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BellSouth Reports Fourth Quarter Earnings28 January 2006
BellSouth Corporation (NYSE: BLS) announced fourth quarter 2005 earnings per share (EPS) from continuing operations of 34 cents, up 36 percent compared to the fourth quarter of 2004. Normalized EPS from continuing operations was 53 cents, a 36 percent increase compared to the fourth quarter of 2004.
A list of normalizing items is provided in the table below.
"BellSouth is delivering solid revenue growth and strong earnings growth," said Duane Ackerman, Chairman and Chief Executive Officer. "BellSouth's earnings for the quarter reflect the value of our asset mix as the industry continues to undergo a transition to new services and new competition emerges."
Normalized Results from Continuing Operations
Normalized results from continuing operations include BellSouth's 40 percent proportionate share of Cingular's revenues and expenses. Cingular completed its acquisition of AT&T Wireless on October 26, 2004. Results prior to the acquisition date have not been restated. The Company is conforming its normalized financial reporting to align to industry peers for the treatment of purchased intangible assets. Normalized results exclude the non-cash amortization of purchased intangibles created in Cingular's acquisition of AT&T Wireless. Prior periods have been recast for the change. (Reconciliation attached).
For the fourth quarter of 2005, normalized revenue was $8.7 billion. Normalized revenue for the quarter was up nearly 2 percent sequentially driven by DSL growth and Cingular customer growth. Normalized net income of $965 million grew $27 million compared to the third quarter of 2005.
For the full year of 2005, BellSouth normalized revenues reached $34 billion, over 40 percent of which came from Cingular Wireless. Full year 2005 normalized EPS was $2.00, a 7 percent increase compared to 2004 as higher contribution from the combined Cingular/AT&T Wireless offset financing costs associated with this transaction and pressures in the wireline business.
Reported Results from Continuing Operations
For the fourth quarter of 2005, BellSouth's consolidated reported revenue from continuing operations totaled $5.2 billion, up nearly 2 percent compared to the same quarter of 2004. Income from continuing operations was $618 million compared to $453 million in the same quarter of the previous year. For the full year of 2005, income from continuing operations was $2.9 billion compared to $3.4 billion for the full year of 2004. Reported results for the quarter and for the year include the financial impacts associated with the damage from Hurricane Katrina.
BellSouth finished 2005 with strong cash flow and a solid balance sheet. For the full year of 2005, operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $3.3 billion. Capital expenditures for the year amounted to $3.5 billion, including expenditures related to restoration for damages from Hurricane Katrina. The Company reduced debt by $3.4 billion in 2005 and repurchased nearly $1 billion of its outstanding shares during the fourth quarter. In October 2005, the board of directors authorized the repurchase of up to $2 billion of common stock through the end of 2007. The dividend for the fourth quarter was 29 cents per share or $1.16 per share annualized.
Summary of Impacts from Hurricane Katrina
During the fourth quarter of 2005, revenue was reduced by $48 million due to Katrina-related billing credits and the Company estimates approximately 60,000 access lines were disconnected in the affected area. The Company incurred $244 million of incremental expense and $189 million of incremental capital during the fourth quarter.
For the full year, revenue credits totaled $111 million across all three business segments. The Company estimates approximately 100,000 access lines have been disconnected as a result of the hurricane. We have seen some above trend inward movement in other wire centers, presumably from customers relocating within our markets and from businesses migrating to New Orleans to participate in reconstruction, but it is difficult to estimate the extent of this impact.
For the year, incremental expenses for wireline network restoration and capital are approximately $500 million. On Sept. 6, 2005, BellSouth made an initial estimate of the future cost for network restoration, including capital and expense, of $400 million to $600 million. Based on current assessments to complete the restoration effort, the Company now expects this amount to total $700 million to $900 million. We expect a portion of the cost associated with the Hurricane Katrina recovery effort to be covered by insurance. While the exact amount has not been determined, our current estimate of the amount of covered losses, net of our deductible, is approximately $250 million. The actual recovery will vary depending on the outcome of the insurance loss adjustment effort.
Communications Group
In the fourth quarter of 2005, Communications Group revenue was $4.7 billion, nearly a 1 percent increase compared to the same quarter of 2004. Operating margin was 21.9 percent compared to 21.6 percent for the same quarter of the previous year.
For the full year of 2005, Communications Group revenue held steady at $18.5 billion. The Consumer and Small Business market segments delivered solid revenue growth with DSL and long distance service revenue outpacing revenue declines from residential access line loss. Full year operating margin was 23.0 percent compared to 25.0 percent for the full year of 2004. The 2005 operating margin was impacted by higher retiree medical expense, overtime expenses from severe weather and Katrina billing credits.
BellSouth is focused on driving broadband penetration and served nearly 2.9 million broadband DSL customers at year-end. During the fourth quarter of 2005, the Company added 204,000 net DSL customers driven by the continued success of BellSouth's new simplified pricing and improving churn. To meet market demand for faster broadband speeds, BellSouth introduced an up to 6 Mbps DSL service in limited areas during the quarter and, in early January 2006, lowered the price on the up to 3 Mbps DSL service to $37.95. Both actions offer customers opportunities to increase their broadband speed at attractive price points.
