UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
F O R M 10 - Q
X Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1994
..................
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
......
GTE Corporation
......................................................
(Exact name of registrant as specified in its charter)
New York 13-1678633
.............................................................................
.
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
One Stamford Forum, Stamford, CT. 06904
....................................................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-965-2000
............
.............................................................................
.
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all
reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X
NO .
GTE had 962,015,237 shares of $.05 par value common stock outstanding
at October 31, 1994.
<TABLE>
PART I. FINANCIAL INFORMATION
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In Millions)
<S> <C> <C> <C> <C>
REVENUES AND SALES $4,995 $4,943 $14,696 $14,685
COSTS AND OPERATING EXPENSES 3,749 3,787 11,122 11,390
Operating income 1,246 1,156 3,574 3,295
OTHER (INCOME) DEDUCTIONS:
Interest expense 285 328 853 992
Allowance for funds used and interest
capitalized during construction (7) (16) (21) (33)
Interest income (14) (22) (38) (44)
Other - net (75) (1) (81) 89
189 289 713 1,004
Income before income taxes 1,057 867 2,861 2,291
INCOME TAX PROVISION 398 309 1,103 835
Income before extraordinary charge 659 558 1,758 1,456
EXTRAORDINARY CHARGE - early retirement of debt - (90) - (90)
Net income 659 468 1,758 1,366
PREFERRED STOCK DIVIDENDS OF PARENT 2 4 8 13
Net income applicable to common stock $ 657 $ 464 $ 1,750 $1,353
EARNINGS PER COMMON SHARE:
Before extraordinary charge $ .69 $ .59 $ 1.83 $ 1.53
Extraordinary charge - (.10) -
(.10)
Consolidated $ .69 $ .49 $ 1.83 $ 1.43
DIVIDENDS DECLARED PER COMMON SHARE $ .47 $ .47 $ 1.41 $ 1.38
AVERAGE COMMON SHARES 958 945 956 943
The accompanying notes are an integral part of these statements.
-1-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED SUMMARY OF CONSOLIDATED RESULTS
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In Millions)
<S> <C> <C> <C> <C>
REVENUES AND SALES:
Telephone Operations $3,965 $3,971 $11,814 $11,807
Telecommunications Products and Services 1,030 972 2,882 2,878
Total revenues and sales $4,995 $4,943 $14,696 $14,685
OPERATING INCOME:
Telephone Operations $1,076 $1,042 $ 3,169 $ 3,034
Telecommunications Products and Services 170 114 405 261
Operating income 1,246 1,156 3,574 3,295
OTHER (INCOME) DEDUCTIONS:
Interest expense - net 264 290 794 915
Other - net (75) (1) (81) 89
Income before income taxes 1,057 867 2,861 2,291
Income tax provision 398 309 1,103 835
Income before extraordinary charge 659 558 1,758 1,456
Extraordinary charge - early retirement of debt - (90) - (90)
Net income 659 468 1,758 1,366
Preferred stock dividends of Parent 2 4 8 13
Net income applicable to
common stock $ 657 $ 464 $ 1,750 $ 1,353
The accompanying notes are an integral part of this summary.
-2-
</TABLE>
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated
Consolidated net income for the third quarter of 1994 was $659 million, or
$.69 per share, compared with $468 million, or $.49 per share, in the third
quarter of last year. The results for the third quarter of 1994 include an
after-tax gain on the sale of non-strategic telephone properties of $48
million, or $.05 per share, while last year's third quarter results included
an extraordinary after-tax charge of $90 million, or $.10 per share,
resulting from the early retirement of high-coupon debt. Excluding these
special items, earnings per share for the quarter increased 8 percent. For
the nine months ended September 30, 1994, net income was $1.76 billion, or
$1.83 per share, compared with $1.37 billion, or $1.43 per share last year.
Excluding the impact of the previously mentioned special items, as well as
the one-time charge associated with Telephone Operations' voluntary
separation programs completed in 1993, earnings per share for the first nine
months of 1994 also increased 8 percent over 1993.
Operating income for the third quarter and first nine months of 1994 rose 10
percent and 8 percent, respectively, to $1.25 billion and $3.54 billion
exclusive of the special items and the operating income attributable to
non-strategic properties sold in 1993 and 1994.
