RNS Number:8798N
Bellsouth Corp
23 July 2003
For Immediate Release
July 23, 2003
For More Information Contact:
Jeff Battcher, Media Relations at 404-249-2793
BellSouth Investor Relations at 800-241-3419
BellSouth Reports Second Quarter Earnings
* 2.8 million long distance customers
* 2.1 million BellSouth AnswersSM packages
* 540,000 Cingular Wireless net additional customers
ATLANTA - BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of
51 cents in the second quarter of 2003. This compared to 14 cents per share in
the second quarter of 2002, which reflected special charges totaling 38 cents
per share for foreign currency transaction losses, pension/severance costs, and
losses on equity investments.
Consolidated revenues were $5.6 billion compared to $5.8 billion in the second
quarter of 2002. Consolidated operating expenses were $4.2 billion compared to
$4.6 billion in the same quarter of 2002. Net income was $951 million compared
to $263 million in the same quarter a year ago.
Operating free cash flow (defined as cash flow from operations less capital
expenditures) was $1.8 billion. In June BellSouth's Board of Directors declared
a 9.5 percent increase in the quarterly common stock dividend, payable August 1,
2003. Over the last five quarters, the company has increased dividends 21
percent. Capital expenditures in the second quarter of 2003 were $729 million
for a total of $1.4 billion year-to-date, a reduction of 32.9 percent compared
to $2.0 billion in the first half of 2002. BellSouth reduced total debt by $1.2
billion during the second quarter, and has cut total debt by $2.0 billion, or
11.4 percent, since the first of the year.
In accordance with Generally Accepted Accounting Principles (GAAP), consolidated
revenues and consolidated operating expenses do not include BellSouth's 40
percent share of Cingular Wireless. Normalized total operating revenues, which
include Cingular, were $7.1 billion, a decline of 2.0 percent versus the second
quarter of 2002. Normalized for special items, detailed below, net income was
$971 million, compared to $975 million in the same quarter a year ago.
Normalized EPS in the second quarter of 2003 was 52 cents, equal to normalized
EPS of 52 cents in the same quarter a year ago.
Communications Group
Long distance and DSL high-speed Internet service boosted Communications Group
results during the second quarter of 2003 with long distance customers totaling
2.8 million and DSL customers totaling 1.2 million. In addition, BellSouth
AnswersSM packages, which combine local, long distance, Internet services and
wireless all on one bill, increased to 2.1 million.
Throughout second quarter, packages fueled retention and reacquisition of
residential and small business customers. The April introduction of the newest
residential package, BellSouth Unlimited AnswersSM contributed to the
significant growth in package customers in the quarter. Unlimited Answers allows
customers to call anywhere in the United States anytime for a flat monthly fee.
BellSouth continued its success in retaining small and medium-sized businesses
by packaging voice and data services with term contracts.
Competing in long distance throughout its markets since the first of the year,
BellSouth added 856,000 net long distance customers in the second quarter and
now serves a total of 2.8 million customers. These customers included
approximately 19 percent of the company's residence and approximately 29 percent
of its mass-market, small business accounts.
BellSouth added 103,000 net DSL customers for a total of 1.2 million at
quarter-end. In July, the company announced BellSouth FastAccess(R) DSL Lite, a
tiered approach to broadband so that customers can choose the speed and price
point that matches their Internet use. With this approach, BellSouth reduced the
entry price point for a new segment of broadband users.
Communications Group results continued to be impacted by the lingering weak
economy, competition and technology substitution. Communications Group revenues
were $4.6 billion compared to $4.7 billion in the second quarter of 2002, a
decline of 1.8 percent. Residence and business access lines served by BellSouth
competitors under UNE-P (unbundled network elements-platform) increased 249,000
in the second quarter. Total data revenues of $1.1 billion were essentially even
with second quarter a year ago, and included retail data revenue growth of 11.5
percent, driven primarily by DSL. Total operating expenses were $3.4 billion,
level with the same quarter of the previous year.
Domestic Wireless / Cingular
In the second quarter, Cingular's cellular and PCS customer additions were
strong. Total net customer additions were 540,000 compared to net additions of
189,000 customers in the first three months of 2003. Channel sales of Cingular's
parent companies, BellSouth and SBC Communications, were significant
contributors to growth at the nation's No. 2 wireless company. Postpaid customer
net additions of 399,000 were particularly strong.
BellSouth's share of Cingular's revenues was $1.5 billion, a gain of $14 million
compared to the same quarter a year ago. BellSouth's share of Cingular operating
income was $303 million, 4.5 percent higher than the same quarter last year.
Driven by improved cost structure and lower churn of 2.5 percent, EBITDA margin
improved to 35.8 percent from 33.8 percent in second quarter 2002.
As of June 2003, Cingular's GSM / GPRS network covered approximately 66 percent
of potential customers, and the company is on target to achieve over 90 percent
coverage by the end of the year. In addition, Cingular announced the world's
first commercial deployment of wireless services using Enhanced Datarate for
Global Evolution (EDGE) technology in Indianapolis.
