<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
BellSouth Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NOTICE OF
1996
ANNUAL
MEETING
------------------------
PROXY STATEMENT
------------------------
ANNUAL FINANCIAL STATEMENTS AND
REVIEW OF OPERATIONS
BELLSOUTH
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Notice of Annual Meeting.................................................................................. 1
Proxy Statement
Voting of Shares................................................................................. 2
Board of Directors............................................................................... 3
Director Compensation............................................................................ 4
Election of Directors (Item 1 on Proxy Card)..................................................... 5
Stock Ownership of Directors and Executive Officers.............................................. 7
Ratification of Appointment of Independent Auditors (Item 2 on Proxy Card)....................... 7
Director Proposal (Item 3 on Proxy Card)......................................................... 8
Shareholder Proposal (Item 4 on Proxy Card)...................................................... 10
Other Matters to Come Before the Meeting......................................................... 11
Nominating and Compensation Committee Report on Executive Compensation........................... 12
Compensation Committee Interlocks and Insider Participation...................................... 18
Five Year Performance Comparison................................................................. 18
Executive Compensation........................................................................... 19
Director Nominees or Other Business for Presentation at the Annual Meeting....................... 24
Compliance with Section 16(a) of the Securities Exchange Act of 1934............................. 24
Shareholder Proposals for the 1997 Proxy Statement............................................... 24
Other Information................................................................................ 25
Solicitation of Proxies.......................................................................... 25
Appendix:
Annual Financial Statements and Review of Operations
Selected Financial and Operating Data............................................................ A-1
Management's Discussion and Analysis of Results of Operations and Financial Condition............ A-2
Report of Management............................................................................. A-17
Audit Committee Chairman's Letter................................................................ A-18
Report of Independent Accountants................................................................ A-19
Consolidated Statements of Income................................................................ A-20
Consolidated Balance Sheets...................................................................... A-21
Consolidated Statements of Shareholders' Equity.................................................. A-22
Consolidated Statements of Cash Flows............................................................ A-23
Notes to Consolidated Financial Statements....................................................... A-24
Market and Dividend Data......................................................................... A-45
Domestic Cellular Proportionate Operating Data................................................... A-46
</TABLE>
<PAGE>
March 11, 1996
Dear Shareholder:
It is my pleasure to invite you to the 1996 Annual Meeting of Shareholders
of BellSouth
Corporation. The meeting will be held at 9:00 a.m. on Monday, April 22, 1996, in
Ballroom A, at The Cobb Galleria Centre, Two Galleria Parkway, in Atlanta,
Georgia.
The accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement describe the items of business which will be discussed during the
meeting. It is important that you vote your shares whether or not you plan to
attend the meeting. To be sure your vote is counted, we urge you to carefully
review the Proxy Statement and to vote your choices. PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE.
If you attend the meeting and wish to vote in person, the ballot that you submit
at the meeting will supersede your proxy.
I look forward to seeing you at the meeting. On behalf of the management and
directors of BellSouth Corporation, I want to thank you for your continued
support and confidence in 1996.
Sincerely,
[LOGO]
John L. Clendenin
Chairman of the Board and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
BellSouth Corporation will hold its Annual Meeting of Shareholders on April
22, 1996 at 9:00 a.m., Eastern Daylight Time, at The Cobb Galleria Centre,
Ballroom A, Two Galleria Parkway, Atlanta, Georgia, for the following purposes:
1. To elect five directors for a term of three years.
2. To ratify the appointment of Coopers & Lybrand L.L.P., certified
public accountants, as the Company's independent auditors for the
year 1996.
3. To approve the BellSouth Corporation Officer Short Term Incentive
Award Plan.
4. To act upon such other matters, including shareholder proposals,
that may properly come before the meeting.
The Board of Directors has fixed March 4, 1996 as the record date for the
determination of the shareholders entitled to notice of, and to vote at, this
meeting or any adjournment.
[LOGO]
Arlen G. Yokley
Vice President, Secretary and Treasurer
March 11, 1996
1
<PAGE>
PROXY STATEMENT
VOTING OF SHARES
This Proxy Statement and the accompanying proxy card are being mailed to
shareholders, beginning March 11, 1996, in connection with the solicitation of
proxies on behalf of the Board of Directors of BellSouth Corporation
("BellSouth" or the "Company") for the 1996 Annual Meeting of Shareholders.
Proxies are solicited to give all shareholders of record on March 4, 1996 an
opportunity to vote on matters to be presented at the Annual Meeting. Shares can
be voted at the meeting only if the shareholder is present or represented by
proxy.
Each share of Common Stock represented at the Annual Meeting is entitled to
one vote on each matter properly brought before the meeting. Please specify your
choices by marking the appropriate boxes on the enclosed proxy card and signing
it. Directors are elected by a plurality of the votes cast by the shares
entitled to vote at a meeting at which a quorum is present. A plurality means
that the nominees with the largest number of votes are elected as directors up
to the maximum number of directors to be chosen at the meeting. All other
matters submitted at the meeting shall be determined by a majority of the votes
cast. Shares represented by proxies which are marked "withhold authority" with
respect to the election of one or more nominees for election as directors,
proxies which are marked "abstain" on other proposals, and proxies which are
marked to deny discretionary authority on other matters will not be counted in
determining whether a majority vote was obtained in such matters. If no
directions are given and the signed card is returned, the members of the
Directors' Proxy Committee will vote the shares in favor of the election of all
listed nominees, in accordance with the directors' recommendations on the other
subjects listed on the proxy card, and at their discretion on any other matter
that may properly come before the meeting. In instances where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not returned proxies to the brokers (so-called "broker non-votes"), those
shares will not be included in the vote totals and, therefore, will have no
effect on the vote. Shareholders voting by proxy may revoke that proxy at any
time before it is voted at the meeting by delivering to the Company a proxy
bearing a later date or by attending in person and casting a ballot.
If a shareholder is a participant in the BellSouth Shareholder Dividend
Reinvestment and Stock Purchase Plan, the proxy card represents a voting
instruction as to the number of full shares in the plan account as well as
shares held directly by the shareholder. If a shareholder is a participant in
the payroll-based BellSouth Employee Stock Ownership Plan ("PAYSOP"), the
BellSouth Management Savings and Employee Stock Ownership Plan ("MSP"), the
BellSouth Savings and Security Plan ("SSP") or the BellSouth Enterprises
Retirement Savings Plan ("RSP"), and the accounts are registered in the same
name, the proxy card will also serve as a voting instruction for the trustees of
those plans. The MSP, the SSP and the RSP provide that the trustee shall vote
plan shares represented by cards which are not signed and returned in the same
proportion as shares for which signed cards are returned. Shares in the PAYSOP
are not voted unless the card is signed and returned.
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY SO
YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN
PERSON. HIGHLIGHTS OF THE MEETING AND THE VOTING RESULTS WILL BE INCLUDED IN THE
SECOND QUARTER REPORT TO SHAREHOLDERS.
If a shareholder wishes to assign a proxy to someone other than the
Directors' Proxy Committee, all three names appearing on the proxy card must be
crossed out and the name(s) of another person or persons (not more than three)
inserted. The signed card and a ballot must be presented at the meeting by the
person(s) representing the shareholder.
If you plan to attend the meeting, please retain the admission ticket and
map provided and mark the appropriate box on the proxy card. Shareholders who do
not have admission tickets, including beneficial owners whose shares are held of
record by brokers or other institutions, will be admitted upon presentation of
proper identification at the door.
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<PAGE>
Shareholders with multiple accounts may receive more than one Summary Annual
Report. You may direct us to discontinue redundant mailings to the accounts you
select by marking the appropriate box on the proxy card for those accounts. You
must leave at least one account unmarked to receive a Summary Annual Report.
Eliminating these redundant mailings will not affect your receipt of future
proxy statements and proxy cards. To resume the mailing of a Summary Annual
Report to an account, call the BellSouth Shareholder Services number,
1-800-631-6001.
At January 31, 1996, 1,007,656,823 shares of BellSouth Common Stock were
outstanding, including shares issued to certain grantor trusts, which shares are
not considered outstanding for financial reporting purposes. The Company does
not know of any shareholder who beneficially owned more than five percent of its
issued stock as of that date. Shareholders of record on March 4, 1996 are
entitled to one vote for each share of Common Stock owned by them on the record
date on all matters properly brought before the meeting.
BOARD OF DIRECTORS
The business affairs of BellSouth are managed under the direction of the
Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them each month, through operating and financial
reports routinely presented at Board and committee meetings by the Chairman and
other officers, and through other means.
The Board held ten meetings in 1995. The average attendance of all directors
at Board and committee meetings was 96.8%. Biographical information on the
director nominees and the directors serving unexpired terms begins on page 5.
During 1995, the following standing committees assisted the Board in
carrying out its duties: Audit, Executive, Finance/Strategic Planning, and
Nominating and Compensation. The Board has also designated a Directors' Proxy
Committee which votes the shares represented by proxies at the Annual Meeting of
Shareholders.
The AUDIT COMMITTEE has four members, all of whom are independent,
non-employee directors. Members of the committee are Messrs. Criser (Chair),
Anderson, Medlin and Terry. The Audit Committee provides oversight of the
financial reporting process and management's responsibility for the integrity,
accuracy and objectivity of financial reports and accounting and financial
reporting practices; recommends to the Board the appointment of the Company's
independent public accountants; and provides oversight of management practices
relating to ethical considerations and business conduct. The Audit Committee met
seven times in 1995.
The FINANCE/STRATEGIC PLANNING COMMITTEE has five members, one of whom is an
executive officer of BellSouth. Members of the Committee are Messrs. Wilson
(Chair), Ackerman, Brown, Mrs. Davis and Ms. Smith. This Committee reviews the
long-term business goals and strategies of the Company, including strategic
considerations in the allocation of corporate resources, and oversees the
financial objectives, policies, procedures and activities of the Company. The
Finance/Strategic Planning Committee met eight times in 1995.
The NOMINATING AND COMPENSATION COMMITTEE has four members, all of whom are
independent, non-employee directors. Members of the Committee are Messrs. Codina
(Chair), Blanchard, Spangler and Williams. This Committee nominates qualified
persons as directors and executive officers; establishes an overall strategy
with respect to compensation for directors, officers and management; and
oversees corporate governance matters. The Nominating and Compensation Committee
met six times in 1995. Its Report on Executive Compensation begins on page 12.
The EXECUTIVE COMMITTEE has four members, one of whom is an executive
officer of BellSouth. Members of the Committee are Messrs. Clendenin (Chair),
Criser (Alt. Chair), Codina and Wilson. This Committee meets on call by the
Chairman of the Board and has all the authority of the Board, subject to the
limitations imposed by law, the By-laws or the Board of Directors, during the
intervals between Board meetings. The Executive Committee met one time in 1995.
3
<PAGE>
Directors who are officers of BellSouth do not participate in any action of
the Board relating to any executive compensation plan described in this Proxy
Statement.
Shareholders who wish to suggest qualified candidates for consideration as
directors of BellSouth by the Nominating and Compensation Committee should write
to: Secretary, BellSouth Corporation, 1155 Peachtree Street, N. E., Room 14B06,
Atlanta, Georgia 30309-3610, stating in detail the qualifications of such
persons.
DIRECTOR COMPENSATION
Directors who are also employees of BellSouth or its subsidiaries receive no
compensation in their capacities as directors. During 1995, directors who were
not employees of BellSouth received an annual retainer of $30,000, a fee of
$1,800 for each Board meeting attended, a fee of $1,500 for each committee
meeting attended, and an annual retainer of $5,000 for each committee
chairmanship. Non-employee directors may elect to receive director compensation
in the form of Common Stock in lieu of cash compensation. Directors may also
elect to defer the receipt of all or a part of their fees and retainers through
the BellSouth Nonqualified Deferred Compensation Plan. The Company maintains a
retirement plan for non-employee directors who have served on the Board or a
subsidiary board for at least five years and have reached the age of 55.
Eligible directors receive an annual retirement benefit of up to a maximum of
100 percent of the retainer with ten years or more service. Payments are made
for a maximum of 12 years following retirement.
The BellSouth Corporation Non-Employee Director Stock Plan (the "Director
Stock Plan") provides for grants to each non-employee director on the date of
each annual meeting of shareholders of non-qualified stock options to purchase
1,000 shares of Common Stock, together with a number of tandem Stock
Appreciation Rights equal to the number of options granted, at an exercise price
per share equal to the fair market value of the Stock on the grant date. The
options become exercisable on the anniversary of the grant date. Each of the 14
eligible directors were granted options in 1995 to purchase 1,000 shares of
Common Stock at a per share grant price of $60.88. In order to encourage
ownership of BellSouth Stock by the directors, the Director Stock Plan also
provides that if the value of BellSouth Common Stock owned by a director exceeds
five times the amount of the annual retainer for Board members (with certain
adjustments), that director shall receive additional stock options. The director
receives one additional option for every two shares owned in excess of five
times the retainer amount. The maximum number of additional options that may be
granted annually to any non-employee director is 1,000 options. The following
directors received grants of additional options at a per share grant price of
$60.88 in 1995: Blanchard (247 additional options); Brown (1,000 additional
options); Williams (113 additional options); and Wilson (1,000 additional
options). The director realizes value from the stock options only to the extent
that the price of BellSouth Common Stock on the exercise date exceeds the price
of the Stock on the grant date.
Non-employee directors are eligible to participate in the Directors
Charitable Contribution Program. This program is designed to acknowledge the
service of Company directors and to recognize the mutual interest of directors
and the Company in supporting worthy institutions. Pursuant to the program,
BellSouth will contribute to an educational or cultural organization or
organizations designated by an eligible non-employee director, payable over a
five year period from the date the director retires from the Board. Directors
must have five years of service on the Board or on the board of a subsidiary to
qualify for this program, with the maximum contribution of one million dollars
payable after ten years of service. All charitable deductions for tax purposes
accrue solely to the Company and the individual directors derive no direct
financial benefit from the program. The Company has purchased life insurance on
directors' lives, naming the Company as beneficiary, which is expected to
recover, over time, the amount of the contributions and the premium payments.
Non-employee directors are also provided certain telecommunications services
and death benefits and, while on BellSouth business, travel accident insurance.
In 1995, the cost of such benefits was approximately $1,460 per director.
4
<PAGE>
ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)
The Board of Directors of BellSouth consists of 14 members, 12 of whom are
non-employee directors. The Chairman, President and Chief Executive Officer of
the Company and the Vice Chairman and Chief Operating Officer of the Company are
members of the Board. The Board is divided into three classes with staggered
terms so that the term of one class expires at each annual meeting of
shareholders.
The following nominees have been selected by the Nominating and Compensation
Committee and approved by the Board for submission to the shareholders: F. Duane
Ackerman, Reuben V. Anderson, John G. Medlin, Jr., C. Dixon Spangler, Jr., and
Ronald A. Terry, each to serve a three year term expiring at the 1999 Annual
Meeting.
The Board has no reason to expect that any of these nominees will be unable
to stand for election. In the event a vacancy among the original nominees occurs
prior to the meeting, the shares represented by proxies in favor of such
nominees will be voted for the remaining nominees and for any substitute nominee
or nominees named by the Board upon the recommendation of the Nominating and
Compensation Committee. If you do not wish your shares to be voted for
particular nominees, please so indicate on the proxy card.
A brief listing of the principal occupation, other major affiliations and
age of each nominee and each director serving an unexpired term follows. A
photograph of the Board appears on page 27 of the 1995 Summary Annual Report.
NOMINEES FOR ELECTION AT THIS MEETING TO TERMS EXPIRING IN 1999:
F. DUANE ACKERMAN, Vice Chairman of the Board and Chief Operating Officer.
Director since 1993 and from April 1989-April 1991. President and Chief
Executive Officer and Chairman of the Board, BellSouth Telecommunications, Inc.,
November 1992-December 1994. President and Chief Operating Officer, BellSouth
Telecommunications, Inc., December 1991-October 1992; Vice Chairman and Group
President, March 1991-November 1991. Vice Chairman -- Finance and
Administration, BellSouth, April 1989-February 1991. Executive Vice President --
Marketing, Network and Planning, BellSouth Services Incorporated, April
1985-March 1989. Vice President -- Corporate Planning and Development,
BellSouth, January 1984-March 1985. Director of South Central Bell, January
1984-April 1985. Director of American Business Products, Inc.; American Heritage
Life Insurance Company; and Wachovia Bank of Georgia, N.A. Trustee, Rollins
College. Age 53.
REUBEN V. ANDERSON, Partner, Phelps Dunbar, a law firm. Mississippi Supreme
Court Justice, 1985-1990. Director since February 1994. Director of The Kroger
Company and Trustmark National Bank. Trustee, Tougaloo College. Age 53.
JOHN G. MEDLIN, JR., Chairman of the Board, Wachovia Corporation. Director
since 1988. Director of Burlington Industries, Inc.; Media General, Inc.;
Nabisco Holdings Corp.; National Service Industries, Inc.; RJR Nabisco Holdings
Corp.; and USAir Group, Inc. Age 62.
C. DIXON SPANGLER, JR., President, University of North Carolina. Director
since 1987. President, C. D. Spangler Construction Co., 1958-1986 and Golden
Eagle Industries, Inc., 1968-86. Director of C. D. Spangler Construction Co.;
Golden Eagle Industries, Inc.; and National Gypsum Co. Age 64.
RONALD A. TERRY, Retired Chairman of the Board, First Tennessee National
Corp. Director since 1987. Director of South Central Bell, January 1984-February
1987. Director of AutoZone, Inc.; Delta Life Corp.; Delta Life and Annuity; The
Promus Hotel Corporation; and St. Jude Children's Research Hospital. Age 65.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES
------------------------
5
<PAGE>
DIRECTORS WHOSE TERMS CONTINUE UNTIL 1997:
J. HYATT BROWN, Chairman, President and Chief Executive Officer, Poe &
Brown, Inc., an insurance services company. Director since February 1994.
Director of BellSouth Telecommunications, Inc., March 1984-February 1994.
Director of FPL Group, Inc.; International Speedway Corporation; Rock-Tenn
Company; Sun Banks of Volusia County; and SunTrust Banks Inc. Trustee, Stetson
University. Age 58.
JOHN L. CLENDENIN, Chairman of the Board, President and Chief Executive
Officer. Director since 1983. Chairman of the Board, Southern Bell, November
1982-December 1983; President, April 1981-October 1982. Director of Southern
Bell, March 1981-December 1983. Director of Coca-Cola Enterprises, Inc.;
Equifax, Inc.; The Kroger Company; Providian Corporation; RJR Nabisco Holdings
Corp.; Springs Industries, Inc.; and Wachovia Corporation. Age 61.
MARSHALL M. CRISER, Chairman, Mahoney Adams & Criser, P.A., a law firm.
President Emeritus, University of Florida; President, 1984-1989. Director since
1983. Director of Southern Bell, January 1974-October 1983. Director of Barnett
Banks, Inc.; Barnett Banks Trust Co.; CSR America, Inc.; Flagler System, Inc.;
FPL Group, Inc.; and Perini Corporation. Age 67.
PHYLLIS BURKE DAVIS, Retired Senior Vice President, Avon Products, Inc.
Director since 1985. Director of Eaton Corporation; The TJX Companies, Inc.; and
Trustee of various mutual funds in the Fidelity Group. Age 64.
ROBIN B. SMITH, President and Chief Executive Officer, Publishers Clearing
House, a magazine subscription company. Director since September 1994. Director
of Omnicom Group, Inc.; Springs Industries, Inc.; Texaco Inc.; and various funds
in the Prudential Group. Age 56.
THOMAS R. WILLIAMS, President, The Wales Group, Inc., a private investment
company. Director since 1983. Director of Southern Bell, August 1980-October
1983. Retired Chairman of the Board, First Wachovia Corporation. Director of
American Software, Inc.; AppleSouth, Inc.; ConAgra, Inc.; Georgia Power Co.;
National Life Insurance Co. of Vermont; and Trustee of various mutual funds in
the Fidelity Group. Age 67.
DIRECTORS WHOSE TERMS CONTINUE UNTIL 1998:
JAMES H. BLANCHARD, Chairman of the Board and Chief Executive Officer,
Synovus Financial Corporation, a bank holding company. Director since February
1994. Director of BellSouth Telecommunications, Inc., November 1988-February
1994. Director of Columbus Bank and Trust Co.; Hardaway Company; Synovus Data
Corp.; Total System Services, Inc.; and W. C. Bradley Co. Age 54.
ARMANDO M. CODINA, Chairman of the Board and Chief Executive Officer, Codina
Group Inc., a real estate development company. Director since 1992. Director of
BellSouth Telecommunications, Inc., March 1989-February 1992. Director of
American Bankers Insurance Group, Inc.; AMR Corporation; CSR America, Inc.; FPL
Group, Inc.; and Winn-Dixie Stores. Age 49.
J. TYLEE WILSON, Retired Chairman of the Board and Chief Executive Officer,
RJR Nabisco, Inc. Director since 1985. Director of Southern Bell, October
1983-February 1985. Director of Carolina Power & Light Company. Trustee, Wake
Forest University. Age 64.
------------------------
6
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth ownership of shares of BellSouth Common Stock
by each director, by each executive officer named in the Summary Compensation
Table on page 19, and by all directors and executive officers as a group, as of
February 1, 1996. These shares represent in the aggregate less than one percent
of the outstanding shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF
FEBRUARY 1, 1996
---------------------------
CURRENT SHARES
BENEFICIAL SHARES SUBJECT HELD UNDER
NAME HOLDINGS TO OPTIONS(1) DEFERRAL PLANS(2) TOTAL
- -------------------------------- ---------- -------------- ----------------- ---------
<S> <C> <C> <C> <C>
F. Duane Ackerman 19,245 67,936 44,744 131,925
Walter H. Alford 27,801 40,116 9,722 77,629
Reuben V. Anderson 1,000 3,333 4,333
James H. Blanchard 6,510 3,827 10,337
J. Hyatt Brown 20,000 5,333 25,333
John L. Clendenin 94,242 6,520 88,199 188,961
Armando M. Codina 2,000 7,333 9,333
Marshall M. Criser 6,359(3) 9,333 15,692(3)(4)
Phyllis Burke Davis 2,782 9,333 12,115(4)
Jere A. Drummond 28,908 51,866 14,391 95,165
Earle Mauldin 32,357 35,116 13,716 81,189
John G. Medlin, Jr. 5,000 5,333 10,333(4)
Robin B. Smith 1,000 2,000 3,000
C. Dixon Spangler, Jr. 2,000 9,333 11,333
Ronald A. Terry 800 9,333 10,133(4)
Thomas R. Williams 5,974 9,559 15,533(4)
J. Tylee Wilson 10,000 11,333 21,333
Directors and Executive Officers
as a group 347,657 433,979 258,625 1,040,261
</TABLE>
- ------------------------------
(1) Shares, included in total, which may be acquired within 60 days after
February 1, 1996 through the exercise of stock options. Options are granted
at the market price on the date of grant and are not discounted. Directors
and officers realize value from options when exercised and only to the
extent that the price of BellSouth Stock on the exercise date exceeds price
of the Stock on the grant date.
(2) Represents shares earned in various years under BellSouth's long term
incentive plans, receipt of which has been deferred pursuant to the
Company's deferral plan. These shares may not be voted or transferred.
(3) Includes 550 shares owned solely by Mr. Criser's wife, with respect to which
beneficial ownership is disclaimed.
(4) In addition to the indicated shares of BellSouth Common Stock, the following
directors held the indicated number of Stock Units, which are payable in
cash, under the BellSouth Nonqualified Deferred Compensation Plan: Mr.
Criser -- 2,231; Mrs. Davis -- 254; Mr. Medlin -- 1,737; Mr. Terry -- 2,159;
and Mr. Williams -- 288.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (ITEM 2 ON PROXY CARD)
The Board of Directors, acting upon the recommendation of the Audit
Committee, has appointed the firm of Coopers & Lybrand L.L.P., certified public
accountants, as independent auditors to make an examination of the accounts of
BellSouth and its subsidiaries for the year 1996. Coopers & Lybrand L.L.P. has
audited the accounts and records of BellSouth and its subsidiaries since 1984.
Representatives of Coopers & Lybrand L.L.P. will attend the Annual Meeting
and have the opportunity to make a statement if they desire and will also be
available to answer questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
------------------------
7
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DIRECTOR PROPOSAL (ITEM 3 ON PROXY CARD)
BELLSOUTH CORPORATION OFFICER SHORT TERM INCENTIVE AWARD PLAN
The Nominating and Compensation Committee (the "Committee") of the Board of
Directors has adopted the BellSouth Corporation Officer Short Term Incentive
Award Plan (the "Plan") subject to approval by the shareholders of the Company.
Accordingly, at the Annual Meeting, the shareholders will be asked to approve
the Plan, and the Board recommends that it be approved. Shareholder approval of
the Plan is requested to ensure that incentive awards paid in the future under
the Plan are fully tax deductible as performance-based compensation, as defined
by the regulations under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Section 162(m) limits to $1 million the deduction for
amounts paid to each of the Chief Executive Officer and the other four highest
paid executive officers of the Company that do not qualify as performance-based
compensation. The affirmative vote of a majority of the shares voting on this
resolution is required for its adoption.
The purpose of the Plan is to provide annual incentive awards that qualify
as performance-based compensation, allowing the Company and its subsidiaries to
realize full tax deductions. For this purpose, the Plan establishes an
overriding performance goal prohibiting the payment of any short term awards to
eligible Officers unless there are positive Consolidated Earnings (as such term
is defined in the Plan) for the year for which the awards are paid. The maximum
award that might be payable to an individual who is Chief Executive Officer
during any part of the year, to each Officer, other than the Chief Executive
Officer, who holds a position of Executive Vice President, Group President or
higher, and to each other eligible Officer will be limited to 0.15%, 0.10% and
0.05%, respectively, of Consolidated Earnings for such year. The Committee will
exercise discretion within the above maximums in determining the amount of
individual awards actually paid, and in doing so is expected to utilize the same
or similar criteria set forth below in describing annual incentive awards under
"Annual Compensation" in the Nominating and Compensation Committee Report on
Executive Compensation. This Plan supersedes the plan under which such annual
incentive awards were previously paid.
