2Q04 Earnings Results
Bellsouth Corp
26 July 2004
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.
2Q04 2Q03 Growth 1Q04 Growth
Operating Revenues
Communications group $4,562 $4,545 0.4% $4,485 1.7%
Advertising and publishing 507 520 -2.5% 479 5.8%
All other 14 14 0.0% 12 16.7%
Total Operating Revenues 5,083 5,079 0.1% 4,976 2.2%
Operating Expenses
Cost of services and products 1,789 1,765 1.4% 1,798 -0.5%
Selling, general &
administrative expenses 930 989 -6.0% 909 2.3%
Depreciation and amortization 914 953 -4.1% 898 1.8%
Provision for restructuring and
asset impairments 8 18 -55.6% 13 -38.5%
Total Operating Expenses 3,641 3,725 -2.3% 3,618 0.6%
Operating Income 1,442 1,354 6.5% 1,358 6.2%
Interest Expense 211 233 -9.4% 215 -1.9%
Other Income (Expense), net 224 298 -24.8% 630 -64.4%
Income from Continuing Operations
before Income Taxes, Discontinued
Operations and Cumulative Effect
of Changes in Accounting
Principles 1,455 1,419 2.5% 1,773 -17.9%
Provision for Income Taxes 516 511 1.0% 623 -17.2%
Income from Continuing Operations
before Discontinued Operations
and Cumulative Effect of Changes
in Accounting Principles 939 908 3.4% 1,150 -18.3%
Income (Loss) from Discontinued
Operations, net of tax 57 43 32.6% 449 -87.3%
Income Before Cumulative Effect of
Changes in Accounting Principles 996 951 4.7% 1,599 -37.7%
Cumulative Effect of Changes in
Accounting Principle - - N/M* - N/M
Net Income 996 951 4.7% 1,599 -37.7%
Diluted:
Weighted Average Common Shares
Outstanding 1,836 1,851 -0.8% 1,838 -0.1%
Earnings Per Share:
Income from Continuing
Operations $0.51 $0.49 4.1% $0.63 -19.0%
Income from Discontinued
Operations $0.03 $0.02 50.0% $0.24 -87.5%
Cumulative Effect of Changes
in Accounting Principles $0.00 $0.00 N/M $0.00 N/M
Net Income $0.54 $0.51 5.9% $0.87 -37.9%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $1,442 $1,354 6.5% $1,358 6.2%
Operating margin 28.4% 26.7% 170 bps 27.3% 110 bps
Declared dividends per share $0.27 $0.23 17.4% $0.25 8.0%
Capital expenditures $731 $677 8.0% $635 15.1%
Common shares outstanding 1,831 1,847 -0.9% 1,830 0.1%
Book value per share $11.75 $10.32 13.9% $11.48 2.4%
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.
Year-to-Date
2004 2003 Growth
Operating Revenues
Communications group $9,047 $9,053 -0.1%
Advertising and publishing 986 1,014 -2.8%
All other 26 26 0.0%
Total Operating Revenues 10,059 10,093 -0.3%
Operating Expenses
Cost of services and products 3,587 3,440 4.3%
Selling, general & administrative
expenses 1,839 1,908 -3.6%
Depreciation and amortization 1,812 1,902 -4.7%
Provision for restructuring and
asset impairments 21 138 -84.8%
Total Operating Expenses 7,259 7,388 -1.7%
Operating Income 2,800 2,705 3.5%
Interest Expense 426 491 -13.2%
Other Income (Expense), net 854 545 56.7%
Income from Continuing Operations
before Income Taxes, Discontinued
Operations and Cumulative Effect
of Changes in Accounting
Principles 3,228 2,759 17.0%
Provision for Income Taxes 1,139 1,001 13.8%
Income from Continuing Operations
before Discontinued Operations and
Cumulative Effect of Changes in
Accounting Principles 2,089 1,758 18.8%
Income (Loss) from Discontinued
Operations, net of tax 506 108 N/M
Income Before Cumulative Effect of
Changes in Accounting Principles 2,595 1,866 39.1%
Cumulative Effect of Changes in
Accounting Principle - 315 -100.0%
Net Income 2,595 2,181 19.0%
Diluted:
Weighted Average Common Shares
Outstanding 1,837 1,856 -1.0%
Earnings Per Share:
Income from Continuing
Operations $1.14 $0.95 20.0%
Income from Discontinued
Operations $0.28 $0.06 N/M
Cumulative Effect of Changes in
Accounting Principles $0.00 $0.17 -100.0%
Net Income $1.41 $1.18 19.5%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $2,800 $2,705 3.5%
Operating margin 27.8% 26.8% 100 bps
Declared dividends per share $0.52 $0.44 18.2%
Capital expenditures $1,366 $1,265 8.0%
Common shares outstanding
Book value per share
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
page 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.
