BellSouth 1st Quarter Results
Bellsouth Corp
23 April 2003
For Immediate Release
April 23, 2003
For More Information Contact:
Jeff Battcher, Media Relations at 404-249-2793
BellSouth Investor Relations at 404-249-2420
BellSouth Reports First Quarter Earnings
Gains in long distance, DSL, packages aid revenue;
Cingular Wireless adds 189,000 net customers
ATLANTA - BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of
66 cents in the first quarter of 2003, compared to a net loss of 8 cents per
share in the same quarter of 2002.
Consolidated revenues were $5.52 billion, compared to $5.53 billion in the first
quarter of 2002. BellSouth reduced consolidated total operating expenses $21
million in the first quarter, compared to the same three months of 2002. Net
income was $1.2 billion, compared to a net loss of $154 million in the first
quarter of 2002. In accordance with Generally Accepted Accounting Principles
(GAAP), consolidated revenues and consolidated total operating expenses do not
include BellSouth's 40 percent share of Cingular Wireless.
Capital expenditures in the first quarter of 2003 were $631 million, a reduction
of 37.2 percent compared to $1.0 billion in the first three months of 2002.
BellSouth reduced total debt by $753 million during the first quarter, and has
cut total debt $2.4 billion, or 12.7 percent, since March 31, 2002. Operating
free cash flow (defined as cash flow from operations less capital expenditures)
was $1.3 billion. In February, the company's board of directors declared a 5
percent increase in the quarterly common stock dividend to be paid May 1, 2003,
bringing the total dividend increase to 10.5 percent over 12 months.
As previously announced, effective in the first quarter of 2003, BellSouth began
expensing stock options, and adopted Statement of Financial Accounting Standards
(SFAS) No. 143, "Accounting for Asset Retirement Obligations." Regarding stock
options, the company elected the retroactive restatement method of adoption,
which means prior year results have been restated to include the impacts of
expensing options. The full-year 2003 impact of expensing stock options is an
approximately $90 million decrease to net income and a 5-cent decrease to EPS,
comparable with prior-year restated amounts. The adoption of SFAS 143 resulted
in a one-time increase to net income of $816 million (44 cents per share) in the
first quarter. The ongoing impact of SFAS 143 is expected to increase net income
by approximately $60 million, or 3 cents per share, in 2003 as a whole.
BellSouth also changed the method for recognizing revenues and expenses in its
directory publishing business from the issue basis method to the deferral
method. The change resulted in a one-time decrease to net income of $501
million, or 27 cents per share, in the first quarter. The change in accounting
method relates solely to the timing of recognition for revenue and direct
expense and does not affect the amounts recognized. Furthermore, there is no
impact to cash flow.
To supplement the reporting of BellSouth's consolidated financial information
under GAAP, the company will continue to present certain non-GAAP financial
measures, including normalized operating results and EBITDA (earnings before
interest, taxes, and depreciation and amortization). Normalized results include
BellSouth's 40 percent share of Cingular Wireless (revenue and expense), and
exclude events that are generally non-recurring in nature. Normalized results
also exclude material one-time gains or losses that can distort reported
operating results. A complete list of normalizing items, as well as a full
reconciliation of normalized results to GAAP reporting, are included in the
attached quarterly financial statements and are available on the company's Web
site, www.bellsouth.com/investor. The presentation of normalized results enables
investors to focus on period-over-period operating performance, without the
impact of non-operational or non-recurring items. In addition, EBITDA margin is
an important indicator of profitability for capital-intensive businesses, and
remains a key metric for valuation in the investment community. Finally,
normalized measures are among the primary indicators management uses in planning
and operating the business. This additional information should not be considered
in isolation or as a substitute for the consolidated (GAAP) financial
information.
Normalized for special items, detailed below, EPS in the first quarter of 2003
was 51 cents, compared to normalized EPS of 55 cents in the same quarter a year
ago. Normalized total operating revenues, which include Cingular, were $6.9
billion, a decline of 4.0 percent versus the first quarter of 2002. Normalized
net income was $941 million, compared to $1.04 billion in the same quarter a
year ago.
Communications Group
The opening three months of 2003 marked the first quarter that BellSouth has
been offering long distance services throughout its markets. The company began
marketing long distance in Florida and Tennessee in late December 2002, making
BellSouth the first incumbent local telecommunications company to receive
federal approval in all its states. At March 31, 2003 BellSouth served more than
1.9 million consumer and business long distance customers. These include
approximately 13 percent of its residence and approximately 24 percent of its
mass-market small business accounts. In the seven states approved for long
distance earlier in 2002, the numbers are approximately 15 percent of residence
and approximately 29 percent of small business.
