BellSouth Reports Third Quarter Earnings

ATLANTA, Oct. 24 /PRNewswire-FirstCall/ -- BellSouth Corporation announced third quarter 2006 earnings per share (EPS) from continuing operations of 58 cents, up 31.8 percent compared to the third quarter of 2005. Normalized EPS from continuing operations of 65 cents increased 27.5 percent compared to the third quarter of 2005. A list of normalizing items is provided in the table below.

Normalized Results from Continuing Operations

Normalized results from continuing operations include BellSouth's 40 percent proportionate share of Cingular's revenues and expenses that are recognized as equity earnings for purposes of GAAP reporting. Normalized results exclude the impact of significant nonoperational or nonrecurring items.

Normalized operating income before depreciation and amortization (OIBDA) grew to $3.6 billion representing a 40.1 percent OIBDA margin. Revenue growth and cost containment drove OIBDA margin up 290 basis points year-over-year and 140 basis points sequentially. Normalized revenue increased 5.4 percent year- over-year driven by growth in wireless, wireline and yellow pages. Normalized revenues were nearly $9.0 billion for the third quarter of 2006. Normalized net income of $1.2 billion grew 25.8 percent compared to the third quarter of 2005.

Reported Results from Continuing Operations

For the third quarter of 2006, BellSouth's consolidated reported revenues from continuing operations were $5.2 billion, up 2.9 percent compared to the same quarter of 2005. Income from continuing operations was approximately $1.1 billion, up 29.6 percent compared to the same quarter of the previous year.

For the third quarter of 2006, operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $976 million. Capital expenditures for the quarter were $730 million, a decline compared to the first and second quarters of 2006. Year-to-date capital expenditures were $2.8 billion and included $265 million in expenditures for Hurricane Katrina restoration efforts.

Proposed Merger with AT&T

On March 5, 2006, BellSouth and AT&T announced an agreement to merge the two companies in a combination that will create a more effective and efficient provider of communications services. BellSouth and AT&T firmly believe that no conditions on this merger are necessary for this combination to be a public benefit. Nevertheless, in response to an inquiry from the Federal Communications Commission staff, AT&T indicated that, in the interest of facilitating the speediest possible approval of the merger, it would not object to the imposition of certain merger conditions. The FCC has scheduled an open meeting for Nov. 3, 2006 to consider the merger in the event the Commission has not completed its review prior to that date.

Communications Group

In the third quarter of 2006, Communications Group revenues were $4.7 billion, a 2.4 percent increase over the third quarter of 2005. Adjusting for the one-time customer credits of $44 million issued during the third quarter of 2005, revenue growth was 1.4 percent. Revenue growth in mass-market broadband and long distance services and growth in emerging data services offset revenue declines from traditional access line services. Revenue growth, increased penetration in broadband and long distance services and continued focus on cost containment drove Communications Group operating margin to 25.7 percent, an increase of 340 basis points year-over-year and 80 basis points sequentially.

Network data revenues exceeded $1.3 billion, a 12.8 percent increase over the third quarter of 2005, due to improvements in both retail and wholesale data services. Retail data revenues grew 19.5 percent year-over-year driven by retail DSL revenues and continued momentum from emerging retail data services. Wholesale data revenues grew 3.3 percent as growth in wireless transport more than offset declines in general transport services.

During the third quarter, BellSouth added 176,000 new DSL customers, reaching a total of more than 3.4 million broadband DSL customers. The vast majority of new customers chose BellSouth's higher speed offers -- FastAccess(R) DSL Xtreme and FastAccess(R) DSL Xtreme 6.0. Year-over-year the average revenue per unit on DSL was up slightly as improved customer mix offset revenue impacts from the discontinuance of regulatory recovery fees.

BellSouth customers continued to choose more services and save with multiple service discounts by adding long distance and DIRECTV(R) service to their BellSouth Answers(R) bundles. During the third quarter, BellSouth added 118,000 long distance subscribers. At the end of the third quarter, BellSouth served 7.6 million long distance customers representing approximately 63 percent of its mass-market customer base. Nearly 65,000 customers added DIRECTV(R) service to their bundle, resulting in a total of 756,000 customers who included DIRECTV(R) service in their BellSouth Answers(R) bundles.

As of Sept. 30, 2006, total access lines were 19.0 million down 6.9 percent year-over-year. For the quarter, total access lines declined 301,000. Retail residential access lines declined 135,000 reflecting losses to wireless substitution and cable telephony service. Retail small business access line gains were 20,000, offset by a decline in retail large business access lines of 13,000 lines. Wholesale lines declined 174,000 compared to June 30, 2006.

Cingular Wireless

Cingular Wireless was a significant contributor to BellSouth's results with strong revenue growth and robust margin expansion. The nation's largest wireless provider delivered strong customer growth, improved ARPU trends, and completed the integration of its GSM network.

During the quarter, Cingular added 1.4 million new customers, totaling 58.7 million customers at the end of September. Postpaid customer additions were 928,000. Overall monthly churn for the quarter was 1.8 percent and postpaid churn remained at 1.5 percent.

In the third quarter of 2006, Cingular's revenues were $9.6 billion, increasing 9.2 percent over the same quarter a year ago and up 3.6 percent sequentially. Service revenues, which exclude revenues from sales of handsets and accessories, were $8.7 billion up 12.2 percent year-over-year and 4.4 percent sequentially.

Cingular's average revenue per user (ARPU) was $49.76. This compares to $49.65 in the same quarter last year and $48.84 in the second quarter of 2006. ARPU from data services continued its robust growth in the third quarter of 2006, increasing 46.0 percent to $6.32 year-over-year and up 9.5 percent sequentially.

