AirTouch Reports New EarningsRecord in Third Quarter; One Million New Customers Added as Cash FlowMargin Hit 40%
October 22, 1998 08:03 AM
SAN FRANCISCO--(BUSINESS WIRE)--Oct. 22, 1998--AirTouch Communications ATI posted record net income and added more than a million new subscribers in the third quarter of 1998 despite global economic turmoil, the company reported today.
Led by extraordinary growth in its international markets, the wireless communications company reported net income available to stockholders of $178 million, an all-time high, or $0.30 a share on a diluted basis. Net income grew 40 percent over the $127 million ($0.25 per share) earned in the same period last year.
The company also reported record third-quarter subscriber growth of 1,090,000 proportionate customers -- nearly equal to the population of San Diego -- based on its ownership share in cellular, PCS, and paging ventures.
AirTouch's international ventures led the way with record net proportionate subscriber gains of 735,000, double the figure added in the same period a year earlier. Nine out of 12 international ventures added more subscribers than in any previous third quarter.
AirTouch ended the quarter with 16,107,000 proportionate customers. With more than 35 million total venture customers in 13 countries, AirTouch retained its lead as the world's largest wireless communications company.
"Stellar execution, along with the public's continuing hunger for mobile communications, helped AirTouch achieve its best quarter ever in the face of economic uncertainty around the world," said AirTouch Chairman and CEO Sam Ginn.
Proportionate, Pro Forma Results
To help investors better compare year-over-year growth, AirTouch also reported results on a pro forma basis, as if the April 6, 1998 acquisition of MediaOne Group's U.S. wireless interests had occurred on January 1, 1997. Figures that follow reflect proportionate, pro forma results.
Company revenues reached $1,959 million in the third quarter, 24 percent more than the same period a year earlier. Operating cash flow grew 29 percent to $783 million. And cash flow margins hit 40.0 percent, up from 38.5 percent a year earlier. Revenues and cash flow hit new highs.
International operations accounted for more than half of the company's growth in revenues and operating cash flow over third quarter 1997. While their soaring subscriber base lifted overall company revenues, AirTouch's international ventures took advantage of increasing scale to raise their average operating cash flow margin in the third quarter to 38.0 percent, from 34.4 percent a year earlier.
AirTouch's U.S. cellular, PCS, and paging operations also contributed to an outstanding quarter. Operating cash flow margins in its cellular markets, for example, rose to 48.6 percent from 48.0 percent a year earlier. Average monthly revenue per customer fell only 12 percent over the same period a year earlier, the best showing in two years. And the company more than offset the impact of that decline by cutting the monthly cost per U.S. cellular customer 13 percent, thanks to continuing attention to operating efficiencies.
"In the United States, we are feeling the heat of increasing competition," Ginn acknowledged. "But we are fighting back. By leveraging scale and cutting costs, we have generated very strong cash flow margins in the high 40-percent range. On the revenue front, we expect more and more people to discover the advantages of wireless phones and existing customers to use their phones more as prices fall. We also look to new products and services, like wireless data, to help stimulate usage and increase revenues."
Ginn said that AirTouch expects to meet its 1998 goal of adding more than 3 million proportionate cellular and PCS customers worldwide, raising the company's proportionate operating cash flow about 25 percent over last year's pro forma $2.1 billion and holding the growth in proportionate capital expenditures to about 5 percent over the $1.7 billion spent in 1997.
AirTouch Communications, based in San Francisco, is the largest wireless company in the world. AirTouch owns interests in cellular, paging, and personal communications services in the United States, Belgium, Egypt, Germany, India, Italy, Japan, Poland, Portugal, Romania, South Korea, Spain, and Sweden, as well as an interest in the Globalstar satellite system. Based on its ownership share of its global ventures, the company serves over 16 million proportionate customers (over 35 million total venture customers).
