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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934
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
For the transition period from ------ to ------
Commission File Number 1-2755
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GTE CORPORATION
(Exact name of Registrant as specified in its Charter)
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New York 13-1678633
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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One Stamford Forum
Stamford, Connecticut 06904 Area Code 203 965-2000
(Address of principal executive offices) (Zip Code) (Telephone Number)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
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Name of each domestic exchange
Title of each class on which registered
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Common Stock, par value $.05 per share New York Stock Exchange, Inc.
Chicago Stock Exchange, Incorporated
The Pacific Stock Exchange Incorporated
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Chicago Stock Exchange, Incorporated
The Pacific Stock Exchange Incorporated
$2.00 Convertible No Par Preferred Stock New York Stock Exchange, Inc.
$2.475 No Par Cumulative Preferred Stock New York Stock Exchange, Inc.
5.00% Cumulative Convertible Preferred Stock,
par value $50 per share New York Stock Exchange, Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
4.00% Cumulative Convertible Preferred Stock
4.36% Cumulative Convertible Preferred Stock
4.75% Cumulative Convertible Preferred Stock
5.05% Cumulative Convertible Preferred Stock
5.28% Cumulative Convertible Preferred Stock
5.35% Cumulative Convertible Preferred Stock
5.50% Cumulative Convertible Preferred Stock
4.40% Cumulative Preferred Stock
7.75% Cumulative Preferred Stock
7.85% Cumulative Preferred Stock
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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 the 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
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The aggregate market value of GTE's voting stock held by non-affiliates at
January 31, 1994 amounted to $33,110,436,301.
GTE had 953,465,876 shares of $.05 par value common stock outstanding at
January 31, 1994.
Document Incorporated by Reference:
GTE's Proxy Statement for Annual Meeting of Shareholders to be held on April
20, 1994 (Incorporated in Part III).
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PART I
Item 1. Business.
BUSINESS OF GTE COMPANIES
GTE Corporation ("GTE") has two major business segments:
telephone operations and telecommunications products and
services. GTE also has subsidiaries engaged in financing,
insurance, leasing and other activities offering financial and
related services primarily to GTE operating companies. One of
these subsidiaries, GTE Service Corporation, furnishes at cost,
advisory and consulting services related to administration,
operations, accounting methods and procedures, insurance,
personnel, financing, Federal and state taxes and other matters.
GTE and its subsidiaries had approximately 117,000 employees, at
December 31, 1993.
TELEPHONE OPERATIONS
Telephone Operations in the United States
GTE's telephone operating subsidiaries in the United States
served approximately 17.1 million access lines in 33 states as
of December 31, 1993 and provided many types of communications
services, ranging from local telephone service for the home and
office to highly complex voice and data services for various
industries. Subsidiaries accounting for the largest portion of
total domestic telephone revenues include GTE California, 21%;
GTE North, 19%; GTE Southwest, 9%; and GTE Florida, 9%. The
largest cities served include Long Beach, Santa Monica and Los
Angeles, California; Tampa and St. Petersburg, Florida;
Honolulu, Hawaii; Lexington, Kentucky; Fort Wayne, Indiana; and
Erie, Pennsylvania.
In December 1992, GTE announced a plan to sell or trade a small
percentage of local-exchange telephone properties (representing
less than five percent of its U.S. access lines) in markets that
may be of greater long-term strategic value to other telephone
service providers. As part of this program, during 1993, GTE
sold local-exchange properties serving approximately 530,000
access lines in eight states in return for 90,000 access lines
in Illinois, Indiana and Michigan and $1 billion in cash. Also
during 1993, GTE entered into definitive agreements for the sale
of additional local-exchange telephone properties serving
approximately 400,000 access lines in nine states. The
transfers of ownership are expected to occur on a state-by-state
basis throughout 1994, and are subject to various government and
regulatory approvals.
Local network service revenues are comprised mainly of fees
charged to customers for providing local-exchange service within
the designated franchise area. GTE telephone subsidiaries also
provide toll service within designated geographic areas called
Local Access and Transport Areas ("LATAs") under agreements with
connecting local-exchange carriers ("LECs") in conformity with
individual state regulatory orders. GTE and other LECs
compensate each other pursuant to access charge tariffs that are
subject to review by state regulatory commissions.
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Interstate and intrastate revenues are generated by providing
access services to interexchange carriers. The interstate
service revenues are based on switched, common-line, and special
access tariffs approved by the Federal Communications Commission
("FCC"). The FCC tariffs include end-user access charges on
residential and business customers. State access is based on
similar rate structures that are subject to approval by state
regulatory commissions.
In most cases the telephone subsidiaries have legal rights to
operate in the areas served subject to conditions, restrictions
and limitations of various kinds. In some cases, subsidiaries
operate at sufferance or under rights which are open to
question, and in some cases municipalities have the right to
acquire the telephone system within the municipal limits on
certain terms and conditions. The advances in technology and
the extent of alternative provision of service are beginning to
erode certain of the benefits derived from these franchise
rights.
Rates and Regulation - U.S.
The telephone operating subsidiaries in the United States are
subject to regulation by the various state regulatory agencies
for the majority of their operations. These subsidiaries are
also subject to the jurisdiction of the FCC with respect to
interstate communications, accounting and related matters.
Rates in effect for various services differ among the telephone
subsidiaries and among the exchanges within their respective
territories, depending upon type of service, size of community
and other factors.
Activity directed toward changing the traditional cost-based
rate of return regulatory framework for intrastate and
interstate telephone services has continued. Various forms of
alternative regulation have been adopted, which provide economic
incentives to telephone service providers to improve
productivity and provide the foundation for the pricing
flexibility necessary to address competitive entry into GTE
markets. In total, approximately 50 percent of Telephone
Operations' U.S. regulated revenues are under some form of
alternative regulation.
As of December 31, 1993, almost one-third of GTE's access lines
were in four states which have adopted incentive regulation
plans for intrastate service, including California, the state
containing GTE's largest operation. In general, these plans
allow the company to retain all earnings at or below a base rate
of return on investment. Earnings above that rate of return,
but below a certain specified level, are shared with the
customer in varying amounts. Earnings above that specified
level must be returned in full to customers.
During 1993, the California Public Utilities Commission ("CPUC")
approved a settlement agreement allowing GTE California to
retain 100% of any earnings up to a 15.5% rate of return on
investment and refund 100% of any earnings above 15.5% beginning
in 1994. Under its prior agreement, GTE was required to share
50% of any earnings over a 13% rate of return and 100% of any
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earnings over 16.5%. As part of this agreement and its normal
annual price cap filing, GTE California will reduce its rates by
about $100 million in 1994. Additionally, as further discussed
under "Telephone Competition", the CPUC is expected to issue a
final decision in 1994 generally authorizing intralata toll
competition and ordering significant rate restructuring in
California. Although intended to be revenue neutral, the
ultimate effect on revenue will depend, in part, on the extent
to which toll and access rate reductions result in increased
calling volumes.
For the provision of interstate services, GTE operates under the
terms of the FCC's price cap incentive plan. The "price cap"
mechanism serves to limit the rates a carrier may charge, rather
than just regulating the rate of return which may be achieved.
Under this approach, the maximum prices that the LEC may charge
are increased or decreased each year by a price index based upon
inflation less a predetermined productivity target. LECs may,
within certain ranges, price individual services above or below
the overall cap.
Under its price cap regulatory plan, the FCC also adopted a
productivity sharing feature. Under this feature, GTE's
telephone subsidiaries must share equally with its ratepayers
any realized interstate return on investment above 12.25% up to
16.25%. All returns higher than 16.25% must be refunded to
ratepayers by temporarily lowering prospective prices. During
1994, the FCC is scheduled to review the LEC price cap plan to
determine whether it should be continued or modified.
Telephone Operations Outside the United States
GTE, through its ownership of common stock of Anglo-Canadian
Telephone Company ("Anglo"), has voting control of BC TEL and
Quebec Telephone. At December 31, 1993, BC TEL served
approximately 2.1 million access lines in the province of
British Columbia, Canada and Quebec Telephone served
approximately 300,000 access lines in the province of Quebec,
Canada.
In addition, GTE, through GTE Holdings (Canada) Limited, a
Canadian holding company, owns the common stock of Compania
Dominicana de Telefonos, C. por A., a telephone company
furnishing local and long-distance telephone service in the
Dominican Republic. This company served approximately 600,000
access lines at December 31, 1993.
In late 1991, GTE acquired, through a multinational consortium,
a 20.4% ownership interest in Compania Anonima Nacional
Telefonos de Venezuela ("CANTV"), the government-owned telephone
company in Venezuela. CANTV is the exclusive provider for
local, national and international long-distance telephone
service in Venezuela. CANTV also provides other
telecommunication and related services, including cellular
telephone and directory advertising services. GTE and its four
partners have a 40% ownership interest and operating control of
CANTV, while GTE, as the owner of 51% of the consortium, is
managing CANTV. During 1993, CANTV placed 250,000 new lines in
service for customers and added over 5,000 public telephones
while continuing to improve the quality of its services and
network. CANTV served approximately 2.0 million access lines at
December 31, 1993.
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In September 1993, an explosion occurred at a construction site
in Venezuela where a subcontractor of a Venezuelan company, AT&T
Andinos, was installing a fiber-optic cable for CANTV. The
trenching activities apparently ruptured a natural gas line.
The ensuing explosion caused injuries and fatalities to
passengers in vehicles that were on the highway adjacent to the
construction site. An investigation conducted by Venezuelan
authorities found no criminal liability on the part of CANTV
executives. Two civil lawsuits for wrongful death and personal
injury have been brought by one of the injured persons and the
estates of two individuals who died from their injuries. The
lawsuits were filed in the United States District Court in
Miami, Florida, against GTE Corporation, CANTV, AT&T and AT&T
Andinos. The financial impact of these lawsuits, if any, is not
expected to be material to the financial position of CANTV or
GTE.
Venezuela has from time to time experienced social tensions and
civil unrest, including two coup attempts during 1992. Although
in the past these events have not been directed at CANTV, it is
not possible to predict the effect of any such events on CANTV
in the future.
Telephone Competition
GTE's telephone subsidiaries hold franchises, licenses and
permits adequate for the conduct of their business in the
territories which they serve. Rapid advances in technology,
together with a number of regulatory and judicial actions
continue to accelerate and expand the level of competition and
opportunities available to GTE.
In September 1993, the FCC issued an order that allows competing
communications carriers to interconnect to a local-exchange
network for the purpose of providing switched access transport
services effective February 1994. This ruling follows an FCC
ruling in 1992 that allowed competitors to interconnect in order
to provide private line services. Both of these orders permit
competition for the transport of traffic between a LEC's
switching office and large end-user's facilities. The FCC order
also allows the LECs additional flexibility in pricing
competitive services. In December 1993, the FCC approved LEC
tariffs implementing revised rate structures for dedicated and
common transport services. These revisions better reflect the
actual cost characteristics of transport services and improve
the LEC's ability to compete with alternative access providers.
During 1994, Telephone Operations will begin implementation of a
re-engineering plan that will redesign and streamline processes.
Implementation of the re-engineering program will allow GTE's
U.S. Telephone Operations to continue to respond aggressively to
competitive and regulatory developments through reduced costs,
improved service quality, competitive prices and new product
offerings. Moreover, implementation of this program will
position GTE to accelerate the delivery of a full array of
voice, video and data services. The re-engineering program will
be implemented over three years, with expected workforce
reductions of approximately 17,000 during that time frame.
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In September 1993, the FCC announced its decision to auction
licenses in 51 major markets and 492 basic trading areas across
the United States to encourage the development of a new
generation of wireless personal communications services ("PCS").
As discussed further in the description of GTE's Personal
Communications Services business, these services will both
complement and compete with traditional wireline services.
In Cerritos, California, GTE is testing and comparing the
capabilities of copper wire, coaxial cable, and fiber-optics.
The Cerritos test has enhanced GTE's expertise in the areas of
pay-per-view video service, video-on-demand and local
videoconferencing, and led to a new interactive service, GTE
Main Street, which allows customers to shop, bank and access
various other information services from their homes. In 1992,
the FCC issued a "video dialtone" ruling that allows telephone
companies to transmit video signals over their networks. In
August 1993, the U.S. District Court in Alexandria, Virginia
ruled that a regional telephone company is permitted to provide
video programming within its telephone service area. If upheld,
this decision would overturn the provision in the Cable
Communications Policy Act of 1984 that prevents telephone
companies from providing video programming within their existing
service areas.
The GTE Consent Decree, which was issued in connection with the
1983 acquisition of GTE Sprint (since divested) and GTE
Spacenet, prohibits GTE's domestic telephone operating
subsidiaries from providing long-distance service beyond the
boundaries of the LATA. This prohibition restricts their direct
provision of long-distance service to relatively short
distances. However, GTE Hawaiian Telephone and GTE Alaska are
permitted to provide services between Hawaii, Alaska and
international points. The degree of competition allowed in the
intraLATA market is subject to state regulation. However,
regulatory constraints on intraLATA competition are gradually
being relaxed in many of the states in which GTE telephone
operating subsidiaries provide service.
In September 1993, the CPUC issued an initial decision
authorizing intraLATA toll competition in California. The CPUC
also ordered significant rate reductions for access, toll and
other services subject to competition and increases in rates for
local-exchange services in order to bring rates closer to the
costs of providing these services. The decision did not permit
rate increases to compensate for any future competitive losses.
In October, the CPUC rescinded its decision pending further
consideration. A final decision is expected in 1994.
In November 1993, the CPUC also announced its intention to
reexamine its policies regarding the regulation of intrastate
telecommunications services in order to stimulate the
development of the information infrastructure and the state's
economy. As part of its overall strategy, the CPUC will explore
opening all markets to competition within the next three years.
These and other actions to eliminate the existing legal and
regulatory barriers, together with rapid advances in technology,
are facilitating a convergence of the computer, media and
telecommunications industries. In addition to allowing new
forms of competition, these developments are also
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creating new opportunities to develop interactive communications
networks. GTE supports these initiatives to assure greater
competition in telecommunications, provided that overall the
changes allow an opportunity for all service providers to
participate equally in a competitive marketplace under
comparable conditions.
GTE intends to continue to respond aggressively to regulatory
and legal developments that allow for continued competition and
opportunities in the marketplace. GTE expects its financial
results to benefit from reduced costs and the introduction of
new products and services that will result in increased usage of
its telephone and mobile-cellular networks. However, it is
likely that such improvements will be offset, in part, by
continued strategic price reductions and the effects of
increased competition.
Support Services
Included in GTE's Telephone Operations are two major unregulated
subsidiaries which provide support to the GTE telephone
subsidiaries.
GTE Data Services Incorporated ("Data Services"), GTE's software
development and information processing subsidiary, provides data
processing and information management services to GTE's
telephone subsidiaries and other non-affiliated companies.
During 1993, Data Services won several major outside contracts,
including the renewal of one with an estimated value of $46
million to continue serving as fiscal agent for the state of
Missouri's Division of Medical Services for seven years.
Another was a $22 million award to provide a license for its
Customer Billing Services System to Mercury Communications Ltd.,
the second-largest long-distance telephone company in Great
Britain.
GTE Supply is responsible for the procurement and distribution
of supplies for GTE's domestic telephone operating companies, as
well as other non-affiliated telephone companies.
TELECOMMUNICATIONS PRODUCTS AND SERVICES
Telecommunications Products and Services consists of Personal
Communications Services, which is comprised of GTE Mobilnet
("Mobilnet"), Contel Cellular Inc. ("CCI") and GTE Airfone, GTE
Government Systems and GTE Information Services.
Personal Communications Services
Mobilnet and CCI provide mobile-cellular telephone service and
market cellular products. Mobilnet is 100% owned by GTE while
CCI is a 90% owned GTE company. The remaining shares of CCI are
traded on the NASDAQ National Market System.
GTE is the second-largest provider of mobile-cellular telephone
services in the United States in terms of population in the
areas served. It holds a controlling interest in 77
metropolitan markets, known as metropolitan statistical areas
("MSAs"), and 42 rural service areas ("RSAs"). Outside
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the United States, GTE also operates mobile-cellular networks
through international subsidiaries and affiliates in Canada,
Venezuela and the Dominican Republic.
In addition, in November 1993, a GTE-led consortium, Compania de
Telefonos del Interior ("CTI"), was ranked first in competitive
bidding for two cellular licenses by the National
Telecommunications Commission of Argentina. It is expected that
a contract to award the licenses will be executed late in the
first quarter of 1994. GTE, as operator, has a leading 23
percent ownership interest in CTI, and its partners include AT&T
Network Systems and three Argentinean companies along with Trust
Company of the West. It is anticipated that CTI will have an
initial two year exclusivity to provide cellular services in the
north and south interior regions of Argentina. GTE will hold a
10 year contract to manage and operate the system, which will
serve a population of 22 million in the northern and southern
regions of the country.
GTE's ownership position in U.S. markets was obtained through
the FCC lottery and settlement process as well as through
purchases. GTE's cellular operations serve a population of
approximately 53 million "POPs", approximately 19 million of
which are in the top 30 U.S. markets. ("POPs" refers to the
population of a market area multiplied by a company's percentage
ownership in the cellular system serving that market.) In 1993,
GTE's cellular operations increased their customer base by 45%
to 1,585,000 customers.
GTE's FCC cellular licenses, were generally granted for an
initial ten year term and are renewable for successive ten year
terms. FCC license renewal applications were filed for the two
GTE markets with license expirations in 1993. Both applications
presently are being processed by the FCC; neither were opposed.
The majority of GTE's FCC cellular licenses will expire and
require renewal application filings over the next five year
period.
In 1993, CCI, Mobilnet and other leading mobile communications
companies announced the formation of MobiLink, which is a set of
cellular service standards designed to provide customers
consistent levels of service and greater satisfaction across
most of the U.S. and Canada. Today, the MobiLink association of
carriers covers some 81% of the population of the U.S. and 89%
of Canada.
Also in 1993, GTE's cellular operations began providing wireless
data services to major customers and undertook developing, along
with other carriers, a standard for digital data services. This
new service offering, called Cellular Digital Packet Data
provides for a standard, efficient method of digital data
services using existing cellular radio frequencies.
GTE's cellular operations experience direct competition from the
second cellular licensee in each market. Competition is
principally on the basis of service quality, price and coverage
area. In addition to the direct cellular competitor in each
market, Enhanced Specialized Mobile Radio ("ESMR") operators
also represent potential competition. In 1993, one
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such ESMR provider began the process of modifying its networks
in major markets all over the U.S. to provide service offerings
which are very similar to cellular and PCS. Through the use of
digital technology, this ESMR operator plans sufficient capacity
increases to provide direct competition to cellular service.
In 1993, GTE continued to make progress in advanced
telecommunications. In Tampa, Florida, GTE concluded the
largest market trial of residential PCS conducted in the United
States. The knowledge and experience gained during this trial
will enhance GTE's ability to compete in this emerging market.
In 1993, the FCC also released a Report and Order to allocate
additional frequencies in the 1.8 GHz to 2.1 GHz frequency band
to enable up to seven additional wireless competitors to enter
the market. These new licenses will be the subject of auction
on the basis of two licenses in each of 51 large serving areas
across the U.S. called "Major Trading Areas" ("MTAs"), and five
licenses in each of 492 smaller serving areas called "Basic
Trading Areas" ("BTAs"). Mobile-cellular telephone service
providers such as GTE are eligible for these new MTA licenses in
areas where they do not currently have significant cellular
holdings and for a single BTA license in all BTAs. The service
offerings under the additional frequencies will be similar in
nature to mobile-cellular telephone service and will offer
direct competition once established. The FCC plans to auction
these licenses during 1994; thus it is not possible at this time
to predict the precise scope, timing or nature of this
competition. GTE will be permitted full participation in the
license auctions in areas outside of its existing cellular
service areas and limited participation in areas in which GTE
has a cellular presence. GTE expects to actively participate in
these auctions.
The frequency bands being allocated to these new licenses are
currently occupied by point-to-point microwave radio users.
GTE, both within its local-exchange telephone operations and its
cellular operations, is an extensive user of these facilities
for the backhaul of telephone traffic. Under the proposed FCC
rules, the incumbent users of these frequencies will be
relocated to higher frequencies to make way for the new PCS
services. The FCC rules allow for up to a two year negotiation
period between the incumbent and the new licensee for the new
licensee to provide adequate compensation to the incumbent for
the cost of that relocation. Failing agreement between the two
parties during that two year negotiation period, the FCC rules
provide for a third year for arbitration.
GTE has filed extensive comments in all of the FCC proceedings
regarding PCS to ensure that incumbents are not unfairly
disadvantaged and to ensure that the new services are made
available to the public in the most cost- and time-efficient
manner.
GTE Airfone ("Airfone) operates an air-to-ground telephone
service for passengers on board aircraft under a license granted
by the FCC in 1991.
