1st Quarter Results
Bellsouth Corp
21 April 2005
For Immediate Release
April 21, 2005
BellSouth Reports First Quarter Earnings
• 1.4 million Cingular net customer additions
• 253,000 DSL net customer additions
• 455,000 long distance net customer additions
ATLANTA - BellSouth Corporation (NYSE: BLS) announced first quarter 2005
earnings per share (EPS) from continuing operations of 37 cents compared to 63
cents in first quarter 2004. First quarter 2004 results included 16 cents from
the gain on the sale of operations in Denmark. Normalized EPS from continuing
operations was 39 cents compared to 48 cents in the same quarter a year ago.
Normalizing items in the first quarter of 2005 consisted of wireless merger
integration costs (1 cent) and debt extinguishment costs (1 cent).
BellSouth had continued growth in key drivers in the first quarter of 2005 with
a record 253,000 net DSL customer additions and solid long distance growth,
while Cingular Wireless added 1.4 million net customers. "BellSouth has 65
percent of its normalized revenue positioned towards growth opportunities in
wireless, broadband data, long distance and yellow pages. Our first quarter
results show that BellSouth made significant progress in growing revenues and
customers in all these sectors," said Duane Ackerman, Chairman and Chief
Executive Officer.
Reported Results from Continuing Operations
For the first quarter of 2005, BellSouth's consolidated reported revenue from
continuing operations totaled $5.09 billion, an increase of 2.3 percent compared
to the same quarter in 2004. Income from continuing operations was $683 million
compared to $1.15 billion in the same quarter of the previous year, which
included a $295 million after-tax gain on the sale of operations in Denmark.
Operating free cash flow from continuing operations (defined as net cash
provided by operating activities less capital expenditures) was $968 million for
the first quarter of 2005. Capital expenditures for continuing operations for
the first quarter of 2005 were $750 million.
Normalized Results from Continuing Operations
Normalized results from continuing operations include BellSouth's 40 percent
proportionate share of Cingular's revenues and expenses. Cingular completed its
acquisition of AT&T Wireless on Oct. 26, 2004. Results prior to the acquisition
date have not been restated.
Normalized revenue was $8.31 billion for the first quarter of 2005 compared to
$6.57 billion for the first quarter in 2004. Normalized net income was $718
million compared to $888 million for the first quarter in 2004. BellSouth's
first quarter 2005 earnings related to Cingular Wireless were affected by high
gross customer additions and upgrades, as well as accelerated depreciation and
acquisition-related financing costs associated with the acquisition of AT&T
Wireless.
Communications Group
In the first quarter of 2005, Communications Group revenue was $4.62 billion, an
increase of 1.2 percent compared to the same quarter of 2004. First quarter
operating margin was 24.2 percent compared to 25.0 percent for the full year of
2004 and up 260 basis points over the previous quarter.
During the first quarter of 2005, BellSouth added a record 253,000 net DSL
customers and currently serves more than 2.3 million customers. The Company is
focused on driving greater broadband penetration with competitive offers and
incentives to encourage customers to choose BellSouth(R) FastAccess(R) DSL over
competing products. Driven by DSL, network data revenue for the first quarter
was $1.16 billion, an increase of 6.3 percent compared to the same quarter of
2004.
BellSouth added 455,000 mass-market long distance customers during the first
quarter of 2005, and now serves nearly 6.5 million mass-market long distance
customers. These customers represent more than a 50 percent penetration of
BellSouth's mass-market base and spend an average of approximately $17 per month
on long distance with BellSouth.
During the first quarter, more than 113,000 customers added DIRECTV(R) to their
communications service package bringing the total number of customers with this
package to 314,000. With DIRECTV(R) and Cingular Wireless, BellSouth provides a
competitively priced "grand-slam" package of wireline and wireless voice, data,
and entertainment services.
As of March 31, 2005, total access lines were 21.2 million, down 3.9 percent
compared to a year earlier and down 137,000 compared to year-end 2004. During
first quarter, retail access lines declined by 61,000, which included positive
business line growth of 6,000. UNE-P access lines resold by BellSouth
competitors were down 95,000 compared to year-end 2004.
Cingular Wireless
Cingular Wireless, the nation's largest wireless provider, added more than 1.4
million customers in the first quarter of 2005, bringing its nationwide customer
base to 50.4 million customers. Cingular's gross customer additions in the
first quarter totaled 4.8 million demonstrating continued momentum in the
marketplace. Churn improved sequentially to 2.2 percent in the first quarter of
2005.
Cingular's reported revenue was $8.2 billion for the first quarter of 2005
representing a 5.3 percent increase over pro forma revenue from the prior year
period. BellSouth's normalized revenue includes its 40% share of Cingular's
reported revenue.
