<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
COMMISSION FILE NUMBER 1-8607
------------------------
BELLSOUTH CORPORATION
<TABLE>
<S> <C>
A GEORGIA I.R.S. EMPLOYER
CORPORATION NO. 58-1533433
1155 Peachtree Street, N.E., Atlanta, Georgia 30309-3610
Telephone number 404 249-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- ---------------------------------------
Common Stock New York, Boston, Chicago,
(par value $1 per share) Pacific and Philadelphia
and Stock Exchanges
Preferred Stock Purchase Rights
9 1/4% Notes due 1/15/98 of New York Stock Exchange
BellSouth Capital Funding Corporation
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
At February 1, 1997, 991,205,642 shares of Common Stock and Preferred Stock
Purchase Rights were outstanding.
At February 1, 1997, the aggregate market value of the voting stock held by
non-affiliates was $43,984,750,364.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement dated March 11,
1997, issued in connection with the 1997 annual meeting of shareholders (Part
III).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- --------- ---------
<C> <S> <C>
PART I
1. Business........................................................................................... 1
General............................................................................................ 1
Business Operations................................................................................ 1
Telephone Company Operations....................................................................... 2
Other Telecommunications Business Operations....................................................... 8
Competition........................................................................................ 11
Research and Development........................................................................... 15
Licenses and Franchises............................................................................ 16
Employees.......................................................................................... 16
2. Properties......................................................................................... 17
General............................................................................................ 17
Capital Expenditures............................................................................... 17
Environmental Matters.............................................................................. 18
3. Legal Proceedings.................................................................................. 18
4. Submission of Matters to a Vote of Shareholders.................................................... 19
Additional Information -- Description of BellSouth Stock...................................................... 19
Executive Officers............................................................................................ 22
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 23
6. Selected Financial and Operating Data.............................................................. 24
7. Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 25
Results of Operations.............................................................................. 25
Volumes of Business................................................................................ 27
Operating Revenues................................................................................. 28
Operating Expenses................................................................................. 31
Other Income Statement Items....................................................................... 33
Extraordinary Losses............................................................................... 33
Financial Condition................................................................................ 34
Operating Environment and Trends of the Business................................................... 36
8. Consolidated Financial Statements and Supplementary Data........................................... 39
Report of Management............................................................................... 39
Audit Committee Chairman's Letter.................................................................. 40
Report of Independent Accountants.................................................................. 40
Consolidated Statements of Income.................................................................. 41
Consolidated Balance Sheets........................................................................ 42
Consolidated Statements of Shareholders' Equity.................................................... 43
Consolidated Statements of Cash Flows.............................................................. 44
Notes to Consolidated Financial Statements......................................................... 45
Supplementary Data -- Domestic Cellular Proportionate Operating Data............................... 64
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 65
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM PAGE
- --------- ---------
PART III
<C> <S> <C>
*10. Directors and Executive Officers of the Registrant................................................. 65
*11. Executive Compensation............................................................................. 65
*12. Security Ownership of Certain Beneficial Owners and Management..................................... 65
*13. Certain Relationships and Related Transactions..................................................... 65
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................... 65
Signatures.................................................................................................... 68
Consent of Independent Accountants............................................................................ 69
</TABLE>
- ------------------------
*Included in BellSouth Corporation's definitive proxy statement dated March 11,
1996 and incorporated herein by reference.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
BellSouth Corporation (BellSouth) is a holding company providing
telecommunications services, systems and products primarily through two
wholly-owned subsidiaries, BellSouth Telecommunications, Inc. (BellSouth
Telecommunications) and BellSouth Enterprises, Inc. (BellSouth Enterprises).
BellSouth Telecommunications provides predominantly tariffed wireline
telecommunications services to 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's other
businesses (predominantly wireless and international communications services and
advertising and publishing products) are conducted primarily through
subsidiaries of BellSouth Enterprises. BellSouth has its principal executive
offices at 1155 Peachtree Street, N.E., Atlanta, Georgia 30309-3610 (telephone
number 404-249-2000).
BellSouth was incorporated in 1983 under the laws of the State of Georgia.
On December 31, 1983, pursuant to a consent decree approved by the United States
District Court for the District of Columbia (the D. C. District Court) entitled
"Modification of Final Judgment" (the MFJ) settling antitrust litigation brought
by the United States Department of Justice (the Justice Department) in 1974 and
the related Plan of Reorganization, American Telephone and Telegraph Company,
now AT&T Corp. (AT&T), formed seven holding companies including BellSouth (the
Holding Companies), and transferred to them one or more of the operating
telephone companies (the Operating Telephone Companies) that were formerly part
of the Bell System. As a result, AT&T transferred to BellSouth its 100%
ownership of South Central Bell Telephone Company (South Central Bell) and
Southern Bell Telephone and Telegraph Company (Southern Bell). On January 1,
1984, ownership of the Holding Companies was transferred by AT&T to its
shareholders. As a result, BellSouth became a publicly traded company. BellSouth
Telecommunications is the surviving corporation from the merger of South Central
Bell and Southern Bell, effective at midnight December 31, 1991.
Under the MFJ, the Operating Telephone Companies could provide local
exchange, exchange access, information access and toll telecommunications
services within their assigned geographical territories, termed "Local Access
and Transport Areas" (LATAs). Although prohibited from providing service between
LATAs, the Operating Telephone Companies provided exchange access services that
linked a subscriber's telephone or other equipment in one of their LATAs to the
transmission facilities of carriers (the Interexchange Carriers), which provided
toll telecommunications services between different LATAs.
In February 1996, the President signed into law the Telecommunications Act
of 1996 (the 1996 Act). This legislation provides for the development of
competitive local telecommunications markets; terminates on a prospective basis
the MFJ, enabling the provision by the Operating Telephone Companies of
interLATA telecommunications and other services; and repeals the laws
prohibiting the Operating Telephone Companies and their affiliates from
providing video services within their service areas. The ability of the
Operating Telephone Companies to enter businesses previously proscribed to them
by the MFJ is, however, generally subject to numerous criteria and the
development of and compliance with newly mandated federal regulations.
BUSINESS OPERATIONS
Approximately 70%, 70% and 72% of BellSouth's operating revenues for the
years ended December 31, 1996, 1995 and 1994, respectively, were from wireline
telecommunications services provided by BellSouth Telecommunications. The
remainder was principally derived from wireless operations, directory
advertising and publishing, billing and collection and other nonregulated
services. Revenues from services provided to AT&T, BellSouth's largest customer,
comprised approximately 9%, 10% and 11% of 1996, 1995 and 1994 operating
revenues, respectively.
1
<PAGE>
TELEPHONE COMPANY OPERATIONS
BellSouth Telecommunications provides, predominantly, local exchange,
exchange access and intraLATA toll services within each of the 38 LATAs in its
combined nine-state wireline operating area. BellSouth Telecommunications
provided approximately 22,135,000 customer access lines at December 31, 1996, an
overall increase of 4.7% since December 31, 1995. The increase was primarily
attributable to continued economic growth in BellSouth Telecommunications'
nine-state service region. Growth in second residential lines accounted for
approximately 28% of the overall increase in total access lines since December
31, 1995. (See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Volumes of Business.")
At December 31, 1996, approximately 74% of access lines were in 44
metropolitan areas, each having a population of 125,000 or more. Many localities
and some sizable areas in the states in which BellSouth Telecommunications
operates are served primarily by non-affiliated telephone companies, which had
approximately 29% of the network access lines in such states on December 31,
1996. BellSouth Telecommunications does not furnish, on a significant scale,
local exchange, access or toll services in the areas served by such companies.
LOCAL AND INTRALATA TOLL SERVICES
Charges for local services for each of the years ended December 31, 1996,
1995 and 1994 accounted for approximately 42%, 41% and 41% of BellSouth's
operating revenues, respectively. Local services operations provide lines from
telephone exchange offices to subscribers' premises for the origination and
termination of telecommunications, including the following: basic local
telephone service provided through the regular switched network; dedicated
private line facilities for voice and special services, such as transport of
data, radio and video, and foreign exchange services; switching services for
customers' internal communications through facilities owned by BellSouth
Telecommunications; services for data transport that include managing and
configuring special service networks; and dedicated low or high capacity public
or private digital networks. Other local services revenue is derived from
intercept and directory assistance, public telephones and various optional
central office features, such as Caller ID service, Call Waiting, Call Return
and 3-Way Calling. As other telecommunications companies are authorized by
regulatory agencies to compete in the provision of local service, BellSouth
Telecommunications will increasingly sell to such carriers unbundled local
service elements and discounted wholesale local service for resale.
BellSouth Telecommunications offers certain enhanced services, such as
MemoryCallSM voice messaging service, through its network. These services differ
from basic services in that they employ computer processing applications to
alter the subscriber's transmitted information; provide the subscriber
additional, different or restructured information; or involve subscriber
interaction with stored information. The terms of many of these service
offerings are not regulated under the rules of the Federal Communications
Commission (FCC), but the FCC prescribes the method by which such services may
be provided (for example, through structurally separated subsidiaries or
arrangements providing access to competitive providers). During 1996, total
revenue from enhanced and other optional services was approximately $1 billion.
BellSouth Telecommunications provides intraLATA toll services within (but
not between) its 38 LATAs. Such toll services provided approximately 4%, 6% and
7% of BellSouth's operating revenues for the years ended December 31, 1996, 1995
and 1994, respectively. These services include the following: 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 data, radio and video. In recent years, these toll revenues
have decreased as local calling areas have been expanded and as competition for
toll customers has intensified. This trend is expected to continue.
REGULATION OF LOCAL AND TOLL SERVICES
BellSouth Telecommunications is subject to regulation of its intrastate
services by state authorities in each state where it provides intrastate
telecommunications services; such regulation covers rates,
2
<PAGE>
services, competition and other issues. Traditionally, BellSouth
Telecommunications' rates were set in each state in its service area at levels
which were anticipated to generate revenues sufficient to cover its allowed
expenses and to provide an opportunity to earn a fair rate of return on its
capital investment. Such a regulatory structure was satisfactory in a less
competitive era; however, as discussed below, the regulatory processes have
changed in response to the increasingly competitive telecommunications
environment.
RATE REGULATION
Under one form of alternative regulation, generally known as incentive
regulation, economic incentives are provided to lower costs and increase
productivity through the potential availability of "shared" earnings over a
benchmark rate of return. Generally, when levels above targeted returns were
reached, earnings were "shared" by providing refunds or price reductions to
customers.
Another alternative form of regulation, generally known as price regulation,
establishes maximum prices that can be charged for certain telecommunications
services. While such a plan limits the amount of increases in prices for
specified services, it enhances the company's ability to adjust prices and
service options to more effectively respond to changing market conditions and
competition and provides an opportunity to more fully benefit from productivity
enhancements. For these reasons, BellSouth Telecommunications has focused its
regulatory and legislative efforts on establishing price regulation. Such plans
have been approved or authorized by the requisite legislative or regulatory
bodies in all nine states in BellSouth Telecommunications' wireline operating
area. These plans are operational in all states except Tennessee, where judicial
appeals are pending.
The following section contains a brief description of certain regulatory
proceedings in BellSouth Telecommunications' nine-state wireline territory.
ALABAMA
From December 1988 to September 1995, an incentive regulation plan was in
effect in Alabama. In response to a law enacted in 1995 permitting the Alabama
Public Service Commission to authorize alternative methods of regulation that
are not based on rate of return for local exchange carriers, the Alabama
Commission approved a price regulation plan, effective September 1995. Under
this plan, prices for basic services, including local exchange services for
residence and business customers, are capped for five years, after which prices
may be changed in accordance with an inflation-based formula; prices for
non-basic services are capped for one year, after which aggregate price
increases are limited to 10% annually; and intrastate switched access charges
are reduced below interstate switched access rates. Additional terms of the
price regulation plan require annual price reductions aggregating $57 million
through 1999, excluding intrastate switched access reductions. Reductions
related to intrastate switched access are estimated to be $25 million through
1999.
FLORIDA
From 1988 through 1992, an incentive regulation plan was in effect in
Florida. In 1994, the Florida Public Service Commission extended the plan
through 1997, with required price reductions aggregating approximately $300
million over a three-year period.
In 1995, a law was enacted which allowed qualified service providers to
elect price regulation. Under price regulation, prices for basic services (which
include flat-rate residential and single-line business local exchange services)
are capped for five years, after which prices may be changed in accordance with
an inflation-based formula. Prices for certain non-basic services, including
multi-line business service, are capped for three years at the rates in effect
in July 1995; prices for other non-basic services may be adjusted annually
subject to defined limitations. The price regulation provisions also provide
that intrastate switched access prices will decrease by 5% annually until such
rates are at parity with 1994 interstate switched access rates. In November
1995, BellSouth Telecommunications filed with the Florida Commission an election
for price regulation, which became effective in January 1996. Although BellSouth
Telecommunications is currently operating under price regulation, it must comply
with the sharing provisions of the incentive plan described above through 1997.
3
<PAGE>
GEORGIA
From 1990 to August 1995, BellSouth Telecommunications operated under an
incentive regulation plan in Georgia. In April 1995, a law was enacted which,
effective in July 1995, allowed BellSouth Telecommunications to elect the price
regulation plan as described in the legislation. In July 1995, BellSouth
Telecommunications filed an election with the Georgia Public Service Commission;
such election became effective in August 1995. Basic residence and single-line
business rates are capped for five years, after which prices may be changed in
accordance with an inflation-based formula. Rates for intrastate switched access
services may be no higher than the rates charged for interstate switched access
services.
KENTUCKY
From 1988 to July 1995, an incentive regulation plan was in effect in
Kentucky. In July 1995, the Kentucky Public Service Commission approved a price
regulation plan. Under the plan, basic residential rates are capped for three
years, after which prices may be changed in accordance with an inflation-based
formula. Intrastate switched access rates are limited to rates in effect for
interstate switched access. Prices for services deemed competitive under the
plan can be set by BellSouth Telecommunications in response to market
conditions.
In September 1996, the Kentucky Commission issued an order concerning local
competition and universal service funds. The order provided that
Commission-approved negotiated agreements for interconnection shall be the
primary means for implementing local competition. The universal service fund
rules established by the Commission are preliminary and interim until the FCC
issues its order on this matter.
LOUISIANA
From February 1992 to April 1996, an incentive regulation plan was in effect
in Louisiana. Effective April 1996, the Louisiana Public Service Commission
approved a price regulation plan that will remain in effect for a six-year term,
subject to review. Under the provisions of the price regulation plan, prices for
basic services, which include the provision of local exchange services, are
capped for five years, after which prices may be changed in accordance with an
inflation-based formula. After five years, no individual basic service price can
be increased by more than 10% in any twelve-month period. Prices for
interconnection services are capped for three years, after which no individual
service can be increased more than 10% in any twelve-month period. For non-basic
services, price increases may not exceed 20% in any twelve-month period.
In connection with the approval of price regulation, the Louisiana
Commission concluded its review of BellSouth Telecommunications' earnings by
requiring an aggregate $70 million price reduction, to be apportioned over a
three-year period beginning April 1, 1996.
MISSISSIPPI
From June 1990 to January 1996, an incentive regulation plan was in effect
in Mississippi. In November 1995, the Mississippi Public Service Commission
approved a six-year price regulation plan, effective in January 1996. Reviews of
this plan will be conducted by the Mississippi Commission after three and five
years. Under the provisions of the plan, prices for basic services, which
include the provision of basic local telephone service, are capped for three
years, after which the basic service category rates will be reduced annually to
effect an annual reduction in revenues of 1% or $3.75 million, whichever is
greater, for the last three years of the plan. In addition, intrastate switched
access prices are capped at the same level as interstate prices over the life of
the plan.
NORTH CAROLINA
Prior to June 1996, traditional rate of return regulation was in effect in
North Carolina. In April 1995, a law was enacted that allowed price regulation,
and pursuant to approval by the North Carolina Utilities Commission, a price
regulation plan became effective in June 1996. Under the terms of the plan,
prices for residence basic local exchange services are capped for three years,
after which time any price increases are limited by an inflation-based formula.
For business basic local exchange, interconnection
4
<PAGE>
and certain non-basic services, any increases in current prices are also subject
to inflation-based formulae. Prices for toll switched access services are capped
at current prices, after giving effect to specified price reductions ordered in
conjunction with approval of the price regulation plan.
SOUTH CAROLINA
Prior to 1996, BellSouth Telecommunications' rates were regulated on a
traditional rate of return basis. In December 1994, the South Carolina Public
Service Commission issued an order requiring that prices be reduced
prospectively by approximately $26 million on an annual basis and with no change
in the previously authorized return on equity of 13%. Based upon an
investigation by the South Carolina Commission of BellSouth Telecommunications'
1992 earnings, refunds of approximately $29 million, plus interest, were
ordered. The prospective rate reduction was implemented, but the refund was
stayed pending judicial review of the decision. In October 1996, the South
Carolina Court of Common Pleas entered an order affirming the South Carolina
Commission's order of the refund. BellSouth Telecommunications intends to pursue
an appeal of this decision. The South Carolina Commission has postponed review
of BellSouth Telecommunications' earnings in 1993 and 1994 until a resolution of
the 1992 period is reached. While complete assurance cannot be given as to the
outcome of these matters, BellSouth believes that any financial impact would not
be material to its financial position or annual operating results or cash flows.
In January 1996, the South Carolina Commission approved a price regulation
plan which includes provisions that basic local exchange residence and business
service rates will not increase for five years, after which prices may be
changed in accordance with an inflation-based formula. Intrastate switched
access rates will be capped for three years after which prices may be changed in
accordance with an inflation-based formula. The rates for non-basic services
will be set by BellSouth Telecommunications, subject only to the limitation that
the price for any individual service may not be increased more than 20% in a
twelve-month period.
TENNESSEE
An incentive regulation plan, which had been in effect since August 1990,
ended in 1995. In June 1995, a law was enacted which allowed qualified service
providers to elect price regulation. BellSouth Telecommunications elected price
regulation under which the prices for basic services are to be capped for four
years, after which prices may be changed in accordance with an inflation-based
formula. Prices for services other than basic services are to be adjusted based
on an inflation-based formula.
In order to implement the price regulation election, the Tennessee Public
Service Commission required BellSouth Telecommunications to reduce prices by
approximately $56 million on an annual basis. BellSouth Telecommunications has
appealed to the Tennessee Court of Appeals. This Court has stayed implementation
of both the rate reduction and price regulation plan pending further
consideration of the issues.
LOCAL SERVICE COMPETITION
The 1996 Act requires the elimination of state legislative and regulatory
barriers to competition for local telephone service, subject only to
competitively neutral requirements to preserve and advance universal service,
protect the public safety and welfare, maintain the quality of
telecommunications services and safeguard the rights of customers. The 1996 Act
also includes requirements that incumbent local exchange carriers (ILECs)
negotiate with other carriers for interconnection, use of network elements on an
unbundled basis and resale of local services. If a negotiated agreement cannot
be reached, either party may seek arbitration with the state regulatory
authority or the FCC if the state fails to act. If rates are disputed, the
arbitrator must set rates for access to network elements on an unbundled basis,
based on cost, which may include a reasonable profit. ILECs are also required to
negotiate to provide their retail services at wholesale rates for the purposes
of resale by competing carriers. If agreement cannot be reached, the arbitrator
shall set the wholesale rates at the ILEC's retail rates less costs to be
5
<PAGE>
avoided. BellSouth Telecommunications has executed over 40 interconnection or
resale agreements with such carriers and is currently involved in arbitration
proceedings with a number of other carriers, including AT&T, MCI Communications
Corporation (MCI) and Sprint Corporation (Sprint).
In connection with the requirements of the 1996 Act, in August 1996, the FCC
released an order adopting rules governing interconnection and open competition
in the local telephone service industry (the Order). Among the issues
specifically addressed by the Order are the network elements that ILECs must
make available; pricing standards to be followed by states in setting rates for
interconnection, access to network elements on an unbundled basis and resold
services. BellSouth and several other ILECs joined in an appeal of the Order to
the United States Court of Appeals for the Eighth Circuit (the Court). Upon
request of several state commissions and ILECs, the Court stayed the Order in
part, pending appeal. Such stay relates to pricing prescriptions and certain
other terms. The Court heard oral arguments in January 1997, and a decision is
pending. Notwithstanding these developments, however, as discussed above,
BellSouth Telecommunications and a number of carriers have negotiated
interconnection agreements and state regulatory commissions are arbitrating or
have approved various terms of interconnection between BellSouth and other
carriers. These terms may be revised, depending on, among other things, the
outcome of the appeal of the Order. The arbitration results for the wholesale
discount rates vary by state from approximately 15% to 21%.
In attempting to comply with the technical requirements of interconnection,
BellSouth expects to incur significant costs associated with the development or
modification of systems necessary to make interconnection possible. For example,
BellSouth Telecommunications will be required to provide for long-term number
portability whereby customers switching to competing local carriers will be able
to retain their telephone numbers without interruption or charge. It is unclear
as to what degree BellSouth will be able to recover these costs.
REGULATION OF ACCESS SERVICES
BellSouth Telecommunications provides access services by connecting the
equipment and facilities of its subscribers with the communications networks of
Interexchange Carriers. These connections are provided by linking these carriers
and subscribers through the public switched network of BellSouth
Telecommunications or through dedicated private lines furnished by BellSouth
Telecommunications. Rates and other aspects of interstate access services are
regulated by the FCC, and state regulatory commissions have jurisdiction over
the provision of access to the Interexchange Carriers to complete intrastate
telecommunications.
Access charges, which are payable both by Interexchange Carriers and
subscribers, provided approximately 23%, 23% and 24% of BellSouth's operating
revenues for the years ended December 31, 1996, 1995 and 1994, respectively.
These charges are designed to recover the costs of the common and dedicated
facilities and switching equipment used to connect networks of Interexchange
Carriers with the telephone company's local network and to subsidize the cost of
providing local service to rural and other high-cost areas. In addition, an
interstate subscriber line access charge of $3.50 per line per month applies to
single-line business and residential customers. The interstate subscriber access
charge for multi-line business customers varies by state but cannot exceed $6.00
per line per month. The state commissions have authorized BellSouth
Telecommunications to collect from the Interexchange Carriers and, in several
states, from customers charges for providing intrastate access services.
The FCC regulates the level of access charges through a price cap plan. The
price cap plan limits aggregate price changes to the rate of inflation minus an
ILEC-selected productivity offset, plus or minus exogenous cost changes
recognized by the FCC. Two of the productivity options in the current plan, 4.0%
and 4.7%, provide defined earnings limitations with a sharing mechanism. A third
option in the plan, 5.3%, removes both earnings limitations and sharing
requirements. Consistent with a pricing strategy that BellSouth
Telecommunications considered compatible with an increasingly competitive
business environment, it selected a 5.3% productivity factor, which, together
with other adjustments, has
6
<PAGE>
decreased interstate access revenues below what would have been produced under
the other alternatives by approximately $220 million on an annual basis at 1994
access volume levels. The FCC has under consideration the issue of whether
further modification of this plan is warranted.
The 1996 Act requires the FCC to identify the local service subsidy provided
by access charges; to provide for the removal of such subsidy from access rates
in order that access charges reflect underlying costs; to arrange for a
universal service fund to ensure the continuation of universal service; and to
develop the arrangements for payments into that fund by all carriers. The FCC is
currently engaged in this proceeding. In addition, the FCC has commenced a
proceeding to revise its access charge rules.
INTERLATA TOLL SERVICE
As a result of the 1996 Act, BellSouth and the other Holding Companies are
freed from the judicial restrictions of the MFJ that constrained the provision
of interLATA communications throughout their wireline service territories and
elsewhere; the 1996 Act establishes in its place a new restriction and a
procedure for its removal. These companies or their affiliates may apply to the
FCC on a state-by-state basis to offer in-region interLATA wireline services,
and the FCC must act on such application within 90 days. The FCC must grant such
application if it determines that the applicant (a) has met a competitive
checklist; (b) has shown (i) the presence of a facilities-based provider
offering both residential and business services or (ii) if there is no such
provider, a statement that has been approved or permitted to take effect by
state regulatory authorities, 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) has presented an application
consistent with the public interest. The FCC is required to consult with state
regulatory authorities and the Justice Department when reviewing the
application.
BellSouth plans to begin offering interLATA wireline service in each of its
in-region states as soon as the FCC approves its application for each state.
BellSouth has filed documents with the Georgia Public Service Commission
requesting that the Georgia Commission approve a statement of generally
available terms and conditions as provided for in the 1996 Act and to establish
that such terms and conditions meet the competitive checklist referred to above.
BellSouth will file an application for each state as soon as it believes the
conditions described above are met. Because of the proceedings required to
obtain approval and the potential challenges of competitors and others, it is
uncertain when BellSouth will be authorized to commence interLATA service in any
of its in-region states. The 1996 Act requires that in-region interLATA service
be provided through a subsidiary separate from BellSouth Telecommunications.
------------------------
In addition to the above matters, BellSouth Telecommunications is a party or
is subject to numerous proceedings pending before federal and state regulatory
and judicial bodies. These matters involve, among other things, terms and
conditions of services provided by BellSouth Telecommunications, rates charged
for such services, access reform, universal service, number portability and
relationships with competitive service providers and affiliates. No assurance
can be given as to the outcome of any such matters.
PUBLIC TELEPHONES
In September 1996, the FCC issued an order which requires ILECs to reassign
their payphone assets from regulated telephone company accounts to separate
unregulated accounts or to transfer assets to a separate subsidiary. They must
also remove any subsidy of payphone operations from their regulated rates no
later than April 15, 1997 and meet certain other requirements. In return, ILECs
that own payphone units are given the freedom to pursue new business
opportunities. BellSouth Telecommunications is currently taking action to comply
with these requirements.
7
<PAGE>
Consequently, on April 1, 1997, BellSouth Telecommunications plans to
transfer its payphone assets to a separate subsidiary, BellSouth Public
Communications, Inc. (BPC). BPC has filed for certification as an independent
payphone provider in each of the nine states where BellSouth Telecommunications
provides wireline telephone service. It plans to continue to provide independent
payphone services throughout BellSouth Telecommunications' territory and will
selectively provide payphone services in areas served by independent telephone
companies.
BILLING AND COLLECTION SERVICES
BellSouth Telecommunications provides, under contract and/or tariff, billing
and collection services for certain long distance services of AT&T and several
other Interexchange Carriers. The agreement with AT&T extends through the year
2000, subject to the right of AT&T to assume billing and collection for certain
of its services prior to the expiration of the agreement. Revenues from such
services have been decreasing and this trend is expected to continue as AT&T and
other carriers assume more direct billing for their own services. BellSouth
Enterprises also provides limited billing and collection services in foreign
countries.
OPERATOR SERVICES
Directory assistance and local and toll operator services are provided by
BellSouth Telecommunications in its service areas. Toll operator services
include alternate billing arrangements, such as collect calls, third number
billing, person-to-person and calling card calls; dialing instructions;
pre-billed credit; and rate information. In addition, directory assistance is
provided for some other carriers which do not directly provide such services for
their own customers.
OTHER TELECOMMUNICATIONS BUSINESS OPERATIONS
DIRECTORY ADVERTISING AND PUBLISHING
BellSouth Enterprises owns a group of companies which publish, print and
sell advertising in, and perform related services concerning, alphabetical and
classified telephone directories. Directory advertising and publishing revenues
represented approximately 9% of BellSouth's total operating revenues for each of
the last three years. Two of BellSouth's directory companies also provide
publishing and related products and services to other directory publishers.
During 1996, such BellSouth companies published approximately 500 directories
for BellSouth Telecommunications and contracted with approximately 170
nonaffiliated companies to sell advertising space in approximately 490 of their
publications.
WIRELESS COMMUNICATIONS
BellSouth Enterprises provides wireless communications services, which have
consisted mainly of cellular telephone and, through 1995, paging services. In
January 1996, BellSouth sold its interest in its paging subsidiary. Revenues
from wireless communications comprised approximately 15%, 14% and 12% of
BellSouth's total operating revenues for the years ended December 31, 1996, 1995
and 1994, respectively. In addition, BellSouth Enterprises has a noncontrolling
financial interest in a number of wireless businesses whose revenues are not
reflected in operating revenues because of the method of
accounting required for such investments.
Under the MFJ, the Holding Companies generally were prohibited from
providing interLATA wireless communications. The 1996 Act lifts this
prohibition, and in February 1996, BellSouth began offering the interLATA
component of its wireless communications in conjunction with its wireless
offerings. Approximately 1.5 million customers subscribe to such interLATA
service. In areas where it does not have long distance telephone facilities,
BellSouth connects with the networks of the Interexchange Carriers.
The 1996 Act allows BellSouth to market wireless services jointly with
wireline local exchange services; previously, separate marketing was required.
This change has enabled BellSouth to more efficiently offer and provide
integrated telecommunications. In March 1996, BellSouth began joint marketing of
wireless and wireline services in selected markets.
8
<PAGE>
DOMESTIC CELLULAR OPERATIONS
The predominant part of the wireless communications business operations is
cellular telephone service. Cellular radio telephone systems provide customers
with high-quality and readily available two-way communications services that
interconnect with the wireline and other cellular telephone networks.
The domestic cellular telephone business has become a significant
contributor to BellSouth's operations, primarily due to the continued expansion
of the customer base for mobile communications services. BellSouth maintains and
operates cellular systems through wholly-owned subsidiaries and business
arrangements with other entities. Cellular service and related equipment are
marketed to consumers, directly and through authorized agents and to businesses
that resell the service.
The rates charged by cellular carriers are not regulated by the FCC nor the
states in which BellSouth's cellular operations are located. Pursuant to a
federal statute enacted into law in 1993, state governments are generally
preempted from regulating the rates charged by cellular carriers.
At December 31, 1996, businesses in which BellSouth had an equity interest
provided cellular service to a total of approximately 4,880,000 domestic
customers in 17 states. BellSouth's proportionate share of such total customers,
based on its percentage ownership interests of such businesses, was
approximately 3,612,000 customers. (See "Consolidated Financial Statements and
Supplementary Data -- Domestic Cellular Proportionate Operating Data.")
BellSouth's proportionate interest in the aggregate population (POPs) served by
its domestic cellular systems was approximately 40,696,000 persons at December
31, 1996, and its penetration rate was approximately 9%. Within its nine-state
wireline service territory, BellSouth and its partners offer cellular service in
cities including Atlanta, Miami, New Orleans, Memphis, Louisville, Birmingham
and Orlando, while outside its wireline service territory it offers cellular
service in cities including Los Angeles, Houston, Indianapolis, Honolulu and
Richmond, Virginia.
In February 1997, BellSouth signed a definitive agreement with United States
Cellular Corporation to exchange cellular properties. BellSouth would trade its
ownership interests in cellular properties in Wisconsin and Illinois for new or
increased equity ownership of cellular properties located in or adjacent to
BellSouth's nine-state wireline service territory. The exchange is subject to
regulatory approval.
PERSONAL COMMUNICATIONS SERVICE
In 1995, the FCC began auctioning available radio spectrum for providing
digital mobile communications service, commonly referred to as personal
communications service, or PCS. Because PCS service is digital, it provides
greater security and clarity than existing analog cellular systems. BellSouth's
PCS system has been constructed utilizing a technology standard known as GSM
(Global Systems for Mobile communications). GSM is widely used by international
systems. Some domestic PCS systems utilize different, non-compatible
technologies. As a result, cellular services currently offer greater seamless
roaming characteristics across systems than PCS. However, as more PCS networks
are deployed across the United States utilizing GSM technology, and as analog
cellular systems are augmented with digital capability, PCS systems will be able
to offer roaming capabilities comparable to existing cellular services.
BellSouth owns interests in two PCS licenses, one that covers most of North
Carolina and South Carolina and another that covers eastern Tennessee. A
BellSouth consortium is building and operating the network in the Carolinas
while BellSouth alone is building and operating the network in eastern
Tennessee. BellSouth's proportionate POPs covered by these licensed territories
is 7,600,000. The systems became operational in the summer of 1996.
In January 1997, BellSouth won an additional 39 licenses in 37 markets in
the FCC's D- and E-block auctions. These markets cover 11,800,000 POPs in
smaller areas within or adjacent to BellSouth's wireline service territory.
9
<PAGE>
INTERNATIONAL WIRELESS OPERATIONS
Outside the United States, BellSouth owns interests in consortia that hold
licenses for, and are building and/or operating, wireless telephone systems in
Argentina, Australia, Denmark, Germany, India, Israel, New Zealand, Panama,
Peru, Uruguay and Venezuela. Through a wholly-owned subsidiary, BellSouth holds
a license for a wireless telephone system in Chile. At December 31, 1996, these
systems provided cellular or PCS service to a total of approximately 3,603,000
international customers. BellSouth's proportionate share of such customers,
based on its percentage ownership interests in such systems, was approximately
1,244,000 customers. BellSouth's proportionate interest in the aggregate POPs
covered by its international wireless systems was approximately 57,641,000
persons at December 31, 1996, and its penetration rate was approximately 2%.
BellSouth offers wireless service under regional licenses to areas within
Argentina, India, Peru, Uruguay and Chile and offers wireless service under
nationwide licenses in Australia, Denmark, Germany, Israel, New Zealand, Panama
and Venezuela. Service in Australia is also currently being provided by
reselling service obtained from the government-owned carrier. (See "Other
International Operations.")
MOBILE DATA
BellSouth, through its subsidiary BellSouth Mobile Data (BSMD), is an equity
investor in five wireless data communications networks worldwide utilizing L.M.
Ericsson's Mobitex technology. The countries in which BSMD currently provides
service consist of the United States, the United Kingdom, The Netherlands,
Belgium and Singapore. These networks enable wireless data applications such as
computer-aided dispatch, electronic mail, transaction processing and remote data
entry and retrieval. They are also well-suited for fixed applications such as
credit card validation and telemetry.
OTHER INTERNATIONAL OPERATIONS
BellSouth holds a 24.5% interest in Optus Communications Pty. Ltd. (Optus),
which is building and operating Australia's second telecommunications network.
In addition to its wireline and wireless networks, Optus operates four
satellites which were purchased from AUSSAT, Australia's national satellite
communications carrier. Optus offers a range of telecommunications services,
including national and international long-distance, digital and analog cellular,
switched network, enhanced wireline and satellite-based services.
In July 1994, Optus formed a business (Optus Vision) with Australian and
United States companies to develop a high capacity broadband network in
Australia. Optus and U S West, Inc. (U S West) each own 46.5% of Optus Vision.
Two television stations now hold 2% and 5%, respectively, and have the option to
increase their respective ownership interests to 15% and 20%. Local telephone
service, which is marketed under the Optus brand name, was only recently
launched.
BellSouth holds a concession to operate a competing domestic and
international long distance business in Chile. In addition, in January 1997,
BellSouth purchased an interest in a company that offers wired and wireless
cable television and paging services in Peru.
DOMESTIC BROADBAND SERVICES
The 1996 Act eliminates previous prohibitions on telephone companies'
providing cable television services in their service territories, although many
federal courts had already held such prohibitions unconstitutional. Although
ILECs may not acquire or joint venture with established cable television
providers in their wireline territories, they may provide cable television
service over their own facilities.
BellSouth has constructed several networks, and provided cable television
service to a limited degree, in several areas within its wireline
telecommunications service areas to assess the extent to which it wishes to
enter this business. It has obtained and is negotiating to acquire franchises
and licenses in several metropolitan areas, including New Orleans, Atlanta and
Miami, that would enable it to provide video services over wired and wireless
networks.
10
<PAGE>
INTERNET ACCESS
In 1996, BellSouth Telecommunications began providing Internet access, a
customized version of Netscape Navigator-TM-, electronic mail, an optional
site-blocking feature, and a gateway to local and national information and
electronic Yellow Pages.
SELLING AND MAINTAINING EQUIPMENT
To a limited extent, BellSouth sells and maintains telecommunications
equipment in the nine Southeastern states where BellSouth Telecommunications
provides wireline telephone service. The Holding Companies, AT&T and other
substantial enterprises compete in the provision of these services and products.
In May 1996, BellSouth Telecommunications sold its interest in DataServ Computer
Maintenance Inc., a wholly-owned subsidiary that performed computer maintenance.
COMPETITION
GENERAL
BellSouth is subject to increasing competition in all areas of its business.
Regulatory, legislative and judicial actions and technological developments have
expanded the types of available services and products and the number of
companies that may offer them. Increasingly, this competition is from large
companies which have substantial capital, technological and marketing resources.
NETWORK AND RELATED SERVICES
LOCAL SERVICE
Over the past several years, a number of states in BellSouth
Telecommunications' wireline territory have passed legislation providing for
local service competition. Even if a state has not passed legislation, the 1996
Act requires elimination of barriers to local service competition. The state
public service commissions have granted or are in the process of considering,
applications filed by a number of carriers for authority to compete with
BellSouth Telecommunications. Many of these commissions have also determined the
bases, including prices, on which the ILECs must furnish interconnection,
wholesale local service and unbundled local service elements to competing
carriers. BellSouth expects that it will experience greater competition for its
business customers, which provide a higher concentration of higher margin
revenues than do its residential customers.
An increasing number of voice and data communications networks utilizing
fiber optic lines have been and are being constructed by telecommunications
providers in metropolitan areas, including Atlanta, Georgia, Charlotte, North
Carolina and Jacksonville, Miami and Orlando, Florida, and these networks offer
certain high volume users a competitive alternative to the public and private
line offerings of the ILECs. In addition, the networks of some cable television
systems will be capable of carrying two-way interactive data messages and will
be configured to provide voice communications. Furthermore, wireless services,
such as cellular, PCS and paging services, increasingly compete with wireline
communications services.
AT&T's domestic cellular communications business serves customers in 10
cities in BellSouth's local wireline territory and seven cities in which
BellSouth provides cellular communications. This allows AT&T to carry
telecommunications traffic that otherwise could have been carried over the
public switched and private line networks of BellSouth Telecommunications.
As technological and regulatory developments make it more feasible for cable
television to carry data and voice communications, it is increasingly probable
that BellSouth Telecommunications will face competition within its region from
cable television ventures. Alliances are being formed between other Holding
Companies and large corporations that operate cable television systems in many
localities throughout the United States -- for example, U S West/Time Warner
Communications and NYNEX Corporation (NYNEX)/Viacom, Inc. U S West and Time
Warner have announced plans to upgrade certain of their cable TV systems to
full-service networks which would support new interactive and telephone services
that would compete with the ILECs. Time Warner and U S West have made major
cable system
11
<PAGE>
acquisitions that are expected to provide voice and video competition in
BellSouth Telecommunications' service areas. U S West has acquired Atlanta's two
largest cable operators and, in November 1996, acquired Continental Cablevision,
Inc., a provider with a major presence in Florida. In addition, the 1996
acquisition by Time Warner of Turner Broadcasting Corporation will increase
concentration in the cable and programming industries.
Joint ventures and mergers between major telecommunications companies will
result in large, well-capitalized carriers that will provide formidable
competition to BellSouth across a number of markets, including local and long
distance telephone service. Such transactions include the proposed mergers of
SBC Communications Inc. and Pacific Telesis Group and NYNEX and Bell Atlantic
Corporation (Bell Atlantic) and the proposed acquisition by British
Telecommunications plc of MCI.
Competition for local service revenues could adversely affect BellSouth's
results of operations. However, the existence of competitive local service,
among other things, can allow BellSouth to qualify to offer in-region interLATA
service, as contemplated in the 1996 Act. (See "BellSouth Competitive
Strategy.")
ACCESS SERVICE
The FCC has adopted rules requiring ILECs to offer expanded interconnection
for interstate special and switched transport. As a result, BellSouth
Telecommunications is required to permit competitive carriers and customers to
terminate their transmission lines on BellSouth's facilities through collocation
arrangements. The effects of the rules are to increase competition for access
transport.
TOLL SERVICE
A number of firms compete with BellSouth Telecommunications in its
nine-state region for intraLATA toll business by reselling toll services
obtained at bulk rates from BellSouth Telecommunications or, subject to the
approval of the applicable state public utility commission, providing toll
services over their own facilities. Commissions in the states in BellSouth
Telecommunications' operating territory have allowed the latter type of
intraLATA toll calling, whereby the Interexchange Carriers are assigned a
multiple digit access code (10XXX) which customers may dial to place intraLATA
toll calls through facilities of such Interexchange Carriers. The legislature or
commissions in three states have authorized competing carriers to provide
intraLATA toll presubscribed calling with a single digit access code (1+),
giving them dialing parity with the ILEC in that area. Commissions in several
other states are considering how and when such authorization should be
implemented. However, the 1996 Act prohibits states from ordering the
implementation of new toll dialing parity until the earlier of (a) three years
from the enactment of the 1996 Act or (b) such time as the Operating Telephone
Company has qualified to provide in-region interLATA services.
The 1996 Act permits the other Holding Companies to offer BellSouth's local
service customers interLATA toll service. BellSouth expects Holding Companies
and other carriers to compete for such interLATA toll service. For example, Bell
Atlantic has begun offering interLATA toll service to BellSouth's local service
customers and other Holding Companies may do likewise. AT&T, MCI, Sprint and a
number of other carriers currently provide toll services to BellSouth's local
service customers.
DIRECTORY ADVERTISING AND PUBLISHING
In BellSouth's advertising and publishing business, competition for
advertising revenues has expanded. Many different media compete for advertising
revenues, and some newspaper organizations and other companies have begun
publishing their own directories. Competition for directory sales agency
contracts for the sale of advertising in publications of nonaffiliated companies
also continues to be strong. Directory listings are now offered in various media
besides paper books, including CD ROM, the Internet and other electronic data
bases through telephone company and third party networks. As such offerings
expand and are enhanced through interactivity and other features, BellSouth will
experience heightened competition in its directory advertising and publishing
businesses. BellSouth has
12
<PAGE>
responded to the increased competition and its changing market environment with
new directory products, product enhancements, multi-media delivery options,
pricing changes, competitive advertising, local promotions, directory
redeliveries and extended distributions.
WIRELESS COMMUNICATIONS
The FCC's PCS licensing process allows multiple new competitors for
BellSouth's businesses. Licenses to provide PCS services have been won in
auction by AT&T, Holding Company consortia and other large and well-capitalized
entities. PCS will provide competition to BellSouth's local wireline and
wireless telephone businesses. Several competitive PCS systems are now
operational.
The FCC has jurisdiction over the licensing of cellular mobile radio
services in domestic markets. The FCC limits entry for providers of cellular
mobile telecommunications to two licensees for each defined metropolitan
statistical area (MSA) and each rural service area (RSA) within the country.
Each MSA and RSA in which BellSouth participates in the provision of cellular
mobile communications has a competing service provider. In many markets,
competing cellular service is provided by businesses owned or controlled by a
Holding Company, AT&T or a major telephone company. In addition, Bell Atlantic
and NYNEX have combined their cellular businesses, and U S West and AirTouch
Communications have announced that they plan to merge their cellular businesses.
Those four companies have also formed a joint venture to provide PCS in many
domestic markets.
BellSouth's international wireless joint ventures are generally subject to
competition from at least one other wireless service provider, and sometimes
more than one other provider. For example, in Germany there are two competitors.
These competing service providers are generally supported by partners who are at
least as well-capitalized as BellSouth and its partners. In some cases the
competing provider is owned by the state-owned telephone company, which may have
access to the financial resources of the government.
BellSouth's wireless data businesses experience competition from private and
public wireless data networks, specialized mobile radio networks and cellular
networks. The degree and type of competition vary from country to country.
BellSouth's wireless data companies all utilize the Mobitex technology which is
flexible for targeting both specialized and general market segments.
BellSouth's primary mobile data competitor is ARDIS, a wholly-owned
subsidiary of Motorola, Inc. The ARDIS network, which was started in 1983 as a
private network for IBM, has historically had greater coverage, an advantage
which BellSouth considers has been neutralized. Future competition could come
from companies offering Cellular Digital Packet Data (CDPD), a cellular-based
system specifically designed for packet data applications and PCS-based
services. There are many network and product development issues that CDPD
operators must still address before they can offer a fully competitive service.
Other competitive threats to each of BellSouth's overseas wireless data
holdings are GSM operators, which may offer an integrated packet data standard
around the turn of the century. In Singapore, BellSouth's wireless data property
competes against operators of technologies related to Motorola's ARDIS
technology.
The FCC has approved construction of enhanced specialized mobile radio
(ESMR) systems in many cities around the country. These digital mobile
communications systems are expected to provide service very similar to cellular
telephone service. There has been a consolidation of the licenses required to
provide ESMR service, so that control of this business is concentrated in the
hands of a few
potential operators, giving them the ability to offer services like nationwide
roaming once the systems are built. ESMR became available commercially in Los
Angeles during second quarter of 1994 in competition with BellSouth's cellular
telephone partnership.
BELLSOUTH COMPETITIVE STRATEGY
BellSouth has developed three main strategies that govern its business
decisions in the increasingly competitive telecommunications industry. First,
BellSouth will strengthen its leadership position
13
<PAGE>
throughout its nine-state wireline territory by (a) enhancing and building its
brand strength and distribution channels; (b) providing full-service offerings
including wireline and wireless, local and long-distance, and video and
electronic commerce services; and (c) controlling costs. Second, BellSouth will
continue to grow profitably its domestic wireless business by (a) deploying
value-added products and services and competitive technology; (b) strengthening
and expanding distribution channels including joint marketing with BellSouth
Telecommunications; and (c) expanding in-region wireless coverage through
successfully bidding for PCS licenses and other acquisitions. Third, BellSouth
will continue to grow and develop its Latin American and other international
operations.