For the third quarter of 2006, Cingular accelerated its margin improvement driven by operational improvements and successful merger integration activities. Normalized operating income before depreciation and amortization (OIBDA) margin was 35.6 percent, up 400 basis points compared to the third quarter of 2005 and up 300 basis points sequentially. This performance was driven by revenue acceleration from customer growth and ARPU stabilization coupled with operational and merger related synergies.

During the third quarter, Cingular completed its GSM network integration. With 45,000 cell sites around the country, customers benefit from improved coverage and call quality while the company benefits from lower churn. In addition, the company continued its aggressive deployment of 3G UMTS/HSDPA network throughout the country. The 3G service is available in 115 cities (with populations of 100 thousand or more) in and around 52 major markets in 28 states and the District of Columbia.

Advertising & Publishing

Advertising & Publishing maintained its momentum growing revenue 5.5 percent to $537 million. Adjusting for one-time customer credits issued in the third quarter 2005 for Hurricane Katrina, revenue growth was 4.1 percent. These results reflect continued market penetration of online advertising and growth in print advertising revenue. Operating margins were 45.6 percent for the third quarter of 2006.

Normalizing Items

For the third quarter of 2006, the difference between reported (GAAP) EPS from continuing operations and normalized EPS is shown in the following table. Full income statement reconciliation is included in the attached exhibits.

3Q06 GAAP Diluted EPS - Income from continuing operations $0.58 Wireless merger integration costs $0.02 Wireless merger intangible amortization $0.04 AT&T Merger Costs $0.01 Normalized Diluted EPS - Income from continuing operations $0.65

Wireless merger integration costs - Represents BellSouth's 40 percent share of wireless merger integration costs incurred 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.

Wireless merger intangible amortization - Represents BellSouth's 40 percent share of the non-cash amortization of intangibles, primarily customer lists that were created in Cingular's acquisition of AT&T Wireless.

AT&T Merger Costs - Represents specific deal-related costs directly associated with the pending merger with AT&T. Costs include legal and regulatory fees, costs of filing and printing the joint proxy statement and expense associated with employee retention awards.

About BellSouth Corporation

BellSouth Corporation is a Fortune 500 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 58.7 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 print and online directory advertising through The Real Yellow Pages(R) and YELLOWPAGES.COM(TM) from BellSouth.

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 at http://www.bellsouth.com/investor 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 Web site, http://www.bellsouth.com/investor. The webcast will be archived on our Web site.

A replay of the call will be available through Oct. 31, 2006, and can be accessed by dialing:

Domestic: 800-642-1687 - Conference ID: 7061516 International: 706-645-9291 - Conference ID: 7061516

In addition to historical information, this document may contain forward- looking statements regarding events and financial trends. Factors that could affect our future results and could cause our 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.

