BLS Reports 2nd Qtr Results

Bellsouth Corp 23 July 2002 For Immediate Release July 22, 2002 For More Information Contact: Jeff Battcher 404-713-0274 BellSouth Reports Second Quarter Earnings July 22, 2002, ATLANTA - BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of 16 cents in the second quarter of 2002, compared to 47 cents in the same quarter of 2001. Normalized for special items (see below), EPS in the second quarter of 2002 was 53 cents, compared to normalized EPS of 58 cents in the same quarter a year ago. Bad debt expense of $255 million in the second quarter of 2002 impacted EPS an incremental 5 cents. BellSouth's operating results continued to reflect weak demand for communications services, both in the United States and Latin America. The impact of market share loss in the US, as well as currency devaluations in Argentina and Venezuela, also affected results. Business failures, including those in the telecommunications industry, also continued to negatively affect both demand and bad debt. In addition, BellSouth did not recognize revenues for wholesale services provided to a non-paying CLEC (Competitive Local Exchange Carrier) customer operating in Florida, further reducing EPS by 1 cent. Free cash flow (defined as cash flow from operations less capital expenditures) totaled $1.4 billion in the second quarter of 2002, and $2.4 billion year-to-date. Total debt declined $1.0 billion during the second quarter, and has been reduced $2.1 billion, or 10.4 percent, since the beginning of 2002. Net debt is lower by 18.5 percent since the beginning of the year. BellSouth adopted a new accounting rule for goodwill known as Financial Accounting Standard No. 142 (FAS 142). The new rule resulted in a non-cash charge that reduced the value of goodwill on the company's balance sheet by approximately $1.3 billion. As required under the new rule, the effect of FAS 142 was recorded as an adjustment to BellSouth's first quarter 2002 results. Communications Group Total Communications Group revenues were $4.67 billion, compared to $4.79 billion in the second quarter of 2001, a decline of 2.4 percent. Data revenues were $1.08 billion, a growth rate of 6.0 percent compared to $1.01 billion in the second quarter of the previous year. Wholesale revenues from data transport services for other communications providers increased approximately 4 percent. Other data services, principally retail in nature, grew approximately 13 percent. In addition to consumer and business DSL, retail data services include transport, access, storage, security and Web hosting for business customers. BellSouth added 74,000 new DSL customers in the second quarter, raising its total to 803,000 retail and wholesale broadband customers at June 30. This is an annual growth rate of 111 percent. Domestic Wireless / Cingular BellSouth's domestic wireless revenues in the second quarter of 2002 were $1.5 billion, representing the company's 40 percent share of Cingular Wireless. This is a gain of 6.1 percent compared to the same quarter a year ago. BellSouth's share of Cingular operating income was $289 million in the quarter, compared to $303 million in the same three months of 2001. Cingular ended the second quarter with 22.2 million total Cellular/PCS customers, an annual growth rate of approximately 5 percent. In the second quarter of 2002, Cingular added 353,000 customers, spurred by the introduction at the end of first quarter of several new national pricing and service plans. This compared to net adds of 234,000 in the first three months of the year. Latin America Group Consolidated Latin America revenues were $598 million in the second quarter of 2002, a decline of 20.2 percent compared to the same period of the prior year. Revenues reflected the impacts of currency devaluations, principally in Argentina and Venezuela, as well as weak economic conditions in those countries. Reflecting BellSouth's focus on profitability in this challenging environment, operating margins increased to 33.1 percent from 32.6 percent in