SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8607
BELLSOUTH CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-1533433
(State of Incorporation) (I.R.S. Employer
Identification Number)
1155 Peachtree Street, N. E., 30309-3610
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number 404 249-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
At April 30, 1999, 1,894,062,053 common shares were outstanding.
<PAGE>
Table of Contents
Item Page
Part I
1. Financial Statements
Consolidated Statements of Income ........................ 3
Consolidated Balance Sheets .............................. 4
Consolidated Statements of Cash Flows .................... 5
Consolidated Statements of Shareholders' Equity
and Comprehensive Income .............................. 6
Notes to Consolidated Financial Statements ............... 8
2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ....................... 13
3. Qualitative and Quantitative Disclosures about Market Risk .. 25
Part II
6. Exhibits and Reports on Form 8-K ............................ 27
<PAGE>
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Millions, Except Per Share Amounts)
For the Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Operating Revenues:
Wireline communications:
Local service ..................................... $2,654 $2,414
Network access .................................... 1,191 1,151
Long distance ..................................... 150 175
Other wireline .................................... 280 236
Total wireline communications ................... 4,275 3,976
Domestic wireless .................................... 744 644
International operations ............................. 561 452
Advertising and publishing ........................... 343 336
Other ................................................ 50 18
Total Operating Revenues........................... 5,973 5,426
Operating Expenses:
Operational and support expenses ..................... 3,253 2,929
Depreciation and amortization ........................ 1,113 1,043
Total Operating Expenses ........................... 4,366 3,972
Operating Income ........................................ 1,607 1,454
Interest Expense ........................................ 226 190
Gain on Sale of Operations .............................. -- 155
Net Equity in Earnings (Losses) of
Unconsolidated Businesses ............................ (266) 11
Other Income, net ....................................... 59 17
Income Before Income Taxes .............................. 1,174 1,447
Provision for Income Taxes .............................. 559 555
Net Income ......................................... $ 615 $ 892
Weighted-Average Common Shares
Outstanding (Note C):
Basic ................................................ 1,932 1,983
Diluted .............................................. 1,951 1,993
Dividends Declared Per Common Share ..................... $ .19 $ .18
Earnings Per Share:
Basic ................................................ $ .32 $ .45
Diluted .............................................. $ .32 $ .45
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Per Share Amounts)
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................................ $1,779 $ 3,003
Temporary cash investments ............................................................... 209 184
Accounts receivable, net of allowance for uncollectibles of $246 and $251 ................ 4,450 4,629
Material and supplies .................................................................... 426 431
Other current assets ..................................................................... 526 459
Total Current Assets ................................................................... 7,390 8,706
Investments and Advances .................................................................. 2,515 2,861
Property, Plant and Equipment ............................................................. 58,944 57,974
Less: accumulated depreciation ............................................................ 34,874 34,034
Property, Plant and Equipment, net ..................................................... 24,070 23,940
Deferred Charges and Other Assets ......................................................... 1,066 1,028
Intangible Assets, net .................................................................... 3,134 2,875
Total Assets .............................................................................. $38,175 $39,410
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Debt maturing within one year ............................................................ $4,570 $3,454
Accounts payable ......................................................................... 1,492 2,219
Other current liabilities ................................................................ 3,863 3,477
Total Current Liabilities .............................................................. 9,925 9,150
Long-Term Debt ............................................................................ 8,406 8,715
Noncurrent Liabilities:
Deferred income taxes .................................................................... 2,656 2,512
Unamortized investment tax credits ....................................................... 157 167
Other noncurrent liabilities ............................................................ 2,629 2,756
Total Noncurrent Liabilities ........................................................... 5,442 5,435
Shareholders' Equity:
Common stock, $1 par value (4,400 shares authorized; 1,907 and 1,950
shares outstanding) ................................................................... 2,020 2,020
Paid-in capital .......................................................................... 6,766 6,766
Retained earnings ........................................................................ 9,718 9,479
Accumulated other comprehensive income ................................................... (222) (64)
Shares held in trust and treasury ........................................................ (3,577) (1,752)
Guarantee of ESOP debt.................................................................... (303) (339)
Total Shareholders' Equity ............................................................. 14,402 16,110
Total Liabilities and Shareholders' Equity ................................................ $38,175 $39,410
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
For the Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ...................................................................... $ 615 $ 892
Adjustments to net income:
Depreciation and amortization ............................................... 1,113 1,043
Gain on sale of operations .................................................. -- (155)
Net equity in losses (earnings) of unconsolidated businesses ............... 266 (11)
Provision for uncollectibles ................................................ 84 76
Deferred income taxes and unamortized investment tax credits ................ 104 (16)
Dividends received from unconsolidated businesses............................ 14 48
Net change in:
Accounts receivable and other current assets ................................ (11) 88
Accounts payable and other current liabilities .............................. (308) 30
Deferred charges and other assets ........................................... (128) (9)
Other liabilities and deferred credits ...................................... (113) 46
Other reconciling items, net .................................................... 6 24
Net cash provided by operating activities ................................... 1,642 2,056
Cash Flows from Investing Activities:
Capital expenditures ............................................................ (1,387) (1,226)
Purchases of licenses and other intangible assets ............................... (38) (105)
Proceeds from sale of operations ................................................ -- 155
Proceeds from disposition of short-term investments ............................. 181 19
Purchases of short-term investments ............................................. (205) (11)
Investments in and advances to unconsolidated businesses ........................ (55) (483)
Proceeds from repayment of loans and advances.................................... 15 1
Other investing activities, net ................................................. 11 57
Net cash used for investing activities ...................................... (1,478) (1,593)
Cash Flows from Financing Activities:
Net borrowings (repayments) of short-term debt .................................. 982 (499)
Proceeds from long-term debt .................................................... 6 231
Repayments of long-term debt .................................................... (181) (199)
Dividends paid .................................................................. (371) (357)
Purchase of treasury shares ..................................................... (1,841) (80)
Other financing activities, net ................................................. 17 (9)
Net cash used for financing activities ...................................... (1,388) (913)
Net Decrease in Cash and Cash Equivalents ........................................ (1,224) (450)
Cash and Cash Equivalents at Beginning of Period ................................. 3,003 2,570
Cash and Cash Equivalents at End of Period ....................................... $1,779 $ 2,120
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
(In Millions)
For the Three Months Ended March 31, 1999
Number of Shares Amount
------------------------ --------------------------------------------------------------------------
Accum.
Shares Other Shares Guarantee
Held In Compre- Held In of ESOP
Common Trust and Common Paid-in Retained hensive Trust and Debt
Stock Treasury Stock Capital Earnings Income Treasury Total
(a) (a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1998 ................ 2,020 (70) $2,020 $6,766 $9,479 $(64) $(1,752) $(339) $16,110
Net income ................. 615 615
Other comprehensive income, net of tax:
Foreign currency
translation adjustment .. (158) (158)
Total comprehensive income . 457
Dividends declared ......... (369) (369)
Share issuances for
employee benefit plans ... (10) 20 10
Purchase of treasury
stock .................... (43) (1,841) (1,841)
Purchase of stock by
grantor trust ............ (4) (4)
ESOP activities and
related tax benefit ...... 3 36 39
----- ---- ------ ------ ------ --- ------ ------ -------
Balance at March 31, 1999 .. 2,020 (113) $2,020 $6,766 $9,718 $(222) $(3,577) $(303) $14,402
</TABLE>
(a) Trust and treasury shares are not considered to be outstanding for
financial reporting purposes. As of March 31, 1999, there were approximately
35.7 shares held in trust and 76.9 shares held in treasury.
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
(In Millions)
For the Three Months Ended March 31, 1998
Number of Shares Amount
------------------------ --------------------------------------------------------------------------
Accum.
Shares Other Shares Guarantee
Held In Compre- Held In of ESOP
Common Trust and Common Paid-in Retained hensive Trust and Debt
Stock Treasury Stock Capital Earnings Income Treasury Total
(a) (a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1997 .................. 1,010 (18) $1,010 $7,714 $7,382 $ 36 $(575) $(402) $15,165
Net income .................. 892 892
Other comprehensive income, net of tax:
Foreign currency
translation adjustment .. 4 4
Total comprehensive income .. 896
Dividends declared .......... (357) (357)
Share issuances for
employee benefit plans .... (13) 32 19
Acquisition-related
transactions .............. 1 5 33 38
Purchase of treasury
stock ..................... (2) (80) (80)
Purchase of stock
by grantor trust .......... (24) (24)
ESOP activities and
related tax benefit ....... 2 33 35
----- ---- -------- -------- ------ --- ------ ------ -------
Balance at March 31, 1998 ... 1,010 (19) $1,010 $7,706 $7,919 $40 $(614) $(369) $15,692
</TABLE>
(a) Trust and treasury shares are not considered to be outstanding for
financial reporting purposes. As of March 31, 1998, there were approximately
17.6 shares held in trust and 1.6 shares held in treasury.
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars In Millions)
Note A - Preparation of Interim Financial Statements
In this report, BellSouth Corporation and its subsidiaries are referred to
as "we" or "BellSouth."
The accompanying unaudited consolidated financial statements have been
prepared based upon Securities and Exchange Commission rules that permit reduced
disclosure for interim periods. In our opinion, these statements include all
adjustments necessary for a fair presentation of the results of the interim
periods shown. All adjustments are of a normal recurring nature unless otherwise
disclosed. Revenues, expenses, assets and liabilities can vary during each
quarter of the year. Therefore, the results and trends in these interim
financial statements may not be the same as those for the full year. For a more
complete discussion of our significant accounting policies and other
information, you should read this report in conjunction with the consolidated
financial statements included in our latest annual report on Form 10-K.
Certain amounts have been reclassified within the prior year's information
to conform to the current year's presentation.
Note B - New Accounting Pronouncements
In the first quarter of 1999, we adopted a new accounting standard (SOP
98-1) related to the capitalization of certain costs for internal-use software
development. Adoption of the new standard resulted in an increase in earnings as
a result of the capitalization of costs which had previously been expensed. The
first quarter impact was an increase in income before income taxes of $108 and
net income of $65 or $.03 per share. The adoption also changed the
classification of these expenditures in the consolidated statements of cash
flows from operating to investing activities.
Note C - Earnings Per Share
Prior period amounts related to weighted-average common shares and
dividends declared per common share have been adjusted for the two-for-one-stock
split which occurred in December 1998. The following is a reconciliation of the
weighted-average share amounts (in millions) used in calculating earnings per
share:
For the Three Months
Ended March 31,
1999 1998
Basic common shares outstanding ........ 1,932 1,983
Incremental shares from stock options .. 19 10
Diluted common shares outstanding ...... 1,951 1,993
The earnings amounts used for per share calculations are the same for both
the basic and diluted methods.
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars In Millions)
Note D - Segment Information
We have four reportable operating segments: (1) Wireline communications;
(2) Domestic wireless; (3) International operations; and (4) Advertising and
publishing. We have included the operations of all other businesses falling
below the reporting threshold in the "Other" segment. The "reconciling items"
shown below include Corporate Headquarters and capital funding activities,
intercompany eliminations and other nonoperating items. The following table
provides information for each operating segment:
First Quarter %
1999 1998 Change
Wireline communications
External revenues ....................... $ 4,275 $ 3,976 7.5
Intersegment revenues ................... 48 44 9.1
Total revenues ........................ $ 4,323 $ 4,020 7.5
Operating income ........................ $ 1,413 $ 1,223 15.5
Segment net income ...................... $ 801 $ 683 17.3
Domestic wireless
External revenues ....................... $ 744 $ 644 15.5
Intersegment revenues ................... 4 2 N/M*
Total revenues ........................ $ 748 $ 646 15.8
Operating income ........................ $ 87 $ 91 (4.4)
Net equity in earnings (losses) of
unconsolidated businesses ............ $ 31 $ 35 (11.4)
Segment net income ...................... $ 60 $ 69 (13.0)
International operations
External revenues ....................... $ 561 $ 452 24.1
Intersegment revenues ................... -- -- --
Total revenues ........................ $ 561 $ 452 24.1
Operating income ........................ $ 51 $ 51 --
Net equity in earnings (losses) of
unconsolidated businesses ............ $ (13) $ (21) 38.1
Segment net loss ........................ $ (20) $ (5) N/M
Advertising and publishing
External revenues ....................... $ 343 $ 336 2.1
Intersegment revenues ................... 3 2 N/M
Total revenues ........................ $ 346 $ 338 2.4
Operating income ........................ $ 140 $ 137 2.2
Net equity in earnings (losses) of
unconsolidated businesses ............ $ (1) $ -- N/M
Segment net income ...................... $ 84 $ 86 (2.3)
* Not Meaningful
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars In Millions)
Note D - Segment Information (continued)
First Quarter %
1999 1998 Change
Other
External revenues ........................... $ 50 $ 18 N/M
Intersegment revenues ....................... 70 54 29.6
Total revenues ............................ $ 120 $ 72 66.7
Operating loss .............................. $ (84) $ (64) (31.3)
Net equity in earnings (losses) of
unconsolidated businesses ................ $ 1 $ (3) N/M
Segment net loss ............................ $ (57) $ (40) (42.5)
Reconciling items
External revenues ........................... $ -- $ -- N/M
Intersegment revenues ....................... (125) (102) (22.5)
Total revenues ............................ $(125) $(102) (22.5)
Operating income ............................ $ -- $ 11 N/M
Net equity in earnings (losses) of
unconsolidated businesses
(Note E) .................................. $(284) $ -- N/M
Segment net (loss) income ................... $(253) $ 99 N/M
Note E - Devaluation of Brazilian Currency
We hold equity interests in two wireless communications operations in
Brazil. During January 1999, the government of Brazil allowed its currency to
trade freely against other currencies. As a result, the Brazilian Real
experienced a devaluation against the US Dollar. The devaluation resulted in the
entities recording exchange losses related to their net US Dollar-denominated
liabilities. Our share of the foreign exchange rate losses for the first quarter
was $280.
These exchange losses are subject to further upward or downward adjustment
based on fluctuations in the exchange rates between the US Dollar and the
Brazilian Real.
Note F - Gain on Sale of Operations
In 1997, we sold our 20% interest in ITT World Directories (ITTWD) to ITT
Corporation (ITT). The sale agreement contained provisions that called for
additional sales proceeds to be paid to us in the event that ITT subsequently
resold ITTWD above a certain price. As a result of ITT's subsequent sale of
ITTWD, we received additional proceeds that resulted in a pretax gain of $155
($96 after tax) in the first quarter of 1998.
