<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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.
A GEORGIA I.R.S. EMPLOYER
CORPORATION NO. 58-0436120
675 WEST PEACHTREE STREET, N. E., ATLANTA, GEORGIA 30375
TELEPHONE NUMBER 404 529-8611
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- ---------------------------------------
SEE ATTACHMENT. NEW YORK
Securities registered pursuant to Section 12(g) of the Act:
None.
At March 7, 1995 one share of Common Stock was outstanding.
------------------------
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF BELLSOUTH CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K
AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT
PURSUANT TO GENERAL INSTRUCTION J(2).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [NOT APPLICABLE]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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<PAGE>
ATTACHMENT
Title of each class
DEBENTURES
Issues denominated as South Central Bell Telephone Company Debentures
$100,000,000 Principal Amount of Forty Year 7 3/8% Debentures, due August 1,
2012
$210,000,000 Principal Amount of Forty Year 8 1/4% Debentures, due March 1, 2017
$300,000,000 Principal Amount of Forty Year 8 1/2% Debentures, due August 1,
2029
Issues denominated as Southern Bell Telephone and Telegraph Company Debentures
$30,000,000 Principal Amount of Forty Year 3 1/4% Debentures, due October 15,
1995
$75,000,000 Principal Amount of Thirty-Seven Year 5% Debentures, due December
1, 1997
$70,000,000 Principal Amount of Thirty-Seven Year 4 3/8% Debentures, due March
1, 1998
$75,000,000 Principal Amount of Thirty-Nine Year 4 3/8% Debentures, due April
1, 2001
$70,000,000 Principal Amount of Forty Year 4 3/8% Debentures, due August 1,
2003
$100,000,000 Principal Amount of Thirty-Five Year 4 3/4% Debentures, due
September 1, 2000
$100,000,000 Principal Amount of Thirty-Eight Year 6% Debentures, due October 1,
2004
$150,000,000 Principal Amount of Thirty-Eight Year 7 3/8% Debentures, due July
15, 2010
$350,000,000 Principal Amount of Forty Year 7 5/8% Debentures, due March 15,
2013
$275,000,000 Principal Amount of Forty Year 8 1/8% Debentures, due May 1, 2017
$300,000,000 Principal Amount of Thirty-Eight Year 8 3/4% Debentures, due
November 1, 2024
$500,000,000 Principal Amount of Forty Year 8 5/8% Debentures, due September 1,
2026
$300,000,000 Principal Amount of Forty Year 8 1/2% Debentures, due August 1,
2029
BellSouth Telecommunications, Inc.
$250,000,000 Principal Amount of Forty Year 8 1/4% Debentures, due July 1, 2032
$300,000,000 Principal Amount of Forty Year 7 7/8% Debentures, due August 1,
2032
$300,000,000 Principal Amount of Forty Year 7 1/2% Debentures, due June 15, 2033
$350,000,000 Principal Amount of Fifteen Year 5 7/8% Debentures, due January 15,
2009
$400,000,000 Principal Amount of Forty Year 6 3/4% Debentures, due October 15,
2033
NOTES
BellSouth Telecommunications, Inc.
$275,000,000 Principal Amount of Seven Year 6 1/2% Notes, Due February 1, 2000
$150,000,000 Principal Amount of Twelve Year 7% Notes, Due February 1, 2005
$450,000,000 Principal Amount of Ten Year 6 1/4% Notes, Due May 15, 2003
$200,000,000 Principal Amount of Eleven Year 6 3/8% Notes, Due June 15, 2004
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<C> <S> <C>
PART I
1. Business.......................................................... 1
General........................................................... 1
Modification of Final Judgment.................................... 1
Business Operations............................................... 2
Telephone Company Operations...................................... 2
Other Business Operations......................................... 9
Competition....................................................... 9
Research and Development.......................................... 12
Licenses and Franchises........................................... 12
Employees......................................................... 12
2. Properties........................................................ 13
General........................................................... 13
Property Additions................................................ 14
Environmental Matters............................................. 14
3. Legal Proceedings................................................. 15
4. Submission of Matters to a Vote of Shareholders (Omitted pursuant
to General Instruction J(2))
PART II
5. Market for Registrant's Common Equity and Related Shareholder
Matters (Inapplicable)
6. Selected Financial and Operating Data............................. 16
7. Management's Discussion and Analysis of Results of Operations
(Abbreviated pursuant to General Instruction J(2))............... 17
Results of Operations............................................. 17
Volumes of Business............................................... 17
Operating Revenues................................................ 19
Operating Expenses................................................ 20
Other Income Statement Items...................................... 20
Operating Environment and Trends of the Business.................. 21
Other Matters..................................................... 23
8. Consolidated Financial Statements and Supplementary Data.......... 25
Report of Management.............................................. 25
Audit Committee Chairman's Letter................................. 26
Report and Consent of Independent Accountants..................... 27
Consolidated Statements of Income and Retained Earnings........... 28
Consolidated Balance Sheets....................................... 29
Consolidated Statements of Cash Flows............................. 30
Notes to Consolidated Financial Statements........................ 31
9. Changes in and Disagreements with Accountant on Accounting and
Financial
Disclosure....................................................... 43
PART III
10. Directors and Executive Officers of the Registrant (Omitted
pursuant to General Instruction J(2))
11. Executive Compensation (Omitted pursuant to General Instruction
J(2))
12. Security Ownership of Certain Beneficial Owners and Management
(Omitted pursuant to General Instruction J(2))
13. Certain Relationships and Related Transactions (Omitted pursuant
to General Instruction J(2))
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.............................................................. 43
Signatures............................................................... 44
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
BellSouth Telecommunications, Inc. (BellSouth Telecommunications), a
corporation wholly-owned by BellSouth Corporation (BellSouth), is the surviving
corporation from the merger, effective at midnight December 31, 1991, of South
Central Bell Telephone Company (South Central Bell) and Southern Bell Telephone
and Telegraph Company (Southern Bell). BellSouth Telecommunications provides
predominantly tariffed wireline telecommunications services to approximately
two-thirds of the population and one-half of the territory within Alabama,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina and Tennessee. These areas were previously served by South Central Bell
and Southern Bell. BellSouth Telecommunications continues to use the names South
Central Bell and Southern Bell for various purposes.
South Central Bell was incorporated in 1967 under the laws of the State of
Delaware and Southern Bell was incorporated in 1879 under the laws of the State
of New York. On December 31, 1983, pursuant to a consent decree approved by the
United States District Court for the District of Columbia (the D. C. District
Court) entitled "Modification of Final Judgment" (the MFJ) settling antitrust
litigation brought by the United States Department of Justice (the Justice
Department) in 1974 and the related Plan of Reorganization (the POR), American
Telephone and Telegraph Company, now AT&T Corp. (AT&T), transferred to BellSouth
its 100% ownership of South Central Bell and Southern Bell. On the same date,
South Central Bell and Southern Bell were reincorporated through mergers into
Georgia corporations. On January 1, 1984, ownership of BellSouth was divested
from AT&T and BellSouth became a publicly traded company.
BellSouth Telecommunications has its principal executive offices at 675 West
Peachtree Street, N.E., Atlanta, Georgia 30375 (telephone number 404-529-8611).
MODIFICATION OF FINAL JUDGMENT
Pursuant to the MFJ, AT&T divested the 22 wholly-owned operating telephone
companies, including South Central Bell and Southern Bell, that were formerly
part of the Bell System. The ownership of such 22 operating telephone companies
was transferred by AT&T to seven holding companies (the Holding Companies),
including BellSouth. All territory in the continental United States served by
the operating telephone companies was divided into geographical areas termed
"Local Access and Transport Areas" (LATAs). These LATAs are generally centered
on a city or other identifiable community of interest.
The MFJ limits the telecommunications-related scope of the post-divestiture
business activities of the operating telephone companies and their successors
(the Operating Telephone Companies), and the D. C. District Court retained
jurisdiction over construction, implementation, modification and enforcement of
the MFJ*. Under the MFJ, the Operating Telephone Companies may provide local
exchange, exchange access, information access and toll telecommunications
services within the LATAs. Although prohibited from providing service between
LATAs, the Operating Telephone Companies provide exchange access services that
link a subscriber's telephone or other equipment in one of their LATAs to the
transmission facilities of carriers (the Interexchange Carriers), which provide
toll telecommunications services between different LATAs. The Operating
Telephone Companies may market, but not manufacture, customer premises equipment
(CPE), which is defined in the MFJ as equipment used on customers' premises to
originate, route or terminate telecommunications. A
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* The provisions of the MFJ are applicable also to the Holding Companies.
1
<PAGE>
similar restriction applies to the manufacture or provision of
"telecommunications equipment," which is defined in the MFJ as including
equipment used by carriers to provide telecommunications services.
The D.C. District Court has established procedures for obtaining generic and
specific waivers from the manufacturing and interLATA communications
restrictions of the MFJ, although the required filings with and review by the
Justice Department and the D.C. District Court usually result in lengthy and
uncertain proceedings. The foregoing restrictions present significant obstacles
to the provision of certain wireless, cable television and other communications
services and require that such business operations, even where waivers are
ultimately obtained, be conducted under burdensome arrangements or subject to
elaborate structural separation or other conditions. BellSouth is a party to
litigation and is advocating legislation intended to remove or relax the MFJ
restrictions. (See "Competition -- BellSouth Telecommunications' Competitive
Strategy.")
The MFJ requires the Operating Telephone Companies to provide, upon a bona
fide request by any Interexchange Carrier or information service provider,
exchange access, information access and exchange services for such access that
will be equal to that provided to AT&T in quality, type and price. BellSouth
Telecommunications believes it is in compliance with this requirement.
BUSINESS OPERATIONS
Approximately 86% of BellSouth Telecommunications' operating revenues for
the years ended December 31, 1994, 1993 and 1992, respectively, were from
wireline telecommunications services and the remainder of revenues was
principally from directory publishing fees, CPE sales and maintenance and other
nonregulated services.
Certain communications services and products are provided to business
customers by BellSouth Business Systems, Inc., BellSouth Communication Systems,
Inc. and Dataserv, Inc., subsidiaries of BellSouth Telecommunications.
Respectively, these companies provide sales, marketing, product management and
customer service for BellSouth Telecommunications' large business customers
within traditional telephone operating company service areas and nationwide;
sell, install and maintain CPE; and maintain and provide parts and integration
services for computer and data processing equipment.
Revenues from services provided to AT&T, BellSouth Telecommunications'
largest customer, comprised approximately 13%, 16% and 16% of 1994, 1993 and
1992 operating revenues, respectively.
TELEPHONE COMPANY OPERATIONS
BellSouth Telecommunications provides services, which include local
exchange, exchange access and intraLATA toll services, within each of the 38
LATAs in its combined nine-state operating area. BellSouth Telecommunications
experienced an increase in access lines of approximately 887,400 during 1994,
resulting in a total of 20,220,000 lines at December 31, 1994. The overall
increase of 4.6% was primarily attributable to continued economic improvement in
BellSouth Telecommunications' nine-state service region and an increase in the
number of second residential lines. Second residential lines accounted for
approximately 23% of the overall increase in access lines since December 31,
1993. (See "Management's Discussion and Analysis of Results of Operations --
Volumes of Business.")
At December 31, 1994, approximately 76% of access lines were in 53
metropolitan areas, each having a population of 125,000 or more. Many localities
and some sizable areas in the states in which BellSouth Telecommunications
operates are served by non-affiliated telephone companies, which had
approximately 29% of the network access lines in such states on December 31,
1994. BellSouth Telecommunications does not furnish local exchange, access or
toll services in the areas served by such companies.
