<PAGE> 1
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, 1998
GTE HOURLY SAVINGS PLAN
GTE CORPORATION
1255 CORPORATE DRIVE
IRVING, TEXAS 75038
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
GTE Hourly Savings Plan:
We have audited the accompanying statements of net assets available for
plan benefits of the GTE Hourly Savings Plan (the "Plan") as of December 31,
1998 and 1997, and the related statement of changes in net assets available for
plan benefits for the year ended December 31, 1998. These financial statements,
and the fund information referred to below, 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 audit 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, 1998 and 1997, and the changes in net assets available for
plan benefits for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic 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
Dallas, Texas
June 18, 1999
<PAGE> 3
GTE HOURLY SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1998
(thousands of dollars)
<TABLE>
<CAPTION>
Investments in Employee Employer
Master Trust Receivables Receivable Total Assets
-------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
PARTICIPANT DIRECTED FIDELITY FUNDS:
Equity-Income Fund $ 72,574 $ 246 $ -- $ 72,820
Overseas Fund 19,274 83 -- 19,357
U.S. Equity Index Collective Trust Fund 112,689 258 -- 112,947
Retirement Government Money Market Portfolio 64,948 387 -- 65,335
Magellan Fund 143,099 474 -- 143,573
Conservative Strategy Portfolio 98,988 120 -- 99,108
Conservative Growth Strategy Portfolio 41,808 119 -- 41,927
Moderate Growth Strategy Portfolio 69,489 250 -- 69,739
Long-Term Growth Strategy Portfolio 55,493 201 -- 55,694
Aggressive Growth Strategy Portfolio 13,309 109 -- 13,418
PARTICIPANT DIRECTED OTHER FUNDS:
MAS Fixed Income Portfolio 3,215 16 -- 3,231
Morgan Stanley Inst. Equity Growth Portfolio 17,310 84 -- 17,394
Templeton Inst. Foreign Equity Fund 3,939 22 -- 3,961
Templeton Inst. Emerging Markets Fund 2,017 15 -- 2,032
Warburg Pincus Emerging Growth Fund 4,550 28 -- 4,578
GTE Stock Portfolio 316,009 613 -- 316,622
PAYSOP Fund 13,506 -- -- 13,506
NONPARTICIPANT DIRECTED OTHER FUNDS:
GTE Stock Portfolio 395,791 -- 25,723 421,514
PAYSOP Fund 324,073 -- -- 324,073
Loan Fund 79,412 -- -- 79,412
-------------- ----------- ---------- ------------
Total $ 1,851,493 $ 3,025 $ 25,723 $ 1,880,241
============== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of this financial statement
<PAGE> 4
GTE HOURLY SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1997
(thousands of dollars)
<TABLE>
<CAPTION>
Investments in Employee Employer
Master Trust Receivables Receivable Total Assets
-------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
PARTICIPANT DIRECTED FIDELITY FUNDS:
Equity-Income Fund $ 66,140 $ 229 $ -- $ 66,369
Overseas Fund 18,155 89 -- 18,244
U.S. Equity Index Collective Trust Fund 86,068 209 -- 86,277
Retirement Government Money Market Portfolio 53,234 356 -- 53,590
Magellan Fund 102,869 402 -- 103,271
Conservative Strategy Portfolio 99,636 118 -- 99,754
Conservative Growth Strategy Portfolio 36,561 117 -- 36,678
Moderate Growth Strategy Portfolio 57,675 227 -- 57,902
Long-Term Growth Strategy Portfolio 46,391 190 -- 46,581
Aggressive Growth Strategy Portfolio 9,478 77 -- 9,555
PARTICIPANT DIRECTED OTHER FUNDS:
MAS Fixed Income Portfolio 1,425 6 -- 1,431
Morgan Stanley Inst. Equity Growth Portfolio 11,018 54 -- 11,072
Templeton Inst. Foreign Equity Fund 3,561 21 -- 3,582
Templeton Inst. Emerging Markets Fund 2,098 16 -- 2,114
Warburg Pincus Emerging Growth Fund 3,486 20 -- 3,506
GTE Stock Portfolio 245,949 562 -- 246,511
PAYSOP Fund 11,736 -- -- 11,736
NONPARTICIPANT DIRECTED OTHER FUNDS:
GTE Stock Portfolio 307,202 -- 23,214 330,416
PAYSOP Fund 269,503 -- -- 269,503
Loan Fund 72,496 -- -- 72,496
-------------- ----------- ---------- ------------
Total $ 1,504,681 $ 2,693 $ 23,214 $ 1,530,588
============== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 5