Note G - Lease of Communications Towers
In March 1999, we signed a preliminary agreement with Crown Castle
International, Inc. (Crown) for the lease of approximately 1,850 of our wireless
communications towers in exchange for $610, to be paid in a combination of cash
and Crown common stock. We will retain, outside of the leases, a portion of the
towers for use in operating our wireless network. Under the definitive
agreement, Crown will manage, maintain and remarket the remaining space on the
towers. In addition, we agreed to enter into a five-year, build-to-suit
agreement with Crown covering up to 500 towers.
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars In Millions)
Note H - Supplemental Cash Flow Information
For the Three Months
Ended March 31,
1999 1998
Cash Paid For:
Income taxes ............................ $ 57 $ 45
Interest ................................ $159 $149
Note I - Summary Financial Information for Equity Investees
The following table displays the summary unaudited financial information
for our equity method businesses. These amounts are shown on a 100 percent
basis.
For the Three Months
Ended March 31, %
1999 1998 Change
Revenues ......................... $ 1,210 $ 715 69.2
Operating income .................. $ 33 $ (31) N/M
Net loss .......................... $ (938) $ (6) N/M
Note J - Contingencies
Following the enactment of the Telecommunications Act of 1996, our
telephone company subsidiary, BellSouth Telecommunications, Inc. (BST), entered
into interconnection agreements with various competitive local exchange carriers
(CLECs). These agreements provide for, among other things, the payment of
reciprocal compensation for local calls initiated by the customers of one
carrier that are completed on the network of the other carrier. Numerous CLECs
have claimed entitlement from BST for compensation associated with dial-up calls
originating on BST's network and connecting with Internet service providers
(ISPs) served by the CLECs' networks. It is BST's position that dial-up calls to
ISPs are not local calls for which terminating compensation is due under the
interconnection agreements. The courts and state commissions that have
considered the matter to date, however, have ruled that such calls invoke the
reciprocal compensation obligation.
In February 1999, the Federal Communications Commission (FCC) issued a
decision that such ISP traffic does not terminate at the ISP and, therefore, is
interstate in nature, rather than local. The FCC stated further that it would
not interfere with prior state commissions' decisions regarding this matter. We
continue to believe that we have a good basis for our claims that BST does not
owe such reciprocal compensation to the CLECs. BST has, however, received an
unfavorable ruling before a state commission subsequent to the FCC's decision.
BST has appealed this decision like those released prior to the FCC's order.
At March 31, 1999, our exposure related to these disputed claims was
approximately $240, including accrued interest.
<PAGE>
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollars In Millions)
Note K - Subsequent Events
Qwest agreement. During April 1999, we announced a new business agreement
with Qwest Communications International Inc. (Qwest). As part of this agreement,
and subject to customary regulatory approvals, we would purchase a ten percent
ownership interest in Qwest for approximately $3.5 billion. We expect the
purchase to be completed during second quarter 1999.
South Carolina. In 1994, the South Carolina General Assembly adopted a
statute which gave the South Carolina Public Service Commission (SCPSC) the
authority to regulate telephone utilities by alternative regulation. In January
1996, the SCPSC issued an order approving BST's price regulation plan. In April
1999, the South Carolina Supreme Court ruled that the SCPSC's approval of BST's
price regulation plan did not meet the statutory requirements. BST has filed a
petition for rehearing with the Court.
<PAGE>
BELLSOUTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in Millions, Except Per Share Amounts)
For a more complete understanding of our industry, the drivers of our
business, and our current period results, you should read the following
Management's Discussion and Analysis of Results of Operations and Financial
Condition (MD&A) in conjunction with the MD&A in our latest annual report on
Form 10-K.
- --------------------------------------------------------------------------------
Consolidated Results of Operations
- --------------------------------------------------------------------------------
Key financial and operating data for the first quarter of 1999 and 1998 are
as follows:
---------------------- ----------
First Quarter %
----------------------
1999 1998 Change
---------- ----------- ----------
Revenues $ 5,973 $ 5,426 10.1
- ---------------------------------------------------- ----------- ----------
Expenses $ 4,366 $ 3,972 9.9
- ---------------------------------------------------- ----------- ----------
EBITDA(a) $ 2,720 $ 2,497 8.9
- ---------------------------------------------------- ----------- ----------
EBITDA margin 45.5% 46.0% -50bps
- ---------------------------------------------------- ----------- ----------
Access line counts (000's):
- ---------------------------------------------------- ----------- ----------
Switched access lines 24,361 23,548 3.5
- ---------------------------------------------------- ----------- ----------
Access line equivalents 16,065 11,537 39.2
- ---------------------------------------------------- ----------- ----------
Total equivalent access lines 40,426 35,085 15.2
- ---------------------------------------------------- ----------- ----------
Digital and data revenues $ 555 $426 30.3
- ---------------------------------------------------- ----------- ----------
Convenience feature revenues $ 434 $357 21.6
- ---------------------------------------------------- ----------- ----------
Access minutes of use (millions) 26,825 25,082 6.9
- ---------------------------------------------------- ----------- ----------
Proportionate wireless customers (000's):
- ---------------------------------------------------- ----------- ----------
Domestic(b) 5,005 4,185 19.6
- ---------------------------------------------------- ----------- ----------
International(c) 4,012 2,031 97.5
- ---------------------------------------------------- ----------- ----------
(a) EBITDA represents income before net interest expense, income taxes,
depreciation and amortization, net equity in earnings (losses) of unconsolidated
businesses and other income, net. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to analyze
and compare companies on the basis of operating performance and because our
management believes that EBITDA is an additional meaningful measure of
performance and liquidity. EBITDA is not intended to present cash flows for the
period, nor has it been presented as an alternative to operating income (loss)
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles. The items excluded from the
calculation of EBITDA are significant components in understanding and assessing
our financial performance. Our computation of EBITDA may not be comparable to
the computation of similarly titled measures of other companies. EBITDA does not
represent funds available for discretionary uses.
(b) During fourth quarter 1998, we reorganized our Los Angeles and
Houston/Galveston cellular partnerships with AT&T. We have restated 1998
domestic wireless customers to reflect this reorganization and provide a more
meaningful presentation of existing properties.
(c) During fourth quarter 1998, we sold our interest in BellSouth New
Zealand. We have restated 1998 international wireless customers to exclude the
customers of BellSouth New Zealand and provide a more meaningful presentation of
existing operations.
- -------------------------------------------------------------------------------
Overview
- -------------------------------------------------------------------------------
Net income and earnings per share for the first quarter of 1999 and 1998
are as follows (all references to earnings per share are on a diluted basis):
----------------------- -----------
First Quarter %
-----------------------
1999 1998 Change
----------- ----------- -----------
As Reported:
- ------------------------------------------- ----------- ----------- -----------
Net income $ 615 $ 892 (31.1)
- ------------------------------------------- ----------- ----------- -----------
Earnings per share $ .32 $ .45 (28.9)
- ------------------------------------------- ----------- ----------- -----------
Normalized:
- ------------------------------------------- ----------- ----------- -----------
Net income $ 895 $ 796 12.4
- ------------------------------------------- ----------- ----------- -----------
Earnings per share $ .46 $ .40 15.0
- ------------------------------------------- ----------- ----------- -----------
<PAGE>
First quarter 1999 reported results were greatly affected by the impacts of
the devaluation of the Brazilian Real in early January 1999. Our share of the
foreign exchange losses in our Brazilian wireless properties reduced net income
for the quarter by $280 or $.14 per share (included in Net Equity in Earnings
(Losses) of Unconsolidated Businesses). The quarter-over-quarter comparison is
also impacted by the first quarter 1998 gain related to the sale of our
investment in ITT World Directories of $96 or $.05 per share.
On a normalized basis, results reflect strong revenue growth in our core
wireline business, a 30.3% growth in digital and data services revenues and
significant increases in our international and domestic wireless customer bases.
Expense growth was driven by increased spending in our core wireline business
for customer service and network support functions, volume-driven increases at
our international and domestic wireless businesses and expenses for development
and promotion of new business initiatives including high-speed data and Internet
service offerings.
On January 1, 1999 we adopted a new accounting standard on capitalization
of internal-use software. The quarter-over-quarter impact of capitalizing
software costs under the new standard was a benefit of $65 or $.03 per share to
first quarter 1999 net income.
- --------------------------------------------------------------------------------
Results by Segment
- --------------------------------------------------------------------------------
Our reportable segments reflect strategic business units that offer
different products and services and/or serve different customers. We have four
reportable operating segments: (1) Wireline communications; (2) Domestic
wireless; (3) International operations; and (4) Advertising and publishing. We
have included the operations of all other businesses falling below the reporting
threshold in the "Other" segment. We evaluate the performance of each strategic
business unit based on net income, exclusive of charges for use of intellectual
property rights and adjustments for special items that may arise. Intersegment
revenues and expenses are not eliminated. Special items are transactions or
events that are included in reported consolidated results but are excluded from
segment results due to their non-recurring or non-operational nature.
The results of businesses in which we own noncontrolling interests are not
included in our reported revenues and expenses but are included in the Net
Equity in Earnings (Losses) of Unconsolidated Businesses line item.
<PAGE>
- --------------------------------------------------------------------------------
Wireline Communications
- --------------------------------------------------------------------------------
Wireline communications include local exchange, network access and
intraLATA long distance services to business and residential customers in a
nine-state region located in the southeastern United States.
- ------------------------------------------ ----------------------- -----------
First Quarter %
1999 1998 Change
- ------------------------------------------ ----------- ----------- -----------
Operating revenues:
Local service $2,654 $2,414 9.9
Network access 1,191 1,151 3.5
Long distance 150 175 (14.3)
Other wireline 328 280 17.1
- ------------------------------------------ ----------- ----------- -----------
Total operating revenues $4,323 $4,020 7.5
- ------------------------------------------ ----------- ----------- -----------
Operating expenses $2,910 $2,797 4.0
- ------------------------------------------ ----------- ----------- -----------
Operating income $1,413 $1,223 15.5
- ------------------------------------------ ----------- ----------- -----------
Segment net income $ 801 $ 683 17.3
- ------------------------------------------ ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- -----------
EBITDA $2,246 $2,049 9.6
- ------------------------------------------ ----------- ----------- -----------
EBITDA margin 52.0% 51.0% +100bps
- ------------------------------------------ ----------- ----------- -----------
Operating Revenues
Local service
The $240 increase in local service revenues is attributable to growth in
access lines and strong demand for digital and data services and convenience
features.
We ended the first quarter with over 40 million total equivalent access
lines, an increase of 15.2% over the prior year. Residential access lines
increased 3.9% to 16,764,000 in first quarter 1999, driven by economic growth in
our nine-state region as well as demand for additional residence lines for home
office purposes, Internet access and children's phones. We added 385,000 second
lines since last year, increasing the penetration rate to 16.6%. Business access
lines, including data circuits, grew 25.2% propelled by expanding demand for our
digital and data services. Switched business access lines grew 2.5% to 7,325,000
lines in service. This growth rate reflects the continued migration of new and
existing business customers to high-capacity data lines.
Revenues from optional convenience features such as custom calling features
(e.g., Caller ID, Call Waiting, Call Return) and MemoryCall(R) service increased
$77 or 21.6%. We continued to drive growth of convenience feature usage through
our Complete Choice Package, a one-price bundled offering of over 20 features.
Increased penetration of extended local area calling plans also increased
revenues by approximately $44 over first quarter 1998.
Network access
Network access revenues grew $40 in first quarter 1999, due largely to
higher demand. Access minutes of use rose 6.9% to 26,825 million in first
quarter 1999 from 25,082 million in first quarter 1998. Increases in switched
access lines and promotional activities by long distance carriers continue to be
the primary drivers of the increase in minutes of use. The growth rate in total
minutes of use continues to be negatively impacted by competition and the
migration of long distance carriers to categories of service (such as special
access) that have a fixed charge and are excluded from minutes of use counts.
Revenues from special access services grew approximately $34 as Internet service
providers and high-capacity users increased their use of our network.
These increases were largely offset by rate reductions related to the
Federal Communications Commission's productivity factor adjustment and access
reform that decreased revenues by $38 compared to first quarter 1998.
<PAGE>
Long distance
The $25 decrease is primarily attributable to a regulatory ruling related
to compensation we receive from long distance carriers for interconnection to
our public payphones. Also contributing to the decline in revenues was an 11.9%
decrease in long distance message volumes since first quarter 1998. Partially
offsetting these decreases were increased revenues from the provision of digital
and data services and independent company settlements occurring in first quarter
1999.
Competition from alternative intraLATA long distance carriers and increased
penetration of extended local area calling plans continue to have an adverse
impact on our long distance message volumes. Effective February 1999, we
implemented 1+ dialing parity for all states in our region, which allows our
customers to choose an intraLATA long distance carrier without having to dial a
special access code. We believe that competition in the intraLATA long distance
market will continue to adversely impact long distance message volumes and
revenues.
Other wireline
The $48 increase is attributable to higher revenues in first quarter 1999
from sales of customer premises equipment, revenues from our Internet access
offering and interconnection revenues from wireless carriers. We ended the
quarter with over 469,000 subscribers to our BellSouth.net (sm) service, an
increase of 125% compared to first quarter 1998.
Operating Expenses
Operational and support expenses
Operational and support expenses increased $106 (5.4%) for first quarter
1999 when compared to first quarter 1998. Adjusted for the impact of adopting
the new rules on software capitalization, expenses increased $197 (10.0%).
Increased labor costs, primarily in our customer service and network
support functions, and other increased costs in the telephone operations
associated with higher business volumes were the main contributors to the
increase. Also contributing to the increase were expenses related to new data
initiatives, including Asymmetric Digital Subscriber Line (ADSL) and integrated
fiber-in-the-loop (IFITL), and promotional expenses related to expanding our
Internet customer base.
We anticipate making ADSL service available in 30 markets this year, with
an addressable market of approximately 5.2 million access lines. We are
currently deploying IFITL in nearly all newly built neighborhoods and some
200,000 homes in Atlanta and Miami.
Depreciation and amortization
Depreciation and amortization expense was relatively flat compared to the
prior year, increasing $7 or 0.8%. While gross depreciable plant increased by
$2,614 or 5.4% over the prior year, the overall composite depreciation rate was
slightly lower, resulting in flat depreciation expense.
