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 June 30, 1994
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 1-1049
BellSouth Telecommunications, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-0436120
(State of (I.R.S. Employer
Incorporation) Identification Number)
675 West Peachtree Street, N. E., Atlanta, Georgia 30375
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 404 529-8611
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF BELLSOUTH CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND
IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION H(2).
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 .
<PAGE>
PART I - FINANCIAL INFORMATION
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(In Millions)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
(Restated)
Operating Revenues:
Local service $1,709.7 $1,624.6 $3,389.4 $3,243.0
Interstate access 765.0 718.5 1,567.4 1,467.9
Intrastate access 230.4 217.7 460.5 433.2
Toll 300.4 300.0 600.6 605.1
Other 436.4 460.2 949.8 908.8
Total Operating Revenues 3,441.9 3,321.0 6,967.7 6,658.0
Operating Expenses:
Cost of services
and products 1,293.9 1,283.6 2,609.6 2,623.0
Depreciation and amortization 728.5 709.1 1,457.4 1,415.6
Selling, general
and administrative 539.2 559.3 1,101.1 1,109.9
Total Operating Expenses 2,561.6 2,552.0 5,168.1 5,148.5
Operating Income 880.3 769.0 1,799.6 1,509.5
Interest Expense 126.3 149.4 261.8 296.9
Other Income (Expense), net 5.3 6.4 9.3 3.6
Income Before Income Taxes,
Extraordinary Loss and
Cumulative Effect of Change
in Accounting Principle 759.3 626.0 1,547.1 1,216.2
Provision for Income Taxes 284.5 215.7 576.2 418.0
Income Before Extraordinary
Loss and Cumulative Effect
of Change in Accounting
Principle 474.8 410.3 970.9 798.2
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax - (55.4) - (55.4)
Cumulative Effect of Change
in Accounting Principle,
net of tax - - - (64.8)
Net Income $ 474.8 $ 354.9 $ 970.9 $ 678.0
Retained Earnings:
At beginning of period $3,289.0 $3,905.8 $3,180.0 $3,967.0
Add: Net Income 474.8 354.9 970.9 678.0
Deduct: Dividends declared 437.7 407.0 824.8 791.3
At end of period $3,326.1 $3,853.7 $3,326.1 $3,853.7
The accompanying notes are an integral part of these financial statements.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In Millions)
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 106.2 $ 84.3
Accounts receivable, net of
allowance for uncollectibles of $84.9
and $84.6 2,164.2 2,229.0
Material and supplies 343.5 374.3
Other current assets 244.6 253.8
2,858.5 2,941.4
Investments In and Advances To Affiliates 244.5 238.2
Property, Plant and Equipment, net 23,441.8 23,444.4
Deferred Charges and Other Assets 499.0 471.2
Total Assets $27,043.8 $27,095.2
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Debt maturing within one year $ 1,187.5 $ 1,094.6
Accounts payable 1,036.8 1,037.1
Other current liabilities 2,085.3 2,415.4
4,309.6 4,547.1
Long-Term Debt 6,542.6 6,546.5
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 2,821.0 2,831.4
Unamortized investment tax credits 481.0 515.9
Other liabilities and deferred credits 2,130.9 1,994.7
5,432.9 5,342.0
Shareholder's Equity:
Common stock, one share, no par value 7,432.6 7,479.6
Retained earnings 3,326.1 3,180.0
10,758.7 10,659.6
Total Liabilities and Shareholder's Equity $27,043.8 $27,095.2
The accompanying notes are an integral part of these financial statements.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
For the Six Months
Ended June 30,
1994 1993
(Restated)
Cash Flows from Operating Activities:
Net income....................................... $ 970.9 $ 678.0
Adjustments to net income:
Depreciation.................................. 1,455.5 1,414.7
Provision for losses on bad debts............. 60.8 63.6
Write-off of unamortized debt issuance
costs due to early extinguishment of debt.... - 32.8
Change in accounting principle, net of tax.... - 64.8
Deferred income taxes and unamortized
investment tax credits....................... (89.2) (126.7)
Allowance for funds used during construction.. (8.8) (12.2)
Change in accounts receivable................. (19.9) (162.4)
Change in material and supplies............... (54.1) (24.1)
Change in accounts payable and
other current liabilities.................... (320.3) (287.6)
Change in deferred charges and
other assets................................. (28.1) (23.1)
Change in other liabilities and
deferred credits............................. 180.7 99.0
Other reconciling items, net.................. 4.1 4.4
