GTE reports record 11% growth in revenues; double-digit EPS growth in core operations: strong gains in customers and demand for services

STAMFORD, Conn. GTE Corp. today announced its third quarter financial results, stating that its strong earnings are driven by the continued excellent performance of its core businesses backed by strong growth in new service initiatives. Earnings per share from core operations increased 10 percent during the quarter, to 86 cents per share on net income of $824 million, as compared to 78 cents per share reported in 1996. Including the effects of the previously announced data initiatives, reported earnings per share of 79 cents was one cent higher than the prior year on net income of $756 million. During the quarter, consolidated revenues and sales increased by 11 percent to $5.94 billion, compared to $5.34 billion in the third quarter of the prior year. Excluding the $127 million of new revenues related to the new data initiatives, consolidated revenues and sales grew 8.8 percent.

"These results illustrate our success in positioning GTE for the future," said GTE Chairman and Chief Executive Officer Charles R. Lee. "Revenue growth from our core operations of 8.8 percent surpasses the five-year quarterly record of 7.5 percent set just last quarter; and the growth of 11 percent is the largest rate of growth since the early 1980s," Lee added. "Such record-setting growth highlights the strength of our core businesses and our ability to deliver a number of new competitive service offerings. Having packaged local, long distance and data for more than a year now, GTE leads the industry in providing bundled services. Thats the wave of the telecom future."

"The BBN acquisition, completed during the quarter, represents the cornerstone of GTEs strategy to become a dominant player in the data market. The acquisition is critical to our strategy to become a leading national provider of integrated telecommunications services. In this quarter alone, the BBN acquisition contributed significantly toward the $127 million of new Internetworking revenues," Lee added. "Im pleased with our progress in integrating the BBN organization, as well as the enthusiasm, dedication and creativity these employees bring to GTE," Lee said.

Consolidated Revenues and Sales Grow 11%

"The consistent double-digit earnings growth from our core businesses is driven by the industry-leading demand for access lines and record growth in minutes of use, as well as a sizable increase in the number of customers for other products and services," Lee said.

"The 430,000 customers who selected our domestic cellular, long-distance, Internet access and video services in the last quarter are the best indicators of GTEs ability to compete in the new environment," Lee said. "All of these customers had a choice of providers, and they chose GTE," Lee added. "GTEs ability to provide its customers with a single point of contact and a single bill for packages of service will be expanded further as we add new products, including data.

"Revenues from our international subsidiaries in Canada and the Dominican Republic also have posted strong gains," Lee said. Consolidated international revenues grew 9 percent, reaching $746 million in the quarter, led by 41 percent growth in cellular customers, partially offset by competitive pressure on toll revenues. "In addition, our international joint ventures also continue to grow," Lee added. "For example, CTI -- GTEs equity investment in Argentina -- has more than doubled its cellular-customer base from September 1996, due to effective marketing programs and an improving economy."

The major factors contributing to the increase in consolidated revenues and sales over the prior year include:

• $127 million of revenue related to GTE Internetworking -- data operations -- powered by the BBN acquisition;
• 8% growth (1.6 million lines) in domestic access lines, including 6% growth (944,000 lines) in switched access and 28% growth in special access lines; at September 30, 1997, GTE served 21% more second lines than a year ago;
• Record 16% growth in domestic access minutes of use for long-distance calling -- to 20.4 billion minutes;
• $176 million growth (57%) in sales of new and expanded services, including voice messaging, Caller ID, Call Waiting, long distance, and video. Penetration levels based upon capable lines for voice messaging, Caller ID and Call Waiting were 12%, 19% and 42%, respectively;
• 1.5 million long-distance customers (with more than 1 million customers added in the last 12 months, including 221,000 added during the quarter);
• 26% growth in domestic cellular customers (893,000 new customers in the last 12 months, and 140,000 new customers added in the quarter).

Domestic network revenues, which include GTEs wireline and wireless operations, increased by $238 million, or 7 percent, to $3.68 billion for the third quarter, compared with $3.44 billion in the year-ago quarter. Domestic telephone revenues grew 9 percent, reaching $3.82 billion in the quarter, compared to $3.51 billion in the prior year. In addition, non-network telephone revenues and sales grew by 16 percent to $785 million, driven by higher equipment sales, new and expanded services, and directory-publication fees.

