3rd Quarter Results
Bellsouth Corp
22 October 2002
For Immediate Release
October 22, 2002
For More Information Contact:
Jeff Battcher 404-249-2793
BellSouth Reports Third Quarter Earnings
ATLANTA - BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of
39 cents in the third quarter of 2002, compared to breakeven EPS (0 cents) in
the same quarter of 2001. Normalized for special items, EPS in the third quarter
of 2002 was 52 cents, compared to normalized EPS of 59 cents in the same quarter
a year ago.
Capital expenditures for the first nine months totaled $2.9 billion, a reduction
of 39.4 percent compared to $4.7 billion during the same period a year earlier.
Operating free cash flow (defined as cash flow from operations less capital
expenditures) was $1.5 billion in the third quarter of 2002, and totaled $3.7
billion year-to-date. Total debt has been reduced $2.5 billion, or 12.2 percent,
since the beginning of 2002.
Consolidated revenues, which do not include BellSouth's 40 percent share of
Cingular Wireless, were $5.54 billion, compared to $6.01 billion in the third
quarter of 2001. Normalized total operating revenues, which include Cingular,
were $7.02 billion, a decline of 5.7 percent versus the third quarter of 2001.
Reported net income was $733 million, compared to reported net income of $7
million in the third quarter a year ago. Normalized net income was $970 million,
compared to $1.12 billion in the third quarter of 2001.
BellSouth's operating results continued to reflect weak demand for
communications services, both in the United States and Latin America. The impact
of retail access line market share loss in the U.S., as well as currency
devaluations in Argentina and Venezuela, also affected results. Business
failures, including those in the telecommunications industry, also continued to
negatively affect demand and financial results.
The company said it is eliminating certain service offerings, resulting in a
charge in the third quarter. See Special Items below.
Communications Group
Total Communications Group revenues were $4.62 billion, a decline of 3.7 percent
compared to the third quarter of 2001. Cash operating expenses decreased 3.7
percent, primarily as a function of reduced labor expense. BellSouth added
121,000 new DSL high-speed Internet service customers in the third quarter,
compared to 74,000 in the previous three months. DSL customers nearly doubled on
an annual basis, increasing 99.6 percent to 924,000 at September 30. Data
revenues were $1.07 billion, a decline of 1.3 percent compared to the third
quarter of 2001.
At the end of the quarter, BellSouth was serving approximately 416,000 consumer
and business long distance customers. These included approximately 11 percent of
its residence and approximately 21 percent of its mass market small business
accounts in Georgia and Louisiana, where the company has been marketing long
distance since late May. On September 27, it launched BellSouth(R) Long Distance
service in five additional states. Long Distance applications for BellSouth's
two remaining states, Florida and Tennessee, are currently being considered by
the Federal Communications Commission.
The company launched the BellSouth(R) Answers package in all its states in late
July. With BellSouth Answers, residential customers combine on a single bill the
wireline and wireless communications services they want. The introduction of
long distance service and BellSouth Answers helped increase the number of
customers purchasing packages that combine local service with additional data,
voice, wireless and Internet services to approximately 1 million.
Domestic Wireless / Cingular
BellSouth's share of Cingular's domestic wireless revenues in the third quarter
of 2002 was $1.51 billion, a gain of 3.1 percent compared to the same quarter a
year ago. BellSouth's share of Cingular operating income was $247 million in the
quarter, compared to $291 million in the same three months of 2001. Cingular
experienced a net reduction of 107,000 customers during the third quarter,
ending the quarter with 22.1 million cellular and PCS customers nationwide.
Latin America Group
Consolidated Latin America revenues were $495 million in the third quarter of
2002, a decline of 30.9 percent compared to the same period of the prior year.
Revenues reflected the impacts of currency devaluations, principally in
Argentina and Venezuela, as well as weak economic conditions in those countries.
EBITDA (earnings before interest, taxes, and depreciation and amortization)
margin increased to 34.1 percent from 31.3 percent in the third quarter of 2001.
On a consolidated basis, Latin America Group wireless voice customers declined
by 152,000 during the third quarter, compared to a net reduction of 68,000
customers in the second quarter of 2002. Year-over-year, customers declined by
179,000, or 2.2 percent. BellSouth and its partners serve a total of 11.3
million customers in 11 Central and South American countries, including 225,000
fixed wireless customers.
Latin America segment and BellSouth's consolidated results include a favorable
tax adjustment of $33 million related to one of the Latin American investments.
Advertising & Publishing
Domestic Advertising & Publishing revenues were $464 million in the third
quarter of 2002, a decline of 6.5 percent compared to the same period of the
prior year. EBITDA margin decreased to 43.5 percent due to increased
uncollectible expense as a result of continued economic weakness.
Special Items
In the third quarter of 2002, the difference between reported EPS of 39 cents
and normalized EPS of 52 cents is the result of four special charges:
Workforce reduction 6 cents
Service curtailments/Asset impairments 5 cents
Foreign currency transaction losses 1 cent
Early extinguishment of debt 1 cent
Total of special charges 13 cents
Workforce reduction - As announced May 17, BellSouth is in the process of
reducing its workforce by approximately 5,000 positions to reduce operating
costs in response to a slow economy, increased competition and regulatory
pricing pressures. The charge represents the third quarter true-up for severance
costs associated with the workforce reduction. Also included are pension
settlement losses. An initial charge of 12 cents per share was recognized in the
second quarter.
