SBC Communications Returns to Revenue Growth, Reports Second-Quarter Earnings of $0.35 Per Diluted Share, $0.40 Before Labor Settlement Costs
SAN ANTONIO--(BUSINESS WIRE)--July 22, 2004--SBC Communications Inc. (NYSE:SBC) today reported second-quarter 2004 earnings of $1.2 billion, or $0.35 per diluted share, and $1.3 billion, or $0.40 per diluted share, before labor settlement and strike costs. Reported revenues grew 0.8 percent, and total revenues, including proportionate results from SBC's 60 percent ownership of Cingular Wireless, grew 2.0 percent.
Note: SBC's second-quarter earnings conference call will be
broadcast live via the Internet at 10 a.m. EDT on July 22, 2004,
at www.sbc.com/investor_relations.
-- Wireline revenues grow 1.1 percent versus the second quarter of 2003, up 2.1 percent versus the first quarter of this year
-- 33.2 percent growth in long distance revenues, 18.4 million long distance lines in service at the end of the second quarter
-- 9.5 percent growth in data revenues to $2.7 billion, driven by progress in DSL and the large-business market
-- 14.5 percent operating income margin, 17.0 percent before labor settlement and strike-related costs
"SBC delivered a solid quarter with strengthened fundamentals," said Edward E. Whitacre Jr., SBC chairman and chief executive officer. "We achieved positive year-over-year revenue growth this quarter, ahead of our expectation at the beginning of the year. Our revenue growth rates for long distance and data revenues were both the strongest we have recorded in several quarters. And our operating income margin before labor settlement and strike expenses was above the full-year range we provided earlier this year.
"I am particularly pleased at how well we executed and regained traction during the final weeks of the quarter after several weeks of preparation for a strike," Whitacre said. "In both long distance and DSL, our weekly run rates improved substantially as we moved through June, and we have begun the third quarter with solid momentum.
"During the second quarter, we also achieved significant progress in areas that are key to long-term stability and growth," Whitacre said. "In June, we outlined a clear, capital-efficient road map to drive fiber deeper into our networks and deliver a new generation of digital TV and super-high-speed broadband services. Throughout the quarter, we won significant contracts and expanded our presence in the large-business market, a major area of opportunity for SBC. We also moved forward with the sale of non-strategic assets, reducing funding requirements for Cingular's acquisition of AT&T Wireless, which we are confident will close this year. These are all positive developments for SBC's future."
Second-Quarter Financial Results
For the three months ending June 30, 2004, SBC's consolidated revenues totaled $10.3 billion, up 0.8 percent from $10.2 billion in the second quarter of 2003 and up 1.8 percent from $10.1 billion in the first quarter of this year. SBC's wireline revenues totaled $9.2 billion, up 1.1 percent versus the second quarter of 2003 and up 2.1 percent versus the first quarter of this year.
SBC's consolidated revenues do not include revenues from Cingular Wireless, the nationwide wireless provider in which it has 60 percent ownership. Including proportionate results from Cingular, SBC's second-quarter revenues would have totaled $12.8 billion, up 2.0 percent versus the year-earlier second quarter and up 2.5 percent versus the first quarter of this year.
SBC's second-quarter results included a charge of $263 million, or $0.05 per diluted share, reflecting net impacts from strike preparation and labor settlements, as SBC reached agreements during the quarter on five-year contracts with unions representing more than 100,000 employees. Gains and losses from asset sales during the quarter had minimal impact on second-quarter net income.
SBC's second-quarter operating income margin was 14.5 percent on a reported basis and 17.0 percent before labor settlement and strike-related costs. This compares with 15.4 percent in the first quarter of this year and 17.1 percent in the year-ago second quarter.
SBC's second-quarter earnings were $1.2 billion, or $0.35 per diluted share, on a reported basis and $1.3 billion, or $0.40 per diluted share, before labor settlement costs. This compares with earnings of $1.2 billion, or $0.36 per diluted share, before gains from asset sales in the first quarter of this year and earnings of $1.4 billion, or $0.42 per diluted share, in the year-ago second quarter.