2
<PAGE>
LOCAL AND TOLL SERVICES
Charges for local services for each of the years ended December 31, 1994,
1993 and 1992 accounted for approximately 49%, 48% and 47%, respectively, of
BellSouth Telecommunications' operating revenues. Local services operations
provide lines from telephone exchange offices to subscribers' premises for the
origination and termination of telecommunications including the following: basic
local telephone service provided through the regular switching network;
dedicated private line facilities for voice and special services, such as
transport of data, radio and video and foreign exchange services; switching
services for customers' internal communications through facilities owned by
BellSouth Telecommunications; services for data transport that include managing
and configuring special service networks; and dedicated low or high capacity
public or private digital networks. Other local services revenue is derived from
intercept and directory assistance, public telephones and various secondary
central office features.
Secondary central office features may be purchased by access line
subscribers for a charge in addition to the basic monthly fee. They include
Custom Calling service (including Call Waiting, 3-Way Calling, Call Forwarding
and Speed Dialing services) and Touchtone service. During 1994, revenues from
secondary central office features comprised approximately 17% of local service
revenues.
In addition to secondary central office features, BellSouth
Telecommunications offers certain enhanced services through its network.
Enhanced services differ from basic services and secondary central office
features in that they employ computer processing applications to alter the
subscriber's transmitted information; provide the subscriber additional,
different or restructured information; or involve subscriber interaction with
stored information. The terms of enhanced service offerings are not regulated
under the rules of the Federal Communications Commission (FCC), but the FCC
prescribes the method by which such services may be provided (for example,
through structurally separated subsidiaries or arrangements providing access to
competitive providers). Such offerings include voice messaging and storage
services, such as MemoryCall-Registered Trademark- voice messaging service.
BellSouth Telecommunications provides intraLATA toll services within, but
not between, its 38 LATAs. Such toll services provided approximately 8%, 9% and
10% of BellSouth Telecommunications' operating revenues for the years ended
December 31, 1994, 1993 and 1992, respectively. These services include the
following: intraLATA service beyond the local calling area; Wide Area
Telecommunications Service ("WATS" or "800" services) for customers with highly
concentrated demand; and special services, such as transport of data, radio and
video.
BellSouth Telecommunications is subject to state regulatory authorities in
each state in which it provides telecommunications services with respect to
intrastate rates, services and other issues. Traditionally, BellSouth
Telecommunications' rates were set in each state in its service areas at levels
which were anticipated to generate revenues sufficient to cover its allowed
expenses and to provide an opportunity to earn a fair return on its capital
investment. Such a regulatory structure was satisfactory in a less competitive
era; however, BellSouth Telecommunications is currently advocating changes to
the regulatory processes responsive to the increasingly competitive
telecommunications environment. Modified forms of state regulation are in effect
in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi and Tennessee.
Under one such modified form of regulation, economic incentives are provided
to lower costs and increase productivity through the potential availability of
"shared" earnings over a benchmark rate of return. Generally, when levels above
targeted returns are reached, earnings are "shared" by providing refunds or rate
reductions to customers. The amounts of any such excess that may be retained
under some plans depend upon attaining mandated service standards, certain
productivity improvement provisions or both. Some sharing plans have a maximum
point above which all earnings must be returned to customers. Under some plans,
if earnings fall below a targeted minimum, additional earnings required to
return to the bottom of the allowed range can be obtained through rate
increases. Sharing plans are generally subject to renewal after two or three
years, and may be subject to modification prior to renewal.
3
<PAGE>
Despite the potential advantages offered by sharing plans, substantial rate
reductions have been incurred in connection with their adoption and operation.
Of the states in which these types of plans were in place, BellSouth
Telecommunications attained the earnings sharing range in Alabama, Florida,
Kentucky and Louisiana in 1994.
Another form of regulation focuses on the prices that can be charged for
telecommunications services. While such a plan limits the amount of increase for
specified services, it enhances the company's ability to adjust prices and
service options to more effectively respond to changing market conditions and
competition. For these reasons, BellSouth Telecommunications is focusing its
regulatory and legislative efforts on replacing existing plans with price
regulation. The Florida, Georgia, North Carolina and Tennessee legislatures are
considering bills that would provide for or allow price regulation and/or local
exchange competition. (See "Management's Discussion and Analysis of Results of
Operations -- Operating Environment and Trends of the Business.")
ALABAMA
An incentive regulation plan has been in effect in Alabama since December
1988, which provides for a return on average total capital* in the range of
11.65% to 12.30%. If earnings exceed 12.30% or drop below 11.65%, sharing with
customers may range from 50% to 100%, depending upon whether certain service and
efficiency requirements are met.
In December 1993, in conjunction with approval of rate adjustments required
by its incentive plans, the Alabama Public Service Commission approved a
settlement of several outstanding issues. The settlement resulted in a net rate
reduction to the company of $15.7 million.
As a result of the first, second and third quarter filings under the plan in
effect, the Alabama Commission accepted rate reductions of $13.1 million in
April 1994, $16.4 million in July 1994 and $8.9 million in October 1994.
In February 1995, BellSouth Telecommunications filed a proposed price
regulation plan with the Alabama Commission. The proposal includes provisions
that basic rates for residential and business customers would not increase for
five years, intrastate switched access prices would be capped at the interstate
level for five years and the company would reduce rates by $30 million.
FLORIDA
From 1988 through 1992, the Florida incentive plan provided for a return on
equity* of 11.5% to 16%, with earnings above 14% to be shared 40% by BellSouth
Telecommunications and 60% by customers with an after-sharing cap of 16%. The
sharing level was not attained under the plan.
In 1993, BellSouth Telecommunications filed a petition to extend the
existing plan. In January 1994, after extensive proceedings and negotiations
between BellSouth Telecommunications, Public Counsel and intervenors, the
Florida Public Service Commission approved a settlement that extends incentive
regulation through 1996. Among other things, the terms of the settlement
provided for rate reductions of $55 million in February 1994, an additional $60
million in July 1994, $80 million in October 1995 and $84 million in October
1996. The settlement provided for other changes in service offerings and tariffs
including approximately $21 million in revenue reductions or increased expenses.
Basic service rates have been capped at their current levels through 1997, and
BellSouth Telecommunications has agreed not to propose any local measured
service on a statewide basis through the same time period.
The agreement established a 1994 return on equity* sharing level of 12% with
an after-sharing cap of 14%, increasing in 1995 to a 12.5% sharing level with an
after-sharing cap of 14.5%. Rates of return beyond 1995 would vary based upon
changes in utility bond yields but would change no more than 75 basis points
from 1995 levels.
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* As defined in the plan for this state.
4
<PAGE>
Financial results for 1994 include an accrual for BellSouth
Telecommunications' estimated sharing obligation of $38 million.
GEORGIA
The Georgia incentive plan adopted in 1990 provided that BellSouth
Telecommunications would retain all earnings up to a 14% return on equity*.
Subject to the attainment of service standards and productivity improvement
provisions, BellSouth Telecommunications could retain a portion of earnings
between 14% and 16%. The plan also provided for a reduction of rates if earnings
exceed a 14% return on equity, even if the service standards and productivity
improvement provisions are met. The amount of any sharing and rate adjustments
would depend upon attaining certain service standards and productivity
improvements. Effective January 1, 1994, the Georgia Public Service Commission
extended the plan for six months and modified the return on equity at which
sharing would occur from 14% to 13%. BellSouth Telecommunications has yet to
attain the sharing level under the Georgia plan. However, a proceeding is
pending regarding this issue and several parties assert that some sharing for
the six-month period ending June 30, 1994 may be required; no accrual has been
made for sharing during this period.
In August 1994, the Georgia Commission approved a staff recommendation to
implement a sharing plan on an interim basis, effective September 1994, until
pending decisions regarding ongoing regulation of the Company are finalized.
Earnings between 13.5% and 15.5% would be shared 50/50 by BellSouth
Telecommunications and its customers.
In June 1994, BellSouth Telecommunications filed with the Georgia Commission
a proposed price regulation plan. The proposal includes provisions that basic
rates for residential and single-line business customers would not increase for
five years and intrastate switched access would not increase for three years.
The rates, terms and conditions for interconnection and non-basic services would
be set by BellSouth Telecommunications based on market considerations. Hearings
have been held, and a decision is pending.
KENTUCKY
Under the Kentucky incentive regulation plan, BellSouth Telecommunications
may earn a return on average total capital* in the range of 10.99% to 11.61%.
Earnings above 11.61% or below 10.99% are subject to sharing with customers on
either a 50/50 or 25/75 basis depending upon the actual rate of return achieved.
BellSouth Telecommunications achieved the sharing level during 1993 and 1994 and
reduced rates by $4.2 million in June 1993, $2.2 million in July 1993, $2.7
million in January 1994 and $1.2 million in June 1994.
BellSouth Telecommunications filed with the Kentucky Public Service
Commission in March 1994 a proposed price regulation plan. The proposal includes
provisions that basic residential rates would not increase for three years,
residential touch-tone charges would be eliminated over a four-year period,
intrastate switched access charges would be reduced to interstate levels and
prices for non-basic services would be based on market factors. Hearings are
scheduled for April 1995.
LOUISIANA
In February 1992, in settlement of several years of regulatory and judicial
proceedings, BellSouth Telecommunications and the Louisiana Public Service
Commission agreed to a three year incentive regulation plan providing for an
immediate $55 million refund, a rate reduction of $31.4 million and an
authorized return on investment* in the range of 10.7% to 11.7%, with sharing of
earnings above 11.7% and below 12.7%. Based on 1992 results, BellSouth
Telecommunications reduced rates by $13.8 million in February and $7.8 million
in August 1993, reflecting its sharing obligation under the new plan.
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* As defined in the plan for this state.
5
<PAGE>
Additionally, effective March 1994, BellSouth Telecommunications was ordered
to reduce rates by $47 million annually and refund approximately $14.6 million
for prior periods. This rate adjustment and refund was associated with the
November 1993 expiration of the company's reserve deficiency amortization. Based
on 1994 data, BellSouth Telecommunications reduced rates by $11.1 million,
effective February 1, 1995, reflecting its sharing obligation under the plan.
In January 1994, BellSouth Telecommunications filed a petition with the
Louisiana Commission requesting a price regulation plan. In November 1994, the
Louisiana Commission rejected the company's price regulation plan as filed. The
company intends to continue seeking such a plan.
In its February 1995 meeting, the Louisiana Commission extended the current
incentive plan pending further regulatory action. The authorized return on
investment was changed to a range of 9.98% to 10.98% with sharing of earnings
between 10.98% and 11.98% to reflect the change in the capital structure and the
cost of debt since inception of the plan. The authorized cost of equity was not
changed. The change in the revenue requirement associated with the lower
authorized return on investment will be offset by the recovery of debt
refinancing costs and an increase of approximately $9 million in annual
intrastate depreciation expense.
MISSISSIPPI
In June 1990, the Mississippi Public Service Commission authorized
implementation of an incentive plan that includes a return on average net
investment* ranging from 10.74% to 11.74% and provides that earnings above
11.74% and shortfalls below 10.74% would be shared with customers on a 50/50
basis. Rate reductions totaling $22.8 million on an annual basis were required
prior to implementation of the plan.
Additional revenue reductions in the amount of $12.8 million related to
intrastate access and area calling plan impacts became effective in January
1993. In June 1993, the Mississippi Commission renewed, through July 1, 1995 the
incentive plan and ordered BellSouth Telecommunications to reduce rates,
effective July 1993, based on a targeted 11.24% return. Effective November 1,
1994, rates were increased by $8.9 million to provide recovery of the costs
associated with a February 1994 ice storm.
In response to an order issued by the Mississippi Commission, BellSouth
Telecommunications filed in September 1994 a model price regulation plan. The
proposal includes provisions that basic exchange and intrastate switched access
rates will not increase for three years and the rates for interconnection
services and other services (as defined in the model plan) would be set by
BellSouth Telecommunications based on market considerations, subject to certain
defined limitations. Hearings are scheduled during the second quarter of 1995.