GTE HOURLY SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(thousands of dollars)
<TABLE>
<CAPTION>
Participant Directed Fidelity Funds
---------------------------------------------------------------------------------
U.S. Equity Retirement
Index Government
Equity-Income Collective Money Market
Fund Overseas Fund Trust Fund Portfolio Magellan Fund
------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Interest and Dividends $ 4,118 $ 374 $ -- $ 2,946 $ 6,520
Net Investment Gain (Loss) (Note 2) 3,976 1,863 24,774 -- 28,718
Contributions (Note 3):
Employee 6,379 2,244 6,350 9,662 11,626
Employer -- -- -- -- --
Transfers (To) From Other Plans (Note 6) (222) (14) (229) (157) (210)
Net Transfers Between Funds (2,505) (2,073) 2,786 5,793 1,620
Participant Loans:
Repayments 1,483 610 1,364 4,284 3,022
Withdrawals (1,490) (528) (1,882) (3,219) (3,069)
Withdrawals and Terminations (5,288) (1,363) (6,493) (7,564) (7,925)
------------- ------------- ----------- ------------ -------------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR 6,451 1,113 26,670 11,745 40,302
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 66,369 18,244 86,277 53,590 103,271
------------- ------------- ----------- ------------ -------------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $ 72,820 $ 19,357 $ 112,947 $ 65,335 $ 143,573
============= ============= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 6
GTE HOURLY SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(thousands of dollars)
<TABLE>
<CAPTION>
Participant Directed Fidelity Funds
-----------------------------------------------------------------------------
Moderate Aggressive
Conservative Conservative Growth Long-Term Growth
Strategy Growth Strategy Strategy Growth Strategy Strategy
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ --------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Interest and Dividends $ -- $ -- $ -- $ -- $ --
Net Investment Gain (Loss) (Note 2) 6,326 4,403 10,147 8,626 1,415
Contributions (Note 3):
Employee 3,200 3,094 6,272 5,155 2,608
Employer -- -- -- -- --
Transfers (To) From Other Plans (Note 6) (103) 56 (4) (112) 49
Net Transfers Between Funds 66 720 (531) (1,815) 143
Participant Loans:
Repayments 990 847 1,389 1,185 427
Withdrawals (1,566) (794) (1,338) (1,203) (353)
Withdrawals and Terminations (9,559) (3,077) (4,098) (2,723) (426)
------------ --------------- -------- -------------- ---------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR (646) 5,249 11,837 9,113 3,863
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 99,754 36,678 57,902 46,581 9,555
------------ --------------- -------- -------------- ---------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $ 99,108 $ 41,927 $ 69,739 $ 55,694 $ 13,418
============ =============== ======== ============== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 7
GTE HOURLY SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(thousands of dollars)
<TABLE>
<CAPTION>
Participant Directed Other Funds
--------------------------------------------------------------------------------
MAS Fixed Morgan Stanley Templeton Inst. Templeton Inst. Warburg Pincus
Income Inst. Equity Foreign Equity Emerging Markets Emerging
Portfolio Growth Portfolio Fund Fund Growth Fund
--------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Interest and Dividends $ 214 $ 963 $ 267 $ 47 $ --
Net Investment Gain (Loss) (Note 2) (70) 1,368 39 (396) 263
Contributions (Note 3):
Employee 253 2,029 556 380 663
Employer -- -- -- -- --
Transfers (To) From Other Plans (Note 6) 11 (29) (35) 7 (5)
Net Transfers Between Funds 1,694 2,999 (301) (66) 316
Participant Loans:
Repayments 44 378 121 77 125
Withdrawals (24) (360) (75) (46) (89)
Withdrawals and Terminations (322) (1,026) (193) (85) (201)
--------- --------------- -------------- ---------------- --------------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR 1,800 6,322 379 (82) 1,072
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 1,431 11,072 3,582 2,114 3,506