Consolidated revenues and sales for the third quarter of 1994 totaled $5.00
billion compared with $4.94 billion in the year-ago quarter. Excluding
revenues from the telephone properties sold, consolidated revenues and sales
increased 4 percent in the third quarter. Substantially higher
mobile-cellular revenues and increased volumes at Telephone Operations more
than offset lower, more competitive telephone pricing and a $60 million
reduction in government-communication sales resulting from the completion
late last year of the eight-year Mobile Subscriber Equipment contract.
Consolidated revenues and sales for the first nine months of 1994 totaled
$14.70 billion compared with $14.69 billion in the same period last year.
Excluding revenues from the telephone properties sold, consolidated revenues
and sales increased 2 percent during the first nine months of 1994.
Telephone Operations
Telephone revenues for the third quarter and first nine months of 1994
amounted to $3.97 billion and $11.81 billion, respectively, substantially
unchanged from the same periods last year. Excluding the impact of the
non-strategic properties sold, revenues for the third quarter and first nine
months of 1994 increased 4 percent and 3 percent, respectively, compared to
last year. Increases in unit volumes, were partially offset by lower, more
competitive pricing. Minutes of use of GTE's domestic local-exchange
network for long-distance calling grew at an annual rate of 9.6 percent,
while total access lines increased 4.9 percent over last year.
Effective January 1, 1994, pursuant to its agreement with the California
Public Utilities Commission ("CPUC") and its normal annual price cap filing,
GTE California, a wholly-owned subsidiary, reduced its rates by about $100
million on an annual basis.
-3-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Excluding the results of the properties sold and the one-time separation
charge recorded in the second quarter of 1993, operating income for the
third quarter and first nine months of 1994 totaled $1.08 billion and $3.13
billion, respectively, compared to $1.02 billion and $3.01 billion last
year. This improvement reflects the increased revenues and the favorable
effects of ongoing domestic cost-reduction programs. The number of U.S.
access lines per employee, a key indicator of productivity, rose to 244, a 7
percent improvement over September 1993.
As of September 30, 1994, access lines served by GTE's domestic and
international telephone companies operating in 29 states, Canada, the
Dominican Republic and Venezuela totaled 22.5 million.
Telecommunications Products and Services
Revenues and sales from Telecommunications Products and Services, which is
comprised of mobile-cellular, government systems, information services,
yellow-pages directory advertising, and aircraft-passenger communications
services, totaled $1.03 billion and $2.88 billion for the third quarter and
first nine months of 1994, respectively, compared with $972 million and
$2.88 billion for the same periods in 1993. Mobile-cellular revenues
increased 45 percent and 43 percent, to $440 million and $1.21 billion in
the third quarter and first nine months of 1994, respectively, compared with
the same periods a year ago. These revenue increases were partially offset
by lower government-communication sales, resulting from the completion late
last year of the eight-year Mobile Subscriber Equipment contract and changes
in the timing of certain yellow-pages directory publications.
Operating income for the third quarter and first nine months of 1994
increased to $170 million and $405 million, respectively, compared with $114
million and $261 million for the corresponding periods in 1993. These
increases reflect improved performance in mobile-cellular as well as the
favorable impact of restructuring actions, primarily in the
satellite-communication business, taken at the end of 1993. Partially
offsetting this favorability were changes in the timing of certain
yellow-pages directory publications.
Cellular customer growth continued at a high level during the third quarter
of 1994 with a total of 148,000 new domestic customers added. This brings
total U.S. customers served to 2,026,000, an increase of 48 percent compared
to the 1,365,000 customers at the end of the third quarter of 1993. During
the third quarter of 1994, service revenues per subscriber averaged $69 per
month, slightly lower than the $70 per month average reported during the
second quarter of 1994, and the average of $71 per month in the third
quarter of last year. The current average reflects the continuing growth of
casual users in the subscriber base.
During the third quarter of 1994, a GTE-led consortium completed
construction of its initial network and finalized interconnect agreements
with the respective local-exchange carriers for providing cellular
operations serving the northern and southern regions of Argentina. GTE has
a 23 percent ownership stake in this consortium. As of September 30, 1994,
GTE's
-4-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
U.S. mobile-cellular operations served a population of some 52 million
"POPs" (total U.S. population served times GTE's percentage interest in the
market). Outside the United States, GTE operates mobile-cellular networks
through subsidiaries in Canada, the Dominican Republic, Venezuela and
Argentina, where an additional 277,000 customers are served.
