------------------------------------- 4,828 4,880 6,497 - - - --------------------------------------------------------------------------------------------------------------- Total income taxes $50,232 $41,527 $47,070 ===============================================================================================================
The reconciliation of the federal statutory income tax rate with the effective income tax rate reflected in the financial statements is as follows:
In thousands of dollars 1993 1992 1991 - - - --------------------------------------------------------------------------------------------------------------- Federal income tax expense at statutory rate $44,844 35.0% $36,431 34.0% $39,393 34.0% Accelerated depreciation 2,656 2.0 2,415 2.3 2,660 2.3 Investment tax credit (2,044) (1.6) (2,223) (2.1) (2,652) (2.3) Miscellaneous ( 52) - 24 - 1,172 1.0 - - - --------------------------------------------------------------------------------------------------------------- Total federal income tax $45,404 35.4% $36,647 34.2% $40,573 35.0% ===============================================================================================================
45 9. Income Taxes Cont. As a result of the Revenue Reconciliation Act of 1993, the 1993 Income Tax provision includes the impact of the federal tax rate increase from 34 percent to 35 percent. The impact amounts to approximately $2 million, of which approximately $400,000 is attributable to prior years. Deferred tax liabilities (assets) are comprised of the following at December 31: In thousands of dollars 1993 1992 - - - --------------------------------------------------------------------- Accelerated depreciation $153,910 $152,230 Investment tax credit 6,828 8,047 Miscellaneous 8,734 10,137 - - - --------------------------------------------------------------------- Gross deferred tax liabilities 169,472 170,414 - - - --------------------------------------------------------------------- Basis adjustment - purchased telephone companies (42,741) (45,368) Inventory reserves (113) (883) Postretirement Benefits Obligation (5,415) - Deferred compensation (1,648) (1,081) Other (2,588) (4,206) - - - ---------------------------------------------------------------------- Gross deferred tax assets (52,505) (51,538) - - - ---------------------------------------------------------------------- Total Deferred Income Taxes $116,967 $118,876 ====================================================================== Gross profit on affiliate sales to telephone companies is deferred by Telecommunication Services and is amortized to offset income taxes to be paid over the cost recovery periods of the telephone plant. The amortization of gross profit deferred in prior years exceeded current year deferrals by $558,000 in 1993, $927,000 in 1992 and $1,355,000 in 1991 resulting in deferred tax reversals of $195,000, $315,000 and $461,000, respectively. 46 10. Service Pensions and Benefits The company, through various contributory and non-contributory defined benefit pension plans, provides retirement benefits for substantially all employees. Benefits, in general, are based on years-of-service and average salary. The funded status of the plans is as follows: In thousands of dollars December 31, 1993 1992 1991 - - - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $283,567 $243,307 $227,317 - - - ----------------------------------------------------------------------------- Accumulated benefit obligation $307,016 $257,893 $242,464 ============================================================================= Plan assets at fair value, primarily fixed income securities and common stock $397,841 $370,711 $351,498 Projected benefit obligation 354,065 316,335 304,730 - - - ----------------------------------------------------------------------------- Funded status 43,776 54,376 46,768 Unrecognized net (gain) loss (28,729) (42,572) (40,247) Unrecognized net transition asset (5,442) (4,941) (6,512) Unrecognized prior service cost 9,227 7,071 12,554 - - - ----------------------------------------------------------------------------- Pension asset included in Consolidated Balance Sheet $ 18,832 $ 13,934 $ 12,563 ============================================================================= The net periodic pension cost consists of the following: In thousands of dollars Year Ended December 31, 1993 1992 1991 - - - ----------------------------------------------------------------------------- Service cost-benefits earned during the period $ 7,758 $ 7,033 $ 5,464 Interest cost on projected benefit obligation 23,932 23,123 21,702 Actual return on plan assets (40,484) (24,860) (63,059) Net amortization and deferral 7,623 (9,033) 37,006 - - - ----------------------------------------------------------------------------- Net periodic pension cost determined under FAS 87 (1,171) (3,737) 1,113 Amount expensed due to regulatory agency actions (1,537) 6,787 2,223 - - - ----------------------------------------------------------------------------- Net periodic pension cost recognized $ (2,708) $ 3,050 $ 3,336 ============================================================================= The projected benefit obligation at December 31, 1993 was determined using an assumed weighted average discount rate of 7.25 percent and an assumed weighted average rate of increase in future compensation levels of 5.0 percent. The weighted average expected long-term rate of return on plan assets was assumed to be 8.75 percent. The unrecognized net transition asset as of January 1, 1987 is being amortized over the estimated remaining service lives of employees, ranging from 12 to 26 years. The company's funding policy is to make contributions for pension benefits based on actuarial computations which reflect the long-term nature of the pension plan. However, under Financial Accounting Standards Board Statement No. 87 (FAS 87), "Employers' Accounting for Pensions," the development of the projected benefit obligation essentially is computed for financial reporting purposes and may differ from the actuarial determination for funding due to varying assumptions and methods of computation. 47 During 1993, 1992 and 1991, the company funded $.2 million, $4.8 million and $4.0 million, respectively, for employees' service pensions and certain death benefits. The company also sponsors a number of defined contribution plans. The most significant plan covers substantially all management employees, who make contributions via payroll deduction. The company matches 75 percent of that contribution up to 6 percent of gross compensation. The total cost recognized for all defined contribution plans during 1993 was $4.1 million. On November 30, 1992, a voluntary pension incentive plan was offered to Rochester, New York operating company employees who were pension-eligible and retired on or before December 31, 1992. A 7.5 percent additional pension benefit will supplement the normal pension benefit for up to five years or until age 65, whichever is earlier. Accordingly, pension costs for the fourth quarter of 1992 include a one-time charge of $.8 million. Payments will be made from pension plan assets. 48 11. Postretirement Benefits Other Than Pensions The company provides health care, life insurance, and certain other retirement benefits for substantially all employees. Effective January 1, 1993, the company adopted Financial Accounting Standards Board Statement No. 106 (FAS 106) "Employers' Accounting for Postretirement Benefits Other Than Pensions." FAS 106 requires that employers reflect in current expenses an accrual for the cost of providing postretirement benefits to current and future retirees. Prior to 1993, the company recognized these costs as they were paid. The cost of postretirement benefits was recognized as determined under the projected unit credit actuarial method. Plan assets consist principally of life insurance policies. In adopting FAS 106, the company elected to defer the recognition of the accrued obligation of $125 million over a period of twenty years. For 1993, the adoption of this standard resulted in additional operating expenses in the amount of $7.8 million, net of a deferred income tax benefit of $4.1 million. However, a substantial portion of this increase was offset by a change in accounting for pensions for rate making purposes at the Rochester company. The change requires that the company amortize, over a ten year period, the cumulative amount of pension funding from January 1, 1987 over the amount of pension expense which would have been recognized through December 31, 1992 under FAS 87, reducing pension expense throughout the amortization period. The net impact of adopting FAS 106 and recording the accounting change for FAS 87 actually resulted in only $3.8 million of additional operating expenses, net of the income tax benefit, in 1993. The funded status of the plans as of December 31, 1993 follows: Accumulated postretirement benefit obligation (APBO) attributable to: Retirees $ 63,749 Fully eligible plan participants 44,399 Other active plan participants 34,892 -------- Total APBO 143,040 Plan Assets at Fair Value 3,944 -------- APBO in Excess of Plan Assets 139,096 Unrecognized Transition Obligation (117,706) Unrecognized Net Prior Service Cost (1,458) Unrecognized Net Loss (3,811) -------- Accrued Postretirement Benefit Obligation $ 16,121 ======== 49 The components of the estimated postretirement benefit cost for 1993 follow: Service Cost $ 2,746 Interest on Accumulated Postretirement Benefit Obligation 10,046 Amortization of Transition Obligation 6,241 Return on Plan Assets (290) ------- Net Postretirement Benefit Cost $18,743 ======= To estimate these costs, health care costs were assumed to increase 12.0 percent in 1994 with the rate of increase declining consistently to 5.25 percent by 2006 and thereafter. The weighted discount rate and salary increase rate were assumed to be 7.25 percent and 5.0 percent, respectively. The expected long-term rate of return on plan assets was 7.4 percent. If the health care cost trend rates were increased by one percentage point, the accumulated postretirement benefit health care obligation as of December 31, 1993 would increase by $19.4 million while the sum of the service and interest cost components of the net postretirement benefit health care cost for 1993 would increase by $2.1 million. 12. Postemployment Benefits In 1992 the Financial Accounting Standards Board released Statement No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112), which is required to be implemented by January 1, 1994. FAS 112 requires that projected future costs of providing postemployment, but pre-retirement, benefits, such as disability, pre-pension leave (salary continuation) and severance pay, be recognized as an expense as employees render service rather than when the benefits are paid. The company will adopt the provisions of FAS 112 effective January 1, 1994 by recognizing its obligation for postemployment benefits through a cumulative effect charge to net income. This nonrecurring, noncash charge may reduce 1994's net income by up to $5.9 million. Adoption of FAS 112 is not expected to significantly impact future operating expense or the company's cash flow. 50 13. Leases and License Agreements The company leases buildings, land, office space, fiber optic network, computer hardware and other equipment, and has license agreements for rights-of-way for the construction and operation of a fiber optic communications system. Total rental expense amounted to $15.5 million in 1993, $16.4 million in 1992 and $15.4 million in 1991. Minimum annual rental commitments under non-cancellable operating leases and license agreements in effect on December 31, 1993 were as follows: In thousands of dollars Non-Cancellable Leases License Years Buildings Equipment Agreements -------------------------------------------------------------------------- 1994 $ 7,600 $ 5,965 $ 5,964 1995 6,955 6,058 6,115 1996 6,670 4,965 6,108 1997 6,425 2,017 6,015 1998 6,129 389 5,846 1999 and thereafter 26,434 3 30,769 -------------------------------------------------------------------------- Total $60,213 $19,397 $60,817 14. Business Segment Information Revenues and sales, operating income, depreciation, construction and identifiable assets by business segment are set forth in the Business Segment Information included on page 24 of this report. 15. Commitments and Contingencies It is anticipated that the company will expend $73.7 million for additions to property, plant, and equipment during 1994. In connection with this construction program, the company has made certain commitments for the purchase of material and equipment. 51 The NYSPSC issued an order on July 6, 1993 which imposed a royalty on Rochester Tel in the amount of two percent of the total capitalization of Rochester's unregulated operations. Based upon an initial interpretation of the Order, Rochester estimates that its effect is in the range of $2.0 million per year. The company has filed a legal challenge to the Commission's action on the royalty proposal in the courts. If ultimately upheld in the courts, the royalty would be treated as an offset to the Rochester, New York operating company's regulated revenue requirement from regulated intrastate telephone operations. The company is vigorously contesting this case but cannot predict the outcome with any certainty at this time. In February 1993, the company filed a petition for reorganization with the NYSPSC. The request is twofold, first establishing two new subsidiary companies to be constituted from the operating assets of the existing Rochester, New York telephone operating company. One company would be a competitive telecommunications company which would provide an array of services on a retail basis in the Rochester marketplace. This company would have the flexibility to price and introduce services as necessary to compete. The second company would be a wholesale network company which would be regulated and would provide services to the new competitive subsidiary company and all other telecommunications providers on an equal basis. This configuration, unique in the telecommunications industry, is being proposed to better meet the current and emerging competition in the marketplace. The second aspect of the petition involves the company's request to reorganize into a holding company structure. Under this approach, the company would create a new unregulated parent holding company for the consolidated organization. This structure would provide the financing flexibility to continue acquisition and diversification efforts necessary for the long-term growth of the business. The company will aggressively pursue approval of this plan of reorganization but cannot predict the outcome. On March 12, 1993, the company signed a definitive agreement with a subsidiary of NYNEX Corporation to form a cellular supersystem joint venture in upstate and western New York State that will provide cellular telephone customers with expanded geographic coverage. The supersystem will include the cellular markets in Buffalo, Rochester, Syracuse, Utica-Rome and New York Rural Service Area #1, which includes Jefferson, St. Lawrence and Lewis counties. The proposed structure of the transaction is a 50/50 joint venture partnership, with Rochester Tel Cellular as the manager. The transaction is expected to close in the first quarter of 1994, subject to various governmental approvals and third party consents. On December 21, 1993, the company and NYNEX announced their intention to include the Binghamton and Elmira areas in the supersystem. 52 16. Interim Data (Unaudited) Selected quarterly data follow:
Revenues and Sales Income Per Share --------------------------------------- ------------------- ------------------------------------ Earnings Before Market Price (In thousands of dollars,Telecommunication Telephone Operating Net Extraordinary except per share data) Services Operations Total Income Income Items Earnings High Low - - - ------------------------------------------------------------------------------------------------------------------------------------ 1993 First Quarter $ 66,395 $144,574 $210,969 $ 44,364 $ 18,018 $ .53 $ .53 $38.88 $34.63 Second Quarter 74,549 148,303 222,852 48,949 19,830 .58 .58 $43.50 $36.50 Third Quarter 82,743 147,763 230,506 48,373 19,237 .56 .56 $48.75 $41.00 Fourth Quarter 88,892 153,231 242,123 53,259 25,635 .75 .75 $50.25 $43.38 ------------------------------------------------------- Full Year $312,579 $593,871 $906,450 $194,945 $ 82,720 $2.42 $2.42 ======================================================== 1992 First Quarter $ 55,802 $137,708 $193,510 $ 40,412 $ 15,291 $ .45 $ .45 $34.00 $30.13 Second Quarter 57,801 140,677 198,478 43,176 16,518 .49 .49 $33.75 $29.13 Third Quarter 59,478 142,116 201,594 46,118 18,448 .54 .54 $32.88 $30.25 Fourth Quarter 63,696 146,771 210,467 45,428 19,174 .60 .57 $35.75 $30.63 ------------------------------------------------------- Full Year $236,777 $567,272 $804,049 $175,134 $ 69,431 $2.08 $2.05 ======================================================= 1991 First Quarter $ 52,865 $109,517 $162,382 $ 32,651 $ 13,327 $ .43 $ .43 $30.38 $26.00 Second Quarter 52,122 114,639 166,761 34,008 31,900 .90 1.02 $31.50 $29.00 Third Quarter 54,875 131,690 186,565 39,069 16,384 .47 .48 $31.38 $28.25 Fourth Quarter 56,100 141,751 197,851 42,640 17,435 .51 .51 $34.00 $29.75 ------------------------------------------------------- Full Year $215,962 $497,597 $713,559 $148,368 $ 79,046 $2.31 $2.43 ======================================================= Includes extraordinary loss on retirement of debt of $1.1 million. (See Note 4.) Includes ordinary and extraordinary gain on sale of cellular, net of taxes, of $18.7 million. (See Note 4.) Includes ordinary and extraordinary gain on sale of cellular, net of taxes, of $.8 million. (See Note 4.)
53 CONDENSED SIX-YEAR FINANCIAL STATEMENTS
In thousands of dollars, except per share data Years ended December 31, 1993 1992 1991 1990 1989 1988 - - - --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME Revenues and sales $ 906,450 $ 804,049 $ 713,559 $ 612,994 $ 590,345 $515,803 Costs and expenses 711,505 628,915 565,191 493,665 474,867 403,803 - - - --------------------------------------------------------------------------------------------------------------------------------- Operating Income 194,945 175,134 148,368 119,329 115,478 112,000 Interest expense 46,550 50,066 44,604 33,426 27,510 25,387 Other income and expense (15,443) (13,038) 18,595 (3,198) (2,755) 970 Income taxes 50,232 41,527 47,070 30,770 27,827 29,016 - - - --------------------------------------------------------------------------------------------------------------------------------- Income Before Extraordinary Items 82,720 70,503 75,289 51,935 57,386 58,567 Extraordinary items - (1,072) 3,757 - 26,558 - - - - --------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income 82,720 69,431 79,046 51,935 83,944 58,567 Dividends on preferred stock 1,187 1,188 1,189 1,192 1,195 1,200 - - - --------------------------------------------------------------------------------------------------------------------------------- Income Applicable to Common Stock $ 81,533 $ 68,243 $ 77,857 $ 50,743 $ 82,749 $ 57,367 ================================================================================================================================= Earnings Per Common Share: Primary $ 2.42 $ 2.05 $ 2.43 $ 1.71 $ 2.86 $ 2.00 Fully Diluted $ 2.41 $ 2.04 $ 2.42 $ 1.70 $ 2.83 $ 1.99 ================================================================================================================================= CONSOLIDATED BALANCE SHEET Current Assets $ 221,744 $ 241,667 $ 210,956 $ 180,175 $ 220,089 $143,022 Property, Plant and Equipment-net 1,027,191 1,039 675 1,031,086 868,288 795,940 745,829 Goodwill 166,283 135,964 145,360 58,933 19,521 13,139 Deferred and Other Assets 94,983 96,591 109,335 91,462 86,597 73,973 - - - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $1,510,201 $1,513,897 $1,496,737 $1,198,858 $1,122,147 $975,963 ================================================================================================================================= Current Liabilities $ 206,359 $ 245,129 $ 184,583 $ 197,861 $ 161,572 $159,260 Long-Term Debt 492,555 525,597 591,232 363,020 354,302 272,691 Postretirement Benefits Obligation 16,121 - - - - - Deferred income taxes 116,967 118,876 113,973 148,491 150,879 139,722 Minority interests 3,100 2,701 2,518 1,995 3 - Shareowners' equity 675,099 621,594 604,431 487,491 455,391 404,290 - - - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareowners' Equity $1,510,201 $1,513,897 $1,496,737 $1,198,858 $1,122,147 $975,963 ================================================================================================================================= CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from operating activities $ 228,238 $ 216,011 $ 163,125 $ 119,526 $ 100,500 $138,563 Cash flows from investing activities (109,122) (121,532) (270,354) (129,924) (72,051) (91,387) Cash flows from financing activities (157,179) (69,830) 129,279 (37,941) 21,011 (62,621) - - - --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents $ (38,063) $ 24,649 $ 22,050 $ (48,339)$ 49,460 $(15,445) ==================================================================================================================================
54 FINANCIAL AND OPERATING STATISTICS
Dollars in thousands, except per share data Years ended December 31, 1993 1992 1991 1990 1989 1988 - - - ------------------------------------------------------------------------------------------------------------------------------- Current ratio 1.07 .99 1.13 .90 1.36 .90 Pre-tax interest coverage 3.9x 3.2x 3.9x 3.5x 5.6x 4.5x Total debt $496,820 $591,286 $609,526 $430,016 $389,894 $313,654 Debt ratio 42.4% 48.8% 50.2% 46.9% 46.1% 43.7% Common shareowners' equity $652,314 $598,801 $581,628 $464,680 $432,571 $381,359 Rate of return on average common equity 13.0% 11.6% 14.9% 11.3% 20.3% 15.6% =============================================================================================================================== Construction $102,156 $123,847 $108,584 $109,219 $111,998 $114,199 Percent of funds generated internally 164% 135% 109% 63% 90% 91% =============================================================================================================================== Common shares outstanding-end of year* 33,968 33,319 33,323 30,342 29,073 28,733 Average common shares outstanding* 33,727 33,319 32,103 29,674 28,966 28,733 Total number of common shareowners 20,759 20,131 18,900 17,164 15,910 16,074 Market price per common share: High $ 50.25 $ 35.75 $ 34.00 $ 41.50 $ 45.75 $ 25.69 Low $ 34.63 $ 29.13 $ 26.00 $ 24.63 $ 25.69 $ 20.31 End of year $ 45.13 $ 35.63 $ 32.13 $ 29.25 $ 40.50 $ 25.63 =============================================================================================================================== Dividends declared per common share $ 1.590 $ 1.550 $ 1.510 $ 1.470 $ 1.430 $ 1.375 Dividends paid per common share $ 1.580 $ 1.540 $ 1.500 $ 1.460 $ 1.420 $ 1.360 Dividend yield-end of year 3.6% 4.4% 4.8% 5.1% 3.6% 5.5% =============================================================================================================================== Percent to total Telephone Operations revenues: Local service 39% 38% 37% 37% 36% 36% Network access service 37% 36% 34% 31% 28% 31% Long distance network service 5% 5% 7% 9% 12% 10% Miscellaneous/uncollectibles 19% 21% 22% 23% 24% 23% Percent to total Telecommunication Services sales: Network Services and Systems 91% 91% 92% 94% 94% 92% Wireless Communications 9% 9% 8% 6% 6% 8% Operating margin-Telephone Operations 27.7% 26.8% 26.5% 26.3% 27.0% 28.8% Operating margin-Telecommunication Services 9.8% 9.8% 7.7% 4.9% 5.5% 5.6% Composite depreciation rate-Telephone Operations 6.2% 6.4% 6.3% 6.3% 5.8% 6.2% Composite depreciation rate-Telecommunication Services 10.1% 9.6% 9.2% 7.7% 8.7% 8.5% =============================================================================================================================== Access lines in service-business 262,138 238,643 226,668 181,877 167,584 155,473 Access lines in service-residence 669,512 657,758 641,236 506,812 477,411 462,209 - - - ------------------------------------------------------------------------------------------------------------------------------- Total access lines in service 931,650 896,401 867,904 688,689 644,995 617,682 =============================================================================================================================== Telephone Operations employees 3,444 3,885 3,915 3,251 3,020 2,940 Telecommunication Services employees 932 816 747 750 914 873 - - - ------------------------------------------------------------------------------------------------------------------------------- Total employees 4,376 4,701 4,662 4,001 3,934 3,813 =============================================================================================================================== Carrier access minutes-interstate* 2,004,659 1,890,670 1,569,309 1,233,045 1,140,081 1,019,451 Carrier access minutes-intrastate* 1,504,864 1,369,204 1,173,685 901,376 783,151 706,766 - - - ------------------------------------------------------------------------------------------------------------------------------- Total carrier access minutes* 3,509,523 3,259,874 2,742,994 2,134,421 1,923,232 1,726,217 IntraLATA toll messages* 79,052 77,034 73,854 69,262 66,487 54,339 =============================================================================================================================== *In thousands