Service ARPU (average revenue per user) in the first quarter was $49.59, a
decline of 3.3 percent from the prior year (pro forma) and a slight sequential
decline of 38 cents (pro forma). ARPU from data services continued its strong
growth in the first quarter, increasing to $3.70, up $0.81 from the previous
quarter. Revenue from data services continues to grow with increased customer
usage of text messaging, mobile instant messaging, mobile email, downloadable
ringtones, games and photo messaging.
Cingular's first quarter normalized service margin from operating income before
depreciation and amortization was 25.5 percent, a 210 basis point improvement
compared to the fourth quarter of 2004. The first quarter service margin was
negatively impacted by approximately $135 million or 180 basis points, when
compared to fourth quarter 2004, due to network access costs that were
previously reported in equity earnings prior to the termination of Cingular's
joint venture with T-Mobile.
Cingular has reached several important milestones in the integration process of
AT&T Wireless operations and services. In addition to strong consecutive
quarters of net new customer growth, Cingular has migrated approximately 3
million AT&T Wireless subscribers to new Cingular postpaid plans since the close
of the merger.
During the first quarter, 72 percent of Cingular's subscriber base was
GSM-equipped, up from 65 percent in the fourth quarter of 2004. In addition, 84
percent of the company's total combined minutes are now carried on its GSM
network. Through roaming agreements with other wireless carriers, the company
expanded coverage of its national wireless data network -- EDGE -- to cover more
than 250 million people, with availability in 13,000 cities and towns and along
nearly 40,000 miles of interstate highways across the country. Cingular is on
schedule to deploy UMTS (Universal Mobile Telecommunications System) 3G network
technology with HSDPA (High-Speed Downlink Packet Access), which delivers
superior speeds for data and video services. Wireless capital expenditures were
$971 million for the quarter.
Advertising & Publishing
In the first quarter of 2005, Advertising & Publishing grew revenue by 1.9
percent year-over-year to $491 million. Operating margin for the first quarter
of 2005 was 47.0 percent compared to 49.6 percent in the first quarter of 2004.
Segment net income was $141 million compared to $147 million in the first
quarter of 2004.
Discontinued Operations: Latin America
The Company's financial statements reflect results for the Latin American
segment in the line item titled Discontinued Operations. In January 2005,
BellSouth completed the sale of its ownership interest in its wireless
operations in Chile and Argentina to Telefonica Moviles S.A. (NYSE: TEM). For
the first quarter, BellSouth reported income from discontinued operations of
$381 million or 21 cents per share, including the after-tax gain related to the
sale of the Chile and Argentina operations.
Normalizing Items
In the first quarter of 2005, the difference between reported (GAAP) EPS from
continuing operations and normalized EPS is shown in the following table:
1Q05 1Q04
GAAP Diluted EPS - Income from continuing operations $0.37 $0.63
Wireless merger integration costs $0.01
Debt extinguishment costs $0.01
Sale of Sonofon ($0.16)
Regulatory settlement $0.02
Normalized Diluted EPS - Income from continuing operations (1) $0.39 $0.48
(1) 1Q04 does not sum due to rounding
Wireless merger integration costs - Represents BellSouth's 40 percent share of
tax-effected wireless merger integration costs of $105 million incurred during
the first quarter in connection with the Cingular/AWE merger.
Debt extinguishment costs - Represents one-time expenses associated with the
early extinguishment of $400 million of long-term debt.
Sale of Sonofon - Gain related to the sale of our operations in Denmark.
Regulatory settlement - In April 2004, BellSouth entered into a settlement
agreement with respect to previously disclosed litigation (See 2004 10K for
further discussion).
About BellSouth Corporation
BellSouth Corporation is a Fortune 100 communications company headquartered in
Atlanta, Georgia. BellSouth has joint control and 40 percent ownership of
Cingular Wireless, the nation's largest wireless voice and data provider with
more than 50 million customers.
Backed by award-winning customer service, BellSouth offers the most
comprehensive and innovative package of voice and data services available in the
market. Through BellSouth Answers(R), residential and small business customers
can bundle their local and long distance service with dial-up and high-speed DSL
Internet access, satellite television and Cingular(R) Wireless service. For
businesses, BellSouth provides secure, reliable local and long distance voice
and data networking solutions. BellSouth also offers online and directory
advertising through BellSouth(R) RealPages.com(R) and The Real Yellow Pages(R).
BellSouth believes that diversity and fostering an inclusive environment are
critical in maintaining a competitive advantage in today's global marketplace.
More information about BellSouth can be found at www.bellsouth.com.