Factors that could prevent or delay completion of the proposed merger with AT&T, could affect the future results of the merged company and could cause the merged company's actual results to differ from those expressed in the forward-looking statements include: (i) our and AT&T's ability to obtain governmental approvals of the proposed merger on the proposed terms and contemplated schedule; (ii) the risk that the businesses of AT&T and BellSouth will not be integrated successfully or as quickly as expected; (iii) the risk that the cost savings and any other synergies from the merger, including any savings and other synergies relating to the resulting sole ownership of Cingular Wireless LLC, may not be fully realized or may take longer to realize than expected; (iv) disruption from the merger making it more difficult to maintain relationships with customers, employees or suppliers; and (v) those factors contained in the proxy statement relating to the proposed merger 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 web site, 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. 3Q06 3Q05 Growth 2Q06 Growth Operating Revenues Communications group $4,669 $4,558 2.4% $4,647 0.5% Advertising and publishing 535 506 5.7% 543 -1.5% All other 14 8 75.0% 16 -12.5% Total Operating Revenues 5,218 5,072 2.9% 5,206 0.2% Operating Expenses Cost of services and products 1,905 2,017 -5.6% 1,960 -2.8% Selling, general, & administrative expenses 967 996 -2.9% 970 -0.3% Depreciation and amortization 894 922 -3.0% 898 -0.4% Provision for restructuring and asset impairments 7 166 * 73 * Total Operating Expenses 3,773 4,101 -8.0% 3,901 -3.3% Operating Income 1,445 971 48.8% 1,305 10.7% Interest Expense 302 274 10.2% 279 8.2% Other Income (Expense), net 432 512 -15.6% 280 54.3% Income from Continuing Operations before Income Taxes 1,575 1,209 30.3% 1,306 20.6% Provision for Income Taxes 516 392 31.6% 419 23.2% Income from Continuing Operations 1,059 817 29.6% 887 19.4% Income (Loss) from Discontinued Operations, net of tax - - * - * Net Income $1,059 $817 29.6% $887 19.4% Diluted: Weighted Average Common Shares Outstanding 1,822 1,836 -0.8% 1,813 0.5% Earnings Per Share: Income from Continuing Operations $0.58 $0.44 31.8% $0.49 18.4% Income from Discontinued Operations $0.00 $0.00 * $0.00 * Net Income $0.58 $0.44 31.8% $0.49 18.4% * - Not meaningful. Selected Financial and Operating Data Operating income $1,445 $971 48.8% $1,305 10.7% Operating margin 27.7% 19.1% 860 bps 25.1% 260 bps Declared dividends per share $0.29 $0.29 0.0% $0.29 0.0% Capital expenditures excluding Hurricane Katrina $730 $864 -15.5% $821 -11.1% Total capital expenditures $730 $886 -17.6% $950 -23.2% Common shares outstanding 1,822 1,831 -0.5% 1,812 0.6% Book value per share $13.96 $13.28 5.1% $13.56 2.9% Year-to-Date 2006 2005 Growth Operating Revenues Communications group $13,969 $13,749 1.6% Advertising and publishing 1,581 1,521 3.9% All other 45 35 28.6% Total Operating Revenues 15,595 15,305 1.9% Operating Expenses Cost of services and products 5,974 5,862 1.9% Selling, general, & administrative expenses 2,868 2,833 1.2% Depreciation and amortization 2,685 2,756 -2.6% Provision for restructuring and asset impairments 72 181 * Total Operating Expenses 11,599 11,632 -0.3% Operating Income 3,996 3,673 8.8% Interest Expense 860 850 1.2% Other Income (Expense), net 906 612 48.0% Income from Continuing Operations before Income Taxes 4,042 3,435 17.7% Provision for Income Taxes 1,312 1,140 15.1% Income from Continuing Operations 2,730 2,295 19.0% Income (Loss) from Discontinued Operations, net of tax - 381 * Net Income $2,730 $2,676 2.0% Diluted: Weighted Average Common Shares Outstanding 1,813 1,835 -1.2% Earnings Per Share: Income from Continuing Operations $1.51 $1.25 20.8% Income from Discontinued Operations $0.00 $0.21 * Net Income $1.51 $1.46 3.4% * - Not meaningful. Selected Financial and Operating Data Operating income $3,996 $3,673 8.8% Operating margin 25.6% 24.0% 160 bps Declared dividends per share $0.87 $0.85 2.4% Capital expenditures excluding Hurricane Katrina $2,496 $2,443 2.2% Total capital expenditures $2,761 $2,465 12.0% 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. 3Q06 3Q05 Growth 2Q06 Growth Operating Revenues Communications group $4,583 $4,480 2.3% $4,569 0.3% Wireless 3,821 3,499 9.2% 3,687 3.6% Advertising and publishing 535 506 5.7% 543 -1.5% All other 15 9 66.7% 16 -6.3% Total Operating Revenues 8,954 8,494 5.4% 8,815 1.6% Operating Expenses Cost of services and products 3,288 3,250 1.2% 3,360 -2.1% Selling, general, & administrative expenses 2,079 2,084 -0.2% 2,047 1.6% Depreciation and amortization 1,377 1,343 2.5% 1,372 0.4% Total Operating Expenses 6,744 6,677 1.0% 6,779 -0.5% Operating Income 2,210 1,817 21.6% 2,036 8.5% Interest Expense 405 374 8.3% 379 6.9% Other Income (Expense), net 57 38 50.0% 31 83.9% Income Before Income Taxes 1,862 1,481 25.7% 1,688 10.3% Provision for Income Taxes 682 543 25.6% 606 12.5% Net Income $1,180 $938 25.8% $1,082 9.1% Diluted: Weighted Average Common Shares Outstanding 1,822 1,836 -0.8% 1,813 0.5% Earnings Per Share $0.65 $0.51 27.5% $0.60 8.3% * - Not meaningful. Selected Financial and Operating Data Operating income $2,210 $1,817 21.6% $2,036 8.5% Operating margin 24.7% 21.4% 330 bps 23.1% 160 bps Declared dividends per share $0.29 $0.29 0.0% $0.29 0.0% Capital expenditures excluding Hurricane Katrina $730 $864 -15.5% $821 -11.1% Total capital expenditures $730 $886 -17.6% $950 -23.2% Common shares outstanding 1,822 1,831 -0.5% 1,812 0.6% Book value per share $13.96 $13.28 