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<< [Back to Pre-Merger BellSouth News Releases Archive] BellSouth Reports First Quarter Earnings* Normalized earnings per share of 54 cents, up 20 percent * Record DSL net additions, 3.1 million total DSL customers * Strong customer growth, revenue and margin from Cingular ATLANTA, April 20 /PRNewswire-FirstCall/ -- BellSouth Corporation (NYSE: BLS) announced first quarter 2006 earnings per share (EPS) from continuing operations of 43 cents, up 16 percent compared to the first quarter of 2005. Normalized EPS from continuing operations was 54 cents, a 20 percent increase compared to the first quarter of 2005. A list of normalizing items is provided in the table below. "BellSouth's strong earnings growth reflects improving trends in our operating results," said Duane Ackerman, Chairman and Chief Executive Officer. "During the quarter, our revenue growth was driven by the addition of broadband and wireless customers, which demonstrated the strength of our portfolio in the marketplace." Normalized Results from Continuing Operations Normalized results from continuing operations include BellSouth's 40 percent proportionate share of Cingular's revenues and expenses which are recognized as equity earnings for purposes of GAAP reporting. Normalized results also exclude the impact of significant nonoperational or nonrecurring items. For the first quarter of 2006, normalized revenue was $8.7 billion, up 4.5 percent year-over-year generated by growth in Communications Group, Cingular and Advertising & Publishing. Operating margins were 21.9 percent, improving year-over-year and sequentially. Normalized net income of $983 million grew 20 percent compared to the first quarter of 2005 driven primarily by Cingular's improved profitability. Reported Results from Continuing Operations For the first quarter of 2006, BellSouth's consolidated reported revenue from continuing operations totaled $5.2 billion, up 1.6 percent compared to the same quarter of 2005. Income from continuing operations was $784 million compared to $683 million in the same quarter of the previous year. For the first quarter of 2006, operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $551 million. Capital expenditures for the quarter amounted to $1.08 billion, including approximately $135 million of incremental expenditures for Katrina restoration efforts. Net of storm impacts, increased levels of capital expenditures were driven by planned 2006 acceleration of broadband investments toward the first half of the year. Proposed Merger with AT&T On March 5, 2006, BellSouth and AT&T announced an agreement to merge the two companies in a combination that will create a more effective and efficient provider of wireless, broadband, video, voice and data products. We currently expect the merger to close by the end of 2006. The combination creates economies of scale to better enable investments in new technologies and to pursue opportunities in the broadband and enterprise markets, including integration of wireline/wireless product offerings. The combination of the two companies is expected to create enhanced marketing opportunities, significant network synergies and reduced overhead costs. The merger with AT&T is an excellent opportunity to take two complementary asset portfolios and make them stronger to benefit shareholders, customers and employees. "To be successful in the marketplace, a company must innovate and deliver new services that customers want," said Duane Ackerman. "The proposed merger of AT&T and BellSouth will create new potential for innovation and the ability to deliver those services with a more cost efficient operating structure. The communications industry is a world full of possibilities, and I believe that we now stand at the beginning of a great new day for communications in America." Communications Group Communications Group revenue was $4.7 billion in the first quarter of 2006, a 1.3 percent increase compared to the same quarter of 2005. All retail business segments delivered improving revenue trends both year-over-year and sequentially driven by strong growth from data and long distance. During the first quarter, BellSouth added a record 263,000 net new broadband DSL customers and served more than 3.1 million total customers at quarter-end. BellSouth offers four FastAccess services with simple pricing to meet market demand for a variety of speeds and prices. The company continues to see growth in demand and migrations towards higher speeds of DSL service. With improving churn and stable average revenue per unit, DSL continues to be a key value driver for BellSouth. For the first quarter, network data revenue was $1.3 billion, up 9.0 percent from the same period of the prior year. Retail data revenue grew 15.8 percent from the same period last year driven by a 31.8 percent increase in retail DSL revenue and ongoing growth in revenue from emerging retail data services such as BellSouth® Metro Ethernet Service and BellSouth® Virtual Private Network. Total wholesale data was stable as demand for wholesale services from wireless carriers remained strong. Customers continue to combine local and long distance voice, DSL, DIRECTV® and Cingular Wireless under the BellSouth Answers® bundles. BellSouth added 179,000 long distance customers and now serves almost 7.4 million long distance customers, a 59 percent penetration of its mass-market customer base. Once again, the company had strong growth in customers choosing to add DIRECTV® service to their BellSouth bundles, adding 105,000 customers. Through the first quarter of this year, 628,000 customers have included DIRECTV® service in their communications packages. By the end of first quarter 2006, more