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 June 30, 1995
.............
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, Conn. 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 971,878,848 shares of $.05 par value common stock outstanding at
July 31, 1995.
<TABLE>
PART I. FINANCIAL INFORMATION
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(In Millions)
<S> <C> <C> <C> <C>
REVENUES AND SALES $5,045 $4,955 $9,807 $9,701
COSTS AND OPERATING EXPENSES 3,774 3,745 7,352 7,373
Operating income 1,271 1,210 2,455 2,328
OTHER (INCOME) DEDUCTIONS:
Interest expense 279 290 560 568
Allowance for funds used and interest
capitalized during construction (8) (7) (16) (14)
Interest income (14) (13) (27) (24)
Other - net 49 (48) 93 (6)
306 222 610 524
Income before income taxes 965 988 1,845 1,804
INCOME TAX PROVISION 383 393 718 705
Net income 582 595 1,127 1,099
PREFERRED STOCK DIVIDENDS OF PARENT 1 2 3 6
Net income applicable to common stock $ 581 $ 593 $1,124 $1,093
EARNINGS PER COMMON SHARE $ .60 $ .62 $1.16 $1.14
DIVIDENDS DECLARED PER COMMON SHARE $ .47 $ .47 $ .94 $ .94
AVERAGE COMMON SHARES 970 956 968 955
The accompanying notes are an integral part of these statements.
-1-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED SUMMARY OF CONSOLIDATED RESULTS
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(In Millions)
<S> <C> <C> <C> <C>
REVENUES AND SALES:
Telephone Operations $4,006 $3,984 $7,842 $7,849
Telecommunications Products and Services 1,039 971 1,965 1,852
Total revenues and sales $5,045 $4,955 $9,807 $9,701
OPERATING INCOME:
Telephone Operations $1,117 $1,068 $2,174 $2,093
Telecommunications Products and Services 154 142 281 235
Operating income 1,271 1,210 2,455 2,328
OTHER (INCOME) DEDUCTIONS:
Interest expense - net 257 270 517 530
Other - net 49 (48) 93 (6)
Income before income taxes 965 988 1,845 1,804
Income tax provision 383 393 718 705
Net income 582 595 1,127 1,099
Preferred stock dividends of parent 1 2 3 6
Net income applicable to
common stock $ 581 $ 593 $1,124 $1,093
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 second quarter of 1995 was $582 million, or
$.60 per share, compared with $595 million, or $.62 per share, in the
second quarter last year. The results for the second quarter of 1994
include after-tax gains on sales of non-strategic telephone properties of
$71 million, or $.07 per share. Excluding these gains, earnings per share
for the quarter increased 9 percent over the previous year's second
quarter. For the first half of 1995, consolidated net income was $1.13
billion, or $1.16 per share, compared with $1.10 billion, or $1.14 per
share last year. Excluding the gains from telephone properties sold in
1994, earnings per share for the first half increased 8 percent over last
year.
Operating income for the second quarter and first six months of 1995 rose 7
percent to $1.27 billion and $2.46 billion, respectively, exclusive of the
operating income attributable to operations sold in 1994.
Consolidated revenues and sales for the second quarter of 1995 increased 5
percent to $5.05 billion compared with $4.83 billion in the year-ago
quarter, excluding revenues attributable to non-strategic telephone
properties and the satellite-communications business which were sold in
1994. Substantially higher mobile-cellular revenues and increased volumes
at Telephone Operations more than offset lower, more competitive telephone
pricing. Consolidated revenues and sales for the first six months of 1995
increased 4 percent to $9.81 billion compared with $9.45 billion in the
same period last year, excluding revenues from the non-strategic properties
sold.
Telephone Operations
Telephone revenues for the second quarter and first six months of 1995
increased 3 percent and 2 percent, respectively, to $4.01 billion and $7.84
billion, compared to $3.91 billion and $7.69 billion, respectively, for the
same periods last year, excluding the impact of the non-strategic
properties sold. Increases in unit volumes, in both domestic and
international operations, were partially offset by lower, more competitive
pricing including reductions for toll service and access charges, primarily
in California. In the second quarter of 1995, minutes of use of GTE's
domestic local-exchange network for long-distance calling grew at a rate of
10.3 percent, while total access lines increased 5.4 percent over last
year.
