SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report - November 9, 1995
(Date of earliest event reported)
GTE Corporation
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
1-2755 13-1678633
(Commission File Number) (IRS Employer Identification No.)
One Stamford Forum
Stamford, Connecticut 06904
(Address of principal executive offices) (Zip Code)
203-965-2000
GTE CORPORATION
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
STAMFORD, Connecticut -- GTE Corporation (GTE) said that, in response to
recently enacted and pending legislation and the increasingly competitive
environment in which it expects to operate, effective January 1, 1996, GTE
is discontinuing the use of accounting practices appropriate to regulated
enterprises. As a result of this decision, GTE will record a non-cash,
extraordinary charge of $4.7 billion after taxes during the fourth quarter
of 1995. This charge, which is based on the results of a comprehensive
study of the economic lives of GTE's telephone plant and equipment, will
have no effect on GTE's customers, its liquidity or its dividend policy.
GTE's telephone companies have traditionally followed 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 required GTE to depreciate its
plant and equipment over regulator approved lives which may extend beyond
the assets' actual economic lives. FAS 71 also required the deferral of
certain costs based upon approvals received from regulators to recover such
costs in the future. As a result of these requirements, the recorded net
book value of GTE's assets, primarily telephone plant and equipment, were
higher than that which would otherwise have been recorded based on their
economic lives.
The charge will primarily represent an adjustment to the net book value of
the fixed assets of GTE's domestic telephone operations, through an increase
in accumulated depreciation and is not expected to have a significant effect
on depreciation expense or earnings over the next several years. The income
statement effect of this change in accounting will be reflected in the
Registrant's consolidated statements of income as an extraordinary charge,
net of tax, under the provisions of Statement of Financial Accounting
Standards No. 101, "Regulated Enterprises-Accounting for the Discontinuation
of Application of FASB Statement No. 71."
The accompanying pro forma statements of income for the nine months ended
September 30, 1995 and the year ended December 31, 1994, and the pro forma
balance sheet as of September 30, 1995 are based on historical condensed
financial statements, adjusted to give effect to the discontinuance of FAS
71 as though it had occurred at the beginning of each period presented. The
pro forma financial information should be read in conjunction with the
historical financial statements and related notes thereto. The pro forma
financial information is not necessarily indicative of the results that
would have been attained had the discontinuance of FAS 71 occurred in an
earlier period.
As described in the attached press release, GTE will also redeem its 12
series of preferred stock totaling approximately $71 million. Nine of the
series are convertible into GTE common stock and the remaining three issues
are non-convertible. In addition, GTE announced that it will refinance, on
a long-term basis, approximately $932 million of its telephone operating
subsidiaries' long-term debt issues. The positive impact of these
redemptions is not expected to have a significant effect on GTE's earnings
over the next several years.
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GTE is the largest U.S.-based local telephone company and a leading
cellular-service provider in the United States, with wireline and wireless
operations that form a market area covering more than one third of the
country's population. GTE is also a leader in government and defense
communications systems and equipment, aircraft-passenger telecommunications,
directories and telecommunications-based information services and systems.
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<TABLE>
GTE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<CAPTION>
As Reported Pro Forma
Nine Months Nine Months
Ended Ended
September 30, Pro Forma September 30,
1995 Adjustments 1995
(In Millions)
<S> <C> <C> <C>
REVENUES AND SALES $14,928 $ (335) (1) $14,593
OPERATING COSTS AND EXPENSES
Cost of services and sales 6,011 (532) (1) 5,479
Depreciation and amortization 2,730 2,730
Selling, general & administrative 2,455 197 (1) 2,652
Total costs and expenses 11,196 (335) 10,861
OPERATING INCOME 3,732 - 3,732
OTHER DEDUCTIONS 804 804
Income before income taxes 2,928 2,928
INCOME TAX PROVISION 1,109 1,109
Income before extraordinary charge 1,819 - 1,819
EXTRAORDINARY CHARGE - (4,682) (2) (4,682)
Net income (loss) $ 1,819 $(4,682) $(2,863)
EARNINGS (LOSS) PER COMMON SHARE
Before extraordinary charge $ 1.88 $ - $ 1.88
Extraordinary charge - (4.83) (2) (4.83)
Net income (loss) $ 1.88 $ (4.83) $ (2.95)
DIVIDENDS DECLARED PER COMMON SHARE $ 1.41 $ 1.41
AVERAGE COMMON SHARES 969 969
The accompanying notes are an integral part of these statements.
