BellSouth Reports Second Quarter Earnings

ATLANTA, July 24 /PRNewswire-FirstCall/ -- BellSouth Corporation announced second quarter 2006 earnings per share (EPS) from continuing operations of 49 cents, up 14.0 percent compared to the second quarter of 2005. Normalized EPS from continuing operations was 60 cents, a 17.6 percent increase compared to the second quarter of 2005. During the first six months of the year, BellSouth's reported income from continuing operations has grown $200 million compared to the prior year while normalized net income for the first six months has expanded more than $300 million exceeding $2 billion. A list of normalizing items is provided in the table below.

"Three consecutive quarters of double-digit earnings growth reflects the strength of our broadband and wireless businesses," said Duane Ackerman, Chairman and Chief Executive Officer. "Continued revenue growth and our focus on cost management in the wireline business and increased profitability at Cingular demonstrate that we continue to successfully execute in the ever- changing communications market."

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 revenue growth of 3.4 percent was driven by growth across all operating segments of the business, resulting in normalized revenues of more than $8.8 billion for the second quarter of 2006. For the quarter, operating income before depreciation and amortization (OIBDA) exceeded $3.4 billion representing a 38.7 percent OIBDA margin. OIBDA margin improved 160 basis points year-over-year and 120 basis points sequentially. Normalized net income of $1.1 billion grew 15.1 percent compared to the second quarter of 2005 driven by improved profitability at both Cingular and Communications Group.

Reported Results from Continuing Operations

For the second quarter of 2006, BellSouth's consolidated reported revenues from continuing operations were $5.2 billion, up 1.2 percent compared to the same quarter of 2005. Income from continuing operations was $887 million, up 11.6 percent compared to the same quarter of the previous year.

For the second quarter of 2006, operating free cash flow (defined as net cash provided by operating activities less capital expenditures) was $980 million. Capital expenditures for the quarter were $950 million, including approximately $130 million of incremental expenditures for 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 wireless, broadband, video, voice and data products.

On Friday, July 21, 2006, shareholders of both BellSouth and AT&T voted overwhelmingly to approve the merger agreement. The companies have made significant progress toward obtaining the regulatory approvals from the Department of Justice, the Federal Communications Commission and various state commissions. The merger is expected to close in the fall.

Communications Group

In the second quarter of 2006, Communications Group revenues were $4.7 billion, a 1.0 percent increase over the second quarter of 2005. Growth in the mass-market and stabilization in the large business customer segments contributed to the improved results. Revenue streams for broadband data and long distance in these segments outpaced declines in the traditional voice business. Communications Group operating margin improved significantly to 24.9 percent, an increase of 130 basis points year-over-year and sequentially as the Company continued to focus on cost controls and held revenues stable.

Network data revenues grew to $1.3 billion, a 10.0 percent increase over the second quarter of 2005. Retail data revenues growth of 18.7 percent year- over-year was driven by a 40.9 percent increase in retail DSL revenues and continued momentum from emerging retail data services indicative of market growth in IP broadband services.

At the end of the second quarter, BellSouth served nearly 3.3 million broadband DSL customers. The Company added 128,000 new customers during the second quarter and continued to improve the economic mix of customers. Today, more than 25 percent of BellSouth's broadband customers subscribe to the Company's premium service offerings -- FastAccess(R) DSL Xtreme and FastAccess(R) DSL Xtreme 6.0.

BellSouth ended the second quarter with nearly 7.5 million long distance customers and at quarter-end served more than 60 percent of its mass-market customer base with long distance. The Company added 120,000 long distance customers during the second quarter. Approximately 63,000 customers added DIRECTV(R) service to their BellSouth bundle, resulting in a total of 691,000 customers who have included DIRECTV(R) service in their communications packages.

As of June 30, 2006, total access lines were 19.3 million, down 460,000 compared to March 31, 2006. Residential access line loss in the second quarter reflects seasonal loss patterns, wireless substitution and competition from cable telephony providers. Retail residential access lines were down 251,000. Retail small business access line gains were nearly 25,000, offset by a 48,000 decline in retail large business access lines that was predominantly driven by the loss of a single customer. Wholesale lines resold by BellSouth competitors declined 181,000 compared to March 31, 2006.

Summary Impacts of Hurricane Katrina

During the second quarter of 2006, BellSouth recognized incremental expenses associated with Hurricane Katrina of $25 million, which is net of $20 million in insurance recoveries during the quarter. BellSouth also incurred approximately $130 million of incremental capital expenditures for Katrina restoration. Since the third quarter of 2005, BellSouth has incurred approximately $910 million for Katrina-related network restoration expense and capital spending. We expect a portion of the cost associated with the Hurricane Katrina recovery effort to be covered by insurance. While the exact amount has not been determined, our current estimate of the total amount of covered losses that will be covered by insurance, net of our deductible is approximately $250 million, of which $40 million has been recognized to date. The actual recovery will vary depending on the outcome of the insurance loss adjustment effort.