EX-21 13 EX 21 SUBS 1 EXHIBIT 21 SUBSIDIARIES OF ROCHESTER TELEPHONE CORPORATION AS OF JANUARY 13, 1994 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED AuSable Valley Telephone New York AuSable Valley Telephone Company, Inc. Company, Inc. Breezewood Telephone Company Pennsylvania Breezewood Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Budget Call Long Distance, Inc. Pennsylvania Budget Call Long Distance, (A wholly-owned subsidiary of Inc. RCI Long Distance, Inc.) Budget Call Long Distance Canton Telephone Company Pennsylvania Canton Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) C, C & S Service Corp. Michigan C, C & S Service Corp. (A wholly-owned subsidiary of C, C & S Systems, Inc.) C, C & S Systems, Inc. Michigan C, C & S Systems, Inc. (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) C, C & S Telco, Inc. Michigan C, C & S Telco, Inc. (A wholly-owned subsidiary of C, C, & S Systems, Inc.) Citizens Telephone Company, Inc. Indiana Citizens Telephone (A wholly-owned subsidiary of Company, Inc. Rochester Tel Subsidiary Telco, Inc.) DePue Communications, Inc. Illinois DePue Communications, Inc. (A wholly-owned subsidiary of DePue Telephone Company) DePue Telephone Company Illinois DePue Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) 2 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED Distributed Solutions, Inc. Delaware Distributed Solutions, Inc. DSI Enterprise Marketing Services Inc. Pennsylvania Enterprise Marketing Services (A wholly-owned subsidiary of Inc. Enterprise Telephone Company) Enterprise Telephone Company Pennsylvania Enterprise Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Fairmount Telephone Company, Inc. Georgia Fairmount Telephone (A wholly-owned subsidiary of Company Inc. Rochester Tel Subsidiary Telco, Inc. Fairmount Cellular Inc. Georgia Fairmount Cellular Inc. (A wholly-owned subsidiary of Fairmount Telephone Company, Inc.) Highland Telephone Company New York Highland Telephone Company Inland Telephone Company Illinois Inland Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Lakeshore Telephone Company Wisconsin Lakeshore Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc. Lakeside Telephone Company Illinois Lakeside Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Lakewood Telephone Company Pennsylvania Lakewood Rural Telephone (A wholly-owned subsidiary of Company Rochester Tel Subsidiary Lakewood Telephone Company Telco, Inc.) Lamar Cellular, Inc. Alabama Lamar Cellular, Inc. (A wholly-owned subsidiary of Lamar County Telephone Company, Inc.) 3 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED Lamar County Telephone Alabama Lamar County Telephone Company, Inc. Company, Inc. (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Long Distance North of New New Hampshire Long Distance North of Hampshire, Inc. New Hampshire, Inc. (A wholly-owned subsidiary of RCI Long Distance New England, Inc.) Mid Atlantic Telecom, Inc. Virginia Mid Atlantic Telecom, Inc. Midland Telephone Company Illinois Midland Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Mid-South Cablevision Company, Inc. Mississippi Mid-South Cablevision (A wholly-owned subsidiary of Company, Inc. Rochester Tel Subsidiary Telco, Inc.) Mid-South Telephone Company, Inc. Mississippi Mid-South Telephone (A wholly-owned subsidiary of Company, Inc. Rochester Tel Subsidiary Telco, Inc. Midway Telephone Company Michigan Midway Telephone Company (A subsidiary of Ontonagon County Telephone Company) Minot Telephone Company North Dakota Minot Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Mondovi Telephone Company Wisconsin Mondovi Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Monroeville Telephone Company, Inc. Alabama Monroeville Telephone (A wholly-owned subsidiary of Company, Inc. Rochester Tel Subsidiary Telco, Inc.) 4 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED Montel Cellular Company, Inc. Alabama Montel Cellular Company, Inc. (A wholly-owned subsidiary of Monroeville Telephone Company, Inc.) Montel Communications, Inc. Alabama Montel Communications, Inc. (A wholly-owned subsidiary of Monroeville Telephone Company, Inc.) Mt. Pulaski Telephone and Illinois Mt. Pulaski Telephone and Electric Company Electric Company; Mt. (A wholly-owned subsidiary of Pulaski Telephone Company Rochester Tel Subsidiary Telco, Inc.) New York Independent Cellular New York NYICS Systems, Inc. (Part of Utica-Rome (A wholly-owned subsidiary of Cellular Partnership) Rochester Tel Telecommunications Holding Company New Richmond Cable Company, Inc. Wisconsin New Richmond Cable Company, (A wholly-owned subsidiary of Inc. St. Croix Telephone Company) Oneida County Cellular Systems, New York Oneida County Cellular Inc. (A wholly-owned subsidiary of (Part of Utica-Rome Rochester Tel Telecommunications Cellular Parntership) Holding Company) Ontonagon Communications, Inc. Michigan Ontonagon Communications, (A wholly-owned subsidiary of Inc. Ontonagon County Telephone Company) Ontonagon County Telephone Company Michigan Ontonagon County Telephone (A wholly-owned subsidiary of Company Rochester Tel Subsidiary Telco, Inc.) Orion Telephone Exchange Illinois Orion Telephone Exchange Association Association (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) 5 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED Oswayo River Telephone Company Pennsylvania Oswayo River Telephone (A wholly-owned subsidiary of Company Rochester Tel Subsidiary Telco, Inc.) O. T. Cellular Telephone Company Illinois O. T. Cellular Telephone (A wholly-owned subsidiary of Company Orion Telephone Exchange Association) PAGECO, Inc. Delaware PAGECO, Inc. (A wholly-owned subsidiary of Rochester Tel Cellular Holding Corporation) Phoncom Inc. New York Phoncom Inc. (A wholly owned subsidiary of (Part of Utica-Rome Rochester Tel Telecommunications Cellular Partnership) Holding Company) Prairie Telephone Company Illinois Prairie Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) RCI Long Distance Canada Ltd. Ontario, RCI Long Distance Canada Ltd. (A wholly-owned subsidiary of Canada Rochester Tel Telecommunications Corporation) RCI Long Distance, Inc. Delaware RCI Long Distance, Inc. (A wholly-owned subsidiary of Budget Call Long Distance Rochester Tel Telecommunications Mid Atlantic Telecom Corporation) RCI Long Distance New England, Inc. Delaware RCI Long Distance New (A wholly-owned subsidiary of England, Inc. Rochester Tel Telecommunications Long Distance North Corporation) LDN Mid Atlantic Telecom Rochester Holding Corporation Delaware Rochester Holding Corporation Rochester Tel Business Marketing New York Rochester Tel Business Corporation Marketing Corporation (A wholly-owned subsidiary of RTBMC Rochester Tel Telecommunications Business Marketing Corporation) 6 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED Rochester Tel Cellular Delaware Rochester Tel Cellular Holding Corporation Holding Corporation Rochester Tel Mobile RSA 2, Inc. Delaware Rochester Tel Mobile RSA 2, (A wholly-owned subsidiary of Inc. Rochester Tel Cellular Holding Corporation) Rochester Telephone Delaware RTMC, Inc. Mobile Communications, Inc. Rochester Tel Subsidiary Capital Delaware Rochester Tel Subsidiary Services Inc. Capital Services Inc. Rochester Tel Subsidiary Delaware Rochester Tel Subsidiary Telco, Inc. Telco, Inc. Rochester Tel Telecommunications Delaware Rochester Tel Telecommuni- Corporation cations Corporation (A wholly-owned subsidiary of Rochester Tel Telecommunications Holding Corporation) Rochester Tel Telecommunications Delaware Rochester Tel Telecommuni- Holding Corporation cations Holding Corporation Rochester Tel Telecommunications New York Rochester Tel Telecommuni- Information Services cations Information Services Technologies, Inc. Technologies, Inc. (A wholly-owned subsidiary of RTTIST Rotelcom Inc.) Rotelcom Data, Inc. Rotelcom Inc. Delaware Rotelcom Inc. (A wholly-owned subsidiary of Anixter-Rotelcom Rochester Tel Telecommunications Rotelcom Network Systems Corporation SGT Business Systems RTC Main Street, Inc. Delaware RTC Main Street, Inc. RTMC Holding, Inc. Delaware RTMC Holding, Inc. (A wholly-owned subsidiary of Rochester Tel Cellular Holding Corporation) Schuyler Cellular, Inc. Illinois Schuyler Cellular, Inc. (A wholly-owned subsidiary of The Schuyler Telephone Company) 7 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED The Schuyler Telephone Company Illinois Schuyler Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Seneca-Gorham Telephone New York Seneca-Gorham Telephone Corporation Corporation St. Croix Telephone Company Wisconsin St. Croix Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Southland Rural Cellular Alabama Southland Rural Cellular Company, Inc. Company, Inc. (A wholly-owned subsidiary of Southland Telephone Company) Southland Telephone Company Alabama Southland Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) The Statesboro Telephone Company Georgia Statesboro Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Super Com, Inc. Michigan Super Com, Inc. (A subsidiary of Ontonagon County Telephone Company) Superior Communications, Inc. Michigan Superior Communications, Inc. (A wholly-owned subsidiary of Ontonagon County Telephone Company) Sylvan Lake Telephone Company, Inc. New York Sylvan Lake Telephone Company, Inc. Taconic Long Distance Service Corp. New York Taconic Long Distance (A wholly-owned subsidiary of Service Corp. Rochester Tel Telecommunications Corporation) TDCI, Ltd. Indiana Thorntown Development (A wholly-owned subsidiary of Company, Inc. The Thorntown Telephone TDCI, Ltd. Company, Inc.) 8 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED The Thorntown Telephone Indiana Thorntown Telephone Company Company, Inc. (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Urban Telephone Corporation Wisconsin Urban Telephone Corporation (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Vernon Cellular Inc. New York Vernon Cellular Inc. (A wholly-owned subsidiary of Part of the Utica-Rome Rochester Tel Telecommunications Cellular Partnership Holding Company Viroqua Telephone Company Wisconsin Viroqua Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Visions Inc. Delaware Visions Publishing Inc. (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) Visions Long Distance America Inc. Delaware Visions Long Distance (A wholly-owned subsidiary of America Inc. Rochester Tel Subsidiary Minot Telephone Long Distance Telco, Inc.) Breezewood Tel Long Distance Canton Tel Long Distance Vista Tel Long Distance C,C&S Tel Long Distance St. Croix Tel Long Distance Statesboro Tel Long Distance Visions Long Distance New York Inc. New York Visions Long Distance (A wholly-owned subsidiary of New York Inc. Rochester Tel Subsidiary Highland Tel Long Distance Telco, Inc.) Sylvan Lake Tel Long Distance AuSable Valley Tel Long Distance Vista Telephone Company of Iowa Iowa Vista Telephone Company (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) 9 STATE OF NAME OF SUBSIDIARY INCORPORATION BUSINESS NAMES USED Vista Telephone Company Minnesota Vista Telephone Company of Minnesota (A wholly-owned subsidiary of Rochester Tel Subsidiary Telco, Inc.) (60ED) EX-23 14 EX 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Forms S-3 (File Nos. 33-40824, 33-69420, 33-41397, 33-61784 and 33-51221), Forms S-4 (File Nos. 33-61992 and 33-48421), and Forms S-8 (File Nos. 33-39213, 33-27118, 33-38307, 33-44473, 33-38310, 33-41307, 33-41306, 33-67430, 33-67432, 33-67324, 33-51331, 33-51885, 33-52025 and 33-52358) of Rochester Telephone Corporation of our report dated January 17, 1994, appearing on page 23 of Exhibit No. 13 which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 31 of this Form 10-K. /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 EX-24 15 EX 24 POWERS EXHIBIT 24 POWER OF ATTORNEY I, the undersigned, hereby constitute and appoint LOUIS L. MASSARO as my true and lawful agent and attorney-in-fact to act with full power and authority and in my name, place and stead as I, myself, could act for the sole purpose of executing the Form 10-K of Rochester Telephone Corporation for the year ended December 31, 1993, pursuant to Instruction D(2)(a) of the Form 10-K and in accordance with Regulation S-K Item 601(b)(24) of the Securities Act of 1933 and the Securities Exchange Act of 1934, and with full and unqualified authority to delegate such power to any person or persons as my attorney-in-fact shall select. IN WITNESS WHEREOF, THIS INSTRUMENT HAS BEEN SIGNED AND DELIVERED BY THE UNDERSIGNED AS OF MARCH 21, 1994. /s/ Patricia C. Barron -------------------------------- Patricia C. Barron /s/ Ronald L. Bittner -------------------------------- Ronald L. Bittner /s/ John R. Block -------------------------------- John R. Block /s/ Harlan D. Calkins -------------------------------- Harlan D. Calkins /s/ Brenda E. Edgerton -------------------------------- Brenda E. Edgerton /s/ Jairo A. Estrada -------------------------------- Jairo A. Estrada -------------------------------- Daniel E. Gill 2 /s/ Alan C. Hasselwander -------------------------------- Alan C. Hasselwander -------------------------------- Wolcott J. Humphrey, Jr. /s/ Douglas H. McCorkindale -------------------------------- Douglas H. McCorkindale /s/ Richard P. Miller, Jr. -------------------------------- Richard P. Miller, Jr. /s/ G. Dennis O'Brien -------------------------------- G. Dennis O'Brien -------------------------------- Leo J. Thomas /s/ Michael T. Tomaino -------------------------------- Michael T. Tomaino (62ED) EX-28 16 EX 28 11-KS Exhibit 28.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION MANAGEMENT INVESTMENT AND SAVINGS PLAN INCLUDING THE MANAGEMENT OPTIONAL SALARY TREATMENT PLAN (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION MANAGEMENT INVESTMENT AND SAVINGS PLAN INCLUDING THE MANAGEMENT OPTIONAL SALARY TREATMENT PLAN FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION MANAGEMENT INVESTMENT AND SAVINGS PLAN INCLUDING THE MANAGEMENT OPTIONAL SALARY TREATMENT PLAN INDEX TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net Assets Available for Plan Benefits for the year ended December 31, 1993 and 1992 Notes to Financial Statements * * * * * (All other schedules are not required or not applicable.) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Management Investment and Savings Plan Including the Management Optional Salary Treatment Plan In our opinion, the accompanying statements of net assets available for plan benefits and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Rochester Telephone Corporation Management Investment and Savings Plan including the Management Optional Salary Treatment Plan at December 31, 1993 and 1992, and the changes in financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse Price Waterhouse ROCHESTER TELEPHONE CORPORATION MANAGEMENT INVESTMENT AND SAVINGS PLAN INCLUDING THE MANAGEMENT OPTIONAL SALARY TREATMENT PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
For the year ended December 31, 1993 ------------------------------------------------------------------------------ Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ----------- ----------- Employee contributions receivable $ 70,538 $ 48,186 $ 10,811 $ 10,807 $ 140,342 Rochester Telephone Corporation Contributions receivable 36,098 13,877 5,058 5,000 60,033 Investment in the Rochester Telephone Corporation Trust Fund, at market value 49,705,249 25,342,886 3,603,884 4,342,233 82,994,252 Participant loans $3,792,444 3,792,444 ----------- ----------- ---------- ---------- ---------- ----------- 49,811,885 25,404,949 3,619,753 4,358,040 3,792,444 86,987,071 ----------- ----------- ---------- ---------- ---------- ----------- Accrued benefits 276,741 82,854 50,647 47,561 457,803 Interfund payable (receivable) 442,199 (358,990) 85,419 (168,628) ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for plan benefits $49,092,945 $25,681,085 $3,483,687 $4,479,107 $3,792,444 $86,529,268 =========== =========== ========== ========== ========== ===========
For the year ended December 31, 1992 ------------------------------------------------------------------------------ Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Employee contributions receivable Rochester Telephone Corporation Contributions receivable Investment in the Rochester Telephone Corporation Trust Fund, at market value $48,594,692 $19,373,219 $1,908,936 $3,001,365 $72,878,212 Participant loans $3,390,036 3,390,036 ----------- ----------- ---------- ---------- ---------- ----------- 48,594,692 19,373,219 1,908,936 3,001,365 3,390,036 76,268,248 ----------- ----------- ---------- ---------- ---------- ----------- Accrued benefits 122,324 37,314 241 235 160,114 Interfund payable (receivable) 2,552 (2,538) 2,382 (2,396) ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for plan benefits $48,469,816 $19,338,443 $1,906,313 $3,003,526 $3,390,036 $76,108,134 =========== =========== ========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements. ROCHESTER TELEPHONE CORPORATION MANAGEMENT INVESTMENT AND SAVINGS PLAN INCLUDING THE MANAGEMENT OPTIONAL SALARY TREATMENT PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
For the year ended December 31, 1993 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 2,183,372 $ 1,060,853 $ 452,218 $ 414,680 $ 4,111,123 Rochester Telephone Corporation contributions 1,066,244 488,961 214,056 197,336 1,966,597 Earnings from participation in Master Trust 3,284,117 5,216,844 286,515 481,713 9,269,189 Rollover contributions from other plans 27,964 14,095 19,773 13,682 75,514 Participant loans $1,806,075 1,806,075 Participant loan interest income 226,416 226,416 Participant loan repayments 1,266,275 306,426 29,668 29,901 1,632,270 Participant loans terminated Other income Transfers from other plans in Master Trust 22,251 26,692 10,051 10,285 2,187 71,466 Transfers from other funds 451,713 989,157 1,061,992 751,378 3,254,240 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 8,301,936 8,103,028 2,074,273 1,898,975 2,034,678 22,412,890 Deductions from net assets attributed to: Withdrawals 3,762,453 974,023 207,089 353,419 5,296,984 Participant loans 1,250,650 394,800 90,650 69,975 1,806,075 Participant loan repayments 1,632,270 1,632,270 Participant loans terminated Transfers to Supplemental Retirement Savings Plan Transfers to other plans in Master Trust 2,187 2,187 Transfers to other funds 2,663,517 391,563 199,160 3,254,240 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 7,678,807 1,760,386 496,899 423,394 1,632,270 11,991,756 ----------- ----------- ---------- ---------- ---------- ----------- Increase in net assets 623,129 6,342,642 1,577,374 1,475,581 402,408 10,421,134 Net assets available for plan benefits: Plan equity, beginning of year 48,469,816 19,338,443 1,906,313 3,003,526 3,390,036 76,108,134 ----------- ----------- ---------- ---------- ---------- ----------- Plan equity, end of year $49,092,945 $25,681,085 $3,483,687 $4,479,107 $3,792,444 $86,529,268 =========== =========== ========== ========== ========== ===========
For the year ended December 31, 1992 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 2,522,177 $ 936,818 $ 283,176 $ 329,320 $ 4,071,491 Rochester Telephone Corporation contributions 1,221,799 425,737 137,468 165,760 1,950,764 Earnings from participation in Master Trust 3,858,298 2,699,389 127,858 135,022 6,820,567 Rollover contributions from other plans 147,736 124,806 70,111 83,432 426,085 Participant loans $2,072,250 2,072,250 Participant loan interest income Participant loan repayments 1,006,469 264,087 10,220 12,829 1,293,605 Participant loans terminated 8,350 2,500 550 11,400 Other income 23 1,541 1,564 Transfers from other plans in Master Trust Transfers from other funds 298,123 676,264 558,534 554,834 2,087,755 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 9,062,975 5,131,142 1,187,917 1,281,197 2,072,250 18,735,481 Deductions from net assets attributed to: Withdrawals 2,404,667 550,461 11,285 19,954 2,986,367 Participant loans 1,576,550 399,600 51,600 44,500 2,072,250 Participant loan repayments 1,293,605 1,293,605 Participant loans terminated 11,400 11,400 Transfers to Supplemental Retirement Savings Plan 399 399 Transfers to other plans in Master Trust Transfers to other funds 1,592,522 187,491 93,818 213,924 2,087,755 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 5,573,739 1,137,951 156,703 278,378 1,305,005 8,451,776 ----------- ----------- ---------- ---------- ---------- ----------- Increase in net assets 3,489,236 3,993,191 1,031,214 1,002,819 767,245 10,283,705 Net assets available for plan benefits: Plan equity, beginning of year 44,980,580 15,345,252 875,099 2,000,707 2,622,791 65,824,429 ----------- ----------- ---------- ---------- ---------- ----------- Plan equity, end of year $48,469,816 $19,338,443 $1,906,313 $3,003,526 $3,390,036 $76,108,134 =========== =========== ========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements. ROCHESTER TELEPHONE CORPORATION MANAGEMENT INVESTMENT AND SAVINGS PLAN INCLUDING THE MANAGEMENT OPTIONAL SALARY TREATMENT PLAN NOTES TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: The Rochester Telephone Corporation Management Investment and Savings Plan (MISP) including the Management Optional Salary Treatment Plan (MOST), (the "Plan") is a defined contribution plan established by the Board of Directors of Rochester Telephone Corporation (the "Company"). The MOST plan provides participants the option of having their basic and supplemental contributions to the Plan made on a salary reduction basis and thus the tax attributes are on a deferred tax basis. Contributions made under the MISP plan have no deferred tax attributes. The principal provisions of the plans are described below. Participation All salaried employees of Rochester Telephone Corporation and eligible employees of any affiliated company which has adopted this Plan who are not covered by a collective bargaining agreement and have completed six months of service are eligible to participate without regard to age. Administration of Plan assets The Plan is administered by the Company's Employees' Benefit Committee whose members are appointed by the Company's Board of Directors. The trustee of the Plan is Marine Midland Bank, N.A. Funding policy The Plan consists of four separate funds. Fund A consists of various group annuity contracts. Fund B is a stock investment fund consisting of Rochester Telephone Corporation's common stock. Fund C is the American National Bank Equity Index Fund, which holds stocks listed on the Standard and Poors 500 Index. Fund D is the Merrill Lynch Capital Fund, a diversified securities fund. The Plan provides that each participant may voluntarily make a basic contribution which cannot exceed 6 per cent of their basic pay. Any participant who contributes the maximum basic contribution may make a supplemental contribution which, when added to the basic contribution, cannot exceed 16 per cent of basic pay. In addition, the Company contributes an amount equal to 75 per cent of each participant's basic contribution. All participant contributions are subject to the limitations set forth in Section 401 of the current tax code. A participant may make lump sum MISP contributions at any time during the Plan year and lump sum MOST contributions during the last three months of the Plan year. These contributions may be made in addition to or as an alternative to any salary deduction or salary reduction contribution. A MISP lump sum contribution may be made by any method approved by the Employees' Benefit Committee. A MOST lump sum contribution can be made solely pursuant to a salary reduction agreement between the participant and the Company. -2- Basic and supplemental contributions under the MOST option may be made solely pursuant to a salary reduction agreement between the participant and the Company. In addition, basic contributions cannot be divided between the plans. However, participants can elect to divide supplemental contributions between the two plans. Individual accounts which record the participants' basic and supplemental contributions, the Company's contributions, the earnings on all contributions and the amount of the participant's interest in each fund are maintained for each participant. Participants' contributions are allocated directly to their individual accounts at the time of the contribution. Employer contributions are allocated to the participant's individual account in accordance with the specific formula provided in the Plan. Contributions by the Company and the participants are remitted to the trustee, Marine Midland Bank, N.A., on a periodic basis. Investment income is allocated proportionately to a participant's individual account in the proportion that the account bears to the amounts in all participants' accounts. Participants have a 100 per cent non-forfeitable vested interest in their individual accounts at all times. Participants have an option to invest their contributions and the Company's contributions on their behalf into any one of the four funds, or in a combination of the funds in multiples of 10 per cent. Participants' accounts will reflect the amount invested in each of the four funds. Individual participant loans Participant loans cannot exceed the lesser of 50 per cent of the vested amounts in the participant's account under the Plan or $50,000. A participant may only have one loan outstanding and the loan is treated as a directed investment by the borrower with respect to his account. Interest paid on the loan is credited to the borrower's account and the participant does not share in the income of the Plan's assets with respect to the amounts borrowed and not yet repaid. General loans have a term of no more than five years except that a loan may be granted for a period not to exceed twenty-five years if the proceeds are used to purchase the participant's principal residence. Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Employees' Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. Master Trust Effective January 1, 1992, the Plan investments were transferred into the Rochester Telephone Corporation Master Trust Fund (Master Trust). The Master Trust includes five other defined contribution plans of Rochester Telephone Corporation. The Plan's interest in the net assets of the Master Trust is the total of the specific interests of the individual participants in the Plan. -3- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plan when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plan when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plan are paid by the Company. Valuation of investment assets Plan assets are valued at fair market value as of the year-end date. Adjustments for unrealized appreciation or depreciation of such values since the previous balance sheet date are included in the operating results of the Plan. Master Trust allocation basis Investments and investment earnings of the Master Trust are allocated to each of the plans participating in the Master Trust based on the Plan's proportional ownership interest as adjusted for contributions and withdrawals made by each plan. NOTE 3 - FEDERAL INCOME TAX STATUS: The Company is in receipt of a determination letter from the Internal Revenue Service which states that the Plan is a qualified plan exempt from Federal income taxes under Section 401 of the Internal Revenue Code. Participants are subject to federal income taxes upon receipt of any Company contributions or any earnings from the Plan. As more fully described in Note 2, MOST contributions are in the form of salary reduction and thus the tax attributes are deferred to the participant, while MISP contributions continue to have no deferred tax attributes. -4- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1993 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Cash and short-term investments $ 448,073 $ 56,786 $ 41,908 $ 2,375 $ 549,142 Employee contributions receivable 85,337 57,768 17,162 18,424 178,691 Rochester Telephone Corporation contributions receivable 36,098 13,877 5,058 5,000 60,033 Investments: Hartford Life Insurance Company Group Annuity Contracts, at cost - fixed rates of 8.00% with no specified maturity dates 24,554,791 24,554,791 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 5,051,085 5,051,085 New York Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.60% to mature at June 1998 6,246,893 6,246,893 Prudential Insurance Company of America Group Annuity Contracts, at cost - fixed rates of 5.19% and 5.97% to mature at June 1997 and June 1999 7,194,288 7,194,288 John Hancock Mutual Life Insurance Company Group Annuity, at cost - fixed rate of 5.58% to mature at June 1998 6,239,801 6,239,801 Metropolitan Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.16% to mature at December 1997 6,381,425 6,381,425 Common stock of Rochester Telephone Corporation, at market value: 1993 - 608,963 shares at a cost of $17,047,227 27,479,455 27,479,455 American National Bank Equity Index Fund, at market value: 1993 - 27,974 shares at a cost of $3,373,962 3,934,575 3,934,575 Merrill Lynch Capital Fund, at market value: 1993 - 161,296 shares at a cost of $4,166,304 4,687,134 4,687,134 Participant loans $3,906,771 3,906,771 ----------- ----------- ---------- ---------- ---------- ----------- 56,237,791 27,607,886 3,998,703 4,712,933 3,906,771 96,464,084 ----------- ----------- ---------- ---------- ---------- ----------- Accrued benefits 276,741 82,854 50,647 47,561 457,803 Interfund payable (receivable) 442,199 (358,990) 85,419 (168,628) ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-5- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1992 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Cash and short-term investments $ 705,732 $ 80,962 $ 39,007 $ 20,564 $ 846,265 Investments: Hartford Life Insurance Company Group Annuity Contract, at cost - fixed rate of 8.00% with no specified maturity date 47,758,093 47,758,093 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 4,739,013 4,739,013 Common stock of Rochester Telephone Corporation, at market value: 1992 - 562,834 shares at a cost of $14,418,106 20,051,064 20,051,064 American National Bank Equity Index Fund, at market value: 1992 - 15,346 shares at a cost of $1,711,346 1,962,717 1,962,717 Merrill Lynch Capital Fund, at market value: 1992 - 115,477 shares at a cost of $2,891,763 3,040,517 3,040,517 Participant loans $3,405,640 3,405,640 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
-6- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 4,146,445 $ 1,800,874 $ 574,198 $ 528,877 $ 7,050,394 Rochester Telephone Corporation contributions 1,205,590 538,458 235,848 212,530 2,192,426 Rollover contributions from other plans 44,033 28,569 44,647 42,575 159,824 Interest and dividend income 3,638,211 933,958 1,134 187,225 $ 252,842 5,013,370 Net appreciation in fair value of participation units 4,718,412 309,275 198,401 5,226,088 Realized (loss) gain (120,036) 348 123,992 4,304 Participant loans 1,916,270 1,916,270 Participant loan repayments 1,292,233 316,179 29,668 29,901 1,667,981 Transfers from other plans in Master Trust 24,438 26,692 10,051 10,285 2,187 73,653 Transfers from other funds 456,072 1,361,626 1,182,052 870,176 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 10,807,022 9,604,732 2,387,221 2,203,962 2,171,299 27,174,236 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 3,865,224 1,018,840 210,829 348,541 5,443,434 Participant loans 1,331,845 423,800 90,650 69,975 1,916,270 Participant loan repayments 1,667,981 1,667,981 Transfers to other plans in Master Trust 62,793 4,602 1,537 2,534 2,187 73,653 Transfers to other funds 3,231,147 405,494 223,292 9,993 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 8,491,009 1,852,736 526,308 431,043 1,670,168 12,971,264 ----------- ----------- ---------- ---------- ---------- ----------- Increase in net assets 2,316,013 7,751,996 1,860,913 1,772,919 501,131 14,202,972 Net assets available for plan benefits: Plan equity, beginning of year 53,202,838 20,132,026 2,001,724 3,061,081 3,405,640 81,803,309 ----------- ----------- ---------- ---------- ---------- ----------- Plan equity, end of year $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-7- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ----------- ---------- ---------- Additions to net assets attributed to: Employee contributions $ 3,986,094 $ 1,271,074 $ 289,619 $ 338,115 $ 5,884,902 Rochester Telephone Corporation contributions 1,795,958 479,003 164,132 206,331 2,645,424 Rollover contribution from individual plans into Master Trust 47,875,301 15,543,115 789,747 1,947,856 66,156,019 Rollover contributions from other plans 197,468 202,915 121,189 83,227 604,799 Interest and dividend income 3,972,828 807,862 846 166,758 4,948,294 Net appreciation (depreciation) in fair value of participation units 1,918,019 134,517 (69,277) 1,983,259 Realized gain 43,533 38,389 81,922 Participant loans $4,976,103 4,976,103 Participant loan repayments 1,223,895 317,793 12,307 16,468 1,570,463 Other income 22 1,541 1,563 Net transfers from other funds 298,123 707,591 560,079 618,925 2,184,718 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 59,349,689 21,292,446 2,072,436 3,346,792 4,976,103 91,037,466 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 2,589,913 548,748 11,045 20,438 3,170,144 Participant loans 1,608,450 411,475 51,275 44,300 2,115,500 Participant loan repayments 1,570,463 1,570,463 Other expenses 1,365 1,365 Transfers to Supplemental Retirement Savings Plan 12,339 1,955 1,496 15,790 Net transfers to other plans 175,810 367 176,177 Net transfers to other funds 1,771,313 187,491 6,437 219,477 2,184,718 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 6,146,851 1,160,420 70,712 285,711 1,570,463 9,234,157 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits: Plan equity, end of year $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33-39213) of our report dated February 18, 1994, for the Rochester Telephone Corporation Management Investment and Savings Plan including the Management Optional Salary Treatment Plan. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-1 of the Annual Report of Rochester Telephone Corporation on Form 10-K for the year ended December 31, 1993. /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 Exhibit 28.2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - I (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - I FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - I INDEX TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements * * * * * (All other schedules are not required or not applicable.) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Craft Savings Plan - I In our opinion, the accompanying statements of net assets available for plan benefits, and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Rochester Telephone Corporation Craft Savings Plan - I at December 31, 1993 and 1992, and the changes in its financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE PRICE WATERHOUSE ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - I STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ------------------------------------------- ----------------------------------------- Loan Loan Fund A Fund B Fund Total Fund A Fund B Fund Total ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Investment in the Rochester Telephone Corporation Master Trust Fund, at market value $3,211,639 $1,386,897 $4,598,536 $1,961,318 $546,033 $2,507,351 Participant loans $96,898 96,898 $31,213 31,213 ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Net assets available for plan benefits $3,211,639 $1,386,897 $96,898 $4,695,434 $1,961,318 $546,033 $31,213 $2,538,564 ========== ========== ======= ========== ========== ======== ======= ==========