--------- --------------- -------------- ---------------- --------------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $ 3,231 $ 17,394 $ 3,961 $ 2,032 $ 4,578
========= =============== ============== ================ ==============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 8
GTE HOURLY SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(thousands of dollars)
<TABLE>
<CAPTION>
Participant Directed Nonparticipant Directed
Other Funds Other Funds
--------------------------- -----------------------------------------------------
GTE Stock GTE Stock
Portfolio PAYSOP Fund Portfolio PAYSOP Fund Loan Fund Total
--------- ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest and Dividends $ 8,417 $ 351 $ 10,541 $ 8,423 $ 5,919 $ 49,100
Net Investment Gain (Loss) (Note 2) 76,926 2,888 82,836 74,091 -- 328,193
Contributions (Note 3):
Employee 15,689 -- -- -- -- 76,160
Employer -- -- 25,749 -- -- 25,749
Transfers (To) From Other Plans (Note 6) (321) (6) (403) (141) (354) (2,222)
Net Transfers Between Funds (8,541) (305) -- -- -- --
Participant Loans:
Repayments 9,312 -- 11,660 -- (37,318) --
Withdrawals (10,717) -- (13,421) -- 40,174 --
Withdrawals and Terminations (20,654) (1,158) (25,864) (27,803) (1,505) (127,327)
--------- --------- --------- --------- --------- ----------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
DURING THE YEAR 70,111 1,770 91,098 54,570 6,916 349,653
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 246,511 11,736 330,416 269,503 72,496 1,530,588
--------- --------- --------- --------- --------- ----------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $ 316,622 $ 13,506 $ 421,514 $ 324,073 $ 79,412 $1,880,241
========= ========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 9
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(1) Description of the Plan:
Eligibility
- -----------
The GTE Corporation ("GTE") GTE Hourly Savings Plan (the "Plan") is a
defined contribution plan under the Employee Retirement Income Security Act of
1974 ("ERISA"). The Plan provides eligible employees of GTE and its subsidiaries
("Participating Affiliates") with a convenient way to save for both medium and
long-term needs.
The Plan is generally available to any eligible employee as defined by the
plan document, of GTE or a Participating Affiliate, who either is in a unit
covered by a collective bargaining agreement that provides for participation in
the Plan, or is a nonunion hourly-paid employee that GTE or a Participating
Affiliate has agreed, by resolution of its board of directors, to co-sponsor
under the Plan. To the extent expressly provided in any written separation
policy of GTE or a Participating Affiliate, eligible employee also includes any
former employee of GTE or a Participating Affiliate who is receiving salary
continuation payments pursuant to the separation policy.
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 contributions
were made. Effective May 18, 1999 the vesting provision for the Plan changed.
See Note 7 "GTE merger with Bell Atlantic Corporation" for details. 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 one of the
following current investment options: five Fidelity funds, five Fidelity
strategy portfolios, five other funds and portfolios, the GTE stock portfolio or
in any combination of these funds and portfolios. Participants are permitted to
make changes to their investment choices on a daily basis. A description of the
investment choices follows:
a. Fidelity Equity-Income Fund - invests primarily in income-producing
equity securities, with at least 65% of the funds total assets invested in
these securities.
b. Fidelity Overseas Fund - invests primarily in foreign securities whose
principal activities are outside the United States and also invests in
public and private bonds (both foreign and domestic), bank deposits and
money market instruments denominated in United States dollars or foreign
currencies.