<PAGE>
- --------------------------------------------------------------------------------
Domestic Wireless
- --------------------------------------------------------------------------------
Domestic wireless is comprised of cellular and personal communications
service (PCS) businesses principally within the southeastern United States.
- ------------------------------------------ ----------------------- -----------
First Quarter %
1999 1998 Change
- ------------------------------------------ ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- -----------
Operating revenues $748 $646 15.8
- ------------------------------------------ ----------- ----------- -----------
Operating expenses $661 $555 19.1
- ------------------------------------------ ----------- ----------- -----------
Operating income $87 $91 (4.4)
- ------------------------------------------ ----------- ----------- -----------
Net equity in earnings (losses) of
unconsolidated businesses $31 $35 (11.4)
- ------------------------------------------ ----------- ----------- -----------
Segment net income $60 $69 (13.0)
- ------------------------------------------ ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- -----------
EBITDA $225 $214 5.1
- ------------------------------------------ ----------- ----------- -----------
EBITDA margin 30.1% 33.1% -300bps
- ------------------------------------------ ----------- ----------- -----------
Operating Revenues
Revenue growth of $102 in our consolidated domestic wireless business can
be attributed to a 22.0% increase in the customer base since first quarter 1998,
partially offset by a decline in average monthly revenue per customer.
Advertising, enhanced volume pricing strategies (including bundled minutes at
lower rates) and competitive incentive programs (such as discounted cellular
handsets) were key drivers of the customer growth. The decrease in average
monthly revenue per customer is due to rate reductions and discounts offered to
customers in response to an increasingly competitive environment.
We expect competition to intensify in our markets and continue to pressure
pricing. This should, however, stimulate demand and lead to increased usage as
the overall market is expanded.
Operating Expenses
Operational and support expenses
These expenses increased $91 or 21.1% to $523 as a result of increased
customer acquisition costs associated with higher customer additions in first
quarter 1999 compared to first quarter 1998. We have continued our efforts to
migrate our customer base from analog to digital service. We have moved over 40%
of our subscriber base to digital and have increased digital minutes of use to
over 50% of total network usage. The combination of higher customer additions
and digital conversion negatively impacted the quarter-over-quarter margin
comparison but will enable greater revenue growth and operational efficiency.
Expenses related to our new PCS markets also contributed to the increase.
Operational and support expenses have benefited from reduced customer
acquisition costs as we shift to lower cost, direct sales channels.
Depreciation and amortization
Depreciation and amortization increased $15 or 12.2% to $138. The increase
was primarily attributable to higher levels of property, plant and equipment
since first quarter 1998. The increased investment is the result of the buildout
of PCS markets, expansion of the network related to growth in the customer base
and deployment of digital cellular across all of our consolidated markets.
Net Equity in Earnings (Losses) of Unconsolidated Businesses
Equity in earnings (losses) of unconsolidated domestic wireless businesses
decreased $4 compared to first quarter 1998 principally due to lower earnings at
our business in Los Angeles. Earnings were lower due to acquisition costs
associated with higher customer additions and increased amortization expense
which resulted from the reorganization of our ownership interests in fourth
quarter 1998. This decrease was partially offset by stronger operating results
at our other unconsolidated markets.
<PAGE>
- --------------------------------------------------------------------------------
International Operations
- --------------------------------------------------------------------------------
International operations is comprised principally of our investments in
cellular and PCS businesses in nine countries in Latin America as well as
Denmark, Germany, India and Israel.
- ------------------------------------------ ----------------------- -----------
First Quarter %
1999 1998 Change
- ------------------------------------------ ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- -----------
Operating revenues $561 $452 24.1
- ------------------------------------------ ----------- ----------- -----------
Operating expenses $510 $401 27.2
- ------------------------------------------ ----------- ----------- -----------
Operating income $51 $51 --
- ------------------------------------------ ----------- ----------- -----------
Net equity in earnings (losses) of
unconsolidated businesses $(13) $(21) N/M
- ------------------------------------------ ----------- ----------- -----------
Segment net loss $(20) $(5) N/M
- ------------------------------------------ ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- -----------
EBITDA $154 $121 27.3
- ------------------------------------------ ----------- ----------- -----------
EBITDA margin 27.5% 26.8% +70bps
- ------------------------------------------ ----------- ----------- -----------
Operating Revenues
Consolidated revenues are from our operations in Venezuela, Argentina,
Chile, Ecuador and Peru and, in the prior year, New Zealand. The $109 increase
since first quarter 1998 is primarily due to substantial growth in the customer
bases of these operations, which collectively have grown over 61% to 2.9 million
total customers at the end of first quarter 1999. Much of this growth is
attributable to the continued success of prepaid calling programs in these
operations. Partially offsetting the increase is the loss of revenues from
BellSouth New Zealand, which was sold during fourth quarter 1998, and lower
revenues in Chile due to intense price competition in that market. Overall
weakening of local currencies also impacted revenue growth on a US Dollar basis.
Operating Expenses
Operational and support expenses
The $76 increase is primarily the result of customer acquisition costs
associated with significant increases in customer additions. The increase also
reflects additional operational costs associated with higher customer levels and
expanded operations. Offsetting this increase were prior period expenses
incurred by BellSouth New Zealand.
Depreciation and amortization
Depreciation expense increased $18 due primarily to higher gross
depreciable plant resulting from the continued investment in our wireless
network infrastructure and digital conversion of our network in Venezuela.
Amortization expense increased $15 as a result of increased intangibles related
to our purchase of additional ownership interests in several Latin American
operations as well as new wireless licenses.
Net Equity in Earnings (Losses) of Unconsolidated Businesses
The improvement in equity in earnings (losses) from our unconsolidated
international businesses is due to stronger results from our investments in
Germany, Panama, Nicaragua and Israel, all of which experienced substantial
growth in their customer bases compared to first quarter 1998. Offsetting these
improvements were start-up losses related to our operations in Brazil, which
were launched in May 1998, and less favorable results from our business in
Denmark due to customer acquisition costs associated with higher net customer
additions.
In Brazil, the economic situation resulted in weaker than expected growth
during first quarter 1999. This is indicated by slower than expected growth in
total customers. While the Brazilian Real has strengthened and begun to
stabilize, the long-term impact on our operations is not known.
<PAGE>
- --------------------------------------------------------------------------------
Advertising and Publishing
- --------------------------------------------------------------------------------
Our advertising and publishing business is comprised of companies that
publish, print, sell advertising in, and perform related services concerning
alphabetical and classified telephone directories and electronic product
offerings.
- ----------------------------------------- ----------------------- -----------
First Quarter %
1999 1998 Change
- ----------------------------------------- ----------- ----------- -----------
- ----------------------------------------- ----------- ----------- -----------
Operating revenues $346 $338 2.4
- ----------------------------------------- ----------- ----------- -----------
Operating expenses $206 $201 2.5
- ----------------------------------------- ----------- ----------- -----------
Operating income $140 $137 2.2
- ----------------------------------------- ----------- ----------- -----------
Net equity in earnings (losses) of
unconsolidated businesses $(1) $-- N/M
- ----------------------------------------- ----------- ----------- -----------
Segment net income $84 $86 (2.3)
- ----------------------------------------- ----------- ----------- -----------
- ----------------------------------------- ----------- ----------- -----------
EBITDA $146 $143 2.1
- ----------------------------------------- ----------- ----------- -----------
EBITDA margin 42.2% 42.3% -10bps
- ----------------------------------------- ----------- ----------- -----------
Operating Results
Operating revenues were up $8 principally as a result of increased pricing
and volumes, offset by the effects of shifts in directory production schedules.
Adjusted for book shifts, revenues would have increased by approximately 4.6%.
Also contributing to the increased revenues are our electronic media offerings,
but to a lesser extent.
Operational and support expenses increased $5 due to higher salaries and
wages and marketing expenses offset by lower production costs. Depreciation and
amortization was flat as there were no appreciable increases in property, plant
and equipment.
Net equity in earnings (losses) of unconsolidated businesses includes the
results of our new international investments in directory publishers in Peru and
Brazil. We plan to continue exploring international growth opportunities that
capitalize on existing directory core competencies.
- --------------------------------------------------------------------------------
Other
- --------------------------------------------------------------------------------
This segment is primarily comprised of our communications group companies
- -- including new business initiatives such as entertainment (cable television),
wireless data and plans for interLATA long distance.
In addition, the stand-alone results of our Internet access marketing
company are included in this segment. These revenues and expenses are eliminated
in consolidation and reported as part of the wireline communications results.
<PAGE>
Also included are businesses whose primary purpose is to support our other
operating segments.
- ------------------------------------------ ----------------------- -------------
First Quarter %
1999 1998 Change
- ------------------------------------------ ----------- ----------- -------------
- ------------------------------------------ ----------- ----------- -------------
Operating revenues $120 $72 66.7
- ------------------------------------------ ----------- ----------- -------------
Operating expenses $204 $136 50.0
- ------------------------------------------ ----------- ----------- -------------
Operating loss $(84) $(64) (31.3)
- ------------------------------------------ ----------- ----------- -------------
Net equity in earnings (losses) of
unconsolidated businesses $ 1 $(3) N/M
- ------------------------------------------ ----------- ----------- -------------
Segment net loss $(57) $(40) (42.5)
- ------------------------------------------ ----------- ----------- -------------
- ------------------------------------------ ----------- ----------- -------------
EBITDA $(53) $(42) (26.2)
- ------------------------------------------ ----------- ----------- -------------
EBITDA margin (44.2%) (58.3%) N/M
- ------------------------------------------ ----------- ----------- -------------
Operating Results
External revenues nearly tripled to $50 from $18 since first quarter 1998,
driven by growth in our communications group companies. Since first quarter
1998, we have rolled out cable television service in four new markets and
introduced interactive paging service with nationwide coverage.
Operating expenses reflect increased spending associated with new product
and/or market introductions in all of these businesses. Higher headcount
associated with customer support and installation functions also contributed to
the increase in expenses. Depreciation and amortization has increased reflecting
our continuing investment of resources associated with the growth of these
businesses.
- --------------------------------------------------------------------------------
Other Nonoperating Items
- --------------------------------------------------------------------------------
- ------------------------------------------ ----------------------- -----------
First Quarter %
1999 1998 Change
- ------------------------------------------ ----------- ----------- -----------
Interest Expense $226 $190 18.9
Gain on Sale of Operations - 155 N/M
Net Equity in Earnings (Losses) of
Unconsolidated Businesses (266) 11 N/M
Other Income, net 59 17 N/M
Provision for Income Taxes 559 555 0.7
- ------------------------------------------ ----------- ----------- -----------
Interest expense
Higher interest expense is attributable to a higher proportion of
capitalized interest in first quarter 1998 and higher average debt balances in
first quarter 1999. We capitalized a greater proportion of our interest in 1998
due to our start-up investments in Brazil. Our average debt balances were as
follows:
- ----------------------------------------- ----------------------- -----------
First Quarter %
1999 1998 Change
- ----------------------------------------- ----------- ----------- -----------
- ----------------------------------------- ----------- ----------- -----------
Average short-term debt balance $3,928 $3,506 12.0
- ----------------------------------------- ----------- ----------- -----------
Average long-term debt balance $8,847 $7,524 17.6
- ----------------------------------------- ----------- ----------- -----------
Total average debt balance $12,775 $11,030 15.8
- ----------------------------------------- ----------- ----------- -----------
We expect interest expense to increase beginning in second quarter 1999 as
we plan to fund the announced investment in Qwest Communications with $2.5
billion of debt.
<PAGE>
Gain on sale of operations
During first quarter 1998, we received additional proceeds from the prior
sale of our interest in ITT World Directories resulting in a gain of $155 ($96
or $.05 per share after tax).
Net equity in earnings (losses) of unconsolidated businesses
The decrease was driven by foreign exchange losses of $280 related to our
Brazilian properties (see Note E to the consolidated financial statements for
further discussion of this matter). Excluding the impact of this event, the net
results of our unconsolidated businesses remained relatively flat and are
discussed in the results for the Domestic wireless and International operations
segments.
Other income, net
Other income, net includes interest income, gains/losses on disposition of
assets, foreign currency gains/losses and miscellaneous nonoperating income. The
increase of $42 over the prior year is attributable to accruals recorded in the
prior year and increases in other nonoperating income in first quarter 1999.
Partially offsetting these increases were higher foreign exchange losses in our
consolidated international businesses and decreased interest income due to lower
average cash balances.
Provision for income taxes
The provision for income taxes was flat quarter-over-quarter. The effective
rate for first quarter 1999 was 47.6% compared to 38.4% in first quarter 1998.
The effective tax rate was significantly impacted by the foreign exchange losses
recorded at our unconsolidated Brazilian businesses. Excluding the effect of
these losses, our effective rate in first quarter 1999 was 38.4%, consistent
with the prior year and in line with our expected rate for 1999.
- --------------------------------------------------------------------------------
Financial Condition
- --------------------------------------------------------------------------------
Cash flows from operations are our primary source of funding for capital
requirements of existing operations, debt service, dividends and share
repurchases. We also have ready access to capital markets in the event
additional funding is necessary. While current liabilities exceed current
assets, our 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. We believe that
these sources of funds will be sufficient to meet the needs of our business for
the foreseeable future.
Net cash provided by (used for):
- ----------------------------- ----------- ------------- ------------------------
1999 1998 Change
Operating activities..... $ 1,642 $ 2,056 $(414) (20.1%)
Investing activities..... $(1,478) $(1,593) $ 115 7.2%
Financing activities..... $(1,388) $ (913) $(475) (52.0%)
- ----------------------------- ----------- ------------- ------------ -----------
Net cash provided by operating activities
The decrease in cash from operations primarily reflects an increase in
working capital requirements offset by higher EBITDA.
Net cash used in investing activities
During first quarter 1999, we invested $1.4 billion for capital
expenditures to support our wireline and wireless networks, to promote the
introduction of new products and services and increase operating efficiency and
productivity. Significant investments are also being made to support deployment
of ADSL and fast packet switching technologies as well as our IFITL initiative.
Included in these expenditures for first quarter 1999 are approximately $114 in
costs related to internal-use software.
During April 1999, we announced a new business agreement with Qwest
Communications that includes our purchasing a ten percent stake for $3.5
billion. This transaction is expected to close during second quarter 1999. We
intend to finance this investment with $2.5 billion of long-term debt.