Service curtailments/Asset impairments - BellSouth recognized charges related to
its decision to eliminate sales of certain services related to wholesale long
distance, e-business centers and, as previously announced, public communications
(pay phones). In order to meet the needs of existing and new customers,
BellSouth will collaborate with other providers of these services. BellSouth
also will discontinue operations at its multi-media Internet exchange in Miami.
Charges relate primarily to asset impairments, early termination penalties on
contracts and leases, and severance for affected employees.
Foreign currency transaction losses - Primarily associated with the
remeasurement of U.S. dollar-denominated liabilities in Latin America.
Early extinguishment of debt -- BellSouth incurred one-time expenses associated
with the early extinguishment of $620 million of long-term debt.
2002 Guidance
Company guidance for full year 2002 remains as follows:
Total operating revenue growth (including Cingular) -2% to -3%
Normalized earnings per share* $2.06 to $2.13
Capital expenditures (excluding Cingular) $3.7 to $3.9 billion
Data revenue growth Mid-single digits
DSL high-speed Internet customers at 12/31 1.0 million
*Includes effect of cessation of amortization of goodwill and indefinite-lived
assets under FAS 142. Excludes foreign currency transaction gains or losses.
________________________
About BellSouth Corporation
BellSouth Corporation is a Fortune 100 communications services company
headquartered in Atlanta, Georgia, serving more than 44 million customers in the
United States and 14 other countries.
Consistently recognized for customer satisfaction, BellSouth provides a full
array of broadband data solutions to large, medium and small businesses. In the
residential market, BellSouth offers DSL high-speed Internet access, advanced
voice features and other services. BellSouth offers long distance service for
both business and consumer customers in Alabama, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina and South Carolina. The company's BellSouth(R)
Answers package combines local and long distance service with an array of
calling features; wireless data, voice and e-mail services; and high-speed DSL
or dial-up Internet service. BellSouth also provides online and directory
advertising services through BellSouth(R) Real PagesSM.com and The Real Yellow
Pages(R).
BellSouth owns 40 percent of Cingular Wireless, the nation's second largest
wireless company, which provides innovative data and voice services.
Further information about BellSouth's third quarter earnings can be accessed at
www.bellsouth.com/investor. The press release, financial statements and BLS
Investor News summarizing highlights of the quarter are available on the
BellSouth Investor Relations Web site starting today at 8 a.m. Eastern Time.
BellSouth will host a conference call with investors today at 10 a.m. Eastern
Time. Participating on the call will be BellSouth CFO Ron Dykes and Investor
Relations Executive Director Patrick Moore. Dial-in information for the
conference call is:
Domestic: 888-370-1863
International: 706-634-1735
A replay of the call will be available beginning at approximately 1 p.m. Eastern
Time today, through October 29. The replay can be accessed by dialing:
Domestic: 800-642-1687 - Reservation number: 5585422
International: 706-645-9291 - Reservation number: 5585422
In addition to historical information, this document contains 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 domestic or international markets where we operate or
have material investments which would affect demand for our services; (ii)
currency devaluations and continued economic weakness in certain international
markets in which we operate or have material investments; (iii) the intensity of
competitive activity and its resulting impact on pricing strategies and new
product offerings; (iv) higher than anticipated cash requirements for
investments, new business initiatives and acquisitions; (v) unfavorable
regulatory actions and (vi) 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.
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 5, 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 2, 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.
Certain reclassifications have been made to prior periods to conform to the
current presentation.
Year-to-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Operating Revenues
Communications group $ 4,539 $ 4,733 -4.1% $ 4,586 -1.0% $ 13,739 $ 14,067 -2.3%
Domestic wireless 1,511 1,465 3.1% 1,500 0.7% 4,428 4,189 5.7%
Latin America 494 710 -30.4% 597 -17.3% 1,747 2,227 -21.6%
Domestic advertising and 458 493 -7.1% 538 -14.9% 1,375 1,363 0.9%
publishing
All other 13 37 -64.9% 14 -7.1% 44 106 -58.5%
Total Operating Revenues 7,015 7,438 -5.7% 7,235 -3.0% 21,333 21,952 -2.8%
Operating Expenses
Operational and support 3,901 4,064 -4.0% 3,992 -2.3% 11,798 11,959 -1.3%
expenses
Depreciation and amortization 1,351 1,376 -1.8% 1,353 -0.1% 4,045 4,105 -1.5%
Total Operating Expenses 5,252 5,440 -3.5% 5,345 -1.7% 15,843 16,064 -1.4%