Further information about BellSouth and Cingular's first quarter earnings can be
accessed at www.bellsouth.com/investor. The press release, financial statements
and Investor News summarizing highlights of the quarter are available on the
BellSouth Investor Relations website starting today at 8 a.m. Eastern Time (ET).
BellSouth will host a conference call with investors today at 10 a.m. (ET).
Participating will be BellSouth CFO Ron Dykes and Investor Relations Vice
President Nancy Davis. Dial-in information for the conference call is as
follows:
Domestic: 888-370-1863
International: 706-634-1735
The conference call will also be webcast live beginning at 10 a.m. (ET) on our
website at www.bellsouth.com/investor. The webcast will be archived on our
website beginning at approximately 1 p.m. (ET) today.
A replay of the call will be available beginning at approximately 1 p.m. (ET)
today, through April 28, 2005, and can be accessed by dialing:
Domestic: 800-642-1687 - Reservation number: 4107441
International: 706-645-9291 - Reservation number: 4107441
In addition to historical information, this document may contain forward-looking
statements regarding events and financial trends. Factors that could affect
future results and could cause actual results to differ materially from those
expressed or implied in the forward-looking statements include: (i) a change in
economic conditions in markets where we operate or have material investments
which would affect demand for our services; (ii) the intensity of competitive
activity and its resulting impact on pricing strategies and new product
offerings; (iii) higher than anticipated cash requirements for investments, new
business initiatives and acquisitions; (iv) unfavorable regulatory actions; and
(v) those factors contained in the Company's periodic reports filed with the
SEC. The forward-looking information in this document is given as of this date
only, and BellSouth assumes no duty to update this information.
This document may also contain certain non-GAAP financial measures. The most
directly comparable GAAP financial measures, and a full reconciliation of
non-GAAP to GAAP financial information, are attached hereto and provided on the
Company's investor relations website, www.bellsouth.com/investor.
For More Information Contact:
Jeff Battcher, Media Relations at 404-249-2793
BellSouth Investor Relations at 800-241-3419
BellSouth Corporation
Consolidated Statements of Income - Reported Basis (unaudited)
(amounts in millions, except per share data)
Note to Readers: See Normalization Earnings Summary and Reconciliation to
GAAP results on pages 3 and 4 for a summary of unusual items included in
Reported Basis results.
1Q05 1Q04 Growth 4Q04 Growth
Operating Revenues
Communications group $4,593 $4,488 2.3% $4,613 -0.4%
Advertising and publishing 488 479 1.9% 524 -6.9%
All other 10 9 11.1% 9 11.1%
Total Operating Revenues 5,091 4,976 2.3% 5,146 -1.1%
Operating Expenses
Cost of services and products 1,888 1,798 5.0% 2,052 -8.0%
Selling, general &
administrative expenses 926 909 1.9% 1,072 -13.6%
Depreciation and amortization 918 898 2.2% 916 0.2%
Provision for restructuring and
asset impairments 7 13 -46.2% 18 -61.1%
Total Operating Expenses 3,739 3,618 3.3% 4,058 -7.9%
Operating Income 1,352 1,358 -0.4% 1,088 24.3%
Interest Expense 291 215 35.3% 270 7.8%
Other Income (Expense), net (24) 630 -103.8% (177) 86.4%
Income from Continuing Operations
before Income Taxes 1,037 1,773 -41.5% 641 61.8%
Provision for Income Taxes 354 623 -43.2% 188 88.3%
Income from Continuing Operations 683 1,150 -40.6% 453 50.8%
Income (Loss) from Discontinued
Operations, net of tax 381 449 -15.1% 911 -58.2%
Net Income $1,064 $1,599 -33.5% $1,364 -22.0%
Diluted:
Weighted Average Common Shares
Outstanding 1,836 1,838 -0.1% 1,836 0.0%
Earnings Per Share:
Income from Continuing
Operations $0.37 $0.63 -41.3% $0.25 48.0%
Income from Discontinued
Operations $0.21 $0.24 -12.5% $0.50 -58.0%
Net Income $0.58 $0.87 -33.3% $0.74 -21.6%
Selected Financial and Operating Data
Operating income $1,352 $1,358 -0.4% $1,088 24.3%
Operating margin 26.6% 27.3% -70 bps 21.1% 550 bps
Declared dividends per share $0.27 $0.25 8.0% $0.27 0.0%
Capital expenditures $750 $635 18.1% $1,059 -29.2%
Common shares outstanding 1,831 1,834 -0.2% 1,831 0.0%
Book value per share $12.93 $11.48 12.6% $12.60 2.6%
BellSouth Corporation
Consolidated Statements of Income - Normalized Basis (unaudited)
(amounts in millions, except per share data)
Note to Readers: Our reported results, as shown on page 1, are
prepared in accordance with generally accepted accounting principles
(GAAP). The normalized results presented below exclude the impact of
certain non-recurring or non-operating items, the details of which are
provided on pages 3 and 4 of this release. In addition, the normalized
results reflect our 40% proportionate share of Cingular's results, the
presentation of which is not allowed under GAAP. Normalized results
exclude discontinued operations from all periods. Certain
reclassifications have been made to prior periods to conform to the
current presentation.