Net cash provided by operating activities.. 2,151.6 1,721.2
Cash Flows from Investing Activities:
Capital expenditures............................. (1,403.5) (1,405.6)
Proceeds from disposals of property, plant
and equipment................................... 26.3 34.2
Investment dispositions.......................... 45.2 -
Purchase of BellSouth Common Stock............... - (190.1)
Other investing activities, net.................. .2 (2.4)
Net cash used for investing activities..... (1,331.8) (1,563.9)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings.............. 5,999.3 5,378.7
Repayment of short-term borrowings............... (5,904.7) (5,076.4)
Advances from parent and affiliates.............. 291.6 197.7
Repayment of advances from parent
and affiliates.................................. (294.5) (166.1)
Proceeds of long-term debt....................... - 1,876.0
Repayment of long-term debt...................... (.2) (1,342.2)
Payment of call premium.......................... - (38.7)
Payment of capital lease obligations............. (7.0) (5.9)
Equity investment of parent...................... (47.0) 12.8
Dividends paid to parent......................... (835.4) (792.7)
Net cash provided by/ (used for)
financing activities......................... (797.9) 43.2
<PAGE>
Net Increase in Cash and
Cash Equivalents................................... 21.9 200.5
Cash and Cash Equivalents at Beginning of Period.... 84.3 133.0
Cash and Cash Equivalents at End of Period.......... $ 106.2 $ 333.5
The accompanying notes are an integral part of these financial statements.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions)
(Unaudited)
(a) Preparation of Interim Financial Statements
The consolidated financial statements of BellSouth Telecommunications, Inc.
("BellSouth Telecommunications") have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission ("SEC").
Certain amounts have been reclassified from previous presentations. In the
opinion of BellSouth Telecommunications, these statements include all
adjustments necessary for a fair presentation of the results of all interim
periods reported herein. All adjustments are of a normal recurring nature.
Certain information and footnote disclosures prepared in accordance with
generally accepted accounting principles have been either condensed or omitted
pursuant to SEC rules and regulations. However, BellSouth Telecommunications
believes that the disclosures made are adequate for a fair presentation of
results of operations, financial position and cash flows. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in BellSouth
Telecommunications' latest annual report on Form 10-K and previous quarterly
report on Form 10-Q. BellSouth Telecommunications is a wholly-owned
subsidiary of BellSouth Corporation ("BellSouth").
(b) Supplemental Cash Flow Information
BellSouth Telecommunications considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. The
following supplemental information is presented in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 95,
"Statement of Cash Flows":
For the Six Months
Ended June 30,
1994 1993
Cash paid during the period for:
Income taxes.................................... $734.2 $586.5
Interest........................................ $265.1 $335.3
(c) Extraordinary Item
During second quarter 1993, BellSouth Telecommunications issued $1,450.0 of
Notes and Debentures to redeem and refinance $1,335.0 aggregate principal
amount of eight outstanding Debenture issues. As a result, an extraordinary
loss on early extinguishment of debt of $55.4 (net of taxes of $38.5) was
recognized for call premiums, unamortized debt discount, premium and issuance
costs related to these transactions.
<PAGE>
(d) SFAS No. 112, "Employers' Accounting for Postemployment Benefits"
In the fourth quarter of 1993, BellSouth Telecommunications adopted SFAS No.
112, "Employers' Accounting for Postemployment Benefits." The cumulative
effect of the change in accounting principle was $64.8. Because the change in
accounting was retroactive to January 1, 1993, the consolidated financial
statements at June 30, 1993 and for the six months then ended (including
Retained Earnings at April 1, 1993) have been restated to reflect the adoption
of the accounting standard.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
SELECTED OPERATING DATA
(Unaudited)
Network Access Lines in Service at June 30 (In Thousands)(a):
Percentage
Gain/(Loss) for the
Periods Ended
June 30,
1994 vs. 1993 vs.