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GTE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
<CAPTION>
As Reported Pro Forma
Year Ended Year Ended
December 31, Pro Forma December 31,
1994 Adjustments 1994
(In Millions)
<S> <C> <C> <C>
REVENUES AND SALES $19,944 $ (416) (1) $19,528
OPERATING COSTS AND EXPENSES
Cost of services and sales 8,360 (683) (1) 7,677
Depreciation and amortization 3,432 3,432
Selling, general & administrative 3,400 267 (1) 3,667
Total costs and expenses 15,192 (416) 14,776
OPERATING INCOME 4,752 - 4,752
OTHER DEDUCTIONS 779 779
Income before income taxes 3,973 3,973
INCOME TAX PROVISION 1,532 1,532
Income before extraordinary charge 2,441 - 2,441
EXTRAORDINARY CHARGE - (4,682) (2) (4,682)
Net income (loss) $ 2,441 $(4,682) $(2,241)
EARNINGS (LOSS) PER COMMON SHARE
Before extraordinary charge $ 2.55 $ - $ 2.55
Extraordinary charge - (4.89) (2) (4.89)
Net income (loss) $ 2.55 $ (4.89) $ (2.34)
AVERAGE COMMON SHARES 958 958
The accompanying notes are an integral part of these statements.
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GTE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<CAPTION>
As Reported Pro Forma
September 30, Pro Forma September 30,
1995 Adjustments 1995
(In Millions)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 487 $ 487
Receivables, less allowance
of $249 million 3,780 3,780
Inventories 715 715
Other current assets 667 667
Total Current Assets 5,649 5,649
PROPERTY, PLANT AND EQUIPMENT, at cost 50,561 50,561
Accumulated depreciation (21,060) $(7,294) (3) (28,354)
Total Property, Plant and Equipment, net 29,501 (7,294) 22,207
INVESTMENTS AND OTHER ASSETS:
Franchises, goodwill and other intangibles, net
of accumulated amortization of $377 million 2,889 2,889
Investments in unconsolidated companies 1,588 1,588
Prepaid pension costs and deferred charges 3,374 (177) (4) 3,197
Long-term receivables and other assets 877 877
Total Investments and Other Assets 8,728 (177) 8,551
Total Assets $43,878 $(7,471) $36,407
The accompanying notes are an integral part of this statement.
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GTE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
<CAPTION>
As Reported Pro Forma
September 30, Pro Forma September 30,
1995 Adjustments 1995
(In Millions)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations, including
current maturities $ 2,516 $ 2,516
Accounts and payrolls payable 1,845 1,845
Accrued taxes 978 978
Dividends payable 477 477
Accrued restructuring costs 484 484
Other current liabilities 2,176 2,176
Total Current Liabilities 8,476 8,476
LONG-TERM DEBT 12,157 $ 120 (5) 12,277
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 3,709 (2,838) (6) 871
Employee benefit obligations 4,750 4,750
Restructuring costs and other 1,392 1,392
Total Reserves and Deferred Credits 9,851 (2,838) 7,013
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 2,188 2,188
PREFERRED STOCK, subject to mandatory redemption 101 (61) (5) 40
SHAREHOLDERS' EQUITY:
Preferred stock 10 (10) (5) -
Common stock - shares issued 971,969,624 49 49
Amounts paid in, in excess of par value 7,896 7,896
Reinvested earnings (deficit) 3,883 (4,682) (2) (799)
Guaranteed ESOP obligations (609) (609)
Common stock held in treasury -
3,349,200 shares at cost (124) (124)
Total Shareholders' Equity 11,105 (4,692) 6,413
Total Liabilities and Shareholders' Equity $43,878 $(7,471) $36,407
The accompanying notes are an integral part of this statement.
