<PAGE> 1
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 - January 26, 1996
(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
<PAGE> 2
GTE CORPORATION
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
The following investor news releases issued by GTE Corporation ("GTE") are
filed herewith on Form 8-K and, as such, made available to any and all
interested parties.
1
<PAGE> 3
GTE ADOPTS ACCOUNTING METHODS
FOR COMPETITIVE MARKETPLACE
Reflecting significant changes in the regulatory environment and the
increasingly competitive marketplace in which it operates, GTE will discontinue
the use of Statement of Financial Accounting Standards No. 71--"Accounting for
the Effects of Certain Types of Regulation"--(FAS 71) effective
January 1, 1996.
The decision to discontinue FAS 71, which specifies the accounting practices to
be used by regulated companies, will result in a $7.5 billion non-cash, pre-tax
charge in the fourth quarter of 1995. This extraordinary charge will reduce 1995
net income by $4.7 billion, and reduce earnings per share by approximately
$4.83.
During 1995, ten states in which GTE operates--including California, Florida
and Texas--initiated or passed legislation allowing local competition.
Further, there has been a shift recently in the manner in which GTE is
regulated. At the end of 1994, 49% of the company's domestic telephone revenues
were subject to alternative forms of regulation. However, beginning in 1996,
approximately 70% of the company's domestic telephone service revenues will be
subject to alternative forms of regulation.
The influx of local competition and the shift in the regulatory framework have
led to the conclusion that this change, which also has been adopted by all of
the Regional Bell Operating Companies, is appropriate for GTE at this time.
FINANCIAL STATEMENT IMPACT
The one-time charge primarily represents an adjustment to the net book value of
telephone plant and equipment through an increase in accumulated depreciation.
This increase reflects the adoption of shorter asset lives than those set by
regulators and which management believes more closely indicate the economic
lives of the plant and equipment.
The adoption of shorter plant lives creates a reduction in net plant investment,
recognizing new costs that otherwise would have been reflected as future
depreciation expense. The discontinuance of FAS 71 is for external reporting
only and will have no regulatory or tax reporting effects.
GTE's international telephone operations in Canada and Venezuela are not
affected by this change. CODETEL, GTE's Dominican Republic telephone subsidiary,
will make a minor adjustment reducing the longer asset lives previously used for
financial reporting purposes.
In addition to the write-down of net plant, discontinuing FAS 71 requires the
write-off of any other expenses that have been deferred based on regulatory
rate-setting that assured future recovery (regulatory assets) and other charges.
GTE's regulatory assets and other charges included in the discontinuation of FAS
71 amount to $226 million ($143 million after tax), primarily representing cost
deferrals approved by regulators.
The FAS 71 charge will not affect GTE's cash flow, nor is it expected to affect
the company's debt ratings. Further, management does not expect a significant
change in future depreciation expense as a result of the discontinuance of FAS
71.
OTHER ADJUSTMENTS
Under FAS 71 requirements, sales of construction, maintenance equipment and
supplies by GTE subsidiaries to the company's regulated telephone subsidiaries
were not eliminated. With the discontinuation of FAS 71, GTE will reclassify its
revenues to eliminate such revenues and costs of sales, as is required under
conventional accounting standards. To facilitate comparisons, prior-year periods
will also be reclassified.
In addition, the allowance for uncollectible accounts will be reclassified as an
operating expense consistent with industry practice. The allowance was
previously classified as a reduction of revenues and sales.
To assist in the compilation of data, pages 3 and 4 of this newsletter reflect
the impact of the revenue elimination and uncollectible accounts
reclassification on GTE's consolidated and domestic telephone operating results
for the past seven quarters. Page 5 provides details regarding plant asset
balances, network asset lives and the financial statement impact of this
decision. Pages 6 through 9 present GTE's complete fourth quarter 1994 earnings
release in the new format.
2
<PAGE> 4
----------------------------------------------------------------
GTE Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME--RECLASSIFIED
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995
------------------------------------------------------
1st 2nd 3rd Year
Quarter Quarter Quarter to Date
============ --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 RESULTS REVENUES AND SALES:
TO DATE Local services .................... $1,409 $1,441 $1,459 $ 4,309
RECLASSIFIED Network access services............ 1,084 1,075 1,081 3,240
Toll services...................... 642 639 658 1,939
Cellular services.................. 492 536 574 1,602
Directory services................. 224 362 330 916
Other services and sales........... 814 879 894 2,587
-------------------------------------------------------
Total revenues and sales......... 4,665 4,932 4,996 14,593
-------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of services and sales......... 1,770 1,860 1,849 5,479
Depreciation and amortization...... 894 906 930 2,730
Selling, general & administrative.. 837 931 884 2,652
-------------------------------------------------------
Total costs and expenses......... 3,501 3,697 3,663 10,861
-------------------------------------------------------
OPERATING INCOME................... 1,164 1,235 1,333 3,732
-------------------------------------------------------
OTHER (INCOME) DEDUCTIONS:.........