<PAGE>
Our previously announced agreement to lease our wireless communications
towers to Crown Castle International is expected to generate cash proceeds in
excess of $400. This transaction is scheduled to close in phases throughout the
remainder of 1999.
First quarter 1998 includes $155 in proceeds related to the sale of our
investment in ITT World Directories.
Net cash used in financing activities
During the first quarter of 1999, we purchased approximately 43 million
shares as part of our $3 billion repurchase plan announced in December 1998.
Combined with our 1998 repurchases, we have reduced our number of outstanding
shares by 74 million since March 31, 1998. We expect to complete the buyback
plan by the end of May 1999.
Our debt to total capitalization ratio was 47.3% at March 31, 1999 compared
to 43.0% at December 31, 1998. The increase is a function of the reduction in
shareholders' equity, driven by the effect of our stock buyback program, and
increases in short-term debt attributable to higher net borrowings of commercial
paper.
At May 6, 1999, we have shelf registration statements on file with the SEC
under which $5.2 billion of debt securities could be publicly offered.
Market Risk
For a complete discussion of our market risks, you should refer to the
caption "Market Risk" in our 1998 Annual Report on Form 10-K. Our primary
exposure to market risks relates to unfavorable movements in interest rates and
foreign currency exchange rates. There have been no additional material changes
to the market risks described at December 31, 1998.
Anticipated transactions
Our exposure to market risk is expected to increase in second quarter 1999
related to financing our investment in Qwest Communications with new long-term
debt. We do not anticipate any significant changes in our objectives and
strategies with respect to managing such exposures.
- --------------------------------------------------------------------------------
Operating Environment and Trends of the Business
- --------------------------------------------------------------------------------
Regulatory Developments
Reciprocal Compensation. See Note J to the consolidated financial statements.
South Carolina Supreme Court Decision. See Note K to the consolidated financial
statements.
International Operations
Fluctuations in foreign exchange rates
Our equity investments in international wireless systems are viewed as
long-term assets valued in the local currency, translated into US Dollars, and
reported in our consolidated financial statements. Foreign currency exchange
rate fluctuations may be material to results of operations. A significant
weakening against the Dollar of the currency of a country where we generate
revenues and earnings may adversely impact our results, such as occurred in
Brazil during the first quarter.
Any weakening of the Dollar against foreign currencies could have an
adverse impact on cash flows if we are obligated to make significant
foreign-currency-denominated capital investments. We attempt to mitigate the
effect of certain foreign currency fluctuations through the use of foreign
currency contracts.
<PAGE>
During January 1999, the government of Brazil allowed its currency to trade
freely against other currencies. As a result, the Brazilian Real experienced
devaluation against the US Dollar. The devaluation resulted in the entities
recording exchange losses related to their net US Dollar-denominated
liabilities. Our share of the foreign exchange rate losses for first quarter
1999 was $280.
The impact of the devaluation on an operation depends on the devaluation's
effect on the local economy and the ability of an operation to raise prices
and/or reduce expenses. Additionally, the economies of other countries in Latin
America could be adversely impacted by economic and monetary problems in Brazil.
For instance, Ecuador recently experienced devaluation in its currency. The
impact, however, was not material to our operations. The likelihood and extent
of further devaluation and deteriorating economic conditions in Brazil or other
Latin American countries experiencing similar conditions and the resulting
impacts on our results of operations, financial position and cash flows is not
known.
Euro conversion
In January 1999, certain member countries of the European Union established
permanent, fixed conversion rates between their existing currencies and the
European Union's common currency (the Euro). The Euro will be phased in over a
transition period culminating on January 1, 2002 at which time all existing
currencies will be withdrawn from circulation. We have investments in companies
operating in Germany, Denmark, Belgium and the Netherlands, which are
participating in the Euro conversion. We do not believe that the Euro conversion
will have a material effect on these investments.
Year 2000 Readiness Disclosure
You should note that the following discussion about the Year 2000 includes
certain forward-looking statements that are subject to risks and uncertainties.
Factors that could cause actual results to differ materially from those
expressed in the forward-looking statements include, but are not limited to:
o Our Year 2000 program is not complete; ongoing implementation and testing
could reveal the need for additional unplanned remedial efforts;
o Third party vendors and suppliers could fail to meet their stated objectives,
timetables or cost estimates; and
o Our timetable or cost estimates could be impacted by unforeseen shortages of
skilled personnel.
We have initiated a company-wide program to identify and address issues
associated with the ability of our date-sensitive information, telephony and
business systems and certain equipment to properly recognize the Year 2000 as a
result of the century change on January 1, 2000. The program is also designed to
assess the readiness of other entities with which we do business.
Inability to reach substantial Year 2000 compliance in our systems and integral
third party systems could result in interruption of telecommunications services,
interruption or failure of our customer billing, operating and other information
systems and failure of certain date-sensitive equipment. These failures could
result in substantial claims by customers as well as loss of revenue due to
service interruption, delays in our ability to bill our customers accurately and
timely, and increased expenses associated with litigation, stabilization of
operations following such failures or execution of contingency plans.
Our Year 2000 program is being conducted by a management team that is
coordinating efforts of internal resources as well as third party providers and
vendors in identifying and making necessary changes to our systems hardware,
software and date-sensitive equipment. The program also includes the
international and domestic companies in which we hold an interest. Some of the
changes that are necessary in our operations are being made as a part of ongoing
systems upgrades.
<PAGE>
Our Year 2000 program has been divided into six phases: planning; inventory;
impact analysis; conversion; testing; and implementation. We monitor our
progress within these six phases based on the number of inventoried items that
have been addressed. Management's target date for completion of all phases for
most of our mission critical applications is July 1999. Mission critical
applications include those that:
o directly affect delivery of primary services to our customers;
o directly affect our revenue recognition and collection;
o would create noncompliance with any statutes or laws; and
o would require significant costs to address in the event of noncompliance.
We have identified three main areas of focus for our Year 2000 program: network
components; information technology systems; and building and environmental
systems. Each focus area includes the hardware, software, embedded chips, third
party vendors and suppliers as well as third party networks that are associated
with the identified systems. At March 31, 1999, the planning, inventory and
impact analysis phases have been substantially completed and the conversion,
testing and implementation phases are well under way. Our status for the
conversion, testing and implementation phases is as follows:
Network components
- -------------------------------------------------- -------------------------
Overall Completion
Percentage
- -------------------------------------------------- -------------------------
Wireline Communications........................ 85%
Other Domestic Operations...................... 35%
International Operations....................... 85%
- -------------------------------------------------- -------------------------
This focus area consists of the switches, transmission systems and associated
software that comprise the core of our telephony systems including landline and
wireless domestic and international services. Outside suppliers provide all
hardware and most software that comprise our networks; these components are
being remediated by those third party suppliers. Either we, our vendors and/or
industry groups such as the Telco Year 2000 Forum are performing testing of
these components for compliance.
By the end of April 1999, our other domestic operations had increased the
completion of its overall conversion, testing and implementation to
approximately 65%. Progress in all areas is expected to continue throughout
second quarter 1999.
Information technology systems
- -------------------------------------------------- -------------------------
Overall Completion
Percentage
- -------------------------------------------------- -------------------------
Wireline Communications........................ 70%
Other Domestic Operations...................... 80%
International Operations....................... 75%
- -------------------------------------------------- -------------------------
This focus area consists of those systems that primarily support "customer
care" operations such as order taking and billing. The software for these
systems was developed by both us and vendors and is being remediated and tested
by both.
<PAGE>
Building and environmental systems
- -------------------------------------------------- -------------------------
Overall Completion
Percentage
- -------------------------------------------------- -------------------------
Wireline Communications........................ 40%
Other Domestic Operations...................... 30%
International Operations....................... 85%
- -------------------------------------------------- -------------------------
This focus area includes various products and systems that are not used in
support of network or customer care functions. Building and environmental
systems are primarily provided by third parties and include building operations,
office equipment, utilities, etc.
Buildings are not considered fully converted, tested and implemented until
every environmental component within the building is complete. The wireline
communications segment has completed approximately 85% of the conversion and
testing efforts for individual environmental components, and our other domestic
operations have completed approximately 45% of their individual components.
Contingency plans. We have developed numerous continuity plans for conducting
our business operations in the event of crises including system outages and
natural disasters. We have chartered a Year 2000 Business Contingency Planning
project to ensure that contingency plans are developed and tested, and support
infrastructures are in place. This effort is not limited to the risks posed by
the potential Year 2000 failures of our networks, internal information systems
or infrastructures, but also includes the potential secondary impact on us of
Year 2000 failures, including potential systems failures of business partners
and infrastructure service providers. Business impact assessments have been
substantially completed, and the completion of contingency plan testing and
sign-off is scheduled for third quarter 1999.
Costs of project. Some of the costs associated with our Year 2000 compliance
efforts were incurred in 1997 and 1998. We will incur the remainder during 1999
and 2000. You should note that costs are not incurred equally over all phases of
the project, but increase over time. We anticipate that the conversion and
testing phases will require an increase in spending over the earlier phases of
the project. At March 31, 1999, we have spent approximately $123 in external
costs towards Year 2000 compliance. We estimate the total external cost of our
compliance efforts will be between $250 and $350 over the life of the project.
We intend to continually reassess the estimated costs and status of Year 2000
remediation efforts.
Expected completion. We currently anticipate that most of our mission critical
applications will be Year 2000 compliant by July 1999. However, unforeseen
circumstances such as those discussed previously could affect our current
assessments. As a result, we are unable to determine the impact that any system
interruption would have on our results of operations, financial position and
cash flows.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard requires that all derivative
instruments be recognized as assets or liabilities and adjusted to fair value
each period. We will adopt SFAS No. 133 on January 1, 2000 and are currently
assessing the impact that adoption will have on our results of operations and
financial position.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the caption labeled "Market Risk" in Management's Discussion and Analysis
of Results of Operations and Financial Condition.
<PAGE>
- --------------------------------------------------------------------------------
Cautionary Language Concerning Forward-Looking Statements
- --------------------------------------------------------------------------------
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends that may affect our future operating results and financial position.
Words such as "expect," "forecast," "intend," "plan," "will," "anticipates,"
"achieve," "initiatives" or similar expressions are intended to identify such
forward-looking statements. These statements are based on our assumptions and
estimates and are subject to risks and uncertainties. For these statements, we
claim the protection of the safe harbor for forward-looking statements provided
by the Private Securities Litigation Reform Act of 1995.
Factors that could affect future operating results and financial position and
could cause actual results to differ materially from those expressed in the
forward-looking statements are:
o a change in economic conditions in domestic or international markets where we
operate or have material investments which would affect demand for our services;
o the intensity of competitive activity and its resulting impact on pricing
strategies and new product offerings;
o further delay in our entry into the interLATA long distance market;
o higher than anticipated start-up costs or significant up-front investments
associated with new business initiatives;
o unanticipated higher capital spending from the deployment of new
technologies;
o unsatisfactory results in regulatory actions including access reform,
universal service, terms of interconnection and unbundled network elements and
resale rates; and
o failure to satisfactorily identify and complete Year 2000 software and
hardware revisions by us and entities with which we do business.
These cautionary statements should not be construed as exhaustive. These and
other developments could cause our actual results to differ materially from
those forecast or implied in the aforementioned forward-looking statements. You
are cautioned not to place undue reliance on these forward-looking statements,
which are current only as of the date of this filing. We have no obligation to
publicly release the results of any revisions to these forward-looking
statements to reflect events or circumstances after the date of this filing.
<PAGE>
- --------------------------------------------------------------------------------
PART II -- OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
4a No instrument which defines the rights of holders of our long- and
intermediate-term debt is filed herewith pursuant to Regulation S-K,
Item 601(b)(4)(iii)(A). Pursuant to this regulation, we agree to
furnish a copy of any such instrument to the SEC upon request.
10q-2 Amendment dated March 22, 1999 to the BellSouth Personal Retirement
Account Pension Plan.
10q-3 Amendment dated April 7, 1999 to the BellSouth Personal Retirement
Account Pension Plan.
10z BellSouth Compensation Deferral Plan, as amended and restated effective
September 28, 1998.
11 Computation of Earnings Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule as of March 31, 1999.
(b) Reports on Form 8-K:
Date of Event Subject
January 20, 1999 BellSouth Recognizes Brazilian Currency Devaluation
January 25, 1999 Fourth Quarter 1998 Earnings Release and 1999 Financial
Projection
March 30, 1999 Segment Reporting
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELLSOUTH CORPORATION
By /s/ W. Patrick Shannon
W. PATRICK SHANNON
Vice President and Controller
(Principal Accounting Officer)
May 10, 1999
<PAGE>
EXHIBIT INDEX
Exhibit
Number
10q-2 Amendment dated March 22, 1999 to the BellSouth Personal Retirement
Account Pension Plan.
10q-3 Amendment dated April 7, 1999 to the BellSouth Personal Retirement
Account Pension Plan.
10z BellSouth Compensation Deferral Plan, as amended and restated effective
September 28, 1998.
11 Computation of Earnings Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule as of March 31, 1999.
AMENDMENT TO THE BELLSOUTH PERSONAL RETIREMENT
ACCOUNT PENSION PLAN
This Amendment is made to the BellSouth Personal Retirement Account Pension
Plan (the "Plan") which was amended and restated effective January 1, 1998. The
Chairman of the BellSouth Employees' Benefit Claim Review Committee, acting
under authority delegated by the Nominating and Compensation Committee of the
Board of Directors of BellSouth Corporation, hereby amends the plan as follows:
1.
Pursuant to Paragraphs 2.03, 15.01 and 16.03 of the Plan, non-represented
employees of Bakersfield Cellular L.L.C. who participate in the Plan and who are
terminated as employees incident to the Exchange Agreement by and among AT&T
Wireless Services, Inc., Texas Cellular Telephone Company, L.P., BellSouth
Cellular Corporation, and Bakersfield Cellular Telephone Company, dated November
3, 1998, will become vested, if not already vested, in their accounts as of the
closing date of the transaction contemplated by the Exchange.
The above amendment shall be effective as of the date this amendment is
approved.
Approved this 22nd day of March, 1999.