On December 1, 1994, BellSouth Telecommunications filed for an increase in
rates of $5.1 million pursuant to the terms of the incentive plan. The increase
was suspended by the Mississippi Commission while they consider the matter.
NORTH CAROLINA
In 1989, legislation was enacted in North Carolina authorizing the North
Carolina Utilities Commission to consider alternative forms of regulation. No
specific proposal has been approved or is pending. The North Carolina Commission
reviews BellSouth Telecommunications' rates on an ongoing basis under its
traditional rate of return plan.
In November 1993, the North Carolina Commission approved one-time
depreciation reserve deficiency amortizations of $28.5 million and $25 million
for 1993 and 1994, respectively. In December 1994, the Commission approved an
additional one-time depreciation reserve deficiency amortization of $20.4
million for 1994.
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* As defined in the plan for this state.
6
<PAGE>
SOUTH CAROLINA
In August 1991, the South Carolina Public Service Commission authorized
implementation of an incentive plan, but in August 1993, the South Carolina
Supreme Court ruled that the South Carolina Commission lacked the statutory
authority to approve incentive regulation plans. In April 1994, the South
Carolina Legislature enacted a law which permits the South Carolina Commission
to adopt alternative forms of regulation.
In December 1994, the South Carolina Commission issued an order requiring
that rates be reduced prospectively by approximately $26 million. The Company
was also ordered to refund approximately $28.6 million through a one-time credit
to all residential and business customers for 1992. This order has been appealed
to the courts. Any consideration of earnings for 1993 and 1994 has been delayed
pending resolution of the appeal. In establishing rates prospectively, the South
Carolina Commission retained a 13% return on equity* as the allowed return under
traditional rate of return regulation.
TENNESSEE
In August 1993, the Tennessee Public Service Commission approved a three
year revised incentive regulation plan which lowered the sharing range as a
percentage return on average net investment* from 11.0% - 12.2% to 10.65% -
11.85%. Earnings between 11.85% - 15.85% must be shared with ratepayers in
varying degrees, depending on the quality of service. The plan also provides for
rate increases to cover up to 60% of the amount by which earnings fall below
10.65%.
In December 1994, the Tennessee Commission adopted rules that provide that
local exchange carriers (LECs), such as BellSouth Telecommunications, could
elect to operate under price regulation no earlier than January 1, 1996.
Following implementation of price regulation, local basic service rates would be
capped for four years, after which a formula would 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. Such approval has not yet
been granted.
------------------------
In addition to the above matters, BellSouth Telecommunications is a party to
numerous proceedings pending before state regulatory bodies which involve, among
other things, terms and conditions of services provided by BellSouth
Telecommunications, rates charged for such services and relationships with
affiliates. No assurance can be given as to the outcome of any such matters.
ACCESS SERVICES
BellSouth Telecommunications provides access services by connecting the
communications networks of Interexchange Carriers with the equipment and
facilities of subscribers. These connections are provided by linking these
carriers and subscribers through the public switched network
of BellSouth Telecommunications or through dedicated private lines furnished by
BellSouth Telecommunications.
Access charges, which are payable both by Interexchange Carriers and
subscribers, provided approximately 29% of BellSouth Telecommunications'
operating revenues for the years ended December 31, 1994, 1993 and 1992,
respectively. These charges are designed to recover the costs of the common and
dedicated facilities and switching equipment used to connect networks of
Interexchange Carriers with the telephone company's local network. In addition,
an interstate subscriber line access charge of $3.50 per line per month applies
to single-line business and residential customers. The interstate subscriber
access charge for multi-line business customers varies by state but cannot
exceed $6.00 per line per month.
- ------------------------
* As defined in the plan for this state.
7
<PAGE>
In October 1990, the FCC authorized an alternative to traditional rate of
return regulation called "price caps," effective January 1, 1991, which is
mandatory for certain LECs, including BellSouth Telecommunications. In contrast
to traditional rate of return regulation price caps limits the prices telephone
companies can charge for their services. The price cap plan limits aggregate
price changes to the rate of inflation minus a productivity offset, plus or
minus exogenous cost changes recognized by the FCC. Price cap regulation
provides LECs with enhanced incentives to increase productivity and efficiency.
Concurrent with the implementation of price caps, the FCC reduced the allowed
rate of return on interstate operations from 12.0% to 11.25%.
LECs that operate under price caps are allowed to elect annually by April 1
a productivity offset factor of 3.3% or 4.3%. If the lower offset is chosen,
such carriers will be allowed to earn up to a 12.25% overall rate of return
without sharing. If such carriers earn between 12.25% and 16.25%, half of the
earnings in this range will be flowed through to customers in the form of a
lower price cap index in the following year. All earnings over 16.25% would be
flowed through to customers. If such carriers elect a 4.3% productivity offset,
all earnings below 13.25% may be retained, earnings up to 17.25% would be shared
and earnings over 17.25% would be flowed through to customers. BellSouth
Telecommunications elected to operate under the 3.3% productivity offset factor
for the period July 1, 1994 through June 30, 1995.
In February 1994, the FCC initiated its review of the price cap plan
described above. The FCC identified three broad sets of issues for examination
including those related to the basic goals of price cap regulation, the
operation of price caps and the transition of local exchange services to a fully
competitive market. BellSouth Telecommunications believes and advocates that a
revised price cap plan should be structured to provide increased pricing
flexibility for services as competition evolves in the telecommunications
markets and that sharing be eliminated from the plan. Any changes to the plan
are not expected to be effective until mid-1995.
State regulatory commissions have jurisdiction over charges related to the
provision of access to the Interexchange Carriers to complete intrastate
telecommunications. The state commissions have authorized BellSouth
Telecommunications to collect access charges from the Interexchange Carriers
and, in several states, from customers.
In addition to the above matters, BellSouth Telecommunications is a party to
numerous proceedings pending before the FCC which involve, among other things,
terms and conditions of services provided by BellSouth Telecommunications, rates
charged for such services and relationships with affiliates. No assurance can be
given as to the outcome of any such matters.
BILLING AND COLLECTION SERVICES
BellSouth Telecommunications provides, under contract and/or tariff, billing
and collection services for certain long distance services of AT&T and several
other Interexchange Carriers. The agreement with AT&T has been extended through
1996, subject to the right of AT&T to assume billing and collection for certain
of its services prior to the expiration of the agreement. Revenues from such
services are expected to decrease as AT&T and other carriers assume more direct
billing for their own services.
OPERATOR SERVICES
Directory assistance and local and toll operator services are provided by
BellSouth Telecommunications in its service areas. Toll operator services
include alternate billing arrangements, such as collect calls, third number
billing, person-to-person and calling card calls; dialing instructions; pre-
billed credit; and rate information. In addition, directory assistance is
provided for some Interexchange Carriers which do not directly provide such
services for their own customers.
8
<PAGE>
OTHER BUSINESS OPERATIONS
DIRECTORY PUBLISHING FEES
A percentage of the billed revenues from directory advertising operations of
BellSouth Advertising & Publishing Corporation, a wholly-owned subsidiary of
BellSouth, are paid as publication fees to BellSouth Telecommunications for
publishing rights and other services in its franchise areas. Such fees amounted
to approximately $638, $616 and $598 million in 1994, 1993 and 1992,
respectively.
SELLING AND MAINTAINING EQUIPMENT
Through its subsidiaries, BellSouth Telecommunications sells and maintains
customer premises equipment (CPE), and to a lesser extent, computers and related
office equipment. The Holding Companies, AT&T and other substantial enterprises
compete in the provision of CPE and other services and products. In April 1994,
BellSouth Communications Systems, Inc., a wholly-owned subsidiary, disposed of
its customer premises equipment sales and service operations outside the nine-
state region served by BellSouth Telecommunications.
COMPETITION
GENERAL
BellSouth Telecommunications is subject to increasing competition in all
areas of its business. Regulatory, legislative and judicial actions and
technological developments have expanded the types of available services and
products and the number of companies that may offer them. Increasingly, this
competition is from large companies which have substantial capital,
technological and marketing resources.
A technological convergence is occurring in the telephone, cable and
broadcast television, computer, entertainment and information services
industries. The technologies utilized and being developed in these industries
will enable companies to provide multiple and integrated forms of communications
offerings.
Current policies of federal and state legislative and regulatory bodies
strongly favor lowering legal barriers to competition in the telecommunications
industry. Accordingly, the nature of competition which BellSouth
Telecommunications will face will depend to a large degree on regulatory actions
at the state and federal levels, decisions with respect to the MFJ and possible
state and federal legislation. Legislative or regulatory initiatives are pending
or expected in a number of BellSouth Telecommunications' jurisdictions.
NETWORK AND RELATED SERVICES
LOCAL SERVICE
Many services traditionally provided exclusively by the LECs have been
opened for competition. For example, some carriers and other customers with
concentrated, high usage characteristics are utilizing shared tenant services,
private branch exchange (PBX) systems (which are owned by customers and provide
internal switching functions), private line services and other
telecommunications links which bypass the switched networks of BellSouth
Telecommunications. An increasing number of private voice and data
communications networks utilizing fiber optic lines have been and are being
constructed in metropolitan areas, including Atlanta, Georgia, Charlotte, North
Carolina and Jacksonville, Miami and Orlando, Florida, which will offer certain
high volume users a competitive alternative to the public and private line
offerings of the LECs. In addition, the networks of some cable television
systems will be capable of carrying two-way interactive data messages and will
be configured to provide voice communications. Furthermore, wireless services,
such as cellular telephone and paging services and PCS services when
operational, increasingly compete with wireline communications services.
BellSouth Telecommunications is presently vulnerable to bypass to the extent
that its access charges reflect subsidies for other services. Although BellSouth
Telecommunications believes that
9
<PAGE>
bypass has already occurred to a significant degree in its nine-state area, it
is difficult to quantify the lost revenues since customers are not required to
report to the telephone companies the components of their telecommunications
systems. In general, telephone company telecommunications services in highly
concentrated population and business areas are more vulnerable to bypass.
In January 1994, MCI Communications Corporation announced long range plans
to invest more than $20 billion to create and deliver a wide array of
communications services. Included in these plans is an investment of $2 billion
to construct local networks in major United States cities, including Atlanta,
Georgia and other cities in the Southeast. MCI has stated that it would connect
directly to customers and provide alternative local voice and data
communications services. MCI has applied for local telecommunications licenses
in eight states that have significantly deregulated local service. As states in
BellSouth Telecommunications' wireline region adopt legislation or regulations
enabling multiple local service providers, MCI and other carriers are expected
to seek licenses to compete.
In 1994, AT&T acquired McCaw Communications, Inc., the largest domestic
cellular communications company, which serves customers in 10 cities in
BellSouth Telecommunications' local wireline territory. Furthermore, alliances
are also being formed between other Holding Companies and large corporations
that operate cable television systems in many localities throughout the United
States, for example, U S West, Inc./Time Warner Communications and NYNEX
Corporation/Viacom, Inc. As technological and regulatory developments make it
more feasible for cable television to carry data and voice communications, it is
probable that BellSouth Telecommunications will face competition within its
region from the other Holding Companies through their cable television venture
arrangements.
In July 1994, U S West and Time Warner announced plans to upgrade certain of
their cable TV systems to full-service networks which would support new
interactive and telephone services that would compete with the incumbent LECs.
The first of these full-service networks is being built in Orlando, Florida and
a limited trial of services has begun. Tele-Communications, Inc. has announced
plans to offer similar services in South Florida and Louisville, Kentucky. Time
Warner and U S West have made major cable system acquisitions that are expected
to provide voice and video competition in BellSouth Telecommunications' service
areas. In December 1994, U S West acquired Atlanta's two largest cable
operators.