2Q04 2Q03 Growth 1Q04 Growth
Operating Revenues
Communications group $4,510 $4,504 0.1% $4,488 0.5%
Domestic wireless 1,662 1,549 7.3% 1,577 5.4%
Advertising and publishing 507 520 -2.5% 479 5.8%
All other 14 14 0.0% 12 16.7%
Total Operating Revenues 6,693 6,587 1.6% 6,556 2.1%
Operating Expenses
Cost of services and products 2,320 2,264 2.5% 2,339 -0.8%
Selling, general, &
administrative expenses 1,519 1,490 1.9% 1,464 3.8%
Depreciation and amortization 1,140 1,156 -1.4% 1,119 1.9%
Total Operating Expenses 4,979 4,910 1.4% 4,922 1.2%
Operating Income 1,714 1,677 2.2% 1,634 4.9%
Interest Expense 268 297 -9.8% 272 -1.5%
Other Income (Expense), net 8 63 -87.3% 4 100.0%
Income Before Income Taxes 1,454 1,443 0.8% 1,366 6.4%
Provision for Income Taxes 516 523 -1.3% 478 7.9%
Net Income $938 $920 2.0% $888 5.6%
Diluted:
Weighted Average Common Shares
Outstanding 1,836 1,851 -0.8% 1,838 -0.1%
Earnings Per Share $0.51 $0.50 2.0% $0.48 6.3%
Selected Financial and Operating Data
Operating income $1,714 $1,677 2.2% $1,634 4.9%
Operating margin 25.6% 25.5% 10 bps 24.9% 70 bps
Declared dividends per share $0.27 $0.23 17.4% $0.25 8.0%
Capital expenditures $731 $677 8.0% $635 15.1%
Common shares outstanding 1,831 1,847 -0.9% 1,830 0.1%
Book value per share $11.75 $10.32 13.9% $11.48 2.4%
Total employees 64,113 66,170 -3.1% 64,651 -0.8%
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
page 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.
Year-to-Date
2004 2003 Growth
Operating Revenues
Communications group $8,998 $8,973 0.3%
Domestic wireless 3,239 3,004 7.8%
Advertising and publishing 986 1,014 -2.8%
All other 26 26 0.0%
Total Operating Revenues 13,249 13,017 1.8%
Operating Expenses
Cost of services and products 4,659 4,389 6.2%
Selling, general, & administrative
expenses 2,983 2,894 3.1%
Depreciation and amortization 2,259 2,300 -1.8%
Total Operating Expenses 9,901 9,583 3.3%
Operating Income 3,348 3,434 -2.5%
Interest Expense 540 623 -13.3%
Other Income (Expense), net 12 93 -87.1%
Income Before Income Taxes 2,820 2,904 -2.9%
Provision for Income Taxes 994 1,060 -6.2%
Net Income $1,826 $1,844 -1.0%
Diluted:
Weighted Average Common Shares
Outstanding 1,837 1,856 -1.0%
Earnings Per Share $0.99 $0.99 0.0%
Selected Financial and Operating Data
Operating income $3,348 $3,434 -2.5%
Operating margin 25.3% 26.4% -110 bps
Declared dividends per share $0.52 $0.44 18.2%
Capital expenditures $1,366 $1,265 8.0%
Common shares outstanding
Book value per share
Total employees
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
Second Quarter 2004 Normalizing Items
Discontinued
Cingular Operations Rounding Normal-
GAAP A F ized
Operating Revenues $5,083 $1,610 $- $- $6,693
Operating Expenses 3,641 1,337 - 1 4,979
Operating Income 1,442 273 - (1) 1,714
Interest Expense 211 57 - - 268
Other Income (Expense), net 224 (216) - - 8
Income from Continuing
Operations before Income
Taxes 1,455 - - (1) 1,454