Interest expense--net.............. 260 257 262 779
Other--net......................... 26 14 (15) 25
-------------------------------------------------------
Income before income taxes......... 878 964 1,086 2,928
Income tax provision............... 335 383 391 1,109
-------------------------------------------------------
NET INCOME......................... $ 543 $ 581 $ 695 $ 1,819
=======================================================
EARNINGS PER COMMON SHARE.......... $ .56 $ .60 $ .72 $ 1.88
=======================================================
AVERAGE COMMON SHARES.............. 967 970 970 969
=======================================================
U.S. TELEPHONE OPERATIONS:
Revenues........................... $3,190 $3,311 $3,322 $ 9,823
Operating income................... 904 937 929 2,770
--------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 5
------------------------------------------------------------
GTE Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME--RECLASSIFIED
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1994
---------------------------------------------------------
1st 2nd 3rd 4th Total
Quarter Quarter Quarter Quarter Year
================= -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 RESULTS REVENUES AND SALES:
RECLASSIFIED Local services . . . . . . . . . . . . . . . . . . . . $1,288 $1,305 $1,309 $1,332 $ 5,234
Network access services . . . . . . . . . . . . . . . 1,099 1,129 1,053 1,067 4,348
Toll services . . . . . . . . . . . . . . . . . . . . 801 808 849 827 3,285
Cellular services . . . . . . . . . . . . . . . . . . 362 407 438 459 1,666
Directory services . . . . . . . . . . . . . . . . . . 290 325 291 466 1,372
Other services and sales . . . . . . . . . . . . . . . 818 866 939 1,000 3,623
--------------------------------------------------------
Total revenues and sales . . . . . . . . . . . . . 4,658 4,840 4,879 5,151 19,528
--------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of services and sales . . . . . . . . . . . . . . 1,896 1,915 1,923 1,943 7,677
Depreciation and amortization . . . . . . . . . . . . 837 842 851 902 3,432
Selling, general & administrative . . . . . . . . . . 858 908 877 1,024 3,667
--------------------------------------------------------
Total costs and expenses . . . . . . . . . . . . . 3,591 3,665 3,651 3,869 14,776
--------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 1,067 1,175 1,228 1,282 4,752
--------------------------------------------------------
OTHER (INCOME) DEDUCTIONS:
Interest expense--net . . . . . . . . . . . . . . . . 260 270 264 265 1,059
Other--net . . . . . . . . . . . . . . . . . . . . . . (5) (81) (91) (103) (280)
--------------------------------------------------------
Income before income taxes . . . . . . . . . . . . . . 812 986 1,055 1,120 3,973
Income tax provision . . . . . . . . . . . . . . . . . 312 393 398 429 1,532
--------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 500 $ 593 $ 657 $ 691 $ 2,441
========================================================
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . $ .52 $ .62 $ .69 $ .72 $ 2.55
========================================================
AVERAGE COMMON SHARES . . . . . . . . . . . . . . . . 954 956 958 963 958
========================================================
CONSOLIDATED PRO FORMA(a):
Revenues . . . . . . . . . . . . . . . . . . . . . . $4,533 $4,713 $4,813 $5,132 $19,191
Operating income . . . . . . . . . . . . . . . . . . 1,044 1,155 1,223 1,278 4,700
U.S. TELEPHONE OPERATIONS:
Revenues . . . . . . . . . . . . . . . . . . . . . . $3,222 $3,311 $3,273 $3,406 $13,212
Operating income . . . . . . . . . . . . . . . . . . 850 882 875 883 3,490
PRO FORMA(b):
Revenues . . . . . . . . . . . . . . . . . . . . . . 3,141 3,232 3,252 3,399 13,024
Operating income . . . . . . . . . . . . . . . . . . 828 861 870 879 3,438
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes the results of operations of GTE Spacenet and
certain non-strategic domestic local-exchange telephone
properties which were sold during 1994.
(b) Excludes the results of operations of certain
non-strategic domestic local-exchange telephone
properties which were sold during 1994.
4
<PAGE> 6
- --------------------------------------------------------------------------------
GTE Corporation and Subsidiaries
GTE TELEPHONE OPERATIONS
PLANT ASSET BALANCES
September 30, 1995
<TABLE>
<CAPTION>
As Reported Pro Forma
-------------------------------------------- -------------------------
Network Plant Accumulated Net Reserve Net
Category of Assets In Service Depreciation Plant Adjustments Plant
- ----------------------------------------------------------------------------------------------------------
(Billions of Dollars)
<S> <C> <C> <C> <C> <C>
DOMESTIC:
Copper....................... $14.2 $ (6.5) $ 7.7 $(4.6) $ 3.1
Switching.................... 8.6 (3.4) 5.2 (1.9) 3.3
Circuit...................... 5.1 (2.5) 2.6 (0.6) 2.0
Fiber........................ 0.9 (0.2) 0.7 (0.1) 0.6
Other........................ 10.8 (4.1) 6.7 -- 6.7
---------------------------------------------------------------------------
Total domestic............. 39.6 (16.7) 22.9 (7.2) 15.7
INTERNATIONAL................ 6.1 (2.5) 3.6 (0.1) 3.5
---------------------------------------------------------------------------
Total...................... $45.7 $(19.2) $26.5 $(7.3) $19.2
===========================================================================
Depreciation reserve ratio... 42% 58%
== ==
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GTE TELEPHONE OPERATIONS
NETWORK ASSET LIVES
(In Years)
Average Lives
--------------------------
Regulator-
Prescribed Economic
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Copper...................................................................... 20-30 15
Switching................................................................... 17-19 10
Circuit..................................................................... 11-13 8
Fiber....................................................................... 25-30 20
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CONSOLIDATED PRO FORMA FINANCIAL STATEMENT IMPACTS
INCOME STATEMENT
(Billions of Dollars, Except Per Share Amounts)
Estimated
Pre-tax After-tax Per Share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Extraordinary charge:
Adjustment to net carrying value of telephone plant............... $7.3 $4.5 $4.68
Elimination of regulatory assets & liabilities.................... 0.2 0.2 0.15
---------------------------------------
Total............................................................. $7.5 $4.7 $4.83
=======================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET
September 30, Impact of
1995 Change
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt ratio................................................................ 63% 11%
