3rd Qtr & 9 Mths Rslts - Strong Q3 -Part 2
GTE CORPORATION
21 October 1999
PART TWO
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In Millions, Except Per-Share Amounts)
Unaudited
Third Quarter 1999
--------------------------------
Reported Adjustments Adjusted
--------------------------------
REVENUES AND SALES $ 6,428 $ - $ 6,428
OPERATING COSTS AND EXPENSES
Cost of services and sales 2,808 - 2,808
Selling, general & administrative 1,027 - 1,027
Depreciation and amortization 920 - 920
Special items (705) 705 (3) -
--------------------------------
TOTAL OPERATING COSTS AND EXPENSES 4,050 705 4,755
--------------------------------
OPERATING INCOME 2,378 (705) 1,673
OTHER (INCOME) EXPENSE
Interest - net 309 - 309
Other - net (89) - (89)
--------------------------------
INCOME BEFORE INCOME TAXES 2,158 (705) 1,453
Income taxes 790 (289) (3) 501
--------------------------------
NET INCOME $ 1,368 $ (416) $ 952
================================
DILUTED EARNINGS PER COMMON SHARE $ 1.39 $ (.42) (3) $ .97
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 986 - 986
See accompanying Notes to Consolidated Adjusted
Statements of Income
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In Millions, Except Per-Share Amounts)
Unaudited
Third Quarter 1998
-----------------------------------
Reported Adjustments Adjusted
-----------------------------------
REVENUES AND SALES $ 6,480 $ (516)(1)(2) $ 5,964
OPERATING COSTS AND EXPENSES
Cost of services and sales 2,617 (217)(1)(2) 2,400
Selling, general & administrative 1,250 (88)(1)(2) 1,162
Depreciation and amortization 963 (53)(1)(2) 910
Special items - - -
-----------------------------------
TOTAL OPERATING COSTS AND EXPENSES 4,830 (358) 4,472
-----------------------------------
OPERATING INCOME 1,650 (158) 1,492
OTHER (INCOME) EXPENSE
Interest - net 312 (1)(2) 311
Other - net 10 (93)(1)(2) (83)
-----------------------------------
INCOME BEFORE INCOME TAXES 1,328 (64) 1,264
Income taxes 506 (64)(2) 442
-----------------------------------
NET INCOME $ 822 $ - $ 822
===================================
DILUTED EARNINGS PER COMMON
SHARE $ .85 $ - $ .85
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 968 - 968
See accompanying Notes to Consolidated Adjusted Statements of
Income
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In Millions, Except Per-Share Amounts)
Unaudited
Third Quarter Adjusted
------------------------ Adjusted
1999 1998 % Change
---------------------------------
REVENUES AND SALES $ 6,428 $ 5,964 7.8
OPERATING COSTS AND EXPENSES
Cost of services and sales 2,808 2,400 17.0
Selling, general & administrative1,027 1,162 (11.6)
Depreciation and amortization 920 910 1.1
Special items - - -
---------------------------------
TOTAL OPERATING COSTS AND EXPENSES 4,755 4,472 6.3
---------------------------------
OPERATING INCOME 1,673 1,492 12.1
OTHER (INCOME) EXPENSE
Interest - net 309 311 (.6)
Other - net (89) (83) 7.2
---------------------------------
INCOME BEFORE INCOME TAXES 1,453 1,264 15.0
Income taxes 501 442 13.3
---------------------------------
NET INCOME $ 952 $ 822 15.8
=================================
DILUTED EARNINGS PER COMMON SHARE $ .97 $ .85 14.1
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 986 968 1.9
See accompanying Notes to Consolidated Adjusted
Statements of Income
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In Millions, Except Per-Share Amounts)
Unaudited
Nine Months Ended September 30, 1999
------------------------------------
Reported Adjustments Adjusted
------------------------------------
REVENUES AND SALES $ 18,595 $ - $ 18,595
OPERATING COSTS AND EXPENSES
Cost of services and sales 8,130 - 8,130
Selling, general &
administrative 3,224 - 3,224
Depreciation and amortization 2,746 - 2,746
Special items (1,026) 1,026(3)(4) -
------------------------------------
TOTAL OPERATING COSTS AND
EXPENSES 13,074 1,026 14,100