<PAGE> 10
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS - (continued)
c. Fidelity U.S. Equity Index Collective Trust Fund - invests in commingled
funds seeking to provide results that correspond to the total return
performance of common stocks publicly traded in the United States as
represented by the Standard & Poor's 500 Composite Stock Price Index.
d. Fidelity Retirement Government Money Market Portfolio - invests in
high-quality money market instruments and obligations issued or guaranteed
by the United States government or its agencies.
e. Fidelity Magellan Fund - invests primarily in stocks and securities
convertible into common stock of United States and foreign companies and in
high yield securities, options and futures contracts related to securities
in the portfolio.
f. Fidelity Conservative Strategy Portfolio - invests 100% of its assets in
an underlying portfolio of fixed-income securities, including investment
contracts and bonds.
g. Fidelity Conservative Growth Strategy Portfolio - invests approximately
75% of its assets in a portfolio of fixed-income securities including
investment contracts and bonds, with the remaining 25% invested in a
portfolio of United States equities.
h. Fidelity Moderate Growth Strategy Portfolio - invests approximately 50%
of its assets in a portfolio of United States equities. The remaining 50%
is invested in a portfolio of fixed-income securities, including investment
contracts and bonds.
i. Fidelity Long-Term Growth Strategy Portfolio - invests approximately 75%
of its assets in a portfolio of equity securities consisting of a
combination of United States equities (50%) and international equities
(25%). The remaining 25% is invested in a portfolio of fixed-income
securities, including investment contracts and bonds.
j. Fidelity Aggressive Growth Strategy Portfolio - invests 70% of its
assets in equities of United States companies with capitalizations ranging
from large to small. The remaining 30% is invested in companies in both
developed and emerging markets.
k. MAS Fixed Income Portfolio - invests in a variety of bonds including
United States government or agency securities, corporate bonds,
international bonds and mortgage securities.
l. Morgan Stanley Institutional Equity Growth Portfolio - invests at least
65% of its assets in equity securities, including common and preferred
stocks, convertible securities, and rights and warrants to purchase common
stocks. Up to 25% of the funds assets may be invested in foreign
securities.
m. Templeton Institutional Foreign Equity Fund - invests at least 65% of
its assets in foreign equity securities, which include common and preferred
stock, securities convertible into common and preferred stock and warrants
or rights to subscribe to or purchase such securities. Up to 35% may be
invested in debt securities.
<PAGE> 11
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
n. Templeton Institutional Emerging Markets Fund - invests at least 65% of
its assets in emerging market equity securities. The fund considers
countries having emerging markets to be all countries that are generally
considered to be developing or emerging countries by the international
financial community. Up to 35% of the funds assets may be invested in debt
securities.
o. Warburg Pincus Emerging Growth Fund - invests at least 65% of its assets
in common stocks or warrants of emerging growth companies. Emerging growth
companies are small or medium-sized companies that have passed their
start-up phase and show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time.
p. GTE Stock Portfolio - invests principally in GTE common stock, but may
also invest a portion in short-term money market instruments.
q. PAYSOP Fund - comprised of GTE common stock and a small amount of cash.
The only participant directed funds are those which were contributed by
participants between the years 1979 and 1982. All other contributions were
made by GTE. Participants cannot borrow from this fund; however, its
balance is used to determine a maximum loan amount available to
participants.
The Savings Plan Committee may, at its sole discretion, eliminate, and/or
change the underlying composition of any of the investment options, and may add
other funds as a current investment option.
Participant Accounts
- --------------------
Each participant's account is credited with the participant's contribution
and allocations of (1) Company matching contributions, (2) rollover
contributions and, (3) Plan income. Allocations are based on participant account
balances. The benefit to which a participant is entitled is the benefit that can
be provided from the participant's vested account balance.
Participant Loans
- -----------------
A loan feature is available to participants, which permits borrowing up to
50% of a participant's vested balance, subject to certain limitations. The
primary assets of the Loan Fund are 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 are reinvested according to the participants'
current investment choices. Short-term loans are from six months to five years;
long-term loans for the purchase of a primary residence are from five to twenty
years.