Note Regarding Pro Forma Data: The pro forma proportionate data included in this release reflect the MediaOne Group merger as if it had been effective on January 1, 1997, and after giving effect to the purchase method of accounting and other merger-related adjustments. These pro forma proportionate data are not necessarily indicative of the future results of operations of the combined Company or the results of operations of the combined Company that would have actually occurred. Given the significance of the merger, the Company believes that it is more meaningful to show comparative results on such pro forma basis.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information presented, the matters discussed in this release are forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially. Such factors include: a change in economic conditions in the various markets served by the Company's operations which would adversely affect the level of demand for wireless services; intensified competitive activity requiring reduced pricing and/or new product offerings or resulting in an increased rate of customers terminating service (churn), slower customer growth as customers choose to receive service from other providers, and higher customer selling costs; declining average revenue per customer due to an increasing proportion of consumer customers and declining rates; growth in customers and usage driving increased investment in network capacity; the level of fraudulent activity; the impact of new business opportunities requiring significant up-front investments; the impact on capital spending from the deployment of new technologies; the possibility that technologies will not perform according to expectations or that vendor performance will not meet requirements; and higher than anticipated costs associated with correcting the Year 2000 problem. These and other factors related to the business are described in the Company's SEC filings, including in its 10-K under "Investment Considerations" and the quarterly reports on Form 10-Q.
Note to Editors: For a fax copy of this or other AirTouch press releases, please call 1-800-344-7531 or visit the AirTouch web site at www.airtouch.com.
Consolidated Statements of Income (Unaudited)
AirTouch Communications, Inc. and Subsidiaries
(Dollars in millions, except 3rd QTR 3rd QTR
per share amounts) 1998 1997 CHANGE
Operating revenues:
Wireless services and other revenues $1,337 $859 55.6 %
Cellular and paging equipment sales 84 57 47.4 %
Total operating revenues 1,421 916 55.1 %
Operating expenses:
Cost of revenues 171 116 47.4 %
Cost of cellular and paging
equipment sales 124 93 33.3 %
Selling and customer
operations expenses 384 233 64.8 %
General, administrative, and
other expenses 159 120 32.5 %
Depreciation and amortization expenses 267 139 92.1 %
Total operating expenses 1,105 701 57.6 %
Operating income 316 215 47.0 %
Equity in net income (loss) of
unconsolidated wireless systems:
U.S. (7) 8 (187.5)%
International 99 55 80.0 %
Minority interests in net (income) loss
of consolidated wireless systems (52) (35) (48.6)%
Interest:
Expense (42) (21) (100.0)%
Income 4 5 (20.0)%
Miscellaneous income (expense) 6 (2) 400.0 %
Income before income taxes and
preferred dividends 324 225 44.0 %
Income taxes 111 84 32.1 %
Income before preferred dividends 213 141 51.1 %
Preferred dividends 35 14 150.0 %
Net income applicable to
common stockholders $178 $127 40.2 %
Net income applicable to common stockholders - per share:
Basic $0.31 $0.25 24.0 %
Diluted $0.30 $0.25 20.0 %
Weighted average shares
outstanding (in thousands) 573,707 504,235 13.8 %
Pro Forma Consolidated Statements of Income (Unaudited) (1)
AirTouch Communications, Inc. and Subsidiaries
(Dollars in millions, except 3rd QTR 3rd QTR
per share amounts) 1998 1997 CHANGE
Operating revenues $1,421 $1,300 9.3 %
Operating expenses before depreciation
and amortization expenses 838 790 6.1 %
Depreciation and amortization expenses 267 237 12.7 %
Total operating expenses 1,105 1,027 7.6 %
Operating income 316 273 15.8 %
Equity in net income (loss) of
unconsolidated wireless systems 92 38 142.1 %
Minority interests in net (income) loss
of consolidated wireless systems (52) (49) (6.1)%
Miscellaneous income (expense) (32) (41) 22.0 %
Income before income taxes and
preferred dividends 324 221 46.6 %
Income taxes 111 87 27.6 %
Income before preferred dividends 213 134 59.0 %
Preferred dividends 35 35 0.0 %
Net income applicable to
common stockholders $178 $99 79.8 %
Net income applicable to common stockholders - per share:
Basic $0.31 $0.18 72.2 %
Diluted $0.30 $0.18 66.7 %
Weighted average shares
outstanding (in thousands) 573,707 563,682 1.8 %
Pro Forma Proportionate Data (Unaudited) (1)(2)(3)
AirTouch Communications, Inc. and Subsidiaries
TOTAL COMPANY
FINANCIAL DATA
(Dollars in millions except per share 3rd QTR 3rd QTR
amounts; operating data in thousands) 1998 1997 CHANGE
Service and other revenues $1,959 $1,583 23.8 %
Operating expenses before depreciation
and amortization expenses (4) 1,176 974 20.7 %
Operating cash flow (5) 783 609 28.6 %
Depreciation and amortization expenses 364 310 17.4 %
Operating income 419 299 40.1 %
Interest and other income (expenses) (35) (40) 12.5 %
Income taxes (171) (125) (36.8)%
Income before preferred dividends 213 134 59.0 %
Preferred dividends 35 35 0.0 %
Net income applicable to
common stockholders $178 $99 79.8 %
Earnings per share applicable to
common stockholders-basic $0.31 $0.18 72.2 %
Earnings per share applicable to
common stockholders-diluted $0.30 $0.18 66.7 %
Acquisition amortization expense, net
of applicable tax benefits (6) $70 $68 2.9 %
Earnings per share before acquisition
amortization-basic (6) $0.43 $0.30 45.1 %
Earnings per share before acquisition
amortization-diluted (6) $0.42 $0.30 38.2 %
Operating cash flow margin (7) 40.0% 38.5% 3.9 %
OPERATING DATA (In thousands) 9/30/98 9/30/97 CHANGE
Cellular and PCS POPs (8)(9) 235,738 212,730 10.8 %
Cellular and PCS subscribers (8) 12,687 8,832 43.6 %
Paging units in service (10) 3,420 3,099 10.4 %
Total proportionate customers 16,107 11,931 35.0 %
Cellular and PCS subscriber net adds
in quarter, excluding acquisitions (8) 987 680 45.1 %
See footnotes.