Latin America Group
On a consolidated basis, Latin America Group wireless customers increased
377,000 during the second quarter, continuing the trend of organic growth.
Year-over-year, customers increased by 1.1 million or 13.8 percent. BellSouth
and its partners serve a total of 11.4 million customers in 11 Central and South
American countries.
Consolidated Latin America revenues were $565 million in the second quarter of
2003, a decline of 5.5 percent compared to the same three months of the previous
year. Year-over-year, revenues continued to reflect the impacts of currency
devaluations, principally in Venezuela, where the local currency is down in
excess of 50 percent from early 2002 levels in relation to the U.S. dollar. For
the second quarter, Latin America Group net income was $41 million, generating
positive operating free cash flow.
Advertising & Publishing
Advertising & Publishing revenues were $525 million in the second quarter of
2003, a decrease of 7.9 percent compared to the same quarter a year ago
resulting in part from the soft economy and competition. Operating income of
$252 million was 2.0 percent greater than second quarter of 2002, primarily the
result of improvements in uncollectibles expense.
Special Items
In the second quarter of 2003, the difference between reported (GAAP) EPS of 51
cents and normalized EPS of 52 cents is the result of three special items:
Foreign currency transaction gains 4 cents Gain
Sale of interest in BSE 4 cents Charge
Pension/severance costs 1 cent Charge
Total of special items 1 cent Charge
Foreign currency transaction gains - Primarily associated with the remeasurement
of U.S. dollar-denominated liabilities in Latin America.
Sale of interest in BSE - The previously announced sale of BellSouth's entire
interest in BSE, a wireless property in Northeastern Brazil, closed on May 8,
2003. The sale resulted in cash proceeds to BellSouth of $20 million.
Pension/severance costs - This charge represents the net severance related costs
recorded in the second quarter associated with workforce reductions, and pension
settlement losses associated with workforce reductions.
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 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 second 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 Nancy Davis. 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 July 30. The replay can be accessed by dialing:
Domestic: 800-642-1687 - Reservation number: 521870
International: 706-645-9291 - Reservation number: 521870
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 attached hereto and provided on 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 pages 3 and 4 for a summary of
unusual items included in Reported Basis results.
Year-to-Date
2Q03 2Q02 Growth 1Q03 Growth 2003 2002 Growth
Operating Revenues
Communications group $ 4,545 $ 4,631 -1.9% $ 4,508 0.8% $ 9,053 $ 9,276 -2.4%
Latin America 563 597 -5.7% 509 10.6% 1,072 1,253 -14.4%
Advertising and publishing 520 538 -3.3% 494 5.3% 1,014 754 34.5%
All other 14 14 0.0% 12 16.7% 26 31 -16.1%
Total Operating Revenues 5,642 5,780 -2.4% 5,523 2.2% 11,165 11,314 -1.3%
Operating Expenses
Cost of services and products 2,008 1,922 4.5% 1,933 3.9% 3,941 3,839 2.7%
Selling, general & administrative 1,133 1,132 0.1% 1,052 7.7% 2,185 2,219 -1.5%
expenses
Depreciation and amortization 1,046 1,170 -10.6% 1,038 0.8% 2,084 2,331 -10.6%
Provision for restructuring and 20 357 N/M* 121 N/M 141 357 N/M
asset impairments
Total Operating Expenses 4,207 4,581 -8.2% 4,144 1.5% 8,351 8,746 -4.5%
Operating Income 1,435 1,199 19.7% 1,379 4.1% 2,814 2,568 9.6%
Interest Expense 249 301 -17.3% 296 -15.9% 545 605 -9.9%
Other Income (Expense), net 287 (240) N/M 306 N/M 593 579 N/M
Income Before Taxes and Accounting 1,473 658 123.9% 1,389 6.0% 2,862 2,542 12.6%
Change
Provision for Income Taxes 522 395 32.2% 474 10.1% 996 1,148 -13.2%
Income Before Cumulative Effect Change 951 263 261.6% 915 3.9% 1,866 1,394 33.9%
Cumulative Effect of Change in - - N/M 315 N/M 315 (1,285) N/M
Accounting Principle
Net Income $951 $263 261.6% $1,230 -22.7% $2,181 $109 1900.9%
Diluted:
Weighted Average Common Shares 1,851 1,882 -1.6% 1,860 -0.5% 1,855 1,885 -1.6%
Outstanding
Earnings Per Share $0.51 $0.14 264.3% $0.66 -22.7% $1.18 $0.06 1866.7%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA (4) $2,481 $2,369 4.7% $2,417 2.6% $4,898 $4,899 0.0%
EBITDA margin (5) 44.0% 41.0% 300 bps 43.8% 20 bps 43.9% 43.3% 60 bps
Declared dividends per share $0.23 $0.20 15.0% $0.21 9.5% $0.44 $0.39 12.8%
Capital expenditures $729 $1,023 -28.7% $631 15.5% $1,360 $2,028 -32.9%
Common shares outstanding 1,847 1,873 -1.4% 1,847 0.0%
Book value per share $10.32 $9.58 7.7% $9.96 3.6%
Debt ratio 44.6% 50.1% -550 bps 47.4% -280 bps
Total employees 75,779 84,617 -10.4% 76,797 -1.3%
BellSouth Corporation
Consolidated Statements of Income -
Normalized Basis (unaudited)
(amounts in millions, except per share
data)
Note to Readers: Our reported results, as shown on page 1, are prepared in accordance with generally accepted
accounting principles (GAAP). The normalized results presented below exclude the impact of certain non-recurring or
non-operating items, the details of which are provided on pages 3 and 4 of this release. In addition, the normalized
results reflect our 40% proportionate share of Cingular's results, the presentation of which is not allowed under GAAP.