On January 1, 1995, pursuant to an order issued by the California Public
Utilities Commission ("CPUC"), competition in long distance services
(without customer pre-subscription) became effective in California. The
order also provided for rate rebalancing with significant rate reductions
for long distance services and network access services while increasing
basic local network services rates closer to the actual cost of providing
-3- GTE
CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
such service. Although the CPUC intended for the rate rebalancing to be
revenue neutral, its ultimate effect on revenue is dependent, in part, on
the extent to which long distance services rate reductions result in
increased calling volumes. The decision does not permit rate increases to
compensate for competitive losses of market share. In the first six months
of 1995, revenues in California decreased by approximately $125 million, or
8 percent, as a result of the implementation of this order.
Excluding the results of the properties sold, operating income for the
second quarter and first six months of 1995 totaled $1.12 billion and $2.17
billion, respectively, compared to $1.05 billion and $2.05 billion last
year. This improvement reflects the increased revenues and the favorable
effects of ongoing cost-reduction programs from process re-engineering
activities.
In connection with the re-engineering plan, during the first six months of
1995, expenditures of approximately $200 million were incurred and charged
to the restructuring reserve. Since the plan's inception at the beginning
of 1994, a total of 81 customer contact, network operations and operator
service centers have been closed and workforce reductions of over 7,600
have occurred resulting in total expenditures of $543 million being charged
to the restructuring reserve. These costs were primarily associated with
the consolidation of various service centers and separation benefits
associated with employee reductions as discussed above as well as
incremental expenditures to redesign and streamline processes. There have
been no significant changes made to the overall re-engineering plan as
originally reported. As of June 30, 1995, $757 million remains in the
restructuring reserve which management believes is adequate to cover future
expenditures.
As of June 30, 1995, access lines served by GTE's domestic and
international telephone companies operating in 28 states, Canada, the
Dominican Republic and Venezuela totaled 23.4 million.
Telecommunications Products and Services
Revenues and sales from Telecommunications Products and Services, which is
comprised of cellular and personal communications services, aircraft-based
telecommunications, government and defense communications systems and
equipment, telecommunications-based information services and systems and
Yellow Pages directories, increased 13 percent and 12 percent to $1.04
billion and $1.97 billion for the second quarter and first six months of
1995, respectively, compared with $923 million and $1.76 billion in the
same periods last year, excluding the satellite-communications business
which was sold late in 1994. This improvement reflects the continued
growth in revenues from the mobile-cellular business, partially offset by
lower government-communications sales.
-4- GTE
CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Excluding the results of the divested satellite-communications business,
operating income for the second quarter and first six months of 1995
increased 8 percent and 20 percent, respectively, to $154 million and $281
million, respectively, compared with $143 million and $235 million for the
corresponding periods in 1994. This increase reflects the revenue growth
offset, in part, by increased costs associated with the growth in
mobile-cellular customer acquisitions and lower margins on
government-communications sales.
Cellular customer growth continued at a strong pace during the second
quarter of 1995 with a total of 213,000 new domestic customers added. This
brings total U.S. customers served to 2,713,000, a 45 percent increase over
a year ago and more than double the number of customers just two years ago.
During the second quarter of 1995, service revenues per subscriber averaged
$63 per month, compared with $70 per month in the second quarter last year.
Operating cash flows, representing operating income before depreciation and
amortization, reached $179 million in the second quarter of 1995, a 23
percent improvement over the second quarter of last year.
As of June 30, 1995, GTE's U.S. mobile-cellular operations had the
potential to serve some 72 million cellular and personal communications
services customers including 19.3 million "POPs" (total U.S. population
served times GTE's percentage interest in the market) associated with the
1.8GHz broadband spectrum licenses recently acquired in four states.
Outside the United States, GTE operates mobile-cellular networks serving
some 16 million POPs through affiliates in Canada, the Dominican Republic,
Venezuela and Argentina, where an additional 378,000 customers are served.