Domestic cellular-service revenues totaled $641 million in the quarter, $34 million, or 6 percent, higher than the prior year. At the end of September 1997, GTE had 4,286,000 domestic cellular customers, an increase of 893,000, or 26 percent, over the prior year. For the quarter, revenues per subscriber averaged $51, which was lower than the $61 average for the third quarter of 1996, reflecting the impact of competitive promotions and pricing plans. Fraud expense has been significantly reduced in the quarter, resulting in a 12 percent year-to-date improvement.

Operating Income

GTEs core operating income grew 9.8 percent to $1.59 billion, despite higher selling and marketing expenses associated with the growth in wireless and new initiatives. New initiatives, such as long distance, video, PCS and GTE SuperPages, as well as GTEs new national sales, service and marketing activities, reduced operating income by $110 million from the third quarter of 1996. In addition, operating income related to GTEs cellular business was impacted by increased competition.

"We have responded quickly to significant price competition in our cellular business, particularly from the new PCS entrants. The impact of competition has caused a slight reduction in our operating margins compared to the prior year. We are aggressively responding to this competition with the introduction of a number of new pricing plans and promotions. In addition, we are accelerating the migration of traffic to a new digital network, as well as continuing our efforts to reduce costs and customer churn," Lee said.

Reported consolidated operating income of $1.49 billion was 3 percent higher than the $1.45 billion in 1996, resulting from the continued growth in GTEs core businesses, partially offset by higher costs associated with the new initiatives, including the data strategy.

Nine-Month Results

For the nine months of 1997, core revenues grew 8 percent to $16.78 billion and operating income grew 8 percent to $4.37 billion. On a reported basis, consolidated revenues and sales increased 8.5 percent to $16.91 billion, while operating income increased 5 percent to $4.24 billion. New initiatives such as long distance, video, PCS and GTE SuperPages, as well as the new national sales, service and marketing activities, reduced operating income by $236 million over the same period in 1996.

Earnings per share from core operations grew 11 percent to $2.28 per share on $2.19 billion of net income, excluding the effects of the data initiatives and gains on the 1996 sales of non-strategic telephone properties. Including the impact of the data initiatives and the 1996 gains on property sales, reported earnings per share grew 5 percent in 1997, to $2.18 per share on net income of $2.09 billion, compared with 1996 results of $2.07 per share on net income of $2.01 billion.

About GTE

With revenues of more than $21 billion in 1996, 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, the company serves over 7 million customers. GTE is also a leader in government and defense communications systems and equipment, directories and telecommunications-based information services, and aircraft-passenger telecommunications.

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STAMFORD, Conn. GTE Corp. today announced its third quarter financial results, stating that its strong earnings are driven by the continued excellent performance of its core businesses backed by strong growth in new service initiatives. Earnings per share from core operations increased 10 percent during the quarter, to 86 cents per share on net income of $824 million, as compared to 78 cents per share reported in 1996. Including the effects of the previously announced data initiatives, reported earnings per share of 79 cents was one cent higher than the prior year on net income of $756 million. During the quarter, consolidated revenues and sales increased by 11 percent to $5.94 billion, compared to $5.34 billion in the third quarter of the prior year. Excluding the $127 million of new revenues related to the new data initiatives, consolidated revenues and sales grew 8.8 percent.

"These results illustrate our success in positioning GTE for the future," said GTE Chairman and Chief Executive Officer Charles R. Lee. "Revenue growth from our core operations of 8.8 percent surpasses the five-year quarterly record of 7.5 percent set just last quarter; and the growth of 11 percent is the largest rate of growth since the early 1980s," Lee added. "Such record-setting growth highlights the strength of our core businesses and our ability to deliver a number of new competitive service offerings. Having packaged local, long distance and data for more than a year now, GTE leads the industry in providing bundled services. Thats the wave of the telecom future."

"The BBN acquisition, completed during the quarter, represents the cornerstone of GTEs strategy to become a dominant player in the data market. The acquisition is critical to our strategy to become a leading national provider of integrated telecommunications services. In this quarter alone, the BBN acquisition contributed significantly toward the $127 million of new Internetworking revenues," Lee added. "Im pleased with our progress in integrating the BBN organization, as well as the enthusiasm, dedication and creativity these employees bring to GTE," Lee said.

Consolidated Revenues and Sales Grow 11%

"The consistent double-digit earnings growth from our core businesses is driven by the industry-leading demand for access lines and record growth in minutes of use, as well as a sizable increase in the number of customers for other products and services," Lee said.

"The 430,000 customers who selected our domestic cellular, long-distance, Internet access and video services in the last quarter are the best indicators of GTEs ability to compete in the new environment," Lee said. "All of these customers had a choice of providers, and they chose GTE," Lee added. "GTEs ability to provide its customers with a single point of contact and a single bill for packages of service will be expanded further as we add new products, including data.