A summary of the essential features of the Plan is provided below, but is
qualified in its entirety by reference to the full text of the Plan, which was
filed electronically with this Proxy Statement with the Securities and Exchange
Commission. Such text is not included in the printed version of this Proxy
Statement. All defined terms used below have the meaning set forth in the Plan,
unless otherwise indicated.
ADMINISTRATION
The Plan is administered by the Committee, which is composed of "outside
directors" as defined in the Code.
ELIGIBILITY
The Plan defines eligible Officers as those executives of the Company and
its subsidiaries who are members of the executive compensation group under the
Company's compensation practices. There will be approximately 50 eligible
Officers in 1996, of which approximately 12 will constitute Officers, other than
Chief Executive Officer, who hold a position of Executive Vice President, Group
President or higher.
DETERMINATION OF AWARDS
The Committee will determine the eligible Officers to whom Awards will be
made and the amount of any Awards, taking into consideration the recommendation
of the Chief Executive Officer where applicable, the Officer's contribution to
the achievement of Company objectives, the achievement of financial, service,
shareholder return or other objectives established by the Committee, and such
other matters as the Committee deems relevant.
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LIMIT
The maximum Award that might be payable to an individual who is Chief
Executive Officer during any part of the year, to each Officer, other then the
Chief Executive Officer, who holds a position of Executive Vice President, Group
President or higher, and to each other eligible Officer will be limited to
0.15%, 0.10%, and 0.05%, respectively, of Consolidated Earnings for such year.
Consolidated Earnings means consolidated net income for the year for which the
Award is paid, as shown on the audited consolidated statement of income of the
Company, adjusted to omit the effects of extraordinary items, gain or loss on
the disposal of a business segment (other than provisions for operating losses
or income during the phase-out period), unusual or infrequently occurring events
and transactions that have been disclosed and the cumulative effects of changes
in accounting principles, all as determined in accordance with generally
accepted accounting principles. Following receipt of a report from the Company's
independent accountants of such maximum amount for any year, the Committee shall
determine the maximum amount available for individual awards under the Plan for
such year and shall certify that all awards granted under the Plan are within
such limitations.
FORM AND PAYMENT OF AWARDS
All Awards will be paid currently in cash unless the Committee provides for
deferral of any Award. Deferred Awards may be paid in one lump sum or in
installments and may be adjusted based upon a reasonable rate of interest or
specific investment or deemed investment, including Common Stock, within the
limits of the regulations under Section 162(m) of the Code.
SPECIAL AWARDS AND OTHER PLANS
The Company and its Subsidiaries may pay other incentive or special
compensation to employees, including Officers. No such payment, however, shall
be contingent upon the Company's failure to meet its Consolidated Earnings goal
or otherwise compensate an Officer for the restriction of any Award arising from
the application of the Consolidated Earnings limit described above.
AMENDMENT
The Committee shall have the right to amend, modify, suspend or terminate
the Plan at any time for any purpose. Shareholder approval is required for any
amendment that would change the class of employees eligible to receive Awards,
materially change the definition of Consolidated Earnings, change the formula
for determining the maximum amount of Awards paid to any Officer, or change the
restriction on crediting additional amounts to deferred Awards.
FEDERAL INCOME TAX CONSEQUENCES
Based on the Company's interpretation of existing federal income tax law,
including the regulations under Section 162(m) of the Code, awards paid pursuant
to the Plan will be deductible by the Company or its Subsidiaries, and will be
taxable to the recipient, in the year received.
AWARDS UNDER THE PLAN.
No determination has been made as to the amounts of awards that will be
granted to specific individuals in the future. (See the "Summary Compensation
Table" on page 19 for information relating to prior awards made to named
executive officers.)
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
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SHAREHOLDER PROPOSAL (ITEM 4 ON PROXY CARD)
Mr. Robert S. Kopach, 4309 San Carlos Drive, Fairfax, Virginia 22030, record
owner of 296 shares of the Common Stock of the Company, has submitted the
following proposal:
Resolved: I recommend that the current Short Term and Long Term Incentive
awards for executive officers be abolished. The only incentive award to be
awarded would be tied proportionately to the price of the stock at end of the
year. Example: if stock price is up 20% at end of year, then the incentive award
would be 20% of salary.
Reasons:
1. Management is adequately compensated as illustrated in the cash
compensation table by salary alone. Executive officers should only receive
extra compensation if stock price is up. They are rewarded as are the
shareholders IF STOCK PRICE IS UP.
2. Under the current Short Term Incentive award, the executive officers
are being compensated from 50% to over 100% of their salary. This is
excessive and ridiculous. We need to put an end to this. The shareholders
certainly aren't receiving this rate of return.
3. There is no need for any Long Term Incentive package. The yearly
incentive package tied to the price of the stock would adequately compensate
the executive officers. How many times do you want to get paid for the same
job? Enough please!
4. We need to bring some justice and equity back to the work place.
There is too big of a gap between what the executive officers make and the
pay of the average worker. This is an insult to the average worker. The pay
the executive officers make in a few years far exceeds the average workers
total lifetime or career earnings. This big gap in pay difference is
undermining the work ethic of the average worker and will have an impact on
the Company.
5. The executive officers and the board of directors forget that they
work for the shareholders. They talk about shareholder value and keep
downsizing the company. Lets start at the top set the example. If you can't
downsize your own salary and incentives let's not go any further.
6. The executive officers with their big pay packages have put
themselves so high up on their pedestals they don't hear or relate to the
shareholder.
7. The only reason management gets away with this greed and abuse of
power is because the majority of shareholders don't take the time to read
the proxy materials or are too trusting and vote the way the board of
directors recommend.
8. The media needs to inform and educate the shareholder and the public
in advance of proxy materials coming out to win a fight such as this. This
is their responsibility to report the news and not worry about possible loss
of advertising dollars due to reprisals from the company.
9. Management needs to be held accountable. Based on my incentive plan
executive officers would be justly compensated if stock price performs well.
10. I could go on and on stating the injustices of the executive
officers compensation plan but the point has been made. It is just wrong.
11. A vote for this proposal will send a clear message to management
that they must be responsive to the shareholders. Let's make it right.
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BOARD OF DIRECTORS' RECOMMENDATION
THIS PROPOSAL WAS SUBMITTED AT THE 1993 AND 1995 ANNUAL MEETINGS AND WAS
SOUNDLY DEFEATED. Your directors have again considered the proposal and continue
to believe it would make the executive officers of the Company less accountable
for performance than under the compensation program now in place.
Short term awards are not extra compensation. Total annual compensation,
including both standard short term awards and base salary, is set at levels
comparable to that at companies similar to BellSouth. A significant part of this
total amount must be earned, under the short term plan, based on how effectively
the executives manage the business during the year. In addition, your directors
are proposing, elsewhere in this Proxy Statement, to adopt the new BellSouth
Corporation Officer Short Term Incentive Award Plan which will grant awards
intended to qualify as performance-based under Section 162(m) of the Internal
Revenue Codes. (See "Director Proposal" at page 8.) If short term awards based
on performance were eliminated, there would be no direct correlation between
annual cash compensation and operational performance. Executives would be less
accountable for important goals, such as customer satisfaction, which they must
now achieve to earn a short term award. Setting measurable standards and paying
executives based on their achievement of these standards is a much more
effective way to achieve important goals set by the Board of Directors.
Stock performance is important and is already a part of the Company's
compensation programs. In fact, stock performance, including total return to
shareholders as well as stock price appreciation, is the only measurement under
the Company's long term incentive program. The Nominating and Compensation
Committee Report on Executive Compensation (beginning at page 12 of this Proxy
Statement) explains the compensation programs in detail. Shareholders should
find this Report helpful in evaluating this proposal.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS
STRONGLY RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" THIS PROPOSAL.
------------------------
OTHER MATTERS TO COME BEFORE THE MEETING
If any matter not described herein should properly come before the meeting,
the Directors' Proxy Committee will vote the Shares represented by it in
accordance with its best judgment. At the time this Proxy Statement went to
press, the Company knew of no other matters which might be presented for
shareholder action at the Annual Meeting.
11
<PAGE>
NOMINATING AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERALL POLICY
The Nominating and Compensation Committee of the BellSouth Board of
Directors (the "Committee"), composed entirely of independent, non-employee
directors, is responsible for oversight and administration of executive
compensation. It also reviews the Company's overall compensation program and
monitors it throughout the year. In establishing the Company's executive
compensation program, the Committee takes into account current market data and
compensation trends for comparable companies, compares corporate performance to
that of a selected peer group, gauges achievement of corporate and individual
objectives, and ensures the overall effectiveness of the program in measuring
and rewarding desired performance levels. The Committee bases the compensation
program on the following principles:
- Compensation levels for executive officers are benchmarked to
the outside market, utilizing information from general industry
surveys conducted by outside consultants and from proxy
materials of the companies included in the performance graph
contained in this Proxy Statement at page 18. Compensation
decisions are made by referring to information in these surveys
regarding two groups of companies: companies with annual
revenues of $10 billion or more, with which BellSouth can
expect to compete for executive talent; and the companies
included in the performance graph, with which the Company can
expect to compete for investors.
- Total compensation for each officer is targeted to the
mid-range of these companies; incremental amounts may be earned
above or below that level depending upon corporate and
individual performance. The Committee considers it essential to
the vitality of the Company that the total compensation
opportunity for executive officers remain competitive with
similar companies in order to attract and retain the talent
needed to manage and build the Company's business.
- Compensation is tied to performance. A significant part of the
total compensation opportunity is at risk, to be earned only if
specific goals are met.
- The compensation program has three elements: basic annual
salary; annual short term incentive awards, which are based on
the Company's annual financial and service results and on
individual performance; and a long term incentive program,
which has components based on the price performance of
BellSouth Stock and on Total Shareholder Return ("TSR"), which
includes stock price appreciation plus dividends, as compared
to a peer group of companies. The Committee believes the
combination of these elements of compensation ensures that
BellSouth's total compensation program is comparable to and
competitive with that of other companies of similar size.
- Incentive compensation is designed to reinforce the achievement
of both short and long term corporate objectives.
- Executives' rewards are directly linked to the benefits
received by BellSouth's shareholders.
During 1995, the Committee retained the services of a well-known outside
consulting firm to review certain aspects of the Company's executive
compensation program. The consultant is charged with recommending a redefinition
of the Company's executive compensation philosophy, as appropriate; reviewing
the competitive positioning of each element of the compensation program; and
ensuring appropriate linkages between executive pay and BellSouth's corporate
performance. This work will be completed, and the Committee will consider the
consultant's recommendations, during 1996.
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<PAGE>
The 1995 compensation program and a specific discussion as to the
compensation of the Chief Executive Officer are set out in detail below.
STOCK OWNERSHIP GUIDELINES
In keeping with its belief that tying the interests of BellSouth executives
to those of the shareholders will result in enhanced shareholder value, the
Board established stock ownership guidelines for the executive officers of the
Company. The guidelines require the executives to own BellSouth stock valued at
between one and four times their individual base salary amounts, depending upon
their assigned band of compensation. Executives are encouraged to achieve their
target ownership levels within five years. Furthermore, in order to incent
executives to exceed the targets, awards of Incentive Stock Options are made to
those who do exceed the targets on an annual basis.
ANNUAL COMPENSATION
BellSouth assigns each executive to a wide band of compensation based upon
job responsibilities. Each band has an established salary range, with a minimum
and maximum allowable base salary amount. The Chief Executive Officer provides
recommendations for pay treatment to the Committee after discussing each
individual's relative performance and contribution to the business and reviewing
market data for comparable positions with the appropriate supervisor. This
process supports the Company's pay for performance philosophy and ensures base
salary treatment for each individual executive that is competitive with the
outside market.
Executives are also eligible for annual incentive awards, with targeted
payment amounts determined as a percentage of each individual executive's base
salary, further strengthening the link between pay and performance. These
amounts place a significant part of an executive's annual compensation at risk.
The combination of annual base salary plus the targeted short term incentive
award provides the executive with an opportunity to earn total annual cash
compensation comparable to the mid-range of pay in the executive marketplace,
provided performance is at an expected level. Certain individuals may receive
compensation above or below this level, depending upon performance.
Annual incentive awards for a particular year are based on that year's
performance (measured by revenue growth, expense control, net income, and
customer satisfaction) and individual achievement of commitments linked to
corporate strategic objectives. Performance objectives are established by the
Committee at the beginning of each year based on the Committee's projection of
the results BellSouth will be required to achieve in order to be competitive
with the members of its peer group. The weight given to each of these
performance components varies, depending upon the executive's particular job
assignment. The measurements and target performance levels for each executive
are tied to the business entity with which he/she is most closely associated.
For 1995, the typical corporate officer's award, excluding the Chief Executive
Officer's, was weighted as follows: 62.5% financial results; 12.5% customer
satisfaction results; and 25% individual strategic results.
For 1995, BellSouth's financial performance exceeded established targets and
the Company performance met its customer satisfaction objectives. Executive
officers received an average individual strategic award of 143%. The method used
to determine the Chief Executive Officer's annual incentive award is discussed
below in the section entitled "1995 Compensation for the Chief Executive
Officer."
For the named executive officers, the targeted award level ranged from 55%
to 75% of the executive's base salary. Actual awards approved by the Committee
for 1995 performance for the named executive officers, including the Chief
Executive Officer, ranged from 128% to 150% of the targeted award level. These
awards were above the target award levels because the actual achievement of
revenue growth, expense control, net income, customer satisfaction, and
strategic commitments was above the target levels.
For 1995, the Committee approved an overall 5% increase in base salary
levels after reviewing published projections of executive cash compensation
increases by well-known consulting firms and national compensation associations
and comparing individual compensation to the external market.
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<PAGE>
The Committee subsequently approved salary increases ranging from 5.8% to 12.1%
only for those officers promoted as of January 1, 1995 and for those whose
salaries, when compared to the external market data, warranted increases. The
salaries of all other executive officers were frozen, resulting in an overall
2.2% increase in base salary levels.
LONG TERM INCENTIVE PROGRAM IN EFFECT PRIOR TO APRIL 1995
The Company's long term incentive plans are based upon the performance of
BellSouth stock. Under the BellSouth Corporation Stock Option Plan, each
executive officer received nonqualified stock option grants in 1995 at market
price on the date of grant. Grants of options with an exercise price 40% above
the market price on the date of grant (premium priced options) were also made in
1995. The Company does not issue options at less than fair market value at the
date of grant and the officer receives compensation from the options only if the
stock price appreciates and, in the case of the premium priced options,
appreciates by more than 40%.
The Committee awarded units to each executive for the 1995-1999 performance
period under the Shareholder Return Cash Plan described in the section entitled
"Long Term Incentive Plan Awards in Fiscal Year 1995" on page 22. The only
performance factor used to determine payouts under this plan is relative
shareholder return. At the end of 1995, the Committee approved payment to each
executive of 100% of the value of the units granted for the following
performance periods based upon BellSouth's TSR against the peer group for the
indicated years. For the 1993-1997 performance period, awards were based upon
1993, 1994, and 1995 performance; for the 1994-1998 performance period, awards
were based upon 1994 and 1995 performance; and for the 1995-1999 performance
period, awards were based upon 1995 performance.
The total grant of stock options and shareholder return cash plan units for
1995 was determined by applying a market competitive annual grant level
percentage against each individual executive's base salary. This annual grant
level percentage was based on market data from surveys of long term programs
published by well-known consulting firms and data from proxy statements
disclosing grants given to comparable positions in the performance graph peer
group of companies. For 1995, the targeted value established by the Committee
for the named executive officers ranged from 100% to 165% of the executive's
base salary. Fifty percent (50%) of this value was granted as fair market value
stock options; 20% as premium priced options; and 30% as units under the
Shareholder Return Cash Plan. The number of stock options granted was determined
by using the Black-Scholes option pricing model; the number of shareholder
return cash plan units was determined by using the calculated present value of
the projected dividend payment stream on a share of BellSouth Stock. The
Committee does not adjust each annual grant to reflect options or units
outstanding or previously granted to a particular executive officer.
The final grant under the BellSouth Corporation Executive Long Term
Incentive Plan was made in 1991 for the 1991-1995 performance period. Each
executive officer received grants of units, each of which is equivalent to one
share of stock. In addition, on each dividend payment date for BellSouth
shareholders, an amount equivalent to that dividend was credited to each
executive for each unit granted under the plan. The value credited from these
dividend equivalents has been translated into additional units, each equivalent
to one share of stock. For this performance period, the executives earned
105.58% of the number of units originally granted and credited from the dividend
equivalents solely based on a comparison of BellSouth's TSR (stock price
appreciation plus dividends) to that of the peer group of companies reflected in
the performance graph contained in this Proxy Statement. The amounts paid to the
named executive officers pursuant to this plan are shown in the Summary
Compensation Table on page 19.
LONG TERM INCENTIVE PROGRAM AFTER APRIL 1995
In April 1995, BellSouth shareholders approved the BellSouth Corporation
Stock Plan. The Plan provides the Committee more flexibility in determining the
type and amount of awards to be granted to eligible participants through the
addition of potential compensation elements such as restricted
14
<PAGE>
stock and stock grants. It includes all elements of and supersedes the long term
incentive compensation plans discussed above. No awards were made under those
plans after the approval of the BellSouth Corporation Stock Plan. The only
awards made under this new plan in 1995 were Incentive Stock Options granted in
consideration of stock ownership by BellSouth officers as described above and
stock options granted to the Chief Executive Officer in connection with his
retirement arrangement as described in "Retirement Arrangements" on page 23.
BellSouth's long term program is intended to focus the executive group on
the achievement of corporate goals. Executive officers must carefully weigh the
short AND long term benefits or consequences of their decisions and manage the
business to effectively grow and compete in a rapidly changing communications
marketplace. They also must balance long term development with the need for a
reasonable current return. The Committee wants to incent BellSouth executives to
take the risks necessary to secure a strong foothold for BellSouth in the
competitive marketplace, which is continually changing to admit new competitors
such as alternative local exchange service providers, cable companies, and long
distance carriers.
1995 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
1995 BASE SALARY. The Committee set the 1995 salary and standard incentive
award levels for the Chief Executive Officer in November 1994. At that time, the
Committee reviewed reported base salary information for the chief executive
officers of the other companies in the peer group performance graph in this
Proxy Statement. It also considered the Chief Executive Officer's leadership in
continuing to improve the strategic position of the Company and reviewed
BellSouth's positive financial performance during 1994 with respect to revenue
growth, expense control, net income, and earnings per share, compared to other
communications companies.
During 1994, BellSouth Corporation grew its revenue 6.1% and controlled the
increase in operating expenses to 2.6%. These results, normalized to exclude the
impact of certain special events, such as restructuring charges and gains on
asset dispositions, and items outside the control of the officers, such as the
transition obligation related to SFAS 112, "Employers' Accounting for
Postemployment Benefits", and the increase in the Federal income tax rate to
35%, contributed to an increase in net income of 12.8% and in earnings per share
of 12.5% over 1993. The Company's domestic and international cellular operations
also continued to show significant growth in the customer base with 1994 growth
rates of 38% and 88%, respectively. During this same year, BellSouth
Telecommunications surpassed the 20 million mark in access lines in service,
achieving one of the highest annual growth rates in the industry, at 4.6%.
Revenue grew at 3.4% while operating expense growth was held flat year over year
on a normalized basis.
While recognizing that these positive performance factors and the Chief
Executive Officer's base salary position within the range of the base salaries
for the chief executive officers of the peer group companies would ordinarily
dictate an increase in his salary for 1995, the Committee decided not to
increase the Chief Executive Officer's base salary in recognition of the cost
containment initiatives of the Company. The 1995 salary continued to position
the Chief Executive Officer at 38% above the minimum for his pay range in the
wide band base salary structure. The Chief Executive Officer's salary was
subsequently reduced by an amount indicated in footnote 5 to the Summary
Compensation Table on page 19. See further discussion under "Internal Revenue
Code Section 162(m) Implications for Executive Compensation", below.
1995 SHORT TERM INCENTIVE AWARD. In determining the Chief Executive
Officer's short term incentive award for 1995 performance, the Committee
reviewed BellSouth's 1995 financial performance with respect to the standard
plan measurements of revenue growth, expense control, net income, and customer
satisfaction. BellSouth's financial performance exceeded established targets and
the Company performance met its customer satisfaction objectives. During 1995,
BellSouth stock outperformed that of its peer group and increased in value over
1994 by more than 60%. In addition, the
15
<PAGE>
Committee reviewed data on the annual incentive award levels for chief executive
officers of the peer group of companies in the performance graph and considered
BellSouth's continuing moves to achieve a competitive position within the
communications industry.
Under the Chief Executive Officer's leadership in 1995, BellSouth clarified
the three major components of its corporate strategy: to be the leading
communications company within its nine-state operating region; to continue to
grow its domestic wireless business with an emphasis within the region; and to
continue to grow existing international operations and expand into new markets.
During 1995, the following accomplishments furthered these strategies:
- Approval of price regulation initiatives by the requisite
legislative or regulatory bodies in substantially all of the
nine states;
- Growth of access lines in service by 4.5%, ending the year with
more than 21 million access lines in service;
- Adoption, effective February 8, 1996 of the Federal
Telecommunications Act of 1996, which gives BellSouth the
ability to compete in the long distance market, clarifies the
rules for entry into the video market and enables BellSouth to
jointly market all of its services including cellular services.
- Reduction in the telephone operations work force by
approximately 5,000 employees, continuing cost containment
efforts;
- Formation of an alliance with The Walt Disney Company,
Ameritech Corporation, SBC Communications Inc., and GTE
Corporation to develop innovative approaches to home video
services;
- Acquisition of franchises to provide cable TV service in three
locations and initiation of the field assessment phase of an
interactive media services trial, providing customers a choice
of cable carrier and access to home shopping, movies on demand,
games, and more;
- Successful bid for licenses to provide personal communications
services in the Carolinas and East Tennessee, further expanding
its communications footprint within the region;
- Growth in domestic cellular subscribers by 32% and in
international wireless customers by 81%; and
- Continued growth in international operations, particularly in
Latin America.
Based on these factors, the Committee felt the Chief Executive Officer had
provided strong strategic leadership for the Company. Since there was no
pre-established formula for determining the annual incentive award for the Chief
Executive Officer, the Committee reviewed the factors described above and,
exercising its judgment, awarded the Chief Executive Officer the overall short
term incentive award shown in footnote 1 to the Summary Compensation Table on
page 19.
1995 LONG TERM INCENTIVE AWARD. The Committee also approved certain long
term incentive compensation payments to the Chief Executive Officer. First, it
approved payment of an amount of cash shown in the Summary Compensation Table
for units granted under the Shareholder Return Cash Plan. For 1993, 1994, and
1995, BellSouth's TSR was compared to the median shareholder return of the peer
group shown in the performance graph, resulting in a payment of 100% of the cash
units granted in these years. The Committee also approved a payment of shares
equal to 105.58% of the number of units originally granted and dividend
equivalent units credited to the Chief Executive Officer for the 1991-1995
performance period under the BellSouth Corporation Executive Long Term Incentive
Plan. Finally, the Committee approved the grant of 3,240 Incentive Stock Options
to the
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Chief Executive Officer in recognition of the fact that his level of stock
ownership as of December 31, 1994 exceeded the established executive stock
ownership targets. This grant was made under the new BellSouth Corporation Stock
Plan.
CHIEF EXECUTIVE OFFICER RETIREMENT ARRANGEMENT. During 1995, the Committee
discussed and approved the terms of a retirement arrangement for the Chief
Executive Officer. For a description of the arrangement agreed to by the
Committee and later approved by the full Board of Directors, see "Retirement
Arrangements" at page 23.
INTERNAL REVENUE CODE SECTION 162(M) IMPLICATIONS FOR EXECUTIVE COMPENSATION
The Committee is responsible for addressing the issues raised by Internal
Revenue Code Section 162(m) ("Section 162(m)"). This Section limits to $1
million the Company's deduction for compensation paid to each executive officer
of the Company which does not qualify as "performance-based". To qualify as
performance-based under Section 162(m), compensation payments must be made
pursuant to a plan that is administered by a committee of outside directors and
must be based on achieving objective performance goals. In addition, the
material terms of the plan must be disclosed to and approved by shareholders,
and the Committee must certify that the performance goals were achieved before
payments can be awarded.
The Committee continues to carefully consider the impact of this tax code
provision and has taken several steps which are designed to minimize its effect.
First, it adopted the BellSouth Corporation Stock Plan which was approved by the
Company's shareholders in 1995. This plan establishes performance criteria which
are intended to qualify awards made under the plan to the named executive
officers as performance-based awards approved by the shareholders; thus, these
awards should not be counted toward the $1,000,000 limitation. Second, it
adopted the BellSouth Corporation Officer Short Term Incentive Award Plan being
submitted to shareholders in this Proxy Statement. Awards made pursuant to this
plan are intended to qualify as performance-based awards approved by the
shareholders and thus also should not count toward the $1,000,000 limitation.
(See "Director Proposal" on page 8.) Third, the Committee restructured the 1995
base salary of the Chief Executive Officer by approving a reduction in such
salary and the use of the resulting savings to purchase and pay the Company's
portion of the premiums on a split-dollar life insurance arrangement. (See
Summary Compensation Table on page 19.) In addition, the Committee accelerated a
portion of the 1995 short term incentive award payments for Messrs. Ackerman and
Alford into 1995 in an attempt to reduce projected 1996 compensation to a level
below $1,000,000. Due to these actions and voluntary deferrals of compensation,
the Company believes that there will be no loss of tax deductions related to the
named executive officers' 1995 compensation. The Committee will continue to
examine the effects of this tax provision and will monitor the level of
compensation paid to the executive officers in order to take any steps which may
be appropriate in response to the provisions of Section 162(m).
