<PAGE> 1
================================================================================
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, 1996
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)
<TABLE>
<S> <C> <C>
NEW YORK 13-1678633
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF 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)
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
<TABLE>
<CAPTION>
NAME OF EACH DOMESTIC EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- ----------------------------------------
<S> <C>
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
</TABLE>
------------------------
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, 1997 amounted to $44,730,001,755.
GTE had 961,038,393 shares of $.05 par value common stock outstanding
(excluding 19,911,714 treasury shares) at January 31, 1997.
DOCUMENT INCORPORATED BY REFERENCE
GTE's Proxy Statement for Annual Meeting of Shareholders to be held on
April 16, 1997 (Incorporated in Part III).
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS.
BUSINESS OF GTE COMPANIES
GTE Corporation and subsidiaries ("GTE") is one of the largest publicly
held telecommunications companies in the world. It is the largest U.S.-based
local telephone company. GTE's domestic and international operations serve 25.9
million access lines through subsidiaries in the United States, Canada, and the
Dominican Republic and an affiliate in Venezuela. GTE is a leading
mobile-cellular operator in the United States, with the potential of serving
61.9 million cellular and personal communications service customers. Outside the
United States, GTE operates mobile-cellular networks serving some 16.4 million
POPs through subsidiaries in Canada and the Dominican Republic and affiliates in
Venezuela and Argentina. Beginning in 1996, GTE became the first among its peers
to offer "one-stop shopping" for local, long-distance and Internet access
services. 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 102,000 employees, at December 31, 1996.
DOMESTIC
Telephone Operations
GTE's telephone operating subsidiaries in the United States served
approximately 20 million access lines in 28 states as of December 31, 1996 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
business. Subsidiaries accounting for the largest portion of total domestic
telephone revenues are GTE California, 22 percent; GTE North, 21 percent; GTE
Southwest, 12 percent; and GTE Florida, 11 percent. 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.
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
on February 8, 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. Advances in technology and an increase in
competition and alternative service providers are beginning to erode certain of
the benefits previously derived from franchise rights granted by states or
municipalities.
In some cases, municipalities have the right to acquire the telephone
system within the municipal limits on certain terms and conditions.
During 1996, GTE sold approximately 12,000 access lines for $30 million in
cash. During 1995, GTE sold 10,000 access lines for $30 million in cash. During
1994, GTE sold telephone properties serving 448,000 access
1
<PAGE> 3
lines in nine states for $900 million in cash. In 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. These
sales complete GTE's program to sell or exchange nonstrategic domestic
local-exchange telephone properties in markets that may be of greater long-term
strategic value to other telephone service providers.
GTE Long Distance
One of the most significant impacts of the Act's passage was the removal of
certain restrictions previously included in GTE's Consent Decree. Prior to
February 1996, GTE was restricted from jointly marketing the products and
services of its regulated local telephone subsidiaries with those of its
interexchange subsidiaries. With this joint marketing restriction lifted, GTE
can now offer its customers many services on one monthly bill, with one point of
contact. This opportunity facilitated GTE's entry into the long-distance
business.
The same day the Act was signed into law, GTE announced it had signed a
reseller agreement with WorldCom, Inc. International and interstate tariffs
filed with the FCC covering GTE's direct-dialed long distance service offerings
became effective March 2, 1996. GTE, the first of its peers to enter the long
distance business, began offering long-distance service in Michigan and
Minnesota on March 4, 1996, less than 30 days after the Act was passed into law.
The service was rolled-out on a state-by-state basis as state regulatory
approval was received. By December 31, 1996, GTE Long Distance was available in
all 50 states (both in and out of GTE's local telephone franchise area) and was
serving over 825,000 customers.
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 ("OVS") or via a standard
cable television operation ("Title VI").
The legislation also allows GTE to deploy video networks which are fully
integrated with its telephone operations. In the regulatory area, pending action
by the courts and several open FCC proceedings will be closely monitored to
continuously validate GTE's video entry decision. Open proceedings addressing
video/telephony joint use facility cost allocation, rules concerning cable
inside wiring, implementation of video close captioning requirements, revisions
to existing cable/multi-point distribution service cross-ownership rules and the
establishment of rules for local multi-point distribution services are expected
to be completed in 1997.
At the end of 1996, GTE had been granted three video franchises in the
Pinellas County, Florida market and three video franchises in the Ventura
County, California market. Construction of the cable television networks in
those markets is underway and approximately 7,000 video subscribers were
acquired in 1996, bringing GTE's total video subscribers to approximately
15,000. The most technologically advanced hybrid fiber/coaxial network available
is being deployed.
The americast(TM) joint venture between GTE, The Walt Disney Company,
Ameritech, BellSouth Corporation, and SBC Communications was expanded in 1996
with the addition of Southern New England Telephone. Programming and content for
the telecommunications partners' video offerings is being acquired through the
partnership and work has been initiated in many areas including technology
selection and the creation of an advanced navigator.
Internet Access
GTE was the first local-exchange carrier to introduce nationwide Internet
services to residential and business customers in 1996. By year-end 1996, GTE's
Internet access service, marketed as GTE Internet Solutions, was offered in over
350 cities covering 49 states. An agreement with UUNET Technologies provides the
internet backbone and local dialing capabilities. Over 70,000 customers were
subscribing to GTE Internet Solutions at December 31, 1996.
2
<PAGE> 4
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 nonaffiliated 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.
GTEDS continues to expand the level of service that it provides to
non-affiliated companies. During 1996, GTEDS signed a three-year $87 million
contract to provide a customer billing services system and other systems to the
Portuguese national telecommunications company. Work has also continued on the
$40 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.
During 1996, GTE Supply announced a multi-year agreement with BellSouth
Telecommunications ("BST") under which GTE Supply will manage the procurement,
inventory and distribution of equipment and materials required for BST's network
construction and operations. The value of the materials involved in the new
agreement is anticipated to exceed $600 million a year after the phase-in period
beginning in 1997. This agreement will potentially triple the amount of
provisioning business that GTE Supply currently conducts for nonaffiliate
companies.
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 re-engineering plan was substantially
completed in 1996 consistent with original estimates.
Total costs of the plan include a $900 million investment in customer
service processes, $300 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. The plan has produced annualized cost savings of over $1
billion.
Wireless Services
GTE Mobilnet
Wireless Services is comprised of GTE Mobilnet ("Mobilnet") and GTE
Telecommunications Services Inc. ("GTE TSI").
Wireless services includes 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
PCS services.
GTE TSI provides clearinghouse services and develops and sells software for
the cellular telephone industry throughout North America and Europe.
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 manages or
controls 73 metropolitan markets, known as metropolitan statistical areas
("MSAs"), and 52 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
3
<PAGE> 5
approximately 52 million POPs, approximately 16 million of which are in the top
30 U.S. markets. In 1996, GTE's U.S. cellular operations increased their
customer base by 25 percent to over 3.7 million.
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.
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 licenses in the broadband spectrum
auction, held by the FCC, including the Cincinnati, Seattle, Denver and Atlanta
MTA's.
Since GTE's purchase of these 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 March 1996, GTE purchased 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 October 1996, GTE entered into agreements with Clifton-Forge Waynesboro
Telephone Company, CFW Communications Company, CFW Cellular, Inc. ("CFW"), R&B
Communications, Inc. and R&B Telephone ("R&B") under which GTE will purchase
from CFW and R&B their combined 60 percent limited partnership interest in the
Roanoke MSA Limited Partnership, and GTE shall partition to CFW and R&B portions
of its 1.8 GHz Cincinnati MTA license, including the following BTAs: Charleston,
West Virginia; Huntington, West Virginia/Ashford, Kentucky; Logan, West
Virginia; Portsmouth, Ohio and Williamson, West Virginia/Pikeville, Kentucky.
Additionally, CFW shall purchase from GTE a ten percent limited partnership
interest in the Virginia RSA 6 Cellular Limited Partnership.
The PCS network in GTE's remaining franchise areas, which cover
approximately 9 million POPs, will be operational in 1997.
In June 1996, GTE sold the Denver MTA license to a wholly-owned subsidiary
of Western Wireless Corporation and sold the Atlanta MTA license to InterCel
Inc.
In 1996, the FCC completed its auctions of 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"). The service offerings at these new
frequencies will be similar in nature to mobile-cellular telephone service and
will offer direct competition once established. GTE did not participate in these
auctions.
GTE's cellular operations have always experienced direct competition from
the second cellular licensee in each market. In 1996, GTE began to experience
competition from PCS license holders in certain markets. 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.
In 1996, GTE began to deploy Code Division Multiple Access ("CDMA")
technology in its markets. This deployment will continue over the next several
years. CDMA technology allows for clearer calls and additional capacity to
process more calls.
GTE continued its deployment of Cellular Digital Packet Data services
("CDPD") in 1996. 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.
4
<PAGE> 6
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
a significant portion of domestic 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 (currently in bankruptcy court) 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.
During 1996, Airfone continued deployment of its new advanced digital
GenStar SystemSM, to its contracted airlines. In May 1996, Airfone was awarded
the airborne telephone contract with US Air, now known as US Airways. Currently,
Airfone has agreements with United, Delta, TWA, US Airways, Reno Air, Midwest
Express, United Express, Mexicana and AeroMexico. At December 31, 1996, the
GenStar System was installed on approximately 1,566 commercial aircraft in the
U.S., Canada and Mexico.
Internationally, Airfone also offers airborne telecommunications equipment
and installations to airlines in Europe and Asia. In Europe, airline partners
are: Air France/Air Inter Europe, Alitalia, British Airways, Cross Air and
Turkish Airlines. In Asia, airline partners include: All Nippon Airways, Cathay
Pacific, China Southern and Thai Airways.
Airfone formed an alliance with Magnavox, and the alliance markets the
Magnastar digital product for the corporate general aviation market. The
Magnastar System(SM) includes a digital radio, designed by Magnavox, which links
exclusively to the Airfone all-digital GenStar System. As of December 31, 1996,
over 500 Magnastar units have been sold.
Airfone will continue to actively compete for digital service contracts and
deploy marketing programs designed to increase system usage based on enhanced
quality, reliability, new feature offerings and the flexibility for future
capabilities. Current features include data and fax service, conference calling,
ground-to-air calling, seat-to-seat calling and a variety of information
services.
Directories
GTE annually publishes or provides sales and other telephone
directory-related services primarily through GTE Directories Corporation ("GTE
Directories") for approximately 2,400 directory titles in 47 states, the
District of Columbia and 15 foreign countries with a total circulation of
approximately 80 million copies. With over 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 and Quick Tips talking
class heading service, 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.
5
<PAGE> 7
In January 1996, GTE Directories launched its SuperPages(SM) interactive
business directory, an on-line service for consumers and advertisers on the
Internet's World Wide Web. SuperPages offers an electronic Yellow Pages with
over 11 million business listings as well as a Web search tool. GTE Directories
also offers Web site development services as well as on-line advertising
services.
Additionally in January 1996, GTE Directories expanded its core product
operations through the acquisition of the rights to publish, print, distribute
and sell advertising for more than 200 former Contel directory products
previously published by Associated Directory Services Inc.
Internationally, GTE Directories is a majority partner in GTE Yellow Pages
Publishing Kft. which publishes and distributes telephone directories in
Hungary. GTE Directories also has a joint venture agreement with Belgacom,
Belgium's official telecommunications provider, for the publication and
distribution of Belgacom's current printed directories, as well as future
electronic directories in Belgium. GTE Directories has a 20 percent ownership
interest in the joint venture, Belgacom Directory Services S.A.
GTE Card Services has marketed 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 900,000 card holders with total outstanding
credit card balances of approximately $510 million.
GTE Card Services also entered the prepaid calling card market in late 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 competes in the
long-distance market by providing an alternative means of purchasing and
controlling long-distance usage for both the business and residential user.
These prepaid calling cards are sold in over 4,000 retail outlets such as
convenience stores, grocery stores and GTE Phone Marts. GTE Card Services
competes in this marketplace through leverage of GTE's brand name and
utilization of GTE's exclusive marketing relationships with various licensees.
