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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
BellSouth Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
NOTICE OF 1995 ANNUAL MEETING
PROXY STATEMENT
ANNUAL FINANCIAL STATEMENTS AND REVIEW OF OPERATIONS
[BELLSOUTH LOGO]
March 13, 1995
Dear Shareholder:
It is my pleasure to invite you to the 1995 Annual Meeting of Shareholders of
Bellsouth Corporation. The meeting will be held at 9:00 a.m. on Monday, April
24, 1995, in Ballroom A, at The Galleria Centre, Two Galleria Parkway, in
Atlanta, Georgia.
The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement
describe the items of business which will be discussed during the meeting. It
is important that you vote your shares whether or not you plan to attend the
meeting. To be sure your vote is counted, we urge you to carefully review the
Proxy Statement and to vote your choices. PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE. If you
attend the meeting and wish to vote in person, the ballot that you submit at the
meeting will supersede your proxy.
I look forward to seeing you at the meeting. On behalf of the management and
directors of BellSouth Corporation, I want to thank you for your continued
support and confidence in 1995.
Sincerely,
/s/ John L. Clendenin
John L. Clendenin
Chairman of the Board and Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Notice of Annual Meeting........................................................................................ 1
Proxy Statement
Voting of Shares....................................................................................... 2
Board of Directors..................................................................................... 3
Director Compensation.................................................................................. 4
Election of Directors (Item A on Proxy Card)........................................................... 4
Stock Ownership of Directors and Executive Officers.................................................... 7
Ratification of Appointment of Independent Auditors (Item B on Proxy Card)............................. 7
Director Proposals (Items C and D on Proxy Card)....................................................... 8
Shareholder Proposals (Items 1 and 2 on Proxy Card).................................................... 17
Other Matters to Come Before the Meeting............................................................... 19
Nominating and Compensation Committee Report on Executive Compensation................................. 20
Comparison of Five Year Cumulative Total Return........................................................ 25
Executive Compensation................................................................................. 26
Director Nominees or Other Business for Presentation at the Annual Meeting............................. 31
Compliance with Section 16(a) of the Securities Exchange Act of 1934................................... 31
Shareholder Proposals for the 1996 Proxy Statement..................................................... 32
Other Information...................................................................................... 32
Solicitation of Proxies................................................................................ 32
Appendix:
Annual Financial Statements and Review of Operations
Selected Financial and Operating Data.................................................................. A-1
Management's Discussion and Analysis of Results of Operations and Financial Condition.................. A-2
Report of Management................................................................................... A-16
Audit Committee Chairman's Letter...................................................................... A-17
Report of Independent Accountants...................................................................... A-18
Consolidated Statements of Income...................................................................... A-19
Consolidated Balance Sheets............................................................................ A-20
Consolidated Statements of Shareholders' Equity........................................................ A-21
Consolidated Statements of Cash Flows.................................................................. A-22
Notes to Consolidated Financial Statements............................................................. A-23
Market and Dividend Data............................................................................... A-41
Domestic Cellular Proportionate Operating Data......................................................... A-42.....
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
BellSouth Corporation will hold its Annual Meeting of Shareholders on April
24, 1995 at 9:00 a.m., Eastern Daylight Time, at The Galleria Centre, Ballroom
A, Two Galleria Parkway, Atlanta, Georgia, for the following purposes:
1. To elect three directors for a term of three years and one director
for a term of two years.
2. To ratify the appointment of Coopers & Lybrand L.L.P., certified
public accountants, as the Company's independent auditors for the
year 1995.
3. To approve the BellSouth Corporation Stock Plan and the BellSouth
Corporation Non-Employee Director Stock Plan.
4. To act upon such other matters, including shareholder proposals,
that may properly come before the meeting.
The Board of Directors has fixed March 6, 1995 as the record date for the
determination of the shareholders entitled to notice of, and to vote at, this
meeting or any adjournment.
Arlen G. Yokley
Vice President, Secretary and Treasurer
March 13, 1995
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PROXY STATEMENT
VOTING OF SHARES
This Proxy Statement and the accompanying proxy card are being mailed to
shareholders, beginning March 13, 1995, in connection with the solicitation of
proxies on behalf of the Board of Directors of BellSouth Corporation
("BellSouth" or the "Company") for the 1995 Annual Meeting of Shareholders.
Proxies are solicited to give all shareholders of record on March 6, 1995 an
opportunity to vote on matters to be presented at the Annual Meeting. Shares can
be voted at the meeting only if the shareholder is present or represented by
proxy.
Each share of Common Stock represented at the Annual Meeting is entitled to
one vote on each matter properly brought before the meeting. Please specify your
choices by marking the appropriate boxes on the enclosed proxy card and signing
it. Directors are elected by a plurality of the votes cast by the shares
entitled to vote at a meeting at which a quorum is present. A plurality means
that the nominees with the largest number of votes are elected as directors up
to the maximum number of directors to be chosen at the meeting. All other
matters submitted at the meeting shall be determined by a majority of the votes
cast. Shares represented by proxies which are marked "withhold authority" with
respect to the election of one or more nominees for election as directors,
proxies which are marked "abstain" on other proposals, and proxies which are
marked to deny discretionary authority on other matters will not be counted in
determining whether a majority vote was obtained in such matters. If no
directions are given and the signed card is returned, the members of the
Directors' Proxy Committee will vote the shares in favor of the election of all
listed nominees, in accordance with the directors' recommendations on the other
subjects listed on the proxy card, and at their discretion on any other matter
that may properly come before the meeting. In instances where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not returned proxies to the brokers (so-called "broker non-votes"), those
shares will not be included in the vote totals and, therefore, will have no
effect on the vote. Shareholders voting by proxy may revoke that proxy at any
time before it is voted at the meeting by delivering to the Company a proxy
bearing a later date or by attending in person and casting a ballot.
If a shareholder is a participant in the BellSouth Shareholder Dividend
Reinvestment and Stock Purchase Plan, the proxy card represents a voting
instruction as to the number of full shares in the plan account as well as
shares held directly by the shareholder. If a shareholder is a participant in
the payroll-based BellSouth Employee Stock Ownership Plan ("PAYSOP"), the
BellSouth Management Savings and Employee Stock Ownership Plan ("MSP"), the
BellSouth Savings and Security Plan ("SSP") or the BellSouth Enterprises
Retirement Savings Plan ("RSP"), and the accounts are registered in the same
name, the proxy card will also serve as a voting instruction for the trustees of
those plans. The MSP, the SSP and the RSP provide that the trustee shall vote
plan shares represented by cards which are not signed and returned in the same
proportion as shares for which signed cards are returned. Shares in the PAYSOP
are not voted unless the card is signed and returned.
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY SO
YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN
PERSON. HIGHLIGHTS OF THE MEETING AND THE VOTING RESULTS WILL BE INCLUDED IN THE
SECOND QUARTER REPORT TO SHAREHOLDERS.
If a shareholder wishes to assign a proxy to someone other than the
Directors' Proxy Committee, all three names appearing on the proxy card must be
crossed out and the name(s) of another person or persons (not more than three)
inserted. The signed card and a ballot must be presented at the meeting by the
person(s) representing the shareholder.
If you plan to attend the meeting, please retain the admission ticket and
map provided and mark the appropriate box on the proxy card. Shareholders who do
not have admission tickets, including beneficial owners whose shares are held of
record by brokers or other institutions, will be admitted upon presentation of
proper identification at the door.
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Shareholders with multiple accounts may receive more than one Summary Annual
Report. You may direct us to discontinue mailing future Summary Annual Reports
to the accounts you select by marking the appropriate box on the proxy card for
those accounts. You must leave at least one account unmarked to receive a
Summary Annual Report. Eliminating these duplicate mailings will not affect your
receipt of future proxy statements and proxy cards. To resume the mailing of a
Summary Annual Report to an account, call the BellSouth Shareholder Services
number, 1-800-631-6001.
At January 31, 1995, 502,532,076 shares of BellSouth Common Stock were
outstanding, including shares issued to certain grantor trusts, which shares are
not considered outstanding for financial reporting purposes. The Company does
not know of any shareholder who beneficially owned more than five percent of its
issued stock as of that date. Shareholders of record on March 6, 1995 are
entitled to one vote for each share of Common Stock owned by them on the record
date on all matters properly brought before the meeting.
BOARD OF DIRECTORS
The business affairs of BellSouth are managed under the direction of the
Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them each month, through operating and financial
reports routinely presented at Board and committee meetings by the Chairman and
other officers, and through other means.
The Board held eight meetings in 1994. The average attendance of all
directors at Board and committee meetings was 97.3%.
Effective February 1, 1994, the following standing committees assisted the
Board in carrying out its duties: Audit, Executive, Finance/Strategic Planning,
and Nominating and Compensation. The Board has also designated a Directors'
Proxy Committee which votes the shares represented by proxies at the Annual
Meeting of Shareholders. Biographical information on the director nominees and
the directors serving unexpired terms begins on page five.
The AUDIT COMMITTEE has four members, all of whom are independent,
non-employee directors. Members of the committee are Messrs. Criser (Chair),
Anderson, Medlin and Terry. The Audit Committee considers the adequacy of the
internal controls of BellSouth and the objectivity and integrity of financial
reporting; meets with the independent certified public accountants, appropriate
BellSouth financial personnel and internal auditors about these matters;
recommends to the Board the appointment of the independent certified public
accountants; and monitors matters related to business conduct. The Audit
Committee met six times in 1994.
The FINANCE/STRATEGIC PLANNING COMMITTEE has six members, one of whom is an
executive officer of BellSouth. Members of the Committee are Messrs. Wilson
(Chair), Ackerman, Brimmer, Brown, Mrs. Davis and Ms. Smith. This Committee
reviews financial plans; oversees financial management practices; provides
general oversight as to the fiscal affairs of BellSouth; reviews strategy,
allocation of corporate resources and business development of the Company; and
monitors the conduct of external affairs. The Finance/Strategic Planning
Committee met six times in 1994.
The NOMINATING AND COMPENSATION COMMITTEE has five members, all of whom are
independent, non-employee directors. Members of the Committee are Messrs. Codina
(Chair), Blanchard, Davidson, Spangler and Williams. This Committee selects
nominees to be proposed for election as directors; recommends candidates to the
Board for election as officers; monitors and makes recommendations to the Board
with respect to compensation programs for directors and officers; administers
compensation plans for executive officers; provides oversight with respect to
employee benefit plans; and monitors matters related to corporate governance.
The Nominating and Compensation Committee met seven times in 1994. Its Report on
Executive Compensation begins on page 20.
The EXECUTIVE COMMITTEE has four members, one of whom is an executive
officer of BellSouth. Members of the Committee are Messrs. Clendenin (Chair),
Criser (Alt. Chair), Codina and Wilson. This Committee
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meets on call by the Chairman of the Board and has all the authority of the
Board, subject to the limitations imposed by law, the By-laws or the Board of
Directors, during the intervals between Board meetings. The Executive Committee
did not meet in 1994.
Directors who are officers of BellSouth do not participate in any action of
the Board relating to any executive compensation plan described in this Proxy
Statement.
Shareholders who wish to suggest qualified candidates for consideration as
directors of BellSouth by the Nominating and Compensation Committee should write
to: Secretary, BellSouth Corporation, 1155 Peachtree Street, N. E., Room 14B06,
Atlanta, Georgia 30309-3610, stating in detail the qualifications of such
persons.
DIRECTOR COMPENSATION
Directors who are also employees of BellSouth or its subsidiaries receive no
compensation in their capacities as directors. Effective February 1, 1994,
directors who were not employees of BellSouth received an annual retainer of
$30,000, a fee of $1,800 for each Board meeting attended, a fee of $1,500 for
each committee meeting attended, and an annual retainer of $5,000 for each
committee chairmanship. An ad hoc committee completed a special assignment in
1994 that required substantial time commitments by the directors serving on the
committee. For this service, these directors were paid an additional retainer
and committee fees and chairperson fees equivalent to the fees paid for service
on the standing committees. Directors may elect to defer the receipt of all or a
part of their fees and retainers through the BellSouth Nonqualified Deferred
Compensation Plan. The Company also maintains a retirement plan for non-employee
directors who have served on the Board or a subsidiary board for at least five
years and have reached the age of 55. Eligible directors receive an annual
retirement benefit of up to a maximum of 100 percent of the retainer with ten
years or more service. Payments are made for a maximum of 12 years following
retirement.
The BellSouth Corporation Non-Employee Directors Stock Option Plan provides
for grants to each non-employee director on the date of each annual meeting of
shareholders of non-qualified stock options to purchase 1,000 shares of Common
Stock, together with a number of tandem Stock Appreciation Rights equal to the
number of options granted, at an exercise price per share equal to the fair
market value of the stock on the grant date. One-third of each grant becomes
exercisable on the anniversary of the grant date in each of the next three
years. The 13 eligible directors were each granted options in 1994 to purchase
1,000 shares of Common Stock at a per share grant price of $62.25. Directors
realize value from these options only to the extent that the price of BellSouth
stock exceeds the price of the stock on the grant date.
Non-employee directors are eligible to participate in the Directors
Charitable Contribution Program. This program is designed to acknowledge the
service of Company directors and to recognize the mutual interest of directors
and the Company in supporting worthy institutions. BellSouth will contribute up
to $1,000,000 to an educational or cultural organization or organizations
designated by a non-employee director, payable over a five year period from the
date the director retires from the Board. Directors must have five years of
service on the Board or on the board of a subsidiary to participate in this
program, with the maximum contribution payable after ten years of service. All
charitable deductions accrue solely to the Company and the individual directors
derive no financial benefit from the program. The Company has purchased life
insurance on the directors, naming the Company as beneficiary, which is expected
to recover, over time, the costs of the contributions and the premium payments.
Non-employee directors are also provided certain telecommunications services
and death benefits and, while on BellSouth business, travel accident insurance.
The cost of such benefits was approximately $1,176 per director in 1994.
ELECTION OF DIRECTORS (ITEM A ON PROXY CARD)
The Board of Directors of BellSouth consists of 16 members, 14 of whom are
non-employee directors. The Chairman and Chief Executive Officer and the Vice
Chairman and Chief Operating Officer are included
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on the Board. The Board is divided into three classes with staggered terms so
that the term of one class expires at each annual meeting of shareholders. Two
non-employee directors, Andrew F. Brimmer and Gordon B. Davidson, will retire
from the Board effective on the date of the Annual Meeting of Shareholders,
April 24, 1995.
The following nominees have been selected by the Nominating and Compensation
Committee and approved by the Board for submission to the shareholders: James H.
Blanchard, Armando M. Codina, and J. Tylee Wilson, each to serve a three year
term expiring at the 1998 Annual Meeting; and Robin B. Smith, to serve a two
year term expiring at the 1997 Annual Meeting.
The Board has no reason to expect that any of these nominees will be unable
to stand for election. In the event a vacancy among the original nominees occurs
prior to the meeting, the shares represented by proxies in favor of such
nominees will be voted for the remaining nominees and for any substitute nominee
or nominees named by the Board upon the recommendation of the Nominating and
Compensation Committee. If you do not wish your shares to be voted for
particular nominees, please so indicate on the proxy card.
A brief listing of the principal occupation, other major affiliations and
age of each nominee and each director serving an unexpired term follows. A
photograph of the Board appears on page 19 of the 1994 Summary Annual Report.
NOMINEES FOR ELECTION AT THIS MEETING TO TERMS EXPIRING IN 1998:
JAMES H. BLANCHARD, Chairman of the Board and Chief Executive Officer,
Synovus Financial Corporation, a bank holding company. Director since February
1994. Director of BellSouth Telecommunications, Inc., November 1988-February
1994. Director of Columbus Bank and Trust Co.; Hardaway Company; Synovus Data
Corp.; Synovus Securities, Inc.; Total System Services, Inc.; and W. C. Bradley
Co. Age 53.
ARMANDO M. CODINA, Chairman of the Board and Chief Executive Officer, Codina
Group Inc., a real estate development company. Director since 1992. Director of
BellSouth Telecommunications, Inc., March 1989-February 1992. Director of
American Bankers Insurance Group, Inc.; AMR Corporation; CSR America, Inc.; FPL
Group, Inc.; and Winn-Dixie Stores. Age 48.
J. TYLEE WILSON, Retired Chairman of the Board and Chief Executive Officer,
RJR Nabisco, Inc. Director since 1985. Director of Southern Bell, October
1983-February 1985. Director of Carolina Power & Light Company. Age 63.
NOMINEE FOR ELECTION AT THIS MEETING TO A TERM EXPIRING IN 1997:
ROBIN B. SMITH, President and Chief Executive Officer, Publishers Clearing
House, a magazine subscription company. Director since September 1994. Director
of Huffy Corporation; Omnicom Group, Inc.; Springs Industries, Inc.; Texaco
Inc.; and various funds in the Prudential Group. Age 55.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES
------------------------
DIRECTORS WHOSE TERMS CONTINUE UNTIL 1996:
F. DUANE ACKERMAN, Vice Chairman of the Board and Chief Operating Officer.
Director since 1993 and from February 1989-April 1991. President and Chief
Executive Officer and Chairman of the Board, BellSouth Telecommunications, Inc.,
November 1992-December 1994. President and Chief Operating Officer, BellSouth
Telecommunications, Inc., December 1991-October 1992; Vice Chairman and Group
President, March 1991-November 1991. Vice Chairman -- Finance and
Administration, BellSouth, April 1989-February 1991. Executive Vice President --
Marketing, Network and Planning, BellSouth Services Incorporated, April
1985-March 1989. Vice President -- Corporate Planning and Development,
BellSouth, January 1984-March 1985. Director of South Central Bell, January
1984-April 1985. Director of American Business Products, Inc.; American Heritage
Life Insurance Company; and Wachovia Bank of Georgia, N.A. Age 52.
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REUBEN V. ANDERSON, Partner, Phelps Dunbar, a law firm. Mississippi Supreme
Court Justice, 1985-1990. Director since February 1994. Director of The Kroger
Company and Trustmark National Bank. Age 52.
JOHN G. MEDLIN, JR., Chairman of the Board, Wachovia Corporation. Director
since 1988. Director of Burlington Industries, Inc.; Media General, Inc.;
Nabisco Holdings Corp.; National Service Industries, Inc.; RJR Nabisco Holdings
Corp.; and USAir Group, Inc. Age 61.
C. DIXON SPANGLER, JR., President, University of North Carolina. Director
since 1987. President, C. D. Spangler Construction Co., 1958-1986 and Golden
Eagle Industries, Inc., 1968-86. Director of C. D. Spangler Construction Co.;
Golden Eagle Industries, Inc.; and National Gypsum Co. Age 63.
RONALD A. TERRY, Chairman of the Boards, First Tennessee National Corp. and
First Tennessee Bank National Association. Director since 1987. Director of
South Central Bell, January 1984-February 1987. Director of The Promus Companies
Incorporated and St. Jude Children's Research Hospital. Trustee, University of
Tennessee. Age 64.
DIRECTORS WHOSE TERMS CONTINUE UNTIL 1997:
J. HYATT BROWN, Chairman, President and Chief Executive Officer, Poe &
Brown, Inc., an insurance services company. Director since February 1994.
Director of BellSouth Telecommunications, Inc., March 1984-February 1994.
Director of FPL Group, Inc.; International Speedway Corporation; Rock-Tenn
Company; Sun Banks of Volusia County; and SunTrust Banks Inc. Age 57.
JOHN L. CLENDENIN, Chairman of the Board, President and Chief Executive
Officer. Director since 1983; Chairman of the Board, Southern Bell, November
1982-December 1983; President, April 1981-October 1982. Director of Southern
Bell, March 1981-December 1983. Director of Coca-Cola Enterprises, Inc.;
Equifax, Inc.; The Kroger Company; National Service Industries, Inc.; Providian
Corporation; RJR Nabisco Holdings Corp.; Springs Industries, Inc.; and Wachovia
Corporation. Age 60.
MARSHALL M. CRISER, Chairman, Mahoney Adams & Criser, P.A., a law firm.
President Emeritus, University of Florida; President, 1984-1989. Director since
1983. Director of Southern Bell, January 1974-October 1983. Director of Barnett
Banks, Inc.; Barnett Banks Trust Co.; CSR America, Inc.; Flagler System, Inc.;
FPL Group, Inc.; and Perini Corporation. Age 66.
PHYLLIS BURKE DAVIS, Retired Senior Vice President, Avon Products, Inc.
Director since 1985. Director of Eaton Corporation; The TJX Companies, Inc., and
Trustee of various mutual funds in the Fidelity Group. Age 63.
THOMAS R. WILLIAMS, President, The Wales Group, Inc., a private investment
company. Director since 1983. Director of Southern Bell, August 1980-October
1983. Retired Chairman of the Board, First Wachovia Corporation. Director of
American Software, Inc.; AppleSouth, Inc.; ConAgra, Inc.; Georgia Power Co.;
National Life Insurance Co. of Vermont; and Trustee of various mutual funds in
the Fidelity Group. Age 66.
------------------------
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STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth beneficial ownership of Common Stock by each
director, by each executive officer named in the Summary Compensation Table (p.
26), and by all directors and executive officers as a group, representing in the
aggregate less than one percent of the outstanding shares, as of March 1, 1995.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS
OF
MARCH 1, 1995
-------------------------
SHARES SUBJECT
NAME TOTAL TO OPTIONS*
- --------------------------------------------------- --------- --------------
<S> <C> <C>
F. Duane Ackerman 43,426 33,968
Walter H. Alford 32,688 18,438
Reuben V. Anderson 833 333
James H. Blanchard 3,588 333
Andrew F. Brimmer 3,477 2,999
J. Hyatt Brown 10,333 333
John L. Clendenin 46,691 1,640
Armando M. Codina 2,999 1,999
Marshall M. Criser 6,118** 2,999
Gordon B. Davidson 7,314 2,999
Phyllis Burke Davis 4,344 2,999
H. C. Henry, Jr. 22,923 16,878
E. Mauldin 31,665 15,938
William O. McCoy 215,929 186,375
John G. Medlin, Jr. 3,499 1,999
Robin B. Smith 500 --
C. Dixon Spangler, Jr. 3,999 2,999
Ronald A. Terry 3,399 2,999
Thomas R. Williams 5,986 2,999
J. Tylee Wilson 7,999 2,999
Directors and Executive Officers as a group 656,397 449,836
<FN>
- ------------------------
* Shares, included in total, subject to acquisition through exercise of stock
options within 60 days. Options are granted at the market price on the date
of grant and are not discounted. Directors and officers realize value from
options when exercised and only to the extent that the price of BellSouth
stock exceeds the grant price.
** Includes 550 shares owned solely by Mr. Criser's wife, with respect to which
beneficial ownership is disclaimed.
</TABLE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (ITEM B ON PROXY CARD)
The Board of Directors, acting upon the recommendation of the Audit
Committee, has appointed the firm of Coopers & Lybrand L.L.P., certified public
accountants, as independent auditors to make an examination of the accounts of
BellSouth and its subsidiaries for the year 1995. Coopers & Lybrand L.L.P. has
audited the accounts and records of BellSouth and its subsidiaries since 1984.
Representatives of Coopers & Lybrand L.L.P. will attend the Annual Meeting
and have the opportunity to make a statement if they desire and will also be
available to answer questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
------------------------
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DIRECTOR PROPOSALS
BELLSOUTH CORPORATION STOCK PLAN (ITEM C ON PROXY CARD)
The Board of Directors adopted the BellSouth Corporation Stock Plan (the
"Stock Plan") at its regular meeting on November 28, 1994, subject to the
approval of the shareholders of the Company. Accordingly, at the Annual Meeting
the shareholders will be asked to approve the Stock Plan, and the Board
recommends that it be approved. The Board of Directors and management believe
that the Stock Plan will help attract and retain competitively superior
employees and promote long- term growth and profitability by further aligning
employee and shareholder interests. The affirmative vote of a majority of the
Shares voting on this resolution is required for its adoption. If the Stock Plan
is approved, the Administrator of the Stock Plan will have more flexibility to
determine the type and amount of Awards to be granted to eligible participants.
The Stock Plan incorporates the type of Awards presently available to Company
officers under several plans, and also makes certain other types of Awards
available. As described below, if the Stock Plan is approved by shareholders, it
will supercede the existing plans, and no further awards will be made under
those plans.
A summary of the essential features of the Stock Plan is provided below, but
is qualified in its entirety by reference to the full text of the Stock Plan,
which was filed electronically with this Proxy Statement with the Securities and
Exchange Commission. Such text is not included in the printed version of this
Proxy Statement. All defined terms used below have the meaning set forth in the
Stock Plan, unless otherwise indicated.
PURPOSE AND ELIGIBILITY
The Stock Plan is intended to promote the interests of BellSouth by
affording employees and executive officers, and outside consultants or advisors
to the Company, an opportunity to acquire a proprietary interest in the Company,
in order to attract and retain such persons, to provide them with long term
financial incentives to increase the value of the Company and to provide them
with a stake in the future of the Company which corresponds to the stake of each
of the Company's shareholders. The Administrator (as defined below) of the Stock
Plan shall determine which members of such class of eligible individuals shall
receive grants under the Stock Plan and the terms of such grants.
SHARES SUBJECT TO PLAN
The aggregate number of shares of BellSouth common stock ("Shares") that may
be granted under the Stock Plan, other than Stock Payments, in any calendar year
shall not exceed one percent (1%) of the Shares outstanding at the time of
grant. Within this aggregate limitation, the aggregate number of Performance
Shares or Restricted Shares which may be granted in any calendar year may not
exceed in combination two-tenths of one percent (0.2%) of the total number of
Shares outstanding at the time of grant. Furthermore, in no event shall
Incentive Stock Options with respect to more than one million shares be granted
under the Stock Plan. In addition, the aggregate number of Shares that may be
granted for Stock Payments in any calendar year shall not exceed one-tenth of
one percent (0.1%) of the total number of Shares outstanding at the time of
grant.
The aggregate number of Shares with respect to which the grant of an Award,
other than Stock Payments, may be made to any one participant in any calendar
year shall not exceed one-tenth of one percent (0.1%) of the Shares outstanding
at the end of 1994. Within this aggregate limitation, the aggregate number of
Performance Shares, Restricted Shares, and Dividend Equivalent Rights which may
be granted to any participant in any calendar year may not exceed in combination
two-hundredths of one percent (0.02%) of the total number of Shares outstanding
at the end of 1994. In addition, the aggregate number of Shares with respect to
grants of Stock Payments made to any participant in any calendar year shall not
exceed one-hundredth of one percent (0.01%) of the total number of Shares
outstanding at the end of 1994.
EFFECTIVE DATE AND DURATION
The effective date of the Stock Plan shall be April 24, 1995. The Stock Plan
is the successor plan to the BellSouth Corporation Stock Option Plan, the
BellSouth Enterprises, Inc. Key Manager Incentive Plan, the
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<PAGE>
BellSouth Executive Long Term Incentive Plan, the BellSouth Corporation
Shareholder Return Cash Plan and the BellSouth Corporation Key Manager
Shareholder Return Cash Plan (the "Predecessor Plans"). Upon approval of the
Stock Plan by shareholders, no further awards will be made to participants under
the Predecessor Plans. The Plan shall terminate on December 31, 2004, unless
earlier terminated by the Board of Directors. No Award shall be granted after
the date on which the Plan terminates.
ADMINISTRATION
The Stock Plan is to be administered by the Nominating and Compensation
Committee (the "Committee") of the Board of Directors with respect to officers
and executive officers. The Committee shall consist of two or more disinterested
directors of BellSouth, who shall be appointed by the Board. A member of the
Board shall be deemed to be "disinterested" only if he or she satisfies such
requirements as the Securities and Exchange Commission may establish for
disinterested administrators acting under plans intended to qualify for
exemption under Rule 16b-3 promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"). Subject to regulations and guidelines that may be
established by the Committee, a Company Administrator may be appointed to
administer the Stock Plan for participants other than officers and executive
officers. The Committee or Company Administrator (collectively, the
"Administrator") shall, subject to the provisions of the Stock Plan, (a)
determine the amount of all grants, (b) determine the terms and conditions of
grant agreements and all elections and other forms, (c) interpret the Stock
Plan, and (d) make all other decisions relating to the operations of the Stock
Plan.
AWARDS AVAILABLE UNDER STOCK PLAN
The Administrator may make the following types of grants under the Stock
Plan, each of which shall be an "Award." One Share shall be the underlying
security for any Award. As of February 27, 1995 the closing price for BellSouth
Common Stock on the New York Stock Exchange was $58.75.
STOCK OPTIONS. The Administrator may grant to participants Stock Options to
purchase Shares. The Option Price for each Share subject to a Stock Option shall
not be less than the greater of (i) the par value of a Share or (ii) the Fair
Market Value (as such term is defined in the Stock Plan) of a Share on the date
the Stock Option is granted. The Stock Options may be Non-qualified Stock
Options ("NQSOs") or Incentive Stock Options ("ISOs") which are intended to
satisfy the requirement of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Each grant of Stock Options shall be evidenced by an
agreement which shall incorporate such terms and conditions as the
Administrator, in its sole discretion, deems are consistent with the terms of
the Stock Plan and other legal requirements. The Administrator may prescribe the
method of exercise and payment of such Stock Options. The Administrator may
issue new Stock Options equal to the number of Shares surrendered by a
participant upon exercise of previously granted Stock Options.
STOCK APPRECIATION RIGHTS. The Administrator may grant Stock Appreciation
Rights ("SARs") in tandem with the grant of Stock Options or as an independent
grant. Upon settlement of a SAR, the participant shall receive a payment equal
to the excess, if any, of the SAR Exercise Price (Fair Market Value of a Share
on the date of exercise) for the number of Shares being exercised over the SAR
Grant Price (the Option Price for the related Option) for such Shares. Such
payment may be made in whole Shares or in cash or a combination of Shares and
cash, as determined under the SAR agreement.
RESTRICTED SHARES. The Administrator may grant Restricted Shares to
participants. Except to the extent restricted under the terms and conditions of
the related agreement, the participant who is granted Restricted Shares shall
have all of the rights of a shareholder, including, without limitation, the
right to vote Restricted Shares and the right to receive dividends on such
Restricted Shares. The restrictions may include, but are not limited to, the
requirement of continued employment with BellSouth or a subsidiary and/or
achievement of performance objectives. If a participant fails to meet the terms
and conditions set forth in the related agreement during the period of the
restrictions, the Restricted Shares shall be forfeited, and all rights of the
participant to such shares shall terminate without further obligation on the
part of BellSouth.
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<PAGE>
OTHER STOCK RIGHTS. The Administrator may also grant to participants
Performance Shares, Stock Payments or Dividend Equivalent Rights.
Performance Shares shall become payable to a participant based upon the
achievement of specified Performance Objectives and upon other terms and
conditions established by the Administrator. Each grant shall satisfy the
conditions for performance-based awards, as summarized below. Payment of Awards
may be made in cash or Shares or a combination thereof, as specified in the
related agreement.
Stock Payments shall be made to participants as a bonus or additional
compensation or in lieu of the obligation of the Company or a subsidiary to pay
cash compensation, as determined by the Administrator. Once a participant
receiving Stock Payments becomes holder of record of such Shares, the
participant shall have all voting, dividend, liquidation and other rights with
respect to Shares issued as Stock Payments.
Dividend Equivalent Rights may be granted in tandem with the grant of Stock
Options, SARs, or Performance Shares that otherwise do not provide for the
payment of dividends on the Shares subject to the grant, or Dividend Equivalent
Rights may be granted as independent rights. Payment may be made in cash,
Shares, or a combination thereof, may be immediate or deferred, and may be
subject to meeting employment requirements, Performance Objectives or such other
conditions as the Administrator may deem consistent with the provisions of the
Stock Plan. The total payment attributable to a Share subject to a Dividend
Equivalent Right shall not exceed one hundred percent (100%) of the equivalent
dividends payable with respect to a Share. However, such percentage may increase
to a maximum of two hundred percent (200%) if the Dividend Equivalent Right is
subject to a Performance Objective, as described below.
PERFORMANCE-BASED AWARDS. Each grant of Performance Shares shall be subject
to achievement of a Performance Objective. The agreement relating to such grant
shall specify the Performance Objective, performance period, and the applicable
number of Performance Shares. Other grants may be subject to achievement of a
Performance Objective, as determined by the Administrator. The maximum award
percentage shall not exceed one hundred percent (100%) in the case of
performance-based Restricted Shares and two hundred percent (200%) in the case
of Performance Shares or performance-based Dividend Equivalent Rights.
The Administrator shall determine and specify the Performance Objective in
the related agreement. The Performance Objective shall consist of (i) one or
more business criteria, including financial, service level and individual
performance criteria, and (ii) a target level or levels of performance with
respect to such criteria. The Performance Objective for Performance Shares and
any other performance-based award granted to an employee that the Committee
deems may be or become a covered employee, as defined in Section 162(m)(3) of
the Code, shall be objective and shall otherwise meet the requirements of
Section 162(m)(4)(C) of the Code. Such Performance Objective shall be based
solely upon the business criterion of BellSouth's Total Shareholder Return as
measured against Total Shareholder Return of a peer group of companies
determined by the Committee. Achievement of this Performance Objective shall be
measured over a period of years not to exceed ten, as specified by the
Committee. The Committee shall establish the targeted level or levels of
performance for such business criterion.
CHANGE OF CONTROL
The Administrator shall have the right, in its sole discretion, to include,
with respect to any Award granted to a participant under the Stock Plan,
provisions accelerating the vesting or settlement of such Award upon a Change of
Control, as defined in the Stock Plan, subject to securities law restrictions.
Such acceleration rights may be included as part of the agreement relating to
such Awards or may be included at any time after the Award has been granted to
the participant. Such acceleration rights may include such restrictions as the
Administrator may deem are appropriate to avoid or ameliorate the federal tax
impact of excess parachute payments as defined in Section 280G(b) of the Code.
TRANSFERABILITY DURING LIFETIME
During the lifetime of a participant to whom an Award is granted, only the
participant, or participant's legal representative, may exercise or receive
payment of an Award; provided, however, that the
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<PAGE>
Administrator may permit transfers of NQSOs and SARs if and to the extent such
transfers do not cause a participant subject to Section 16 of the Exchange Act
to lose the benefit of the exemptions under Rule 16b-3 for such transactions or
violate other rules or regulations of the Securities and Exchange Commission or
the Internal Revenue Service or materially increase the cost of BellSouth's
compliance with such rules or regulations.
