Final Results
Bellsouth Corp
23 January 2003
For Immediate Release
January 23, 2003
For More Information Contact:
Jeff Battcher 404-249-2793
BellSouth Reports Fourth Quarter Earnings
DSL High-Speed Internet Customers Surpass 1 Million;
Long Distance Approval in All Markets
Company to Expense Stock Options Granted After January 1, 2003
ATLANTA - BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of
32 cents in the fourth quarter of 2002, compared to EPS of 42 cents in the same
quarter of 2001. Normalized for special items, detailed below, EPS in the fourth
quarter of 2002 was 50 cents, compared to normalized EPS of 63 cents in the same
quarter a year ago.
Capital expenditures for 2002 were $3.8 billion, a reduction of 36.9 percent
compared to $6.0 billion in 2001. Operating free cash flow (defined as cash flow
from operations less capital expenditures) was $791 million in the fourth
quarter of 2002, and totaled $4.5 billion for the year as a whole. Including
asset sales and note repayments to BellSouth during the year, the company
generated free cash flow of $6.8 billion in 2002. The company reduced net debt
to $14.9 billion in 2002 from $19.5 billion in 2001, or 23.6 percent, and
increased its quarterly per share cash dividend 5.3 percent.
Consolidated revenues, which do not include BellSouth's 40 percent share of
Cingular Wireless, were $5.69 billion, compared to $6.21 billion in the fourth
quarter of 2001. Normalized total operating revenues, which include Cingular,
were $7.12 billion, a decline of 6.8 percent versus the fourth quarter of 2001.
BellSouth reduced consolidated total operating expenses, which exclude Cingular,
by 4.2 percent in the fourth quarter of 2002, compared to the same three months
a year ago. Net income in the quarter was $597 million, compared to $792 million
in the fourth quarter of the previous year. Normalized net income was $936
million, compared to $1.19 billion in the final quarter of 2001.
For the year, EPS was 76 cents in 2002, compared to $1.36 in 2001. Normalized
EPS was $2.09 in the latest year, compared to $2.34 in 2001. Foreign currency
losses in 2002 totaled 32 cents per share, compared to 12 cents per share in the
previous year. Including Cingular, revenues were $28.4 billion in 2002, a
decline of 3.9 percent for the year. Net income was $1.42 billion in 2002,
compared to $2.57 billion a year earlier. Normalized net income in 2002 was
$3.92 billion, compared to $4.42 billion in 2001.
BellSouth's operating results continued to reflect weak demand for
communications services, both in the United States and Latin America.
Bankruptcies continued to affect both retail and wholesale demand, as well as
bad debt expense. Retail access line market share loss in the U.S., as well as
currency devaluations in Argentina and Venezuela, also continued to impact
results.
Communications Group
BellSouth added 97,000 DSL high-speed Internet service customers in the fourth
quarter, surpassing 1 million and finishing the year with 1,021,000 broadband
customers.
On December 19, 2002, with endorsements in Florida and Tennessee, BellSouth
became the first incumbent local telecommunications company to receive Federal
Communications Commission approval to provide long distance service in all its
markets. The company has been marketing long distance in Georgia and Louisiana
since late May 2002, and in North Carolina, South Carolina, Kentucky, Alabama
and Mississippi since late September. At the end of the year, BellSouth was
serving more than 1 million consumer and business long distance customers,
including approximately 10 percent of its residence and approximately 22 percent
of its mass market small business accounts in the seven states that were
approved earlier in 2002.
The number of customers purchasing the BellSouth(R) AnswersSM package increased
to approximately 1.2 million at year end. Introduced during the third quarter of
2002, BellSouth Answers allows residential customers to combine on a single bill
the data, voice and Internet communications services they want, including long
distance and local, as well as wireline and wireless.
Total Communications Group revenues were $4.52 billion in the fourth quarter, a
decline of 6.3 percent compared to the same quarter of 2001. Cash operating
expenses increased 0.8 percent. Data revenues were $1.07 billion, a decline of
3.2 percent compared to the fourth quarter a year earlier. Total access lines in
service of 24.6 million at year end declined 3.2 percent compared to 2001,
impacted by competition, a continued weak economy and technology substitution.
Access lines served by BellSouth competitors under UNE-P (unbundled network
elements-platform) increased by 190,000 in the fourth quarter. UNE-P lines
increased 153 percent during 2002 as a whole.
Domestic Wireless / Cingular
BellSouth's share of Cingular's domestic wireless revenues in the fourth quarter
of 2002 was $1.46 billion, a gain of 0.6 percent compared to the same quarter a
year ago. BellSouth's share of Cingular operating income was $284 million in the
quarter, compared to $221 million in the same three months of 2001. Cingular
experienced a net reduction of 121,000 total cellular and PCS customers during
the final three months of 2002, ending the year with 21.9 million customers, an
annual increase of 1.5 percent. In December, Cingular increased the deployment
of next-generation wireless technology to more than 50 percent of its potential
customers nationwide, enabling high-speed wireless data services.
Latin America Group
Consolidated Latin America revenues were $486 million in the fourth quarter of
2002, a decline of 1.8 percent compared to the third quarter. Revenues continued
to reflect the impacts of currency devaluations, principally in Argentina and
Venezuela, as well as weak economic conditions in those countries. EBITDA
(earnings before interest, taxes, and depreciation and amortization) margin was
38.1 percent, up from 34.1 percent in the third quarter of 2002. For the year as
a whole, EBITDA margin improved to 32.8 percent in 2002 from 30.2 percent a year
earlier.
On a consolidated basis, Latin America Group wireless voice customers increased
by 259,000 during the fourth quarter, compared to a net reduction of 152,000
customers in the third quarter of 2002. Year-over-year, consolidated customers
increased by 505,000, or 6.6 percent. BellSouth and its partners serve a total
of 11.5 million customers in 11 Central and South American countries, including
298,000 fixed wireless customers.