ACCESS SERVICE
The FCC has adopted rules requiring local exchange carriers to offer
expanded interconnection for interstate special and switched transport. As a
result, BellSouth Telecommunications is required to permit competitive carriers
and customers to terminate their transmission facilities in its central office
buildings through virtual collocation arrangements. The effects of the rules are
to increase competition for access transport.
TOLL SERVICE
A number of firms compete with BellSouth Telecommunications for intraLATA
toll business by reselling toll services obtained at bulk rates from BellSouth
Telecommunications or, subject to the approval of the applicable state public
utility commission, providing toll services over their own facilities.
Commissions in the states in BellSouth Telecommunications' operating territory
have allowed the latter type of intraLATA toll calling, whereby the
Interexchange Carriers are assigned a multiple digit access code (10XXX) which
customers may dial to place intraLATA toll calls through facilities of such
Interexchange Carriers. The Kentucky and Florida Commissions have concluded that
competing carriers should be allowed to provide intraLATA toll presubscribed
calling with a single digit access code (1+ or 0+) and are considering how and
when such authorization should be implemented.
PERSONAL COMMUNICATIONS SERVICES (PCS)
Personal communications services (PCS) are in the developmental stage and
are anticipated to provide a wide range of wireless communications services. The
FCC is currently auctioning licenses for spectrum for broadband PCS with up to
six licenses per geographic area.
10
<PAGE>
BELLSOUTH TELECOMMUNICATIONS COMPETITIVE STRATEGY
REGULATORY AND LEGISLATIVE CHANGES, LITIGATION
The states in BellSouth Telecommunications' service area currently provide
for some form of regulation of earnings, a regulatory framework that BellSouth
Telecommunications believes is not appropriate for the increasingly competitive
telecommunications environment. Accordingly, BellSouth Telecommunications'
primary regulatory focus continues to be directed toward modifying the
regulatory process to one that is more closely aligned with changing market
conditions and overall public policy objectives. As an alternative to the
current regulatory process, BellSouth Telecommunications believes that price
regulation, whereby prices of basic local exchange service are directly
regulated and prices for other products and services are based on market
factors, is a logical progression toward regulatory flexibility and is fair to
consumers. As such, BellSouth Telecommunications is pursuing implementation of
price regulation plans through filings with state regulatory commissions or
through legislative initiatives.
BellSouth Telecommunications is also seeking relief in the courts and before
Congress and regulatory agencies from current laws, regulations and judicial
restrictions (including the MFJ) for the provision of voice, data and video
communications throughout its wireline service territory and elsewhere. It is
furthermore advocating legislative and regulatory initiatives which would
eliminate or modify restrictions on its current and future business offerings.
Bills are being developed in Congress that would provide the opportunity for the
Holding Companies to engage in interLATA long distance and cable and other video
businesses, subject to various conditions and delays. The interexchange carriers
and other competitors and interest groups with substantial resources oppose many
of these initiatives. The ultimate outcome and timing of any relief obtained
cannot be predicted with certainty, but it is unlikely that meaningful
opportunities to engage in interLATA business can be obtained through
legislation without the local and intraLATA toll businesses being opened to
competition.
BellSouth, NYNEX Corporation and SBC Communications Inc. are involved in
litigation in the D.C. District Court seeking relief from the remaining
provisions of the MFJ. BellSouth and BellSouth Telecommunications believe that
the MFJ restrictions are contrary to 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.
Technological changes and the effects of competition reduce the economic
useful lives of BellSouth Telecommunications' fixed assets. As competition
increases in both the exchange access and local exchange markets, the economic
lives of related properties should continue to decrease. Therefore, BellSouth
Telecommunications is examining the rates of depreciation of fixed assets
authorized by the FCC and state regulatory commissions to ensure that these
rates are adequate to recover fixed asset costs in a timely fashion. The FCC and
the state commissions represcribe depreciation rates for BellSouth
Telecommunications at three-year intervals. Such rates will be represcribed in
Florida, Georgia, North Carolina and South Carolina in 1995 and in Alabama,
Kentucky, Louisiana, Mississippi and Tennessee in 1996. (See "Management's
Discussion and Analysis of Results of Operations -- Operating Environment and
Trends of the Business -- Accounting Under SFAS No. 71.")
ENTRY INTO NEW MARKETS
Notwithstanding the risks associated with increased competition, BellSouth
Telecommunications will have the opportunity to benefit from entry into new
business markets. BellSouth Telecommunications believes that in order to remain
competitive in the future, it must aggressively pursue a corporate strategy of
expanding its offerings beyond its traditional businesses and markets. These
offerings may include information services, interactive communications and cable
television and other entertainment services.
In August 1992, the FCC issued an order allowing the LECs to offer video
dial tone for transmitting video services. In February 1995, the FCC approved
BellSouth Telecommunications' application to conduct a trial of video dial tone
services. This trial will be undertaken to better position the
11
<PAGE>
company to respond to the increasingly competitive telecommunications market.
BellSouth Telecommunications will construct the network in Chamblee, Georgia,
that will provide for 70 analog channels and over 200 digital channels to
deliver video programming and interactive services, which will be offered by
various programming service providers. The new services will 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.
In September 1994, the U.S. District Court for the Northern District of
Alabama declared unconstitutional a provision of the Cable Communications Policy
Act of 1984 that prohibits BellSouth and its affiliates from providing cable
television programming in the areas served by BellSouth Telecommunications. As a
result of the Court's decision, which was rendered in response to a suit filed
by BellSouth in 1993 and is now pending appeal by the United States, BellSouth
and its affiliates, including BellSouth Telecommunications, may seek the
appropriate governmental authorizations to provide video programming directly to
consumers throughout its service area.
RESTRUCTURING
BellSouth Telecommunications is restructuring its telephone operations by
streamlining its fundamental processes and work activities to better respond to
an increasingly competitive business environment. This activity is expected to
improve overall responsiveness to customer needs and reduce costs. For a
discussion of the restructuring begun in 1993, see "Management's Discussion and
Analysis of Results of Operations -- Other Matters -- Restructuring of Telephone
Operations."
RESEARCH AND DEVELOPMENT
The majority of BellSouth Telecommunications' research and development
activity is conducted at Bell Communications Research, Inc. (Bellcore),
one-seventh of which is owned by BellSouth, through BellSouth
Telecommunications, with the remainder owned by the other Holding Companies.
Bellcore provides research and development and other services for its owners and
is the central point of contact for coordinating the Federal government's
telecommunications requirements relating to national security and emergency
preparedness.
LICENSES AND FRANCHISES
BellSouth Telecommunications' local exchange business is typically provided
under certificates of public convenience and necessity granted pursuant to state
statutes and public interest findings of the various public utility commissions
of the states in which BellSouth Telecommunications does business. These
certificates provide for a franchise of indefinite duration, subject to the
maintenance of satisfactory service at reasonable rates. MCI Communications
Corporation and U S West have announced plans to pursue approval to provide
local telephone service, thereby challenging the exclusivity of BellSouth
Telecommunications' franchise for local service.
BellSouth Telecommunications owns or has licenses to use all patents,
copyrights, licenses, trademarks and other intellectual property necessary for
it to conduct its present business operations. It is not anticipated that any of
such property will be subject to expiration or non-renewal of rights which would
materially and adversely affect BellSouth Telecommunications or its
subsidiaries.
EMPLOYEES
On December 31, 1994, 1993, and 1992 BellSouth Telecommunications employed
approximately 76,700, 81,400 and 82,900 persons, respectively. About 72% of
these employees at December 31, 1994 were represented by the Communications
Workers of America (the CWA), which is affiliated with the AFL-CIO. BellSouth
Telecommunications' collective bargaining agreement with the CWA, as well as the
agreements with certain of its subsidiaries, are scheduled to terminate on
August 5, 1995. Negotiations with the CWA over the terms of the new agreements
will begin early in June 1995. The outcome of these negotiations cannot be
determined at this time.
12
<PAGE>
In November 1993, BellSouth Telecommunications announced a plan to reduce
its workforce by approximately 10,200 employees by the end of 1996 through
normal attrition, transitional programs, other voluntary options and involuntary
separations. For the years ended December 31, 1994 and 1993, total employee
reductions under this plan were 3,900 and 1,300, respectively. (See
"Management's Discussion and Analysis of Results of Operations -- Other Matters
- -- Restructuring of Telephone Operations.")
ITEM 2. PROPERTIES
GENERAL
BellSouth Telecommunications' properties do not lend themselves to
description by character and location of principal units. BellSouth
Telecommunications' investment in property, plant and equipment consisted of the
following at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Outside Plant..................................................... 46% 46%
Central Office Equipment.......................................... 37 37
Land and Buildings................................................ 7 7
Furniture and Fixtures............................................ 5 5
Operating and Other Equipment..................................... 4 4
Other............................................................. 1 1
--- ---
100% 100%
--- ---
--- ---
</TABLE>
Outside plant consists of connecting lines (aerial, underground and buried
cable) not on customers' premises, the majority of which are on or under public
roads, highways or streets, while the remainder is on or under private property.
BellSouth Telecommunications currently self-insures a substantial amount of its
outside plant against casualty losses. Central office equipment consists of
analog switching equipment, digital electronic switching equipment and circuit
equipment. Land and buildings are occupied principally by central offices.
Operating and other equipment consists of embedded intrasystem wiring,
substantially all of which is on the premises of customers, motor vehicles and
equipment.
13
<PAGE>
Substantially all of the installations of central office equipment and
administrative offices are located in buildings and on land owned by BellSouth
Telecommunications. Many garages, business offices and telephone service centers
are in leased quarters.
BellSouth Telecommunications' customers are now served by electronic
switching systems that provide a wider variety of services than their mechanical
predecessors. The BellSouth Telecommunications network is in transition from an
analog to a digital network, which provides capabilities for BellSouth
Telecommunications to furnish advanced data transmission and information
management services.
PROPERTY ADDITIONS
Property additions include gross additions to property, plant and equipment
having an estimated service life of one year or more, plus the incidental costs
of preparing the asset for its intended use. In the case of constructed assets,
an amount related to the cost of debt and equity used in the construction of an
asset is capitalized as part of the asset when the construction period is in
excess of one year. Property additions also include assets acquired by means of
entering into a capital lease agreement, gross additions to operating lease
equipment and reused materials.
The total investment in telephone plant has increased from approximately
$34,820 million at January 1, 1990 to approximately $41,696 million at December
31, 1994, not including deductions of accumulated depreciation. Significant
additions to property, plant and equipment will be required to meet the demand
for telecommunications services and to further modernize and improve such
services to meet competitive demands. Population and economic expansion is
projected by BellSouth Telecommunications in certain growth centers within its
nine-state area during the next five to ten years. Expansion of the network will
be needed to accommodate such projected growth.
BellSouth Telecommunications' capital expenditures for 1990 through 1994
were as follows:
<TABLE>
<CAPTION>
MILLIONS
---------
<S> <C>
1994..................................... $ 2,971
1993..................................... 2,995
1992..................................... 2,846
1991..................................... 2,747
1990..................................... 2,938
</TABLE>
BellSouth Telecommunications currently projects capital expenditures to be
approximately $3,000 million for 1995. In 1994, BellSouth Telecommunications
generated substantially all of its funds for capital expenditures internally. In
1995, such capital expenditures are expected to be financed primarily through
internally generated funds and, to the extent necessary, from external sources.
ENVIRONMENTAL MATTERS
BellSouth Telecommunications is subject to a number of environmental matters
as a result of its operations and the shared liability provisions in the Plan of
Reorganization (POR). As a result, BellSouth Telecommunications expects that it
will be required to expend funds to remedy certain facilities, including those
Superfund sites for which BellSouth Telecommunications has been named as a
potentially responsible party, for the remediation of sites with underground
fuel storage tanks and other expenses associated with environmental compliance.
At December 31, 1994, BellSouth Telecommunications' recorded liability related
primarily to remediation of these sites was $35.8 million.