For the fourth quarter, network data revenue was $1.25 billion, up 7.7 percent from the same period of the prior year. Retail data revenue grew 15.9 percent from the same period last year driven by a 32.5 percent increase in retail DSL revenue and 4.4 percent growth in revenue from other retail data services. Wholesale data declined 2.8 percent as growth in wholesale services to wireless carriers partially offset declines in traditional wholesale data transport services. For the year, network data revenue grew 5.1 percent totaling more than $4.7 billion.
BellSouth customers continue to want simple, reliable communications services conveniently combined in a package. Customers can bundle DSL, long distance, DIRECTV(R) and Cingular Wireless under the BellSouth Answers(R) bundles. By the end of 2005, more than 4.9 million residential customers combined their services under BellSouth Answers(R), a more than 43 percent penetration of its retail residential lines. In addition, BellSouth now serves almost 7.2 million long distance customers, a 57.7 percent penetration of its mass-market customer base, and a total of 523,000 customers have included DIRECTV(R) services in their communications packages at year-end.
While access lines were down 6.2 percent for the year, revenues grew as a result of higher penetration of broadband and long distance services. As of Dec. 31, 2005, total access lines were 20.0 million, down 409,000 compared to Sept. 30, 2005. Other than the 60,000 estimated disconnects associated with Hurricane Katrina, access line loss continues to be primarily driven by wireless substitution and, to a lesser extent, by competition from cable telephony providers. Retail residential access lines were down 189,000. Retail business access lines increased 12,000 driven by Small Business gains. As expected, Commercial Agreement/UNE-P (Unbundled Network Elements-Platform) access lines resold by BellSouth competitors were down compared to Sept. 30, 2005.
Cingular Wireless
Cingular's strong results were a key driver of BellSouth's earnings growth. The nation's largest wireless carrier ended the fourth quarter of 2005 with 54.1 million cellular/PCS subscribers, an increase of 5 million compared to the year-ago fourth quarter. During the quarter, Cingular delivered record net customer additions of 1.8 million. Retail customer additions were approximately 840,000 reflecting steady growth in postpaid customers and an increase in GoPhone(R) prepaid subscribers. Seasonal reseller promotional activity drove strong resale customer additions. Monthly subscriber churn was 2.1 percent - Cingular's best-ever overall churn results. Postpaid churn improved to 1.9 percent.
In the fourth quarter of 2005, Cingular's revenues were $8.8 billion, up 9.4 percent over fourth quarter 2004 pro forma revenue and up 1.2 percent sequentially.
Average revenue per user (ARPU) in the fourth quarter of 2005 was $48.86, a decline of 2.2 percent from fourth quarter 2004 pro forma ARPU, reflecting pressure on voice revenues partially offset by continued increases in data services. ARPU from data services showed strong growth in the fourth quarter of 2005, reaching $4.71, a nearly 9 percent increase compared to the third quarter of 2005. The increasing popularity and availability of downloadable games, ringtones, and text messaging is driving data ARPU.
Normalized operating income before depreciation and amortization (OIBDA) margin for the fourth quarter of 2005 was 31.0 percent, which was an improvement of 760 basis points compared to year-ago fourth quarter results but a sequential decline of 60 basis points due to anticipated seasonal factors. The year-over-year margin improvement reflects the addition of 5 million customers, progress on merger synergies including increased productivity, economies of scale and lower churn.
In the fourth quarter of 2005, Cingular became the first carrier in the world to operate a commercial UMTS/HSDPA network, which provides industry- leading data throughputs with speeds of 400 to 700 Kbps. Cingular deployed UMTS/HSDPA in 16 markets during the quarter and plans to have most of the top 100 markets launched by the end of 2006. In addition, Cingular brought a Push-to-Talk (PTT) offer to market during the fourth quarter of 2005.
Advertising & Publishing
In the fourth quarter of 2005, Advertising & Publishing revenue was $529 million, up slightly compared to the same quarter of 2004. Adjusting for $16 million in billing credits associated with Hurricane Katrina, revenue grew 3.2 percent.
For the full year of 2005, Advertising & Publishing revenue was up 2 percent compared to 2004 (3.2 percent when adjusted for the full year Katrina billing credits). Revenue growth was driven by increasing online advertising and new print services. For the full year of 2005, online advertising revenue grew 39 percent to more than $100 million. During the quarter the Company enhanced its online services by completing the rollout of YELLOWPAGES.COM(TM) from BellSouth(R). Advertising & Publishing operating margins remained strong at 46.3 percent for the full year.
Normalizing Items
For the fourth quarter and for the full year of 2005, the difference between reported (GAAP) EPS from continuing operations and normalized EPS is shown in the following table:
4Q05 FY05
GAAP Diluted EPS - Income from
continuing operations $0.34 $1.59
Hurricane-related expenses: $0.08 $0.19
Asset impairment $0.00 $0.06
Uncollectibles $0.00 $0.01
Other $0.01 $0.02
Restoration $0.07 $0.10
Wireless merger integration
costs $0.04 $0.11
Wireless merger intangible
amortization $0.05 $0.20
Gain on sale of Cellcom ($0.12)
Debt extinguishment costs $0.01
Severance costs $0.03 $0.03
Deferred revenue
adjustment ($0.02) ($0.02)
Normalized Diluted EPS
- Income from continuing
operations (1) $0.53 $2.00
(1) Does not sum due to rounding
Hurricane-related expenses - Represents asset impairment charges, incremental labor and material costs related to service restoration and network repairs and incremental uncollectible expense. These expenses are comprised of Hurricane Katrina charges related to BellSouth's wireline business and its 40 percent share of Cingular Wireless' hurricane expenses.