Operating Income 1,763 1,998 -11.8% 1,890 -6.7% 5,490 5,888 -6.8%
Interest Expense 348 360 -3.3% 362 -3.9% 1,069 1,170 -8.6%
Other Income (Expense), net 55 105 N/M* 50 N/M* 183 275 N/M*
Income Before Income Taxes 1,470 1,743 -15.7% 1,578 -6.8% 4,604 4,993 -7.8%
Provision for Income Taxes 500 625 -20.0% 582 -14.1% 1,622 1,772 -8.5%
Net Income $970 $1,118 -13.2% $996 -2.6% $2,982 $3,221 -7.4%
Diluted:
Weighted Average Common Shares 1,870 1,887 -0.9% 1,882 -0.6% 1,880 1,886 -0.3%
Outstanding
Earnings Per Share $0.52 $0.59 -11.9% $0.53 -1.9% $1.59 $1.71 -7.0%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA (5) $3,114 $3,374 -7.7% $3,243 -4.0% $9,535 $9,993 -4.6%
EBITDA margin (6) 44.4% 45.4% -100 bps 44.8% -40 bps 44.7% 45.5% -80 bps
Dividends per share $0.20 $0.19 5.3% $0.20 0.0% $0.59 $0.57 3.5%
Capital expenditures $835 $1,367 -38.9% $1,023 -18.4% $2,863 $4,724 -39.4%
Common shares outstanding 1,862 1,877 -0.8% 1,873 -0.6%
Book value per share $9.43 $9.61 -1.9% $9.48 -0.5%
Debt ratio 50.1% 52.6% -250 bps 50.3% -20 bps
Total employees (7) 80,882 91,306 -11.4% 84,617 -4.4%
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
Third Quarter Normalizing Items
2002
GAAP A G J M O Normalized
Operating $ 5,542 $ 1,473 $ - $ - $ - $ - $ 7,015
Revenues
Operating 4,354 1,225 - (192) - (135) 5,252
Expenses
Operating 1,188 248 - 192 - 135 1,763
Income
Interest 285 63 - - - - 348
Expense
Other Income (Expense), net 213 (185) (10) - 37 - 55
Income Before Income Taxes 1,116 - (10) 192 37 135 1,470
Provision for Income Taxes 383 - (23) 75 15 50 500
Net Income $733 $0 $13 $117 $22 $85 $970
Diluted Earnings Per Share * $0.39 $0.00 $0.01 $0.06 $0.01 $0.05 $0.52
Year-to-Date Normalizing Items
2002
GAAP A C D E F G J K M O Normalized
Operating $16,856 $4,314 $ - $ - $ - $163 $ - $ - $ - $ - $ - $21,333
Revenues
Operating 13,015 3,512 - - - - - (549) - - (135) 15,843
Expenses
Operating 3,841 802 - - - 163 - 549 - - 135 5,490
Income
Interest 890 179 - - - - - - - - - 1,069
Expense
Other Income (Expense), net 791 (623) (1,339) 388 383 - 546 - - 37 183
Income Before Taxes and Change 3,742 - (1,339) 388 383 163 546 549 - 37 135 4,604
in Accounting Principle
Provision for Income Taxes 1,561 - (482) 114 120 62 (25) 207 - 15 50 1,622
Cumulative effect of change in (1,285) - - - - - - - 1,285 - - -
accounting principle
Net Income $896 $0 ($857) $274 $263 $101 $571 $342 $1,285 $22 $85 $2,982
Diluted Earnings Per Share * $0.48 $0.00 ($0.46) $0.15 $0.14 $0.05 $0.30 $0.18 $0.68 $0.01 $0.05 $1.59
* Normalized earnings per share for year-to-date 2002 does not sum due to rounding.
Third Quarter Normalizing Items
2001
GAAP A B D G I N Normalized
Operating $ 6,013 $1,443 $(15) $ - $ - $ (3) $ - $7,438
Revenues
Operating 4,316 1,152 (15) - - (13) - 5,440
Expenses
Operating 1,697 291 - - - 10 - 1,998
Income
Interest 304 56 - - - - - 360
Expense
Other Income (Expense), net (1,336) (235) - 1,645 56 (1) (24) 105
Income Before Income Taxes 57 - - 1,645 56 9 (24) 1,743
Provision for Income Taxes 50 - - 576 1 3 (5) 625
Net Income $7 $0 $0 $1,069 $55 $6 ($19) $1,118
Diluted Earnings Per Share $0.00 $0.00 $0.00 $0.57 $0.03 $0.00 ($0.01) $0.59
Year-to-Date Normalizing Items
2001
GAAP A B D G H I L N Normalized
Operating $17,917 $4,115 $(58) $ - $ - $ - $ (22) $ - $ - $ 21,952
Revenues
Operating 13,069 3,317 (58) - - (73) (48) (143) - 16,064
Expenses
Operating 4,848 798 - - - 73 26 143 - 5,888
Income
Interest 998 172 - - - - - - - 1,170
Expense
Other Income (Expense), net (982) (626) - 1,695 212 - - - (24) 275
Income Before Income Taxes 2,868 - - 1,695 212 73 26 143 (24) 4,993
Provision for Income Taxes 1,090 - - 594 2 26 10 55 (5) 1,772
Net Income $1,778 $0 $0 $1,101 $210 $47 $16 $88 ($19) $3,221
Diluted Earnings Per Share $0.94 $0.00 $0.00 $0.58 $0.11 $0.02 $0.01 $0.05 ($0.01) $1.71
* Normalized earnings per share for year-to-date 2001 does not sum due to rounding.
BellSouth Corporation
Notes to Normalized Financial and Operating 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) Gross versus net presentation - Communications group revenues for third
quarter 2001 have been reduced by $15 and by $58 for year-to-date 2001 to
reflect a change in reporting of gross receipts taxes in Florida. Beginning in
the fourth quarter of 2001, we are required to account for the tax collected
from customers as a pass-through billing (I.e. net presentation). This adjustment
is neutral to EBITDA as it reduces revenues and expenses by an equal amount.
(c) Gain on E-Plus conversion and sale of KPN stock - In March 2002, we
exchanged our 22.5% investment in E-Plus, a German wireless carrier, for
234.7 million shares of KPN Royal. As a result of this exchange,
we recorded a pretax gain of $1,335 to recognize the difference between the
fair value of the KPN shares obtained and our investment balance in E-Plus.
In addition, we subsequently sold the KPN shares for cash proceeds of $1,076 and
recognized a pretax loss of $27. The amount shown also includes income of $20
generated from the settlement of forward contracts associated with advances to
E-Plus. These advances were restructured in conjunction with the ownership
exchange.