Pro Forma Proportionate Data (Unaudited) (1)(2)
AirTouch Communications, Inc. and Subsidiaries
U.S. CELLULAR OPERATIONS
OPERATING DATA (In thousands) 9/30/98 9/30/97 CHANGE
Cellular POPs (9) 67,560 63,794 5.9 %
Cellular subscribers (a) 7,461 6,101 22.3 %
Cellular subscriber net adds
in quarter, excluding acquisitions 201 283 (29.0)%
U.S. PCS OPERATIONS (8)
OPERATING DATA (In thousands) 9/30/98 9/30/97 CHANGE
PCS POPs (8)(9) 29,520 28,458 3.7 %
PCS subscribers (8)(b) 329 124 165.3 %
PCS subscriber net adds
in quarter, excluding acquisitions (b) 51 30 70.0 %
INTERNATIONAL OPERATIONS
OPERATING DATA (In thousands) 9/30/98 9/30/97 CHANGE
Cellular POPs (9) 138,658 120,478 15.1 %
Cellular subscribers 4,897 2,607 87.8 %
Cellular subscriber net adds
in quarter, excluding acquisitions 735 366 100.8 %
U.S. PAGING OPERATIONS (11)
OPERATING DATA (In thousands) 9/30/98 9/30/97 CHANGE
Units in service 3,331 3,058 8.9 %
Units in service net adds
in quarter, excluding acquisitions 103 61 68.9 %
(a) The number of cellular subscribers at September 30, 1998 has been
decreased by 30,000 non-revenue generating subscribers to reflect
an entry point adjustment related to the U S WEST Media Group
Merger to conform to AirTouch's subscriber policy.
(b) The number of PCS subscribers at September 30, 1998 has been
adjusted to reflect more timely subscriber information received
from PrimeCo. Such adjustment is not material and the PCS
subscriber net adds for the quarter ended September 30, 1998 are
properly stated.
Operating Data (Unaudited)
AirTouch Communications, Inc. and Subsidiaries
TOTAL ENTERPRISE DATA
9/30/98 3Q98
Total Sys Total Sys Total Sys
(In thousands) POPs Customers(e) Net Adds
U.S. CELLULAR (1)(a) 86,627 8,496 224
INTERNATIONAL CELLULAR
Belgium - 25.0% 10,130 (d)1,000 (d)100
Egypt - 30.0% 54,500 0 0
Germany (f) - 34.8% 81,300 5,200 (c)600
India - 20.0% & 49.0% 79,400 30 1
Italy - 15.5% 57,500 4,970 1,070
Japan - Digital Phone
Group - 13.0% - 15.0% 77,200 3,153 481
Japan - Digital TU-KA
Companies (g) - 4.5% 48,900 2,021 116
Poland - 19.3% 38,500 (c)625 (c)175
Portugal - 50.9% 9,920 1,155 174
Romania - 10.0% 23,200 246 51
South Korea - 10.7% 45,600 (c)1,900 (c)363
Spain - 21.7% 39,400 1,725 217
Sweden - 51.1% 8,830 574 46
TOTAL INTERNATIONAL 574,380 22,599 3,394
PRIMECO (8) 63,100 707 109
TOTAL CELLULAR AND PCS (1) 724,107 31,802 3,727
PAGING (11) N/A 3,541 104
TOTAL ENTERPRISE (1) 724,107 35,343 3,831
(a) The number of cellular subscribers at September 30, 1998 has been
decreased by 30,000 non-revenue generating subscribers to reflect
an entry point adjustment related to the U S WEST Media Group
Merger to conform to AirTouch's subscriber policy.
