-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GW8ve4qtoFMzpcsY/FLFaFQQ9VQbD6nAQ6mYf0kRv9vAGY0s7ZoDxfy8j2GNnfs3 w+OZ1BERTJlBMnc6NiQHJg== 0000732713-05-000014.txt : 20050125 0000732713-05-000014.hdr.sgml : 20050125 20050125082538 ACCESSION NUMBER: 0000732713-05-000014 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050125 ITEM INFORMATION: Results of Operations and Financial Condition FILED AS OF DATE: 20050125 DATE AS OF CHANGE: 20050125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELLSOUTH CORP CENTRAL INDEX KEY: 0000732713 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 581533433 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08607 FILM NUMBER: 05545845 BUSINESS ADDRESS: STREET 1: 1155 PEACHTREE ST NE STREET 2: ROOM 15G03 CITY: ATLANTA STATE: GA ZIP: 30309-3610 BUSINESS PHONE: 4042492000 MAIL ADDRESS: STREET 1: 1155 PEACHTREE STREET NE CITY: ATLANTA STATE: GA ZIP: 30309-3610 8-K 1 form8k012505.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): January 25, 2005 BELLSOUTH CORPORATION - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) GEORGIA - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 1-8607 58-1533433 - -------------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) Room 15G03, 1155 Peachtree Street, N. E., Atlanta, Georgia 30309-3610 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (404) 249-2000 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 Results of Operations and Financial Condition The information in this report, including the Exhibits described below, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. Attached and incorporated herein by reference are: (i) Exhibit 99-a, which is a copy of a press release of BellSouth Corporation dated January 25, 2005, reporting the company's financial results for the quarter and year ended December 31, 2004; and (ii) Exhibit 99-b, which is a document entitled "Investor News" that contains more detailed information about the recently completed quarter. Non-GAAP Financial Information To provide clarity, internally and externally, about the most tangible and relevant measures of our financial performance, we supplement the reporting of BellSouth's consolidated financial information under GAAP with certain non-GAAP financial measures, including normalized operating results from continuing operations, free cash flow from continuing operations and income from continuing operations before deprecation and amortization margin. In connection with Cingular Wireless' (Cingular) acquisition of AT&T Wireless, which was completed on October 26, 2004, we have also reported pro forma revenue and pro forma Average Revenue Per Unit (ARPU) for our domestic wireless segment. The pro forma adjustments are consistent with those set forth in Cingular's Form 8-K/A dated October 25, 2004. This information should not be considered in isolation or as a substitute for the consolidated (GAAP) financial information. Further, investors should note that these non- GAAP measures involve judgments by management (in particular, judgments as to what is or is not classified as a special item). We believe the presentation of these measures provides useful information to investors for the following specific reasons: Normalized Results From Continuing Operations. The presentation of normalized results from continuing operations enables investors to focus on period-over-period operating performance, without the impact of significant non-operational or non-recurring items. Additionally, normalized results include BellSouth's 40 percent share of Cingular Wireless' revenues and expenses. Cingular's results are recognized on the equity method for GAAP purposes. Accordingly, Cingular's results are not included in the revenue, expense, or operating income line items in the GAAP presentation. The financial results of Cingular, a joint venture representing our second largest operating segment, are a critical element of BellSouth's overall financial performance. The inclusion of Cingular's revenues and expenses on a proportional basis enables investors to evaluate BellSouth's overall financial performance, including all business segments. Normalized results from continuing operations are provided to enhance the user's overall understanding of the Company's current financial performance and the Company's prospects for the future. We believe normalized results from continuing operations are an important measure of our recurring operations because it excludes items that may not be indicative of our core operating results, includes items that are core to our operating results not allowed by GAAP (e.g. Cingular's results) and provides a better baseline for modeling future earnings expectations. We believe the inclusion of normalized results from continuing operations provides consistency and comparability in our financial reporting and is provided in order to enable investors to more thoroughly evaluate our current performance compared to past performance. Finally, normalized measures are among the primary indicators management uses in planning and operating the business. By providing this information to investors supplementally, investors will be able to evaluate the results of the business through the eyes of management and assess the fundamental performance of the business. Normalized results from continuing operations may exclude (a) events, such as changes in accounting method, that are generally non-recurring in nature and (b) material one-time gains or losses, both of which can distort reported operating results. A complete list of normalizing items, as well as a full reconciliation of normalized results to GAAP reporting, are included in the quarterly financial statements that are attached hereto and are available on the company's Web site, www.bellsouth.com/investor. Free Cash Flow. We believe free cash flow provides investors a meaningful measure of liquidity of the business. It indicates the level of cash the business is generating from normal continuing operations less capital reinvestment that is required to continue the operations. Investors can utilize this measure to make assessments of the viability of the company and as a base line for valuation of the company. Management monitors operating free cash flow and makes operating decisions based on its level. We define operating free cash flow as operating cash flow from continuing operations less capital expenditures, both of which are taken directly from the statement of cash flows. Operating Income Before Depreciation and Amortization and Related Margin. Facility-based telecommunications companies require significant recurring capital investments that generate large non-cash expense, making operating income a less meaningful measure of current period business performance and profitability. We use operating income from continuing operations before depreciation and amortization, and the related margin, as a measure of underlying operating performance of the business and to make meaningful comparisons of different operating periods. Domestic Wireless Pro Forma Revenue and ARPU. Pro forma revenues and pro forma ARPU are used to provide more meaningful period to period comparisons of reported revenues and ARPU. These unaudited pro forma measures incorporate AT&T Wireless' results for the first 25 days of October 2004, the three months ended September 30, 2004 and the three months ended December 31, 2003. The measures also include results from other acquired properties, exclude results from divested operations, and reflect intercompany eliminations and other adjustments for such periods. For further detail regarding other pro forma combined historical financial information, see the information filed by Cingular Wireless on Form 8-K/A filed on November 29, 2004. The unaudited pro forma information is not intended to represent or be indicative of the results of Cingular that would have been reported had the merger and the above mentioned items been completed as of the dates presented, and should not be taken as representative of the future results of Cingular. In addition to historical information, this document contains forward-looking statements regarding events and financial trends. Factors that could affect future results and could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: (i) a change in economic conditions in domestic or international markets where we operate or have material investments which would affect demand for our services; (ii) the intensity of competitive activity and its resulting impact on pricing strategies and new product offerings; (iii) higher than anticipated cash requirements for investments, new business initiatives and acquisitions; (iv) unfavorable regulatory actions; and (v) those factors contained in the Company's periodic reports filed with the SEC. The forward-looking information in this document is given as of this date only, and BellSouth assumes no duty to update this information. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BELLSOUTH CORPORATION By: /s/ W. Patrick Shannon W. Patrick Shannon Senior Vice President - Finance and Controller January 25, 2005 EX-99 2 form8k012505ex99a.txt EXHIBIT 99-A Exhibit 99-a For Immediate Release Jan. 25, 2004 BellSouth Reports Fourth Quarter Earnings o 1.8 million Cingular pro forma net customer additions o 224,000 DSL net customer additions o 467,000 long distance net customer additions ATLANTA - BellSouth Corporation (NYSE: BLS) announced fourth quarter 2004 earnings per share (EPS): o Reported EPS from continuing operations was 27 cents compared to 45 cents in fourth quarter 2003. o Normalized EPS from continuing operations was 35 cents compared to 46 cents in fourth quarter of 2003. o Total reported EPS from continuing and discontinued operations was 80 cents compared to 43 cents in fourth quarter 2003. Reported Results from Continuing Operations For the fourth quarter of 2004, BellSouth's consolidated reported revenue from continuing operations totaled $5.15 billion, an increase of 0.8 percent compared to the same quarter in 2003. Income from continuing operations was $496 million compared to $836 million in the same quarter of the previous year. Reported EPS from continuing operations for the quarter was 27 cents compared to 45 cents in the fourth quarter of 2003. BellSouth's fourth quarter 2004 reported income and EPS from continuing operations were negatively impacted by restoration expenses due to hurricanes, severance-related expenses and a previously announced change in the calculation of the retiree medical benefit obligation. In addition, BellSouth's earnings related to Cingular Wireless were affected by merger integration costs from the acquisition of AT&T Wireless, high gross customer additions and upgrades, lower service revenue, accelerated depreciation and acquisition-related financing costs. For the full year of 2004, BellSouth reported EPS from continuing operations of $1.87 compared to $1.88 in 2003. Consolidated revenue from continuing operations was $20.30 billion in 2004, flat compared to 2003. Income from continuing operations was $3.44 billion in 2004 compared to $3.49 billion the previous year. Normalized Results from Continuing Operations Normalized results from continuing operations are adjusted for BellSouth's 40 percent proportionate share of Cingular's revenues and expenses. Cingular completed its acquisition of AT&T Wireless on Oct. 26, 2004. Cingular's results for the quarter combine Cingular stand-alone results for the first 25 days of the quarter and the operations of the combined companies starting on Oct. 26, 2004. Prior period results for 2003 and the first three quarters of 2004 have not been restated. Normalized revenue was $7.92 billion for the fourth quarter of 2004 compared to $6.63 billion for the fourth quarter in 2003. Normalized net income was $640 million compared to $846 million for the fourth quarter in 2003. Normalized EPS from continuing operations of 35 cents in the fourth quarter excludes the impact of hurricane- and severance-related expenses in the wireline business (5 cents) and merger integration costs from Cingular's acquisition of AT&T Wireless (3 cents). Fourth quarter normalized EPS from continuing operations declined compared to the third quarter of 2004. Communication group results were negatively impacted by a previously announced change in the calculation of the retiree medical benefit obligation (3 cents) and an annual FAS 112 adjustment (1 cent). In addition to acquisition-related financing costs (2 cents), BellSouth's earnings related to Cingular Wireless declined by approximately 7 cents due primarily to seasonal decline