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TEXAS SBC reports drop in earnings

Friday, January 31, 2003

SBC looks to cut jobs and increase employee health-care contributions after earnings drop.
Telecommunications titan SBC Communications Inc. threw cold water Tuesday on any hope investors may have had that 2003 would be an improvement over the misery of 2002.
The San Antonio-based phone company said competition and an anemic economy would depress revenue and a poorly performing pension would deal a body blow to its earnings.
"This reflects on the whole industry," said Patrick Comack, an analyst at Guzman & amp; Co. "SBC has been right before on their economic forecast. That's scary. We have to wait a whole 'nother year."
Though it's still better off than most other phone companies, SBC saw 2002 earnings fall 19.3 percent to $5.65 billion, and revenues for the year slid 6 percent to $43.14 billion.
SBC's stock closed down 53 cents to $24.32.
Executives said they would wage a two-front war to increase sales and reduce expenses. On one hand, SBC will add 2,000 salespeople, sell more bundles of local, long-distance, Internet and wireless services, and finish a new wireless network. On the other, it will cut an unspecified number of jobs, pass on higher medical costs to employees and cut capital spending.
"The near-term pressures are going to stay with us," said chairman and chief executive Edward E. Whitacre Jr. "In fact, they may get worse before we see an upturn. We are not going to do anything foolish."
A growing shortfall will force SBC to kick additional cash into its pension fund, lowering its 2003 earnings by 35 to 40 cents a share, or $1.17 billion to $1.33 billion. In November, SBC said pensions would reduce earnings by 20 to 40 cents a share.
Low interest rates and poor returns from the stock market in December forced the company to change previous estimates of how badly the pension would hurt earnings, said chief financial officer Randall Stephenson.
Pension experts have criticized SBC for using a high rate of return assumption -- 9.5 percent -- during the 2001 and 2002 bear markets. Executives have said the estimate reflected the pension's performance during the last 10 years.
SBC said it would disclose its pension's 2002 performance and 2003 rate-of-return assumption in its annual report due in March.
In the fourth quarter, the company earned $2.36 billion (71 cents a share) on revenue of $11.22 billion. That compares to a fourth-quarter profit a year ago of $1.19 billion (35 cents) on revenue of $11.9 billion.
SBC had a gain of $425 million for selling its stack in Bell Canada and a tax gain of $280 million from its Sterling Commerce division.
Phone lines lost
It lost 1.2 million phone lines in the fourth quarter and 4.5 million in 2002, ending December with 57.1 million. Many of those lines went to competitors such as AT & amp;T Corp. and WorldCom Inc. who resell its local-phone service. But consumers and businesses are also replacing second lines with broadband Internet lines and wireless phones.
In its two fastest-growing businesses, SBC added 254,000 digital subscriber line customers and 181,000 long-distance lines.
The company said DSL is now available to 66 percent of all homes and small businesses its wires pass by, up from 64 percent in September. SBC entered the California long-distance market in December and plans to gain regulatory approval for its remaining six states this year.