the second quarter of 2001. Free cash flow (FCF) for the Latin Segment was positive for both the second quarter and first six months of 2002 and was significantly higher than the same periods in 2001. BellSouth and its partners now serve a total of 11.2 million customers in 11 Central and South American countries. Additional Quarterly Highlights Reported net income in the three months ended June 30, 2002 was $293 million, compared to reported net income of $880 million in the second quarter of 2001. Normalized net income in the second quarter of 2002 was $996 million, compared to $1.085 billion in the same quarter a year ago. Consolidated revenues, which do not include Cingular, were $5.78 billion in the second quarter of 2002, compared to $5.99 billion in the same three months a year earlier. Consolidated total operating expenses increased 2.3 percent on a reported basis, but, adjusted for the increased bad debt expense, were down 0.9 percent. Normalized second quarter total operating revenues - which include BellSouth's share of Cingular - were approximately $7.23 billion, a decline of 1.6 percent versus the second quarter of 2001. Excluding the impacts of currency devaluations in Argentina and Venezuela, and the book shifts that benefited the Advertising and Publishing Group, normalized revenue was flat compared to last year. Special Items In the second quarter of 2002, the difference between reported EPS of 16 cents and normalized EPS of 53 cents is the result of three special charges: Foreign currency transaction losses 7 cents Losses on equity investments 19 cents Workforce reduction 12 cents Effect of rounding (1 cent) Total of special charges 37 cents Foreign currency transaction losses - Associated with the remeasurement of U.S. dollar-denominated liabilities in Latin America. Losses on equity investments - BellSouth recognized charges for the further impairment and open market sales of its remaining investment in Qwest Communications International; an impairment in the value of an investment in Guatemala; and the liquidation of an investment in Crown Castle International Corp. Workforce reduction - As announced May 17, 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 represents the accrual for severance payments and employee benefit enhancements related to the workforce reduction. Long Distance Launch BellSouth launched long distance service in Georgia and Louisiana in late May. In just over five weeks to the end of the quarter, the company acquired 147,000 consumer and business long distance customers, almost 4 percent of BellSouth's residential customers in the two states. 2002 Guidance The following updates to company guidance are provided for full year 2002: Total operating revenue growth (including Cingular) -2% to -3% Normalized earnings per share* $2.13 to $2.20 Capital expenditures (excluding Cingular) $3.7 to $3.9 billion Data revenue growth Mid-single digits DSL high-speed Internet customers at 12/31 1.0 million *Includes effect of cessation of amortization of goodwill and indefinite-lived assets under FAS 142. Excludes foreign currency transaction gains or losses. About BellSouth Corporation BellSouth Corporation is a Fortune 100 communications services company headquartered in Atlanta, GA, 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 and e-commerce solutions to business customers, including Web hosting and other Internet services. In the residential market, BellSouth offers DSL high-speed Internet access, advanced voice features and other services. BellSouth also provides online and directory advertising services, including BellSouth(R) Real PagesSM.com. BellSouth owns 40 percent of Cingular Wireless, the nation's second largest wireless company, which provides innovative wireless data and voice services. Further information about BellSouth's first 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 Director Greg Peterson. 