INTERNATIONAL
GTE, through its international operations, provides telecommunications
services in Canada, Venezuela, Argentina, the Dominican Republic and offers
paging services in five cities in China. As of December 31, 1996, GTE's
international operations served approximately 5.8 million access lines and
provided cellular and paging services to over 700,000 customers.
Through its ownership of common stock of Anglo-Canadian Telephone Company
("Anglo"), GTE has voting control of BC TELECOM ("BC Tel") and Quebec Telephone
("Quebec Tel").
At December 31, 1996, BC Tel provided local and long-distance telephone
service to customers served by approximately 2.4 million access lines in the
province of British Columbia, Canada and provided cellular services to
approximately 300,000 subscribers.
Beginning in 1994 with the introduction of equal access for long-distance
services, BC Tel has been impacted by the effects of competition in its markets.
At December 31, 1996, BC Tel's long-distance market share was reduced to
approximately 75 percent from 83 percent at the end of 1995 and 85 percent at
the end of 1994. BC Tel is aggressively addressing competition in the
long-distance market through the implementation of customer retention and
winback initiatives. In addition, BC Tel and Quebec Tel obtained government
approval to enter the cable television and interactive media markets which they
intend to pursue in 1997. BC Tel does not experience competition in its local
markets today, however, a number of regulatory proceedings are currently
underway which would open the marketplace to local competition.
Quebec Telephone served approximately 286,000 access lines in the province
of Quebec, Canada and provided cellular services to approximately 18,000
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.
("Codetel"), a telephone company providing local and national and international
long-distance telephone service in the Dominican Republic.
6
<PAGE> 8
This company served approximately 590,000 access lines and 57,000 cellular
customers at December 31, 1996. Codetel has experienced competition in its
international toll and local and national markets. However, the entrance of
competitors is being addressed through the implementation of service bundling
and aggressive pricing solutions.
GTE owns, directly and through a multinational consortium, a 25.9 percent
ownership interest in Compania Anonima Nacional Telefonos de Venezuela
("CANTV"), the telephone company in Venezuela. Under a concession granted by
law, CANTV is a full service telecommunications provider offering switched,
fixed local and domestic and international long-distance service throughout
Venezuela on an exclusive basis until October 2000, except in limited
circumstances.
Beginning in October 2000, however, CANTV will be subject to direct
competition for these services. CANTV also offers cellular services, paging
services, public telephones, private networks, data transmission, directory
services and other value added services.
GTE and its four consortium partners have a 40 percent ownership interest
in CANTV, while GTE, as the owner of 51 percent of the consortium, is managing
CANTV. In connection with the Venezuelan government's initial public offering of
a portion of its interest in CANTV, GTE acquired a 5.5 percent direct ownership
interest at the end of 1996. This brought GTE's effective ownership interest in
CANTV to 25.9 percent at December 31, 1996. CANTV had approximately 2.6 million
access lines at December 31, 1996 and, through its subsidiary Movilnet, served
approximately 214,000 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. As a result of this lag, in 1996
tariff increases were more than offset by high local inflation. However, ongoing
cost reduction and productivity improvement programs improved operating margins
when compared with 1995. CANTV believes that as inflation declines, the tariff
increase mechanism, coupled with continued rate rebalancing should provide real
price increases.
In April 1996, the Venezuelan government lifted foreign exchange controls
allowing the local currency to move to a market-based exchange rate. As a
result, the local currency devalued by approximately 65 percent. 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. Fluctuations
in currency exchange rates have not been significant since this initial
devaluation.
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. Competition began in CTI's markets in April 1996 as the cellular
subsidiaries of the local-exchange companies entered the market. GTE, as
operator, has a 25.5 percent ownership interest in CTI, and holds a ten-year
contract to manage the network. As of December 31, 1996, CTI served over 100,000
cellular customers.
GTE also has offices in Beijing, China and Sao Paulo, Brazil. 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 metropolitan areas, including Beijing.
Paging services were initiated in five Pearl River Delta cities at the end of
1996.
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.
7
<PAGE> 9
Early in 1997, the government of Taiwan announced that it had awarded a
nationwide license for digital cellular communications services to a consortium
in which GTE has a 12 percent interest. GTE will assist in the design, build-out
and operation of the system, with service expected to be launched in 1998. GTE
estimates that it will invest approximately $90 million in the venture over the
next several years.
TECHNOLOGY AND SYSTEMS
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 1996, GSC received orders valued at $1.21 billion, a slight increase
compared to 1995. GSC is strengthening its presence with traditional military
customers while aggressively attempting to offset a declining defense market by
broadening its penetration of the civilian agencies of the Federal government.
GSC is exploiting selected niches in the domestic commercial marketplace and
transitioning its capabilities, products and services to non-defense
applications. GSC is addressing complex telecommunications and information
processing needs in markets such as health care, banking and finance in addition
to 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
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 1996 -- 1994, expenditures for all company-sponsored research
and product development and improvement were $122 million, $137 million and $139
million, respectively. Additionally, $126 million, $162 million and $157
million, respectively, was expended for customer-sponsored research and product
development and improvement during the same periods. In total, GTE engaged over
1,200 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
8
<PAGE> 10
will affect the future development of local and long-distance services, cable
television, and information services. The new law removes regulatory 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.
A key provision of the Act eliminated the legal restraints of the GTE
Consent Decree which kept GTE's telephone operating companies from providing
interLATA long-distance services. This action will simplify GTE's ability to
market local, intraLATA and interLATA long-distance 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 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 now offers the service, marketed under the name GTE
Easy Savings Plan(SM), in all 50 states.
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.
On August 8, 1996, the FCC published its Report and Order ("Order")
containing rules implementing Section 251 of the Act dealing with
interconnection, unbundling of network elements and wholesale prices and other
terms for competitive entry into local-exchange service. On August 9, 1996, the
FCC released its Second Report and Order implementing the provision of number
portability and dialing parity in accord with the Act.
GTE believes that if the Order was implemented as released, it would cause
irreparable harm to incumbent local-exchange carriers ("ILECs") by providing
unfair advantages to other carriers who will compete with the ILECs in providing
local service in the ILEC's local territory.
On September 16, 1996, GTE filed an appeal and motion for stay of the Order
with the United States Court of Appeals for the District of Columbia. This
appeal argued that the FCC had no jurisdiction to impose national pricing rules
for what is essentially local service. This appeal was subsequently transferred
to the Court of Appeals for the Eighth Circuit together with appeals by other
LECs and state regulatory commissions. On October 15, 1996, the Eighth Circuit
granted a partial stay. The stay delays implementation of the Order's pricing
provisions and associated rules, as well as the rules requiring GTE and other
LECs to permit requesting carriers to select terms and conditions from various
agreements between them and other carriers for purposes of interconnection. On
November 12, 1996, the Supreme Court denied applications to vacate the stay
filed by the FCC and various companies seeking to enter the local-exchange
business. Additionally, the Court held oral arguments on the merits on January
17, 1997.
While GTE cannot predict the outcome of the Court's final decision, GTE
intends to continue to vigorously present its position in Court.
GTE is continuing to negotiate with requesting carriers over the terms of
interconnection, unbundled network elements and resale rates. In some cases, the
parties have been unable to agree within the statutory period for negotiation
and have gone to arbitration before various state regulatory commissions. Since
November 1996, a number of state commission decisions determining the prices and
terms of unresolved issues were released. Subsequent decisions are expected to
be issued over a period extending through the first half of 1997.
GTE is challenging specific state arbitration decisions in all cases where
GTE believes Public Utility Commissions have made arbitrary decisions that are
inconsistent with the pro-competitive objective of the Act. GTE fully endorses
genuine local competition. In 1996 and early 1997, GTE filed one or more
complaints in Federal District Court in each of the following states:
California, Florida, Hawaii, Illinois, Indiana, Iowa, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, Oklahoma, Oregon, Pennsylvania, Texas, Virginia,
Washington and Wisconsin.
9
<PAGE> 11
The Act forbids states from imposing any barriers to entry into local and
toll competition. To date, local competition has been authorized in all 28
states where GTE currently offers local telephone service: Illinois, Michigan,
Nevada, Oregon, Pennsylvania, Washington, Wisconsin, California, Florida, Texas,
Iowa, North Carolina, Hawaii, Minnesota, Virginia, Alaska, Alabama, Arkansas,
Arizona, Idaho, Indiana, Kentucky, Missouri, Nebraska, New Mexico, Ohio,
Oklahoma and South Carolina. In addition, nineteen states: Alaska, Arizona,
Illinois, Kentucky, Minnesota, Florida, Pennsylvania, Michigan, California,
Hawaii, Idaho, Indiana, Nebraska, North Carolina, Ohio, South Carolina, Texas,
Washington and Wisconsin have authorized plans that would allow customers to
pre-subscribe to a specific carrier to handle intraLATA toll calls. GTE has
proposals pending in the nine states which have not 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 percent of interstate revenues, are under some form of
alternative regulation. As of January 1996, approximately 60 percent of GTE's
U.S. 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.
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 percent
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 percent. All returns higher than 13.25 percent
result in a reduction in the price cap in the subsequent year.
The remaining jurisdictions operate under a 5.3 percent 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.
During 1996, other regulatory and legislative developments occurred at the
state level to further open the telecommunications marketplace to competition.
In March 1996, the California Public Utilities Commission ("CPUC") approved
rules permitting local resale competition effective March 31, 1996. The CPUC
required GTE to provide interim wholesale discounts of 7 percent on basic
residential service and 12 percent on toll and business services to future
resale competitors. On October 31, 1996, the Administrative Law Judge arbitrator
assigned to AT&T's arbitration request submitted his report. The arbitrator
recommends the continued use of the interim wholesale discount for bundled
services and proposed prices for unbundled network elements which enable AT&T to
serve customers with GTE facilities or a combination of GTE and AT&T facilities
and for interconnection. The CPUC approved their arbitration order on January
13, 1997.
The CPUC approved the merger of Contel of California into GTE California in
April 1996. As part of this order, the CPUC ordered $69.7 million to be returned
to local, toll, and access customers of both companies over a five-year period
beginning in mid-1996. GTE has provided for the impact of this decision in its
financial statements.
On May 8, 1996, the CPUC denied GTE's motion to suspend the indexing
mechanism of the price cap formula for 1996. The impact of the 1996 price cap
filing, a rate reduction of approximately $40 million, was flowed-through to
ratepayers beginning July 1, 1996. The indexing mechanism of the price cap
formula will be suspended for 1997 and 1998.
10
<PAGE> 12
On December 20, 1996, the CPUC approved GTE's 1997 Price Cap filing. The
decision authorizes GTE to collect $27.5 million in rates via a surcharge
commencing January 1, 1997.
Legislation has also streamlined the existing regulatory environment in
Florida, Texas, Iowa and Missouri by allowing LECs to replace traditional
rate-of-return regulation with price regulation plans.
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
implemented. In the Dominican Republic, competitive pressures for international
and local toll traffic have impacted 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. These are sites which, although
lawfully used in the past, were determined to require remediation. Remediation
activities by GTE also continue at some present or formerly owned sites pursuant
to other federal or state environmental statutes or regulations. GTE has
reviewed the sites in which it has an involvement to establish expected
remediation costs. 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 and investigation cost
estimates as well as legal fees, the number of viable parties involved, the
degree of GTE's involvement and past experience. No present value discounting is
used. Although the complexity of environmental regulations and the widespread
imposition of multi-party joint and several liability at Superfund Sites make it
difficult to assess GTE's share of liability, management believes it has made
adequate provision in the financial statements.
GTE's annual expenditures for site cleanups and environmental compliance
have not been and are not expected to be material. These costs include GTE's
share of cleanup and other expenses at remediation sites, outlays required to
keep existing operations in compliance with increasingly stringent environmental
regulations and GTE's underground storage tank replacement program.
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.
11
<PAGE> 13
From January 1, 1992 to December 31, 1996, 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 37 percent of gross plant of $54 billion at December 31, 1996.