in roaming revenue, high gross customer additions, costs associated with incrementally higher customer upgrades and increased depreciation expense driven by adjustments to the expected useful life of TDMA equipment. For the full year, normalized EPS was $1.83 in 2004 compared to $1.95 in 2003. Normalized revenue was $27.91 billion in 2004. Normalized net income was $3.36 billion for 2004. Cash Flow and Capital Operating free cash flow from continuing operations (defined as net cash provided by operating activities less capital expenditures) totaled $3.61 billion for 2004. Capital expenditures for continuing operations for 2004 were $3.19 billion, including $60 million in hurricane restoration capital, compared to $2.93 billion in 2003. Communications Group In 2004, revenue growth from long distance and DSL high-speed Internet service offset reduced revenue from access line declines, holding Communications Group revenue flat at $18.45 billion, compared to 2003. In the fourth quarter, revenue increased 0.6 percent to $4.65 billion compared to the same quarter the previous year. Operating margin for 2004 was 25.1 percent compared to 26.3 percent in 2003. Operating margin for the fourth quarter was 22.6 percent, impacted primarily by the previously announced change in the calculation of the retiree medical benefit obligation. During the fourth quarter of 2004, BellSouth added a record 224,000 net DSL customers and ended the year at 2.1 million customers. This momentum reflects the continued success of the tiered service portfolio and was driven in part by the company's long-term, strategic move to offer additional incentives and new pricing for FastAccess(R) DSL. Driven by DSL, network data revenue for the fourth quarter was $1.16 billion, an increase of 6.5 percent compared to the same quarter of 2003. BellSouth added 467,000 mass-market long distance customers during the fourth quarter of 2004, and now serves more than 6.1 million mass-market long distance customers. These customers represent a 48 percent penetration of BellSouth's mass-market base and spend an average of approximately $17 per month on long distance with BellSouth. With DIRECTV(R), BellSouth provides a competitively priced triple-play package of voice, data and entertainment services. Through Dec. 31, more than 200,000 customers have added DIRECTV(R) to their communications services packages. As of Dec. 31, 2004, total access lines were 21.4 million, down 4.1 percent compared to a year earlier. UNE-P access lines resold by BellSouth competitors were 2.8 million at year-end 2004 compared to 2.4 million at year-end 2003. In the third and fourth quarters of 2004, UNE-P lines began a declining trend and decreased a total of 165,000 over the second half of 2004. Cingular Wireless Cingular Wireless, the nation's largest wireless provider, added nearly 1.8 million customers in the fourth quarter of 2004, on a pro forma basis, bringing its nationwide customer base to more than 49 million customers. Cingular's gross customer additions in the fourth quarter totaled 5.5 million on a pro forma basis, the best ever combined total for the two companies. Pro forma churn was 2.6 percent in the fourth quarter. In the fourth quarter, BellSouth's share of Cingular's reported revenues was $2.83 billion. Reported average revenue per user (ARPU) in the fourth quarter was $49.22. ARPU on a pro forma basis was $49.67, down 4.7 percent versus pro forma results the in the third quarter of 2004. The sequential decline is primarily attributable to seasonal declines in roaming revenues. ARPU on a pro forma basis was down 5.8 percent versus pro forma results for the same period in 2003. Year-over-year ARPU was adversely impacted by the transition of customers to GSM plans, Family Talk, and non-cash deferrals of Rollover minutes. ARPU from data services continued its strong growth, reaching $2.89 on a reported basis. This growth was driven by the popularity of text messaging, mobile e-mail, downloadable ringtones, games and photo messaging. Cingular's normalized fourth quarter service margin from operating income before depreciation and amortization was 23.2 percent. This segment's normalized operating margin, which excludes integration costs, was 1.0 percent. Fourth-quarter expenses and margins reflect negative impacts from accelerated depreciation, higher operating costs from high levels of gross customer additions, upgrade costs, costs associated with the progress in customer conversions to new Cingular GSM contracts, and a range of customer service initiatives. Synergies from the merger will benefit Cingular's financial results as the integration plans progress in 2005. Cingular has reached several important milestones in the integration process of AT&T Wireless operations and services. In addition to this quarter's net adds, Cingular integrated essentially all customer-facing operations by launch date and has migrated over a million AT&T Wireless subscribers to new Cingular postpaid plans. Advertising & Publishing In the fourth quarter of 2004, Advertising & Publishing grew revenue by 1.1 percent year over year to $528 million. Operating margin for the fourth quarter of 2004 was 45.3 percent compared to 46.0 percent in the fourth quarter of 2003. Segment net income was $145 million compared to $147 million in the fourth quarter of 2003. Full year 2004 revenue was $2.0 billion, a 1.5 percent decline compared to 2003, and full year operating margins were stable at 47.3 percent compared to 47.5 percent in 2003. Discontinued Operations: Latin America In March 2004, BellSouth signed a definitive agreement with Telefonica Moviles, the wireless affiliate of Telefonica, S.A., to sell BellSouth's interests in its 10 Latin American operations. As of Jan. 11, 2005, BellSouth completed the sale of all 10 operations. The Company's financial statements, as of Dec. 31, 2004, reflect results for the Latin American segment in the line item titled Discontinued Operations. For the fourth quarter, BellSouth reported income from discontinued operations of 53 cents per share compared to a loss of 3 cents per share in the fourth quarter of 2003. Results for the fourth quarter of 2004 include an after-tax gain of $915 million related to eight of the 10 properties that were closed prior to year-end. BellSouth will report an after-tax gain of approximately $385 million to $405 million in the first quarter of 2005 related to the January closing of the remaining two properties. Normalizing Items In the fourth quarter of 2004, the difference between reported (GAAP) EPS from continuing operations and normalized EPS is shown in the following table: - ------------------------------------------------------ ------------ ------------ 4Q04 4Q03 - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ GAAP Diluted EPS - Income from continuing operations $0.27 $0.45 - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ Hurricane-related expenses $0.04 - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ Wireless merger integration costs $0.03 - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ Severance and lease termination costs $0.01 $0.01 - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ - ------------------------------------------------------ ------------ ------------ Normalized Diluted EPS - Income from continuing operations $0.35 $0.46 - ------------------------------------------------------ ------------ ------------ Hurricane-related expenses - Represents the incremental labor and material costs incurred during the fourth quarter related to service restoration and network repairs in the wireline business due to Hurricanes Charley, Frances, Ivan and Jeanne. Wireless merger integration costs - Represents BellSouth's 40 percent share of tax-effected wireless merger integration costs of $245 million incurred during the fourth quarter in connection with the Cingular/AWE merger. Severance and lease termination costs - Represents the net severance-related costs recorded in the fourth quarter associated with previously announced workforce reductions and a provision related to surplus office space under long-term leases. About BellSouth Corporation BellSouth Corporation is a Fortune 100 communications company headquartered in Atlanta, GA and a parent company of Cingular Wireless, the nation's largest wireless voice and data provider. Backed by award winning customer service, BellSouth offers the most comprehensive and innovative package of voice and data services available in the market. Through BellSouth Answers(R), residential and small business customers can bundle their local and long distance service with dial up and high speed DSL Internet access, satellite television and Cingular(R) Wireless service. For businesses, BellSouth provides secure, reliable local and long distance voice and data networking solutions. BellSouth also offers online and directory advertising through BellSouth(R) RealPages.com(R) and The Real Yellow Pages(R). More information about BellSouth can be found at http://www.bellsouth.com. Further information about BellSouth and Cingular's fourth 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 on the BellSouth Investor Relations website starting today at 8 a.m. Eastern Time (ET). BellSouth will host a conference call with investors today at 10 a.m. (ET). Participating will be BellSouth CFO Ron Dykes and Investor Relations Vice President Nancy Davis. Dial-in information for the conference call is as follows: Domestic: 888-370-1863 International: 706-634-1735 The conference call will also be webcast live beginning at 10 a.m. (ET) on our website at www.bellsouth.com/investor. The webcast will be archived on our website beginning at approximately 1 p.m. (ET) today. A replay of the call will be available beginning at approximately 1 p.m. (ET) today, through Feb. 1, 2005, and can be accessed by dialing: Domestic: 800-642-1687 - Reservation number: 2940113 International: 706-645-9291 - Reservation number: 2940113 In addition to historical information, this document may contain forward-looking statements regarding events and financial trends. Factors that could affect future results and could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: (i) a change in economic conditions in markets where we operate or have material investments which would affect demand for our services; (ii) the intensity of competitive activity and its resulting impact on pricing strategies and new product offerings; (iii) higher than anticipated cash requirements for investments, new business initiatives and acquisitions; (iv) unfavorable regulatory actions; and (v) those factors contained in the Company's periodic reports filed with the SEC. The forward-looking information in this document is given as of this date only, and BellSouth assumes no duty to update this information. This document may also contain certain non-GAAP financial measures. The most directly comparable GAAP financial measures, and a full reconciliation of non-GAAP to GAAP financial information, are attached hereto and provided on the Company's investor relations website, www.bellsouth.com/investor. For More Information Contact: Jeff Battcher, Media Relations at 404-249-2793 BellSouth Investor Relations at 800-241-3419 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. 