MARKETING
A substantial portion of the growth in BellSouth Telecommunications'
revenues from local services is derived from the sale of second residential
lines and optional calling services. These offerings are marketed in a variety
of packages with varying pricing features that are designed to appeal to a wide
variety of the Company's customer base. A substantial number of these sales are
made by customer service representatives who are on call 24 hours a day, seven
days a week, as they are contacted by subscribers on other matters.
Many of BellSouth's other services and products, such as cellular and PCS
services and including the long distance component of these wireless services,
Internet service and video services, are sold by BellSouth Telecommunications'
service representatives. The marketing of many of these services is enhanced by
alliances with other service providers and suppliers. For instance, Netscape
Communications Corporation provides BellSouth's Internet users with its Web
browser, and persons who visit the Netscape Web site are offered a convenient
way to sign up for BellSouth's Internet service. Additional arrangements with
Yahoo! Inc and Wired Ventures Limited further enhance BellSouth's Internet
service marketing strategy.
In addition to utilizing BellSouth Telecommunications' distribution
channels, BellSouth's wireless offerings are sold through approximately 275
company-owned stores, 300 kiosks located in retail stores and shopping centers,
and non-affiliated retail outlets such as Radio Shack and Circuit City stores.
In addition, BellSouth's services are made available through BellSouth's home
page on the worldwide web, through a telemarketing organization which contacts
over 1 million potential customers each month and through a direct sales force
of nearly 4,000 persons. BellSouth's PCS service in the Carolinas is also
marketed through BellSouth's partners in that system, including Duke Power
Company, when its service representatives receive inquiries and other calls for
electric service. BellSouth was the first operational PCS provider in this
market, giving it a marketing advantage over other rivals who purchased PCS
licenses covering the same territory. BellSouth's PCS service offers a number of
packages of optional features with pricing enhancements intended to attract
cellular customers from the incumbent wireless carriers in that territory.
BellSouth Telecommunications' business services are marketed by customer
service representatives through varied pricing and service options. BellSouth's
products and services, such as video conferencing, ISDN service and
telecommunications equipment and systems, are also demonstrated and sold through
marketing arrangements with other retailers of office products, such as Office
Depot. BellSouth Telecommunications markets its services and products to large
and complex business customers through highly specialized applications and,
where appropriate, through pricing enhancements varying according to business
volumes and length of service. In addition to telephone lines, product and
service offerings to these customers include Internet access, special networks,
high-speed data transmission, business teleconferencing and industry-specific
communications configurations.
Advertising and publishing products are marketed to organizations and
companies with unique directory needs. Export directories, a home improvement
guide, a health and medical guide, consumer tips and a restaurant and
entertainment guide are examples of such directories. Directories are also
marketed to non-affiliated telephone companies.
14
<PAGE>
While BellSouth Telecommunications continues to use the names South Central
Bell and Southern Bell for various purposes, its services were unified under the
BellSouth brand name in October 1995 to give BellSouth Telecommunications a
clear, consistent identity in the marketplace. BellSouth believes that its brand
name is widely recognized and held in high esteem by its customers. A primary
marketing strategy is to enhance the recognition and reputation of this mark
throughout its service territory, thereby facilitating the joint marketing
efforts described above. Accordingly, significant increases in marketing and
advertising costs have been and will be incurred. BellSouth advertises in the
various media in its territory and in connection with major events, such as the
Olympics, the Super Bowl and its sponsored PGA golf tournaments, which offer
BellSouth a broader platform to showcase its products and services.
With a few exceptions, BellSouth's international services are not marketed
under its brand name, in part because the name recognition is less than in
domestic markets. Nevertheless, the appeal of the wireless offerings is
significant because the wireline service in many international markets,
especially in Latin America, is less reliable or available.
REGULATORY AND LEGISLATIVE CHANGES
BellSouth's primary regulatory focus has been directed toward modifying the
regulatory process to one that is more closely aligned with changing market
conditions and overall public policy objectives. As an alternative to regulation
of intrastate earnings, BellSouth has sought price regulation, whereby prices of
basic service are regulated and the pricing of other products and services are
based on market factors. While price regulation plans do not provide for the
direct recovery through basic service rates of cost increases or extraordinary
expenses, they generally provide more flexibility to meet competitive pricing
levels. BellSouth Telecommunications has price regulation plans approved or
authorized in all states in its wireline territory, although the implementation
of the Tennessee plan has been stayed by a court pending resolution of a number
of issues.
NEW SERVICES
Notwithstanding the inevitable loss of local service customers and other
risks associated with increased competition, BellSouth will have the opportunity
to benefit from entry into new business markets. For example, the presence of
competition, among other things, can allow BellSouth to qualify to offer
interLATA wireline service under provisions contained in the 1996 Act. 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 include interLATA services, information
services and video and electronic commerce services. BellSouth has entered some
of these businesses through investments in, strategic alliances with and
acquisitions of established companies in such industries and through the
development of some of these services and capabilities internally. For example,
among other initiatives, BellSouth has acquired several cable TV rights, is
conducting a trial of cable TV service and is providing Internet access.
BellSouth also intends to continue to pursue certain foreign telecommunications
licenses as they are offered.
WORK FORCE REDUCTION
In 1995, BellSouth Telecommunications completed the restructuring of its
telephone operations that was announced in 1993. Also, BellSouth
Telecommunications announced in 1995 a plan to reduce its work force by
approximately 11,300 additional employees by the end of 1997. For a discussion
of the work force reduction, see "MD&A -- Results of Operations -- Operating
Expenses -- Work Force Reduction Charge."
RESEARCH AND DEVELOPMENT
The majority of BellSouth's research and development activity is conducted
at Bell Communications Research, Inc. (Bellcore), one-seventh of which is owned
by BellSouth, through BellSouth Telecommunications, with the remainder owned by
the other Holding Companies. Bellcore provides research and development and
other services for its owners and is the central point of contact for
coordinating the Federal government's telecommunications requirements relating
to national security and emergency preparedness.
15
<PAGE>
In November 1996, Science Applications International Corporation agreed to
purchase Bellcore. BellSouth has contracted with Bellcore for ongoing support of
engineering and systems. In addition, the Holding Companies formed the National
Telecommunications Alliance to support their commitment to national security and
emergency preparedness.
LICENSES AND FRANCHISES
BellSouth Telecommunications' local exchange business is typically provided
under certificates of public convenience and necessity granted pursuant to state
statutes and public interest findings of the various public utility commissions
of the states in which BellSouth Telecommunications does business. These
certificates provide for a franchise of indefinite duration, subject to the
maintenance of satisfactory service at reasonable rates.
The domestic cellular, PCS, wireless cable and mobile data systems in which
BellSouth has an interest are operated under licenses granted by the FCC. A
carrier holding a license to provide cellular service in a territory is not
eligible for a PCS license covering the same territory. Prior approval of the
FCC is required for the assignment of a license or the transfer of control of a
license. The licenses are generally issued for up to 10-year periods. At the end
of the license period, a renewal application must be filed. BellSouth believes
renewal will generally be granted on a routine basis upon showing compliance
with FCC regulations and continuing service to the public. Licenses may be
revoked and license renewal applications may be denied for cause. With regard to
cellular licenses, the FCC has established the procedures and standards for
conducting comparative renewal proceedings, including the award of a "renewal
expectancy" that effectively eliminates the need to consider competing
applicants when the incumbent meets specified criteria.
The wired cable systems over which BellSouth provides domestic cable
services are operated under cable franchises granted by the city or
unincorporated county government with local franchising authority for the
geographic service area in question. These cable franchises are generally issued
for 10 to 15 year periods. They typically require the payment of cable franchise
fees to the local franchising authority, capped by federal law at 5% of gross
cable related revenues, and various forms of financial and facilities support
for a limited number of government, education and public access channels.
International systems also operate under licenses granted by the governments
in the countries where such systems are located. The foreign licenses are issued
for varied terms and are generally renewable at the end of the initial license
period. As is the case with BellSouth's domestic wireless properties, the
foreign licenses may be revoked and license renewal applications may be denied
for cause.
BellSouth believes that it owns or has licenses to use all patents,
copyrights, trademarks and other intellectual property necessary for it to
conduct its present business operations. It is not anticipated that any of such
property will be subject to expiration or non-renewal of rights which would
materially and adversely affect BellSouth or its subsidiaries.
EMPLOYEES
At December 31, 1996, 1995 and 1994 BellSouth and its subsidiaries employed
approximately 81,200, 87,600 and 92,100 persons, respectively. Of these amounts
at these dates, approximately 62,400, 68,600, and 73,800 persons were telephone
employees of BellSouth Telecommunications. About 63% of BellSouth's employees at
December 31, 1996 were represented by the Communications Workers of America (the
CWA), which is affiliated with the AFL-CIO. In October 1995, members of the 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 $1,100
to each eligible employee upon ratification and further provides payments of
$1,100 per eligible employee in cash or $1,210 in 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.
16
<PAGE>
During 1995, BellSouth Telecommunications completed the 1993 plan to reduce
its work force by approximately 10,200 employees. Also during 1995, BellSouth
Telecommunications announced a plan to further reduce its work force by
approximately 11,300 employees by the end of 1997. Including a reduction of
approximately 800 employees which occured in December 1995, BellSouth
Telecommunications has reduced its work force by approximately 7,000 employees
under the 1995 plan through December 31, 1996. (See "MD&A -- Results of
Operations -- Operating Expenses -- Work Force Reduction Charge.")
ITEM 2. PROPERTIES
GENERAL
BellSouth's properties do not lend themselves to description by character
and location of principal units. BellSouth's investment in property, plant and
equipment, 91% of which is held by BellSouth Telecommunications, consisted of
the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Outside plant.................................................... 42% 43%
Central office equipment......................................... 35 34
Operating and other equipment.................................... 8 8
Land and buildings............................................... 8 7
Furniture and fixtures........................................... 6 6
Plant under construction......................................... 1 2
---- ----
100% 100%
---- ----
---- ----
</TABLE>
Outside plant consists of connecting lines (aerial, underground and buried
cable) not on customers' premises, the majority of which are on or under public
roads, highways or streets, while the remainder is on or under private property.
BellSouth currently self-insures all of its outside plant against casualty
losses. Central office equipment substantially consists of digital electronic
switching equipment and circuit equipment. Land and buildings consist
principally of central offices. Operating and other equipment consists of
wireless network equipment, embedded intrasystem wiring (substantially all of
which is on the premises of customers), motor vehicles and other equipment.
Central office equipment, buildings, furniture and fixtures and certain
operating and other equipment are insured under a blanket property insurance
program. This program provides substantial limits of coverage against "all
risks" of loss including fire, windstorm, flood, earthquake and other perils not
specifically excluded by the terms of the policies.
Substantially all of the installations of central office equipment and
administrative offices are located in buildings and on land owned by BellSouth
Telecommunications. Many garages, business offices and telephone service centers
are in leased quarters.
BellSouth Telecommunications' customers are now served by electronic
switching systems. The BellSouth Telecommunications network has been
transitioned from an analog to a digital network, which provides capabilities
for BellSouth Telecommunications to furnish advanced data transmission and
information management services. BellSouth has substantially completed adding
digital technology to certain cellular systems which were operating with analog
technology at or near capacity.
CAPITAL EXPENDITURES
Capital expenditures consist of gross additions to property, plant and
equipment having an estimated service life of one year or more, plus the
incidental costs of preparing the asset for its intended use.
The total investment in property, plant and equipment has increased from
$37,155 million at January 1, 1992 to $50,059 million at December 31, 1996, not
including deductions of accumulated depreciation. Significant additions to
property, plant and equipment will be required to meet the demand
17
<PAGE>
for telecommunications services and to further modernize and improve such
services to meet competitive demands. Population and economic expansion is
projected by BellSouth in certain growth centers within its nine-state area
during the next five to ten years. Expansion of the network will be needed to
accommodate such projected growth.
BellSouth's capital expenditures for 1992 through 1996 were as follows:
<TABLE>
<CAPTION>
MILLIONS
--------
<S> <C>
1996........................................................ $ 4,455
1995........................................................ 4,203
1994........................................................ 3,600
1993........................................................ 3,486
1992........................................................ 3,189
</TABLE>
BellSouth projects capital expenditures of approximately $4.7 billion to
$5.2 billion for 1997, consisting of $3.4 billion for BellSouth
Telecommunications' and $1.3 billion to $1.8 billion primarily for BellSouth's
wireless and international businesses. A majority of the expenditures will be to
expand, enhance and modernize its current wireline and domestic cellular
operating systems, to develop international wireless and other businesses and
for property additions to complete construction of PCS systems in the United
States.
In 1996, BellSouth generated substantially all of its funds for capital
expenditures internally. In 1997, such capital expenditures are expected to be
financed primarily through internally generated funds and, to the extent
necessary, from external sources.
ENVIRONMENTAL MATTERS
BellSouth is subject to a number of environmental matters as a result of its
operations and the shared liability provisions related to the divestiture from
AT&T. As a result, BellSouth expects that it will be required to expend funds to
remedy certain facilities, including those Superfund sites for which BellSouth
has been named as a potentially responsible party, for the remediation of sites
with underground fuel storage tanks and other expenses associated with
environmental compliance. At December 31, 1996, BellSouth's recorded liability
related primarily to remediation of these sites was approximately $35 million.
BellSouth monitors its operations with respect to potential environmental
issues, including changes in legally mandated standards and remediation
technologies. BellSouth's recorded liability reflects those specific issues
where remediation activities are currently deemed to be probable and where the
cost of remediation is estimable. BellSouth continues to believe that
expenditures in connection with additional remedial actions under the current
environmental protection laws or related matters would not be material to its
financial position or annual operating results or cash flows.
ITEM 3. LEGAL PROCEEDINGS
BellSouth and its subsidiaries are subject to claims arising in the ordinary
course of business involving allegations of personal injury, breach of contract,
anti-competitive conduct, employment law issues, regulatory matters and other
actions. While complete assurance cannot be given as to the outcome of any legal
claims, BellSouth believes that any financial impact would not be material to
its financial position or annual operating results or cash flows. See Note O to
the Consolidated Financial Statements.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matter was submitted to a vote of shareholders in the fourth quarter of
the fiscal year ended December 31, 1996.
------------------------
ADDITIONAL INFORMATION
DESCRIPTION OF BELLSOUTH STOCK
GENERAL
The Articles of Incorporation of BellSouth authorize the issuance of
2,200,000,000 shares of common stock, par value $1 per share (the Common Stock),
and 100,000,000 shares of cumulative, first preferred stock, par value $1 per
share (the Preferred Stock). BellSouth's Board of Directors (the Board) is
authorized to provide for the issuance, from time to time, of the Preferred
Stock in series and, as to each series, to fix the number of shares in such
series and the voting, dividend, redemption, liquidation, retirement and
conversion provisions applicable to the shares of such series. No shares of
Preferred Stock are outstanding. The Board has created Series A First Preferred
Stock consisting of 30 million shares (the Series A Preferred Stock) for
possible issuance under BellSouth's Shareholder Rights Plan. (See "Preferred
Stock Purchase Rights" and "Market for Registrant's Common Equity and Related
Stockholder Matters.")
DIVIDEND RIGHTS
The holders of Common Stock are entitled to receive, from funds legally
available for the payment thereof, dividends when and as declared by resolution
of the Board. While any series of Preferred Stock is outstanding, no dividends
(other than dividends payable solely in Common Stock) may be declared or paid on
Common Stock, and no Common Stock may be purchased, redeemed or otherwise
acquired for value, (a) unless dividends on all outstanding shares of Preferred
Stock for the current and all past dividend periods have been paid or declared
and provision made for payment thereof and (b) unless all requirements with
respect to any purchase, retirement or sinking fund or funds applicable to all
outstanding series of Preferred Stock have been satisfied. Dividends on the
Preferred Stock would be cumulative.
VOTING RIGHTS
Except in connection with the "business combinations" and "fair price"
provisions discussed below, holders of shares of Common Stock are entitled to
one vote, in person or by proxy, for each share held on the applicable record
date with respect to each matter submitted to a vote at a meeting of
shareholders, but such holders do not have cumulative voting rights. The holders
of any series of Preferred Stock, when issued, may receive the right to vote as
a class on certain amendments to the Articles of Incorporation and on certain
other matters, including the election of directors in the event of certain
defaults, which may include non-payment of Preferred Stock dividends.
LIQUIDATION RIGHTS
In the event of voluntary or involuntary liquidation of BellSouth, holders
of the Common Stock will be entitled to receive, after creditors have been paid
and the holders of the Preferred Stock, if any, have received their liquidation
preferences and accumulated and unpaid dividends, all the remaining assets of
BellSouth.
PRE-EMPTIVE RIGHTS; CONVERSION RIGHTS; REDEMPTION
No shareholders of any class shall be entitled to any pre-emptive rights to
subscribe for or purchase any shares or other securities issued by BellSouth.
The Common Stock has no conversion rights and is not subject to redemption.
PREFERRED STOCK PURCHASE RIGHTS
The Board has declared a dividend of one preferred stock purchase right
(Right) for each share of Common Stock from time to time outstanding. Under
certain circumstances, each Right will entitle the
19
<PAGE>
holder to purchase one one-hundredth of a share of Series A Preferred Stock,
$1.00 par value (Common Equivalent Preferred Stock), which unit is substantially
equivalent in voting and dividend rights to one whole share of the Common Stock,
at a price of $87.50 per whole share (the Purchase Price). The Rights are not
presently exercisable and may be exercised only if a person or group acquires
10% of the outstanding voting stock of BellSouth without the prior approval of
the Board (Acquiring Person) or announces a tender or exchange offer that would
result in ownership of 25% or more of the Common Stock.
If an Acquiring Person becomes such without prior Board approval, the Rights
are adjusted, and each holder, other than the Acquiring Person, then has the
right to receive, on payment of the Purchase Price, the number of shares of
Common Stock, units of the Common Equivalent Preferred Stock or other assets
having a market value equal to twice the Purchase Price.
The Rights currently trade with the Common Stock and expire in 1999.
BUSINESS COMBINATIONS
The Georgia legislature has enacted legislation which generally prohibits a
corporation which has adopted a by-law electing to be covered thereby (which
BellSouth has done) from engaging in any "business combination" (i.e., a merger,
consolidation or other specified corporate transaction) with an "interested
shareholder" (i.e., a 10% shareholder or an affiliate of the corporation which
was a 10% shareholder at any time within the preceding two years) for a period
of five years from the date such person becomes an interested shareholder,
unless the interested shareholder (a) prior to becoming an interested
shareholder, obtained the approval of the Board of Directors for either the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, (b) becomes the owner of at least 90% of the
outstanding voting stock of the corporation in the same transaction in which the
interested shareholder became an interested shareholder, excluding for purposes
of determining the number of shares outstanding those shares owned by officers,
directors, subsidiaries and certain employee stock plans of the corporation or
(c) subsequent to the acquisition of 10% or more of the outstanding voting stock
of the corporation, acquires additional shares resulting in ownership of at
least 90% of the outstanding voting stock of the corporation and obtains
approval of the business combination by the holders of a majority of the shares
of voting stock of the corporation, other than those shares held by an
interested shareholder, officers, directors, subsidiaries and certain employee
stock plans of the corporation. BellSouth's "business combinations" by-law may
be repealed only by an affirmative vote of two-thirds of the continuing
directors and a majority of the votes entitled to be cast by the shareholders,
other than interested shareholders, and shall not be effective until 18 months
after such shareholder vote. The Georgia statute provides that a domestic
corporation which has thus repealed such a by-law may not thereafter readopt the
by-law as provided therein.
FAIR PRICE PROVISIONS
"Fair price" provisions contained in the Articles of Incorporation require,
generally, in connection with a merger or similar transaction between BellSouth
and an "interested shareholder" (a 10% shareholder or an affiliate of BellSouth
which was a 10% shareholder at any time within the preceding two years), the
unanimous approval of BellSouth's directors not affiliated with the interested
shareholder or the affirmative vote of two-thirds of such directors and a
majority of the outstanding shares held by disinterested shareholders, unless
(a) within the past three years the shareholder has been an interested
shareholder and has not increased its shareholdings by more than one percent in
any 12-month period or (b) all shareholders receive at least the same
consideration for their shares as the interested shareholder previously paid.
Additionally, these provisions may be revised or rescinded only upon the
affirmative vote of at least two-thirds of the directors not affiliated with an
interested shareholder and a majority of the outstanding shares held by
disinterested shareholders.
BOARD CLASSIFICATION
Board classification provisions adopted by the shareholders and contained in
the By-laws prescribe a shareholder vote for approximately one-third of the
directors, instead of all directors, at each annual meeting of shareholders for
a three-year term. Additionally, such provisions provide that shareholders may
remove
20
<PAGE>
directors from office, with or without cause, amend the By-laws with respect to
the number of directors or amend the board classification provisions only by the
affirmative vote of the holders of at least 75% of the outstanding shares
entitled to vote for the election of directors.
REMOVAL OF DIRECTORS
BellSouth's Articles of Incorporation provide that the shareholders of
BellSouth may remove a director, with or without cause, by the affirmative vote
of the holders of at least 75% of the voting power of all shares of stock
entitled to vote generally in the election of directors, voting together as a
single class.
LIMITATION ON SHAREHOLDERS' PROCEEDINGS
BellSouth's By-laws require 60 days advance notice of shareholder
nominations for directors and of other matters to be brought before annual
shareholders' meetings. Such By-laws also provide that a special shareholders'
meeting may not be called by fewer than two-thirds of the outstanding shares
entitled to vote at the meeting.
------------------------
The provisions discussed under the six preceding sub-headings and the
ability to issue Preferred Stock, such as the Series A Preferred Stock described
above, with characteristics established by the Board and without the consent of
the holders of Common Stock and the ability to issue additional shares of Common
Stock may have the effect of discouraging takeover attempts and may also have
the effect of maintaining the position of incumbent management. In addition,
these provisions may have a significant effect on the ability of shareholders of
BellSouth to benefit from certain kinds of transactions that may be opposed by
the incumbent Board.
21
<PAGE>
EXECUTIVE OFFICERS
The executive officers of BellSouth Corporation are listed below:
<TABLE>
<CAPTION>
THIS
OFFICER OFFICE
NAME AGE OFFICE SINCE SINCE
- ------------------------- --- ------------------------------------------------------------ ------- ------
<S> <C> <C> <C> <C>
F. Duane Ackerman* 54 President and Chief Executive Officer 1983 1996
Walter H. Alford 58 Executive Vice President and General Counsel 1983 1988
C. Sidney Boren 53 Senior Vice President -- Corporate Planning and Development 1984 1996
Keith O. Cowan 40 Vice President -- Corporate Development 1996 1996
Mark E. Droege 43 Vice President -- Financial Management and Treasurer 1996 1996
Ronald M. Dykes 50 Executive Vice President and Chief Financial Officer 1988 1995
H. C. Henry, Jr. 53 Executive Vice President -- Corporate Relations 1984 1993
David J. Markey 56 Vice President -- Governmental Affairs 1986 1993
Charles C. Miller, III 44 President -- International 1990 1995
W. Patrick Shannon 34 Vice President and Controller 1997 1997
Arlen G. Yokley 59 Senior Vice President, Executive Staff Officer and Corporate 1984 1996
Secretary
</TABLE>
The following officers of the companies indicated may be deemed to be
executive officers of BellSouth Corporation:
<TABLE>
<S> <C> <C> <C> <C>
Jere A. Drummond 57 President and Chief Executive Officer -- BellSouth 1982 1995
Telecommunications, Inc.
Earle Mauldin 56 President and Chief Executive Officer -- BellSouth 1987 1995
Enterprises, Inc.
</TABLE>
All of the executive officers of BellSouth, other than Mr. Shannon and Mr.
Cowan, have for at least the past five years held high level management or
executive positions with BellSouth or its subsidiaries. Prior to joining
BellSouth in 1997, Mr. Shannon was employed by U S West, Inc. as Chief Financial
Officer of MediaOne, a company that provides cable TV services. Mr. Cowan was a
partner at the law firm of Alston & Bird before joining BellSouth in 1996.
All officers serve until their successors have been elected and qualified.
- ------------------------
* John L. Clendenin retired as President and Chief Executive Officer at the end
of 1996, and was succeeded by Mr. Ackerman. Mr. Clendenin will remain Chairman
of the Board of Directors through 1997 but, since his retirement, he is no
longer deemed to be an officer of BellSouth.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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, Frankfurt. Amsterdam and Swiss exchanges. The ticker symbol for
BellSouth common stock is BLS. At February 1, 1997, there were 1,084,146 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>
MARKET PRICES PER SHARE
------------------ DIVIDENDS
HIGH LOW DECLARED
------- ------- ----------
<S> <C> <C> <C>
1996
First Quarter................................................................... $45 7/8 $36 $ .36
Second Quarter.................................................................. 42 3/8 35 1/4 .36
Third Quarter................................................................... 43 3/8 35 1/4 .36
Fourth Quarter.................................................................. 44 36 1/4 .36
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
</TABLE>
STOCK TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is BellSouth's stock transfer agent
and registrar.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Revenues................................ $19,040 $17,886 $16,845 $15,880 $15,202
Operating Expenses (1)............................ 14,261 14,594 12,787 13,593 12,041
--------- -------- -------- -------- --------
Operating Income.................................. 4,779 3,292 4,058 2,287 3,161
Interest Expense.................................. 721 724 666 689 746
Gain on Sale of Paging Business (2)............... 442 -- -- -- --
Other Income, net................................. 108 20 11 8 178
--------- -------- -------- -------- --------
Income Before Income Taxes, Extraordinary Losses
and Accounting Change............................ 4,608 2,588 3,403 1,606 2,593
Provision for Income Taxes........................ 1,745 1,024 1,243 572 934
--------- -------- -------- -------- --------
Income Before Extraordinary Losses and Accounting
Change........................................... 2,863 1,564 2,160 1,034 1,659
Extraordinary Losses, net of tax (3).............. -- (2,796) -- (87) (41)
Accounting Change, net of tax..................... -- -- -- (67) --
--------- -------- -------- -------- --------
Net Income (Loss)............................... $ 2,863 $(1,232) $ 2,160 $ 880 $ 1,618
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Earnings (Loss) Per Share:
Income Before Extraordinary Losses and
Accounting Change.............................. $ 2.88 $ 1.57 $ 2.18 $ 1.04 $ 1.69
Extraordinary Losses, net of tax (3)............ -- (2.81) -- (.09) (.04)
Accounting Change, net of tax................... -- -- -- (.06) --
--------- -------- -------- -------- --------
Net Income (Loss)............................... $ 2.88 $ (1.24) $ 2.18 $ .89 $ 1.65
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Dividends Declared Per Common Share............... $ 1.44 $ 1.41 $ 1.38 $ 1.38 $ 1.38
Book Value Per Share.............................. $ 13.37 $ 11.90 $ 14.48 $ 13.60 $ 13.97
Return to Average Common Equity................... 22.4% (9.2%) 15.4% 6.3% 11.9%
Weighted Average Common Shares Outstanding........ 994 993 992 991 981
Return on Average Total Capital................... 15.0% (2.7%) 11.5% 6.1% 9.8%
Total Assets...................................... $32,568 $31,880 $34,397 $32,873 $31,463
Capital Expenditures.............................. $ 4,455 $ 4,203 $ 3,600 $ 3,486 $ 3,189
Long-Term Debt.................................... $ 8,116 $ 7,924 $ 7,435 $ 7,381 $ 7,360
Debt Ratio at End of Period (4)................... 43.5% 46.7% 39.3% 40.2% 39.0%
Ratio of Earnings to Fixed Charges................ 6.55 4.24 5.34 2.98 4.00
Total Employees................................... 81,241 87,571 92,121 95,084 97,112
Telephone Employees (5)........................... 62,425 68,585 73,764 77,958 79,453
Telephone Employees per 10,000 Access Lines....... 28.2 32.5 36.5 40.3 42.6
Business Volumes: (6)
Network Access Lines in Service (thousands)..... 22,135 21,133 20,220 19,333 18,650
Access Minutes of Use (millions):
Interstate.................................... 67,690 62,411 57,778 53,345 50,546
Intrastate.................................... 21,171 19,197 16,888 15,261 13,994
Toll Messages (millions)........................ 1,023 1,374 1,559 1,511 1,462
Cellular Customers (thousands): (7)
Domestic...................................... 3,612 2,847 2,156 1,559 1,118
International................................. 1,244 655 361 192 78
--------- -------- -------- -------- --------
Total Cellular Customers.................... 4,856 3,502 2,517 1,751 1,196
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
</TABLE>
- ------------------------------
(1) Operating Expenses for 1995 include a work force reduction charge of $1,082,
which reduced net income by $663. See Note J to the Consolidated Financial
Statements. Operating Expenses for 1993 include a charge for restructuring
of $1,136, which reduced net income by $697.
(2) Represents the pre-tax gain on the sale of BellSouth's paging business in
January 1996, which increased net income by $344. See Note B to the
Consolidated Financial Statements.
(3) 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 E
and L to the Consolidated Financial Statements.
(4) The debt ratio at December 31, 1995 has been adjusted to exclude $485 of
debentures 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) Calculated on the equity basis, which includes customers served based on
BellSouth's ownership percentage in all markets served.
24
<PAGE>
ITEM 7. 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%, 70% and 72% of BellSouth's Total Operating Revenues for
the years ended December 31, 1996, 1995 and 1994, respectively, were from
wireline services provided by BellSouth Telecommunications. Charges for local,
access and toll services for the year ended December 31, 1996 accounted for
approximately 61%, 33% and 6%, respectively, of the wireline revenues discussed
above. Revenues from consolidated wireless communications services and from
directory advertising and publishing services accounted for approximately 15%
and 9%, respectively, of Total Operating Revenues for the year ended December
31, 1996. The remainder of such revenues was derived principally from sales and
maintenance of customer premises equipment and 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 G to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary
Losses........................... $ 2,863 $ 1,564 $ 2,160 83.1% (27.6%)
Extraordinary Loss for
Discontinuance of SFAS No. 71,
net of tax....................... -- (2,718) -- -- --
Extraordinary Loss on Early
Extinguishment of Debt, net of
tax.............................. -- (78) -- -- --
--------- --------- ---------
Net Income (Loss)................. $ 2,863 $ (1,232) $ 2,160 -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Earnings (Loss) Per Share:
<CAPTION>
PERCENT CHANGE
----------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary
Losses........................... $ 2.88 $ 1.57 $ 2.18 83.4% (28.0%)
Extraordinary Loss for
Discontinuance of SFAS No. 71,
net of tax....................... -- (2.73) -- -- --
Extraordinary Loss on Early
Extinguishment of Debt, net of
tax.............................. -- (.08) -- -- --
--------- --------- ---------
Earnings (Loss) Per Share......... $ 2.88 $ (1.24) $ 2.18 -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
For a discussion of the extraordinary losses in 1995, see "Extraordinary
Losses" below.
Income Before Extraordinary Losses for 1996 increased $1,299 (83.1%) and
$1.31 per share (83.4%), respectively, compared to 1995. The increases were
primarily attributable to the effect of an after-tax work force reduction charge
in 1995 of $663 ($.67 per share). For a discussion of such charge, see
"Operating Expenses -- Work Force Reduction Charge" below. Also contributing to
the increases were the $344 ($.35 per share) after-tax gain on sale of
BellSouth's paging business (see Note B to the Consolidated Financial
Statements) as well as growth in key business volumes, 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 work force reduction and restructuring plans initiated in 1995 and 1993,
respectively.
Income Before Extraordinary Losses for 1995 decreased $596 (27.6%) and $.61
per share (28.0%), respectively, compared to 1994. The decreases were primarily
due to the after-tax work force reduction charge of $663 ($.67 per share). 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 a restructuring plan initiated in 1993 and completed in 1995.
26
<PAGE>
VOLUMES OF BUSINESS
Network Access Lines in Service at December 31 (thousands):
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
By Type:
Residence.............................. 15,136 14,653 14,195 3.3% 3.2%
Business............................... 6,732 6,225 5,771 8.1 7.9
Other.................................. 267 255 254 4.7 0.4
--------- --------- ---------
Total Access Lines................... 22,135 21,133 20,220 4.7 4.5
--------- --------- ---------
--------- --------- ---------
By State:
Florida................................ 5,899 5,597 5,350 5.4 4.6
Georgia................................ 3,772 3,550 3,354 6.3 5.8
Tennessee.............................. 2,544 2,435 2,337 4.5 4.2
North Carolina......................... 2,213 2,101 1,994 5.3 5.4
Louisiana.............................. 2,178 2,108 2,037 3.3 3.5
Alabama................................ 1,857 1,792 1,726 3.6 3.8
South Carolina......................... 1,344 1,292 1,244 4.0 3.9
Mississippi............................ 1,193 1,158 1,118 3.0 3.6
Kentucky............................... 1,135 1,100 1,060 3.2 3.8
--------- --------- ---------
Total Access Lines................... 22,135 21,133 20,220 4.7 4.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
The total number of access lines in service increased by approximately
1,002,000 (4.7%) to 22,135,000 since December 31, 1995, compared to a 4.5% rate
of increase in 1995. Business and residence access lines increased by 8.1% and
3.3%, respectively, compared to growth rates of 7.9% and 3.2% in 1995. The
number of second residence lines, included in total residence lines, increased
by 285,000 (22.4%) to 1,556,000 and accounted for 59.0% and 28.4% of the overall
increase in residence access lines and total access lines, respectively, since
December 31, 1995. Such second residence lines are generally used for home
office purposes, access to on-line computer services and children's phones. The
growth in all categories of access lines was primarily attributable to continued
economic improvement in the Southeast and successful marketing programs.
Access Minutes of Use (millions):
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interstate............................... 67,690 62,411 57,778 8.5% 8.0%
Intrastate............................... 21,171 19,197 16,888 10.3 13.7
--------- --------- ---------
Total Access Minutes of Use............ 88,861 81,608 74,666 8.9 9.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
Access minutes of use represent the volume of traffic carried by
interexchange carriers between LATAs, both interstate and intrastate, using
BellSouth Telecommunications' local facilities. In 1996, total access minutes of
use increased by 7,253 million (8.9%) compared to an increase of 9.3% in 1995.
The increases in access minutes of use were 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 and the migration of
27
<PAGE>
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
--------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Toll Messages (millions)............................... 1,023 1,374 1,559 (25.5%) (11.9%)
</TABLE>
Toll messages are comprised of Message Telecommunications Service and Wide
Area Telecommunications Service. Toll messages decreased by 351 million (25.5%)
in 1996 compared to a decrease of 11.9% in 1995. The decrease in 1996 was
primarily attributable to the expansion of local area calling plans (LACPs) in
Florida, Georgia and North Carolina and, to a lesser extent, increased
competition from interexchange carriers in the intraLATA toll market. While the
respective impacts of such factors cannot be precisely quantified, BellSouth
estimates that about 70% of the decline in toll messages was attributable to
expanded LACPs and about 30% was due to increased competition. The decrease in
1995 was also attributable to LACPs in Florida, Georgia and North Carolina as
well as South 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. The expansion of LACPs and some
effects of competition result in the transfer of calls from toll to the 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
--------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Domestic Cellular...................................... 3,612 2,847 2,156 26.9% 32.1%
International Cellular................................. 1,244 655 361 89.9 81.4
Paging Customers (all domestic)........................ -- 1,777 1,614 -- 10.1
</TABLE>
Domestic cellular customers increased by 765,000 (26.9%) since December 31,
1995. While the rate of increase has declined since 1995, the overall
penetration rate (number of customers as a percentage of the total population in
the service territory) increased from 7.1% at December 31, 1995 to 8.9% at
December 31, 1996. Total minutes of use have also continued to increase,
although average minutes of use per cellular customer have remained relatively
flat in 1996.
Since December 31, 1995, the number of international cellular customers
increased by 589,000 (89.9%) to 1,244,000. 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.
In January 1996, BellSouth sold its paging business to Mobile Media
Communications Inc. See Note B to the Consolidated Financial Statements.
OPERATING REVENUES
For a discussion of the impact of impending local service competition on
revenues and volumes of business, see "Operating Environment and Trends of the
Business."
Total Operating Revenues increased $1,154 (6.5%) in 1996 compared to an
increase of $1,041 (6.2%) during 1995. The increases resulted from growth in
revenues from BellSouth's wireline telephone business, coupled with significant
increases in revenues from the cellular communications business. The increase in
1996 was partially offset by the effect of the January 1996 sale of BellSouth's
paging business. Excluding paging revenues in 1995, Total Operating Revenues
increased $1,503 (8.6%) in 1996.
28
<PAGE>
The components of Total Operating Revenues were as follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Local Service.................................. $ 8,082 $ 7,294 $ 6,863 10.8% 6.3%
Interstate Access.............................. 3,553 3,275 3,127 8.5 4.7
Intrastate Access.............................. 812 884 908 (8.1) (2.6)
Toll........................................... 794 1,009 1,190 (21.3) (15.2)
Wireless Communications........................ 2,799 2,592 2,067 8.0 25.4
Directory Advertising and Publishing........... 1,742 1,677 1,556 3.9 7.8
Other Services................................. 1,258 1,155 1,134 8.9 1.9
--------- --------- ---------
Total Operating Revenues..................... $ 19,040 $ 17,886 $ 16,845 6.5 6.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
LOCAL SERVICE revenues reflect amounts billed to customers for local
exchange services, which include connection to the network and optional
services, such as custom calling features and custom dialing packages. Local
Service revenues for 1996 increased $788 (10.8%) compared to an increase of $431
(6.3%) in 1995.
The increase in 1996 was due primarily to an increase of 1,002,000 access
lines since December 31, 1995. Also contributing were an increase of $248 due to
higher customer demand for optional services and net rate increases of $88 which
include benefits related to the effects of expanded LACPs.
The 1995 increase was due primarily to an increase of 913,000 access lines
since December 31, 1994 and an increase of $107 due to higher customer demand
for optional services. The increase in 1995 was partially offset by net rate
reductions since December 31, 1994 of approximately $46 which are net of
benefits related to the effects of expanded LACPs.
INTERSTATE ACCESS revenues result from the provision of access services to
interexchange carriers to provide telecommunications services between states and
from end-user charges collected from residential and business customers.
Interstate Access revenues increased $278 (8.5%) in 1996 compared to an increase
of $148 (4.7%) in 1995.
The 1996 increase was due primarily to growth in minutes of use of 8.5%, an
increase of $69 due to higher demand for special access services and an increase
in end-user charges of $58 attributable to growth in the number of access lines
in service. Such increases were offset by net rate reductions since December 31,
1995 of $25.
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.
INTRASTATE ACCESS revenues result from the provision of access services to
interexchange carriers which provide telecommunications services between LATAs
within a state. In 1996, Intrastate Access revenues decreased $72 (8.1%)
compared to a decrease of $24 (2.6%) in 1995.
The decreases for 1996 and 1995 were due primarily to net rate reductions of
$160 and $100, respectively, partially offset by growth in minutes of use of
10.3% and 13.7%, respectively.
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 $215 (21.3%)
in 1996 compared to a decrease of $181 (15.2%) in 1995.
29
<PAGE>
The decrease for 1996 was primarily attributable to the expansion of LACPs
and increased competition from interexchange carriers, the effects of which
reduced toll messages by 25.5%. The decrease was partially offset by a
retroactive independent company settlement in 1995 which reduced revenues by $31
in that period.
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 LACPs and
increased competition from interexchange carriers. The decrease also includes
the effect of the retroactive independent company settlement.
The overall decline in intraLATA toll revenues is expected to continue over
the long term.
WIRELESS COMMUNICATIONS revenues include revenues from consolidated wireless
communications businesses (primarily domestic cellular and, prior to 1996,
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, net.)
Wireless Communications revenues increased $207 (8.0%) in 1996 compared to
an increase of $525 (25.4%) in 1995. The increases for both years resulted
primarily from continued growth of the customer base for wireless services in
domestic and international markets. The 1996 increase was partially offset by
the effect of the January 1996 sale of BellSouth's paging business. Revenues
from such paging services were $349 and $276, respectively, in 1995 and 1994.
Excluding such paging revenues in 1995, Wireless Communications revenues
increased 24.8% in 1996.
Consistent with anticipated growth in the overall wireless industry,
BellSouth's revenues from wireless services are expected to continue to
increase. However, the rate of growth of revenues from BellSouth's existing
cellular businesses could be adversely affected by competitive pressures on
service pricing, the continuing effect of an increasingly diversified customer
base with lower average usage and the emergence of new wireless service
providers offering 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 $65 (3.9%) in 1996 compared to a
$121 (7.8%) increase in 1995.
The increase for 1996 was primarily due to increases in the volume and
prices of advertising sold. The increase was partially offset by the effect of
BellSouth Telecommunications' adoption of issue basis accounting for directory
revenues, which increased revenues in 1995 by $41, in connection with the
discontinuance of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." See Note L to the
Consolidated Financial Statements.
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.
OTHER SERVICES revenues are principally comprised of revenues from customer
premises equipment (CPE) sales and maintenance services and other nonregulated
services (primarily inside wire, billing and collection and voice messaging
services) offered by BellSouth Telecommunications. Other Services revenues
increased $103 (8.9%) in 1996 compared to an increase of $21 (1.9%) in 1995.
The 1996 increase was primarily attributable to higher demand and prices for
nonregulated services, product sales and fees totalling $132. In addition, the
increase was also due to incremental rate impacts related to potential sharing
under certain state regulatory plans. The increase was partially offset by the
sale in 1996 of a subsidiary which performed computer maintenance.
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 accruals to Local
Service revenues, the combined effect of which increased Other Services revenues
by
30
<PAGE>
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.
OPERATING EXPENSES
Total Operating Expenses decreased $333 (2.3%) in 1996 compared to an
increase of $1,807 (14.1%) in 1995. The 1996 decrease was primarily attributable
to the effects of the 1995 work force reduction charge of $1,082 and the sale of
BellSouth's paging business in January 1996. Excluding these effects, Total
Operating Expenses increased $1,049 (7.9%) in 1996. The components of Total
Operating Expenses were as follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Depreciation and Amortization.................. $ 3,719 $ 3,455 $ 3,259 7.6% 6.0%
--------- --------- ---------
Other Operating Expenses:
Cost of Services and Products................ 6,072 6,184 6,043 (1.8) 2.3
Selling, General and Administrative.......... 4,470 3,873 3,485 15.4 11.1
--------- --------- ---------
10,542 10,057 9,528 4.8 5.6
--------- --------- ---------
Subtotal................................... 14,261 13,512 12,787 5.5 5.7
Work Force Reduction Charge.................... -- 1,082 -- -- --
--------- --------- ---------
Total Operating Expenses................... $ 14,261 $ 14,594 $ 12,787 (2.3) 14.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
DEPRECIATION AND AMORTIZATION increased $264 (7.6%) in 1996 compared to a
$196 (6.0%) increase in 1995.
The increase for 1996 was due primarily to higher levels of property, plant
and equipment and shorter depreciable lives subsequent to the discontinuance of
SFAS No. 71. The higher levels of property, plant and equipment resulted from
continued growth in the customer base for wireless and wireline services and
modernization of the networks. The increase was partially offset by the sale of
BellSouth's paging business in January 1996 which had depreciation and
amortization of $44 in 1995.
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.
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 $485 (4.8%) in 1996 compared to an
increase of $529 (5.6%) in 1995. The increase for 1996 was primarily related to
growth in the wireless and wireline businesses, partially offset by the effect
of the January 1996 sale of BellSouth's paging business. Excluding such
paging-related expenses in 1995, Other Operating Expenses increased $741 (7.6%)
in 1996.
For 1996, expenses related to the cellular and PCS businesses increased $342
and $69, respectively, as a result of sustained growth in the cellular customer
base and the initiation of PCS services. At BellSouth Telecommunications, Other
Operating Expenses increased $202 due principally to higher business volumes,
new service offerings and intensified marketing and advertising. The increase
was partially offset by a decrease of approximately $162 for employee-related
costs in the wireline telephone operations, and the sale in 1996 of a subsidiary
which performed computer maintenance. The decrease
31
<PAGE>
in employee-related costs reflects employee reductions attributable to the
restructuring and work force reduction plans, partially offset by annual
compensation increases for management and represented employees. The 1996
increase in Other Operating expenses also included an increase of approximately
$50 in expenses related to the directory advertising and publishing business.
The 1995 increase was due primarily to increased expenses of approximately
$310 related to sustained growth in the cellular customer base, reflecting
additional marketing and operational costs associated with higher levels of
sales and expanded operations. At BellSouth Telecommunications, Other Operating
Expenses increased $114, which reflected volume growth that was partially offset
by a decrease of approximately $130 for employee-related costs. Such decrease
was 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.
WORK FORCE REDUCTION CHARGE. 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
a restructuring plan initiated in 1993 and completed in 1995.
1995 WORK FORCE REDUCTION. The $942 pretax charge was comprised of
approximately $561 under the provisions of SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," related to employees 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.