(c) - Approximately
(d) - More than
(e) Subcriber information conforms to AirTouch's subscriber policy
and may not be the same as the individual countries' policy.
(f) Germany subscriber information is rounded to the nearest hundred
thousands.
(g) Cost based investments which are not included in proportionate
results.
See footnotes.
FOOTNOTES
(1) On April 6, 1998, the Company completed the transaction to acquire
the U.S. cellular business and the 25% PrimeCo Personal
Communications, L.P. interest of MediaOne Group, formerly US WEST
Media Group ("the merger"). These selected pro forma data reflect the
merger as if it had been effective at the beginning of each period
presented, and after giving effect to the purchase method of
accounting and other merger-related adjustments. The valuation and
appraisal of the acquired assets and liabilities have been completed,
and the changes made to these adjustments were not material. As a
result, no restatement of the pro forma data occurred. These selected
pro forma data are intended for informational purposes only and are
not necessarily indicative of the future results of operations of the
combined Company or the results of operations of the combined Company
that would have actually occurred. For the quarter ended September 30,
1998, the pro forma results are the same as actuals.
(2) Because significant assets of the Company are not consolidated,
the Company believes that proportionate financial and operating data
facilitate the understanding and assessment of its results. Unlike
consolidation accounting, proportionate accounting is not in
accordance with generally accepted accounting principles ("GAAP").
Proportionate accounting reflects the relative weight of the Company's
ownership interests in its domestic and international systems, total
subscribers of all cellular systems, and total units in service of all
paging systems, exclusive of cost-based investments and certain
equity-based investments that are not material to the Consolidated
Financial Statements taken as a whole.
(3) Pro forma proportionate debt on a Total Company basis, which
includes both consolidated and unconsolidated entities, was
approximately $3.9 billion and $3.6 billion as of September 30, 1998
and 1997, respectively. Actual proportionate debt on a Total Company
basis was approximately $3.9 billion and $2.2 billion for the same
periods.
(4) Includes net losses on equipment sold to acquire and retain
customers.
(5) "Operating cash flow" is defined as "Operating income" plus
"Depreciation and amortization expense" and is not the same as cash
flow from operating activities in the Company's Consolidated
Statements of Cash Flows. Proportionate operating cash flow represents
the Company's ownership interest in the respective entities' operating
cash flows. As such proportionate operating cash flow does not
represent cash available to the Company.
(6) "Acquisition amortization expense, net of applicable tax benefits"
is defined as amortization expense of intangibles related to the
acquisition of interests in wireless systems net of related tax
benefits. "Earnings per share before acquisition amortization expense"
is calculated by adding back "Acquisition amortization expense, net of
applicable tax benefits", to "Net income applicable to common
stockholders" and dividing the results by the "Weighted average shares
outstanding." Such calculation is not in accordance with GAAP and is
shown here only to provide supplemental financial information.
(7) "Operating cash flow margin" is calculated by dividing "Operating
cash flow" by Service and other revenues."
(8) PCS data relates to PrimeCo Personal Communications, L.P.
("PrimeCo"), a U.S. personal communications service ("PCS") business
in which the Company had a 50% interest at September 30, 1998 and a
25% interest at September 30, 1997. For the pro forma data, the
Company's ownership interest in PrimeCo is 50% for all periods
presented. Because PrimeCo does not own 100% of all its markets, the
Company's share of PrimeCo's operating results is slightly less than
50%.
(9) POPs means the estimated market population multiplied by the
Company's ownership interest in a licensee operating in that market
and includes markets in which the networks are under construction and
the markets of certain cost-basis investments not included in
proportionate operating results. POPs at September 30, 1998 have been
updated to reflect data from the 1998 Paul Kagan Associates, Inc.
Cellular Telephone Atlas.
(10) Total Company "Paging units in service" include both U.S and
International paging units in service.
(11) U.S. Paging operations, which are wholly owned by the Company,
include operations in Canada.
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