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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the fiscal year ended December 31, 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 Identification No.)
incorporation or organization)
One Stamford Forum
Stamford, Connecticut 06904 Area Code 203 965-2000
(Address of principal executive offices) (Zip Code) (Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of each domestic exchange
Title of each class on which registered
- ------------------- ------------------------------
Common Stock, par value $.05 per share New York Stock Exchange, Inc.
Chicago Stock Exchange, Incorporated
The Pacific Stock Exchange Incorporated
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Chicago Stock Exchange, Incorporated
The Pacific Stock Exchange Incorporated
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
___
The aggregate market value of GTE's voting stock held by non-affiliates at
January 31, 1996 amounted to $44,602,292,899.
GTE had 975,298,047 shares of $.05 par value common stock outstanding (excluding
2,752,771 treasury shares) at January 31, 1996.
Document Incorporated by Reference:
GTE's Proxy Statement for Annual Meeting of Shareholders to be held on April 17,
1996 (Incorporated in Part III).
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PART I
Item 1. Business.
BUSINESS OF GTE COMPANIES
GTE Corporation and subsidiaries ("GTE") is the largest U.S.-based
local telephone company. GTE's domestic and international
operations serve 24.1 million access lines in the United States,
Canada, the Dominican Republic and Venezuela. Domestically, GTE is
a leading mobile-cellular operator with the potential of serving
67 million cellular and personal communications service customers
(before the sale of the Atlanta 1.8 GHz Personal Communications
Services license in March 1996, see Wireless Services below).
Outside the United States, GTE operates mobile-cellular networks
serving 15 million "POPs" through affiliates in Canada, the
Dominican Republic, Venezuela and Argentina. ("POPs" refers to the
population of a market area multiplied by a company's percentage
ownership in the cellular system serving that market.) GTE is also
a leader in government and defense communications systems and
equipment, aircraft-passenger telecommunications, directories and
telecommunications-based information services and systems. GTE
also has subsidiaries engaged in financing, insurance, leasing and
other activities offering financial and related services primarily
to GTE operating companies. One of these subsidiaries, GTE Service
Corporation, furnishes at cost, advisory and consulting services
related to administration, operations, accounting methods and
procedures, insurance, human resources, financing, Federal and
state taxes and other matters to GTE operating companies. GTE and
its subsidiaries had approximately 106,000 employees, at December
31, 1995.
DOMESTIC
Telephone Operations
GTE's telephone operating subsidiaries in the United States served
approximately 18.5 million access lines in 28 states as of
December 31, 1995 and provided many types of communications
services, ranging from local telephone service for the home and
office to highly complex voice and data services for various
industries. Subsidiaries accounting for the largest portion of
total domestic telephone revenues are GTE North, 21%; GTE
California, 21%; GTE Southwest, 12%; and GTE Florida, 10%. The
largest cities served are Los Angeles, Long Beach and Santa Monica
California; Tampa and St. Petersburg, Florida; Honolulu, Hawaii;
Lexington, Kentucky; Fort Wayne, Indiana; and Erie, Pennsylvania.
During 1994, GTE substantially completed its plan to pursue the
sale or exchange of nonstrategic domestic local-exchange telephone
properties in markets that may be of greater long-term strategic
value to other telephone service providers. During 1994, telephone
properties serving 448,000 access lines in nine states were sold
for $900 million in cash. During 1993, GTE sold telephone
properties serving 530,000 access lines in eight states in return
for 90,000 access lines in Illinois, Indiana and Michigan and $1
billion in cash. In addition, during 1995, GTE sold approximately
10,000 access lines for $30 million in cash.
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Local services revenues are comprised mainly of fees charged to
customers for providing local-exchange services within the
designated franchise area. GTE telephone subsidiaries also provide
toll services within designated geographic areas under agreements
with connecting local-exchange carriers ("LECs") in conformity
with individual state regulatory orders. GTE and other LECs
compensate each other pursuant to access charge tariffs that are
subject to review and approval by state regulatory commissions.
Network access services revenues are generated by providing access
services to interexchange carriers. The interstate portion of
these service revenues is based on switched, common-line, and
special access tariffs approved by the Federal Communications
Commission ("FCC"). The FCC tariffs include end-user access
charges to residential and business customers. State access is
based on similar rate structures that are subject to approval by
state regulatory commissions.
With the passage of the Telecommunications Act of 1996 ("the
Act"), enacted in February 1996, the telephone subsidiaries are
free to operate in the areas served and to extend service to other
areas subject to conditions, restrictions and limitations of
various kinds. In some cases, municipalities have the right to
acquire the telephone system within the municipal limits on
certain terms and conditions. Advances in technology and an
increase in alternative provision of service are beginning to
erode certain of the benefits previously derived from franchise
rights granted by states or municipalities.
Video Services
The Act eliminates the telephone company programming ban and
allows GTE the flexibility to choose whether it will enter the
wireline video distribution business through an open video
platform arrangement or via a standard cable television operation.
The legislation also allows GTE to deploy video networks which are
fully integrated with its telephone operations. The FCC soon will
begin the process of formulating rules with respect to the open
video platform arrangement which will govern provision of such
services. In addition, the FCC has opened two rulemakings to
evaluate its cable and telephone home-wiring rules and other
technical standards to reflect the growing convergence of the
telephone and cable industries.
In May 1995, GTE obtained approval from the FCC and began
construction of its video dialtone network in the Clearwater,
Florida area. In December 1995, GTE also negotiated with local
governments in California to begin construction of a traditional
cable network in Ventura County, California. The networks are
designed to begin delivery of video services to customers in 1996.
In August 1995, GTE signed a definitive agreement to join the Walt
Disney Company, Ameritech Corporation, BellSouth Corporation and
SBC Communications, Inc. as an equal partner in americast(TM), a
venture designed to provide video programming and interactive
services for millions of American households. GTE's involvement
strengthens the venture by increasing its combined reach from 50
million to 68 million access lines in 33 states. GTE and its three
other telecommunications
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partners will distribute, through their local broadband networks,
video programming acquired by americast as specially developed by
the Walt Disney Company. In addition, americast is tasked with the
creation of an advanced navigator for use on the partners'
networks.
World Class Network
GTE domestic telephone operations deployed its ISDN-based World
Class Network in fifteen metropolitan markets to provide advanced
communications for business customers. This program includes
sophisticated high-speed, digital fiber-optic rings, a
high-capacity switching network (known as "SONET"), and a new
centralized operations center that monitors the entire network.
These SONET rings are an integral part of the high-speed
information network that enables GTE to provide advanced services
such as high-speed data transmission and video conferencing.
Support Services
Also included in GTE's domestic telephone operations are two major
unregulated subsidiaries: GTE Data Services Incorporated ("GTEDS")
and GTE Supply. GTEDS, GTE's software development and information
processing subsidiary, provides data processing and information
management services to GTE's telephone subsidiaries and other
non-affiliated companies. GTE Supply is responsible for the
procurement and distribution of supplies for GTE's domestic
telephone operating companies, as well as other GTE subsidiaries.
GTE Supply also sells material and logistic services to
non-affiliates.
During 1995, GTEDS continued to expand the level of service that
it provides to non-affiliated companies. GTEDS continues to
provide data processing services to Citizens Utilities, which had
purchased portions of GTE's telephone operating property during
1994. Work has also continued on the $19 million contract to
develop a new Medicare transaction system for the Federal
Government, as well as the $20 million processing services
contract with National Electronic Information Corp., the nation's
largest commercial health care claims clearing house.
Additionally, GTEDS completed implementation of its customer
billing services system for CANTV, a GTE affiliate in Venezuela,
and opened a marketing office and began construction of a data
center in Mexico as the first steps in its plan to provide
commercial and govermental data processing services in Mexico.
During 1995, GTE Supply was awarded a two-year $50 million
continuation contract with Citizens Utilities to provide
telecommunications products and logistics services.
Restructuring and Cost Control
During 1994, GTE began implementation of a three-year $1.4 billion
re-engineering plan for its U.S. Telephone Operations. These costs
relate primarily to Telephone Operations' plan to improve
customer- responsiveness and product quality, reduce the time
necessary to introduce new products and services and further
reduce costs. The
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implementation of the plan is expected to result in costs of $900
million to re-engineer customer service processes and $300 million
to re-engineer administrative processes. The costs also include
$170 million to consolidate facilities and operations and other
related costs. Implementation of the plan is expected to be
substantially completed by the end of 1996.
Since the inception of the plan, 258 work centers have been
consolidated to 58 and workforce reductions of approximately
12,000 have occurred. Costs of $858 million have been incurred
since the plan's inception, including $585 million related to
customer service processes, $103 million related to administrative
processes and $170 million related to the consolidation of
facilities and operations. These expenditures were primarily
associated with the closure and relocation of the various centers,
software enhancements and separation benefits related to employee
reductions.
Wireless Services
GTE Mobilnet
GTE Mobilnet ("Mobilnet") includes Contel Cellular Inc. ("CCI")
and GTE Telecommunications Services Inc. ("GTE TSI"). In May 1995,
GTE completed the acquisition of the 10 percent ownership of CCI
that it did not already own for approximately $250 million in
cash. This acquisition will allow GTE to fully integrate the
operations of Mobilnet and CCI and offer customers a broader
network with a wider range of wireless capabilities.
Mobilnet is comprised of 800 MHz mobile-cellular telephone
services, 1.8 GHz Personal Communications Services ("PCS") and
cellular transaction processing and support services provided by
GTE TSI. Mobilnet provides cellular services and products to over
3 million subscribers through its 800 MHz operations, and is in
the process of designing/building the network for PCS services.
GTE TSI provides clearinghouse services and develops and sells
software for the cellular telephone industry throughout North
America.
GTE is one of the largest providers of mobile-cellular telephone
services in the United States in terms of population in the areas
served. GTE holds a controlling interest in 71 metropolitan
markets, known as metropolitan statistical areas ("MSAs"), and 38
rural service areas ("RSAs"). GTE's ownership position in U.S.
markets was obtained through the FCC lottery and settlement
process as well as through purchases and exchanges of licenses
with other cellular service providers. GTE's 800 MHz cellular
operations serve a population of approximately 52 million POPs,
approximately 20 million of which are in the top 30 U.S. markets.
In 1995, GTE's U.S. cellular operations increased their customer
base by 29% to 3,011,000 customers, almost double the number of
customers just two years ago.
GTE's cellular licenses were generally granted for an initial
ten-year term and are renewable for successive ten-year terms. FCC
license renewal applications continue to be filed and are
presently being processed by the FCC with no opposition. The
majority of GTE's FCC
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cellular licenses will expire and require renewal application
filings over the next several years.
In July 1995, GTE exchanged certain GTE cellular assets in Oregon,
Minnesota, New Mexico and Washington for 100 percent of US WEST,
Inc.'s cellular assets in San Diego, California, the 13th largest
cellular market in the U.S. containing 2.6 million POPs. The
transaction gives GTE operating control of the wireline license in
the San Diego MSA. In September 1995, the sale of GTE's minority
interest in the Detroit, Michigan MSA, and the purchase of
additional interests in the Indianapolis, Indiana; Cleveland, Ohio
and Rockford, Illinois MSAs were completed. In December 1995, GTE
sold its interest in the Augusta and Savannah, Georgia MSAs to
Palmer Wireless Holdings.
In December 1994, the FCC began the auctions of the first series
of new 1.8 GHz PCS licenses. These new licenses will enable up to
six additional wireless competitors to enter each market. Two
licenses (each at 30 MHz of spectrum) in each of 51 large service
areas across the U.S. called "Major Trading Areas" ("MTAs") were
issued in June 1995. GTE won 4 licenses in the broadband spectrum
auction, held by the FCC, including the Atlanta, Denver,
Cincinnati, and Seattle MTA's. Since GTE's purchase of the 1.8 GHz
licenses GTE has entered into certain transactions that
strategically reposition the areas covered by the licenses and
permit GTE to focus its energies and resources on the specific
areas that most benefit GTE's strategy. In October 1995, GTE
entered into an agreement to purchase the Spokane-Billings MTA
license from Poka Lambro Telephone Cooperative, Inc., and
simultaneously entered into an agreement to partition certain
areas covered by this MTA to Elltel Wireless, Inc., 3 Rivers PCS
Inc., and Montana Wireless, Inc. On December 12, 1995, GTE
partitioned the areas covered by Yakima and Kittitas counties in
the Seattle MTA to Elltel Wireless, Inc. In January 1996, GTE
entered into a definitive agreement to sell the Denver MTA license
to a wholly owned subsidiary of Western Wireless Corporation. In
addition, in March 1996, GTE entered into a definitive agreement
to sell the Atlanta MTA license to InterCel Inc. The remaining
MTAs, which cover approximately 9 million POPs, are expected to be
operational in 1997.
In 1995, GTE continued its deployment of Cellular Digital Packet
Data services ("CDPD") announcing commercial services in 12
markets, including the metropolitan areas of Houston, Tampa and
Cleveland. CDPD provides efficient transmission of data over
cellular networks with the added benefits of airlink encryption
and mobility services. CDPD is a more cost effective means than
traditional circuit switched data for users to remotely access
their host systems or other services. The service is also a fast,
efficient way for cellular users to transmit short bursts of data,
such as credit card verifications for retail businesses, service
and order information for field sales representatives and delivery
tracking for transportation businesses.
GTE's cellular operations experience direct competition from the
second cellular licensee in each market. Competition is
principally on the basis of service quality, price and coverage
area. In addition to the direct cellular competitor in each
market, Enhanced Specialized Mobile Radio operators also represent
potential competition, as will the new 1.8 GHz PCS license holders
in the future.
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The FCC is in the process of auctioning four additional licenses
(three at 10 MHz of spectrum each and one at 30 MHz) in each of
492 smaller service areas called "Basic Trading Areas" ("BTAs").
Mobile- cellular telephone service providers such as GTE are
eligible for two of the 10 MHz BTA licenses. GTE Mobilnet does not
plan to participate in the BTA auctions at this time. The service
offerings at these new frequencies will be similar in nature to
mobile-cellular telephone service and will offer direct
competition once established.
The frequency bands being allocated to these new 1.8 GHz licenses
are currently occupied by point-to-point microwave radio users.
GTE, both within its local-exchange telephone operations and its
cellular operations, is an extensive user of these facilities for
the backhaul of telephone traffic. Under the proposed FCC rules,
the incumbent users of these frequencies will be relocated to
higher frequencies to make way for the new PCS services. The FCC
rules allow for up to a two-year negotiation period between the
incumbent and the new licensee and the new licensee is to provide
adequate compensation to the incumbent for the cost of that
relocation. Failing agreement between the two parties during that
two-year negotiation period, the FCC rules provide for a third
year for arbitration.
GTE TSI provides transaction processing, software applications and
network support services that facilitate the "roaming" of cellular
subscribers and the management of cellular markets. GTE TSI serves
both large and small customers in virtually all operational
wireline markets and 35% of the non-wireline markets. GTE TSI
competes through product innovation, technology deployment,
provision of flexible product solutions and quality customer
service.
GTE Airfone
GTE Airfone ("Airfone") operates a telecommunications service for
passengers onboard aircraft under a license granted by the FCC in
1991. Five other licenses have been granted by the FCC for
air-to-ground service, and two companies, In-Flight Phone
Corporation and Claircom, have initiated service. During 1995, MCI
acquired partial ownership of In-Flight, while Claircom merged
with AT&T to become known as AT&T Wireless. At the end of 1995,
Airfone equipment was installed on 1,913 U.S., Canadian and
Mexican commercial aircraft.
During 1995, Airfone continued deployment of its new advanced
digital GenStar System, which enhances quality and makes possible
a new array of features to airline passengers. These new features
include data and fax service, ground-to-air calling, and a variety
of information services. A lighted menu screen makes it easy and
efficient for passengers to use these enhanced features. Airfone
has been competing for contracts to install its digital GenStar
system, and as of December 1995 had agreements with United, Delta,
TWA, US Air Shuttle, Reno Air, Midwest Express, United Express,
Mexicana and AeroMexico. At December 31, 1995, the GenStar System
was installed on approximately 1,250 aircraft.
During 1995, Airfone and Magnavox, pursuant to a joint alliance,
continued marketing the Magnastar digital product for the
corporate general aviation market. The Magnastar System includes a
digital
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radio, designed by Magnavox, which links exclusively to the
Airfone all-digital GenStar System. As of December 31, 1995,
approximately 370 Magnastar units have been sold.
Late in 1993, American Airlines and America West reached an
agreement with other providers for onboard telecommunications
service. As of December 1995, certain of their fleets were still
equipped with Airfone equipment.
Airfone will continue to actively compete for digital service
contracts and deploy marketing programs designed to increase
system usage based on quality, reliability, new feature offerings
and flexibility for future capabilities.
Directories
GTE Directories Corporation ("GTE Directories") annually publishes
or provides sales and other telephone directory-related services
for more than 2,300 directory titles in 47 U.S. states, the
District of Columbia and 14 foreign countries with a total
circulation of approximately 80 million copies. With sixty years
of industry experience, GTE Directories' capabilities include all
facets of directory-related services including market
identification, analysis and planning; advertising sales; customer
service; directory design, production, printing and distribution;
billing and collection; and product and service promotion. GTE
Directories competes directly within the yellow pages industry
which consists of nine major and numerous smaller U.S.-based
directory publishers. Indirectly, GTE Directories competes with
other advertising-based media such as cable TV, newspapers,
television, radio, and direct mail.
GTE Directories has three primary customer groups: the businesses
that purchase advertising in its directories and other related
products; the consumers who use the directories and other
advertising and information services GTE Directories provides; and
the telephone companies and other entities that contract for
directory publishing production, printing, distribution and/or
sales services.
In recent years, GTE Directories has developed, tested and
supported new products and services that are strategically
positioned to increase the use and retention of the printed
directory and/or expand its advertiser base. These products and
services, such as On Call audiotex services, Quick Tips talking
information service, and the SuperPages(TM) Directory, an on-line
Internet directory, offer useful information to consumers and
added flexibility for advertisers which enable GTE Directories to
build stronger customer relationships by providing products that
allow year-round customer contact.
In 1995, GTE Directories became a major partner in GTE Yellow
Pages Publishing Kft. and will publish and distribute telephone
directories in Hungary. GTE Directories also has a joint venture
agreement with BELGACOM, Belgium's official telecommunications
provider, for the publication of yellow-pages directories and
related products and services. In accordance with the agreement,
GTE Directories acquired a 20 percent ownership interest and
provides assistance to BELGACOM's new
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subsidiary, BELGACOM Directory Services.
GTE Directories was the 1994 winner of the Malcolm Baldrige
National Quality Award in the service category - one of only 24
U.S. corporations and the only directory publishing company to
ever win the award. The Baldrige Award is an annual award
presented by the U.S. Department of Commerce to recognize U.S.
companies that excel in quality management and quality
achievement.
GTE Card Services has been marketing a combination calling
card/credit card in conjunction with Associates National Bank
since September 1992. With its primary markets in GTE telephone
operations' service areas and contiguous areas, GTE Card Services
has approximately 1.1 million card holders with total outstanding
balances of approximately $550 million.
GTE Card Services also entered the prepaid calling card market in
1994 with the introduction of several GTE prepaid calling cards.
The prepaid calling card is a telephone calling card with a preset
amount of calling available that is prepaid by the customer when
the card is purchased. This card will compete in the long distance
market by providing an alternative means of purchasing and
controlling long distance usage for both the business and
residential user. Prepaid calling cards represent a $4 billion
market worldwide, but are relatively new to the U.S. marketplace.
GTE Card Services competes in this marketplace through leverage of
GTE's brand name and utilization of GTE's exclusive marketing
relationship with the National Football League and other
licensees.
INTERNATIONAL
GTE, through its international operations, provides
telecommunications services in Canada, Venezuela, Argentina and
the Dominican Republic. As of December 31, 1995, GTE's
international operations served approximately 5.6 million access
lines and provided cellular services to over 530,000 customers.
Through its ownership of common stock of Anglo-Canadian Telephone
Company ("Anglo"), GTE has voting control of BC TELECOM and Quebec
Telephone. At December 31, 1995, BC TELECOM served approximately
2.3 million access lines in the province of British Columbia,
Canada and provided cellular services to approximately 220,000
subscribers. Quebec Telephone served approximately 280,000 access
lines in the province of Quebec, Canada and provided cellular
services to over 10,000 customers.
In addition, GTE, through GTE Holdings (Canada) Limited, a
Canadian holding company, owns the common stock of Compania
Dominicana de Telefonos, C. por A., a telephone company furnishing
local and long-distance telephone service in the Dominican
Republic. This company served approximately 570,000 access lines
and served over 30,000 cellular customers at December 31, 1995.
GTE owns, through a multinational consortium, a 20.4% ownership
interest in Compania Anonima Nacional Telefonos de Venezuela
("CANTV"), the telephone company in Venezuela. CANTV is the
primary provider of
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local, national and international long-distance telephone service
in Venezuela. CANTV also provides other telecommunication and
related services, including cellular telephone and directory
advertising services. GTE and its four consortium partners have a
40% ownership interest in CANTV, while GTE, as the owner of 51% of
the consortium, is managing CANTV. During 1995, CANTV placed
approximately 184,000 new lines in service for customers and added
almost 2,000 public telephones while continuing to improve the
quality of its services and network. CANTV had approximately 2.5
million access lines in service at December 31, 1995 and, through
its subsidiary Movilnet, served approximately 170,000 cellular
subscribers.
Due to the high level of inflation experienced in Venezuela,
CANTV's results are substantially influenced by its ability to
increase tariffs. CANTV operates under a Concession Agreement with
the Venezuelan government that provides, among other things, for
quarterly tariff increases based on the previous rates of
inflation in Venezuela. In 1995, CANTV successfully obtained
tariff increases that mitigated the effects of high local
inflation and improved its operating margins when compared with
1994. CANTV believes that it can continue to obtain tariff
increases in 1996.
Because of the difficult economic conditions, CANTV made only a
relatively small contribution to GTE's 1995 earnings. The network
modernization program continued to produce excellent results in
service quality and productivity. Residential customer
satisfaction has doubled to 80% and productivity, as measured by
lines per employee, has increased 75% since the GTE led consortium
began operations in late 1991. CANTV's cumulative mandates under
the Concession Agreement to expand, modernize and improve the
telephone network were met or exceeded.
In December 1995, the Venezuelan government devalued the local
currency by 71%. However, due to the mix of local currency and
U.S. dollar denominated assets and liabilities, the devaluation
did not have a significant impact on GTE's results. GTE believes
these economic difficulties are temporary and will be corrected,
and continues to view its interest in CANTV as an excellent
long-term investment.
In 1994, a GTE-led consortium, Compania de Telefonos del Interior
("CTI"), was awarded two cellular licenses by the National
Telecommunications Commission of Argentina. The concession allows
CTI to provide cellular services in the north and south interior
regions of Argentina - areas with a total population of 22
million. GTE, as operator, has a 25.5% ownership interest in CTI,
and holds a ten-year contract to manage the network. CTI has an
initial two-year service exclusivity which began in May 1994. As
of December 31, 1995, CTI served over 100,000 cellular customers.
GTE also announced the opening of offices in Beijing, China and
Sao Paulo, Brazil during 1995. These operations are chartered with
pursuing business development opportunities within the
telecommunications market of each respective country. The first
opportunity, announced in December 1995, was the establishment of
a joint venture between GTE China and Guangzhou Guangtong
Resources Co. to construct a wireless paging system that will
eventually encompass 25
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major cities, including Beijing.
In Japan, GTE holds a minority interest in nine cellular
partnerships created by Nissan Motor Corp. LTD and Japan Telecom
Co. LTD to provide 1.5 GHz digital-cellular services throughout
Japan. In addition, GTE participates, as a minority owner, in a
cellular partnership comprised of a consortium of Japanese
companies that provides 1.9 GHz PHS (comparable to PCS) service in
Tokyo, Kanagawa, Saltama and Chiba.
TECHNOLOGY
GTE's technological capabilities increasingly converge in serving
customer needs. During 1995, GTE placed GTE Government Systems and
GTE Laboratories under common leadership to ensure that their
activities will be coordinated effectively with the substantial
technology resources of GTE's other business units.
GTE Government Systems Corporation ("GSC") develops, manufactures
and integrates customized command, control, communications and
intelligence systems for the defense and national security
agencies of the U.S. Government and selected foreign governments.
In addition, GSC provides information systems, telecommunications
services and electronic system operation and maintenance support
services for civilian agencies of the Federal government and for
commercial users, both domestically and internationally. As a
major part of this business focus, GSC provides and manages
integrated system solutions tailored to customer information
processing and telecommunications requirements.
During 1995, GSC received orders valued at $1.2 billion, a slight
increase compared to 1994, despite a declining defense market. As
the overall budgets for the defense market continue to decline,
GSC is seeking a stronger presence with its traditional military
customers. In addition, GSC is aggressively attempting to offset a
declining defense market with increased penetration of the
civilian agencies of the Federal government and selected niches in
the domestic commercial marketplace. GSC is transitioning its
capabilities, products and services to non-defense applications.
With technologies and other core competencies, GSC is addressing
complex telecommunications and information processing needs in
markets such as health care, banking and finance, public safety
and insurance. In addition, GSC is pursuing selected programs and
markets in the international defense and commercial
telecommunications arenas.
GSC's principal U.S. competitors include LORAL, GM Hughes, CSC,
Martin Lockheed, Bell Atlantic, AT&T, TRW, Harris, EDS, Raytheon
and Motorola. Major foreign competitors include Thomson-CSF,
Ericsson and Siemens.
GTE's research and development work is centered principally at GTE
Laboratories Incorporated. Activities in research and new product
development and improvement are also conducted at the various GTE
business units. Both research and product development are focused
on telecommunications operations and applications. The key areas
of emphasis include: the automation of telecommunication
operations, network management, intelligent network migration,
broadband
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information transport, network architecture design and planning,
wireless communications, advanced database capabilities, network
quality improvements, exchange video distribution, and support for
industry standards development.
For the years 1995 - 1993, expenditures for all company-sponsored
research and product development and improvement were $137
million, $139 million and $135 million, respectively.
Additionally, $162 million, $157 million and $204 million,
respectively, was expended for customer-sponsored research and
product development and improvement during the same periods. In
total, GTE engaged approximately 1,800 professional scientists and
engineers on such activities.
