SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
_
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
_
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8607
BELLSOUTH CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-1533433
(State of (I.R.S. Employer
Incorporation) Identification Number)
1155 Peachtree Street, N. E., Atlanta, Georgia 30367-6000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 404 249-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
At May 10, 1994, a total of 496,172,523 common shares were outstanding.
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PART I - FINANCIAL INFORMATION
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Millions, Except Per Share Amounts)
For the Three Months
Ended March 31,
1994 1993
Operating Revenues: (Restated)
Network and Related Services
Local service $1,679.7 $1,618.4
Interstate access 802.4 749.4
Intrastate access 230.1 215.5
Toll 300.2 305.1
Directory advertising and publishing 344.8 329.9
Wireless communications 453.9 352.6
Other services 313.2 262.8
Total Operating Revenues 4,124.3 3,833.7
Operating Expenses:
Cost of services and products 1,492.3 1,490.8
Depreciation and amortization 798.4 767.6
Selling, general and administrative 821.4 771.2
Total Operating Expenses 3,112.1 3,029.6
Operating Income 1,012.2 804.1
Interest Expense 164.9 180.0
Other Income, net 59.5 8.9
Income Before Income Taxes and
Cumulative Effect of Change
in Accounting Principle 906.8 633.0
Provision for Income Taxes 321.5 221.8
Income Before Cumulative Effect
of Change in Accounting Principle 585.3 411.2
Cumulative Effect of Change in
Accounting Principle, net of tax - (67.4)
Net Income $ 585.3 $ 343.8
Weighted Average Common Shares Outstanding 496.5 495.4
Dividends Declared Per Common Share $ .69 $ .69
Earnings Per Share:
Income Before Cumulative Effect of
Change in Accounting Principle $ 1.18 $ .83
Cumulative Effect of Change in
Accounting Principle, net of tax - (.14)
Net Income $ 1.18 $ .69
The accompanying notes are an integral part of these financial statements.
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BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
March 31, December 31,
1994 1993
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 597.3 $ 501.5
Temporary cash investments 33.4 49.0
Accounts receivable, net of allowance
for uncollectibles of $148.6 and $149.6 2,708.9 2,985.2
Material and supplies 415.5 418.7
Other current assets 454.4 364.6
4,209.5 4,319.0
Investments and Advances 2,432.5 2,039.4
Property, Plant and Equipment, net 24,634.1 24,667.8
Deferred Charges and Other Assets 541.3 512.2
Intangible Assets, net 1,328.7 1,334.9
Total Assets $33,146.1 $32,873.3
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year $ 1,644.6 $ 1,838.6
Accounts payable 981.6 979.0
Other current liabilities 2,908.7 2,943.8
5,534.9 5,761.4
Long-Term Debt 7,498.9 7,380.7
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 3,531.0 3,465.3
Unamortized investment tax credits 498.6 515.9
Other liabilities and deferred credits 2,300.7 2,255.8
6,330.3 6,237.0
Shareholders' Equity:
Common stock, $1 par value 502.4 501.6
Paid-in capital 8,065.2 8,009.4
Retained earnings 6,165.2 5,919.3
Shares held in trust (336.2) (292.6)
Guarantee of ESOP debt (614.6) (643.5)
13,782.0 13,494.2
Total Liabilities & Shareholders' Equity $33,146.1 $32,873.3
The accompanying notes are an integral part of these financial statements.
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BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
For the Three Months
Ended March 31,
1994 1993
(Restated)
Cash Flows from Operating Activities:
Net income....................................... $ 585.3 $ 343.8
Adjustments to net income:
Depreciation.................................. 785.0 751.7
Amortization of intangibles................... 13.4 15.9
Dividends received from unconsolidated
affiliates................................... 30.4 43.2
Losses/(earnings) of unconsolidated
affiliates................................... 15.1 (6.8)
Provision for losses on bad debts............. 44.8 50.1
Deferred income taxes and unamortized
investment tax credits....................... (18.6) (50.9)
Change in accounting principle, net of tax.... - 67.4
Gain on sale of operations................... (70.6) -
Allowance for funds used during construction.. (4.0) (5.4)
Net change in accounts receivable............. 49.5 (15.7)
Net change in material and supplies........... (23.8) (11.7)
Net change in accounts payable and
other current liabilities.................... (36.8) (248.8)
Net change in deferred charges and
other assets................................. (127.1) (84.7)
Net change in other liabilities and
deferred credits............................. 135.4 18.8
Other reconciling items, net.................. (.4) 5.1
Net cash provided by operating activities.. 1,377.6 872.0
Cash Flows from Investing Activities:
Capital expenditures............................. (735.7) (764.2)
Proceeds from disposals of property, plant
and equipment................................... 37.0 29.8
Proceeds from disposition of short-term
investments..................................... 36.8 44.4
Purchase of short-term investments............... (21.1) (34.0)
Investment Dispositions.......................... 83.8 -
Investments in/advances to unconsolidated
affiliates...................................... (278.1) (93.4)
Proceeds from repayment of loans and advances.... 4.5 9.5
Other investing activities, net.................. .1 .2
Net cash used for investing activities..... (872.7) (807.7)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings.............. 5,561.8 3,472.2
Repayments of short-term borrowings.............. (5,739.6) (3,283.1)
Proceeds of long-term debt....................... 142.8 423.7
Repayment of long-term debt...................... (27.4) (529.0)
Payment of capital lease obligations............. (3.1) (3.3)
Proceeds from issuing common and treasury shares. 2.5 20.8
Dividends paid................................... (346.1) (274.3)
Net cash used for financing activities........ (409.1) (173.0)
<PAGE>
Net Increase/(Decrease) in Cash and
Cash Equivalents................................... 95.8 (108.7)
Cash and Cash Equivalents at Beginning of Period.... 501.5 265.5
Cash and Cash Equivalents at End of Period.......... $ 597.3 $ 156.8
The accompanying notes are an integral part of these financial statements.
