2
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, 1996
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 58-153343
(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, 1996, a total of 994,195,411 common shares were
outstanding.
Table of Contents
Item 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 9
2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
Results of Operations 11
Volumes of Business 12
Operating Revenues 13
Operating Expenses 14
Other Income Statement Items 16
Financial Condition 16
Regulatory and Competitive Environment 18
Regulation 18
Competition and Business Developments 19
Part II
6. Exhibits and Reports on Form 8-K 20
PART I - FINANCIAL INFORMATION
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Millions, Except Per Share Amounts)
For the Three Months
Ended March 31,
1996 1995
Operating Revenues:
Network and related services:
Local service $1,930 $1,769
Interstate access 909 795
Intrastate access 218 226
Toll 207 281
Wireless communications 625 600
Directory advertising and
publishing 318 353
Other services 334 275
Total Operating Revenues 4,541 4,299
Operating Expenses:
Cost of services and
products 1,468 1,503
Depreciation and
amortization 903 835
Selling, general and
administrative 987 866
Total Operating Expenses 3,358 3,204
Operating Income 1,183 1,095
Interest Expense 180 174
Gain on Sale of Paging
Business 442 --
Other Income (Expense), net 36 (11)
Income Before Income Taxes 1,481 910
Provision for Income Taxes 511 363
Net Income $ 970 $ 547
Weighted Average Common
Shares Outstanding 994 993
Dividends Declared Per Common
Share $ .36 $ .345
Earnings Per Share $ .98 $ .55
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,
1996 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 988 $ 1,711
Temporary cash investments 57 71
Accounts receivable, net of allowance for
uncollectibles of $161 and $171 3,629 3,772
Material and supplies 450 430
Other current assets 472 521
5,596 6,505
Investments and Advances 2,529 2,418
Property, Plant and Equipment:
Property, Plant and Equipment 47,389 46,869
Accumulated Depreciation 26,359 25,777
21,030 21,092
Intangible Assets, net 1,304 1,527
Deferred Charges and Other Assets 410 338
Total Assets $ 30,869 $ 31,880
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year $ 1,588 $ 2,951
Accounts payable 1,239 1,724
Other current liabilities 2,909 2,715
5,736 7,390
Long-Term Debt 7,904 7,924
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 1,698 1,650
Unamortized investment tax credits 336 355
Other liabilities and deferred credits 2,699 2,736
4,733 4,741
Shareholders' Equity:
Common stock, $1 par value 1,008 1,007
Paid-in capital 7,646 7,619
Retained earnings 4,713 4,099
Shares held in trust (374) (374)
Guarantee of ESOP debt (497) (526)
12,496 11,825
Total Liabilities and Shareholders' Equity $ 30,869 $ 31,880
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,
1996 1995
Cash Flows from Operating Activities:
Net income $ 970 $ 547
Adjustments to net income:
Depreciation and amortization 903 835
Gain from sale of paging business (442) --
Net losses and dividends from unconsolidated
affiliates 58 45
Provision for losses on bad debts 56 49
Deferred income taxes and unamortized
investment tax credits (2) (12)
Net change in accounts receivable and
other current assets 84 91
Net change in accounts payable and other
current liabilities (380) (325)
Net change in deferred charges and other
assets (73) (21)
Net change in other liabilities and
deferred credits 7 77
Other reconciling items, net (55) 24
Net cash provided by operating activities 1,126 1,310
Cash Flows from Investing Activities:
Capital expenditures (882) (815)
Proceeds from sale of paging business 930 --
Proceeds from disposition of short-term
investments 44 42
Purchases of short-term investments (30) (2)
Investment dispositions and repayments of
advances 5 39
Investments in and advances to unconsolidated
affiliates (164) (130)
Other investing activities, net (38) 6
Net cash used for investing activities (135) (860)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 5,527 4,324
Repayments of short-term borrowings (6,433) (4,503)
Proceeds from long-term debt 34 35
Repayments of long-term debt (499) (7)
Dividends paid (358) (342)
Other financing activities, net 15 (3)
Net cash used for financing activities (1,714) (496)
Net (Decrease) in Cash and Cash Equivalents (723) (46)
Cash and Cash Equivalents at Beginning of Period 1,711 606
Cash and Cash Equivalents at End of Period $ 988 $ 560
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)
Note 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.