than 5 million residential customers had a BellSouth Answers® bundle, nearly 45 percent penetration of its retail residential lines. As of March 31, 2006, total access lines were 19.8 million, down 238,000 compared to Dec. 31, 2005. Residential 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 120,000. Retail business access lines increased 21,000 driven by Small Business gains. Wholesale lines resold by BellSouth competitors were down 137,000 compared to Dec. 31, 2005. Communications Group operating margin was 23.6 percent compared to 24.2 percent for the same quarter of the previous year. Margins were negatively impacted as the company incurred approximately $85 million in incremental expenses completing the network repairs associated with damage caused by Hurricane Wilma which struck southern Florida in late October 2005. Summary Impacts of Hurricane Katrina During the first quarter of 2006, BellSouth recognized incremental expenses associated with Hurricane Katrina of $94 million which is net of $20 million in insurance recoveries during the quarter. BellSouth also incurred approximately $135 million of incremental capital expenditures for Katrina restoration. Since the third quarter of 2005, BellSouth has incurred approximately $730 million for Katrina-related network restoration expense and capital spending. 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 total amount of covered losses that will be covered by insurance, net of our deductible, is approximately $250 million. The actual recovery will vary depending on the outcome of the insurance loss adjustment effort. Cingular Wireless Cingular Wireless was the primary contributor to BellSouth's earnings growth in the first quarter of 2006 as the benefits of scale and synergies created in its acquisition of AT&T Wireless are being realized. Cingular, the nation's largest wireless provider, added 1.7 million net new customers during the first quarter of 2006, reaching 55.8 million total subscribers. Retail customer additions were 1.05 million for the quarter with nearly 90 percent coming from post-paid net additions. Overall monthly subscriber churn for the quarter was 1.9 percent, the lowest level ever, and post-paid churn also improved to a record 1.6 percent. Cingular's continued strong performance in customer additions and churn improvement can be attributed to improved service quality as the company integrates its networks, marketing campaigns that reinforce service improvements including "fewest dropped calls," and a steady stream of innovative products and services. In the first quarter of 2006, Cingular's revenues were $9.0 billion, an improvement of 9.1 percent over the same quarter a year ago and up 1.5 percent sequentially. Average revenue per user (ARPU) in the first quarter of 2006 was $48.48, down 2.3 percent from the year-ago first quarter. The decline in ARPU can be primarily attributed to the recent increase in reseller customers, which typically carry a lower ARPU. Excluding the impacts of growth in reseller customers, Cingular ARPU improved year-over-year driven by growth in data services. Data ARPU continued its strong growth in the first quarter of 2006, increasing 41.1 percent to $5.22 compared to the first quarter of the previous year and up 10.8 percent sequentially. For the first quarter of 2006, normalized operating income before depreciation and amortization (OIBDA) margin was 31.9 percent, which was a 640 basis point improvement compared to the first quarter of 2005. Cingular's steady margin improvement is indicative of progress on its integration plans. Advertising & Publishing Reflecting continued momentum in the business, Advertising & Publishing revenue grew in the first quarter of 2006. Revenue was $506 million, up 3 percent compared to the same quarter of 2005 driven by growth in both print and online advertising services. Operating margins remained strong at 44.7 percent for the first quarter of 2006. Normalizing Items For the first quarter of 2006, the difference between reported (GAAP) EPS from continuing operations and normalized EPS is shown in the following table. A full income statement reconciliation is included in the attached exhibits. 1Q06 GAAP Diluted EPS - Income from continuing operations $0.43 Hurricane Katrina-related expenses $0.03 Wireless merger integration costs $0.03 Wireless merger intangible amortization $0.05 Normalized Diluted EPS - Income from continuing operations $0.54 Hurricane Katrina-related expenses -- Represents incremental labor and material costs primarily related to service restoration and network repairs in BellSouth's wireline business. These expenses have been reduced by partial insurance recoveries during the first quarter. Wireless merger integration costs -- Represents BellSouth's 40 percent share of wireless merger integration costs incurred 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. About BellSouth Corporation BellSouth Corporation is a Fortune 500 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 55.8 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®, 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® 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® and YELLOWPAGES.COM™ from BellSouth. 