Certain reclassifications have been made to prior periods to conform to the current presentation.
2Q03 2Q02 Growth 1Q03 Growth 2003 2002 Growth
Operating Revenues
Communications group $ 4,504 $ 4,586 -1.8% $ 4,469 0.8% $ 8,973 $ 9,200 -2.5%
Domestic wireless 1,514 1,500 0.9% 1,436 5.4% 2,950 2,917 1.1%
Latin America 563 597 -5.7% 509 10.6% 1,072 1,253 -14.4%
Advertising and publishing 520 565 -8.0% 494 5.3% 1,014 1,071 -5.3%
All other 14 13 7.7% 12 16.7% 26 30 -13.3%
Total Operating Revenues 7,115 7,261 -2.0% 6,920 2.8% 14,035 14,471 -3.0%
Operating Expenses
Cost of services and products 2,471 2,373 4.1% 2,364 4.5% 4,835 4,749 1.8%
Selling, general, & administrative 1,637 1,680 -2.6% 1,537 6.5% 3,174 3,300 -3.8%
expenses
Depreciation and amortization 1,249 1,352 -7.6% 1,233 1.3% 2,482 2,693 -7.8%
Total Operating Expenses 5,357 5,405 -0.9% 5,134 4.3% 10,491 10,742 -2.3%
Operating Income 1,758 1,856 -5.3% 1,786 -1.6% 3,544 3,729 -5.0%
Interest Expense 313 362 -13.5% 364 -14.0% 677 721 -6.1%
Other Income (Expense), net 61 49 N/M* 39 N/M 100 128 N/M
Income Before Income Taxes 1,506 1,543 -2.4% 1,461 3.1% 2,967 3,136 -5.4%
Provision for Income Taxes 535 568 -5.8% 520 2.9% 1,055 1,123 -6.1%
Net Income $971 $975 -0.4% $941 3.2% $1,912 $2,013 -5.0%
Diluted:
Weighted Average Common Shares 1,851 1,882 -1.6% 1,860 -0.5% 1,855 1,885 -1.6%
Outstanding
Earnings Per Share $0.52 $0.52 0.0% $0.51 2.0% $1.03 $1.07 -3.7%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA $3,007 $3,208 -6.3% $3,019 -0.4% $6,026 $6,422 -6.2%
(4)
EBITDA margin (5) 42.3% 44.2% -190 bps 43.6% -130 42.9% 44.4% -150
bps bps
Dividends per share $0.23 $0.20 15.0% $0.21 9.5% $0.44 $0.39 12.8%
Capital expenditures $729 $1,023 -28.7% $631 15.5% $1,360 $2,028 -32.9%
Common shares outstanding 1,847 1,873 -1.4% 1,847 0.0%
Book value per share $10.32 $9.58 7.7% $9.96 3.6%
Debt ratio 44.6% 50.1% -550 bps 47.4% -280
bps
Total employees 75,779 84,617 -10.4% 76,797 -1.3%
BellSouth
Corporation
Normalized Earnings Summary and
Reconciliation to Reported Results
(amounts in millions,
except per share data)
Second Quarter Normalizing
2003 Items
FX Pension/ Sale of
Losses
Cingular (Gains) Severance Brazil NE
GAAP A F J K Normalized
Operating $ 5,642 $ 1,473 $ - $ - $ - $ 7,115
Revenues
Operating 4,207 1,170 - (20) - 5,357
Expenses
Operating 1,435 303 - 20 - 1,758
Income
Interest 249 64 - - - 313
Expense
Other Income (Expense), 287 (235) (66) - 75 61
net
Income Before Taxes and 1,473 4 (66) 20 75 1,506
Accounting Change
Provision for Income 522 4 (1) 8 2 535
Taxes
Net Income Before 951 - (65) 12 73 971
Cumulative Effect Change
Cumulative Effect of - - - - - -
Change in Accounting
Principle
Net Income $951 $0 ($65) $12 $73 $971
Diluted Earnings Per $0.51 $0.00 ($0.04) $0.01 $0.04 $0.52
Share
EBITDA (4) 2,481 506 - 20 - 3,007
Year-to-Date Normalizing
2003 Items
FX A&P Pension/ Sale of
Losses
Cingular (Gains) Acctg. FAS 143 Severance Brazil NE
Change
GAAP A F G I J K Normalized
Operating $11,165 $ 2,870 $ - $ - $ - $ - $ - $ 14,035
Revenues
Operating 8,351 2,281 - - - (141) - 10,491
Expenses
Operating 2,814 589 - - - 141 - 3,544
Income
Interest 545 132 - - - - - 677
Expense
Other Income (Expense), 593 (452) (116) - - - 75 100
net
Income Before Taxes and 2,862 5 (116) - - 141 75 2,967
Accounting Change
Provision for Income 996 5 (3) - - 55 2 1,055
Taxes
Net Income Before 1,866 - (113) - - 86 73 1,912
Cumulative Effect Change
Cumulative Effect of 315 - - 501 (816) - - -
Change in Accounting
Principle
Net Income 2,181 $0 ($113) $501 ($816) $86 $73 $1,912
Diluted Earnings Per $1.18 $0.00 ($0.06) $0.27 ($0.44) $0.05 $0.04 $1.03
Share *
EBITDA (4) 4,898 987 - - - 141 - 6,026
* Normalized earnings per share for year-to-date
2003 does not sum due to rounding.
