Br.small Co.2 Regulatory News (BSC)

25 Jan 2006 12:49

Bellsouth Corp25 January 2006 For Immediate ReleaseJanuary 25, 2006 BellSouth Reports Fourth Quarter Earnings • Normalized earnings per share up 36 percent • Cingular reached 54.1 million customers; delivered strong revenue and margin • 2.9 million DSL customers and strong DSL revenue growth ATLANTA - BellSouth Corporation (NYSE: BLS) announced fourth quarter 2005earnings per share (EPS) from continuing operations of 34 cents, up 36 percentcompared to the fourth quarter of 2004. Normalized EPS from continuingoperations was 53 cents, a 36 percent increase compared to the fourth quarter of2004. A list of normalizing items is provided in the table below. "BellSouth is delivering solid revenue growth and strong earnings growth," saidDuane Ackerman, Chairman and Chief Executive Officer. "BellSouth's earnings forthe quarter reflect the value of our asset mix as the industry continues toundergo a transition to new services and new competition emerges." Normalized Results from Continuing Operations Normalized results from continuing operations include BellSouth's 40 percentproportionate share of Cingular's revenues and expenses. Cingular completed itsacquisition of AT&T Wireless on October 26, 2004. Results prior to theacquisition date have not been restated. The Company is conforming itsnormalized financial reporting to align to industry peers for the treatment ofpurchased intangible assets. Normalized results exclude the non-cashamortization of purchased intangibles created in Cingular's acquisition of AT&TWireless. Prior periods have been recast for the change. (Reconciliationattached). For the fourth quarter of 2005, normalized revenue was $8.7 billion. Normalizedrevenue for the quarter was up nearly 2 percent sequentially driven by DSLgrowth 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 normalizedEPS was $2.00, a 7 percent increase compared to 2004 as higher contribution fromthe combined Cingular/AT&T Wireless offset financing costs associated with thistransaction and pressures in the wireline business. Reported Results from Continuing Operations For the fourth quarter of 2005, BellSouth's consolidated reported revenue fromcontinuing operations totaled $5.2 billion, up nearly 2 percent compared to thesame quarter of 2004. Income from continuing operations was $618 millioncompared to $453 million in the same quarter of the previous year. For the fullyear 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 andfor the year include the financial impacts associated with the damage fromHurricane Katrina. BellSouth finished 2005 with strong cash flow and a solid balance sheet. Forthe full year of 2005, operating free cash flow (defined as net cash provided byoperating activities less capital expenditures) was $3.3 billion. Capitalexpenditures for the year amounted to $3.5 billion, including expendituresrelated to restoration for damages from Hurricane Katrina. The Company reduceddebt by $3.4 billion in 2005 and repurchased nearly $1 billion of itsoutstanding shares during the fourth quarter. In October 2005, the board ofdirectors authorized the repurchase of up to $2 billion of common stock throughthe 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 toKatrina-related billing credits and the Company estimates approximately 60,000access lines were disconnected in the affected area. The Company incurred $244million of incremental expense and $189 million of incremental capital duringthe fourth quarter. For the full year, revenue credits totaled $111 million across all threebusiness segments. The Company estimates approximately 100,000 access lineshave been disconnected as a result of the hurricane. We have seen some abovetrend inward movement in other wire centers, presumably from customersrelocating within our markets and from businesses migrating to New Orleans toparticipate in reconstruction, but it is difficult to estimate the extent ofthis impact. For the year, incremental expenses for wireline network restoration and capitalare approximately $500 million. On Sept. 6, 2005, BellSouth made an initialestimate of the future cost for network restoration, including capital andexpense, of $400 million to $600 million. Based on current assessments tocomplete the restoration effort, the Company now expects this amount to total$700 million to $900 million. We expect a portion of the cost associated withthe Hurricane Katrina recovery effort to be covered by insurance. While theexact amount has not been determined, our current estimate of the amount ofcovered losses, net of our deductible, is approximately $250 million. The actualrecovery will vary depending on the outcome of the insurance loss adjustmenteffort. 