GTE Remains on Target with Third Quarter Earnings per Share Growth of 14 Percent
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IRVING, Texas. -- GTE Corporation reported strong third quarter 1999 financial results, with earnings per share (EPS) from consolidated operations of 97 cents, an increase of
14 percent over the year-ago quarter, on net income of $952 million. These results exclude a net after-tax gain of $416 million or 42 cents per share, primarily from the sale of its Government Systems business unit. Including this gain, net income was
$1.4 billion with EPS of $1.39. Consolidated revenue was $6.4 billion in the third quarter compared to adjusted revenue of $6 billion in the third 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, "Our financial performance in the third quarter was excellent. Our business expanded profitably with 8 percent revenue growth and EPS growth of 14 percent, while we implemented our ongoing cost containment measures. We are on track to deliver our targeted earnings growth in the
13-15 percent range.
"The third quarter is evidence that we continue to make significant progress in our drive to transform GTE into a tier one growth company in our industry," said Mr. Lee. During the quarter, GTE completed the sale of substantially all of its Government Systems business to General Dynamics and reached additional agreements for the previously announced sale of non-strategic wireline properties.
To date, GTE has entered into agreements for the sale of 1.4 million access lines of the original 1.6 million to be sold. "As we near completion of our repositioning effort, I am pleased with the excellent prices the buyers have agreed to pay for these properties, exceeding our expectations and allowing us to generate after-tax proceeds in excess of
$4 billion once the transactions are complete. These funds will be used to invest in higher growth Internet, data and wireless businesses," said Mr. Lee.
On October 8, GTE completed its previously announced acquisition of the Ameritech wireless properties located primarily in the Chicago and St. Louis areas. "Once our merger with Bell Atlantic is completed, our wireless properties will complement the new national business being created by Bell Atlantic and Vodafone AirTouch, creating the nation's premier wireless company," he said.
On GTE's merger with Bell Atlantic, Mr. Lee noted that progress toward its completion is gaining momentum. "Bell Atlantic's application to the FCC to provide long-distance services in New York is critical because it accelerates our ability to work with the FCC to get our merger approved, which we expect to occur in the first quarter 2000." Earlier this week, the New York Public Service Commission gave its full support to Bell Atlantic's FCC filing.
In the third quarter, consolidated revenue increased $464 million or 8 percent over adjusted revenue in the third quarter of 1998. Major contributors to this revenue growth include:
- Internetworking data revenue growth of $134 million or 89 percent;
- Long distance, video and CLEC revenue growth of $110 million or 39 percent;
- International consolidated revenue growth of $76 million or 19 percent, with proportionate revenue growth of $230 million or 31 percent;
- Network Services data revenue growth of $74 million or 30 percent;
- Wireless revenue growth of $163 million or 21 percent (11 percent, normalizing for incollect revenue recognition);
- Consumer vertical services revenue growth of 14 percent from products such as Caller ID;
- Continued customer growth, including:
Total as of
Global access lines
Global wireless customers*
* Represents domestic totals plus international proportionate access lines and wireless customers. All other statistics U.S. only.
In the quarter, consolidated adjusted operating income was $1.7 billion, an increase of $181 million or 12 percent over the same quarter last year. The increase resulted from revenue growth and the favorable effects of continuing cost-cutting initiatives. Operating income includes the losses associated with GTE's continuing investments in its data and competitive local exchange company (CLEC) initiatives.
GTE's national operations generated adjusted operating income of $1.5 billion in the third quarter, an increase of $83 million over the same quarter last year. National operations revenue increased $416 million to $6 billion over the same period. The major business units delivering these results include:
Revenues in the third quarter at Network Services of $3.9 billion were equal to the same quarter last year, partially due to the unfavorable impact of directory publication timing differences and certain regulatory issues recorded in the year-ago quarter. Excluding these items, revenue increased 2 percent, consistent with the growth experienced in the last two quarters. Revenue increases from growth in access lines, minutes of use, data services and vertical services were offset by mandated price reductions and intraLATA toll erosion.
In the third quarter, data services revenue of $322 million grew by $74 million or
30 percent from the third quarter of 1998. Data services revenue includes special access data lines, frame relay, CyberPOPSM and ADSL.
In July, GTE introduced a new ADSL package called Bronze PlusSM that includes GTE's Internet access service at transmission speeds up to 768 kilobits per second for
$49.95 a month. By the end of the year, ADSL will be available from more than 550 central offices, representing approximately 6 million qualified lines or 30 percent of the company's total switched access lines. At the end of the quarter, the company had more than 35,000 ADSL subscribers.
Over the past 12 months, total access lines grew 10 percent, fueled by business switched access line growth of 8 percent and special access line growth of 39 percent. The strong growth in access lines reflects the underlying economic strength of the company's wireline markets. Minutes of use were up 7 percent compared to the same quarter last year. Through successful promotions, the consumer vertical services revenue growth rate in the third quarter has increased from the last two quarters to 14 percent.
Offsetting the revenue increases were mandated federal and state price reductions of approximately $59 million in the quarter and approximately $319 million over the past
12 months. In addition, toll revenue decreased $43 million or 21 percent largely due to intraLATA toll competition from long-distance carriers. GTE has successfully limited competitive losses in its local market, losing to resale approximately 324,000 or 1 percent of the company's 25.4 million domestic access lines. Moreover, of these, over half were resold through GTE's CLEC.
