<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________________________________
F O R M 10 - Q
X Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1997
..................
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-2755
......
GTE Corporation
......................................................
(Exact name of registrant as specified in its charter)
New York 13-1678633
............................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Stamford Forum, Stamford, CT. 06904
......................................................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-965-2000
............
............................................................................
Former name, former address and former fiscal year, if changed since last
report
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 registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO .
GTE had 957,547,794 shares of $.05 par value common stock outstanding
(excluding 26,357,070 treasury shares) at October 31, 1997.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(In Millions)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Local services $1,647 $1,497 $ 4,865 $ 4,494
Network access services 1,271 1,168 3,683 3,461
Toll services 609 643 1,860 1,859
Cellular services 714 660 2,110 1,906
Directory services 407 386 965 1,008
Other services and sales 1,292 990 3,430 2,860
Total revenues and sales 5,940 5,344 16,913 15,588
OPERATING COSTS AND EXPENSES
Cost of services and sales 2,309 1,981 6,455 5,850
Selling, general & administrative 1,156 969 3,298 2,885
Depreciation and amortization 988 949 2,921 2,819
Total costs and expenses 4,453 3,899 12,674 11,554
OPERATING INCOME 1,487 1,445 4,239 4,034
OTHER (INCOME) EXPENSE
Interest expense 328 289 943 857
Interest capitalized (11) (7) (33) (28)
Interest income (18) (15) (47) (42)
Other - net (12) (26) 28 6
287 241 891 793
INCOME BEFORE INCOME TAXES 1,200 1,204 3,348 3,241
Income taxes 444 448 1,256 1,227
NET INCOME $ 756 $ 756 $ 2,092 $ 2,014
EARNINGS PER COMMON SHARE $ .79 $ .78 $ 2.18 $ 2.07
DIVIDENDS DECLARED PER COMMON SHARE $ .47 $ .47 $ 1.41 $ 1.41
AVERAGE COMMON SHARES 956 965 958 971
The accompanying notes are an integral part of these statements.
-1-
</TABLE>
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net income for the third quarter and first nine months of 1997
was $756 million and $2.09 billion, or $.79 per share and $2.18 per share,
respectively, compared with $756 million and $2.01 billion, or $.78 per
share and $2.07 per share, in the third quarter and first nine months of
1996, respectively. Results for the third quarter of 1997 include the
impact of the previously announced data initiatives. Excluding the effects
of the data initiatives, third quarter 1997 earnings per share increased 10
percent over last year. The results for the first nine months of 1996
include an after-tax gain on the sale of nonstrategic telephone properties
of $8 million or $.01 per share. Excluding this gain and the 1997 data
initiatives, earnings per share for the first nine months of 1997 increased
11 percent over last year.
Operating income for the third quarter and first nine months of 1997 was
$1.49 billion and $4.24 billion, respectively compared with $1.45 billion
and $4.03 billion in the third quarter and first nine months of 1996,
respectively. These increases are due primarily to continued growth in
GTE's core wireline and wireless businesses, partially offset by higher
costs associated with new initiatives (including the data strategy), higher
selling and marketing expenses associated with the growth of wireless and
long-distance customers, the launch of personal communications services
("PCS") and increased video activities. Excluding the effects associated
with the new initiatives, operating income for the third quarter and first
nine months of 1997 rose 10 percent and 8 percent to $1.59 billion and $4.37
billion, respectively. GTE has reviewed and estimated its current and
planned expenditures to become Year 2000 compliant. At present, those costs
are not expected to have a material effect on GTE's results of operations.
Consolidated revenues and sales for the third quarter of 1997 totaled $5.94
billion compared with $5.34 billion in the year-ago quarter. The increase
is driven by the growth in customer lines and network usage, the number of
cellular customers served, and new and enhanced telecommunications services.
Consolidated revenues and sales for the first nine months of 1997 totaled
$16.91 billion compared with $15.59 billion in the same period last year.