Cingular Wireless

Cingular Wireless, the nation's largest wireless provider, was an important contributor to BellSouth's earnings growth in the second quarter of 2006. Strong customer growth, record low churn, improving revenue trends, and successful merger integration activities drove Cingular's margin expansion and net income growth.

Cingular added 1.5 million net new customers during the second quarter of 2006 and served a total of 57.3 million subscribers at the end of June. Postpaid customer additions were more than 1.0 million for the quarter, a 9.2 percent year-over-year improvement. Overall monthly subscriber churn for the quarter was a record-low 1.7 percent and postpaid churn was also the lowest- ever at 1.5 percent.

In the second quarter of 2006, Cingular's revenues were $9.2 billion, an improvement of 7.1 percent over the same quarter a year ago and up 2.7 percent sequentially. Average revenue per user (ARPU) improved sequentially in the quarter to $48.84, but declined 3.3 percent from the year-ago second quarter. The year-over-year decline in ARPU is primarily the result of the increase in the number of lower ARPU wholesale customers in Cingular's base. Retail subscriber ARPU improved year-over-year on growth of data services. Data ARPU continued its growth trajectory in the second quarter of 2006, increasing 38.7 percent to $5.77 year-over-year and up 10.5 percent sequentially.

For the second quarter of 2006, normalized operating income before depreciation and amortization (OIBDA) margin was 32.6 percent, up 370 basis points compared to the second quarter of 2005. The Company's steady margin improvement illustrates continued execution of merger integration activities and progress on network integration and system conversions. The continued decline in churn and strong gross and net customer additions are reflective of improving customer satisfaction. Customers are benefiting from improved network coverage and quality, promotional offers and devices and the capabilities of the growing 3G network.

Advertising & Publishing

For the seventh straight quarter, Advertising & Publishing grew revenues year-over-year reflecting continued growth in online advertising and growth in print advertising. Revenues were $547 million, up 3 percent compared to the same quarter of 2005. Operating margins were strong at 46.1 percent for the second quarter of 2006, flat compared to the same period in the prior year.

Normalizing Items

For the second 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.

2Q06 GAAP Diluted EPS - Income from continuing operations $0.49 Wireless merger integration costs $0.02 Wireless merger intangible amortization $0.04 Hurricane Katrina-related expenses $0.01 Severance $0.02 AT&T Merger Costs $0.01 Normalized Diluted EPS - Income from continuing operations(1) $0.60 (1) May not sum due to rounding

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.

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 second quarter.

Severance -- Represents the net severance-related costs recorded in the second quarter of 2006 associated with recently completed voluntary management workforce reductions.

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 and registration 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 57.3 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 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 second 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 at http://www.bellsouth.com/investor. The webcast will be archived on our Web site.

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

Domestic: 800-642-1687 -- Conference ID: 1384532 International: 706-645-9291 -- Conference ID: 1384532