REGULATORY AND COMPETITIVE TRENDS
GTE's telephone subsidiaries hold franchises, licenses and permits
adequate for the conduct of their business in the markets which
they serve. Advances in technology, together with a number of
regulatory, legislative and judicial actions, continue to
accelerate and expand the level of competition and opportunities
available to GTE. Presently, GTE is subject to competition from
numerous sources, including competitive access providers for
network access services, specialized communications companies that
have constructed new systems in certain markets to bypass the
local-exchange network, and competing cellular telephone
companies. In addition, competition from alternative
local-exchange carriers, interexchange carriers, wireless and
cable TV companies, as well as more recent entry by media and
computer companies, is expected to increase in the rapidly
changing telecommunications marketplace.
On February 8, 1996, the Telecommunications Act of 1996 ("the
Act") became law. This comprehensive telecommunications reform
legislation addresses a wide range of competitive and regulatory
issues that will affect the future development of local and
long-distance services, cable television, and information
services. The new law removes many of the statutory and
court-ordered barriers to competition between segments of the
industry, enabling local exchange, long distance, wireless and
cable companies to compete in offering voice, video, and
information services.
The Act requires the FCC and state commissions to open
local-exchange markets and to set new guidelines for
interconnection, loosens restrictions barring local telephone
companies from entering the cable television market, and preserves
universal service while equalizing the responsibility for
contribution among all carriers. Each proceeding required by the
Act will be of various lengths with different required deadlines
to be met. For example, the FCC is required to establish minimum
interconnection standards by August 1996 and to establish a joint
board of FCC and state regulators to develop recommendations on
the future provisioning of universal service.
A key provision of the Act eliminates the legal restraints of the
GTE Consent Decree which has kept GTE's telephone operating
companies from providing interLATA services. This action will
simplify GTE's ability to market local intraLATA and interLATA
service to its customers as a bundled service. In February 1996,
GTE executed an agreement whereby WorldCom, Inc. will provide, on
a non-exclusive basis, a full array of
-11-
<PAGE> 13
telecommunications services in support of GTE's entry into the
interLATA long-distance market. In March 1996, GTE began offering
long-distance service to its customers in Michigan and Minnesota.
GTE plans to offer the service, marketed under the name GTE Easy
Savings Plan (SM), in all 28 states where it currently offers
local telephone service by December 1996.
During 1995, various regulatory and legislative developments
occurred at the state level to further open the telecommunications
marketplace to competition.
In July 1995, the California Public Utility Commission (the
"CPUC") announced its decision to allow local-exchange competition
beginning in 1996. The CPUC issued interim rules which allow
facilities- based competition beginning January 1, 1996. On
December 20, 1995, the Commission approved GTE California's
request to provide intraLATA toll, high-speed digital private line
services, and facilities-based local services outside of its
current franchise areas in competition with other local-exchange
carriers ("LECs"). Rules allowing firms to provide local services
on a resale basis are expected to be approved in 1996.
GTE California, GTE Mobilnet, and GTE Card Services have requested
authority to provide resale based local-exchange service in other
major metropolitan areas of California, including San Francisco
Bay, San Joaquin Valley, Sacramento, and San Diego.
In Florida and Texas, state telecommunications reform legislation
was enacted in 1995 which opened local-exchange markets to
competition. The legislation also directed the regulatory
commission in each state to address a number of issues involved in
certifying the new competitors and to implement other aspects of
the legislation unique to each state.
The Act forbids states from imposing any barriers to entry into
local and toll competition. To date, local competition has
been authorized in fifteen states: Illinois, Michigan, Oregon,
Nevada, Pennsylvania, Washington, Wisconsin, California, Florida,
Texas,Iowa, North Carolina, Hawaii, Minnesota, and Virginia. In
addition, eight states: Alaska, Arizona, Illinois, Kentucky,
Minnesota, Florida, Pennsylvania and Michigan have concluded that
intraLATA 1+ competition is in the public interest. These states
have authorized plans that would allow customers to pre-subscribe
to a specific carrier to handle intraLATA toll calls. The Act
requires GTE to negotiate intraLATA dialing parity with its
competitors among other required matters. In these subsequent
negotiations, GTE will address implementation of 1+ in those
states which have not previously ordered implementation.
Federal and state regulatory activity continued to change the
traditional cost-based, rate-of-return regulatory framework for
intrastate and interstate telephone service. Regulatory
authorities have adopted various forms of alternative regulation,
which provide economic incentives to telephone service providers
to improve productivity and provide the foundation for
implementing pricing flexibility necessary to address competitive
entry into GTE markets. In total, approximately 70 percent of
Telephone Operations' U.S. regulated revenues, including 100% of
interstate revenues, are under some form of alternative
regulation. As of January 1996, 60 percent of GTE's U.S.
-12-
<PAGE> 14
telephone access lines were in nine states that have adopted
incentive regulation plans for intrastate service, including
California, Florida and Texas, the states containing GTE's largest
operations.
In December 1995, the CPUC modified the terms of GTE California's
price cap based incentive regulation plan in recognition of this
new competition. In 1996, GTE was ordered to continue to use a
price cap with a productivity factor of 4.6% as an offset to
inflation to adjust its prices for 1996. The impact of this order
would result in a $31 million rate reduction. In 1997 and 1998,
GTE California's rates for monopoly and partially competitive
services will be frozen. In its ruling, however, the CPUC
indicated that it would also consider modifying its price cap
order to allow GTE California to suspend the price cap formula in
1996. On December 21, 1995, GTE California filed its petition and
a decision is expected by the end of the first quarter 1996.
Legislation streamlined the existing regulatory environment in
Florida and Texas by allowing LECs to replace traditional
rate-of-return regulation with price regulation plans.
On September 20, 1995, GTE Southwest notified the Texas Public
Utility Commission of its election into the new price regulation
plan. On January 3, 1996, GTE Florida formally notified the
Florida Public Service Commission of its election.
For the provision of interstate access services, GTE operates
under the terms of the FCC's price cap incentive plan. The "price
cap" mechanism serves to limit the rates a carrier may charge,
rather than just regulating the rate of return which may be
achieved. Under this approach, the maximum prices that the LEC may
charge are increased or decreased each year by a price index based
upon inflation less a predetermined productivity target. LECs have
limited pricing flexibility provided they do not exceed the
allowed price cap.
Under interim changes to its price cap regulatory plan, the FCC
adopted three different productivity/sharing options. GTE has
elected to operate under two of these options. In the
jurisdictions for which GTE selected a 4.0% productivity factor
(approximately half of its access lines), GTE's telephone
subsidiaries must share equally with its ratepayers any realized
interstate return on investment above 12.25%. All returns higher
than 13.25% result in a reduction in the price cap in the
subsequent year. The remaining jurisdictions operate under a 5.3%
productivity factor option which does not require any earnings
sharing. The FCC has established a rulemaking proceeding and is
soliciting comments from parties on permanent changes to its price
cap regulation plan.
Internationally, the pace of regulatory and competitive change has
also accelerated. In Canada, the Canadian Radio-television and
Telecommunications Commission, the telecommunications regulatory
authority, issued an order opening the market for toll services to
full competition. To meet this competition, aggressive marketing
of customer services and technologically advanced product service
offerings have been implemented to minimize loss of market share.
In addition, cost saving efforts through planned workforce
reductions are being
-13-
<PAGE> 15
implemented. In the Dominican Republic competitive pressures for
international and local toll traffic have begun to impact revenues
and operating margins. However, government-approved local rate
increases as well as the implementation of productivity
improvement programs are expected to help offset the impact of
competition.
GTE continues to support greater competition in
telecommunications, provided that, overall, the actions to
eliminate existing legal and regulatory barriers benefit consumers
by allowing an opportunity for all service providers to
participate equally in a competitive marketplace under comparable
conditions.
GTE intends to continue to respond aggressively to regulatory and
legal developments that allow for increased competition and
opportunities in the marketplace. GTE expects its financial
results to benefit from reduced costs and the introduction of new
products and services that will result in increased usage of its
telephone and mobile-cellular networks. However, it is likely that
such improvements will be offset, in part, by continued strategic
pricing reductions and the effects of increased competition.
ENVIRONMENTAL MATTERS
GTE and some of its present and former subsidiaries, along with
other unrelated corporations, have been named as potentially
responsible parties at a number of Federal and state "Superfund
Sites" - sites, lawfully used in the past, but now determined to
require remediation or with respect to some presently or formerly
owned sites requiring remediation under the Resource Conservation
and Recovery Act ("RCRA") or similar state environmental statute.
GTE has reviewed each such site in which it has an involvement to
establish an expected remediation cost. Based on this review, the
remediation cost at any individual site or at all sites in the
aggregate is not expected to be material. Factors used to evaluate
expected GTE costs include remediation estimates, number of viable
parties involved, degree of GTE's involvement and past experience
at sites being remediated. No present value discounting is used.
Although the complexity of environmental regulations, and the
widespread imposition of multi-party joint and several liabilities
at Superfund Sites, makes it difficult to assess GTE's share of
liability, management believes it has made adequate provision in
the financial statements.
While GTE's annual expenditures for site cleanups and
environmental compliance have not been and are not expected to be
material, they are increasing. These costs include GTE's share of
cleanup expenses for Superfund Sites, outlays required to keep
existing operations in compliance with increasingly stringent
environmental regulations and an underground storage tank
replacement program.
-14-
<PAGE> 16
Item 2. Properties.
PROPERTIES OF GTE COMPANIES
GTE owns no plant, real property, franchises, or concessions
except indirectly through its investments in subsidiaries.
The properties of GTE's subsidiaries consist principally of land,
structures and equipment required to provide various wireline and
wireless telecommunications services. Substantially all of the
properties of the U.S. telephone subsidiaries are subject to the
liens of their respective mortgages securing funded debt.
From January 1, 1991 to December 31, 1995, GTE made capital
expenditures of $20 billion for new plant and facilities required
to meet telecommunication service needs and to modernize plant and
facilities. These additions were equal to 39 percent of gross
plant of $51 billion at December 31, 1995.
At year-end 1995, access lines served in the United States totaled
18.5 million. In addition, at December 31, 1995, GTE's affiliated
telephone companies in Canada, the Dominican Republic and
Venezuela served 5.6 million access lines. At December 31, 1995,
95 percent of GTE's U.S. access lines were connected to digital
switches, compared with 79 percent in 1991. During 1995, GTE also
accelerated the installation of fiber-optic cable, bringing total
miles installed throughout GTE's domestic network to 930,000
miles, double the amount installed only three years ago.
At year-end 1995, GTE had 4 laboratories in the United States.
All of the aforementioned properties are generally in good
operating condition and adequate to satisfy the needs of the
businesses.
In response to recently enacted and pending legislation and the
increasingly competitive environment in which GTE's telephone
subsidiaries expect to operate, GTE discontinued the use of
Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" ("FAS 71") in the
fourth quarter of 1995.
In general, FAS 71 required GTE's telephone subsidiaries to
depreciate their telephone plant and equipment over lives approved
by regulators that, in many cases, extended beyond the assets'
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 in many cases higher than that which would
otherwise have been recorded based on their economic lives. See
Note 2 to GTE's Consolidated Financial Statements included
elsewhere herein for the effects of discontinuing FAS 71 on GTE's
recorded property balances.
-15-
<PAGE> 17
Item 3. Legal proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-16-
<PAGE> 18
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
At January 31, 1996, there were approximately 538,000 common
shareholders of record.
GTE QUARTERLY FINANCIAL DATA
GTE CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
(Millions of Dollars, 1st QTR 2nd QTR(a) 3rd QTR(b) 4th QTR(c)
Except Per-Share Amounts) 1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales .............. $ 4,665 $ 4,658 $ 4,932 $ 4,840 $ 4,996 $ 4,879 $ 5,364 $ 5,151
Operating income ................ 1,164 1,067 1,235 1,175 1,333 1,228 1,324 1,282
----------------------------------------------------------------------------------------------
Income before extraordinary
charges ...................... $ 543 $ 500 $ 581 $ 593 $ 695 $ 657 $ 719 $ 691
Extraordinary charges ........... -- -- -- -- -- -- (4,682) --
----------------------------------------------------------------------------------------------
Net income (loss) ............ $ 543 $ 500 $ 581 $ 593 $ 695 $ 657 $ (3,963) $ 691
==============================================================================================
Earnings (loss) per common share:
Before extraordinary
charges ...................... $ .56 $ .52 $ .60 $ .62 $ .72 $ .69 $ .74 $ .72
Extraordinary charges ........... -- -- -- -- -- -- (4.83) --
----------------------------------------------------------------------------------------------
Net income (loss) ............ $ .56 $ .52 $ .60 $ .62 $ .72 $ .69 $ (4.09) $ .72
----------------------------------------------------------------------------------------------
Dividends declared per
common share ................. $ .47 $ .47 $ .47 $ .47 $ .47 $ .47 $ .47 $ .47
==============================================================================================
Stock market price:
High ............................ $ 34.88 $ 35.25 $ 34.88 $ 33.63 $ 39.50 $ 33.25 $ 45.13 $ 31.38
Low ............................. 30.00 30.00 31.88 29.50 34.13 29.88 38.50 29.50
Close ........................... 33.25 31.00 34.13 31.00 39.13 30.38 43.88 30.38
----------------------------------------------------------------------------------------------
</TABLE>
(a) Second-quarter 1994 net income includes after-tax gains on sales of
nonstrategic domestic local-exchange telephone properties of $71 million, or
$.07 per share (see Note 5 to Consolidated Financial Statements).
(b) Third-quarter 1995 and 1994 net income includes after-tax gains on sales of
nonstrategic domestic local-exchange telephone properties of $11 million, or
$.01 per share, and $48 million, or $.05 per share, respectively (see Note 5 to
Consolidated Financial Statements).
(c) Fourth-quarter 1995 results include after-tax, extraordinary charges of $4.7
billion, or $4.83 per share, primarily as a result of the discontinuance of
regulatory accounting under Statement of Financial Accounting Standards No. 71
(see Note 2 to Consolidated Financial Statements). Fourth-quarter 1994 results
include after-tax gains on sales of nonstrategic domestic local-exchange
telephone properties of $43 million, or $.05 per share (see Note 5 to
Consolidated Financial Statements).
-17-
<PAGE> 19
SHAREHOLDER SERVICES
The First National Bank of Boston, Transfer Agent and Registrar for GTE's common
stock, should be contacted with any questions relating to shareholder accounts.
This includes the following:
- - Account Information
- - Dividends
- - Market Prices
- - Transfer Instructions
- - Statements and Reports
- - Change of Address
Shareholders may call toll-free at 1-800-225-5160 anytime, seven days a week.
Customer Service Representatives are available Monday through Friday between the
hours of 8 a.m. and 5 p.m. Eastern Time. Outside the United States call
1-617-575-2990.
Or write to:
Bank of Boston
c/o Boston EquiServe, L.P.
P.O. Box 9121
Mail Stop 45-02-60
Boston, MA 02205-9121
For overnight delivery services, use the following address:
Bank of Boston
c/o Boston EquiServe, L.P.
Blue Hills Office Park
150 Royall Street
Canton, MA 02021
The Bank of Boston address where shareholders, banks and brokers may deliver
certificates is One Exchange Place, 55 Broadway in New York City.
SHAREHOLDER SYSTEMATIC INVESTMENT PLAN
Under this plan, GTE shareholders may reinvest their dividends or make
optional payments toward the purchase of additional shares of common
stock. Shareholders wishing information about this plan should contact
the Bank of Boston at 1-800-225-5160.
DIVIDEND DIRECT DEPOSIT SERVICE
GTE offers its registered shareholders the option of having dividends
deposited directly into their checking or savings accounts at any
financial institution participating in the Automated Clearing House
(ACH) system. This service is provided at no charge. To sign up for
this service, shareholders should contact the Bank of Boston at
1-800-225-5160.
ANNUAL MEETING
The 1996 Annual Meeting of Shareholders will be held at 2 p.m. on Wednesday,
April 17, at The Italian Center, 1620 Newfield Avenue, Stamford, Connecticut.
-18-
<PAGE> 20
INVESTOR RELATIONS
Security analysts, institutional investors and other members of the financial
community requesting information about GTE should contact:
Investor Relations Department
GTE Corporation
One Stamford Forum
Stamford, CT 06904
203-965-2789
Int'l Telex: 4750071
Fax: 203-965-2520
STOCK EXCHANGE LISTINGS
GTE Corporation is listed on the New York Stock Exchange (symbol: GTE). GTE is
also listed on the Chicago, Pacific and other regional stock exchanges in the
U.S. and on stock exchanges in Amsterdam, Basel, Geneva, Lausanne, London,
Paris, Zurich and Tokyo.
AUDITORS
Arthur Andersen LLP
400 Atlantic Street
Stamford, CT 06912
REQUESTS FOR ANNUAL REPORTS
To obtain an additional copy of this annual report or a copy of the annual Form
10-K filed with the Securities and Exchange Commission, call 1-800-225-5160.
An audiocassette version of the 1995 annual report is available to
visually impaired shareholders by contacting:
Manager,
Public Relations Services
GTE Corporation
One Stamford Forum
Stamford, CT 06904
203-965-3188
OTHER SECURITIES
Questions regarding the bonds, debentures and preferred securities of GTE or its
subsidiaries should be directed to:
Treasury Department
GTE Corporation
One Stamford Forum
Stamford, CT 06904
203-965-3425
INFORMATION VIA THE INTERNET
Internet World Wide Web users can access information on GTE through the
following universal resource: http://www.gte.com
-19-
<PAGE> 21
Item 6. Selected Financial Data.
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Five-Year
(Millions of Dollars, Except Annual
Per-Share Amounts) 1995 1994 1993 1992 1991 Growth Rate*
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues and sales
Local services ......................... $ 5,839 $ 5,234 $ 5,159 $ 4,932 $ 4,746 4.5%
Network access services
-- interstate .................. 2,741 2,722 2,690 2,774 2,713 .2
-- intrastate .................. 1,622 1,626 1,708 1,703 1,652 .4
Toll services .......................... 2,548 3,285 3,321 3,388 3,482 (4.9)
Cellular services ...................... 2,191 1,666 1,178 929 726 32.9
Directory services ..................... 1,383 1,372 1,438 1,405 1,466 1.7
Other services and sales ............... 3,633 3,623 3,838 4,394 4,321 (4.9)
----------------------------------------------------------------------------------
Total revenues and sales ............... 19,957 19,528 19,332 19,525 19,106 1.2
----------------------------------------------------------------------------------
Cost of services and sales ............. 7,537 7,677 7,848 8,229 8,157 (1.6)
Selling, general and
administrative ...................... 3,689 3,667 3,817 3,977 3,826 (.3)
Depreciation and amortization .......... 3,675 3,432 3,419 3,289 3,254 2.6
Restructuring and merger costs ......... -- -- 1,840(a) -- 342(b) --
----------------------------------------------------------------------------------
Operating income ....................... 5,056 4,752 2,408(c) 4,030 3,527 5.9
Net income (loss)(f)
Continuing operations(d) ............... 2,538 2,441 972 1,761 1,492(b) 9.8
Consolidated(e) ........................ (2,144) 2,441 882 (780)(f) 1,543(f) --
Earnings (loss) per
common share(f)
Continuing operations(d) ............... 2.62 2.55 1.03 1.95 1.69(b) 7.2
Consolidated(e) ........................ (2.21) 2.55 .93 (.86)(f) 1.75(f) --
Common dividends declared
per share ........................... 1.88 1.88 1.85 1.76 1.64 4.4
Book value per share ................... 7.05(e) 10.85 9.96 10.61 12.21 (8.2)
Average common shares
outstanding (in millions) .............. 970 958 945 905 882 2.5
ASSETS AND CAPITAL
Consolidated assets .................... 37,019(e) 42,500 41,575 42,144 42,437 (1.2)
Long-term debt and redeemable
preferred stock ........................ 12,744 12,236 13,103 14,277 16,153 (3.9)
Shareholders' equity ................... 6,871(e) 10,483 9,593 10,076 11,313 (6.9)
Cash from continuing
operations .......................... 5,033 4,740 5,373 4,832 4,643 2.8
Capital expenditures ................... 4,034 4,192 3,893 3,909 3,965 .1
CONSOLIDATED RATIOS
AND OTHER INFORMATION
Return on common equity(f) ............. (20.3)% 24.8% 8.8% (8.8)% 14.8% --
Return on investment(f) ................ (4.2)% 13.1% 6.9% 1.3% 9.4% --
Average common equity .................. 10,539 9,838 10,030 8,832 10,434 1.0
Equity ratio ........................... 37.9%(e) 46.2% 42.6% 40.2% 40.8% --
Average investment ..................... 27,150 25,647 27,322 28,057 29,418 (1.3)
Research and development ............... 137 139 135 159 155 (1.4)
Employees (in thousands)
Total .................................. 106 111 117 129 159 (9.9)
United States .......................... 85 89 94 104 124 (9.6)
----------------------------------------------------------------------------------
INTERNATIONAL OPERATIONS
(INCLUDED ABOVE)(g)
Revenues and sales ..................... $ 2,583 $ 2,616 $ 2,520 $ 2,401 $ 2,317 3.9
Income before extraordinary
charges ............................. 220 276 328 244 227 1.3
Total assets ........................... 6,210 5,826 6,096 5,963 5,757 4.5
----------------------------------------------------------------------------------
</TABLE>
Notes to Selected Financial Data appear on page 21.
-20-
<PAGE> 22
Selected Financial Data
GTE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Five-Year
Annual
(Millions of Dollars) 1995 1994 1993 1992 1991 Growth Rate*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NETWORK STATISTICS
Access minutes of use
(in millions) ........................... 64,417 59,247 55,864 52,180 48,169 7.5%
Access lines (in thousands)
Total(h) ................................... 24,135 22,805 22,043 21,427 20,481 5.1
United States(h) ........................... 18,527 17,442 17,073 16,819 16,233 3.0
Switched ................................... 16,665 16,037 15,929 15,835 15,338 2.0
U.S. lines per employee .................... 289 252 234 208 191 10.7
--------------------------------------------------------------------------------
Cellular subscribers (in thousands)
Total ...................................... 3,547 2,660 1,787 1,204 881 41.9
United States .............................. 3,011 2,339 1,585 1,090 811 39.6
--------------------------------------------------------------------------------
Adjusted "POPs"(in millions)(i)
Total ...................................... 82.4 68.0 63.4 60.8 59.9 --
United States .............................. 67.4 53.0 53.0 53.1 52.2 4.0
--------------------------------------------------------------------------------
U.S. Telephone Operations
Revenues and sales ......................... $ 13,375 $ 13,212 $ 13,162 $ 13,160 $ 12,950 .9
Operating income(a) ........................ 3,621 3,490 1,962(c) 3,284 3,073(b) 1.9
Operating cash flow margin ................. 47.8% 46.4% 34.7% 44.1% 43.4% --
Capital expenditures ....................... 2,564 2,821 2,811 2,859 3,004 (2.4)
--------------------------------------------------------------------------------
U.S. Cellular Operations
Service revenues ........................... $ 2,019 $ 1,539 $ 1,082 $ 853 $ 675 32.7
Operating income ........................... 410 278 124 77 (29)(b) --
Operating cash flow margin(j) .............. 36.8% 35.3% 31.9% 32.9% 21.4% --
Capital expenditures ....................... 709 610 389 376 260 21.2
</TABLE>
* Least-squares method; percentages have been omitted where not
meaningful.
(a) See Note 4 on 1993 Restructuring Costs.
(b) Reflects costs incurred in connection with the merger and integration of
GTE Corporation and Contel Corporation, including $150 million and $29
million at U.S. Telephone and U.S. Cellular Operations, respectively.
These costs, net of a gain on the transfer of certain cellular
properties, reduced 1991 net income by $204 million, or $.23 per share.
(c) Includes a $74 million pre-tax charge ($46 million after-tax, or $.05
per share) for the cost of voluntary separation programs at U.S.
Telephone Operations.
(d) 1995, 1994 and 1993 include after-tax gains of $11 million, or $.01 per
share, $162 million, or $.17 per share, and $91 million, or $.10 per
share, respectively, on sales of certain nonstrategic domestic
local-exchange telephone properties.
(e) See Note 2 on Extraordinary Charges.
(f) 1992 reflects a noncash, after-tax charge of $2.4 billion, or $2.70 per
share, for the cumulative effect of accounting changes for
postretirement health care and life insurance benefits as well as income
taxes, as a result of the adoption of Statements of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and No. 109, "Accounting for Income Taxes,"
respectively.
1992 also includes charges totaling $100 million, or $.11 per share,
associated with the sale of the Electrical Products Group, which was
accounted for as a discontinued operation. 1991 includes net income from
discontinued operations of $51 million, or $.06 per share (see Note 5 on
Property Repositioning and Discontinued Operations).
Excluding the special items described in footnotes (a) through (f), net
income, earnings per share, return on common equity and return on
investment would have been:
<TABLE>
<CAPTION>
Five-Year Annual
1995 1994 1993 1992 1991 Growth Rate*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (in millions) .............. $ 2,527 $ 2,279 $ 2,077 $ 1,761 $ 1,696 10.2%
Earnings per share .................... 2.61 2.38 2.20 1.95 1.92 7.6
Return on common equity ............... 23.2% 23.3% 20.4% 15.6% 16.5% --
Return on investment .................. 12.8% 12.5% 11.2% 9.5% 10.1% --
</TABLE>
(g) Includes GTE's international affiliates as well as international
activities from domestic companies.
(h) Access lines in 1994 and 1993 exclude 448,000 and 440,000 net lines,
respectively, sold during those years. Total access lines include 2.5
million, 2.3 million, 2.0 million, 1.8 million and 1.6 million lines
served by CANTV in 1995-1991, respectively. GTE acquired operating
control of CANTV in 1991. Excluding the effect of the CANTV acquisition
and the access lines sold during 1994 and 1993, the five-year total
access line growth rate was 4.3%.
(i) Represents population to be served times GTE's percentage interest in
wireless markets.
(j) Represents operating income before depreciation and amortization
divided by service revenues.
-21-
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RETURN TO SHAREHOLDERS
GTE's primary financial objective is to maximize shareholders' long-term total
return, consisting of share-price appreciation and dividends. Total return to
GTE shareholders in 1995 was 52.4% compared with 49.3% for the regional Bell
operating companies and 37.5% for the S&P 500 index. For the five-year period
ending in 1995, average annualized total return was 14.4% compared with 14.5%
for the regional Bell operating companies and 16.5% for the S&P 500 index. GTE's
outstanding stock-price appreciation in 1995 significantly narrowed these
differences compared with the same measure in 1994. GTE's commitment to
shareholder value is supported by clear investment criteria: investments must be
in the company's core business, telecommunications, and they must be expected to
earn more than their cost of capital over time. GTE's commitment to shareholder
value is also supported by a policy of maintaining a dividend payout ratio that
is competitive with peer companies. Consistent with this policy, GTE maintained
its dividend at $1.88 per share in 1995.