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. Operatingmargin was 21.9 percent compared to 21.6 percent for the same quarter of theprevious year. For the full year of 2005, Communications Group revenue held steady at $18.5billion. The Consumer and Small Business market segments delivered solidrevenue growth with DSL and long distance service revenue outpacing revenuedeclines from residential access line loss. Full year operating margin was 23.0percent compared to 25.0 percent for the full year of 2004. The 2005 operatingmargin was impacted by higher retiree medical expense, overtime expenses fromsevere weather and Katrina billing credits. BellSouth is focused on driving broadband penetration and served nearly 2.9million 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 ofBellSouth's new simplified pricing and improving churn. To meet market demandfor faster broadband speeds, BellSouth introduced an up to 6 Mbps DSL service inlimited areas during the quarter and, in early January 2006, lowered the priceon the up to 3 Mbps DSL service to $37.95. Both actions offer customersopportunities to increase their broadband speed at attractive price points. For the fourth quarter, network data revenue was $1.25 billion, up 7.7 percentfrom the same period of the prior year. Retail data revenue grew 15.9 percentfrom the same period last year driven by a 32.5 percent increase in retail DSLrevenue and 4.4 percent growth in revenue from other retail data services.Wholesale data declined 2.8 percent as growth in wholesale services to wirelesscarriers partially offset declines in traditional wholesale data transportservices. For the year, network data revenue grew 5.1 percent totaling morethan $4.7 billion. BellSouth customers continue to want simple, reliable communications servicesconveniently combined in a package. Customers can bundle DSL, long distance,DIRECTV(R) and Cingular Wireless under the BellSouth Answers(R) bundles. By theend of 2005, more than 4.9 million residential customers combined their servicesunder BellSouth Answers(R), a more than 43 percent penetration of its retailresidential lines. In addition, BellSouth now serves almost 7.2 million longdistance 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 theircommunications packages at year-end. While access lines were down 6.2 percent for the year, revenues grew as a resultof 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 HurricaneKatrina, access line loss continues to be primarily driven by wirelesssubstitution and, to a lesser extent, by competition from cable telephonyproviders. Retail residential access lines were down 189,000. Retail businessaccess lines increased 12,000 driven by Small Business gains. As expected,Commercial Agreement/UNE-P (Unbundled Network Elements-Platform) access linesresold 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. Thenation's largest wireless carrier ended the fourth quarter of 2005 with 54.1million cellular/PCS subscribers, an increase of 5 million compared to theyear-ago fourth quarter. During the quarter, Cingular delivered record netcustomer additions of 1.8 million. Retail customer additions were approximately840,000 reflecting steady growth in postpaid customers and an increase inGoPhone(R) prepaid subscribers. Seasonal reseller promotional activity drovestrong resale customer additions. Monthly subscriber churn was 2.1 percent -Cingular's best-ever overall churn results. Postpaid churn improved to 1.9percent. In the fourth quarter of 2005, Cingular's revenues were $8.8 billion, up 9.4percent over fourth quarter 2004 pro forma revenue and up 1.2 percentsequentially. Average revenue per user (ARPU) in the fourth quarter of 2005 was $48.86, adecline of 2.2 percent from fourth quarter 2004 pro forma ARPU, reflectingpressure on voice revenues partially offset by continued increases in dataservices. ARPU from data services showed strong growth in the fourth quarter of2005, reaching $4.71, a nearly 9 percent increase compared to the third quarterof 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) marginfor the fourth quarter of 2005 was 31.0 percent, which was an improvement of 760basis points compared to year-ago fourth quarter results but a sequentialdecline of 60 basis points due to anticipated seasonal factors. Theyear-over-year margin improvement reflects the addition of 5 million customers,progress on merger synergies including increased productivity, economies ofscale and lower churn. In the fourth quarter of 2005, Cingular became the first carrier in the world tooperate a commercial UMTS/HSDPA network, which provides industry-leading datathroughputs with speeds of 400 to 700 Kbps. Cingular deployed UMTS/HSDPA in 16markets during the quarter and plans to have most of the top 100 marketslaunched 