1Q05 1Q04 Growth 4Q04 Growth
Operating Revenues
Communications group $4,521 $4,491 0.7% $4,548 -0.6%
Domestic wireless 3,292 1,587 107.4% 2,848 15.6%
Advertising and publishing 488 479 1.9% 524 -6.9%
All other 10 9 11.1% 9 11.1%
Total Operating Revenues 8,311 6,566 26.6% 7,929 4.8%
Operating Expenses
Cost of services and products 3,199 2,349 36.2% 3,039 5.3%
Selling, general, &
administrative expenses 2,085 1,464 42.4% 2,148 -2.9%
Depreciation and amortization 1,588 1,119 41.9% 1,472 7.9%
Total Operating Expenses 6,872 4,932 39.3% 6,659 3.2%
Operating Income 1,439 1,634 -11.9% 1,270 13.3%
Interest Expense 403 272 48.2% 368 9.5%
Other Income (Expense), net 74 4 N/M* 35 111.4%
Income Before Income Taxes 1,110 1,366 -18.7% 937 18.5%
Provision for Income Taxes 392 478 -18.0% 297 32.0%
Net Income $718 $888 -19.1% $640 12.2%
Diluted:
Weighted Average Common Shares
Outstanding 1,836 1,838 -0.1% 1,836 0.0%
Earnings Per Share $0.39 $0.48 -18.8% $0.35 11.4%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $1,439 $1,634 -11.9% $1,270 13.3%
Operating margin 17.3% 24.9% -760 bps 16.0% 130 bps
Declared dividends per share $0.27 $0.25 8.0% $0.27 0.0%
Capital expenditures $750 $635 18.1% $1,059 -29.2%
Common shares outstanding 1,831 1,834 -0.2% 1,831 0.0%
Book value per share $12.93 $11.48 12.6% $12.60 2.6%
Total employees 62,636 64,651 -3.1% 62,564 0.1%
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
First Quarter 2005
Discontinued Continuing
Operations Operations
GAAP C (GAAP - C)
Operating Revenues $5,091 $0 $5,091
Operating Expenses 3,739 - 3,739
Operating Income 1,352 - 1,352
Interest Expense 291 - 291
Other Income (Expense), net (24) - (24)
Income from Continuing Operations
before Income Taxes 1,037 - 1,037
Provision for Income Taxes 354 - 354
Income from Continuing Operations 683 - 683
Income (Loss) from Discontinued
Operations, net of tax 381 (381) -
Net Income $1,064 ($381) $683
Diluted Earnings Per Share $0.58 ($0.21) $0.37
First Quarter 2005 Normalizing Items
Merger
Integra- Debt
tion Exting.
Costs Costs
Cingular
A E F Normalized
Operating Revenues $3,220 $0 $0 $8,311
Operating Expenses 3,175 (42) - 6,872
Operating Income 45 42 - 1,439
Interest Expense 112 - - 403
Other Income (Expense), net 76 - 22 74
Income from Continuing Operations
before Income Taxes 9 42 22 1,110
Provision for Income Taxes 9 21 8 392
Income from Continuing Operations - 21 14 718
Income (Loss) from Discontinued
Operations, net of tax - - - -
Net Income $0 $21 $14 $718
Diluted Earnings Per Share $0.00 $0.01 $0.01 $0.39
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
First Quarter 2004
Discontinued Continuing
Operations Operations
GAAP C (GAAP - C)
Operating Revenues $4,976 $0 $4,976
Operating Expenses 3,618 - 3,618
Operating Income 1,358 - 1,358
Interest Expense 215 - 215
Other Income (Expense), net 630 - 630
Income from Continuing Operations
before Income Taxes 1,773 - 1,773
Provision for Income Taxes 623 - 623
Income from Continuing Operations 1,150 - 1,150
Income (Loss) from Discontinued
Operations, net of tax 449 (449) -
Net Income $1,599 ($449) $1,150
Diluted Earnings Per Share * $0.87 ($0.24) $0.63
* Normalized earnings per share for first quarter 2004 does not sum due
to rounding.