Over the past several years, GTE has taken aggressive action to improve its
competitive position and enhance its profitability. GTE has: combined its
domestic wireline and wireless businesses under common leadership to begin
offering "one-stop shopping" for all telecommunications services; combined all
international operations into one unit to focus on developing growth
opportunities, especially in Latin America and Asia; implemented process re-
engineering -- which will be substantially completed in 1996; and sold
nonstrategic telephone properties. GTE is now better prepared to meet the
challenges and opportunities of a fully competitive marketplace with tremendous
potential for highly profitable growth.
CONSOLIDATED
OPERATIONS
Operationally, 1995 was an excellent year for GTE, led by strong customer growth
and network usage in both telephone and cellular operations as well as
cost-reduction programs throughout GTE. Income before special items was $2.5
billion, or $2.61 per share, in 1995, an increase of 10% compared with $2.3
billion, or $2.38 per share, in 1994. Minutes of use of GTE's domestic network
for long-distance calling grew at an annual rate of 10.1%, while total access
lines increased 5.8% excluding the impact of the nonstrategic telephone
properties sold. During 1995, GTE added 887,000 new cellular customers, bringing
total cellular customers, both domestic and international, to 3.5 million --
nearly double the level just two years ago.
Consolidated revenues and sales totaled $20.0 billion in 1995 compared with
$19.5 billion in 1994. Excluding the revenues from the properties sold and the
satellite-communications business divested in 1994, consolidated revenues and
sales increased 4% in 1995 (see Note 5 to Consolidated Financial Statements).
Strong volume growth in telephone operations and substantial increases in
cellular customers more than offset lower, more competitive pricing. In the
U.S., new price reductions and regulatory actions, primarily in California,
reduced revenues by approximately $450 million in 1995, bringing cumulative
price reductions over the past three years to $1.1
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<PAGE> 24
billion. However, such reductions are expected to moderate in 1996. Outside the
U.S., regulatory and competitive pressures increased in Canada and the Dominican
Republic as price reductions and rate rebalancing plans were implemented.
Operating income for 1995 reached a record $5.1 billion, up 8% excluding the
operating income attributable to the properties sold. The increase was due to
higher revenues, improved cellular operating margins and ongoing cost reductions
from process re-engineering activities. Net interest expense declined slightly
as the favorable effects of lower interest rates were partially offset by higher
debt balances. Other expense totaled $5 million in 1995 compared with $280
million of other income in 1994, primarily reflecting gains recorded in 1994 in
connection with telephone property sales. GTE's effective income tax rate
declined from 38.6% in 1994 to 36.6% in 1995 primarily as a result of a
settlement with the IRS of certain open tax years.
During 1995, GTE adopted accounting principles appropriate for nonregulated
companies and recorded extraordinary charges totaling $4.7 billion, or $4.83 per
share, as discussed in Note 2 to Consolidated Financial Statements. For a
discussion of the reclassifications made to the prior-year consolidated
financial statements, disclosure of recently issued accounting pronouncements
and use of financial instruments and contingencies, see Notes 1, 10 and 16 to
Consolidated Financial Statements.
In 1994, consolidated revenues and sales totaled $19.5 billion compared with
$19.3 billion in 1993. Excluding the revenues from the properties sold,
consolidated revenues and sales increased 4% during 1994. Strong volume growth
for both domestic and international wireline and wireless services drove the
improvement. Lower, more competitive domestic telephone pricing, particularly in
rates charged to interexchange carriers for access to GTE's local-exchange
network, partially offset the strong volume growth. The completion late in 1993
of a major U.S. defense communications contract also offset the volume growth.
Operating income in 1994 increased 11% over 1993 excluding the impact of
properties sold and other 1993 special items. This improvement was due to the
revenue growth as well as cost-reduction efforts at all business units.
Consolidated net income was $2.4 billion, or $2.55 per share, which included
after-tax gains on sales of certain nonstrategic domestic local-exchange
telephone properties of $162 million, or 17 cents per share. Excluding the
impact of special items in both years, consolidated net income in 1994 was $2.3
billion, or $2.38 per share, an 8% increase over 1993.
In 1993, consolidated net income was $882 million, or 93 cents per share.
Results in 1993 included gains of $91 million, or 10 cents per share, similar to
those in 1994 as well as one-time after-tax charges totaling $1.3 billion, or
$1.37 per share, to restructure operations, complete voluntary separation
programs and for the early retirement of high-coupon debt.
LOCAL SERVICE REVENUES
Local service revenues are based on fees charged to customers for providing
local telephone exchange service within designated franchise areas. Local
service revenues increased 12% to $5.8 billion compared with $5.2 billion in
1994. This growth was attributable to placing an additional 1.2 million access
lines in service in 1995, a 5.8% increase over last year, driven by 12%
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<PAGE> 25
growth in second residential lines over 1994. The growth in second lines is
primarily attributable to strong consumer demand for fax machines, access to the
Internet and online computer services. The increase in revenues was also
attributable to a rate rebalancing order issued by the California Public
Utilities Commission (CPUC) effective January 1, 1995. The order provided for
increases in basic local rates in exchange for significant rate reductions for
toll service and access charges. Although this rate rebalancing was intended by
the CPUC to be revenue neutral, the actual increase in volumes did not fully
compensate for the toll and access rate reductions.
The rollout of new and nontraditional services also drove the increase in local
revenues. These services, which include CentraNet,(R) data and custom- calling
features, such as Personal Secretary and SmartCall,(R) increased 33% to $850
million in 1995. These new high-margin services are expected to contribute a
larger percentage of GTE's total revenue stream in future years as a result of
strong business and consumer demand.
NETWORK ACCESS SERVICE REVENUES
Interstate and intrastate network access service revenues are based on fees
charged to interexchange carriers that use GTE's U.S. local-exchange network in
providing long-distance services to their customers. Network access service
revenues of $4.4 billion remained relatively unchanged from 1994. The impact of
the 10.1% growth in minutes of use of GTE's domestic local-exchange network for
long-distance calling was offset by competitive and regulatory- mandated rate
reductions and the effect of the previously discussed 1994 sales of nonstrategic
properties.
TOLL SERVICE REVENUES
Toll service revenues are based on fees charged for service beyond a customer's
local calling area but within the local access transport area (LATA). Toll
service revenues decreased 22% to $2.5 billion compared with $3.3 billion in
1994. This decline was primarily attributable to price reductions to meet
competition and regulatory-mandated rate reductions, particularly the previously
discussed rate rebalancing actions in California, Canada and the Dominican
Republic.
CELLULAR SERVICE REVENUES
Cellular service revenues exceeded $2 billion for the first time in the
company's history, rising 32% to $2.2 billion. The growth in revenues was
primarily attributable to the growth in customers both in the U.S. and
internationally. Total U.S. customers served at the end of 1995 reached
3,011,000, an increase of 29% over 1994. Customer growth slowed at the end of
1995 as various targeted marketing programs successfully focused on the addition
of higher-value customers. Cellular market penetration increased to 6.3% in 1995
compared with 4.8% in 1994. This growth was tempered by a decline in revenues
per customer in the U.S., reflecting continuing growth of casual and security
users in the customer base. During the year revenues per customer in the U.S.
averaged $63 per month compared with $68 in 1994.
DIRECTORY SERVICES REVENUES
Directory services revenues are based on fees charged to publish, print,
distribute and sell advertising for Yellow Pages telephone directories. GTE
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<PAGE> 26
annually publishes or provides sales and other directory-related services for
approximately 2,400 different directories in 47 states and 15 foreign countries.
Directory service revenues increased slightly to $1.4 billion in 1995,
reflecting improved volume in the U.S. partially offset by the completion in
1994 of a contract for the publication of directories in Hong Kong.
OTHER SERVICES AND SALES
Other services and sales include revenues from: GTE Government Systems, which
provides telecommunication systems and equipment to U.S. governmental defense
and civilian agencies as well as commercial users; GTE Airfone, which provides
aircraft-based telecommunication services; and telephone and cellular equipment
sales and services. Other services and sales revenues increased slightly to $3.6
billion in 1995, reflecting the growth in non-network related equipment sales
partially offset by the overall decline in U.S. government defense spending. GTE
Government Systems received orders valued at $1.2 billion during 1995, a slight
increase compared with 1994, reflecting higher international orders partially
offset by the decline in U.S. defense spending.
COST OF SERVICES AND SALES
Cost of services and sales declined 2% to $7.5 billion in 1995 compared with
$7.7 billion in 1994, primarily reflecting the impact of the three-year process
re-engineering program at the U.S. telephone operations. This program is
redesigning and streamlining processes to improve customer responsiveness and
product quality, reduce the time necessary to introduce new products and
services, and further reduce costs.
Several re-engineering programs enhanced productivity. Consolidation of work
centers and the rollout of technologically-advanced systems reduced labor-
intensive processes. For example, Express Dial Tone, which enables a customer to
start local service without waiting for a service call, was implemented in most
major service territories. Also, GTE's "One Touch" process, which allows a wide
range of customer needs to be satisfied by contacting just one service
representative, is now available in most of GTE's domestic telephone service
areas. U.S. access lines per employee, a key indicator of productivity, totaled
289 at year-end 1995, a 15% increase over 1994 and 55% higher than four years
ago, excluding properties sold.
By the end of 1995, GTE's Telephone Operations had reduced its U.S. workforce to
approximately 64,000 employees, a 25% decline from four years ago. Since the
re-engineering program began two years ago, the workforce has been reduced by
over 12,000 employees and contractors. A further workforce reduction of
approximately 5,000, bringing the total to 17,000, is expected to be
substantially completed by the end of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses rose slightly to $3.7 billion in
1995. The growth in operating costs, particularly in cellular services, was
substantially offset by ongoing cost containment and reduction programs, which
have been implemented across all business units.
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<PAGE> 27
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 7% to $3.7 billion in 1995 compared with
$3.4 billion in 1994. The increase reflects the expansion of the telephone
network to meet demand for additional lines, enhanced calling features and
switched data services and to continue the deployment of enabling technologies
for broadband services. The mobile-cellular network was also expanded to provide
significantly higher capacity and improve service quality.
OTHER INCOME AND EXPENSE
Other income and expense is comprised primarily of gains on sale of properties,
minority interests and earnings of unconsolidated subsidiaries, which include
cellular partnerships, and international ventures. In 1995 GTE reported other
expense of $5 million compared with other income of $280 million in 1994.
Results in 1994 included $264 million of gains on sales of nonstrategic
telephone properties compared with $16 million in 1995.
During 1995, difficult economic conditions continued in Venezuela, which
significantly affected CANTV, the Venezuelan telephone company that is 20.4%
owned and operated by GTE. The weak economy, combined with currency controls
that began in mid-1994, limited CANTV's access to international banking and
capital markets during most of 1995. However, in September 1995, CANTV and a
group of creditors completed the refinancing of approximately $1 billion of
CANTV's obligations. As a result, investments in the expansion and modernization
of Venezuela's telecommunications system have continued. These investments,
along with an overall reduction in debt, were funded by operating cash flow.
Due to the high level of inflation experienced in Venezuela, CANTV's results are
substantially influenced by its ability to increase tariffs. CANTV operates
under a Concession Agreement with the Venezuelan government that provides, among
other things, for quarterly tariff increases based on previous rates of
inflation in Venezuela. In 1995, CANTV successfully obtained tariff increases
that mitigated the effects of high local inflation and improved its operating
margins when compared with 1994. CANTV believes that it can continue to obtain
tariff increases in 1996.
Because of the difficult economic conditions, CANTV made only a relatively small
contribution to GTE's 1995 earnings. The network modernization program continued
to produce excellent results in service quality and productivity. Residential
customer satisfaction has doubled to 80% and productivity, as measured by lines
per employee, has increased 75% since the GTE led consortium began operations in
late 1991. CANTV's cumulative mandates under the Concession Agreement to expand,
modernize and improve the telephone network have been met or exceeded.
In December 1995, the Venezuelan government devalued the local currency by 71%.
However, due to the mix of local currency and U.S. dollar denominated assets and
liabilities, the devaluation did not have a significant impact on GTE's results.
GTE believes these economic difficulties are temporary and will be corrected,
and continues to view its interest in CANTV as an excellent long-term
investment.
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<PAGE> 28
REGULATORY AND COMPETITIVE TRENDS
Significant regulatory and legislative developments during 1995 and early 1996
opened various sectors of the telecommunications marketplace to greater levels
of competition.
In February 1996, federal telecommunications reform legislation was signed into
law -- addressing a wide range of competitive and regulatory issues that will
affect the future development of local and long-distance services, cable
television and information services.
The Telecommunications Act of 1996 overhauls 62 years of telecommunications law,
replacing government regulation with competition as the chief way of assuring
that telecommunications services are delivered to customers. The law removes
many of the statutory and court-ordered barriers to competition between segments
of the industry, enabling local-exchange, long-distance and cable companies to
go head-to-head in offering voice, video and information services.
The new law also sets guidelines to open local-exchange markets, loosens
restrictions barring local telephone companies from entering the cable market,
preserves universal service while equalizing the responsibility for contribution
among all carriers, and lifts controls on cable prices.
A key provision of the law also eliminates the legal restraints of the GTE
Consent Decree which has kept GTE's telephone operating companies from providing
interLATA services. This action will simplify GTE's ability to market local and
interLATA services to customers. GTE plans to offer interLATA services early in
1996.
Another key aspect of the federal legislation requires local telephone companies
to allow customers to pre-subscribe to a specific carrier to handle their
intraLATA calls. Pre-subscribed customers will simply dial "1" before the
telephone number in order to complete intraLATA calls. This action will
significantly increase competition in that market.
An order issued by the CPUC that became effective on January 1, 1995 authorized
toll competition, without pre-subscription in California. The order also
provided for rate rebalancing with significant rate reductions for toll services
while increasing local service rates closer to the actual cost of providing such
service. As expected, the net effect on GTE of the implementation of this order
was a decrease of approximately $220 million on revenues in California for 1995
and a loss of approximately 10% of its toll market share.
During 1995 the CPUC accelerated the issuance of regulations that facilitated
competition in local markets beginning in January 1996. Several carriers have
already received approval to enter local markets. GTE and the other major
local-exchange carrier in California will also be able to provide local service
in each other's territory.
In addition to California, several other state legislatures have enacted laws
favoring competition, which will open the local-exchange market and free
existing local-exchange carriers from rate-of-return pricing restrictions. In
Florida, legislation was enacted removing an earnings cap beginning in
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<PAGE> 29
January 1996 concurrent with the opening of the local-exchange market to
competition. In Texas, GTE agreed to a six-year price plan while opening the
local-exchange market to competition. This plan removes an earnings cap,
establishes a universal service mechanism, and requires certain capital spending
levels to provide enhanced service capabilities. During 1995 several other
states began to consider opening the local-exchange market to competition and
associated issues involved in interconnection arrangements, universal service
and other issues.
As of the beginning of 1996 approximately 60% of GTE's domestic access lines no
longer operate under traditional rate-of-return regulations and have adopted
incentive regulation plans for intrastate service.
Interstate access prices charged to interexchange carriers are based on an
annual price cap filing with the Federal Communications Commission (FCC), which
is effective in July of each year. The pricing formulas allow a local- exchange
carrier to select higher productivity factors, which reduce prices, in return
for reducing or eliminating a rate-of-return cap. GTE selected a 4% productivity
factor in jurisdictions representing approximately half of its access lines and
a 5.3% factor for others. The jurisdictions that have a 5.3% productivity factor
do not have an earnings ceiling. The other jurisdictions require 50% sharing
with customers for returns between 12.25% and 13.25% and a 100% refund for
returns in excess of this range. The FCC is considering how the price cap plan
should be modified in the future in order to adapt the system to the emergence
of competition.
Internationally, the pace of regulatory and competitive change has also
accelerated. In Canada, the Canadian Radio-television and Telecommunications
Commission, the telecommunications regulatory authority, issued an order opening
the market for toll services to full competition. To meet this competition, GTE
has implemented aggressive marketing of customer services and technologically
advanced product service offerings to minimize loss of market share. In
addition, cost saving efforts through planned workforce reductions are being
implemented. In the Dominican Republic competitive pressures for international
and local toll traffic have begun to impact revenues and operating margins.
However, government-approved local rate increases as well as the implementation
of productivity improvement programs are expected to offset the impact of
competition.
These recent legislative, judicial and regulatory developments, as well as the
pace of technological change, have continued to influence industry trends and
broaden competition. In virtually all aspects of their businesses, GTE's
wireline and wireless operations face increasing competition from numerous
sources, including interexchange carriers, competitive access providers for
network access services, specialized communications companies that have
constructed new systems in certain markets to bypass the local-exchange network,
and wireless communications providers. Competition from local- exchange
carriers, interexchange carriers, wireless and cable TV companies, as well as
more recent entry by media and computer companies, is expected to increase in
the rapidly changing telecommunications marketplace.
GTE supports greater competition in telecommunications provided that, overall,
the actions to eliminate existing legal and regulatory barriers allow an
opportunity for all service providers to participate equally in a competitive
marketplace under comparable conditions.
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<PAGE> 30
GTE INITIATIVES
In 1995, GTE continued to position itself to respond aggressively to competitive
developments and benefit from new opportunities.
During 1995, GTE continued the implementation of the $1.4 billion re-
engineering program for its U.S. Telephone Operations. Since the program began
in 1994, 258 work centers have been consolidated to 58 and the company's
workforce has been reduced by more than 12,000. Costs of $858 million have been
charged to the restructuring reserve -- $585 million related to customer service
processes, $103 million related to administrative processes and $170 million
related to the consolidation of facilities. These costs were primarily
associated with the closure and relocation of various centers, software
enhancements and separation benefits associated with the workforce reductions.
The continued implementation of this program positions GTE to accelerate
delivery of a full array of voice, video and data services and to reach its
stated objective of being the easiest company to do business with in the
industry.
In May 1995, the FCC approved GTE's applications to construct new fiber-optic
and coaxial-cable video networks in Ventura County, Calif., and Pasco and
Pinellas Counties, Fla. GTE expects to begin delivery of video services to
customers during 1996.
In August 1995, GTE signed a definitive agreement to join The Walt Disney
Company, Ameritech Corporation, BellSouth Corporation and SBC Communications,
Inc. as an equal partner in americast,(TM) a venture designed to provide video
programming and interactive services for millions of American households. GTE's
involvement strengthens the venture by increasing its combined reach from 50
million to 68 million access lines in 33 states.
GTE and its three other telecommunications partners will distribute, through
their local broadband networks, video programming developed by The Walt Disney
Company. In addition, GTE will invest in the necessary equipment to deliver
programming to its customers. These activities will strengthen GTE's existing
activities in video. GTE Interactive Media and GTE mainStreet give GTE the
ability to develop, market, publish and distribute video games and interactive
programs as well as explore new technologies.
In late 1995, GTE entered the Internet access business. Initially the service
will be targeted to schools, universities and business customers. GTE.net, a
first step, paves the way for a nationwide data-network infrastructure, allowing
GTE to enter new markets and to develop new products and services.
In March 1995, GTE acquired the Seattle, Atlanta and Cincinnati markets for
wireless PCS through an auction by the FCC for 1.8 GHz broadband spectrum
licenses. Once construction of the network is complete, this will provide GTE
with new market coverage and create a more complete "footprint" in several large
markets. The Seattle market, already served by GTE wireline service, will be
enhanced with wireless offerings, enabling GTE to provide a full bundle of
communication services to consumers. The new spectrum in Atlanta and Cincinnati
will allow GTE to build on its cluster strategy and to expand an already strong
cellular presence.
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<PAGE> 31
To capitalize on opportunities for long-term profitable growth, GTE is actively
pursuing expansion of its international operations. Specifically, GTE has formed
an alliance in Mexico to pursue opportunities when Mexico's telecommunications
market opens to competition in 1997. The alliance intends to provide national
and international long-distance services.
In China, GTE has formed an alliance with China United Telecommunication
Corporation for various projects relating to the development of China's second
telecommunications network. Additionally in 1996, GTE established a joint
venture with a leading Chinese wireless telecommunications operator. GTE will
initially invest approximately $28 million, which will be used to design, build
and install wireless networks, provide training and offer technical consulting.
The venture's first project is to support a wireless paging system that will
eventually encompass 25 cities, including Beijing.
Early in 1995, GTE, as leader of the CTI consortium, completed the construction
of a network to provide wireless service to most of Argentina. CTI ended 1995
with over 100,000 customers served by the network. Long-term financing was
arranged for CTI in late 1995.
CAPITAL INVESTMENT,
RESOURCES AND LIQUIDITY
RETURN ON EQUITY
GTE's return on average common equity was 23.2% in 1995 compared with 23.3% in
1994, before considering the extraordinary charges in 1995 and the gains on the
sales of certain nonstrategic domestic local-exchange telephone properties in
both years.
CAPITALIZATION
GTE targets a capital structure and overall credit position that is appropriate
for an "A" rated company. This allows GTE's shareholders to enjoy the benefits
of reasonable financial leverage, while also protecting debtholder interests and
ensuring ready access to the capital markets. During 1995, GTE announced plans
to repurchase up to 20 million shares of its currently issued common stock from
time to time, depending on market conditions. The shares will be used to satisfy
the requirements of GTE's employee benefit and dividend reinvestment programs.
At the end of 1995, 3.6 million shares had been repurchased under this program.
Total equity as a percentage of total capitalization was 37.9% at the end of
1995 compared with 46.2% in 1994, primarily reflecting the impact of the
extraordinary charges recorded at the end of 1995. Excluding the extraordinary
charges, total equity would have been 48.1% of total capitalization at the end
of 1995.
CASH FLOW
GTE's cash flow from operations increased from $4.7 billion in 1994 to $5.0
billion in 1995, reflecting improved operating results as well as lower tax
payments from nonstrategic property sales and the completion of a major
government telecommunications contract last year.
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<PAGE> 32
During 1995, GTE invested approximately $350 million to acquire PCS licenses
during the FCC's auction process, as well as approximately $250 million to
acquire the remaining 10% ownership of Contel Cellular Inc. that GTE did not
already own.
At the end of 1995, GTE redeemed, in advance of scheduled maturity, $932 million
of its telephone operating subsidiaries' high-coupon debt issues and 12 series
of preferred stock totaling $71 million. The refinancing of the high-coupon debt
and preferred stock will be completed during 1996.
Capital expenditures totaled $4.0 billion in 1995, about 4% below the level of
expenditures in 1994. The declining requirements for conversion to digital
switching systems offset expansion and enhancements of the cellular network, as
well as investments in fiber optics and other enabling technologies for
broadband services. In 1996, capital expenditures are expected to increase
slightly for the deployment of broadband video networks in California and
Florida, buildout of the new wireless PCS networks and other requirements for
new revenue growth initiatives and expanded service capabilities. In 1996, GTE
expects to fund dividends and the capital requirements for its businesses
substantially with cash from operations. However, GTE's strong financial
position allows ready access to worldwide capital markets for any additional
requirements.
FORWARD-LOOKING STATEMENTS
GTE has projected earnings-per-share growth of not less than 10% for the
foreseeable future. GTE has also projected that revenue will grow by a range of
6% to 8%. In addition, GTE expects net income from existing international
operations to double in the next five years.
RISK FACTORS
GTE's forward-looking statements are based on a series of projections and
estimates regarding the economy and the telecommunications industry in general
and on key performance indicators which impact the company directly. The
projections and estimates regarding the telecommunications industry relate to
pricing of services, the effects of competition and the success of new products
and services and new businesses such as long distance.
Key performance indicators that have a direct bearing on GTE's ability to attain
these projections include continuing annual growth in: telephone access lines
and minutes of use; cellular volume and customers; and new and nontraditional
revenues at levels that meet internal forecasts. Also, in developing its
forward-looking statements, GTE has made certain assumptions relating to
productivity improvements and the outcome of various commercial, legal and
regulatory proceedings and lack of disruption to its markets.
If GTE's actual performance differs materially from its projections and
estimates regarding the economy, the telecommunications industry and key
performance indicators, GTE's actual results could vary significantly from the
performance projected in the forward-looking statements.
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<PAGE> 33
Item 8. Financial Statements and Supplementary Data.
Reference is made to the financial statements included elsewhere
herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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<PAGE> 34
PART III
Item 10. Directors and Executive Officers of the Registrant as of December 31,
1995 (a).
EXECUTIVE OFFICERS OF GTE
-------------------------
<TABLE>
<CAPTION>
DATE ASSUMED
NAME(b) TITLE AGE PRESENT POSITION
------- ----- --- ----------------
<S> <C> <C> <C>
Charles R. Lee Chairman and Chief Executive Officer 56 May 1992
Kent B. Foster President 52 June 1995
Michael T. Masin (c) Vice Chairman and President - International 51 June 1995
William P. Barr (d) Senior Vice President and General Counsel 45 July 1994
Robert C. Calafell Senior Vice President - Corporate Planning
and Development 54 March 1995
Armen Der Marderosian Senior Vice President - Technology
and Systems 58 July 1995
J. Michael Kelly (e) Senior Vice President - Finance 39 February 1994
J. Randall MacDonald Senior Vice President - Human Resources
and Administration 47 March 1995
Dan J. Cohrs (f) Vice President and Treasurer 43 August 1995
Geoffrey C. Gould (g) Vice President - Government and
Federal Regulatory Affairs 43 January 1995
John P. Z. Kent Vice President - Taxes 55 July 1989
Lawrence R. Whitman Vice President and Controller 44 April 1995
Patricia D. Yoder (h) Vice President - Public Affairs and 56 October 1995
Communications
Marianne Drost Secretary 46 August 1985
</TABLE>
- ---------------
(a) Reference is made to pages 20 to 25 of GTE's Proxy Statement covering
the Annual Meeting of Shareholders to be held on April 17, 1996, which
is incorporated herein by reference, for information concerning
directors of GTE.
(b) With the exception of Michael T. Masin, William P. Barr, J. Michael
Kelly, Dan J. Cohrs, Geoffrey C. Gould and Patricia D. Yoder, each of
the officers named has been employed by GTE or a GTE subsidiary for more
than five years.
(c) Mr. Masin joined GTE as Vice Chairman effective October 20, 1993. He was
also elected President - International on June 30, 1995. He had been a
director of GTE since 1989. Prior to joining GTE as Vice Chairman, he
was the Managing Partner of the New York Office of O'Melveny & Myers and
Co-chair of the firm's international practice group. Mr. Masin joined
the firm in 1969 and became a partner in 1977.
