BLS Bellsouth Cp

- Improving Cingular margins contribute to BellSouth results ATLANTA, October 25 /PRNewswire-FirstCall/ -- BellSouth Corporation (NYSE:BLS) announced third quarter 2005 earnings per share (EPS) from continuing operations of 44 cents compared to 43 cents in the second quarter of 2005 and 46 cents in the third quarter of 2004. Normalizing items in the third quarter of 2005 consisted of Hurricane Katrina-related costs, wireless merger integration costs, and a gain from the sale of an investment. Normalized EPS from continuing operations was 46 cents, flat compared to the second quarter of 2005 and a 3 cent decline compared to the third quarter of 2004. "Results for the quarter remained strong despite extraordinary challenges we faced with Hurricane Katrina," said Duane Ackerman, Chairman and Chief Executive Officer. "Our employees demonstrated tremendous commitment to serve our customers. At the same time, we maintained focus on the key growth areas of our business, delivering solid revenue performance and continued customer growth from broadband and wireless services." Normalized Results from Continuing Operations Normalized results from continuing operations include BellSouth's 40 percent proportionate share of Cingular's revenues and expenses. Cingular completed its acquisition of AT&T Wireless on Oct. 26, 2004. Results prior to the acquisition date have not been restated. For the third quarter of 2005, normalized revenue was $8.49 billion. Normalized revenue for the quarter was down slightly compared to the second quarter of 2005. Billing credits related to Hurricane Katrina reduced normalized revenues by $63 million. Operating income and net income were essentially flat compared to the second quarter of 2005, reflecting continued improvement in the wireless business that offset pressures in wireline services. Year-over-year, third quarter 2005 normalized revenue was up compared to $6.76 billion in the third quarter of 2004. Third quarter normalized net income was $845 million, a $48 million decrease compared to the same quarter of the previous year due to a decline in earnings from the Communications Group and financing costs associated with the acquisition of AT&T Wireless partially offset by higher earnings from Cingular. Reported Results from Continuing Operations For the third quarter of 2005, BellSouth's consolidated reported revenue from continuing operations totaled $5.07 billion, a slight decrease compared to the same quarter of 2004. Income from continuing operations was $817 million compared to $852 million in the same quarter of the previous year. Reported results for the quarter include the financial impacts of two significant events. During the quarter, the Company recognized a $228 million after-tax gain from the sale of its share in Cellcom, a cellular communications operator in Israel. In addition to the negative impact of hurricane-related billing credits, the Company also incurred $200 million of incremental expense and asset impairments, net of taxes, associated with damage from Hurricane Katrina. On Sept. 6, 2005, BellSouth made an initial estimate of the future cost for network restoration, including capital and expense, of $400 million to $600 million. The company continues with damage assessments as we gain access to all areas. This estimate is subject to many uncertainties, the most significant of which include completion of physical surveys, the government's specific plans for reconstruction of the City of New Orleans and the resulting impact on our network design. Operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $1.2 billion for the third quarter of 2005. Capital expenditures for the third quarter of 2005 were $886 million. During the quarter, the Company received $625 million in proceeds from the sale of Cellcom, $949 million in proceeds from loan repayments from Cingular and paid down approximately $700 million in debt. The dividend for the third quarter was 29 cents per share or $1.16 per share annualized. Reflecting management's confidence in generating operating free cash flow and increasing distributions from Cingular, the Company will allocate a portion of future cash flow for share repurchase. The board of directors authorized the repurchase of up to $2 billion of common stock through the end of 2007. Communications Group In the third quarter of 2005, Communications Group revenue was $4.59 billion, a slight decline compared to the same quarter of 2004. Billing credits to customers in the areas hardest-hit by Hurricane Katrina reduced revenue by $44 million. Revenue growth from long distance, DSL and small business services effectively offset revenue declines from residential access line loss and large business services. Third quarter operating margin was 22.3 percent compared to 25.0 percent for the full year of 2004. The success of BellSouth's new simplified pricing for BellSouth(R) FastAccess(R) DSL drove strong subscriber growth in the third quarter of 2005. During the quarter, BellSouth added 205,000 net DSL customers and now serves nearly 2.7 million customers with broadband DSL service. The company's gross adds significantly improved, demonstrating continued growth in market demand for broadband services. Sequentially, DSL average revenue per user (ARPU) remained steady at nearly $40. For the third quarter, network data revenue, which includes revenue from DSL services, was $1.17 billion. BellSouth continued penetrating its customer base with incremental services and now serves approximately 7.0 million mass-market long distance customers. The Company added 222,000 net mass-market long distance customers during the third quarter of 2005 to reach 56 percent penetration of its mass- market customer base. During the third quarter, 66,000 customers added DIRECTV(R) service to their communications packages, reaching a total of more than 460,000. For convenience and simplicity, customers can combine DSL, long distance, DIRECTV(R) and Cingular Wireless with the BellSouth Answers(R) bundle. At quarter-end, BellSouth had 4.9 million BellSouth Answers(R) residential customers, which is a 42 percent penetration of the company's retail residential access lines. As of Sept. 