Operating income at Network Services was $1.5 billion, an increase of $218 million or
17 percent over the same quarter last year. Continuing cost-cutting initiatives, including the favorable settlement of employee benefit obligations resulting from the employee reduction program that was initiated in the first quarter of 1999, have eased cost pressures from access line growth and other cost of service increases.
Wireless Products and Services
In the first quarter of this year, GTE introduced its flat-rate, expanded footprint GTE CHOICESM pricing plans, targeting high-value customers and positioning the company as a national competitor. Favorable customer response to the GTE CHOICE plans has generated increased revenue, higher customer growth, and sustained average revenue per user per month.
Third quarter Wireless revenues were $945 million with gross customer additions increasing 33 percent and net customer additions increasing 135 percent over the same period last year. Wireless subscribers increased by 511,000, an 11 percent gain over the year-ago quarter. Average revenue per user per month held steady at $48 per month as a result of the appeal and structure of the GTE CHOICE plans with their bundled-minute roaming options.
A short-term effect of the success of GTE's expanded footprint plans has been an increase in roaming costs as well as additional customer acquisition expenses, which have impacted profit margins in the quarter. As a result of these increased costs, operating cash flow decreased by $51 million or 18 percent in the third quarter to $238 million. GTE expects these roaming costs to significantly decline as the company gains a broader national footprint through previously announced strategic actions, and takes advantage of the new generation of CDMA phones that improve flexibility by enabling providers to switch roaming partners more quickly. Furthermore, excluding roaming costs, ongoing process and productivity improvements continue to improve Wireless' cost profile, with operating expense per customer dropping to $25 per month in the quarter compared to an average of $29 per month in 1998.
Internetworking revenue was $285 million in the third quarter, an increase of
$134 million or 89 percent from the same quarter last year.
Revenue from business services, which include Web hosting, virtual private networks and e-business, increased 82 percent from the third quarter last year. In September, GTE introduced BizConnectSM, a new service that provides small and medium businesses fully-managed dedicated Internet access service with T-1 speeds for up to 40 percent less than comparable services.
Revenues from networking services provided to on-line and Internet service providers increased over 50 percent from the year-ago quarter. In addition, GTE's national fiber network increased revenue 53 percent in the third quarter from both wholesale customers and voice and data traffic migrated from GTE's other business units. Revenue from GTE's consumer ISP, GTE.net, increased 48 percent over the year-ago quarter.
Internetworking revenue does not include data revenue from other business units, such as traditional data circuits, CyberPOP and ADSL sold by Network Services. Combined data revenue from all business units increased to $653 million in the quarter, providing annualized data revenue of $2.6 billion.
The operating loss from Internetworking in the third quarter of $142 million increased $32 million from the same quarter last year due to increased depreciation of the national fiber network, acquisition costs from a growing customer base and start-up costs associated with new service offerings.
Other National Operations
Third quarter revenue for GTE's CLEC, long-distance, video and large business accounts was $391 million, an increase of $110 million or 39 percent from the same quarter last year. This revenue growth was driven in part by a 27 percent increase in the number of long-distance customers over the past 12 months, ending the quarter with 3.2 million customers. By the end of the quarter, GTE's CLEC had achieved a new milestone of
239,000 customers of bundled telecommunication services. GTE's basic bundle, called GTE UnlimitedSM, includes local, long-distance and vertical services, such as call waiting and Caller ID, while enhanced bundles include Internet access and wireless services.
International operations net income for the third quarter was $144 million, an increase of 26 percent from the same quarter last year. Proportionate revenues grew to $981 million in the quarter, an increase of $230 million or 31 percent from the same quarter last year. GTE's investment in the Puerto Rico Telephone Company and continued customer growth throughout the Latin American and Asian markets contributed to this increase. Strong demand for prepaid wireless services in Latin America and rapid growth of the Taiwan wireless operations, which surpassed the 2 million customer mark in less than two years after start-up, contributed to a 94 percent increase in proportionate wireless customers from the same quarter last year.
During the quarter, GTE continued its integration of the Puerto Rico Telephone Company, leveraging GTE systems and processes. Examples include implementation of a new wireless billing system, a pilot program for service order systems which, when fully implemented, is expected to reduce order entry call time up to 30 percent and the expansion to off-island long-distance. In Argentina, construction commenced on the Buenos Aires PCS wireless network, which is expected to be operational during the first quarter of 2000.
With 1998 revenue of more than $25 billion, GTE is a leading telecommunications provider with one of the industry's broadest arrays of products and services. In the United States, GTE provides local service in 28 states and wireless service in 18 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 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 GTE's assumptions, actual results could vary significantly from the performance projected in these forward-looking statements.
The following important factors could affect future results and could cause those results to differ materially from those expressed in this announcement: materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; material changes in available technology; the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, universal service, and unbundled network element and resale rates; the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; the success of our efforts to expand 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; the success and expense of our remediation efforts and those of our suppliers, customers, joint ventures, noncontrolled investments, and interconnecting carriers in achieving Year 2000 compliance; the timing of, and regulatory or other conditions associated with, the completion of our merger with Bell Atlantic and our ability to combine operations and obtain revenue enhancements and cost savings following the merger; and the timing of, and regulatory or other conditions associated with, the completion of the wireless joint venture between Bell Atlantic Corporation and Vodafone AirTouch Plc, and the ability of the new wireless enterprise to combine operations and obtain revenue enhancements and cost savings.
GTE's Current Report on Form 8-K dated September 21, 1999 and Report on Form 10-Q for the quarter ended June 30, 1999 discuss in greater detail the important factors that could cause its actual results to differ materially.