Wireless merger integration costs - Represents BellSouth's 40 percent share of wireless merger integration costs in connection with the Cingular/AT&T Wireless merger. Integration costs include one-time cash outlays or specified non-cash charges, including accelerated depreciation, directly related to rationalization of the wireless network, sales distribution channels, the workforce, information technology systems and real estate.
Wireless merger intangible amortization - Represents BellSouth's 40 percent share of the non-cash amortization of intangibles, primarily customer lists that were created in Cingular's acquisition of AT&T Wireless.
Gain on sale of Cellcom - Gain related to sale of Cellcom, a cellular communications operator in Israel.
Debt extinguishment costs - Represents one-time expenses associated with the early extinguishment of long-term debt in the first and second quarters of 2005.
Severance costs - Represents the net severance-related costs recorded in the fourth quarter of 2005 associated with workforce reductions.
Deferred revenue adjustment - Represents the current recognition of $47 million of previously deferred revenue in the Communications Group segment. The adjustment relates to a system coding error that resulted in underreporting revenues in prior periods. The amount accumulated over multiple years and did not affect any one year by more than $9 million.
About BellSouth Corporation
BellSouth Corporation is a Fortune 100 communications company headquartered in Atlanta, Georgia. BellSouth has joint control and 40 percent ownership of Cingular Wireless, the nation's largest wireless voice and data provider with 54.1 million customers.
Backed by award-winning customer service, BellSouth offers the most comprehensive and innovative package of voice and data services available in the market. Through BellSouth Answers(R), residential and small business customers can bundle their local and long distance service with dial-up and high-speed DSL Internet access, satellite television and Cingular(R) Wireless service. For businesses, BellSouth provides secure, reliable local and long distance voice and data networking solutions. BellSouth also offers print and online directory advertising through The Real Yellow Pages(R) and YELLOWPAGES.COM(TM) from BellSouth(R).
BellSouth believes that diversity and fostering an inclusive environment are critical in maintaining a competitive advantage in today's global marketplace. More information about BellSouth can be found at http://www.bellsouth.com.
Further information about BellSouth and Cingular's fourth quarter earnings can be accessed at http://www.bellsouth.com/investor. The press release, financial statements and Investor News summarizing highlights of the quarter are available at http://www.bellsouth.com/investor starting today at 8 a.m. Eastern Time (ET).
BellSouth will host a conference call with investors today at 10 a.m. (ET).
Dial-in information for the conference call is as follows:
Domestic: 888-370-1863
International: 706-634-1735
The conference call will also be webcast live beginning at 10 a.m. (ET) on our Web site at http://www.bellsouth.com/investor. The webcast will be archived on our Web site beginning at approximately 1 p.m. (ET) today.
A replay of the call will be available beginning at approximately 1 p.m. (ET) today, through Feb. 1, 2006, and can be accessed by dialing:
Domestic: 800-642-1687 - Conference ID: 3339634
International: 706-645-9291 - Conference ID: 3339634
In addition to historical information, this document may contain forward- looking statements regarding events and financial trends. Factors that could affect future results and could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: (i) a change in economic conditions in markets where we operate or have material investments which would affect demand for our services; (ii) the intensity of competitive activity and its resulting impact on pricing strategies and new product offerings; (iii) higher than anticipated cash requirements for investments, new business initiatives and acquisitions; (iv) unfavorable regulatory actions; and (v) those factors contained in the Company's periodic reports filed with the SEC. The forward-looking information in this document is given as of this date only, and BellSouth assumes no duty to update this information.
This document may also contain certain non-GAAP financial measures. The most directly comparable GAAP financial measures, and a full reconciliation of non-GAAP to GAAP financial information, are attached hereto and provided on the Company's investor relations website, http://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.