4Q04 4Q03 Growth 3Q04 Growth Operating Revenues Communications group $4,607 $4,576 0.7% $4,585 0.5% Advertising and publishing 524 518 1.2% 495 5.9% All other 15 13 15.4% 15 0.0% Total Operating Revenues 5,146 5,107 0.8% 5,095 1.0% Operating Expenses Cost of services and products 2,052 1,762 16.5% 1,881 9.1% Selling, general & administrative expenses 1,072 980 9.4% 905 18.5% Depreciation and amortization 916 950 -3.6% 908 0.9% Provision for restructuring and asset impairments 18 16 12.5% - N/M Total Operating Expenses 4,058 3,708 9.4% 3,694 9.9% Operating Income 1,088 1,399 -22.2% 1,401 -22.3% Interest Expense 270 222 21.6% 220 22.7% Other Income (Expense), net (107) 108 -199.1% 136 -178.7% Income from Continuing Operations before Income Taxes, Discontinued Operations and Cumulative Effect of Changes in Accounting Principles 711 1,285 -44.7% 1,317 -46.0% Provision for Income Taxes 215 449 -52.1% 465 -53.8% Income from Continuing Operations before Discontinued Operations and Cumulative Effect of Changes in Accounting Principles 496 836 -40.7% 852 -41.8% Income (Loss) from Discontinued Operations, net of tax 975 (49) N/M* (53) N/M Income Before Cumulative Effect of Changes in Accounting Principles 1,471 787 86.9% 799 84.1% Cumulative Effect of Changes in Accounting Principle - - N/M* - N/M Net Income 1,471 787 86.9% 799 84.1% Diluted: Weighted Average Common Shares Outstanding 1,836 1,845 -0.5% 1,835 0.1% Earnings Per Share: Income from Continuing Operations $0.27 $0.45 -40.0% $0.46 -41.3% Income from Discontinued Operations $0.53 ($0.03) N/M ($0.03) N/M Cumulative Effect of Changes in Accounting Principles - - N/M - N/M Net Income $0.80 $0.43 86.0% $0.44 81.8% * - Not meaningful. Year-to-Date 2004 2003 Growth Operating Revenues Communications group $18,239 $18,255 -0.1% Advertising and publishing 2,005 2,033 -1.4% All other 56 53 5.7% Total Operating Revenues 20,300 20,341 -0.2% Operating Expenses Cost of services and products 7,520 6,991 7.6% Selling, general & administrative expenses 3,816 3,777 1.0% Depreciation and amortization 3,636 3,811 -4.6% Provision for restructuring and asset impairments 39 205 -81.0% Total Operating Expenses 15,011 14,784 1.5% Operating Income 5,289 5,557 -4.8% Interest Expense 916 947 -3.3% Other Income (Expense), net 883 814 8.5% Income from Continuing Operations before Income Taxes, Discontinued Operations and Cumulative Effect of Changes in Accounting Principles 5,256 5,424 -3.1% Provision for Income Taxes 1,819 1,936 -6.0% Income from Continuing Operations before Discontinued Operations and Cumulative Effect of Changes in Accounting Principles 3,437 3,488 -1.5% Income (Loss) from Discontinued Operations, net of tax 1,428 101 N/M Income Before Cumulative Effect of Changes in Accounting Principles 4,865 3,589 35.6% Cumulative Effect of Changes in Accounting Principle - 315 -100.0% Net Income 4,865 3,904 24.6% Diluted: Weighted Average Common Shares Outstanding 1,836 1,852 -0.9% Earnings Per Share: Income from Continuing Operations $1.87 $1.88 -0.5% Income from Discontinued Operations $0.78 $0.05 N/M Cumulative Effect of Changes in Accounting Principles - $0.17 -100.0% Net Income $2.65 $2.11 25.6% * - Not meaningful. Selected Financial and Operating Data 4Q04 4Q03 Growth 3Q04 Growth Operating income $1,088 $1,399 -22.2% $1,401 -22.3% Operating margin 21.1% 27.4% -630 bps 27.5% -640 bps Declared dividends per share $0.27 $0.25 8.0% $0.27 0.0% Capital expenditures $1,059 $948 11.7% $768 37.9% Common shares outstanding 1,831 1,830 0.1% 1,831 0.0% Book value per share $12.66 $10.77 17.5% $11.94 6.0% Selected Financial and Operating Data Year-to-Date 2004 2003 Growth Operating income $5,289 $5,557 -4.8% Operating margin 26.1% 27.3% -120 bps Declared dividends per share $1.06 $0.92 15.2% Capital expenditures $3,193 $2,926 9.1% 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. 4Q04 4Q03 Growth 3Q04 Growth Operating Revenues Communications group $4,543 $4,528 0.3% $4,533 0.2% Domestic wireless 2,833 1,565 81.0% 1,702 66.5% Advertising and publishing 524 518 1.2% 495 5.9% All other 15 14 7.1% 16 -6.3% Total Operating Revenues 7,915 6,625 19.5% 6,746 17.3% Operating Expenses Cost of services and products 3,025 2,327 30.0% 2,445 23.7% Selling, general, & administrative expenses 2,148 1,572 36.6% 1,510 42.3% Depreciation and amortization 1,472 1,179 24.9% 1,137 29.5% Total Operating Expenses 6,645 5,078 30.9% 5,092 30.5% Operating Income 1,270 1,547 -17.9% 1,654 -23.2% Interest Expense 368 281 31.0% 276 33.3% Other Income (Expense), net 35 39 -10.3% 7 400.0% Income Before Income Taxes 937 1,305 -28.2% 1,385 -32.3% Provision for Income Taxes 297 459 -35.3% 492 -39.6% Net Income $640 $846 -24.3% $893 -28.3% Diluted: Weighted Average Common Shares Outstanding 1,836 1,845 -0.5% 1,835 0.1% Earnings Per Share $0.35 $0.46 -23.9% $0.49 -28.6% Year-to-Date 2004 2003 Growth Operating Revenues Communications group $18,074 $18,084 -0.1% Domestic wireless 7,774 6,193 25.5% Advertising and publishing 2,005 2,033 -1.4% All other 57 54 5.6% Total Operating Revenues 27,910 26,364 5.9% Operating Expenses Cost of services and products 10,129 9,108 11.2% Selling, general, & administrative expenses 6,641 5,928 12.0% Depreciation and amortization 4,868 4,647 4.8% Total Operating Expenses 21,638 19,683 9.9% Operating Income 6,272 6,681 -6.1% Interest Expense 1,184 1,194 -0.8% Other Income (Expense), net 54 157 -65.6% Income Before Income Taxes 5,142 5,644 -8.9% Provision for Income Taxes 1,783 2,028 -12.1% Net Income $3,359 $3,616 -7.1% Diluted: Weighted Average Common Shares Outstanding 1,836 1,852 -0.9% Earnings Per Share $1.83 $1.95 -6.2% Selected Financial and Operating Data 4Q04 4Q03 Growth 3Q04 Growth Operating income $1,270 $1,547 -17.9% $1,654 -23.2% Operating margin 16.0% 23.4% -740 bps 24.5% -850 bps Declared dividends per share $0.27 $0.25 8.0% $0.27 0.0% Capital expenditures $1,059 $948 11.7% $768 37.9% Common shares outstanding 1,831 1,830 0.1% 1,831 0.0% Book value per share $12.66 $10.77 17.5% $11.94 6.0% Total employees 62,564 65,842 -5.0% 63,132 -0.9% Selected Financial and Operating Data Year-to-Date 2004 2003 Growth Operating income $6,272 $6,681 -6.1% Operating margin 22.5% 25.3% -280 bps Declared dividends per share $1.06 $0.92 15.2% Capital expenditures $3,193 $2,926 9.1% BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Fourth Quarter 2004 Discontinued Continuing Operations Operations GAAP F (GAAP - F) Operating Revenues $5,146 $- $5,146 Operating Expenses 4,058 - 4,058 Operating Income 1,088 - 1,088 Interest Expense 270 - 270 Other Income (Expense), net (107) - (107) Income from Continuing Operations before Income Taxes 711 - 711 Provision for Income Taxes 215 - 215 Income from Continuing Operations 496 - 496 Income (Loss) from Discontinued Operations, net of tax 975 (975) - Net Income $1,471 ($975) $496 Diluted Earnings Per Share $0.80 ($0.53) $0.27 Fourth Quarter 2004 Normalizing Items Severance/ Hurricane- Lease Term. related Cingular Payments Expenses A D H Operating Revenues $2,769 $- $- Operating Expenses 2,840 (29) (126) Operating Income (71) 29 126 Interest Expense 98 - - Other Income (Expense), net 142 - - Income from Continuing Operations before Income Taxes (27) 29 126 Provision for Income Taxes (27) 11 49 Income from Continuing Operations - 18 77 Income (Loss) from Discontinued Operations, net of tax - - - Net Income $0 $18 $77 Diluted Earnings Per Share $0.00 $0.01 $0.04 Fourth Quarter 2004 Normalizing Items Merger Integration I Normalized Operating Revenues $- $7,915 Operating Expenses (98) 6,645 Operating Income 98 1,270 Interest Expense - 368 Other Income (Expense), net - 35 Income from Continuing Operations before Income Taxes 98 937 Provision for Income Taxes 49 297 Income from Continuing Operations 49 640 Income (Loss) from Discontinued Operations, net of tax - - Net Income $49 $640 Diluted Earnings Per Share $0.03 $0.35 Year-to-Date 2004 Discontinued Continuing Operations Operations GAAP F (GAAP - F) Operating Revenues $20,300 $- $20,300 Operating Expenses 15,011 - 15,011 Operating Income 5,289 - 5,289 Interest Expense 916 - 916 Other Income (Expense), net 883 - 883 Income from Continuing Operations before Income Taxes 5,256 - 5,256 Provision for Income Taxes 1,819 - 1,819 Income from Continuing Operations 3,437 - 3,437 Income (Loss) from Discontinued Operations, net of tax 1,428 (1,428) - Net Income $4,865 ($1,428) $3,437 Diluted Earnings Per Share $2.65 ($0.78) $1.87 Year-to-Date 2004 Normalizing Items Severance/ Lease Term. Sale of Cingular Payments Sonofon A D E Operating Revenues $7,560 $- $- Operating Expenses 6,950 (29) - Operating Income 610 29 - Interest Expense 268 - - Other Income (Expense), net (367) - (462) Income from Continuing Operations before Income Taxes (25) 29 (462) Provision for Income Taxes (25) 11 (167) Income from Continuing Operations - 18 (295) Income (Loss) from Discontinued Operations, net of tax - - - Net Income $0 $18 ($295) Diluted Earnings Per Share $0.00 $0.01 ($0.16) Year-to-Date 2004 Normalizing Items Hurricane- Merger SC related Integration / FV Settlement Expenses Adj G H I Normalized Operating Revenues $50 $- $- $27,910 Operating Expenses (3) (164) (127) 21,638 Operating Income 53 164 127 6,272 Interest Expense - - - 1,184 Other Income (Expense), net - - - 54 Income from Continuing Operations before Income Taxes 53 164 127 5,142 Provision for Income Taxes 20 64 61 1,783 Income from Continuing Operations 33 100 66 3,359 Income (Loss) from Discontinued Operations, net of tax - - - - Net Income $33 $100 $66 $3,359 Diluted Earnings Per Share $0.02 $0.05 $0.04 $1.83 BellSouth Corporation Normalized Earnings Summary and Reconciliation to Reported Results (amounts in millions, except per share data) Fourth Quarter 2003 Normalizing Items Discontinued Continuing Pension/ Operations Operations Cingular Severance GAAP F (GAAP - F) A D Normalized Operating Revenues $5,107 $- $5,107 $1,518 $- $6,625 Operating Expenses 3,708 - 3,708 1,386 (16) 5,078 Operating Income 1,399 - 1,399 132 16 1,547 Interest Expense 222 - 222 59 - 281 Other Income (Expense), net 108 - 108 (69) - 39 Income from Continuing Operations before Income Taxes 1,285 - 1,285 4 16 1,305 Provision for Income Taxes 449 - 449 4 6 459 Income from Continuing Operations 836 - 836 - 10 846 Income (Loss) from Disconti- nued Operations, net of tax (49) 49 - - - - Income Before Cumulative Effect of Changes in Accounting Principles 787 49 836 - 10 846 Cumulative Effect of Changes in Accounting Principles - - - - - - Net Income $787 $49 $836 $0 $10 $846 Diluted Earn- ings Per Share * $0.43 $0.03 $0.45 $0.00 $0.01 $0.46 * Normalized earnings per share for fourth quarter 2003 does not sum due to rounding. Year-to-Date 2003 Discontinued Continuing Operations Operations GAAP F (GAAP - F) Operating Revenues $20,341 $- $20,341 Operating Expenses 14,784 - 14,784 Operating Income 5,557 - 5,557 Interest Expense 947 - 947 Other Income (Expense), net 814 - 814 Income from Continuing Operations before Income Taxes 5,424 - 5,424 Provision for Income Taxes 1,936 - 1,936 Income from Continuing Operations 3,488 - 3,488 Income (Loss) from Discontinued Operations, net of tax 101 (101) - Income Before Cumulative Effect of Changes in Accounting Principles 3,589 (101) 3,488 Cumulative Effect of Changes in Accounting Principles 315 - 315 Net Income $3,904 ($101) $3,803 Diluted Earnings Per Share * $2.11 ($0.05) $2.05 * Normalized earnings per share for year-to-date 2003 does not sum due to rounding. Year-to-Date 2003 Normalizing Items A&P Cingular Acctg.Change FAS143 A B C Operating Revenues $6,023 $- $- Operating Expenses 5,108 - - Operating Income 915 - - Interest Expense 247 - - Other Income (Expense), net (657) - - Income from Continuing Operations before Income Taxes 11 - - Provision for Income Taxes 11 - - Income from Continuing Operations - - - Income (Loss) from Discontinued Operations, net of tax - - - Income Before Cumulative Effect of Changes in Accounting Principles - - - Cumulative Effect of Changes in Accounting Principles - 501 (816) Net Income $0 $501 ($816) Diluted Earnings Per Share * $0.00 $0.27 ($0.44) * Normalized earnings per share for year-to-date 2003 does not sum due to rounding. Year-to-Date 2003 Normalizing Items Pension/ Asset Severance Impairment D J Normalized Operating Revenues $- $- $26,364 Operating Expenses (157) (52) 19,683 Operating Income 157 52 6,681 Interest Expense - - 1,194 Other Income (Expense), net - - 157 Income from Continuing Operations before Income Taxes 157 52 5,644 Provision for Income Taxes 61 20 2,028 Income from Continuing Operations 96 32 3,616 Income (Loss) from Discontinued Operations, net of tax - - - Income Before Cumulative Effect of Changes in Accounting Principles 96 32 3,616 Cumulative Effect of Changes in Accounting Principles - - - Net Income $96 $32 $3,616 Diluted Earnings Per Share * $0.05 $0.02 $1.95 * Normalized earnings per share for year-to-date 2003 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) The periods presented have been adjusted to include our 40% proportional share of Cingular Wireless' operating results, net of eliminations for amounts charged by other BellSouth companies to Cingular. (b) Change in method of accounting related to our directory publishing business from the issue basis method to the deferral method -- The 2003 amount is a one-time charge to net income of $501. (c) Adoption of Financial Accounting Standard No. 143 (FAS 143) -- Represents a one-time charge related to the adoption of new accounting rules associated with obligations related to the retirement of long-lived assets. The adjustment resulted in a one-time increase to net income of $816. (d) Pension/Severance Costs/Lease Termination Payments -- During 2003, the number of employees who voluntarily separated and elected to receive lump-sum retirement benefits exceeded thresholds that require current recognition of deferred losses related to these employees. These costs include $43 after-tax of severance related costs. During 2004, the amount represents the net severance