Based on first-half results, SBC now expects consolidated revenue growth for 2004 in the flat to 1 percent range, driven by positive growth in wireline revenues. Including proportionate results from Cingular's current operations, SBC expects 2004 revenue growth in the 1 percent to 2 percent range.
Second-Quarter Highlights
Data revenues - SBC's data revenues increased 9.5 percent to $2.7 billion in the quarter, SBC's best-ever quarterly data revenue total and its strongest year-over-year growth in data revenues in more than two years. Data growth was driven by gains in DSL Internet services and expansion in the large-business market.
Bundles - SBC's penetration of consumer retail lines with at least one key service - long distance, DSL, Cingular Wireless or SBC / DISH Network video - increased to 54 percent at the end of the quarter, up from 31 percent at the end of the year-earlier second quarter.
Long distance - SBC's long distance revenues grew 33.2 percent in the second quarter, driven by strong line growth over the past year. SBC ended the quarter with 18.4 million long distance lines in service, up from 9.8 million a year earlier. In the second quarter, SBC's total long distance lines increased by 1.4 million, including an upward adjustment of approximately 100,000 lines to align long distance counting methodology with that used for other products.
DSL - SBC's net gain in DSL lines totaled 315,000 in the second quarter, reflecting solid marketplace execution combined with seasonality, as the school year ended, and a negative impact on sales channels due to strike preparation efforts. At the end of the quarter, SBC had 4.3 million DSL lines in service, up 54 percent over the past year.
Retail access lines - SBC's retail consumer line base declined by 558,000 in the second quarter, reflecting typical seasonality due to the end of the school year. This compares with declines of 721,000 in the year-earlier second quarter and 305,000 in the first quarter of this year. SBC's retail business access line base declined by 228,000 in the quarter, compared with declines of 401,000 in the second quarter of 2003 and 242,000 in the first quarter of this year.
Video - At the end of June, SBC had 121,000 SBC / DISH Network subscribers in service, 100,000 of them added in the second quarter, with minimal advertising. SBC began marketing its integrated SBC / DISH Network satellite TV service in March, expanding from a soft launch to full sales-channel coverage in April. And to develop robust video capabilities for the future, in June, SBC outlined a strategy to drive fiber deeper into its networks and deliver a new generation of integrated digital TV, super-high-speed broadband and voice over IP (Internet Protocol) services. In most cases, SBC companies would deploy fiber to the premises for new network builds and fiber-to-the-node technology in existing neighborhoods. Pending final clarity on applicable regulatory requirements and successful completion of neighborhood-level trials, which are set to begin this summer, the strategy could result in an investment of $4 billion to $6 billion over five years.
Cingular Wireless - Cingular Wireless' net subscriber additions in the second quarter totaled 428,000, bringing its nationwide cellular/PCS customer base to 25 million, an increase of 2.4 million over the past four quarters. Subscriber growth was driven by retail postpaid net adds, which were up 29 percent from first-quarter levels and represented nearly 90 percent of total net adds in the quarter. Cingular's gross customer additions totaled 2.4 million, continuing Cingular's strong gross add trends over the past year. Cingular revenues totaled $4.2 billion in the quarter, up 7.3 percent from $3.9 billion in the year-earlier second quarter and up 5.4 percent from the first quarter of this year. Cingular's second-quarter operating margin was 16.4 percent, down 310 basis points versus the second quarter of 2003 and up 220 basis points from the first quarter of this year. In February, Cingular Wireless announced an agreement to acquire AT&T Wireless, a transaction that will create a nationwide provider with the scale and capacity to provide customers with high-quality network performance and advanced services. The transaction, which is currently under review by the U.S. Department of Justice and the Federal Communications Commission, is expected to close before year end.
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, and actual results may differ materially. 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. is a Fortune 50 company whose subsidiaries, operating under the SBC brand, provide a full range of voice, data, networking, e-business, directory publishing and advertising, and related services to businesses, consumers and other telecommunications providers. SBC holds a 60 percent ownership interest in Cingular Wireless, which serves 25 million wireless customers. SBC companies provide high-speed DSL Internet access lines to more American consumers than any other provider and are among the nation's leading providers of Internet services. SBC companies also now offer satellite TV service. Additional information about SBC and SBC products and services is available at www.sbc.com.