(d) Mr. Barr was elected Senior Vice President and General Counsel effective
July 5, 1994. Prior to joining GTE, he was a partner in the Washington,
D.C. office of the law firm of Shaw, Pittman, Potts & Trowbridge since
1993. He served as Attorney General of the United States from 1991 to
1993. Mr. Barr joined the Department of Justice as Assistant Attorney
General in charge of the Office of Legal Counsel in 1989, and
subsequently served as Deputy Attorney General prior to his appointment
as Attorney General.
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<PAGE> 35
Item 10. Directors and Executive Officers of the Registrant (Continued).
(e) Mr. Kelly was elected Senior Vice President - Finance on February 24,
1994. He had been Vice President and Controller since December 1991 and
Vice President-Finance and Business Development for GTE's
Telecommunications Products and Services Group since March 1991. Prior
to joining GTE, he was Vice President and Controller for Contel
Corporation ("Contel") which merged with a subsidiary of GTE in 1991.
From 1988 to 1990 he was Controller of Contel Federal Systems. He joined
Contel in 1987 as Controller of the Applied Systems Division of Contel
Federal Systems.
(f) Mr. Cohrs was elected Vice President and Treasurer on August 3, 1995. He
had been Assistant Treasurer - Capital Markets of GTE Service
Corporation since June 1993. Prior to joining GTE, he had been Vice
President - International Finance for Northwest Airlines ("Northwest")
in Tokyo, and before that was Northwest's Vice President - Capital
Markets.
(g) Mr. Gould was elected Vice President - Government and Federal Regulatory
Affairs on January 31, 1995. He joined GTE from Contel and was elected
Vice President-Merger Integration, Telephone Operations Group, effective
March 14, 1991. He became Vice President - Regulatory and Government
Affairs, Telephone Operations Group, in 1992. Prior to joining GTE he
had been President of Contel's Western Region in Bakersfield,
California.
(h) Ms. Yoder was elected Vice President - Public Affairs and Communications
effective October 16, 1995. She joined GTE from General Electric Capital
Services in Stamford, Connecticut where she had served as Vice President
and Manager - Corporate Public Relations and Advertising since 1991.
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<PAGE> 36
Item 11. Executive Compensation.
See pages 6 to 17 of GTE's Proxy Statement covering the Annual
Meeting of Shareholders to be held on April 17, 1996, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See pages 18 and 19 of GTE's Proxy Statement covering the Annual
Meeting of Shareholders to be held on April 17, 1996, which is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See page 18 of GTE's Proxy Statement covering the Annual Meeting
of Shareholders to be held on April 17, 1996, which is
incorporated herein by reference.
-35-
<PAGE> 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Consolidated Financial Statements - GTE Corporation and
Subsidiaries:
See GTE's consolidated financial statements and report of
independent accountants thereon in the Financial Statements
section included elsewhere herein.
2. Financial Statement Schedules:
Schedules Supporting the Consolidated Financial Statements
for the Years Ended December 31, 1995 - 1993 (as required):
II - Valuation and Qualifying Accounts
Note: Schedules other than the one listed above are omitted
as not applicable, not required, or the information is
included in the consolidated financial statements or
notes thereto.
3. Exhibits:
See "Index of Exhibits" included elsewhere herein.
(b) GTE filed a report on Form 8-K dated November 9, 1995, under Item
5, "Other Events." Financial information was filed with this
report. In addition, GTE filed a report on Form 8-K dated
November 17, 1995, under Item 5, "Other Events." No financial
information was filed with this report.
-36-
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GTE CORPORATION
-----------------------------------
(Registrant)
By Lawrence R. Whitman
-----------------------------------
(Lawrence R. Whitman)
Vice President and Controller
Date March 5, 1996
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
(1) Principal executive officer:
Date March 5, 1996 By Charles R. Lee
------------- -----------------------------------
(Charles R. Lee)
Chairman of the Board and
Chief Executive Officer
(2) Principal financial officer:
Date March 5, 1996 By J. Michael Kelly
------------- -----------------------------------
(J. Michael Kelly)
Senior Vice President - Finance
(3) Principal accounting officer:
Date March 5, 1996 By Lawrence R. Whitman
------------- -----------------------------------
(Lawrence R. Whitman)
Vice President and Controller
-37-
<PAGE> 39
SIGNATURES - (Continued):
(4) Directors:
Date March 5, 1996 By Edwin L. Artzt
------------- -----------------------------------
(Edwin L. Artzt - Director)
Date March 5, 1996 By James R. Barker
------------- -----------------------------------
(James R. Barker - Director)
Date March 5, 1996 By Edward H. Budd
------------- -----------------------------------
(Edward H. Budd - Director)
Date March 5, 1996 By Robert F. Daniell
------------- -----------------------------------
(Robert F. Daniell - Director)
Date March 5, 1996 By Kent B. Foster
------------- -----------------------------------
(Kent B. Foster - Director)
Date March 5, 1996 By James L. Johnson
------------- -----------------------------------
(James L. Johnson - Director)
Date March 5, 1996 By Richard W. Jones
------------- -----------------------------------
(Richard W. Jones - Director)
Date March 5, 1996 By James L. Ketelsen
------------- -----------------------------------
(James L. Ketelsen - Director)
Date March 5, 1996 By Charles R. Lee
------------- -----------------------------------
(Charles R. Lee - Director)
Date March 5, 1996 By Michael T. Masin
------------- -----------------------------------
(Michael T. Masin - Director)
Date March 5, 1996 By Sandra O. Moose
------------- -----------------------------------
(Sandra O. Moose - Director)
Date March 5, 1996 By Russell E. Palmer
------------- -----------------------------------
(Russell E. Palmer - Director)
-38-
<PAGE> 40
SIGNATURES - (Continued):
(4) Directors:
Date March 5, 1996 By Howard Sloan
------------- -----------------------------------
(Howard Sloan - Director)
Date March 5, 1996 By Robert D. Storey
------------- -----------------------------------
(Robert D. Storey - Director)
-39-
<PAGE> 41
FINANCIAL STATEMENTS
<PAGE> 42
CONSOLIDATED STATEMENTS OF INCOME
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31
(Millions of Dollars, Except
Per-Share Amounts) 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES AND SALES
Local services .............................. $ 5,839 $ 5,234 $ 5,159
Network access services ..................... 4,363 4,348 4,398
Toll services ............................... 2,548 3,285 3,321
Cellular services ........................... 2,191 1,666 1,178
Directory services .......................... 1,383 1,372 1,438
Other services and sales .................... 3,633 3,623 3,838
- ---------------------------------------------------------------------------------------------
Total revenues and sales ............ 19,957 19,528 19,332
- ---------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of services and sales .................. 7,537 7,677 7,848
Selling, general and administrative ......... 3,689 3,667 3,817
Depreciation and amortization ............... 3,675 3,432 3,419
Restructuring ............................... -- -- 1,840
- ---------------------------------------------------------------------------------------------
Total operating costs and expenses .. 14,901 14,776 16,924
- ---------------------------------------------------------------------------------------------
OPERATING INCOME ............................ 5,056 4,752 2,408
OTHER (INCOME) EXPENSE
Interest -- net ............................. 1,047 1,059 1,197
Other -- net ................................ 5 (280) (329)
- ---------------------------------------------------------------------------------------------
Income before income taxes .................. 4,004 3,973 1,540
Income taxes ................................ 1,466 1,532 568
- ---------------------------------------------------------------------------------------------
Income before extraordinary charges ......... 2,538 2,441 972
Extraordinary charges ....................... (4,682) -- (90)
- ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) ........................... $(2,144) $ 2,441 $ 882
=============================================================================================
EARNINGS (LOSS) PER COMMON SHARE
Before extraordinary charges ................ $ 2.62 $ 2.55 $ 1.03
Extraordinary charges ....................... (4.83) -- (.10)
- ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) ........................... $ (2.21) $ 2.55 $ .93
=============================================================================================
Average common shares outstanding
(in millions) ............................. 970 958 945
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-40-
<PAGE> 43
CONSOLIDATED BALANCE SHEETS
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
(Millions of Dollars) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments ........................ $ 332 $ 323
Receivables, less allowances of $263 and $207 ......... 4,227 4,022
Inventories and supplies .............................. 719 676
Deferred income tax benefits .......................... 330 321
Other ................................................. 284 292
- --------------------------------------------------------------------------------------
Total current assets ............................... 5,892 5,634
- --------------------------------------------------------------------------------------
Property, plant and equipment, net .................... 22,437 29,328
Employee benefit plans ................................ 3,058 2,529
Franchises, goodwill and other intangibles ............ 2,765 2,149
Investments in unconsolidated companies ............... 1,745 1,551
Other assets .......................................... 1,122 1,309
- --------------------------------------------------------------------------------------
Total assets ....................................... $37,019 $42,500
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term obligations, including current maturities .. $ 2,156 $ 2,042
Accounts payable and accrued expenses ................. 3,858 4,010
Taxes payable ......................................... 890 871
Accrued restructuring costs ........................... 512 436
Dividends payable ..................................... 476 472
Other ................................................. 420 390
- --------------------------------------------------------------------------------------
Total current liabilities .......................... 8,312 8,221
- --------------------------------------------------------------------------------------
Long-term debt ........................................ 12,744 12,163
Employee benefit plans ................................ 4,638 4,651
Deferred income taxes ................................. 1,203 3,522
Minority interests in equity of subsidiaries .......... 2,230 1,658
Other liabilities ..................................... 1,021 1,729
- --------------------------------------------------------------------------------------
Total liabilities .................................. 30,148 31,944
- --------------------------------------------------------------------------------------
PREFERRED STOCK, SUBJECT TO MANDATORY REDEMPTION ...... -- 73
- --------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock ....................................... -- 10
Common stock -- shares issued 977,483,844
and 965,084,925 .................................... 49 48
Additional paid-in capital ............................ 8,049 7,627
Retained earnings (deficit) ........................... (534) 3,422
Guaranteed ESOP obligations ........................... (603) (624)
Treasury stock -- 2,423,284 shares in 1995, at cost ... (90) --
- --------------------------------------------------------------------------------------
Total shareholders' equity ......................... 6,871 10,483
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity ......... $37,019 $42,500
======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-41-
<PAGE> 44
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Income before extraordinary charges ............................................. $ 2,538 $ 2,441 $ 972
Adjustments to reconcile income before
extraordinary charges to net cash from operations:
Depreciation and amortization ................................................ 3,675 3,432 3,419
Deferred income taxes ........................................................ 484 248 (864)
Restructuring costs .......................................................... -- -- 1,840
Changes in current assets and current liabilities, excluding the effects of
acquisitions and dispositions:
Receivables -- net ..................................................... (561) (554) (706)
Other current assets ................................................... (92) (4) 168
Accrued taxes and interest ............................................. (25) (209) 465
Other current liabilities .............................................. (598) (262) 60
Other -- net ................................................................. (388) (352) 19
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from operations .................................................. 5,033 4,740 5,373
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING
Capital expenditures ............................................................ (4,034) (4,192) (3,893)
Acquisitions and investments .................................................... (798) (244) (46)
Proceeds from sales of assets ................................................... 314 1,163 2,267
Other -- net .................................................................... 17 4 (66)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing ................................................ (4,501) (3,269) (1,738)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING
Common stock issued ............................................................. 385 422 383
Purchase of treasury stock ...................................................... (133) -- --
Dividends ....................................................................... (1,827) (1,806) (1,744)
Long-term debt and preferred securities issued .................................. 1,098 2,345 2,325
Long-term debt and preferred securities retired ................................. (1,553) (1,178) (4,539)
Increase (decrease) in short-term obligations, excluding
current maturities ........................................................... 1,529 (1,278) 7
Other -- net .................................................................... (22) 25 (99)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing ................................................ (523) (1,470) (3,667)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary investments ........................... 9 1 (32)
Cash and temporary investments
Beginning of year ............................................................ 323 322 354
- --------------------------------------------------------------------------------------------------------------------------------
End of year .................................................................. $ 332 $ 323 $ 322
================================================================================================================================
CASH PAID DURING THE YEAR FOR
Interest ..................................................................... $ 1,133 $ 1,084 $ 1,373
Income taxes ................................................................. 985 1,598 880
================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-42-
<PAGE> 45
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional Retained Guaranteed
Preferred Common Paid-in Earnings ESOP Treasury
(Millions of Dollars) Stock Stock Capital (Deficit) Obligations Stock Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY,
DECEMBER 31, 1992........................... $ 112 $47 $7,134 $ 3,621 $(657) $(181) $10,076
Net income.................................. 882 882
Dividends declared.......................... (1,748) (1,748)
Common stock issued under employee and
shareholder plans (6,614,705 shares)........ 1 201 202
Treasury stock issued (5,616,851 shares).... 181 181
Other....................................... (1) (26) 14 13 --
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY,
DECEMBER 31, 1993........................... 111 48 7,309 2,769 (644) -- 9,593
Net income.................................. 2,441 2,441
Dividends declared.......................... (1,800) (1,800)
Common stock issued under employee and
shareholder plans (13,323,033 shares)....... 395 395
Retirement of preferred stock (4,000,000
shares).................................... (100) (100)
Other....................................... (1) (77) 12 20 (46)
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY,
DECEMBER 31, 1994........................... 10 48 7,627 3,422 (624) -- 10,483
Net loss.................................... (2,144) (2,144)
Dividends declared.......................... (1,824) (1,824)
Common stock issued under employee and
shareholder plans (12,398,919 shares)....... 1 369 370
Purchase of treasury stock (3,589,200
shares).................................... (133) (133)
Treasury stock issued (1,165,916 shares).... 43 43
Retirement of preferred stock (265,895
shares).................................... (10) (10)
Other....................................... 53 12 21 86
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY,
DECEMBER 31, 1995........................... $ -- $49 $8,049 $ (534) $(603) $ (90) $ 6,871
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-43-
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GTE CORPORATION AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
GTE Corporation and subsidiaries (GTE) is the largest U.S.-based local telephone
company. GTE's domestic and international operations serve 24.1 million access
lines in the United States, Canada, the Dominican Republic and Venezuela.
Domestically, GTE is a leading mobile-cellular operator with the potential of
serving 67 million cellular and personal communications service customers.
Outside the United States, GTE operates mobile-cellular networks serving some 15
million POPs through affiliates in Canada, the Dominican Republic, Venezuela and
Argentina. GTE is also a leader in government and defense communications systems
and equipment, aircraft-passenger telecommunications, directories and
telecommunications-based information services and systems.
BASIS OF PRESENTATION
GTE prepares its consolidated financial statements in accordance with generally
accepted accounting principles, which require that management make estimates and
assumptions that affect the reported amounts. Actual results could differ from
those estimates.
The consolidated financial statements of GTE include the accounts of all
majority-owned subsidiaries. All significant intercompany amounts have been
eliminated. Investments in 20%-50% owned companies are accounted for on the
equity basis. Investments of less than 20% are generally accounted for on the
cost basis.
GTE's telephone subsidiaries discontinued applying the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" (FAS 71), in the fourth quarter of 1995 (see
Note 2). The 1995 financial statement presentation reflects account
classifications consistent with unregulated enterprises operating in a
competitive environment. Specifically, intercompany sales and related costs of
materials and equipment to regulated telephone operations have been eliminated.
In addition, uncollectible revenue accounts have been reclassified from revenues
and sales to selling, general and administrative expenses. Reclassifications of
prior-year data have been made, where appropriate, to conform to the 1995
presentation.
REVENUE RECOGNITION
Revenues are generally recognized when services are rendered or products are
delivered to customers. Long-term contracts are accounted for using the
percentage of completion method, with revenues recognized in the proportion that
costs incurred bear to the estimated total costs at completion. Expected losses
on such contracts, if any, are charged to income currently.
DEPRECIATION AND AMORTIZATION
GTE's telephone subsidiaries have historically provided for depreciation on a
straight-line basis over asset lives approved by regulators. Beginning in 1996,
GTE's telephone subsidiaries will provide for depreciation on a straight-line
basis over the estimated economic lives of their assets (see Note 2). All other
subsidiaries provide for depreciation over the estimated economic lives of
assets using the straight-line method.
Franchises, goodwill and other intangibles are amortized on a straight-line
basis over the periods to be benefited, or 40 years, whichever is less.
Amortization expense for
-44-
<PAGE> 47
consolidated subsidiaries was $87 million, $71 million and $83 million in
1995-93, respectively. Accumulated amortization was $404 million and $319
million at December 31, 1995 and 1994, respectively.
Goodwill resulting from investments in unconsolidated subsidiaries is also
amortized on a straight-line basis over the periods to be benefited, or 40
years, whichever is less.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign countries, except
those operating in highly inflationary economies, are translated into U.S.
dollars using the exchange rates in effect at the balance sheet date. Results of
operations are translated using the average exchange rates prevailing throughout
the period. The effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars are included in shareholders'
equity. Translation gains and losses of affiliates operating in highly
inflationary economies are included in net income as they occur.
EMPLOYEE BENEFIT PLANS
Pension and postretirement health care and life insurance benefits earned during
the year as well as interest on accumulated benefit obligations are accrued
currently. Prior service costs and credits resulting from changes in plan
benefits are amortized over the average remaining service period of the
employees expected to receive benefits. Material curtailment/settlement gains
and losses associated with employee separations are recognized in the period in
which they occur.
INCOME TAXES
Deferred tax assets and liabilities are established for temporary differences
between financial and tax reporting bases and are subsequently adjusted to
reflect changes in tax rates expected to be in effect when the temporary
differences reverse. A valuation allowance is established for any deferred tax
asset for which realization is not likely.
Deferred income taxes are not provided on undistributed earnings of foreign
subsidiaries, aggregating approximately $381 million at December 31, 1995, as
such earnings are expected to be permanently reinvested in those companies.
COMPUTER SOFTWARE
The cost of computer software for internal use, except initial operating system
software, is charged to expense as incurred. Initial operating system software
is capitalized and amortized over the life of the related hardware.
EARNINGS PER SHARE
Earnings per common share is computed by dividing net income (loss) applicable
to common stock by the weighted average number of common shares outstanding
during the period. Common share equivalents have been excluded from this
computation since they do not have a dilutive effect of 3% or more.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include investments in short-term, highly liquid
securities, which have maturities when purchased of three months or less.
INVENTORIES AND SUPPLIES
Inventories and supplies are stated at the lower of cost, determined principally
by the average cost method, or net realizable value.
-45-
<PAGE> 48
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121) in March 1995,
which is effective January 1, 1996. FAS 121 requires that an impairment loss be
recognized when circumstances indicate that the carrying amount of an asset may
not be recoverable. Historically, GTE has used a methodology similar to FAS 121
in determining the amount of an impairment. Accordingly, the issuance of FAS 121
will not have a significant impact on GTE's consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). As
permitted by FAS 123, GTE will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of FAS 123 beginning
in 1996. Accordingly, the issuance of FAS 123 will not impact GTE's consolidated
financial statements.
2. EXTRAORDINARY CHARGES
In response to recently enacted and pending legislation and the increasingly
competitive environment in which GTE's telephone subsidiaries expect to operate,
GTE discontinued the use of FAS 71 in the fourth quarter of 1995. During 1995,
10 states in which GTE's telephone subsidiaries operate, including California,
Florida and Texas, passed or initiated legislation allowing local competition.
Furthermore, there has been a shift in the manner in which GTE's telephone
subsidiaries are regulated; at the beginning of 1996, approximately 70% of GTE's
domestic telephone service revenues were subject to alternative forms of
regulation.
In general, FAS 71 required GTE's telephone subsidiaries to depreciate
their telephone plant and equipment over lives approved by regulators that, in
many cases, extended beyond the assets' 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 in many cases higher than that which would otherwise have been
recorded based on their economic lives.
As a result of the decision to discontinue FAS 71, GTE recorded a noncash,
after-tax extraordinary charge of $4.6 billion (net of tax benefits of $2.8
billion), or $4.79 per share, in the fourth quarter of 1995. The charge
primarily represents a reduction in the net book value of telephone plant and
equipment of GTE's domestic telephone subsidiaries through an increase in
accumulated depreciation. The amount of the charge was based on an analysis of
the discounted cash flows expected to be generated by the embedded telephone
plant and equipment over their remaining economic lives.
In addition to the one-time charge, GTE, beginning in 1996, will shorten
the depreciable lives of its telephone plant and equipment as follows as a
result of the discontinuation of FAS 71:
<TABLE>
<CAPTION>
Depreciable Lives
Asset Category Before After
- --------------------------------------------------------------------------------
<S> <C> <C>
Copper ......................................... 20-30 15
Switching ...................................... 17-19 10
Circuit ........................................ 11-13 8
Fiber .......................................... 25-30 20
</TABLE>
-46-
<PAGE> 49
In addition, during 1995, GTE redeemed, prior to their stated maturity, 12
series of its preferred stock totaling $71 million and $932 million of its
telephone operating subsidiaries' long-term debt. These redemptions resulted in
an after-tax extraordinary charge of $41 million (net of tax benefits of $21
million), or $.04 per share.
During 1993, GTE redeemed, prior to scheduled maturity, $2.1 billion of
high-coupon first-mortgage bonds of five of its telephone subsidiaries. These
redemptions resulted in an after-tax extraordinary charge of $90 million (net of
tax benefits of $53 million), or $.10 per share.
3. INVESTMENTS IN UNCONSOLIDATED COMPANIES
GTE's investments in unconsolidated subsidiaries include its investment in
Compania Anonima Nacional Telefonos de Venezuela (CANTV) and Compania de
Telefonos del Interior (CTI), as well as its investments in cellular
partnerships in the United States and other international investments.
GTE has a 20.4% ownership interest in CANTV, the Venezuelan telephone
company. CANTV is the primary provider for local, national long-distance and
international long-distance telephone service in Venezuela. CANTV also provides
other telecommunication and related services, including cellular telephone and
directory advertising services. At December 31, 1995 and 1994, GTE had an
investment in CANTV of $1.2 billion and $1.1 billion, including $758 million and
$779 million of goodwill, respectively.
In early 1994, CTI, an international consortium, was awarded two licenses
to provide cellular services in the north and south interior regions of
Argentina. GTE has a 25.5% ownership interest in CTI. At December 31, 1995 and
1994, GTE had an investment in CTI of $88 million and $77 million and guaranteed
$109 million of its debt at December 31, 1995.
Other investments in unconsolidated subsidiaries, primarily cellular
partnerships, were $461 million and $340 million at December 31, 1995 and 1994,
including $24 million and $25 million of goodwill, respectively.
4. RESTRUCTURING COSTS
Results for 1993 include one-time restructuring costs of $1.8 billion, which
reduced net income by $1.2 billion, or $1.22 per share. These restructuring
costs relate primarily to Telephone Operations' plan to improve
customer-responsiveness and product quality, reduce the time necessary to
introduce new products and services and further reduce costs. The implementation
of the plan is expected to result in costs of $900 million to re-engineer
customer service processes and $300 million to re-engineer administrative
processes. The restructuring costs also include $170 million to consolidate
facilities and operations and other related costs. Implementation of the
re-engineering plan began during 1994 and is expected to be substantially
completed by the end of 1996.
Since the inception of the plan, 258 work centers have been consolidated to
58 and workforce reductions of approximately 12,000 have occurred. Costs of $858
million have been incurred since the plan's inception, including $585 million
related to customer service processes, $103 million related to administration
processes and $170 million related to the consolidation of facilities and
operations. These expenditures were primarily associated with the closure and
relocation of the various centers, software enhancements and separation benefits
related to employee reductions.
-47-
<PAGE> 50
The 1993 restructuring charge also included a $400 million reduction in the
carrying value of the satellite communication assets of GTE Spacenet (Spacenet)
and certain other assets to estimated net realizable value. During 1994, GTE
sold Spacenet at a price that approximated its book value.
5. PROPERTY REPOSITIONING AND DISCONTINUED OPERATIONS
During 1994, GTE substantially completed its plan to pursue the sale or exchange
of nonstrategic domestic local-exchange telephone properties in markets that may
be of greater long-term strategic value to other telephone service providers.
Telephone properties serving 448,000 access lines in nine states were sold for
$900 million in cash. During 1993, GTE sold telephone properties serving 530,000
access lines in eight states in return for 90,000 access lines in Illinois,
Indiana and Michigan and $1 billion in cash.
The consolidated statements of income for the years ended December 31, 1994
and 1993 include the results of operations, through the date of sale, of
Spacenet and the telephone properties sold during 1994 and 1993. For
comparability, the following table includes pro forma adjustments to remove the
operating results of Spacenet and the telephone properties sold. In addition,
the table has been adjusted to exclude the 1993 impact of the one-time
restructuring costs described in Note 4 and a pre-tax charge of $74 million
associated with voluntary separation programs offered during 1993 by Telephone
Operations to its domestic workforce:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues and sales ................ $19,957 $19,191 $18,472
Operating income .................. 5,056 4,700 4,246
</TABLE>
As a result of these transactions, GTE recorded pre-tax gains in 1994 and
1993 of $264 million and $168 million, respectively. In addition, during 1995,
GTE sold approximately 10,000 access lines for $30 million in cash, resulting in
a pre-tax gain of $16 million. These gains are included in "Other--net" in the
accompanying consolidated statements of income.
In January 1993, GTE sold its previously discontinued worldwide Electrical
Products Group. The aggregate sales price, which included the assumption of
debt, totaled approximately $1.2 billion.
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK
During 1995, GTE retired prior to stated maturity, its non-redeemable preferred
stock of approximately $10 million (see Note 2). Preferred stock had voting
rights generally on an equal basis with common stock.
Dividends were cumulative on all preferred stock.
COMMON STOCK
The authorized common stock of GTE at December 31, 1995 consisted of two billion
shares with a par value of $.05 per share. In August 1995, GTE's Board of
Directors authorized repurchasing up to 20 million 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. The shares will be used to satisfy the requirements of GTE's
employee benefit and dividend reinvestment programs.
-48-
<PAGE> 51
ADDITIONAL PAID-IN CAPITAL
Additional paid-in capital includes the cumulative foreign currency translation
adjustment of ($192) million, ($207) million and ($168) million at December 31,
1995-93, respectively, and the cumulative unrealized gains (losses) on
investments in debt and equity securities of $20 million, ($22) million and $16
million at December 31, 1995-93, respectively.
7. STOCK OPTION AND SHAREHOLDER RIGHTS PLANS
STOCK OPTION PLANS
GTE maintains stock option plans for key management employees. The options may
be granted separately or in conjunction with stock appreciation rights. The
options allow the purchase of GTE common stock at the market price on the date
of grant and have a term of 10 years. The options vest over periods not
exceeding four years.