5.1% $13.56 2.9% Total employees 59,745 63,049 -5.2% 61,284 -2.5% Year-to-Date 2006 2005 Growth Operating Revenues Communications group $13,726 $13,538 1.4% Wireless 11,100 10,234 8.5% Advertising and publishing 1,581 1,521 3.9% All other 46 35 31.4% Total Operating Revenues 26,453 25,328 4.4% Operating Expenses Cost of services and products 10,041 9,749 3.0% Selling, general, & administrative expenses 6,163 6,234 -1.1% Depreciation and amortization 4,103 4,080 0.6% Total Operating Expenses 20,307 20,063 1.2% Operating Income 6,146 5,265 16.7% Interest Expense 1,165 1,169 -0.3% Other Income (Expense), net 111 170 -34.7% Income Before Income Taxes 5,092 4,266 19.4% Provision for Income Taxes 1,847 1,570 17.6% Net Income $3,245 $2,696 20.4% Diluted: Weighted Average Common Shares Outstanding 1,813 1,835 -1.2% Earnings Per Share $1.79 $1.47 21.8% * - Not meaningful. Selected Financial and Operating Data Operating income $6,146 $5,265 16.7% Operating margin 23.2% 20.8% 240 bps Declared dividends per share $0.87 $0.85 2.4% Capital expenditures excluding Hurricane Katrina $2,496 $2,443 2.2% Total capital expenditures $2,761 $2,465 12.0% BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Third Quarter 2006 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $5,218 $0 $5,218 Operating Expenses 3,773 - 3,773 Operating Income 1,445 - 1,445 Interest Expense 302 - 302 Other Income (Expense), net 432 - 432 Income from Continuing Operations before Income Taxes 1,575 - 1,575 Provision for Income Taxes 516 - 516 Income from Continuing Operations 1,059 - 1,059 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $1,059 $0 $1,059 Diluted Earnings Per Share $0.58 $0.00 $0.58 Third Quarter 2006 Normalizing Items Wireless Wireless Merger Merger Intang- Integra- ible AT&T tion Amortiz- Merger Cingular Costs ation Costs Normal- B C D H ized Operating Revenues $3,736 $0 $0 $0 $8,954 Operating Expenses 3,169 (55) (126) (17) 6,744 Operating Income 567 55 126 17 2,210 Interest Expense 103 - - - 405 Other Income (Expense), net (375) - - - 57 Income from Continuing Operations before Income Taxes 89 55 126 17 1,862 Provision for Income Taxes 89 22 51 4 682 Income from Continuing Operations - 33 75 13 1,180 Income (Loss) from Discontinued Operations, net of tax - - - - - Net Income $0 $33 $75 $13 $1,180 Diluted Earnings Per Share $0.00 $0.02 $0.04 $0.01 $0.65 Year-to-Date 2006 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $15,595 $0 $15,595 Operating Expenses 11,599 - 11,599 Operating Income 3,996 - 3,996 Interest Expense 860 - 860 Other Income (Expense), net 906 - 906 Income from Continuing Operations before Income Taxes 4,042 - 4,042 Provision for Income Taxes 1,312 - 1,312 Income from Continuing Operations 2,730 - 2,730 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $2,730 $0 $2,730 Diluted Earnings Per Share $1.51 $0.00 $1.51 Year-to-Date 2006 Normalizing Items Wireless Wireless Merger Merger Intang- Integra- ible Hurricane- tion Amortiz- related Cingular Costs ation Expenses B C D E Operating Revenues $10,858 $0 $0 $0 Operating Expenses 9,562 (214) (404) (119) Operating Income 1,296 214 404 119 Interest Expense 305 - - - Other Income (Expense), net (795) - - - Income from Continuing Operations before Income Taxes 196 214 404 119 Provision for Income Taxes 196 87 164 46 Income from Continuing Operations - 127 240 73 Income (Loss) from Discontinued Operations, net of tax - - - - Net Income $0 $127 $240 $73 Diluted Earnings Per Share $0.00 $0.07 $0.13 $0.04 Year-to-Date 2006 Normalizing Items AT&T Merger Severance Costs G H Normalized Operating Revenues $0 $0 $26,453 Operating Expenses (73) (44) 20,307 Operating Income 73 44 6,146 Interest Expense - - 1,165 Other Income (Expense), net - - 111 Income from Continuing Operations before Income Taxes 73 44 5,092 Provision for Income Taxes 28 14 1,847 Income from Continuing Operations 45 30 3,245 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $45 $30 $3,245 Diluted Earnings Per Share $0.02 $0.02 $1.79 Third Quarter 2005 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $5,072 $0 $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 Wireless Wireless Merger Merger Intang- Integra- ible Hurricane- tion Amortiz- related Cingular Costs ation Expenses B C D E Operating Revenues $3,422 $0 $0 $0 Operating Expenses 3,158 (96) (158) (328) Operating Income 264 96 158 328 Interest Expense 100 - - - Other Income (Expense), net (123) - - - Income from Continuing Operations before Income Taxes 41 96 158 328 Provision for Income Taxes 41 40 65 128 Income from Continuing Operations - 56 93 200 Income (Loss) from Discontinued Operations, net of tax - - - - Net Income $0 $56 $93 $200 Diluted Earnings Per Share $0.00 $0.03 $0.05 $0.11 Third Quarter 2005 Normalizing Items Sale Debt Exting. of Costs Cellcom F I Normalized Operating Revenues $0 $0 $8,494 Operating Expenses - - 6,677 Operating Income - - 1,817 Interest Expense - - 374 Other Income (Expense), net - (351) 38 Income from Continuing Operations before Income Taxes - (351) 1,481 Provision for Income Taxes - (123) 543 Income from Continuing Operations - (228) 938 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $0 ($228) $938 Diluted Earnings Per Share $0.00 ($0.12) $0.51 Year-to-Date 2005 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $15,305 $0 $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 * Normalized earnings per share for year-to-date 2005 does not sum due to rounding. Year-to-Date 2005 Normalizing Items Wireless Wireless Merger Merger Intang- Integra- ible Hurricane- tion Amortiz- related Cingular Costs ation