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Millions, Except Per Share Amounts)
(a) Preparation of Interim Financial Statements
The consolidated financial statements of BellSouth Corporation ("BellSouth")
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain amounts have been
reclassified from previous presentations. In the opinion of BellSouth, these
statements include all adjustments necessary for a fair presentation of the
results of all interim periods reported herein. All adjustments are of a
normal recurring nature. Certain information and footnote disclosures
prepared in accordance with generally accepted accounting principles have been
either condensed or omitted pursuant to SEC rules and regulations. However,
BellSouth believes that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in
BellSouth's latest annual report on Form 10-K.
(b) BellSouth Corporation Consolidated Shareholders' Equity
Common Paid-In Retained Shares Held Guarantee of
Stock Capital Earnings in Trust ESOP Debt
Balance at December 31,
1993..................... $501.6 $8,009.4 $5,919.3 $(292.6) $(643.5)
Net income................ 585.3
Dividends................. (342.3)
Shares issued in
connection with various
employee benefit plans... .7
Shares issued to grantor
trusts................... .8 42.8 (43.6)
Reduction of ESOP debt and
other related activity... 2.9 28.9
Foreign currency
translation adjustment... 12.3
Balance at
March 31, 1994........... $502.4 $8,065.2 $6,165.2 $(336.2) $(614.6)
BellSouth has issued shares to several grantor trusts to provide partial
funding for the benefits payable under certain non-qualified benefit plans.
The trusts are irrevocable and assets contributed to the trusts can only be
used to pay such benefits with certain exceptions. At March 31, 1994, the
assets held in the trusts consist of cash and 6,262,087 shares of BellSouth
Common Stock.
<PAGE>
The total cost of the BellSouth shares as of the date of funding the trusts is
included in Common Stock and Paid-in capital; however, because the shares held
in trust are not considered outstanding for financial reporting purposes, the
shares are reflected separately as Shares Held in Trust, a reduction to
Shareholders' Equity. Accordingly, there is no earnings per share impact.
(c) Supplemental Cash Flow Information
The following supplemental information is presented in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 95,
"Statement of Cash Flows":
For the Three Months
Ended March 31,
1994 1993
Cash paid during the period for:
Income taxes....................................... $113.5 $ 69.7
Interest........................................... $179.6 $224.9
Schedule of Noncash Investing and Financing Activities:
Common shares issued in lieu of cash dividends
under the Shareholder Reinvestment and Stock
Purchase Plan ("DRSPP")........................... $ - $ 66.4
Shares issued to grantor trusts.................... $ 43.6 $ -
(d) SFAS No. 112, "Employers' Accounting for Postemployment Benefits"
In the fourth quarter of 1993, BellSouth adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of the change
in accounting principle was $67.4 ($.14 per share). Because the change in
accounting was retroactive to January 1, 1993, the consolidated financial
statements at March 31, 1993 and for the three months then ended have been
restated to reflect the adoption of the accounting standard.
<PAGE>
BELLSOUTH CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Network Access Lines in Service at March 31 (In Thousands)(a):
Percentage
Gain/(Loss) for the
Three Months Ended
March 31,
1994 vs. 1993 vs.
1994 1993 1992
By Category:
Residence 13,880.2 3.10 2.90
Business 5,479.2 6.23 5.48
Other 253.3 (2.88) (5.64)
Total Access Lines 19,612.7 3.87 3.46
By State:
Alabama 1,687.6 3.48 3.21
Florida 5,171.5 4.17 3.63
Georgia 3,224.4 4.65 4.75
Kentucky 1,041.3 3.00 2.92
Louisiana 1,988.6 2.68 2.08
Mississippi 1,094.8 3.52 2.52
North Carolina 1,923.7 4.39 3.41
South Carolina 1,216.1 2.95 2.61
Tennessee 2,264.7 4.07 3.95
Total Access Lines 19,612.7 3.87 3.46
For the Percentage
Three Gain/(Loss) for the
Months Three Months Ended
Ended March 31,
March 31, 1994 vs. 1993 vs.
1994 1993 1992
Access Minutes of Use (In Millions)(a)(b):
Interstate 14,050.8 7.94 5.55
Intrastate 4,005.6 11.39 6.74
Total 18,056.4 8.69 5.80
Toll Messages (In Millions)(a)(c) 388.6 5.83 (2.40)
(a) Prior period operating data are revised at later dates to reflect the most
current information. The above information reflects the latest data
available for the periods indicated.
(b) Minutes of Use are classified as either interstate or intrastate based on
the percentage interstate usage factor. This factor is updated
periodically.
(c) Effective in 1994, Toll Messages include messages completed under Optional
Calling Plans. Prior period Toll Messages volumes have been restated to
reflect this change. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Business Volumes."
<PAGE>
BELLSOUTH CORPORATION
SELECTED OPERATING DATA - (Continued)
Cellular and Paging Customers Served at March 31 (Equity Basis (d)):
Percentage Gain
1994
1994 vs. 1993
Domestic Cellular.......................... 1,682,300 41.0
International Cellular..................... 224,300 134.1
Domestic Paging............................ 1,285,400 24.8
(d) Includes customers served based on BellSouth's ownership percentage in all
markets served.