The accompanying notes are an integral part of these financial statements. ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - I STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ------------------------------------------- ----------------------------------------- Loan Loan Fund A Fund B Fund Total Fund A Fund B Fund Total ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Additions to net assets attributed to: Employee contributions $1,258,389 $ 475,966 $1,734,355 $1,041,478 $262,964 $1,304,442 Rochester Telephone Corporation contributions 54,207 24,027 78,234 Earnings from participation in Master Trust 169,367 200,825 370,192 109,501 72,088 181,589 Participant loans $92,620 92,620 $33,450 33,450 Participant loan repayments 21,164 8,535 29,699 5,216 2,305 7,521 Interest income - employee loans 2,764 2,764 Transfers from other funds 164,417 164,417 19,372 19,372 ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Total additions 1,503,127 873,770 95,384 2,472,281 1,156,195 356,729 33,450 1,546,374 ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Deductions from net assets attributed to: Withdrawals 14,315 5,397 19,712 Participant loans 67,595 25,025 92,620 23,450 10,000 33,450 Participant loan repayments 29,699 29,699 7,521 7,521 Transfer to other plans in Master Trust 6,479 2,484 8,963 Transfers to other funds 164,417 164,417 19,372 19,372 ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Total deductions 252,806 32,906 29,699 315,411 42,822 10,000 7,521 60,343 ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Increase in net assets 1,250,321 840,864 65,685 2,156,870 1,113,373 346,729 25,929 1,486,031 Net assets available for plan benefits: Plan equity, beginning of year 1,961,318 546,033 31,213 2,538,564 847,945 199,304 5,284 1,052,533 ---------- ---------- ------- ---------- ---------- -------- ------- ---------- Plan equity, end of year $3,211,639 $1,386,897 $96,898 $4,695,434 $1,961,318 $546,033 $31,213 $2,538,564 ========== ========== ======= ========== ========== ======== ======= ==========
ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - I NOTES TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: The Rochester Telephone Corporation Craft Savings Plan - I (the "Plan") is a defined contribution plan established by the Board of Directors of the Rochester Telephone Corporation (the "Company") effective December 19, 1990. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan provides participants the option of having their basic and supplemental contributions to the Plan made on a salary reduction basis and thus the tax attributes are on a deferred tax basis. The principal provisions of the Plan are described below. Participation All employees of the Company who are in the Communications Workers of America (CWA), AFL-CIO, Local 1170 bargaining unit and who have been employed for at least one year are eligible to participate in the Plan upon reaching age 21. Administration The Plan is administered by the Company's Employees' Benefit Committee whose members are appointed by the Company's Board of Directors. The trustee of the Plan is Marine Midland Bank, N.A. Funding policy The Plan consists of two separate funds. Fund A consists of various group annuity contracts. Fund B is a stock investment fund consisting of Rochester Telephone Corporation's common stock. The Plan provides that each participant may voluntarily make contributions through a salary reduction agreement for whatever whole percentage a participant chooses, up to a maximum of 16 per cent, subject to maximum contribution provisions imposed by the Internal Revenue Code under Section 401(k). Individual accounts which record the participants' contributions, the earnings on all contributions and the amount of the participant's interest in each fund are maintained for each participant. The participants' contributions during a month are allocated directly to their individual account at the end of such month. Participants have the option to invest their contributions into either of the funds, or in both of the funds in multiples of 25%. Participants have a 100% non-forfeitable interest in their individual accounts at all times. -2- Individual participant loans Participant loans cannot exceed the lesser of 50% of the vested amounts in the participant's account under the Plan or $50,000. A participant may only have one loan outstanding and the loan is treated as a directed investment by the borrower with respect to his account. Interest paid on the loan is credited to the borrower's account and the participant does not share in the income of the Plan's assets with respect to the amounts borrowed and not yet repaid. General loans have a term of no more than five years except that a loan may be granted for a period not to exceed twenty-five years if the proceeds are used to purchase the participant's principal residence. Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Bargaining Unit Employees' Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. Plan amendment Effective July 1, 1993, the Plan was amended to allow the Company to contribute an amount equal to 15% of each participant's contribution. This matching percentage increases to 20% effective July 1, 1994 and to 30% effective January 1, 1995. Master Trust Effective January 1, 1992, the Plan investments were transferred into the Rochester Telephone Corporation Master Trust Fund (Master Trust). The Master Trust includes five other defined contribution plans of Rochester Telephone Corporation. The Plan's interest in the net assets of the Master Trust is the total of the specific interests of the individual participants in the Plan. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plan when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plan when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plan are paid by the Company. -3- Valuation of investment assets Plan assets are valued at fair market value as of the year-end date. Adjustments for unrealized appreciation or depreciation of such values are included in the operating results of the Plan. Master Trust allocation basis Investments and investment earnings of the Master Trust are allocated to each of the plans participating in the Master Trust based on the plan's proportional ownership interest as adjusted for contributions and withdrawals made by each plan. NOTE 3 - FEDERAL INCOME TAX STATUS: A determination letter from the Internal Revenue Service has not yet been received; however, the Company believes that the Plan is a qualified plan exempt from federal income taxes under Section 401 of the Internal Revenue Code. -4- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1993 is as follows: STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Cash and short-term investments $ 448,073 $ 56,786 $ 41,908 $ 2,375 $ 549,142 Employee contributions receivable 85,337 57,768 17,162 18,424 178,691 Rochester Telephone Corporation contributions receivable 36,098 13,877 5,058 5,000 60,033 Investments: Hartford Life Insurance Company Group Annuity Contracts, at cost - fixed rates of 8.00% with no specified maturity dates 24,554,791 24,554,791 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 5,051,085 5,051,085 New York Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.60% to mature at June 1998 6,246,893 6,246,893 Prudential Insurance Company of America Group Annuity Contracts, at cost - fixed rates of 5.19% and 5.97% to mature at June 1997 and June 1999 7,194,288 7,194,288 John Hancock Mutual Life Insurance Company Group Annuity, at cost - fixed rate of 5.58% to mature at June 1998 6,239,801 6,239,801 Metropolitan Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.16% to mature at December 1997 6,381,425 6,381,425 Common stock of Rochester Telephone Corporation, at market value: 1993 - 608,963 shares at a cost of $17,047,227 27,479,455 27,479,455 American National Bank Equity Index Fund, at market value: 1993 - 27,974 shares at a cost of $3,373,962 3,934,575 3,934,575 Merrill Lynch Capital Fund, at market value: 1993 - 161,296 shares at a cost of $4,166,304 4,687,134 4,687,134 Participant loans $3,906,771 3,906,771 ----------- ----------- ---------- ---------- ---------- ----------- 56,237,791 27,607,886 3,998,703 4,712,933 3,906,771 96,464,084 ----------- ----------- ---------- ---------- ---------- ----------- Accrued benefits 276,741 82,854 50,647 47,561 457,803 Interfund payable (receivable) 442,199 (358,990) 85,419 (168,628) ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-5- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1992 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Cash and short-term investments $ 705,732 $ 80,962 $ 39,007 $ 20,564 $ 846,265 Investments: Hartford Life Insurance Company Group Annuity Contract, at cost - fixed rate of 8.00% with no specified maturity date 47,758,093 47,758,093 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 4,739,013 4,739,013 Common stock of Rochester Telephone Corporation, at market value: 1992 - 562,834 shares at a cost of $14,418,106 20,051,064 20,051,064 American National Bank Equity Index Fund, at market value: 1992 - 15,346 shares at a cost of $1,711,346 1,962,717 1,962,717 Merrill Lynch Capital Fund, at market value: 1992 - 115,477 shares at a cost of $2,891,763 3,040,517 3,040,517 Participant loans $3,405,640 3,405,640 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
-6- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 4,146,445 $ 1,800,874 $ 574,198 $ 528,877 $ 7,050,394 Rochester Telephone Corporation contributions 1,205,590 538,458 235,848 212,530 2,192,426 Rollover contributions from other plans 44,033 28,569 44,647 42,575 159,824 Interest and dividend income 3,638,211 933,958 1,134 187,225 $ 252,842 5,013,370 Net appreciation in fair value of participation units 4,718,412 309,275 198,401 5,226,088 Realized (loss) gain (120,036) 348 123,992 4,304 Participant loans 1,916,270 1,916,270 Participant loan repayments 1,292,233 316,179 29,668 29,901 1,667,981 Transfers from other plans in Master Trust 24,438 26,692 10,051 10,285 2,187 73,653 Transfers from other funds 456,072 1,361,626 1,182,052 870,176 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 10,807,022 9,604,732 2,387,221 2,203,962 2,171,299 27,174,236 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 3,865,224 1,018,840 210,829 348,541 5,443,434 Participant loans 1,331,845 423,800 90,650 69,975 1,916,270 Participant loan repayments 1,667,981 1,667,981 Transfers to other plans in Master Trust 62,793 4,602 1,537 2,534 2,187 73,653 Transfers to other funds 3,231,147 405,494 223,292 9,993 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 8,491,009 1,852,736 526,308 431,043 1,670,168 12,971,264 ----------- ----------- ---------- ---------- ---------- ----------- Increase in net assets 2,316,013 7,751,996 1,860,913 1,772,919 501,131 14,202,972 Net assets available for plan benefits: Plan equity, beginning of year 53,202,838 20,132,026 2,001,724 3,061,081 3,405,640 81,803,309 ----------- ----------- ---------- ---------- ---------- ----------- Plan equity, end of year $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-7- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ---------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 3,986,094 $ 1,271,074 $ 289,619 $ 338,115 $ 5,884,902 Rochester Telephone Corporation contributions 1,795,958 479,003 164,132 206,331 2,645,424 Rollover contribution from individual plans into Master Trust 47,875,301 15,543,115 789,747 1,947,856 66,156,019 Rollover contributions from other plans 197,468 202,915 121,189 83,227 604,799 Interest and dividend income 3,972,828 807,862 846 166,758 4,948,294 Net appreciation (depreciation) in fair value of participation units 1,918,019 134,517 (69,277) 1,983,259 Realized gain 43,533 38,389 81,922 Participant loans $4,976,103 4,976,103 Participant loan repayments 1,223,895 317,793 12,307 16,468 1,570,463 Other income 22 1,541 1,563 Net transfers from other funds 298,123 707,591 560,079 618,925 2,184,718 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 59,349,689 21,292,446 2,072,436 3,346,792 4,976,103 91,037,466 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 2,589,913 548,748 11,045 20,438 3,170,144 Participant loans 1,608,450 411,475 51,275 44,300 2,115,500 Participant loan repayments 1,570,463 1,570,463 Other expenses 1,365 1,365 Transfers to Supplemental Retirement Savings Plan 12,339 1,955 1,496 15,790 Net transfers to other plans 175,810 367 176,177 Net transfers to other funds 1,771,313 187,491 6,437 219,477 2,184,718 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 6,146,851 1,160,420 70,712 285,711 1,570,463 9,234,157 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits: Plan equity, end of year $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33-38307) of our report dated February 18, 1994, for the Rochester Telephone Corporation Craft Savings Plan - I. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-2 of the Annual Report of Rochester Telephone Corporation on Form 10-K for the year ended December 31, 1993. /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 Exhibit 28.3 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - II (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - II FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - II INDEX TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net Assets Available for Plan Benefits for the year ended December 31, 1993 and 1992 Notes to Financial Statements * * * * * (All other schedules are not required or not applicable.) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Craft Savings Plan - II In our opinion, the accompanying statements of net assets available for plan benefits, and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Rochester Telephone Corporation Craft Savings Plan - II at December 31, 1993 and 1992, and the changes in its financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE PRICE WATERHOUSE ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - II STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ------------------------------------- ------------------------------------ Loan Loan Fund A Fund B Fund Total Fund A Fund B Fund Total ------ ------ ---- ------- ------- ------ ---- ------- Investment in the Rochester Telephone Corporation Master Trust Fund, at market value $463,193 $154,137 $617,330 $197,806 $53,237 $251,043 Participant loans $17,429 17,429 $7,610 7,610 -------- -------- ------- -------- -------- ------- ------ -------- Net assets available for Plan benefits $463,193 $154,137 $17,429 $634,759 $197,806 $53,237 $7,610 $258,653 ======== ======== ======= ======== ======== ======= ====== ========
The accompanying notes are an integral part of these financial statements. ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - II STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ------------------------------------- ------------------------------------ Loan Loan Fund A Fund B Fund Total Fund A Fund B Fund Total -------- ------- ------- -------- -------- ------- ------- -------- Additions to net assets attributed to: Employee contributions $275,852 $ 83,536 $359,388 $189,602 $41,410 $231,012 Earnings from participation in Master Trust 21,066 20,539 41,605 7,347 6,372 13,719 Participant loans $17,575 17,575 $7,950 7,950 Participant loan repayments 4,794 1,218 6,012 282 58 340 Interest income - employee loans 443 443 Transfers from other plans in Master Trust 2,187 2,187 Rollover contributions from other plans 9,000 6,789 15,789 Transfers from other funds 2,967 2,967 -------- -------- ------- -------- -------- ------- ------ -------- Total additions 303,899 108,260 18,018 430,177 206,231 54,629 7,950 268,810 -------- -------- ------- -------- -------- ------- ------ -------- Deductions from net assets attributed to: Withdrawals 2,976 2,476 5,452 508 508 Participant loans 13,600 3,975 17,575 6,925 1,025 7,950 Participant loan repayments 6,012 6,012 340 340 Transfers to other plans in Master Trust 18,969 909 2,187 22,065 992 367 1,359 Transfers to other funds 2,967 2,967 -------- -------- ------- -------- -------- ------- ------ -------- Total deductions 38,512 7,360 8,199 54,071 8,425 1,392 340 10,157 -------- -------- ------- -------- -------- ------- ------ -------- Increase in net assets 265,387 100,900 9,819 376,106 197,806 53,237 7,610 258,653 Net assets available for plan benefits: Plan equity, beginning of year 197,806 53,237 7,610 258,653 -------- -------- ------- -------- -------- ------- ------ -------- Plan equity, end of year $463,193 $154,137 $17,429 $634,759 $197,806 $53,237 $7,610 $258,653 ======== ======== ======= ======== ======== ======= ====== ========
This accompanying notes are an integral part of these financial statements. ROCHESTER TELEPHONE CORPORATION CRAFT SAVINGS PLAN - II NOTES TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: The Rochester Telephone Corporation Craft Savings Plan - II (the "Plan") is a defined contribution plan established by the Board of Directors of the Rochester Telephone Corporation (the "Company") effective January 1, 1992. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan provides participants the option of having their basic and supplemental contributions to the Plan made on a salary reduction basis and thus the tax attributes are on a deferred tax basis. The principal provisions of the Plan are described below. Participation All employees of the Company who are in the Rochester Telephone Workers' Association (RTWA) and who have been employed for at least one year are eligible to participate in the Plan upon reaching age 21. Administration The Plan is administered by the Company's Employees' Benefit Committee whose members are appointed by the Company's Board of Directors. The trustee of the Plan is Marine Midland Bank, N.A. Funding policy The Plan consists of two separate funds. Fund A consists of various group annuity contracts. Fund B is a stock investment fund consisting of Rochester Telephone Corporation's common stock. The Plan provides that each participant may voluntarily make contributions through a salary reduction agreement for whatever whole percentage a participant chooses, up to a maximum of 16%, subject to maximum contribution provisions imposed by the Internal Revenue Code under Section 401(k). Rochester Telephone Corporation does not contribute to this Plan except to the extent of transmitting contributions to the trustee. Individual accounts which record the participant's contributions, the earnings on all contributions and the amount of the participant's interest in each fund are maintained for each participant. The participants' contributions during a month are allocated directly to their individual account at the end of such month. Participants have the option to invest their contributions into either of the funds, or in both of the funds in multiples of 25%. Participants have a 100% per cent non-forfeitable interest in their individual accounts at all times. -2- Individual participant loans Participant loans cannot exceed the lesser of 50% of the vested amounts in the participant's account under the Plan or $50,000. A participant may only have one loan outstanding and the loan is treated as a directed investment by the borrower with respect to his account. Interest paid on the loan is credited to the borrower's account and the participant does not share in the income of the Plan's assets with respect to the amounts borrowed and not yet repaid. General loans have a term of no more than five years except that a loan may be granted for a period not to exceed twenty-five years if the proceeds are used to purchase the participant's principal residence. Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Bargaining Unit Employees' Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. Master Trust The Plan investments are included in the Rochester Telephone Corporation Master Trust Fund (Master Trust) with five other deferred contribution plans of Rochester Telephone Corporation. The Plan's interest in the net assets of the Master Trust is the total of the specific interests of the individual participants in the Plan. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plan when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plan when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plan are paid by the Company. Valuation of investment assets Plan assets are valued at fair market value as of the year-end date. Adjustments for unrealized appreciation or depreciation of such values are included in the operating results of the Plan. -3- Master Trust allocation basis Investments and investment earnings of the Master Trust are allocated to each of the plans participating in the Master Trust based on the plan's proportional ownership interest as adjusted for contributions and withdrawals made by each plan. NOTE 3 - FEDERAL INCOME TAX STATUS: A determination letter from the Internal Revenue Service has not yet been received; however, the Company believes that the Plan is a qualified plan exempt from federal income taxes under Section 401 of the Internal Revenue Code. -4- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1993 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 --------------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ----------- ----------- ----------- ----------- Cash and short-term investments $ 448,073 $ 56,786 $ 41,908 $ 2,375 $ 549,142 Employee contributions receivable 85,337 57,768 17,162 18,424 178,691 Rochester Telephone Corporation contributions receivable 36,098 13,877 5,058 5,000 60,033 Investments: Hartford Life Insurance Company Group Annuity Contracts, at cost - fixed rates of 8.00% with no specified maturity dates 24,554,791 24,554,791 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 5,051,085 5,051,085 New York Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.60% to mature at June 1998 6,246,893 6,246,893 Prudential Insurance Company of America Group Annuity Contracts, at cost - fixed rates of 5.19% and 5.97% to mature at June 1997 and June 1999 7,194,288 7,194,288 John Hancock Mutual Life Insurance Company Group Annuity, at cost - fixed rate of 5.58% to mature at June 1998 6,239,801 6,239,801 Metropolitan Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.16% to mature at December 1997 6,381,425 6,381,425 Common stock of Rochester Telephone Corporation, at market value: 1993 - 608,963 shares at a cost of $17,047,227 27,479,455 27,479,455 American National Bank Equity Index Fund, at market value: 1993 - 27,974 shares at a cost of $3,373,962 3,934,575 3,934,575 Merrill Lynch Capital Fund, at market value: 1993 - 161,296 shares at a cost of $4,166,304 4,687,134 4,687,134 Participant loans $3,906,771 3,906,771 ----------- ----------- ---------- ---------- ---------- ----------- 56,237,791 27,607,886 3,998,703 4,712,933 3,906,771 96,464,084 ----------- ----------- ---------- ---------- ---------- ----------- Accrued benefits 276,741 82,854 50,647 47,561 457,803 Interfund payable (receivable) 442,199 (358,990) 85,419 (168,628) ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-5- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1992 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ---------- ---------- --------- --------- ----------- ---------- Cash and short-term investments $ 705,732 $ 80,962 $ 39,007 $ 20,564 $ 846,265 Investments: Hartford Life Insurance Company Group Annuity Contract, at cost - fixed rate of 8.00% with no specified maturity date 47,758,093 47,758,093 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 4,739,013 4,739,013 Common stock of Rochester Telephone Corporation, at market value: 1992 - 562,834 shares at a cost of $14,418,106 20,051,064 20,051,064 American National Bank Equity Index Fund, at market value: 1992 - 15,346 shares at a cost of $1,711,346 1,962,717 1,962,717 Merrill Lynch Capital Fund, at market value: 1992 - 115,477 shares at a cost of $2,891,763 3,040,517 3,040,517 Participant loans $3,405,640 3,405,640 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