ADJUSTMENTS
In the event that there is any change in BellSouth common stock by reason of
any dividend or other distribution, recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or events, the number and
kind of Shares which may be delivered, the exercise price, grant price, or
purchase price relating to any Award may be appropriately adjusted by the
Administrator at the time of such event.
AMENDMENTS
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Stock Plan at any time, for any purpose; provided that following
the approval of the Stock Plan by BellSouth shareholders, the Stock Plan may not
be amended in a manner which would disqualify the Plan from the exemption
provided by Rule 16b-3 under the Exchange Act.
FEDERAL INCOME TAX CONSEQUENCES
The rules governing the tax treatment of Stock Options, SARs, Restricted
Shares, Dividend Equivalent Rights, Stock Payments, and Performance Shares are
quite technical. Therefore, the description of the Federal income tax
consequences set forth below is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change, as
are their interpretations, and their applications may vary in individual
circumstances. Finally, the tax consequences under applicable state and local
income tax laws may not be the same as under the Federal income tax laws.
INCENTIVE STOCK OPTIONS. The participant recognizes no taxable gain or loss
when an ISO is granted or exercised, although upon exercise the spread between
the fair market value and the exercise price generally is an item of tax
preference for purposes of the participant's alternative minimum tax. If the
Shares acquired upon the exercise of an ISO are held for at least one year after
exercise and two years after grant (the "Holding Periods"), the participant
recognizes any gain or loss realized upon such sale as long-term capital gain or
loss and the Company is not entitled to a deduction. If the Shares are not held
for the Holding Periods, the gain is ordinary income to the participant to the
extent of the difference between the exercise price and the fair market value of
Common Stock on the date the option is exercised and any excess is capital gain.
Also, in such circumstances, the Company receives a deduction equal to the
amount of any ordinary income recognized by the participant.
NON-QUALIFIED STOCK OPTIONS. The participant recognizes no taxable income
and the Company receives no deduction when an NQSO is granted. Upon exercise of
an NQSO, the participant recognizes ordinary income and the Company receives a
deduction equal to the difference between the exercise price and the fair market
value of the Shares on the date of exercise. The participant recognizes as a
capital gain or loss any subsequent profit or loss realized on the sale or
exchange of any Shares disposed of or sold.
STOCK APPRECIATION RIGHTS. Upon the grant of a SAR, the participant
recognizes no taxable income and the Company receives no deduction. The
participant recognizes ordinary income and the Company receives a deduction at
the time of exercise equal to the cash and fair market value of Shares payable
upon such exercise.
RESTRICTED SHARES. A participant granted Restricted Shares is not required
to include the value of such Shares in income until the first time such
participant's rights in the Shares are transferable or are not subject to
substantial risk of forfeiture, whichever occurs earlier, unless such
participant timely files an election under Code Section 83(b) to be taxed on the
receipt of the Shares. In either case, the amount of such ordinary income will
be equal to the excess of the fair market value of the Shares at the time the
income is
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<PAGE>
recognized over the amount (if any) paid for the Shares. The Company receives a
deduction, in the amount of the ordinary income recognized by the participant,
for the Company's taxable year in which the participant recognizes such income.
DIVIDEND EQUIVALENTS. A participant granted Dividend Equivalent Rights
recognizes ordinary income equal to the cash (or fair market value of Shares if
payment is made in such form) as and when such become payable to the participant
in accordance with the terms of the Dividend Equivalent Rights Award. The
Company receives a deduction for the same amount in the year that income is
recognized by the participant.
PERFORMANCE SHARES. Upon the grant of Performance Shares, the participant
recognizes no taxable income and the Company receives no deduction. The
participant recognizes ordinary income equal to the fair market value of such
Shares as and when such become payable to the participant in accordance with the
terms of the Performance Shares Award. The Company receives a deduction for the
same amount in the year that income is recognized by the participant.
STOCK PAYMENTS. A participant granted Stock Payments recognizes income in
an amount equal to the fair market value of such shares as and when such becomes
payable to the participant. The Company receives a deduction for the same amount
in the year that income is recognized by the participant.
PARACHUTE PAYMENTS. Under certain circumstances, an accelerated vesting or
the cash out of Stock Options, or an accelerated lapse of restrictions on other
Awards, in connection with a Change in Control of the Company might be deemed an
"excess parachute payment" for purposes of the golden parachute tax provisions
of Section 280G of the Code. To the extent it is so considered, the participant
may be subject to a 20% excise tax and the Company may be denied a tax
deduction.
SECTION 162(M). Section 162(m) of the Code limits to $1 million per year
the Federal income tax deduction available to a public company for compensation
paid to any of its chief executive officer and four other highest paid executive
officers. However, Section 162(m) provides an exception from this limitation for
certain "performance-based" compensation if various requirements are satisfied.
The Stock Plan is designed to satisfy this exception for Stock Options, SARs and
Performance Shares issued thereunder. In addition, the Stock Plan is structured
in a manner so that if the Administrator elects to issue Restricted Shares,
Dividend Equivalent Rights or Stock Payments thereunder, it also can satisfy the
exception for such grants by utilizing the "performance-based" award criteria
identified under the subheading "Performance-Based Awards" above.
As described above, the employees of the Company and its subsidiaries who
will receive awards under the Stock Plan and the size of the awards are
generally to be determined by the Administrator in its discretion. Thus, it is
not possible either to predict the benefits or amounts that will be received by
or allocated to particular individuals or groups of employees or to determine
the benefits or amounts that would have been received or allocated to such
persons for 1994 if the Stock Plan had been in effect.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
------------------------
BELLSOUTH CORPORATION NON-EMPLOYEE DIRECTOR STOCK PLAN
(ITEM D ON PROXY CARD)
The Board of Directors adopted the BellSouth Corporation Non-Employee
Director Stock Plan (the "Director Stock Plan") at its regular meeting on
November 28, 1994, subject to the approval of the shareholders of the Company.
Accordingly, at the Annual Meeting shareholders will be asked to approve the
Director Stock Plan, and the Board recommends that it be approved.
The Board of Directors and management believe that the Director Stock Plan
will help attract and retain superior directors and promote long-term growth and
profitability by further aligning director and shareholder interests. The
affirmative vote of a majority of the Shares voting on this resolution is
required for its adoption.
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<PAGE>
A summary of the essential features of the Director Stock Plan is provided
below, but is qualified in its entirety by reference to the full text of the
Director Stock Plan, which was filed electronically with this Proxy Statement
with the Securities and Exchange Commission. Such text is not included in the
printed version of this Proxy Statement. All defined terms used below have the
meaning set forth in the Director Stock Plan, unless otherwise indicated.
PURPOSE
The Director Stock Plan is intended to promote the interest of BellSouth by
affording Non-Employee Directors an opportunity to acquire a proprietary
interest in the Company, in order to attract and retain Non-Employee Directors,
to provide them with long term financial incentives to increase the value of the
Company, and to provide them with a stake in the future of the Company which
corresponds to the stake of each of the Company's shareholders.
SHARES SUBJECT TO PLAN
The aggregate number of shares of BellSouth common stock ("Shares") with
respect to which the grant ("Grants") of Stock Options, including Stock Options
in tandem with Stock Appreciation Rights ("SARs"), may be made is 300,000. Any
Shares subject to a Grant shall again become available for use after the
exchange, cancellation, forfeiture or expiration of such Grant as if such Shares
had never been subject to a Grant.
The aggregate number of Shares with respect to which Stock Payments may be
made is 175,000. These limitations are subject to adjustments as summarized
below.
EFFECTIVE DATE AND DURATION
The effective date of the Director Stock Plan shall be April 24, 1995. The
Plan shall terminate on December 31, 2004, unless earlier terminated by the
Board of Directors. No Stock Options or SARs shall be granted, and no Stock
Payment shall be made, after the date on which this Plan terminates. The
applicable terms of this Plan, and any terms and conditions applicable to the
Stock Options or SARs granted prior to such date, shall survive the termination
of the Plan and continue to apply to such Stock Options and SARs. The Director
Stock Plan is the successor plan to the BellSouth Corporation Non-Employee
Directors Stock Option Plan. Upon approval of the Director Stock Plan by
shareholders, no future awards will be made under the BellSouth Corporation
Non-Employee Directors Stock Option Plan.
ADMINISTRATION
The Plan is to be administered by the Nominating and Compensation Committee
(the "Committee") of the Board of Directors. The Committee shall consist of two
or more disinterested directors of BellSouth, who shall be appointed by the
Board. A member of the Board shall be deemed to be "disinterested" only if he or
she satisfies such requirements as the Securities and Exchange Commission may
establish for disinterested administrators acting under plans intended to
qualify for exemption under Rule 16b-3 promulgated under the Securities Exchange
Act of 1934. A Non-Employee Director shall not fail to be "disinterested" solely
because he or she receives grants of Stock Options or SARs or makes an election
to receive Stock Payments.
The Committee shall, subject to the provisions of the Director Stock Plan,
(a) make all Grants, (b) determine the terms and conditions of Grant agreements,
Stock Payment elections and all elections and other forms, (c) interpret the
Plan, and (d) make all other decisions relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. Notwithstanding the foregoing, the Committee shall not be
deemed to possess such administrative or discretionary duties or powers as would
disqualify this Plan from being a formula plan under Rule 16b-3.
AWARDS AVAILABLE UNDER DIRECTOR STOCK PLAN
The Committee may make the following types of grants under the Director
Stock Plan, each of which shall be an "Award." One Share shall be the underlying
security for any Award. As of February 27, 1995, the closing price for BellSouth
Common Stock on the New York Stock Exchange was $58.75.
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<PAGE>
STOCK OPTIONS. On the date of each BellSouth annual meeting of
shareholders, beginning with and including the 1995 meeting, each individual who
is at that time serving as a Non-Employee Director, whether or not such
individual is first elected as a Board member at that meeting or whether or not
such individual is standing for re-election as a Board member, shall
automatically be granted a Stock Option to purchase 1,000 Shares of BellSouth
stock ("Basic Options"). Each grant of a Basic Option will include the grant of
a tandem SAR as described below.
Each Non-Employee Director who receives a grant of a Basic Option shall also
be granted an Additional Option, with a tandem SAR, on such date if the number
of Shares owned by the Non-Employee Director, as of the preceding December 31,
exceeds the sum of (A) the number of Shares determined by dividing five times
the amount of the annual retainer for Board members in effect on such December
31 by the representative Share price, and (B) the number of Shares subject to
Additional Options previously granted to a Non-Employee Director. The grant of
Additional Options shall be for the number of Shares equal to one-half (rounded
to the next highest whole number) of the number by which the Shares owned by the
Non-Employee Director exceeds the sum of (A) and (B). The maximum number of
Additional Options which shall be granted annually to any Non-Employee Director
is 1,000.
The representative Share price will equal the average of the Fair Market
Value of a Share for the last five trading days on the New York Stock Exchange
for the year ending that December 31 and the first five such trading days in the
next succeeding year. The Option Price for each Share subject to a Basic Option
or an Additional Option shall not be less than the greater of (i) the par value
of a Share or (ii) the Fair Market Value of a Share on the date the Option is
granted. The Fair Market Value for any day means the average of the high and low
daily sales prices of a Share on the New York Stock Exchange for that day or, if
there are no sales on such day, for the most recent prior day on which a Share
was sold on the New York Stock Exchange.
Each grant of a Stock Option shall be evidenced by an agreement which shall
reflect the terms and conditions of the Stock Options and tandem SARs and such
additional terms and conditions as are determined by the Committee. Upon
exercise of an Option, payment may be made in cash, Shares or a combination
thereof, as specified in the related agreement. Any Shares which are tendered
shall be valued at their Fair Market Value on the date as of which the exercise
is effective.
STOCK APPRECIATION RIGHTS. Stock Appreciation Rights ("SARs") shall be
granted to Non-Employee Directors in tandem with the grant of Basic Options and
Additional Options. Each grant shall be evidenced by the same agreement as the
related Stock Options. A SAR shall be exercisable only if and to the extent the
tandem Option is exercisable. Upon exercise of a SAR, the Non-Employee Director
shall receive a payment equal to the excess, if any, of the SAR Exercise Price
(the Fair Market Value of a Share on the date of exercise) for the number of
Shares of the SAR being exercised at that time, over the SAR Grant Price (the
Option Price for the related Stock Options) for such Shares. Such payment shall
be made in whole Shares with such shares valued for this purpose at the SAR
Exercise Price on the date the SAR is exercised. Any payment for a fractional
share automatically shall be paid in cash based on such valuation.
TERMS AND CONDITIONS OF STOCK OPTIONS AND SARS. Stock Options and SARs
become exercisable on the first anniversary of the Grant Date. However, in the
event that prior to the first anniversary, (A) the Non-Employee Director
terminates his service on the Board by reason of death, disability or
retirement, or (B) a Change of Control shall occur, then a Stock Option shall
become immediately exercisable upon the occurrence of such events or, if later,
the expiration of the six-month period following the Grant Date. Subject to the
foregoing, a Stock Option (and tandem SAR) shall be exercisable at any time in
whole or in part (but if in part, in an amount equal to at least 100 shares or,
if less, the number of Shares remaining to be exercised under the Stock Option)
on any business day of the Company before the date such Stock Option expires as
outlined below. A Stock Option (and tandem SAR) shall expire on the first date
on or after the Grant Date and prior to a Change in Control on which the
Non-Employee Director (i) resigns from or is not re-elected to the Board prior
to being eligible for retirement; (ii) resigns for the purpose of accepting, or
retires and subsequently accepts, a directorship or employment, or becomes
associated with, employed by or renders service to, or owns an interest in
(other than as a shareholder with a less than 5% interest in a publicly traded
company) any business that is competitive with any BellSouth company or with any
other
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<PAGE>
business in which any of the BellSouth companies have a substantial direct or
indirect interest; or (iii) resigns as a result of an interest or affiliation
which would prohibit continued service as a director. A Stock Option (and tandem
SAR) shall also expire on the date the Stock Option (or tandem SAR) has been
exercised in full. Furthermore, the Stock Option (and tandem SAR) shall expire
one day after the expiration of the 10-year period which begins on the Grant
Date or, in the case of a Non-Employee Director who dies within six months prior
to such day, the last day of the six-month period which begins on the date of
the Non-Employee Director's death.
The Non-Employee Director's right to exercise a SAR shall be forfeited to
the extent that the Non-Employee Director exercises the tandem Option. The right
to exercise a Stock Option shall be forfeited to the extent the Non-Employee
Director exercises the tandem SAR.
STOCK PAYMENTS. Each Non-Employee Director may elect to receive all or
fifty percent of his or her compensation in the form of Stock Payments. Any such
election, or any modification or termination of such an election, shall be filed
with the Company on a form prescribed by the Committee for this purpose. Any
such election, or any modification or termination thereof, shall apply only to
annual retainers, meeting fees or other elements of compensation payable at
least six months after such form is received by BellSouth.
During such time as an election by a Non-Employee Director to receive Stock
Payments in lieu of cash compensation is effective, the Company shall issue
Shares to such Director for each date any retainer or meeting fees or other
element of compensation otherwise is due and payable equal to the percent of
compensation elected to be paid in the form of Stock Payments based upon the
Fair Market Value for such dates. Any payment for a fractional Share
automatically shall be paid in cash.
TRANSFERABILITY DURING LIFETIME
During the lifetime of a Non-Employee Director to whom an Award is made,
only the Non-Employee Director, or his or her legal representative, may exercise
a Stock Option or tandem SAR or receive Payments. No Grant, other than Stock
Payments upon receipt, may be sold, assigned, transferred, exchanged, or
otherwise encumbered or made subject to any creditor's process, whether
voluntary, involuntary or by operation of law. Any attempt to do so shall be of
no effect.
ADJUSTMENTS
In the event that there is any change in the BellSouth common stock by
reason of any dividend or other distribution, recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, or other similar corporate transaction or events,
the number and kind of Shares which may be delivered, the Exercise Price, Grant
Price or purchase price relating to any Award may be appropriately adjusted by
the Committee at the time of such event.
AMENDMENTS
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Director Stock Plan at any time for any purpose; provided that
following the approval of the Director Stock Plan by BellSouth shareholders, the
Director Stock Plan may not be amended in a manner which would disqualify the
Plan from the exemption provided by Rule 16b-3 under the Exchange Act.
FEDERAL INCOME TAX CONSEQUENCES
The rules governing the tax treatment of Stock Options, SARs, and Stock
Payments are quite technical. Therefore, the description of the Federal income
tax consequences set forth below is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change, as
are their interpretations, and their applications may vary in individual
circumstances. Finally, the tax consequences under applicable state and local
income tax laws may not be the same as under the Federal income tax laws.
STOCK OPTIONS. The Stock Options granted under the Director Stock Plan will
be non-qualified stock options ("NQSOs"). The Non-Employee Director recognizes
no taxable income at the time of grant. Upon exercise of an NQSO, the
Non-Employee Director recognizes ordinary income and the Company receives a
15
<PAGE>
deduction equal to the difference between the exercise price and the fair market
value of the Shares on the date of exercise. The Non-Employee Director
recognizes as a capital gain or loss any subsequent profit or loss realized on
the sale or exchange of any shares disposed of or sold.
STOCK APPRECIATION RIGHTS. Upon the grant of a SAR, the Non-Employee
Director recognizes no taxable income and the Company receives no deduction. The
Non-Employee Director recognizes ordinary income and the Company receives a
deduction at the time of exercise equal to the cash and fair market value of the
Shares payable upon such exercise.
STOCK PAYMENTS. A Non-Employee Director who elects to receive his or her
compensation in the form of Stock Payments recognizes ordinary income and the
Company receives a deduction in an amount equal to the fair market value of such
Shares as and when they become payable.
The Non-Employee Directors listed on the following table are expected to
receive in 1995 under the Plan, grants of the number of Stock Options shown on
the table.
<TABLE>
<CAPTION>
BELLSOUTH NON-EMPLOYEE DIRECTOR STOCK
PLAN STOCK
DIRECTOR OPTIONS*
<S> <C>
Reuben V. Anderson 1,000
James H. Blanchard 1,247**
Andrew F. Brimmer 1,000
J. Hyatt Brown 2,000**
Armando M. Codina 1,000
Marshall M. Criser 1,000
Gordon B. Davidson 1,777**
Phyllis Burke Davis 1,000
John G. Medlin, Jr. 1,000
Robin B. Smith 1,000
C. Dixon Spangler, Jr. 1,000
Ronald A. Terry 1,000
Thomas R. Williams 1,113**
J. Tylee Wilson 2,000**
All Non-Employee
Directors as a Group 17,137
<FN>
* No dollar value is assigned to the Stock Options because their exercise
price will be the market value of the underlying BellSouth stock on the
date of grant.
** Stock Option grant will include Additional Options for stock ownership
which exceeds five times the annual retainer.
</TABLE>
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
------------------------
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SHAREHOLDER PROPOSALS
SHAREHOLDER PROPOSAL NO. 1 (ITEM 1 ON PROXY CARD)
Mr. Raymond M. and Mrs. Carla D. Baechle, Jr., 6420 W. Falcon's Lea Drive,
Davie, Florida 33331, record owners of 121 shares of the Common Stock of the
Company, have submitted the following proposal:
"RESOLVED: That the shareholders of BST [sic] recommend that the Board of
Directors institute a salary and compensation ceiling such that as to future
employment contracts, no senior executive or director of the Company receive
combined salary and other compensation which is more than two times the salary
provided to the President of the United States," that is, no more than $400,000.
"Reasons: There is no corporation which exceeds the size and complexity of
the United States government of which the President is the chief executive
officer. Even most government agencies exceed the size, as measured by personnel
and budget, of most private corporations. The President of the United States
receives a salary of $200,000; even agency heads and members of Congress are
paid only somewhat more than $100,000. The recommended ceiling is sufficient to
motivate any person to do his best.
"The duties of the President of the United States are not comparable to
those of senior executive officers or directors (the President has a much more
demanding job). While the President has many valuable compensations which may
exceed those of company executives, we use the salary of the President only as a
reference point for shareholders to consider as they evaluate this resolution.
"Officers and directors of public corporations are the employees and not the
owners, except as they may be shareholders in common with other stockholders.
Yet, they give the appearance that they run the corporations primarily for their
benefit and incidentally for the shareholders. The Board of Directors, a closed
group which perpetuates itself, determines who is to be selected to the Board
and who is to be an officer of the company, as well as the compensation to be
received. Directors and officers can run the corporation as if it were their
property. Thus, officers may drain away millions of dollars in salary, stock
options and other compensation. When the recommended ceiling on salary and
compensation is exceeded, it demonstrates an expression of greed and abuse of
power.
"Usually, there is no direct correlation between the profitability of a
corporation and the compensation to officers. In many corporations, compensation
increases even as profits fall. High compensation need not serve as an incentive
for a better run or more profitable corporation. There is no shortage of
qualified people who could do as good a job as the incumbent officers of the
Corporation and would have no hesitation on serving within the aforementioned
pay ceiling.
"Any officer who believes he can better the corporation should be
sufficiently motivated to purchase stock on the open market or to receive stock
options as part of his salary and compensation package. To remain competitive in
world markets we must cut our costs and not overcompensate directors and
officers.
"If you AGREE, please mark your proxy FOR this resolution."
BOARD OF DIRECTORS' RECOMMENDATION
Your directors disagree with this proposal and believe it would adversely
affect the Company's ability to attract and retain high quality members of
management.
Compensation of BellSouth's executive officers and directors is set by the
Nominating and Compensation Committee of the Board of Directors (the
"Committee"), which is comprised solely of independent, non-employee directors.
As discussed in the Committee's Report on Executive Compensation (beginning at
page 20 of this Proxy Statement), the Company's compensation programs are
designed to link compensation to Company performance, to enhance shareholder
value, and to retain the valuable talent necessary to ensure continued Company
success. BellSouth competes for executive talent in a highly competitive labor
market comprised of other employers of similar size and complexity. The
compensation opportunities
17
<PAGE>
provided to BellSouth executive officers and directors are set at levels that
will enable the Company to attract and retain the highly qualified individuals
it needs to successfully lead the business and generate returns to the Company's
shareholders.
The Company cannot simply ignore the fact that the private sector values the
services of certain people at a level in excess of that allowed by this
proposal. Imposition of an arbitrary, below-market ceiling on the total
compensation of senior executives and directors, as suggested by the proposal,
would, in the opinion of the Committee, severly impair the Company's ability to
hire and keep executive officers and directors.
Moreover, the Company disagrees with the proponent's assertion that there is
no correlation between the Company's profitability and executive compensation.
As discussed in the Committee's Report, a significant part of the executive
officers' compensation is at risk, and is earned only if specific performance
goals, measured by revenue growth, expense control, net income and customer
satisfaction, are met.
For all these reasons, the Board of Directors is of the opinion that
limiting the total annual compensation of the Company's senior executives and
directors to $400,000 would have an adverse impact on the quality of the
Company's leadership, the Company's operations and, ultimately, on shareholder
value. THEREFORE, THE BOARD OF DIRECTORS STRONGLY RECOMMENDS THAT SHAREHOLDERS
VOTE "AGAINST" THIS PROPOSAL.
------------------------
SHAREHOLDER PROPOSAL NO. 2 (ITEM 2 ON PROXY CARD)
Mr. Robert Kopach, 4309 San Carlos Drive, Fairfax, Virginia 22030, record
owner of 141 shares of the Common Stock of the Company, has submitted the
following proposal:
Resolved: I recommend that the current Short and Long Term Incentive awards
for executive officers be abolished. The only incentive award to be awarded
would be tied proportionately to the price of the stock at end of the year.
Example: if stock price is up 20% at end of year, then the incentive award would
be 20% of salary.
Reasons:
1. Management is adequately compensated as illustrated in the cash
compensation table. Executive officers should only receive extra
compensation if stock price is up - that's the incentive. They are rewarded
as are the shareholders if stock price is up.
2. Under the current Short Term Incentive award, the executive officers
are being compensated 50%-75% of their salary. This is excessive and
ridiculous. The stock price certainly hasn't increased significantly over
the last few years.
3. There is no need for any Long Term Incentive package. The yearly
incentive package tied to the price of the stock would adequately compensate
the executive officers. How many times do you want to get paid for the same
job? Enough please!
4. We need to bring some justice and equity back to the work place.
There is too big of a gap between what the executive officers make and the
pay of the average worker. This is an insult to the average worker. The pay
the executive officers make in a few years far exceeds the average workers
total lifetime or career earnings.
5. The executive officers and board of directors forget that they work
for the shareholders. They talk about shareholder value. Lets see some of it
and try earning those big salaries and incentives.
6. The executive officers with their big pay packages have put
themselves so high up on their pedestals they don't hear or relate to the
shareholder.
7. The media needs to inform the shareholders when the proxy materials
come out to win a battle such as this.
18
<PAGE>
8. Management needs to be held accountable. Based on my incentive plan
executive officers would be justly compensated if stock price performs well.
9. A vote for this proposal will send a clear message to management
that they need to be responsive to the shareholder. Maybe we can bring them
down off their pedestals.
BOARD OF DIRECTORS' RECOMMENDATION
THIS PROPOSAL WAS SUBMITTED AT THE 1993 ANNUAL MEETING AND WAS SOUNDLY
DEFEATED. Your directors have again considered the proposal and continue to
believe it would make the executive officers of the Company less accountable for
performance than under the compensation program now in place.
Short term awards are not extra compensation. Total annual compensation,
including both standard short term awards and base salary, is set at levels
comparable to that at companies similar to BellSouth. A significant part of this
total amount must be earned, under the short term plan, based on how effectively
the executives manage the business during the year. If short term awards based
on performance were eliminated, there would be no direct correlation between
salary and operational performance. Executives would be less accountable for
important goals, such as customer satisfaction, which they must now achieve to
earn a short term award. Setting measurable standards -- and paying executives
based on their achievement of these standards -- is a much more effective way to
achieve important goals set by the Board of Directors.
Stock performance is important and is already a part of the Company's
compensation programs. In fact, stock performance, including total return to
shareholders as well as stock price appreciation, is the only measurement under
the Company's long term incentive program. The Nominating and Compensation
Committee Report on Executive Compensation (beginning at page 20 of this Proxy
Statement) explains the compensation programs in detail. Shareholders should
find this Report helpful in evaluating this proposal.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS STRONGLY RECOMMENDS
THAT SHAREHOLDERS VOTE "AGAINST" THIS PROPOSAL.
------------------------
OTHER MATTERS TO COME BEFORE THE MEETING
If any matter not described herein should properly come before the meeting,
the Directors' Proxy Committee will vote the Shares represented by it in
accordance with its best judgment. At the time this Proxy Statement went to
press, the Company knew of no other matters which might be presented for
shareholder action at the Annual Meeting.
19
<PAGE>
NOMINATING AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERALL POLICY
The Nominating and Compensation Committee of the BellSouth Board of
Directors (the "Committee"), composed entirely of independent, non-employee
directors, is responsible for oversight and administration of executive
compensation. It also reviews the Company's overall compensation program and
monitors it throughout the year. In establishing the Company's executive
compensation program, the Committee takes into account current market data and
compensation trends for comparable companies, compares corporate performance to
that of a selected peer group, gauges achievement of corporate and individual
objectives, and considers the overall effectiveness of the program in measuring
and rewarding desired performance levels. The Committee bases the compensation
program on the following principles:
- Compensation levels for executive officers are benchmarked to
the outside market, utilizing information from general industry
surveys conducted by outside consultants and from proxy
materials of the companies included in the performance graph
contained in the Proxy Statement at page 25. Compensation
decisions are made by referring to information in these surveys
regarding two groups of companies: companies with annual
revenues of $10 billion or more, with which BellSouth can
expect to compete for executive talent; and the companies
included in the performance graph, with which the Company can
expect to compete for investors.
- The total compensation opportunity is targeted to the mid-range
of these companies; incremental amounts may be earned above or
below that level depending upon corporate and individual
performance. The Committee considers it essential to the
vitality of the Company that the total compensation opportunity
for executive officers remain competitive with similar
companies in order to attract and retain the talent needed to
manage and build the Company's business.
- Compensation is tied to performance. A significant part of the
total compensation opportunity is at risk, to be earned only if
specific goals are met.
- The compensation program has three elements: basic annual
salary; annual short term incentive awards, which are based on
annual financial, service, and individual performance; and a
long term incentive program, which has components based on
stock performance as compared to a peer group of companies and
on the absolute performance of BellSouth stock in the
competitive marketplace. The Committee has approved these
elements of compensation to ensure that BellSouth's total
compensation program is comparable to and competitive with that
of other companies of similar size.
- Incentive compensation is designed to reinforce the achievement
of both short and long term corporate objectives.
- Executives' interest in the business should be directly linked
to the interests and benefits received by BellSouth's
shareholders.
The compensation program and a specific discussion as to the compensation of
the Chief Executive Officer are set out in detail below.
20
<PAGE>
ANNUAL COMPENSATION
In January, 1994, the Committee approved, and BellSouth implemented, the use
of wide bands of compensation, assigning each executive to a band of
compensation based upon job responsibilities. Each band has an established
salary range, with a minimum and maximum allowable base salary amount. The
Committee implemented this new approach to further the Company's pay for
performance philosophy in that individual compensation levels are set within
these wide ranges after consideration of available market data for comparable
positions and consideration of the relative performance and contribution of each
executive to the business. Recommendations for pay treatment are provided by the
Chief Executive Officer after an annual evaluation of individual contribution to
the business is held with each executive's supervising executive. No formal
performance ratings are assigned as a result of this performance evaluation
process.
Executives are also eligible for annual incentive awards, designed to place
a significant part of an executive's annual compensation at risk. Beginning in
1994, the targeted short term incentive award is determined as a percentage of
each individual executive's base salary, further strengthening the link between
pay and performance. The combination of annual base salary plus the targeted
short term incentive award is intended to provide the opportunity to earn total
annual cash compensation comparable to the mid-range of pay of the executive
marketplace, provided performance is at an expected level. Certain individuals
may receive compensation above or below this level, depending upon performance.
Annual incentive awards are paid after measuring the day-to-day
effectiveness of each executive in managing the business in two categories:
corporate performance (measured by revenue growth, expense control, net income,
and customer satisfaction) and individual achievement of commitments linked to
corporate strategic objectives. Corporate performance objectives are established
by the Committee at the beginning of each year to ensure that executives'
efforts support the achievement of corporate goals. The weight given to each of
these performance components varies, depending upon the executive's particular
job assignment. The measurements and target performance levels for each
executive are tied to the business entity with which he/she is most closely
associated.
For 1994, the typical corporate headquarters officer's award, excluding the
Chief Executive Officer's, was weighted as follows: 60% financial results; 15%
customer satisfaction results; and 25% individual strategic results. The overall
award payment range remained at 0% to 187.5% of the target. For 1994, the
Company exceeded its financial targets; achieved 100% of its established service
objectives; and executive officers received an average individual strategic
award of 132.86%. The method used to determine the Chief Executive Officer's
annual incentive award is discussed below in the section on 1994 Compensation
for the Chief Executive Officer.
For the named executive officers, the targeted award level ranged from 48%
to 65% of the executive's base salary, with the latter percentage applicable
only to the Chief Executive Officer. Actual awards approved by the Committee for
1994 performance for the named executive officers, including the Chief Executive
Officer, ranged from 134.59% to 142.58% of the targeted award level. These
awards were above the target award levels because the actual achievement of
revenue growth, expense control, net income, customer satisfaction, and
strategic commitments were at or above the target levels.
For 1994, the Committee approved an overall 5.5% increase in cash
compensation levels. This decision was made after reviewing published
projections of executive cash compensation increases by well-known consulting
firms and national compensation associations and comparing individual
compensation to the external market.
LONG TERM INCENTIVE PROGRAM
The Company continues its practice of maintaining long term incentive plans
based upon the performance of BellSouth stock. Under the BellSouth Corporation
Stock Option Plan, annual non-qualified stock option grants at market price on
the date of grant may be made to executive officers. In addition, beginning in
1994, annual grants with an exercise price 40% above the market price on the
date of grant are also made (premium priced options). The Company believes the
grant of these premium priced options will strengthen
21
<PAGE>
the incentive for executive officers to increase BellSouth's stock price. The
Company does not issue options at less than fair market value at the date of
grant and the officer only receives compensation from the grants made if the
stock price appreciates and, in the case of the premium priced option,
appreciates by more than 40%.
The final grant under the BellSouth Corporation Executive Long Term
Incentive Plan was made in 1991 for the 1991-1995 performance period. Each
executive officer received grants of units, each of which is equivalent to one
share of stock. In addition, on each dividend payment date for BellSouth
shareholders, an amount equivalent to that dividend is being credited to each
executive for each unit granted under the plan. The value credited from these
dividend equivalents is then translated into additional units, each equivalent
to one share of stock. For this performance period, shares of stock may be
earned within a range of 0% to 150% of the number of units granted and credited
from dividend equivalents solely based on a comparison of BellSouth's Total
Shareholder Return (stock price appreciation plus dividends) to that of the peer
group of companies reflected in the performance graph contained in this Proxy
Statement.
Under the current long term incentive plan, the Shareholder Return Cash Plan
introduced in 1993, the Company made a grant of units for the 1994-1998
performance period. Under this Plan, executives may be awarded cash units for a
five-year performance period. At the end of each year in the performance period,
each unit may pay out an amount equal to 0% to 100% of the annual dividend on a
share of stock, depending upon the results of a comparison of BellSouth's Total
Shareholder Return (stock price appreciation plus dividends) cumulatively for
the years since the beginning of the performance period to that of the peer
group of companies included on the performance graph. Payouts under this plan
are totally dependent on this one performance factor -- relative shareholder
return.
At the end of 1994, the executives earned 100% of the value of the units
granted for the 1993-1997 performance period based upon BellSouth's Total
Shareholder Return against the peer group for 1993 and 1994. In addition, they
earned 100% of the value of the units granted for the 1994-1998 performance
period based upon BellSouth's Total Shareholder Return against the peer group
for 1994.