The number of shares that are available for granting in each year is
limited to four tenths of one percent of GTE's outstanding common stock as of
December 31 of the preceding year. Any unused amount is carried forward and made
available for granting in the subsequent year.
The following table summarizes stock option activity during each of the
last three years:
<TABLE>
<CAPTION>
(Number of Options in Thousands) Stock Options Average Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1992 ................. 7,728 $27.88
Options granted ......................... 1,989 35.24
Options exercised ....................... (1,195) 23.99
Options cancelled or forfeited .......... (50) 23.21
------------------------
Balance, December 31, 1993 ................. 8,472 30.19
Options granted ......................... 4,118 32.53
Options exercised ....................... (173) 25.09
Options cancelled or forfeited .......... (153) 33.12
------------------------
Balance, December 31, 1994 ................. 12,264 31.01
Options granted ......................... 5,728 33.54
Options exercised ....................... (2,375) 29.17
Options cancelled or forfeited .......... (183) 33.16
------------------------
BALANCE, DECEMBER 31, 1995 ................. 15,434 $32.21
================================================================================
</TABLE>
At December 31, 1995, 6.9 million options were exercisable.
SHAREHOLDER RIGHTS PLAN
GTE maintains a shareholder rights plan. Under the original provisions of this
plan, a right to purchase one one-thousandth of a share of series A
participating no par preferred stock for $200 (a "Right") was granted for each
outstanding share of GTE common stock. As a result of a two-for-one stock split
effected after the adoption of the plan, each share of GTE common stock is
currently entitled to one-half of a Right. The Rights become exercisable only if
a person or group, without GTE's prior consent, (i) acquires or commences a
tender or exchange offer for 20% or more of GTE common stock, or (ii) acquires
10% or more of GTE common stock and executes an agreement with GTE to effect a
merger or other business combination. The Rights have certain anti-takeover
effects. The Rights are designed to cause substantial dilution to a person
-49-
<PAGE> 52
or group that attempts to acquire GTE on terms not approved by GTE's Board of
Directors. The Rights may be redeemed by GTE at a price of $.01 per right, at
any time prior to becoming exercisable. Rights that are not redeemed or
exercised will expire on December 7, 1999.
8. MINORITY INTERESTS
Minority interests in equity of subsidiaries includes the following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Minority interests in consolidated subsidiaries:
BC TEL (50.7% GTE ownership) ........................ $ 721 $ 659
Quebec Telephone (50.3% GTE ownership) .............. 81 79
Cellular partnerships and other ..................... 117 114
Preferred securities issued by subsidiaries ............ 1,311 806
--------------------
Total minority interests in equity of subsidiaries .. $2,230 $1,658
====================================================================================
</TABLE>
Preferred securities issued by subsidiaries at December 31, 1995 and 1994
include $1.0 billion and $489 million, respectively, of Monthly Income Preferred
Securities which are subject to mandatory redemption. These securities issued by
GTE Delaware, a limited partnership holding solely GTE debentures, have
cumulative annual dividend rates of 8.75% and 9.25% and maturities of 30 years.
9. DEBT
Long-term debt as of December 31 was as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
GTE Corporation:
Debentures, maturing 1998 through 2023,
average rate 9.0% ............................ $ 3,350 $ 3,350
Guaranteed ESOP obligations, maturing
1997-2005, average rate 9.7% ................. 624 649
Sinking fund debenture, maturing in 2017,
at a rate of 10.8% ........................... 200 200
---------------------
4,174 4,199
Telephone Subsidiaries:
First mortgage bonds, sinking fund debentures
and notes, maturing through 2031, average
rates 7.6% and 7.7% .......................... 6,741 7,343
Other Subsidiaries:
Sinking fund debentures and notes, maturing
through 2010, average rates 7.7% and 7.6% .... 1,078 1,301
Commercial paper expected to be refinanced
on a long-term basis ........................... 1,306 --
---------------------
Total principal amount ...................... 13,299 12,843
Less: discount and premium--net ................ (62) (77)
---------------------
Total ....................................... 13,237 12,766
Less: current maturities ....................... (493) (603)
---------------------
Total long-term debt ........................ $12,744 $12,163
===============================================================================
</TABLE>
-50-
<PAGE> 53
Estimated payments of long-term debt during the next five years are: $493
million in 1996; $744 million in 1997; $1,272 million in 1998; $1,037 million in
1999, and $889 million in 2000.
GTE's telephone subsidiaries finance part of their construction programs
through the use of short-term loans, including commercial paper, which are
refinanced at later dates by issues of long-term debt or equity.
Total short-term obligations were as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper--average rates 5.9% and 6.0% ...... $1,650 $1,411
Notes payable to banks--average rates 9.7%
and 8.3% ....................................... 13 28
Current maturities of long-term debt ............... 493 603
--------------------
Total ........................................ $2,156 $2,042
================================================================================
</TABLE>
GTE and its subsidiaries had available lines of credit aggregating $4.5
billion at December 31, 1995.
10. FINANCIAL INSTRUMENTS
GTE enters into a variety of financial instruments to hedge its exposure to
fluctuations in interest and foreign exchange rates, and in compensation expense
related to GTE's common stock price appreciation. Amounts to be paid or received
under interest rate swaps are accrued as interest expense. Gains or losses on
foreign currency contracts are recognized based on changes in exchange rates, as
are offsetting foreign exchange gains or losses on the foreign currency
obligations being hedged. Gains or losses on purchased options indexed to GTE's
common stock, which hedge GTE's exposure to compensation expense related to
outstanding stock appreciation rights (SARs), are recognized based on
fluctuations in the market price of GTE's common stock. Gains or losses
recognized on purchased options offset SAR expense or income in GTE's
consolidated statements of income.
At December 31, 1995, GTE had entered into interest rate swap agreements to
convert $516 million of floating rate long-term and short-term debt to fixed
rates. There were no material foreign exchange contracts outstanding at December
31, 1995. Purchased options having a contract value of $256 million were
outstanding at December 31, 1995.
During 1995, GTE entered into forward contracts to sell U.S. Treasury bonds
in order to hedge against changes in market interest rates during the period
between the redemption and the refinancing of $850 million of the debt that GTE
called and anticipates refinancing during the first half of 1996. Any gain or
loss recognized upon the expiration or settlement of the forward contract will
be amortized over the life of the associated refinanced debt as an offset or
addition to interest expense.
The risk associated with these off-balance sheet financial instruments
arises from the possible inability of counterparties to meet the contract terms
and from movements in interest and exchange rates. GTE carefully evaluates and
continually monitors the creditworthiness of its counterparties and believes the
risk of non-performance is remote.
-51-
<PAGE> 54
The fair values of financial instruments, other than long-term debt,
closely approximate their carrying value. As of December 31, 1995 the estimated
fair value of long-term debt based on either reference to quoted market prices
or an option pricing model, exceeded the carrying value by approximately $900
million. The estimated fair value of long-term debt as of December 31, 1994 was
lower than the carrying value by approximately $300 million.
11. PROPERTY, PLANT AND EQUIPMENT
GTE's property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land ......................................... $ 372 $ 385
Buildings .................................... 4,195 3,971
Plant and equipment .......................... 41,115 38,824
Work in progress and other ................... 5,265 5,365
--------------------------
Total .................................... 50,947 48,545
Accumulated depreciation ..................... (28,510) (19,217)
--------------------------
Total property, plant and equipment--net.. $ 22,437 $ 29,328
================================================================================
</TABLE>
Depreciation provisions in 1995-93 for GTE's telephone subsidiaries were
equivalent to a composite average percentage of 7.2%, 7.0% and 6.9%,
respectively.
12. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
GTE sponsors noncontributory defined benefit plans covering substantially all
employees. The benefits to be paid under these plans are generally based on
years of credited service and average final earnings. GTE's funding policy,
subject to the minimum funding requirements of employee benefit and tax laws, is
to contribute such amounts as are determined on an actuarial basis to provide
the plans with assets sufficient to meet the benefit obligations of the plans.
The assets of the plans consist primarily of corporate equities, government
securities and corporate debt securities.
The components of the net pension credit for 1995-93 were as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year ..... $ 213 $ 269 $ 295
Interest cost on projected benefit
obligations ...................... 568 542 584
Return on plan assets:
Actual .......................... (2,420) (29) (2,073)
Deferred ........................ 1,413 (971) 1,110
Other--net .......................... (177) (168) (174)
-------------------------------------
Total--net ...................... $ (403) $(357) $ (258)
================================================================================
</TABLE>
The expected long-term rate of return on plan assets was 8.5% for 1995 and
1994, and 8.25% for 1993.
-52-
<PAGE> 55
The funded status of the plans and the net prepaid pension cost at December
31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligations .................... $ 5,361 $ 4,545
=======================
Accumulated benefit obligations ............... $ 5,996 $ 5,090
=======================
Plan assets at fair value ..................... $13,695 $11,950
Less: Projected benefit obligations ........... 7,732 6,724
-----------------------
Excess of assets over projected obligations ... 5,963 5,226
Unrecognized net transition asset ............. (533) (644)
Unrecognized net gain ......................... (2,602) (2,270)
-----------------------
Total--net ................................ $ 2,828 $ 2,312
================================================================================
</TABLE>
Included in the above table are prepaid pension costs of $3.1 billion and
$2.5 billion and accrued pension liabilities of $230 million and $217 million
for 1995 and 1994, respectively.
Assumptions used to develop the projected benefit obligations at December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Discount rate .............................. 7.50% 8.25%
Rate of compensation increase .............. 5.25% 5.50%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of GTE's employees are covered under postretirement health
care and life insurance benefit plans. In addition, many retirees outside the
U.S. are covered by government-sponsored and administered programs. The health
care benefits paid under the GTE plans are generally based on comprehensive
hospital, medical and surgical benefit provisions. GTE funds amounts for
postretirement benefits as deemed appropriate from time to time.
The postretirement benefit cost for 1995-93 included the following
components:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year ......... $ 46 $ 57 $ 96
Interest on accumulated postretirement
benefit obligations .................. 258 259 290
Actual return on plan assets ............ (41) 6 (6)
Amortization of prior service benefits .. (50) (54) (4)
Other--net .............................. 17 (14) 2
---------------------------------
Total--net ........................... $230 $254 $378
================================================================================
</TABLE>
-53-
<PAGE> 56
The following table sets forth the plans' funded status and the accrued
postretirement benefit obligations as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees ................................................... $ 2,815 $ 2,731
Fully eligible active plan participants .................... 254 234
Other active plan participants ............................. 969 912
-----------------------
Total accumulated postretirement benefit
obligations ................................................... 4,038 3,877
Less: Fair value of plan assets .................................. 353 244
-----------------------
Excess of accumulated obligations over
plan assets ................................................... 3,685 3,633
Unrecognized prior service benefits .............................. 563 656
Unrecognized net loss ............................................ (114) (99)
-----------------------
Total ...................................................... $ 4,134 $ 4,190
=================================================================================================
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligations were 7.5% at December 31, 1995 and 8.25% at December 31,
1994. The assumed health care cost trend rates in 1995 and 1994 were 11% and 12%
for pre-65 participants and 8.5% and 9% for post-65 retirees, each rate
declining on a graduated basis to an ultimate rate in the year 2004 of 6%. A one
percentage point increase in the assumed health care cost trend rates for each
future year would have increased 1995 costs by $34 million and the accumulated
postretirement benefit obligation as of December 31, 1995 by $381 million.
During 1993, GTE made certain changes to its postretirement health care and
life insurance benefits for nonunion employees retiring on or after January 1,
1995. These changes include, among others, newly established limits to GTE's
annual contribution to postretirement medical costs and a revised cost sharing
schedule based on a retiree's years of service. The resulting unrecognized prior
service benefits are being amortized over the remaining service lives of the
employees.
SAVINGS AND STOCK OWNERSHIP PLANS
GTE sponsors employee savings plans under section 401(k) of the Internal Revenue
Code. The plans cover substantially all full-time employees. Under the plans,
GTE provides matching contributions in GTE common stock based on qualified
employee contributions. Matching contributions charged to income were $85
million, $76 million and $66 million in the years 1995-93, respectively.
GTE maintains an Employee Stock Ownership Plan (ESOP). In 1989, the ESOP
borrowed $700 million to acquire, at market value, 24.6 million shares of GTE
common stock, which will be used to provide a portion of GTE's contributions to
certain employee savings plans through the year 2004. The unpaid balance of the
loan, which has been guaranteed by GTE, is included in the accompanying
consolidated balance sheets as long-term debt with a similar reduction in
shareholders' equity. The debt service payments, including interest, made by the
ESOP for the years 1995-93 totaled $88 million, $84 million and $81 million,
respectively. These payments were funded by $45 million, $46 million and $46
million of dividends accumulated on the GTE stock held by the ESOP and by $43
million, $38 million and $35 million of cash contributions by GTE in 1995-93,
respectively.
-54-
<PAGE> 57
13. INTEREST--NET
The components of interest--net are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense ............... $1,151 $1,139 $1,298
Interest capitalized ........... (49) (28) (40)
Interest income ................ (55) (52) (61)
------------------------------------
Total ....................... $1,047 $1,059 $1,197
================================================================================
</TABLE>
14. OTHER--NET
The components of other--net are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minority interests ......................... $ 227 $ 140 $ 112
Preferred dividends ........................ 22 28 40
Equity in (income) loss of unconsolidated
companies:
CANTV ................................ (36) (9) (83)
CTI .................................. 33 18 --
Cellular partnerships and other ...... (104) (83) (81)
Gains on sales of nonstrategic telephone
properties ............................. (16) (264) (168)
Gains on sales of nonstrategic cellular
properties and other ................... (121) (110) (149)
---------------------------------
Total ................................ $ 5 $(280) $(329)
=====================================================================================
</TABLE>
15. INCOME TAXES
Income before income taxes is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic....................................... $3,550 $3,465 $ 984
Foreign........................................ 454 508 556
-----------------------------------
Total....................................... $4,004 $3,973 $1,540
========================================================================================
</TABLE>
-56-
<PAGE> 58
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ............................... $ 711 $ 927 $1,088
Foreign ............................... 173 192 183
State and local ....................... 98 165 161
-------------------------------
982 1,284 1,432
-------------------------------
Deferred:
Federal ............................... 439 269 (682)
Foreign ............................... 14 (1) 2
State and local ....................... 90 56 (100)
-------------------------------
543 324 (780)
-------------------------------
Amortization of deferred investment tax
credits--net .......................... (59) (76) (84)
-------------------------------
Total ................................. $1,466 $1,532 $ 568
================================================================================
</TABLE>
The amortization of deferred investment tax credits--net, relates to the
amortization of investment tax credits previously deferred by GTE's telephone
subsidiaries.
A reconciliation between taxes computed by applying the statutory federal
income tax rate to pre-tax income and income taxes provided in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts computed at statutory rates ... $1,401 $1,391 $539
State and local income taxes, net of
federal tax benefits ............... 122 144 40
Minority interests and preferred
stock dividends .................... 43 42 46
Amortization of investment tax
credits--net ....................... (59) (76) (84)
Other differences--net ................ (41) 31 27
--------------------------------
Total provision .................... $1,466 $1,532 $568
================================================================================
</TABLE>
The tax effects of temporary differences that give rise to the current
deferred income tax benefits and deferred income tax liabilities at December 31,
1995 and 1994 are as follows:
(Millions of Dollars) 1995 1994
- --------------------------------------------------------------------------------
Depreciation and amortization ................ $ 1,605 $ 4,165
Employee benefit obligations ................. (1,899) (1,853)
Restructuring costs .......................... (197) (368)
Employee benefit plans ....................... 971 783
Investment tax credits ....................... 138 226
Other--net ................................... 255 248
------------------------
Total ..................................... $ 873 $ 3,201
================================================================================
-57-
<PAGE> 59
16. COMMITMENTS AND CONTINGENCIES
GTE has noncancelable operating leases covering certain buildings, office
space and equipment. Rental expense was $384 million, $419 million, and $459
million in 1995-93, respectively. Minimum rental commitments under
non-cancelable leases through 2000 do not exceed $225 million annually and
aggregate $829 million thereafter.
GTE and its unconsolidated subsidiaries are subject to a number of
proceedings arising out of the conduct of its business, including those relating
to regulatory actions, commercial transactions, government contracts and
environmental, safety and health matters. Management believes that the ultimate
resolution of these matters will not have a material adverse effect on the
results of operations or the financial position of GTE.
Recent judicial and regulatory developments, as well as the pace of
technological change, have continued to influence industry trends, including
accelerating and expanding the level of competition. As a result, GTE's wireline
and wireless operations face increasing competition in virtually all aspects of
their business. GTE supports greater competition in telecommunications provided
that, overall, the actions to eliminate existing legal and regulatory barriers
allow an opportunity for all service providers to participate equally in a
competitive marketplace under comparable conditions.
-58-
<PAGE> 60
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of GTE Corporation:
We have audited the consolidated financial statements of GTE Corporation (a New
York corporation) and subsidiaries as of December 31, 1995 and 1994 and for each
of the three years in the period ended December 31, 1995 as set forth on pages
40 through 58 of this report. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GTE Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1995 the
company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation."
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supporting schedule listed under
Item 14 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The supporting schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Stamford, Connecticut
January 25, 1996
<PAGE> 61
MANAGEMENT REPORT
To Our Shareholders:
The management of GTE is responsible for the integrity and objectivity of the
financial and operating information contained in this annual report, including
the consolidated financial statements covered by the Report of Independent
Public Accountants. These statements were prepared in conformity with generally
accepted accounting principles and include amounts that are based on the best
estimates and judgments of management.
The company has a system of internal accounting controls which provides
management with reasonable assurance that transactions are recorded and executed
in accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that financial records are maintained so as to permit
preparation of financial statements in accordance with generally accepted
accounting principles. This system includes written policies and procedures, an
organizational structure that segregates duties, and a comprehensive program of
periodic audits by the internal auditors. The company also has instituted
policies and guidelines which require employees to maintain the highest level of
ethical standards.
In addition, the Audit Committee of the Board of Directors, consisting solely
of outside directors, meets periodically with management, the internal auditors
and the independent public accountants to review internal accounting controls,
audit results and accounting principles and practices, and annually recommends
to the Board of Directors the selection of independent public accountants.
Charles R. Lee
Chairman and
Chief Executive Officer
J. Michael Kelly
Senior Vice President-Finance and
Chief Financial Officer
<PAGE> 62
SUPPORTING SCHEDULE
<PAGE> 63
Schedule II
Page 1
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995 - 1993
(Millions of Dollars)
<TABLE>
<CAPTION>
=====================================================================================================================
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
-------------------------
Balance at Charged Charged to Deductions Balance at
Beginning (Credited) Other from End of
Description of Year to Income Accounts Reserves (1) Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1995
- -----------------
Allowance for uncollectible accounts $ 207 $ 373 $267(2) $584 $ 263
====== ====== ==== ==== ======
Accrued discontinuance and business
repositioning costs $ 302 $ - $ 7(3) $ 51 $ 258
====== ====== ==== ==== ======
Accrued telephone restructuring costs (4) $ 957 $ - $ - $445 $ 512
====== ====== ==== ==== ======
December 31, 1994
- -----------------
Allowance for uncollectible accounts $ 231 $ 344 $120(2) $488 $ 207
====== ====== ==== ==== ======
Accrued discontinuance and business
repositioning costs $ 297 $ 55 $ 5(3) $ 55 $ 302
====== ====== ==== ==== ======
Accrued telephone restructuring costs (4) $1,370 $ - $ - $413 $ 957
====== ====== ==== ==== ======
December 31, 1993
- -----------------
Allowance for uncollectible accounts $ 154 $ 329 $124(2) $376 $ 231
====== ====== ==== ==== ======
Accrued discontinuance and business
repositioning costs $ 373 $ - $109(3) $185 $ 297
====== ====== ==== ==== ======
Accrued telephone restructuring costs (4) $ - $1,370 $ - $ - $1,370
====== ====== ==== ==== ======
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 64
Schedule II
Page 2
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995-1993
================================================================================
NOTES:
(1) Charges for which reserve was created.
(2) Recoveries of amounts written off in prior years.
(3) Primarily reclassifications from other accounts.
(4) See Note 4 to the Consolidated Financial Statements included elsewhere
herein.
<PAGE> 65
EXHIBITS
<PAGE> 66
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1(a) Articles of Incorporation, as restated
3.2 Certificate of Amendment of the Certificate of Incorporation
of GTE Corporation (filed February 1, 1996)
3.3(b) By-Laws of GTE Corporation
10-1(c) Material Contracts - Deferred Compensation Plan for Directors
10-2(d) Material Contracts - Agreements Between GTE and Key Executives
10-3(e) Material Contracts - Supplemental Executive Retirement Plan
10-4(f) Material Contracts - Long-Term Incentive Plan
10-5(g) Material Contracts - Executive Incentive Plan
10-6(h) Material Contracts - Executive Retired Life Insurance Plan
10-7(i) Material Contracts - Phantom Stock Plan
10-8(j) Material Contracts - Director's Retirement Plan
10-9(k) Material Contracts - Charitable Awards Program
10-10(l) Material Contracts - Salary Deferral Plan
10-11 Material Contracts - Change in Control Agreement between GTE
Service Corporation and Michael T. Masin
10-12 Material Contracts - Employment Agreement between GTE Service
Corporation and Patricia D. Yoder
11 Statement re: Calculation of Earnings (Loss) Per Common Share
12 Statement re: Calculation of the Ratio of Earnings to Fixed Charges
21 Significant Subsidiaries of Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule
</TABLE>
- -----------------------
(a) GTE's restated Articles of Incorporation (except for the amendment, 3.2
above, filed with this Form 10-K) were filed as an exhibit to GTE's
registration statement on Form S-3 (File No. 33-50263), and are
incorporated herein by reference. An amendment was filed with GTE's 1993
and 1994 Forms 10-K, and is incorporated herein by reference.
(b) GTE's By-Laws were filed as an exhibit to GTE's registration statement on
Form S-3 (File No. 33-50263), and are incorporated herein by reference.
Amendments were filed with GTE's 1993 Form 10-K and GTE's registration
statement on Form S-3 (File No. 33-61661), and are incorporated herein by
reference.
(c) GTE's Deferred Compensation Plan for Directors was filed as an exhibit to
GTE's 1992 Form 10-K and is incorporated herein by reference.
(d) Agreements with certain key executives of GTE were filed as exhibits to
GTE's Form 8-K filed on September 11, 1987, GTE's 1989, 1990, 1991, 1992,
1993 and 1994 Forms 10-K, and are incorporated herein by reference.
(e) GTE's Supplemental Executive Retirement Plan was filed as an exhibit to
GTE's 1991 Form 10-K and is incorporated herein by reference. Amendments
were filed with GTE's 1994,1993 and 1992 Forms 10-K, and are incorporated
herein by reference.
(f) GTE's Long-Term Incentive Plan was filed as an exhibit to GTE's Proxy
Statement covering the Annual Meeting of Shareholders held on May 15,
1991, and is incorporated herein by reference.
(g) GTE's Executive Incentive Plan was filed as an exhibit to GTE's 1993
Proxy Statement, and is incorporated herein by reference.
(h) GTE's Executive Retired Life Insurance Plan was filed as an exhibit to
GTE's 1991 Form 10-K and is incorporated herein by reference. Amendments
were filed with GTE's 1993 and 1992 Forms 10-K, and are incorporated
herein by reference.
(i) GTE's Phantom Stock Plan was filed as an exhibit to GTE's 1992 Form 10-K,
and is incorporated herein by reference.
(j) GTE's Director's Retirement Plan was filed as an exhibit to GTE's 1992
Form 10-K, and is incorporated herein by reference. Amendments were filed
as exhibits to GTE's 1994 Form 10-K and are incorporated herein by
reference.
(k) GTE's Charitable Awards Program was filed as an exhibit to GTE's 1992
Form 10-K, and is incorporated herein by reference.
(l) GTE's Salary Deferral Plan was filed as an exhibit to GTE's 1994 Form
10-K, and is incorporated herein by reference.
<PAGE> 1
EXHIBIT 3.2
(Filed February 1, 1996)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GTE CORPORATION
---------------------------
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, LAWRENCE R. WHITMAN and MARIANNE DROST, being respectively
the Vice President and Controller and the Secretary of GTE CORPORATION, hereby
certify:
I. The name of the Corporation is GTE Corporation (originally
incorporated as General Telephone Corporation).
II. The Certificate of Incorporation of the Corporation was filed
by the Department of State on the 25th day of February, 1935.
III. The Certificate of Incorporation is amended to eliminate
from the enumeration and description of shares which the Corporation is
authorized to issue 96,107 shares of the class of Preferred Stock, $50.00 par
value per share, and 130,567 shares of the class of No Par Preferred Stock, as
follows:
40,403 shares of 5.00% Convertible Preferred Stock
28,830 shares of 5.50% Convertible Preferred Stock
12,067 shares of 4.00% Convertible Preferred Stock
2,711 shares of 5.05% Convertible Preferred Stock
6,127 shares of 5.35% Convertible Preferred Stock
4,642 shares of 4.75% Convertible Preferred Stock
733 shares of 5.28% Convertible Preferred Stock
594 shares of 4.36% Convertible Preferred Stock
------
96,107 TOTAL
130,567 shares of $2.00 Convertible No Par Preferred Stock
-------
226,674 TOTAL
=======
The removal of the above-described shares, which have been converted
into shares of Common Stock during the calendar year ending December 31, 1995,
is authorized by subparagraph (8) of paragraph (b) of Section 801 of the
Business Corporation Law and paragraph (e) of Section 515 of the Business
Corporation Law.
Accordingly, Article 4 of the Certificate of Incorporation, as
heretofore added to or amended by certificates filed pursuant to law, is amended
to read in its entirety as follows:
<PAGE> 2
"4. The aggregate number of shares which the Corporation shall have
authority to issue is 2,020,945,266 shares of which 9,217,764 shares of
the par value of $50.00 each shall be Preferred Stock, 11,727,502
shares without par value shall be No Par Preferred Stock and
2,000,000,000 shares of the par value of $.05 each shall be Common
Stock."
The foregoing amendment of the Certificate of Incorporation was
authorized by resolution of the Board of Directors.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
31st day of January 1996, and we affirm the statements contained herein are true
under the penalties of perjury.
Lawrence R. Whitman
--------------------------------
Lawrence R. Whitman
Vice President and Controller
Marianne Drost
--------------------------------
Marianne Drost
Secretary
<PAGE> 1
EXHIBIT 10-11
EXECUTIVE SEVERANCE AGREEMENT
This AGREEMENT ("Agreement") dated as of January 8, 1996, by
and between GTE Service Corporation, a New York corporation (the "Company"),
and Michael T. Masin (the "Executive").
