20th Apr 2006 12:49
Bellsouth Corp20 April 2006 For Immediate ReleaseApril 20, 2006 BellSouth Reports First Quarter Earnings • Normalized earnings per share of 54 cents, up 20 percent• Record DSL net additions, 3.1 million total DSL customers• Strong customer growth, revenue and margin from Cingular ATLANTA - BellSouth Corporation (NYSE: BLS) announced first quarter 2006earnings per share (EPS) from continuing operations of 43 cents, up 16 percentcompared to the first quarter of 2005. Normalized EPS from continuingoperations was 54 cents, a 20 percent increase compared to the first quarter of2005. A list of normalizing items is provided in the table below. "BellSouth's strong earnings growth reflects improving trends in our operatingresults," said Duane Ackerman, Chairman and Chief Executive Officer. "Duringthe quarter, our revenue growth was driven by the addition of broadband andwireless customers, which demonstrated the strength of our portfolio in themarketplace." Normalized Results from Continuing Operations Normalized results from continuing operations include BellSouth's 40 percentproportionate share of Cingular's revenues and expenses which are recognized asequity earnings for purposes of GAAP reporting. Normalized results also excludethe impact of significant nonoperational or nonrecurring items. For the first quarter of 2006, normalized revenue was $8.7 billion, up 4.5percent year-over-year generated by growth in Communications Group, Cingular andAdvertising & Publishing. Operating margins were 21.9 percent, improvingyear-over-year and sequentially. Normalized net income of $983 million grew 20percent compared to the first quarter of 2005 driven primarily by Cingular'simproved profitability. Reported Results from Continuing Operations For the first quarter of 2006, BellSouth's consolidated reported revenue fromcontinuing operations totaled $5.2 billion, up 1.6 percent compared to the samequarter of 2005. Income from continuing operations was $784 million compared to$683 million in the same quarter of the previous year. For the first quarter of 2006, operating free cash flow (defined as net cashprovided by operating activities less capital expenditures) was $551 million.Capital expenditures for the quarter amounted to $1.08 billion, includingapproximately $135 million of incremental expenditures for Katrina restorationefforts. Net of storm impacts, increased levels of capital expenditures weredriven by planned 2006 acceleration of broadband investments toward the firsthalf of the year. 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. We currentlyexpect the merger to close by the end of 2006. The combination creates economies of scale to better enable investments in newtechnologies and to pursue opportunities in the broadband and enterprisemarkets, including integration of wireline/wireless product offerings. Thecombination of the two companies is expected to create enhanced marketingopportunities, significant network synergies and reduced overhead costs. Themerger with AT&T is an excellent opportunity to take two complementary assetportfolios and make them stronger to benefit shareholders, customers andemployees. "To be successful in the marketplace, a company must innovate and deliver newservices that customers want," said Duane Ackerman. "The proposed merger of AT&T and BellSouth will create new potential for innovation and the ability todeliver those services with a more cost efficient operating structure. Thecommunications industry is a world full of possibilities, and I believe that wenow stand at the beginning of a great new day for communications in America." Communications Group Communications Group revenue was $4.7 billion in the first quarter of 2006, a1.3 percent increase compared to the same quarter of 2005. All retail businesssegments delivered improving revenue trends both year-over-year and sequentiallydriven by strong growth from data and long distance. During the first quarter, BellSouth added a record 263,000 net new broadband DSLcustomers and served more than 3.1 million total customers at quarter-end.BellSouth offers four FastAccess services with simple pricing to meet marketdemand for a variety of speeds and prices. The company continues to see growthin demand and migrations towards higher speeds of DSL service. With improvingchurn and stable average revenue per unit, DSL continues to be a key valuedriver for BellSouth. For the first quarter, network data revenue was $1.3 billion, up 9.0 percentfrom the same period of the prior year. Retail data revenue grew 15.8 percentfrom the same period last year driven by a 31.8 percent increase in retail DSLrevenue and ongoing growth in revenue from emerging