Provision for Income Taxes 516 - - - 516
Income from Continuing
Operations 939 - - (1) 938
Income (Loss) from
Discontinued Operations,
net of tax 57 - (57) - -
Net Income $996 $0 ($57) ($1) $938
Diluted Earnings Per Share $0.54 $0.00 ($0.03) $0.00 $0.51
Year-to-Date 2004 Normalizing Items
Sale of Discontinued
Cingular Sonofon Operations
GAAP A E F
Operating Revenues $10,059 $3,140 $- $-
Operating Expenses 7,259 2,644 - -
Operating Income 2,800 496 - -
Interest Expense 426 114 - -
Other Income (Expense), net 854 (380) (462) -
Income from Continuing
Operations before Income Taxes 3,228 2 (462) -
Provision for Income Taxes 1,139 2 (167) -
Income from Continuing
Operations 2,089 - (295) -
Income (Loss) from
Discontinued Operations,
net of tax 506 - - (506)
Net Income $2,595 $0 ($295) ($506)
Diluted Earnings Per Share $1.41 $0.00 ($0.16) ($0.28)
Year-to-Date 2004 Normalizing Items
SC
Settlement Rounding Normal
G -ized
Operating Revenues $50 $- $13,249
Operating Expenses (3) 1 9,901
Operating Income 53 (1) 3,348
Interest Expense - - 540
Other Income (Expense), net - - 12
Income from Continuing Operations
before Income Taxes 53 (1) 2,820
Provision for Income Taxes 20 - 994
Income from Continuing Operations 33 (1) 1,826
Income (Loss) from Discontinued
Operations, net of tax - - -
Net Income $33 ($1) $1,826
Diluted Earnings Per Share $0.02 $0.00 $0.99
Second Quarter 2003 Normalizing Items
Pension/ Discontinued Normal-
Cingular Severance Operations ized
GAAP A D F
Operating Revenues $5,079 $1,508 $- $- $6,587
Operating Expenses 3,725 1,205 (20) - 4,910
Operating Income 1,354 303 20 - 1,677
Interest Expense 233 64 - - 297
Other Income (Expense), net 298 (235) - - 63
Income from Continuing
Operations before
Income Taxes 1,419 4 20 - 1,443
Provision for Income Taxes 511 4 8 - 523
Income from Continuing
Operations 908 - 12 - 920
Income (Loss) from
Discontinued Operations,
net of tax 43 - - (43) -
Income Before Cumulative
Effect of Changes in
Accounting Principles 951 - 12 (43) 920
Cumulative Effect of
Changes in Accounting
Principles - - - - -
Net Income $951 $0 $12 ($43) $920
Diluted Earnings
Per Share $0.51 $0.00 $0.01 ($0.02) $0.50
Year-to-Date 2003 Normalizing Items
A&P
Cingular Acctg.Change FAS143
GAAP A B C
Operating Revenues $10,093 $2,924 $- $-
Operating Expenses 7,388 2,336 - -
Operating Income 2,705 588 - -
Interest Expense 491 132 - -
Other Income (Expense), net 545 (452) - -
Income from Continuing
Operations before
Income Taxes 2,759 4 - -
Provision for Income Taxes 1,001 4 - -
Income from Continuing Operations 1,758 - - -
Income (Loss) from Discontinued
Operations, net of tax 108 - - -
Income Before Cumulative Effect of
Changes in Accounting Principles 1,866 - - -
Cumulative Effect of Changes in
Accounting Principles 315 - 501 (816)
Net Income $2,181 $0 $501 ($816)
Diluted Earnings Per Share * $1.18 $0.00 $0.27 ($0.44)
* Normalized earnings per share for year-to-date 2003 does not sum due to
rounding.
