-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQrHp9/tmOgIa2rBNUWsqmmhxuEtR4E27pHBcYMBu2AH7AwlUJPyoim/erFASRpB RBXUuiwV0nYCW2l3YJjzDQ== 0000732713-03-000021.txt : 20030423 0000732713-03-000021.hdr.sgml : 20030423 20030423080918 ACCESSION NUMBER: 0000732713-03-000021 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030423 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELLSOUTH CORP CENTRAL INDEX KEY: 0000732713 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 581533433 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08607 FILM NUMBER: 03659085 BUSINESS ADDRESS: STREET 1: 1155 PEACHTREE ST NE STREET 2: ROOM 15G03 CITY: ATLANTA STATE: GA ZIP: 30309-3610 BUSINESS PHONE: 4042492000 MAIL ADDRESS: STREET 1: 1155 PEACHTREE STREET NE CITY: ATLANTA STATE: GA ZIP: 30309-3610 8-K 1 form8kq103.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 23, 2003 BELLSOUTH CORPORATION (Exact name of registrant as specified in its charter) Georgia 1-8607 58-1533433 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification incorporation) No.) Room 15G03, 1155 Peachtree Street, N. E., Atlanta, Georgia 30309-3610 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (404) 249-2000 Item 7. Financial Statements and Exhibits (c) Exhibits Exhibit No. 99-a Press Release dated April 23, 2003 reporting financial results for the quarter ended March 31, 2003 99-b Investor News for the quarter ended March 31, 2003 Item 9. Regulation FD Disclosure The following information set forth under "Items 9. Regulation FD Disclosure" is intended to be furnished under said Item 9 and also under "Item 12. Results of Operations and Financial Condition" in accordance with SEC Release No. 33-8216. Such information, including the Exhibits attached hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. Attached and incorporated herein by reference are (i) Exhibit 99-a, which is a copy of a press release of BellSouth Corporation dated April 23, 2003, reporting the company's financial results for the quarter ended March 31, 2003 and (ii) Exhibit 99-b, which is a document entitled "Investor News" that contains more detailed information about the recently completed quarter. 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. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BELLSOUTH CORPORATION By: /s/ W. Patrick Shannon W. Patrick Shannon Vice President - Finance April 23, 2003 EX-99 3 form8kq103ex99a.txt EXHIBIT 99-A Exhibit 99-a For Immediate Release April 23, 2003 For More Information Contact: Jeff Battcher, Media Relations at 404-249-2793 BellSouth Investor Relations at 404-249-2420 BellSouth Reports First Quarter Earnings Gains in long distance, DSL, packages aid revenue; Cingular Wireless adds 189,000 net customers ATLANTA - BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of 66 cents in the first quarter of 2003, compared to a net loss of 8 cents per share in the same quarter of 2002. Consolidated revenues were $5.52 billion, compared to $5.53 billion in the first quarter of 2002. BellSouth reduced consolidated total operating expenses $21 million in the first quarter, compared to the same three months of 2002. Net income was $1.2 billion, compared to a net loss of $154 million in the first quarter of 2002. In accordance with Generally Accepted Accounting Principles (GAAP), consolidated revenues and consolidated total operating expenses do not include BellSouth's 40 percent share of Cingular Wireless. Capital expenditures in the first quarter of 2003 were $631 million, a reduction of 37.2 percent compared to $1.0 billion in the first three months of 2002. BellSouth reduced total debt by $753 million during the first quarter, and has cut total debt $2.4 billion, or 12.7 percent, since March 31, 2002. Operating free cash flow (defined as cash flow from operations less capital expenditures) was $1.3 billion. In February, the company's board of directors declared a 5 percent increase in the quarterly common stock dividend to be paid May 1, 2003, bringing the total dividend increase to 10.5 percent over 12 months. As previously announced, effective in the first quarter of 2003, BellSouth began expensing stock options, and adopted Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." Regarding stock options, the company elected the retroactive restatement method of adoption, which means prior year results have been restated to include the impacts of expensing options. The full-year 2003 impact of expensing stock options is an approximately $90 million decrease to net income and a 5-cent decrease to EPS, comparable with prior-year restated amounts. The adoption of SFAS 143 resulted in a one-time increase to net income of $816 million (44 cents per share) in the first quarter. The ongoing impact of SFAS 143 is expected to increase net income by approximately $60 million, or 3 cents per share, in 2003 as a whole. BellSouth also changed the method for recognizing revenues and expenses in its directory publishing business from the issue basis method to the deferral method. The change resulted in a one-time decrease to net income of $501 million, or 27 cents per share, in the first quarter. The change in accounting method relates solely to the timing of recognition for revenue and direct expense and does not affect the amounts recognized. Furthermore, there is no impact to cash flow. To supplement the reporting of BellSouth's consolidated financial information under GAAP, the company will continue to present certain non-GAAP financial measures, including normalized operating results and EBITDA (earnings before interest, taxes, and depreciation and amortization). Normalized results include BellSouth's 40 percent share of Cingular Wireless (revenue and expense), and exclude events that are generally non-recurring in nature. Normalized results also exclude material one-time gains or losses that can distort reported operating results. A complete list of normalizing items, as well as a full reconciliation of normalized results to GAAP reporting, are included in the attached quarterly financial statements and are available on the company's Web site, www.bellsouth.com/investor. The presentation of normalized results enables investors to focus on period-over-period operating performance, without the impact of non-operational or non-recurring items. In addition, EBITDA margin is an important indicator of profitability for capital-intensive businesses, and remains a key metric for valuation in the investment community. Finally, normalized measures are among the primary indicators management uses in planning and operating the business. This additional information should not be considered in isolation or as a substitute for the consolidated (GAAP) financial information. Normalized for special items, detailed below, EPS in the first quarter of 2003 was 51 cents, compared to normalized EPS of 55 cents in the same quarter a year ago. Normalized total operating revenues, which include Cingular, were $6.9 billion, a decline of 4.0 percent versus the first quarter of 2002. Normalized net income was $941 million, compared to $1.04 billion in the same quarter a year ago. Communications Group The opening three months of 2003 marked the first quarter that BellSouth has been offering long distance services throughout its markets. The company began marketing long distance in Florida and Tennessee in late December 2002, making BellSouth the first incumbent local telecommunications company to receive federal approval in all its states. At March 31, 2003 BellSouth served more than 1.9 million consumer and business long distance customers. These include approximately 13 percent of its residence and approximately 24 percent of its mass-market small business accounts. In the seven states approved for long distance earlier in 2002, the numbers are approximately 15 percent of residence and approximately 29 percent of small business. The number of customers purchasing the BellSouth AnswersSM package increased to approximately 1.6 million at the end of the first quarter. Introduced just eight months previously, BellSouth Answers allows residential customers to combine on a single bill the data, voice and Internet communications services they want -- including DSL, long distance and local, as well as wireless. BellSouth added 101,000 DSL high-speed Internet service customers in the first quarter, bringing its number of broadband customers to 1,122,000. Total Communications Group revenues were $4.6 billion in the first quarter, a decline of 2.3 percent compared to the same quarter of 2002. Total operating expenses decreased 1.5 percent. Data revenues were $1.09 billion, level with the first quarter a year ago. Total access lines of 24.5 million at March 31 declined 3.6 percent compared to a year earlier, impacted by a continued weak economy, market share loss and technology substitution. Residence and business access lines served by BellSouth competitors under UNE-P (unbundled network elements-platform) grew by 231,000 in the first quarter. Domestic Wireless / Cingular BellSouth's share of Cingular's domestic wireless revenues in the first quarter of 2003 was $1.4 billion, a gain of $19 million compared to the same quarter a year ago. BellSouth's share of Cingular operating income was $286 million in the quarter, compared to $266 million in the same three months of 2002. Cingular steadily gained new cellular and PCS customers during the first three months of 2003, resulting in total first quarter net customer additions of 189,000. More than one-third of all first quarter customer additions for the nation's No. 2 wireless company came through the sales channels of Cingular's parent companies, BellSouth and SBC Communications. Total net adds improved 310,000 compared to the fourth quarter of 2002. Cingular is on target to increase its GSM and GPRS digital coverage to 90 percent