Book value per share...................................................... $6.62 $(4.83)
</TABLE>
5
<PAGE> 7
-----------------------------------------------------------
GTE Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME(a) -- RECLASSIFIED
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1994
------------------------
Fourth Year Ended
Quarter December 31,
================ --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR END 1994 REVENUES AND SALES(b):
EARNINGS RELEASE Local services ................................................................... $1,332 $ 5,234
RECLASSIFIED Network access services........................................................... 1,067 4,348
Toll services..................................................................... 827 3,285
Cellular services................................................................. 459 1,666
Directory services................................................................ 466 1,372
Other services and sales.......................................................... 1,000 3,623
-----------------------
Total revenues and sales........................................................ 5,151 19,528
-----------------------
OPERATING COSTS AND EXPENSES:
Cost of services and sales........................................................ 1,943 7,677
Depreciation and amortization..................................................... 902 3,432
Selling, general & administrative................................................. 1,024 3,667
-----------------------
Total costs and expenses........................................................ 3,869 14,776
-----------------------
OPERATING INCOME(b)............................................................... 1,282 4,752
-----------------------
OTHER (INCOME) DEDUCTIONS:
Interest expense -- net........................................................... 265 1,059
Other -- net(c)................................................................... (103) (280)
-----------------------
Income before income taxes........................................................ 1,120 3,973
Income tax provision.............................................................. 429 1,532
-----------------------
NET INCOME........................................................................ $ 691 $2,441
=======================
EARNINGS PER COMMON SHARE......................................................... $ 0.72 $ 2.55
=======================
AVERAGE COMMON SHARES............................................................. 963 958
=======================
--------------------------------------------------------------------------------------------------------------
NOTES:
(a) In response to recently enacted and pending legislation and the increasingly competitive environment in
which GTE expects to operate, effective January 1, 1996, GTE is discontinuing the use of accounting practices
appropriate to regulated enterprises ("FAS 71"). For comparability, the accompanying Consolidated Statements of
Income have been reclassified to reflect the elimination of intercompany sales and costs of materials and
equipment to regulated telephone operations. The elimination of such sales and costs was not required under the
provisions of FAS 71. In addition, uncollectible revenue accounts have been reclassified, from revenues and
sales to selling, general and administrative expenses in order to be consistent with non-regulated accounting
practices.
(b) The Consolidated Statements of Income for 1994 include the results of operations, through the date of sale,
of GTE Spacenet and certain non-strategic domestic local-exchange telephone properties which were sold during
1994. For comparability, the table below includes pro forma adjustments to remove the 1994 operating results
of GTE Spacenet and the telephone properties sold.
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------
Fourth Year Ended
Quarter December 31,
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and sales................................................................. $5,132 $19,191
Operating income................................................................... $1,278 $ 4,700
(c) In connection with the program to sell or trade a small percentage of non-strategic domestic local-exchange
telephone properties, 1994 results include pre-tax gains of $71 million and $264 million in the fourth quarter
and full year, respectively. These gains increased net income by $43 million, or $.05 per share, in the fourth
quarter and $162 million, or $.17 per share, for the year ended December 31, 1994.
</TABLE>
6
<PAGE> 8
-----------------------------------------------------
GTE Corporation and Subsidiaries
SELECTED FINANCIAL AND OPERATING DATA -- RECLASSIFIED
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1994
----------------------
Fourth Year Ended
Quarter December 31,
------- ------------
================ ------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR END 1994 CONSOLIDATED OPERATIONS:
EARNINGS RELEASE Operating income ....................................... $1,282 $ 4,752
RECLASSIFIED Depreciation and amortization .......................... 902 3,432
------ --------
Operating cash flow ................................ $2,184 $ 8,184
====== ========
Operating cash flow margin ............................. 42.4% 41.9%
Capital expenditures ................................... $1,451 $ 4,192
Return on equity(a) .................................... 24.8%
Return on investment(a) ................................ 13.1
Debt ratio ............................................. 53.8
PER SHARE DATA:
Book value per share.................................... $ 10.85
Dividends per share..................................... 0.47 1.88
Common shares outstanding at end of period
(thousands)............................................. 965,085
NETWORK STATISTICS:
Access lines (thousands):
United States.......................................... 17,442
International.......................................... 5,417
--------
Total access lines............................... 22,859
========
Cellular subscribers (thousands):
United States.......................................... 2,339
International.......................................... 321
--------
Total cellular subscribers....................... 2,660
========
Adjusted POPs (millions)(b):
United States.......................................... 53.0
International.......................................... 15.0
--------
Total adjusted POPs.............................. 68.0
========
-----------------------------------------------------------------------------------
</TABLE>
(a) The 1994 annualized returns include the
gains on the sales of certain non-
strategic domestic local-exchange
telephone properties. Excluding these
gains, return on equity would be 23.3%
while return on investment would be 12.5%.
(b) Represents population served times GTE's
ownership interest.