Year-to-Date 2003 Normalizing Items
Pension/ Discontinued
Severance Operations
D F Normalized
Operating Revenues $- $- $13,017
Operating Expenses (141) - 9,583
Operating Income 141 - 3,434
Interest Expense - - 623
Other Income (Expense), net - - 93
Income from Continuing Operations
before Income Taxes 141 - 2,904
Provision for Income Taxes 55 - 1,060
Income from Continuing Operations 86 - 1,844
Income (Loss) from Discontinued
Operations, net of tax - (108) -
Income Before Cumulative Effect of
Changes in Accounting Principles 86 (108) 1,844
Cumulative Effect of Changes in
Accounting Principles - - -
Net Income $86 ($108) $1,844
Diluted Earnings Per Share * $0.05 ($0.06) $0.99
* Normalized earnings per share for year-to-date 2003 does not sum due to
rounding.
BellSouth Corporation
Notes to Normalized Financial and Operating Data (pages 3 and 4)
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) Change in method of accounting related to our directory publishing
business from the issue basis method to the deferral method - The 2003
amount is a one-time charge to net income of $501.
(c) Adoption of Financial Accounting Standard No. 143 (FAS 143) -
Represents a one-time charge related to the adoption of new accounting
rules associated with obligations related to the retirement of
long-lived assets. The adjustment resulted in a one-time increase to
net income of $816.
(d) Pension/Severance Costs - During 2003, the number of employees who
voluntarily separated and elected to receive lump-sum retirement
benefits exceeded thresholds that require current recognition of
deferred losses related to these employees. These costs include $33
after-tax of severance related costs.
(e) Gain related to the sale of our operations in Denmark.
(f) 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, net of a $52 tax expense in the second quarter of
2004, net of a $16 tax benefit in the first quarter of 2003 and net of
a $11 tax expense in the second quarter of 2003.
(g) SC Regulatory Settlement - In April 2004, BellSouth entered into a
settlement agreement with the South Carolina Consumer Advocate with
respect to previously disclosed litigation (See 2003 10k). The
settlement requires among other things, that BellSouth refund $50
million to its South Carolina customers. The refund was recorded in the
first quarter 2004 as a reduction to revenue.
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
Change Change
vs. vs.
June 30, December 31, Prior March 31, Prior
2004 2003 Year 2004 Quarter
Assets
Current Assets:
Cash and cash equivalents $6,216 $4,556 $1,660 $5,368 $848
Accounts receivable, net of
allowance for uncollectibles
of $338, $496, and $396 2,436 2,870 (434) 2,385 51
Material and supplies 319 375 (56) 293 26
Other current assets 870 1,048 (178) 887 (17)
Assets of discontinued
operations 3,928 0 3,928 3,796 132
Total Current Assets 13,769 8,849 4,920 12,729 1,040
Investments and Advances 8,638 8,552 86 8,206 432
Property, Plant and
Equipment, net 22,104 23,807 (1,703) 22,282 (178)
Deferred Charges and Other
Assets 6,033 5,855 178 5,938 95
Goodwill 249 342 (93) 249 0
Intangible Assets, net 1,501 2,297 (796) 1,525 (24)
Total Assets $52,294 $49,702 $2,592 $50,929 $1,365
Liabilities and Shareholders'
Equity
Current Liabilities:
Debt maturing within one year $3,262 $3,491 ($229) $2,618 $644
Accounts payable 883 1,339 (456) 1,047 (164)
Other current liabilities 3,301 3,628 (327) 3,059 242
Liabilities of discontinued