"Revenues from our international subsidiaries in Canada and the Dominican Republic also have posted strong gains," Lee said. Consolidated international revenues grew 9 percent, reaching $746 million in the quarter, led by 41 percent growth in cellular customers, partially offset by competitive pressure on toll revenues. "In addition, our international joint ventures also continue to grow," Lee added. "For example, CTI -- GTEs equity investment in Argentina -- has more than doubled its cellular-customer base from September 1996, due to effective marketing programs and an improving economy."

The major factors contributing to the increase in consolidated revenues and sales over the prior year include:

• $127 million of revenue related to GTE Internetworking -- data operations -- powered by the BBN acquisition;
• 8% growth (1.6 million lines) in domestic access lines, including 6% growth (944,000 lines) in switched access and 28% growth in special access lines; at September 30, 1997, GTE served 21% more second lines than a year ago;
• Record 16% growth in domestic access minutes of use for long-distance calling -- to 20.4 billion minutes;
• $176 million growth (57%) in sales of new and expanded services, including voice messaging, Caller ID, Call Waiting, long distance, and video. Penetration levels based upon capable lines for voice messaging, Caller ID and Call Waiting were 12%, 19% and 42%, respectively;
• 1.5 million long-distance customers (with more than 1 million customers added in the last 12 months, including 221,000 added during the quarter);
• 26% growth in domestic cellular customers (893,000 new customers in the last 12 months, and 140,000 new customers added in the quarter).

Domestic network revenues, which include GTEs wireline and wireless operations, increased by $238 million, or 7 percent, to $3.68 billion for the third quarter, compared with $3.44 billion in the year-ago quarter. Domestic telephone revenues grew 9 percent, reaching $3.82 billion in the quarter, compared to $3.51 billion in the prior year. In addition, non-network telephone revenues and sales grew by 16 percent to $785 million, driven by higher equipment sales, new and expanded services, and directory-publication fees.

Domestic cellular-service revenues totaled $641 million in the quarter, $34 million, or 6 percent, higher than the prior year. At the end of September 1997, GTE had 4,286,000 domestic cellular customers, an increase of 893,000, or 26 percent, over the prior year. For the quarter, revenues per subscriber averaged $51, which was lower than the $61 average for the third quarter of 1996, reflecting the impact of competitive promotions and pricing plans. Fraud expense has been significantly reduced in the quarter, resulting in a 12 percent year-to-date improvement.

Operating Income

GTEs core operating income grew 9.8 percent to $1.59 billion, despite higher selling and marketing expenses associated with the growth in wireless and new initiatives. New initiatives, such as long distance, video, PCS and GTE SuperPages, as well as GTEs new national sales, service and marketing activities, reduced operating income by $110 million from the third quarter of 1996. In addition, operating income related to GTEs cellular business was impacted by increased competition.

"We have responded quickly to significant price competition in our cellular business, particularly from the new PCS entrants. The impact of competition has caused a slight reduction in our operating margins compared to the prior year. We are aggressively responding to this competition with the introduction of a number of new pricing plans and promotions. In addition, we are accelerating the migration of traffic to a new digital network, as well as continuing our efforts to reduce costs and customer churn," Lee said.

Reported consolidated operating income of $1.49 billion was 3 percent higher than the $1.45 billion in 1996, resulting from the continued growth in GTEs core businesses, partially offset by higher costs associated with the new initiatives, including the data strategy.

Nine-Month Results

For the nine months of 1997, core revenues grew 8 percent to $16.78 billion and operating income grew 8 percent to $4.37 billion. On a reported basis, consolidated revenues and sales increased 8.5 percent to $16.91 billion, while operating income increased 5 percent to $4.24 billion. New initiatives such as long distance, video, PCS and GTE SuperPages, as well as the new national sales, service and marketing activities, reduced operating income by $236 million over the same period in 1996.

Earnings per share from core operations grew 11 percent to $2.28 per share on $2.19 billion of net income, excluding the effects of the data initiatives and gains on the 1996 sales of non-strategic telephone properties. Including the impact of the data initiatives and the 1996 gains on property sales, reported earnings per share grew 5 percent in 1997, to $2.18 per share on net income of $2.09 billion, compared with 1996 results of $2.07 per share on net income of $2.01 billion.

About GTE

With revenues of more than $21 billion in 1996, 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, the company serves over 7 million customers. GTE is also a leader in government and defense communications systems and equipment, directories and telecommunications-based information services, and aircraft-passenger telecommunications.