First Quarter 2004 Normalizing Items
Regula-
tory
Sale of Settle-
Cingular Sonofon ment
A B D Normalized
Operating Revenues $1,540 $0 $50 $6,566
Operating Expenses 1,317 - (3) 4,932
Operating Income 223 - 53 1,634
Interest Expense 57 - - 272
Other Income (Expense), net (164) (462) - 4
Income from Continuing Operations
before Income Taxes 2 (462) 53 1,366
Provision for Income Taxes 2 (167) 20 478
Income from Continuing Operations - (295) 33 888
Income (Loss) from Discontinued
Operations, net of tax - - - -
Net Income $0 ($295) $33 $888
Diluted Earnings Per Share * $0.00 ($0.16) $0.02 $0.48
* Normalized earnings per share for first quarter 2004 does not sum due
to rounding.
BellSouth Corporation
Notes to Normalized Financial and Operating Data (pages 3 and 4)
(amounts in millions, except per share data)
Our normalized earnings have been adjusted for the following:
(a) The periods presented have been adjusted to include our 40%
proportional share of Cingular Wireless' operating results, net of
eliminations for amounts charged by other BellSouth companies to
Cingular.
(b) Gain related to the sale of our operations in Denmark.
(c) Discontinued Operations - In March 2004, we announced our intention
to sell our Latin American properties. Accordingly, the prior period
results have been recast to reflect the Latin American operations as
Discontinued Operations and thus excluded from normalized results.
These amounts are reported net of a $405 tax benefit in the first
quarter of 2004. The first quarter 2005 results include an after-tax
gain of $390 related to the final 2 of the 10 properties that were
closed in January.
(d) Regulatory Settlement - In April 2004, BellSouth entered into a
settlement agreement with respect to previously disclosed litigation
(See 2004 10K for further discussion).
(e) Wireless merger integration costs - Represents BellSouth's 40% share
of tax-effected wireless merger integration costs of $105 incurred
during the 1st quarter 2005 in connection with the Cingular/AWE
merger.
(f) Debt extinguishment costs - Represents one-time expenses associated
with the early extinguishment of $400 of long-term debt.
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
March 31, December 31, Change vs.
2005 2004 Prior Year
Assets
Current Assets:
Cash and cash equivalents $516 $680 ($164)
Short-term investments 0 16 (16)
Accounts receivable, net of
allowance for uncollectibles of
$291 and $317 2,467 2,559 (92)
Material and supplies 308 321 (13)
Other current assets 907 1,055 (148)
Assets of discontinued operations 0 1,068 (1,068)
Total Current Assets 4,198 5,699 (1,501)
Investment in and Advances to
Cingular Wireless 22,265 22,771 (506)
Property, Plant and Equipment, net 21,913 22,039 (126)
Other Assets 7,512 7,400 112
Goodwill 0 0 0
Intangible Assets, net 1,557 1,587 (30)
Total Assets $57,445 $59,496 ($2,051)
Liabilities and Shareholders' Equity
Current Liabilities:
Debt maturing within one year $4,149 $5,475 ($1,326)
Accounts payable 994 1,047 (53)
Other current liabilities 3,049 3,018 31
Liabilities of discontinued
operations 0 830 (830)
Total Current Liabilities 8,192 10,370 (2,178)
Long-Term Debt 14,669 15,108 (439)
Noncurrent Liabilities:
Deferred income taxes 6,351 6,492 (141)
Other noncurrent liabilities 4,557 4,460 97
Total Noncurrent Liabilities 10,908 10,952 (44)
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 0
Paid-in capital 7,810 7,840 (30)
Retained earnings 19,802 19,267 535
Accumulated other comprehensive
income (80) (157) 77
Shares held in trust and treasury (5,876) (5,904) 28
Total Shareholders' Equity 23,676 23,066 610
Total Liabilities and Shareholders'
Equity $57,445 $59,496 ($2,051)
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
1Q05 1Q04 4Q04
Cash Flows from Operating Activities:
Income from Continuing Operations $683 $1,150 $453
Adjustments to income from continuing
operations:
Depreciation and amortization 918 898 916
Provision for uncollectibles 85 115 99
Net losses (earnings) of equity
affiliates 80 (104) 260
Deferred income taxes (45) 169 341
Net (gains) losses on sale or
impairment of equity securities - 3 (5)
Pension income (133) (121) (121)
Pension settlement (gains) losses - - -
Stock-based compensation expense 25 28 29
Loss on extinguishment of debt 22 - -
(Gain) loss on sale/disposal of
operations - (462) -
Net change in:
Accounts receivable and other
current assets (84) (14) (148)
Accounts payable and other current
liabilities 23 41 (676)
Deferred charges and other assets 20 (25) (21)
Other liabilities and deferred credits 103 3 111
Other reconciling items, net 21 47 75