WITNESSETH:
WHEREAS, the Company recognizes the valuable services that the
Executive has rendered thereto and desires to be assured that the Executive
will continue to attend to the business and affairs of the Company without
regard to any potential or actual change in control of GTE Corporation, a New
York corporation and the Company's sole shareholder ("GTE"); and
WHEREAS, the Executive is willing to continue to serve the
Company, but desires assurance that he will not be materially disadvantaged by
a change in control of GTE;
NOW, THEREFORE, in consideration of the Executive's continued
service to the Company and the mutual agreements herein contained, the Company
and the Executive hereby agree as follows:
ARTICLE I
ELIGIBILITY FOR BENEFITS
Section 1.1. Qualifying Termination. The Company shall
not be required to provide any benefits to the Executive
<PAGE> 2
- 2 -
pursuant to this Agreement unless a Qualifying Termination occurs before the
Agreement expires in accordance with Section 6.1 hereof. For purposes of this
Agreement, a Qualifying Termination shall occur only if
(a) a Change in Control occurs, and
(b) (i) within two years after the Change in Control, the
Company terminates the Executive's employment other
than for Cause; or
(ii)(A) within two years after the Change in Control,
a Good Reason arises, and (B) the Executive
terminates employment with the Company within (I) six
months after the Good Reason arises or (II) two years
after the Change in Control, whichever occurs later;
provided, that a Qualifying Termination shall not occur if the Executive's
employment with the Company terminates by reason of the Executive's Retirement,
Disability, or death. A Qualifying Termination may occur even though the
Executive retires from employment with the Company other than by reason of
Retirement or Disability.
Section 1.2. Change in Control. Except as provided below,
a Change in Control shall be deemed to occur when and only when the first of
the following events occurs:
(a) an acquisition (other than directly from GTE) of
securities of GTE by any Person, immediately
<PAGE> 3
- 3 -
after which such Person, together with all Affiliates
and Associates of such Person, shall be the
Beneficial Owner of securities of GTE representing 20
percent or more of the Voting Power or such lower
percentage of the Voting Power that, from time to
time, would cause the Person to constitute an
"Acquiring Person" (as such term is defined in the
Rights Plan); provided that, in determining whether a
Change in Control has occurred, the acquisition of
securities of GTE in a Non-Control Acquisition shall
not constitute an acquisition that would cause a
Change in Control; or
(b) three or more directors, whose election or nomination
for election is not approved by a majority of the
members of the "Incumbent Board" (as defined below)
then serving as members of the Board, are elected
within any single 12-month period to serve on the
Board; provided that an individual whose election or
nomination for election is approved as a result of
either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the
Securities Exchange Act of 1934, as amended from time
to time) or other actual or threatened
<PAGE> 4
- 4 -
solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy
Contest, shall be deemed not to have been approved by
a majority of the Incumbent Board for purposes
hereof; or
(c) members of the Incumbent Board cease for any reason
to constitute at least a majority of the Board;
"Incumbent Board" shall mean individuals who, as of
the close of business on April 19, 1995, are members
of the Board; provided that, if the election, or
nomination for election by GTE's shareholders, of any
new director was approved by a vote of at least
three-quarters of the Incumbent Board, such new
director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board;
provided further that no individual shall be
considered a member of the Incumbent Board if such
individual initially assumed office as a result of
either an actual or threatened Election Contest or
other actual or threatened Proxy Contest, including
by reason of any agreement intended to
<PAGE> 5
- 5 -
avoid or settle any Election Contest or Proxy
Contest; or
(d) approval by shareholders of GTE of:
(i) a merger, consolidation, or reorganization
involving GTE, unless
(A) the shareholders of GTE, immediately
before the merger, consolidation, or reorganization,
own, directly or indirectly immediately following
such merger, consolidation, or reorganization, at
least 50 percent of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger, consolidation, or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership
of the voting securities immediately before such
merger, consolidation, or reorganization;
(B) individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation, or reorganization constitute at least
a majority of the board of directors of the Surviving
Corporation; and
<PAGE> 6
- 6 -
(C) no Person (other than GTE or any
subsidiary of GTE, any employee benefit plan (or any
trust forming a part thereof) maintained by GTE, the
Surviving Corporation, or any subsidiary of GTE, or
any Person who, immediately prior to such merger,
consolidation, or reorganization, had Beneficial
Ownership of securities representing 20 percent (or
such lower percentage the acquisition of which would
cause a Change in Control pursuant to paragraph (a)
of this definition of "Change in Control") or more of
the Voting Power) has Beneficial Ownership of
securities representing 20 percent (or such lower
percentage the acquisition of which would cause a
Change in Control pursuant to paragraph (a) of this
definition of "Change in Control") or more of the
combined Voting Power of the Surviving Corporation's
then outstanding voting securities;
(ii) a complete liquidation or dissolution of GTE;
or
(iii) an agreement for the sale or other disposition
of all or substantially all of the assets of GTE to
any Person (other than a transfer to a subsidiary of
GTE).
<PAGE> 7
- 7 -
For purposes of this Section, the following terms shall have
the definitions set forth below:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended from time to time.
"Board" means the Board of Directors of GTE.
"Non-Control Acquisition" means an acquisition by (1) an
employee benefit plan (or a trust forming a part thereof) maintained by GTE or
any of its subsidiaries, (2) GTE or any of its subsidiaries, or (3) any Person
in connection with a "Non-Control Transaction."
"Non-Control Transaction" means a transaction described in
clauses (A) through (C) of paragraph (d)(i) of the definition of "Change in
Control" herein.
"Person" shall mean any individual, firm, corporation,
partnership, joint venture, association, trust, or other entity.
A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(x) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or
indirectly;
(y) which such Person or any of such Person's Affiliates
or Associates has (i) the right or
<PAGE> 8
- 8 -
obligation to acquire (whether such right or
obligation is exercisable or effective immediately or
only after the passage of time) pursuant to any
agreement, arrangement, or understanding (whether or
not in writing) or upon the exercise of conversion
rights, exchange rights, rights (other than the
rights granted pursuant to the Rights Plan), warrants
or options, or otherwise; provided that a Person
shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a
tender or exchange offer made by such Person or any
of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or
exchange; or (ii) the right to vote pursuant to any
agreement, arrangement, or understanding (whether or
not in writing); provided that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially
own," any security under this clause (ii) if the
agreement, arrangement, or understanding to vote such
security (A) arises solely from a revocable proxy
given in response to a public proxy or consent
solicitation made pursuant to, and in accordance
with, the
<PAGE> 9
- 9 -
applicable rules and regulations of the Securities
Exchange Act of 1934, as amended from time to time,
and (B) is not also then reported by such person on
Schedule 13D under the Securities Exchange Act of
1934, as amended from time to time (or any comparable
or successor report); or
(z) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate
thereof) with which such Person or any of such
Person's Affiliates or Associates has any agreement,
arrangement, or understanding (whether or not in
writing), or with which such Person or any of such
Person's Affiliates or Associates have otherwise
formed a group for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as
described in clause (ii)(A) of subparagraph (y),
above), or disposing of any securities of GTE.
"Rights Plan" means the Rights Agreement, dated as of December
7, 1989, between GTE and State Street Bank and Trust Company (now administered
by the First National Bank of Boston), as it may be amended from time to time,
or any successor thereto.
<PAGE> 10
- 10 -
"Voting Power" means the voting power of all securities of GTE
then outstanding generally entitled to vote for the election of directors of
GTE.
Section 1.3. Termination for Cause. The Company shall
have Cause to terminate the Executive for purposes of Section 1.1 hereof only
if the Executive (a) engages in unlawful acts intended to result in the
substantial personal enrichment of the Executive at the Company's expense, or
(b) engages (except by reason of incapacity due to illness or injury) in a
material violation of his responsibilities to the Company that results in a
material injury to the Company. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a notice, consisting of a copy of a resolution
duly adopted by the affirmative vote of not less than three quarters of the
entire membership of GTE's Board of Directors at a duly held meeting of the
Board of Directors (with reasonable notice to the Executive and an opportunity
for the Executive, together with counsel, to be heard before the Board of
Directors) ("Notice of Termination"), finding that the Executive has engaged in
the conduct set forth above in this Section 1.3 and specifying the particulars
thereof in detail. GTE's Board of Directors may not delegate or assign its
duties under this Section 1.3.
<PAGE> 11
- 11 -
Section 1.4. Termination for Good Reason. The Executive
shall have a Good Reason for terminating employment with the Company only if
one or more of the following occurs after a Change in Control:
(a) a change in the Executive's status or position(s)
with the Company that, in the Executive's reasonable
judgment, represents a demotion from the Executive's
status or position(s) in effect immediately before
the Change in Control;
(b) the assignment to the Executive of any duties or
responsibilities that, in the Executive's reasonable
judgment, are inconsistent with the Executive's
status or position(s) in effect immediately before
the Change in Control;
(c) layoff or involuntary termination of the Executive's
employment, except in connection with the termination
of the Executive's employment for Cause or as a
result of the Executive's Retirement, Disability, or
death;
(d) a reduction by the Company in the Executive's total
compensation (which shall be deemed, for this
purpose, to be equal to his base salary plus the
greater of (i) the most recent award that he has
earned under the GTE Corporation
<PAGE> 12
- 12 -
Executive Incentive Plan, as amended from time to
time, or any successor thereto (the "EIP"), or (ii)
an EIP award equal to the Executive's Average
Percentage of the annual value ( i.e., the dollar
amount) of the normal payment under the EIP for the
Executive's salary level (such annual value and
normal payment being those that are in effect under
the EIP immediately before the date on which the
Change in Control occurs for the Executive's salary
level immediately before the date on which the Change
in Control occurs)). For purposes of this paragraph
(d), the Executive's "Average Percentage" means the
average of the Executive's Annual Percentages for the
Determination Years. For purposes of this paragraph
(d), the Executive's "Annual Percentage" for each
Determination Year means a fraction (expressed as a
percentage), the numerator of which is the EIP award
earned by the Executive for such Determination Year,
and the denominator of which is the annual value of
the normal payment under the EIP for the Executive's
salary level (such annual value and normal payment
being those that were in effect under the EIP for
such Determination Year for
<PAGE> 13
- 13 -
the Executive's salary level for such Determination
Year). For purposes of this paragraph (d), a
"Determination Year" means each of the last three EIP
plan years ending before the date on which the Change
in Control occurs (or, if less, the number of those
three plan years during which the Executive was a
participant in the EIP);
(e) a material increase in the Executive's
responsibilities or duties without a commensurate
increase in total compensation;
(f) the failure by the Company to continue in effect any
Plan in which the Executive is participating at the
time of the Change in Control (or plans or
arrangements providing the Executive with
substantially equivalent benefits) other than as a
result of the normal expiration of any such Plan in
accordance with its terms as in effect at the time of
the Change in Control;
(g) any action or inaction by the Company that would
adversely affect the Executive's continued
participation in any Plan on at least as favorable a
basis as was the case on the date of the Change in
Control, or that would materially reduce the
Executive's benefits in the future
<PAGE> 14
- 14 -
under the Plan or deprive him of any material
benefits that he enjoyed at the time of the Change in
Control, except to the extent that such action or
inaction by the Company is required by the terms of
the Plan as in effect immediately before the Change
in Control, or is necessary to comply with applicable
law or to preserve the qualification of the Plan
under section 401(a) of the Internal Revenue Code,
and except to the extent that the Company provides
the Executive with substantially equivalent benefits;
(h) the Company's failure to provide and credit the
Executive with the number of days of paid vacation,
holiday, or leave to which he is then entitled in
accordance with the Company's normal vacation,
holiday, or leave policy in effect immediately before
the Change in Control;
(i) the imposition of any requirement that the Executive
be based anywhere other than within 25 miles of where
his principal office was located immediately before
the Change in Control;
(j) a material increase in the frequency or duration of
the Executive's business travel;
<PAGE> 15
- 15 -
(k) the Company's failure to obtain the express
assumption of this Agreement by any successor to the
Company as provided by Section 6.3 hereof;
(l) any attempt by the Company to terminate the
Executive's employment that is not effected pursuant
to a Notice of Termination satisfying the
requirements of Section 1.3 hereof or that does not
afford the Executive the procedural protections
prescribed by that Section; or
(m) any violation by the Company of any agreement
(including this Agreement) between it and the
Executive.
Notwithstanding the foregoing, no action by the Company shall give rise to a
Good Reason if it results from the Executive's termination for Cause,
Retirement, or death, and no action by the Company specified in paragraphs (a)
through (d) of the preceding sentence shall give rise to a Good Reason if it
results from the Executive's Disability. A Good Reason shall not be deemed to
be waived by reason of the Executive's continued employment as long as the
termination of the Executive's employment occurs within the time prescribed by
Section 1.1(b)(ii)(B) hereof. For purposes of this Section 1.4, "Plan" means
any compensation plan, such as an incentive, stock option, or restricted stock
plan, or any employee benefit plan, such as a thrift, pension, profit-sharing,
stock bonus,
<PAGE> 16
- 16 -
long-term performance award, medical, disability, accident, or life insurance
plan, or a relocation plan or policy, or any other plan, program or policy of
the Company that is intended to benefit employees.
Section 1.5. Retirement. For purposes of this Agreement,
"Retirement" shall mean the Executive's termination of employment upon or after
attaining age 65.
Section 1.6. Disability. For purposes of this Agreement,
"Disability" shall mean an illness or injury that prevents the Executive from
performing his duties (as they existed immediately before the illness or
injury) on a full-time basis for six consecutive months.
Section 1.7. Notice. If a Change in Control occurs, the
Company shall notify the Executive of the occurrence of the Change in Control
within two weeks after the Change in Control.
ARTICLE II
BENEFITS AFTER A QUALIFYING TERMINATION
Section 2.1. Basic Severance Payment.
(a) If the Executive incurs a Qualifying Termination, the
Company shall pay to the Executive a cash amount
equal to 200% of the Base Amount. The Base Amount
shall be an amount equal to the greater of:
<PAGE> 17
- 17 -
(A) the sum of (I) the Executive's base
annual salary immediately before the Change in
Control plus (II) the Executive's Average Percentage
of the annual value (i.e., the dollar amount) of the
normal payment under the EIP for the Executive's
salary level (such annual value and normal payment
being those that are in effect under the EIP
immediately before the date on which the Change in
Control occurs for the Executive's salary level
immediately before the date on which the Change in
Control occurs). For purposes of this paragraph (A),
the Executive's "Average Percentage" means the
average of the Executive's Annual Percentages for the
Determination Years. For purposes of this paragraph
(A), the Executive's "Annual Percentage" for each
Determination Year means a fraction (expressed as a
percentage), the numerator of which is the EIP award
earned by the Executive for such Determination Year,
and the denominator of which is the annual value of
the normal payment under the EIP for the Executive's
salary level (such annual value and normal payment
being those that were in effect under the EIP for
such Determination Year for
<PAGE> 18
- 18 -
the Executive's salary level for such Determination
Year). For purposes of this paragraph (A), a
"Determination Year" means each of the last three EIP
plan years ending before the date on which the Change
in Control occurs (or, if less, the number of those
three plan years during which the Executive was a
participant in the EIP); or
(B) the sum of (I) the Executive's base annual salary
immediately before the Qualifying Termination plus
(II) the Executive's Average Percentage of the annual
value (i.e., the dollar amount) of the normal payment
under the EIP for the Executive's salary level (such
annual value and normal payment being those that are
in effect under the EIP immediately before the date
on which the Qualifying Termination occurs for the
Executive's salary level immediately before the date
on which the Qualifying Termination occurs). For
purposes of this paragraph (B), the Executive's
"Average Percentage" means the average of the
Executive's Annual Percentages for the Determination
Years. For purposes of this paragraph (B), the
Executive's "Annual Percentage" for each
Determination Year means a
<PAGE> 19
- 19 -
fraction (expressed as a percentage), the numerator
of which is the EIP award earned by the Executive for
such Determination Year, and the denominator of which
is the annual value of the normal payment under the
EIP for the Executive's salary level (such annual
value and normal payment being those that were in
effect under the EIP for such Determination Year for
the Executive's salary level for such Determination
Year). For purposes of this paragraph (B), a
"Determination Year" means each of the last three EIP
plan years ending before the date on which the
Qualifying Termination occurs (or, if less, the
number of those three plan years during which the
Executive was a participant in the EIP).
(b) The Company shall make the payment to the Executive
pursuant to subsection (a) of this Section 2.1 in a
lump sum within 30 days of the Qualifying
Termination.
Section 2.2. Insurance. If the Executive incurs a
Qualifying Termination, the Company shall provide the Executive, at the
Company's expense, for a period beginning on the date of the Qualifying
Termination, the same medical insurance and life insurance coverage as was in
effect
<PAGE> 20
- 20 -
immediately before the Change in Control (or, if greater, as in effect
immediately before the Qualifying Termination occurs); such coverage shall end
upon the earlier of (a) the expiration of 24 months after the Qualifying
Termination or (b)(i) with respect to medical insurance coverage, the date on
which the Executive first becomes eligible for medical insurance coverage
provided by a firm that employs him following the Qualifying Termination, or
(ii) with respect to life insurance coverage, the date on which the Executive
first becomes eligible for life insurance coverage provided by such firm.
Section 2.3. Outplacement Counseling. If the Executive
incurs a Qualifying Termination, the Company shall make available to the
Executive, at the Company's expense, outplacement counseling that is at least
equivalent to the outplacement counseling that the Company provided to its
terminated senior executives during 1995. Subject to the foregoing, the
Executive may select the organization that will provide the outplacement
counseling; provided, that this sentence shall not require the Company to
provide the Executive with outplacement counseling that is more costly to the
Company than the outplacement counseling that this Section 2.3 otherwise
requires the Company to provide to the Executive.
Section 2.4. Financial Counseling. If the Executive
incurs a Qualifying Termination, the Company shall, within 30 days of the
Qualifying Termination, make available to
<PAGE> 21
- 21 -
the Executive three individual financial counseling sessions, of at least two
hours each and at times and locations that are convenient to the Executive,
with a nationally recognized financial counseling firm. At the financial
counseling sessions, the financial counseling firm shall provide the Executive
with detailed financial advice that is tailored to the Executive's particular
personal and financial situation. The Company shall specify to the Executive
the information regarding his personal and financial situation that he must
provide to the financial counseling firm in order for the firm to provide the
counseling services required by this Section 2.4. The Company shall take all
reasonable and appropriate measures to assure that the financial counseling
firm preserves the confidentiality of all information conveyed by the Executive
to the counseling firm.
Section 2.5. Benefit Credit. If the Executive incurs a
Qualifying Termination,
(a) the Executive shall receive service credit, for the
purpose of receiving benefits and for vesting,
retirement eligibility, benefit accrual, and all
other purposes, under all employee benefit plans
sponsored by the Company (including, but not limited
to, health, life insurance, pension, savings, stock,
and stock ownership plans, but excluding the
Company's
<PAGE> 22
- 22 -
short-term and long-term disability plans) in which
he participated immediately before the Change in
Control, for 24 months;
(b) for purposes of determining the Executive's benefits
under all defined benefit pension plans maintained by
the Company, including the GTE Service Corporation
Supplemental Executive Retirement Plan ("SERP"), the
Executive's compensation shall include the amount
payable to the Executive pursuant to Section 2.1
hereof, and for purposes of this subsection (b), the
Executive shall be deemed to have received such
amount in monthly installments, each equal to 1/24th
of the amount payable to the Executive pursuant to
Section 2.1 hereof;
(c) if the Executive has not completed at least 10 years
of service for purposes of determining whether he has
a nonforfeitable interest in his accrued benefit
under a funded defined benefit pension plan
maintained by the Company in which he participated
immediately before the Change in Control, then in
addition to any service credit that the Executive
receives pursuant to Section 2.5(a) hereof, the
Executive shall receive credit for each year of
service with which he is
<PAGE> 23
- 23 -
otherwise credited (without regard to Section 2.5(a)
hereof) for vesting, retirement eligibility, benefit
accrual, and all other purposes under the plan, under
the SERP, and under the GTE Executive Retired Life
Insurance Plan (or any predecessor or successor
thereto) in accordance with the following table:
<TABLE>
<CAPTION>
Years of Service
Otherwise Credited Service Credited
Without Regard to Pursuant to this
Section 2.5(a) Section 2.5(c)
------------------ ----------------
<S> <C>
5 or less 2 times years of
service otherwise
credited
more than 5, but 10 years of service
not more than 10
more than 10 years of service
otherwise credited;
</TABLE>
and
(d) the Executive shall be considered to have not less
than 76 points and 15 years of Accredited Service for
purposes of determining his eligibility for early
retirement benefits under the Company's defined
benefit pension plans (including, but not limited to,
the SERP), for purposes of determining his
<PAGE> 24
- 24 -
eligibility for benefits under the GTE Executive
Retired Life Insurance Plan (or any predecessor or
successor thereto) and for purposes of determining
his eligibility for benefits under the Company's post
retirement medical benefits plan (as in effect
immediately prior to the Change in Control).
Notwithstanding the service credit granted under subsection (a) of this Section
2.5 and the compensation recognized under subsection (b) of this Section 2.5,
nothing in this Section 2.5 shall prevent the Executive from receiving any
benefits to which the Executive is entitled under any defined benefit or
defined contribution pension plan maintained by the Company, including the SERP
(as such benefits are modified by this Agreement) in any form permitted by such
plans (including but not limited to a lump-sum distribution) immediately
following the Executive's Qualifying Termination. To the extent that the
Company's tax-qualified retirement plans cannot provide the benefits specified
by this Section 2.5 without jeopardizing the tax qualification of such plans,
the Company shall provide such benefits under the SERP and, in the case of the
Company's post retirement medical benefits plan as specified in Section 2.5(d),
if the benefit cannot be provided on a tax-free basis, the Company shall
provide such benefit on a basis that avoids an adverse income tax effect upon
the Executive (for example, by purchasing third party insurance).
<PAGE> 25
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Section 2.6. Nonduplication.
(a) Nothing in this Agreement shall require the Company
to make any payment or to provide any benefit or
service credit that GTE or the Company is otherwise
required to provide under any other contract,
agreement, policy, plan, or arrangement.
(b) Subsection (a) shall not apply to the benefits
provided in accordance with the second and third
sentences of the paragraph entitled "Pension
Arrangement" of the letter agreement, dated October
20, 1994, executed by Charles R. Lee and Michael T.
Masin, providing for a life annuity pension of
$200,000 per year and the continuation of that
annuity to the Executive's wife after the Executive's
death.
Section 2.7. Prior Agreement. This Agreement supersedes
any prior Executive Severance Agreement entered into between the Company and
the Executive ("Prior Agreement"). On and after the date of this Agreement,
such Prior Agreement shall have no force or effect.
<PAGE> 26
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ARTICLE III
EFFECT ON HUMAN RESOURCES POLICY 104
Section 3.1. Effect on Policy 104. If the Executive
becomes entitled to receive benefits hereunder, the Executive shall not be
entitled to any benefits under GTE Human Resources Policy 104, as amended from
time to time, or any successor policy, or under any other Company severance or
salary continuation policy (including but not limited to any benefits pursuant
to an involuntary separation program or similar program maintained under a
pension plan sponsored by the Company).
ARTICLE IV
TAX MATTERS
Section 4.1. Withholding. The Company may withhold from
any amounts payable to the Executive hereunder all federal, state, city or
other taxes that the Company may reasonably determine are required to be
withheld pursuant to any applicable law or regulation.
ARTICLE V
COLLATERAL MATTERS
Section 5.1. Nature of Payments. All payments to the
Executive under this Agreement shall be considered either payments in
consideration of his continued service to the
<PAGE> 27
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Company or severance payments in consideration of his past services thereto.
Section 5.2. Legal Expenses. The Company shall pay all
legal fees and expenses that the Executive may incur as a result of the
Company's contesting the validity, the enforceability or the Executive's
interpretation of, or determinations under, this Agreement; provided, that this
Section 5.2 shall be operative only if and to the extent that (a) the Company
fails to establish a trust that defrays all such legal fees and expenses or (b)
the Company establishes such a trust, but the trust fails to pay all such legal
fees and expenses.
Section 5.3. Mitigation. The Executive shall not be
required to mitigate the amount of any payment provided for in this Agreement
either by seeking other employment or otherwise. The amount of any payment
provided for herein shall not be reduced by any remuneration that the Executive
may earn from employment with another employer or otherwise following his
Qualifying Termination.
Section 5.4. Interest. If the Company fails to make, or
cause to be made, any payment provided for herein within 30 days of the date on
which the payment is due, the Company shall make such payment together with
interest thereon. The interest shall accrue and be compounded monthly. The
interest rate shall be equal to 120 percent of the prime rate as reported by
The Wall Street Journal for the first business
<PAGE> 28
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day of each month, effective for the ensuing month. The interest rate shall be
adjusted at the beginning of each month.
Section 5.5. Authority. The execution of this Agreement
has been authorized by the Board of Directors of the Company and by the Board
of Directors of GTE.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Term of Agreement. This Agreement shall
become effective on the date hereof and shall continue in effect until the
earliest of (a) July 1, 1999, if no Change in Control has occurred before that
date; (b) the termination of the Executive's employment with the Company for
any reason prior to a Change in Control; (c) the Company's termination of the
Executive's employment for Cause, or the Executive's resignation for other than
Good Reason, following a Change in Control and the Company's and the
Executive's fulfillment of all of their obligations hereunder; and (d) the
expiration following a Change in Control of two years and six months and the
fulfillment by the Company and the Executive of all of their obligations
hereunder. Notwithstanding the foregoing, commencing on July 1, 1999, and on
July 1 of each year thereafter, the expiration date prescribed by clause (a) of
the preceding sentence shall automatically be extended for an additional year
unless, not later than December 31 of the
<PAGE> 29
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immediately preceding year, one of the parties hereto shall have given notice
to the other party hereto that it (or he) does not wish to extend the term of
this Agreement. Furthermore, nothing in this Article VI shall cause this
Agreement to terminate before both the Company and the Executive have fulfilled
all of their obligations hereunder.
Section 6.2. Governing Law. Except as otherwise expressly
provided herein, this Agreement and the rights and obligations hereunder shall
be construed and enforced in accordance with the laws of the State of New York.