Five other licenses have been granted by the FCC for
air-to-ground service, and two companies, In-Flight Phone
Corporation and Claircom, had initiated activity by the end of
1992. At the end of 1993, Airfone
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service was installed on approximately 2,000 U.S. and Canadian
commercial aircraft. The convenience of the Seatfone system,
which is installed in the backs of passengers' seats, has
significantly increased calling rates over cordless telephones
located at central places in the aircraft.
The Airfone telecommunications system has also been installed on
several U.S. and non-U.S. commercial aircraft that fly
trans-oceanic routes providing airline passengers with telephone
service worldwide through satellite connections.
At the end of 1993, Airfone began deployment of its new advanced
digital GenStar System, which will enhance quality and make
possible a new array of features not available to airline
passengers in the past, including data and fax service,
ground-to-air calling, and a variety of information services. A
lighted menu screen makes it easy and efficient for passengers
to use these enhanced features. Also, 1993 marked a significant
milestone in the history of airborne telecommunications with the
first-ever completion of a ground-to-air call on the Airfone
service. Airfone has been competing for contracts to install
its digital GenStar system, and as of January 1994, had won
agreements with TWA, Delta Air Lines, United Airlines and USAir
Shuttle to outfit about 1,700 aircraft. Late in 1993, American
Airlines and America West, which are presently equipped with
Airfone equipment, reached an agreement with other providers for
onboard telephone service.
Also, in September 1993, Airfone and Magnavox announced a joint
alliance to provide digital airborne telecommunications for the
general aviation market. Under this alliance, Magnavox will
design the digital radios with an exclusive connection to
Airfone's new advanced all-digital system. The "MagnaStar
system" will be available in mid-1994.
Airfone will continue to actively compete for digital service
contracts based on quality, reliability, new feature offerings
and flexibility for future capabilities.
GTE Government Systems
In January 1994, GTE combined GTE Spacenet Corporation
("Spacenet") with GTE Government Systems in order to achieve
greater synergy and operating efficiencies.
GTE Government Systems' primary business is the development,
manufacturing and integration of customized command, control,
communications and intelligence systems for the defense and
national security agencies of the U.S. Government and selected
foreign governments. In addition, GTE Government Systems
provides information systems, telecommunications services and
electronic system operation and maintenance support services for
civilian agencies of the Federal Government and the commercial
marketplace.
During 1993, GTE Government Systems received orders valued at
$1.1 billion and continued to expand its customer base within
government agencies to include a $31 million award to provide
telecommunications equipment and
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support services for 21 U.S. General Services Administration
locations in California and Nevada, and a $12 million contract
to supply computer maintenance services to U.S. Department of
Agriculture offices. GTE Government Systems also won several
significant contracts from its military customers including the
Air Force, Army and the Department of Defense. Among these were
a supplemental award of $87 million for field services in
support of intelligence systems; a $33 million supplemental
award to supply digital telecommunications systems to selected
Army posts in the United States; and a $20 million award from
the Army for continued technology upgrades to transportable
tactical message switches. These successes and other programs
helped GTE Government Systems end 1993 with a backlog of
slightly more than $1.0 billion, a decline from the $1.4 billion
at December 31, 1992. This decrease primarily reflects the
substantial completion of deliveries under the Mobile Subscriber
Equipment contract awarded in 1985.
GTE Government Systems continues to witness a decline in the
budgets of its traditional customers within the Department of
Defense and other national security agencies of the U.S.
Government. This situation is expected to continue for the next
several years as a diminished geopolitical threat and increased
emphasis on non-defense related domestic programs divert funds
to other governmental agencies. However, there will continue to
be opportunities within the defense market for GTE Government
Systems products and services, especially in the areas of
communications networks and information processing.
GTE Government Systems has broadened its marketing strategy to
seek a stronger presence with its traditional military customers
and to expand its presence and contract base with the civilian
agencies of the Federal Government. Capabilities, products and
services are being transitioned to non-defense applications.
Initiatives are also underway in the commercial marketplace,
including a joint venture with Northern Telecom to introduce
asynchronous transfer mode switches into the public switched
network markets. In all markets success depends on GTE
Government Systems' ability to successfully compete for
contracts which increasingly are being awarded with more
emphasis on price rather than unique technical solutions.
Principal U.S. competitors include: LORAL, ITT, Boeing, CSC,
Martin-Marietta, AT&T, TRW, Harris, E-Systems, Lockheed/Sanders
and GE/RCA. Major foreign competitors include Thomson-CSF,
Ericsson and Siemens.
Spacenet provides a broad range of telecommunications services
and system solutions for businesses, news organizations,
educational institutions and government agencies throughout the
United States and in over 30 other countries. The company
currently operates eight communications satellites for the
United States domestic market.
Spacenet offers a multi-level service portfolio for data, video
and voice networks which typically includes design, integration,
implementation, operations, program and network management.
Spacenet's capabilities combine satellite with other advanced
technologies and protocols.
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Spacenet's market focus is on commercial and governmental
organizations which have essential needs for high-quality
telecommunications services with rapid transmission of
time-critical information to support their normal operations or
to provide strategic advantage in competitive markets.
Spacenet's sales and business initiatives address three target
segments: satellite services; domestic networks; and
international sales. Satellite services focus on the sale of
transponder services, typically to broadcasters, educators and
resellers. Domestic network services focus on VSAT networks for
retail, finance, energy and manufacturing industries and for
government customers. International sales focus on private,
high-performance satellite-based networks for communications to
remote locations, or total telecommunications solutions
including hub earth stations, switching systems, and total
project integration for underdeveloped or remote locations.
Competition for satellite-delivered interactive data services
has come primarily from private and multidrop terrestrial leased
lines. Domestic competitors in satellite services include GM
Hughes, AT&T, and General Electric. With the exception of the
latter, Spacenet's domestic competitors are active in the
international market in addition to U.S.-based Scientific
Atlanta and regional competitors throughout the world.
Because of competing terrestrial transmission technologies (i.e.
fiber optics) in the domestic market, Spacenet has shifted its
focus over the last several years to the growing international
market especially in Eastern Europe, Latin America and the
Pacific Rim.
As a result of the development of alternative transmission
technology and increased competition, during the fourth quarter
of 1993, the carrying value of Spacenet's satellite
communication assets was reduced to estimated net realizable
value.
GTE Information Services
GTE Information Services provides information marketing and
networking services through its business units.
GTE Directories Corporation ("GTE Directories") is the largest
unit of GTE Information Services. It annually publishes or
provides sales and other directory-related services for more
than 1,200 directory titles in 42 states and 14 foreign
countries with a total circulation of approximately 49 million
copies. A full-service directory publisher for 57 years, GTE
Directories publishes, prints, distributes, and sells
advertising for directories. GTE Directories competes directly
within the yellow pages industry which consists of nine major
and numerous smaller U.S.-based directory publishers.
Indirectly, GTE Directories competes with other
advertising-based media such as cable, newspapers, television,
radio, and direct mail.
-11-
<PAGE> 13
Other units of GTE Information Services develop and market
computer-based services in several industries including health
care, state and local government, cellular telephone and
telecommunications. As a result, they face competition from
many companies offering competitive computer software and
related services.
GTE Telecommunications Services ("GTETSI") is a major provider
of comprehensive, integrated information services to the
cellular telephone industry throughout North America. The array
of services spans fraud analysis, roamer validation, roamer
rating, roamer call forwarding, clearinghouse services, network
management, network services, subscriber activations services
and corporate accounts invoicing services. GTETSI provides
transaction processing, software applications and network and
support services that facilitate the "roaming" of cellular
subscribers and the management of cellular markets.
GTETSI serves both large and small customers in virtually all
operational wireline markets and 35 percent of the non-wireline
markets throughout North America. It has one competitor which
focuses primarily upon the non-wireline markets. GTETSI
competes through product innovation, technology deployment,
provision of flexible product solutions and quality customer
service.
GTE Health Systems is a provider of integrated information
management applications to the health care industry. Primary
product lines include financial and clinical software
applications for hospitals.
GTE Government Information Services ("GTEGIS") develops and
markets Emergency-911 systems for local governments. It
provides applications software, network design and management,
professional services, and complete installation, maintenance
and support services targeted to local government agencies.
In addition, GTEGIS markets cellular call box systems. These
stand-alone, solar-powered call boxes provide vital
communication services on highways, municipalities, campuses and
other critical locations.
AG COMMUNICATION SYSTEMS
AG Communication Systems began operations in January 1989 as a
joint venture of GTE and AT&T. GTE held a 51 percent interest
in the venture, through December 31, 1993. Effective January 1,
1994, AT&T assumed 80 percent ownership and will assume 100
percent ownership in the year 2004, through the purchase of
GTE's remaining ownership interest.
AG Communication Systems designs, engineers, manufactures,
distributes, installs and maintains GTD-5 telecommunication
switches and ancillary products, and provides services for
telecommunication markets. The joint venture also develops
software for AT&T and manufactures completed products or
subassemblies for other companies.
-12-
<PAGE> 14
The main participants in this industry are Northern Telecom and
AT&T in the United States, as well as European and Far Eastern
competitors. As a result of intense competition, prices are
determined competitively in the marketplace.
RESEARCH AND NEW PRODUCT DEVELOPMENT
GTE's research and development work is centered principally at
GTE Laboratories Incorporated. Further activities in research
and new product development and improvement are conducted at the
various GTE business units. The areas of research and product
development are focused on telecommunications operations and
applications. The following highlight the key areas of
involvement: automation of telecommunication operations, network
management, intelligent network migration, broadband information
transport, network architecture design and planning, wireless
communications, advanced database capabilities, network quality
improvements, exchange video distribution, and support for
industry standards development.
For the years 1993 - 1991, expenditures for all
company-sponsored research and product development and
improvement for continuing operations were approximately $135
million, $159 million and $155 million, respectively.
Additionally, approximately $204 million, $167 million and $143
million, respectively, was expended for customer-sponsored
research and product development and improvement during the same
periods. In total, GTE engaged approximately 2,100 professional
scientists and engineers full time, or substantially full time,
on such activities.
ENVIRONMENTAL MATTERS
GTE and some of its present and former subsidiaries, along with
other unrelated corporations, have been named as potentially
responsible parties at a number of federal and state "Superfund
Sites" - sites, lawfully used in the past, but now determined to
require remediation or with respect to some presently or
formerly owned sites requiring remediation under the Resource
Conservation and Recovery Act ("RCRA" ). GTE has reviewed each
Superfund and RCRA site in which it has an involvement to
establish an expected remediation cost. Based on this review,
the remediation cost at any individual site or at all sites in
the aggregate are not expected to be material. Factors used to
evaluate expected GTE costs include remediation estimates,
number of viable parties involved, degree of GTE's involvement
and past experience at sites being remediated. No present value
discounting is used. Additionally, operations of some of GTE's
subsidiaries have been subjected to new and increasingly
stringent environmental requirements.
-13-
<PAGE> 15
While GTE's annual expenditures for site cleanups and
environmental compliance have not been and are not expected to
be material, they are increasing. These costs include GTE's
share of cleanup expenses for Superfund Sites, outlays required
to keep existing operations in compliance with environmental
regulations and an underground storage tank replacement program.
Although the complexity of environmental regulations, and the
widespread imposition of multi-party joint and several
liabilities at Superfund Sites, makes it difficult to assess
GTE's share of liability, management believes it has made
adequate provision in its financial statements.
INDUSTRY SEGMENTS
Reference is made to Item 6 'Selected Financial Data' included
elsewhere herein for information about GTE's operations by major
business segment and GTE's foreign operations for the years
1993-1989.
-14-
<PAGE> 16
Item 2. Properties.
PROPERTIES OF GTE COMPANIES
GTE owns no plant, real property, franchises, or concessions
except indirectly through its investments in subsidiaries.
TELEPHONE OPERATIONS
The properties of GTE's telephone subsidiaries consist
principally of land, structures and equipment required to
provide various telecommunications services and are generally in
good operating condition. Substantially all of the properties
of the telephone subsidiaries are subject to the liens of their
respective mortgages securing funded debt.
From January 1, 1989 to December 31, 1993, GTE's telephone
subsidiaries made capital expenditures of approximately $17
billion for new plant and facilities required to meet
telecommunication service needs and to modernize associated
plant and facilities. These additions were equal to 39 percent
of gross plant of $43.1 billion at December 31, 1993. Gross
retirements amounted to $9.7 billion during the same period.
Access lines in service is an important factor in measuring
telephone growth. At year-end 1993, access lines served in the
United States totaled 17.1 million. In addition, GTE's
affiliated telephone companies in Canada, the Dominican Republic
and Venezuela served 5.0 million access lines. At December 31,
1993, 84 percent of GTE's access lines were connected to digital
switches, compared with 70 percent in 1989. During 1993, GTE
also accelerated the installation of fiber-optic cable, bringing
total miles installed throughout GTE's domestic network to
649,000 miles, more than double the amount installed only three
years ago.
In view of increased competition and rapid technological change,
GTE' s telephone subsidiaries continue to seek opportunities to
improve recovery of their large investments in telephone plant.
Although gross investment in plant increased at a three percent
annual rate between 1989 and 1993, 39 percent of GTE's
investment in telephone plant had been recovered through
depreciation by the end of 1993 compared with only 34 percent in
1989.
TELECOMMUNICATIONS PRODUCTS
AND SERVICES
At year-end 1993, the Telecommunications Products and Services
Group operated 51 plants and had eight laboratories in the
United States.
In 1993, GTE substantially completed the two year conversion of
its mobile-cellular switching and transmission equipment to
advanced digital technology throughout its operations. The new
equipment will enable GTE to offer an array of new digital
wireless services in the future and to participate in the
evolving nationwide wireless communication network.
-15-
<PAGE> 17
OTHER
GTE Laboratories Incorporated operates a research facility in
Massachusetts.
All of the aforementioned properties are generally in good
operating condition and adequate to satisfy the needs of the
businesses.
Item 3. Legal proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-16-
<PAGE> 18
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
At January 31, 1994, there were approximately 567,000 common
shareholders of record.
GTE QUARTERLY FINANCIAL DATA
(Millions of Dollars)
GTE Corporation and Subsidiaries
(unaudited)
<TABLE>
<CAPTION> ===================================================================================
1st QTR 2nd QTR 3rd QTR 4th QTR(b)
-----------------------------------------------------------------------------------
1993 1992 1993 1992 1993 1992 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales . . . . . . . . . . . $ 4,826 $ 4,823 $ 4,916 $5,063 $4,943 $4,965 $5,063 $5,133
Operating income (loss)(a) . . . . . . . 1,101 1,006 1,038 1,038 1,156 1,093 (730) 1,079
-----------------------------------------------------------------------------------
Net income (loss) applicable to common
stock
Continuing operations(a) . . . . . . . $ 456 $ 385 $ 433 $ 405 $ 554 $ 459 $ (471) $ 512
Discontinued operations(c) . . . . . . -- -- -- -- -- -- -- (48)
Extraordinary charge-early
retirement of debt . . . . . . . . . -- -- -- -- (90) -- -- (52)
Cumulative effect of accounting
changes(d) . . . . . . . . . . . . . -- (2,441) -- -- -- -- -- --
-----------------------------------------------------------------------------------
Consolidated . . . . . . . . . . . . . $ 456 $(2,056) $ 433 $ 405 $ 464 $ 459 $ (471) $ 412
===================================================================================
Earnings (loss) per common share
Continuing operations(a) . . . . . . . $ .48 $ .43 $ .46 $ .45 $ .59 $ .52 $ (.50) $ .55
Discontinued operations(c) . . . . . . -- -- -- -- -- -- -- (.05)
Extraordinary charge-early retirement
of debt . . . . . . . . . . . . . . -- -- -- -- (.10) -- -- (.06)
Cumulative effect of accounting
changes(d) . . . . . . . . . . . . . -- (2.70) -- -- -- -- -- --
-----------------------------------------------------------------------------------
Consolidated . . . . . . . . . . . . . $ .48 $(2.27) $ .46 $ .45 $ .49 $ .52 $ (.50) $ .44
===================================================================================
Dividends declared per common share . . . $ .455 $ .425 $ .455 $.425 $ .47 $.455 $ .47 $ .455
===================================================================================
Stock market price
High . . . . . . . . . . . . . . . . . $ 37.75 $34.75 $ 37.38 $ 33.25 $39.00 $ 35.75 $ 39.88 $35.00
Low . . . . . . . . . . . . . . . . . 34.13 29.75 34.25 28.88 34.63 31.75 35.00 32.38
Close . . . . . . . . . . . . . . . . 37.00 30.38 36.13 31.88 38.38 34.13 35.00 34.63
===================================================================================
</TABLE>
(a) Second quarter 1993 operating income was reduced by a pre-tax charge of
$74 million resulting from Telephone Operations' voluntary separation
programs. This charge reduced net income by $46 million, or $.05 per
share. Fourth quarter 1993 operating loss includes a pre-tax
restructuring charge of $1.8 billion. This charge reduced net income by
$1.2 billion, or $1.22 per share (see Note 3 to the Financial
Statements).
(b) Fourth quarter results include after-tax gains on sales of non-strategic
telephone properties of $91 million in 1993 and cellular properties of
$90 million in 1993 and $55 million in 1992.
(c) Reflects a charge associated with the sale of the Electrical Products
Group (see Note 4 to the Financial Statements).
(d) Reflects a one-time, non-cash, after-tax charge associated with the 1992
adoption of the new accounting rules for postretirement health care and
life insurance benefits and income taxes (see Note 5 to the Financial
Statements). The cumulative charge per common share was computed based
on average common shares outstanding for the full year. Based on average
common shares outstanding for the first quarter of 1992, the cumulative
charge per share was $2.74.
-17-
<PAGE> 19
STOCK OWNERSHIP QUESTIONS
Please address questions concerning ownership of common, preferred or no par
preferred stock to:
GTE Corporation
C/O Bank of Boston
P.O. Box 9191
Boston, MA 02205-9191
or call: 1-800-225-5160 in the United States or call:
1-617-575-2990 outside of the United States
SHAREHOLDER SYSTEMATIC INVESTMENT PLAN
The Shareholder Systematic Investment Plan provides holders of the
Corporation's common stock with a convenient way to purchase additional
shares. Shareholders wishing information regarding the plan may write to:
GTE Corporation
C/O Bank of Boston
P.O. Box 9092
Boston, MA 02205-9092
PRINCIPAL FINANCIAL CONTACT
For further information about GTE Corporation and its subsidiaries, please
contact:
Investor Relations Department
GTE Corporation
One Stamford Forum
Stamford, CT 06904
(203) 965-2789
Int'l Telex: 4750071
Facsimile: (203) 965-2520
10-K REPORT
A copy of our annual report on Form 10-K filed with the Securities and Exchange
Commission may be obtained by writing to the Corporate Secretary's Office, GTE
Corporation, One Stamford Forum, Stamford, CT 06904.
STOCK EXCHANGE LISTINGS
The common stock of GTE Corporation (symbol: GTE) is listed on the New York
Stock Exchange, Inc., the Chicago Stock Exchange, Incorporated, and The Pacific
Stock Exchange Incorporated and is traded on other exchanges in the United
States. It is also listed in Europe on The Stock Exchange, London; the
Amsterdam Stock Exchange; the Basel Stock Exchange; the Geneva Stock Exchange;
the Lausanne Stock Exchange; the Paris Stock Exchange; and the Zurich Stock
Exchange. Additionally, it is listed on the Tokyo Stock Exchange.
The Corporation's 5.00% convertible preferred stock, $2.00 convertible no par
preferred stock and $2.475 no par preferred stock are listed on the New York
Stock Exchange, Inc.
The information in this report is not given in connection with any sales or
offer to buy any securities.
-18-
<PAGE> 20
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for GTE's Common Stock, Preferred Stock and No
Par Preferred Stock is the First National Bank of Boston.
GTE Corporation
C/O Bank of Boston
P.O. Box 9191
Boston, MA 02205-9191
or
GTE Corporation
C/O BancBoston Trust Company
of New York
One Exchange Place
55 Broadway
New York, NY 10006
For overnight delivery services, use the following address:
GTE Corporation
C/O The First National Bank of Boston
Blue Hills Office Park
150 Royall Street
Canton, MA 02021
ANNUAL MEETING
The 1994 Annual Meeting of Shareholders will be held on April 20, 1994, at the
Italian Center, 1620 Newfield Avenue, Stamford, Connecticut.
-19-
<PAGE> 21
Item 6. Selected Financial Data.