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 July 29. The replay can be accessed by dialing: Domestic: 800-642-1687 - Reservation number: 4431730 International: 706-645-9291 - Reservation number: 4431730 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) 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 and (iv) 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 - Normalized Basis (unaudited) (amounts in millions, except per share data) Note to Readers: Our reported results have been significantly impacted by several events, including the formation of Cingular Wireless and other one-time items. To assist in your understanding of our results, we have prepared the following normalized information, including the notes on page 3 which discuss the impacts of these events. See page 4 for our reported results. Year-to-Date 2Q02 2Q01 Growth 2002 2001 Growth Operating Revenues Communications group $ 4,586 $ 4,722 -2.9% $ 9,200 $ 9,334 -1.4% Domestic wireless 1,500 1,414 6.1% 2,917 2,724 7.1% Latin America 597 744 -19.8% 1,253 1,517 -17.4% Domestic advertising and publishing 538 436 23.4% 917 870 5.4% All other 14 35 -60.0% 31 69 -55.1% Total Operating Revenues 7,235 7,351 -1.6% 14,318 14,514 -1.4% Operating Expenses Operational and support expenses 3,992 3,955 0.9% 7,897 7,895 0.0% Depreciation and amortization 1,353 1,392 -2.8% 2,694 2,729 -1.3% Total Operating Expenses 5,345 5,347 0.0% 10,591 10,624 -0.3% Operating Income 1,890 2,004 -5.7% 3,727 3,890 -4.2% Interest Expense 362 392 -7.7% 721 810 -11.0% Other Income (Expense), net 50 59 N/M* 128 170 N/M* Income Before Income Taxes 1,578 1,671 -5.6% 3,134 3,250 -3.6% Provision for Income Taxes 582 586 -0.7% 1,122 1,147 -2.2% Net Income $996 $1,085 -8.2% $2,012 $2,103 -4.3% Diluted: Weighted Average Common Shares Outstanding 1,882 1,886 -0.2% 1,885 1,886 -0.1% Earnings Per Share $0.53 $0.58 -8.6% $1.07 $1.12 -4.5% * - Not meaningful. Selected Financial and Operating Data EBITDA (5) $3,243 $3,396 -4.5% $6,421 $6,619 -3.0% EBITDA margin (6) 44.8% 46.2% -140 bps 44.8% 45.6% -80 bps Dividends per share $0.20 $0.19 5.3% $0.39 $0.38 2.6% Capital expenditures $1,023 $1,667 -38.6% $2,028 $3,357 -39.6% Common shares outstanding 1,873 1,874 -0.1% Book value per share $9.48 $9.54 -0.6% Debt ratio 50.3% 51.6% -130 bps Total employees (7) 84,617 95,577 -11.5% BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Second Quarter 2002 Normalizing Items GAAP A D G J Normalized Operating Revenues $ 5,780 $ 1,455 $ - $ - $ - $ 7,235 Operating Expenses 4,535 1,167 - - (357) 5,345 Operating Income 1,245 288 - - 357 1,890 Interest Expense 301 61 - - - 362 Other Income (Expense), net (240) (227) 159 358 - 50 Income Before Income Taxes 704 - 159 358 357 1,578 Provision for Income Taxes 411 - 35 4 132 582 Net Income $293 $0 $124 $354 $225 $996 Diluted Earnings Per Share * $0.16 $0.00 $0.07 $0.19 $0.12 $0.53 Year-to-Date 2002 Normalizing Items GAAP A C D E F G J K Normalized Operating Revenues $ 11,314 $ 2,841 $ - $ - $ - $ 163 $ - $ - $ - $ 14,318 Operating Expenses 8,661 2,287 - - - - - (357) - 10,591 Operating Income 2,653 554 - - - 163 - 357 - 3,727 Interest Expense 605 116 - - - - - - - 721 Other Income (Expense), net 578 (438) (1,339) 388 383 - 556 - 128 Income Before Taxes and Change 2,626 - (1,339) 388 383 163 556 357 - 3,134 in Accounting Principle Provision for Income Taxes 1,178 - (482) 114 120 62 (2) 132 - 1,122 Cumulative effect of change in (1,285) - - - - - - - 1,285 - accounting principle Net Income $163 $0 ($857) $274 $263 $101 $558 $225 $1,285 $2,012 Diluted Earnings Per Share * $0.09 $0.00 ($0.45) $0.15 $0.14 $0.05 $0.30 $0.12 $0.68 $1.07 Second Quarter 2001 Normalizing Items GAAP A B G I L Normalized Operating Revenues $ 5,985 $1,387 $ (15) $ - $ (6) $ - $ 7,351 Operating Expenses 4,435 1,085 (15) - (15) (143) 5,347 Operating Income 1,550 302 - - 9 143 2,004 Interest Expense 334 58 - - - - 392 Other Income (Expense), net 188 (244) - 115 - - 59 Income Before Income Taxes 1,404 - - 115 9 143 1,671 Provision for Income Taxes 524 - - 4 3 55 586 Net Income $880 $0 $0 $111 $6 $88 $1,085 Diluted Earnings Per Share $0.47 $0.00 $0.00 $0.06 $0.00 $0.05 $0.58 