At year-end 1996, access lines served in the United States totaled 20
million. In addition, at December 31, 1996, GTE's subsidiary telephone companies
in Canada and the Dominican Republic and GTE's affiliate in Venezuela served 5.8
million access lines. At December 31, 1996, 97 percent of GTE's U.S. access
lines were connected to digital switches, compared with 83 percent in 1992.
During 1996, GTE continued the installation of fiber-optic cable, bringing total
miles installed throughout GTE's domestic network to 1,068,000 miles.
At year-end 1996, GTE had 4 laboratories in the United States.
All of these properties are generally in good operating condition and
adequate to satisfy the needs of the businesses.
In the fourth quarter of 1995, GTE discontinued the use of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" ("FAS 71").
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. As a result, the
recorded net book value of GTE's assets, primarily telephone plant and
equipment, was 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.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
At January 31, 1997, there were approximately 516,000 common shareholders
of record.
QUARTERLY FINANCIAL DATA (UNAUDITED)
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1ST QTR(A) 2ND QTR 3RD QTR(B) 4TH QTR(C)
--------------- --------------- --------------- ----------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ -------
(MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales............. $4,951 $4,665 $5,293 $4,932 $5,344 $4,996 $5,751 $ 5,364
Operating income............... 1,250 1,164 1,339 1,235 1,445 1,333 1,454 1,324
------ ------ ------ ------ ------ ------ ------ -------
Income before extraordinary
charges...................... $ 616 $ 543 $ 642 $ 581 $ 756 $ 695 $ 784 $ 719
Extraordinary charges.......... -- -- -- -- -- -- -- (4,682)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss).... $ 616 $ 543 $ 642 $ 581 $ 756 $ 695 $ 784 $(3,963)
------ ------ ------ ------ ------ ------ ------ -------
Earnings (loss) per common
share:
Before extraordinary
charges................... $ .63 $ .56 $ .66 $ .60 $ .78 $ .72 $ .82 $ .74
Extraordinary charges........ -- -- -- -- -- -- -- (4.83)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss).... $ .63 $ .56 $ .66 $ .60 $ .78 $ .72 $ .82 $ (4.09)
------ ------ ------ ------ ------ ------ ------ -------
Dividends declared per common
share........................ $ .47 $ .47 $ .47 $ .47 $ .47 $ .47 $ .47 $ .47
------ ------ ------ ------ ------ ------ ------ -------
Stock market price:
High......................... $49.25 $34.88 $45.63 $34.88 $45.00 $39.50 $46.50 $ 45.13
Low.......................... 40.50 30.00 40.88 31.88 37.75 34.13 38.25 38.50
Close........................ 43.38 33.25 44.75 34.13 38.50 39.13 45.38 43.88
------ ------ ------ ------ ------ ------ ------ -------
</TABLE>
- ---------------
(a) First-quarter 1996 net income includes an after-tax gain on the sale of
nonstrategic domestic local-exchange telephone properties of $8 million, or
$.01 per share (see Note 13 to the Consolidated Financial Statements).
(b) Third-quarter 1995 net income includes an after-tax gain on the sale of
nonstrategic domestic local-exchange telephone properties of $11 million, or
$.01 per share (see Note 13 to the 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 the Consolidated Financial Statements).
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
13
<PAGE> 15
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 9191
Boston, MA 02205-9191
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:
One Exchange Place
55 Broadway
New York, NY 10006
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.
DIVIDENDS AND EARNINGS
GTE has generally paid its dividends on the first day of January, April,
July and October. Earnings have generally been announced the third week of
January, April, July and October. Shareholders may call 1-800-225-5160 at the
Bank of Boston to hear quarterly financial highlights.
ANNUAL MEETING
The 1997 Annual Meeting of Shareholders will be held at 2 p.m. on
Wednesday, April 16, in the ballroom of the Hyatt Regency Tampa, Two Tampa City
Center, Tampa, Florida.
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
14
<PAGE> 16
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
United States 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 1996 annual report is available to visually
impaired shareholders by contacting:
Editorial Services
GTE Corporation
One Stamford Forum
Stamford, CT 06904
203-965-3436
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
PRODUCTS AND SERVICES HOTLINE
Shareholders may call 1-800-828-7280 to receive information concerning GTE
products and services.
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FIVE-YEAR
ANNUAL
1996 1995 1994 1993 1992 GROWTH RATE*
------- ------- ------- ------- ------- ------------
(MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues and sales
Local services...................... $ 6,155 $ 5,839 $ 5,234 $ 5,159 $ 4,932 5.3%
Network access services
-- interstate... 2,917 2,741 2,722 2,690 2,774 1.0
-- intrastate... 1,701 1,622 1,626 1,708 1,703 (.1)
Toll services....................... 2,500 2,548 3,285 3,321 3,388 (7.0)
Cellular services................... 2,562 2,191 1,666 1,178 929 30.2
Directory services.................. 1,527 1,383 1,372 1,438 1,405 .3
Other services and sales............ 3,977 3,633 3,623 3,838 4,394 (2.9)
------- ------- ------- ------- ------- ----
Total revenues and sales..... 21,339 19,957 19,528 19,332 19,525 1.8
------- ------- ------- ------- ------- ----
Cost of services and sales............ 8,071 7,537 7,677 7,848 8,229 (1.0)
Selling, general and administrative... 4,010 3,689 3,667 3,817 3,977 (.1)
Depreciation and amortization......... 3,770 3,675 3,432 3,419 3,289 3.1
Restructuring costs................... -- -- -- 1,840(a) -- --
------- ------- ------- ------- ------- ----
Operating income...................... 5,488 5,056 4,752 2,408(b) 4,030 10.7
------- ------- ------- ------- ------- ----
Net income (loss)
Continuing operations(c)............ 2,798 2,538 2,441 972 1,761 15.9
Consolidated(e)..................... 2,798 (2,144)(d) 2,441 882 (780)(e) --
Earnings (loss) per common share
Continuing operations(c)............ 2.89 2.62 2.55 1.03 1.95 13.6
Consolidated(e)..................... 2.89 (2.21)(d) 2.55 .93 (.86)(e) --
Common dividends declared per share... 1.88 1.88 1.88 1.85 1.76 2.6
Book value per share.................. 7.62 7.05(d) 10.85 9.96 10.61 (9.5)
Average common shares outstanding (in
millions)........................... 969 970 958 945 905 2.0
ASSETS AND CAPITAL
Consolidated assets................... 38,422 37,019(d) 42,500 41,575 42,144 (2.4)
Long-term debt and redeemable
preferred stock..................... 13,210 12,744 12,236 13,103 14,277 (4.0)
Shareholders' equity.................. 7,336 6,871(d) 10,483 9,593 10,076 (8.8)
Net cash from operations.............. 5,899 5,033 4,740 5,373 4,832 3.5
Capital expenditures.................. 4,088 4,034 4,192 3,893 3,909 .9
CONSOLIDATED RATIOS AND OTHER
INFORMATION
Return on common equity(e)............ 40.2% (20.3)% 24.8% 8.8% (8.8)% --
Return on investment(e)............... 15.6% (4.2)% 13.1% 6.9% 1.3% --
Average common equity................. 6,960 10,539 9,838 10,030 8,832 (4.2)
Equity ratio.......................... 38.1% 37.9%(d) 46.2% 42.6% 40.2% --
Average investment.................... 24,395 27,150 25,647 27,322 28,057 (3.1)
Research and development.............. 122 137 139 135 159 (4.5)
Employees (in thousands)
Total............................... 102 106 111 117 129 (7.9)
United States....................... 83 85 89 94 104 (7.3)
------- ------- ------- ------- ------- ----
INTERNATIONAL OPERATIONS (INCLUDED
ABOVE)(F)
Revenues and sales.................... $ 2,797 $ 2,583 $ 2,616 $ 2,520 $ 2,401 3.5
Income before extraordinary charges... 361 220 276 328 244 5.4
Total assets.......................... 7,129 6,210 5,826 6,096 5,963 3.3
------- ------- ------- ------- ------- ----
</TABLE>
Notes to Selected Financial Data appear on pages 17 and 18.
16
<PAGE> 18
SELECTED FINANCIAL DATA
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FIVE-YEAR
ANNUAL
1996 1995 1994 1993 1992 GROWTH RATE*
------- ------- ------- ------- ------- ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
NETWORK STATISTICS
Access minutes of use (in millions)...... 71,339 64,193 59,247 55,864 52,180 7.8%
Access lines (in thousands)
Total(g)............................... 25,868 24,126 22,805 22,043 21,427 4.6
United States(g)....................... 20,025 18,527 17,442 17,073 16,819 4.0
Switched............................. 17,434 16,665 16,037 15,929 15,835 2.3
U.S. lines per employee................ 327 289 252 234 208 11.3
------- ------- ------- ------- ------- ----
Cellular subscribers (in thousands)
Total.................................. 4,445 3,547 2,660 1,787 1,204 39.8
United States.......................... 3,749 3,011 2,339 1,585 1,090 37.3
------- ------- ------- ------- ------- ----
Adjusted "POPs" (in millions)(h)
Total.................................. 78.3 76.7 68.0 63.4 60.8 6.2
United States.......................... 61.9 61.7 53.0 53.0 53.1 3.8
------- ------- ------- ------- ------- ----
U.S. Telephone Operations
Revenues and sales..................... $13,965 $13,375 $13,212 $13,162 $13,160 1.2
Operating income(a).................... 3,982 3,621 3,490 1,962(b) 3,284 6.4
Operating cash flow margin(i).......... 48.3% 47.8% 46.4% 34.7% 44.1% --
Capital expenditures................... 2,690 2,564 2,821 2,811 2,859 (2.5)
------- ------- ------- ------- ------- ----
U.S. Cellular Operations
Service revenues....................... $ 2,347 $ 2,019 $ 1,539 $ 1,082 $ 853 29.9
Operating income....................... 461 410 278 124 77 --
Operating cash flow margin(i).......... 36.0% 36.8% 35.3% 31.9% 32.9% --
Capital expenditures................... 600 709 610 389 376 20.5
------- ------- ------- ------- ------- ----
</TABLE>
- ---------------
* Least-squares method; percentages have been omitted where not meaningful.
(a) See Note 4 on Restructuring Costs.
(b) Includes a $74 million pre-tax charge ($46 million after-tax, or $.05 per
share) for the cost of voluntary separation programs at domestic telephone
operations.
(c) 1996, 1995, 1994 and 1993 include after-tax gains of $8 million, or $.01 per
share; $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.
(d) See Note 2 on Extraordinary Charges.
(e) 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.
17
<PAGE> 19
Excluding the special items described in footnotes (a) through (e), net
income, earnings per common share, return on common equity and return on
investment would have been:
<TABLE>
<CAPTION>
FIVE-YEAR
ANNUAL
1996 1995 1994 1993 1992 GROWTH RATE*
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (in
millions)............. $2,790 $2,527 $2,279 $2,077 $1,761 11.0%
Earnings per common
share................. 2.88 2.61 2.38 2.20 1.95 8.9
Return on common
equity................ 40.1% 23.2% 23.3% 20.4% 15.6% --
Return on investment.... 15.5% 12.8% 12.5% 11.2% 9.5% --
</TABLE>
(f) Includes GTE's international subsidiaries and affiliates as well as
international activities from domestic companies.
(g) Access lines exclude 448,000 and 440,000 net lines sold during 1994 and
1993, respectively. Total access lines include 2.6 million, 2.5 million, 2.3
million, 2.0 million and 1.8 million lines served by CANTV in Latin America
in 1996-92, respectively. Excluding the effect of CANTV and the access lines
sold during 1994 and 1993, the five-year total access line growth rate was
5.1%.
(h) Represents population to be served times GTE's percentage interest in
wireless markets.
(i) Represents operating income before depreciation and amortization divided by
revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RETURN TO SHAREHOLDERS
Maximizing shareholders' long-term total return continues to be GTE's
primary financial objective and, for the second straight year, GTE outperformed
the average return of the regional Bell operating companies. For 1996, total
return to GTE shareholders, consisting of share-price appreciation and
dividends, was 7.9%. This compares with the 1996 average total return for the
regional Bell operating companies of 0.5%. Over the last two-year period, GTE's
total average annual return to shareholders of 28.1% was higher than any of the
regional Bell operating companies. For that period the average annual return for
the regional Bell operating companies was 22.3%.