The number of customers purchasing the BellSouth AnswersSM package increased to
approximately 1.6 million at the end of the first quarter. Introduced just eight
months previously, BellSouth Answers allows residential customers to combine on
a single bill the data, voice and Internet communications services they want --
including DSL, long distance and local, as well as wireless. BellSouth added
101,000 DSL high-speed Internet service customers in the first quarter, bringing
its number of broadband customers to 1,122,000.
Total Communications Group revenues were $4.6 billion in the first quarter, a
decline of 2.3 percent compared to the same quarter of 2002. Total operating
expenses decreased 1.5 percent. Data revenues were $1.09 billion, level with the
first quarter a year ago. Total access lines of 24.5 million at March 31
declined 3.6 percent compared to a year earlier, impacted by a continued weak
economy, market share loss and technology substitution. Residence and business
access lines served by BellSouth competitors under UNE-P (unbundled network
elements-platform) grew by 231,000 in the first quarter.
Domestic Wireless / Cingular
BellSouth's share of Cingular's domestic wireless revenues in the first quarter
of 2003 was $1.4 billion, a gain of $19 million compared to the same quarter a
year ago. BellSouth's share of Cingular operating income was $286 million in the
quarter, compared to $266 million in the same three months of 2002.
Cingular steadily gained new cellular and PCS customers during the first three
months of 2003, resulting in total first quarter net customer additions of
189,000. More than one-third of all first quarter customer additions for the
nation's No. 2 wireless company came through the sales channels of Cingular's
parent companies, BellSouth and SBC Communications. Total net adds improved
310,000 compared to the fourth quarter of 2002.
Cingular is on target to increase its GSM and GPRS digital coverage to 90
percent of potential customers and all of its major markets by the end of 2003,
with the total overlay complete in 2004. In March 2003, Cingular announced a
major joint roaming agreement with AT&T Wireless that will lower roaming costs
for both companies, while improving quality and encouraging further expansion of
GSM/GPRS digital network services for their customers.
Latin America Group
Consolidated Latin America revenues were $509 million in the first quarter of
2003, a decline of 22.8 percent compared to the first quarter last year.
Sequentially, Latin revenues were up slightly from the fourth quarter of 2002.
Revenues continued to reflect the impacts of currency devaluations, principally
in Argentina and Venezuela, as well as weak economic and unsettled political
conditions in those countries. Year-over-year Latin results are affected by the
timing of devaluation impacts in Venezuela and Argentina. The Latin EBITDA
margin of 22.6 percent in the first quarter was negatively impacted by a
contingency reserve.
On a consolidated basis, Latin America Group wireless voice customers increased
by 372,000 during the first quarter, compared to increases of 259,000 in the
fourth quarter and 323,000 in the first quarter of 2002. Year-over-year,
customers increased by 636,000, or 8.0 percent. BellSouth and its partners serve
a total of 11.9 million customers in 11 Central and South American countries,
including 263,000 fixed wireless customers.
During the first quarter, BellSouth signed an agreement to sell its entire stake
in BSE, a cellular company that operates in six states of Brazil's Northeastern
region. The agreement is pending approval.
Advertising & Publishing
Domestic Advertising & Publishing revenues were $498 million in the first
quarter of 2003, a decrease of 2.4 percent compared to the same period of the
prior year. Operating income of $243 million was level with the first quarter of
2002.
Special Items
In the first quarter of 2003, the difference between reported (GAAP) EPS of 66
cents and normalized EPS of 51 cents is the result of four special items:
Adoption of SFAS No. 143 44 cents Gain
A&P accounting change 27 cents Charge
Pension/severance costs 4 cents Charge
Foreign currency translation 3 cents Gain
Effect of rounding (1 cent)
Total of special items 15 cents Gain
Adoption of SFAS No. 143 - As previously disclosed, BellSouth adopted SFAS No.
143, "Accounting for Asset Retirement Obligations," which addresses accounting
for the cost of legal obligations associated with the retirement of long-lived
assets.
Advertising & Publishing accounting change - As previously disclosed, effective
January 1, 2003 BellSouth changed its method for recognizing revenues and
expenses in its directory publishing business from the issue basis method to the
deferral method. The change in method relates solely to the timing of the
recognition of revenues and expenses and does not affect either the amounts
recognized or cash flow. The issue basis method formerly used recognized 100
percent of the revenues and direct expenses at the time the directories were
published and delivered to end users. Under the deferral method, revenues and
direct expenses are recognized ratably over the life of the related directory,
generally 12 months.
Pension/severance costs - This charge represents severance costs recorded in the
first quarter associated with workforce reductions. Also included are pension
settlement losses.