Armando M. Codina, Chairman
James H. Blanchard
C. Dixon Spangler, Jr.
Thomas R. Williams
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Nominating and Compensation Committee consists of Messrs. Codina
(Chair), Blanchard, Spangler, and Williams, none of whom are former or current
officers or employees of the Company or any of its subsidiaries. No executive
officer of the Company serves as an officer, director or member of a
compensation committee of any entity, an executive officer or director of which
is a member of the Nominating and Compensation Committee of the Company. Mr.
Criser is a partner in the law firm of Mahoney Adams & Criser, P.A., located in
Jacksonville, Florida. During 1995, BellSouth Telecommunications, Inc. retained
Mahoney Adams & Criser, P.A. with regard to a variety of legal matters. Mr.
Anderson is a partner in the law firm of Phelps Dunbar, located in Jackson,
Mississippi. During 1995, BellSouth Telecommunications, Inc. also retained
Phelps Dunbar with regard to a variety of legal matters.
------------------------
FIVE YEAR PERFORMANCE COMPARISON
The following graph compares the cumulative total returns of BellSouth, the
Standard & Poor's 500 Index, and a peer group of other large United States
telecommunications companies (Ameritech Corporation, Bell Atlantic Corporation,
GTE Corporation, NYNEX Corporation, Pacific Telesis Group, SBC Communications
Inc. and U S West, Inc.) over a five year period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 PEER GROUP BELLSOUTH
<S> <C> <C> <C>
1/1/91 100.00 100.00 100.00
12/31/91 130.34 110.96 99.72
12/31/92 140.25 123.11 104.65
12/31/93 154.32 140.63 123.91
12/31/94 156.42 135.40 121.30
12/31/95 214.98 202.61 202.93
</TABLE>
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the years ending December 31, 1995,
1994, and 1993, the compensation paid or accrued by BellSouth and its
subsidiaries to each of the five named executive officers.
SUMMARY COMPENSATION TABLE
($000)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) SARS (#) ($)(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
J. L. Clendenin 1995 508.5(5) 1,046.6 13.3 499,240 2,432.4 497.2
Chairman of the Board, President and 1994 588.5(5) 880.4 13.2 194,680 100.2 526.1
Chief Executive Officer 1993 785.0 705.5 12.0 51,200 0 451.9
F. D. Ackerman 1995 498.0 516.3 15.3 138,400 1,186.6 110.6
Vice Chairman of the Board and Chief 1994 453.0 398.5 13.5 83,200 44.2 126.2
Operating Officer 1993 428.0 324.2 9.2 22,600 0 115.7
J. A. Drummond 1995 354.0 350.9 9.4 88,040 672.0 76.5
President and Chief Executive Officer 1994 316.5 229.7 7.6 42,600 24.3 82.9
-- BellSouth Telecommunications, Inc. 1993 298.5 179.5 7.7 12,400 0 64.2
W. H. Alford 1995 346.0 273.3 11.9 69,640 587.4 147.2
Executive Vice President and General 1994 346.0 241.2 10.9 46,600 24.3 145.2
Counsel 1993 328.0 181.0 12.2 12,400 0 136.2
E. Mauldin 1995 323.0 321.0 12.1 80,840 640.7 92.4
President -- BellSouth Enterprises, 1994 288.5 229.0 9.0 38,800 24.3 95.8
Inc. 1993 270.0 183.6 8.2 12,400 0 44.1
</TABLE>
(1) Included for 1995 are amounts earned under the Short Term Incentive Plan,
$930.0, $455.5, $313.5, $244.0, and $287.0, respectively, and amounts earned
under the Shareholder Return Cash Plan ("SRCP") for the first year of the
1995-1999 performance period, $116.6, $60.8, $37.4, $29.3 and $34.0,
respectively, which is more fully described under "Long Term Incentive Plan
Awards in Fiscal Year 1995" on page 22.
(2) Tax "gross up" for financial counseling and use of motor vehicle.
(3) Amounts reported here reflect the value of shares that have been earned
under the BellSouth Corporation Executive Long Term Incentive Plan
("ELTIP"), $2,244.4, $1,104.0, $628.8, $541.6 and $599.7, respectively, and
the SRCP, $188.0, $82.6, $43.2, $45.8 and $41.0, respectively, for second
and subsequent years of performance periods beginning in 1993 and 1994. The
ELTIP is more fully described in the Nominating and Compensation Committee
Report on Executive Compensation beginning on page 12. The payment under the
ELTIP is based upon the final determination of the performance results for a
five year period. This reflects the final payment under this plan and the
first payment to be made since shares were earned for the previous
performance period which ended in 1992. The 1994 amounts relate only to the
SRCP.
(4) Included in this category are amounts for the five named executive officers
for the following compensation plans: (a) above-market interest on voluntary
salary deferrals under nonqualified deferred compensation plans, $415.7,
$84.4, $58.1, $129.5, and $75.0, respectively; (b) Company matching
contributions under certain employee savings plans, $30.8, $15.6, $9.1,
$8.8, and $7.8, respectively; and (c) value of benefits from premiums paid
by the Company under the BellSouth Life Insurance Program, $30.0, $10.6,
$9.3, $8.9, and $9.6, respectively. BellSouth uses the
19
<PAGE>
Present Value Ratio Method to determine the portion of each premium dollar
attributable to the executive officer. The Company will recover the cost of
premium payments from the cash value of the policies.
(5) As described in the Nominating and Compensation Committee Report on
Executive Compensation, the Board restructured the compensation for Mr.
Clendenin in 1994, and again in 1995, by reducing his salary $240.0, and
$320.0, respectively, and establishing split-dollar life insurance policies
for him. Under this arrangement, the Company will utilize the savings from
the salary reduction and policy proceeds to recover the cost of the
premiums. The value of Mr. Clendenin's benefit from the premiums paid by the
Company was $14.0 and $20.7 in 1994 and 1995, respectively. BellSouth uses
the Present Value Ratio Method in determining the portion of each premium
dollar attributable to Mr. Clendenin.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options to the five named executive officers during 1995.
OPTION / SAR GRANTS IN 1995 (1)
<TABLE>
<CAPTION>
NUMBER OF INDIVIDUAL GRANTS
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS GRANT-DATE
SARS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES BASE PRICE EXPIRATION VALUE(6)
NAME (#) IN FISCAL YEAR ($/SH) DATE ($000)
<S> <C> <C> <C> <C> <C>
136,400(2) 2.59% 29.53 2/2/05 702.5
125,600(3) 2.38% 41.34 2/2/05 291.4
3,240(4) 0.06% 30.69 5/1/05 16.0
J. L. Clendenin 234,000(5) 4.44% 43.56 12/30/05 1,331.5
72,000(2) 1.37% 29.53 2/2/05 370.8
F. D. Ackerman 66,400(3) 1.26% 41.34 2/2/05 154.1
44,200(2) 0.84% 29.53 2/2/05 227.6
40,600(3) 0.77% 41.34 2/2/05 94.2
J. A. Drummond 3,240(4) 0.06% 30.69 5/1/05 16.0
34,600(2) 0.66% 29.53 2/2/05 178.2
31,800(3) 0.60% 41.34 2/2/05 73.8
W. H. Alford 3,240(4) 0.06% 30.69 5/1/05 16.0
40,400(2) 0.77% 29.53 2/2/05 208.1
37,200(3) 0.71% 41.34 2/2/05 86.3
E. Mauldin 3,240(4) 0.06% 30.69 5/1/05 16.0
</TABLE>
(1) Stock prices and unit values reflect the two-for-one split of BellSouth
Common Stock effective November 8, 1995.
(2) Under provisions of the BellSouth Corporation Stock Option Plan (the "Stock
Option Plan"), the Board of Directors granted stock options to key employees
to purchase shares of BellSouth Common Stock within prescribed periods at
prices equal to the fair market value of the stock on the date of the grant.
Options granted in 1995 generally become exercisable at the end of five
years, determined from the date of the grant. No stock appreciation rights
were granted in 1995.
(3) As an additional performance incentive, the Board of Directors, under the
Stock Option Plan, granted stock options to key employees to purchase shares
of BellSouth Common Stock within
20
<PAGE>
prescribed periods with an exercise price 40% in excess of the stock price
on the date of the grant. Options granted in 1995 generally become
exercisable at the end of five years, determined from the date of the grant.
(4) Under the provisions of the BellSouth Corporation Stock Plan ("Stock Plan")
adopted in 1995, Incentive Stock Options were awarded to certain officers
based on their achievement of ownership of specified levels of Company stock
as established by the Board of Directors. These options, which have exercise
prices equal to the fair market value of the stock on the date of the grant,
are exercisable six months from the date of the grant. See "Nominating and
Compensation Committee Report on Executive Compensation" at page 12.
(5) In 1995, the Board of Directors formalized plans for succession and reached
an agreement with Mr. Clendenin regarding his retirement arrangement. (See
"Retirement Arrangements" on page 23.) Pursuant to that agreement, the
Board, under provisions of the Stock Plan, granted Mr. Clendenin stock
options to purchase shares of BellSouth Common Stock at a price equal to the
fair market value of the Stock on December 29, 1995, the date of the grant.
The options become exercisable five years from the date of the grant or on
the date Mr. Clendenin ceases to be Chairman of the Board of the Company,
whichever is earlier.
(6) These amounts represent the estimated fair value of stock options, measured
at the date of grant using the Black-Scholes option pricing model. There are
four underlying assumptions used in developing the grant valuations: an
expected volatility of 16.0%; an expected term to exercise of seven years
for 1995 grants; interest rates equal to the U.S. Treasury Note rates in
effect at the date of the grant (February 1, 1995 - 7.65%; May 1, 1995 -
7.06%; December 29, 1995 - 5.62%) for the expected term of the option; and a
dividend yield of 5.08%. The actual value, if any, an officer may realize
will depend on the amount by which the stock price exceeds the exercise
price on the date the option is exercised. Consequently, there is no
assurance the value realized by an officer will be at or near the value
estimated above. These amounts should not be used to predict stock
performance.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the five named
executive officers concerning the exercise of options and/or SARs during 1995
and unexercised options or SARs held on December 31, 1995:
AGGREGATED OPTIONS / SAR EXERCISES IN 1995
AND FISCAL YEAR-END OPTION / SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($000)
EXERCISE REALIZED
NAME (#) ($000) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
J. L. Clendenin 70,776 302.9 6,520 738,600 84.6 4,269.1
F. D. Ackerman 0 0 67,936 244,200 1,141.3 2,067.5
J. A. Drummond 3,974 73.6 51,866 139,800 946.8 1,187.2
W. H. Alford 0 0 40,116 125,400 661.9 1,060.9
E. Mauldin 0 0 35,116 128,800 583.1 1,102.6
</TABLE>
21
<PAGE>
LONG TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1995
The following table provides information concerning awards made to the five
named executive officers during 1995 under the BellSouth Shareholder Return Cash
Plan. Each performance unit awarded represents the contingent right to receive
an amount of cash based upon BellSouth's TSR relative to the TSR performance of
the other selected communications companies ("the peer group"). Under this plan,
if BellSouth's TSR is 90 percent of the peer group's median TSR, 100 percent of
the award is paid. This represents the maximum amount that can be paid under the
plan. If BellSouth's TSR is 75 percent of the peer group's median, 25 percent
will be paid. If BellSouth's TSR is less than 75 percent of the peer group's
median, or if BellSouth's TSR is less than the lowest member of the peer group,
no award will be paid. If, during the remaining life of the award, BellSouth's
TSR improves relative to the peer group, further payments of previously unpaid
amounts would be made up to, but not in excess of, the original value of the
award. Amounts which are not paid out during the life of the award are
forfeited.
For officers of the Company, the Board of Directors prescribes the number of
units to be awarded to each individual based on the compensation band of that
officer at the time of the award. The value of an award unit is determined
annually based on the annual amount of dividends paid per share of Common Stock.
The awards are payable solely in cash and may not be deferred. Unpaid awards
which are carried forward for possible payout do not earn interest. Plan
participants may not sell, assign or otherwise transfer the awards.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1995
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
PRICE-BASED PLANS
NUMBER OF PERFORMANCE OR
($000)
SHARES, UNITS OR OTHER
OTHER RIGHTS PERIOD UNTIL
(#) MATURATION OR PAYOUT
THRESHOLD TARGET MAXIMUM
NAME ($) ($)(1) ($)(1)
<S> <C> <C> <C> <C> <C>
J. L. Clendenin 83,600 1995-1999 120.4 481.5 481.5
F. D. Ackerman 43,600 1995-1999 62.8 251.1 251.1
J. A. Drummond 26,800 1995-1999 38.6 154.4 154.4
W. H. Alford 21,000 1995-1999 30.2 121.0 121.0
E. Mauldin 24,400 1995-1999 35.1 140.5 140.5
</TABLE>
(1) Since the Shareholder Return Cash Plan provides for payment not to exceed
100% of the units granted, the target award amount and the maximum award
amount are the same.
22
<PAGE>
PENSION AND OTHER RETIREMENT BENEFITS
The following table shows the estimated single life annual pension annuity
benefit provided to eligible participants under the BellSouth Personal
Retirement Account Pension Plan and the BellSouth Supplemental Executive
Retirement Plan ("SERP") combined, based on the specified remuneration levels
and years of credited service. The SERP provides benefits that would otherwise
be denied participants by reason of certain Internal Revenue Code limitations on
qualified benefit plans. The amounts set forth as payable in the table below
assume an undiscounted retirement age and are reduced, in accordance with the
Plan, by an average Social Security Primary Insurance benefit determined
annually to be payable at age 65.
PENSION PLAN TABLE
($000'S)
<TABLE>
<CAPTION>
YEARS OF SERVICE
Remuneration 15 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C> <C>
200 46.8 66.8 81.8 96.8 106.8 116.8 126.8
400 106.8 146.8 176.8 206.8 226.8 246.8 266.8
600 166.8 226.8 271.8 316.8 346.8 376.8 406.8
800 226.8 306.8 366.8 426.8 466.8 506.8 546.8
1,000 286.8 386.8 461.8 536.8 586.8 636.8 686.8
1,500 436.8 586.8 699.3 811.8 886.8 961.8 1,036.8
1,600 466.8 626.8 746.8 866.8 946.8 1,026.8 1,106.8
</TABLE>
Pension benefits are based on the average compensation (salary and bonus)
over the five-year period preceding retirement. Therefore, the covered
compensation presented in the table below for the five named executive officers
is based upon the last five-year average of pension eligible compensation
actually paid and, as such, will differ from the salary and bonus amounts set
forth in the Summary Compensation Table on page 19. In addition, the number of
whole years of credited service obtained in 1995 is presented.
<TABLE>
<CAPTION>
COVERED
COMPENSATION YEARS OF SERVICE
NAME ($000'S) (#)
<S> <C> <C>
J. L. Clendenin 1,448.7 40
F. D. Ackerman 738.9 31
J. A. Drummond 466.2 33
W. H. Alford 519.9 31
E. Mauldin 443.6 31
</TABLE>
RETIREMENT ARRANGEMENTS
The Board of Directors extended to the Company the authority, through
December 1995, to enter into long range succession planning arrangements with
certain officers below the Chief Executive Officer level. The Company has
entered into agreements with Messrs. Ackerman, Drummond, and Mauldin which each
require that the officer retire during the calendar year of his 60th birthday.
In order to compensate the officers for retiring prior to the normal retirement
age of 65, the agreements would entitle them to severance and other benefits. In
the case of Mr. Ackerman, these benefits would include payment of an amount
equal to two times his annual base pay plus two times his standard bonus for the
year of retirement, and in the case of Messrs. Drummond and Mauldin these
benefits would include payment of an amount equal to two times their annual base
pay plus the amount of their standard bonus for the year of retirement. In
addition, each of these officers will also receive an enhanced non-qualified
pension benefit; an additional grant of stock options and dividend equivalent
rights under the BellSouth Corporation Stock Plan equal to, in the case of Mr.
Ackerman, twice the
23
<PAGE>
number of options and dividend equivalent rights, respectively, most recently
granted, and, in the case of Messrs. Drummond and Mauldin, the number of options
and dividend equivalent rights, respectively, most recently granted; and
financial counseling through age sixty-seven.
Following discussions during 1994 and 1995, the Board of Directors and the
Chairman of the Board formalized succession planning arrangements for the
Chairman's retirement. Pursuant to that agreement, as announced by the Company
in January 1996, Mr. Clendenin will retire as Chief Executive Officer on
December 30, 1996 and will serve as a non-employee Chairman of the Board from
December 31, 1996 through December 30, 1997. In addition to retirement benefits
to which he is otherwise entitled, Mr. Clendenin will receive a defined
retirement package which will include payment of an amount equal to two times
his 1996 base pay plus two times his standard 1996 bonus. In addition, he will
receive: an enhanced nonqualified pension benefit; an additional award of
468,000 stock options under the BellSouth Corporation Stock Plan; and financial
counseling through age sixty-seven. The additional award of stock options is to
be granted in two equal parts, one which was granted on December 29, 1995 (see
"Option/SAR Grants in 1995" at page 20) and one to be granted on the date of his
retirement, anticipated to be December 30, 1996. The options granted in 1995
have, and those to be granted in 1996 will have, an exercise price equal to the
fair market value of BellSouth Common Stock on their respective grant dates.
------------------------
DIRECTOR NOMINEES OR OTHER BUSINESS FOR
PRESENTATION AT THE ANNUAL MEETING
Shareholders who wish to present director nominations or other business at
the Annual Meeting are required to notify the Secretary of their intent at least
60 days but not more than 120 days before the meeting and the notice must
provide information as required in the By-laws. A copy of these By-law
requirements will be provided upon request in writing to Secretary, BellSouth
Corporation, 1155 Peachtree Street, N.E., Room 14B06, Atlanta, Georgia
30309-3610. This requirement does not affect the deadline for submitting
shareholder proposals for inclusion in the Proxy Statement, nor does it apply to
questions a shareholder may wish to ask at the meeting.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than ten percent
of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1995, all such Section
16(a) filing requirements were met except that Mr. Robert Fitzgerald, Vice
President -- Corporate Responsibility and Compliance, inadvertently failed to
file one report with respect to the purchase of shares by his wife.
SHAREHOLDER PROPOSALS FOR THE 1997 PROXY STATEMENT
Any shareholder satisfying the Securities and Exchange Commission
requirements and wishing to submit a proposal to be included in the Proxy
Statement for the 1997 Annual Meeting of Shareholders should submit the proposal
in writing to Secretary, BellSouth Corporation, 1155 Peachtree Street, N.E.,
Room 14B06, Atlanta, Georgia 30309-3610. BellSouth must receive a proposal by
November 11, 1996 in order to consider it for inclusion in the Proxy Statement
for the 1997 Annual Meeting of Shareholders.
24
<PAGE>
OTHER INFORMATION
Consolidated financial statements for BellSouth Corporation are attached as
an appendix to this Proxy Statement and are included in the Annual Report on
Form 10-K filed with the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the New York, Boston, Chicago, Pacific and
Philadelphia stock exchanges. A copy of the 1995 Form 10-K (excluding exhibits)
will be furnished, without charge, by writing to Secretary, BellSouth
Corporation, 1155 Peachtree Street, N.E., Room 14B06, Atlanta, Georgia
30309-3610. The Form 10-K is also available on BellSouth's home page on the
Internet's World Wide Web at http://www.bellsouth.com.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by BellSouth. BellSouth has
retained Morrow & Co., Inc. to solicit proxies, by mail, in person, or by
telephone, at an estimated cost of $18,500 plus reimbursement of reasonable
out-of-pocket expenses. In addition, employees of BellSouth may likewise solicit
proxies.
The above Notice of Annual Meeting and Proxy Statement are sent by order of
the BellSouth Board of Directors.
[LOGO]
Arlen G. Yokley
Vice President, Secretary and Treasurer
Dated: March 11, 1996
25
<PAGE>
BELLSOUTH CORPORATION
ANNUAL FINANCIAL STATEMENTS AND REVIEW OF OPERATIONS
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Revenues................................ $17,886 $16,845 $15,880 $15,202 $14,445
Operating Expenses (1)............................ 14,594 12,787 13,593 12,041 11,636
--------- -------- -------- -------- --------
Operating Income.................................. 3,292 4,058 2,287 3,161 2,809
Interest Expense.................................. 724 666 689 746 802
Other Income, net................................. 20 11 8 178 253
--------- -------- -------- -------- --------
Income Before Income Taxes, Extraordinary Losses
and Accounting Change............................ 2,588 3,403 1,606 2,593 2,260
Provision for Income Taxes........................ 1,024 1,243 572 934 753
--------- -------- -------- -------- --------
Income Before Extraordinary Losses and Accounting
Change........................................... 1,564 2,160 1,034 1,659 1,507
Extraordinary Losses, net of tax (2).............. (2,796) -- (87) (41) --
Accounting Change, net of tax..................... -- -- (67) -- (35)
--------- -------- -------- -------- --------
Net Income (Loss)............................... $(1,232) $ 2,160 $ 880 $ 1,618 $ 1,472
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Earnings (Loss) Per Share: (3)
Income Before Extraordinary Losses and
Accounting Change.............................. $ 1.57 $ 2.18 $ 1.04 $ 1.69 $ 1.56
Extraordinary Losses, net of tax (2)............ (2.81) -- (.09) (.04) --
Accounting Change, net of tax................... -- -- (.06) -- (.04)
--------- -------- -------- -------- --------
Net Income (Loss)............................. $(1.24) $ 2.18 $ .89 $ 1.65 $ 1.52
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Dividends Declared Per Common Share (3)........... $ 1.41 $ 1.38 $ 1.38 $ 1.38 $ 1.38
Book Value Per Share (3).......................... $ 11.90 $ 14.48 $ 13.60 $ 13.97 $ 13.47
Return to Average Common Equity................... (9.2%) 15.4% 6.3% 11.9% 11.3%
Weighted Average Common Shares Outstanding (3).... 993 992 991 981 968
Return on Average Total Capital................... (2.7%) 11.5% 6.1% 9.8% 9.4%
Total Assets...................................... $31,880 $34,397 $32,873 $31,463 $30,942
Capital Expenditures.............................. $ 4,203 $ 3,600 $ 3,486 $ 3,189 $ 3,102
Long-Term Debt.................................... $ 7,924 $ 7,435 $ 7,381 $ 7,360 $ 7,677
Debt Ratio at End of Period (4)................... 46.7% 39.3% 40.2% 39.0% 41.3%
Ratio of Earnings to Fixed Charges................ 4.24 5.34 2.98 4.00 3.47
Total Employees................................... 87,571 92,121 95,084 97,112 96,084
Telephone Employees (5)........................... 68,585 73,764 77,958 79,453 79,743
Telephone Employees per 10,000 Access Lines....... 32.5 36.5 40.3 42.6 44.1
Business Volumes: (6)
Network Access Lines in Service (thousands)....... 21,133 20,220 19,333 18,650 18,035
Access Minutes of Use (millions):
Interstate...................................... 62,411 57,778 53,345 50,546 47,255
Intrastate...................................... 19,197 16,888 15,261 13,994 13,238
Toll Messages (millions).......................... 1,374 1,559 1,511 1,462 1,504
Cellular Customers (thousands): (7)
Domestic........................................ 2,847 2,156 1,559 1,118 774
International................................... 655 361 192 78 26
--------- -------- -------- -------- --------
Total......................................... 3,502 2,517 1,751 1,196 800
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
<FN>
- ------------------------------
(1) Operating Expenses for 1995 include a work force reduction charge of $1,082,
which reduced net income by $663. Operating Expenses for 1993 include a
charge for restructuring of $1,136, which reduced net income by $697. See
Note K to the Consolidated Financial Statements.
(2) For 1995, reflects charges of $2,718 ($2.73 per share) for the
discontinuance of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" and $78 ($.08
per share) related to the refinancing of long-term debt issues. See Notes B
and F to the Consolidated Financial Statements.
(3) Amounts for 1991 - 1994 have been restated to reflect a two-for-one stock
split effective in November 1995.
(4) The debt ratio at December 31, 1995 has been adjusted to exclude $485 of
debentures to be redeemed in January 1996.
(5) Telephone employees exclude those employees in BellSouth Telecommunications'
subsidiaries which are unrelated to telephone operations.
(6) Prior period operating data are revised at later dates to reflect the most
current information. The above information reflects the latest data
available for the periods indicated.
(7) Equity Basis.
</TABLE>
A-1
<PAGE>
BELLSOUTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
BellSouth Corporation (BellSouth) is a holding company headquartered in
Atlanta, Georgia whose operating telephone company subsidiary, BellSouth
Telecommunications, Inc. (BellSouth Telecommunications) serves, in the
aggregate, approximately two-thirds of the population and one-half of the
territory within Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina and Tennessee. BellSouth Telecommunications
primarily provides local exchange service and toll communications services
within 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 wireless and international communications services and advertising and
publishing products.
Approximately 70%, 72% and 73% of BellSouth's Total Operating Revenues for
the years ended December 31, 1995, 1994 and 1993, respectively, were from
wireline services provided by BellSouth Telecommunications. Charges for local,
access and toll services for the year ended December 31, 1995 accounted for
approximately 59%, 33% and 8%, respectively, of the wireline revenues discussed
above. Revenues from wireless communications services and directory advertising
and publishing services accounted for approximately 14% and 9%, respectively, of
Total Operating Revenues for the year ended December 31, 1995. The remainder of
such revenues was derived principally from other nonregulated services provided
by BellSouth Telecommunications.