7
<PAGE> 9
------------------------------------------------------
GTE Corporation and Subsidiaries
SELECTED FINANCIAL AND OPERATING DATA(a)--RECLASSIFIED
(Millions of Dollars, Except Revenues Per Subscriber)
<TABLE>
<CAPTION>
1994
----------------------
Fourth Year Ended
Quarter December 31,
================ ----------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR END 1994 DOMESTIC NETWORK SERVICES(b):
EARNINGS RELEASE Revenues:
RECLASSIFIED Local network services.......................... $ 1,143 $ 4,504
Network access services
Interstate................................... 658 2,722
Intrastate................................... 404 1,613
Toll services................................... 559 2,191
Cellular services............................... 424 1,539
-------------------
Total network revenues..................... $ 3,188 $12,569
===================
U.S. TELEPHONE OPERATIONS:
Revenues and sales(c).............................. $ 3,406 $13,212
Operating income................................... $ 883 $ 3,490
Depreciation and amortization...................... 700 2,640
-------------------
Operating cash flow......................... $1,583 $ 6,130
===================
Operating cash flow margin......................... 46.5% 46.4%
Capital expenditures............................... $ 979 $ 2,821
Access minutes of use(millions)(d):
Interstate...................................... 9,943 39,466
Intrastate...................................... 5,020 19,723
-------------------
Total access minutes of use................ 14,963 59,189
===================
Toll minutes(millions)............................. 2,453 10,191
===================
Access lines(thousands):
Switched........................................ 16,037
Special......................................... 1,405
-------
Total access lines......................... 17,442
=======
Access lines per employee.......................... 252
U.S. CELLULAR:
Service revenues................................... $ 424 $ 1,539
Operating income................................... $ 61 $ 278
Depreciation and amortization...................... 67 265
------------------
Operating cash flow........................ $ 128 $ 543
==================
Operating cash flow margin(e)...................... 30.2% 35.3%
Capital expenditures............................... $ 261 $ 610
Revenues per subscriber per month.................. 66 68
End of period penetration(f)....................... 4.8%
---------------------------------------------------------------------------
</TABLE>
(a) The data presented includes the results of
operations, through the date of sale, of certain
non-strategic domestic local-exchange telephone
properties which were sold during 1994. See
accompanying table of pro forma results which
exclude the results of these properties.
(b) Represents service revenues from GTE's U.S.
telephone and cellular network operations.
(c) Represents domestic telephone revenues from local,
network access, toll, and other services and
equipment sales.
(d) Prior period amounts have been restated and include
intraLATA minutes of use.
(e) Represents operating cash flow divided by cellular
service revenues.
(f) Represents subscribers divided by total population
available in markets operated by GTE's domestic
cellular operations.
8
<PAGE> 10
<TABLE>
<CAPTION>
-----------------------------------------------------------------
GTE Corporation and Subsidiaries
SELECTED FINANCIAL AND OPERATING DATA--PRO FORMA(a)--RECLASSIFIED
(Millions of Dollars)
1994
-------------------------
Fourth Year Ended
Quarter December 31,
================ -----------------------------------------------------------------
<S> <C> <C> <C>
YEAR END 1994 DOMESTIC NETWORK SERVICES(b):
EARNINGS RELEASE Revenues:
RECLASSIFIED Local network services.............. $1,141 $ 4,443
Network access services
Interstate........................ 655 2,663
Intrastate........................ 402 1,573
Toll services....................... 559 2,177
Cellular services................... 424 1,539
-------------------------
Total network revenues........ $3,181 $12,395
=========================
U.S. TELEPHONE OPERATIONS:
Revenues and sales(c)................ $3,399 $13,024
Operating income..................... $ 879 $ 3,438
Depreciation and amortization........ 698 2,605
-------------------------
Operating cash flow........... $1,577 $ 6,043
=========================
Operating cash flow margin........... 46.4% 46.4%
Capital expenditures................. $ 977 $ 2,791
Access minutes of use (millions)(d):
Interstate........................ 9,924 38,956
Intrastate........................ 5,014 19,490
-------------------------
Total access minutes of use... 14,938 58,446
=========================
Toll minutes (millions).............. 2,449 9,993
=========================
Access lines (thousands):
Switched.......................... 16,037
Special........................... 1,405
-------
Total access lines............ 17,442
=======
Access lines per employee............ 252
-----------------------------------------------------------------
</TABLE>
(a) The pro forma data presented includes adjustments
to remove the results of operations, through the
date of sale, of certain non-strategic domestic
local-exchange telephone properties which were
sold during 1994.
(b) Represents service revenues from GTE's U.S.
telephone and cellular network operations.
(c) Represents domestic telephone revenues from local,
network access, toll, and other services and
equipment sales.
(d) Prior period amounts have been restated and
include intraLATA minutes of use.
9
<PAGE> 11
GTE TO ENHANCE FINANCIAL REPORTING
STARTING IN THE THIRD QUARTER
===============================================================================
To reflect changes in the telecommunications industry, GTE is enhancing the
presentation of its financial performance. This enhancement involves expanding
the consolidated income statement disclosures and replacing the traditional
reporting of segmented results between "Telephone Operations" and
"Telecommunications Products and Services."
"The changes in our financial reporting are being propelled by the rapid
convergence of technology in our core businesses," explained J. Michael Kelly,
senior vice president--finance. "We are bundling services for our customers,
which is blurring the distinction between traditional telephone and
telecommunications products and services; our financial reporting should mirror
these changes. In making the reporting changes, we also reviewed industry
practices, the FASB's current views on disaggregated disclosures and SEC
guidelines. The changes also make it easier to understand and compare our
results with those of other telecommunications companies. Given the rapid
change in telecommunications, future enhancements are likely."
Specifically, the company will begin providing additional details of its
revenue sources, including cellular, directory and other services and sales.