In October 1994, GTE completed the previously announced sale of GTE Spacenet
Corporation to GE American Communications, Inc., at a price that
approximated its book value.
Other (Income) Deductions
Interest expense, net for the third quarter and first nine months of 1994,
decreased 9 percent and 13 percent compared with the same periods last year,
to $264 million and $794 million, respectively. These decreases reflect
reduced debt levels and the refinancing of high-coupon long-term debt.
Other-net for the third quarter and first nine months of 1994 includes
pre-tax gains of $77 million and $193 million, respectively, resulting from
sales of
non-strategic local-exchange telephone properties. Third quarter results
also include gains relating to the sale of certain cellular properties which
were largely offset by weaker results at Compania Anonima Nacional Telefonos
de Venezuela ("CANTV"), the Venezuelan telephone company in which GTE owns a
20.4 percent ownership interest.
During the third quarter, difficult economic conditions in Venezuela
continued as evidenced, in part, by government instituted price controls,
limitations on access to foreign currency and a fixed exchange rate for the
bolivar. The weak economic conditions combined with the government-imposed
restrictions has limited the willingness of foreign banks to lend funds to
Venezuelan companies. As a result, CANTV has been unable to secure planned
financing and is currently in arrears on repayment of principal on certain
of its loan obligations. CANTV is engaged in discussions with its major
creditors to address these issues and continues to make payments of interest
on these obligations. CANTV has reduced its capital program and taken other
steps to reduce operating costs and improve cash flow.
As a result of the high level of inflation experienced in Venezuela, CANTV's
results are substantially influenced by CANTV's ability to increase tariffs.
CANTV operates under a Concession Agreement with the Venezuelan government
which provides, among other things, for quarterly tariff increases based on
the previous quarter's rate of inflation. Although CANTV has experienced
delays in receiving government approvals necessary to implement quarterly
tariff increases, tariff increases of 34 percent have been implemented
during the first nine months of the year as compared to a local inflation
rate of 51 percent over the same period. In addition, despite the recently
imposed price controls, CANTV received approval for additional tariff
increases of 13 percent which were implemented during October 1994.
CANTV's contribution to GTE's results is also affected to the extent that
the devaluation of the bolivar as compared to the U. S. dollar is
significantly higher than the local inflation rate upon which tariff
increases are based. Prior to implementation of the currency controls in
July, the bolivar had
-5-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
devalued compared to the U. S. dollar by approximately 60 percent during
1994. Based on the current conditions in Venezuela, GTE does not expect its
investment in CANTV to provide any substantial contribution to 1994
earnings.
CAPITAL RESOURCES AND LIQUIDITY
Cash from operations for the first nine months of 1994 totaled $3.59 billion
compared with $3.86 billion during the same period in 1993. The decline
reflects the timing of certain payments, primarily the payment of income
taxes related to the completion of the Mobile Subscriber Equipment contract
as well as income tax payments related to gains on non-strategic properties
sold. The decrease was partially offset by a reduction in interest
payments.
Cash used in investing activities totaled $1.92 billion in the first nine
months of 1994 compared with $1.51 billion in the first nine months of 1993.
Proceeds from sales of assets totaled $896 million in the first nine months
of 1994, reflecting the sale of non-strategic telephone and cellular
properties, and $1.13 billion in the corresponding period of 1993, primarily
reflecting the divestiture of the Electrical Products businesses.
Pursuant to definitive agreements entered into in 1993, GTE expects to
complete, during the remainder of 1994, the sale of non-strategic
local-exchange telephone properties serving over 40,000 access lines in 4
states. The net proceeds from these transactions will be used to reduce
debt. In September 1994, GTE announced that it had proposed to acquire the
10 percent ownership of Contel Cellular Inc. ("CCI") currently held by the
public for $22.50 per share or approximately $224 million in cash. The
transaction is expected to close around year-end 1994. GTE owns the
remaining 90 percent of the outstanding shares of CCI.
Capital expenditures, for the first nine months of 1994, totaled $2.74
billion compared with $2.60 billion in the same period last year. For the
full year 1994 capital expenditures are expected to be approximately $4.3
billion. The majority of new investment is being made in GTE's regulated
telephone operations to meet the demands of growth, modernize facilities and
position GTE as a low-cost provider of high-quality voice, data and video
telecommunications services. Significant investments are also being made in
GTE's other businesses, such as mobile-cellular, to increase capacity and
continue to improve and expand the network.