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/. Investor information can be found at http://www.bellsouth.com/investor. Further information about BellSouth and Cingular's first 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. A replay of the call will be available through April 27, 2006, and can be accessed by dialing: Domestic: 800-642-1687 -- Conference ID: 7031218 International: 706-645-9291 -- Conference ID: 7031218 In addition to historical information, this document may contain forward- looking statements regarding events and financial trends. Factors that could affect our future results and could cause our 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. Factors that could prevent or delay completion of the proposed merger with AT&T, could affect the future results of the merged company and could cause the merged company's actual results to differ from those expressed in the forward-looking statements include: (i) our and AT&T's ability to obtain governmental approvals of the proposed merger on the proposed terms and contemplated schedule; (ii) the failure of AT&T shareholders to approve the issuance of AT&T common shares in the merger or the failure of our shareholders to approve the merger; (iii) the risk that the businesses of AT&T and BellSouth will not be integrated successfully or as quickly as expected; (iv) the risk that the cost savings and any other synergies from the merger, including any savings and other synergies relating to the resulting sole ownership of Cingular Wireless LLC, may not be fully realized or may take longer to realize than expected; (v) disruption from the merger making it more difficult to maintain relationships with customers, employees or suppliers; and (vi) those factors contained in the preliminary proxy statement relating to the proposed merger 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. NOTE: In connection with the proposed merger, AT&T Inc. ("AT&T") filed a registration statement on Form S-4 (Registration No. 333-132904), containing a joint proxy statement/prospectus of AT&T and BellSouth Corporation ("BellSouth"), with the Securities and Exchange Commission (the "SEC") on March 31, 2006. Investors are urged to read the registration statement and the joint proxy statement/prospectus contained therein (including all amendments and supplements to it) because it contains important information. Investors may obtain free copies of the registration statement and joint proxy statement/prospectus, as well as other filings containing information about AT&T and BellSouth, without charge, at the SEC's Web site (http://www.sec.gov/). Copies of AT&T's filings may also be obtained without charge from AT&T at AT&T's Web site (http://www.att.com/) or by directing a request to AT&T Inc. Stockholder Services, 175 E. Houston, San Antonio, Texas 78205. Copies of BellSouth's filings may be obtained without charge from BellSouth at BellSouth's Web site (http://www.bellsouth.com/) or by directing a request to BellSouth at Investor Relations, 1155 Peachtree Street, N.E., Atlanta, Georgia 30309. AT&T, BellSouth and their respective directors and executive officers and other members of management and employees are potential participants in the solicitation of proxies in respect of the proposed merger. Information regarding AT&T's directors and executive officers is available in AT&T's 2005 Annual Report on Form 10-K filed with the SEC on March 1, 2006 and AT&T's proxy statement for its 2006 annual meeting of stockholders, filed with the SEC on March 10, 2006, and information regarding BellSouth's directors and executive officers is available in BellSouth's 2005 Annual Report on Form 10-K filed with the SEC on February 28, 2006 and BellSouth's proxy statement for its 2006 annual meeting of shareholders, filed with the SEC on March 3, 2006. Additional information regarding the interests of such potential participants is included in the registration statement and joint proxy statement/prospectus contained therein, and other relevant documents filed with the SEC. 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.
1Q06 1Q05 Growth 4Q05 Growth
Operating Revenues
Communications group $4,653 $4,593 1.3% $4,702 -1.0%
Advertising and publishing 503 488 3.1% 525 -4.2%
All other 15 10 50.0% 15 0.0%
Total Operating Revenues 5,171 5,091 1.6% 5,242 -1.4%
Operating Expenses
Cost of services and products 2,122 1,920 10.5% 2,205 -3.8%
Selling, general &
administrative expenses 918 894 2.7% 1,040 -11.7%
Depreciation and amortization 893 918 -2.7% 905 -1.3%
Provision for restructuring and
asset impairments (8) 7 * 95 *
Total Operating Expenses 3,925 3,739 5.0% 4,245 -7.5%
Operating Income 1,246 1,352 -7.8% 997 25.0%
Interest Expense 279 291 -4.1% 274 1.8%
Other Income (Expense), net 194 (24) * 144 34.7%
Income from Continuing Operations
before Income Taxes 1,161 1,037 12.0% 867 33.9%
Provision for Income Taxes 377 354 6.5% 249 51.4%
Income from Continuing Operations 784 683 14.8% 618 26.9%
Income (Loss) from Discontinued
Operations, net of tax - 381 * - *
Net Income $784 $1,064 -26.3% $618 26.9%
Diluted:
Weighted Average Common Shares
Outstanding 1,804 1,836 -1.7% 1,818 -0.8%
Earnings Per Share:
Income from Continuing
Operations $0.43 $0.37 16.2% $0.34 26.5%
Income from Discontinued
Operations $0.00 $0.21 * $0.00 *
Net Income $0.43 $0.58 -25.9% $0.34 26.5%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $1,246 $1,352 -7.8% $997 25.0%
Operating margin 24.1% 26.6% -250 bps 19.0% 510 bps
Declared dividends per share $0.29 $0.27 7.4% $0.29 0.0%
Capital expenditures excluding
Hurricane Katrina $945 $750 26.0% $803 17.7%
Total capital expenditures $1,081 $750 44.1% $992 9.0%
Common shares outstanding 1,807 1,831 -1.3% 1,798 0.5%
Book value per share $13.33 $12.93 3.1% $13.09 1.8%
BellSouth Corporation
Consolidated Statements of Income - Normalized Basis (unaudited)
(amounts in millions, except per share data)
Note to Readers: Our reported results, as shown on page 1, are prepared
in accordance with generally accepted accounting principles (GAAP). The
normalized results presented below exclude the impact of certain non-
recurring or non-operating items, the details of which are provided on
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.