Master Trust
- ------------
The Plan participates in the GTE Master Savings Trust (the "Master Trust")
and, along with the GTE Savings Plan ("Savings Plan") 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, 1998 and 1997, the Plan owned
approximately 23% and 22% of the assets in the Master Trust, respectively.
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 8).
<PAGE> 12
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
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 Plan. Expenses of
administering the Plan and related funds and portfolios, including fees and
expenses of the Trustee, are charged to the participants' accounts pro rata. GTE
Service Corporation, a subsidiary of GTE, 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.
Effective January 1, 1997, participants may elect to have dividends on
certain GTE common stock paid in cash rather than reinvested in the Plan. Also,
GTE has enhanced the Plan to 16 investment choices from the 10 prior investment
choices. The investment choices added are as follows: The Fidelity Aggressive
Growth Strategy, MAS Fixed Income Portfolio, Morgan Stanley Institutional Equity
Growth Portfolio, Templeton Institutional Foreign Equity Fund, Templeton
Institutional Emerging Market Fund and Warburg Pincus Emerging Growth Fund.
(2) Accounting Policies:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which requires management to make
estimates and assumptions that affect reported amounts of assets, liabilities,
and changes therein, and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates. Certain reclassifications have been
made to prior-year data to conform to the current year presentation.
Investments are stated at market value determined from publicly stated
price information obtained from the New York Stock Exchange at or near the close
of business. Investments are recorded on the trade date. Guaranteed investment
contracts are stated at cost plus accrued interest or contract value. 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 at the beginning of
the Plan year or at the time of purchase if acquired during the Plan year. For
1998, the GTE Stock Portfolio had a realized gain of $10.7 million and an
unrealized gain of $149.1 million.
Benefits are recorded when paid. Benefits are payable in a lump sum cash
payment unless a participant elects, in writing, one of the three optional forms
of benefit payment which include: (1) a lump sum in GTE shares for investments
in the GTE Stock Portfolio, with the balance in cash; (2) annual, semiannual,
quarterly, or monthly installments in cash of approximately equal amounts to be
paid out for a period of 2 to 20 years, as selected by the participant; or (3)
for those participants eligible to receive their distribution in installments as
described in (2) above, a pro rata portion of each installment payment in GTE
shares for investments in the GTE Stock Portfolio, with the balance of each
installment in cash.
<PAGE> 13
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
(3) Contributions:
The Plan is funded by employee contributions up to a maximum of 16% of
compensation and by company matching contributions in shares of GTE common stock
ranging from 50% to 75%, depending on the collective bargaining agreement, of
the initial 6% of the participants' contributions of eligible compensation each
payroll period not withdrawn, or distributed during the Plan year. The company
matching contributions are credited following the close of each calendar year to
the accounts of participants who have not terminated their active participation.
Effective May 18, 1999 the company matching provisions for the Plan changed. See
Note 7 "GTE merger with Bell Atlantic Corporation" for details. Participant
contributions may be before tax ("Elective Contributions") or from currently
taxed compensation ("After-Tax Contributions").
Each participant's Elective Contributions for the 1998 Plan year was
limited to $10,000. The total amount of Elective Contributions, After-Tax
Contributions and company matching contributions and certain forfeitures that
may be allocated to a Plan participant for the 1998 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 GTE contributions were based was limited to
$160,000.
GTE matching contributions are made in GTE common stock and in general,
participants cannot redirect these shares into other investment choices. For the
1998 Plan year, total company matching contributions of 386,444 shares of GTE
common stock were made with a market value at date of contribution of $25.7
million.
(4) Related Party Transactions:
Certain Plan investments are shares of mutual funds managed by the Trustee.
Therefore, those transactions qualify as party-in-interest, but they are subject
to an exemption to the party-in-interest rules. Fees paid by the Plan for
investment management services amounted to $609,468 for the 1998 Plan year.