Excluding revenues related to the new data initiatives, consolidated
revenues and sales for the third quarter and first nine months of 1997 grew
9 percent and 8 percent, respectively.
For the third quarter of 1997, minutes of use of GTE's domestic
local-exchange network for long-distance calling grew at an annual rate of
15.8 percent, while total domestic access lines increased 8.2 percent over
last year to 21.1 million. Internationally, GTE has an additional 6 million
access lines.
Domestic cellular service revenues in the third quarter of 1997 totaled $641
million, a 6 percent increase over the same period last year. During the
third quarter of 1997, GTE added 140,000 new domestic cellular customers
bringing total U.S. customers served to 4,286,000, an increase of 26 percent
over a year ago. Customer growth at GTE's international cellular operations
increased significantly, bringing total cellular customers served worldwide
to over 5.3 million.
-2-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
GTE is one of the largest publicly held telecommunications companies in the
world. In the United States, GTE offers local and wireless service in 29
states and long-distance service in all 50 states. GTE was the first among
its peers to offer "one-stop shopping" for local, long-distance and Internet
access services. Outside the United States, where GTE has operated for more
than 40 years, GTE services over 7 million customers. GTE is also a leader
in government and defense communications systems and equipment, directories
and telecommunication-based information services, and aircraft-passenger
telecommunications.
Other (Income) Expense
Other-net for the first nine months of 1996 includes a pre-tax gain of $12
million, resulting from the sale of nonstrategic local-exchange telephone
properties.
CAPITAL RESOURCES AND LIQUIDITY
Cash from operations for the first nine months of 1997 totaled $4.33 billion
compared with $4.39 billion during the same period in 1996.
Cash used in investing activities totaled $4.02 billion in the first nine
months of 1997 compared with $2.56 billion in the first nine months of 1996.
Acquisitions and investments for the first nine months of 1997, includes
approximately $625 million to acquire all of the outstanding shares of BBN
Corporation ("BBN") common stock at a price of $29 per share. BBN, based in
Cambridge, Massachusetts, is a leading provider of high performance
end-to-end Internet solutions such as World Wide Web site hosting, network
security, consulting, systems integration, and dedicated and dial-up
Internet access for government and commercial customers. Its 2,200
employees have extensive experience in leading-edge Internet and other
telecommunications applications. Twenty-eight years ago, BBN created
ARPANET, the forerunner of the Internet. Proceeds from sales of assets for
the first nine months of 1996 includes approximately $261 million from the
sales of PCS licenses.
Capital expenditures, for the first nine months of 1997, totaled $3.33
billion compared with $2.68 billion in the same period last year. For the
full year 1997, capital expenditures are expected to be approximately $5.3
billion compared with $4.1 billion in 1996. The majority of new investment
is being made to meet the demands of growth, modernize facilities and
position GTE as a low-cost provider of high-quality voice, data and video
telecommunications services. Significant investments are also being made to
improve and expand GTE's mobile-cellular network.
Cash from financing activities for the first nine months of 1997 totaled
$165 million compared with cash used of $1.52 billion in the first nine
months of 1996. During the first nine months of 1997, $1.35 billion of
dividend payments and $576 million expended for the repurchase of
approximately 11.7 million shares of GTE common stock, were offset by a net
increase in long and short-term borrowings of $1.9 billion.
-3-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
On October 15, 1997, GTE proposed a merger with MCI Communications
Corporation ("MCI"), valued at approximately $28 billion. As a result of
the proposed merger, Moody's downgraded GTE's bond rating from A3 to Baa1,
and all the rating agencies have placed GTE and its subsidiaries on "Credit
Watch" for possible rating reductions. On November 10, 1997, MCI announced
that it had reached an agreement to merge with WorldCom, Inc. ("WorldCom").