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Financial Data
SBC Communications Inc.
----------------------------------------------------------------------
Consolidated Statements of Income
Dollars in millions except per share amounts
----------------------------------------------------------------------
Unaudited Three Months Ended Six Months Ended
---------------------- ----------------------
6/30/04 6/30/03 % Chg 6/30/04 6/30/03 % Chg
----------------------------------------------- ----------------------
Operating Revenues
Voice $5,225 $5,579 -6.3% $10,457 $11,330 -7.7%
Data 2,727 2,491 9.5% 5,374 4,970 8.1%
Long-distance voice 815 612 33.2% 1,564 1,190 31.4%
Directory advertising 1,055 1,080 -2.3% 2,115 2,156 -1.9%
Other 492 474 3.8% 932 965 -3.4%
----------------------------------------------- ----------------------
Total Operating
Revenues 10,314 10,236 0.8% 20,442 20,611 -0.8%
----------------------------------------------- ----------------------
Operating Expenses
Cost of sales
(exclusive of
depreciation and
amortization shown
separately below) 4,305 4,067 5.9% 8,543 8,150 4.8%
----------------------------------------------- ----------------------
Selling, general and
administrative 2,627 2,442 7.6% 5,035 4,840 4.0%
----------------------------------------------- ----------------------
Depreciation and
amortization 1,888 1,977 -4.5% 3,811 3,973 -4.1%
----------------------------------------------- ----------------------
Total Operating
Expenses 8,820 8,486 3.9% 17,389 16,963 2.5%
----------------------------------------------- ----------------------
Operating Income 1,494 1,750 -14.6% 3,053 3,648 -16.3%
----------------------------------------------- ----------------------
Interest Expense 236 376 -37.2% 467 693 -32.6%
----------------------------------------------- ----------------------
Interest Income 120 143 -16.1% 236 279 -15.4%
----------------------------------------------- ----------------------
Equity in Net Income of
Affiliates 369 471 -21.7% 961 836 15.0%
----------------------------------------------- ----------------------
Other Income (Expense) -
Net (44) 84 - 817 1,665 -50.9%
----------------------------------------------- ----------------------
Income Before Income
Taxes 1,703 2,072 -17.8% 4,600 5,735 -19.8%
----------------------------------------------- ----------------------
Income Taxes 535 684 -21.8% 1,495 1,892 -21.0%
----------------------------------------------- ----------------------
Income Before Cumulative
Effect of Accounting
Changes 1,168 1,388 -15.9% 3,105 3,843 -19.2%
----------------------------------------------- ----------------------
Cumulative Effect of
Accounting Changes, net
of tax - - - - 2,541 -
----------------------------------------------- ----------------------
Net Income $1,168 $1,388 -15.9% $3,105 $6,384 -51.4%
=============================================== ======================
Basic Earnings Per Share:
Income Before Cumulative
Effect of Accounting
Changes $0.35 $0.42 -16.7% $0.94 $1.16 -19.0%
Net Income $0.35 $0.42 -16.7% $0.94 $1.92 -51.0%
Weighted Average Common
Shares Outstanding
(000,000) 3,312 3,323 -0.3% 3,310 3,321 -0.3%
Diluted Earnings Per
Share:
Income Before Cumulative
Effect of Accounting
Changes $0.35 $0.42 -16.7% $0.94 $1.15 -18.3%
Net Income $0.35 $0.42 -16.7% $0.94 $1.92 -51.0%
Weighted Average Common
Shares Outstanding with
Dilution (000,000) 3,323 3,334 -0.3% 3,323 3,334 -0.3%
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Financial Data
SBC Communications Inc.