BUSINESS GROUP DATA
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION> ========================================================================
Five-Year Annual
1993 1992 1991 1990 1989 Growth Rate +
------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues and sales . . . . . . . . . . . . . . $ 19,748 $19,984 $19,621 $19,157 $ 18,251 2.8%
Operating income(a) . . . . . . . . . . . . . . 2,565 4,216 3,742 3,787 3,577 --
Net income (loss) applicable to common stock(a)
Continuing operations . . . . . . . . . . . 972 1,761 1,492 1,579 1,503 --
Consolidated . . . . . . . . . . . . . . . 882 (780) 1,543 1,671 1,611 --
Earnings (loss) per common share(a)
Continuing operations . . . . . . . . . . . 1.03 1.95 1.69 1.82 1.75 --
Consolidated . . . . . . . . . . . . . . . .93 (.86) 1.75 1.93 1.87 --
Common dividends declared per share . . . . . . 1.85 1.76 1.64 1.52 1.40 7.5
Depreciation and amortization . . . . . . . . . 3,419 3,289 3,254 3,189 3,010 3.0
Research and development . . . . . . . . . . . 135 159 155 137 134 2.2
ASSETS AND CAPITAL:
Capital expenditures . . . . . . . . . . . . . 3,893 3,909 3,965 4,158 3,963 (.2)
Long-term debt and redeemable preferred stock . 13,175 14,356 16,252 14,130 13,137 2.6
Consolidated assets . . . . . . . . . . . . . . 41,575 42,144 42,437 40,178 36,921 3.3
Shareholders' equity(a) . . . . . . . . . . . . 9,593 10,076 11,313 10,727 9,984 (.6)
CONSOLIDATED RATIOS AND OTHER INFORMATION:
Return on common equity(b) . . . . . . . . . . 8.8 % (8.8)% 14.8% 17.1% 16.7% --
Return on investment(b) . . . . . . . . . . . . 6.9 % 1.3 % 9.4% 10.4% 10.5% --
Average common equity . . . . . . . . . . . . . 10,030 8,832 10,434 9,763 9,636 .3
Average investment . . . . . . . . . . . . . . 27,322 28,057 29,418 27,354 25,058 3.0
Employees (in thousands) . . . . . . . . . . . 117 129 159 174 174 (8.3)
-----------------------------------------------------------------------
FOREIGN OPERATIONS (INCLUDED ABOVE):
Revenues and sales . . . . . . . . . . . . . . $ 2,482 $ 2,369 $ 2,286 $ 2,129 $ 1,950 8.6%
Net income . . . . . . . . . . . . . . . . . . 328 244 227 240 195 24.4
Total assets . . . . . . . . . . . . . . . . . 6,096 5,963 5,757 4,619 4,471 9.7
-----------------------------------------------------------------------
CORPORATE AND OTHER:
Restructuring and merger costs(a) . . . . . . . $ 72 $ -- $ 97 $ -- $ -- --%
Capital expenditures . . . . . . . . . . . . . 20 24 37 230 229 --
Total assets . . . . . . . . . . . . . . . . . 1,856 2,786 3,689 3,380 3,205 (9.6)
=======================================================================
</TABLE>
Notes to Business Group Data appear on page 22.
-20-
<PAGE> 22
BUSINESS GROUP DATA
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION> ===========================================================================
Five-Year Annual
1993 1992 1991 1990 1989 Growth Rate +
---------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
TELEPHONE OPERATIONS:
Revenues and sales(c)
Local network services . . . . . . . . . . . $ 5,244 $ 5,000 $ 4,792 $ 4,621 $ 4,188 5.4%
Network access services . . . . . . . . . . . 4,398 4,477 4,365 4,248 4,213 1.8
Long distance services . . . . . . . . . . . 3,330 3,396 3,488 3,480 3,415 1.5
Equipment sales and services and other . . . 2,857 2,989 3,007 3,044 3,256 (.7)
---------------------------------------------------------------------------
Total revenues and sales . . . . . . . . 15,829 15,862 15,652 15,393 15,072 2.3
---------------------------------------------------------------------------
Operations and maintenance . . . . . . . . . 8,796 8,979 8,841 8,773 8,771 1.8
Depreciation and amortization . . . . . . . . 2,969 2,849 2,854 2,849 2,773 1.5
Restructuring and merger costs(a) . . . . . . 1,370 -- 150 -- -- --
---------------------------------------------------------------------------
Operating income . . . . . . . . . . . . . . . 2,694 4,034 3,807 3,771 3,528 --
---------------------------------------------------------------------------
Capital expenditures . . . . . . . . . . . . . 3,296 3,330 3,491 3,437 3,410 (.5)
Total assets . . . . . . . . . . . . . . . . . 33,746 33,154 32,446 30,390 29,887 3.5
Average total capital . . . . . . . . . . . . . 23,244 22,937 23,423 22,521 21,543 2.4
Return on common equity(d) . . . . . . . . . . 10.1% 1.6% 15.0% 16.0% 16.0% --
Access minutes of use (in millions) . . . . . . 55,616 51,976 47,979 44,533 39,994 9.2
Access lines (in thousands)
Total(e) . . . . . . . . . . . . . . . . . . 22,065 21,440 20,490 18,314 17,567 6.2
United States(e) . . . . . . . . . . . . . . 17,073 16,819 16,233 15,810 15,215 3.3
Per employee . . . . . . . . . . . . . . . 234 208 191 171 159 9.6
Employees (in thousands)
Total . . . . . . . . . . . . . . . . . . . 95 104 109 116 118 (4.4)
United States . . . . . . . . . . . . . . . . 73 81 85 93 96 (5.8)
---------------------------------------------------------------------------
TELECOMMUNICATIONS PRODUCTS AND SERVICES:
Revenues and sales(c) . . . . . . . . . . . . . $ 3,919 $ 4,122 $ 3,969 $ 3,764 $ 3,179 5.1%
Depreciation and amortization . . . . . . . . . 450 440 400 340 237 18.0
Restructuring and merger costs(a) . . . . . . . 398 -- 95 -- -- --
Operating income (loss) . . . . . . . . . . . . (57) 182 32 16 49 --
Capital expenditures . . . . . . . . . . . . . 577 555 437 491 324 10.4
Total assets . . . . . . . . . . . . . . . . . 5,973 6,204 6,302 6,408 3,829 9.1
Average investment . . . . . . . . . . . . . . 4,060 4,252 4,432 3,418 1,916 20.8
===========================================================================
</TABLE>
Notes to Business Group Data appear on page 22.
-21-
<PAGE> 23
Notes to Business Group Data :
+ Least-squares method; percentages have been omitted where not meaningful.
(a) Operating income in 1993 was reduced by a $1.8 billion pre-tax
restructuring charge primarily for the implementation of a re-engineering
plan at Telephone Operations and the reduction in the carrying value of
satellite communication and certain other assets to estimated net realizable
value (see Note 3). Operating income was also reduced by $74 million for
the cost of voluntary separation programs at Telephone Operations.
Consolidated net income in 1993 also includes an extraordinary charge of $90
million for the early retirement of high-coupon debt as well as a $91
million after-tax gain on the sales of certain non-strategic telephone
properties. These special items reduced consolidated net income by $1.2
billion, or $1.27 per share.
The consolidated net loss in 1992 includes a non-cash, after-tax charge of
$2.4 billion, or $2.70 per share, for the cumulative effect of accounting
changes for postretirement health care and life insurance benefits and
income taxes (see Note 5); and charges totaling $100 million, or $.11 per
share, associated with the sale of EPG, which was accounted for as a
discontinued operation (see Note 4).
Operating income in 1991 was reduced by pre-tax costs of $342 million
incurred in connection with the merger and integration of GTE Corporation
and Contel Corporation. These costs, net of a gain on the transfer of
certain cellular properties, reduced 1991 net income by $204 million, or
$.23 per share.
(b) Consolidated return on common equity and return on investment in 1993
would have been 20.4% and 11.2%, respectively, excluding the impact of the
special items. Excluding the impact of the required accounting changes and
one-time charges related to the sale of EPG, 1992 consolidated return on
common equity and return on investment would have been 15.6% and 9.5%,
respectively. Consolidated return on common equity and return on investment
would have been 16.5% and 10.1% in 1991, respectively, before the one-time
net charge related to the Contel merger.
(c) Services provided to AT&T constituted approximately 11%, 13% and 15% of
Telephone Operations' revenues in 1993-1991, respectively. Sales to the
federal government represent approximately 7%, 9% and 10% of consolidated
revenues and sales in 1993-1991, respectively, primarily through sales by
Telecommunications Products and Services.
(d) Telephone Operations' return on common equity in 1993 would have been
17.6%, excluding the impact of the special items. Excluding the impact of
required accounting changes, Telephone Operations' return on common equity
in 1992 would have been 14.7%.
(e) Access lines at the end of 1993 exclude 440,000 net lines sold during the
year. Total access lines include 2.0 million, 1.8 million and 1.6 million
lines served by CANTV in Venezuela in 1993-1991, respectively. GTE acquired
operating control of CANTV in 1991. Excluding the effect of the CANTV
acquisition and the access lines sold during 1993, the five-year access line
growth rate was 4.0%.
-22-
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
FINANCIAL REVIEW
RETURN TO SHAREHOLDERS
GTE's primary financial objective is to maximize shareholders'
long-term total return. For the five-year period ending in 1993, average
annualized total return, consisting of share price appreciation and dividends,
was 15.2%, compared with 14.5% for the S&P 500 average. GTE's annualized
five-year return has been above the S&P 500 average for nine of the last ten
years.
GTE's commitment to shareholder value is supported by a policy of
maintaining a dividend payout ratio at the upper end of the range for
comparable companies. The common stock dividend was increased by 3.3%
in August 1993, the 39th increase in 40 years.
Shareholder value has also been enhanced by following clear investment
criteria: investments must be in the company's core business,
telecommunications, and they must be expected to earn more than their
cost of capital over time. Over the past several years, these criteria
have guided strategic initiatives such as a major commitment toward the
continued improvement in the competitive position of Telephone
Operations by "re-engineering" the many complex processes and systems
currently in use, divestiture of the Electrical Products Group (EPG)
business, investing in CANTV (the Venezuelan telephone company), and
merging with Contel. Through these and other actions, GTE has sharpened
its focus on telecommunications, a dynamic industry offering tremendous
opportunities for profitable growth.
RETURN ON EQUITY
GTE's 1993 return on average common equity, before considering the
impact of charges for restructuring, voluntary separation programs and
early retirement of debt, as well as telephone property repositioning
gains, reached 20.4%. This return was achieved in spite of uncertain
economic conditions and ongoing competitive pricing actions at GTE
Telephone Operations.
CAPITALIZATION
GTE targets a capital structure appropriate for an "A" rated company.
This allows GTE's shareholders to enjoy the benefits of reasonable
financial leverage, while also protecting debtholder interests and
ensuring ready access to the capital markets.
During 1990 and 1991, acquisition activity temporarily reduced the
common equity ratio and other measures of debtholder protection. In
1992, GTE set in motion a plan to reduce debt (and auction preferred
stock) by $4 billion by the end of 1994. During 1992, a total of $1.8
billion of debt was repaid, largely through a $1.1 billion equity
offering and proceeds from the sale of GTE's remaining interest in US
Sprint. The balance of the $4 billion debt-reduction program was
completed one year ahead of schedule as a result of the sale of EPG
which generated proceeds of $1.2 billion, and sales of certain
non-strategic telephone properties for $1 billion.
-23-
<PAGE> 25
Common equity as a percentage of total capitalization reached
40.3%, as compared with 38.1% in 1992, primarily reflecting the impact
of the debt reduction program. Excluding non-recurring restructuring
and extraordinary charges, common equity would have been 43.0% of total
capitalization at the end of 1993.
CAPITAL INVESTMENT, RESOURCES AND LIQUIDITY
GTE's cash flow from operations increased from $4.8 billion in
1992 to $5.3 billion in 1993 and, together with nearly $400 million
raised through employee stock purchase and dividend reinvestment plans,
provided the funds required for dividends of $1.7 billion and capital
expenditures of $3.9 billion.
In 1993, GTE redeemed in advance of scheduled maturity $2.1
billion of high-coupon debt issues and recognized an extraordinary
charge of $90 million for the expenses associated with these
redemptions. GTE also issued $2.3 billion of long-term debt during
1993, which was used to refinance maturing issues and to begin
refinancing the high-coupon redemptions. The remaining refinancing
related to high-coupon redemptions is expected to be completed during
the first half of 1994.
During 1993, GTE made substantial progress in its program to sell
or trade a small percentage of local-exchange telephone properties
(representing less than 5% of its U. S. access lines) that had been
identified as non-strategic. GTE completed about half of the expected
transactions through the sale or exchange of 440,000 net access lines
for $1 billion in cash. GTE also entered into definitive agreements for
the sale of over 400,000 additional access lines for $.9 billion in
cash. These transactions are subject to various government and
regulatory approvals and the transfers of ownership, and are expected
to occur on a state-by-state basis throughout 1994. GTE plans to
continue to reduce debt with the net proceeds from these transactions.
Capital expenditures in 1994 are expected to increase slightly
from the 1993 level, as accelerating investment in fiber optics and
other enabling technologies for broadband services together with
continued expansion of the cellular business more than offset the
declining requirements for conversion to digital switching. Cash
requirements to implement the re-engineering plan at Telephone
Operations are expected to be largely offset by cost savings.
Dividends and the capital requirements for GTE's businesses should
continue to be funded largely with cash from operations and the funds
generated from the employee stock purchase and dividend reinvestment
plans. However, GTE's strong financial position allows ready access to
worldwide capital markets for any additional requirements.
The issuance of long-term debt during 1994 is expected to be
related largely to refinancing activity and is likely to increase
compared with 1993 when refinancing also accounted for most of the new
issuances.
RESULTS OF OPERATIONS
CONSOLIDATED
Overall, 1993 was an excellent year for GTE paced by strong
customer growth and usage in both Telephone Operations and mobile
cellular. GTE's competitive position in Telephone Operations was also
enhanced through its cost reduction program which allowed for
additional price reductions while, at the same time, improving the
level of service to its customers. Improved profitability at GTE's
Telecommunications Products and Services businesses was led by the fast
growing mobile-cellular
-24-
<PAGE> 26
business. GTE's cellular service revenues exceeded $1 billion for
the first time and customer growth reached 45% as 495,000 new customers
were added during 1993. Significant improvements were also made by
CANTV, the Venezuelan telephone company of which GTE owns 20.4% and
maintains operating control. During 1993, CANTV placed 250,000 new
lines in service and met or exceeded its goals in the areas of quality
improvement and customer service.
Results for 1993, however, were significantly affected by the
decisions to re-engineer the way Telephone Operations provides service
to its customers and to reduce the carrying value of satellite
communication and certain other assets. As a result, a one-time,
pre-tax restructuring charge of $1.8 billion, which reduced net income
by $1.2 billion, or $1.22 per share, was recorded at the end of 1993.
This pre-tax restructuring charge includes $1.4 billion at
Telephone Operations primarily to implement its re-engineering plan.
This plan will redesign and streamline processes in order to improve
customer-responsiveness and product quality, reduce the time necessary
to introduce new products and services and further reduce costs. This
non-recurring charge includes costs to enhance or replace existing
systems, substantially reduce the workforce and consolidate facilities.
The re-engineering plan will be implemented over the next three years,
with expected reductions of approximately 17,000 Telephone Operations
employees during that time. The re-engineering effort is expected to
result in savings of approximately $1 billion annually after full
implementation in 1996. The restructuring charge also includes a $400
million reduction in the carrying value of satellite communication
assets of GTE Spacenet (Spacenet) and certain other assets to estimated
net realizable value, primarily reflecting technological advances and
increased competition. GTE will also combine its Spacenet business with
GTE Government Systems to leverage the combined strength of these two
businesses.
Income from continuing operations in 1993 was $990 million, or
$1.03 per share, which includes gains on sales of certain non-strategic
telephone properties of $91 million, or 10 cents per share. Excluding
the impact of the restructuring charge and telephone property gains, as
well as a $46 million after-tax charge, or 5 cents per share,
associated with Telephone Operations' voluntary separation programs,
income from continuing operations would have been $2.1 billion, or
$2.20 per share, representing a 13% increase over 1992. Consolidated
net income in 1993 was $900 million, or 93 cents per share, which
includes an after-tax extraordinary charge of $90 million, or 10 cents
per share, for the early retirement of $2.1 billion of high-coupon
debt.
Consolidated revenues and sales totaled $19.7 billion in 1993,
compared with $20 billion in 1992. Although volume growth in Telephone
Operations and mobile-cellular was strong, the slight decline in
consolidated revenues reflects competitive price reductions made by
Telephone Operations as well as lower government-communications sales
resulting from the wind-down of the eight year Mobile Subscriber
Equipment contract. Operating income, excluding the impact of the
restructuring and voluntary separation charges, increased 6% to $4.5
billion in 1993. Net interest expense declined 10% to $1.2 billion in
1993, reflecting reduced debt levels and lower interest rates.
In 1992, income from continuing operations totaled $1.8 billion,
or $1.95 per share. Results for 1992 also included after-tax charges
totaling $100 million, including an extraordinary charge of $52 million
resulting from the early retirement of high-coupon debt and $48 million
associated with the sale of EPG. Effective
-25-
<PAGE> 27
January 1, 1992, GTE adopted new accounting rules for
postretirement health care and life insurance benefits (FAS 106) and
income taxes (FAS 109). These accounting changes resulted in a
cumulative, non-cash, after-tax charge of $2.4 billion, or $2.70 per
share, which gave rise to a net loss of $754 million, or 86 cents per
share, for the full year.
TELEPHONE OPERATIONS
GTE Telephone Operations provides a wide variety of communications
services ranging from local telephone service for the home and office
to highly complex voice and data services for industry. In the United
States, Telephone Operations served 17.1 million access lines in 33
states at the end of 1993. In addition, GTE's affiliated telephone
companies in Canada, the Dominican Republic and Venezuela, served 5
million access lines.
In 1993, revenues from Telephone Operations were $15.8 billion,
compared with $15.9 billion in 1992. This slight decline primarily
reflects continued competitive price reductions, including lower access
tariffs charged to long-distance companies, which more than offset
strong volume increases. In 1993, rates were lowered by more than $300
million, continuing the program to price services more competitively.
These price reductions have totaled more than $750 million over the
last three years. Minutes of use of GTE's domestic local-exchange
network for long-distance calling grew at an annual rate of 7% while
total access lines increased 4% over last year, excluding the impact of
the sale of certain non-strategic telephone properties at the end of
1993. These solid volume improvements were achieved despite continued
economic weakness in southern California, GTE's largest service area.
Revenues from network access and long-distance services of $7.7
billion decreased 2% compared with 1992. The slight revenue decline
reflects the previously discussed competitive price reductions which
more than offset the increased usage of GTE's local network for
long-distance calling.
Local revenues increased 5% to $5.2 billion compared with $5
billion in 1992. This growth was attributable to placing an additional
795,000 access lines in service in 1993.
Other telephone revenues are derived primarily from sales of
regulated and nonregulated equipment and services. In 1993, these
revenues totaled $2.9 billion, 4% lower than in the prior year,
reflecting weak economic conditions as well as a favorable settlement
last year.
Operating income, excluding the one-time restructuring charge, and
the $74 million charge associated with voluntary separation programs
completed during the year, increased 3% as cost-control and reduction
programs more than offset the slight revenue decline. Excluding the
special charges, 1993 marks the fourth consecutive year that operating
expenses have declined at U. S. Telephone Operations due to
cost-containment programs. During this same period, usage of GTE's
local network for long-distance calling increased 39%, while access
lines in service increased 15%. With the implementation of Telephone
Operations' re-engineering plan, it is expected that significant
additional cost reductions will be realized in the years to come.
Productivity improvement continues to be a major objective for
Telephone Operations. U. S. access lines per employee, a key indicator
of productivity, were 234 at the end of 1993, a 13% increase over 1992
and 47% higher than the same measure only four years ago. This
improvement reflects ongoing programs to
-26-
<PAGE> 28
streamline operations, including the impact in 1993 of various
voluntary separation programs accepted by some 6,400 employees, or
nearly 8% of the U. S. workforce. By the end of 1993, Telephone
Operations had reduced its U. S. workforce to approximately 73,000
employees, a 27% reduction since these programs began in 1988. When
completed in 1996, the re-engineering program is expected to have
further reduced GTE's U. S. Telephone Operations workforce by more
than 20%.
In addition, GTE has been increasing the use of state-of-the-art
technology to better provide quality services and gain operational
efficiencies. By the end of 1993, 84% of the access lines served by
GTE's Telephone Operations were connected to digital switches compared
with 70% only four years ago. During the year, GTE also accelerated the
installation of fiber-optic cable, bringing total miles installed
throughout GTE's network to 649,000 miles, more than double the amount
installed only three years ago. This high capacity cable enables GTE to
provide certain advanced network features such as high-speed data
transmission and video conferencing.
GTE Telephone Operations also continues to improve the rate at
which it is recovering its investment in telephone plant. While gross
investment in plant grew at a 3% annual rate during the 1989-1993
period, the percentage of GTE's investment in plant recovered through
depreciation increased to 39% at the end of 1993 compared with 34% in
1989.