Foreign currency translation gains - Primarily associated with the remeasurement
of U.S. dollar-denominated liabilities in Latin America.
About BellSouth Corporation
BellSouth Corporation is a Fortune 100 communications services company
headquartered in Atlanta, Georgia, serving nearly 45 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 also offers long distance service
throughout its markets, serving both business and residential customers. The
company's BellSouth AnswersSM 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) RealPages.comSM 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 first 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 will be BellSouth CFO Ron Dykes and Investor Relations Vice
President 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 April 30. The replay can be accessed by dialing:
Domestic: 800-642-1687 - Reservation number: 9384021
International: 706-645-9291 - Reservation number: 9384021
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 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.
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 provided at the Company's investor
relations Web site, www.bellsouth.com/investor.
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 page 3 for a summary of
unusual items included in Reported Basis results.
1Q03 1Q02 Growth 4Q02 Growth
Operating Revenues
Communications group $ 4,508 $ 4,645 -2.9% $ 4,481 0.6%
Latin America 509 656 -22.4% 486 4.7%
Domestic advertising and publishing 494 216 128.7% 709 -30.3%
All other 12 17 -29.4% 16 -25.0%
Total Operating Revenues 5,523 5,534 -0.2% 5,692 -3.0%
Operating Expenses
Cost of services and products 1,933 1,966 -1.7% 1,960 -1.4%
Selling, general & administrative expenses 1,052 1,038 1.3% 1,133 -7.1%
Depreciation and amortization 1,038 1,161 -10.6% 1,151 -9.8%
Provision for restructuring and asset 121 - N/M* 312 -61.2%
impairments
Total Operating Expenses 4,144 4,165 -0.5% 4,556 -9.0%
Operating Income 1,379 1,369 0.7% 1,136 21.4%
Interest Expense 296 304 -2.6% 292 1.4%
Other Income (Expense), net 306 819 -62.6% 68 350.0%
Income Before Taxes and Accounting Changes 1,389 1,884 -26.3% 912 52.3%
Provision for Income Taxes 474 753 -37.1% 338 40.2%
Income Before Cumulative Effect Change 915 1,131 -19.1% 574 59.4%
Cumulative Effect of Changes in Accounting Principle 315 (1,285) 124.5% - N/M
Net Income $ 1,230 $ (154) 898.7% $ 574 114.3%
Diluted:
Weighted Average Common Shares Outstanding 1,860 1,888 -1.5% 1,864 -0.2%
Earnings Per Share $0.66 ($0.08) 925.0% $0.31 112.9%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA (4) $2,417 $2,530 -4.5% $2,287 5.7%
EBITDA margin (5) 43.8% 45.7% -190 bps 40.2% 360 bps
Declared dividends per share $0.21 $0.19 10.5% $0.20 5.0%
Capital expenditures $631 $1,005 -37.2% $922 -31.6%
Common shares outstanding 1,847 1,879 -1.7% 1,860 -0.7%
Book value per share $9.96 $9.60 3.8% $9.63 3.4%
Debt ratio 47.4% 51.3% -390 bps 49.2% -180 bps
Total employees 76,797 85,742 -10.4% 77,020 -0.3%
EBITDA Reconciliation to Operating Cash Flows
EBITDA (4) $ 2,417 $ 2,530 $ 2,287
Non cash activity included in EBITDA 132 158 345
Cash interest and tax payment activity, net (167) (190) (540)
Working capital changes / Other (474) (433) (379)
Operating Cash Flows $ 1,908 $ 2,065 $ 1,713
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 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.
