SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8607
BELLSOUTH CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-1533433
(State of Incorporation) (I.R.S.
Employer Identification
Number)
1155 Peachtree Street, N. E., Atlanta, Georgia 30309-3610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 404 249-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
At May 8, 1995, a total of 496,371,049 common shares were outstanding.
Table of Contents
Ite
m Page
Part I
1. Financial Statements 3
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash
Flows 5
Notes to Consolidated Financial
Statements 6
Selected Operating Data 8
2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
Results of Operations 10
Volumes of Business 11
Operating Revenues 12
Operating Expenses 13
Other Income Statement Items 14
Financial Condition 15
Restructuring of Telephone Operations 16
Regulatory Environment 17
Federal Regulation 17
State Regulation 17
Accounting Under SFAS No. 71 18
Business Developments 19
Broadband PCS License Auction 19
Video Programming Services
Agreement 19
Cellular Waiver 19
Bellcore 19
Accounting Pronouncement 20
Part II
6. Exhibits and Reports on Form 8-K 21
PART I -- FINANCIAL INFORMATION
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Millions, Except Per Share Amounts)
For the Three
Months Ended
March 31,
1995 1994
Operating Revenues:
Network and related services
Local service $1,768.3 $1,679.7
Interstate access 795.1 802.4
Intrastate access 226.1 230.1
Toll 280.9 300.2
Directory advertising and 353.2 344.8
publishing
Wireless communications 599.9 453.9
Other services 275.2 313.2
Total Operating Revenues 4,298.7 4,124.3
Operating Expenses:
Cost of services and products 1,503.1 1,492.3
Depreciation and amortization 834.4 798.4
Selling, general and
administrative 865.9 821.4
Total Operating Expenses 3,203.4 3,112.1
Operating Income 1,095.3 1,012.2
Interest Expense 174.0 164.9
Other Income (Expense), net (10.7) 59.5
Income Before Income Taxes 910.6 906.8
Provision for Income Taxes 363.5 321.5
Net Income $ 547.1 $585.3
Weighted Average Common Shares 496.7 496.5
Outstanding
Dividends Declared Per Common
Share $ .69 $ .69
Earnings Per Share $1.10 $1.18
The accompanying notes are an integral part of
these financial statements.
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Per Share Amounts)
March 31, December 31,
1995 1994
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents 560.7 606.5
Temporary cash investments 10.4 50.8
Accounts receivable, net of allowance for 2,894.6 3,126.6
uncollectibles of $150.9 and $154.1
Material and supplies 457.2 490.0
Other current assets 423.0 453.9
4,345.9 4,727.8
Investments and Advances 2,598.6 2,531.5
Property, Plant and Equipment, net 25,164.4 25,162.4
Deferred Charges and Other Assets 555.7 535.4
Intangible Assets, net 1,419.6 1,439.9
Total Assets $34,084.2 $34,397.0
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year 1,853.4 2,018.7
Accounts payable 1,139.5 1,378.3
Other current liabilities 2,923.5 3,101.1
5,916.4 6,498.1
Long-Term Debt 7,456.8 7,435.1
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 3,632.7 3,646.9
Unamortized investment tax credits 428.5 443.3
Other liabilities and deferred credits 2,054.3 2,006.3
6,115.5 6,096.5
Shareholders' Equity:
Common stock, $1 par value 502.6 502.5
Paid-in capital 8,057.8 8,064.2
Retained earnings 6,928.5 6,721.1
Shares held in trust (336.2) (336.2)
Guarantee of ESOP
debt (557.2) (584.3)
14,595.5 14,367.3
Total Liabilities and Shareholders' Equity $34,084.2 $34,397.0
The accompanying notes are an integral part of these
financial statements.