BellSouth Telecommunications continually monitors its operations with
respect to potential environmental issues, including changes in legally mandated
standards and remediation technologies. BellSouth Telecommunications' recorded
liability reflects those specific issues where remediation activities are
currently deemed to be probable and where the cost of remediation is estimable.
BellSouth Telecommunications continues to believe that expenditures in
connection with additional remedial actions under the current environmental
protection laws or related matters will not be material to its financial
position.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The MFJ and the related POR provide for the recognition and payment of
liabilities by AT&T and the Operating Telephone Companies that are attributable
to pre-divestiture events but that did not become certain until after
divestiture. These contingent liabilities relate principally to litigation and
other claims with respect to the former Bell System's environmental liabilities,
rates, taxes, contracts and torts (including business torts, such as alleged
violations of the antitrust laws). Contingent liabilities attributable to
pre-divestiture events have been shared by AT&T and the Operating Telephone
Companies in accordance with formulae prescribed by the POR, whether or not an
entity was a party to the proceeding and regardless of whether an entity was
dismissed from the proceeding by virtue of settlement or otherwise. BellSouth
Telecommunications' share of these liabilities to date has not been material to
its financial position or results of operations for any period.
The Operating Telephone Companies have agreed among themselves to disengage
from the sharing of most categories of contingent liabilities formerly subject
to the POR sharing mechanism. Sharing under the POR would continue for matters
for which notice was given as of May 23, 1994 and certain pre-divestiture
environmental claims. The sharing of liabilities for pre-divestiture claims
between AT&T and one or more Operating Telephone Companies are not affected by
this agreement.
BellSouth Telecommunications and its subsidiaries are subject to numerous
claims and proceedings arising in the ordinary course of business involving
allegations of personal injury, breach of contract, anti-competitive conduct and
other matters. While complete assurance cannot be given as to the outcome of any
contingent liabilities, in the opinion of BellSouth Telecommunications, any
financial impact to which BellSouth Telecommunications is subject is not
expected to be material in amount to BellSouth Telecommunications' financial
position.
15
<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenues....................... $14,040 $13,580 $13,182 $12,768 $12,762
Operating Expenses (1)................... 10,452 11,591 10,258 10,046 9,859
--------- --------- --------- --------- ---------
Operating Income......................... 3,588 1,989 2,924 2,722 2,903
Interest Expense......................... 549 562 583 650 626
Other Income, net........................ 18 21 75 1 27
Provision for Income Taxes............... 1,105 461 801 647 708
Extraordinary Loss, net of tax........... -- (87) (41) -- --
Accounting Change, net of tax............ -- (65) -- -- --
--------- --------- --------- --------- ---------
Net Income............................. $ 1,952 $ 835 $ 1,574 $ 1,426 $ 1,596
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Assets............................. $27,372 $27,095 $26,442 $26,322 $26,511
Capital Expenditures..................... $ 2,971 $ 2,995 $ 2,846 $ 2,747 $ 2,938
Long-Term Debt........................... $ 6,512 $ 6,547 $ 6,336 $ 6,403 $ 6,440
Ratio of Earnings to Fixed Charges (2)... 5.68 3.17 4.53 3.86 4.23
Return to Average Common Equity.......... 18.02% 7.32% 13.78% 12.49% 14.13%
Debt Ratio at End of Period.............. 41.01% 41.29% 38.46% 38.17% 37.83%
Telephone Employees (3).................. 73,764 77,958 79,453 79,743 85,967
Other Operations Employees............... 2,944 3,457 3,413 2,502 --
--------- --------- --------- --------- ---------
Total Employees........................ 76,708 81,415 82,866 82,245 85,967
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Telephone Employees per 10,000 Access
Lines................................... 36.5 40.3 42.6 44.1 49.1
Business Volumes (In Millions): (4)
Network Access Lines in Service:
Residence.............................. 14.2 13.7 13.3 12.9 12.6
Business............................... 5.8 5.4 5.1 4.8 4.6
Other.................................. .2 .2 .2 .3 .3
--------- --------- --------- --------- ---------
Total................................ 20.2 19.3 18.6 18.0 17.5
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Access Minutes of Use:
Interstate............................. 57,778.1 53,345.0 50,546.4 47,255.3 44,903.3
Intrastate............................. 16,887.8 15,260.9 13,994.2 13,237.7 12,119.5
Toll Messages............................ 1,558.6 1,511.4 1,462.2 1,504.1 1,496.4
<FN>
- ------------------------
(1) Operating Expenses for 1993 include a charge for restructuring of $1,136.4,
which reduced net income by $696.6. See Note J to the Consolidated
Financial Statements.
(2) For the purpose of this ratio: (i) earnings have been calculated by adding
income before income taxes, interest expense and such portion of rental
expense representative of the interest factor on such rentals; (ii) fixed
charges are comprised of total interest expense and such portion of rental
expense representative of the interest factor on such rentals.
(3) Effective in 1994, telephone employees exclude those employees in BellSouth
Telecommunications' subsidiaries which are unrelated to telephone
operations; all prior years have been
restated.
(4) Prior period operating data are revised at later dates to reflect the most
current information. The above information reflects the latest data
available for the periods indicated.
</TABLE>
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<PAGE>
ITEM 7. 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). 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.
Approximately 86% of BellSouth Telecommunications' Total Operating Revenues
for the years ended December 31, 1994 and 1993, respectively, were from wireline
services. Charges for local service, access services and toll for the year ended
December 31, 1994 accounted for approximately 57%, 33% and 10%, respectively, of
the wireline revenues discussed above. The remainder of BellSouth
Telecommunications' Total Operating Revenues was derived principally from
directory publishing fees, sales and maintenance of customer premises equipment
and other nonregulated services.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 1993 % CHANGE
---------- --------- -----------
<S> <C> <C> <C>
Net Income.................................. $1,951.6 $835.0 133.7%
</TABLE>
Net Income for 1994 increased $1,116.6 compared to 1993. The increase was
attributable in part to revenue growth, driven by continued growth of access
lines and other key volumes, and cost control measures, including salary and
wage savings attributable to the restructuring plan implemented in 1993. The
increase was also due to the effect of charges which occurred in 1993 and, in
the aggregate, reduced Net Income by $920.0 for that year. The 1993 charges
include $696.6 for restructuring of the core telephone operations (see Note J);
$86.6 for the refinancing of certain long-term debt issues at lower interest
rates (see Note E); $64.8 for the retroactive adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits" (see Note H); $47 for the initial impact of a regulatory settlement in
Florida; and approximately $25 associated with severe 1993 winter weather
conditions.
VOLUMES OF BUSINESS
Network Access Lines in Service at December 31 (Thousands):
<TABLE>
<CAPTION>
1994 1993 % CHANGE
---------- ---------- ------------
<S> <C> <C> <C>
By Type:
Residence............................... 14,195.2 13,691.4 3.7%
Business................................ 5,770.5 5,388.3 7.1
Other................................... 254.3 252.9 0.6
---------- ----------
Total................................. 20,220.0 19,332.6 4.6
---------- ----------
---------- ----------
By State:
Florida................................. 5,349.7 5,096.6 5.0
Georgia................................. 3,353.6 3,166.7 5.9
Tennessee............................... 2,337.0 2,236.0 4.5
Louisiana............................... 2,037.3 1,963.3 3.8
North Carolina.......................... 1,993.8 1,896.2 5.1
Alabama................................. 1,726.4 1,668.3 3.5
South Carolina.......................... 1,243.5 1,199.8 3.6
Mississippi............................. 1,118.4 1,076.6 3.9
Kentucky................................ 1,060.3 1,029.1 3.0
---------- ----------
Total................................. 20,220.0 19,332.6 4.6
---------- ----------
---------- ----------
</TABLE>
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<PAGE>
The rate of growth in access lines continued to be particularly strong, 4.6%
in 1994, compared to a 3.7% rate of increase in 1993. The number of access lines
in service since December 31, 1993 increased by approximately 887,400. The
overall increase, led by growth in Georgia, North Carolina 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. Second residential lines accounted
for approximately 40.2% and 22.8% of the overall increases in residence access
lines and total access lines, respectively, since December 31, 1993. The growth
rates in 1994 for total residence and business lines of 3.7% and 7.1%,
respectively, improved compared to growth rates of 3.0% and 5.9%, respectively,
in 1993.
Access Minutes of Use (Millions):
<TABLE>
<CAPTION>
1994 1993 % CHANGE
---------- ---------- ------------
<S> <C> <C> <C>
Interstate................................ 57,778.1 53,345.0 8.3%
Intrastate................................ 16,887.8 15,260.9 10.7
---------- ----------
Total................................... 74,665.9 68,605.9 8.8
---------- ----------
---------- ----------
</TABLE>
Access minutes of use represent the volume of traffic carried by
interexchange carriers between LATAs, both interstate and intrastate, using
BellSouth Telecommunications' local facilities. In 1994, total access minutes of
use increased by 6,060.0 million (8.8%) compared to an increase of 6.3% in 1993.
The 1994 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' network. 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.
<TABLE>
<CAPTION>
1994 1993 % CHANGE
--------- --------- ------------
<S> <C> <C> <C>
Toll Messages (Millions).................... 1,558.6 1,511.4 3.1%
</TABLE>
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. The pricing of services provided under OCPs has
stimulated volume growth. Accordingly, the trend of declining toll message
volumes in prior periods has been reversed by the inclusion of messages
completed under these plans.
Toll messages increased by 47.2 million (3.1%) compared to a restated
increase of 3.4% in 1993. The 1994 increase, attributable in part to the growth
of messages completed under OCPs and stimulation resulting from access line
growth, was partially offset by the effect of optional extended area calling
plans which, based on a customer's election, provide for a wider toll-free
calling area.
In September 1994, South Carolina implemented an expanded local area calling
plan. While the South Carolina plan's impact on 1994 toll message volumes was
negligible, this plan and future implementation of other such plans in BellSouth
Telecommunications' service region, coupled with competition in the intraLATA
toll market, will adversely impact future toll message volumes. Local area and
optional extended area calling plans and the effects of competition result in
the transfer of calls from toll to local service and access categories,
respectively, but the corresponding revenues are not generally shifted at
commensurate rates.
18
<PAGE>
OPERATING REVENUES
Total Operating Revenues increased $460.3 (3.4%). The components of Total
Operating Revenues were as follows:
<TABLE>
<CAPTION>
1994 1993 % CHANGE
----------- ----------- ------------
<S> <C> <C> <C>
Local Service.......................... $ 6,863.1 $ 6,577.3 4.3%
Interstate Access...................... 3,127.2 2,991.2 4.5
Intrastate Access...................... 908.3 881.9 3.0
Toll................................... 1,190.1 1,219.5 (2.4)
Other.................................. 1,951.2 1,909.7 2.2
----------- -----------
Total Operating Revenues............. $ 14,039.9 $ 13,579.6 3.4
----------- -----------
----------- -----------
</TABLE>
LOCAL SERVICE revenues reflect amounts billed to customers for local
exchange services, which include connection to the network and secondary central
office feature services, such as custom calling features and custom dialing
packages. (Revenues from cellular interconnection and other mobile services are
included in Other operating revenues for both periods presented.)
The increase in 1994 of $285.8 (4.3%) was due primarily to an increase of
887,400 access lines since December 31, 1993. Also contributing to the increase
was growth attributable to optional extended area calling plans. The increase in
1994 was partially offset by rate reductions, principally in Louisiana and also
in Florida and Alabama.
INTERSTATE ACCESS revenues result from the provision of access services to
interexchange carriers to provide telecommunications services between states.
Interstate Access revenues increased $136.0 (4.5%) in 1994.