operations 2,469 0 2,469 2,582 (113)
Total Current Liabilities 9,915 8,458 1,457 9,306 609
Long-Term Debt 10,341 11,489 (1,148) 10,506 (165)
Noncurrent Liabilities:
Deferred income taxes 6,180 5,349 831 5,694 486
Other noncurrent liabilities 4,342 4,694 (352) 4,367 (25)
Total Noncurrent
Liabilities 10,522 10,043 479 10,061 461
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 0 2,020 0
Paid-in capital 7,748 7,729 19 7,708 40
Retained earnings 18,126 16,540 1,586 17,626 500
Accumulated other
comprehensive income (460) (585) 125 (471) 11
Shares held in trust and
treasury (5,918) (5,992) 74 (5,827) (91)
Total Shareholders' Equity 21,516 19,712 1,804 21,056 460
Total Liabilities and
Shareholders' Equity $52,294 $49,702 $2,592 $50,929 $1,365
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
Year-To-Date
2Q04 2Q03 1Q04 2004 2003
Cash Flows from Operating
Activities:
Income from Continuing Operations $939 $908 $1,150 $2,089 $1,758
Adjustments to income from
continuing operations:
Depreciation and amortization 914 953 898 1,812 1,902
Provision for uncollectibles 80 128 115 195 287
Net losses (earnings) of equity
affiliates (151) (177) (104) (255) (348)
Deferred income taxes 434 236 169 603 506
Net (gains) losses on sale or
impairment of equity
securities - 8 3 3 8
Pension income (121) (133) (121) (242) (267)
Pension settlement (gains)
losses - 20 - - 87
Stock-based compensation
expense 30 33 28 58 60
(Gain) loss on sale/disposal of
operations - - (462) (462) -
Net change in:
Accounts receivable and other
current assets (110) 169 (14) (124) 63
Accounts payable and other
current liabilities 43 157 41 84 124
Deferred charges and other
assets (52) 45 (25) (77) 131
Other liabilities and deferred
credits 17 20 3 20 (36)
Other reconciling items, net 46 10 47 93 12
Net cash provided by operating
activities 2,069 2,377 1,728 3,797 4,287
Cash Flows from Investing
Activities:
Capital expenditures (731) (677) (635) (1,366) (1,265)
Investments in debt and equity
securities (276) (7) (140) (416) (21)
Proceeds from sale of securities
and operations - 26 559 559 26
Proceeds from repayment of loans
and advances - 1,899 109 109 1,899
Settlement of derivatives on
advances - (352) (17) (17) (352)
Other investing activities, net 10 2 (5) 5 (1)
Net cash provided by (used for)
investing activities (997) 891 (129) (1,126) 286
Cash Flows from Financing
Activities:
Net borrowing (repayments) of
short-term debt 23 (186) (362) (339) (398)
Proceeds from long-term debt 696 - - 696 -
Repayments of long-term debt (214) (1,044) (7) (221) (1,556)
Dividends paid (457) (388) (457) (914) (759)
Purchase of treasury shares (99) (67) - (99) (322)
Other financing activities, net 3 9 48 51 22
Net cash used for financing
activities (48) (1,676) (778) (826) (3,013)
Net Increase/(Decrease) in Cash
from Continuing Operations 1,024 1,592 821 1,845 1,560
Net Increase/(Decrease) in Cash
from Discontinued Operations (176) 88 (9) (185) 80
Net Increase (Decrease) in Cash
and Cash Equivalents 848 1,680 812 1,660 1,640
Cash and Cash Equivalents at
Beginning of Period 5,368 2,442 4,556 4,556 2,482
Cash and Cash Equivalents at End
of Period $6,216 $4,122 $5,368 $6,216 $4,122
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Communications Group (1)
2Q04 2Q03 Growth 1Q04 Growth
Operating Revenues
Voice $3,153 $3,171 -0.6% $3,169 -0.5%
Data 1,116 1,065 4.8% 1,092 2.2%
Other 334 350 -4.6% 314 6.4%
Total Operating Revenues 4,603 4,586 0.4% 4,575 0.6%