of potential customers and all of its major markets by the end of 2003, with the total overlay complete in 2004. In March 2003, Cingular announced a major joint roaming agreement with AT&T Wireless that will lower roaming costs for both companies, while improving quality and encouraging further expansion of GSM/GPRS digital network services for their customers. Latin America Group Consolidated Latin America revenues were $509 million in the first quarter of 2003, a decline of 22.8 percent compared to the first quarter last year. Sequentially, Latin revenues were up slightly from the fourth quarter of 2002. Revenues continued to reflect the impacts of currency devaluations, principally in Argentina and Venezuela, as well as weak economic and unsettled political conditions in those countries. Year-over-year Latin results are affected by the timing of devaluation impacts in Venezuela and Argentina. The Latin EBITDA margin of 22.6 percent in the first quarter was negatively impacted by a contingency reserve. On a consolidated basis, Latin America Group wireless voice customers increased by 372,000 during the first quarter, compared to increases of 259,000 in the fourth quarter and 323,000 in the first quarter of 2002. Year-over-year, customers increased by 636,000, or 8.0 percent. BellSouth and its partners serve a total of 11.9 million customers in 11 Central and South American countries, including 263,000 fixed wireless customers. During the first quarter, BellSouth signed an agreement to sell its entire stake in BSE, a cellular company that operates in six states of Brazil's Northeastern region. The agreement is pending approval. Advertising & Publishing Domestic Advertising & Publishing revenues were $498 million in the first quarter of 2003, a decrease of 2.4 percent compared to the same period of the prior year. Operating income of $243 million was level with the first quarter of 2002. Special Items In the first quarter of 2003, the difference between reported (GAAP) EPS of 66 cents and normalized EPS of 51 cents is the result of four special items: Adoption of SFAS No. 143 44 cents Gain A&P accounting change 27 cents Charge Pension/severance costs 4 cents Charge Foreign currency translation 3 cents Gain Effect of rounding (1 cent) ---------- Total of special items 15 cents Gain Adoption of SFAS No. 143 - As previously disclosed, 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. Advertising & Publishing accounting change - As previously disclosed, effective January 1, 2003 BellSouth changed its method for recognizing revenues and expenses in its directory publishing business from the issue basis method to the deferral method. The change in method relates solely to the timing of the recognition of revenues and expenses and does not affect either the amounts recognized or cash flow. The issue basis method formerly used recognized 100 percent of the revenues and direct expenses at the time the directories were published and delivered to end users. Under the deferral method, revenues and direct expenses are recognized ratably over the life of the related directory, generally 12 months. Pension/severance costs - This charge represents severance costs recorded in the first quarter associated with workforce reductions. Also included are pension settlement losses. Foreign currency translation gains - Primarily associated with the remeasurement of U.S. dollar-denominated liabilities in Latin America. About BellSouth Corporation BellSouth Corporation is a Fortune 100 communications services company headquartered in Atlanta, Georgia, serving nearly 45 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 residential customers. The company's BellSouth 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) RealPages.comSM 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 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 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 April 30. The replay can be accessed by dialing: Domestic: 800-642-1687 - Reservation number: 9384021 International: 706-645-9291 - Reservation number: 9384021 In addition to historical information, this document may contain 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. This document may also contain certain non-GAAP financial measures. The most directly comparable GAAP financial measures, and a full reconciliation of non-GAAP to GAAP financial information, are provided at the Company's investor relations Web site, www.bellsouth.com/investor. BellSouth Corporation Consolidated Statements of Income - Reported Basis (unaudited) (amounts in millions, except per share data) Note to Readers: See Normalization Earnings Summary and Reconciliation to GAAP results on page 3 for a summary of unusual items included in Reported Basis results. 1Q03 1Q02 Growth 4Q02 Growth Operating Revenues Communications group $4,508 $4,645 -2.9% $4,481 0.6% Latin America 509 656 -22.4% 486 4.7% Domestic advertising and publishing 494 216 128.7% 709 -30.3% All other 12 17 -29.4% 16 -25.0% Total Operating Revenues 5,523 5,534 -0.2% 5,692 -3.0% Operating Expenses Cost of services and products 1,933 1,966 -1.7% 1,960 -1.4% Selling, general & administrative expenses 1,052 1,038 1.3% 1,133 -7.1% Depreciation and amortization 1,038 1,161 -10.6% 1,151 -9.8% Provision for restructuring and asset impairments 121 - N/M* 312 -61.2% Total Operating Expenses 4,144 4,165 -0.5% 4,556 -9.0% Operating Income 1,379 1,369 0.7% 1,136 21.4% Interest Expense 296 304 -2.6% 292 1.4% Other Income (Expense), net 306 819 -62.6% 68 350.0% Income Before Taxes and Accounting Changes 1,389 1,884 -26.3% 912 52.3% Provision for Income Taxes 474 753 -37.1% 338 40.2% Income Before Cumulative Effect Change 915 1,131 -19.1% 574 59.4% Cumulative Effect of Changes in Accounting Principle 315 (1,285) N/M - N/M Net Income $1,230 $(154) N/M $574 114.3% Diluted: Weighted Average Common Shares Outstanding 1,860 1,888 -1.5% 1,864 -0.2% Earnings Per Share $0.66 ($0.08) N/M $0.31 112.9% * - Not meaningful. Selected Financial and Operating Data EBITDA (4) $2,417 $2,530 -4.5% $2,287 5.7% EBITDA margin (5) 43.8% 45.7% -190 bps 40.2% 360 bps Declared dividends per share $0.21 $0.19 10.5% $0.20 5.0% Capital expenditures $631 $1,005 -37.2% $922 -31.6% Common shares outstanding 1,847 1,879 -1.7% 1,860 -0.7% Book value per share $9.96 $9.60 3.8% $9.63 3.4% Debt ratio 47.4% 51.3% -390 bps 49.2% -180 bps Total employees 76,797 85,742 -10.4% 77,020 -0.3% EBITDA Reconciliation to Operating Cash Flows EBITDA (4) $2,417 $2,530 $2,287 Non cash activity included in EBITDA 132 158 345 Cash interest and tax payment activity, net (167) (190) (540) Working capital changes / Other (474) (433) (379) Operating Cash Flows $1,908 $2,065 $1,713 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 page 3 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. 1Q03 1Q02 Growth 4Q02 Growth Operating Revenues Communications group $4,469 $4,614 -3.1% $4,441 0.6% Domestic wireless 1,436 1,417 1.3% 1,463 -1.8% Latin America 509 656 -22.4% 486 4.7% Domestic advertising and publishing 494 506 -2.4% 548 -9.9% All other 12 17 -29.4% 15 -20.0% Total Operating Revenues 6,920 7,210 -4.0% 6,953 -0.5% Operating Expenses Cost of services and products 2,364 2,376 -0.5% 2,258 4.7% Selling, general, & administrative expenses 1,537 1,620 -5.1% 1,726 -11.0% Depreciation and amortization 1,233 1,341 -8.1% 1,338 -7.8% Total Operating Expenses 5,134 5,337 -3.8% 5,322 -3.5% Operating Income 1,786 1,873 -4.6% 1,631 9.5% Interest Expense 364 359 1.4% 357 2.0% Other Income (Expense), net 39 79 -50.6% 31 25.8% Income Before Income Taxes 1,461 1,593 -8.3% 1,305 12.0% Provision for Income Taxes 520 555 -6.3% 459 13.3% Net Income $941 $1,038 -9.3% $846 11.2% Diluted: Weighted Average Common Shares Outstanding 1,860 1,888 -1.5% 1,864 -0.2% Earnings Per Share $0.51 $0.55 -7.3% $0.45 13.3% * - Not meaningful. Selected Financial and Operating Data EBITDA (4) $3,019 $3,214 -6.1% $2,969 1.7% EBITDA margin (5) 43.6% 44.6% -100 bps 42.7% 90 bps Declared dividends per share $0.21 $0.19 10.5% $0.20 5.0% Capital expenditures $631 $1,005 -37.2% $922 -31.6% Common shares outstanding 1,847 1,879 -1.7% 1,860 -0.7% Book value per share $9.96 $9.60 3.8% $9.63 3.4% Debt ratio 47.4% 51.3% -390 bps 49.2% -180 bps Total employees 76,797 85,742 -10.4% 77,020 -0.3% BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) First Quarter 2003 Normalizing Items FX Losses A&P Cingular (Gains) Acctg. FAS Pension/ Change 143 Severance GAAP A F G I J Normalized Operating Revenues $5,523 $1,397 $6,920 Operating Expenses 4,144 1,111 (121) 5,134 Operating Income 1,379 286 --- --- --- 121 1,786 Interest Expense 296 68 --- --- 364 Other Income (Expense), net 306 (217) (50) 39 Income Before Taxes and Accounting Change 1,389 1 (50) --- --- 121 1,461 Provision for Income Taxes 474 1 (2) 47 520 Net Income Before Cumulative Effect Change 915 --- (48) --- --- 74 941 Cumulative Effect of Change in Accounting Principle 315 501 (816) --- Net Income 1,230 $0 ($48) $501 ($816) $74 $941 Diluted Earnings Per Share * $0.66 $0.00 ($0.03) $0.27 ($0.44) $0.04 $0.51 EBITDA (4) 2,417 481 121 3,019 First Quarter 2002 Normalizing Items Cingular E-Plus Qwest GAAP A B C Operating Revenues $5,534 $1,386 $--- $--- Operating Expenses 4,165 1,120 --- --- Operating Income 1,369 266 --- --- Interest Expense 304 55 --- --- Other Income (Expense), net 819 (211) (1,339) 230 Income Before Income Taxes 1,884 --- (1,339) 230 Provision for Taxes and Accounting Change 753 --- (482) 80 Net Income Before Cumulative Effect Change 1,131 --- (857) 150 Cumulative Effect of Change in Accounting Principle (1,285) Net Income (154) $0 ($857) $150 Diluted Earnings Per Share ($0.08) $0.00 ($0.45) $0.08 EBITDA (4) 2,530 446 * Normalized earnings per share for first quarter 2003 does not sum due to rounding First Quarter 2002 Normalizing Items Brazil Loan