The number of stock options and shareholder return cash plan units granted
during 1994 was determined by applying a market competitive annual grant level
percentage against each individual executive's base salary and by using the
Black-Scholes option pricing model. Market data from surveys of long term
programs published by well-known consulting firms and data from proxy statements
disclosing grants given to comparable positions in the performance graph peer
group of companies were used in establishing the 1994 grant levels. The
Committee establishes the number of options and cash units granted based upon
annual competitive data and upon each individual's base salary. It does not
adjust each annual grant to reflect options or units outstanding or previously
granted to a particular executive officer.
BellSouth's long term program is intended to focus the executive group on
the achievement of corporate goals. Executive officers must carefully weigh the
short and long term benefits or consequences of their decisions and manage the
business to effectively grow and compete in a rapidly changing communications
marketplace. They also must balance long term development with the need for a
reasonable current return. The Committee wants to incent BellSouth executives to
take the risks necessary to secure a strong foothold for BellSouth in the
competitive marketplace, which is continually changing to admit new entrants
from alternative local exchange service providers, cable companies, and long
distance carriers.
STOCK OWNERSHIP GUIDELINES
In keeping with its belief that tying the interests of executives to those
of the shareholder will result in enhanced shareholder value, the Board
established stock ownership guidelines for the executive officers of the Company
in 1994. Awards of Incentive Stock Options, in addition to the non-qualified
stock options, are made to officers who exceed these targets on an annual basis.
1994 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
In setting the 1994 salary and standard incentive award levels for the Chief
Executive Officer, the Committee reviewed BellSouth's positive financial
performance during 1993 with respect to revenue
22
<PAGE>
growth, expense control, net income, and earnings per share, compared to other
communications companies. The Committee also considered the Chief Executive
Officer's leadership in continuing to strategically position the Company.
During 1993, BellSouth Corporation grew its revenue 4.5% and controlled the
increase in operating expenses to 3.5%. These results, normalized for
compensation purposes to exclude the impact of certain special events, such as
restructure charges, and items outside the control of the officers, such as the
transition obligation related to SFAS 112, "Employers' Accounting for
Postemployment Benefits", and the increase in the Federal income tax rate to
35%, contributed to an increase in net income of 4.75% and of earnings per share
of 3.33% over 1992. The Company's domestic and international cellular operations
also continued to show significant growth in the customer base with 1993 growth
rates of 39.4% and 147.6%, respectively. During this same year, BellSouth
Telecommunications surpassed the 19 million mark in access lines in service,
achieving one of the highest annual growth rates in the industry, at 3.7%.
Revenue grew at 3.02% while operating expense growth was contained at 1.91% on a
normalized basis. The Committee also reviewed reported base salary information
for the chief executive officers of the other companies in the peer group
performance graph in this Proxy Statement.
In consideration of these positive performance factors, in an effort to
maintain a base salary position within the range of the base salaries for the
chief executive officers of the peer group companies, and considering
BellSouth's relative performance, the Committee decided to provide a 5.5%
increase in the Chief Executive Officer's base salary for 1994. This increase
positions the Chief Executive Officer at 38% above the minimum for his pay range
in the new wide band base salary structure. Prior to the increase, his salary
was 31% above this minimum. The resulting salary amount was subsequently reduced
by an amount indicated in footnote five of the Summary Compensation Table on
page 27. See further discussion under "Omnibus Budget Reconciliation Act
Implications for Executive Compensation", below.
In determining the Chief Executive Officer's short term incentive award for
1994 performance, the Committee reviewed BellSouth's 1994 financial performance
with respect to the standard plan measurements of revenue growth, expense
control, net income, and customer satisfaction. BellSouth's financial
performance exceeded established targets and the Company met its customer
satisfaction objectives. In addition, the Committee considered BellSouth's
continuing moves to achieve a competitive position within the communications
industry and reviewed data on the annual incentive award levels for chief
executive officers of the peer group of companies in the performance graph.
Under the Chief Executive Officer's leadership in 1994, BellSouth
successfully took steps necessary to strategically position itself as a global
communications competitor. During 1994, BellSouth applied for Federal
Communications Commission approval to launch trials of cable TV services and of
new interactive media services, providing customers a choice of cable carrier
and access to home shopping, movies on demand, games, and more. It acquired one
of the nationwide narrowband Personal Communications Services licenses, adding
spectrum to expand the capabilities of its existing nationwide wireless
services. This license, combined with the Company's nationwide paging service,
mobile data network, and extensive domestic cellular operations, will enable the
Company to offer customers the most complete and comprehensive array of wireless
services available. BellSouth Telecommunications continued its cost improvement
efforts by reducing its workforce by more than 4,700 employees, while at the
same time, access lines in service grew by 4.6% to over 20,000,000. In addition,
the Company initiated steps toward an alliance with The Walt Disney Company,
Ameritech Corporation, and SBC Communications Inc. (formerly Southwestern Bell)
to create innovative approaches to home video services. BellSouth's further
expansion into key international communications markets such as Germany, Chile,
Singapore, Belgium and Israel; the signing of a memorandum of understanding with
China to develop cellular, long distance, and wireless networks in that country;
and the execution of a 1996 Summer Olympics sponsorship contract were further
achievements during this highly successful year.
Based on these factors, the Committee felt the Chief Executive Officer had
provided strong strategic leadership for the Company. Since there was no
pre-established formula for determining the annual
23
<PAGE>
incentive award for the Chief Executive Officer, the Committee reviewed the
factors described above and, exercising its judgment, awarded the Chief
Executive Officer the overall short term incentive award shown in footnote one
of the Summary Compensation Table.
The Committee approved payment to the Chief Executive Officer of an amount
of cash shown in the Summary Compensation Table for cash units granted under the
Shareholder Return Cash Plan. For 1993 and 1994, BellSouth's Total Shareholder
Return (stock price appreciation plus dividends) was compared to the median
shareholder return of the peer group shown in the performance graph, resulting
in a payment of 100% of the cash units granted in 1993 and 1994. The Committee
also approved the grant of 1,640 Incentive Stock Options to the Chief Executive
Officer in recognition of the fact that his level of stock ownership as of
December 31, 1993 exceeded the newly-established executive stock ownership
targets.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION
It is the responsibility of the Committee to address the issues raised by
the Omnibus Budget Reconciliation Act ("OBRA"), which made certain
"non-performance-based" compensation to certain executives of the Company in
excess of $1,000,000 non-deductible to the Company. To qualify as
"performance-based" under OBRA, compensation payments must be made from a plan
that is administered by a committee of outside directors and be based on
achieving objective performance goals. In addition, the material terms of the
plan must be disclosed to and approved by shareholders, and the Committee must
certify that the performance goals were achieved before payments can be awarded.
The Committee has carefully considered the impact of this new tax code
provision and has taken several steps which are designed to minimize its effect.
First, it adopted the provisions of the BellSouth Corporation Stock Plan being
submitted to the Company's shareholders in this Proxy Statement, which
establishes performance criteria which will qualify awards made under the Plan
as performance-based awards approved by the shareholders, and thus not counted
toward the $1,000,000 limitation. Second, the Committee approved a reduction in
the base salary of the Chief Executive Officer and the utilization of the
Company's savings as a result of the reduction to purchase, and pay the
Company's portion of the annual premium on, a split-dollar life insurance
arrangement. Due to this reduction in salary and voluntary deferrals of
compensation by the Chief Executive Officer, the Company has been advised by
counsel that it should not lose any part of the tax deduction related to the
Chief Executive Officer's compensation. The Retired Vice Chairman of the Board's
compensation was not subject to the OBRA limitations because of his retirement.
The Committee will continue to examine the effects of the new provisions and
will monitor the level of compensation paid to the executive officers in order
to take any steps which may be appropriate in response to the provisions of
OBRA.
Armando M. Codina, Chairman
James H. Blanchard
Gordon B. Davidson
C. Dixon Spangler, Jr.
Thomas R. Williams
24
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Nominating and Compensation Committee consist of Messrs. Codina (Chair),
Blanchard, Davidson, Spangler, and Williams, none of whom are former or current
officers or employees of the Company or any of its subsidiaries. No executive
officer of the Company serves as an officer, director or member of a
compensation committee of any entity, an executive officer or director of which
is a member of the Nominating and Compensation Committee of the Company. Mr.
Davidson is senior counsel of the law firm of Wyatt, Tarrant & Combs, located in
Louisville, Kentucky. During 1994, BellSouth Telecommunications, Inc., a
subsidiary of the Company, retained Wyatt, Tarrant & Combs with regard to a
variety of legal matters. Mr. Criser is a partner in the law firm of Mahoney
Adams & Criser, P.A., located in Jacksonville, Florida. During 1994, BellSouth
Telecommunications, Inc. retained Mahoney Adams & Criser, P.A. with regard to a
variety of legal matters. Mr. Anderson is a partner in the law firm of Phelps
Dunbar, located in Jackson, Mississippi. During 1994, BellSouth
Telecommunications, Inc. also retained Phelps Dunbar with regard to a variety of
legal matters.
------------------------
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG BELLSOUTH, S&P 500 INDEX AND PEER GROUP*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN
<S> <C> <C> <C>
Among BellSouth, S&P 500 Index, and Peer Group
S&P 500 Peer Avg. BLS
1-Jan-90 100 100 100
31-Dec-90 96.89 96.51 99.37
31-Dec-91 126.28 101.72 99.09
31-Dec-92 135.94 112.61 103.99
31-Dec-93 149.58 133.18 123.12
31-Dec-94 151.61 126.45 120.54
</TABLE>
Assumes $100 invested on January 1, 1990, with dividends reinvested. End of
period prices. Peer return weighted by market capitalization.
* Peer group: Ameritech Corporation, Bell Atlantic Corporation, NYNEX
Corporation, Pacific Telesis Group, SBC Communications Inc., U S West, Inc.,
and GTE Corporation.
25
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the years ending December 31, 1994,
1993, and 1992, the compensation paid or accrued by BellSouth and its
subsidiaries to each of the six named executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
($000)
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) SARS (#) ($)(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
J. L. Clendenin 1994 588.5(5) 880.4 13.2 97,340 100.2 526.1
Chairman of the Board, President 1993 785.0 705.5 12.0 25,600 0 451.9
and Chief Executive Officer 1992 755.0 609.0 9.4 35,388 838.6 451.8
F. D. Ackerman 1994 453.0 398.5 13.5 41,600 44.2 126.2
Vice Chairman of the Board and 1993 428.0 324.2 9.2 11,300 0 115.7
Chief Operating Officer 1992 400.0 282.5 8.4 15,619 446.4 99.0
W. H. Alford 1994 346.0 241.2 10.9 23,300 24.3 145.2
Executive Vice President and 1993 328.0 181.0 12.2 6,200 0 136.2
General Counsel 1992 297.5 159.5 6.3 8,523 226.2 126.0
H. C. Henry, Jr. 1994 306.0 232.8 9.9 20,600 24.3 56.0
Executive Vice President - 1993 293.0 179.5 7.4 6,200 0 44.4
Corporate Relations 1992 275.0 180.0 7.0 8,523 226.2 41.5
E. Mauldin 1994 288.5 229.0 9.0 19,400 24.3 95.8
President - BellSouth Enterprises, 1993 270.0 183.6 8.2 6,200 0 44.1
Inc. 1992 245.0 206.0 5.2 8,523 195.1 40.2
W. O. McCoy 1994 495.1 431.7 9.9 138,740 100.7 3,730.1
Retired Vice Chairman of the 1993 469.0 328.7 9.4 11,300 0 286.9
Board(6) 1992 445.0 325.5 6.9 15,619 446.4 256.1
<FN>
(1) Included for 1994 are amounts earned under the Short Term Incentive Plan,
$765, $348, $213, $208, $205.5, and $390, respectively, and amounts earned
under the Shareholder Return Cash Plan, $115.4, $50.5, $28.2, $24.8, $23.5
and $41.7, respectively, which is more fully described under "Long Term
Incentive Plan Awards in Fiscal Year 1994" on page 29.
(2) Tax "gross up" for financial counseling and use of motor vehicle.
(3) Amounts reported have been earned under the Executive Long Term Incentive
Plan ("ELTIP") and the Shareholder Return Cash Plan ("SRCP"). Payouts under
the ELTIP are made every three years upon final determination of the
performance results and are shown in the last year of the performance
period. The ELTIP is more fully described in the Nominating and
Compensation Committee Report on Executive Compensation beginning at page
20. Payments under the SRCP are made annually if certain performance
criteria are met during the period. The SRCP is more fully described under
"Long Term Incentive Plan Awards in Fiscal Year 1994" on page 29. The 1992
amounts relate only to the ELTIP, and the 1994 amounts relate only to the
SRCP.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
(4) Included in this category are amounts for the six named executive officers
for the following compensation plans: (a) above-market interest on
voluntary salary deferrals under nonqualified deferred compensation plans,
$431.3, $91.2, $117.7, $34.4, $70.0, and $245.2, respectively; (b) Company
matching contributions under the Management Savings Plan, $45.3, $22.8,
$17.6, $15.5, $15.0, and $26.0, respectively; and (c) value of benefits
from premiums paid by the Company under the BellSouth Life Insurance
Program, $35.5, $12.2, $9.9, $6.1, $10.8, and $21.0, respectively.
BellSouth uses the Present Value Ratio Method in determining the portion of
each premium dollar attributable to the executive officer. The Company will
recover the cost of premium payments from the cash value of the policies.
(5) As described in the Nominating and Compensation Committee Report on
Executive Compensation, the Board of Directors restructured the 1994
compensation for Mr. Clendenin, reducing his annual salary by $240.0 and
establishing a split-dollar life insurance policy for him. Under this
arrangement, the Company will utilize the savings from the salary reduction
to pay premiums and will recover the cost of the premiums from the proceeds
of the policy. In 1994, the value of Mr. Clendenin's benefit from premiums
paid by the Company was $14.0. BellSouth uses the Present Value Ratio
Method in determining the portion of each premium dollar attributable to
Mr. Clendenin.
(6) During 1994, Mr. McCoy, Vice Chairman of the Board, retired from BellSouth
under the terms of a succession agreement. Pursuant to the agreement, Mr.
McCoy retired prior to normal retirement age and received payment of two
times annual base pay, $994.0, and two times a full year's annual bonus,
$551.6. He also received continued participation in ELTIP and a special
grant of stock options and of SRCP units, estimated to be valued at $108.1,
$664.6 and $463.5, respectively. The actual amounts received by Mr. McCoy
with respect to these items will depend on various factors, including
future corporate performance and stock price appreciation. The estimated
value of the stock options has been calculated using the Black-Scholes
option pricing model. (See "Option/SAR Grants in 1994" on page 29 at
footnote 5.) Consequently, there is no assurance that the value realized by
Mr. McCoy will be at or near these estimated values. Mr. McCoy also
received adjusted benefits under the Supplemental Executive Retirement
Plan, which will entitle him to future payments, the aggregate value of
which is estimated to be $621.5, assuming normal life expectancy, and an
extended financial counseling benefit, the maximum value of which will be
$34.6 if utilized.
</TABLE>
27
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options and stock appreciation rights ("SARs") under the BellSouth Corporation
Stock Option Plan to the six named executive officers during 1994.
OPTION/SAR GRANTS IN 1994
<TABLE>
<CAPTION>
NUMBER OF INDIVIDUAL GRANTS
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS GRANT-DATE
SARS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES BASE PRICE EXPIRATION VALUE(5)
NAME (#) IN FISCAL YEAR ($/SH) DATE ($000)
<S> <C> <C> <C> <C> <C>
41,800(1) 2.37% 60.31 2/2/04 349.9
53,900(2) 3.06% 84.43 2/2/04 171.9
J. L. Clendenin 1,640(3) 0.09% 60.75 5/2/04 17.2
18,300(1) 1.04% 60.31 2/2/04 153.2
F. D. Ackerman 23,300(2) 1.32% 84.43 2/2/04 74.3
10,200(1) 0.58% 60.31 2/2/04 85.4
W. H. Alford 13,100(2) 0.74% 84.43 2/2/04 41.8
9,000(1) 0.51% 60.31 2/2/04 75.3
H. C. Henry, Jr. 11,600(2) 0.66% 84.43 2/2/04 37.0
8,500(1) 0.48% 60.31 2/2/04 71.1
E. Mauldin 10,900(2) 0.62% 84.43 2/2/04 34.8
20,100(1) 1.14% 60.31 2/2/04 168.2
25,600(2) 1.45% 84.43 2/2/04 81.7
1,640(3) 0.09% 60.75 5/2/04 17.2
40,200(4) 2.28% 54.63 12/30/04 417.3
W. O. McCoy 51,200(4) 2.90% 76.48 12/30/04 247.3
<FN>
(1) Under provisions of the BellSouth Corporation Stock Option Plan ("the Stock
Option Plan"), the Board of Directors granted stock options to key
employees to purchase shares of BellSouth Common Stock within prescribed
periods at prices equal to the fair market value of the stock on the date
of the grant. Options granted in 1994 generally become vested at the end of
the five year vesting period, determined from the date of the grant. No
stock appreciation rights were granted in 1994.
(2) As an additional performance incentive, the Board of Directors, under the
Stock Option Plan, granted stock options to key employees to purchase
shares of BellSouth Common Stock within prescribed periods with an exercise
price 40% in excess of the stock price on the date of the grant. Options
granted in 1994 generally become vested at the end of the five year vesting
period, determined from the date of the grant.
(3) Incentive Stock Options were awarded to certain officers based on their
achievement of ownership of specified levels of Company stock as
established by the Board of Directors. These options, awarded at prices
equal to the fair market value of the stock on the date of the grant, vest
six months from the date of the grant.
(4) Options granted under Mr. McCoy's succession agreement with the Company.
This agreement is more fully described under "Retirement Arrangements" on
page 31.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
(5) These amounts represent the estimated fair value of stock options, measured
at the date of grant using the Black-Scholes option pricing model. There
are four underlying assumptions used in developing the grant valuations: an
expected volatility of 16.0%; an expected term to exercise of seven years
for 1994 grants; interest rates equal to the U.S. Treasury Note rates in
effect at the date of the grant (February 1, 1994 - 5.64%; May 2, 1994 -
7.08%; December 29, 1994 - 7.79%) for the expected term of the option; and
a dividend yield of 4.74%. The actual value, if any, an officer may realize
will depend on the amount by which the stock price exceeds the exercise
price on the date the option is exercised. Consequently, there is no
assurance the value realized by an officer will be at or near the value
estimated above. These amounts should not be used to predict stock
performance.
</TABLE>
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the six named
executive officers concerning the exercise of options and/or SARs during 1994
and unexercised options and SARs held on December 31, 1994:
AGGREGATED OPTIONS/SAR EXERCISES IN 1994
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
VALUE OPTIONS/SARS AT AT FISCAL YEAR-END
SHARES ACQUIRED REALIZED FISCAL YEAR-END (#) ($000)
NAME ON EXERCISE (#) ($000) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
J. L. Clendenin 39,913 223.6 1,640 156,688 0 121.6
F. D. Ackerman 3,693 86.8 18,349 68,519 0 53.7
W. H. Alford 0 0 9,915 38,023 0 29.3
H. C. Henry, Jr. 0 0 8,355 35,323 0 29.3
E. Mauldin 0 0 7,415 34,123 0 29.3
W. O. McCoy 9,738 246.1 186,375 0 105.2 0
</TABLE>
LONG TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1994
The following table provides information concerning awards made to the six
named executive officers during 1994 under the BellSouth Shareholder Return Cash
Plan. Each performance unit awarded represents the contingent right to receive
an amount of cash based upon BellSouth's Total Shareholder Return ("TSR")
relative to the TSR performance of the other selected communications companies
("the peer group"). Under this plan, if BellSouth's TSR is 90 percent of the
peer group's median TSR, 100 percent of the award is paid. This represents the
maximum amount that can be paid under the plan. If BellSouth's TSR is 75 percent
of the peer group's median, 25 percent will be paid. If BellSouth's TSR is less
than 75 percent of the peer group's median, or if BellSouth's TSR is less than
the lowest member of the peer group, no award will be paid. If, during the
remaining life of the award, BellSouth's TSR improves relative to the peer
group, further payments of previously unpaid amounts would be made up to, but
not in excess of, the original value of the award. Amounts which are not paid
out during the life of the award are forfeited.
For officers of the Company, the Board of Directors prescribes the number of
units to be awarded to each individual based on the compensation band of that
officer at the time of the award. The value of an award unit is determined
annually based on the annual amount of dividends paid per share of common stock.
The awards are payable solely in cash and may not be deferred. Unpaid awards
which are carried forward for possible payout do not earn interest. Plan
participants may not sell, assign or otherwise transfer the awards.
29
<PAGE>
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1994
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
PRICE-BASED PLANS
NUMBER OF PERFORMANCE OR
($000)
<S> <C> <C> <C> <C> <C>
SHARES, UNITS OR OTHER
OTHER RIGHTS PERIOD UNTIL
(#) MATURATION OR PAYOUT
THRESHOLD TARGET MAXIMUM
NAME ($) ($)(1) ($)(1)
J. L. Clendenin 41,800 1994-1998 115.4 461.5 461.5
F. D. Ackerman 18,300 1994-1998 50.5 202.0 202.0
W. H. Alford 10,200 1994-1998 28.2 112.6 112.6
H. C. Henry, Jr. 9,000 1994-1998 24.8 99.4 99.4
E. Mauldin 8,500 1994-1998 23.5 93.8 93.8
W. O. McCoy 60,300 1994-1998 166.4 665.7 665.7
<FN>
(1) Since the plan provides for payment not to exceed 100% of the units granted,
the target award amount and the maximum award amount are the same.
</TABLE>
PENSION AND OTHER RETIREMENT BENEFITS
The following table shows the estimated single life annual pension annuity
benefit provided to eligible participants under the BellSouth Personal
Retirement Account Pension Plan and the BellSouth Supplemental Executive
Retirement Plan ("SERP") combined, based on the specified remuneration classes
and years of credited service. The SERP provides benefits that would otherwise
be denied participants by reason of certain Internal Revenue Code limitations on
qualified benefit plans. The amounts set forth as payable in the table below
assume an undiscounted retirement age and are reduced, in accordance with the
Plan, by an average Social Security Primary Insurance benefit determined
annually to be payable at age 65.
PENSION PLAN TABLE
($000'S)
<TABLE>
<CAPTION>
YEARS OF SERVICE
Remuneration 15 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C> <C>
200 44.9 64.9 79.9 94.9 104.9 114.9 124.9
400 104.9 144.9 174.9 204.9 224.9 244.9 264.9
600 164.9 224.9 269.9 314.9 344.9 374.9 404.9
800 224.9 304.9 364.9 424.9 464.9 504.9 544.9
1,000 284.9 384.9 459.9 534.9 584.9 634.9 684.9
1,500 434.9 584.9 697.4 809.4 884.9 959.9 1,034.9
1,600 464.9 624.9 744.9 864.9 944.9 1,024.9 1,104.9
</TABLE>
30
<PAGE>
Pension benefits are based on the average compensation (salary and bonus)
over the five-year period preceding retirement. Therefore, the covered
compensation presented in the table below for the six named executive officers
is based upon the last five-year average of pension eligible compensation
actually paid and, as such, will differ from the salary and bonus amounts set
forth in the Summary Compensation Table (p. 26). In addition, the number of
whole years of credited service obtained in 1994 is presented.
<TABLE>
<CAPTION>
COVERED COMPENSATION YEARS OF SERVICE
NAME ($000'S) (#)
<S> <C> <C>
J. L. Clendenin 1,399.0 39
F. D. Ackerman 647.7 30
W. H. Alford 457.6 30
H. C. Henry, Jr. 426.0 29
E. Mauldin 406.2 30
W. O. McCoy 802.2 35
</TABLE>
RETIREMENT ARRANGEMENTS
The Board of Directors has extended to the Company the authority, through
December 1995, to enter into long range succession planning arrangements with
certain officers below the Chief Executive Officer level. During 1994, the
Company renegotiated its arrangement with Mr. Ackerman and entered into similar
arrangements with Mr. McCoy and Mr. Mauldin. The agreements with Messrs.
Ackerman and Mauldin each require that the officer retire during the calendar
year of his 60th birthday, and the agreement with Mr. McCoy required his
retirement during the calendar year of his 61st birthday. In order to compensate
the officers for amounts they would have received had they remained with the
Company until the age of 65, the agreements entitle them to severance benefits.
In the case of Messrs. McCoy and Ackerman, these benefits will include payment
of an amount equal to two times their annual base pay plus two times their
standard bonus for the year of retirement, and in the case of Mr. Mauldin these
benefits will include payment of an amount equal to two times his annual base
pay plus the amount of his standard bonus for the year of retirement. In
addition, each of these officers will also receive a guaranteed pension benefit
level, an additional grant under both the Stock Option Plan and the Shareholder
Return Cash Plan equal to, in the case of Messrs. McCoy and Ackerman, twice the
number of options and units, respectively, most recently granted, and, in the
case of Mr. Mauldin, the number of options and units, respectively, most
recently granted and financial counseling through age sixty-seven. Mr. McCoy
retired under the terms of his agreement effective December 29, 1994. See
"Summary of Cash and Certain Other Compensation" at page 26.
------------------------
DIRECTOR NOMINEES OR OTHER BUSINESS FOR PRESENTATION AT THE ANNUAL MEETING
Shareholders who wish to present director nominations or other business at
the Annual Meeting are required to notify the Secretary of their intent at least
60 days but not more than 120 days before the meeting and the notice must
provide information as required in the By-laws. A copy of these By-law
requirements will be provided upon request in writing to Secretary, BellSouth
Corporation, 1155 Peachtree St., N.E., Room 14B06, Atlanta, Georgia 30309-3610.
This requirement does not affect the deadline for submitting shareholder
proposals for inclusion in the Proxy Statement, nor does it apply to questions a
shareholder may wish to ask at the meeting.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than ten percent
of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
31
<PAGE>
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1994, all such Section
16(a) filing requirements were complied with, except that Mr. Mark Feidler, Vice
President -- Corporate Development, reported his receipt of shares under the
BellSouth Enterprises, Inc. stock bonus plan two weeks late; Mr. James H.
Blanchard, a director, filed a Form 4 reporting a purchase of shares through his
Keogh account three months late and a Form 4 reporting a subsequent purchase of
shares one month late; and Mr. Marshall M. Criser, a director, filed a Form 4
reporting a purchase of shares for his IRA three days late.
SHAREHOLDER PROPOSALS FOR THE 1996 PROXY STATEMENT
Any shareholder satisfying the Securities and Exchange Commission
requirements and wishing to submit a proposal to be included in the Proxy
Statement for the 1996 Annual Meeting of Shareholders should submit the proposal
in writing to Secretary, BellSouth Corporation, 1155 Peachtree Street, N.E.,
Room 14B06, Atlanta, Georgia 30309-3610. BellSouth must receive a proposal by
November 13, 1995 in order to consider it for inclusion in the Proxy Statement
for the 1996 Annual Meeting of Shareholders.
OTHER INFORMATION
Consolidated financial statements for BellSouth Corporation are attached as
an appendix to this Proxy Statement and are included in the report on Form 10-K
to be filed with the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the New York, Boston, Chicago, Pacific and
Philadelphia stock exchanges.
A copy of the Annual Report on Form 10-K as filed with the Securities and
Exchange Commission for the year 1994 (excluding exhibits) will be furnished,
without charge, by writing to Secretary, BellSouth Corporation, 1155 Peachtree
Street, N.E., Room 14B06, Atlanta, Georgia 30309-3610.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by BellSouth. BellSouth has
retained Morrow & Co., Inc. to solicit proxies, by mail, in person, or by
telephone, at an estimated cost of $18,500 plus reimbursement of reasonable
out-of-pocket expenses. In addition, employees of BellSouth may likewise solicit
proxies.
The above Notice of Annual Meeting and Proxy Statement are sent by order of
the BellSouth Board of Directors.
Arlen G. Yokley
Vice President, Secretary and Treasurer
Dated: March 13, 1995
32
<PAGE>
BELLSOUTH CORPORATION
ANNUAL FINANCIAL STATEMENTS AND REVIEW OF OPERATIONS
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues.................................... $ 16,845 $ 15,880 $ 15,202 $ 14,445 $ 14,345
Operating Expenses (1)................................ 12,787 13,593 12,041 11,636 11,318
---------- ---------- ---------- ---------- ----------
Operating Income...................................... 4,058 2,287 3,161 2,809 3,027
Interest Expense...................................... 666 689 746 802 774
Other Income, net..................................... 11 8 178 253 157
Provision for Income Taxes............................ 1,243 572 934 753 778
Extraordinary Loss, net of tax........................ -- (87) (41) -- --
Accounting Change, net of tax......................... -- (67) -- (35) --
---------- ---------- ---------- ---------- ----------
Net Income.......................................... $ 2,160 $ 880 $ 1,618 $ 1,472 $ 1,632
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings Per Share.................................... $ 4.35 $ 1.77 $ 3.30 $ 3.04 $ 3.38
Dividends Declared Per Common Share................... $ 2.76 $ 2.76 $ 2.76 $ 2.76 $ 2.68
Book Value Per Share.................................. $ 28.95 $ 27.20 $ 27.94 $ 26.93 $ 26.28
Return to Average Common Equity....................... 15.4% 6.3% 11.9% 11.3% 12.8%
Weighted Average Common Shares Outstanding............ 496.6 496.1 490.8 484.3 482.4
Return on Average Total Capital....................... 11.5% 6.1% 9.8% 9.4% 10.4%
Total Assets.......................................... $ 34,397 $ 32,873 $ 31,463 $ 30,942 $ 30,207
Capital Expenditures.................................. $ 3,600 $ 3,486 $ 3,189 $ 3,102 $ 3,191
Long-Term Debt........................................ $ 7,435 $ 7,381 $ 7,360 $ 7,677 $ 7,781
Debt Ratio at End of Period........................... 39.3% 40.2% 39.0% 41.3% 40.7%
Ratio of Earnings to Fixed Charges (2)................ 5.34 2.98 4.00 3.47 3.68
Total Employees....................................... 92,121 95,084 97,112 96,084 101,945
Telephone Employees (3)............................... 73,764 77,958 79,453 79,743 85,967
Telephone Employees per 10,000 Access Lines........... 36.5 40.3 42.6 44.1 49.1
Business Volumes (In Millions): (4)
Network Access Lines in Service:
Residence........................................... 14.2 13.7 13.3 12.9 12.6
Business............................................ 5.8 5.4 5.1 4.8 4.6
Other............................................... .2 .2 .2 .3 .3
---------- ---------- ---------- ---------- ----------
Total............................................. 20.2 19.3 18.6 18.0 17.5
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Access Minutes of Use:
Interstate.......................................... 57,778.1 53,345.0 50,546.4 47,255.3 44,903.3
Intrastate.......................................... 16,887.8 15,260.9 13,994.2 13,237.7 12,119.5
Toll Messages......................................... 1,558.6 1,511.4 1,462.2 1,504.1 1,496.4
Cellular Customers (In Thousands): (5)
Domestic............................................ 2,155.8 1,559.1 1,118.1 774.2 498.3
International....................................... 361.3 192.2 77.6 26.0 5.1
---------- ---------- ---------- ---------- ----------
Total............................................. 2,517.1 1,751.3 1,195.7 800.2 503.4
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<FN>
- --------------------------
(1) Operating Expenses for 1993 include a charge for restructuring of $1,136.4,
which reduced net income by $696.6. See Note K to the Consolidated Financial
Statements.
(2) For the purpose of this ratio: (i) earnings have been calculated by adding
income before income taxes, 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
of accounting) less the excess of earnings over distributions from
less-than-50%-owned investments (accounted for under the equity method of
accounting); (ii) fixed charges are comprised of total interest expense and
such portion of rental expense representative of the interest factor on such
rentals.
(3) Effective in 1994, telephone employees exclude those employees in BellSouth
Telecommunications' subsidiaries which are unrelated to telephone
operations; prior years have been restated.
(4) 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.
(5) Equity Basis.
</TABLE>
A-1
<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, other telecommunications 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 wireless and international communications services and
advertising and publishing products.
Approximately 72%, 73% and 74% of BellSouth's Total Operating Revenues for
the years ended December 31, 1994, 1993 and 1992, respectively, and a greater
portion of net income were from wireline services provided by BellSouth
Telecommunications. Charges for local service, access services and toll for the
year ended December 31, 1994 accounted for approximately 57%, 33% and 10%,
respectively, of the wireline revenues discussed above. Revenues from wireless
communications services and directory advertising and publishing services
accounted for approximately 12% and 9%, respectively, of Total Operating
Revenues for the year ended December 31, 1994. The remainder of such revenues
was derived principally from other nonregulated services provided by BellSouth
Telecommunications.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Income........................ $ 2,159.8 $ 880.1 $ 1,617.7 145.4% (45.6%)
Earnings Per Share................ $ 4.35 $ 1.77 $ 3.30 145.8 (46.4)
</TABLE>
Net Income and Earnings Per Share for 1994 increased $1,279.7 and $2.58,
respectively, compared to 1993. The increases were attributable in part to
revenue growth, driven by continued growth of access lines and the cellular
customer base; cost control measures at BellSouth Telecommunications, including
salary and wage savings attributable to the restructuring plan implemented in
1993; and gains of $67.5 ($.14 per share) and $40.1 ($.08 per share) related to
the sale of two international cellular investments. The increases were also due
to the effect of charges in 1993 which, in the aggregate, reduced Net Income and
Earnings Per Share by $938.2 and $1.88, respectively, for that year. The 1993
charges include $696.6 ($1.40 per share) for restructuring of BellSouth's
telephone operations (see Note K); $86.6 ($.17 per share) for the refinancing of
certain long-term debt issues at lower interest rates by BellSouth
Telecommunications (see Note E); $67.4 ($.14 per share) for the retroactive
adoption of Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits" (see Note N); $47 ($.09 per
share) for the initial impact of a regulatory settlement in Florida;
approximately $25 ($.05 per share) associated with severe 1993 winter weather
conditions; and $15.6 ($.03 per share) related to the federal income tax
legislation enacted in 1993.