Year-to-Date 2001 Normalizing Items GAAP A B D G H I L Normalized Operating Revenues $11,904 $2,672 $ (43) $ - $ - $ - $ (19) $ - $ 14,514 Operating Expenses 8,753 2,165 (43) - - (73) (35) (143) 10,624 Operating Income 3,151 507 - - - 73 16 143 3,890 Interest Expense 694 116 - - - - - - 810 Other Income (Expense), net 354 (391) - 50 157 - - - 170 Income Before Income Taxes 2,811 - - 50 157 73 16 143 3,250 Provision for Income Taxes 1,040 - - 18 2 26 6 55 1,147 Net Income $1,771 $0 $0 $32 $155 $47 $10 $88 $2,103 Diluted Earnings Per Share $0.94 $0.00 $0.00 $0.02 $0.08 $0.02 $0.01 $0.05 $1.12 * Normalized earnings per share for second quarter 2002 and year-to-date 2002 do 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 for second quarter 2001 have been reduced by $15 and by $43 for year-to-date 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 equity investments - Represents charges for the impairment of and open market sales of an equity investment in Qwest Communications. Second quarter 2002 and year-to-date 2002 also include $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 international operations related 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. The second quarter of 2002 foreign currency transaction losses included a $78 million (4 cents per share) adjustment related to a miscalculation of foreign currency transaction losses in the first quarter of 2002. (h) Postretirement benefit expense - The amount shown represents expense for changes in postretirement medical benefit obligations. (i) Losses (gains) from Wireless Video Business - Represents losses incurred in 2001 related to the exit of the wireless video entertainment business. (j) Workforce Reduction - As announced May 17, BellSouth is in the process of reducing its workforce by up to 5,000 positions to reduce operating costs in response to a slow economy, increased competition and regulatory pricing pressures. The charge represents the accrual for severance payments and employee benefit enhancements related to the workforce reduction. (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. The effect of FAS 142 was recorded as an adjustment to BellSouth's first quarter 2002 results. (l) Adjustment to ISP Accrual - Represents the loss incurred for prior claims from competitive local exchange carriers regarding reciprocal compensation for ISP traffic. BellSouth Corporation Consolidated Statements of Income - Reported Basis (unaudited) (amounts in millions, except per share data) Year-To-Date 2Q02 2Q01 Growth 2002 2001 Growth Operating Revenues Communications group $ 4,631 $ 4,764 -2.8% $ 9,276 $ 9,429 -1.6% Latin America 597 744 -19.8% 1,253 1,517 -17.4% Domestic advertising and publishing 538 436 23.4% 754 870 -13.3% All other 14 41 -65.9% 31 88 -64.8% Total Operating Revenues 5,780 5,985 -3.4% 11,314 11,904 -5.0% Operating Expenses Operational and support expenses 3,008 3,232 -6.9% 5,973 6,393 -6.6% Depreciation and amortization 1,170 1,203 -2.7% 2,331 2,360 -1.2% Provision for restructuring and asset 357 - N/M* 357 - N/M* impairments Total Operating Expenses 4,535 4,435 2.3% 8,661 8,753 -1.1% Operating Income 1,245 1,550 -19.7% 2,653 3,151 -15.8% Interest Expense 301 334 -9.9% 605 694 -12.8% Other Income (Expense), net (240) 188 N/M 578 354 N/M Income Before Taxes and Accounting Change 704 1,404 -49.9% 2,626 2,811 -6.6% Provision for Income Taxes 411 524 -21.6% 1,178 1,040 13.3% Cumulative Effect of Change in Accounting - - N/M* (1,285) - N/M Principle Net Income $293 $880 -66.7% 163 $1,771 -90.8% Diluted: Weighted Average Common Shares Outstanding 1,882 1,886 -0.2% 1,885 1,886 -0.1% Earnings Per Share $0.16 $0.47 -66.0% $0.09 $0.94 -90.4% * - Not meaningful. Selected Financial and Operating Data EBITDA (5) $2,772 $2,753 0.7% $5,341 $5,511 -3.1% EBITDA margin (6) 48.0% 46.0% 200 bps 47.2% 46.3% 90 bps Return on average equity (annualized) 6.5% 19.9% -1340 bps 1.8% 20.3% -1850 bps Return on average total capital (annualized) 5.8% 12.5% -670 bps 3.6% 12.9% -930 bps BellSouth Corporation Consolidated