Business Services Industry
SBC Reports Third-Quarter Earnings Per Diluted Share of $0.53, $0.51 Excluding Special Items; Reaffirms Full-Year Guidance of $2.26; Company Passes 2-Million DSL Subscriber Mark in October
Business Wire, Oct 24, 2002
Business Editors
SAN ANTONIO--(BUSINESS WIRE)--Oct. 24, 2002--SBC Communications
Inc. (NYSE:SBC)
Note: SBC's third-quarter earnings conference call will be
broadcast live via the Internet beginning at 10 a.m. Eastern time,
Oct. 24, 2002. Instructions on how to access the webcast can be found
at www.sbc.com/investor_relations.
SBC Communications Inc. (NYSE:SBC) today reported earnings for the
three months ended Sept. 30 of $1.8 billion, or $0.53 per diluted
share, compared with $2.1 billion, or $0.61 per diluted share, in the
third quarter of 2001. Excluding special items, SBC's third-quarter
earnings were $1.7 billion, or $0.51 per diluted share, compared with
$2.0 billion, or $0.59 per diluted share, in the prior-year period.
Special items affecting this quarter's results were charges related to
work-force reductions and the company's proportionate shares of gains
and charges from international investments. Special items in both
quarters are described in detail below.
In accordance with generally accepted accounting principles
(GAAP), 2001 results include the amortization of goodwill and of FCC
cellular licenses, which beginning with 2002, are no longer amortized
in accordance with the adoption of the Statement of Financial
Accounting Standards No. 142.
Third-quarter revenues - together with proportionate revenues from
Cingular Wireless, the nationwide wireless company that is 60 percent
owned by SBC - were $12.8 billion, compared with $13.5 billion in the
year-ago period.
"Our results continue to reflect the destructive effects of UNE-P
pricing in some states, as well as continued economic softness and
increased competition including technology substitution," said Edward
E. Whitacre Jr., chairman and CEO. "We continue to respond
aggressively by reducing costs. But no amount of cost-cutting can
offset the effects of rules that require us to sell our lines and
related services to competitors below cost.
"While we will continue our prudent cost management, long-term
health in the telecommunications industry will require a balanced
regulatory environment that encourages investment and results in
sustainable, facilities-based competition, not artificial or
arbitrage-based competition," said Whitacre. "We and other concerned
companies are working with regulators to develop an industrywide
solution that will encourage investment in our nation's networks and
help America maintain its leading-edge telecommunications
infrastructure."
In the third quarter, SBC lost 751,000 retail lines to competitors
using unbundled network element platform (UNE-P) lines, primarily to
AT&T and WorldCom. Competitors have now obtained more than 4.2 million
UNE-P lines from SBC, with more than one-third of those lines being
added in the second and third quarters of 2002.
SBC Adds 226,000 DSL Subscribers During Quarter, Passes 2-Million
Mark in October
"Despite a tough regulatory and economic environment, we delivered
exceptional results adding DSL Internet subscribers, primarily as a
result of effective marketing initiatives and the introduction of SBC
Yahoo! DSL service," Whitacre noted.
SBC added 226,000 DSL Internet subscribers during the third
quarter, bringing its total to 1.95 million, up 65 percent from
year-ago levels. This is the third consecutive quarter of sequential
growth. This momentum continued into the fourth quarter, as SBC became
the first DSL provider to surpass the 2-million subscriber mark in
October. During the third quarter, SBC and Yahoo! launched SBC Yahoo!
DSL, an innovative, "built for broadband" Internet service that
features new levels of personalization and ease of use, rich content,
superior interactivity and a bundle of valuable premium services. SBC
Yahoo! DSL is available to more than 28 million customer locations in
SBC's 13 states.
Other Highlights
SBC also achieved the following operational highlights during the
quarter:
-- Added 318,000 long-distance lines, increasing its total to 5.9
million - up 28 percent from a year ago. SBC expects to gain
regulatory approvals to offer long-distance service in
California - the nation's largest long-distance market - by
year's end and in the five SBC Ameritech states in 2003.
-- Cingular Wireless ended the quarter with 22.1 million
subscribers, an increase of 3.7 percent over the same period
last year.
-- Data transport revenues increased 3.3 percent from the
prior-year period.
-- Cash operating expenses before special items decreased 3.0
percent, marking the fourth consecutive quarter with a
year-over-year decline.
Special Items
SBC's third-quarter reported results include an after-tax charge
of $125 million for severance and related costs from force-reduction
programs, and equity income of $212 million for a proportionate share
of the gains at TDC and Belgacom related to the disposition of their
Netherlands wireless operations, net of valuation and restructuring
adjustments at TDC affiliates.