Net Income and Earnings Per Share for 1993 decreased $737.6 and $1.53,
respectively, compared to the previous year. The decreases were due primarily to
the impact of the restructuring and other charges, as discussed above; an
additional charge of approximately $30 ($.06 per share) related to the
A-2
<PAGE>
1993 federal income tax legislation; and the inclusion of gains in 1992's
results of $39.5 ($.08 per share) and $32.9 ($.07 per share), respectively, from
the settlements of a federal income tax matter and prior year regulatory issues.
The 1993 decreases were partially offset by overall growth of operating
revenues, reflecting improvement in key business volumes, and the effect of
charges in 1992 of $40.7 ($.08 per share) for the refinancing of certain
long-term debt issues at lower interest rates by BellSouth Telecommunications
(see Note E) and approximately $28 ($.06 per share) associated with Hurricane
Andrew.
VOLUMES OF BUSINESS
Network Access Lines in Service at December 31 (Thousands):
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
By Type:
Residence.................................... 14,195.2 13,691.4 13,298.3 3.7% 3.0%
Business..................................... 5,770.5 5,388.3 5,088.1 7.1 5.9
Other........................................ 254.3 252.9 263.2 0.6 (3.9)
---------- ---------- ----------
Total...................................... 20,220.0 19,332.6 18,649.6 4.6 3.7
---------- ---------- ----------
---------- ---------- ----------
By State:
Florida...................................... 5,349.7 5,096.6 4,901.0 5.0 4.0
Georgia...................................... 3,353.6 3,166.7 3,040.2 5.9 4.2
Tennessee.................................... 2,337.0 2,236.0 2,149.3 4.5 4.0
Louisiana.................................... 2,037.3 1,963.3 1,917.9 3.8 2.4
North Carolina............................... 1,993.8 1,896.2 1,821.5 5.1 4.1
Alabama...................................... 1,726.4 1,668.3 1,610.2 3.5 3.6
South Carolina............................... 1,243.5 1,199.8 1,168.2 3.6 2.7
Mississippi.................................. 1,118.4 1,076.6 1,040.8 3.9 3.4
Kentucky..................................... 1,060.3 1,029.1 1,000.5 3.0 2.9
---------- ---------- ----------
Total...................................... 20,220.0 19,332.6 18,649.6 4.6 3.7
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The rate of growth in access lines continued to be particularly strong, 4.6%
in 1994, compared to a 3.7% rate of increase in 1993. The number of access lines
in service since December 31, 1993 increased by approximately 887,400. The
overall increase, led by growth in Georgia, North Carolina and Florida, 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. Second residential lines accounted for
approximately 40.2% and 22.8% of the overall increases in residence access lines
and total access lines, respectively, since December 31, 1993. The growth rates
in 1994 for total residence and business lines of 3.7% and 7.1%, respectively,
improved compared to growth rates of 3.0% and 5.9%, respectively, in 1993.
Access Minutes of Use (Millions):
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interstate..................................... 57,778.1 53,345.0 50,546.4 8.3% 5.5%
Intrastate..................................... 16,887.8 15,260.9 13,994.2 10.7 9.1
---------- ---------- ----------
Total........................................ 74,665.9 68,605.9 64,540.6 8.8 6.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Access minutes of use represent the volume of traffic carried by
interexchange carriers between LATAs, both interstate and intrastate, using
BellSouth Telecommunications' local facilities. In 1994, total access minutes of
use increased by 6,060.0 million (8.8%) compared to an increase of 6.3% in
A-3
<PAGE>
1993. The 1994 increase in access minutes of use was partially attributable to
access line growth, promotions by the interexchange carriers and intraLATA toll
competition, which has the effect of increasing access minutes of use while
reducing toll messages carried over BellSouth Telecommunications' network. 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.
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Toll Messages (Millions)........................... 1,558.6 1,511.4 1,462.2 3.1% 3.4%
</TABLE>
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 message volumes have been
restated to reflect this change. The pricing of services provided under OCPs has
stimulated volume growth. Accordingly, the trend of declining toll message
volumes in prior periods has been reversed by the inclusion of messages
completed under these plans.
Toll messages increased by 47.2 million (3.1%) compared to a restated
increase of 3.4% in 1993. The 1994 increase, attributable in part to the growth
of messages completed under OCPs and stimulation resulting from access line
growth, was partially offset by the effect of optional extended area calling
plans which, based on a customer's election, provide for a wider toll-free
calling area.
In September 1994, South Carolina implemented an expanded local area calling
plan. While the South Carolina plan's impact on 1994 toll message volumes was
negligible, this plan and future implementation of other such plans in BellSouth
Telecommunications' service region, coupled with competition in the intraLATA
toll market, will adversely impact future toll message volumes. Local area and
optional extended area calling 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.
Wireless Customers (Equity Basis):
<TABLE>
<CAPTION>
PERCENT CHANGE
-------------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Domestic Cellular......................... 2,155,800 1,559,100 1,118,100 38.3% 39.4%
International Cellular.................... 361,300 192,200 77,600 88.0 147.7
Domestic Paging Customers................. 1,614,100 1,232,200 977,200 31.0 26.1
</TABLE>
The wireless communications businesses have become a significant contributor
to BellSouth's operations, primarily due to the continued expansion of the
customer base for mobile communications services. Domestic cellular customers
increased by 596,700 (38.3%) since December 31, 1993. While the rate of increase
has declined since 1993, the overall penetration rate (number of customers as a
percentage of the total population in the service territory) increased from
4.01% at December 31, 1993 to 5.50% at December 31, 1994. Total minutes of use
have also continued to increase, although average minutes of use per cellular
customer declined slightly due to the trend of increased penetration into
lower-usage market segments.
The number of international cellular customers increased by 169,100 (88.0%)
since December 31, 1993. Growth in total minutes of use for international
cellular properties remained strong due to demand stimulated by competitive
programs, underdeveloped land-line service and the development of operations in
Australia and Denmark.
A-4
<PAGE>
Domestic paging customers increased by 381,900 (31.0%) since December 31,
1993 due primarily to the acquisition of the remaining 50% ownership interest in
a paging business, effective August 1, 1994, and also to continued success of
the retail distribution program and aggressive pricing strategies in the
reseller market. Of the overall growth, approximately 210,000 customers were
attributable to the acquisition. Excluding the effect of the acquisition,
domestic paging customers increased by approximately 171,900 (14.0%) since
December 31, 1993.
OPERATING REVENUES
Total Operating Revenues increased $964.2 (6.1%) compared to an increase of
$678.7 (4.5%) during 1993. The increases resulted from growth in revenues from
BellSouth's wireline telephone businesses, coupled with a significant increase
in revenues from wireless communications businesses. Traditionally, local,
access and toll services offered by BellSouth Telecommunications have primarily
accounted for increases in operating revenues. BellSouth, however, continues to
experience a gradually increasing shift in the relative contributions of its
revenue sources toward wireless services.
The components of Total Operating Revenues were as follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Local Service.................. $ 6,863.1 $ 6,577.3 $ 6,236.0 4.3% 5.5%
Interstate Access.............. 3,127.2 2,991.2 2,945.6 4.5 1.5
Intrastate Access.............. 908.3 881.9 871.8 3.0 1.2
Toll........................... 1,190.1 1,219.5 1,248.8 (2.4) (2.3)
Directory Advertising and
Publishing.................... 1,556.0 1,515.4 1,459.8 2.7 3.8
Wireless Communications........ 2,066.3 1,553.4 1,195.6 33.0 29.9
Other Services................. 1,133.5 1,141.6 1,244.0 (0.7) (8.2)
----------- ----------- -----------
Total Operating Revenues..... $ 16,844.5 $ 15,880.3 $ 15,201.6 6.1 4.5
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
LOCAL SERVICE revenues reflect amounts billed to customers for local
exchange services, which include connection to the network and secondary central
office feature services, such as custom calling features and custom dialing
packages. Local Service revenues for 1994 increased $285.8 (4.3%) compared to an
increase of $341.3 (5.5%) in 1993.
The increase in 1994 was due primarily to an increase of 887,400 access
lines since December 31, 1993. Also contributing to the increase was growth
attributable to optional extended area calling plans. The increase in 1994 was
partially offset by rate reductions, principally in Louisiana and also in
Florida and Alabama.
The 1993 increase was primarily attributable to an increase of 684,600
access lines since December 31, 1992, growth from optional extended area calling
plans and a $42.0 increase from secondary central office services. In addition,
the effects of a $27.9 refund in Florida during 1992 and changes in and the
expansion of local area calling plans, primarily a plan implemented in Louisiana
in 1992, contributed to the increase in 1993.
INTERSTATE ACCESS revenues result from the provision of access services to
interexchange carriers to provide telecommunications services between states.
Interstate Access revenues increased $136.0 (4.5%) in 1994 compared to an
increase of $45.6 (1.5%) in 1993.
The 1994 increase was attributable to growth in minutes of use, additional
end user charges due primarily to access line growth and the effect of billing
and other adjustments recorded in 1993, which reduced revenues for that period
by approximately $20. The increases were partially offset by the
A-5
<PAGE>
effect of rate reductions effective in July 1994 and October 1994, additional
revenue deferrals under the Federal Communications Commission's (FCC) price cap
plan and decreased net settlements with the National Exchange Carriers
Association.
The increase for 1993 reflects increased rates effective in July 1993,
growth in minutes of use and increases in end user charges attributable to
growth in the number of access lines in service. The effect of these increases
was substantially offset by decreased net settlements with the National Exchange
Carriers Association, revenue deferrals under the FCC's price cap plan and
billing adjustments, which reduced revenues by approximately $20.
See "Operating Environment and Trends of the Business."
INTRASTATE ACCESS revenues result from the provision of access services to
interexchange carriers which provide telecommunications services between LATAs
within a state. In 1994, Intrastate Access revenues increased $26.4 (3.0%)
compared to an increase of $10.1 (1.2%) in 1993. For 1994, the increase was
attributable to growth in minutes of use and the reclassification in 1994 of
independent company settlements in certain states, which would have previously
reduced revenues, to operating expenses. The increase was partially offset by
the impact of rate reductions, primarily in Alabama and Florida. The increase in
1993, due primarily to growth in minutes of use, was substantially offset by
rate reductions in most states served by BellSouth Telecommunications.
TOLL revenues are received from the provision of long-distance services
within (but not between) LATAs. These services include intraLATA service beyond
the local calling area; Wide Area Telecommunications Service (WATS or 800
services) for customers with highly concentrated demand; and special services,
such as transport of voice, data and video. Toll revenues decreased $29.4 (2.4%)
in 1994 compared to a decrease of $29.3 (2.3%) in 1993.
The 1994 decrease was primarily attributable to several settlements with
independent companies, the reclassification of certain settlements to Intrastate
Access revenue, net rate reductions since December 31, 1993 and the impact of
optional extended area calling plans. The decrease was partially offset by
growth in toll message volumes, reflecting improvements related in part to OCPs.
The decrease in 1993 resulted from rate reductions since December 31, 1992
and the impacts of optional extended area calling plans and the expansion of
local area calling plans. The decrease was partially offset by revenue increases
attributable to independent company settlements and growth in toll message
volumes.
The overall decline in Toll revenues is expected to continue over the long
term.
DIRECTORY ADVERTISING AND PUBLISHING revenues include revenues derived from
publishing, printing and selling advertising in, and performing related services
concerning, alphabetical and classified telephone directories. Directory
Advertising and Publishing revenues increased $40.6 (2.7%) in 1994 compared to a
$55.6 (3.8%) increase in 1993. Both increases were primarily attributable to
increases in the volume and prices of advertising sold.
WIRELESS COMMUNICATIONS revenues include the revenues from 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 $512.9 (33.0%) in 1994, compared
to an increase of $357.8 (29.9%) in 1993. The increases for both years resulted
from continued growth of the customer base for wireless services in domestic and
international markets. Consistent with anticipated growth in the overall
cellular industry, BellSouth's wireless communications revenues are expected to
continue to increase. However, the rate of growth of such revenues could be
adversely affected by
A-6
<PAGE>
competitive pressures on service pricing and market penetration, the effect of a
more diversified customer base with lower average usage and the development of
new technologies, such as personal communications service (PCS).
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 decreased $8.1
(0.7%) in 1994 compared to a decrease of $102.4 (8.2%) in 1993.
The slight decrease in 1994 was primarily attributable to increased revenue
deferrals related to potential sharing under certain state regulatory plans and
the sale in April 1994 of BellSouth Telecommunications' out-of-region CPE sales
and service operations. The decrease was substantially offset by higher demand
for unregulated products and services, including CPE for residential customers,
voice messaging and inside wire services, and the effects of adjustments and
reclassifications related to services under certain state regulatory plans and
billing and collection services. Revenues derived from billing and collection
are expected to decline over the long term due to interexchange carriers'
assuming more direct billing for their own services.
The decrease in 1993 was attributable to the effect of reclassifying in 1992
a $27.9 Florida refund from Other Services to Local Service, the inclusion in
1992 of $52.7 for the settlement of prior year regulatory issues and the sale of
a subsidiary in late 1992. The decrease was partially offset by increased
revenues from nonregulated services due in part to higher demand. In addition,
billing and collection revenues increased due to the effect of nonrecurring
adjustments.
OPERATING EXPENSES
Primarily as a result of the effect of the 1993 restructuring charge, Total
Operating Expenses decreased $806.5 (5.9%) in 1994 compared to an increase of
$1,552.3 (12.9%) in 1993. The components of Total Operating Expenses were as
follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Depreciation and Amortization $ 3,258.7 $ 3,162.2 $ 3,100.0 3.1% 2.0%
----------- ----------- -----------
Other Operating Expenses:
Cost of Services and Products....... 6,043.2 5,865.1 5,681.3 3.0 3.2
Selling, General and
Administrative..................... 3,484.8 3,429.5 3,259.6 1.6 5.2
Restructuring Charge................ -- 1,136.4 -- (100.0) --
----------- ----------- -----------
9,528.0 10,431.0 8,940.9 (8.7) 16.7
----------- ----------- -----------
Total Operating Expenses............ $ 12,786.7 $ 13,593.2 $ 12,040.9 (5.9) 12.9
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
DEPRECIATION AND AMORTIZATION increased $96.5 (3.1%) in 1994 compared to a
$62.2 (2.0%) increase in 1993.
The increase in 1994 was due to higher levels of property, plant and
equipment since December 31, 1993 resulting from continued growth in the
customer base for wireless and wireline services, continued modernization of the
networks and a special reserve deficiency amortization of $20.4 in North
Carolina. The increase for the period was partially offset by the expiration of
reserve deficiency amortizations in Louisiana and, as discussed below, the
inclusion in 1993 of the $20 impact of the Florida regulatory settlement.
In 1993, the increase was partially attributable to higher levels of
property, plant and equipment since December 31, 1992 resulting from continued
growth in the customer base and approximately $20 of additional depreciation
expense related to extraordinary property retirements in conjunction with a
regulatory settlement in Florida. Higher intrastate depreciation rates for
Mississippi and
A-7
<PAGE>
higher interstate depreciation rates for Alabama, Kentucky, Louisiana,
Mississippi and Tennessee, all retroactive to January 1, 1993, also contributed
to the increase. The 1993 increase was partially offset by the expiration of
inside wire and reserve deficiency amortizations and reduced depreciation
expense in Florida and Alabama resulting from represcription.
OTHER OPERATING EXPENSES are comprised of Cost of Services and Products,
Selling, General and Administrative and, in 1993, a Restructuring Charge. 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 and administrative expenses. Other Operating Expenses
decreased $903.0 (8.7%) in 1994 compared to an increase of $1,490.1 (16.7%) in
1993. Excluding the $1,136.4 restructuring charge in 1993, Other Operating
Expenses increased $233.4 (2.5%) in 1994 and $353.7 (4.0%) in 1993.
As adjusted, the 2.5% increase in 1994 was primarily attributable to
increased expenses related to sustained growth in the wireless communications
customer base, including additional marketing and operational costs associated
with higher levels of sales and expanded operations. Also contributing to the
increase were additional expenses for software license fees and materials,
related both to volume growth and network modernization in the wireline
business, the effect of reclassifying settlements with independent telephone
companies in certain states from Intrastate Access revenues to operating
expenses in 1994 and, to a lesser extent, volume growth in the directory
advertising and publishing businesses. Total employee-related costs also
increased, reflecting annual compensation increases for management and
represented employees, increased overtime attributable to volume growth and
network service activities and higher expenses for employee benefits, partially
offset by salary and wage savings from employee reductions attributable to the
restructuring plan begun in 1993 at BellSouth Telecommunications and a reduction
in pension expense (see Note H). The adjusted expense increase in 1994 was
partially offset by the sale in 1994 of the out-of-region CPE sales and service
operations and the inclusion in 1993 of approximately $55 and $40, respectively,
related to a regulatory settlement in Florida and severe 1993 weather
conditions.
As adjusted, the 4.0% increase in 1993 was due to increased expenses
associated with volume growth in the wireline, wireless communications and
directory businesses, approximately $40 of expenses related to severe weather
conditions during first quarter 1993, network service improvement activities,
higher levels of base salary and wage expenses resulting from annual increases
for management and represented employees and an increase in employee benefits
expense. The increase in employee benefits expense was driven by the higher
overall cost of medical services, an increase of $38 due to the adoption of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and an increase of $11 due to the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," partially offset by a $46
decrease in pension expense. The adjusted increase for 1993 was partially offset
by reduced expenses for overtime compensation, rents, software license fees, the
sale of a subsidiary in late 1992 and $45 of expenses (net of insurance recovery
and state regulatory deferrals) related to Hurricane Andrew reflected in 1992.
A-8
<PAGE>
OTHER INCOME STATEMENT ITEMS
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Interest Expense............................... $ 666.1 $ 689.0 $ 746.4 (3.3%) (7.7%)
Other Income, net.............................. 11.0 7.6 177.6 44.7 (95.7)
Provision for Income Taxes..................... 1,242.9 571.6 933.5 117.4 (38.8)
</TABLE>
INTEREST EXPENSE includes interest on debt, certain other accrued
liabilities and capital leases, offset by an allowance for funds used during
construction, which is capitalized as a cost of installing equipment and
constructing plant. Interest expense decreased $22.9 (3.3%) in 1994 and $57.4
(7.7%) in 1993. The decrease for 1994 resulted primarily from interest savings
attributable to refinancings in 1993 of long-term debt at lower interest rates.
The decrease was partially offset by higher average levels of short-term
borrowings at higher average interest rates.
The decrease in 1993 was due primarily to declines in interest rates on
borrowings, both short and long term, including the impact of refinancings of
long-term debt at lower interest rates. Both decreases were partially offset by
higher average levels of short-term borrowings. (See Notes E and L.)
OTHER INCOME, NET includes earnings and losses from unconsolidated
subsidiaries, businesses and partnerships; gains and losses from the sale of
operations; interest and dividend income; and minority interests. Other Income,
net increased $3.4 (44.7%) in 1994 and decreased $170.0 (95.7%) in 1993.
The increase in 1994 reflects an aggregate gain of $107.6 from the sale of
two international cellular investments and a $21.7 increase in interest income.
The increase was partially offset by a $29.1 increase in income attributable to
minority interests. Equity in earnings (losses) of unconsolidated affiliates was
($109.8) in 1994 compared to $11.0 in 1993. The overall 1994 loss reflects
increased losses attributable to developing operations, principally the mobile
data communications businesses and, to a lesser extent, the cellular business in
Germany and the long distance telecommunications business in Chile. Such
increased losses were partially offset by an improvement in earnings from other
unconsolidated domestic and international wireless businesses. (See Note B.)
The 1993 decrease resulted in part from a decline of $80.8 in interest
income due to the inclusion in 1992 of $56.6 attributable to a tax settlement
with the Internal Revenue Service and lower interest rates. Minority interests
contributed $11.6 to the decrease and overall earnings from unconsolidated
affiliates also decreased by $65.7 due primarily to costs and expenses
associated with investments in certain developing operations, including the
mobile data communications businesses, the German cellular business and Optus
Communications Pty. Ltd. in Australia.
PROVISION FOR INCOME TAXES increased $671.3 (117.4%) in 1994 and decreased
$361.9 (38.8%) in 1993. BellSouth's effective tax rates were 36.5%, 35.6% and
36.0% in 1994, 1993 and 1992, respectively. A reconciliation of the statutory
Federal income tax rates to these effective tax rates is provided in Note M. A
discussion of the adoption of SFAS No. 109, "Accounting for Income Taxes," also
is included therein.
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
its existing operations and new businesses. BellSouth believes that funds
provided from operations and from its readily available sources of external
financing will be sufficient to meet the needs of its business for the
foreseeable future.
A-9
<PAGE>
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by Operating Activities.......... $ 5,172.3 $ 4,686.5 $ 4,913.4 10.4% (4.6%)
</TABLE>
OPERATING ACTIVITIES. Net cash provided by operating activities increased
$485.8 (10.4%) in 1994 and decreased $226.9 (4.6%) in 1993. The increase in
1994, attributable in part to a higher level of net income, was partially offset
by cash expenditures, exclusive of capital, of $390.2 related to the
restructuring plan begun in 1993.
The decrease in 1993 was due in part to a timing difference in the
collection of accounts receivable, the inclusion in 1992 of $90.9 related to a
tax settlement with the Internal Revenue Service and a slight decline in net
income, as adjusted to exclude the impact of the non-cash restructuring charge.
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Cash Used for Investing Activities $ (3,935.6) $ (3,434.9) $ (3,591.8) 14.6% (4.4%)
</TABLE>
INVESTING ACTIVITIES. BellSouth's primary use of capital resources
continues to be for capital expenditures to support development of the wireline
and wireless networks. Net cash used for investing activities increased $500.7
(14.6%) in 1994 and decreased $156.9 (4.4%) in 1993. The increase in 1994 was
attributable to increases in cash investments and advances to unconsolidated
affiliates and capital expenditures. Cash used for investments and advances to
unconsolidated affiliates increased by $390.5 (122.2%) to $710.0. Of such total,
approximately 42% was for investments and advances to the mobile data
communications businesses and the German and Venezuelan cellular businesses and
26% 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 in other businesses in which BellSouth has an interest.
Capital expenditures for all consolidated BellSouth companies increased by
$114.4 (3.3%) to $3,600.3 including approximately $203.6 related to
restructuring activities. Substantially all cash required for capital
expenditures in 1994 was provided internally. In 1995, such capital expenditures
are expected to be financed primarily through internally generated funds and, to
the extent necessary, from external sources. Capital expenditures are projected
to be approximately $4,200 in 1995.
The decrease in 1993 reflected declines in investments and advances to
unconsolidated affiliates and other investing activities, partially offset by an
increase of $296.6 (9.3%) in capital expenditures to support network development
activities.
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1994 VS. 1993 VS.
1994 1993 1992 1993 1992
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Cash Used for Financing Activities $ (1,131.7) $ (1,015.6) $ (1,383.4) 11.4% (26.6%)
</TABLE>
FINANCING ACTIVITIES. Net cash used for financing activities increased
$116.1 (11.4%) in 1994 and decreased $367.8 (26.6%) in 1993. The increase in
1994 was attributable to increases of $61.5 in cash dividends paid to
shareholders and $3,447.1 for debt repayments, primarily short-term borrowings.
The effect of these increases was substantially offset by an increase of
$3,426.0 in proceeds from all borrowings.
The decrease in 1993 was attributable to an increase of $5,037.2 in proceeds
from all borrowings, partially offset by an increase in debt repayments of
$4,416.1 and an increase of $224.9 in cash dividends paid to shareholders. Such
higher levels of proceeds and repayments of borrowings in 1993 reflect the
refinancing of $2,760 of long-term debt at lower interest rates by BellSouth
Telecommunications. The increase in cash dividends in 1993 was due to the use of
higher levels of common shares, newly issued by BellSouth, during 1992 as
payment in lieu of cash dividends under the Shareholder Dividend Reinvestment
and Stock Purchase Plan.
BellSouth's debt to total capitalization ratio decreased from 40.2% at
December 31, 1993 to 39.3% at December 31, 1994.
A-10
<PAGE>
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
REGULATORY ENVIRONMENT. In providing telecommunications services, BellSouth
Telecommunications is subject to regulation by both state and federal regulators
with respect to rates, services and other issues. Other than in North Carolina
and South Carolina, where it is subject to traditional rate of return
regulation, BellSouth Telecommunications is operating under some form of
incentive regulation plan at the state and federal levels whereby earnings above
certain levels within a given range must be shared with customers in the form of
credits, refunds or prospective rate reductions. These plans provide incentives
to reduce costs and retain a portion of earnings above the sharing point, and in
some cases, all earnings above the top of the range must be returned to
customers. Since BellSouth Telecommunications' earnings fell close to or within
the sharing range in its incentive plans during 1994, its ability to increase
its earnings over the long run under these plans, even through productivity
enhancements, is constrained. At December 31, 1994, BellSouth
Telecommunications' estimated sharing obligation related to interstate access
services was $141.6. Furthermore, its ability to change rates to more
effectively respond to competition is limited under the current regulatory
plans, which require, in general, that rates be charged as provided in tariff
filings.
Accordingly, BellSouth's primary regulatory focus is directed toward
modifying the regulatory process to one that is more closely aligned with
changing market conditions and overall public policy objectives. As an
alternative to the current regulatory processes, BellSouth believes that price
regulation, whereby prices of basic local exchange services are directly
regulated, irrespective of rate of return tests, and prices for other products
and services are based on market factors, is a logical progression to
competitive fairness and provides advantages for consumers. While no such local
regulatory plan has been implemented in the nine-state service area, the
Tennessee Public Service Commission, subject to certain governmental
authorizations and the enactment of enabling legislation, adopted rules to allow
local exchange competition, including a provision whereby BellSouth
Telecommunications could elect to operate under a price regulation plan. In
addition, proposed plans filed by BellSouth Telecommunications in Kentucky,
Georgia, Mississippi and Alabama are currently under review by the respective
commissions in those states. The Florida, Georgia, North Carolina and Tennessee
legislatures are considering bills that would provide for or allow price
regulation and/or local exchange competition. A proposed plan filed with the
Louisiana Public Service Commission was rejected in November 1994. The FCC is
reviewing its regulatory plan; any changes to the plan are not expected to be
effective until mid-1995. BellSouth Telecommunications will continue to pursue
implementation of price regulation plans in Louisiana, other states and at the
federal level through filings with regulatory commissions and through
legislative initiatives.
ECONOMY. The nation's gross domestic product grew 4% in 1994, which was the
strongest annual growth of the current economic expansion. Employment in nonfarm
businesses grew 2.6% during the year as the unemployment rate dropped to 5.6% by
the fourth quarter. Growth in the nine-state region served by BellSouth
Telecommunications was even stronger. The number of jobs in nonfarm businesses
grew at a 3.0% annual rate, unemployment also dropped to 5.6% by the fourth
quarter and real income expanded by an estimated 4.4%. Net in-migration added
450,000 to the region's population during 1994, with every state except
Louisiana recording a gain. Four states, Florida, Georgia, North Carolina and
Tennessee, were among the top ten nationally in 1994 numerical population gains.
The demand for telecommunications services reflected the strength of the
economic and population growth in the region. Higher interest rates in 1995 may
dampen residential construction and durable goods manufacturing, but projected
net in-migration near 400,000 would help to keep the regional demand for
telecommunications services rising. However, the increasing competition faced by
BellSouth Telecommunications and the growing percentage of revenues from
BellSouth Enterprises make BellSouth's financial performance more susceptible to
changes in the economy than previously, as its operations reflect the more
competitive business environment and the greater elasticities for its products
and services.
A-11
<PAGE>
COMPETITION. Developments in the telecommunications marketplace continue to
indicate that a technological convergence is occurring in the telephone, cable
and broadcast television, computer, entertainment and information services
industries. The technologies utilized and being developed in
these industries are able to provide multiple and integrated communications
offerings. A number of large companies, including AT&T Corp. and the other major
interexchange carriers, other Bell Holding Companies and cable and other video
and entertainment companies, have completed acquisitions and entered into
business alliances that will ultimately intensify and expand competition for
local and toll communications and other services currently provided over
BellSouth's networks. Other competitors have announced plans to build, and in
certain locations have begun construction of, local phone connections and
private networks that would permit business and residential customers to bypass
the facilities of local telephone companies, including those of BellSouth
Telecommunications in certain cities in its service territory. Legislative,
regulatory and judicial developments will further facilitate competition in
local, long distance and video markets.
Notwithstanding the risks associated with increased competition, BellSouth
will have opportunities in new business markets. BellSouth believes that in
order to remain competitive in the future, it must aggressively pursue a
corporate strategy of expanding its offerings beyond its traditional businesses,
which may include information services, interactive communications and cable
television and other entertainment services. As a part of this strategy,
BellSouth has been granted permission by the FCC to conduct a trial of video
dial tone services; acquired in auction one of the nationwide narrowband PCS
licenses; participated in the ongoing FCC auction for broadband PCS licenses in
the Carolinas and eastern Tennessee; and formed business alliances and
partnerships, both domestically and internationally, related to the provision of
interactive and traditional video programming services as well as wireless and
wireline communications services. As another part of its competitive strategy,
BellSouth has undertaken a plan to streamline its telephone operations and to
improve its overall cost structure (see "Other Matters -- Restructuring of
Telephone Operations"). Coincident with the existing restructuring plan,
BellSouth Telecommunications is continuing to seek additional ways to better
enhance customer service and productivity and to further improve its cost
structure. As a result of these ongoing efforts, additional changes to
fundamental business processes and work activities, as well as further employee
reductions, are expected.
BellSouth may consider acquisitions of, investments in and strategic
alliances with established companies that provide information services,
interactive communications and cable television and other entertainment services
and the development of such services and capabilities internally. Such
transactions, if accomplished, could initially reduce earnings and require
substantial capital. Financing for such business opportunities will be provided
from funds generated through internal operations and from external sources.
ACCOUNTING UNDER SFAS NO. 71. BellSouth's 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."
Where appropriate, the provisions of SFAS No. 71 give recognition to the effect
of actions of regulators, which can provide reasonable assurance of the
existence of an asset, reduce or eliminate the value of an asset or impose or
eliminate a liability of a regulated entity. As a result of such actions by
regulators, BellSouth's balance sheet at December 31, 1994 reflects net deferred
charges (regulatory assets) of $186.5 related primarily to compensated absences
and unamortized issuance costs for debt that has been refinanced, and net
deferred credits (regulatory liabilities) of $304.0 related to income tax
issues. Virtually all of the current regulatory assets and liabilities arose in
connection with the incorporation of new accounting standards into the
ratemaking process, and are transitory in nature. The magnitude of the
regulatory assets and liabilities is decreasing over time due to the ongoing
amortization prescribed as a part of the adoption in 1988 of the FCC's current
Uniform System of Accounts. Additional regulatory assets and liabilities may
arise in the future as long as BellSouth Telecommunications remains subject to
the provisions of SFAS No. 71.
A-12
<PAGE>
Various forms of earnings-based regulation remain in effect at the federal
level and in all nine states served by BellSouth Telecommunications. However,
recent legislative and regulatory initiatives suggest that fully competitive
markets for telecommunications services will eventually be established. During
1994, the United States Congress considered legislation designed specifically to
open all telecommunications services to full competition. Although no such
legislation was enacted into law, Congress is again considering legislation of
this type, and similar initiatives are also emerging at the state level.
Furthermore, in the regulatory arena, BellSouth Telecommunications continues to
pursue modification of the existing regulatory framework. Price regulation
plans, whereby prices of basic local exchange service are directly regulated and
prices for other telecommunications products and services are based on market
factors, have been proposed for implementation and are under review in several
states in the service area and by the FCC.
BellSouth Telecommunications would be required to discontinue accounting
under SFAS No. 71 if the existing and anticipated levels of competition no
longer allow for service and product pricing that provides for the recovery of
costs. Additionally, SFAS No. 71 would no longer apply if BellSouth
Telecommunications is successful in altering the existing regulatory framework
and achieving price regulation since such plans do not provide for the recovery
of specific costs. While accounting under SFAS No. 71 is currently appropriate,
it is increasingly likely that BellSouth Telecommunications will discontinue
accounting under SFAS No. 71 due to the effect of one or both of these
conditions. In that event, the impact on BellSouth's financial position and
results of operations would be material. Under such circumstances, BellSouth
Telecommunications would be required to reduce the recorded value for telephone
plant and equipment in recognition of amounts that would not be recoverable or
that would be overstated due to longer regulator-prescribed asset lives.
BellSouth Telecommunications' overall depreciation reserve at December 31, 1994
was approximately 44% of its total depreciable plant. Broad industry analysis of
other telecommunications companies who have recently discontinued accounting
under SFAS No. 71 indicates that unregulated telecommunications enterprises
similar to BellSouth Telecommunications have an overall depreciation reserve
ratio that approximates 52% to 57% of total depreciable plant. If BellSouth
Telecommunications were required to discontinue SFAS No. 71 and to revalue its
telephone plant using similar assumptions and methodology, the net recorded book
value of its telephone plant would be reduced by about $4,000 to $6,000. In
addition, BellSouth Telecommunications would be required to eliminate its
regulatory assets and liabilities, adjust the level of its unamortized
investment tax credits and fully adopt issue basis accounting for its directory
publishing fees. Specific financial impacts of discontinuing SFAS No. 71 would
depend on the timing and magnitude of changes, both in the marketplace and in
the overall regulatory framework.
OTHER MATTERS
RESTRUCTURING OF TELEPHONE OPERATIONS. As previously reported, during 1993
BellSouth Telecommunications recognized a $1,136.4 restructuring charge in
connection with a plan to redesign, consolidate and streamline the fundamental
processes and work activities in its telephone operations. The restructuring is
being undertaken in response to an increasingly competitive business
environment. Upon completion, restructuring of the telephone operations is
expected to improve overall responsiveness to customer needs and reduce costs.
As a part of the restructuring, BellSouth Telecommunications is
consolidating and centralizing its existing operations. BellSouth
Telecommunications is establishing a single point of contact and accountability
for the receipt, analysis and resolution of customer installation, repair
activities and service activation. The efforts involve redesign of key work
processes and designing new processes that facilitate the consolidation of
service functions and the reduction of 10,200 employees.