Advertising & Publishing
Domestic Advertising & Publishing revenues were $718 million in the fourth
quarter of 2002, an increase of 0.4 percent compared to the same period of the
prior year. Year over year, fourth quarter EBITDA margin decreased from 51.6
percent to 44.0 percent, due to increased uncollectible expense as a result of
continued economic weakness.
Special Items
In the fourth quarter of 2002, the difference between reported EPS of 32 cents
and normalized EPS of 50 cents is the result of four special charges:
Asset impairments 11 cents
Workforce reduction 3 cents
Loss on sale 3 cents
Foreign currency transaction losses 1 cent
Total of special charges 18 cents
Asset impairments - Represents the impairment of MMDS spectrum previously held
for sale, as well as impairments related to Cingular Wireless's TDMA network
assets and Mobitex data business.
Workforce reduction - BellSouth has substantially completed the workforce
reduction of approximately 5,000 positions it announced May 17, 2002. This
charge represents severance costs recorded in the fourth quarter associated with
the workforce reduction. Also included are pension settlement losses.
Loss on sale - Represents the fourth quarter charge related to the sale of
BellSouth's remaining Brazilian yellow pages operation.
Foreign currency transaction losses - Primarily associated with the
remeasurement of U.S. dollar-denominated liabilities in Latin America.
Stock Option and Depreciation Accounting
BellSouth also announced it will expense stock options granted to employees
after January 1, 2003, using guidelines under Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Using historical stock option grant levels and current valuation assumptions,
the projected increase in expense will reduce 2003 net income by approximately
$90 million (5 cents per share).
In addition, on January 1, 2003 BellSouth adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations," which addresses accounting for the cost of legal
obligations associated with the retirement of long-lived assets. Adopting SFAS
No. 143 is expected to result in a one-time increase to net income of
approximately $0.8 billion in the first quarter of 2003. The one-time item will
be reported on the company's consolidated statements of income as a cumulative
effect of a change in accounting principle.
The ongoing impact of SFAS No. 143 will increase net income by approximately $60
million (3 cents per share) in 2003 as a whole.
About BellSouth Corporation
BellSouth Corporation is a Fortune 100 communications services company
headquartered in Atlanta, Georgia, serving more than 44 million customers in the
United States and 14 other countries.
Consistently recognized for customer satisfaction, BellSouth provides a full
array of broadband data solutions to large, medium and small businesses. In the
residential market, BellSouth offers DSL high-speed Internet access, advanced
voice features and other services. BellSouth also offers long distance service
throughout its markets, serving both business and consumer customers. The
company's BellSouth(R) AnswersSM package combines local and long distance
service with an array of calling features; wireless data, voice and e-mail
services; and high-speed DSL or dial-up Internet service. BellSouth also
provides online and directory advertising services through BellSouth(R) Real
PagesSM.com and The Real Yellow Pages(R).
BellSouth owns 40 percent of Cingular Wireless, the nation's second largest
wireless company, which provides innovative data and voice services.
Further information about BellSouth's fourth quarter earnings can be accessed at
www.bellsouth.com/investor. The press release, financial statements and BLS
Investor News summarizing highlights of the quarter are available on the
BellSouth Investor Relations Web site starting today at 8 a.m. Eastern Time.
BellSouth will host a conference call with investors today at 10 a.m. Eastern
Time. Participating on the call will be BellSouth CFO Ron Dykes and Investor
Relations Vice President Patrick Moore. Dial-in information for the conference
call is:
Domestic: 888-370-1863
International: 706-634-1735
A replay of the call will be available beginning at approximately 1 p.m. Eastern
Time today, through January 29. The replay can be accessed by dialing:
Domestic: 800-642-1687 - Reservation number: 7036252
International: 706-645-9291 - Reservation number: 7036252
In addition to historical information, this document contains 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 domestic or international markets where we operate or
have material investments which would affect demand for our services; (ii)
currency devaluations and continued economic weakness in certain international
markets in which we operate or have material investments; (iii) the intensity of
competitive activity and its resulting impact on pricing strategies and new
product offerings; (iv) higher than anticipated cash requirements for
investments, new business initiatives and acquisitions; (v) unfavorable
regulatory actions and (vi) 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.
BellSouth Corporation
Consolidated Statements of Income - Reported Basis (unaudited)
(amounts in millions, except per share data)
Year-To-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Operating Revenues
Communications
group $ 4,481 $ 4,785 -6.4% $ 4,469 0.3% $ 18,226 $ 18,984 -4.0%
Latin 486 683 -28.8% 494 -1.6% 2,233 2,910 -23.3%
America
Domestic advertising 709 710 -0.1% 458 54.8% 1,921 2,073 -7.3%
and publishing
All other 16 35 -54.3% 13 23.1% 60 163 -63.2%
Total 5,692 6,213 -8.4% 5,434 4.7% 22,440 24,130 -7.0%
Operating
Revenues
Operating Expenses
Operational and 3,051 3,118 -2.1% 2,865 6.5% 11,889 12,649 -6.0%
support expenses
Depreciation and 1,151 1,244 -7.5% 1,161 -0.9% 4,643 4,782 -2.9%
amortization
Provision for 318 358 N/M* 328 N/M 1,003 358 N/M
restructuring and
asset impairments
Total 4,520 4,720 -4.2% 4,354 3.8% 17,535 17,789 -1.4%
Operating
Expenses
Operating Income 1,172 1,493 -21.5% 1,080 8.5% 4,905 6,341 -22.6%
Interest 292 317 -7.9% 291 0.3% 1,188 1,315 -9.7%
Expense
Other Income (Expense), 67 (27) N/M 213 N/M 858 (1,009) N/M
net
Income Before Taxes and
Accounting Change 947 1,149 -17.6% 1,002 -5.5% 4,575 4,017 13.9%
Provision for Income Taxes 350 357 -2.0% 339 3.2% 1,867 1,447 29.0%
Cumulative Effect of Change
in Accounting Principle - - N/M - N/M (1,285) - N/M
Net $597 $792 -24.6% $663 -10.0% $1,423 $2,570 -44.6%
Income
Diluted:
Weighted Average 1,864 1,888 -1.3% 1,870 -0.3% 1,876 1,887 -0.6%
Common Shares
Outstanding
Earnings Per $0.32 $0.42 -23.8% $0.35 -8.6% $0.76 $1.36 -44.1%
Share
* - Not meaningful.