Second Quarter Normalizing
2002 Items
Losses FX Losses A&P Pension/
on
Cingular Equity (Gains) Acctg. Severance
Invest. Change
GAAP A C F G J Normalized
Operating $ 5,780 $ 1,455 $ - $ - $ 26 $ - $ 7,261
Revenues
Operating 4,581 1,167 - - 14 (357) 5,405
Expenses
Operating 1,199 288 - - 12 357 1,856
Income
Interest 301 61 - - - - 362
Expense
Other Income (Expense), (240) (227) 158 358 - - 49
net
Income Before Taxes and 658 - 158 358 12 357 1,543
Accounting Change
Provision for Income 395 - 34 3 4 132 568
Taxes
Net Income Before 263 - 124 355 8 225 975
Cumulative Effect Change
Cumulative Effect of - - - - - - -
Change in Accounting
Principle
Net Income 263 $0 $124 $355 $8 $225 $975
Diluted $0.14 $0.00 $0.07 $0.19 $0.00 $0.12 $0.52
Earnings Per
Share
EBITDA (4) 2,369 470 - - 12 357 3,208
Year-to-Date Normalizing
2002 Items
Losses on Brazil Loan Unbilled FX Losses A&P Pension/
Cingular E-Plus Equity Impairments Rec. Adj. (Gains) Acctg. FAS Severance
Invest. Change 142
GAAP A B C D E F G H J Normalized
Operating $ 11,314 $ 2,841 $ - $ - $ - $ 163 $ - $ 153 $ - $ - $ 14,471
Revenues
Operating 8,746 2,287 - - - - - 66 - (357) 10,742
Expenses
Operating 2,568 554 - - - 163 - 87 - 357 3,729
Income
Interest 605 116 - - - - - - - - 721
Expense
Other
Income
(Expense), 579 (438) (1,339) 388 383 - 555 - - - 128
net
Income
Before
Taxes and 2,542 - (1,339) 388 383 163 555 87 - 357 3,136
Accounting
Change
Provision
for Income 1,148 - (482) 114 120 62 (4) 33 - 132 1,123
Taxes
Net Income
Before 1,394 - (857) 274 263 101 559 54 - 225 2,013
Cumulative
Effect
Change
Cumulative
Effect of (1,285) - - - - - - - 1,285 - -
Change in
Accounting
Principle
Net Income 109 $0 ($857) $274 $263 $101 $559 $54 $1,285 $225 $2,013
Diluted
Earnings Per $0.06 $0.00 ($0.45) $0.15 $0.14 $0.05 $0.30 $0.03 $0.68 $0.12 $1.07
Share *
EBITDA (4) 4,899 916 - - - 163 - 87 - 357 6,422
* Normalized earnings per share for year-to-date
2002 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 proportional 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) Losses on equity investments - Represents charges for the impairment of and open market sales of an equity
investment in Qwest Communications. Second quarter 2002 and year-to-date 2002 also include $63 impairment related to
an investment in Guatemala and $6 in losses for the liquidation of an investment in Crown Castle.
(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 - For the periods presented severance relates to accruals recorded to reflect workforce
reductions in an effort to reduce operating costs. The accruals include cash severance, outplacement costs and
payroll taxes. For 2003, these costs include $33 of severance related costs. During 2003, the number of employees
who separated and elected to receive lump-sum retirement benefits exceeded thresholds that require current
recognition of deferred losses related to these benefits.
(k) Loss on sale of Brazil NE.
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
June 30, December 31, Change vs. March 31, Change vs.