A-13
<PAGE>
The projected costs by year for each component of the charge were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Consolidation and Elimination of Operations........ $ 14.7 $ 185.2 $ 87.0 $ 55.9 $ 342.8
Systems............................................ -- 185.5 155.5 84.4 425.4
Employee Separation................................ 38.3 142.7 105.2 82.0 368.2
--------- --------- --------- --------- ----------
Total............................................ $ 53.0 $ 513.4 $ 347.7 $ 222.3 $ 1,136.4
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
Through December 31, 1994, BellSouth Telecommunications was substantially on
plan with respect to projected expenditures and employee reductions. See
"PROGRESS UNDER THE PLAN."
CONSOLIDATION AND ELIMINATION OF OPERATIONS. Approximately $342.8 of the
charge consisted of costs associated with consolidating and eliminating
operations as a result of re-engineering the way service is delivered to
customers. During the restructuring period, 288 existing operations centers are
being consolidated into 73 locations. Data management centers used to support
company operations are being reduced from 11 to 6. Comptrollers offices are
being reduced from 48 to 11. Collection process improvements are being made to
reduce operating costs and uncollectibles. Redundancies are being eliminated and
the number of steps decreased in the product planning and provisioning process.
In addition, customer service processes and systems are being designed to
provide one-number access, specific appointment times, on-line and real-time
access to customer records and immediate service activation where facilities are
already in place.
SYSTEMS. Approximately $425.4 of the charge was for systems development.
The information management systems in use prior to the restructuring effort were
inadequate to deal with increased competition and changing technology.
Accordingly, as an integral part of the restructuring plan, a major redesign of
information systems throughout BellSouth Telecommunications is being undertaken
to attain a systems framework that both facilitates the targeted employee
reductions and correlates to the increasingly competitive business environment.
This effort entails significant changes to the overall computing platform,
architecture and corporate systems structure.
EMPLOYEE SEPARATION. Approximately $368.2 of the charge was for separation
costs for employees leaving BellSouth Telecommunications through 1996 and for
relocation of certain employees. BellSouth Telecommunications' targeted employee
reduction of 10,200 employees by the end of the restructuring period will result
in future cost savings and, as a result, is expected to improve BellSouth
Telecommunications' competitive position.
The projected work force reductions by year under the plan were as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Management............................................... 280 1,000 1,600 1,500 4,380
Represented.............................................. 1,020 2,700 1,300 800 5,820
--------- --------- --------- --------- ---------
Total.................................................. 1,300 3,700 2,900 2,300 10,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Employee separation costs include severance payments, health care coverage,
education benefits, and costs of relocating employees to new job locations, as
well as net curtailment expenses. The severance payments, health care coverage
and education benefits costs for management employees are paid under the
provisions of current BellSouth management separation plans. The severance
payments, health care coverage and education benefit costs for craft employees
are paid under the provisions of collective bargaining agreements. Relocation
costs are the costs to move personnel to different locations as a result of work
center consolidations. These charges are paid under BellSouth
Telecommunications' relocation guidelines and the terms of collective bargaining
agreements. Net curtailment expenses are charged in accordance with the
provisions of accounting pronouncements SFAS Nos. 88 and 106.
A-14
<PAGE>
PROGRESS UNDER THE PLAN. Since inception of the restructuring plan in
fourth quarter 1993, cumulative employee reductions were 5,200 (1,300 in 1993
and 3,900 in 1994) and total amounts charged against the restructuring liability
were $521.7.
A summary of the costs incurred through December 31, 1994 under the plan is
as follows:
<TABLE>
<CAPTION>
1993 1994 TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Consolidation and Elimination of Operations............................... $ 14.7 $ 164.6 $ 179.3
Systems................................................................... -- 170.3 170.3
Employee Separation....................................................... 38.3 133.8 172.1
--------- --------- ---------
Total................................................................... $ 53.0 $ 468.7 $ 521.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
For the year ended December 31, 1994, cash expenditures related to the
ongoing implementation of the restructuring plan were approximately $390.2.
Non-cash expenses were primarily comprised of pension curtailments and charges
related to elimination of certain business operations of subsidiaries. Capital
expenditures for 1994 related to restructuring were approximately $203.6; such
expenditures are not reflected in the above tables.
The remaining restructuring liability at December 31, 1994 was approximately
$614.7, all of which was classified as current. During 1995, BellSouth
Telecommunications plans to accelerate restructuring activities such that
employee reductions and expenditures as originally projected under the plan will
be substantially completed by the end of 1995. Accordingly, employee reductions
in 1995 under the plan are projected to be approximately 5,000 and capital
expenditures, which are not reflected in the above tables, are projected to be
about $300.
The cumulative reduction in employees as of December 31, 1994 resulted in an
estimated $100 reduction in 1994 operating expenses and is currently projected
to result in about a $300 to $400 reduction in 1995 operating expenses. Once the
restructuring plan is completed, annual cost savings are expected to be
approximately $600 due primarily to reduced employee-related expenses.
A-15
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of BellSouth Corporation:
These financial statements have been prepared in conformity with generally
accepted accounting principles and have been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report is contained herein.
The integrity and objectivity of the data in the financial statements
including estimates and judgments relating to matters not concluded by the end
of the year, are the responsibility of the management of BellSouth. Management
has also prepared all other information included therein unless indicated
otherwise.
Management maintains a system of internal accounting controls which is
continuously reviewed and evaluated. However, there are inherent limitations
that should be recognized in considering the assurances provided by any system
of internal accounting controls. The concept of reasonable assurance recognizes
that the cost of a system of internal accounting controls should not exceed, in
management's judgment, the benefits to be derived. Management believes that
BellSouth's system does provide reasonable assurance that the transactions are
executed in accordance with management's general or specific authorizations and
are recorded properly to maintain accountability for assets and to permit the
preparation of financial statements in conformity with generally accepted
accounting principles. Management also believes that this system provides
reasonable assurance that access to assets is permitted only in accordance with
management's authorizations, that the recorded accountability for assets is
compared with the existing assets at reasonable intervals and that appropriate
action is taken with respect to any differences. Management also seeks to assure
the objectivity and integrity of its financial data by the careful selection of
its managers, by organizational arrangements that provide an appropriate
division of responsibility and by communications programs aimed at assuring that
its policies, standards and managerial authorities are understood throughout the
organization. Management is also aware that changes in operating strategy and
organizational structure can give rise to disruptions in internal controls.
Special attention is given to controls while the changes are being implemented.
Management maintains a strong internal auditing program that independently
assesses the effectiveness of the internal controls and recommends possible
improvements thereto. In addition, as part of its audit of these financial
statements, Coopers & Lybrand L.L.P. completed a review of the accounting
controls to establish a basis for reliance thereon in determining the nature,
timing and extent of audit tests to be applied. Management has considered the
internal auditor's and Coopers & Lybrand L.L.P.'s recommendations concerning the
system of internal controls and has taken actions that it believes are
cost-effective in the circumstances to respond appropriately to these
recommendations. Management believes that as of December 31, 1994, the system of
internal controls was adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that BellSouth's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is communicated
to all employees through policies and guidelines addressing such issues as
conflict of interest, safeguarding of BellSouth's real and intellectual
properties, providing equal employment opportunities and ethical relations with
customers, suppliers and governmental representatives. BellSouth maintains a
program to assess compliance with these policies and our ethical standards
through its Vice President -- Corporate Responsibility and Compliance,
designated as the ombudsman/ethics officer reporting directly to the Chairman of
the Board.
<TABLE>
<S> <C>
John L. Clendenin Ronald M. Dykes
CHAIRMAN OF THE BOARD VICE PRESIDENT, CHIEF FINANCIAL
AND CHIEF EXECUTIVE OFFICER OFFICER AND COMPTROLLER
</TABLE>
February 3, 1995
A-16
<PAGE>
AUDIT COMMITTEE CHAIRMAN'S LETTER
The Audit Committee of the Board of Directors consists of four members who
are neither officers nor employees of BellSouth Corporation. Information as to
these persons, as well as their duties, is provided in the Proxy Statement. The
Audit Committee met six times during 1994 and reviewed with the Chief Corporate
Auditor, Coopers & Lybrand L.L.P. and management current audit activities, plans
and the results of selected internal audits. The Audit Committee also reviewed
the objectivity of the financial reporting process and the adequacy of internal
controls. The Audit Committee recommended, subject to shareholder ratification,
the appointment of the independent accountants and considered factors relating
to their independence. In addition, the Audit Committee provided guidance in
matters regarding ethical considerations and business conduct, reviewed the
operations of political action committees and monitored compliance with laws
affecting external involvement. The Chief Corporate Auditor and Coopers &
Lybrand L.L.P. each met privately with the Audit Committee on occasion to
encourage confidential discussions as to any auditing matters.
Marshall M. Criser
CHAIRMAN, AUDIT COMMITTEE
February 3, 1995
A-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
BellSouth Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of BellSouth
Corporation as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of BellSouth's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BellSouth
Corporation as of December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes H, M and N to the consolidated financial statements,
BellSouth changed its method of accounting for postretirement benefits other
than pensions, income taxes and postemployment benefits in 1993.
Atlanta, Georgia
February 3, 1995
A-18
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Operating Revenues:
Network and related services
Local service....................................................... $ 6,863.1 $ 6,577.3 $ 6,236.0
Interstate access................................................... 3,127.2 2,991.2 2,945.6
Intrastate access................................................... 908.3 881.9 871.8
Toll................................................................ 1,190.1 1,219.5 1,248.8
Directory advertising and publishing.................................. 1,556.0 1,515.4 1,459.8
Wireless communications............................................... 2,066.3 1,553.4 1,195.6
Other services........................................................ 1,133.5 1,141.6 1,244.0
--------- --------- ---------
Total Operating Revenues.......................................... 16,844.5 15,880.3 15,201.6
--------- --------- ---------
Operating Expenses:
Cost of services and products......................................... 6,043.2 5,865.1 5,681.3
Depreciation and amortization......................................... 3,258.7 3,162.2 3,100.0
Selling, general and administrative................................... 3,484.8 3,429.5 3,259.6
Restructuring charge (Note K)......................................... -- 1,136.4 --
--------- --------- ---------
Total Operating Expenses.......................................... 12,786.7 13,593.2 12,040.9
--------- --------- ---------
Operating Income........................................................ 4,057.8 2,287.1 3,160.7
Interest Expense (Note L)............................................... 666.1 689.0 746.4
Other Income, net (Note L).............................................. 11.0 7.6 177.6
--------- --------- ---------
Income Before Income Taxes, Extraordinary Loss and Cumulative Effect of
Change in Accounting Principle......................................... 3,402.7 1,605.7 2,591.9
Provision for Income Taxes (Note M)..................................... 1,242.9 571.6 933.5
--------- --------- ---------
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle................................................... 2,159.8 1,034.1 1,658.4
Extraordinary Loss on Early Extinguishment of Debt,
net of tax (Note E).................................................... -- (86.6) (40.7)
Cumulative Effect of Change in Accounting Principle, net of tax (Note
N)..................................................................... -- (67.4) --
--------- --------- ---------
Net Income........................................................ $ 2,159.8 $ 880.1 $ 1,617.7
--------- --------- ---------
--------- --------- ---------
Weighted Average Common Shares Outstanding.............................. 496.6 496.1 490.8
Dividends Declared Per Common Share..................................... $ 2.76 $ 2.76 $ 2.76
Earnings Per Share:
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle................................................. $ 4.35 $ 2.08 $ 3.38
Extraordinary Loss on Early Extinguishment of Debt,
net of tax........................................................... -- (.17) (.08)
Cumulative Effect of Change in Accounting Principle, net of tax....... -- (.14) --
--------- --------- ---------
Net Income........................................................ $ 4.35 $ 1.77 $ 3.30
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-19
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................................. $ 606.5 $ 501.5
Temporary cash investments................................................................. 50.8 49.0
Accounts receivable, net of allowance for uncollectibles of $154.1 and $149.6.............. 3,126.6 2,985.2
Material and supplies...................................................................... 490.0 418.7
Other current assets....................................................................... 453.9 364.6
----------- -----------
4,727.8 4,319.0
----------- -----------
Investments and Advances (Note B)............................................................ 2,531.5 2,039.4
Property, Plant and Equipment, net (Note C).................................................. 25,162.4 24,667.8
Deferred Charges and Other Assets............................................................ 535.4 512.2
Intangible Assets, net....................................................................... 1,439.9 1,334.9
----------- -----------
Total Assets............................................................................. $ 34,397.0 $ 32,873.3
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year (Note E)..................................................... $ 2,018.7 $ 1,838.6
Accounts payable........................................................................... 1,378.3 979.0
Other current liabilities (Note D)......................................................... 3,101.1 2,943.8
----------- -----------
6,498.1 5,761.4
----------- -----------
Long-Term Debt (Note E)...................................................................... 7,435.1 7,380.7
----------- -----------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes.......................................................... 3,646.9 3,465.3
Unamortized investment tax credits......................................................... 443.3 515.9
Other liabilities and deferred credits (Note F)............................................ 2,006.3 2,255.8
----------- -----------
6,096.5 6,237.0
----------- -----------
Shareholders' Equity:
Common stock, $1 par value (1,100,000,000 shares authorized; 496,242,732 and 496,086,984
shares outstanding at December 31, 1994 and 1993, respectively)........................... 502.5 501.6
Paid-in capital............................................................................ 8,064.2 8,009.4
Retained earnings.......................................................................... 6,721.1 5,919.3
Shares held in trust (Note G).............................................................. (336.2) (292.6)
Guarantee of ESOP debt (Notes G and H)..................................................... (584.3) (643.5)
----------- -----------
14,367.3 13,494.2
----------- -----------
Total Liabilities and Shareholders' Equity............................................. $ 34,397.0 $ 32,873.3
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-20
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT
NUMBER OF ---------------------------------------------------------
SHARES SHARES
--------------- HELD GUARANTEE
COMMON TREASURY PAR PAID-IN RETAINED TREASURY IN OF ESOP
STOCK STOCK VALUE CAPITAL EARNINGS STOCK TRUST DEBT
------ ------- ------ -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991....... 486.7 1.6 $488.3 $7,326.0 $6,112.8 $ (65.1) $ -- $ (757.1)
Net income......................... 1,617.7
Dividends declared................. (1,356.3)
Shares issued under Shareholder
Dividend Reinvestment and Stock
Purchase Plan..................... 6.3 (1.2) 5.1 262.3 50.2
Shares issued and activity
associated with various employee
benefit plans and other
activities........................ .8 (.4) .4 21.3 6.4 14.9
Reduction of ESOP debt and other
related activities................ 14.8 56.9
------ ------- ------ -------- -------- ------- ------- --------
Balance at December 31, 1992....... 493.8 -- 493.8 7,609.6 6,395.4 -- -- (700.2)
Net income......................... 880.1
Dividends declared................. (1,368.8)
Shares issued under Shareholder
Dividend Reinvestment and Stock
Purchase Plan..................... 1.6 1.6 81.0
Shares issued and activity
associated with various employee
benefit plans and other
activities........................ .7 .7 31.7
Shares issued to grantor trusts.... 5.5 5.5 287.1 (292.6)
Reduction of ESOP debt and other
related activities................ 12.6 56.7
------ ------- ------ -------- -------- ------- ------- --------
Balance at December 31, 1993....... 501.6 -- 501.6 8,009.4 5,919.3 -- (292.6) (643.5)
Net income......................... 2,159.8
Dividends declared................. (1,369.5)
Shares issued and activity
associated with various employee
benefit plans and other
activities........................ .1 .1 6.5
Shares issued to grantor trusts.... .8 .8 42.8 (43.6)
Reduction of ESOP debt and other
related activities................ 11.5 59.2
Foreign currency translation
adjustment........................ 5.5
------ ------- ------ -------- -------- ------- ------- --------
Balance at December 31, 1994....... 502.5 -- $502.5 $8,064.2 $6,721.1 $ -- $(336.2) $ (584.3)
------ ------- ------ -------- -------- ------- ------- --------
------ ------- ------ -------- -------- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-21
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 2,159.8 $ 880.1 $ 1,617.7
Adjustments to net income:
Depreciation................................................... 3,206.1 3,103.8 3,032.2
Amortization of intangibles.................................... 52.6 58.4 67.8
Provision for losses on bad debts.............................. 175.4 197.8 195.5
Deferred income taxes and unamortized investment tax credits... (19.1) (633.2) (138.7)
Pension expense in excess of funding........................... 28.0 120.7 165.7
Noncash compensation expense related to ESOP benefits.......... 18.5 23.2 27.1
Losses (earnings) of unconsolidated affiliates................. 109.8 (11.0) (76.7)
Dividends received from unconsolidated affiliates.............. 121.5 199.9 124.6
(Gains) losses on sale of operations........................... (107.6) 10.0 --
Allowance for funds used during construction................... (19.7) (23.7) (15.3)
Restructuring charge........................................... -- 1,136.4 --
Payment of call premium........................................ -- (99.7) (33.4)
Extraordinary loss on early extinguishment of debt............. -- 145.4 70.7
Change in accounting principle, net of tax..................... -- 67.4 --
Summary tax assessment settlement.............................. -- -- 90.9
Change in accounts receivable.................................. (509.6) (501.7) (302.4)
Change in material and supplies................................ (204.3) (98.0) (156.1)
Change in accounts payable and other current liabilities....... (187.1) (13.6) 148.7
Change in deferred charges and other assets.................... (60.6) 101.5 139.3
Change in other liabilities and deferred credits............... 437.4 46.3 29.5
Other reconciling items, net................................... (28.8) (23.5) (73.7)
----------- ----------- -----------
Net cash provided by operating activities.................... 5,172.3 4,686.5 4,913.4
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (3,600.3) (3,485.9) (3,189.3)
Proceeds from disposals of property, plant and equipment......... 137.5 156.0 139.5
Proceeds from disposition of short-term investments.............. 106.5 147.9 188.5
Purchase of short-term investments............................... (108.2) (116.3) (167.5)
Investment acquisitions.......................................... -- -- (53.8)
Investment dispositions.......................................... 197.5 105.2 --
Investments in and advances to unconsolidated affiliates......... (710.0) (319.5) (562.5)
Proceeds from repayment of loans and advances.................... 41.4 77.2 178.5
Other investing activities, net.................................. -- .5 (125.2)
----------- ----------- -----------
Net cash used for investing activities....................... (3,935.6) (3,434.9) (3,591.8)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings.............................. 22,488.6 16,289.9 13,541.0
Repayments of short-term borrowings.............................. (22,306.2) (15,856.4) (13,770.3)
Proceeds from long-term debt..................................... 190.6 2,963.3 675.0
Repayments of long-term debt..................................... (128.6) (3,131.3) (801.3)
Payment of capital lease obligations............................. (14.7) (12.2) (15.5)
Proceeds from issuing common and treasury shares................. 7.5 38.5 70.2
Dividends paid................................................... (1,368.9) (1,307.4) (1,082.5)
----------- ----------- -----------
Net cash used for financing activities....................... (1,131.7) (1,015.6) (1,383.4)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents............. 105.0 236.0 (61.8)
Cash and Cash Equivalents at Beginning of Period................. 501.5 265.5 327.3
----------- ----------- -----------
Cash and Cash Equivalents at End of Period....................... $ 606.5 $ 501.5 $ 265.5
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-22
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Amounts)
NOTE A -- ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of BellSouth Corporation (BellSouth) and subsidiaries in which it has a
controlling financial interest. BellSouth operates predominantly in the
telecommunications service industry. BellSouth Telecommunications, Inc.
(BellSouth Telecommunications), BellSouth's largest subsidiary, provides
primarily regulated telephone services. Investments in certain partnerships,
joint ventures and subsidiaries are accounted for using the equity method. All
significant intercompany transactions and accounts have been eliminated, except
as otherwise required under generally accepted accounting principles applicable
to regulated entities. Certain amounts in the prior period consolidated
financial statements have been reclassified to conform to the current year's
presentation.
BASIS OF ACCOUNTING. BellSouth's consolidated financial statements have
been prepared in accordance with generally accepted accounting principles,
including the provisions of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation." Where
appropriate, SFAS No. 71 gives accounting recognition to the actions of
regulators. Such actions can provide reasonable assurance of the existence of an
asset, reduce or eliminate the value of an asset or impose or eliminate a
liability of a regulated entity.
As a result of such actions by regulators, the consolidated balance sheets
at December 31, 1994 and 1993 reflect net deferred charges (regulatory assets)
of $186.5 and $235.9, respectively, related primarily to compensated absences
and unamortized issuance costs for debt that has been refinanced. Net deferred
credits (regulatory liabilities) included in the consolidated balance sheets
were $304.0 and $378.9, respectively, related to income tax issues.
Telephone plant and equipment has been depreciated using
regulator-prescribed asset lives. Other telecommunications companies have
recently discontinued accounting under SFAS No. 71 and have revalued their
telephone plant. If BellSouth Telecommunications were to revalue its telephone
plant using similar assumptions and methodology, the net recorded book value of
its telephone plant would be reduced by approximately $4,000 to $6,000.
CASH AND CASH EQUIVALENTS. BellSouth considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Investments with an original maturity of over three months to one
year are not considered cash equivalents and are included as temporary cash
investments on the consolidated balance sheets.
MATERIAL AND SUPPLIES. New and reusable material is carried in inventory,
principally at average original cost, except that specific costs are used in the
case of large individual items. Nonreusable material is carried at estimated
salvage value.
INVESTMENTS AND ADVANCES. Investments and advances consist primarily of
investments in, and advances to, unconsolidated affiliated companies accounted
for under the equity method.
PROPERTY, PLANT AND EQUIPMENT. The investment in property, plant and
equipment is stated at original cost. For plant dedicated to providing regulated
telecommunications services, depreciation is based on the remaining life method
of depreciation and straight-line composite rates determined on the basis of
equal life groups of certain categories of telephone plant acquired in a given
year. Depreciation expense also includes amortization of certain classes of
telephone plant and identified depreciation reserve deficiencies over periods
allowed by regulatory authorities. When depreciable telephone plant is disposed
of, the original cost, less net salvage value, is charged to accumulated
depreciation. The cost of other property, plant and equipment is depreciated
using either straight-line or accelerated methods over the estimated useful
lives of the assets. Gains or losses on disposal of other depreciable property,
plant and equipment are recognized in the year of disposition as an element of
other non-operating income.
INTANGIBLE ASSETS. Intangible assets consist of the excess consideration
paid over net assets acquired in business combinations, acquired licenses and
customer lists. Intangible assets are being amortized using the straight-line
and accelerated methods over periods of benefit. Such periods do not exceed 40
years. The carrying value of intangible assets is periodically reviewed on the
basis of whether such intangibles are fully
A-23
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE A -- ACCOUNTING POLICIES (CONTINUED)
recoverable from projected, discounted net cash flows of the related business
unit. Amortization of such intangibles was $52.6, $58.4 and $67.8 for the years
ended December 31, 1994, 1993 and 1992, respectively. At December 31, 1994 and
1993, accumulated amortization of intangibles was $212.1 and $169.2,
respectively.
DERIVATIVE FINANCIAL INSTRUMENTS. BellSouth manages risk arising from
fluctuations in interest rates and currency exchange rates by using derivative
financial instruments, such as foreign exchange forward contracts, currency
swaps and interest rate swaps.
Foreign exchange forward contracts are carried at fair value in the
consolidated balance sheets. Gains and losses on foreign exchange forward
contracts used as currency hedges of existing assets or liabilities are deferred
and offset the deferred losses and gains of the underlying asset or liability.
The net effect is ultimately recognized in income as the underlying transaction
matures. Gains and losses related to qualifying hedges of firm commitments also
are deferred and are recognized in income or as adjustments of carrying amounts
when the hedged transaction occurs.
Currency swap contracts entered into as hedges of existing assets and
liabilities are carried at fair value in the consolidated balance sheets. Gains
and losses on currency swaps are deferred and offset against the deferred
currency losses and gains of the underlying asset or liability. The net effect
is ultimately recognized in income as the underlying transaction matures.
Interest rate swap agreements are treated as off-balance sheet financial
instruments. Receipts or payments resulting from these instruments are
recognized as adjustments to interest expense as received or paid.
REVENUE RECOGNITION. Revenues are recognized when earned. Certain revenues
derived from local telephone and wireless access services are billed monthly in
advance and are recognized the following month when services are provided.
Directory advertising and publishing revenues and related directory costs are
recognized upon publication of directories, except where regulatory authorities
recognize different treatment. Revenues derived from other telecommunications
services, principally network access, toll and cellular airtime usage, are
recognized monthly as services are provided.
MAINTENANCE AND REPAIRS. The cost of maintenance and repairs of plant,
including the cost of replacing minor items not effecting substantial
betterments, is charged to operating expenses.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Regulatory authorities allow
BellSouth Telecommunications to recognize the cost of capital (debt and equity
components) associated with the construction of certain plant as income. Such
income is not realized in cash currently but will be realized over the service
life of the related plant as the resulting higher depreciation expense and plant
investment are recovered in the form of increased revenues.
INCOME TAXES. Effective January 1, 1993, BellSouth adopted SFAS No. 109,
"Accounting for Income Taxes." In accordance with the standard, the balance
sheet reflects deferred tax balances associated with the anticipated tax impact
of future income or deductions implicit in the balance sheet in the form of
temporary differences. Temporary differences primarily result from the use of
accelerated methods and shorter lives in computing depreciation for tax
purposes. Prior to 1993, BellSouth accounted for income taxes under the
provisions of Accounting Principles Board Opinion No. 11.
For financial reporting purposes, BellSouth Telecommunications is amortizing
deferred investment tax credits earned prior to the 1986 repeal of the
investment tax credit and also some transitional credits earned after the
repeal. The credits are being amortized as a reduction to the provision for
income taxes over the estimated useful lives of the assets to which the credits
relate.
EARNINGS PER SHARE. Earnings per common share are computed on the basis of
the weighted average number of shares of common stock and common stock
equivalents outstanding during each year.
A-24
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE B -- INVESTMENTS AND ADVANCES
Investments and Advances as of December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Investments accounted for under the equity method.......................... $ 1,715.9 $ 1,806.7
Advances to and notes receivable from affiliates........................... 729.1 146.0
Other investments.......................................................... 86.5 86.7
---------- ----------
Total Investments and Advances......................................... $ 2,531.5 $ 2,039.4
---------- ----------
---------- ----------
</TABLE>
BellSouth's equity method investments primarily include various partnerships
in domestic cellular properties, mobile data communications, investments in
international cellular properties and other international communications
consortiums. Earnings (losses) related to investments accounted for under the
equity method were $(109.8), $11.0 and $76.7 for the three years ended December
31, 1994, 1993 and 1992, respectively, and are included as a component of Other
Income.
DOMESTIC CELLULAR. BellSouth's domestic cellular investments consist
primarily of a 60.0% non-controlling financial interest in the Los Angeles
Cellular Telephone Company and a 43.8% interest in the Houston Cellular
Telephone Company. At December 31, 1994, BellSouth's aggregate investment in
these entities exceeded the underlying book value of the investees' net assets
by $934.7. The excess of consideration paid over net assets acquired along with
other intangible assets are being amortized using either straight-line or
accelerated methods over periods of benefit which do not exceed 40 years.
MOBILE DATA COMMUNICATIONS. In January 1992, BellSouth and RAM Broadcasting
Corporation (RBC) formed an investment to own and operate certain mobile data
communications networks worldwide as well as certain cellular and paging
operations in the United States. The mobile data portion of the investment gives
BellSouth a 49% interest in the United States mobile data operations, which is
operated by RBC, and various interests in foreign mobile data operations ranging
from 5.4% to 90%. In July 1994, BellSouth acquired RBC's 50% interest in the
paging segment of the investment giving BellSouth a 100% interest in this
entity. BellSouth had a note receivable from and advances to mobile data
affiliates totaling $134.6 and $43.0 at December 31, 1994 and 1993,
respectively. These receivables bear interest at the rate of the three-month
LIBOR, plus 3 1/2%. The instruments are collateralized by assets of the
affiliates.
INTERNATIONAL COMMUNICATIONS. BellSouth has equity investments in
international cellular operations in Latin America, Europe, the Asia-Pacific
region and other international markets with ownership ranging from 21.4% to
53.3%. The largest of these investments, Telcel Cellular C.A. (TelCel), in which
BellSouth has a non-controlling 53.3% interest, provides cellular telephone
service in Venezuela. BellSouth is a 21.4% participant in the E-Plus Mobilfunk
consortium which provides cellular telephone service in Germany.
In January 1994, BellSouth disposed of its 36.4% interest in a cellular
telephone business in Mexico. In November 1994, BellSouth sold its 4% interest
in a company providing cellular service in France. As a result of these
dispositions, BellSouth recognized gains of $67.5 and $40.1, respectively, both
of which are included in Other Income.
BellSouth is a 24.5% participant in Optus, an international consortium which
provides a full spectrum of telecommunications services in Australia, including
switched network and enhanced services, wireless and satellite based services.
OTHER INVESTMENT ACTIVITY. BellSouth has non-controlling financial
interests ranging from 70% to 80% in the CSL Ventures and 1155 Peachtree
Associates real estate partnerships. BellSouth had notes receivable from and
advances to these partnerships totaling $186.1 and $208.1 (of which $135.8 was
included in current assets) at December 31, 1994 and 1993, respectively. The
notes bear interest at rates ranging from 7.88% to 9.31% while the advances bear
interest at the federal funds rate plus .30%. Principal amounts outstanding at
December 31, 1994 are due and payable to BellSouth between December 31, 1996 and
August 8, 2002. The instruments require periodic payments of interest and are
collateralized by various real estate holdings.
A-25
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE B -- INVESTMENTS AND ADVANCES (CONTINUED)
In December 1993, BellSouth entered into a credit agreement with Prime South
Diversified, Inc. (Prime) to provide up to $250 in financing, of which $185.0
had been borrowed by Prime as of December 31, 1994. The loan is collateralized
by the stock of Prime South Diversified, which indirectly wholly owns Community
Cable TV in Las Vegas, and its wholly-owned subsidiary Prime South Holdings,
Inc. The loan bears a variable rate of 10% to 11% and matures in 2001.
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Outside plant...................................................................... $ 19,291.5 $ 18,595.7
Central office equipment........................................................... 15,443.5 14,668.0
Building and building improvements................................................. 3,113.9 2,954.4
Furniture and fixtures............................................................. 2,535.3 2,362.6
Operating and other equipment...................................................... 2,346.6 2,006.8
Station equipment.................................................................. 601.0 631.4
Plant under construction........................................................... 616.3 497.2
Land............................................................................... 181.7 175.9
Other.............................................................................. 69.0 82.8
----------- -----------
44,198.8 41,974.8
Less: Accumulated depreciation................................................... 19,036.4 17,307.0
----------- -----------
Total Property, Plant and Equipment, net....................................... $ 25,162.4 $ 24,667.8
----------- -----------
----------- -----------
</TABLE>
Depreciation of telephone plant and equipment as a percentage of average
depreciable telephone plant was 7.20%, 7.51% and 7.67% for 1994, 1993 and 1992,
respectively.
NOTE D -- OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Restructuring accrual (see Note K)................................................... $ 614.7 $ 513.4
Advanced billing and customer deposits............................................... 499.9 476.2
Taxes accrued........................................................................ 374.6 492.1
Dividends payable.................................................................... 346.7 346.1
Salaries and wages payable........................................................... 343.5 338.3
Compensated absences................................................................. 332.8 332.6
Interest and rents accrued........................................................... 278.1 250.2
Other................................................................................ 310.8 194.9
---------- ----------
Total Other Current Liabilities.................................................. $ 3,101.1 $ 2,943.8
---------- ----------
---------- ----------
</TABLE>
A-26
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE E -- DEBT
DEBT MATURING WITHIN ONE YEAR: Debt maturing within one year is summarized
as follows at December 31:
<TABLE>
<CAPTION>
DESCRIPTION 1994 1993
- ------------------------------------------------------------------------- -------- --------
<S> <C> <C>
Short-term notes payable:
Bank loans............................................................. $ 45.1 $ 88.7
Commercial paper....................................................... 1,838.5 1,536.1
-------- --------
1,883.6 1,624.8
Current maturities of long-term debt..................................... 135.1 213.8
-------- --------
Total................................................................ $ 2,018.7 $ 1,838.6
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION
- -------------------------------------------------------------------------
<S> <C> <C>
Weighted average interest rate at end of period:
Bank loans............................................................. 6.39% 3.77%
Commercial paper....................................................... 5.82% 3.30%
</TABLE>
BellSouth has committed credit lines aggregating $1,493.4 with various
banks. Borrowings under the committed lines totaled $16.1 at December 31, 1994.
BellSouth also maintains uncommitted lines of credit of $675.0. At December 31,
1994, there were no borrowings under the uncommitted lines. There are no
significant commitment fees or requirements for compensating balances associated
with any lines of credit.
LONG-TERM: Long-term debt consists primarily of debentures and notes issued
by BellSouth Telecommunications. Interest rates and maturities of the amounts
outstanding are summarized as follows at December 31:
<TABLE>
<CAPTION>
CONTRACTUAL
INTEREST RATES MATURITIES 1994 1993
------------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
BellSouth Telecommunications Debentures: 3 1/4% - 6 3/4% 1995 - 2033 $ 1,270.0 $ 1,270.0
7 3/8% - 8 1/4% 2010 - 2033 1,935.0 1,935.0
8 1/2% - 8 3/4% 2024 - 2029 1,400.0 1,400.0
---------- ----------
4,605.0 4,605.0
BellSouth Telecommunications Notes............. 5 1/4% - 7% 1998 - 2008 1,875.0 1,875.0
Guarantee of ESOP debt......................... 9.125% - 9.19% 2003 693.9 734.6
BellSouth Capital Funding Corporation Notes.... 3.91% - 9.50% 1994 - 1999 374.5 299.9
Other.......................................... 82.6 142.6
Unamortized discount, net of premium........... (60.8) (62.6)
---------- ----------
7,570.2 7,594.5
Current maturities............................. (135.1) (213.8)
---------- ----------
Total Long-Term Debt....................... $ 7,435.1 $ 7,380.7
---------- ----------
---------- ----------
</TABLE>
Maturities of long-term debt outstanding (face amounts) at December 31, 1994
are summarized below:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturities........................ $ 135.1 $ 77.3 $ 158.7 $ 774.4 $ 249.4 $ 6,236.1 $ 7,631.0
--------- --------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- --------- ---------- ----------
</TABLE>
As further discussed in Note H, BellSouth incorporated an Employee Stock
Ownership Plan (ESOP) feature into certain of its existing savings plans. In
1990, the ESOP trusts (the Trusts) borrowed $850.0 aggregate principal amount
through the issuance of amortizing notes. Although the obligations are owed by
the Trusts, they are guaranteed by BellSouth and thus are reflected as an
addition to Long-Term Debt and a
A-27
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE E -- DEBT (CONTINUED)
reduction to Shareholders' Equity. The Trusts service the debt with
contributions from BellSouth and dividends paid on the shares held by the
Trusts. As the ESOP obligations are repaid, the amount guaranteed decreases and
Long-Term Debt is reduced accordingly.