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 1996, resulting in a dividend payout ratio of 65%.
CONSOLIDATED OPERATIONS
GTE had another outstanding year in 1996. Domestically, GTE realized record
growth in access lines and network usage, strong growth in cellular customers
and double-digit productivity improvements. Internationally, network service
revenues grew 7%, driven by aggressive local rate rebalancing and a 41% increase
in cellular customers in Canada and the Dominican Republic.
Consolidated net income in 1996 was $2.8 billion, or $2.88 per share
excluding the impact of gains ($8 million, or $.01 per share) associated with
the sale of nonstrategic domestic telephone properties. This compares with
consolidated net income in 1995 of $2.5 billion, or $2.61 per share, excluding
special items, an improvement of 10%. Special items recorded during 1995 relate
to extraordinary charges for the discontinuance of applying the provisions of
Statement of Financial Accounting Standards No. 71 ($4.7 billion, or $4.83 per
share) and gains related to the sale of nonstrategic domestic telephone
properties ($11 million, or $.01 per share).
GTE's domestic telephone operations experienced record growth, adding 1.5
million access lines, an increase of 8.1%, and achieving an 11.1% increase in
minutes of use. During 1996, GTE added 738,000 new domestic cellular customers,
bringing total domestic cellular customers to 3,749,000 and total worldwide
cellular customers to 4,445,000, representing a 25% growth rate over the
3,547,000 served at the end of 1995.
18
<PAGE> 20
Consolidated revenues and sales grew 7% in 1996 to $21.3 billion compared
with $20.0 billion reported in 1995. 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 in response
to regulatory actions, reduced revenues by approximately $160 million in 1996,
bringing cumulative price reductions over the past three years to approximately
$950 million. Since 1990, cumulative price reductions have totaled approximately
$2.0 billion. Outside the U.S., local rate rebalancing programs in Canada and
the Dominican Republic more than offset toll revenue losses resulting from
competitive pressures.
The rollout of new and expanded services also drove the increase in
revenues. These services, which include GTE Long Distance, CentraNet(R), data
and custom-calling features, such as Caller ID and SmartCall(R), increased 35%
to $1,191 million in 1996. This compares to $884 million of revenues recorded in
1995. These new services are expected to continue to contribute a larger
percentage of GTE's total revenue stream in future years as a result of strong
business and consumer demand.
Operating income for 1996 reached a record $5.5 billion, up 8.5% from the
$5.1 billion reported in 1995. The increase was due to higher revenues and
ongoing cost reductions from process re-engineering activities, partially offset
by higher costs associated with the expansion of core wireline and wireless
businesses as well as investment in new revenue initiatives. Net interest
expense declined slightly from 1995 levels as the favorable effects of lower
interest rates were partially offset by slightly higher debt balances. Other
expense totaled $50 million in 1996 compared with $5 million in 1995, primarily
reflecting the higher gains recorded in 1995 in connection with nonstrategic
property sales, partially offset by the higher 1996 income from unconsolidated
subsidiaries. GTE's effective income tax rate in 1996 remained unchanged from
1995 at 36.6%.
For a discussion of the use of financial instruments and contingencies, see
Notes 9 and 15 to Consolidated Financial Statements. 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.
In 1995, consolidated revenues and sales totaled $20.0 billion 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. Strong volume growth in telephone operations and
substantial increases in cellular customers more than offset lower, more
competitive pricing. In the U.S., price reductions and regulatory actions,
primarily in California, reduced revenues by approximately $450 million in 1995.
Operating income in 1995 increased 8% over 1994, excluding the income
attributable to the properties sold. The increase was due to higher revenues,
improved cellular operating margins and ongoing cost reductions. 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.
In 1994, consolidated net income was $2.4 billion, or $2.55 per share,
which included after-tax gains on sales of certain nonstrategic domestic
telephone properties of $162 million, or $.17 per share.
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 5% to $6.2 billion in 1996. This growth was
attributable to placing a record 1.5 million domestic access lines in service
during 1996, an 8.1% growth rate, resulting primarily from a 1.1 million, or
17.6%, increase in business lines and 290,000, or 20.8%, increase in residential
second lines. The growth in second lines is attributable to strong consumer
demand for access to the Internet and online computer services and fax machines.
Additionally, 110,000 international access lines were added in 1996 (excluding
approximately 134,000 related to CANTV, the Venezuelan telephone company in
which GTE has a minority stake).
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 $4.6 billion grew 6% from $4.4 billion in 1995. The impact of the
11.1%
19
<PAGE> 21
growth in minutes of use of GTE's domestic local-exchange network for
long-distance calling was partially offset by competitive and
regulatory-mandated rate reductions.
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)
and also include revenues of GTE Long Distance service introduced in 1996. Toll
service revenues decreased 2% to $2.5 billion from the 1995 level. This slight
decline was primarily attributable to price reductions to meet competition and
regulatory-mandated rate reductions. Partially offsetting these reductions were
revenues related to GTE Long Distance service.
CELLULAR SERVICE REVENUES
Cellular service revenues grew 17% to $2.6 billion from $2.2 billion in
1995. 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 1996 reached 3,749,000, an increase of 24.5% over 1995. Cellular
market penetration increased to 7.8% in 1996 compared with 6.3% in 1995. The
revenue growth was tempered by a decline in revenues per customer per month in
the U.S., reflecting continued growth of casual and security users in the
customer base. During the year, revenues per customer in the U.S. averaged $60
per month compared with $63 in 1995, a 4.8% decline.
DIRECTORY SERVICES REVENUES
Directory services revenues result primarily from the sale of Yellow Pages
advertising and also include fees charged to print, publish and distribute
telephone directories. GTE annually publishes or provides sales and other
directory-related services for approximately 2,400 different directories in 47
states and 15 foreign countries. Directory services revenues increased 10% to
$1.5 billion in 1996, reflecting growth in existing markets, acquisitions and
market expansions in the U.S., including SuperPages(R) interactive service as
well as the timing of international publications.
OTHER SERVICES AND SALES
Other services and sales include revenues from: GTE Government Systems,
which provides integrated telecommunication systems and customized solutions and
equipment to U.S. government defense and civilian agencies as well as commercial
users both domestically and internationally; GTE Airfone, which provides
aircraft-based telecommunication services for passengers; and telephone and
cellular equipment sales and services. Other services and sales revenues
increased to $4.0 billion in 1996, reflecting a growth rate of 9% due to higher
non-network related equipment and systems sales. During 1996, GTE Government
Systems received orders valued at $1.2 billion, a slight increase over 1995.
COST OF SERVICES AND SALES
Cost of services and sales increased 7% to $8.1 billion in 1996 compared
with $7.5 billion in 1995, primarily reflecting the growth in sales of
telecommunication systems and equipment as well as directory publication costs,
partially offset by lower costs related to the impacts of the process
re-engineering program at domestic telephone operations. This program, which was
substantially completed in 1996, has redesigned and streamlined processes to
improve customer responsiveness and product quality, while shortening the time
necessary to introduce new products and services, thus further reducing costs.
In addition, the consolidation of work centers and the rollout of
technologically-advanced systems has 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, and 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
327 at year-end 1996, a 13% increase over 1995 and a 30% increase since the end
of 1994.
By the end of 1996, domestic telephone operations had reduced its U.S.
workforce to approximately 61,300 employees.
20
<PAGE> 22
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 9% in 1996 to $4.0
billion from $3.7 billion in 1995. The growth in these operating costs is
primarily related to higher selling and advertising costs, which grew 16% from
1995 levels, associated with the strong customer growth, support of new
initiatives and heightened brand awareness, within GTE's core wireline and
wireless operations. Partially offsetting these increases were ongoing cost
containment and reduction programs, which have been implemented across all
business units.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 3% to $3.8 billion in 1996 compared
with $3.7 billion in 1995. The increase reflects the expansion of the wireline
network to meet demand for additional lines, enhanced calling features and
switched data services, and the continued deployment of enabling technologies
for broadband services. The wireless network was also expanded to provide
significantly higher capacity and to improve service quality.
OTHER INCOME AND EXPENSE
In 1996, GTE reported other expense of $50 million compared with other
expense of $5 million in 1995. Other income and expense is comprised primarily
of minority interests, earnings of unconsolidated subsidiaries, which include
international ventures and cellular partnerships, and gains on sales of
nonstrategic properties.
Minority interests increased $12 million in 1996 to $239 million as a
result of higher earnings in the Canadian operations. The increase in minority
interest was more than offset by higher income from unconsolidated subsidiaries.
Equity in income of unconsolidated subsidiaries improved considerably in
1996, primarily driven by higher earnings from CANTV, the Venezuelan telephone
company that is operated by GTE. GTE's results from CANTV were favorably
affected by operating improvements stemming from timely rate increases,
productivity gains resulting from employee reductions and other cost controls
and a stabilizing economy. In contrast during 1995, CANTV operated within a weak
economy with currency controls and limited access to international banking and
capital markets. As a result of these conditions, CANTV made a relatively small
contribution to GTE's 1995 earnings.
Due to the high level of inflation in Venezuela, CANTV's financial
performance is highly dependent on its ability to increase tariffs. In 1995 and
1996, CANTV successfully obtained tariff increases, in accordance with the
Concession Agreement with the Venezuelan government.
GTE continues to view its interest in CANTV as an excellent long-term
investment. In the fourth quarter of 1996, GTE purchased $190 million of shares,
increasing its ownership in CANTV from 20.4% to 25.9%.
Partially offsetting GTE's 1996 earnings from CANTV were losses in CTI, the
cellular telephone company in Argentina, related to costs associated with
improvements to the network and distribution channels as well as customer
growth.
Also included in other income and expense are gains on the sales of
nonstrategic domestic telephone properties of $12 million, $16 million and $264
million for 1996, 1995 and 1994, respectively.
REGULATORY AND COMPETITIVE TRENDS
Significant regulatory and legislative developments occurred during 1996,
including the passage of The Telecommunications Act of 1996 (1996 Act). The 1996
Act is intended to promote competition in all sectors of the telecommunications
marketplace, while preserving and advancing universal telephone service.
As a result of the 1996 Act, GTE may be faced with increased competition
from numerous sources, including local-exchange carriers, competitive access
providers, wireless carriers (cellular and PCS), cable providers (terrestrial,
wireless and satellite), long-distance companies, media and computer companies.
These companies collectively have the ability to offer a broad array of voice,
video and data services to business and residential customers.
21
<PAGE> 23
Following passage of the 1996 Act, the FCC has undertaken to issue rules
governing three areas: interconnection, universal service and access charge
reform. In August 1996, the FCC adopted its rules governing interconnection.
These rules generally require local-exchange carriers to make their services
available to competitors at a wholesale discount and to make their network
elements available to competitors at below-cost prices. GTE petitioned for
judicial review of these rules on the grounds that they were inconsistent with
the 1996 Act. In October 1996, the U.S. Court of Appeals for the Eighth Circuit
granted GTE's request for a stay of the pricing provisions of the FCC's rules
pending the Court's resolution of the merits of GTE's petition. Oral arguments
on the merits were held in January 1997, and the Court's ruling is expected in
the spring of 1997.
In November 1996, the Federal-State Joint Board released its recommended
universal service plan, and in December 1996, the FCC issued its access reform
proposals. Both proposals incorporate a pricing methodology similar to the one
that GTE is appealing in the interconnection case. A final order in the
universal service proceeding must be adopted by early May 1997, and a decision
on the access reform proceeding is expected shortly thereafter.
The increasingly competitive environment will necessitate continued efforts
by GTE to improve productivity factors as well as cost controls and utilize
strategic price reductions to maintain market position. However, GTE will also
take advantage of the greater freedom it obtained under the 1996 Act to pursue
competitive market opportunities, generating new sources of revenue.