In August 1997, GTE's Board of Directors authorized the repurchase of up to
an additional 20 million shares of currently issued GTE common stock in the
open market or in privately negotiated transactions. This program is in
addition to the 25 million share repurchase program announced in August
1996. The share repurchase program has since been suspended.
In June 1997, GTE's Board of Directors approved the filing of a $3 billion
shelf registration statement with the Securities and Exchange Commission
("SEC") which included a Medium-Term Note ("MTN") program. The benefits of
an MTN program include lower rates than traditional debentures due to more
flexibility with regard to amounts issued, timing and speed to market. The
MTN program has received the same ratings as GTE Corporation's debenture
program.
GTE believes that its present investment grade credit rating and those of
its subsidiaries, provide ready access to the capital markets at reasonable
rates and provides GTE with the financial flexibility necessary to pursue
growth opportunities as they arise. At September 30, 1997, GTE had $4.5
billion of unused bank lines of credit available to back up commercial paper
borrowings and for working capital requirements.
RECENT DEVELOPMENTS
In July 1997, the U.S. Court of Appeals for the Eighth Circuit ("Eighth
Circuit") issued an opinion and order vacating significant portions of the
Federal Communications Commission's ("FCC") rules purporting to implement
the local competition provisions of the Telecommunications Act of 1996 ("the
Act"). GTE, together with other incumbent local-exchange carriers ("ILECs")
and a number of state commissions, had challenged various portions of the
FCC rules.
In its opinion, the Eighth Circuit ruled that the FCC had no jurisdiction to
promulgate rules setting the prices at which ILECs must make available to
competitors unbundled network elements and services for resale. In
addition, the Eighth Circuit made a number of other rulings favorable to
GTE, including, that the FCC's rule allowing requesting carriers to pick and
choose among individual provisions of other interconnection agreements,
rather than to adopt the terms and conditions of a single agreement in its
entirety, was unlawful; that the FCC does not have the authority to review
interconnection agreements approved by state commissions or to enforce the
terms of such agreements; that the FCC rule requiring ILECs to provide
interconnection and unbundled network elements at levels of quality that are
superior to those levels at which the ILECs provide them to themselves was
unlawful; and that it is the requesting carriers, not the ILECs, that must
combine unbundled network elements.
-4-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Eighth Circuit also rejected certain arguments advanced by GTE. For
example, it ruled that a requesting carrier may gain access to all of the
unbundled network elements that, when combined by the requesting carrier,
are sufficient to enable the requesting carrier to provide a finished
service, and it upheld most of the standards applied by the FCC in
determining which network elements an ILEC must make available.
In October 1997, the Eighth Circuit, granting a petition for rehearing filed
by GTE and others, further ruled that the Act "does not permit a new entrant
to purchase the ILEC's assembled platform(s) of combined network elements
(or any lesser existing combination of two or more elements) in order to
offer competitive telecommunications services." The FCC has announced plans
to seek Supreme Court review of the Eighth Circuit's rulings; it has until
January 12, 1998, to file a petition for certiorari.
In May 1997, the FCC issued orders on universal service and access charge
reform. GTE has filed petitions for review of these FCC orders with the
U. S. Court of Appeals for the Tenth Circuit. GTE anticipates that those
petitions will be decided in 1998.
In its order on access charge reform, the FCC revised the price cap plan for
regulating ILECs by requiring price cap LECs to increase their productivity
factor to 6.5 percent. The order also eliminated the sharing requirements
of the price cap rules. In June 1997, in accordance with the order, GTE
submitted its 1997 annual price cap filing. The 1997 interstate access
filing resulted in an annual price reduction of approximately $254 million,
effective July 1, 1997. Prior to this order, GTE had submitted a rate
change filing in May 1997, as GTE's access rates were priced significantly
below the FCC's maximum price. This rate change filing resulted in an
annual price increase of $151 million, effective June 3, 1997. Overall, the
net effect of these access filings resulted in an annual price reduction of
approximately $103 million.
In accordance with the Act, 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
throughout 1997 and 1998.