-6- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 -------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ---------- ----------- --------- --------- --------- ---------- Additions to net assets attributed to: Employee contributions $ 4,146,445 $ 1,800,874 $ 574,198 $ 528,877 $ 7,050,394 Rochester Telephone Corporation contributions 1,205,590 538,458 235,848 212,530 2,192,426 Rollover contributions from other plans 44,033 28,569 44,647 42,575 159,824 Interest and dividend income 3,638,211 933,958 1,134 187,225 $ 252,842 5,013,370 Net appreciation in fair value of participation units 4,718,412 309,275 198,401 5,226,088 Realized (loss) gain (120,036) 348 123,992 4,304 Participant loans 1,916,270 1,916,270 Participant loan repayments 1,292,233 316,179 29,668 29,901 1,667,981 Transfers from other plans in Master Trust 24,438 26,692 10,051 10,285 2,187 73,653 Transfers from other funds 456,072 1,361,626 1,182,052 870,176 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 10,807,022 9,604,732 2,387,221 2,203,962 2,171,299 27,174,236 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 3,865,224 1,018,840 210,829 348,541 5,443,434 Participant loans 1,331,845 423,800 90,650 69,975 1,916,270 Participant loan repayments 1,667,981 1,667,981 Transfers to other plans in Master Trust 62,793 4,602 1,537 2,534 2,187 73,653 Transfers to other funds 3,231,147 405,494 223,292 9,993 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 8,491,009 1,852,736 526,308 431,043 1,670,168 12,971,264 ----------- ----------- ---------- ---------- ---------- ----------- Increase in net assets 2,316,013 7,751,996 1,860,913 1,772,919 501,131 14,202,972 Net assets available for plan benefits: Plan equity, beginning of year 53,202,838 20,132,026 2,001,724 3,061,081 3,405,640 81,803,309 ----------- ----------- ---------- ---------- ---------- ----------- Plan equity, end of year $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-7- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 -------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ----------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 3,986,094 $ 1,271,074 $ 289,619 $ 338,115 $ 5,884,902 Rochester Telephone Corporation contributions 1,795,958 479,003 164,132 206,331 2,645,424 Rollover contribution from individual plans into Master Trust 47,875,301 15,543,115 789,747 1,947,856 66,156,019 Rollover contributions from other plans 197,468 202,915 121,189 83,227 604,799 Interest and dividend income 3,972,828 807,862 846 166,758 4,948,294 Net appreciation (depreciation) in fair value of participation units 1,918,019 134,517 (69,277) 1,983,259 Realized gain 43,533 38,389 81,922 Participant loans $4,976,103 4,976,103 Participant loan repayments 1,223,895 317,793 12,307 16,468 1,570,463 Other income 22 1,541 1,563 Net transfers from other funds 298,123 707,591 560,079 618,925 2,184,718 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 59,349,689 21,292,446 2,072,436 3,346,792 4,976,103 91,037,466 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 2,589,913 548,748 11,045 20,438 3,170,144 Participant loans 1,608,450 411,475 51,275 44,300 2,115,500 Participant loan repayments 1,570,463 1,570,463 Other expenses 1,365 1,365 Transfers to Supplemental Retirement Savings Plan 12,339 1,955 1,496 15,790 Net transfers to other plans 175,810 367 176,177 Net transfers to other funds 1,771,313 187,491 6,437 219,477 2,184,718 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 6,146,851 1,160,420 70,712 285,711 1,570,463 9,234,157 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits: Plan equity, end of year $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33-44473) of our report dated February 18, 1994, for the Rochester Telephone Corporation Craft Savings Plan - II. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-3 of the Annual Report of Rochester Telephone Corporation on Form 10-K for the year ended December 31, 1993. /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 Exhibit 28.4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PROGRAM FOR ROCHESTER TELEPHONE CORPORATION SUBSIDIARY COMPANIES (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PROGRAM FOR ROCHESTER TELEPHONE CORPORATION SUBSIDIARY COMPANIES FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PROGRAM FOR ROCHESTER TELEPHONE CORPORATION SUBSIDIARY COMPANIES INDEX TO FINANCIAL STATEMENTS - - - ------------------------------------------------------------------------------ Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements * * * * * (ALL OTHER SCHEDULES ARE NOT REQUIRED OR NOT APPLICABLE.) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Retirement Savings Program for Rochester Telephone Corporation Subsidiary Companies In our opinion, the accompanying statements of net assets available for plan benefits and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Retirement Savings Program for Rochester Telephone Corporation Subsidiary Companies at December 31, 1993 and 1992, and the changes in its financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE PRICE WATERHOUSE ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PROGRAM FOR ROCHESTER TELEPHONE CORPORATION SUBSIDIARY COMPANIES STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - ------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ---------------------------------------------- ------------------------------------------- Fund A Fund B Fund C Fund D Total Fund A Fund B Fund C Fund D Total ------- ------- -------- ------- --------- ------- -------- ------- ------ ------- Contributions receivable $ 14,799 $ 9,582 $ 6,351 $ 7,617 $ 38,349 $ 13,391 $ 4,910 $ 1,748 $ 3,411 $ 23,460 Investment in the Rochester Telephone Corporation Master Trust Fund, at market value 575,344 321,060 173,726 180,771 1,250,901 377,694 159,538 92,788 59,717 689,737 -------- -------- -------- -------- ---------- -------- -------- ------- ------- -------- Net assets available for Plan benefits $590,143 $330,642 $180,077 $188,388 $1,289,250 $391,085 $164,448 $94,536 $63,128 $713,197 ======== ======== ======== ======== ========== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PROGRAM FOR ROCHESTER TELEPHONE CORPORATION SUBSIDIARY COMPANIES STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ------------------------------------------------ ---------------------------------------------- Fund A Fund B Fund C Fund D Total Fund A Fund B Fund C Fund D Total -------- -------- -------- ------- -------- -------- -------- ------- ------- -------- Additions to net assets attributed to: Employee contributions $180,435 $100,290 $ 58,951 $ 73,698 $413,374 $147,557 $ 42,106 $23,373 $36,173 $249,209 Earnings from participation in Master Trust 32,290 55,106 11,964 13,071 112,431 22,790 23,216 7,309 2,532 55,847 Rollover contributions from other plans 13,371 8,906 23,576 27,594 73,447 7,624 69,054 50,890 127,568 Transfers from other funds 4,359 22,414 6,534 19,110 52,417 9,513 1,544 11,057 -------- ------- -------- -------- -------- -------- -------- ------- ------- -------- Total additions 230,455 186,716 101,025 133,473 651,669 177,971 143,889 83,116 38,705 443,681 -------- ------- -------- -------- -------- -------- -------- ------- ------- -------- Deductions from net assets attributed to: Withdrawals 9,614 5,382 2,270 82 17,348 1,041 1,041 Transfers to other plans in Master Trust 571 1,209 1,537 2,534 5,851 4,159 Transfers to other funds 21,212 13,931 11,677 5,597 52,417 1,345 5,553 11,057 -------- ------- -------- -------- ------- -------- -------- ------- ------- ------- Total deductions 31,397 20,522 15,484 8,213 75,616 5,200 1,345 5,553 12,098 -------- ------- -------- -------- ------- -------- -------- ------- ------- ------- Increase in net assets 199,058 166,194 85,541 125,260 576,053 172,771 143,889 81,771 33,152 431,583 Net assets available for plan benefits: Plan equity, beginning of year 391,085 164,448 94,536 63,128 713,197 218,314 20,559 12,765 29,976 281,614 -------- -------- -------- -------- --------- -------- -------- ------- ------- ------- Plan equity, end of year $590,143 $330,642 $180,077 $188,388 $1,289,250 $391,085 $164,448 $94,536 $63,128 $713,197 ======== ======== ======== ======== ========== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these financial statements. ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PROGRAM FOR ROCHESTER TELEPHONE CORPORATION SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: The Retirement Savings Program for Rochester Telephone Corporation Subsidiary Companies (the "Plan") is a defined contribution plan established by the Board of Directors of Rochester Telephone Corporation (the "Company") effective December 19, 1990. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan provides participants the option of having their basic and supplemental contributions to the Plan made on a salary reduction basis and thus the tax attributes are on a deferred tax basis. The principal provisions of the Plan are described below. Participation All employees of a participating company of Rochester Telephone Corporation who are not eligible to participate in another 401(k) plan are eligible to participate, except employees subject to a collective bargaining agreement providing retirement benefits under another plan. Administration The Plan is administered by the Subsidiaries' Employees' Benefit Committee whose members are appointed by the Company's Board of Directors. The trustee of the Plan is Marine Midland Bank, N.A. Funding policy The Plan consists of four separate funds. Fund A consists of various group annuity contracts. Fund B is a stock investment fund consisting of Rochester Telephone Corporation's common stock. Fund C is the American National Bank Equity Index Fund, which holds stocks listed on the Standard and Poors 500 Index. Fund D is the Merrill Lynch Capital Fund, a diversified securities fund. The Plan provides that each participant may voluntarily make contributions through a salary reduction agreement for whatever whole percentage a participant chooses, minimum of 2% up to a maximum of 16%, subject to maximum contribution provisions imposed by the Internal Revenue Code under Section 401(k). The participant's voluntary non-deductible contributions for a plan year shall not when added to the participant's tax-deferred contributions exceed 16% of the participant's compensation. Rochester Telephone Corporation does not contribute to this Plan except to the extent of transmitting contributions to the trustee. Individual accounts which record the participants' contributions, the earnings on all contributions and the amount of the participant's interest in each fund are maintained for each participant. -2- Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Employees' Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. Master Trust Effective January 1, 1992, the Plan investments were transferred into the Rochester Telephone Corporation Master Trust Fund (Master Trust). The Master Trust includes five other defined contribution plans of Rochester Telephone Corporation. The Plan's interest in the net assets of the Master Trust is the total of the specific interests of the individual participants in the Plan. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plan when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plan when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plan are paid by the Company. Valuation of investment assets Plan assets are valued at fair market value as of the year-end date. Adjustments for unrealized appreciation or depreciation of such values are included in the operating results of the Plan. Master Trust allocation basis Investments and investment earnings of the Master Trust are allocated to each of the plans participating in the Master Trust based on the plan's proportional ownership interest as adjusted for contributions and withdrawals made by each plan. NOTE 3 - FEDERAL INCOME TAX STATUS: A determination letter from the Internal Revenue Service has not yet been received; however, the Company believes that the Plan is a qualified plan exempt from federal income taxes under Section 401 of the Internal Revenue Code. -3- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1993 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ----------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ------ ------ ------ ------ --------- ----- Cash and short-term investments $ 448,073 $ 56,786 $ 41,908 $ 2,375 $ 549,142 Employee contributions receivable 85,337 57,768 17,162 18,424 178,691 Rochester Telephone Corporation contributions receivable 36,098 13,877 5,058 5,000 60,033 Investments: Hartford Life Insurance Company Group Annuity Contracts, at cost - fixed rates of 8.00% With no specified maturity dates 24,554,791 24,554,791 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 5,051,085 5,051,085 New York Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.60% to mature at June 1998 6,246,893 6,246,893 Prudential Insurance Company of America Group Annuity Contracts, at cost - fixed rates of 5.19% and 5.97% to mature at June 1997 and June 1999 7,194,288 7,194,288 John Hancock Mutual Life Insurance Company Group Annuity, at cost - fixed rate of 5.58% to mature at June 1998 6,239,801 6,239,801 Metropolitan Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.16% to mature at December 1997 6,381,425 6,381,425 Common stock of Rochester Telephone Corporation, at market value: 1993 - 608,963 shares at a cost of $17,047,227 27,479,455 27,479,455 American National Bank Equity Index Fund, at market value: 1993 - 27,974 shares at a cost of $3,373,962 3,934,575 3,934,575 Merrill Lynch Capital Fund, at market value: 1993 - 161,296 shares at a cost of $4,166,304 4,687,134 4,687,134 Participant loans 3,906,771 3,906,771 ------------ ------------ ----------- ----------- ----------- ------------ 56,237,791 27,607,886 3,998,703 4,712,933 3,906,771 96,464,084 ------------ ------------ ----------- ----------- ----------- ------------ Accrued benefits 276,741 82,854 50,647 47,561 457,803 Interfund payable (receivable) 442,199 (358,990) 85,419 (168,628) ------------ ------------ ----------- ----------- ----------- ------------ Net assets available for Plan benefits $ 55,518,851 $ 27,884,022 $ 3,862,637 $ 4,834,000 $ 3,906,771 $ 96,006,281 ============ ============ =========== =========== =========== ============
-4- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1992 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ----------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ------ ------ ------ ------ --------- ----- Cash and short-term investments $ 705,732 $ 80,962 $ 39,007 $ 20,564 $ 846,265 Investments: Hartford Life Insurance Company Group Annuity Contract, at cost - fixed rate of 8.00% with no specified maturity date 47,758,093 47,758,093 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 4,739,013 4,739,013 Common stock of Rochester Telephone Corporation, at market value: 1992 - 562,834 shares at a cost of $14,418,106 20,051,064 20,051,064 American National Bank Equity Index Fund, at market value: 1992 - 15,346 shares at a cost of $1,711,346 1,962,717 1,962,717 Merrill Lynch Capital Fund, at market value: 1992 - 115,477 shares at a cost of $2,891,763 3,040,517 3,040,517 Participant loans $ 3,405,640 3,405,640 ------------ ------------ ----------- ---------- ----------- ------------ Net assets available for Plan benefits $ 53,202,838 $ 20,132,026 $ 2,001,724 $ 3,061,081 $ 3,405,640 $ 81,803,309 ============ ============ =========== =========== =========== ============
-5- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ------------------------------------------------------------------------ Fund A Fund B Fund C Fund D Loan Fund Total ------ ------ ------ ------ --------- ----- Additions to net assets attributed to: Employee contributions $ 4,146,445 $ 1,800,874 $ 574,198 $ 528,877 $ 7,050,394 Rochester Telephone Corporation contributions 1,205,590 538,458 235,848 212,530 2,192,426 Rollover contributions from other plans 44,033 28,569 44,647 42,575 159,824 Interest and dividend income 3,638,211 933,958 1,134 187,225 $ 252,842 5,013,370 Net appreciation in fair value of participation units 4,718,412 309,275 198,401 5,226,088 Realized (loss) gain (120,036) 348 123,992 4,304 Participant loans 1,916,270 1,916,270 Participant loan repayments 1,292,233 316,179 29,668 29,901 1,667,981 Transfers from other plans in Master Trust 24,438 26,692 10,051 10,285 2,187 73,653 Transfers from other funds 456,072 1,361,626 1,182,052 870,176 3,869,926 ------------ ------------ ----------- ----------- ----------- ------------ Total additions 10,807,022 9,604,732 2,387,221 2,203,962 2,171,299 27,174,236 ------------ ------------ ----------- ----------- ----------- ------------ Deductions from net assets attributed to: Withdrawals 3,865,224 1,018,840 210,829 348,541 5,443,434 Participant loans 1,331,845 423,800 90,650 69,975 1,916,270 Participant loan repayments 1,667,981 1,667,981 Transfers to other plans in Master Trust 62,793 4,602 1,537 2,534 2,187 73,653 Transfers to other funds 3,231,147 405,494 223,292 9,993 3,869,926 ------------ ------------ ----------- ----------- ----------- ------------ Total deduction 8,491,009 1,852,736 526,308 431,043 1,670,168 12,971,264 ------------ ------------ ----------- ----------- ----------- ------------ Increase in net assets 2,316,013 7,751,996 1,860,913 1,772,919 501,131 14,202,972 Net assets available for plan benefits: Plan equity, beginning of year 53,202,838 20,132,026 2,001,724 3,061,081 3,405,640 81,803,309 ------------ ------------ ----------- ----------- ----------- ------------ Plan equity, end of year $ 55,518,851 $ 27,884,022 $ 3,862,637 $ 4,834,000 $ 3,906,771 $ 96,006,281 ============ ============ =========== =========== =========== ============
-6- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ----------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ------ ------ ------ ------ --------- ----- Additions to net assets attributed to: Employee contributions $ 3,986,094 $ 1,271,074 $ 289,619 $ 338,115 $ 5,884,902 Rochester Telephone Corporation contributions 1,795,958 479,003 164,132 206,331 2,645,424 Rollover contribution from individual plans into Master Trust 47,875,301 15,543,115 789,747 1,947,856 66,156,019 Rollover contributions from other plans 197,468 202,915 121,189 83,227 604,799 Interest and dividend income 3,972,828 807,862 846 166,758 4,948,294 Net appreciation (depreciation) in fair value of participation units 1,918,019 134,517 (69,277) 1,983,259 Realized gain 43,533 38,389 81,922 Participant loans $ 4,976,103 4,976,103 Participant loan repayments 1,223,895 317,793 12,307 16,468 1,570,463 Other income 22 1,541 1,563 Net transfers from other funds 298,123 707,591 560,079 618,925 2,184,718 ------------ ------------ ----------- ----------- ----------- ------------ Total additions 59,349,689 21,292,446 2,072,436 3,346,792 4,976,103 91,037,466 ------------ ------------ ----------- ----------- ----------- ------------ Deductions from net assets attributed to: Withdrawals 2,589,913 548,748 11,045 20,438 3,170,144 Participant loans 1,608,450 411,475 51,275 44,300 2,115,500 Participant loan repayments 1,570,463 1,570,463 Other expenses 1,365 1,365 Transfers to Supplemental Retirement Savings Plan 12,339 1,955 1,496 15,790 Net transfers to other plans 175,810 367 176,177 Net transfers to other funds 1,771,313 187,491 6,437 219,477 2,184,718 ------------ ------------ ----------- ----------- ----------- ------------ Total deductions 6,146,851 1,160,420 70,712 285,711 1,570,463 9,234,157 ------------ ------------ ----------- ----------- ----------- ------------ Net assets available for Plan benefits: Plan equity, end of year $ 53,202,838 $ 20,132,026 $ 2,001,724 $ 3,061,081 $ 3,405,640 $ 81,803,309 ============ ============ =========== =========== =========== ============
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33- 38310) of our report dated February 18, 1994, for the Rochester Telephone Corporation Retirement Savings Program for Rochester Telephone Corporation Subsidiary Companies. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-4 of the Annual Report of Rochester Telephone Corporation on Form 10-K for the year ended December 31, 1993. /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 Exhibit 28.5 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Consolidated Statements of Net Assets Available for Plan Benefits for the Year Ended December 31, 1993 and 1992 Consolidated Statements of Changes in Net assets Available for Plan Benefits for the Years Ended December 31, 1993 and 1992 Consolidated Notes to Financial Statements Consolidated Statement of Investments Held at December 31, 1993 Consolidated 1993 Reportable Transactions The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES - - - -------------------------------------------------------------------------------- Report of Independent Accountants Consolidated Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Consolidated Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Consolidated Notes to Financial Statements Schedule A - Consolidated Statement of Investments held at December 31, 1993 Schedule B - Consolidated 1993 Reportable Transactions * * * * * (All other schedules are not required or not applicable.) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Vista Telephone Company Retirement Savings Plan and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees In our opinion, the accompanying consolidated statements of net assets available for plan benefits and the related consolidated statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Vista Telephone Company Retirement Savings Plan and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees at December 31, 1993 and 1992, and the changes in its financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of the financial statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information included in Schedules A through B is presented for purposes of additional analysis and is not a required part of the basic financial statements but is additional information required by ERISA. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/PRICE WATERHOUSE PRICE WATERHOUSE ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES CONSOLIDATED STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 ------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ---------- ---------- ---------- -------- -------- ----------- Cash and short-term investments $ 633 $ 10,133 $ 7,664 $ 10,904 $ 29,334 Contributions receivable 80,124 88,338 22,667 12,498 203,627 Accrued loan repayments 11,621 13,246 2,697 1,210 28,774 Interest receivable 119 116 31 37 303 Investments: Investment contracts, at cost 4,548,440 4,548,440 Common stock of Rochester Telephone Corporation, at market value - 1993 - 91,758 shares at cost of $3,005,799 1992 - 87,280 shares at cost of $2,660,038 4,140,580 4,140,580 American National Bank Equity Index Fund, at market value - 1993 - 4,516 shares at cost of $513,500 1992 - 3,801 shares at cost of $418,500 635,289 635,289 Investment in the Merrill Lynch Capital Fund, at market value - 1993 - 39,026 shares at cost of $1,019,743 1992 - 39,586 shares at cost of $1,052,616 1,175,376 1,175,376 Participant loans $426,990 426,990 ---------- ---------- ---------- -------- -------- ----------- 4,233,077 4,660,273 1,208,435 659,938 426,990 11,188,713 ---------- ---------- ---------- -------- -------- ----------- Accrued benefits 13,713 58,086 5,228 129 77,156 Accrued loans 6,221 2,821 1,900 1,558 12,500 Interfund payable (receivable) 103,810 (51,589) (19,703) (32,518) Forfeitures 692 2,327 418 592 4,029 ---------- ---------- ---------- -------- -------- ----------- Net assets available for Plan benefits $4,108,641 $4,648,628 $1,220,592 $690,177 $426,990 $11,095,028 ========== ========== ========== ======== ======== ===========
December 31, 1992 ------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ---------- ---------- ---------- -------- -------- ----------- Cash and short-term investments $ 7,981 $ 160,122 $ 6,426 $ 4,581 $179,110 Contributions receivable 68,528 110,857 28,917 11,184 219,486 Accrued loan repayments 8,767 11,509 3,214 972 24,462 Interest receivable 48 34 23 15 120 Investments: Investment contracts, at cost 4,780,091 4,780,091 Common stock of Rochester Telephone Corporation, at market value - 1993 - 91,758 shares at cost of $3,005,799 1992 - 87,280 shares at cost of $2,660,038 3,109,350 3,109,350 American National Bank Equity Index Fund, at market value - 1993 - 4,516 shares at cost of $513,500 1992 - 3,801 shares at cost of $418,500 486,217 486,217 Investment in the Merrill Lynch Capital Fund, at market value - 1993 - 39,026 shares at cost of $1,019,743 1992 - 39,586 shares at cost of $1,052,616 1,070,431 1,070,431 Participant loans $393,916 393,916 ---------- ---------- ---------- -------- -------- ---------- 3,194,674 5,062,613 1,109,011 502,969 393,916 10,263,183 ---------- ---------- ---------- -------- -------- ---------- Accrued benefits 3,737 22,098 197 26,032 Accrued loans 1,264 4,358 381 197 6,200 Interfund payable (receivable) 5,018 5,175 (22,612) 12,419 Forfeitures ---------- ---------- ---------- -------- -------- ---------- Net assets available for Plan benefits $3,184,655 $5,030,982 $1,131,045 $490,353 $393,916 $10,230,951 ========== ========== ========== ======== ======== ==========
ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
For the year ended December 31, ------------------------------------------------------------------- 1993 ------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ---------- ---------- ---------- -------- -------- ----------- Additions to net assets attributed to: Participating employees $ 429,380 $ 542,979 $ 159,958 $ 78,762 $1,211,079 Vista Telephone Company contributions 302,906 395,275 110,077 55,082 863,340 Rollovers from other plans 11,659 4,983 9,628 10,169 36,439 Interest income 2,119 362,318 780 615 365,832 Dividend income 141,939 43,921 185,860 Unrealized appreciation of investments 894,759 114,481 54,023 1,063,263 Realized (loss) gain (1,947) (1,947) Participant loans $197,475 197,475 Participant loan interest income 11,930 13,178 3,297 1,315 29,720 Participant loan repayments 62,861 71,734 19,836 9,970 164,401 Net transfers from other funds 194,765 51,679 246,444 ---------- ---------- ---------- -------- -------- ----------- Total additions 2,050,371 1,390,467 461,978 261,615 197,475 4,361,906 Deductions from net assets attributed to: Withdrawals 1,054,725 1,443,956 320,089 49,485 2,868,255 Participant loans 65,606 100,411 20,617 10,841 197,475 Participant loan repayments 164,401 164,401 Forfeitures 6,054 10,112 3,623 1,465 21,254 Net transfers to other funds 218,342 28,102 246,444 ---------- ---------- ---------- -------- -------- ----------- Total deductions 1,126,385 1,772,821 372,431 61,791 164,401 3,497,829 ---------- ---------- ---------- -------- -------- ----------- Increase (decrease) in net assets 923,986 (382,354) 89,547 199,824 33,074 864,077 Net assets available for Plan benefits: Plan equity, beginning of year 3,184,655 5,030,982 1,131,045 490,353 393,916 10,230,951 ---------- ---------- ---------- -------- -------- ----------- Plan equity, end of year $4,108,641 $4,648,628 $1,220,592 $690,177 $426,990 $11,095,028 ========== ========== ========== ======== ======== =========== For the year ended December 31, ------------------------------------------------------------------- 1992 ------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ---------- ---------- ---------- -------- ---------- -------- Additions to net assets attributed to: Participating employees $ 374,369 $ 595,878 $ 164,141 $ 69,138 1,203,526 Vista Telephone Company contributions 275,203 448,438 115,522 48,899 888,062 Rollovers from other plans 2,696 6,689 3,989 3,473 16,847 Interest income 1,018 322,295 511 367 324,191 Dividend income 116,497 27,811 13,821 158,129 Unrealized appreciation of investments 315,492 22,600 19,866 357,958 Realized (loss) gain 376 2,482 2,858 Participant loans $ 249,038 249,038 Participant loan interest income 10,936 13,064 3,179 700 27,879 Participant loan repayments 31,424 49,394 12,616 3,130 96,564 Net transfers from other funds 150,308 150,308 ---------- ---------- ---------- -------- --------- ---------- Total additions 1,128,011 1,586,066 350,369 161,876 249,038 3,475,360 Deductions from net assets attributed to: Withdrawals Participant loans 95,202 157,556 9,626 6,172 268,556 Participant loan repayments 63,956 138,863 31,034 15,185 249,038 Forfeitures 96,565 96,565 Net transfers to other funds 21,683 56,957 71,668 150,308 ---------- ---------- ---------- -------- ---------- -------- Total deductions 180,841 296,419 97,617 93,025 96,565 764,467 ---------- ---------- ---------- -------- ---------- -------- Increase (decrease) in net assets Net assets available for Plan benefits: 947,170 1,289,647 252,752 68,851 152,473 2,710,893 Plan equity, beginning of year 2,237,485 3,741,335 878,293 421,502 241,443 7,520,058 ---------- ---------- ---------- -------- ---------- --------- Plan equity, end of year $3,184,655 $5,030,982 $1,131,045 $490,353 $ 393,916 $10,230,951 ========== ========== ========== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: Effective June 20, 1991, the Board of Directors of Rochester Telephone Corporation (the "Company") established two retirement savings plans for Vista Corporation. These were the Vista Telephone Company Retirement Savings Plan, which was established for non-bargaining employees of the two companies, and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees, which was established for the bargaining unit employees of the two companies. Each plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The two plans currently have identical provisions. As permitted by ERISA the plans are being administered as one plan. These financial statements consolidate the two plans (the "Plans"). Participation All employees of Vista Telephone Company of Iowa and the Vista Telephone Company of Minnesota who are in the Communications Workers of America (CWA) Locals 7171 and 7270 and who have been employed for at least six months are eligible to participate in the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees. All other employees who have been employed for at least six months are eligible to participate in the Vista Telephone Company Retirement Savings Plan. Administration The Plans are administered by the Vista Employees' Benefit Committee whose members are appointed by the Company's Board of Directors. The trustee of the Plans is FirsTier Bank, N.A. Funding policy The Plans consist of four separate funds. Fund A is a stock investment fund consisting of Rochester Telephone Corporation's common stock. Fund B consists of various group annuity contracts. Fund C is the Merrill Lynch Capital Fund, a diversified securities fund. Fund D is the American National Bank Equity Fund, which holds stocks listed on the Standard and Poors 500 Index. The Plans provide that participants may voluntarily make a basic contribution which cannot exceed six per cent of their basic pay. Any participant who contributes the maximum basic contribution may make a supplemental contribution which, when added to the basic contribution, -2- cannot exceed sixteen per cent of the participant's basic pay. In addition, the Company contributes an amount equal to 70 per cent of each participant's basic contribution. All participant contributions are subject to the limitations set forth in Section 401 of the current tax code. Individual participant loans Participant loans cannot exceed the lesser of 50% of the vested amounts in the participant's account under the Plans or $50,000. A participant may have two loans outstanding and the loans are treated as directed investments by the borrower with respect to his account. Interest paid on the loan is credited to the borrower's account and the participant does not share in the income of the Plans' assets with respect to the amounts borrowed and not yet repaid. General loans have a term of no more than five years except that a loan may be granted for a period not to exceed ten years if the proceeds are used to purchase the participant's principal residence. Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Employees Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. Forfeitures Amounts relating to Vista's contributions made to non-vested participants who were subsequently terminated in 1993 are paid back to the companies. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plans when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plans when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plans are paid by the Company. Valuation of investment assets The Plans' assets are valued at fair market value as of the year-end date. -3- NOTE 3 - FEDERAL INCOME TAX STATUS: The Company is in receipt of a determination letter from the Internal Revenue Service which states that the Plan is a qualified plan exempt from Federal income taxes under Section 401 of the Internal Revenue Code. ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED STATEMENT OF INVESTMENTS HELD SCHEDULE A - - - --------------------------------------------------------------------------------