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions, Except Per Share Amounts))
For the Three
Months Ended
March 31,
1995 1994
Cash Flows from Operating Activities:
Net income $ 547.1 $ 585.3
Adjustments to net income:
Depreciation 821.9 785.0
Amortization of 12.5 13.4
intangibles
Dividends received from 11.8 30.4
unconsolidated affiliates
Losses of unconsolidated 33.0 15.1
affiliates
Provision for losses on bad 48.6 44.8
debts
Deferred income taxes and (12.1) (18.6)
unamortized investment tax credits
Gain on sale of -- (70.6)
operations
Allowance for funds used during (3.6) (4.0)
construction
Net change in accounts 114.1 49.5
receivable
Net change in material and 13.1 (23.8)
supplies
Net change in accounts payable (324.6) (36.8)
and other current liabilities
Net change in deferred charges (57.3) (127.1)
and other assets
Net change in other liabilities 76.9 135.4
and deferred credits
Other reconciling items, net 28.3 (4.7)
Net cash provided by 1,309.7 1,373.3
operating activities
Cash Flows from Investing Activities:
Capital expenditures (815.4) (735.7)
Proceeds from disposals of 18.6 37.0
property, plant and
equipment
Proceeds from disposition of short- 42.1 36.8
term investments
Purchases of short-term (1.7) (21.1)
investments
Investment 2.3 83.8
dispositions
Investments in/advances to (142.7) (278.1)
unconsolidated affiliates
Proceeds from repayment of loans 37.1 4.6
and advances
Net cash used for investing (859.7) (872.7)
activities
Cash Flows from Financing Activities:
Proceeds from short-term 4,324.0 5,561.8
borrowings
Repayments of short-term (4,503.2) (5,739.6)
borrowings
Proceeds of long-term 35.3 142.8
debt
Repayments of long-term (6.8) (27.4)
debt
Payments of capital lease (5.0) (3.1)
obligations
Proceeds from issuing common 2.3 2.5
shares
Dividends paid (342.4) (341.8)
Net cash used for financing (495.8) (404.8)
activities
Net Increase (Decrease) in Cash and (45.8) 95.8
Cash Equivalents
Cash and Cash Equivalents at Beginning 606.5 501.5
of Period
Cash and Cash Equivalents at End of $560.7 $597.3
Period
The accompanying notes are an integral part of these
financial statements.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Millions, Except Per Share Amounts)
(a) Preparation of Interim Financial Statements
The consolidated financial statements of BellSouth
Corporation (BellSouth) have been prepared in accordance
with the rules and regulations of the Securities and
Exchange Commission (SEC). Certain amounts have been
reclassified from previous presentations. In the opinion
of BellSouth, these statements include all adjustments
necessary for a fair presentation of the results of all
interim periods reported herein. All adjustments are of a
normal recurring nature unless otherwise disclosed.
Certain information and footnote disclosures prepared in
accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to SEC
rules and regulations. However, BellSouth believes that
the disclosures made are adequate for a fair presentation
of results of operations, financial position and cash
flows. These consolidated financial statements should be
read in conjunction with the consolidated financial
statements and accompanying notes included in BellSouth's
latest annual report on Form 10-K.
(b) BellSouth Corporation Consolidated Shareholders'
Equity
Number
of
Shares Amount
Common Shares Common Paid-in Retained Shares Guarantee
Share Held Stock Capital Earnings Held of ESOP
in in Debt
Trust Trust
(1)
Balance at
December
31, 1994 502.5 6.3 $502.5 $8,064.2 $6,721.1 $(336.2) $(584.3)
Net
income 547.1
Dividends
declared (342.4)
Shares
issued
in
connection
with
various
employee
benefit
plans 0.1 0.1 1.9
Reduction
of ESOP
debt and
other
related
activity 2.7 27.1
Foreign
currency
translation
adjustment (8.3)
Balance at
March 31,
1995 502.6 6.3 $502.6 $8,057.8 $6,928.5 $(336.2) $(557.2)
(1) Such shares are not considered to be outstanding
for financial reporting purposes.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In Millions, Except Per Share Amounts)
(c) Supplemental Cash Flow Information
The following supplemental information is presented in
accordance with the provisions of Statement of
Financial Accounting Standards No. 95, "Statement of
Cash Flows."
For the Three
Months Ended
March 31,
1995 1994
Cash Paid For:
Income taxes $ 31.4 $113.5
Interest $ 201.7 $179.6
Noncash Investing and
Financing Activities:
Shares issued to grantor
trusts -- 43.6
BELLSOUTH CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Network Access Lines in Service at March 31
(Thousands)(a):
Percent Change
for the Three
Months Ended
March 31,
1995 vs. 1994 vs.
1995 1994 1993
By Type:
Residence 14,357.8 3.44% 3.10%
Business 5,901.9 7.71 6.23
Other 254.8 0.59 (2.88)
Total Access Lines 20,514.5 4.60 3.87
By State:
Florida 5,425.9 4.92 4.17
Georgia 3,412.5 5.83 4.65
Tennessee 2,365.7 4.46 4.06
Louisiana 2,061.8 3.68 2.68
North Carolina 2,028.4 5.44 4.39
Alabama 1,747.2 3.53 3.48
South Carolina 1,262.7 3.83 2.96
Mississippi 1,135.6 3.73 3.52
Kentucky 1,074.8 3.22 2.99
Total Access Lines 20,514.5 4.60 3.87
Percent Change
for the Three
For the Months Ended
Three Months March 31,
Ended
March 31, 1995 vs. 1994 vs.