Cash used in financing activities for the first nine months of 1994 totaled
$1.59 billion. Dividend payments of $1.35 billion and reductions in debt
and preferred stock of $588 million were partially offset by $338 million
received through GTE's employee stock purchase and dividend reinvestment
plans. During the same period last year, cash used in financing activities
totaled $2.37 billion. Financing activities in the first nine months of
1994 also include the issuance of $1.8 billion of long-term debt primarily
to refinance high-coupon redemptions begun in 1993. In April 1994, GTE
redeemed the entire outstanding $100 million of its $2.475 No Par Preferred
Stock. Since the beginning of 1992, GTE has reduced total debt and
preferred stock by over $4.6 billion. In October 1994, an affiliate of GTE
issued $489 million of 9.25% Monthly Income Preferred Securities.
-6-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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.
During the second quarter of 1994, Moody's Investors Service lowered the
ratings on GTE Corporation's senior debt. GTE's senior debt ratings by
other agencies were not changed. GTE believes that its present investment
grade credit rating and those of its subsidiaries provide it with the
financial flexibility necessary to pursue growth opportunities as they
arise. At September 30, 1994, GTE had $3.2 billion of unused bank lines of
credit available to back up commercial paper borrowings and for working
capital requirements.
RECENT DEVELOPMENTS
Telecommunications legislation that would have changed the way the industry
does business passed the House of Representatives in the recently completed
103rd Congress but was withdrawn from consideration in the final days of the
Senate session. Similar legislation is expected to be introduced again in
the next session of Congress. Despite this, recent judicial and regulatory
actions as well as the pace of technological change have continued to cause
the telecommunications, cable television, media and computer industries to
converge.
In the absence of Federal legislation, the Federal and state regulatory
commissions and the courts have continued to influence industry
developments. In June 1994, the U. S. Court of Appeals for the District of
Columbia Circuit overturned an order by the Federal Communications
Commission ("FCC") establishing the framework used by competing carriers to
interconnect to the local exchange network for the purpose of providing
switched access and private line services. The court ruled that the
mandatory physical colocation was illegal and remanded the issue to the FCC
for further consideration. In July 1994, the FCC adopted a new order
establishing a requirement for "virtual" colocation. The extent to which
the FCC's physical and virtual colocation requirements are, in substance,
different is not yet clear. In addition, on three separate occasions during
1994, U. S. District Courts have ruled that the Federal statute prohibiting
telephone companies from providing video programming in their service area
was unconstitutional. These decisions supplement a comparable ruling last
year overturning the cross-ownership rules in portions of Virginia.
In September 1994, the CPUC issued a final order in its Implementation Rate
Design proceeding. The decision authorizes intraLATA toll competition
(except 1+) in California, effective January 1, 1995. It also permits rate
rebalancing that would allow significant rate reductions for intraLATA toll
service and access charges while increasing basic local exchange rates
closer to the actual cost of providing such service. Although the rate
rebalancing is intended to be revenue neutral, its ultimate effect on
revenue will depend, in part, on the extent to which rate reductions result
in increased calling volumes. The decision does not permit rate increases
to compensate for competitive losses. GTE believes that the CPUC has
over-estimated the calling volume that will be stimulated by reduced toll
rates. At present, however, it is not possible to accurately quantify the
potential effect.
-7-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Although these and other similar developments suggest that the
telecommunications industry will become increasingly competitive, the degree
to which regulatory oversight of the local-exchange carriers will be lifted
and competition will be permitted to establish the cost of service to the
consumer is unclear at this time.
The increasingly competitive environment provides GTE with opportunities as
well. In order to respond aggressively to these competitive developments
and benefit from the increasing opportunities, GTE has embarked on a series
of initiatives. One such initiative involves the implementation of GTE
Telephone Operations' three-year $1.4 billion re-engineering plan. This
plan is intended to redesign and streamline its business processes to
improve customer responsiveness and product quality, reduce the time
necessary to introduce new products and services and to reduce costs.