Shares Current Outstanding Value Interest Maturity December 31, December 31, Identity of Issuer Description of Investment Rate Date Cost 1993 1993 - - - ------------------ ------------------------- ---- ---- ---- ---- ---- Fixed Income Fund: John Hancock (1) Guaranteed Investment Contract 5.93% December 1998 N/A N/A $ 756,376 Metropolitan Life (1) Guaranteed Investment Contract 7.10% December 1994 N/A N/A 1,009,248 to December 1997 Continental Assurance (1) Guaranteed Investment Contract 8.88% August 1995 N/A N/A 1,094,966 The Principal Financial Group (1) Guaranteed Investment Contract 7.70% December 1997 N/A N/A 1,687,850 Common Stock Fund: Rochester Telephone Corporation Common Stock N/A N/A $ 3,005,799 91,758 4,140,580 Pooled Funds: American National Bank Index Fund N/A N/A $ 513,500 4,516 635,289 Merrill Lynch Capital Fund N/A N/A $ 1,019,743 39,026 1,175,376 ----------- $10,499,685 =========== Individual Participant Loans: Plan Trustee Individual Participant Loans Prime less 1/4% Various N/A N/A $ 426,990 ===========
(1) Represents contract value at December 31, 1993. ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES FINANCIAL STATEMENTS AND SCHEDULES 1993 CONSOLIDATED REPORTABLE TRANSACTIONS SUMMARY OF TRANSACTIONS IN EXCESS OF 5% OF ASSETS SCHEDULE B - - - --------------------------------------------------------------------------------
Number of Net Purchases/ Purchase Sale Gain Description Sales Cost Price Price (Loss) ----------- ----- ---- ----- ----- ---- BOY - Value of net assets $10,230,951 x 5% = $511,548 Purchases: Rochester Telephone Corporation Common stock 8 $ 784,979 $ 784,979 Dreyfus Treasury Prime Cash Management Fund 133 $ 3,101,420 $ 3,101,420 John Hancock Life GIC 7 $ 1,227,928 $ 1,227,928 Sales: Rochester Telephone Corporation Common stock 3 $ 186,146 $ 275,837 $ 89,691 Dreyfus Treasury Prime Cash Management Fund 120 $ 3,092,318 $ 3,092,318
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33-41307) of our report dated February 18, 1994, for the Rochester Telephone Corporation Vista Telephone Company Retirement Savings Plan and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-5 of the Annual Report of Rochester Telephone Corporation on Form 10-K for the year ended December 31, 1993 /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 Exhibit 28.6 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Consolidated Statements of Net Assets Available for Plan Benefits for the Year Ended December 31, 1993 and 1992 Consolidated Statements of Changes in Net assets Available for Plan Benefits for the Years Ended December 31, 1993 and 1992 Consolidated Notes to Financial Statements Consolidated Statement of Investments Held at December 31, 1993 Consolidated 1993 Reportable Transactions The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES - - - -------------------------------------------------------------------------------- Report of Independent Accountants DECEMBER 31, 1993 AND 1992 Consolidated Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Consolidated Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Consolidated Notes to Financial Statements Schedule A - Consolidated Statement of Investments held at December 31, 1993 Schedule B - Consolidated 1993 Reportable Transactions * * * * * (All other schedules are not required or not applicable.) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Vista Telephone Company Retirement Savings Plan and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees In our opinion, the accompanying consolidated statements of net assets available for plan benefits and the related consolidated statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Vista Telephone Company Retirement Savings Plan and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees at December 31, 1993 and 1992, and the changes in its financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of the financial statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information included in Schedules A through B is presented for purposes of additional analysis and is not a required part of the basic financial statements but is additional information required by ERISA. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/PRICE WATERHOUSE PRICE WATERHOUSE ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES CONSOLIDATED STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 ------------------------------------------------------------------------------------ Loan Fund A Fund B Fund C Fund D Fund Total ------ ------ ------ ------ ---- ----- Cash and short-term investments $ 633 $ 10,133 $ 7,664 $ 10,904 $ 29,334 Contributions receivable 80,124 88,338 22,667 12,498 203,627 Accrued loan repayments 11,621 13,246 2,697 1,210 28,774 Interest receivable 119 116 31 37 303 Investments: Investment contracts, at cost 4,548,440 4,548,440 Common stock of Rochester Telephone Corporation, at market value - 1993 - 91,758 shares at cost of $3,005,799 1992 - 87,280 shares at cost of $2,660,038 4,140,580 4,140,580 American National Bank Equity Index Fund, at market value - 1993 - 4,516 shares at cost of $513,500 1992 - 3,801 shares at cost of $418,500 635,289 635,289 Investment in the Merrill Lynch Capital Fund, at market value - 1993 - 39,026 shares at cost of $1,019,743 1992 - 39,586 shares at cost of $1,052,616 1,175,376 1,175,376 Participant loans $ 426,990 426,990 ---------- ---------- ---------- ---------- ---------- ----------- 4,233,077 4,660,273 1,208,435 659,938 426,990 11,188,713 ---------- ---------- ---------- ---------- ---------- ----------- Accrued benefits 13,713 58,086 5,228 129 77,156 Accrued loans 6,221 2,821 1,900 1,558 12,500 Interfund payable (receivable) 103,810 (51,589) (19,703) (32,518) Forfeitures 692 2,327 418 592 4,029 ---------- ---------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $4,108,641 $4,648,628 $1,220,592 $ 690,177 $ 426,990 $11,095,028 ========== ========== ========== ========== ========== =========== December 31, 1992 -------------------------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ------ ------ ------ ------ ---- ----- Cash and short-term investments $ 7,981 $ 160,122 $ 6,426 $ 4,581 $ 179,110 Contributions receivable 68,528 110,857 28,917 11,184 219,486 Accrued loan repayments 8,767 11,509 3,214 972 24,462 Interest receivable 48 34 23 15 120 Investments: Investment contracts, at cost 4,780,091 4,780,091 Common stock of Rochester Telephone Corporation, at market value - 1993 - 91,758 shares at cost of $3,005,799 1992 - 87,280 shares at cost of $2,660,038 3,109,350 3,109,350 American National Bank Equity Index Fund, at market value - 1993 - 4,516 shares at cost of $513,500 1992 - 3,801 shares at cost of $418,500 486,217 486,217 Investment in the Merrill Lynch Capital Fund, at market value - 1993 - 39,026 shares at cost of $1,019,743 1992 - 39,586 shares at cost of $1,052,616 1,070,431 1,070,431 Participant loans $ 393,916 393,916 ---------- ---------- ---------- ---------- ---------- ----------- 3,194,674 5,062,613 1,109,011 502,969 393,916 10,263,183 ---------- ---------- ---------- ---------- ---------- ----------- Accrued benefits 3,737 22,098 197 26,032 Accrued loans 1,264 4,358 381 197 6,200 Interfund payable (receivable) 5,018 5,175 (22,612) 12,419 Forfeitures ---------- ---------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $3,184,655 $5,030,982 $1,131,045 $ 490,353 $ 393,916 $10,230,951 ========== ========== ========== ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
For the year ended December 31, ---------------------------------------------------------------------------------------- 1993 ---------------------------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ---------- ---------- --------- --------- ---------- ---------- Additions to net assets attributed to: Participating employees $ 429,380 $ 542,979 $ 159,958 $ 78,762 $1,211,079 Vista Telephone Company contributions 302,906 395,275 110,077 55,082 863,340 Rollovers from other plans 11,659 4,983 9,628 10,169 36,439 Interest income 2,119 362,318 780 615 365,832 Dividend income 141,939 43,921 185,860 Unrealized appreciation of investments 894,759 114,481 54,023 1,063,263 Realized (loss) gain (1,947) (1,947) Participant loans $ 197,475 197,475 Participant loan interest income 11,930 13,178 3,297 1,315 29,720 Participant loan repayments 62,861 71,734 19,836 9,970 164,401 Net transfers from other funds 194,765 51,679 246,444 ---------- ---------- ---------- -------- -------- ----------- Total additions 2,050,371 1,390,467 461,978 261,615 197,475 4,361,906 Deductions from net assets attributed to: Withdrawals 1,054,725 1,443,956 320,089 49,485 2,868,255 Participant loans 65,606 100,411 20,617 10,841 197,475 Participant loan repayments 164,401 164,401 Forfeitures 6,054 10,112 3,623 1,465 21,254 Net transfers to other funds 218,342 28,102 246,444 ---------- ---------- ---------- -------- -------- ----------- Total deductions 1,126,385 1,772,821 372,431 61,791 164,401 3,497,829 ---------- ---------- ---------- -------- -------- ----------- Increase (decrease) in net assets 923,986 (382,354) 89,547 199,824 33,074 864,077 Net assets available for Plan benefits: Plan equity, beginning of year 3,184,655 5,030,982 1,131,045 490,353 393,916 10,230,951 ---------- ---------- ---------- -------- -------- ----------- Plan equity, end of year $4,108,641 $4,648,628 $1,220,592 $690,177 $426,990 $11,095,028 ========== ========== ========== ======== ======== =========== For the year ended December 31, ---------------------------------------------------------------------------------------- 1992 ---------------------------------------------------------------------------------------- Loan Fund A Fund B Fund C Fund D Fund Total ---------- ---------- --------- --------- ---------- ---------- Additions to net assets attributed to: Participating employees $ 374,369 $ 595,878 $ 164,141 $ 69,138 $1,203,526 Vista Telephone Company contributions 275,203 448,438 115,522 48,899 888,062 Rollovers from other plans 2,696 6,689 3,989 3,473 16,847 Interest income 1,018 322,295 511 367 324,191 Dividend income 116,497 27,811 13,821 158,129 Unrealized appreciation of investments 315,492 22,600 19,866 357,958 Realized (loss) gain 376 2,482 2,858 Participant loans $ 249,038 249,038 Participant loan interest income 10,936 13,064 3,179 700 27,879 Participant loan repayments 31,424 49,394 12,616 3,130 96,564 Net transfers from other funds 150,308 150,308 ---------- ---------- ---------- -------- -------- ----------- Total additions 1,128,011 1,586,066 350,369 161,876 249,038 3,475,360 Deductions from net assets attributed to: Withdrawals 95,202 157,556 9,626 6,172 268,556 Participant loans 63,956 138,863 31,034 15,185 249,038 Participant loan repayments 96,565 96,565 Forfeitures Net transfers to other funds 21,683 56,957 71,668 150,308 ---------- ---------- ---------- -------- -------- ----------- Total deductions 180,841 296,419 97,617 93,025 96,565 764,467 ---------- ---------- ---------- -------- -------- ----------- Increase (decrease) in net assets 947,170 1,289,647 252,752 68,851 152,473 2,710,893 Net assets available for Plan benefits: Plan equity, beginning of year 2,237,485 3,741,335 878,293 421,502 241,443 7,520,058 ---------- ---------- ---------- -------- -------- ----------- Plan equity, end of year $ 3,184,655 $5,030,982 $1,131,045 $490,353 $393,916 $10,230,951 ========== ========== ========== ======== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: Effective June 20, 1991, the Board of Directors of Rochester Telephone Corporation (the "Company") established two retirement savings plans for Vista Telephone Company of Iowa and Vista Telephone Company of Minnesota in conjunction with the acquisition of various telephone properties from Centel Corporation. These were the Vista Telephone Company Retirement Savings Plan, which was established for non-bargaining employees of the two companies, and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees, which was established for the bargaining unit employees of the two companies. Each plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The two plans currently have identical provisions. As permitted by ERISA the plans are being administered as one plan. These financial statements consolidate the two plans (the "Plans"). Participation All employees of Vista Telephone Company of Iowa and the Vista Telephone Company of Minnesota who are in the Communications Workers of America (CWA) Locals 7171 and 7270 and who have been employed for at least six months are eligible to participate in the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees. All other employees who have been employed for at least six months are eligible to participate in the Vista Telephone Company Retirement Savings Plan. Administration The Plans are administered by the Vista Employees' Benefit Committee whose members are appointed by the Company's Board of Directors. The trustee of the Plans is FirsTier Bank, N.A. Funding policy The Plans consist of four separate funds. Fund A is a stock investment fund consisting of Rochester Telephone Corporation's common stock. Fund B consists of various group annuity contracts. Fund C is the Merrill Lynch Capital Fund, a diversified securities fund. Fund D is the American National Bank Equity Fund, which holds stocks listed on the Standard and Poors 500 Index. The Plans provide that participants may voluntarily make a basic contribution which cannot exceed six per cent of their basic pay. Any participant who contributes the maximum basic contribution may make a supplemental contribution which, when added to the basic contribution, -2- cannot exceed sixteen per cent of the participant's basic pay. In addition, the Company contributes an amount equal to 70 per cent of each participant's basic contribution. All participant contributions are subject to the limitations set forth in Section 401 of the current tax code. Individual participant loans Participant loans cannot exceed the lesser of 50% of the vested amounts in the participant's account under the Plans or $50,000. A participant may have two loans outstanding and the loans are treated as directed investments by the borrower with respect to his account. Interest paid on the loan is credited to the borrower's account and the participant does not share in the income of the Plans' assets with respect to the amounts borrowed and not yet repaid. General loans have a term of no more than five years except that a loan may be granted for a period not to exceed ten years if the proceeds are used to purchase the participant's principal residence. Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Employees Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. Forfeitures Amounts relating to Vista's contributions made to non-vested participants who were subsequently terminated in 1993 are paid back to the companies. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plans when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plans when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plans are paid by the Company. Valuation of investment assets The Plans' assets are valued at fair market value as of the year-end date. -3- NOTE 3 - FEDERAL INCOME TAX STATUS: The Company is in receipt of a determination letter from the Internal Revenue Service which states that the Plan is a qualified plan exempt from Federal income taxes under Section 401 of the Internal Revenue Code. ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED STATEMENT OF INVESTMENTS HELD SCHEDULE A - - - --------------------------------------------------------------------------------
Shares Current Outstanding Value Description of Interest Maturity December 31, December 31, Identity of Issuer Investment Rate Date Cost 1993 1993 ------------------ -------------- -------- -------- ---- ------------ ------------ Fixed Income Fund: John Hancock (1) Guaranteed Investment Contract 5.93% December 1998 N/A N/A $ 756,376 Metropolitan Life (1) Guaranteed Investment Contract 7.10% December 1994 to N/A N/A 1,009,248 December 1997 Continental Assurance (1) Guaranteed Investment Contract 8.88% August 1995 N/A N/A 1,094,966 The Principal Financial Group (1) Guaranteed Investment Contract 7.70% December 1997 N/A N/A 1,687,850 Common Stock Fund: Rochester Telephone Corporation Common Stock N/A N/A $ 3,005,799 91,758 4,140,580 Pooled Funds: American National Bank Index Fund N/A N/A $ 513,500 4,516 635,289 Merrill Lynch Capital Fund N/A N/A $ 1,019,743 39,026 1,175,376 ----------- $10,499,685 =========== Individual Participant Loans: Plan Trustee Individual Participant Loans Prime less 1/4% Various N/A N/A $ 426,990 ===========
(1) Represents contract value at December 31, 1993. ROCHESTER TELEPHONE CORPORATION VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN AND THE VISTA TELEPHONE COMPANY RETIREMENT SAVINGS PLAN FOR BARGAINING UNIT EMPLOYEES FINANCIAL STATEMENTS AND SCHEDULES 1993 CONSOLIDATED REPORTABLE TRANSACTIONS SUMMARY OF TRANSACTIONS IN EXCESS OF 5% OF ASSETS SCHEDULE B - - - --------------------------------------------------------------------------------
Number of Net Purchases/ Purchase Sale Gain Description Sales Cost Price Price (Loss) ----------- ---------- ----- -------- ----- ------ BOY - Value of net assets $10,230,951 x 5% = $511,548 Purchases: Rochester Telephone Corporation Common stock 8 $ 784,979 $ 784,979 Dreyfus Treasury Prime Cash Management Fund 133 $3,101,420 $3,101,420 John Hancock Life GIC 7 $1,227,928 $1,227,928 Sales: Rochester Telephone Corporation Common stock 3 $ 186,146 $ 275,837 $ 89,691 Dreyfus Treasury Prime Cash Management Fund 120 $3,092,318 $3,092,318
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33- 41306) of our report dated February 18, 1994, for the Rochester Telephone Corporation Vista Telephone Company Retirement Savings Plan and the Vista Telephone Company Retirement Savings Plan for Bargaining Unit Employees. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-6 of the Annual Report of Rochester Telephone Corporation on Form 10-K for the year ended December 31, 1993 /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 Exhibit 28.7 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4166 ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PLAN FOR AFFILIATED COMPANIES (Full name of plan) ROCHESTER TELEPHONE CORPORATION (Name of issuer of securities held pursuant to the plan) 180 South Clinton Avenue Rochester, New York 14646-0700 (Address of principal executive offices) REQUIRED INFORMATION In accordance with the applicable provisions of Article 6A of Regulation S-X, the following financial statements are filed as part of this Report. Report of Independent Accountants Statements of Net Assets Available for Plan Benefits for the Year Ended December 31, 1993 and 1992 Statements of Changes in Net assets Available for Plan Benefits for the Years Ended December 31, 1993 and 1992 Notes to Financial Statements The following exhibit is filed as part of this Report. Consent of Independent Accountants ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PLAN FOR AFFILIATED COMPANIES FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PLAN FOR AFFILIATED COMPANIES INDEX TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- Report of Independent Accountants Statements of Net Assets Available for Plan Benefits at December 31, 1993 and 1992 Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992 Notes to Financial Statements * * * * * (All other schedules are not required or not applicable) REPORT OF INDEPENDENT ACCOUNTANTS February 18, 1994 To the Board of Directors of Rochester Telephone Corporation and Participants in the Retirement Savings Plan for Affiliated Companies In our opinion, the accompanying statements of net assets available for plan benefits, and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the financial position of the Rochester Telephone Corporation Retirement Savings Plan for Affiliated Companies at December 31, 1993 and 1992, and the changes in its financial position for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to expressed an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE PRICE WATERHOUSE ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PLAN FOR AFFILIATED COMPANIES STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 --------------------------------------------- ---------------------------------------------- Fund A Fund B Fund C Fund D Total Fund A Fund B Fund C Fund D Total ------ ------ ------ ------ ----- ------ ------ ----- ------ ----- Contributions receivable $ 169,112 169,112 Investment in the Rochester Telephone Corporation Master Trust Fund, at market value $2,160,931 $331,261 $198,873 $166,505 $2,857,570 2,071,327 2,071,327 ---------- -------- -------- -------- ---------- ---------- ------ ------ ------ ---------- Net assets available for Plan benefits $2,160,931 $331,261 $198,873 $166,505 $2,857,570 $2,240,439 $2,240,439 ========== ======== ======== ======== ========== ========== ====== ====== ====== ==========
The accompanying notes are an integral part of these consolidated financial statements. ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PLAN FOR AFFILIATED COMPANIES STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS - - - --------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 ----------------------------------------------- -------------------------------------------- Fund A Fund B Fund C Fund D Total Fund A Fund B Fund C Fund D Total ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- Additions to net assets attributed to: Employee contributions $ 248,397 $ 80,229 $ 63,029 $ 40,499 $ 432,154 $ 113,850 $113,850 Rochester Telephone Corporation contributions 85,139 25,470 21,792 15,194 147,595 406,358 406,358 Earnings from participation in Master Trust 131,371 39,020 12,278 14,834 197,503 153,114 153,114 Rollover contributions from other plans 2,698 5,568 1,298 1,299 10,863 Transfers from other funds 182,671 113,526 99,688 395,885 --------- -------- -------- --------- ---------- ---------- ------ ------ ------ --------- Total additions 467,605 332,958 211,923 171,514 1,184,000 673,322 673,322 --------- -------- -------- --------- ---------- ---------- ------ ------ ------ --------- Deductions from net assets attributed to: Withdrawals 133,492 1,697 595 613 136,397 242,768 242,768 Transfers to other plans in Master Trust 34,587 34,587 150,587 150,587 Transfers to other funds 379,034 12,455 4,396 395,885 --------- -------- -------- --------- ---------- ---------- ------ ------ ------ --------- Total deductions 547,113 1,697 13,050 5,009 566,869 393,355 393,355 --------- -------- -------- --------- ---------- ---------- ------ ------ ------ --------- (Decrease) increase in net assets (79,508) 331,261 198,873 166,505 617,131 279,967 279,967 Net assets available for plan benefits: Plan equity, beginning of year 2,240,439 2,240,439 1,960,472 1,960,472 ---------- -------- -------- --------- ---------- ---------- ------ ------ ------ ---------- Plan equity, end of year $2,160,931 $331,261 $198,873 $166,505 $2,857,570 $2,240,439 $2,240,439 ========== ======== ======== ========= ========== ========== ====== ====== ====== ==========
The accompanying notes are an integral part of these financial statements ROCHESTER TELEPHONE CORPORATION RETIREMENT SAVINGS PLAN FOR AFFILIATED COMPANIES NOTES TO FINANCIAL STATEMENTS - - - -------------------------------------------------------------------------------- NOTE 1 - DESCRIPTION OF THE PLAN: The Rochester Telephone Corporation Retirement Savings Plan for Affiliated Companies is a defined contribution Plan adopted to provide retirement benefits for employees of Rochester Telephone Corporation ("RTC") affiliated companies. This Plan was formed as a result of the transfer of the net assets of certain other plans sponsored by Rochester Telephone Corporation. Participation All non-management employees of any RTC affiliated company which has adopted this Plan who are not covered by a collective bargaining agreement and have been employed for one year with at least 1,000 hours of service are eligible to participate. Administration The Plan is administered by the RTC Employee Benefit Committee, as appointed by the RTC Board of Directors. The trustee of the Plan's assets is Marine Midland Bank, N.A. Funding policy The Plan provides that each participant may voluntarily make contributions from their regular salary on a pre-tax basis. A minimum contribution of 1% of compensation is required and contributions may not exceed the limits set forth in the Internal Revenue Code Section 401(k) and Section 415. Employee contributions are 100% vested at all times. Employer contributions may be made from current or accumulated profits at the discretion of the individual Board of Directors of each RTC affiliate company participating in the Plan. Employer contributions are allocated to participants' individual accounts based on years of service and salary. Participants' rights to employer contributions after December 31, 1988, are 100% vested after five years of service, or at age 65 or upon termination due to death or disability. There is no partial vesting to employer contributions after December 31, 1988. Contributions in 1988 and prior were partially vested based upon years of service. Termination Effective March 1, 1994, this Plan will terminate and its assets will merge with other Rochester Telephone Corporation defined contribution plans to form the Rochester Tel Group Employees' Retirement Savings Plan. The trustee of this new plan will be the Putnam Fiduciary Trust Company. -2- Forfeitures Approximately $85,000 relating to employer contributions to non-vested participants who were subsequently terminated in 1993 are included in the net assets of Fund A. These forfeitures will be allocated to vested participants in 1994 based on years of service and compensation levels. Master Trust Effective January 1, 1992, certain Plan investments were transferred into the Rochester Telephone Corporation Master Trust Fund (Master Trust). The Master Trust includes five other defined contribution plans of Rochester Telephone Corporation. The Plan's interest in the net assets of the Master Trust is the total of the specific interests of the individual participants in the Plan. See Note 4 for the Master Trust Statements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements have been prepared in accordance with current generally accepted accounting principles in all material respects. Recognition of contributions and withdrawals Contributions are recorded by the Plan when withheld from employees and accrued by the Company. Withdrawals are recorded by the Plan when a request for disbursement is received from the employee. Administrative expenses Expenses associated with the Plan are paid by the RTC affiliated companies participating in the Plan. Valuation of investment assets Investment assets are stated at fair market value as of the year-end date. Transfers Net transfers represent transfers from the RTC affiliated companies to other plans participating in the Master Trust. NOTE 3 - FEDERAL INCOME TAX STATUS: A determination letter from the Internal Revenue Service has not yet been received; however, the Company believes that the Plan is a qualified plan exempt from federal income taxes under Section 401 of the Internal Revenue Code. -3- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1993 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ------ ------ ------ ------ --------- ----- Cash and short-term investments $ 448,073 $ 56,786 $ 41,908 $ 2,375 $ 549,142 Employee contributions receivable 85,337 57,768 17,162 18,424 178,691 Rochester Telephone Corporation 36,098 13,877 5,058 5,000 60,033 contributions receivable Investments: Hartford Life Insurance Company Group Annuity Contracts, at cost - fixed rates of 8.00% with no specified maturity dates 24,554,791 24,554,791 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 5,051,085 5,051,085 New York Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.60% to mature at June 1998 6,246,893 6,246,893 Prudential Insurance Company of America Group Annuity Contracts, at cost - fixed rates of 5.19% and 5.97% to mature at June 1997 and June 1999 7,194,288 7,194,288 John Hancock Mutual Life Insurance Company Group Annuity, at cost - fixed rate of 5.58% to mature at June 1998 6,239,801 6,239,801 Metropolitan Life Insurance Company Group Annuity Contract, at cost - fixed rate of 5.16% to mature at December 1997 6,381,425 6,381,425 Common stock of Rochester Telephone Corporation, at market value: 1993 - 608,963 shares at a cost of $17,047,227 27,479,455 27,479,455 American National Bank Equity Index Fund, at market value: 1993 - 27,974 shares at a cost of $3,373,962 3,934,575 3,934,575 Merrill Lynch Capital Fund, at market value: 1993 - 161,296 shares at a cost of $4,166,304 4,687,134 4,687,134 Participant loans $ 3,906,771 3,906,771 ----------- ----------- ----------- ----------- ---------- ----------- 56,237,791 27,607,886 3,998,703 4,712,933 3,906,771 96,464,084 ----------- ----------- ----------- ----------- ---------- ----------- Accrued benefits 276,741 82,854 50,647 47,561 457,803 Interfund payable (receivable) 442,199 (358,990) 85,419 (168,628) ----------- ----------- ----------- ----------- ---------- ----------- Net assets available for Plan benefits $55,518,851 $27,884,022 $ 3,862,637 $ 4,834,000 $3,906,771 $96,006,281 =========== =========== =========== =========== ========== ===========