SBC's reported 2001 third-quarter results included after-tax
pension settlement gains of $73 million related to management
employees, primarily resulting from a year 2000 voluntary retirement
program net of costs associated with that program.
Outlook
SBC continues to target full-year 2002 earnings of $2.26 per
diluted share, before special items. Changes in directory publishing
schedules have had the effect of reducing earnings contributions from
directory operations in the third quarter, while increasing expected
directory contributions to earnings in the fourth quarter. This year,
SBC anticipates a sequential increase in earnings per share from its
directory operations of about $0.15, fourth quarter compared with the
third. The company also said it expects to record capital expenditures
of about $7.5 billion in 2002, down from $11.2 billion in 2001.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial
estimates and other forward-looking statements that are subject to
risks and uncertainties. A discussion of factors that may affect
future results is contained in SBC's filings with the Securities and
Exchange Commission. SBC disclaims any obligation to update or revise
statements contained in this news release based on new information or
otherwise.
SBC Communications Inc. (www.sbc.com) is one of the world's
leading data, voice and Internet services providers. Through its
world-class network and its subsidiaries' trusted brands - SBC
Southwestern Bell, SBC Ameritech, SBC Pacific Bell, SBC Nevada Bell,
SBC SNET and Sterling Commerce - SBC companies provide a full range of
voice, data, networking and e-business services, as well as directory
advertising and publishing. A Fortune 30 company, America's leading
provider of high-speed DSL Internet Access services, and one of the
nation's leading Internet Service Providers, SBC companies currently
serve 58 million access lines nationwide. In addition, SBC owns 60
percent of America's second-largest wireless company, Cingular
Wireless, which serves more than 22 million wireless customers.
Internationally, SBC has telecommunications investments in 25
countries.
For more detailed information on SBC's third-quarter results,
visit www.sbc.com/investor_relations.
-0-
*T
----------------------------------------------------------------------
Financial Data
SBC Communications Inc.
----------------------------------------------------------------------
Consolidated Statements of Income
Dollars in millions except per share amounts
----------------------------------------------------------------------
Unaudited Three Months Ended Nine Months Ended
------------------------ ----------------- ------
9/30/02 9/30/01 % Chg 9/30/02 9/30/01 % Chg
----------------------------- -------- ------ -------- -------- ------
Operating Revenues
Voice $6,169 $6,670 -7.5% $18,804 $20,155 -6.7%
Data 2,441 2,395 1.9% 7,257 7,164 1.3%
Wireless subscriber - 38 - - 154 -
Long-distance voice 594 647 -8.2% 1,773 1,937 -8.5%
Directory
advertising 868 972 -10.7% 2,640 2,749 -4.0%
Other 484 616 -21.4% 1,447 1,846 -21.6%
----------------------------- -------- ------ -------- -------- ------
Total Operating
Revenues 10,556 11,338 -6.9% 31,921 34,005 -6.1%
----------------------------- -------- ------ -------- -------- ------
Operating Expenses
Operations and
support 6,287 6,316 -0.5% 18,797 18,625 0.9%
----------------------------- -------- ------ -------- -------- ------
EBITDA (1) 4,269 5,022 -15.0% 13,124 15,380 -14.7%
----------------------------- -------- ------ -------- -------- ------
Depreciation and
amortization 2,148 2,200 -2.4% 6,440 6,822 -5.6%
----------------------------- -------- ------ -------- -------- ------
Total Operating
Expenses 8,435 8,516 -1.0% 25,237 25,447 -0.8%
----------------------------- -------- ------ -------- -------- ------
Operating Income 2,121 2,822 -24.8% 6,684 8,558 -21.9%
----------------------------- -------- ------ -------- -------- ------
Interest Expense 356 377 -5.6% 1,046 1,261 -17.0%
----------------------------- -------- ------ -------- -------- ------
Interest Income 137 144 -4.9% 427 515 -17.1%
----------------------------- -------- ------ -------- -------- ------
Equity in Net Income
of Affiliates 729 509 43.2% 1,616 1,451 11.4%
----------------------------- -------- ------ -------- -------- ------