GTE has exercised its right under the 1996 Act to challenge state PUC
arbitration orders that govern agreements between GTE and its competitors. In
December 1996, GTE filed lawsuits in federal district court in five
states -- Pennsylvania, Virginia, Illinois, Washington and Missouri -- on the
grounds that the state PUC arbitration orders violated the 1996 Act by (among
other things) forcing GTE to provide its services and network elements at
unlawfully low prices. In 1997, GTE filed similar lawsuits in federal district
court in a number of other states.
Approximately 60% of GTE's domestic access lines are in nine states that
have adopted incentive regulation plans for intrastate service, including
California, Florida and Texas, the states where GTE's largest operations are
located. Approximately 70% of the regulated revenues for GTE's domestic
telephone operations are under some form of alternative regulation, including
100% of the interstate revenues. GTE's 1996 annual interstate access filing was
approved by the FCC in June 1996. Overall, the filing resulted in price
reductions of $18.3 million, effective July 1, 1996.
Internationally, the pace of regulatory and competitive change has also
accelerated.
In Canada, a decision was made during 1996 allowing GTE's majority owned
subsidiaries entry to the cable-TV and interactive multimedia markets. In
addition, a decision is also expected early in 1997 regarding the implementation
of price cap regulations that will govern the price, rather than the profits, of
GTE's Canadian subsidiaries' products and services.
In the Dominican Republic, competitive pressures for international and
local toll traffic continue 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.
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 in a competitive marketplace under comparable conditions.
GTE INITIATIVES
In 1996, GTE continued to position itself to respond aggressively to
competitive developments and benefit from new opportunities.
In March 1996, GTE began offering long-distance service, through a
nonexclusive agreement with WorldCom, Inc. In July 1996, GTE began offering
Internet access services through an agreement with UUNET. At December 31, 1996,
GTE was providing long-distance service in all 50 states to over 825,000
customers and nationwide Internet access services to over 70,000 customers.
22
<PAGE> 24
In addition, GTE had been granted three video franchises in Pinellas
County, Florida, and three video franchises in Ventura County, California.
Network construction in those markets is under way and approximately 7,000 new
video customers were added during 1996, bringing GTE's total video customer base
to approximately 15,000.
In addition, GTE continues its participation in the americast(R) joint
venture with The Walt Disney Company, along with Ameritech, BellSouth
Corporation, SBC Communications and Southern New England Telephone. This venture
is designed to provide video programming and content for the telecommunications
partners' video offerings and work has been initiated in many areas, including
the selection of technology and the creation of an advanced navigator.
During 1996, GTE substantially completed the implementation of the $1.4
billion re-engineering program for its domestic telephone operations. Total
costs of the program included $900 million related to improvements in customer
service processes, $300 million related to improvements in administration
processes and $170 million related to the consolidation of facilities and
operations. The plan has produced annualized cost savings of over $1 billion.
GTE is also actively pursuing expansion of its international operations to
capitalize on opportunities for long-term profitable growth.
In 1996, GTE established a joint venture with a leading Chinese wireless
telecommunications operator. GTE has invested approximately $26 million to date,
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 major
metropolitan areas, including Beijing.
In January 1997, the government of Taiwan awarded a digital cellular
license to Pacific Communication Services Co. Ltd., a consortium in which GTE
holds a minority interest as the only foreign stakeholder. GTE is expected to
invest approximately $90 million into this venture.
CAPITAL INVESTMENT, RESOURCES AND LIQUIDITY
Return on Equity
GTE's return on average common equity was 40.1% in 1996 compared with 23.2%
in 1995, before considering the extraordinary charges in 1995 and the gains on
the sales of certain nonstrategic domestic telephone properties in both years.
Including the extraordinary charges and gains on sales of nonstrategic domestic
telephone properties, the return on average common equity for 1996 and 1995 was
40.2% and (20.3)%, respectively.
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 prudent and reasonable financial leverage, while also protecting
debtholder interests and ensuring ready access to the capital markets.
In June 1996, Moody's raised its rating on GTE Corporation's senior debt to
A3 from Baa1 and in December 1996, Standard and Poor's raised its rating on GTE
Corporation's senior debt to A- from BBB+.
During 1996, GTE negotiated two new credit facilities for $4.0 billion,
including a five-year line of $2.5 billion for GTE Corporation and a 364-day
line of $1.5 billion for certain domestic telephone operations. Fifty-seven
banks representing 12 countries participated in the syndicated facility, which
will be used primarily to back up commercial paper borrowings which replaced
multiple bilateral facilities.
Total equity as a percentage of total capitalization was 38.1% at the end
of 1996 compared with 37.9% in 1995.
Cash Flow
GTE's cash flow from operations increased to $5.9 billion in 1996 from $5.0
billion in 1995, reflecting improved 1996 operating results.
23
<PAGE> 25
Capital expenditures totaled $4.1 billion in 1996, approximately $50
million more than the 1995 level of expenditures. The 1996 total reflected
expenditures used for the deployment of broadband video networks in California
and Florida, buildout of the new wireless PCS networks and other requirements to
support new revenue growth initiatives and expanded service capabilities,
partially offset by lower spending on domestic cellular networks. GTE expects
capital expenditures to increase slightly in 1997 for the continued expansion of
existing domestic and international networks, upgrades associated with the
support of expanded services such as video and data, and compliance with the
number portability requirements of the 1996 Act.
During the fourth quarter of 1996, GTE increased its investment in CANTV by
$190 million through purchases during the initial public offering of CANTV
shares by the government of Venezuela and subsequent market purchases. GTE
announced plans to buy as much as $200 million of this offering.
Also in 1996, GTE announced plans to repurchase up to 25 million shares of
its currently issued common stock from time to time, depending on market
conditions through July 1997. The repurchase program is in addition to the 20
million share repurchase program announced in 1995. The shares will be used to
satisfy the requirements of GTE's employee benefit and dividend reinvestment
programs. At the end of 1996, a total of 27.1 million shares had been
repurchased under these programs. Cash used for the purchase of these shares was
$1.0 billion in 1996 and $133 million in 1995.
During 1996, GTE received proceeds of about $261 million for the sales of
certain PCS licenses acquired during 1995.
In 1995, GTE's cash flow from operations increased to $5.0 billion from
$4.7 billion in 1994, reflecting improved operating results as well as lower tax
payments from nonstrategic property sales and the completion of a major
government contract, in 1994. 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.
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 was completed in 1996.
In 1997, the funding of dividends and capital requirements for GTE's
businesses will be substantially sourced by cash from operations, although GTE's
strong financial position allows ready access to worldwide capital markets for
any additional cash requirements.
Forward-Looking Statements
GTE has projected earnings-per-share growth of not less than 10% for the
foreseeable future and consolidated revenue growth in the range of 6% to 8% for
1997. Revenues from GTE's domestic telephone operations are expected to grow by
5% to 6%, with much of the growth driven by expanded services and new
initiatives such as long distance, Internet and video services. In the area of
long distance, GTE expects to almost double its customer base in 1997 and
increase its revenues about seven times. Operating margins for domestic
telephone operations are expected to be consistent with similar margins achieved
in 1996.
GTE has projected domestic cellular operations will grow consistent with
the industry and will add as many new customers in 1997 as were added in 1996.
Cellular revenue per customer, however, is expected to continue a 7% to 8%
downward trend as more residential customers and new competitors enter the
market.
GTE continues to project that the amount of net income contributed by its
international operations in 1995 will double by the year 2000.
RISK FACTORS
GTE's forward-looking statements are based upon a series of projections and
estimates regarding the economy, the telecommunications industry, the effects of
federal, state and local regulations on the industry in general and within our
markets, as well as key performance indicators that affect the company directly.
These projections and estimates regarding the economy and the telecommunications
industry relate to the demand
24
<PAGE> 26
for and pricing of services, the effects of competition, the impact of universal
service and the success of new products, services and new businesses such as
long distance.
With regard to the effects of regulation, GTE has assumed fair and
reasonable resolutions to any pending and potential federal, state and local
regulatory initiatives and proceedings, including arbitration proceedings before
various state regulatory commissions. GTE has also assumed the successful
outcome of the proceedings filed with the Court of Appeals for the Eighth
Circuit challenging the FCC's published Report and Order, dated August 8, 1996,
regarding the terms of interconnection, unbundled network elements and resale
rates.
In developing its forward-looking statements, GTE has made certain
assumptions relating to key performance indicators that have a direct bearing on
GTE's ability to attain these projections. These assumptions include the
continued annual growth of telephone access lines and minutes of use; new and
expanded services; cellular volumes; and customer growth. They also assume
productivity improvements and the absence of disruption to GTE's markets.
If future events and actual performance differ from that assumed for the
risk factors noted above, GTE's actual results could vary significantly from the
performance projected in the forward-looking statements.
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31,
1996(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 57 May 1992
Kent B. Foster............ President 53 June 1995
Michael T. Masin(c)....... Vice Chairman and President -- International 52 June 1995
William P. Barr(d)........ Senior Vice President and General Counsel 46 July 1994
Robert C. Calafell........ Senior Vice President -- Corporate Planning
and Development 55 March 1995
Armen Der Marderosian..... Senior Vice President -- Technology
and Systems 59 July 1995
J. Michael Kelly.......... Senior Vice President -- Finance 40 February 1994
J. Randall MacDonald...... Senior Vice President -- Human Resources
and Administration 48 March 1995
Dan J. Cohrs(e)........... Vice President and Treasurer 44 August 1995
Geoffrey C. Gould......... Vice President -- Government and
Federal Regulatory Affairs 44 January 1995
Harvey W. Greisman........ Vice President -- Corporate Communications 48 January 1997
John P. Z. Kent........... Vice President -- Taxes 56 July 1989
Lawrence R. Whitman....... Vice President and Controller 45 April 1995
Marianne Drost............ Secretary 47 August 1985
</TABLE>
- ---------------
(a) Reference is made to pages 23 to 27 of GTE's Proxy Statement covering the
Annual Meeting of Shareholders to be held on April 16, 1997, which is
incorporated herein by reference, for information concerning directors of
GTE.
25
<PAGE> 27
(b) Prior to serving as executive officers of GTE, each of the officers named
has been employed in high-level management positions by GTE or a GTE
subsidiary for more than five years, with the exception of Michael T. Masin,
William P. Barr and Dan J. Cohrs.
(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.
(e) 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.
ITEM 11. EXECUTIVE COMPENSATION.
See pages 7 to 21 of GTE's Proxy Statement covering the Annual Meeting of
Shareholders to be held on April 16, 1997, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See pages 21 to 23 of GTE's Proxy Statement covering the Annual Meeting of
Shareholders to be held on April 16, 1997, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See page 21 of GTE's Proxy Statement covering the Annual Meeting of
Shareholders to be held on April 16, 1997, which is incorporated herein by
reference.
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
public 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, 1996 -- 1994 (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 15, 1996, under Item 5,
"Other Events." No financial information was filed with this report.