Selected Financial and Operating Data
EBITDA (5) $2,323 $2,737 -15.1% $2,241 3.7% $9,548 $11,123 -14.2%
EBITDA margin (6) 40.8% 44.1% -330 bps 41.2% -40 bps 42.5% 46.1% -360 bps
Return on average equity 13.6% 17.4% -380 bps 14.9% -130 bps 7.9% 14.4% -650 bps
(annualized)
Return on average total 14.2% 11.0% 320 bps 10.2% 400 bps 7.2% 9.9% -270 bps
capital (annualized)
BellSouth Corporation
Normalized Earnings Summary and Reconciliation to Reported Results
(amounts in millions, except per share data)
Fourth Quarter 2002 Normalizing Items
GAAP A G J O Q Normalized
Operating $ 5,692 $ 1,423 $ - $ - $ - $ - $ 7,115
Revenues
Operating 4,520 1,217 - (105) (292) - 5,340
Expenses
Operating 1,172 206 - 105 292 - 1,775
Income
Interest 292 65 - - - - 357
Expense
Other Income 67 (141) 33 - (3) 74 30
(Expense), net
Income Before Income 947 - 33 105 289 74 1,448
Taxes
Provision for Income 350 - 7 41 91 23 512
Taxes
Net $597 $0 $26 $64 $198 $51 $936
Income
Diluted Earnings Per $0.32 $0.00 $0.01 $0.03 $0.11 $0.03 $0.50
Share
Year-to-Date 2002 Normalizing Items
GAAP A C D E F G J K M O P Q Normalized
Operating $ 22,440 $ 5,737 $ - $ - $ - $ 163 $ - $ - $ - $ - $ - $ 108 $- $ 28,448
Revenues
Operating 17,535 4,729 - - - - - (654) - - (427) - - 21,183
Expenses
Operating 4,905 1,008 - - - 163 - 654 - - 427 108 - 7,265
Income
Interest 1,188 244 - - - - - - - - - (6) - 1,426
Expense
Other Income 858 (764) (1,339) 388 383 - 579 - - 37 (3) 74 213
(Expense), net
Income Before 4,575 - (1,339) 388 383 163 579 654 - 37 424 114 74 6,052
Taxes and Change
in Accounting
Principle
Provision for 1,867 - (482) 114 120 62 (18) 248 - 15 141 44 23 2,134
Income Taxes
Cumulative (1,285) - - - - - - - 1,285 - - - - -
effect of change
in accounting
principle
Net $1,423 $0 ($857) $274 $263 $101 $597 $406 $1,285 $22 $283 $70 $51 $3,918
Income
Diluted Earnings $0.76 $0.00 ($0.46) $0.15 $0.14 $0.05 $0.32 $0.22 $0.68 $0.01 $0.15 $0.04 $0.03 $2.09
Per Share
Fourth Quarter 2001 Normalizing Items
GAAP A D G I J O Normalized
Operating $ 6,213 $ 1,425 $ - $ - $ (1) $ - $ - $ 7,637
Revenues
Operating 4,720 1,203 - - - (251) (107) 5,565
Expenses
Operating 1,493 222 - - (1) 251 107 2,072
Income
Interest 317 60 - - - - - 377
Expense
Other Income
(Expense), net (27) (162) 250 21 (8) (2) - 72
Income Before
Income Taxes 1,149 - 250 21 (9) 249 107 1,767
Provision for
Income Taxes 357 - 88 1 (2) 91 38 573
Net $792 $0 $162 $20 ($7) $158 $69 $1,194
Income
Diluted Earnings
Per Share * $0.42 $0.00 $0.09 $0.01 ($0.00) $0.08 $0.04 $0.63
Year-to-Date 2001 Normalizing Items
GAAP A B D G H I J L N O Normalized
Operating $24,130 $5,540 $ (58) $ - $ - $ - $ (23) $ - $ - $ - $ - $ 29,589
Revenues
Operating 17,789 4,520 (58) - - (73) (48) (251) (143) - (107) 21,629
Expenses
Operating 6,341 1,020 - - - 73 25 251 143 - 107 7,960
Income
Interest 1,315 232 - - - - - - - - - 1,547
Expense
Other Income
(Expense), net (1,009) (788) - 1,945 233 - (8) (2) - (24) - 347
Income Before
Income Taxes 4,017 - - 1,945 233 73 17 249 143 (24) 107 6,760
Provision for
Income Taxes 1,447 - - 682 3 26 8 91 55 (5) 38 2,345
Net $2,570 $0 $0 $1,263 $230 $47 $9 $158 $88 ($19) $69 $4,415
Income
Diluted Earnings
Per Share* $1.36 $0.00 $0.00 $0.67 $0.12 $0.02 $0.00 $0.08 $0.05 ($0.01)$0.04 $2.34
* Normalized earnings per share for fourth quarter and year-to-date 2001 does not sum due to rounding.
BellSouth Corporation
Notes to Normalized Financial and Operating 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) Gross versus net presentation - Communications group revenues have been reduced by $58 for 2001 to reflect a change
in reporting of gross receipts taxes in Florida. Beginning in the fourth quarter of 2001, we are required to account
for the tax collected from customers as a pass-through billing (I.e. net presentation). This adjustment is neutral
to EBITDA as it reduces revenues and expenses by an equal amount.