retail data services such asBellSouth(R) Metro Ethernet Service and BellSouth(R) Virtual Private Network.Total wholesale data was stable as demand for wholesale services from wirelesscarriers remained strong. Customers continue to combine local and long distance voice, DSL, DIRECTV(R) andCingular Wireless under the BellSouth Answers(R) bundles. BellSouth added179,000 long distance customers and now serves almost 7.4 million long distancecustomers, a 59 percent penetration of its mass-market customer base. Onceagain, the company had strong growth in customers choosing to add DIRECTV(R)service to their BellSouth bundles, adding 105,000 customers. Through the firstquarter of this year, 628,000 customers have included DIRECTV(R) service intheir communications packages. By the end of first quarter 2006, more than 5million residential customers had a BellSouth Answers(R) bundle, nearly 45percent penetration of its retail residential lines. As of March 31, 2006, total access lines were 19.8 million, down 238,000compared to Dec. 31, 2005. Residential access line loss continues to beprimarily driven by wireless substitution and, to a lesser extent, bycompetition from cable telephony providers. Retail residential access lineswere down 120,000. Retail business access lines increased 21,000 driven bySmall Business gains. Wholesale lines resold by BellSouth competitors were down137,000 compared to Dec. 31, 2005. Communications Group operating margin was 23.6 percent compared to 24.2 percentfor the same quarter of the previous year. Margins were negatively impacted asthe company incurred approximately $85 million in incremental expensescompleting the network repairs associated with damage caused by Hurricane Wilmawhich struck southern Florida in late October 2005. Summary Impacts of Hurricane Katrina During the first quarter of 2006, BellSouth recognized incremental expensesassociated with Hurricane Katrina of $94 million which is net of $20 million ininsurance recoveries during the quarter. BellSouth also incurred approximately$135 million of incremental capital expenditures for Katrina restoration. Sincethe third quarter of 2005, BellSouth has incurred approximately $730 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. The actualrecovery will vary depending on the outcome of the insurance loss adjustmenteffort. Cingular Wireless Cingular Wireless was the primary contributor to BellSouth's earnings growth inthe first quarter of 2006 as the benefits of scale and synergies created in itsacquisition of AT&T Wireless are being realized. Cingular, the nation's largestwireless provider, added 1.7 million net new customers during the first quarterof 2006, reaching 55.8 million total subscribers. Retail customer additionswere 1.05 million for the quarter with nearly 90 percent coming from post-paidnet additions. Overall monthly subscriber churn for the quarter was 1.9percent, the lowest level ever, and post-paid churn also improved to a record1.6 percent. Cingular's continued strong performance in customer additions and churnimprovement can be attributed to improved service quality as the companyintegrates its networks, marketing campaigns that reinforce service improvementsincluding "fewest dropped calls," and a steady stream of innovative products andservices. In the first quarter of 2006, Cingular's revenues were $9.0 billion, animprovement of 9.1 percent over the same quarter a year ago and up 1.5 percentsequentially. Average revenue per user (ARPU) in the first quarter of 2006 was $48.48, down2.3 percent from the year-ago first quarter. The decline in ARPU can beprimarily attributed to the recent increase in reseller customers, whichtypically carry a lower ARPU. Excluding the impacts of growth in resellercustomers, Cingular ARPU improved year-over-year driven by growth in dataservices. Data ARPU continued its strong growth in the first quarter of 2006,increasing 41.1 percent to $5.22 compared to the first quarter of the previousyear and up 10.8 percent sequentially. For the first quarter of 2006, normalized operating income before depreciationand amortization (OIBDA) margin was 31.9 percent, which was a 640 basis pointimprovement compared the first quarter of 2005. Cingular's steady marginimprovement is indicative of progress on its integration plans. Advertising & Publishing Reflecting continued momentum in the business, Advertising & Publishing revenuegrew in the first quarter of 2006. Revenue was $506 million, up 3 percentcompared to the same quarter of 2005 driven by growth in both print and onlineadvertising services. Operating margins remained strong at 44.7 percent for thefirst quarter of 2006. Normalizing Items For the first quarter of 2006, the difference between reported (GAAP) EPS fromcontinuing operations and normalized EPS is shown in the following table. Afull income statement reconciliation is included in the attached exhibits. 