GTE is challenging state arbitration decisions in cases where GTE believes
that state commissions have made decisions that violate the Act and are
inconsistent with its pro-competitive objectives. GTE fully endorses
genuine local competition. Through the third quarter of 1997, GTE operating
companies had 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, New Mexico, Ohio,
Oklahoma, Oregon, Pennsylvania, South Carolina, Texas, Virginia, Washington
and Wisconsin. A number of these complaints have been dismissed without
prejudice on the ground that they were filed before the arbitrated
agreements had received final approval from state commissions. In such
cases, GTE is refiling complaints after final approval has occurred.
-5-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Additionally, GTE has made appropriate filings with the states and Federal
District Courts requesting that the Eighth Circuit's favorable rulings be
taken into consideration in connection with any future arbitration ruling or
complaint actions.
On October 15, 1997, GTE announced its proposal to acquire MCI in a
transaction valued at approximately $28 billion in cash or $40 per share.
On November 10, 1997, MCI announced that it had reached an agreement to
merge with WorldCom. GTE is continuing to monitor the situation and may
reevaluate its position depending on a number of factors, including the
relative stock performance of both WorldCom and MCI, the financial and
operating results of MCI and the ongoing status of the regulatory approval
process, as well as other pertinent information.
In May 1997, GTE announced initiatives to become a leading national provider
of telecommunications services, including the acquisition of BBN Corporation
("BBN"), a leading provider of end-to-end Internet solutions. In addition,
GTE announced a strategic alliance with Cisco Systems, Inc. to jointly
develop enhanced data and Internet services for customers; and, the purchase
of a national, state-of-the-art fiber-optic network from Qwest
Communications. For additional information, including the modification of
certain financial projections previously made by GTE, reference is made to
GTE Corporation's Form 8-K and Schedule 14D-1 and 13D filed on May 6, 1997
and May 12, 1997, respectively, which are incorporated herein by reference.
As of September 30, 1997, GTE had expended $625 million to complete the
acquisition of BBN, and made payments totaling approximately $138 million
toward the purchase of the network from Qwest.
In November 1997, GTE Internetworking, a subsidiary of GTE, announced that
it will acquire Genuity, Inc. ("Genuity"), a subsidiary of Bechtel
Enterprises. Genuity is a value-added provider of distributed application
hosting solutions. The acquisition will be completed through GTE
Internetworking's affiliate BBN, and is subject to closing conditions,
including the expiration of applicable waiting periods under the
Hart-Scott-Rodino Act. GTE expects that the transaction will be completed
by year-end 1997.
In April 1997, GTE announced the relocation of its corporate-staff functions
to the greater-Dallas area, where its Telephone Operations and Directories
businesses are headquartered. In connection with the above mentioned
proposal to acquire MCI, the relocation of GTE corporate headquarters was
placed on hold. While the relocation of corporate headquarters remains on
hold, the consolidation of certain staff functions is expected to continue
through 1998. GTE is continuing to develop the specific transition plan
associated with the announcement which will determine the timing and extent
of any financial impact.