(c) Gain on E-Plus conversion and sale of KPN stock - In March 2002, we exchanged our 22.5% investment in E-Plus, a
German wireless carrier, for 234.7 million shares of KPN Royal. As a result of this exchange, we recorded a pretax
gain of $1,335 to recognize the difference between the fair value of the KPN shares obtained and our investment
balance in E-Plus. In addition, we subsequently sold the KPN shares for cash proceeds of $1,076 and recognized a
pretax loss of $27. The amount shown also includes income of $20 generated from the settlement of forward contracts
associated with advances to E-Plus. These advances were restructured in conjunction with the ownership exchange.
(d) Losses on investments - Represents charges for the impairment of and open market sales, primarily of our investment
in Qwest Communications. The 2002 amount included a $63 impairment related to an investment in Guatemala and $6 in
losses for the liquidation of an investment in Crown Castle.
(e) Brazil loan impairments - Represents recognition of an impairment on shareholder loans to our Brazilian equity
investments, as well as the recognition of a guarantee on a portion of those operations' debt.
(f) A&P unbilled receivable adjustment - During first quarter 2002, BellSouth determined that the unbilled receivable
balance at its advertising and publishing subsidiary was overstated. As a result, BellSouth recorded a reduction to
advertising and publishing revenues.
(g) Foreign currency transaction losses - Represents net transaction losses incurred by our Latin American operations
related primarily to US Dollar denominated liabilities. These losses reflect the impact of the weakening of those
operations' local currencies against the U.S. Dollar which requires recognition in the current period income
statement.
(h) Postretirement benefit expense - The amount shown represents expense for changes in postretirement medical benefit
obligations.
(i) Results of Wireless Video Business - Represents losses incurred in 2001 related to the exit of the wireless video
entertainment business.
(j) Workforce Reduction - As announced in May 2002, BellSouth is in the process of reducing its workforce by
approximately 5,000 positions to reduce operating costs in response to a slow economy, increased competition and
regulatory pricing pressures. The charge in fourth quarter 2002 represents the accrual for severance payments and
employee benefits enhancements ($29 after tax). Also includes pension settlement losses ($35 after tax) primarily
resulting from the workforce reduction. Accruals related to the plan were recognized in second and third quarter
2002 results. In fourth quarter 2001, a workforce reduction resulted in an after-tax charge of $158.
(k) Reflects a one-time charge related to the adoption of new accounting rules for goodwill, known as Financial
Accounting Standard No. 142 (FAS 142). The non-cash charge reduced the value of goodwill on the company's balance
sheet by approximately $1.3 billion.
(l) Adjustment to ISP Accrual - Represents the loss incurred for prior claims from competitive local exchange carriers
regarding reciprocal compensation for ISP traffic.
(m) Early extinguishment of debt - Represents one-time expenses associated with the early extinguishment of $620 million
of long-term debt.
(n) Gain on sale of Skycell
(o) Service curtailments/Asset impairments - Fourth quarter 2002 charges related to impairment of MMDS spectrum
previously held for sale ($150 after tax), as well as impairments related to Cingular Wireless's TDMA network assets
and Mobitex data business ($48 after tax). Prior year-to-date amounts represent charges related to the decision to
elimate sales of certain services: wholesale long distance ($17 after tax), e-business services ($44 after tax),
multi-media internet exchange ($20 after tax) and public communications (pay phones) ($4 after tax). Charges relate
to asset impairments, early termination penalties on contracts and leases, and severance for affected employees.
(p) Florida late payment fees - On October 31, 2002, the Florida Supreme Court, by a 5-2 vote affirmed the decision of
the Florida Public Service Commission regarding our dispute over late payment fees. This will require a one-time
refund to affected customers in Florida. Based on this decision, we recorded a reduction to revenues of $108 plus
interest expense of $6 in the third quarter of 2002.
(q) Disposition of Listel - Represents charge related to the sale of BellSouth's remaining Brazilian yellow pages
operation.
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 2, 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. Certain reclassifications have been made to prior periods to conform to the current
presentation.
Year-to-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Operating Revenues
Communications group $ 4,441 $ 4,757 -6.6% $ 4,539 -2.2% $ 18,180 $ 18,824 -3.4%
Domestic wireless 1,463 1,454 0.6% 1,511 -3.2% 5,891 5,643 4.4%
Latin America 486 683 -28.8% 494 -1.6% 2,233 2,910 -23.3%
Domestic advertising 709 710 -0.1% 458 54.8% 2,084 2,073 0.5%
and publishing
All other 16 33 -51.5% 13 23.1% 60 139 -56.8%
Total Operating Revenues 7,115 7,637 -6.8% 7,015 1.4% 28,448 29,589 -3.9%
Operating Expenses
Operational and 4,002 4,126 -3.0% 3,901 2.6% 15,800 16,085 -1.8%
support expenses
Depreciation and 1,338 1,439 -7.0% 1,351 -1.0% 5,383 5,544 -2.9%
amortization
Total Operating Expenses 5,340 5,565 -4.0% 5,252 1.7% 21,183 21,629 -2.1%
Operating Income 1,775 2,072 -14.3% 1,763 0.7% 7,265 7,960 -8.7%
Interest Expense 357 377 -5.3% 348 2.6% 1,426 1,547 -7.8%
Other Income (Expense), net 30 72 N/M* 55 N/M 213 347 N/M
Income Before Income Taxes 1,448 1,767 -18.1% 1,470 -1.5% 6,052 6,760 -10.5%
Provision for Income Taxes 512 573 -10.6% 500 2.4% 2,134 2,345 -9.0%
Net Income $936 $1,194 -21.6% $970 -3.5% $3,918 $4,415 -11.3%
Diluted:
Weighted Average 1,864 1,888 -1.3% 1,870 -0.3% 1,876 1,887 -0.6%
Common Shares
Outstanding
Earnings Per Share $0.50 $0.63 -20.6% $0.52 -3.8% $2.09 $2.34 -10.7%
* - Not meaningful.