------------------------------------
OPERATING INCOME 5,521 (1,026) 4,495
OTHER (INCOME) EXPENSE
Interest - net 924 - 924
Other - net (213) - (213)
------------------------------------
INCOME BEFORE INCOME TAXES 4,810 (1,026) 3,784
Income taxes 1,754 (421)(3)(4) 1,333
------------------------------------
INCOME BEFORE
EXTRAORDINARY CHARGES 3,056 (605) 2,451
Extraordinary charges (30) 30 (6) -
------------------------------------
NET INCOME $ 3,026 $ (575) $ 2,451
====================================
DILUTED EARNINGS PER COMMON
SHARE $ 3.09 $ (.59)(3)(4)(6)$ 2.50
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - ASSUMING
DILUTION 980 - 980
--------------------------
See accompanying Notes to Consolidated Adjusted Statements of
Income
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In Millions, Except Per-Share Amounts)
Unaudited
Nine Months Ended September 30, 1998
------------------------------------
Reported Adjustments Adjusted
------------------------------------
REVENUES AND SALES $ 18,642 $ (1,334)(1)(2)$ 17,308
OPERATING COSTS AND EXPENSES
Cost of services and sales 7,786 (484)(1)(2) 7,302
Selling, general
& administrative 3,552 (244)(1)(2) 3,308
Depreciation and amortization 2,875 (159)(1)(2) 2,716
Special items 755 (755)(5) -
------------------------------------
TOTAL OPERATING COSTS AND
EXPENSES 14,968 (1,642) 13,326
------------------------------------
OPERATING INCOME 3,674 308 3,982
OTHER (INCOME) EXPENSE
Interest - net 912 (1)(2) 911
Other - net 54 (268)(1)(2) (214)
------------------------------------
INCOME BEFORE INCOME TAXES 2,708 577 3,285
Income taxes 1,071 95(2)(5) 1,166
------------------------------------
INCOME BEFORE
EXTRAORDINARY CHARGES 1,637 482 2,119
Extraordinary charges (320) 320(7) -
------------------------------------
NET INCOME $ 1,317 $ 802 $ 2,119
====================================
DILUTED EARNINGS PER COMMON
SHARE $ 1.36 $ .83(5)(7) $ 2.19
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 967 - 967
See accompanying Notes to Consolidated Adjusted Statements of
Income
GTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In Millions, Except Per-Share Amounts)
Unaudited
Adjusted Nine
Months Ended September 30,
------------------------------
Adjusted
1999 1998 % Change
---------------------------------------
REVENUES AND SALES $ 18,595 $ 17,308 7.4
OPERATING COSTS AND EXPENSES
Cost of services and sales 8,130 7,302 11.3
Selling, general
& administrative 3,224 3,308 (2.5)
Depreciation and amortization 2,746 2,716 1.1
Special items - - -
---------------------------------------
TOTAL OPERATING COSTS
AND EXPENSES 14,100 13,326 5.8
---------------------------------------
OPERATING INCOME 4,495 3,982 12.9
OTHER (INCOME) EXPENSE
Interest - net 924 911 1.4
Other - net (213) (214) (.5)
---------------------------------------
INCOME BEFORE INCOME TAXES 3,784 3,285 15.2
Income taxes 1,333 1,166 14.3
---------------------------------------
INCOME BEFORE
EXTRAORDINARY CHARGES 2,451 2,119 15.7
Extraordinary charges - - -
---------------------------------------
NET INCOME $ 2,451 $ 2,119 15.7
=======================================
DILUTED EARNINGS PER
COMMON SHARE $ 2.50 $ 2.19 14.2
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 980 967 1.3
See accompanying Notes to Consolidated Adjusted Statements of
Income
GTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(1) On September 1, 1999, GTE completed the sale of
substantially all of its Government Systems business to General
Dynamics. Reported results for 1999 include eight months of
activity associated with these units. For comparative purposes,
third quarter and year-to-date revenues and operating expenses for
1998 have been adjusted to exclude activity for the month of
September for the Government Systems units sold. Net income
and EPS for 1998 are not affected by these adjustments as they
were added back into Other (Income) Expense.