Under this plan, BellSouth Telecommunications expects to reduce the work
force of the wireline telephone operations by approximately 11,300 employees by
the end of 1997. 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. Including a reduction of
approximately 800 employees which occurred in December 1995, BellSouth
Telecommunications has reduced its work force by approximately 7,000 employees
under the 1995 plan through December 31, 1996.
Once the plan to reduce 11,300 employees is completed, annual net employee
cost savings are estimated to be approximately $500 after considering increased
costs for outsourced services.
POSTEMPLOYMENT BENEFITS AND OTHER CHARGES. The pretax charge of $85
represented estimated future postemployment severance benefits to be paid after
1997, also in accordance with the provisions of SFAS No. 112. This component was
based on BellSouth's belief that work force reductions will continue under
existing separation plans, although at reduced separation benefit levels.
A pretax charge of $55 was also recorded related to additional net
curtailment losses in connection with a restructuring plan initiated in 1993 and
completed in 1995. This charge resulted primarily from a greater number of
retirement-eligible employees separating under the plan than was originally
expected.
32
<PAGE>
OTHER INCOME STATEMENT ITEMS
<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest Expense................................. $ 721 $ 724 $ 666 (0.4)% 8.7%
Gain on Sale of Paging Business.................. 442 -- -- -- --
Other Income, net................................ 108 20 11 440.0 81.8
Provision for Income Taxes....................... 1,745 1,024 1,243 70.4 (17.6)
</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 decreased
$3 (0.4%) in 1996 compared to an increase of $58 (8.7%) in 1995.
The decrease for 1996 was primarily attributable to lower average interest
rates on borrowings due in part to refinancings during 1995, partially offset by
higher average debt balances in 1996.
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.
GAIN ON SALE OF PAGING BUSINESS represents the pre-tax gain on the sale of
BellSouth's paging business in January 1996.
OTHER INCOME, NET includes earnings and losses from unconsolidated
subsidiaries, businesses and partnerships; income and losses from the sale of
operations; interest and dividend income; minority interests; and other
nonoperating items. Other Income, net increased $88 in 1996 compared to an
increase of $9 in 1995.
The 1996 increase resulted primarily from a $55 increase in interest income
and lower net minority interest deductions of $35. Equity in losses was ($76) in
1996, an improvement of $10 since 1995. The lower 1996 losses were primarily
attributable to improved operating results at unconsolidated domestic cellular
operations and certain international businesses, principally operations in
Israel and Venezuela. Such improvements were partially offset by increased
losses attributable to the continuing development of German cellular operations.
The increase in Other Income, net in 1995 included a $43 increase in
interest income, an improvement of $24 in equity in losses and $18 in lower net
minority interest deductions. The increase in Other Income, net was also
attributable to a $34 increase in miscellaneous income related to nonstrategic
business activities. The increases in Other Income were partially offset by the
effect of a gain of $108 in 1994 from the sale of two international cellular
investments.
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 unconsolidated
domestic cellular operations, partially offset by increased losses from certain
developing international businesses, principally operations in Germany and
Israel.
PROVISION FOR INCOME TAXES increased $721 (70.4%) in 1996 compared to a
decrease of $219 (17.6%) in 1995. BellSouth's effective tax rates were 37.9%,
39.6% and 36.5% in 1996, 1995 and 1994, respectively. The lower effective tax
rate for 1996 compared to 1995 was due primarily to a higher tax than book basis
for the paging business, which resulted in a lower gain on sale for computing
tax expense. A reconciliation of the statutory Federal income tax rates to these
effective tax rates is provided in Note K to the Consolidated Financial
Statements.
EXTRAORDINARY LOSSES
DISCONTINUANCE OF SFAS NO. 71. In 1995, as a result of its continuing
regulatory and marketplace assessments, BellSouth Telecommunications concluded
that it was required to discontinue SFAS No. 71
33
<PAGE>
for financial reporting purposes. Accordingly, BellSouth Telecommunications
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 reported 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.
See Note L to the Consolidated Financial Statements.
EARLY EXTINGUISHMENT OF DEBT. During 1995, BellSouth Telecommunications
recognized extraordinary losses of $78 (net of a current tax benefit of $49)
related to the early extinguishment of outstanding debt issues. See Note E to
the Consolidated Financial Statements.
FINANCIAL CONDITION
BellSouth uses the net cash generated from its operations and external
financing to invest in and operate its existing and new businesses and to pay
dividends. While current liabilities exceeded current assets at both December
31, 1996 and 1995, BellSouth's sources of funds -- primarily from operations
and, to the extent necessary, from readily available external financing
arrangements -- are sufficient to meet all current obligations on a timely
basis. 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
------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by Operating Activities.......... $ 5,863 $ 5,443 $ 5,172 7.7% 5.2%
</TABLE>
OPERATING ACTIVITIES. Net cash provided by operating activities increased
$420 (7.7%) in 1996 compared to an increase of $271 (5.2%) in 1995. The increase
in 1996 was primarily attributable to a $669 increase in operating income
excluding depreciation, amortization and the work force reduction charge. The
1996 increase was partially offset by higher cash expenditures for reductions of
accounts payable.
The increase in 1995 was primarily attributable to a $512 increase in
operating income excluding depreciation, amortization and the work force
reduction charge. The 1995 increase was partially offset by higher cash
expenditures of $258 related to a restructuring plan begun in 1993.
<TABLE>
<CAPTION>
PERCENT CHANGE
------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Cash Used for Investing Activities.......... $ (4,199) $ (4,384) $ (3,935) (4.2%) 11.4%
</TABLE>
INVESTING ACTIVITIES. BellSouth's primary use of capital resources
continues to be for capital expenditures to support development of the wireline
and wireless networks. Net cash used for investing activities decreased $185
(4.2%) in 1996 compared to an increase of $449 (11.4%) in 1995. The decrease in
1996 was primarily due to $930 in cash received from the sale of the paging
business. The decrease was partially offset by higher capital expenditures of
$252 related substantially to wireline and wireless network development and a
decrease of $324 in proceeds from other investment dispositions and repayment of
advances.
Capital expenditures were $4,455 in 1996 and are projected to be
approximately $4,700 to $5,200 in 1997. Such capital expenditures for 1996 were
financed internally and, for 1997, are expected to be financed primarily through
internally generated funds and, to the extent necessary, from external sources.
34
<PAGE>
The increase in 1995 was primarily attributable 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. Substantially all cash required for
capital expenditures in 1995 was provided internally.
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
--------- ----- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used for) Financing
Activities......................................... $ (2,197) $ 46 $ (1,132) -- --
</TABLE>
FINANCING ACTIVITIES. During 1996, financing activities used cash of
$(2,197) while in 1995 financing activities provided cash of $46. The increased
use of cash from 1995 to 1996 of $2,243 primarily reflects higher levels of net
proceeds from all borrowing activities in 1995 compared to 1996.
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 and for each quarter in 1996.
The change in cash used for financing activities from 1994 to 1995 was
primarily attributable to higher levels of net proceeds from all borrowing
activities in 1995 compared to 1994.
DEBT ACTIVITIES. During 1996, BellSouth issued $300 of long term debt and,
with net proceeds as well as cash on hand, redeemed outstanding short-term debt
and long-term debentures of $417 and $485, respectively.
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 at December 31, 1995 includes $500 which was
used to reduce commercial paper on January 2, 1996.
BellSouth has committed credit lines aggregating $1,951 with various banks.
Borrowings under the committed credit lines totaled $92 at December 31, 1996.
BellSouth also maintains uncommitted lines of credit of $650. At December 31,
1996, there were no borrowings under the uncommitted lines. As of February 14,
1997, shelf registration statements were on file with the Securities and
Exchange Commission under which $1,927 of debt securities could be publicly
offered.
BellSouth's debt to total capitalization ratio, adjusted in 1995 to exclude
the $485 of debentures redeemed in January 1996, decreased to 43.5% at December
31, 1996 from 46.7% at December 31, 1995. The decrease was primarily caused by a
reduction in short-term borrowings and an increase in shareholders' equity due
to earnings during 1996.
DERIVATIVE ACTIVITIES. BellSouth enters into 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 a limited
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 then current value of 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 N to the Consolidated Financial
Statements for additional information.
35
<PAGE>
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
REGULATORY ENVIRONMENT. In providing telecommunications services, BellSouth
is subject to regulation by both state and federal regulators with respect to
rates, services, competition and other issues. BellSouth's primary regulatory
focus has been directed toward modifying the regulatory process to one that is
more closely aligned with changing market conditions and overall public policy
objectives. As an alternative to regulation of intrastate earnings, BellSouth
has sought price regulation, whereby prices of basic service are regulated and
the pricing of other products and services are based on market factors. While
price regulation plans do not provide for the direct recovery through basic
service rates of cost increases or extraordinary expenses, they generally
provide more flexibility to meet competitive pricing levels. BellSouth
Telecommunications has price regulation plans approved or authorized in all
states in its wireline territory, although the implementation of the Tennessee
plan has been stayed by a court pending resolution of a number of issues. At the
federal level, BellSouth Telecommunications is operating under a 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.
ECONOMY. The nation's output of goods and services, which grew 2.0% in
1995, grew at a moderate rate of 2.3% in 1996. Employment in nonfarm business
establishments grew 2.2% during the year and the unemployment rate averaged
5.4%. The economy of the nine-state region served by BellSouth
Telecommunications' wireline telephone business grew slightly faster than the
national economy. The number of jobs in nonfarm businesses grew 2.3% as the
unemployment rate averaged 5.0% for the year. Real income expanded at an
estimated 3.7%. Net migration added approximately 400,000 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. Moderate economic expansion is expected during 1997, as tight labor
markets, slow labor force growth and modest productivity growth act to constrain
the pace of growth. The region's cost advantages and strong net migration should
bring an economic growth rate comparatively better than the nation's and further
increase the demand for telecommunications services. The increased competition
faced by BellSouth Telecommunications and the growing percentage of revenues
from unregulated businesses 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.
COMPETITION. BellSouth is subject to increasing competition in all areas of
its business. Regulatory, legislative and judicial actions and technological
developments have expanded the types of available services and products and the
number of companies that may offer them. Increasingly, this competition is from
large companies which have substantial capital, technological and marketing
resources.
THE 1996 ACT. The 1996 Act requires the elimination of state legislative
and regulatory barriers to competition for local telephone service, subject only
to competitively neutral requirements to preserve and advance universal service,
protect the public safety and welfare, maintain the quality of
telecommunications services and safeguard the rights of customers. The 1996 Act
also includes requirements that BellSouth negotiate with other carriers for
interconnection, use of network elements on an unbundled basis and resale of
local services. If a negotiated agreement cannot be reached, either party may
seek arbitration with the state regulatory authority or the FCC if the state
fails to act. If rates are disputed, the arbitrator must set rates for access to
network elements on an unbundled basis, based on cost, which may include a
reasonable profit. BellSouth is also required to negotiate to provide retail
services at wholesale rates for the purposes of resale by competing carriers. If
agreement cannot be reached, the arbitrator shall set the wholesale rates at
BellSouth's retail rates less costs to be avoided. BellSouth Telecommunications
has executed over 40 interconnection or resale agreements with such carriers and
is currently involved in arbitration proceedings with a number of other
carriers, including AT&T, MCI and Sprint. The arbitration results for the
wholesale discount rates vary by state from approximately 15% to 21%.
36
<PAGE>
In connection with the requirements of the 1996 Act, in August 1996, the FCC
released an order adopting rules governing interconnection and open competition
in the local telephone service industry (the Order). Among the issues
specifically addressed by the Order are the network elements that BellSouth must
make available; pricing standards to be followed by states in setting rates for
interconnection; access to network elements on an unbundled basis and resold
services. BellSouth and several other incumbent local exchange carriers (ILECs)
joined in an appeal of the Order to the United States Court of Appeals for the
Eighth Circuit (the Court). Upon request of several state commissions and ILECs,
the Court stayed the Order in part, pending appeal. Such stay relates to pricing
prescriptions and certain other terms. The Court heard oral arguments in January
1997, and a decision is pending. Notwithstanding these developments, however, as
discussed above, BellSouth Telecommunications and a number of carriers have
negotiated interconnection agreements and state regulatory commissions are
arbitrating or have approved various terms of interconnection between BellSouth
Telecommunications and other carriers. These terms may be revised, depending on,
among other things, the outcome of the appeal of the Order.
The 1996 Act also requires the FCC to identify the local service subsidy
provided by access charges; to provide for the removal of such subsidy from
access rates in order that access charges reflect underlying costs; to arrange
for a universal service fund to ensure the continuation of universal service;
and to develop the arrangements for payments into that fund by all carriers. The
FCC is currently engaged in this proceeding. In addition, the FCC has commenced
a proceeding to revise its access charge rules. Until final orders are issued by
the FCC and any judicial appeals have been concluded, it will not be possible to
determine the impact on access charge revenues; however, an interim access
charge plan provides for lower access charges paid by carriers that purchase
unbundled network elements from ILECs or that connect wireless communications
with the wireline networks of the ILECs.
In attempting to comply with the technical requirements of interconnection,
BellSouth expects to incur significant costs associated with the development or
modification of systems necessary to make interconnection possible. For example,
BellSouth Telecommunications will be required to provide for long-term number
portability whereby customers switching to competing local carriers will be able
to retain their telephone numbers without interruption. It is unclear as to what
degree BellSouth will be able to recover these costs.
Until the FCC issues final orders on matters such as access reform,
universal service and number portability, as well as other matters, and any
judicial appeals have been concluded, it will not be possible to determine the
impact the 1996 Act will have on BellSouth's financial position or annual
operations results or cash flows.
WIRELESS SERVICES. The FCC's PCS licensing process allows multiple new
competitors for BellSouth's businesses. Licenses to provide PCS services have
been won in auction by AT&T, Bell Holding Company consortia and other large and
well-capitalized entities. PCS will provide competition to BellSouth's local
wireline and wireless telephone businesses. Several competitive PCS systems are
now operational.
In many markets, competing cellular service is provided by businesses owned
or controlled by a Bell Holding Company, AT&T or a major telephone company. In
addition, Bell Atlantic Corporation and NYNEX Corporation have combined their
cellular businesses, and U S West, Inc. and AirTouch Communications have
announced that they plan to merge their cellular businesses. Those four
companies have also formed a joint venture to provide PCS in many domestic
markets.
BELLSOUTH COMPETITIVE STRATEGY. BellSouth has developed three main
strategies that govern its business decisions in the increasingly competitive
telecommunications industry. First, BellSouth will strengthen its leadership
position throughout its nine-state wireline territory by (a) enhancing and
building its brand strength and distribution channels; (b) providing
full-service offerings including wireline and wireless, local and long-distance,
and video and electronic commerce services; and (c) controlling costs. Second,
BellSouth will continue to grow profitably its domestic wireless business by (a)
deploying value-added products and services and competitive technology; (b)
strengthening and
37
<PAGE>
expanding distribution channels including joint marketing with BellSouth
Telecommunications; and (c) expanding in-region wireless coverage through
successful bidding for PCS licenses and other acquisitions. Third, BellSouth
will continue to grow and develop its Latin American and other international
operations.
NEW SERVICES. Notwithstanding the inevitable loss of local service
customers and other risks associated with increased competition, BellSouth will
have the opportunity to benefit from entry into new business markets. For
example, the presence of competition, among other things, can allow BellSouth to
qualify to offer interLATA wireline service under provisions contained in the
1996 Act. 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 include interLATA
services, information services and video and electronic commerce services.
BellSouth has entered some of these businesses through investments in, strategic
alliances with and acquisitions of established companies in such industries and
through the development of some of these services and capabilities internally.
For example, among other initiatives, BellSouth has acquired several cable TV
rights, is conducting a trial of cable TV service and is providing Internet
access. BellSouth also intends to continue to pursue certain foreign
telecommunications licenses as they are offered.
BellSouth plans to begin offering interLATA wireline service in each of its
in-region states as soon as the FCC approves its application for each state.
BellSouth has filed documents with the Georgia Public Service Commission
requesting that the Georgia Commission approve a statement of generally
available terms and conditions as provided for in the 1996 Act and to establish
that such terms and conditions meet the competitive checklist. BellSouth will
file an application for each state as soon as it believes the conditions are
met. Because of the proceedings required to obtain approval and the potential
challenges of competitors and others, it is uncertain when BellSouth will be
authorized to commence interLATA service in any of its in-region states. The
1996 Act requires that in-region interLATA service be provided through a
subsidiary separate from BellSouth Telecommunications.
JOINT MARKETING. The 1996 Act allows BellSouth to market wireless and other
services jointly with its wireline local exchange services; previously, separate
marketing was required. This change has enabled BellSouth to more efficiently
offer and provide integrated telecommunications. In March 1996, BellSouth began
joint marketing of wireless and wireline services in selected markets. In
addition, as permitted by the 1996 Act, BellSouth intends to jointly market
other services such as video, internet access and, eventually, interLATA service
with its wireline and wireless services.
1995 WORK FORCE REDUCTION. As another part of its competitive strategy,
BellSouth Telecommunications announced in 1995 a plan to reduce its work force
by approximately 11,300 employees by the end of 1997. Also, in 1995, BellSouth
Telecommunications completed the restructuring of its telephone operations that
had been announced in 1993.
38
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 these 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, 1996, 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 Senior Vice President, Executive Staff Officer and Corporate
Secretary.
<TABLE>
<S> <C>
/s/ F. Duane Ackerman /s/ Ronald M. Dykes
</TABLE>
<TABLE>
<S> <C>
F. Duane Ackerman Ronald M. Dykes
PRESIDENT AND CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
February 3, 1997
39
<PAGE>
AUDIT COMMITTEE CHAIRMAN'S LETTER
The Audit Committee of the Board of Directors consists of four members who
are neither officers nor employees of BellSouth Corporation. Information as to
these persons, as well as their duties, is provided in the Proxy Statement. The
Audit Committee met six times during 1996 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.
/s/ Marshall M. Criser
Marshall M. Criser
CHAIRMAN, AUDIT COMMITTEE
February 3, 1997
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, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note L 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.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 3, 1997
40
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Revenues:
Network and related services:
Local service....................................................... $ 8,082 $ 7,294 $ 6,863
Interstate access................................................... 3,553 3,275 3,127
Intrastate access................................................... 812 884 908
Toll................................................................ 794 1,009 1,190
Wireless communications............................................... 2,799 2,592 2,067
Directory advertising and publishing.................................. 1,742 1,677 1,556
Other services........................................................ 1,258 1,155 1,134
--------- --------- ---------
Total Operating Revenues............................................ 19,040 17,886 16,845
--------- --------- ---------
Operating Expenses:
Cost of services and products......................................... 6,072 6,184 6,043
Depreciation and amortization......................................... 3,719 3,455 3,259
Selling, general and administrative................................... 4,470 3,873 3,485
Work force reduction charge (Note J).................................. -- 1,082 --
--------- --------- ---------
Total Operating Expenses............................................ 14,261 14,594 12,787
--------- --------- ---------
Operating Income........................................................ 4,779 3,292 4,058
Interest Expense........................................................ 721 724 666
Gain on Sale of Paging Business (Note B)................................ 442 -- --
Other Income, net....................................................... 108 20 11
--------- --------- ---------
Income Before Income Taxes and Extraordinary Losses..................... 4,608 2,588 3,403
Provision for Income Taxes (Note K)..................................... 1,745 1,024 1,243
--------- --------- ---------
Income Before Extraordinary Losses...................................... 2,863 1,564 2,160
Extraordinary Loss for Discontinuance of SFAS No. 71,
net of tax (Note L).................................................... -- (2,718) --
Extraordinary Loss on Early Extinguishment of Debt,
net of tax (Note E).................................................... -- (78) --
--------- --------- ---------
Net Income (Loss)................................................. $ 2,863 $ (1,232) $ 2,160
--------- --------- ---------
--------- --------- ---------
Weighted Average Common Shares Outstanding (Note G)..................... 994 993 992
Dividends Declared Per Common Share (Note G)............................ $ 1.44 $ 1.41 $ 1.38
Earnings (Loss) Per Share: (Note G)
Income Before Extraordinary Losses.................................... $ 2.88 $ 1.57 $ 2.18
Extraordinary Loss for Discontinuance of SFAS No. 71,
net of tax (Note L).................................................. -- (2.73) --
Extraordinary Loss on Early Extinguishment of Debt,
net of tax (Note E).................................................. -- (.08) --
--------- --------- ---------
Net Income (Loss)................................................. $ 2.88 $ (1.24) $ 2.18
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................................... $ 1,178 $ 1,711
Temporary cash investments..................................................................... 51 71
Accounts receivable, net of allowance for uncollectibles of $180 and $171...................... 4,087 3,772
Material and supplies.......................................................................... 451 430
Other current assets........................................................................... 531 521
--------- ---------
Total Current Assets......................................................................... 6,298 6,505
--------- ---------
Investments and Advances (Note B)................................................................ 2,430 2,418
Property, Plant and Equipment, net (Note C)...................................................... 21,825 21,092
Deferred Charges and Other Assets................................................................ 610 338
Intangible Assets, net........................................................................... 1,405 1,527
--------- ---------
Total Assets................................................................................. $ 32,568 $ 31,880
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year (Note E)......................................................... $ 2,124 $ 2,951
Accounts payable............................................................................... 1,446 1,724
Other current liabilities (Note D)............................................................. 2,871 2,715
--------- ---------
Total Current Liabilities.................................................................... 6,441 7,390
--------- ---------
Long-Term Debt (Note E).......................................................................... 8,116 7,924
--------- ---------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes.............................................................. 1,899 1,650
Unamortized investment tax credits............................................................. 278 355
Other liabilities and deferred credits (Note F)................................................ 2,585 2,736
--------- ---------
Total Deferred Credits and Other Liabilities................................................. 4,762 4,741
--------- ---------
Shareholders' Equity:
Common stock, $1 par value (2,200 shares authorized; 991 and 994 shares outstanding)........... 1,009 1,007
Paid-in capital................................................................................ 7,697 7,619
Retained earnings.............................................................................. 5,541 4,099
Shares held in trust and treasury (Note G)..................................................... (532) (374)
Guarantee of ESOP debt (Note H)................................................................ (466) (526)
--------- ---------
Total Shareholders' Equity................................................................... 13,249 11,825
--------- ---------
Total Liabilities and Shareholders' Equity................................................... $ 32,568 $ 31,880
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNT
---------------------- ------------------------------------------------------
SHARES SHARES GUARANTEE
COMMON HELD IN TRUST PAR PAID-IN RETAINED HELD IN TRUST OF ESOP
STOCK AND TREASURY VALUE CAPITAL EARNINGS AND TREASURY DEBT
------ ------------- ------ ------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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 G)......... 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)
Net income............................... 2,863
Dividends declared....................... (1,430)
Shares issued for:.......................
Employee benefit plans................. 1 1 14 11
Grantor trusts......................... 1 (1) 1 34 (35)
Shares purchased for:
Treasury............................... (3) (85)
Grantor trusts......................... (1) (49)
ESOP activities and related tax
benefit................................. 9 60
Foreign currency translation
adjustment.............................. 30
------ --- ------ ------- -------- ------ ---------
Balance at December 31, 1996............. 1,009 (18) $1,009 $ 7,697 $ 5,541 $(532) $(466)
------ --- ------ ------- -------- ------ ---------
------ --- ------ ------- -------- ------ ---------
<CAPTION>
TOTAL
-------
<S> <C>
Balance at December 31, 1993............. $13,495
Net income............................... 2,160
Dividends declared....................... (1,370)
Shares issued for:
Employee benefit plans................. 6
Grantor trusts......................... --
ESOP activities and related tax
benefit................................. 71
Foreign currency translation
adjustment.............................. 6
-------
Balance at December 31, 1994............. 14,368
Two-for-one stock split (Note G)......... --
Net loss................................. (1,232)
Dividends declared....................... (1,400)
Shares issued for:
Employee benefit plans................. 31
Grantor trusts......................... --
ESOP activities and related tax
benefit................................. 68
Foreign currency translation
adjustment.............................. (10)
-------
Balance at December 31, 1995............. 11,825
Net income............................... 2,863
Dividends declared....................... (1,430)
Shares issued for:.......................
Employee benefit plans................. 26
Grantor trusts......................... --
Shares purchased for:
Treasury............................... (85)
Grantor trusts......................... (49)
ESOP activities and related tax
benefit................................. 69
Foreign currency translation
adjustment.............................. 30
-------
Balance at December 31, 1996............. $13,249
-------
-------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................................... $ 2,863 $ (1,232) $ 2,160
Adjustments to net income (loss):
Gain on sale of paging business....................................................... (442) -- --
Depreciation and amortization......................................................... 3,719 3,455 3,259
Provision for uncollectibles.......................................................... 254 213 175
Deferred income taxes and unamortized investment tax credits.......................... 120 (1,971) (19)
Pension expense in excess of funding/(pension income)................................. (14) (53) 28
Dividends from unconsolidated affiliates.............................................. 130 149 122
Losses from unconsolidated affiliates, net............................................ 76 86 110
Extraordinary loss for discontinuance of SFAS No. 71.................................. -- 4,449 --
Extraordinary loss on early extinguishment of debt.................................... -- 127 --
Payment of call premium............................................................... -- (74) --
Work force reduction charge........................................................... -- 1,082 --
Net change in:
Accounts receivable and other current assets........................................ (645) (770) (741)
Accounts payable and other current liabilities...................................... (708) (283) (187)
Deferred charges and other assets................................................... (126) (28) (34)
Other liabilities and deferred credits.............................................. 581 315 437
Other reconciling items, net.......................................................... 55 (22) (138)
--------- ---------- ----------
Net cash provided by operating activities............................................. 5,863 5,443 5,172
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................... (4,455) (4,203) (3,600)
Proceeds from sale of paging business................................................... 930 -- --
Proceeds from disposition of short-term investments..................................... 355 187 107
Purchases of short-term investments..................................................... (336) (207) (108)
Proceeds from investment dispositions and repayments of advances........................ 102 426 238
Investments in and advances to unconsolidated affiliates................................ (620) (521) (623)
Other investing activities, net......................................................... (175) (66) 51
--------- ---------- ----------
Net cash used for investing activities................................................ (4,199) (4,384) (3,935)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings..................................................... 23,942 21,075 22,489
Repayments of short-term borrowings..................................................... (24,439) (20,565) (22,306)
Proceeds from long-term debt............................................................ 392 2,488 191
Repayments of long-term debt............................................................ (544) (1,555) (129)
Dividends paid.......................................................................... (1,430) (1,385) (1,369)
Other financing activities, net......................................................... (118) (12) (8)
--------- ---------- ----------
Net cash provided by (used for) financing activities.................................. (2,197) 46 (1,132)
--------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents...................................... (533) 1,105 105
Cash and Cash Equivalents at Beginning of Period.......................................... 1,711 606 501
--------- ---------- ----------
Cash and Cash Equivalents at End of Period................................................ $ 1,178 $ 1,711 $ 606
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<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, 1996, approximately 70% of
BellSouth's operating revenues were from wireline and network services, 15% 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 L 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 $163, $108 and $65 for the years ended December 31, 1996, 1995 and 1994,
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 cost of other
property, plant and equipment is depreciated using either
45
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE A -- ACCOUNTING POLICIES (CONTINUED)
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 the fair value of 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 $49, $50 and $53 for the years ended
December 31, 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995,
accumulated amortization of intangibles was $220 and $228, 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, 1996, 1995 and 1994 were not
material.
DERIVATIVE FINANCIAL INSTRUMENTS. 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
$254, $213 and $175 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Revenues from services provided to AT&T Corp., BellSouth's largest customer,
were approximately 9%, 10% and 11% of consolidated operating revenues for 1996,
1995 and 1994, respectively.
46
<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.
NOTE B -- INVESTMENTS, ADVANCES AND SALES OF OPERATIONS
Investments and advances as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Investments accounted for under the equity method.................................. $ 1,676 $ 1,845
Advances to and notes receivable from affiliates................................... 675 477
Other investments.................................................................. 79 96
--------- ---------
Total Investments and Advances................................................... $ 2,430 $ 2,418
--------- ---------
--------- ---------
</TABLE>
BellSouth's equity method investments primarily include various partnerships
in domestic and international wireless properties and other international
communications consortiums. Losses related to investments accounted for under
the equity method were $(76), $(86) and $(110) for the three years ended
December 31, 1996, 1995 and 1994, respectively, and are included as a component
of Other Income, net.
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, 1996, BellSouth's aggregate investment in
these entities exceeded the underlying book value of the investees' net assets
by $880. The excess of consideration paid over net assets acquired along with
other intangible assets is being amortized using either straight-line or
accelerated methods over periods of benefit, which do not exceed 40 years.
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 22.5% 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
22.5% participant in the E-Plus Mobilfunk consortium (E-Plus), which provides
cellular telephone service in Germany.
OTHER INVESTMENTS. 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 $193 and $188 at December 31, 1996 and 1995, respectively.
The notes bear interest at rates ranging from 6.31% to 9.31% while the advances
bear
47
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE B -- INVESTMENTS, ADVANCES AND SALES OF OPERATIONS (CONTINUED)
interest at the federal funds rate plus .30%. Principal amounts outstanding at
December 31, 1996 are due and payable to BellSouth between January 15, 1998 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 $250 and $185 had been borrowed by
Prime as of December 31, 1996 and 1995, respectively. The loan is collateralized
by the stock of Prime, 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.
BellSouth and RAM Communications Group, Inc. are partners in an entity that
owns and operates certain mobile data communications networks. Through its
investment, BellSouth holds a 49% interest in the United States mobile data
operations and various interests in foreign mobile data operations ranging from
6% to 72.5%.
In 1996, BellSouth initiated a tender offer for a controlling interest in an
entity that provides cellular telephone service in Peru. BellSouth deposited
$148 in escrow arrangements pending the outcome of the tender offer. Such amount
is included in Deferred Charges and Other Assets in the accompanying
consolidated balance sheet. In January 1997, BellSouth successfully completed
the tender offer, acquiring a 58.7% interest in the entity.
Minority interests of consolidated subsidiaries, included as a component of
Other Income, net, were $(27), $(62) and $(80) for the years ended December 31,
1996, 1995 and 1994, respectively.
SALES OF OPERATIONS. In January 1996, BellSouth sold to Mobile Media
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 $442. MCCA's operating revenues were $349 and $276, respectively, for the
years ended December 31, 1995 and 1994. Total operating expenses were $300 and
$245, respectively, for the years ended December 31, 1995 and 1994. Total assets
at December 31, 1995 were $355.
In 1994, BellSouth disposed of its interests in cellular telephone
businesses in Mexico and France. BellSouth recognized gains from these
dispositions aggregating $108, which are included in Other Income, net.
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Outside plant.................................................................... $ 20,866 $ 20,092
Central office equipment......................................................... 17,442 16,132
Building and building improvements............................................... 3,595 3,303
Operating and other equipment.................................................... 3,595 2,952
Furniture and fixtures........................................................... 3,017 2,791
Plant under construction......................................................... 716 782
Station equipment................................................................ 638 626
Land............................................................................. 190 191
--------- ---------
50,059 46,869
Less: Accumulated depreciation................................................. 28,234 25,777
--------- ---------
Total Property, Plant and Equipment, net..................................... $ 21,825 $ 21,092
--------- ---------
--------- ---------
</TABLE>
See Note L for a discussion of the discontinuance of SFAS No. 71 and its
effect on Property, Plant and Equipment.
48
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE D -- OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Advanced billing and customer deposits............................................. $ 539 $ 493
Taxes accrued...................................................................... 517 382
Dividends payable.................................................................. 363 363
Salaries and wages payable......................................................... 335 325
Postemployment benefits (see Note J)............................................... 303 273
Interest and rents accrued......................................................... 293 282
Compensated absences............................................................... 244 317
Other.............................................................................. 277 280
--------- ---------
Total Other Current Liabilities.................................................. $ 2,871 $ 2,715
--------- ---------
--------- ---------
</TABLE>
NOTE E -- DEBT
DEBT MATURING WITHIN ONE YEAR: Debt maturing within one year is summarized
as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Debentures Redeemed in January 1996................................................ $ -- $ 485
Short-term notes payable:
Bank loans....................................................................... 73 85
Commercial paper................................................................. 1,885 2,302
Current maturities of long-term debt............................................... 166 79
--------- ---------
Total Debt Maturing Within One Year.............................................. $ 2,124 $ 2,951
--------- ---------
--------- ---------
Weighted average interest rate at end of period:
Bank loans....................................................................... 7.40% 7.50%
Commercial paper................................................................. 5.50% 5.81%
</TABLE>
BellSouth has committed credit lines aggregating $1,951 with various banks.
Borrowings under the committed lines totaled $92 and $66, respectively, at
December 31, 1996 and 1995. BellSouth also maintains uncommitted lines of credit
aggregating $650. At December 31, 1996, 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.
49
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE E -- 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,
1996.
<TABLE>
<CAPTION>
CONTRACTUAL
INTEREST RATES MATURITIES 1996 1995
------------------ -------------- --------- ---------
<S> <C> <C> <C> <C>
BellSouth Telecommunications Debentures: 4 3/8% - 6 3/4% 1997 - 2045 $ 1,905 $ 1,915
6.65% - 7% 2095 635 626
7% - 8 1/4% 2010 - 2035 2,050 2,535
--------- ---------
4,590 5,076
BellSouth Telecommunications Notes............ 5 1/4% - 7% 1998 - 2008 2,175 2,175
BellSouth Capital Funding Corporation Notes... 4.89% - 9.25% 1997 - 2026 820 544
Guarantee of ESOP debt........................ 9.125% - 9.19% 2003 594 647
Other......................................... 136 79
Unamortized discount, net of premium.......... (33) (33)
--------- ---------
8,282 8,488
Current maturities............................ (166) (564)
--------- ---------
Total Long-Term Debt........................ $ 8,116 $ 7,924
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt outstanding (principal amounts) at December 31,
1996 are summarized below. Maturities after the year 2001 include $500 principal
amount 6.65% debentures due in 2095. At December 31, 1996, such debentures had
an accreted book value of $135.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturities.................. $ 166 $ 798 $ 265 $ 473 $ 182 $ 6,796 $ 8,680
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
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 in
Debt Maturing Within One Year. 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.
At December 31, 1996, shelf registration statements were on file with the
Securities and Exchange Commission under which $1,927 of debt securities could
be offered.
50
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE F -- OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits are summarized as follows at December
31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Postretirement benefits other than pensions (see Notes H and J).................... $ 744 $ 675
Accrued pension cost (see Notes H and J)........................................... 581 469
Compensation related............................................................... 522 421
Minority interests................................................................. 439 347
Postemployment benefits (see Note J)............................................... 144 494
Sharing accrual under FCC price cap plan........................................... 39 186
Other.............................................................................. 116 144
--------- ---------
Total Other Liabilities and Deferred Credits..................................... $ 2,585 $ 2,736
--------- ---------
--------- ---------
</TABLE>
NOTE G -- 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 1994 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, 1996, 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 $87.50 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.
SHARES HELD IN TRUST AND TREASURY. During 1994, 1995 and 1996, BellSouth
issued shares to grantor trusts to provide partial funding for the benefits
payable under certain nonqualified 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, 1996 and 1995, the assets held in the trusts
consist of cash and 15,796,782 and 13,753,204 shares, respectively, of BellSouth
common stock. Of the total shares of BellSouth common stock held by the trusts,
14,586,782 were issued by BellSouth directly to the trusts, out of previously
unissued shares and 1,210,000 shares were acquired in open market transactions
through use of the trusts' funds.
The total cost of the shares issued by BellSouth as of the date of funding
the trusts is included in Common Stock and Paid-In Capital; however, because
these shares are not considered outstanding for financial reporting purposes,
the shares are included within Shares Held in Trust and Treasury, a
51
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE G -- SHAREHOLDERS' EQUITY (CONTINUED)
reduction to Shareholders' Equity. In addition, there is no earnings per share
impact of these shares. The cost of shares acquired in open market purchases by
the trust are also included in Shares Held in Trust and Treasury.
In addition to shares held by the grantor trusts, Shares Held in Trust and
Treasury includes treasury shares purchased in connection with BellSouth's
announced plans to repurchase shares of its common stock. In 1996, BellSouth
purchased 2,207,152 treasury shares for an aggregate of $85. A total of 276,168
shares were reissued under various employee benefit plans.
Shares Held in Trust and Treasury as of December 31, 1996 and 1995 are
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Shares held by Grantor Trusts........................ 15,796,782 $ 458 13,753,204 $ 374
Shares held in Treasury.............................. 1,930,984 74 -- --
------------- ----- ------------- -----
Total Shares Held in Trust and Treasury.......... 17,727,766 $ 532 13,753,204 $ 374
------------- ----- ------------- -----
------------- ----- ------------- -----
</TABLE>
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. 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. See Note H.
NOTE H -- EMPLOYEE BENEFIT PLANS
PENSION PLANS. Substantially all employees of BellSouth are covered by
noncontributory defined benefit pension plans. Principal plans are discussed
below; other plans are not significant individually or in the aggregate.
The plan covering 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 1996 and 1995 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.
52
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of net pension (income) cost are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year....................... $ 288 $ 239 $ 272
Interest cost on projected benefit obligation......................... 799 812 778
Actual (return) loss on plan assets................................... (1,957) (3,041) 136
Net amortization and deferral......................................... 856 1,937 (1,158)
--------- --------- ---------
Net pension (income) cost........................................... $ (14) $ (53) $ 28
--------- --------- ---------
--------- --------- ---------
</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 demographic information. The plan
division had no material impact on BellSouth in 1994. Net pension (income) cost
is affected by changes in the discount rate and other actuarial assumptions. The
consolidated net pension (income) cost amounts reflected above are exclusive of
curtailment effects reflected in the work force reduction and restructuring
activities (see Note J) and do not reflect curtailment gains in the amount of
$43 in 1996.
The following table sets forth the funded status of the plans at December
31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation...................................................... $ 9,321 $ 8,853
--------- ---------
--------- ---------
Accumulated benefit obligation................................................. $ 9,824 $ 9,961
--------- ---------
--------- ---------
Projected benefit obligation................................................... $ 11,303 $ 11,994
Plan assets at fair value........................................................ 15,614 14,613
--------- ---------
Plan assets in excess of projected benefit obligation............................ 4,311 2,619
Unrecognized net gain due to past experience different from assumptions made..... (4,286) (2,738)
Unrecognized prior service cost.................................................. (304) (199)
Unrecognized net asset at transition............................................. (130) (151)
--------- ---------
Accrued pension cost........................................................... $ (409) $ (469)
--------- ---------
--------- ---------
</TABLE>
The significant actuarial assumptions at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Weighted average discount rate........................................................ 7.5 % 7.0%
Weighted average rate of compensation increase........................................ 5.8 % 5.7%
Expected long-term rate of return on plan assets...................................... 8.25% 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. BellSouth's transition benefit
obligation is being amortized over 15 years, the average remaining service
period of active plan participants at adoption. The accounting for the health
care plan does not anticipate future adjustments to the cost-sharing
arrangements provided for in the written plan for employees who retire after
December 31, 1991.
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all health and life benefits
for which BellSouth is liable. Contributions are
53
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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.
Net postretirement benefit cost (income) for the years ended December 31,
1996, 1995 and 1994, respectively, is composed of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- ---------
HEALTH LIFE HEALTH LIFE HEALTH
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service cost -- benefits earned during the year..................... $ 35 $ 12 $ 27 $ 10 $ 35
Interest on accumulated postretirement benefit obligation........... 225 43 223 38 211
Actual (return) loss on plan assets................................. (163) (103) (185) (125) 14
Amortization of transition liability (asset)........................ 96 (13) 110 (13) 112
Other amortization and deferral, net................................ 115 58 115 77 (65)
--------- --------- --------- --------- ---------
Net postretirement benefit cost (income)............................ $ 308 $ (3) $ 290 $ (13) $ 307
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
LIFE
---------
<S> <C>
Service cost -- benefits earned during the year..................... $ 13
Interest on accumulated postretirement benefit obligation........... 37
Actual (return) loss on plan assets................................. (12)
Amortization of transition liability (asset)........................ (13)
Other amortization and deferral, net................................ (30)
---------
Net postretirement benefit cost (income)............................ $ (5)
---------
---------
</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 in Note J.
The following table sets forth the plans' funded status at December 31, 1996
and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
HEALTH LIFE HEALTH LIFE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ 1,994 $ 318 $ 1,909 $ 305
Fully eligible active plan participants.................. 437 135 712 178
Other active plan participants........................... 541 164 687 137
--------- --------- --------- ---------
2,972 617 3,308 620
Plan assets at fair value.................................. 1,379 778 1,159 692
--------- --------- --------- ---------
Accumulated postretirement benefit obligation less than (in
excess of) plan assets.................................... (1,593) 161 (2,149) 72
Unrecognized prior service cost............................ 71 17 103 5
Unrecognized net (gains) losses............................ (279) 7 218 117
Unrecognized transition obligation (asset)................. 1,057 (144) 1,153 (157)
--------- --------- --------- ---------
(Accrued) prepaid postretirement benefit cost.............. $ (744) $ 41 $ (675) $ 37
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The significant actuarial assumptions at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Weighted average discount rate........................................................ 7.5 % 7.0%
Weighted average rate of compensation increase........................................ 5.8 % 5.7%
Health care cost trend rate (1)....................................................... 8.5 % 9.0%
Expected long-term rate of return on plan assets (2).................................. 8.25% 8.0%
</TABLE>
- ------------------------
(1) Trend rate used to value the accumulated postretirement obligation in 1996
and 1995 is assumed to decrease gradually to 5% in 2003.
(2) Rate net of an estimated 30% tax reduction for the nonrepresented employees'
trust for 1996 and 1995.
54
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE H -- 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 $190 at December 31, 1996 and the estimated aggregate service and
interest cost components of the 1996 postretirement benefit cost by $17.
DEFINED CONTRIBUTION PLANS. BellSouth maintains several contributory
savings plans which cover substantially all employees. In April 1996, the
BellSouth Management Savings and Employee Stock Ownership Plan and the BellSouth
Enterprises Retirement Savings Plan merged to form the BellSouth Retirement
Savings Plan. The BellSouth Retirement Savings Plan and the BellSouth Savings
and Security Plan (collectively, the Savings Plans) are tax-qualified defined
contribution plans. 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 Employee Stock Ownership Plan (ESOP) was incorporated
into the Savings Plans. The Trusts borrowed $850 by issuing amortizing notes
which are guaranteed by BellSouth (see Note E). The Trusts used the loan
proceeds to purchase shares of BellSouth common stock in the open market. These
shares are held in suspense accounts in the Trusts; a scheduled number of shares
is released for allocation to participants as each semi-annual loan payment is
made. The Trusts service the debt with contributions from BellSouth and with
dividends paid on the shares held by the Trusts. None of the shares held by the
Trusts is subject to repurchase.
A portion of employees' eligible contributions to the Savings Plans is
matched by BellSouth at rates determined annually by the Board of Directors.
BellSouth's matching obligation is fulfilled with shares released from the
suspense accounts semi-annually for allocation to participants. The number of
shares allocated to each participant's account is based on the market price of
the shares at the time of allocation. If shares released for allocation do not
fulfill BellSouth's matching obligation, BellSouth makes further contributions
to the Trusts to fund the purchase of additional shares in the open market to
fulfill the remaining obligation.
BellSouth recognizes expense using the shares allocated accounting method,
which combines the cost of the shares allocated for the period plus interest
incurred, reduced by the dividends used to service the ESOP debt. Dividends on
all ESOP shares are recorded as a reduction to retained earnings and all ESOP
shares are included in the computation of earnings per share.
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Compensation cost..................................... $58 $75 $77
Interest expense...................................... $33 $37 $39
Actual interest on ESOP Notes......................... $56 $62 $66
Cash contributions, excluding dividends paid to the
Trusts............................................... $91 $101 $100
Dividends paid to the Trusts, used for debt service... $44 $44 $42
Shares allocated to participants...................... 14,305,917 11,942,278 9,621,034
Shares committed to be released....................... -- -- --
Shares unallocated.................................... 17,472,807 19,836,446 22,157,690
</TABLE>
55
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE I -- STOCK COMPENSATION PLANS
At December 31, 1996, BellSouth has stock options outstanding under several
stock-based compensation plans. The BellSouth Corporation Stock Plan (the Stock
Plan) provides for grants to key employees of stock options and various other
stock-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 cannot exceed one percent of the
shares outstanding at the time of grant. Prior to adoption of the Stock Plan,
stock options were granted under the BellSouth Corporation Stock Option Plan.
Stock options granted under both plans entitle an optionee to purchase shares of
BellSouth common stock within prescribed periods at a price either equal to, or
in excess of, the fair market value on the date of grant. Options granted under
these plans generally become exercisable at the end of five years and have a
term of 10 years.
BellSouth applies APB Opinion 25 and related Interpretations in accounting
for its stock plans. Accordingly, no compensation cost has been recognized for
grants of stock options. Had compensation cost for BellSouth's stock-based
compensation plans been determined in accordance with the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," BellSouth's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net income (loss) -- as reported................................................... $ 2,863 $ (1,232)
Net income (loss) -- pro forma..................................................... $ 2,852 $ (1,235)
Earnings (loss) per share -- as reported........................................... $ 2.88 $ (1.24)
Earnings (loss) per share -- pro forma............................................. $ 2.87 $ (1.24)
</TABLE>
The pro forma amounts reflected above are not representative of the effects
on reported net income in future years because, in general, the options granted
in 1996 and 1995 do not vest for several years and additional awards are made
each year.