Selected Financial and Operating Data
EBITDA (5) $3,113 $3,511 -11.3% $3,114 0.0% $12,648 $13,504 -6.3%
EBITDA margin (6) 43.8% 46.0% -220 bps 44.4% -60 bps 44.5% 45.6% bps -110
Dividends per share $0.20 $0.19 5.3% $0.20 0.0% $0.79 $0.76 3.9%
Capital expenditures $922 $1,273 -27.6% $835 10.4% $3,785 $5,997 -36.9%
Common shares outstanding 1,860 1,878 -1.0% 1,862 -0.1%
Book value per share $9.49 $9.93 -4.4% $9.36 1.4%
Debt ratio 49.6% 51.9% -230 bps 50.1% -50 bps
Total employees 77,020 87,875 -12.4% 80,882 -4.8%
BellSouth Corporation
Consolidated Balance Sheets (unaudited) - Updated
(amounts in millions, except per share data)
December 31, December 31, Change vs. September 30, Change vs.
2002 2001 Prior Year 2002 Prior Quarter
Assets
Current Assets:
Cash and cash equivalents $2,482 $592 $1,890 $2,050 $432
Accounts receivable, net of 4,129 4,989 (860) 4,150 (21)
allowance for uncollectibles of
$449, $466, and $453
Material and supplies 313 382 (69) 295 18
Other current assets 938 892 46 1,053 (115)
Total Current Assets 7,862 6,855 1,007 7,548 314
Investments and Advances 9,741 10,620 (879) 10,016 (275)
Property, Plant and Equipment, net 23,445 24,943 (1,498) 23,660 (215)
Deferred Charges and Other Assets 5,726 5,122 604 5,666 60
Goodwill 349 1,639 (1,290) 349 0
Intangible Assets, net 2,356 2,867 (511) 2,479 (123)
Total Assets $49,479 $52,046 ($2,567) $49,718 ($239)
Liabilities and Shareholders' Equity
Current Liabilities:
Debt maturing within one year $5,114 $5,111 $3 $5,387 ($273)
Accounts payable 1,572 1,656 (84) 1,281 291
Other current liabilities 2,937 3,301 (364) 3,565 (628)
Total Current Liabilities 9,623 10,068 (445) 10,233 (610)
Long-Term Debt 12,283 15,014 (2,731) 12,287 (4)
Noncurrent Liabilities:
Deferred income taxes 4,672 3,206 1,466 4,555 117
Other noncurrent liabilities 5,255 5,161 94 5,208 47
Total Noncurrent Liabilities 9,927 8,367 1,560 9,763 164
Shareholders' Equity:
Common stock, $1 par value 2,020 2,020 0 2,020 0
Paid-in capital 6,854 6,875 (21) 6,881 (27)
Retained earnings 14,963 15,137 (174) 14,769 194
Accumulated other comprehensive (740) (294) (446) (815) 75
income
Shares held in trust and treasury (5,372) (4,996) (376) (5,351) (21)
Guarantee of ESOP debt (79) (145) 66 (69) (10)
Total Shareholders' Equity 17,646 18,597 (951) 17,435 211
Total Liabilities and Shareholders' Equity $49,479 $52,046 ($2,567) $49,718 ($239)
BellSouth Corporation
Consolidated Statements of Cash Flows (unaudited)
(amounts in millions, except per share data)
Year-To-Date
4Q02 4Q01 3Q02 2002 2001
Cash Flows from Operating Activities:
Net income $ 597 $ 792 $ 663 $ 1,423 $ 2,570
Adjustments to net income:
Depreciation and 1,151 1,244 1,161 4,643 4,782
amortization
Provision for 233 206 197 850 588
uncollectibles
Net losses (earnings) of (85) (108) (114) (540) (465)
equity affiliates
Dividends received from - 90 - - 369
equity affiliates
Minority interests in 6 20 (3) (74) 25
income of subsidiaries
Deferred income taxes 202 165 227 1,238 (178)
Net (gain) losses on sale (1) 233 - 387 1,937
or impairment of equity
securities
Pension income (208) (200) (208) (826) (797)
Postretirement benefit - - - - 72
curtailment charge
related to Cingular
Brazil loan impairments - - - 383 -
A&P unbilled receivable - - - 163 -
adjustment
Provision for 281 151 190 531 151
restructurings and asset
impairments
Foreign currency 42 15 (8) 679 81
transaction losses
Cumulative effect of - - - 1,285 -
change in accounting
principle
(Gain) loss on - (14) - (1,318) (38)
sale/disposal of
operations
Net change in:
Accounts receivable and (185) (240) (86) (194) (757)
other current assets
Accounts payable and (411) (730) 223 (473) (475)
other current liabilities
Deferred charges and 53 111 22 30 (22)
other assets
Other liabilities and 13 (78) (9) 4 41
deferred credits
Other reconciling items, net 25 (20) 85 55 114
Net cash provided by operating activities 1,713 1,637 2,340 8,246 7,998
Cash Flows from Investing Activities:
Capital expenditures (922) (1,273) (835) (3,785) (5,997)
Investments in and advances to equity affiliates (28) (475) (274) (309) (2,072)
Purchase of wireless license - - -
Proceeds from sale of operations - - -
Proceeds from sale of equity securities 1 63 18 1,473 1,210
Purchases of short-term investments - - -