1994 1993 1992
By Category:
Residence 13,923.9 3.35 2.79
Business 5,569.8 6.56 5.59
Other 252.6 (1.83) (5.13)
Total Access Lines 19,746.3 4.16 3.43
By State:
Alabama 1,694.0 3.51 3.34
Florida 5,206.1 4.44 3.65
Georgia 3,255.8 4.98 4.65
Kentucky 1,045.3 2.88 2.87
Louisiana 2,001.5 3.26 1.89
Mississippi 1,098.1 3.71 2.44
North Carolina 1,937.9 4.86 4.01
South Carolina 1,223.5 3.02 2.36
Tennessee 2,284.1 4.51 3.52
Total Access Lines 19,746.3 4.16 3.43
Percentage
Gain/(Loss) for the
Periods Ended
1994 vs. 1993 vs.
1994 1993 1992
Access Minutes of Use (In Millions)(a)(b):
Interstate:
Three months ended March 31 14,050.8 7.94 5.55
Three months ended June 30 14,422.3 7.59 6.03
Six months ended June 30 28,473.1 7.77 5.79
Intrastate:
Three months ended March 31 4,005.6 11.39 6.74
Three months ended June 30 4,175.0 9.90 8.79
Six months ended June 30 8,180.6 10.63 7.78
Total Minutes of Use:
Three months ended March 31 18,056.4 8.69 5.80
Three months ended June 30 18,597.3 8.10 6.63
Six months ended June 30 36,653.7 8.39 6.22
Toll Messages (In Millions)(a)(c)
Three months ended March 31 386.6 5.28 (2.40)
Three months ended June 30 397.2 2.12 7.14
Six months ended June 30 783.8 3.66 2.28
(a) Prior period operating data are often revised at later dates to reflect
the most current information. The above information reflects the latest
data available for the periods indicated.
<PAGE>
(b) Minutes of Use are classified as either interstate or intrastate based
on the percentage interstate usage factor. This factor is updated
periodically.
(c) Effective in 1994, toll messages include messages completed under
optional calling plans. Prior period toll message volumes have been
restated to reflect this change. See "Management's Discussion and
Analysis of Results of Operations - Business Volumes."
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
SELECTED OPERATING DATA - (Continued)
(Unaudited)
For the Six
Months Ended
June 30, Year Ended December 31,
1994 1993 1992 1991 1990 1989
Ratio of Earnings to Fixed Charges (d) 6.02 3.17 4.53 3.86 4.23 4.15
(d) For the purpose of this ratio: (i) earnings have been calculated by adding
income before income taxes, gross interest expense and such portion of
rental expense representative of the interest factor on such rentals; (ii)
fixed charges are comprised of gross interest expense and such portion of
rental expense representative of the interest factor on such rentals.
At June 30,
1994 1993
Debt Ratio (e) 41.4% 40.0%
(e) This ratio is calculated by dividing the sum of debt maturing within one
year and long-term debt, net of unamortized debt issuance costs, by the sum
of shareholder's equity, debt maturing within one year and long-term debt,
net of unamortized debt issuance costs.
Sources of Revenues
Approximately 86% of BellSouth Telecommunications' Total Operating Revenues for
the six month periods ended June 30, 1994 and 1993 were from wireline services.
Charges for local service, access services and toll messages for the six months
ended June 30, 1994 accounted for approximately 56%, 34%, and 10%, respectively,
of the wireline revenues discussed above. The remainder of BellSouth
Telecommunications' Total Operating Revenues was derived principally from
directory publishing fees, customer premises equipment sales and other
nonregulated services.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Dollars in Millions)
BellSouth Telecommunications, Inc. ("BellSouth Telecommunications") is a
wholly-owned subsidiary of BellSouth Corporation ("BellSouth") and is
headquartered in Atlanta, Georgia. BellSouth Telecommunications serves, in the
aggregate, approximately two-thirds of the population and one-half of the
territory within Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina and Tennessee. BellSouth Telecommunications
primarily provides local exchange service and toll communications services
within court-defined geographic areas, called Local Access and Transport Areas
("LATAs"), and provides network access services to enable interLATA
communications using the long-distance facilities of interexchange carriers.