In 1992, revenues from Telephone Operations increased slightly
over 1991 to $15.9 billion while operating income improved 6% to $4
billion, reflecting continuing control over operating-cost levels. The
revenue increase reflected increased usage of GTE's network for local
and long-distance calling in both domestic and international
operations. Minutes-of-use of GTE's domestic local-exchange network for
long-distance calling increased 8% and total access lines in service
increased 4%. These solid volume improvements were largely offset by
price reductions, including a lowering of interstate access rates
charged to interexchange carriers to price these services more
competitively. The higher percentage growth in operating income
reflected a lower level of domestic operating expenses resulting from
ongoing cost reduction programs, including cost efficiencies from the
consolidation of GTE and Contel's telephone operations.
COMPETITION AND REGULATORY TRENDS
The year was marked by important changes in the U.S. telecommunications
industry. Rapid advances in technology, together with government and industry
initiatives to eliminate certain legal and regulatory barriers are accelerating
and expanding the level of competition and opportunities available to GTE. As a
result, Telephone Operations faces increasing competition in virtually all
aspects of its business. Specialized communications companies have constructed
new systems in certain markets to bypass the local-exchange network. Additional
competition from interexchange carriers as well as wireless and cable TV
companies continues to evolve for both intrastate and interstate
communications.
Implementation of its re-engineering plan will allow GTE's U.S.
Telephone Operations to continue to respond aggressively to these
competitive and regulatory developments through reduced costs, improved
service quality, competitive prices and new product offerings.
Moreover, implementation of this program will position GTE to
accelerate delivery of a full array of voice, video and data services.
During the
-27-
<PAGE> 29
year, GTE continued to introduce new business and consumer
services utilizing advanced technology, offering new features and
pricing options while at the same time reducing costs and prices. GTE's
Telephone Operations has surpassed U.S. industry benchmarks for quality
service in large and medium business markets based on customer surveys
as measured by independent researchers.
In 1993, GTE also continued to make progress in advanced
telecommunications technology. In Tampa, Florida, GTE concluded the
largest market trial of residential personal communications services
(PCS) conducted by any local-exchange carrier in the United States. The
knowledge and experience gained during this trial will enhance GTE's
ability to compete in this emerging market. During 1993, the Federal
Communications Commission (FCC) announced its decision to auction
licenses during 1994 in 51 major markets and 492 basic trading areas
across the United States to encourage the development of a new
generation of wireless PCS. These services will both complement and
compete with traditional wireline and wireless services. GTE will be
permitted to fully participate in the license auctions in areas outside
of its existing cellular service areas. Limited participation will be
permitted in areas in which GTE has an existing cellular presence. GTE
expects to actively participate in these auctions.
In Cerritos, California, GTE is testing and comparing the
capabilities of copper wire, coaxial cable, and fiber optics. The
Cerritos test has enhanced GTE's expertise in the areas of pay-per-view
video service, video-on-demand and local video conferencing, and led to
a new interactive video service, GTE Main Street, which allows
customers to shop, bank and access various other information services
from their homes. In 1992, the FCC issued a "video dialtone" ruling
that allows telephone companies to transmit video signals over their
networks. The FCC also recommended that Congress amend the Cable Act of
1984 to permit telephone companies to supply video programming in their
service areas.
Activity directed toward changing the traditional cost-based rate
of return regulatory framework for intrastate and interstate telephone
services has continued. Various forms of alternative regulation have
been adopted, which provide economic incentives to telephone service
providers to improve productivity and provide the foundation for the
pricing flexibility necessary to address competitive entry into GTE
markets. In total, approximately 50% of Telephone Operations' U. S.
regulated revenues are under some form of alternative regulation.
As of December 31, 1993, almost one-third of GTE's access lines
were in four states which have adopted incentive regulation plans for
intrastate service, including California, the state containing GTE's
largest operation. In general, these plans allow the company to retain
all earnings at or below a base rate of return. Earnings above that
rate of return, but below a certain specified level, are shared with
the customer in varying amounts. Earnings above that specified level
must be returned in full to customers. For the provision of all
interstate services, GTE operates under the terms of the FCC price cap
incentive plan.
During 1993, the California Public Utilities Commission (CPUC)
approved a settlement agreement allowing GTE California to retain 100%
of any earnings up to a 15.5% rate of return on investment and refund
100% of any earnings above 15.5% beginning in 1994. Under its prior
agreement, GTE was required to share 50% of any earnings over a 13%
rate of return and refund 100% of any earnings over 16.5%. As part of
this agreement and its normal annual price cap filing, GTE California
will reduce its rates by about $100 million in 1994. Additionally, the
CPUC is expected
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<PAGE> 30
to issue a final decision in early 1994 generally authorizing
intralata toll competition and ordering significant rate restructuring
in California. Although intended to be revenue neutral, the ultimate
effect on revenue will depend, in part, on the extent to which toll and
access rate reductions result in increased calling volumes.
In September 1993, the FCC released an order allowing competing
carriers to interconnect to the local-exchange network for the purpose
of providing switched access transport services. This ruling
complements similar interconnect arrangements for private line services
ordered during 1992. The order encourages competition for the transport
of telecommunications traffic between local exchange carriers' (LECs)
switching offices and interexchange carrier locations. In addition, the
order allows LECs flexibility in pricing competitive services.
These and other actions to eliminate existing legal and regulatory
barriers, together with rapid advances in technology, are facilitating
a convergence of the computer, media, and telecommunications industries
and creating an opportunity for the development of interactive
communications networks. GTE supports these initiatives to assure
greater competition in telecommunications, provided that overall the
changes allow an opportunity for all service providers to participate
equally in a competitive marketplace under comparable conditions.
GTE expects its future results to benefit from reduced costs and
the introduction of new products and services that will result in the
increased usage of its telephone network. However, it is likely that
such improvements will be offset, in part, by continued strategic price
reductions and the effects of increased competition.
GTE's telephone companies follow the accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation"
(FAS 71). In general, FAS 71 requires companies to depreciate plant and
equipment over lives approved by regulators. It also requires deferral
of certain costs and obligations based upon approvals received from
regulators. In the event that recoverability of these costs becomes
unlikely or uncertain, whether resulting from actual or anticipated
increases in competition or specific regulatory, legislative or
judicial actions, continued application of FAS 71 would no longer be
appropriate. If GTE's telephone companies no longer qualify for the
provisions of FAS 71, the financial effects of the required accounting
change (which would be non-cash) could be material.
TELECOMMUNICATIONS PRODUCTS AND SERVICES
GTE Telecommunications Products and Services develops and markets a
wide variety of telecommunications systems and services through its
mobile-cellular communications, government and defense communications systems
and equipment, satellite and aircraft-passenger telecommunications, Yellow
Pages directories and telecommunications-based information services and
systems.
Revenues and sales from Telecommunications Products and Services
declined 5 percent in 1993 to $3.9 billion. Lower
government-communications sales, resulting from the wind-down of the
Mobile Subscriber Equipment contract, more than offset higher revenues
from the continued strong customer growth in the mobile-cellular
business. Excluding the one-time restructuring charge of $398 million,
operating income increased substantially, rising to $341 million in
1993 compared with $182 million in 1992. The sharp improvement reflects
higher revenues and operating
-29-
<PAGE> 31
efficiencies in mobile cellular as well as cost reductions in the
government systems business. Operating income also benefited from
improved results in the information services businesses reflecting, in
part, the absence of costs related to the disposal of several small
operations last year.
GTE's U. S. mobile-cellular operations, the fastest growing unit
in this group, is the second-largest cellular-telephone operator in the
United States -- serving a population of some 53 million "POPs".
Customer growth continued at a high level throughout 1993 as a record
high 495,000 customers were added. Total customers served at the end of
1993 were 1,585,000, an increase of 45% over the number of customers
served at the end of 1992.
Cellular service revenues exceeded $1 billion for the first time,
totaling $1.1 billion, a 27% improvement over 1992. During the year,
revenues per subscriber averaged $71 per month, compared with $76 per
month in 1992. The current average reflects the growth of casual users
in the subscriber base. Operating cash flows, representing operating
income before depreciation and amortization, reached $356 million in
1993, a 34% increase over 1992. This improvement was achieved despite a
substantial increase in costs associated with the record-high customer
growth, much of which took place in late 1993.
Outside the United States, GTE also operates mobile-cellular
networks through international subsidiaries in Canada, Venezuela and
the Dominican Republic.
Results at GTE Directories, the largest unit in GTE Information
Services and one of the largest publishers and distributors of
telephone directories, improved slightly in 1993. Increased volume in
international operations was largely offset by a slight decline in
domestic orders for Yellow Pages advertising during 1993, reflecting
the weak economy, particularly in southern California.
During 1993, GTE's Government Systems unit received orders valued
at $1.1 billion, a slightly lower level than the previous year. This
reflects continued demand for telecommunications equipment and services
despite the general decline in U.S. government defense spending.
However, order backlog at the end of 1993 has declined from a year ago
reflecting the successful completion of equipment deliveries on the
Mobile Subscriber Equipment contract.
In 1992, revenues and sales from Telecommunications Products and
Services totaled $4.1 billion, 4% higher than 1991. Operating income,
including a $36 million charge resulting from the adoption of FAS 106,
increased substantially to $182 million in 1992. This compared with
operating income of $127 million in 1991, which excluded the one-time
Contel merger integration costs of $95 million. These improvements
reflected higher revenues and operating efficiencies, particularly in
the mobile-cellular business.
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<PAGE> 32
Item 8. Financial Statements and Supplementary Data.
Reference is made to the financial statements included
elsewhere herein.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
-31-
<PAGE> 33
PART III
Item 10. Directors and Executive Officers of the Registrant (a).
<TABLE>
<CAPTION>
Executive Officers of GTE
-------------------------
Date Assumed
------------
Name(b) Title Age Present Position
---- ----- --- ----------------
<S> <C> <C> <C>
Charles R. Lee Chairman and Chief Executive Officer 54 May 1992
Kent B. Foster Vice Chairman, GTE and President GTE
Telephone Operations 50 October 1993
Michael T. Masin (c) Vice Chairman 49 October 1993
Nicholas L. Trivisonno Executive Vice President - Strategic
Planning and Group President 46 October 1993
Bruce Carswell Senior Vice President - Human Resources
and Administration 64 May 1981
J. Michael Kelly (d) Senior Vice President - Finance 37 February 1994
Terry S. Parker Senior Vice President 49 October 1993
Edward C. Schmults Senior Vice President - External Affairs
and General Counsel 63 February 1984
John P. Z. Kent Vice President - Taxes 53 July 1989
Edward C. MacEwen Vice President - Corporate Communications 54 April 1985
James Murphy Vice President and Treasurer 56 August 1986
Samuel F. Shawhan, Jr. Vice President - Government Affairs 61 July 1984
Marianne Drost Secretary 44 August 1985
</TABLE>
- ---------------
(a) Reference is made to pages 20 to 25 of GTE's Proxy Statement covering the
Annual Meeting of Shareholders to be held on April 20, 1994, which is
incorporated herein by reference, for information concerning directors of
GTE.
(b) With the exception of Michael T. Masin and J. Michael Kelly, each of the
officers named has been employed by GTE or a GTE subsidiary for more than
five years.
(c) Mr. Masin was elected Vice Chairman on October 20, 1993. He had been a
director of GTE since 1989. Prior to joining GTE as Vice Chairman, he
was the Managing Partner of the New York Office of O'Melveny & Myers and
Co-chair of the firm's international practice group. Mr. Masin joined
the firm in 1969 and became a partner in 1977.
(d) Mr. Kelly was elected Senior Vice President - Finance on February 24,
1994. He had been Vice President and Controller since December 1991 and
Vice President-Finance and Business Development for GTE's
Telecommunications Products and Services Group since March 1991. Prior
to joining GTE, he was Vice President and Controller for Contel
Corporation ("Contel"). From 1988 to 1990 he was Controller of Contel
Federal Systems. He joined Contel in 1987 as Controller of the Applied
Systems Division of Contel Federal Systems.
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<PAGE> 34
Item 11. Executive Compensation.
See pages 6 to 17 of GTE's Proxy Statement covering the Annual
Meeting of Shareholders to be held on April 20, 1994, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See pages 17 to 19 of GTE's Proxy Statement covering the
Annual Meeting of Shareholders to be held on April 20, 1994,
which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See page 17 of GTE's Proxy Statement covering the Annual
Meeting of Shareholders to be held on April 20, 1994, which is
incorporated herein by reference.
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<PAGE> 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) 1. Financial Statements:
Consolidated Financial Statements - GTE Corporation and
Subsidiaries:
See GTE's consolidated financial statements and report of
independent accountants thereon in the Financial
Statements section included elsewhere herein.
2. Financial Statement Schedules:
Schedules Supporting the Consolidated Financial Statements
for the Years Ended December 31, 1993 - 1991 (as
required):
V - Property, Plant and Equipment
VI - Accumulated Depreciation of Property,
Plant and Equipment
VIII - Valuation and Qualifying Accounts
IX - Short-Term Borrowings
X - Supplementary Income Statement
Information
Note: Schedules other than those listed above are omitted as
not applicable, not required, or the information is
included in the consolidated financial statements or
notes thereto.
3. Exhibits:
See "Index of Exhibits" included elsewhere herein.
(b) GTE filed a report on Form 8-K dated November 11, 1993 under
Item 5, "Other Events". No financial information was filed
with this report.
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<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GTE CORPORATION
-------------------------------------
(Registrant)
By J. Michael Kelly
----------------------------------
(J. Michael Kelly)
Senior Vice President - Finance
Date March 2, 1994
--------------
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.
(1) Principal executive officer:
Date March 2, 1994 By Charles R. Lee
-------------- ---------------------------------
(Charles R. Lee)
Chairman of the Board and
Chief Executive Officer
(2) Principal financial and
accounting officer:
Date March 2, 1994 By J. Michael Kelly
-------------- ---------------------------------
(J. Michael Kelly)
Senior Vice President - Finance
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<PAGE> 37
SIGNATURES - (Continued):
(4) Directors:
Date March 11, 1994 By Edwin L. Artzt
-------------- ----------------------------------
(Edwin L. Artzt - Director)
Date March 11, 1994 By James R. Barker
-------------- ----------------------------------
(James R. Barker - Director)
Date March 11, 1994 By Edward H. Budd
-------------- ----------------------------------
(Edward H. Budd - Director)
Date March 11, 1994 By Kent B. Foster
-------------- ----------------------------------
(Kent B. Foster - Director)
Date March 11, 1994 By James L. Johnson
-------------- ----------------------------------
(James L. Johnson - Director)
Date March 11, 1994 By Richard W. Jones
-------------- ----------------------------------
(Richard W. Jones - Director)
Date March 11, 1994 By James L. Ketelsen
-------------- ----------------------------------
(James L. Ketelsen - Director)
Date March 2, 1994 By Charles R. Lee
-------------- ----------------------------------
(Charles R. Lee - Director)
Date March 3, 1994 By Michael T. Masin
-------------- ----------------------------------
(Michael T. Masin - Director)
Date March 11, 1994 By Sandra O. Moose
-------------- ----------------------------------
(Sandra O. Moose - Director)
Date March 11, 1994 By Russell E. Palmer
-------------- ----------------------------------
(Russell E. Palmer - Director)
Date March 11, 1994 By Howard Sloan
-------------- ----------------------------------
(Howard Sloan - Director)
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<PAGE> 38
SIGNATURES - (Continued):
(4) Directors - (Continued):
Date March 11, 1994 By Robert D. Storey
-------------- ----------------------------------
(Robert D. Storey - Director)
Date March 11, 1994 By James W. Walter
-------------- ----------------------------------
(James W. Walter - Director)
Date March 11, 1994 By Charles Wohlstetter
-------------- ----------------------------------
(Charles Wohlstetter - Director)
-37-
<PAGE> 39
FINANCIAL STATEMENTS
<PAGE> 40
CONSOLIDATED STATEMENTS OF INCOME
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31
==========================
1993 1992 1991
--------------------------
(Millions of Dollars)
<S> <C> <C> <C>
REVENUES AND SALES:
Telephone operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,829 $15,862 $15,652
Telecommunications products and services . . . . . . . . . . . . . . . . . . . . . . . . 3,919 4,122 3,969
---------------------------
Total revenues and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,748 19,984 19,621
---------------------------
COSTS AND EXPENSES:
Telephone operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,765 11,828 11,695
Telecommunications products and services* . . . . . . . . . . . . . . . . . . . . . . . . 3,578 3,940 3,842
Restructuring and merger costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,840 -- 342
---------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,183 15,768 15,879
---------------------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,565 4,216 3,742
---------------------------
OTHER (INCOME) DEDUCTIONS:
Interest expense--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,197 1,332 1,384
Other--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190) 130 167
---------------------------
Total other (income) deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,007 1,462 1,551
---------------------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,558 2,754 2,191
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568 967 662
---------------------------
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990 1,787 1,529
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (48) 51
Extraordinary charge--early retirement of debt . . . . . . . . . . . . . . . . . . . . . . (90) (52) --
Cumulative effect of accounting changes . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,441) --
---------------------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 (754) 1,580
Preferred stock dividends of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 26 37
---------------------------
Net income (loss) applicable to common stock . . . . . . . . . . . . . . . . . . . . . . $ 882 $ (780) $ 1,543
===========================
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.03 $ 1.95 $ 1.69
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.05) .06
Extraordinary charge--early retirement of debt . . . . . . . . . . . . . . . . . . . . (.10) (.06) --
Cumulative effect of accounting changes . . . . . . . . . . . . . . . . . . . . . . . -- (2.70) --
---------------------------
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .93 $ (.86) $ 1.75
===========================
Average common shares (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . 945 905 882
===========================
</TABLE>
- -------------------
*Includes cost of sales of $3,036, $3,143 and $3,160 for the years 1993-1991,
respectively.
See Notes to Financial Statements.
-38-
<PAGE> 41
CONSOLIDATED BALANCE SHEETS
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
=====================
1993 1992
---------------------
(Millions of Dollars)
<S> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 322 $ 354
Receivables, less allowances of $231 and $154 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,900 3,565
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659 814
Deferred income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 111
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,114
Assets held for sale and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803 338
--------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,948 6,296
--------------------
Property, Plant and Equipment, at cost:
Telephone subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,099 43,354
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,737) (16,054)
--------------------
26,362 27,300
--------------------
Other subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,160 4,075
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,802) (1,555)
--------------------
2,358 2,520
--------------------
Total property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,720 29,820
--------------------
Investments and Other Assets:
Franchises, goodwill and other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,102 2,167
Investments in unconsolidated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,431 1,361
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,462 1,683
Long-term receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912 817
--------------------
Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,907 6,028
--------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,575 $42,144
====================
</TABLE>
- -------------------
See Notes to Financial Statements
-39-
<PAGE> 42
CONSOLIDATED BALANCE SHEETS
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
====================
1993 1992
--------------------
(Millions of Dollars)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term obligations, including current maturities . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,644 $ 2,692
Accounts and payrolls payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,968 1,917
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,108 571
Accrued restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 --
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 447
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 297
Advance billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 399
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,545 1,188
--------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,933 7,511
--------------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,019 14,182
--------------------
Reserves and Deferred Credits:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,807 3,071
Deferred investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 414
Employee benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,667 4,436
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,973 1,203
--------------------
Total reserves and deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,768 9,124
--------------------
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106 1,077
--------------------
PREFERRED STOCK, SUBJECT TO MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 174
--------------------
SHAREHOLDERS' EQUITY:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 112
Common stock -- shares issued 951,761,892 and 945,147,187 . . . . . . . . . . . . . . . . . . . . . . . 48 47
Amounts paid in, in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,309 7,134
Reinvested earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,769 3,621
Guaranteed ESOP obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (644) (657)
Common stock held in treasury -- 5,616,851 shares in 1992, at cost . . . . . . . . . . . . . . . . . . -- (181)
--------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,593 10,076
--------------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,575 $42,144
====================
</TABLE>
- -------------------
See accompanying summary on page 43 for details of preferred stock and
long-term debt.
See Notes to Financial Statements.