1Q03 1Q02 Growth 4Q02 Growth
Operating Revenues
Communications group $ 4,469 $ 4,614 -3.1% $ 4,441 0.6%
Domestic wireless 1,436 1,417 1.3% 1,463 -1.8%
Latin America 509 656 -22.4% 486 4.7%
Domestic advertising and publishing 494 506 -2.4% 548 -9.9%
All other 12 17 -29.4% 15 -20.0%
Total Operating Revenues 6,920 7,210 -4.0% 6,953 -0.5%
Operating Expenses
Cost of services and products 2,364 2,376 -0.5% 2,258 4.7%
Selling, general, & administrative expenses 1,537 1,620 -5.1% 1,726 -11.0%
Depreciation and amortization 1,233 1,341 -8.1% 1,338 -7.8%
Total Operating Expenses 5,134 5,337 -3.8% 5,322 -3.5%
Operating Income 1,786 1,873 -4.6% 1,631 9.5%
Interest Expense 364 359 1.4% 357 2.0%
Other Income (Expense), net 39 79 -50.6% 31 25.8%
Income Before Income Taxes 1,461 1,593 -8.3% 1,305 12.0%
Provision for Income Taxes 520 555 -6.3% 459 13.3%
Net Income $941 $1,038 -9.3% $846 11.2%
Diluted:
Weighted Average Common Shares Outstanding 1,860 1,888 -1.5% 1,864 -0.2%
Earnings Per Share $0.51 $0.55 -7.3% $0.45 13.3%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA (4) $3,019 $3,214 -6.1% $2,969 1.7%
EBITDA margin (5) 43.6% 44.6% -100 bps 42.7% 90 bps
Declared dividends per share $0.21 $0.19 10.5% $0.20 5.0%
Capital expenditures $631 $1,005 -37.2% $922 -31.6%
Common shares outstanding 1,847 1,879 -1.7% 1,860 -0.7%
Book value per share $9.96 $9.60 3.8% $9.63 3.4%
Debt ratio 47.4% 51.3% -390 bps 49.2% -180 bps
Total employees 76,797 85,742 -10.4% 77,020 -0.3%
BellSouth
Corporation
Normalized Earnings Summary and
Reconciliation to Reported
Results
(amounts in millions, except per share data)
Normalizing Items
First Quarter 2003
FX A&P Pension/
Losses
Cingular (Gains) Acctg. FAS 143 Severance
Change
GAAP A F G I J Normalized
Operating Revenues $ 5,523 $ 1,397 $ 6,920
Operating Expenses 4,144 1,111 (121) 5,134
Operating 1,379 286 - - - 121 1,786
Income
Interest 296 68 - - 364
Expense
Other Income 306 (217) (50) 39
(Expense), net
Income Before Taxes and 1,389 1 (50) - - 121 1,461
Accounting Change
Provision for 474 1 (2) 47 520
Income Taxes
Net Income Before Cumulative 915 - (48) - - 74 941
Effect Change
Cumulative Effect of Change in 315 501 (816) -
Accounting Principle
Net Income 1,230 $0 ($48) $501 ($816) $74 $941
Diluted Earnings $0.66 $0.00 ($0.03) $0.27 ($0.44) $0.04 $0.51
Per Share *
EBITDA (4) 2,417 481 121 3,019
First Normalizing
Quarter 2002 Items
Brazil Loan Unbilled FX Losses A&P
Cingular E-Plus Qwest Impairments Rec. Adj. (Gains) Acctg. FAS 142
Change
GAAP A B C D E F G H Normalized
Operating Revenues $ 5,534 $ 1,386 $ - $ - $ 163 $ - $ 127 $ - $7,210
Operating Expenses 4,165 1,120 - - - 52 - 5,337
Operating 1,369 266 - - - 163 - 75 - 1,873
Income
Interest 304 55 - - - - - - - 359
Expense
Other Income 819 (211) (1,339) 230 383 197 79
(Expense), net
Income Before 1,884 - (1,339) 230 383 163 197 75 - 1,593
Income Taxes
Provision for Taxes and 753 - (482) 80 120 62 (7) 29 - 555
Accounting Change
Net Income Before Cumulative 1,131 - (857) 150 263 101 204 46 - 1,038
Effect Change
Cumulative Effect of Change in (1,285) 1,285 -
Accounting Principle
Net Income (154) $0 ($857) $150 $263 $101 $204 $46 $1,285 $1,038
Diluted Earnings ($0.08) $0.00 ($0.45) $0.08 $0.14 $0.05 $0.11 $0.02 $0.68 $0.55
Per Share
EBITDA (4) 2,530 446 163 75 3,214
* Normalized earnings per share for first
quarter 2003 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) 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.
(c) Qwest stock sale and impairment - Represents charges for the impairment of an equity investment in Qwest
Communications as well as for losses on sales of Qwest common stock. Total shares sold were 18.5 million in first
quarter 2002.
(d) 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.
(e) 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.
(f) Foreign currency transaction (gains) losses - Represents net transaction (gains) losses incurred by our Latin
American operations related primarily to US Dollar denominated liabilities. These (gains) losses reflect the impact
of the (strengthening) weakening of those operations' local currencies against the U.S. Dollar which requires
recognition in the current period income statement.
(g) 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. The 2002 amounts reflect our recasting
of prior year results to present the advertising and publishing segment on a comparable basis year-over-year.
(h) Adoption of Financial Accounting Standard No. 142 (FAS 142) - Represents a one-time charge related to the adoption
of new accounting rules for goodwill. The non-cash charge reduced the value of goodwill on the company's balance
sheet by approximately $1.3 billion.
(i) 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.