-4- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) The statement of net assets available for Plan benefits and of changes in net assets available for Plan benefits as of and for the year ended December 31, 1992 is as follows: STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 ----------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ------ ------ ------ ------ --------- ----- Cash and short-term investments $ 705,732 $ 80,962 $ 39,007 $ 20,564 $ 846,265 Investments: Hartford Life Insurance Company Group Annuity Contract, at cost - fixed rate of 8.00% with no specified maturity date 47,758,093 47,758,093 Principal Mutual Life Insurance Company Group Annuity Contract, at cost - fixed rate of 7.15% to mature at June 1998 4,739,013 4,739,013 Common stock of Rochester Telephone Corporation, at market value: 1992 - 562,834 shares at a cost of $14,418,106 20,051,064 20,051,064 American National Bank Equity Index Fund, at market value: 1992 - 15,346 shares at a cost of $1,711,346 1,962,717 1,962,717 Merrill Lynch Capital Fund, at market value: 1992 - 115,477 shares at a cost of $2,891,763 3,040,517 3,040,517 Participant loans $3,405,640 3,405,640 ----------- ----------- ---------- ---------- ---------- ----------- Net assets available for Plan benefits $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== ========== ===========
-5- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1993 ----------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ---------- ----------- --------- --------- --------- ---------- Additions to net assets attributed to: Employee contributions $ 4,146,445 $ 1,800,874 $ 574,198 $ 528,877 $ 7,050,394 Rochester Telephone Corporation contributions 1,205,590 538,458 235,848 212,530 2,192,426 Rollover contributions from other plans 44,033 28,569 44,647 42,575 159,824 Interest and dividend income 3,638,211 933,958 1,134 187,225 $ 252,842 5,013,370 Net appreciation in fair value of participation units 4,718,412 309,275 198,401 5,226,088 Realized (loss) gain (120,036) 348 123,992 4,304 Participant loans 1,916,270 1,916,270 Participant loan repayments 1,292,233 316,179 29,668 29,901 1,667,981 Transfers from other plans in Master Trust 24,438 26,692 10,051 10,285 2,187 73,653 Transfers from other funds 456,072 1,361,626 1,182,052 870,176 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total additions 10,807,022 9,604,732 2,387,221 2,203,962 2,171,299 27,174,236 ----------- ----------- ---------- ---------- ---------- ----------- Deductions from net assets attributed to: Withdrawals 3,865,224 1,018,840 210,829 348,541 5,443,434 Participant loans 1,331,845 423,800 90,650 69,975 1,916,270 Participant loan repayments 1,667,981 1,667,981 Transfers to other plans in Master Trust 62,793 4,602 1,537 2,534 2,187 73,653 Transfers to other funds 3,231,147 405,494 223,292 9,993 3,869,926 ----------- ----------- ---------- ---------- ---------- ----------- Total deductions 8,491,009 1,852,736 526,308 431,043 1,670,168 12,971,264 ----------- ----------- ---------- ---------- ---------- ----------- Increase in net assets 2,316,013 7,751,996 1,860,913 1,772,919 501,131 14,202,972 Net assets available for plan benefits: Plan equity, beginning of year 53,202,838 20,132,026 2,001,724 3,061,081 3,405,640 81,803,309 ----------- ----------- ---------- ---------- ---------- ----------- Plan equity, end of year $55,518,851 $27,884,022 $3,862,637 $4,834,000 $3,906,771 $96,006,281 =========== =========== ========== ========== ========== ===========
-6- NOTE 4 - INVESTMENTS IN ROCHESTER TELEPHONE CORPORATION MASTER TRUST FUND: (Continued) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the year ended December 31, 1992 -------------------------------------------------------------------------- Fund A Fund B Fund C Fund D Loan Fund Total ----------- ----------- ---------- ----------- ---------- ----------- Additions to net assets attributed to: Employee contributions $ 3,986,094 $ 1,271,074 $ 289,619 $ 338,115 $ 5,884,902 Rochester Telephone Corporation contributions 1,795,958 479,003 164,132 206,331 2,645,424 Rollover contribution from individual plans into Master Trust 47,875,301 15,543,115 789,747 1,947,856 66,156,019 Rollover contributions from other plans 197,468 202,915 121,189 83,227 604,799 Interest and dividend income 3,972,828 807,862 846 166,758 4,948,294 Net appreciation (depreciation) in fair value of participation units 1,918,019 134,517 (69,277) 1,983,259 Realized gain 43,533 38,389 81,922 Participant loans $4,976,103 4,976,103 Participant loan repayments 1,223,895 317,793 12,307 16,468 1,570,463 Other income 22 1,541 1,563 Net transfers from other funds 298,123 707,591 560,079 618,925 2,184,718 ----------- ----------- ---------- ---------- ----------- ----------- Total additions 59,349,689 21,292,446 2,072,436 3,346,792 4,976,103 91,037,466 ----------- ----------- ---------- ---------- ----------- ----------- Deductions from net assets attributed to: Withdrawals 2,589,913 548,748 11,045 20,438 3,170,144 Participant loans 1,608,450 411,475 51,275 44,300 2,115,500 Participant loan repayments 1,570,463 1,570,463 Other expenses 1,365 1,365 Transfers to Supplemental Retirement Savings Plan 12,339 1,955 1,496 15,790 Net transfers to other plans 175,810 367 176,177 Net transfers to other funds 1,771,313 187,491 6,437 219,477 2,184,718 ----------- ----------- ---------- ---------- ----------- ----------- Total deductions 6,146,851 1,160,420 70,712 285,711 1,570,463 9,234,157 ----------- ----------- ---------- ---------- ----------- ----------- Net assets available for Plan benefits: Plan equity, end of year $53,202,838 $20,132,026 $2,001,724 $3,061,081 $3,405,640 $81,803,309 =========== =========== ========== ========== =========== ===========
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (File No. 33-52358) of our report dated February 18, 1994, for the Rochester Telephone Corporation Retirement Savings Plan for Affiliated Companies. Such report constitutes part of this Form 11-K, which appears as Exhibit 28-7 of the Annual Report of Rochester Telephone Corporation on Form 10- K for the year ended December 31, 1993. /s/PRICE WATERHOUSE PRICE WATERHOUSE Rochester, New York March 22, 1994 EX-99 17 EX 99 PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 ROCHESTER TELEPHONE CORPORATION (Name of Registrant as Specified In Its Charter) ROCHESTER TELEPHONE CORPORATION (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2). [_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:* (4) Proposed maximum aggregate value of transaction: - - - -------- *Set forth the amount on which the filing is calculated and state how it was determined. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount previously paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: Notes: [LOGO OF ROCHESTER TELEPHONE CORPORATION] NOTICE OF ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON APRIL 27, 1994 Dear Shareowners: The Annual Meeting of Shareowners of Rochester Telephone Corporation (the "Company") will be held at the Hyatt Regency Rochester, 125 East Main Street, Rochester, New York 14604, at 10:00 a.m. on April 27, 1994, for the following purposes: (1) To elect twelve Directors; (2) To consider and act upon a proposal to elect Price Waterhouse as the Company's independent auditors for the fiscal year ending December 31, 1994; (3) To consider and act upon four proposals regarding employee and director compensation plans; and (4) To transact such other business, if any, as may properly come before the meeting or any adjournments thereof. The Board of Directors, on January 17, 1994, amended Article II, Section 2, of the By-Laws to reduce the number of Directors constituting the entire Board from fourteen to twelve, effective with the first meeting of Directors following the Annual Meeting of Shareowners on April 27, 1994. The Board of Directors has fixed the close of business on March 8, 1994, as the record date for the determination of shareowners entitled to notice of and to vote at the meeting. YOUR VOTE IS VERY IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU DECIDE TO ATTEND THE MEETING. IF YOU ARE PLANNING TO ATTEND THE ANNUAL MEETING, PLEASE CHECK THE BOX ON THE BACK OF THE PROXY CARD. By Action of the Board of Directors, /s/ Josephine S. Trubek Josephine S. Trubek Corporate Secretary Rochester, New York March 25, 1994 PROXY STATEMENT TABLE OF CONTENTS Proposal 1--Election of Directors.......................................... 2 Information about the Board of Directors................................... 2 Nominees for Director...................................................... 4 Security Ownership of Management........................................... 6 Management Security Ownership Table........................................ 7 Report of Committee on Management (Compensation Committee Report).......... 8 Performance Graph.......................................................... 11 Compensation of Company Management......................................... 12 Summary Compensation Table................................................. 12 Option/SAR Grants in Last Fiscal Year...................................... 13 Individual Grants Table.................................................... 13 Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values Table................................... 14 Long-Term Incentive Plans--Awards in Last Fiscal Year Table................ 14 Pension Plan Table......................................................... 15 Compensation Committee Interlocks and Insider Participation in Committee 16 Decisions................................................................. Certain Relationships and Related Transactions............................. 17 Indemnification of Certain Persons......................................... 17 Proposal 2--Election of Independent Auditors............................... 17 Proposals To Modify Employee and Director Compensation Plans............... 18 Proposal 3--Amendment to the Supplemental Retirement Savings Plan.......... 18 Proposal 4--Restated Executive Stock Option Plan........................... 19 Proposal 5--Amendment to the Directors' Stock Option Plan.................. 21 Proposal 6--Directors' Common Stock Deferred Growth Plan................... 22 New Plan Benefits Table.................................................... 24 Other Matters and Future Proposals of Shareowners.......................... 24
[LOGO OF ROCHESTER TELEPHONE CORPORATION] PROXY STATEMENT 1994 ANNUAL MEETING OF SHAREOWNERS OF ROCHESTER TELEPHONE CORPORATION This Proxy Statement and the enclosed proxy card are being furnished to shareowners on or about March 25, 1994. The purpose of this solicitation of proxies by the Board of Directors of Rochester Telephone Corporation, Executive Offices, 180 South Clinton Avenue, Rochester, New York 14646, is the Annual Meeting of Shareowners to be held on April 27, 1994. The close of business on March 8, 1994, has been fixed as the record date for the determination of the shareowners entitled to notice of, and to vote at, the Annual Meeting. On that date there were 36,579,066 shares of the Company's $1.00 par value common stock outstanding and entitled to vote at the meeting. Each shareowner is entitled to cast one vote for each share of common stock held as of the Record Date. Each proxy which is properly executed and returned in the enclosed return envelope will be voted at the Annual Meeting. Shares represented by proxies will be voted in accordance with the shareowner's directions as specified on the proxy card. If any proxy does not specify a choice, the shares will be voted for the election of the Directors nominated in the proxy; in favor of the election of Price Waterhouse as independent auditors; and in favor of each of the four proposals regarding employee and Director compensation plans. A shareowner granting a proxy has the right to revoke it by a duly executed proxy bearing a later date, by attending the meeting and voting in person, or by otherwise notifying the Company prior to the meeting. The proxy card contains spaces for the shareowner to indicate if he or she wishes to abstain on one or more of the proposals or to withhold authority to vote for one or more nominees for Director. Directors are elected by a plurality of the votes cast. Votes withheld in connection with the election of one or more of the nominees for Director will not be counted as votes cast in connection with that nominee's election. The election of auditors requires the affirmative vote of a majority of the votes cast. In accordance with New York law, abstentions are not counted in determining the votes cast in connection with the selection of auditors. Approval of the proposals with respect to employee and Director compensation plans (Proposals 3-6) requires the affirmative vote of a majority of the outstanding shares entitled to vote on those proposals; abstentions on any of the Plan proposals have the same effect as a vote against that proposal. Under the rules of the New York Stock Exchange, brokerage firms holding shares for the benefit of their clients may vote in their discretion on behalf of their clients with respect to "discretionary items" if the clients have not furnished voting instructions within ten days of the shareowner meeting. The election of Directors and auditors are discretionary items with respect to which brokerage firms may vote. The proposals relating to the employee and Director compensation plans are also discretionary items and brokers who receive no instructions from their clients have the discretion to vote on these proposals. Any broker "non-votes" will not be considered as votes cast with respect to the employee and Director compensation plan proposals but will have the same effect as a no vote since the proposals require approval by a majority of the outstanding shares entitled to vote. 1 PROPOSAL 1--ELECTION OF DIRECTORS INFORMATION ABOUT THE BOARD OF DIRECTORS BOARD OF DIRECTORS The Board of Directors of the Company is currently composed of fourteen Directors, but after April 27, 1994, the Board will be composed of twelve members as a result of a recent change in the Company's By-Laws. The Board of Directors nominates the twelve persons named on pages 4 through 6 for election to the Board of Directors. All of the nominees are currently Directors of the Company whose terms expire coincident with the Annual Meeting. If elected, all nominees will serve until the Annual Meeting of Shareowners to be held in 1995 or until such time as their respective successors are elected. The Board of Directors held six meetings during 1993. All of the Directors, with the exception of Dr. Thomas, attended at least 75% of the total meetings of the Board and its committees which they were eligible to attend. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors conducts its business through meetings of the Board and through the activities of its committees. The standing committees of the Board are the Audit Committee, the Committee on Management, the Committee on Directors and the Executive Committee. The Audit Committee of the Board is composed at present of Douglas H. McCorkindale, Chair; John R. Block, Brenda E. Edgerton, and G. Dennis O'Brien. This committee reviews the scope of audit activities, reviews the financial reports of the Company, and reviews with management significant and material matters which may result in either potential liability to the Company or significant exposure to the Company. The Committee also makes reports and recommendations with respect to audit activities, findings, and reports of the independent public accountants and the internal audit staff of the Company. The Audit Committee held two meetings in 1993. The present members of the Committee on Management are Daniel E. Gill, Chair; Harlan D. Calkins and Richard P. Miller, Jr. This committee is responsible for determining the compensation, benefits and perquisites of all executive officers of the Company, with the exception of the Chief Executive Officer, and for recommending the compensation, benefits and perquisites of the Chief Executive Officer to the full Board. This committee also develops and administers executive compensation plans and reviews succession planning for the Company and other significant human resources issues. The Committee on Management held three meetings in 1993. The present members of the Executive Committee are Jairo A. Estrada, Chair; Patricia C. Barron, Ronald L. Bittner, Daniel E. Gill, Alan C. Hasselwander, and Douglas H. McCorkindale. The Executive Committee possesses all of the powers of the Board of Directors except those which, by law or the Company's By-Laws, cannot be delegated to it. The Executive Committee met four times in 1993. The Committee on Directors was newly created in 1993. It focuses the Board's attention on corporate governance issues and has also assumed responsibility, previously held by the Executive Committee, to act as a nominating committee. The Committee on Directors assists the Company in addressing a rapidly changing industry through its efforts to attract and retain the most qualified Board members. It is presently composed of Patricia C. Barron, Chair; Wolcott J. Humphrey, Jr., Dr. Leo J. Thomas, and Michael T. Tomaino. This committee is responsible for all matters relating to the selection, qualification, evaluation, and compensation of members of the Board of Directors and all nominees to the Board and serves as the nominating committee. The Committee on Directors held two meetings in 1993. 2 The Committee on Directors will consider nominations by shareowners. Such shareowner submissions should include sufficient biographical information so that the committee can appropriately assess a nominee's qualifications. This information would include, at a minimum, the nominee's name and address, business and other experience, and a listing of any other Boards on which the nominee may be a member. All submissions should be sent by a letter addressed in care of the Corporate Secretary, to the Committee on Directors, Board of Directors, Rochester Telephone Corporation, 180 South Clinton Avenue, Rochester, New York 14646-0700. Alternatively, any such letter may be addressed to any individual member of the Committee on Directors, in care of the Company, at the same address. Suggestions in connection with an Annual Meeting of Shareowners should be received by September 1 of the prior year in order to receive consideration. COMPENSATION OF DIRECTORS The Company compensates its Directors through the payment of an annual retainer and meeting fees. The annual retainer is $18,000. Each Director also receives a $1,300 fee for each Board and/or committee meeting attended. Each committee chair receives an annual chairperson's retainer in the amount of $3,000. Directors who are employees of the Company or its subsidiaries receive no Director fees. Directors may elect to defer payment of their fees to future years. Pursuant to the Company's Directors' Stock Option Plan, Directors annually receive an option to purchase 1,000 shares of the Company's common stock. These options expire ten years after issuance, and the exercise price is the value of the stock on the day the option was issued. Each outside Director, except Alan C. Hasselwander, received an option for 1,000 shares at an exercise price of $39.50 per share on April 21, 1993. Outside Directors who join the Board on a date other than the date when the annual grant of options is made receive an option for a prorated number of shares of the Company's common stock. Brenda E. Edgerton joined the Board on February 1, 1993, and on that date she received an option for 225 shares at an exercise price of $36.875 per share. Additionally, Mr. Hasselwander completed his pre-pension leave from the Company on May 11, 1993, and as of that date was considered an outside Board member for purposes of option grants under the Directors' Stock Option Plan. On May 11, 1993, Mr. Hasselwander received an option for 949 shares at an exercise price of $37.25 per share. The Company also provides its Directors with cellular telephone equipment and service and other nominal in-kind benefits. Mr. Michael T. Tomaino, a Director of the Company, is the sole shareowner of Michael T. Tomaino, P.C., a partner in the law firm of Nixon, Hargrave, Devans & Doyle. The Company has retained this law firm prior to and during the last two years and intends to retain the firm in the current year. The Board believes that all of the nominees will be available and willing to serve as Directors. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board may recommend or the Board may fill the vacancy at a later date after selecting an appropriate nominee. The following sets forth information concerning the principal occupations and business experience of the nominees. 3 THE FOLLOWING PERSONS HAVE BEEN NOMINATED FOR ELECTION AT THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON APRIL 27, 1994: PATRICIA C. BARRON, 51, is President, Xerox Engineering Systems, Xerox Corporation, a manufacturer of office systems and equipment. Prior to her present position, she held other executive positions at Xerox Corporation including the position of President, Office Documents Products Division. She is a Director of Quaker Chemical Corporation. She has been a Director of the Company since 1990. RONALD L. BITTNER, 52, is Chairman, President and Chief Executive Officer of the Company. Prior to his present position, Mr. Bittner was Executive Vice President and President--Telecommunications Group of the Company. He has held a number of other executive positions at Rochester Tel, and has been a Director of the Company since 1989. JOHN R. BLOCK, 59, is President of the National American Wholesale Grocers' Association, a trade association which serves as a forum for the exchange of ideas and information and is a source of data for the industry. He is a Director of Deere and Co., Arcadian Corporation, Crop Genetics, Inc., and Purina Mills, Inc. He has been a Director of the Company since 1990. HARLAN D. CALKINS, 62, is Chairman, President, Chief Executive Officer, and a Director of Rochester Midland Corporation, a manufacturer of specialty chemicals. He has been a Director of the Company since 1982. BRENDA E. EDGERTON, 44, is Vice President and Treasurer of Campbell Soup Company, a manufacturer of prepared convenience foods. Prior to her present position she served as Deputy Treasurer of Campbell Soup Company. She has been a Director of the Company since 1993. 4 JAIRO A. ESTRADA, 46, is Chairman of the Board and Chief Executive Officer of Garden Way Incorporated, a company which manufactures outdoor power equipment. He is a Director of Garden Way Incorporated and of The Chase Manhattan Corporation. He has been a Director of the Company since 1989. DANIEL E. GILL, 57, is Chairman and Chief Executive Officer of Bausch & Lomb Incorporated, a worldwide manufacturer and marketer of health care and optical products. Prior to his current position, Mr. Gill was President and Chief Executive Officer of Bausch & Lomb. He is a Director of Bausch & Lomb, Reebok International, Ltd., and Welch Allyn, Inc. He has been a Director of the Company since 1981. ALAN C. HASSELWANDER, 60, is Past Chairman of the Board of Rochester Tel. Formerly, he was President and Chief Executive Officer of the Company. He has been a Director of the Company since 1984. DOUGLAS H. McCORKINDALE, 54, is Vice Chairman and Chief Financial and Administrative Officer of Gannett Co., Inc., a nationwide diversified communications company. Prior to his present position, he held other executive positions at Gannett Co., Inc. He is a Director of Gannett Co., Inc., Continental Airlines, and seven mutual funds in the Prudential Mutual Fund complex of funds. He has been a Director of the Company since 1980. RICHARD P. MILLER, JR., 51, is Vice President for External Affairs and Senior Counsel to the President of the University of Rochester. Prior to his present position he was Chief Executive Officer of The Case-Hoyt Corporation. He is a Director of Genesee Corporation and a Director of Forbes Products Corporation. He has been a Director of the Company since 1984. 5 DR. LEO J. THOMAS, 57, is Group Vice President and President, Imaging, of Eastman Kodak Company, a manufacturer of photographic and chemical products. Prior to his present position, he was Group Vice President and General Manager, Health Group of Eastman Kodak Company, Chairman of Sterling Drug, Inc., a subsidiary of Eastman Kodak. He is a Director of Eastman Kodak Company and of John Wiley & Sons, Inc. He has been a Director of the Company since 1984. MICHAEL T. TOMAINO, 56, is an Attorney with the law firm of Nixon, Hargrave, Devans & Doyle, and has been a Director of the Company since 1975. The following companies (which are mentioned above) do not have registered securities nor are the companies otherwise required to file reports with the Securities and Exchange Commission: Continental Airlines, Forbes Products Corporation, and Welch Allyn. MANAGEMENT RECOMMENDS A VOTE FOR THE ELECTION OF ALL OF THE ABOVE NOMINEES FOR DIRECTOR, DESIGNATED AS PROPOSAL 1 ON YOUR PROXY CARD. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF THE DIRECTION THEREON TO THE CONTRARY. SECURITY OWNERSHIP OF MANAGEMENT In 1993, the Committee on Directors established guidelines for the minimum amounts of the Company's common stock which Directors are encouraged to own. These guidelines take into account a Director's tenure on the Board in determining the level of share ownership. By the end of 1995, each outside Director with at least five years' service on the Board should own at least 2,000 shares of the Company's common stock. Executive officers of the Company are also encouraged to own shares of the Company. Their recommended stock ownership levels are based on their position in the organization and are a multiple of salary. Mr. Bittner's stock ownership target, to be achieved over no more than a five year period, is the beneficial ownership of Company common stock equal in value to four times his salary. The stock ownership target for each of the Company's Corporate Vice Presidents is beneficial ownership of Company common stock equal in value to two times his or her respective salary. All Corporate Vice Presidents are also encouraged to achieve their targets within no more than a five year period. The following table sets forth the number of shares of the Company's common stock beneficially owned by each Director and nominee, by each of the named executive officers, and by Directors and officers of the Company as a group as of March 8, 1994. No Director or officer owns more than 1% of the Company's outstanding shares of common stock. 6 MANAGEMENT SECURITY OWNERSHIP TABLE
BENEFICIALLY OWNED SHARES BENEFICIAL SUBJECT TO OUTSTANDING NAME OWNERSHIP(1) STOCK OPTIONS(2) TOTAL - - - ---- ------------ ------------------------- ------ DIRECTORS AND NOMINEES: Patricia C. Barron................ 200 666 866 Ronald L. Bittner................. 18,013 10,332 28,345 John R. Block..................... 220 666 886 Harlan D. Calkins................. 560 666 1,226 Brenda E. Edgerton................ 453 408 861 Jairo A. Estrada.................. 1,015 666 1,681 Daniel E. Gill.................... 569 666 1,235 Alan C. Hasselwander(3)........... 18,233 316 18,549 Wolcott J. Humphrey, Jr.(4)....... 857 333 1,190 Douglas H. McCorkindale........... 200 666 866 Richard P. Miller, Jr............. 533 333 866 G. Dennis O'Brien(4).............. 5,113 666 5,779 Dr. Leo J. Thomas................. 9,331 666 9,997 Michael T. Tomaino................ 634 666 1,300 NAMED EXECUTIVE OFFICERS: Ronald L. Bittner................. 18,013 10,332 28,345 Dale M. Gregory................... 6,575 3,100 9,675 Louis L. Massaro.................. 4,163 2,400 6,563 Frederick R. Pestorius............ 3,049 2,400 5,449 John K. Purcell................... 3,108 3,000 6,108