Net cash provided by operating
activities 1,718 1,728 1,313
Cash Flows from Investing Activities:
Capital expenditures (750) (635) (1,059)
Purchase of short-term investments (12) (824) (560)
Proceeds from sale of short-term
investments 28 558 924
Investments in debt and equity securities (32) (140) (129)
Investments in and advances to equity
affiliates (2) - (14,445)
Net short term (advances to)
repayments from Cingular 400 - (666)
Proceeds from sale of securities and
operations 929 559 3,113
Proceeds from repayment of loans and
advances 2 109 -
Settlement of derivatives on advances - (17) -
Other investing activities, net (3) (5) (4)
Net cash provided by (used for)
investing activities 560 (395) (12,826)
Cash Flows from Financing Activities:
Net borrowing (repayments) of short-
term debt (1,093) (362) 2,004
Proceeds from long-term debt - - 2,389
Repayments of long-term debt (669) (7) (14)
Dividends paid (494) (457) (494)
Purchase of treasury shares (77) - (47)
Other financing activities, net 6 48 13
Net cash used for financing
activities (2,327) (778) 3,851
Net Increase/(Decrease) in Cash from
Continuing Operations (49) 555 (7,662)
Net Increase/(Decrease) in Cash from
Discontinued Operations (115) (9) (478)
Net Increase (Decrease) in Cash and
Cash Equivalents (164) 546 (8,140)
Cash and Cash Equivalents at
Beginning of Period 680 2,947 8,820
Cash and Cash Equivalents at End of
Period $516 $3,493 $680
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Communications Group (1)
1Q05 1Q04 Growth 4Q04 Growth
Operating Revenues
Voice $3,159 $3,169 -0.3% $3,165 -0.2%
Data 1,160 1,091 6.3% 1,163 -0.3%
Other 299 304 -1.6% 311 -3.9%
Total Operating Revenues 4,618 4,564 1.2% 4,639 -0.5%
Operating Expenses
Cost of services and products 1,821 1,741 4.6% 1,846 -1.4%
Selling, general, &
administrative expenses 770 745 3.4% 884 -12.9%
Depreciation and amortization 910 891 2.1% 909 0.1%
Total Operating Expenses 3,501 3,377 3.7% 3,639 -3.8%
Segment Operating Income 1,117 1,187 -5.9% 1,000 11.7%
Interest Expense 98 93 5.4% 96 2.1%
Other Income (Expense), net 11 3 266.7% 12 -8.3%
Income Before Income Taxes 1,030 1,097 -6.1% 916 12.4%
Provision for Income Taxes 366 400 -8.5% 317 15.5%
Segment Net Income(1) $664 $697 -4.7% $599 10.9%
Selected Financial and Operating Data
(amounts in millions)
Segment operating income $1,117 $1,187 -5.9% $1,000 11.7%
Segment operating margin 24.2% 26.0% -180 bps 21.6% 260 bps
Long distance revenues $578 $440 31.4% $533 8.4%
Switched Access MOUs 16,151 18,719 -13.7% 16,459 -1.9%
BSLD MOUs 6,011 4,574 31.4% 5,864 2.5%
Total Access minutes of use 22,162 23,293 -4.9% 22,323 -0.7%
Capital expenditures $742 $626 18.5% $1,047 -29.1%
(amounts in thousands)
Wholesale lines 2,882 2,960 -2.6% 2,958 -2.6%
DSL customers 2,349 1,618 45.2% 2,096 12.1%
LD customers 6,470 4,596 40.8% 6,015 7.6%
Consumer ARPU (3) $58.25 $53.53 8.8% $57.16 1.9%
LD customer counts were adjusted from previously reported 4Q04 data to
exclude 115 thousand toll block customers.
BellSouth Corporation
Results by Segment (unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service Reported (a)
1Q05 1Q04 Growth 4Q04 Growth
Access lines
Residence
Retail
Primary 11,752 12,200 -3.7% 11,771 -0.2%
Additional 1,304 1,525 -14.5% 1,346 -3.1%
Total Retail Residence 13,056 13,725 -4.9% 13,117 -0.5%
Wholesale
Resale 133 160 -16.9% 116 14.7%
UNE-P 1,886 1,963 -3.9% 1,972 -4.4%
Total Wholesale
Residence 2,019 2,123 -4.9% 2,088 -3.3%
Total Residence 15,075 15,848 -4.9% 15,205 -0.9%
Business
Retail
Total Retail Business 5,251 5,354 -1.9% 5,245 0.1%
Wholesale
Resale 60 67 -10.4% 58 3.4%
UNE-P 737 714 3.2% 750 -1.7%
Total Wholesale Business 797 781 2.0% 808 -1.4%
Total Business 6,048 6,135 -1.4% 6,053 -0.1%
Other Retail/Wholesale Lines
Retail 30 48 -37.5% 36 -16.7%
Wholesale 66 56 17.9% 62 6.5%
Total Other Retail/Wholesale
Lines 96 104 -7.7% 98 -2.0%
Total Access Lines in Service 21,219 22,087 -3.9% 21,356 -0.6%
ISDN line equivalents
Residence 9 12 -25.0% 9 0.0%
Business 1,416 1,457 -2.8% 1,459 -2.9%
Total ISDN Adjusted ALIS 22,644 23,556 -3.9% 22,824 -0.8%
Access Line Equivalents (b)
Selected digital data services:
Unbundled Loops 298 354 -15.8% 309 -3.6%
DS0 & ADSL 14,335 9,977 43.7% 12,828 11.7%
DS1 7,861 7,341 7.1% 7,695 2.2%
DS3 & higher 32,449 32,154 0.9% 32,745 -0.9%
Total digital data lines in
service 54,943 49,826 10.3% 53,577 2.5%
Total equivalent access lines in
service 77,587 73,382 5.7% 76,401 1.6%
(a) Prior period operating data are often revised at later dates to
reflect updated information. The above information reflects the
latest data available for the periods indicated.