-40-
<PAGE> 43
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31
=================================
1993 1992 1991
---------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990 $1,787 $ 1,529
Adjustments to reconcile income to net cash from continuing operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,419 3,289 3,254
Restructuring and merger costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,840 -- 342
Deferred taxes and investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . (864) 37 37
Change in current assets and current liabilities, excluding the effects
of acquisitions and dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) (268) (732)
Other--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95) (13) 213
--------------------------------
Net cash from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,277 4,832 4,643
Net cash from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 141
---------------------------------
Net cash from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,277 4,832 4,784
---------------------------------
CASH FLOWS FROM INVESTING:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,893) (3,909) (3,965)
Acquisitions and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) (84) (1,132)
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,267 662 177
Other--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66) 55 (104)
---------------------------------
Net cash used in investing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,738) (3,276) (5,024)
---------------------------------
CASH FLOWS FROM FINANCING:
GTE common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 1,513 412
Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325 590 3,958
Long-term debt and preferred stock retired . . . . . . . . . . . . . . . . . . . . . . . . (4,836) (2,002) (1,539)
Dividends to shareholders of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,744) (1,572) (1,447)
Increase (decrease) in short-term obligations, excluding current maturities . . . . . . . . 304 (254) (1,094)
Other--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 6 5
---------------------------------
Net cash provided from/(used in) financing . . . . . . . . . . . . . . . . . . . . . . . (3,571) (1,719) 295
---------------------------------
Increase (decrease) in cash and temporary cash investments . . . . . . . . . . . . . . . . (32) (163) 55
Cash and temporary cash investments:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 517 462
---------------------------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 322 $ 354 $ 517
=================================
</TABLE>
- ---------------
See Note 15 for supplemental cash flow disclosures.
See Notes to Financial Statements.
-41-
<PAGE> 44
CONSOLIDATED STATEMENTS OF AMOUNTS PAID IN, IN EXCESS
OF PAR VALUE AND REINVESTED EARNINGS
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31
==============================
1993 1992 1991
------------------------------
(Millions of Dollars)
<S> <C> <C> <C>
AMOUNTS PAID IN, IN EXCESS OF PAR VALUE*:
Balance, beginning of year $ 7,134 $ 6,232 $ 6,139
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 1,009 101
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (107) (8)
------------------------------
Balance, end of year $ 7,309 $ 7,134 $ 6,232
==============================
REINVESTED EARNINGS:
Balance, beginning of year $ 3,621 $ 5,977 $ 5,830
Net income (loss) applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . 882 (780) 1,543
Cash dividends declared on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,748) (1,590) (1,410)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14 14
------------------------------
Balance, end of year $ 2,769 $ 3,621 $ 5,977
==============================
</TABLE>
- ---------------
*Includes the cumulative foreign currency translation adjustment of $(168),
$(126) and $(19) at December 31, 1993-1991, respectively, and the unrealized
gains on investments in debt and equity securities of $16 at December 31,
1993.
See Notes to Financial Statements.
-42-
<PAGE> 45
CONSOLIDATED SUMMARY OF PREFERRED STOCK AND LONG-TERM DEBT
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
====================
1993 1992
--------------------
(Millions of Dollars)
<S> <C> <C>
PREFERRED STOCK:
GTE Corporation:
No Par, 11,923,949 shares authorized at December 31, 1993:
$2.475 series, 4,000,000 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 100
Other convertible and nonconvertible at various rates . . . . . . . . . . . . . . . . . . . . . . . . 11 12
-------------------
$ 111 $ 112
===================
PREFERRED STOCK, SUBJECT TO MANDATORY REDEMPTION:
GTE Corporation:
Par value $50 per share, 1,681,000 shares authorized at December 31, 1993:
Nonconvertible 1,681,000 and 1,903,000 shares outstanding, average rate 7.81% . . . . . . . . . . . . $ 84 $ 95
Telephone Subsidiaries:
Average rates 6.83% and 6.91% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 79
-------------------
$ 156 $ 174
===================
LONG-TERM DEBT (EXCLUSIVE OF CURRENT MATURITIES):
GTE Corporation:
Sinking fund debenture, maturing in 2017, at a rate of 10.75% . . . . . . . . . . . . . . . . . . . . $ 200 $ 200
Debentures, maturing 1998 through 2023 , average rates 9.03% and 9.24% . . . . . . . . . . . . . . . 3,350 2,850
Guaranteed ESOP obligation, maturing 1995-2005, average rate 9.67% . . . . . . . . . . . . . . . . . 669 683
Other debt, average rates 3.19% and 3.56% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553 1,100
-------------------
4,772 4,833
-------------------
TELEPHONE SUBSIDIARIES:
First mortgage bonds, sinking fund debentures and notes, maturing through 2031,
average rates 7.66% and 8.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,768 8,097
-------------------
OTHER SUBSIDIARIES:
Sinking fund debentures and notes, maturing through 2009, average rates 8.08% and 8.27% . . . . . . . 1,552 1,372
-------------------
Total principal amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,092 14,302
Less: discount and premium--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) (120)
-------------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,019 $14,182
===================
</TABLE>
- ---------------
Preferred stock of telephone subsidiaries not subject to mandatory redemption
is included in "Minority interests in equity of subsidiaries" and amounted to
$313 and $314 at December 31, 1993 and 1992, respectively.
See Notes to Financial Statements.
-43-
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
GTE CORPORATION AND SUBSIDIARIES
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of GTE Corporation and subsidiaries
("GTE") include the accounts of all majority-owned subsidiaries. Investments
in 20% to 50% owned companies are accounted for on the equity basis.
investments of less than 20% are generally accounted for on the cost basis.
All significant intercompany items have been eliminated, except for sales
of construction and maintenance equipment and supplies by majority-owned
subsidiaries to regulated telephone subsidiaries. These sales amounted to
$696 million, $738 million and $619 million in 1993-1991, respectively, and
were made at prices which compare favorably with those at which comparable
equipment and supplies could have been obtained elsewhere.
Reclassifications of prior year data have been made in the accompanying
consolidated financial statements where appropriate to conform to the 1993
presentation.
REGULATORY ACCOUNTING
GTE'S telephone companies follow the accounting for regulated enterprises
prescribed by Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" ("FAS 71"). This accounting
recognizes the economic effects of rate regulation by recording costs and a
return on investment as such amounts are recovered through rates authorized by
regulatory authorities. GTE's telephone companies annually review the
continued applicability of FAS 71 based upon the current regulatory and
competitive environment.
REVENUE RECOGNITION
Revenues are recognized when earned. In Telephone Operations, this is
generally based on the usage of GTE's local-exchange networks or facilities or
under revenue sharing arrangements with other telecommunications carriers. For
other products and services, revenue is recognized when products are delivered
or services are rendered to customers. Long-term contracts are accounted for
using the percentage of completion method with revenues recognized in the
proportion that costs incurred bear to the estimated total costs at completion.
Expected losses, if any, on such contracts are charged to income currently.
DEPRECIATION AND AMORTIZATION
Depreciation is provided over the estimated useful lives of assets using the
straight-line method. Depreciation provisions in 1993-1991 for the telephone
subsidiaries were equivalent to a composite average percentage of 6.9%, 6.9%
and 7.2%, respectively.
Franchises, goodwill and other intangibles arising from acquisitions are
amortized on a straight-line basis over the periods to be benefited, or 40
years, whichever is less.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Cost of
inventories is determined principally by the average or first-in, first-out
method of inventory valuation.
Inventories at December 31 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992
-------------------------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . $ 112 $ 155
Work in progress . . . . . . . . . . . . . . . 232 252
Raw materials . . . . . . . . . . . . . . . . . 94 133
Materials and supplies of telephone subsidiaries 221 274
-------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . $ 659 $ 814
=========================
</TABLE>
-44-
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign countries, except
those operating in highly inflationary economies, are translated into U.S.
dollars using the exchange rates in effect at the balance sheet date. Results
of operations are translated using the average exchange rates prevailing
throughout the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
included in shareholders' equity, while gains and losses resulting from foreign
currency transactions are included in net income. Translation gains and losses
of affiliates operating in highly inflationary economies are included in net
income as they occur.
EMPLOYEE BENEFIT PLANS
The current service cost of retirement plans and postretirement health care and
life insurance benefits are accrued currently. Prior service costs and credits
resulting from changes in benefits are amortized over the average remaining
service period of the employees expected to receive benefits. In years prior
to 1992, the estimated cost of postretirement health care and life insurance
benefits were accounted for on a pay-as-you-go basis.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes reflect the impact of temporary differences between the amount of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. As further described in Note 5, in 1992
GTE adopted the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). In accordance with FAS 109,
deferred income taxes have been established for all temporary differences
between the book and tax basis of assets and liabilities, including those
which had not been previously recognized in accordance with rate-making
practices. In addition, deferred tax balances are adjusted to reflect tax
rates, based on currently enacted tax laws, that will be in effect in the years
in which the temporary differences are expected to reverse.
Non-U.S. subsidiaries compute taxes at rates in effect in the various
countries in which they operate. Earnings of these subsidiaries may also be
subject to additional income and withholding taxes when they are distributed as
dividends. These additional taxes, net of applicable tax credits, are accrued
currently, except with respect to earnings which are not expected to be remitted
because they are permanently reinvested. Undistributed earnings of non-U.S.
subsidiaries deemed to be permanently reinvested were approximately $338 million
at December 31, 1993.
EARNINGS PER SHARE
Earnings per common share is computed by dividing net income (loss) applicable
to common stock by the weighted average number of common shares outstanding
during the period. Common share equivalents have been excluded from this
computation since they do not have a dilutive effect of 3% or more.
CASH AND TEMPORARY CASH INVESTMENTS
Cash and temporary cash investments include cash and investments in short-term,
highly liquid securities which generally have maturities when purchased of
three months or less.
2. INVESTMENTS IN UNCONSOLIDATED COMPANIES
In November 1993, a GTE-led international consortium, Compania de Telefonos del
Interior ("CTI") was ranked first in competitive bidding for two cellular
licenses by the National Telecommunications Commission of Argentina. It is
expected that a contract to award the licenses will be executed in early 1994.
GTE, as operator, has a leading 23% ownership interest in CTI, and its partners
include AT&T Network Systems and three Argentinean companies along with Trust
Company of the West. It is anticipated that CTI will have an initial two year
exclusivity to provide cellular services in the north and south interior
regions of Argentina. The consortium will invest, through CTI, between $600
and $700 million in the venture.
In 1992, GTE sold for $530 million, or approximately book value, its
remaining 19.9% interest in US Sprint, a joint venture formed in 1986 to market
long-distance telephone and data-transmission services.
-45-
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
In December 1991, a GTE-led international consortium ("Venworld"),
consisting of AT&T International (U.S.); T.I. Telefonica Internacional de Espana
(Spain) and two Venezuelan companies, acquired a 40% ownership interest in
Compania Anonima Nacional Telefonos de Venezuela ("CANTV") from the Venezuelan
government for approximately $1.9 billion. GTE's share of the purchase price
was $961 million, based upon its 51% ownership of Venworld. CANTV is the
exclusive provider for local, national long-distance and international
long-distance telephone service in Venezuela. CANTV also provides other
telecommunication and related services, including cellular telephone and
directory advertising services.
The acquisition of the CANTV shares was accounted for as a purchase and
the acquisition cost was allocated based on the fair value of the net assets
acquired. The purchase price in excess of the estimated underlying fair value
of identifiable net assets acquired is being amortized on a straight-line basis
over 40 years. GTE's equity in the earnings of CANTV has been included in
"Other-net" in the accompanying consolidated statements of income from the date
of acquisition.
3. RESTRUCTURING AND MERGER COSTS
Results for 1993 include a one-time pre-tax restructuring charge of $1.8
billion which reduced net income by $1.2 billion, or $1.22 per share.
This restructuring charge includes $1.4 billion at Telephone Operations
primarily to implement its re-engineering plan. The re-engineering plan will
redesign and streamline processes to improve customer-responsiveness and product
quality, reduce the time necessary to introduce new products and services and
further reduce costs. The re-engineering plan includes $680 million to upgrade
or replace existing customer service and administrative systems and enhance
network software, $410 million for employee separation benefits associated with
workforce reductions and $210 million primarily for the consolidation of
facilities and operations and other related costs.
The re-engineering plan will be implemented over the next three years,
with expected reductions of approximately 17,000 Telephone Operations employees
during that time.
The restructuring charge also includes a $400 million reduction in the
carrying value of satellite communication assets of GTE Spacenet ("Spacenet")
and certain other assets to estimated net realizable value. This action
primarily reflects the development of alternative transmission methods through
technological advances and increased competition. GTE will also combine its
Spacenet business with GTE Government Systems to leverage the combined strength
of these two businesses.
During 1993, Telephone Operations offered various voluntary separation
programs to its domestic workforce. These programs resulted in a pre-tax charge
of $74 million which reduced net income by $46 million, or $.05 per share.
The table below has been adjusted for comparison purposes to exclude
from income from continuing operations the 1993 impact of the one-time
restructuring charge and the charge associated with the Telephone Operations'
voluntary separation programs. Results for 1993 have also been adjusted to
exclude gains on sales of certain non-strategic telephone properties as
described in Note 4, which increased income from continuing operations by $91
million, or $.10 per share (in millions of dollars, except per share amounts):
<TABLE>
<CAPTION>
1993 1992
-------------------------
<S> <C> <C>
Operating income . . . . . . . . . . . . . . . $ 4,479 $ 4,216
Income from continuing operations . . . . . . . 2,095 1,787
Earnings per common share from
continuing operations . . . . . . . . . . . . 2.20 1.95
</TABLE>
In March 1991, the merger of GTE and Contel Corporation ("Contel") was
consummated. As a result, GTE issued 204 million shares of its common stock in
a tax-free exchange for all of the outstanding common stock of Contel. The
merger was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements reflect the merged operations for
all periods presented. In connection with the merger, GTE recorded a one-time
pre-tax charge of $342 million for the costs of consummating the merger and
integrating operations.
-46-
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS
4. PROPERTY REPOSITIONING AND DISCONTINUED OPERATIONS
In December 1992, GTE announced a plan to pursue the sale or trade of a small
percentage of local-exchange telephone properties (representing less than 5% of
its U.S. access lines) in markets that may be of greater long-term strategic
value to other telephone service providers. As part of this program, during
1993, GTE sold local-exchange telephone properties serving 530,000 access lines
in eight states in return for 90,000 access lines in Illinois, Indiana and
Michigan and $1 billion in cash. The net proceeds from these sales were used
to reduce debt. As a result of these transactions, GTE recorded a pre-tax gain
of $168 million which is included in "Other-net" in the accompanying
consolidated statements of income.
During 1993, GTE also entered into definitive agreements for the sale
of additional local-exchange telephone properties serving over 400,000 access
lines in nine states. These transactions are subject to various government and
regulatory approvals. The transfers of ownership are expected to occur on a
state-by-state basis throughout 1994. The net proceeds from each of these
transactions, which are expected to exceed the net book value of the properties
to be sold, will be used to further reduce debt. At December 31, 1993, the net
book value of the properties to be sold of $543 million is included in "Assets
held for sale and other" in the accompanying consolidated balance sheets. In
December 1991, GTE adopted a plan to divest its Electrical Products Group
("EPG") in order to focus its resources on the telecommunications industry.
In January 1993, GTE sold its worldwide Electrical Products businesses
in three separate transactions. The aggregate sales price, which included the
assumption of debt, totaled approximately $1.2 billion. As a result of these
transactions, in December 1992, GTE recorded after-tax charges totaling $100
million, including an extraordinary charge of $52 million resulting from the
early retirement of high-coupon debt and a $48 million charge associated with
the sale of EPG. The EPG charge was net of $315 million of after-tax gains
resulting from the settlement of active and retired employee pension
obligations. Revenues and sales of EPG were $2.2 billion in 1992.
The amount shown as discontinued operations in the accompanying
consolidated statement of income for 1991 represents the results of EPG's
operations prior to the plan of discontinuance. These 1991 results included
revenues and sales of $2.2 billion, income before income taxes of $105 million
and net income of $51 million.
5. ACCOUNTING CHANGES
In 1992, GTE adopted Statements of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS
106") and No. 109, "Accounting for Income Taxes."
FAS 106 requires the expected cost of postretirement health care and
life insurance benefits to be recognized during the years that employees render
service. GTE adopted FAS 106 in its consolidated financial statements on the
immediate recognition basis effective January 1, 1992 and recorded a one-time,
non-cash charge of $2.3 billion (net of deferred tax benefits of $1.4 billion),
or $2.59 per share, to give effect to past service costs. Pursuant to FAS 71,
a regulatory asset was not recorded due to GTE's assessment of the long-term
competitive environment and uncertainties surrounding the timing and extent of
recovery.
FAS 109 changed the method by which companies account for income taxes.
Among other things, the statement requires that deferred tax balances be
adjusted to reflect new tax rates when they are enacted into law. The
cumulative prior years' effect of this change reduced net income by $100
million, or $.11 per share, in 1992.
-47-
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS
6. SHAREHOLDERS' EQUITY
COMMON STOCK
The authorized common stock of GTE at December 31, 1993 consisted of two
billion shares with a par value of $.05 per share.
The following table sets forth the number of shares of common stock
issued in the last three years (in thousands of shares):
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------
<S> <C> <C> <C>
Employee stock purchase plan . . . . . . . . . . . . . . . . . . . 5,835 9,050 7,370
Other employee and shareholder plans . . . . . . . . . . . . . . . 5,924 7,737 6,901
Conversion of Contel stock options . . . . . . . . . . . . . . . . 220 448 1,063
Contel merger . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 203,900
Public offering . . . . . . . . . . . . . . . . . . . . . . . . . -- 33,000 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 388 282
------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,232 50,623 219,516
==============================
</TABLE>
In 1992, GTE sold 33 million shares of its common stock in a public
offering at a price of $32.875 per share. The net proceeds of $1.1 billion were
used to reduce short-term obligations. As of December 31, 1993, 55 million
shares were reserved for issuance under the various employee benefit and
shareholder stock purchase plans.
PREFERRED STOCK
Preferred stock has voting rights generally on an equal basis with common stock
except for the $2.475 series, which is entitled to one-half of a vote for each
share. Dividends are cumulative on all preferred stock.
STOCK OPTION PLANS
GTE maintains stock option plans for key management employees. The options may
be granted separately or in conjunction with stock appreciation rights. The
options allow the purchase of GTE common stock at the market price on the date
of grant and have a term of 10 years. The options vest over periods not
exceeding four years.
The number of shares that are available for granting in each year is
limited to four tenths of one percent of GTE's outstanding common stock as of
December 31 of the preceding year. Any unused amount is carried forward and
made available for granting in the subsequent year.
The following table summarizes stock option activity during the last
three years (number of options in thousands):
<TABLE>
<CAPTION>
Stock Options Average Price
------------------------------
<S> <C> <C>
Balance, January 1, 1991 . . . . . . . . . . . 8,172 $ 19.78
Options granted . . . . . . . . . . . . . . . 3,595 31.52
Options exercised . . . . . . . . . . . . . . (1,984) 15.28
Options cancelled or forfeited. . . . . . . . (1,015) 15.54
------------------------------
Balance, December 31, 1991 . . . . . . . . . . 8,768 26.10
Options granted . . . . . . . . . . . . . . . 876 32.11
Options exercised . . . . . . . . . . . . . . (1,737) 20.99
Options cancelled or forfeited. . . . . . . . (179) 28.22
------------------------------
Balance, December 31, 1992 . . . . . . . . . . 7,728 27.88
Options granted . . . . . . . . . . . . . . . 1,989 35.24
Options exercised . . . . . . . . . . . . . . (1,195) 23.99
Options cancelled or forfeited. . . . . . . . (50) 23.21
------------------------------
Balance, December 31, 1993 . . . . . . . . . . 8,472 $ 30.19
==============================
</TABLE>
At December 31, 1993, 4.9 million options were exercisable.
-48-
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
SHAREHOLDER RIGHTS PLAN
GTE maintains a Shareholder Rights Plan to protect shareholders against
unsolicited attempts to acquire control of GTE that do not offer what GTE
believes to be an adequate price to all shareholders. Under the plan, each
outstanding share of GTE Common Stock has associated with it a Right to
Purchase, upon the occurrence of certain events, one one-thousandth of a share
of Series A Participating No Par Preferred Stock ("Preferred Stock") at $200.
The Rights will become exercisable only if a person or group, without GTE's
consent, commences a tender or exchange offer for, or acquires 20% or more of
the voting power of GTE, or acquires 10% or more of the voting power of GTE and
executes an agreement with GTE to effect a merger or other business
combination.
In the event that a person or group acquires 20% or more of GTE's
voting power without GTE's consent (the "Acquiring Person"), each holder of a
Right, other than the Acquiring Person will be entitled to acquire that number
of one one-thousandth of a share of Preferred Stock equal to the number of
shares of GTE's Common Stock having a market value of twice the exercise price
of the Rights. Similarly, if without GTE's consent, GTE is acquired in a
merger or other business combination transaction, each holder of a Right will
be entitled to acquire voting shares of the acquiring company at twice the
value of the exercise price. The Rights may be redeemed by GTE at any time
prior to any person or group acquiring 10% or more of GTE's voting power and
will expire on December 7, 1999.
7. PREFERRED STOCK, SUBJECT TO MANDATORY REDEMPTION
Certain outstanding preferred stock issues of GTE are redeemable upon notice at
the option of the company, in whole or in part, at a premium and certain issues
may be redeemed without premiums through annual sinking funds.