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Statements of Segment Income
Dollars in millions
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Unaudited
Three Months Ended Six Months Ended
------------------------- -------------------------
Wireline 6/30/2004 6/30/2003 % Chg 6/30/2004 6/30/2003 % Chg
-------------------------------------------- -------------------------
Segment Operating
Revenues
Voice $5,206 $5,566 -6.5% $10,419 $11,305 -7.8%
Data 2,727 2,491 9.5% 5,374 4,970 8.1%
Long-distance
voice 815 612 33.2% 1,564 1,190 31.4%
Other 479 461 3.9% 910 938 -3.0%
-------------------------------------------- -------------------------
Total Segment
Operating
Revenues 9,227 9,130 1.1% 18,267 18,403 -0.7%
-------------------------------------------- -------------------------
Segment Operating
Expenses
Cost of sales 4,091 3,862 5.9% 8,112 7,741 4.8%
-------------------------------------------- -------------------------
Selling, general
and administrative
Selling 1,644 1,614 1.9% 3,307 3,146 5.1%
General and
administrative 674 654 3.1% 1,194 1,188 0.5%
-------------------------------------------- -------------------------
Selling, general
and
administrative 2,318 2,268 2.2% 4,501 4,334 3.9%
-------------------------------------------- -------------------------
Depreciation and
amortization 1,863 1,953 -4.6% 3,761 3,922 -4.1%
-------------------------------------------- -------------------------
Total Segment
Operating
Expenses 8,272 8,083 2.3% 16,374 15,997 2.4%
-------------------------------------------- -------------------------
Segment Income $955 $1,047 -8.8% $1,893 $2,406 -21.3%
============================================ =========================
Cingular (a)
-------------------------------------------- -------------------------
Segment Operating
Revenues
Service revenues $3,801 $3,619 5.0% $7,359 $7,013 4.9%
Equipment sales 354 255 38.8% 738 499 47.9%
-------------------------------------------- -------------------------
Total Segment
Operating
Revenues 4,155 3,874 7.3% 8,097 7,512 7.8%
-------------------------------------------- -------------------------
Segment Operating
Expenses
Cost of services
and equipment
sales 1,448 1,341 8.0% 2,907 2,558 13.6%
Selling, general
and
administrative 1,462 1,269 15.2% 2,834 2,486 14.0%
Depreciation and
amortization 565 508 11.2% 1,117 996 12.1%
-------------------------------------------- -------------------------
Total Segment
Operating
Expenses 3,475 3,118 11.4% 6,858 6,040 13.5%
-------------------------------------------- -------------------------
Segment Operating
Income 680 756 -10.1% 1,239 1,472 -15.8%
-------------------------------------------- -------------------------
Other Income
(Expense) - Net (331) (334) 0.9% (657) (629) -4.5%
-------------------------------------------- -------------------------
Segment Income $349 $422 -17.3% $582 $843 -31.0%
============================================ =========================
(a) Results reflect 100% of Cingular Wireless' actual results.
Directory
-------------------------------------------- -------------------------
Segment Operating
Revenues $1,051 $1,066 -1.4% $2,105 $2,128 -1.1%
-------------------------------------------- -------------------------
Segment Operating
Expenses
Cost of sales 234 224 4.5% 473 440 7.5%
-------------------------------------------- -------------------------
Selling, general and
administrative
Selling 143 159 -10.1% 285 313 -8.9%
General and
administrative 107 100 7.0% 209 203 3.0%
-------------------------------------------- -------------------------
Selling, general and
administrative 250 259 -3.5% 494 516 -4.3%
-------------------------------------------- -------------------------
Depreciation and
amortization 2 4 -50.0% 5 11 -54.5%
-------------------------------------------- -------------------------
Total Segment
Operating
Expenses 486 487 -0.2% 972 967 0.5%
-------------------------------------------- -------------------------
Segment Income $565 $579 -2.4% $1,133 $1,161 -2.4%
============================================ =========================
International
-------------------------------------------- -------------------------
Segment Operating
Revenues $6 $8 -25.0% $11 $14 -21.4%
-------------------------------------------- -------------------------
Segment Operating
Expenses 6 11 -45.5% 18 32 -43.8%
-------------------------------------------- -------------------------
Segment Operating
Income (Loss) - (3) - (7) (18) 61.1%
-------------------------------------------- -------------------------
Equity in Net
Income of
Affiliates 149 216 -31.0% 601 328 83.2%
-------------------------------------------- -------------------------
Segment Income $149 $213 -30.0% $594 $310 91.6%
============================================ =========================
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Financial Data
SBC Communications Inc.