The 1994 increase was attributable to growth in minutes of use, additional
end user charges due primarily to access line growth and the effect of billing
and other adjustments recorded in 1993, which reduced revenues for that period
by approximately $20. The increases were partially offset by the effect of rate
reductions effective in July 1994 and October 1994, additional revenue deferrals
under the Federal Communications Commission's (FCC) price cap plan and decreased
net settlements with the National Exchange Carriers Association.
See "Operating Environment and Trends of the Business."
INTRASTATE ACCESS revenues result from the provision of access services to
interexchange carriers which provide telecommunications services between LATAs
within a state. In 1994, Intrastate Access revenues increased $26.4 (3.0%). Such
increase was attributable to growth in minutes of use and the reclassification
in 1994 of independent company settlements in certain states, which would have
previously reduced revenues, to operating expenses. The increase was partially
offset by the impact of rate reductions, primarily in Alabama and Florida.
TOLL revenues are received from the provision of long-distance services
within (but not between) LATAs. These services include intraLATA service beyond
the local calling area; Wide Area Telecommunications Service (WATS or 800
services) for customers with highly concentrated demand; and special services,
such as transport of voice, data and video. Toll revenues decreased $29.4 (2.4%)
in 1994. The decrease was primarily attributable to several settlements with
independent companies, the reclassification of certain settlements to Intrastate
Access revenue, net rate reductions since December 31, 1993 and the impact of
optional extended area calling plans. The decrease was partially offset by
growth in toll message volumes, reflecting improvements related in part to OCPs.
The overall decline in Toll revenues is expected to continue over the long term.
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 $41.5 (2.2%)
in 1994. The increase was attributable to growth in publishing rights and
cellular interconnect fees and higher demand for unregulated products and
services, including CPE for residential customers, voice messaging and inside
wire services. In addition, the effects of adjustments and reclassifications
related to services under certain state regulatory plans and billing and
collection services contributed to the increase. Revenues derived from billing
and collection are expected to decline over the long term due to interexchange
carriers' assuming more direct billing for
19
<PAGE>
their own services. The increase was partially offset by increased revenue
deferrals related to potential sharing under certain state regulatory plans and
the sale in April 1994 of BellSouth Telecommunications' out-of-region CPE sales
and service operations.
OPERATING EXPENSES
Primarily as a result of the effect of the 1993 restructuring charge, Total
Operating Expenses decreased $1,138.3 (9.8%) in 1994. The components of Total
Operating Expenses were as follows:
<TABLE>
<CAPTION>
1994 1993 % CHANGE
----------- ----------- -----------
<S> <C> <C> <C>
Depreciation and Amortization $ 2,953.6 $ 2,902.6 1.8%
----------- -----------
Other Operating Expenses:
Cost of Services and Products........ 5,235.2 5,169.4 1.3
Selling, General and
Administrative...................... 2,263.4 2,382.1 (5.0)
Restructuring Charge................. -- 1,136.4 (100.0)
----------- -----------
7,498.6 8,687.9 (13.7)
----------- -----------
Total Operating Expenses............. $ 10,452.2 $ 11,590.5 (9.8)
----------- -----------
----------- -----------
</TABLE>
DEPRECIATION AND AMORTIZATION increased $51.0 (1.8%) in 1994. The increase
in 1994 was due to higher levels of property, plant and equipment since December
31, 1993 resulting from continued growth in the customer base, continued
modernization of the network and a special reserve deficiency amortization of
$20.4 in North Carolina. The increase for the period was partially offset by the
expiration of reserve deficiency amortizations in Louisiana and the inclusion in
1993 of approximately $20 of additional depreciation expense related to
extraordinary property retirements in conjunction with a regulatory settlement
in Florida.
OTHER OPERATING EXPENSES are comprised of Cost of Services and Products,
Selling, General and Administrative and, in 1993, a Restructuring Charge. Cost
of Services and Products includes employee and employee-related expenses
associated with network repair and maintenance, material and supplies expense,
cost of tangible goods sold and other expenses associated with providing
services. Selling, General and Administrative includes expenses related to sales
activities such as salaries, commissions, benefits, travel, marketing and
advertising expenses and administrative expenses. Other Operating Expenses
decreased $1,189.3 (13.7%) in 1994. Excluding the $1,136.4 restructuring charge
in 1993, Other Operating Expenses decreased $52.9 (0.7%) in 1994.
As adjusted, the 0.7% decrease in 1994 was primarily attributable to the
sale in 1994 of the out-of-region CPE sales and service operations, the
inclusion in 1993 of approximately $55 and $40, respectively, related to a
regulatory settlement in Florida and severe 1993 weather conditions and a
reduction in 1994 expenses for rents, uncollectibles and contract services. The
decrease was partially offset by increased expenses related to volume growth and
network modernization, primarily for software license fees and materials, and
the effect of reclassifying settlements with independent telephone companies in
certain states from Intrastate Access revenues to operating expenses in 1994.
Total employee-related costs also increased, reflecting annual compensation
increases for management and represented employees, increased overtime
attributable to volume growth and network service activities and higher expenses
for employee benefits, partially offset by salary and wage savings from employee
reductions attributable to the restructuring plan begun in 1993 and a reduction
in pension expense (see Note H).
OTHER INCOME STATEMENT ITEMS
<TABLE>
<CAPTION>
1994 1993 % CHANGE
---------- ---------- -----------
<S> <C> <C> <C>
Interest Expense.......................... $ 548.8 $ 562.6 (2.5%)
Other Income, net......................... 18.3 21.4 (14.5)
Provision for Income Taxes................ 1,105.6 461.5 139.6
</TABLE>
INTEREST EXPENSE includes interest on debt, certain other accrued
liabilities and capital leases, offset by an allowance for funds used during
construction, which is capitalized as a cost of installing equipment and
constructing plant. Interest expense decreased $13.8 (2.5%) in 1994. The
decrease resulted primarily from interest savings attributable to refinancings
in 1993 of long-term debt at lower interest rates. The decrease was partially
offset by higher average levels of short-term borrowings at higher average
interest rates. (See Notes E and K.)
20
<PAGE>
PROVISION FOR INCOME TAXES increased $644.1 (139.6%) in 1994. BellSouth
Telecommunications' effective tax rates were 36.2% and 31.9% in 1994 and 1993,
respectively. The effective rate for 1993 reflects the impact of the
restructuring charge which significantly lowered pre-tax income. Such lower
level of pre-tax income caused investment tax credit amortization to more
significantly influence the effective tax rate in that year. A reconciliation of
the statutory Federal income tax rates to these effective tax rates is provided
in Note L. A discussion of the adoption of SFAS No. 109, "Accounting for Income
Taxes," also is included therein.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
REGULATORY ENVIRONMENT. In providing telecommunications services, BellSouth
Telecommunications is subject to regulation by both state and federal regulators
with respect to rates, services and other issues. Other than in North Carolina
and South Carolina, where it is subject to traditional rate of return
regulation, BellSouth Telecommunications is operating under some form of
incentive regulation plan at the state and federal levels whereby earnings above
certain levels within a given range must be shared with customers in the form of
credits, refunds or prospective rate reductions. These plans provide incentives
to reduce costs and retain a portion of earnings above the sharing point, and in
some cases, all earnings above the top of the range must be returned to
customers. Since BellSouth Telecommunications' earnings fell close to or within
the sharing range in its incentive plans during 1994, its ability to increase
its earnings over the long run under these plans, even through productivity
enhancements, is constrained. At December 31, 1994, BellSouth
Telecommunications' estimated sharing obligation related to interstate access
services was $141.6. Furthermore, its ability to change rates to more
effectively respond to competition is limited under the current regulatory
plans, which require, in general, that rates be charged as provided in tariff
filings.
Accordingly, BellSouth Telecommunications' primary regulatory focus is
directed toward modifying the regulatory process to one that is more closely
aligned with changing market conditions and overall public policy objectives. As
an alternative to the current regulatory processes, BellSouth Telecommunications
believes that price regulation, whereby prices of basic local exchange services
are directly regulated, irrespective of rate of return tests, and prices for
other products and services are based on market factors, is a logical
progression to competitive fairness and provides advantages for consumers. While
no such local regulatory plan has been implemented in the nine-state service
area, the Tennessee Public Service Commission, subject to certain governmental
authorizations and the enactment of enabling legislation, adopted rules to allow
local exchange competition, including a provision whereby BellSouth
Telecommunications could elect to operate under a price regulation plan. In
addition, proposed plans filed by BellSouth Telecommunications in Kentucky,
Georgia, Mississippi and Alabama are currently under review by the respective
commissions in those states. The Florida, Georgia, North Carolina and Tennessee
legislatures are considering bills that would provide for or allow price
regulation and/or local exchange competition. A proposed plan filed with the
Louisiana Public Service Commission was rejected in November 1994. The FCC is
reviewing its regulatory plan; any changes to the plan are not expected to be
effective until mid-1995. BellSouth Telecommunications will continue to pursue
implementation of price regulation plans in Louisiana, other states and at the
federal level through filings with regulatory commissions and through
legislative initiatives.
ECONOMY. The nation's gross domestic product grew 4% in 1994, which was the
strongest annual growth of the current economic expansion. Employment in nonfarm
businesses grew 2.6% during the year as the unemployment rate dropped to 5.6% by
the fourth quarter. Growth in the nine-state region served by BellSouth
Telecommunications was even stronger. The number of jobs in nonfarm businesses
grew at a 3.0% annual rate, unemployment also dropped to 5.6% by the fourth
quarter and real income expanded by an estimated 4.4%. Net in-migration added
450,000 to the region's population during 1994, with every state except
Louisiana recording a gain. Four states, Florida, Georgia, North Carolina and
Tennessee, were among the top ten nationally in 1994 numerical population gains.
The demand for telecommunications services reflected the strength of the
economic and population growth in the region. Higher interest rates in 1995 may
dampen residential construction and durable goods manufacturing, but projected
net in-migration near 400,000 would help to keep the regional demand for
telecommunications services rising. However, increasing competition makes
BellSouth Telecommunications' financial performance more susceptible to changes
in the economy than previously, as its operations reflect the more competitive
business environment and the greater elasticities for its products and services.
21
<PAGE>
COMPETITION. Developments in the telecommunications marketplace continue to
indicate that a technological convergence is occurring in the telephone, cable
and broadcast television, computer, entertainment and information services
industries. The technologies utilized and being developed in these industries
are able to provide multiple and integrated communications offerings. A number
of large companies, including AT&T Corp. and the other major interexchange
carriers, other Bell Holding Companies and cable and other video entertainment
companies, have completed acquisitions and entered into business alliances that
will ultimately intensify and expand competition for local and toll
communications and other services currently provided over BellSouth
Telecommunications' networks. Other competitors have announced plans to build,
and in certain locations have begun construction of, local phone connections and
private networks that would permit business and residential customers to bypass
the facilities of local telephone companies, including those of BellSouth
Telecommunications in certain cities in its service territory. Legislative,
regulatory and judicial developments will further facilitate competition in
local, long distance and video markets.
Notwithstanding the risks associated with increased competition, BellSouth
and BellSouth Telecommunications will have opportunities in new business
markets. BellSouth believes that in order to remain competitive in the future,
it must aggressively pursue a corporate strategy of expanding its offerings
beyond its traditional businesses, which may include information services,
interactive communications and cable television and other entertainment
services. As a part of this strategy, BellSouth has been granted permission by
the FCC to conduct a trial of video dial tone services; acquired in auction one
of the nationwide narrowband Personal Communications Services (PCS) licenses;
participated in the ongoing FCC auction for broadband PCS licenses in the
Carolinas and eastern Tennessee; and formed business alliances and partnerships,
both domestically and internationally, related to the provision of interactive
and traditional video programming services as well as wireless and wireline
communications services. As another part of its competitive strategy, BellSouth
Telecommunications has undertaken a plan to streamline its telephone operations
and to improve its overall cost structure (see "Other Matters -- Restructuring
of Telephone Operations"). Coincident with the existing restructuring plan,
BellSouth Telecommunications is continuing to seek additional ways to better
enhance customer service and productivity and to further improve its cost
structure. As a result of these ongoing efforts, additional changes to
fundamental business processes and work activities, as well as further employee
reductions, are expected.