(d) Losses on equity investments - Represents charges for the impairment of
and open market sales of an equity investment in Qwest Communications.
Second quarter 2002 included $63 impairment related to an investment in
Guatemala and $6 in losses for the liquidation of an investment in Crown Castle.
(e) Brazil loan impairments - Represents recognition of an impairment on
shareholder loans to our Brazilian equity investments, as well as the
recognition of a guarantee on a portion of those operations' debt.
(f) A&P unbilled receivable adjustment - During first quarter 2002,
BellSouth determined that the unbilled receivable balance at its
advertising and publishing subsidiary was overstated. As a result,
BellSouth recorded a reduction to advertising and publishing revenues.
(g) Foreign currency transaction losses - Represents net transaction losses
incurred by our Latin American operations related primarily to US Dollar
denominated liabilities. These losses reflect the impact of the
weakening of those operations' local currencies against the U.S. Dollar
which requires recognition in the current period income statement.
(h) Postretirement benefit expense - The amount shown represents expense
for changes in postretirement medical benefit obligations.
(i) Results of Wireless Video Business - Represents losses incurred in 2001
related to the exit of the wireless video entertainment business.
(j) Workforce Reduction - As announced May 17, 2002, BellSouth is in the
process of reducing its workforce by approximately 5,000 positions to
reduce operating costs in response to a slow economy,
Increased competition and regulatory pricing pressures. The charge in third
quarter represents the accrual for severance payments and employee benefits
enhancements ($53 after tax). Also includes Pension settlement losses
($65 after tax) primarily resulting from the workforce reduction. An initial
accrual related to the plan was recognized in second quarter 2002 results.
(k) Reflects a one-time charge related to the adoption of new accounting
rules for goodwill, known as Financial Accounting Standard No. 142 (FAS
142). The non-cash charge reduced the value of goodwill
on the company's balance sheet by approximately $1.3 billion. The effect of
FAS 142 was recorded as an adjustment to BellSouth's first quarter 2002
results.
(l) Adjustment to ISP Accrual - Represents the loss incurred for prior
claims from competitive local exchange carriers regarding reciprocal
compensation for ISP traffic.
(m) Early extinguishment of debt - Represents one-time expenses associated
with the early extinguishment of $620 million of long-term debt.
(n) Gain on sale of Skycell
(o) Service curtailments/Asset impairments - Represents charges related to
the decision to elimate sales of certain services: wholesale long distance
($17 after tax), e-business services ($44 after tax),
multi-media internet exchange ($20 after tax) and public communications
(pay phones) ($4 after tax). Charges relate to asset impairments, early
termination penalties on contracts and leases, and severance for affected
employees.
BellSouth Corporation
Consolidated Statements of Income - Reported Basis (unaudited)
(amounts in millions, except per share data)
Year-To-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Operating Revenues
Communications group $ 4,577 $ 4,770 -4.0% $ 4,631 -1.2% $ 13,853 $ 14,199 -2.4%
Latin 494 710 -30.4% 597 -17.3% 1,747 2,227 -21.6%
America
Domestic advertising and 458 493 -7.1% 538 -14.9% 1,212 1,363 -11.1%
publishing
All other 13 40 -67.5% 14 -7.1% 44 128 -65.6%
Total Operating 5,542 6,013 -7.8% 5,780 -4.1% 16,856 17,917 -5.9%
Revenues
Operating Expenses
Operational and support 2,867 3,138 -8.6% 3,008 -4.7% 8,840 9,531 -7.3%
expenses
Depreciation and 1,161 1,178 -1.4% 1,170 -0.8% 3,492 3,538 -1.3%
amortization
Provision for restructuring 326 - N/M* 357 N/M* 683 - N/M*
and asset impairments
Total Operating 4,354 4,316 0.9% 4,535 -4.0% 13,015 13,069 -0.4%
Expenses
Operating Income 1,188 1,697 -30.0% 1,245 -4.6% 3,841 4,848 -20.8%
Interest Expense 285 304 -6.3% 301 -5.3% 890 998 -10.8%
Other Income 213 (1,336) N/M (240) N/M 791 (982) N/M
(Expense), net
Income Before Taxes and Accounting 1,116 57 N/M 704 58.5% 3,742 2,868 30.5%
Change
Provision for 383 50 666.0% 411 -6.8% 1,561 1,090 43.2%
Income Taxes
Cumulative Effect of Change in - - N/M - N/M (1,285) - N/M
Accounting Principle
Net Income $733 $7 N/M $293 150.2% $896 $1,778 -49.6%
Diluted:
Weighted Average Common 1,870 1,887 -0.9% 1,882 -0.6% 1,880 1,886 -0.3%
Shares Outstanding
Earnings Per Share $0.39 $0.00 N/M $0.16 143.8% $0.48 $0.94 -48.9%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA(5) $2,675 $2,875 -7.0% $2,772 -3.5% $8,016 $8,386 -4.4%
EBITDA margin (6) 48.3% 47.8% 50 bps 48.0% 30 bps 47.6% 46.8% 80 bps
Return on average equity (annualized) 16.5% 0.2% 1630 bps 6.5% 1000 bps 6.6% 13.4% -680 bps
Return on average total capital 11.0% 2.9% 810 bps 6.0% 500 bps 6.0% 9.5% -350 bps
annualized)
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
September December Change September Change
30, 31, vs. 30, vs.