(j) 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. 2002 included the efforts to reduce operating costs in response to a slow economy, increased
competition and regulatory pricing pressures by reducing BellSouth's workforce by up to 5,000 positions. For 2003,
these costs include $33 of severance related costs.
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
March 31, December 31, Change vs.
2003 2002 Prior Year-End
Assets
Current Assets:
Cash and cash equivalents $2,442 $2,482 ($40)
Accounts receivable, net of allowance for uncollectibles of 3,102 4,129 (1,027)
$465 and $476
Material and supplies 323 313 10
Other current assets 1,213 938 275
Total Current Assets 7,080 7,862 (782)
Investments and Advances 9,941 9,741 200
Property, Plant and Equipment, net 24,340 23,445 895
Deferred Charges and Other Assets 5,690 5,726 (36)
Goodwill 344 347 (3)
Intangible Assets, net 2,323 2,358 (35)
Total Assets $49,718 $49,479 $239
Liabilities and Shareholders' Equity
Current Liabilities:
Debt maturing within one year $4,428 $5,114 ($686)
Accounts payable 1,458 1,572 (114)
Other current liabilities 3,134 2,897 237
Total Current Liabilities 9,020 9,583 (563)
Long-Term Debt 12,216 12,283 (67)
Noncurrent Liabilities:
Deferred income taxes 4,882 4,452 430
Other noncurrent liabilities 5,207 5,255 (48)
Total Noncurrent Liabilities 10,089 9,707 382
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 0
Paid-in capital 7,562 7,546 16
Retained earnings 15,342 14,531 811
Accumulated other comprehensive income (859) (740) (119)
Shares held in trust and treasury (5,637) (5,372) (265)
Guarantee of ESOP debt (35) (79) 44
Total Shareholders' Equity 18,393 17,906 487
Total Liabilities and Shareholders' Equity $49,718 $49,479 $239
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
1Q03 1Q02 4Q02
Cash Flows from Operating Activities:
Net income $ 1,230 $ (154) $ 574
Adjustments to net income:
Depreciation and amortization 1,038 1,161 1,151
Provision for uncollectibles 168 159 233
Net losses (earnings) of equity affiliates (174) 237 (91)
Minority interests in income of subsidiaries (8) (81) 6
Deferred income taxes 459 597 189
Net (gains) losses on sale or impairment of equity - 236 (39)
securities
Pension income (134) (205) (208)
Pension settlement (gains) losses 67 - 60
Stock-based compensation 31 41 39
Unbilled receivable adjustment - 163 -
Asset impairments - - 221
Foreign currency transaction (gains) losses (45) 290 42
Cumulative effect of change in accounting principle (539) 1,285 -
(Gain) loss on sale/disposal of operations - (1,335) 74
Net change in:
Accounts receivable and other current assets (121) 191 (195)
Accounts payable and other current liabilities (86) (479) (401)
Deferred charges and other assets 75 21 53
Other liabilities and deferred credits (57) (38) 13
Other reconciling items, net 4 (24) (8)
Net cash provided by operating activities 1,908 2,065 1,713
Cash Flows from Investing Activities:
Capital expenditures (631) (1,005) (922)
Investments in and advances to equity affiliates - (6) (28)
Proceeds from sale of debt/equity securities 35 1,334 1
Proceeds from repayment of loans and advances - 426 453
Other investing activities, net (24) (4) (20)
Net cash used for investing activities (620) 745 (516)
Cash Flows from Financing Activities:
Net borrowing (repayments) of short-term debt (202) (962) (278)
Proceeds from long-term debt 1 4 9
Repayments of long-term debt (514) (10) (4)
Dividends paid (371) (357) (372)
Purchase of treasury shares (255) - (136)
Other financing activities, net 13 (16) 16
Net cash used for financing activities (1,328) (1,341) (765)
Net Increase (Decrease) in Cash and Cash Equivalents (40) 1,469 432