-6-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(In Millions)
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 881 $ 405
Receivables, less allowances
of $309 and $299 million 4,736 4,482
Inventories and supplies 902 673
Deferred income tax benefits 101 200
Other 337 273
Total Current Assets 6,957 6,033
PROPERTY, PLANT AND EQUIPMENT, at cost 55,621 53,481
Accumulated depreciation (32,340) (30,579)
Total Property, Plant and Equipment, net 23,281 22,902
INVESTMENTS AND OTHER ASSETS:
Employee benefit plans 4,114 3,639
Franchises, goodwill and other intangibles,
net of accumulated amortization of $552
and $488 million 3,020 2,507
Investments in unconsolidated companies 2,248 2,035
Other assets 1,421 1,306
Total Investments and Other Assets 10,803 9,487
Total Assets $41,041 $38,422
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(In Millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations, including
current maturities $ 3,428 $ 2,497
Accounts payable and accrued expenses 3,876 4,156
Taxes payable 985 754
Dividends payable 468 472
Other 518 435
Total Current Liabilities 9,275 8,314
Long-term debt 14,344 13,210
Employee benefit plans 4,753 4,688
Deferred income taxes 1,592 1,474
Minority interests in equity of subsidiaries 2,250 2,316
Other liabilities 1,107 1,084
Total Liabilities 33,321 31,086
SHAREHOLDERS' EQUITY:
Common stock - shares issued 983,382,226
and 980,911,281 49 49
Additional paid-in capital 7,292 7,248
Retained earnings 2,118 1,370
Guaranteed ESOP obligations (556) (575)
Treasury stock - 27,017,709 and 17,813,275
shares, at cost (1,183) (756)
Total Shareholders' Equity 7,720 7,336
Total Liabilities and Shareholders' Equity $41,041 $38,422
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
1997 1996
(In Millions)
Operations
Net income $2,092 $2,014
Adjustments to reconcile net income to net
cash from operations:
Depreciation and amortization 2,921 2,819
Change in current assets and current
liabilities, excluding the effects of
acquisitions and dispositions (695) (588)
Deferred income taxes and other - net 11 147
Net cash from operations 4,329 4,392
Investing
Capital expenditures (3,330) (2,679)
Acquisitions and investments (686) (252)
Proceeds from sales of assets 17 335
Other - net (19) 40
Net cash used in investing (4,018) (2,556)
Financing
Common stock issued 216 373
Purchase of treasury stock (576) (817)
Long-term debt issued 2,268 1,656
Long-term debt and preferred securities retired (1,478) (416)
Dividends paid (1,352) (1,372)
Increase (decrease) in short-term obligations,
excluding current maturities 1,113 (1,012)
Other - net (26) 72
Net cash (used in) from financing 165 (1,516)
Increase in cash and temporary
investments 476 320
Cash and temporary investments:
Beginning of period 405 332
End of period $ 881 $ 652
Cash paid during the period for:
Interest $ 848 $717
Income taxes 907 916
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The unaudited Condensed Consolidated Financial Statements included
herein have been prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of management of the Company, the
Condensed Consolidated Financial Statements include all adjustments,
consisting only of normal recurring accruals, necessary to present
fairly the financial information for such periods. These Condensed
Consolidated Financial Statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Company's 1996 Annual Report on Form 10-K.
Reclassifications of prior year data have been made in the accompanying
condensed consolidated financial statements where appropriate to
conform to the 1997 presentation.
(2) PROPERTY SALES:
In connection with the program to sell or trade a small percentage of
nonstrategic domestic local-exchange telephone properties, during
the first quarter of 1996 GTE recorded a pre-tax gain of $12 million,
which increased net income by $8 million, or $.01 per share.
(3) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("FAS 128"), establishing standards for computing and
presenting earnings per share ("EPS"). The new standard is effective
for year-end 1997 financial statements. Upon adoption, all prior-
period EPS data, including the first three quarters of 1997, must be
restated.
The goal of FAS 128 is to standardize the EPS calculation in the United
States with those common in other countries and to simplify complex
provisions of APB Opinion No. 15, "Earnings per Share" ("APB 15").
The primary change is that the concept of primary EPS has been replaced
by basic EPS. Basic EPS is computed by dividing reported earnings
available to common stockholders by weighted average shares
outstanding. No dilution for any potentially dilutive securities is
included. Fully diluted EPS, now called diluted EPS, is still
required.
As required, GTE currently calculates EPS in accordance with APB 15.
Had GTE calculated EPS in accordance with FAS 128, basic EPS and
diluted EPS would not have been materially different than the amounts
reported as primary and fully diluted EPS in accordance with APB 15.
-10-
<PAGE>
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Derivative Financial Instruments
In January 1997, the SEC issued amendments to its rules which clarify
and expand disclosure requirements for derivative financial
instruments. As of September 30, 1997, there has been no significant
change in the market risk, or accounting policy associated with
derivative financial instruments as stated in GTE's 1996 Annual Report
on Form 10-K.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(11) Statement re: Calculation of earnings per common
share.