2002 2001 Prior 2001 Prior
Year-End Year
Assets
Current Assets:
Cash and cash equivalents $2,050 $592 $1,458 $854 $1,196
Accounts receivable, net of allowance for 4,150 4,989 (839) 4,931 (781)
uncollectibles of $453, $466, and $407
Material and supplies 295 382 (87) 377 (82)
Other current assets 1,053 892 161 1,151 (98)
Total Current Assets 7,548 6,855 693 7,313 235
Investments and Advances 10,016 10,620 (604) 10,546 (530)
Property, Plant and Equipment, net 23,660 24,943 (1,283) 25,233 (1,573)
Deferred Charges and Other Assets 5,666 5,122 544 4,876 790
Goodwill 304 1,639 (1,335) 1,709 (1,405)
Intangible Assets, net 2,567 2,867 (300) 2,564 3
Total $49,761 $52,046 ($2,285) $52,241 ($2,480)
Assets
Liabilities and Shareholders' Equity
Current Liabilities:
Debt maturing within one year $5,387 $5,111 $276 $6,961 ($1,574)
Accounts payable 1,281 1,656 (375) 1,613 (332)
Other current liabilities 3,495 3,301 194 4,241 (746)
Total Current Liabilities 10,163 10,068 95 12,815 (2,652)
Long-Term Debt 12,287 15,014 (2,727) 13,105 (818)
Noncurrent Liabilities:
Deferred income taxes 4,584 3,206 1,378 3,290 1,294
Other noncurrent liabilities 5,193 5,161 32 4,991 202
Total Noncurrent 9,777 8,367 1,410 8,281 1,496
Liabilities
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 0 2,020 0
Paid-in capital 6,881 6,875 6 6,766 115
Retained earnings 14,839 15,137 (298) 14,704 135
Accumulated other comprehensive income (786) (294) (492) (277) (509)
Shares held in trust and treasury (5,351) (4,996) (355) (5,034) (317)
Guarantee of ESOP debt (69) (145) 76 (139) 70
Total Shareholders' Equity 17,534 18,597 (1,063) 18,040 (506)
Total Liabilities and Shareholders' Equity $49,761 $52,046 ($2,285) $52,241 ($2,480)
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
Year-To-Date
3Q02 3Q01 2Q02 2002 2001
Cash Flows from Operating Activities:
Net income $ 733 $ 7 $ 293 $ 896 $ 1,778
Adjustments to net income:
Depreciation and amortization 1,161 1,178 1,170 3,492 3,538
Provision for uncollectibles 192 151 255 603 370
Net losses (earnings) of equity affiliates (114) (167) (176) (455) (357)
Dividends received from equity affiliates - 65 - - 279
Minority interests in income of (3) 15 4 (80) 5
subsidiaries
Deferred income taxes 227 (499) 198 1,036 (343)
Net losses on sale or impairment of equity - 1,654 152 388 1,704
securities
Postretirement benefit curtailment charge - - - - 72
related to Cingular
Brazil loan impairments - - - 383 -
A&P unbilled receivable adjustment - - - 163 -
Provision for restructurings and asset 326 - 357 683 -
impairments
Foreign currency transaction losses (8) 55 355 637 212
Cumulative effect of change in accounting - - - 1,285 -
principle
(Gain) loss on sale/disposal of operations - (24) - (1,318) (24)
Net change in:
Accounts receivable and other current (81) (306) (108) 5 (505)
assets
Accounts payable and other current 15 542 (103) (567) 255
liabilities
Deferred charges and other assets (186) (211) (270) (641) (730)
Other liabilities and deferred credits (9) (19) 38 (9) 119
Other reconciling 87 (7) (37) 32 (12)
items, net
Net cash provided by operating activities 2,340 2,434 2,128 6,533 6,361
Cash Flows from Investing Activities:
Capital expenditures (835) (1,367) (1,023) (2,863) (4,724)
Investments in and advances to equity affiliates (274) (1,437) (1) (281) (1,597)
Purchase of wireless license - - - - -
Proceeds from sale of operations - - - - -
Proceeds from sale of equity securities 18 129 120 1,472 1,147
Purchases of short-term investments - - - - -
Proceeds from disposition of short-term investments - - - - -
Proceeds from repayment of loans and advances 6 19 - 432 25
Investment in debt securities - - - - -
Other investing (16) (39) 69 49 (235)
activities, net
Net cash used for investing activities (1,101) (2,695) (835) (1,191) (5,384)
Cash Flows from Financing Activities:
Net borrowing (repayments) of short-term debt 263 846 (431) (1,130) (1,405)
Proceeds from long-term debt - 46 4 8 1,865
Repayments of long-term debt (651) (180) (558) (1,219) (727)
Dividends paid (375) (356) (356) (1,088) (1,068)
Purchase of treasury shares (266) - (189) (455) -
Other financing activities, net (2) 101 18 - 151
Net cash used for financing activities (1,031) 457 (1,512) (3,884) (1,184)
Effect of Exchange Rates on Cash Balances - - - - -
Net Increase (Decrease) in Cash and Cash Equivalents 208 196 (219) 1,458 (207)
Cash and Cash Equivalents at Beginning of Period 1,842 658 2,061 592 1,061
Cash and Cash Equivalents at End of Period $ 2,050 $ 854 $ 1,842 $ 2,050 $ 854
BellSouth Corporation
Results by Segment (amounts in
millions) (unaudited)
Communications Group (1)
Year-To-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Operating Revenues
Local service $2,893 $2,991 -3.3% $2,939 -1.6% $8,773 $8,841 -0.8%
Network access 1,154 1,252 -7.8% 1,182 -2.4% 3,541 3,711 -4.6%
Long distance 234 192 21.9% 213 9.9% 652 538 21.2%
Other 334 357 -6.4% 337 -0.9% 1,002 1,158 -13.5%
Total Operating 4,615 4,792 -3.7% 4,671 -1.2% 13,968 14,248 -2.0%
Revenues
Operating Expenses
Operational and support 2,335 2,424 -3.7% 2,361 -1.1% 7,000 6,951 0.7%
expenses
Depreciation and 1,026 1,014 1.2% 1,023 0.3% 3,064 3,003 2.0%
amortization
Total Operating 3,361 3,438 -2.2% 3,384 -0.7% 10,064 9,954 1.1%
Expenses
Operating Income 1,254 1,354 -7.4% 1,287 -2.6% 3,904 4,294 -9.1%
Interest Expense 119 139 -14.4% 120 -0.8% 364 472 -22.9%
Other Income, net 6 9 N/M* (3) N/M* 3 26 N/M*
Income Before Income Taxes 1,141 1,224 -6.8% 1,164 -2.0% 3,543 3,848 -7.9%
Provision for Income Taxes 432 458 -5.7% 435 -0.7% 1,335 1,408 -5.2%
Segment Net Income(1) $709 $766 -7.4% $729 -2.7% $2,208 $2,440 -9.5%
* - Not meaningful.