Other Income
(Expense) - Net 1 99 - 226 41 -
----------------------------- -------- ------ -------- -------- ------
Income Before Income
Taxes 2,632 3,197 -17.7% 7,907 9,304 -15.0%
----------------------------- -------- ------ -------- -------- ------
Income Taxes 862 1,125 -23.4% 2,582 3,289 -21.5%
----------------------------- -------- ------ -------- -------- ------
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting Change 1,770 2,072 -14.6% 5,325 6,015 -11.5%
----------------------------- -------- ------ -------- -------- ------
Extraordinary Item,
net of tax - - - - (18) -
Cumulative Effect of
Accounting Change,
net of tax - - - (1,810) - -
----------------------------- -------- ------ -------- -------- ------
Net Income $1,770 $2,072 -14.6% $3,515 $5,997 -41.4%
============================= ======== ====== ======== ======== ======
Basic Earnings Per
Share:
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting Change $0.53 $0.62 -14.5% $1.60 $1.79 -10.6%
Net Income $0.53 $0.62 -14.5% $1.05 $1.78 -41.0%
Weighted Average
Common
Shares Outstanding
(000,000) 3,322 3,362 -1.2% 3,334 3,368 -1.0%
Diluted Earnings Per
Share:
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting Change $0.53 $0.61 -13.1% $1.59 $1.77 -10.2%
Net Income $0.53 $0.61 -13.1% $1.05 $1.77 -40.7%
Weighted Average
Common
Shares Outstanding
with Dilution
(000,000) 3,336 3,390 -1.6% 3,353 3,399 -1.4%
Diluted Earnings Per Share - As adjusted: (2)
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting Change $0.53 $0.65 -18.5% $1.59 $1.87 -15.0%
Net Income $0.53 $0.65 -18.5% $1.05 $1.87 -43.9%
----------------------------- -------- ------ -------- -------- ------
(1) EBITDA = Earnings Before Interest, Taxes, Depreciation and
Amortization.
(2) The prior-period results have been adjusted to exclude
amortization expense related to goodwill and FCC Licenses as
required by Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."
-----------------------------------------------------------------
Financial Data
SBC Communications Inc.
-----------------------------------------------------------------
Consolidated Statements of Income - Normalized
Dollars in millions except per share amounts
-----------------------------------------------------------------
Unaudited Three Months Ended Nine Months Ended
------------------------ ------------------------
9/30/02 9/30/01 % Chg 9/30/02 9/30/01 % Chg
------------------- -------- -------- ------ -------- -------- ------
Operating Revenues
Voice $6,150 $6,658 -7.6% $18,754 $20,120 -6.8%
Data 2,441 2,395 1.9% 7,257 7,164 1.3%
Wireless
subscriber 1,980 1,903 4.0% 5,807 5,441 6.7%
Long-distance
voice 572 647 -11.6% 1,719 1,937 -11.3%
Directory
advertising 868 972 -10.7% 2,640 2,749 -4.0%
Other 770 949 -18.9% 2,282 2,843 -19.7%
------------------- -------- -------- ------ -------- -------- ------
Total Operating
Revenues 12,781 13,524 -5.5% 38,459 40,254 -4.5%
------------------- -------- -------- ------ -------- -------- ------
Operating Expenses
Operations and
support 7,651 7,889 -3.0% 22,746 23,780 -4.3%
------------------- -------- -------- ------ -------- -------- ------
EBITDA (1) 5,130 5,635 -9.0% 15,713 16,474 -4.6%
------------------- -------- -------- ------ -------- -------- ------
Depreciation and
amortization 2,470 2,498 -1.1% 7,363 7,365 -
------------------- -------- -------- ------ -------- -------- ------
Total Operating
Expenses 10,121 10,387 -2.6% 30,109 31,145 -3.3%
------------------- -------- -------- ------ -------- -------- ------
Operating Income 2,660 3,137 -15.2% 8,350 9,109 -8.3%
------------------- -------- -------- ------ -------- -------- ------
Interest Expense 427 431 -0.9% 1,255 1,361 -7.8%
------------------- -------- -------- ------ -------- -------- ------
Interest Income 73 82 -11.0% 244 253 -3.6%
------------------- -------- -------- ------ -------- -------- ------
Equity in Net
Income of
Affiliates 222 188 18.1% 734 603 21.7%
------------------- -------- -------- ------ -------- -------- ------
Other Income
(Expense) - Net (16) 99 - 22 336 -93.5%
------------------- -------- -------- ------ -------- -------- ------
Income Before
Income Taxes 2,512 3,075 -18.3% 8,095 8,940 -9.5%
------------------- -------- -------- ------ -------- -------- ------