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 preliminary 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. 2Q06 2Q05 Growth 1Q06 Growth Operating Revenues Communications group $4,647 $4,598 1.1% $4,653 -0.1% Advertising and publishing 543 527 3.0% 503 8.0% All other 16 17 -5.9% 15 6.7% Total Operating Revenues 5,206 5,142 1.2% 5,171 0.7% Operating Expenses Cost of services and products 1,960 1,925 1.8% 2,109 -7.1% Selling, general, & administrative expenses 970 943 2.9% 931 4.2% Depreciation and amortization 898 916 -2.0% 893 0.6% Provision for restructuring and asset impairments 73 8 * (8) * Total Operating Expenses 3,901 3,792 2.9% 3,925 -0.6% Operating Income 1,305 1,350 -3.3% 1,246 4.7% Interest Expense 279 285 -2.1% 279 0.0% Other Income (Expense), net 280 124 125.8% 194 44.3% Income from Continuing Operations before Income Taxes 1,306 1,189 9.8% 1,161 12.5% Provision for Income Taxes 419 394 6.3% 377 11.1% Income from Continuing Operations 887 795 11.6% 784 13.1% Income (Loss) from Discontinued Operations, net of tax - - * - * Net Income $887 $795 11.6% $784 13.1% Diluted: Weighted Average Common Shares Outstanding 1,813 1,835 -1.2% 1,804 0.5% Earnings Per Share: Income from Continuing Operations $0.49 $0.43 14.0% $0.43 14.0% Income from Discontinued Operations $0.00 $0.00 * $0.00 * Net Income (1) $0.49 $0.43 14.0% $0.43 14.0% * - Not meaningful. (1) Year-to-Date 2005 does not sum due to rounding. Selected Financial and Operating Data Operating income $1,305 $1,350 -3.3% $1,246 4.7% Operating margin 25.1% 26.3% -120 bps 24.1% 100 bps Declared dividends per share $0.29 $0.29 0.0% $0.29 0.0% Capital expenditures excluding Hurricane Katrina $821 $829 -1.0% $945 -13.1% Total capital expenditures $950 $829 14.6% $1,081 -12.1% Common shares outstanding 1,812 1,832 -1.1% 1,807 0.3% Book value per share $13.56 $13.10 3.5% $13.33 1.7% Year-to-Date 2006 2005 Growth Operating Revenues Communications group $9,300 $9,191 1.2% Advertising and publishing 1,046 1,015 3.1% All other 31 27 14.8% Total Operating Revenues 10,377 10,233 1.4% Operating Expenses Cost of services and products 4,069 3,845 5.8% Selling, general, & administrative expenses 1,901 1,837 3.5% Depreciation and amortization 1,791 1,834 -2.3% Provision for restructuring and asset impairments 65 15 * Total Operating Expenses 7,826 7,531 3.9% Operating Income 2,551 2,702 -5.6% Interest Expense 558 576 -3.1% Other Income (Expense), net 474 100 * Income from Continuing Operations before Income Taxes 2,467 2,226 10.8% Provision for Income Taxes 796 748 6.4% Income from Continuing Operations 1,671 1,478 13.1% Income (Loss) from Discontinued Operations, net of tax - 381 * Net Income $1,671 $1,859 -10.1% Diluted: Weighted Average Common Shares Outstanding 1,809 1,835 -1.4% Earnings Per Share: Income from Continuing Operations $0.92 $0.81 13.6% Income from Discontinued Operations $0.00 $0.21 * Net Income (1) $0.92 $1.01 -8.9% * - Not meaningful. (1) Year-to-Date 2005 does not sum due to rounding. Selected Financial and Operating Data Operating income $2,551 $2,702 -5.6% Operating margin 24.6% 26.4% -180 bps Declared dividends per share $0.58 $0.56 3.6% Capital expenditures excluding Hurricane Katrina $1,766 $1,579 11.8% Total capital expenditures $2,031 $1,579 28.6% 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. 2Q06 2Q05 Growth 1Q06 Growth Operating Revenues Communications group $4,569 $4,537 0.7% $4,574 -0.1% Wireless 3,687 3,443 7.1% 3,592 2.6% Advertising and publishing 543 527 3.0% 503 8.0% All other 16 16 0.0% 15 6.7% Total Operating Revenues 8,815 8,523 3.4% 8,684 1.5% Operating Expenses Cost of services and products 3,360 3,268 2.8% 3,393 -1.0% Selling, general, & administrative expenses 2,047 2,097 -2.4% 2,037 0.5% Depreciation and amortization 1,372 1,345 2.0% 1,354 1.3% Total Operating Expenses 6,779 6,710 1.0% 6,784 -0.1% Operating Income 2,036 1,813 12.3% 1,900 7.2% Interest Expense 379 392 -3.3% 381 -0.5% Other Income (Expense), net 31 58 -46.6% 23 34.8% Income Before Income Taxes 1,688 1,479 14.1% 1,542 9.5% Provision for Income Taxes 606 539 12.4% 559 8.4% Net Income $1,082 $940 15.1% $983 10.1% Diluted: Weighted Average Common Shares Outstanding 1,813 1,835 -1.2% 1,804 0.5% Earnings Per Share $0.60 $0.51 17.6% $0.54 11.1% * - Not meaningful. Selected Financial and Operating Data Operating income $2,036 $1,813 12.3% $1,900 7.2% Operating margin 23.1% 21.3% 180 bps 21.9% 120 bps Declared dividends per share $0.29 $0.29 0.0% $0.29 0.0% Capital expenditures excluding Hurricane Katrina $821 $829 -1.0% $945 -13.1% Total capital expenditures $950 $829 14.6% $1,081 -12.1% Common