related costs recorded in the fourth quarter associated with workforce reductions and a provision related to surplus office space under long-term leases. (e) Gain related to the sale of our operations in Denmark. (f) Discontinued Operations - In March 2004, we announced our intention to sell our Latin American properties. Accordingly, the prior period results have been recast to reflect the Latin American operations as Discontinued Operations and excluded from normalized results. The year-to-date period in 2004 includes $336 in net income tax benefit representing the recognition of book over tax basis differential in connection with the announced sale of these properties. The third quarter 2004 results include an after-tax charge of $190 related to the buyout of the other major shareholder in Telcel, our Venezuelan operation and the settlement of all outstanding claims with this shareholder. The fourth quarter 2004 results include an after-tax gain of $915 related to 8 of the 10 properties that were closed prior to year end. (g) SC Regulatory Settlement - In April 2004, BellSouth entered into a settlement agreement with the South Carolina Consumer Advocate with respect to previously disclosed litigation (See 2003 10K for further discussion). The settlement required among other things, that BellSouth refund $50 to its South Carolina customers. The refund was recognized in the first quarter 2004 as a reduction to revenue. (h) Hurricane-related Expenses - Represents the incremental labor and material costs incurred during the 3rd and 4th quarters related to service restoration and network repairs in the wireline business due to Hurricanes Charley, Frances, Ivan and Jeanne. (i) Wireless merger integration planning costs and fair value adjustment- Represents BellSouth's 40% share of tax-effected wireless merger integration planning costs of $43 incurred during the 3rd quarter and costs of $245 in the 4th quarter in connection with the Cingular/AWE merger. Also includes a $31 fair value adjustment for the announced sale of Cingular Interactive during the 3rd quarter. (j) Asset Impairment -- The third quarter 2003 charge for asset impairment represents the write-off of capitalized software related to an abandoned systems project. BellSouth Corporation Consolidated Balance Sheets (unaudited) (amounts in millions, except per share data) December December Change September Change 31, 31, vs. 30, vs. Prior Prior 2004 2003 Year 2004 Quarter Assets Current Assets: Cash and cash equivalents $696 $4,556 ($3,860) $9,200 ($8,504) Accounts receivable, net of allowance for uncollectibles of $317, $496, and $331 2,559 2,870 (311) 2,546 13 Material and supplies 321 375 (54) 316 5 Other current assets 909 1,048 (139) 842 67 Assets of discontinued operations 1,068 0 1,068 3,977 (2,909) Total Current Assets 5,553 8,849 (3,296) 16,881 (11,328) Investment in and Advances to Cingular Wireless 22,841 7,679 15,162 7,952 14,889 Property, Plant and Equipment, net 22,039 23,807 (1,768) 21,971 68 Other Assets 7,400 6,977 423 7,178 222 Goodwill 0 93 (93) 0 0 Intangible Assets, net 1,587 2,297 (710) 1,507 80 Total Assets $59,420 $49,702 $9,718 $55,489 $3,931 Liabilities and Shareholders' Equity Current Liabilities: Debt maturing within one year $5,475 $3,491 $1,984 $3,048 $2,427 Accounts payable 1,047 1,339 (292) 970 77 Other current liabilities 2,980 3,628 (648) 3,150 (170) Liabilities of discontinued operations 830 0 830 2,674 (1,844) Total Current Liabilities 10,332 8,458 1,874 9,842 490 Long-Term Debt 15,108 11,489 3,619 13,142 1,966 Noncurrent Liabilities: Deferred income taxes 6,347 5,349 998 6,314 33 Other noncurrent liabilities 4,460 4,694 (234) 4,327 133 Total Noncurrent Liabilities 10,807 10,043 764 10,641 166 Shareholders' Equity: Common stock, $1 par value 2,020 2,020 0 2,020 0 Paid-in capital 7,840 7,729 111 7,790 50 Retained earnings 19,374 16,540 2,834 18,421 953 Accumulated other comprehensive income (157) (585) 428 (470) 313 Shares held in trust and treasury (5,904) (5,992) 88 (5,897) (7) Total Shareholders' Equity 23,173 19,712 3,461 21,864 1,309 Total Liabilities and Shareholders' Equity $59,420 $49,702 $9,718 $55,489 $3,931 BellSouth Corporation Consolidated Statements of Cash Flows (unaudited) (amounts in millions, except per share data) Year-To-Date 4Q04 4Q03 3Q04 2004 2003 Cash Flows from Operating Activities: Income from Continuing Operations $496 $836 $852 $3,437 $3,488 Adjustments to income from continuing operations: Depreciation and amortization 916 950 908 3,636 3,811 Provision for uncollectibles 99 125 90 384 523 Net losses (earnings) of equity affiliates 190 (25) (73) (138) (452) Deferred income taxes 196 (12) 137 936 788 Net (gains) losses on sale or impairment of equity securities (5) - 6 4 7 Pension income (121) (133) (121) (484) (534) Pension settlement (gains) losses - (40) - - 47 Stock-based compensation expense 29 32 29 116 124 Asset impairments - - - - 52 (Gain) loss on sale/disposal of operations - - - (462) - Net change in: Accounts receivable and other current assets (148) (89) (147) (419) (81) Accounts payable and other current liabilities (504) (233) (88) (508) 55 Deferred charges and other assets (21) 46 19 (79) 299 Other liabilities and deferred credits 111 (143) 28 159 (276) Other reconciling items, net 75 14 51 219 32 Net cash provided by operating activities 1,313 1,328 1,691 6,801 7,883 Cash Flows from Investing Activities: Capital expenditures (1,059) (948) (768) (3,193) (2,926) Investments in debt and equity securities (129) (167) (87) (632) (194) Investments in and advances to equity affiliates (14,445) - - (14,445) - Net short term advances to Cingular (666) - - (666) - Proceeds from sale of securities and operations 3,113 - 6 3,678 27 Proceeds from repayment of loans and advances - - 20 129 1,899 Settlement of derivatives on advances - - - (17) (352) Other investing activities, net (4) (1) (8) (7) (12) Net cash provided by (used for) investing activities (13,190) (1,116) (837)(15,153) (1,558) Cash Flows from Financing Activities: Net borrowing (repayments) of short-term debt 2,004 (8) 73 1,738 (431) Proceeds from long-term debt 2,389 - 2,993 6,078 - Repayments of long-term debt (14) (13) (524) (759) (1,849) Dividends paid (494) (425) (493) (1,901) (1,608) Purchase of treasury shares (47) (536) - (146) (858) Other financing activities, net 13 38 (3) 61 67 Net cash used for financing activities 3,851 (944) 2,046 5,071 (4,679) Net Increase/(Decrease) in Cash from Continuing Operations (8,026) (732) 2,900 (3,281) 1,646 Net Increase/(Decrease) in Cash from Discontinued Operations (478) 263 84 (579) 428 Net Increase (Decrease) in Cash and Cash Equivalents (8,504) (469) 2,984 (3,860) 2,074 Cash and Cash Equivalents at Beginning of Period 9,200 5,025 6,216 4,556 2,482 Cash and Cash Equivalents at End of Period $696 $4,556 $9,200 $696 $4,556 BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Communications Group (1) 4Q04 4Q03 Growth 3Q04 Growth Operating Revenues Voice $3,166 $3,164 0.1% $3,121 1.4% Data 1,165 1,094 6.5% 1,145 1.7% Other 316 360 -12.2% 361 -12.5% Total Operating Revenues 4,647 4,618 0.6% 4,627 0.4% Operating Expenses Cost of services and products 1,850 1,698 9.0% 1,783 3.8% Selling, general, & administrative expenses 844 792 6.6% 729 15.8% Depreciation and amortization 904 941 -3.9% 898 0.7% Total Operating Expenses 3,598 3,431 4.9% 3,410 5.5% Segment Operating Income 1,049 1,187 -11.6% 1,217 -13.8% Interest Expense 93 90 3.3% 94 -1.1% Other Income (Expense), net 9 10 -10.0% 7 28.6% Income Before Income Taxes 965 1,107 -12.8% 1,130 -14.6% Provision for Income Taxes 341 393 -13.2% 416 -18.0% Segment Net Income (1) $624 $714 -12.6% $714 -12.6% Year-To-Date 2004 2003 Growth Operating Revenues Voice $12,609 $12,702 -0.7% Data 4,518 4,353 3.8% Other 1,325 1,393 -4.9% Total Operating Revenues 18,452 18,448 0.0% Operating Expenses Cost of services and products 7,108 6,755 5.2% Selling, general, & administrative expenses 3,123 3,079 1.4% Depreciation and amortization 3,593 3,771 -4.7% Total Operating Expenses 13,824 13,605 1.6% Segment Operating Income 4,628 4,843 -4.4% Interest Expense 367 407 -9.8% Other Income (Expense), net 29 38 -23.7% Income Before Income Taxes 4,290 4,474 -4.1% Provision for Income Taxes 1,563 1,645 -5.0% Segment Net Income(1) $2,727 $2,829 -3.6% Selected Financial and Operating Data 4Q04 4Q03 Growth 3Q04 Growth (amounts in millions) Segment operating income $1,049 $1,187 -11.6% $1,217 -13.8% Segment operating margin 22.6% 25.7% -310 bps 26.3% -370 bps Long distance revenues $533 $411 29.7% $524 1.7% Switched Access MOUs 16,459 18,983 -13.3% 17,128 -3.9% BSLD MOUs 5,864 3,920 49.6% 5,673 3.4% Total Access minutes of use 22,323 22,903 -2.5% 22,801 -2.1% Capital expenditures $969 $901 7.5% $724 33.8% (amounts in thousands) Wholesale lines 2,958 2,682 10.3% 3,070 -3.6% DSL customers 2,096 1,462 43.4% 1,872 12.0% LD customers 6,130 3,960 54.8% 5,663 8.2% Consumer ARPU (4) $57.32 $53.20 7.7% $56.80 0.9% Year-To-Date 2004 2003 Growth (amounts in millions) Segment operating income $4,628 $4,843 -4.4% Segment operating margin 25.1% 26.3% -120 bps Long distance revenues $1,976 $1,354 45.9% Switched Access MOUs 70,061 82,102 -14.7% BSLD MOUs 21,109 10,039 110.3% Total Access minutes of use 91,170 92,141 -1.1% Capital expenditures $3,018 $2,824 6.9% BellSouth Corporation Results by Segment (unaudited) Supplemental Operating Data (in thousands) Communications Group - Network Access Lines In Service Reported (a) 4Q04 4Q03 Growth 3Q04 Growth Access lines Residence Retail Primary 11,771 12,466 -5.6% 11,816 -0.4% Additional 1,346 1,601 -15.9% 1,388 -3.0% Total Retail Residence 13,117 14,067 -6.8% 13,204 -0.7% Wholesale Resale 116 177 -34.5% 114 1.8% UNE-P 1,972 1,696 16.3% 2,082 -5.3% Total Wholesale Residence 2,088 1,873 11.5% 2,196 -4.9% Total Residence 15,205 15,940 -4.6% 15,400 -1.3% Business Retail Total Retail Business 5,245 5,417 -3.2% 5,264 -0.4% Wholesale Resale 58 73 -20.5% 61 -4.9% UNE-P 750 686 9.3% 752 -0.3% Total Wholesale Business 808 759 6.5% 813 -0.6% Total Business 6,053 6,176 -2.0% 6,077 -0.4% Other Retail/Wholesale Lines Retail 36 97 -62.9% 38 -5.3% Wholesale 62 50 24.0% 61 1.6% Total Other Retail/Wholesale Lines 98 147 -33.3% 99 -1.0% Total Access Lines in Service 21,356 22,263 -4.1% 21,576 -1.0% ISDN line equivalents Residence 9 13 -30.8% 10 -10.0% Business 1,459 1,453 0.4% 1,462 -0.2% Total ISDN Adjusted ALIS 22,824 23,729 -3.8% 23,048 -1.0% Access Line Equivalents (b) Selected digital data services: Unbundled Loops 273 344 -20.6% 326 -16.3% DS0 & ADSL 12,863 9,051 42.1% 11,493 11.9% DS1 7,695 7,179 7.2% 7,594 1.3% DS3 & higher 32,746 31,577 3.7% 32,643 0.3% Total digital data lines in service 53,577 48,151 11.3% 52,056 2.9% Total equivalent access lines in service 76,401 71,880 6.3% 75,104 1.7% (a) Prior period operating data are often revised at later dates to reflect updated information. The above information reflects the latest data available for the periods indicated. (b) Access line equivalents represent a conversion of non-switched data circuits to a switched access line basis and is presented for comparability purposes. Equivalents are calculated by converting high-speed/high-capacity circuits to the equivalent of a switched access line based on transport capacity. While the revenues generated by access line equivalents have a directional relationship with these counts, revenue growth rates cannot be compared to line growth rates on an equivalent basis. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Domestic Wireless Segment (1)(a) 4Q04 4Q03 Growth 3Q04 Growth Operating Revenues Service revenues (2) $2,511 $1,414 77.6% $1,534 63.7% Equipment and other revenues 322 151 113.2% 168 91.7% Total Operating Revenues 2,833 1,565 81.0% 1,702 66.5% Operating Expenses Cost of services and products 1,166 607 92.1% 651 79.1% Selling, general, & administrative expenses 1,084 599 81.0% 609 78.0% Depreciation and amortization 556 228 143.9% 229 142.8% Total Operating Expenses 2,806 1,434 95.7% 1,489 88.4% Segment Operating Income 27 131 -79.4% 213 -87.3% Interest Expense 121 82 47.6% 80 51.3% Other Income (Expense), net (35) (38) 7.9% (46) 23.9% Income Before Income Taxes (129) 11 N/M* 87 -248.3% Provision for Income Taxes (56) (1) N/M 33 -269.7% Segment Net Income (1) ($73) $12 N/M $54 -235.2% * - Not meaningful. Year-To-Date 2004 2003 Growth Operating Revenues Service revenues (2) $6,989 $5,689 22.9% Equipment and other revenues 785 504 55.8% Total Operating Revenues 7,774 6,193 25.5% Operating Expenses Cost of services and products 2,980 2,273 31.1% Selling, general, & administrative expenses 2,826 2,170 30.2% Depreciation and amortization 1,232 835 47.5% Total Operating Expenses 7,038 5,278 33.3% Segment Operating Income 736 915 -19.6% Interest Expense 360 343 5.0% Other Income (Expense), net (180) (152) -18.4% Income Before Income Taxes 196 420 -53.3% Provision for Income Taxes 67 159 -57.9% Segment Net Income (1) $129 $261 -50.6% * - Not meaningful. Selected Financial and Operating Data 4Q04 4Q03 Growth 3Q04 Growth (amounts in millions, except customer data in thousands) Segment operating income $27 $131 -79.4% $213 -87.3% Segment operating margin 1.0% 8.4% -740 bps 12.5% -1150 bps Cellular/PCS Operating Metrics (100% Cingular): Total Customers 49,109 24,027 104.4% 25,672 91.3% Net Customer Additions 1,713 642 166.8% 657 160.7% Partitioned Customers and/or Adjustments 21,724 0 N/M (29) N/M Churn 2.6% 2.8% -20 bps 2.8% -20 bps Wireless Service ARPU (3) $49.22 $49.03 0.4% $49.78 -1.1% Minutes Of Use Per Subscriber 526 475 10.7% 537 -2.0% Licensed POPs (4) 290 236 22.9% 243 19.3% Penetration (4) 17.2% 10.8% 640 bps 11.4% 580 bps Year-To-Date 2004 2003 Growth (amounts in millions, except customer data in thousands) Segment operating income $736 $915 -19.6% Segment operating margin 9.5% 14.8% -530 bps Cellular/PCS Operating Metrics (100% Cingular): Total Customers 49,109 24,027 104.4% Net Customer Additions 3,352 2,116 58.4% Partitioned Customers and/or Adjustments 21,730 (14) N/M Churn 2.7% 2.7% 0 bps Wireless Service ARPU (3) $49.30 $51.32 -3.9% Minutes Of Use Per Subscriber 520 446 16.6% Licensed POPs (4) 290 236 22.9% Penetration (4) 17.2% 10.8% 640 bps PROFORMA 4Q04 4Q03 Growth 3Q04 Growth Total Revenue (40%) 3,220 3,165 1.7% 3,281 -1.9% Net Adds (100%) 1,757 736 138.7% 808 117.5% ARPU $49.67 $52.71 -5.8% $52.13 -4.7% (a) The domestic wireless segment is comprised of BellSouth's 40% share of the reported results of Cingular Wireless. BellSouth Corporation Results by Segment (amounts in millions) (unaudited) Advertising & Publishing (1) 4Q04 4Q03 Growth 3Q04 Growth Operating Revenues Advertising and publishing revenues 475 470 1.1% 471 0.8% Commission revenues 53 52 1.9% 27 96.3% Total Operating Revenues 528 522 1.1% 498 6.0% Operating Expenses Cost of services 94 91 3.3% 89 5.6% Selling, general, & administrative expenses 188 184 2.2% 173 8.7% Depreciation and amortization 7 7 0.0% 7 0.0% Total Operating Expenses 289 282 2.5% 269 7.4% Segment Operating Income 239 240 -0.4% 229 4.4% Interest Expense 2 2 0.0% 2 0.0% Other Income (Expense), net (1) 1 -200.0% - N/M* Income Before Income Taxes 236 239 -1.3% 227 4.0% Provision for Income Taxes 91 92 -1.1% 86 5.8% Segment Net Income(1) $145 $147 -1.4% $141 2.8% Segment operating income $239 $240 -0.4% $229 4.4% Segment operating margin 45.3% 46.0% -70 bps 46.0% -70 bps * - Not meaningful. Year-To-Date 2004 2003 Growth Operating Revenues Advertising and publishing revenues 1,878 1,906 -1.5% Commission revenues 141 144 -2.1% Total Operating Revenues 2,019 2,050 -1.5% Operating Expenses Cost of services 353 345 2.3% Selling, general, & administrative expenses 684 706 -3.1% Depreciation and amortization 28 26 7.7% Total Operating Expenses 1,065 1,077 -1.1% Segment Operating Income 954 973 -2.0% Interest Expense 8 7 14.3% Other Income (Expense), net - 2 -100.0% Income Before Income Taxes 946 968 -2.3% Provision for Income Taxes 363 368 -1.4% Segment Net Income(1) $583 $600 -2.8% Segment operating income $954 $973 -2.0% Segment operating margin 47.3% 47.5% -20 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. Intersegment revenues are not eliminated for purposes of management reporting. (2) Wireless service revenues includes activation fees, access, airtime, roaming, long distance and value added services. Roaming revenues are included on a gross basis for the Domestic Wireless segment. Average monthly revenue per customer is calculated by dividing average monthly service revenue by average customers. (3) Management uses average revenue per unit (ARPU) as an indicator of operating performance of the business. Consumer ARPU -- is defined as consumer revenues during the period divided by average primary access lines during the period. Wireless Service ARPU -- Cellular/PCS is defined as Cellular/PCS service revenues during the period divided by average Cellular/PCS subscribers during the period. This metric is used to compare the recurring revenue amounts being generated on our network to prior periods and internal targets. We believe that each of these metrics provides useful information concerning the performance of our initiatives to attract and retain high value customers and the use of our network. (4) Licensed POPs refers to the number of people residing in areas where Cingular and its partners have licenses to provide cellular or PCS service including areas where Cingular has not yet commenced service. Penetration calculation for 4Q04 is based on licensed "operational" POP's of 286 million. BellSouth Corporation Non-GAAP Measures -- Reconciliation (amounts in millions) (unaudited) Segment Net Income Reconciliation to GAAP Net Income Year-to-Date 4Q04 4Q03 3Q04 2004 2003 Communications group segment net income $624 $714 $714 $2,727 $2,829 Domestic wireless group segment net income (73) 12 54 129 261 Advertising and publishing group segment net income 145 147 141 583 600 Corporate, eliminations and other (56) (27) (16) (80) (74) Normalized net income 640 846 893 3,359 3,616 Add back Excluded non-recurring or non-operational items (a) 831 (59) (94) 1,506 288 Consolidated GAAP net income $1,471 $787 $799 $4,865 $3,904 Free Cash Flow Year-to-Date 4Q04 4Q03 3Q04 2004 2003 Net cash provided by operating activities $1,313 $1,328 $1,691 $6,801 $7,883 Less Capital Expenditures (1,059) (948) (768) (3,193) (2,926) Operating Free Cash Flow $254 $380 $923 $3,608 $4,957 Net Debt December 31, December 31, September 30, 2004 2003 2004 Total Debt $20,583 $14,980 $16,190 Less Cash (696) (4,556) (9,200) Net Debt $19,887 $10,424 $6,990 Communications Group Operating Income before Depreciation and Amortization Year-to-Date 4Q04 4Q03 3Q04 2004 2003 Operating Revenues $4,647 $4,618 $4,627 $18,452 $18,448 Operating Income 1,049 1,187 1,217 4,628 4,843 Add back Depreciation and amortization 904 941 898 3,593 3,771 Operating Income before Depreciation and Amortization $1,953 $2,128 $2,115 $8,221 $8,614 Margin 42.0% 46.1% 45.7% 44.6% 46.7% Domestic Wireless Operating Income before Depreciation and Amortization Year-to-Date 4Q04 4Q03 3Q04 2004 2003 Service revenues $2,511 $1,414 $1,534 $6,989 $5,689 Equipment and other revenues 322 151 168 785 504 Operating revenues 2,833 1,565 1,702 7,774 6,193 Operating Income 27 131 213 736 915 Operating Margin (Operating income divided by operating revenues) (c) 1.0% 8.4% 12.5% 9.5% 14.8% Add back Depreciation and amortization 556 228 229 1,232 835 Operating Income before Depreciation and Amortization $583 $359 $442 $1,968 $1,750 Margin (Operating Income before Depr & Amort divided by service revenues) (c) 23.2% 25.4% 28.8% 28.2% 30.8% Domestic Wireless Proforma Revenue 4Q04 4Q03 3Q04 Operating Revenue $2,833 $1,565 $1,702 Add back Proforma Adjustments (b) 387 1,600 1,579 Total Operating Revenue (Proforma) $3,220 $3,165 $3,281 Domestic Wireless Proforma ARPU 4Q04 4Q03 3Q04 Service revenues $2,511 $1,414 $1,534 Less Mobitex data revenues 14 23 22 Add back Proforma Adjustments (b) 352 1,469 1,412 Service revenue used to calculate Proforma ARPU $2,849 $2,860 $2,924 ARPU (Proforma) $49.67 $52.71 $52.13 (a) See pages 3 and 4 for detail of excluded items. (b) These adjustments are consistent in nature with those set forth in Cingular's Form 8-K/A dated November 29, 2004. (c) Margin calculations for our domestic wireless segment represents 40% of Cingular's margin calculations adjusted for the related normalized items as presented on pages 3-4. EX-99 3 form8k012505ex99b.txt EXHIBIT 99-B Exhibit 99-b BLS Investor News BellSouth Reports Fourth Quarter Earnings o 1.8 million Cingular pro forma net customer additions o 224,000 DSL net customer additions o 467,000 long distance net customer additions ATLANTA - BellSouth Corporation (NYSE: BLS) announced fourth quarter 2004 earnings per share (EPS): o Reported EPS from continuing operations was 27 cents compared to 45 cents in fourth quarter 2003. o Normalized EPS from continuing operations was 35 cents compared to 46 cents in fourth quarter of 2003. o Total reported EPS from continuing and discontinued operations was 80 cents compared to 43 cents in fourth quarter 2003. Reported Results from Continuing Operations For the fourth quarter of 2004, BellSouth's consolidated reported revenue from continuing operations totaled $5.15 billion, an increase of 0.8 percent compared to the same quarter in 2003. Income from continuing operations was $496 million compared to $836 million in the same quarter of the previous year. Reported EPS from continuing operations for the quarter was 27 cents compared to 45 cents in the fourth quarter of 2003. BellSouth's fourth quarter 2004 reported income and EPS from continuing operations were negatively impacted by restoration expenses due to hurricanes, severance-related expenses and a previously announced change in the calculation of the retiree medical benefit obligation. In addition, BellSouth's earnings related to Cingular Wireless were affected by merger integration costs from the acquisition of AT&T Wireless, high gross customer additions and upgrades, lower service revenue, accelerated depreciation and acquisition-related financing costs. For the full year of 2004, BellSouth reported EPS from continuing operations of $1.87 compared to $1.88 in 2003. Consolidated revenue from continuing operations was $20.30 billion in 2004, flat compared to 2003. Income from continuing operations was $3.44 billion in 2004 compared to $3.49 billion the previous year. Normalized Results from Continuing Operations Normalized results from continuing operations are adjusted for BellSouth's 40 percent proportionate share of Cingular's revenues and expenses. Cingular completed its acquisition of AT&T Wireless on Oct. 26, 2004. Cingular's results for the quarter combine Cingular stand-alone results for the first 25 days of the quarter and the operations of the combined companies starting on Oct. 26, 2004. Prior period results for 2003 and the first three quarters of 2004 have not been restated. Normalized revenue was $7.92 billion for the fourth quarter of 2004 compared to $6.63 billion for the fourth quarter in 2003. Normalized net income was $640 million compared to $846 million for the fourth quarter in 2003. Normalized EPS from continuing operations of 35 cents in the fourth quarter excludes the impact of hurricane- and severance-related expenses in the wireline business (5 cents) and merger integration costs from Cingular's acquisition of AT&T Wireless (3 cents). Fourth quarter normalized EPS from continuing operations declined compared to the third quarter of 2004. Communications Group results were negatively impacted by a previously announced change in the calculation of the retiree medical benefit obligation (3 cents) and an annual FAS 112 adjustment (1 cent). In addition to acquisition-related financing costs (2 cents), BellSouth's earnings related to Cingular Wireless declined by approximately 7 cents due primarily to seasonal decline in roaming revenue, high gross customer additions, costs associated with incrementally higher customer upgrades and increased depreciation expense driven by adjustments to the expected useful life of TDMA equipment. For the full year, normalized EPS was $1.83 in 2004 compared to $1.95 in 2003. Normalized revenue was $27.91 billion in 2004. Normalized net income was $3.36 billion for 2004. Cash Flow and Capital Operating free cash flow from continuing operations (defined as net cash provided by operating activities less capital expenditures) totaled $3.61 billion for 2004. Capital expenditures for continuing operations for 2004 were $3.19 billion, including $60 million in hurricane restoration capital, compared to $2.93 billion in 2003. Communications Group In 2004, revenue growth from long distance and DSL high-speed Internet service offset reduced revenue from access line declines, holding Communications Group revenue flat at $18.45 billion, compared to 2003. In the fourth quarter, revenue increased 0.6 percent to $4.65 billion compared to the same quarter the previous year. Operating margin for 2004 was 25.1 percent compared to 26.3 percent in 2003. Operating margin for the fourth quarter was 22.6 percent, impacted primarily by the previously announced change in the calculation of the retiree medical benefit obligation. During the fourth quarter of 2004, BellSouth added a record 