In connection with the re-engineering plan, during the first nine months of
1994, 50 customer contact, network operations and operator service centers
were closed and express dial tone was installed for over 6.9 million access
lines served by GTE. Express dial tone enables customers moving into a new
home to simply plug their phone into the wall jack and touch any button to
reach GTE and activate service. In addition, employee reductions of 2,200
have occurred. Through September 30, 1994, expenditures of $160 million
were incurred. These costs were primarily associated with the consolidation
of the various service centers, separation benefits associated with employee
reductions and incremental expenditures to redesign and streamline
processes. The level of re-engineering activities and related expenditures
are expected to accelerate during the remainder of 1994 and throughout 1995.
There have been no significant changes made to the overall re-engineering
plan as originally reported.
In addition, GTE recently announced plans to build a new video network, over
the next ten years, that will pass seven million homes in 66 key GTE
markets. GTE will invest about $250 million by the end of 1995 to build its
new fiber optic and coaxial cable video network for nearly 550,000 homes in
four initial markets. By 2003, GTE anticipates delivering broadcast, cable
and interactive television programming to some two million residential
customers.
As part of this effort, GTE is conducting an interactive video services
trial in Manassas, Va. The trial offers GTE customers an extensive choice
of new interactive services as part of a video dialtone network capable of
providing in excess of 500 channels of digital programming. GTE also
announced, during the year, its entry into the interactive multimedia
entertainment software market.
During the fourth quarter of 1994, the Federal Communications Commission
("FCC") will begin 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 communications services ("PCS"). These services will
both complement and compete with traditional wireline services. GTE will be
permitted to fully participate in the license auctions in areas outside of
its existing cellular areas. Limited participation will be permitted in
areas in which GTE has an existing cellular presence. GTE has registered
with the FCC as a potential bidder on PCS licenses in each metropolitan
trade area ("MTA") in which it is eligible to file except for the MTAs in
Texas. The
-8-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
registration does not commit GTE to bid on any specific license. However,
the filing allows GTE the maximum flexibility and opportunity to bid on
properties of strategic importance.
In anticipation of these new services, during 1994, GTE has introduced its
Tele-Go Service to provide anytime, anywhere wireless personal
communications. This enhanced service works in concert with local telephone
service by providing customers with personal communications that combine the
capabilities of both wired and wireless features. GTE expects to invest
more than $50 million during 1994 to bring Tele-Go service to 15 markets by
year-end.
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. On an ongoing basis, GTE reviews the
continued applicability of FAS 71 based on the current regulatory and
competitive environment. If GTE were to determine at some future point that
its 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.
-9-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December
31,
1994
1993
(In Millions)
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 399 $ 322
Receivables, less allowances
of $180 and $231 million 3,711 3,900
Inventories 723 659
Other assets (Note 2) 670 1,067
Total Current Assets 5,503 5,948
PROPERTY, PLANT AND EQUIPMENT, at cost:
Telephone subsidiaries 44,165 43,099
Accumulated depreciation (17,792) (16,737)
26,373 26,362
Other subsidiaries 4,427 4,160
Accumulated depreciation (1,905) (1,802)
2,522 2,358
Total Property, Plant and Equipment, net 28,895 28,720
INVESTMENTS AND OTHER ASSETS:
Franchises, goodwill and other intangibles 2,083 2,102
Investments in unconsolidated companies 1,472 1,431
Deferred charges 2,894 2,462
Long-term receivables and other assets 857 912
Total Investments and Other Assets 7,306 6,907
Total Assets $41,704 $41,575
The accompanying notes are an integral part of these statements.
-10-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December
31,
1994
1993
(In Millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations, including
current maturities $ 1,914 $
1,644
Accounts and payrolls payable 1,823
1,968
Accrued taxes 945
1,108
Accrued restructuring costs 488
540
Dividends payable 470
469
Other 2,300
2,204
Total Current Liabilities 7,940
7,933
LONG-TERM DEBT 12,287
13,019
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 3,166
2,807
Employee benefit obligations 4,801
4,667
Other 2,154
2,294
Total Reserves and Deferred Credits 10,121
9,768
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 1,124
1,106
PREFERRED STOCK, subject to mandatory redemption 117
156
SHAREHOLDERS' EQUITY:
Preferred stock 10
111
Common stock - shares issued 959,052,132
and 951,761,892 48
48
Amounts paid in, in excess of par value 7,505
7,309
Reinvested earnings 3,181
2,769
Guaranteed ESOP obligation (629)
(644)
Total Shareholders' Equity 10,115
9,593
Total Liabilities and Shareholders' Equity $41,704
$41,575
The accompanying notes are an integral part of these statements.