shares outstanding 1,812 1,832 -1.1% 1,807 0.3% Book value per share $13.56 $13.10 3.5% $13.33 1.7% Total employees 61,284 62,524 -2.0% 62,979 -2.7% Year-to-Date 2006 2005 Growth Operating Revenues Communications group $9,143 $9,058 0.9% Wireless 7,279 6,735 8.1% Advertising and publishing 1,046 1,015 3.1% All other 31 26 19.2% Total Operating Revenues 17,499 16,834 4.0% Operating Expenses Cost of services and products 6,753 6,499 3.9% Selling, general, & administrative expenses 4,084 4,150 -1.6% Depreciation and amortization 2,726 2,737 -0.4% Total Operating Expenses 13,563 13,386 1.3% Operating Income 3,936 3,448 14.2% Interest Expense 760 795 -4.4% Other Income (Expense), net 54 132 -59.1% Income Before Income Taxes 3,230 2,785 16.0% Provision for Income Taxes 1,165 1,027 13.4% Net Income $2,065 $1,758 17.5% Diluted: Weighted Average Common Shares Outstanding 1,809 1,835 -1.4% Earnings Per Share $1.14 $0.96 18.8% * - Not meaningful. Selected Financial and Operating Data Operating income $3,936 $3,448 14.2% Operating margin 22.5% 20.5% 200 bps Declared dividends per share $0.58 $0.56 3.6% Capital expenditures excluding Hurricane Katrina $1,766 $1,579 11.8% Total capital expenditures $2,031 $1,579 28.6% BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Second Quarter 2006 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $5,206 $0 $5,206 Operating Expenses 3,901 - 3,901 Operating Income 1,305 - 1,305 Interest Expense 279 - 279 Other Income (Expense), net 280 - 280 Income from Continuing Operations before Income Taxes 1,306 - 1,306 Provision for Income Taxes 419 - 419 Income from Continuing Operations 887 - 887 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $887 $0 $887 Diluted Earnings Per Share * $0.49 $0.00 $0.49 * Normalized earnings per share for the second quarter 2006 does not sum due to rounding. Second Quarter 2006 Normalizing Items Wireless Wireless Hurricane Merger Merger related Integration Intangible expenses Costs Amortization Cingular B C D E Operating Revenues $3,609 $0 $0 $0 Operating Expenses 3,203 (65) (135) (25) Operating Income 406 65 135 25 Interest Expense 100 - - - Other Income (Expense), net (249) - - - Income from Continuing Operations before Income Taxes 57 65 135 25 Provision for Income Taxes 57 27 55 10 Income from Continuing Operations - 38 80 15 Income (Loss) from Discontinued Operations, net of tax - - - - Net Income $0 $38 $80 $15 Diluted Earnings Per Share * $0.00 $0.02 $0.04 $0.01 * Normalized earnings per share for the second quarter 2006 does not sum due to rounding. Second Quarter 2006 Normalizing Items AT&T Merger Severance Costs G H Normalized Operating Revenues $0 $0 $8,815 Operating Expenses (73) (27) 6,779 Operating Income 73 27 2,036 Interest Expense - - 379 Other Income (Expense), net - - 31 Income from Continuing Operations before Income Taxes 73 27 1,688 Provision for Income Taxes 28 10 606 Income from Continuing Operations 45 17 1,082 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $45 $17 $1,082 Diluted Earnings Per Share * $0.02 $0.01 $0.60 * Normalized earnings per share for the second quarter 2006 does not sum due to rounding. Year-to-Date 2006 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $10,377 $0 $10,377 Operating Expenses 7,826 - 7,826 Operating Income 2,551 - 2,551 Interest Expense 558 - 558 Other Income (Expense), net 474 - 474 Income from Continuing Operations before Income Taxes 2,467 - 2,467 Provision for Income Taxes 796 - 796 Income from Continuing Operations 1,671 - 1,671 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $1,671 $0 $1,671 Diluted Earnings Per Share * $0.92 $0.00 $0.92 * Normalized earnings per share for year-to-date 2006 does not sum due to rounding. Year-to-Date 2006 Normalizing Items Wireless Wireless Hurricane Merger Merger related Integration Intangible Expenses Costs Amortization Cingular B C D E Operating Revenues $7,122 $0 $0 $0 Operating Expenses 6,393 (159) (278) (119) Operating Income 729 159 278 119 Interest Expense 202 - - - Other Income (Expense), net (420) - - - Income from Continuing Operations before Income Taxes 107 159 278 119 Provision for Income Taxes 107 65 113 46 Income from Continuing Operations - 94 165 73 Income (Loss) from Discontinued Operations, net of tax - - - - Net Income $0 $94 $165 $73 Diluted Earnings Per Share * $0.00 $0.05 $0.09 $0.04 * Normalized earnings per share for year-to-date 2006 does not sum due to rounding. Year-to-Date 2006 Normalizing Items AT&T Merger Severance Costs G H Normalized Operating Revenues $0 $0 $17,499 Operating Expenses (73) (27) 13,563 Operating Income 73 27 3,936 Interest Expense - - 760 