Cash and Cash Equivalents at Beginning of Period 2,482 592 2,050
Cash and Cash Equivalents at End of Period $ 2,442 $ 2,061 $ 2,482
BellSouth Corporation
Results by Segment (amounts in millions)
(unaudited)
Communications Group (1)
1Q03 1Q02 Growth 4Q02 Growth
Operating Revenues
Local service $2,912 $2,941 -1.0% $2,868 1.5%
Network access 1,096 1,205 -9.0% 1,125 -2.6%
Long distance 264 205 28.8% 231 14.3%
Other 304 331 -8.2% 297 2.4%
Total Operating Revenues 4,576 4,682 -2.3% 4,521 1.2%
Operating Expenses
Cost of services and products 1,625 1,618 0.4% 1,597 1.8%
Selling, general, & administrative expenses 764 726 5.2% 772 -1.0%
Depreciation and amortization 937 1,032 -9.2% 1,041 -10.0%
Total Operating Expenses 3,326 3,376 -1.5% 3,410 -2.5%
Segment Operating Income 1,250 1,306 -4.3% 1,111 12.5%
Interest Expense 118 125 -5.6% 134 -11.9%
Other Income, net 3 - N/M* 1 200.0%
Income Before Income Taxes 1,135 1,181 -3.9% 978 16.1%
Provision for Income Taxes 426 446 -4.5% 374 13.9%
Segment Net Income(1) $709 $735 -3.5% $604 17.4%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions)
Data service revenues $1,090 $1,092 -0.2% $1,057 3.1%
Access minutes of use 22,795 25,583 -10.9% 23,324 -2.3%
Capital expenditures $566 $922 -38.6% $760 -25.5%
IntraLata Toll Messages 91 96 -5.2% 93 -2.2%
Wholesale Lines (thousands) 2,549 1,936 31.7% 2,385 6.9%
DSL customers (thousands) 1,122 729 53.9% 1,021 9.9%
LD customers (thousands) 1,930 - N/M* 1,002 92.6%
EBITDA Reconciliation to Operating Income
Segment Operating Income $1,250 $1,306 -4.3% $1,111 12.5%
Add back: Depreciation and amortization expense 937 1,032 -9.2% 1,041 -10.0%
Segment EBITDA (4) $2,187 $2,338 -6.5% $2,152 1.6%
Segment EBITDA margin (5) 47.8% 49.9% -210 bps 47.6% 20 bps
BellSouth Corporation
Results by Segment (unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service(a)(b)
1Q03 1Q02 Growth 4Q02 Growth
Access lines (b)
Residence
Retail
Primary 13,132 13,913 -5.6% 13,260 -1.0%
Additional 1,849 2,199 -15.9% 1,926 -4.0%
Total Retail Residence 14,981 16,112 -7.0% 15,186 -1.3%
Wholesale
Resale 297 496 -40.1% 342 -13.2%
UNE-P 1,155 365 216.4% 934 23.7%
Total Wholesale 1,452 861 68.6% 1,276 13.8%
Residence
Total Residence 16,433 16,973 -3.2% 16,462 -0.2%
Business
Retail
Voice 5,621 5,988 -6.1% 5,687 -1.2%
ISDN 1,581 1,633 -3.2% 1,567 0.9%
Total Retail Business 7,202 7,621 -5.5% 7,254 -0.7%
Wholesale
Resale 83 155 -46.5% 94 -11.7%
UNE-P 619 475 30.3% 611 1.3%
Total Wholesale Business 702 630 11.4% 705 -0.4%
Total Business 7,904 8,251 -4.2% 7,959 -0.7%
Other Retail / Wholesale Lines 174 201 -13.4% 182 -4.4%
Total Access Lines in Service 24,511 25,425 -3.6% 24,603 -0.4%
Access Line Equivalents (c)
Selected digital data services:
Unbundled Loops 367 426 -13.8% 377 -2.7%
DS0 & ADSL 7,052 4,700 50.0% 6,437 9.6%
DS1 6,936 6,635 4.5% 6,908 0.4%
DS3 & higher 32,294 29,643 8.9% 31,704 1.9%
Total digital data lines in service 46,649 41,404 12.7% 45,426 2.7%
Total equivalent access lines in service 71,160 66,829 6.5% 70,029 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 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 switched 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)
1Q03 1Q02 Growth 4Q02 Growth
Operating Revenues
Service revenues (3) $1,338 $1,326 0.9% $1,366 -2.0%
Equipment and other revenues 98 91 7.7% 97 1.0%
Total Operating Revenues 1,436 1,417 1.3% 1,463 -1.8%
Operating Expenses
Cost of services and products 468 451 3.8% 466 0.4%
Selling, general, & administrative expenses 487 520 -6.3% 526 -7.4%
Depreciation and amortization 195 180 8.3% 187 4.3%
Total Operating Expenses 1,150 1,151 -0.1% 1,179 -2.5%
