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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: August 26, 1999
(Date of earliest event reported)
GTE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW YORK 1-2755 13-1678633
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
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1255 Corporate Drive, SVC04C08, Irving, Texas 75038
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
Registrant's telephone number, including area code 972-507-5000
(Former name, former address and former fiscal year, if changed since last
report)
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GTE CORPORATION
FORM 8-K
Item 7. Financial Statements and Exhibits
(a) Financial Statements - None
(b) Pro Forma Financial Information - None
(c) Exhibits
99 Unaudited pro forma combined condensed financial statements for
GTE Corporation and Bell Atlantic Corporation for the six-month
period ended June 30, 1999.
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SIGNATURE
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: August 26, 1999 /s/Paul R. Shuell
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Paul R. Shuell
Vice President and Controller
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
99 Unaudited pro forma combined condensed financial statements for
GTE Corporation and Bell Atlantic Corporation for the six-month
period ended June 30, 1999.
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EXHIBIT 99
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma financial statements that follow are for GTE
Corporation (GTE) and Bell Atlantic Corporation (Bell Atlantic) for the six-
month period ended June 30, 1999 in connection with the proposed merger of GTE
and Bell Atlantic. You may find unaudited pro forma statements of income for the
years ended December 31, 1998, 1997 and 1996 and an unaudited pro forma balance
sheet at December 31, 1998 in the GTE and Bell Atlantic joint proxy statement
and prospectus filed with the Securities and Exchange Commission and dated April
13, 1999. Bell Atlantic has supplied all information contained in this Report on
Form 8-K relating to Bell Atlantic and GTE has supplied all information relating
to GTE.
The following unaudited pro forma combined condensed financial statements
are presented assuming that the merger of GTE and Bell Atlantic will be
accounted for as a pooling of interests. Under this method of accounting, the
companies are treated as if they had always been combined for accounting and
financial reporting purposes. These unaudited pro forma financial statements
have been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and accompanying notes of GTE and Bell
Atlantic, which are included in the companies' Annual Reports on Form 10-K for
the year ended December 31, 1998 and quarterly reports on Form 10-Q for the
quarterly periods ended March 31, 1999 and June 30, 1999. The unaudited pro
forma financial information is presented for illustration purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had been completed at the dates indicated. The
information does not necessarily indicate the future operating results or
financial position of the combined company.
We prepared the following unaudited pro forma financial data by adding or
combining the historical amounts of each company and adjusting the combined
amounts for significant differences in accounting methods used by each company.
These adjustments are described in the accompanying notes to the financial
statements. We prepared the unaudited pro forma combined balance sheet by
combining the balance sheets of GTE and Bell Atlantic at June 30, 1999, giving
effect to the merger as if it had occurred on June 30, 1999. The unaudited pro
forma combined condensed statement of income gives effect to the merger as if it
had occurred at the beginning of the earliest period presented. The terms of
the merger specify that each share of GTE common stock will be converted into
the right to receive 1.22 shares of combined company common stock. This
exchange ratio was used in computing certain of the pro forma adjustments and in
computing share and per share amounts in the accompanying unaudited pro forma
financial information.
As a result of the merger, the combined company will incur direct
incremental and transition costs, currently estimated at $1.6 billion to $2.0
billion, in connection with completing the transaction and integrating the
operations of GTE and Bell Atlantic. These costs consist principally of systems
modification costs, costs associated with the elimination and consolidation of
duplicate facilities, employee severance and relocation resulting from the
merger, branding, compensation arrangements, and professional and registration
fees. While the exact timing, nature and amount of these costs is subject to
change, we anticipate that the combined company will record a charge of
approximately $375 million for direct incremental costs in the quarter in which
the merger is completed. This estimated charge is comprised of the following
amounts:
Direct Incremental Costs (Dollars in millions)
- ------------------------ ---------------------
Compensation arrangements $206
Professional services 85
Shareowner-related costs 32
Registration and other regulatory costs 27
Other costs 25
----
Total $375
====
The direct incremental merger-related costs have been reflected as an increase
to "Other current liabilities" (approximately $258 million) and a reduction to
"Other current assets" (approximately $117 million) in the unaudited pro forma
combined balance sheet as of June 30, 1999. The after-tax cost of this
anticipated charge (approximately $310 million) has been reflected as a
reduction in "Reinvested earnings" in the unaudited pro forma combined balance
sheet as of June 30, 1999.