Cellular service revenues include revenues from GTE's domestic and
international mobile-cellular service providers. Directory services revenues
include revenues and sales from the publication and distribution of telephone
directory-related products and services, including Yellow Pages advertising.
Revenues from other services and sales include revenues and sales from
government and defense communication systems and equipment, aircraft passenger
telecommunications services, sales of wireline and wireless equipment and other.
GTE is also expanding its disclosures of operating costs and expenses to allow
for easier comparisons. Cost of services and sales will be reported separately
from selling, general and administrative expenses to provide better information
on the company's margins and overhead. Cost of services and sales include costs
and expenses which vary directly with the volume of revenues and relate
directly to the provision of services or production of products. Selling,
general and administrative expenses are costs and expenses incurred to obtain a
customer or new revenue source as well as general support costs.
Finally, the company is narrowing the types of items which are included in
"other" income and deductions. This caption will now include equity in earnings
of unconsolidated subsidiaries, minority interests, preferred dividends,
foreign exchange gains and losses, and gains and losses on sales of properties.
In summary, the revised Consolidated Statements of Income significantly expand
the amount of detail provided to users regarding types and sources of revenues
and the nature of operating costs and expenses. At the same time, details of
traditional key performance indicators, including line growth, customer gains,
etc., will continue to be provided.
To assist in the compilation of data, pages 11 and 12 of this newsletter show
the reclassified Consolidated Statements of Income for the past six quarters.
Pages 13 through 16 present GTE's complete second quarter 1995 earnings release
recast into the new format, while page 17 presents the second-quarter Summary of
Consolidated Results as previously reported.
10
<PAGE> 12
<TABLE>
<CAPTION>
-----------------------------------------------
GTE Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars, Except Per Share Amounts)
-----------------------------------------------
1995
-----------------
1st 2nd
Quarter Quarter
============================================================ --------------------------------------------------------
<S> <C> <C> <C>
1995 RESULTS TO DATE RECLASSIFIED REVENUES AND SALES:
Local services...................... $1,409 $1,441
Network access services............. 1,084 1,075
Toll services....................... 642 639
Service revenues from mobile-cellular service providers..... Cellular services................... 492 536
Revenues and sales from the publication and distribution
of telephone directory-related services, including Yellow
Pages advertising........................................... Directory services.................. 224 361
Revenues and sales of government and defense communication
systems and equipment, aircraft passenger telecommunica-
tions services, sales of wireline and wireless equipment
and other................................................... Other services and sales............ 911 993
----------------
Total revenues and sales.......... 4,762 5,045
----------------
OPERATING COSTS AND EXPENSES:
Costs which vary directly with the volume of revenues and
relate directly to the provision of services or production
of products................................................. Cost of services and sales.......... 1,929 2,047
Depreciation and amortization....... 894 906
Costs incurred to obtain a customer or new revenue source
as well as general support costs............................ Selling, general & administrative... 775 857
----------------
Total costs and expenses.......... 3,598 3,810
----------------
OPERATING INCOME.................... 1,164 1,235
----------------
OTHER (INCOME) DEDUCTIONS:
Interest expense--net............... 260 257
Includes the following:
- - equity in earnings of unconsolidated subsidiaries
- - minority interest
- - preferred dividends
- - foreign exchange gains and losses
- - gains and losses on sales of properties................... Other--net.......................... 26 14
----------------
Income before income taxes.......... 878 964
Income tax provision................ 335 383
----------------
NET INCOME.......................... $ 543 $ 581
================
EARNINGS PER COMMON SHARE........... $ .56 $ .60
================
AVERAGE COMMON SHARES............... 967 970
================
--------------------------------------------------------
</TABLE>
11
<PAGE> 13
----------------------------------------------------------------
GTE Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1994
------------------------------------------------
1st 2nd 3rd 4th Total
Quarter Quarter Quarter Quarter Year
============ ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 RESULTS REVENUES AND SALES:
RECLASSIFIED Local services....................... $1,288 $1,305 $1,309 $1,332 $ 5,234
Network access services.............. 1,099 1,129 1,053 1,067 4,348
Toll services........................ 801 808 849 827 3,285
Cellular services.................... 362 407 438 459 1,666
Directory services................... 291 328 293 468 1,380
Other services and sales............. 905 978 1,053 1,095 4,031
-----------------------------------------------
Total revenues and sales........... 4,746 4,955 4,995 5,248 19,944
-----------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of services and sales........... 2,043 2,099 2,102 2,116 8,360
Depreciation and amortization........ 837 842 851 902 3,432
Selling, general & administrative.... 799 839 814 948 3,400
-----------------------------------------------
Total costs and expenses........... 3,679 3,780 3,767 3,966 15,192
-----------------------------------------------
OPERATING INCOME..................... 1,067 1,175 1,228 1,282 4,752
-----------------------------------------------
OTHER (INCOME) DEDUCTIONS:
Interest expense-net................. 260 270 264 265 1,059
Other-net............................ (5) (81) (91) (103) (280)
-----------------------------------------------
Income before income taxes........... 812 986 1,055 1,120 3,973
Income tax provision................. 312 393 398 429 1,532
-----------------------------------------------
NET INCOME........................... $ 500 $ 593 $ 657 $ 691 $ 2,441
===============================================
EARNINGS PER COMMON SHARE............ $ .52 $ .62 $ .69 $ .72 $ 2.55
===============================================
AVERAGE COMMON SHARES................ 954 956 958 963 958
===============================================
PRO FORMA(a):
Revenues........................... $4,621 $4,828 $4,929 $5,229 $19,607
Operating Income................... 1,044 1,155 1,223 1,278 4,700
----------------------------------------------------------------------------------------
</TABLE>
(a) Excludes the results of operations of GTE Spacenet and
certain non-strategic domestic local-exchange telephone
properties which were sold during 1994.