224,000 net DSL customers and ended the year at 2.1 million customers. This momentum reflects the continued success of the tiered service portfolio and was driven in part by the Company's long-term, strategic move to offer additional incentives and new pricing for FastAccess(R) DSL. Driven by DSL, network data revenue for the fourth quarter was $1.16 billion, an increase of 6.5 percent compared to the same quarter of 2003. BellSouth added 467,000 mass-market long distance customers during the fourth quarter of 2004, and now serves more than 6.1 million mass-market long distance customers. These customers represent a 48 percent penetration of BellSouth's mass-market base and spend an average of approximately $17 per month on long distance with BellSouth. With DIRECTV(R), BellSouth provides a competitively priced triple-play package of voice, data and entertainment services. Through Dec. 31, more than 200,000 customers have added DIRECTV(R) to their communications services packages. As of Dec. 31, 2004, total access lines were 21.4 million, down 4.1 percent compared to a year earlier. UNE-P access lines resold by BellSouth competitors were 2.8 million at year-end 2004 compared to 2.4 million at year-end 2003. In the third and fourth quarters of 2004, UNE-P lines began a declining trend and decreased a total of 165,000 over the second half of 2004. Cingular Wireless Cingular Wireless, the nation's largest wireless provider, added nearly 1.8 million customers in the fourth quarter of 2004, on a pro forma basis, bringing its nationwide customer base to more than 49 million customers. Cingular's gross customer additions in the fourth quarter totaled 5.5 million on a pro forma basis, the best ever combined total for the two companies. Pro forma churn was 2.6 percent in the fourth quarter. In the fourth quarter, BellSouth's share of Cingular's reported revenues was $2.83 billion. Reported average revenue per user (ARPU) in the fourth quarter was $49.22. ARPU on a pro forma basis was $49.67, down 4.7 percent versus pro forma results in the third quarter of 2004. The sequential decline is primarily attributable to seasonal declines in roaming revenues. ARPU on a pro forma basis was down 5.8 percent versus pro forma results for the same period in 2003. Year-over-year ARPU was adversely impacted by the transition of customers to GSM plans, Family Talk and non-cash deferrals of Rollover minutes. ARPU from data services continued its strong growth, reaching $2.89 on a reported basis. This growth was driven by the popularity of text messaging, mobile email, downloadable ringtones, games and photo messaging. Cingular's normalized fourth quarter service margin from operating income before depreciation and amortization was 23.2 percent. This segment's normalized operating margin, which excludes integration costs, was 1.0 percent. Fourth quarter expenses and margins reflect negative impacts from accelerated depreciation, higher operating costs from high levels of gross customer additions, upgrade costs, costs associated with the progress in customer conversions to new Cingular GSM contracts and a range of customer service initiatives. Synergies from the merger will benefit Cingular's financial results as the integration plans progress in 2005. Cingular has reached several important milestones in the integration process of AT&T Wireless operations and services. In addition to this quarter's net adds, Cingular integrated essentially all customer-facing operations by launch date and has migrated more than 1 million AT&T Wireless subscribers to new Cingular postpaid plans. Advertising & Publishing In the fourth quarter of 2004, Advertising & Publishing grew revenue by 1.1 percent year-over-year to $528 million. Operating margin for the fourth quarter of 2004 was 45.3 percent compared to 46.0 percent in the fourth quarter of 2003. Segment net income was $145 million compared to $147 million in the fourth quarter of 2003. Full year 2004 revenue was $2.0 billion, a 1.5 percent decline compared to 2003, and full year operating margins were stable at 47.3 percent compared to 47.5 percent in 2003. Discontinued Operations: Latin America In March 2004, BellSouth signed a definitive agreement with Telefonica Moviles, the wireless affiliate of Telefonica, S.A., to sell BellSouth's interests in its 10 Latin American operations. As of Jan. 11, 2005, BellSouth completed the sale of all 10 operations. The Company's financial statements, as of Dec. 31, 2004, reflect results for the Latin American segment in the line item titled Discontinued Operations. For the fourth quarter, BellSouth reported income from discontinued operations of 53 cents per share compared to a loss of 3 cents per share in the fourth quarter of 2003. Results for the fourth quarter of 2004 include an after-tax gain of $915 million related to eight of the 10 properties that were closed prior to year-end. BellSouth will report an after-tax gain of approximately $385 million to $405 million in the first quarter of 2005 related to the January closing of the remaining two properties. Normalizing Items In the fourth quarter of 2004, the difference between reported (GAAP) EPS from continuing operations and normalized EPS is shown in the following table: 4Q04 4Q03 GAAP Diluted EPS - Income from continuing operations $0.27 $0.45 Hurricane-related expenses $0.04 Wireless merger integration costs $0.03 Severance and lease termination costs $0.01 $0.01 Normalized Diluted EPS - Income from continuing operations $0.35 $0.46 Hurricane-related expenses - Represents the incremental labor and material costs incurred during the fourth quarter related to service restoration and network repairs in the wireline business due to Hurricanes Charley, Frances, Ivan and Jeanne. Wireless merger integration costs - Represents BellSouth's 40 percent share of tax-effected wireless merger integration costs of $245 million incurred during the fourth quarter in connection with the Cingular/AWE merger. Severance and lease termination costs - Represents the net severance-related costs recorded in the fourth quarter associated with previously announced workforce reductions and a provision related to surplus office space under long- term leases. Communications Group Communications Group revenues were flat in 2004 compared to the full year of 2003. Voice revenues were down 0.7 percent compared to full year 2003, while data revenues increased 3.8 percent. Other revenue declined 4.9 percent in 2004. Consumer revenues were stable in 2004, as long distance and DSL revenue growth compensated for the loss of 6.8 percent of retail residential access lines. Almost one-fourth of the year-over-year decline in retail residential access lines represented a shift to wholesale services, but the majority of access line losses were due to wireless and broadband substitution. During 2004, however, Consumer mitigated greater access line losses by reacquiring more than 75 percent of lines lost to UNE competitors during the year. [Graphic inserted here Consumer ARPU Monthly Average 4Q03 - $53.20 1Q04 - $53.68 2Q04 - $55.47 3Q04 - $56.80 4Q04 - $57.32] Small Business delivered strong results for the year with 4.3 percent revenue growth in 2004, driven by a successful customer reacquisition program and increased penetration of long distance and DSL. The Small Business unit reacquired more than three of every four lines lost to competitors during the year. For the full year of 2004, Small Business gained more than 15,000 lines, a substantial improvement from access line losses of almost 49,000 in 2003. BellSouth's Large Business revenue declined 2.6 percent for the full year. A 6.7 percent year-over-year decline in access lines and competitive pricing pressure was partially offset by growth in complex long distance revenues. Wholesale revenue increased 0.6 percent in 2004 compared to the full year of 2003, as a decline in switched access revenue was partially offset by year-over-year increases in UNE-P and wireless transport revenue. Trends in UNE lines changed in the second half of 2004, with UNE line declines of 54,000 and 111,000 in the third and fourth quarters, respectively. [Graphic inserted here Small Business Net Access Line Change (in thousands) 2002 - (155) 2003 - (49) 2004 - 16 ] Packages With a BellSouth Answers(R) package, consumers can customize a communications and entertainment services bundle to meet their specific needs. They can combine local calling plans with long distance, Internet, Cingular Wireless services and digital satellite television service from DIRECTV(R). In August, BellSouth began offering DIRECTV(R) digital satellite television service through all sales channels, as part of the BellSouth Answers(R) portfolio. The Company introduced the service on a limited basis earlier this year through its web channel, and then broadly rolled out the DIRECTV(R) bundle in late summer. During the fourth quarter, BellSouth added almost 109,000 subscribers to its DIRECTV(R) offer, and finished the year with more than 200,000 total subscribers. Fourth quarter additions included 50,000 new DIRECTV(R) customers and approximately 59,000 "opt-ins" (existing DIRECTV(R) customers who opted in to the BellSouth package). With the addition of video, the BellSouth Answers(R) package is one of the most comprehensive and competitively priced bundles in the marketplace today. At the end of the fourth quarter, BellSouth Answers(R) communications packages had reached a penetration rate of 37.0 percent of retail primary lines. More than 80 percent of the current 4.4 million BellSouth Answers(R) customers have long distance in their package, and almost 45 percent have either FastAccess(R) DSL or BellSouth Dial(R) Internet service. The BellSouth(R) Unlimited Answers(R) package, which allows customers to call anywhere in the United States anytime for a flat monthly fee, comprised more than 40 percent of the BellSouth Answers(R) base. More than 30 percent of BellSouth Answers(R) customers have two or more affiliate services - such as long distance, Cingular Wireless, DSL or dial-up Internet. These customers, who have multiple services in their communications bundle, spend more on average with BellSouth and are less likely to churn. BellSouth Answers(R) customers have an ARPU of more than $63. Long Distance BellSouth added 467,000 mass-market long distance customers in the fourth quarter and ended the year with more than 6.1 million customers. Total long distance subscribers grew 8.2 percent sequentially, and 54.8 percent compared to the same period in 2003. Mass-market penetration was 47.7 percent, representing 47.2 percent of primary residential access lines and 53.0 percent of BellSouth's mass-market small business accounts. Revenues for these mass-market long distance services totaled more than $300 million for the fourth quarter and more than $1.0 billion for the full year. LONG DISTANCE PENETRATION States # Quarters Consumer Business Total Mass Competing Penetration Penetration Market Penetration GA/LA 11 51.1% 55.8% 51.5% AL/KY/ 9 48.9% 53.0% 49.2% MS/NC/ SC FL/TN 8 43.3% 51.0% 43.9% Total 47.2% 53.0% 47.7% Popularity of the BellSouth(R) Unlimited Long Distance plan has driven long distance growth. More than 1.8 million customers have BellSouth Unlimited, comprising one-third of the consumer long distance base. In the fourth quarter, long distance churn reached a record low, improving more than 100 basis points from the fourth quarter of 2003. Continued success of BellSouth's Unlimited plan drove total mass-market long distance ARPU to approximately $17. BellSouth booked $61 million of complex long distance revenue in the fourth quarter, a 104.1 percent increase over the fourth quarter of 2003. Through December 2004, the complex long distance backlog stood at approximately $624 million. This backlog represents an estimated value of the complex long distance business sold, but not yet booked as revenue. BellSouth provides combined voice and data services, including Frame Relay, ATM and Private Line with speeds up to OC-192, to customers in the Small and Large Business segments. [Graphic inserted here Long Distance Customers (in thousands) 4Q03 - 3,960 1Q04 - 4,596 2Q04 - 5,131 3Q04 - 5,663 4Q04 - 6,130] Voice Revenue and Access Lines Details For the full year of 2004, voice revenues decreased 0.7 percent, as revenue declines from access line share loss were partially offset by growth in interLATA long distance. InterLATA long distance voice revenue was almost $1.2 billion in 2004, an increase of 95.7 percent compared to the full year of 2003. Total switched access lines declined 4.1 percent year-over-year, due primarily