- Normalized earnings per share of 60 cents, up 18 percent
- Expanding margins in Communications Group
- Strong customer growth and record low churn at Cingular
ATLANTA, July 24 /PRNewswire-FirstCall/ -- BellSouth Corporation (NYSE:
BLS) 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.
SOURCE BellSouth Corporation
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CONTACT:
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+1-404-249-2839, or BellSouth Investor Relations at +800-241-3419
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