For the Three
Months Ended
March 31, Year Ended December 31,
1994 1993 1992 1991 1990 1989
Ratio of Earnings to Fixed Charges (e) 5.68 2.98 4.00 3.47 3.68 3.85
(e) For the purpose of this ratio: (i) earnings have been calculated by adding
income before income taxes, gross interest expense, such portion of rental
expense representative of the interest factor on such rentals and equity in
losses from less-than-50%-owned investments (accounted for under the equity
method) less the excess of earnings over distributions from
less-than-50%-owned investments (accounted for under the equity method);
(ii) fixed charges are comprised of gross interest expense and such portion
of rental expense representative of the interest factor on such rentals.
Sources of Revenues
Approximately 73% and 75% of BellSouth's Total Operating Revenues for the three
month periods ended March 31, 1994 and 1993, respectively, and a greater portion
of net income were from wireline services provided by BellSouth
Telecommunications. Charges for local service, access services and toll
messages for the three months ended March 31, 1994 accounted for approximately
56%, 34%, and 10%, respectively, of the wireline revenues discussed above.
Revenues from wireless communications services and directory advertising and
publishing services accounted for approximately 11% and 8%, respectively, of
Total Operating Revenues for the three months ended March 31, 1994. The
remainder of such revenues was derived principally from other nonregulated
services provided by BellSouth Telecommunications.
<PAGE>
BELLSOUTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in Millions, Except Per Share Amounts)
BellSouth Corporation ("BellSouth") is a holding company headquartered in
Atlanta, Georgia whose operating telephone company subsidiary, BellSouth
Telecommunications, Inc. ("BellSouth Telecommunications") serves, in the
aggregate, approximately two-thirds of the population and one-half of the
territory within Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina and Tennessee. BellSouth Telecommunications
primarily provides local exchange service and toll communications services
within court-defined geographic areas, called Local Access and Transport Areas
("LATAs"), and provides network access services to enable interLATA
communications using the long-distance facilities of interexchange carriers.
Through subsidiaries, telecommunications-related services and products are
provided both inside and outside the nine-state BellSouth Telecommunications'
region. BellSouth Enterprises, Inc. ("BellSouth Enterprises"), another
wholly-owned subsidiary, owns businesses providing domestic and international
wireless communications services and advertising and publishing products.
Results of Operations
For the Three Months
Ended March 31, Percentage
1994 1993 Change
Net Income $585.3 $343.8 70.2%
Earnings Per Share $ 1.18 $ .69 71.0%
Reported earnings for the three months ended March 31, 1994 are a BellSouth
record for a quarterly period. Net Income and Earnings Per Share increased
$241.5 (70.2%) and $.49 (71.0%), respectively, for the three month period ended
March 31, 1994 when compared to the restated results for the same period in
1993. The increases were attributable to revenue growth, driven by improved
business volumes, cost control efforts at BellSouth Telecommunications,
including expense savings attributable to the restructuring plan implemented in
1993, a previously-disclosed $67.5 ($.14 per share) gain in 1994 on the sale of
BellSouth's interest in the cellular telephone business in Mexico and charges in
1993 of $67.4 ($.14 per share) for the retroactive adoption of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits," and approximately $25 ($.05 per share) associated with
severe 1993 winter weather conditions. After adjusting both quarterly periods
for the effect of these unusual items, Net Income and Earnings per share
increased $81.6 (18.7%) and $.16 (18.2%), respectively.
<PAGE>
Business Volumes
Growth in access lines was particularly strong. The number of access lines in
service since March 31, 1993 increased by approximately 730,300, or 3.87%, to
19,612,700, compared to a 3.46% rate of increase for the same prior year period.
The overall increase, led by growth in Georgia, North Carolina, Florida and
Tennessee, was primarily attributable to continued economic improvement,
including expanding employment in BellSouth Telecommunications' nine-state
region and an increase in the number of second residential lines. The growth
rates for residence and business lines of 3.10% and 6.23%, respectively, for the
current quarter improved compared to growth rates of 2.90% and 5.48%,
respectively, for the same period in 1993.
Access minutes of use represent the volume of traffic carried by interexchange
carriers between LATAs, both interstate and intrastate, using BellSouth
Telecommunications' local facilities. Total access minutes of use increased by
1,443.5 million (8.69%) for the three month period ended March 31, 1994, a
significant improvement over the 5.80% increase for the same period last year.
The increase in access minutes of use was partially attributable to access line
growth and also to intraLATA toll competition, which has the effect of
increasing access minutes of use while reducing toll messages carried over
BellSouth Telecommunications' facilities. The growth rate in total minutes of
use continues to be negatively impacted by the effects of bypass and the
migration of interexchange carriers to categories of service (e.g., special
access) that have a fixed charge as opposed to a volume-driven charge and to
high capacity services, which causes a decrease in minutes of use.
Toll messages are comprised of Message Telecommunications Service and Wide Area
Telecommunications Service. Also, effective in 1994, toll messages include
messages completed under Optional Calling Plans ("OCPs"), which provide reduced
rates for toll calls within a LATA. Prior period toll messages volumes have
been restated to reflect this change. Service pricing under OCPs has resulted
in volume growth. Accordingly, the trend of declining toll messages volumes in
prior periods has been mitigated to some extent by the inclusion of messages
completed under these plans.