26
<PAGE> 28
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: /s/ LAWRENCE R. WHITMAN
--------------------------------------
(Lawrence R. Whitman)
Vice President and Controller
Date: March 7, 1997
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
(1) Principal executive officer:
By: /s/ CHARLES R. LEE Chairman of the Board and March 13, 1997
- --------------------------------------------- Chief Executive Officer
(Charles R. Lee)
(2) Principal financial officer:
By: /s/J. MICHAEL KELLY Senior Vice March 13, 1997
- --------------------------------------------- President -- Finance
(J. Michael Kelly)
(3) Principal accounting officer:
By: /s/LAWRENCE R. WHITMAN Vice President and Controller March 7, 1997
- ---------------------------------------------
(Lawrence R. Whitman)
(4) Directors:
By: /s/EDWIN L. ARTZT Director March 15, 1997
- ---------------------------------------------
(Edwin L. Artzt)
By: /s/JAMES R. BARKER Director March 15, 1997
- ---------------------------------------------
(James R. Barker)
By: /s/EDWARD H. BUDD Director March 15, 1997
- ---------------------------------------------
(Edward H. Budd)
By: /s/ROBERT F. DANIELL Director March 15, 1997
- ---------------------------------------------
(Robert F. Daniell)
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
By: /s/ KENT B. FOSTER Director March 15, 1997
- ---------------------------------------------
(Kent B. Foster)
By: /s/ JAMES L. JOHNSON Director March 15, 1997
- ---------------------------------------------
(James L. Johnson)
By: /s/ RICHARD W. JONES Director March 15, 1997
- ---------------------------------------------
(Richard W. Jones)
By: /s/ JAMES L. KETELSEN Director March 15, 1997
- ---------------------------------------------
(James L. Ketelsen)
By: /s/ CHARLES R. LEE Director March 13, 1997
- ---------------------------------------------
(Charles R. Lee)
By: /s/ MICHAEL T. MASIN Director March 13, 1997
- ---------------------------------------------
(Michael T. Masin)
By: /s/ SANDRA O. MOOSE Director March 15, 1997
- ---------------------------------------------
(Sandra O. Moose)
By: /s/ RUSSELL E. PALMER Director March 15, 1997
- ---------------------------------------------
(Russell E. Palmer)
By: /s/ ROBERT D. STOREY Director March 15, 1997
- ---------------------------------------------
(Robert D. Storey)
</TABLE>
28
<PAGE> 30
FINANCIAL STATEMENTS
29
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994
------- ------- -------
(MILLIONS OF DOLLARS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES AND SALES
Local services................................................ $ 6,155 $ 5,839 $ 5,234
Network access services....................................... 4,618 4,363 4,348
Toll services................................................. 2,500 2,548 3,285
Cellular services............................................. 2,562 2,191 1,666
Directory services............................................ 1,527 1,383 1,372
Other services and sales...................................... 3,977 3,633 3,623
------ ------ ------
Total revenues and sales............................ 21,339 19,957 19,528
------ ------ ------
OPERATING COSTS AND EXPENSES
Cost of services and sales.................................... 8,071 7,537 7,677
Selling, general and administrative........................... 4,010 3,689 3,667
Depreciation and amortization................................. 3,770 3,675 3,432
------ ------ ------
Total operating costs and expenses.................. 15,851 14,901 14,776
------ ------ ------
OPERATING INCOME.............................................. 5,488 5,056 4,752
OTHER (INCOME) EXPENSE
Interest -- net............................................... 1,026 1,047 1,059
Other -- net.................................................. 50 5 (280)
------ ------ ------
Income before income taxes.................................... 4,412 4,004 3,973
Income taxes.................................................. 1,614 1,466 1,532
------ ------ ------
Income before extraordinary charges........................... 2,798 2,538 2,441
Extraordinary charges......................................... -- (4,682) --
------ ------ ------
NET INCOME (LOSS)............................................. $ 2,798 $(2,144) $ 2,441
------ ------ ------
EARNINGS (LOSS) PER COMMON SHARE
Before extraordinary charges.................................. $ 2.89 $ 2.62 $ 2.55
Extraordinary charges......................................... -- (4.83) --
------ ------ ------
NET INCOME (LOSS)............................................. $ 2.89 $ (2.21) $ 2.55
------ ------ ------
Average common shares outstanding (in millions)............... 969 970 958
------ ------ ------
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1995
------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......................................... $ 405 $ 332
Receivables, less allowances of $299 and $263...................... 4,482 4,227
Inventories and supplies........................................... 673 719
Deferred income tax benefits....................................... 200 330
Other.............................................................. 273 284
------- -------
Total current assets..................................... 6,033 5,892
------- -------
Property, plant and equipment, net................................. 22,902 22,437
Employee benefit plans............................................. 3,639 3,058
Franchises, goodwill and other intangibles......................... 2,507 2,765
Investments in unconsolidated companies............................ 2,035 1,745
Other assets....................................................... 1,306 1,122
------- -------
Total assets............................................. $38,422 $37,019
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term obligations, including current maturities............... $ 2,497 $ 2,156
Accounts payable and accrued expenses.............................. 4,156 3,858
Taxes payable...................................................... 754 890
Accrued restructuring costs........................................ -- 512
Dividends payable.................................................. 472 476
Other.............................................................. 435 420
------- -------
Total current liabilities................................ 8,314 8,312
------- -------
Long-term debt..................................................... 13,210 12,744
Employee benefit plans............................................. 4,688 4,638
Deferred income taxes.............................................. 1,474 1,203
Minority interests................................................. 2,316 2,230
Other liabilities.................................................. 1,084 1,021
------- -------
Total liabilities........................................ 31,086 30,148
------- -------
Shareholders' Equity
Common stock -- shares issued 980,911,281 and 977,483,844.......... 49 49
Additional paid-in capital......................................... 7,248 8,049
Retained earnings (deficit)........................................ 1,370 (534)
Guaranteed ESOP obligations........................................ (575) (603)
Treasury stock -- 17,813,275 and 2,423,284 shares, at cost......... (756) (90)
------- -------
Total shareholders' equity............................... 7,336 6,871
------- -------
Total liabilities and shareholders' equity............... $38,422 $37,019
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994
------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
OPERATIONS
Income before extraordinary charges........................... $ 2,798 $ 2,538 $ 2,441
Adjustments to reconcile income before extraordinary charges
to net cash from operations:
Depreciation and amortization............................... 3,770 3,675 3,432
Deferred income taxes....................................... 415 484 248
Changes in current assets and current liabilities, excluding
the effects of acquisitions and dispositions:
Receivables -- net..................................... (571) (561) (554)
Other current assets................................... 26 (92) (4)
Accrued taxes and interest............................. (109) (25) (209)
Other current liabilities.............................. (220) (598) (262)
Other -- net................................................ (210) (388) (352)
------- ------- -------
Net cash from operations............................ 5,899 5,033 4,740
------- ------- -------
INVESTING
Capital expenditures.......................................... (4,088) (4,034) (4,192)
Acquisitions and investments.................................. (476) (798) (244)
Proceeds from sales of assets................................. 337 314 1,163
Other -- net.................................................. (50) 17 4
------- ------- -------
Net cash used in investing.......................... (4,277) (4,501) (3,269)
------- ------- -------
FINANCING
Common stock issued........................................... 444 385 422
Purchase of treasury stock.................................... (967) (133) --
Dividends paid................................................ (1,825) (1,827) (1,806)
Long-term debt and preferred securities issued................ 2,038 1,098 2,345
Long-term debt and preferred securities retired............... (582) (1,553) (1,178)
Increase (decrease) in short-term obligations, excluding
current maturities.......................................... (725) 1,529 (1,278)
Other -- net.................................................. 68 (22) 25
------- ------- -------
Net cash used in financing.......................... (1,549) (523) (1,470)
------- ------- -------
Increase in cash and cash equivalents......................... 73 9 1
Cash and cash equivalents:
Beginning of year........................................... 332 323 322
------- ------- -------
End of year................................................. $ 405 $ 332 $ 323
------- ------- -------
CASH PAID DURING THE YEAR FOR
Interest...................................................... $ 1,088 $ 1,133 $ 1,084
Income taxes................................................ 1,325 985 1,598
------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 34
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
GTE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
ADDITIONAL RETAINED GUARANTEED
PREFERRED COMMON PAID-IN EARNINGS ESOP TREASURY
STOCK STOCK CAPITAL (DEFICIT) OBLIGATIONS STOCK TOTAL
--------- ------ ---------- -------- ----------- -------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
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 and treasury stock
issued under employee and
shareholder plans (13,564,835
shares)...................... 1 369 43 413
Purchase of treasury stock
(3,589,200 shares)........... (133) (133)
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
Net income..................... 2,798 2,798
Dividends declared............. (915) (905) (1,820)
Common and treasury stock
issued under employee and
shareholder plans (11,570,646
shares)...................... 110 340 450
Purchase of treasury stock
(23,533,200 shares).......... (1,006) (1,006)
Other.......................... 4 11 28 43
----- --- ------ ------ ------ ------- ------
SHAREHOLDERS' EQUITY, DECEMBER
31, 1996..................... $ -- $ 49 $7,248 $ 1,370 $(575) $ (756) $ 7,336
===== === ====== ====== ====== ======= ======
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 25.9
million access lines in the United States, Canada, the Dominican Republic and
Venezuela. GTE is a leading cellular operator in the United States, with the
potential of serving 61.9 million cellular and personal communications services
customers. Outside the United States, GTE operates cellular networks serving
some 16.4 million POPs through subsidiaries in Canada and the Dominican Republic
and affiliates in 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 management to 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).
Reclassifications of prior-year data have been made, when appropriate, to
conform to the 1996 presentation.
Revenue Recognition
Revenues are generally recognized when services are rendered or products
are delivered to customers. Long-term contracts are generally 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
Prior to 1996, GTE's telephone subsidiaries provided for depreciation on a
straight-line basis over asset lives approved by regulators. In 1996, GTE's
telephone subsidiaries began providing for depreciation on a straight-line basis
over the estimated economic lives of their assets (see Note 2). All other
subsidiaries provide for depreciation on a straight-line basis over the
estimated economic lives of their assets.
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 consolidated subsidiaries was $90 million, $87 million
and $71 million in 1996-94, respectively. Accumulated amortization was $488
million and $404 million at December 31, 1996 and 1995, respectively.
Goodwill resulting from investments in unconsolidated subsidiaries is
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 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
34
<PAGE> 36
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 projected 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 separation are recognized in the period in
which they occur.
Income Taxes
Deferred tax assets and liabilities are established for temporary
differences between the way certain income and expense items are reported for
financial reporting and tax purposes 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 deferred tax assets for which
realization is not likely.
Deferred income taxes are not provided on undistributed earnings of foreign
subsidiaries, aggregating approximately $551 million at December 31, 1996, as
such earnings are expected to be permanently reinvested in these companies.
Earnings Per Common 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 Cash Equivalents
Cash and cash equivalents 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.
2. EXTRAORDINARY CHARGES
In response to legislation and the increasingly competitive environment in
which telephone subsidiaries expect to operate, GTE discontinued the use of FAS
71 in the fourth quarter of 1995.
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 represented a reduction in the net book value of telephone plant and
equipment of domestic telephone subsidiaries through an increase in accumulated
depreciation. GTE shortened the depreciable lives of its telephone plant and
equipment in 1996, as follows:
<TABLE>
<CAPTION>
DEPRECIABLE
LIVES
---------------
ASSET CATEGORY BEFORE AFTER
--------------------------------------------------------------------- ----- -----
<S> <C> <C>
Copper............................................................... 20-30 15
Switching equipment.................................................. 17-19 10
Circuit equipment.................................................... 11-13 8
Fiber-optic cable.................................................... 25-30 20
</TABLE>
35
<PAGE> 37
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.
3. INVESTMENTS IN UNCONSOLIDATED COMPANIES
GTE's investments in unconsolidated subsidiaries include its investments 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.
During 1996, GTE increased its ownership in CANTV from 20.4% to 25.9%
through the purchase of $190 million of additional shares in connection with the
initial public offering of CANTV shares by the Venezuelan government and
subsequent market purchases. CANTV is the primary provider for local, national
long-distance and international long-distance telephone service in Venezuela.
CANTV also provides other telecommunications and related services, including
cellular and directory advertising services. At December 31, 1996 and 1995, GTE
had an investment in CANTV of $1.5 billion and $1.2 billion, including $812
million and $758 million of goodwill, respectively.
GTE has a 25.5% ownership interest in CTI, an international consortium
providing cellular services in the north and south interior regions of
Argentina. At December 31, 1996 and 1995, GTE had an investment in CTI of $113
million and $88 million, respectively, and through December 31, 1996 provided
$109 million in guarantees to banks and other shareholders.
Other investments in unconsolidated subsidiaries, primarily cellular
partnerships, were $400 million and $461 million at December 31, 1996 and 1995,
respectively, including goodwill for both periods of approximately $24 million.
4. RESTRUCTURING COSTS
During 1993, GTE recorded one-time restructuring costs of $1.8 billion,
which reduced net income by $1.2 billion, or $1.22 per share. The restructuring
costs included $1.4 billion for domestic telephone operations' re-engineering
plan to improve customer responsiveness and product quality, reduce the time
necessary to introduce new products and services and further reduce costs. Also
included was a $400 million reduction in the carrying value of satellite
communications and other assets. The re-engineering plan was substantially
completed in 1996 consistent with the original cost estimates.