The following table summarizes the activity for stock options outstanding:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Options outstanding at January 1...................... 14,287,748 10,345,924 7,308,284
Options granted....................................... 5,376,513 5,269,040 3,525,722
Options exercised..................................... (692,545) (1,226,040) (374,278)
Options forfeited..................................... (400,324) (101,176) (113,804)
Options outstanding at December 31.................... 18,571,392 14,287,748 10,345,924
Weighted-average option prices per common share:
Outstanding at January 1............................ $30.56 $28.65 $26.14
Granted at fair market value........................ $42.50 $30.85 $30.20
Granted at above fair market value.................. N/A $41.34 $41.79
Exercised........................................... $26.24 $24.46 $23.58
Forfeited........................................... $33.71 $30.10 $29.08
Outstanding at December 31.......................... $34.11 $30.56 $28.65
Weighted-average fair value of options granted at fair
market value during the year......................... $7.66 $5.60 $7.50
Weighted-average fair value of options granted at
above fair market value during the year.............. N/A $2.48 $1.70
Options exercisable at December 31.................... 6,523,291 5,242,258 4,667,262
Shares available for grant at December 31............. 9,910,692 10,074,447 10,050,096
</TABLE>
56
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE I -- STOCK COMPENSATION PLANS (CONTINUED)
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Expected life (years)................................................ 7 7 7
Dividend yield....................................................... 3.39% 4.55% 4.59%
Expected volatility.................................................. 15.4% 15.8% 16.4%
Risk-free interest rate.............................................. 5.56% 7.21% 5.75%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -----------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AVERAGE REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------ ------------- -------------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$18.50 - $25.99 1,466,990 4.66 years $ 24.65 1,466,990 $ 24.65
$26.00 - $27.99 2,819,677 5.24 years $ 27.23 1,839,895 $ 27.27
$28.00 - $29.99 3,668,220 7.05 years $ 29.44 1,229,828 $ 29.28
$30.00 - $38.99 3,259,373 7.56 years $ 30.98 819,337 $ 31.41
$39.00 - $44.50 7,357,132 8.77 years $ 42.34 1,167,241 $ 42.08
$18.50 - $44.50 18,571,392 7.36 years $ 34.11 6,523,291 $ 30.23
</TABLE>
NOTE J -- 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 a restructuring plan
initiated in 1993 and completed in 1995.
Under the 1995 work force reduction plan, BellSouth Telecommunications
expects to reduce the work force of the wireline telephone operations by
approximately 11,300 employees by the end of 1997. 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. Including a reduction of approximately 800 employees which occurred
in December 1995, BellSouth Telecommunications has reduced its work force by
approximately 7,000 employees under the 1995 plan through December 31, 1996.
NOTE K -- INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes," 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.
57
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Millions, Except Per Share Amounts)
NOTE K -- INCOME TAXES (CONTINUED)
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current................................................................ $ 1,390 $ 1,061 $ 1,082
Deferred, net.......................................................... 170 (148) 34
Investment tax credits, net............................................ (77) (69) (73)
--------- --------- ---------
1,483 844 1,043
--------- --------- ---------
State:
Current................................................................ 235 203 180
Deferred, net.......................................................... 27 (23) 20
--------- --------- ---------
262 180 200
--------- --------- ---------
Total provision for income taxes..................................... $ 1,745 $ 1,024 $ 1,243
--------- --------- ---------
--------- --------- ---------
</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.
Temporary differences which gave rise to deferred tax assets and
(liabilities) at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Compensation related............................................................ $ 707 $ 627
Work force reduction charge..................................................... 210 370
Allowance for uncollectibles.................................................... 87 89
Regulatory sharing accruals..................................................... 32 114
Other........................................................................... 244 219
--------- ---------
1,280 1,419
Valuation allowance............................................................. (64) (55)
--------- ---------
Deferred Tax Assets............................................................. 1,216 1,364
--------- ---------
Depreciation.................................................................... (2,110) (2,042)
Equity investments.............................................................. (354) (361)
Issue basis accounting.......................................................... (197) (207)
Licenses........................................................................ (187) (190)
Other........................................................................... (133) (129)
--------- ---------
Deferred Tax Liabilities...................................................... (2,981) (2,929)
--------- ---------
Net Deferred Tax Liability.................................................. $ (1,765) $ (1,565)
--------- ---------
--------- ---------
</TABLE>
The valuation allowance, which increased by $9 in 1996, 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, 1996 and 1995, $134
and $85, respectively, was current and $(1,899) and $(1,650), respectively, was
noncurrent.
58
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE K -- INCOME TAXES (CONTINUED)
A reconciliation of the Federal statutory income tax rate to BellSouth's
effective tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate................................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax benefit...................... 3.7 4.5 4.0
Amortization of investment tax credits..................................... (1.7) (2.7) (2.1)
Equity of unconsolidated subsidiaries...................................... 1.6 2.0 0.6
Benefit of capital loss carryforward....................................... -- (0.4) (1.1)
Basis difference in disposed subsidiary.................................... (1.5) -- --
Miscellaneous items, net................................................... 0.8 1.2 .1
--------- --------- ---------
Effective tax rate....................................................... 37.9% 39.6% 36.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE L -- DISCONTINUANCE OF SFAS NO. 71
In 1995, as a result of its continuing regulatory and marketplace
assessments, BellSouth Telecommunications concluded that it was required to
discontinue SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," for financial reporting purposes. Accordingly, BellSouth
Telecommunications 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>
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.
59
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE L -- DISCONTINUANCE OF SFAS NO. 71 (CONTINUED)
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 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 adoption by BellSouth Telecommunications of issue basis
accounting for its directory publishing revenues. BellSouth's unregulated
subsidiaries already recognized directory publishing revenues and production
expenses using issue basis accounting.
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.
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.
NOTE M -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH PAID FOR:
Income Taxes............................................................. $ 1,427 $ 1,231 $ 1,375
--------- --------- ---------
--------- --------- ---------
Interest................................................................. $ 740 $ 760 $ 665
--------- --------- ---------
--------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Shares Issued to Grantor Trusts.......................................... $ 35 $ 38 $ 43
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE N -- FINANCIAL INSTRUMENTS
The recorded amounts of cash and cash equivalents, temporary cash
investments, bank loans and commercial paper approximate fair value due to the
short-term nature of these instruments. The fair value for BellSouth
Telecommunications Debentures and Notes are estimated based on the closing
market prices for each issue at December 31, 1996 and 1995. Fair value estimates
for the Guarantee of ESOP Debt, BellSouth Capital Funding Corporation Notes,
foreign exchange contracts, foreign currency swaps and interest rate swaps are
based on quotes from dealers. 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.
60
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE N -- FINANCIAL INSTRUMENTS (CONTINUED)
Following is a summary of financial instruments where the fair values differ
from the recorded amounts as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
ESTIMATED ESTIMATED
RECORDED FAIR RECORDED FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS
Long-Term Debt:
BellSouth Telecommunications Debentures................... $ 4,590 $ 4,422 $ 5,076 $ 5,079
BellSouth Telecommunications Notes........................ 2,175 2,141 2,175 2,216
BellSouth Capital Funding Corporation Notes............... 820 856 544 587
Guarantee of ESOP Debt.................................... 594 675 647 803
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
Interest Rate Swaps......................................... -- (5) -- (10)
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS. BellSouth is, from time to time, party to
currency swap agreements, interest rate swap agreements and foreign exchange
forward contracts 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 then current value of the currency rate or interest rate differential, not
the full notional amount. Such contracts and agreements have been executed with
creditworthy financial institutions. As such, BellSouth considers the risk of
nonperformance to be remote.
CURRENCY SWAP. 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, 1996,
the net currency swap receivable, which equals the fair value of the swap, was
$23 and the related net interest receivable was $7, both of which are included
in accounts receivable in the consolidated balance sheet at December 31, 1996.
INTEREST RATE SWAPS. BellSouth enters into interest rate swap agreements to
exchange fixed and variable rate interest payment obligations without the
exchange of the underlying principal amounts. As of December 31, 1996, BellSouth
was a party to various interest rate swaps with an aggregate notional amount of
$120. Under these swaps, BellSouth paid fixed rates averaging 7.13% and received
variable rates averaging 5.52%. These swaps mature at dates ranging from 2001 to
2002.
At December 31, 1995, BellSouth was a party to two types of interest rate
swaps with aggregate notional amounts of $96 and $75, respectively. Under the
$96 swaps, BellSouth paid fixed rates averaging 7.38% and received variable
rates averaging 6.05%. Under the $75 swaps, BellSouth paid variable rates
averaging 5.96% and received fixed rates averaging 4.86%.
OTHER. BellSouth has also issued letters of credit and financial guarantees
which approximate $322 at December 31, 1996. Of this total, $169 represents the
U.S. Dollar equivalent of the outstanding balance of E-Plus debt guaranteed by
BellSouth. BellSouth has agreed to guarantee E-Plus borrowings up to a U.S.
Dollar equivalent of $341 (530 million German Marks) at December 31, 1996.
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
61
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE N -- FINANCIAL INSTRUMENTS (CONTINUED)
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, 1996 and 1995, approximately $492
and $520, respectively, of trade accounts receivable were from interexchange
carriers.
NOTE O -- COMMITMENTS AND CONTINGENCIES
LEASES. BellSouth has entered into operating leases for facilities and
equipment used in operations. Rental expense under operating leases was $269,
$252 and $311 for 1996, 1995 and 1994, 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, 1996:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum rentals............. $ 181 $ 143 $ 121 $ 101 $ 88 $ 483 $ 1,117
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
OUTSIDE PLANT. BellSouth currently self-insures all of its outside plant
against casualty losses. The net book value of outside plant was $7,621 and
$8,080 at December 31, 1996 and 1995, 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 CLAIMS. BellSouth and its subsidiaries are subject to claims arising
in the ordinary course of business involving allegations of personal injury,
breach of contract, anti-competitive conduct, employment law issues, regulatory
matters and other actions. BellSouth Telecommunications is also subject to
claims attributable to pre-divestiture events involving environmental
liabilities, rates, taxes, contracts and torts. Certain contingent liabilities
for pre-divestiture events are shared with AT&T Corp.
With respect to regulatory matters, the South Carolina Public Service
Commission has ordered BellSouth Telecommunications to refund approximately $29,
plus interest, based on an investigation of its 1992 earnings. The refund was
stayed pending judicial review of the decision. In 1996, the South Carolina
Court of Common Pleas entered an order affirming the Commission's order of the
refund. BellSouth Telecommunications intends to pursue an appeal of this
decision. The Commission has postponed review of BellSouth Telecommunications'
earnings in 1993 and 1994 until a resolution of the 1992 period is reached.
While complete assurance cannot be given as to the outcome of any legal
claims, BellSouth believes that any financial impact would not be material to
its financial position or annual operating results or cash flows.
62
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE P -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In the following summary of quarterly financial information, all adjustments
necessary for a fair presentation of each period were included. The results for
first quarter 1996 include a gain on sale of paging business of $442, which
increased net income by $344. 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>
1996
Operating Revenues........................................... $ 4,541 $ 4,620 $ 4,829 $ 5,050
Operating Income............................................. $ 1,183 $ 1,188 $ 1,201 $ 1,207
Net Income................................................... $ 970 $ 629 $ 631 $ 633
Earnings Per Share........................................... $ .98 $ .63 $ .63 $ .64
1995
Operating Revenues........................................... $ 4,299 $ 4,390 $ 4,432 $ 4,765
Operating Income............................................. $ 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 (LOSS) 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)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
63
<PAGE>
SUPPLEMENTARY DATA
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,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cellular Revenue, net...................................................................... $ 2,312 $ 1,888
--------- ---------
Operating Expenses......................................................................... 1,308 1,065
Depreciation and Amortization.............................................................. 364 298
--------- ---------
Total Operating Expenses............................................................... 1,672 1,363
--------- ---------
Operating Income........................................................................... 640 525
Other Expenses, net (including interest and taxes)......................................... 277 233
--------- ---------
Net Income............................................................................. $ 363 $ 292
--------- ---------
--------- ---------
Operating Margins as a Percentage of Revenue:
Including Depreciation and Amortization.................................................. 27.7% 27.8%
Excluding Depreciation and Amortization.................................................. 43.4% 43.6%
Operational Comparisons (thousands):
Proportionate Cellular Population Served................................................. 40,696 39,937
Proportionate Cellular Customers......................................................... 3,612 2,847
</TABLE>
64
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change in accountants or disagreements on the adoption of appropriate
accounting standards or financial disclosure has occurred during the periods
included in this report.
PART III
ITEMS 10 THROUGH 13.
Information regarding executive officers required by Item 401 of Regulation
S-K is furnished in a separate disclosure on page 22 in Part I of this report
since the registrant did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A.
The additional information required by these items will be included in the
registrant's definitive proxy statement dated March 11, 1997 as follows, and is
herein incorporated by reference pursuant to General Instruction G(3):
<TABLE>
<CAPTION>
PAGE(S) IN
DEFINITIVE
PROXY
ITEM DESCRIPTION STATEMENT
- ----------------- ---------------------------------------------------------------------------- -----------------
<S> <C> <C>
10. Directors and Executive Officers of the Registrant.......................... 5 - 12
11. Executive Compensation...................................................... 21 - 28 (a)
12. Security Ownership of Certain Beneficial
Owners and Management...................................................... 12
13. Certain Relationships and Related Transactions.............................. 21 (b)
<FN>
- ------------------------
(a) Beginning with "Compensation Committee Interlocks and Insider
Participation" through but not including "Five Year Performance
Comparison"
(b) Includes only "Compensation Committee Interlocks and Insider
Participation"
</TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE(S) IN THIS
FORM 10-K
-----------------
<S> <C>
a. Documents filed as a part of the report:
(1) Financial Statements:
Report of Independent Accountants........................................................ 40
Consolidated Statements of Income........................................................ 41
Consolidated Balance Sheets.............................................................. 42
Consolidated Statements of Shareholders' Equity.......................................... 43
Consolidated Statements of Cash Flows.................................................... 44
Notes to Consolidated Financial Statements............................................... 45-64
(2) Financial statement schedules have been omitted because the required information is
contained in the financial statements and notes thereto or because such schedules are not
required or applicable.
(3) Exhibits: Exhibits identified in parentheses below, on file with the SEC, are
incorporated herein by reference as exhibits hereto. All management contracts or
compensatory plans or arrangements required to be filed as exhibits to this Form 10-K
Report pursuant to Item 14(c) are filed as Exhibits 10a through 10y inclusive.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
3a Articles of Incorporation of BellSouth Corporation. (Exhibit 3a to Form 10-K for the year ended December
31, 1990, File No. 1-8607).
3a-1 Articles of Amendment to Articles of Incorporation of BellSouth Corporation. (Exhibit 3a-1 to Form 10-Q
for the quarter ended September 30, 1995, File No. 1-8607).
3b Bylaws of BellSouth Corporation. (Exhibit 3b to Form 10-Q for the quarter ended September 30, 1994, File
No. 1-8607).
4 BellSouth Corporation Shareholder Rights Agreement. (Exhibit 4-b to Form 8-K. Date of report November
27, 1989).
4a No instrument which defines the rights of holders of long and intermediate term debt of BellSouth
Corporation is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, BellSouth Corporation hereby agrees to furnish a copy of any such instrument to the SEC upon
request.
10a BellSouth Corporation Officer Short Term Incentive Award Plan. (Exhibit 10y to Form 10-Q for the quarter
ended September 30, 1996, File No. 1-8607).
10b BellSouth Corporation Executive Long Term Incentive Plan. (Exhibit 10e to Form 10-K for the year ended
December 31, 1991, File No. 1-8607).
10c BellSouth Corporation Executive Long Term Disability and Survivor Protection Plan as amended and
restated effective January 1, 1994. (Exhibit 10c-1 to Form 10-K for the year ended December 31, 1993,
File No. 1-8607).
10d BellSouth Corporation Executive Transfer Plan. (Exhibit 10ee to Registration Statement No. 2-87846).
10e BellSouth Corporation Death Benefit Program. (Exhibit 10ff to Form 10-K for the year ended December 31,
1989, File No. 1-8607).
10f BellSouth Corporation Plan For Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to
Registration Statement No. 2-87846).
10g BellSouth Corporation Executive Incentive Award Deferral Plan as amended and restated effective
September 23, 1996.
10h BellSouth Corporation Nonqualified Deferred Compensation Plan as amended and restated effective November
25, 1996.
10i BellSouth Corporation Supplemental Executive Retirement Plan as amended on May 18, 1995. (Exhibit 10j-1
to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10j BellSouth Corporation Directors Retirement Plan. (Exhibit 10qq to Form 10-K for the year ended December
31, 1986, File No. 1-8607).
10k BellSouth Corporation Financial Counseling Plan. (Exhibit 10r to Form 10-K for the year ended December
31, 1992, File No. 1-8607).
10k-1 Amendment dated November 3, 1995 to the BellSouth Corporation Financial Counseling Plan for Executives.
(Exhibit 10l-1 to Form 10-K for the year ended December 31, 1995, File No. 1-8607).
10l BellSouth Corporation Deferred Compensation Plan for Non-Employee Directors. (Exhibit 10gg to
Registration Statement No. 2-87846).
10m BellSouth Corporation Executive Life Insurance Plan. (Exhibit 10v to Form 10-K for the year ended
December 31, 1992, File No. 1-8607).
10n BellSouth Corporation Non-Employee Directors' Stock Option Plan. (Exhibit 10z to Form 10-Q for the
quarter ended September 30, 1996, File No. 1-8607).
10o Form of Executive Officer Successor and Retirement Agreement. (Exhibit 10aa to Form 10-Q for the quarter
ended September 30, 1996, File No. 1-8607).
10p BellSouth Non-Employee Directors Charitable Contribution Program. (Exhibit 10z to Form 10-K for the year
ended December 31, 1992, File No. 1-8607).
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
10q BellSouth Personal Retirement Account Pension Plan, as amended and restated effective July 1, 1996.
(Exhibit 10r to Form 10-Q for the quarter ended September 30, 1996, File No. 1-8607).
<S> <C>
10r BellSouth Corporation Trust Under Executive Benefit Plan(s) as amended April 28, 1995. (Exhibit 10u-1 to
Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10r-1 Amendment dated May 23, 1996 to the BellSouth Corporation Trust Under Executive Benefit Plan(s).
(Exhibit 10s-1 to Form 10-Q for the quarter ended June 30, 1996, File No. 1-8607).
10s BellSouth Telecommunications, Inc. Trust Under Executive Benefit Plan(s) as amended April 28, 1995.
(Exhibit 10v-1 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10s-1 Amendment dated May 23, 1996 to the BellSouth Telecommunications, Inc. Trust Under Executive Benefit
Plan(s). (Exhibit 10t-1 to Form 10-Q for the quarter ended June 30, 1996, File No. 1-8607).
10t BellSouth Corporation Trust Under Board of Directors Benefit Plan(s) as amended April 28, 1995. (Exhibit
10w-1 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10t-1 Amendment dated May 23, 1996 to the BellSouth Corporation Trust Under Board Directors Benefit Plan(s).
(Exhibit 10u-1 to Form 10-Q for the quarter ended June 30, 1996, File No. 1-8607).
10u BellSouth Telecommunications, Inc. Trust Under Board of Directors Benefit Plan(s) as amended April 28,
1995. (Exhibit 10x-1 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8607).
10u-1 Amendment dated May 23, 1996 to the BellSouth Telecommunications, Inc. Trust Under Board of Directors
Benefit Plan(s). (Exhibit 10v-1 to Form 10-Q for the quarter ended June 30, 1996, File No. 1-8607).
10v BellSouth Corporation Stock Plan as amended on September 23, 1996 and November 24, 1996.
10w BellSouth Retirement Savings Plan as amended and restated effective July 1, 1996. (Exhibit 10x to Form
10-Q for the quarter ended September 30, 1996, File No. 1-8607).
10x BellSouth Corporation Officer Estate Enhancement Plan and Agreement.
10y BellSouth Change in Control Executive Severance Agreements.
11 Computation of Earnings Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of BellSouth.
24 Powers of Attorney.
27 Financial Data Schedule.
99a Annual report on Form 11-K for BellSouth Retirement Savings Plan for the fiscal year ended December 31,
1996 (to be filed as an amendment hereto within 180 days of the end of the period covered by this
report).
</TABLE>
<TABLE>
<S> <C>
99b Annual report on Form 11-K for BellSouth Savings and Security ESOP Plan for the
fiscal year ended December 31, 1996 (to be filed as an amendment hereto within 180
days of the end of the period covered by this report).
</TABLE>
b. Reports on Form 8-K:
<TABLE>
<CAPTION>
DATE OF EVENT SUBJECT
- -------------------- ------------------------------------------------------------------------
<S> <C>
January 23, 1997 Fourth Quarter 1996 Earnings Release
</TABLE>
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BELLSOUTH CORPORATION
/s/ RONALD M. DYKES
---------------------------------------------------------------------------
Ronald M. Dykes
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
February 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER:
F. Duane Ackerman*
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRINCIPAL FINANCIAL OFFICER:
Ronald M. Dykes*
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
PRINCIPAL ACCOUNTING OFFICER:
W. Patrick Shannon*
VICE PRESIDENT AND CONTROLLER
<TABLE>
<S> <C>
DIRECTORS:
F. Duane Ackerman* Phyllis Burke Davis*
Reuben V. Anderson* John G. Medlin, Jr.*
James H. Blanchard* Robin B. Smith*
J. Hyatt Brown* C. Dixon Spangler, Jr.*
John L. Clendenin* Ronald A. Terry*
Armando M. Codina* Thomas R. Williams*
Marshall M. Criser* J. Tylee Wilson
*By: /s/ RONALD M. DYKES
---------------------------------
</TABLE>
Ronald M. Dykes
(INDIVIDUALLY AND AS ATTORNEY-IN-FACT)
February 25, 1997
68
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of BellSouth Corporation on Form S-3 (Nos. 33-29411, 33-48929, 33-49461,
33-51449, 33-63173 and 333-21233) and Form S-8 (Nos. 33-38265, 33-38264,
33-38263, 33-30773, 33-30772, 33-26518, 33-12165, 2-94802, 33-49459, 333-01427,
333-01429 and 333-13783) of our report, dated February 3, 1997, which includes
an explanatory paragraph stating that the Company 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, on our audits of the
consolidated financial statements of BellSouth Corporation as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 25, 1997
69
<PAGE>
BELLSOUTH CORPORATION
EXECUTIVE INCENTIVE AWARD DEFERRAL PLAN
(as amended and restated effective September 23, 1996)
<PAGE>
BELLSOUTH CORPORATION
EXECUTIVE INCENTIVE AWARD DEFERRAL PLAN
(as amended and restated effective September 23, 1996)
SECTION 1. STATEMENT OF PURPOSE
The purpose of the Executive Incentive Award Deferral Plan is to permit the
deferral of all or a portion of an Executive's Short and/or Long Term
Incentive Awards. The objective of the Plan is to provide a means of
postponing the receipt of income until some future time (e.g., retirement,
etc.). Notwithstanding the foregoing, no deferrals will be permitted under
this Plan with respect to awards for services performed in years after
1997. The Plan also provides for certain additional payments in
recognition of reduced company matching contributions to Savings Plans on
behalf of Executives under circumstances described herein.
SECTION 2. DEFINITIONS
1. The word "Plan" shall mean the BellSouth Corporation Executive
Incentive Award Deferral Plan.
2. The word "Company" shall mean the BellSouth Corporation, or its
successors.
3. The words "Chairman of the Board," "President" and "Board of
Directors" or "Board" shall mean the Chairman of the Board of
Directors, President and Board of Directors, respectively, of the
Company.
4. The term "Executive" or "eligible employee" shall mean an employee of
the Company (or a participating subsidiary of the Company) who holds a
position which the Board of Directors has designated to be within that
company's Executive Management Group.
SECTION 3. ADMINISTRATION
1. The senior Human Resources officer of the Company (the "Responsible
Officer") shall be responsible for administration of the Plan.
2. The Responsible Officer shall have the exclusive responsibility and
complete discretionary authority to control the operation and
administration of the Plan, with all powers necessary to properly
carry out such responsibility, including without limitation the power
(i) to interpret the terms of the Plan including the power to construe
ambiguous or uncertain terms, (ii) to establish reasonable procedures
with which participants must comply to exercise any right established
<PAGE>
under the Plan, (iii) to determine status, coverage and eligibility
for, and the amount of, benefits, (iv) to resolve all questions that
arise in the operation and administration of the Plan, and (v) to
delegate his responsibilities hereunder to any person or entity. All
actions or determinations of the Responsible Officer (or his delegate)
shall (subject to Section 3.3) be final, conclusive and binding on all
persons. The rights and duties of participants and other persons and
entities are subject to, and governed by, such acts of administration,
interpretations, procedures, and delegations.
3. Claims for benefits under the Plan may be filed with the Responsible
Officer (or his delegate) on forms or in such other written documents
as the Responsible Officer may prescribe. The Responsible Officer
shall furnish to the claimant written notice of the disposition of a
claim within 90 days after the application therefor is filed. In the
event the claim is denied, the notice of the disposition of the claim
shall provide the specific reasons for the denial, citations of the
pertinent provisions of the Plan, and where appropriate an explanation
as to how the claimant can perfect the claim and/or submit the claim
for review.
Any eligible employee who has been denied a benefit shall be entitled,
upon request to the Responsible Officer, to appeal the denial of the
claim. The claimant (or his duly authorized representative) may
review pertinent documents related to the Plan and in the Responsible
Officer's possession in order to prepare the appeal. The request for
review, together with written statement of the claimant's position
must be filed with the Responsible Officer no later than 60 days after
receipt of the written notification of denial of a claim provided for
in the preceding paragraph. The Responsible Officer's decision shall
be made within 60 days following the filing of the request for review.
If unfavorable, the notice of the decision shall explain the reasons
for denial and indicate the provisions of the Plan or other documents
used to arrive at the decision.
SECTION 4. BENEFITS
1. ELIGIBILITY
An employee of the Company or a subsidiary of the Company which shall
have elected to participate in the Plan (each such company sometimes
being referred to herein as a "Participating Company") who is eligible
for an award under his company's Short Term Incentive Plan and/or who
has been granted an award under the BellSouth Corporation Executive
Long Term Incentive Plan shall be eligible to participate in the Plan.
In addition, each person who is a "Participant" as that term is
defined in Section 4A.2 of the Plan shall be eligible for benefits as
described in Section 4A.
3
<PAGE>
2. PARTICIPATION
(a) Prior to the beginning of any calendar year, an eligible employee
may elect to participate in the Plan by directing that all or part of
the awards under his company's Short Term Incentive Plan and/or under
the BellSouth Corporation Executive Long Term Incentive Plan which the
employee's company would otherwise pay currently to the employee in
which calendar year and subsequent calendar years shall be credited to
a deferred account subject to the terms of the Plan. In no event,
however, shall the part of an award under either plan credited to a
deferred account subject to the terms of the Plan. In no event,
however, shall the part of an award under either plan credited during
any calendar year be less than $1,000 (based on a valuation at the
time the award would otherwise be paid).
(b) Such an election to participate in the Plan shall be in the form
of a document executed by the employee and filed with the employee's
company. An election related to awards otherwise payable currently in
any calendar year shall become irrevocable on the last day prior to
the beginning of the preceding calendar year.
(c) An election shall continue until the employee terminates or
modifies such election by written notice, or until the employee ceases
to be employed by his company (other than a transfer to another
company whose employees are eligible to participate in the Plan), in
which case the employee shall be considered to have terminated the
election. Any such termination or modification shall become effective
as of the end of the calendar year in which such notice is given with
respect to all awards for which irrevocable elections regarding
deferral have not been made.
(d) An eligible employee who has filed a termination of election may
thereafter again file an election to participate with respect to
awards otherwise payable in calendar years subsequent to the filing of
such election.
(e) For the purpose of this Section 4, an election made by an eligible
employee under the comparable provisions of the predecessor Bell
System Senior Management Incentive Award Deferral Plan ("the
Predecessor Plan") shall be considered as an election made under this
Section 4, and the reference to short term incentive awards in such an
election under the Predecessor Plan shall be considered to refer to
awards under the Short Term Incentive Plan of any company
participating in this Plan, and the reference to long term incentive
awards in such an election shall be considered to refer to awards
under the BellSouth Corporation Long Term Incentive Plan.
4
<PAGE>
3. DEFERRED ACCOUNTS
(a) Deferred amounts related to awards which would otherwise have been
distributed in cash by a Participating Company shall be credited to
the employee's account either (i) as cash, as described in
Section 4.3(b), or (ii) as deferred Company shares, as described in
Section 4.3(c), as elected by the employee in the election form
described in Section 4.2(b). Deferred amounts related to awards which
would otherwise have been distributed in Company common shares by a
Participating Company shall be credited to the employee's account as
deferred Company shares, as described in Section 4.3(c). The
crediting of deferred amounts to an employee's account either as cash
or deferred Company shares shall be for the sole purpose of
determining the rate of return to be credited to the employee's
account, and shall not be treated or interpreted in any manner
whatsoever as a requirement or direction to actually invest assets in
Company shares or any other investment media. The Plan, as an
unfunded, nonqualified deferred compensation plan, shall not have any
actual investment of assets relative to the benefits or accounts
hereunder.
(b) Deferred amounts credited to the employee's account as cash shall
bear interest from the date the awards would otherwise have been paid.
The interest credited to the account will be compounded at the end of
each calendar quarter, and the annual rate of interest applied at the
end of any calendar quarter shall be determined by the Board of
Directors from time to time. In addition, if the employee's account
under the Predecessor Plan has been transferred to an account under
this Plan as of January 1, 1984 effective date of this Plan, then the
employee's account under this Plan shall be credited as of such date
with the amount credited to the employee's account under the
Predecessor Plan as of December 31, 1983, and such amount shall bear
interest in accordance with the preceding sentence from the effective
date of the Plan. An employee's account under the Predecessor Plan
shall be transferred to an account under this Plan, if the employee is
employed by a Participating Company on the effective date of the Plan.
(c) To the extent that an employee elects to have deferred amounts
credited to his or her account as deferred Company shares, such
employee's account shall be credited as of the date(s) on which the
related award(s) would otherwise have been distributed in cash, with
the number of shares of Company stock equal to the number of such
shares that could have been purchased with the dollar amount of such
award(s) at the average of the high and low sales prices of Company
common shares on the New York Stock Exchange ("NYSE") for the last day
of the month preceding the day on which the related award(s) would
otherwise have been distributed in cash or, if on such date the NYSE
is not operating and open to the public for trading (a "Business
Day"), on the Business Day most recently preceding such day. Deferred
amounts relating to awards which would otherwise have been
5
<PAGE>
distributed in Company common shares shall be credited to the
employee's account with an equivalent number of deferred Company
shares.
Deferred amounts credited to the employee's account as deferred
Company shares shall also be credited on each dividend payment date
for Company shares with an amount equivalent to the dividend payable
on the number of Company common shares equal to the number of deferred
Company shares in the employee's account on the record date for such
dividend. Such amount shall then be converted to a number of
additional deferred Company shares determined by dividing such amount
by the price of Company common shares, as determined in the following
sentence. The price of Company common shares related to any dividend
payment date shall be the average of the daily high and low sales
prices of BellSouth common shares on the NYSE for the period of five
Business Days ending on such dividend payment date, or the period of
five Business Days immediately preceding such dividend payment date if
the dividend payment date is not a Business Day.
(d) In the event of any change in outstanding Company common shares by
reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or other similar
corporate change, the Board of Directors shall make such adjustments,
if any, that it deems appropriate in the number of deferred Company
shares then credited to employees' accounts. Any and all such
adjustments shall be conclusive and binding upon all parties
concerned.
4. DISTRIBUTION
(a) At the time an eligible employee makes an election to participate
in the Plan, the employee shall also make an election with respect to
the distribution (during the employee's lifetime or in the event of
the employee's death) of the amounts credited to the employee's
deferred account. Such an election related to awards otherwise
payable currently in any calendar year shall become irrevocable on the
last day prior to the beginning of such calendar year. Amounts
related to awards which would have been distributed in cash in the
absence of a deferral election shall be distributed in cash. In the
case of amounts credited to the employee's account as deferred Company
shares, the amount of the cash distribution shall be determined by
multiplying the number of deferred Company shares in the employee's
account by the price of Company common shares. For purposes of the
preceding sentence, the price of Company common shares shall be the
average of the daily high and low sales prices of Company common
shares on the NYSE for the last Business Day of the month preceding
the payment date (described in Section 4(b)). Amounts related to
awards which would have been distributed in Company common shares in
the absence of a deferral shall be distributed in the form of an equal
number of Company common shares.
6
<PAGE>
(b) An employee may elect to receive the amounts credited to the
employee's account in one payment or in some other number of
approximately equal annual installments (not exceeding 20). The first
installment (or the single payment of the employee has so elected)
shall be paid as soon as administratively practicable following the
first day of the calendar quarter next following the earlier of (1)
the end of the month in which the employee attains the age specified
in such election (not earlier than age 55), or (2) the end of the
month in which the employee retires from a Participating Company, or
otherwise terminates employment with any such company (except for a
transfer to another such company).
(c) Notwithstanding an election pursuant to this Section 4, Paragraph
4(b), the entire amount then credited to the employee's account shall
be paid immediately in a single payment if an employee is discharged
for cause by his company, or if an employee otherwise ceases to be
employed by his company and becomes a proprietor, officer, partner,
employee, or otherwise becomes affiliated with any business that is in
competition with Company or any of its subsidiaries, or becomes
employed by a governmental agency having jurisdiction over the
activities of Company or any of its subsidiaries.
(d) An employee may elect that, in the event the employee should die
before full payment of all amounts credited to the employee's account,
the balance of the deferred amounts shall be distributed in one
payment or in some other number of approximately equal annual
installments (not exceeding 10) to the beneficiary or beneficiaries
designated in writing by the employee, or if no designation has been
made, to the estate of the employee in a lump sum. The first
installment (or the single payment if the employee has so elected)
shall be paid as soon as administratively practicable following the
first day of the calendar quarter next following the month of death.
(e) Installments subsequent to the first installment to the employee,
or to a beneficiary or to the employee's estate, shall be paid as soon
as administratively practicable following the first day of the
applicable calendar quarter in each succeeding calendar year until the
entire amount credited to the employee's deferred account shall have
been paid. Deferred amounts held pending distribution shall continue
to be credited with interest or additional deferred Company shares, as
applicable, determined in accordance with this Section 4, Paragraph
3(a), (b) and (c).
(f) The obligation to make distribution of deferred amounts credited
to an employee's account during any calendar year plus the additional
amounts credited on such deferred amounts pursuant to this Section 4,
Paragraph 3(a), (b) and (c) shall be borne by the Participating
Company which otherwise would have paid the related award currently.
However, the obligation to make distribution with respect to deferred
amounts which are related to amounts credited to an employee's
7
<PAGE>
account as of the effective date of the Plan, pursuant to this Section
4 Paragraph 3(a), and with respect to which no Participating Company
would otherwise have paid the related award currently, shall be borne
by the Participating Company which employed the employee on the
effective date of the Plan.
(g) For the purposes of this Section 4, an election described in
Paragraph 4(a) or a beneficiary designation described in Paragraph
4(d) made under the comparable provision of the Predecessor Plan shall
be considered as an election or beneficiary designation, respectively,
made under this Section 4.
SECTION 4A. ADDITIONAL PAYMENT.
1. Each Participating Company shall pay to each Participant, as defined
below, an amount determined under this Section at those times and in
the manner prescribed in this Section notwithstanding any other
obligation of the Participating Company to any person under the other
provisions of this Plan.
2. For purposes of this Section:
A. "Participant" means any person who participates in the
Nonqualified Plan in a Plan Year and any Executive who participates in
a Savings Plan in a Plan Year.
B. "Plan Year" means each calendar year, but for the first Plan Year
means February 1, 1985 through December 31, 1985.
C. "Computation Date" means December 31 of each Plan Year.
D. "Payment Date" means (i) with respect to amounts accrued under
this Section 4A prior to May 1, 1994, the second anniversary of each
Computation Date, and (ii) with respect to amounts accrued under this
Section 4A after April 30, 1994, the day in each month on which
Participants' regular monthly paychecks are delivered.
E. "Nonqualified Plan" means the BellSouth Corporation Nonqualified
Deferred Compensation Plan.
F. "Savings Plan" means the BellSouth Retirement Savings Plan (the
"RSP") and any predecessor or successor plan.
3. (A) For periods prior to May 1, 1994, each Participating Company shall
pay to each Participant on each Payment Date an amount equal to:
(1) The dollar amount, if any, actually deferred by the
Participant pursuant to the Nonqualified Plan in the Plan Year
(or, in the case of Plan Year
8
<PAGE>
1994, the period prior to May 1, 1994) in which the Computation
Date occurs, notwithstanding the amount that the Participant
elected to defer pursuant to that plan, if different, plus the
amount, if any, equal to the remaining base salary paid to the
Participant during the Plan Year (or, in the case of Plan
Year 1994, the period prior to May 1, 1994) in excess of the
amount of such Participant's compensation which may be taken into
account under Section 401(a)(17) of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor provision, plus,
in the case of Participants who participate in and make the
maximum allowable contribution to the RSP in a Plan Year (or, in
the case of Plan Year 1994, the period prior to May 1, 1994), the
amount of base salary (excluding any base salary taken into
account under the preceding provisions of this paragraph
4A.3(A)(l)) paid to the Participant during the Plan Year in
excess of the amount of base salary that would produce the
maximum contribution to the RSP for a Participant who contributed
to the RSP six percent (6%) of his or her Eligible Compensation,
as that term or its replacement is defined in the RSP, for the
Plan Year (or, in the case of Plan Year 1994, the period prior to
May 1, 1994),
(2) multiplied by the lesser of six percent (6%) or the
percentage of such Participant's Salary or Eligible Compensation,
as those terms or their replacements are defined in the Savings
Plan, which the Participant actually caused to be contributed as
before-tax or after-tax contributions to the Savings Plans in the
Plan Year in which the Computation Date occurs (or, in the case
of Plan Year 1994, the period prior to May 1, 1994),
notwithstanding the amount elected to be contributed to the
Savings Plans, if different; provided, however, that Participants
who make the maximum allowable contribution to a Savings Plan in
a Plan Year (or, in the case of Plan Year 1994, the period prior
to May 1, 1994) shall be deemed, for purposes of this Paragraph
4A.3(A)(2), to have caused to be contributed six percent (6%) of
such Salary or Eligible Compensation for such Plan Year (or, in
the case of Plan Year 1994, the period prior to May 1, 1994),
(3) multiplied by the applicable percentage determined for that
Plan Year (or, in the case of Plan Year 1994, the period prior to
May 1, 1994) in which the Computation Date occurs as the
percentage at which contributions by the Participant to the
relevant Savings Plan are matched by Company contributions,
(4) plus an amount of interest for the period beginning on the
first day of the Plan Year in which the Computation Date occurs
and ending on the Payment Date, which interest shall be
calculated on the same basis as interest is calculated on cash
awards deferred under this Plan.
9
<PAGE>
(B) For periods after April 30, 1994, each Participating Company shall
pay to each Participant on each Payment Date an amount equal to:
(1) the dollar amount, if any, actually deferred by the
Participant pursuant to the Nonqualified Plan for the pay period
in which such Payment Date occurs, notwithstanding the amount the
Participant elected to defer pursuant to that plan, if different,
plus the amount, if any, equal to the remaining base salary paid
to the Participant for such pay period in excess of the amount of
such Participant's compensation which may be taken into account
under Code Section 401(a)(17), or any successor provision, plus,
in the case of Participants who participate in and make the
maximum allowable contribution to the RSP for such pay period,
the amount of base salary (excluding any base salary taken into
account under the preceding provisions of this paragraph
4A.3(B)(l)) paid to the Participant during such pay period in
excess of the amount of base salary that would produce the
maximum contribution to the RSP for a Participant who contributed
to the RSP six percent (6%) of his or her Eligible Compensation,
as that term or its replacement is defined in the RSP, for such
day period,
(2) multiplied by the lesser of six percent (6%) or the
percentage of such Participant's Salary or Eligible Compensation,
as those terms or their replacements are defined in the Savings
Plans, which the Participant actually caused to be contributed as
before-tax or after-tax contributions to the Savings Plans for
such pay period, notwithstanding the amount elected to be
contributed to the Savings Plans, if different; provided,
however, that Participants who make the maximum allowable
contribution to a Savings Plan for a pay period shall be deemed,
for purposes of this paragraph 4A.3(B)(2), to have caused to be
contributed six percent (6%) of such Salary or Eligible
Compensation for such pay period,
(3) multiplied by the applicable percentage determined for such
pay period as the percentage at which contributions by the
Participant to the relevant Savings Plan are matched by Company
contributions.
4. A Participant who terminates employment shall be entitled to receive
amounts payable under Paragraph 3 of this Section 4A on the Payment
Dates otherwise scheduled except in the case of any termination of
employment as described in Section 4, Paragraph 4(c), in which event
all amounts otherwise payable under Section 4A, Paragraph 3 shall be
immediately forfeited.
5. In the event of a Participant's death prior to receipt of all amounts
under Paragraph 3 of this Section 4A, all such unpaid amounts (except
as provided in Section 4A, Paragraph 4) shall be paid in a lump sum to
the participant's estate as soon as is practical following his death.
10
<PAGE>
SECTION 5. MISCELLANEOUS
(1) The Participating Company only has contractual obligations to make
payments to, or on behalf of, the Executive or Participant. The
deferred amounts related to each Participating Company shall be held
in the general funds of such company. A Participating Company shall
not be required to reserve or otherwise set aside funds for the
payment of such deferred amounts. Executives and Participants (and
any other person who acquires a right to receive payments from a
Participating Company under this Plan) have the status of general
unsecured creditors of the Participating Company. Nothing contained
in this Plan shall create or be construed to create a trust of any
kind or a fiduciary relationship between any Participating Company and
any Executive or Participant. The rights of (or attributable to) any
Executive or Participant hereunder may not be sold, assigned (either
at law or in equity), transferred, pledged, encumbered or subject to
attachment, garnishment, levy, execution or other legal or equitable
process. Nor shall any interest of the Executive or Participant be
subject to the claims of any creditor of the Executive or Participant.
Finally, no Executive or Participant shall have any rights in any
specific assets of any Participating Company. Any accounting reserve
established as a result of the Plan only reflects a contractual
obligation of the Participating Company on its books of accounting and
does not constitute a segregated fund of assets or separation of
assets, and the obligations of each Participating Company only are
payable from its operating assets at the time the payment is due.
(2) In addition, (i) if any payment is made to (or attributable to) an
Executive or Participant with respect to benefits described in this
Plan from any source arranged by Company or a Participating Company
including, without limitation, any fund, trust, insurance arrangement,
bond, security device, or any similar arrangement, such payment shall
be deemed to be in full and complete satisfaction of the obligation of
the Participating Company under this Plan to the extent of such
payment as if such payment had been made directly by the Participating
Company; and (ii) if any payment from a source described in clause (i)
above shall be made, in whole or in part, prior to the time payment
would be made under the terms of this Plan, such payment shall be
deemed to satisfy the Participating Company's obligation to pay Plan
benefits beginning with the benefit which would next become payable
under the Plan and continuing in the order in which benefits are so
payable, until the payment from such other source is fully recovered.
In determining the benefits satisfied by a payment described in clause
(ii), Plan benefits, as they become payable, shall be discounted to
their value as of the date such actual payment was made using an
interest rate equal to the valuation interest rate for deferred
annuities as last published by the Pension Benefit Guaranty
Corporation prior to the date of such actual payment. If the benefits
which actually become payable under this Plan, after applying the
discount described in the preceding sentence, are less than the amount
of the payment(s) described in clause
11
<PAGE>
(ii), any such shortfall shall not be collected from or enforced
against the Executive or Participant as a claim by the Participating
Company.
(3) The Board of Directors may at any time make changes in the Plan or
terminate the Plan, but such changes or termination shall not
adversely affect the rights of any employee or Participant, without
his consent, to any benefit under the Plan to which such employee or
Participant may have been previously entitled prior to the effective
date of such change or termination. The Chairman or the Responsible
Officer with the concurrence of the General Counsel of the Company
shall be authorized to make minor or administrative changes to the
Plan.
12
<PAGE>
BELLSOUTH NONQUALIFIED DEFERRED
COMPENSATION PLAN
(As Amended and Restated on November 25, 1996)
<PAGE>
BELLSOUTH NONQUALIFIED DEFERRED COMPENSATION PLAN
BellSouth Corporation ("BellSouth") established on the first (1st) day of
January, 1985, the BellSouth Nonqualified Deferred Compensation Plan ("Plan")
for certain executive employees and all Nonemployee Directors of BellSouth and
its adopting subsidiaries. The Plan is hereby amended and restated this 25th
day of November, 1996, and, subject to the limitations contained in Article 2 of
the Plan, the Plan as so amended and restated hereafter shall apply to all
Deferral Agreements, including those executed heretofore, under the Plan.