These consolidated financial statements include estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and
the amounts of revenues and expenses. Actual results could differ
from those estimates. 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.
Effective June 30, 1995, BellSouth discontinued application of
Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation."
For the three months ended March 31, 1995, weighted average
common shares and related per share amounts have been restated to
reflect a two-for-one stock split effective in November 1995.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In Millions, Except Per Share Amounts)
Note B -- BellSouth Corporation Consolidated Shareholders' Equity
Number of
Shares Amount
Shares Shares Guaran-
Held Held tee of
Common in Common Paid-in Retained in ESOP
Stock Trust Stock Capital Earnings Trust Debt
(1) (1)
Balance at
December 31, 1995 1,007 (13) $1,007 $7,619 $4,099 $(374) $(526)
Net Income 970
Dividends declared (358)
Shares issued for
employee benefit
plans 1 1 15
ESOP activities
and related tax
benefit 2 29
Foreign currency
translation
adjustment ______ ______ ______ 12 ________ ______ _______
Balance at March
31, 1996 1,008 (13) $1,008 $7,646 $4,713 $(374) $(497)
(1) Such shares are not considered to be outstanding for financial
reporting purposes.
Note C -- Supplemental Cash Flow Information
The following supplemental information is presented in accordance
with the provisions of SFAS No. 95, "Statement of Cash Flows."
For the Three Months
Ended March 31,
1996 1995
Cash Paid For:
Income taxes $ 37 $ 31
Interest $ 157 $ 202
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In Millions, Except Per Share Amounts)
Note D -- Sale of Paging Subsidiary
In January 1996, BellSouth sold to MobileMedia Corporation its
paging subsidiary, Mobile Communications Corporation of America
(MCCA), and its two-way nationwide narrowband personal
communications services license for a total of $930. The pretax
gain on such sale was $442.
For the three-month period ended March 31, 1995, MCCA's total
operating revenues and total operating expenses were $81 and $73,
respectively, and total assets at December 31, 1995 were $355.
BELLSOUTH CORPORATION
SELECTED OPERATING DATA
(Unaudited)
Percent Change
1996 vs. 1995 vs.
1996 1995 1994
Network Access Lines in Service at March 31 (Thousands)(a):
By Type:
Residence 14,865 3.5% 3.4%
Business 6,370 7.9 7.7
Other 257 0.8 0.6
Total Access Lines 21,492 4.8 4.6
By State:
Florida 5,702 5.1 4.9
Georgia 3,624 6.2 5.8
Tennessee 2,473 4.6 4.5
Louisiana 2,136 3.6 3.7
North Carolina 2,134 5.2 5.4
Alabama 1,818 4.0 3.5
South Carolina 1,313 4.0 3.8
Mississippi 1,177 3.6 3.7
Kentucky 1,115 3.7 3.2
Total Access Lines 21,492 4.8 4.6
For the Three Percent Change for
Months Ended the Periods Ended
March 31, 1996 vs. 1995 vs.
1996 1995 1994
Access Minutes of Use (Millions)(a)(b):
Interstate 16,660 10.1% 7.7%
Intrastate 5,118 13.0 13.1
Total Minutes of Use 21,778 10.8 8.9
Toll Messages (Millions)(a) 281 (24.1) (4.3)
(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.
BELLSOUTH CORPORATION
SELECTED OPERATING DATA (Continued)
(Unaudited)
Percent Change
1996 vs. 1995 vs.