GTE redeemed 222,000 shares in 1993; 177,000 shares in 1992; and 111,000 shares
in 1991 of its preferred stock. Preferred shares redeemed by GTE's telephone
subsidiaries totaled 242,974 in 1993; 406,898 in 1992; and 293,417 in 1991.
The aggregate redemption requirements for preferred stock subject to mandatory
redemption for GTE and its telephone subsidiaries are approximately $11 million
in each of the next five years.
GTE's aggregate voluntary redemption price at December 31, 1993, was $170
million, including $83 million for its telephone subsidiaries.
8. DEBT
During 1993, GTE redeemed prior to scheduled maturity, $2.1 billion of
high-coupon first-mortgage bonds of five of its telephone subsidiaries. As a
result, an after-tax extraordinary charge of $90 million (net of tax benefits
of $53 million), or $.10 per share, was recorded to reflect the expenses of
calling these bonds. During 1993, GTE also redeemed $913 million of
high-coupon debt with the proceeds from the EPG divestiture (see Note 4). This
debt was included in short-term obligations at December 31, 1992.
Long-term debt as of December 31, 1993 includes $1.8 billion of
commercial paper which will be refinanced by the use of existing revolving
credit or other financing arrangements that will extend their maturities beyond
one year. Estimated payments of long-term debt during the next five years are:
$230 million in 1994; $623 million in 1995; $375 million in 1996; $469 million
in 1997; and $784 million in 1998.
Telephone companies finance part of their construction programs through
the use of short-term loans, including commercial paper, which are refinanced
at later dates by issues of long-term debt or equity.
Total short-term obligations, including loans for construction expected
to be refinanced, were as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992
------------------------------
<S> <C> <C>
Commercial paper--average rates
3.5% and 4.4% . . . . . . . . . . . . . . . . . . . . . $ 1,326 $ 782
Notes payable to banks--average rates
9.5% and 6.2% . . . . . . . . . . . . . . . . . . . . . 88 328
Current maturities of long-term debt . . . . . . . . . . 230 669
Debentures retired with EPG proceeds--
average rate 9.7% . . . . . . . . . . . . . . . . . . . -- 913
------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,644 $ 2,692
==============================
</TABLE>
GTE and its subsidiaries had unused lines of credit aggregating $5.4
billion at December 31, 1993, which support outstanding commercial paper and
other short-term financing needs.
-49-
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL INSTRUMENTS
GTE enters into interest rate and foreign currency contracts in order to
reduce its exposure to fluctuations in interest and foreign exchange rates. As
of December 31, 1993, interest rate and foreign currency swap agreements
aggregated approximately $786 million.
The fair values of financial instruments, other than long-term debt,
closely approximate their carrying value. As of December 31, 1993 and 1992,
the estimated fair value of long-term debt based on either reference to quoted
market prices or an option pricing model, exceeded the carrying value by
approximately $1.2 billion and $870 million, respectively.
10. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
Most subsidiaries have trusteed, noncontributory, defined-benefit pension plans
covering substantially all employees. The benefits to be paid under these
plans are generally based on years of credited service and average final
earnings. GTE's funding policy, subject to the minimum funding requirements of
employee benefit and tax laws, is to contribute such amounts as are determined
on an actuarial basis to provide the plans with assets sufficient to meet the
benefit obligations of the plans. The assets of the plans consist primarily of
corporate equities, government securities and corporate debt securities.
The net pension credit for 1993-1991 was comprised of the following
components (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period . . . . . . . . . . . . $295 $288 $293
Interest cost on projected
benefit obligations . . . . . . . . . . . 584 602 541
Actual return on plan assets . . . . . (2,073) (732) (2,093)
Other-net . . . . . . . . . . . . . . . . . 936 (398) 1,183
----------------------------
Net pension credit . . . . . . . . . . . (258) (240) (76)
Adjustment to reflect differing
regulatory treatment . . . . . . . . . . . 58 54 48
----------------------------
Net pension credit recognized . . . . . . $(200) $(186) $(28)
============================
</TABLE>
The expected long-term rate of return on plan assets was 8.25% for 1993
and 1992 and 8.0% in 1991. The regulatory adjustment reflects the use of the
aggregate cost method for California intrastate operations as required by the
California Public Utilities Commission.
The funded status of the plans at December 31, 1993 and 1992, was as
follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992
------------------------
<S> <C> <C>
Plan assets at fair value . . . . . . . . . . . $12,840 $13,578
Projected benefit obligation . . . . . . . . . 7,391 8,469
------------------------
Excess of assets over projected obligation . . 5,449 5,109
Unrecognized net transition asset . . . . . . . (778) (1,287)
Unrecognized net gain . . . . . . . . . . . . . (2,797) (2,885)
------------------------
Prepaid pension cost . . . . . . . . . . . . . $ 1,874 $ 937
========================
</TABLE>
-50-
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS
The projected benefit obligations at December 31, 1993 and 1992 include
accumulated benefit obligations of $5.5 billion and $6.2 billion and vested
benefit obligations of $4.9 billion and $5.6 billion, respectively.
Assumptions used to develop the projected benefit obligations at December
31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
---------------------
<S> <C> <C>
Discount rate . . . . . . . . . . . . . . . . . 7.5% 8.0%
Rate of compensation increase . . . . . . . . . 5.25% 6.0%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of GTE's employees are covered under postretirement health
care and life insurance benefit plans. In addition, many retirees outside the
U.S. are covered by government-sponsored and administered programs. The health
care benefits paid under the GTE plans are generally based on comprehensive
hospital, medical and surgical benefit provisions, while the life insurance
benefits are currently based on annual earnings at the time of retirement. GTE
funds amounts for postretirement benefits as deemed appropriate from time to
time.
The postretirement benefit cost for the years 1993 and 1992 included the
following components (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992
----------------------
<S> <C> <C>
Benefits earned during the year . . . . . . . . $ 96 $ 97
Interest on accumulated postretirement
benefit obligation . . . . . . . . . . . . . 290 293
Actual return on plan assets . . . . . . . . . (6) (4)
Other-net . . . . . . . . . . . . . . . . . . . (2) --
----------------------
Postretirement benefit cost . . . . . . . . . . $378 $386
======================
</TABLE>
During 1991, the cost of postretirement health care and life insurance
benefits on a pay-as-you-go basis was $111 million.
The following table sets forth the plans' funded status and the accrued
obligation as of December 31, 1993 and 1992 (in millions of dollars):
<TABLE>
<CAPTION>
1992 1993
--------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation
attributable to:
Retirees . . . . . . . . . . . . . . . . $ 2,723 $ 2,094
Fully eligible active plan participants . 231 375
Other active plan participants . . . . . 1,106 1,650
--------------------------
Total accumulated postretirement benefit obligation 4,060 4,119
Fair value of plan assets . . . . . . . . . . . 181 61
--------------------------
Excess of accumulated obligation over plan assets 3,879 4,058
Unrecognized prior service benefit . . . . . . 710 --
Unrecognized net loss . . . . . . . . . . . . . (345) --
-------------------------
Accrued postretirement benefit obligation . . . $ 4,244 $ 4,058
=========================
</TABLE>
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 7.5% at December 31, 1993 and 8.0% at December 31, 1992.
The assumed health care cost trend rates in 1993 and 1992 were 13% and 14% for
pre-65 participants and 9.5% and 10% for post-65 retirees, each rate declining
on a graduated basis to an ultimate rate in the year 2004 of 6%. A one
percentage point increase in the assumed health care cost trend rates for each
future year would have increased 1993 costs by $66 million and the accumulated
postretirement benefit obligation as of December 31, 1993 by $430 million.
-51-
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
During 1993, GTE made certain changes to its postretirement health care
and life insurance benefits for non-union employees that are effective January
1, 1995. These changes include, among others, newly established limits to
GTE's annual contribution to postretirement medical costs and a revised sharing
schedule based on a retiree's years of service. The net effect of these
changes reduced the accumulated benefit obligation at December 31, 1993 by $710
million.
SAVINGS AND STOCK OWNERSHIP PLANS
GTE sponsors employee savings plans under section 401(k) of the Internal
Revenue Code. The plans cover substantially all full-time employees. Under
the plans, GTE provides matching contributions in GTE common stock based on
qualified employee contributions. Matching contributions charged to income
were $66 million, $72 million and $70 million in the years 1993-1991,
respectively.
GTE maintains an Employee Stock Ownership Plan ("ESOP"). In 1989, the
ESOP borrowed $700 million to acquire, at market value, 24.6 million shares of
GTE common stock, which will be used to meet GTE's contributions to certain
employee savings plans through the year 2004. The unpaid balance of the loan,
which has been guaranteed by GTE, is included in the accompanying consolidated
balance sheets as long-term debt with a similar reduction in shareholders'
equity. The debt service payments, including interest at 9.67%, made by the
ESOP for the years 1993-1991 totaled $81 million, $77 million and $74 million,
respectively. These payments were funded by $46 million, $44 million and $41
million of dividends accumulated on the GTE stock held by the ESOP and by $35
million, $33 million and $33 million of cash contributions by GTE in 1993-1991,
respectively.
11. LEASE COMMITMENTS
GTE has non-cancelable leases covering certain buildings, office space and
equipment. Rental expense was $459 million, $590 million, and $632 million in
1993-1991, respectively. Minimum rental commitments under non-cancelable
leases through 1998 do not exceed $240 million annually and aggregate $939
million thereafter.
12. INTEREST EXPENSE--NET
The components of interest expense-net are as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------------------------
<S> <C> <C> <C>
Interest expense . . . . . . . . . . . . . . . . $1,298 $1,475 $1,575
Interest income . . . . . . . . . . . . . . . . . (61) (100) (135)
Allowance for funds used and interest
capitalized during construction . . . . . . . . (40) (43) (56)
------------------------
Total . . . . . . . . . . . . . . . . . . . . . . $1,197 $1,332 $1,384
========================
</TABLE>
-52-
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS
13. OTHER--NET
The components of other-net are as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------------------------
<S> <C> <C> <C>
General and administrative
corporate expenses . . . . . . . . . . . . $204 $187 $192
Minority interests . . . . . . . . . . . . . 112 112 103
Preferred dividends of subsidiaries . . . . . 22 23 25
Equity in income of unconsolidated
companies . . . . . . . . . . . . . . . . . (164) (93) (48)
Gains on sales of telephone properties . . . (168) -- --
Gains on sales of cellular properties,
real estate and other . . . . . . . . . . . (196) (99) (105)
------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $(190) $130 $167
==========================================
</TABLE>
14. INCOME TAXES
Income from continuing operations before income taxes is as follows (in
millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . $ 1,002 $ 2,300 $ 1,794
Foreign . . . . . . . . . . . . . . . . . . . . 556 454 397
------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . $ 1,558 $ 2,754 $ 2,191
==========================================
</TABLE>
The income tax provision (benefit) is as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------------------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $ 1,088 $ 655 $ 362
Foreign . . . . . . . . . . . . . . . . . . . 183 171 163
State and local . . . . . . . . . . . . . . . 161 104 100
-------------------------------------------
1,432 930 625
-------------------------------------------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . (682) 105 123
Foreign . . . . . . . . . . . . . . . . . . . 2 1 7
State and local . . . . . . . . . . . . . . . (100) 35 16
-------------------------------------------
(780) 141 146
-------------------------------------------
Amortization of deferred
Investment tax credits--net . . . . . . . . . (84) (104) (109)
-------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . $ 568 $ 967 $ 662
===========================================
</TABLE>
-53-
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS
The amortization of deferred investment tax credits-net, relates to the
amortization of investment tax credits previously deferred by GTE's regulated
telephone subsidiaries.
The components of deferred income tax expense (benefit) are as follows
(in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------------------------
<S> <C> <C> <C>
Depreciation and amortization . . . . . . . . . $32 $125 $110
Employee benefit obligations . . . . . . . . . (80) (114) 13
Prepaid pension cost . . . . . . . . . . . . . 111 75 28
Restructuring cost . . . . . . . . . . . . . . (667) -- --
Other --net . . . . . . . . . . . . . . . . . . (176) 55 (5)
------------------------
Total . . . . . . . . . . . . . . . . . . . . $(780) $141 $146
========================
</TABLE>
A reconciliation between taxes computed by applying the statutory
federal income tax rate to pre-tax income and income taxes provided in the
consolidated statements of income is as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
----------------------
<S> <C> <C> <C>
Amounts computed at statutory rates . . . . . . $545 $936 $745
State and local income taxes, net of
federal tax benefits . . . . . . . . . . . . 40 91 78
Depreciation of telephone plant
construction costs previously
deducted for tax purposes--net . . . . . . . 48 46 59
Minority interests and preferred stock
dividends of subsidiaries . . . . . . . . . . 40 40 39
Amortization of investment
tax credits--net . . . . . . . . . . . . . . (84) (104) (109)
Rate differentials applied to reversing
temporary differences. . . . . . . . . . . . (30) (35) (84)
Other differences--net . . . . . . . . . . . . 9 (7) (66)
----------------------
Total provision . . . . . . . . . . . . . . . . $568 $967 $662
======================
</TABLE>
The tax effects of temporary differences that give rise to the deferred
tax liability and deferred tax (asset) at December 31, 1993 and 1992 are as
follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992
-------------------------
<S> <C> <C>
Depreciation and amortization . . . . . . . . . $ 4,180 $ 3,969
Employee benefit obligations . . . . . . . . . (1,850) (1,635)
Prepaid pension cost . . . . . . . . . . . . . 639 240
Restructuring cost . . . . . . . . . . . . . . (667) --
Other--net . . . . . . . . . . . . . . . . . . 241 386
-------------------------
Total . . . . . . . . . . . . . . . . . . . . $ 2,543 $ 2,960
=========================
</TABLE>
-54-
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS
15. SUPPLEMENTAL CASH FLOW DISCLOSURES
The changes in the components of current assets and current liabilities,
excluding the effects of acquisitions and dispositions, and the cash paid for
interest and income taxes are as follows (in millions of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
-----------------------------------------
<S> <C> <C> <C>
(Increase) decrease from assets:
Receivables--net . . . . . . . . . . . . . . $ (706) $ (231) $ (534)
Other current assets . . . . . . . . . . . . 168 69 (51)
Increase (decrease) from liabilities:
Accrued taxes and interest . . . . . . . . . 465 (41) (80)
Other current liabilities . . . . . . . . . . 60 (65) (67)
-----------------------------------------
Net cash used . . . . . . . . . . . . . . . $ (13) $ (268) $ (732)
=========================================
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . $ 1,373 $ 1,477 $ 1,535
Income taxes . . . . . . . . . . . . . . . . 880 1,016 721
</TABLE>
16. BUSINESS GROUP DATA
Industry segment data is shown on pages 20 through 22 of this report.
-55-
<PAGE> 58
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of GTE Corporation:
We have audited the consolidated financial statements of GTE Corporation (a New
York corporation) and subsidiaries as of December 31, 1993 and 1992, and for
each of the three years in the period ended December 31, 1993, as set forth on
pages 20 through 22 and pages 38 through 55 of this report. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, effective
January 1, 1992, the company changed its methods of accounting for
post-retirement benefits other than pensions and for income taxes.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supporting schedules listed under Item 14 are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
supporting schedules have been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
Stamford, Connecticut
February 1, 1994
<PAGE> 59
SUPPORTING SCHEDULES
<PAGE> 60
Schedule V
Page 1
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1993
(Millions of Dollars)
<TABLE>
<CAPTION>
===================================================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Additions Retirements Other Balance
at Beginning at or Debits or at End
Classifications of Year Cost (1) Sales (Credits) of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE SUBSIDIARIES:
Operating properties, at original cost:
Tangible property -
Land $ 238 $ 6 $ 2 $ (6) $ 236
Buildings 3,068 127 106 (28) 3,061
Central office equipment 15,487 1,463 1,049 (358) 15,543
Station apparatus 715 61 53 (18) 705
Station connections 655 31 35 (1) 650
Cable, underground conduit, etc. 18,236 1,211 780 (475) 18,192
Furniture and fixtures 813 92 58 (24) 823
Vehicles and other work equipment 1,122 83 100 11 1,116
Telephone plant under construction 668 (15) - (10) 643
Data processing equipment 686 113 278 12 533
Other regulated plant 27 (3) (59) (78) 5
Non-regulated property, plant & equipment 1,573 192 114 (124) 1,527
------- ------ ------ ------- -------
Total tangible property 43,288 3,361 2,516 (1,099) 43,034
Intangible property 66 - 1 - 65
------- ------ ------ ------ -------
Total telephone subsidiaries 43,354 3,361 2,517(2) (1,099)(3) 43,099
OTHER SUBSIDIARIES:
(See Schedule V, page 2) 4,075 611 203 (323)(4) 4,160
------- ------ ------ ------ -------
Total consolidated $47,429 $3,972 $2,720 $(1,422) $47,259
======= ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 61
Schedule V
Page 2
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1993
(Millions of Dollars)
<TABLE>
<CAPTION>
=============================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Retirements Other Balance
at Beginning Additions or Debits or at End
Classifications of Year at Cost Sales (Credits) of Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER SUBSIDIARIES (at cost):
Land $ 131 $ 9 $ 4 $ (11) $ 125
Buildings and building equipment 616 72 12 (8) 668
Machinery, equipment and tools 2,327 577 158 (310) 2,436
Data processing equipment 358 58 21 (5) 390
Furniture and fixtures 194 9 4 (8) 191
Leasehold improvements 95 30 4 18 139
Work in progress - other 354 (144) - 1 211
------ ---- ---- ----- ------
$4,075 $611 $203 $(323)(4) $4,160
====== ==== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 62
Schedule V
Page 3
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1993
(Millions of Dollars)
<TABLE>
================================================================================
NOTES:
<S> <C> <C>
(1) A reconciliation to amounts shown as capital expenditures
in the Consolidated Statements of Cash Flows included
elsewhere herein is as follows:
Plant Additions (per Schedule V, page 1) $3,972
Add (deduct):
Allowance for funds used and interest
capitalized during construction (40)
Retirements - net of $1,593 in
accumulated depreciation (4)
Other - net (35)
------
Total Capital Expenditures $3,893
======
</TABLE>
(2) Includes $1,050 million of property, plant and equipment related to
non-strategic telephone properties which were sold in 1993. See Note 4 to
the Consolidated Financial Statements included elsewhere herein.
(3) Includes the reclassification of $869 million of property, plant and
equipment to other current assets in anticipation of sales of other
non-strategic telephone properties in 1994.
(4) Includes the reduction in the carrying value of satellite communication
assets of GTE Spacenet and certain other assets to estimated net
realizable value.