RESULTS OF OPERATIONS
All per share amounts herein reflect a two-for-one stock split effective in
November 1995. See Note H to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary Losses
and Cumulative Effect of Change in
Accounting Principle............... $ 1,564 $ 2,160 $ 1,034 (27.6%) 108.9%
Extraordinary Loss for
Discontinuance of SFAS No. 71, net
of tax............................. (2,718) -- -- -- --
Extraordinary Loss on Early
Extinguishment of Debt, net of
tax................................ (78) -- (87) -- (100.0)
Cumulative Effect of Change in
Accounting Principle, net of tax... -- -- (67) -- (100.0)
--------- --------- ---------
Net Income (Loss)................... $ (1,232) $ 2,160 $ 880 -- 145.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Earnings (Loss) Per Share:
PERCENT CHANGE
--------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary
Losses and Cumulative Effect
of Change in Accounting
Principle................... $ 1.57 $2.18 $1.04 (28.0%) 109.6%
Extraordinary Loss for
Discontinuance of SFAS No.
71, net of tax.............. (2.73) -- -- -- --
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax...................... (.08) -- (.09) -- (100.0)
Cumulative Effect of Change
in Accounting Principle, net
of tax...................... -- -- (.06) -- (100.0)
--------- --------- ---------
Earnings (Loss) Per Share.... $(1.24) $2.18 $ .89 -- 144.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
For a discussion of the extraordinary losses in 1995 and 1993, see
"Extraordinary Losses" below; the change in accounting principle in 1993
resulted from the retroactive adoption of Statement of Financial Accounting
Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits,"
which is discussed in Note M to the Consolidated Financial Statements.
Income Before Extraordinary Losses and Cumulative Effect of Change in
Accounting Principle for 1995 decreased $596 (27.6%) and $.61 per share (28.0%),
respectively, compared to 1994. The decreases were primarily due to a work force
reduction charge in 1995 of $663 ($.67 per share). For a discussion of such
charge, see "Operating Expenses -- Work Force Reduction/Restructuring Charges"
below. Also contributing to the decreases were the effects of gains in 1994
aggregating $108 ($.11 per share) related to the sale of two international
cellular investments. The decreases were partially offset by revenue growth,
driven by continued growth of access lines and the cellular customer base, and
cost control measures at BellSouth Telecommunications, including salary and wage
savings attributable to the restructuring plan initiated in 1993.
Income Before Extraordinary Losses and Cumulative Effect of Change in
Accounting Principle for 1994 increased $1,126 (108.9%) and $1.14 per share
(109.6%), respectively, compared to the previous year. The increases were
attributable in part to growth in key business volumes, expense savings
attributable to BellSouth Telecommunications' restructuring plan initiated in
1993 and, as discussed above, the gains on sale of two international cellular
investments. The increases were also due to the effect of charges in 1993 which
totaled $785 ($.79 per share). Such 1993 charges are comprised of $697 ($.71 per
share) for restructuring of BellSouth's telephone operations (see "Operating
Expenses -- Work Force Reduction/Restructuring Charges" below); $47 ($.05 per
share) for the initial impact of a regulatory settlement in Florida;
approximately $25 ($.02 per share) associated with severe 1993 winter weather
conditions; and $16 ($.01 per share) related to the federal income tax
legislation enacted in 1993.
A-3
<PAGE>
VOLUMES OF BUSINESS
Network Access Lines in Service at December 31 (thousands):
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
By Type:
Residence................................ 14,653 14,195 13,692 3.2% 3.7%
Business................................. 6,225 5,771 5,388 7.9 7.1
Other.................................... 255 254 253 0.4 0.4
--------- --------- ---------
Total.................................. 21,133 20,220 19,333 4.5 4.6
--------- --------- ---------
--------- --------- ---------
By State:
Florida.................................. 5,597 5,350 5,097 4.6 5.0
Georgia.................................. 3,550 3,354 3,167 5.8 5.9
Tennessee................................ 2,435 2,337 2,236 4.2 4.5
Louisiana................................ 2,108 2,037 1,963 3.5 3.8
North Carolina........................... 2,101 1,994 1,896 5.4 5.2
Alabama.................................. 1,792 1,726 1,668 3.8 3.5
South Carolina........................... 1,292 1,244 1,200 3.9 3.7
Mississippi.............................. 1,158 1,118 1,077 3.6 3.8
Kentucky................................. 1,100 1,060 1,029 3.8 3.0
--------- --------- ---------
Total.................................. 21,133 20,220 19,333 4.5 4.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
The total number of access lines in service since December 31, 1994
increased by approximately 913,000 (4.5%) to 21,133,000, compared to a 4.6% rate
of increase in 1994. Business and residence access lines increased by 7.9% and
3.2%, respectively, compared to growth rates of 7.1% and 3.7% in 1994. The
number of second residence lines, included in total residence lines, increased
by 220,000 (20.9%) to 1,271,000 and accounted for approximately 48.0% and 24.1%
of the overall increase in residence access lines and total access lines,
respectively, since December 31, 1994. 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 and successful
marketing programs.
Access Minutes of Use (millions):
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interstate................................. 62,411 57,778 53,345 8.0% 8.3%
Intrastate................................. 19,197 16,888 15,261 13.7 10.7
--------- --------- ---------
Total.................................... 81,608 74,666 68,606 9.3 8.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
Access minutes of use represent the volume of traffic carried by
interexchange carriers between LATAs, both interstate and intrastate, using
BellSouth Telecommunications' local facilities. In 1995, total access minutes of
use increased by 6,942 million (9.3%) compared to an increase of 8.8% in 1994.
The 1995 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' network. The
growth rate in total minutes of use continues to be negatively impacted by
competition
A-4
<PAGE>
and the migration of interexchange carriers to categories of service (e.g.,
special access) that have a fixed charge as opposed to a volume-driven charge
and to high capacity services, which causes a decrease in minutes of use.
<TABLE>
<CAPTION>
PERCENT CHANGE
-------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Toll Messages (millions)................................ 1,374 1,559 1,511 (11.9%) 3.2%
</TABLE>
Toll messages are comprised of Message Telecommunications Service and Wide
Area Telecommunications Service. Toll messages decreased by 185 million (11.9%)
in 1995 compared to an increase of 3.2% in 1994. The decrease in 1995 was
primarily attributable to the expansion of local area calling plans in Florida,
Georgia, South Carolina, North Carolina and Mississippi. These plans and future
implementation of other such plans in BellSouth Telecommunications' service
region, coupled with competition from the interexchange carriers 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.
Cellular and Paging Customers -- Equity Basis (thousands):
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Domestic Cellular........................................ 2,847 2,156 1,559 32.1% 38.3%
International Cellular................................... 655 361 192 81.4 88.0
Paging Customers (all domestic).......................... 1,777 1,614 1,232 10.1 31.0
</TABLE>
The wireless communications businesses are a significant contributor to
BellSouth's operations, primarily due to the continued expansion of the customer
base for cellular communications services. Domestic cellular customers increased
by 691,000 (32.1%) since December 31, 1994. While the rate of increase has
declined since 1994, the overall penetration rate (number of customers as a
percentage of the total population in the service territory) increased from 5.5%
at December 31, 1994 to 7.1% at December 31, 1995. Total minutes of use have
also continued to increase, although average minutes of use per cellular
customer declined due to the trend of increased penetration into lower-usage
market segments.
Since December 31, 1994, the number of international cellular customers
increased by 294,000 (81.4%) to 655,000. 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.
Paging customers increased by 163,000 (10.1%) since December 31, 1994 due
primarily to the continued success of the retail distribution program. In
January 1996, BellSouth sold its paging subsidiary; see Note C to the
Consolidated Financial Statements.
OPERATING REVENUES
Total Operating Revenues increased $1,041 (6.2%) in 1995 compared to an
increase of $965 (6.1%) during 1994. The increases resulted from growth in
revenues from BellSouth's wireline telephone businesses, coupled with a
significant increase in revenues from cellular communications businesses.
Traditionally, local, access and toll services offered by BellSouth
Telecommunications have primarily accounted for increases in operating revenues.
BellSouth, however, continues to experience a gradually increasing shift in the
relative contributions of its revenue sources toward wireless services.
A-5
<PAGE>
The components of Total Operating Revenues were as follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Local Service.................................. $ 7,294 $ 6,863 $ 6,577 6.3% 4.3%
Interstate Access.............................. 3,275 3,127 2,991 4.7 4.5
Intrastate Access.............................. 884 908 882 (2.6) 2.9
Toll........................................... 1,009 1,190 1,220 (15.2) (2.5)
Wireless Communications........................ 2,592 2,067 1,553 25.4 33.1
Directory Advertising and Publishing........... 1,677 1,556 1,515 7.8 2.7
Other Services................................. 1,155 1,134 1,142 1.9 (0.7)
--------- --------- ---------
Total Operating Revenues..................... $ 17,886 $ 16,845 $ 15,880 6.2 6.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
LOCAL SERVICE revenues reflect amounts billed to customers for local
exchange services, which include connection to the network and secondary central
office feature services, such as custom calling features and custom dialing
packages. Local Service revenues for 1995 increased $431 (6.3%) compared to an
increase of $286 (4.3%) in 1994.
The 1995 increase was due primarily to an increase of 913,000 access lines
since December 31, 1994, an increase of $107 due to higher customer demand for
TouchStar-Registered Trademark- and Custom Calling services, and the effect of
expanded local area calling plans. The increase in 1995 was partially offset by
net rate reductions since December 31, 1994 of approximately $46.
The increase in 1994 was due primarily to an increase of 887,000 access
lines since December 31, 1993. Also contributing to the increase was growth
attributable to optional extended area calling plans. The increase in 1994 was
partially offset by rate reductions, principally in Louisiana and also in
Florida and Alabama.
INTERSTATE ACCESS revenues result from the provision of access services to
interexchange carriers to provide telecommunications services between states.
Interstate Access revenues increased $148 (4.7%) in 1995 compared to an increase
of $136 (4.5%) in 1994.
The increase for 1995 was due primarily to growth in minutes of use of 8.0%,
an increase in end-user charges of $52 attributable to growth in the number of
access lines in service and an increase of $42 due to higher demand for special
access services. The 1995 increase was partially offset by net rate reductions
since December 31, 1994 of approximately $58.
The 1994 increase was primarily attributable to growth in minutes of use,
additional end user charges due to access line growth and the effect of billing
and other adjustments recorded in 1993, which reduced revenues for that period
by approximately $20. The increase was partially offset by the effect of net
rate reductions since December 31, 1993 and decreased net settlements with the
National Exchange Carriers Association.
See "Operating Environment and Trends of the Business."
INTRASTATE ACCESS revenues result from the provision of access services to
interexchange carriers which provide telecommunications services between LATAs
within a state. In 1995, Intrastate Access revenues decreased $24 (2.6%)
compared to an increase of $26 (2.9%) in 1994.
The 1995 decrease was due primarily to net rate reductions of $100,
partially offset by 13.7% growth in minutes of use.
For 1994, the increase was attributable to growth in minutes of use and the
reclassification beginning in 1994 of independent telephone company settlements
in certain states, which would have previously reduced revenues, to operating
expenses. The increase was partially offset by the impact of rate reductions,
primarily in Alabama and Florida.
A-6
<PAGE>
TOLL revenues are received from the provision of long-distance services
within (but not between) LATAs. These services include intraLATA service beyond
the local calling area; Wide Area Telecommunications Service (WATS or 800
services) for customers with highly concentrated demand; and special services,
such as transport of voice, data and video. Toll revenues decreased $181 (15.2%)
in 1995 compared to a decrease of $30 (2.5%) in 1994.
In 1995, the decrease was due primarily to a decline in toll messages of
11.9%. The decline in toll messages reflects the expansion of local area calling
plans and increased competition from interexchange carriers.
The 1994 decrease was primarily attributable to several settlements with
independent companies, the reclassification of certain settlements to Intrastate
Access revenue, net rate reductions since December 31, 1993 and the impact of
optional extended area calling plans. The decrease was partially offset by
growth in toll message volumes, reflecting improvements related in part to
optional calling plans.
The overall decline in toll revenues is expected to continue over the long
term.
WIRELESS COMMUNICATIONS revenues include the revenues from consolidated
wireless communications businesses (primarily cellular and paging within
BellSouth Enterprises) as well as revenues from interconnections by unaffiliated
cellular carriers with BellSouth Telecommunications' network. (BellSouth's
interests in the net income or loss of the unconsolidated wireless businesses
within BellSouth Enterprises, which are accounted for under the equity method of
accounting, are recorded in Other Income.)
Wireless Communications revenues increased $525 (25.4%) in 1995 compared to
an increase of $514 (33.1%) in 1994. The increases for both years resulted
primarily from continued growth of the customer base for wireless services in
domestic and international markets.
As discussed in Note C to the Consolidated Financial Statements, BellSouth
sold its domestic paging subsidiary in January 1996. Revenues from such paging
services, included as a component of Wireless Communications revenues, were
$349, $276 and $207 in 1995, 1994 and 1993, respectively.
Consistent with anticipated growth in the overall cellular industry,
BellSouth's revenues from cellular services are expected to continue to
increase. However, the rate of growth of such revenues could be adversely
affected by competitive pressures on service pricing and market penetration, the
continuing effect of an increasingly diversified customer base with lower
average usage and the development of new technologies, such as personal
communications service (PCS).
DIRECTORY ADVERTISING AND PUBLISHING revenues include revenues derived from
publishing, printing and selling advertising in, and performing related services
concerning, alphabetical and classified telephone directories. Directory
Advertising and Publishing revenues increased $121 (7.8%) in 1995 compared to a
$41 (2.7%) increase in 1994.
The 1995 increase was due primarily to increases in the volume of
advertising sold and the impact of BellSouth Telecommunications' adoption of
issue basis accounting for 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," which is discussed
in Note B to the Consolidated Financial Statements.
In 1994 the increase was primarily attributable to increases in the volume
and prices of advertising sold.
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 $21
(1.9%) in 1995 compared to a decrease of $8 (0.7%) in 1994.
The increase in 1995 was due primarily to reduced levels of revenue
reduction accruals related to potential sharing under certain state regulatory
plans coupled with the reclassification of certain such
A-7
<PAGE>
accruals to Local Service revenues, the combined effect of which increased Other
Services revenues by approximately $76. The increase was also due to
approximately $41 resulting from higher demand for voice messaging and inside
wire services. The increase was partially offset by a reduction of $37 in
revenues from billing and collection services and by approximately $33 related
to the sale in April 1994 of BellSouth Telecommunications' out-of-region CPE
sales and service operations.
The slight decrease in 1994 was primarily attributable to increased revenue
reduction accruals related to potential sharing under certain state regulatory
plans and the sale in April 1994 of BellSouth Telecommunications' out-of-region
CPE sales and service operations. The decrease was substantially offset by
higher demand for unregulated products and services, including CPE for
residential customers, voice messaging and inside wire services, and the effects
of adjustments and reclassifications related to services under certain state
regulatory plans and billing and collection services.
OPERATING EXPENSES
Primarily as a result of the work force reduction charge in 1995 and the
restructuring charge in 1993, Total Operating Expenses increased $1,807 (14.1%)
in 1995 compared to a decrease of $806 (5.9%) in 1994. The components of Total
Operating Expenses were as follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
-------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Depreciation and Amortization.................. $ 3,455 $ 3,259 $ 3,162 6.0% 3.1%
--------- --------- ---------
Other Operating Expenses:
Cost of Services and Products................ 6,184 6,043 5,865 2.3 3.0
Selling, General and Administrative.......... 3,873 3,485 3,430 11.1 1.6
--------- --------- ---------
10,057 9,528 9,295 5.6 2.5
--------- --------- ---------
Subtotal................................... 13,512 12,787 12,457 5.7 2.6
Work Force Reduction/Restructuring Charges..... 1,082 -- 1,136 -- (100.0)
--------- --------- ---------
Total Operating Expenses................... $ 14,594 $ 12,787 $ 13,593 14.1 (5.9)
--------- --------- ---------
--------- --------- ---------
</TABLE>
DEPRECIATION AND AMORTIZATION increased $196 (6.0%) in 1995 compared to a
$97 (3.1%) increase in 1994.
The 1995 increase was due primarily to higher levels of property, plant and
equipment since December 31, 1994 resulting from sustained growth in the
customer base for wireless and wireline services and continued modernization of
the networks. For a discussion of the impact of discontinuance of SFAS No. 71 on
depreciation expense in 1995 and 1996, see "Extraordinary Losses --
Discontinuance of SFAS No. 71" below.
The increase in 1994 was due primarily to higher levels of property, plant
and equipment since December 31, 1993 resulting from continued growth in the
customer base for wireless and wireline services and continued modernization of
the networks. The increase for the period was partially offset by the expiration
of reserve deficiency amortizations in Louisiana and the inclusion in 1993 of
$20 related to extraordinary property retirements in conjunction with a
regulatory settlement in Florida.
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 $529 (5.6%) in 1995
compared to an increase of $233 (2.5%) in 1994.
A-8
<PAGE>
The 1995 increase was due primarily to increased expenses of approximately
$310 related to sustained growth in the wireless communications customer base,
reflecting additional marketing and operational costs associated with higher
levels of sales and expanded operations. At BellSouth Telecommunications, Other
Operating Expenses increased $114, which reflected volume growth that was
partially offset by a decrease of approximately $130 for labor costs, including
expenses for employee benefits. The decrease in such labor costs reflects
employee reductions attributable to the restructuring plan begun in 1993,
partially offset by annual compensation increases for management and represented
employees. The 1995 increase in Other Operating Expenses was also attributable
to approximately $55 related to growth in the volume of directory advertising
sold.
The increase in 1994 was primarily attributable to increased expenses
related to growth in the wireless communications customer base. Also
contributing to the increase were expenses related both to volume growth and
network modernization in the core wireline business and, to a lesser extent,
volume growth in the directory advertising and publishing businesses. Total
employee-related costs also increased, reflecting annual compensation increases
for management and represented employees, increased overtime attributable to
volume growth and network service activities and higher expenses for employee
benefits, partially offset by salary and wage savings from employee reductions
attributable to the restructuring plan begun in 1993 at BellSouth
Telecommunications and a $94 reduction in pension expense (see Note I). The
expense increase in 1994 was partially offset by the sale in 1994 of the
out-of-region CPE sales and service operations and the inclusion in 1993 of
approximately $55 and $40, respectively, related to a regulatory settlement in
Florida and severe 1993 weather conditions.
WORK FORCE REDUCTION/RESTRUCTURING CHARGES. In the fourth quarter of 1995,
BellSouth recognized a pretax charge of $1,082 ($663 after tax), comprised of
$942 ($577 after tax) related to planned work force reductions by the end of
1997, $85 ($52 after tax) for expected severance benefit payments after 1997 and
$55 ($34 after tax) for additional net curtailment losses related to employee
reductions under the restructuring plan initiated in 1993.
Each component of the overall 1995 work force reduction charge, as well as
the 1993 restructuring charge, is discussed below.
1995 WORK FORCE REDUCTION CHARGE. In connection with a previously-disclosed
plan to significantly reduce its work force by the end of 1997, BellSouth
recorded a pretax charge of $942 in the fourth quarter of 1995. Under this plan,
BellSouth expects to reduce the work force of the core wireline business by
approximately 11,300 employees by the end of 1997, including a reduction of 800
employees which occurred in December 1995.
The work force reduction will be accomplished through the separation of
approximately 13,200 employees, partially offset by the planned hiring of new
employees primarily to replace those not expected to relocate in connection with
the consolidation of work locations.
The $942 pretax charge is comprised of approximately $561 under the
provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
related to those employees who are expected to receive severance benefits under
preexisting separation plans, and approximately $381 for curtailment losses
under the provisions of SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits" and
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Substantially all of the curtailment losses relate to postretirement
benefits other than pensions.
Once the plan to reduce 11,300 employees is completed, annual employee cost
savings are estimated to be approximately $560. Such annual savings will be
partially offset by increased costs of approximately $60 for outsourced
services.
POSTEMPLOYMENT BENEFITS CHARGE. The pretax charge of $85 represents
estimated future postemployment severance benefits to be paid after 1997, also
in accordance with the provisions of SFAS No. 112. This component is based on
BellSouth's belief that work force reductions will continue under existing
separation plans, although at reduced separation benefit levels.
A-9
<PAGE>
1993 RESTRUCTURING OF TELEPHONE OPERATIONS. During 1993, BellSouth
Telecommunications recognized a $1,136 restructuring charge in connection with a
plan to redesign, consolidate and streamline the fundamental processes and work
activities in its telephone operations. Consistent with previously-disclosed
expectations, the restructuring was completed in 1995, about one year earlier
than initially planned.
As a part of the restructuring, BellSouth Telecommunications consolidated
and centralized its existing operations. These efforts involved redesign of key
work processes and the design of new processes that facilitated the
consolidation of service functions and the reduction of 10,200 employees.
Since inception of the restructuring plan, total employee reductions were
approximately 10,200, including 5,000 since December 31, 1994. As a result of
employee reductions in 1994 and 1995, employee-related expenses, included as a
component of operating expenses, for the year 1995 were reduced by approximately
$180 compared to the 1994 level. The cumulative reduction of 10,200 employees
since inception of the plan reduced 1995 employee-related expenses by
approximately $375. For the year 1996, the cumulative employee reductions under
the plan are projected to reduce employee-related expenses by approximately
$600.
A summary of employee reductions and expenditures through December 31, 1995
under the 1993 restructuring plan is as follows:
<TABLE>
<CAPTION>
1993 1994 1995 TOTAL
------ ------ ------ ------
<S> <C> <C> <C> <C>
Employee Reductions..................... 1,300 3,900 5,000 10,200
------ ------ ------ ------
------ ------ ------ ------
Expenditures By Component:
Consolidation and Elimination of
Operations........................... $ 15 $ 165 $ 231 $ 411
Systems............................... -- 170 244 414
Employee Separation................... 38 134 251 423
------ ------ ------ ------
Total............................... $ 53 $ 469 $ 726 $1,248
------ ------ ------ ------
------ ------ ------ ------
Expenditures By Type:
Cash.................................. $ 53 $ 390 $ 648 $1,091
Noncash............................... -- 79 78 157
------ ------ ------ ------
Total............................... $ 53 $ 469 $ 726 $1,248
------ ------ ------ ------
------ ------ ------ ------
Capital Expenditures (not included in
above expenditures).................... $-- $ 204 $ 250 $ 454
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Total expenditures of $1,248 include $55 of additional net curtailment
losses resulting from a greater number of retirement-eligible employees
separating under the plan than originally expected. These additional net
curtailment losses were included in the 1995 work force reduction charge
discussed above.
At inception of the restructuring plan in 1993, the projected employee
reductions and expenditures for each component of the charge by year were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Employee Reductions...................................... 1,300 3,700 2,900 2,300 10,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Consolidation and Elimination of Operations.............. $ 15 $ 185 $ 87 $ 56 $ 343
Systems.................................................. -- 185 156 84 425
Employee Separation...................................... 38 143 105 82 368
--------- --------- --------- --------- ---------
Total.................................................. $ 53 $ 513 $ 348 $ 222 $ 1,136
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
A-10
<PAGE>
OTHER INCOME STATEMENT ITEMS
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest Expense................................ $ 724 $ 666 $ 689 8.7% (3.3%)
Other Income, net............................... 20 11 8 81.8 37.5
Provision for Income Taxes...................... 1,024 1,243 572 (17.6) 117.3
</TABLE>
INTEREST EXPENSE includes interest on debt, certain other accrued
liabilities and capital leases, partially offset by interest capitalized as a
cost of installing equipment and constructing plant. Interest expense increased
$58 (8.7%) in 1995 compared to a decrease of $23 (3.3%) in 1994.
The 1995 increase was primarily attributable to higher average interest
rates on short-term borrowings and higher average debt levels for long-term
borrowings. The average interest rate on long-term borrowings was slightly lower
in 1995 compared to 1994, reflecting the initial impact of 1995 debt
refinancings at more favorable interest rates.
The decrease for 1994 resulted primarily from interest savings attributable
to refinancings in 1993 of long-term debt at lower interest rates. The decrease
was partially offset by higher average levels of short-term borrowings at higher
average interest rates.
OTHER INCOME, NET includes earnings and losses from unconsolidated
subsidiaries, businesses and partnerships; gains and losses from the sale of
operations; interest and dividend income; and minority interests. Other Income,
net increased $9 (81.8%) in 1995 compared to an increase of $3 (37.5%) in 1994.
The increase in 1995 included a $43 increase in interest income and $18 in
lower net minority interest deductions. Equity in losses of unconsolidated
affiliates was $(86) in 1995 compared to $(110) in 1994. The lower 1995 losses
reflect a reduction in losses in the mobile data communications businesses and
higher income from domestic cellular operations, partially offset by increased
losses from certain developing international businesses, principally operations
in Germany and Israel. The increase in Other Income was also attributable to a
$34 increase in miscellaneous income related to nonstrategic business
activities. The increases in Other Income were partially offset by a gain of
$108 in 1994, as discussed below.
The increase in 1994 reflected an aggregate gain of $108 from the sale of
two international cellular investments and a $22 increase in interest income.
The increases were partially offset by a $29 increase in net minority interest
deductions. Equity in earnings (losses) of unconsolidated affiliates was $(110)
in 1994 compared to $11 in 1993. The overall 1994 loss reflects increased losses
attributable to developing operations, principally the mobile data
communications businesses and, to a lesser extent, the cellular business in
Germany and the long distance telecommunications business in Chile. Such
increased losses were partially offset by an improvement in earnings from other
unconsolidated domestic and international wireless businesses.
PROVISION FOR INCOME TAXES decreased $219 (17.6%) in 1995 compared to an
increase of $671 (117.3%) in 1994. BellSouth's effective tax rates were 39.6%,
36.5% and 35.6% in 1995, 1994 and 1993, respectively. A reconciliation of the
statutory Federal income tax rates to these effective tax rates is provided in
Note L. A discussion of the 1993 adoption of SFAS No. 109, "Accounting for
Income Taxes," also is included therein.