Selected Financial and
Operating Data
(amounts in millions)
EBITDA(5) $2,280 $2,368 -3.7% $2,310 -1.3% $6,968 $7,297 -4.5%
EBITDA margin (6) 49.4% 49.4% 0 bps 49.5% -10 bps 49.9% 51.2% -130 bps
Data service revenues $1,065 $1,079 -1.3% $1,075 -0.9% $3,244 $3,061 6.0%
Calling feature revenues $596 $576 3.5% $589 1.2% $1,777 $1,712 3.8%
Access minutes of use 24,591 26,922 -8.7% 25,073 -1.9% 75,247 83,338 -9.7%
Toll messages 97 111 -12.6% 111 -12.6% 193 222 -13.1%
Capital expenditures $737 $1,138 -35.2% $918 -19.7% $2,577 $4,032 -36.1%
IntraLata Toll Messages 98 109 -10.1% 97 1.0% 291 331 -12.1%
Wholesale Lines (thousands) 2,261 1,623 39.3% 2,070 9.2%
DSL customers (thousands) 924 463 99.6% 803 15.1%
BellSouth Corporation
Results by Segment
(unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service(b)
3Q02 3Q01 Growth 2Q02 Growth
Access lines (b)
Residence
Retail
Primary 13,480 14,112 -4.5% 13,670 -1.4%
Additional 2,002 2,305 -13.1% 2,107 -5.0%
Total Retail 15,482 16,417 -5.7% 15,777 -1.9%
Residence
Wholesale
Resale 384 498 -22.9% 402 -4.5%
UNE-P 775 158 390.5% 586 32.3%
Total Wholesale 1,159 656 76.7% 988 17.3%
Residence
Total Residence 16,641 17,073 -2.5% 16,765 -0.7%
Business
Retail
Voice 5,783 6,252 -7.5% 5,887 -1.8%
ISDN 1,588 1,476 7.6% 1,630 -2.6%
Total Retail 7,371 7,728 -4.6% 7,517 -1.9%
Business
Wholesale
Resale 110 209 -47.4% 130 -15.4%
UNE-P 584 347 68.3% 532 9.8%
Total Wholesale 694 556 24.8% 662 4.8%
Business
Total Business 8,065 8,284 -2.6% 8,179 -1.4%
Other Retail / Wholesale 188 218 -13.8% 194 -3.1%
Lines
Total Access Lines 24,894 25,575 -2.7% 25,138 -1.0%
in Service
Access Line Equivalents(c)
Selected digital data
services:
Unbundled Loops 385 401 -4.0% 398 -3.3%
DS0 & ADSL 5,863 3,112 88.4% 5,142 14.0%
DS1 6,849 6,465 5.9% 6,721 1.9%
DS3 & higher 31,035 26,818 15.7% 30,505 1.7%
Total digital data lines 44,132 36,796 19.9% 42,766 3.2%
in service
Total equivalent access 69,026 62,371 10.7% 67,904 1.7%
lines in service
(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 counts include amounts for switched access lines, Basic Rate ISDN (converted at 1.5:1), Primary Rate
ISDN (converted at 24:1) and UNE Combos.