Other (Income) Deductions
Other-net for the second quarter and first six months of 1995 includes
pre-tax gains of $35 million and $38 million, respectively, resulting from
the sales of non-strategic cellular properties. Other-net for the second
quarter and first six months of 1994 includes pre-tax gains of $116 million
resulting from sales of non-strategic local-exchange telephone properties.
CAPITAL RESOURCES AND LIQUIDITY
Cash from operations for the first six months of 1995 totaled $2.16 billion
compared with $2.25 billion in 1994.
Cash used in investing activities totaled $2.37 billion compared with $1.17
billion in the first six months of 1994. Acquisitions and investments for
the first six months of 1995, includes approximately $350 million expended
to acquire personal communications licenses during the Federal
Communications Commission's ("FCC") auction process earlier this year.
Proceeds from the sales of assets totaled $75 million and $621 million, in
the first half of 1995 and 1994, respectively, primarily reflecting the
sale of non-strategic telephone and cellular properties. Capital
expenditures totaled $1.81 billion, compared to $1.74 billion in the first
-5-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
six months last year. For the full year 1995, capital expenditures are
expected to be approximately $4.5 billion compared with $4.2 billion in
1994. 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 cellular, to increase capacity and
continue to improve the quality of the existing network.
Cash provided from financing activities for the first six months of 1995
totaled $282 million, compared with cash used in financing activities of
$1.05 billion in the same period last year. During the first six months of
1995 dividend payments were $911 million compared to $902 million in 1994.
During the first six months of 1995, short and long-term borrowing and
preferred securities outstanding increased approximately $972 million, and
$202 million was received through GTE's employee stock purchase and
dividend reinvestment plans. This compared to a $391 million decrease in
short and long-term borrowings and preferred securities outstanding during
the first six months of 1994, while $237 million was received through the
employee stock purchase and dividend reinvestment plans. In March 1995, a
subsidiary of GTE issued $511 million of 8.75% Monthly Income Preferred
Securities ("MIPS"). This issuance completed the $1 billion shelf
registration with the Securities and Exchange Commission. In August 1995,
GTE's Board of Directors authorized repurchasing up to 20,000,000 shares of
GTE common stock in the open market or in privately negotiated
transactions. The repurchase of shares will occur from time to time
through year-end 1996, depending on market conditions.
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 June 30, 1995 GTE had $4.4
billion of unused bank lines of credit available to back up commercial
paper borrowings and for working capital requirements.
RECENT DEVELOPMENTS
In May 1995, GTE completed the acquisition of the 10 percent ownership of
Contel Cellular Inc. that it did not already own for approximately $254
million in cash. This acquisition will allow GTE to fully consolidate GTE
Mobilnet and Contel Cellular and offer customers a broader network with a
wide range of wireless capabilities.
In March 1995, the FCC adopted interim rules to be used by local-exchange
carriers ("LECs") for their 1995 annual price cap filing. The interim
rules allow LECs to select from three productivity options each of which
represent an increase to the 3.3% productivity factor used by GTE since
1991. GTE has selected productivity factors of 4.0% and 5.3% for use in
the 1995-1996 tariff year. Jurisdictions which elected a 4.0% productivity
factor must share with customers 50% of returns over a 12.25% rate of
return and 100% of returns over a 13.25% rate of return. No sharing is
-6-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
required in the jurisdictions that elected a 5.3% productivity factor. As
a result, GTE lowered its interstate network access services rates by
approximately $100 million which offset increases to network access
services rates earlier in the year. The net effect of these changes is not
expected to materially affect 1995 results. The FCC is continuing to
consider how the price cap plan should be modified in the future in order
to adapt the system to the emergence of competition.
Also in March 1995, GTE was successful in its bid for licenses serving four
markets in the FCC's auction for personal communications services licenses.
The licenses were acquired at a cost of approximately $400 million and
included those for the Atlanta, Seattle, Cincinnati and Denver Major
Trading Areas. These markets, with 19 million POPs, will enhance GTE's
ability to bring new wireless services to its key local telephone operating
properties and expand an already strong cellular presence. Construction of
the cellular networks in the new markets is expected to commence in late
1995 and continue through 1997.
