Br.small Co.2 Regulatory News (BSC)

24 Jul 2006 15:12

Bellsouth Corp24 July 2006 For Immediate Release July 24, 2006 BellSouth Reports Second Quarter Earnings • Normalized earnings per share of 60 cents, up 18 percent • Expanding margins in Communications Group • Strong customer growth and record low churn at Cingular ATLANTA - BellSouth Corporation (NYSE: BLS) announced second quarter 2006earnings per share (EPS) from continuing operations of 49 cents, up 14.0 percentcompared to the second quarter of 2005. Normalized EPS from continuingoperations was 60 cents, a 17.6 percent increase compared to the second quarterof 2005. During the first six months of the year, BellSouth's reported incomefrom continuing operations has grown $200 million compared to the prior yearwhile normalized net income for the first six months has expanded more than $300million exceeding $2 billion. A list of normalizing items is provided in thetable below. "Three consecutive quarters of double-digit earnings growth reflects thestrength of our broadband and wireless businesses," said Duane Ackerman,Chairman and Chief Executive Officer. "Continued revenue growth and our focuson cost management in the wireline business and increased profitability atCingular demonstrate that we continue to successfully execute in theever-changing communications market." 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 revenue growth of 3.4 percent was driven by growth across alloperating segments of the business, resulting in normalized revenues of morethan $8.8 billion for the second quarter of 2006. For the quarter, operatingincome before depreciation and amortization (OIBDA) exceeded $3.4 billionrepresenting a 38.7 percent OIBDA margin. OIBDA margin improved 160 basispoints year-over-year and 120 basis points sequentially. Normalized net incomeof $1.1 billion grew 15.1 percent compared to the second quarter of 2005 drivenby improved profitability at both Cingular and Communications Group. Reported Results from Continuing Operations For the second quarter of 2006, BellSouth's consolidated reported revenues fromcontinuing operations were $5.2 billion, up 1.2 percent compared to the samequarter of 2005. Income from continuing operations was $887 million, up 11.6percent compared to the same quarter of the previous year. For the second quarter of 2006, operating free cash flow (defined as net cashprovided by operating activities less capital expenditures) was $980 million.Capital expenditures for the quarter were $950 million, including approximately$130 million of incremental expenditures for Katrina restoration 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 wireless, broadband, video, voice and data products. On Friday, July 21, 2006, shareholders of both BellSouth and AT&T votedoverwhelmingly to approve the merger agreement. The companies have madesignificant progress toward obtaining the regulatory approvals from theDepartment of Justice, the Federal Communications Commission and various statecommissions. The merger is expected to close in the fall. Communications Group In the second quarter of 2006, Communications Group revenues were $4.7 billion,a 1.0 percent increase over the second quarter of 2005. Growth in themass-market and stabilization in the large business customer segmentscontributed to the improved results. Revenue streams for broadband data andlong distance in these segments outpaced declines in the traditional voicebusiness. Communications Group operating margin improved significantly to 24.9percent, an increase of 130 basis points year-over-year and sequentially as theCompany continued to focus on cost controls and held revenues stable. Network data revenues grew to $1.3 billion, a 10.0 percent increase over thesecond quarter of 2005. Retail data revenues growth of 18.7 percentyear-over-year was driven by a 40.9 percent increase in retail DSL revenues andcontinued momentum from emerging retail data services indicative of marketgrowth in IP broadband services. At the end of the second quarter, BellSouth served nearly 3.3 million broadbandDSL customers. The Company added 128,000 new customers during the secondquarter and continued to improve the economic mix of customers. Today, morethan 25 percent of BellSouth's broadband customers subscribe to the Company'spremium service offerings -- FastAccess(R) DSL Xtreme and FastAccess(R) DSLXtreme 6.0. BellSouth ended the second quarter with nearly 7.5 million long distancecustomers and at quarter-end served more than 60 percent of its mass-marketcustomer base with long distance. The Company added 120,000 long distancecustomers during the second quarter. Approximately 63,000 customers addedDIRECTV(R) service to their BellSouth bundle, resulting in a total of 691,000customers who have included DIRECTV(R) service in their communications packages. As of June 30, 2006, total access lines were 19.3 million, down 460,000 comparedto March 31, 2006. Residential access line loss in the second quarter reflectsseasonal loss patterns, wireless substitution and competition from cabletelephony providers. Retail residential access lines were down 251,000. Retailsmall business access line gains were nearly 25,000, offset by a 48,000 declinein retail large business access lines