(2) BC TELECOM, a majority-owned Canadian subsidiary of GTE,
merged with TELUS on January 31, 1999. GTE's ownership interest
in the merged company, TELUS, is 26.7%; therefore, during the
first quarter of 1999, GTE deconsolidated BC TELECOM and began
accounting for the investment in TELUS using the equity method
of accounting. In addition, during the fourth quarter of 1998,
GTE increased its ownership interest in CTI Holdings, an
Argentine wireless company, and began accounting for CTI
Holdings on a consolidated basis. For consistency, third
quarter and year-to-date 1998 revenues and expenses have been
adjusted to reflect the current method of accounting for these
investments. Net income and EPS are not affected by these
adjustments.
(3) Reported results for 1999 include special items of $705
million, recorded in the third quarter, which include the gain
associated with the sale of substantially all of the Government
Systems business on September 1, 1999 to General Dynamics for
$1.03 billion in cash, partially offset by a special charge
related to the impairment of assets associated with new product
development. The after-tax impact of these special items is
$416 million or $.42 per diluted share.
(4) Reported results for 1999 include a pretax gain of $513
million, recorded in the first quarter, associated with the merger
of BC TELECOM with TELUS on January 31, 1999. The after-tax
impact of this gain is $308 million, or $.32 per diluted share.
Reported results for 1999 also include special charges of $192
million ($119 million after-tax, or $.12 per diluted share),
recorded in the first quarter, associated with employee
separation programs completed in early April 1999. The charges
include separation and related benefits such as outplacement and
benefit continuation costs.
(5) Reported results for 1998 include special charges of $755
million ($482 million after-tax, or $.50 per diluted share)
related to asset impairments, the cost of exiting certain
business activities and employee related costs recorded during
the first quarter of 1998.
(6) In March 1999, GTE Corporation repurchased $338 million in
high-coupon debt prior to stated maturity, resulting in an
after-tax extraordinary charge during the first quarter of $30
million, or $.03 per diluted share.
7) Reported results for 1998 include after-tax extraordinary
charges of $320 million, or $.33 per diluted share, resulting
from the discontinued use of Statement of Financial Accounting
Standards No. 71, 'Accounting for the Effects of Certain Types
of Regulation' (SFAS No. 71), by GTE's Canadian operations, and
the early retirement of long-term debt and preferred stock
recorded during the first quarter of 1998.
Note: Reclassifications and restatements of prior period operating
statistics on the following schedules have been made, where
appropriate, to conform to the 1999 presentation.
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions, Except Per-Share Amounts)
Unaudited
Third Quarter
-------------------- Percent
CONSOLIDATED OPERATIONS 1999 1998 Change
----------------------------------------------------------------
Financial data (1)
--------------------
Revenues and sales $ 6,428 $ 5,964 7.8
Operating income $ 1,673 $ 1,492 12.1
Depreciation and amortization 920 910 1.1
--------------------------------
Operating cash flow $ 2,593 $ 2,402 8.0
================================
Operating cash flow margin 40.3 % 40.3 % -
Capital expenditures $ 1,172 $ 1,363 (14.0)
Operating statistics (2)
------------------------
Per share data:
Dividends .47 .47 -
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions, Except Per-Share Amounts)
Unaudited
Nine Months Ended
September 30,
------------------- Percent
CONSOLIDATED OPERATIONS 1999 1998 Change
---------------------------------------------------------------
Financial data (1)
---------------------
Revenues and sales $ 18,595 $ 17,308 7.4
Operating income $ 4,495 $ 3,982 12.9
Depreciation and amortization 2,746 2,716 1.1