1Q06 1Q05 Growth 4Q05 Growth
Operating Revenues
Communications group $4,574 $4,521 1.2% $4,576 0.0%
Wireless 3,592 3,292 9.1% 3,539 1.5%
Advertising and publishing 503 488 3.1% 525 -4.2%
All other 15 10 50.0% 16 -6.3%
Total Operating Revenues 8,684 8,311 4.5% 8,656 0.3%
Operating Expenses
Cost of services and products 3,406 3,231 5.4% 3,370 1.1%
Selling, general, &
administrative expenses 2,024 2,053 -1.4% 2,135 -5.2%
Depreciation and amortization 1,354 1,392 -2.7% 1,359 -0.4%
Total Operating Expenses 6,784 6,676 1.6% 6,864 -1.2%
Operating Income 1,900 1,635 16.2% 1,792 6.0%
Interest Expense 381 403 -5.5% 377 1.1%
Other Income (Expense), net 23 74 -68.9% 48 -52.1%
Income Before Income Taxes 1,542 1,306 18.1% 1,463 5.4%
Provision for Income Taxes 559 488 14.5% 498 12.2%
Net Income $983 $818 20.2% $965 1.9%
Diluted:
Weighted Average Common Shares
Outstanding 1,804 1,836 -1.7% 1,818 -0.8%
Earnings Per Share $0.54 $0.45 20.0% $0.53 1.9%
* - Not meaningful.
Selected Financial and Operating Data
Operating income $1,900 $1,635 16.2% $1,792 6.0%
Operating margin 21.9% 19.7% 220 bps 20.7% 120 bps
Declared dividends per share $0.29 $0.27 7.4% $0.29 0.0%
Capital expenditures excluding
Hurricane Katrina $945 $750 26.0% $803 17.7%
Total capital expenditures $1,081 $750 44.1% $992 9.0%
Common shares outstanding 1,807 1,831 -1.3% 1,798 0.5%
Book value per share $13.33 $12.93 3.1% $13.09 1.8%
Total employees 62,979 62,636 0.5% 63,066 -0.1%
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
First Quarter 2006
Discontinued Continuing
Operations Operations
GAAP A (GAAP - A)
Operating Revenues $5,171 $- $5,171
Operating Expenses 3,925 - 3,925
Operating Income 1,246 - 1,246
Interest Expense 279 - 279
Other Income (Expense), net 194 - 194
Income from Continuing Operations
before Income Taxes 1,161 - 1,161
Provision for Income Taxes 377 - 377
Income from Continuing Operations 784 - 784
Income (Loss) from Discontinued
Operations, net of tax - - -
Net Income $784 $- $784
Diluted Earnings Per Share $0.43 $- $0.43
Normalizing Items
Wireless Wireless
Merger Merger Hurricane-
Integration Intangible related
Cingular Costs Amortization Expenses
B C D E Normalized
Operating Revenues $3,513 $- $- $- $8,684
Operating Expenses 3,190 (94) (143) (94) 6,784
Operating Income 323 94 143 94 1,900
Interest Expense 102 - - - 381
Other Income
(Expense), net (171) - - - 23
Income from Continuing
Operations before
Income Taxes 50 94 143 94 1,542
Provision for
Income Taxes 50 38 58 36 559
Income from Continuing
Operations - 56 85 58 983
Income (Loss) from
Discontinued
Operations, net of tax - - - - -
Net Income $- $56 $85 $58 $983
Diluted Earnings
Per Share $- $0.03 $0.05 $0.03 $0.54
First Quarter 2005
Discontinued Continuing
Operations Operations
GAAP A (GAAP - A)
Operating Revenues $5,091 $- $5,091
Operating Expenses 3,739 - 3,739
Operating Income 1,352 - 1,352
Interest Expense 291 - 291
Other Income (Expense), net (24) - (24)
Income from Continuing Operations
before Income Taxes 1,037 - 1,037
Provision for Income Taxes 354 - 354
Income from Continuing Operations 683 - 683
Income (Loss) from Discontinued
Operations, net of tax 381 (381) -
Net Income $1,064 $(381) $683
Diluted Earnings Per Share $0.58 $(0.21) $0.37
Normalizing Items
Wireless Wireless
Merger Merger Debt
Integration Intangible Exting.
Cingular Costs Amortization Costs
B C D F Normalized
Operating Revenues $3,220 $- $- $- $8,311
Operating Expenses 3,175 (42) (196) - 6,676
Operating Income 45 42 196 - 1,635
Interest Expense 112 - - - 403
Other Income
(Expense), net 76 - - 22 74
Income from Continuing
Operations before
Income Taxes 9 42 196 22 1,306
Provision for Income Taxes 9 21 96 8 488
Income from Continuing
Operations - 21 100 14 818
Income (Loss) from
Discontinued
Operations, net of tax - - - - -
Net Income $- $21 $100 $14 $818
Diluted Earnings Per Share $- $0.01 $0.06 $0.01 $0.45
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) Discontinued Operations - In March 2004, we announced our intention to
sell our 10 Latin American properties. Accordingly, results of the
Latin American operations are shown 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 properties
that were closed in January.
