SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 30, 1995
BELLSOUTH CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 1-8607 58-1533433
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
1155 Peachtree Street, N. E., Atlanta, Georgia 30309-3610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(404) 249-2000
Item 5. Other Events
Discontinuance of SFAS No. 71
BellSouth Corporation's (BellSouth) regulated enterprise,
BellSouth Telecommunications, Inc. (BellSouth
Telecommunications), has historically accounted for the
economic effects of regulation under Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation." The implementation
of price regulation in the regulatory arena, however, has
and continues to be a cornerstone in BellSouth
Telecommunications' corporate strategy. Changes in the
regulatory framework at the state and federal level are
becoming increasingly evident. North Carolina, Georgia,
Tennessee and Florida have each enacted legislation
authorizing price regulation and local exchange competition.
In addition, price regulation proposals are under review in
the remaining states in BellSouth Telecommunications'
service region. At the federal level, the Federal
Communications Commission (FCC) has adopted an interim price
cap plan which, similar to the state price regulation plans,
provides an option for companies to eliminate earnings
limitations and sharing requirements. As a result of
changes in the regulatory framework at both the state and
federal levels, a significant portion of BellSouth
Telecommunications' revenue will no longer be regulated
based on the recovery of specific costs.
As a result of changes in the regulatory framework,
BellSouth Telecommunications also expects that competition
in its local exchange markets will accelerate. Changes in
the regulatory framework that allow for price regulation
have included the simultaneous removal of legal and
regulatory barriers for potential competitors. The removal
of these barriers is expected to encourage potential
competitors to accelerate deployment of competing networks
to either compete directly for local service or to bypass
the BellSouth Telecommunications network for long distance
access. Potential competitors have continued to make
investments in wireless licenses, cable properties and
enhanced interexchange networks which serves as further
evidence of increased competition.
As a result of its continuing regulatory and marketplace
assessments, the company has concluded that it is no longer
appropriate to prepare its external financial results using
the accounting method required for regulated enterprises.
BellSouth Telecommunications believes that based on the
changing regulatory environment and the increasing level of
competition, it is required to discontinue SFAS No. 71 for
financial reporting purposes because most of its revenues
will be generated under market-based pricing and because it
is doubtful that regulated rates could be charged to and
collected from customers. Recent changes in its regulatory
framework and the simultaneous elimination of legal and
regulatory barriers for its competitors both support
discontinuance of SFAS No. 71. Accordingly, effective in
the second quarter, BellSouth Telecommunications will
discontinue application of SFAS No. 71 for financial
reporting purposes.
Because of the discontinuance of SFAS No. 71, BellSouth
Telecommunications will recognize for financial reporting
purposes a non-cash extraordinary charge of about $2.7
billion (net of taxes of $1.7 billion). As a result of this
extraordinary charge, BellSouth expects to report a loss for
second quarter 1995 and for the year 1995 in total. The
primary component of the charge consists of a $3.0 billion
charge (net of taxes of $1.9 billion) to reduce the recorded
value of long lived telephone plant and equipment to the
level appropriate for non-regulated enterprises. This
reduction recognizes that these assets have been
underdepreciated due to regulator-prescribed asset lives
which exceed the estimated economic asset lives, and that
the current recorded value of these assets is not
recoverable in the future due to the expected levels of
competition.
The adjustment of telephone plant and equipment will be
reflected through a $4.9 billion increase in accumulated
depreciation. For financial reporting purposes, the related
average depreciable lives of significant categories of long
lived telephone plant will be reduced to more closely
reflect the economic and technological lives. Differences
between regulator-approved asset lives and the current
estimated economic asset lives are as follows:
Composite of Estimated
Regulator-Approved Economic Asset
Category of Asset Asset Lives (in Lives (in Years)
Years)
Digital Switching 17.0 10.0
Circuit-Other 10.5 9.1
Aerial Metallic 20.0 14.0
Cable
Underground Metallic 25.0 12.0
Cable
Buried Metallic 20.0 14.0
Cable
As a result of shorter lives applicable to both existing and
newly acquired assets, BellSouth expects that depreciation
expense will increase about $22 million in 1995 and about
$70 million in 1996. The ongoing impact on net income,
however, is expected to be insignificant in these time
periods because of elimination of the amortization of net
regulatory assets and the acceleration of unamortized
investment tax credits due to the shorter lives. BellSouth
Telecommunications' accounting and reporting for regulatory
purposes is not affected by the discontinued application of
SFAS No. 71.
The extraordinary charge also includes several secondary
components. Included in the overall charge is an
approximately $71 million one-time after-tax increase to
reflect the removal of regulatory assets and liabilities
that were recorded as a result of previous actions by
regulators. Virtually all of these regulatory assets and
liabilities arose in connection with the incorporation of
new accounting standards into the ratemaking process, and
were transitory in nature. The magnitude of the regulatory
assets and liabilities has been 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. The overall extraordinary charge was also reduced
by about $19 million for the partial acceleration of
unamortized investment tax credits associated with the
reductions in asset carrying values and in asset lives. In
addition, the overall extraordinary charge was reduced by
$194 million after-tax related to the method by which
BellSouth Telecommunications reports the results of its
directory publishing operations. BellSouth's unregulated
subsidiaries recognize directory publishing revenues and
production expenses using the "issue" basis. Under the
issue basis, revenues and product expenses are recognized
when directories are published rather than over the lives of
the directories (generally one year) as under the prescribed
regulatory accounting framework. BellSouth
Telecommunications will now begin reporting on an issue
basis consistent with BellSouth's unregulated subsidiaries
and with publishing companies in general.
The key components of the non-cash extraordinary charge (net
of taxes) are summarized as follows:
Extraordinary Charge by Component Estimated impact
($ in millions)
Reduction in Recorded Value of Long
Lived Telephone Plant ($3,002)
Partial Adjustment to Unamortized
Investment Tax Credits 19
Elimination of Regulatory Assets and
Liabilities 71
Full Adoption of Issue Basis Accounting 194
Estimated Extraordinary Charge to be
Recognized at June 30, 1995 ($2,718)
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 theundersigned thereunto duly
authorized.
BELLSOUTH CORPORATION
By: /s/RONALD M. DYKES
Ronald M. Dykes
Vice President, Chief Financial Officer
and Comptroller
June 30, 1995