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" means the gross salary paid to executive employees, not
including Nonemployee Directors, plus the amount of any before-tax basic and
supplemental contributions to the BellSouth Retirement Savings Plan and the
amount of any other deferrals from gross salary under any nonqualified deferred
compensation plans which may be maintained by an Employer from time to time.
1.2 "Board" means the Board of Directors of BellSouth.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Compensation" means Net Monthly Salary or Net Directors Fees and
Retainers.
1.5 "Compensation Rate" means the cash compensation of an Employee
Participant, including (i) annual Base Salary rate in effect on the date the
Deferral Agreement is executed and (ii) the standard short-term award amount in
effect on the date the Deferral Agreement is executed for an Employee
Participant who is an officer in the executive compensation group or lump sum
payments under incentive compensation programs received for performance rendered
during the calendar year preceding the year in which the Deferral Agreement is
executed for an Employee Participant other than an officer in the executive
compensation group.
1.6 "Deferral Agreement" means an agreement pursuant to which deferral
elections under this Plan are made and includes a standard Fixed Benefit
Agreement for Nonemployee Directors, substantially in the form of Exhibit A
hereto, a standard Fixed Benefit Agreement for Employee Participants,
substantially in the form of Exhibit B hereto, a standard Deferral Agreement
which allows Nonemployee Directors to select between a Fixed Benefit Agreement
and a Stock Unit Agreement, substantially in the form of Exhibit C hereto; a
Deferral Agreement for deferral of certain lump sum payments by Employee
Participants, substantially in the form of
<PAGE>
Exhibit D hereto; and includes any modifications to such agreements or such
other agreements as are approved from time to time for use in connection with
this Plan as described in Article 2.
1.7 "Designated Beneficiary" means the beneficiary designated by a
Participant as provided in Section 6.1.
1.8 "Disability" means for an Employee Participant disability as defined
in Section 5.4.
1.9 "Eligible Person" means an executive employee of an Employer or
Nonemployee Director who is authorized by the Board to participate in this Plan
and is presented a Deferral Agreement for execution.
1.10 "Employee Participant" means an Eligible Person other than a
Nonemployee Director.
1.11 "ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.
1.12 "Fixed Benefit Agreement" means a Deferral Agreement which provides
for a fixed benefit at Retirement under Section 5.1.
1.13 "Employer" means (i) BellSouth and (ii) any subsidiary of BellSouth,
at least eighty percent (80%) of the capital stock of which is owned by
BellSouth or by one or more subsidiaries of BellSouth if the Board of Directors
of that subsidiary adopts the Plan and if that subsidiary's adoption of the Plan
is approved by the Board or its designee.
1.14 "Interim Distribution" means a distribution specified as an Interim
Distribution in a Deferral Agreement.
1.15 "Net Credited Service" means an Employee Participant's net credited
service as defined in the BellSouth Corporation Personal Retirement Account
Pension Plan, except that it shall include only the portion of an Employee
Participant's net credited service as is attributable to service with BellSouth,
an Employer or any other corporation which is a member of the same controlled
group of corporations, within the meaning of Code Section 414(b), as BellSouth
and any trade or business (whether or not incorporated) which is under common
control with BellSouth, within the meaning of Code Section 414(c).
1.16 "Net Monthly Salary" or "Net Directors Fees and Retainers" means the
amount of a Participant's Base Salary or Directors Fees and Retainers which
actually is paid to him or her in
2
<PAGE>
any month net of all withholding, allotments, and deductions other than any
reduction as a result of participation in this Plan.
1.17 "Nonemployee Director" means a member of the Board, or a member of the
Board of Directors of any other Employer, who is not concurrently a common law
employee of an Employer.
1.18 "Participant" means an Eligible Person who has executed a Deferral
Agreement which is accepted by an Employer under Article 4.
1.19 "Plan Administrator" means the Chief Executive Officer of BellSouth
and any individual or committee he designates to act on his behalf with respect
to any or all of his responsibilities hereunder; provided, the Board may
designate any other person or committee to serve in lieu of the Chief Executive
Officer as the Plan Administrator with respect to any or all of the
administrative responsibilities hereunder.
1.20 "Plan Year" means (i) February 1, 1985, through December 31, 1985, and
(ii) each calendar year thereafter through 1996. For certain Employee
Participants designated by the Board, "Plan Year" also means calendar year 1997.
For Nonemployee Directors, "Plan Year" also means the period from January 1,
1997 through April 30, 1997, and for certain Nonemployee Directors designated by
the Board, "Plan Year" also means (A) May 1, 1997, through April 30, 1998,
(B) May 1, 1998, through April 30, 1999, and (C) May 1, 1999, through April 30,
2000, to the extent the Board shall designate.
1.21 "Retirement" means (1) any termination of employment by a Nonemployee
Director and (2) any termination of employment by an Employee Participant who is
eligible for a pension, other than a deferred vested pension, under the terms
and conditions of the BellSouth Personal Retirement Account Pension Plan, as
amended from time to time, or comparable plan maintained by the Employer
employing such Participant. Additionally, "Retirement" means any termination of
employment by an Employee Participant who has attained age 62 or older and whose
Net Credited Service is ten years or more at the time of employment termination.
1.22 "Retirement Benefit" means a benefit specified as a Retirement Benefit
in a Deferral Agreement.
1.23 "Share" means a share of $1.00 par value common stock of BellSouth.
1.24 "Stock Unit" means a bookkeeping entry representing the equivalent of
one Share credited to a Participant as described in Section 4.5.
3
<PAGE>
1.25 "Stock Unit Agreement" means a Deferral Agreement which provides a
benefit at Retirement under Section 5.1 based upon Stock Units.
ARTICLE 2
TERM; AMENDMENT
This Plan shall be effective until terminated by the Board. This Plan
originally provided for Plan Years 1985 through 1998 with Plan specifications
and applicable interest rates being approved by the Board for each separate Plan
Year. Notwithstanding the foregoing, effective November 25, 1996, no deferrals
will be permitted under the Plan except with respect to the Plan Years described
in Section 1.20 and then only to the extent provided in resolutions adopted by
the Board.
This Plan may be amended, renewed, restated or extended for additional Plan
Years by the Board and the Board may in its sole discretion, on the basis of
financial or other considerations, not authorize the execution of Deferral
Agreements by Eligible Persons prospectively deferring Compensation for any
given Plan Year. The Board may also establish the maximum number of deferrals
for which Eligible Persons are eligible under this Plan. Notwithstanding the
foregoing, no contractual right created by and under any Deferral Agreement on
the date of termination or amendment shall be abrogated by the termination or
amendment of this Plan unless the Participant who executed such Deferral
Agreement consents. Participants have no other right or interest in the
continuance of this Plan in any form.
ARTICLE 3
ADMINISTRATION; INTERPRETATION
3.1 CLAIM PROCEDURE.
(a) INITIAL CLAIM. Claims for benefits under the Plan may be filed with
the Plan Administrator on forms or in such other written documents as the Plan
Administrator may prescribe. The Plan Administrator shall furnish to the
claimant written notice of the disposition of a claim within 90 days after the
application therefor is filed. In the event the claim is denied, the notice of
the disposition of the claim shall provide the specific reasons for the denial,
citations of the pertinent provisions of the Plan, and where appropriate, an
explanation as to how the claimant can perfect the claim and/or submit the claim
for review.
4
<PAGE>
(b) APPEAL. Any Participant or Designated Beneficiary who has been denied
a benefit shall be entitled, upon request to the Plan Administrator, to appeal
the denial of the claim. The claimant (or his duly authorized representative)
may review pertinent documents related to the Plan and in the Plan
Administrator's possession in order to prepare the appeal. The request for
review, together with written statement of the claimant's position, must be
filed with the Plan Administrator no later than 60 days after receipt of the
written notification of denial of a claim provided for in Section 3.1. The Plan
Administrator's decision shall be made within 60 days following the filing of
the request for review. If unfavorable, the notice of the decision shall
explain the reasons for denial and indicate the provisions of the Plan or other
documents used to arrive at the decision.
3.2 INTERPRETATION. The Plan Administrator shall have the exclusive
responsibility and complete discretionary authority to control the operation and
administration of the Plan, with all powers necessary to properly carry out such
responsibility, including without limitation, the full and exclusive power to
(i) interpret the terms and conditions of this Plan and any Deferral Agreement,
including the power to construe ambiguous or uncertain terms, (ii) to establish
reasonable procedures with which Participants must comply to exercise any right
established hereunder or any contractual right established under the Deferral
Agreement, (iii) to determine status, coverage, eligibility for and the amount
of benefits, and all questions arising in correction therewith, and (iv) to
resolve all questions that arise in the operation and administration of this
Plan. The rights and duties of Participants and other persons and entities are
subject to, and governed by, such acts of administration, interpretations and
procedures. All actions or determinations of the Plan Administrator (or its
delegates) under this Article 3 shall be final, conclusive and binding on all
persons.
ARTICLE 4
DEFERRAL AGREEMENT
4.1 ELECTION TO DEFER.
(a) As hereinafter provided and subject to acceptance by an Employer, (i)
an Eligible Person may elect to reduce the amount of Compensation which will be
paid to him or her during any Plan Year by executing and delivering to his or
her Employer in a timely fashion a standard Deferral Agreement substantially in
the form of Exhibit A, Exhibit B or Exhibit C hereto, as presented to such
Eligible Person, and (ii) an Employee Participant may elect to reduce the amount
of a lump-sum payment to which he or she may become entitled in connection with
separation under a severance arrangement approved by the Board as applicable to
this Plan by executing and delivering to his or her Employer in a timely fashion
a Deferral Agreement substantially in the form of Exhibit D hereto, as presented
to such Employee Participant.
5
<PAGE>
(b) The Board shall determine who is an Eligible Person under the Plan for
each Plan Year and the terms and conditions of Deferral Agreements to be
presented to such Eligible Persons, including the maximum amount of Compensation
subject to deferral under Section 4.4, the interest rate approved for
calculating Retirement Benefits for Fixed Benefit Agreements under Section 4.2,
the timing and number of Retirement Benefit payments under Section 5.1 and of
any Interim Distributions under Section 5.2, and elections available in the case
of a Recalculation Event under Section 6.3. The Board may limit the number of
deferrals by any Eligible Person and may vary the terms and conditions of
Deferral Agreements applicable to Eligible Persons based upon the number of an
Eligible Person's previous deferrals, the classification and/or Employer of an
Eligible Person or for any other reasons. Only Nonemployee Directors of
BellSouth shall be offered Stock Unit Agreements under the Plan.
4.2 CREATION OF CONTRACTUAL OBLIGATION. An Employer which accepts a
properly executed and timely delivered Deferral Agreement for a Plan Year, as
evidenced by the execution of such Deferral Agreement (including by facsimile
signature) by an officer of such Employer or by an officer of BellSouth on
behalf of such Employer, agrees to pay to the Participant or to his or her
Designated Beneficiary the benefits described in Article 5, which shall be
calculated based upon (i) the amount deferred by each Participant, (ii) either
(A) interest rates established for such Deferral Agreement by the Board or its
delegate and applied to that amount quarterly for the time which elapses between
the Plan Year and the date of benefit payments, or (B) in the case of Stock Unit
Agreements, share price and dividend performance as described in Section 4.5,
and (iii) other factors established in this Plan and by the Board or its
delegate.
4.3 TIMING OF ELECTION. An Eligible Person may execute and deliver to his
or her Employer a standard Deferral Agreement, substantially in the form of
Exhibit A, B or C hereto, on or before November 30 of any calendar year (or on
or before December 16, 1994 in the case of BellSouth Nonemployee Director
elections for Plan Year 1995), to reduce the Eligible Person's Compensation only
for the next subsequent Plan Year. In addition, an Employee Participant may
execute and deliver to his or her Employer a Deferral Agreement, substantially
in the form of Exhibit D hereto, in connection with a lump-sum payment described
in Section 4.1(b) of this Plan within the time period prescribed by his or her
Employer, but in no event later than the day preceding the day on which he or
she enters into a separation agreement with the Employer. Notwithstanding any
other provisions of this Plan or any Deferral Agreement, no deferral Agreement
shall be effective to defer Compensation (or other amount) which is earned by
any Eligible Person on or before the date upon which the Deferral Agreement is
properly executed and timely delivered to the Participant's Employer.
6
<PAGE>
4.4 AMOUNT OF DEFERRAL.
(a) An Employee Participant may elect to defer during any Plan Year a
dollar amount which is less than or equal to a specified percentage of his or
her Compensation Rate applicable to the Plan Year rounded to the next highest
one thousand dollars. The Board shall establish the specified percentage of the
Compensation Rate applicable to each Plan Year. A Nonemployee Director may elect
to defer any dollar amount which is less than or equal to one hundred percent
(100%) of his or her Compensation during the Plan Year to which the Deferral
Agreement applies. Notwithstanding any provision of any Deferral Agreement or
this Plan to the contrary, the Deferral Agreement of a Participant shall be
modified automatically if necessary such that all actual reductions pursuant to
his or her Deferral Agreement are made from his or her Net Monthly Salary or his
or her Net Directors Fees and Retainers.
(b) An Employee Participant may elect to defer a portion of a lump-sum
payment to which he or she may become entitled as described in Section 4.1(b) in
an amount not to exceed the dollar amount by which any election of deferrals
under paragraph (a) of this Section 4.4 for the Plan Year in which the Employee
Participant terminates employment have not been satisfied at the time of
termination of employment, except as may be otherwise approved by the Board.
4.5 STOCK UNITS.
(a) Benefits paid to or on behalf of a Participant with respect to a Stock
Unit Agreement for a Plan Year will be based upon the value of the Stock Units
in such Participant's Stock Unit account for such Plan Year except as otherwise
specifically provided in this Plan. An Employer shall credit Stock Units to
such Participant's account during the Plan Year for which a Stock Unit Agreement
is in effect for each date that Compensation otherwise would be paid to such
Participant equal to the amount of such Compensation elected to be deferred
under the Stock Unit Agreement divided by the average of the high and low sales
price of a Share on the New York Stock Exchange ("NYSE") on such date (or the
immediately preceding trading day if the NYSE is closed on such date.) An
Employer shall further credit to such Participant's Stock Unit account with
respect to such Stock Unit Agreement for each dividend payment date an amount of
additional Stock Units equal to the dividends that would have been paid on the
number of Shares equivalent to the Stock Units in such account as of such
dividend payment date divided by the average of the daily high and low sales
prices of a Share on the New York Stock Exchange ("NYSE") for the period of five
trading days ending on such dividend payment date (or the period of five trading
days immediately preceding such date if the NYSE is closed on such date).
(b) Payments from a Participant's Stock Unit account for a Stock Unit
Agreement shall be based upon the value of the Stock Units in such account as of
the January 1st, first day of
7
<PAGE>
a quarter, or other date as of which payment is scheduled to be made. In the
case of a Stock Unit Agreement that provides for the payment of a Retirement
benefit in installments, the payment for any such installment shall be based on
the value of the number of Stock Units equal to the total number of Stock Units
in the Participant's Stock Unit account for such Agreement as of the close of
the day for which such installment payment is scheduled to be made divided by
the number of remaining installments on such day (including the installment
scheduled to be paid on such day.) The value of each Stock Unit for payment
purposes shall equal the average of the high and low sales price of a Share on
the NYSE on the date for which the payment is scheduled to be made (or the next
succeeding trading day if the NYSE is closed on such scheduled payment date.)
The number of Stock Units corresponding to any Retirement Benefit payment will
be cancelled upon such payment as of the scheduled payment date. Furthermore,
the Stock Unit account of a Participant shall be immediately cancelled upon the
scheduled payment date for a lump sum payment under Section 5.3A, 5.4, 5.5 or
6.1 or upon the scheduled payment date for the first installment of a payment,
if applicable, under Section 5.5.
(c) In the event of any change in outstanding Shares by reason of any
stock dividend or split, recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other similar corporate change, the Board
shall make such adjustment, if any, that it deems appropriate in the Stock Units
credited to Participant's accounts. Any and all adjustments shall be conclusive
and binding upon all parties concerned.
ARTICLE 5
PAYMENT OF BENEFITS
5.1 RETIREMENT BENEFIT.
(a) If (i) a Participant terminates employment with his or her Employer
and is not immediately reemployed by another Employer and such termination
constitutes a Retirement, or (ii) to the extent authorized by the Board or its
delegate for each Plan Year, a Participant terminates employment even if such
termination does not constitute a Retirement, then the Employer shall pay to the
Participant the Retirement Benefits stated in each of his or her Deferral
Agreements as soon as administratively practicable after those dates specified
for this purpose in each Deferral Agreement. The Employer also shall make any
such Retirement Benefit payment to a Participant who has remained employed with
the Employer (or with another Employer) through the date specified for such
payment in his or her Deferral Agreement. The number of Retirement Benefit
payments and the date upon which Retirement Benefit payments begin shall be
established for each Plan Year by the Board or its delegate and stated in the
Deferral Agreement executed by the Participant for each Plan Year.
8
<PAGE>
(b) If a Participant is or becomes a proprietor, officer, partner, or
employee of, or otherwise is or becomes affiliated with (i) any business that is
in competition with any Employer or (ii) any government agency having regulatory
jurisdiction over the business activities of any Employer, then, upon that date,
no further benefit payments shall be made to the Participant, or any other
person with respect to the Participant's participation in this Plan, under any
provision or Section of this Plan, except that, the Participant shall be paid in
a lump sum as soon as administratively practicable after the first (1st) day of
January following that date an amount with respect to each of the Participant's
Deferral Agreements equal to (i) the amount deferred pursuant to such Deferral
Agreement, (ii) plus interest on such amount (adjusted to be take into account
all payments described in (iii) immediately below) credited separately at a rate
equal to the rate paid on ten (10) year United States Treasury obligations on
each date for which interest is credited, compounded quarterly, for each Plan
Year between the Plan Year to which the Deferral Agreement applies and the Plan
Year in which the act occurs or status is first attained, inclusive, (iii) minus
the amount of all Interim Distributions and Retirement Benefits, if any, paid to
the Participant or to which the Participant is entitled on or before the date
the act occurs or status is first attained with respect to such Deferral
Agreement; provided that (x), if the above calculation results in a negative
amount, the result shall be deemed to be zero and such negative amount shall not
be collected from, or enforced against, the Participant as a claim by his or her
Employer, and (y) the amount paid with respect to a Deferral Agreement that is a
Stock Unit Agreement will be the value of such Participant's Stock Unit account
for such Deferral Agreement as determined under Section 4.5(b) for such January
1st scheduled payment date if such value is less than the amount otherwise
determined by applying (i), (ii) and (iii) immediately above to such Deferral
Agreement.
5.2 INTERIM DISTRIBUTIONS. A Participant shall be paid the Interim
Distributions stated in each of his or her Deferral Agreements as soon as
administratively practicable after those dates stated in that Deferral
Agreement. However, no Interim Distribution shall be stated in a Deferral
Agreement or paid to any Participant as a result of the Deferral Agreement if
the Participant is age fifty-five (55) or older on any day during the Plan Year
to which the Deferral Agreement applies. No Interim Distribution shall be paid
to a Participant on or after the date upon which the Participant or his or her
Designated Beneficiary receives any benefit or payment under any other Section
of this Plan or any paragraph of his or her Deferral Agreement providing
benefits other than Interim Distributions. Notwithstanding the foregoing, with
respect to any Plan Year or selected deferrals in any Plan Year, the Board may
specify alternative Interim Distribution schedules. No Interim Distribution
shall be paid in connection with any Stock Unit Agreement or any Fixed Benefit
Agreement which does not specifically provide for such benefits.
5.3 PRE-RETIREMENT, PRE-DISABILITY ELIGIBILITY DEATH BENEFIT FOR PLAN YEAR
1985. Regarding deferrals for Plan Year 1985, if a Participant dies on or
before the date upon which he or she is first entitled to receive a benefit
under Section 5.1 or Section 5.4, then his or her
9
<PAGE>
Designated Beneficiary shall be paid in a lump sum as soon as administratively
practicable after the first (1st) day of January following his or her date of
death an amount equal to: (i) the amount of Compensation deferred pursuant to
his or her Deferral Agreement for Plan Year 1985, (ii) plus interest on such
amount (adjusted to take into account all payments described in (iii)
immediately below) credited separately at the rate approved for and applicable
to his or her participation for Plan Year 1985, such rate to be compounded
quarterly for each Plan Year between Plan Year 1985 and the Plan Year in which
his or her death occurs, inclusive, (iii) minus the amount of all Interim
Distributions with respect to such Deferral Agreement, if any, paid to the
Participant or to which the Participant is entitled on or before the date of his
or her death. If the above calculation results in a negative amount, the result
shall be deemed to be zero and such negative amount shall not be collected from,
or enforced against the Participant as a claim by his or Participant's Employer.
If the Participant's Designated Beneficiary receives or is entitled to
receive a benefit hereunder, then no person or persons shall receive or be
entitled to receive any benefit or payment with respect to such Participant's
deferral for Plan Year 1985 under any other Section of this Plan or under any
Deferral Agreement, notwithstanding any other provision of this Plan or any
Deferral Agreement.
5.3A PRE-RETIREMENT ELIGIBILITY DEATH BENEFIT FOR PLAN YEARS AFTER 1985.
Regarding deferrals for any Plan Year after 1985, if an Employee Participant
dies before the date upon which he or she would have been eligible for
Retirement (assuming a termination of employment), then his or her Designated
Beneficiary shall be paid in a lump sum as soon as administratively practicable
after the first (1st) day of January following his or her date of death an
amount with respect to each of the Participant's Deferral Agreements for Plan
Years after 1985 equal to (i) the amount deferred pursuant to such Deferral
Agreement, (ii) plus interest on such amount (adjusted to take into account all
payments described in (iii) immediately below) credited separately at the rate
approved for and applicable to his or her participation for the Plan Year for
such Deferral Agreement, such rate to be compounded quarterly for each Plan Year
between the Plan Year to which the Deferral Agreement applies and the Plan Year
in which his or her death occurs, inclusive, (iii) minus the amount of all
Interim Distributions and Retirement Benefits, if any, paid to the Participant
or to which the Participant is entitled on or before the date of his or her
death with respect to such Deferral Agreement; provided, that if the above
calculation results in a negative amount, such result shall be deemed to be zero
and such negative amount shall not be collected from, or enforced against, the
Participant as a claim by his or her Employer.
If a Nonemployee Director dies, or if an Employee Participant dies on or
after the date upon which he or she is eligible for Retirement, whether or not
he or she has in fact terminated employment, and in either case if such death
occurs prior to the Participant having commenced
10
<PAGE>
receipt of benefits or prior to having received all benefits, as the case may
be, payable in accordance with a Deferral Agreement under this Plan for Plan
Years after 1985, except as provided under Section 5.4, then his or her
Designated Beneficiary shall receive all benefits, or continue to receive the
remaining benefits, as the case may be, in accordance with that Deferral
Agreement; provided, however, that each Participant shall have the right to
elect, or to revoke any such election or make a new election, at any time prior
to his or her death, to have the death benefit described in this sentence paid
to his or her Designated Beneficiary in a lump sum as soon as administratively
practicable after the first day of January following the year in which the
Participant died. A lump sum payment made pursuant to an election by a
Participant in accordance with the preceding sentence shall be in an amount with
respect to each of the Participant's Deferral Agreements for Plan Years after
1985 equal to: (i) the amount deferred pursuant to such Deferral Agreement,
(ii) plus interest on such amount (adjusted to take into account all payments
described in (iii) immediately below) credited separately at the rate approved
for and applicable to his or her participation for the Plan Year for such
Deferral Agreement, such rate to be compounded quarterly for each Plan Year
between the Plan Year to which the Deferral Agreement applies and the Plan Year
in which his or her death occurs, inclusive, (iii) minus the amount of all
Interim Distributions and Retirement Benefits, if any, paid to the Participant
or to which the Participant is entitled on or before the date of his or her
death with respect to such Deferral Agreement; provided that (x), if the above
calculation results in a negative amount, such result shall be deemed to be zero
and such negative amount shall not be collected from, or enforced against, the
estate of the Participant as a claim by the Participant's Employer, and (y) the
amount paid with respect to a Deferral Agreement that is a Stock Unit Agreement
will be the value of the Participant's Stock Unit account for such Deferral
Agreement as determined under Section 4.5(b) for such January 1st scheduled
payment date instead of the amount determined by applying (i), (ii) and (iii)
immediately above to such Deferral Agreement.
If the Participant's Designated Beneficiary receives or is entitled to
receive a benefit hereunder, then no person or persons shall receive or be
entitled to receive any benefit or payment with respect to such Participant's
deferral for Plan Years after 1985 under any other Section of this Plan or under
any Deferral Agreement, notwithstanding any other provision of this Plan or any
Deferral Agreement.
5.4 PRE-RETIREMENT ELIGIBILITY DISABILITY BENEFIT. If an Employee
Participant suffers a Disability or becomes Disabled, as those terms are defined
in the BellSouth Executive Long Term Disability and Survivor Protection Plan and
the BellSouth Long Term Disability Plan for Salaried Employees, as amended from
time to time before the date upon which he or she would have been eligible for
Retirement (assuming a termination of employment), then he or she shall be paid
by the Employer in a lump sum as soon as administratively practicable after the
first (1st) day of January following the Plan Year in which the disability
occurs an amount with respect to each of the Participant's Deferral Agreements
equal to (i) the amount deferred pursuant to such
11
<PAGE>
Deferral Agreement, (ii) plus interest on each amount (adjusted to take into
account all payments described in (iii) immediately below) credited separately
at the rate approved for and applicable to his or her participation for the Plan
Year for such Deferral Agreement, such rate to be compounded quarterly for each
Plan Year between the Plan Year to which the Deferral Agreement applies and the
Plan Year in which his or her Disability occurs, inclusive, (iii) minus the
amount of all Interim Distributions and Retirement Benefits, if any, paid to the
Participant or to which the Participant is entitled on or before the date of
onset of Disability with respect to such Deferral Agreement; provided that if
the above calculation results in a negative amount, such result shall be deemed
to be zero and such negative amount shall not be collected from, or enforced
against, the Participant as a claim by his or her Employer. If the Participant
receives or is entitled to receive a benefit hereunder, then no person or
persons shall receive or be entitled to receive any benefit or payment under any
other Section of this Plan or under any Deferral Agreement, notwithstanding any
other provisions of this Plan or any Deferral Agreement.
5.5 TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT OR DISABILITY. If an
Employee Participant terminates employment with his or her Employer, and is not
immediately reemployed by another Employer, prior to Death, Disability or
Retirement, then a benefit amount shall be paid to the Participant, either in
lump sum or in five (5) annual installments, at the election of the Board, as
soon as administratively practicable after the first (1st) day of January
following his or her date of termination (and anniversaries thereof in case of
installments), which amount with respect to each of the Participant's Deferral
Agreements shall be equal to (i) the amount deferred pursuant to such Deferral
Agreement, (ii) plus interest on such amount (adjusted to take into account all
payments described in (iii) immediately below) credited separately at a rate
equal to the rate on ten (10) year United States Treasury obligations on each
date for which interest is to be credited, compounded quarterly, for each Plan
Year between the Plan Year to which the Deferral Agreement applies and the Plan
Year in which the termination occurs, inclusive, (iii) minus the amount of all
Interim Distributions and Retirement Benefits, if any, paid to the Participant
or to which the Participant is entitled on or before the date of his or her
termination with respect to such Deferral Agreement; provided that if the above
calculation results in a negative amount, such result shall be deemed to be zero
and such negative amount shall not be collected from, nor enforced against, the
Participant as a claim by his or her Employer. If the Participant receives or
is entitled to receive a benefit hereunder, then no person or persons shall then
or thereafter receive any benefit or payment under any other Section of this
Plan or any Deferral Agreement, notwithstanding any other provision of this Plan
or any Deferral Agreement.
12
<PAGE>
ARTICLE 6
MISCELLANEOUS
6.1 BENEFICIARY DESIGNATION. If a Participant dies and, on the date of
his or her death, any benefit or benefits remain to be paid to the Participant
under the terms and conditions of this Plan, the remaining benefit or benefits
shall be paid to that person or persons designated by the Participant
("Designated Beneficiary") on the form provided from time to time to the
Participant by his or her Employer in accordance with the Deferral Agreement.
If the Designated Beneficiary dies prior to completion of all payments under the
Deferral Agreement, the estate of the Designated Beneficiary shall be paid by
the Employer a lump sum with respect to each of the Participant's Deferral
Agreements for Plan Years after 1985 as soon as administratively practicable
after the first (1st) day of January following the year in which the Designated
Beneficiary died. The amount of the lump sum with respect to each such Deferral
Agreement will be equal to (i) the amount deferred pursuant such Deferral
Agreement, (ii) plus interest on each amount (adjusted to take into account all
payments described in (iii) immediately below) credited separately at the rate
approved for and applicable to the Participant's participation for the Plan Year
for which he or she executed such Deferral Agreement, such rate to be compounded
quarterly for each Plan Year between the Plan Year to which the Deferral
Agreement applies and the Plan Year in which the Designated Beneficiary's death
occurs, inclusive, (iii) minus the amount of all Interim Distributions and
Retirement Benefits, if any, paid to the Participant or Designated Beneficiary
with respect to such Deferral Agreement; provided that (x), if the above
calculation results in a negative amount, such result shall be deemed to be zero
and such negative amount shall not be collected from, or enforced against, the
estate of the Designated Beneficiary, and (y) the amount paid with respect to a
Deferral Agreement that is a Stock Unit Agreement will be the value of the
Participant's Stock Unit account for such Deferral Agreement as determined under
Section 4.5(b) for such January 1st scheduled payment date instead of the amount
otherwise determined by applying (i), (ii) and (iii) immediately above to such
Deferral Agreement. If no Designated Beneficiary has been chosen by the
Participant or if the Designated Beneficiary is not living on the date of the
Participant's death, the estate of the Participant shall be paid by the Employer
in a lump sum with respect to each of the Participant's Deferral Agreements for
Plan Years after 1985 as soon as administratively practicable after the first
(1st) day of January following the year in which the Participant died. The
amount of the lump sum shall be determined in the manner described in the
immediately preceding sentence of this Section 6.1. In the case of a Deferral
Agreement for Plan Year 1985, any Plan benefit payable following the death of
the Participant will be paid to the estate of the Participant if no Designated
Beneficiary is in existence on the scheduled payment date.
6.2 OBLIGATIONS OF EMPLOYERS NOT THE OBLIGATIONS OF BELLSOUTH. The duties
and obligations of each Employer hereunder are several but not joint, each
Employer is only liable to
13
<PAGE>
its own employees and Nonemployee Directors who are Participants hereunder, and
BellSouth is not liable for the actions, omissions, duties or obligations of any
other Employer hereunder.
6.3 RECALCULATION EVENTS; TREATMENT OF THIS PLAN UNDER APPLICABLE FEDERAL
INCOME TAX LAWS. The adoption and maintenance of the Plan is strictly
conditioned upon (i) the applicability of Code Section 451(a) to the
Participant's recognition of gross income as a result of his or her
participation, (ii) the fact that Participants will not recognize gross income
as a result of participation in this Plan until and to the extent that benefits
are received, (iii) the applicability of Code Section 404(a)(5) to the
deductibility of the amounts paid to Participants hereunder, (iv) the fact that
an Employer will not receive a deduction for amounts credited to any accounting
reserve created as a result of this Plan until and only to the extent that
benefits are paid, and (v) the inapplicability of Parts 2, 3, and 4 of Title I
of ERISA to this Plan by reason of the exemptions set forth in ERISA Sections
201(a), 301(a) and 401(a) and Part 1 of ERISA by reason of the exemption set
forth in Section 2520.104-23 at applicable United States Department of Labor
resolutions. If the Internal Revenue Service, the Department of Labor or any
court determines or finds as a fact or legal conclusion that any of the above
conditions is untrue and issues or intends to issue an assessment,
determination, opinion or report stating such, or if the opinion of the legal
counsel of BellSouth based upon legal authorities then existing is that any of
the above assumptions is incorrect, then, if the Board so elects within one year
of such finding, determination, or opinion, a Recalculation Event shall be
deemed to have occurred.
If a Recalculation Event occurs under this or any other section of this
Plan, then each Participant who has not attained the age of fifty-five (55)
years on the date on which the Board takes official action to elect the
occurrence of a Recalculation Event shall thereafter be paid benefits in
accordance with the election made irrevocably in connection therewith in his or
her Fixed Benefit Agreements. For each such Participant the amount of the
Retirement Benefit under each Fixed Benefit Agreement shall be recalculated and
restated using a rate of interest equal to the rate of interest on ten (10) year
United States Treasury obligations on each date upon which interest should have
been or will be calculated, compounded quarterly, instead of the interest rate
assumed in originally calculating the benefit, as referenced in Section 4.2.
Notwithstanding anything to the contrary contained in this Plan or a
Deferral Agreement, the benefits payable with respect to any Participant who
shall have either (i) attained the age of fifty-five (55) years, or (ii) died,
on or prior to the date on which the Board takes official action to elect the
occurrence of a Recalculation Event under either Sections 6.3 or 6.4 of this
Plan, shall not be recalculated and restated in the manner described above or in
any other way affected by such action. If the Participant or Designated
Beneficiary receives or is entitled to receive a benefit under this Section 6.3
under a Deferral Agreement as a result of the occurrence of a Recalculation
Event, then no person or persons shall receive or be entitled to receive any
benefit
14
<PAGE>
or payment under that Deferral Agreement under any other Section of this Plan or
that Deferral Agreement, notwithstanding any other provision of this Plan or the
Deferral Agreement.
6.4 CHANGES IN THE INTERNAL REVENUE CODE OF 1954. The adoption and
maintenance of this Plan also is strictly conditioned upon the existence and
continuation of the percentage tax rates for corporations stated in Code Section
11(b) of the Internal Revenue Code of 1954, as amended through August 13, 1981
but not thereafter (the "1954 Code"). In particular, the adoption and
maintenance of this Plan is strictly conditioned upon the rate of tax stated in
Section 11(b)(5) of the 1954 Code, that is, "46 percent of so much of the
taxable income as exceeds $100,000." If (1) 1954 Code Section 11(b) is deleted
or amended or a surtax or other addition to tax is imposed hereafter and, as a
result thereof, the rate of federal income tax imposed on taxable income of
corporations in excess of One Hundred Thousand Dollars ($100,000) is reduced
below such rate in effect immediately before reduction and is less than forty
percent (40%), (2) a tax is imposed by the federal government on income, sales,
consumption, or the value of goods and services which is not currently contained
in the Code, or (3) the Code is amended or restated so extensively that in the
opinion of the legal counsel of BellSouth the tax treatment of this Plan to the
Employer has materially changed to the detriment of the Employer, then, if the
Board so elects within one year after the enactment of the legislation causing
such event, a Recalculation Event shall be deemed to have occurred and the
benefit under Fixed Benefit Agreements will be payable only as described in
Section 6.3.
6.5 GOVERNING LAW. This Plan and the Deferral Agreements shall be
construed in accordance with the laws of the State of Georgia to the extent such
laws are not preempted by ERISA.
6.6 SUCCESSORS, MERGERS, CONSOLIDATIONS. The terms and conditions of this
Plan and each Deferral Agreement shall inure to the benefit of and bind
BellSouth, the other Employers, the Participants, their successors, assigns, and
personal representatives. If substantially all of the assets of any Employer
are acquired by another corporation or entity or if an Employer is merged into,
or consolidated with, another corporation or entity, then the obligations
created hereunder and as a result of the Employer's acceptance of Deferral
Agreements shall be obligations of the successor corporations or entity.
6.7 DISCHARGE OF EMPLOYER'S OBLIGATION. The payment by the Employer of
the benefits due under each and every Deferral Agreement to the Participant or
to the person or persons specified in Section 6.1 or Section 6.1A discharges the
Employer's obligations hereunder, and the Participant has no further rights
under this Plan or the Deferral Agreements upon receipt by the appropriate
person of all benefits.
15
<PAGE>
In addition, (i) if any payment is made to a Participant or his or her
Designated Beneficiary with respect to benefits described in this Plan from any
source arranged by the Employer including, without limitation, any fund, trust,
insurance arrangement, bond, security device, or any similar arrangement, such
payment shall be deemed to be in full and complete satisfaction of the
obligation of the Employer under this Plan and the Deferral Agreements to the
extent of such payment as if such payment had been made directly by the
Employer; and (ii) if any payment from a source described in clause (i) above
shall be made, in whole or in part, prior to the time payment would be made
under the terms of this Plan and the Deferral Agreement, such payment shall be
deemed to satisfy the Employer's obligation to pay Plan benefits beginning with
the benefit which would next become payable under the Plan and the Deferral
Agreement and continuing in the order in which benefits are so payable, until
the payment from such other source is fully recovered. In determining the
benefits satisfied by a payment described in clause (ii), Plan benefits, as they
become payable, shall be discounted to their value as of the date such actual
payment was made using an interest rate equal to the valuation interest rate for
deferred annuities as last published by the Pension Benefit Guaranty Corporation
prior to the date of such actual payment. If the benefits which actually become
payable under this Plan, after applying the discount described in the preceding
sentence, are less than the amount of the payment(s) described in clause (ii),
any such shortfall shall not be collected from or enforced against the
Participant as a claim by the Employer.
6.8 SOCIAL SECURITY AND INCOME TAX WITHHOLDING. Each Participant agrees
as a condition of participation hereunder that his or her Employer may withhold
federal, state, and local income taxes and Social Security taxes from any
distribution or benefit paid hereunder.
6.9 NOTICE; DELIVERY OF DEFERRAL AGREEMENT. Any notice required to be
delivered hereunder and any Deferral Agreement is properly delivered to Employer
when personally delivered to, or actually received from the United States mail,
postage prepaid, by Executive Compensation Matters Group, Room 13J08, BellSouth
Corporation, 1155 Peachtree St., N.E., Atlanta, Georgia 30309-3610.
6.10 NATURE OF OBLIGATIONS CREATED HEREUNDER. The Participants agree as a
condition of participation hereunder that:
(a) Participants have the status of general, unsecured creditors of the
Employer and the Plan, and the Deferral Agreements constitute the mere promise
by the Employer to make benefit payments in the future;
(b) Nothing contained in this Plan or any Deferral Agreement shall create
or be construed to create a trust of any kind between BellSouth, any Employer,
and any Participant.
16
<PAGE>
(c) Benefits payable, and rights to benefits under, this Plan and Deferral
Agreements may not be anticipated, sold, assigned (either at law or in equity),
transferred, pledged, encumbered or subject to attachment, garnishment, levy,
execution or other legal or equitable process.
The Plan is intended to be unfunded for purposes of ERISA and the Code.
6.11 NO MODIFICATION OF EMPLOYMENT AGREEMENT. Neither this Plan nor any
Deferral Agreement constitutes a modification of the employment agreement of any
Participant, and no right to continued employment is created by this Plan or the
Deferral Agreement.
6.12 LIABILITY OF EMPLOYERS FOR INDIVIDUAL PARTICIPANTS EMPLOYED BY MORE
THAN ONE EMPLOYER; APPLICABILITY OF DEFERRAL AGREEMENT FILED WITH ONE EMPLOYER
TO SUBSEQUENT EMPLOYERS. Any Deferral Agreement which is timely executed and
delivered to an Employer shall be effective to defer Compensation earned by the
Participant from that Employer or any other Employer during the period in which
the Deferral Agreement is effective. The execution and delivery of a Deferral
Agreement by a Participant constitutes an election by the Participant to defer
Compensation earned from any Employer under the terms of this Plan. A
Participant who timely executes and delivers a Deferral Agreement to one
Employer and who subsequently transfers to another Employer or otherwise
terminates employment and becomes employed by another Employer shall have the
Compensation which is paid to him or her by both Employers reduced under the
terms of the Deferral Agreement and this Plan as if the transfer or termination
and reemployment had not occurred. The Employer which accepts an executed,
timely delivered Deferral Agreement is liable to the Participant for all
benefits which may be payable under, and as a result of, that Deferral Agreement
notwithstanding the transfer of a Participant to or from another Employer, or
the termination and reemployment of a Participant by another Employer. If a
Participant timely executes and delivers Deferral Agreements to more than one
Employer, each Employer is singly and not jointly liable for the Deferral
Agreement or Deferral Agreements which it accepted. Any provision of this Plan
which refers to a benefit or payment which is payable as a result of more than
one (1) Deferral Agreement shall be construed to apply only to the Deferral
Agreements delivered by that Participant and accepted by each separate Employer
of that Participant, and not to all Deferral Agreements executed and timely
delivered by one Participant or all Participants to all Employers, each Deferral
Agreement which incorporates the terms of this constituting a separate
contractual obligation of a single Employer.
17
<PAGE>
EXHIBIT A
DEFERRAL AGREEMENT
FOR THE BELLSOUTH NONQUALIFIED DEFERRED COMPENSATION PLAN
(for Nonemployee Directors)
1. AMOUNT OF DEFERRAL. I, ___________________________________________
(___-__-___), hereby agree to participate in the BellSouth Nonqualified Deferred
Compensation Plan ("Plan"). I have read the Plan in its entirety and agree to
its terms and conditions, which are incorporated herein by reference. Pursuant
to the terms of the Plan, I elect to defer from my compensation to be paid to me
in Plan Year 19__ ___% of my compensation. (Choose amount less than or equal to
100% of Compensation.) I understand that the Compensation which ordinarily would
be paid to me in that Plan Year will be reduced by the amount of my deferral and
that such reduction will be made only from my retainer and fees as a director.
I further understand that the amount of directors' fees which will be paid to me
depends on the full performance of my obligations as a director for the entire
year and that the total amount of directors' fees paid to me during the year
will be decreased from the amount normally paid to directors if I fail to attend
any scheduled meetings of the Board of Directors or the committees upon which I
serve.
2. RETIREMENT BENEFITS. In consideration for my deferral, the Employer
shall pay to me the following benefits determined in accordance with the terms
and conditions of the Plan:
3. INTERIM DISTRIBUTIONS. In consideration for my deferral, the Employer
shall pay to me the following benefits on the dates specified, if I am entitled
to these benefits under the terms and conditions of the Plan:
4. RECALCULATION EVENT. If a Recalculation Event applicable to me
occurs, the Employer shall pay to me benefits in an amount determined in
accordance with the terms and conditions of paragraph 6.3 of the Plan paid in
accordance with the terms elected below. The undistributed balance of the
recalculated amount will continue to accumulate at the reduced rate specified in
paragraph 6.3 of the Plan.
/ / Recalculated amount paid in a lump sum as soon as administratively
practicable after the first day of the year following the date of the
Recalculation Event.
/ / Recalculated amount paid in four annual payments beginning as soon as
administratively practicable after the first day of the year following
the date of the Recalculation Event.
/ / Recalculated amount paid in same number of payments beginning on the
same date as specified in paragraph 2 of this Agreement.
<PAGE>
5. IRREVOCABLE ELECTION. This election is irrevocable after November 30
immediately preceding the Plan Year to which this Agreement pertains.
6. PRIMACY OF PLAN. I recognize that I am entitled to benefits hereunder
and that this Agreement is subject to the terms and conditions of the Plan.
/ / I decline to participate in Plan Year 19__.
__________________________________ ____________________________________
Director Signature Employer Signature
__________________________________ ____________________________________
Date Date
2
<PAGE>
EXHIBIT B
DEFERRAL AGREEMENT
FOR THE BELLSOUTH NONQUALIFIED DEFERRED COMPENSATION PLAN
(for officers and selected executive employees)
1. AMOUNT OF DEFERRAL. I, ________________________________, hereby agree
to participate in the BellSouth Nonqualified Deferred Compensation Plan
("Plan"). I have read the Plan in its entirety and agree to its terms and
conditions, which are incorporated herein by reference. Pursuant to the terms
of the Plan, I elect to defer from my compensation to be paid to me in Plan Year
19__ the sum of ________Dollars. (Choose amount less than or equal to 35% of
Compensation Rate rounded to the next higher thousand dollars). I understand
that my Compensation which ordinarily would be paid to me in that Plan Year will
be reduced by the amount of my deferral, and that such reduction will be made
only from my gross monthly salary, not from my bonus or incentive award which
may be payable to me.
2. RETIREMENT BENEFITS. In consideration for my deferral, the Employer
shall pay to me the following benefits on the dates specified, if I am entitled
to these benefits under the terms and conditions of the Plan:
3. INTERIM DISTRIBUTIONS. In consideration for my deferral, the Employer
shall pay to me the following benefits on the dates specified, if I am entitled
to these benefits under the terms and conditions of the Plan:
4. RECALCULATION EVENT. If a Recalculation Event applicable to me
occurs, the Employer shall pay to me benefits in an amount determined in
accordance with the terms and conditions of paragraph 6.3 of the Plan paid in
accordance with the terms elected below. The undistributed balance of the
recalculated amount will continue to accumulate at the reduced rate specified in
paragraph 6.3 of the Plan.
/ / Recalculated amount paid in a lump sum as soon as administratively
practicable after the first day of the year following the date of the
Recalculation Event.
/ / Recalculated amount paid in four annual payments beginning as soon as
administratively practicable after the first day of the year following
the date of the Recalculation Event.
/ / Recalculated amount paid in same number of payments beginning on the
same date as specified in paragraph 2 of this Agreement.
5. IRREVOCABLE ELECTION. This election is irrevocable after November 30
immediately preceding the Plan Year to which this Agreement pertains.