Income Taxes 829 1,076 -23.0% 2,671 3,129 -14.6%
------------------- -------- -------- ------ -------- -------- ------
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting
Change 1,683 1,999 -15.8% 5,424 5,811 -6.7%
------------------- -------- -------- ------ -------- -------- ------
Extraordinary Item,
net of tax - - - - (18) -
Cumulative Effect
of Accounting
Change, net of tax - - - (1,810) - -
------------------- -------- -------- ------ -------- -------- ------
Net Income $1,683 $1,999 -15.8% $3,614 $5,793 -37.6%
=================== ======== ======== ====== ======== ======== ======
Basic Earnings Per Share:
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting
Change $0.51 $0.59 -13.6% $1.63 $1.73 -5.8%
Net Income $0.51 $0.59 -13.6% $1.08 $1.72 -37.2%
Weighted Average
Common
Shares
Outstanding
(000,000) 3,322 3,362 -1.2% 3,334 3,368 -1.0%
Diluted Earnings
Per Share:
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting
Change $0.51 $0.59 -13.6% $1.62 $1.71 -5.3%
Net Income $0.51 $0.59 -13.6% $1.08 $1.71 -36.8%
Weighted Average
Common
Shares
Outstanding with
Dilution
(000,000) 3,336 3,390 -1.6% 3,353 3,399 -1.4%
Diluted Earnings Per Share -
As adjusted: (2)
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting
Change $0.51 $0.62 -17.7% $1.62 $1.81 -10.5%
Net Income $0.51 $0.62 -17.7% $1.08 $1.81 -40.3%
------------------- -------- -------- ------ -------- -------- ------
(1) EBITDA = Earnings Before Interest, Taxes, Depreciation and
Amortization.
(2) The prior-period results have been adjusted to exclude
amortization expense related to goodwill and FCC Licenses as
required by Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets."
Normalized net income for 2002 excluded the following special items:
Equity income of ($212) in the third quarter for proportionate
share of the gains at TDC and Belgacom related to the
disposition of their Netherlands wireless operations, net of
valuation and restructuring adjustments at TDC affiliates.
Combined charges of $125 in the third quarter and $277 for the
first nine months for net enhanced pension benefits and
severance costs related to a force-reduction program.
Charge of $68 for the first nine months representing our
proportionate share of restructuring costs at Belgacom. These
costs were primarily related to a force-reduction initiative.
Gain of ($118) for the first nine months on the redemption of a
portion of our interest in Bell Canada.
Additional bad debt reserves of $84 for the first nine months as a
result of the July 2002 WorldCom, Inc. bankruptcy filing.
Normalized net income for 2001 excluded the following special items:
Pension settlement gains of ($73) in the third quarter and ($592)
for the first nine months related to management employees,
primarily resulting from a fourth quarter 2000 voluntary
retirement program net of costs associated with that program.
Combined charges of $261 for the first nine months related to
valuation adjustments of Williams Communications Group and
certain other cost investments accounted for under Financial
Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
Reduction of a valuation allowance of ($78) for the first nine
months on a note receivable related to the sale of Ameritech's
SecurityLink business. The note was collected in July 2001.
Combined charges of $205 for the first nine months related to
impairment of our cable operations.
Reported and Adjusted Results
(in millions, except per-share amounts)
SBC's third-quarter results in both 2002 and 2001 include special
items. The tables below summarize the items and their impacts.
3Q 2002
Earnings Per Share
-------- ---------
Reported Net Income $ 1,770 $ 0.53
Charge for costs related to
force reductions 125 0.04
Proportionate share of the
gains at TDC and
Belgacom related to the
disposition of
Netherlands wireless
operations, net of
valuation
and restructuring
adjustments at TDC
affiliates (212) (0.06)
Adjusted Earnings $ 1,683 $ 0.51
3Q 2001
Earnings Per Share
-------- ---------
Reported Net Income $ 2,072 $ 0.61
Pension settlement gains
related to management
employees, primarily
resulting from a voluntary
retirement program net of
associated costs (73) (0.02)
Adjusted Earnings $ 1,999 $ 0.59
----------------------------------------------------------------------
Financial Data
SBC Communications Inc.