Segment Operating Income 286 266 7.5% 284 0.7%
Interest Expense 90 90 0.0% 93 -3.2%
Other Income (Expense), net (31) (25) -24.0% (30) -3.3%
Income Before Income Taxes 165 151 9.3% 161 2.5%
Provision for Income Taxes 64 59 8.5% 63 1.6%
Segment Net Income(1) $101 $92 9.8% $98 3.1%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer data in
thousands)
Total Cellular/PCS Customers 8,846 8,732 1.3% 8,770 0.9%
Net Customer Additions - Cellular/PCS 76 94 -19.1% (48) 258.3%
Partitioned Customers and/or Adjustments 0 0 N/M* 12 -100.0%
Churn - Cellular/PCS 2.6% 2.9% -30 bps 2.7% -10 bps
Wireless Service ARPU - Cellular/PCS $50.04 $50.44 -0.8% $51.13 -2.1%
Wireless Subscriber ARPU - Cellular/PCS $47.38 $47.35 0.1% $48.38 -2.1%
Minutes Of Use Per Cellular/PCS Subscriber 405 355 14.1% 406 -0.2%
Licensed POPs - Cellular/PCS (b) 94 88 6.8% 88 6.8%
Penetration - Cellular/PCS (b) 10.0% 11.1% -110 bps 10.1% -10 bps
Total Cingular Interactive Customers 334 306 9.2% 327 2.1%
Net Customer Additions - Cingular Interactive 7 12 -41.7% 6 16.7%
EBITDA Reconciliation to Operating Income
Segment Operating Income $286 $266 7.5% $284 0.7%
Add back: Depreciation and amortization expense 195 180 8.3% 187 4.3%
Segment EBITDA (4) $481 $446 7.8% $471 2.1%
Segment EBITDA margin (5)(c) 35.9% 33.6% 230 bps 34.5% 140 bps
(a) The domestic wireless segment is comprised of BellSouth's 40% share of the reported
results of Cingular Wireless.
(b) POPs includes New York spectrum added in a swap with T-Mobile beginning 2Q01, Salt Lake City beginning 4Q01, and
Salmon beginning 1Q03. The New York spectrum is included in the penetration calculation beginning 3Q02. The Salt
Lake City and Salmon spectrum are not yet operational and are not factored into the penetration calculation.
(c) Segment EBITDA margin denominator includes
service revenues only.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Latin America Group (1)(2)
1Q03 1Q02 Growth 4Q02 Growth
Operating Revenues
Service revenues (3) $432 $562 -23.1% $411 5.1%
Equipment and other revenues 77 94 -18.1% 70 10.0%
Advertising and publishing revenues - 3 -100.0% 5 -100.0%
Total Operating Revenues 509 659 -22.8% 486 4.7%
Operating Expenses
Cost of services and products 258 266 -3.0% 172 50.0%
Selling, general, & administrative expenses 136 216 -37.0% 132 3.0%
Depreciation and amortization 90 118 -23.7% 98 -8.2%
Total Operating Expenses 484 600 -19.3% 402 20.4%
Segment Operating Income 25 59 -57.6% 84 -70.2%
Interest Expense 43 40 7.5% 30 43.3%
Other Income (Expense), net 4 (15) 126.7% (9) 144.4%
Income Before Income Taxes (14) 4 -450.0% 45 -131.1%
Provision for Income Taxes (24) 1 -2500.0% 6 -500.0%
Segment Net Income(1) $10 $3 233.3% $39 -74.4%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer data in
thousands)
Average monthly revenue per customer (3) $17 $23 -26.1% $17 0.0%
Customer net adds in period (excluding ownership 372 323 15.2% 259 43.6%
changes) (a)
Customers (voice) (a) 8,544 7,908 8.0% 8,172 4.6%
POPs 160,600 162,100 -0.9% 162,100 -0.9%
Penetration rate (6) 5.3% 4.9% 40 bps 5.0% 30 bps
EBITDA Reconciliation to Operating Income
Segment Operating Income $25 $59 -57.6% $84 -70.2%
Add back: Depreciation and amortization expense 90 118 -23.7% 98 -8.2%
Segment EBITDA (4) $115 $177 -35.0% $182 -36.8%
Segment EBITDA margin (5) 22.6% 26.9% -430 bps 37.4% -1480 bps
(a) The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers
in Venezuela. 1Q02 Customer net adds would have been 80 higher. Annual growth in net adds would have been -7.7%.
Growth in customers vs. 1Q02 would have been 5.9% had Venezuela's fixed wireless customers been included in 1Q02
data.