EMPLOYEES' BENEFIT CLAIM REVIEW COMMITTEE:
/s/ Richard D. Sibbernsen
By: Richard D. Sibbernsen
Chairman
AMENDMENT TO THE BELLSOUTH PERSONAL RETIREMENT
ACCOUNT PENSION PLAN
This Amendment is made to the BellSouth Personal Retirement Account Pension
Plan (the "Plan") which was amended and restated effective January 1, 1998. The
Chairman of the BellSouth Employees' Benefit Claim Review Committee, acting
under authority delegated by the Nominating and Compensation Committee of the
Board of Directors of BellSouth Corporation, hereby amends the plan as follows:
1.
Pursuant to Paragraphs 15.01 and 16.03 of the Plan, individuals who become
employees of Westel-Indianapolis Company pursunat to Section 5.7 of the Asset
Purchase Agreement by and among BellSouth Cellular Corporation, Indiana 8,
L.L.C., United States Cellular Corporation, and United States Cellular Operating
Company, dated March 19, 1999, (the "Agreement") will be granted Net Credited
Service, Vesting Service Credit and Vesting Eligibility Years for their service
with United States Cellular Corporation and its affiliates prior the closing of
the transaction contemplated by the Agreement.
The above amendment shall be effective as of the date this amendment is
approved.
Approved this 7th day of April, 1999.
EMPLOYEES' BENEFIT CLAIM REVIEW COMMITTEE:
/s/ Richard D. Sibbernsen
By: Richard D. Sibbernsen, Chairman
BELLSOUTH
COMPENSATION DEFERRAL PLAN
(As Amended and Restated Effective September 28, 1998)
<PAGE>
BELLSOUTH COMPENSATION DEFERRAL PLAN
TABLE OF CONTENTS
BACKGROUND AND PURPOSE..........................1
ARTICLE I DEFINITIONS..........................2
1.1 "Account".............................2
1.2 "Affiliate"...........................2
1.3 "Annual Bonus"........................2
1.5 "Base Salary".........................2
1.6 "BellSouth"...........................2
1.7 "Beneficiary".........................2
1.8 "Board"...............................2
1.4 "Annual Bonus Election"...............2
1.9 "Business Day"........................2
1.10 "Code"................................3
1.11 "Company Stock".......................3
1.12 "Compensation"........................3
1.13 "Credited Interest Rate"..............3
1.14 "Deferral Contributions"..............3
1.15 "Deferral Election"...................3
1.16 "Effective Date"......................3
1.17 "Election Deadline"...................3
1.18 "Election Package"....................4
1.19 "Eligible Employee"...................4
1.20 "ERISA"...............................4
1.21 "Executive"...........................4
1.22 "Interest Income Option"..............4
1.23 "Interest Income Subaccount"..........4
1.24 "Investment Election".................4
1.25 "Investment Options"..................4
1.26 "Participant".........................5
1.27 "Participating Company"...............5
1.28 "Plan"................................5
1.29 "Plan Administrator"..................5
1.30 "Plan Year"...........................5
1.31 "Senior Manager"......................5
1.32 "Short Term Bonus Plan"...............5
1.33 "Stock Unit"..........................5
1.34 "Stock Unit Option"...................5
1.35 "Stock Unit Subaccount"...............5
1.36 "Valuation Date"......................6
ARTICLE II ELIGIBILITY AND PARTICIPATION.......7
2.1 Annual Participation..................7
2.2 Interim Plan Year Participation.......7
2.3 Election Procedures...................7
2.4 Cessation of Eligibility..............8
ARTICLE III PARTICIPANTS'ACCOUNTS; DEFERRAL CONTRIBUTIONS................9
3.1 Participants'Accounts...................................9
(a) Establishment of Accounts............................9
(b) Nature of Contributions and Accounts.................9
(c) Several Liabilities..................................9
(d) General Creditors....................................9
3.2 Deferral Contributions..................................9
(a) Effective Date......................................10
(b) Term................................................10
(c) Base Salary Deferral Election Amount................10
(d) Bonus Deferral Election Amount......................11
(e) Revocation..........................................11
(f) Crediting of Deferred Compensation..................11
3.3 Deferral Elections and Multiple Participating Companies.11
3.4 Termination Under Severance Arrangement...........................12
3.5 Vesting...........................................................12
ARTICLE IV DETERMINATION AND CREDITING OF INVESTMENT RETURN................13
4.1 General Investment Parameters.....................................13
4.2 Participant Direction of Deemed Investments.......................13
(a) Nature of Participant Direction................................13
(b) Investment of Contributions....................................13
(c) Investment of Existing Account Balances........................13
(d) Investment Subaccounts.........................................14
4.3 Stock Unit Option.................................................14
(a) Stock Unit Subaccount..........................................14
(b) Cash Dividends.................................................14
(c) Adjustments for Stock Dividends and Splits.....................14
4.4 InterestIncome Option.............................................15
(a) Interest Income Subaccount.....................................15
(b) Crediting of Deemed Interest...................................15
(i) Amount Invested................................................15
(ii) Determination of Amount...................................15
4.5 Good Faith Valuation Binding......................................15
4.6 Errors and Omissions in Accounts..................................15
ARTICLE V PAYMENT OF ACCOUNT BALANCES......................................16
5.1 Benefit Amounts...................................................16
(a) Benefit Entitlement............................................16
(b) Valuation of Benefit...........................................16
(c) Conversion of Stock Units into Dollars.........................16
5.2 Elections of Timing and Form......................................16
(a) Timing.........................................................16
(b) Form of Distribution...........................................16
(c) Multiple Selections............................................17
5.3 Benefit Payments to a Participant.................................17
(a) Timing.........................................................17
(b) Form of Distribution...........................................17
(c) Valuation of Single Sum Payments...............................17
(d) Valuation of Installment Payments..............................17
5.4 Death Benefits....................................................18
(a) General........................................................18
(b) Valuation......................................................18
5.5 Beneficiary Designation...........................................18
(a) General........................................................18
(b) No Designation or Designee Dead or Missing.....................18
(c) Death of Beneficiary...........................................19
5.6 Taxes.............................................................19
ARTICLE VI CLAIMS..........................................................20
6.1 Initial Claim.....................................................20
6.2 Appeal............................................................20
6.3 Satisfaction of Claims............................................20
ARTICLE VII SOURCE OF FUNDS................................................21
ARTICLE VIII PLAN ADMINISTRATION...........................................22
8.1 Action by the Plan Administrator..................................22
(a) Individual Administrator.......................................22
(b) Administrative Committee.......................................22
8.2 Rights and Duties of the Plan Administrator.......................22
8.3 Bond; Compensation................................................23
ARTICLE IX AMENDMENT AND TERMINATION.......................................24
9.1 Amendments........................................................24
9.2 Termination of Plan...............................................24
9.3 Limitation on Authority...........................................24
(a) Plan Amendments................................................24
(b) Plan Termination...............................................24
(c) Opinions of Counsel............................................25
ARTICLE X MISCELLANEOUS....................................................26
10.1 Taxation..........................................................26
10.2 Withholding.......................................................26
10.3 No Employment Contract............................................26
10.4 Headings..........................................................26
10.5 Gender and Number.................................................26
10.6 Assignment of Benefits............................................26
10.7 Legally Incompetent...............................................26
10.8 Entire Document...................................................26
10.9 Governing Law.....................................................26
BELLSOUTH COMPENSATION DEFERRAL PLAN
Effective as of the 1st day of January, 1997, BellSouth Corporation
("BellSouth") established the BellSouth Compensation Deferral Plan (the "Plan").
The Plan is hereby amended and restated effective as of September 28, 1998.
BACKGROUND AND PURPOSE
A........Goal. BellSouth desires to provide its designated key management
employees, and those of its affiliated companies that participate in the Plan,
with an opportunity (i) to defer the receipt and income taxation of a portion of
such employees' compensation; and (ii) to receive an investment return on those
deferred amounts based on the return of BellSouth stock, an indexed rate of
interest, or a combination of the two.
B........Purpose. The purpose of the Plan is to set forth the terms and
conditions pursuant to which these deferrals may be made and deemed invested and
to describe the nature and extent of the employees' rights to their deferred
amounts.
C........Type of Plan. The Plan constitutes an unfunded, nonqualified deferred
compensation plan that benefits certain designated employees who are within a
select group of key management or highly compensated employees. Each
Participating Company alone has the obligation to pay amounts payable under this
Plan to its Plan Participants, and such payments are not an obligation of any
other Participating Company.
ARTICLE I
DEFINITIONS
For purposes of the Plan, each of the following terms, when used with an
initial capital letter, shall have the meaning set forth below unless a
different meaning plainly is required by the context.
1.1 "Account" shall mean, with respect to a Participant or Beneficiary, the
total dollar amount or value evidenced by the last balance posted in accordance
with the terms of the Plan to the account record established for such
Participant or Beneficiary with respect to the Deferral Contributions of such
Participant for any Plan Year.
1.2 "Affiliate" shall mean at any time 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%) or greater interest in the
capital or profits of such joint venture or partnership.
1.3 "Annual Bonus" shall mean, with respect to each Eligible Employee for a
specified Plan Year, such Eligible Employee's standard or base award amount to
be earned under the applicable Short Term Bonus Plan for such Plan Year (and
payable in the succeeding year).
1.4 "Base Salary" shall mean, with respect to each Eligible Employee for a
specified Plan Year, the gross regular, periodic base salary paid or payable to
the Eligible Employee during such Plan Year, including any of the Eligible
Employee's own before-tax and after-tax contributions to, or deferrals under,
any Code Section 401(k), Code Section 125, nonqualified deferred compensation or
other employee benefit plan or program, maintained by a Participating Company
from time to time, but excluding any contributions or benefits paid under any
such plan or program by a Participating Company.
1.5 "BellSouth" shall mean BellSouth Corporation, a Georgia corporation.
1.6 "Beneficiary" shall mean, with respect to a Participant, the person(s)
determined in accordance with Section 5.5 to receive any death benefits that may
be payable under the Plan upon the death of the Participant.
1.7 "Board" shall mean the Board of Directors of BellSouth.
1.8 "Bonus Deferral Election" shall mean a written election form provided by
the Plan Administrator on which an Executive may elect to defer a portion of
such Executive's Annual Bonus.
1.9 "Business Day" shall mean each day on which the New York Stock Exchange
operates and is open to the public for trading.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.11 "Company Stock" shall mean the $1.00 par value per share voting common
stock of BellSouth.
1.12 "Compensation" shall mean, for purposes of determining the maximum amount
of Base Salary that a Participant may elect to defer under the Plan for any Plan
Year, the total of such Participant's (i) annualized Base Salary rate, and (ii)
Annual Bonus amount. For a Participant who is an Executive, such amount shall be
determined as the rate or amount in effect or applicable on the date such
Participant executes a Deferral Election. For a Participant who is a Senior
Manager, such amount shall be determined as the rate or amount in effect or
applicable on September 1 of the year in which the Participant executes a
Deferral Election. For any Eligible Employee employed by a Participating Company
whose compensation structure does not readily fit this definition,
"Compensation" shall mean cash compensation as defined by the Plan
Administrator. For purposes of determining the maximum amount of Annual Bonus
that a Participant who is an Executive may elect to defer under the Plan for any
Plan Year, "Compensation" shall mean the amount of Annual Bonus in effect or
applicable on the date such Participant executes a Bonus Deferral Election.
1.13 "Credited Interest Rate" shall mean, for each Plan Year, the rate of
return equal to Moody's Monthly Average of Yields of Aa Corporate Bonds, as
published by Moody's Investors Service, Inc., for the month of July immediately
preceding such Plan Year. If such rate (or any alternative rate described in
this sentence) is at any time no longer available, the Plan Administrator shall
designate an alternative rate which in the Plan Administrator's reasonable
judgment is generally comparable to the rate described in the preceding
sentence, and such alternative rate shall thereafter be the Credited Interest
Rate.
1.14 "Deferral Contributions" shall mean, for each Plan Year, that portion of a
Participant's Base Salary and Annual Bonus (if applicable) deferred under the
Plan pursuant to Section 3.2.
1.15 "Deferral Election" shall mean a written election form provided by the
Plan Administrator on which an Eligible Employee may elect to defer under the
Plan a portion of such Eligible Employee's Base Salary.
1.16 "Effective Date" shall mean January 1, 1997.
1.17 "Election Deadline" shall mean:
(a) For an individual who is eligible to participate in the Plan for an entire
Plan Year and is employed by a Participating Company before the beginning of
such Plan Year, the November 30 (or if November 30 is not a Business Day, the
last Business Day immediately preceding November 30) immediately preceding the
first day of such Plan Year. Notwithstanding the foregoing, with the approval of
the Plan Administrator, "Election Deadline" may mean, with respect to such an
Eligible Employee for a Plan Year, the December 31 (or if December 31 is not a
Business Day, the last Business Day immediately preceding December 31)
immediately preceding the first day of such Plan Year.
(b) For an individual who becomes employed by a Participating Company as an
Executive and Eligible Employee on or before October 1 of a Plan Year and who is
eligible to participate in the Plan during the remainder of such Plan Year
pursuant to Section 2.2, the date which is 30 days after the date the individual
first becomes eligible to participate in the Plan.
1.18 "Election Package" shall mean a package consisting of (as applicable to an
Eligible Employee) a Deferral Election, a Bonus Deferral Election, an Investment
Election and such other forms and documents distributed to such Eligible
Employee by the Plan Administrator for the purpose of allowing such Eligible
Employee to elect to actively participate in the Plan for a Plan Year.
1.19 "Eligible Employee" shall mean, for each Plan Year, each management
employee of a Participating Company who (i) is a member of a select group of
highly compensated or key management employees, and (ii) is an Executive or a
Senior Manager for the Plan Year, or is otherwise designated by the Plan
Administrator as eligible to participate in the Plan for such Plan Year.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
1.21 "Executive" shall mean an employee of a Participating Company who, for
purposes of this Plan for a Plan Year, is designated by the Plan Administrator
as a member of BellSouth's "executive compensation group."
1.22 "Interest Income Option" shall mean the Investment Option described in
Section 4.4, pursuant to which a Participant's deemed investment earnings are
determined on the basis of the Credited Interest Rate.
1.23 "Interest Income Subaccount" shall mean a bookkeeping subaccount
reflecting that portion of a Participant's Account for each Plan Year which is
deemed to be invested in the Interest Income Option.
1.24 "Investment Election" shall mean a written election in such form as is
provided by the Plan Administrator on which an Eligible Employee may elect to
have Deferral Contributions for a Plan Year (and all investment earnings
attributable thereto) deemed invested in either the Stock Unit Option and/or the
Interest Income Option.