30, 2005, total access lines were 20.4 million, down 354,000 compared to June 30, 2005. The Company estimates approximately 40,000 of this decline is attributable to disconnections associated with Hurricane Katrina. The remaining access line loss was driven by wireless substitution and cable telephony providers in residential markets. Residential retail access lines were down 181,000. In contrast, business retail access lines grew 37,000 lines with positive results in both small and large business segments. UNE-P (Unbundled Network Elements-Platform) access lines resold by BellSouth competitors were down 228,000 compared to June 30, 2005. Cingular Wireless In the third quarter, Cingular Wireless delivered balanced results driven by improved margins and progress on merger initiatives, positively impacting BellSouth's earnings. Cingular had gross additions of 4.4 million and net additions of 867,000 bringing its nationwide customer base to 52.3 million customers at quarter-end. Total churn was 2.3 percent, a 10 basis point sequential increase reflecting seasonal patterns and a relatively high number of contract expirations in the quarter. Cingular's reported revenue was $8.7 billion, which is a 6.2 percent increase compared to pro forma revenue in the same quarter a year ago. Credits issued to customers in the areas affected by Hurricane Katrina reduced Cingular's reported revenue by $31 million. Cingular's normalized service margin from operating income before depreciation and amortization (OIBDA) was 31.6 percent, 270 basis points higher than the second quarter of 2005. This increase demonstrates the company's continued progress on merger integration initiatives. Cingular's proportion of BellSouth's operating margin before depreciation and amortization expanded from 21 percent in the fourth quarter of 2004 to 31 percent in the third quarter of 2005. With Cingular representing 41 percent of BellSouth's normalized revenue and a growing percentage of its profit, continued margin growth at Cingular will have a compounding affect on BellSouth's profitability. ARPU was $49.65, a decline of 5.2 percent from pro forma ARPU in the same quarter a year ago. Data service ARPU continued its strong growth reaching $4.33 driven by increasing market demand for text messaging, mobile e-mail, downloadable ringtones, games and photo messaging. Network integration and UMTS deployment are progressing. GSM migration is moving toward completion with 93 percent of MOUs carried on Cingular's GSM network. Cingular has now converted 6 million former AT&T Wireless subscribers to new Cingular plans. UMTS deployment is on schedule for 15 to 20 markets before the end of 2005. UMTS will provide simultaneous voice and data and is expected to have the fastest average speeds in the industry. Advertising & Publishing In the third quarter of 2005, Advertising & Publishing revenue was $509 million, an increase of 2.2 percent compared to the same quarter of the previous year. Adjusted for hurricane-related revenue credits, revenue growth was 3.6 percent. Growth in this business is driven by rapidly increasing online advertising and other new print services. Operating margins remained strong at 45.8 percent. Segment net income was $146 million, up $5 million compared to the third quarter of 2004. Normalizing Items In the third quarter of 2005, the difference between reported (GAAP) EPS from continuing operations and normalized EPS is shown in the following table: 3Q05 3Q04 2Q05 GAAP Diluted EPS - Income from continuing operations $0.44 $0.46 $0.43 Hurricane-related expenses: $0.11 $0.01 Asset impairment $0.06 Uncollectibles $0.01 Restoration $0.04 Wireless merger integration costs $0.03 $0.01 $0.02 Gain on sale of Cellcom ($0.12) Debt extinguishment costs $0.01 Normalized Diluted EPS - Income from continuing operations (1) $0.46 $0.49 $0.46 (1) 3Q04 does not sum due to rounding Hurricane-related expenses - Represents third quarter 2005 Hurricane Katrina-related charges of $200 million after-tax and consists of asset impairment charges (based on preliminary damage assessments), incremental labor and material costs related to service restoration and network repairs, and incremental uncollectible expense. These expenses are comprised of charges related to BellSouth's wireline business and its 40 percent share of Cingular Wireless. Third quarter 2004 charges represent incremental labor and material costs in the wireline business due to Hurricanes Charley, Frances, Ivan and Jeanne. Wireless merger integration costs - Represents BellSouth's 40 percent share of tax-effected wireless merger integration costs of $240 million incurred during the third quarter of 2005 in connection with the Cingular/ AT&T Wireless merger. Integration costs include one-time cash outlays or specified non-cash charges, including accelerated depreciation directly related to rationalization of the wireless network, sales distribution channels, the workforce, information technology systems and real estate. Gain on sale of Cellcom - Gain related to sale of Cellcom, a cellular communications operator in Israel. Debt extinguishment costs - Represents one-time expenses associated with the early extinguishment of $300 million of long-term debt in the second quarter of 2005. About BellSouth Corporation BellSouth Corporation is a Fortune 100 communications company headquartered in Atlanta, Georgia. BellSouth has joint control and 40 percent ownership of Cingular Wireless, the nation's largest wireless voice and data provider with 52.3 million customers. Backed by award winning customer service, BellSouth offers the most comprehensive and innovative package of voice and data services available in the market. Through BellSouth Answers(R), residential and small business customers can bundle their local and long distance service with dial-up and high-speed DSL Internet access, satellite television and Cingular(R) Wireless service. For businesses, BellSouth provides secure, reliable local and long distance voice and data networking solutions. BellSouth also offers online and directory advertising through BellSouth(R) RealPages.com(R) and The Real Yellow Pages(R). BellSouth believes that diversity and fostering