1995 1994 1993
Access Minutes of Use (Millions)(a)(b):
Interstate 15,131.3 7.69% 7.94%
Intrastate 4,529.1 13.07 11.39
Total Minutes of
Use 19,660.4 8.88 8.69
Toll Messages (Millions)(a)(c) 370.0 (4.31) 5.28
(a) Prior period operating data are often revised at
later dates to reflect updated information.
The above information reflects the latest data
available for the periods indicated.
(b) Minutes of Use are classified as either
interstate or intrastate based on the percentage
interstate usage factor. This factor is updated periodically.
(c) Effective in 1994, Toll Messages include messages
completed under optional calling plans. Prior
period toll message volumes have been restated
to reflect this change. See "Management's
Discussion and Analysis of Results of Operations
and Financial Condition - Volumes of Business."
BELLSOUTH CORPORATION
SELECTED OPERATING DATA (Continued)
(Unaudited)
Cellular and Paging Customers Served at March 31
(Equity Basis)(d):
Percent Change
1995 1994
1995 vs. 1994 vs. 1993
Domestic Cellular 2,320,000 37.9% 41.0%
International Cellular 415,200 85.1 134.1
Paging (all domestic)(e) 1,646,100 28.1 24.8
(d) Includes customers served based on BellSouth's
ownership percentage in all markets served.
(e) Includes customers attributable to an acquisition
during third quarter 1994. See "Management's
Discussion and Analysis of Results of Operations and
Financial Condition - Volumes of Business."
For the Three
Months Ended
March 31, Year Ended December 31,
1995 1994 1993 1992 1991 1990
Ratio of Earnings to Fixed
Charges (f) 5.58 5.34 2.98 4.00 3.47 3.68
(f) For the purpose of this ratio: (i) earnings have
been calculated by adding income before income taxes,
gross interest expense, such portion of rental
expense representative of the interest factor on such
rentals and equity in losses from less-than-50%-
owned investments (accounted for under the equity
method 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
gross interest expense and such portion of rental
expense representative of the interest factor on such
rentals.
BELLSOUTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS
AND FINANCIAL CONDITION
(Dollars in Millions, Except Per Share Amounts)
Management's Discussion and Analysis of Results
of Operations and Financial Condition (MD&A) should
be read in conjunction with MD&A in BellSouth
Corporation's (BellSouth) latest annual report on Form 10-K.
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 and toll communications services within
courtdefined 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 domestic and
international wireless communications services and
advertising and publishing products.
Approximately 71% and 73% of BellSouth's Total Operating
Revenues for the three-month periods ended March 31, 1995
and 1994, respectively, and a greater portion of net
income were from wireline services provided by BellSouth
Telecommunications. Charges for local, access and toll
services for the three months ended March 31, 1995
accounted for approximately 58%, 33% and 9%, respectively,
of the wireline revenues discussed above. Revenues from
wireless communications services and directory advertising
and publishing services accounted for approximately 14%
and 8%, respectively, of Total Operating Revenues for the
three months ended March 31, 1995. The remainder of such
revenues was derived principally from other nonregulated
services provided by BellSouth Telecommunications.
RESULTS OF OPERATIONS
For the Three
Months Ended March 31,
1995 1994
Net Income $ 547.1 $ 585.3
Earnings Per Share $ 1.10 $ 1.18
Net Income decreased $38.2 (6.5%) for the three-month
period ended March 31, 1995 when compared to the same
prior year period; Earnings Per Share decreased $.08
(6.8%). The decreases for the period were attributable to
the effect of a gain in first quarter 1994 of $67.5 ($.14
per share) related to the sale of an
international cellular investment and the impact of rate
reductions since March 31, 1994. The decreases were
partially offset by continued growth in key business
volumes and BellSouth Telecommunications' cost containment
measures, including expense savings attributable to the
restructuring plan begun in 1993. For the first quarter
of 1995, BellSouth Telecommunications' total operating
expenses declined by 1.4% compared to the same period last
year. Volumes of Business
The total number of access lines in service since March
31, 1994 increased by approximately 901,800 (4.6%) to
20,514,500, compared to a 3.9% rate of increase for the
same prior year period. Business and residence access
lines increased by 7.7% and 3.4%, respectively, compared
to growth rates of 6.2% and 3.1% in 1994. The number of
second residence lines, included in total residence lines,
increased by 212,000 (23.9%) to 1,100,500 and accounted
for approximately 44.4% and 23.5% of the overall
increase in residence access lines and total access lines,
respectively, since March 31, 1994. The growth in all
categories of access lines was primarily attributable to continued
economic improvement in the Southeast.