Balance Sheets (unaudited) (amounts in millions, except per share data) June 30, December 31, 2002 2001 Assets Current Assets: Cash and cash equivalents $2,114 $592 Accounts receivable, net of allowance for uncollectibles of $441 and 4,270 4,989 $466 Material and supplies 328 382 Other current assets 852 892 Total Current Assets 7,564 6,855 Investments and Advances 9,866 10,620 Property, Plant and Equipment, net 24,247 24,943 Deferred Charges and Other Assets 5,566 5,122 Goodwill 358 1,639 Intangible Assets, net 2,685 2,867 Total Assets $50,286 $52,046 Liabilities and Shareholders' Equity Current Liabilities: Debt maturing within one year $5,406 $5,111 Accounts payable 1,585 1,656 Other current liabilities 3,593 3,301 Total Current Liabilities 10,584 10,068 Long-Term Debt 12,635 15,014 Noncurrent Liabilities: Deferred income taxes 4,076 3,206 Other noncurrent liabilities 5,247 5,161 Total Noncurrent Liabilities 9,323 8,367 Shareholders' Equity: Common stock, $1 par value 2,020 2,020 Paid-in capital 6,878 6,875 Retained earnings 14,485 15,137 Accumulated other comprehensive income (476) (294) Shares held in trust and treasury (5,104) (4,996) Guarantee of ESOP debt (59) (145) Total Shareholders' Equity 17,744 18,597 Total Liabilities and Shareholders' Equity $50,286 $52,046 BellSouth Corporation Consolidated Statements of Cash Flows (unaudited) (amounts in millions) Year-To-Date 2Q02 2Q01 2002 2001 Cash Flows from Operating Activities: Net income $ 293 $ 880 $ 163 $ 1,771 Adjustments to net income: Depreciation and amortization 1,170 1,203 2,331 2,360 Provision for uncollectibles 255 113 411 219 Net losses (earnings) of equity affiliates (176) (106) (341) (190) Dividends received from equity affiliates - 185 - 214 Minority interests in income of subsidiaries 4 5 (77) (10) Deferred income taxes 198 140 809 156 Net losses on sale or impairment of equity 152 - 388 50 securities Postretirement benefit curtailment charge - - - 72 related to Cingular Brazil loan impairments - - 383 - A&P unbilled receivable adjustment - - 163 - Provision for restructurings and asset 357 - 357 - impairments Foreign currency transaction losses 358 115 556 157 Cumulative effect of change in accounting - - 1,285 - principle (Gain) loss on sale/disposal of operations - - (1,318) - Net change in: Accounts receivable and other current assets (108) 11 86 (199) Accounts payable and other current liabilities 169 (180) (310) (287) Deferred charges and other assets (270) (240) (455) (519) Other liabilities and deferred credits 38 167 - 138 Other reconciling items, net (40) (39) 34 (5) Net cash provided by operating activities 2,400 2,254 4,465 3,927 Cash Flows from Investing Activities: Capital expenditures (1,023) (1,667) (2,028) (3,357) Investments in and advances to equity affiliates - (45) (7) (160) Purchase of wireless license - - - (10) Proceeds from sale of equity securities 120 18 1,454 1,018 Purchases of short-term investments - - - (76) Proceeds from disposition of short-term investments 2 1 2 108 Proceeds from repayment of loans and advances - 1 426 6 Investment in debt securities - - - (176) Other investing activities, net 66 (57) 63 (42) Net cash used for investing activities (835) (1,749) (90) (2,689) Cash Flows from Financing Activities: Net borrowing (repayments) of short-term debt (431) (1,265) (1,393) (2,251) Proceeds from long-term debt 4 1,075 8 1,819 Repayments of long-term debt (558) (30) (568) (547) Dividends paid (356) (361) (713) (712) Purchase of treasury shares (189) - (189) - Other financing activities, net 18 22 2 50 Net cash used for financing activities (1,512) (559) (2,853) (1,641) Net Increase (Decrease) in Cash and Cash Equivalents 53 (54) 1,522 (403) Cash and Cash Equivalents at Beginning of Period 2,061 712 592 1,061 Cash and Cash Equivalents at End of Period $ 2,114 $ 658 $ 2,114 $ 658 BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) Year-To-Date 2Q02 2Q01 Growth 2002 2001 Growth Operating Revenues Local service $2,939 $2,952 -0.4% $5,880 $5,850 0.5% Network access 1,182 