Br.small Co.2 Regulatory News (BSC)

24 Oct 2006 18:02

Bellsouth Corp24 October 2006 For Immediate Release BellSouth Reports Third Quarter Earnings • Continued growth in earnings per share• DSL customers total 3.4 million• Strong revenue growth and margins at Cingular• Cingular customers total 58.7 million ATLANTA, Oct. 24, 2006 - BellSouth Corporation (NYSE: BLS) announced thirdquarter 2006 earnings per share (EPS) from continuing operations of 58 cents, up31.8 percent compared to the third quarter of 2005. Normalized EPS fromcontinuing operations of 65 cents increased 27.5 percent compared to the thirdquarter of 2005. A list of normalizing items is provided in the table below. Normalized Results from Continuing Operations Normalized results from continuing operations include BellSouth's 40 percentproportionate share of Cingular's revenues and expenses that are recognized asequity earnings for purposes of GAAP reporting. Normalized results exclude theimpact of significant nonoperational or nonrecurring items. Normalized operating income before depreciation and amortization (OIBDA) grew to$3.6 billion representing a 40.1 percent OIBDA margin. Revenue growth and costcontainment drove OIBDA margin up 290 basis points year-over-year and 140 basispoints sequentially. Normalized revenue increased 5.4 percent year-over-yeardriven by growth in wireless, wireline and yellow pages. Normalized revenueswere nearly $9.0 billion for the third quarter of 2006. Normalized net incomeof $1.2 billion grew 25.8 percent compared to the third quarter of 2005. Reported Results from Continuing Operations For the third quarter of 2006, BellSouth's consolidated reported revenues fromcontinuing operations were $5.2 billion, up 2.9 percent compared to the samequarter of 2005. Income from continuing operations was approximately $1.1billion, up 29.6 percent compared to the same quarter of the previous year. For the third quarter of 2006, operating free cash flow (defined as net cashprovided by operating activities less capital expenditures) was $976 million.Capital expenditures for the quarter were $730 million, a decline compared tothe first and second quarters of 2006. Year-to-date capital expenditures were$2.8 billion and included $265 million in expenditures for Hurricane Katrinarestoration efforts. Proposed Merger with AT&T On March 5, 2006, BellSouth and AT&T announced an agreement to merge the twocompanies in a combination that will create a more effective and efficientprovider of communications services. BellSouth and AT&T firmly believe that noconditions on this merger are necessary for this combination to be a publicbenefit. Nevertheless, in response to an inquiry from the FederalCommunications Commission staff, AT&T indicated that, in the interest offacilitating the speediest possible approval of the merger, it would not objectto the imposition of certain merger conditions. The FCC has scheduled an openmeeting for Nov. 3, 2006 to consider the merger in the event the Commission hasnot completed its review prior to that date. Communications Group In the third quarter of 2006, Communications Group revenues were $4.7 billion, a2.4 percent increase over the third quarter of 2005. Adjusting for the one-timecustomer credits of $44 million issued during the third quarter of 2005, revenuegrowth was 1.4 percent. Revenue growth in mass-market broadband and longdistance services and growth in emerging data services offset revenue declinesfrom traditional access line services. Revenue growth, increased penetration inbroadband and long distance services and continued focus on cost containmentdrove Communications Group operating margin to 25.7 percent, an increase of 340basis points year-over-year and 80 basis points sequentially. Network data revenues exceeded $1.3 billion, a 12.8 percent increase over thethird quarter of 2005, due to improvements in both retail and wholesale dataservices. Retail data revenues grew 19.5 percent year-over-year driven byretail DSL revenues and continued momentum from emerging retail data services.Wholesale data revenues grew 3.3 percent as growth in wireless transport morethan offset declines in general transport services. During the third quarter, BellSouth added 176,000 new DSL customers, reaching atotal of more than 3.4 million broadband DSL customers. The vast majority ofnew customers chose BellSouth's higher speed offers -- FastAccess(R) DSL Xtremeand FastAccess(R) DSL Xtreme 6.0. Year-over-year the average revenue per uniton DSL was up slightly as improved customer mix offset revenue impacts from thediscontinuance of regulatory recovery fees. BellSouth customers continued to choose more services and save with multipleservice discounts by adding long distance and DIRECTV(R) service to theirBellSouth Answers(R) bundles. During the third quarter, BellSouth added 118,000long distance subscribers. At the end of the third quarter, BellSouth served7.6 million long distance customers representing approximately 63 percent of itsmass-market customer base. Nearly 65,000 customers added DIRECTV(R) service totheir bundle, resulting in a total of 756,000 customers who included DIRECTV(R)service in their BellSouth Answers(R) bundles. As of Sept. 30, 2006, total access lines were 19.0 million down 6.9 percentyear-over-year. For the quarter, total access lines declined 301,000. Retailresidential access lines declined 135,000 reflecting losses to wirelesssubstitution and cable telephony service. Retail small business access linegains were 20,000, offset by a decline in retail large business access lines of13,000 lines. Wholesale lines declined 174,000 compared to June 30, 2006. Cingular Wireless Cingular Wireless was a significant contributor to BellSouth's results withstrong revenue growth and robust margin expansion. The nation's largestwireless provider delivered strong customer growth, improved ARPU trends, andcompleted the integration of its GSM network. During the quarter, Cingular added 1.4 million new customers, totaling 58.7million customers at the end of September. Postpaid customer additions were928,000. Overall monthly churn for the quarter was 1.8 percent and postpaidchurn remained at 1.5 percent. In the third quarter of 2006, Cingular's revenues were $9.6 billion, increasing9.2 percent over the same quarter a year ago and up 3.6 percent sequentially.Service revenues, which exclude revenues from sales of handsets and accessories,were $8.7 billion up 12.2 percent year-over-year and 4.4 percent sequentially. Cingular's average revenue per user (ARPU) was $49.76. This compares to $49.65in the same quarter last year and $48.84 in the second quarter of 2006. ARPUfrom data