Access minutes of use represent the volume of traffic
carried by interexchange carriers between LATAs, both
interstate and intrastate, using BellSouth
Telecommunications' local facilities. Total access
minutes of use increased by 1,604.0 million (8.9%) for the
three month period ended March 31, 1995 compared to an
increase of 8.7% for the same period last year. The
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' facilities. The growth rate in total
minutes of use continues to be negatively impacted by
competition 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.
Toll messages are comprised of Message Telecommunications
Service and Wide Area Telecommunications Service. For the
three-month period ended March 31, 1995, toll messages
decreased by 16.6 million (4.3%) compared to an increase
of 5.3% for the corresponding period in 1994. The
decrease in 1995 was attributable to the expansion of
local area calling plans in Florida, Kentucky, Mississippi
and South Carolina. These plans 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 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.
Domestic cellular customers (equity-weighted) increased by
637,700 (37.9%) since March 31, 1994 to 2,320,000 due to
continuing higher demand for wireless services. The
overall penetration rate (number of customers as a
percentage of the total population in the service
territory) increased from 4.33% at March 31, 1994 to 5.76%
at March 31, 1995. 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.
Since March 31, 1994, the number of international cellular
customers increased by 190,900 (85.1%) to 415,200. Growth
in total minutes of use for international cellular
properties remained strong due to demand stimulated by
competitive programs, enhanced services and underdeveloped
land-line service.
Paging customers increased by 360,700 (28.1%) to 1,646,100
since March 31, 1994 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. Of the overall growth,
approximately 210,000 customers were attributable to the
acquisition. Excluding the effect of the acquisition,
paging customers increased by approximately 150,700
(11.7%) since March 31, 1994.
Operating Revenues
Total Operating Revenues increased $174.4 (4.2%) for the
three-month period ended March 31, 1995 when compared to
the corresponding 1994 period. The components of Total
Operating Revenues were as follows:
For the Three
Months Ended March 31,
1995 1994
Local Service $1,768.3 $1,679.7
Interstate Access 795.1 802.4
Intrastate Access 226.1 230.1
Toll 280.9 300.2
Directory Advertising
and Publishing 353.2 344.8
Wireless Communications 599.9 453.9
Other Services 275.2 313.2
Total Operating
Revenues $4,298.7 $4,124.3
Local Service revenues increased $88.6 (5.3%) for the
threemonth period ended March 31, 1995 as compared to the
same 1994 period due primarily to 4.6% growth in access
lines in service. The increase for the period was
partially offset by approximately $13 of net rate
reductions since March 31, 1994, principally in Alabama.
Interstate Access revenues decreased $7.3 (0.9%) for the
three-month period ended March 31, 1995 as compared to the
same prior year period. The decrease for the period was
attributable to rate reductions of approximately $38 since
March 31, 1994, including $35 of revenue deferrals under
the Federal Communications Commission's (FCC) price cap
plan. The decrease was partially offset by 7.7% growth in
minutes of use and a $12 increase in end-user charges
attributable to growth in the number of access lines in
service.
Intrastate Access revenues decreased $4.0 (1.7%) for the
three-month period ended March 31, 1995 from the
comparable 1994 period. The decrease was due to rate
reductions of approximately $28 since March 31, 1994,
primarily in Florida and, to a lesser extent, in North
Carolina and South Carolina. The
decrease was partially offset by 13.1% growth in minutes
of use.
Toll revenues decreased $19.3 (6.4%) for the three-month
period ended March 31, 1995 when compared to the same
prior year period. The decrease was primarily
attributable to net rate reductions of approximately $10
since March 31, 1994 and a 4.3% decrease in toll messages.
The decrease was partially offset by the effect of an
independent company settlement in first quarter 1994,
which reduced revenues by approximately $5 for that
period.
Directory Advertising and Publishing revenues increased
$8.4 (2.4%) for the three-month period ended March 31,
1995 when compared to the same prior year period due
primarily to an increase in the volume of advertising sold
for Yellow Pages directories.
Wireless Communications revenues include revenues from the
consolidated wireless communications businesses (primarily
cellular and paging within BellSouth Enterprises) as well
as revenues from interconnections by unaffiliated cellular
carriers with BellSouth Telecommunications' network.