Unbilled FX Losses Impairments Rec. Adj. (Gains) D E F Operating Revenues $163 $--- Operating Expenses --- Operating Income --- 163 --- Interest Expense --- --- --- Other Income (Expense), net 383 197 Income Before Income Taxes 383 163 197 Provision for Taxes and Accounting Change 120 62 (7) Net Income Before Cumulative Effect Change 263 101 204 Cumulative Effect of Change in Accounting Principle Net Income $263 $101 $204 Diluted Earnings Per Share $0.14 $0.05 $0.11 EBITDA (4) 163 * Normalized earnings per share for first quarter 2003 does not sum due to rounding First Quarter 2002 Normalizing Items A&P Acctg. Change FAS 142 G H Normalized Operating Revenues $127 $--- $7,210 Operating Expenses 52 --- 5,337 Operating Income 75 --- 1,873 Interest Expense --- --- 359 Other Income (Expense), net 79 Income Before Income Taxes 75 --- 1,593 Provision for Taxes and Accounting Change 29 --- 555 Net Income Before Cumulative Effect Change 46 --- 1,038 Cumulative Effect of Change in Accounting Principle 1,285 --- Net Income $46 $1,285 $1,038 Diluted Earnings Per Share $0.02 $0.68 $0.55 EBITDA (4) 75 3,214 * Normalized earnings per share for first quarter 2003 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) 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. (c) Qwest stock sale and impairment - Represents charges for the impairment of an equity investment in Qwest Communications as well as for losses on sales of Qwest common stock. Total shares sold were 18.5 million in first quarter 2002. (d) 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. (e) 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. (f) Foreign currency transaction (gains) losses - Represents net transaction (gains) losses incurred by our Latin American operations related primarily to US Dollar denominated liabilities. These (gains) losses reflect the impact of the (strengthening) weakening of those operations' local currencies against the U.S. Dollar which requires recognition in the current period income statement. (g) Change in method of accounting related to our directory publishing business from the issue basis method to the deferral method - The 2003 amount is a one-time charge to net income of $501. The 2002 amounts reflect our recasting of prior year results to present the advertising and publishing segment on a comparable basis year-over-year. (h) Adoption of Financial Accounting Standard No. 142 (FAS 142) - Represents a one-time charge related to the adoption of new accounting rules for goodwill. The non-cash charge reduced the value of goodwill on the company's balance sheet by approximately $1.3 billion. (i) Adoption of Financial Accounting Standard No. 143 (FAS 143) - Represents a one-time charge related to the adoption of new accounting rules associated with obligations related to the retirement of long-lived assets. The adjustment resulted in a one-time increase to net income of $816. (j) Pension/Severance Costs - During 2003, the number of employees who voluntarily separated and elected to receive lump-sum retirement benefits exceeded thresholds that require current recognition of deferred losses related to these employees. 2002 included the efforts to reduce operating costs in response to a slow economy, increased competition and regulatory pricing pressures by reducing BellSouth's workforce by up to 5,000 positions. For 2003, these costs include $33 of severance related costs. BellSouth Corporation Consolidated Balance Sheets (unaudited) (amounts in millions, except per share data) March 31, December 31, Change vs. Prior 2003 2002 Year-End Assets Current Assets: Cash and cash equivalents $2,442 $2,482 ($40) Accounts receivable, net of allowance for uncollectibles of $465 and $476 3,102 4,129 (1,027) Material and supplies 323 313 10 Other current assets 1,213 938 275 Total Current Assets 7,080 7,862 (782) Investments and Advances 9,941 9,741 200 Property, Plant and Equipment, net 24,340 23,445 895 Deferred Charges and Other Assets 5,690 5,726 (36) Goodwill 344 347 (3) Intangible Assets, net 2,323 2,358 (35) Total Assets $49,718 $49,479 $239 Liabilities and Shareholders' Equity Current Liabilities: Debt maturing within one year $4,428 $5,114 ($686) Accounts payable 1,458 1,572 (114) Other current liabilities 3,134 2,897 237 Total Current Liabilities 9,020 9,583 (563) Long-Term Debt 12,216 12,283 (67) Noncurrent Liabilities: Deferred income taxes 4,882 4,452 430 Other noncurrent liabilities 5,207 5,255 (48) Total Noncurrent Liabilities 10,089 9,707 382 Shareholders' Equity: Common stock, $1 par value 2,020 2,020 0 Paid-in capital 7,562 7,546 16 Retained earnings 15,342 14,531 811 Accumulated other comprehensive income (859) (740) (119) Shares held in trust and treasury (5,637) (5,372) (265) Guarantee of ESOP debt (35) (79) 44 Total Shareholders' Equity 18,393 17,906 487 Total Liabilities and Shareholders' Equity $49,718 $49,479 $239 BellSouth Corporation Consolidated Statements of Cash Flows (unaudited) (amounts in millions, except per share data) 1Q03 1Q02 4Q02 Cash Flows from Operating Activities: Net income $1,230 $(154) $574 Adjustments to net income: Depreciation and amortization 1,038 1,161 1,151 Provision for uncollectibles 168 159 233 Net losses (earnings) of equity affiliates (174) 237 (91) Minority interests in income of subsidiaries (8) (81) 6 Deferred income taxes 459 597 189 Net (gains) losses on sale or impairment of equity securities --- 236 (39) Pension income (134) (205) (208) Pension settlement (gains) losses 67 --- 60 Stock-based compensation 31 41 39 Unbilled receivable adjustment --- 163 --- Asset impairments --- --- 221 Foreign currency transaction (gains) losses (45) 290 42 Cumulative effect of change in accounting principle (539) 1,285 --- (Gain) loss on sale/disposal of operations --- (1,335) 74 Net change in: Accounts receivable and other current assets (121) 191 (195) Accounts payable and other current liabilities (86) (479) (401) Deferred charges and other assets 75 21 53 Other liabilities and deferred credits (57) (38) 13 Other reconciling items, net 4 (24) (8) Net cash provided by operating activities 1,908 2,065 1,713 Cash Flows from Investing Activities: Capital expenditures (631) (1,005) (922) Investments in and advances to equity affiliates --- (6) (28) Proceeds from sale of debt/equity securities 35 1,334 1 Proceeds from repayment of loans and advances --- 426 453 Other investing activities, net (24) (4) (20) Net cash used for investing activities (620) 745 (516) Cash Flows from Financing Activities: Net borrowing (repayments) of short- term debt (202) (962) (278) Proceeds from long-term debt 1 4 9 Repayments of long-term debt (514) (10) (4) Dividends paid (371) (357) (372) Purchase of treasury shares (255) --- (136) Other financing activities, net 13 (16) 16 Net cash used for financing activities (1,328) (1,341) (765) Net Increase (Decrease) in Cash and Cash Equivalents (40) 1,469 432 Cash and Cash Equivalents at Beginning of Period 2,482 592 2,050 Cash and Cash Equivalents at End of Period $2,442 $2,061 $2,482 BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) 1Q03 1Q02 Growth 4Q02 Growth Operating Revenues Local service $2,912 $2,941 -1.0% $2,868 1.5% Network access 1,096 1,205 -9.0% 1,125 -2.6% Long distance 264 205 28.8% 231 14.3% Other 304 331 -8.2% 297 2.4% Total Operating Revenues 4,576 4,682 -2.3% 4,521 1.2% Operating Expenses Cost of services and products 1,625 1,618 0.4% 1,597 1.8% Selling, general, & administrative expenses 764 726 5.2% 772 -1.0% Depreciation and amortization 937 1,032 -9.2% 1,041 -10.0% Total Operating Expenses 3,326 3,376 -1.5% 3,410 -2.5% Segment Operating Income 1,250 1,306 -4.3% 1,111 12.5% Interest Expense 118 125 -5.6% 134 -11.9% Other Income, net 3 --- N/M* 1 200.0% Income Before Income Taxes 1,135 1,181 -3.9% 978 16.1% Provision for Income Taxes 426 446 -4.5% 374 13.9% Segment Net Income(1) $709 $735 -3.5% $604 17.4% * - Not meaningful. Selected Financial and Operating Data (amounts in millions) Data service revenues $1,090 $1,092 -0.2% $1,057 3.1% Access minutes of use 22,795 25,583 -10.9% 23,324 -2.3% Capital expenditures $566 $922 -38.6% $760 -25.5% IntraLata Toll Messages 91 96 -5.2% 93 -2.2% Wholesale Lines (thousands) 2,549 1,936 31.7% 2,385 6.9% DSL customers (thousands) 1,122 729 53.9% 1,021 9.9% LD customers (thousands) 1,930 --- N/M* 1,002 92.6% EBITDA Reconciliation to Operating Income Segment Operating Income $1,250 $1,306 -4.3% $1,111 12.5% Add back: Depreciation and amortization expense 937 1,032 -9.2% 1,041 -10.0% Segment EBITDA (4) $2,187 $2,338 -6.5% $2,152 1.6% Segment EBITDA margin (5) 47.8% 49.9% -210 bps 47.6% 20 bps BellSouth Corporation Results by Segment (unaudited) Supplemental Operating Data (in thousands) Communications Group - Network Access Lines In Service(a)(b) 1Q03 1Q02 Growth 4Q02 Growth Access lines (b) Residence Retail Primary 13,132 13,913 -5.6% 13,260 -1.0% Additional 1,849 2,199 -15.9% 1,926 -4.0% Total Retail Residence 14,981 16,112 -7.0% 15,186 -1.3% Wholesale Resale 297 496 -40.1% 342 -13.2% UNE-P 1,155 365 216.4% 934 23.7% Total Wholesale Residence 1,452 861 68.6% 1,276 13.8% Total Residence 16,433 16,973 -3.2% 16,462 -0.2% Business Retail Voice 5,621 5,988 -6.1% 5,687 -1.2% ISDN 1,581 1,633 -3.2% 1,567 0.9% Total Retail Business 7,202 7,621 -5.5% 7,254 -0.7% Wholesale Resale 83 155 -46.5% 94 -11.7% UNE-P 619 475 30.3% 611 1.3% Total Wholesale Business 702 630 11.4% 705 -0.4% Total Business 7,904 8,251 -4.2% 7,959 -0.7% Other Retail / Wholesale Lines 174 201 -13.4% 182 -4.4% Total Access Lines in Service 24,511 25,425 -3.6% 24,603 -0.4% Access Line Equivalents (c) Selected digital data services: Unbundled Loops 367 426 -13.8% 377 -2.7% DS0 & ADSL 7,052 4,700 50.0% 6,437 9.6% DS1 6,936 6,635 4.5% 6,908 0.4% DS3 & higher 32,294 29,643 8.9% 31,704 1.9% Total digital data lines in service 46,649 41,404 12.7% 45,426 2.7% Total equivalent access lines in service 71,160 66,829 6.5% 70,029 1.6% (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 switched 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) 1Q03 1Q02 Growth 4Q02 Growth Operating Revenues Service revenues (3) $1,338 $1,326 0.9% $1,366 -2.0% Equipment and other revenues 98 91 7.7% 97 1.0% Total Operating Revenues 1,436 1,417 1.3% 1,463 -1.8% Operating Expenses Cost of services and products 468 451 3.8% 466 0.4% Selling, general, & administrative expenses 487 520 -6.3% 526 -7.4% Depreciation and amortization 195 180 8.3% 187 4.3% Total Operating Expenses 1,150 1,151 -0.1% 1,179 -2.5% Segment Operating Income 286 266 7.5% 284 0.7% Interest Expense 90 90 0.0% 93 -3.2% Other Income (Expense), net (31) (25) -24.0% (30) -3.3% Income Before Income Taxes 165 151 9.3% 161 2.5% Provision for Income Taxes 64 59 8.5% 63 1.6% Segment Net Income(1) $101 $92 9.8% $98 3.1% * - Not meaningful. Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Total Cellular/PCS Customers 8,846 8,732 1.3% 8,770 0.9% Net Customer Additions - Cellular/PCS 76 94 -19.1% (48) 258.3% Partitioned Customers and/or Adjustments 0 0 N/M* 12 -100.0% Churn - Cellular/PCS 2.6% 2.9% -30 bps 2.7% -10 bps Wireless Service ARPU - Cellular/PCS $50.04 $50.44 -0.8% $51.13 -2.1% Wireless Subscriber ARPU - Cellular/PCS $47.38 $47.35 0.1% $48.38 -2.1% Minutes Of Use Per Cellular/PCS Subscriber 405 355 14.1% 406 -0.2% Licensed POPs - Cellular/PCS (b) 94 88 6.8% 88 6.8% Penetration - Cellular/PCS (b) 10.0% 11.1% -110 bps 10.1% -10 bps Total Cingular Interactive Customers 334 306 9.2% 327 2.1% Net Customer Additions - Cingular Interactive 7 12 -41.7% 6 16.7% EBITDA Reconciliation to Operating Income Segment Operating Income $286 $266 7.5% $284 0.7% Add back: Depreciation and amortization expense 195 180 8.3% 187 4.3% Segment EBITDA (4) $481 $446 7.8% $471 2.1% Segment EBITDA margin (5)(c) 35.9% 33.6% 230 bps 34.5% 140 bps (a) The domestic wireless segment is comprised of BellSouth's 40% share of the reported results of Cingular Wireless. (b) POPs includes New York spectrum added in a swap with T-Mobile beginning 2Q01, Salt Lake City beginning 4Q01, and Salmon beginning 1Q03. The New York spectrum is included in the penetration calculation beginning 3Q02. The Salt Lake City and Salmon spectrum are not yet operational and are not factored into the penetration calculation. (c) Segment EBITDA margin denominator includes service revenues only. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Latin America Group (1)(2) 1Q03 1Q02 Growth 4Q02 Growth Operating Revenues Service revenues (3) $432 $562 -23.1% $411 5.1% Equipment and other revenues 77 94 -18.1% 70 10.0% Advertising and publishing revenues - 3 -100.0% 5 -100.0% Total Operating Revenues 509 659 -22.8% 486 4.7% Operating Expenses Cost of services and products 258 266 -3.0% 172 50.0% Selling, general, & administrative expenses 136 216 -37.0% 132 3.0% Depreciation and amortization 90 118 -23.7% 98 -8.2% Total Operating Expenses 484 600 -19.3% 402 20.4% Segment Operating Income 25 59 -57.6% 84 -70.2% Interest Expense 43 40 7.5% 30 43.3% Other Income (Expense), net 4 (15) N/M* (9) N/M Income Before Income Taxes (14) 4 N/M 45 N/M Provision for Income Taxes (24) 1 N/M 6 N/M Segment Net Income(1) $10 $3 233.3% $39 -74.4% * - Not meaningful. Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Average monthly revenue per customer (3) $17 $23 -26.1% $17 0.0% Customer net adds in period (excluding ownership changes) (a) 372 323 15.2% 259 43.6% Customers (voice) (a) 8,544 7,908 8.0% 8,172 4.6% POPs 160,600 162,100 -0.9% 162,100 -0.9% Penetration rate (6) 5.3% 4.9% 40 bps 5.0% 30 bps EBITDA Reconciliation to Operating Income Segment Operating Income $25 $59 -57.6% $84 -70.2% Add back: Depreciation and amortization expense 90 118 -23.7% 98 -8.2% Segment EBITDA (4) $115 $177 -35.0% $182 -36.8% Segment EBITDA margin (5) 22.6% 26.9% -430 bps 37.4% -1480bps (a) The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers in Venezuela. 1Q02 Customer net adds would have been 80 higher. Annual growth in net adds would have been -7.7%. Growth in customers vs. 1Q02 would have been 5.9% had Venezuela's fixed wireless customers been included in 1Q02 data. BellSouth Corporation Worldwide Wireless (unaudited) Customers and POPs by Country Ownership Percentage As of Total Customers As of Country Brand 1Q03 1Q03 1Q02 Growth United States Cingular Wireless 40.0% 22,114 21,830 1.3% Argentina Movicom BellSouth 65.0% 1,325 1,510 -12.3% Brazil - Sao Paulo Region BCP 45.4% 1,664 1,745 -4.6% Brazil - Northeast Region BSE 47.6% 1,005 967 3.9% Chile BellSouth 100.0% 1,062 939 13.1% Colombia Celumovil BellSouth 66.0% 1,580 1,228 28.7% Ecuador BellSouth 89.4% 631 412 53.2% Guatemala BellSouth 60.0% 205 111 84.7% Nicaragua BellSouth 89.0% 231 172 34.3% Panama BellSouth 43.7% 359 305 17.7% Peru BellSouth 97.4% 574 440 30.5% Uruguay Movicom BellSouth 46.0% 142 147 -3.4% Venezuela (a) Telcel BellSouth 78.2% 3,142 3,208 -2.1% Total Latin America (a) 11,920 11,184 6.6% Denmark Sonofon 46.5% 1,248 998 25.1% Israel Cellcom 34.8% 2,514 2,292 9.7% Total Europe 3,762 3,290 14.3% Total Worldwide Wireless (a) 37,796 36,304 4.1% (a)The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers in Venezuela. Growth in customers vs. 1Q02 in Venezuela, Total Latin America and Total Worldwide Wireless would have been -6.7%, 5.1%, and 3.7%, respectively, had Venezuela's fixed wireless customers been included in 1Q02 data. BellSouth Corporation Worldwide Wireless (unaudited) Customers and POPs by Country Country Brand 4Q02 Growth United States Cingular Wireless 21,925 0.9% Argentina Movicom BellSouth 1,320 0.4% Brazil - Sao Paulo Region BCP 1,669 -0.3% Brazil - Northeast Region BSE 1,005 0.0% Chile BellSouth 1,032 2.9% Colombia Celumovil BellSouth 1,349 17.1% Ecuador BellSouth 632 -0.2% Guatemala BellSouth 193 6.2% Nicaragua BellSouth 201 14.9% Panama BellSouth 335 7.2% Peru BellSouth 530 8.3% Uruguay Movicom BellSouth 143 -0.7% Venezuela (a) Telcel BellSouth 3,107 1.1% Total Latin America (a) 11,516 3.5% Denmark Sonofon 1,135 10.0% Israel Cellcom 2,446 2.8% Total Europe 3,581 5.1% Total Worldwide Wireless (a) 37,022 2.1% (a)The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers in Venezuela. Growth in customers vs. 1Q02 in Venezuela, Total Latin America and Total Worldwide Wireless would have been -6.7%, 5.1%, and 3.7%, respectively, had Venezuela's fixed wireless customers been included in 1Q02 data. BellSouth Corporation Worldwide Wireless (unaudited) Customers and POPs by Country Total POPs As of Country Brand 1Q03 1Q02 Growth United States Cingular Wireless 235,000 219,000 7.8% Argentina Movicom BellSouth 37,400 37,500 -0.3% Brazil - Sao Paulo Region BCP 18,100 18,100 0.0% Brazil - Northeast Region BSE 26,600 26,600 0.0% Chile BellSouth 15,300 15,400 -0.6% Colombia Celumovil BellSouth 40,300 43,000 -6.3% Ecuador BellSouth 13,200 12,800 3.1% Guatemala BellSouth 13,000 11,700 11.1% Nicaragua BellSouth 2,900 2,900 0.0% Panama BellSouth 2,800 3,000 -6.7% Peru BellSouth 27,500 26,100 5.4% Uruguay Movicom BellSouth 2,100 2,100 0.0% Venezuela (a) Telcel BellSouth 24,000 24,400 -1.6% Total Latin America (a) 223,200 223,600 -0.2% Denmark Sonofon 5,300 5,300 0.0% Israel Cellcom 6,100 6,100 0.0% Total Europe 11,400 11,400 0.0% Total Worldwide Wireless (a) 469,600 454,000 3.7% (a)The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers in Venezuela. Growth in customers vs. 1Q02 in Venezuela, Total Latin America and Total Worldwide Wireless would have been -6.7%, 5.1%, and 3.7%, respectively, had Venezuela's fixed wireless customers been included in 1Q02 data. BellSouth Corporation Worldwide Wireless (unaudited) Customers and POPs by Country Country Brand 4Q02 Growth United States Cingular Wireless 219,000 7.8% Argentina Movicom BellSouth 37,500 -0.3% Brazil - Sao Paulo Region BCP 18,100 0.0% Brazil - Northeast Region BSE 26,600 0.0% Chile BellSouth 15,400 -0.6% Colombia Celumovil BellSouth 43,000 -6.3% Ecuador BellSouth 12,800 3.1% Guatemala BellSouth 11,700 11.1% Nicaragua BellSouth 2,900 0.0% Panama BellSouth 3,000 -6.7% Peru BellSouth 26,100 5.4% Uruguay Movicom BellSouth 2,100 0.0% Venezuela (a) Telcel BellSouth 24,400 -1.6% Total Latin America (a) 223,600 -0.2% Denmark Sonofon 5,300 0.0% Israel Cellcom 6,100 0.0% Total Europe 11,400 0.0% Total Worldwide Wireless (a) 454,000 3.7% (a)The beginning balance of 3Q02 customers was adjusted to include 225 customers related to fixed wireless customers in Venezuela. Growth in customers vs. 1Q02 in Venezuela, Total Latin America and Total Worldwide Wireless would have been -6.7%, 5.1%, and 3.7%, respectively, had Venezuela's fixed wireless customers been included in 1Q02 data. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Domestic Advertising & Publishing (1) 1Q03 1Q02 Growth 4Q02 Growth Operating Revenues Advertising and publishing revenues 481 493 -2.4% 497 -3.2% Commission revenues 17 17 0.0% 59 -71.2% Total Operating Revenues 498 510 -2.4% 556 -10.4% Operating Expenses Cost of services 78 91 -14.3% 86 -9.3% Selling, general, & administrative expenses 170 170 0.0% 265 -35.8% Depreciation and amortization 7 6 16.7% 8 -12.5% Total Operating Expenses 255 267 -4.5% 359 -29.0% Segment Operating Income 243 243 0.0% 197 23.4% Interest Expense 2 3 -33.3% 3 -33.3% Other Income, net (1) --- N/M* (2) N/M Income Before Income Taxes 240 240 0.0% 192 25.0% Provision for Income Taxes 91 92 -1.1% 74 23.0% Segment Net Income(1) $149 $148 0.7% $118 26.3% EBITDA Reconciliation to Operating Income Segment Operating Income $243 $243 0.0% $197 23.4% Add back: Depreciation and amortization expense 7 6 16.7% 8 -12.5% Segment EBITDA (4) $250 $249 0.4% $205 22.0% Segment EBITDA margin (5) 50.2% 48.8% 140 bps 36.9% 1330 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) Wireless service revenues include 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. Average monthly revenue per customer is calculated by dividing average monthly service revenue by average customers. (4) EBITDA is defined as operating income plus depreciation and amortization. (5) EBITDA margin is calculated by dividing EBITDA by operating revenues. (6) Penetration rate is calculated by dividing customers by POPs (excludes POPs in markets where service has not been initiated). EX-99 4 form8kq103ex99b.txt EXHIBIT 99-B Exhibit 99-b BLS Investor News BellSouth Reports First Quarter Earnings Gains in long distance, DSL, packages aid revenue; Cingular Wireless adds 189,000 net customers ATLANTA -- BellSouth Corporation (NYSE: BLS) reported earnings per share (EPS) of 66 cents in the first quarter of 2003, compared to a net loss of 8 cents per share in the same quarter of 2002. Consolidated revenues were $5.52 billion, compared to $5.53 billion in the first quarter of 2002. BellSouth reduced consolidated total operating expenses $21 million in the first quarter, compared to the same three months of 2002. Net income was $1.2 billion, compared to a net loss of $154 million in the first quarter of 2002. In accordance with Generally Accepted Accounting Principles (GAAP), consolidated revenues and consolidated total operating expenses do not include BellSouth's 40 percent share of Cingular Wireless. Capital expenditures in the first quarter of 2003 were $631 million, a reduction of 37.2 percent compared to $1.0 billion in the first three months of 2002. BellSouth reduced total debt by $753 million during the first quarter, and has cut total debt $2.4 billion, or 12.7 percent, since March 31, 2002. Operating free cash flow (defined as cash flow from operations less capital expenditures) was $1.3 billion. In February, the company's board of directors declared a 5 percent increase in the quarterly common stock dividend to be paid May 1, 2003, bringing the total dividend increase to 10.5 percent over 12 months. As previously announced, effective in the first quarter of 2003, BellSouth began expensing stock options, and adopted Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." Regarding stock options, the company elected the retroactive restatement method of adoption, which means prior year results have been restated to include the impacts of expensing options. The full-year 2003 impact of expensing stock options is an approximately $90 million decrease to net income and a 5-cent decrease to EPS, comparable with prior-year restated amounts. The adoption of SFAS 143 resulted in a one-time increase to net income of $816 million (44 cents per share) in the first quarter. The ongoing impact of SFAS 143 is expected to increase net income by approximately $60 million, or 3 cents per share, in 2003 as a whole. BellSouth also changed the method for recognizing revenues and expenses in its directory publishing business from the issue basis method to the deferral method. The change resulted in a one-time decrease to net income of $501 million, or 27 cents per share, in the first quarter. The change in accounting method relates solely to the timing of recognition for revenue and direct expense and does not affect the amounts recognized. Furthermore, there is no impact to cash flow. To supplement the reporting of BellSouth's consolidated financial information under GAAP, the company will continue to present certain non-GAAP financial measures, including normalized operating results and EBITDA (earnings before interest, taxes, and depreciation and amortization). Normalized results include BellSouth's 40 percent share of Cingular Wireless (revenue and expense), and exclude events that are generally non-recurring in nature. Normalized results also exclude material one-time gains or losses that can distort reported operating results. A complete list of normalizing items, as well as a full reconciliation of normalized results to GAAP reporting, are included in the attached quarterly financial statements and are available on the company's Web site, www.bellsouth.com/investor. The presentation of normalized results enables investors to focus on period-over-period operating performance, without the impact of non-operational or non-recurring items. In addition, EBITDA margin is an important indicator of profitability for capital-intensive businesses, and remains a key metric for valuation in the investment community. Finally, normalized measures are among the primary indicators management uses in planning and operating the business. This additional information should not be considered in isolation or as a substitute for the consolidated (GAAP) financial information. Normalized for special items, detailed below, EPS in the first quarter of 2003 was 51 cents, compared to normalized EPS of 55 cents in the same quarter a year ago. Normalized total operating revenues, which include Cingular, were $6.9 billion, a decline of 4.0 percent versus the first quarter of 2002. Normalized net income was $941 million, compared to $1.04 billion in the same quarter a year ago. Communications Group The opening three months of 2003 marked the first quarter that BellSouth has been offering long distance services throughout its markets. The company began marketing long distance in Florida and Tennessee in late December 2002, making BellSouth the first incumbent local telecommunications company to receive federal approval in all its states. At March 31, 2003 BellSouth served more than 1.9 million consumer and business long distance customers. These include approximately 13 percent of its residence and approximately 24 percent of its mass-market small business accounts. In the seven states approved for long distance earlier in 2002, the numbers are approximately 15 percent of residence and approximately 29 percent of small business. The number of customers purchasing the BellSouth AnswersSM package increased to approximately 1.6 million at the end of the first quarter. Introduced just eight months previously, BellSouth Answers allows residential customers to combine on a single bill the data, voice and Internet communications services they want -- including DSL, long distance and local, as well as wireless. BellSouth added 101,000 DSL high-speed Internet service customers in the first quarter, bringing its number of broadband customers to 1,122,000. Total Communications Group revenues were $4.6 billion in the first quarter, a decline of 2.3 percent compared to the same quarter of 2002. Total operating expenses decreased 1.5 percent. Data revenues were $1.09 billion, level with the first quarter a year ago. Total access lines of 24.5 million at March 31 declined 3.6 percent compared to a year earlier, impacted by a continued weak economy, market share loss and technology substitution. Residence and business access lines served by BellSouth competitors under UNE-P (unbundled network elements-platform) grew by 231,000 in the first quarter. Domestic Wireless / Cingular BellSouth's share of Cingular's domestic wireless revenues in the first quarter of 2003 was $1.4 billion, a gain of $19 million compared to the same quarter a year ago. BellSouth's share of Cingular operating income was $286 million in the quarter, compared to $266 million in the same three months of 2002. Cingular steadily gained new cellular and PCS customers during the first three months of 2003, resulting in total first quarter net customer additions of 189,000. More than one-third of all first quarter customer additions for the nation's No. 2 wireless company came through the sales channels of Cingular's parent companies, BellSouth and SBC Communications. Total net adds improved 310,000 compared to the fourth quarter of 2002. Cingular is on target to increase its GSM and GPRS digital coverage to 90 percent of potential customers and all of its major markets by the end of 2003, with the total overlay complete in 2004. In March 2003, Cingular announced a major joint roaming agreement with AT&T Wireless that will lower roaming costs for both companies, while improving quality and encouraging further expansion of GSM/GPRS digital network services for their customers. Latin America Group Consolidated Latin America revenues were $509 million in the first quarter of 2003, a decline of 22.8 percent compared to the first quarter last year. Sequentially, Latin revenues were up slightly from the fourth quarter of 2002. Revenues continued to reflect the impacts of currency devaluations, principally in Argentina and Venezuela, as well as weak economic and unsettled political conditions in those countries. Year-over-year Latin results are affected by the timing of devaluation impacts in Venezuela and Argentina. The Latin EBITDA margin of 22.6 percent in the first quarter was negatively impacted by a contingency reserve. On a consolidated basis, Latin America Group wireless voice customers increased by 372,000 during the first quarter, compared to increases of 259,000 in the fourth quarter and 323,000 in the first quarter of 2002. Year-over-year, customers increased by 636,000, or 8.0 percent. BellSouth and its partners serve a total of 11.9 million customers in 11 Central and South American countries, including 263,000 fixed wireless customers. During the first quarter, BellSouth signed an agreement to sell its entire stake in BSE, a cellular company that operates in six states of Brazil's Northeastern region. The agreement is pending approval. Advertising & Publishing Domestic Advertising & Publishing revenues were $498 million in the first quarter of 2003, a decrease of 2.4 percent compared to the same period of the prior year. Operating income of $243 million was level with the first quarter of 2002. Special Items In the first quarter of 2003, the difference between reported (GAAP) EPS of 66 cents and normalized EPS of 51 cents is the result of four special items: Adoption of SFAS No. 143 44 cents Gain A&P accounting change 27 cents Charge Pension/severance costs 4 cents Charge Foreign currency translation 3 cents Gain Effect of rounding (1 cent) ---------- Total of special items 15 cents Gain Adoption of SFAS No. 143 - As previously disclosed, 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. Advertising & Publishing accounting change - As previously disclosed, effective January 1, 2003 BellSouth changed its method for recognizing revenues and expenses in its directory publishing business from the issue basis method to the deferral method. The change in method relates solely to the timing of the recognition of revenues and expenses and does not affect either the amounts recognized or cash flow. The issue basis method formerly used recognized 100 percent of the revenues and direct expenses at the time the directories were published and delivered to end users. Under the deferral method, revenues and direct expenses are recognized ratably over the life of the related directory, generally 12 months. Pension/severance costs - This charge represents severance costs recorded in the first quarter associated with workforce reductions. Also included are pension settlement losses. Foreign currency translation gains - Primarily associated with the remeasurement of U.S. dollar-denominated liabilities in Latin America. - ------------------------------------------------------------------------- Normalized Earnings Summary 2 1Q03 1Q02 % chg - ------------------------------------------------------------------------- EPS - Reported Diluted $0.66 ($0.08) N/M Gain on E-Plus conversion and sale of KPN stock (0.45) Qwest stock sale and impairment 0.08 Brazil loan impairments 0.14 A&P unbilled receivable adjustment 0.05 Foreign currency transaction losses (primarily debt related) (0.03) 0.11 A&P accounting change 0.27 0.02 SFAS 142 Impairment Charge 0.68 Adoption of SFAS 143 (0.44) Pension / Severance Costs 0.04 ------- EPS - Normalized 1 $0.51 $0.55 (7.3%) - ------------------------------------------------------------------------- 1 Normalized earnings per share may not sum due to rounding. 2 See press release for an explanation of all normalizing items. Communications Group Communications Group revenues declined 2.3 percent compared to first quarter 2002, primarily reflecting weak demand, retail access line market share loss, technology substitution and the continued movement of customers from resale to UNE-P. Revenue growth was also impacted by the continued phase-out of BellSouth's payphone business and the discontinuance of its wholesale long distance business. Offsetting these factors was growth in revenues from interLATA long distance and broadband DSL. Revenues from the Consumer unit, which accounts for about 43 percent of Communications Group revenues, declined 0.2 percent, impacted by 7 percent retail access line loss offset by growth in interLATA long distance, DSL and BellSouth AnswersSM. Small business revenue declined only 0.7 percent, aided by growth in packages and a strong reacquisition program. BellSouth's retail business units are focused strongly on customer retention and reacquisition. In fact, small and large business competitive disconnects were down approximately 30 percent and 20 percent, respectively, in the first quarter. Large business and wholesale revenue declined 7.5 percent and 6.2 percent respectively, due primarily to the lingering impacts of the soft economy. Long Distance / Packages In the new year, BellSouth became the first of the regional Bell operating companies to offer long distance service throughout its markets. The results are strong. At March 31, BellSouth had more than 1.9 million long distance customers, a penetration rate of 13 percent of primary residential access lines and 24 percent of mass-market small business accounts. In Georgia and Louisiana, the two states where BellSouth has been offering LD service the longest, the company has achieved total mass market residential and business penetration of 20 percent in just 10 months. In Florida and Tennessee, where BellSouth has been offering service for only three months, the total mass market penetration is 9.5 percent. In addition, BellSouth has been successful in complex business, signing more than 2,800 contracts for LD services since our launch last year. The company signed nearly 1,200 contracts in the first quarter, a 72 percent sequential quarter increase. BellSouth provides combined data and voice services to customers in the small and large business segments. Customers include SunTrust, Southeastern Freight and Fidelity National Bank. InterLATA data services include Frame Relay, ATM, and Private Line with speeds up to OC-48. InterLATA revenues grew 126 percent sequentially in the first quarter, to $77 million. [Graphic inserted here BellSouth Answers Customers In thousands 3Q02 - 1,000 4Q02 - 1,187 1Q03 - 1,601] The ability to provide long distance service throughout all markets strengthens BellSouth Answers, the company's signature package product launched nine months ago that combines wireline, wireless and Internet services. Nearly 50 percent of the customers who signed up for BellSouth Long Distance are also customers of BellSouth Answers. The package combines the Complete Choice calling plan of local service and unlimited convenience calling features with BellSouth Long Distance, DSL or dial-up Internet, and Cingular Wireless services. Customers have six Answers package options to choose from, or they can customize their own package to best meet their communications needs. Along with the convenience of a single bill and one number to call, the new packages offer residential customers combined savings of up to $400 in the first year. BellSouth ended the first quarter with 1.6 million Answers customers, a 35 percent sequential quarter increase. Nearly 60 percent of Answers customers have long distance in their package and more than 45 percent have either DSL or dial-up Internet. The Answers package helps reduce competitive churn for our high-value customers. And the more products an Answers customer buys, the more the churn rate falls. In late March 2003, BellSouth unveiled "Unlimited Answers." This simple, easy-to-understand package combines BellSouth Complete Choice and unlimited long distance for one flat fee, all on one bill. The package includes more features than any other offer in its market. BellSouth expects Unlimited Answers to further reduce competitive churn. [Graphic inserted here Consumer ARPU Monthly Average 1Q02 - $47.51 2Q02 - $47.85 3Q02 - $48.99 4Q02 - $49.10 1Q03 - $50.03 Shading indicates break-out between Core Local and LD/Internet.] In addition to reducing churn, the BellSouth Answers packages also drive increases in customer ARPU (average revenue per user) by spurring sales of long distance and DSL services. The BellSouth Answers packages also leverage BellSouth's strategic partnership in Cingular to include wireless services in the package, a combination not all competitors can match. Excluding wireless revenue impacts, average monthly retail consumer ARPU reached $50 in the first quarter, a 5.3 percent increase from a year ago, driven almost entirely by interLATA long distance and DSL. [Graphic inserted here DSL Customers In thousands 1Q02 - 729 2Q02 - 803 3Q02 - 924 4Q02 - 1,021 1Q03 - 1,122] Broadband and Data Services BellSouth added 101,000 DSL customers in the first quarter, totaling 1.122 million, a 54 percent annual increase. Penetration of qualified lines increased to over 7 percent. Since the beginning of 2001, BellSouth has increased its broadband coverage from 45 percent of the households it serves to approximately 72 percent. The company's industry-leading coverage is a result of targeted, market-driven deployment of DSL to some 1,300 central offices and about 11,500 remote terminals. As BellSouth has scaled the broadband business, costs have been tightly managed. Non-recurring expenses per total gross add, primarily for customer acquisitions and activations, declined over 10 percent in 1Q03 compared to the 2002 average. Recurring expense per average customer continues to improve (mostly help desk, online support and other service assurance costs). Both of these cost metrics decreased more than 40 percent in 2002 compared to 2001. BellSouth has been successful in incenting DSL self-install. Ninety-six percent of consumer customers chose the self-install option in the first quarter, with a success rate of over 95 percent. In addition, more customers are ordering service on the Internet. Nearly 20 percent of consumer retail orders in the first quarter came from the Web, up significantly from 2002. BellSouth continues to make process improvements to increase DSL efficiency, including an e-mail tutorial and configuration flash video to simplify the self-installation process. The enhanced tools make self-installation easier, reducing the need for service calls. Process improvements have also helped improve customer satisfaction, as measured by a decrease in help desk calls and an increase in productivity, with help desk time per call going down. In addition, e-chat for billing and service has been added, making all support functions e-chat capable. Data revenues were $1.09 billion in the first quarter, a 0.2 percent decline compared to the same quarter of the prior year, but a 3.1 percent increase sequentially. Data revenues represented nearly 16 percent of total BellSouth revenues and nearly 24 percent of Communications Group revenues in the quarter. Sales of retail data services grew 7.9 percent in the first three months of 2003, driven by DSL. Sales of wholesale data transport services to other communications providers, including long distance companies and CLECs, declined 6.7 percent during the quarter, primarily due to the lingering impacts of a