(c) 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 switced access line based on transport capacity. While the revenues generated by access line
equivalents have 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)
Year-To-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Operating Revenues
Service revenues(4) $1,409 $1,365 3.2% $1,398 0.8% $4,133 $3,882 6.5%
Equipment and 102 100 2.0% 102 0.0% 295 307 -3.9%
other revenues
Total Operating 1,511 1,465 3.1% 1,500 0.7% 4,428 4,189 5.7%
Revenues
Operating Expenses
Operational and 1,074 975 10.2% 1,028 4.5% 3,073 2,821 8.9%
support expenses
Depreciation and 190 199 -4.5% 183 3.8% 553 569 -2.8%
amortization
Total Operating 1,264 1,174 7.7% 1,211 4.4% 3,626 3,390 7.0%
Expenses
Operating Income 247 291 -15.1% 289 -14.5% 802 799 0.4%
Interest Expense 92 78 17.9% 89 3.4% 271 238 13.9%
Other Income (Expense), net (45) (4) N/M* (41) N/M* (111) 2 N/M*
Income Before Income Taxes 110 209 -47.4% 159 -30.8% 420 563 -25.4%
Provision for Income Taxes 42 81 -48.1% 60 -30.0% 161 218 -26.1%
Segment Net $68 $128 -46.9% $99 -31.3% $259 $345 -24.9%
Income(1)
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except
customer data in thousands)
EBITDA (5) $437 $490 -10.8% $472 -7.4% $1,355 $1,368 -1.0%
EBITDA margin (6)(c) 31.0% 35.9% -490bps 33.8% -280bps 32.8% 35.2% 240 bps
Average monthly revenue per $52 $53 -1.9% $52 0.0% $52 $52 0.0%
customer (8)(d)
Customer net adds in period:
Cellular and PCS (43) 24 -279.2% 141 -130.5% 192 639 -70.0%
Data (Cingular 5 3 66.7% 9 -44.4% 27 50 -46.0%
Interactive)
Customers:
Cellular and PCS 8,830 8,512 3.7% 8,873 -0.5%
Data (Cingular 321 279 15.1% 315 1.9%
Interactive)
POPs 87,600 84,400 3.8% 87,600 0.0%
Penetration rate (10) 10.2% 11.1% -90 bps 11.2% -100bps
(a) The domestic wireless segment is comprised of
BellSouth's 40% share of the reported results of
Cingular Wireless.
(b) Customer data for 2001 period, including POPs, penetration rate and average monthly revenue per customer,
is comprised of BellSouth's 40% share of the managed results of Cingular Wireless. Cingular managed POPs
includes new spectrum in New York and Salt Lake City. This additional spectrum is not factored into the
penetration rate since this spectrum was not operational during the periods presented.
(c) EBITDA margin
denominator
includes service
revenues only.
(d) Average monthly revenue per
customer excludes Cingular
Interactive.
BellSouth Corporation
Results by Segment (amounts in millions)
(unaudited)
Latin America Group (1)(2)
Year-To-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Operating Revenues
Service revenues (4) $404 $591 -31.6% $481 -16.0% $1,431 $1,862 -23.1%
Equipment and other revenues 78 91 -14.3% 98 -20.4% 286 327 -12.5%
Advertising and publishing 13 34 -61.8% 19 -31.6% 35 58 -39.7%
revenues
Total Operating Revenues 495 716 -30.9% 598 -17.2% 1,752 2,247 -22.0%
Operating Expenses
Operational and support 326 492 -33.7% 400 -18.5% 1,204 1,627 -26.0%
expenses
Depreciation and 106 138 -23.2% 118 -10.2% 342 447 -23.5%
amortization
Total Operating Expenses 432 630 -31.4% 518 -16.6% 1,546 2,074 -25.5%
Operating Income 63 86 -26.7% 80 -21.3% 206 173 19.1%
Interest Expense 35 51 -31.4% 37 -5.4% 114 166 -31.3%
Other Income (Expense), net (22) (11) N/M* (14) N/M* (51) (24) N/M*
Income Before Income Taxes 6 24 N/M 29 N/M 41 (17) N/M
Provision for Income Taxes (48) 21 N/M 15 N/M (31) 50 N/M
Segment Net Income(1) $54 $3 N/M $14 N/M $72 ($67) N/M
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer data
in thousands)
EBITDA (5) $169 $224 -24.6% $198 -14.6% $548 $620 -11.6%
EBITDA margin (6) 34.1% 31.3% 280bps 33.1% 100bps 31.3% 27.6% 370 bps
Average monthly revenue per customer (9) $17 $24 -29.2% $20 -15.0% $20 $26 -23.1%
Customer net adds in period (excluding (152) 84 N/M (68) N/M 103 1,023 -89.9%
ownership changes) (a)
Customers (voice) (a) 7,913 8,092 -2.2% 7,840 0.9%
POPs 162,100 156,200 3.8% 162,100 0.0%
Penetration rate (10) 4.9% 5.2% -30bps 4.8% 10bps
(a) The beginning balance of 3Q02 customers has been adjusted to include 225 customers related to fixed
wireless customers in Venezuela. 3Q01 Customer net adds would have been 16 higher. 2Q02 net adds would
have been 64 higher. Year-to-date net adds for 2002 and 2001 would have been 246 and 1,053, respectively.
Annual growth in net adds would have been -76.6%. Growth in Customers vs. 3Q01 would have been -2.6% had
Venezuela's fixed wireless customers been included in 3Q01 data. Growth in Customers vs. 2Q02 would have
been -1.9% had Venezuela's fixed wireless customers been included in 2Q02 data.
BellSouth Corporation
Proportionate Basis(3) - Selected Financial and
Operating Data
(Amounts in millions, except customer
data in thousands)
Latin America Group (1)(2)
Year-To-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Operating revenues $485 $657 -26.2% $580 -16.4% $1,685 $2,070 -18.6%
EBITDA(5) $156 $203 -23.2% $190 -17.9% $524 $579 -9.5%
EBITDA margin(6) 32.2% 30.9% 130 bps 32.8% -60 bps 31.1% 28.0% 310 bps
Average monthly revenue per customer (9) $17 $24 -29.2% $20 -15.0% $20 $26 -23.1%
Customer net adds in period (excluding (78) 185 N/M* 11 N/M* 243 1,070 -77.3%
ownership changes) (a)
Customers (voice) (a) 7,815 7,755 0.8% 7,716 1.3%
POPs 156,803 152,227 3.0% 156,770 0.0%
Penetration rate (10) 5.0% 5.1% -10 bps 4.9% 10 bps
* - Not meaningful.