Proceeds from disposition of short-term investments - - -
Proceeds from repayment of loans and advances 453 (8) 6 885 17
Investment in debt securities - - -
Other investing activities, net (20) 38 (16) 29 (197)
Net cash used for investing activities (516) (1,655) (1,101) (1,707) (7,039)
Cash Flows from Financing Activities:
Net borrowing (repayments) of short-term debt (278) (2,585) 263 (1,408) (3,990)
Proceeds from long-term debt 9 2,738 - 17 4,603
Repayments of long-term debt (4) (32) (651) (1,223) (759)
Dividends paid (372) (356) (375) (1,460) (1,424)
Purchase of treasury shares (136) - (266) (591) -
Other financing activities, net 16 (9) (2) 16 142
Net cash used for financing activities (765) (244) (1,031) (4,649) (1,428)
Effect of Exchange Rates on Cash Balances - - - - -
Net Increase (Decrease) in Cash and Cash Equivalents 432 (262) 208 1,890 (469)
Cash and Cash Equivalents at Beginning of Period 2,050 854 1,842 592 1,061
Cash and Cash Equivalents at End of Period $ 2,482 $ 592 $ 2,050 $ 2,482 $ 592
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Communications Group (1)
Year-To-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Operating Revenues
Local service $2,868 $2,969 -3.4% $2,893 -0.9% $11,641 $11,810 -1.4%
Network access 1,125 1,258 -10.6% 1,154 -2.5% 4,666 4,969 -6.1%
Long distance 231 209 10.5% 234 -1.3% 883 747 18.2%
Other 297 387 -23.3% 334 -11.1% 1,299 1,545 -15.9%
Total Operating Revenues 4,521 4,823 -6.3% 4,615 -2.0% 18,489 19,071 -3.1%
Operating Expenses
Operational and 2,327 2,309 0.8% 2,335 -0.3% 9,327 9,260 0.7%
support expenses
Depreciation and 1,017 1,042 -2.4% 1,026 -0.9% 4,081 4,045 0.9%
amortization
Total Operating Expenses 3,344 3,351 -0.2% 3,361 -0.5% 13,408 13,305 0.8%
Operating Income 1,177 1,472 -20.0% 1,254 -6.1% 5,081 5,766 -11.9%
Interest Expense 134 125 7.2% 119 12.6% 498 597 -16.6%
Other Income, net 1 5 N/M* 6 N/M 4 31 N/M
Income Before Income Taxes 1,044 1,352 -22.8% 1,141 -8.5% 4,587 5,200 -11.8%
Provision for Income Taxes 399 488 -18.2% 432 -7.6% 1,734 1,896 -8.5%
Segment Net Income(1) $645 $864 -25.3% $709 -9.0% $2,853 $3,304 -13.7%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions)
Segment EBITDA (5) $2,194 $2,514 -12.7% $2,280 -3.8% $9,162 $9,811 -6.6%
Segment EBITDA margin (6) 48.5% 52.1% -360 bps 49.4% -90 bps 49.6% 51.4% -180 bps
Data service revenues $1,065 $1,100 -3.2% $1,065 0.0% $4,309 $4,161 3.6%
Calling feature revenues $583 $569 2.5% $596 -2.2% $2,360 $2,281 3.5%
Access minutes of use 23,324 26,768 -12.9% 24,591 -5.2% 98,571 110,106 -10.5%
Capital expenditures $760 $1,093 -30.5% $737 3.1% $3,337 $5,125 -34.9%
IntraLata Toll Messages 93 99 -6.1% 98 -5.1% 384 430 -10.7%
Wholesale Lines (thousands) 2,385 1,737 37.3% 2,261 5.5%
DSL customers (thousands) 1,021 621 64.4% 924 10.5%
BellSouth Corporation
Results by Segment (unaudited)
Supplemental Operating Data (in thousands)
Communications Group - Network Access Lines In Service(a)(b)
4Q02 4Q01 Growth 3Q02 Growth
Access lines (b)
Residence
Retail
Primary 13,260 13,974 -5.1% 13,480 -1.6%
Additional 1,926 2,256 -14.6% 2,002 -3.8%
Total Retail Residence 15,186 16,230 -6.4% 15,482 -1.9%
Wholesale
Resale 342 543 -37.0% 384 -10.9%
UNE-P 934 185 404.9% 775 20.5%
Total Wholesale Residence 1,276 728 75.3% 1,159 10.1%
Total Residence 16,462 16,958 -2.9% 16,641 -1.1%
Business
Retail
Voice 5,687 6,095 -6.7% 5,783 -1.7%
ISDN 1,567 1,557 0.6% 1,588 -1.3%
Total Retail Business 7,254 7,652 -5.2% 7,371 -1.6%
Wholesale
Resale 94 186 -49.5% 110 -14.5%
UNE-P 611 417 46.5% 584 4.6%
Total Wholesale Business 705 603 16.9% 694 1.6%
Total Business 7,959 8,255 -3.6% 8,065 -1.3%
Other Retail / Wholesale Lines 182 209 -12.9% 188 -3.2%
Total Access Lines in Service 24,603 25,422 -3.2% 24,894 -1.2%
Access Line Equivalents (c)
Selected digital data services:
Unbundled 377 423 -10.9% 385 -2.1%
Loops
DS0 & ADSL 6,437 4,054 58.8% 5,863 9.8%
DS1 6,908 6,643 4.0% 6,849 0.9%
DS3 & higher 31,704 29,337 8.1% 31,035 2.2%
Total digital data lines in service 45,426 40,457 12.3% 44,132 2.9%
Total equivalent access lines in service 70,029 65,879 6.3% 69,026 1.5%
(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 counts include amounts for switched access lines, Basic Rate ISDN (converted at 1.5:1), Primary Rate
ISDN (converted at 24:1) and UNE Combos.
