GTE Continues Strong Financial Performance; On Track to Meet 1999 EPS Objectives
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IRVING, Texas. -- GTE Corp. announced its first quarter 1999 financial results, with earnings per share (EPS) from consolidated operations of 74 cents on net income of $723 million, an increase of 14 percent over the year-ago quarter, excluding the special and extraordinary items that affected both periods. Including these items, reported EPS for the quarter was 90 cents, compared to a loss of 18 cents in the year-ago quarter. Consolidated revenues were $5.9 billion during the first quarter compared with adjusted revenues of $5.5 billion in the first quarter of 1998, an increase of 8 percent. (Reported and adjusted results are described in the associated financial statements and accompanying notes.)
GTE Chairman and CEO Charles R. Lee said, "GTEs performance in the first quarter is on track with our objective to achieve 13 to 15 percent EPS growth in 1999. These results were generated by strong growth in our new initiatives, such as data, where we already have made significant investments, as well as by the continued solid performance of our core wireline and wireless operations. Moreover, since the start of the year, we have substantially advanced our strategy to become a top-tier provider of telecommunications services with global reach."
In the first quarter, GTE took several key steps in support of this strategy, including: announcing plans to acquire approximately half of Ameritechs wireless operations; finalizing the companys investment in the Puerto Rico Telephone Company; enhancing efficiencies; reaching the 100,000 customer milestone with our competitive local exchange company (CLEC); achieving a larger presence in Canada from the merger of GTEs majority-owned Canadian subsidiary, BC TELECOM, with TELUS; and announcing plans to sell GTEs Government Systems business.
Mr. Lee said, "Through these actions, we are improving our national and global presence, while enhancing our future growth potential."
GTEs consolidated revenues in the first quarter grew $413 million or 8 percent over adjusted revenues from the same quarter last year. Major contributors to this revenue growth include:
- Domestic access line growth of 2.1 million, or approximately 10 percent, for a total of 24 million access lines. This includes 5 percent growth in switched access lines and 35 percent growth in special access lines;
- Domestic access minutes of use growth of 1.8 billion minutes, or 9 percent;
- GTE Internetworking data revenue growth of $100 million, or 81 percent;
- Long-distance revenue growth of $62 million, or 51 percent;
- Wireline revenue from vertical services, such as call waiting, Caller ID and voice messaging, grew to a new high of $183 million;
- Continued domestic customer growth, including:
Total as of
last 12 months
Internet billable subscribers
CLEC bundled customers
Consolidated adjusted operating income for the first quarter of 1999 was $1.4 billion, an increase of $147 million, or 12 percent, over the same period in 1998. The increase resulted from domestic and international revenue growth as well as ongoing productivity improvements. Operating income was impacted by continuing investments in new growth opportunities, including costs associated with data initiatives and our competitive local exchange company (CLEC), as well as customer-acquisition costs in the long-distance and wireless markets.
As previously indicated, in the first quarter of 1999, GTE recorded an after-tax gain of $308 million (31 cents per share), resulting from the merger of GTEs majority-owned Canadian subsidiary, BC TELECOM, with TELUS. GTEs ownership interest in the merged company, called BCT.TELUS Communications, Inc., is 26.7 percent. This gain was partially offset by an after-tax special charge of $119 million (12 cents per share) associated with employee separation programs completed earlier this month, including separation and related benefits for just over 3,000 employees. These employee separation programs are part of previously announced cost-cutting initiatives, which will generate in excess of $600 million in annual savings. Also, in March 1999, GTE called $338 million in high-coupon debt prior to stated maturity, resulting in an after-tax extraordinary charge of $30 million (3 cents per share).
Lee said, "Our national operations remain healthy. Core telephone businesses are providing the underlying operational strength that enables us to invest in high-growth opportunities, while our data, long-distance and CLEC businesses provide an engine for future growth."
For the quarter, GTEs national operations continued to perform strongly with revenues increasing to $5.5 billion and adjusted operating income increasing to $1.2 billion. The major business segments generating these results include:
Network Services revenues for the quarter increased by $84 million, or 2 percent, to $3.7 billion. Revenue growth has been sustained by minutes of use growth of 9 percent and access line growth of approximately 10 percent from the same quarter last year. Residential and business switched access lines grew by almost 900,000, or 5 percent, and special access lines increased by 1.2 million, or 35 percent.
Traditional and enhanced network data services generated revenue growth of $77 million, or 39 percent. These services include special access lines, such as T-1 connections, DS-1s and DS-3s, as well as ISDN and CyberPOPSM. GTE continues to offer new data products and services, including one of the largest deployments of ADSL, which provides customers with ultra-fast Internet access. GTE currently offers ADSL service through 412 central offices in 17 states.
Offsetting these revenue increases were mandated federal and state price reductions of approximately $76 million in the quarter and approximately $322 million over the past 12 months. In addition, revenue has been reduced by competition, which continues in GTEs intraLATA toll and local markets. Competition in the local market is evidenced by the loss to-date of approximately 102,000 of the companys 24 million domestic access lines to resale by non-GTE companies.
Adjusted operating income was $1.3 billion, an increase of $46 million, or 4 percent, over the year-ago quarter, primarily due to revenue increases. Continuing cost-cutting initiatives will mitigate the impact of price reductions and cost pressures from access line growth, and allow operating income margins to be preserved in the mid-30 percent range throughout the remainder of the year.