-11-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
1994 1993
(In Millions)
Cash Flows From Operations:
Income before extraordinary charge $1,758 $1,456
Adjustments to reconcile income before extraordinary
charge to net cash from operations:
Depreciation and amortization 2,530 2,547
Change in current assets and current
liabilities, excluding the effects of
acquisitions and dispositions (654)
(89)
Deferred taxes and other - net (46)
(55)
Net cash provided from operations 3,588 3,859
Cash Flows From Investing:
Capital expenditures (2,741)
(2,599)
Proceeds from sales of assets 896 1,129
Other investing - net (77)
(43)
Net cash used in investing (1,922)
(1,513)
Cash Flows From Financing:
GTE common stock issued 338 291
Long-term debt issued 1,793 412
Long-term debt and preferred stock retirements (2,310)
(1,829)
Dividends paid to shareholders of parent (1,354)
(1,295)
Increase (decrease) in short-term obligations,
excluding current maturities (71) 32
Other financing - net 15 19
Net cash used in financing (1,589)
(2,370)
Increase (decrease) in cash and temporary
cash investments 77
(24)
Cash and temporary cash investments:
Beginning of period 322 354
End of period $ 399 $ 330
Cash paid during the period for:
Interest $ 751 $ 936
Income Taxes 1,244 756
The accompanying notes are an integral part of these statements.
-12-
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The unaudited Condensed Consolidated Financial Statements included
herein
have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However,
in
the opinion of management of the Company, the Condensed Consolidated
Financial Statements include all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the financial
information
for such periods. These Condensed Consolidated Financial Statements
should be read in conjunction with the consolidated financial
statements
and the notes thereto included in the Company's 1993 Annual Report on
Form 10-K.
(2) SALE OF TELEPHONE PROPERTIES:
Other assets at September 30, 1994 and December 31, 1993, included net
assets held for sale of $51 million and $543 million, respectively.
As part of a previously announced program to sell or trade a small
percentage of non-strategic local-exchange telephone properties, during
the first nine months of 1994, GTE sold local-exchange properties
serving
388,000 access lines in 5 states for $738 million in cash. The net
proceeds from these sales were used to reduce debt. As a result of
these
transactions, during the third quarter and first nine months of 1994,
GTE
recorded pre-tax gains of $77 million and $193 million, respectively,
which increased net income by $48 million, or $.05 per share and $119
million, or $.12 per share for the respective 1994 periods.
The accompanying Condensed Summary of Consolidated Results and the
Condensed Consolidated Statement of Income include the results of
operations, through the date of sale, of the non-strategic
local-exchange
telephone properties sold during the third quarter and first nine
months
of 1994, and at the end of 1993. For comparability, the following
table
includes pro forma adjustments for each period presented to remove the
operating results of these properties and to reflect interest savings
resulting from applying the proceeds to the repayment of debt. Results
for 1994 have also been adjusted to exclude the 1994 gains realized on
the sales of these properties, while 1993 results have been adjusted to
exclude the provision for Telephone Operations' voluntary separation
programs, and the extraordinary charge for the early retirement of
high-
coupon debt.
-13-
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In Millions)
REVENUES AND SALES:
Telephone Operations $3,956 $3,824 $11,670
$11,361
Telecommunications Products
and Services 1,030 972 2,882
2,878
Total revenues and sales $4,986 $4,796 $14,552
$14,239
OPERATING INCOME:
Telephone Operations $1,075 $1,017 $ 3,133 $
3,013
Telecommunications Products
and Services 170 114 405
261
Operating income $1,245 $1,131 $ 3,538
$ 3,274
NET INCOME APPLICABLE TO
COMMON STOCK $ 609 $ 553 $ 1,620
$ 1,474
EARNINGS PER COMMON SHARE $ .64 $ .59 $ 1.69 $
1.56
GTE has also entered into definitive agreements for the sale of
additional non-strategic local-exchange telephone properties serving
over
40,000 access lines in 4 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 by the end of 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.
(3) EXTRAORDINARY CHARGE:
During the third quarter of 1993, GTE called $2.12 billion of
high-coupon
first-mortgage bonds of five of its telephone operating subsidiaries.
As
a result, a pre-tax charge of $143 million was recorded to reflect the
expenses of calling these bonds. The after-tax charge amounted to $90
million, or $.10 per share.