(b) 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.
(c) Wireless Merger Integration Costs - Represents BellSouth's 40% share
of wireless merger integration costs incurred 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.
(d) 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.
(e) Hurricane Katrina-related Expenses - Represents incremental labor and
material costs primarily related to service restoration and network
repairs in BellSouth's wireline business. These expenses have been
reduced by partial insurance recoveries during the 1st quarter of
2006.
(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.
BellSouth Corporation
Consolidated Balance Sheets (unaudited)
(amounts in millions, except per share data)
March 31, December 31, Change vs.
2006 2005 Prior Year
Assets
Current Assets:
Cash and cash equivalents $247 $427 ($180)
Short-term investments 54 - 54
Accounts receivable, net of
allowance for uncollectibles of
$281 and $289 2,409 2,555 (146)
Material and supplies 412 385 27
Other current assets 982 842 140
Total Current Assets 4,104 4,209 (105)
Investment in and advances to
Cingular Wireless 21,882 21,274 608
Property, plant and equipment, net 21,870 21,723 147
Other assets 8,199 7,814 385
Intangible assets, net 1,595 1,533 62
Total Assets $57,650 $56,553 $1,097
Liabilities and Shareholders' Equity
Current Liabilities:
Debt maturing within one year $4,408 $4,109 $299
Accounts payable 1,041 1,040 1
Other current liabilities 3,686 3,505 181
Total Current Liabilities 9,135 8,654 481
Long-Term Debt 13,062 13,079 (17)
Noncurrent Liabilities:
Deferred income taxes 6,727 6,607 120
Other noncurrent liabilities 4,641 4,679 (38)
Total Noncurrent Liabilities 11,368 11,286 82
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 -
Paid-in capital 7,931 7,960 (29)
Retained earnings 20,612 20,383 229
Accumulated other comprehensive income 32 (14) 46
Shares held in trust and treasury (6,510) (6,815) 305
Total Shareholders' Equity 24,085 23,534 551
Total Liabilities and Shareholders'
Equity $57,650 $56,553 $1,097
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
1Q06 1Q05 4Q05
Cash Flows from Operating Activities:
Income from Continuing Operations $784 $683 $618
Adjustments to income from continuing
operations:
Depreciation and amortization 893 918 905
Provision for uncollectibles 87 85 90
Net losses (earnings) of equity
affiliates (139) 80 (80)
Deferred income taxes 59 (45) 255
Pension income (130) (133) (133)
Stock-settled compensation expense 17 25 24
Loss on extinguishment of debt - 22 -
Net change in:
Accounts receivable and other
current assets (79) (84) (179)
Accounts payable and other current
liabilities 78 23 (781)
Deferred charges and other assets (23) 20 (49)
Other liabilities and deferred credits 78 103 103
Other reconciling items, net 7 (5) 1
Net cash provided by operating
activities 1,632 1,692 774
Cash Flows from Investing Activities:
Capital expenditures (1,081) (750) (992)
Purchase of short-term investments (308) (186) (789)
Proceeds from sale of short-term
investments 254 202 1,155
Investments in debt and equity securities (200) (32) (129)
Net (advances to) repayments from Cingular (466) 400 (109)
Proceeds from sale of securities and
operations - 929 42
Other investing activities, net (12) (3) 11
Net cash provided by (used for)
investing activities (1,813) 560 (811)
Cash Flows from Financing Activities:
Net borrowings (repayments) of short-
term debt 713 (1,074) 247
Repayments of long-term debt (417) (662) (13)
Dividends paid (521) (494) (531)
Purchase of treasury shares (50) (77) (959)