1.25 "Investment Options" shall mean the Stock Unit Option and the Interest
Income Option.
1.26 "Participant" shall mean any person participating in the Plan pursuant to
the provisions of Article II.
1.27 "Participating Company" shall mean BellSouth and each Affiliate which, by
action of its board of directors (or equivalent governing body), adopts the Plan
as a Participating Company with the approval of the Plan Administrator. Such
entities shall be listed on Exhibit A hereto, which shall be updated from time
to time to reflect the addition of new Participating Companies, and the
effective dates of their participation, and the deletion of any entities which
are no longer Participating Companies.
1.28 "Plan" shall mean the BellSouth Compensation Deferral Plan, as contained
herein and all amendments hereto.
1.29 "Plan Administrator" shall mean the Chief Executive Officer of BellSouth
and any individual or committee the Chief Executive Officer designates to act on
his or her behalf with respect to any or all of the Chief Executive Officer's
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.
1.30 "Plan Year" shall mean the calendar year.
1.31 "Senior Manager" shall mean an employee of a Participating Company who,
for purposes of this Plan for a Plan Year, is designated by the Plan
Administrator as a "senior manager."
1.32 "Short Term Bonus Plan" shall mean, with respect to Eligible Employees who
are Executives, the BellSouth Corporation Officer Short Term Incentive Award
Plan or any successor plan and, with respect to Eligible Employees who are
Senior Managers, the annual bonus plan(s) or program(s) in which one or more of
such Senior Managers participate for a Plan Year, in all cases as determined by
the Plan Administrator.
1.33 "Stock Unit" shall mean an accounting entry that represents an unsecured
obligation of a Participating Company to pay to a Participant an amount which is
based on the fair market value of one share of Company Stock as set forth
herein. A Stock Unit shall not carry any voting, dividend or other similar
rights and shall not constitute an option or any other right to acquire any
equity securities of BellSouth.
1.34 "Stock Unit Option" shall mean the Investment Option described in Section
4.3, pursuant to which a Participant's deemed investment earnings are determined
by the rate of return applicable to Stock Units.
1.35 "Stock Unit Subaccount" shall mean a bookkeeping subaccount reflecting
that portion of a Participant's Account for each Plan Year which is deemed to be
invested in the Stock Unit Option.
1.36 "Valuation Date" shall mean December 31 (or, if December 31 is not a
Business Day, the last Business Day immediately preceding December 31), and each
other day declared by the Plan Administrator to be a Valuation Date.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Annual Participation. Each individual who is an Eligible Employee as of the
first day of a Plan Year and is employed by a Participating Company before the
beginning of such Plan Year shall be eligible to defer a portion of such
Eligible Employee's Base Salary and, in addition, for each such Eligible
Employee who is an Executive, such Eligible Employee's Annual Bonus, and thereby
to actively participate in the Plan for such Plan Year. Such individual's
participation shall become effective as of the first day of such Plan Year,
provided that the Eligible Employee properly and timely completes the election
procedures described in Section 2.3.
2.2 Interim Plan Year Participation. Each individual who becomes employed by a
Participating Company as an Executive and Eligible Employee on or before October
1 of a Plan Year, and who is not otherwise eligible to participate in the Plan
during such Plan Year in accordance with Section 2.1, shall be immediately
eligible upon commencement of such employment to make a Deferral Election and/or
Bonus Deferral Election, and thereby to actively participate in the Plan, for
the remainder of such Plan Year. Such individual's participation shall become
effective as of the first day of the calendar month following the calendar month
in which such Deferral Election and/or Bonus Deferral Election is made, provided
that the Executive properly and timely completes the election procedures
described in Section 2.3.
2.3 Election Procedures.
(a) Executives. Each Eligible Employee who is an Executive may elect to defer a
portion of such Eligible Employee's Base Salary and/or Annual Bonus, and thereby
become an active Participant for a Plan Year (or, if Section 2.2 is applicable,
for the remainder of such Plan Year), by delivering a completed Deferral
Election and/or Bonus Deferral Election and an Investment Election to the Plan
Administrator by the applicable Election Deadline for such Plan Year. Such an
election shall be effective only if the individual is actively employed as an
Eligible Employee at the time the individual delivers the completed Deferral
Election and/or Bonus Deferral Election and Investment Election to the Plan
Administrator. The Plan Administrator may also require the Eligible Employee to
complete other forms and provide other data, as a condition of participation in
the Plan.
(b) Senior Managers. Each Eligible Employee who is a Senior Manager may elect
to defer a portion of such Eligible Employee's Base Salary, and thereby become
an active Participant for a Plan Year, by delivering a completed Deferral
Election and an Investment Election to the Plan Administrator by the applicable
Election Deadline for such Plan Year. Such an election shall be effective only
if the individual is actively employed as an Eligible Employee at the time the
individual delivers the completed Deferral Election and Investment Election to
the Plan Administrator. The Plan Administrator may also require the Eligible
Employee to complete other forms and provide other data, as a condition of
participation in the Plan.
2.4 Cessation of Eligibility. An Eligible Employee's active participation in
the Plan shall terminate, and the Eligible Employee shall not be eligible to
make any additional Deferral Contributions, for any portion of a Plan Year
following the date the Eligible Employee's employment with BellSouth and all
Participating Companies terminates (unless such individual is reemployed as an
Eligible Employee later in such Plan Year). In addition, an individual who
actively participated in the Plan during prior Plan Years but who is not an
Eligible Employee or does not complete the election procedures, for a subsequent
Plan Year, shall cease active participation in the Plan for such subsequent Plan
Year. If an individual's active participation in the Plan ends, such individual
shall remain an inactive Participant in the Plan until the earlier of (i) the
date the full amount of such individual's Accounts is distributed from the Plan,
or (ii) the date the individual again becomes an Eligible Employee and
recommences active participation in the Plan. During the period of time that an
individual is an inactive Participant in the Plan, such individual's Accounts
shall continue to be credited with earnings as provided in the Plan.
ARTICLE III
PARTICIPANTS' ACCOUNTS; DEFERRAL CONTRIBUTIONS
3.1 Participants' Accounts.
(a) Establishment of Accounts. The Plan Administrator shall establish and
maintain one or more Accounts on behalf of each Participant for each Plan Year
for which the Participant makes Deferral Contributions. The Plan Administrator
shall credit each Participant's Account with the Participant's Deferral
Contributions for such Plan Year and earnings attributable thereto, and shall
maintain such Account until the value thereof has been distributed to or on
behalf of such Participant or his Beneficiary.
(b) Nature of Contributions and Accounts. The amounts credited to a
Participant's Accounts shall be represented solely by bookkeeping entries.
Except as provided in Article VII, no monies or other assets shall actually be
set aside for such Participant, and all payments to a Participant under the Plan
shall be made from the general assets of the Participating Companies.
(c) Several Liabilities. Each Participating Company shall be severally (and not
jointly) liable for the payment of benefits under the Plan under Deferral
Elections and Bonus Deferral Elections executed by Eligible Employees with, and
while employed by, such Participating Company.
(d) General Creditors. Any assets which may be acquired by a Participating
Company in anticipation of its obligations under the Plan shall be part of the
general assets of such Participating Company. A Participating Company's
obligation to pay benefits under the Plan constitutes a mere promise of such
Participating Company to pay such benefits, and a Participant or Beneficiary
shall be and remain no more than an unsecured, general creditor of such
Participating Company.
3.2 Deferral Contributions. Each Eligible Employee who is an Executive may
irrevocably elect to have Deferral Contributions made on his or her behalf for a
Plan Year (or, if Section 2.2 is applicable, for the remainder of such Plan
Year), by completing in a timely manner a Deferral Election and/or Bonus
Deferral Election and an Investment Election, and following other election
procedures as provided in Section 2.3. Each Eligible Employee who is a Senior
Manager may irrevocably elect to have Deferral Contributions made on his or her
behalf for a Plan Year by completing in a timely manner a Deferral Election and
an Investment Election, and following other election procedures as provided in
Section 2.3. Subject to any modifications, additions or exceptions that the Plan
Administrator, in its sole discretion, deems necessary, appropriate or helpful,
the following terms shall apply to such Deferral Elections and Bonus Deferral
Elections (if applicable):
(a) Effective Date.
(i) Base Salary Deferral Election. Subject to Section 3.2(a)(iii), a Deferral
Election made by a Participant (whether the Participant is an Executive or
Senior Manager) shall be effective beginning with the first regular, periodic
paycheck paid (A) with respect to a Participant participating for the entire
Plan Year, in such Plan Year, and (B) with respect to an Executive participating
for a portion of a Plan Year in accordance with Section 2.2, in the calendar
month following the calendar month in which the Participant makes his or her
Deferral Election.
(ii) Bonus Deferral Election. Subject to Section 3.2(a)(iii), a Bonus Deferral
Election made by a Participant who is an Executive shall be effective (A) with
respect to an Executive participating for the entire Plan Year, for the Annual
Bonus earned during the Plan Year, and (B) with respect to an Executive
participating for a portion of Plan Year in accordance with Section 2.2, for the
Annual Bonus earned during such portion of the Plan Year.
(iii) Other Requirements. To be effective, a Participant's Deferral Election
and Bonus Deferral Election (if applicable) must be made by the Election
Deadline. If an Eligible Employee fails to deliver a Deferral Election and a
Bonus Deferral Election (if applicable), or to complete any of the other
requisite election procedures for a Plan Year, in a timely manner, the Eligible
Employee shall be deemed to have elected not to participate in the Plan for that
Plan Year.
(b) Term. Each Deferral Election for a Plan Year that is made by a Participant
(whether the Participant is an Executive or Senior Manager) shall remain in
effect with respect to the specified portion of all Base Salary paid or payable
during such Plan Year (or, in the case of an Executive participating for a
portion of the Plan Year in accordance with Section 2.2, with respect to the
specified portion of all Base Salary paid or payable during the remainder of
such Plan Year) but shall not apply to any subsequent Plan Year. Each Bonus
Deferral Election for a Plan Year that is made by a Participant who is an
Executive shall remain in effect with respect to the specified portion of Annual
Bonus earned during such Plan Year (or, in the case of an Executive
participating for a portion of the Plan Year in accordance with Section 2.2, for
the specified portion of the Annual Bonus earned during the remainder of such
Plan Year), but shall not apply to any subsequent Plan Year.
(c) Base Salary Deferral Election Amount. Each Eligible Employee's Deferral
Election shall specify a dollar amount, in increments of $1,000.00, of annual
Base Salary to be deferred. The maximum amount of Base Salary that an Eligible
Employee may defer for any Plan Year shall be as follows:
(i) for an Eligible Employee who is a Senior Manager for the Plan Year, or
otherwise designated by the Plan Administrator as eligible to participate in the
Plan (and who is not an Executive for the Plan Year), 10% of the Eligible
Employee's Compensation; and
(ii) for an Eligible Employee who is an Executive for the Plan Year, 25% of the
Eligible Employee's Compensation;
in each case, rounded to the next highest thousand dollars. The total dollar
amount shall be withheld from such Eligible Employee's regular, periodic
paychecks of Base Salary in substantially equal installments throughout the Plan
Year. Notwithstanding any provision of this Plan or a Deferral Election to the
contrary, however, the amount withheld from any payment of Base Salary shall be
reduced automatically, if necessary, so that it does not exceed the amount of
such payment net of all withholding, allotments and deductions, other than any
reduction pursuant to such Deferral Election. No amounts shall be withheld
during any period an individual ceases to receive Base Salary as an actively
employed Eligible Employee for any reason during the Plan Year except that, in
the case of an individual on an approved paid leave of absence as an Eligible
Employee (including a paid leave of absence under a short term disability plan
of a Participating Company), amounts shall be withheld from such leave of
absence payments and otherwise treated in the same manner as if such payments
constituted Base Salary under the Plan. No adjustment shall be made in the
amount to be withheld from any subsequent payment of Base Salary for a Plan Year
to compensate for any missed or reduced withholding amounts above.
(d) Bonus Deferral Election Amount. The Bonus Deferral Election of each
Eligible Employee who is an Executive shall specify a whole percentage of such
Executive's Annual Bonus to be deferred, not to exceed fifty percent (50%) and
not less than five percent (5%). The maximum amount actually deferred under a
Bonus Deferral Election for any Plan Year shall in no event exceed 100% of the
bonus actually paid for such Plan Year to the Executive under the applicable
Short Term Bonus Plan.
(e) Revocation. Once made for a Plan Year, a Participant may not revoke a
Deferral Election or Bonus Deferral Election for such Plan Year.
(f) Crediting of Deferred Compensation The Plan Administrator shall credit to
each Participant's Account for a Plan Year, as of the first day of such Plan
Year (or, as of the effective date of participation of an Executive described in
Section 2.2), the entire amount of the Participant's Deferral Contributions
reflected in his or her Deferral Election for such Plan Year; provided, that the
Participant's Account shall be automatically adjusted, retroactively to the
first day of such Plan Year (or, if applicable, the effective date of
participation of an Executive described in Section 2.2), to reflect the amount
of Deferral Contributions actually made from Base Salary (or pursuant to Section
3.4, if applicable) during the Plan Year if for any reason the entire amount of
the Participant's Deferral Contributions so reflected is not made. The Plan
Administrator shall credit to the Account of each Participant who is an
Executive and who makes a Bonus Deferral Election for a Plan Year, as of the
first day of the year in which the Participant's annual bonus is actually paid
for such Plan Year under the Short Term Bonus Plan, the entire amount actually
deferred.
3.3 Deferral Elections and Multiple Participating Companies Any Deferral
Election and/or Bonus Deferral Election which is timely executed and delivered
to the Plan Administrator shall be effective to defer Base Salary and/or Annual
Bonus (as applicable) earned by the Participant from the Participating Company
employing such Participant at the time of the Participant's election or any
other Participating Company employing such Participant during the Plan Year for
which the Deferral Election and/or Bonus Deferral Election is effective. In
particular, a Participant (i) who timely executes and delivers a Deferral
Election and/or Bonus Deferral Election while employed by one Participating
Company and subsequently transfers to another Participating Company, or (ii) who
terminates employment and subsequently becomes employed by another Participating
Company, shall have the Base Salary and/or Annual Bonus (as applicable) that is
paid or payable to such Participant by both Participating Companies reduced
under the terms of the Deferral Election and/or Bonus Deferral Election and the
Plan as if the transfer or termination and reemployment had not occurred;
provided that, as provided in Section 3.2(c), no amounts of Base Salary shall be
withheld attributable to any portion of the Plan Year during which such
Participant is not receiving Base Salary as an Eligible Employee of a
Participating Company.