1
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Transition costs of $1.2 billion to $1.6 billion, to be incurred over the
three years following the completion of the merger, are not reflected in the
unaudited pro forma financial information. The transition costs are comprised
of the following estimated amounts:
(Dollars in millions)
---------------------
Cost Range
---------------------
Transition Costs Low High
- -------------------------------- --- ----
Severance and relocation $ 560 $ 650
Systems integration 375 525
Branding 150 200
Real estate consolidation 75 125
Staff integration and training 65 125
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Total $1,225 $1,625
====== ======
Although the precise timing of the transition costs is uncertain, we expect that
approximately one-half of these costs will be incurred in the first 12 months
following the close of the merger, one-third will be incurred in the second
succeeding 12-month period and the remainder will be incurred in the third
succeeding 12-month period following the close of the merger.
The unaudited pro forma financial data also does not include: (a) any of the
anticipated revenue increases, or expense or capital savings resulting from the
integration of the operations of GTE and Bell Atlantic; (b) any costs incurred,
consideration received, or dispositions made in connection with actions that may
be taken regarding certain overlapping wireless properties as a result of
regulatory or contractual issues associated with the merger; or (c) any
dispositions required as a result of regulatory or contractual requirements.
On January 31, 1999, BC TELECOM, Inc., a majority-owned subsidiary of GTE,
merged with TELUS Corporation to create a growth-oriented telecommunications
company. The merged company is called TELUS (formerly known as BCT.TELUS
Communications, Inc.). Under terms of the merger agreement, GTE's ownership
interest in the merged company is approximately 27%. Accordingly, during the
first quarter of 1999, GTE deconsolidated BC TELECOM and accounted for its
investment in TELUS under the equity method of accounting. As a result of the
transaction, GTE recorded a one-time, after-tax gain of $308 million during the
first quarter of 1999. This gain was partially offset by a special charge of
$119 million after-tax for employee separation programs completed in the first
quarter of 1999. The charge included separation and related benefits such as
outplacement and benefit continuation costs for approximately 3,000 employees.
During 1998, GTE committed to a plan to sell some of its business operations,
including GTE Government Systems, a supplier of government and defense
communications systems; GTE Airfone, a provider of aircraft-passenger
telecommunications, and approximately 1.6 million non-strategic telephone access
lines in thirteen states.
. On June 22, 1999, GTE entered into an agreement with General Dynamics to
sell a substantial portion of GTE Government Systems Corporation for $1.05
billion. On June 24, 1999, GTE entered into an agreement with Oak Hill
Capital Partners, L.P. to sell GTE Airfone. Both sales, which are subject
to normal regulatory approvals, are expected to close in 1999. The net
assets of GTE Government Systems and GTE Airfone are classified as "Net
assets held for sale" in the pro forma combined balance sheet. Other than
the classification of these assets as held for sale, the pro forma
information that follows has not been adjusted to reflect these
transactions. Government Systems revenues and operating income were $732
million and $43 million, respectively, for the first six months of 1999.
Revenues from GTE Airfone were $74 million for the six months ended June
30, 1999.
2
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. As of August 19, 1999, GTE has entered into definitive agreements to sell
944,035 switched access lines located in Alaska, Arizona, Arkansas,
California, Iowa, Minnesota, Missouri and Wisconsin. During the remainder
of 1999, GTE plans to enter into agreements to sell the remaining access
lines, which are located in Illinois, Nebraska, New Mexico, Oklahoma and
Texas. All sales are contingent upon final agreements and regulatory
approvals, with all sales expected to close by June 30, 2000. The
associated net property, plant and equipment of all GTE access lines to be
sold of $1.6 billion has been reclassified as "Net assets held for sale" in
the pro forma combined balance sheet. Other than the classification of
these assets as held for sale, the pro forma information that follows has
not been adjusted to reflect these transactions. The 1.6 million access
lines represent approximately 7% of the average switched access lines that
GTE had in service during 1998 and contributed approximately 4% to GTE's
1998 consolidated revenues.
On April 5, 1999, GTE announced that it would acquire Ameritech
Corporation's wireless properties in Chicago, St. Louis and central Illinois.
GTE will pay $3.27 billion in cash for the properties, which will include 1.7
million subscribers and more than 11 million potential wireless customers. These
properties will be 93% owned by GTE and 7% owned by Davenport Cellular
Communications LLC, a company wholly-owned by Georgetown partners. This
transaction is expected to be slightly dilutive to GTE's earnings per share in
the first year and the dilution for the combined company on a pro forma basis
would be insignificant. The pro forma information that follows has not been
adjusted to reflect this transaction. On a pro forma basis, the annual revenues
and operating income for the properties to be acquired represent approximately
3% and 2% of 1998 consolidated revenues and operating income for GTE and the
combined company, respectively. The timing of the purchase is dependent on the
closing of the SBC Communications Inc. merger with Ameritech Corporation, which
is expected during the second half of 1999. This purchase will be financed by
the above-mentioned sales of non-strategic assets by GTE, which are expected to
generate after-tax proceeds aggregating in excess of $4 billion.