Through subsidiaries, other telecommunications services and products are
provided both inside and outside the nine-state BellSouth Telecommunications
region.
Results of Operations
For the Six
Months Ended June 30,
1994 1993
Net Income $970.9 $678.0
Net Income increased $292.9 (43.2%) for the six month period ended June 30, 1994
when compared to the same prior year period. The increase was attributable to
revenue growth, driven by improvement in key business volumes, and cost control
efforts, including expense savings attributable to the restructuring plan
implemented in 1993. In addition, the increase was due to the effect of charges
in 1993 of $64.8, net of tax, for the retroactive adoption of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits," $55.4, net of tax, for the refinancing of certain
long-term debt issues at lower interest rates and approximately $25 associated
with severe 1993 winter weather conditions. After adjusting for the effect of
the 1993 charges, net income for the six month period ended June 30, 1994
increased $147.7 (17.9%) when compared to the same period last year.
Business Volumes
Growth in access lines was particularly strong. The number of access lines in
service since June 30, 1993 increased by approximately 789,000, or 4.16%, to
19,746,300, compared to a 3.43% rate of increase for the same prior year period.
The overall increase, led by growth in Georgia, North Carolina, Tennessee and
Florida, was primarily attributable to continued economic improvement, including
expanding employment in BellSouth Telecommunications' nine-state region and an
increase in the number of second residential lines. The growth rates in 1994 for
residence and business lines of 3.35% and 6.56%, respectively, improved compared
to growth rates of 2.79% and 5.59%, respectively, in 1993.
<PAGE>
Access minutes of use represent the volume of traffic carried by interexchange
carriers between LATAs, both interstate and intrastate, using BellSouth
Telecommunications' local facilities. Total access minutes of use increased by
2,837.5 million (8.39%) for the six month period ended June 30, 1994, compared
to an increase of 6.22% for the same period last year. The increase in access
minutes of use was partially attributable to access line growth, promotions by
the interexchange carriers and intraLATA toll competition, which has the effect
of increasing access minutes of use while reducing toll messages carried over
BellSouth Telecommunications' facilities. The growth rate in total minutes of
use continues to be negatively impacted by the effects of bypass and the
migration of interexchange carriers to categories of service (e.g., special
access) that have a fixed charge as opposed to a volume-driven charge and to
high capacity services, which causes a decrease in minutes of use.
Toll messages are comprised of Message Telecommunications Service and Wide Area
Telecommunications Service. Also, effective in 1994, toll messages include
messages completed under Optional Calling Plans ("OCPs"), which provide reduced
rates for toll calls within a LATA. Prior period toll message volumes have been
restated to reflect this change. Service pricing under OCPs has resulted in
volume growth. Accordingly, the trend of declining toll message volumes in
prior periods has been mitigated to some extent by the inclusion of messages
completed under these plans.
For the six month period ended June 30, 1994, toll messages increased by 27.6
million (3.66%) compared to a restated increase of 2.28% for the corresponding
period in 1993. The increase was attributable in part to the growth of messages
completed under OCPs. While no new significant local area calling plans have
been implemented since 1992, future implementation of such plans in BellSouth
Telecommunications' service region, coupled with competition in the intraLATA
toll market, will adversely impact future toll message volumes. These plans and
the effects of competition result in the transfer of calls from toll to local
service and access categories, respectively, but the corresponding revenues are
not generally shifted at commensurate rates.
See "Selected Operating Data."
Operating Revenues
Total Operating Revenues increased $309.7 (4.7%) for the six month period ended
June 30, 1994 when compared to the corresponding 1993 period. The components of
Total Operating Revenues were as follows:
For the Six
Months Ended June 30,
1994 1993
Local Service $3,389.4 $3,243.0
Interstate Access 1,567.4 1,467.9
Intrastate Access 460.5 433.2
Toll 600.6 605.1
Other 949.8 908.8
Total Operating
Revenues $6,967.7 $6,658.0
<PAGE>
Local Service revenues increased $146.4 (4.5%) for the six month period ended
June 30, 1994 as compared to the same 1993 period. The increase was
attributable to an increase in access lines in service since June 30, 1993. In
addition, growth in revenues from local area calling plans, which shift revenues
from Toll to Local Service, contributed to the increase. The increase was
partially offset by the effect of net rate reductions since June 30, 1993,
principally in Louisiana.