3.4 Termination Under Severance Arrangement. A Participant eligible to
participate in a severance plan or arrangement sponsored by a Participating
Company which provides for a lump-sum severance payment upon termination of
employment may elect, on such form and at such time and in such manner as shall
be prescribed by the Plan Administrator, to reduce the amount of a lump-sum
severance payment to which the Participant may become entitled under such plan
or arrangement in an amount not to exceed the dollar amount by which the
Participant's Base Salary Deferral Contributions for the Plan Year in which such
termination occurs would not have been made at the time of termination of
employment, and the amount so elected shall for all purposes be treated as
Deferral Contributions made under the Plan.
3.5 Vesting. A Participant shall at all times be fully vested in the
Participant's Deferral Contributions and all investment earnings attributable
thereto.
ARTICLE IV
DETERMINATION AND CREDITING OF INVESTMENT RETURN
4.1 General Investment Parameters. The rate of return credited to each
Participant's Account shall be determined on the basis of the Investment
Option(s) selected by the Participant. The terms of this selection process and
the manner in which investment return is credited are set forth in this Article
IV.
4.2 Participant Direction of Deemed Investments. Each Participant generally may
direct the manner in which his or her Deferral Contributions for each Plan Year
shall be deemed invested in and between the Stock Unit Option and/or the
Interest Income Option, in accordance with the following terms:
(a) Nature of Participant Direction. A Participant's election of the Stock Unit
Option and/or Interest Income Option shall be for the sole purpose of
determining the rate of return to be credited to such Participant's Account for
such Plan Year, and shall not be treated or interpreted in any manner whatsoever
as a requirement or direction to actually invest assets in Company Stock, an
interest income fund or any other investment media. The Plan, as an unfunded,
nonqualified deferred compensation plan, at no time shall have any actual
investment of assets relative to the benefits or Accounts hereunder.
(b) Investment of Contributions. In conjunction with completing a Deferral
Election and/or Bonus Deferral Election for a Plan Year, an Eligible Employee
shall complete an Investment Election prescribing the percentage of such
Eligible Employee's Deferral Contributions for such Plan Year that will be
deemed to be invested in the Stock Unit Option and/or the Interest Income
Option; provided, such Investment Election shall specify one of the three
alternatives, as follows:
(i) 100% of the Deferral Contributions for such Plan Year shall be deemed
invested in the Stock Unit Option;
(ii) 100% of the Deferral Contributions for such Plan Year shall be deemed
invested in the Interest Income Option; or
(iii) 50% of the Deferral Contributions for such Plan Year shall be deemed
invested in the Stock Unit Option, and 50% of the Deferral Contributions for
such Plan Year shall be deemed invested in the Interest Income Option.
(c) Investment of Existing Account Balances. A Participant may not make an
Investment Election changing the percentage of an existing Account balance that
will be deemed to be invested in the Stock Unit Option and/or the Interest
Income Option. Once an Investment Election is made with respect to an Account,
it shall continue to apply with respect to such Account until all amounts in
such Account are distributed.
(d) Investment Subaccounts. For the sole purpose of tracking a Participant's
investment elections and calculating investment earnings attributable to a
Participant's Account for a Plan Year pursuant to the terms of this Article IV,
the Plan Administrator shall establish and maintain for such Participant for
such Plan Year a Stock Unit Subaccount and an Interest Income Subaccount, as
necessary, the total of which shall equal such Participant's Account for such
Plan Year.
4.3 Stock Unit Option.
(a) Stock Unit Subaccount. To the extent an Eligible Employee makes an
Investment Election in accordance with Section 4.2 to have all or a portion of
his or her Deferral Contributions for a Plan Year deemed to be invested in the
Stock Unit Option, the Participant's Stock Unit Subaccount for such Plan Year
shall be credited (subject to the adjustment described in subsection 3.2(f), if
applicable), as of the first day of such Plan Year, with a number of Stock Units
equal to the number of full and fractional shares of Company Stock that could
have been purchased with such portion of the Eligible Employee's Deferral
Contributions elected for such Plan Year at the average of the high and low
sales prices of one share of Company Stock on the New York Stock Exchange for
the last Business Day of each of the three calendar months immediately preceding
the first day of such Plan Year.
(b) Cash Dividends. As of each date on which BellSouth has paid a cash dividend
on Company Stock, the number of Stock Units credited to a Participant's Stock
Unit Subaccount for each Plan Year shall be increased by a number of additional
Stock Units equal to the quotient of (i) the amount of dividends that would have
been paid on the number of shares of Company Stock equivalent to the number of
Stock Units credited to such subaccount as of such dividend payment date,
divided by (ii) the average of the daily high and low sales prices of one share
of Company Stock on the New York Stock Exchange for the period of five Business
Days ending on such dividend payment date (or the period of five Business Days
ending on the immediately preceding Business Day if such date was not a Business
Day).
(c) Adjustments. In the event of any change in outstanding shares of Company
Stock, by reclassification, recapitalization, merger, consolidation, spinoff,
combination, exchange of shares, stock split, reverse stock split or otherwise,
or in the event of the payment of a stock dividend on Company Stock, or in the
event of any other increase or decrease in the number of outstanding shares of
Company Stock, other than the issuance of shares for value received by BellSouth
or the redemption of shares for value, the Plan Administrator shall adjust the
number and/or form of Stock Units in the manner it deems appropriate in its
reasonable judgment to reflect such event, including substituting or adding
publicly traded shares of companies other than the Company as a basis for
determining Stock Units. The Plan Administrator similarly shall make such
adjustments as it deems are appropriate in its reasonable judgment in the form,
including the basis of measurement, of Stock Units in the event all shares of
Company Stock cease for any reason to be outstanding or to be actively traded on
the New York Stock Exchange. In the event the Plan Administrator determines in
its reasonable judgment that it would not be possible to appropriately reflect
an event under this paragraph (c) by adjusting the number and/or form of Stock
Units, the Plan Administrator shall establish a special Valuation Date
appropriate to such event for all Stock Unit Subaccounts and shall cause such
subaccounts, as so valued, automatically to be converted into Interest Income
Subaccounts, which thereafter shall be subject to Section 4.4.
4.4 Interest Income Option.
(a) Interest Income Subaccount. To the extent that an Eligible Employee makes
an Investment Election in accordance with Section 4.2 to have all or a portion
of his or her Deferral Contributions for a Plan Year deemed to be invested in
the Interest Income Option, the Participant's Interest Income Subaccount for
such Plan Year shall be credited (subject to the adjustment described in
subsection 3.2(f), if applicable), as of the first day of such Plan Year, with
such portion of the Eligible Employee's Deferral Contributions elected for such
Plan Year.
(b) Crediting of Deemed Interest. As of each Valuation Date, the Plan
Administrator shall credit a Participant's Interest Income Subaccounts with the
amount of earnings applicable thereto for the period since the immediately
preceding Valuation Date. Such crediting of earnings for each Interest Income
Subaccount shall be effected, as follows:
(i) Amount Invested. The Plan Administrator shall determine the amount of (A)
in the case of an Interest Income Subaccount established in connection with a
Deferral Election or Bonus Deferral Election for the Plan Year ending on such
Valuation Date, such Participant's Deferral Contributions credited to such
Participant's Interest Income Subaccount for such Plan Year; and (B) in the case
of an Interest Income Subaccount for a prior Plan Year, the balance of such
Participant's Interest Income Subaccount as of the immediately preceding
Valuation Date, minus the amount distributed from such Participant's Interest
Income Subaccount since the immediately preceding Valuation Date; and
(ii) Determination of Amount. The Plan Administrator then shall apply the
Credited Interest Rate for such Plan Year to such Participant's adjusted
Interest Income Subaccount (as determined in subparagraph (i) hereof), and the
total amount of investment earnings resulting therefrom shall be credited to
such Participant's Interest Income Subaccount as of such Valuation Date.
4.5 Good Faith Valuation Binding. In determining the value of Accounts, the
Plan Administrator shall exercise its best judgment, and all such determinations
of value (in the absence of bad faith) shall be binding upon all Participants
and their Beneficiaries.
4.6 Errors and Omissions in Accounts. If an error or omission is discovered in
the Account of a Participant or in the amount of a Participant's Deferral
Contributions, the Plan Administrator, in its sole discretion, shall cause
appropriate, equitable adjustments to be made as soon as administratively
practicable following the discovery of such error or omission.
ARTICLE V
PAYMENT OF ACCOUNT BALANCES
5.1 Benefit Amounts.
(a) Benefit Entitlement. As the benefit under the Plan, each Participant (or
Beneficiary) shall be entitled to receive the total amount of the Participant's
Accounts, determined as of the most recent Valuation Date, and payable at such
times and in such forms as described in this Article V.
(b) Valuation of Benefit. For purposes hereof, each Account of a Participant as
of any Valuation Date shall be equal to (i) the total amount of all of such
Participant's Deferral Contributions credited thereto; plus (ii) all deemed
investment earnings attributable thereto; minus (iii) the total amount of all
benefit payments previously made therefrom.
(c) Conversion of Stock Units into Dollars. For purposes of converting some or
all of a Participant's Stock Units into a dollar amount in valuing the
Participant's Accounts as of any Valuation Date, the value of each Stock Unit
shall be equal to the average of the high and low sales prices of one share of
Company Stock on the New York Stock Exchange for the last Business Day of each
of the three calendar months ending on or immediately preceding such Valuation
Date.
5.2 Elections of Timing and Form. In conjunction with, and at the time of,
completing a Deferral Election and/or Bonus Deferral Election for each Plan
Year, an Eligible Employee shall select the timing and form of the distribution
that will apply to the Account for such Eligible Employee's Deferral
Contributions (and deemed investment earnings attributable thereto) for such
Plan Year. The terms applicable to this selection process are as follows:
(a) Timing. For a Participant's Account for each Plan Year, such Participant
may elect that distribution will be made or commence as of any January 1
following the Plan Year of deferral; provided, a Participant may not select a
benefit payment or commencement date for such Account that is later than the
twentieth January 1 following the end of the Plan Year of deferral.
(b) Form of Distribution. For a Participant's Account for each Plan Year, such
Participant may elect that distribution will be paid in one of the following
forms:
(i) a single lump-sum cash payment; or
(ii) substantially equal annual installments (adjusted for investment earnings
between payments in the manner described in Article IV) over a period of one (1)
to ten (10) years; provided that the number of years so elected shall in no
event exceed one (1) year for each full $1,000 of Deferral Contributions elected
for such Plan Year.
(c) Multiple Selections. An Eligible Employee may select a different benefit
payment or commencement date and/or a different form of distribution with
respect to his or her Account for each Plan Year. For ease of administration,
the Plan Administrator may combine Accounts and subaccounts of a Participant to
which the same benefit payment/commencement date and the same form of
distribution apply.
5.3 Benefit Payments to a Participant.
(a) Timing. A Participant shall receive or begin receiving a distribution of
each of his or her Accounts as of the earlier of (i) the January 1 selected by
such Participant with respect to each such Account pursuant to the terms of
Section 5.2(a); or (ii) the January 1 immediately following the date that such
Participant's employment with BellSouth and all Affiliates ends for any reason,
unless the Participant returns to employment with BellSouth or one of the
Affiliates before such January 1. An amount payable "as of" any January 1 shall
be made as soon as practicable after such January 1 and, unless extenuating
circumstances arise, no later than January 31.
(b) Form of Distribution. A Participant shall receive or begin receiving a
distribution of each of his or her Accounts in cash in the form selected by such
Participant with respect to such Account pursuant to the terms of Section
5.2(b).
(c) Valuation of Single Lump-Sum Payments. The amount of a Participant's single
lump-sum distribution of any of his or her Accounts as of any applicable January
1 shall be equal to the value of such Account as of the Valuation Date
immediately preceding the date on which such distribution is paid.
(d) Valuation of Installment Payments. For purposes of determining the amount
of any installment payment to be paid as of a January 1 from an Account, the
following shall apply:
(i) for any amount of such Account attributable to an Interest Income
Subaccount as of the immediately preceding Valuation Date, such amount shall be
divided by the number of remaining installments to be paid from such Account
(including the current installment); and
(ii) for any portion of such Account attributable to a Stock Unit Subaccount as
of the immediately preceding Valuation Date, the total number of Stock Units
constituting such portion shall be divided by the number of remaining
installments to be paid from such Account (including the current installment),
and the resulting number of Stock Units shall be converted into a dollar amount
(pursuant to the terms of Section 5.1(c)) as of such Valuation Date.
5.4 Death Benefits.
(a) General. If a Participant dies before receiving the entire amount of his or
her benefit under the Plan, such Participant's Beneficiary shall receive
distribution of amounts remaining in the Participant's Accounts in the form, as
elected by the Participant on a Beneficiary designation form described in
Section 5.5, of either:
(i) a single lump-sum cash payment of the entire balance in the Participant's
Accounts as of the January 1 immediately following the date of the Participant's
death; or
(ii) (A) for Accounts with respect to which distribution has not commenced
under Section 5.2 at the time of the Participant's death, substantially equal
annual installments (adjusted for investment earnings between payments in the
manner described in Article IV) over a period of one (1) to ten (10) years,
commencing as of the January 1 immediately following the Participant's death;
and (B) for Accounts with respect to which distribution has commenced in the
form of installments described in Section 5.2(b)(ii) at the time of the
Participant's death, continuation of such installment payment schedule.
An amount payable "as of" any January 1 shall be made as soon as practicable
after such January 1 and, unless extenuating circumstances arise, no later than
January 31.
(b) Valuation. The valuation rules described in subsections 5.3(c) and 5.3(d)
shall apply to payments described in this Section 5.4.
5.5 Beneficiary Designation.
(a) General. A Participant shall designate a Beneficiary or Beneficiaries for
all of his or her Accounts by completing the form prescribed for this purpose
for the Plan by the Plan Administrator and submitting such form as instructed by
the Plan Administrator. Once a Beneficiary designation is made, it shall
continue to apply until and unless such Participant makes and submits a new
Beneficiary designation form for this Plan.