- - - -------- As of March 8, 1994, all Directors, nominees and officers as a group, an aggregate of twenty-one persons, beneficially owned 83,716 shares of the Company's common stock and, as a group, had within the following sixty days the right to acquire an additional 33,948 shares which were subject to outstanding stock options. The group's total aggregate holdings of 117,664 benefically owned shares constitutes less than 1% of the issued and outstanding common stock of the Company as of that date. (1) Includes all shares which each Director or officer directly, through any contract, arrangement, understanding, relationship or otherwise, has or shares the power to vote or to direct the voting of such shares or to dispose or to direct the disposition of such shares. However, these amounts include no shares which each Director or officer has the right to acquire within the following sixty days pursuant to options or other rights. Amounts in this column determine whether a Director or executive officer has met his or her stock ownership targets. (2) All shares which such persons have the right to acquire within the following 60 days pursuant to options or other rights. These amounts do not include shares which such persons have the right to acquire more than sixty days in the future. (3) Mr. Hasselwander disclaims beneficial ownership of 700 shares which are owned by his spouse. (4) Mr. Humphrey and Mr. O'Brien are each retiring from the Board effective with the 1994 Annual Meeting. The Company's Directors and executive officers are required to file reports with the Securities and Exchange Commission and the New York Stock Exchange, with copies to the Company, concerning ownership of and transactions in the Company's common stock. Based solely on those reports furnished to the Company and related information, the Company believes that all such filing requirements for 1993 were complied with in a timely fashion. 7 REPORT OF COMMITTEE ON MANAGEMENT The philosophy of the Company's compensation program is to offer performance- based compensation to its employees, while rewarding employees whose efforts enable the Company to achieve its vision. The executive compensation program is designed to measure and enhance executive performance. The Company's executive compensation program has four components: . Base Salary . Annual Bonus . Long-Term Incentive Plan . Stock Option Plan These components are designed to provide incentives and motivate key executives whose efforts and job performance will enhance the strategic well- being of the Company and maximize value to its shareowners. The executive compensation program rewards performance consistent with the Company's consolidated performance and the contribution of the individual executive officers, including Mr. Bittner, toward that performance. It is also competitive with compensation programs offered by employers of comparable size in this industry. The Company retains William M. Mercer, Inc., to review its executive compensation program on an annual basis. The Company uses information from this consulting firm, as well as public information concerning salaries paid in comparably sized companies in the telecommunications industry, to determine what a comparable telecommunications firm would consider an appropriate performance-based compensation package for its executives. The analysis includes information from a self-constructed group of thirty-one publicly-traded companies in the telephone, long distance and cellular industries. This group includes all companies reported in the Standard and Poor's Telephone Index, together with twenty-three additional companies. On a comparative basis, for both base salary and total compensation, the Company's CEO would be considered within the second quartile while its other executives are generally at the average. The Company's policy is to benchmark compensation levels at the median of comparative companies and to reward results based on performance. BASE SALARY. The salaries of the executive officers, including Mr. Bittner, were determined based on the executive's performance and an analysis of base salaries paid executive officers having similar responsibilities in other companies of similar size, both within and outside the telecommunications industry. This analysis included many of the companies in the self-constructed group of thirty-one publicly-traded companies, together with additional companies from other industries with similar revenues and/or asset values. The level of Mr. Bittner's base salary was also based upon a subjective assessment of his individual performance and responsibilities as well as overall corporate performance as measured by actual earnings per share and cash flow versus pre- established targets; strategic goals and objectives for customer and employee satisfaction; and growth of the business. The other executive officers have similar measurements, but specific factors are more closely linked to individual responsibilities. No relative weights are attributed to any specific measurement factors. ANNUAL BONUS. The Company's annual bonus plan, the Short Term Incentive Plan (STI), is designed to provide performance-based compensation awards to executives for achievement during the past year. The bonus awards are a function of individual performance and corporate or business unit results during the year. Business unit performance is a component of only a business unit officer's bonus while overall corporate performance is a component of each officer's bonus. The specified qualitative and quantitative criteria employed by the Committee in determining bonus awards vary both individually and from year to year. These 8 criteria, or targets, are established as a means of measuring executive performance. The corporate target for 1993 was a combined aggressive earnings per share and cash flow target established by this Committee of the Board of Directors as an incentive to increase the Company's cash flow and thus improve long-term stock performance. This target was exceeded. All the Company's senior executives participate in STI with payout awards varying by salary grade. With respect to Mr. Bittner's participation, his STI annual bonus was based solely upon achievement of the corporate target and a mechanical application of the STI Plan. Specifically, this mechanical application of the STI Plan was calculated by multiplying the corporate performance payout achieved, which for Mr. Bittner was 100%, times the higher of actual salary or mid-point of the salary range. LONG-TERM INCENTIVE PLAN. The Company's long-term incentive plan, the Performance Unit Plan (PUP), is designed to motivate executives to improve shareowner value. The Plan focuses on the Company's stock performance over three-year cycles. Executives receive Plan payouts based equally on the Company's stock performance appreciation over the past three years as compared to a group of sixteen telecommunications firms and corporate performance against targets of various elements selected by this Committee at the beginning of the cycle. These elements, cash return on gross assets and stock performance measures, are intended to align executive compensation with the return received by Rochester Tel's shareowners. Cycle payouts are a product of the Company's stock price at the end of the cycle, corporate performance against the selected targets, and the number of units granted to an executive for the cycle. Mr. Bittner's award was based upon performance achieved at 145% of the target levels. The awards made to the other executive officers were based upon performance achieved at 138.2% to 145% of the target levels. STOCK OPTION PLAN. Stock option plans are an important component of executive compensation programs because they are a compensation vehicle which ties long- term compensation directly to furthering the interests of shareowners and improved corporate performance. The current stock option plan, as approved by the New York State Public Service Commission, limits the number of stock options which may be granted to the Company's executives. Nevertheless, the Company's Executive Stock Option Plan is designed to align executive compensation with the long-term performance of the Company's stock. Options issued in 1993 do not expire until 2003, and the exercise price is the value of the option on the day the option was issued. Prior to the beginning of each year, option grant ranges are established by salary grade with the assistance of the William M. Mercer, Inc. consulting firm. This Committee makes a subjective determination of the specific stock option grant to be awarded to each executive officer. The factors considered by the Committee in making this determination are (a) the executive officer's past performance of previously set objectives and (b) his or her expected future contribution to the long-term strategic goals and objectives of the Company. No relative weights are attributed to either of these factors. All executive officers of the Company received options in 1993 based on their position in the Company, their contribution to the achievement of the Company's long-term objectives as assessed by Committee members based on their experience with the executive officers, and upon the recommendation of the chief executive officer. Upon this Committee's recommendation, the full Board awarded Mr. Bittner options based upon these factors as well. The Committee approved two changes to the executive compensation program to be effective in 1994. The Performance Unit Plan (PUP) will be discontinued. No new grants will be issued in 1994. The existing cycles, 1992-1994 and 1993- 1995, will run to their normal conclusion. For 1994, stock options will be used as the sole long-term incentive. The Committee believes that stock options are better motivators and better align the efforts of the executives with objectives of the shareowners. The second action was to enhance the retirement benefit for Mr. Bittner and the Corporate Vice Presidents by the addition of a Supplemental Executive Retirement Plan (SERP). The plan has an accrual and vesting schedule based on years of service and age. The maximum benefit of 60% of final compensation, less any amounts paid through the Company's Management Pension Plan and Supplemental Management Pension Plan, will be paid to an executive retiring at age 50 or older with 30 or more years of service. The Committee has also established stock ownership guidelines for the Company's executives. These guidelines are a multiple of salary. Mr. Bittner's target, to be achieved over a five-year period, is the beneficial ownership of Company common stock equal in value to four times his annual salary. 9 This Committee is aware of the limitations which the Omnibus Budget Reconciliation Act of 1993 places upon a corporation's ability to obtain a tax deduction on executive compensation in excess of $1 million. Although it has not yet developed a formal policy concerning the $1 million ceiling, this Committee favors pay for performance and intends to continue to review executive compensation in consideration of the legislation. No member of this Committee is a former or current officer or employee of the Company or any of its subsidiaries. Respectfully submitted, /s/ Daniel E. Gill Daniel E. Gill (Chairman) Harlan D. Calkins Richard P. Miller, Jr. March 21, 1994 10 PERFORMANCE GRAPH The following graph charts the Company's cumulative total shareowner return performance against the Standard and Poor's Telephone Index as well as against the Standard and Poor's 500 Index. A variety of factors may be used in order to assess a corporation's performance. This Performance Graph, which reflects the Company's total return against the selected peer group, reflects one such method. The performance of the Standard and Poor's Telephone Index is weighted by the stock market capitalization of the companies within that peer group. [GRAPH APPEARS HERE] COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG ROCHESTER, S&P TELEPHONE INDEX AND S&P 500 INDEX
Measurement period Rochester S&P Telephone S&P 500 (Fiscal year Covered) Telephone Corp. Index Index - - - --------------------- --------------- -------- ------------ Measurement PT - 12/31/88 $ 100 $ 100 $ 100 FYE 12/31/89 $ 165 $ 158 $ 132 FYE 12/31/90 $ 125 $ 150 $ 127 FYE 12/31/91 $ 144 $ 163 $ 166 FYE 12/31/92 $ 168 $ 179 $ 179 FYE 12/31/93 $ 221 $ 207 $ 197
11 COMPENSATION OF COMPANY MANAGEMENT The tables and other information set forth below are included to enable our shareowners to better understand the compensation of the Company's executives. These tables reflect the various forms of compensation paid the executive officers of Rochester Telephone Corporation. Specifically, these are salary, bonus, stock options and a long-term incentive plan. The Company does not provide its executives with stock appreciation rights. The executive officer titles in the Summary Compensation Table indicate the position held by those officers on December 31, 1993. No executive officers exercised any stock options during 1993. The Report of the Committee on Management of the Board of Directors appears on pages 8-10 of this Proxy Statement. This Report discusses the factors taken into consideration to set Mr. Bittner's compensation and the compensation of the other executive officers. A Performance Graph showing the performance of the Company's stock as compared to the Standard and Poor's 500 Index and the Standard and Poor's Telephone Index appears on page 11 of this Proxy Statement. SUMMARY COMPENSATION TABLE The following table provides a summary of compensation paid to the CEO and the four most highly compensated executive officers of the Company for services rendered to the Company and its subsidiaries over the past three fiscal years.
LONG TERM COMPENSATION ------------------- AWARDS ---------- PAYOUTS ANNUAL COMPENSATION SECURITIES -------- ------------------- UNDERLYING LTIP ALL OTHER NAME AND SALARY BONUS OPTIONS/ PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) SARS (#) ($)(3) ($)(4) - - - ------------------ ---- ------------------- ---------- -------- ------------ R. L. Bittner(1)........ 1993 $360,000 $407,500 23,000 $230,121 $26,856 Chairman, President 1992 292,750 160,000 8,000 8,946 14,901 & CEO 1991 220,000 103,600 -0- 25,439 12,230 D. M. Gregory(2)........ 1993 186,567 131,625 6,600 69,753 29,963 Corporate Vice President 1992 178,413 67,200 2,700 -0- 43,701 and President-- Telecommunication Group 1991 190,200 16,500 -0- -0- 7,479 L. L. Massaro........... 1993 174,800 131,625 4,500 95,662 11,721 Corporate Vice 1992 165,100 58,600 2,700 5,126 19,247 President-- Finance and Treasurer 1991 155,600 51,100 -0- 14,372 8,261 F. R. Pestorius......... 1993 173,700 131,625 4,500 99,452 12,611 Corporate Vice 1992 168,600 62,000 2,700 5,275 21,521 President-- Sales and Marketing 1991 159,800 57,900 -0- 15,013 10,352 J. K. Purcell........... 1993 175,600 131,625 6,300 98,589 12,033 Corporate Vice 1992 168,800 63,100 2,700 5,135 11,237 President-- Partnering and Alliances 1991 159,200 57,700 -0- 14,468 10,731
- - - -------- (1) Mr. Bittner was named President and Chief Executive Officer effective February 16, 1992. The compensation indicated for 1991 relates to his prior position as Executive Vice President of the Company. (2) Mr. Gregory became an employee and a Vice President of the Company effective February 16, 1992. From July 1, 1991, until February 16, 1992, he rendered consulting services as President of the Company's subsidiary RCI Network Services, Inc. (RCINS). (In January, 1994, the name of this company was changed to RCI Long Distance, Inc.) During the period January 8, 1991, through June 30, 1991, he also rendered consulting services to RCINS, but was neither an officer nor an employee of that company. This table reflects payments made by the Company and/or RCINS in 1992 to Dale M. Gregory Management Consultants, Inc., for these consulting services. The amount of these payments was $29,687. 12 (Summary Compensation Table footnotes continued) (3) As described in more detail in the Report of Committee on Management at page 9 of this Proxy Statement, 1993 Performance Unit Plan awards are based upon performance achieved at 138.2% to 145% of the target levels. (4) "All Other Compensation" includes imputed income from term life insurance coverage and the Company's contributions to both the tax-qualified 401(k) and nonqualified defined contribution plans. For 1993, imputed income from term life insurance coverage was $3,456 for Mr. Bittner, $970 for Mr. Gregory, $1,218 for Mr. Massaro, $2,004 for Mr. Pestorius, and $1,292 for Mr. Purcell. The Company's 1993 contributions on behalf of the named executive officers to the tax-qualified 401(k) and nonqualified defined contribution plans, respectively, were as follows: $3,976 and $19,424 for Mr. Bittner; $3,568 and $8,051 for Mr. Gregory; $6,745 and $3,758 for Mr. Massaro; $3,116 and $7,491 for Mr. Pestorius; and $3,169 and $7,573 for Mr. Purcell. For Mr. Gregory, "All Other Compensation" in 1991 and 1992 also includes travel and living expenses which were incurred by Mr. Gregory as a consultant to the Company and were paid or reimbursed by the Company. Additionally, in 1992, the amount includes a payment in the amount of $35,000 negotiated for a non-compete agreement. In 1992, "All Other Compensation" also includes special payments in the amounts of $10,311 to Mr. Pestorius and $11,791 to Mr. Massaro. For Mr. Gregory in 1993, "All Other Compensation" includes a special payment in the amount of $17,375. Each of these special payments was a reimbursement of personal expenses incurred at the Company's request by the named executive officer to further business opportunities. The following companion tables to the Summary Compensation Table list the stock options granted during the 1993 fiscal year to the named executive officers, their stock option exercises in 1993 and the aggregate options they held at the end of 1993, long-term incentive plan awards made to them during 1993, and the estimated retirement benefits which would be paid to them at age 65. OPTION/SAR GRANTS IN LAST FISCAL YEAR The following Option Grant table includes two columns designated as "Potential Realizable Value." The calculations in those columns are based on hypothetical growth assumptions, proposed by the Securities and Exchange Commission, of 5% and 10% for stock price appreciation for the option term. There is no way to anticipate what the actual growth rate of the Company's stock price will be.
INDIVIDUAL GRANTS IN 1993 - - - --------------------------------------------------------------------------------------------------- POTENTIAL REALIZED VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM OPTIONS/SARS EMPLOYEES PRICE EXPIRATION ----------------------- NAME GRANTED(1) (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($) - - - ---- -------------- -------------- --------- ---------- ---------- ------------ R. L. Bittner........... 23,000 19.9% $38.125 3/15/03 $551,462 $1,397,513 D. M. Gregory........... 6,600 5.7% $38.125 3/15/03 $158,246 $ 401,025 L. L. Massaro........... 4,500 3.9% $38.125 3/15/03 $107,895 $ 273,426 F. R. Pestorius......... 4,500 3.9% $38.125 3/15/03 $107,895 $ 273,426 J. K. Purcell........... 6,300 5.4% $38.125 3/15/03 $151,053 $ 382,797
- - - -------- (1) The option grants have the following material terms: exercise price is the market price (based on the closing price of the Company's common stock on the New York Stock Exchange) on the date of the option grant; 1/3 of the options granted may be exercised commencing one year following the grant date, a second 1/3 may be exercised commencing two years following the grant date, and the remaining 1/3 may be exercised commencing three years following the grant date. The option grant date was 3/15/93. Options may not be transferred other than by will or the laws of descent and distribution. An option may be exercised upon written notice to the Company accompanied by payment in full for the shares being acquired. In the event of a "change in control" as defined by the Executive Stock Option Plan, all options become immediately vested and exercisable. 13 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/ OPTIONS/SARS AT FY END SARS AT FY END(1) ------------------------- ------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- ------------- ----------- ------------- NAME (#) (#) ($) ($) - - - ---- ----------- ------------- ----------- ------------- R. L. Bittner............... 2,666 28,334 $36,658 $234,347 D. M. Gregory............... 900 8,400 $12,263 $ 70,725 L. L. Massaro............... 900 6,300 $12,263 $ 56,025 F. R. Pestorius............. 900 6,300 $12,263 $ 56,025 J. K. Purcell............... 900 8,100 $12,263 $ 68,625
- - - -------- (1) Options are valued at the market value of RTC common stock at December 31, 1993, (closing price of $45.125) less the per share option exercise price, multiplied by the number of exercisable/unexercisable options. The following table shows the number of units of the Company's long-term incentive plan which participants were awarded in the last fiscal year. The information in the table is expressed in number of units unless otherwise specified. At the end of the cycle, a participant's payout is based on the value of these units multiplied by Company performance (measured as defined by the long-term incentive plan and ranging from 0% to 150%) during the three- year plan cycle. The threshold payout is .1% of the units awarded, the target payout is 100% of the units awarded, and the maximum payout is 150% of the units awarded. As noted in the Report of the Committee on Management on page 9 of this Proxy Statement, the long-term incentive plan will be discontinued after conclusion of the existing performance cycles. For 1994, stock options will be used as the sole long-term incentive. LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER SHARES, OR OTHER NON-STOCK PRICE-BASED PLANS UNITS OR PERIOD UNTIL ---------------------------------------- OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM NAME (#)(1) OR PAYOUT (#) (#) (#) - - - ---- ------------ ------------ ---------- -------------- -------------- R. L. Bittner........... 3,065 Units 3 Years 3.07 Units 3,065.00 Units 4,597.50 Units D. M. Gregory........... 984 Units 3 Years 0.98 Units 984.00 Units 1,476.00 Units L. L. Massaro........... 937 Units 3 Years 0.94 Units 937.00 Units 1,405.50 Units F. R. Pestorius......... 931 Units 3 Years 0.93 Units 931.00 Units 1,396.50 Units J. K. Purcell........... 941 Units 3 Years 0.94 Units 941.00 Units 1,411.50 Units
- - - -------- (1) The number of units granted for a performance cycle is based on the participant's salary and RTC's stock price at the beginning of the cycle. Cycle Performance is based on two equally weighted components. One component compares RTC common stock's actual total return for the cycle to the actual total market return of the Standard and Poor's 500 Index. The other component ranks RTC common stock's risk adjusted total return compared with a self-constructed group of sixteen telecommunications companies. Each of the two components is given a performance range of 0% to 150%. The cycle payout is a product of the stock price at the end of the cycle, the average component performance, and the number of units granted to the participant for the cycle. There is a cap on the end of the cycle stock price used to calculate payouts to preclude extraordinary gains to a participant in the event of major stock price movements. 14 The following table shows the estimated annual benefits payable upon retirement at age 65 to individuals in specified remuneration and years of service classifications. The amounts set forth in this table do not reflect early retirement incentives which the Company had previously offered certain of its management employees. Furthermore, the amounts set forth are neither subject to any deduction for Social Security benefits or any other offsets nor adjusted to reflect maximum allowable benefits under the Internal Revenue Code. All of the Company's officers, including those listed in the Summary Compensation Table, are participants in the Company's Management Pension Plan as supplemented by a Supplemental Management Pension Plan (SMPP). The annual aggregate pension benefit for an officer under these Plans is based upon several factors and is largely determined by the number of years of employment multiplied by a percentage of the officer's three consecutive years of highest average annual compensation preceding retirement. PENSION PLAN TABLE
YEARS OF SERVICE -------------------------------------------------------------------- REMUNERATION (15) (20) (25) (30) (35) - - - ------------ -------- -------- -------- -------- -------- $200,000 $ 44,837 $ 59,782 $ 74,728 $ 89,673 $104,619 225,000 50,612 67,482 84,353 101,223 118,094 250,000 56,387 75,182 93,978 112,773 131,569 300,000 67,937 90,582 113,228 135,873 158,519 350,000 79,487 105,982 132,478 158,973 185,469 400,000 91,037 121,382 151,728 182,073 212,419 450,000 102,587 136,782 170,978 205,173 239,369 500,000 114,137 152,182 190,228 228,273 266,319 550,000 125,687 167,582 209,478 251,373 293,269 600,000 137,237 182,982 228,728 274,473 320,219 650,000 148,787 198,382 247,978 297,573 347,169 700,000 160,337 213,782 267,228 320,673 374,119 750,000 171,887 229,182 286,478 343,773 401,069 800,000 183,437 244,582 305,728 366,873 428,019 850,000 194,987 259,982 324,978 389,973 454,969 900,000 206,537 275,382 344,228 413,073 481,919
Mr. Bittner, Mr. Gregory, Mr. Massaro, and Mr. Purcell each have executive contracts which may pay a benefit in the event of a "Change in Control" of the Company. These contracts are explained in detail on page 16 of this Proxy Statement. Each of them also participates in the Company's Pension Plan. Under SMPP, their service factor would include, subject to certain limitations, the amount of service for which payment is made to them under their executive contract. The SMPP also provides that in the event of a Change in Control of the Company, the Board may not terminate a participant's benefit and the Employees' Benefit Committee may not change prior decisions regarding a participant's service factor. Effective January 1, 1994, the Company established a Supplemental Executive Retirement Plan (SERP) which covers all the officers named in the preceding tables plus two additional executive officers. The Plan has an accrual and vesting schedule based on years of service and age. A maximum benefit of 60% of final compensation will be paid to an executive retiring at age 50 or older with 30 or more years of service. Payments made under the Company's Management Pension Plan and the Supplemental Management Pension Plan are included in determining the ultimate benefit payable under the SERP. However, in order to qualify for the SERP benefit a covered executive must be at least 50 years of age. Executive officers who are not at least 50 years old when they retire would only receive the retirement benefits set forth in the above Pension Plan Table and would receive no SERP benefit. 15 For the purposes of these Plans, annual compensation is the same as that given in the Salary and Bonus columns of the Summary Compensation Table for the named executive officers. The number of years of employment of such individuals for the purposes of these Plans currently are as follows: Mr. Bittner--31; Mr. Gregory--15; Mr. Massaro--25; Mr. Pestorius--31; and Mr. Purcell--29. Additionally, the Company has agreed to bridge Mr. Gregory's prior service with other telecommunications companies provided he remains employed by Rochester Telephone Corporation until January 1, 1997. Effective that date, the Company will credit Mr. Gregory his additional six years and six months experience in the telecommunications industry. Neither Mr. Massaro nor Mr. Gregory has yet reached the age of 50 years. Assuming they left the Company as of the current date, each would receive only a deferred pension based upon the amount reflected in the Pension Plan Table and neither would ever receive any additional benefit under the SERP. Mr. Bittner and Mr. Pestorius have each reached the age of 50 years and have accrued at least 30 years of service credit. If they retired as of the current date, each would receive a full pension based on the amount reflected in the Pension Plan Table. In addition, assuming annual compensation at the level each received as of March 8, 1994, under the SERP Mr. Bittner would receive his full pension plus an estimated annual SERP benefit of $66,996 and Mr. Pestorius would receive his full pension plus an estimated annual SERP benefit of $33,607. Although Mr. Purcell has reached the age of 50 years, his 29 years of service credit entitles him only to a reduced pension rather than a full pension. Assuming annual compensation at his March 8, 1994 level, if Mr. Purcell were to retire as of the current date, he would receive a reduced pension plus an estimated annual SERP benefit of $67,960. If Mr. Purcell retired after achieving 30 years of service, he would be eligible for a full pension. In that event, assuming annual compensation at the level he received March 8, 1994, Mr. Purcell's estimated annual SERP benefit would only be $37,535. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS The members of the Committee on Management during the last completed fiscal year were Mr. Calkins, Mr. Gill (Chairman), and Mr. Miller. None of these persons were, during 1993 or previously, an officer or employee of the Company or any of its subsidiaries. The full Board of Directors accepted the recommendation of the Committee on Management concerning Mr. Bittner's compensation. Mr. Hasselwander is a former officer of the Company and, during 1993, he participated in those deliberations of the registrant's Board of Directors in which the Board accepted the Committee on Management's recommendations concerning executive officer compensation. Mr. Hasselwander is not a member of the Committee on Management. No executive officer of the Company has, during 1993 or previously, served as a Director or member of the Compensation Committee of any other entity that has an executive officer who serves or has served either as a member of the Committee on Management or as a member of the Board of Directors of Rochester Telephone Corporation. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS The Company has entered into agreements, for an indefinite term, with Mr. Bittner, Mr. Gregory, Mr. Massaro and Mr. Purcell. Each agreement provides that, in the event of a change in control (as defined in the agreement) which is followed within three (3) years by termination of employment under circumstances other than one of the following: (i) death, (ii) retirement, (iii) disability, (iv) termination by the Company for Cause (as defined in the agreement), or (v) Voluntary Termination (as defined in the agreement), the employee will be entitled to (a) continuation for three years of certain health and life insurance benefits, and (b) a cash severance payment equal to three (3) times the aggregate annual salary and bonus as determined under the agreement. Additionally, in the event any of these amounts are determined to trigger an Excise Tax (as defined in the agreement), the employee may also be entitled to a Gross-Up Payment (as defined in the agreement). The employee is also entitled to the above benefits if after a change in control the employee terminates his employment for Good Reason (as defined in the agreement) or during a "window period" (also as defined in the agreement). Mr. Bittner, Mr. Gregory, Mr. Massaro, and Mr. Purcell would each receive their individual severance payments in a lump sum. 16 Executives who retired prior to January 1, 1994, received a combined Pre- Pension Leave and Executive Pre-Pension Leave of up to twelve months' salary and up to six months' service credit toward pension. This benefit was discontinued for executives retiring after December 31, 1993. Mr. Pestorius was eligible to retire at the end of 1993, with a full pension and an Executive Pre-Pension Leave, and he had indicated to the Company his desire to do so. The Company asked Mr. Pestorius to remain in the employ of the Company until at least July 1, 1994, in order to transition to a successor those areas of the business for which he is responsible. If Mr. Pestorius did so he would forego the Executive Pre-Pension Leave to which he was entitled if he retired by December 31, 1993. In order to keep Mr. Pestorius whole and as an inducement for him to honor the Company's request, Mr. Pestorius and the Company have entered into an agreement under which Mr. Pestorius will receive a sum of money approximately equal to one year's salary following his retirement from the Company, plus service credit toward his pension. Additionally, Mr. Pestorius has agreed to refrain from competing with the Company for a minimum of five years following his retirement in exchange for a sum of money approximately equal to an additional year's salary and bonus which will be made in installments over a five-year period following his last day of active employment. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Please see page 3 for the discussion concerning Mr. Tomaino's affiliation with a law firm which has provided legal services to the Company. INDEMNIFICATION OF CERTAIN PERSONS As authorized by New York State Law, the Company and its subsidiaries have purchased insurance from the Chubb Group insuring such companies against amounts they may pay as a result of indemnifying their officers and Directors for certain liabilities such officers and Directors might incur. These insurance policies also insure all officers and Directors of the Company and its affiliates for additional liabilities against which such officers and Directors may not be indemnified by the Company and its affiliates. The insurance was renewed on May 7, 1993, for a period of one year. During 1993, the Company paid $499,915 for this insurance and the renewal policy cost will be negotiated in April, 1994. PROPOSAL 2--ELECTION OF INDEPENDENT AUDITORS The Company's independent auditors are Price Waterhouse. At the Annual Meeting, the shareowners will consider and vote upon a proposal to elect independent auditors for the Company's fiscal year ending December 31, 1994. The Audit Committee of the Board of Directors, none of whose members is an officer or employee of the Company, has recommended that Price Waterhouse be re-elected as independent auditors for that year. The Board of Directors unanimously recommends that shareowners vote FOR this proposal. Proxies solicited by the Board of Directors will be voted FOR the foregoing proposal unless otherwise indicated. Approval of this proposal will require the affirmative vote of a majority of the votes cast at the Annual Meeting by the holders of the common stock outstanding. Representatives of Price Waterhouse will be present at the Annual Meeting to make a statement, if they wish, and to respond to appropriate questions from shareowners. MANAGEMENT RECOMMENDS A VOTE FOR THE ELECTION OF PRICE WATERHOUSE AS THE COMPANY'S INDEPENDENT AUDITORS, DESIGNATED AS PROPOSAL 2 ON YOUR PROXY CARD. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF THE DIRECTION THEREON TO THE CONTRARY. 17 PROPOSALS TO MODIFY EMPLOYEE AND DIRECTOR COMPENSATION PLANS The Company is requesting shareowner approval of several amendments and modifications to existing employee and Director compensation plans. In general the modifications are designed to increase the participants' ownership of Company common stock or to facilitate the participants' disclosure document filing obligations. These proposals are included on pages 18 through 23 of this Proxy Statement as Proposals 3, 4, 5 and 6. Specifically, in the case of Proposals 3 and 6, shareowner approval is requested to facilitate disclosure document filing obligations of Plan participants who are either Directors or executive officers of the Company. In the case of Proposals 4 and 5, shareowner approval is requested to increase the number of shares available for stock option grants and/or to approve an increase in the number of options granted under the Plans. A brief summary of the intent of each proposal is presented after the title of the proposal. As required by the regulations of the Securities and Exchange Commission, there is also included a summary of the material provisions of each Plan. Copies of each of these Plans and any amendments to them will be available at the meeting. They also will be sent to any shareowner upon written or oral request. Shareowners should direct such requests to the Corporate Secretary at the Company's office at Rochester Tel Center, 180 South Clinton Avenue, Rochester, New York 14646. Alternatively, shareowners may request this material via the Shareowner Line by calling 1-800-836-0342. PROPOSAL 3--AMENDMENT TO THE SUPPLEMENTAL RETIREMENT SAVINGS PLAN SUMMARY OF PROPOSED ACTION The Supplemental Retirement Savings Plan (the "Plan") is a retirement savings plan for certain employees of Rochester Telephone Corporation. The amendment to the Plan adds Rochester Telephone common stock as an investment vehicle which may be elected by the participants. The Board of Directors has approved this amendment. As stated earlier in this Proxy Statement, the Company has established recommended stock ownership levels for its senior management based upon a multiple of annual salary. Shareowner approval would facilitate the periodic filings required by the stock acquisitions for certain Plan participants who are officers of the Company. INTRODUCTION The Company's Supplemental Retirement Savings Plan (the "Plan") is a non- qualified "top-hat" plan. Its principal purpose is to permit certain highly compensated employees to contribute to retirement savings notwithstanding limits imposed by the Internal Revenue Code on contributions made to tax- qualified plans. Currently, there are 48 participants in the Plan and employer matching contributions are approximately $120,000 per year. No contributions are made for past service. All contributions to the Plan and the earnings on the contributions are held in a "rabbi" trust. SUMMARY OF PLAN PROVISIONS The Plan automatically supplements the Employees' Retirement Savings Plan, which is a broad-based 401(k) plan. The terms of the Plan primarily adopt and mirror the terms of the 401(k) plan, with certain exceptions. First, the Plan only covers 401(k) plan participants who earn above a specific level as defined by Internal Revenue Service regulations. Currently this amount is $66,000 per year. Second, the current investment options in this Plan are the Mariner Cash Management Fund (a money market fund), the Vanguard Index Trust--500 Portfolio (an S&P 500 index fund), the Merrill Lynch Capital Fund (a balanced fund), and the Merrill Lynch Corporate Bond Fund (an intermediate bond fund). The Plan amendment which is the subject of this Proposal 3 adds to these options a Rochester Telephone Corporation Common Stock Fund. Third, contributions to this Plan are solely pre-tax. The amount of these contributions equals the 18 An aggregate of 1,000,000 shares of the Company's common stock will be available for the grant of options under the Plan. The shares may be authorized and unissued shares. If an option expires, terminates, or is cancelled without being exercised, new options may thereafter be granted incorporating such shares. No option will be granted more than ten (10) years after the effective date of the Plan. The exercise price under each option is not less than the fair market value of the common stock at the time the option is granted. Options by their terms are not transferable by the participant other than by will or the laws of descent and distribution. Options become exercisable with respect to 33 1/3% of the shares subject to the option on the first anniversary of the date of the grant and with respect to an additional 33 1/3% of such shares on the second and third anniversaries of such grant. ISOs expire automatically if not exercised within ten (10) years following the date of grant. The maximum value of common stock under which an ISO granted under this Plan or any other Company plan which first becomes exercisable in any calendar year cannot exceed $100,000.00. In the event of a change in control of the Company, all of a participant's ISOs or NQSOs become immediately vested and exercisable, unless directed otherwise by resolution of the Board adopted prior to and specifically relating to the occurrence of such change in control. Each participant also has the right, exercised by written notice to the Company within sixty (60) days after the change in control, to receive, in exchange for the surrender of the option or any portion thereof to the extent the option is then exercisable, an amount of cash equal to the difference between the fair market value (as determined by the Board) on the date of surrender of the common stock covered by the option or portion thereof which is so surrendered and the option price of such common stock under the option. PLAN AMENDMENTS The restated Plan increases the Plan's authorized number of shares and conforms certain provisions of the Plan to plans of a similar nature within the telecommunication industry. The material differences between the prior Plan and the restated Plan approved by the Board are set forth in the following table:
AMENDED PLAN PRIOR PLAN ------------ ---------- Shares Available for Grant......... 1,000,000 300,000 Exercise rights following Three years One year termination upon death............ Exercise rights following Automatic Three months termination other than death or cancellation retirement........................ Exercise rights following For duration of term Three months--ISOs; retirement........................ one year--NQSOs Employment transferred to Cellular Rights continue Treated as termination Partnership with NYNEX............ Stock splits or other changes Awards adjust Board action required affecting common stock............ automatically to adjust awards
FEDERAL INCOME TAX CONSEQUENCES The Company has been advised by counsel that under present law the following are the Federal income tax consequences generally arising with respect to options granted under the Plan. The grant of an option will create no tax consequences for an optionee or the Company. The optionee will have no taxable income upon exercising an ISO (except that the alternative minimum tax may apply), and the Company will receive no deduction when an ISO is exercised. Upon exercising an option (other than an ISO), the optionee must recognize ordinary income equal to the difference between the exercise price and the fair market value of the stock on the date of exercise. The Company will be entitled to a deduction for the same amount. The treatment of an optionee's disposition of shares acquired through the exercise of an option depends on how 20 amount that could have been contributed to the 401(k) plan but without various statutory restrictions. Finally, Plan benefits can be paid out only at termination of employment or at a fixed date specified by a participant when the contribution is made. In addition, the form of benefit payment must be elected at the time a contribution is made rather than at the time of distribution. PLAN AMENDMENTS In August, 1992, the IRS issued new guidelines concerning rabbi trusts and their associated non-qualified deferred compensation plans. These guidelines permit rabbi trusts to invest in common stock of the sponsoring employer. Effective July 1, 1993, in response to the expansion of permitted rabbi trust investments, the Plan began to permit investments in Company common stock. FEDERAL TAX CONSEQUENCES Plan participants are not subject to current income taxes on contributions to the Plan or on the income or gains on these contributions. These amounts do constitute "wages" for purposes of Social Security taxes. A participating company is not entitled to a current deduction for contributions made to this Plan. In addition, the Company is subject to current income taxes on the income and gains on investments held in the rabbi trust. Participants will be taxed on all benefits they receive from the Plan. The Company will be entitled to take a tax deduction for these same amounts at the time the participants recognize the income for tax purposes. MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF AN AMENDMENT TO THE SUPPLEMENTAL RETIREMENT SAVINGS PLAN, DESIGNATED AS PROPOSAL 3 ON YOUR PROXY CARD. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF THE DIRECTION THEREON TO THE CONTRARY. PROPOSAL 4-- RESTATED EXECUTIVE STOCK OPTION PLAN SUMMARY OF PROPOSED ACTION Stock options are a form of compensation which clearly link financial reward to Company performance. As discussed in the Report of Committee on Management at page 9 of this Proxy Statement, the Company is replacing the existing long- term incentive program with an increased stock option program. In order to have sufficient options available for grant in future years, it is necessary for shareowners to approve this Restated Executive Stock Option Plan (the "Plan") which, among other modifications, will increase from 300,000 to 1,000,000 the number of authorized shares which may be granted under this Plan. The Committee on Management of the Company's Board of Directors has adopted the restated Plan, subject to shareowners' approval. The New York State Public Service Commission approved the restated Plan in open session on March 16, 1994, also subject ultimately to shareowners' approval. SUMMARY OF PLAN PROVISIONS The Plan is a standard stock option plan which authorizes the grant to key employees of options to purchase shares of Company common stock at its fair market value as of the date of grant. The Plan was originally adopted by the Board of Directors on November 20, 1989, and approved by shareowners on April 25, 1990. It covers approximately 55 employees who may be granted either incentive stock options ("ISOs") or non-qualified stock options ("NQSOs") or a combination of the two. Options with respect to 147,036 shares of common stock were outstanding, as of March 8, 1994, to 50 employees. A Committee of the Board of Directors (the "Committee") has discretion to determine the identities of key employees who will participate and the timing of the option grants. The Committee also has authority to determine whether the granted options will be ISOs or NQSOs. 19 long the shares have been held and on whether such shares were acquired by exercising an ISO or by exercising an NQSO. Generally there will be no tax consequences to the Company in connection with the disposition of shares acquired under an option except that the Company may be entitled to a deduction in the case of the disposition of shares acquired under an ISO before the applicable holding periods have been satisfied. MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF A RESTATED EXECUTIVE STOCK OPTION PLAN, DESIGNATED AS PROPOSAL 4 ON YOUR PROXY CARD. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF THE DIRECTION THEREON TO THE CONTRARY. PROPOSAL 5--AMENDMENT TO THE DIRECTORS' STOCK OPTION PLAN SUMMARY OF PROPOSED ACTION An increased common share ownership in the Company by Directors will more closely align their interests to those of our general shareowner population. Based on management's recommendation, the Company's Board of Directors adopted an amendment to the Directors' Stock Option Plan. Among other modifications, the amendment increases from 1,000 to 2,000 the annual grant of options to outside Directors and increases from 100,000 to 500,000 the number of shares available to be issued in connection with this Plan. The increase in the number of shares available to be issued in connection with this Plan is subject to shareowners' approval. The New York State Public Service Commission approved this amendment in open session on March 16, 1994, also subject ultimately to shareowners' approval. In order to have sufficient options available for grant in future years, it is necessary for shareowners to approve this Plan amendment. SUMMARY OF PLAN PROVISIONS The Rochester Telephone Corporation Directors' Stock Option Plan (the "Plan") was adopted by the Board of Directors on November 20, 1989, and approved by shareowners on April 25, 1990. With two significant exceptions, the Plan is substantially the same as the Executive Stock Option Plan discussed in Proposal 4. One of the exceptions is that Directors may be granted only non-qualified options. The second exception is that the grant of options is not discretionary with a Board Committee but is fixed by the terms of the Plan itself. As originally adopted, the Plan provides for a non-discretionary grant to non- employee Directors of a non-qualified option to purchase 1,000 shares of the Company's common stock. Grants are made each year on the date of the Annual Meeting electing Directors to the Board. Board members who begin service on the Board on a date other than the date of the Annual Meeting are granted an option to purchase a pro rata portion of 1,000 shares. All thirteen current non- employee Directors currently participate in this Plan. The following is a summary of the material provisions of the Plan. Each option granted under the Plan is evidenced by an option agreement between the individual Director and the Company. At the date each year that Directors are elected to the Board, each Director so elected (whether newly elected or continuing as a carryover Director) will receive an option to purchase a fixed number of shares of the Company's common stock. The exercise price under each option equals the fair market value of the common stock at the time the option is granted. Options are not transferable by the participant other than by will or the laws of descent and distribution. New options granted under the Plan may become exercisable with respect to 33 1/3% of the shares subject thereto on the first anniversary of the date of grant and with respect to an additional 33 1/3% of such shares on the second and third anniversaries of the grant. 21 Notwithstanding any of the provisions of the Plan, in the event of a change in control of the Company, all of a participant's options are immediately vested and exercisable, unless directed otherwise by resolution of the Board adopted prior to and specifically relating to the change in control. In the event of a change in control, each holder of an exercisable option shall also have the right at any time thereafter during the term of such option to exercise the option in full, notwithstanding any limitation or restriction in any option agreement or in the Plan. Each participant shall also have the right, exercised by written notice to the Company within sixty (60) days after the change in control, to receive, in exchange for the surrender of the option or any portion thereof to the extent the option is then exercisable, an amount of cash. This amount of cash will be equal to the difference between the fair market value (as determined by the Board) on the date of surrender of the common stock covered by the option or portion thereof which is so surrendered and the option price of such common stock under the option. PLAN AMENDMENTS On November 16, 1993, the Board of Directors, acting upon the recommendation of management, amended the Plan. The material differences between the prior Plan and the restated Plan approved by the Board are set forth in the following table:
AMENDED PLAN PRIOR PLAN ------------ ---------- Shares Available for Grant......... 500,000 100,000 Annual Grant to Directors.......... 2,000 1,000 Exercise rights following termination of service in event of death, resignation due to conflict of interest, or removal for cause. One year One year Exercise rights following termination other than death, resignation due to conflict of interest, or removal for cause.... For duration of term One year Stock splits or other changes Awards adjust Board action required affecting common stock............ automatically to adjust awards
TAX CONSEQUENCES For a discussion of the tax consequences of the options issued under the Plan, see the description of NQSOs in Proposal 4. MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF THIS AMENDMENT TO THE DIRECTORS' STOCK OPTION PLAN, DESIGNATED AS PROPOSAL 5 ON YOUR PROXY CARD. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF THE DIRECTION THEREON TO THE CONTRARY. PROPOSAL 6--DIRECTORS' COMMON STOCK DEFERRED GROWTH PLAN SUMMARY OF PROPOSED ACTION The Directors' Common Stock Deferred Growth Plan (the "Plan") allows a participating Director to defer some or all of the compensation received for service on the Board. Amounts deferred under this Plan are invested in Company common stock. This new Plan was approved by the Board of Directors effective November 1, 1993. Shareowner approval of this Plan would facilitate the filing of periodic stock acquisition disclosure for Company Directors who have elected to participate in this Plan. 22 SUMMARY OF PLAN PROVISIONS On November 1, 1993, the Committee on Directors of the Company's Board of Directors adopted the Rochester Telephone Corporation Directors' Common Stock Deferred Growth Plan (the "Plan"). This new Plan is in addition to and mirrors the Company's Plan for the Deferral of Directors' Fees. Both plans contain virtually the same terms and conditions except with respect to the investment of the deferred fees. The Plan for the Deferral of Directors' Fees provides for deferral of fees into cash which is then credited with interest at a rate equal to the rate which the Company pays on its customer deposits. The new Plan permits Directors to defer some or all of the fees they earn as Company Directors into Company common stock. The following is a summary of the material provisions of the Plan. The Plan is administered by the Board's Committee on Directors (the "Committee"). The Committee has the authority to construe the Plan's terms and to adopt rules and regulations for implementing the Plan. The Board of Directors has the authority to amend or to terminate the Plan. Any Director who is not also an employee of the Company or of a subsidiary is eligible to participate in this Plan on a voluntary basis. As of the Plan's November 1, 1993, effective date, thirteen Directors were eligible to participate in the Plan, and as of December 31, 1993, seven Directors had elected to participate. An eligible Director may defer all or a portion of his or her Directors' Fees into this Plan. Any such election must generally be made prior to the beginning of the calendar year that the fees are to be earned by the Director. A Director's deferral election must indicate when deferrals will commence, the amount of the deferrals, and when payments are to be made. At the present time, the Company has established a rabbi trust to meet its obligations to accumulate and pay out the deferred fees and the earnings on them. The deferred fees are paid to the trustee who uses the fees to purchase shares of the Company's common stock on the open market at its then fair market value. Dividends paid on the shares are used to purchase additional shares of common stock. Eligible Directors have a one-time right to transfer to this Plan amounts previously deferred under the Company's Plan for the Deferral of Directors' Fees. Amounts so transferred will be invested in shares of the Company's common stock. The transferred amounts will, however, remain subject to the terms of the election form the Director completed under the Plan for the Deferral of Directors' Fees. None of the amounts transferred to this Plan, nor the amounts deferred initially under this Plan, may be transferred back to the Plan for the Deferral of Directors' Fees. Payment of benefits from this Plan will be made in accordance with the terms of a Director's election form. Payments will be made in whole shares of common stock with fractional shares paid in cash. The Company's obligation to pay deferred amounts is an unsecured promise. In the event of the Company's bankruptcy or insolvency, the creditors of the Company may reach any assets set aside to pay promised benefits, including any assets held in the rabbi trust. TAX CONSEQUENCES Amounts deferred under this Plan are not subject to Federal income or Social Security taxes at the time of deferral. Benefits paid from the Plan are subject to both income and Social Security taxes in the year paid. MANAGEMENT RECOMMENDS A VOTE FOR THE APPROVAL OF A DIRECTORS' COMMON STOCK DEFERRED GROWTH PLAN, DESIGNATED AS PROPOSAL 6 ON YOUR PROXY CARD. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE ABSENCE OF THE DIRECTION THEREON TO THE CONTRARY. As required by regulations of the Securities and Exchange Commission, the following table shows the benefits under each of the Plans described in Proposals 3 through 6. The table indicates the Plan benefits which may be received by or allocated for the named executive officers, the executive officers as a group, 23 Directors who are not executive officers, and Company employees who are not executive officers. The benefits are expressed in either dollar values or number of units. The Directors and executive officers will benefit from approval of the Plans in which they participate. NEW PLAN BENEFITS
DIRECTORS' COMMON SUPPLEMENTAL EXECUTIVE DIRECTORS' STOCK RETIREMENT STOCK STOCK DEFERRED SAVINGS OPTION OPTION GROWTH NAME AND POSITION PLAN(1) PLAN(2) PLAN(3) PLAN(3) - - - ----------------- ------------ --------- ---------- ---------- ($) (#) (#) ($) ------------ --------- ---------- ---------- R. L. Bittner Chairman, President and CEO..... $ 19,424 37,000 N/A N/A D. M. Gregory Corporate Vice President and President--Telecommunication Group........................... $ 8,051 11,000 N/A N/A L. L. Massaro Corporate Vice President-- Finance and Treasurer........... $ 3,758 11,000 N/A N/A F. R. Pestorius Corporate Vice President-- Sales and Marketing............. $ 7,491 11,000 N/A N/A J. K. Purcell Corporate Vice President-- Partnering and Alliances........ $ 7,573 11,000 N/A N/A Executive Group................. $ 49,897 103,000 N/A N/A Non-Executive Director Group.... N/A N/A 22,000 $164,450(4) Non-Executive Officer Employee Group........................... $129,392 84,600 N/A N/A
- - - -------- (1) All contributions are actual 1993 contributions. (2) All amounts are 1994 projections. (3) All amounts are 1994 projections. This Plan is available only to Directors who are not employees of the Company. (4) These amounts are normal Directors' fees and retainers otherwise payable to Directors in 1994 which Plan participants have elected to defer into this Plan. OTHER MATTERS AND FUTURE PROPOSALS OF SHAREOWNERS As of the date of this Proxy Statement, the Board of Directors does not intend to present any matter for action at the Annual Meeting other than as set forth in the Notice of Annual Meeting. If any other matters properly come before the meeting, it is intended that the holders of the proxies will act in accordance with their best judgment. In order to be eligible for inclusion in the proxy materials for the Company's 1995 Annual Meeting of Shareowners, any shareowner proposal to take action at such meeting must be received at the Company's principal executive offices by November 23, 1994. Any such proposal should be addressed to 180 South Clinton Avenue, Rochester, New York 14646, Attention: Josephine S. Trubek, Corporate Secretary. However, as described previously under the caption "Information About the Board of Directors", shareowner suggestions for nominees to be proposed by the Board of Directors for election as Directors at next year's Annual Meeting will normally be considered if received by September 1, 1994. 24 The cost of the solicitation of proxies will be borne by the Company. In addition to the solicitation of proxies by mail, certain of the officers and employees of the Company, without extra remuneration, may solicit proxies personally or by telephone, facsimile, telegraph, or cable. The Company will also request brokerage houses, nominees, custodians, and fiduciaries to forward soliciting materials to the beneficial owners of stock held of record and will reimburse such persons for forwarding such materials. In addition, the Company has retained Corporate Investor Communications, Inc., 111 Commerce Road, Carlstadt, New Jersey 07072-8017, to aid in the solicitation of proxies at a fee of $3,500, plus reimbursement for out-of-pocket expenses incurred by that firm on behalf of the Company. Copies of the 1993 Annual Report have been mailed to shareowners. Additional copies may be obtained from the Corporate Secretary, Rochester Telephone Corporation, 180 South Clinton Avenue, Rochester, New York 14646. 25 -----END PRIVACY-ENHANCED MESSAGE-----