<PAGE>
6. PRIMACY OF PLAN. I recognize that I am entitled to benefits hereunder
and that this Agreement is subject to the terms and conditions of the Plan.
/ / I decline to participate in Plan Year 19__.
__________________________________ ____________________________________
Director Signature Employer Signature
__________________________________ ____________________________________
Date Date
<PAGE>
EXHIBIT C
Page 1 of 2
DEFERRAL AGREEMENT
FOR THE BELLSOUTH NONQUALIFIED DEFERRED COMPENSATION PLAN - SCHEDULE B
(for Nonemployee Directors)
1. AMOUNT OF DEFERRAL. I, ______________________________ (___-__-____),
hereby agree to participate in the BellSouth Nonqualified Deferred Compensation
Plan ("Plan"). I have read the Plan in its entirety and agree to its terms and
conditions, which are incorporated herein by reference. Pursuant to the terms
of the Plan, I elect to defer from my Compensation to be paid to me in Plan Year
19__ __% of my Compensation. (Choose amount less than or equal to 100% of
Compensation.) I understand that the Compensation which ordinarily would be
paid to me in that Plan Year will be reduced by the amount of my deferral and
that such reduction will be made only from my retainer and fees as a director.
I also understand that the amount of directors' fees which will be paid to me
depends on the full performance of my obligations as a director for the entire
year and that the total amount of directors' fees paid to me during the year
will be decreased from the amount normally paid to directors if I fail to attend
any scheduled meetings of the Board of Directors or the committees upon which I
serve. I further understand that my election below will be irrevocable after
the November 30th immediately preceding the above Plan Year and recognize that
my benefits under this Agreement are subject to the terms and conditions of the
Plan.
[CHECK AND COMPLETE WHICHEVER ONE APPLIES OF A, B OR C BELOW]
/ / A. FIXED BENEFIT AGREEMENT ELECTION
2. RETIREMENT BENEFITS. In consideration for my deferral, the Employer
shall pay to me the following benefits determined in accordance with the terms
and conditions of the Plan:
Beginning on January 1, ____ the Employer will pay me $___________
annually for ____ years.
3. INTERIM DISTRIBUTIONS. Not applicable.
4. RECALCULATION EVENT. If a Recalculation Event applicable to me
occurs, the Employer shall pay to me benefits in an amount determined in
accordance with the terms and conditions of paragraph 6.3 of the Plan paid in
accordance with the terms elected below. The undistributed balance of the
recalculated amount will continue to accumulate at the reduced rate specified in
paragraph 6.3 of the Plan.
<PAGE>
EXHIBIT C
Page 2 of 2
/ / Recalculated amount paid in a lump sum as soon as administratively
practicable after the first day of the year following the date of the
Recalculation Event.
/ / Recalculated amount paid in four annual payments beginning as soon as
administratively practicable after the first day of the year following
the date of the Recalculation Event.
/ / Recalculated amount paid in same number of payments beginning on the
same date as specified in paragraph 2 of this Agreement.
/ / B. STOCK UNIT AGREEMENT ELECTION
2. RETIREMENT BENEFITS. In consideration for my deferral, I will be
credited with Stock Units based upon Compensation deferred and dividend
equivalents and the Employer shall pay to me the value of those Stock Units in
________ (specify number not to exceed 10) annual installments, the first of
which shall be paid as of the first day of the calendar quarter following my
Retirement and the remainder of which shall be paid as of each succeeding
anniversary of such date.
3. INTERIM DISTRIBUTIONS. Not applicable.
4. RECALCULATION EVENT. Not applicable.
C. DECLINE PARTICIPATION
I decline to participate for Plan Year 19__.
__________________________________ ____________________________________
Director Signature Employer Signature
__________________________________ ____________________________________
Date Date
2
<PAGE>
EXHIBIT D
Page 1 of 3
DEFERRAL AGREEMENT
FOR THE BELLSOUTH NONQUALIFIED DEFERRED COMPENSATION PLAN
(For officers and selected executive employees)
THIS AGREEMENT is made this _____ day of ____________, 19 , by and between
_____________________ (the "Company") and _________________ (the "Executive");
W I T N E S S E T H:
WHEREAS, the Executive may retire from the service of the Company under the
terms of a separation arrangement to be mutually agreed upon (the "Separation
Agreement"); and
WHEREAS, the Company desires to permit the Executive to elect irrevocably
to defer, under the BellSouth Nonqualified Deferred Compensation Plan (the
"Plan"), a portion of the lump-sum separation allowance to which he may become
entitled under the Separation Agreement, and the Executive desires to make such
deferral;
NOW, THEREFORE, it is mutually agreed as follows:
1.
PLAN PROVISIONS CONTROL
The Plan, including all terms, conditions, restrictions and limitations
contained therein, is hereby incorporated by reference and made a part of this
Agreement for all purposes. The terms and conditions applicable to the plan
year of the Plan in which the Executive separates from service shall apply to
deferrals hereunder. In interpreting the Plan for purposes of this Agreement,
the lump-sum separation allowance payable under the Separation Agreement shall
not be included in the Executive's "Compensation Rate" as that term is used in
the Plan.
2.
CONDITIONAL DEFERRAL
The deferral election contained herein shall be irrevocable by the
Executive upon its submission to the Company but shall be expressly conditioned
upon the Executive's separation from service under the Separation Agreement. If
the Executive does not separate from service
<PAGE>
EXHIBIT D
Page 2 of 3
under the Separation Agreement, this Agreement shall be null and void. Neither
the Company's offering of this deferral opportunity to the Executive, the
Company's acceptance of the Executive's deferral election contained in this
Agreement, nor any other provision hereof shall in any way be construed as
conferring upon the Executive any right or entitlement to any payment under the
Separation Agreement.
3.
DEFERRAL ELECTION(S)
The Executive hereby irrevocably elects to defer from the lump-sum
separation allowance payable under the Separation Agreement the dollar amount by
which any election of deferrals from base salary under the Plan for the plan
year of the Plan in which the Executive separates from service has not been
satisfied by the time the Executive separates.
YES __ NO __
Such amounts shall be subject to the terms of the
original Deferral Agreement to which they relate.
I understand that the lump-sum separation allowance payable under the
Separation Agreement which would otherwise have been paid to me will be reduced
by the amount of my deferral(s).
4.
RETIREMENT BENEFITS
In consideration of my deferral described in section 3(a) above, if any,
the Company shall pay to me the following benefits on the dates specified, if I
am entitled to these benefits under the terms and conditions of the Plan:
5.
INTERIM DISTRIBUTIONS
In consideration for my deferral described in section 3(a) above, if any,
the Company shall pay to me the following benefits on the dates specified, if I
am entitled to these benefits under the terms and conditions of the Plan:
2
<PAGE>
EXHIBIT D
Page 3 of 3
6.
RECALCULATION EVENT.
If a Recalculation Event occurs, the Company shall pay to me benefits
attributable to my deferral described in section 3(a) above in an amount
determined in accordance with the terms and conditions of paragraph 6.3 of the
Plan paid in accordance with the terms elected below. The undistributed balance
of the recalculated amount will continue to accumulate at the reduced rate
specified in paragraph 6.3 of the Plan.
/ / Recalculated amount paid in a lump sum as soon as administratively
practicable after the first day of the year following the date of the
Recalculation Event.
/ / Recalculated amount paid in four annual payments beginning as soon as
administratively practicable after the first day of the year following
the date of the Recalculation Event.
/ / Recalculated amount paid in same number of payments beginning on the
same date as specified in paragraph 4 of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
its corporate name by a duly authorized officer, and the Executive has hereunto
set his hand, as of the date set forth above.
Executive: THE COMPANY:
__________________________________ By: ________________________________
Signature Signature
__________________________________ ___________________________________
Name (Print) Title
3
<PAGE>
BELLSOUTH CORPORATION
STOCK PLAN
EFFECTIVE APRIL 24, 1995
AS AMENDED
ARTICLE I. PURPOSE
The purpose of this Plan is to promote the interest of BellSouth by
granting stock-related Awards to Eligible Employees
(1) to attract and retain Eligible Employees,
(2) to provide Eligible Employees with long term financial incentives to
increase the value of BellSouth, and
(3) to provide Eligible Employees with a stake in the future of BellSouth
which corresponds to the stake of each of BellSouth's shareowners.
Only Eligible Employees shall be eligible for Awards under this Plan.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS.
Each term set forth in this Article II shall have the respective meaning
set forth opposite such term for purposes of this Plan, and when the defined
meaning is intended the term is capitalized.
"Administrator" means the Committee or the Company Administrator, as
applicable.
"Agreement" means the written agreement which sets forth the terms and
conditions of the grant of an Award as provided in this Plan and such additional
terms and conditions, not inconsistent with this Plan, as the Committee
determines are appropriate.
"Award" means an Option, SAR, Restricted Share, Performance Share, Dividend
Equivalent Right or Stock Payment granted to a Participant under this Plan.
"BellSouth" means BellSouth Corporation, a Georgia corporation.
<PAGE>
"Beneficiary" means the person entitled to receive any payments or exercise
any rights following the death of a Participant as determined pursuant to
Section 10.5.
"Board" means the Board of Directors of BellSouth.
"Change in Control" means the occurrence, effective on or after September
23, 1996, of any of the following:
(i) any "person" (as such term is defined in the Exchange Act), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of BellSouth (or of another entity owned directly or indirectly by the
shareholders of BellSouth in substantially the same proportions as their
ownership of stock of BellSouth), becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of BellSouth
representing 20% or more of the total voting power represented by BellSouth's
then outstanding voting securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board and any new director whose
election by the Board or nomination for election by BellSouth's shareholders was
approved by a vote of at least two-thirds of the directors who either were
directors at the beginning of the two year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof;
(iii) the consummation of a merger, plan of reorganization,
consolidation, share exchange, or other transaction, in one or a series of
related transactions, involving BellSouth, if immediately following such merger,
plan of reorganization, consolidation, share exchange, or other transaction or
transactions the holders of the voting securities of BellSouth outstanding
immediately prior thereto hold securities representing seventy percent (70%) or
less of the combined voting power represented by the voting securities of
BellSouth or such surviving entity outstanding immediately after such merger,
plan of reorganization, consolidation, share exchange, or other transaction or
transactions;
(iv) the consummation of a transaction involving the sale or other
disposition by BellSouth or one or more of its subsidiaries (defined for
purposes of this subparagraph (iv) only as any corporation in which fifty
percent (50%) or more of the total combined voting power of all classes of stock
is owned directly or indirectly by BellSouth and any joint venture, partnership,
limited liability company, or other similar entity of which fifty
2
<PAGE>
percent (50%) or more of the capital or profits interest is owned directly or
indirectly by BellSouth), in one or a series of related transactions, of
interests in an entity or entities, or of assets, which for the most recent
audited twelve-month period produced total operating revenues or net income
aggregating more than thirty percent (30%) of the total operating revenues or
net income of BellSouth and its subsidiaries (taken as a whole), if following
such transaction or transactions, any such entity is no longer a subsidiary or
such assets are no longer held by a subsidiary;
(v) the complete liquidation or dissolution of BellSouth or the sale of
all or substantially all of the assets of BellSouth; or
(vi) the consummation of any other transaction which a majority of the
Board, in its sole and absolute discretion, shall determine constitutes a Change
in Control, for this purpose.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Nominating and Compensation Committee of the Board,
or any successor committee of the Board which administers this Plan as provided
in Article V.
"Company Administrator" means the chief executive officer of BellSouth, the
senior officer of BellSouth responsible for human resource matters or such other
person or persons as are designated by the Committee to administer the Plan on
behalf of Participants who are not Officers or Executive Officers.
"Covered Employee" means with respect to any grant of an Award an Officer
whom the Committee deems may be or become a covered employee as defined in
Section 162(m)(3) of the Code for any year that such Award may result in
remuneration to the Participant and for which year such Participant may receive
remuneration over $1 million which would not be deductible under Section 162(m)
of the Code but for the provisions of the Plan and any other "qualified
performance-based compensation" plan (as defined under Section 162(m) of the
Code) of BellSouth; provided, however, that the Committee may determine that a
Participant has ceased to be a Covered Employee prior to Settlement of any
Award.
"Dividend Equivalent Right" means a right, granted to a Participant under
Section 9.4, to receive cash or Shares based on the value of dividends paid with
respect to a Share.
3
<PAGE>
"Eligible Employee" means any employee (including an Officer, Executive
Officer or director who is an employee and including for purposes other than
ISOs any former employee) of the Company or any Subsidiary. Such term also
includes for purposes other than ISOs any non-employee advisor, consultant or
independent contractor to the Company or any Subsidiary, and any references to
employment or termination of employment under this Plan shall be deemed to apply
to such an advisor, consultant or independent contractor, for purposes of this
Plan only, as if the services of such person constitute employment services.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Executive Officer" means an Officer or other employee or former employee
of BellSouth or a Subsidiary who is subject to the reporting requirements of
Section 16(a) of the Exchange Act.
"Fair Market Value" for any day means the average of the high and low daily
sale prices of a Share on the New York Stock Exchange for that day or, if there
are no sales on such day, for the most recent prior day on which a Share was
sold on the New York Stock Exchange.
"ISO" or "Incentive Stock Option" means an option granted under this Plan
to purchase Shares which is intended by BellSouth to satisfy the requirements of
Code Section 422.
"NQSO" or "Non-Qualified Stock Option" means an option granted under this
Plan to purchase Shares which is not intended by BellSouth to be treated as an
ISO.
"Officer" means any executive of the Company or any Subsidiary who is a
member of the executive compensation group under BellSouth's compensation
practices (but not necessarily an Executive Officer.)
"Option" means an NQSO or ISO granted under this Plan.
"Option Price" means the price determined in accordance with Section 6.4
which shall be paid to purchase one Share upon the exercise of an Option granted
under this Plan.
"Parent Corporation" means any corporation which is a parent of BellSouth
within the meaning of Code Section 424(e).
"Participant" means an Eligible Employee to whom an Award is made.
4
<PAGE>
"Performance Objective" means as described in Section 10.2 a performance
objective specified in the Agreement for a Performance Share, or for any other
Award which the Administrator determines to make subject to a performance
objective, upon which the vesting or Settlement of such Award is conditioned.
"Performance Period" means the period of time specified in an Agreement
over which Performance Shares are to be earned.
"Performance Share" means a bookkeeping entry that records the equivalent
of one share awarded pursuant to Section 9.2 of this Plan.
"Plan" means this BellSouth Corporation Stock Plan, as effective April 24,
1995 and as thereafter amended from time to time.
"Prior Plan" means the BellSouth Corporation Stock Option Plan, the
BellSouth Enterprises, Inc. Key Manager Incentive Compensation Plan, the
BellSouth Executive Long Term Incentive Plan, the BellSouth Corporation
Shareholder Return Cash Plan and the BellSouth Corporation Key Manager
Shareholder Return Cash Plan, as applicable.
"Restricted Period" means the period of time from the date of grant of a
Restricted Share until the lapse of restrictions attached thereto under the
terms of the applicable Agreement.
"Restricted Share" means a Share which has been awarded to a Participant
subject to restrictions under Section 8.1.
"Rule 16b-3" means Rule 16b-3 of the Securities Exchange Commission under
the Exchange Act.
"SAR" or "Stock Appreciation Right" means the contractual right granted to
a Participant pursuant to Section 7.1 to receive a payment upon the exercise of
such right which reflects the appreciation in the Fair Market Value of the
number of Shares for which such right was granted.
"SAR Exercise Date" means the date on which the exercise of an SAR occurs
under the related Agreement.
"SAR Exercise Price" means the Fair Market Value of a Share on the SAR
Exercise Date.
5
<PAGE>
"SAR Grant Price" means the price which would have been the Option Price
for one Share if the SAR had been granted as an Option or, if the SAR is granted
in tandem with an Option, the Option Price for the related Option.
"Settlement Date" means (i) with respect to any Option that has been
exercised in whole or in part, the date or dates upon which Shares are to be
delivered to the Participant and the Option Price therefor paid, (ii) with
respect to any SARs that have been exercised, the date or dates upon which a
cash payment is to be made to the Participant, or in the case of SARs that are
to be settled in Shares, the date or dates upon which such Shares are to be
delivered to the Participant, (iii) with respect to Performance Shares, the date
or dates upon which cash or Shares are to be delivered to the Participant, (iv)
with respect to Dividend Equivalent Rights, the date upon which payment thereof
is to be made, and (v) with respect to Stock Payments, the date upon which
payment thereof is to be made, in each case, determined in accordance with the
terms of this Plan and the Agreement under which any such Award was made.
"Share" means a share of Stock.
"Stock" means the $1.00 par value common stock of BellSouth.
"Stock Payment" means payment of compensation in the form of Shares
pursuant to Section 9.3.
"Subsidiary" means (A), with respect to an Award other than an ISO, any
corporation, joint venture or partnership in which BellSouth owns directly or
indirectly (i) with respect to a corporation, stock possessing at least ten
percent (10%) of the total combined voting power of all classes of stock in the
corporation, or (ii) in the case of a joint venture or partnership, a ten
percent (10%) interest in the capital or profits of such joint venture or
partnership, and (B) any corporation which is a subsidiary corporation (within
the meaning of Code Section 424(f)) of BellSouth by reason of being in an
unbroken chain of corporations (beginning with BellSouth) in which each
corporation in the unbroken chain (except the last such corporation) owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
"Ten Percent Shareowner" means a person who owns (after taking into account
the attribution rules of Code Section 424(d)) more than ten percent (10%) of the
total combined voting power of
6
<PAGE>
all classes of stock of either BellSouth, or Subsidiary or a Parent Corporation.
2.2 REFERENCES.
All pronouns are masculine, solely for ease of reading, and should be read
as feminine where applicable. Unless the context clearly requires otherwise,
the singular shall include the plural and the plural shall include the singular.
All references to sections of the Code or other laws or regulations shall
include amendments and successor provisions thereto unless otherwise
specifically stated or clearly required by the context.
ARTICLE III. SHARES SUBJECT TO PLAN
3.1 AGGREGATE LIMITS.
The aggregate number of Shares with respect to which the grant of Awards
other than Stock Payments may be made in any calendar year under this Plan shall
not exceed one percent (1%) of the total number of Shares outstanding at the
time of such grant. Within such total, the aggregate number of Shares with
respect to which the grant of Performance Shares and Restricted Shares may be
made in any calendar year under this Plan shall not exceed in combination
two-tenths of one percent (.2%) of the total number of Shares outstanding at the
time of grant. Furthermore, in no event shall ISOs with respect to more than
one million (1,000,000) Shares be granted under this Plan. Finally, the
aggregate number of Shares with respect to which the grant of Stock Payments may
be made in any calendar year under this Plan shall not exceed one-tenth of one
percent (.1%) of the total number of Shares outstanding at the time of grant.
3.2 INDIVIDUAL LIMITS.
The number of Shares with respect to which the grant of Awards other than
Stock Payments may be made to any Participant in any calendar year under this
Plan shall not exceed one-tenth of one percent (.1%) of the total number of
Shares outstanding at the end of 1994. Within such total, the number of Shares
with respect to which the grant of each of Performance Shares, Restricted Shares
and Dividend Equivalent Rights may be made to any Participant in any calendar
year under this Plan shall not exceed in combination two-hundredths of one
percent (.02%) of the total number of Shares outstanding at the end of 1994.
Finally, the number of Shares with respect to which the grant of Stock Payments
may be made to any Participant in any calendar year
7
<PAGE>
under this Plan shall not exceed one-hundredth of one percent (.01%) of the
total number of Shares outstanding at the end of 1994.
3.3 APPLICATION OF LIMITS.
No grant of an Award shall be made at any time during a calendar year to
the extent the number of Shares subject to such Award and the number of Shares
subject to Awards previously granted during such year (or during the life of the
Plan in the case of ISOs) would exceed a limit in Section 3.1 or 3.2. The
number of Shares subject to an Award shall be (i) the number of Shares subject
to an Option or subject to a SAR that is not granted in tandem with an Option
(including a SAR that can be settled in cash), (ii) the number of Shares subject
to a grant of Restricted Shares, (iii) the maximum number of Shares that could
be issued upon Settlement of a grant of Performance Shares (or upon which a cash
payment could be based) as determined under the Agreement for such grant and
this Plan, (iv) the number of Shares with respect to which Dividend Equivalent
Rights are granted, but excluding Shares subject to Dividend Equivalent Rights
which are granted in tandem with another Award grant which otherwise does not
provide for the payment of dividends to the Participant, and (v) the number of
Shares that are paid as a Stock Payment.
3.4 ADJUSTMENTS.
The limits in Sections 3.1 and 3.2 shall be adjusted as provided in Section
10.6. If any Shares subject to an Award are forfeited or such Award otherwise
terminates, such number of Shares shall be available for new Awards under the
Plan. In addition, Shares surrendered in payment of any exercise or purchase
price or in payment of taxes relating to any such Award shall be deemed to
constitute Shares not delivered to the Participant and shall be deemed to be
available for new Awards under the Plan for purposes of Section 3.1 only.
3.5 SHARES.
BellSouth shall reserve from time to time Shares for use under this Plan,
and such Shares shall be reserved to the extent BellSouth deems appropriate from
authorized but unissued Shares and from Shares which have been reacquired by
BellSouth.
ARTICLE IV. EFFECTIVE DATE AND DURATION
4.1 EFFECTIVE DATE.
8
<PAGE>
The effective date of this Plan shall be April 24, 1995. This Plan will
become effective only if approved by the shareholders of BellSouth on such date.
4.2 PRIOR PLAN.
This Plan is a successor to each Prior Plan. No further grants of stock
options, stock appreciation rights, performance shares, dividend equivalent
rights, shareholders return cash units or other interests shall be made under
the Prior Plans on or after April 24, 1995, subject to this Plan becoming
effective. Options and stock appreciation rights, or performance shares,
dividend equivalent rights, shareholders return cash units or other outstanding
interests under a Prior Plan shall continue to be governed by the terms of the
Prior Plan; provided, that, effective on and after September 23, 1996, terms of
this Plan shall constitute an amendment to the terms of a Prior Plan, and to the
terms of outstanding grants under a Prior Plan where applicable, when expressly
so provided in this Plan.
4.3 DURATION.
This Plan shall terminate on December 31, 2004, unless earlier terminated
by the Board pursuant to Article XI. No Award shall be granted after the date
this Plan terminates. The applicable terms of this Plan, and any terms and
conditions applicable to Awards granted prior to such date, shall survive the
termination of the Plan and continue to apply to such Awards.
ARTICLE V. ADMINISTRATION
5.1 ADMINISTRATOR.
The Plan shall be administered by the Committee with respect to Officers
and Executive Officers and, subject to regulations and guidelines that may be
established by the Committee, by the Company Administrator with respect to all
other Eligible Employees. The Committee may adopt such regulations and
guidelines as it deems are necessary or appropriate for the administration of
the Plan. Subject to such rules, regulations or guidelines, the Company
Administrator shall have the power to adopt rules, regulations and guidelines to
permit it to administer the Plan with respect to Eligible Employees other than
Officers and Executive Officers.
9
<PAGE>
5.2 COMMITTEE RESPONSIBILITIES.
The Committee shall consist of two or more disinterested directors of
BellSouth, who shall be appointed by the Board. A member of the Board shall be
deemed to be "disinterested" only if he or she satisfies such requirements as
the Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under Rule
16b-3. No member of the Committee shall be personally liable for any action,
determination, or interpretation made in good faith with respect to the Plan or
Awards. All members of the Committee shall be fully protected by BellSouth, to
the fullest extent permitted by applicable law, in respect of any such action,
determination or interpretation.
5.3 ADMINISTRATOR RESPONSIBILITIES.
The Administrator shall (a) determine the amount of all grants of Awards
under this Plan, (b) determine the terms and conditions of grant Agreements and
all election and other forms, which terms and conditions shall not be
inconsistent with this Plan, (c) interpret the Plan, and (d) make all other
decisions relating to the operation of the Plan. The Administrator may adopt
such rules or guidelines as it deems are appropriate to implement the Plan. The
Administrator's determinations under the Plan shall be final and binding on all
persons.
5.4 DETERMINATIONS.
All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon Participants,
BellSouth and all other interested persons.
ARTICLE VI. OPTIONS
6.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator from
time to time may grant such Options to such Eligible Employees to purchase
Shares as the Administrator acting in its sole discretion deems are appropriate
under the circumstances. Each grant of an Option shall be evidenced by an
Agreement, and each Agreement shall incorporate such terms and conditions as the
Administrator in its sole discretion deems are consistent with the terms of this
Plan, including conditions on the exercise of such Option which relate to the
employment of the
10
<PAGE>
Participant or the requirement that the Participant exchange a prior outstanding
Option and/or SAR; provided, if the Administrator grants an ISO and NQSO to an
Eligible Employee, the right of the Eligible Employee to exercise one such
Option shall not be conditioned on his failure to exercise the other such
Option. The Administrator may issue new Options equal to the number of Shares
surrendered by a Participant upon exercise of a previously granted stock option.
6.2 SPECIAL RULES TO INCENTIVE STOCK OPTIONS.
The grant of ISO's shall be subject to the following additional
restrictions:
a. ELIGIBLE INDIVIDUALS. Incentive Stock Options shall only be granted
to an Eligible Employee who at the time of grant is a common law employee of
BellSouth or a Subsidiary.
b. TIME OF GRANT. No Incentive Option shall be granted pursuant to this
Plan more than ten (10) years after the effective date of the Plan under Section
4.1.
c. ANNUAL LIMIT. The aggregate Fair Market Value (determined at the time
the ISO is granted) of the Shares with respect to which one or more ISOs are
exercisable for the first time by a Participant during any calendar year under
the Plan or with respect to which any incentive stock options described in
Section 422 of the Code are so first exercisable under any other stock plan of
the Company or a Parent Corporation or any Subsidiary shall not exceed $100,000
or such other maximum amount permitted under Section 422 of the Code.
d. OPTION TERM. The term of an ISO shall not exceed ten (10) years from
the date of grant.
e. TEN PERCENT SHAREHOLDER. If any Participant to whom an ISO is to be
granted pursuant to the provisions of the Plan is, on the date of grant, a Ten
Percent Shareholder, then the following special provisions shall be applicable
to the ISO granted to such individual:
(i) the Option Price of shares subject to such ISO shall not be less
than 110% of Fair Market Value on the date of grant; and
(ii) the Option shall not have a term in excess of (5) years from the
date of grant.
11
<PAGE>
Any Option purporting to constitute an ISO in violation of the restrictions in
this Section 6.2 shall constitute a NQSO.
6.3 OTHER OPTIONS.
The Administrator may establish rules with respect to, and may grant to
Eligible Employees, Options which comply with any amendment to the Code
providing for special tax benefits for stock options made after the effective
date of this Plan, provided such rules otherwise are consistent with the terms
of this Plan.
6.4 OPTION PRICE.
The Option Price for each Share subject to an Option shall not be less than
the greater of (i) the par value of a Share or (ii) the Fair Market Value of a
Share on the date the Option is granted.
6.5 OPTION PERIOD.
Each Option granted under this Plan shall be exercisable at such time or
times as set forth in the related Agreement over the period which begins on the
date such Option is granted, and each Option shall expire automatically on the
earliest of (i) the date such Option is exercised in full, (ii) the date such
Option expires in accordance with the terms of the related Agreement or (iii)
the date such Option is forfeited or deemed to expire upon the exercise of any
tandem SAR. An Agreement may provide for the exercise of an Option after the
employment of an Eligible Employee has terminated for any reason whatsoever,
including retirement, death or disability, but such provision shall have no
force or effect whatsoever and shall be inoperative if the Administrator
determines that such termination was for "cause" or was a result of misconduct
in connection with his employment.
6.6 METHOD OF EXERCISE.
An Option may be exercised by properly completing and actually delivering
to BellSouth an exercise form prescribed by the Administrator for this purpose,
together with payment in full of the Option Price for the Shares the Participant
desires to purchase through such exercise in the manner specified in the
exercise form. Payment may be made in the form of cash or Shares, or a
combination of cash and Shares, or in the form of other property as determined
by the Administrator. Any Shares which are tendered in payment shall be valued
at their Fair Market Value on the Settlement Date.
12
<PAGE>
ARTICLE VII. STOCK APPRECIATION RIGHTS
7.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator may
grant a SAR to any Eligible Employee either (i) in tandem with the grant of an
ISO, (ii) in tandem with the grant of an NQSO or (iii) independent of the grant
of an ISO or NQSO. Each grant of a SAR which is in tandem with the grant of an
ISO or an NQSO shall be evidenced by the same Agreement as the ISO or NQSO which
is granted in tandem with such SAR and such SAR shall relate to the same number
of Shares as such Option. Each SAR which is granted independent of an ISO or
NQSO shall be evidenced by a separate Agreement which shall state the number of
Shares to which such SAR shall relate and such other terms and conditions as the
Administrator in its sole discretion deems are consistent with the terms of this
Plan, including conditions on the exercise of such SAR which relate to the
employment of the Participant or the requirement that the Participant exchange a
prior outstanding Option and/or SAR.
7.2 PAYMENT AT EXERCISE.
Upon the settlement of a SAR in accordance with the terms of the related
Agreement, the Participant shall (subject to the terms and conditions of this
Plan and such Agreement) receive a payment equal to the excess, if any, of the
SAR Exercise Price for the number of Shares of the SAR being exercised at that
time over the SAR Grant Price for such Shares. Such payment may be made in
whole Shares or in cash, or partially in Shares and partially in cash, as
determined under the SAR Agreement. If payment is made in whole or in part in
Shares, such Shares shall be valued for this purpose at the SAR Exercise Price
on the date the SAR is exercised, and any payment in Shares which calls for a
payment in a fractional Share automatically shall be paid in cash based on such
valuation.
7.3 SPECIAL TERMS AND CONDITIONS.
Each Agreement which evidences the grant of a SAR shall incorporate such
terms and conditions as the Administrator in its absolute discretion deems are
consistent with the terms of this Plan and the Agreement for the ISOs and NQSOs,
if any, granted in tandem with such SAR except that (i) if a SAR is granted in
tandem with an ISO or a NQSO, the SAR shall be exercisable only when the related
ISO or NQSO is exercisable and (ii) the
13
<PAGE>
Participant's right to exercise a SAR granted in tandem with an ISO or NQSO
shall be forfeited to the extent that he exercises the related ISO or NQSO and
his right to exercise the ISO or NQSO shall be forfeited to the extent he
exercises the related SAR, but any such forfeiture shall not count as a
forfeiture for purposes of making the Shares subject to such Option or SAR again
available for use under Article III.
ARTICLE VIII. RESTRICTED SHARES
8.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator may
grant Restricted Shares to any Eligible Employee as provided in this Article
VIII. Each grant of Restricted Shares shall be evidenced by an Agreement which
shall state such terms and conditions as the Administrator deems are consistent
with the terms of this Plan.
8.2 RESTRICTIONS.
Restricted Shares shall be subject to such conditions and restrictions as
the Administrator shall determined and specify in the related Agreement, which
may include, but are not limited to, continued employment with BellSouth or a
Subsidiary and achievement of Performance Objectives, which restrictions may
lapse separately or in combination at such times, under such circumstances, in
such installments, or otherwise, as the Administrator may determine and so
specify. Except to the extent restricted under the terms of the Plan and the
Agreement relating to the Restricted Shares, a Participant granted Restricted
Shares shall have all of the rights of a shareholder including, without
limitation, the right to vote Restricted Shares and the right to receive
dividends thereon.
8.3 FORFEITURE.
If a Participant fails to meet the terms and conditions of the Agreement
for such Restricted Shares during the Restricted Period, Restricted Shares still
subject to restrictions shall be forfeited, and all rights of the Participant to
such Shares shall terminate without further obligation on the part of BellSouth.
An Agreement may provide that the Restricted Period will end upon the
retirement, death or disability of a Participant while an employee or upon such
other event or events as the Administrator shall determine or may otherwise
provide that such an event will not result in forfeiture of the Restricted
Shares.
14
<PAGE>
8.4 CERTIFICATES FOR SHARES.
Restricted Shares granted under the Plan may be evidenced in such manner as
the Administrator shall determine. The Administrator may place a legend on the
Share certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the Share certificates,
together with duly endorsed stock powers, in the custody of BellSouth or its
transfer agent or to maintain evidence of Share ownership, together with duly
endorsed stock powers, in a certificateless book-entry account with BellSouth's
transfer agent.
8.5 ADJUSTMENTS.
Shares distributed in connection with a stock split or stock dividend, and
other property distributed as a dividend or pursuant to an adjustment under
Section 10.6, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Shares with respect to which such Shares or other
property has been distributed.
ARTICLE IX. OTHER STOCK RIGHTS
9.1 GRANT.
Subject to the terms and conditions of this Plan, the Administrator may
grant Performance Shares, Stock Payments or Dividend Equivalent Rights as
provided in this Article IX. A grant of Performance Shares and Dividend
Equivalent Rights shall be evidenced by an Agreement, and a grant of Stock
Payments may be evidenced by an Agreement, which Agreement shall contain such
terms and conditions as the Administrator deems are consistent with the terms of
this Plan.
9.2 PERFORMANCE SHARES.
Performance Shares shall become payable to a Participant based upon the
achievement of specified Performance Objectives and upon such other terms and
conditions as the Administrator may determine and specify in the Agreement
evidencing such Performance Shares. Each grant shall satisfy the conditions for
performance-based Awards under Section 10.2. A grant may provide for the
forfeiture of Performance Shares in the event of termination of employment or
other events, subject to exceptions for death, disability, retirement or other
events, all as the
15
<PAGE>
Administrator may determine and specify in the Agreement for such grant.
Payment may be made at such time and in such form, either cash or Shares, or a
combination thereof, as the Administrator shall determine and specify in the
Agreement.
9.3 STOCK PAYMENTS.
The Administrator may grant Stock Payments to an Eligible Employee as a
bonus or additional compensation or in lieu of the obligation of the Company or
a Subsidiary to pay cash compensation under other compensatory arrangements,
with or without the election of the Eligible Employee. A Participant shall have
all voting, dividend, liquidation and other rights with respect to Shares issued
to the Participant as a Stock Payment upon the Participant becoming holder of
record of such Shares; provided, however, the Plan Administrator may impose such
restrictions on the assignment or transfer of such Shares as it are appropriate
and specifies in an Agreement for such Stock Payment. A Stock Payment shall be
subject to such other terms as the Administrator deems are consistent with the
terms of this Plan and specifies in any Agreement for such Stock Payment.
9.4 DIVIDEND EQUIVALENT RIGHTS.
The Plan Administrator may grant Dividend Equivalent Rights in tandem with the
grant of Options, SARs, or Performance Shares that otherwise do not provide for
the payment of dividends on the Shares subject to such Awards for the period of
time to which such Dividend Equivalent Rights apply, or may grant Dividend
Equivalent Rights that are independent of any such Award. A Dividend Equivalent
Right granted in tandem with another Award may be evidenced by the Agreement for
such other Award; otherwise, a Dividend Equivalent Right shall be evidenced by a
separate Agreement. Payment may be made in cash or Shares, or a combination
thereof, may be immediate or deferred, and may be subject to such employment,
Performance Objectives or other conditions as the Administrator may determine
and specify in the Agreement for such Dividend Equivalent Rights. The total
payment attributable to a Share subject to a Dividend Equivalent Right shall not
exceed one hundred percent (100%) of the equivalent dividends payable with
respect to a Share during the term of such Dividend Equivalent Right, taking
into account any assumed reinvestment (including assumed reinvestment in Shares)
or interest earnings on such equivalent dividends as determined under the
Agreement in the case of deferred payment, provided that such percentage may
increase to a maximum of two hundred percent (200%) if the Dividend Equivalent
Right is subject to a Performance Objective as described in Section 10.2.
16
<PAGE>
ARTICLE X. SPECIAL PROVISIONS APPLICABLE TO AWARDS
10.1 RULE 16b-3 COMPLIANCE.
(a) SIX-MONTH HOLDING PERIOD. Unless a Participant could otherwise
exercise a derivative security or dispose of Shares delivered upon exercise of a
derivative security granted under the Plan without incurring liability under
Section 16(b) of the Exchange Act, (i) Shares delivered under the Plan other
than upon exercise or conversion of a derivative security granted under the Plan
shall be held for at least six months from the date of acquisition, and (ii),
with respect to a derivative security granted under the Plan, at least six
months shall elapse from the date of acquisition of the derivative security to
the date of disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
(b) REFORMATION TO COMPLY WITH EXCHANGE ACT RULES. It is the intent of
the Company that this Plan comply in all respects with applicable provisions of
Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in connection with any
grant of Awards to, or other transaction by, a Participant who is subject to
Section 16 of the Exchange Act (except for transactions exempted under
alternative Exchange Act Rules). Accordingly, if any provision of this Plan or
any Agreement relating to an Award does not comply with the requirements of Rule
16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction, such
provision will be construed or deemed amended to the extent necessary to conform
to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such
Participant shall avoid liability under Section 16(b).
(c) PRIOR PLAN WINDOW PERIOD SARS. Effective November 24, 1996, in light
of the elimination by the Securities and Exchange Commission of the condition
for exemption from Section 16(b) of the Exchange Act that stock appreciation
rights be exercised for cash only during a specified "window period",
outstanding stock appreciation rights tandem to non-qualified options issued
under the BellSouth Corporation Stock Option Plan are amended to remove the
window period restriction for cash exercise such that such stock appreciation
rights granted in 1989 and 1990 are now exercisable for cash at any time and
that such stock appreciation rights granted in all other years are now
exercisable for either cash or Shares at any time, provided in all cases that
such a stock appreciation right can only be exercised if the optionee meets all
other applicable requirements for the exercise of such stock appreciation right
under the terms of the Prior Plan and the applicable grant agreement, including
any requirement
17
<PAGE>
relating to the optionee's status under Section 16(a) of the Exchange Act at the
time of grant or exercise. This Section 10.1(c) shall constitute an amendment
to the BellSouth Corporation Stock Option Plan, and to outstanding non-qualified
stock option and tandem stock appreciation right agreements thereunder, to the
extent necessary to effect this change to such outstanding stock appreciation
rights under such plan. A Prior Plan participant's (or beneficiary's) election
to exercise such an outstanding stock appreciation right during any expanded
period provided by this Section 10.1(c) shall constitute any required consent by
the participant (or beneficiary) to such amendment.
10.2 PERFORMANCE-BASED AWARDS.
(a) GENERAL. Each Agreement for the grant of Performance Shares shall
specify the number of Performance Shares subject to such Agreement, the
Performance Period and the Performance Objective, and each Agreement for the
grant of any other Award that the Administrator determines to make subject to a
Performance Objective similarly shall specify the applicable number of Shares,
the period for measuring performance and the Performance Objective. Each
Agreement for a performance-based grant shall specify in respect of a
Performance Objective the minimum level of performance below which no payment
will be made, shall describe the method for determining the amount of any
payment to be made if performance is at or above the minimum acceptable level
but falls short of full achievement of the Performance Objective, and shall
specify the maximum percentage payout under the Agreement. Such maximum
percentage in no event shall exceed one hundred percent (100%) in the case of
performance-based Restricted Shares and two hundred percent (200%) in the case
of Performance Shares or performance-based Dividend Equivalent Rights.
(b) PERFORMANCE OBJECTIVE. The Administrator shall determine and specify
the Performance Objective in the Agreement for a Performance Share or for any
other performance-based Award, which Performance Objective shall consist of (i)
one or more business criteria, including (except as limited under Section
10.2(c) below for Awards to Covered Employees) financial, service level and
individual performance criteria, and (ii) a targeted level or levels of
performance with respect to such criteria. Performance Objectives may differ
between Participants and between types of Awards and from year to year.
18
<PAGE>
(c) ADDITIONAL RULES APPLICABLE TO COVERED EMPLOYEES. The Performance
Objective for Performance Shares and any other performance-based Award granted
to a Covered Employee shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code and shall be based upon the
business criterion of total BellSouth shareholder return as measured against
total shareholder return of a peer group of companies determined by the
Committee. Achievement of this Performance Objective shall be measured over a
period of years not to exceed ten as specified by the Committee in the Agreement
for the performance-based Award. No business criterion other than that named
above in this Section 10.2(c) may be used in establishing the performance
objective for an Award to a Covered Employee under this Section 10.2. For each
such Award relating to a Covered Employee, the Committee shall establish the
targeted level or levels of performance for such business criterion. The
Committee may, in its discretion, reduce the amount of a payout otherwise to be
made in connection with an Award under this Section 10.2(c), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of Performance Objectives under this Section
10.2(c) shall be made in writing. The Committee may not delegate any
responsibility under this Section 10.2(c).
(d) INTENT WITH REGARD TO CODE SECTION 162(m). It is the intent of
BellSouth that, unless otherwise determined by the Committee, Options, SARs, and
Awards subject to Performance Objectives specified under this Section 10.2,
granted under the Plan to persons who are Covered Employees, shall constitute
"qualified performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. Accordingly, unless otherwise determined by
the Committee, if any provision of the Plan or any Award agreement relating to
such an Award granted to a Covered Employee does not comply or is inconsistent
with the requirements of Code Section 162(m) or regulations thereunder
(including Proposed Regulation 1.162-27 unless and to the extent it is
superseded by an interim or final regulation), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable to a Covered
Employee in connection with any such Award upon attainment of the Performance
Objectives.
10.3 CHANGE IN CONTROL.
19
<PAGE>
(a) GENERAL. The Committee shall have the right in its sole discretion to
include with respect to any Award granted to a Participant under this Plan
provisions accelerating the vesting or Settlement of such Award upon a Change in
Control, subject to the restrictions on dispositions of equity securities set
forth in Sections 10.1(a) and 12.1 and the restrictions in Section 10.3(d)
below. Such acceleration rights may be included as part of the Agreement for
such Award or may be included at any time after the Award has been granted to
the Participant. Such acceleration rights may include, or be made subject to,
such restrictions as the Committee may deem are appropriate to avoid or
ameliorate the federal income tax impact of excess parachute payments as defined
in Section 280G(b) of the Code.
(b) OPTIONS AND SAR GRANTS. Any Option or SAR granted under the Plan on
and after September 23, 1996 shall become fully vested and exercisable upon a
Change in Control. Such Option or SAR following a Change in Control accordingly
(i) shall be exercisable without regard to any dates specified in the applicable
grant Agreement and (ii) any conditions specified in the grant Agreement or
otherwise in the Plan for the forfeiture of the Option or SAR, including any
conditions related to termination of employment or noncompetition, shall not
apply, subject in both cases to the continued application of the expiration date
specified in the grant Agreement on which the Option or SAR will expire in all
events.
(c) OUTSTANDING NON-QUALIFIED STOCK OPTIONS AND SARs. Effective September
23, 1996, Section 10.3(b) also shall apply to all outstanding nonqualified stock
options and tandem stock appreciation rights under this Plan and also those
issued under the BellSouth Corporation Stock Option Plan, subject in both cases
to the consent of the applicable participant in accordance with rules
established by BellSouth. This Section 10.3 (and related definitions) shall
constitute an amendment to the BellSouth Corporation Stock Option Plan, and to
all outstanding nonqualified stock options and tandem stock appreciation rights
under this Plan and under the Prior Plan, to the extent necessary to effect this
change to all such outstanding non-qualified stock options and stock
appreciation rights.
(d) POOLING OF INTERESTS ACCOUNTING TREATMENT. Notwithstanding anything to
the contrary in this Plan, if the application of this Section 10.3 would
preclude the use of pooling of interests accounting treatment with respect to a
transaction for which such treatment otherwise is available and to be adopted by
BellSouth, the provisions of this Section 10.3 shall be modified as it applies
to such transaction, to the
20
<PAGE>
minimum extent necessary to prevent such impact, including if necessary the
invalidation of such provisions to the extent they otherwise would have been
triggered by such transaction. If the pooling of interests accounting rules
require modification or invalidation of one or more provisions of this Section
10.3 as it applies to such transaction, the adverse impact on the Participant
(including for this purpose a Prior Plan participant) shall, to the extent
reasonably possible, be proportionate to the adverse impact on other similarly
situated Participants of BellSouth. The Board shall, in its sole and absolute
discretion, make all determinations necessary under this subsection; provided,
that determinations regarding the application of the pooling of interests
accounting rules for these purposes shall be made by BellSouth with the
concurrence of BellSouth's independent auditors at the time such determination
is to be made.
10.4 TRANSFERABILITY DURING LIFETIME.
(a) GENERAL RULE. During the lifetime of a Participant to whom an Award is
granted, only the Participant (or such Participant's legal representative) may
exercise or receive payment of an Award. No Award (other than unrestricted
Stock Payments upon receipt) may be sold, assigned, transferred (except as
provided in the sentence above), exchanged, or otherwise encumbered or made
subject to any creditor's process, whether voluntary, involuntary or by
operation of law, and any attempt to do so shall be of no effect. This Section
10.4(a) shall apply to all Awards except as provided in Sections 10.4(b) and
10.4(c) below.