<PAGE> 63
Schedule V
Page 1
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1992
(Millions of Dollars)
<TABLE>
<CAPTION>
==================================================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Additions Retirements Other Balance
at Beginning at or Debits or at End
Classifications of Year Cost (1) Sales (Credits) of Year
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE SUBSIDIARIES:
Operating properties, at original cost:
Tangible property -
Land $ 226 $ 16 $ - $ (4) $ 238
Buildings 2,994 159 26 (59) 3,068
Central office equipment 14,387 1,782 743 61 15,487
Station apparatus 696 77 52 (6) 715
Station connections 740 29 90 (24) 655
Cable, underground conduit, etc. 17,181 1,330 254 (21) 18,236
Furniture and fixtures 876 71 60 (74) 813
Vehicles and other work equipment 1,117 105 54 (46) 1,122
Telephone plant under construction 1,376 (502) - (206) 668
Data processing equipment 621 89 15 (9) 686
Other regulated plant 44 (3) 13 (1) 27
Non-regulated property, plant & equipment 1,518 198 278 135 1,573
------- ------ ------ ------ -------
Total tangible property 41,776 3,351 1,585 (254) 43,288
Intangible property 70 - 4 - 66
------- ------ ------ ------ -------
Total telephone subsidiaries 41,846 3,351 1,589 (254) 43,354
OTHER SUBSIDIARIES:
(See Schedule V, page 2) 3,766 590 179 (102) 4,075
------- ------ ------ ------ -------
Total consolidated $45,612 $3,941 $1,768 $ (356) $47,429
======= ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 64
Schedule V
Page 2
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1992
(Millions of Dollars)
<TABLE>
<CAPTION>
=============================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Retirements Other Balance
at Beginning Additions or Debits or at End
Classifications of Year at Cost Sales (Credits) of Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER SUBSIDIARIES (at cost):
Land $ 116 $ 11 $ - $ 4 $ 131
Buildings and building equipment 517 41 4 62 616
Machinery, equipment and tools 2,280 289 110 (132) 2,327
Data processing equipment 330 51 32 9 358
Furniture and fixtures 205 10 9 (12) 194
Leasehold improvements 113 11 20 (9) 95
Work in progress - other 205 177 4 (24) 354
------ ---- ---- ----- ------
$3,766 $590 $179 $(102) $4,075
====== ==== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 65
Schedule V
Page 3
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1992
(Millions of Dollars)
<TABLE>
<CAPTION>
==================================================================================
NOTE:
<S> <C>
(1) A reconciliation to amounts shown as capital expenditures
in the Consolidated Statements of Cash Flows included elsewhere
herein is as follows:
Plant Additions (per Schedule V, page 1) $3,941
Add (deduct):
Allowance for funds used and interest
capitalized during construction (43)
Retirements - net of $1,689 in
accumulated depreciation (per Schedule VI) (79)
Other - net 90
------
Total Capital Expenditures $3,909
======
</TABLE>
<PAGE> 66
Schedule V
Page 1
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
=============================================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Additions Retirements Other Balance
at Beginning at or Debits or at End
Classifications of Year Cost (1) Sales (Credits) of Year
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE SUBSIDIARIES:
Operating properties, at original cost:
Tangible property -
Land $ 222 $ 7 $ 4 $ 1 $ 226
Buildings 2,854 157 25 8 2,994
Central office equipment 14,180 1,181 960 (14) 14,387
Station apparatus 695 57 82 26 696
Station connections 1,840 27 1,118 (9) 740
Cable, underground conduit, etc. 16,250 1,285 334 (20) 17,181
Furniture and fixtures 845 94 16 (47) 876
Vehicles and other work equipment 1,103 133 71 (48) 1,117
Telephone plant under construction 1,095 312 - (31) 1,376
Data processing equipment 533 101 42 29 621
Other regulated plant 49 2 14 7 44
Non-regulated property, plant & equipment 1,422 191 109 14 1,518
------- ------ ------ ---- -------
Total tangible property 41,088 3,547 2,775 (84) 41,776
Intangible property 70 - - - 70
------- ------ ------ ---- -------
Total telephone subsidiaries 41,158 3,547 2,775 (84) 41,846
OTHER SUBSIDIARIES:
(See Schedule V, page 2) 3,479 640 376 23 3,766
------- ------ ------ ---- -------
Total consolidated $44,637 $4,187 $3,151 $(61) $45,612
======= ====== ====== ==== =======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 67
Schedule V
Page 2
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
=============================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance Retirements Other Balance
at Beginning Additions or Debits or at End
Classifications of Year at Cost Sales (Credits) of Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER SUBSIDIARIES (at cost):
Land $ 98 $ 10 $ - $ 8 $ 116
Buildings and building equipment 787 59 - (329) 517
Machinery, equipment and tools 1,376 289 112 727 2,280
Data processing equipment 555 54 31 (248) 330
Furniture and fixtures 218 15 13 (15) 205
Leasehold improvements 110 13 7 (3) 113
Work in progress - other 335 200 213 (117) 205
------ ---- ---- ----- ------
$3,479 $640 $376 $ 23 $3,766
====== ==== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 68
Schedule V
Page 3
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
==========================================================================================
NOTE:
<S> <C>
(1) A reconciliation to amounts shown as capital expenditures
in the Consolidated Statements of Cash Flows included
elsewhere herein is as follows:
Plant Additions (per Schedule V, page 1) $ 4,187
Add (deduct):
Allowance for funds used and interest
capitalized during construction (56)
Retirements - net of $2,884 in
accumulated depreciation (per Schedule VI) (267)
Discontinued Operations 108
Other - net (7)
-------
Total Capital Expenditures $ 3,965
=======
</TABLE>
<PAGE> 69
Schedule VI
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1993
(Millions of Dollars)
<TABLE>
<CAPTION>
=================================================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Charged Retirements, Balance at
Beginning to Renewals and Other End of
Description of Year Income (1) Replacements Changes Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE SUBSIDIARIES $16,054 $2,967 $1,835(2) $(449)(3) $16,737
OTHER SUBSIDIARIES 1,555 369 181 59 1,802
------- ------ ------ ----- -------
Total Consolidated $17,609 $3,336 $2,016 $(390) $18,539
======= ====== ====== ====== =======
</TABLE>
NOTES:
(1) See Note 1 to the Consolidated Financial Statements included elsewhere
herein for GTE's depreciation policies. A reconciliation of depreciation
and amortization shown in the Consolidated Statements of Cash Flows
included elsewhere herein is set forth below:
Provision for depreciation as shown above $3,336
Amortization of franchises, goodwill and other intangibles 83
------
Total consolidated $3,419
======
(2) Includes $370 million of accumulated depreciation related to non-strategic
telephone properties which were sold in 1993.
(3) Other Changes for Telephone Subsidiaries primarily reflect the
reclassification of $326 million of accumulated depreciation to other
current assets in anticipation of sales of other non-strategic telephone
properties in 1994.
<PAGE> 70
Schedule VI
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1992
(Millions of Dollars)
<TABLE>
<CAPTION>
===================================================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Charged Retirements, Balance at
Beginning to Renewals and Other End of
Description of Year Income (1) Replacements Changes Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE SUBSIDIARIES $14,877 $2,819 $1,547 $ (95) $16,054
OTHER SUBSIDIARIES 1,412 355 142 (70) 1,555
------- ------ ------ ------ --------
Total Consolidated $16,289 $3,174 $1,689 $(165) $17,609
======= ====== ====== ====== =======
NOTE:
</TABLE>
(1) See Note 1 to the Consolidated Financial Statements included elsewhere
herein for GTE's depreciation policies. A reconciliation of depreciation
and amortization shown in the Consolidated Statements of Cash Flows
included elsewhere herein is set forth below:
Provision for depreciation as shown above $3,174
Amortization of franchises, goodwill and other intangibles 115
-----
Total consolidated $3,289
=====
<PAGE> 71
Schedule VI
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
For the Year Ended December 31, 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
===================================================================================================================================
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Charged Retirements, Balance at
Beginning to Renewals and Other End of
Description of Year Income (1) Replacements Changes Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELEPHONE SUBSIDIARIES $14,762 $2,865 $2,759 $ 9 $14,877
OTHER SUBSIDIARIES 1,187 299 125 51 1,412
------- ------ ------ --- -------
Total Consolidated $15,949 $3,164 $2,884 $60 $16,289
======= ====== ====== === =======
</TABLE>
NOTE:
(1) See Note 1 to the Consolidated Financial Statements included elsewhere
herein for GTE's depreciation policies. A reconciliation of depreciation
and amortization shown in the Consolidated Statements of Cash Flows
included elsewhere herein is set forth below:
Provision for depreciation as shown above $3,164
Amortization of franchises, goodwill and other intangibles 90
------
Total consolidated $3,254
======
<PAGE> 72
Schedule VIII
Page 1
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1993 - 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
===================================================================================================================
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------------
Balance at Charged Charged to Deductions Balance at
Beginning (Credited) to Other from End of
Description of Year Income Accounts Reserves (1) Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Allowance for uncollectible accounts $ 154 $ 329 $ 124(2) $ 376 $ 231
===== ====== ===== ===== ======
Accrued business repositioning
and discontinuance costs $ 277 $ - $ 104(3) $ 118 $ 263
===== ====== ===== ===== ======
Accrued merger costs (4) $ 96 $ - $ 5 $ 67 $ 34
===== ====== ===== ===== ======
Accrued telephone restructuring costs (4) $ - $1,370 $ - $ - $1,370
===== ====== ===== ===== ======
December 31, 1992
Allowance for uncollectible accounts $ 115 $ 311 $ 219(2) $ 491 $ 154
===== ===== ===== ===== =====
Accrued business repositioning
and discontinuance costs $ 103 $ 197 $ 3(3) $ 26 $ 277
===== ===== ===== ===== =====
Accrued merger costs (4) $ 249 $ - $ 120(5) $ 273 $ 96
===== ===== ===== ===== =====
December 31, 1991
Allowance for uncollectible accounts $ 94 $ 291 $ 265(2) $ 535 $ 115
===== ===== ===== ===== =====
Accrued business repositioning costs $ 110 $ - $ 3(3) $ 10 $ 103
===== ===== ===== ===== =====
Accrued merger costs (4) $ - $ 342 $ 111(6) $ 204 $ 249
===== ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 73
Schedule VIII
Page 2
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1993-1991
================================================================================
NOTES:
(1) Charges for purpose for which reserve was created.
(2) Recoveries of amounts written off in prior years.
(3) Primarily reclassifications from other accounts.
(4) See Note 3 to the Consolidated Financial Statements included elsewhere
herein.
(5) Represents prepaid pension costs associated with early retirement
programs related to the merger.
(6) Primarily relates to capitalized costs expected to be recovered through
the regulatory process.
<PAGE> 74
Schedule IX
Page 1
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For The Years Ended December 31, 1993 - 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
==========================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
Maximum Average Weighted
Aggregate Weighted Amount Amount Average
Short-Term Borrowing Balance Average Outstanding Outstanding Interest Rates
by at End of Interest During the During the During the
Business Group Period Rates Period Period (1) Period (2)
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1993
<S> <C> <C> <C> <C> <C>
Parent Company $ - - % $1,481 $ 730 3.25%
Telephone Subsidiaries 1,403 3.85 2,964 1,140 4.08
Other Subsidiaries 11 5.73 391 233 3.47
------ ------
Consolidated $1,414 3.87% $3,518 $2,103 3.72%
====== ==== ====== ====== ====
December 31, 1992
Parent Company $ 126 3.56% $2,067 $ 804 3.78%
Telephone Subsidiaries 753 5.48 1,091 805 4.61
Other Subsidiaries 231 3.98 293 217 4.02
------ ------
Consolidated $1,110 4.95% $3,063 $1,826 4.18%
====== ==== ====== ====== ====
December 31, 1991
Parent Company $ 535 4.93% $1,217 $ 587 5.67%
Telephone Subsidiaries 787 5.34 970 764 6.29
Other Subsidiaries 42 8.56 2,070 807 7.40
------ ------
Consolidated $1,364 5.28% $2,807 $2,158 6.53%
====== ==== ====== ====== ====
</TABLE>
- -----------------------------
Note:
Telephone operating companies finance part of their construction programs
through the use of interim short-term loans, including commercial paper, which
are generally refinanced at a later date by issues of long-term debt or equity.
Other short-term obligations are required to meet the working capital
requirements of GTE. The amounts shown above exclude current maturities of
long-term debt of $230, $669 and $927 at December 31, 1993-1991, respectively.
The amounts shown above at December 31, 1992 exclude $913 of high-coupon debt
retired in early 1993 with the proceeds from the Electrical Products Group
divestiture.
The accompanying notes are an integral part of this schedule.
<PAGE> 75
Schedule IX
Page 2
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For the Years Ended December 31, 1993 - 1991
==============================================================================
NOTES:
(1) Computed by dividing the total of month-end balances of outstanding
short-term borrowings by 13.
(2) Computed by multiplying the monthly weighted average interest rate
for each month by the corresponding outstanding short-term borrowings,
dividing the total by 13 and dividing the result by the average amount
outstanding during the period.
<PAGE> 76
Schedule X
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1993 - 1991
(Millions of Dollars)
<TABLE>
<CAPTION>
=============================================================================
CHARGED TO EXPENSE
-------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $2,136 $2,097 $2,206
====== ====== ======
Taxes other than income taxes:
State and local property $ 412 $ 378 $ 370
Gross receipts 137 128 102
Franchise and other 67 93 88
Less - portion of above taxes
charged to plant (34) (34) (62)
------ ------ ------
Total $ 582 $ 565 $ 498
====== ====== ======
</TABLE>
<PAGE> 77
EXHIBITS
<PAGE> 78
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -------------------------------------------------------------
<S> <C>
3.1(a) Articles of Incorporation, as restated
3.2 Certificate of Amendment of the Certificate of Incorporation
of GTE Corporation (filed January 27, 1994)
3.3(b) By-Laws of GTE Corporation
3.4 Amendments to By-Laws of GTE Corporation
(effective October 20, 1993)
10-1(c) Material Contracts - Deferred Compensation Plan for Directors
10-2(d) Material Contracts - Agreements Between GTE and Key Executives
10-3(e) Material Contracts - Supplemental Executive Retirement Plan
10-4(f) Material Contracts - Long-Term Incentive Plan
10-5(g) Material Contracts - Executive Incentive Plan
10-6(h) Material Contracts - Executive Retired Life Insurance Plan
10-7 Material Contracts - Consulting Agreement between GTE Service
Corporation and John L. Segall
10-8(i) Material Contracts - Phantom Stock Plan
10-9(j) Material Contracts - Director's Retirement Plan
10-10(k) Material Contracts - Charitable Awards Program
11 Statement re: Calculation of Earnings Per Common Share
12 Statement re: Calculation of the Ratio of Earnings to Fixed Charges
21 Significant Subsidiaries of Registrant
23 Consent of Independent Public Accountants
</TABLE>
- -------------
(a) GTE's restated Articles of Incorporation (except for the amendment, 3.2
above, filed with this Form 10-K) were filed as an exhibit to GTE's
registration statement on Form S-3 (File No. 33-50263), and are
incorporated herein by reference.
(b) GTE's By-Laws (except for the amendments, 3.4 above, filed with this
Form 10-K) were filed as exhibits to GTE's registration statement on
Form S-3 (File No. 33-50263), and are incorporated herein by reference.
(c) GTE's Deferred Compensation Plan for Directors was filed as an exhibit
to GTE's 1992 Form 10-K and is incorporated herein by reference.
(d) Agreements with certain key executives of GTE were filed as exhibits
to GTE's Form 8-K filed on September 11, 1987, GTE's 1989, 1990, 1991,
and 1992 Forms 10-K, and are incorporated herein by reference.
(e) GTE's Supplemental Executive Retirement Plan was filed as an exhibit to
GTE's 1991 Form 10-K and is incorporated herein by reference. An
amendment was filed with GTE's 1992 Form 10-K, and is incorporated
herein by reference. An amendment dated December 30, 1993 is filed
herewith.
(f) GTE's Long-Term Incentive Plan was filed as an exhibit to GTE's Proxy
Statement covering the Annual Meeting of Shareholders held on May 15,
1991, and is incorporated herein by reference.
(g) GTE's Executive Incentive Plan was filed as an exhibit to GTE's 1993
Proxy Statement, and is incorporated herein by reference.
(h) GTE's Executive Retired Life Insurance Plan was filed as an exhibit to
GTE's 1991 Form 10-K and is incorporated herein by reference. An
amendment was filed with GTE's 1992 Form 10-K, and is incorporated
herein by reference. An amendment dated November 11, 1993 is filed
herewith.
(i) GTE's Phantom Stock Plan was filed as an exhibit to GTE's 1992
Form 10-K, and is incorporated herein by reference.
(j) GTE's Director's Retirement Plan was filed as an exhibit to GTE's 1992
Form 10-K, and is incorporated herein by reference.
(k) GTE's Charitable Awards Program was filed as an exhibit to GTE's 1992
Form 10-K, and is incorporated herein by reference.
<PAGE> 1
Exhibit 3.2
(Filed January 27, 1994)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GTE CORPORATION
------------------------------
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, J. MICHAEL KELLY and MARIANNE DROST, being
respectively the Vice President and Controller and the Secretary of GTE
CORPORATION, hereby certify:
I. The name of the Corporation is GTE Corporation (originally
incorporated as General Telephone Corporation).
II. The Certificate of Incorporation of the Corporation was filed
by the Department of State on the 25th day of February, 1935.
III. The Certificate of Incorporation is amended to eliminate from
the enumeration and description of shares which the Corporation is authorized
to issue 10,134 shares of the class of Preferred Stock, $50.00 par value per
share, and 42,740 shares of the class of No Par Preferred Stock, as follows:
200 shares of 5.50% Convertible Preferred Stock
6,777 shares of 5.00% Convertible Preferred Stock
1,072 shares of 4.00% Convertible Preferred Stock
106 shares of 5.05% Convertible Preferred Stock
19 shares of 5.35% Convertible Preferred Stock
1,960 shares of 4.75% Convertible Preferred Stock
------
10,134 TOTAL
------
42,740 shares of $2.00 Convertible No Par Preferred Stock
------
52,874 TOTAL
======
The removal of the above-described shares, which have been converted
into shares of Common Stock during the calendar year ending December 31, 1993,
is authorized by subparagraph (8) of paragraph (b) of Section 801 of the
Business Corporation Law and paragraph (e) of Section 515 of the Business
Corporation Law.
Accordingly, Article 4 of the Certificate of Incorporation, as
heretofore added to or amended by certificates filed pursuant to law, is
amended to read in its entirety as follows:
<PAGE> 2
"4. The aggregate number of shares which the Corporation shall
have authority to issue is 2,021,209,064 shares of which 9,327,855 shares of
the par value of $50.00 each shall be Preferred Stock, 11,881,209 shares
without par value shall be No Par Preferred Stock and 2,000,000,000 shares of
the par value of $.05 each shall be Common Stock."
The foregoing amendment of the Certificate of Incorporation was
authorized by resolution of the Board of Directors.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
21st day of January 1994, and we affirm the statements contained herein are
true under the penalties of perjury.
J. Michael Kelly
-------------------------------
J. MICHAEL KELLY
Vice President and Controller
Marianne Drost
-------------------------------
MARIANNE DROST
Secretary
<PAGE> 1
Exhibit 3.4
AMENDMENTS
to the
BY-LAWS of GTE CORPORATION
(Effective October 20, 1993)
------------
The first sentence of SECTION 23 of ARTICLE IV of the By-laws is amended in its
entirety to read as follows:
The Board shall choose from among its membership the Chairman of the
Board and may also choose annually from among its membership one or
more Vice Chairmen of the Board and/or the President of the
Corporation, and shall choose annually a Secretary, a Treasurer and a
Controller and may also elect one or more Vice Presidents, and any
other officer whose appointment shall not be delegated as hereinafter
in Section 24 provided.
The third paragraph of Section 28A of ARTICLE IV of the By-laws is amended in
its entirety to read as follows:
In the event of the disability of the Chairman of the Board or if at
any time his office shall become vacant when the office of President
is vacant or if the President is disabled and unable to perform his
duties, the Vice Chairman who is a full time employee of the
Corporation with the most years of service with the Corporation or an
affiliate shall have and possess all of the powers and discharge all
of the duties of the Chairman of the Board during such disability of
the Chairman of the Board or until the vacancy in such office shall be
filled.
The first sentence of Section 30 of ARTICLE IV of the By-laws is amended in its
entirety to read as follows:
In the absence or disability of the Chairman of the Board, President
and Vice Chairman, the ranking Vice President available to act shall
perform all the duties of the Chairman, and when so acting, shall have
all the powers of the Chairman until the disability or vacancy in the
office of Chairman, President or Vice Chairman shall be filled.
<PAGE> 1
EXHIBIT 10-3
AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
RESOLVED: That the GTE Service Corporation Supplemental Executive
Retirement Plan is hereby amended as follows, effective December 31, 1993, and
applicable only to Employees (as defined in said Plan) who, on or after
December 31, 1993, are actively employed by GTE Service Corporation or by an
entity that is aggregated with GTE Service Corporation under Section 414(b) or
(c) of the Internal Revenue Code of 1986, as amended:
1. Section A of Article III is hereby amended to read as
follows:
"An Employee or former Employee shall be eligible for an Excess
Pension or a Supplemental Pension under the Plan if the Employee or
former Employee is eligible or has become eligible (or would be
eligible if he or she terminated employment with the Company and its
affiliates) to receive a Service Pension, a Disability Pension, or a
Deferred Vested Pension (as such terms are defined in the Basic
Pension Plan) under the Basic Pension Plan. An Employee who is
eligible for an Excess Pension or a Supplemental Pension in accordance
with the preceding sentence shall have a fully vested and
nonforfeitable contractual right to such Excess Pension or
Supplemental Pension, which shall be enforceable against GTE
Corporation (and any successor to all or substantially all of the
business or assets of GTE Corporation). An Employee who is not so
eligible for an Excess Pension or a Supplemental Pension shall not
have any right to a benefit or payment under the Plan."
2. Section C of Article V is hereby amended to read as
follows:
"An employee shall have the right, during the 90-day period
immediately preceding his or her Pension Commencement Date (as such
term is defined in the Basic Pension Plan), to make a separate
election with respect to the form in which his or her benefits under
the Plan shall be paid and the beneficiary of any benefits payable
after his or her death. In the absence of a separate election, his or
her benefits hereunder shall be paid in the same form with the same
beneficiary, if any, as his or her benefits under the Basic Pension
Plan."