(c) 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 switced access line based on transport capacity. While the revenues generated by access line
equivalents have 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)
Domestic Wireless Segment (1)(a)
Year-To-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Operating Revenues
Service revenues (4) $1,366 $1,345 1.6% $1,409 -3.1% $5,499 $5,227 5.2%
Equipment and other revenues 97 109 -11.0% 102 -4.9% 392 416 -5.8%
Total Operating Revenues 1,463 1,454 0.6% 1,511 -3.2% 5,891 5,643 4.4%
Operating Expenses
Operational and support 992 1,035 -4.2% 1,074 -7.6% 4,065 3,856 5.4%
expenses
Depreciation and 187 198 -5.6% 190 -1.6% 740 767 -3.5%
amortization
Total Operating Expenses 1,179 1,233 -4.4% 1,264 -6.7% 4,805 4,623 3.9%
Operating Income 284 221 28.5% 247 15.0% 1,086 1,020 6.5%
Interest Expense 93 90 3.3% 92 1.1% 364 328 11.0%
Other Income (Expense), net (30) (18) N/M* (45) N/M (141) (16) N/M
Income Before Income Taxes 161 113 42.5% 110 46.4% 581 676 -14.1%
Provision for Income Taxes 63 33 90.9% 42 50.0% 224 251 -10.8%
Segment Net Income(1) $98 $80 22.5% $68 44.1% $357 $425 -16.0%
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer
data in thousands)
Segment EBITDA (5) $471 $419 12.4% $437 7.8% $1,826 $1,787 2.2%
Segment EBITDA margin (6)(c) 34.5% 31.2% 330 bps 31.0% bps 350 33.2% 34.2% bps -100
Average monthly revenue per customer $51 $52 -1.9% $52 -1.9% $51 $52 -1.9%
(7)(d)
Customer net adds in period:
Cellular and PCS (48) 127 N/M (43) 11.6% 144 766 -81.2%
Data (Cingular Interactive) 7 15 -53.3% 5 40.0% 34 65 -47.7%
Customers: (b)
Cellular and PCS 8,770 8,638 1.5% 8,830 -0.7%
Data (Cingular 327 293 11.6% 321 1.9%
Interactive)
POPs (b) 87,600 87,600 0.0% 87,600 0.0%
Penetration rate (b)(9) 10.1% 10.9% -80 bps 10.2% -10 bps
(a) The domestic wireless segment is comprised of BellSouth's 40% share of the reported results of Cingular Wireless.
(b) Customer data for 2001 period, including POPs, penetration rate and average monthly revenue per customer, is
comprised of BellSouth's 40% share of the managed results of Cingular Wireless. Cingular managed POPs includes new
spectrum in New York and Salt Lake City.
(c) Segment EBITDA margin denominator includes service revenues only.
(d) Average monthly revenue per customer excludes Cingular Interactive.
BellSouth Corporation
Results by Segment (amounts in millions) (unaudited)
Latin America Group (1)(2)
Year-To-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Operating Revenues
Service revenues (4) $410 $568 -27.8% $404 1.5% $1,841 $2,430 -24.2%
Equipment and other 71 92 -22.8% 78 -9.0% 357 419 -14.8%
revenues
Advertising and 5 28 -82.1% 13 -61.5% 40 86 -53.5%
publishing revenues
Total Operating Revenues 486 688 -29.4% 495 -1.8% 2,238 2,935 -23.7%
Operating Expenses
Operational and support 301 423 -28.8% 326 -7.7% 1,505 2,050 -26.6%
expenses
Depreciation and 98 158 -38.0% 106 -7.5% 440 605 -27.3%
amortization
Total Operating Expenses 399 581 -31.3% 432 -7.6% 1,945 2,655 -26.7%
Operating Income 87 107 -18.7% 63 38.1% 293 280 4.6%
Interest Expense 30 49 -38.8% 35 -14.3% 144 215 -33.0%
Other Income (Expense), net (10) (28) N/M* (22) N/M (61) (52) N/M
Income Before Income Taxes 47 30 N/M 6 N/M 88 13 N/M
Provision for Income Taxes 6 13 N/M (48) N/M (25) 63 N/M
Segment Net Income(1) $41 $17 N/M $54 N/M $113 ($50) N/M
* - Not meaningful.
Selected Financial and Operating Data
(amounts in millions, except customer
data in thousands)
Segment EBITDA (5) $185 $265 -30.2% $169 9.5% $733 $885 -17.2%
Segment EBITDA margin (6) 38.1% 38.5% -40 bps 34.1% 400 bps 32.8% 30.2% 260 bps
Average monthly revenue per customer (8) $17 $24 -29.2% $17 0.0% $19 $25 -24.0%
Customer net adds in period (excluding 259 (507) N/M (152) N/M 362 516 -29.8%
ownership changes) (a)
Customers (voice) (a) 8,172 7,585 7.7% 7,913 3.3%
POPs 162,100 162,100 0.0% 162,100 0.0%
Penetration rate (9) 5.0% 4.7% 30 bps 4.9% 10 bps
(a) The beginning balance of 3Q02 customers has been adjusted to include 225
customers related to fixed wireless customers in Venezuela. 4Q01 Customer net
adds would have been 52 higher. Year-to-date net adds for 2002 and 2001 would
have been 505 and 598, respectively. Annual growth in net adds would have been
-15.6%. Growth in customers vs. 4Q01 would have been 6.6% had Venezuela's fixed
wireless customers been included in 4Q01 data.
BellSouth Corporation
Proportionate Basis(3) - Selected Financial and Operating Data
(Amounts in millions, except customer data in thousands)
Latin America Group (1)(2)
Year-To-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Operating revenues $467 $624 -25.2% $485 -3.7% $2,152 $2,694 -20.1%
EBITDA(5) $170 $218 -22.0% $156 9.0% $694 $797 -12.9%
EBITDA margin(6) 36.4% 34.9% 150 bps 32.2% 420 bps 32.2% 29.6% 260 bps
Average monthly $17 $23 -26.1% $17 0.0% $19 $25 -24.0%
revenue per
customer (8)
Customer net adds 216 (363) N/M* (78) N/M 459 707 -35.1%
in period (excluding
ownership changes)(a)
Customers (voice)(a) 8,032 7,393 8.6% 7,815 2.8%
POPs 156,837 156,719 0.1% 156,803 0.0%
Penetration rate (9) 5.1% 4.7% 40 bps 5.0% 10 bps
* - Not meaningful.