Other Income (Expense), net - - 54 Income from Continuing Operations before Income Taxes 73 27 3,230 Provision for Income Taxes 28 10 1,165 Income from Continuing Operations 45 17 2,065 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $45 $17 $2,065 Diluted Earnings Per Share * $0.02 $0.01 $1.14 * Normalized earnings per share for year-to-date 2006 does not sum due to rounding. BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Second Quarter 2005 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $5,142 $0 $5,142 Operating Expenses 3,792 - 3,792 Operating Income 1,350 - 1,350 Interest Expense 285 - 285 Other Income (Expense), net 124 - 124 Income from Continuing Operations before Income Taxes 1,189 - 1,189 Provision for Income Taxes 394 - 394 Income from Continuing Operations 795 - 795 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $795 $0 $795 Diluted Earnings Per Share $0.43 $0.00 $0.43 Second Quarter 2005 Normalizing Items Wireless Wireless Debt Merger Merger Exting. Integration Intangible Costs Costs Amortization Cingular B C D F Normalized Operating Revenues $3,381 $0 $0 $0 $8,523 Operating Expenses 3,178 (81) (179) - 6,710 Operating Income 203 81 179 - 1,813 Interest Expense 107 - - - 392 Other Income (Expense), net (86) - - 20 58 Income from Continuing Operations before Income Taxes 10 81 179 20 1,479 Provision for Income Taxes 10 39 88 8 539 Income from Continuing Operations - 42 91 12 940 Income (Loss) from Discontinued Operations, net of tax - - - - - Net Income $0 $42 $91 $12 $940 Diluted Earnings Per Share $0.00 $0.02 $0.05 $0.01 $0.51 Year-to-Date 2005 Discontinued Continuing Operations Operations GAAP A (GAAP - A) Operating Revenues $10,233 $0 $10,233 Operating Expenses 7,531 - 7,531 Operating Income 2,702 - 2,702 Interest Expense 576 - 576 Other Income (Expense), net 100 - 100 Income from Continuing Operations before Income Taxes 2,226 - 2,226 Provision for Income Taxes 748 - 748 Income from Continuing Operations 1,478 - 1,478 Income (Loss) from Discontinued Operations, net of tax 381 (381) - Net Income $1,859 ($381) $1,478 Diluted Earnings Per Share * $1.01 ($0.21) $0.81 * Normalized earnings per share for year-to-date 2005 does not sum due to rounding. Year-to-Date 2005 Normalizing Items Wireless Wireless Debt Merger Merger Exting. Integration Intangible Costs Costs Amortization Cingular B C D F Normalized Operating Revenues $6,601 $0 $0 $0 $16,834 Operating Expenses 6,353 (123) (375) - 13,386 Operating Income 248 123 375 - 3,448 Interest Expense 219 - - - 795 Other Income (Expense), net (10) - - 42 132 Income from Continuing Operations before Income Taxes 19 123 375 42 2,785 Provision for Income Taxes 19 60 184 16 1,027 Income from Continuing Operations - 63 191 26 1,758 Income (Loss) from Discontinued Operations, net of tax - - - - - Net Income $0 $63 $191 $26 $1,758 Diluted Earnings Per Share * $0.00 $0.03 $0.10 $0.01 $0.96 * 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 recently completed 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 and registration statement and expense associated with employee retention awards. BellSouth Corporation Consolidated Balance Sheets (unaudited) (amounts in millions, except per share data) June 30, Dec. 31, Change Mar.31, Change 2006 2005 vs. 2006 vs. Prior Prior Year Quarter Assets Current Assets: Cash and cash equivalents $259 $427 ($168) $247 $12 Short-term investments 483 - 483 54 429 Accounts receivable, net of allowance for uncollectibles of $274, $289 and $281 2,472 2,555 (83) 2,409 63 Material and supplies 408 385 23 412 (4) Other current assets 932 842 90 982 (50) Total Current Assets 4,554 4,209 345 4,104 450 Investment in and advances to Cingular Wireless 22,108 21,274 834 21,882 226 Property, plant and equipment, net 21,920 21,723 197 21,870 50 Other assets 8,250 7,814 436 8,199 51 Intangible assets, net 1,606 1,533 73 1,595 11 Total Assets $58,438 $56,553 $1,885 $57,650 $788 Liabilities and Shareholders' Equity Current Liabilities: Debt maturing within one year $4,325 $4,109 $216 $4,408 ($83) Accounts payable 911 1,040 (129) 1,041 (130) Other current liabilities 4,131 3,505 626 3,686 445 Total Current Liabilities 9,367 8,654 713 9,135 232 Long-Term Debt 13,047 13,079 (32) 13,062 (15) Noncurrent Liabilities: Deferred income taxes 6,713 6,607 106 6,727 (14) Other noncurrent liabilities 4,740 4,679 61 4,641 99 Total Noncurrent Liabilities 11,453 11,286 167 11,368 85 Shareholders' Equity: Common stock, $1 par value 2,020 2,020 - 2,020 - Paid-in capital 7,919 7,960 (41) 7,931 (12) Retained earnings 20,965 20,383 582 20,612 353 Accumulated other comprehensive income 19 (14) 33 32 (13) Shares held in trust and treasury (6,352) (6,815) 463 (6,510) 158 Total Shareholders' Equity 24,571 23,534 1,037 24,085 486 Total Liabilities and Shareholders' Equity $58,438 $56,553 $1,885 $57,650 $788 BellSouth Corporation Consolidated Statements of Cash Flows (unaudited) (amounts in millions, except per share data) Year-to-Date 2Q06 2Q05 1Q06 2006 2005 Cash Flows from Operating Activities: Income from Continuing Operations $887 $795 $784 $1,671 $1,478 Adjustments to income from continuing operations: Depreciation and amortization 898 916 893 1,791 1,834 Provision for uncollectibles 60 80 87 147 165 Net losses (earnings) of equity affiliates (213) (68) (139) (352) 12 Deferred income taxes (1) 162 59 58 117 Pension income (131) (133) (130) (261) (266) Stock-settled compensation expense 15 23 17 32 48 Loss on extinguishment of debt - 20 - - 42 Net change in: Accounts receivable and other current assets (76) (79) (79) (155) (163) Accounts payable and other current liabilities 332 368 78 410 391 Deferred charges and other assets 26 (60) (23) 3 (40) Other liabilities and deferred credits 117 101 78 195 204 Other reconciling items, net 16 3 7 23 (2) Net cash provided by operating activities 1,930 2,128 1,632 3,562 3,820 Cash Flows from Investing Activities: Capital expenditures (950) (829) (1,081) (2,031) (1,579) Purchase of short-term investments (797) - (308) (1,105) (12) Proceeds from sale of short-term investments 368 - 254 622 28 Investments in debt and equity securities (143) (71) (200) (343) (103) Proceeds from sale of securities and operations 132 15 3 135 944 Net (advances to) repayments from Cingular (11) 387 (466) (477) 787 Other investing activities, net (7) (9) (15) (22) (12) Net cash provided by (used for) investing activities (1,408) (507) (1,813) (3,221) 53 Cash Flows from Financing Activities: Net borrowings (repayments) of short-term debt (80) (556) 713 633 (1,630) Repayments of long-term debt (12) (605) (417) (429) (1,267) Dividends paid (525) (494) (521) (1,046) (988) Purchase of treasury shares (2) (6) (50) (52) (83) Proceeds from issuing common stock 120 19 260 380 38 Other financing activities, net (11) (10) 16 5 (23) Net cash provided by (used for) financing activities (510) (1,652) 1 (509) (3,953) Net Increase/(Decrease) in Cash from Continuing Operations 12 (31) (180) (168) (80) Net Increase/(Decrease) in Cash from Discontinued Operations - - - - (115) Net Increase/(Decrease) in Cash and Cash Equivalents 12 (31) (180) (168) (195) Cash and Cash Equivalents at Beginning of Period 247 516 427 427 680 Cash and Cash Equivalents at End of Period $259 $485 $247 $259 $485 BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) 2Q06 2Q05 Growth 1Q06 Growth Operating Revenues Voice $3,102 $3,155 -1.7% $3,129 -0.9% Data 1,282 1,165 10.0% 1,264 1.4% Other 289 305 -5.2% 286 1.0% Total Operating Revenues 4,673 4,625 1.0% 4,679 -0.1% Operating Expenses Cost of services and products 1,848 1,850 -0.1% 1,946 -5.0% Selling, general, & administrative expenses 771 775 -0.5% 742 3.9% Depreciation and amortization 890 910 -2.2% 886 0.5% Total Operating Expenses 3,509 3,535 -0.7% 3,574 -1.8% Segment Operating Income 1,164 1,090 6.8% 1,105 5.3% Interest Expense 111 100 11.0% 107 3.7% Other Income (Expense), net 12 20 -40.0% 7 71.4% Income Before Income Taxes 1,065 1,010 5.4% 1,005 6.0% Provision for Income Taxes 367 350 4.9% 351 4.6% Segment Net Income(1) $698 $660 5.8% $654 6.7% * - Not meaningful. Selected Financial and Operating Data (amounts in millions) Segment operating income $1,164 $1,090 6.8% $1,105 5.3% Segment operating margin 24.9% 23.6% 130 bps 23.6% 130 bps DSL revenues $400 $287 39.4% $382 4.7% Long distance revenues $645 $580 11.2% $639 0.9% Switched Access MOUs 14,954 15,638 -4.4% 15,324 -2.4% BSLD MOUs 6,548 6,301 3.9% 6,626 -1.2% Total Access minutes of use 21,502 21,939 -2.0% 21,950 -2.0% Capital expenditures excluding Hurricane Katrina $817 $826 -1.1% $936 -12.7% Total capital expenditures $946 $826 14.5% $1,072 -11.8% (amounts in thousands) Wholesale lines 1,906 2,666 -28.5% 2,087 -8.7% DSL customers 3,273 2,473 32.3% 3,145 4.1% LD customers 7,478 6,771 10.4% 7,358 1.6% Consumer ARPU (3) $62.81 $58.39 7.6% $62.05 1.2% Communications Group (1) Year-to-Date 2006 2005 Growth Operating Revenues Voice $6,231 $6,309 -1.2% Data 2,546 2,325 9.5% Other 575 609 -5.6% Total Operating Revenues 9,352 9,243 1.2% Operating Expenses Cost of services and products 3,794 3,703 2.5% Selling, general, & administrative expenses 1,513 1,513 0.0% Depreciation and amortization 1,776 1,820 -2.4% Total Operating Expenses 7,083 7,036 0.7% Segment