Operating Expenses
Cost of services and products 1,730 1,712 1.1% 1,745 -0.9%
Selling, general, &
administrative expenses 778 768 1.3% 772 0.8%
Depreciation and amortization 903 944 -4.3% 888 1.7%
Total Operating Expenses 3,411 3,424 -0.4% 3,405 0.2%
Segment Operating Income 1,192 1,162 2.6% 1,170 1.9%
Interest Expense 89 101 -11.9% 91 -2.2%
Other Income (Expense), net 7 18 -61.1% 6 16.7%
Income Before Income Taxes 1,110 1,079 2.9% 1,085 2.3%
Provision for Income Taxes 408 400 2.0% 398 2.5%
Segment Net Income(1) $702 $679 3.4% $687 2.2%
Selected Financial and Operating Data
(amounts in millions)
Segment operating income $1,192 $1,162 2.6% $1,170 1.9%
Segment operating margin 25.9% 25.3% 60 bps 25.6% 30 bps
Long distance revenues $479 $305 57.0% $440 8.9%
Access minutes of use 22,753 23,053 -1.3% 23,293 -2.3%
Capital expenditures $713 $665 7.2% $612 16.5%
(amounts in thousands)
Wholesale Lines 3,139 2,359 33.1% 2,960 6.0%
DSL customers 1,738 1,225 41.9% 1,618 7.4%
LD customers 5,131 2,786 84.2% 4,596 11.6%
Consumer ARPU (4) $55.47 $51.23 8.3% $53.68 3.3%
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Communications Group (1)
Year-To-Date
2004 2003 Growth
Operating Revenues
Voice $6,322 $6,334 -0.2%
Data 2,208 2,155 2.5%
Other 648 673 -3.7%
Total Operating Revenues 9,178 9,162 0.2%
Operating Expenses
Cost of services and products 3,475 3,337 4.1%
Selling, general, & administrative
expenses 1,550 1,532 1.2%
Depreciation and amortization 1,791 1,881 -4.8%
Total Operating Expenses 6,816 6,750 1.0%
Segment Operating Income 2,362 2,412 -2.1%
Interest Expense 180 219 -17.8%
Other Income (Expense), net 13 21 -38.1%
Income Before Income Taxes 2,195 2,214 -0.9%
Provision for Income Taxes 806 826 -2.4%
Segment Net Income(1) $1,389 $1,388 0.1%
Selected Financial and Operating Data
(amounts in millions)
Segment operating income $2,362 $2,412 -2.1%
Segment operating margin 25.7% 26.3% -60 bps
Long distance revenues $919 $562 63.5%
Access minutes of use 46,046 45,848 0.4%
Capital expenditures $1,325 $1,231 7.6%
(amounts in thousands)
Wholesale Lines
DSL customers
LD customers
Consumer ARPU (4)
BellSouth Corporation
Results by Segment (unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service Reported (a)
2Q04 2Q03 Growth 1Q04 Growth
Access lines
Residence
Retail
Primary 11,876 12,836 -7.5% 12,200 -2.7%
Additional 1,447 1,758 -17.7% 1,525 -5.1%
Total Retail Residence 13,323 14,594 -8.7% 13,725 -2.9%
Wholesale
Resale 127 238 -46.6% 160 -20.6%
UNE-P 2,149 1,369 57.0% 1,963 9.5%
Total Wholesale
Residence 2,276 1,607 41.6% 2,123 7.2%
Total Residence 15,599 16,201 -3.7% 15,848 -1.6%
Business
Retail
Total Retail Business 5,282 5,542 -4.7% 5,354 -1.3%
Wholesale
Resale 63 75 -16.0% 67 -6.0%
UNE-P 740 634 16.7% 714 3.6%
Total Wholesale Business 803 709 13.3% 781 2.8%
Total Business 6,085 6,251 -2.7% 6,135 -0.8%
Other Retail/Wholesale Lines
Retail 42 123 -65.9% 48 -12.5%
Wholesale 60 43 39.5% 56 7.1%
Total Other Retail/Wholesale
Lines 102 166 -38.6% 104 -1.9%
Total Access Lines in Service 21,786 22,618 -3.7% 22,087 -1.4%
ISDN line equivalents
Residence 11 16 -31.3% 12 -8.3%
Business 1,477 1,516 -2.6% 1,457 1.4%
Total ISDN Adjusted ALIS 23,274 24,150 -3.6% 23,556 -1.2%
Access Line Equivalents (b)
Selected digital data services:
Unbundled Loops 343 359 -4.5% 354 -3.1%
DS0 & ADSL 10,695 7,647 39.9% 9,977 7.2%
DS1 7,475 7,000 6.8% 7,341 1.8%
DS3 & higher 32,547 31,832 2.2% 32,154 1.2%
Total digital data lines in