Section 6.3. Successors to the Company. This Agreement
shall inure to the benefit of and shall be binding upon and enforceable by the
Company and any successor thereto, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or
substantially all of the business or assets of the Company, whether by merger,
consolidation, sale or otherwise, but shall not otherwise be assignable by the
Company. Without limitation of the foregoing sentence, the Company shall
require any successor (whether direct or indirect, by merger, consolidation,
sale or otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form satisfactory to the Executive, expressly,
absolutely and unconditionally to assume and to agree to perform this Agreement
in the same manner and to the same extent as the Company would have been
required to
<PAGE> 30
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perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as heretofore defined and any successor to all
or substantially all of its business or assets that executes and delivers the
agreement provided for in this Section 6.3 or that becomes bound by this
Agreement either pursuant to this Agreement or by operation of law. As used in
this Agreement, "GTE" shall mean GTE as heretofore defined and any successor to
all or substantially all of its business or assets.
Section 6.4. Noncorporate Entities. If any provision of
this Agreement refers to the board of directors of an entity that has no board
of directors, the reference to board of directors shall be deemed to refer to
the body, committee, or person that has duties and responsibilities with
respect to the entity that most closely approximate those of a board of
directors of a corporation.
Section 6.5. Successor to the Executive. This Agreement
shall inure to the benefit of and shall be binding upon and enforceable by the
Executive and his personal and legal representatives, executors,
administrators, heirs, distributees, legatees and, subject to Section 6.6
hereof, his designees ("Successors"). If the Executive should die while
amounts are or may be payable to him under this Agreement, references hereunder
to the "Executive" shall, where appropriate, be deemed to refer to his
Successors; provided,
<PAGE> 31
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that nothing in this Section 6.5 shall supersede the terms of any plan or
arrangement (other than this Agreement) that is affected by this Agreement.
Section 6.6. Nonalienability. No right of or amount
payable to the Executive under this Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance, charge, execution, attachment, levy or similar process or to
setoff against any obligations or to assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall be void. However, this Section 6.6 shall
not prohibit the Executive from designating one or more persons, on a form
satisfactory to the Company, to receive amounts payable to him under this
Agreement in the event that he should die before receiving them.
Section 6.7. Notices. All notices provided for in this
Agreement shall be in writing. Notices to the Company shall be deemed given
when personally delivered or sent by certified or registered mail or overnight
delivery service to GTE Service Corporation, One Stamford Forum, Stamford,
Connecticut 06904, Attention: Corporate Secretary. Notices to the Executive
shall be deemed given when personally delivered or sent by certified or
registered mail or overnight delivery service to the last address for the
Executive shown on the
<PAGE> 32
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records of the Company. Either the Company or the Executive may, by notice to
the other, designate an address other than the foregoing for the receipt of
subsequent notices.
Section 6.8. Amendment. No amendment to this Agreement
shall be effective unless in writing and signed by both the Company and the
Executive.
Section 6.9. Waivers. No waiver of any provision of this
Agreement shall be valid unless approved in writing by the party giving such
waiver. No waiver of a breach under any provision of this Agreement shall be
deemed to be a waiver of such provision or any other provision of this
Agreement or any subsequent breach. No failure on the part of either the
Company or the Executive to exercise, and no delay in exercising, any right or
remedy conferred by law or this Agreement shall operate as a waiver of such
right or remedy, and no exercise or waiver, in whole or in part, of any right
or remedy conferred by law or herein shall operate as a waiver of any other
right or remedy.
Section 6.10. Severability. If any provision of this
Agreement shall be held unlawful or otherwise invalid or unenforceable in whole
or in part, such unlawfulness, invalidity or unenforceability shall not affect
any other provision of this Agreement or part thereof, each of which shall
remain in full force and effect. If the making of any payment or the provision
of any other benefit required under
<PAGE> 33
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this Agreement shall be held unlawful or otherwise invalid or unenforceable,
such unlawfulness, invalidity or unenforceability shall not prevent any other
payment or benefit from being made or provided under this Agreement, and if the
making of any payment in full or the provision of any other benefit required
under this Agreement in full would be unlawful or otherwise invalid or
unenforceable, then such unlawfulness, invalidity or unenforceability shall not
prevent such payment or benefit from being made or provided in part, to the
extent that it would not be unlawful, invalid or unenforceable, and the maximum
payment or benefit that would not be unlawful, invalid or unenforceable shall
be made or provided under this Agreement.
Section 6.11. Agents. The Company may make arrangements to
cause any agent or other party, including an affiliate of the Company, to make
any payment or to provide any benefit that the Company is required to make or
to provide hereunder; provided, that no such arrangement shall relieve or
discharge the Company of its obligations hereunder except to the extent that
such payments or benefits are actually made or provided.
Section 6.12. Definitions. All upper case terms used
herein shall have the meaning set forth in this Agreement.
Section 6.13. Captions. The captions to the respective
articles and sections of this Agreement are intended
<PAGE> 34
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for convenience of reference only and have no substantive significance.
Section 6.14. Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
but all of which together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GTE SERVICE CORPORATION
By: /s/ J. Randall MacDonald
------------------------
J. Randall MacDonald
Senior VP-Human Resources
and Administration
By: /s/ Marianne Drost
------------------------
Marianne Drost
VP and Associate General
Counsel-Finance & Corporate
Secretary
By: /s/ Michael T. Masin
----------------------------
MICHAEL T. MASIN
<PAGE> 1
EXHIBIT 10-12
[GTE CORPORATION LETTERHEAD]
September 13, 1995
Ms. Patricia D. Yoder
13 Brown House Road
Old Greenwich, Connecticut 06870
Dear Pat:
This is to confirm our offer to you to join GTE Corporation in Stamford, CT as
Vice President - Public Affairs and Communications and a member of the Executive
Leadership Committee, effective October 16, 1995. Details regarding the specific
compensation, pension and benefit provisions in connection with this position
are provided in this letter.
BASE COMPENSATION: Your initial annual salary will be $265,000. The GTE
salary level for the position is 20, with a 1995 salary range of $200,000
minimum, $259,000 midpoint and $318,000 maximum.
EXECUTIVE INCENTIVE PLAN (EIP): In your role as Vice President - Public
Affairs and Communications, you will be a participant in the Corporation's
Executive Incentive Plan (EIP). For 1995, the EIP payout range for a full year
participation consists of a minimum of $48,000, a norm of $96,000 and a maximum
payout opportunity of $192,000. Your 1995 EIP award will be prorated to reflect
your actual commencement date with GTE with a guaranteed minimum 1995 EIP
payment of $25,000. Additionally, should you forfeit a portion of your bonus
with your present employer due to accepting this position, GTE will ensure that
your 1995 total bonus compensation is no less than the amount you would have
been entitled to had you remained with your current employer, which you estimate
to be approximately $100,000. This is contingent upon receiving proper
documentation regarding the forfeited bonus. You will be a full participant in
the 1996 EIP.
LONG-TERM INCENTIVE PLAN (LTIP): Subject to approval by the GTE
Corporation Executive Compensation and Organizational Structure Committee (ECC),
you will be a participant in GTE's Long-Term Incentive Plan, which includes
stock option grants and performance bonus units. Effective upon your commencing
employment, you will be granted for 1995 an option to purchase 33,000 shares of
GTE Common Stock at a price per share based on the average of the high and low
prices of GTE Common Stock on the NYSE Composite listing on that date. This
grant also includes associated tandem Stock Appreciation Rights (SAR's) and will
vest on a one-third per year basis over a period of three years.
<PAGE> 2
Ms. Patricia D. Yoder
September 13, 1995
Page 2
With respect to the performance bonus units, effective January 1, 1996 you will
be eligible for full participation in the 1996-1998 performance cycle. In
addition, you will be eligible for pro-rated participation in the 1995-1997
performance cycle and will receive 1,800 performance bonus units. You will also
be eligible for pro-rated participation in the 1994-1996 performance cycle,
receiving 1,000 units. The payment of these long-term awards is based on the
Corporation's achievement of pre-established performance targets, assuming you
remain employed by GTE until the end of each cycle. Further details regarding
the Long-Term Incentive Plan will be provided to you under separate cover.
PENSION BENEFITS: As an employee of GTE, you will be eligible to
participate in both the basic GTE Pension Plan and the Supplemental Executive
Retirement Plan (SERP).
GTE BASIC PENSION PLAN: GTE's Pension Plan provides for a basic service
pension based on your highest five consecutive years' base salary, your
years of accredited service and the social security integration level
in the year you retire. Full details of the Basic Pension Plan have
been provided in the attached booklets.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) : At the time of your
retirement from GTE, your basic pension will be supplemented by an
additional pension payment based on the provisions of SERP with respect
to the inclusion of bonuses in pension calculations, as well as pension
benefit payments in excess of IRS limitations. Details of the plan are
provided in the booklet referenced above.
PENSION SUPPLEMENT: In recognition of pension credit you are
foregoing in accepting this position, GTE will provide you with a
deferred vested pension equivalent (Pension Supplement) if you remain
in the continuous employ of GTE for two years and separate from GTE any
time prior to earning a deferred vested pension benefit. In the event
you separate from service prior to this two year provision, GTE will
provide you with the net present value of your service from your
present employer. The Pension Supplement will be paid out of the
Company's general assets upon your attaining age 65 and will be
calculated in accordance with the deferred vested pension provisions of
GTE's Pension Plan in effect at the time of your separation. The
Pension Supplement will be based on your actual years of GTE service
and your GTE compensation. Upon your attaining eligibility for a
deferred vested pension from GTE's Pension Plan, this provision will
expire.
EXECUTIVE RETIREMENT LIFE INSURANCE PLAN (ERLIP): You will participate
in the GTE Executive Retirement Life Insurance Plan which currently provides you
with, upon retirement from GTE, post-separation life insurance equivalent to
three times your final base salary. The Plan also provides options to convert
the death benefit to others forms of payment using actuarial equivalents.
Details of the plan are provided in the attached booklet.
<PAGE> 3
Ms. Patricia D. Yoder
September 13, 1995
Page 3
VACATION: You will be eligible for three weeks paid vacation per calendar year.
OTHER BENEFIT PLANS: As an employee of GTE Service Corporation, you will
be entitled to a full range of benefits such as the GTE Choices Benefits Program
and other programs outlined in the booklets enclosed with this letter. In
addition, you will be eligible to travel on a first class basis, receive
financial planning in accordance with our established practices, and
reimbursement for a country club membership. Your office will be located on the
ninth floor (executive offices). Upon completion of additional construction, you
will occupy a fully appointed executive office. As an interim measure, you will
utilize an existing office. GTE reserves the right to modify or terminate any
plan, including any of the executive benefits plans described above.
MISCELLANEOUS: This offer of employment is contingent upon successful
completion of a medical evaluation which includes a screen for illegal
substances. Your continued employment is contingent upon satisfactory completion
of a background investigation. In addition, Federal law requires that
eligibility to work in the United States be verified for all new employees. So
that we can comply with this regulation, please review the enclosed Employment
Eligibility form, complete part one and bring the form, along with the
appropriate document(s), with you on your first day of employment. Nothing in
this letter shall give you the right to be retained in the service of GTE or
deny GTE the right to discharge you at any time. Similarly, this letter does not
limit your right to terminate employment with GTE at any time.
Chuck and Kent join me in hoping you will join GTE and in the conviction that
you can make a very important contribution to GTE. As you are well aware, this
is a period of accelerated change in the telecommunications industry. Needless
to say, GTE faces many opportunities and challenges. We believe GTE has the
management and assets to make the most of the opportunities ahead and we look
forward to your contribution.
If any aspect of this letter raises questions, please contact me or Randy
MacDonald. To indicate your acceptance of this position, please return the
signed acceptance to me and retain one copy for your records.
Sincerely,
/s/ Michael T. Masin
- --------------------
MTM/lal
Attachments
I agree to the terms and conditions as set forth in this letter and accept the
position of Vice President - Public Affairs and Communications.
/s/ Patricia D. Yoder 9-25-95
- ---------------------- --------------
Signature Date
cc: J. R. MacDonald
<PAGE> 4
EXECUTIVE SEVERANCE AGREEMENT
This AGREEMENT ("Agreement") dated as of January 8, 1996, by
and between GTE Service Corporation, a New York corporation (the "Company"), and
Patricia D. Yoder (the "Executive").
WITNESSETH:
WHEREAS, the Company recognizes the valuable services that the
Executive has rendered thereto and desires to be assured that the Executive will
continue to attend to the business and affairs of the Company without regard to
any potential or actual change in control of GTE Corporation, a New York
corporation and the Company's sole shareholder ("GTE"); and
WHEREAS, the Executive is willing to continue to serve the
Company, but desires assurance that he will not be materially disadvantaged by a
change in control of GTE;
NOW, THEREFORE, in consideration of the Executive's continued
service to the Company and the mutual agreements herein contained, the Company
and the Executive hereby agree as follows:
ARTICLE I
ELIGIBILITY FOR BENEFITS
Section 1.1. Qualifying Termination. The Company shall
not be required to provide any benefits to the Executive
<PAGE> 5
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pursuant to this Agreement unless a Qualifying Termination occurs before the
Agreement expires in accordance with Section 6.1 hereof. For purposes of this
Agreement, a Qualifying Termination shall occur only if
(a) a Change in Control occurs, and
(b) (i) within two years after the Change in Control, the
Company terminates the Executive's employment other
than for Cause; or (ii)(A) within two years
after the Change in Control, a Good Reason arises,
and (B) the Executive terminates employment
with the Company within (I) six months after the Good
Reason arises or (II) two years after the Change in
Control, whichever occurs later;
provided, that a Qualifying Termination shall not occur if the Executive's
employment with the Company terminates by reason of the Executive's Retirement,
Disability, or death. A Qualifying Termination may occur even though the
Executive retires from employment with the Company other than by reason of
Retirement or Disability.
Section 1.2. Change in Control. Except as provided below, a
Change in Control shall be deemed to occur when and only when the first of the
following events occurs:
(a) an acquisition (other than directly from GTE) of
securities of GTE by any Person, immediately
<PAGE> 6
- 3 -
after which such Person, together with all Affiliates
and Associates of such Person, shall be the Beneficial
Owner of securities of GTE representing 20 percent or
more of the Voting Power or such lower percentage of
the Voting Power that, from time to time, would cause
the Person to constitute an "Acquiring Person" (as
such term is defined in the Rights Plan); provided
that, in determining whether a Change in Control has
occurred, the acquisition of securities of GTE in a
Non-Control Acquisition shall not constitute an
acquisition that would cause a Change in Control; or
(b) three or more directors, whose election or nomination
for election is not approved by a majority of the
members of the "Incumbent Board" (as defined below)
then serving as members of the Board, are elected
within any single 12-month period to serve on the
Board; provided that an individual whose election or
nomination for election is approved as a result of
either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the
Securities Exchange Act of 1934, as amended from time
to time) or other actual or threatened
<PAGE> 7
solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest, shall
be deemed not to have been approved by a majority of
the Incumbent Board for purposes hereof; or
(c) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board;
"Incumbent Board" shall mean individuals who, as of
the close of business on April 19, 1995, are members
of the Board; provided that, if the election, or
nomination for election by GTE's shareholders, of any
new director was approved by a vote of at least
three-quarters of the Incumbent Board, such new
director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board;
provided further that no individual shall be
considered a member of the Incumbent Board if such
individual initially assumed office as a result of
either an actual or threatened Election Contest or
other actual or threatened Proxy Contest, including by
reason of any agreement intended to
<PAGE> 8
- 5 -
avoid or settle any Election Contest or Proxy Contest;
or
(d) approval by shareholders of GTE of:
(i) a merger, consolidation, or reorganization
involving GTE, unless
(A) the shareholders of GTE, immediately
before the merger, consolidation, or reorganization,
own, directly or indirectly immediately following such
merger, consolidation, or reorganization, at least 50
percent of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger, consolidation, or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership
of the voting securities immediately before such
merger, consolidation, or reorganization;
(B) individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation, or reorganization constitute at least a
majority of the board of directors of the Surviving
Corporation; and
<PAGE> 9
- 6 -
(C) no Person (other than GTE or any
subsidiary of GTE, any employee benefit plan (or any
trust forming a part thereof) maintained by GTE, the
Surviving Corporation, or any subsidiary of GTE, or
any Person who, immediately prior to such merger,
consolidation, or reorganization, had Beneficial
Ownership of securities representing 20 percent (or
such lower percentage the acquisition of which would
cause a Change in Control pursuant to paragraph (a) of
this definition of "Change in Control") or more of the
Voting Power) has Beneficial Ownership of securities
representing 20 percent (or such lower percentage the
acquisition of which would cause a Change in Control
pursuant to paragraph (a) of this definition of
"Change in Control") or more of the combined Voting
Power of the Surviving Corporation's then outstanding
voting securities;
(ii) a complete liquidation or
dissolution of GTE; or
(iii) an agreement for the sale
or other disposition of all or substantially all of
the assets of GTE to any Person (other than a transfer
to a subsidiary of GTE).
<PAGE> 10
- 7 -
For purposes of this Section, the following terms shall have
the definitions set forth below:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended from time to time.
"Board" means the Board of Directors of GTE.
"Non-Control Acquisition" means an acquisition by (1) an
employee benefit plan (or a trust forming a part thereof) maintained by GTE or
any of its subsidiaries, (2) GTE or any of its subsidiaries, or (3) any Person
in connection with a "Non-Control Transaction."
"Non-Control Transaction" means a transaction described in
clauses (A) through (C) of paragraph (d)(i) of the definition of "Change in
Control" herein.
"Person" shall mean any individual, firm, corporation,
partnership, joint venture, association, trust, or other entity.
A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(x) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or
indirectly;
(y) which such Person or any of such Person's Affiliates
or Associates has (i) the right or
<PAGE> 11
- 8 -
obligation to acquire (whether such right or
obligation is exercisable or effective immediately or
only after the passage of time) pursuant to any
agreement, arrangement, or understanding (whether or
not in writing) or upon the exercise of conversion
rights, exchange rights, rights (other than the rights
granted pursuant to the Rights Plan), warrants or
options, or otherwise; provided that a Person shall
not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a
tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or
exchange; or (ii) the right to vote pursuant to any
agreement, arrangement, or understanding (whether or
not in writing); provided that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially
own," any security under this clause (ii) if the
agreement, arrangement, or understanding to vote such
security (A) arises solely from a revocable proxy
given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with,
the
<PAGE> 12
- 9 -
applicable rules and regulations of the Securities
Exchange Act of 1934, as amended from time to time,
and (B) is not also then reported by such person on
Schedule 13D under the Securities Exchange Act of
1934, as amended from time to time (or any comparable
or successor report); or
(z) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate
thereof) with which such Person or any of such
Person's Affiliates or Associates has any agreement,
arrangement, or understanding (whether or not in
writing), or with which such Person or any of such
Person's Affiliates or Associates have otherwise
formed a group for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as
described in clause (ii)(A) of subparagraph (y),
above), or disposing of any securities of GTE.
"Rights Plan" means the Rights Agreement, dated as of December
7, 1989, between GTE and State Street Bank and Trust Company (now administered
by the First National Bank of Boston), as it may be amended from time to time,
or any successor thereto.
<PAGE> 13
- 10 -
"Voting Power" means the voting power of all securities of GTE
then outstanding generally entitled to vote for the election of directors of
GTE.
Section 1.3. Termination for Cause. The Company shall
have Cause to terminate the Executive for purposes of Section 1.1 hereof only if
the Executive (a) engages in unlawful acts intended to result in the substantial
personal enrichment of the Executive at the Company's expense, or (b) engages
(except by reason of incapacity due to illness or injury) in a material
violation of his responsibilities to the Company that results in a material
injury to the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to him a notice, consisting of a copy of a resolution duly adopted by
the affirmative vote of not less than three quarters of the entire membership of
GTE's Board of Directors at a duly held meeting of the Board of Directors (with
reasonable notice to the Executive and an opportunity for the Executive,
together with counsel, to be heard before the Board of Directors) ("Notice of
Termination"), finding that the Executive has engaged in the conduct set forth
above in this Section 1.3 and specifying the particulars thereof in detail.
GTE's Board of Directors may not delegate or assign its duties under this
Section 1.3.
<PAGE> 14
- 11 -
Section 1.4. Termination for Good Reason. The Executive
shall have a Good Reason for terminating employment with the Company only if one
or more of the following occurs after a Change in Control:
(a) a change in the Executive's status or position(s) with
the Company that, in the Executive's reasonable
judgment, represents a demotion from the Executive's
status or position(s) in effect immediately before the
Change in Control;
(b) the assignment to the Executive of any duties or
responsibilities that, in the Executive's reasonable
judgment, are inconsistent with the Executive's status
or position(s) in effect immediately before the Change
in Control;
(c) layoff or involuntary termination of the Executive's
employment, except in connection with the termination
of the Executive's employment for Cause or as a result
of the Executive's Retirement, Disability, or death;
(d) a reduction by the Company in the Executive's total
compensation (which shall be deemed, for this purpose,
to be equal to his base salary plus the greater of (i)
the most recent award that he has earned under the GTE
Corporation
<PAGE> 15
- 12 -
Executive Incentive Plan, as amended from
time to time, or any successor thereto (the "EIP"), or
(ii) an EIP award equal to the Executive's Average
Percentage of the annual value (i.e., the
dollar amount) of the normal payment under the EIP for
the Executive's salary level (such annual value and
normal payment being those that are in effect under
the EIP immediately before the date on which the
Change in Control occurs for the Executive's salary
level immediately before the date on which the Change
in Control occurs)). For purposes of this paragraph
(d), the Executive's "Average Percentage" means the
average of the Executive's Annual Percentages for the
Determination Years. For purposes of this paragraph
(d), the Executive's "Annual Percentage" for each
Determination Year means a fraction (expressed as a
percentage), the numerator of which is the EIP award
earned by the Executive for such Determination Year,
and the denominator of which is the annual value of
the normal payment under the EIP for Executive's
salary level (such annual value and normal payment
being those that were in effect under the EIP for
such Determination Year for
<PAGE> 16
- 13 -
the Executive's salary level (such annual value and
normal payment being those that were in effect under
the EIP for such Determination Year for the
Executive's salary level for such Determination Year).
For purposes of this paragraph (d), a "Determination
Year" means each of the last three EIP plan years
ending before the date on which the Change in Control
occurs (or, if less, the number of those three plan
years during which the Executive was a participant in
the EIP);
(e) a material increase in the Executive's
responsibilities or duties without a commensurate
increase in total compensation;
(f) the failure by the Company to continue in effect any
Plan in which the Executive is participating at the
time of the Change in Control (or plans or
arrangements providing the Executive with
substantially equivalent benefits) other than as a
result of the normal expiration of any such Plan in
accordance with its terms as in effect at the time of
the Change in Control;
(g) any action or inaction by the Company that would
adversely affect the Executive's continued
participation in any Plan on at least as favorable a
basis as was the case on the date of the Change in
Control, or that would materially reduce the
Executive's benefits in the future
<PAGE> 17
- 14 -
under the Plan or deprive him of any material benefits
that he enjoyed at the time of the Change in Control,
except to the extent that such action or inaction by
the Company is required by the terms of the Plan as in
effect immediately before the Change in Control, or is
necessary to comply with applicable law or to preserve
the qualification of the Plan under section 401(a) of
the Internal Revenue Code, and except to the extent
that the Company provides the Executive with
substantially equivalent benefits;
(h) the Company's failure to provide and credit the
Executive with the number of days of paid vacation,
holiday, or leave to which he is then entitled in
accordance with the Company's normal vacation,
holiday, or leave policy in effect immediately before
the Change in Control;
(i) the imposition of any requirement that the Executive
be based anywhere other than within 25 miles of where
his principal office was located immediately before
the Change in Control;
(j) a material increase in the frequency or duration of
the Executive's business travel;
<PAGE> 18
- 15 -
(k) the Company's failure to obtain the express assumption
of this Agreement by any successor to the Company as
provided by Section 6.3 hereof;
(l) any attempt by the Company to terminate the
Executive's employment that is not effected pursuant
to a Notice of Termination satisfying the requirements
of Section 1.3 hereof or that does not afford the
Executive the procedural protections prescribed by
that Section; or
(m) any violation by the Company of any agreement
(including this Agreement) between it and the
Executive.
Notwithstanding the foregoing, no action by the Company shall give rise to a
Good Reason if it results from the Executive's termination for Cause,
Retirement, or death, and no action by the Company specified in paragraphs (a)
through (d) of the preceding sentence shall give rise to a Good Reason if it
results from the Executive's Disability. A Good Reason shall not be deemed to be
waived by reason of the Executive's continued employment as long as the
termination of the Executive's employment occurs within the time prescribed by
Section 1.1(b)(ii)(B) hereof. For purposes of this Section 1.4, "Plan" means any
compensation plan, such as an incentive, stock option, or restricted stock plan,
or any employee benefit plan, such as a thrift, pension, profit-sharing, stock
bonus,
<PAGE> 19
- 16 -
long-term performance award, medical, disability, accident, or life insurance
plan, or a relocation plan or policy, or any other plan, program or policy of
the Company that is intended to benefit employees.
Section 1.5. Retirement. For purposes of this Agreement,
"Retirement" shall mean the Executive's termination of employment upon or after
attaining age 65.
Section 1.6. Disability. For purposes of this Agreement,
"Disability" shall mean an illness or injury that prevents the Executive from
performing his duties (as they existed immediately before the illness or injury)
on a full-time basis for six consecutive months.
Section 1.7. Notice. If a Change in Control occurs, the Company
shall notify the Executive of the occurrence of the Change in Control within two
weeks after the Change in Control.
ARTICLE II
BENEFITS AFTER A QUALIFYING TERMINATION
Section 2.1. Basic Severance Payment.