services continued its robust growth in the third quarter of 2006,increasing 46.0 percent to $6.32 year-over-year and up 9.5 percent sequentially. For the third quarter of 2006, Cingular accelerated its margin improvementdriven by operational improvements and successful merger integration activities.Normalized operating income before depreciation and amortization (OIBDA)margin was 35.6 percent, up 400 basis points compared to the third quarter of2005 and up 300 basis points sequentially. This performance was driven byrevenue acceleration from customer growth and ARPU stabilization coupled withoperational and merger related synergies. During the third quarter, Cingular completed its GSM network integration. With45,000 cell sites around the country, customers benefit from improved coverageand call quality while the company benefits from lower churn. In addition, thecompany continued its aggressive deployment of 3G UMTS/HSDPA network throughoutthe country. The 3G service is available in 115 cities (with populations of 100thousand or more) in and around 52 major markets in 28 states and the Districtof Columbia. Advertising & Publishing Advertising & Publishing maintained its momentum growing revenue 5.5 percent to$537 million. Adjusting for one-time customer credits issued in the thirdquarter 2005 for Hurricane Katrina, revenue growth was 4.1 percent. Theseresults reflect continued market penetration of online advertising and growth inprint advertising revenue. Operating margins were 45.6 percent for the thirdquarter of 2006. Normalizing Items For the third quarter of 2006, the difference between reported (GAAP) EPS fromcontinuing operations and normalized EPS is shown in the following table. Fullincome statement reconciliation is included in the attached exhibits. 3Q06GAAP Diluted EPS - Income from continuing operations $0.58 Wireless merger integration costs $0.02Wireless merger intangible amortization $0.04AT&T Merger Costs $0.01 Normalized Diluted EPS - Income from continuing operations $0.65 Wireless merger integration costs - Represents BellSouth's 40 percent share ofwireless merger integration costs incurred in connection with the Cingular/AT&TWireless merger. Integration costs include one-time cash outlays or specifiednon-cash charges, including accelerated depreciation, directly related torationalization of the wireless network, sales distribution channels, theworkforce, information technology systems and real estate. Wireless merger intangible amortization - Represents BellSouth's 40 percentshare of the non-cash amortization of intangibles, primarily customer lists thatwere created in Cingular's acquisition of AT&T Wireless. AT&T Merger Costs - Represents specific deal-related costs directly associatedwith the pending merger with AT&T. Costs include legal and regulatory fees,costs of filing and printing the joint proxy statement and expense associatedwith employee retention awards.About BellSouth Corporation BellSouth Corporation is a Fortune 500 communications company headquartered inAtlanta, Georgia. BellSouth has joint control and 40 percent ownership ofCingular Wireless, the nation's largest wireless voice and data provider with58.7 million customers. Backed by award-winning customer service, BellSouth offers the mostcomprehensive and innovative package of voice and data services available in themarket. Through BellSouth Answers(R), residential and small business customerscan bundle their local and long distance service with dial-up and high-speed DSLInternet access, satellite television and Cingular(R) Wireless service. Forbusinesses, BellSouth provides secure, reliable local and long distance voiceand data networking solutions. BellSouth also offers print and online directoryadvertising through The Real Yellow Pages(R) and YELLOWPAGES.COMTM fromBellSouth. BellSouth believes that diversity and fostering an inclusive environment arecritical 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 third quarter earnings can beaccessed at www.bellsouth.com/investor. The press release, financial statementsand Investor News summarizing highlights of the quarter are available atwww.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: 888-370-1863International: 706-634-1735 The conference call will also be webcast live beginning at 10 a.m. (ET) on ourWeb site, www.bellsouth.com/investor. The webcast will be archived on our Website. A replay of the call will be available through Oct. 31, 2006, and can beaccessed by dialing: Domestic: 800-642-1687 - Conference ID: 7061516International: 706-645-9291 - Conference ID: 7061516 For More Information Contact:Brent Fowler, Media Relations, 404-249-2839BellSouth Investor Relations, 800-241-3419 In addition to historical information, this document may contain forward-lookingstatements regarding events and financial trends. Factors that could affect ourfuture results and could cause our actual results to differ materially fromthose expressed or implied in the forward-looking statements include: (i) achange in economic conditions in markets where we operate or have materialinvestments which would affect demand for our services; (ii) the intensity ofcompetitive activity and its resulting impact on pricing strategies and newproduct offerings; (iii) higher than anticipated cash requirements forinvestments, new business initiatives and acquisitions; (iv) unfavorableregulatory actions and (v) those factors contained in the Company's periodicreports. 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 mergedcompany's actual results to differ from those expressed in the forward-lookingstatements include: (i) our and AT&T's ability to obtain governmental approvalsof the proposed merger on the proposed terms and contemplated schedule; (ii) therisk that the businesses of AT&T and BellSouth will not be integratedsuccessfully or as quickly as expected; (iii) the risk that the cost savings andany other synergies from the merger, including any savings and other synergiesrelating to the resulting sole ownership of Cingular Wireless LLC, may not befully realized or may take longer to realize than expected; (iv) disruption fromthe merger making it more difficult to maintain relationships with customers,employees or suppliers; and (v) those factors contained in the proxy statementrelating 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 mostdirectly comparable GAAP financial measures, and a full reconciliation ofnon-GAAP to GAAP financial information, are attached hereto and provided on theCompany's investor relations web site, www.bellsouth.com/investor. This information is provided by RNS The company news service from the London Stock Exchange