(BellSouth's interests in the net income or loss of the
unconsolidated wireless businesses within BellSouth
Enterprises, which are accounted for under the equity
method of accounting, are recorded in Other Income
(Expense), net.) Wireless Communications revenues
increased $146.0 (32.2%) for the three-month period ended
March 31, 1995 when compared to the same period last year.
The increase was primarily attributable to continued
growth of the customer base in domestic and international
markets.
Other Services revenues are principally comprised of
revenues from customer premises equipment (CPE) sales and
maintenance services, billing and collection services and
other nonregulated services (primarily inside wire
services) offered by BellSouth Telecommunications. Other
Services revenues decreased $38.0 (12.1%) for the three-
month period ended March 31, 1995 when compared to the
corresponding 1994 period. The decrease was primarily
attributable to the sale in April 1994 of BellSouth
Telecommunications' out-of-region CPE sales and service
operations.
Operating Expenses
Total Operating Expenses increased $91.3 (2.9%) for the
three-month periods ended March 31, 1995 compared to the
same period in 1994. The components of Total Operating
Expenses were as follows:
For the Three
Months Ended March 31,
1995 1994
Depreciation and Amortization $834.4 $798.4
Other Operating Expenses:
Cost of Services and Products 1,503.1 1,492.3
Selling, General and
Administrative 865.9 821.4
2,369.0 2,313.7
Total Operating Expenses $3,203.4 $3,112.1
Depreciation and Amortization increased $36.0 (4.5%) for
the three-month period ended March 31, 1995 compared to
the same period in 1994. The increase was due primarily
to higher levels of property, plant and equipment since
March 31, 1994 resulting from continued growth in the
customer base for wireless and wireline services and
continued modernization of the networks.
Other Operating Expenses are comprised of Cost of Services
and Products and Selling, General and Administrative.
Cost of Services and Products includes employee and
employeerelated 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 increased $55.3 (2.4%) for the
three-month period ended March 31, 1995 when compared to
the corresponding 1994 period. The increase for the
period was primarily attributable to increased expenses of
$101 related to growth in the wireless communications
customer base, reflecting additional marketing and
operational costs associated with higher levels of sales
and expanded operations. Also contributing were increases
of $17 and $15 for materials and contract services,
respectively, resulting from network service activities
necessitated primarily by volume growth at the wireline
business. The increase was partially offset by a decrease
of $37 in labor costs, including expenses for employee
benefits, at the wireline business. Such decrease
reflects employee reductions since March 31, 1994
attributable to the restructuring plan begun in 1993,
partially offset by annual compensation increases for
management and represented employees. The increase for
the period was also partially offset by decreases of $34
at BellSouth Telecommunications' CPE business, primarily
attributable to the sale in April 1994 of the out-of-
region CPE sales and service operations, and $18 due to
reduced levels of license fees for software used in the
operation of network switching equipment.
Other Income Statement Items
The other income statement components were as follows:
For the Three
Months Ended March 31,
1995 1994
Interest Expense $174.0 $164.9
Other Income
(Expense), net (10.7) 59.5
Provision for
Income Taxes 363.5 321.5
Interest Expense increased $9.1 (5.5%) for the three-month
period ended March 31, 1995 compared to the same period
last year. The increase was primarily attributable to
higher average levels of short-term borrowings at higher
average interest rates.
Other Income, net decreased $70.2 for the three-month
period ended March 31, 1995 compared to the corresponding
period in 1994. The decrease was due to the inclusion in
first quarter 1994 of a $67.5 gain on the sale of an
international cellular investment and increased losses in
1995 of approximately $22 from unconsolidated affiliates,
primarily developing cellular operations in Germany and
Israel. The decrease for the period was partially offset
by a $9 increase in interest income and foreign currency
gains of $8.
Provision for Income Taxes increased $42.0 (13.1%) for the
three-month period ended March 31, 1995 over the
comparable 1994 period. BellSouth's effective tax rates
were 39.9% and 35.5% for the three months ended March 31,
1995 and 1994, respectively. The lower effective tax rate
for 1994 reflects the benefit of capital loss
carryforwards used in connection with the sale of an
international cellular investment.
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. While current liabilities
exceeded current assets at both March 31, 1995 and December 31, 1994,
BellSouth's sources of funds, primarily operations and, to the extent
necessary, readily available external financing
arrangements, are sufficient to meet all current
obligations on a timely basis. In addition, BellSouth
believes such sources of funds will be sufficient to meet
the needs of its business for the foreseeable future.
For the
Three
Months Ended March 31,
1995 1994
Net Cash Provided by Operating $1,309.7 $1,373.3
Activities
Operating Activities. Net cash provided by operating
activities decreased $63.6 (4.6%) in first quarter 1995.