1996 1995 1994
Cellular Customers Served at March 31 (Equity basis)(Thousands)(c):
Domestic Cellular 3,046 31.3% 37.9%
International Cellular 855 106.0 85.1
(c) Includes customers served based on BellSouth's ownership
percentage in all markets served.
For the Three
Months Ended
March 31,
1996
Ratio of Earnings to Fixed Charges (d) 8.2
(d) 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 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 primarily within the nine-state BellSouth
Telecommunications region. BellSouth Enterprises, Inc. (BellSouth
Enterprises), another wholly-owned subsidiary, owns businesses
providing primarily wireless and international communications
services and advertising and publishing products.
Approximately 72% and 71% of BellSouth's Total Operating Revenues
for the three-month periods ended March 31, 1996 and 1995,
respectively, were from wireline services provided by BellSouth
Telecommunications. Charges for local, access and toll services
for the three-month period ended March 31, 1996 accounted for
approximately 59%, 35% and 6%, respectively, of the wireline
revenues discussed above. Revenues from wireless communications
services and directory advertising and publishing services
accounted for approximately 14% and 7%, respectively, of Total
Operating Revenues for the three months ended March 31, 1996. The
remainder of such revenues was derived principally from other
nonregulated services provided by BellSouth Telecommunications.
RESULTS OF OPERATIONS
Per share amounts for 1995 have been restated to reflect a two-for-
one stock split effective in November 1995.
For the Three
Months Ended
March 31,
1996 1995
Net Income $970 $547
Earnings Per Share $.98 $.55
For the three-month period ended March 31, 1996, Net Income
increased by $423 (77.3%); Earnings Per Share increased $.43
(78.2%). The increase resulted primarily from the $344 gain ($.35
per share) on sale of BellSouth's paging business (see Note D to
the Consolidated Financial Statements), continued strong growth in
key business volumes and expense savings attributable to employee
reductions under BellSouth Telecommunications' restructuring and
work force reduction plans.
Volumes of Business
The total number of access lines in service since March 31, 1995
increased by approximately 977,000 (4.8%) to 21,492,000, compared
to a 4.6% rate of increase for the same prior year period.
Business and residence access lines increased by 7.9% and 3.5%,
respectively, compared to growth rates of 7.7% and 3.4% in 1995.
The number of second residence lines, included in total residence
lines, increased by 252,000 (22.9%) to 1,353,000 and accounted for
approximately 49.7% and 25.8% of the overall increase in residence
access lines and total access lines, respectively, since March 31,
1995. Such second residence lines are generally used for home
office purposes, access to on-line computer services and children's
phones. The growth in all categories of access lines was primarily
attributable to continued economic improvement in the Southeast,
including increased business activity in Georgia in preparation for
the Olympics, and successful marketing programs.
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 2,118 million (10.8%)for
the three-month period ended March 31, 1996 compared to an increase
of 8.9% for the same period last year. The increase in access
minutes of use was primarily 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, 1996, toll messages decreased by 89 million
(24.1%) compared to a decrease of 4.3% for the corresponding period
in 1995. The decrease in 1996 was primarily attributable to the
expansion of local area calling plans (LACPs) in Florida, Georgia
and North Carolina and also to increased competition from
interexchange carriers in the intraLATA toll market. While the
respective impacts of such factors cannot be precisely quantified,
BellSouth estimates that about 70% of the decline in toll messages
was attributable to expanded LACPs and about 30% was due to
increased competition.
The expanded LACPs discussed above 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. LACPs 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 726,000
(31.3%) since March 31, 1995 to 3,046,000 due to continuing high
demand for wireless services. The overall penetration rate (number
of customers as a percentage of the total population in the service
territory) increased from 5.8% at March 31, 1995 to 7.6% at March
31, 1996. Total minutes of use have also continued to increase and
average minutes of use per cellular customer have remained
essentially unchanged from first quarter 1995, with stimulation due
to promotions being substantially offset by the continuing trend of
increased penetration into lower-usage market segments.