From the inception of the plan through December 31, 1996, 224 work centers
were closed, and workforce reductions of approximately 17,000 have occurred.
Total costs are comprised of $900 million related to customer service processes,
$300 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.
5. SHAREHOLDERS' EQUITY
Preferred Stock
During 1995, GTE retired, prior to its stated maturity, preferred stock of
approximately $10 million (see Note 2).
Common Stock
The authorized common stock of GTE at December 31, 1996 consisted of two
billion shares with a par value of $.05 per share. In August 1996, GTE's Board
of Directors authorized the repurchase of up to 25 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 July 1997, depending on market
conditions, and
36
<PAGE> 38
may be either suspended or discontinued. The shares will be used to satisfy the
requirements of GTE's employee benefit and dividend reinvestment programs. The
repurchase program is in addition to the 20 million share buy-back program
announced in August 1995, which has been completed.
Additional Paid-In Capital
Dividends for the first and second quarters of 1996 were paid entirely from
additional paid-in capital as a result of the extraordinary charges taken as of
December 31, 1995 in connection with the discontinuance of FAS 71 (see Note 2).
Beginning in the third quarter, dividends were paid from retained earnings.
Additional paid-in capital includes the cumulative foreign currency
translation adjustment of $(173) million, $(192) million and $(207) million at
December 31, 1996-94, respectively, and the unrealized gains (losses) on
investments in debt and equity securities of $5 million, $20 million and $(22)
million at December 31, 1996-94, respectively.
6. STOCK OPTION AND SHAREHOLDER RIGHTS PLANS
Stock Option Plans
GTE maintains broad-based employee stock option plans. 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 seven
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.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). As permitted by FAS 123, GTE continues to apply the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25). The differences
between the recognition and measurement provisions of FAS 123 and APB 25 are not
significant to GTE's results of operations.
The following table summarizes stock option activity during each of the
last three years:
<TABLE>
<CAPTION>
STOCK AVERAGE
OPTIONS PRICE
------- -------
(NUMBER OF OPTIONS
IN THOUSANDS)
<S> <C> <C>
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
Options granted.................................................. 13,268 41.96
Options exercised................................................ (2,634) 30.29
Options cancelled or forfeited................................... (154) 37.51
------ -----
Balance, December 31, 1996......................................... 25,914 $ 37.36
====== =====
</TABLE>
At December 31, 1996, 8.1 million options were exercisable.
37
<PAGE> 39
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 designed to cause substantial dilution to a person 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.
7. MINORITY INTERESTS
Minority interests in equity of subsidiaries includes the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Minority interests in consolidated subsidiaries:
BC TEL (50.7% GTE ownership)................................... $ 784 $ 721
Quebec Telephone (50.6% GTE ownership)......................... 84 81
Cellular partnerships and other................................ 139 117
Preferred securities issued by subsidiaries...................... 1,309 1,311
------ ------
Total minority interests in equity of subsidiaries..... $2,316 $2,230
====== ======
</TABLE>
Preferred securities issued by subsidiaries include $1.0 billion 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% to 9.25% and
maturities of 30 years.
38
<PAGE> 40
8. DEBT
Long-term debt as of December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
GTE Corporation:
Debentures, maturing 1998 through 2023, average rate 9.0%.... $ 3,350 $ 3,350
Guaranteed ESOP obligations, maturing 1998 through 2005,
average rate 9.7%......................................... 593 624
Sinking fund debenture, maturing in 2017, at a rate of
10.8%..................................................... 200 200
Secured borrowings and other, maturing 2001 through 2010,
average rates 6.0% and 9.9%............................... 411 22
------- -------
4,554 4,196
Telephone Subsidiaries:
First mortgage bonds, sinking fund debentures and notes,
maturing through 2031, average rate 7.6%.................. 7,835 6,741
Other Subsidiaries:
Sinking fund debentures and notes, maturing through 2009,
average rates 7.5% and 7.7%............................... 1,062 1,056
Commercial paper expected to be refinanced on a long-term
basis........................................................ 631 1,306
------- -------
Total principal amount............................... 14,082 13,299
Less: premium and (discount) -- net.......................... 12 (62)
------- -------
Total................................................ 14,094 13,237
Less: current maturities..................................... (884) (493)
------- -------
Total long-term debt................................. $13,210 $12,744
======= =======
</TABLE>
Estimated payments of long-term debt during the next five years are: $884
million in 1997; $1,444 million in 1998; $1,135 million in 1999; $781 million in
2000; and $1,297 million in 2001.
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.
First mortgage bonds issued by GTE's telephone subsidiaries are secured by
a lien on substantially all telephone property, plant and equipment.
Total short-term obligations were as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Commercial paper -- average rates 5.6% and 5.9%.................. $1,580 $1,650
Notes payable to banks -- average rates 6.5% and 9.7%............ 33 13
Current maturities of long-term debt............................. 884 493
------- -------
Total.................................................. $2,497 $2,156
======= =======
</TABLE>
GTE and its subsidiaries had available unused lines of credit aggregating
$4.5 billion at December 31, 1996.
9. 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 exchange 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
39
<PAGE> 41
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 SARs expense or income in
GTE's consolidated statements of income.
At December 31, 1996 and 1995, GTE had entered into interest rate swap
agreements primarily to convert $800 million and $516 million, respectively, of
floating rate long-term and short-term debt to fixed rates. GTE had entered into
foreign exchange contracts having a contract value of $484 million and $8
million at December 31, 1996 and 1995, respectively. Purchased options having a
contract value of $428 million and $256 million were outstanding at December 31,
1996 and 1995, respectively.
At December 31, 1996 and 1995, GTE had entered into forward interest swap
agreements and forward contracts to sell U.S. Treasury Bonds to hedge against
changes in market interest rates on $400 million and $850 million, respectively,
of debt expected to be refinanced in the following year. Gains and losses
recognized upon the expiration or settlement of forward interest swap agreements
and forward contracts to sell U.S. Treasury Bonds are 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 as well as the market price of
GTE's common stock. GTE carefully evaluates and continually monitors the
creditworthiness of its counterparties and believes the risk of nonperformance
is remote.
The fair values of financial instruments, other than long-term debt,
closely approximate their carrying value. As of December 31, 1996 and 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 $450 million and $900 million, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Land......................................................... $ 364 $ 372
Buildings.................................................... 4,395 4,195
Plant and equipment.......................................... 42,963 41,115
Work in progress and other................................... 5,759 5,265
------- -------
Total.............................................. 53,481 50,947
Accumulated depreciation..................................... (30,579) (28,510)
------- -------
Total property, plant and equipment -- net......... $ 22,902 $ 22,437
======= =======
</TABLE>
Depreciation expense in 1996-94 for GTE's telephone subsidiaries was
equivalent to a composite average percentage of 7.0%, 7.2% and 7.0%,
respectively.
11. EMPLOYEE BENEFIT PLANS
Retirement Plans
GTE sponsors noncontributory defined benefit pension 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 accumulate funds sufficient to meet the plans' benefit obligation to
employees upon their retirement. The assets of the plans consist primarily of
corporate equities, government securities and corporate debt securities.
40
<PAGE> 42
The components of the net pension credit for 1996-94 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Benefits earned during the year......................... $ 250 $ 213 $ 269
Interest cost on projected benefit obligations.......... 593 568 542
Return on plan assets:
Actual................................................ (2,079) (2,420) (29)
Deferred.............................................. 943 1,413 (971)
Other -- net............................................ (138) (177) (168)
------- ------- ------
Net pension credit............................ $ (431) $ (403) $(357)
======= ======= ======
</TABLE>
The expected long-term rate of return on plan assets was 9.0% for 1996 and
8.5% for 1995 and 1994.
The funded status of the plans and the net prepaid pension cost at December
31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Vested benefit obligations....................................... $ 5,644 $ 5,361
------- -------
Accumulated benefit obligations.................................. $ 6,260 $ 5,996
------- -------
Plan assets at fair value........................................ $15,097 $13,695
Less: Projected benefit obligations.............................. 8,067 7,732
------- -------
Excess of assets over projected obligations...................... 7,030 5,963
Unrecognized net transition asset................................ (427) (533)
Unrecognized net gain............................................ (3,230) (2,602)
------- -------
Net prepaid pension cost............................... $ 3,373 $ 2,828
======= =======
</TABLE>
Included in the previous table are prepaid pension costs of $3.6 billion
and $3.1 billion and accrued pension liabilities of $266 million and $230
million for 1996 and 1995, respectively.
Assumptions used to develop the projected benefit obligations at December
31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate................................................ 7.50% 7.50%
Rate of compensation increase................................ 5.25% 5.25%
</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
determination of benefit cost for postretirement health plans is generally based
on comprehensive hospital, medical and surgical benefit provisions. GTE funds
amounts for postretirement benefits as deemed appropriate from time to time.
Plan assets consist primarily of corporate equities, government securities and
corporate debt securities.
41
<PAGE> 43
The postretirement benefit cost for 1996-94 included the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Benefits earned during the year............................... $ 49 $ 46 $ 57
Interest on accumulated postretirement benefit obligations.... 255 258 259
Actual return on plan assets.................................. (21) (41) 6
Amortization of prior service benefits........................ (53) (50) (54)
Other -- net.................................................. (2) 17 (14)
---- ---- ----
Postretirement benefit cost................................. $228 $230 $254
==== ==== ====
</TABLE>
The following table sets forth the plans' funded status and the accrued
postretirement benefit obligations as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees...................................................... $2,812 $2,815
Fully eligible active plan participants....................... 293 254
Other active plan participants................................ 960 969
------ ------
Total accumulated postretirement benefit obligations............... 4,065 4,038
Less: Fair value of plan assets.................................... 416 353
------ ------
Excess of accumulated obligations over plan assets................. 3,649 3,685
Unrecognized prior service benefits................................ 554 563
Unrecognized net loss.............................................. (62) (114)
------ ------
Accrued postretirement benefit obligations....................... $4,141 $4,134
====== ======
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligations were 7.5% at December 31, 1996 and December 31, 1995. The
assumed health care cost trend rate was 8.75% in 1996 and averaged 9.75% in 1995
and is assumed to decrease gradually to an ultimate rate of 6.0% in the year
2004. A one percentage point increase in the assumed health care cost trend
rates for each future year would have increased 1996 costs by $36 million and
the accumulated postretirement benefit obligations as of December 31, 1996 by
$395 million.
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
$80 million, $85 million and $76 million in the years 1996-94, 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 meet 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
1996-94 totaled $92 million, $88 million and $84 million, respectively. These
payments were funded by $45 million, $45 million and $46 million of dividends
accumulated on the GTE stock held by the ESOP and by $47 million, $43 million
and $38 million of cash contributions by GTE in 1996-94, respectively.
42
<PAGE> 44
12. INTEREST -- NET
The components of interest -- net are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Interest expense................................. $1,146 $1,151 $1,139
Interest capitalized............................. (61) (49) (28)
Interest income.................................. (59) (55) (52)
------ ------ ------
Total.................................. $1,026 $1,047 $1,059
====== ====== ======
</TABLE>
13. OTHER -- NET
The components of other -- net are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Minority interests................................. $ 239 $ 227 $ 140
Preferred dividends................................ 17 22 28
Equity in income of unconsolidated companies....... (201) (107) (74)
Gains on sales of nonstrategic telephone
properties....................................... (12) (16) (264)
Other.............................................. 7 (121) (110)
----- ----- -----
Total.................................... $ 50 $ 5 $(280)
===== ===== =====
</TABLE>
GTE has completed its program to sell or exchange nonstrategic domestic
local-exchange telephone properties (representing less than 5% of its U.S.
access lines). Telephone properties serving 11,700 access lines, 10,000 access
lines and 448,000 access lines were sold in 1996-94, respectively, for cash of
$30 million, $30 million and $900 million. Pretax gains, associated with these
sales, were recorded by GTE in 1996-94 of $12 million, $16 million and $264
million, respectively.