(a) The beginning balance of 3Q02 customers has been adjusted to include 176
(225 x 78.1565% ownership) customers related to fixed wireless customers in
Venezuela. 4Q01 Customer net adds would have been 41 higher. Year-to-date net
adds for 2002 and 2001 would have been 571 and 771, respectively. Annual growth
in net adds would have been -25.9%. Growth in customers vs. 4Q01 would have been
7.7% had Venezuela's fixed wireless customers been included in 4Q01 data.
BellSouth Corporation
Worldwide Wireless (unaudited)
Customers and POPs by Country
(Proportionate Basis(3) in thousands)
Customers As of POPs
As of
Country Brand 4Q02 4Q01 Growth 3Q02 Growth 4Q02 4Q01 Growth 3Q02 Growth
United States Cingular 8,770 8,638 1.5% 8,830 -0.7% 87,600 87,600 0.0% 87,600 0.0%
Wireless
Argentina Movicom 858 1,033 -16.9% 870 -1.4% 24,375 24,375 0.0% 24,375 --
BellSouth
Brazil BCP 1,236 1,253 -1.4% 1,242 -0.5% 20,867 20,750 0.6% 20,834 0.2%
Chile BellSouth 1,032 860 20.0% 1,023 0.9% 15,400 15,400 0.0% 15,400 --
Colombia BellSouth 890 743 19.8% 842 5.7% 28,376 28,375 0.0% 28,376 --
Ecuador BellSouth 565 307 84.0% 476 18.7% 11,443 11,443 0.0% 11,443 --
Guatemala BellSouth 116 45 157.8% 104 11.5% 7,020 7,020 0.0% 7,020 --
Nicaragua BellSouth 179 139 28.8% 179 0.0% 2,581 2,581 -- 2,581 --
Panama BellSouth 146 128 14.1% 144 1.4% 1,311 1,311 0.0% 1,311 --
Peru BellSouth 516 394 31.0% 496 4.0% 25,428 25,428 0.0% 25,428 --
Uruguay Movicom 65 63 3.2% 69 -5.8% 966 966 -- 966 --
BellSouth
Venezuela (a) Telcel 2,429 2,428 0.0% 2,370 2.5% 19,070 19,070 0.0% 19,070 --
BellSouth
Total Latin 8,032 7,393 8.6% 7,815 2.8% 156,837 156,719 0.1% 156,804 0.0%
America (a)
Denmark Sonofon 528 450 17.3% 494 6.9% 2,464 2,465 -- 2,464 --
Israel Cellcom 850 779 9.1% 836 1.7% 2,120 2,119 -- 2,120 --
1,378 1,229 12.1% 1,330 3.6% 4,584 4,584 -- 4,584 --
Total Worldwide Wireless(a) 18,180 17,260 5.3% 17,975 1.1% 249,021 248,903 0.0% 248,988 0.0%
(a) The beginning balance of 3Q02 customers has been adjusted to include 176
(225 x 78.1565% ownership) customers related to fixed wireless customers in
Venezuela. Growth in customers vs. 4Q01 in Venezuela, Total Latin America and
Total Worldwide Wireless would have been -2.5%, 7.7%, and 4.9%, respectively,
had Venezuela's fixed wireless customers been included in 4Q01 data.
Results by Segment (amounts in millions) (unaudited)
Domestic Advertising & Publishing (1)
Year-To-Date
4Q02 4Q01 Growth 3Q02 Growth 2002 2001 Growth
Total Operating Revenues $ 718 $ 715 0.4% $ 464 54.7% $ 2,108 $ 2,091 0.8%
Operating Expenses
Operational and support 402 346 16.2% 262 53.4% 1,165 1,023 13.9%
expenses
Depreciation and 7 8 -12.5% 6 16.7% 27 28 -3.6%
amortization
Total Operating Expenses 409 354 15.5% 268 52.6% 1,192 1,051 13.4%
Operating Income 309 361 -14.4% 196 57.7% 916 1,040 -11.9%
Interest Expense 3 3 0.0% 3 0.0% 12 16 -25.0%
Other Income, net (1) (2) N/M* (1) N/M (1) 3 N/M
Income Before Income Taxes 305 356 -14.3% 192 58.9% 903 1,027 -12.1%
Provision for Income Taxes 117 137 -14.6% 74 58.1% 347 394 -11.9%
Segment Net Income(1) $188 $219 -14.2% $118 59.3% $556 $633 -12.2%
Segment EBITDA (5) $316 $369 -14.4% $202 56.4% $943 $1,068 -11.7%
Segment EBITDA margin (6) 44.0% 51.6% -760 bps 43.5% 50 bps 44.7% 51.1% -640 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. Intersegment revenues are not
eliminated for purposes of management reporting.
(2) Results for the Latin America segment are reported one month in arrears.
(3) Proportionate basis financial and operating data reflect our ownership interest in the
total operating results for each of our wireless properties, both domestic and
international, whether or not consolidated for financial statement presentation purposes.
(4) Wireless service revenues includes activation fees, access, airtime, roaming, long
distance and value added services. Roaming revenues are included on a gross basis for the
Domestic Wireless segment and on a net basis for the Latin America segment.
(5) EBITDA is defined as operating revenues less operational and support expenses.
(6) EBITDA margin is calculated by dividing EBITDA by operating revenues.
(7) For the Domestic Wireless segment, average monthly revenue per customer is calculated by
dividing average monthly revenue by average customers. Average monthly revenue includes
activation fees, access, airtime, roaming (gross), long distance and value added services.
(8) For the Latin America segment, average monthly revenue per customer is calculated by
dividing average monthly revenue by average customers. Average monthly revenue includes
activation fees, access, airtime, roaming (net), long distance and value added services.
(9) Penetration rate is calculated by dividing customers by POPs (excludes POPs in markets
where service has not been initiated).
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