4Q05 4Q04 Growth 3Q05 Growth
Operating Revenues
Communications group $4,702 $4,613 1.9% $4,558 3.2%
Advertising and publishing 525 524 0.2% 506 3.8%
All other 15 9 66.7% 8 87.5%
Total Operating Revenues 5,242 5,146 1.9% 5,072 3.4%
Operating Expenses
Cost of services and products 2,205 2,052 7.5% 2,017 9.3%
Selling, general &
administrative expenses 1,040 1,072 -3.0% 996 4.4%
Depreciation and amortization 905 916 -1.2% 922 -1.8%
Provision for restructuring and
asset impairments 95 18 * 166 -42.8%
Total Operating Expenses 4,245 4,058 4.6% 4,101 3.5%
Operating Income 997 1,088 -8.4% 971 2.7%
Interest Expense 274 270 1.5% 274 0.0%
Other Income (Expense), net 144 (177) 181.4% 512 -71.9%
Income from Continuing Operations
before Income Taxes and
Discontinued Operations 867 641 35.3% 1,209 -28.3%
Provision for Income Taxes 249 188 32.4% 392 -36.5%
Income from Continuing Operations 618 453 36.4% 817 -24.4%
Income (Loss) from Discontinued
Operations, net of tax - 911 * - *
Net Income $618 $1,364 -54.7% $817 -24.4%
Diluted:
Weighted Average Common Shares
Outstanding 1,818 1,836 -1.0% 1,836 -1.0%
Earnings Per Share:
Income from Continuing
Operations $0.34 $0.25 36.0% $0.44 -22.7%
Income from Discontinued
Operations $0.00 $0.50 * $0.00 *
Net Income $0.34 $0.74 -54.1% $0.44 -22.7%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $997 $1,088 -8.4% $971 2.7%
Operating margin 19.0% 21.1% -210bps 19.1% -10bps
Declared dividends per share $0.29 $0.27 7.4% $0.29 0.0%
Capital expenditures excluding
Hurricane Katrina $803 $1,059 -24.2% $864 -7.1%
Total capital expenditures $992 $1,059 -6.3% $886 12.0%
Common shares outstanding 1,796 1,831 -1.9% 1,831 -1.9%
Book value per share $13.08 $12.60 3.8% $13.28 -1.5%
Year-to-Date
2005 2004 Growth
Operating Revenues
Communications group $18,451 $18,256 1.1%
Advertising and publishing 2,046 2,005 2.0%
All other 50 39 28.2%
Total Operating Revenues 20,547 20,300 1.2%
Operating Expenses
Cost of services and products 8,067 7,520 7.3%
Selling, general & administrative
expenses 3,873 3,816 1.5%
Depreciation and amortization 3,661 3,636 0.7%
Provision for restructuring and
asset impairments 276 39 *
Total Operating Expenses 15,877 15,011 5.8%
Operating Income 4,670 5,289 -11.7%
Interest Expense 1,124 916 22.7%
Other Income (Expense), net 756 813 -7.0%
Income from Continuing Operations
before Income Taxes and
Discontinued Operations 4,302 5,186 -17.0%
Provision for Income Taxes 1,389 1,792 -22.5%
Income from Continuing Operations 2,913 3,394 -14.2%
Income (Loss) from Discontinued
Operations, net of tax 381 1,364 -72.1%
Net Income $3,294 $4,758 -30.8%
Diluted:
Weighted Average Common Shares
Outstanding 1,829 1,836 -0.4%
Earnings Per Share:
Income from Continuing
Operations $1.59 $1.85 -14.1%
Income from Discontinued
Operations $0.21 $0.74 -71.6%
Net Income $1.80 $2.59 -30.5%
Selected Financial and Operating Data
Operating income $4,670 $5,289 -11.7%
Operating margin 22.7% 26.1% -340 bps
Declared dividends per share $1.14 $1.06 7.5%
Capital expenditures excluding
Hurricane Katrina $3,246 $3,193 1.7%
Total capital expenditures $3,457 $3,193 8.3%
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.
Normalized results exclude discontinued operations from all periods.
Certain reclassifications have been made to prior periods to conform
to the current presentation.
4Q05 4Q04 Growth 3Q05 Growth
Operating Revenues
Communications group $4,576 $4,548 0.6% $4,480 2.1%
Wireless 3,539 2,848 24.3% 3,499 1.1%
Advertising and publishing 525 524 0.2% 506 3.8%
All other 16 9 77.8% 9 77.8%
Total Operating Revenues 8,656 7,929 9.2% 8,494 1.9%
Operating Expenses
Cost of services and products 3,370 3,039 10.9% 3,250 3.7%
Selling, general, &
administrative expenses 2,135 2,148 -0.6% 2,084 2.4%
Depreciation and amortization 1,359 1,313 3.5% 1,343 1.2%
Total Operating Expenses 6,864 6,500 5.6% 6,677 2.8%
Operating Income 1,792 1,429 25.4% 1,817 -1.4%
Interest Expense 377 368 2.4% 374 0.8%
Other Income (Expense), net 48 35 37.1% 38 26.3%
Income Before Income Taxes 1,463 1,096 33.5% 1,481 -1.2%
Provision for Income Taxes 498 376 32.4% 543 -8.3%
Net Income $965 $720 34.0% $938 2.9%
Diluted:
Weighted Average Common Shares
Outstanding 1,818 1,836 -1.0% 1,836 -1.0%
Earnings Per Share $0.53 $0.39 35.9% $0.51 3.9%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $1,792 $1,429 25.4% $1,817 -1.4%
Operating margin 20.7% 18.0% 270 bps 21.4% -70 bps
Declared dividends per share $0.29 $0.27 7.4% $0.29 0.0%
Capital expenditures excluding
Hurricane Katrina $803 $1,059 -24.2% $864 -7.1%
Total capital expenditures $992 $1,059 -6.3% $886 12.0%
Common shares outstanding 1,796 1,831 -1.9% 1,831 -1.9%
Book value per share $13.08 $12.60 3.8% $13.28 -1.5%
Total employees 63,066 62,564 0.8% 63,049 0.0%
Year-to-Date
2005 2004 Growth
Operating Revenues
Communications group $18,114 $18,091 0.1%
Wireless 13,773 7,826 76.0%
Advertising and publishing 2,046 2,005 2.0%
All other 51 39 30.8%
Total Operating Revenues 33,984 27,961 21.5%
Operating Expenses
Cost of services and products 13,119 10,180 28.9%
Selling, general, &
administrative expenses 8,369 6,641 26.0%
Depreciation and amortization 5,439 4,709 15.5%
Total Operating Expenses 26,927 21,530 25.1%
Operating Income 7,057 6,431 9.7%
Interest Expense 1,546 1,184 30.6%
Other Income (Expense), net 218 54 *
Income Before Income Taxes 5,729 5,301 8.1%
Provision for Income Taxes 2,068 1,862 11.1%
Net Income $3,661 $3,439 6.5%
Diluted:
Weighted Average Common Shares
Outstanding 1,829 1,836 -0.4%
Earnings Per Share $2.00 $1.87 7.0%
Selected Financial and Operating Data
Operating income $7,057 $6,431 9.7%
Operating margin 20.8% 23.0% -220 bps
Declared dividends per share $1.14 $1.06 7.5%
Capital expenditures excluding
Hurricane Katrina $3,246 $3,193 1.7%
Total capital expenditures $3,457 $3,193 8.3%
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
Fourth Quarter 2005
Discontinued Continuing
Operations Operations
GAAP C (GAAP - C)
Operating Revenues $5,242 $- $5,242
Operating Expenses 4,245 - 4,245
Operating Income 997 - 997
Interest Expense 274 - 274
Other Income (Expense), net 144 - 144
Income from Continuing Operations
before Income Taxes 867 - 867
Provision for Income Taxes 249 - 249
Income from Continuing Operations 618 - 618
Income (Loss) from Discontinued
Operations, net of tax - - -
Net Income $618 $0 $618
Diluted Earnings Per Share * $0.34 $- $0.34
* Normalized earnings per share for fourth quarter 2005 does not sum
due to rounding.