14. INCOME TAXES
Income before income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Domestic......................................... $3,799 $3,550 $3,465
Foreign.......................................... 613 454 508
------ ------ ------
Total.................................. $4,412 $4,004 $3,973
====== ====== ======
</TABLE>
43
<PAGE> 45
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal........................................ $ 851 $ 711 $ 927
Foreign........................................ 241 173 192
State and local................................ 107 98 165
------ ------ ------
1,199 982 1,284
------ ------ ------
Deferred:
Federal........................................ 399 439 269
Foreign........................................ (38) 14 (1)
State and local................................ 97 90 56
------ ------ ------
458 543 324
------ ------ ------
Amortization of deferred investment tax
credits -- net................................. (43) (59) (76)
------ ------ ------
Total.................................. $1,614 $1,466 $1,532
====== ====== ======
</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>
1996 1995 1994
------ ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Amounts computed at statutory rates.............. $1,544 $1,401 $1,391
State and local income taxes, net of federal tax
benefits....................................... 133 122 144
Minority interests and preferred stock
dividends...................................... 44 43 42
Amortization of investment tax credits -- net.... (43) (59) (76)
Other differences -- net......................... (64) (41) 31
------ ------ ------
Total provision........................ $1,614 $1,466 $1,532
====== ====== ======
</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,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Depreciation and amortization............................ $ 1,696 $ 1,605
Employee benefit obligations............................. (1,870) (1,899)
Prepaid pension cost..................................... 1,189 971
Investment tax credits................................... 95 138
Other -- net............................................. 164 58
------- -------
Total.......................................... $ 1,274 $ 873
======= =======
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
GTE has noncancelable operating leases covering certain buildings, office
space and equipment. Rental expense was $392 million, $384 million and $419
million in 1996-94, respectively. Minimum rental commitments under noncancelable
leases through 2001 do not exceed $221 million annually and aggregate $883
million thereafter.
GTE and its unconsolidated affiliates 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
44
<PAGE> 46
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.
45
<PAGE> 47
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, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 as set forth on
pages 30 through 45 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 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 28, 1997
46
<PAGE> 48
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
47
<PAGE> 49
SUPPORTING SCHEDULE
48
<PAGE> 50
SCHEDULE II
GTE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996 -- 1994
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN C
----------------------------
COLUMN B ADDITIONS COLUMN D COLUMN E
---------- ---------------------------- ----------- ----------
COLUMN A BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE AT
- ---------------------------------------- BEGINNING (CREDITED) (CREDITED) TO FROM END OF
DESCRIPTION OF YEAR TO INCOME OTHER ACCOUNTS RESERVES(1) YEAR
- ---------------------------------------- ---------- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Allowance for uncollectible
accounts........................... $ 263 $376 $ 240(2) $ 580 $299
------ ---- ----- ---- ----
Accrued discontinuance and business
repositioning costs................ $ 258 $ 9 $ 1(3) $ 14 $254
====== ==== ===== ==== ====
Accrued telephone restructuring
costs(5)........................... $ 512 $ -- $(214)(4) $ 298 $ --
====== ==== ===== ==== ====
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(5)........................... $ 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(5)........................... $1,370 $ -- $ -- $ 413 $957
====== ==== ===== ==== ====
</TABLE>
- ---------------
(1) Charges for which reserve was created.
(2) Recoveries of amounts written off in prior years.
(3) Primarily reclassifications from other accounts.
(4) Represents amounts necessary to satisfy commitments related to the
re-engineering program that have been reclassified to Accounts Payable and
Accrued Expenses.
(5) See Note 4 to the Consolidated Financial Statements included elsewhere
herein.
49
<PAGE> 51
EXHIBITS
50
<PAGE> 52
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
3.1(a) Articles of Incorporation, as restated
3.2(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
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 were filed as an exhibit to GTE's
Form 8-K filed on January 21, 1997, and are 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. 33-61661), 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, 1994 and 1995 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 1992, 1993 and 1994 Forms 10-K, and are incorporated
herein by reference.
(f) GTE's Long-Term Incentive Plan was filed as an exhibit to GTE's 1997 Proxy
Statement, and is incorporated herein by reference.
(g) GTE's Executive Incentive Plan was filed as an exhibit to GTE's 1997 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 1992 and 1993 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.
51
<PAGE> 1
EXHIBIT 11
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) from:
Continuing operations....................... $2,798,270 $ 2,537,949 $2,440,869 $971,978 $ 1,760,704
Discontinued operations..................... -- -- -- -- (48,000)
Extraordinary charges....................... -- (4,682,000) -- (89,990) (52,000)
Cumulative effect of accounting changes..... -- -- -- -- (2,440,612)
---------- ----------- ---------- -------- -----------
Consolidated net income (loss).............. 2,798,270 (2,144,051) 2,440,869 881,988 (779,908)
---------- ----------- ---------- -------- -----------
Adjustments to net income (loss):
Add: Preferred dividend requirements on
dilutive convertible preferred
stocks................................. -- 417 621 237 827
Interest expense, net of tax effect, on
employees' stock plans................. 2,473 1,853 1,441 1,915 6,257
---------- ----------- ---------- -------- -----------
Total adjustments.................... 2,473 2,270 2,062 2,152 7,084
---------- ----------- ---------- -------- -----------
Adjusted consolidated net income (loss) from:
Continuing operations....................... 2,800,743 2,540,219 2,442,931 974,130 1,767,788
Discontinued operations..................... -- -- -- -- (48,000)
Extraordinary charges....................... -- (4,682,000) -- (89,990) (52,000)
Cumulative effect of accounting changes..... -- -- -- -- (2,440,612)
---------- ----------- ---------- -------- -----------
Adjusted consolidated net income (loss)....... $2,800,743 $(2,141,781) $2,442,931 $884,140 $ (772,824)
========== =========== ========== ======== ===========
Average common shares......................... 968,852 969,930 957,948 944,678 904,516
---------- ----------- ---------- -------- -----------
Adjustments to common shares:
Add: Dilutive convertible preferred
stocks................................. -- 419 572 288 772
Employees' stock and stock option
plans.................................. 3,935 4,063 3,340 4,024 7,808
---------- ----------- ---------- -------- -----------
Total adjustments.................... 3,935 4,482 3,912 4,312 8,580
---------- ----------- ---------- -------- -----------
Adjusted average common shares................ 972,787 974,412 961,860 948,990 913,096
========== =========== ========== ======== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Primary (1)
Continuing operations..................... $ 2.89 $ 2.62 $ 2.55 $ 1.03 $ 1.95
Discontinued operations................... -- -- -- -- (.05)
Extraordinary charges..................... -- (4.83) -- (.10) (.06)
Cumulative effect of accounting changes... -- -- -- -- (2.70)
---------- ----------- ---------- -------- -----------
Consolidated......................... $ 2.89 $ (2.21) $ 2.55 $ .93 $ (.86)
========== =========== ========== ======== ===========
Fully diluted (2)
Continuing operations..................... $ 2.88 $ 2.61 $ 2.54 $ 1.02 $ 1.94
Discontinued operations................... -- -- -- -- (.05)
Extraordinary charges..................... -- (4.81) -- (.09) (.06)
Cumulative effect of accounting changes... -- -- -- -- (2.68)
---------- ----------- ---------- -------- -----------
Consolidated......................... $ 2.88 $ (2.20) $ 2.54 $ .93 $ (.85)
========== =========== ========== ======== ===========
</TABLE>
- ---------------
(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.
52
<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,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net earnings available for fixed
charges:
Income from continuing operations.... $2,798,270 $2,537,949 $2,440,869 $ 971,978 $1,760,704
Add (deduct) --
Income taxes....................... 1,613,261 1,466,426 1,532,482 567,747 966,589
Interest expense................... 1,146,481 1,150,625 1,139,233 1,298,234 1,475,670
Capitalized interest (net of
amortization).................... (34,984) (22,971) (6,045) (3,421) (4,931)
Preferred stock dividends of
Parent........................... -- 5,598 9,910 17,825 26,331
Dividends on preferred securities
of subsidiaries.................. 106,643 98,604 18,252 22,162 23,429
Additional income requirement on
preferred dividends of
subsidiaries..................... 9,640 9,664 11,426 12,739 12,671
Minority interests................. 149,467 145,437 140,464 112,335 112,425
Portion of rent expense
representing interest............ 130,660 128,034 139,715 153,058 196,533
---------- ---------- ---------- ---------- ----------
5,919,438 5,519,366 5,426,306 3,152,657 4,569,421
Deduct -- Minority interests......... (263,122) (246,678) (242,937) (236,944) (248,979)
---------- ---------- ---------- ---------- ----------
Adjusted earnings available
for fixed charges from
continuing operations....... $5,656,316 $5,272,688 $5,183,369 $2,915,713 $4,320,442
========== ========== ========== ========== ==========
Fixed Charges:
Interest charges..................... $1,146,481 $1,150,625 $1,139,233 $1,298,234 $1,475,670
Dividends on preferred securities of
subsidiaries....................... 106,643 98,604 18,252 22,162 23,429
Additional income requirement on
preferred dividends of
subsidiaries....................... 9,640 9,664 11,426 12,739 12,671
Portion of rent expense representing
interest........................... 130,660 128,034 139,715 153,058 196,533
---------- ---------- ---------- ---------- ----------
1,393,424 1,386,927 1,308,626 1,486,193 1,708,303
Deduct -- Minority interests......... (68,166) (70,052) (68,096) (78,421) (86,504)
---------- ---------- ---------- ---------- ----------
Adjusted fixed charges........ $1,325,258 $1,316,875 $1,240,530 $1,407,772 $1,621,799
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges --
continuing operations................ 4.27 4.00 4.18 2.07 2.66
========== ========== ========== ========== ==========
</TABLE>
53
<PAGE> 1
EXHIBIT 21
GTE CORPORATION AND SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES OF REGISTRANT AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
VOTING
CONTROL OWNED BY
COMPANY(A) INCORPORATED IN DIRECT PARENT
- -------------------------------------------------------------- ------------------ ----------------
<S> <C> <C>
Contel Cellular Inc........................................... Delaware 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 China Incorporated........................................ Delaware 100.00
GTE Leasing Corporation....................................... Delaware 100.00
GTE Anglo Holding Company Incorporated........................ Delaware 100.00
Anglo-Canadian Telephone Company............................ Quebec 86.39
BC TELECOM Inc............................................ Canada 50.69
BC TEL.................................................. Canada 100.00
BC TEL Services Inc..................................... Canada 100.00
Canadian Telephones and Supplies Ltd................. British Columbia 100.00
Quebec-Telephone............................................ Quebec 50.57
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 do Brasil Limitada...................................... Brazil 100.00
GTE PCS International Incorporated.......................... Delaware 100.00
GTE Venezuela Incorporated(b)............................... 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 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.
(b) GTE also directly owns 5.5% of CANTV through a direct purchase of CANTV
shares in the fourth quarter of 1996.
54
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated January 28, 1997, 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-4 of GTE Corporation (File No. 33-37530)
5. Form S-8 of GTE Corporation (File No. 33-39297)
6. Form S-3 of GTE Corporation (File No. 33-40247)
7. Form S-8 of GTE Corporation (File No. 33-46612)
8. Form S-8 of GTE Corporation (File No. 33-50111)
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 18, 1997
55
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 405
<SECURITIES> 0
<RECEIVABLES> 4,482
<ALLOWANCES> 0
<INVENTORY> 673
<CURRENT-ASSETS> 6,033
<PP&E> 53,481
<DEPRECIATION> 30,579
<TOTAL-ASSETS> 38,422
<CURRENT-LIABILITIES> 8,314
<BONDS> 13,210
0
0
<COMMON> 49
<OTHER-SE> 7,287
<TOTAL-LIABILITY-AND-EQUITY> 38,422
<SALES> 21,339
<TOTAL-REVENUES> 21,339
<CGS> 15,851
<TOTAL-COSTS> 15,851
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,026
<INCOME-PRETAX> 4,412
<INCOME-TAX> 1,614
<INCOME-CONTINUING> 2,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,798
<EPS-PRIMARY> 2.89
<EPS-DILUTED> 2.88
</TABLE>