an inclusive environment are critical in maintaining a competitive advantage in today's global marketplace. More information about BellSouth can be found at http://www.bellsouth.com/. Further information about BellSouth and Cingular's third quarter earnings can be accessed at http://www.bellsouth.com/investor. The press release, financial statements and Investor News summarizing highlights of the quarter are available on the BellSouth Investor Relations website starting today at 8 a.m. Eastern Time (ET). BellSouth will host a conference call with investors today at 10 a.m. (ET). Dial-in information for the conference call is as follows: Domestic: 888-370-1863 International: 706-634-1735 The conference call will also be webcast live beginning at 10 a.m. (ET) on our website at http://www.bellsouth.com/investor. The webcast will be archived on our website beginning at approximately 1 p.m. (ET) today. A replay of the call will be available beginning at approximately 1 p.m. (ET) today, through November 1, 2005, and can be accessed by dialing: Domestic: 800-642-1687 - Conference ID: 4107477 International: 706-645-9291 - Conference ID: 4107477 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 markets where we operate or have material investments which would affect demand for our services; (ii) the intensity of competitive activity and its resulting impact on pricing strategies and new product offerings; (iii) higher than anticipated cash requirements for investments, new business initiatives and acquisitions; (iv) unfavorable regulatory actions; and (v) 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 attached hereto and provided on the Company's investor relations website, http://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 pages 3 and 4 for a summary of unusual items included in Reported Basis results. 3Q05 3Q04 Growth 2Q05 Growth Operating Revenues Communications group $4,558 $4,590 -0.7% $4,598 -0.9% Advertising and publishing 506 495 2.2% 527 -4.0% All other 8 10 -20.0% 17 -52.9% Total Operating Revenues 5,072 5,095 -0.5% 5,142 -1.4% Operating Expenses Cost of services and products 2,017 1,881 7.2% 1,925 4.8% Selling, general & administrative expenses 1,162 905 28.4% 951 22.2% Depreciation and amortization 922 908 1.5% 916 0.7% Total Operating Expenses 4,101 3,694 11.0% 3,792 8.1% Operating Income 971 1,401 -30.7% 1,350 -28.1% Interest Expense 274 220 24.5% 285 -3.9% Other Income (Expense), net 512 136 276.5% 124 N/M* Income from Continuing Operations before Income Taxes and Discontinued Operations 1,209 1,317 -8.2% 1,189 1.7% Provision for Income Taxes 392 465 -15.7% 394 -0.5% Income from Continuing Operations 817 852 -4.1% 795 2.8% Income (Loss) from Discontinued Operations, net of tax - (53) N/M* - N/M* Net Income 817 799 2.3% 795 2.8% Diluted: Weighted Average Common Shares Outstanding 1,836 1,835 0.1% 1,835 0.1% Earnings Per Share: Income from Continuing Operations $0.44 $0.46 -4.3% $0.43 2.3% Income from Discontinued Operations $0.00 ($0.03) N/M* $0.00 N/M* Net Income $0.44 $0.44 0.0% $0.43 2.3% * - Not meaningful. Selected Financial and Operating Data Operating income $971 $1,401 -30.7% $1,350 -28.1% Operating margin 19.1% 27.5% -840 bps 26.3% -720 bps Declared dividends per share $0.29 $0.27 7.4% $0.29 0.0% Capital expenditures $886 $768 15.4% $829 6.9% Common shares outstanding 1,831 1,831 0.0% 1,832 -0.1% Book value per share $13.28 $11.94 11.2% $13.10 1.4% Year-to-Date 2005 2004 Growth Operating Revenues Communications group $13,749 $13,643 0.8% Advertising and publishing 1,521 1,481 2.7% All other 35 30 16.7% Total Operating Revenues 15,305 15,154 1.0% Operating Expenses Cost of services and products 5,862 5,468 7.2% Selling, general & administrative expenses 3,014 2,765 9.0% Depreciation and amortization 2,756 2,720 1.3% Total Operating Expenses 11,632 10,953 6.2% Operating Income 3,673 4,201 -12.6% Interest Expense 850 646 31.6% Other Income (Expense), net 612 990 -38.2% Income from Continuing Operations before Income Taxes and Discontinued Operations 3,435 4,545 -24.4% Provision for Income Taxes 1,140 1,604 -28.9% Income from Continuing Operations 2,295 2,941 -22.0% Income (Loss) from Discontinued Operations, net of tax 381 453 -15.9% Net Income 2,676 3,394 -21.2% Diluted: Weighted Average Common Shares Outstanding 1,835 1,836 -0.1% Earnings Per Share: Income from Continuing Operations $1.25 $1.60 -21.9% Income from Discontinued Operations $0.21 $0.25 -16.0% Net Income $1.46 $1.85 -21.1% * - Not meaningful. Selected Financial and Operating Data Operating income $3,673 $4,201 -12.6% Operating margin 24.0% 27.7% -370 bps Declared dividends per share $0.85 $0.79 7.6% Capital expenditures $2,465 $2,134 15.5% 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 pages 3 and 4 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. Normalized results exclude discontinued operations from all periods. Certain reclassifications have been made to prior periods to conform to the current presentation. 3Q05 3Q04 Growth 2Q05 Growth Operating Revenues Communications group $4,480 $4,538 -1.3% $4,537 -1.3% Domestic wireless 3,499 1,716 103.9% 3,443 1.6% Advertising and publishing 506 495 2.2% 527 -4.0% All other 9 11 -18.2% 16 -43.8% Total Operating Revenues 8,494 6,760 25.7% 8,523 -0.3% Operating Expenses Cost of services and products 3,250 2,459 32.2% 3,268 -0.6% Selling, general, & administrative expenses 2,084 1,510 38.0% 2,097 -0.6% Depreciation and amortization 1,501 1,137 32.0% 1,524 -1.5% Total Operating Expenses 6,835 5,106 33.9% 6,889 -0.8% Operating Income 1,659 1,654 0.3% 1,634 1.5% Interest Expense 374 276 35.5% 392 -4.6% Other Income (Expense), net 38 7 N/M* 58 -34.5% Income Before Income Taxes 1,323 1,385 -4.5% 1,300 1.8% Provision for Income Taxes 478 492 -2.8% 451 6.0% Net Income $845 $893 -5.4% $849 -0.5% Diluted: Weighted Average Common Shares Outstanding 1,836 1,835 0.1% 1,835 0.1% Earnings Per Share $0.46 $0.49 -6.1% $0.46 0.0% * - Not meaningful. Selected Financial and Operating Data Operating income $1,659 $1,654 0.3% $1,634 1.5% Operating margin 19.5% 24.5% -500 bps 19.2% 30 bps Declared dividends per share $0.29 $0.27 7.4% $0.29 0.0% Capital expenditures $886 $768 15.4% $829 6.9% Common