BellSouth Corporation
Worldwide Wireless
(unaudited)
Customers and POPs by
Country
Ownership
Percentage
As of Total Customers Total POPs As
As of of
Country Brand 1Q03 1Q03 1Q02 Growth 4Q02 Growth 1Q03 1Q02 Growth 4Q02 Growth
United Cingular 40.0% 22,114 21,830 1.3% 21,925 0.9% 236,000 219,000 7.8% 219,000 7.8%
States Wireless
Argentina Movicom 65.0% 1,325 1,510 -12.3% 1,320 0.4% 37,400 37,500 -0.3% 37,500 -0.3%
BellSouth
Brazil - BCP 45.4% 1,664 1,745 -4.6% 1,669 -0.3% 18,100 18,100 0.0% 18,100 0.0%
Sao Paulo
Region
Brazil - BSE 47.6% 1,005 967 3.9% 1,005 0.0% 26,600 26,600 0.0% 26,600 0.0%
Northeast
Region
Chile BellSouth 100.0% 1,062 939 13.1% 1,032 2.9% 15,300 15,400 -0.6% 15,400 -0.6%
Colombia Celumovil 66.0% 1,580 1,228 28.7% 1,349 17.1% 40,300 43,000 -6.3% 43,000 -6.3%
BellSouth
Ecuador BellSouth 89.4% 631 412 53.2% 632 -0.2% 13,200 12,800 3.1% 12,800 3.1%
Guatemala BellSouth 60.0% 205 111 84.7% 193 6.2% 13,000 11,700 11.1% 11,700 11.1%
Nicaragua BellSouth 89.0% 231 172 34.3% 201 14.9% 2,900 2,900 0.0% 2,900 0.0%
Panama BellSouth 43.7% 359 305 17.7% 335 7.2% 2,800 3,000 -6.7% 3,000 -6.7%
Peru BellSouth 97.4% 574 440 30.5% 530 8.3% 27,500 26,100 5.4% 26,100 5.4%
Uruguay Movicom 46.0% 142 147 -3.4% 143 -0.7% 2,100 2,100 0.0% 2,100 0.0%
BellSouth
Venezuela Telcel 78.2% 3,142 3,208 -2.1% 3,107 1.1% 24,000 24,400 -1.6% 24,400 -1.6%
(a) BellSouth
Total Latin 11,920 11,184 6.6% 11,516 3.5% 223,200 223,600 -0.2% 223,600 -0.2%
America (a)
Denmark Sonofon 46.5% 1,248 998 25.1% 1,135 10.0% 5,300 5,300 0.0% 5,300 0.0%
Israel Cellcom 34.8% 2,514 2,292 9.7% 2,446 2.8% 6,100 6,100 0.0% 6,100 0.0%
Total Europe 3,762 3,290 14.3% 3,581 5.1% 11,400 11,400 0.0% 11,400 0.0%
Total Worldwide 37,796 36,304 4.1% 37,022 2.1% 470,600 454,000 3.7% 454,000 3.7%
Wireless (a)
(a) The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless
customers in Venezuela. Growth in customers vs. 1Q02 in Venezuela, Total Latin America and Total Worldwide Wireless
would have been -6.7%, 5.1%, and 3.7%, respectively, had Venezuela's fixed wireless customers been included in 1Q02
data.
BellSouth Corporation
Results by Segment (amounts in millions)
(unaudited)
Domestic Advertising & Publishing (1)
1Q03 1Q02 Growth 4Q02 Growth
Operating Revenues
Advertising and publishing revenues 481 493 -2.4% 497 -3.2%
Commission revenues 17 17 0.0% 59 -71.2%
Total Operating Revenues 498 510 -2.4% 556 -10.4%
Operating Expenses
Cost of services 78 91 -14.3% 86 -9.3%
Selling, general, & administrative expenses 170 170 0.0% 265 -35.8%
Depreciation and amortization 7 6 16.7% 8 -12.5%
Total Operating Expenses 255 267 -4.5% 359 -29.0%
Segment Operating Income 243 243 0.0% 197 23.4%
Interest Expense 2 3 -33.3% 3 -33.3%
Other Income, net (1) - N/M* (2) 50.0%
Income Before Income Taxes 240 240 0.0% 192 25.0%
Provision for Income Taxes 91 92 -1.1% 74 23.0%
Segment Net Income(1) $149 $148 0.7% $118 26.3%
EBITDA Reconciliation to Operating Income
Segment Operating Income $243 $243 0.0% $197 23.4%
Add back: Depreciation and amortization expense 7 6 16.7% 8 -12.5%
Segment EBITDA (4) $250 $249 0.4% $205 22.0%
Segment EBITDA margin (5) 50.2% 48.8% 140 bps 36.9% 1330 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) 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. Average monthly revenue per customer is calculated by dividing average monthly service
revenue by average customers.
(4) EBITDA is defined as operating income plus depreciation and amortization.
(5) EBITDA margin is calculated by dividing EBITDA by operating revenues.
(6) Penetration rate is calculated by dividing customers by POPs (excludes POPs in markets where service has not been
initiated).
This information is provided by RNS
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