Operating Income 2,269 2,207 2.8% Interest Expense 218 198 10.1% Other Income (Expense), net 19 31 -38.7% Income Before Income Taxes 2,070 2,040 1.5% Provision for Income Taxes 718 716 0.3% Segment Net Income(1) $1,352 $1,324 2.1% * - Not meaningful. Selected Financial and Operating Data (amounts in millions) Segment operating income $2,269 $2,207 2.8% Segment operating margin 24.3% 23.9% 40 bps DSL revenues $782 $580 34.8% Long distance revenues $1,284 $1,158 10.9% Switched Access MOUs 30,278 31,768 -4.7% BSLD MOUs 13,174 12,312 7.0% Total Access minutes of use 43,452 44,080 -1.4% Capital expenditures excluding Hurricane Katrina $1,753 $1,568 11.8% Total capital expenditures $2,018 $1,568 28.7% BellSouth Corporation Results by Segment (unaudited) Supplemental Operating Data (in thousands) Communications Group - Network Access Lines In Service Reported (a) 2Q06 2Q05 Growth 1Q06 Growth Access lines Residence Retail Primary 11,022 11,595 -4.9% 11,231 -1.9% Additional 1,089 1,257 -13.4% 1,131 -3.7% Total Residence Retail 12,111 12,852 -5.8% 12,362 -2.0% Residence Wholesale Voice Lines 1,251 1,840 -32.0% 1,392 -10.1% Total Residence 13,362 14,692 -9.1% 13,754 -2.9% Business Business Retail 5,301 5,254 0.9% 5,327 -0.5% Business Wholesale Voice Lines 590 758 -22.2% 629 -6.2% Total Business 5,891 6,012 -2.0% 5,956 -1.1% Other Retail/Wholesale Lines Retail 21 28 -25.0% 23 -8.7% Wholesale 65 68 -4.4% 66 -1.5% Total Other Retail/Wholesale Lines 86 96 -10.4% 89 -3.4% Total Access Lines in Service 19,339 20,800 -7.0% 19,799 -2.3% ISDN line equivalents Residence 6 7 -14.3% 6 0.0% Business 1,420 1,421 -0.1% 1,456 -2.5% Total ISDN Adjusted ALIS 20,765 22,228 -6.6% 21,261 -2.3% Access Line Equivalents (b) Selected digital data services: Unbundled Loops 373 268 39.2% 340 9.7% DS0 & ADSL 19,886 15,114 31.6% 19,124 4.0% DS1 8,344 8,028 3.9% 8,225 1.4% DS3 & higher 35,269 32,860 7.3% 35,077 0.5% Total digital data lines in service 63,872 56,270 13.5% 62,766 1.8% Total equivalent access lines in service 84,637 78,498 7.8% 84,027 0.7% * - 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) 2Q06 2Q05 Growth 1Q06 Growth Operating Revenues Service revenues (2) $3,318 $3,087 7.5% $3,202 3.6% Equipment and other revenues 369 356 3.7% 390 -5.4% Total Operating Revenues 3,687 3,443 7.1% 3,592 2.7% Operating Expenses Cost of services and products 1,511 1,401 7.9% 1,452 4.1% Selling, general, & administrative expenses 1,097 1,151 -4.7% 1,119 -2.0% Depreciation and amortization 473 429 10.3% 461 2.6% Total Operating Expenses 3,081 2,981 3.4% 3,032 1.6% Segment Operating Income 606 462 31.2% 560 8.2% Interest Expense 119 130 -8.5% 119 0.0% Other Income (Expense), net (15) (4) * (12) * Income Before Income Taxes 472 328 43.9% 429 10.0% Provision for Income Taxes 196 160 22.5% 186 5.4% Segment Net Income (1) $276 $168 64.3% $243 13.6% Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Segment operating income $606 $462 31.2% $560 8.2% Segment operating margin 16.4% 13.4% 300 bps 15.6% 80 bps Cellular/PCS Operating Metrics (100% Cingular)**: Total Customers (7) 57,308 51,442 11.4% 55,810 2.7% Net Customer Additions (7) 1,498 952 57.4% 1,679 -10.8% M&A Activity, Partitioned Customers and/or Adjs (7) 0 140 * (13) * Churn (8) 1.7% 2.2% -50 bps 1.9% -20 bps Wireless Service ARPU (3) $48.84 $50.51 -3.3% $48.48 0.7% Minutes Of Use Per Subscriber(4) 741 692 7.2% 698 6.2% Licensed POPs (5) 296 294 0.7% 296 0.0% Penetration (6) 20.0% 18.0% 200 bps 19.8% 20 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. Wireless Segment (1)(a) Year-to-Date 2006 2005 Growth Operating Revenues Service revenues (2) $6,520 $6,055 7.7% Equipment and other revenues 759 680 11.6% Total Operating Revenues 7,279 6,735 8.1% Operating Expenses Cost of services and products 2,963 2,776 6.7% Selling, general, & administrative expenses 2,216 2,310 -4.1% Depreciation and amortization 934 903 3.4% Total Operating Expenses 6,113 5,989 2.1% Segment Operating Income 1,166 746 56.3% Interest Expense 238 265 -10.2% Other Income (Expense), net (27) - * Income Before Income Taxes 901 481 87.3% Provision for Income Taxes 382 246 55.3% Segment Net Income (1) $519 $235 120.9% Selected Financial and Operating Data (amounts in millions, except customer data in thousands) Segment operating income $1,166 $746 56.3% Segment operating margin 16.0% 11.1% 490 bps Cellular/PCS Operating Metrics (100% Cingular)**: Total Customers (7) 57,308 51,442 11.4% Net Customer Additions (7) 3,177 2,319 37.0% M&A Activity, Partitioned Customers and/or Adjs (7) (13) (9) -44.4% Churn (8) 1.8% 2.2% -40 bps Wireless Service ARPU (3) $48.66 $50.06 -2.8% Minutes Of