The decrease resulted primarily from a reduction of
accounts payable and other current liabilities of $288.
The decrease was partially offset by higher net
collections of accounts receivable of $65 and an increase
of $119 in operating income excluding depreciation and
amortization.
For the
Three
Months Ended March 31,
1995 1994
Net Cash Used for Investing ($859.7) ($872.7)
Activities
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 decreased $13.0
(1.5%) in first quarter 1995. The decrease resulted from
a reduction in advances to affiliates of $135 due
primarily to the effect of a loan in 1994 to Prime South
Diversified Inc. The decrease was partially offset by the
effect of the sale of an international cellular investment
in first quarter 1994 and increased capital expenditures
of $80 in first quarter 1995 related to network
development. Internal sources provided substantially all
cash required for capital expenditures in the first
quarter 1995. For the remainder of 1995, BellSouth
expects to continue to finance capital expenditures
primarily through internally generated funds, and, to the
extent necessary, from external sources.
For the
Three
Months Ended March 31,
1995 1994
Net Cash Used for Financing ($495.8) ($404.8)
Activities
Financing Activities. Net cash used for financing
activities increased $91.0 (22.5%) in first quarter 1995.
The increase reflects reduced levels of proceeds from
borrowings, both short- and long-term, partially offset by
lower levels of debt repayments.
BellSouth's debt to total capitalization ratio decreased
from 39.3% at December 31, 1994, to 38.6% at March 31,
1995.
RESTRUCTURING OF TELEPHONE OPERATIONS
In the fourth quarter of 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.
At March 31, 1995, the remaining liability associated with
the 1993 restructuring plan was $504.1, all of which was
classified as current. Since inception of the
restructuring plan, total employee reductions were
approximately 5,400, including 3,900 since March 31, 1994.
As a result of this reduction of 3,900 employees,
operating expenses for the three months ended March 31,
1995 were reduced by approximately $50.
A summary of employee reductions and expenditures through
March 31, 1995 under the 1993 restructuring plan is as
follows:
First
Year Year Quarter
1993 1994 1995 Total
Employee Reductions 1,300 3,900 200 5,400
Expenditures By Component:
Consolidation and Elimination
of Operations $ 14.7 $164.6 $ 28.3 $207.6
Systems --- 170.3 43.3 213.6
Employee Separation 38.3 133.8 39.0 211.1
Total $ 53.0 $468.7 $110.6 $632.3
Expenditures By Type:
Cash $53.0 $390.2 $ 93.9 $537.1
Non-cash --- 78.5 16.7 95.2
Total $53.0 $468.7 $110.6 $632.3
Capital Expenditures (not
included in above
expenditures) $--- $203.6 $ 29.5 $233.1
BellSouth Telecommunications expects to substantially
complete the 1993 restructuring plan activities in 1995.
In connection with the plan, total employee reductions in
1995 are projected to be approximately 5,000, including
the reduction of 200 which occurred in first quarter.
In addition to executing the existing restructuring plan,
BellSouth Telecommunications is continuing to enhance
customer service and productivity and to further improve
its cost structure and competitiveness. As a result of
these efforts, additional changes to fundamental business
processes and work activities, as well as further employee
reductions, are expected.
REGULATORY ENVIRONMENT
Federal Regulation
In March, the FCC adopted an interim price cap regulation
plan which becomes effective on August 1, 1995. The
interim plan establishes three productivity factor
options, which are offsets to the inflation-based increase
in rates that local exchange carriers (LEC) are permitted
to make each year. Similar to the existing plan, two of
the productivity options in the interim plan, 4.0% and
4.7%, provide defined earnings limitations with a sharing
mechanism. A third option in the interim plan, 5.3%,
removes both earnings limitations and sharing
requirements.
In May, the 1995 annual access tariff was filed with the
FCC with proposed access charges scheduled to become effective
on August 1, 1995. Consistent with a pricing strategy that
is compatible with an increasingly competitive business
environment, BellSouth Telecommunications selected a 5.3%
productivity factor, which, together with other
adjustments, would decrease interstate access revenues by
approximately $220 annually based on 1994 access volume
levels.
The FCC is expected to further consider the interim rules
as well as other issues related to competition and
streamlined regulation. A final order is expected to be
issued in 1996.