to competitive share loss and technology substitution. Retail residential lines declined 6.8 percent, driven by UNE-P competition and technology substitution. Additional residential lines were down 15.9 percent compared to the fourth quarter of 2003, due to wireless and broadband substitution. Retail business lines declined 3.2 percent, reflecting continued demand pressures and migration to data products in Large Business. While UNE-P lines increased 352,000 year-over-year, UNE-P lines declined 111,000 sequentially. Switched access minutes of use, excluding wireless, decreased 1.1 percent for the full year, due to access line loss and technology substitution. BellSouth Long Distance switched access minutes of use, which are included in total switched access minutes of use, were 21.1 billion in 2004, representing an increase of 110.3 percent from year-to-date 2003. Wireless carrier minutes increased 24.4 percent compared to the full year of 2003. Broadband and Data Services In 2004, network data revenues increased 3.8 percent to $4.5 billion. This increase was driven primarily by DSL revenue of almost $1 billion. Complex long distance data revenue growth of almost $75 million also contributed to the increase in data revenues in 2004. Data revenues represented 16.2 percent of total BellSouth normalized revenues and 24.5 percent of Communications Group revenues for the full year 2004. DSL drove retail data revenue growth of 11.5 percent over the full year of 2003. Revenue from wholesale data transport services sold to other communications providers, including long distance companies and CLECs, decreased 4.3 percent in 2004 compared to the entire year of 2003. BellSouth offers three broadband speeds to meet the varying needs of our mass-market customers. The original version - BellSouth(R) FastAccess(R) DSL Ultra - runs at downstream connection speeds of up to 1.5 megabits. Since mid-2003, the Company has offered a lower speed version - BellSouth(R) FastAccess(R) DSL Lite - that runs at downstream speeds of up to 256 kilobits. In April of last year, the Company began offering BellSouth(R) FastAccess(R) DSL Xtreme, delivering downstream speeds of up to 3.0 megabits and upload speeds of up to 384 kilobits. BellSouth's broadband Internet service offers are among the most competitively priced in its markets. With a qualifying BellSouth Answers(R) package that includes Complete Choice and unlimited long distance, customers can buy FastAccess(R) DSL Xtreme for as low as $44.95, FastAccess(R) DSL Ultra for as low as $32.95 and FastAccess(R) DSL Lite for as low as $24.95. [Graphic inserted here DSL Quarterly Net Adds (in thousands) 4Q03 - 126 1Q04 - 156 2Q04 - 120 3Q04 - 134 4Q04 - 224] Promotions and improved churn drove a record 224,000 DSL customer additions in the fourth quarter of 2004 compared to 126,000 in the fourth quarter of 2003, a 77.8 percent growth rate. Retail DSL customer subscribers grew by 236,000, and were offset by a decline of 12,000 wholesale customers, as AOL stopped offering a DSL-based Internet service in the BellSouth region. BellSouth ended the quarter with almost 2.1 million DSL customers, representing an increase of 43.4 percent over the fourth quarter of 2003. DSL penetration increased to 13.5 percent of qualified lines and 9.8 percent of total switched access lines. DSL coverage currently extends to 76 percent of BellSouth households, and more than 80 percent of DSL-qualified lines have 3 megabits available. During the fourth quarter, BellSouth launched highly competitive offers for FastAccess(R) DSL in the marketplace to generate new subscriber additions. Currently, new FastAccess(R) DSL customers receive a $15 discount per month on all BellSouth retail DSL Internet services for the first six months, after which regular monthly pricing applies. With the new pricing, BellSouth(R) FastAccess(R) DSL Internet service is available for an introductory price of as little as $9.95 per month with the BellSouth(R) Unlimited Long Distance plan. In January 2005, BellSouth announced a technical trial of Microsoft(R) TV Internet Protocol Television (IPTV) Edition software platform, tapping the advanced capabilities of the Company's next-generation broadband network. By leveraging new DSL technologies - including ADSL2+ and copper pair bonding - and its short copper loops, BellSouth is currently testing IPTV hardware and software within its labs, with plans to expand the trial to set-top boxes in selected customers' homes. In mid-2004, BellSouth initiated an enterprise-managed VoIP trial for business customers in Colombia, SC, and SE Florida (greater Miami). Based on the success of this trial, BellSouth is planning to expand service to additional markets, including Atlanta, New Orleans, Charlotte, Birmingham, Orlando and Louisville, by early- to mid-2005. Supported by our MPLS network, BellSouth's enterprise-managed VoIP solution enables businesses to consolidate voice and data networks, resulting in better utilization of resources for our customers. [Graphic inserted here Network Fiber Miles (in thousands) 4Q03 - 4,753 1Q04 - 4,819 2Q04 - 4,911 3Q04 - 5,025 4Q04 - 5,163] BellSouth has pushed fiber deeper into its network than any other peer company. Almost 50 percent of BellSouth households are served by less than 5,000 feet of copper. Approximately half of our 44,000 remote terminals are fed with fiber. As of the end of 2004, BellSouth had more than 5.2 million miles of fiber and had deployed fiber-to-the-curb facilities to more than 1 million homes. Every year, BellSouth will continue to add additional FTTC homes through greenfield deployment. Expenses and Margins Fourth quarter operating margin was 22.6 percent, down from historical trends, due primarily to the previously disclosed change in the calculation of the retiree medical benefit obligation. Excluding the impact of this item, operating margin was 25.0 percent for the quarter, reflecting only a slight decline in margins. For the full year, Communications Group operating margin was 25.1 percent compared to 26.3 percent a year ago. Cash operating expenses increased 4.0 percent for the full year of 2004, driven by increased labor costs and increased costs for providing retail long distance services. Higher labor costs resulted primarily from retiree and medical benefits and contract-driven raises. Lower uncollectible costs and, to a lesser degree, the phase-out of the payphone business offset some of the increased expenses. Communications Group capital expenditures totaled approximately $3.0 billion in 2004 and included about $60 million of hurricane-related capital spending. Depreciation and amortization expense declined 4.7 percent during 2004, driven by declines in capital spending over the past several years. Regulatory On Dec. 15, 2004, the FCC announced new rules regarding the UNE obligations of incumbent local exchange carriers (ILECs). The FCC has not released the text of its order or the rules, which is necessary for the action to be official. The announcement indicated that the order, when issued, would define "impairment" essentially as it was in the FCC's 2003 order; prohibit the use of UNEs to provide mobile wireless and long distance telecom services; establish thresholds that permit nearly ubiquitous unbundling of high-capacity loops and significant unbundling of high-capacity transport; relieve ILECs of future obligation to provide CLECs with unbundled access to mass-market local switching; and provide a transition for ending past switch unbundling. When effective, the order and rules will replace an interim order issued in August 2004 that expires in mid-March 2005. The elimination of switching as a UNE will end UNE-P, which is one important step in the right direction. Unfortunately, the new impairment thresholds for transport and high-capacity loops discount existing competition and do not follow the court's requirement to consider potential as well as actual competition. Late last year, the Supreme Court agreed to hear an appeal of the "Brand X" cases filed by the cable industry and the FCC. The appeal stems from a decision by the 9th Circuit Court of Appeals to overturn the FCC's ruling that Internet access services provided over cable facilities are not subject to Title II, the regulations governing telecommunications services. The Supreme Court's decision to hear "Brand X" is positive. If the high court agrees with the FCC's ruling, the path will be cleared for the FCC to equalize the regulatory burdens of Internet service providers. Based on the realities of today's marketplace, the need for regulatory reform is clear. BellSouth will push for new, straightforward legislation that effectively fosters a more consumer-controlled, investment-friendly and less regulated marketplace. Focus on Customer Service In 2004, BellSouth launched two new sales channels designed to meet the needs of residential customers who prefer to make their purchases face-to-face: selling BellSouth's portfolio of strategic communications and entertainment services door-to-door and in Cingular Wireless stores. BellSouth's door-to-door campaign sends representatives of a third-party agent into neighborhoods to promote BellSouth services, such as BellSouth(R) FastAccess(R) DSL service, BellSouth(R) Long Distance, residential lines and DIRECTV(R) service. The residential door-to-door effort began in Atlanta last spring and has expanded into several key markets, including Birmingham, Charlotte, Jacksonville, Louisville, Orlando and West Palm Beach. Plans call for rapid expansion of this new sales channel to 15 markets throughout BellSouth's territory in 2005. In the fourth quarter of 2004, representatives of a third-party agent also began promoting BellSouth's products in select Cingular Wireless stores in Atlanta. The channel has been selling BellSouth Answers(R) packages, BellSouth(R) Long Distance and BellSouth(R) Complete Choice Plan. BellSouth plans to expand the Cingular Wireless retail store sales channel initiative in 2005. Cingular Wireless On Oct. 26, Cingular completed its purchase of AT&T Wireless to create the largest wireless company in America. The immediate benefits of the merger to the new Cingular's customers are clear: o Cingular now boasts the largest mobile-to-mobile pool in the country by serving more than 49 million customers - more than any other wireless carrier in the United States; o Cingular has 290 million licensed pops and maintains an average of 58 Mhz in the top 100 U.S. markets - the broadest and deepest position in the market. Cingular's core spectrum assets will accommodate growth in subscribers and allow deployment of next-generation services; o Cingular's products and services are sold in more than 19,000 retail distribution locations - the most expansive sales and service network in the market; o Cingular has the broadest digital voice and data network in the industry through its coast-to-coast GSM EDGE network. EDGE is available to more than 260 million people in more than 8,500 cities and towns, and in areas along 30,000 miles of interstate highways. As part of the agreement to approve the acquisition of AT&T Wireless, the Department of Justice required Cingular to divest assets in parts of Connecticut, Kentucky, Oklahoma, Missouri, Arkansas, Mississippi, Tennessee, Michigan and Texas. In addition, the Federal Communications Commission required Cingular to divest spectrum in markets with holdings over 80 Mhz. On Nov. 26, Cingular announced that it had met a substantial portion of the divestiture obligations imposed by the Department of Justice and FCC as conditions with the sale of certain wireless assets to ALLTEL for $170 million in cash and the swap of certain partnership interests. Closing of the transaction agreement is contingent upon regulatory approval and is expected to occur in the first quarter of 2005. Cingular is now focused on integration execution and its principle goal of reaching industry-leading financial and operating metrics. Within the first 20 days, management had deployed "common service experience" collateral and systems across the country, including 38 million point-of-purchase pieces, nationwide home-on-home roaming and combined back-office systems for new orders and upgrades. [Graphic inserted here Industry-Leading Spectrum Depth Average MHz in Top 100 U.S. Metropolitan Areas Cingular - 58 Verizon Wireless - 38 Sprint PCS - 26 T-Mobile USA - 24 Source: Raymond James Equity Research] Cingular's reported results for the quarter ended Dec. 31, 2004, are comprised of Cingular stand-alone results for the first 25 days of the quarter, prior to the transaction's close, plus