3. Section B of Article VII is hereby amended to read as
follows:
"Except as otherwise provided in this Article VII, the Board in its
sole discretion may
a) amend or terminate the Plan (including without limitation
Section C. of this Article VII) at any time, or
<PAGE> 2
b) retroactively or prospectively increase, decrease, or
terminate eligibility for or the level of benefits under the
Plan;
provided that nothing in this Section B. shall authorize any action that
eliminates, reduces, or otherwise impairs any benefit that has become
nonforfeitable in accordance with Section A. of Article III on or before the
date of such action (the "Amendment Date") or any benefit that has become
payable on or before the Amendment Date in accordance with Section B. of
Article III (regardless of whether such benefit has actually commenced). The
benefits that, in accordance with the proviso at the end of the immediately
preceding sentence, may not be eliminated, reduced, or otherwise impaired
(sometimes referred to herein as "Minimum Guaranteed Benefits") are
i) in the case of an Employee, former Employee, or spouse to
whom, as of the Amendment Date, payments have commenced under the
Plan, the remaining payments to which he or she (or, if
applicable, a beneficiary) is entitled under the Plan, and
ii) in the case of any other Employee or former Employee who
has become entitled to a nonforfeitable benefit in accordance
with Section A. of Article III on or before the Amendment Date
(or who would be so entitled if he or she terminated employment
with the Company and its affiliated), and in the case of any
other spouse of a deceased Employee who has become entitled to a
benefit under Section B. of Article III on or before the
Amendment Date, the benefit (including any benefit payable to a
beneficiary) based on the Employee's average annual compensation
and Remuneration as of the Amendment Date, the Employee's
accredited service as of the Amendment Date (including such
additional service as may have been approved by the Committee on
or before the Amendment Date), any other adjustments and
arrangements that may have been approved by the Committee in
respect of the Employee, former Employee, or spouse on or before
the Amendment Date, and his or her benefit under the Basic
Pension Plan to the extent such benefit has accrued as of the
Amendment Date.
All Minimum Guaranteed Benefits shall survive any termination or amendment of
the Plan, including any amendment of this Section B, or any other action or
event. All Minimum Guaranteed Benefits shall continue in full force and effect
until they have been fully satisfied; and until such full satisfaction, nothing
whatsoever shall deprive any Employee, former Employee, spouse, or beneficiary
of any Minimum Guaranteed Benefit or shall relieve GTE Corporation (or any
successor to all or substantially all of the business or assets of GTE
Corporation) of its obligation to provide Minimum Guaranteed Benefits.
4. Section C of Article VII is hereby amended by
deleting subsection 1 thereof in its entirety and by redesignating subsections
2, 3, 4, 5 and 6 thereof as subsections 1, 2, 3, 4, and 5, respectively.
<PAGE> 1
EXHIBIT 10-6
AMENDMENT TO EXECUTIVE RETIRED LIFE INSURANCE PLAN
RESOLVED: That the GTE Corporation Executive Retired Life Insurance Plan (the
"Plan") be amended in accordance with the following paragraphs:
The Plan is amended by adding the following Appendix II at the end
thereof:
"APPENDIX II
1. As used in this Appendix II, the terms "Transferred Employee,"
"Closing Date," "Accredited Service," "Products Plan," "Seller
Pension Plan," "U.S. Company," "Subsidiaries" and "Affiliates"
shall have the meanings ascribed to them by the Valenite
Employee Agreement entered into as of December 21, 1992 by
Cincinnati Milacron Incorporated, a Delaware corporation, and
GTE Corporation, a New York corporation.
2. A Transferred Employee who as of the Closing Date (i) has at
least 15 years of Accredited Service under the Products Plan
and combined years of age and Accredited Service under the
Products Plan of at least 74, (ii) has at least 10 years of
Accredited Service under the Products Plan and is at least 60
years of age, or (iii) satisfies the terms and conditions for
a normal retirement pension under the Seller Pension Plan in
which he participates on the Closing Date, as such
requirements are in effect on the Closing Date, shall, upon
retirements from the U.S. Company and its Subsidiaries and
Affiliates, be eligible to obtain benefits under this Plan as
in effect immediately before the Closing Date, based solely on
the Transferred Employee's Base Salary and salary grade as of
the Closing Date. A Transferred Employee shall not be
considered to have retired for purposes of this Section 2 if
he is employed by GTE Corporation and its Subsidiaries and
Affiliates immediately following his retirement from the U.S.
Company and its Subsidiaries and Affiliates.
3. A Transferred Employee who is not described in Section 2 of
this Appendix II shall not be eligible to obtain benefits
under this Plan unless the Transferred Employee subsequently
becomes eligible to obtain such benefits for reasons unrelated
to his status as a Transferred Employee.
4. This Resolution is effective as of the Closing Date under the
Valenite Stock Purchase Agreement, dated as of December 21,
1992, between GTE Corporation, a New York corporation, and
Cincinnati Milacron Incorporated, a Delaware corporation."
<PAGE> 1
Exhibit 10-7
[GTE LETTERHEAD]
CONFIDENTIAL
November 10, 1993
Mr. John Segall
Blackstone Drive
East Norwalk, CT 06855
Dear John:
We have mutually agreed that you will end your current assignments with us and
resign, effective December 31, 1993, from the GTE Board of Directors and as
Vice Chairman - Corporate Planning and Development. We have also agreed upon
the compensation and benefit implications under your existing March 14, 1991
Employment Agreement ("Employment Agreement") and modifications that will be
required in the Agreement to reflect these items. In that regard, as specified
below, the modifications reflect that you will carry out an employee consultant
role for the Office of the Chairman for the balance of the term of the
Employment Agreement. Accordingly, we have clarified and supplemented the
terms of the Employment Agreement. You will continue receiving benefits
pursuant to your Employment Agreement under section 3.6(d), but, subject to
paragraphs 7 and 9 below, will remain on the GTE payroll until March 13, 1996,
at which time your consulting assignment will terminate. The Employment
Agreement will remain in effect subject to the modifications described below:
1. Your base salary will remain at $603,000 as indicated in your
Employment Agreement. You will continue to participate in the GTE
Savings Plan and the GTE Executive Incentive Plan ("EIP") under the
terms and conditions of these plans. Your EIP award for each of the
plan years 1993, 1994 and 1995 and a prorated award (to March 13,
1996) for 1996 will be, for each plan year, the lesser of $495,300
(130% applied to the 1993 EIP norm for a Level 28) or for each plan
year, the average EIP percentage awarded to GTE Service Corporation
participants applied to the EIP norm for a Level 28 for that plan
year. Any such awards shall be made at the same time as awards would
be made to other EIP participants.
2. In addition to current performance bonus cycles you participate
in: 1991-1993, 1992-1994 and 1993-1995; you will be entitled to
participate under the GTE Long-Term Incentive Plan ("LTIP") on a
prorated basis (to March 13, 1996) for the 1994-1996, 1995-1997 and
1996-1998 cycles, if such cycles are offered, with any such awards
made at the same time as awards would be made to other LTIP
participants. You will not be awarded any new stock option grants.
Under the
<PAGE> 2
2
terms of your LTIP Stock Option Agreements, provided that you become
eligible to retire under that GTE tax-qualified defined benefit
pension plan (on or about September 1, 1994), you may exercise any
portion of an outstanding option that is or becomes exercisable within
the ten-year period specified in each Option Agreement. All terms and
conditions of your LTIP Stock Option Agreements shall continue to
apply. Similarly, all terms and conditions of your Contel Stock
Option Agreement for your January 9, 1991 Stock Option grant will
continue to apply. As a general rule, the Contel Stock Option
Agreement provides that option must be exercised within one year from
your leaving the GTE payroll.
3. GTE will honor your existing deferral election(s) and cash out
options under the Contel Corporation Executive Deferred Income Plan
("DIP").
4. Until March 13, 1996, you will be afforded only the following
perquisites assuming a reasonable standard of utilization: office
space and secretarial services to be provided as mutually agreed upon;
use of a car and driver for business travel in the New York
metropolitan area; annual medical examinations; first class air travel
for use on GTE consulting assignments if pre-approved by the Office of
the Chairman; tax preparation and financial counseling services per
the GTE policy; and payment of dues for one country and one luncheon
club (and, if not already utilized, one initiation fee for a luncheon
club) selected by you.
5. The following are the only executive plans in which you will
participate: EIP, LTIP, GTE Supplemental Executive Retirement Plan,
and DIP. In the event that GTE offers new executive plans or
additional benefits under existing executive plans after the date of
this letter, you will not be entitled to participate in such plans or
receive such benefits. Further, from the date hereof, you will not be
entitled to vacation pay and will no longer be covered by your GTE
Executive Severance Agreement or any other severance agreement
relating to change in control.
6. As an employee-consultant you agree to make yourself available to
GTE for the performance of consulting assignments for up to six days
per month or more at the mutual convenience of the parties. The days
selected to perform consulting shall be mutually agreed upon and we
will work around any conflict with your schedule.
7. In the event there is a breach of the non-competition clause in
Article V of the Employment Agreement, the termination of benefits
provision under Section 5.3 of your Employment Agreement shall apply
and in addition, your status as an employee consultant shall terminate
and the benefits provided under this letter shall cease. If there is
breach of the attached Separation Agreement and General Release ("the
Release"), which Release is made a part hereof, your status as an
employee consultant shall terminate and the benefits provided under
this letter shall cease.
8. Following your retirement on March 13, 1996, you will receive your
Supplemental Pension as described in Section 2.6(c) of your Employment
Agreement.
9. In the event of your death before March 13, 1996, the following
will occur: base salary, pension accruals, the perquisites in
paragraph 4 of this letter and any other perquisites shall cease; EIP
for the year of your death will be prorated to your date of death (and
EIP participation will then cease) and your estate (or
<PAGE> 3
3
designated beneficiary) will continue to participate in the 1991-1993,
1992-1994 and 1993-1995 LTIP award cycles until the end of each such
award cycle, but, if your death should occur during the 1994-1996,
1995-1997 or 1996-1998 LTIP award cycle and you were participating in
such cycle, your award for any such post- January 1, 1994 award cycle
would be prorated to your date of death. Your estate (or beneficiary)
would not be permitted to participate in any future LTIP award cycle
in which you were not currently participating in at the time of your
death. Awards under EIP and LTIP will be made at the same time that
awards are made to other plan participants. Your Supplemental Pension
Measuring Date shall be the date of your death and your wife will
receive a Spouse's Benefit described in section 2.6 (d) of the
Employment Agreement. All other company benefits you are entitled to
receive shall be provided in accordance with the terms of the plan.
10. Needless to say, provisions of your Employment Agreement relating
to termination of employment due to disability, death, for Cause, or
Voluntary Resignation shall have no effect.
Of course the additional benefits described above are contingent upon your
executing the attached Release. You have 21 days to sign the Release (with a
7-day period to revoke). If you fail to sign the release, or if you sign, and
revoke the release within 7 days of signing it, this letter shall be void.
If this letter meets your understanding, please sign in the space provided
below. We appreciate your past contributions to the company and look forward
to working with you in your new assignment as an employee-consultant.
/S/ CHARLES R. LEE
- -------------------
Charles R. Lee
I have read, understand and agree
to the terms of this letter.
/S/ JOHN L. SEGALL
- -------------------
John L. Segall
<PAGE> 1
EXHIBIT 11
Page 1
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE (1)
(In Thousands)
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) from:
Continuing operations $ 971,978 $1,760,704 $1,491,317 $1,578,599 $1,502,867
Discontinued operations - (48,000) 51,499 91,933 108,408
Extraordinary charge - early retirement
of debt (89,990) (52,000) - - -
Cumulative effect of accounting changes - (2,440,612) - - -
---------- ---------- ---------- ---------- ----------
Consolidated net income (loss) 881,988 (779,908) 1,542,816 1,670,532 1,611,275
---------- ---------- ---------- ---------- ----------
Adjustments to net income (loss):
Add: Preferred dividend requirements
on dilutive convertible
preferred stocks 237 827 1,048 1,241 2,914
Interest expense, net of tax
effect, on employees' stock plans 1,915 6,257 4,778 5,079 2,877
---------- ---------- ---------- ---------- ----------
Total adjustments 2,152 7,084 5,826 6,320 5,791
---------- ---------- ---------- ---------- ----------
Adjusted consolidated net income (loss) from:
Continuing operations 974,130 1,767,788 1,497,143 1,584,919 1,508,658
Discontinued operations - (48,000) 51,499 91,933 108,408
Extraordinary charge - early retirement
of debt (89,990) (52,000) - - -
Cumulative effect of accounting changes - (2,440,612) - - -
----------- ---------- ---------- ---------- ----------
Adjusted consolidated net income (loss) $ 884,140 $ (772,824) $1,548,642 $1,676,852 $1,617,066
========== =========== ========== ========== ==========
Average common shares 944,678 904,516 881,727 866,790 861,172
---------- ---------- ---------- ---------- ----------
Adjustments to common shares:
Add: Dilutive convertible
preferred stocks 288 772 973 1,161 2,912
Employees' stock and
stock option plans 4,024 7,808 7,513 6,142 7,268
---------- ---------- ---------- ---------- ----------
Total adjustments 4,312 8,580 8,486 7,303 10,180
---------- ---------- ---------- ---------- ----------
Adjusted average common shares 948,990 913,096 890,213 874,093 871,352
========== ========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
Primary (2)
Continuing operations $1.03 $1.95 $1.69 $1.82 $1.75
Discontinued operations - (.05) .06 .11 .12
Extraordinary charge - early retirement
of debt (.10) (.06) - - -
Cumulative effect of accounting changes - (2.70) - - -
----- ----- ----- ----- -----
Consolidated $ .93 $(.86) $1.75 $1.93 $1.87
===== ===== ===== ===== =====
Fully diluted (3)
Continuing operations $1.02 $1.94 $1.68 $1.81 $1.74
Discontinued operations - (.05) .06 .11 .12
Extraordinary charge - early retirement
of debt (.09) (.06) - - -
Cumulative effect of accounting changes - (2.68) - - -
----- ----- ----- ----- -----
Consolidated $ .93 $(.85) $1.74 $1.92 $1.86
===== ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 2
EXHIBIT 11
Page 2
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
NOTES:
(1) Average common shares and per share amounts reflect the 2-for-1 stock
split which became effective on May 23, 1990.
(2) Computed by dividing net income (loss) applicable to common stock for
the years by the average common shares outstanding. Common stock
equivalents are excluded from this computation since they do not have a
3% dilutive effect.
(3) Computed assuming conversion or exercise of those preferred stocks and
stock plans that would have a dilutive effect.
(a) Average common shares outstanding are adjusted to reflect the
shares which would be issued upon conversion of preferred stocks
using the "if converted" method. Equivalent common shares to be
added to average shares for the employees' stock plans and stock
ownership plan are computed according to the "treasury stock"
method.
(b) Net income (loss) for the years is adjusted to reflect the
increase in income for the preferred dividends declared for the
years on the convertible preferred stocks, and the interest
accrued, net of tax effect, on funds received from installments
under the employees' stock plans.
<PAGE> 1
Exhibit 12
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 989,803 $1,787,035 $1,528,102
Add (deduct) -
Income taxes 567,747 966,589 662,860
Interest expense 1,298,234 1,475,670 1,574,746
Capitalized interest (net of amortization) (3,421) (4,931) (14,791)
Preferred stock dividends of subsidiaries 22,162 23,429 25,317
Additional income requirement on preferred
stock dividends of subsidiaries 12,739 12,671 11,006
Minority interests 112,335 112,425 103,626
Portion of rent expense representing interest 153,058 196,533 210,698
------- ---------- -----------
3,152,657 4,569,421 4,101,564
Deduct - Minority interests (236,944) (248,979) (247,284)
---------- ---------- ----------
Adjusted earnings available
for fixed charges from
continuing operations $2,915,713 $4,320,442 $3,854,280
========== ========== ==========
Fixed Charges:
Interest charges $1,298,234 $1,475,670 $1,574,746
Preferred dividends of subsidiaries 22,162 23,429 25,317
Additional income requirement on preferred
dividends of subsidiaries 12,739 12,671 11,006
Portion of rent expense representing interest 153,058 196,533 210,698
---------- ---------- ----------
1,486,193 1,708,303 1,821,767
Deduct - Minority interests (78,421) (86,504) (89,479)
---------- ---------- ----------
Adjusted fixed charges $1,407,772 $1,621,799 $1,732,288
========== ========== ==========
Ratio of Earnings to Fixed Charges - continuing
operations 2.07 2.66 2.22
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------
1990 1989
---- ----
<S> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $1,622,261 $1,550,450
Add (deduct) -
Income taxes 697,963 719,854
Interest expense 1,510,909 1,282,691
Capitalized interest (net of amortization) (18,316) (18,121)
Preferred stock dividends of subsidiaries 28,697 33,775
Additional income requirement on preferred
stock dividends of subsidiaries 12,357 15,676
Minority interests 83,471 79,554
Portion of rent expense representing interest 206,959 199,408
---------- ----------
4,144,301 3,863,287
Deduct - Minority interests (224,240) (211,816)
---------- ----------
Adjusted earnings available
for fixed charges from
continuing operations $3,920,061 $3,651,471
========== ==========
Fixed Charges:
Interest charges $1,510,909 $1,282,691
Preferred dividends of subsidiaries 28,697 33,775
Additional income requirement on preferred
dividends of subsidiaries 12,357 15,676
Portion of rent expense representing interest 206,959 199,408
---------- ----------
1,758,922 1,531,550
Deduct - Minority interests (91,730) (80,287)
---------- ----------
Adjusted fixed charges $1,667,192 $1,451,263
========== ==========
Ratio of Earnings to Fixed Charges - continuing
operations 2.35 2.52
==== ====
</TABLE>
<PAGE> 1
EXHIBIT 21
GTE CORPORATION AND SUBSIDIARIES
Significant Subsidiaries of Registrant at December 31, 1993
<TABLE>
<CAPTION>
Percent of Voting
Control Owned by
Company(a) Incorporated In Direct Parent
------- --------------- -----------------
<S> <C> <C>
Contel Corporation Delaware 100.00
Contel Cellular Inc. Delaware 97.80
Contel of California, Inc. California 99.48
GTE Spacenet Corporation Delaware 100.00
Contel Federal Systems, Inc. Delaware 100.00
GTE Government Systems Corporation Delaware 100.00
GTE Products of Connecticut Corporation Connecticut 100.00
GTE Laboratories Incorporated Delaware 100.00
GTE Leasing Corporation Delaware 100.00
GTE Communications Services Incorporated Delaware 100.00
Anglo-Canadian Telephone Company Quebec 86.39
BC Telecom Inc. Canada 50.46
BC Tel Canada 100.00
Microtel Limited Canada 100.00
Canadian Telephones and Supplies Ltd. British Columbia 100.00
Quebec - Telephone Quebec 50.32
GTE Holdings (Canada) Limited Canada 100.00
Compania Dominicana de Telefonos, C. por A. Dominican Republic 100.00
GTE International Telecommunications Incorporated Delaware 100.00
VenWorld Telecom, C.A. Venezuela 51.00
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) Venezuela 40.00
GTE California Incorporated California 99.60
GTE Florida Incorporated Florida 100.00
GTE Midwest Incorporated Delaware 100.00
GTE North Incorporated Wisconsin 100.00
GTE Northwest Incorporated Washington 100.00
GTE South Incorporated Virginia 100.00
GTE Southwest Incorporated Delaware 100.00
GTE Hawaiian Telephone Company Incorporated Hawaii 100.00
GTE Directories Corporation Delaware 100.00
GTE Data Services Incorporated Delaware 100.00
GTE Finance Corporation Delaware 100.00
GTE Information Services Incorporated Delaware 100.00
GTE Interactive Services Incorporated Delaware 100.00
GTE Intelligent Network Services Incorporated Delaware 100.00
GTE Investment Management Corporation Delaware 100.00
GTE Mobile Communications Incorporated Delaware 100.00
GTE Airfone Incorporated Delaware 100.00
GTE Mobilnet Incorporated Delaware 100.00
GTE Cellular Communications Corporation California 100.00
GTE Realty Corporation Delaware 100.00
GTE REinsurance Company Limited Bermuda 100.00
GTE Service Corporation New York 100.00
GTE Telecom Incorporated Delaware 100.00
GTE Telecom Marketing Corporation Delaware 100.00
GTE Vantage Incorporated Delaware 100.00
</TABLE>
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(a) The earnings of all subsidiaries listed are included in GTE's
consolidated financial statements.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated February 1, 1994, on the consolidated financial statements
and supporting schedules of GTE Corporation and subsidiaries included in this
Form 10-K, into the following previously filed Registration Statements:
1. Form S-8 of GTE Corporation (File No. 33-1521)
2. Form S-8 of GTE Corporation (File No. 33-20178)
3. Form S-8 of GTE Corporation (File No. 33-29419)
4. Form S-8 of GTE Corporation (File No. 33-34756)
5. Form S-4 of GTE Corporation (File No. 33-37530)
6. Form S-8 of GTE Corporation (File No. 33-39297)
7. Form S-3 of GTE Corporation (File No. 33-40247)
8. Form S-8 of GTE Corporation (File No. 33-45048)
9. Form S-8 of GTE Corporation (File No. 33-46612)
10. Form S-3 of GTE Corporation (File No. 33-50263)
11. Form S-8 of GTE Corporation (File No. 33-50111)
ARTHUR ANDERSEN & CO.
Stamford, Connecticut
March 15, 1994
