GTE CORPORATION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-2755
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
GTE CORPORATION
ONE STAMFORD FORUM
STAMFORD, CONNECTICUT 06904
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the GTE Corporation Savings, Investment &
Tax-Deferral Plan for Hourly Employees:
We have audited the accompanying statements of net assets available for
plan benefits, with fund information of the GTE Corporation Savings,
Investment & Tax-Deferral Plan for Hourly Employees as of December 31, 1996
and 1995, and the related statement of changes in net assets available for
plan benefits, with fund information for the year ended December 31, 1996.
These financial statements are the responsibility of the Plan Administrator.
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 audits to
obtain reasonable assurance about whether the 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 net assets available for plan benefits
of the Plan as of December 31, 1996 and 1995, and the changes in its net
assets available for plan benefits for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
financial statements taken as a whole. The fund information in the
statements of net assets available for plan benefits and statement of
changes in net assets available for plan benefits is presented for purposes
of additional analysis rather than to present the net assets available for
plan benefits and changes in net assets available for plan benefits of each
fund. The fund information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 23, 1997
<TABLE>
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1996
<CAPTION>
Fidelity Fidelity Broad
GTE U.S. Equity Market Duration
Stock Index Collective Collective Income PAYSOP Loan
Portfolio Trust Fund Trust Portfolio Fund Fund Total
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS: (see Note 4)
Investments in Master Trust $ - $ - $ - $ - $ - $ - $ -
Receivables - - - - - - -
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ - $ - $ - $ - $ - $ - $ -
The accompanying notes are an integral part of this statement.
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1995
(thousands of dollars)
<CAPTION>
Fidelity Fidelity Broad
GTE U.S. Equity Market Duration
Stock Index Collective Collective Income Loan
Portfolio Trust Fund Trust Portfolio Fund Total
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Master Trust $28,254 $6,568 $1,034 $8,605 $1,719 $46,180
Receivables 1,649 35 6 41 - 1,731
NET ASSETS AVAILABLE FOR PLAN BENEFITS $29,903 $6,603 $1,040 $8,646 $1,719 $47,911
The accompanying notes are an integral part of this statement.
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(thousands of dollars)
<CAPTION>
Fidelity Fidelity Broad
GTE U.S. Equity Market Duration
Stock Index Collective Collective Income PAYSOP Loan
Portfolio Trust Fund Trust Portfolio Fund Fund Total
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and Dividends $ 1,268 $ - $ - $ - $ 238 $ 140 $ 1,646
Net Investment Gain (Note 2) 1,049 1,628 46 602 152 - 3,477
Contributions (Notes 3 & 4): 1,992 949 159 980 - - 4,080
Transfer To Another Plan, Net (Note 4) (32,723) (9,154) (1,212) (9,873) (316) (2,270) (55,548)
Net Transfers Between Funds (204) 264 7 (67) - - -
Participant Loans:
Repayments 727 53 12 98 - (890) -
Withdrawals (1,111) (100) (12) (106) - 1,329 -
Withdrawals and Terminations (901) (243) (40) (280) (74) (28) (1,566)
DECREASE IN NET ASSETS AVAILABLE FOR PLAN
BENEFITS DURING THE YEAR (29,903) (6,603) (1,040) (8,646) - (1,719) (47,911)
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT BEGINNING OF YEAR 29,903 6,603 1,040 8,646 - 1,719 47,911
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT END OF YEAR $ - $ - $ - $ - $ - $ - $ -
The accompanying notes are an integral part of this statement.
</TABLE>
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
(1) Description of the Plan:
Eligibility
The GTE Corporation ("GTE") Savings, Investment & Tax-Deferral Plan for
Hourly Employees (the "Plan") is a defined contribution plan under the
Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan
provides eligible employees of GTE's subsidiaries ("Participating
Affiliates") with a convenient way to save for both medium and long-term
needs.
The Plan is available to eligible employees of GTE Participating
Affiliates who (i) are covered by a collective bargaining agreement between
the Participating Affiliates and a collective bargaining agent and such
agreement specifically provides for participation in the Plan; and (ii) the
eligible employee is not a participant in the GTE Hourly Savings Plan. An
individual's active participation in the Plan shall terminate when the
individual ceases to be an eligible employee; but, the individual shall
remain a participant until the entire account balance under the Plan has
been distributed or forfeited.