----------------------------------------------------------------------
Consolidated Statement of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents
----------------------------------------------------------------------
Unaudited Six months ended
6/30/04 6/30/03
----------------------------------------------------------------------
Operating Activities
Net income $3,105 $6,384
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,811 3,973
Undistributed earnings from investments
in equity affiliates (671) (593)
Provision for uncollectible accounts 392 576
Amortization of investment tax credits (15) (19)
Deferred income tax expense 881 644
Gain on sale of investments (849) (1,647)
Cumulative effect of accounting change, net of tax - (2,541)
Retirement benefit funding (232) (445)
Changes in operating assets and liabilities:
Accounts receivable 222 473
Other current assets 8 (213)
Accounts payable and accrued liabilities (1,048) 1,106
Other - net 187 (891)
----------------------------------------------------------------------
Total adjustments 2,686 423
----------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,791 6,807
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Investing Activities
Construction and capital expenditures (2,138) (1,969)
Purchases of held-to-maturity securities (135) (285)
Maturities of held-to-maturity securities 237 -
Dispositions 5,179 2,620
Acquisitions (9) -
Proceeds from note repayment 50 -
----------------------------------------------------------------------
Net Cash Provided by Investing Activities 3,184 366
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Financing Activities
Net change in short-term borrowings with
original maturities of three months or less (35) (78)
Repayment of other short-term borrowings - (1,070)
Repayment of long-term debt (184) (2,496)
Issuance of treasury shares 93 42
Dividends paid (2,069) (1,999)
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Net Cash Used in Financing Activities (2,195) (5,601)
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Net increase in cash and cash equivalents 6,780 1,572
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Cash and cash equivalents beginning of year 4,806 3,567
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Cash and Cash Equivalents End of Period $11,586 $5,139
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Financial Data
SBC Communications Inc.
----------------------------------------------------------------------
Consolidated Balance Sheets
Dollars in millions except per share amounts 6/30/2004 12/31/2003
----------------------------------------------------------------------
Unaudited
Assets
Current Assets
Cash and cash equivalents $11,586 $4,806
Accounts receivable - net of allowances for
uncollectibles of $974 and $914 5,564 6,178
Short-term investments 346 378
Prepaid expenses 783 760
Deferred income taxes 575 712
Other current assets 1,103 1,134
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Total current assets 19,957 13,968
----------------------------------------------------------------------
Property, plant and equipment - at cost 134,943 133,923
Less: accumulated depreciation and amortization 84,387 81,795
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Property, Plant and Equipment - Net 50,556 52,128
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Goodwill- Net 1,625 1,611
Investments in Equity Affiliates 2,074 6,947
Investments in and Advances to Cingular Wireless 11,351 11,003
Other Assets 14,859 14,509
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Total Assets $100,422 $100,166
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Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $2,460 $1,879
Accounts payable and accrued liabilities 9,386 10,870
Accrued taxes 907 478
Dividends payable 1,035 1,033
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Total current liabilities 13,788 14,260
----------------------------------------------------------------------
Long-Term Debt 15,162 16,060
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Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 15,681 15,079
Postemployment benefit obligation 12,663 12,692
Unamortized investment tax credits 205 220
Other noncurrent liabilities 3,643 3,607
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Total deferred credits and other noncurrent
liabilities 32,192 31,598
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Shareowners' Equity
Common shares issued ($1 par value) 3,433 3,433
Capital in excess of par value 12,941 13,010
Retained earnings 28,670 27,635
Treasury shares (at cost) (4,390) (4,698)
Additional minimum pension liability adjustment (1,132) (1,132)
Accumulated other comprehensive income (242) -
----------------------------------------------------------------------
Total shareowners' equity 39,280 38,248
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Total Liabilities and Shareowners' Equity $100,422 $100,166
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Contacts
SBC Communications Inc.
Larry Solomon, 210-351-3990
solomonl@corp.sbc.com
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