Since March 31, 1995, the number of international cellular
customers increased by 440,000 (106.0%) to 855,000. 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.
Operating Revenues
Total Operating Revenues increased $242 (5.6%) for the three-month
period ended March 31, 1996 when compared to the corresponding 1995
period. The components of Total Operating Revenues were as
follows:
For the Three
Months Ended
March 31,
1996 1995
Local Service $1,930 $1,769
Interstate Access 909 795
Intrastate Access 218 226
Toll 207 281
Wireless Communications 625 600
Directory Advertising and
Publishing 318 353
Other Services 334 275
Total Operating Revenues $4,541 $4,299
Local Service revenues increased $161 (9.1%)for the three-month
period ended March 31, 1996 as compared to the same 1995 period.
The increase was due primarily to 4.8% growth in access lines in
service since March 31, 1995. Also contributing was an increase of
$31 due to higher customer demand for Touchstar and Custom Calling
services, and the effect of expanded LACPs.
Interstate Access revenues increased $114 (14.3%) for the three-
month period ended March 31, 1996 as compared to the same prior
year period. The increase was attributable primarily to growth in
minutes of use of 10.1% and rate activity, the net effect of which
increased revenues by $38.
Intrastate Access revenues decreased $8 (3.5%) for the three-month
period ended March 31, 1996 when compared to the corresponding 1995
period. The decrease was due primarily to rate reductions of $32
compared with first quarter 1995, partially offset by increases
attributable to growth in minutes of use of 13.0%.
Toll revenues decreased $74 (26.3%) for the three-month period
ended March 31, 1996 when compared to the same prior year period.
The decrease was primarily attributable to net rate reductions
compared with first quarter 1995 of approximately $57 and a decline
in toll messages of 24.1%. Such factors reflect the expansion of
LACPs and increased competition.
Wireless Communications revenues include revenues from the
consolidated wireless communications businesses (cellular and, for
1995, 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 $25 (4.2%) for the three-
month period ended March 31, 1996 when compared to the same period
last year. The increase was primarily attributable to continued
growth of the customer base in domestic and international cellular
markets, partially offset by the effect of the January 1996 sale of
BellSouth's paging business. For the three-month period ended
March 31, 1995, revenues from paging services were $81. Excluding
the effects of the sale of the paging business, Wireless
Communications revenues increased 20.4%.
Directory Advertising and Publishing revenues decreased $35 (9.9%)
for the three-month period ended March 31, 1996 when compared to
the same prior year period. The decrease was due primarily to a
$40 reduction resulting from the adoption of issue basis
accounting, effective in the third quarter of 1995, for all
directory revenues in connection with the discontinuance of
Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." The
decrease was also due to changes in the issue dates of certain
directories, which reduced revenues by $12 in the first quarter of
1996. Such decreases were partially offset by increased revenues
attributable to volume growth.
Other Services revenues are principally comprised of revenues from
customer premises equipment (CPE) sales and maintenance services,
billing and collection services and other nonregulated services
(primarily inside wire services) offered by BellSouth
Telecommunications. Other Services revenues increased $59 (21.5%)
for the three-month period ended March 31, 1996 when compared to
the corresponding 1995 period. The increase was primarily
attributable to incremental rate impacts related to potential
sharing under certain state regulatory plans.
Operating Expenses
Total Operating Expenses increased $154 (4.8%) for the three-month
period ended March 31, 1996 compared to the same period in 1995.
The components of Total Operating Expenses were as follows:
For the Three
Months Ended
March 31,
1996 1995
Depreciation and Amortization $ 903 $ 835
Other Operating Expenses:
Cost of Services and
Products 1,468 1,503
Selling, General and
Administrative 987 866
2,455 2,369
Total Operating Expenses $ 3,358 $ 3,204
Depreciation and Amortization increased $68 (8.1%) for the three-
month period ended March 31, 1996 compared to the same period in
1995. The increase was due primarily to higher levels of property,
plant and equipment since March 31, 1995 resulting from continued
growth in the customer base for wireless and wireline services and
continued modernization of the networks, and shorter asset lives
for property, plant and equipment in use subsequent to the
discontinuance of SFAS No. 71.