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</TABLE>
NOTES TO UNAUDITED PRO FORMA
FINANCIAL INFORMATION
(1) Represents the elimination of intercompany sales of materials and
equipment to regulated telephone operations. Elimination of such sales
is not required under the provisions of FAS 71. In addition, the
provision for uncollectible accounts has been reclassified from revenues
and sales to selling, general and administrative expenses, consistent
with non-regulated accounting practices.
(2) Represents the after-tax effect of the adjustments described in notes
3 - 5 below.
(3) Represents the write-down of property, plant and equipment, net due to
an impairment of such assets resulting from depreciation lives set by
regulators that are longer than the assets' economic lives.
(4) Represents the write-off of net regulatory assets and the write-off of
the original debt issuance costs associated with $932 million of long-
term debt that will be refinanced.
(5) Represents the refinancing on a long-term basis of 12 series of
preferred stock totaling approximately $71 million and costs associated
with refinancing $932 million of long-term debt.
(6) Represents the tax effect of the adjustments described in notes
3 - 5 above.
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GTE CORPORATION PRESS RELEASE
November 9, 1995
SUMMARY: GTE to redeem 12 series of preferred stock and $932 million of
telephone subsidiary debt.
STAMFORD, Connecticut -- GTE Corporation ("GTE") today said it will redeem
its 12 series of preferred stock totalling approximately $71 million. Nine
of the series are convertible into GTE common stock and the remaining three
issues are non-convertible.
Convertible Preferred Stock
The nine convertible series will be redeemed on December 26, 1995.
Shareholders will receive the redemption price and a partial dividend
accrued from October 1, 1995 to the redemption date for the series. Listed
below are the series of convertible preferred stock that will be redeemed
and the redemption prices and partial dividends that will be paid on each
series:
Series Redemption Partial Dividend
Price per Share per Share
5.28% Convertible Preferred $53.00 $0.62333
4.36% Convertible Preferred $53.25 $0.51472
4.75% Convertible Preferred $52.50 $0.56076
5.05% Convertible Preferred $52.50 $0.59618
5.35% Convertible Preferred $52.50 $0.63160
5.50% Convertible Preferred $52.50 $0.64931
5.00% Convertible Preferred $52.50 $0.59028
4.00% Convertible Preferred $52.50 $0.47222
$2.00 Convertible No Par Preferred $30.00 $0.47222
Shareholders of the convertible series may elect instead to convert
their preferred shares into shares of GTE Corp. common stock at any time
prior to the close of business on Friday, December 15, 1995. Shareholders
who convert their preferred shares prior to November 22, 1995 will receive
the January 1, 1996 dividend on GTE's common stock. Listed below are the
conversion ratios for each series of convertible preferred stock being
redeemed:
Series Conversion Ratios
5.28% Convertible Preferred 9.06
4.36% Convertible Preferred 6.94
4.75% Convertible Preferred 2.64
5.05% Convertible Preferred 2.64
5.35% Convertible Preferred 2.64
5.50% Convertible Preferred 2.64
5.00% Convertible Preferred 2.68
4.00% Convertible Preferred 3.60
$2.00 Convertible No Par Preferred 1.56
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Non-Convertible Preferred Stock
The three series of non-convertible preferred stock will be redeemed
on December 11, 1995. Shareholders will receive the redemption price and a
partial dividend accrued from October 1, 1995 to the redemption date.
Listed below are the redemption prices and partial dividends that will be
paid for each series of non-convertible preferred stock being redeemed:
Series Redemption Price Partial Dividends
per Share per Share
7.85% Preferred $51.06 $0.76319
7.75% Preferred $51.19 $0.75347
4.40% Preferred $50.50 $0.42778
In the near future, registered holders will be notified by mail as to
how to redeem or convert their certificates. The First National Bank of
Boston, P.O. Box 1889, Boston, Massachusetts 02105-1889, will serve as the
Redemption/Conversion Agent for the preferred-stock transactions.
GTE also announced that it will redeem and refinance approximately
$932 million of its telephone operating subsidiaries' long-term debt issues.
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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 hereunto duly authorized.
GTE CORPORATION
(Registrant)
By Lawrence R. Whitman
Lawrence R. Whitman
Vice President and Controller
Date: November 9, 1995
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