For the three month period ended March 31, 1994, toll messages increased by 21.4
million (5.83%) compared to a restated decrease of 2.40% for the corresponding
period in 1993. The improvement reflects the inclusion in both periods of the
negative impact of significant expanded local area calling plans and the growth
of messages completed under OCPs. Implementation of additional expanded local
area calling plans in BellSouth Telecommunications' service region, coupled with
competition in the intraLATA toll market, will adversely impact future toll
message volumes. These plans and the effects of competition result in the
transfer of calls from toll to local service and access categories,
respectively, but the corresponding revenues are not generally shifted at
commensurate rates.
Domestic cellular customers (equity-weighted) increased by 488,800 (41.0%) since
March 31, 1993 to 1,682,300. While the rate of increase has declined since
first quarter 1993, the overall penetration rate (number of customers as a
percentage of the total population in the service territory) increased from
3.18% at March 31, 1993 to 4.33% at March 31, 1994. Total minutes of use have
also continued to increase, although average minutes of use per cellular
customer have declined from first quarter 1993 due to the trend of increased
penetration into lower-user market segments.
<PAGE>
Since March 31, 1993, the number of international cellular customers expanded
to 224,300, an increase of 128,500 (134.1%). Growth in minutes of use for
international cellular properties remained strong due in part to demand
stimulated by competitive programs, enhanced services and underdeveloped
land-line service.
Domestic paging customers increased by 255,800 (24.8%) to 1,285,400 since
March 31, 1993 due to continued success of the retail distribution program and
aggressive pricing strategies in the reseller market.
See "Selected Operating Data."
Operating Revenues
Total Operating Revenues increased $290.6 (7.6%) for the three month period
ended March 31, 1994 when compared to the corresponding period in 1993. The
components of Total Operating Revenues, including percentage changes, were as
follows:
For the Three Months
Ended March 31, Percentage
1994 1993 Change
Local Service $1,679.7 $1,618.4 3.8%
Interstate Access 802.4 749.4 7.1%
Intrastate Access 230.1 215.5 6.8%
Toll 300.2 305.1 (1.6%)
Directory Advertising
and Publishing 344.8 329.9 4.5%
Wireless Communications 453.9 352.6 28.7%
Other Services 313.2 262.8 19.2%
Total Operating
Revenues $4,124.3 $3,833.7 7.6%
Local Service revenues increased $61.3 (3.8%) for the three month period ended
March 31, 1994 as compared to the same period in 1993. The increase was
primarily attributable to an increase in access lines in service since March 31,
1993. In addition, growth in revenues from local area calling plans, which
shift revenues from Toll to Local Service, contributed to the increase for the
quarter. The increase was partially offset by rate reductions, principally in
Louisiana and Florida.
Interstate Access revenues increased $53.0 (7.1%) for the three month period
ended March 31, 1994 as compared to the same prior year period. The growth for
the quarter was attributable to increased rates effective July 1, 1993, growth
in minutes of use, increases in end user charges due primarily to access line
growth and the effect of billing adjustments recorded in first quarter 1993,
which reduced revenues for that period. The increase was partially offset by
revenue deferrals under the Federal Communications Commission's ("FCC") price
<PAGE>
cap plan and decreased net settlements with the National Exchange Carriers
Association. Since BellSouth Telecommunications' earnings remain in the sharing
range of the FCC's current price cap plan and because of other factors, it is
unlikely that significant revenue growth in this category can be sustained over
the long term.
Intrastate Access revenues increased $14.6 (6.8%) for the three month period
ended March 31, 1994 from the comparable 1993 period. The increase was due to
growth in minutes of use, increased net settlements with independent telephone
companies and the effect of billing adjustments recorded in first quarter 1993,
which reduced revenues for that period. The increase was partially offset by
rate reductions since March 31, 1993.
Toll revenues decreased $4.9 (1.6%) for the three month period ended March 31,
1994 compared to the same prior year period. The decrease for the three month
period was due to rate reductions since March 31, 1993, including the impact of
local area calling plans which shift revenues to Local Service, and decreased
net settlements with independent telephone companies. The decrease was
partially offset by growth in toll message volumes, reflecting improvements
related in part to optional calling plans.
Directory Advertising and Publishing revenues increased $14.9 (4.5%) for the
three month period ended March 31, 1994 when compared to the same period in
1993. The increase was attributable to increases in the prices and volume of
advertising sold for Yellow Pages directories.
Wireless Communications revenues include revenues from the consolidated wireless
communications businesses (primarily cellular and paging within BellSouth
Enterprises) as well as revenues from interconnections by unaffiliated cellular
carriers with BellSouth Telecommunications' network. (BellSouth's interests in
the net income or loss of the unconsolidated wireless businesses within
BellSouth Enterprises which are accounted for under the equity method of
accounting are recorded in Other Income.)
Wireless communications revenues increased $101.3 (28.7%) for the three month
period ended March 31, 1994 when compared to the same period last year. The
increase was attributable to continued growth of the customer base and demand
for wireless services in domestic and international markets.
Other Services revenues are principally comprised of revenues from customer
premises equipment ("CPE") sales and maintenance services, billing and
collection services and other nonregulated services (primarily inside wire
services) offered by BellSouth Telecommunications.
Other Services revenues increased $50.4 (19.2%) for the three month period ended
March 31, 1994 when compared to the corresponding 1993 period. The increase was
attributable in part to volume growth in the CPE businesses and, to a lesser
extent, higher demand for voice messaging and inside wire services. In
addition, reported revenues increased due to nonrecurring adjustments in certain
states and the net effect of intrastate sharing accruals in both first quarter
periods.
See "Business Volumes."