In July 1995, GTE exchanged certain GTE cellular assets in Oregon,
Minnesota, New Mexico and Washington for 100 percent of US WEST's cellular
assets in San Diego, the 13th largest cellular market in the U.S.
containing 2.6 million POPs. The transaction, gives GTE operating control
of the San Diego MSA.
In April 1995, the Supreme Court of Texas ruled on an appeal of GTE
Southwest's 1989 rate case. The Court agreed with GTE's position
concerning retroactive ratemaking, the ratemaking treatment of federal
income tax expense and the payment for services from GTE Service
Corporation, a wholly-owned subsidiary of GTE. The final issue, payments
associated with directory publications rendered by GTE Directories
Corporation, also a wholly-owned subsidiary of GTE, has been remanded to
the Texas Public Utilities Commission ("TPUC") for further proceedings. It
is not known when the TPUC will render a decision on this matter.
Also in April 1995, GTE filed a motion with the U.S. District Court for the
District of Columbia to remove the 1984 Consent Decree, which restricts the
manner in which GTE can provide interLATA services. GTE believes that the
Consent Decree is no longer required since GTE has since divested its
interests in the entities whose purchase gave rise to the Consent Decree.
In May 1995, the FCC approved GTE's applications to construct a new
fiber-optic and coaxial-cable video network in Ventura County, California,
Pasco and Pinellas Counties, Florida, Honolulu, Hawaii and Manassas,
Virginia. GTE expects to submit tariffs that set the rates for use of its
video network to the FCC for approval and to commence the initial
deployment of the network in certain of these markets in late 1995 and
early 1996.
Regulatory reform legislation was recently enacted in Florida, Texas, Iowa,
Minnesota, Virginia, and North Carolina. This new legislation is
ultimately intended to open local telephone markets to competition while
-7-
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
requiring the various state commissions to implement price regulation plans
and establish various rules to accommodate this new competition.
Legislation recently introduced in Hawaii, is also intended to open the
local telephone market to competition, but does not provide the same degree
of up-front regulatory reform that other states have provided.
Federal telecommunications legislation intended to reduce regulation, and
encourage competition and innovation in all telecom markets has also been
passed by both the Senate and House of Representatives. The bills must now
go to a joint Senate/House conference committee to reconcile the
differences between the two bills.
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"). In
general, FAS 71 requires companies to depreciate plant and equipment over
lives approved by regulators which may extend beyond the assets' actual
economic and technological lives. FAS 71 also requires deferral of certain
costs and obligations based upon approvals received from regulators to
permit recovery in the future. Consequently, the recorded net book value
of certain assets and liabilities, primarily telephone plant and equipment,
may be greater than that which would otherwise be recorded by unregulated
enterprises. On an ongoing basis, GTE reviews the continued applicability
of FAS 71 based on the current regulatory and competitive environment.
Although recent developments suggest that the telecommunications industry
will become increasingly competitive, the degree to which regulatory
oversight of local-exchange carriers, including GTE, will be lifted and
competition will be permitted to establish the cost of service to the
consumer is uncertain. As a result, GTE continues to believe that
accounting under FAS 71 is appropriate. If GTE were to determine that the
use of FAS 71 was no longer appropriate, it would be required to write-off
the deferred costs and obligations referred to above. It may also be
necessary for GTE to reduce the carrying value of its plant and equipment
to the extent that it exceeds fair market value. At this time, it is not
possible to estimate the amount of the company's plant and equipment, if
any, that would be considered unrecoverable in such circumstances. The
financial impact of such a determination, however, which would be non-cash,
could be material.