Normalizing Items
Wireless
Merger Merger Hurri-
Integra- Intangible Debt cane
tion Amortiz- Exting. related
Cingular Costs ation Costs Expenses
A E L F G
Operating Revenues $3,461 $- $- $- $-
Operating Expenses 3,242 (131) (152) - (244)
Operating Income 219 131 152 - 244
Interest Expense 103 - - - -
Other Income (Expense), net (96) - - - -
Income from Continuing Operations
before Income Taxes 20 131 152 - 244
Provision for Income Taxes 20 53 62 - 95
Income from Continuing Operations - 78 90 - 149
Income (Loss) from Discontinued
Operations, net of tax - - - - -
Net Income $0 $78 $90 $0 $149
Diluted Earnings Per Share * $- $0.04 $0.05 $- $0.08
Normalizing Items
Sale Deferred
of Revenue
Cellcom Severance Adjustment
I J K Normalized
Operating Revenues $- $- $(47) $8,656
Operating Expenses - (96) - 6,864
Operating Income - 96 (47) 1,792
Interest Expense - - - 377
Other Income (Expense), net - - - 48
Income from Continuing Operations
before Income Taxes - 96 (47) 1,463
Provision for Income Taxes - 37 (18) 498
Income from Continuing Operations - 59 (29) 965
Income (Loss) from Discontinued
Operations, net of tax - - - -
Net Income $0 $59 $(29) $965
Diluted Earnings Per Share * $- $0.03 $(0.02) $0.53
Year-to-Date 2005
Discontinued Continuing
Operations Operations
GAAP C (GAAP - C)
Operating Revenues $20,547 $- $20,547
Operating Expenses 15,877 - 15,877
Operating Income 4,670 - 4,670
Interest Expense 1,124 - 1,124
Other Income (Expense), net 756 - 756
Income from Continuing Operations
before Income Taxes 4,302 - 4,302
Provision for Income Taxes 1,389 - 1,389
Income from Continuing Operations 2,913 - 2,913
Income (Loss) from Discontinued
Operations, net of tax 381 (381) -
Net Income $3,294 $(381) $2,913
Diluted Earnings Per Share * $1.80 $(0.21) $1.59
* Normalized earnings per share for year-to-date 2005 does not sum due
to rounding.
Normalizing Items
Wireless
Merger Merger Hurri-
Integra- Intangible Debt cane
tion Amortiz- Exting. related
Cingular Costs ation Costs Expenses
A E L F G
Operating Revenues $13,484 $- $- $- $-
Operating Expenses 12,753 (350) (685) - (572)
Operating Income 731 350 685 - 572
Interest Expense 422 - - - -
Other Income (Expense), net (229) - - 42 -
Income from Continuing Operations
before Income Taxes 80 350 685 42 572
Provision for Income Taxes 80 153 311 16 223
Income from Continuing Operations - 197 374 26 349
Income (Loss) from Discontinued
Operations, net of tax - - - - -
Net Income $0 $197 $374 $26 $349
Diluted Earnings Per Share * $- $0.11 $0.20 $0.01 $0.19
Normalizing Items
Sale Deferred
of Revenue
Cellcom Severance Adjustment
I J K Normalized
Operating Revenues $- $- $(47) $33,984
Operating Expenses - (96) - 26,927
Operating Income - 96 (47) 7,057
Interest Expense - - - 1,546
Other Income (Expense), net (351) - - 218
Income from Continuing Operations
before Income
Taxes (351) 96 (47) 5,729
Provision for Income Taxes (123) 37 (18) 2,068
Income from Continuing Operations (228) 59 (29) 3,661
Income (Loss) from Discontinued
Operations, net of tax - - - -
Net Income $(228) $59 $(29) $3,661
Diluted Earnings Per Share * $(0.12) $0.03 $(0.02) $2.00
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
Fourth Quarter 2004 (1)
Discontinued Continuing
Operations Operations
GAAP C (GAAP - C)
Operating Revenues $5,146 $- $5,146
Operating Expenses 4,058 - 4,058
Operating Income 1,088 - 1,088
Interest Expense 270 - 270
Other Income (Expense), net (177) - (177)
Income from Continuing Operations
before Income Taxes 641 - 641
Provision for Income Taxes 188 - 188
Income from Continuing Operations 453 - 453
Income (Loss) from Discontinued
Operations, net of tax 911 (911) -
Net Income $1,364 $(911) $453
Diluted Earnings Per Share * $0.74 $(0.50) $0.25
* Normalized earnings per share for fourth quarter 2004 does not sum due
to rounding.