(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 has received a determination
letter dated January 12, 1998, from the Internal Revenue Service to the effect
that the Plan, as amended, qualifies under Sections 401(a), 401(k), and 501 of
the Code.
(6) Transfers (To) From Other Plans:
In 1998, transfers out of the Plan consist primarily of assets of
participants who became eligible to participate in the Savings Plan.
(7) GTE Merger with Bell Atlantic Corporation:
On July 27, 1998, GTE and Bell Atlantic entered into a merger agreement
providing for a combination of the two companies. Under terms of the agreement,
which was unanimously approved by the boards of directors of both companies, GTE
shareholders will receive 1.22 shares of Bell Atlantic stock for each GTE share
they own. The merger is subject to regulatory approvals.
On May 18, 1999, GTE shareholders approved the merger. As a result of the
affirmation, certain protective change in control provisions were triggered
which will remain in effect for at least one year. These provisions include: 1)
past and future company matching contributions become immediately vested as soon
as they are posted to participants' accounts, 2) participants do not have to be
employed on the last day of the Plan year to be eligible for the match, and 3)
company matching contributions will be posted to participants' accounts on a
monthly basis. They will be immediately available for withdrawals, loans, etc.,
in accordance with the Plan provisions. The Plan will continue in its current
form for at least one year, however, company matching contributions after the
merger is completed may be made in shares of the combined company stock.
<PAGE> 14
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
(8) GTE Master Savings Trust:
The plans participating in the Master Trust include the GTE Savings Plan
and the GTE Hourly Savings Plan.
In the Master Trust, funds are invested in guaranteed income contracts
which represented 65% of the conservative pool consisting of 65 investment
contracts held with 23 insurance companies and financial institutions. Standard
& Poor's as of December 31, 1998 and 1997 rated these insurance companies A and
AA- or better, respectively. The contracts are included in the financial
statements at contract value, approximately $630 million and $603 million, which
approximates fair value, as reported by the insurance companies at December 31,
1998 and 1997, respectively.
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 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 7.14% and 6.80% at December
31, 1998 and 1997, respectively. The crediting interest rate for the investment
contracts had a range from 5.60% to 8.06% and 5.56% to 7.45% at December 31,
1998 and 1997 respectively. The investment contracts have scheduled maturities
from April 15,1999 to November 3, 2003. No valuation reserve was recorded at
December 31, 1998 and 1997 to adjust contract amounts.
The following schedules reflect the Master Trust net investments by fund as
of December 31, 1998 and 1997 and investment income for the year ended December
31, 1998:
<PAGE> 15
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
December 31,
----------------------------
Investments in Master Trust: 1998 1997
------------ -----------
(thousands of dollars)
<S> <C> <C>
Fidelity funds:
- ---------------
Equity - Income Fund $ 416,640 $ 405,308
Overseas Fund 115,669 113,064
U.S. Equity Index Collective Trust Fund 481,136 358,229
Retirement Government Money Market Portfolio 190,236 157,201
Magellan Fund 705,251 521,831
Conservative Strategy Portfolio 435,108 427,254
Conservative Growth Strategy Portfolio 280,303 260,408
Moderate Growth Strategy Portfolio 476,466 417,013
Long-Term Growth Strategy Portfolio 382,397 333,442
Aggressive Growth Strategy Portfolio 72,144 58,325