2003 2002 Prior Year 2003 Prior
Quarter
Assets
Current Assets:
Cash and cash equivalents $4,122 $2,482 $1,640 $2,442 $1,680
Accounts receivable, net of allowance for 2,999 4,129 (1,130) 3,102 (103)
uncollectibles of $492, $476, and $465
Material and supplies 312 313 (1) 323 (11)
Other current assets 1,029 938 91 1,213 (184)
Total Current Assets 8,462 7,862 600 7,080 1,382
Investments and Advances 8,283 9,741 (1,458) 9,941 (1,658)
Property, Plant and Equipment, net 24,047 23,445 602 24,340 (293)
Deferred Charges and Other Assets 5,757 5,726 31 5,690 67
Goodwill 346 347 (1) 344 2
Intangible Assets, net 2,356 2,358 (2) 2,323 33
Total Assets $49,251 $49,479 ($228) $49,718 ($467)
Liabilities and Shareholders' Equity
Current Liabilities:
Debt maturing within one year $3,694 $5,114 ($1,420) $4,428 ($734)
Accounts payable 1,344 1,572 (228) 1,458 (114)
Other current liabilities 3,421 2,897 524 3,134 287
Total Current Liabilities 8,459 9,583 (1,124) 9,020 (561)
Long-Term Debt 11,718 12,283 (565) 12,216 (498)
Noncurrent Liabilities:
Deferred income taxes 5,109 4,452 657 4,882 227
Other noncurrent liabilities 4,908 5,255 (347) 5,207 (299)
Total Noncurrent Liabilities 10,017 9,707 310 10,089 (72)
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 0 2,020 0
Paid-in capital 7,620 7,546 74 7,562 58
Retained earnings 15,744 14,531 1,213 15,342 402
Accumulated other comprehensive income (779) (740) (39) (859) 80
Shares held in trust and treasury (5,503) (5,372) (131) (5,637) 134
Guarantee of ESOP debt (45) (79) 34 (35) (10)
Total Shareholders' Equity 19,057 17,906 1,151 18,393 664
Total Liabilities and Shareholders' Equity $49,251 $49,479 ($228) $49,718 ($467)
BellSouth Corporation
Consolidated Statements of Cash Flows
(unaudited)
(amounts in millions, except per share data)
Year-To-Date
2Q03 2Q02 1Q03 2003 2002
Cash Flows from Operating Activities:
Net income $ 951 $ 263 $ 1,230 $ 2,181 $ 109
Adjustments to net income:
Depreciation and amortization 1,046 1,170 1,038 2,084 2,331
Provision for uncollectibles 138 261 168 306 420
Net losses (earnings) of equity (179) (112) (174) (353) 125
affiliates
Minority interests in income of 20 4 (8) 12 (77)
subsidiaries
Deferred income taxes 229 180 459 688 777
Net (gains) losses on sale or impairment 8 152 - 8 388
of equity securities
Pension income (133) (205) (134) (267) (410)
Pension settlement (gains) losses 20 - 67 87 -
Curtailment and termination benefits - 60 - - 60
charges
Stock-based compensation 36 51 31 67 92
Unbilled receivable adjustment - - - - 163
Foreign currency transaction (gains) (99) 355 (45) (144) 645
losses
Cumulative effect of change in - - (539) (539) 1,285
accounting principle
(Gain) loss on sale/disposal of 75 - - 75 (1,335)
operations
Net change in:
Accounts receivable and other current 120 (114) (121) (1) 77
assets
Accounts payable and other current 197 194 (86) 111 (285)
liabilities
Deferred charges and other assets 39 (65) 75 114 (44)
Other liabilities and deferred credits 18 38 (57) (39) -
Other reconciling items, net 32 (104) 4 36 (128)
Net cash provided by operating activities 2,518 2,128 1,908 4,426 4,193
Cash Flows from Investing Activities:
Capital expenditures (729) (1,023) (631) (1,360) (2,028)
Investments in and advances to equity - (1) - - (7)
affiliates
Proceeds from sale of securities and 46 120 35 81 1,454
operations
Proceeds from repayment of loans and 1,899 - - 1,899 426
advances
Settlement of derivatives on advances (352) 85 - (352) 85
Other investing activities, net (5) (16) (24) (29) (20)
Net cash provided by (used for) investing 859 (835) (620) 239 (90)
activities
Cash Flows from Financing Activities:
Net borrowing (repayments) of short-term (179) (431) (202) (381) (1,393)
debt
Proceeds from long-term debt - 4 1 1 8
Repayments of long-term debt (1,072) (558) (514) (1,586) (568)
Dividends paid (388) (356) (371) (759) (713)