Vesting and Investment Choices
Matching contributions vest immediately upon death, disability,
retirement, attainment of age 65 or five years of service with GTE or a
Participating Affiliate. For participants with less than five years of
service, matching contributions vest 50% immediately and 50% 24 months after
the end of the Plan year for which the contributions were made. Forfeitures
of a participant's account due to termination prior to 100% vesting are used
to reduce GTE's future contributions.
Each participant directs their contributions to be invested in any of
four funds. Participants are permitted to make changes to their investment
choices once every six months. A description of the investment choices
follows:
GTE Stock Portfolio - The GTE Stock Portfolio invests
principally in GTE common stock, but may
also invest a portion in short-term
money market instruments.
Fidelity U.S. Equity - The Fidelity U.S. Equity Index
Index Collective Collective Trust Fund invests primarily
Trust Fund in common stocks with the objective of
providing investment results that
correspond to the total return (capital
changes and income) of common stocks
publicly traded in the United States, as
represented by the Standard and Poor's
500 Composite Stock Price Index.
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS - (Continued)
Fidelity Broad Market - The Fidelity Broad Market Duration
Duration Collective Collective Trust invests in a
Trust diversified portfolio of securities that
may include United States Treasury and
United States government agency
obligations, corporate, asset-backed,
and mortgage-backed debt securities and
financial futures and options.
Income Portfolio - The Income Portfolio invests principally
in investment contracts issued by
insurance companies and banks. The
Income Portfolio may also invest in
synthetic investment contracts through
the purchase of debt obligations such as
mortgage-backed securities and asset-
backed securities that include a book
value liquidity guarantee.
Participant Loans
A loan feature is available which permits participants to borrow up to
50% of a participant's vested balance subject to certain limitations. The
primary assets of the Loan Fund are the promissory notes executed by
participants who have taken loans.
Interest rates on loans are equal to the prime interest rate on the
first business day of each calendar quarter. Participant loans are
withdrawn proportionately from the participants' investment accounts. When
loans are repaid, the principal and interest amounts are reinvested
according to participants' current investment choices. Short-term loans are
from six months to five years while long-term loans for the purchase of a
primary residence are from sixty months to twenty years.
Master Trust
The Plan participates in the GTE Master Savings Trust (the "Master
Trust") and, along with other plans, owns a percentage of the assets in the
Master Trust. These percentages are based on a pro rata share of the Master
Trust assets. At December 31, 1995, the Plan owned approximately 1% of the
assets in the Master Trust (see Note 4). Interest and dividends along with
net investment gains or losses are allocated to the Plan on a daily basis
based upon the Plan's participation in the various investment funds and
portfolios that comprise the Master Trust as a percentage of the total
participation in such funds and portfolios (see Note 6).
Trustee
Fidelity Management Trust Company (the "Trustee") has been designated
as the Trustee under the Plan and is responsible for the investment,
reinvestment, control and disbursement of the funds and portfolios of the
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS - (Continued)
Plan. Expenses of administering the Plan and related funds and portfolios
are paid by the Participating Affiliates. GTE Service Corporation is the
Plan administrator.
Plan Modification
GTE reserves the right to terminate, modify, alter or amend the Plan
at any time, provided that no such change shall permit any of the funds to
be used for any purpose other than the exclusive benefit of the
participants. In the event of termination or discontinuance of the Plan by
GTE, participants' interest in their accounts will become fully vested.
(2) Accounting Policies:
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, which require that estimates
and assumptions be made that affect reported amounts. Actual results could
differ from those estimates.
Investments are stated at market value determined from publicly stated
price information, if available; otherwise, the estimated fair value is
used. Guaranteed investment contracts are stated at cost plus accrued
interest. Net investment gains and losses include both unrealized gains and
losses on investments held by the Plan at year end as well as realized gains
and losses on investments sold during the year. Net unrealized and net
realized gains and losses are based on the changes in value of the
investments since the beginning of the Plan year or the time of purchase if
acquired during the Plan year. For 1996, the GTE Stock Portfolio had a
realized gain of $1 million.
(3) Contributions:
The Plan is funded by employee contributions up to a maximum of 16% of
compensation and from Participating Affiliates in shares of GTE Common Stock
equivalent in value to 50% of the initial 6% of the employees' contributions
not withdrawn during the Plan year. The Participating Affiliates matching
contribution is credited following the close of each calendar year to the
accounts of participants who have not terminated their active participation.