On July 27, 1999, Bell Atlantic's Board of Directors approved an agreement
with Cable & Wireless plc (Cable & Wireless), NTL Incorporated (NTL) and Cable &
Wireless Communications plc (CWC) for the proposed restructuring of CWC. The
completion of the restructuring is subject to a number of conditions. Under the
terms of the agreement, CWC's consumer cable telephone, television and Internet
operations would be separated from its corporate, business, Internet protocol
and wholesale operations. The consumer operations would be acquired by NTL and
the remainder by Cable & Wireless. In exchange for Bell Atlantic's 18.6%
interest in CWC, they would receive shares in the two acquiring companies,
representing approximately 11.2% of NTL and approximately 4.7% of Cable &
Wireless. Upon completion of the restructuring, Bell Atlantic's previously
issued $3,180 million in CWC exchangeable notes would be exchangeable on and
after July 1, 2002 for shares in NTL and Cable & Wireless in proportion to that
received in the restructuring. Upon exchange by investors, Bell Atlantic retains
the option to settle in cash or by delivery of the Cable & Wireless and NTL
shares. Upon completion of the restructuring, Bell Atlantic expects this
transaction to result in a material non-cash gain. The transaction also may
cause the exchangeable notes to be marked-to-market, resulting in a charge to
income. The pro forma information that follows has not been adjusted to reflect
this transaction.
On August 3, 1999, Bell Atlantic and Vodafone AirTouch Plc announced an
agreement to restructure their ownership interests in PrimeCo Personal
Communications, L.P. (PrimeCo), a partnership that was formed by Bell Atlantic
and Vodafone AirTouch in 1994 and provides personal communications services in
major cities across the United States. Under the terms of the agreement, Bell
Atlantic will assume ownership of PrimeCo operations in five "major trading
areas" (MTAs)-Richmond, VA, New Orleans, LA and the Florida markets in
Jacksonville, Tampa and Miami. Vodafone AirTouch will take over operations in
five MTAs-Chicago, IL, Milwaukee, WI and the Texas markets of Dallas, San
Antonio and Houston. Bell Atlantic expects to complete the allocation of the
PrimeCo markets in the fourth quarter of 1999 or in the first quarter of 2000.
Under a consent decree with the Department of Justice in connection with the
merger, Bell Atlantic and GTE are required to divest of overlapping wireless
properties that both companies own or will own in various geographic areas. The
division of the PrimeCo markets is a significant step toward meeting these
conditions. Upon settlement, Bell Atlantic expects this transaction to result in
a material non-cash gain. The pro forma information that follows has not been
adjusted to reflect this transaction.
3
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Cautionary Statement Regarding Forward-Looking Statements
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This pro forma financial information contains forward-looking statements.
For each of these statements, GTE claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. If future events and actual performance differ materially from
GTE's assumptions, actual results could vary significantly from the performance
projected in these forward-looking statements.
The following important factors could affect the future results of GTE, and
could cause these results to differ materially from those expressed in this
proforma financial information: materially adverse changes in economic
conditions; material changes in available technology; the final resolution of
certain federal, state and local regulatory initiatives and proceedings
pertaining to, among other matters, the terms of interconnection, access
charges, universal service, unbundled network elements and resale rates; the
effects of competition in GTE's markets; the success of GTE's efforts in
achieving Year 2000 compliance; and the success of GTE's efforts to expand its
service capability in the data communication, long-distance and enhanced
services segments of the telecommunications marketplace and to provide a bundle
of products and services both in and outside of its traditional service
territories.
GTE's Report on Form 10-Q for the quarter ended June 30, 1999 discusses in
greater detail the important factors that could cause its actual results to
differ materially.