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 $529million, up slightly compared to the same quarter of 2004. Adjusting for $16million in billing credits associated with Hurricane Katrina, revenue grew 3.2percent. For the full year of 2005, Advertising & Publishing revenue was up 2 percentcompared to 2004 (3.2 percent when adjusted for the full year Katrina billingcredits). Revenue growth was driven by increasing online advertising and newprint services. For the full year of 2005, online advertising revenue grew 39percent to more than $100 million. During the quarter the Company enhanced itsonline services by completing the rollout of YELLOWPAGES.COMTM from BellSouth(R). Advertising & Publishing operating margins remained strong at 46.3 percentfor the full year. Normalizing Items For the fourth quarter and for the full year of 2005, the difference betweenreported (GAAP) EPS from continuing operations and normalized EPS is shown inthe 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 $0.11Wireless merger intangible amortization $0.05 $0.20Gain on sale of Cellcom ($0.12)Debt extinguishment costs $0.01Severance costs $0.03 $0.03Deferred 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, incrementallabor and material costs related to service restoration and network repairs andincremental uncollectible expense. These expenses are comprised of HurricaneKatrina charges related to BellSouth's wireline business and its 40 percentshare of Cingular Wireless' hurricane expenses. Wireless merger integration costs - Represents BellSouth's 40 percent share ofwireless merger integration costs in connection with the Cingular/AT&T Wirelessmerger. Integration costs include one-time cash outlays or specified non-cashcharges, including accelerated depreciation, directly related to rationalizationof the wireless network, sales distribution channels, the workforce, informationtechnology 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. Gain on sale of Cellcom - Gain related to sale of Cellcom, a cellularcommunications operator in Israel. Debt extinguishment costs - Represents one-time expenses associated with theearly extinguishment of long-term debt in the first and second quarters of 2005. Severance costs - Represents the net severance-related costs recorded in thefourth quarter of 2005 associated with workforce reductions. Deferred revenue adjustment - Represents the current recognition of $47 millionof previously deferred revenue in the Communications Group segment. Theadjustment relates to a system coding error that resulted in underreportingrevenues in prior periods. The amount accumulated over multiple years and didnot affect any one year by more than $9 million. About BellSouth Corporation BellSouth Corporation is a Fortune 100 communications company headquartered inAtlanta, Georgia. BellSouth has joint control and 40 percent ownership ofCingular Wireless, the nation's largest wireless voice and data provider with54.1 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(R). 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 fourth quarter earnings canbe accessed at www.bellsouth.com/investor. The press release, financialstatements and Investor News summarizing highlights of the quarter are availableat 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: 888-370-1863International: 706-634-1735 The conference call will also be webcast live beginning at 10 a.m. (ET) on ourWeb site at www.bellsouth.com/investor. The webcast will be archived on our Website 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: 3339634International: 706-645-9291 - Conference ID: 3339634 In addition to historical information, this document may contain forward-lookingstatements regarding events and financial trends. Factors that could affectfuture results and could cause actual results to differ materially from thoseexpressed or implied in the forward-looking statements include: (i) a change ineconomic conditions in markets where we operate or have material investmentswhich would affect demand for our services; (ii) the intensity of competitiveactivity and its resulting impact on pricing strategies and new productofferings; (iii) higher than anticipated cash requirements for investments, newbusiness initiatives and acquisitions; (iv) unfavorable regulatory actions; and(v) those factors contained in the Company's periodic reports filed with theSEC. The forward-looking information in this document is given as of this dateonly, 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 website, www.bellsouth.com/investor. For More Information Contact: Brent Fowler, Media Relations at 404-249-2839 BellSouth Investor Relations at 800-241-3419 This information is provided by RNS The company news service from the London Stock Exchange