Participant contributions may be before tax ("Elective Contributions") or
from currently taxed compensation ("After-Tax Contributions"). Each
participant's Elective Contribution to the Plan for the 1996 Plan year was
limited to $9,500. The total amount of Elective Contributions, After-Tax
Contributions and matching contributions and certain forfeitures that may be
allocated to a Plan participant for the 1996 Plan year was limited to the
lesser of (i) $30,000 or (ii) 25% of the participant's total compensation;
and the compensation on which such contributions was based was limited to
$150,000.
GTE matching contributions for the 1996 Plan year were made to the GTE
Hourly Savings Plan ("Hourly Plan") (see Note 4). In general, participants
cannot redirect these shares into other investment choices.
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS - (Continued)
(4) Transfer To Another Plan, Net:
Effective November 15, 1996, a portion of the GTE Consolidated
Employee Stock Ownership Plan (the "PAYSOP") was transferred into the Plan.
Accordingly, approximately .5 million shares of GTE common stock with an
approximate market value of $23 million and a small amount of cash was
transferred to the Plan. All participants in the PAYSOP are fully vested.
The only participant directed funds are those which were contributed by
participants between 1979 and 1982. All other contributions, in the form of
GTE common shares, were made by the company. Participants may elect to
reinvest dividends or receive them in cash. Participants cannot borrow from
this account, however, the balance is used to determine a maximum loan
amount available to participants.
Effective December 31, 1996, as a result of ongoing labor union
negotiations, all participants and net assets of the plan were transferred
into the Hourly Plan. Accordingly, approximately $55 million of net assets
were transferred into the Hourly Plan. All company contributions due to
participants were made to the Hourly Plan in early 1997. As of December 31,
1996, all participants are governed by the Hourly Plan document's
guidelines.
(5) Tax Status:
The Plan is a qualified profit sharing plan under Sections 401(a),
401(k) and 501 of the Internal Revenue Code of 1986, as amended (the
"Code"), and consequently is exempt from income tax. Management amended the
Plan in 1995 to comply with changes to the law made by the Tax Reform Act of
1986, as amended, and has requested a determination letter from the Internal
Revenue Service with respect to these changes. Management believes that such
determination letter will be received in due course.
(6) GTE Master Savings Trust:
The plans participating in the Master Trust include the GTE Savings
Plan; GTE Hourly Savings Plan; GTE Corporation Savings, Investment &
Tax-Deferral Plan for Hourly Employees, AGCS Savings Plan (limited
participation) and AGCS Hourly Savings Plan (limited participation).
In the Master Trust, funds are invested in contracts with insurance
companies which represented 68% of the conservative pool consisting of 58
investment contracts held with 20 insurance companies. These insurance
companies, excluding Mutual Benefit Life Insurance Company ("Mutual
Benefit") and Confederation Life Insurance and Annuity Company
("Confederation") discussed below were rated AA- or better by Standard &
Poor's as of December 31, 1996 and 1995. The contracts are included in the
financial statements at contract value, approximately $621 million, which
approximates fair value, as reported by the insurance companies.
Contract value represents contributions made under the contract, plus
earnings, less withdrawals and administrative expenses. Investment
contracts are normally set at a fixed rate through maturity, which is also
the minimum crediting interest rate. Limitations on guarantees for normal
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS - (Continued)
investment contracts are dependent on the creditworthiness of the insurance
company. Synthetic investment contracts ("Synthetics") are determined by an
internal rate of return calculation that equates market value and book value
at the expected average life of the securities. The Synthetics interest
rate is reset quarterly but has no minimum crediting rate. Limitations on
Synthetics are dependent upon the credit quality of the underlying
securities.
The investment contracts had average yields of 7.0% and 6.9% at
December 31, 1996 and 1995, respectively. The crediting interest rate for
the investment contracts, excluding Mutual Benefit and Confederation, had a
range from 5.28% to 8.56% and 5.28% to 8.90% at December 31, 1996 and 1995
respectively. The investment contracts have scheduled maturities from
January 6, 1997 to February 5, 2001.