4
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COMBINED COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1999
(Unaudited)
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Historical Historical Pro Forma Pro Forma
(Dollars in Millions) Bell Atlantic GTE Adjustments Combined
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Assets
Current assets
Cash and temporary cash investments $ 512 $ 473 $ $ 985
Receivables, net 6,722 4,399 11,121
Net assets held for sale --- 1,817 1,817
Other current assets 1,504 1,238 (117) (3b)
65 (3e) 2,690
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8,738 7,927 (52) 16,613
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Plant, property and equipment, net 37,786 21,932 (184) (3d) 59,534
Investments in unconsolidated businesses 5,929 3,813 9,742
Other assets 5,420 10,092 15,512
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Total assets $57,873 $43,764 $ (236) $101,401
=========================================================
Liabilities and Shareowners' Investment
Current liabilities
Debt maturing within one year $ 3,558 $ 4,599 $ $ 8,157
Accounts payable and accrued liabilities 5,955 4,748 10,703
Other current liabilities 1,479 904 258 (3b) 2,641
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10,992 10,251 258 21,501
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Long-term debt 17,381 14,297 31,678
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Employee benefit obligations 9,962 4,259 14,221
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Deferred credits and other liabilities 4,606 4,896 (70) (3e) 9,432
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Shareowners' investment
Common stock (2,767,315,652 shares) 158 50 69 (3a) 277
Contributed capital 13,444 8,301 (1,011) (3a) 20,734
Reinvested earnings 2,294 3,489 (310) (3b)
(114) (3d) 5,359
Accumulated other comprehensive income (loss) 160 (356) (196)
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16,056 11,484 (1,366) 26,174
Less common stock in treasury, at cost 631 942 (942) (3a) 631
Less deferred compensation - employee
stock ownership plans 493 481 974
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Total shareowners' investment 14,932 10,061 (424) 24,569
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Total liabilities and shareowners' investment $57,873 $43,764 $ (236) $101,401
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See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
5
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COMBINED COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Six Months ended June 30, 1999
(Unaudited)
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Historical Historical Pro Forma Pro Forma
(Dollars in Millions, Except Per Share Amounts) Bell Atlantic GTE Adjustments Combined
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Operating revenues $16,262 $12,167 $28,429
Operating expenses 12,037 9,024 $(18) (3d) 21,043
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Operating income 4,225 3,143 18 7,386
Income from unconsolidated businesses 71 198 269
Other income and (expense), net 23 (44) (21)
Interest expense 630 645 1,275
Provision for income taxes 1,374 964 7 (3e) 2,345
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Income from continuing operations $ 2,315 $ 1,688 $ 11 $ 4,014
=========================================================
Basic Earnings Per Common Share
Income from continuing operations per common share $ 1.50 $ 1.74 $ 1.47
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Weighted-average shares outstanding (in millions) 1,553 971 214 (3c) 2,738
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Diluted Earnings Per Common Share
Income from continuing operations per common share $ 1.47 $ 1.73 $ 1.45
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Weighted-average shares - diluted (in millions) 1,582 978 214 (3c) 2,774
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See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
6
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Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Note 1 - Reclassifications
Reclassifications have been made to the historical financial statements to
conform to the presentation expected to be used by the combined company.
Note 2 - Exchange Ratio
The terms of the merger agreement specify that each outstanding share of GTE
common stock will be converted into 1.22 shares of combined company common
stock. This exchange ratio was used in computing share and per share amounts in
the accompanying pro forma financial information.
Note 3 - Pro Forma Adjustments
(a) A pro forma adjustment has been made to reflect the issuance of 1,191
million shares of combined company common stock in exchange for all
outstanding shares of GTE common stock as per the exchange ratio stated in
Note 2, above. The adjustment also reflects the cancellation of shares of
GTE treasury stock, but does not reflect the impact of fractional shares.
(b) A pro forma adjustment has been made to reflect direct incremental merger-
related costs. Amounts anticipated to be incurred (approximately $258
million) have been shown as an increase to "Other current liabilities."
Amounts incurred through June 30, 1999 by GTE and Bell Atlantic
(approximately $117 million) have been shown as a reduction to "Other
current assets." The after-tax cost of this anticipated charge
(approximately $310 million) has been reflected as a reduction in
"Reinvested earnings." See "Unaudited Pro Forma Combined Condensed
Financial Statements" for more information related to merger-related costs.
(c) Pro forma adjustments have been made to the number of weighted average
shares outstanding used in the calculation of basic and diluted earnings
per share. The number of weighted average shares outstanding reflects the
conversion of shares and share equivalents of GTE common stock into
combined company common stock in accordance with the merger agreement.
(d) Pro forma adjustments have been made to conform GTE's accounting policies
for certain computer software costs to Bell Atlantic's policies.
(e) Pro forma adjustments have been made for the estimated tax effects of the
adjustments discussed in (b) and (d) above.
(f) There are no significant intercompany transactions between GTE and Bell
Atlantic.
7