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." Where appropriate, the
provisions of SFAS No. 71 give recognition to the effect of actions of
regulators, which can provide reasonable assurance of the existence of an asset,
reduce or eliminate the value of an asset or impose or eliminate a liability of
a regulated entity. As a result of such actions by regulators, BellSouth
Telecommunications' balance sheet at December 31, 1994 reflects net deferred
charges (regulatory assets) of $186.5 related primarily to compensated absences
and unamortized issuance costs for debt that has been refinanced, and net
deferred credits (regulatory liabilities) of $304.0 related to income tax
issues. Virtually all of the current regulatory assets and liabilities arose in
connection with the incorporation of new accounting standards into the
ratemaking process, and are transitory in nature. The magnitude of the
regulatory assets and liabilities is decreasing over time due to the ongoing
amortization prescribed as a part of the adoption in 1988 of the FCC's current
Uniform System of Accounts. Additional regulatory assets and liabilities may
arise in the future as long as BellSouth Telecommunications remains subject to
the provisions of SFAS No. 71.
Various forms of earnings-based regulation remain in effect at the federal
level and in all nine states served by BellSouth Telecommunications. However,
recent legislative and regulatory initiatives suggest that fully competitive
markets for telecommunications services will eventually be established. During
1994, the United States Congress considered legislation designed specifically to
open all telecommunications services to full competition. Although no such
legislation was enacted into law, Congress is again considering legislation of
this type, and similar initiatives are also emerging at the state level.
Furthermore, in the regulatory arena, BellSouth Telecommunications continues to
pursue modification of the existing regulatory framework. Price regulation
plans, whereby prices of basic local exchange service are directly regulated and
prices for other telecommunications products and services are based on market
factors, have been proposed for implementation and are under review in several
states in the service area and by the FCC.
BellSouth Telecommunications would be required to discontinue accounting
under SFAS No. 71 if the existing and anticipated levels of competition no
longer allow for service and product pricing
22
<PAGE>
that provides for the recovery of costs. Additionally, SFAS No. 71 would no
longer apply if BellSouth Telecommunications is successful in altering the
existing regulatory framework and achieving price regulation since such plans do
not provide for the recovery of specific costs. While accounting under SFAS No.
71 is currently appropriate, it is increasingly likely that BellSouth
Telecommunications will discontinue accounting under SFAS No. 71 due to the
effect of one or both of these conditions. In that event, the impact on
BellSouth Telecommunications' financial position and results of operations would
be material. Under such circumstances, BellSouth Telecommunications would be
required to reduce the recorded value for telephone plant and equipment in
recognition of amounts that would not be recoverable or that would be overstated
due to longer regulator-prescribed asset lives. BellSouth Telecommunications'
overall depreciation reserve at December 31, 1994 was approximately 44% of its
total depreciable plant. Broad industry analysis of other telecommunications
companies who have recently discontinued accounting under SFAS No. 71 indicates
that unregulated telecommunications enterprises similar to BellSouth
Telecommunications have an overall depreciation reserve ratio that approximates
52% to 57% of total depreciable plant. If BellSouth Telecommunications were
required to discontinue SFAS No. 71 and to revalue its telephone plant using
similar assumptions and methodology, the net recorded book value of its
telephone plant would be reduced by about $4,000 to $6,000. In addition,
BellSouth Telecommunications would be required to eliminate its regulatory
assets and liabilities, adjust the level of its unamortized investment tax
credits and fully adopt issue basis accounting for its directory publishing
fees. Specific financial impacts of discontinuing SFAS No. 71 would depend on
the timing and magnitude of changes, both in the marketplace and in the overall
regulatory framework.
OTHER MATTERS
RESTRUCTURING OF TELEPHONE OPERATIONS. As previously reported, during 1993
BellSouth Telecommunications recognized a $1,136.4 restructuring charge in
connection with a plan to redesign, consolidate and streamline the fundamental
processes and work activities in its telephone operations. The restructuring is
being undertaken in response to an increasingly competitive business
environment. Upon completion, restructuring of the telephone operations is
expected to improve overall responsiveness to customer needs and reduce costs.
As a part of the restructuring, BellSouth Telecommunications is
consolidating and centralizing its existing operations. BellSouth
Telecommunications is establishing a single point of contact and accountability
for the receipt, analysis and resolution of customer installation, repair
activities and service activation. The efforts involve redesign of key work
processes and designing new processes that facilitate the consolidation of
service functions and the reduction of 10,200 employees.
The projected costs by year for each component of the charge were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Consolidation and Elimination of
Operations............................. $ 14.7 $ 185.2 $ 87.0 $ 55.9 $ 342.8
Systems................................. -- 185.5 155.5 84.4 425.4
Employee Separation..................... 38.3 142.7 105.2 82.0 368.2
--------- --------- --------- --------- ----------
Total................................. $ 53.0 $ 513.4 $ 347.7 $ 222.3 $ 1,136.4
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
Through December 31, 1994, BellSouth Telecommunications was substantially on
plan with respect to projected expenditures and employee reductions. See
"PROGRESS UNDER THE PLAN."
CONSOLIDATION AND ELIMINATION OF OPERATIONS. Approximately $342.8 of the
charge consisted of costs associated with consolidating and eliminating
operations as a result of re-engineering the way service is delivered to
customers. During the restructuring period, 288 existing operations centers are
being consolidated into 73 locations. Data management centers used to support
company operations are being reduced from 11 to 6. Comptrollers offices are
being reduced from 48 to 11. Collection process improvements are being made to
reduce operating costs and uncollectibles. Redundancies are being eliminated and
the number of steps decreased in the product planning and provisioning process.
In addition, customer service processes and systems are being designed to
provide one-number access, specific appointment times, on-line and real-time
access to customer records and immediate service activation where facilities are
already in place.
23
<PAGE>
SYSTEMS. Approximately $425.4 of the charge was for systems development.
The information management systems in use prior to the restructuring effort were
inadequate to deal with increased competition and changing technology.
Accordingly, as an integral part of the restructuring plan, a major redesign of
information systems throughout the company is being undertaken to attain a
systems framework that both facilitates the targeted employee reductions and
correlates to the increasingly competitive business environment. This effort
entails significant changes to the overall computing platform, architecture and
corporate systems structure.
EMPLOYEE SEPARATION. Approximately $368.2 of the charge was for separation
costs for employees leaving BellSouth Telecommunications through 1996 and for
relocation of certain employees. BellSouth Telecommunications' targeted employee
reduction of 10,200 employees by the end of the restructuring period will result
in future cost savings and, as a result, is expected to improve BellSouth
Telecommunications' competitive position.
The projected work force reductions by year under the plan were as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Management..................................... 280 1,000 1,600 1,500 4,380
Represented.................................... 1,020 2,700 1,300 800 5,820
--------- --------- --------- --------- ---------
Total........................................ 1,300 3,700 2,900 2,300 10,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Employee separation costs include severance payments, health care coverage,
education benefits, and costs of relocating employees to new job locations, as
well as net curtailment expenses. The severance payments, health care coverage
and education benefits costs for management employees are paid under the
provisions of current BellSouth management separation plans. The severance
payments, health care coverage and education benefit costs for craft employees
are paid under the provisions of collective bargaining agreements. Relocation
costs are the costs to move personnel to different locations as a result of work
center consolidations. These charges are paid under BellSouth
Telecommunications' relocation guidelines and the terms of collective bargaining
agreements. Net curtailment expenses are charged in accordance with the
provisions of accounting pronouncements SFAS Nos. 88 and 106.
PROGRESS UNDER THE PLAN. Since inception of the restructuring plan in
fourth quarter 1993, cumulative employee reductions were 5,200 (1,300 in 1993
and 3,900 in 1994) and total amounts charged against the restructuring liability
were $521.7.
A summary of the costs incurred through December 31, 1994 under the plan is
as follows:
<TABLE>
<CAPTION>
1993 1994 TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Consolidation and Elimination of Operations.................... $ 14.7 $ 164.6 $ 179.3
Systems........................................................ -- 170.3 170.3
Employee Separation............................................ 38.3 133.8 172.1
--------- --------- ---------
Total........................................................ $ 53.0 $ 468.7 $ 521.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
For the year ended December 31, 1994, cash expenditures related to the
ongoing implementation of the restructuring plan were approximately $390.2.
Non-cash expenses were primarily comprised of pension curtailments and charges
related to elimination of certain business operations of subsidiaries. Capital
expenditures for 1994 related to restructuring were approximately $203.6; such
expenditures are not reflected in the above tables.
The remaining restructuring liability at December 31, 1994 was approximately
$614.7, all of which was classified as current. During 1995, BellSouth
Telecommunications plans to accelerate restructuring activities such that
employee reductions and expenditures as originally projected under the plan will
be substantially completed by the end of 1995. Accordingly, employee reductions
in 1995 under the plan are projected to be approximately 5,000 and capital
expenditures, which are not reflected in the above tables, are projected to be
about $300.
The cumulative reduction in employees as of December 31, 1994 resulted in an
estimated $100 reduction in 1994 operating expenses and is currently projected
to result in about a $300 to $400 reduction in 1995 operating expenses. Once the
restructuring plan is completed, annual cost savings are expected to be
approximately $600 due primarily to reduced employee-related expenses.
24
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
These financial statements have been prepared in conformity with generally
accepted accounting principles and have been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report is contained herein.
The integrity and objectivity of the data in these financial statements,
including estimates and judgments relating to matters not concluded by the end
of the year, are the responsibility of the management of BellSouth
Telecommunications. Management has also prepared all other information included
in this Annual Report unless indicated otherwise.
Management maintains a system of internal accounting controls which is
continuously reviewed and evaluated. However, there are inherent limitations
that should be recognized in considering the assurances provided by any system
of internal accounting controls. The concept of reasonable assurance recognizes
that the cost of a system of internal accounting controls should not exceed, in
management's judgment, the benefits to be derived. Management believes that
BellSouth Telecommunications' system does provide reasonable assurance that the
transactions are executed in accordance with management's general or specific
authorizations and are recorded properly to maintain accountability for assets
and to permit the preparation of financial statements in conformity with
generally accepted accounting principles. Management also believes that this
system provides reasonable assurance that access to assets is permitted only in
accordance with management's authorizations, that the recorded accountability
for assets is compared with the existing assets at reasonable intervals and that
appropriate action is taken with respect to any differences. Management also
seeks to assure the objectivity and integrity of its financial data by the
careful selection of its managers, by organizational arrangements that provide
an appropriate division of responsibility and by communications programs aimed
at assuring that its policies, standards and managerial authorities are
understood throughout the organization. Management is also aware that changes in
operating strategy and organizational structure can give rise to disruptions in
internal controls. Special attention is given to controls while the changes are
being implemented.
Management maintains a strong internal auditing program that independently
assesses the effectiveness of the internal controls and recommends possible
improvements thereto. In addition, as part of its audit of these financial
statements, Coopers & Lybrand L.L.P. completed a review of the accounting
controls to establish a basis for reliance thereon in determining the nature,
timing and extent of audit tests to be applied. Management has considered the
internal auditor's and Coopers & Lybrand L.L.P.'s recommendations concerning the
system of internal control and has taken actions that we believe are
cost-effective in the circumstances to respond appropriately to these
recommendations. Management believes that as of December 31, 1994, the system of
internal controls was adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that BellSouth Telecommunications' affairs are conducted according to
the highest standards of personal and corporate conduct. This responsibility is
communicated to all employees through policies and guidelines addressing such
issues as conflict of interest, safeguarding of BellSouth Telecommunications'
real and intellectual properties, providing equal employment opportunities and
ethical relations with customers, suppliers and governmental representatives.