1,224 -3.4% 2,387 2,459 -2.9% Long distance 213 175 21.7% 418 346 20.8% Other 337 434 -22.4% 668 801 -16.6% Total Operating Revenues 4,671 4,785 -2.4% 9,353 9,456 -1.1% Operating Expenses Operational and support expenses 2,361 2,342 0.8% 4,665 4,527 3.0% Depreciation and amortization 1,023 1,013 1.0% 2,038 1,989 2.5% Total Operating Expenses 3,384 3,355 0.9% 6,703 6,516 2.9% Operating Income 1,287 1,430 -10.0% 2,650 2,940 -9.9% Interest Expense 120 165 -27.3% 245 333 -26.4% Other Income, net (3) 5 N/M* (3) 17 N/M* Income Before Income Taxes 1,164 1,270 -8.3% 2,402 2,624 -8.5% Provision for Income Taxes 435 451 -3.5% 903 950 -4.9% Segment Net Income(1) $729 $819 -11.0% $1,499 $1,674 -10.5% * - Not meaningful. Selected Financial and Operating Data (amounts in millions) EBITDA (5) $2,310 $2,443 -5.4% $4,688 $4,929 -4.9% EBITDA margin (6) 49.5% 51.1% -160 bps 50.1% 52.1% -200 bps Data service revenues $1,075 $1,014 6.0% $2,179 $1,982 9.9% Calling feature revenues $589 $573 2.8% $1,181 $1,136 4.0% Access minutes of use 25,073 27,986 -10.4% 50,656 56,416 -10.2% Capital expenditures $918 $1,417 -35.2% $1,840 $2,894 -36.4% IntraLata Toll Messages 97 111 -12.6% 193 222 -13.1% Wholesale Lines (thousands) 2,070 1,501 37.9% DSL customers (thousands) 803 381 110.8% BellSouth Corporation Results by Segment (unaudited) Supplemental Operating Data (in thousands) Communications Group - Network Access Lines In Service(b) 2Q02 2Q01 Growth Access lines (b) Residence Retail Primary 13,670 14,162 -3.5% Additional 2,107 2,358 -10.6% Total Retail Residence 15,777 16,520 -4.5% Wholesale Resale 402 491 -18.1% UNE-P 586 114 414.0% Total Wholesale Residence 988 605 63.3% Total Residence 16,765 17,125 -2.1% Business Retail Voice 5,887 6,399 -8.0% ISDN 1,630 1,396 16.8% Total Retail Business 7,517 7,795 -3.6% Wholesale Resale 130 246 -47.2% UNE-P 532 271 96.3% Total Wholesale Business 662 517 28.0% Total Business 8,179 8,312 -1.6% Other Retail / Wholesale Lines 194 229 -15.3% Total Access Lines in Service 25,138 25,666 -2.1% Access Line Equivalents (c) Selected digital data services: Unbundled Loops 398 376 5.9% DS0 & ADSL 5,142 2,627 95.7% DS1 6,721 6,246 7.6% DS3 & higher 30,505 24,744 23.3% Total digital data lines in service 42,766 33,993 25.8% Total equivalent access lines in service 67,904 59,659 13.8% (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 2Q02 2Q01 Growth 2002 2001 Growth Operating Revenues Service revenues (4) $1,398 $1,312 6.6% $2,724 $2,517 8.2% Equipment and other revenues 102 102 0.0% 193 207 -6.8% Total Operating Revenues 1,500 1,414 6.1% 2,917 2,724 7.1% Operating Expenses Operational and support expenses 1,028 921 11.6% 1,999 1,846 8.3% Depreciation and amortization 183 190 -3.7% 363 370 -1.9% Total Operating Expenses 1,211 1,111 9.0% 2,362 2,216 6.6% Operating Income 289 303 -4.6% 555 508 9.3% Interest Expense 89 80 11.3% 179 160 11.9% Other Income (Expense), net (41) (14) N/M (66) 6 N/M Income Before Income Taxes 159 209 -23.9% 310 354 -12.4% Provision for Income Taxes 60 82 -26.8% 119 137 -13.1% Segment Net Income(1) $99 $127 -22.0% $191 $217 -12.0% * - Not meaningful. Selected Financial and Operating Data (amounts in millions, except customer data in thousands) EBITDA (5) $472 $493 -4.3% $918 $878 4.6% EBITDA margin (6)(c) 33.8% 37.6% -380 bps 33.7% 34.9% -120 bps Average monthly revenue per customer (8)(d) $52 $52 0.0% $51 $51 0.0% Customer net adds in period: Cellular and PCS 141 273 -48.4% 235 615 -61.8% Data (Cingular Interactive) 9 13 -30.8% 22 47 -53.2% Customers: Cellular and PCS 8,873 8,487 4.5% Data (Cingular Interactive) 315 276 14.1% POPs 87,600 84,400 3.8% Penetration rate (10) 11.2% 11.1% 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. This additional spectrum is not factored into the penetration rate since this spectrum was not operational during the periods presented. (c) 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 2Q02 2Q01 Growth 2002 2001 Growth Operating Revenues Service revenues (4) $481 $629 -23.5% $1,027 $1,271 -19.2% Equipment and