EXTRAORDINARY LOSSES
DISCONTINUANCE OF SFAS NO. 71. As a result of its continuing regulatory and
marketplace assessments, BellSouth Telecommunications 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 recent changes in the regulatory
framework and the increasing level of competition, it was required to
discontinue SFAS No. 71 for financial reporting purposes. Discontinuance was
required because most of BellSouth Telecommunications' revenues
will not be generated under cost-based regulation and because it is doubtful
that regulated rates sufficient to recover the net book value of telephone plant
could be charged to and collected from
A-11
<PAGE>
customers due to the expected levels of future competition. Accordingly, in the
second quarter of 1995, BellSouth Telecommunications discontinued application of
SFAS No. 71 and recorded a noncash extraordinary charge of $2,718 (net of a
deferred tax benefit of $1,731). The extraordinary charge reflects $3,002 (after
tax) to reduce the recorded value of long lived telephone plant and equipment,
all of which was within the regulatory framework, to the level appropriate for
nonregulated enterprises. The overall charge was partially offset by $194
related to the method by which BellSouth Telecommunications reports its
directory publishing revenues, $71 related to the elimination of regulatory
assets and liabilities and $19 for the partial acceleration of unamortized
investment tax credits associated with the reductions in asset carrying values
and in asset lives.
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. In the regulatory arena, implementation of price regulation has
been and continues to be a cornerstone in BellSouth Telecommunications'
corporate strategy. Due in part to this strategy, changes in the regulatory
framework are now being implemented (see "Operating Environment and Trends of
the Business"). As a result of such changes, a significant portion of BellSouth
Telecommunications' revenue will no longer be regulated based on the recovery of
specific costs. Furthermore, BellSouth Telecommunications expects that
competition in its local exchange markets will accelerate. The removal of legal
and regulatory 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.
In connection with the discontinuance of SFAS No. 71, the average
depreciable lives of significant categories of long lived telephone plant were
reduced to more closely reflect the economic and technological lives. The
application of such shorter lives does not result in a material increase in
depreciation expense.
See Note B to the Consolidated Financial Statements.
EARLY EXTINGUISHMENT OF DEBT. During 1995 and 1993, BellSouth
Telecommunications recognized extraordinary losses of $78 (net of a current tax
benefit of $49) and $87 (net of a current tax benefit of $59), respectively,
related to the early extinguishment of outstanding debt issues. See Note F to
the Consolidated Financial Statements.
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 December 31, 1995 and 1994, 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. BellSouth believes that such sources of funds
will be sufficient to meet the needs of its business for the foreseeable future.
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by Operating Activities...... $ 5,443 $ 5,172 $ 4,687 5.2% 10.3%
</TABLE>
OPERATING ACTIVITIES. Net cash provided by operating activities increased
$271 (5.2%) in 1995 compared to an increase of $485 (10.3%) in 1994. The
increase in 1995 was primarily attributable to a $512 increase in operating
income excluding depreciation, amortization and the work force reduction
charges. Such increase in 1995 operating income was partially offset by higher
cash expenditures of $258 related to the restructuring plan begun in 1993.
A-12
<PAGE>
The increase in 1994, primarily attributable to a higher level of net
income, was partially offset by cash expenditures of $390 related to the
restructuring plan begun in 1993.
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Used for Investing Activities............ $ (4,384) $ (3,935) $ (3,435) 11.4% 14.6%
</TABLE>
INVESTING ACTIVITIES. BellSouth's primary use of capital resources continues
to be for capital expenditures to support development of the wireline and
wireless networks. Net cash used for investing activities increased $449 (11.4%)
in 1995 compared to an increase of $500 (14.6%) in 1994. The increase in 1995
was primarily due to higher capital expenditures of $603 related substantially
to wireline and wireless network development, partially offset by higher cash
proceeds of $188 from investment dispositions and repayment of advances.
Capital expenditures were $4,203 in 1995 and are projected to be
approximately $4,000 to $4,300 in 1996. Such capital expenditures for 1995 were
financed internally and, for 1996, are expected to be financed primarily through
internally generated funds and, to the extent necessary, from external sources.
The increase in 1994 was primarily attributable to increases in cash
investments and advances to unconsolidated affiliates and capital expenditures.
Cash used for investments and advances to unconsolidated affiliates increased by
$321 (106.3%) to $623. Of such total, approximately 48% was for investments and
advances to the mobile data communications businesses and the German and
Venezuelan cellular businesses and 30% was loaned to Prime South Diversified,
Inc. which indirectly wholly owns Community Cable TV, a Las Vegas cable
operation managed by Prime Cable. The remainder was invested in other businesses
in which BellSouth has an interest. Capital expenditures for all consolidated
BellSouth companies increased by $114 (3.3%) to $3,600. Substantially all cash
required for capital expenditures in 1994 was provided internally.
<TABLE>
<CAPTION>
PERCENT CHANGE
-------------------------
1995 VS. 1994 VS.
1995 1994 1993 1994 1993
--------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used for) Financing
Activities.................................... $ 46 $ (1,132) $ (1,016) -- 11.4%
</TABLE>
FINANCING ACTIVITIES. During 1995, financing activities provided cash of $46
while in 1994 financing activities used cash of $(1,132). The change from 1994
to 1995 of $1,178 primarily reflects higher levels of net proceeds from all
borrowing activities in 1995 compared to 1994.
In September 1995, BellSouth's Board of Directors raised the quarterly
dividend by $.015 per share to a total of $.36 per share and declared the same
$.36 per share dividend again in November 1995.
The increase in 1994 was primarily attributable to increases of $62 in cash
dividends paid to shareholders and $3,447 for debt repayments, primarily
short-term borrowings. The effect of these increases was substantially offset by
an increase of $3,427 in proceeds from all borrowings.
DEBT ACTIVITIES. During 1995, BellSouth issued $500 of long-term debt and,
with net proceeds, refinanced outstanding short-term debt. Also during 1995,
BellSouth issued approximately $1,900 of long-term debt to refinance $1,885 of
outstanding long-term debentures, including $485 of debentures redeemed in
January 1996. The funds to redeem the $485 of debentures in January 1996 are
included in Cash and Cash Equivalents in the Consolidated Balance Sheet at
December 31, 1995. In addition, Cash and Cash Equivalents includes $500 which
was used to redeem commercial paper on January 2, 1996.
BellSouth has committed credit lines aggregating $1,539 with various banks.
Borrowings under the committed credit lines totaled $21 at December 31, 1995.
BellSouth also maintains uncommitted lines of credit of $650. At December 31,
1995, there were no borrowings under the uncommitted lines. As of February 15,
1996, shelf registration statements were on file with the Securities and
Exchange Commission under which $2,227 of debt securities could be publicly
offered.
A-13
<PAGE>
BellSouth's debt to total capitalization ratio, adjusted to exclude the $485
of debentures redeemed in January 1996, increased to 46.7% at December 31, 1995
from 39.3% at December 31, 1994. The increase was mostly caused by the reduction
in equity due to the extraordinary loss from the discontinuance of SFAS No. 71.
DERIVATIVE ACTIVITIES. BellSouth is party to foreign exchange forward
contracts, currency swap agreements and interest rate swap agreements in its
normal course of business for hedging purposes. These financial instruments are
used to mitigate foreign currency and interest rate risks, although to some
extent they expose the company to market and credit risks. The credit risks
associated with these instruments are controlled through the evaluation and
continual monitoring of the creditworthiness of the counterparties. In the event
that a counterparty fails to meet the terms of a contract or agreement,
BellSouth's exposure is limited to the currency rate or interest rate
differential, not the full notional amount. Such contracts and agreements have
been executed with creditworthy financial institutions whose credit ratings are
generally AA/Aa or higher. As such, BellSouth considers the risk of
nonperformance to be remote. See Note O to the Consolidated Financial Statements
for additional information.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
REGULATORY ENVIRONMENT. In providing telecommunications services, BellSouth
Telecommunications is subject to regulation by both state and federal regulators
with respect to rates, services and other issues. BellSouth's primary regulatory
focus continues to be directed toward modifying the regulatory process to one
that is more closely aligned with changing market conditions and overall public
policy objectives. BellSouth believes that price regulation, whereby prices of
basic local exchange services are regulated based on factors other than rate of
return and prices for other products and services are based on market factors,
is a logical progression to competitive fairness and provides advantages for
consumers. While price regulation plans limit the amount of increases in prices
for specified services, such plans enhance the company's ability to adjust
prices and service options to more effectively respond to changing market
conditions and competition and enable it to more fully benefit from productivity
enhancements. Price regulation plans have been approved or authorized by the
requisite legislative or regulatory bodies in Alabama, Florida (although a
sharing requirement exists at least through 1996), Georgia, Kentucky,
Mississippi, South Carolina and Tennessee, and approval of a plan is pending in
North Carolina. In addition, BellSouth Telecommunications has filed a proposed
price regulation plan in Louisiana. At the federal level, BellSouth
Telecommunications is operating under an interim price regulation plan
established by the Federal Communications Commission (FCC) in 1995. This plan
provided a productivity option, which BellSouth Telecommunications selected,
that eliminated both earnings limitations and sharing requirements. The FCC is
expected to consider further the interim rules as well as other issues related
to competition, streamlined regulation and other matters contained in the
Telecommunications Act of 1996 (the 1996 Act). A final order is expected to be
issued in 1996.
ECONOMY. The nation's output of goods and services, which grew 4% in 1994,
expanded 3.2% in 1995. Employment in nonfarm business establishments grew 2.3%
during the year and the unemployment rate averaged 5.6%. The nine-state region
served by BellSouth Telecommunications wireline telephone business outperformed
the nation again in 1995. The number of jobs in nonfarm businesses grew 2.8% as
the unemployment rate averaged 5.1% for the year. Real income expanded at an
estimated 4.5% rate. Net in-migration added approximately 375,000 persons,
accounting for half of the region's population growth. The demand for
telecommunications services in the region reflected the strength of its economic
and population growth. While the economic expansion is expected to continue
through 1996, boosted in Georgia in particular by the Olympic games to be held
in July and August, tight labor markets, slow labor force growth and modest
productivity growth will likely result in slower output growth. Its cost
advantages and strong net in-migration promise to keep the region's economic
performance comparatively better than the nation's and to bring increased demand
for telecommunications services. The increasing competition faced by BellSouth
Telecommunications and the growing percentage of revenues from BellSouth
Enterprises make BellSouth's financial performance more susceptible to changes
in the economy than previously, as its operations reflect the more competitive
business environment and the greater demand elasticities for its products and
services.
A-14
<PAGE>
COMPETITION. Developments in the telecommunications marketplace continue to
indicate that a technological convergence is occurring in the telephone, cable
and broadcast television, computer, entertainment and information services
industries. The technologies utilized and being developed in these industries
are able to provide multiple and integrated communications offerings. A number
of large companies, including AT&T Corp. (AT&T) and the other major
interexchange carriers, other Bell Holding Companies and cable and other video
and entertainment companies, have completed acquisitions and entered into
business alliances that will ultimately intensify and expand competition for
local and toll communications and other services currently provided over
BellSouth's networks. Other competitors have announced plans to build, and in
certain locations have begun construction of, local phone connections and
private networks that would permit business and residential customers to bypass
the facilities of local telephone companies, including those of BellSouth
Telecommunications in certain cities in its service territory.
In conjunction with the approval of state price regulation plans,
competition for local service has been authorized by legislative or regulatory
action in Alabama, Florida, Georgia, North Carolina and Tennessee, and
proceedings to consider local service competition are pending in Kentucky,
Louisiana and Mississippi. In addition, 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. AT&T, MCI Telecommunications
Corporation (MCI), U S West, Inc. (U S West) and a number of other carriers have
filed applications and have announced their intent to provide local service in
many of the areas in which BellSouth Telecommunications provides service. The
new legislation allows for the Bell Holding Companies, including BellSouth, to
compete for interLATA toll business in states outside their local service
territories prior to the time that such companies can offer interLATA toll
services in states within their local service territories. BellSouth expects
Bell Holding Companies and interexchange carriers, including AT&T and MCI, to
compete for interLATA toll service and local service business. Those competitors
that choose to provide local service predominantly over their own facilities may
bundle local and toll service offerings. Such services could be provided before
BellSouth becomes eligible to provide interLATA service within the states in its
region.
Notwithstanding the risks associated with increased competition, BellSouth
will have opportunities to benefit from entry into new business markets. For
example, the presence of competition will allow the entry by BellSouth into
interLATA wireline businesses under provisions contained in the new federal
telecommunications legislation. BellSouth believes that in order to remain
competitive in the future, it must aggressively pursue a corporate strategy of
expanding its offerings beyond its traditional businesses and markets. These
offerings may include interLATA services, information services and video and
electronic commerce services. As a part of this strategy, BellSouth is
conducting a trial of video dial tone services; acquiring broadband PCS licenses
in certain areas of its wireline territories; and forming business alliances and
partnerships, both domestically and internationally, related to the provision of
interactive and traditional video programming services as well as wireless and
wireline communications services.
As a result of the 1996 Act, BellSouth is freed from many of the laws,
regulations and judicial restrictions (including the Modification of Final
Judgment) that constrained the provision of voice, data and video communications
throughout its wireline service territory and elsewhere. The FCC has commenced
rulemaking proceedings relating to the provision of interLATA service by the
Bell Holding Companies. After necessary federal and state proceedings, BellSouth
may apply to the FCC to offer interLATA wireline services within its nine-state
region, and the FCC must act on such application within 90 days. The FCC must
grant such application if it determines that BellSouth (a) has met a competitive
checklist; (b) has shown (i) the presence of facilities-based competition for
residential and business local service or (ii) in the absence thereof, a
statement of the terms under which it would be willing to interconnect with a
competitive local carrier; (c) will operate consistently with the separate
subsidiary requirement; and (d) will meet the 1996 Act's public interest
requirement in so offering the services on the foregoing conditions.
BellSouth is not required to obtain such FCC approval prior to offering
out-of-region interLATA wireline or nationwide interLATA wireless services.
BellSouth has begun to offer interLATA wireless service. 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
A-15
<PAGE>
late 1996 or early 1997; however, no assurance can be provided with respect to
when BellSouth will be authorized to initiate such interLATA wireline service.
BellSouth has no plans to offer out-of-region interLATA wireline services on a
significant scale.
After some modifications to its network and operating systems, both wireline
and wireless interLATA services can be offered by BellSouth. However, many of
the telecommunications services that BellSouth and the other Bell Holding
Companies may provide may be subject to extensive regulations to be adopted by
the FCC and state regulatory commissions.
The 1996 Act allows, without additional approval, BellSouth to market its
wireless services jointly with its wireline local exchange services; before
separate marketing was required for cellular services. In addition, such joint
marketing will include interLATA wireline services in the nine-state territory
when authorized. BellSouth expects to begin a joint marketing trial for wireline
local exchange and cellular services later in 1996.
As another part of its competitive strategy, BellSouth has completed a 1993
restructuring plan to streamline its telephone operations and to improve its
overall cost structure and has undertaken a plan to further reduce its work
force by the end of 1997. BellSouth Telecommunications is continuing to seek
additional ways to better enhance customer service and productivity and to
further improve its cost structure. As a result of these ongoing efforts,
additional changes to fundamental business processes and work activities are
expected.
BellSouth may consider (a) investments in, strategic alliances with and
acquisitions of established companies that provide interLATA services,
information services and video and electronic commerce services and (b) the
development of such services and capabilities internally. Such transactions, if
accomplished, could initially reduce earnings and require substantial capital.
Financing for such business opportunities would be provided from funds generated
through internal operations and from external sources.
OTHER MATTERS
CWA CONTRACTS. In October 1995, members of the Communications Workers of
America (CWA) ratified new three-year contracts with BellSouth. These contracts
were effective in August 1995. The contracts include basic wage increases of
10.9% (compounded) over three years. In addition, the agreement provided a cash
payment of one thousand one hundred dollars to each eligible employee upon
ratification and provides payments of one thousand one hundred dollars per
eligible employee in either cash or BellSouth stock, at the option of the
employee, on the 1996 and 1997 contract anniversary dates. Other terms of the
agreement include discontinuance of annual wage adjustments based on cost of
living increases and discontinuance of annual incentive payments.
ACCOUNTING PRONOUNCEMENTS. In March 1995, the Financial Accounting Standards
Board (FASB) issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
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 financial position, annual operating results or
cash flows.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which BellSouth is required to adopt effective January 1, 1996.
SFAS No. 123 establishes optional alternative accounting methods for stock-based
compensation as well as new required disclosures. BellSouth has elected to
account for stock-based compensation under previously-existing accounting
guidance. As such, SFAS No. 123 will be adopted in 1996 for disclosure purposes
only and will not impact BellSouth's financial position, annual operating
results or cash flows.
A-16
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of BellSouth Corporation:
These financial statements have been prepared in conformity with generally
accepted accounting principles and have been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report is contained herein.
The integrity and objectivity of the data in the financial statements
including estimates and judgments relating to matters not concluded by the end
of the year, are the responsibility of the management of BellSouth. Management
has also prepared all other information included therein unless indicated
otherwise.
Management maintains a system of internal accounting controls which is
continuously reviewed and evaluated. However, there are inherent limitations
that should be recognized in considering the assurances provided by any system
of internal accounting controls. The concept of reasonable assurance recognizes
that the cost of a system of internal accounting controls should not exceed, in
management's judgment, the benefits to be derived. Management believes that
BellSouth's system does provide reasonable assurance that the transactions are
executed in accordance with management's general or specific authorizations and
are recorded properly to maintain accountability for assets and to permit the
preparation of financial statements in conformity with generally accepted
accounting principles. Management also believes that this system provides
reasonable assurance that access to assets is permitted only in accordance with
management's authorizations, that the recorded accountability for assets is
compared with the existing assets at reasonable intervals and that appropriate
action is taken with respect to any differences. Management also seeks to assure
the objectivity and integrity of its financial data by the careful selection of
its managers, by organizational arrangements that provide an appropriate
division of responsibility and by communications programs aimed at assuring that
its policies, standards and managerial authorities are understood throughout the
organization. Management is also aware that changes in operating strategy and
organizational structure can give rise to disruptions in internal controls.
Special attention is given to controls while the changes are being implemented.
Management maintains a strong internal auditing program that independently
assesses the effectiveness of the internal controls and recommends possible
improvements thereto. In addition, as part of its audit of these financial
statements, Coopers & Lybrand L.L.P. completed a review of the accounting
controls to establish a basis for reliance thereon in determining the nature,
timing and extent of audit tests to be applied. Management has considered the
internal auditor's and Coopers & Lybrand L.L.P.'s recommendations concerning the
system of internal controls and has taken actions that it believes are
cost-effective in the circumstances to respond appropriately to these
recommendations. Management believes that as of December 31, 1995, the system of
internal controls was adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that BellSouth's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is communicated
to all employees through policies and guidelines addressing such issues as
conflict of interest, safeguarding of BellSouth's real and intellectual
properties, providing equal employment opportunities and ethical relations with
customers, suppliers and governmental representatives. BellSouth maintains a
program to assess compliance with these policies and our ethical standards
through its Vice President -- Corporate Responsibility and Compliance,
designated as the ombudsman/ethics officer who reports directly to the Chairman
of the Board on these matters.
[LOGO]
[LOGO]
<TABLE>
<S> <C>
/s/ John L. Clendenin /s/ Ronald M. Dykes
EXECUTIVE VICE PRESIDENT, CHIEF
CHAIRMAN OF THE BOARD, PRESIDENT FINANCIAL
</TABLE>
<TABLE>
<S> <C>
AND CHIEF EXECUTIVE OFFICER OFFICER AND COMPTROLLER
</TABLE>
February 5, 1996
A-17
<PAGE>
AUDIT COMMITTEE CHAIRMAN'S LETTER
The Audit Committee of the Board of Directors consists of four members who
are neither officers nor employees of BellSouth Corporation. Information as to
these persons, as well as their duties, is provided in the Proxy Statement. The
Audit Committee met seven times during 1995 and reviewed with the Chief
Corporate Auditor, Coopers & Lybrand L.L.P. and management current audit
activities, plans and the results of selected internal audits. The Audit
Committee also reviewed the objectivity of the financial reporting process and
the adequacy of internal controls. The Audit Committee recommended, subject to
shareholder ratification, the appointment of the independent accountants and
considered factors relating to their independence. In addition, the Audit
Committee provided guidance in matters regarding ethical considerations and
business conduct, reviewed the operations of political action committees and
monitored compliance with laws and regulations. The Chief Corporate Auditor and
Coopers & Lybrand L.L.P. each met privately with the Audit Committee on occasion
to encourage confidential discussions as to any auditing matters.
[LOGO]
/s/ Marshall M. Criser
CHAIRMAN, AUDIT COMMITTEE
February 5, 1996
A-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
BellSouth Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of BellSouth
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of BellSouth's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BellSouth
Corporation as of December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note B to the consolidated financial statements, BellSouth
discontinued accounting for the operations of BellSouth Telecommunications, Inc.
in accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," effective June 30,
1995. Also, as discussed in Notes I, L and M to the consolidated financial
statements, BellSouth changed its method of accounting for postretirement
benefits other than pensions, income taxes and postemployment benefits in 1993.