(12) Statement re: Calculation of the ratio of earnings to
fixed charges.
(27) Financial Data Schedule.
(b) GTE filed a report on Form 8-K dated August 15, 1997,
under Item 5, "Other Events", and Item 7, "Financial
Statements and Exhibits." No financial information was
filed with this report.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTE Corporation
.............................
(Registrant)
Date: November 14, 1997 By William M. Edwards, III
.............................
William M. Edwards, III
Vice President and Controller
Date: November 14, 1997 By Marianne Drost
.............................
Marianne Drost
Secretary
-13-
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
GTE CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(In Thousands)
<S> <C> <C> <C> <C>
Net income $756,308 $755,978 $2,092,182 $2,014,067
Adjustments to net income:
Add - Interest expense, net of tax
effect, on employees' stock plans - 900 - 1,713
Adjusted net income $756,308 $756,878 $2,092,182 $2,015,780
Average common shares 955,980 965,498 957,563 970,574
Adjustments to average common shares:
Add - Employees' stock and stock option plans 2,211 4,617 2,109 3,994
Adjusted average common shares 958,191 970,115 959,672 974,568
EARNINGS PER COMMON SHARE:
Primary (1) $.79 $.78 $2.18 $2.07
Fully diluted (2) $.79 $.78 $2.18 $2.07
(1) Computed by dividing net income for the periods 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 the exercise of those stock plans and options that would have a dilutive
effect.
(a) Equivalent common shares to be added to average shares for the employees' stock
plans, stock ownership plans and stock options are computed according to the
"treasury stock" method.
(b) Net income for the periods is adjusted to reflect the increase in income for the
interest accrued, net of tax effect, on funds received from installments under the
employees' stock plan.
</TABLE>
<PAGE>
<TABLE>
Exhibit 12
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended Years Ended December 31
September 30, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net earnings available for fixed charges:
Income from continuing operations $2,092,182 $2,798,270 $2,537,949 $2,440,869 $ 971,978 $1,760,704
Add (deduct) -
Income taxes 1,256.061 1,613,261 1,466,426 1,532,482 567,747 966,589
Interest expense 943,339 1,146,481 1,150,625 1,139,233 1,298,234 1,475,670
Capitalized interest (net of
amortization) (11,490) (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 76,807 106,643 98,604 18,252 22,162 23,429
Additional income requirement on preferred
dividends of subsidiaries 5,609 9,640 9,664 11,426 12,739 12,671
Minority interests 116,330 149,467 145,437 140,464 112,335 112,425
Portion of rent expense representing
interest 98,057 130,660 128,034 139,715 153,058 196,533
4,576,895 5,919,438 5,519,366 5,426,306 3,152,657 4,569,421
Deduct - Minority interests (206,989) (263,122) (246,678) (242,937) (236,944) (248,979)
Adjusted earnings available
for fixed charges from
continuing operations $4,369,906 $5,656,316 $5,272,688 $5,183,369 $2,915,713 $4,320,442
Fixed Charges:
Interest charges $ 943,339 $1,146,481 $1,150,625 $1,139,233 $1,298,234 $1,475,670
Dividends on preferred securities
of subsidiaries 76,807 106,643 98,604 18,252 22,162 23,429
Additional income requirement on preferred
dividends of subsidiaries 5,609 9,640 9,664 11,426 12,739 12,671
Portion of rent expense representing
interest 98,057 130,660 128,034 139,715 153,058 196,533
1,123,812 1,393,424 1,386,927 1,308,626 1,486,193 1,708,303
Deduct - Minority interests (47,569) (68,166) (70,052) (68,096) (78,421) (86,504)
Adjusted fixed charges $1,076,243 $1,325,258 $1,316,875 $1,240,530 $1,407,772 $1,621,799
Ratio of Earnings to Fixed Charges - continuing
operations 4.06 4.27 4.00 4.18 2.07 2.66
</TABLE>
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