shares outstanding 1,831 1,831 0.0% 1,832 -0.1% Book value per share $13.28 $11.94 11.2% $13.10 1.4% Total employees 63,049 63,132 -0.1% 62,524 0.8% Year-to-Date 2005 2004 Growth Operating Revenues Communications group $13,538 $13,543 0.0% Domestic wireless 10,234 4,978 105.6% Advertising and publishing 1,521 1,481 2.7% All other 35 30 16.7% Total Operating Revenues 25,328 20,032 26.4% Operating Expenses Cost of services and products 9,749 7,141 36.5% Selling, general, & administrative expenses 6,234 4,493 38.7% Depreciation and amortization 4,613 3,396 35.8% Total Operating Expenses 20,596 15,030 37.0% Operating Income 4,732 5,002 -5.4% Interest Expense 1,169 816 43.3% Other Income (Expense), net 170 19 N/M* Income Before Income Taxes 3,733 4,205 -11.2% Provision for Income Taxes 1,321 1,486 -11.1% Net Income $2,412 $2,719 -11.3% Diluted: Weighted Average Common Shares Outstanding 1,835 1,836 -0.1% Earnings Per Share $1.31 $1.48 -11.5% * - Not meaningful. Selected Financial and Operating Data Operating income $4,732 $5,002 -5.4% Operating margin 18.7% 25.0% -630 bps Declared dividends per share $0.85 $0.79 7.6% Capital expenditures $2,465 $2,134 15.5% BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Third Quarter 2005 Discontinued Continuing Operations Operations GAAP C (GAAP-C) Operating Revenues $5,072 $- $5,072 Operating Expenses 4,101 - 4,101 Operating Income 971 - 971 Interest Expense 274 - 274 Other Income (Expense), net 512 - 512 Income from Continuing Operations before Income Taxes 1,209 - 1,209 Provision for Income Taxes 392 - 392 Income from Continuing Operations 817 - 817 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $817 $0 $817 Diluted Earnings Per Share $0.44 $0.00 $0.44 Third Quarter 2005 Normalizing Items Merger Hurri- Integra- Debt cane Sale tion Exting. related of Cingular Costs Costs Expenses Cellcom A E F G I Normalized Operating Revenues $3,422 $- $- $- $- $8,494 Operating Expenses 3,158 (96) - (328) - 6,835 Operating Income 264 96 - 328 - 1,659 Interest Expense 100 - - - - 374 Other Income (Expense), net (123) - - - (351) 38 Income from Continuing Operations before Income Taxes 41 96 - 328 (351) 1,323 Provision for Income Taxes 41 40 - 128 (123) 478 Income from Continuing Operations - 56 - 200 (228) 845 Income (Loss) from Discontinued Operations, net of tax - - - - - - Net Income $0 $56 $0 $200 ($228) $845 Diluted Earnings Per Share $0.00 $0.03 $0.00 $0.11 ($0.12) $0.46 Year-to-Date 2005 Discontinued Continuing Operations Operations GAAP C (GAAP-C) Operating Revenues $15,305 $- $15,305 Operating Expenses 11,632 - 11,632 Operating Income 3,673 - 3,673 Interest Expense 850 - 850 Other Income (Expense), net 612 - 612 Income from Continuing Operations before Income Taxes 3,435 - 3,435 Provision for Income Taxes 1,140 - 1,140 Income from Continuing Operations 2,295 - 2,295 Income (Loss) from Discontinued Operations, net of tax 381 (381) - Net Income $2,676 ($381) $2,295 Diluted Earnings Per Share $1.46 ($0.21) $1.25 Year-to-Date 2005 Normalizing Items Merger Hurri- Integra- Debt cane Sale tion Exting. related of Cingular Costs Costs Expenses Cellcom A E F G I Normalized Operating Revenues $10,023 $- $- $- $- $25,328 Operating Expenses 9,511 (219) - (328) - 20,596 Operating Income 512 219 - 328 - 4,732 Interest Expense 319 - - - - 1,169 Other Income (Expense), net (133) - 42 - (351) 170 Income from Continuing Operations before Income Taxes 60 219 42 328 (351) 3,733 Provision for Income Taxes 60 100 16 128 (123) 1,321 Income from Continuing Operations - 119 26 200 (228) 2,412 Income (Loss) from Discontinued Operations, net of tax - - - - - - Net Income $0 $119 $26 $200 ($228) $2,412 Diluted Earnings Per Share $0.00 $0.06 $0.01 $0.11 ($0.12) $1.31 BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Third Quarter 2004 Discontinued Continuing Operations Operations GAAP C (GAAP-C) Operating Revenues $5,095 $- $5,095 Operating Expenses 3,694 - 3,694 Operating Income 1,401 - 1,401 Interest Expense 220 - 220 Other Income (Expense), net 136 - 136 Income from Continuing Operations before Income Taxes 1,317 - 1,317 Provision for Income Taxes 465 - 465 Income from Continuing Operations 852 - 852 Income (Loss) from Discontinued Operations, net of tax (53) 53 - Net Income $799 $53 $852 Diluted Earnings Per Share * $0.44 $0.03 $0.46 * Normalized earnings per share for third quarter 2004 does not sum due to rounding. Third Quarter 2004 Normalizing Items Hurri- Merger cane Integra- related tion/FV Rounding Cingular Expenses Adj A G H Normalized Operating Revenues $1,664 $- $- $1 $6,760 Operating Expenses 1,479 (38) (29) - 5,106 Operating Income 185 38 29 1 1,654 Interest Expense 56 - - - 276 Other Income (Expense), net (129) - - - 7 Income from Continuing Operations before Income Taxes - 38 29 1 1,385 Provision for Income Taxes - 15 12 - 492 Income from Continuing Operations - 23 17 1 893 Income (Loss) from Discontinued Operations, net of tax - - - - - Net Income $0 $23 $17 $1 $893 Diluted Earnings Per Share * $0.00 $0.01 $0.01 $0.01 $0.49 * Normalized earnings per share for third quarter 2004 does not sum due to rounding. Year-to-Date 2004 Discontinued Continuing Operations Operations GAAP C (GAAP-C) Operating Revenues $15,154 $- $15,154 Operating Expenses 10,953 - 10,953 Operating Income 4,201 - 4,201 Interest Expense 646 - 646 Other Income (Expense), net 990 - 990 Income from Continuing Operations before Income Taxes 4,545 - 4,545 Provision for Income Taxes 1,604 - 1,604 Income from Continuing Operations 2,941 - 2,941 Income (Loss) from Discontinued Operations, net of tax 453 (453) - Net Income $3,394 ($453) $2,941 Diluted Earnings Per Share $1.85 ($0.25) $1.60 Year-to-Date 2004 Normalizing Items Hurri- Merger Sale Regulatory cane Integra- of Settle- related tion/FV Cingular Sonofon ment Expenses Adj Rounding A B D G H Normalized Operating Revenues $4,827 $- $50 $- $- $1 $20,032 Operating Expenses 4,146 - (3) (38) (29) 1 15,030 Operating Income 681 - 53 38 29 - 5,002 Interest Expense 170 - - - - - 816 Other Income (Expense), net (509) (462) - - - - 19 Income from Continuing Operations before Income Taxes 2 (462) 53 38 29 - 4,205 Provision for Income Taxes 2 (167) 20 15 12 - 1,486 Income from Continuing Operations - (295) 33 23 17 - 2,719 Income (Loss) from Discontinued Operations, net of tax - - - - - - - Net Income $0 ($295) $33 $23 $17 $0 $2,719 Diluted Earnings Per Share $0.00 ($0.16) $0.02 $0.01 $0.01 ($0.00) $1.48 BellSouth Corporation Notes to Normalized Financial and Operating Data (pages 3 and 4) (amounts in millions, except per share 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 related to the sale of our operations in Denmark. (c) Discontinued Operations - In March 2004, we announced our intention to sell our Latin American properties. Accordingly, the prior period results have been recast to reflect the Latin American operations as Discontinued Operations and thus excluded from normalized results. The first quarter 2005 results include an after-tax gain of $390 related to the final 2 of the 10 properties that were closed in January. (d) Regulatory Settlement - In April 2004, BellSouth entered into a settlement agreement with respect to previously disclosed litigation (See 2004 10K for further discussion). (e) Wireless merger integration costs - Represents BellSouth's 40% share of tax-effected wireless merger integration costs of $105 incurred during the 1st quarter 2005, $204 incurred during 2nd quarter 2005 and $240 incurred during 3rd quarter 2005 in connection with the Cingular/AWE merger. Integration costs include one-time cash outlays or specified non-cash charges, including accelerated depreciation, directly related to rationalization of the wireless network, sales distribution channels, the workforce, information technology systems and real estate. (f) Debt extinguishment costs - Represents one-time expenses associated with the early extinguishment of $400 of long-term debt in 1st quarter 2005 and one-time expenses associated with the early extinguishment of $300 of long-term debt in 2nd quarter 2005. (g) Hurricane-related expenses - Represents 3rd quarter 2005 Hurricane Katrina-related charges of $200 after-tax and consists of asset impairment charges (based on preliminary damage assessments), incremental labor and material costs related to service restoration and network repairs, and incremental uncollectible expense. These expenses are comprised of charges related to BellSouth's wireline business and its 40% share of Cingular Wireless. Third quarter 2004 charges represent incremental labor and material costs in the wireline business due to Hurricanes Charley, Frances, Ivan and Jeanne. (h) Wireless merger integration planning costs and fair value adjustment - Represents BellSouth's 40% share of tax-effected wireless merger integration planning costs of $43 incurred during the 3rd quarter of 2004 in preparation for the Cingular/AWE merger. Also includes a $31 fair value adjustment for the announced sale of Cingular Interactive. (i) Gain related to the sale of Cellcom, a cellular communications operator in Israel. BellSouth Corporation Consolidated Balance Sheets (unaudited) (amounts in millions, except per share data) Change Change vs. vs. Sept. 30, Dec. 31 Prior June 30, Prior 2005 2004 Year 2005 Quarter Assets Current Assets: Cash and cash equivalents $2,030 $680 $1,350 $485 $1,545 Short-term investments 0 16 (16) 0 0 Accounts receivable, net of allowance for uncollectibles of $297, $317, and $287 2,443 2,559 (116) 2,480 (37) Material and supplies 336 321 15 335 1 Other current assets 859 1,055 (196) 951 (92) Assets of discontinued operations 0 1,068 (1,068) 0 0 Total Current Assets 5,668 5,699 (31) 4,251 1,417 Investment in and advances to Cingular Wireless 21,084 22,771 (1,687) 21,952 (868) Property, plant and equipment, net 21,670 22,039 (369) 21,853 (183) Other assets 7,611 7,400 211 7,741 (130) Intangible assets, net 1,517 1,587 (70) 1,529 (12) Total Assets $57,550 $59,496 ($1,946) $57,326 $224 Liabilities and Shareholders' Equity Current Liabilities: Debt maturing within one year $2,582 $5,475 ($2,893) $3,293 ($711) Accounts payable 1,030 1,047 (17) 1,027 3 Other current liabilities 4,081 3,018 1,063 3,444 637 Liabilities of discontinued operations 0 830 (830) 0 0 Total Current Liabilities 7,693 10,370 (2,677) 7,764 (71) Long-Term Debt 14,374 15,108 (734) 14,399 (25) Noncurrent Liabilities: Deferred income taxes 6,465 6,492 (27) 6,594 (129) Other noncurrent liabilities 4,704 4,460 244 4,575 129 Total Noncurrent Liabilities 11,169 10,952 217 11,169 0 Shareholders' Equity: Common stock, $1 par value 2,020 2,020 0 2,020 0 Paid-in capital 7,861 7,840 21 7,836 25 Retained earnings 20,326 19,267 1,059 20,053 273 Accumulated other comprehensive income (28) (157) 129 (70) 42 Shares held in trust and treasury (5,865) (5,904) 39 (5,845) (20) Total Shareholders' Equity 24,314 23,066 1,248 23,994 320 Total Liabilities and Shareholders' Equity $57,550 $59,496 ($1,946) $57,326 $224 BellSouth Corporation Consolidated Statements of Cash Flows (unaudited) (amounts in millions, except per share data) Year-To-Date 3Q05 3Q04 2Q05 2005 2004 Cash Flows from Operating Activities: Income from Continuing Operations $817 $852 $795 $2,295 $2,941 Adjustments to income from continuing operations: Depreciation and amortization 922 908 916 2,756 2,720 Provision for uncollectibles 93 90 80 258 285 Net losses (earnings) of equity affiliates (97) (73) (68) (85) (328) Deferred income taxes (66) 137 162 51 740 Asset impairments 166 - - 166 - Pension income (133) (121) (133) (399) (363) Stock-based compensation expense 22 29 23 70 87 Loss on extinguishment of debt - 14 20 42 14 (Gain) loss on sale/disposal of operations (351) - - (351) (462) Net change in: Accounts receivable and other current assets (11) (147) (79) (174) (271) Accounts payable and other current liabilities 618 (79) 368 1,009 24 Deferred charges and other assets (39) 29 (60) (79) (33) Other liabilities and deferred credits 133 34 101 337 67 Other reconciling items, net 40 18 3 38 67 Net cash provided by operating activities 2,114 1,691 2,128 5,934 5,488 Cash Flows from Investing Activities: Capital expenditures (886) (768) (829) (2,465) (2,134) Purchase of short-term investments (76) (1,364) - (88) (3,210) Proceeds from sale of short-term investments 76 3,403 - 104 4,439 Investments in debt and equity securities (53) (87) (71) (156) (503) Net short term (advances