[LOGO]
Atlanta, Georgia
February 5, 1996
A-19
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Operating Revenues:
Network and related services:
Local service....................................................... $ 7,294 $ 6,863 $ 6,577
Interstate access................................................... 3,275 3,127 2,991
Intrastate access................................................... 884 908 882
Toll................................................................ 1,009 1,190 1,220
Wireless communications............................................... 2,592 2,067 1,553
Directory advertising and publishing.................................. 1,677 1,556 1,515
Other services........................................................ 1,155 1,134 1,142
--------- --------- ---------
Total Operating Revenues............................................ 17,886 16,845 15,880
--------- --------- ---------
Operating Expenses:
Cost of services and products......................................... 6,184 6,043 5,865
Depreciation and amortization......................................... 3,455 3,259 3,162
Selling, general and administrative................................... 3,873 3,485 3,430
Work force reduction/restructuring charges (Note K)................... 1,082 -- 1,136
--------- --------- ---------
Total Operating Expenses............................................ 14,594 12,787 13,593
--------- --------- ---------
Operating Income........................................................ 3,292 4,058 2,287
Interest Expense........................................................ 724 666 689
Other Income, net....................................................... 20 11 8
--------- --------- ---------
Income Before Income Taxes, Extraordinary Losses and Cumulative Effect
of Change in Accounting Principle...................................... 2,588 3,403 1,606
Provision for Income Taxes (Note L)..................................... 1,024 1,243 572
--------- --------- ---------
Income Before Extraordinary Losses and Cumulative
Effect of Change in Accounting Principle............................... 1,564 2,160 1,034
Extraordinary Loss for Discontinuance of SFAS No. 71,
net of tax (Note B).................................................... (2,718) -- --
Extraordinary Loss on Early Extinguishment of Debt,
net of tax (Note F).................................................... (78) -- (87)
Cumulative Effect of Change in Accounting Principle,
net of tax (Note M).................................................... -- -- (67)
--------- --------- ---------
Net Income (Loss)................................................... $ (1,232) $ 2,160 $ 880
--------- --------- ---------
--------- --------- ---------
Weighted Average Common Shares Outstanding (Note H)..................... 993 992 991
Dividends Declared Per Common Share (Note H)............................ $ 1.41 $ 1.38 $ 1.38
Earnings Per Share: (Note H)
Income Before Extraordinary Losses and Cumulative
Effect of Change in Accounting Principle............................. $ 1.57 $ 2.18 $ 1.04
Extraordinary Loss for Discontinuance of SFAS No. 71,
net of tax (Note B).................................................. (2.73) -- --
Extraordinary Loss on Early Extinguishment of Debt,
net of tax (Note F).................................................. (.08) -- (.09)
Cumulative Effect of Change in Accounting Principle,
net of tax (Note M).................................................. -- -- (.06)
--------- --------- ---------
Net Income (Loss)................................................... $ (1.24) $ 2.18 $ .89
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-20
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................................... $ 1,711 $ 606
Temporary cash investments..................................................................... 71 51
Accounts receivable, net of allowance for uncollectibles of $171 and $154...................... 3,772 3,127
Material and supplies.......................................................................... 430 490
Other current assets........................................................................... 521 454
--------- ---------
6,505 4,728
--------- ---------
Investments and Advances (Note C)................................................................ 2,418 2,532
Property, Plant and Equipment, net (Note D)...................................................... 21,092 25,162
Deferred Charges and Other Assets................................................................ 338 535
Intangible Assets, net........................................................................... 1,527 1,440
--------- ---------
Total Assets................................................................................. $ 31,880 $ 34,397
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year: (Note F)
Debentures to be redeemed in January 1996.................................................... $ 485 $ --
Other........................................................................................ 2,466 2,019
Accounts payable............................................................................... 1,724 1,378
Other current liabilities (Note E)............................................................. 2,715 3,101
--------- ---------
7,390 6,498
--------- ---------
Long-Term Debt (Note F).......................................................................... 7,924 7,435
--------- ---------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes.............................................................. 1,650 3,647
Unamortized investment tax credits............................................................. 355 443
Other liabilities and deferred credits (Note G)................................................ 2,736 2,006
--------- ---------
4,741 6,096
--------- ---------
Shareholders' Equity:
Common stock, $1 par value (2,200 and 1,100 shares authorized; 994 and 496 shares
outstanding).................................................................................. 1,007 503
Paid-in capital................................................................................ 7,619 8,064
Retained earnings.............................................................................. 4,099 6,721
Shares held in trust (Note H).................................................................. (374) (336)
Guarantee of ESOP debt (Notes H and I)......................................................... (526) (584)
--------- ---------
11,825 14,368
--------- ---------
Total Liabilities and Shareholders' Equity................................................... $ 31,880 $ 34,397
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-21
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNT
--------------------- -----------------------------------------------------
SHARES SHARES GUARANTEE
COMMON HELD PAR PAID-IN RETAINED HELD OF ESOP
STOCK IN TRUST VALUE CAPITAL EARNINGS IN TRUST DEBT
--------- --------- ------- ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992....... 494 -- $ 494 $ 7,610 $ 6,395 $-- $ (700)
Net income......................... 880
Dividends declared................. (1,369)
Shares issued for:
Shareholder Dividend Reinvestment
and Stock Purchase Plan......... 1 1 81
Employee benefit plans........... 1 1 32
Grantor trusts................... 6 (6) 6 287 (293)
ESOP activities and related tax
benefit........................... 13 57
--
--------- ------- ------- -------- --------- ----------
Balance at December 31, 1993....... 502 (6) 502 8,010 5,919 (293) (643)
Net income......................... 2,160
Dividends declared................. (1,370)
Shares issued for:
Employee benefit plans........... 6
Grantor trusts................... 1 (1) 1 42 (43)
ESOP activities and related tax
benefit........................... 12 59
Foreign currency translation
adjustment........................ 6
--
--------- ------- ------- -------- --------- ----------
Balance at December 31, 1994....... 503 (7) 503 8,064 6,721 (336) (584)
Two-for-one stock split (Note H)... 503 (6) 503 (503)
Net loss........................... (1,232)
Dividends declared................. (1,400)
Shares issued for:
Employee benefit plans........... 1 1 30
Grantor trusts................... 38 (38)
ESOP activities and related tax
benefit........................... 10 58
Foreign currency translation
adjustment........................ (10)
--
--------- ------- ------- -------- --------- ----------
Balance at December 31, 1995....... 1,007 (13) $ 1,007 $ 7,619 $ 4,099 $(374) $ (526)
--
--
--------- ------- ------- -------- --------- ----------
--------- ------- ------- -------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-22
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $ (1,232) $ 2,160 $ 880
Adjustments to net income (loss):
Extraordinary loss for discontinuance of SFAS No. 71......... 4,449 -- --
Extraordinary loss on early extinguishment of debt........... 127 -- 146
Payment of call premium...................................... (74) -- (100)
Change in accounting principle............................... -- -- 110
Work force reduction/restructuring charges................... 1,082 -- 1,136
Depreciation and amortization................................ 3,455 3,259 3,162
Provision for losses on bad debts............................ 213 175 198
Deferred income taxes and unamortized investment tax
credits..................................................... (1,971) (19) (676)
Pension expense in excess of funding/(pension income)........ (53) 28 121
Dividends from unconsolidated affiliates..................... 149 122 200
Losses (earnings) from unconsolidated affiliates............. 86 110 (11)
Change in accounts receivable and other current assets....... (770) (741) (752)
Change in accounts payable and other current liabilities..... (283) (187) (13)
Change in deferred charges and other assets.................. (28) (34) 254
Change in other liabilities and deferred credits............. 315 437 46
Other reconciling items, net................................. (22) (138) (14)
-------- -------- --------
Net cash provided by operating activities.................. 5,443 5,172 4,687
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................... (4,203) (3,600) (3,486)
Proceeds from disposals of property, plant and equipment....... 104 138 156
Proceeds from disposition of short-term investments............ 187 107 148
Purchases of short-term investments............................ (207) (108) (116)
Proceeds from investment dispositions and repayments of
advances...................................................... 426 238 182
Investments in and advances to unconsolidated affiliates....... (521) (623) (302)
Other investing activities, net................................ (170) (87) (17)
-------- -------- --------
Net cash used for investing activities..................... (4,384) (3,935) (3,435)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings............................ 21,075 22,489 16,290
Repayments of short-term borrowings............................ (20,565) (22,306) (15,857)
Proceeds from long-term debt................................... 2,488 191 2,963
Repayments of long-term debt................................... (1,555) (129) (3,131)
Dividends paid................................................. (1,385) (1,369) (1,307)
Other financing activities, net................................ (12) (8) 26
-------- -------- --------
Net cash provided by (used for) financing activities....... 46 (1,132) (1,016)
-------- -------- --------
Net Increase in Cash and Cash Equivalents........................ 1,105 105 236
Cash and Cash Equivalents at Beginning of Period................. 606 501 265
-------- -------- --------
Cash and Cash Equivalents at End of Period....................... $ 1,711 $ 606 $ 501
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-23
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE A -- ACCOUNTING POLICIES
ORGANIZATION. BellSouth Corporation (BellSouth) is a holding company
headquartered in Atlanta, Georgia whose operating telephone company subsidiary,
BellSouth Telecommunications, Inc. (BellSouth Telecommunications), serves, in
the aggregate, approximately two-thirds of the population and one-half of the
territory within Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina and Tennessee. BellSouth Telecommunications
primarily provides local exchange service and toll communications services
within 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 wireless and international communications services and advertising and
publishing products.
Substantially all of BellSouth's operating revenues are derived from
domestic operations. For the year ended December 31, 1995, approximately 70% of
BellSouth's operating revenues were from wireline and network services, 14% were
from wireless communications services and 9% were from directory advertising and
publishing services. The remainder of such operating revenues was derived
principally from other nonregulated services provided by BellSouth
Telecommunications.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of BellSouth and subsidiaries in which it has a controlling financial
interest. Investments in certain partnerships, joint ventures and subsidiaries
are accounted for using the equity method. All significant intercompany
transactions and accounts have been eliminated. Certain amounts in the prior
period consolidated financial statements have been reclassified to conform to
the current year's presentation.
BASIS OF ACCOUNTING. BellSouth's consolidated financial statements have
been prepared in accordance with generally accepted accounting principles. Such
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.
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." See Note B for further discussion of the impacts
of discontinuance of SFAS No. 71.
CASH AND CASH EQUIVALENTS. BellSouth considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Investments with an original maturity of over three months to one
year are not considered cash equivalents and are included as temporary cash
investments on the consolidated balance sheets. Interest income on cash
equivalents, temporary cash investments and other interest-bearing instruments
was $108, $65 and $43 for the years ended December 31, 1995, 1994 and 1993,
respectively.
MATERIAL AND SUPPLIES. New and reusable material is carried in inventory,
principally at average original cost, except that specific costs are used in the
case of large individual items. Nonreusable material is carried at estimated
salvage value.
PROPERTY, PLANT AND EQUIPMENT. The investment in property, plant and
equipment is stated at original cost. For plant dedicated to providing regulated
telecommunications services, depreciation is based on the remaining life method
of depreciation and straight-line composite rates determined on the basis of
equal life groups of certain categories of telephone plant acquired in a given
year. When depreciable telephone plant is disposed of, the original cost, less
net salvage value, is charged to accumulated depreciation. The
A-24
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE A -- ACCOUNTING POLICIES (CONTINUED)
cost of other property, plant and equipment is depreciated using either
straight-line or accelerated methods over the estimated useful lives of the
assets. Gains or losses on disposal of other depreciable property, plant and
equipment are recognized in the year of disposition as an element of other
non-operating income.
INTANGIBLE ASSETS. Intangible assets consist of the excess consideration
paid over net assets acquired in business combinations, acquired licenses and
customer lists. Intangible assets are being amortized using the straight-line
and accelerated methods over periods of benefit. Such periods do not exceed 40
years. The carrying value of intangible assets is periodically reviewed on the
basis of whether such intangibles are fully recoverable from projected,
discounted net cash flows of the related business unit. Amortization of such
intangibles was $50, $53 and $58 for the years ended December 31, 1995, 1994 and
1993, respectively. At December 31, 1995 and 1994, accumulated amortization of
intangibles was $228 and $212, respectively.
FOREIGN CURRENCY. Assets and liabilities of foreign subsidiaries and equity
investees with a functional currency other than U.S. dollars are translated into
U.S. dollars at exchange rates in effect at the end of the reporting period.
Foreign entity revenues and expenses are translated into U.S. dollars at the
average rates that prevailed during the period. The resulting net translation
gains and losses are reported as foreign currency translation adjustments in
Shareholders' Equity as a component of Paid-In Capital.
Exchange gains and losses on transactions of the company and its equity
investees denominated in a currency other than their functional currency are
generally included in results of operations as incurred unless the transactions
are hedged (see "Derivative Financial Instruments" below). The exchange gains
and losses for the years ended December 31, 1995, 1994 and 1993 were not
material.
DERIVATIVE FINANCIAL INSTRUMENTS. BellSouth manages risk arising from
fluctuations in interest rates and currency exchange rates by using derivative
financial instruments, such as foreign exchange forward contracts, currency
swaps and interest rate swaps.
Foreign exchange forward contracts are carried at fair value in the
consolidated balance sheets. Gains and losses on foreign exchange forward
contracts used as currency hedges of existing assets or liabilities are deferred
and offset the deferred losses and gains of the underlying asset or liability.
The net effect is ultimately recognized in income as the underlying transaction
matures. Gains and losses related to qualifying hedges of firm commitments also
are deferred and are recognized in income or as adjustments of carrying amounts
when the hedged transaction occurs.
Currency swap contracts entered into as hedges of existing assets and
liabilities are carried at fair value in the consolidated balance sheets. Gains
and losses on currency swaps are deferred and offset against the deferred
currency losses and gains of the underlying asset or liability. The net effect
is ultimately recognized in income as the underlying transaction matures.
Interest rate swap agreements are treated as off-balance sheet financial
instruments. Receipts or payments resulting from these instruments are
recognized as adjustments to interest expense as received or paid.
REVENUE RECOGNITION. Revenues are recognized when earned. Certain revenues
derived from local telephone and wireless services are billed monthly in advance
and are recognized the following month when services are provided. Directory
advertising and publishing revenues and related directory costs are recognized
upon publication of directories. Revenues derived from other telecommunications
services, principally network access, toll and cellular airtime usage, are
recognized monthly as services are provided. Allowances for uncollectible billed
services are adjusted monthly. The provision for such uncollectible accounts was
$213, $175 and $198 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Revenues from services provided to AT&T Corp., BellSouth's largest customer,
were approximately 10%, 11% and 14% of consolidated operating revenues for 1995,
1994 and 1993, respectively.
A-25
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE A -- ACCOUNTING POLICIES (CONTINUED)
MAINTENANCE AND REPAIRS. The cost of maintenance and repairs of plant,
including the cost of replacing minor items not effecting substantial
betterments, is charged to operating expenses.
INCOME TAXES. The balance sheet reflects deferred tax balances associated
with the anticipated tax impact of future income or deductions implicit in the
balance sheet in the form of temporary differences. Temporary differences
primarily result from the use of accelerated methods and shorter lives in
computing depreciation for tax purposes.
For financial reporting purposes, BellSouth is amortizing deferred
investment tax credits earned prior to the 1986 repeal of the investment tax
credit and also some transitional credits earned after the repeal. The credits
are being amortized as a reduction to the provision for income taxes over the
estimated useful lives of the assets to which the credits relate.
EARNINGS PER SHARE. Earnings per common share are computed on the basis of
the weighted average number of shares of common stock outstanding during each
year. Earnings per share have been restated to reflect a two-for-one stock split
approved by BellSouth's Board of Directors in September 1995. See Note H for
additional information.
NOTE B -- DISCONTINUANCE OF SFAS NO. 71
As a result of its continuing regulatory and marketplace assessments,
BellSouth Telecommunications concluded during the second quarter 1995 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 recent changes in the regulatory
framework and the increasing level of competition, it was required to
discontinue SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," for financial reporting purposes. Discontinuance was required
because most of BellSouth Telecommunications' revenues will not be generated
under cost-based regulation and because it is doubtful that regulated rates
sufficient to recover the net book value of telephone plant could be charged to
and collected from customers due to the expected levels of future competition.
Accordingly, in the second quarter, BellSouth Telecommunications discontinued
application of SFAS No. 71 and recorded a noncash extraordinary charge of $2,718
(net of a deferred tax benefit of $1,731). The components of the charge are as
follows:
<TABLE>
<CAPTION>
PRETAX AFTER TAX
--------- ---------
<S> <C> <C>
Reduction in recorded value of long lived telephone plant............................... $ (4,896) $ (3,002)
Full adoption of issue basis accounting................................................. 317 194
Elimination of regulatory assets and liabilities........................................ 111 71
Partial adjustment to unamortized investment tax credits................................ 19 19
--------- ---------
Total................................................................................. $ (4,449) $ (2,718)
--------- ---------
--------- ---------
</TABLE>
A-26
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE B -- DISCONTINUANCE OF SFAS NO. 71 (CONTINUED)
The reduction of telephone plant, $4,896 (pretax), was recorded as an
increase to the related accumulated depreciation accounts, the categories and
amounts of which are as follows:
<TABLE>
<S> <C>
Central Office Equipment:
Digital switching............................................................. $ 1,305
Circuit-other................................................................. 1,291
---------
Total Central Office Equipment.............................................. 2,596
---------
Outside Plant:
Buried metallic cable......................................................... 1,345
Aerial metallic cable......................................................... 630
Underground metallic cable.................................................... 325
---------
Total Outside Plant......................................................... 2,300
---------
Total......................................................................... $ 4,896
---------
---------
</TABLE>
Such reduction of plant was determined by an impairment analysis that
identified estimated amounts not recoverable from future discounted cash flows.
The analysis considered projected effects of future competition as well as
changes in technology and capital requirements. The plant-related charge, all of
which related to assets within the regulatory framework, was further supported
by depreciation studies that identified inadequate levels of accumulated
depreciation for certain asset categories. These studies give recognition to the
historical underdepreciation of assets resulting primarily from
regulator-prescribed asset lives that exceeded the estimated economic asset
lives.
For financial reporting purposes, the average depreciable lives of affected
categories of long lived telephone plant have been 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:
<TABLE>
<CAPTION>
COMPOSITE OF ESTIMATED
REGULATOR-APPROVED ECONOMIC ASSET
CATEGORY ASSET LIVES (IN YEARS) LIVES (IN YEARS)
- ------------------------------------------------------------------------ ----------------------- -----------------
<S> <C> <C>
Digital switching....................................................... 17.0 10.0
Circuit-other........................................................... 10.5 9.1
Buried metallic cable................................................... 20.0 14.0
Aerial metallic cable................................................... 20.0 14.0
Underground metallic cable.............................................. 25.0 12.0
</TABLE>
The remaining components of the extraordinary charge, which partially offset
the plant-related portion of the overall charge, include $194 (after tax)
related to the method by which BellSouth Telecommunications reports its
directory publishing revenues. BellSouth's unregulated subsidiaries recognize
directory publishing revenues and production expenses using issue basis
accounting. Under issue basis accounting, 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 is now reporting using issue basis
accounting consistent with BellSouth's unregulated subsidiaries and with
publishing companies in general.
The overall extraordinary charge was also reduced by $71 (after tax) 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 Federal Communications Commission's current Uniform System of
Accounts. In addition, the overall extraordinary charge was reduced by $19
(after tax) for the partial acceleration of unamortized investment tax credits
associated with the reductions in asset carrying values and in asset lives.
A-27
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE C -- INVESTMENTS, ADVANCES AND SALES OF OPERATIONS
Investments and advances as of December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Investments accounted for under the equity method........................................ $ 1,619 $ 1,716
Advances to and notes receivable from affiliates......................................... 703 729
Other investments........................................................................ 96 87
--------- ---------
Total Investments and Advances......................................................... $ 2,418 $ 2,532
--------- ---------
--------- ---------
</TABLE>
BellSouth's equity method investments primarily include various partnerships
in domestic cellular properties, mobile data communications, investments in
international cellular properties and other international communications
consortiums. Earnings (losses) related to investments accounted for under the
equity method were $(86), $(110) and $11 for the three years ended December 31,
1995, 1994 and 1993, respectively, and are included as a component of Other
Income.
DOMESTIC CELLULAR. BellSouth's domestic cellular investments consist
primarily of a 60.0% non-controlling financial interest in the Los Angeles
Cellular Telephone Company and a 43.8% interest in the Houston Cellular
Telephone Company. At December 31, 1995, BellSouth's aggregate investment in
these entities exceeded the underlying book value of the investees' net assets
by $907. The excess of consideration paid over net assets acquired along with
other intangible assets are being amortized using either straight-line or
accelerated methods over periods of benefit which do not exceed 40 years.
MOBILE DATA COMMUNICATIONS. In January 1992, BellSouth and RAM Broadcasting
Corporation (RBC) formed an investment to own and operate certain mobile data
communications networks worldwide as well as certain cellular and paging
operations in the United States. The mobile data portion of the investment gives
BellSouth a 49% interest in the United States mobile data operations, which is
operated by RBC, and various interests in foreign mobile data operations ranging
from 6% to 72.5%. In July 1994, BellSouth acquired RBC's 50% interest in the
paging segment of the investment giving BellSouth a 100% interest in this
entity; after such acquisition, this investment was consolidated. BellSouth had
a note receivable from and advances to mobile data affiliates totaling $220 and
$135 at December 31, 1995 and 1994, respectively. These receivables bear
interest at the rate of the three-month LIBOR, plus 3 1/2%. The instruments are
collateralized by assets of the affiliates.
INTERNATIONAL COMMUNICATIONS. BellSouth has equity investments in
international cellular operations in Latin America, Europe, the Asia-Pacific
region and other international markets with ownership ranging from 21.4% to
53.3%. Telcel Cellular C.A. (TelCel), in which BellSouth has a noncontrolling
53.3% interest, provides cellular telephone service in Venezuela. BellSouth is a
24.5% participant in Optus, an international consortium which provides a full
spectrum of telecommunications services in Australia, including switched network
and enhanced services, wireless and satellite based services. BellSouth is a
21.4% participant in the E-Plus Mobilfunk consortium (E-Plus), which provides
cellular telephone service in Germany. BellSouth has agreed to guarantee E-Plus
borrowings up to 400 million German Marks (U.S. Dollar equivalent of $280 at
December 31, 1995). The U.S. dollar equivalent of the outstanding balance of
such guaranteed debt as of December 31, 1995 was $110. Subsequent to December
31, 1995, BellSouth purchased an additional interest in E-Plus, which raised its
percentage ownership to 22.5%.
In January 1994, BellSouth disposed of its 36.4% interest in a cellular
telephone business in Mexico. In November 1994, BellSouth sold its 4% interest
in a company providing cellular service in France. As a result of these
dispositions, BellSouth recognized gains aggregating $108 which are included in
Other Income.
OTHER INVESTMENT ACTIVITY. BellSouth has noncontrolling financial interests
ranging from 70% to 80% in the CSL Ventures and 1155 Peachtree Associates real
estate partnerships. BellSouth had notes receivable from and advances to these
partnerships totaling $188 and $186 at December 31, 1995 and 1994,
A-28
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE C -- INVESTMENTS, ADVANCES AND SALES OF OPERATIONS (CONTINUED)
respectively. The notes bear interest at rates ranging from 7.88% to 9.31% while
the advances bear interest at the federal funds rate plus .30%. Principal
amounts outstanding at December 31, 1995 are due and payable to BellSouth
between December 31, 1996 and August 8, 2002. The instruments require periodic
payments of interest and are collateralized by various real estate holdings.
BellSouth has a credit agreement with Prime South Diversified, Inc. (Prime)
to provide up to $250 in financing, of which $185 had been borrowed by Prime as
of December 31, 1995 and 1994. The loan is collateralized by the stock of Prime
South Diversified, which indirectly wholly owns Community Cable TV in Las Vegas,
and its wholly-owned subsidiary Prime South Holdings, Inc. The loan bears
interest at a variable rate of 10% to 11% and matures in 2001.
Minority interests of consolidated subsidiaries, included as a component of
Other Income, were $(62), $(80), and $(51) for the years ended December 31,
1995, 1994 and 1993, respectively.
SUBSEQUENT EVENT. In January 1996, BellSouth sold to MobileMedia
Communications, Inc. its paging subsidiary, Mobile Communications Corporation of
America (MCCA), and its two-way nationwide narrowband personal communications
services license for a total of approximately $930. The pretax gain on such sale
was approximately $442.
MCCA's operating revenues and operating expenses were $349 and $300,
respectively, for the year ended December 31, 1995 and total assets at December
31, 1995 were $355.
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Outside plant.......................................................................... $ 20,092 $ 19,292
Central office equipment............................................................... 16,132 15,443
Building and building improvements..................................................... 3,303 3,114
Operating and other equipment.......................................................... 2,952 2,416
Furniture and fixtures................................................................. 2,791 2,535
Plant under construction............................................................... 782 616
Station equipment...................................................................... 626 601
Land................................................................................... 191 182
--------- ---------
46,869 44,199
Less: Accumulated depreciation....................................................... 25,777 19,037
--------- ---------
Total Property, Plant and Equipment, net........................................... $ 21,092 $ 25,162
--------- ---------
--------- ---------
</TABLE>
See Note B for a discussion of the discontinuance of SFAS No. 71 and its
effect on Property, Plant and Equipment.
A-29
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE E -- OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Advanced billing and customer deposits................................................... $ 493 $ 500
Taxes accrued............................................................................ 382 374
Dividends payable........................................................................ 363 347
Salaries and wages payable............................................................... 325 343
Compensated absences..................................................................... 317 333
Interest and rents accrued............................................................... 282 278
Postemployment benefits (see Note K)..................................................... 273 --
1993 restructuring accrual (see Note K).................................................. -- 615
Other.................................................................................... 280 311
--------- ---------
Total Other Current Liabilities........................................................ $ 2,715 $ 3,101
--------- ---------
--------- ---------
</TABLE>
NOTE F -- DEBT
DEBT MATURING WITHIN ONE YEAR: Debt maturing within one year is summarized
as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Debentures to be Redeemed in January 1996................................................ $ 485 $ --
--------- ---------
Short-term notes payable:
Bank loans............................................................................. 85 45
Commercial paper....................................................................... 2,302 1,839
Current maturities of long-term debt..................................................... 79 135
--------- ---------
Total Other Debt Maturing Within One Year................................................ 2,466 2,019
--------- ---------
Total Debt Maturing Within One Year.................................................... $ 2,951 $ 2,019
--------- ---------
--------- ---------
Weighted average interest rate at end of period:
Bank loans............................................................................. 7.50% 6.39%
Commercial paper....................................................................... 5.81% 5.82%
</TABLE>
BellSouth has committed credit lines aggregating $1,539 with various banks.
Borrowings under the committed lines totaled $21 and $16, respectively, at
December 31, 1995 and 1994. BellSouth also maintains uncommitted lines of credit
of $650. At December 31, 1995, there were no borrowings under the uncommitted
lines. There are no significant commitment fees or requirements for compensating
balances associated with any lines of credit.
A-30
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE F -- DEBT (CONTINUED)
LONG-TERM: Long-term debt, summarized below, consists primarily of
debentures and notes issued by BellSouth Telecommunications. Interest rates and
maturities in the table below are for the amounts outstanding at December 31,
1995.
<TABLE>
<CAPTION>
CONTRACTUAL
INTEREST RATES MATURITIES 1995 1994
------------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
BellSouth Telecommunications Debentures: 4 3/8% - 6 3/4% 1997 - 2045 $ 1,915 $ 1,270
6.65% - 7% 2095 626 --
7% - 8 1/4% 1996 - 2035 2,535 1,935
8 1/2% - 8 3/4% -- -- 1,400
--------- ---------
5,076 4,605
BellSouth Telecommunications Notes................. 5 1/4% - 7% 1998 - 2008 2,175 1,875
Guarantee of ESOP debt............................. 9.125% - 9.19% 2003 647 694
BellSouth Capital Funding Corporation Notes........ 4.50% - 9.25% 1996 - 2002 544 374
Other.............................................. 79 83
Unamortized discount, net of premium............... (33) (61)
--------- ---------
8,488 7,570
Current maturities................................. (564) (135)
--------- ---------
Total Long-Term Debt............................. $ 7,924 $ 7,435
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt outstanding (principal amounts) at December 31,
1995 are summarized below. Maturities after the year 2000 include $500 principal
amount 6.65% debentures due in 2095. At December 31, 1995, such debentures had
an accreted book value of $126.
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturities.................................... $ 564 $ 198 $ 771 $ 259 $ 460 $ 6,643 $ 8,895
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
As further discussed in Note H, BellSouth incorporated an Employee Stock
Ownership Plan (ESOP) feature into certain of its existing savings plans. In
1990, the ESOP trusts (the Trusts) borrowed $850 aggregate principal amount
through the issuance of amortizing notes. Although the obligations are owed by
the Trusts, they are guaranteed by BellSouth and thus are reflected as an
addition to Long-Term Debt and a reduction to Shareholders' Equity. The Trusts
service the debt with contributions from BellSouth and dividends paid on the
shares held by the Trusts. As the ESOP obligations are repaid, the amount
guaranteed decreases and Long-Term Debt is reduced accordingly.
Notes issued by BellSouth Capital Funding Corporation (Capital Funding) are
used to finance the businesses of BellSouth Enterprises and the unregulated
subsidiaries of BellSouth Telecommunications. BellSouth has agreed to ensure the
timely payment of principal, premium, if any, and interest on Capital Funding's
debt securities.
During 1995, BellSouth Telecommunications refinanced certain long-term debt
issues at more favorable interest rates. The approximate $1,900 gross proceeds
of debentures issued during the year to accomplish these refinancings are
included in Long-Term Debt. Of the total $1,885 aggregate principal amount of
debentures called for redemption during 1995, $1,400 had actually been redeemed
as of December 31, 1995. The remaining $485 of debentures, redeemed in January
1996, are included in the Consolidated Balance Sheet at December 31, 1995 as a
separate component of Debt Maturing Within One Year.
A-31
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE F -- DEBT (CONTINUED)
As a result of the early extinguishment of these issues, including the
issues redeemed in January 1996, an extraordinary loss of $78 ($.08 per share),
net of a current tax benefit of $49, was recognized in 1995. Also, during 1993,
an extraordinary loss of $87 ($.09 per share), net of a current tax benefit of
$59, was recognized due to early extinguishments of debt during that year.