that was predominantly driven by the lossof a single customer. Wholesale lines resold by BellSouth competitors declined181,000 compared to March 31, 2006. Summary Impacts of Hurricane Katrina During the second quarter of 2006, BellSouth recognized incremental expensesassociated with Hurricane Katrina of $25 million, which is net of $20 million ininsurance recoveries during the quarter. BellSouth also incurred approximately$130 million of incremental capital expenditures for Katrina restoration. Sincethe third quarter of 2005, BellSouth has incurred approximately $910 million forKatrina-related network restoration expense and capital spending. We expect aportion of the cost associated with the Hurricane Katrina recovery effort to becovered by insurance. While the exact amount has not been determined, ourcurrent estimate of the total amount of covered losses that will be covered byinsurance, net of our deductible is approximately $250 million, of which $40million has been recognized to date. The actual recovery will vary depending onthe outcome of the insurance loss adjustment effort. Cingular Wireless Cingular Wireless, the nation's largest wireless provider, was an importantcontributor to BellSouth's earnings growth in the second quarter of 2006.Strong customer growth, record low churn, improving revenue trends, andsuccessful merger integration activities drove Cingular's margin expansion andnet income growth. Cingular added 1.5 million net new customers during the second quarter of 2006and served a total of 57.3 million subscribers at the end of June. Postpaidcustomer additions were more than 1.0 million for the quarter, a 9.0 percentyear-over-year improvement. Overall monthly subscriber churn for the quarterwas a record-low 1.7 percent and postpaid churn was also the lowest-ever at 1.5percent. In the second quarter of 2006, Cingular's revenues were $9.2 billion, animprovement of 7.1 percent over the same quarter a year ago and up 2.7 percentsequentially. Average revenue per user (ARPU) improved sequentially in thequarter to $48.84, but declined 3.3 percent from the year-ago second quarter.The year-over-year decline in ARPU is primarily the result of the increase inthe number of lower ARPU wholesale customers in Cingular's base. Retailsubscriber ARPU improved year-over-year on growth of data services. Data ARPUcontinued its growth trajectory in the second quarter of 2006, increasing 38.7percent to $5.77 year-over-year and up 10.5 percent sequentially. For the second quarter of 2006, normalized operating income before depreciationand amortization (OIBDA) margin was 32.6 percent, up 370 basis points comparedto the second quarter of 2005. The Company's steady margin improvementillustrates continued execution of merger integration activities and progress onnetwork integration and system conversions. The continued decline in churn andstrong gross and net customer additions are reflective of improving customersatisfaction. Customers are benefiting from improved network coverage andquality, promotional offers and devices and the capabilities of the growing 3Gnetwork. Advertising & Publishing For the seventh straight quarter, Advertising & Publishing grew revenuesyear-over-year reflecting continued growth in online advertising and growth inprint advertising. Revenues were $547 million, up 3 percent compared to thesame quarter of 2005. Operating margins were strong at 46.1 percent for thesecond quarter of 2006, flat compared to the same period in the prior year. Normalizing Items For the second 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. 2Q06GAAP Diluted EPS - Income from continuing operations $0.49 Wireless merger integration costs $0.02Wireless merger intangible amortization $0.04Hurricane Katrina-related expenses $0.01Severance $0.02AT&T Merger Costs $0.01 Normalized Diluted EPS - Income from continuing operations(1) $0.60 (1) May not sum due to rounding 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. Hurricane Katrina-related expenses - Represents incremental labor and materialcosts primarily related to service restoration and network repairs inBellSouth's wireline business. These expenses have been reduced by partialinsurance recoveries during the second quarter. Severance - Represents the net severance-related costs recorded in the secondquarter of 2006 associated with recently completed voluntary managementworkforce reductions. 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 and registration statement andexpense associated with 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 with57.3 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 second 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: 888-370-1863 International: 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. A replay of the call will be available through July 31, 2006, and can beaccessed by dialing: Domestic: 800-642-1687 - Conference ID: 1384532 International: 706-645-9291 - Conference ID: 1384532 For More Information Contact: Brent Fowler, Media Relations at 404-249-2839 BellSouth Investor Relations at 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 preliminary proxystatement 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 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