BSC British Smaller Companies Vct2 Plc

RNS Number:6417G
Bellsouth Corp
24 July 2006

For Immediate Release

July 24, 2006





BellSouth Reports Second Quarter Earnings

*        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 - 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 9.0 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.COMTM 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 www.bellsouth.com/investor.  The press release, financial
statements and Investor News summarizing highlights of the quarter are available
at 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 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





For More Information Contact:

Brent Fowler, Media Relations at 404-249-2839

BellSouth Investor Relations at 800-241-3419



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, www.bellsouth.com/investor.





                      This information is provided by RNS
            The company news service from the London Stock Exchange
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