soft economy. BellSouth is consistently recognized for its state-of-the-art data network. As of March 31, BellSouth had 4.5 million miles of fiber, nearly 24,000 SONET rings, over 835 broadband switches and more than 200 Dense Wave Division Multiplexing (DWDM) systems. More than 90 percent of our customers are within 12,000 feet of a broadband connection. During the quarter, the company launched BellSouth Managed Network VPN service to provide state-of-the-art data networking capabilities to business customers. The service, an extension of BellSouth's industry-leading data services portfolio, addresses the growing needs of the business market. It is a suite of IP-VPN connectivity solutions designed to support the remote access, Internet, intranet and extranet application needs of businesses. BellSouth Managed Network VPN service gives our customers the ability to shift their internal network integration and configuration functions to an outside supplier, BellSouth. Also during the quarter, the company introduced BellSouth Wavelength Service, the first optical solution enabled by the company's investment in DWDM technology. DWDM splits transmission paths on a single strand of fiber into multiple beams of light. Each light wave becomes an individual transmission path capable of carrying any type of data at speeds up to 2.5 Gbps. The service provides high volume optical transport in a point-to-point configuration that supports a minimum and maximum bandwidth per optical signal. BellSouth provides guarantees in the event of service interruptions. BellSouth Wavelength Service supports IP, SONET, ATM or Ethernet. It empowers companies to take greater control of networks by quickly turning up or down business protocols as the need to access and employ large-scale applications fluctuates. Additional Revenue Details Local service revenues declined 1.0 percent in the quarter. The primary factor was a 3.6 percent reduction year-over-year in total switched access lines, partially offset by growth in DSL revenues. Retail residential lines declined 7.0 percent; retail business lines declined 5.5 percent. The access line decline was the result of a continued weak economy, share loss and technology substitution. Retail line loss in the first quarter, while still significant at 266,000 lines, was down 28 percent from the 2002 average. Business quarterly line loss was down 48 percent, and residential was down 21 percent. While this indicates a favorable trend for both segments, UNE-P line growth depicts a different story. Residential UNE-P lines continue to grow, while business UNE-P lines added in the first quarter was the lowest level in three years (8,000), continuing a downward trend from the third quarter of 2001. [Graphic inserted here UNE-P Access Lines in Service Chart shows Residential UNE-P and Business UNE-P Access Lines in Service by quarter since 1Q01] Network access revenues declined 9.0 percent in the quarter, due to a 10.9 percent drop in total switched access MOUs and to the continuing decline in wholesale data transport service revenues. The MOU decline is the result of access line loss, the continuing shift of wholesale lines from resale to UNE-P, and alternative communications services, such as wireless and e-mail. Long distance revenue increased 28.8 percent, driven primarily by growth in interLATA and wireless long distance, partially offset by the discontinuance of BellSouth's wholesale long distance business. Toll messages declined 5.2 percent, a continued improvement from previous quarters. Other Communications Group revenues declined 8.2 percent, primarily due to BellSouth's continuing phase-out of its payphone business. BellSouth will complete its exit of the payphone business by the end of 2003. In addition, an increase in customer discounts and lower customer premise equipment sales impacted other revenues in the first quarter. Expenses and Margins Communications Group total operating expenses declined 1.5 percent year-over-year. SG&A expenses rose 5.2 percent, impacted primarily by increased employee benefit and increased advertising and long distance launch expenses, offset by reductions in salary and wage expense. Cost of services and products was up 0.4 percent year-over-year, primarily as a result of increases in network employee benefit expenses and network expenses related to the long distance launch, offset by lower network salary and wage expense, lower demand and, to a lesser degree, the phase-out of the payphone and wholesale long distance businesses. The EBITDA margin was 47.8 percent, down 210 basis points from the first quarter of 2002. Incremental pension and employee benefit expenses accounted for 170 basis points of the decline in margin. Depreciation and amortization expense declined 9.2 percent, partially driven by the effects of the previously announced adoption of SFAS 143, "Accounting for Asset Retirement Obligations," which addresses accounting for the cost of legal obligations associated with the retirement of long-lived assets. This accounting change will result in depreciation savings of about $130 million in 2003. In addition, annual changes in depreciation rates reduced depreciation and amortization expense. Service Excellence BellSouth has a heritage of industry leadership in providing the highest levels of customer satisfaction. In 2002, BellSouth achieved the top ranking for local service in the J.D. Power and Associates 2002 Major Provider Business Telecommunications Service StudySM, the second year in a row BellSouth was recognized for customer satisfaction among business customers. BellSouth also took top honors in 2002, for the ninth year in a row, in customer satisfaction for the delivery of local telephone service according to the American Customer Satisfaction Index. In addition, BellSouth achieved the top ranking, for the second consecutive year, in overall customer satisfaction among residential customers according to the Yankee Group's 2002 Technologically Advanced Family(R) survey. In broadband, BellSouth received the highest honors in customer satisfaction in the 2002 J.D. Power and Associates Residential Internet Customer Satisfaction StudySM for High Speed ISPs, tying for highest score. BellSouth also outperformed its cable modem competitors in this study. In addition, BellSouth took top honors in customer satisfaction in the J.D. Power and Associates Business Broadband Data Service Providers StudySM. Cingular Wireless - -------------------------------------------------------------------------------- Cingular's financial statements for 2003, 2002 and 2001 can be accessed at www.bellsouth.com/investor. - -------------------------------------------------------------------------------- Cingular's first quarter results reflect improved marketing, sales and operational execution. Significant improvement was made in EBITDA, which increased 7.8 percent to $1.2 billion. As a result of increased revenues and a reduction of 1.6 percent in operating expenses excluding depreciation and amortization, EBITDA margin improved 230 basis points from first quarter 2002, to 36 percent. Total operating revenue increased 1.3 percent to $3.59 billion, while total operating expenses declined 0.1 percent, generating operating income of $716 million, an increase of 7.3 percent compared to the same quarter of 2002. (Cingular began consolidating its Salmon PCS interest beginning January 1, 2003.) Service revenue increased 0.9 percent in first quarter as a result of customer growth, offset by a modest reduction in service ARPU, which declined less than 1 percent from prior year levels. Service ARPU declines are the result of lower negotiated roaming rates and competitive network build-out. Subscriber ARPU, which reflects revenue generated by Cingular customers, showed a slight increase from first quarter 2002 - the seventh consecutive quarter of year-over-year gains. In addition, the data component of ARPU increased more than three-fold to $0.80, and prepaid ARPU increased over 20 percent. Equipment and other revenues increased 7.5 percent to $244 million as a result of a better mix of higher priced handsets and lower handset subsidies. Throughout the quarter, Cingular experienced increased momentum in customer additions, ending the quarter with 189,000 total net additions - a sequential improvement of 310,000. Increased leverage of Cingular's affiliation with BellSouth and SBC Communications, and improved co-branding programs produced strong results. Sales through BellSouth and SBC produced healthy gross additions and over one-third of Cingular's total net additions in the quarter. First quarter prepaid net additions were 140,000, reflecting the continued success of Cingular's "Keep-In-Contact" product. Resale net additions were 98,000. While total retail contract customers declined 49,000 in the quarter, gross additions for this segment increased almost 9 percent sequentially. In addition, positive retail contract customer net additions were achieved in February and March. Lower churn in the prepaid and resale segments enabled Cingular to reduce first quarter churn to 2.6 percent, 30 basis points lower than first quarter 2002. Retail contract churn remained in the low 2 percent range. Cingular ended the quarter with 22.1 million PCS and cellular customers - an annual increase of 1.3 percent. Cingular Interactive had net customer additions of 17,000 during the quarter, bringing the customer number to 835,000, a 9.2 percent annual increase. Operating expenses declined 0.1 percent during the quarter, due to a 6.3 percent reduction in selling, general and administrative expenses (SG&A), offset by a 3.7 percent increase in cost of services and products, and increased depreciation and amortization expense of 8.4 percent. SG&A expenses declined mainly due to reduced acquisition costs as a result of lower