----------------------------------------------------------------------
Consolidated Balance Sheets
Dollars in millions except per share amounts 9/30/02 12/31/01
----------------------------------------------------------------------
Unaudited
Assets
Current Assets
Cash and cash equivalents $873 $703
Accounts receivable - net of allowances for
uncollectibles of $1,441 and $1,254 8,348 9,376
Prepaid expenses 671 932
Deferred income taxes 730 713
Other current assets 843 856
----------------------------------------------------------------------
Total current assets 11,465 12,580
----------------------------------------------------------------------
Property, plant and equipment - at cost 130,926 127,524
Less: accumulated depreciation and amortization 82,190 77,697
----------------------------------------------------------------------
Property, Plant and Equipment - Net 48,736 49,827
----------------------------------------------------------------------
Goodwill- Net 1,658 3,577
Investments in Equity Affiliates 10,561 11,967
Notes Receivable from Cingular Wireless 5,921 5,924
Other Assets 15,522 12,447
----------------------------------------------------------------------
Total Assets $93,863 $96,322
======================================================================
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $5,134 $9,033
Accounts payable and accrued liabilities 9,634 11,459
Accrued taxes 2,921 2,598
Dividends payable 898 858
----------------------------------------------------------------------
Total current liabilities 18,587 23,948
----------------------------------------------------------------------
Long-Term Debt 18,933 17,133
----------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 9,635 8,578
Postemployment benefit obligation 10,409 9,839
Unamortized investment tax credits 248 274
Other noncurrent liabilities 3,662 4,059
----------------------------------------------------------------------
Total deferred credits and other noncurrent
liabilities 23,954 22,750
----------------------------------------------------------------------
Shareowners' Equity
Common shares issued ($1 par value) 3,433 3,433
Capital in excess of par value 11,857 11,992
Retained earnings 22,957 22,138
Treasury shares (at cost) (4,548) (3,482)
Accumulated other comprehensive income (1,310) (1,590)
----------------------------------------------------------------------
Total shareowners' equity 32,389 32,491
----------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $93,863 $96,322
======================================================================
----------------------------------------------------------------------
Financial Data
SBC Communications Inc.
----------------------------------------------------------------------
Consolidated Statement of Cash Flows
Dollars in millions, increase (decrease) in cash and cash
equivalents
----------------------------------------------------------------------
Unaudited Nine months ended
9/30/02 9/30/01
------------------------------------------------------------- --------
Operating Activities
Net income $3,515 $5,997
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,440 6,822
Undistributed earnings from investments
in equity affiliates (1,400) (677)
Provision for uncollectible accounts 1,071 886
Amortization of investment tax credits (26) (46)
Deferred income tax expense 931 855
Gain on sale of investments (316) (301)
Extraordinary item, net of tax - 18
Cumulative effect of accounting change, net of tax 1,810 -
Changes in operating assets and liabilities:
Accounts receivable (43) (137)
Other current assets 250 (466)
Accounts payable and accrued liabilities (1,474) (1,205)
Other - net (16) (1,020)
------------------------------------------------------------- --------
Total adjustments 7,227 4,729
------------------------------------------------------------- --------
Net Cash Provided by Operating Activities 10,742 10,726
------------------------------------------------------------- --------
Investing Activities
Construction and capital expenditures (4,998) (8,096)
Investments in affiliates - net (138) 1,482
Proceeds from short-term investments - 510
Dispositions 1,166 864
Acquisitions (571) -
------------------------------------------------------------- --------
Net Cash Used in Investing Activities (4,541) (5,240)
------------------------------------------------------------- --------
Financing Activities
Net change in short-term borrowings with
original maturities of three months or less (415) (2,945)
Issuance of other short-term borrowings 4,565 4,361
Repayment of other short-term borrowings (7,357) (2,505)
Issuance of long-term debt 1,966 3,731
Repayment of long-term debt (865) (3,114)
Early extinguishment of corporation-obligated
mandatorily redeemable
preferred securities of subsidiary trusts - (1,000)
Purchase of treasury shares (1,398) (1,661)
Issuance of treasury shares 126 277
Redemption of preferred shares of subsidiaries - (145)
Dividends paid (2,660) (2,591)
Other 7 25
------------------------------------------------------------- --------
Net Cash Used in Financing Activities (6,031) (5,567)
------------------------------------------------------------- --------
Net increase (decrease) in cash and cash equivalents 170 (81)
------------------------------------------------------------- --------
Cash and cash equivalents beginning of year 703 643
------------------------------------------------------------- --------
Cash and Cash Equivalents End of Period $873 $562
============================================================= ========
--30--AS/na*
CONTACT: SBC, San Antonio
Larry Solomon, 210/351-3990
solomonl@corp.sbc.com
KEYWORD: TEXAS
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS TELECOMMUNICATIONS
EARNINGS CONFERENCE CALLS INTERNET E-COMMERCE
SOURCE: SBC
COPYRIGHT 2002 Business Wire
COPYRIGHT 2008 Gale, Cengage Learning
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