combined Cingular and AT&T Wireless results for the remainder of the quarter. To provide comparability with previous quarters, Cingular also is furnishing comparisons based on pro forma results, which include acquired properties and exclude divested properties from all periods. These pro forma results reflect adjustments that are consistent with the pro forma financial statements filed with the Securities and Exchange Commission on Form 8-K/A dated Nov. 29, 2004, which are available at www.bellsouth.com/investor. Cingular fourth quarter results were marked by strong demand and improved customer retention. On a pro forma basis, the company added 1.8 million subscribers during the fourth quarter - a 138.7 percent increase over the same period last year. Net additions benefited from strong sales and substantial reduction in churn. For the fourth quarter 2004, 1.2 million - or 71 percent of the total reported net adds - were postpaid retail customers. Pre- and post-launch retention programs like home-on-home roaming proved successful, as churn fell 40 basis points year-over-year and 60 basis points sequentially to [Graphic inserted here Cingular Pro Forma Net Customer Additions (in thousands) 4Q03 - 736 1Q04 - 174 2Q04 - 424 3Q04 - 808 4Q04 - 1,757] 2.6 percent when compared to pro forma results. Since Cingular introduced home-on-home roaming, customers have seen an improvement of more than 10 percent in access to the network in many areas. Approximately 90 percent of fourth quarter activations were completed on Cingular's Common Service Experience (CSE) platform. CSE subscribers purchase a Cingular rate plan, own a Cingular phone and reside on Cingular's back-office systems. On a pro forma basis, the quarter saw Cingular generate 5.5 million gross additions as launch advertising, promotional incentives and exclusive handset offers stimulated sales channels. Upgrades were also strong. During the quarter, Cingular migrated more than 1.0 million former AT&T Wireless subscribers to Cingular billing systems and pricing plans. As Cingular adds new customers and upgrades its existing base, more subscribers reside on the GSM network, which provides better quality and greater cost savings to the company. At year-end, 79 percent of subscriber minutes were carried on Cingular's GSM network. Also, more than 65 percent of Cingular's customers were equipped with GSM handsets compared to a pro forma 57 percent in the third quarter. [Graphic inserted here Cingular Pro Forma Customer Churn (percentage) 4Q03 - 3.0% 1Q04 - 3.2% 2Q04 - 3.0% 3Q04 - 3.2% 4Q04 - 2.6%] Concurrent with the launch of the new Cingular, the company added five exclusive devices, including the Motorola Razr, Motorola V551 and the Sony Ericsson Z500A, to its handset portfolio. Several of these exclusives are EDGE-compatible, increasing the proportion of available handsets with high-speed data transmission capability. These handset exclusives demonstrate one of the ways Cingular is bringing intriguing products and services to its customers. Cingular's pro forma fourth quarter revenues increased 1.8 percent compared to the fourth quarter 2003. The pro forma revenue increase was attributable to a larger average subscriber base and increases in equipment sales, partially offset by lower average revenue per user (ARPU). Pro forma service revenues decreased 2.8 percent sequentially and declined 0.7 percent compared to the same quarter last year. Pro forma ARPU totaled $49.67 for the fourth quarter compared to $52.71 over the same period in 2003. The decline was due to lower access and airtime revenue per user, as customers migrate to popular family and national plans and rollover packages. Cellular/PCS Data ARPU rose substantially again this quarter. Ringtones and other downloaded media, along with an increase in short text messaging, contributed to a 181 percent increase compared to Cingular stand-alone in the fourth quarter last year. Normalized cash operating expense at Cingular increased by 86.6 percent compared to fourth quarter 2003 and 78.6 percent sequentially as a result of the AT&T Wireless acquisition, incrementally higher gross customer additions and customer upgrades, and higher minutes of use associated with a growing subscriber base. Operating income before depreciation and amortization (OIBDA) was 23.2 percent of service revenues in the fourth quarter. This represents a decline of 220 basis points over the same period in 2003 and a decrease of 560 basis points over the third quarter of 2004. Depreciation and amortization expense grew 143.9 percent and 142.8 percent respectively over the same periods. Cingular's operating income in the fourth quarter was $68 million. Cingular's reported capital investments were $1.8 billion in the fourth quarter, an increase of 52.8 percent compared to the fourth quarter in 2003. This increase was due to system upgrades and network coverage improvements for the wider footprint of the combined companies' networks. Capital expenditures for the year were $3.9 billion. On Nov. 30, Cingular announced plans to begin deployment of the nation's fastest high-speed mobile wireless data network based on international standards. The third-generation network will offer average data speeds between 400-700 kilobits per second, and bursts to several megabits per second on capable devices. Universal Mobile Telecommunications System (UMTS) and High-speed Downlink Packet Access (HSDPA) networks will be rolled out in a number of major urban and suburban markets beginning in 2005. The UMTS/HSDPA service will provide wireless high-speed Internet browsing and universal access to business productivity tools and consumer entertainment services. UMTS/HSDPA also offers customers the ability to have simultaneous voice and data sessions, so customers can use a handset to make a call at the same time they're checking email or browsing the Internet at high speeds. This key feature differentiates UMTS/HSDPA from other wireless technologies that only offer data services. Cingular's financial statements for 2004, 2003, and 2002 can be accessed at www.bellsouth.com/investor. Domestic Advertising & Publishing BellSouth's Advertising & Publishing group currently produces more than 500 Yellow Pages titles and distributes approximately 63 million copies to residences, businesses and government agencies annually. Revenue from the Advertising & Publishing segment declined 1.5 percent for the full year of 2004, but grew 1.1 percent in the fourth quarter compared to the same period last year. Positive sales activity continued during the fourth quarter, and this unit remains on track for modest revenue growth in 2005. The fourth quarter and full-year operating margins remained strong, with the full year operating margin finishing at 47.3 percent. During the fourth quarter, the directory affiliates of BellSouth and SBC Communications Inc. created an Internet Yellow Pages joint venture, and then closed the acquisition of the online directory publisher YellowPages.com, Inc. With the most recognized URL in the Yellow Pages industry, the two companies are now well-positioned to effectively serve the local Internet search customer and become the leading provider of nationwide, online Yellow Pages and Internet local search. Through this combination, the YellowPages.com site is expected to receive more than 50 million consumer searches per month. Discontinued Operations - Latin America BellSouth signed a definitive agreement in March 2004 to sell its interests in its 10 Latin American operations to Telefonica Moviles, the wireless affiliate of Telefonica, S.A. The purchase price is based on a total enterprise value of the 10 Latin American companies of $5.85 billion. BellSouth closed on the sale of its operations in Ecuador, Guatemala, Panama, Colombia, Nicaragua, Peru, Uruguay and Venezuela in October 2004. For its interest in the eight properties, BellSouth received net proceeds of $2.9 billion and recognized an after-tax gain of $915 million, or 50 cents per share, in the fourth quarter of 2004. BellSouth closed the sale of its wireless operations in Chile and Argentina in January 2005. BellSouth received an aggregate of approximately $900 million for its interest in the two properties and will recognize an after-tax gain of approximately $385 million to $405 million, or approximately 22 cents per share, in the first quarter of 2005. The sale of all BellSouth ownership interests in Latin America is now complete. Additional Details Normalized Results BellSouth's normalized revenue grew 19.5 percent in the fourth quarter of 2004 compared to the same quarter of 2003, which excludes AT&T Wireless results. The year-over-year revenue variance was driven by 81.0 percent growth at Cingular, primarily due to the AT&T Wireless acquisition. On a pro forma basis, Cingular revenue grew 1.9 percent relative to the fourth quarter of 2003. An increase of 0.3 percent in the Communications Group and a 1.2 percent increase in the Advertising & Publishing group also contributed to growth in normalized revenue. For the fourth quarter, total normalized cash operating expenses increased 32.7 percent compared to a year ago. The variance was driven primarily by growth at Cingular due to the acquisition of AT&T Wireless, increased cost of goods for retail long distance services and increased labor costs impacted by retiree medical benefits expense adjustments, partially offset by lower force levels. Depreciation and amortization expense increased 24.9 percent, primarily driven by growth at Cingular from the acquisition of AT&T Wireless and Cingular's amortization of intangibles related to the AT&T Wireless acquisition. These expenses were partially offset by lower Communications Group depreciation due to lower spending on capital expenditures. Normalized interest expense increased 31.0 percent in the fourth quarter, driven by debt issued to fund Cingular's acquisition of AT&T Wireless and by higher proportional interest expense at Cingular. Full year 2004 capital expenditures for BellSouth, excluding Cingular, were $3.2 billion, a 9.1 percent increase compared to 2003. Of that total, $60 million was related to restoration costs for the hurricanes that impacted our markets during the third quarter of 2004. Year-to-date, capital expenditures as a percent of normalized revenues, excluding Cingular, were 15.9 percent. BellSouth will release first quarter 2005 earnings at 8 a.m. on April 21, 2005. About BellSouth Corporation BellSouth Corporation is a Fortune 100 communications company headquartered in Atlanta, GA and a parent company of Cingular Wireless, the nation's largest wireless voice and data provider. Backed by award-winning customer service, BellSouth offers the most comprehensive and innovative package of voice and data services available in the market. Through BellSouth Answers(R), residential and small business customers can bundle their local and long distance service with dial-up and high-speed DSL Internet access, satellite television and Cingular(R) Wireless service. For businesses, BellSouth provides secure, reliable local and long distance voice and data networking solutions. BellSouth also offers online and directory advertising through BellSouth(R) RealPages.com(R) and The Real Yellow Pages(R). More information about BellSouth can be found at http://www.bellsouth.com. In addition to historical information, this document may contain forward-looking statements regarding events and financial trends. Factors that could affect future results and could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: (i) a change in economic conditions in markets where we operate or have material investments which would affect demand for our services; (ii) the intensity of competitive activity and its resulting impact on pricing strategies and new product offerings; (iii) higher than anticipated cash requirements for investments, new business initiatives and acquisitions; (iv) unfavorable regulatory actions; and (v) those factors contained in the Company's periodic reports filed with the SEC. The forward-looking information in this document is given as of this date only, and, BellSouth assumes no duty to update this information. This document may also contain certain non-GAAP financial measures. The most directly comparable GAAP financial measures, and a full reconciliation of non-GAAP to GAAP financial information, are attached hereto and provided on the Company's investor relations web site, www.bellsouth.com/investor. For More Information Contact: Jeff Battcher, Media Relations at 404-249-2793 BellSouth Investor Relations at 800-241-3419 -----END PRIVACY-ENHANCED MESSAGE-----