<PAGE>
Operating Expenses
The components of Total Operating Expenses are Depreciation and Amortization,
Cost of Services and Products and Selling, General and Administrative. Cost of
Services and Products includes employee and employee-related expenses
associated with network repair and maintenance, material and supplies expense,
cost of tangible goods sold and other expenses associated with providing
services. Selling, General and Administrative includes expenses related to
sales activities such as salaries, commissions, benefits, travel, marketing and
advertising expenses. For the quarter, Total Operating Expenses increased
$82.5 (2.7%) compared to the same period in 1993, the components of which were
as follows:
For the Three Months
Ended March 31, Percentage
1994 1993 Change
Depreciation and
Amortization $ 798.4 $ 767.6 4.0%
Cost of Services
and Products 1,492.3 1,490.8 0.1%
Selling, General and
Administrative 821.4 771.2 6.5%
Other Operating
Expenses 2,313.7 2,262.0 2.3%
Total Operating
Expenses $3,112.1 $3,029.6 2.7%
Depreciation and Amortization increased $30.8 (4.0%) due to higher levels of
property, plant and equipment since March 31, 1993 resulting from continued
growth in the customer base for wireless and wireline services and continued
modernization of the networks. In addition, higher depreciation rates in
certain jurisdictions contributed to the increase. The effect of the
expiration of inside wire and reserve deficiency amortizations partially offset
the increase for the period.
Other Operating Expenses increased $51.7 (2.3%) due primarily to increased
expenses related to growth in the wireless communications customer base,
including additional marketing costs associated with higher levels of sales.
To a lesser extent, volume growth in the advertising and publishing and CPE
businesses contributed to the increase. Other Operating Expenses in the core
wireline business at BellSouth Telecommunications decreased slightly,
reflecting expense savings attributable to a reduction of approximately 2,100
employees since March 31, 1993 and the inclusion of approximately $40 of
expenses related to severe weather conditions during first quarter 1993, offset
by increased expenses in 1994 attributable to overtime compensation and annual
compensation increases for management and craft employees. Of the overall
reduction in employees at BellSouth Telecommunications, approximately 1,500
were attributable to the restructuring plan announced in the fourth quarter of
1993.
<PAGE>
For the Three Months
Ended March 31, Percentage
1994 1993 Change
Interest Expense $164.9 $180.0 (8.4%)
Other Income, net 59.5 8.9 568.5%
Provision for 321.5 221.8 45.0%
Income Taxes
Interest Expense decreased $15.1 (8.4%) for the three month period as compared
to the same 1993 period. The decrease was due primarily to a decline in
interest rates on indebtedness, which resulted from refinancings of long-term
debt at lower interest rates.
Other Income, net increased $50.6 (568.5%) for the three months ended March 31,
1994 compared to the same period last year. The increase was due to the $67.5
gain on sale of BellSouth's interest in the cellular telephone business in
Mexico. The increase was partially offset by an overall decrease in earnings
from unconsolidated affiliates due primarily to higher costs and expenses
related to new and start-up operations, including the business venture with RAM
Broadcasting Corporation and the cellular venture in Germany.
Provision for Income Taxes increased $99.7 (45.0%) for the three months ended
March 31, 1994 over the comparable 1993 period. The increase was due primarily
to a higher level of pre-tax income and, to a lesser extent, the one percent
increase in the Federal statutory income tax rate for corporations, combined
with the effect of the $7.8 transition adjustment related to the implementation
of SFAS No. 109, "Accounting for Income Taxes" in first quarter 1993, which
reduced tax expense for that period.
Financial Condition
BellSouth uses the net cash generated from its operations and external
financing to fund capital expenditures, pay dividends and invest in and operate
new business ventures. BellSouth believes that funds provided from operations,
in addition to its readily available sources of external financing, will be
sufficient to meet the needs of its business for the foreseeable future.
On the strength of a significant improvement in net income, BellSouth's cash
flow from operations increased 58.0% to $1,377.6 for the first three months of
1994 compared to the same period in 1993. The impact of purchases attributable
to Hurricane Andrew in first quarter 1993, which reduced cash flow for that
period, also contributed to the increase for the 1994 period. Expenditures for
the construction and purchase of plant and equipment to support network
development activities, which is BellSouth's primary use of capital funds,
totaled $735.7 during the first three months of 1994, compared to $764.2 for
the same period last year. Substantially all funds supporting construction
activity were provided internally and this trend is expected to continue
through 1994.
<PAGE>
Cash used for investments in and advances to unconsolidated affiliates
increased from $93.4 in 1993 to $278.1 in 1994. Approximately 49% of such cash
in 1994 was loaned to Prime South Diversified, Inc., which indirectly wholly
owns Community Cable TV, a Las Vegas cable operation managed by Prime Cable.
The remainder was invested primarily in certain international cellular and
other business ventures in which BellSouth has an interest.
BellSouth's first quarter 1994 dividend of $.69 per share remained unchanged
from the same period last year. Total cash dividends paid to BellSouth's
common shareholders were $346.1 during the first three months of 1994 compared
to $274.3 during the first three months of 1993. The increase was due to the
use of $66.4 of common shares, newly issued by BellSouth, during first quarter
1993 as payment in lieu of cash dividends under the Shareholder Dividend
Reinvestment and Stock Purchase Plan. No such newly-issued shares were used
for that purpose during first quarter 1994.
BellSouth's debt to total capitalization ratio increased from 39.0% at March
31, 1993 to 39.5% at March 31, 1994. The increase was due to a small decrease
in Shareholders' Equity, attributable to the restructuring charge recorded in
the fourth quarter of 1993, and a slight increase in the level of debt.