Normalizing Items
Merger
Integration
Hurricane- / FV Adj
related / Lease
Cingular Expenses Acctg. Adj
A G H
Operating Revenues $2,783 $- $-
Operating Expenses 2,905 (126) (149)
Operating Income (122) 126 149
Interest Expense 98 - -
Other Income (Expense), net 193 - 19
Income from Continuing Operations
before Income Taxes (27) 126 168
Provision for Income Taxes (27) 49 76
Income from Continuing Operations - 77 92
Income (Loss) from Discontinued
Operations, net of tax - - -
Net Income $0 $77 $92
Diluted Earnings Per Share * $- $0.04 $0.05
Normalizing Items
Wireless
Merger Severance/
Intangible Lease Term.
Amortization Payments
L J Normalized
Operating Revenues $- $- $7,929
Operating Expenses (159) (29) 6,500
Operating Income 159 29 1,429
Interest Expense - - 368
Other Income (Expense), net - - 35
Income from Continuing Operations
before Income Taxes 159 29 1,096
Provision for Income Taxes 79 11 376
Income from Continuing Operations 80 18 720
Income (Loss) from Discontinued
Operations, net of tax - - -
Net Income $80 $18 $720
Diluted Earnings Per Share * $0.04 $0.01 $0.39
Year-to-Date 2004 (1)
Discontinued Continuing
Operations Operations
GAAP C (GAAP - C)
Operating Revenues $20,300 $- $20,300
Operating Expenses 15,011 - 15,011
Operating Income 5,289 - 5,289
Interest Expense 916 - 916
Other Income (Expense), net 813 - 813
Income from Continuing Operations
before Income
Taxes 5,186 - 5,186
Provision for Income Taxes 1,792 - 1,792
Income from Continuing Operations 3,394 - 3,394
Income (Loss) from Discontinued
Operations, net of tax 1,364 (1,364) -
Net Income $4,758 $(1,364) $3,394
Diluted Earnings Per Share $2.59 $(0.74) $1.85
(1) Certain items have been reclassified since the initial report in
January 2005.
Normalizing Items
Hurri-
Sale Regulatory cane
of Settlement related
Cingular Sonofon Expenses
A B D G
Operating Revenues $7,611 $- $50 $-
Operating Expenses 7,052 - (3) (164)
Operating Income 559 - 53 164
Interest Expense 268 - - -
Other Income (Expense), net (316) (462) - -
Income from Continuing Operations
before Income Taxes (25) (462) 53 164
Provision for Income Taxes (25) (167) 20 64
Income from Continuing Operations - (295) 33 100
Income (Loss) from Discontinued
Operations, net of tax - - - -
Net Income $0 $(295) $33 $100
Diluted Earnings Per Share $- $(0.16) $0.02 $0.05
Normalizing Items
Merger
Integration Wireless
/ FV Adj Merger Severance/
/ Lease Intangible Lease Term.
Acctg. Adj Amortization Payments
H L J Normalized
Operating Revenues $- $- $- $27,961
Operating Expenses (178) (159) (29) 21,530
Operating Income 178 159 29 6,431
Interest Expense - - - 1,184
Other Income (Expense), net 19 - - 54
Income from Continuing Operations
before Income Taxes 197 159 29 5,301
Provision for Income Taxes 88 79 11 1,862
Income from Continuing Operations 109 80 18 3,439
Income (Loss) from Discontinued
Operations, net of tax - - - -
Net Income $109 $80 $18 $3,439
Diluted Earnings Per Share $0.06 $0.04 $0.01 $1.87
BellSouth Corporation
Notes to Normalized Financial and Operating Data (pages 3 and 4)
(amounts in millions, except per share data)
Our normalized earnings have been adjusted for the following:
(a) The periods presented have been adjusted to include our 40%
proportional share of Cingular Wireless' operating results, net of
eliminations for amounts charged by other BellSouth companies to
Cingular.
(b) Gain related to the sale of our operations in Denmark.
(c) Discontinued Operations - In March 2004, we announced our intention to
sell our Latin American properties. Accordingly, the prior period
results have been recast to reflect the Latin American operations as
Discontinued Operations and thus excluded from normalized results.
The 1st quarter 2005 results include an after-tax gain of $390 related
to the final 2 of the 10 properties that were closed in January. The
4th quarter 2004 results include an after-tax gain of $915 related to
the 8 properties closed prior to year end. The year-to-date period in
2004 includes $336 in net income tax benefit representing the
recognition of book over tax basis differential in connection with the
announced sale of these properties.