Purchase of treasury shares (67) (189) (255) (322) (189)
Other financing activities, net 9 18 13 22 2
Net cash used for financing activities (1,697) (1,512) (1,328) (3,025) (2,853)
Net Increase (Decrease) in Cash and Cash 1,680 (219) (40) 1,640 1,250
Equivalents
Cash and Cash Equivalents at Beginning of 2,442 2,061 2,482 2,482 592
Period
Cash and Cash Equivalents at End of Period $ 4,122 $ 1,842 $ 2,442 $ 4,122 $ 1,842
BellSouth Corporation
Results by Segment (amounts in
millions) (unaudited)
Communications Group (1)
Year-To-Date
2Q03 2Q02 Growth 1Q03 Growth 2003 2002 Growth
Operating Revenues
Voice $3,175 $3,132 1.4% $3,131 1.4% $6,306 $6,309 0.0%
Data 1,064 1,067 -0.3% 1,090 -2.4% 2,154 2,159 -0.2%
Other 347 472 -26.5% 355 -2.3% 702 885 -20.7%
Total Operating Revenues 4,586 4,671 -1.8% 4,576 0.2% 9,162 9,353 -2.0%
Operating Expenses
Cost of services and products 1,712 1,637 4.6% 1,625 5.4% 3,337 3,255 2.5%
Selling, general, & 768 748 2.7% 764 0.5% 1,532 1,474 3.9%
administrative expenses
Depreciation and amortization 944 1,042 -9.4% 937 0.7% 1,881 2,074 -9.3%
Total Operating Expenses 3,424 3,427 -0.1% 3,326 2.9% 6,750 6,803 -0.8%
Segment Operating Income 1,162 1,244 -6.6% 1,250 -7.0% 2,412 2,550 -5.4%
Interest Expense 101 120 -15.8% 118 -14.4% 219 245 -10.6%
Other Income (Expense), net 18 (3) N/M* 3 N/M 21 (3) N/M
Income Before Income Taxes 1,079 1,121 -3.7% 1,135 -4.9% 2,214 2,302 -3.8%
Provision for Income Taxes 400 419 -4.5% 426 -6.1% 826 865 -4.5%
Segment Net Income(1) $679 $702 -3.3% $709 -4.2% $1,388 $1,437 -3.4%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions)
Segment EBITDA (4) $2,106 $2,286 -7.9% $2,187 -3.7% $4,293 $4,624 -7.2%
Segment EBITDA margin (5) 45.9% 48.9% -300 bps 47.8% -190 bps 46.9% 49.4% -250 bps
Data service revenues $1,064 $1,067 -0.3% $1,090 -2.4% $2,154 $2,159 -0.2%
Long distance revenues $309 $213 45.1% $264 17.0% $573 $418 37.1%
Access minutes of use 23,053 25,073 -8.1% 22,795 1.1% 45,848 50,656 -9.5%
Capital expenditures $665 $918 -27.6% $566 17.5% $1,231 $1,840 -33.1%
IntraLata Toll Messages 87 97 -10.3% 91 -4.4% 178 193 -7.8%
Wholesale Lines (thousands) 2,730 2,070 31.9% 2,549 7.1%
DSL customers (thousands) 1,225 803 52.6% 1,122 9.2%
LD customers (thousands) 2,786 147 N/M 1,930 44.4%
BellSouth Corporation
Results by Segment (unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service(a)(b)
2Q03 2Q02 Growth 1Q03 Growth
Access lines (b)
Residence
Retail
Primary 12,852 13,676 -6.0% 13,132 -2.1%
Additional 1,758 2,101 -16.3% 1,849 -4.9%
Total Retail 14,610 15,777 -7.4% 14,981 -2.5%
Residence
Wholesale
Resale 238 402 -40.8% 297 -19.9%
UNE-P 1,369 586 133.6% 1,155 18.5%
Total Wholesale 1,607 988 62.7% 1,452 10.7%
Residence
Total Residence 16,217 16,765 -3.3% 16,433 -1.3%
Business
Retail
Voice 5,542 5,887 -5.9% 5,621 -1.4%
ISDN 1,504 1,630 -7.7% 1,581 -4.9%
Total Retail 7,046 7,517 -6.3% 7,202 -2.2%
Business
Wholesale
Resale 81 130 -37.7% 83 -2.4%
UNE-P 640 532 20.3% 619 3.4%
Total Wholesale 721 662 8.9% 702 2.7%
Business
Total Business 7,767 8,179 -5.0% 7,904 -1.7%
Other Retail / Wholesale 166 194 -14.4% 174 -4.6%
Lines
Total Access Lines in Service 24,150 25,138 -3.9% 24,511 -1.5%
Access Line Equivalents (c)
Selected digital data
services:
Unbundled Loops 359 398 -9.8% 367 -2.2%
DS0 & ADSL 7,646 5,142 48.7% 7,052 8.4%
DS1 7,000 6,721 4.2% 6,936 0.9%
DS3 & higher 31,672 30,505 3.8% 32,294 -1.9%
Total digital data lines in 46,677 42,766 9.1% 46,649 0.1%
service
Total equivalent access lines in 70,827 67,904 4.3% 71,160 -0.5%
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 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)
Year-To-Date
2Q03 2Q02 Growth 1Q03 Growth 2003 2002 Growth
Operating Revenues
Service revenues (3) $1,412 $1,398 1.0% $1,338 5.5% $2,750 $2,724 1.0%
Equipment and other revenues 102 102 0.0% 98 4.1% 200 193 3.6%