-8-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
(In Millions)
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 392 $ 323
Receivables, less allowances
of $211 and $207 million 3,722 4,022
Inventories 720 676
Other current assets 608 613
Total Current Assets 5,442 5,634
PROPERTY, PLANT AND EQUIPMENT, at cost:
Telephone operations 45,233 44,287
Accumulated depreciation (18,774) (17,656)
26,459 26,631
Telecommunications products and services
and other 4,621 4,258
Accumulated depreciation (1,733) (1,561)
2,888 2,697
Total Property, Plant and Equipment, net 29,347 29,328
INVESTMENTS AND OTHER ASSETS:
Franchises, goodwill and other intangibles,
net of accumulated amortization of $354
and $319 million 2,821 2,149
Investments in unconsolidated companies 1,554 1,551
Prepaid pension costs and
deferred charges 3,241 3,004
Long-term receivables and other assets 882 834
Total Investments and Other Assets 8,498 7,538
Total Assets $43,287 $42,500
The accompanying notes are an integral part of these statements.
-9-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
(In Millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations, including
current maturities $ 2,673 $ 2,042
Accounts and payrolls payable 1,646 2,229
Accrued taxes 769 871
Dividends payable 476 472
Accrued restructuring costs 465 436
Other current liabilities 2,138 2,171
Total Current Liabilities 8,167 8,221
LONG-TERM DEBT 12,036 12,163
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 3,633 3,522
Employee benefit obligations 4,704 4,651
Restructuring costs and other 1,549 1,729
Total Reserves and Deferred Credits 9,886 9,902
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 2,179 1,622
PREFERRED STOCK, subject to
mandatory redemption 106 109
SHAREHOLDERS' EQUITY:
Preferred stock 10 10
Common stock - shares issued 970,051,414
and 965,084,925 49 48
Amounts paid in, in excess of par value 7,826 7,627
Reinvested earnings 3,642 3,422
Guaranteed ESOP obligations (614) (624)
Total Shareholders' Equity 10,913 10,483
Total Liabilities and
Shareholders' Equity $43,287 $42,500
The accompanying notes are an integral part of these statements.
-10-
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
1995 1994
(In Millions)
Cash Flows From Operations:
Net income $1,127 $1,099
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 1,800 1,679
Change in current assets and current
liabilities, excluding the effects of
acquisitions and dispositions (902) (593)
Deferred income taxes and other - net 134 65
Net cash provided from operations 2,159 2,250
Cash Flows From Investing:
Capital expenditures (1,810) (1,735)
Acquisitions and investments (657) (75)
Proceeds from sales of assets 75 621
Other investing - net 20 22
Net cash used in investing (2,372) (1,167)
Cash Flows From Financing:
GTE common stock issued 202 237
Long-term debt and preferred securities issued 589 1,594
Long-term debt and preferred securities retired (277) (2,072)
Dividends paid to shareholders of parent (911) (902)
Increase in short-term obligations,
excluding current maturities 660 87
Other financing - net 19 11
Net cash provided from (used in)
financing 282 (1,045)
Increase in cash and temporary
cash investments 69 38
Cash and temporary cash investments:
Beginning of period 323 322
End of period $ 392 $ 360
Cash paid during the period for:
Interest $ 552 $ 528
Income taxes 681 838
The accompanying notes are an integral part of these statements.
-11- 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 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 1994 Annual Report on Form 10-K.
(2) PROPERTY SALES:
In connection with the sale of a small percentage of non-strategic
local-exchange telephone properties, in the second quarter of 1994,
GTE recorded pre-tax gains of $116 million. These gains increased net
income by $71 million, or $.07 per share.
The accompanying Condensed Consolidated Statements of Income and the
Condensed Summary of Consolidated Results include the results of
operations, through the date of sale, of the non-strategic local-
exchange telephone properties sold during 1994 as well as the results
of GTE Spacenet which was also sold during 1994. For comparability,
the following table includes pro forma adjustments to remove the 1994
operating results of GTE Spacenet and the telephone properties sold.