Other Operating Expenses are comprised of Cost of Services and
Products and Selling, General and Administrative. Cost of Services
and Products includes employee and employee-related expenses
associated with network repair and maintenance, material and
supplies expense, cost of tangible goods sold and other expenses
associated with providing services. Selling, General and
Administrative includes expenses related to sales activities such
as salaries, commissions, benefits, travel, marketing and
advertising expenses and administrative expenses.
Other Operating Expenses increased $86 (3.6%) for the three-month
period ended March 31, 1996 when compared to the corresponding 1995
period. The increase for the period was primarily attributable to
increased expenses of $66 related to sustained growth in the
cellular customer base, reflecting additional marketing and
operational costs associated with higher levels of sales and
expanded operations. At BellSouth Telecommunications, Other
Operating Expenses increased $40 due principally to higher business
volumes and initiatives to effectively position the business for
increased competition, partially offset by a decrease of
approximately $66 for labor costs in the core wireline business,
including expenses for employee benefits. The decrease in such
labor costs reflects employee reductions of approximately 6,100
since March 31, 1995 attributable to previously-disclosed
restructuring and work force reduction plans, partially offset by
annual compensation increases for management and represented
employees. Also contributing to the overall increase in Other
Operating Expenses was approximately $25 related to volume growth
and higher material costs in the directory advertising and
publishing businesses. The increase for the period was partially
offset by the effect of the January 1996 sale of BellSouth's paging
business. For the three-month period ended March 31, 1995, Other
Operating Expenses for the paging business were $61. Excluding the
effects of the sale of the paging business, Other Operating
Expenses increased 6.4%.
Other Income Statement Items
The other income statement components were as follows:
For the Three
Months Ended
March 31,
1996 1995
Interest Expense $180 $174
Gain on Sale of Paging
Business 442 --
Other Income (Expense), net 36 (11)
Provision for Income Taxes 511 363
Interest Expense increased $6 (3.4%) for the three-month period
ended March 31, 1996 compared to the same period last year. The
increase was primarily attributable to higher average debt levels
partially offset by lower average interest rates on long-term
borrowings due to refinancings during 1995.
Gain on Sale of Paging Business represents the pre-tax gain on the
sale of BellSouth's paging business in January 1996.
Other Income (Expense), net increased $47 for the three-month
period ended March 31, 1996 compared to the corresponding period in
1995. The increase was primarily attributable to higher interest
income due to the investment of cash proceeds from the sale of the
paging business and also to increased loans to unconsolidated
affiliates. Equity in losses of unconsolidated affiliates was
($28) in the first quarter of 1996 compared to ($32) for the same
period in 1995. The lower overall losses in 1996 reflect improved
results from unconsolidated domestic cellular operations and mobile
data communications businesses, substantially offset by increased
losses from certain international businesses, principally
operations in Germany and Denmark.
Provision for Income Taxes increased $148 (40.8%) for the three-
month period ended March 31, 1996 over the comparable 1995 period.
For the three-month period ended March 31, 1996, BellSouth's
effective tax rate was 34.5% compared to 39.9% for the same period
last year. The lower effective tax rate in 1996 was due primarily
to a higher tax than book basis for the paging business, which
resulted in a lower gain on sale for computing tax expense.
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,
1996 and December 31, 1995, BellSouth's sources of funds --
primarily from operations and, to the extent necessary, from
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,
1996 1995
Net Cash Provided by Operating Activities $1,126 $1,310
Operating Activities. Net cash provided by operating activities
decreased $184 (14.0%) in the first three months of 1996 compared
with the same period in 1995, primarily due to a $125 change in the
cash used for the reduction of liabilities.