Notes issued by BellSouth Capital Funding Corporation (Capital Funding) are
used to finance the businesses of BellSouth Enterprises and the unregulated
subsidiaries of BellSouth Telecommunications. BellSouth has agreed to ensure the
timely payment of principal, premium, if any, and interest on Capital Funding's
debt securities.
During 1993 and 1992, BellSouth Telecommunications refinanced certain
long-term debt issues at more favorable interest rates. As a result of the early
extinguishment of these issues, charges of $86.6 ($.17 per share), net of taxes
of $58.8, and $40.7 ($.08 per share), net of taxes of $30.0, were recognized as
extraordinary losses in 1993 and 1992, respectively.
At December 31, 1994, shelf registration statements had been filed with the
Securities and Exchange Commission by BellSouth Telecommunications and Capital
Funding under which $725.0 and $1,027.3, respectively, of debt securities could
be offered.
NOTE F -- OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits is summarized as follows at December
31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accrued pension cost................................................................. $ 568.2 $ 565.5
Compensation related................................................................. 341.7 318.5
Regulatory liability related to income taxes (see Note M)............................ 304.0 378.9
Minority interests................................................................... 207.8 123.6
Sharing accrual under FCC price cap plan............................................. 141.6 41.7
Postemployment benefits.............................................................. 140.6 121.4
Restructuring accrual (see Note K)................................................... -- 570.0
Other................................................................................ 302.4 136.2
---------- ----------
Total Other Liabilities and Deferred Credits..................................... $ 2,006.3 $ 2,255.8
---------- ----------
---------- ----------
</TABLE>
NOTE G -- SHAREHOLDERS' EQUITY
PREFERRED STOCK AUTHORIZED. BellSouth's Articles of Incorporation authorize
100 million shares of cumulative First Preferred Stock having a par value of $1
per share, of which 30 million shares have been reserved and designated Series A
for possible issuance under BellSouth's Shareholder Rights Plan. As of December
31, 1994, no preferred shares had been issued.
SHAREHOLDER RIGHTS PLAN. In 1989, BellSouth adopted a Shareholder Rights
Plan by declaring a dividend of one right for each share of common stock then
outstanding and to be issued thereafter. Each right entitles shareholders to buy
one one-hundredth of a share of Series A First Preferred Stock for $175 per
share. The rights may be exercised only if a person or group acquires 10% of the
common stock of BellSouth without the prior approval of the Board of Directors
or announces a tender or exchange offer that would result in ownership of 25% or
more of the common stock. If a person or group acquires 10% of BellSouth's stock
without prior Board approval, other shareholders are then allowed to purchase
BellSouth common stock at half price. The rights currently trade with BellSouth
common stock and may be redeemed by the Board of Directors for one cent per
right until they become exercisable, and thereafter under certain circumstances.
The rights expire after ten years.
GUARANTEE OF ESOP DEBT. Financial reporting practices require that the
amount equivalent to BellSouth's guarantee of the amortizing notes issued by its
ESOP trusts be presented as a reduction to Shareholders' Equity, as well as an
increase to debt. The amount recorded as a decrease in Shareholders' Equity
represents the cost of unallocated BellSouth common stock purchased with the
proceeds of the
A-28
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE G -- SHAREHOLDERS' EQUITY (CONTINUED)
amortizing notes and the timing difference resulting from the shares allocated
accounting method. All ESOP shares are considered outstanding for financial
reporting purposes and, as such, are included in the computation of earnings per
share. As the ESOP notes are repaid, the amount of debt guaranteed decreases,
and Shareholders' Equity increases accordingly (see Notes E and H).
SHARES HELD IN TRUST. During 1993 and 1994, BellSouth issued shares to
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
December 31, 1994 and 1993, the assets held in the trusts consist of cash and
6,262,087 and 5,464,920 shares, respectively, of BellSouth common stock. 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.
NOTE H -- EMPLOYEE BENEFIT PLANS
PENSION PLANS. Substantially all employees of BellSouth are covered by
noncontributory defined benefit pension plans. Principal plans are discussed
below; other plans are not significant individually or in the aggregate.
The plan covering non-represented employees is a cash balance plan which
provides pension benefits determined by a combination of compensation-based
service and additional credits and individual account-based interest credits.
The cash balance plan is subject to a minimum benefit determined under a plan in
existence for non-represented employees prior to July 1, 1993 which provided
benefits based upon credited service and employees' average compensation for a
specified period. The minimum benefit under the prior plan is applicable to
employees retiring through 2005. Both the 1994 and 1993 projected benefit
obligations assume interest and additional credits greater than the minimum
levels specified in the written plan. Pension benefits provided for represented
employees are based on specified benefit amounts and years of service and
includes the projected effect of future bargained-for improvements.
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all pension benefits for
which BellSouth is liable. Contributions are actuarially determined using the
aggregate cost method, subject to ERISA and Internal Revenue Service
limitations. Pension plan assets consist primarily of equity securities and
fixed income investments.
The components of net periodic pension cost are summarized below:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the year....................... $ 272.1 $ 265.8 $ 262.4
Interest cost on projected benefit obligation......................... 778.2 774.8 751.8
Actual loss (return) on plan assets................................... 135.9 (1,734.9) (686.2)
Net amortization and deferral......................................... (1,158.2) 816.0 (160.2)
----------- ----------- -----------
Net periodic pension cost......................................... $ 28.0 $ 121.7 $ 167.8
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Effective January 1, 1994, the non-represented cash balance plan was divided
from one into four cash balance plans which allowed for costs to be accounted
for more precisely based upon specific company demographic information. The plan
division had no material impact on BellSouth in 1994. The decrease in 1994
pension expense is primarily the result of a reduction in assumed benefit levels
partially offset by the decrease in the discount rate assumption. The
consolidated net pension expense amounts reflected above are exclusive of
curtailment gains reflected in the restructuring activities discussed below.
A-29
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plans at December
31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation........................................................ $ 7,431.4 $ 7,705.3
----------- -----------
----------- -----------
Accumulated benefit obligation................................................... $ 8,404.0 $ 8,819.6
----------- -----------
----------- -----------
Projected benefit obligation..................................................... $ 10,115.1 $ 10,644.3
Plan assets at market value........................................................ 12,343.1 13,173.0
----------- -----------
Plan assets in excess of projected benefit obligation.............................. 2,228.0 2,528.7
Unrecognized net gain due to past experience different from assumptions made....... (2,263.9) (2,503.2)
Unrecognized prior service cost.................................................... (360.9) (398.5)
Unrecognized net asset at transition............................................... (171.4) (192.5)
----------- -----------
Accrued pension cost............................................................. $ (568.2) $ (565.5)
----------- -----------
----------- -----------
</TABLE>
The significant actuarial assumptions at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Weighted average discount rate............................................................. 8.25% 7.5%
Weighted average rate of compensation increase............................................. 5.7% 5.7%
Expected long-term rate of return on plan assets........................................... 8.0% 8.0%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. BellSouth sponsors
postretirement health and life insurance welfare plans for most of its
non-represented and represented employees. Effective January 1, 1993, BellSouth
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," to account for these plans. BellSouth's transition benefit
obligation is being amortized over 15 years, the average remaining service
period of active plan participants at adoption. The accounting for the health
care plan does not anticipate future adjustments to the cost-sharing
arrangements provided for in the written plan for employees who retire after
December 31, 1991.
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all health and life benefits
for which BellSouth is liable. Contributions are actuarially determined using
the aggregate cost method, subject to ERISA and Internal Revenue Service
limitations. Assets in the health and life plans consist primarily of equity
securities and fixed income investments.
Postretirement benefit costs for the years ending December 31, 1994 and
1993, respectively, were composed of the following:
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
HEALTH LIFE HEALTH LIFE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service cost -- benefits earned during the year............................ $ 34.8 $ 13.3 $ 29.9 $ 8.7
Interest on accumulated postretirement benefit obligation.................. 211.0 37.4 199.4 32.4
Actual loss (return) on plan assets........................................ 14.1 (12.4) (43.5) (35.0)
Amortization of transition liability (asset)............................... 112.3 (13.1) 112.9 (13.1)
Other amortization and deferral, net....................................... (65.6) (30.6) (9.1) (9.5)
--------- --------- --------- ---------
Postretirement benefit cost (income)..................................... $ 306.6 $ (5.4) $ 289.6 $ (16.5)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
A-30
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The consolidated net postretirement benefit cost amounts reflected above are
exclusive of curtailment losses reflected in the restructuring activities
discussed below. Prior to 1993, BellSouth recognized the cost of providing
postretirement benefits based on funded amounts. The cost of providing health
and life benefits for both active and retired employees was $574.6 for 1992.
The following table sets forth the plans' funded status at December 31, 1994
and 1993, respectively:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
HEALTH LIFE HEALTH LIFE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $ 1,835.4 $ 249.1 $ 1,909.8 $ 245.5
Fully eligible active plan participants................ 303.9 68.5 350.6 193.7
Other active plan participants......................... 506.8 132.3 630.9 68.2
----------- ----------- ----------- -----------
2,646.1 449.9 2,891.3 507.4
Plan assets at fair value................................ 883.1 583.0 785.3 584.5
----------- ----------- ----------- -----------
Accumulated postretirement benefit obligation in excess
of (less than) plan assets.............................. 1,763.0 (133.1) 2,106.0 (77.1)
Unrecognized net losses.................................. (219.6) (60.3) (514.0) (123.4)
Unrecognized transition (obligation) asset............... (1,425.3) 170.3 (1,572.8) 183.4
----------- ----------- ----------- -----------
Accrued (prepaid) postretirement benefit cost............ $ 118.1 $ (23.1) $ 19.2 $ (17.1)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The significant actuarial assumptions at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Weighted average discount rate.......................................................... 8.75% 7.5%
Weighted average rate of compensation increase.......................................... 5.7% 5.7%
Health care cost trend rate (1)......................................................... 11.0% 11.5%
Expected long-term rate of return on plan assets (2).................................... 8.0% 8.0%
<FN>
- ------------------------
(1) Trend rate to decrease gradually to 5% in 2007
(2) Rate net of an estimated 30% tax reduction for the non-represented
employees' trust for both 1994 and 1993
</TABLE>
The health care cost trend rate assumption affects the amounts reported. A
one-percentage-point increase in the assumed health care cost trend rates for
each future year would increase the accumulated postretirement benefit
obligation by $108 at December 31, 1994 and the estimated aggregate service and
interest cost components of the 1994 postretirement benefit cost by $14.
Most regulatory jurisdictions have accepted BellSouth's SFAS No. 106
implementation plan. However, two states are requiring a 20-year and 30-year
amortization of the transition benefit obligation, the impact of which is not
material to BellSouth.
EFFECT OF RESTRUCTURING ON PENSIONS AND POSTRETIREMENT BENEFITS. As a part
of the restructuring charge in 1993 (see Note K), BellSouth recorded a liability
of $88 for estimated net curtailment losses expected to impact BellSouth's
pension and postretirement benefit plans. Of the amount recognized, $32 and $16
were realized and charged against the restructuring liability in 1994 and 1993,
respectively.
DEFINED CONTRIBUTION PLANS. BellSouth maintains several contributory
savings plans which cover substantially all employees. The BellSouth Savings and
Employee Stock Ownership Plan and the BellSouth Savings and Security Plan
(collectively, the ESOP Plans) are tax-qualified employee stock ownership plans
which cover the largest portion of the employees. Assets of the plans are held
by two trusts (the Trusts),
A-31
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)
which, in turn, are part of the BellSouth Master Savings Trust. In 1990, a
leveraged ESOP feature was incorporated into the ESOP Plans. With proceeds from
the ESOP notes (see Note E), the Trusts purchased shares of BellSouth common
stock in the open market which will be used, in part, to fulfill BellSouth's
matching contribution obligation over the 13-year debt repayment period of the
leveraged ESOP program.
Employee participants contribute part of their annual compensation, via
payroll deductions, to the ESOP Plans, a portion of which is matched by
BellSouth. The matching amount, stated in percentage terms and applied to
certain eligible amounts, is determined annually by the Board of Directors. The
match consists of shares of BellSouth common stock that were purchased by the
Trusts with proceeds from the ESOP Notes, or that are purchased by the Trusts in
the market from time to time should there be insufficient shares available from
the Trust. The shares are allocated to each participant's account based on the
market price of the shares at the time of allocation. Shares are released for
allocation as each semi-annual loan payment is made. None of the shares held by
the ESOP Plans is subject to repurchase.
BellSouth makes annual contributions to the Trusts to fund the ESOP's debt
service, plus that amount required to purchase any additional shares allocated
to participant accounts, less dividends received by the Trusts. All dividends
received by the Trusts are used for debt service.
In 1993, new authoritative guidance became effective which created new
accounting requirements for certain ESOPs, and was elective for all others.
BellSouth has elected to continue the existing accounting guidance and has
adopted the new disclosure requirements applicable to all ESOPs. As a leveraged
ESOP, BellSouth recognizes expense using the shares allocated accounting method,
which combines the cost of the shares allocated for the period plus interest
incurred, reduced by the dividends used to service the ESOP debt. Dividends on
all ESOP shares are recorded as a reduction to retained earnings and all ESOP
shares are included in the computation of earnings per share.
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Compensation cost................................................ $76.6 $67.9 $71.8
Interest expense................................................. $38.6 $39.9 $40.5
Actual interest on ESOP Notes.................................... $66.2 $69.5 $72.4
Cash contributions, excluding dividends paid to the Trusts....... $99.8 $84.9 $84.3
Dividends paid to the Trusts, used for debt service.............. $42.3 $43.6 $43.7
Shares allocated to participants................................. 4,810,517 3,671,657 2,555,175
Shares committed to be released.................................. -- -- --
Shares unallocated............................................... 11,078,845 12,217,705 13,334,187
</TABLE>
BellSouth also maintains certain defined contribution plans for most other
employees not covered by the ESOP Plans. BellSouth's contributions were
approximately $15.3, $12.7 and $9.3 in 1994, 1993 and 1992, respectively.
NOTE I -- EMPLOYEE STOCK OPTION PLAN
The BellSouth Corporation Stock Option Plan provides for the grant of stock
options and related stock appreciation rights (SARs) to key employees, as
determined by the Board of Directors, to purchase shares of BellSouth common
stock within prescribed periods at either a price equal to the fair market value
on the date of grant or, as a heightened incentive, at a price in excess of the
stock price on the date of grant. SARs entitle an optionee to surrender
unexercised stock options for cash or stock equal to the excess of the fair
market value of the surrendered shares over the option price of such shares.
Options granted in 1994 become vested only at the end of the five-year vesting
period, as determined from the date of grant. Of the 5,172,962 shares covered by
outstanding options under the plan at December 31, 1994, 352,096 were
accompanied by SARs.
A-32
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE I -- EMPLOYEE STOCK OPTION PLAN (CONTINUED)
The following table summarizes the activity for stock options outstanding:
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
<S> <C> <C> <C>
Options outstanding at January 1................................. 3,654,142 3,436,724 3,101,490
Options granted.................................................. 1,762,861 840,302 977,978
Options exercised................................................ (130,498) (569,508) (590,953)
(113,543) (53,376) (51,791)
Options cancelled/forfeited......................................
-------- -------- --------
5,172,962 3,654,142 3,436,724
Options outstanding at December 31...............................
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Option prices per common share:
Granted........................................................ $50.69 - $84.43 $50.69 - $62.19 $48.38 - $58.25
Exercised...................................................... $12.99 - $58.25 $22.76 - $58.25 $22.76 - $45.56
Cancelled/forfeited............................................ $32.34 - $84.43 $32.34 - $58.25 $37.38 - $58.25
Outstanding at year-end........................................ $32.34 - $84.43 $12.99 - $62.19 $12.99 - $58.25
Options exercisable at year-end.................................. 2,333,631 1,407,914 1,343,523
Shares available for grant at December 31........................ 5,025,048 5,015,519 4,937,932
</TABLE>
NOTE J -- LEASES
BellSouth has entered into operating leases for facilities and equipment
used in operations. Rental expense under operating leases was $311.3, $300.3 and
$328.9 for 1994, 1993 and 1992, respectively. Capital leases currently in effect
are not significant.
The following table summarizes the approximate future minimum rentals under
non-cancelable operating leases in effect at December 31, 1994:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum rentals..................... $ 144.7 $ 119.9 $ 101.0 $ 77.6 $ 66.6 $ 547.3 $ 1,057.1
--------- --------- --------- --------- --------- ----------- ----------
--------- --------- --------- --------- --------- ----------- ----------
</TABLE>
NOTE K -- RESTRUCTURING CHARGE
The results of operations for the year ended December 31, 1993 include a
$1,136.4 restructuring charge which reduced net income by $696.6. The
restructuring is being undertaken to redesign and streamline the fundamental
processes and work activities in BellSouth Telecommunications' telephone
operations to better respond to an increasingly competitive business
environment. The restructuring is expected to improve overall responsiveness to
customer needs and reduce costs.
The material components of the charge related to the reduction of the
workforce by 10,200 employees. Through December 31, 1994, cumulative employee
reductions related to the restructuring plan were 5,200, consisting of 1,300 in
1993 and 3,900 in 1994. The components of the charge consisted of provisions of
$368.2 for separation payments and relocations of remaining employees, $342.8
for consolidation and elimination of certain operations facilities and $425.4
for enabling changes to information systems, primarily those used to provide
services to existing customers.
At December 31, 1994, the remaining liability associated with the
restructuring plan was $614.7, all of which was current.
A-33
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE L -- ADDITIONAL INCOME STATEMENT DATA
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Interest Expense:
Long-term debt.............................................................. $ 532.2 $ 577.3 $ 612.9
Short-term notes payable.................................................... 61.9 50.7 61.7
Other....................................................................... 72.0 61.0 71.8
--------- --------- ---------
Total..................................................................... $ 666.1 $ 689.0 $ 746.4
--------- --------- ---------
--------- --------- ---------
Other Income, net:
Interest and dividend income................................................ $ 64.5 $ 42.8 $ 123.6
Earnings (losses) of unconsolidated affiliates.............................. (109.8) 11.0 76.7
Minority interests.......................................................... (80.0) (50.9) (39.3)
Gains (losses) from operations sold, net.................................... 107.6 (10.0) --
Other, net.................................................................. 28.7 14.7 16.6
--------- --------- ---------
Total..................................................................... $ 11.0 $ 7.6 $ 177.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Interest and dividend income for 1992 includes $56.6 relating to the
settlement of an Internal Revenue Service summary assessment for the tax years
1979 and 1980.
Revenues from services provided to AT&T Corp., BellSouth's largest customer,
were approximately 11%, 14% and 14% of consolidated operating revenues for 1994,
1993 and 1992, respectively.
NOTE M -- INCOME TAXES
Effective January 1, 1993, BellSouth adopted SFAS No. 109, "Accounting for
Income Taxes," which applies a balance sheet approach to income tax accounting.
In accordance with the new standard, the balance sheet reflects the anticipated
tax impact of future taxable income or deductions implicit in the balance sheet
in the form of temporary differences. These temporary differences reflect the
difference between the basis in assets and liabilities as measured in the
financial statements and as measured by tax laws using enacted tax rates. The
cumulative effect to January 1, 1993 of the adoption of SFAS No. 109 was
recorded as a $7.8 reduction to income tax expense.
In accordance with the provisions of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," BellSouth has, for its regulated
operations, only reflected the balance sheet impact of the adoption of SFAS No.
109. Specifically, BellSouth Telecommunications in 1993 recorded a net
regulatory liability of $538.0 to correspond to the net reduction in deferred
tax liabilities; the reduction resulted from changes in tax rates and from
temporary differences which were previously flowed through. The balance of such
net liability at December 31, 1994, included in Other Liabilities and Deferred
Credits, was $304.0. This net regulatory liability is adjusted as the related
temporary differences reverse.
A-34
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE M -- INCOME TAXES (CONTINUED)
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current................................................................ $ 1,081.9 $ 1,079.7 $ 918.3
Deferred, net.......................................................... 33.6 (532.0) (85.9)
Investment tax credits, net............................................ (72.6) (88.3) (87.9)
---------- ---------- ----------
1,042.9 459.4 744.5
---------- ---------- ----------
State:
Current................................................................ 180.1 173.9 163.6
Deferred, net.......................................................... 19.9 (61.7) 25.4
---------- ---------- ----------
200.0 112.2 189.0
---------- ---------- ----------
Total provision for income taxes..................................... $ 1,242.9 $ 571.6 $ 933.5
---------- ---------- ----------
---------- ---------- ----------
Amortization of investment tax credits................................... $ 72.6 $ 88.3 $ 88.2
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax
assets and (liabilities) at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Pensions............................................................................ $ 274.8 $ 240.3
Restructuring charge................................................................ 238.1 419.5
Deferred compensation............................................................... 126.7 112.4
Compensated absences................................................................ 99.7 89.2
Regulatory sharing accruals......................................................... 92.3 21.3
Bad debts........................................................................... 88.6 82.5
Leveraged employee stock ownership plan............................................. 43.3 36.2
Other............................................................................... 159.1 128.1
----------- -----------
1,122.6 1,129.5
Valuation allowance................................................................. (7.3) (13.8)
----------- -----------
Deferred Tax Assets............................................................... 1,115.3 1,115.7
----------- -----------
Depreciation........................................................................ (3,731.1) (3,636.2)
Equity investments.................................................................. (367.1) (376.4)
Franchises.......................................................................... (194.3) (204.3)
Other............................................................................... (237.4) (189.7)
----------- -----------
Deferred Tax Liabilities.......................................................... (4,529.9) (4,406.6)
----------- -----------
Net Deferred Tax Liability...................................................... $ (3,414.6) $ (3,290.9)
----------- -----------
----------- -----------
</TABLE>
The valuation allowance primarily represents federal and state net operating
losses that will not be utilized during the carryforward period. Of the Net
Deferred Tax Liability at December 31, 1994 and 1993, $232.3 and $174.4,
respectively, was current and $(3,646.9) and $(3,465.3), respectively, was
noncurrent.
Prior to 1993, deferred tax expense resulted from timing differences in the
recognition of revenue and expense items for tax and financial reporting
purposes, as follows:
<TABLE>
<CAPTION>
1992
---------
<S> <C>
Property, plant and equipment....................................................................... $ 5.5
Pension benefits.................................................................................... (55.6)
Other timing differences............................................................................ (10.4)
---------
Total........................................................................................... $ (60.5)
---------
---------
</TABLE>
A-35
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE M -- INCOME TAXES (CONTINUED)
A reconciliation of the Federal statutory income tax rate to BellSouth's
effective tax rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate........................................................... 35.0% 35.0% 34.0%
State income taxes, net of Federal income tax benefit................................ 4.0 4.8 4.8
Amortization of investment tax credits............................................... (2.1) (5.5) (3.4)
Miscellaneous items, net............................................................. (0.4) 1.3 0.6
--------- --------- ---------
Effective tax rate............................................................... 36.5% 35.6% 36.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE N -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE
BellSouth adopted, effective January 1, 1993, SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires employers to
accrue the cost of postemployment benefits provided to former or inactive
employees after employment but before retirement, including but not limited to
worker's compensation, disability, and continuation of health care benefits.
Previously, BellSouth used the cash method to account for such costs. A one-time
charge of $67.4 ($.14 per share), net of a deferred tax benefit of $42.5,
related to adoption of this statement was recognized as a change in accounting
principle. The effect of the change on BellSouth's 1993 operating results was
not material.
NOTE O -- SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is presented in accordance with the
provisions of SFAS No. 95, "Statement of Cash Flows":
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common and Treasury Shares Issued in Lieu of Cash Dividends Under
Shareholder Dividend Reinvestment and Stock Purchase Plan............... $ -- $ 66.4 $ 268.9
---------- ---------- ----------
---------- ---------- ----------
Shares Issued to Grantor Trusts.......................................... $ 43.6 $ 292.6 $ --
---------- ---------- ----------
---------- ---------- ----------
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest................................................................. $ 665.4 $ 755.0 $ 738.8
---------- ---------- ----------
---------- ---------- ----------
Income Taxes............................................................. $ 1,375.3 $ 1,145.2 $ 1,053.4
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
A-36
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE P -- FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the provisions of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined using available market information described
below. Since judgment is required to develop the estimates, the estimated
amounts presented herein may not be indicative of the amounts that BellSouth
could realize in a current market exchange.
<TABLE>
<CAPTION>
1994 1993
------------------------ ----------------------
RECORDED ESTIMATED RECORDED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
Assets (Liabilities):
Cash and cash equivalents......................... $ 606.5 $ 606.5 $ 501.5 $ 501.5
Temporary cash investments........................ 50.8 50.8 49.0 49.0
Bank loans........................................ (45.1) (45.1) (88.7) (88.7)
Commercial paper.................................. (1,838.5) (1,838.5) (1,536.1) (1,536.1)
Long-Term Debt:
BellSouth Telecommunications Debentures......... (4,605.0) (4,176.8) (4,605.0) (4,707.0)
BellSouth Telecommunications Notes.............. (1,875.0) (1,670.0) (1,875.0) (1,901.0)
Guarantee of ESOP Debt.......................... (693.9) (716.8) (734.6) (849.5)
BellSouth Capital Funding Corporation Notes..... (374.5) (362.9) (299.9) (323.6)
Foreign Exchange Forward Contracts:
Contract amount receivable...................... 67.7 67.7 24.4 24.4
Contract amount payable......................... (66.9) (66.9) (23.7) (23.7)
Currency Swap..................................... 11.8 11.8 -- --
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
Interest Rate Swaps:
With unrealized gains........................... -- 1.1 -- --
With unrealized losses.......................... -- (3.4) -- (8.8)
</TABLE>
CASH AND CASH EQUIVALENTS/TEMPORARY CASH INVESTMENTS. At December 31, 1994
and 1993, the recorded amounts for cash and cash equivalents and temporary cash
investments, respectively, approximate fair value due to the short-term nature
of these instruments.
DEBT. At December 31, 1994 and 1993, the recorded amounts for bank loans
and commercial paper approximate fair value due to the short-term nature of the
liabilities. The estimates of fair value for BellSouth Telecommunications
Debentures and Notes are estimated based on the closing market prices for each
issue at December 31, 1994 and 1993, respectively. Fair value estimates for the
Guarantee of ESOP Debt and BellSouth Capital Funding Corporation Notes are based
on quotes from dealers.
OTHER FINANCIAL INSTRUMENTS. BellSouth is party to foreign exchange forward
contracts, currency swap agreements and interest rate swap agreements in its
normal course of business for purposes other than trading. These financial
instruments are used to mitigate foreign currency and interest
A-37
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE P -- FINANCIAL INSTRUMENTS (CONTINUED)
rate risks, although to some extent they expose the company to market risks and
credit risks. The credit risks associated with these instruments are controlled
through the evaluation and continual monitoring of the creditworthiness of the
counterparties. In the event that a counterparty fails to meet the terms of a
contract or agreement, BellSouth's exposure is limited to the currency rate or
interest rate differential. Such contracts and agreements have been executed
with creditworthy financial institutions. As such, BellSouth considers the risk
of nonperformance to be remote.
FOREIGN EXCHANGE FORWARD CONTRACTS. Foreign exchange forward contracts are
contracts for delivery or purchase of foreign currencies at specified future
dates. The fair values of such contracts are estimated based on quotes from
brokers. BellSouth enters into foreign exchange forward contracts primarily as
hedges relating to identifiable currency exposures. These financial instruments
are designed to minimize exposure and reduce risk from exchange rate
fluctuations in the normal course of business.
Summarized below by major currency are the contractual amounts of
BellSouth's foreign exchange forward contracts in U.S. dollars. Foreign currency
amounts are translated at rates as of December 31, 1994 and 1993, respectively.
The "Buy" amounts represent the U.S. dollar equivalent of commitments to
purchase foreign currencies; the "Sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1994 1993
-------------------- --------------------
BUY SELL BUY SELL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
German Mark......................................................... $ -- $ 66.9 $ 3.0 $ --
Australian Dollar................................................... -- -- 20.3 --
Dutch Guilder....................................................... -- -- 1.1 --
--------- --------- --------- ---------
$ -- $ 66.9 $ 24.4 $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
CURRENCY SWAP. Currency swap contracts provide for the exchange of defined
cash flows between two currencies at specified times. The fair value of the
currency swap is estimated based on quotes from brokers. BellSouth entered into
a currency swap in 1994 to hedge European Currency Units (ECU) 125,000,000 debt
issued by Capital Funding. The currency swap matures in February 1999.
At December 31, 1994, the net currency swap receivable was $11.3 and the
related net interest receivable was $0.5, both of which are included in accounts
receivable in the consolidated balance sheet at December 31, 1994. The interest
rate on the ECU debt is 5.25%. The currency swap effectively converts the
interest rate on such ECU debt from 5.25% payable in ECUs to 5.247% payable in
U.S. dollars.
INTEREST RATE SWAPS. Interest rate swap agreements require counterparties
to exchange interest cash flows on a specified amount of debt for a defined
period. The fair values of interest rate swap agreements are estimated based on
quotes from dealers. In order to manage exposure to interest rate changes,
BellSouth enters into interest rate swap agreements to exchange fixed and
variable rate interest payment obligations without the exchange of the
underlying principal amounts. These agreements have been used to adjust interest
on certain fixed and variable rate obligations.
A-38
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE P -- FINANCIAL INSTRUMENTS (CONTINUED)
Summarized below are the types of interest rate swaps outstanding and the
related weighted-average interest rates. Such swaps mature in either 1996 or
2002.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Pay Fixed Rate/Receive Variable Rate
Notional amount.......................................................... $95.4 $60.8
Average rate paid........................................................ 6.97% 5.93 %
Average rate received.................................................... 5.08% 3.52 %
Pay Variable Rate/Receive Fixed Rate
Notional amount.......................................................... $75.0 $ --
Average rate paid........................................................ 5.36% --
Average rate received.................................................... 4.86 % --
</TABLE>
OTHER. BellSouth has also issued letters of credit and financial guarantees
which approximate $157 at December 31, 1994. Since there is no market for the
instruments, it is not practicable to estimate their fair value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
subject BellSouth to credit risk consist principally of trade accounts
receivable. Concentrations of credit risk with respect to these receivables are
limited due to the composition of the customer base, which includes a large
number of individuals and businesses. At December 31, 1994, approximately $448
of trade accounts receivable were from interexchange carriers.
A-39
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions, Except Per Share Amounts)
NOTE Q -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In the following summary of quarterly financial information, all adjustments
necessary for a fair presentation of each period were included. The results for
first quarter 1993 were restated to reflect the one-time, non-cash charge for
retroactive adoption of SFAS No. 112. The results for fourth quarter 1993
include a restructuring charge of $1,136.4, which reduced net income by $696.6.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
Operating Revenues................................ $ 4,124.3 $ 4,127.9 $ 4,197.7 $ 4,394.6
Operating Income.................................. $ 1,012.2 $ 1,001.6 $ 993.7 $ 1,050.3
Net Income........................................ $ 585.3 $ 516.5 $ 499.5 $ 558.5
Earnings Per Share................................ $ 1.18 $ 1.04 $ 1.01 $ 1.12
<CAPTION>
FIRST
QUARTER
----------
(RESTATED) SECOND THIRD FOURTH
QUARTER QUARTER QUARTER
--------- --------- ---------
<S> <C> <C> <C> <C>
1993
Operating Revenues................................ $ 3,833.7 $ 3,906.9 $ 4,014.9 $ 4,124.8
Operating Income (Loss)........................... $ 804.1 $ 856.4 $ 909.1 $ (282.5)
Income (Loss) Before Extraordinary Loss on Early
Extinguishment of Debt and Cumulative Effect of
Change in Accounting Principle................... $ 411.2 $ 433.1 $ 442.4 $ (252.6)
Extraordinary Loss on Early Extinguishment of
Debt, net of tax................................. -- (55.4) (7.8) (23.4)
Cumulative Effect of Change in Accounting
Principle, net of tax............................ (67.4) -- -- --
Net Income (Loss)................................. $ 343.8 $ 377.7 $ 434.6 $ (276.0)
---------- --------- --------- ---------
---------- --------- --------- ---------
Earnings Per Share:
Income (Loss) Before Extraordinary Loss on Early
Extinguishment of Debt and Cumulative Effect of
Change in Accounting Principle................. $ .83 $ .87 $ .89 $ (.51)
Extraordinary Loss on Early Extinguishment of
Debt, net of tax............................... -- (.11) (.01) (.05)
Cumulative Effect of Change in Accounting
Principle, net of tax.......................... (.14) -- -- --
Net Income (Loss)............................... $ .69 $ .76 $ .88 $ (.56)
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
A-40
<PAGE>
BELLSOUTH CORPORATION
MARKET AND DIVIDEND DATA
The principal market for trading in BellSouth common stock is the New York
Stock Exchange, Inc. (NYSE). BellSouth common stock is also listed on the
Boston, Chicago, Pacific and Philadelphia exchanges in the United States and the
London, Zurich, Basel, Geneva, Frankfurt and Amsterdam exchanges. The ticker
symbol for BellSouth common stock is BLS. As of January 31, 1995, there were
1,183,629 holders of record of BellSouth common stock. Market data, obtained
from the NYSE Composite Tape, which encompasses trading on the principal United
States stock exchanges as well as off-board trading, for 1992 through 1994 are
listed below. High and low prices represent the highest and lowest sales prices
for the periods indicated. Dividend data also are listed.