Expenses B C D E Operating Revenues $10,023 $0 $0 $0 Operating Expenses 9,511 (219) (533) (328) Operating Income 512 219 533 328 Interest Expense 319 - - - Other Income (Expense), net (133) - - - Income from Continuing Operations before Income Taxes 60 219 533 328 Provision for Income Taxes 60 100 249 128 Income from Continuing Operations - 119 284 200 Income (Loss) from Discontinued Operations, net of tax - - - - Net Income $0 $119 $284 $200 Diluted Earnings Per Share * $0.00 $0.06 $0.15 $0.11 * Normalized earnings per share for year-to-date 2005 does not sum due to rounding. Year-to-Date 2005 Normalizing Items Sale Debt Exting. of Costs Cellcom F I Normalized Operating Revenues $0 $0 $25,328 Operating Expenses - - 20,063 Operating Income - - 5,265 Interest Expense - - 1,169 Other Income (Expense), net 42 (351) 170 Income from Continuing Operations before Income Taxes 42 (351) 4,266 Provision for Income Taxes 16 (123) 1,570 Income from Continuing Operations 26 (228) 2,696 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $26 ($228) $2,696 Diluted Earnings Per Share * $0.01 ($0.12) $1.47 * Normalized earnings per share for year-to-date 2005 does not sum due to rounding. 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) Discontinued Operations - In March 2004, we announced our intention to sell our 10 Latin American properties. Accordingly, results of the Latin American operations are shown as Discontinued Operations and thus excluded from normalized results. The year-to-date 2005 results include an after-tax gain of $390 related to the final 2 properties that were closed in January. (b) 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. (c) Wireless Merger Integration Costs - Represents BellSouth's 40% share of wireless merger integration costs incurred 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. (d) Wireless Merger Intangible Amortization - Represents BellSouth's 40% share of the non-cash amortization of intangibles, primarily customer lists, that were created in Cingular's acquisition of AT&T Wireless. (e) Hurricane Katrina-related Expenses - Represents incremental labor and material costs primarily related to service restoration and network repairs in BellSouth's wireline business. These expenses have been reduced by partial insurance recoveries during the 1st and 2nd quarters of 2006. (f) Debt extinguishment costs - Represents one-time expenses associated with the early extinguishment of $400 of long-term debt in the 1st quarter of 2005 and one-time expenses associated with the early extinguishment of $300 of long-term debt in the 2nd quarter of 2005. (g) Severance - Represents the net severance-related costs recorded in the 2nd quarter of 2006 associated with voluntary management workforce reductions. (h) AT&T Merger Costs - Represents specific deal-related costs directly associated with the pending merger with AT&T. Costs include legal and regulatory fees, costs of filing and printing the joint proxy statement and expense associated with employee retention awards. (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) September December Change Change 30, 31, vs. June 30, vs. Prior Prior 2006 2005 Year 2006 Quarter Assets Current Assets: Cash and cash equivalents $731 $427 $304 $259 $472 Short-term investments 1,327 - 1,327 483 844 Accounts receivable, net of allowance for uncollectibles of $244, $289 and $274 2,562 2,555 7 2,472 90 Material and supplies 383 385 (2) 408 (25) Other current assets 928 842 86 932 (4) Total Current Assets 5,931 4,209 1,722 4,554 1,377 Investment in and advances to Cingular Wireless 22,357 21,274 1,083 22,108 249 Property, plant and equipment, net 21,820 21,723 97 21,920 (100) Other assets 8,725 7,814 911 8,250 475 Intangible assets, net 1,540 1,533 7 1,606 (66) Total Assets $60,373 $56,553 $3,820 $58,438 $1,935 Liabilities and Shareholders' Equity Current Liabilities: Debt maturing within one year $3,926 $4,109 ($183) $4,325 ($399) Accounts payable 909 1,040 (131) 911 (2) Other current liabilities 4,047 3,505 542 4,131 (84) Total Current Liabilities 8,882 8,654 228 9,367 (485) Long-Term Debt 14,278 13,079 1,199 13,047 1,231 Noncurrent Liabilities: Deferred income taxes 6,818 6,607 211 6,713 105 Other noncurrent liabilities 4,959 4,679 280 4,740 219 Total Noncurrent Liabilities 11,777 11,286 491 11,453 324 Shareholders' Equity: Common stock, $1 par value 2,020 2,020 - 2,020 - Paid-in capital 8,130 7,960 170 7,919 211 Retained earnings 21,525 20,383 1,142 20,965 560 Accumulated other comprehensive income 35 (14) 49 19 16 Shares held in trust and treasury (6,274) (6,815) 541 (6,352) 78 Total Shareholders' Equity 25,436 23,534 1,902 24,571 865 Total Liabilities and Shareholders' Equity $60,373 $56,553 $3,820 $58,438 $1,935 BellSouth Corporation Consolidated Statements of Cash Flows (unaudited) (amounts in millions, except per share data) Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Cash Flows from Operating Activities: Income from Continuing Operations $1,059 $817 $887 $2,730 $2,295 Adjustments to income from continuing operations: Depreciation and amortization 894 922 898 2,685 2,756 Provision for uncollectibles 83 93 60 230 258 Net losses (earnings) of equity affiliates (342) (97) (213) (694) (85) Deferred income taxes 107 (66) (1) 165 51 Asset impairments - 166 - - 166 Pension income (130) (133) (131) (391) (399) Stock-settled compensation expense 14 22 15 46 70 Loss on extinguishment of debt - - - - 42 (Gain) loss on sale/disposal of operations - (351) - - (351) Net change in: Accounts receivable and other current assets (120) (11) (76) (275) (174) Accounts