12
<PAGE> 14
--------------------------------------------------------------
GTE Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME(a)-RECLASSIFIED
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
============== ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECOND-QUARTER REVENUES AND SALES(b):
1995 EARNINGS Local services.......................... $1,441 $1,305 10.4 $2,850 $2,593 9.9
RELEASE Network access services................. 1,075 1,129 (4.8) 2,159 2,228 (3.1)
RECLASSIFIED Toll services........................... 639 808 (20.9) 1,281 1,609 (20.4)
Cellular services....................... 536 407 31.7 1,028 769 33.7
Directory services...................... 361 328 10.1 585 619 (5.5)
Other services and sales................ 993 978 1.5 1,904 1,883 1.1
------------------------------------------------------
Total revenues and sales.............. 5,045 4,955 1.8 9,807 9,701 1.1
------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of services and sales.............. 2,047 2,099 (2.5) 3,976 4,142 (4.0)
Depreciation and amortization........... 906 842 7.6 1,800 1,679 7.2
Selling, general & administrative....... 857 839 2.1 1,632 1,638 (0.4)
------------------------------------------------------
Total costs and expenses.............. 3,810 3,780 0.8 7,408 7,459 (0.7)
------------------------------------------------------
OPERATING INCOME(b)..................... 1,235 1,175 5.1 2,399 2,242 7.0
------------------------------------------------------
OTHER (INCOME) DEDUCTIONS:
Interest expense-net.................... 257 270 (4.8) 517 530 (2.5)
Other-net(c)............................ 14 (81) -- 40 (86) --
------------------------------------------------------
Income before income taxes.............. 964 986 (2.2) 1,842 1,798 2.4
Income tax provision.................... 383 393 (2.5) 718 705 1.8
------------------------------------------------------
NET INCOME.............................. $ 581 $ 593 (2.0) $1,124 $1,093 2.8
======================================================
EARNINGS PER COMMON SHARE............... $ .60 $ .62 (3.2) $ 1.16 $ 1.14 1.8
======================================================
AVERAGE COMMON SHARES................... 970 956 1.5 968 955 1.4
======================================================
----------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(a) With the ongoing convergence of wireline and wireless
operations, the Consolidated Statements of Income have been
reformatted. Reclassifications of prior period data have
been made where appropriate to conform to the current
presentation.
(b) The Consolidated Statements of Income for 1994 include the
results of operations, through the date of sale, of GTE
Spacenet and certain non-strategic domestic local-exchange
telephone properties which were sold during 1994. For
comparability, the table below includes pro forma
adjustments to remove the 1994 operating results of GTE
Spacenet and the telephone properties sold.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales...................... $5,045 $4,828 4.5 $9,807 $9,449 3.8
Operating income........................ $1,235 $1,155 6.9 $2,399 $2,199 9.1
-----------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(c) In connection with the program to sell or trade a small
percentage of non-strategic domestic local-exchange
telephone properties, in the second quarter of 1994, GTE
recorded pre-tax gains on sales of non-strategic telephone
properties of $116 million. These gains increased net income
by $71 million or $.07 per share.
13
<PAGE> 15
---------------------------------------------------------------
GTE Corporation and Subsidiaries
SELECTED FINANCIAL AND OPERATING DATA-RECLASSIFIED
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
============== -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECOND-QUARTER CONSOLIDATED:
1995 EARNINGS OPERATIONS:
RELEASE Operating income...................... $1,235 $1,175 5.1 $ 2,399 $2,242 7.0
RECLASSIFIED Depreciation and amortization........... 906 842 7.6 1,800 1,679 7.2
-------------------------------------------------------
Operating cash flow(a).............. $2,141 $2,017 6.1 $ 4,199 $3,921 7.1
=======================================================
Operating cash flow margin............ 42.4% 40.7% -- 42.8% 40.4% --
Capital expenditures.................. $1,039 $ 905 14.8 $ 1,810 $1,735 4.3
Return on equity(b)................... 21.2% 22.9% --
Return on investment(b)............... 12.0 12.1 --
Debt ratio............................ 52.7 56.7 --
PER SHARE DATA:
Book value per share.................. $ 11.24 $10.24 9.8
Dividends per share................... .47 .47 -- .94 .94 --
Common shares outstanding at end of
period (thousands)................... 970,051 956,765 1.4
NETWORK STATISTICS:
Access lines (thousands):
United States......................... 17,934 17,148 4.6
International......................... 5,498 5,153 4.9(c)
--------------------------
Total access lines.................. 23,432 22,301 4.6(c)
==========================
Cellular subscribers (thousands):
United States......................... 2,713 1,878 44.5
International......................... 378 253 49.4
--------------------------
Total cellular subscribers.......... 3,091 2,131 45.0
==========================
Adjusted POPs (millions)(d):
United States......................... 72.3 52.9 36.7
International......................... 15.6 14.8 5.4
--------------------------
Total adjusted POPs................. 87.9 67.7 29.8
==========================
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excluding the operating results of GTE Spacenet and the
non-strategic domestic local-exchange telephone properties
sold in 1994, operating cash flow increased 8.3% and 9.3%
over the 1994 second-quarter and year-to-date periods,
respectively.