Proceeds from issuing common stock 260 19 55
Other financing activities, net 16 (13) 1
Net cash used for financing activities 1 (2,301) (1,200)
Net Increase/(Decrease) in Cash from
Continuing Operations (180) (49) (1,237)
Net Increase/(Decrease) in Cash from
Discontinued Operations - (115) -
Net Increase/(Decrease) in Cash and
Cash Equivalents (180) (164) (1,237)
Cash and Cash Equivalents at
Beginning of Period 427 680 1,664
Cash and Cash Equivalents at End of
Period $247 $516 $427
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Communications Group (1)
1Q06 1Q05 Growth 4Q05 Growth
Operating Revenues
Voice $3,129 $3,154 -0.8% $3,131 -0.1%
Data 1,264 1,160 9.0% 1,252 1.0%
Other 286 304 -5.9% 298 -4.0%
Total Operating Revenues 4,679 4,618 1.3% 4,681 0.0%
Operating Expenses
Cost of services and products 1,959 1,853 5.7% 1,908 2.7%
Selling, general, &
administrative expenses 729 738 -1.2% 847 -13.9%
Depreciation and amortization 886 910 -2.6% 899 -1.4%
Total Operating Expenses 3,574 3,501 2.1% 3,654 -2.2%
Segment Operating Income 1,105 1,117 -1.1% 1,027 7.6%
Interest Expense 107 98 9.2% 99 8.1%
Other Income (Expense), net 7 11 -36.4% 23 -69.6%
Income Before Income Taxes 1,005 1,030 -2.4% 951 5.7%
Provision for Income Taxes 351 366 -4.1% 343 2.3%
Segment Net Income(1) $654 $664 -1.5% $608 7.6%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions)
Segment operating income $1,105 $1,117 -1.1% $1,027 7.6%
Segment operating margin 23.6% 24.2% -60 bps 21.9% 170 bps
DSL revenues $382 $293 30.4% $353 8.2%
Long distance revenues $639 $578 10.6% $630 1.4%
Switched Access MOUs 15,324 16,130 -5.0% 15,310 0.1%
BSLD MOUs 6,626 6,011 10.2% 6,539 1.3%
Total Access minutes of use 21,950 22,141 -0.9% 21,849 0.5%
Capital expenditures excluding
Hurricane Katrina $936 $742 26.1% $794 17.9%
Total capital expenditures $1,072 $742 44.5% $983 9.1%
(amounts in thousands)
Wholesale lines 2,087 2,884 -27.6% 2,224 -6.2%
DSL customers 3,145 2,349 33.9% 2,882 9.1%
LD customers 7,358 6,470 13.7% 7,179 2.5%
Consumer ARPU (3) $62.05 $58.23 6.6% $60.53 2.5%
BellSouth Corporation
Results by Segment (unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service Reported (a)
1Q06 1Q05 Growth 4Q05 Growth
Access lines
Residence
Retail
Primary 11,231 11,751 -4.4% 11,319 -0.8%
Additional 1,131 1,304 -13.3% 1,163 -2.8%
Total Retail Residence 12,362 13,055 -5.3% 12,482 -1.0%
Wholesale
Total Wholesale Voice
Lines 1,392 2,020 -31.1% 1,488 -6.5%
Total Residence 13,754 15,075 -8.8% 13,970 -1.5%
Business
Retail
Total Retail Business 5,327 5,251 1.4% 5,306 0.4%
Wholesale
Total Wholesale Voice
Lines 629 797 -21.1% 668 -5.8%
Total Business 5,956 6,048 -1.5% 5,974 -0.3%
Other Retail/Wholesale Lines
Retail 23 29 -20.7% 25 -8.0%
Wholesale 66 67 -1.5% 68 -2.9%
Total Other Retail/Wholesale
Lines 89 96 -7.3% 93 -4.3%
Total Access Lines in Service 19,799 21,219 -6.7% 20,037 -1.2%
ISDN line equivalents
Residence 6 9 -33.3% 6 0.0%
Business 1,456 1,416 2.8% 1,465 -0.6%
Total ISDN Adjusted ALIS 21,261 22,644 -6.1% 21,508 -1.1%
Access Line Equivalents (b)
Selected digital data services:
Unbundled Loops 340 267 27.3% 306 11.1%
DS0 & ADSL 19,124 14,369 33.1% 17,558 8.9%
DS1 8,225 7,861 4.6% 8,214 0.1%
DS3 & higher 35,501 32,448 9.4% 34,925 1.6%
Total digital data lines in
service 63,190 54,945 15.0% 61,003 3.6%
Total equivalent access lines in
service 84,451 77,589 8.8% 82,511 2.4%
* - Not meaningful.
(a) Prior period operating data are often revised at later dates to
reflect updated information. The above information reflects the
latest data available for the periods indicated.