(a) If the Executive incurs a Qualifying Termination, the
Company shall pay to the Executive a cash amount equal
to 200% of the Base Amount. The Base Amount shall be
an amount equal to the greater of:
<PAGE> 20
- 17 -
(A) the sum of (I) the Executive's base annual
salary immediately before the Change in Control plus
(II) the Executive's Average Percentage of the annual
value (i.e., the dollar amount) of the normal
payment under the EIP for the Executive's salary level
(such annual value and normal payment being those that
are in effect under the EIP immediately before the
date on which the Change in Control occurs for the
Executive's salary level immediately before the date
on which the Change in Control occurs). For purposes
of this paragraph (A), the Executive's "Average
Percentage" means the average of the Executive's
Annual Percentages for the Determination Years. For
purposes of this paragraph (A), the Executive's
"Annual Percentage" for each Determination Year means
a fraction (expressed as a percentage), the numerator
of which is the EIP award earned by the Executive for
such Determination Year, and the denominator of which
is the annual value of the normal payment under the
EIP for the Executive's salary level (such annual
value and normal payment being those that were in
effect under the EIP for such Determination Year for
<PAGE> 21
- 18 -
the Executive's salary level for such Determination
Year). For purposes of this paragraph (A), a
"Determination Year" means each of the last three EIP
plan years ending before the date on which the Change
in Control occurs (or, if less, the number of those
three plan years during which the Executive was a
participant in the EIP); or
(B) the sum of (I) the Executive's base annual salary
immediately before the Qualifying Termination plus
(II) the Executive's Average Percentage of the annual
value (i.e., the dollar amount) of the normal payment
under the EIP for the Executive's salary level (such
annual value and normal payment being those that are
in effect under the EIP immediately before the date on
which the Qualifying Termination occurs for the
Executive's salary level immediately before the date
on which the Qualifying Termination occurs). For
purposes of this paragraph (B), the Executive's
"Average Percentage" means the average of the
Executive's Annual Percentages for the Determination
Years. For purposes of this paragraph (B), the
Executive's "Annual Percentage" for each Determination
Year means a
<PAGE> 22
- 19 -
fraction (expressed as a percentage), the
numerator of which is the EIP award earned by the
Executive for such Determination Year, and the
denominator of which is the annual value of the normal
payment under the EIP for the Executive's salary level
(such annual value and normal payment being those that
were in effect under the EIP for such Determination
Year for the Executive's salary level for such
Determination Year). For purposes of this paragraph
(B), a "Determination Year" means each of the last
three EIP plan years ending before the date on which
the Qualifying Termination occurs (or, if less, the
number of those three plan years during which the
Executive was a participant in the EIP).
(b) The Company shall make the payment to the Executive
pursuant to subsection (a) of this Section 2.1 in a
lump sum within 30 days of the Qualifying Termination.
Section 2.2. Insurance. If the Executive incurs a
Qualifying Termination, the Company shall provide the Executive, at the
Company's expense, for a period beginning on the date of the Qualifying
Termination, the same medical insurance and life insurance coverage as was in
effect
<PAGE> 23
- 20 -
immediately before the Change in Control (or, if greater, as in effect
immediately before the Qualifying Termination occurs); such coverage shall end
upon the earlier of (a) the expiration of 24 months after the Qualifying
Termination or (b)(i) with respect to medical insurance coverage, the date on
which the Executive first becomes eligible for medical insurance coverage
provided by a firm that employs him following the Qualifying Termination, or
(ii) with respect to life insurance coverage, the date on which the Executive
first becomes eligible for life insurance coverage provided by such firm.
Section 2.3. Outplacement Counseling. If the Executive
incurs a Qualifying Termination, the Company shall make available to the
Executive, at the Company's expense, outplacement counseling that is at least
equivalent to the outplacement counseling that the Company provided to its
terminated senior executives during 1995. Subject to the foregoing, the
Executive may select the organization that will provide the outplacement
counseling; provided, that this sentence shall not require the Company to
provide the Executive with outplacement counseling that is more costly to the
Company than the outplacement counseling that this Section 2.3 otherwise
requires the Company to provide to the Executive.
Section 2.4. Financial Counseling. If the Executive
incurs a Qualifying Termination, the Company shall, within 30 days of the
Qualifying Termination, make available to
<PAGE> 24
- 21 -
the Executive three individual financial counseling sessions, of at least two
hours each and at times and locations that are convenient to the Executive, with
a nationally recognized financial counseling firm. At the financial counseling
sessions, the financial counseling firm shall provide the Executive with
detailed financial advice that is tailored to the Executive's particular
personal and financial situation. The Company shall specify to the Executive the
information regarding his personal and financial situation that he must provide
to the financial counseling firm in order for the firm to provide the counseling
services required by this Section 2.4. The Company shall take all reasonable and
appropriate measures to assure that the financial counseling firm preserves the
confidentiality of all information conveyed by the Executive to the counseling
firm.
Section 2.5. Benefit Credit. If the Executive incurs a
Qualifying Termination,
(a) the Executive shall receive service credit, for the
purpose of receiving benefits and for vesting,
retirement eligibility, benefit accrual, and all other
purposes, under all employee benefit plans sponsored
by the Company (including, but not limited to, health,
life insurance, pension, savings, stock, and stock
ownership plans, but excluding the Company's
<PAGE> 25
- 22 -
short-term and long-term disability plans) in which he
participated immediately before the Change in Control,
for 24 months;
(b) for purposes of determining the Executive's benefits
under all defined benefit pension plans maintained by
the Company, including the GTE Service Corporation
Supplemental Executive Retirement Plan ("SERP"), the
Executive's compensation shall include the amount
payable to the Executive pursuant to Section 2.1
hereof, and for purposes of this subsection (b), the
Executive shall be deemed to have received such amount
in monthly installments, each equal to 1/24th of the
amount payable to the Executive pursuant to Section
2.1 hereof; and
(c) the Executive shall be considered to have not less
than 76 points and 15 years of Accredited Service for
purposes of determining his eligibility for early
retirement benefits under the Company's defined
benefit pension plans (including, but not limited to,
the SERP) and for purposes of determining his
eligibility for benefits under the GTE Executive
Retired Life Insurance Plan (or any predecessor or
successor thereto).
<PAGE> 26
- 23 -
Notwithstanding the service credit granted under subsection (a) of this Section
2.5 and the compensation recognized under subsection (b) of this Section 2.5,
nothing in this Section 2.5 shall prevent the Executive from receiving any
benefits to which the Executive is entitled under any defined benefit or defined
contribution pension plan maintained by the Company, including the SERP (as such
benefits are modified by this Agreement) in any form permitted by such plans
(including but not limited to a lump-sum distribution) immediately following the
Executive's Qualifying Termination. To the extent that the Company's
tax-qualified retirement plans cannot provide the benefits specified by this
Section 2.5 without jeopardizing the tax qualification of such plans, the
Company shall provide such benefits under the SERP.
Section 2.6. Nonduplication.
(a) Nothing in this Agreement shall require the Company to
make any payment or to provide any benefit or service
credit that GTE or the Company is otherwise required
to provide under any other contract, agreement,
policy, plan, or arrangement.
(b) The final sentence of the subparagraph entitled
"Pension Supplement" of the letter agreement,
dated September 13, 1995, executed by Michael T.
<PAGE> 27
- 24 -
Masin and Patricia D. Yoder is amended to read as
follows:
Upon your attaining eligibility for a deferred
vested pension from GTE's Pension Plan
(including any such eligibility that you
attain by reason of the Executive Severance
Agreement, dated January 8, 1996, between you
and GTE), this provision will expire.
Section 2.7. Prior Agreement. This Agreement supersedes any
prior Executive Severance Agreement entered into between the Company and the
Executive ("Prior Agreement"). On and after the date of this Agreement, such
Prior Agreement shall have no force or effect.
ARTICLE III
EFFECT ON HUMAN RESOURCES POLICY 104
Section 3.1. Effect on Policy 104. If the Executive
becomes entitled to receive benefits hereunder, the Executive shall not be
entitled to any benefits under GTE Human Resources Policy 104, as amended from
time to time, or any successor policy, or under any other Company severance or
salary continuation policy (including but not limited to any benefits pursuant
to an involuntary separation program or similar program maintained under a
pension plan sponsored by the Company).
<PAGE> 28
- 25 -
ARTICLE IV
TAX MATTERS
Section 4.1. Withholding. The Company may withhold from
any amounts payable to the Executive hereunder all federal, state, city or other
taxes that the Company may reasonably determine are required to be withheld
pursuant to any applicable law or regulation.
ARTICLE V
COLLATERAL MATTERS
Section 5.1. Nature of Payments. All payments to the
Executive under this Agreement shall be considered either payments in
consideration of his continued service to the Company or severance payments in
consideration of his past services thereto.
Section 5.2. Legal Expenses. The Company shall pay all
legal fees and expenses that the Executive may incur as a result of the
Company's contesting the validity, the enforceability or the Executive's
interpretation of, or determinations under, this Agreement; provided, that this
Section 5.2 shall be operative only if and to the extent that (a) the Company
fails to establish a trust that defrays all such legal fees and expenses or (b)
the Company establishes such a trust, but the trust fails to pay all such legal
fees and expenses.
<PAGE> 29
- 26 -
Section 5.3. Mitigation. The Executive shall not be
required to mitigate the amount of any payment provided for in this Agreement
either by seeking other employment or otherwise. The amount of any payment
provided for herein shall not be reduced by any remuneration that the Executive
may earn from employment with another employer or otherwise following his
Qualifying Termination.
Section 5.4. Interest. If the Company fails to make, or
cause to be made, any payment provided for herein within 30 days of the date on
which the payment is due, the Company shall make such payment together with
interest thereon. The interest shall accrue and be compounded monthly. The
interest rate shall be equal to 120 percent of the prime rate as reported by
The Wall Street Journal for the first business day of each month,
effective for the ensuing month. The interest rate shall be adjusted at the
beginning of each month.
Section 5.5. Authority. The execution of this Agreement has
been authorized by the Board of Directors of the Company and by the Board of
Directors of GTE.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Term of Agreement. This Agreement shall
become effective on the date hereof and shall continue in effect until the
earliest of (a) July 1, 1999, if no Change in
<PAGE> 30
- 27 -
Control has occurred before that date; (b) the termination of the Executive's
employment with the Company for any reason prior to a Change in Control; (c) the
Company's termination of the Executive's employment for Cause, or the
Executive's resignation for other than Good Reason, following a Change in
Control and the Company's and the Executive's fulfillment of all of their
obligations hereunder; and (d) the expiration following a Change in Control of
two years and six months and the fulfillment by the Company and the Executive of
all of their obligations hereunder. Notwithstanding the foregoing, commencing on
July 1, 1999, and on July 1 of each year thereafter, the expiration date
prescribed by clause (a) of the preceding sentence shall automatically be
extended for an additional year unless, not later than December 31 of the
immediately preceding year, one of the parties hereto shall have given notice to
the other party hereto that it (or he) does not wish to extend the term of this
Agreement. Furthermore, nothing in this Article VI shall cause this Agreement to
terminate before both the Company and the Executive have fulfilled all of their
obligations hereunder.
Section 6.2. Governing Law. Except as otherwise
expressly provided herein, this Agreement and the rights and obligations
hereunder shall be construed and enforced in accordance with the laws of the
State of New York.
<PAGE> 31
- 28 -
Section 6.3. Successors to the Company. This Agreement
shall inure to the benefit of and shall be binding upon and enforceable by the
Company and any successor thereto, including, without limitation, any
corporation or corporations acquiring directly or indirectly all or
substantially all of the business or assets of the Company, whether by merger,
consolidation, sale or otherwise, but shall not otherwise be assignable by the
Company. Without limitation of the foregoing sentence, the Company shall require
any successor (whether direct or indirect, by merger, consolidation, sale or
otherwise) to all or substantially all of the business or assets of the Company,
by agreement in form satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and to agree to perform this Agreement in the same
manner and to the same extent as the Company would have been required to perform
it if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as heretofore defined and any successor to all or
substantially all of its business or assets that executes and delivers the
agreement provided for in this Section 6.3 or that becomes bound by this
Agreement either pursuant to this Agreement or by operation of law. As used in
this Agreement, "GTE" shall mean GTE as heretofore defined and any successor to
all or substantially all of its business or assets.
<PAGE> 32
- 29 -
Section 6.4. Noncorporate Entities. If any provision of
this Agreement refers to the board of directors of an entity that has no board
of directors, the reference to board of directors shall be deemed to refer to
the body, committee, or person that has duties and responsibilities with respect
to the entity that most closely approximate those of a board of directors of a
corporation.
Section 6.5. Successor to the Executive. This Agreement shall
inure to the benefit of and shall be binding upon and enforceable by the
Executive and his personal and legal representatives, executors, administrators,
heirs, distributees, legatees and, subject to Section 6.6 hereof, his
designees ("Successors"). If the Executive should die while amounts are or may
be payable to him under this Agreement, references hereunder to the "Executive"
shall, where appropriate, be deemed to refer to his Successors; provided, that
nothing in this Section 6.5 shall supersede the terms of any plan or
arrangement (other than this Agreement) that is affected by this Agreement.
Section 6.6. Nonalienability. No right of or amount
payable to the Executive under this Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance, charge, execution, attachment, levy or similar process or to setoff
against any obligations or to assignment by operation of
<PAGE> 33
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law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall be void. However, this Section 6.6
shall not prohibit the Executive from designating one or more persons, on a form
satisfactory to the Company, to receive amounts payable to him under this
Agreement in the event that he should die before receiving them.
Section 6.7. Notices. All notices provided for in this
Agreement shall be in writing. Notices to the Company shall be deemed given when
personally delivered or sent by certified or registered mail or overnight
delivery service to GTE Service Corporation, One Stamford Forum, Stamford,
Connecticut 06904, Attention: Corporate Secretary. Notices to the Executive
shall be deemed given when personally delivered or sent by certified or
registered mail or overnight delivery service to the last address for the
Executive shown on the records of the Company. Either the Company or the
Executive may, by notice to the other, designate an address other than the
foregoing for the receipt of subsequent notices.
Section 6.8. Amendment. No amendment to this Agreement shall be
effective unless in writing and signed by both the Company and the Executive.
Section 6.9. Waivers. No waiver of any provision of
this Agreement shall be valid unless approved in writing by the party giving
such waiver. No waiver of a breach under any
<PAGE> 34
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provision of this Agreement shall be deemed to be a waiver of such provision or
any other provision of this Agreement or any subsequent breach. No failure on
the part of either the Company or the Executive to exercise, and no delay in
exercising, any right or remedy conferred by law or this Agreement shall operate
as a waiver of such right or remedy, and no exercise or waiver, in whole or in
part, of any right or remedy conferred by law or herein shall operate as a
waiver of any other right or remedy.
Section 6.10. Severability. If any provision of this
Agreement shall be held unlawful or otherwise invalid or unenforceable in whole
or in part, such unlawfulness, invalidity or unenforceability shall not affect
any other provision of this Agreement or part thereof, each of which shall
remain in full force and effect. If the making of any payment or the provision
of any other benefit required under this Agreement shall be held unlawful or
otherwise invalid or unenforceable, such unlawfulness, invalidity or
unenforceability shall not prevent any other payment or benefit from being made
or provided under this Agreement, and if the making of any payment in full or
the provision of any other benefit required under this Agreement in full would
be unlawful or otherwise invalid or unenforceable, then such unlawfulness,
invalidity or unenforceability shall not prevent such payment or benefit from
being made or provided in part, to the extent
<PAGE> 35
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that it would not be unlawful, invalid or unenforceable, and the maximum payment
or benefit that would not be unlawful, invalid or unenforceable shall be made or
provided under this Agreement.
Section 6.11. Agents. The Company may make arrangements to
cause any agent or other party, including an affiliate of the Company, to make
any payment or to provide any benefit that the Company is required to make or to
provide hereunder; provided, that no such arrangement shall relieve or discharge
the Company of its obligations hereunder except to the extent that such payments
or benefits are actually made or provided.
Section 6.12. Definitions. All upper case terms used herein
shall have the meaning set forth in this Agreement.
Section 6.13. Captions. The captions to the respective articles
and sections of this Agreement are intended for convenience of reference only
and have no substantive significance.
Section 6.14. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original but
all of which together shall constitute a single instrument.
<PAGE> 36
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GTE SERVICE CORPORATION
By: /s/ J. Randall MacDonald
-------------------------
J. Randall MacDonald
Senior VP-Human Resources
and Administration
By: /s/ Marianne Drost
-------------------------
Marianne Drost
VP and Associate General
Counsel-Finance &
Corporate
Secretary
By: /s/ Patricia D. Yoder
-------------------------
PATRICIA D. YODER
<PAGE> 1
EXHIBIT 11
Page 1
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
(In Thousands)
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) from:
Continuing operations $ 2,537,949 $2,440,869 $ 971,978 $ 1,760,704 $1,491,317
Discontinued operations -- -- -- (48,000) 51,499
Extraordinary charges (4,682,000) -- (89,990) (52,000) --
Cumulative effect of accounting changes -- -- -- (2,440,612) --
----------- ---------- --------- ----------- ----------
Consolidated net income (loss) (2,144,051) 2,440,869 881,988 (779,908) 1,542,816
----------- ---------- --------- ----------- ----------
Adjustments to net income (loss):
Add: Preferred dividend requirements
on dilutive convertible
preferred stocks 417 621 237 827 1,048
Interest expense, net of tax
effect, on employees' stock plans 1,853 1,441 1,915 6,257 4,778
----------- ---------- --------- ----------- ----------
Total adjustments 2,270 2,062 2,152 7,084 5,826
----------- ---------- --------- ----------- ----------
Adjusted consolidated net income (loss) from:
Continuing operations 2,540,219 2,442,931 974,130 1,767,788 1,497,143
Discontinued operations -- -- -- (48,000) 51,499
Extraordinary charges (4,682,000) -- (89,990) (52,000) --
Cumulative effect of accounting changes -- -- -- (2,440,612) --
----------- ---------- --------- ----------- ----------
Adjusted consolidated net income (loss) $(2,141,781) $2,442,931 $ 884,140 $ (772,824) $1,548,642
=========== ========== ========= =========== ==========
Average common shares 969,930 957,948 944,678 904,516 881,727
----------- ---------- --------- ----------- ----------
Adjustments to common shares:
Add: Dilutive convertible
preferred stocks 419 572 288 772 973
Employees' stock and
stock option plans 4,063 3,340 4,024 7,808 7,513
----------- ---------- --------- ----------- ----------
Total adjustments 4,482 3,912 4,312 8,580 8,486
----------- ---------- --------- ----------- ----------
Adjusted average common shares 974,412 961,860 948,990 913,096 890,213
=========== ========== ========= =========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
Primary (1)
Continuing operations $ 2.62 $ 2.55 $ 1.03 $ 1.95 $ 1.69
Discontinued operations -- -- -- (.05) .06
Extraordinary charges (4.83) -- (.10) (.06) --
Cumulative effect of accounting changes -- -- -- (2.70) --
----------- ---------- --------- ----------- ----------
Consolidated $ (2.21) $ 2.55 $ .93 $ (.86) $ 1.75
=========== ========== ========= =========== ==========
Fully diluted (2)
Continuing operations $ 2.61 $ 2.54 $ 1.02 $ 1.94 $ 1.68
Discontinued operations -- -- -- (.05) .06
Extraordinary charges (4.81) -- (.09) (.06) --
Cumulative effect of accounting changes -- -- -- (2.68) --
----------- ---------- --------- ----------- ----------
Consolidated $ (2.20) $ 2.54 $ .93 $ (.85) $ 1.74
=========== ========== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE> 2
EXHIBIT 11
Page 2
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE - Continued
NOTES:
(1) Computed by dividing net income (loss) applicable to common stock for
the years by the average common shares outstanding. Common stock
equivalents are excluded from this computation since they do not have a
3% dilutive effect.
(2) Computed assuming conversion or exercise of those preferred stocks and
stock plans that would have a dilutive effect.
(a) Average common shares outstanding are adjusted to reflect the
shares which would be issued upon conversion of preferred stocks
using the "if converted" method. Equivalent common shares to be
added to average shares for the employees' stock plans and stock
ownership plan are computed according to the "treasury stock"
method.
(b) Net income (loss) for the years is adjusted to reflect the
increase in income for the preferred dividends declared for the
years on the convertible preferred stocks, and the interest
accrued, net of tax effect, on funds received from installments
under the employees' stock plans.
<PAGE> 1
Exhibit 12
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $ 2,537,949 $ 2,440,869 $ 971,978 $ 1,760,704 $ 1,491,317
Add (deduct) -
Income taxes 1,466,426 1,532,482 567,747 966,589 662,860
Interest expense 1,150,625 1,139,233 1,298,234 1,475,670 1,574,746
Capitalized interest (net of amortization) (22,971) (6,045) (3,421) (4,931) (14,791)
Preferred stock dividends of Parent 5,598 9,910 17,825 26,331 36,785
Preferred stock dividends of subsidiaries 104,202 18,252 22,162 23,429 25,317
Additional income requirement on preferred
stock dividends of subsidiaries 12,896 11,426 12,739 12,671 11,006
Minority interests 145,437 140,464 112,335 112,425 103,626
Portion of rent expense representing interest 128,034 139,715 153,058 196,533 210,698
----------- ----------- ----------- ----------- -----------
5,528,196 5,426,306 3,152,657 4,569,421 4,101,564
Deduct - Minority interests (246,678) (242,937) (236,944) (248,979) (247,284)
----------- ----------- ----------- ----------- -----------
Adjusted earnings available
for fixed charges from
continuing operations $ 5,281,518 $ 5,183,369 $ 2,915,713 $ 4,320,442 $ 3,854,280
=========== =========== =========== =========== ===========
Fixed Charges:
Interest charges $ 1,150,625 $ 1,139,233 $ 1,298,234 $ 1,475,670 $ 1,574,746
Preferred dividends of subsidiaries 104,202 18,252 22,162 23,429 25,317
Additional income requirement on preferred
dividends of subsidiaries 12,896 11,426 12,739 12,671 11,006
Portion of rent expense representing interest 128,034 139,715 153,058 196,533 210,698
----------- ----------- ----------- ----------- -----------
1,395,757 1,308,626 1,486,193 1,708,303 1,821,767
Deduct - Minority interests (70,052) (68,096) (78,421) (86,504) (89,479)
----------- ----------- ----------- ----------- -----------
Adjusted fixed charges $ 1,325,705 $ 1,240,530 $ 1,407,772 $ 1,621,799 $ 1,732,288
=========== =========== =========== =========== ===========
Ratio of Earnings to Fixed Charges - continuing
operations 3.98 4.18 2.07 2.66 2.22
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
GTE CORPORATION AND SUBSIDIARIES
Significant Subsidiaries of Registrant at December 31, 1995
<TABLE>
<CAPTION>
Percent of Voting
Control Owned by
Company(2) Incorporated In Direct Parent
---------- --------------- -----------------
<S> <C> <C>
Contel Cellular Inc. Delaware 100.00
Contel of California, Inc. California 100.00
Contel Federal Systems, Inc. Delaware 100.00
GTE Government Systems Corporation Delaware 100.00
GTE Telecom Incorporated Delaware 100.00
GTE Products of Connecticut Corporation Connecticut 100.00
GTE Laboratories Incorporated Delaware 100.00
GTE Leasing Corporation Delaware 100.00
Anglo-Canadian Telephone Company Quebec 86.39
BC TELECOM Inc. Canada 50.67
BC TEL Canada 100.00
BC TEL Services Inc. Canada 100.00
Canadian Telephones and Supplies Ltd. British Columbia 100.00
Quebec-Telephone Quebec 50.31
GTE Holdings (Canada) Limited Canada 100.00
Compania Dominicana de Telefonos, C. por A. Dominican Republic 100.00
GTE International Telecommunications Incorporated Delaware 100.00
GTE Venezuela Incorporated Delaware 100.00
VenWorld Telecom, C.A. Venezuela 51.00
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) Venezuela 40.00
GTE California Incorporated California 99.60
GTE Florida Incorporated Florida 100.00
GTE Midwest Incorporated Delaware 100.00
GTE North Incorporated Wisconsin 100.00
GTE Northwest Incorporated Washington 100.00
GTE South Incorporated Virginia 100.00
GTE Southwest Incorporated Delaware 100.00
GTE Hawaiian Telephone Company Incorporated Hawaii 100.00
GTE Data Services Incorporated Delaware 100.00
GTE Finance Corporation Delaware 100.00
GTE Information Services Incorporated Delaware 100.00
GTE Directories Corporation Delaware 100.00
GTE Intelligent Network Services Incorporated Delaware 100.00
GTE Investment Management Corporation Delaware 100.00
GTE Main Street Incorporated Delaware 100.00
GTE Media Ventures Incorporated Delaware 100.00
GTE Mobile Communications Incorporated Delaware 100.00
GTE Airfone Incorporated Delaware 100.00
GTE Mobile Communications International Incorporated Delaware 100.00
CTI Compania de Telefonos del Interior S.A. Argentina 25.50
CTI Norte Compania de Telefonos del Interior S.A. Argentina 25.50
GTE Mobilnet Incorporated Delaware 100.00
GTE Cellular Communications Corporation California 100.00
GTE Realty Corporation Delaware 100.00
GTE REinsurance Company Limited Vermont 100.00
GTE Service Corporation New York 100.00
GTE Telecom Marketing Corporation Delaware 100.00
GTE Vantage Incorporated Delaware 100.00
GTE Visnet Incorporated Delaware 100.00
</TABLE>
- ---------------
(a) GTE's share of the earnings of all subsidiaries listed are included in GTE's
consolidated financial statements.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated January 25, 1996, on the consolidated financial statements
and supporting schedule of GTE Corporation and subsidiaries included in this
Form 10-K, into the following previously filed Registration Statements:
1. Form S-8 of GTE Corporation (File No. 33-65025)
2. Form S-3 of GTE Corporation (File No. 33-63145)
3. Form S-3 of GTE Corporation (File No. 33-61661)
4. Form S-8 of GTE Corporation (File No. 33-1521)
5. Form S-8 of GTE Corporation (File No. 33-20178)
6. Form S-4 of GTE Corporation (File No. 33-37530)
7. Form S-8 of GTE Corporation (File No. 33-39297)
8. Form S-3 of GTE Corporation (File No. 33-40247)
9. Form S-8 of GTE Corporation (File No. 33-46612)
10. Form S-3 of GTE Corporation (File No. 33-50263)
11. Form S-8 of GTE Corporation (File No. 33-50111)
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 332
<SECURITIES> 0
<RECEIVABLES> 4,227
<ALLOWANCES> 0
<INVENTORY> 719
<CURRENT-ASSETS> 5,892
<PP&E> 50,947
<DEPRECIATION> 28,510
<TOTAL-ASSETS> 37,019
<CURRENT-LIABILITIES> 8,312
<BONDS> 12,744
0
0
<COMMON> 49
<OTHER-SE> 6,822
<TOTAL-LIABILITY-AND-EQUITY> 37,019
<SALES> 19,957
<TOTAL-REVENUES> 19,957
<CGS> 14,901
<TOTAL-COSTS> 14,901
<OTHER-EXPENSES> 1,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,047
<INCOME-PRETAX> 4,004
<INCOME-TAX> 1,466
<INCOME-CONTINUING> 2,538
<DISCONTINUED> 0
<EXTRAORDINARY> 4,682
<CHANGES> 0
<NET-INCOME> (2,144)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> (2.20)
</TABLE>