Other Matters
Restructuring of Telephone Operations
Since implementation in fourth quarter 1993 of BellSouth Telecommunications'
overall plan to redesign and streamline its telephone operations by the end of
1996, the workforce has been reduced by approximately 1,500 employees,
including 200 during the first quarter of 1994. In the first quarter of 1994,
cash expenditures by BellSouth Telecommunications related to the ongoing
implementation of the restructuring plan were approximately $40. At March 31,
1994, the liability associated with future restructuring activities was $1,043.
BellSouth Telecommunications expects to reduce the workforce by an additional
3,500 employees by the end of 1994 as a part of the restructuring plan. Cash
expenditures of approximately $450 are expected during the remainder of 1994 in
connection with the additional workforce reductions, consolidation, elimination
and centralization of certain business operations and changes to information
systems used primarily to provide services to existing customers.
Investment and Business Dispositions
As previously disclosed, BellSouth disposed of its 36% interest in the cellular
telephone business in Guadalajara, Mexico during the first quarter of 1994. A
gain of $67.5 ($.14 per share) was recognized on the sale. Also, in April
1994, BellSouth Communication Systems, Inc., a wholly-owned subsidiary,
disposed of its customer premises equipment sales and service operations
outside the nine-state region served by BellSouth Telecommunications. These
dispositions will not materially affect BellSouth's financial condition and
future operating results.
<PAGE>
Regulatory Environment
Accounting Under SFAS No. 71
BellSouth's rate regulated enterprise, BellSouth Telecommunications, continues
to account for the economic effects of regulation under SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." BellSouth, for
strategic and business planning purposes, continuously monitors and evaluates
the impacts of both existing and potential competitive factors. If, in
BellSouth's judgment, changes in the competitive structure of the
telecommunications industry dictate that it could not charge prices to
customers which provide for the recovery of costs, SFAS No. 71 would no longer
apply. Additionally, if BellSouth is successful in altering the existing
regulatory framework and achieving price regulation, the accounting under SFAS
No. 71 would be discontinued since such plans do not provide for the recovery
of specific costs.
BellSouth currently believes that the existing and anticipated levels of
competition still permit prices based on costs to be charged to and collected
from customers. However, the rapid pace of change in the industry is making
it increasingly likely that BellSouth will be required to discontinue its
accounting under SFAS No. 71 in the future. If the accounting under under SFAS
No. 71 were to be discontinued due to the overall level of competition or to
changes in regulatory frameworks, the effect on BellSouth's financial condition
and results of operations would be material. Specific financial impacts would
depend on the timing and magnitude of changes, both in the marketplace and in
the overall regulatory framework.
Annual Access Tariff
In April 1994, the 1994 Annual Access Tariff was filed with the Federal
Communications Commission with proposed access charges scheduled to become
effective on July 1, 1994. The filing proposes to decrease rates by $28
annually. BellSouth Telecommunications elected to retain a productivity offset
factor of 3.3%, which has applied since July 1, 1993.
Kentucky
As a part of the objective to align the regulatory framework and processes with
the increasingly competitive telecommunications environment, BellSouth
Telecommunications filed with the Kentucky Public Service Commission in March
1994 a proposed price regulation plan which, if adopted, would replace the
current incentive regulation plan that is scheduled to expire on May 31, 1994.
Under the proposed plan, the regulatory focus would shift from the company's
earnings to rates that customers pay for services. The proposal includes
provisions that basic residential rates would not increase for three years,
residential touchtone charges would be eliminated over a four-year period,
intrastate switched access charges would be reduced to interstate levels and
prices for non-basic services would be based on market factors. Hearings on
the proposal are scheduled for the fall of 1994.
<PAGE>
Louisiana
As previously disclosed, BellSouth Telecommunications filed a petition with the
Louisiana Public Service Commission in January 1994 requesting a price
regulation plan. In May 1994, the Lousisiana Commission scheduled hearings on
the proposal for the fall of 1994.
South Carolina
Traditional rate of return regulation is currently in effect in South Carolina.
However, during April 1994, legislation was enacted which would permit the
South Carolina Public Service Commission to adopt alternative forms of
regulation, including price regulation.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibits identified in parentheses below, on file with
the SEC, are incorporated herein by reference as
exhibits hereto.
Exhibit
Number
4a No instrument which defines the rights of
holders of long and intermediate term debt of
BellSouth Corporation is filed herewith
pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this
regulation, BellSouth Corporation hereby
agrees to furnish a copy of any such
instrument to the SEC upon request.
10z BellSouth Corporation Financial Services Plan
11 Computation of Earnings Per Common Share
12 Computation of Ratio of Earnings to Fixed
Charges. (Page 9 of this Form 10-Q).
(b) Reports on Form 8-K:
January 5, 1994 - Settlement with Florida's Office of Public
Counsel
January 24, 1994 - 1993 Annual Earnings Release
February 1, 1994 - New Agreement with QVC Network, Inc.
<PAGE>
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/ Ronald M. Dykes
RONALD M. DYKES
Vice President and Comptroller
(Principal Accounting Officer)
May 12, 1994
<PAGE>
EXHIBIT INDEX
Exhibit
Number
4a No instrument which defines the rights of holders of long and
intermediate term debt of BellSouth Corporation is filed herewith
pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to
this regulation, BellSouth Corporation hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
10z BellSouth Corporation Financial Services Plan
11 Computation of Earnings Per Common Share
12 Computation of Ratio of Earnings to Fixed
Charges. (Page 9 of this Form 10-Q).