(b) Access line equivalents represent a conversion of non-switched data
circuits to a switched access line basis and is presented for
comparability purposes. Equivalents are calculated by converting
high-speed/high-capacity circuits to the equivalent of a switched
access line based on transport capacity. While the revenues generated
by access line equivalents have a directional relationship with these
counts, revenue growth rates cannot be compared to line growth rates
on an equivalent basis.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Wireless Segment (1)(a)
1Q06 1Q05 Growth 4Q05 Growth
Operating Revenues
Service revenues (2) $3,202 $2,968 7.9% $3,111 2.9%
Equipment and other revenues 390 324 20.4% 428 -8.9%
Total Operating Revenues 3,592 3,292 9.1% 3,539 1.5%
Operating Expenses
Cost of services and products 1,452 1,375 5.6% 1,467 -1.0%
Selling, general, &
administrative expenses 1,119 1,159 -3.5% 1,108 1.0%
Depreciation and amortization 461 474 -2.7% 454 1.5%
Total Operating Expenses 3,032 3,008 0.8% 3,029 0.1%
Segment Operating Income 560 284 97.2% 510 9.8%
Interest Expense 119 135 -11.9% 117 1.7%
Other Income (Expense), net (12) 4 * (3) *
Income Before Income Taxes 429 153 180.4% 390 10.0%
Provision for Income Taxes 186 86 116.3% 166 12.0%
Segment Net Income (1) $243 $67 262.7% $224 8.5%
Selected Financial and Operating Data
(amounts in millions, except
customer data in thousands)
Segment operating income $560 $284 97.2% $510 9.8%
Segment operating margin 15.6% 8.6% 700 bps 14.4% 120 bps
Cellular/PCS Operating Metrics
(100% Cingular)**:
Total Customers (7) 55,810 50,350 10.8% 54,144 3.1%
Net Customer Additions (7) 1,679 1,367 22.8% 1,820 -7.7%
Partitioned Customers and/or
Adjustments (7) (13) (149) * 32 *
Churn (8) 1.9% 2.2% -30 bps 2.1% -20 bps
Wireless Service ARPU (3) $48.48 $49.60 -2.3% $48.86 -0.8%
Minutes Of Use Per Subscriber (4) 698 628 11.1% 700 -0.3%
Licensed POPs (5) 296 293 1.0% 294 0.7%
Penetration (6) 19.8% 17.7% 210 bps 18.9% 90 bps
* - Not meaningful.
** - These metrics and calculations are not impacted by the 1Q06
normalization of wireless merger integration costs and wireless
merger intangible amortization.
(a) The wireless segment is comprised of BellSouth's 40% share of the
reported results of Cingular Wireless.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Advertising & Publishing (1)
1Q06 1Q05 Growth 4Q05 Growth
Operating Revenues
Advertising and publishing
revenues $487 $475 2.5% $475 2.5%
Commission revenues 19 16 18.8% 54 -64.8%
Total Operating Revenues 506 491 3.1% 529 -4.3%
Operating Expenses
Cost of services 93 90 3.3% 91 2.2%
Selling, general, &
administrative expenses 179 163 9.8% 186 -3.8%
Depreciation and amortization 8 7 14.3% 7 14.3%
Total Operating Expenses 280 260 7.7% 284 -1.4%
Segment Operating Income 226 231 -2.2% 245 -7.8%
Interest Expense 5 3 66.7% 4 25.0%
Other Income (Expense), net (2) (1) -100.0% (1) -100.0%
Income Before Income Taxes 219 227 -3.5% 240 -8.8%
Provision for Income Taxes 79 86 -8.1% 86 -8.1%
Segment Net Income (1) $140 $141 -0.7% $154 -9.1%
Segment operating income $226 $231 -2.2% $245 -7.8%
Segment operating margin 44.7% 47.0% -230 bps 46.3% -160 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. Certain intersegment revenues are not eliminated for
purposes of management reporting.
(2) Wireless service revenues include activation fees, access, airtime,
roaming, long distance and value added services. Roaming revenues are
included on a gross basis for the Wireless segment.
(3) Management uses average revenue per unit (ARPU) as an indicator of
operating performance of the business.
Consumer ARPU is defined as consumer revenues during the period
divided by average primary access lines during the period.
Wireless Service ARPU is defined as Cellular/PCS service revenues
during the period divided by average Cellular/PCS subscribers during
the period. This metric is used to compare the recurring revenue
amounts being generated on our network to prior periods and internal
targets. We believe that each of these metrics provides useful
information concerning the performance of our initiatives to attract
and retain high value customers and the use of our network.
(4) Effective with the 1Q05 reporting period, the Total Minutes of Use per
Cellular/PCS Subscriber (MOUs) definition has been revised to exclude
SMS activity. Effective 2Q05 the MOU definition was changed, and
prior period results recast, to include Local MOUs and Outcollect MOUs
in the numerator. Prior to the change, the numerator was defined as
Local MOUs.
(5) Licensed POPs refers to the number of people residing in areas where
Cingular and its partners have licenses to provide cellular or PCS
service, including areas where Cingular has not yet commenced service.
Licensed POPs have been restated in periods 4Q04 through 2Q05 due to a
reconciliation of respective licenses.
(6) Penetration calculation for 1Q06 is based on licensed "operational"
POPs of 282 million.
(7) Cellular/PCS customers include customers served through reseller
agreements. Cingular revised its customer counts and related data for
the 4Q04 through 2Q05 reporting periods to correct reporting of
certain subscriber activity.
(8) Cellular/PCS churn is calculated by dividing the aggregate number of
Cellular/PCS customers who cancel service during each month in a
period by the total number of Cellular/PCS customers at the beginning
of each month in that period.