(b) The 1994 annualized returns include the gains on the
sales of certain non-strategic domestic local-exchange
telephone properties. Excluding these gains, the 1994
returns on equity and investment would have been 21.4 % and
11.5 %, respectively.
(c) Excluding CANTV, the Venezuelan telephone company, and
the sales in 1994 of certain non-strategic domestic local-
exchange telephone properties total access line growth rate
was 5.4%. The international growth rate excludes 2.4
million and 2.2 million access lines served by CANTV in
1995 and 1994, respectively.
(d) Represents population served times GTE's ownership
interest. The 1995 amount includes 19.3 million POPs
associated with the 1.8 GHz broadband spectrum licenses
recently acquired in four states. Operations in these
markets have not yet commenced.
14
<PAGE> 16
-----------------------------------------------------------------
GTE Corporation and Subsidiaries
SELECTED FINANCIAL AND OPERATING DATA(a)-RECLASSIFIED
(Millions of Dollars, Except Revenues Per Subscriber)
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
---------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
============ ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECOND-QUARTER DOMESTIC NETWORK SERVICES(b):
1995 EARNINGS Revenues:
RELEASE Local network services................ $ 1,238 $ 1,125 10.0 $ 2,454 $ 2,236 9.7
RECLASSIFIED Network access services
Interstate.......................... 682 714 (4.5) 1,369 1,399 (2.1)
Intrastate.......................... 388 413 (6.1) 783 825 (5.1)
Toll services......................... 401 539 (25.6) 806 1,064 (24.2)
Cellular services..................... 496 376 31.9 952 711 33.9
----------------------------------------------------------
Total network revenues............ $ 3,205 $ 3,167 1.2 $ 6,364 $ 6,235 2.1
==========================================================
U.S. TELEPHONE OPERATIONS:
Revenues and sales(c)................... $ 3,417 $ 3,414 0.1 $ 6,696 $ 6,721 (0.4)
Operating income........................ $ 937 $ 882 6.2 $ 1,841 $ 1,732 6.3
Depreciation and amortization........... 687 646 6.3 1,369 1,288 6.3
----------------------------------------------------------
Operating cash flow............... $ 1,624 $ 1,528 6.3 $ 3,210 $ 3,020 6.3
==========================================================
Operating cash flow margin.............. 47.5% 44.8% -- 47.9% 44.9% --
Capital Expenditures.................... $ 632 $ 629 0.5 $ 1,131 $ 1,150 (1.7)
Access minutes of use (millions)(d):
Interstate.......................... 10,372 9,827 5.5 20,786 19,797 5.0
Intrastate.......................... 5,501 4,878 12.8 10,832 9,670 12.0
----------------------------------------------------------
Total access minutes of use....... 15,873 14,705 7.9 31,618 29,467 7.3
==========================================================
Toll minutes (millions)................. 2,410 2,589 (6.9) 4,834 5,209 (7.2)
==========================================================
Access lines (thousands):
Switched.............................. 16,335 15,881 2.9
Special............................... 1,599 1,267 26.2
---------------------------
Total access lines................ 17,934 17,148 4.6
===========================
Access lines per employee............... 264 242 9.1
U.S. CELLULAR:
Service revenues........................ $ 496 $ 376 31.9 $ 952 $ 711 33.9
Operating income........................ $ 93 $ 74 25.7 $ 184 $ 118 55.9
Depreciation and amortization........... 83 65 27.7 162 128 26.6
--------------------------------------------------------
Operating cash flow............... $ 176 $ 139 26.6 $ 346 $ 246 40.7
========================================================
Operating cash flow margin(e)........... 35.5% 37.0% -- 36.3% 34.6% --
Capital expenditures.................... $ 205 $ 142 44.4 $ 293 $ 232 26.3
Revenues per subscriber per month....... 63 70 (10.0) 63 69 (8.7)
End of period penetration(f)............ 5.6% 3.9% --
--------------------------------------------------------------------------------------------------------
</TABLE>
(a) The data presented includes the results of operations,
through the date of sale, of certain non-strategic domestic
local-exchange telephone properties which were sold during
1994. See accompanying table of pro forma results which
exclude the results of these properties.
(b) Represents service revenues from GTE's U.S. telephone
and cellular network operations.
(c) Represents domestic telephone revenues from local
network access, toll and other services and equipment sales.
(d) Prior period amounts have been restated and include
intraLATA minutes of use.
(e) Represents operating cash flow divided by cellular
service revenues.
(f) Represents subscribers divided by total population
available in markets operated by GTE's cellular operations.