gross additions, lower advertising and promotion expenses compared to first quarter 2002, and billing expense reductions as a result of consolidation initiatives. The primary drivers of expense increases were a 17 percent increase in system minutes of use, GSM overlay related costs, dual system operating costs and increased long distance volumes. First quarter capital expenditures were $327 million. Capital investments in Cingular's equity affiliates amounted to an additional $74 million. For the year, Cingular expects between $3.4 and $3.8 billion of capital expenditures and equity affiliate capital investments. Approximately $1.2 to $1.3 billion will be invested in Cingular's GSM and GPRS overlay; and $1.6 to $1.7 billion will be invested for increased capacity and coverage in the company's core GSM and TDMA networks and in non-network capital. Between $600 million and $800 million will be spent on Cingular's investments in its New York/California venture with T-Mobile and its joint venture with AT&T Wireless called "Roadrunner." Officially formed March 13, 2003, Roadrunner will build out GSM/GPRS service on more than 4,000 miles of rural highways in the U.S. Cingular expects the build to be substantially complete by the end of this year. Cingular's GSM/GPRS service offering received a major boost in March 2003 when Cingular entered into a strategic nationwide GSM/GPRS roaming agreement with AT&T Wireless. This agreement, retroactive to February 1, 2003, will (a) provide better service to Cingular customers through coverage and footprint improvements, (b) significantly reduce roaming rates, and (c) offer full interoperability of voice and data customer services such as Short Messaging Service (SMS). Cingular continues to prioritize its GSM/GPRS overlay and service offering. Cingular is on target to increase GSM and GPRS coverage to 90 percent of potential customers and all covered major markets by the end of 2003, with the total overlay complete in 2004. In the second quarter, Cingular expects to complete the overlay in Chicago and substantially complete it in a number of other major markets. By leveraging network joint ventures, sharing and roaming agreements, Cingular expects to increase GSM coverage to nearly 90 percent of the U.S. population by the end of 2003. In 2004, the GSM coverage level is expected to increase to a mid-90 percent range. Latin America Operating results for the first quarter continued to be impacted by currency devaluations and weak economic conditions, particularly in Venezuela and Argentina. Relative to the first quarter a year ago, consolidated revenue for the Latin segment decreased 22.8 percent. In terms of country-specific revenue, Colombia, the second largest Latin operation in revenues, had sequential revenue growth of 19 percent. Colombia's revenue growth was driven by a 17 percent increase in customers during the first quarter. Argentina reported sequential revenue growth of about 8 percent, generated from a comparable appreciation in the value of the Peso. Offsetting those sequential quarter gains was a 6 percent decrease in Venezuela, caused by a 14 percent depreciation of the Bolivar in the first quarter. Despite the difficult operating environment, the Latin segment continued to grow its customer base. In the consolidated countries, the number of customers grew by 372,000, a 4.6 percent sequential quarter increase and an 5.9 percent increase from the same quarter a year earlier. On a country basis, the largest contributor to overall sequential customer growth was Colombia. Peru, Nicaragua and Chile also delivered strong growth. Latin America Group also further expanded two newer service offerings during the first quarter. Fixed wireless customers grew to 263,000 from 242,000 at the end of the fourth quarter. Wireless public telephones in service increased from approximately 17,000 at year-end 2002 to 20,000 at the end of the first quarter. Venezuela was the only country that experienced a sequential quarter decline in revenue. Political tensions continued to rise during the first quarter in BellSouth's largest Latin market. The general strike ended, but crude oil production has only recovered to about 50-60 percent of pre-strike levels. Because the country depends on oil sales for a large part of its revenue, the Venezuelan economy has been weakened significantly. The Bolivar devalued from about 1400 per U.S. dollar at year-end 2002 to as low as 1900, before being fixed at 1600 by the Venezuelan government. The 1600 level represents a 13 percent decrease from rates experienced in the fourth quarter of 2002. Political turmoil, massive government deficits and overall lack of economic confidence is expected to continue to make the operating environment in Venezuela difficult. EBITDA declined 35.0 percent compared to the first quarter of 2002. EBITDA margin for the first quarter was impacted by a contingency accrual. Excluding this accrual, margins for the quarter were essentially flat relative to the first quarter of 2002. Margins are generally lower in the first quarter of the year because the Latin segment reports one month in arrears and the first quarter includes significant costs associated with the heavy promotional activity that occurs in December. The impact of currency fluctuations on U.S. dollar-denominated debt in Latin America resulted in a $48 million increase to reported earnings in the first quarter for foreign currency translation gains. This non-cash event, which is excluded from normalized and segment results, was generated largely by the appreciation of the Argentine peso. The quarter also included a benefit due to the recognition of a deferred tax asset. During the quarter, BellSouth signed an agreement to sell its entire stake in BSE, a cellular company that operates in six states of Brazil's Northeastern region. The agreement is pending approval. [Graphic inserted here Latin America Group Customers In thousands 2000 - 7,069 2001 - 7,585 2002 - 8,172 1Q03 - 8,544 Consolidated Subscribers] Additional Details Domestic Advertising and Publishing Effective January 1, 2003, BellSouth changed its method for recognizing revenues and expenses in its directory publishing business from the issue basis method to the deferral method. The issue basis method recognizes 100 percent of the revenues and direct expenses at the time directories are published and delivered to end-users. Under the deferral method, revenues and direct expenses are recognized ratably over the life of the related directory, generally 12 months. The change in method relates solely to the timing of the recognition of revenues and expenses and affects neither the amounts recognized nor cash flow. BellSouth's advertising and publishing revenues declined 2.4 percent in the quarter, reflecting continued weak demand for advertising services. EBITDA of $250 million was level with the same period in the prior year, on an EBITDA margin of 50.2 percent. Sequentially, EBITDA margin was up, driven by an approximately $60 million reduction in uncollectible expenses in the first quarter vs. the fourth quarter of 2002. Consolidated Results Total normalized operating expenses declined 3.8 percent in the quarter, driven primarily by a workforce reduction of nearly 9,000 in the past year. Other factors include currency impacts and strong cost controls in Latin America, and headcount reductions and decreased total customer acquisition costs at Cingular. Also, the impacts of SFAS 143 and the annual changes in depreciation rates reduced depreciation and amortization expense. These factors were offset by higher employee benefit and advertising expenses. Sequentially, expenses are down 3.5 percent, impacted by a reduction in uncollectible expense and the effects of SFAS 143. The normalized effective tax rate for the fourth quarter was 35.6 percent. [Graphic inserted here Net Debt In billions 1Q02 - $17.0 2Q02 - $16.2 3Q02 - $15.6 4Q02 - $14.9 1Q03 - $14.2 (Defined as long-term plus short-term debt less cash)] Normalized interest expense increased 1.4 percent. The effect of a $2.4 billion reduction in total debt outstanding year-over-year was offset by interest accruals on contingencies. [Graphic inserted here CAPEX to Total Operating Revenue 1Q02 - 17.3% 2Q02 - 17.8% 3Q02 - 15.0% 4Q02 - 16.8% 1Q03 - 11.5% (Capex and TOR both exclude domestic wireless)] BellSouth's capital expenditures totaled $631 million in first quarter, down 37.2 percent from a year ago. The 11.5 percent capex-to-revenue ratio is below the 15 percent expectation for 2003, primarily due to the delayed impact of softening demand in 2002. By targeting capital, BellSouth will continue its heritage of strong service excellence and customer satisfaction. During the quarter, BellSouth announced a 5 percent dividend increase, declaring an increased quarterly dividend of 21 cents per common share, payable May 1. Including the increase announced last summer, the quarterly dividend has increased 10.5 percent in the last 12 months. - -------------------------------------------------------------------------------- In addition to historical information, this document may contain 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. - -------------------------------------------------------------------------------- This document may also contain certain non-GAAP financial measures. The most directly comparable GAAP financial measures, and a full reconciliation of non-GAAP to GAAP financial information, are provided at the Company's investor relations Web site, www.bellsouth.com/investor. - -------------------------------------------------------------------------------- Complete financial statements and the first quarter 2003 earnings press release can be accessed at BellSouth's Web site, www.bellsouth.com/investor - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----