BellSouth Corporation
Non-GAAP Measures - Reconciliation
(amounts in millions) (unaudited)
Segment Net Income Reconciliation to GAAP Net Income
1Q06 1Q05 4Q05
Communications Group segment Net Income $654 $664 $608
Wireless segment Net Income 243 67 224
Advertising and Publishing Group
segment Net Income 140 141 154
Corporate, eliminations and other (54) (54) (21)
Normalized Net Income 983 818 965
Add back Excluded non-recurring or
non-operational items (a) (199) 246 (347)
Consolidated GAAP Net Income $784 $1,064 $618
Free Cash Flow
1Q06 1Q05 4Q05
Net cash provided by Operating
Activities $1,632 $1,692 $774
Less Capital Expenditures (1,081) (750) (992)
Operating Free Cash Flow $551 $942 $(218)
Net Debt
March 31, December 31,
2006 2005
Total Debt $17,470 $17,188
Less Cash (247) (427)
Net Debt $17,223 $16,761
Communications Group Operating Income
before Depreciation and Amortization
1Q06 1Q05 4Q05
Operating Revenues $4,679 $4,618 $4,681
Operating Income 1,105 1,117 1,027
Add back Depreciation and Amortization 886 910 899
Operating Income before Depreciation
and Amortization $1,991 $2,027 $1,926
Margin 42.6% 43.9% 41.1%
Wireless Operating Income before
Depreciation and Amortization
1Q06 1Q05 4Q05
Service Revenues $3,202 $2,968 $3,111
Equipment and Other Revenues 390 324 428
Operating Revenues 3,592 3,292 3,539
Operating Income 560 284 510
Operating Margin (Operating Income
divided by Operating Revenues) (b) 15.6% 8.6% 14.4%
Add back Depreciation and Amortization 461 474 454
Operating Income before Depreciation
and Amortization $1,021 $758 $964
Margin (Operating Income before Depr
& Amort divided by Service Revenues) (b) 31.9% 25.5% 31.0%
(a) See pages 3 and 4 for detail of excluded items.
(b) Margin calculations for our wireless segment represent 40% of
Cingular's margin calculations adjusted for the related normalized
items as presented on pages 3-4.
BellSouth Corporation
Hurricane Katrina Revenue Impacts
(amounts in millions, except per share data)
Advertising & Publishing:
1Q06 1Q05 Growth 4Q05 Growth
As reported (with Katrina customer
bill credits):
Operating revenues $506 $491 3.1% $529 -4.3%
Pro forma (without Katrina
customer bill credits):
Operating revenues $506 $491 3.1% $545 -7.2%
Impact of Hurricane Katrina bill
credits on:
Operating revenues $- $- 0 bps $(16) 290 bps
BellSouth Corporation
Cingular Amortization Reconciliation
(amounts in millions, except per share data)
Consolidated
4Q04 2004 1Q05 2Q05 3Q05
Normalized D&A - as originally
disclosed $1,472 $4,868 $1,588 $1,524 $1,501
Wireless merger intangible
amortization $(159) $(159) $(196) $(179) $(158)
Normalized D&A $1,313 $4,709 $1,392 $1,345 $1,343
Normalized Operating Income - as
originally disclosed $1,270 $6,272 $1,439 $1,634 $1,659
Wireless merger intangible
amortization $159 $159 $196 $179 $158
Normalized Operating
Income $1,429 $6,431 $1,635 $1,813 $1,817
Normalized Operating Margin - as
originally disclosed 16.0% 22.4% 17.3% 19.2% 19.5%
Wireless merger intangible
amortization 2.0% 0.6% 2.4% 2.1% 1.9%
Normalized Operating
Margin 18.0% 23.0% 19.7% 21.3% 21.4%
Normalized Earnings Per Share - as
originally disclosed $0.35 $1.83 $0.39 $0.46 $0.46
Wireless merger intangible
amortization $0.04 $0.04 $0.06 $0.05 $0.05
Normalized Earnings Per
Share $0.39 $1.87 $0.45 $0.51 $0.51
Wireless Segment
4Q04 2004 1Q05 2Q05 3Q05
Normalized D&A - as originally
disclosed $556 $1,232 $670 $608 $579
Wireless merger intangible
amortization $(159) $(159) $(196) $(179) $(158)
Normalized D&A $397 $1,073 $474 $429 $421
Normalized Operating Income - as
originally disclosed $27 $736 $88 $283 $397
Wireless merger intangible
amortization $159 $159 $196 $179 $158
Normalized Operating
Income $186 $895 $284 $462 $555
Normalized Operating Margin - as
originally disclosed 0.9% 9.4% 2.7% 8.2% 11.3%
Wireless merger intangible
amortization 5.6% 2.0% 5.9% 5.2% 4.6%
Normalized Operating
Margin 6.5% 11.4% 8.6% 13.4% 15.9%
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.
SOURCE: BellSouth Corporation CONTACT: Brent Fowler, Media Relations for BellSouth Corporation, Web site: http://www.bellsouth.com/ Company News On-Call: http://www.prnewswire.com/comp/095650.html
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