For the Three Months
Ended March 31,
1996 1995
Net Cash Used for Investing Activities $(135) $(860)
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 $725 (84.3%) in the first three months of 1996
compared to the corresponding 1995 period. The decrease was
primarily due to $930 in cash received from the sale of the paging
business, partially offset by higher capital expenditures of $67
related to network development and increased investment in
unconsolidated affiliates of $34.
Internal sources provided substantially all cash required for
capital expenditures in the first three months of 1996. For the
remainder of 1996, 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,
1996 1995
Net Cash Used for Financing Activities $(1,714) $(496)
Financing Activities. Net cash used for financing activities
increased $1,218 (245.6%) in first three months of 1996 compared to
the same period last year. The increase reflects repayments of
$873 in commercial paper and $485 in debentures during first
quarter 1996.
Refinancing of both short- and long-term debt is possible during
the remainder of the year depending on prevailing market interest
rates. As of May 1, 1996, shelf registration statements were on
file with the Securities and Exchange Commission under which $2,227
of debt securities could be publicly offered.
BellSouth's debt to total capitalization ratio decreased to 43.0%
at March 31, 1996 from 46.7% at December 31, 1995. The decrease
was primarily caused by the repayment of commercial paper described
above.
BellSouth's Board of Directors has authorized the repurchase of an
unspecified number of shares of BellSouth Common Stock on the open
market or through privately negotiated purchases.
REGULATORY AND COMPETITIVE ENVIRONMENT
Regulation
Price regulation plans have been approved or authorized by the
requisite legislative or regulatory bodies in all states in the
BellSouth Telecommunications service area. At the federal level,
BellSouth Telecommunications continues to operate under an interim
price regulation plan established by the Federal Communications
Commission (FCC) in 1995. Recent significant developments with
respect to price regulation and other related issues are discussed
below.
Louisiana. Effective April 1, 1996, the Louisiana Public Service
Commission approved a price regulation plan that will remain in
effect for a six-year term, subject to review. Under the
provisions of the price regulation plan, rates for basic services,
which include the provision of local exchange services, are capped
for five years, after which an inflation-based formula may be used
to change prices. After five years, no individual basic service
rate can be increased by more than 10% in any twelve-month period.
Prices for interconnection services are capped for three years,
after which no individual service can be increased more than 10% in
any twelve-month period. For non-basic services, price increases
may not exceed 20% in any twelve-month period. In addition, the
Commission approved local competition rules effective March 15,
1996.
In connection with the approval of price regulation, the Louisiana
Commission concluded its review of BellSouth Telecommunications'
earnings by requiring an aggregate $70 rate reduction, to be
implemented ratably over a three-year period beginning April 1,
1996, and an immediate $9 refund to existing customers.
North Carolina. In May 1996, the North Carolina Utilities
Commission modified a price regulation plan previously submitted by
BellSouth Telecommunications. The modified plan, which is
currently under review by the company, will become effective
June 3, 1996, subject to BellSouth Telecommunications' acceptance
of such modifications by May 20, 1996.
Under the terms of the modified plan, prices for residence basic
local exchange services are capped for three years, after which any
price increases are limited subject to an inflation-based formula.
For business basic local exchange, interconnection and certain non-
basic services, any increases in current prices are also subject to
inflation-based formulas. Prices for toll switched access services
are capped at current prices, after giving effect to specified
rates reductions ordered in conjunction with approval of the price
regulation plan. Such rate reductions, including the toll
switched access component and elimination of charges for touchtone
service by the first anniversary of the plan, will total
approximately $60 over the next three years.
Tennessee. In order to implement BellSouth Telecommunications'
price regulation plan, the Tennessee Public Service Commission had
required a $56 rate reduction on an annual basis, which BellSouth
Telecommunications appealed to the Tennessee Court of Appeals (the
Court). In its rulings, the Court has stayed implementation of
both the rate reduction and price regulation plan pending further
consideration of the issues. A decision is expected later in 1996.