Other funds:
- ------------
MAS Fixed Income Portfolio 30,452 11,355
Morgan Stanley Inst. Equity Growth Portfolio 90,653 58,832
Templeton Inst. Foreign Equity Fund 31,490 29,604
Templeton Inst. Emerging Markets Fund 9,658 12,377
Warburg Pincus Emerging Growth Fund 36,808 26,805
GTE Stock Portfolio 2,065,709 1,659,221
ESOP Shares Fund Allocated 526,409 373,446
ESOP Shares Fund Unallocated 877,872 761,520
PAYSOP Fund 658,335 557,894
Loan Fund 208,527 197,161
------------ -----------
Total $ 8,091,263 $ 6,740,290
============ ===========
</TABLE>
<PAGE> 16
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------
Dividends Net Investment
Investment Income in Master Trust: & Interest Gain (Loss)
------------ --------------
(thousands of dollars)
<S> <C> <C>
Fidelity funds:
- ---------------
Equity - Income Fund $ 24,103 $ 24,565
Overseas Fund 2,249 11,712
U.S. Equity Index Collective Trust Fund -- 105,350
Retirement Government Money Market Portfolio 8,696 --
Magellan Fund 32,337 143,311
Conservative Strategy Portfolio -- 27,492
Conservative Growth Strategy Portfolio -- 30,324
Moderate Growth Strategy Portfolio -- 71,905
Long-Term Growth Strategy Portfolio -- 61,059
Aggressive Growth Strategy Portfolio -- 8,030
Other funds:
- ------------
MAS Fixed Income Portfolio 1,992 (699)
Morgan Stanley Inst. Equity Growth Portfolio 5,091 7,232
Templeton Inst. Foreign Equity Fund 2,169 492
Templeton Inst. Emerging Markets Fund 224 (2,260)
Warburg Pincus Emerging Growth Fund -- 1,977
GTE Stock Portfolio 52,524 470,999
ESOP Shares Fund Allocated 14,394 141,808
ESOP Shares Fund Unallocated 25,876 176,902
PAYSOP Fund 16,789 151,424
Loan Fund 15,724 --
------------ --------------
Total $ 202,168 $ 1,431,623
============ ==============
</TABLE>
<PAGE> 17
GTE HOURLY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
(9) Assets Held for Investment:
As of December 31, 1998 and 1997, the net asset value of investments
included in the financial statements consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
---------- ----------
Net Net
Asset Asset
Value Units Value Units
-------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Fidelity funds:
- ---------------
Equity - Income Fund $ 55.55 1,306,455 $ 52.41 1,261,967
Overseas Fund 35.98 535,684 32.54 557,921
U.S. Equity Index Collective Trust Fund 34.84 3,234,495 27.06 3,180,653
Retirement Government Money Market Portfolio 1.00 64,947,749 1.00 53,234,498
Magellan Fund 120.82 1,184,388 95.27 1,079,756
Conservative Strategy Portfolio 14.82 6,680,419 13.88 7,178,463
Conservative Growth Strategy Portfolio 18.27 2,288,324 16.33 2,238,834
Moderate Growth Strategy Portfolio 22.24 3,124,509 18.92 3,048,329
Long-Term Growth Strategy Portfolio 24.07 2,305,474 20.29 2,286,411
Aggressive Growth Strategy Portfolio 13.53 983,684 11.91 795,694
Other funds:
- ------------
MAS Fixed Income Portfolio 11.71 274,607 11.92 119,552
Morgan Stanley Inst. Equity Growth Portfolio 19.05 908,676 16.94 650,377
Templeton Inst. Foreign Equity Fund 17.76 221,761 17.36 205,093
Templeton Inst. Emerging Markets Fund 8.31 242,796 10.37 202,534
Warburg Pincus Emerging Growth Fund 39.97 113,857 37.77 92,295
GTE Stock Portfolio 19.45 36,604,221 15.16 36,491,231
PAYSOP Fund 14.52 23,243,412 11.26 24,975,019
</TABLE>
<PAGE> 18
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 HOURLY SAVINGS PLAN
-----------------------
(Name of Plan)
Date June 25, 1999 By Paul R. Shuell
----------------- ---------------------------------
(Paul R. Shuell)
Vice President and Controller
<PAGE> 19
INDEX TO EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
23.1 Consent of Arthur Andersen
<PAGE> 1
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 Statements on Form S-8 (File Nos. 33-65025 and 333-43025).
ARTHUR ANDERSEN LLP
Dallas, Texas
June 25, 1999