(d) Regulatory Settlement - In April 2004, BellSouth entered into a
settlement agreement with respect to previously disclosed litigation
(See 2004 10K for further discussion).
(e) Wireless Merger Integration Costs - Represents BellSouth's 40% share
of tax-effected wireless merger integration costs of $326 incurred
during the 4th quarter of 2005 and $876 for the full year of 2005 in
connection with the Cingular/AT&T Wireless merger. Integration costs
include one-time cash outlays or specified non-cash charges, including
accelerated depreciation, directly related to rationalization of the
wireless network, sales distribution channels, the workforce,
information technology systems and real estate.
(f) Debt Extinguishment Costs - Represents one-time expenses associated
with the early extinguishment of $400 of long-term debt in the 1st
quarter of 2005 and one-time expenses associated with the early
extinguishment of $300 of long-term debt in the 2nd quarter of 2005.
(g) Hurricane-related Expenses - Represents 2005 hurricane-related charges
of $149 after-tax in the 4th quarter of 2005 and $349 for year-to-date
2005 and consists of asset impairment charges, incremental labor and
material costs related to service restoration and network repairs and
incremental uncollectible expense. These expenses are comprised of
Hurricane Katrina charges related to BellSouth's wireline business and
its 40% share of Cingular Wireless' hurricane expenses. The 2004
charges in the 4th quarter and year-to-date period represent
incremental labor and material costs in the wireline business due to
Hurricanes Charley, Frances, Ivan and Jeanne.
(h) Wireless Merger Integration Planning Costs, Fair Value Adjustment and
Lease Accounting Adjustment - Represents BellSouth's 40% share of (1)
tax-effected wireless merger integration planning costs of $43
incurred during the 3rd quarter of 2004 and costs of $245 in the 4th
quarter of 2004 in connection with the Cingular/AT&T Wireless merger,
(2) a tax-effected fair value adjustment of $31 for the announced sale
of Cingular Interactive during the 3rd quarter of 2004 and (3) a tax-
effected charge of $171 in the 4th quarter of 2004 reflecting the
correction of an error relating to the lease accounting practices of
Cingular Wireless, LLC.
(i) Gain related to the sale of Cellcom, a cellular communications
operator in Israel.
(j) Severance Costs/Lease Termination Payments - Represents tax-effected
severance-related costs of $96 recorded in the 4th quarter of 2005
associated with workforce reductions. 2004 charges represent 4th
quarter net severance-related costs and a provision related to surplus
office space under long-term leases.
(k) Deferred Revenue Adjustment - Represents the current recognition of
$47 of previously deferred revenue in the Communications Group
segment. The adjustment relates to a system coding error that
resulted in underreporting revenues in prior periods. The amount
accumulated over multiple years and did not affect any one year by
more than $9.
(l) Wireless Merger Intangible Amortization - Represents BellSouth's 40%
share of the non-cash amortization of intangibles, primarily customer
lists, that were created in Cingular's acquisition of AT&T Wireless.
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
December December Change September Change
31, 31, vs. 30, vs.
Prior Prior
2005 2004 Year 2005 Quarter
Assets
Current Assets:
Cash and cash equivalents $427 $680 $(253) $2,030 $(1,603)
Short-term investments - 16 (16) - -
Accounts receivable, net of
allowance for
uncollectibles of $289,
$317, and $297 2,555 2,559 (4) 2,443 112
Material and supplies 385 321 64 336 49
Other current assets 928 1,055 (127) 859 69
Assets of discontinued
operations - 1,068 (1,068) - -
Total Current Assets 4,295 5,699 (1,404) 5,668 (1,373)
Investment in and advances to
Cingular Wireless 21,274 22,771 (1,497) 21,084 190
Property, plant and
equipment, net 21,723 22,039 (316) 21,670 53
Other assets 7,889 7,400 489 7,611 278
Intangible assets, net 1,533 1,587 (54) 1,517 16
Total Assets $56,714 $59,496 $(2,782) $57,550 $(836)
Liabilities and Shareholders'
Equity
Current Liabilities:
Debt maturing within one
year $4,109 $5,475 $(1,366) $2,582 $1,527
Accounts payable 1,040 1,047 (7) 1,030 10
Other current liabilities 3,407 3,018 389 4,081 (674)
Liabilities of discontinued
operations - 830 (830) - -
Total Current Liabilities 8,556 10,370 (1,814) 7,693 863
Long-Term Debt 13,079 15,108 (2,029) 14,374 (1,295)
Noncurrent Liabilities:
Deferred income taxes 6,833 6,492 341 6,465 368
Other noncurrent
liabilities 4,754 4,460 294 4,704 50
Total Noncurrent
Liabilities 11,587 10,952 635 11,169 418
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 - 2,020 -