15
<PAGE> 17
--------------------------------------------------------------
GTE Corporation and Subsidiaries
SELECTED FINANCIAL AND OPERATING DATA-PRO FORMA(a)-RECLASSIFIED
(Millions of Dollars)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
============== ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECOND-QUARTER DOMESTIC NETWORK SERVICES(b):
1995 EARNINGS Revenues:
RELEASE Local network services................ $ 1,238 $ 1,099 12.6 $ 2,454 $ 2,182 12.5
RECLASSIFIED Network access services
Interstate.......................... 682 689 (1.0) 1,369 1,351 1.3
Intrastate.......................... 388 397 (2.3) 783 791 (1.0)
Toll services......................... 401 533 (24.8) 806 1,052 (23.4)
Cellular services..................... 496 376 31.9 952 711 33.9
----------------------------------------------------------
Total network revenues............ $ 3,205 $ 3,094 3.6 $ 6,364 $ 6,087 4.6
==========================================================
U.S. TELEPHONE OPERATIONS:
Revenues and sales(c)................... $ 3,417 $ 3,335 2.5 $ 6,696 $ 6,561 2.1
Operating income........................ $ 937 $ 861 8.8 $ 1,841 $ 1,689 9.0
Depreciation & amortization............. 687 631 8.9 1,369 1,259 8.7
----------------------------------------------------------
Operating cash flow............... $ 1,624 $ 1,492 8.8 $ 3,210 $ 2,948 8.9
==========================================================
Operating cash flow margin.............. 47.5% 44.7% -- 47.9% 44.9% --
Capital expenditures.................... $ 632 $ 614 2.9 $ 1,131 $ 1,124 0.6
Access minutes of use (millions)(d):
Interstate.......................... 10,372 9,642 7.6 20,786 19,352 7.4
Intrastate.......................... 5,501 4,749 15.8 10,832 9,464 14.5
==========================================================
Total access minutes of use....... 15,873 14,391 10.3 31,618 28,816 9.7
==========================================================
Toll minutes (millions)................. 2,410 2,498 (3.5) 4,834 5,029 (3.9)
==========================================================
Access lines (thousands):
Switched............................ 16,335 15,736 3.8
Special............................. 1,599 1,258 27.1
---------------------------
Total access lines................ 17,934 16,994 5.5
===========================
Access lines per employee............... 264 241 9.5
------------------------------------------------------------------------------------------------------
NOTES:
(a) The pro forma data presented includes adjustments to
remove the results of operations, through the date of
sale, of certain non-strategic domestic local-exchange
telephone properties which were sold during 1994.
(b) Represents service revenues from GTE's U.S. telephone and
cellular network operations.
(c) Represents domestic telephone revenues from local, network
access, toll and other services and equipment sales.
(d) Prior period amounts have been restated and include
intraLATA minutes of use.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
GTE Corporation and Subsidiaries
CONDENSED SUMMARY OF CONSOLIDATED RESULTS(a)
(Millions of Dollars, Except Per Share Amounts)
Second Quarter First Six Months
------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
============== --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECOND-QUARTER REVENUES AND SALES:
1995 EARNINGS Telephone operations............................ $4,006 $3,984 0.6 $7,842 $7,849 (0.1)
RELEASE Telecommunications products and services........ 1,039 971 7.0 1,965 1,852 6.1
AS REPORTED ------------------------------------------------------
Total revenues and sales...................... $5,045 $4,955 1.8 $9,807 $9,701 1.1
======================================================
OPERATING INCOME:
Telephone operations............................ $1,117 $1,068 4.6 $2,174 $2,093 3.9
Telecommunications products and services........ 154 142 8.5 281 235 19.6
------------------------------------------------------
Total operating income........................ 1,271 1,210 5.0 2,455 2,328 5.5
------------------------------------------------------
OTHER (INCOME) DEDUCTIONS:
Interest expense--net........................... 257 270 (4.8) 517 530 (2.5)
Other--net(b)................................... 49 (48) -- 93 (6) --
------------------------------------------------------
Income before income taxes...................... 965 988 (2.3) 1,845 1,804 2.3
Income tax provision............................ 383 393 (2.5) 718 705 1.8
------------------------------------------------------
NET INCOME...................................... 582 595 (2.2) 1,127 1,099 2.5
Preferred stock dividends....................... 1 2 (50.0) 3 6 (50.0)
------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK........... $ 581 $ 593 (2.0) $1,124 $1,093 2.8
======================================================
EARNINGS PER COMMON SHARE....................... $ .60 $ .62 (3.2) $ 1.16 $ 1.14 1.8
======================================================
AVERAGE COMMON SHARES........................... 970 956 1.5 968 955 1.4
======================================================
--------------------------------------------------------------------------------------------------------
NOTES:
(a) The Condensed Summary of Consolidated Results for 1994 includes the results of operations, through
the date of sale, of GTE Spacenet and certain non-strategic domestic local-exchange telephone properties
which were sold during 1994. For comparability, the table below includes pro forma adjustments to
remove the 1994 operating results of GTE Spacenet and the telephone properties sold.
</TABLE>
<TABLE>
<CAPTION>
Second Quarter First Six Months
------------------------------------------------------
Percent Percent
1995 1994 Change 1995 1994 Change
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND SALES:
Telephone operations............................ $4,006 $3,905 2.6 $7,842 $7,689 2.0
Telecommunications products and services........ 1,039 923 12.6 1,965 1,760 11.6
------------------------------------------------------
Total revenues and sales..................... $5,045 $4,828 4.5 $9,807 $9,449 3.8
======================================================
OPERATING INCOME:
Telephone operations............................ $1,117 $1,047 6.7 $2,174 $2,050 6.0
Telecommunications products and services........ 154 143 7.7 281 235 19.6
------------------------------------------------------
Total operating income....................... $1,271 $1,190 6.8 $2,455 $2,285 7.4
======================================================
(b) In connection with the program to sell or trade a small percentage of non-strategic domestic local-
exchange telephone properties, in the second quarter of 1994, GTE recorded pre-tax gains on sales of
non-strategic telephone properties of $116 million. These gains increased net income by $71 million, or
$.07 per share.
</TABLE>
17
<PAGE> 19
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 /s/ Lawrence R. Whitman
-------------------------------
Lawrence R. Whitman
Vice President and Controller
Date: January 26, 1996
18