BELLSOUTH
FINANCIAL SERVICES PLAN
EFFECTIVE 1/1/85
AMENDED 1/1/94
<PAGE>
BELLSOUTH
FINANCIAL SERVICES PLAN
SECTION I - GENERAL
1. This Financial Services Plan is provided for the benefit of those
managers who are designated by the Chief Executive Officer of BellSouth
Corporation or his delegated representative to be eligible to
participate in this plan.
2. The purpose of the Financial Services Plan is to provide
professional assistance in carrying out personal financial goals and
responsibilities in the most effective manner. By using services
covered under the Plan, the manager spends less time on the details of
financial matters while still meeting his/her personal financial
responsibilities enabling the manager to commit more time and energy to
the Company.
SECTION II - FINANCIAL PLANNING SERVICES
1. The Plan accommodates a range of financial planning services,
including a full initial financial plan, an annual retainer to update
the financial plan as required, or an agreement to obtain advice and
assistance upon request on an hourly rate basis.
1/1/94
<PAGE>
Page Two
2. When the eligible manager has selected a firm, he/she must notify
the Company of his/her selection by completing a Request for Personal
Financial Planning Service (ATTACHMENT A). A new Request must also be
completed any time there is a change in the provider of financial
planning services. All requests must be forwarded to Human Resources
in the appropriate company. In all companies except BellSouth
Telecommunications, requests should be sent to:
Financial Services Plan Coordinator
13J08 Campanile
1155 Peachtree Street, N.E.
Atlanta, GA 30367-6000
3. The services generally provided by financial planners consist of a
review of Company-provided benefit and compensation plans and the
provision of estate, insurance, investment, retirement, education, and
income tax planning.
4. Each manager is responsible for furnishing his/her financial
planner with company-provided information on plans and plan changes.
5. BellSouth does not guarantee the advice of any firm or individual
selected.
1/1/94
<PAGE>
Page Three
SECTION III - TAX PREPARATION SERVICES
1. Eligible managers may select any qualified professional firm or
individual for income tax preparation services. This policy will
enable participants to continue a previously established relationship
with a professional tax consultant, CPA or recognized accounting firm.
SECTION IV - LEGAL SERVICES
1. Legal services for the preparation of wills and trusts will be
covered under the Plan. Such services may be provided by any
professionally qualified attorney chosen by the Participant.
SECTION V - AVAILABILITY OF SERVICES
1. Availability of these services to other than active eligible
managers is covered in ATTACHMENT B.
SECTION VI - PARTICIPANT ACCOUNTS
1. The Company will establish a three-year Plan Account for each
eligible manager with a specified allocation of money and a specified
beginning date. (For 1994, one group of newly eligible managers will
have a one-year account with a specified allocation of money [see
ATTACHMENT B]).
1/1/94
<PAGE>
Page Four
2. A prorated Account balance will be established for individuals who
become eligible for participation after the beginning of or retire
during the three-year accounting period. See ATTACHMENT B for details.
3. The funds in the Account may be used at any time during the three-
year (or one-year) accounting period for financial planning, tax
preparation, or legal services, as defined in the Plan.
4. The balance in a participant's Account will be reduced for expenses
that are approved for reimbursement by the participant's supervisor
during the three-year (or one-year) accounting period.
SECTION VII - BILLING
1. Reimbursements to the participant by the Company for Plan services
are considered "wages" subject to FICA, FUTA and income tax
withholding; the total reimbursement amount will be minus applicable
withholdings.
The taxes are withheld at the same rate that is used for the base
salary. The individual provider should provide advice to the manager
on the extent that such services are tax deductible.
2. Providers of Plan services should render invoices directly to the
participant, who is responsible for paying the amount due, indicating
the type and dates of services provided. At companies utilizing the
1/1/94
<PAGE>
Page Five
PeopleSoft personnel/payroll system, the participant will be reimbursed
through submission of the expense, approved by his/her supervisor, to
the payroll organization for inclusion in his/her paycheck. At other
BellSouth companies, the participant will be reimbursed according to
the administrative guidelines established there.
3. Retired participants should submit the original invoice, certified
correct, to the retired manager's former department for voucher
preparation.
SECTION VIII - OTHER ADMINISTRATIVE MATTERS
1. The Executive Vice President - Corporate Relations has the
authority to interpret the Plan. The Vice Presidents - Human Resources
in each company will establish rules for its administration.
2. If there are any questions on this plan, contact the Financial
Services Coordinator at (404) 249-2216.
ATTACHMENTS A Through B
1/1/94
<PAGE>
ATTACHMENT A
TO: Human Resources
RE: Request for Personal Financial Planning Service
As an employee eligible for participation in the BellSouth Financial
Services Plan, I have accepted the Company's offer to compensate me for
financial planning services provided under the Plan. After careful
consideration, I have selected __________________________________ (name of
firm) to provide such services. I certify that this financial planner has
one of the following designations: Certified Financial Planner (CFP),
Chartered Financial Consultant (CFC), or Accredited Personal Finance
Specialist (APFS).
I have read the plan document for the Financial Services Plan in its
entirety and I understand it and all other limitations contained in it. I
further understand that services provided under the Plan are completely
personal and confidential and that the Company will in no way be involved
with, or know of my personal affairs. Moreover, I understand that
participation is voluntary and the option to rely on, to act on, or refrain
from acting on, in whole or in part, any advice, recommendations or
information provided by the firm, its employees or agents, is the individual
and personal decision of the undersigned.
I authorize the Company to release to the firm detailed information
concerning my compensation, employee benefits in which I now or will
participate, and any other financial data which may have a bearing on my
personal financial planning.