State Regulation
South Carolina. In March, BellSouth Telecommunications
filed with the South Carolina Public Service Commission a
proposed price regulation plan. Under the proposed plan,
the regulatory focus would shift from the company's
earnings to rates that customers pay for services. The
proposal includes provisions that basic local exchange
residence and business service flat rates, as well as
rates for switched access services, will not increase for
three years. The rates for non-basic services would be
set by BellSouth Telecommunications based on market
considerations, with defined limitations on price
increases. The South Carolina Commission has scheduled
hearings in August 1995 on the proposed plan and, in
addition, has indicated that it will review BellSouth
Telecommunications' earnings.
North Carolina. In April, a law was enacted which,
effective July 1, 1996, authorizes the North Carolina
Utilities Commission to permit local exchange and exchange
access competition in BellSouth Telecommunications'
service areas; however, such competition may be permitted
prior to July 1, 1996 in the territory of a LEC for which
the North Carolina Commission approves a price regulation
plan.
The law, among other provisions, allows BellSouth
Telecommunications to elect to operate under a price
regulation plan, which must be approved by the North
Carolina Commission; requires that basic local exchange
and toll switched access services be tariffed; and
authorizes the North Carolina Commission to adopt rules
for interconnection, unbundling and resale. BellSouth
Telecommunications expects to file a price regulation plan
for approval by the North Carolina Commission early in the
third quarter of 1995.
Georgia. In April, a law was enacted which, effective
July 1, 1995, authorizes the Georgia Public Service
Commission to permit qualified service providers to
compete with BellSouth Telecommunications in the local
exchange telecommunications market and allows BellSouth
Telecommunications to elect alternative regulation.
Following implementation of alternative regulation, basic
residence and single-line business rates will be capped
for five years, after which an inflation-based formula
will be used to change rates. Rates for intrastate
switched access services will be no higher than the rates
charged for interstate
switched access services. In addition, the Georgia
Commission will be authorized to establish rules for the
resale and unbundling of services. BellSouth
Telecommunications expects to file an election for
alternative regulation with the Georgia Commission early
in the third quarter of 1995.
Other States. In April, hearings before the Kentucky
Public Service Commission were concluded with respect to
BellSouth Telecommunications' proposed price regulation
plan, and an order is pending. The Kentucky Commission
has also opened a docket to consider local exchange
competition. In addition, hearings before the Mississippi
Public Service Commission regarding BellSouth
Telecommunications' proposed price regulation plan in that
state are expected to be completed in June. Various price
regulation proposals are also currently being considered
by either state regulatory commissions or legislative
bodies in Alabama, Florida, Louisiana and Tennessee. The
outcome of these proceedings cannot be predicted with
certainty.
Accounting Under SFAS No. 71
BellSouth's regulated enterprise, BellSouth
Telecommunications, continues to account for the economic
effects of regulation under Statement of Financial
Accounting Standards (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 on a regulated entity. As a
result of such actions by regulators, BellSouth's balance
sheet at March 31, 1995 reflects net deferred charges
(regulatory assets) of approximately $174, related
primarily to compensated absences and unamortized issuance
costs for debt that has been refinanced, and net deferred
credits (regulatory liabilities) of approximately $273,
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.
Currently, various forms of earnings-based regulation are
in effect at the federal level and in all nine states
served by BellSouth Telecommunications. Price-based
regulation is not now in effect in any regulatory
jurisdiction. However, the recent legislative and
regulatory activities, as discussed above, suggest that
fully competitive markets and regulation of prices rather
than earnings for telecommunications services will be
established in the future.
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 continues to be 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 the company 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 are not
recoverable or are overstated due to longer regulator
prescribed asset lives. BellSouth Telecommunications'
overall depreciation reserve at March 31, 1995 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 fully adopt issue
basis accounting for its directory publishing fees and
eliminate its regulatory assets and liabilities, which, at
March 31, 1995, would have resulted in an estimated
increase in income of approximately $320 and $99,
respectively, before the effects of income taxes.
BellSouth Telecommunications would also adjust by
approximately $20 its unamortized investment tax credits,
partially offsetting the adjustment to telephone plant.
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.
BUSINESS DEVELOPMENTS
Broadband PCS License Auction
In March, BellSouth was the successful bidder for two
broadband personal communications services (PCS) licenses
for certain Major Trading Areas (MTAs) in the nine-state
region served by BellSouth Telecommunications. A
consortium in which BellSouth owns a majority interest bid
$70.9 for the license that covers most of North and South
Carolina. BellSouth alone bid $11.1 for the adjacent MTA
that includes eastern Tennessee. The initiation of
service is anticipated in the second half of 1996.
Video Programming Services Agreement
In April, BellSouth, Ameritech Corporation, SBC
Communications Inc. (formerly Southwestern Bell
Corporation) and The Walt Disney Company formed a business
to acquire, develop, market and deliver traditional and
interactive video programming services to consumers. The
consortium expects to invest approximately $500 in the
business over the next five years.