At December 31, 1996, the income pool had an investment contract with
Mutual Benefit which represented approximately 4% of the conservative pool's
investments and approximately 1% of the Master Trust investments. At
December 31, 1996, this investment is carried at contract value of $38.2
million in the Master Trust. On July 15, 1991, the Board of Directors of
Mutual Benefit asked the New Jersey Department of Insurance to place Mutual
Benefit into rehabilitation. On January 15, 1993, Mutual Benefit filed its
First Amended Plan of Rehabilitation which was approved by the Superior
Court of New Jersey effective May 2, 1994. GTE participated in the plan and
received a new contract which preserves principal and extends maturities,
with minimum interest and premium payments over the rehabilitation period.
During 1996, the contract was credited with interest at 6.35% for the period
from January 1, 1996 to September 30, 1996; and at 9.25% for the period from
October 1, 1996 to December 31, 1996. In each subsequent year, the contract
balance will earn an annual rate of interest that can be adjusted each year,
or more often under certain circumstances, and will be determined by a
formula based on the investment performance of the assets which support the
GTE contract. There is no reserve held for resolution of the
rehabilitation.
At December 31, 1996, the income pool had three investment contracts
with Confederation at a contract value of $13.6 million, which represented
approximately 2% of the conservative pool's investments and is less than 1%
of the Master Trust investments. On August 11, 1994, Confederation was
seized by Canada's Office of the Superintendent of Financial Institutions.
In the fourth quarter of 1996 a hearing was held with Confederation
Life to approve a rehabilitation workout plan. The Trustee analyzed the
Plans rehabilitation options and issued their recommendation, which GTE
concurred with. On April 25, 1997 the Plan received $11.5 million or 89% of
the distributable liquid assets. On May 27, 1997 the Plan received an
additional $1.5 million or 11% of the distributable liquid assets. On July
31, 1997, the first illiquid trust distributions will be made, if any, with
semiannual distributions thereafter.
The following schedules reflect Master Trust net investments by fund
as of December 31, 1996 and 1995 and net investment income for the year
ended December 31, 1996:
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31,
Investments in Master Trust: 1996 1995
(thousands of dollars)
Fidelity funds:
Equity - Income Fund $ 303,235 $ 212,302
Overseas Fund 125,478 104,147
U.S. Equity Index Collective Trust Fund 241,454 164,358
Retirement Government Money Market Portfolio 137,236 107,307
Magellan Fund 454,381 464,931
Broad Market Duration Collective Trust - 1,034
Conservative Strategy Portfolio 481,725 494,246
Conservative Growth Strategy Portfolio 257,709 250,779
Moderate Growth Strategy Portfolio 379,793 335,534
Long-Term Growth Strategy Portfolio 312,522 265,100
Other funds:
GTE Stock Portfolio 1,651,259 1,655,820
ESOP Shares Fund Allocated 288,215 240,375
ESOP Shares Fund Unallocated 741,506 781,322
PAYSOP Fund 539,904 -
Loan Fund 183,536 169,028
Income Portfolio - 8,605
Total $6,097,953 $5,254,888
Year Ended December 31, 1996
Dividends Net Investment
& Interest Gain
Investment Income in Master Trust: (thousands of dollars)
Fidelity funds:
Equity - Income Fund $18,436 $ 30,400
Overseas Fund 7,634 6,607
U.S. Equity Index Collective Trust Fund - 41,410
Retirement Government Money Market Portfolio 5,755 -
Magellan Fund 73,594 (24,035)
Broad Market Duration Collective Trust - 46
Conservative Strategy Portfolio - 28,013
Conservative Growth Strategy Portfolio - 22,570
Moderate Growth Strategy Portfolio - 42,195
Long-Term Growth Strategy Portfolio - 36,142
Other funds:
GTE Stock Portfolio 70,028 51,695
ESOP Shares Fund Allocated 12,029 7,666
ESOP Shares Fund Unallocated 32,697 25,560
PAYSOP Fund 5,621 1,133
Loan Fund 12,465 -
Income Portfolio - 602
Total $238,259 $270,004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Savings Plan Committee has duly caused this annual report to be signed
by the undersigned thereunto duly authorized.
GTE CORPORATION
SAVINGS, INVESTMENT & TAX-DEFERRAL PLAN
FOR HOURLY EMPLOYEES
(Name of Plan)
Date June 26, 1997 By Lawrence R. Whitman
(Lawrence R. Whitman)
Vice President and Controller
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 11-K into GTE
Corporation's previously filed Registration Statement on Form S-8
(File No. 33-46612).
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 26, 1997