Total Operating Revenues 1,514 1,500 0.9% 1,436 5.4% 2,950 2,917 1.1%
Operating Expenses
Cost of services and products 501 478 4.8% 468 7.1% 969 929 4.3%
Selling, general, & administrative 507 550 -7.8% 487 4.1% 994 1,070 -7.1%
expenses
Depreciation and amortization 203 182 11.5% 195 4.1% 398 362 9.9%
Total Operating Expenses 1,211 1,210 0.1% 1,150 5.3% 2,361 2,361 0.0%
Segment Operating Income 303 290 4.5% 286 5.9% 589 556 5.9%
Interest Expense 92 88 4.5% 90 2.2% 182 178 2.2%
Other Income (Expense), net (39) (43) N/M* (31) N/M (70) (68) N/M
Income Before Income Taxes 172 159 8.2% 165 4.2% 337 310 8.7%
Provision for Income Taxes 68 60 13.3% 64 6.3% 132 119 10.9%
Segment Net Income(1) $104 $99 5.1% $101 3.0% $205 $191 7.3%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer
data in thousands)
Segment EBITDA (4) $506 $472 7.2% $481 5.2% $987 $918 7.5%
Segment EBITDA margin (5)(c) 35.8% 33.8% 200 bps 35.9% -10 bps 35.9% 33.7% 220 bps
Cellular/PCS:
Total Cellular/PCS Customers 9,056 8,873 2.1% 8,846 2.4% 9,056 8,873 2.1%
Net Customer Additions - Cellular/ 216 141 53.2% 76 184.2% 292 235 24.3%
PCS
Partitioned Customers and/or 6 0 N/M 0 N/M 6 0 N/M
Adjustments
Churn - Cellular/PCS 2.5% 2.7% -20 bps 2.6% -10 bps 2.6% 2.8% -20 bps
Wireless Service ARPU - Cellular/ $51.80 $52.11 -0.6% $50.04 3.5% $50.93 $51.28 -0.7%
PCS
Wireless Subscriber ARPU - Cellular $48.87 $48.71 0.3% $47.38 3.1% $48.13 $48.04 0.2%
/PCS
Minutes Of Use Per Cellular/PCS 445 398 11.8% 405 9.9% 425 377 12.7%
Subscriber
Licensed POPs - Cellular/PCS (b) 94 88 6.8% 94 0.0% 94 88 6.8%
Penetration - Cellular/PCS (b) 10.2% 11.2% -100 bps 10.0% 20 bps 10.2% 11.2% -100 bps
Interactive:
Total Cingular Interactive 315 315 0.0% 334 -5.7% 315 315 0.0%
Customers
Net Customer Additions - Cingular (19) 9 N/M 7 N/M (12) 21 N/M
Interactive
(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)
Year-To-Date
2Q03 2Q02 Growth 1Q03 Growth 2003 2002 Growth
Operating Revenues
Service revenues (3) $471 $501 -6.0% $432 9.0% $903 $1,063 -15.1%
Equipment and other revenues 94 78 20.5% 77 22.1% 171 172 -0.6%
Advertising and publishing revenues - 19 -100.0% - 0.0% - 22 -100.0%
Total Operating Revenues 565 598 -5.5% 509 11.0% 1,074 1,257 -14.6%
Operating Expenses
Cost of services and products 243 230 5.7% 258 -5.8% 501 496 1.0%
Selling, general, & administrative 154 174 -11.5% 136 13.2% 290 390 -25.6%
expenses
Depreciation and amortization 93 118 -21.2% 90 3.3% 183 236 -22.5%
Total Operating Expenses 490 522 -6.1% 484 1.2% 974 1,122 -13.2%
Segment Operating Income 75 76 -1.3% 25 200.0% 100 135 -25.9%
Interest Expense 22 35 -37.1% 43 -48.8% 65 75 -13.3%
Other Income (Expense), net (7) (14) N/M* 4 N/M (3) (29) N/M
Income Before Income Taxes 46 27 N/M (14) N/M 32 31 N/M
Provision for Income Taxes 5 15 N/M (24) N/M (19) 16 N/M
Segment Net Income(1) $41 $12 N/M $10 N/M $51 $15 N/M
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer data
in thousands)
Segment EBITDA (4) $168 $194 -13.4% $115 46.1% $283 $371 -23.7%
Segment EBITDA margin (5) 29.7% 32.4% -270 22.6% 710 bps 26.4% 29.5% -310 bps
bps
Average monthly revenue per customer (3) $18 $20 -10.0% $17 5.9% $18 $22 -18.2%
Customer net adds in period (excluding 377 (68) -654.4% 372 1.3% 749 255 193.7%
ownership changes) (a)
Customers (voice) (a) 8,921 7,840 13.8% 8,544 4.4% 8,921 7,840 13.8%
POPs 160,600 162,100 -0.9% 160,600 0.0% 160,600 162,100 -0.9%
Penetration rate (6) 5.6% 4.8% 80 bps 5.3% 30 bps 5.6% 4.8% 80 bps
(a) The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers
in Venezuela. 2Q02 Customer net adds would have been 63 higher, and year-to-date net adds for 2002 would have been
143 higher. Annual growth in net adds would have been 88.2%. Growth in customers vs. 2Q02 would have been 10.6% had
Venezuela's fixed wireless customers been included in 2Q02 data.