service 51,060 46,838 9.0% 49,826 2.5%
Total equivalent access lines in
service 74,334 70,988 4.7% 73,382 1.3%
(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)
2Q04 2Q03 Growth 1Q04 Growth
Operating Revenues
Service revenues (2) $1,521 $1,447 5.1% $1,423 6.9%
Equipment and other revenues 141 102 38.2% 154 -8.4%
Total Operating Revenues 1,662 1,549 7.3% 1,577 5.4%
Operating Expenses
Cost of services and products 579 536 8.0% 584 -0.9%
Selling, general, &
administrative expenses 585 507 15.4% 548 6.8%
Depreciation and amortization 226 203 11.3% 221 2.3%
Total Operating Expenses 1,390 1,246 11.6% 1,353 2.7%
Segment Operating Income 272 303 -10.2% 224 21.4%
Interest Expense 80 92 -13.0% 79 1.3%
Other Income (Expense), net (52) (39) -33.3% (47) -10.6%
Income Before Income Taxes 140 172 -18.6% 98 42.9%
Provision for Income Taxes 51 68 -25.0% 39 30.8%
Segment Net Income (1) $89 $104 -14.4% $59 50.8%
Selected Financial and
Operating Data
(amounts in millions, except
customer data in thousands)
2Q04 2Q03 Growth 1Q04 Growth
Segment operating income $272 $303 -10.2% $224 21.4%
Segment operating margin 16.4% 19.6% -320 bps 14.2% 220 bps
Cellular/PCS Operating Metrics:
Total Customers 10,018 9,056 10.6% 9,847 1.7%
Net Customer Additions 171 216 -20.8% 222 -23.0%
Partitioned Customers and/or
Adjustments (1) 6 -116.7% 15 -106.7%
Churn 2.7% 2.5% 20 bps 2.7% 0 bps
Wireless Service ARPU (3) $50.32 $53.12 -5.3% $47.95 4.9%
Minutes Of Use Per Subscriber 523 445 17.5% 488 7.2%
Licensed POPs (4) 97 94 3.2% 96 1.0%
Penetration (4) 11.1% 10.2% 90 bps 10.9% 20 bps
Cingular Interactive Operating
Metrics:
Total Customers 294 315 -6.7% 307 -4.2%
Net Customer Additions (14) (19) 26.3% (8) -75.0%
(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)
Domestic Wireless Segment (1)(a)
Year-To-Date
2004 2003 Growth
Operating Revenues
Service revenues (2) $2,944 $2,804 5.0%
Equipment and other revenues 295 200 47.5%
Total Operating Revenues 3,239 3,004 7.8%
Operating Expenses
Cost of services and products 1,163 1,023 13.7%
Selling, general, & administrative
expenses 1,133 994 14.0%
Depreciation and amortization 447 398 12.3%
Total Operating Expenses 2,743 2,415 13.6%
Segment Operating Income 496 589 -15.8%
Interest Expense 159 182 -12.6%
Other Income (Expense), net (99) (70) -41.4%
Income Before Income Taxes 238 337 -29.4%
Provision for Income Taxes 90 132 -31.8%
Segment Net Income (1) $148 $205 -27.8%
Selected Financial and Operating Data
(amounts in millions, except
customer data in thousands)
Year-To-Date
2004 2003 Growth
Segment operating income $496 $589 -15.8%
Segment operating margin 15.3% 19.6% -430 bps
Cellular/PCS Operating Metrics:
Total Customers 10,018 9,056 10.6%
Net Customer Additions 393 292 34.6%
Partitioned Customers and/or
Adjustments 14 6 133.3%
Churn 2.7% 2.6% 10 bps
Wireless Service ARPU (3) $49.15 $51.95 -5.4%
Minutes Of Use Per Subscriber 505 425 18.8%
Licensed POPs (4) 97 94 3.2%
Penetration (4) 11.1% 10.2% 90 bps
Cingular Interactive Operating Metrics:
Total Customers 294 315 -6.7%
Net Customer Additions (22) (12) -83.3%
(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)
2Q04 2Q03 Growth 1Q04 Growth
Operating Revenues
Advertising and publishing revenues 466 480 -2.9% 466 0.0%
Commission revenues 45 45 0.0% 16 181.3%
Total Operating Revenues 511 525 -2.7% 482 6.0%
Operating Expenses
Cost of services 90 82 9.8% 80 12.5%
Selling, general, & administrative
expenses 167 184 -9.2% 156 7.1%