payable and other current liabilities 37 618 332 447 1,009 Deferred charges and other assets (52) (39) 26 (49) (79) Other liabilities and deferred credits 137 133 117 332 337 Other reconciling items, net 19 40 16 42 38 Net cash provided by operating activities 1,706 2,114 1,930 5,268 5,934 Cash Flows from Investing Activities: Capital expenditures (730) (886) (950) (2,761) (2,465) Purchase of short-term investments (4,122) (76) (797) (5,227) (88) Proceeds from sale of short-term investments 3,279 76 368 3,901 104 Investments in debt and equity securities (476) (53) (143) (819) (156) Proceeds from sale of securities and operations 154 656 132 289 1,600 Net (advances to) repayments from Cingular 61 949 (11) (416) 1,736 Other investing activities, net (10) (25) (7) (32) (37) Net cash provided by (used for) investing activities (1,844) 641 (1,408) (5,065) 694 Cash Flows from Financing Activities: Net borrowings (repayments) of short-term debt (399) (480) (80) 234 (2,110) Proceeds from issuance of long- term debt 1,200 - - 1,200 - Repayments of long-term debt (4) (233) (12) (433) (1,500) Dividends paid (526) (532) (525) (1,572) (1,520) Purchase of treasury shares - (54) (2) (52) (137) Proceeds from issuing common stock 274 22 120 654 60 Other financing activities, net 65 67 (11) 70 44 Net cash provided by (used for) financing activities 610 (1,210) (510) 101 (5,163) Net Increase/(Decrease) in Cash from Continuing Operations 472 1,545 12 304 1,465 Net Increase/(Decrease) in Cash from Discontinued Operations - - - - (115) Net Increase/(Decrease) in Cash and Cash Equivalents 472 1,545 12 304 1,350 Cash and Cash Equivalents at Beginning of Period 259 485 247 427 680 Cash and Cash Equivalents at End of Period $731 $2,030 $259 $731 $2,030 BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) 3Q06 3Q05 Growth 2Q06 Growth Operating Revenues Voice $3,058 $3,136 -2.5% $3,102 -1.4% Data 1,315 1,166 12.8% 1,282 2.6% Other 323 286 12.9% 289 11.8% Total Operating Revenues 4,696 4,588 2.4% 4,673 0.5% Operating Expenses Cost of services and products 1,833 1,860 -1.5% 1,848 -0.8% Selling, general, & administrative expenses 772 793 -2.6% 771 0.1% Depreciation and amortization 886 914 -3.1% 890 -0.4% Total Operating Expenses 3,491 3,567 -2.1% 3,509 -0.5% Segment Operating Income 1,205 1,021 18.0% 1,164 3.5% Interest Expense 111 94 18.1% 111 0.0% Other Income (Expense), net 23 14 64.3% 12 91.7% Income Before Income Taxes 1,117 941 18.7% 1,065 4.9% Provision for Income Taxes 397 330 20.3% 367 8.2% Segment Net Income(1) $720 $611 17.8% $698 3.2% * - Not meaningful. Selected Financial and Operating Data (amounts in millions) Segment operating income $1,205 $1,021 18.0% $1,164 3.5% Segment operating margin 25.7% 22.3% 340 bps 24.9% 80 bps DSL revenues $405 $305 32.8% $400 1.3% Long distance revenues $662 $608 8.9% $645 2.6% Switched Access MOUs 14,810 15,511 -4.5% 14,954 -1.0% BSLD MOUs 6,703 6,660 0.6% 6,548 2.4% Total Access minutes of use 21,513 22,171 -3.0% 21,502 0.1% Capital expenditures excluding Hurricane Katrina $725 $856 -15.3% $817 -11.3% Total capital expenditures $725 $878 -17.4% $946 -23.4% (amounts in thousands) Wholesale lines 1,732 2,454 -29.4% 1,906 -9.1% DSL customers 3,449 2,678 28.8% 3,273 5.4% LD customers 7,596 6,993 8.6% 7,478 1.6% Consumer ARPU (3) $63.26 $58.53 8.1% $62.81 0.7% Year-to-Date 2006 2005 Growth Operating Revenues Voice $9,289 $9,445 -1.7% Data 3,861 3,491 10.6% Other 898 895 0.3% Total Operating Revenues 14,048 13,831 1.6% Operating Expenses Cost of services and products 5,627 5,563 1.2% Selling, general, & administrative expenses 2,285 2,306 -0.9% Depreciation and amortization 2,662 2,734 -2.6% Total Operating Expenses 10,574 10,603 -0.3% Segment Operating Income 3,474 3,228 7.6% Interest Expense 329 292 12.7% Other Income (Expense), net 42 45 -6.7% Income Before Income Taxes 3,187 2,981 6.9% Provision for Income Taxes 1,115 1,046 6.6% Segment Net Income(1) $2,072 $1,935 7.1% * - Not meaningful. Selected Financial and Operating Data (amounts in millions) Segment operating income $3,474 $3,228 7.6% Segment operating margin 24.7% 23.3% 140 bps DSL revenues $1,187 $885 34.1% Long distance revenues $1,946 $1,766 10.2% Switched Access MOUs 45,088 47,279 -4.6% BSLD MOUs 19,877 18,972 4.8% Total Access minutes of use 64,965 66,251 -1.9% Capital expenditures excluding Hurricane Katrina $2,478 $2,424 2.2% Total capital expenditures $2,743 $2,446 12.1% BellSouth Corporation Results by Segment (unaudited) Supplemental Operating Data (in thousands) Communications Group - Network Access Lines In Service Reported (a) 3Q06 3Q05 Growth 2Q06 Growth Access lines Residence Retail Primary 10,932 11,465 -4.6% 11,022 -0.8% Additional 1,044 1,206 -13.4% 1,089 -4.1% Total Residence Retail 11,976 12,671 -5.5% 12,111 -1.1% Residence Wholesale Voice Lines 1,121 1,674 -33.0% 1,251 -10.4% Total Residence 13,097 14,345 -8.7% 13,362 -2.0% Business Business Retail 5,305 5,294 0.2% 5,301 0.1% Business Wholesale Voice Lines 553 712 -22.3% 590 -6.3% Total Business 5,858 6,006 -2.5% 5,891 -0.6% Other Retail/Wholesale Lines Retail 25 27 -7.4% 21 19.0% Wholesale 58 68 -14.7% 65 -10.8% Total Other Retail/Wholesale Lines 83 95 -12.6% 86 -3.5% Total Access Lines in Service 19,038 20,446 -6.9% 19,339 -1.6% ISDN line equivalents Residence 5 7 -28.6% 6 -16.7% Business 1,425 1,440 -1.0% 1,420 0.4% Total ISDN Adjusted ALIS 20,468 21,893 -6.5% 20,765 -1.4% Access Line Equivalents (b) Selected digital data services: Unbundled Loops 376 279 34.8% 373 0.8% DS0 & ADSL 20,940 16,333 28.2% 19,886 5.3% DS1 8,478 8,163 3.9% 8,344 1.6% DS3 & higher 35,287 33,639 4.9% 35,267 0.1% Total digital data lines in service 65,081 58,414 11.4% 63,870 1.9% Total equivalent access lines in service 85,549 80,307 6.5% 84,635 1.1% * - Not meaningful. (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) Wireless Segment (1)(a) 3Q06 3Q05 Growth 2Q06 Growth Operating Revenues Service revenues (2) $3,464 $3,089 12.1% $3,318 4.4% Equipment and other revenues 357 410 -12.9% 369 -3.3% Total Operating Revenues 3,821 3,499 9.2% 3,687 3.6% Operating Expenses Cost of services and products 1,464 1,395 4.9% 1,511 -3.1% Selling, general, & administrative expenses 1,125 1,128 -0.3% 1,097 2.6% Depreciation and amortization 484 421 15.0% 473 2.3% Total Operating Expenses 3,073 2,944 4.4% 3,081 -0.3% Segment Operating Income 748 555 34.8% 606 23.4% Interest Expense 122 122 0.0% 119 2.5% Other Income (Expense), net (16) (9) * (15) * Income Before Income Taxes 610 424 43.9% 472 29.2% Provision for Income Taxes 250 182 37.4% 196 27.6% Segment Net Income (1) $360 $242 48.8% $276 30.4% Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Segment operating income $748 $555 34.8% $606 23.4% Segment operating margin 19.6% 15.9% 370 bps 16.4% 320 bps Cellular/PCS Operating Metrics (100% Cingular)**: Total Customers (7) 58,666 52,292 12.2% 57,308 2.4% Net Customer Additions (7) 1,358 867 56.6% 1,498 -9.3% M&A Activity, Partitioned Customers and/or Adjs (7) - (17) * - * Churn (8) 1.8% 2.3% -50 bps 1.7% 10 bps Wireless Service ARPU (3) $49.76 $49.65 0.2% $48.84 1.9% Minutes Of Use Per Subscriber (4) 755 698 8.2% 741 1.9% Licensed POPs (5) 296 294 0.7% 296 0.0% Penetration (6) 20.8% 18.3% 250 bps 20.0% 80 bps Year-to-Date 2006 2005 Growth Operating Revenues Service revenues (2) $9,984 $9,144 9.2% Equipment and other revenues 1,116 1,090 2.4% Total Operating Revenues 11,100 10,234 8.5% Operating Expenses Cost of services and products 4,427 4,171 6.1% Selling, general, & administrative expenses 3,341 3,438 -2.8% Depreciation and amortization 1,418 1,324 7.1% Total Operating Expenses 9,186 8,933 2.8% Segment Operating Income 1,914 1,301 47.1% Interest Expense 360 387 -7.0% Other Income (Expense), net (43) (9) * Income Before Income Taxes 1,511 905 67.0% Provision for Income Taxes 632 428 47.7% Segment Net Income (1) $879 $477 84.3% Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Segment operating income $1,914 $1,301 47.1% Segment operating margin 17.2% 12.7% 450 bps Cellular/PCS Operating Metrics (100% Cingular)**: Total Customers (7) 58,666 52,292 12.2% Net Customer Additions (7) 4,535 3,186 42.3% M&A Activity, Partitioned Customers and/or Adjs (7) (13) (26) 50.0% Churn (8) 1.8% 2.2% -40 bps Wireless Service ARPU (3) $49.04 $49.92 -1.8% Minutes Of Use Per Subscriber (4) 732 673 8.8% Licensed POPs (5) 296 294 0.7% Penetration (6) 20.8% 18.3% 250 bps * - Not meaningful. ** - These metrics and calculations are not impacted by the normalization of wireless merger integration costs and wireless merger intangible amortization. (a) The 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) 3Q06 3Q05 Growth 2Q06 Growth Operating Revenues Advertising and publishing revenues $502 $477 5.2% $494 1.6% Commission revenues 35 32 9.4% 53 -34.0% Total Operating Revenues 537 509 5.5% 547 -1.8% Operating Expenses Cost of services 96 94 2.1% 97 -1.0% Selling, general, & administrative expenses 188 175 7.4% 191 -1.6% Depreciation and amortization 8 7 14.3% 7 14.3% Total Operating Expenses 292 276 5.8% 295 -1.0% Segment Operating Income 245 233 5.2% 252 -2.8% Interest Expense 4 3 33.3% 4 0.0% Other Income (Expense), net - - * (3) * Income Before Income Taxes 241 230 4.8% 245 -1.6% Provision for Income Taxes 87 84 3.6% 89 -2.2% Segment Net Income(1) $154 $146 5.5% $156 -1.3% Segment operating income $245 $233 5.2% $252 -2.8% Segment operating margin 45.6% 45.8% -20 bps 46.1% -50 bps Year-to-Date 2006 2005 Growth Operating Revenues Advertising and publishing revenues $1,483 $1,433 3.5% Commission revenues 107 98 9.2% Total Operating Revenues 1,590 1,531 3.9% Operating Expenses Cost of services 286 283 1.1% Selling, general, & administrative expenses 558 518 7.7% Depreciation and amortization 23 21 9.5% Total Operating Expenses 867 822 5.5% Segment Operating Income 723 709 2.0% Interest Expense 13 8 62.5% Other Income (Expense), net (5) - * Income Before Income Taxes 705 701 0.6% Provision for Income Taxes 255 260 -1.9% Segment Net Income(1) $450 $441 2.0% Segment operating income $723 $709 2.0% Segment operating margin 45.5% 46.3% -80 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 include activation fees, access, airtime, roaming, long distance and value added services. Roaming revenues are included on a gross basis for the Wireless segment. (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 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) Effective with the 1Q05 reporting period, the Total Minutes of Use per Cellular/PCS Subscriber (MOUs) definition has been revised to exclude Short Message Service (SMS) activity and include Local MOUs and Outcollect MOUs in the numerator. (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. (6) Penetration calculation for 3Q06 is based on licensed "operational" POPs of 282 million. (7) Cellular/PCS customers include customers served through reseller agreements. (8) Cellular/PCS churn is calculated by dividing the aggregate number of Cellular/PCS customers who cancel service during each month in a period by the total number of Cellular/PCS customers at the beginning of each month in that period. BellSouth Corporation Non-GAAP Measures - Reconciliation (amounts in millions) (unaudited) Segment Net Income Reconciliation to GAAP Net Income Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Communications Group segment Net Income $720 $611 $698 $2,072 $1,935 Wireless segment Net Income 360 242 276 879 477 Advertising and Publishing Group segment Net Income 154 146 156 450 441 Corporate, eliminations and other (54) (61) (48) (156) (157) Normalized Net Income 1,180 938 1,082 3,245 2,696 Add back Excluded non-recurring or non-operational items (a) (121) (121) (195) (515) (20) Consolidated GAAP Net Income $1,059 $817 $887 $2,730 $2,676 Free Cash Flow Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Net cash provided by Operating Activities $1,706 $2,114 $1,930 $5,268 $5,934 Less Capital Expenditures (730) (886) (950) (2,761) (2,465) Operating Free Cash Flow $976 $1,228 $980 $2,507 $3,469 Net Debt Sept. 30, Dec. 31, June 30, 2006 2005 2006 Total Debt $18,204 $17,188 $17,372 Less Cash (731) (427) (259) Net Debt $17,473 $16,761 $17,113 Consolidated Normalized Operating Income before Depreciation and Amortization Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Operating Revenues $8,954 $8,494 $8,815 $26,453 $25,328 Operating Income 2,210 1,817 2,036 6,146 5,265 Add back Depreciation and Amortization 1,377 1,343 1,372 4,103 4,080 Operating Income before Depreciation and Amortization $3,587 $3,160 $3,408 $10,249 $9,345 Margin 40.1% 37.2% 38.7% 38.7% 36.9% Communications Group Operating Income before Depreciation and Amortization Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Operating Revenues $4,696 $4,588 $4,673 $14,048 $13,831 Operating Income 1,205 1,021 1,164 3,474 3,228 Add back Depreciation and Amortization 886 914 890 2,662 2,734 Operating Income before Depreciation and Amortization $2,091 $1,935 $2,054 $6,136 $5,962 Margin 44.5% 42.2% 44.0% 43.7% 43.1% Wireless Operating Income before Depreciation and Amortization Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Service Revenues $3,464 $3,089 $3,318 $9,984 $9,144 Equipment and Other Revenues 357 410 369 1,116 1,090 Operating Revenues 3,821 3,499 3,687 11,100 10,234 Operating Income 748 555 606 1,914 1,301 Operating Margin (Operating Income divided by Operating Revenues) (b) 19.6% 15.9% 16.4% 17.2% 12.7% Add back Depreciation and Amortization 484 421 473 1,418 1,324 Operating Income before Depreciation and Amortization $1,232 $976 $1,079 $3,332 $2,625 Margin (Operating Income before Depr & Amort divided by Service Revenues) (b) 35.6% 31.6% 32.6% 33.4% 28.7% Advertising & Publishing Operating Income before Depreciation and Amortization Year-to-Date 3Q06 3Q05 2Q06 2006 2005 Operating Revenues $537 $509 $547 $1,590 $1,531 Operating Income 245 233 252 723 709 Add back Depreciation and Amortization 8 7 7 23 21 Operating Income before Depreciation and Amortization $253 $240 $259 $746 $730 Margin 47.1% 47.2% 47.3% 46.9% 47.7% (a) See pages 3 and 4 for detail of excluded items. (b) Margin calculations for our wireless segment represent 40% of Cingular's margin calculations adjusted for the related normalized items as presented on pages 3-4. BellSouth Corporation Hurricane Katrina Revenue Impacts (amounts in millions, except per share data) Communications Group: 3Q06 3Q05 Growth As reported (with Katrina customer bill credits): Operating revenues $4,696 $4,588 2.4% Pro forma (without Katrina customer bill credits): Operating revenues $4,696 $4,632 1.4% Impact of Hurricane Katrina bill credits on: Operating revenues $- $(44) 100 bps Advertising & Publishing: 3Q06 3Q05 Growth As reported (with Katrina customer bill credits): Operating revenues $537 $509 5.5% Pro forma (without Katrina customer bill credits): Operating revenues $537 $516 4.1% Impact of Hurricane Katrina bill credits on: Operating revenues $- $(7) 140 bps BellSouth Corporation Cingular Amortization Reconciliation (amounts in millions, except per share data) Consolidated 4Q04 2004 1Q05 2Q05 3Q05 Normalized D&A - as originally disclosed $1,472 $4,868 $1,588 $1,524 $1,501 Wireless merger intangible amortization ($159) ($159) ($196) ($179) ($158) Normalized D&A $1,313 $4,709 $1,392 $1,345 $1,343 Normalized Operating Income - as originally disclosed $1,270 $6,272 $1,439 $1,634 $1,659 Wireless merger intangible amortization $159 $159 $196 $179 $158 Normalized Operating Income $1,429 $6,431 $1,635 $1,813 $1,817 Normalized Operating Margin - as originally disclosed 16.0% 22.4% 17.3% 19.2% 19.5% Wireless merger intangible amortization 2.0% 0.6% 2.4% 2.1% 1.9% Normalized Operating Margin 18.0% 23.0% 19.7% 21.3% 21.4% Normalized Earnings Per Share - as originally disclosed $0.35 $1.83 $0.39 $0.46 $0.46 Wireless merger intangible amortization $0.04 $0.04 $0.06 $0.05 $0.05 Normalized Earnings Per Share $0.39 $1.87 $0.45 $0.51 $0.51 Wireless Segment 4Q04 2004 1Q05 2Q05 3Q05 Normalized D&A - as originally disclosed $556 $1,232 $670 $608 $579 Wireless merger intangible amortization ($159) ($159) ($196) ($179) ($158) Normalized D&A $397 $1,073 $474 $429 $421 Normalized Operating Income - as originally disclosed $27 $736 $88 $283 $397 Wireless merger intangible amortization $159 $159 $196 $179 $158 Normalized Operating Income $186 $895 $284 $462 $555 Normalized Operating Margin - as originally disclosed 0.9% 9.4% 2.7% 8.2% 11.3% Wireless merger intangible amortization 5.6% 2.0% 5.9% 5.2% 4.6% Normalized Operating Margin 6.5% 11.4% 8.6% 13.4% 15.9% Wireless merger intangible amortization - Represents BellSouth's 40 percent share of the non-cash amortization of intangibles, primarily customer lists, that were created in Cingular's acquisition of AT&T Wireless.