BellSouth Corporation
Worldwide Wireless
(unaudited)
Customers and POPs by
Country
Ownership
Percentage
As of Total Total POPs As
Customers As of
of
Country Brand 2Q03 2Q03 2Q02 Growth 1Q03 Growth 2Q03 2Q02 Growth 1Q03 Growth
United Cingular 40.0% 22,640 22,183 2.1% 22,114 2.4% 236,000 219,000 7.8% 235,000 0.4%
States Wireless
Argentina Movicom 65.0% 1,336 1,392 -4.0% 1,325 0.8% 37,400 37,500 -0.3% 37,400 0.0%
BellSouth
Brazil - Sao BCP 45.4% 1,699 1,723 -1.4% 1,664 2.1% 18,100 18,100 0.0% 18,100 0.0%
Paulo Reg.
Chile BellSouth 100.0% 1,161 1,020 13.8% 1,062 9.3% 15,300 15,400 -0.6% 15,300 0.0%
Colombia Celumovil 66.0% 1,684 1,308 28.7% 1,580 6.6% 40,300 43,000 -6.3% 40,300 0.0%
BellSouth
Ecuador BellSouth 89.4% 740 455 62.6% 631 17.3% 13,200 12,800 3.1% 13,200 0.0%
Guatemala BellSouth 60.0% 214 145 47.6% 205 4.4% 13,000 11,700 11.1% 13,000 0.0%
Nicaragua BellSouth 89.0% 247 179 38.0% 231 6.9% 2,900 2,900 0.0% 2,900 0.0%
Panama BellSouth 43.7% 377 308 22.4% 359 5.0% 2,800 3,000 -6.7% 2,800 0.0%
Peru BellSouth 97.4% 573 480 19.4% 574 -0.2% 27,500 26,100 5.4% 27,500 0.0%
Uruguay Movicom 46.0% 141 151 -6.6% 142 -0.7% 2,100 2,100 0.0% 2,100 0.0%
BellSouth
Venezuela Telcel 78.2% 3,179 3,005 5.8% 3,142 1.2% 24,000 24,400 -1.6% 24,000 0.0%
(a) BellSouth
Total Latin 11,351 10,166 11.7% 10,915 4.0% 196,600 197,000 -0.2% 196,600 0.0%
America (a)
Denmark Sonofon 46.5% 1,312 1,021 28.5% 1,248 5.1% 5,300 5,300 0.0% 5,300 0.0%
Israel Cellcom 34.8% 2,551 2,351 8.5% 2,514 1.5% 6,100 6,100 0.0% 6,100 0.0%
Total Europe 3,863 3,372 14.6% 3,762 2.7% 11,400 11,400 0.0% 11,400 0.0%
Total Worldwide Wireless 37,854 35,721 6.0% 36,791 2.9% 444,000 427,400 3.9% 443,000 0.2%
(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. 2Q02 in Venezuela, Total Latin America and Total Worldwide
Wireless would have been -1.6%, 9.2%, and 5.3%, respectively, had Venezuela's fixed wireless customers been
included in 2Q02 data.
BellSouth Corporation
Results by Segment (amounts in
millions) (unaudited)
Advertising & Publishing (1)
Year-To-Date
2Q03 2Q02 Growth 1Q03 Growth 2003 2002 Growth
Operating Revenues
Advertising and publishing 480 526 -8.7% 481 -0.2% 961 1,019 -5.7%
revenues
Commission revenues 45 44 2.3% 17 164.7% 62 61 1.6%
Total Operating Revenues 525 570 -7.9% 498 5.4% 1,023 1,080 -5.3%
Operating Expenses
Cost of services 82 91 -9.9% 78 5.1% 160 182 -12.1%
Selling, general, & 184 224 -17.9% 170 8.2% 354 394 -10.2%
administrative expenses
Depreciation and amortization 7 8 -12.5% 7 0.0% 14 14 0.0%
Total Operating Expenses 273 323 -15.5% 255 7.1% 528 590 -10.5%
Segment Operating Income 252 247 2.0% 243 3.7% 495 490 1.0%
Interest Expense 2 3 -33.3% 2 0.0% 4 6 -33.3%
Other Income (Expense), net 2 1 N/M* (1) N/M 1 1 N/M
Income Before Income Taxes 252 245 2.9% 240 5.0% 492 485 1.4%
Provision for Income Taxes 95 94 1.1% 91 4.4% 186 186 0.0%
Segment Net Income(1) $157 $151 4.0% $149 5.4% $306 $299 2.3%
Segment EBITDA (4) $259 $255 1.6% $250 3.6% $509 $504 1.0%
Segment EBITDA margin (5) 49.3% 44.7% 460 bps 50.2% -90 bps 49.8% 46.7% 310 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. See Net Income reconciliation
to EBITDA on page 15.
(5) EBITDA margin is calculated by dividing EBITDA by operating revenues, except when otherwise stated.
(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
The company news service from the London Stock Exchange
END
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