Depreciation and amortization 7 7 0.0% 7 0.0%
Total Operating Expenses 264 273 -3.3% 243 8.6%
Segment Operating Income 247 252 -2.0% 239 3.3%
Interest Expense 2 2 0.0% 2 0.0%
Other Income (Expense), net 1 2 -50.0% - N/M*
Income Before Income Taxes 246 252 -2.4% 237 3.8%
Provision for Income Taxes 96 95 1.1% 90 6.7%
Segment Net Income(1) $150 $157 -4.5% $147 2.0%
Segment operating income $247 $252 -2.0% $239 3.3%
Segment operating margin 48.3% 48.0% 30 bps 49.6% -130 bps
* - Not meaningful.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Advertising & Publishing (1)
Year-To-Date
2004 2003 Growth
Operating Revenues
Advertising and publishing revenues 932 961 -3.0%
Commission revenues 61 62 -1.6%
Total Operating Revenues 993 1,023 -2.9%
Operating Expenses
Cost of services 170 160 6.3%
Selling, general, & administrative
expenses 323 354 -8.8%
Depreciation and amortization 14 14 0.0%
Total Operating Expenses 507 528 -4.0%
Segment Operating Income 486 495 -1.8%
Interest Expense 4 4 0.0%
Other Income (Expense), net 1 1 0.0%
Income Before Income Taxes 483 492 -1.8%
Provision for Income Taxes 186 186 0.0%
Segment Net Income(1) $297 $306 -2.9%
Segment operating income $486 $495 -1.8%
Segment operating margin 48.9% 48.4% 50 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. 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, Salmon and T-Mobile USA, Inc., have licenses
to provide cellular or PCS service, including the New York City
metropolitan area, and in areas where Cingular has not yet commenced
service, such as the Salt Lake City area. As a result of the
consolidation of Salmon, effective January 1, 2003, Salmon's licensed
POPs of 4 million (BellSouth's 40% share) are included in the 2003
total licensed POPs. Penetration calculation is based upon licensed
operational POPs of 89 million (BellSouth's 40% share). The New York
City metropolitan area is also included in the penetration calculation.
BellSouth Corporation
Non-GAAP Measures - Reconciliation
(amounts in millions) (unaudited)
Segment Net Income Reconciliation to GAAP Net Income
Year-to-Date
2Q04 2Q03 1Q04 2004 2003
Communications group segment net
income $702 $679 $687 $1,389 $1,388
Domestic wireless group segment net
income 89 104 59 148 205
Advertising and publishing group
segment net income 150 157 147 297 306
Corporate, eliminations and other (3) (20) (5) (8) (55)
Normalized net income 938 920 888 1,826 1,844
Add back Excluded non-recurring or
non-operational items (a) 58 31 711 769 337
Consolidated GAAP net income $996 $951 $1,599 $2,595 $2,181
Free Cash Flow Year-to-Date
2Q04 2Q03 1Q04 2004 2003
Net cash provided by operating
activities $2,069 $2,377 $1,728 $3,797 $4,287
Less Capital Expenditures (731) (677) (635) (1,366) (1,265)
Operating Free Cash Flow $1,338 $1,700 $1,093 $2,431 $3,022
Net Debt
June 30, December 31, March 31,
2004 2003 2004
Total Debt $13,603 $14,980 $13,124
Less Cash (6,216) (4,556) (5,368)
Net Debt $7,387 $10,424 $7,756
Communications Group Operating Income before Depreciation
and Amortization
Year-to-Date
2Q04 2Q03 1Q04 2004 2003
Operating Revenues $4,603 $4,586 $4,575 $9,178 $9,162
Operating Income 1,192 1,162 1,170 2,362 2,412
Add back Depreciation and
amortization 903 944 888 1,791 1,881
Operating Income before
Depreciation and Amortization $2,095 $2,106 $2,058 $4,153 $4,293
Margin 45.5% 45.9% 45.0% 45.2% 46.9%
(a) See pages 3 and 4 for detail of excluded items.
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