Interstate Access revenues increased $99.5 (6.8%) for the six month period ended
June 30, 1994 as compared to the same prior year period. The increase was
attributable to higher rates effective July 1, 1993, growth in minutes of use,
increases from end user charges due primarily to access line growth and the
effect of billing adjustments recorded in first quarter 1993, which reduced
revenues for that period. The increase was partially offset by revenue
deferrals under the Federal Communications Commission's ("FCC") price cap plan
and decreased net settlements with the National Exchange Carriers Association.
Since BellSouth Telecommunications' earnings remain in the sharing range of the
FCC's current price cap plan and because of other factors, it is unlikely that
significant revenue growth in this category can be sustained over the long term.
Intrastate Access revenues increased $27.3 (6.3%) for the six month period ended
June 30, 1994 from the comparable 1993 period. The increase was due to growth
in minutes of use, increased net settlements with independent telephone
companies and the effect of billing adjustments recorded in first quarter 1993,
which reduced revenues for that period. The increase was partially offset by
rate reductions since June 30, 1993.
Toll revenues for the six month period ended June 30, 1994 were essentially
unchanged when compared to the same prior year period. Increases attributable
to growth in toll message volumes, reflecting improvements related in part to
optional calling plans, were offset by rate reductions since June 30, 1993,
including the impact of local area calling plans which shift revenues to Local
Service.
Other revenues are principally comprised of revenues from publishing rights
fees, customer premises equipment ("CPE") sales and maintenance services,
billing and collection services, cellular interconnect services and other
nonregulated services (primarily inside wire services).
Other revenues increased $41.0 (4.5%) for the six month period ended June 30,
1994 when compared to the corresponding 1993 period. The increase was
attributable in part to growth in publishing rights and cellular interconnect
fees and higher demand for voice messaging and inside wire services. In
addition, the effect of nonrecurring adjustments, related primarily to billing
and collection services, and volume growth in the CPE businesses, partially
offset by the impact of the sale in April 1994 of the out-of-region CPE sales
and service operations, contributed to the increase. Overall revenue growth for
the period was reduced by increased intrastate sharing accruals.
See "Business Volumes."
<PAGE>
Operating Expenses
The components of Total Operating Expenses are Depreciation and Amortization,
Cost of Services and Products and Selling, General and Administrative. Cost of
Services and Products includes employee and employee-related expenses associated
with network repair and maintenance, material and supplies expense, cost of
tangible goods sold and other expenses associated with providing services.
Selling, General and Administrative includes expenses related to sales
activities such as salaries, commissions, benefits, travel, marketing and
advertising expenses. Total Operating Expenses increased $19.6 (0.4%) for the
six month period ended June 30, 1994 compared to the same period in 1993, the
components of which were as follows:
For the Six
Months Ended June 30,
1994 1993
Depreciation and
Amortization $1,457.4 $1,415.6
Other Operating Expenses:
Cost of Services
and Products 2,609.6 2,623.0
Selling, General and
Administrative 1,101.1 1,109.9
3,710.7 3,732.9
Total Operating
Expenses $5,168.1 $5,148.5
Depreciation and Amortization increased $41.8 (3.0%) for the six month period
ended June 30, 1994 compared to the same period in 1993. The increase was due
to higher levels of property, plant and equipment since June 30, 1993 resulting
from continued growth in the customer base and continued modernization of the
network. In addition, higher depreciation rates in certain jurisdictions
contributed to the increase. The effect of the expiration of inside wire and
reserve deficiency amortizations partially offset the increase for the period.