Competition and Business Developments
Among its provisions, the Telecommunications Act of 1996 (the 1996
Act) preempts state legislative and regulatory barriers to
competition for local telephone service, subject only to
competitively neutral requirements to assure quality service
consistent with public safety, convenience and consumer welfare.
In order to comply with the requirements of the 1996 Act, all
states in BellSouth Telecommunications' service area have
proceedings and other activities in progress to consider rules and
regulations necessary to implement open competition for local
service. A number of carriers have been approved or filed
applications to provide local service in many of the areas in which
BellSouth Telecommunications provides service. In April 1996,
BellSouth Telecommunications received approval from the Florida
Public Service Commission to provide competing local service in
other carriers' service areas. Initially, BellSouth
Telecommunications plans to serve business customers in parts of
the Orlando market not currently served by BellSouth
Telecommunications.
As permitted by the 1996 Act, BellSouth began providing interLATA
wireless service to its cellular customers in February. Also, in
March, BellSouth began joint marketing cellular and wireline
services in Macon, Georgia through BellSouth Telecommunications'
sales offices. BellSouth expects to extend joint marketing of such
services throughout its service region by the end of 1996.
BellSouth plans to begin offering interLATA wireline service within
its nine-state territory as soon as possible after completion of
FCC and state regulatory proceedings, expected to be concluded in
late 1996 or early 1997; however, it is uncertain when BellSouth
will be authorized to initiate such interLATA wireline service.
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:
Date of Event Subject
April 18, 1996 First Quarter 1996 Earnings Release and
1996 Financial Projection
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
Executive Vice President, Chief
Financial Officer and Comptroller
(Principal Financial and Accounting Officer)
May 13, 1996
EXHIBIT INDEX
Exhibit
Number
11 Computation of Earnings Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
EXHIBIT 11
BellSouth Corporation
Computation of Earnings Per Share
For the Three Month
Periods Ended
March 31,
1996 1995
Earnings Per Common Share:
Net Income $ 970 $ 547
Weighted
average shares
outstanding 994 993
Earnings Per
Common Share $ .98 $ .55
EXHIBIT 11
BellSouth Corporation
Computation of Earnings Per Share (continued)
For the Three Month
Periods Ended
March 30,
1996 1995
Primary Earnings Per Common Share:
Net Income $ 970 $ 547
Weighted
average shares
outstanding 994 993
Incremental
shares from
assumed
exercise of
stock options
and payment of
performance
share awards 3 1
Total Shares 997 994
Earnings Per
Common Share $ .97 $ .55
EXHIBIT 11
BellSouth Corporation
Computation of Earnings Per Share (continued)
For the Three Month
Periods Ended
March 30,
1996 1995
Fully Diluted Earnings Per Common Share:
Net Income $ 970 $ 547
Weighted
average shares
outstanding 994 993
Incremental
shares from
assumed
exercise of
stock options
and payment of
performance
share awards 3 1
Total Shares 997 994
Earnings Per
Common Share $ .97 $ .55
EXHIBIT 12
BellSouth Corporation
Computation Of Earnings To Fixed Charges
(Dollars In Millions)
For the Three
Months Ended
March 31,
1996
1. Earnings
(a) Income from continuing operations
before deductions for taxes and interest $1,660
(b) Portion of rental expense
representative of interest factor 27
(c) Equity in losses from less-than-50%
owned investments (accounted for under the
equity method of accounting) 47
(d) Excess of earnings over distributions
of less-than-50%-owned investments
(accounted for under the equity mehtod of
accounting) (9)
TOTAL $1,725
2. Fixed Charges
(a) Interest $184
(b) Portion of rental expense
representative of interest factor 27
TOTAL $211
Ratio (1 divided by 2) 8.2
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