At December 31, 1995, shelf registration statements were on file with the
Securities and Exchange Commission under which $1,127 of debt securities could
be offered.
NOTE G -- OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits are summarized as follows at December
31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Postretirement benefits other than pensions (see Notes I and K).......................... $ 675 $ 118
Postemployment benefits (see Note K)..................................................... 494 141
Accrued pension cost (see Notes I and K)................................................. 469 568
Compensation related..................................................................... 421 342
Minority interests....................................................................... 347 208
Sharing accrual under FCC price cap plan................................................. 186 141
Regulatory liability related to income taxes (see Note L)................................ -- 304
Other.................................................................................... 144 184
--------- ---------
Total Other Liabilities and Deferred Credits........................................... $ 2,736 $ 2,006
--------- ---------
--------- ---------
</TABLE>
NOTE H -- SHAREHOLDERS' EQUITY
STOCK SPLIT. In September 1995, BellSouth's Board of Directors approved a
two-for-one stock split effected in the form of a stock dividend, whereby each
shareholder of record as of October 11, 1995 received on November 8, 1995 one
additional share of common stock for each share owned as of the record date. As
a result of the split, 503,555,084 shares were issued and $503 was transferred
from Paid-In Capital to Common Stock. Also in September 1995, BellSouth's Board
of Directors approved an increase in the number of authorized shares of common
stock to 2,200,000,000 from 1,100,000,000. Weighted average common shares
outstanding and per share amounts for all periods presented have been restated
to reflect the stock split.
PREFERRED STOCK AUTHORIZED. BellSouth's Articles of Incorporation authorize
100 million shares of cumulative First Preferred Stock having a par value of $1
per share, of which 30 million shares have been reserved and designated Series A
for possible issuance under BellSouth's Shareholder Rights Plan. As of December
31, 1995, no preferred shares had been issued.
SHAREHOLDER RIGHTS PLAN. In 1989, BellSouth adopted a Shareholder Rights
Plan by declaring a dividend of one right for each share of common stock then
outstanding and to be issued thereafter. Each right entitles shareholders to buy
one one-hundredth of a share of Series A First Preferred Stock for $175 per
share. The rights may be exercised only if a person or group acquires 10% of the
common stock of BellSouth without the prior approval of the Board of Directors
or announces a tender or exchange offer that would result in ownership of 25% or
more of the common stock. If a person or group acquires 10% of BellSouth's stock
without prior Board approval, other shareholders are then allowed to purchase
BellSouth common stock at half price. The rights currently trade with BellSouth
common stock and may be redeemed by the Board of Directors for one cent per
right until they become exercisable, and thereafter under certain circumstances.
The rights expire in 1999.
A-32
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)
GUARANTEE OF ESOP DEBT. Financial reporting practices require that the
amount equivalent to BellSouth's guarantee of the amortizing notes issued by its
ESOP trusts be presented as a reduction to Shareholders' Equity, as well as an
increase to debt. The amount recorded as a decrease in Shareholders' Equity
represents the cost of unallocated BellSouth common stock purchased with the
proceeds of the amortizing notes and the timing difference resulting from the
shares allocated accounting method. All ESOP shares are considered outstanding
for financial reporting purposes and, as such, are included in the computation
of earnings per share. As the ESOP notes are repaid, the amount of debt
guaranteed decreases, and Shareholders' Equity increases accordingly (see Notes
F and I).
SHARES HELD IN TRUST. During 1993, 1994 and 1995, BellSouth issued shares
to grantor trusts to provide partial funding for the benefits payable under
certain non-qualified benefit plans. The trusts are irrevocable and assets
contributed to the trusts can only be used to pay such benefits with certain
exceptions. At December 31, 1995 and 1994, the assets held in the trusts consist
of cash and 13,753,204 and 12,524,174 shares, respectively, of BellSouth common
stock (restated to reflect the two-for-one stock split). The total cost of the
BellSouth shares as of the date of funding the trusts is included in Common
Stock and Paid-In Capital; however, because the shares held in trust are not
considered outstanding for financial reporting purposes, the shares are
reflected separately as Shares Held in Trust, a reduction to Shareholders'
Equity. Accordingly, there is no earnings per share impact.
NOTE I -- EMPLOYEE BENEFIT PLANS
PENSION PLANS. Substantially all employees of BellSouth are covered by
noncontributory defined benefit pension plans. Principal plans are discussed
below; other plans are not significant individually or in the aggregate.
The plan covering nonrepresented employees is a cash balance plan which
provides pension benefits determined by a combination of compensation-based
service and additional credits and individual account-based interest credits.
The cash balance plan is subject to a minimum benefit determined under a plan in
existence for nonrepresented employees prior to July 1, 1993 which provided
benefits based upon credited service and employees' average compensation for a
specified period. The minimum benefit under the prior plan is applicable to
employees retiring through 2005. Both the 1995 and 1994 projected benefit
obligations assume interest and additional credits greater than the minimum
levels specified in the written plan. Pension benefits provided for represented
employees are based on specified benefit amounts and years of service and
include the projected effect of future bargained-for improvements.
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all pension benefits for
which BellSouth is liable. Contributions are actuarially determined using the
aggregate cost method, subject to ERISA and Internal Revenue Service
limitations. Pension plan assets consist primarily of equity securities and
fixed income investments.
The components of net pension cost (income) are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............................. $ 239 $ 272 $ 266
Interest cost on projected benefit obligation............................... 812 778 775
Actual loss (return) on plan assets......................................... (3,041) 136 (1,735)
Net amortization and deferral............................................... 1,937 (1,158) 816
--------- --------- ---------
Net pension cost (income)............................................... $ (53) $ 28 $ 122
--------- --------- ---------
--------- --------- ---------
</TABLE>
Effective January 1, 1994, the nonrepresented cash balance plan was divided
from one into four cash balance plans which allowed for costs to be accounted
for more precisely based upon specific company
A-33
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
demographic information. The plan division had no material impact on BellSouth
in 1994. Net pension cost (income) is affected by changes in the discount rate
and other actuarial assumptions. The consolidated net pension cost (income)
amounts reflected above are exclusive of curtailment effects reflected in the
work force reduction and restructuring activities discussed below.
The following table sets forth the funded status of the plans at December
31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation............................................................ $ 8,853 $ 7,431
--------- ---------
--------- ---------
Accumulated benefit obligation....................................................... $ 9,961 $ 8,404
--------- ---------
--------- ---------
Projected benefit obligation......................................................... $ 11,994 $ 10,115
Plan assets at fair value.............................................................. 14,613 12,343
--------- ---------
Plan assets in excess of projected benefit obligation.................................. 2,619 2,228
Unrecognized net gain due to past experience different from assumptions made........... (2,738) (2,264)
Unrecognized prior service cost........................................................ (199) (361)
Unrecognized net asset at transition................................................... (151) (171)
--------- ---------
Accrued pension cost................................................................. $ (469) $ (568)
--------- ---------
--------- ---------
</TABLE>
The significant actuarial assumptions at December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1995 1994
---- -----
<S> <C> <C>
Weighted average discount rate.......... 7.0% 8.25%
Weighted average rate of compensation
increase............................... 5.7% 5.7%
Expected long-term rate of return on
plan assets............................ 8.0% 8.0%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. BellSouth sponsors
postretirement health and life insurance welfare plans for most of its
nonrepresented and represented employees. Effective January 1, 1993, BellSouth
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," to account for these plans. BellSouth's transition benefit
obligation of $1,486 is being amortized over 15 years, the average remaining
service period of active plan participants at adoption. The accounting for the
health care plan does not anticipate future adjustments to the cost-sharing
arrangements provided for in the written plan for employees who retire after
December 31, 1991. As a result of the adoption of SFAS No. 106, net income for
1993 was reduced by approximately $23 ($.02 per share).
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all health and life benefits
for which BellSouth is liable. Contributions are actuarially determined using
the aggregate cost method, subject to ERISA and Internal Revenue Service
limitations. Assets in the health and life plans consist primarily of equity
securities and fixed income investments.
A-34
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Net postretirement benefit cost (income) for the years ended December 31,
1995, 1994 and 1993, respectively, is composed of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
HEALTH LIFE HEALTH LIFE HEALTH LIFE
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during
the year............................... $ 27 $ 10 $ 35 $ 13 $ 30 $ 9
Interest on accumulated postretirement
benefit obligation..................... 223 38 211 37 199 32
Actual loss (return) on plan assets..... (185) (125) 14 (12) (43) (35)
Amortization of transition liability
(asset)................................ 110 (13) 112 (13) 113 (13)
Other amortization and deferral, net.... 115 77 (65) (30) (9) (10)
------ ------ ------ ------ ------ ------
Net postretirement benefit cost
(income)............................... $290 $ (13) $307 $ (5) $290 $ (17)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
The consolidated net postretirement benefit cost (income) amounts reflected
above are exclusive of curtailment effects reflected in the work force reduction
and restructuring activities discussed below.
The following table sets forth the plans' funded status at December 31, 1995
and 1994, respectively:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
HEALTH LIFE HEALTH LIFE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................. $ 1,909 $ 305 $ 1,835 $ 249
Fully eligible active plan participants................................... 712 178 304 69
Other active plan participants............................................ 687 137 507 132
--------- --------- --------- ---------
3,308 620 2,646 450
Plan assets at fair value................................................... 1,159 692 883 583
--------- --------- --------- ---------
Accumulated postretirement benefit obligation
less than (in excess of) plan assets....................................... (2,149) 72 (1,763) 133
Unrecognized prior service cost............................................. 103 5 -- --
Unrecognized net losses..................................................... 218 117 220 60
Unrecognized transition obligation (asset).................................. 1,153 (157) 1,425 (170)
--------- --------- --------- ---------
Prepaid (accrued) postretirement benefit cost............................... $ (675) $ 37 $ (118) $ 23
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The significant actuarial assumptions at December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Weighted average discount rate.................... 7.0% 8.75%
Weighted average rate of compensation increase.... 5.7% 5.7%
Health care cost trend rate (1)................... 9.0% 11.0%
Expected long-term rate of return on plan assets
(2).............................................. 8.0% 8.0%
</TABLE>
- ------------------------
(1) Trend rate used to value the accumulated postretirement obligation in 1995
is assumed to decrease gradually to 5% in 2003; trend rate used in 1994 was
assumed to decrease gradually to 5% in 2007.
(2) Rate net of an estimated 30% tax reduction for the nonrepresented employees'
trust for both 1995 and 1994.
A-35
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The health care cost trend rate assumption affects the amounts reported. A
one-percentage-point increase in the assumed health care cost trend rates for
each future year would increase the accumulated postretirement benefit
obligation by $204 at December 31, 1995 and the estimated aggregate service and
interest cost components of the 1995 postretirement benefit cost by $9.
EFFECT OF 1995 WORK FORCE REDUCTION AND 1993 RESTRUCTURING ON PENSIONS AND
OTHER POSTRETIREMENT BENEFITS. As a part of the work force reduction charge in
1995 (see Note K), BellSouth recorded an estimated liability of $381 for
curtailment losses expected to impact BellSouth's pension and postretirement
health plans from January 1, 1996 through December 31, 1997. Substantially all
of such losses relate to postretirement health plans. The expected benefits from
curtailment gains will be recognized as they occur in 1996 and 1997.
As a part of the restructuring charge in 1993 (see Note K), BellSouth
recorded a liability of $88 for estimated net curtailment losses expected to
impact BellSouth's pension and postretirement health plans; subsequently, the
estimate has been revised for actual results and additional charges based upon
revised projections. Having recognized through 1995 the total net curtailments
originally projected for the restructuring, BellSouth has reevaluated the
original estimate and charged an additional $55 for net curtailment losses
reflected in the income statement on a line item combined with the 1995 work
force reduction charge. The additional net curtailment charge is a result of a
greater number of employees terminating in a retirement eligible status than
originally expected, thus generating additional losses in retiree health
benefits and reduced gains in pensions.
DEFINED CONTRIBUTION PLANS. BellSouth maintains several contributory
savings plans which cover substantially all employees. The BellSouth Savings and
Employee Stock Ownership Plan and the BellSouth Savings and Security Plan
(collectively, the ESOP Plans) are tax-qualified employee stock ownership plans
which cover the largest portion of the employees. Assets of the plans are held
by two trusts (the Trusts), which, in turn, are part of the BellSouth Master
Savings Trust. In 1990, a leveraged ESOP feature was incorporated into the ESOP
Plans. With proceeds from the ESOP notes (see Note F), the Trusts purchased
shares of BellSouth common stock in the open market which will be used, in part,
to fulfill BellSouth's matching contribution obligation over the 13-year debt
repayment period of the leveraged ESOP program.
Employee participants contribute part of their annual compensation, via
payroll deductions, to the ESOP Plans, a portion of which is matched by
BellSouth. The matching amount, stated in percentage terms and applied to
certain eligible amounts, is determined annually by the Board of Directors. The
match consists of shares of BellSouth common stock that were purchased by the
Trusts with proceeds from the ESOP Notes, or that are purchased by the Trusts in
the market from time to time should there be insufficient shares available from
the Trust. The shares are allocated to each participant's account based on the
market price of the shares at the time of allocation. Shares are released for
allocation as each semi-annual loan payment is made. None of the shares held by
the ESOP Plans is subject to repurchase.
BellSouth makes annual contributions to the Trusts to fund the ESOP's debt
service, plus that amount required to purchase any additional shares allocated
to participant accounts, less dividends received by the Trusts. All dividends
received by the Trusts on shares purchased with the proceeds from the ESOP notes
are used for debt service.
In 1993, new authoritative guidance became effective which created new
accounting requirements for certain ESOPs, and was elective for all others.
BellSouth has elected to continue the existing accounting guidance and has
adopted the new disclosure requirements applicable to all ESOPs. As a leveraged
ESOP, BellSouth recognizes expense using the shares allocated accounting method,
which combines the cost of the
A-36
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE I -- EMPLOYEE BENEFIT PLANS (CONTINUED)
shares allocated for the period plus interest incurred, reduced by the dividends
used to service the ESOP debt. Dividends on all ESOP shares are recorded as a
reduction to retained earnings and all ESOP shares are included in the
computation of earnings per share.
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Compensation cost................................................ $83 $77 $68
Interest expense................................................. $29 $39 $40
Actual interest on ESOP Notes.................................... $62 $66 $70
Cash contributions, excluding dividends paid
to the Trusts................................................... $101 $100 $85
Dividends paid to the Trusts, used for debt service.............. $44 $42 $44
Shares allocated to participants................................. 11,942,278 9,621,034 7,343,314
Shares committed to be released.................................. -- -- --
Shares unallocated............................................... 19,836,446 22,157,690 24,435,410
</TABLE>
BellSouth also maintains certain defined contribution plans for most other
employees not covered by the ESOP Plans. BellSouth's contributions were
approximately $12, $15 and $13 in 1995, 1994 and 1993, respectively.
NOTE J -- STOCK OPTION PLANS
In April 1995, BellSouth shareholders approved the adoption of the BellSouth
Corporation Stock Plan (the Stock Plan). The Stock Plan provides for various
types of grants to key employees, including stock options, stock appreciation
rights (SARs), restricted shares, and performance-based awards. One share of
BellSouth common stock is the underlying security for any award. The aggregate
number of shares of BellSouth common stock which may be granted in any calendar
year shall not exceed one percent of the shares outstanding at the time of
grant. Prior to adoption of the Stock Plan, awards were granted under the
BellSouth Corporation Stock Option Plan (the Stock Option Plan). Stock options
granted under these plans entitle an optionee to purchase shares of BellSouth
common stock within prescribed periods at either a price equal to the fair
market value on the date of grant or at a price in excess of the stock price on
the date of grant. SARs entitle an optionee to surrender unexercised stock
options for cash or stock equal to the excess of the fair market value of the
surrendered shares over the option price of such shares. Options granted under
these plans generally become exercisable at the end of five years and have a
term of 10 years.
In April 1995, BellSouth shareholders also approved the adoption of the
BellSouth Corporation Non-Employee Director Stock Plan (the Director Stock
Plan). The Director Stock Plan provides for grants of stock options and SARs to
non-employee directors up to an aggregate of 300,000 shares of BellSouth common
stock. Under the plan, each non-employee director will be granted on the date of
each annual shareholders' meeting an option to purchase 1,000 shares. Each
option granted will include the grant of a tandem SAR. The option price per
share is equal to the fair market value on the date of grant. Options granted
under the Director Stock Plan become exercisable at the end of one year and have
a term of 10 years.
Of the total 14,287,748 shares covered by outstanding options under all
plans at December 31, 1995, 488,938 were accompanied by SARs.
A-37
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE J -- STOCK OPTION PLANS (CONTINUED)
The following table summarizes the activity for stock options outstanding
(1):
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Options outstanding at January 1................................. 10,345,924 7,308,284 6,873,448
Options granted.................................................. 5,269,040 3,525,722 1,680,604
Options exercised................................................ (1,112,220) (260,996) (1,139,016)
Options cancelled/forfeited...................................... (214,996) (227,086) (106,752)
--------- --------- --------
Options outstanding at December 31............................... 14,287,748 10,345,924 7,308,284
--------- --------- --------
--------- --------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Option prices per common share:
Granted........................................................ $29.53 - $43.56 $25.34 - $42.21 $25.34 - $31.09
Exercised...................................................... $16.17 - $30.84 $ 6.49 - $29.12 $11.38 - $29.12
Cancelled/forfeited............................................ $16.17 - $31.87 $16.17 - $42.21 $16.17 - $29.12
Outstanding at year-end........................................ $16.17 - $43.56 $16.17 - $42.21 $ 6.49 - $31.09
Options exercisable at year-end.................................. 5,242,258 4,667,262 2,815,828
Shares available for grant at
December 31..................................................... 10,074,447 10,050,096 10,031,038
</TABLE>
- ------------------------
(1) Reflects the two-for-one stock split as if it occurred as of the beginning
of the earliest period presented.
NOTE K -- WORK FORCE REDUCTION/RESTRUCTURING CHARGES
1995 WORK FORCE REDUCTION CHARGE. In the fourth quarter of 1995, BellSouth
recognized a pretax charge of $1,082 related to work force reductions. The
primary component of the charge, $942 for planned work force reductions in the
core wireline business by the end of 1997, consists of $561 under the provisions
of SFAS No. 112, "Employers' Accounting for Postemployment Benefits," related to
those employees who are expected to receive severance benefits under preexisting
separation plans, and $381 for curtailment losses under the provisions of SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Substantially all of the curtailment losses relate to postretirement benefits
other than pensions. The remaining components of the charge are $85 for expected
severance benefit payments after 1997, also under SFAS No. 112, and $55 for
additional net curtailment losses related to employee reductions under the 1993
restructuring plan.
1993 RESTRUCTURING CHARGE. The results of operations for the year ended
December 31, 1993 include a $1,136 restructuring charge. The restructuring,
which was completed in 1995, was undertaken to redesign and streamline the
fundamental processes and work activities in BellSouth Telecommunications'
telephone operations to better respond to an increasingly competitive business
environment.
The material components of the charge related to the reduction of the
workforce by 10,200 employees. Through December 31, 1995, employee reductions
related to the restructuring plan were 1,300 in 1993, 3,900 in 1994 and 5,000 in
1995. The components of the charge consisted of provisions of $368 for
separation payments and relocations of remaining employees, $343 for
consolidation and elimination of certain operations facilities and $425 for
enabling changes to information systems, primarily those used to provide
services to existing customers.
A-38
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE L -- INCOME TAXES
Effective January 1, 1993, BellSouth adopted SFAS No. 109, "Accounting for
Income Taxes," which applies a balance sheet approach to income tax accounting.
In accordance with the standard, the balance sheet reflects the anticipated tax
impact of future taxable income or deductions implicit in the balance sheet in
the form of temporary differences. These temporary differences reflect the
difference between the basis in assets and liabilities as measured in the
financial statements and as measured by tax laws using enacted tax rates. The
cumulative effect to January 1, 1993 of the adoption of SFAS No. 109 was
recorded as a $8 reduction to 1993 income tax expense.
Upon adoption in 1993, BellSouth, for its regulated operations, reflected
only the balance sheet impact of SFAS No. 109, in accordance with the provisions
of SFAS No. 71. Specifically, BellSouth Telecommunications recorded a net
regulatory liability of $538 to correspond to the net reduction in deferred tax
liabilities; the reduction resulted from changes in tax rates and from temporary
differences which were previously flowed through. The balance of such net
liability at December 31, 1994, included in Other Liabilities and Deferred
Credits, was $304. In 1995, this net regulatory liability was eliminated in
conjunction with the discontinuance of SFAS No. 71.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current...................................................................... $ 1,061 $ 1,082 $ 1,080
Deferred, net................................................................ (148) 34 (532)
Investment tax credits, net.................................................. (69) (73) (88)
--------- --------- ---------
844 1,043 460
--------- --------- ---------
State:
Current...................................................................... 203 180 174
Deferred, net................................................................ (23) 20 (62)
--------- --------- ---------
180 200 112
--------- --------- ---------
Total provision for income taxes........................................... $ 1,024 $ 1,243 $ 572
--------- --------- ---------
--------- --------- ---------
</TABLE>
Extraordinary losses in 1995 are presented in the Consolidated Statement of
Income net of tax benefits totaling $1,780, of which $49 is current and $1,731
is deferred. In 1993, the extraordinary loss and accounting change were net of
tax benefits totaling $102, of which $59 was current and $43 was deferred.
A-39
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE L -- INCOME TAXES (CONTINUED)
Temporary differences which gave rise to deferred tax assets and
(liabilities) at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Compensation related.................................................................... $ 627 $ 545
Work force reduction/restructuring charges.............................................. 370 238
Regulatory sharing accruals............................................................. 114 92
Bad debts............................................................................... 89 88
Other................................................................................... 172 159
--------- ---------
1,372 1,122
Valuation allowance..................................................................... (8) (7)
--------- ---------
Deferred Tax Assets................................................................... 1,364 1,115
--------- ---------
Depreciation............................................................................ (2,042) (3,731)
Equity investments...................................................................... (361) (367)
Licenses................................................................................ (190) (194)
Issue basis accounting.................................................................. (207) (58)
Other................................................................................... (129) (180)
--------- ---------
Deferred Tax Liabilities.............................................................. (2,929) (4,530)
--------- ---------
Net Deferred Tax Liability.......................................................... $ (1,565) $ (3,415)
--------- ---------
--------- ---------
</TABLE>
The decrease in the net deferred tax liability is primarily due to the
discontinuance of SFAS No. 71. The valuation allowance primarily relates to
state net operating losses that will not be utilized during the carryforward
period. Of the Net Deferred Tax Liability at December 31, 1995 and 1994, $85 and
$232, respectively, was current and $(1,650) and $(3,647), respectively, was
noncurrent.
A reconciliation of the Federal statutory income tax rate to BellSouth's
effective tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate....................................................... 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax benefit............................ 4.5 4.0 4.8
Amortization of investment tax credits........................................... (2.7) (2.1) (5.5)
Equity of unconsolidated subsidiaries............................................ 2.0 0.6 --
Benefit of capital loss carryforward............................................. (0.4) (1.1) --
Miscellaneous items, net......................................................... 1.2 .1 1.3
--- --- ---
Effective tax rate............................................................. 39.6% 36.5% 35.6%
--- --- ---
--- --- ---
</TABLE>
NOTE M -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE
BellSouth adopted, effective January 1, 1993, SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires employers to
accrue the cost of postemployment benefits provided to former or inactive
employees after employment but before retirement, including but not limited to
worker's compensation, disability, and continuation of health care benefits.
Previously, BellSouth used the cash method to account for such costs. A one-time
charge of $67 ($.06 per share), net of a deferred tax benefit of $43, related to
adoption of this statement was recognized as a change in accounting principle.
The effect of the change on BellSouth's 1993 operating results was not material.
A-40
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE N -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH PAID FOR:
Income Taxes............................................................. $ 1,231 $ 1,375 $ 1,145
--------- --------- ---------
--------- --------- ---------
Interest................................................................. $ 760 $ 665 $ 755
--------- --------- ---------
--------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Shares Issued to Grantor Trusts.......................................... $ 38 $ 43 $ 293
--------- --------- ---------
--------- --------- ---------
Common and Treasury Shares Issued in Lieu of Cash Dividends Under
Shareholder Dividend Reinvestment and Stock Purchase Plan............... $ -- $ -- $ 66
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE O -- FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the provisions of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined using available market information described
below. Since judgment is required to develop the estimates, the estimated
amounts presented herein may not be indicative of the amounts that BellSouth
could realize in a current market exchange.
<TABLE>
<CAPTION>
1995 1994
-------------------- ---------------------
RECORDED ESTIMATED RECORDED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
Assets (Liabilities):
Cash and cash equivalents................... $ 1,711 $ 1,711 $ 606 $ 606
Temporary cash investments.................. 71 71 51 51
Bank loans.................................. (85) (85) (45) (45)
Commercial paper............................ (2,302) (2,302) (1,839) (1,839)
Long-Term Debt:
BellSouth Telecommunications Debentures... (5,076) (5,079) (4,605) (4,177)
BellSouth Telecommunications Notes........ (2,175) (2,216) (1,875) (1,670)
Guarantee of ESOP Debt.................... (647) (803) (694) (717)
BellSouth Capital Funding Corporation
Notes.................................... (544) (587) (374) (363)
Foreign Exchange Forward Contracts:
Contract amount receivable................ 27 27 68 68
Contract amount payable................... (27) (27) (67) (67)
Currency Swap............................... 20 20 12 12
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
Interest Rate Swaps:
With unrealized gains....................... -- -- -- 1
With unrealized losses...................... -- (10) -- (3)
</TABLE>
CASH AND CASH EQUIVALENTS/TEMPORARY CASH INVESTMENTS. At December 31, 1995
and 1994, the recorded amounts for cash and cash equivalents and temporary cash
investments, respectively, approximate fair value due to the short-term nature
of these instruments.