-------------------------------
Operating cash flow $ 7,241 $ 6,698 8.1
===============================
Operating cash flow margin 38.9 % 38.7 % -
Capital expenditures $ 3,304 $ 3,772 (12.4)
Operating statistics (2)
--------------------------
Return on equity (3) 41.8 % 25.8 % -
Return on investment (3) 16.5 % 10.3 % -
Debt ratio 63.3 % 64.3 % -
Per share data:
Book value $ 11.19 $ 8.51 31.5
Dividends 1.41 1.41 -
Common shares outstanding at
end of period (thousands) 976,291 964,215 1.3
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions)
Unaudited
Third Quarter
--------------- Percent
NATIONAL OPERATIONS 1999 1998 Change
---------------------------------------------------------------
Network Services
Financial data
---------------
Revenues and sales
Local services $ 1,521 $ 1,465 3.8
Network access services
Interstate 860 830 3.6
Intrastate 529 510 3.7
Toll services 160 203 (21.2)
Directory services and other 813 886 (8.2)
----------------------------
Total revenues 3,883 3,894 (.3)
Intersegment revenues (117) (91) -
----------------------------
Total external revenues $ 3,766 $ 3,803 (1.0)
============================
Operating income $ 1,516 $ 1,298 16.8
Depreciation and amortization 642 657 (2.3)
----------------------------
Operating cash flow $ 2,158 $ 1,955 10.4
============================
Operating cash flow margin 55.6 % 50.2 % -
Operating income margin 39.0 % 33.3 % -
Capital expenditures $ 699 $ 905 (22.8)
Data revenues (included above) 322 248 29.8
Operating statistics
-----------------------
Access minutes of use (millions):
Interstate 13,581 13,107 3.6
Intrastate 10,146 9,016 12.5
---------------------------
Total access minutes of use 23,727 22,123 7.3
===========================
Toll minutes - intraLATA
(millions) 1,272 1,495 (14.9)
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions)
Unaudited
Nine Months Ended
September 30,
------------------- Percent
NATIONAL OPERATIONS 1999 1998 Change
-----------------------------------------------------------------
Network Services
Financial data
---------------
Revenues and sales
Local services $ 4,462 $ 4,348 2.6
Network access services
Interstate 2,606 2,484 4.9
Intrastate 1,518 1,477 2.8
Toll services 499 662 (24.6)
Directory services and other 2,377 2,328 2.1
------------------------------
Total revenues 11,462 11,299 1.4
Intersegment revenues (315) (213) -
------------------------------
Total external revenues $ 11,147 $ 11,086 .6
==============================
Operating income $ 4,071 $ 3,564 14.2
Special charges 113 171 -
Depreciation and amortization 1,918 1,977 (3.0)
------------------------------
Operating cash flow $ 6,102 $ 5,712 6.8
==============================
Operating cash flow margin 53.2 % 50.6 % -
Operating income margin 36.5 % 33.1 % -
Capital expenditures $ 2,077 $ 2,508 (17.2)
Data revenues (included above) 872 673 29.6
Operating statistics
---------------------
Access minutes of use (millions):
Interstate 40,631 38,812 4.7
Intrastate 29,717 26,289 13.0
------------------------------
Total access minutes of use 70,348 65,101 8.1
==============================
Toll minutes - intraLATA
(millions) 3,931 4,760 (17.4)
Access lines (thousands):
Switched
Residential 13,882 13,483 3.0
Business 5,992 5,568 7.6
------------------------------
Total switched 19,874 19,051 4.3
Special (4) 5,525 3,971 39.1
------------------------------
Total access lines 25,399 23,022 10.3
==============================
Resale lines (5) 283 102 -
ISDN lines: (6)
Basic rate 176 152 15.8
Primary rate 253 152 66.4
------------------------------
Total ISDN lines 429 304 41.1
==============================
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions, Except Operating Statistics)
Unaudited
Third Quarter
----------------- Percent
NATIONAL OPERATIONS (continued) 1999 1998 Change
-----------------------------------------------------------------
Wireless Products and Services
Financial data
----------------
Revenues and sales
Service revenues $ 829 $ 685 21.0