(a) The beginning balance of 3Q02 customers has been adjusted to include 176 (225 x 78.1565% ownership) customers
related to fixed wireless customers in Venezuela. 3Q01 Customer net adds would have been 12 higher. 2Q02 net adds
would have been 50 higher. Year-to-date net adds for 2002 and 2001 would have been 355 and 1,093, respectively.
Annual growth in net adds would have been -67.5%. Growth in Customers vs. 3Q01 would have been 0.5% had
Venezuela's fixed wireless customers been included in 3Q01 data. Growth in Customers vs. 2Q02 would have been -
1.0% had Venezuela's fixed wireless customers been included in 2Q02 data.
BellSouth Corporation
Worldwide Wireless(unaudited)
Customers and POPs by Country
(Proportionate Basis(3) in thousands)
Customers POPs As
As of of
Country Brand 3Q02 3Q01 Growth 2Q02 Growth 3Q02 3Q01 Growth 2Q02 Growth
United States Cingular 8,830 8,512 3.7% 8,873 -0.5% 87,600 84,400 3.8% 87,600 0.0%
Wireless
Argentina Movicom 870 1,121 -22.4% 905 -3.9% 24,375 23,270 4.7% 24,375 --
BellSouth
Brazil BCP 1,242 1,261 -1.5% 1,254 -1.0% 20,834 20,727 0.5% 20,801 0.2%
Chile BellSouth 1,023 827 23.7% 1,020 0.3% 15,400 15,100 2.0% 15,400 --
Colombia BellSouth 842 767 9.8% 863 -2.4% 28,376 27,451 3.4% 28,375 --
Ecuador BellSouth 476 276 72.5% 406 17.2% 11,443 11,086 3.2% 11,443 --
Guatemala BellSouth 104 39 166.7% 87 19.5% 7,020 7,140 -1.7% 7,020 --
Nicaragua BellSouth 179 136 31.6% 160 11.9% 2,581 2,581 -- 2,581 --
Panama BellSouth 144 127 13.4% 135 6.7% 1,311 1,223 7.2% 1,311 --
Peru BellSouth 496 388 27.8% 468 6.0% 25,428 24,551 3.6% 25,428 --
Uruguay Movicom 69 63 9.5% 70 -1.4% 966 966 -- 966 --
BellSouth
Venezuela (a) Telcel 2,370 2,750 -13.8% 2,348 0.9% 19,070 18,132 5.2% 19,070 --
BellSouth
Total Latin 7,815 7,755 0.8% 7,716 1.3% 156,804 152,227 3.0% 156,770 0.0%
America (a)
Denmark Sonofon 494 438 12.8% 475 4.0% 2,464 2,465 -- 2,465 --
Israel Cellcom 836 746 12.1% 817 2.3% 2,120 2,119 -- 2,119 --
1,330 1,184 12.3% 1,292 2.9% 4,584 4,584 -- 4,584 --
Total Worldwide Wireless 17,975 17,451 3.0% 17,881 0.5% 248,988 241,211 3.2% 248,954 0.0%
(a)
BellSouth Corporation
Results by Segment (amounts in
millions) (unaudited)
Domestic Advertising & Publishing (1)
Year-To-Date
3Q02 3Q01 Growth 2Q02 Growth 2002 2001 Growth
Total Operating Revenues $ 464 $ 496 -6.5% $ 543 -14.5% $ 1,390 $ 1,376 1.0%
Operating Expenses
Operational and support expenses 262 232 12.9% 296 -11.5% 763 677 12.7%
Depreciation and amortization 6 7 -14.3% 8 -25.0% 20 20 0.0%
Total Operating Expenses 268 239 12.1% 304 -11.8% 783 697 12.3%
Operating Income 196 257 -23.7% 239 -18.0% 607 679 -10.6%
Interest Expense 3 2 50.0% 3 0.0% 9 13 -30.8%
Other Income, net (1) 1 N/M* 1 N/M* - 5 N/M*
Income Before Income Taxes 192 256 -25.0% 237 -19.0% 598 671 -10.9%
Provision for Income Taxes 74 98 -24.5% 91 -18.7% 230 257 -10.5%
Segment Net Income(1) $118 $158 -25.3% $146 -19.2% $368 $414 -11.1%
EBITDA(5) $202 $264 -23.5% $247 -18.2% $627 $699 -10.3%
EBITDA margin (6) 43.5% 53.2% -970 bps 45.5% -200 bps 45.1% 50.8% -570 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) Results for the Latin America segment are reported one month in arrears.
(3) Proportionate basis financial and operating data reflect our ownership interest in the total operating results for
each of our wireless properties, both domestic and international, whether or not consolidated for financial
statement presentation purposes.
(4) 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 and on a net basis for
the Latin America segment.
(5) EBITDA is defined as operating revenues less operational and support expenses.
(6) EBITDA margin is calculated by dividing EBITDA by operating revenues.
(7) Prior period has been adjusted for the transfer of 11,749 employees from our former domestic wireless operations.
(8) For the Domestic Wireless segment, average monthly revenue per customer is calculated by dividing average monthly
revenue by average customers. Average monthly revenue includes activation fees, access, airtime, roaming (gross),
long distance and value added services.
(9) For the Latin America segment, average monthly revenue per customer is calculated by dividing average monthly
revenue by average customers. Average monthly revenue includes activation fees, access, airtime, roaming (net),
long distance and value added services.
(10) Penetration rate is calculated by dividing customers by POPs (excludes POPs in markets where service has not been
initiated).
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