(4) INVESTMENT IN ARGENTINA:
In early 1994, a GTE-led international consortium, Compania de
Telefonos
del Interior ("CTI") was successful in its bid for two cellular
licenses
to provide cellular services in the north and south interior regions of
Argentina. GTE, as operator, has a leading 23 percent ownership
interest
in CTI, which has an initial two year exclusivity to provide cellular
services. The two contracts constitute one of the largest cellular
license awards in South America to date. The consortium, commenced
operations during the second half of 1994.
-14-
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
GTE's investment is being accounted for on the equity method and
accordingly, it is included in the accompanying Condensed Consolidated
Balance Sheet under the caption "Investments in unconsolidated
companies".
-15-
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(11) Statement re: Calculation of earnings per common
share.
(12) Statement re: Calculation of the ratio of earnings to
fixed charges.
(27) Financial Data Schedule.
(b) GTE filed no reports on Form 8-K during the third quarter of
1994.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTE Corporation
.............................
(Registrant)
Date: November 10, 1994 By William D. Wilson
.............................
William D. Wilson
Vice President and Controller
Date: November 10, 1994 By Marianne Drost
.............................
Marianne Drost
Secretary
-17-
<TABLE>
Exhibit 11
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
Net income applicable to common stock:
Before extraordinary charge $656,905 $553,232 $1,749,955
$1,442,710
Extraordinary charge - early retirement of debt - (89,990) -
(89,990)
Consolidated 656,905 463,242 1,749,955
1,352,720
Adjustments to net income:
Add - Preferred dividend requirements on
dilutive convertible preferred stocks 143 172 481
526
Interest expense, net of tax
effect, on employees' stock plans 555 667 1,096
1,299
Total adjustments 698 839 1,577
1,825
Adjusted consolidated net income
applicable to common stock $657,603 $464,081 $1,751,532
$1,354,545
Average common shares 958,400 944,657 956,143
943,086
Adjustments to common shares:
Add - Dilutive convertible preferred stocks 554 635 580
661
Employees' stock and stock option plans 3,763 4,939 3,387
4,068
Total adjustments 4,317 5,574 3,967
4,729
Adjusted average common shares 962,717 950,231 960,110
947,815
PRIMARY EARNINGS PER COMMON SHARE: (1)
Before extraordinary charge $.69 $.59 $1.83
$1.53
Extraordinary charge - early retirement of debt - (.10) -
(.10)
Consolidated $.69 $.49 $1.83
$1.43
FULLY DILUTED EARNINGS PER COMMON SHARE: (2)
Before extraordinary charge $.68 $.58 $1.82
$1.52
Extraordinary charge - early retirement of debt - (.09) -
(.09)
Consolidated $.68 $.49 $1.82
$1.43
(1) Computed by dividing net income applicable to common stock for the periods by the
average common shares outstanding. Common stock equivalents are excluded from this
computation since they do not have a 3% dilutive effect.
(2) 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 for the periods is adjusted to reflect the increase in income for
the preferred dividends declared for the periods on the convertible preferred
stocks and the interest accrued, net of tax effect, on funds received from
installments under the employees' stock plans.