Other Operating Expenses decreased $22.2 (0.6%) due primarily to expense savings
attributable to a reduction of approximately 3,000 employees since June 30,
1993, reduced expenses for rents and materials and the inclusion in 1993 of
approximately $40 of expenses related to severe weather conditions. The
decrease was partially offset by increased expenses attributable to annual
compensation increases for management and craft employees, overtime compensation
and other expenses, including right-to-use fees. Of the overall reduction in
employees, approximately 2,100 were attributable to the restructuring plan
announced in the fourth quarter of 1993 and approximately 750 resulted from the
sale in April 1994 of the out-of-region CPE sales and service operations.
<PAGE>
For the Six
Months Ended June 30,
1994 1993
Interest Expense $261.8 $296.9
Other Income, net 9.3 3.6
Provision for
Income Taxes 576.2 418.0
Interest Expense decreased $35.1 (11.8%) for the six month period ended June 30,
1994 compared to the same period last year. The decrease was due primarily to a
decline in interest rates on indebtedness, which resulted from refinancings of
long-term debt at lower interest rates.
Provision for Income Taxes increased $158.2 (37.8%) for the six month period
ended June 30, 1994 over the comparable 1993 period. The increase was due
primarily to a higher level of pre-tax income and, to a lesser extent, the one
percent increase in the Federal statutory income tax rate for corporations.
Other Matters
Restructuring of Telephone Operations
Since implementation in fourth quarter 1993 of BellSouth Telecommunications'
overall plan to redesign and streamline its telephone operations by the end of
1996, the workforce has been reduced by approximately 2,100 employees,
including 200 and 600 during the first and second quarters of 1994,
respectively. BellSouth Telecommunications expects to reduce the workforce by
an additional 2,900 employees by the end of 1994 as a part of the restructuring
plan. Cash expenditures through June related to the ongoing implementation of
the restructuring plan were approximately $115. The levels of restructuring
activities and cash expenditures related to this plan are expected to increase
over the restructuring period. At June 30, 1994, the recorded liability
associated with the restructuring plan was $957.
Business Developments
Proposed Interactive Media Services Trial. In June, BellSouth applied to the
FCC for permission to conduct a trial to deliver cable television service and
video dial tone services over the same network. BellSouth plans to undertake
this trial to better position the company to respond to the increasingly
competitive telecommunications market. If approved by the FCC, BellSouth
Telecommunications would construct the network in Chamblee, Georgia and begin
service as early as 1995, providing 60 analog channels for cable television
service and 300 digital channels for interactive services, most of which would
be offered by unaffiliated programming service providers. Specific services
expected to be provided and tested over the network include broadcast
entertainment, interactive video services, such as video games, enhanced
personal computer and communications services, including electronic mail,
transactional services, such as home shopping and banking, and customer-choice
video services, such as movies-on-demand.
<PAGE>
Regulatory Environment
Accounting Under SFAS No. 71
BellSouth Telecommunications continues to account for the economic effects of
regulation under SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation." BellSouth Telecommunications, for strategic and business planning
purposes, continuously monitors and evaluates the impacts of both existing and
potential competitive factors. If, in BellSouth Telecommunications' judgment,
changes in the competitive structure of the telecommunications industry dictate
that it could not charge prices to customers which provide for the recovery of
costs, SFAS No. 71 would no longer apply. Additionally, if BellSouth
Telecommunications is successful in altering the existing regulatory framework
and achieving price regulation, the accounting under SFAS No. 71 would be
discontinued since such plans do not provide for the recovery of specific
costs.
BellSouth Telecommunications currently believes that the existing and
anticipated levels of competition still permit prices based on costs to be
charged to and collected from customers. However, the rapid pace of change in
the industry is making it increasingly likely that BellSouth Telecommunications
will be required to discontinue its accounting under SFAS No. 71 in the future.
If the accounting under SFAS No. 71 were to be discontinued due to the overall
level of competition or to changes in regulatory frameworks, the effect on
BellSouth Telecommunications' financial condition and results of operations
would be material. Specific financial impacts would depend on the timing and
magnitude of changes, both in the marketplace and in the overall regulatory
framework.
Legislative Update
In June, the U.S. House of Representatives passed two bills, H.R. 3626 and H.R.