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(In Millions)
REVENUES AND SALES:
Telephone Operations $4,006 $3,905 $7,842 $7,689
Telecommunications Products
and Services 1,039 923 1,965 1,760
Total revenues and sales $5,045 $4,828 $9,807 $9,449
OPERATING INCOME:
Telephone Operations $1,117 $1,047 $2,174 $2,050
Telecommunications Products
and Services 154 143 281 235
Total operating income $1,271 $1,190 $2,455 $2,285
-12-
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) 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"). In general, FAS 71 requires companies to depreciate plant
and equipment over lives approved by regulators which may extend
beyond the assets' actual economic and technological lives. FAS 71
also requires deferral of certain costs and obligations based upon
approvals received from regulators to permit recovery in the future.
Consequently, the recorded net book value of certain assets and
liabilities, primarily telephone plant and equipment, may be greater
than that which would otherwise be recorded by unregulated
enterprises. On an ongoing basis, GTE reviews the continued
applicability of FAS 71 based on the current regulatory and
competitive environment. Although recent developments suggest that
the telecommunications industry will become increasingly competitive,
the degree to which regulatory oversight of local-exchange carriers,
including GTE, will be lifted and competition will be permitted to
establish the cost of service to the consumer is uncertain. As a
result, GTE continues to believe that accounting under FAS 71 is
appropriate. If GTE were to determine that the use of FAS 71 was no
longer appropriate, it would be required to write-off the deferred
costs and obligations referred to above. It may also be necessary for
GTE to reduce the carrying value of its plant and equipment to the
extent that it exceeds fair market value. At this time, it is not
possible to estimate the amount of the company's plant and equipment,
if any, that would be considered unrecoverable in such circumstances.
The financial impact of such a determination, however, which would be
non-cash, could be material.
-13-
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(10) Material Contract - Consulting Agreement between GTE
Service Corporation and James L. Johnson.
(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 second quarter
of 1995.
-14-
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: August 11, 1995 By Lawrence R. Whitman
.............................
Lawrence R. Whitman
Vice President - Controller
Date: August 11, 1995 By Marianne Drost
.............................
Marianne Drost
Secretary
-15-
EXHIBIT 10
May 5, 1995
PERSONAL AND CONFIDENTIAL
Mr. James L. Johnson
4642 O'Connor Court
Irving, TX 75062
Dear Rocky:
This letter confirms your willingness to serve as a special consultant to
GTE on telecommunications matters. I know that your contributions have
been and will be extremely valuable, in light of your special knowledge of
domestic and international telecommunications. To confirm our arrangement,
set forth below are the terms and conditions under which GTE Service
Corporation ("GTE") agrees to retain your services as an independent
contractor (the "Agreement") for this purpose.
This Agreement will begin on May 1, 1995, and end on April 30, 1996 (the
"Consulting Period"). Your duties will consist of providing special advice
to GTE on business matters affecting the company. Needless to say, you are
free to arrange the time and manner of performing these assignments. As
compensation from GTE for your services, you are entitled to receive
$42,500 for the Consulting Period paid at the rate of $10,625.00 per
quarter.
The Agreement may be terminated by you upon two weeks notice to GTE and may
also be renewed on a yearly basis upon advance notice to you by GTE of at
least 30 days prior to the expiration of the Consulting Period. Further,
if you are unable to perform the services required under this Agreement,
GTE may terminate this Agreement at the end of the quarter in which this
event occurs, and you will be paid to that date. If you terminate the
Agreement prior to the conclusion of the Consulting Period: 1) quarterly
payments for consulting services shall cease immediately, and you will
receive a pro rata payment for any elapsed portion of any quarter in which
the Agreement is terminated; and 2) no further payments shall be made.
As you know, your status as a consultant does not make you eligible for any
benefits provided by GTE to its employees. You are also responsible for
the payment of any taxes arising out of the Agreement, and GTE will not
withhold any taxes. This supersedes and replaces any prior agreement or
understanding concerning consulting.
Mr. James L. Johnson
May 5, 1995
Page 2
I appreciate your willingness to undertake these special assignments.
Please indicate your acceptance by signing the enclosed copy of this letter
and returning it to me. If you have any questions with regard to the
Agreement, please feel free to contact me.