</TABLE>
<TABLE>
Exhibit 12
Page 1
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended Years Ended December 31
September 30, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $1,758,286 $ 989,803 $1,787,035 $1,528,102 $1,622,261
$1,550,450
Add (deduct) -
Income taxes 1,102,576 567,747 966,589 662,860 697,963
719,854
Interest expense 852,477 1,298,234 1,475,670 1,574,746 1,510,909
1,282,691
Capitalized interest (net of
amortization) (4,273) (3,421) (4,931) (14,791) (18,316)
(18,121)
Preferred stock dividends of subsidiaries 13,929 22,162 23,429 25,317 28,697
33,775
Additional income requirement on preferred
stock dividends of subsidiaries 8,720 12,739 12,671 11,006 12,357
15,676
Minority interests 102,656 112,335 112,425 103,626 83,471
79,554
Portion of rent expense representing
interest 99,563 153,058 196,533 210,698 206,959
199,408
3,933,934 3,152,657 4,569,421 4,101,564 4,144,301
3,863,287
Deduct - Minority interests (180,531) (236,944) (248,979) (247,284) (224,240)
(211,816)
Adjusted earnings available
for fixed charges from
continuing operations $3,753,403 $2,915,713 $4,320,442 $3,854,280 $3,920,061
$3,651,471
Fixed Charges:
Interest charges $ 852,477 $1,298,234 $1,475,670 $1,574,746 $1,510,909
$1,282,691
Preferred dividends of subsidiaries 13,929 22,162 23,429 25,317 28,697
33,775
Additional income requirement on preferred
dividends of subsidiaries 8,720 12,739 12,671 11,006 12,357
15,676
Portion of rent expense representing
interest 99,563 153,058 196,533 210,698 206,959
199,408
974,689 1,486,193 1,708,303 1,821,767 1,758,922
1,531,550
Deduct - Minority interests (51,693) (78,421) (86,504) (89,479) (91,730)
(80,287)
Adjusted fixed charges $ 922,996 $1,407,772 $1,621,799 $1,732,288 $1,667,192
$1,451,263
Ratio of Earnings to Fixed Charges - continuing
operations 4.07 2.07 2.66 2.22 2.35 2.52
Exhibit 12
Page 2
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF THE RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended Years Ended December 31
September 30, 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed charges
and preferred stock dividends:
Income from continuing operations $1,758,286 $ 989,803 $1,787,035 $1,528,102 $1,622,261
$1,550,450
Add (deduct) -
Income taxes 1,102,576 567,747 966,589 662,860 697,963
719,854
Interest expense 852,477 1,298,234 1,475,670 1,574,746 1,510,909
1,282,691
Capitalized interest (net of
amortization) (4,273) (3,421) (4,931) (14,791) (18,316)
(18,121)
Preferred stock dividends of subsidiaries 13,929 22,162 23,429 25,317 28,697
33,775
Additional income requirement on preferred
stock dividends of subsidiaries 8,720 12,739 12,671 11,006 12,357
15,676
Minority interests 102,656 112,335 112,425 103,626 83,471
79,554
Additional income requirement on preferred
stock dividends of Parent 5,215 10,246 14,241 15,991 18,802
22,085
Portion of rent expense representing
interest 99,563 153,058 196,533 210,698 206,959
199,408
3,939,149 3,162,903 4,583,662 4,117,555 4,163,103
3,885,372
Deduct - Minority interests (180,531) (236,944) (248,979) (247,284)
(224,240) (211,816)
Adjusted earnings available for fixed
charges and preferred stock
dividends - continuing operations $3,758,618 $2,925,959 $4,334,683 $3,870,271 $3,938,863
$3,673,556
Fixed Charges and preferred stock dividends:
Interest charges $ 852,477 $1,298,234 $1,475,670 $1,574,746 $1,510,909
$1,282,691
Preferred dividends of subsidiaries 13,929 22,162 23,429 25,317 28,697
33,775
Additional income requirement on preferred
dividends of subsidiaries 8,720 12,739 12,671 11,006 12,357
15,676
Preferred stock dividends of Parent 8,331 17,825 26,331 36,785 43,662
47,583
Additional income requirement on preferred
stock dividends of Parent 5,215 10,246 14,241 15,991 18,802
22,085
Portion of rent expense representing
interest 99,563 153,058 196,533 210,698 206,959
199,408
988,235 1,514,264 1,748,875 1,874,543 1,821,386
1,601,218
Deduct - Minority interests (51,693) (78,421) (86,504) (89,479) (91,730)
(80,287)
Adjusted fixed charges $ 936,542 $1,435,843 $1,662,371 $1,785,064 $1,729,656
$1,520,931
Ratio of Earnings to Fixed Charges and
preferred stock dividends -
continuing operations 4.01 2.04 2.61 2.17 2.28 2.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 3,711
<ALLOWANCES> 0
<INVENTORY> 723
<CURRENT-ASSETS> 5,503
<PP&E> 48,592
<DEPRECIATION> 19,697
<TOTAL-ASSETS> 41,704
<CURRENT-LIABILITIES> 7,940
<BONDS> 12,287
<COMMON> 48
117
10
<OTHER-SE> 10,057
<TOTAL-LIABILITY-AND-EQUITY> 41,704
<SALES> 14,696
<TOTAL-REVENUES> 14,696
<CGS> 11,122
<TOTAL-COSTS> 11,122
<OTHER-EXPENSES> 713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 853
<INCOME-PRETAX> 2,861
<INCOME-TAX> 1,103
<INCOME-CONTINUING> 1,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,758
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.82
</TABLE>