<TABLE>
<CAPTION>
MARKET PRICES PER SHARE
------------------ DIVIDENDS
HIGH LOW DECLARED
------- ------- ---------
<S> <C> <C> <C>
1994
First Quarter................................................................... $61 1/2 $53 $ .69
Second Quarter.................................................................. 63 1/2 55 1/2 .69
Third Quarter................................................................... 63 1/2 54 5/8 .69
Fourth Quarter.................................................................. 56 1/8 50 1/2 .69
1993
First Quarter................................................................... $57 1/2 $50 3/8 $ .69
Second Quarter.................................................................. 57 50 5/8 .69
Third Quarter................................................................... 62 7/8 54 1/8 .69
Fourth Quarter.................................................................. 63 7/8 54 1/8 .69
1992
First Quarter................................................................... $52 5/8 $43 5/8 $ .69
Second Quarter.................................................................. 50 3/8 43 3/8 .69
Third Quarter................................................................... 55 1/2 49 1/4 .69
Fourth Quarter.................................................................. 53 7/8 46 3/4 .69
</TABLE>
STOCK TRANSFER AGENT AND REGISTRAR
Chemical Bank is BellSouth's stock transfer agent and registrar.
A-41
<PAGE>
BELLSOUTH CORPORATION
DOMESTIC CELLULAR
PROPORTIONATE OPERATING DATA
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The following table sets forth unaudited, supplemental financial data for
BellSouth's domestic cellular operations reflecting proportionate consolidation
of entities in which BellSouth has an interest. This presentation differs from
the consolidation metholodology used to prepare BellSouth's principal financial
statements in accordance with generally accepted accounting principles. The
proportionate operating data reflect BellSouth's ownership percentage of
entities consolidated for financial reporting purposes and BellSouth's ownership
percentage in the entities which are accounted for on the equity method for
financial reporting purposes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Cellular Revenue, net (1)................................................. $ 1,465,090 $ 1,150,288
Operating Expenses........................................................ 833,652 667,027
Depreciation and Amortization............................................. 234,125 201,605
------------- -------------
Total Operating Expenses.............................................. 1,067,777 868,632
------------- -------------
Operating Income.......................................................... 397,313 281,656
Other Expenses, net (including interest and taxes)........................ 164,117 137,867
------------- -------------
Net Income................................................................ $ 233,196 $ 143,789
------------- -------------
------------- -------------
Operating Margins as a Percentage of Revenue:
Including Depreciation and Amortization................................. 27.12% 24.49%
Excluding Depreciation and Amortization................................. 43.10% 42.01%
Operational Comparisons:
Proportionate Cellular Population Served................................ 39,206,000 38,845,000
Proportionate Cellular Customers........................................ 2,155,800 1,559,100
</TABLE>
- ------------------------
(1) Includes equipment revenue, net of cost.
A-42
<PAGE>
BellSouth Corporation
1155 Peachtree Street, N.E.
Atlanta, GA 30309-3610
[Recycled Paper Logo]
Printed on Recycled Paper
<PAGE>
BELLSOUTH CORPORATION
STOCK PLAN
EFFECTIVE APRIL 24, 1995
ARTICLE I. PURPOSE
The purpose of this Plan is to promote the interest of BellSouth by
granting stock-related Awards to Eligible Employees
(1) to attract and retain Eligible Employees,
(2) to provide Eligible Employees with long term financial incentives to
increase the value of BellSouth, and
(3) to provide Eligible Employees with a stake in the future of BellSouth
which corresponds to the stake of each of BellSouth's shareowners.
Only Eligible Employees shall be eligible for Awards under this Plan.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS.
Each term set forth in this Article II shall have the respective meaning
set forth opposite such term for purposes of this Plan, and when the defined
meaning is intended the term is capitalized.
"Administrator" means the Committee or the Company Administrator, as
applicable.
"Agreement" means the written agreement which sets forth the terms and
conditions of the grant of an Award as provided in this Plan and such additional
terms and conditions, not inconsistent with this Plan, as the Committee
determines are appropriate.
"Award" means an Option, SAR, Restricted Share, Performance Share, Dividend
Equivalent Right or Stock Payment granted to a Participant under this Plan.
"BellSouth" means BellSouth Corporation, a Georgia corporation.
"Beneficiary" means the person entitled to receive any payments or exercise
any rights following the death of a Participant as determined pursuant to
Section 10.5.
<PAGE>
"Board" means the Board of Directors of BellSouth.
"Change in Control" means the occurrence of either of the following: (i)
any "person" (as such term is used in Section 13(c) and 14(d) of the Exchange
Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of BellSouth or a corporation owned directly or indirectly
by the shareholders of BellSouth in substantially the same proportions as their
ownership of stock of BellSouth, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of BellSouth representing 20% or more of the total voting power
represented by BellSouth's then outstanding voting securities; or (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board and any new director whose election by the Board or
nomination for election by BellSouth's shareholders was approved by a vote of at
least two-thirds of the directors who either were directors at the beginning of
the two-year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Nominating and Compensation Committee of the Board,
or any successor committee of the Board which administers this Plan as provided
in Article V.
"Company Administrator" means the chief executive officer of BellSouth, the
senior officer of BellSouth responsible for human resource matters or such other
person or persons as are designated by the Committee to administer the Plan on
behalf of Participants who are not Officers or Executive Officers.
"Covered Employee" means with respect to any grant of an Award an Officer
whom the Committee deems may be or become a covered employee as defined in
Section 162(m)(3) of the Code for any year that such Award may result in
remuneration to the Participant and for which year such Participant may receive
remuneration over $1 million which would not be deductible under Section 162(m)
of the Code but for the provisions of the Plan and any other "qualified
performance-based compensation" plan (as defined under Section 162(m) of the
Code) of BellSouth; provided, however, that the Committee may determine that a
Participant has ceased to be a Covered Employee prior to Settlement of any
Award.
"Dividend Equivalent Right" means a right, granted to a Participant under
Section 9.4, to receive cash or Shares based on the value of dividends paid with
respect to a Share.
2
<PAGE>
"Eligible Employee" means any employee (including an Officer, Executive
Officer or director who is an employee and including for purposes other than
ISOs any former employee) of the Company or any Subsidiary. Such term also
includes for purposes other than ISOs any non-employee advisor, consultant or
independent contractor to the Company or any Subsidiary, and any references to
employment or termination of employment under this Plan shall be deemed to apply
to such an advisor, consultant or independent contractor, for purposes of this
Plan only, as if the services of such person constitute employment services.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Executive Officer" means an Officer or other employee or former employee
of BellSouth or a Subsidiary who is subject to the reporting requirements of
Section 16(a) of the Exchange Act.
"Fair Market Value" for any day means the average of the high and low daily
sale prices of a Share on the New York Stock Exchange for that day or, if there
are no sales on such day, for the most recent prior day on which a Share was
sold on the New York Stock Exchange.
"ISO" or "Incentive Stock Option" means an option granted under this Plan
to purchase Shares which is intended by BellSouth to satisfy the requirements of
Code Section 422.
"NQSO" or "Non-Qualified Stock Option" means an option granted under this
Plan to purchase Shares which is not intended by BellSouth to be treated as an
ISO.
"Officer" means any executive of the Company or any Subsidiary who is a
member of the executive compensation group under BellSouth's compensation
practices (but not necessarily an Executive Officer.)
"Option" means an NQSO or ISO granted under this Plan.
"Option Price" means the price determined in accordance with Section 6.4
which shall be paid to purchase one Share upon the exercise of an Option granted
under this Plan.
"Parent Corporation" means any corporation which is a parent of BellSouth
within the meaning of Code Section 424(e).
"Participant" means an Eligible Employee to whom an Award is made.
"Performance Objective" means as described in Section 10.2 a performance
objective specified in the Agreement for a Performance Share, or for any other
Award which the Administrator determines to
3
<PAGE>
make subject to a performance objective, upon which the vesting or Settlement of
such Award is conditioned.
"Performance Period" means the period of time specified in an Agreement
over which Performance Shares are to be earned.
"Performance Share" means a bookkeeping entry that records the equivalent
of one share awarded pursuant to Section 9.2 of this Plan.
"Plan" means this BellSouth Corporation Stock Plan, as effective April 24,
1995 and as thereafter amended from time to time.
"Prior Plan" means the BellSouth Corporation Stock Option Plan, the
BellSouth Enterprises, Inc. Key Manager Incentive Compensation Plan, the
BellSouth Executive Long Term Incentive Plan, the BellSouth Corporation
Shareholder Return Cash Plan and the BellSouth Corporation Key Manager
Shareholder Return Cash Plan, as applicable.
"Restricted Period" means the period of time from the date of grant of a
Restricted Share until the lapse of restrictions attached thereto under the
terms of the applicable Agreement.
"Restricted Share" means a Share which has been awarded to a Participant
subject to restrictions under Section 8.1.
"Rule 16b-3" means Rule 16b-3 of the Securities Exchange Commission under
the Exchange Act.
"SAR" or "Stock Appreciation Right" means the contractual right granted to
a Participant pursuant to Section 7.1 to receive a payment upon the exercise of
such right which reflects the appreciation in the Fair Market Value of the
number of Shares for which such right was granted.
"SAR Exercise Date" means the date on which the exercise of an SAR occurs
under the related Agreement.
"SAR Exercise Price" means the Fair Market Value of a Share on the SAR
Exercise Date.
"SAR Grant Price" means the price which would have been the Option Price
for one Share if the SAR had been granted as an Option or, if the SAR is granted
in tandem with an Option, the Option Price for the related Option.
"Settlement Date" means (i) with respect to any Option that has been
exercised in whole or in part, the date or dates upon which Shares are to be
delivered to the Participant and the Option Price therefor paid, (ii) with
respect to any SARs that have been
4
<PAGE>
exercised, the date or dates upon which a cash payment is to be made to the
Participant, or in the case of SARs that are to be settled in Shares, the date
or dates upon which such Shares are to be delivered to the Participant, (iii)
with respect to Performance Shares, the date or dates upon which cash or Shares
are to be delivered to the Participant, (iv) with respect to Dividend Equivalent
Rights, the date upon which payment thereof is to be made, and (v) with respect
to Stock Payments, the date upon which payment thereof is to be made, in each
case, determined in accordance with the terms of this Plan and the Agreement
under which any such Award was made.
"Share" means a share of Stock.
"Stock" means the $1.00 par value common stock of BellSouth.
"Stock Payment" means payment of compensation in the form of Shares
pursuant to Section 9.3.
"Subsidiary" means (A), with respect to an Award other than an ISO, any
corporation, joint venture or partnership in which BellSouth owns directly or
indirectly (i) with respect to a corporation, stock possessing at least ten
percent (10%) of the total combined voting power of all classes of stock in the
corporation, or (ii) in the case of a joint venture or partnership, a ten
percent (10%) interest in the capital or profits of such joint venture or
partnership, and (B) any corporation which is a subsidiary corporation (within
the meaning of Code Section 424(f)) of BellSouth by reason of being in an
unbroken chain of corporations (beginning with BellSouth) in which each
corporation in the unbroken chain (except the last such corporation) owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
"Ten Percent Shareowner" means a person who owns (after taking into account
the attribution rules of Code Section 424(d)) more than ten percent (10%) of the
total combined voting power of all classes of stock of either BellSouth, or
Subsidiary or a Parent Corporation.
2.2 REFERENCES.
All pronouns are masculine, solely for ease of reading, and should be read
as feminine where applicable. Unless the context clearly requires otherwise,
the singular shall include the plural and the plural shall include the singular.
All references to sections of the Code or other laws or regulations shall
include
5
<PAGE>
amendments and successor provisions thereto unless otherwise specifically stated
or clearly required by the context.
ARTICLE III. SHARES SUBJECT TO PLAN
3.1 AGGREGATE LIMITS.
The aggregate number of Shares with respect to which the grant of Awards
other than Stock Payments may be made in any calendar year under this Plan shall
not exceed one percent (1%) of the total number of Shares outstanding at the
time of such grant. Within such total, the aggregate number of Shares with
respect to which the grant of Performance Shares and Restricted Shares may be
made in any calendar year under this Plan shall not exceed in combination
two-tenths of one percent (.2%) of the total number of Shares outstanding at the
time of grant. Furthermore, in no event shall ISOs with respect to more than
one million (1,000,000) Shares be granted under this Plan. Finally, the
aggregate number of Shares with respect to which the grant of Stock Payments may
be made in any calendar year under this Plan shall not exceed one-tenth of one
percent (.1%) of the total number of Shares outstanding at the time of grant.
3.2 INDIVIDUAL LIMITS.
The number of Shares with respect to which the grant of Awards other than
Stock Payments may be made to any Participant in any calendar year under this
Plan shall not exceed one-tenth of one percent (.1%) of the total number of
Shares outstanding at the end of 1994. Within such total, the number of Shares
with respect to which the grant of each of Performance Shares, Restricted Shares
and Dividend Equivalent Rights may be made to any Participant in any calendar
year under this Plan shall not exceed in combination two-hundredths of one
percent (.02%) of the total number of Shares outstanding at the end of 1994.
Finally, the number of Shares with respect to which the grant of Stock Payments
may be made to any Participant in any calendar year under this Plan shall not
exceed one-hundredth of one percent (.01%) of the total number of Shares
outstanding at the end of 1994.
3.3 APPLICATION OF LIMITS.
No grant of an Award shall be made at any time during a calendar year to
the extent the number of Shares subject to such Award and the number of Shares
subject to Awards previously granted during such year (or during the life of the
Plan in the case of ISOs) would exceed a limit in Section 3.1 or 3.2. The
number of Shares subject to an Award shall be (i) the number of Shares subject
to an Option or subject to a SAR that is not granted in tandem with an Option
(including a SAR that can be settled in cash), (ii) the number of Shares subject
to a grant of Restricted
6
<PAGE>
Shares, (iii) the maximum number of Shares that could be issued upon Settlement
of a grant of Performance Shares (or upon which a cash payment could be based)
as determined under the Agreement for such grant and this Plan, (iv) the number
of Shares with respect to which Dividend Equivalent Rights are granted, but
excluding Shares subject to Dividend Equivalent Rights which are granted in
tandem with another Award grant which otherwise does not provide for the payment
of dividends to the Participant, and (v) the number of Shares that are paid as a
Stock Payment.
3.4 ADJUSTMENTS.
The limits in Sections 3.1 and 3.2 shall be adjusted as provided in Section
10.6. If any Shares subject to an Award are forfeited or such Award otherwise
terminates, such number of Shares shall be available for new Awards under the
Plan. In addition, Shares surrendered in payment of any exercise or purchase
price or in payment of taxes relating to any such Award shall be deemed to
constitute Shares not delivered to the Participant and shall be deemed to be
available for new Awards under the Plan for purposes of Section 3.1 only.
3.4 SHARES.
BellSouth shall reserve from time to time Shares for use under this Plan,
and such Shares shall be reserved to the extent BellSouth deems appropriate from
authorized but unissued Shares and from Shares which have been reacquired by
BellSouth.
ARTICLE IV. EFFECTIVE DATE AND DURATION
4.1 EFFECTIVE DATE.
The effective date of this Plan shall be April 24, 1995. This Plan will
become effective only if approved by the shareholders of BellSouth on such date.
4.2 PRIOR PLAN.
This Plan is a successor to each Prior Plan. No further grants of stock
options, stock appreciation rights, performance shares, dividend equivalent
rights, shareholders return cash units or other interests shall be made under
the Prior Plans on or after April 24, 1995, subject to this Plan becoming
effective. Options and stock appreciation rights, or performance share,
dividend equivalent rights, shareholders return cash units or other outstanding
interests under a Prior Plan shall continue to be governed by the terms of the
Prior Plan.
7
<PAGE>
4.3 DURATION.
This Plan shall terminate on December 31, 2004, unless earlier terminated
by the Board pursuant to Article XI. No Award shall be granted after the date
this Plan terminates. The applicable terms of this Plan, and any terms and
conditions applicable to Awards granted prior to such date, shall survive the
termination of the Plan and continue to apply to such Awards.
ARTICLE V. ADMINISTRATION
5.1 ADMINISTRATOR.
The Plan shall be administered by the Committee with respect to Officers
and Executive Officers and, subject to regulations and guidelines that may be
established by the Committee, by the Company Administrator with respect to all
other Eligible Employees. The Committee may adopt such regulations and
guidelines as it deems are necessary or appropriate for the administration of
the Plan. Subject to such rules, regulations or guidelines, the Company
Administrator shall have the power to adopt rules, regulations and guidelines to
permit it to administer the Plan with respect to Eligible Employees other than
Officers and Executive Officers.
5.2 COMMITTEE RESPONSIBILITIES.
The Committee shall consist of two or more disinterested directors of
BellSouth, who shall be appointed by the Board. A member of the Board shall be
deemed to be "disinterested" only if he or she satisfies such requirements as
the Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under Rule
16b-3. No member of the Committee shall be personally liable for any action,
determination, or interpretation made in good faith with respect to the Plan or
Awards. All members of the Committee shall be fully protected by BellSouth, to
the fullest extent permitted by applicable law, in respect of any such action,
determination or interpretation.
5.3 ADMINISTRATOR RESPONSIBILITIES.
The Administrator shall (a) determine the amount of all grants of Awards
under this Plan, (b) determine the terms and conditions of grant Agreements and
all election and other forms, which terms and conditions shall not be
inconsistent with this Plan, (c) interpret the Plan, and (d) make all other
decisions relating to the operation of the Plan. The Administrator may adopt
such rules or guidelines as it deems are appropriate to implement the Plan. The
Administrator's determinations under the Plan shall be final and binding on all
persons.
8
<PAGE>
5.4 DETERMINATIONS.
All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon Participants,
BellSouth and all other interested persons.
ARTICLE VI. OPTIONS
6.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator from
time to time may grant such Options to such Eligible Employees to purchase
Shares as the Administrator acting in its sole discretion deems are appropriate
under the circumstances. Each grant of an Option shall be evidenced by an
Agreement, and each Agreement shall incorporate such terms and conditions as the
Administrator in its sole discretion deems are consistent with the terms of this
Plan, including conditions on the exercise of such Option which relate to the
employment of the Participant or the requirement that the Participant exchange a
prior outstanding Option and/or SAR; provided, if the Administrator grants an
ISO and NQSO to an Eligible Employee, the right of the Eligible Employee to
exercise one such Option shall not be conditioned on his failure to exercise the
other such Option. The Administrator may issue new Options equal to the number
of Shares surrendered by a Participant upon exercise of a previously granted
stock option.
6.2 SPECIAL RULES TO INCENTIVE STOCK OPTIONS.
The grant of ISO's shall be subject to the following additional
restrictions:
a. ELIGIBLE INDIVIDUALS. Incentive Stock Options shall only be granted
to an Eligible Employee who at the time of grant is a common law employee of
BellSouth or a Subsidiary.
b. TIME OF GRANT. No Incentive Option shall be granted pursuant to this
Plan more than ten (10) years after the effective date of the Plan under Section
4.1.
c. ANNUAL LIMIT. The aggregate Fair Market Value (determined at the time
the ISO is granted) of the Shares with respect to which one or more ISOs are
exercisable for the first time by a Participant during any calendar year under
the Plan or with respect to which any incentive stock options described in
Section 422 of the Code are so first exercisable under any other stock plan of
the Company or a Parent Corporation or any Subsidiary shall not exceed $100,000
or such other maximum amount permitted under Section 422 of the Code.
9
<PAGE>
d. OPTION TERM. The term of an ISO shall not exceed ten (10) years from
the date of grant.
f. TEN PERCENT SHAREHOLDER. If any Participant to whom an ISO is to be
granted pursuant to the provisions of the Plan is, on the date of grant, a Ten
Percent Shareholder, then the following special provisions shall be applicable
to the ISO granted to such individual:
(i) the Option Price of shares subject to such ISO shall not be less
than 110% of Fair Market Value on the date of grant; and
(ii) the Option shall not have a term in excess of (5) years from the
date of grant.
Any Option purporting to constitute an ISO in violation of the restrictions in
this Section 6.2 shall constitute a NQSO.
6.3 OTHER OPTIONS.
The Administrator may establish rules with respect to, and may grant to
Eligible Employees, Options which comply with any amendment to the Code
providing for special tax benefits for stock options made after the effective
date of this Plan, provided such rules otherwise are consistent with the terms
of this Plan.
6.4 OPTION PRICE.
The Option Price for each Share subject to an Option shall not be less than
the greater of (i) the par value of a Share or (ii) the Fair Market Value of a
Share on the date the Option is granted.
6.5 OPTION PERIOD.
Each Option granted under this Plan shall be exercisable at such time or
times as set forth in the related Agreement over the period which begins on the
date such Option is granted, and each Option shall expire automatically on the
earliest of (i) the date such Option is exercised in full, (ii) the date such
Option expires in accordance with the terms of the related Agreement or (iii)
the date such Option is forfeited or deemed to expire upon the exercise of any
tandem SAR. An Agreement may provide for the exercise of an Option after the
employment of an Eligible Employee has terminated for any reason whatsoever,
including retirement, death or disability, but such provision shall have no
force or effect whatsoever and shall be inoperative if the Administrator
determines that such termination was for "cause" or was a result of misconduct
in connection with his employment.
10
<PAGE>
6.6 METHOD OF EXERCISE.
An Option may be exercised by properly completing and actually delivering
to BellSouth an exercise form prescribed by the Administrator for this purpose,
together with payment in full of the Option Price for the Shares the Participant
desires to purchase through such exercise in the manner specified in the
exercise form. Payment may be made in the form of cash or Shares, or a
combination of cash and Shares, or in the form of other property as determined
by the Administrator. Any Shares which are tendered in payment shall be valued
at their Fair Market Value on the Settlement Date.
ARTICLE VII. STOCK APPRECIATION RIGHTS
7.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator may
grant a SAR to any Eligible Employee either (i) in tandem with the grant of an
ISO, (ii) in tandem with the grant of an NQSO or (iii) independent of the grant
of an ISO or NQSO. Each grant of a SAR which is in tandem with the grant of an
ISO or an NQSO shall be evidenced by the same Agreement as the ISO or NQSO which
is granted in tandem with such SAR and such SAR shall relate to the same number
of Shares as such Option. Each SAR which is granted independent of an ISO or
NQSO shall be evidenced by a separate Agreement which shall state the number of
Shares to which such SAR shall relate and such other terms and conditions as the
Administrator in its sole discretion deems are consistent with the terms of this
Plan, including conditions on the exercise of such SAR which relate to the
employment of the Participant or the requirement that the Participant exchange a
prior outstanding Option and/or SAR.
7.2 PAYMENT AT EXERCISE.
Upon the settlement of a SAR in accordance with the terms of the related
Agreement, the Participant shall (subject to the terms and conditions of this
Plan and such Agreement) receive a payment equal to the excess, if any, of the
SAR Exercise Price for the number of Shares of the SAR being exercised at that
time over the SAR Grant Price for such Shares. Such payment may be made in
whole Shares or in cash, or partially in Shares and partially in cash, as
determined under the SAR Agreement. If payment is made in whole or in part in
Shares, such Shares shall be valued for this purpose at the SAR Exercise Price
on the date the SAR is exercised, and any payment in Shares which calls for a
payment in a fractional Share automatically shall be paid in cash based on such
valuation.
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7.3 SPECIAL TERMS AND CONDITIONS.
Each Agreement which evidences the grant of a SAR shall incorporate such
terms and conditions as the Administrator in its absolute discretion deems are
consistent with the terms of this Plan and the Agreement for the ISOs and NQSOs,
if any, granted in tandem with such SAR except that (i) if a SAR is granted in
tandem with an ISO or a NQSO, the SAR shall be exercisable only when the related
ISO or NQSO is exercisable and (ii) the Participant's right to exercise a SAR
granted in tandem with an ISO or NQSO shall be forfeited to the extent that he
exercises the related ISO or NQSO and his right to exercise the ISO or NQSO
shall be forfeited to the extent he exercises the related SAR, but any such
forfeiture shall not count as a forfeiture for purposes of making the Shares
subject to such Option or SAR again available for use under Article III.
ARTICLE VIII. RESTRICTED SHARES
8.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator may
grant Restricted Shares to any Eligible Employee as provided in this Article
VIII. Each grant of Restricted Shares shall be evidenced by an Agreement which
shall state such terms and conditions as the Administrator deems are consistent
with the terms of this Plan.
8.2 RESTRICTIONS.
Restricted Shares shall be subject to such conditions and restrictions as
the Administrator shall determined and specify in the related Agreement, which
may include, but are not limited to, continued employment with BellSouth or a
Subsidiary and achievement of Performance Objectives, which restrictions may
lapse separately or in combination at such times, under such circumstances, in
such installments, or otherwise, as the Administrator may determine and so
specify. Except to the extent restricted under the terms of the Plan and the
Agreement relating to the Restricted Shares, a Participant granted Restricted
Shares shall have all of the rights of a shareholder including, without
limitation, the right to vote Restricted Shares and the right to receive
dividends thereon.
8.3 FORFEITURE.
If a Participant fails to meet the terms and conditions of the Agreement
for such Restricted Shares during the Restricted Period, Restricted Shares still
subject to restrictions shall be forfeited, and all rights of the Participant to
such Shares shall terminate without further obligation on the part of BellSouth.
An Agreement may provide that the Restricted Period will end upon the
retirement, death or disability of a Participant while an employee
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or upon such other event or events as the Administrator shall determine or may
otherwise provide that such an event will not result in forfeiture of the
Restricted Shares.
8.4 CERTIFICATES FOR SHARES.
Restricted Shares granted under the Plan may be evidenced in such manner as
the Administrator shall determine. The Administrator may place a legend on the
Share certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the Share certificates,
together with duly endorsed stock powers, in the custody of BellSouth or its
transfer agent or to maintain evidence of Share ownership, together with duly
endorsed stock powers, in a certificateless book-entry account with BellSouth's
transfer agent.
8.5 ADJUSTMENTS.
Shares distributed in connection with a stock split or stock dividend, and
other property distributed as a dividend or pursuant to an adjustment under
Section 10.6, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Shares with respect to which such Shares or other
property has been distributed.
ARTICLE IX. OTHER STOCK RIGHTS
9.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator may
grant Performance Shares, Stock Payments or Dividend Equivalent Rights as
provided in this Article IX. A grant of Performance Shares and Dividend
Equivalent Rights shall be evidenced by an Agreement, and a grant of Stock
Payments may be evidenced by an Agreement, which Agreement shall contain such
terms and conditions as the Administrator deems are consistent with the terms of
this Plan.
9.2 PERFORMANCE SHARES.
Performance Shares shall become payable to a Participant based upon the
achievement of specified Performance Objectives and upon such other terms and
conditions as the Administrator may determine and specify in the Agreement
evidencing such Performance Shares. Each grant shall satisfy the conditions for
performance-based Awards under Section 10.2. A grant may provide for the
forfeiture of Performance Shares in the event of termination of employment or
other events, subject to exceptions for death, disability, retirement or other
events, all as the Administrator may determine
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and specify in the Agreement for such grant. Payment may be made at such time
and in such form, either cash or Shares, or a combination thereof, as the
Administrator shall determine and specify in the Agreement.
9.3 STOCK PAYMENTS.
The Administrator may grant Stock Payments to an Eligible Employee as a
bonus or additional compensation or in lieu of the obligation of the Company or
a Subsidiary to pay cash compensation under other compensatory arrangements,
with or without the election of the Eligible Employee. A Participant shall have
all voting, dividend, liquidation and other rights with respect to Shares issued
to the Participant as a Stock Payment upon the Participant becoming holder of
record of such Shares; provided, however, the Plan Administrator may impose such
restrictions on the assignment or transfer of such Shares as it are appropriate
and specifies in an Agreement for such Stock Payment. A Stock Payment shall be
subject to such other terms as the Administrator deems are consistent with the
terms of this Plan and specifies in any Agreement for such Stock Payment.
9.4 DIVIDEND EQUIVALENT RIGHTS.
The Plan Administrator may grant Dividend Equivalent Rights in tandem with
the grant of Options, SARs, or Performance Shares that otherwise do not provide
for the payment of dividends on the Shares subject to such Awards for the period
of time to which such Dividend Equivalent Rights apply, or may grant Dividend
Equivalent Rights that are independent of any such Award. A Dividend Equivalent
Right granted in tandem with another Award may be evidenced by the Agreement for
such other Award; otherwise, a Dividend Equivalent Right shall be evidenced by a
separate Agreement. Payment may be made in cash or Shares, or a combination
thereof, may be immediate or deferred, and may be subject to such employment,
Performance Objectives or other conditions as the Administrator may determine
and specify in the Agreement for such Dividend Equivalent Rights. The total
payment attributable to a Share subject to a Dividend Equivalent Right shall not
exceed one hundred percent (100%) of the equivalent dividends payable with
respect to a Share during the term of such Dividend Equivalent Right, taking
into account any assumed reinvestment (including assumed reinvestment in Shares)
or interest earnings on such equivalent dividends as determined under the
Agreement in the case of deferred payment, provided that such percentage may
increase to a maximum of two hundred percent (200%) if the Dividend Equivalent
Right is subject to a Performance Objective as described in Section 10.2.
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ARTICLE X. SPECIAL PROVISIONS APPLICABLE TO AWARDS
10.1 RULE 16B-3 COMPLIANCE.
(a) SIX-MONTH HOLDING PERIOD. Unless a Participant could otherwise
exercise a derivative security or dispose of Shares delivered upon exercise of a
derivative security granted under the Plan without incurring liability under
Section 16(b) of the Exchange Act, (i) Shares delivered under the Plan other
than upon exercise or conversion of a derivative security granted under the Plan
shall be held for at least six months from the date of acquisition, and (ii),
with respect to a derivative security granted under the Plan, at least six
months shall elapse from the date of acquisition of the derivative security to
the date of disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
(b) REFORMATION TO COMPLY WITH EXCHANGE ACT RULES. It is the intent of
the Company that this Plan comply in all respects with applicable provisions of
Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in connection with any
grant of Awards to, or other transaction by, a Participant who is subject to
Section 16 of the Exchange Act (except for transactions exempted under
alternative Exchange Act Rules). Accordingly, if any provision of this Plan or
any Agreement relating to an Award does not comply with the requirements of Rule
16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction, such
provision will be construed or deemed amended to the extent necessary to conform
to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such
Participant shall avoid liability under Section 16(b).
10.2 PERFORMANCE-BASED AWARDS.
(a) GENERAL. Each Agreement for the grant of Performance Shares shall
specify the number of Performance Shares subject to such Agreement, the
Performance Period and the Performance Objective, and each Agreement for the
grant of any other Award that the Administrator determines to make subject to a
Performance Objective similarly shall specify the applicable number of Shares,
the period for measuring performance and the Performance Objective. Each
Agreement for a performance-based grant shall specify in respect of a
Performance Objective the minimum level of performance below which no payment
will be made, shall describe the method for determining the amount of any
payment to be made if performance is at or above the minimum acceptable level
but falls short of full achievement of the Performance Objective, and shall
specify the maximum percentage payout under the Agreement. Such maximum
percentage in no event shall exceed one hundred percent (100%) in the case of
performance-based Restricted Shares and two hundred percent (200%) in the case
of Performance Shares or performance-based Dividend Equivalent Rights.
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(b) PERFORMANCE OBJECTIVE. The Administrator shall determine and specify
the Performance Objective in the Agreement for a Performance Share or for any
other performance-based Award, which Performance Objective shall consist of (i)
one or more business criteria, including (except as limited under Section
10.2(c) below for Awards to Covered Employees) financial, service level and
individual performance criteria, and (ii) a targeted level or levels of
performance with respect to such criteria. Performance Objectives may differ
between Participants and between types of Awards and from year to year.
(c) ADDITIONAL RULES APPLICABLE TO COVERED EMPLOYEES. The Performance
Objective for Performance Shares and any other performance-based Award granted
to a Covered Employee shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code and shall be based upon the
business criterion of total BellSouth shareholder return as measured against
total shareholder return of a peer group of companies determined by the
Committee. Achievement of this Performance Objective shall be measured over a
period of years not to exceed ten as specified by the Committee in the Agreement
for the performance-based Award. No business criterion other than that named
above in this Section 10.2(c) may be used in establishing the performance
objective for an Award to a Covered Employee under this Section 10.2. For each
such Award relating to a Covered Employee, the Committee shall establish the
targeted level or levels of performance for such business criterion. The
Committee may, in its discretion, reduce the amount of a payout otherwise to be
made in connection with an Award under this Section 10.2(c), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of Performance Objectives under this Section
10.2(c) shall be made in writing. The Committee may not delegate any
responsibility under this Section 10.2(c).
(d) INTENT WITH REGARD TO CODE SECTION 162(M). It is the intent of
BellSouth that, unless otherwise determined by the Committee, Options, SARs, and
Awards subject to Performance Objectives specified under this Section 10.2,
granted under the Plan to persons who are Covered Employees, shall constitute
"qualified performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. Accordingly, unless otherwise determined by
the Committee, if any provision of the Plan or any Award agreement relating to
such an Award granted to a Covered Employee does not comply or is inconsistent
with the requirements of Code Section 162(m) or regulations thereunder
(including Proposed Regulation 1.162-27 unless and to the extent it is
superseded by an interim or final regulation), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
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discretion to increase the amount of compensation otherwise payable to a Covered
Employee in connection with any such Award upon attainment of the Performance
Objectives.
10.3 CHANGE OF CONTROL.
The Administrator shall have the right in its sole discretion to include
with respect to any Award granted to a Participant under this Plan provisions
accelerating the vesting or Settlement of such Award upon a Change of Control,
subject to the restrictions on dispositions of equity securities set forth in
Sections 10.1(a) and 12.1. Such acceleration rights may be included as part of
the Agreement for such Award or may be included at any time after the Award has
been granted to the Participant. Such acceleration rights may include, or be
made subject to, such restrictions as the Administrator may deem are appropriate
to avoid or ameliorate the federal income tax impact of excess parachute
payments as defined in Section 280G(b) of the Code.