(b) No Designation or Designee Dead or Missing. In the event that:
(i) a Participant dies without designating a Beneficiary;
(ii) the Beneficiary designated by a Participant is not surviving or in
existence when payments are to be made or commence to such designee under the
Plan, and no contingent Beneficiary, surviving or in existence, has been
designated; or
(iii) the Beneficiary designated by a Participant cannot be located by the Plan
Administrator within 1 year from the date benefit payments are to be made or
commence to such designee;
then, in any of such events, the Beneficiary of such Participant shall be the
Participant's surviving spouse, if any can then be located, and if not, the
estate of the Participant, and the entire balance in the Participant's Accounts
shall be paid to such Beneficiary in the form of a single lump-sum cash payment
described in Section 5.4(a)(i).
(c) Death of Beneficiary. If a Beneficiary who survives the Participant, and to
whom payment of Plan benefits commences, dies before complete distribution of
the Participant's Accounts, the entire balance in such Accounts shall be paid to
the estate of such Beneficiary in the form of a single lump-sum cash payment as
of the January 1 immediately following such Beneficiary's death. An amount
payable "as of" any January 1 shall be made as soon as practicable after such
January 1 and, unless extenuating circumstances arise, no later than January 31.
The valuation rules described in subsection 5.3(c) shall apply to any payments
described in this subsection 5.5(c).
5.6 Taxes. If the whole or any part of any Participant's or Beneficiary's
benefit hereunder shall become subject to any estate, inheritance, income,
employment or other tax which a Participating Company shall be required to pay
or withhold, the Participating Company shall have the full power and authority
to withhold and pay such tax out of any monies or other property in its hand for
the account of the Participant or Beneficiary whose interests hereunder are so
affected. Prior to making any payment, the Participating Company may require
such releases or other documents from any lawful taxing authority as it shall
deem necessary.
ARTICLE VI
CLAIMS
6.1 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.
6.2 Appeal. Any Participant or Beneficiary who has been denied a benefit shall
be entitled, upon request to the Plan Administrator, to appeal the denial of his
or her claim. The claimant (or his or her 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 6.1. 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.
6.3 Satisfaction of Claims. The payment of the benefits due under the Plan to a
Participant or Beneficiary shall discharge the Participating Company's
obligations under the Plan, and neither the Participant nor the Beneficiary
shall have any further rights under the Plan upon receipt by the appropriate
person of all benefits. In addition, (i) if any payment is made to a Participant
or Beneficiary with respect to benefits described in the Plan from any source
arranged by BellSouth 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 the Plan to
the extent of such payment as if such payment had been made directly by such
Participating Company; and (ii) if any payment from a source described in clause
(i) shall be made, in whole or in part, prior to the time payment would be made
under the terms of the Plan, such payment shall be deemed to satisfy such
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. The Plan Administrator or such Participating Company, as a
condition to making any payment, may require such Participant or Beneficiary to
execute a receipt and release therefor in such form as shall be determined by
the Plan Administrator or the Participating Company. If receipt and release is
required but the Participant or Beneficiary (as applicable) does not provide
such receipt and release in a timely enough manner to permit a timely
distribution in accordance with the general timing of distribution provisions in
the Plan, the payment of any affected distribution may be delayed until the Plan
Administrator or the Participating Company receives a proper receipt and
release.
ARTICLE VII
SOURCE OF FUNDS
Each Participating Company shall provide the benefits described in the Plan
from its general assets. However, to the extent that funds in one or more
trusts, or other funding arrangement(s), allocable to the benefits payable under
the Plan are available, such assets may be used to pay benefits under the Plan.
If such assets are not sufficient or are not used to pay all benefits due under
the Plan, then the appropriate Participating Company shall have the obligation,
and the Participant or Beneficiary, who is due such benefits, shall look to such
Participating Company to provide such benefits. No Participant or Beneficiary
shall have any interest in the assets of any trust, or other funding
arrangement, or in the general assets of the Participating Companies other than
as a general, unsecured creditor. Accordingly, a Participating Company shall not
grant a security interest in the assets held by the trust in favor of the
Participants, Beneficiaries or any creditor.
ARTICLE VIII
PLAN ADMINISTRATION
8.1 Action by the Plan Administrator.
(a) Individual Administrator. If the Plan Administrator is an individual, such
individual shall act and record his or her actions in writing. Any matter
concerning specifically such individual's own benefit or rights hereunder shall
be determined by the Board or its designee.
(b) Administrative Committee. If the Plan Administrator is a committee, action
of the Plan Administrator may be taken with or without a meeting of committee
members; provided, action shall be taken only upon the vote or other affirmative
expression of a majority of the committee members qualified to vote with respect
to such action. If a member of the committee is a Participant or Beneficiary,
such member shall not participate in any decision which solely affects his or
her own benefit under the Plan. For purposes of administering the Plan, the Plan
Administrator shall choose a secretary who shall keep minutes of the committee's
proceedings and all records and documents pertaining to the administration of
the Plan. The secretary may execute any certificate or any other written
direction on behalf of the Plan Administrator.
8.2 Rights and Duties of the Plan Administrator. The Plan Administrator shall
administer the Plan and shall have all powers necessary to accomplish that
purpose, including (but not limited to) the following:
(a) to construe, interpret and administer the Plan;
(b) to make determinations required by the Plan, and to maintain records
regarding Participants' and Beneficiaries' benefits hereunder;
(c) to compute and certify to Participating Companies the amount and kinds of
benefits payable to Participants and Beneficiaries, and to determine the time
and manner in which such benefits are to be paid;
(d) to authorize all disbursements by a Participating Company pursuant to the
Plan;
(e) to maintain all the necessary records of the administration of the Plan;
(f) to make and publish such rules and procedures for the regulation of the
Plan as are not inconsistent with the terms hereof;
(g) to delegate to other individuals or entities from time to time the
performance of any of its duties or responsibilities hereunder; and
(h) to hire agents, accountants, actuaries, consultants and legal counsel to
assist in operating and administering the Plan.
The Plan Administrator shall have the exclusive right to construe and interpret
the Plan, to decide all questions of eligibility for benefits and to determine
the amount of such benefits, and its decisions on such matters shall be final
and conclusive on all parties.
8.3 Bond; Compensation. The Plan Administrator and (if applicable) its members
shall serve as such without bond and without compensation for services
hereunder. All expenses of the Plan Administrator shall be paid by the
Participating Companies.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 Amendments. Subject to Section 9.3, the Board shall have the right, in its
sole discretion, to amend the Plan in whole or in part at any time and from time
to time. In addition, the Plan Administrator shall have the right, in its sole
discretion, to amend the Plan at any time and from time to time so long as such
amendment is not of a material nature.
9.2 Termination of Plan. Subject to Section 9.3, BellSouth reserves the right
to discontinue and terminate the Plan at any time, for any reason. Any action to
terminate the Plan shall be taken by the Board and such termination shall be
binding on all Participating Companies, Participants and Beneficiaries.
9.3 Limitation on Authority. Except as otherwise provided in this Section 9.3,
no contractual right created by and under any Deferral Election or Bonus
Deferral Election made prior to the effective date of any amendment or
termination shall be abrogated by any amendment or termination of the Plan,
absent the express, written consent of the Participant who made the Deferral
Election or Bonus Deferral Election.
(a) Plan Amendments. The limitation on authority described in this Section 9.3
shall not apply to any amendment of the Plan which is reasonably necessary, in
the opinion of counsel, (i) to preserve the intended income tax consequences of
the Plan described in Section 10.1, (ii) to preserve the status of the Plan as
an unfunded, nonqualified deferred compensation plan for the benefit of a select
group of management or highly compensated employees and not subject to the
requirements of Part 2, Part 3 and Part 4 of Title I of ERISA, or (iii) to guard
against other material adverse impacts on Participants and Beneficiaries, and
which, in the opinion of counsel, is drafted primarily to preserve such intended
consequences, or status, or to guard against such adverse impacts.
(b) Plan Termination. The limitation on authority described in this Section 9.3
shall not apply to any termination of the Plan as the result of a determination
that, in the opinion of counsel, (i) Participants and Beneficiaries generally
are subject to federal income taxation on Deferral Contributions or other
amounts in Participant Accounts prior to the time of distribution of amounts
under the Plan, or (ii) the Plan is generally subject to Part 2, Part 3 or Part
4 of Title I of ERISA, but in either case only if such termination is reasonably
necessary, in the opinion of counsel, to guard against material adverse impacts
on Participants and Beneficiaries, or BellSouth or Participating Companies. Upon
such termination, the entire amount in each Participant's Accounts shall be
distributed in a single lump-sum distribution as soon as practicable after the
date on which the Plan is terminated. In such event, the Plan Administrator
shall declare that the date of termination (or, if such day is not a Business
Day, the last Business Day immediately preceding such day) shall be a Valuation
Date and all distributions shall be made based on the value of the Accounts as
of such Valuation Date.
(c) Opinions of Counsel. In each case in which an opinion of counsel is
contemplated in this Section 9.3, such opinion shall be in writing and delivered
to the Board, rendered by a nationally recognized law firm selected or approved
by the Board.
ARTICLE X
MISCELLANEOUS
10.1 Taxation. It is the intention of BellSouth that the benefits payable
hereunder shall not be deductible by the Participating Companies nor taxable for
federal income tax purposes to Participants or Beneficiaries until such benefits
are paid by the Participating Company to such Participants or Beneficiaries.
When such benefits are so paid, it is the intention of the Participating
Companies that they shall be deductible by the Participating Companies under
Code Section 162.
10.2 Withholding. All payments made to a Participant or Beneficiary hereunder
shall be reduced by any applicable federal, state or local withholding or other
taxes or charges as may be required under applicable law.
10.3 No Employment Contract. Nothing herein contained is intended to be nor
shall be construed as constituting a contract or other arrangement between a
Participating Company and any Participant to the effect that the Participant
will be employed by the Participating Company or continue to be an employee for
any specific period of time.
10.4 Headings. The headings of the various articles and sections in the Plan
are solely for convenience and shall not be relied upon in construing any
provisions hereof. Any reference to a section shall refer to a section of the
Plan unless specified otherwise.
10.5 Gender and Number. Use of any gender in the Plan 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.
10.6 Assignment of Benefits. The right of a Participant or Beneficiary to
receive payments under the Plan may not be anticipated, alienated, sold,
assigned, transferred, pledged, encumbered, attached or garnished by creditors
of such Participant or Beneficiary, except by will or by the laws of descent and
distribution and then only to the extent permitted under the terms of the Plan.
10.7 Legally Incompetent. The Plan Administrator, in its sole discretion, may
direct that payment be made to an incompetent or disabled person, for whatever
reason, to the guardian of such person or to the person having custody of such
person, without further liability on the part of a Participating Company for the
amount of such payment to the person on whose account such payment is made.
10.8 Entire Document. This Plan document sets forth the entire Plan and all
rights and limits. Except for a formal amendment hereto, no document shall
modify the Plan or create any additional rights or benefits.
10.9 Governing Law. The Plan shall be construed, administered and governed in
all respects in accordance with applicable federal law (including ERISA) and, to
the extent not preempted by federal law, in accordance with the laws of the
State of Georgia. If any provisions of this instrument shall be held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
EXHIBIT A
Participating Companies
(as of September 28, 1998)
Participating Company Names Effective Date
BellSouth Advertising and Publishing Corporation January 1, 1997
BellSouth Applied Technologies, Inc. January 1, 1997
BellSouth BSE, Inc. January 1, 1998
BellSouth Business Systems, Inc. January 1, 1997
BellSouth Cellular Corp. January 1, 1997
BellSouth Cellular National Marketing, Inc. January 1, 1997
BellSouth Communication Systems, Inc. January 1, 1997
BellSouth Corporation January 1, 1997
BellSouth D.C., Inc. January 1, 1997
BellSouth Entertainment, Inc. January 1, 1997
BellSouth Information Systems, Inc. (BIS) January 1, 1997
BellSouth Intellectual Property Management Corporation January 1, 1999
BellSouth International, Inc. January 1, 1997
BellSouth International Long Distance Services January 1, 1999
BellSouth International Wireless Services, Inc. January 1, 1999
BellSouth Long Distance, Inc. January 1, 1997
BellSouth MNS, Inc. January 1, 1999
BellSouth Mobile Data Services, Inc. January 1, 1997
BellSouth.net Inc. January 1, 1997
BellSouth Personal Communications, Inc. January 1, 1997
BellSouth Public Communications, Inc. January 1, 1998
BellSouth Resources, Inc. January 1, 1997
BellSouth Telecommunications, Inc. January 1, 1997
Honolulu Cellular Telephone Company January 1, 1999
Intelligent Media Ventures, Inc. January 1, 1997
L. M. Berry and Company January 1, 1997
Stevens Graphics, Inc. January 1, 1997
Sunlink Corporation January 1, 1997
Westel-Indianapolis Company January 1, 1998
EXHIBIT 11
BellSouth Corporation
Computation of Earnings Per Share
For the Three Month Periods Ended
March 31,
1999 1998
Basic Earnings Per Common Share:
Net Income $ 615 $ 892
Weighted Average Shares
Outstanding 1,932 1,983
Earnings Per Common Share $ .32 $ .45
<PAGE>
EXHIBIT 11
BellSouth Corporation
Computation of Earnings Per Share (continued)
For the Three Month Periods Ended
March 31,
1999 1998
Diluted Earnings Per Common Share:
Net Income $ 615 $ 892
Weighted Average Shares
Outstanding 1,932 1,983
Incremental shares from
assumed exercise of
stock options and payment of
performance share awards 19 10
Total Shares 1,951 1,993
Earnings Per Common Share $ .32 $ .45
EXHIBIT 12
BellSouth Corporation
Computation Of Earnings To Fixed Charges
(Dollars In Millions)
For the Three Months
Ended March 31,
1999
1. Earnings
(a) Income from continuing operations
before deductions for taxes and interest $ 1,400
(b) Portion of rental expense representative
of interest factor 22
(c) Equity in losses from less-than-50%-owned
investments (accounted for
under the equity
method of accounting) 328
(d) Excess of earnings over distributions of
less-than-50%-owned investments
(accounted
for under the equity method of accounting) (25)
TOTAL $ 1,725
2. Fixed Charges
(a) Interest $ 233
(b) Portion of rental expense representative
of interest factor 22
TOTAL $ 255
Ratio (1 divided by 2) 6.76
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<PERIOD-END> MAR-31-1999
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