(b) Access line equivalents represent a conversion of non-switched data
circuits to a switched access line basis and is presented for
comparability purposes. Equivalents are calculated by converting
high-speed/high-capacity circuits to the equivalent of a switched
access line based on transport capacity. While the revenues generated
by access line equivalents have a directional relationship with these
counts, revenue growth rates cannot be compared to line growth rates
on an equivalent basis.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Domestic Wireless Segment (1)(a)
1Q05 1Q04 Growth 4Q04 Growth
Operating Revenues
Service revenues (2) $2,968 $1,433 107.1% $2,526 17.5%
Equipment and other revenues 324 154 110.4% 322 0.6%
Total Operating Revenues 3,292 1,587 107.4% 2,848 15.6%
Operating Expenses
Cost of services and products 1,375 594 131.5% 1,181 16.4%
Selling, general, &
administrative expenses 1,159 548 111.5% 1,084 6.9%
Depreciation and amortization 670 221 203.2% 556 20.5%
Total Operating Expenses 3,204 1,363 135.1% 2,821 13.6%
Segment Operating Income 88 224 -60.7% 27 225.9%
Interest Expense 135 79 70.9% 121 11.6%
Other Income (Expense), net 4 (47) 108.5% (35) 111.4%
Income Before Income Taxes (43) 98 -143.9% (129) 66.7%
Provision for Income Taxes (10) 39 -125.6% (56) 82.1%
Segment Net Income (1) ($33) $59 -155.9% ($73) 54.8%
Selected Financial and Operating Data
(amounts in millions, except
customer data in thousands)
Segment operating income $88 $224 -60.7% $27 225.9%
Segment operating margin 2.7% 14.1% -1140 bps 0.9% 180 bps
Cellular/PCS Operating Metrics
(100% Cingular):
Total Customers 50,369 24,618 104.6% 49,109 2.6%
Net Customer Additions 1,419 554 156.1% 1,713 -17.2%
Partitioned Customers and/or
Adjustments (159) 37 -529.7% 21,724 -100.7%
Churn 2.2% 2.7% -50 bps 2.6% -40 bps
Wireless Service ARPU (3) $49.59 $48.30 2.7% $49.51 0.2%
Minutes Of Use Per Subscriber 508 488 4.1% 526 -3.4%
Licensed POPs (4) 292 240 21.7% 290 0.7%
Penetration (4) 17.7% 10.9% 680 bps 17.2% 50 bps
PRO FORMA 1Q05 1Q04 Growth 4Q04 Growth
Total Revenue (40%) 3,292 3,126 5.3% 3,235 1.8%
Net Adds (100%) 1,419 174 N/M* 1,757 -19.2%
ARPU $49.59 $51.26 -3.3% $49.97 -0.8%
* - Not meaningful.
(a) The domestic wireless segment is comprised of BellSouth's 40% share of
the reported results of Cingular Wireless.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Advertising & Publishing (1)
1Q05 1Q04 Growth 4Q04 Growth
Operating Revenues
Advertising and publishing revenues $475 $466 1.9% $475 0.0%
Commission revenues 16 16 0.0% 53 -69.8%
Total Operating Revenues 491 482 1.9% 528 -7.0%
Operating Expenses
Cost of services 90 80 12.5% 94 -4.3%
Selling, general, & administrative
expenses 163 156 4.5% 188 -13.3%
Depreciation and amortization 7 7 0.0% 7 0.0%
Total Operating Expenses 260 243 7.0% 289 -10.0%
Segment Operating Income 231 239 -3.3% 239 -3.3%
Interest Expense 3 2 50.0% 2 50.0%
Other Income (Expense), net (1) - N/M* (1) 0.0%
Income Before Income Taxes 227 237 -4.2% 236 -3.8%
Provision for Income Taxes 86 90 -4.4% 91 -5.5%
Segment Net Income(1) $141 $147 -4.1% $145 -2.8%
Segment operating income $231 $239 -3.3% $239 -3.3%
Segment operating margin 47.0% 49.6%-260bps 45.3% 170 bps
* - Not meaningful.