3636, which could, if enacted into law, significantly affect BellSouth's and
BellSouth Telecommunications' business operations and opportunities. Among
other things, the provisions of H.R. 3626 would allow Bell Holding Companies,
including BellSouth, to transmit and connect cellular telephone and other
wireless transmissions, cable television signals and certain information
services, whether local or long distance. In addition, H.R. 3626 mandates new
federal and state approval processes for the provision of interLATA services
over the traditional wireline network. H.R. 3636 provides a regulatory
framework for opening cable television and local exchange telecommunications
markets to competition. Telecommunications bills are also under consideration
in the U.S. Senate. The outcome of this legislation is uncertain.
Modification of Final Judgment
In July, BellSouth and three other Bell Holding Companies jointly filed a
motion in the U.S. District Court for the District of Columbia seeking relief
from the remaining provisions of the Modification of Final Judgment ("MFJ"),
which restricts Bell Holding Companies from providing certain services and
entering certain lines of business, such as the provision of interLATA services
and the manufacture of telecommunications equipment and CPE. BellSouth and
BellSouth Telecommunications believe that the MFJ restrictions are contrary to
<PAGE>
the public interest in that they impair the effectiveness of competitive
markets, harm consumers economically and undermine the efficient development of
new technology. Final resolution of this motion is not expected in the near
term.
Federal Communications Commission
In June, the United States Court of Appeals for the District of Columbia
Circuit overturned the physical collocation requirement of the FCC that would
have enabled competitive access providers and other third parties ("CAPs") to
establish their interconnection equipment in the central offices of BellSouth
Telecommunications and the other local exchange carriers ("LECs"). On remand,
the FCC ordered LECs who do not voluntarily continue physical collocation
arrangements to offer "virtual collocation" to CAPs whereby the LECs will
themselves provide equipment designated by and dedicated exclusively to the
CAPs for use by the CAPs in providing competitive local communications
services.
South Carolina
In May, BellSouth Telecommunications filed with the South Carolina Public
Service Commission a petition to reinstate incentive regulation for the period
January 1, 1994 through December 31, 1995. The petition was filed in response
to legislation enacted into law in April 1994 which permits the South Carolina
Commission to adopt alternative forms of regulation. Traditional rate of
return regulation is currently in effect. An earnings review by the South
Carolina Commission is currently underway.
Tennessee
In June, the Tennessee Public Service Commission proposed rules to allow local
exchange competition in Tennessee. Under the proposal, qualified service
providers other than traditional telephone companies could compete in the local
exchange telecommunications market. The company has taken the position that
competing carriers can not be qualified in BellSouth Telecommunications'
service area absent amendment of a state statute that prohibits certification
of another network unless the existing network is inadequate. The proposal
also provides that traditional telephone companies, such as BellSouth
Telecommunications, could elect to operate under price regulation. Following
implementation of price regulation, local basic service rates will be capped
for four years, after which a formula will be used to change basic rates. All
other service prices will not increase for a minimum period of two years after
the effective date of price regulation and universal service will be preserved.
Hearings on the proposal are scheduled for August 1994.
Georgia
In June, BellSouth Telecommunications filed with the Georgia Public Service
Commission a proposed price regulation plan. Under the proposed plan, the
regulatory focus would shift from the company's earnings to rates that
customers pay for services. The proposal includes provisions that basic rates
for residential and single-line business customers will not increase for five
years and the rates, terms and conditions for interconnection services and
non-basic services would be set by BellSouth Telecommunications based on market
considerations.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibits identified in parentheses below, on file with
the SEC, are incorporated herein by reference as
exhibits hereto.
Exhibit
Number
4 No instrument which defines the rights of
holders of long and intermediate term debt of
BellSouth Telecommunications, Inc. is filed
herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this
regulation, BellSouth Telecommunications, Inc.
hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
12 Computation of Ratio of Earnings to Fixed
Charges. (Page 10 of this Form 10-Q.)
(b) Reports on Form 8-K:
None.
<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 TELECOMMUNICATIONS, INC.
By /s/ Patrick H. Casey
PATRICK H. CASEY
Vice President and Comptroller
(Principal Accounting Officer)
August 11, 1994