other revenues 98 97 1.0% 208 236 -11.9% Advertising and publishing revenues 19 23 -17.4% 22 24 -8.3% Total Operating Revenues 598 749 -20.2% 1,257 1,531 -17.9% Operating Expenses Operational and support expenses 400 505 -20.8% 878 1,135 -22.6% Depreciation and amortization 118 155 -23.9% 236 309 -23.6% Total Operating Expenses 518 660 -21.5% 1,114 1,444 -22.9% Operating Income 80 89 N/M* 143 87 N/M* Interest Expense 37 55 -32.7% 79 115 -31.3% Other Income (Expense), net (14) (14) N/M (29) (13) N/M Income Before Income Taxes 29 20 N/M 35 (41) N/M Provision for Income Taxes 15 27 N/M 17 29 N/M Segment Net Income(1) $14 ($7) N/M $18 ($70) N/M * - Not meaningful. Selected Financial and Operating Data (amounts in millions, except customer data in thousands) EBITDA (5) $198 $244 -18.9% $379 $396 -4.3% EBITDA margin (6) 33.1% 32.6% 50 bps 30.2% 25.9% 430 bps Average monthly revenue per customer (9) $20 $26 -23.1% $22 $27 -18.5% Customer net adds in period (excluding (68) 224 -130.4% 255 939 -72.8% ownership changes) Customers (voice) 7,840 8,008 -2.1% POPs 162,100 156,200 3.8% Penetration rate (10) 4.8% 5.1% -30 bps 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 2Q02 2Q01 Growth 2002 2001 Growth Operating revenues $580 $701 -17.3% $1,200 $1,413 -15.1% EBITDA (5) $190 $222 -14.4% $368 $376 -2.1% EBITDA margin(6) 32.8% 31.7% 110 bps 30.7% 26.6% 410 bps Average monthly revenue per customer (9) $20 $26 -23.1% $22 $27 -18.5% Customer net adds in period (excluding 11 272 -96.0% 321 885 -63.7% ownership changes) Customers (voice) 7,716 7,566 2.0% POPs 156,770 152,056 3.1% Penetration rate (10) 4.9% 5.0% -10 bps BellSouth Corporation Worldwide Wireless (unaudited) Customers and POPs by Country (Proportionate Basis(3) in thousands) Customers As of POPs As of Country Brand 2Q02 2Q01 Growth 2Q02 2Q01 Growth United States Cingular Wireless 8,873 8,487 4.5% 87,600 84,400 3.8% Argentina Movicom BellSouth 905 1,126 -19.6% 24,375 23,270 4.7% Brazil BCP 1,254 1,183 6.0% 20,801 20,704 0.5% Chile BellSouth 1,020 800 27.5% 15,400 15,100 2.0% Colombia BellSouth 863 777 11.1% 28,375 27,451 3.4% Ecuador BellSouth 406 241 68.5% 11,443 11,086 3.2% Guatemala BellSouth 87 29 N/M* 7,020 7,140 -1.7% Nicaragua BellSouth 160 127 26.0% 2,581 2,581 -- Panama BellSouth 135 112 20.5% 1,311 1,223 7.2% Peru BellSouth 468 373 25.5% 25,428 24,403 4.2% Uruguay Movicom BellSouth 70 63 11.1% 966 966 -- Venezuela Telcel BellSouth 2,348 2,735 -14.1% 19,070 18,132 5.2% Total Latin America 7,716 7,566 2.0% 156,770 152,056 3.1% Denmark Sonofon 475 412 15.3% 2,465 2,465 -- Israel Cellcom 817 712 14.7% 2,119 2,119 -- 1,292 1,124 14.9% 4,584 4,584 -- Total Worldwide Wireless 17,881 17,177 4.1% 248,954 241,040 3.3% * - Not meaningful. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Domestic Advertising & Publishing (1) Year-To-Date 2Q02 2Q01 Growth 2002 2001 Growth Total Operating Revenues $ 543 $ 443 22.6% $ 926 $ 880 5.2% Operating Expenses Operational and support expenses 296 241 22.8% 501 445 12.6% Depreciation and amortization 8 6 33.3% 14 13 7.7% Total Operating Expenses 304 247 23.1% 515 458 12.4% Operating Income 239 196 21.9% 411 422 -2.6% Interest Expense 3 3 0.0% 6 11 -45.5% Other Income, net 1 - N/M* 1 4 N/M* Income Before Income Taxes 237 193 22.8% 406 415 -2.2% Provision for Income Taxes 91 74 23.0% 156 159 -1.9% Segment Net Income(1) $146 $119 22.7% $250 $256 -2.3% EBITDA (5) $247 $202 22.3% $425 $435 -2.3% EBITDA margin (6) 45.5% 45.6% -10 bps 45.9% 49.4% -350 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) Prior period has been adjusted for the transfer of 12,377 employees from our former domestic wireless operations. (8) 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. (9) 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. (10) Penetration rate is calculated by dividing customers by POPs (excludes POPs in markets where service has not been initiated). This information is provided by RNS The company news service from the London Stock Exchange
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