to) repayments from Cingular - - 266 666 - Proceeds from sale of securities and operations 656 6 15 1,600 565 Proceeds from repayment of loans and advances 949 20 121 1,072 129 Settlement of derivatives on advances - - - - (17) Other investing activities, net (25) (8) (9) (39) (3) Net cash provided by (used for) investing activities 641 1,202 (507) 694 (734) Cash Flows from Financing Activities: Net borrowing (repayments) of short-term debt (480) 73 (556) (2,110) (266) Proceeds from long-term debt - 2,993 - - 3,689 Repayments of long-term debt (233) (524) (605) (1,500) (745) Dividends paid (532) (493) (494) (1,520) (1,407) Purchase of treasury shares (54) - (6) (137) (99) Other financing activities, net 89 (3) 9 104 48 Net cash used for financing activities (1,210) 2,046 (1,652) (5,163) 1,220 Net Increase/(Decrease) in Cash from Continuing Operations 1,545 4,939 (31) 1,465 5,974 Net Increase/(Decrease) in Cash from Discontinued Operations - 84 - (115) (101) Net Increase/(Decrease) in Cash and Cash Equivalents 1,545 5,023 (31) 1,350 5,873 Cash and Cash Equivalents at Beginning of Period 485 3,797 516 680 2,947 Cash and Cash Equivalents at End of Period $2,030 $8,820 $485 $2,030 $8,820 BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) 3Q05 3Q04 Growth 2Q05 Growth Operating Revenues Voice $3,136 $3,121 0.5% $3,155 -0.6% Data 1,166 1,144 1.9% 1,165 0.1% Other 286 353 -19.0% 305 -6.2% Total Operating Revenues 4,588 4,618 -0.6% 4,625 -0.8% Operating Expenses Cost of services and products 1,860 1,778 4.6% 1,850 0.5% Selling, general, & administrative expenses 793 731 8.5% 775 2.3% Depreciation and amortization 914 901 1.4% 910 0.4% Total Operating Expenses 3,567 3,410 4.6% 3,535 0.9% Segment Operating Income 1,021 1,208 -15.5% 1,090 -6.3% Interest Expense 94 95 -1.1% 100 -6.0% Other Income (Expense), net 14 9 55.6% 20 -30.0% Income Before Income Taxes 941 1,122 -16.1% 1,010 -6.8% Provision for Income Taxes 330 406 -18.7% 350 -5.7% Segment Net Income(1) $611 $716 -14.7% $660 -7.4% Selected Financial and Operating Data (amounts in millions) Segment operating income $1,021 $1,208 -15.5% $1,090 -6.3% Segment operating margin 22.3% 26.2% -390 bps 23.6% -130 bps Long distance revenues $608 $524 16.0% $580 4.8% Switched Access MOUs 15,511 17,128 -9.4% 15,617 -0.7% BSLD MOUs 6,660 5,673 17.4% 6,301 5.7% Total Access minutes of use 22,171 22,801 -2.8% 21,918 1.2% Capital expenditures $878 $759 15.7% $826 6.3% (amounts in thousands) Wholesale lines 2,453 3,077 -20.3% 2,665 -8.0% DSL customers 2,678 1,872 43.1% 2,473 8.3% LD customers 6,993 5,663 23.5% 6,771 3.3% Consumer ARPU (3) $58.53 $56.65 3.3% $58.39 0.2% BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) Year-To-Date 2005 2004 Growth Operating Revenues Voice $9,445 $9,444 0.0% Data 3,491 3,350 4.2% Other 895 980 -8.7% Total Operating Revenues 13,831 13,774 0.4% Operating Expenses Cost of services and products 5,563 5,243 6.1% Selling, general, & administrative expenses 2,306 2,234 3.2% Depreciation and amortization 2,734 2,700 1.3% Total Operating Expenses 10,603 10,177 4.2% Segment Operating Income 3,228 3,597 -10.3% Interest Expense 292 278 5.0% Other Income (Expense), net 45 18 150.0% Income Before Income Taxes 2,981 3,337 -10.7% Provision for Income Taxes 1,046 1,209 -13.5% Segment Net Income(1) $1,935 $2,128 -9.1% Selected Financial and Operating Data (amounts in millions) Segment operating income $3,228 $3,597 -10.3% Segment operating margin 23.3% 26.1% -280 bps Long distance revenues $1,766 $1,443 22.4% Switched Access MOUs 47,279 53,602 -11.8% BSLD MOUs 18,972 15,245 24.4% Total Access minutes of use 66,251 68,847 -3.8% Capital expenditures $2,446 $2,111 15.9% BellSouth Corporation Results by Segment (unaudited) Supplemental Operating Data (in thousands) Communications Group - Network Access Lines In Service Reported (a) 3Q05 3Q04 Growth 2Q05 Growth Access lines Residence Retail Primary 11,465 11,815 -3.0% 11,595 -1.1% Additional 1,206 1,388 -13.1% 1,257 -4.1% Total Retail Residence 12,671 13,203 -4.0% 12,852 -1.4% Wholesale Resale 167 115 45.2% 151 10.6% UNE-P 1,507 2,082 -27.6% 1,689 -10.8% Total Wholesale Residence 1,674 2,197 -23.8% 1,840 -9.0% Total Residence 14,345 15,400 -6.9% 14,692 -2.4% Business Retail Total Retail Business 5,289 5,258 0.6% 5,252 0.7% Wholesale Resale 59 66 -10.6% 59 0.0% UNE-P 658 753 -12.6% 701 -6.1% Total Wholesale Business 717 819 -12.5% 760 -5.7% Total Business 6,006 6,077 -1.2% 6,012 -0.1% Other Retail/Wholesale Lines Retail 33 38 -13.2% 31 6.5% Wholesale 62 61 1.6% 65 -4.6% Total Other Retail/Wholesale Lines 95 99 -4.0% 96 -1.0% Total Access Lines in Service 20,446 21,576 -5.2% 20,800 -1.7% ISDN line equivalents Residence 7 10 -30.0% 7 0.0% Business 1,440 1,462 -1.5% 1,421 1.3% Total ISDN Adjusted ALIS 21,893 23,048 -5.0% 22,228 -1.5% Access Line Equivalents (b) Selected digital data services: Unbundled Loops 308 326 -5.5% 298 3.4% DS0 & ADSL 16,300 11,493 41.8% 15,079 8.1% DS1 8,163 7,594 7.5% 8,028 1.7% DS3 & higher 33,638 32,643 3.0% 32,861 2.4% Total digital data lines in service 58,409 52,056 12.2% 56,266 3.8% Total equivalent access lines in service 80,302 75,104 6.9% 78,494 2.3% (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 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 a 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) 3Q05 3Q04 Growth 2Q05 Growth Operating Revenues Service revenues (2) $3,089 $1,548 99.5% $3,087 0.1% Equipment and other revenues 410 168 144.0% 356 15.2% Total Operating Revenues 3,499 1,716 103.9% 3,443 1.6% Operating Expenses Cost of services and products 1,395 665 109.8% 1,401 -0.4% Selling, general, & administrative expenses 1,128 609 85.2% 1,151 -2.0% Depreciation and amortization 579 229 152.8% 608 -4.8% Total Operating Expenses 3,102 1,503 106.4% 3,160 -1.8% Segment Operating Income 397 213 86.4% 283 40.3% Interest Expense 122 80 52.5% 130 -6.2% Other Income (Expense), net (9) (46) 80.4% (4) -125.0% Income Before Income Taxes 266 87 205.7% 149 78.5% Provision for Income Taxes 117 33 254.5% 72 62.5% Segment Net Income (1) $149 $54 175.9% $77 93.5% Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Segment operating income $397 $213 86.4% $283 40.3% Segment operating margin 11.3% 12.4% -110 bps 8.2% 310 bps Cellular/PCS Operating Metrics (100% Cingular): Total Customers 52,292 25,672 103.7% 51,442 1.7% Net Customer Additions 867 657 32.0% 952 -8.9% Partitioned Customers and/or Adjustments (17) (29) 41.4% 140 -112.1% Churn 2.3% 2.8% -50 bps 2.2% 10 bps Wireless Service ARPU (3) $49.65 $50.25 -1.2% $50.51 -1.7% Minutes Of Use Per Subscriber(4) 727 598 21.6% 705 3.1% Licensed POPs (5) 294 243 21.0% 294 0.0% Penetration (5) 18.3% 11.4% 690 bps 18.0% 30 bps * - Not meaningful. PROFORMA 3Q05 3Q04 Growth 2Q05 Growth Service Revenue 3,089 2,960 4.4% 3,087 0.1% Total Revenue (40%) 3,499 3,295 6.2% 3,443 1.6% Net Adds (100%) 867 808 7.3% 952 -8.9% ARPU $49.65 $52.38 -5.2% $50.51 -1.7% (a) The domestic wireless segment is comprised of BellSouth's 40% share of the reported results of Cingular Wireless. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Domestic Wireless Segment (1)(a) Year-To-Date 2005 2004 Growth Operating Revenues Service revenues (2) $9,144 $4,515 102.5% Equipment and other revenues 1,090 463 135.4% Total Operating Revenues 10,234 4,978 105.6% Operating Expenses Cost of services and products 4,171 1,851 125.3% Selling, general, & administrative expenses 3,438 1,742 97.4% Depreciation and amortization 1,857 676 174.7% Total Operating Expenses 9,466 4,269 121.7% Segment Operating Income 768 709 8.3% Interest Expense 387 239 61.9% Other Income (Expense), net (9) (145) 93.8% Income Before Income Taxes 372 325 14.5% Provision for Income Taxes 179 123 45.5% Segment Net Income (1) $193 $202 -4.5% Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Segment operating income $768 $709 8.3% Segment operating margin 7.5% 14.2% -670 bps Cellular/PCS Operating Metrics (100% Cingular): Total Customers 52,292 25,672 103.7% Net Customer Additions 3,186 1,639 94.4% Partitioned Customers and/or Adjustments (26) 6 N/M* Churn 2.2% 2.7% -50 bps Wireless Service ARPU (3) $49.92 $49.78 0.3% Minutes Of Use Per Subscriber (4) 692 565 22.5% Licensed POPs (5) 294 243 21.0% Penetration (5) 18.3% 11.4% 690 bps * - Not meaningful. (a) The domestic wireless segment is comprised of BellSouth's 40% share of the reported results of Cingular Wireless. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Advertising & Publishing (1) 3Q05 3Q04 Growth 2Q05 Growth Operating Revenues Advertising and publishing revenues $477 $471 1.3% $481 -0.8% Commission revenues 32 27 18.5% 50 -36.0% Total Operating Revenues 509 498 2.2% 531 -4.1% Operating Expenses Cost of services 94 89 5.6% 99 -5.1% Selling, general, & administrative expenses 175 173 1.2% 180 -2.8% Depreciation and amortization 7 7 0.0% 7 0.0% Total Operating Expenses 276 269 2.6% 286 -3.5% Segment Operating Income 233 229 1.7% 245 -4.9% Interest Expense 3 2 50.0% 2 50.0% Other Income (Expense), net - - N/M* 1 -100.0% Income Before Income Taxes 230 227 1.3% 244 -5.7% Provision for Income Taxes 84 86 -2.3% 90 -6.7% Segment Net Income (1) $146 $141 3.5% $154 -5.2% Segment operating income $233 $229 1.7% $245 -4.9% Segment operating margin 45.8% 46.0% -20 bps 46.1% -30 bps * - Not meaningful. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Advertising & Publishing (1) Year-To-Date 2005 2004 Growth Operating Revenues Advertising and publishing revenues $1,433 $1,403 2.1% Commission revenues 98 88 11.4% Total Operating Revenues 1,531 1,491 2.7% Operating Expenses Cost of services 283 259 9.3% Selling, general, & administrative expenses 518 496 4.4% Depreciation and amortization 21 21 0.0% Total Operating Expenses 822 776 5.9% Segment Operating Income 709 715 -0.8% Interest Expense 8 6 33.3% Other Income (Expense), net - 1 -100.0% Income Before Income Taxes 701 710 -1.3% Provision for Income Taxes 260 272 -4.4% Segment Net Income (1) $441 $438 0.7% Segment operating income $709 $715 -0.8% Segment operating margin 46.3% 48.0% -170 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. Certain intersegment revenues are not eliminated for purposes of management reporting. (2) Wireless service revenues includes activation fees, access, airtime, roaming, long distance and value added services. Roaming revenues are included on a gross basis for the Domestic Wireless segment. Average monthly revenue per customer is calculated by dividing average monthly service revenue by average customers. (3) Management uses average revenue per unit (ARPU) as an indicator of operating performance of the business. Consumer ARPU is defined as consumer revenues during the period divided by average primary access lines during the period. Wireless Service ARPU - Cellular/PCS is defined as Cellular/PCS service revenues during the period divided by average Cellular/PCS subscribers during the period. This metric is used to compare the recurring revenue amounts being generated on our network to prior periods and internal targets. We believe that each of these metrics provides useful information concerning the performance of our initiatives to attract and retain high value customers and the use of our network. (4) Total Minutes of Use per Cellular/PCS Subscriber definition was changed effective with the 2Q05 reporting period. Prior to the change, the numerator was defined as Local Minutes of Use. Effective with this change, the numerator is now defined as including Local Minutes of Use and Outcollect Minutes of Use. (5) Licensed POPs refers to the number of people residing in areas where Cingular and its partners have licenses to provide cellular or PCS service including areas where Cingular has not yet commenced service. Penetration calculation for 2Q05 and 3Q05 is based on licensed "operational" POPs of 286 million for each quarter. POPs used for the rate of penetration calculation excludes international. BellSouth Corporation Non-GAAP Measures - Reconciliation (amounts in millions) (unaudited) Segment Net Income Reconciliation to GAAP Net Income Year-to-Date 3Q05 3Q04 2Q05 2005 2004 Communications group segment net income $611 $716 $660 $1,935 $2,128 Domestic wireless group segment net income 149 54 77 193 202 Advertising and publishing group segment net income 146 141 154 441 438 Corporate, eliminations and other (61) (18) (42) (157) (49) Normalized net income 845 893 849 2,412 2,719 Add back Excluded non- recurring