Equipment sales and other 116 97 19.6
-----------------------------
Total revenues (7) $ 945 $ 782 20.8
=============================
Operating income $ 124 $ 178 (30.3)
Special charges - - -
Depreciation and amortization 114 111 2.7
-----------------------------
Operating cash flow $ 238 $ 289 (17.6)
=============================
Operating cash flow margin (7) 29.5 % 39.6 % -
Capital expenditures $ 125 $ 133 (6.0)
Operating statistics
---------------------
Average revenue per user
per month (7)(8) $ 48 $ 49 (2.0)
Cash operating expense per
customer per month (8)(9) 25 29 (13.8)
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions, Except Operating Statistics)
Unaudited
Nine Months Ended
September 30,
------------------- Percent
NATIONAL OPERATIONS (continued) 1999 1998 Change
----------------------------------------------------------------
Wireless Products and Services
Financial data
---------------
Revenues and sales
Service revenues $ 2,306 $ 2,006 15.0
Equipment sales and other 325 287 13.2
------------------------------
Total revenues (7) $ 2,631 $ 2,293 14.7
==============================
Operating income $ 444 $ 440 .9
Special charges 24 91 -
Depreciation and amortization 342 328 4.3
------------------------------
Operating cash flow $ 810 $ 859 (5.7)
==============================
Operating cash flow margin (7) 35.7 % 40.4 % -
Capital expenditures $ 293 $ 275 6.5
Operating statistics
---------------------
Average revenue per user
per month (7)(8) $ 47 $ 49 (4.1)
Cash operating expense per
customer per month (8)(9) 26 29 (10.3)
Wireless subscribers (thousands) 5,196 4,685 10.9
Adjusted POPs (millions) (10) 61.9 61.7 .3
End of period penetration (8) (11) 10.3 % 9.4 % -
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions)
Unaudited
Third Quarter
----------------- Percent
NATIONAL OPERATIONS (continued) 1999 1998 Change
----------------------------------------------------------------
Internetworking (12)
Financial data
---------------
Revenues and sales $ 285 $ 151 88.7
Intersegment revenues (11) (9) -
-----------------------------
Total external revenues $ 274 $ 142 93.0
=============================
Operating loss $ (142) $ (110) (29.1)
Depreciation and amortization 50 28 78.6
-----------------------------
Operating cash flow $ (92) $ (82) (12.2)
=============================
Capital expenditures $ 203 $ 87 -
Other National Operations (12)
Revenues and sales
Communications $ 391 $ 281 39.1
Technology and Systems (12) 291 251 15.9
Other, including eliminations
(13) 196 216 (9.3)
-----------------------------
Total revenues $ 878 $ 748 17.4
=============================
Total National Revenues (12) $ 5,991 $ 5,575 7.5
Total National Operating Income
(12)(14) $ 1,455 $ 1,372 6.0
GTE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
(In Millions)
Unaudited
Nine Months Ended
September 30,
------------------- Percent
NATIONAL OPERATIONS (continued) 1999 1998 Change
-------------------------------------------------------------
Internetworking (12)
Financial data
---------------
Revenues and sales $ 735 $ 414 77.5
Intersegment revenues (49) (26) -
-----------------------------
Total external revenues $ 686 $ 388 76.8
=============================
Operating loss $ (395) $ (389) (1.5)
Depreciation and amortization 135 83 62.7
-----------------------------
Operating cash flow $ (260) $ (306) 15.0
=============================
Capital expenditures $ 476 $ 319 49.2
Operating statistics (thousands)
--------------------------------
Internet billable subscribers 491 366 34.2
Other National Operations (12)
Revenues and sales
Communications $ 1,082 $ 742 45.8
Technology and Systems (12) 1,023 943 8.5
Other, including eliminations
(13) 448 568 (21.1)
-----------------------------
Total revenues $ 2,553 $ 2,253 13.3
=============================
Total National Revenues (12) $17,381 $16,259 6.9
Total National Operating Income (12)(14)
$ 3,997 $ 3,762 6.2
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