Paid-in capital 7,960 7,840 120 7,861 99
Retained earnings 20,383 19,267 1,116 20,326 57
Accumulated other
comprehensive income (14) (157) 143 (28) 14
Shares held in trust and
treasury (6,857) (5,904) (953) (5,865) (992)
Total Shareholders'
Equity 23,492 23,066 426 24,314 (822)
Total Liabilities and
Shareholders' Equity $56,714 $59,496 $(2,782) $57,550 $(836)
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
Year-To-Date
4Q05 4Q04 3Q05 2005 2004
Cash Flows from Operating
Activities:
Income from Continuing
Operations $618 $453 $817 $2,913 $3,394
Adjustments to income from
continuing operations:
Depreciation and amortization 905 916 922 3,661 3,636
Provision for uncollectibles 90 99 93 348 384
Net losses (earnings) of
equity affiliates (80) 260 (97) (165) (68)
Deferred income taxes 255 341 (66) 306 1,081
Asset impairments - - 166 166 -
Pension income (133) (121) (133) (532) (484)
Stock-settled compensation
expense 24 29 22 94 116
Loss on extinguishment of debt - - - 42 14
(Gain) loss on sale/disposal
of operations - - (351) (351) (462)
Net change in:
Accounts receivable and other
current assets (179) (148) (11) (353) (419)
Accounts payable and other
current liabilities (781) (668) 618 228 (644)
Deferred charges and other
assets (49) (10) (39) (128) (43)
Other liabilities and deferred
credits 103 117 133 440 184
Other reconciling items, net 1 45 40 39 112
Net cash provided by operating
activities 774 1,313 2,114 6,708 6,801
Cash Flows from Investing
Activities:
Capital expenditures (992) (1,059) (886) (3,457) (3,193)
Purchase of short-term
investments (734) (560) (76) (822) (3,770)
Proceeds from sale of short-term
investments 734 924 76 838 5,363
Investments in debt and equity
securities (129) (129) (53) (285) (632)
Investments in and advances to
equity affiliates - (14,445) (2) (4) (14,445)
Net (advances to) repayments
from Cingular (109) (666) 949 1,627 (646)
Proceeds from sale of securities
and operations 42 3,113 656 1,642 3,678
Other investing activities, net 11 (4) (23) (22) 85
Net cash provided by (used
for) investing activities (1,177) (12,826) 641 (483) (13,560)
Cash Flows from Financing
Activities:
Net borrowing (repayments) of
short-term debt 247 2,004 (480) (1,863) 1,738
Proceeds from long-term debt - 2,389 - - 6,078
Repayments of long-term debt (13) (14) (233) (1,513) (759)
Dividends paid (531) (494) (532) (2,051) (1,901)
Purchase of treasury shares (959) (47) (54) (1,096) (146)
Other financing activities, net 56 13 89 160 61
Net cash used for financing
activities (1,200) 3,851 (1,210) (6,363) 5,071
Net Increase/(Decrease) in Cash
from Continuing Operations (1,603) (7,662) 1,545 (138) (1,688)
Net Increase/(Decrease) in Cash
from Discontinued Operations - (478) - (115) (579)
Net Increase/(Decrease) in
Cash and Cash Equivalents (1,603) (8,140) 1,545 (253) (2,267)
Cash and Cash Equivalents at
Beginning of Period 2,030 8,820 485 680 2,947
Cash and Cash Equivalents at End
of Period $427 $680 $2,030 $427 $680
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Communications Group (1)
4Q05 4Q04 Growth 3Q05 Growth
Operating Revenues
Voice $3,131 $3,165 -1.1% $3,136 -0.2%
Data 1,252 1,163 7.7% 1,166 7.4%
Other 298 311 -4.2% 286 4.2%
Total Operating Revenues 4,681 4,639 0.9% 4,588 2.0%
Operating Expenses
Cost of services and products 1,908 1,846 3.4% 1,860 2.6%
Selling, general, &
administrative expenses 847 884 -4.2% 793 6.8%
Depreciation and amortization 899 909 -1.1% 914 -1.6%
Total Operating Expenses 3,654 3,639 0.4% 3,567 2.4%
Segment Operating Income 1,027 1,000 2.7% 1,021 0.6%
Interest Expense 99 96 3.1% 94 5.3%
Other Income (Expense), net 23 12 91.7% 14 64.3%
Income Before Income Taxes 951 916 3.8% 941 1.1%
Provision for Income Taxes 343 317 8.2% 330 3.9%
Segment Net Income(1) $608 $599 1.5% $611 -0.5%
* - Not meaningful.
Selected Financial and
Operating Data
(amounts in millions)
Segment operating income $1,027 $1,000 2.7% $1,021 0.6%
Segment operating margin 21.9% 21.6% 30 bps 22.3% -40 bps
DSL revenues $353 $275 28.4% $305 15.7%
Long distance revenues $629 $533 18.0% $608 3.5%
Switched Access MOUs 15,310 16,459 -7.0% 15,511 -1.3%
BSLD MOUs 6,539 5,864 11.5% 6,660 -1.8%
Total Access minutes of use 21,849 22,323 -2.1% 22,171 -1.5%
Capital expenditures excluding
Hurricane Katrina $794 $1,047 -24.2% $856 -7.2%
Total capital expenditures $983 $1,047 -6.1% $878 12.0%
(amounts in thousands)
Wholesale lines 2,224 2,964 -25.0% 2,454 -9.4%
DSL customers 2,882 2,096 37.5% 2,678 7.6%
LD customers 7,179 6,015 19.4% 6,993 2.7%
Consumer ARPU (3) $60.53 $57.16 5.9% $58.53 3.4%
Year-To-Date
2005 2004 Growth
Operating Revenues
Voice $12,576 $12,609 -0.3%
Data 4,743 4,513 5.1%
Other 1,1
Source: prnewswire
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