Wireless Products and Services
Domestic wireless revenues for the quarter were $816 million compared to $742 million in the year-ago quarter. Wireless subscribers grew by 347,000, an 8 percent increase over the past 12 months. Partially offsetting the impact of subscriber growth was a reduction in the average revenues per subscriber per month from $48 to $46, a result of an increasingly competitive market. Operating cash flow margin in the first quarter was 39 percent, down from 42 percent in the same period last year, but consistent with the 1998 annual performance of 39 percent. Process improvements have reduced upward cost pressures associated with customer growth and retention programs, such as the introduction of GTE CHOICESM.
Introduced in January, GTE CHOICE offers customers easy-to-understand, flat-rate, competitive pricing plans with coverage options tailored to meet a variety of customer needs. Initial customer response has been very favorable in retaining high-value customers.
GTEs planned acquisition of approximately half of Ameritechs wireless properties, announced in April, will expand GTEs wireless footprint and increase the subscriber base by more than one-third, enabling greater economies of scale in an increasingly competitive industry and enhancing the companys ability to offer wireless services on a national basis.
Data Products and Services
GTE Internetworking revenues grew to $223 million in the first quarter, an increase of $100 million, or 81 percent, over the first quarter of 1998. These revenues do not include traditional Network Services data businesses, such as T-1 connections and ISDN dedicated access, or BBN Technologies, a GTE unit that provides contract research to defense and government customers. Combined data revenue from all business segments grew to $544 million in the first quarter, providing annualized data revenues in excess of $2 billion.
GTEs consumer Internet access business continued its rapid growth with 590,000 billable subscribers by the end of the quarter, increasing over 100 percent and generating additional revenue of $22 million from the year-ago quarter. Business services revenue increased 46 percent or $16 million from the first quarter last year. In addition, revenues increased 66 percent over the prior-year quarter from networking services provided to America Online.
In the small and medium-sized business market, GTE Internetworking introduced GTE Business HostingSM and GTE Security AdvantageSM. GTE Business Hosting provides Web-hosting services for businesses just starting a Web site or those wishing to expand existing Web sites into more feature-rich sites. GTE Security Advantageprovides small and medium-sized businesses with the same high level Internet security as large corporations for up to 70 percent less than traditional outsourced Internet security services. Also, in February, GTE introduced the industrys most rigorous service guarantees for Internet connectivity. Business customers will receive credits for service in the event they experience transmission delays, information loss or degradation in network availability.
GTEs national fiber network build-out is on schedule, with more than two-thirds of the planned 17,000-mile network activated. This private network enables high-speed, secure transport services for both retail and wholesale customers. GTE is migrating both data and voice traffic currently carried on leased facilities to this network.
Other National Operations
First quarter revenue for our CLEC, long-distance, video and strategic accounts initiatives was $341 million, an increase of $126 million, or 59 percent, over the first quarter of 1998. This revenue growth was driven in part by a 40 percent increase in the number of long-distance customers over the past 12 months. GTE ended the quarter with 2.8 million long-distance customers. GTE's CLEC, now operating in 8 states, generated revenue growth by providing bundled local, long-distance, wireless, paging, and Internet services to more than 108,000 customers by the end of the quarter, an increase of 184 percent over the past 12 months.
International operations adjusted net income for the quarter was $133 million, an increase of $48 million, or 56 percent from the first quarter last year. Strong proportionate revenue growth and improved operational efficiencies contributed to the favorable performance. Proportionate revenue of $818 million in the first quarter increased $160 million or 24 percent from the same quarter last year. GTEs investment in the Puerto Rico Telephone Company and increased ownership in CTI Holdings, an Argentine wireless company, contributed approximately half of the proportionate revenue growth. Increased demand for both wireline and wireless services throughout the companys Latin American operations contributed the balance of the increase.
On March 2, 1999, a GTE-led consortium, including the Puerto Rican bank, Popular Inc., completed its purchase of 50 percent-plus-one share of Puerto Rico Telephone Company (PRTC). PRTC serves 1.3 million access lines and has 229,000 wireless subscribers. In addition to local and wireless service, PRTC provides long-distance, paging, and Internet access services. GTE owns 40 percent of PRTC.
Mr. Lee said, "We are pleased with the performance of our international operations. The continued strength of these businesses is adding significantly to our overall results and positions us to consider new avenues of expansion."
With 1998 revenues of more than $25 billion, GTE is a leading telecommunications provider with one of the industrys broadest arrays of products and services. In the United States, GTE provides local service in 28 states and wireless service in 17 states, as well as nationwide long-distance, directory, and internetworking services ranging from dial-up Internet access for residential and small-business consumers to Web-based applications for Fortune 500 companies. Outside the United States, the company serves customers on five continents.
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Note: All references noted above to earnings per share (EPS) reflect diluted earnings per share.
A copy of this release and associated tables can be found on the Internet at www.gte.com
This announcement 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 GTEs 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 announcement: 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 GTEs markets; the success of GTEs efforts in achieving Year 2000 compliance; and the success of GTEs 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.
GTEs Annual Report on Form 10-K for the year ended December 31, 1998 discusses in greater detail the important factors that could cause its actual results to differ materially.