In consideration of BellSouth's undertaking to compensate me for fees
charged by the firm for services rendered to me, I on my own behalf and on
behalf of my heirs, executors or administrators do hereby release and
forever discharge BellSouth and its subsidiaries, its officers, agents,
assigns and their successors of and from all losses, debts, demands,
actions, causes of action, suits, accounts, covenants, contracts,
agreements, damages and any and all claims, law and equity attributable
directly or indirectly, in whole or in part, to my acting on, failure to act
on, or reliance on advice, recommendations or information furnished to me by
the firm, its employees or agents.
I agree to hold BellSouth Corporation harmless and to defend the Corporation
from any claim filed by the firm in relation to this program.
Name (Printed or typed)
_________________________________________________________
Office Address __________________________________
Telephone #( )
Signature _______________________________________ Date
1/1/94
<PAGE>
Attachment A
TO: Financial Counseling Plan Coordinator
BellSouth Corporation
1155 Peachtree Street, N.E.
Room 13J08
Atlanta, Georgia 30367-6000
RE: Request for Personal Financial Planning Service
Gentlemen:
As an employee eligible for participation in the BellSouth Financial
Counseling Plan, I have accepted the Company's offer to provide me with the
services available under the plan. After consideration of the firms
approved under the plan, I have selected
_____________________________________ (name of firm) to provide the services
as outlined in your brochure.
While the Company will pay your fees in connection with the preparation of
financial planning reports and related counseling services, I understand
that any fees or expenses other than for legal services incurred in
connection with the implementation of any recommendations will be borne by
me.
I understand that your services are completely personal and confidential and
that the Company will in no way be involved with, or know of, my personal
affairs. Moreover, I understand that the Company does not, and will not
endorse any recommendations or suggestions that I may receive from you.
I authorize the Company to release to you detailed information concerning my
compensation, employee benefits in which I now or will participate, and any
other financial data which may have a bearing on my personal financial
planning.
I understand that any fees or expenses paid by the Company for the provision
of such consulting services will be reported by the Company as additional
compensation and, therefore, will be subject to the various federal and
state withholding requirements.
Please contact me to commence arrangements for my financial planning.
Name (Printed or typed)
_________________________________________________________
Office Address __________________________________
Telephone #( ) ______________
Signature _______________________________________ Date
<PAGE>
ATTACHMENT B
PRORATION SCHEDULES
FINANCIAL SERVICES PLAN
1) NEWLY ELIGIBLE MANAGERS
- Each eligible employee will be advised of the account allocation
for the current three-year (or in 1994, one-year as described in
Section VI, paragraph 1) Account period. The actual beginning
balance in a newly eligible manager's three-year Account will be
prorated as described below.
- 100% of account allocation if newly eligible during the first year
of an Account period.
- 75% of account allocation if newly eligible during the second year
of an Account period.
- 50% of account allocation if newly eligible during the third year
of an Account period.
2) POST-RETIREMENT
- Expenses for financial planning and legal services will be
reimbursed during the twelve-month period following retirement.
- Expenses for tax preparation services will be covered for the tax
year in which retirement occurs and the following tax year.
3) SPOUSE OF DECEASED ACTIVE MANAGER
- Expenses for financial planning and legal services will be
reimbursed for services provided during the twelve-month period
following death.
- Expenses for tax preparation services will be covered for the tax
year in which death occurs and the following tax year.
- Expenses for Plan services provided during the period just before
death, for which the manager was unable to submit a voucher before
his/her death, may be reimbursed by the Company.
4) TERMINATIONS/RESIGNATIONS
- For terminations or resignations other than retirement or death
(both covered above) and for terminations or resignations other
than those for cause (see below), the amount of reimbursable Plan
expenses invoiced before the termination date but submitted within
60 days after the termination date may not exceed the balance in
the Account as of the termination date. In any event, Accounts
for employees terminated as described in this paragraph will be
closed 60 calendar days after the termination date.
1/1/94
<PAGE>
ATTACHMENT B
PRORATION SCHEDULES
FINANCIAL SERVICES PLAN
- For terminations with cause, Plan Accounts will be closed as of
the termination date and no further Plan expenses will be
reimbursed as of that date regardless of the invoice date.
5) LEAVE OF ABSENCE
- Any managers who are participating in the Financial Services Plan
at the time they begin an approved Leave of Absence will remain
eligible for services for up to twelve months during such Leave of
Absence.
6) CHANGE IN ELIGIBILITY
- When a manager's level of eligibility within the Plan changes, the
existing account balance will be prorated to one-third or
two-thirds of the specified allocation, if this change occurs in
the first or second year of the three-year account. Invoices
dated prior to the date of the change in status will be processed
even if they exceed the prorated amount. Eligibility for further
participation will be based on the new eligibility level,
commencing at the beginning of the following year.
1/1/94
EXHIBIT 11
BELLSOUTH CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars in Millions, Except Per Share Amounts)
For the Three Months
Ended March 31,
1994 1993
Earnings Per Common Share:
Net Income $ 585.3 $ 343.8
Weighted average shares outstanding 496,113,887 494,938,221
Incremental shares from assumed exercise
of stock options and payment of
performance share awards 353,124 466,394
Total Shares 496,467,011 495,404,615
Earnings Per Common Share $ 1.18 $ .69
Fully Diluted Earnings Per Common Share:
Net Income $ 585.3 $ 343.8
Weighted average shares outstanding 496,113,887 494,938,221
Incremental shares from assumed exercise
of stock options and payment of
performance share awards 406,099 505,635
Total Shares 496,519,986 495,443,856
Fully diluted earnings per common share $ 1.18 $ .69