(b) LIMITED EXCEPTION FOR CERTAIN NQSOs AND SARs. Unless the terms of the
applicable grant Agreement for an NQSO or SAR specifically provides that this
Section 10.4(b) shall not apply, a Participant who is an Officer or a retired
Officer may transfer such Participant's rights under any NQSO or SAR Agreement
(other than a SAR tandem to an ISO) granted on or after November 24, 1996 by
properly completing and delivering to the executive compensation group at
BellSouth headquarters a Non-qualified Stock Option Assignment Form and
satisfying such other conditions as BellSouth may impose, provided that such
transfer is without consideration and to (i) one or more of the Participant's
spouse, parents, spouse's parents, siblings, siblings' lineal descendants,
children, children's lineal descendants, children's spouses and children's
spouses' lineal descendants, including in all cases legally adopted individuals,
or (ii) a trust, partnership or similar entity for the benefit solely of one or
more of the family members described above. The rights of any such transferee
thereafter shall be nontransferable except that
21
<PAGE>
such transferee, where applicable under the terms of the transfer by the
Participant, shall have the right previously held by the Participant to
designate a Beneficiary. A Participant may make such a transfer of the
Participant's rights with respect to less than all of the total number of Shares
subject to an Option or SAR Agreement provided that each such transfer shall
apply to at least 20% of the total number of Shares initially subject to such
Agreement. Upon the transfer by a Participant of any rights under an SAR
Agreement or under an NQSO Agreement which includes a tandem SAR, any right
under the SAR to exercise such SAR for cash automatically is eliminated with
respect to such transferred interest. Notwithstanding Section 12.5 or the terms
of any Agreement, BellSouth or any Subsidiary shall not withhold any amount
attributable to the Participant's tax liability from any payment of cash or
Shares to a transferee or transferee's Beneficiary under this Section 10.3(b)
upon exercise of a transferred NQSO or SAR by such person, but may require the
payment of an amount equal to BellSouth's or any Subsidiary's withholding tax
obligation as a condition to such exercise or as a condition to the release of
cash or Shares upon such exercise.
(c) OUTSTANDING NON-QUALIFIED STOCK OPTIONS AND SARS. Effective
November 24, 1996, Section 10.4(b) also shall apply to all non-qualified stock
options and stock appreciation rights tandem to non-qualified stock appreciation
rights outstanding under the Plan and also to all outstanding non-qualified
stock options and tandem stock appreciation rights issued under the BellSouth
Corporation Stock Option Plan. This Section 10.4 (and related Plan provisions
on transferability) shall constitute an amendment to the BellSouth Corporation
Stock Option Plan, and to all outstanding non-qualified stock option and tandem
stock appreciation right grant agreements under this Plan and the Prior Plan, to
the extent necessary to effect this change to such outstanding non-qualified
stock options and tandem stock appreciation rights. The election by a
Participant or Beneficiary (including for this purpose a participant or
beneficiary under the Prior Plan) to transfer any such non-qualified stock
option and tandem stock appreciation right pursuant to this Section 10.4(c)
shall constitute any required consent by the Participant (or Beneficiary) to
such amendment.
10.5 TRANSFERS TO DEATH BENEFICIARY.
In the event of a Participant's death, all of such person's outstanding
Awards, including his or her rights to receive any accrued but unpaid Stock
Payments, will transfer to the maximum extent permitted by law to such person's
Beneficiary (except to
22
<PAGE>
the extent a permitted transfer of a NQSO or SAR previously was made pursuant to
Section 10.4.) Each Participant may name, from time to time, any beneficiary or
beneficiaries (which may be named contingently or successively) as his or her
Beneficiary for purposes of this Plan. Each designation shall be on a form
prescribed by the Administrator, will be effective only when delivered to
BellSouth, and when effective will revoke all prior designations by the
Participant. If a Participant dies with no such beneficiary designation in
effect, such person's Beneficiary shall be his or her estate and such person's
Awards will be transferable by will or pursuant to laws of descent and
distribution applicable to such person.
10.6 ADJUSTMENTS.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Shares, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects Shares such that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of
Participants under this Plan, then the Administrator, in such manner as it may
deem equitable, shall adjust any or all of (i) the number and kind of shares
which may thereafter be delivered in connection with Awards, (ii) the number and
kind of shares that may be delivered or deliverable in respect of outstanding
Awards, (iii) the number and kind of shares with respect to which Awards may be
granted as set forth in Article III, and (iv) the exercise price, grant price,
or purchase price relating to any Award, or, if deemed appropriate, make
provision for a cash payment with respect to any outstanding Award. Any such
adjustment made by the Administrator, including any cancellation of an
outstanding Award made as part of such adjustment, will be final and binding.
ARTICLE XI. AMENDMENTS AND TERMINATION
The Board shall have the right to amend, modify, suspend or terminate the
Plan at any time; provided, that following the approval of the Plan by BellSouth
shareholders, this Plan may not be amended without further approval by
shareholders with respect to the amount, timing, Option Price or method for
determining Fair Market Value of Shares, and related provisions with respect to
tandem SARs, or in any way to (a) extend the maximum life of the Plan under
Section 4.3,(b) change the class of persons eligible for Awards or to otherwise
materially modify (within the
23
<PAGE>
meaning of Rule 16b-3) the requirements as to eligibility for participation in
this Plan, or (c) otherwise materially increase (within the meaning of Rule
16b-3 of the Exchange Act) the benefits accruing under this Plan. No enactment,
modification, suspension or termination of the Plan shall alter or impair any
Awards previously granted under this Plan without the consent of the holder
thereof, unless otherwise required by law. It is conclusively presumed for this
purpose that any adjustment for changes in capitalization pursuant to Section
10.6 of this Plan does not affect any right of the holder of an Award.
Notwithstanding approval by shareholders, the Board may amend this Plan without
further shareholder approval to add provisions required or enabled by changes to
Rule 16b-3.
ARTICLE XII. GENERAL PROVISIONS
12.1 STOCK RESTRICTIONS.
BellSouth shall have the right under this Plan to restrict or otherwise
delay the issuance of any Shares purchased or paid under this Plan until the
requirements of any applicable laws or regulations and any stock exchange
requirements have been in BellSouth's judgment satisfied in full. Furthermore,
any Shares which are issued as a result of purchases or payments made under this
Plan shall be issued subject to such restrictions and conditions on any resale
and any other disposition as BellSouth shall deem necessary or desirable under
any applicable laws or regulations or in light of any stock exchange
requirements.
12.2 TERM OF SERVICE.
The granting of an Award to a Participant under this Plan shall not
obligate BellSouth to provide that Participant upon the termination of his or
her employment with any benefit whatsoever except as provided under the terms
and conditions of that Award or obligate the Participant to remain an employee.
12.3 NO SHAREHOLDER RIGHTS.
No Award shall confer on any Participant, or anyone claiming on his behalf,
any of the rights of a shareholder of BellSouth unless and until Shares are duly
issued or transferred on the books of BellSouth in accordance with the terms and
conditions of the Award.
12.4 UNFUNDED PLAN.
24
<PAGE>
This Plan shall be unfunded and BellSouth shall not be required to segregate any
assets that may at any time be represented by Awards under this Plan. Neither
BellSouth, its affiliates, the Administrator, nor the Board shall be deemed to
be a trustee of any amounts to be paid under this Plan nor shall anything
contained in this Plan or any action taken pursuant to its provisions create or
be construed to create a fiduciary relationship between any such party and a
Participant or anyone claiming on his or her behalf. To the extent a
Participant or any other person acquires a right to receive payment pursuant to
an Award under this Plan, such right shall be no greater than the right of an
unsecured general creditor of BellSouth.
12.5 TAXES.
BellSouth or any Subsidiary shall withhold from any payment of cash or
Shares to a Participant or other person under this Plan an amount sufficient to
cover any withholding taxes which may become required with respect to such
payment or shall take any other action as it deems necessary to satisfy any
income or other tax withholding requirements as a result of the grant or
exercise of any Award under this Plan. BellSouth or any Subsidiary shall have
the right to require the payment of any such taxes and require that any person
furnish information deemed necessary by BellSouth or any Subsidiary to meet any
tax reporting obligation as a condition to exercise or before making any payment
pursuant to an Award.
12.6 BINDING EFFECT.
The provisions of this Plan, and any applicable Agreement, election,
Beneficiary designation or other related document, shall be binding upon each
Participant and any of his Beneficiaries, transferees, heirs, assignees,
distributees, executors, administrators, personal representatives or any other
person claiming any rights under this Plan. Any such person claiming any rights
under this Plan shall be subject to the terms and conditions of this Plan and
all such documents and such other terms and conditions, not inconsistent with
this Plan, as the Administrator may impose pursuant to Article V.
12.7 CHOICE OF LAW AND VENUE.
This Plan and all related documents shall be governed by, and construed in
accordance with, the laws of the State of Georgia (except to the extent
provisions of federal law may be applicable.) Acceptance of an Award shall be
deemed to constitute consent to the jurisdiction and venue of the Superior
25
<PAGE>
Court of Fulton County, Georgia and the United States District Court for the
Northern District of Georgia for all purposes in connection with any suit,
action, or other proceeding relating to such Award, including the enforcement
of any rights under this Plan or any Agreement or other document, and shall
be deemed to constitute consent to any process or notice of motion in
connection with such proceeding being served by certified or registered mail
or personal service within or without the State of Georgia, provided a
reasonable time for appearance is allowed.
26
<PAGE>
BELLSOUTH CORPORATION
OFFICER ESTATE ENHANCEMENT PLAN
Agreement
An Agreement is hereby entered into between BellSouth Corporation (the
"Employer") and John L. Clendenin (the "Participant"), by and through
Participant's Assignee (the "Assignee"), to be effective December 31, 1996. The
Agreement is incident to Participant's election for coverage under the Employer
Officer Estate Enhancement Plan (the "Plan"); Assignee and Employer hereby
certify, acknowledge and agree as follows:
1. Employer and Assignee shall cause to be issued by the insurer a Policy
insuring the life of Participant pursuant to the provisions of the Plan.
2. The Policy shall be owned by Employer as provided in the Plan.
3. The Policy shall be issued by American General Life Insurance Company with
an "Option B" death benefit and an initial basic face amount of $3,103,736.
4. The Policy's effective date shall be November 1, 1996.
5. Subject to the terms of the Plan, Employer agrees to pay a Policy premium,
inclusive of the Participant's Premium, of $155,416 before January 1, 1997
and on each Policy anniversary thereafter that is a Premium Payment Year.
6. The Premium Payment Years shall be 1996 to 2010 inclusive.
7. The Participant's Coverage Amount shall be $3,103,736.
8. The Policy's maturity date shall be November 1, 2034.
9. Assignee has read and understands the provisions of the Plan, and agree
that all terms and conditions specified in the Plan are hereby incorporated
by reference as though fully set forth herein and form a part of this
Agreement.
- ------------------------------- ------------------------------------
Name of Assignee Signature of Assignee
------------------------------------
Date
Address of Assignee:
------------------------------------
------------------------------------
------------------------------------
- -------------------------------- -----------------------------------
Name of Employer Representative Signature of Employer Representative
-----------------------------------
Date
<PAGE>
BELLSOUTH CORPORATION
OFFICER ESTATE ENHANCEMENT PLAN
1. PURPOSE
The purpose of the BellSouth Corporation Officer Estate Enhancement Plan
(the "Plan") is to provide select officers of BellSouth Corporation (the
"Company") insurance coverage pursuant to a split-dollar life insurance
arrangement with the Company.
2. DEFINITIONS
For purposes of this Plan, the following terms have the meanings set forth
below:
2.01 AGREEMENT means the Agreement executed by Participant (or
Assignee) and Employer implementing the terms of this Plan.
2.02 ASSIGNEE means that person(s) or entity to whom the Participant
has assigned his/her interest in the Policy by designating said
Assignee on forms provided by Employer. If the Participant's
Policy is a Survivorship Policy and if the Participant has not
designated an Assignee, then, after the Participant's death, if
the Participant's spouse survives, the Assignee shall be that
person or entity who succeeds to the Participant's interest in
the Participant's Policy after the death of the Participant.
2.03 COMMITTEE means the Employee Benefit Claims Review Committee of
BellSouth Corporation.
2.04 EMPLOYEE means an employee or former employee of Employer who is
eligible to participate in the Plan.
2.05 EMPLOYER means BellSouth Corporation.
2.06 EMPLOYER DEATH BENEFIT means the portion of the Policy's death
benefit payable to Employer.
2.07 INSURER means, with respect to a Participant's Policy, the
insurance company issuing the Policy on the Participant's life
(or on the lives of the Participant and a Participant's spouse,
if a Survivorship Policy is used) pursuant to the provisions of
the Plan.
<PAGE>
2.08 PARTICIPANT means an eligible Employee who elects to participate
in the Plan.
2.09 PARTICIPANT'S COVERAGE AMOUNT means the portion of the Policy's
death benefit payable to the beneficiary(ies) of the Participant
(or Assignee) as indicated in the Agreement.
2.10 PARTICIPANT PREMIUM means, with respect to each Premium Payment
Year for each Policy, the one year term cost for such Premium
Payment Year determined based on the age of the Participant (or
on the ages of the Participant and Participant's spouse if a
Survivorship Policy is used) at the beginning of such Premium
Payment Year, the Insurer's published one year term rates in
effect at the beginning of the Premium Payment Year, and the
Coverage Amount provided under the Policy. The amount shall be
determined pursuant to the guidelines set forth in Revenue Ruling
66-110 and Revenue Ruling 67-154, and shall be conclusively
determined by the Employer.
2.11 PERMANENT POLICY means a Policy which is projected to provide the
Participant's Coverage Amount to the maturity date listed in the
Agreement for the Policy, with no further premium payments. Such
protection shall be provided by the Insurer or the Insurer's
representative, and shall be based on the then-current interest
crediting rate and mortality charges, or dividend rate,
applicable to the Policy.
2.12 POLICY means the life insurance coverage acquired on the life of
the Participant (or on the lives of the Participant and a
Participant's spouse, in the case of a Survivorship Policy) by
Employer.
2.13 POLICY OWNER means the Employer.
2.14 PREMIUM means, with respect to a Participant's Policy, the amount
the Employer is obligated, pursuant to the terms of the
Agreement, to pay to the Insurer with respect to a Participant's
Policy.
2.15 PREMIUM PAYMENT YEAR means, with respect to a Policy, a year
listed as a Premium Payment Year for the Policy in the Agreement.
2.16 SURVIVORSHIP POLICY means a Policy insuring the lives of the
Participant and a Participant's spouse, with the death benefit
payable at the death of the last survivor of the Participant and
his/her spouse.
2
<PAGE>
3. PARTICIPATION
The Chairman of the Board, President, and Chief Executive Officer of the
Employer as of December 1, 1996 shall be eligible to participate in the
Plan.
4. AMOUNT AND TYPE OF COVERAGE
The amount and type of coverage provided under the Policy shall be that
amount and type specified in the Agreement.
5. PAYMENT OF PREMIUMS
5.01 EMPLOYER PAYMENTS. Within 30 days of each Policy Anniversary
that is a Premium Payment Year, Employer shall pay the Premium
specified in the Participant's Agreement.
5.02 PARTICIPANT PAYMENTS. For each Premium Payment Year, the
Participant (or Assignee) shall pay a portion of the policy
premium equal to the Participant Premium. This amount shall be
collected by Employer from the Participant (or Assignee), and
shall be paid by Employer to the Insurer. The Employer may
collect such amount through regular payroll deductions or in any
reasonable manner as it determines.
5.03 TERMINATION EVENTS. Employer's obligation to pay Premiums with
respect to a Participant's Policy shall terminate:
a. Automatically upon the death of the Participant (or upon the
death of the survivor of the Participant and the
Participant's spouse, if the Policy is a Survivorship
Policy).
b. Upon the mutual written agreement of Employer and
Participant (or Assignee).
6. POLICY OWNERSHIP
6.01 OWNERSHIP. Employer shall be the owner of a Participant's Policy
and shall be entitled to exercise the rights of ownership, except
that the following rights shall be exercisable by the Participant
(or Assignee): (i) the right to designate the beneficiary(ies)
to receive payment of that portion of the death benefit under the
Participant's Policy equal to the Participant's Coverage Amount;
and (ii) the right to assign any part or all of the Participant's
rights under the Policy to any person, entity or trust by the
execution of a written
3
<PAGE>
instrument prescribed by Employer that is delivered to Employer.
Employer shall not borrow from, hypothecate, withdraw cash value
from, surrender in whole or in part, cancel, or in any other
manner encumber a Participant's Policy without the prior written
consent of the Participant (or Assignee). Employer shall not
take any other action with respect to a Participant's Policy that
may reduce the Participant's Coverage Amount without the prior
written consent of the Participant (or Assignee).
6.02 POSSESSION OF POLICY. Employer shall keep possession of the
Policy. Employer agrees to make the Policy available to the
Participant (or Assignee) or to the Insurer at such times, and on
such terms as Employer determines for the sole purposes of
endorsing or filing any change of beneficiary or assignment on
the Policy.
7. ALLOCATION OF DEATH BENEFIT
Upon the death of the Participant (or death of the survivor of the
Participant and the Participant's spouse, if the Policy is a Survivorship
Policy), the death benefit under the Participant's Policy shall be divided
as follows:
a. The beneficiary(ies) of the Participant (or Assignee) shall be
entitled to receive the Participant's Coverage Amount.
b. The Employer shall be entitled to receive the Employer's Death
Benefit, which shall consist of the excess, if any, of the
Policy's death benefit over the Participant's Coverage Amount.
Employer agrees to execute an endorsement to the Policy issued to it by the
Insurer providing for the division of the death benefit in accordance with
the provisions of this Section.
8. EMPLOYER DEFAULT
8.01 EMPLOYER DEFAULT. An Employer Default shall be deemed to have
occurred with respect to a Participant's Policy if Employer fails
to pay a premium on the Participant's Policy as required under
the terms of the Agreement within 60 days after the due date for
such Premium, or if Employer processes or attempts to process a
policy loan, or a complete or partial surrender, or a cash value
withdrawal without prior written approval from Participant (or
Assignee).
4
<PAGE>
8.02 RIGHTS UPON EMPLOYER DEFAULT. In the event of an Employer
Default as described in Section 8.01, the Participant (or
Assignee) shall have the right to require Employer to transfer
its interest in the Participant's Policy to Participant (or
Assignee). The Participant (or Assignee) may exercise this right
by notifying Employer, in writing, within sixty (60) days after
the Employer Default occurs. Upon receipt of such notice,
Employer shall immediately transfer its rights in the
Participant's Policy to the Participant (or Assignee) and
Employer shall thereafter have no rights with respect to the
Participant's Policy. In addition, if the Policy's cash value is
then insufficient to qualify as a Permanent Policy, Employer
shall then immediately pay to the Participant (or Assignee) the
sum of (a) the additional premium amount required to be paid to
qualify such policy as a Permanent Policy, and (b) an amount
which, after the payment of the Participant's (or Assignee's)
estimate of federal and state income taxes, represents the
Participant's (or Assignee's) estimate of state and federal
income taxes payable by the Participant (or Assignee) on the
payment made under (a) above. A Participant's (or Assignee's)
failure to exercise its rights under this Section shall not be
deemed to release Employer from any of its obligations under the
Plan, and shall not preclude the Participant (or Assignee) from
seeking other remedies with respect to the Employer Default.
Also, a Participant's (or Assignee's) failure to exercise its
rights under this Section will not preclude the Participant (or
Assignee) from exercising such rights upon later Employer
Default.
9. GOVERNING LAWS & NOTICES
9.01 GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the substantive law of the state of Georgia
without giving effect to the choice of law rules of the state of
Georgia.
9.02 NOTICES. All notices hereunder shall be in writing and sent by
first class mail with postage prepaid. Any notice to the
Employer shall be addressed to the Attention of AVP-Executive
Personnel Matters at BellSouth Corporation, 1155 Peachtree St.,
NE, Atlanta, GA 30309-3610. Any notice to the Participant (or
Assignee) shall be addressed to the Participant (or Assignee) at
the address following such party's signature on his/her
Agreement. Any party may change its address by giving written
notice of such change to the other party pursuant to this
Section.
5
<PAGE>
10. MISCELLANEOUS PROVISIONS
10.01 This Plan and any Agreement executed hereunder shall not be
deemed to constitute a contract of employment between an Employee
and Employer, or a Participant and Employer, nor shall any
provision restrict the right of Employer to discharge an Employee
or Participant, or to restrict the right of an Employee or
Participant to terminate employment.
10.02 The masculine pronoun includes the feminine and the singular
includes the plural where appropriate for valid construction.
10.03 In order to be eligible to participate in this Plan, the
Participant (and, in the case of a Survivorship Policy, the
Participant's spouse) shall cooperate with the Insurer by
furnishing any and all information requested by the Insurer in
order to facilitate the issuance of the policy, including
furnishing such medical information and taking such physical
examinations as the Insurer may deem necessary. In the absence
of such cooperation, Employer shall have no further obligation to
the Participant to allow him/her to participate in the Plan.
10.04 If a Participant (or a Participant's spouse, if the Policy is a
Survivorship Policy) commits suicide within two years of the
Participant's Policy's issue, or if the Participant (or
Participant's spouse, if the Policy is a Survivorship Policy)
makes any material misstatement of information or nondisclosure
of medical history pertaining to the Policy's issue and dies
within two years of the Policy's issue, then no benefits will be
payable to the beneficiary(ies) of such Participant (or Assignee,
where applicable).
10.05 In the event of any inconsistency between the terms of this Plan
as described herein and the terms of any Policy purchased
hereunder or any related Agreement, the terms of such Policy or
Agreement shall be controlling as to that Participant, his/her
Assignee (if any), his successor-in-interest (if any) and his/her
beneficiary or beneficiaries.
11. AMENDMENT, TERMINATION, ADMINISTRATION, AND SUCCESSORS
11.01 AMENDMENT. The Plan may be modified or amended by Employer at
any time, but an amendment will not apply to any Participant (or
Assignee) unless such Participant (or Assignee) consents, in
writing, to the amendment.
6
<PAGE>
11.02 TERMINATION. Employer may terminate the Plan at any time, but
any such termination will not affect the rights of any
Participant (or Assignee) unless such Participant (or Assignee)
consents, in writing, to such termination.
11.03 ADMINISTRATION. This Plan shall be administered by the
Committee. The Committee, in its sole discretion, shall have the
authority to make, amend, interpret, and enforce all rules and
regulations for the administration of the Plan, and to decide or
resolve all questions, including interpretation of the Plan, as
may arise in connection with the Plan. In the administration of
this Plan, the Committee may employ agents and delegate to them
or to others (including Employees) such administrative duties as
it sees fit. The Committee may consult with counsel, who may be
counsel to Employer. The decision or action of the Committee (or
its designee) with respect to any question arising out of, or in
connection with, the administration, interpretation and
application of this Plan shall be final and conclusive and
binding upon all persons having interest in the Plan. Employer
shall indemnify and hold harmless against all claims, loss,
damage, expense or liability arising from any action or failure
to act with respect to this Plan the members of the Committee and
any Employees to whom administrative duties under this Plan are
delegated, except in the case of gross negligence or willful
misconduct by the Committee.
11.04 SUCCESSORS. The terms and conditions of this Plan shall inure to
the benefit of and bind the Employer and the Participant and
their successors, assignees or representatives. The Employer
shall have the right to absolutely and irrevocably assign its
rights, title and interest in a Policy without the consent of the
Participant (or Assignee).
12. CLAIMS PROCEDURE
12.01 NAMED FIDUCIARY. The Committee is hereby designated as the named
fiduciary under this Plan. The named fiduciary shall have
authority to control and manage the operation and administration
of this Plan.
12.02 CLAIMS PROCEDURES. Any controversy or claim arising out of or
relating to this Plan shall be filed with the Committee which
shall make all determinations concerning such claim. Any
decision by the Committee denying such claim shall be in writing
and shall be delivered to all parties in interest in accordance
with the notice
7
<PAGE>
provisions of Section 11.02 herein. Such decision shall set
forth the reasons for denial in plain language. Pertinent
provisions of the Plan shall be cited and, where appropriate, an
explanation as to how the claimant can perfect the claim will be
provided. This notice of denial of benefits will be provided
within ninety (90) days of the Committee's receipt of the claim
for benefits. If the Committee fails to notify the claimant of
its decision regarding the claim, the claim shall be considered
denied, and the claimant shall be permitted to proceed with an
appeal as provided for in this Section.
A claimant who has been completely or partially denied a benefit
shall be entitled to appeal this denial of his/her claim by
filing a written statement of his/her position with the Committee
no later than sixty (60) days after receipt of the written
notification of such denial. The Committee shall schedule an
opportunity for a full and fair review of the issue within thirty
(30) days of receipt of the appeal. The decision on review shall
set forth specific reasons for the decision, and shall cite
specific references to the pertinent Plan provisions on which the
decision is based.
Following the review of any additional information submitted by
the claimant, either through the hearing process or otherwise,
the Committee shall render a decision on the review of the denied
claim in the following manner:
a. The Committee shall make its decision regarding the merits
of the denied claim within sixty (60) days following receipt
of the request for review (or within 120 days after such
receipt, in a case where there are special circumstances
requiring extension of time for reviewing the appealed
claim). The Committee shall deliver the decision to the
claimant in writing. If an extension of time for reviewing
the appealed claim is required because of special
circumstances, written notice of the extension shall be
furnished to the claimant prior to the commencement of the
extension. If the decision on review is not furnished
within the prescribed time, the claim shall be deemed denied
on review.
b. The decision on review shall set forth specific reasons for
the decision, and shall cite specific references to the
pertinent Plan provisions on which the decision is based.
8
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ______________,
19__, by and between BellSouth Corporation, a Georgia corporation (the
"Company"), and ____________________ (the "Executive").
REASONS FOR THIS AGREEMENT. The Company recognizes the valuable services
that the Executive has rendered and continues to render to the Company and its
Affiliated Companies. On behalf of itself, its Affiliated Companies and its
shareholders, the Company desires to encourage the Executive's continued service
and dedication in the performance of the Executive's duties, and attention to
the business and affairs of the Company and its Affiliated Companies,
notwithstanding the possibility, threat or occurrence of a change in control.
The Company believes that it is in the best interests of the Company and its
shareholders to minimize the distractions, risks and uncertainties for the
Executive which may be expected to arise in connection with a change in control
by providing assurances to the Executive that the Executive will not be
materially disadvantaged by a change in control.
AGREEMENT. In consideration of the Executive's continued service to the
Company, the covenants and agreements contained in this Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Executive and the Company agree as follows:
I. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
specified below:
(a) "AFFILIATED COMPANIES" shall mean all of the Company's subsidiaries,
divisions, and other affiliated companies or entities.
(b) "CAUSE" shall mean the Executive's willfully engaging in conduct that
is demonstrably and materially injurious to the Company. For purposes of this
subsection I(b), no act, or failure to act, on the part of the Executive shall
be deemed "willful" unless committed by the Executive in bad faith and without
reasonable belief that such action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Executive a certificate of a resolution duly adopted by the affirmative
vote of not less than seventy-five percent (75%) of the entire membership of the
Board of Directors of the Company, at a meeting of the Board (after reasonable
notice to the Executive and an opportunity for the Executive, together with the
Executive's legal counsel, to be heard before the Board),
<PAGE>
finding that in the good faith opinion of the Board, the Executive has engaged
in the conduct set forth in this subsection I(b) and specifying the particulars
thereof in detail.
(c) "CHANGE IN CONTROL" shall mean:
(i) any "person" (as such term is defined in the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company (or of
another entity owned directly or indirectly by the shareholders of the
Company in substantially the same proportions as their ownership of stock
of the Company), becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the
Company's then outstanding voting securities;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds of the directors who either were directors at
the beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof;
(iii) the consummation of a merger, plan of reorganization,
consolidation, share exchange, or other transaction, in one or a series of
related transactions, involving the Company, if immediately following such
merger, plan of reorganization, consolidation, share exchange, or other
transaction or transactions the holders of the voting securities of the
Company outstanding immediately prior thereto hold securities representing
seventy percent (70%) or less of the combined voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger, plan of reorganization, consolidation, share
exchange, or other transaction or transactions;
(iv) the consummation of a transaction involving the sale or other
disposition by the Company or one or more of its Subsidiaries, in one or a
series of related transactions, of interests in an entity or entities, or
of assets, which for the most recent audited twelve-month period produced
total operating revenues or net income aggregating more than thirty percent
(30%) of the total operating revenues or net income of the Company and its
Subsidiaries (taken as a whole), if following such transaction or
transactions, any such entity is no longer a Subsidiary or such assets are
no longer held by a Subsidiary;
(v) the complete liquidation or dissolution of the Company or the
sale of all or substantially all of the assets of the Company; or
- 2 -
<PAGE>
(vi) the consummation of any other transaction which a majority of
the Board of Directors of the Company, in its sole and absolute discretion,
shall determine constitutes a Change in Control.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "CONFIDENTIAL INFORMATION" shall mean information, whether generated
internally or externally, relating to the Company's business or to the
Affiliated Companies' businesses which derives economic value, actual or
potential, from not being generally known to other persons and is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy or
confidentiality, including, but not limited to, studies and analyses, technical
or nontechnical data, programs, patterns, compilations, devices, methods,
models (including cost and /or pricing models and operating models), techniques,
drawings, processes, employee compensation data, financial data (including
marketing information and strategies and personnel data), lists of actual or
potential customers or suppliers, and information relating to regulatory and
business policies, plans, and strategies. For purposes of this Agreement,
Confidential Information does not include information which is not a trade
secret three (3) years after termination of Executive's employment with Company.
(f) "DISABILITY" shall mean an illness, injury or other incapacity which
qualifies the Executive for long-term disability benefits under the principal
management long-term disability plan of the Executive's employer.
(g) "EXCISE TAX" shall have the meaning ascribed to such term in
subsection VII(a) of this Agreement.
(h) "GOOD REASON" shall mean the occurrence after a Change in Control,
without the Executive's express written consent, of any of the following
circumstances:
(i) the assignment to the Executive of duties inconsistent with the
Executive's status or responsibilities as in effect immediately prior to a
Change in Control, including imposition of business travel obligations
which differ materially from business travel obligations immediately prior
to the Change in Control;
(ii) diminution in the status or responsibilities of the Executive's
position from that which existed immediately prior to the Change in
Control, whether by reason of the Company ceasing to be a public company,
becoming a subsidiary of a successor public company, or otherwise;
(iii) a reduction in the Executive's annual base salary as in effect
immediately before the Change in Control or the failure to pay a bonus
award to which the Executive is otherwise entitled under any of the
short-term or long-term
- 3 -
<PAGE>
incentive plans in which the Executive participates (or any successor
incentive compensation plans) at the time such awards are usually paid;
(iv) a change in the principal place of the Executive's employment,
as in effect immediately prior to the Change in Control, to a location more
than thirty-five (35) miles distant from the location of such principal
place at such time;
(v) the failure by the Company to continue in effect any bonus,
incentive compensation, or stock option plan in which the Executive
participates immediately prior to the Change in Control, unless an
equivalent alternative compensation arrangement (embodied in an ongoing
substitute or alternative plan) has been provided to the Executive, or the
failure by the Company to continue the Executive's participation in any
such bonus, incentive compensation or stock option plan on substantially
the same basis, both in terms of the amount of benefits provided and the
level of the Executive's participation relative to other participants, as
existed immediately prior to the time of the Change in Control;
(vi) (A) except as required by law, the failure by the Company to
continue to provide to the Executive benefits substantially equivalent, in
the aggregate, to those enjoyed by the Executive under the qualified and
nonqualified employee pension and welfare benefit plans of the Company,
including, without limitation, any pension, life insurance, medical,
dental, health and accident, disability, retirement or savings plans in
which the Executive was eligible to participate immediately prior to the
Change in Control; (B) the taking of any action by the Company which would
directly or indirectly materially reduce or deprive the Executive of the
perquisites enjoyed by the Executive immediately prior to the Change in
Control (including Company-paid and/or reimbursed club memberships,
financial counseling fees and the like); or (C) the failure by the Company
or a successor to provide the Executive with the number of paid vacation
days (and the policies and practices for taking such days) as was provided
under the Company's vacation policy or practice as was in effect
immediately prior to the Change in Control;
(vii) the failure of the Company or any successor to obtain a
satisfactory written agreement from any successor to assume and agree to
perform this Agreement, as contemplated in subsection IX(a); or
(viii) any purported termination of the Executive's employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of subsection II(b). For purposes of this Agreement, no such
purported termination shall be effective except as constituting Good
Reason.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
- 4 -
<PAGE>
(i) "GROSS-UP PAYMENT" shall have the meaning ascribed to such term in
subsection VII(a) of this Agreement.
(j) "NOTICE OF TERMINATION" shall have the meaning ascribed to such term
in subsection II(b) of this Agreement.
(k) "PAYMENTS" shall have the meaning ascribed to such term in subsection
VII(a) of this Agreement.
(l) "POTENTIAL CHANGE IN CONTROL" shall mean:
(i) the Company (or an Affiliated Company) enters into an
agreement, the consummation of which would result in the occurrence of a
Change in Control;
(ii) an individual or entity, or a group or groups of individuals or
entities, acquires rights, whether pursuant to an agreement with the
Company (or an Affiliated Company) or otherwise, the exercise of which
would result in the occurrence of a Change in Control;
(iii) an individual or entity (including the Company), or a group or
groups of individuals or entities, publicly announces an intention to take
or to consider taking action(s) which, if taken, would result in the
occurrence of a Change in Control; or
(iv) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(m) "RETIREMENT" shall mean the Executive's voluntary termination of
employment with the Company, other than for Good Reason, and in accordance with
the Company's retirement policy generally applicable to its employees or in
accordance with any outstanding or contemporaneous retirement arrangement
established with respect to the Executive.
(n) "SUBSIDIARY" shall mean any corporation of which fifty percent (50%)
or more of the total combined voting power of all classes of stock is owned
directly or indirectly by the Company and any joint venture, partnership or
limited liability company (or other similar entity) of which fifty percent (50%)
or more of the capital or profits interest is owned directly or indirectly by
the Company.
(o) "TAX COUNSEL" shall have the meaning ascribed to such term in
subsection VII(b) of this Agreement.
- 5 -
<PAGE>
(p) "TERMINATION" shall have the meaning ascribed to such term in
subsection II(a) of this Agreement.
(q) "TERMINATION DATE" shall mean:
(i) if the Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time performance of his
duties during such thirty (30) day period); and
(ii) if the Executive's employment is terminated for Cause or Good
Reason or for any reason other than death or Disability, the date specified
in the Notice of Termination (which in the case of a termination for Cause
shall not be less than thirty (30) days and in the case of a termination
for Good Reason shall not be less than thirty (30) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is
given).
(r) "TIER I OFFICER" shall mean the chief executive officer of the
Company, the Company's senior strategic planning officer, the Company's senior
mergers and acquisitions officer, the chief financial officer of the Company,
the chief legal officer of the Company, and any other officer of the Company or
of a Subsidiary, elected by the Company's Board of Directors, who is assigned to
the Company's officer compensation Band A (or successor compensation level).
(s) "TIER II OFFICER" shall mean any officer of the Company or of a
Subsidiary, elected by the Company's Board of Directors, who is assigned to the
Company's officer compensation Band B (or successor compensation level) and who
is not described in subsection I(r).
II. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
(a) ENTITLEMENT TO BENEFITS. If at the time a Change in Control occurs
the Executive is either a Tier I Officer or a Tier II Officer, the Executive
shall be entitled to the benefits provided in Section III hereof upon the
subsequent termination of his employment with the Company (or its successor)
within two (2) years after the occurrence of the Change in Control, unless such
termination is (i) a result of the Executive's death or Retirement, (ii) for
Cause, (iii) a result of the Executive's Disability, or (iv) by the Executive
other than for Good Reason. Such termination of the Executive's employment
which is not as a result of the Executive's death, Retirement or Disability and
(x) if by the Company, is not for Cause, or (y) if by the Executive, is for Good
Reason, shall be referred to hereinafter as a "Termination."
If, within two (2) years after the occurrence of a Change in Control, such
Executive's employment shall be terminated for Cause or by the Executive for
other than Good Reason, the Company shall pay the Executive his full base salary
through the
- 6 -
<PAGE>
Termination Date at the rate in effect at the time Notice of Termination is
given and shall pay any amounts to be paid to the Executive pursuant to any
other compensation plans, programs or employment agreements then in effect, and
the Company shall have no further obligations to the Executive under this
Agreement.
(b) NOTICE OF TERMINATION. Any termination of the Executive's employment,
within two (2) years after the occurrence of a Change in Control, by the Company
or by the Executive, shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific provision of
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(c) POTENTIAL CHANGE IN CONTROL. If, after a Potential Change in Control
has occurred, the Executive's employment with the Company or a Subsidiary
employing the Executive is terminated under circumstances which would constitute
a Termination if a Change in Control had occurred, and such termination was at
the request of a party who has taken steps to effect a Change in Control or who
is otherwise involved in the Potential Change in Control, or was otherwise
caused by the Potential Change in Control, then for all purposes of this
Agreement, (i) a Change in Control shall be deemed to have occurred at the time
such Potential Change in Control occurred, and (ii) such termination shall be
deemed to have been a Termination (if such termination would have constituted a
Termination had it followed an actual Change in Control). Notwithstanding the
foregoing, the two (2) year period described in the first sentence of subsection
II(a) of the Agreement shall not commence upon any such deemed Change in
Control.
III. COMPENSATION UPON TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN
CONTROL.
Upon a Termination of the Executive's employment, the Executive shall be
entitled to the following benefits:
(a) SEVERANCE PAYMENT. The Company shall pay to the Executive as a
severance allowance, no later than the seventh (7th) day following the
Termination Date, a lump sum cash payment equal to the applicable percentage of
the sum of (1) the Executive's Base Salary in effect immediately before the
Change in Control plus (2) the amount of the Standard Award applicable to the
Executive under the BellSouth Corporation Short Term Incentive Plan, or
successor plan ("STIP"), for the Award Year in which the Change in Control
occurs. The "applicable percentage" as used in the preceding sentence shall be
(i) 300%, if immediately before the Change in Control the Executive was a Tier I
Officer and (ii) 200%, if immediately before the Change in Control the Executive
was a Tier II Officer.
For purposes of this Section III, (A) the term "Base Salary" shall
refer to the gross annual base salary payable to the Executive including the
amount of any before-
- 7 -
<PAGE>
tax and after-tax contributions made by the Executive from such salary to or
under any Code Section 125 plan, to or under any Code Section 401(k) plan, such
as the BellSouth Retirement Savings Plan or other plan(s) sponsored by the
Company or an Affiliated Company, or a successor to any such plan, and the
amount of any other deferrals of such salary under any nonqualified deferred
compensation plans or arrangements maintained by the Company or an Affiliated
Company, and (B) the terms "Standard Award" and "Award Year" shall have the
meanings ascribed to such terms under STIP, or comparable terms used in any
successor plan.
(b) SHORT TERM AWARD. The Company shall pay the Executive, no later than
the seventh (7th) day following the Termination Date, a lump sum cash payment
equal to the amount of the Standard Award applicable to the Executive under STIP
for the Award Year in which the Termination occurs, multiplied by the greater of
(i) one hundred percent (100%), or (ii) the percentage which would be payable
under STIP based on actual performance results as of the most recently completed
calendar quarter, in either case pro rated to the Termination Date. Such amount
shall offset (dollar for dollar) any obligation the Company or any Affiliated
Company may have under STIP to the Executive, but the Executive shall in no
event be required to repay any such amount should, for example, it exceed the
amount to which the Executive would otherwise have become entitled under STIP.
(c) LONG TERM AWARD. The Company shall pay to the Executive, no later
than the seventh (7th) day following the Termination Date, a lump sum cash
payment equal to the amount determined by multiplying the number of units
outstanding for the Executive for all performance periods under the BellSouth
Corporation Shareholder Return Cash Plan, or successor plan ("SRCP"), by the
value of all dividends accrued under SRCP to such date and by multiplying such
amount by the greater of (i) one hundred percent (100%), or (ii) the percentage
which would be payable under SRCP based on actual performance results as of the
most recently completed calendar quarter. Such amount shall offset (dollar for
dollar) any obligation the Company or any Affiliated Company may have under SRCP
to the Executive, but the Executive shall in no event be required to repay any
such amount should, for example, it exceed the amount to which the Executive
would otherwise have become entitled under SRCP.
(d) VESTING OF EXECUTIVE BENEFITS. All benefits of the Executive under
nonqualified deferred compensation plans and agreements (including without
limitation the BellSouth Corporation Deferred Compensation Plan, the BellSouth
Corporation Deferred Income Plan, the BellSouth Corporation Compensation
Deferral Plan, and the successors(s) to any such plan(s)), nonqualified
supplemental retirement and excess benefit plans (including without limitation
the BellSouth Corporation Supplemental Executive Retirement Plan and the
nonqualified excess benefit plan described in the BellSouth Personal Retirement
Account Pension Plan, and the successor(s) to any such plan(s)), and life
insurance plans or arrangements available only to executives or senior
management (including without limitation the BellSouth Corporation Executive
Life Insurance Plan and the BellSouth Corporation Senior Manager Life Insurance
Plan, and
- 8 -
<PAGE>
the successor(s) to any such plan(s)), in which the Executive is a participant
or to which the Executive is a party, shall be immediately vested and all
benefits and rights earned or accrued under such plans and agreements through
the Termination Date shall thereafter be nonforfeitable. Without limiting the
generality of the foregoing, all such benefits shall no longer be subject to any
reduction or forfeiture under, for example, any requirement, provision or
restriction in any plan or agreement regarding competition with BellSouth or any
Affiliated Company, recalculation of benefits as a result of changes in the law
(or interpretations thereof), or the continued performance of services to the
Company or Affiliated Companies.
(e) OUTPLACEMENT SERVICES. The Company shall make available to the
Executive, at the Company's expense, outplacement services, the scope and
provider of which shall be selected by the Executive. The maximum amount for
which the Company shall be responsible under this subsection III (e) shall be
(i) $30,000, if immediately before the Change in Control the Executive was a
Tier I Officer and (ii) $20,000, if immediately before the Change in Control the
Executive was a Tier II Officer.
(f) NO MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Section III, nor shall the amount of
any payment or benefit provided for in this Section III be reduced by any
compensation earned by the Executive as the result of employment by another
employer or by retirement or other benefits received after the Termination Date
or otherwise. The Company's obligation to make payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company or any Affiliated Company may have against the
Executive or other parties.
IV. STOCK OPTIONS.
Upon a Change in Control, all nonqualified stock options, incentive stock
options, and stock appreciation rights previously granted to the Executive under
the BellSouth Corporation Stock Option Plan and the BellSouth Corporation Stock
Plan, and any successor plan(s), which are not already vested, shall be vested
and immediately exercisable (subject to the otherwise applicable terms of such
plans and related option agreements).
- 9 -
<PAGE>
V. LEGAL FEES AND EXPENSES.
The Company shall pay to the Executive all legal fees and expenses as and
when incurred by the Executive in contesting or disputing any termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement,
regardless of the outcome, unless in the case of a legal action brought by or in
the name of the Executive, a final determination is made by a court of competent
jurisdiction that such action was not brought by the Executive in good faith.
VI. INTEREST.
If the Company fails to make, or cause to be made, any payment provided for
herein by the date on which the payment is due, the Company shall make such
payment together with interest thereon. The interest shall accrue and be
compounded monthly. The interest rate shall be a per annum rate equal to 120
percent of the prime rate as reported by The Wall Street Journal for the first
business day of each month, effective for the ensuing month. The interest rate
shall be adjusted at the beginning of each month.
VII. GROSS-UP FOR EXCISE TAXES.
(a) GROSS-UP PAYMENTS. In the event that any payment or the value of any
benefit received or to be received by the Executive in connection with the
Executive's Termination or contingent upon a Change in Control, whether received
or to be received pursuant to the terms of this Agreement or of any other plan,
arrangement or agreement (the "Payments"), would be subject to the excise tax
imposed by Code Section 4999 or any comparable federal, state or local excise
tax (such excise taxes, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), as determined as
provided below, the Company shall pay to or for the benefit of the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of the Excise Tax on the Payments and any
federal, state and local income tax and Excise Tax upon the payment provided for
by this Section VII, and any interest, penalties or additions to tax payable by
the Executive with respect thereto, shall be equal to the total value of the
Payments. The intent of the parties is that the Company shall be solely
responsible for and shall pay any Excise Tax on any Payments and the Gross-Up
Payment and any income and employment taxes (including, without limitation,
penalties and interest) imposed on any Gross-Up Payments as well as any loss of
deduction caused by the Gross-Up Payment.
(b) DETERMINATIONS REGARDING GROSS-UP PAYMENTS. All determinations
required to be made under this Section VII, including without limitation whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determinations, shall be
made by tax counsel selected by the Company and reasonably acceptable to the
Executive ("Tax Counsel"). The Company shall instruct the Tax Counsel to timely
provide the data required by this Section VII to the Executive. All fees and
expenses of the Tax Counsel
- 10 -
<PAGE>
shall be paid solely by the Company. Any Excise Tax as determined pursuant to
this subsection VII(b) shall be paid by the Company to the Internal Revenue
Service or other appropriate taxing authority on the Executive's behalf promptly
after receipt of the Tax Counsel's determination. If the Tax Counsel determines
that there is substantial authority, within the meaning of Section 6662 of the
Code (or appropriate authority under any successor provisions), that no Excise
Tax is payable by the Executive, the Tax Counsel shall furnish the Executive
with a written opinion that failure to disclose or report the Excise Tax on the
Executive's federal income tax return will not constitute a substantial
understatement of tax or be reasonably likely to result in the imposition of a
negligence or similar penalty. Any determination by the Tax Counsel shall be
binding upon the Company, absent manifest error.