10.4 TRANSFERABILITY DURING LIFETIME.
During the lifetime of a Participant to whom an Award is granted, only the
Participant (or such Participant's legal representative) may exercise or receive
payment of an Award; provided, however, that the Administrator may permit
transfers of NQSOs and SARs for estate planning purposes if and to the extent
such transfers do not cause a Participant subject to Section 16 of the Exchange
Act who then or thereafter has transactions with respect to such Option or SAR
to lose the benefit of the exemption under Rule 16b-3 for such transactions or
violate other rules or regulations of the Securities and Exchange Commission or
the Internal Revenue Service or materially increase the cost of BellSouth's
compliance with such rules or regulations. No Award (other than unrestricted
Stock Payments upon receipt) may be sold, assigned, transferred (except as
provided in the sentence above), exchanged, or otherwise encumbered or made
subject to any creditor's process, whether voluntary, involuntary or by
operation of law, and any attempt to do so shall be of no effect.
10.5 TRANSFERS TO DEATH BENEFICIARY.
In the event of a Participant's death, all of such person's outstanding
Awards, including his or her rights to receive any accrued but unpaid Stock
Payments, will transfer to the maximum extent permitted by law to such person's
Beneficiary (except to the extent a permitted transfer of a NQSO or SAR
previously was made pursuant to Section 10.4.) Each Participant may name, from
time to time, any beneficiary or beneficiaries (which may be named contingently
or successively) as his or her Beneficiary for purposes of this Plan. Each
designation shall be on a form prescribed by the Administrator, will be
effective only when
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delivered to BellSouth, and when effective will revoke all prior designations by
the Participant. If a Participant dies with no such beneficiary designation in
effect, such person's Beneficiary shall be his or her estate and such person's
Awards will be transferable by will or pursuant to laws of descent and
distribution applicable to such person.
10.6 ADJUSTMENTS.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Shares, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects Shares such that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of
Participants under this Plan, then the Administrator, in such manner as it may
deem equitable, shall adjust any or all of (i) the number and kind of shares
which may thereafter be delivered in connection with Awards, (ii) the number and
kind of shares that may be delivered or deliverable in respect of outstanding
Awards, (iii) the number and kind of shares with respect to which Awards may be
granted as set forth in Article III, and (iv) the exercise price, grant price,
or purchase price relating to any Award, or, if deemed appropriate, make
provision for a cash payment with respect to any outstanding Award. Any such
adjustment made by the Administrator, including any cancellation of an
outstanding Award made as part of such adjustment, will be final and binding.
ARTICLE XI. AMENDMENTS AND TERMINATION
The Board shall have the right to amend, modify, suspend or terminate the
Plan at any time; provided, that following the approval of the Plan by BellSouth
shareholders, this Plan may not be amended without further approval by
shareholders with respect to the amount, timing, Option Price or method for
determining Fair Market Value of Shares, and related provisions with respect to
tandem SARs, or in any way to (a) extend the maximum life of the Plan under
Section 4.3,(b) change the class of persons eligible for Awards or to otherwise
materially modify (within the meaning of Rule 16b-3) the requirements as to
eligibility for participation in this Plan, or (c) otherwise materially increase
(within the meaning of Rule 16b-3 of the Exchange Act) the benefits accruing
under this Plan. No enactment, modification, suspension or termination of the
Plan shall alter or impair any Awards previously granted under this Plan without
the consent of the holder thereof, unless otherwise required by law. It is
conclusively presumed for this purpose that any adjustment for changes in
capitalization pursuant to Section 10.6 of this Plan does not affect any right
of the holder of an Award.
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Notwithstanding approval by shareholders, the Board may amend this Plan without
further shareholder approval to add provisions required or enabled by changes to
Rule 16b-3.
ARTICLE XII. GENERAL PROVISIONS
12.1 STOCK RESTRICTIONS.
BellSouth shall have the right under this Plan to restrict or otherwise
delay the issuance of any Shares purchased or paid under this Plan until the
requirements of any applicable laws or regulations and any stock exchange
requirements have been in BellSouth's judgment satisfied in full. Furthermore,
any Shares which are issued as a result of purchases or payments made under this
Plan shall be issued subject to such restrictions and conditions on any resale
and any other disposition as BellSouth shall deem necessary or desirable under
any applicable laws or regulations or in light of any stock exchange
requirements.
12.2 TERM OF SERVICE.
The granting of an Award to a Participant under this Plan shall not
obligate BellSouth to provide that Participant upon the termination of his or
her employment with any benefit whatsoever except as provided under the terms
and conditions of that Award or obligate the Participant to remain an employee.
12.3 NO SHAREHOLDER RIGHTS.
No Award shall confer on any Participant, or anyone claiming on his behalf,
any of the rights of a shareholder of BellSouth unless and until Shares are duly
issued or transferred on the books of BellSouth in accordance with the terms and
conditions of the Award.
12.4 UNFUNDED PLAN.
This Plan shall be unfunded and BellSouth shall not be required to
segregate any assets that may at any time be represented by Awards under this
Plan. Neither BellSouth, its affiliates, the Administrator, nor the Board shall
be deemed to be a trustee of any amounts to be paid under this Plan nor shall
anything contained in this Plan or any action taken pursuant to its provisions
create or be construed to create a fiduciary relationship between any such party
and a Participant or anyone claiming on his or her behalf. To the extent a
Participant or any other person acquires a right to receive payment pursuant to
an Award under this Plan, such right shall be no greater than the right of an
unsecured general creditor of BellSouth.
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12.5 TAXES.
BellSouth or any Subsidiary shall withhold from any payment of cash or
Shares to a Participant or other person under this Plan an amount sufficient to
cover any withholding taxes which may become required with respect to such
payment. BellSouth or any Subsidiary shall have the right to require the
payment of any such taxes and require that any person furnish information deemed
necessary by BellSouth or any Subsidiary to meet any tax reporting obligation
before making any payment pursuant to an Award.
12.6 BINDING EFFECT.
The provisions of this Plan, and any applicable Agreement, election,
Beneficiary designation or other related document, shall be binding upon each
Participant and any of his Beneficiaries, transferees, heirs, assignees,
distributees, executors, administrators, personal representatives or any other
person claiming any rights under this Plan. Any such person claiming any rights
under this Plan shall be subject to the terms and conditions of this Plan and
all such documents and such other terms and conditions, not inconsistent with
this Plan, as the Administrator may impose pursuant to Article V.
12.7 CHOICE OF LAW AND VENUE.
This Plan and all related documents shall be governed by, and construed in
accordance with, the laws of the State of Georgia (except to the extent
provisions of federal law may be applicable.) Acceptance of an Award shall be
deemed to constitute consent to the jurisdiction and venue of the Superior Court
of Fulton County, Georgia and the United States District Court for the Northern
District of Georgia for all purposes in connection with any suit, action, or
other proceeding relating to such Award, including the enforcement of any rights
under this Plan or any Agreement or other document, and shall be deemed to
constitute consent to any process or notice of motion in connection with such
proceeding being served by certified or registered mail or personal service
within or without the State of Georgia, provided a reasonable time for
appearance is allowed.
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BELLSOUTH CORPORATION
NON-EMPLOYEE DIRECTOR STOCK PLAN
EFFECTIVE APRIL 24, 1995
ARTICLE I. PURPOSE
The purpose of this Plan is to promote the interest of BellSouth by
granting Options and Stock Appreciation Rights to Non-Employee Directors, and
providing Non-Employee Directors an election to receive compensation in the form
of Stock Payments, in order
(1) to attract and retain Non-Employee Directors,
(2) to provide Non-Employee Directors with long term financial incentives
to increase the value of BellSouth, and
(3) to provide each Non-Employee Director with a stake in the future of
BellSouth which corresponds to the stake of each of BellSouth's shareowners.
Only Non-Employee Directors shall be eligible for Awards under this Plan.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS.
Each term set forth in this Article II shall have the respective meaning
set forth opposite such term for purposes of this Plan, and when the defined
meaning is intended the term is capitalized.
"Additional Option" means an Option granted to a Non-Employee Director
pursuant to Section 6.2 based upon his or her level of Stock ownership.
"Agreement" means the written agreement which sets forth the Option Price,
grant date, expiration date, and number of Shares with respect to an Option and
an SAR granted in tandem with such Option to a Non-Employee Director under this
Plan and which contains such other terms and conditions not inconsistent with
this Plan as the Committee determines are appropriate.
"Award" means an Option, SAR or Stock Payment.
"BellSouth" means BellSouth Corporation, a Georgia corporation.
"Basic Option" means an Option granted to a Non-Employee Director pursuant
to Section 6.1.
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"Beneficiary" means the person entitled to receive any payments or exercise
any rights following the death of a Non-Employee Director as determined
pursuant to Section 9.2.
"Board" means the Board of Directors of BellSouth.
"Change in Control" means the occurrence of either of the following: (i)
any "person" (as such term is used in Section 13(c) and 14(d) of the Exchange
Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of BellSouth or a corporation owned directly or indirectly
by the shareholders of BellSouth in substantially the same proportions as their
ownership of stock of BellSouth, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of BellSouth representing 20% or more of the total voting power
represented by BellSouth's then outstanding voting securities; or (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board and any new director whose election by the Board or
nomination for election by BellSouth's shareholders was approved by a vote of at
least two-thirds of the directors who either were directors at the beginning of
the two-year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Nominating and Compensation Committee of the Board,
or any successor committee which administers this Plan as provided in Article V.
"Compensation" means all cash compensation payable to a Non-Employee
Director for service to BellSouth as a director, other than reimbursement for
expenses, including retainer fees for service on, and fees for attendance at
meetings of, the Board and any committees thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" for any day means the average of the high and low daily
sale prices of a Share on the New York Stock Exchange for that day or, if there
are no sales on such day, for the most recent prior day on which a Share was
sold on the New York Stock Exchange.
"Non-Employee Director" means a member of the Board who is not an officer
or employee of BellSouth or its affiliates.
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"Option" means an option granted under this Plan to purchase Stock, which
shall constitute a nonqualified or nonstatutory stock option and not an
incentive stock option satisfying the requirements of Code section 422.
"Option Price" means the price determined in accordance with Section 6.3
which shall be paid to purchase one Share upon the exercise of an Option granted
under this Plan.
"Plan" means this BellSouth Corporation Non-Employee Director Stock Plan as
effective April 24, 1995 and as thereafter amended from time to time.
"Prior Plan" means the BellSouth Corporation Non-Employee Director Stock
Option Plan.
"Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
under the Exchange Act, as from time to time in effect (including its
successor).
"SAR" or "Stock Appreciation Right" means the contractual right granted to
a Non-Employee Director to receive a payment upon the exercise of such right
which reflects the appreciation in the Fair Market Value of the number of Shares
for which such right was granted.
"SAR Exercise Date" means the date on which the exercise of an SAR occurs
under the related Agreement.
"SAR Exercise Price" means the Fair Market Value of a Share on the SAR
Exercise Date.
"SAR Grant Price" means the Option Price for the related Option.
"Share" means a share of Stock.
"Stock" means the $1.00 par value common stock of BellSouth.
"Stock Payment" means payment of Compensation in the form of Shares at the
election of a Non-Employee Director pursuant to Article VIII.
2.2 GENDER AND NUMBER.
All pronouns are masculine, solely for ease of reading, and should be read
as feminine where applicable. Unless the context clearly requires otherwise,
the singular shall include the plural and the plural shall include the singular.
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ARTICLE III. SHARES SUBJECT TO PLAN
The aggregate number of Shares with respect to which the grant of Options,
including Options in tandem with SARs, (collectively referred to as "Grants" in
this Article III) may be made shall be 300,000. Any Shares subject to a Grant
after the exchange, cancellation, forfeiture or expiration of such Grant
thereafter shall again become available for use under this Article III as if
such Shares had never been subject to a Grant. The aggregate number of Shares
with respect to which Stock Payments may be made shall be 175,000. The
limitations of this Article III shall be subject to adjustment pursuant to
Article X. BellSouth shall reserve from time to time Shares for use under this
Plan, and such Shares shall be reserved to the extent BellSouth deems
appropriate from authorized but unissued Shares and from Shares which have been
reacquired by BellSouth.
ARTICLE IV. EFFECTIVE DATE AND DURATION
4.1 EFFECTIVE DATE.
The effective date of this Plan shall be April 24, 1995. This Plan will
become effective only if approved by the shareholders of BellSouth on such date.
4.2 PRIOR PLAN.
This Plan is a successor to the Prior Plan. No further grants of stock
options or stock appreciation rights shall be made under the Prior Plan
beginning on April 24, 1995, subject to this Plan becoming effective. Options
and stock appreciation rights outstanding under the Prior Plan shall continue to
be governed by the terms of the Prior Plan.
4.3 DURATION.
This Plan shall terminate on December 31, 2004, unless earlier terminated
by the Board pursuant to Article XI. No Option or SAR shall be granted, and no
Stock Payment shall be made, after the date this Plan terminates. The
applicable terms of this Plan, and any terms and conditions as applicable to
Options or SARs granted prior to such date, shall survive the termination of the
Plan and continue to apply to such Option and SARs.
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ARTICLE V. ADMINISTRATION
5.1 COMMITTEE.
The Plan shall be administered by the Committee. The Committee shall
consist of two or more disinterested directors of BellSouth, who shall be
appointed by the Board. A member of the Board shall be deemed to be
"disinterested" only if he or she satisfies such requirements as the Securities
and Exchange Commission may establish for disinterested administrators acting
under plans intended to qualify for exemption under Rule 16b-3. A Non-Employee
Director shall not fail to be "disinterested" solely because he or she receives
an Option or SAR grant or makes an election to receive Stock Payments described
in Section 8.1.
5.2 COMMITTEE RESPONSIBILITIES.
The Committee shall (a) make all grants of Options and SARs as provided in
this Plan, (b) determine the terms and conditions of grant Agreements, Stock
Payment elections under Article VIII and all other election and other forms,
which terms and conditions shall not be inconsistent with this Plan, (c)
interpret the Plan and (d) make all other decisions relating to the operation of
the Plan. The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons. Notwithstanding the foregoing,
the Committee shall not be deemed to possess such administrative or
discretionary duties or powers as would disqualify this Plan from being a
formula plan under Rule 16b-3.
5.3 DETERMINATIONS.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Non-Employee
Directors, BellSouth and all other interested persons. No member of the
Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan or Awards. All
members of the Committee shall be fully protected by BellSouth, to the fullest
extent permitted by applicable law, in respect of any such action, determination
or interpretation.
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ARTICLE VI. OPTIONS
6.1 GRANT OF BASIC OPTIONS.
On the date of each BellSouth annual shareholders' meeting, beginning with
and including the 1995 annual shareholders' meeting, each individual who is at
that time serving as a Non-Employee Director, whether or not such individual is
first elected as a Board member at that meeting or whether or not such
individual is standing for re-election as a Board member at that meeting, shall
automatically be granted an Option to purchase 1,000 Shares. Each grant of such
an Option, referred to in this Plan as a Basic Option, will include the grant of
a tandem SAR as provided in Article VII and will be evidenced by an Agreement
which shall reflect the terms and conditions of Options and tandem SARs as
provided in this Plan and such additional terms and conditions, not inconsistent
with this Plan, as are determined by the Committee.
6.2 GRANT OF ADDITIONAL OPTIONS.
(a) Each Non-Employee Director who receives a grant of a Basic Option
under Section 6.1 on the date of an annual shareholders' meeting shall be
granted an Additional Option on such date if (i) the number of Shares owned by
such Non-Employee Director (as determined under paragraph (b) below) as of the
immediately preceding December 31 exceeds (ii) the sum of (A) the number of
Shares determined by dividing five times the amount of the annual retainer for
Board members in effect on such December 31 by the representative Share price on
such December 31 (as determined under paragraph (c) below) and (B) the number of
Shares subject to Additional Options previously granted to such Non-Employee
Director under this Section 6.2 (whether or not any such previously granted
Additional Option has been exercised or has expired). Such Additional Option
shall be for the number of Shares equal to one-half (rounded to the next highest
whole number) of the number by which (i) exceeds (ii) above, limited to a
maximum annual grant of 1,000 Shares. Each grant of such an Additional Option
will include the grant of a tandem SAR as provided in Article VII and will be
evidenced by an Agreement which shall reflect the terms and conditions of
Options and tandem SARs as provided in this Plan and such additional terms and
conditions, not inconsistent with this Plan, as are determined by the Committee.
(b) For purposes of this Section 6.2 only, a Non-Employee Director shall
be deemed to "own" the number of Shares equal to the sum of (i) those Shares,
whether registered in the owner's name or in nominee name, which (A) are owned
by the Non-Employee Director or his spouse (or jointly) or (B) are owned by a
trust with respect to which the Non-Employee Director or his spouse (or both)
contributed the Shares (or the money or other property used
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by the trustee to purchase the Shares) and also holds the power to vote and
dispose of the Shares, and (ii) the number of stock units (I.E., bookkeeping
units which reflect the price changes and dividends on a Share) credited to the
Non-Employee Director pursuant to any deferred compensation plan maintained by
BellSouth.
(c) For purposes of this Section 6.2 only, the representative price of a
Share on any December 31 will equal the average of the Fair Market Value of a
Share for the last five trading days on the New York Stock Exchange for the year
ending that December 31 and the first five such trading days in the next
succeeding year.
6.3 OPTION PRICE; FORM OF PAYMENT.
The Option Price for each Share subject to an Option shall be the greater
of (i) the par value of a Share or (ii) the Fair Market Value of a Share on the
date the Option is granted.
6.4 DATE EXERCISABLE.
An Option shall become exercisable on the first anniversary of the Grant
Date; provided, however, in the event that, prior to such first anniversary, (A)
the Non-Employee Director terminates his service on the Board by reason of (i)
death, (ii) disability, or (iii) retirement (which shall mean termination of
service on the Board after the Non-Employee Director has attained age 55 and
completed at least 5 years of service as a director on the Board), or (B) a
Change in Control shall occur, then an Option shall become immediately
exercisable upon the occurrence of such event or, if later, the expiration of
the six-month period following the Grant Date. Subject to the foregoing, an
Option shall be exercisable at any time in whole or in part (but if in part, in
an amount equal to at least 100 Shares or, if less, the number of Shares
remaining to be exercised under the Option) on any business day of BellSouth
before the date such Option expires under Section 6.5.
6.5 EXPIRATION.
An Option shall expire on the earlier of
(a) the first date on or after the Grant Date and prior to a Change
in Control on which the Non-Employee Director (i) resigns from or is not
re-elected to the Board prior to being eligible for retirement under clause
B(iii) of Section 6.4; (ii) resigns for the purpose of accepting, or
retires and subsequently accepts, a directorship or employment, or becomes
associated with, employed by or renders service to, or owns an interest
in (other than as a shareholder with a
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less than 5% interest in a publicly traded company) any business that is
competitive with any BellSouth company or with any other business in which
any of the BellSouth companies have a substantial direct or indirect
interest; or (iii) resigns as a result of an interest or affiliation which
would prohibit continued service as a director;
(b) the date the Option (or a tandem SAR) has been exercised in
full; or
(c) one day after the expiration of the 10-year period which begins
on the Option Grant Date or, in the case of a Non-Employee Director who
dies within six months prior to such day, the last day of the 6-month
period which begins on the date of the Non-Employee Director's death.
6.6 METHOD OF EXERCISE.
An Option may be exercised by properly completing and actually delivering
to BellSouth an exercise form prescribed by the Committee for this purpose,
together with payment in full of the Option Price for the shares of Stock the
Non-Employee Director desires to purchase through such exercise in the manner
specified in the exercise form. Payment may be made in the form of cash or
shares of Stock, or a combination of cash and shares of stock. Any shares of
Stock which are tendered shall be valued at their Fair Market Value on the date
as of which the exercise is effective.
ARTICLE VII. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS.
SARs shall be granted to Non-Employee Directors in tandem with the grant of
Basic Options and Additional Options. Each such grant shall be evidenced by the
same Agreement as the Option which is granted in tandem with such SAR and such
SAR shall relate to the same number of Shares as such Option. An SAR shall be
exercisable only if and to the extent the tandem Option is exercisable.
7.2 PAYMENT AT EXERCISE.
An SAR may be exercised by properly completing and actually delivering to
BellSouth an exercise form prescribed by the Committee for this purpose. Upon
the exercise of an SAR the Non-Employee Director shall receive a payment equal
to the excess, if any, of the SAR Exercise Price for the number of Shares of the
SAR being exercised at that time over the SAR Grant Price
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for such Shares. Such payment shall be made in whole Shares. Such Shares shall
be valued for this purpose at the SAR Exercise Price on the date the SAR is
exercised, and any payment for a fractional Share automatically shall be paid in
cash based on such valuation.
7.3 SPECIAL TERMS AND CONDITIONS.
An SAR shall be exercisable only when the tandem Option is exercisable.
The Non-Employee Director's right to exercise an SAR shall be forfeited to the
extent that he exercises the tandem Option and the right to exercise the tandem
Option shall be forfeited to the extent he exercises the tandem SAR, but any
such forfeiture shall not count as a forfeiture for purposes of making the
Shares subject to such Option and SAR again available for use under Article III.
ARTICLE VIII. STOCK PAYMENTS
8.1 ELECTION TO RECEIVE STOCK PAYMENTS.
Each Non-Employee Director may elect to receive all or fifty percent of his
or her Compensation in the form of Stock Payments. Any such election, or any
modification or termination of such an election, shall be filed with BellSouth
on a form prescribed by the Committee for this purpose. Any such election, or
any modification or termination thereof, shall apply only to annual retainers,
meeting fees or other elements of Compensation payable at least six months after
such form is received by BellSouth.
8.2 STOCK PAYMENTS.
During such time as an election by a Non-Employee Director to receive Stock
Payments in lieu of cash compensation is effective, BellSouth shall issue Shares
to such director for each date any retainer or meeting fee or other element of
Compensation otherwise is due and payable equal to the percent of such
Compensation elected to be paid in the form of Stock Payments based upon Fair
Market Value for such date. Certificates evidencing such whole Shares shall be
delivered promptly following such date. Any payment for a fractional Share
automatically shall be paid in cash.
ARTICLE IX. TRANSFERABILITY
9.1 TRANSFERABILITY DURING LIFETIME.
During the lifetime of a Non-Employee Director to whom an Award is granted,
only the Non-Employee Director (or such Non-Employee Director's legal
representative) may exercise an Option
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or tandem SAR or receive payments of Stock Awards. No Award (other than Stock
Payments upon receipt) may be sold, assigned, transferred, exchanged, or
otherwise encumbered or made subject to any creditor's process, whether
voluntary, involuntary or by operation of law, and any attempt to do so shall be
of no effect.
9.2 TRANSFERS TO DEATH BENEFICIARY.
In the event of a Non-Employee Director's death, all of such person's
outstanding Options and tandem SARs and his or her rights to receive any accrued
but unpaid Stock Payments will transfer to the maximum extent permitted by law
to such person's Beneficiary. Each Non-Employee Director may name, from time to
time, any beneficiary or beneficiaries (which may be named contingently or
successively) as his or her Beneficiary for purposes of this Plan. Each
designation shall be on a form prescribed by the Committee, will be effective
only when delivered to BellSouth and when effective will revoke all prior
designations by the Non-Employee Director. If a Non-Employee Director dies with
no such beneficiary designation in effect, such person's Beneficiary shall be
his or her estate and such person's Awards will be transferable by will or
pursuant to laws of descent and distribution applicable to such person.
ARTICLE X. ADJUSTMENTS
In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Shares, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects Shares such that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of
Non-Employee Directors under this Plan, then the Committee, in such manner as it
may deem equitable, shall adjust any or all of (i) the number and kind of shares
which may thereafter be delivered in connection with Awards, (ii) the number and
kind of shares that may be delivered or deliverable in respect of outstanding
Awards, (iii) the number and kind of shares with respect to which Awards may be
granted as set forth in Article III, and (iv) the exercise price, grant price,
or purchase price relating to any Award, or, if deemed appropriate, make
provision for a cash payment with respect to any outstanding Award. Any such
adjustment made by the Committee, including any cancellation of an outstanding
Award made as part of such adjustment, will be final and binding.
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ARTICLE XI. AMENDMENTS AND TERMINATION
The Board shall have the right to amend, modify, suspend or terminate the
Plan at any time for any purpose; provided that, following the approval of the
Plan by BellSouth shareholders, (i) this Plan may not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, or the rules thereunder and (ii), except
with the further approval of shareholders, this Plan may not be amended with
respect to the amount, timing, Option Price or method for determining Fair
Market Value of Shares, and related provisions with respect to tandem SARs, or
in any way to (a) extend the maximum life of the Plan under Section 4.3,(b)
change the class of persons eligible for Awards or to otherwise materially
modify (within the meaning of Rule 16b-3 of the Exchange Act) the requirements
as to eligibility for participation in this Plan, or (c) otherwise materially
increase (within the meaning of Rule 16b-3 of the Exchange Act) the benefits
accruing under this Plan. No enactment, modification, suspension or termination
of the Plan shall alter or impair any Awards previously granted under this Plan
without the consent of the holder thereof, unless otherwise required by law. It
is conclusively presumed for this purpose that any adjustment for changes in
capitalization pursuant to Article X of this Plan does not affect any right of
the holder of an Award. Notwithstanding approval by shareholders, the Board may
amend this Plan without further shareholder approval to add provisions required
or enabled by changes to Rule 16b-3.
ARTICLE XII. GENERAL PROVISIONS
12.1 STOCK RESTRICTIONS.
BellSouth shall have the right under this Plan to restrict or otherwise
delay the issuance of any Shares purchased or paid under this Plan until the
requirements of any applicable laws or regulations and any stock exchange
requirements have been in BellSouth's judgment satisfied in full. Furthermore,
any Shares which are issued as a result of purchases or payments made under this
Plan shall be issued subject to such restrictions and conditions on any resale
and any other disposition as BellSouth shall deem necessary or desirable under
any applicable laws or regulations or in light of any stock exchange
requirements.
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12.2 TERM OF SERVICE.
The granting of an Award to a Non-Employee Director under this Plan shall
not obligate BellSouth to provide that Non-Employee Director upon the
termination of his or her service on the Board with any benefit whatsoever
except as provided under the terms and conditions of that Award or obligate the
Non-Employee Director to remain a member of the Board.
12.3 NO SHAREHOLDER RIGHTS.
No Award shall confer on any Non-Employee Director, or anyone claiming on
his behalf, any of the rights of a stockholder of BellSouth unless and until
Shares are duly issued or transferred on the books of BellSouth in accordance
with the terms and conditions of the Award.
12.4 UNFUNDED PLAN.
This Plan shall be unfunded and BellSouth shall not be required to
segregate any assets that may at any time be represented by Awards under this
Plan. Neither BellSouth, its affiliates, the Committee, nor the Board shall be
deemed to be a trustee of any amounts to be paid under this Plan nor shall
anything contained in this Plan or any action taken pursuant to its provisions
create or be construed to create a fiduciary relationship between any such party
and a Non-Employee Director or anyone claiming on his or her behalf. To the
extent a Non-Employee Director or any other person acquires a right to receive
payment pursuant to an Award under this Plan, such right shall be no greater
than the right of an unsecured general creditor of BellSouth.
12.5 TAXES.
BellSouth shall withhold from any payment of cash or Shares to a
Non-Employee Director or other person under this Plan an amount sufficient to
cover any withholding taxes which may become required with respect to such
payment. BellSouth shall have the right to require the payment of any such
taxes and require that any person furnish information deemed necessary by
BellSouth to meet any tax reporting obligation before making any payment
pursuant to an Award.
12.6 BINDING EFFECT.
The provisions of this Plan, and any applicable Agreement, election,
Beneficiary designation or other related document, shall be binding upon each
Non-Employee Director and any of his Beneficiaries, transferees, heirs,
assignees, distributees, executors, administrators, personal representatives or
any other person claiming any rights under this Plan. Any such person
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claiming any rights under this Plan shall be subject to the terms and
conditions of this Plan and all such documents and such other terms and
conditions, not inconsistent with this Plan, as the Committee may impose
pursuant to Article V.
12.7 CHOICE OF LAW AND VENUE.
This Plan and all related documents shall be governed by, and construed in
accordance with, the laws of the State of Georgia (except to the extent
provisions of federal law may be applicable.) Acceptance of an Award shall be
deemed to constitute consent to the jurisdiction and venue of the Superior Court
of Fulton County, Georgia and the United States District Court for the Northern
District of Georgia for all purposes in connection with any suit, action, or
other proceeding relating to such Award, including the enforcement of any rights
under this Plan or any Agreement or other document, and shall be deemed to
constitute consent to any process or notice of motion in connection with such
proceeding being served by certified or registered mail or personal service
within or without the State of Georgia, provided a reasonable time for
appearance is allowed.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 24, 1995.
The undersigned hereby appoints John L. Clendenin, Armando M. Codina, and
Marshall M. Criser, and each of them, proxies with full power of
substitution, to vote all Common Shares of the undersigned at the Annual
Meeting of Shareholders to be held at 9:00 A.M. EDT, April 24, 1995 at the
Galleria Centre, Ballroom A, Two Galleria Parkway, Atlanta, Georgia, and
at any adjournment thereof, upon all subjects that may properly come
before the meeting, including the matters described in the proxy statement
furnished herewith, subject to any directions indicated on the reverse
side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR
THE ELECTION OF ALL LISTED NOMINEES, IN ACCORD WITH THE DIRECTORS'
RECOMMENDATIONS ON THE OTHER MATTERS LISTED ON THE REVERSE SIDE OF THIS
CARD, AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING.
YOUR VOTE FOR THE ELECTION OF DIRECTORS FOR THE TERMS SET FORTH IN THE
PROXY STATEMENT MAY BE INDICATED ON THE REVERSE SIDE OF THIS CARD.
NOMINEES ARE JAMES H. BLANCHARD, ARMANDO M. CODINA, ROBIN B. SMITH AND J.
TYLEE WILSON.
This card also provides voting instructions for shares held in the
BellSouth Shareholder Dividend Reinvestment and Stock Purchase Plan and,
if registrations are identical, shares held in the various employee
benefit plans.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE ON THE REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE OR OTHERWISE TO P.O. BOX 24863, NEW
YORK, NEW YORK 10242-4863, SO THAT YOUR SHARES CAN BE REPRESENTED AT THE
MEETING.
- -------------------------------------------------------------------------
Detach here.
BELLSOUTH'S ANNUAL MEETING OF SHAREHOLDERS
[MAP]
MONDAY APRIL 24, 1995
9:00 A.M.
DIRECTIONS TO THE GALLERIA CENTRE, ATLANTA, GEORGIA
NORTHBOUND ON I-75: Take exit 109B (I-285 Westbound); continue west on I-
285 and take exit 14 (Cobb Pkwy./U.S. Hwy. 41) and turn left at traffic
light, southbound onto Cobb Pkwy.; continue under overpass and make a left
turn at second traffic light onto Galleria Dr.
SOUTHBOUND ON I-75: Take exit 109 (I-285 Westbound): continue west on I-
285 and take exit 14 (Cobb Pkwy./U.S. Hwy. 41) and turn left at traffic
light, southbound onto Cobb Pkwy.; continue under overpass and make a left
turn at second traffic light onto Galleria Dr.
WESTBOUND ON I-285: Take exit 14 (Cobb Pkwy./U.S. Hwy. 41) and turn left
at traffic light, southbound onto Cobb Pkwy.; continue under overpass and
make a left turn at second traffic light onto Galleria Dr.
EASTBOUND ON I-285: Take exit 13 (Cobb Pkwy./U.S. Hwy. 41) and turn right
onto Cobb Pkwy. headed south; turn left at next traffic light onto
Galleria Dr.
<PAGE>
BELLSOUTH PROXY/VOTING INSTRUCTION CARD
DIRECTORS RECOMMEND A VOTE "FOR"
Withhold For All
For Authority Except
A. Election of all Director Nominees (p. 4) / / / / / /
Exceptions: _____________________________________________________________
TO VOTE FOR ALL DIRECTOR NOMINEES, MARK THE "FOR" BOX ON ITEM "A". TO
WITHHOLD VOTING FOR ALL NOMINEES, MARK THE "WITHHOLD AUTHORITY" BOX. TO
WITHHOLD VOTING FOR A PARTICULAR NOMINEE, MARK THE OTHER "FOR ALL EXCEPT" BOX
AND ENTER NAME(s) OF THE EXCEPTION(s) IN THE SPACE PROVIDED. YOUR SHARES
WILL BE VOTED FOR THE REMAINING NOMINEES.
FOR AGAINST ABSTAIN
B. Ratification of Auditors (p. 7) / / / / / /
C. Approval of BellSouth Corporation
Stock Plan (p. 8) / / / / / /
D. Approval of BellSouth Corporation
Non-Employee Director Stock Plan (p. 12) / / / / / /
DIRECTORS RECOMMEND A VOTE "AGAINST" THE SHAREHOLDER PROPOSALS REGARDING
FOR AGAINST ABSTAIN
1. Limitation on Executive Compensation
(p. 17) / / / / / /
2. Officer Incentives (p. 18) / / / / / /
- --------------------------------------------------------------------------
Discontinue mailing Annual Report / /
I will attend the Annual Meeting / /
Comments: _________________________________
/ / Vote MUST be indicated /X/ in Black or Blue ink.
__________________________________________________________________________
Shareholder sign here Joint owner sign here Date
- -------------------------------------------------------------------------
Detach here. BELLSOUTH
ADMISSION TICKET
ANNUAL MEETING OF BELLSOUTH SHAREHOLDERS
MONDAY, APRIL 24, 1995
9:00 A.M.
THE GALLERIA CENTRE
Ballroom A.
Two Galleria Parkway
Atlanta, Georgia
PLEASE PRESENT THIS TICKET TO THE BELLSOUTH REPRESENTATIVE AT THE ENTRANCE
TO THE BALLROOM.
IMPORTANT REMINDER
* To make sure your shares are represented, we urge you to complete,
DETACH and MAIL the above PROXY/VOTING INSTRUCTION CARD as soon as
possible in the enclosed envelope. Your vote is important to us!
* Are you receiving more than one ANNUAL REPORT? If you have multiple
accounts and are receiving more than one copy of the Annual Report,
you can save your company money. Please check the appropriate box
(Discontinue mailing Annual Report) on the above proxy card.