Sincerely,
Charles R. Lee
/ljr
cc: J. R. MacDonald
M. T. Masin
ACCEPTED:
James L. Johnson Date: May 5, 1995
James L. Johnson
<TABLE>
Exhibit 11
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(In Thousands)
<S> <C> <C> <C> <C>
Net income applicable to common stock $580,891 $593,440 $1,124,173 $1,093,050
Adjustments to net income:
Add - Preferred dividend requirements on
dilutive convertible preferred stocks 131 180 269 338
Interest expense, net of tax
effect, on employees' stock plans 430 381 602 541
Total adjustments 561 561 871 879
Adjusted consolidated net income
applicable to common stock $581,452 $594,001 $1,125,044 $1,093,929
Average common shares 969,544 956,193 968,345 954,942
Adjustments to common shares:
Add - Dilutive convertible preferred stocks 520 582 526 593
Employees' stock and stock option plans 3,112 2,992 2,928 2,609
Total adjustments 3,632 3,574 3,454 3,202
Adjusted average common shares 973,176 959,767 971,799 958,144
EARNINGS PER COMMON SHARE:
Primary (1) $.60 $.62 $1.16 $1.14
Fully diluted (2) $.60 $.62 $1.16 $1.14
(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, stock ownership plan and stock options 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>
Six Months Ended Years Ended December 31
June 30, 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 544,857 $2,450,779 $ 989,803 $1,787,035 $1,528,102 $1,622,261
Add (deduct) -
Income taxes 334,654 1,532,482 567,747 966,589 662,860 697,963
Interest expense 281,250 1,139,233 1,298,234 1,475,670 1,574,746 1,510,909
Capitalized interest (net of
amortization) (2,330) (6,045) (3,421) (4,931) (14,791) (18,316)
Preferred stock dividends of
subsidiaries 18,653 18,252 22,162 23,429 25,317 28,697
Additional income requirement on preferred
stock dividends of subsidiaries 2,612 11,426 12,739 12,671 11,006 12,357
Minority interests 30,175 140,464 112,335 112,425 103,626 83,471
Portion of rent expense representing
interest 31,103 139,715 153,058 196,533 210,698 206,959
1,240,974 5,426,306 3,152,657 4,569,421 4,101,564 4,144,301
Deduct - Minority interests (55,393) (242,937) (236,944) (248,979) (247,284) (224,240)
Adjusted earnings available
for fixed charges from
continuing operations $1,185,581 $5,183,369 $2,915,713 $4,320,442 $3,854,280 $3,920,061
Fixed Charges:
Interest charges $ 281,250 $1,139,233 $1,298,234 $1,475,670 $1,574,746 $1,510,909
Preferred dividends of subsidiaries 18,653 18,252 22,162 23,429 25,317 28,697
Additional income requirement on preferred
dividends of subsidiaries 2,612 11,426 12,739 12,671 11,006 12,357
Portion of rent expense representing
interest 31,103 139,715 153,058 196,533 210,698 206,959
333,618 1,308,626 1,486,193 1,708,303 1,821,767 1,758,922
Deduct - Minority interests (16,768) (68,096) (78,421) (86,504) (89,479) (91,730)
Adjusted fixed charges $ 316,850 $1,240,530 $1,407,772 $1,621,799 $1,732,288 $1,667,192
Ratio of Earnings to Fixed Charges - continuing
operations 3.74 4.18 2.07 2.66 2.22 2.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 392
<SECURITIES> 0
<RECEIVABLES> 3,722
<ALLOWANCES> 0
<INVENTORY> 720
<CURRENT-ASSETS> 5,442
<PP&E> 49,854
<DEPRECIATION> 20,507
<TOTAL-ASSETS> 43,287
<CURRENT-LIABILITIES> 8,167
<BONDS> 12,036
<COMMON> 49
106
10
<OTHER-SE> 10,854
<TOTAL-LIABILITY-AND-EQUITY> 43,287
<SALES> 9,807
<TOTAL-REVENUES> 9,807
<CGS> 7,352
<TOTAL-COSTS> 7,352
<OTHER-EXPENSES> 610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517
<INCOME-PRETAX> 1,845
<INCOME-TAX> 718
<INCOME-CONTINUING> 1,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,127
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