(c) OVERPAYMENTS, UNDERPAYMENTS. As a result of the uncertainty in the
application of Section 4999 of the Code, at the time of the initial
determination by the Tax Counsel hereunder it is possible that Gross-Up Payments
not made by the Company should have been made ("underpayments"), or that
Gross-Up Payments will have been made by the Company which should not have been
made ("overpayments"). In either such event, the Tax Counsel shall determine
the amount of the underpayment or overpayment that has occurred. In the case of
an underpayment, the amount of such underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the case of an overpayment,
the Executive shall, at the direction and expense of the Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Company, and otherwise reasonably cooperate with the Company to correct such
overpayment; provided, however, that (i) the Executive shall not in any event be
obligated to return to the Company an amount greater than the net after-tax
portion of the overpayment that he has retained or has recovered as a refund
from the applicable taxing authorities and (ii) this provision shall be
interpreted in a manner consistent with the intent of this Section VII, which is
to make the Executive whole, on an after-tax basis, from the application of the
Excise Tax, it being understood that the correction of an overpayment may result
in the Executive repaying to the Company an amount which is less than the
overpayment.
VIII. CONFIDENTIAL INFORMATION.
Executive agrees to protect all Confidential Information. Executive will
not use, except in connection with work for Company or Affiliated Companies,
threaten to use, disclose or threaten to disclose, give or threaten to give to
others any Confidential Information.
IX. SUCCESSORS; ENFORCEMENT; DISPUTE RESOLUTION.
(a) OBLIGATIONS OF SUCCESSORS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or
- 11 -
<PAGE>
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company is required to perform it. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled hereunder if the Executive had terminated employment
for Good Reason following a Change in Control of the Company, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Termination Date. As used in this
Agreement, the "Company" shall mean the Company as hereinabove defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) ENFORCEABLE BY BENEFICIARIES. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees (the "Beneficiaries"). In the event of the death of the
Executive while any amount would still be payable hereunder if such death had
not occurred, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Executive's Beneficiaries.
(c) POOLING OF INTERESTS ACCOUNTING TREATMENT. Notwithstanding anything
to the contrary in this Agreement, if the application of any provision(s) of
this Agreement, or of the Agreement in its entirety, would preclude the use of
pooling of interests accounting treatment with respect to a transaction for
which such treatment otherwise is available and to be adopted by the Company,
this Agreement shall be modified as it applies to such transaction, to the
minimum extent necessary to prevent such impact, including if necessary the
invalidation of such provisions (or the entire Agreement, as the case may be) to
the extent they otherwise would have been triggered by such transaction. If the
pooling of interests accounting rules require modification or invalidation of
one or more provisions of this Agreement as it applies to such transaction, the
adverse impact on the Executive shall, to the extent reasonably possible, be
proportionate to the adverse impact on other similarly situated employees of the
Company. The Board of Directors of the Company shall, in its sole and absolute
discretion, make all determinations necessary under this subsection; provided,
that determinations regarding the application of the pooling of interests
accounting rules for these purposes shall be made by the Company with the
concurrence of the Company's independent auditors at the time such determination
is to be made.
(d) GOVERNING LAW. Except as otherwise expressly provided herein, this
Agreement and the rights and obligations hereunder shall be construed and
enforced in accordance with the laws of the State of Georgia.
(e) DISPUTE RESOLUTION. The parties agree to attempt in good faith to
resolve any controversy or claim arising out of or relating to this Agreement by
mediation in
- 12 -
<PAGE>
accordance with the Center for Public Resources Model Procedure for Mediation of
Business Disputes. If the matter has not been resolved pursuant to the
aforesaid mediation procedure within 60 days of the commencement of such
procedure (which period may be extended by mutual agreement), or if either party
will not participate in a mediation, the controversy shall be settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a sole arbitrator. The
arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction thereof. The place of
arbitration shall be Atlanta, Georgia, unless otherwise agreed upon. The
arbitrator is not empowered to award punitive or other damages that are in
excess of actual, contractual damages.
X. GENERAL PROVISIONS.
(a) TERM OF AGREEMENT. This Agreement shall become effective on the date
hereof and shall continue in effect until the earliest of (a) January 1, 2000,
if no Change in Control or Potential Change in Control has occurred before that
date or, if as of such date a Potential Change in Control shall have occurred,
the earliest date thereafter on which the threat of such Potential Change in
Control becoming a Change in Control is eliminated; (b) the termination of the
Executive's employment with the Company for any reason prior to a Potential
Change in Control; (c) the termination of the Executive's employment with the
Company, other than as described in subsection II(c), prior to a Change in
Control; (d) the Company's termination of the Executive's employment for Cause,
or the Executive's resignation for other than Good Reason, following a Change in
Control. Notwithstanding the foregoing, commencing on January 1, 2000 (or such
later expiration date prescribed by clause (a) of the preceding sentence), and
on the third anniversary of such date, and successive third anniversaries
thereafter, the expiration date prescribed by clause (a) of the preceding
sentence shall automatically be extended for an additional three (3) years
unless, not later than one hundred eighty (180) days prior to the date on which
this Agreement would otherwise automatically be extended, one of the parties
hereto shall have given notice to the other party that it (or he or she) does
not wish to extend the term of this Agreement. Notwithstanding anything to the
contrary in this Agreement, this Agreement shall in no event terminate before
both the Company and the Executive have fulfilled, or have had satisfied, all of
their rights, obligations and liabilities under this Agreement.
(b) AMENDMENT. No amendment or modification to this Agreement shall be
effective unless in writing and signed by both the Company and the Executive.
(c) DISPOSITION OF EMPLOYER. In the event the Executive is employed by a
Subsidiary, the terms of this Agreement shall expire if such Subsidiary is sold
or otherwise disposed of prior to a Change in Control (and in a transaction
which is not a Change in Control) unless the Executive continues in employment
with the Company or a Subsidiary after such sale or other disposition. If the
Company or Subsidiary employing
- 13 -
<PAGE>
the Executive is sold or disposed of following a Change in Control, this
Agreement shall continue through its original term or any extended term then in
effect.
(d) WITHHOLDING. All payments made hereunder shall be reduced by any
applicable federal, state, or local withholding or other taxes or charges as may
be required by applicable law.
(e) NONDUPLICATION. If an Executive who becomes entitled to the benefits
described in Section III shall also be entitled to severance pay or enhanced
benefits, or both, under the terms of a contract or arrangement (other than a
benefit plan or arrangement generally applicable to executives), including
without limitation agreements entered into by the Executive and the Company or a
Participating Company in connection with executive succession planning, the
Executive shall be entitled to the benefits under Section III only if the
Executive waives and relinquishes all rights to all such payments and benefits
under such other contract or arrangement.
(f) NOTICES. All notices provided for in this Agreement shall be in
writing. Notices to the Company shall be deemed given when personally delivered
or sent by certified or registered mail or overnight delivery service to Room
19A01, 1155 Peachtree Street, N.E., Atlanta, Georgia 30309-3610, Attention:
Corporate Secretary. Notices to the Executive shall be deemed given when
personally delivered or sent by certified or registered mail or overnight
delivery service to the last address for the Executive shown on the records of
the Company. Either the Company or the Executive may, by notice to the other,
designate an address other than the foregoing for the receipt of subsequent
notices.
(g) WAIVERS. No waiver of any provision of this Agreement shall be valid
unless approved in writing by the party giving such waiver. No waiver of a
breach under any provision of this Agreement shall be deemed to be a waiver of
such provision or any other provision of this Agreement or any subsequent
breach. No failure on the part of either the Company or the Executive to
exercise, and no delay in exercising, any right or remedy conferred by law or
this Agreement shall operate as a waiver of such right or remedy, and no
exercise or waiver, in whole or in part, of any right or remedy conferred by law
or herein shall operate as a waiver of any other right or remedy.
(h) SEVERABILITY. If any provision of this Agreement shall be held
unlawful or otherwise invalid or unenforceable in whole or in part, such
unlawfulness, invalidity or unenforceability shall not affect any other
provision of this Agreement or part thereof, each of which shall remain in full
force and effect. If the making of any payment or the provision of any other
benefit required under this Agreement shall be held unlawful or otherwise
invalid or unenforceable, such unlawfulness, invalidity or unenforceability
shall not prevent any other payment or benefit from being made or provided under
this Agreement, and if the making of any payment in full or the provision of any
other benefit required under this Agreement in full would be unlawful or
otherwise invalid or unenforceable, then such unlawfulness, invalidity or
unenforceability shall not prevent
- 14 -
<PAGE>
such payment or benefit from being made or provided in part, to the extent that
it would not be unlawful, invalid or unenforceable, and the maximum payment or
benefit that would not be unlawful, invalid or unenforceable shall be made or
provided under this Agreement.
(i) AGENTS. The Company may make arrangements to cause any agent or other
party, including an Affiliated Company, to make any payment or to provide any
benefit that the Company is required to make or to provide hereunder; provided,
that no such arrangement shall relieve or discharge the Company of its
obligations hereunder except to the extent that such payments or benefits are
actually made or provided.
(j) HEADINGS. The headings of the various sections and subsections of
this Agreement are solely for convenience and shall not be relied upon in
construing the provisions of the Agreement. Any reference to a section or
subsection shall refer to a section or subsection of the Agreement unless
specified otherwise.
(k) GENDER AND NUMBER. Any use of gender in this Agreement will be deemed
to include all genders when appropriate, and use of the singular number will be
deemed to include the plural when appropriate, and vice versa in each instance.
(l) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties and no statements, promises or inducements made by any party
hereto, or agents of either party, which are not contained in this Agreement
shall be valid or binding; provided, however, that except as expressly provided
herein the matters dealt with herein supersede previous written agreements
between the parties on the same subject matters only to the extent such previous
provisions are inconsistent with this Agreement and other provisions in written
agreements between the parties not inconsistent with this Agreement are not
affected.
(m) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute a single instrument.
(n) EMPLOYMENT. Except in the event of a Change in Control and,
thereafter, only as specifically set forth in this Agreement, nothing in this
Agreement shall be construed to (i) limit in any way the right of the Company or
a Subsidiary to terminate the Executive's employment at any time for any reason
or for no reason; or (ii) be evidence of any agreement or understanding,
expressed or implied, that the Company or a Subsidiary will employ the Executive
in any particular position, on any particular terms or at any particular rate
remuneration.
- 15 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EXECUTIVE: BELLSOUTH CORPORATION
By:
- ----------------------------------- --------------------------------
Title:
-----------------------------
- 16 -
<PAGE>
EXHIBIT 11
BELLSOUTH CORPORATION
COMPUTATION OF EARNINGS PER SHARE
For the Years Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
Earnings Per Common Share:
Income Before Extraordinary
Losses $ 2,863 $ 1,564 $ 2,160
Extraordinary Loss for
Discontinuance of Statement
of Financial Accounting
Standards No. 71, net of
tax --- (2,718) ---
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax --- (78) ---
------- ------- -------
Net Income(Loss) $ 2,863 $(1,232) $ 2,160
------- ------- -------
------- ------- -------
Weighted average shares
outstanding 994 993 992
------- ------- -------
------- ------- -------
Earnings Per Common Share
Before Extraordinary Losses $ 2.88 $ 1.57 $ 2.18
Extraordinary Loss for
Discontinuance of Statement
of Financial Accounting
Standards No. 71, net of
tax --- (2.73) ---
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax --- (0.08) ---
------- ------- -------
Earnings (Loss) Per Common
Share $ 2.88 $ (1.24) $ 2.18
------- ------- -------
------- ------- -------
<PAGE>
EXHIBIT 11
BELLSOUTH CORPORATION
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Primary Earnings Per Common Share:
Income Before Extraordinary
Losses $ 2,863 $ 1,564 $ 2,160
Extraordinary Loss for
Discontinuance of Statement
of Financial Accounting
Standards No. 71, net of
tax --- (2,718) ---
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax --- (78) ---
------- ------- -------
Net Income(Loss) $ 2,863 $(1,232) $ 2,160
------- ------- -------
------- ------- -------
Weighted average shares
outstanding 994 993 992
Incremental shares from
assumed exercise of stock
options and payment of
performance share awards 2 1 1
------- ------- -------
Total Shares 996 994 993
------- ------- -------
------- ------- -------
Earnings Per Common Share
Before Extraordinary Losses $ 2.87 $ 1.57 $ 2.18
Extraordinary Loss for
Discontinuance of Statement
of Financial Accounting
Standards No. 71, net of
tax --- (2.73) ---
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax --- (0.08) ---
------- ------- -------
Earnings (Loss) Per Common
Share $ 2.87 $ (1.24) $ 2.18
------- ------- -------
------- ------- -------
<PAGE>
EXHIBIT 11
BELLSOUTH CORPORATION
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Fully Diluted Earnings Per Common Share:
Income Before Extraordinary
Losses $ 2,863 $ 1,564 $ 2,160
Extraordinary Loss for
Discontinuance of Statement
of Financial Accounting
Standards No. 71, net of
tax --- (2,718) ---
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax --- (78) ---
------- ------- -------
Net Income(Loss) $ 2,863 $(1,232) $ 2,160
------- ------- -------
------- ------- -------
Weighted average shares
outstanding 994 993 992
Incremental shares from
assumed exercise of stock
options and payment of
performance share awards 2 3 1
------- ------- -------
Total Shares 996 996 993
------- ------- -------
------- ------- -------
Earnings Per Common Share
Before Extraordinary Losses $ 2.87 $ 1.57 $ 2.18
Extraordinary Loss for
Discontinuance of Statement
of Financial Accounting
Standards No. 71, net of
tax --- (2.73) ---
Extraordinary Loss on Early
Extinguishment of Debt, net
of tax --- (0.08) ---
------- ------- -------
Earnings (Loss) Per Common
Share $ 2.87 $ (1.24) $ 2.18
------- ------- -------
------- ------- -------
<PAGE>
EXHIBIT 12
BELLSOUTH CORPORATION
COMPUTATION OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1. Earnings
(a) Income from continuing operations before
deductions for taxes and interest $5,329 $3,312 $4,069 $2,318 $3,354
(b) Portion of rental expense representative of
interest factor 90 84 100 104 104
(c) Equity in losses from less-than-50% owned
investments (accounted for under the equity method of
accounting) 68 163 79 45 23
(d) Excess of earnings over distributions of less-
than-50%-owned investments (accounted for under the
equity method of accounting) (53) (45) (53) (37) (15)
------- -------- -------- -------- --------
TOTAL $5,434 $3,514 $4,195 $2,430 $3,466
------- -------- -------- -------- --------
------- -------- -------- -------- --------
2. Fixed Charges
(a) Interest $739 $745 $686 $712 $761
(b) Portion of rental expense representative of
interest factor 90 84 100 104 104
------- -------- -------- -------- --------
TOTAL $829 $829 $786 $816 $865
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Ratio (1 divided by 2) 6.55 4.24 5.34 2.98 4.00
------- -------- -------- -------- --------
------- -------- -------- -------- --------
</TABLE>
<PAGE>
EXHIBIT 21
BELLSOUTH ORGANIZATION OF COMPANIES
(As of February 1, 1997)
BELLSOUTH CORPORATION AND AFFILIATES
BellSouth Corporation
BellSouth Capital Funding Corporation
BellSouth Corporate Aviation and Travel Services, Inc.
BellSouth D. C., Inc.
BellSouth EC Holdings, Inc.
BellSouth.net Inc.
BellSouth Enterprises, Inc. (See Listing Below For Subsidiaries)
BellSouth Foundation, Inc. (nonprofit)
BellSouth Interactive Media Services, Inc.
BellSouth Media Ventures, Inc.
Corporate Media Partners (a Partnership) (19%)
Prime Enterprises II, L.P. (80% LP)
BellSouth Long Distance Holdings, Inc.
BellSouth Long Distance, Inc.
BellSouth South Florida Merger Subsidiary, Inc.
BellSouth Telecommunications, Inc. (See Listing Below for Subsidiaries)
BellSouth WCA Merger Subsidiary, Inc.
BellSouth Wireless Cable, Inc.
Movicel S.A. (34%)
1155 Peachtree Associates (80%)
BELLSOUTH TELECOMMUNICATIONS, INC. AND AFFILIATES
BellSouth Telecommunications, Inc.
BBS Holdings, Inc.
BellSouth Business Systems, Inc.
BellSouth Communication Systems, Inc.
U.C.S., Inc.*
BellSouth Financial Services Corporation
BellSouth Network Solutions, Inc.
BellSouth Public Communications, Inc.
Chanhassen Holdings, Inc.
BellSouth Mexico Holdings S.A. de C.V.
BellSouth Applied Technologies, Inc.
BellSouth Products, Inc.
<PAGE>
Bell Communications Research Inc. (14.2857%)
Bellcore International, Inc.
Bellcore Ventures, Inc.
Database Service Management, Inc.
Harbinger Corporation (approximately 1.8%)
National Telecommunications Alliance, Inc. (14.2857%)
BELLSOUTH ENTERPRISES, INC. AND AFFILIATES (BY GROUP)
BellSouth Enterprises, Inc.
ADVERTISING AND PUBLISHING GROUP
BellSouth Advertising & Publishing Corporation
Florida 511 (A Partnership)(33 1/3%)
InfoVentures (A Partnership)(50%)
InfoVentures of Atlanta (A Partnership)(50%)
BellSouth Marketing Programs, Inc.*
BellSouth National Publishing Incorporated*
Intelligent Media Ventures, Inc.
L. M. Berry and Company
BellSouth Direct Marketing, Inc.
BellSouth Marketing Services, Inc.
Berry Network, Inc.
Berry-Sprint Publishing, Inc.
ITT World Directories, Inc. (20%)
Stevens Graphics, Inc.
Oxmoor Press, Inc.*
PrintSouth, Inc.*
Ruralist Press, Inc.*
TechSouth, Inc.*
CORPORATE DEVELOPMENT GROUP
BellSouth Ventures Corporation
Marketing Communications Networks, Inc.*
Uniquest Incorporated (approximately 4.2%)
2
<PAGE>
INTERNATIONAL GROUP
BellSouth Asia/Pacific Enterprises, Inc.
BellSouth New Zealand (A Partnership) (64.35% Voting)
Bell Pacific (New Zealand) Limited
BellSouth Rental and Leasing Limited (51%)
BellSouth New Zealand Holdings Limited
BellSouth New Zealand (A Partnership) (.65% Voting)
Bell Pacific (New Zealand) Limited
BellSouth Rental and Leasing Limited (51%)
BSNZ Wireless Holdings Limited
BellSouth New Zealand Limited (65%)
BellSouth New Zealand (A Partnership)
(100%/Pref. Non-Voting)
Bell Pacific (New Zealand) Limited
BellSouth Rental and Leasing Limited (51%)
Optus Communications Pty. Limited (24.5%)
OneTel Pty. Limited (30%)
Optus Administration Pty. Limited
Optus Insurance Services Pty. Limited
Optus Mobile Pty. Limited
Optus Networks Pty. Limited
AUSSAT Finance Limited
AUSSAT New Zealand Limited (1%)
AUSSAT New Zealand Limited (99%)
Optus Rental and Leasing Pty. Limited (51%)
Optus Superannuation Pty. Limited
Optus Systems Pty. Limited
Optus Vision Pty. Limited (46.5%)
SportsVision Australia Pty. Limited (25%)
OSS International Pty. Limited (15%)
BellSouth Australia, Ltd.*
BellSouth Belgium Holdings, Inc.
BellSouth Belgium B.V.
3
<PAGE>
BellSouth Brazil, Inc.
BellSouth Latin American Holdings I, Ltd.
BellSouth Latin American Investments I, Ltd.
BellSouth Latin American Holdings II, Ltd.
BellSouth Latin American Investments II, Ltd.
Bombshell Comercio e Participacoes Ltda. (99%)
BSE S.A. (50%)
Connector Comercio e Participacoes Ltda. (99%)
Telefonia Movel do Sul S.A. (50%)
Controling Comercio e Participacoes Ltda. (99%)
BSB S.A. (50%)
Recep Comercio e Participacoes Ltda. (99%)
Celular Catarinense S.A. (50%)
Santabel Comercio e Participacoes Ltda. (99%)
BCP S.A. (50%)
Waivetel Comercio e Participacoes Ltda. (99%)
Movicom S.A. (50%)
BellSouth Chile, Inc.
BellSouth Chile Holdings, Inc.
BellSouth Inversiones S.A.
BellSouth Chile S.A.
BellSouth Comunicaciones S.A.
Compania de Telecomunicaciones Comtal Limitada (99%)
BellSouth China Holdings, Inc.
BellSouth Colombia, Inc.
Movicom Colombia S.A. (94%)
BellSouth Denmark Capital Finance Limited
BellSouth El Salvador Holdings, Inc.
BellSouth El Salvador Limited
BellSouth Espana, S.A.*
BellSouth German Holdings, LLC (1%)
BellSouth Holding GmbH
E-Plus Mobilfunk GmbH (22.507%)
BellSouth Guatemala Holdings, Inc.
BellSouth International Capital Finance Limited
BSC Guatemala, Sociedad Anonima (31.4%)
BellSouth Holdings, Inc.
BellSouth Worldwide Holdings B.V.
Singapore Technologies Cellular Pte Ltd (25%)
BellSouth India, Inc.
4
<PAGE>
BellSouth International, Inc.
BellSouth China, Inc.
BellSouth International (Asia/Pacific), Inc.
Beijing Ji Tong - BellSouth Communication &
Information Engineering Co., Ltd. (50%)
Skycell Communications Limited (24.5%)
TCIL BellSouth Limited (40%)
BellSouth International Limited
BellSouth International U.K. Trustee Limited
BellSouth Inversora S.A. (0.01%)
B.A. Celular Inversora S.A. (92.34%)
Compania de Radiocomunicaciones Moviles S.A. (65%)
Multitrunking S.A. (99.99%)
Proyecto Trunking S.A. (99.99%)
SEA Trunking S.A. (99.99%)
R.A. Celular Inversora S.A. (51%)
CTM S.A. (65%)
BellSouth Israel, Inc.
BSD Cellular Communications (37.5%)
BSIT International Communications (33.3%)
BellSouth Southern Cone, Inc.
Bombshell Comercio e Participacoes Ltda. (1%)
BSE S.A. (50%)
Connector Comercio e Participacoes Ltda. (1%)
Telefonia Movel do Sul S.A. (50%)
Controling Comercio e Participacoes Ltda. (1%)
BSB S.A. (50%)
5
<PAGE>
GN Store Nord Mobiltelefon 1 A/S (17.24%)
Aktieselskabet af 3. november 1971
Dansk MobilTelefon I/S (15%)
SONOFON GSM Center A/S (15%)
BLS Denmark, Inc.
BLS Denmark Associates (60%)
Dansk MobilTelefon I/S (29%)
SONOFON GSM Center A/S (29%)
BSI Denmark, Inc.
BLS Denmark Associates (40%)
Dansk MobilTelefon I/S (29%)
SONOFON GSM Center A/S (29%)
Det Danske Mobiletelefonkompagni
Dansk MobilTelefon I/S (20%)
SONOFON GSM Center A/S (20%)
GN Store Nord Mobil I/S (21%)
Dansk MobilTelefon I/S (36%)
SONOFON GSM Center A/S (36%)
GN Store Nord Mobiltelefon 2 A/S
GN Store Nord Mobil I/S (15%)
Dansk MobilTelefon I/S (36%)
SONOFON GSM Center A/S (36%
SONOFON A/S
SONOFON Partners A/S
SONOFON Service A/S
PCN One Limited* (50%)
Recep Comercio e Participacoes Ltda. (1%)
Celular Catarinense S.A. (50%)
Santabel Comercio e Participacoes Ltda. (1%)
BCP S.A. (50%)
Waivetel Comercio e Participacoes Ltda. (1%)
Movicom S.A. (50%)
BellSouth Inversora S.A. (99.99%)
B.A. Celular Inversora S.A. (92.34%)
Compania de Radiocomunicaciones Moviles S.A. (65%)
Multitrunking S.A. (99.99%)
Proyecto Trunking S.A. (99.99%)
SEA Trunking S.A. (99.99%)
R.A. Celular Inversora S.A. (51%)
CTM S.A. (65%)
6
<PAGE>
BellSouth Mexico, Inc.
Spectrum Telecomunicaciones, S.A. de C.V. (49%)
BellSouth Mexico, S.A. de C.V.*
BellSouth Mobilfunk GmbH*
BellSouth Netherlands Holdings, Inc.
BellSouth Netherlands B.V.
MobiNed B.V. (30%)*
BellSouth Networks, Inc.
BellSouth German Holdings, LLC (99%)
BellSouth Holding GmbH
E-Plus Mobilfunk GmbH (22.507%)
BellSouth Nicaragua Holdings, Inc.
BellSouth Nicaragua (BVI) Limited
BellSouth Panama Holdings, Inc.
BellSouth Panama Limited
BSC de Panama S.A. (16%)
BSC Cayman General Partnership (50%)
BSC de Panama S.A. (51%)
BellSouth Personal Communications Limited*
BellSouth Peru Holdings, Inc.
BellSouth Peru BVI Limited
Tele 2000, S.A. (58.6967%)
BellSouth Shanghai Centre, Ltd.
BellSouth Venezuela, S.A.
Capco (5%)
Telcel Celular, C.A. (2.47%)
Corporacion 271191, C.A.
Promociones 4222, C.A.
Servicios Telcel Acarigua, C.A.*
Servicios Telcel Barquisimeto, C.A.*
Servicios Telcel C.A.
Servicios Telcel Charallave, C.A.*
Servicios Telcel Ciudad Ojeda, C.A.*
Servicios Telcel Cumana, C.A.*
Servicios Telcel Guarenas, C.A.*
Servicios Telcel La Guaira, C.A.*
Servicios Telcel Los Teques, C.A.*
Servicios Telcel Maracaibo, C.A.*
Servicios Telcel Maracay, C.A.*
Servicios Telcel Margarita, C.A.*
Servicios Telcel Maturin, C.A.*
Servicios Telcel Merida, C.A.*
Servicios Telcel Puerto La Cruz, C.A.*
Servicios Telcel Puerto Ordaz, C.A.*
7
<PAGE>
Servicios Telcel Punto Fijo, C.A.*
Servicios Telcel San Cristobal, C.A.*
Servicios Telcel Valencia, C.A.*
Servicios Telcel Valera, C.A.*
Sistemas Time Trac, C.A. (60%)
Telcel International, C.A.*
Vencorp. (95%)
Telcel Celular, C.A. (9.26%)
Corporacion 271191, C.A.
Promociones 4222, C.A.
Servicios Telcel Acarigua, C.A.*
Servicios Telcel Barquisimeto, C.A.*
Servicios Telcel C.A.
Servicios Telcel Charallave, C.A.*
Servicios Telcel Ciudad Ojeda, C.A.*
Servicios Telcel Cumana, C.A.*
Servicios Telcel Guarenas, C.A.*
Servicios Telcel La Guaira, C.A.*
Servicios Telcel Los Teques, C.A.*
Servicios Telcel Maracaibo, C.A.*
Servicios Telcel Maracay, C.A.*
Servicios Telcel Margarita, C.A.*
Servicios Telcel Maturin, C.A.*
Servicios Telcel Merida, C.A.*
Servicios Telcel Puerto La Cruz, C.A.*
Servicios Telcel Puerto Ordaz, C.A.*
Servicios Telcel Punto Fijo, C.A.*
Servicios Telcel San Cristobal, C.A.*
Servicios Telcel Valencia, C.A.*
Servicios Telcel Valera, C.A.*
Sistemas Time Trac, C.A. (60%)
Telcel International, C.A.*
Capco (95%)
Telcel Celular, C.A. (2.47%)
Corporacion 271191, C.A.
Promociones 4222, C.A.
Servicios Telcel Acarigua, C.A.*
Servicios Telcel Barquisimeto, C.A.*
Servicios Telcel C.A.
Servicios Telcel Charallave, C.A.*
Servicios Telcel Ciudad Ojeda, C.A.*
Servicios Telcel Cumana, C.A.*
Servicios Telcel Guarenas, C.A.*
Servicios Telcel La Guaira, C.A.*
8
<PAGE>
Servicios Telcel Los Teques, C.A.*
Servicios Telcel Maracaibo, C.A.*
Servicios Telcel Maracay, C.A.*
Servicios Telcel Margarita, C.A.*
Servicios Telcel Maturin, C.A.*
Servicios Telcel Merida, C.A.*
Servicios Telcel Puerto La Cruz, C.A.*
Servicios Telcel Puerto Ordaz, C.A.*
Servicios Telcel Punto Fijo, C.A.*
Servicios Telcel San Cristobal, C.A.*
Servicios Telcel Valencia, C.A.*
Servicios Telcel Valera, C.A.*
Sistemas Time Trac, C.A. (60%)
Telcel International, C.A.*
GN Store Nord Mobiltelefon 1 A/S (29.26%)
Aktieselskabet af 3. november 1971
Dansk MobilTelefon I/S (15%)
SONOFON GSM Center A/S (15%)
BLS Denmark, Inc.
BLS Denmark Associates (60%)
Dansk MobilTelefon I/S (29%)
SONOFON GSM Center A/S (29%)
BSI Denmark, Inc.
BLS Denmark Associates (40%)
Dansk MobilTelefon I/S (29%)
SONOFON GSM Center A/S (29%)
Det Danske Mobiletelefonkompagni
Dansk MobilTelefon I/S (20%)
SONOFON GSM Center A/S (20%)
GN Store Nord Mobil I/S (21%)
Dansk MobilTelefon I/S (36%)
SONOFON GSM Center A/S (36%)
GN Store Nord Mobiltelefon 2 A/S
GN Store Nord Mobil I/S (15%)
Dansk MobilTelefon I/S (36%)
SONOFON GSM Center A/S (36%)
SONOFON A/S
SONOFON Partners A/S
SONOFON Service A/S
ROU Celular Inversora S.A. (76.08%)
Abiatar S.A. (46%)
9
<PAGE>
Telcel Celular, C.A. (44%)
Corporacion 271191, C.A.
Promociones 4222, C.A.
Servicios Telcel Acarigua, C.A.*
Servicios Telcel Barquisimeto, C.A.*
Servicios Telcel C.A.
Servicios Telcel Charallave, C.A.*
Servicios Telcel Ciudad Ojeda, C.A.*
Servicios Telcel Cumana, C.A.*
Servicios Telcel Guarenas, C.A.*
Servicios Telcel La Guaira, C.A.*
Servicios Telcel Los Teques, C.A.*
Servicios Telcel Maracaibo, C.A.*
Servicios Telcel Maracay, C.A.*
Servicios Telcel Margarita, C.A.*
Servicios Telcel Maturin, C.A.*
Servicios Telcel Merida, C.A.*
Servicios Telcel Puerto La Cruz, C.A.*
Servicios Telcel Puerto Ordaz, C.A.*
Servicios Telcel Punto Fijo, C.A.*
Servicios Telcel San Cristobal, C.A.*
Servicios Telcel Valencia, C.A.*
Servicios Telcel Valera, C.A.*
Sistemas Time Trac, C.A. (60%)
Telcel International, C.A.*
Vencorp. (5%)
Telcel Celular, C.A. (9.26%)
Corporacion 271191, C.A.
Promociones 4222, C.A.
Servicios Telcel Acarigua, C.A.*
Servicios Telcel Barquisimeto, C.A.*
Servicios Telcel C.A.
Servicios Telcel Charallave, C.A.*
Servicios Telcel Ciudad Ojeda, C.A.*
Servicios Telcel Cumana, C.A.*
Servicios Telcel Guarenas, C.A.*
Servicios Telcel La Guaira, C.A.*
Servicios Telcel Los Teques, C.A.*
Servicios Telcel Maracaibo, C.A.*
Servicios Telcel Maracay, C.A.*
Servicios Telcel Margarita, C.A.*
Servicios Telcel Maturin, C.A.*
Servicios Telcel Merida, C.A.*
Servicios Telcel Puerto La Cruz, C.A.*
10
<PAGE>
Servicios Telcel Puerto Ordaz, C.A.*
Servicios Telcel Punto Fijo, C.A.*
Servicios Telcel San Cristobal, C.A.*
Servicios Telcel Valencia, C.A.*
Servicios Telcel Valera, C.A.*
Sistemas Time Trac, C.A. (60%)
Telcel International, C.A.*
LONG DISTANCE AND VIDEO SERVICES GROUP
See "BellSouth Corporation and Affiliates" for BellSouth Interactive Media
Services, Inc. and BellSouth Long Distance
MOBILE SYSTEMS GROUP
BellSouth Mobile Data, Inc.
Belgium New System L.P. (80% GP)
RAM Mobile Data Belgium, S.C.S. (79.2% LP)
RAM Mobile Data Belgium SC (80%)
RAM Mobile Data Belgium, S.C.S. (1% GP)
BellSouth Mobile Data Services, Inc.
Germany New System L.P. (80% GP)
RAM Mobile Data Network GmbH (95%)
Gfd Gesellschaft fur Datanfunk mbH (6%)
Honolulu Cellular Telephone Company (49%)
Netherlands New System L.P. (80% GP)
RAM Mobile Data C.V. (65.34% LP)
RAM Mobile Data (Netherlands) B. V. (66%)
RAM Mobile Data C.V. (1% GP)
RAM/BSE Communications L.P. (49% GP; 1% LP)
Belgium New System L.P. (20% LP)
RAM Mobile Data Belgium, S.C.S. (79.2% LP)
RAM Mobile Data Belgium SC (80%)
RAM Mobile Data Belgium, S.C.S. (1% GP)
Germany New System L.P. (20% LP)
RAM Mobile Data Network GmbH (95%)
Gfd Gesellschaft fur Datanfunk mbH (6%)
Netherlands New System L.P. (20% LP)
RAM Mobile Data C.V. (65.34% LP)
RAM Mobile Data (Netherlands) B. V. (66%)
RAM Mobile Data C.V. (1% GP)
11
<PAGE>
RAM Communications Consultants of Australia Pty. Ltd.*
RAM Mobile Data Limited (55%)
RAM Mobile Data Network GmbH (1%)
Gfd Gesellschaft fur Datanfunk mbH (6%)
RAM Mobile Data USA Limited Partnership (98%)
RAM Mobile Data Limited (45%)
RAM Mobile Data Network GmbH (4%)
Gfd Gesellschaft fur Datanfunk mbH (6%)
ST Mobile Data Pte. Ltd. (25%)
BellSouth Mobile Systems, Inc.
BellSouth Cellular Corp.
American Cellular Communications Corporation (76.5111%)
ACC of Rockford, Inc.
National Cellular Communications, Inc. (99.99%)
Anniston-Westel Company, Inc.
Gulf Coast Cellular Telephone Company
(A Partnership)(98.6827%)
Atlanta-Athens MSA Limited Partnership (99.9%)
Bakersfield Holdings, Inc.
Bakersfield Cellular Telephone Company
Charisma Communications Corp. of the Southwest (50%)
Houston Mobile Cellular Communications Company
(A Partnership)(16%)
Houston Cellular Telephone Company
(A Partnership)(75%)
Galveston Mobile Corporation
Galveston Cellular Partnership (11.0377%)
Galveston Cellular Telephone Company
Galveston Mobile Partnership (43.75%)
Galveston Cellular Partnership (57.1904%)
Galveston Cellular Telephone Company
Gary Cellular Corporation
Gary Cellular Telephone Company
(A Partnership)(33%)
Georgia Cellular Holdings, Inc.
Atlanta-Athens MSA Limited Partnership (.1%)
Hawaii Cellular Corporation
Honolulu Cellular Telephone Company (A
Partnership)(51%)
12
<PAGE>
Houston Cellular Corporation
Cellular Systems (A Partnership)(50%)
Houston Cellular Telephone Company
(A Partnership)(12.5%)
Houston Mobile Cellular Communications Company
(A Partnership)(42%)
Houston Cellular Telephone Company
(A Partnership)(75%)
Indiana Cellular Corporation
Jackson Holdings, Inc.
Jackson Acquisitions Corp. (94%)
Jackson Cellular Corporation
MCTA (A Partnership)(50.1%)
Los Angeles RCCs, Inc. (85%)
Los Angeles Cellular Corporation (51%)
Los Angeles Cellular Telephone Company
(A Partnership)(65%)
San Juan Cellular Corporation*
Westel-Indianapolis Company
Bloomington Cellular Telephone Company
(A Partnership)(94.184889%)
Kokomo Celltelco Partnership
(A Partnership)(9.041%)
Muncie Cellular Telephone Company, Inc.
(93.1005%)
Terre-Haute Cellular Telephone Company, Inc. (92.8548%)
Westel-Los Angeles Company
Los Angeles Cellular Corporation (49%)
Los Angeles Cellular Telephone Company (A
Partnership)(65%)
13
<PAGE>
Westel-Milwaukee Company, Inc.
Green Bay CellTelCo (A Partnership)(99.01%)
Janesville Cellular Telephone Company, Inc. (80.5368%)
Madison Cellular Telephone Company
(A Partnership)(92.5%)
Racine Cellular Telephone Company
(A Partnership)(89.3707%)
Sheboygan Cellular Telephone Company, Inc. (86.6611%)
Westel Richmond, Inc.
RCTC Wholesale Company (A Partnership)(72.73%)
RCTC Wholesale Corporation
Richmond Cellular Telephone Company
BellSouth Cellular National Marketing, Inc.
BellSouth Mobility Inc
Acadiana Cellular General Partnership
(RSA's No. 5 & 6) (35%)
Alabama Cellular Service, Inc.
Huntsville MSA Limited Partnership (50%)
American Cellular Communications Corporation (23.4889%)
Atlanta-Athens MSA Limited Partnership (99.9%)
Georgia Cellular Holdings, Inc.
Atlanta-Athens MSA Limited Partnership (.1%)
BellSouth Holdings B.V.
Centweight B.V. (49%)
Tele-Man Ltd. (46.33%)
CellCom Israel Ltd. (75%)
Tele-Man Netherlands B.V. (50%)
Dolphin International Communications
(1996) Ltd. (52.3%)
BellSouth Mobility Communications, Inc.
B-Side Carriers L.P. (13.263% LP)
B-Side L.L.C. (12.618%)
B-Side Carriers L.P. (.268% GP)
Cellular Radio of Chattanooga (A Partnership)(25%)
Chattanooga MSA Limited Partnership (29.54%)
Centel Cellular Company of Tallahassee (10%)
Century Cellunet of North Louisiana Cellular
Limited Partnership (9%)
14
<PAGE>
Chattanooga CGSA, Inc.
Chattanooga MSA Limited Partnership (55.31%)
Decatur RSA Limited Partnership (80%)
Florida Cellular Service, Inc.
Jacksonville MSA Limited Partnership (85.76%)
Florida RSA #2B (Indian River) Limited Partnership (71.5%)
Georgia RSA No. 1 Limited Partnership (40%)
Georgia RSA No. 2 Limited Partnership (45.92%)
Georgia RSA No. 3 Limited Partnership (75%)
Jackson Acquisitions Corp. (6%)
Jackson Cellular Corporation
MCTA (A Partnership)(50.1%)
Kentucky CGSA, Inc.
Louisiana CGSA, Inc.
Baton Rouge MSA Limited Partnership (48%)
Lafayette MSA Limited Partnership (51%)
Louisiana RSA No. 7 Cellular General Partnership (66.7%)
Louisiana RSA No. 8 Limited Partnership (50%)
Memphis CGSA, Inc.
Memphis SMSA Limited Partnership (75%)
Tennessee RSA Holdings Limited Partnership (75.5%)
Tennessee RSA Limited Partnership (75%)
M-T Cellular, Inc.
Nashville/Clarksville CGSA, Inc.
Nashville/Clarksville MSA Limited Partnership (51%)
Northeastern Georgia RSA Limited Partnership (35%)
Northeast Mississippi Cellular, Inc.
Orlando CGSA, Inc.
Orlando SMSA Limited Partnership (85%)
South Carolina Cellular Service, Inc.
ALLTEL Cellular Associates of South Carolina
Limited Partnership (47%)
Chattanooga MSA Limited Partnership (15.15% LP)
MCTA (49.9%)
Pittsburgh SMSA Limited Partnership (3.6% LP)
Telcell S.A. (50%)
Cellular Mobile Services of Indiana, Inc.
15
<PAGE>
BellSouth Properties (U.K.)(1%)
BellSouth Wireless, Inc.
BellSouth Limited*
BellSouth Properties (U.K.)(99%)
Dataserv Espana, S.A.*
BellSouth Personal Communications, Inc.
BellSouth Carolinas PCS, L.P. (55.765% GP)
Cook Inlet BellSouth PCS, L.P. (49.9% LP)
CORPORATE ENTERPRISES GROUP
BellSouth Information Systems, Inc. (BIS)
BellSouth Resources, Inc.
DFINS, Inc.
Sunlink Corporation
CSL Associates (70%)
CSL Chastain Associates (70%)
CSL Colonnade Associates (70%)
CSL Exchange South Associates (70%)
CSL Twelfth Street Associates (70%)
CSL Western Way Associates (70%)
- ------------------
* Indicates an Inactive Company and/or the name of a company to which BellSouth
Enterprises, Inc. has a contractual right.
Unless indicated otherwise, each subsidiary is owned 100% by its parent company.
16
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, each of the undersigned hereby constitutes and appoints F.
Duane Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and
each of them, as attorneys for him in his name, place and stead in his
capacities in the Company to execute and cause to be filed the said Annual
Report and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand on the
date indicated.
<TABLE>
<S> <C>
/s/ F. DUANE ACKERMAN 2/24/97
- ------------------------------------ ------------------------------------
F. Duane Ackerman Date
President and Chief Executive
Officer
Director
(Principal Executive Officer)
/s/ RONALD M. DYKES 2/25/97
- ------------------------------------ ------------------------------------
Ronald M. Dykes Date
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ W. PATRICK SHANNON 2/26/97
- ------------------------------------ ------------------------------------
W. Patrick Shannon Date
Vice President and Controller
(Principal Accounting Officer)
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacitiy as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ REUBEN V. ANDERSON
- ------------------------------------
REUBEN V. ANDERSON
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ JAMES H. BLANCHARD
- ------------------------------------
JAMES H. BLANCHARD
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ J. HYATT BROWN
- ------------------------------------
J. HYATT BROWN
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ JOHN L. CLENDENIN
- ------------------------------------
JOHN L. CLENDENIN
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ ARMANDO M. CODINA
- ------------------------------------
ARMANDO M. CODINA
DIRECTOR
2/25/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ MARSHALL M. CRISER
- ------------------------------------
MARSHALL M. CRISER
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for her in her name, place and stead in of her capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as she might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand on the date
indicated.
/s/ PHYLLIS BURKE DAVIS
- ------------------------------------
PHYLLIS BURKE DAVIS
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ JOHN G. MEDLIN, JR.
- ------------------------------------
JOHN G. MEDLIN, JR.
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for her in her name, place and stead in her capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as she might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand on the date
indicated.
/s/ ROBIN B. SMITH
- ------------------------------------
ROBIN B. SMITH
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ C. DIXON SPANGLER, JR.
- ------------------------------------
C. DIXON SPANGLER, JR.
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ RONALD A. TERRY
- ------------------------------------
RONALD A. TERRY
DIRECTOR
2/24/97
- ------------------------------------
DATE
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, BELLSOUTH CORPORATION, a Georgia corporation (the "Company"),
proposes to file with the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for
the year ended December 31, 1996.
NOW THEREFORE, the undersigned hereby constitutes and appoints F. Duane
Ackerman, Ronald M. Dykes, W. Patrick Shannon and Arlen G. Yokley, and each of
them, as attorneys for him in his name, place and stead in his capacity as a
Director of the Company to execute and cause to be filed the said Annual Report
and to execute and cause to be filed any amendment or supplement thereto
(including any Form 11-K) deemed by them to be necessary or desirable, hereby
giving and granting to said attorneys full power and authority (including
substitution and revocation) to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated.
/s/ THOMAS R. WILLIAMS
- ------------------------------------
THOMAS R. WILLIAMS
DIRECTOR
2/24/97
- ------------------------------------
DATE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,178
<SECURITIES> 51
<RECEIVABLES> 4,267
<ALLOWANCES> 180
<INVENTORY> 451
<CURRENT-ASSETS> 6,298
<PP&E> 50,059
<DEPRECIATION> 28,234
<TOTAL-ASSETS> 32,568
<CURRENT-LIABILITIES> 6,441
<BONDS> 8,116
0
0
<COMMON> 1,009
<OTHER-SE> 12,240
<TOTAL-LIABILITY-AND-EQUITY> 32,568
<SALES> 436
<TOTAL-REVENUES> 19,040
<CGS> 769
<TOTAL-COSTS> 9,791
<OTHER-EXPENSES> 4,470
<LOSS-PROVISION> 254
<INTEREST-EXPENSE> 721
<INCOME-PRETAX> 4,608
<INCOME-TAX> 1,745
<INCOME-CONTINUING> 2,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,863
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.87
</TABLE>