Cellular Waiver
In April, the United States District Court for the
District of Columbia granted a waiver applicable to the
regional Bell holding companies, including BellSouth
(collectively, the RHCs), that are subject to the consent
decree entitled "Modification of Final Judgment" (MFJ).
The waiver authorizes the RHCs to provide interLATA
wireless services, subject to significant and numerous
conditions. While this waiver will enable BellSouth to
compete more effectively with other companies that can
offer both local and interLATA long distance mobile
communications services, BellSouth
believes that the conditions to the waiver will make it
substantially more cumbersome and expensive for it to
offer such services than carriers whose cellular
offerings are not subject to the MFJ's interLATA
restrictions.
Bellcore
In April, the RHCs announced their intention to dispose of
their respective interests in Bell Communications
Research, Inc. (Bellcore), a research and development
consortium formed at the time of the AT&T divestiture.
Currently, the method of disposition has not been
definitively determined. A final decision regarding
the disposition of Bellcore and the structure of such a
transaction is subject to obtaining satisfactory financial
and other terms and all necessary approvals. There can be no
assurance that a disposition will occur.
ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board
issued SFAS No. 121, "Accounting for the Impairment of
LongLived Assets and for Long-Lived Assets to Be Disposed
Of," which BellSouth is required to adopt effective
January 1, 1996. SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The adoption of
SFAS No. 121 is not expected to have a material impact on
BellSouth's operating results or financial position.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
4a No instrument which defines the rights of holders
of long and intermediate term debt of BellSouth
Corporation is filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, BellSouth
Corporation hereby agrees to furnish a copy of
any such instrument to the SEC upon request.
11 Computation of Earnings Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
BELLSOUTH CORPORATION
By /s/ Ronald M. Dykes
RONALD M. DYKES
Vice President, Chief Financial Officer and
Comptroller
(Principal Financial and Accounting Officer)
May 11, 1995
EXHIBIT INDEX
Exhibit
Number
4a No instrument which defines the rights of holders
of long and intermediate term debt of BellSouth
Corporation is filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, BellSouth
Corporation hereby agrees to furnish a copy of
any such instrument to the SEC upon request.
11 Computation of Earnings Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
BellSouth Corporation
Computation of Earnings Per Share
For the
Three Month
Periods
Ended March 31,
1995 1994
Earnings Per Common Share:
Net Income $547,081,344 $585,300,058
Weighted average shares outstanding 496,299,388 496,113,887
Incremental shares from assumed
exercise of stock options and
payment of performance share awards 419,034 353,124
Total Shares 496,718,422 496,467,011
Earnings Per Common Share: $1.10 $1.18
Fully Diluted Earnings Per Common Share:
Net Income $547,081,344 $585,300,058
Weighted average shares outstanding 496,299,388 496,113,887
Incremental shares from assumed
exercise of stock options
and payment of performance share
awards 466,885 406,099
Total Shares 496,766,273 496,519,986
Fully Diluted Earnings Per Common Share: $1.10 $1.18
BellSouth Corporation
Computation Of Earnings To Fixed Charges
(Dollars In Millions)
For the Three
Months Ended
March 31, Year Ended December 31,
1995 1994 1993 1992 1991 1990
1. Earnings
(a) Income from
continuing
operations
before
deductions
for taxes
and interest $1,084.6 $4,068.8 $2,318.2 $3,353.6 $3,086.1 $3,179.4
(b) Portion
of rental
expense
representative
of interest
factor 23.9 100.4 103.4 104.1 92.5 94.0
(c) Equity in
losses from
less-than-50%
owned investments
(accounted for
under the equity
method of
accounting) 30.7 78.9 45.4 23.4 --- ---
(d) Excess of
earnings over
distributions
of less-than-
50%-owned
investments
(accounted for
under the equity
mehtod of
accounting) (13.5) (53.1) (37.4) (15.4) --- ---
TOTAL $1,125.7 $4,195.0 $2,429.6 $3,465.7 $3,178.6 $3,273.4
2. Fixed Charges
(a) Interest $177.7 $685.8 $712.3 $761.3 $824.6 $796.0
(b) Portion of
rental expense
representative
of interest factor 23.9 100.4 103.4 104.1 92.5 94.0
TOTAL $201.6 $786.2 815.7 $865.4 $917.1 $890.0
Ratio (1 divided
by 2) 5.58 5.34 2.98 4.00 3.47 3.68
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