1Q06 GAAP Diluted EPS - Income from continuing operations $0.43 Hurricane Katrina-related expenses $0.03Wireless merger integration costs $0.03Wireless merger intangible amortization $0.05 Normalized Diluted EPS - Income from continuing operations $0.54 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 first quarter. 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,that were created in Cingular's acquisition of AT&T Wireless. 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 with55.8 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.COM (TM) 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.Investor information can be found at http://www.bellsouth.com/investor. Further information about BellSouth and Cingular's first quarter earnings can beaccessed at www.bellsouth.com/investor. The press release, financial statementsand Investor News summarizing highlights of the quarter are available atwww.bellsouth.com/investor starting today at 8 a.m. Eastern Time (ET). BellSouth will host a conference call with investors today at 10 a.m. (ET). Dial-in information for the conference call is as follows:Domestic: 888-370-1863International: 706-634-1735 The conference call will also be webcast live beginning at 10 a.m. (ET) on ourWeb site at www.bellsouth.com/investor. The webcast will be archived on our Website. A replay of the call will be available through April 27, 2006, and can beaccessed by dialing: Domestic: 800-642-1687 - Conference ID: 7031218International: 706-645-9291 - Conference ID: 7031218 For More Information Contact: Brent Fowler, Media Relations at 404-249-2839BellSouth 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) thefailure of AT&T shareholders to approve the issuance of AT&T common shares inthe merger or the failure of our shareholders to approve the merger; (iii) therisk that the businesses of AT&T and BellSouth will not be integratedsuccessfully or as quickly as expected; (iv) 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; (v) disruption fromthe merger making it more difficult to maintain relationships with customers,employees or suppliers; and (vi) those factors contained in the preliminaryproxy statement 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 website, www.bellsouth.com/investor. NOTE: In connection with the proposed merger, AT&T Inc. ("AT&T") filed aregistration statement on Form S-4 (Registration No. 333-132904), containing ajoint proxy statement/prospectus of AT&T and BellSouth Corporation ("BellSouth"), with the Securities and Exchange Commission (the "SEC") on March31, 2006. Investors are urged to read the registration statement and the jointproxy statement/prospectus contained therein (including all amendments andsupplements to it) because it contains important information. Investors mayobtain free copies of the registration statement and joint proxystatement/prospectus, as well as other filings containing information about AT&Tand BellSouth, without charge, at the SEC's Web site ( www.sec.gov). Copies ofAT&T's filings may also be obtained without charge from AT&T at AT&T's Web site( www.att.com) or by directing a request to AT&T Inc. Stockholder Services, 175E. Houston, San Antonio, Texas 78205. Copies of BellSouth's filings may beobtained without charge from BellSouth at BellSouth's Web site(www.bellsouth.com) or by directing a request to BellSouth at InvestorRelations, 1155 Peachtree Street, N.E., Atlanta, Georgia 30309. AT&T, BellSouth and their respective directors and executive officers and othermembers of management and employees are potential participants in thesolicitation of proxies in respect of the proposed merger. Information regardingAT&T's directors and executive officers is available in AT&T's 2005 AnnualReport on Form 10-K filed with the SEC on March 1, 2006 and AT&T's proxystatement for its 2006 annual meeting of stockholders, filed with the SEC onMarch 10, 2006, and information regarding BellSouth's directors and executiveofficers is available in BellSouth's 2005 Annual Report on Form 10-K filed withthe SEC on February 28, 2006 and BellSouth's proxy statement for its 2006 annualmeeting of shareholders, filed with the SEC on March 3, 2006. Additionalinformation regarding the interests of such potential participants is includedin the registration statement and joint proxy statement/prospectus containedtherein, and other relevant documents filed with the SEC. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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