DEBT. At December 31, 1995 and 1994, the recorded amounts for bank loans
and commercial paper approximate fair value due to the short-term nature of the
liabilities. The estimates of fair value for BellSouth Telecommunications
Debentures and Notes are estimated based on the closing market
A-41
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE O -- FINANCIAL INSTRUMENTS (CONTINUED)
prices for each issue at December 31, 1995 and 1994, respectively. Fair value
estimates for the Guarantee of ESOP Debt and BellSouth Capital Funding
Corporation Notes are based on quotes from dealers.
OTHER FINANCIAL INSTRUMENTS. BellSouth is party to foreign exchange forward
contracts, currency swap agreements and interest rate swap agreements in its
normal course of business for purposes other than trading. These financial
instruments are used to mitigate foreign currency and interest rate risks,
although to some extent they expose the company to market risks and credit
risks. The credit risks associated with these instruments are controlled through
the evaluation and continual monitoring of the creditworthiness of the
counterparties. In the event that a counterparty fails to meet the terms of a
contract or agreement, BellSouth's exposure is limited to the currency rate or
interest rate differential. Such contracts and agreements have been executed
with creditworthy financial institutions. As such, BellSouth considers the risk
of nonperformance to be remote.
FOREIGN EXCHANGE FORWARD CONTRACTS. Foreign exchange forward contracts are
contracts for delivery or purchase of foreign currencies at specified future
dates. The fair values of such contracts are estimated based on quotes from
brokers. BellSouth enters into foreign exchange forward contracts primarily as
hedges relating to identifiable currency exposures. These financial instruments
are designed to minimize exposure and reduce risk from exchange rate
fluctuations in the normal course of business.
As of December 31, 1995, BellSouth had foreign exchange forward contracts to
buy $27 worth of German Marks. At December 31, 1994, BellSouth had foreign
exchange forward contracts to sell $67 worth of German Marks.
CURRENCY SWAP. Currency swap contracts provide for the exchange of defined
cash flows between two currencies at specified times. The fair value of the
currency swap is estimated based on quotes from brokers. BellSouth entered into
a currency swap in 1994 to hedge European Currency Units (ECU) 125,000,000 debt
issued by Capital Funding. The currency swap and related debt mature in February
1999.
At December 31, 1995, the net currency swap receivable was $20 and the
related net interest receivable was $8, both of which are included in accounts
receivable in the consolidated balance sheet at December 31, 1995. The interest
rate on the ECU debt is 5.25%. The currency swap effectively converts the
interest rate on such ECU debt from 5.25% payable in ECUs to 5.247% payable in
U.S. dollars.
INTEREST RATE SWAPS. Interest rate swap agreements require counterparties
to exchange interest cash flows on a specified amount of debt for a defined
period. The fair values of interest rate swap agreements are estimated based on
quotes from dealers. In order to manage exposure to interest rate changes,
BellSouth enters into interest rate swap agreements to exchange fixed and
variable rate interest payment obligations without the exchange of the
underlying principal amounts. These agreements have been used to adjust interest
on certain fixed and variable rate obligations.
A-42
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE O -- FINANCIAL INSTRUMENTS (CONTINUED)
Summarized below are the types of interest rate swaps outstanding and the
related weighted-average interest rates. Such swaps mature in either 1996 or
2002.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Pay Fixed Rate/Receive Variable Rate
Notional amount.......................................................... $ 96 $ 95
Average rate paid........................................................ 7.38% 6.97%
Average rate received.................................................... 6.05% 5.08%
Pay Variable Rate/Receive Fixed Rate
Notional amount.......................................................... $ 75 $ 75
Average rate paid........................................................ 5.96% 5.36%
Average rate received.................................................... 4.86% 4.86%
</TABLE>
OTHER. BellSouth has also issued letters of credit and financial guarantees
which approximate $340 at December 31, 1995. Since there is no market for the
instruments, it is not practicable to estimate their fair value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
subject BellSouth to credit risk consist principally of trade accounts
receivable. Concentrations of credit risk with respect to these receivables,
other than those from interexchange carriers, are limited due to the composition
of the customer base, which includes a large number of individuals and
businesses. At December 31, 1995 and 1994, approximately $520 and $448,
respectively, of trade accounts receivable were from interexchange carriers.
NOTE P -- COMMITMENTS AND CONTINGENCIES
LEASES. BellSouth has entered into operating leases for facilities and
equipment used in operations. Rental expense under operating leases was $252,
$311 and $300 for 1995, 1994 and 1993, respectively. Capital leases currently in
effect are not significant.
The following table summarizes the approximate future minimum rentals under
noncancelable operating leases in effect at December 31, 1995:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum rentals............................. $ 166 $ 140 $ 99 $ 81 $ 64 $ 508 $ 1,058
--------- --------- --- --- --- ----- ---------
--------- --------- --- --- --- ----- ---------
</TABLE>
OUTSIDE PLANT. BellSouth currently self-insures all of its outside plant
against casualty losses. The net book value of outside plant was $8,080 and
$10,459 at December 31, 1995 and 1994, respectively. Such outside plant,
located in the nine Southeastern states served by BellSouth Telecommunications,
is susceptible to damage from severe weather conditions and other perils,
including hurricanes.
LEGAL ACTIONS. BellSouth and its subsidiaries are subject to claims and
proceedings arising in the ordinary course of business involving allegations of
personal injury, breach of contract, anti-competitive conduct, employment law
issues and other matters. BellSouth Telecommunications is also subject to claims
and proceedings attributable to pre-divestiture events involving environmental
liabilities, rates, taxes, contracts and torts. Certain contingent liabilities
for pre-divestiture events are shared by AT&T Corp. and the operating telephone
companies. While complete assurance cannot be given as to the outcome of any
pending or threatened legal actions, BellSouth believes that any financial
impact would not be material to its financial position, annual operating results
or cash flows.
A-43
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE Q -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In the following summary of quarterly financial information, all adjustments
necessary for a fair presentation of each period were included. The results for
fourth quarter 1995 include a work force reduction charge of $1,082, which
reduced net income by $663.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- -------- -------- --------
<S> <C> <C> <C> <C>
1995
Operating Revenues................................ $ 4,299 $ 4,390 $ 4,432 $ 4,765
Operating Income (Loss)........................... $ 1,095 $ 1,096 $ 1,058 $ 43
Income (Loss) Before Extraordinary Losses......... $ 547 $ 557 $ 559 $ (99)
Extraordinary Loss for Discontinuance of
SFAS No. 71, net of tax.......................... -- (2,718) -- --
Extraordinary Loss on Early Extinguishment of
Debt, net of tax................................. -- (16) -- (62)
--------- -------- -------- --------
Net Income (Loss)................................. $ 547 $ (2,177) $ 559 $ (161)
--------- -------- -------- --------
--------- -------- -------- --------
Earnings Per Share:
Income (Loss) Before Extraordinary Losses....... $ .55 $ .56 $ .56 $ (.10)
Extraordinary Loss for Discontinuance of
SFAS No. 71, net of tax.......................... -- (2.73) -- --
Extraordinary Loss on Early Extinguishment of
Debt, net of tax................................. -- (.02) -- (.06)
--------- -------- -------- --------
Net Income (Loss)............................... $ .55 $ (2.19) $ .56 $ (.16)
--------- -------- -------- --------
--------- -------- -------- --------
1994
Operating Revenues................................ $ 4,124 $ 4,128 $ 4,198 $ 4,395
Operating Income.................................. $ 1,012 $ 1,002 $ 994 $ 1,050
Net Income........................................ $ 585 $ 517 $ 500 $ 558
Earnings Per Share................................ $ .59 $ .52 $ .50 $ .56
</TABLE>
A-44
<PAGE>
BELLSOUTH CORPORATION
MARKET AND DIVIDEND DATA
The principal market for trading in BellSouth common stock is the New York
Stock Exchange, Inc. (NYSE). BellSouth common stock is also listed on the
Boston, Chicago, Pacific and Philadelphia exchanges in the United States and the
London, Zurich, Basel, Geneva, Frankfurt and Amsterdam exchanges. The ticker
symbol for BellSouth common stock is BLS. At February 1, 1996, there were
1,136,035 holders of record of BellSouth common stock. The market price and
dividend information listed below has been adjusted for the two-for-one stock
split effective in November 1995. Market price data were obtained from the NYSE
Composite Tape, which encompasses trading on the principal United States stock
exchanges as well as off-board trading. High and low prices represent the
highest and lowest sales prices for the periods indicated.
<TABLE>
<CAPTION>
PER
MARKET PRICES SHARE
------------------ DIVIDENDS
HIGH LOW DECLARED
------- ------- --------
<S> <C> <C> <C>
1995
First Quarter................................................................... $30 3/8 $26 7/8 $ .345
Second Quarter.................................................................. 32 1/4 29 1/8 .345
Third Quarter................................................................... 36 7/8 31 .36
Fourth Quarter.................................................................. 43 7/8 36 3/8 .36
1994
First Quarter................................................................... $30 3/4 $26 1/2 $ .345
Second Quarter.................................................................. 31 3/4 27 3/4 .345
Third Quarter................................................................... 31 3/4 27 3/8 .345
Fourth Quarter.................................................................. 28 1/8 25 1/4 .345
1993
First Quarter................................................................... $28 3/4 $25 1/4 $ .345
Second Quarter.................................................................. 28 1/2 25 3/8 .345
Third Quarter................................................................... 31 1/2 27 1/8 .345
Fourth Quarter.................................................................. 32 27 1/8 .345
</TABLE>
STOCK TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services LLC is BellSouth's stock transfer agent
and registrar.
A-45
<PAGE>
BELLSOUTH CORPORATION
DOMESTIC CELLULAR
PROPORTIONATE OPERATING DATA
(DOLLARS IN MILLIONS)
(UNAUDITED)
The following table sets forth unaudited, supplemental financial data for
BellSouth's domestic cellular operations reflecting proportionate consolidation
of entities in which BellSouth has an interest. This presentation differs from
the consolidation methodology used to prepare BellSouth's principal financial
statements in accordance with generally accepted accounting principles. The
proportionate operating data reflect BellSouth's ownership percentage of
entities consolidated for financial reporting purposes and BellSouth's ownership
percentage in the entities which are accounted for on the equity method for
financial reporting purposes. The data exclude gains (losses) from the
disposition of property interests and include equipment revenue, net of cost.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994
------- -------
<S> <C> <C>
Cellular Revenue, net............................................................ $ 1,888 $ 1,465
------- -------
Operating Expenses............................................................... 1,065 834
Depreciation and Amortization.................................................... 298 234
------- -------
Total Operating Expenses..................................................... 1,363 1,068
------- -------
Operating Income................................................................. 525 397
Other Expenses, net (including interest and taxes)............................... 233 164
------- -------
Net Income................................................................... $ 292 $ 233
------- -------
------- -------
Operating Margins as a Percentage of Revenue:
Including Depreciation and Amortization........................................ 27.8% 27.1%
Excluding Depreciation and Amortization........................................ 43.6% 43.1%
Operational Comparisons (thousands):
Proportionate Cellular Population Served....................................... 39,937 39,206
Proportionate Cellular Customers............................................... 2,847 2,155
</TABLE>
A-46
<PAGE>
BELLSOUTH CORPORATION
1155 PEACHTREE STREET, N.E.
ATLANTA, GA 30309-3610
LOGO
PRINTED ON RECYCLED PAPER
<PAGE>
[021596/1300 DRAFT]
BELLSOUTH CORPORATION
OFFICER SHORT TERM INCENTIVE AWARD PLAN
(Effective 1996)
1.0 PURPOSE.
The purpose of the BellSouth Corporation Officer Short Term Incentive
Award Plan is to provide Officers with incentive compensation, in the
discretion of the Committee, based upon a combination of the achievement of
financial, customer service, shareholder return, individual strategic or
other objectives as the Committee may determine in its discretion, but
subject to the achievement of an overall shareholder-approved performance
goal based on Consolidated Earnings in order that payments are deductible
under Section 162(m) of the Code.
2.0 DEFINITIONS.
Each term set forth in this Section 2.0 shall have the respective
meaning set forth opposite such term for purposes of this Plan, and when the
defined meaning is intended the term is capitalized.
"Beneficiary" means the person designated by an Officer to receive any
award paid following the Officer's death as determined pursuant to Section
8.2.
"Board" means the Board of Directors of the Company.
"Chief Executive Officer" means the Chief Executive Officer of the
Company .
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Nominating and Compensation Committee of the
Board, or any successor committee of the Board which satisfies the
requirement of Section 162(m)(4)(C)(i) of the Code.
"Company" means BellSouth Corporation, a Georgia corporation.
"Consolidated Earnings" means consolidated net income for the year for
which a bonus is paid, as shown on the audited consolidated statement of
income of the Company, adjusted to omit the effects of extraordinary items,
gain or loss on the disposal of a business segment (other than provisions for
operating losses or income during the phase-out period), unusual or
infrequently occurring events and transactions and the cumulative effects of
changes in accounting principles, all as determined in accordance with
generally accepted accounting principles.
<PAGE>
"Officer" means any executive of the Company or any Subsidiary who is a
member of the executive compensation group under the Company's compensation
practices.
"Plan" means this BellSouth Corporation Officer Short Term Incentive
Award Plan, as effective for 1996 and as thereafter amended from time to time.
"Subsidiary" means any corporation, joint venture or partnership in
which the Company owns directly or indirectly (i) with respect to a
corporation, stock possessing at least ten percent (10%) of the total
combined voting power of all classes of stock in the corporation, or (ii) in
the case of a joint venture or partnership, a ten percent (10%) or more
interest in the capital or profits of such joint venture or partnership.
3.0 EFFECTIVE DATE.
The Plan shall be effective beginning for Awards granted for 1996 and
shall remain in effect until terminated by the Committee. This Plan replaces
the BellSouth Corporation Short Term Incentive Plan as previously in effect.
Notwithstanding the above, this Plan is subject to approval by Company
shareholders on April 22, 1996, and will be null and void if not approved on
such date.
4.0 ADMINISTRATION.
This Plan shall be administered by the Committee. The Committee shall
(a) determine who is an eligible Officer under the Plan, (b) determine the
amount of any Awards under the Plan, (c) determine the terms and conditions
of all election and other forms under the Plan, (d) interpret the Plan, and
(e) make all other decisions relating to the operation of the Plan. The
Committee's actions and determinations under the Plan shall be completely at
its sole, absolute and final discretion, and all such Commitee actions and
determinations shall be final and binding on all persons. No member of the
Committee shall be personally liable for any action, determination, or
interpretation with respect to the Plan or Awards. All members of the
Committee shall be protected by the Company, to the fullest extent permitted
by applicable law, in respect of any such action, determination or
interpretation. The Committee may adopt such regulations and guidelines as
it deems are necessary or appropriate for the administration of the Plan.
5.0 ELIGIBILITY.
Only Officers shall be eligible for Awards under this Plan. Officers
are not rendered ineligible by reason of being a member of the Board. The
Committee may establish such additional rules for eligibility as it
determines are appropriate. The actual payment of an Award to any eligible
Officer shall be at the discretion of the Committee as provided in Section
6.0 and related sections of the Plan.
<PAGE>
6.0 AWARDS
6.1 COMMITTEE DISCRETION. The amount of any Award to be paid to an eligible
Officer shall be determined by the Committee in its discretion, subject only
to the limits of Section 6.2. The Committee in making its determination
shall take into consideration the recommendations of the Chief Executive
Officer, except in the case of an Award to the Chief Executive Officer; the
Officer's contribution to the achievement of Company objectives; the
achievement of financial, service, shareholder return or other objectives
which the Committee may establish for this purpose; or such additional or
replacement factors as the Committee may deem relevant. The Committee from
time to time may establish written objectives, weightings and other
guidelines for its use in exercising its discretion under this Section 6.1.
6.2. PERFORMANCE-BASED LIMIT. Awards only shall be payable under this Plan
for a year if the Company has positive Consolidated Earnings for the year.
Furthermore, the maximum Award that may be payable under this Plan for a year
(i) to an individual who is Chief Executive Officer for any part of the year,
(ii) to each Officer who is not Chief Executive Officer for any part of the
year but who is in a position of Executive Vice Present or Group President,
or higher, and (iii) to each other Officer will be (i) .15%, (ii) .1% and
(iii) .05%, respectively, of Consolidated Earnings for the year. This
resulting amount for any year shall be the limit established for purposes of
Section 162(m) of the Code, and the actual amount paid to any Officer shall
only be that amount, if any, determined by the Committee under Section 6.1
and related sections of the Plan.
6.3. COMMITTEE CERTIFICATION. Prior to payment of any Award for a year and
following receipt of a report from the Company's independent accountants of
the Consolidated Earnings for the year, the Committee shall determine the
maximum amounts that may be paid under Section 6.2 for the year to any
Officer and shall certify that any awards determined under Section 6.1 are
within such limits.
6.4. PAYMENTS. All Awards for a year determined by the Committee under this
Section 6.0 shall be paid by the Company and its Subsidiaries in cash as
soon as is practicable following Committee certification as provided in
Section 6.3. Such payment, however, may be subject to deferral under the
BellSouth Incentive Award Deferral Plan or any replacement plan or program
the Committee may establish for this purpose, provided that any additional
amounts credited under any such deferral plan or program during the period
of deferral shall be determined based either on the rate of interest paid on
10-year U.S. Treasury bonds or a deemed investment in shares of Company
stock, or shall be determined based upon any replacement reasonable rate of
interest or specific investment or deemed investment within the limits of the
regulations under Section 162(m) of the Code as may be determined by the
Committee.
7.0 SPECIAL AWARDS AND OTHER PLANS. Nothing in this Plan shall prevent the
Company and its Subsidiaries from maintaining other incentive compensation
plans providing for the payment of special awards of incentive compensation
to employees or from paying special performance or recognition awards to
employees, including in each case Officers, provided that no such awards to
<PAGE>
any Officer shall be contingent upon the Company's failure to meets its
Consolidated Earnings goal in Section 6.2 or otherwise compensate an Officer
for the restriction of any Award arising from the application of the
Consolidated Earnings limit described in Section 6.2.
8.0 MISCELLANEOUS ADMINISTRATIVE PROVISIONS.
8.1. AMENDMENT AND TERMINATION. The Committee shall have the right to
amend, modify, suspend or terminate the Plan at any time for any purpose;
provided, that approval by Company shareholders shall be required as provided
in the regulations under Section 162(m) of the Code for any amendment that
would have the effect of changing the class of employees eligible for
consideration for Awards under Section 5.0, materially changing the
definition of Consolidated Earnings, changing the formula in Section 6.2 for
determining the maximum amount of Awards paid to any Officer or changing the
provisions of Section 6.4 regarding the credit of additional amounts on
deferred Awards.
8.2. BENEFICIARY. The payment of an Award for any Officer under this Plan
shall be made only to the Officer, a personal representative of the Officer
for the benefit of the Officer, or to the Officer's Beneficiary following
death, all as determined by the Committee. No attempted assignment or
alienation of an Award will be recognized by the Committee. An Officer may
name, from time to time, any beneficiary or beneficiaries (which may be named
contingently or successively) as his or her Beneficiary for purposes of the
Plan. Each designation shall be on a form prescribed by the Committee, will
be effective only when delivered to the Company, and when effective will
revoke all prior designations by the Officer. If an Officer dies with no
such beneficiary designation in effect, or if the Committee determines that
there is any question about the legal right of the designated beneficiary,
such Officer's Beneficiary shall be his or her estate.
8.3. NO RIGHT TO AWARDS. No person shall have any claim to be paid an
Award under the Plan and there is no obligation for uniformity of treatment
of eligible Officers under the Plan. The selection of Officers to receive
Awards and the amount of Awards rests completely in the absolute and final
discretion of the Committee. The Committee's discretion is limited only by
the maximum amount of an Award that it may pay as provided in Section 6.2.
Neither the existence of this maximum, nor any prior practice by the Commitee
as to the payment or amount of Awards, creates an obligation by the
Committee to pay any Award for any year or to pay an Award equal to the
maximum or any other amount. Furthermore, neither the Plan nor any action
taken hereunder shall give any Officer the right to be retained in the employ
of the Company or a Subsidiary.
8.4. NO FUNDING. This Plan shall be unfunded and no assets of the Company
or a Subsidiary shall be segregated for the purpose of paying any Awards.
8.5. TAXES. The Company or any Subsidiary shall withhold from any payment
under the Plan such taxes as it deems are sufficient to cover any withholding
taxes which may become required with respect to such payment. The Company or
any Subsidiary shall have the right to require the payment
<PAGE>
to it of any such taxes and require that any person furnish information
deemed necessary by such company to meet any tax reporting obligation before
making any payment under the Plan.
8.6 GOVERNING LAW. This Plan shall be governed by the laws of the State of
Georgia.
<PAGE>
Please mark your votes as indicated in this example /X/
DIRECTORS RECOMMEND A VOTE "FOR"
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WITHHOLD FOR ALL
FOR AUTHORITY EXCEPT*
1. Election of all Director Nominees (p. 5) / / / / / /
FOR AGAINST ABSTAIN
2. Ratification of Auditors (p. 7) / / / / / /
3. Approval of Officer Short Term Incentive Award Plan (p. 8) / / / / / /
* Exceptions: __________________________________________
To vote for all director nominees, mark the "For" box on
item "1". To withhold voting for all nominees, mark the
"Withhold Authority" box. To withhold voting for a
particular nominee, mark the "For All Except" box and
enter name(s) of the exception(s) in the space provided.
Your shares will be voted for the remaining nominees.
DIRECTORS RECOMMEND A VOTE "AGAINST"
FOR AGAINST ABSTAIN
4. The shareholder proposal regarding Officer Incentives (p. 10) / / / / / /
</TABLE>
Discontinue mailing of duplicate Annual Report (p. 3) / /
I will attend the Annual Meeting / /
Mark here if you have written a comment on reverse / /
Signature(s) _________________________ ________________________ Date _______
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
______________________________________________________________________________
DETACH HERE FROM PROXY VOTING CARD
[BELLSOUTH LOGO]
ADMISSION TICKET
________________________
ANNUAL MEETING OF BELLSOUTH SHAREHOLDERS
MONDAY, APRIL 22, 1996
8:00 A.M.-DOORS OPEN
9:00 A.M.-MEETING BEGINS
The Cobb Galleria Centre - Ballroom A - Two Galleria Parkway-Atlanta, Georgia
See reverse side for map of area and directions
PLEASE PRESENT THIS TICKET TO THE BELLSOUTH REPRESENTATIVE
AT THE ENTRANCE TO THE BALLROOM.
<PAGE>
PROXY / VOTING INSTRUCTION CARD [BELLSOUTH LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 22, 1996.
The undersigned hereby appoints John L. Clendenin, Armando M. Codina, and
Marshall M. Criser, and each of them, proxies with full power of
substitution, to vote all Common Shares of the undersigned at the Annual
meeting of Shareholders to be held at 9:00 A.M. EDT, April 22, 1996 at the
Cobb Galleria Centre, Ballroom A, Two Galleria Parkway, Atlanta, Georgia, and
at any adjournment thereof, upon all subjects that may properly come before
the meeting, including the matters described in the proxy statement furnished
herewith, subject to any directions indicated on the reverse side of this
card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR THE ELECTION OF
ALL LISTED NOMINEES, IN ACCORD WITH THE DIRECTORS' RECOMMENDATIONS ON THE
OTHER MATTERS LISTED ON THE REVERSE SIDE OF THIS CARD, AND AT THEIR
DISCRETION ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
Your vote for the election of Directors for the terms set forth in the proxy
statement may be indicated on the reverse side of this card. Nominees are F.
Duane Ackerman, Reuben V. Anderson, John G. Medlin, Jr., C. Dixon Spangler,
Jr., and Ronald A. Terry.
This card also provides voting instructions for shares held in the BellSouth
Shareholder Dividend Reinvestment and Stock Purchase Plan and, if
registrations are identical, shares held in the various employee benefit
plans.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE ON THE REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR OTHERWISE TO BELLSOUTH
CORPORATION, CHURCH STREET STATION, P. O. BOX 1456, NEW YORK, NEW YORK
10277-1456, SO THAT YOUR SHARES CAN BE REPRESENTED AT THE MEETING.
Comments: ____________________________________________________________________
____________________________________________________________________
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Detach here.
BELLSOUTH'S
ANNUAL MEETING
OF SHAREHOLDERS
[MAP] [MAP]
MONDAY
APRIL 22, 1996
9:00 A.M.
DIRECTIONS TO THE COBB GALLERIA CENTRE, TWO GALLERIA PARKWAY, ATLANTA, GEORGIA
NORTHBOUND ON I-75: Take exit 109B (I-285 Westbound); continue west on I-285
and take exit 14 (Cobb Pkwy./U.S. Hwy. 41) and turn left at traffic light,
southbound onto Cobb Pkwy.; continue under overpass and make a left turn at
second traffic light onto Galleria Dr.
SOUTHBOUND ON I-75: Take exit 109 (I-285 Westbound); continue west on I-285
and take exit 14 (Cobb Pkwy./U.S. Hwy. 41) and turn left at traffic light,
southbound onto Cobb Pkwy.; continue under overpass and make a left turn at
second traffic light onto Galleria Dr.
WESTBOUND ON I-285: Take exit 14 (Cobb Pkwy./U.S. Hwy. 41) and turn left at
traffic light, southbound onto Cobb Pkwy.; continue under overpass and make a
left turn at second traffic light onto Galleria Dr.
EASTBOUND ON I-285: Take exit 13 (Cobb Pkwy./U.S. Hwy. 41) and turn right
onto Cobb Pkwy. headed south; turn left at next traffic light onto Galleria
Dr.