or non- operational items (a) (28) (94) (54) 264 675 Consolidated GAAP net income $817 $799 $795 $2,676 $3,394 Free Cash Flow Year-to-Date 3Q05 3Q04 2Q05 2005 2004 Net cash provided by operating activities $2,114 $1,691 $2,128 $5,934 $5,488 Less Capital Expenditures (886) (768) (829) (2,465) (2,134) Operating Free Cash Flow $1,228 $923 $1,299 $3,469 $3,354 Net Debt Sept. 30, Dec. 31, June 30, 2005 2004 2005 Total Debt $16,956 $20,583 $17,692 Less Cash (2,030) (680) (485) Net Debt $14,926 $19,903 $17,207 Communications Group Operating Income before Depreciation and Amortization Year-to-Date 3Q05 3Q04 2Q05 2005 2004 Operating Revenues $4,588 $4,618 $4,625 $13,831 $13,774 Operating Income 1,021 1,208 1,090 3,228 3,597 Add back Depreciation and amortization 914 901 910 2,734 2,700 Operating Income before Depreciation and Amortization $1,935 $2,109 $2,000 $5,962 $6,297 Margin 42.2% 45.7% 43.2% 43.1% 45.7% Domestic Wireless Operating Income before Depreciation and Amortization Year-to-Date 3Q05 3Q04 2Q05 2005 2004 Service revenues $3,089 $1,548 $3,087 $9,144 $4,515 Equipment and other revenues 410 168 356 1,090 463 Operating revenues 3,499 1,716 3,443 10,234 4,978 Operating Income 397 213 283 768 709 Operating Margin (Operating income divided by operating revenues) (b) 11.3% 12.4% 8.2% 7.5% 14.2% Add back Depreciation and amortization 579 229 608 1,857 676 Operating Income before Depreciation and Amortization $976 $442 $891 $2,625 $1,385 Margin (Operating Income before Depr & Amort divided by service revenues) (b) 31.6% 28.6% 28.9% 28.7% 30.7% Domestic Wireless Proforma Revenue 3Q05 3Q04 2Q05 Operating Revenue $3,499 $1,716 $3,443 Add back Proforma Adjustments (c) - 1,579 - Total Operating Revenue (Proforma) $3,499 $3,295 $3,443 Domestic Wireless Proforma ARPU 3Q05 3Q04 2Q05 Service revenues $3,089 $1,548 $3,087 Less Mobitex data revenues 7 22 8 Add back Proforma Adjustments (c) - 1,412 - Service revenue used to calculate Proforma ARPU $3,082 $2,938 $3,079 ARPU (Proforma) $49.65 $52.38 $50.51 (a) See pages 3 and 4 for detail of excluded items. (b) Margin calculations for our domestic wireless segment represents 40% of Cingular's margin calculations adjusted for the related normalized items as presented on pages 3-4. (c) These adjustments are consistent in nature with those set forth in Cingular's Form 8-K/A dated November 29, 2004. BellSouth Corporation Hurricane Katrina Revenue Impacts (amounts in millions, except per share data) Communications Group: 3Q05 3Q04 Growth 2Q05 Growth As reported (with Katrina customer bill credits): Operating revenues $4,588 $4,618 -0.6% $4,625 -0.8% Operating income $1,021 $1,208 -15.5% $1,090 -6.3% Operating margin 22.3% 26.2% -390 bps 23.6% -130 bps Pro forma (without Katrina customer bill credits): Operating revenues $4,632 $4,618 0.3% $4,625 0.2% Operating income $1,065 $1,208 -11.8% $1,090 -2.3% Operating margin 23.0% 26.2% -320 bps 23.6% -60 bps Impact of Hurricane Katrina bill credits on: Operating revenues $(44) $- -100 bps $- -100 bps Operating income $(44) $- -360 bps $- -400 bps Operating margin -0.7% 0.0% -70 bps 0.0% -70 bps Communications Group: Year-to-Date 2005 2004 Growth As reported (with Katrina customer bill credits): Operating revenues $13,831 $13,774 0.4% Operating income $3,228 $3,597 -10.3% Operating margin 23.3% 26.1% -280 bps Pro forma (without Katrina customer bill credits): Operating revenues $13,875 $13,774 0.7% Operating income $3,272 $3,597 -9.0% Operating margin 23.6% 26.1% -250 bps Impact of Hurricane Katrina bill credits on: Operating revenues $(44) $- -30 bps Operating income $(44) $- -120 bps Operating margin -0.3% 0.0% -30 bps Domestic Wireless: 3Q05 3Q04 Growth 2Q05 Growth As reported (with Katrina customer bill credits): Operating revenues $3,499 $1,716 103.9% $3,443 1.6% Operating income $397 $213 86.4% $283 40.3% Operating margin 11.3% 12.4% -110 bps 8.2% 310 bps Pro forma (without Katrina customer bill credits): Operating revenues $3,511 $1,716 104.6% $3,443 2.0% Operating income $409 $213 92.0% $283 44.5% Operating margin 11.6% 12.4% -80 bps 8.2% 340 bps Impact of Hurricane Katrina bill credits on: Operating revenues $(12) $- -70 bps $- -30 bps Operating income $(12) $- -560 bps $- -420 bps Operating margin -0.3% 0.0% -30 bps 0.0% -30 bps Domestic Wireless: Year-to-Date 2005 2004 Growth As reported (with Katrina customer bill credits): Operating revenues $10,234 $4,978 105.6% Operating income $768 $709 8.3% Operating margin 7.5% 14.2% -670 bps Pro forma (without Katrina customer bill credits): Operating revenues $10,246 $4,978 105.8% Operating income $780 $709 10.0% Operating margin 7.6% 14.2% -660 bps Impact of Hurricane Katrina bill credits on: Operating revenues $(12) $- -20 bps Operating income $(12) $- -170 bps Operating margin -0.1% 0.0% -10 bps Advertising & Publishing: 3Q05 3Q04 Growth 2Q05 Growth As reported (with Katrina customer bill credits): Operating revenues $509 $498 2.2% $531 -4.1% Operating income $233 $229 1.7% $245 -4.9% Operating margin 45.8% 46.0% -20 bps 46.1% -30 bps Pro forma (without Katrina customer bill credits): Operating revenues $516 $498 3.6% $531 -2.8% Operating income $240 $229 4.8% $245 -2.0% Operating margin 46.5% 46.0% 50 bps 46.1% 40 bps Impact of Hurricane Katrina bill credits on: Operating revenues $(7) $- -140 bps $- -130 bps Operating income $(7) $- -310 bps $- -290 bps Operating margin -0.7% 0.0% -70 bps 0.0% -70 bps Advertising & Publishing: Year-to-Date 2005 2004 Growth As reported (with Katrina customer bill credits): Operating revenues $1,531 $1,491 2.7% Operating income $709 $715 -0.8% Operating margin 46.3% 48.0% -170 bps Pro forma (without Katrina customer bill credits): Operating revenues $1,538 $1,491 3.2% Operating income $716 $715 0.1% Operating margin 46.6% 48.0% -140 bps Impact of Hurricane Katrina bill credits on: Operating revenues $(7) $- -50 bps Operating income $(7) $- -100 bps Operating margin -0.3% 0.0% -30 bps DATASOURCE: BellSouth Corporation CONTACT: Jeff Battcher, Media Relations of BellSouth Corporation, +1-404-249-2793, or BellSouth Investor Relations, +1-800-241-3419 Web site: http://www.bellsouth.com/ http://www.bellsouth.com/investor

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