Use Per Subscriber (4) 720 661 9.0% Licensed POPs (5) 296 294 0.7% Penetration (6) 20.0% 18.0% 200 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) 2Q06 2Q05 Growth 1Q06 Growth Operating Revenues Advertising and publishing revenues $494 $481 2.7% $487 1.4% Commission revenues 53 50 6.0% 19 178.9% Total Operating Revenues 547 531 3.0% 506 8.1% Operating Expenses Cost of services 97 99 -2.0% 93 4.3% Selling, general, & administrative expenses 191 180 6.1% 179 6.7% Depreciation and amortization 7 7 0.0% 8 -12.5% Total Operating Expenses 295 286 3.1% 280 5.4% Segment Operating Income 252 245 2.9% 226 11.5% Interest Expense 4 2 100.0% 5 -20.0% Other Income (Expense), net (3) 1 * (2) -50.0% Income Before Income Taxes 245 244 0.4% 219 11.9% Provision for Income Taxes 89 90 -1.1% 79 12.7% Segment Net Income(1) $156 $154 1.3% $140 11.4% Segment operating income $252 $245 2.9% $226 11.5% Segment operating margin 46.1% 46.1% 0 bps 44.7% 140 bps * - Not meaningful. Advertising & Publishing (1) Year-to-Date 2006 2005 Growth Operating Revenues Advertising and publishing revenues $981 $956 2.6% Commission revenues 72 66 9.1% Total Operating Revenues 1,053 1,022 3.0% Operating Expenses Cost of services 190 189 0.5% Selling, general, & administrative expenses 370 343 7.9% Depreciation and amortization 15 14 7.1% Total Operating Expenses 575 546 5.3% Segment Operating Income 478 476 0.4% Interest Expense 9 5 80.0% Other Income (Expense), net (5) - * Income Before Income Taxes 464 471 -1.5% Provision for Income Taxes 168 176 -4.5% Segment Net Income(1) $296 $295 0.3% Segment operating income $478 $476 0.4% Segment operating margin 45.4% 46.6% -120 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. Licensed POPs have been restated in periods 4Q04 through 2Q05 due to a reconciliation of respective licenses. (6) Penetration calculation for 2Q06 is based on licensed "operational" POPs of 286 million. (7) Cellular/PCS customers include customers served through reseller agreements. Cingular revised its customer counts and related data for the 4Q04 through 2Q05 reporting periods to correct reporting of certain subscriber activity. (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 2Q06 2Q05 1Q06 2006 2005 Communications Group segment Net Income $698 $660 $654 $1,352 $1,324 Wireless segment Net Income 276 168 243 519 235 Advertising and Publishing Group segment Net Income 156 154 140 296 295 Corporate, eliminations and other (48) (42) (54) (102) (96) Normalized Net Income 1,082 940 983 2,065 1,758 Add back Excluded non- recurring or non- operational items (a) (195) (145) (199) (394) 101 Consolidated GAAP Net Income $887 $795 $784 $1,671 $1,859 Free Cash Flow Year-to-Date 2Q06 2Q05 1Q06 2006 2005 Net cash provided by Operating Activities $1,930 $2,128 $1,632 $3,562 $3,820 Less Capital Expenditures (950) (829) (1,081) (2,031) (1,579) Operating Free Cash Flow $980 $1,299 $551 $1,531 $2,241 Net Debt June 30, Dec.31, March 31, 2006 2005 2006 Total Debt $17,372 $17,188 $17,470 Less Cash (259) (427) (247) Net Debt $17,113 $16,761 $17,223 Consolidated Normalized Operating Income before Depreciation and Amortization Year-to-Date 2Q06 2Q05 1Q06 2006 2005 Operating Revenues $8,815 $8,523 $8,684 $17,499 $16,834 Operating Income 2,036 1,813 1,900 3,936 3,448 Add back Depreciation and Amortization 1,372 1,345 1,354 2,726 2,737 Operating Income before Depreciation and Amortization $3,408 $3,158 $3,254 $6,662 $6,185 Margin 38.7% 37.1% 37.5% 38.1% 36.7% Communications Group Operating Income before Depreciation and Amortization Year-to-Date 2Q06 2Q05 1Q06 2006 2005 Operating Revenues $4,673 $4,625 $4,679 $9,352 $9,243 Operating Income 1,164 1,090 1,105 2,269 2,207 Add back Depreciation and Amortization 890 910 886 1,776 1,820 Operating Income before Depreciation and Amortization $2,054 $2,000 $1,991 $4,045 $4,027 Margin 44.0% 43.2% 42.6% 43.3% 43.6% Wireless Operating Income before Depreciation and Amortization Year-to-Date 2Q06 2Q05 1Q06 2006 2005 Service Revenues $3,318 $3,087 $3,202 $6,520 $6,055 Equipment and Other Revenues 369 356 390 759 680 Operating Revenues 3,687 3,443 3,592 7,279 6,735 Operating Income 606 462 560 1,166 746 Operating Margin (Operating Income divided by Operating Revenues) (b) 16.4% 13.4% 15.6% 16.0% 11.1% Add back Depreciation and Amortization 473 429 461 934 903 Operating Income before Depreciation and Amortization $1,079 $891 $1,021 $2,100 $1,649 Margin (Operating Income before Depr & Amort divided by Service Revenues) (b) 32.6% 28.9% 31.9% 32.2% 27.2% (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 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.