BellSouth Corporation
Notes
(1) Segment net income (loss) is based on normalized results which exclude
certain one-time transactions and certain corporate intercompany
billings. Certain intersegment revenues are not eliminated for
purposes of management reporting.
(2) Wireless service revenues includes activation fees, access, airtime,
roaming, long distance and value added services. Roaming revenues are
included on a gross basis for the Domestic Wireless segment. Average
monthly revenue per customer is calculated by dividing average monthly
service revenue by average customers.
(3) Management uses average revenue per unit (ARPU) as an indicator of
operating performance of the business. Consumer ARPU - is defined as
consumer revenues during the period divided by average primary access
lines during the period. Wireless Service ARPU - Cellular/PCS is
defined as Cellular/PCS service revenues during the period divided by
average Cellular/PCS subscribers during the period. This metric is
used to compare the recurring revenue amounts being generated on our
network to prior periods and internal targets. We believe that each of
these metrics provides useful information concerning the performance
of our initiatives to attract and retain high value customers and the
use of our network.
(4) Licensed POPs refers to the number of people residing in areas where
Cingular and its partners have licenses to provide cellular or PCS
service including areas where Cingular has not yet commenced service.
Penetration calculation for 1Q05 is based on licensed "operational"
POP's of 285 million.
BellSouth Corporation
Non-GAAP Measures - Reconciliation
(amounts in millions) (unaudited)
Segment Net Income Reconciliation to GAAP Net Income
1Q05 1Q04 4Q04
Communications group segment net income $664 $697 $599
Domestic wireless group segment net income (33) 59 (73)
Advertising and publishing group
segment net income 141 147 145
Corporate, eliminations and other (54) (15) (31)
Normalized net income 718 888 640
Add back Excluded non-recurring or
non-operational items (a) 346 711 724
Consolidated GAAP net income $1,064 $1,599 $1,364
Free Cash Flow
1Q05 1Q04 4Q04
Net cash provided by operating
activities $1,718 $1,728 $1,313
Less Capital Expenditures (750) (635) (1,059)
Operating Free Cash Flow $968 $1,093 $254
Net Debt
March 31, December 31,
2005 2004
Total Debt $18,818 $20,583
Less Cash (516) (680)
Net Debt $18,302 $19,903
Communications Group Operating Income
before Depreciation and Amortization
1Q05 1Q04 4Q04
Operating Revenues $4,618 $4,564 $4,639
Operating Income 1,117 1,187 1,000
Add back Depreciation and amortization 910 891 909
Operating Income before Depreciation
and Amortization $2,027 $2,078 $1,909
Margin 43.9% 45.5% 41.2%
Domestic Wireless Operating Income
before Depreciation and Amortization
1Q05 1Q04 4Q04
Service revenues $2,968 $1,433 $2,526
Equipment and other revenues 324 154 322
Operating revenues 3,292 1,587 2,848
Operating Income 88 224 27
Operating Margin (Operating income
divided by operating revenues) (c) 2.7% 14.1% 0.9%
Add back Depreciation and amortization 670 221 556
Operating Income before Depreciation
and Amortization $758 $445 $583
Margin (Operating Income before
Depr & Amort divided by service
revenues)(c) 25.5% 31.1% 23.1%
Domestic Wireless Pro Forma Revenue
1Q05 1Q04 4Q04
Operating Revenue $3,292 $1,587 $2,848
Add back Pro Forma Adjustments (b) - 1,539 387
Total Operating Revenue (Pro Forma) $3,292 $3,126 $3,235
Domestic Wireless Pro Forma ARPU
1Q05 1Q04 4Q04
Service revenues $2,968 $1,433 $2,526
Less Mobitex data revenues - 23 15
Add back Pro Forma Adjustments (b) - 1,404 353
Service revenue used to calculate Pro
Forma ARPU $2,968 $2,814 $2,864
ARPU (Pro Forma) $49.59 $51.26 $49.97
(a) See pages 3 and 4 for detail of excluded items.
(b) These adjustments are consistent in nature with those set forth in
Cingular's Form 8-K dated October 25, 2004, as amended on November 29,
2004 and March 11, 2005.
(c) Margin calculations for our domestic wireless segment represents 40%
of Cingular's margin calculations adjusted for the related normalized
items as presented on pages 3-4.
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