BellSouth Telecommunications maintains a program to assess compliance with these
policies.
/s/ Jere A. Drummond /s/ Patrick H. Casey
PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE PRESIDENT AND COMPTROLLER
February 3, 1995
25
<PAGE>
AUDIT COMMITTEE CHAIRMAN'S LETTER
The Audit Committee of the Board of Directors consists of three members who
are neither officers nor employees of BellSouth Telecommunications. The Audit
Committee met four times during 1994 and reviewed with the Chief Corporate
Auditor, Coopers & Lybrand L.L.P., and management current audit activities,
plans and the results of selected internal audits. The Audit Committee also
reviewed the objectivity of the financial reporting process and the adequacy of
internal controls. The Audit Committee recommended the appointment of the
independent accountants and considered factors relating to their independence.
The Chief Corporate Auditor and Coopers & Lybrand L.L.P. each met privately with
the Audit Committee on occasion to encourage confidential discussions as to any
auditing matters.
/s/ Harry M. Lightsey, Jr.
CHAIRMAN, AUDIT COMMITTEE
February 3, 1995
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
BellSouth Telecommunications, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of BellSouth
Telecommunications, Inc. and Subsidiaries as of December 31, 1994 and 1993 and
the related consolidated statements of income and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BellSouth
Telecommunications, Inc. and Subsidiaries as of December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes H and L to the consolidated financial statements,
BellSouth Telecommunications changed its method of accounting for postretirement
benefits other than pensions, postemployment benefits, and income taxes in 1993.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 3, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of BellSouth Telecommunications, Inc. on Form S-3 (File No. 33-49991) of our
report dated February 3, 1995, on our audits of the consolidated financial
statements of BellSouth Telecommunications, Inc. listed in Item 14(a) of this
Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
March 6, 1995
27
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues:
Local service.......................................................... $ 6,863.1 $ 6,577.3 $ 6,236.0
Interstate access...................................................... 3,127.2 2,991.2 2,945.6
Intrastate access...................................................... 908.3 881.9 871.8
Toll................................................................... 1,190.1 1,219.5 1,248.8
Other.................................................................. 1,951.2 1,909.7 1,879.9
----------- ----------- -----------
Total Operating Revenues............................................. 14,039.9 13,579.6 13,182.1
----------- ----------- -----------
Operating Expenses:
Cost of services and products.......................................... 5,235.2 5,169.4 5,050.6
Depreciation and amortization.......................................... 2,953.6 2,902.6 2,862.2
Selling, general and administrative.................................... 2,263.4 2,382.1 2,345.7
Restructuring charge (Note J).......................................... -- 1,136.4 --
----------- ----------- -----------
Total Operating Expenses............................................. 10,452.2 11,590.5 10,258.5
----------- ----------- -----------
Operating Income......................................................... 3,587.7 1,989.1 2,923.6
Interest Expense (Note K)................................................ 548.8 562.6 583.3
Other Income, net (Note K)............................................... 18.3 21.4 75.5
----------- ----------- -----------
Income Before Income Taxes, Extraordinary Loss and Cumulative Effect of
Change in Accounting Principle.......................................... 3,057.2 1,447.9 2,415.8
Provision for Income Taxes (Note L)...................................... 1,105.6 461.5 800.8
----------- ----------- -----------
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle.................................................... 1,951.6 986.4 1,615.0
Extraordinary Loss on Early Extinguishment of Debt, net of tax (Note
E)...................................................................... -- (86.6) (40.7)
Cumulative Effect of Change in Accounting Principle, net of tax (Note
H)...................................................................... -- (64.8) --
----------- ----------- -----------
Net Income........................................................... $ 1,951.6 $ 835.0 $ 1,574.3
----------- ----------- -----------
----------- ----------- -----------
Retained Earnings:
At beginning of year................................................... $ 3,180.0 $ 3,967.0 $ 3,983.5
Net Income............................................................. 1,951.6 835.0 1,574.3
Dividends declared..................................................... (1,610.1) (1,612.3) (1,587.8)
Other adjustments...................................................... -- (9.7) (3.0)
----------- ----------- -----------
At end of year......................................................... $ 3,521.5 $ 3,180.0 $ 3,967.0
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $ 94.4 $ 84.3
Accounts receivable, net of allowance for uncollectibles of $81.7 and $84.6.......... 2,316.5 2,229.0
Material and supplies................................................................ 375.2 374.3
Other current assets................................................................. 380.1 253.8
----------- -----------
Total Current Assets............................................................... 3,166.2 2,941.4
----------- -----------
Investments In and Advances to Affiliates (Note B)..................................... 248.9 238.2
Property, Plant and Equipment, net (Note C)............................................ 23,515.2 23,444.4
Deferred Charges and Other Assets...................................................... 441.5 471.2
----------- -----------
Total Assets....................................................................... $ 27,371.8 $ 27,095.2
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Debt maturing within one year (Note E)............................................... $ 1,218.2 $ 1,094.6
Accounts payable..................................................................... 1,121.9 1,037.1
Other current liabilities (Note D)................................................... 2,502.4 2,415.4
----------- -----------
Total Current Liabilities.......................................................... 4,842.5 4,547.1
----------- -----------
Long-Term Debt (Note E)................................................................ 6,511.8 6,546.5
----------- -----------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes.................................................... 2,992.1 2,831.4
Unamortized investment tax credits................................................... 443.3 515.9
Other liabilities and deferred credits (Note F)...................................... 1,657.6 1,994.7
----------- -----------
Total Deferred Credits and Other Liabilities....................................... 5,093.0 5,342.0
----------- -----------
Shareholder's Equity:
Common stock, one share, no par value................................................ 7,403.0 7,479.6
Retained earnings.................................................................... 3,521.5 3,180.0
----------- -----------
Total Shareholder's Equity......................................................... 10,924.5 10,659.6
----------- -----------
Total Liabilities and Shareholder's Equity......................................... $ 27,371.8 $ 27,095.2
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.......................................................... $ 1,951.6 $ 835.0 $ 1,574.3
Adjustments to net income:
Depreciation...................................................... 2,949.8 2,900.0 2,859.9
Provision for losses on bad debts................................. 111.6 128.6 142.5
Deferred income taxes and unamortized investment tax credits...... (35.2) (677.1) (147.5)
Allowance for funds used during construction...................... (19.7) (23.7) (15.3)
Restructuring charge.............................................. -- 1,136.4 --
Payment of call premium........................................... -- (99.7) (33.4)
Extraordinary loss on early extinguishment of debt................ -- 145.4 70.7
Change in accounting principle, net of tax........................ -- 64.8 --
Summary tax assessment settlement................................. -- -- 90.9
Change in accounts receivable..................................... (223.0) (408.4) (206.7)
Change in material and supplies................................... (134.1) (91.1) (135.0)
Change in accounts payable and other current liabilities.......... (400.2) 141.7 86.0
Change in deferred charges and other assets....................... (48.1) 98.6 3.7
Change in other liabilities and deferred credits.................. 299.3 148.2 162.0
Other reconciling items, net...................................... 5.8 (41.4) (35.8)
------------ ------------ ------------
Net cash provided by operating activities....................... 4,457.8 4,257.3 4,416.3
------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures................................................ (2,970.8) (2,994.9) (2,845.8)
Proceeds from disposals of property, plant and equipment............ 79.5 87.4 82.9
Investment dispositions............................................. 45.2 15.0 --
Purchase of BellSouth Common Stock.................................. -- (199.9) --
Other investing activities, net..................................... (1.8) (1.3) (1.1)
------------ ------------ ------------
Net cash used for investing activities.......................... (2,847.9) (3,093.7) (2,764.0)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings................................. 13,100.3 10,866.3 10,713.9
Repayment of short-term borrowings.................................. (13,003.0) (10,645.0) (10,674.8)
Advances from parent and affiliates................................. 434.6 359.8 267.8
Repayment of advances from parent and affiliates.................... (437.0) (357.2) (270.2)
Proceeds from long-term debt........................................ -- 2,911.0 543.2
Repayments of long-term debt........................................ (.4) (2,777.5) (626.7)
Payment of capital lease obligations................................ (14.7) (11.4) (13.4)
Equity investment of parent......................................... (58.8) 28.7 24.0
Dividends paid to parent............................................ (1,620.8) (1,587.0) (1,618.5)
------------ ------------ ------------
Net cash used for financing activities.......................... (1,599.8) (1,212.3) (1,654.7)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents.................. 10.1 (48.7) (2.4)
Cash and Cash Equivalents at Beginning of Period...................... 84.3 133.0 135.4
------------ ------------ ------------
Cash and Cash Equivalents at End of Period............................ $ 94.4 $ 84.3 $ 133.0
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE A -- ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of BellSouth Telecommunications, Inc. (BellSouth Telecommunications)
and subsidiaries in which it has a controlling financial interest. BellSouth
Telecommunications is a wholly-owned subsidiary of BellSouth Corporation
(BellSouth). BellSouth Telecommunications maintains substantially all of its
accounts and records in accordance with the Uniform System of Accounts
prescribed by the Federal Communications Commission (FCC) and makes certain
adjustments necessary to present the accompanying financial statements in
accordance with generally accepted accounting principles applicable to regulated
entities. Such principles differ in certain respects from those used by
unregulated entities, but are required to appropriately reflect the financial
and economic effects of regulation and the rate-making process. Significant
differences resulting from the application of these principles are disclosed
elsewhere in these Notes to Consolidated Financial Statements where appropriate.
BASIS OF ACCOUNTING. BellSouth Telecommunications' consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles, including the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." Where appropriate, SFAS No. 71 gives accounting recognition to the
actions of regulators. Such actions can provide reasonable assurance of the
existence of an asset, reduce or eliminate the value of an asset or impose or
eliminate a liability of a regulated entity.
As a result of such actions by regulators, the consolidated balance sheets
at December 31, 1994 and 1993 reflect net deferred charges (regulatory assets)
of $186.5 and $235.9, respectively, related primarily to compensated absences
and unamortized issuance costs for debt that has been refinanced. Net deferred
credits (regulatory liabilities) included in the consolidated balance sheets
were $304.0 and $378.9, respectively, related to income tax issues.
Telephone plant and equipment has been depreciated using
regulator-prescribed asset lives. Other telecommunications companies have
recently discontinued accounting under SFAS No. 71 and have revalued their
telephone plant. If BellSouth Telecommunications were to revalue its telephone
plant using similar assumptions and methodology, the net recorded book value of
its telephone plant would be reduced by approximately $4,000 to $6,000.
CASH AND CASH EQUIVALENTS. BellSouth Telecommunications considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
MATERIAL AND SUPPLIES. New and reusable material is carried in inventory,
principally at average original cost, except that specific costs are used in the
case of large individual items. Nonreusable material is carried at estimated
salvage value.
PROPERTY, PLANT AND EQUIPMENT. The investment in property, plant and
equipment is stated at original cost. For plant dedicated to providing regulated
telecommunications services, depreciation is based on the remaining life method
of depreciation and straight-line composite rates determined on the basis of
equal life groups of certain categories of telephone plant acquired in a given
year. Depreciation expense also includes amortization of certain classes of
telephone plant and identified depreciation reserve deficiencies over periods
allowed by regulatory authorities. When such plant is disposed of, the original
cost less net salvage value is charged to accumulated depreciation. Other
depreciable plant is depreciated using either straight-line or accelerated
methods over the estimated useful lives of the assets. Gains and losses on
disposal of other depreciable plant are recognized in the year of disposition as
an element of other non-operating income.
REVENUE RECOGNITION. Revenues are recognized when earned. Certain revenues
derived from local telephone services are billed monthly in advance and are
recognized the following month when
31
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE A -- ACCOUNTING POLICIES (CONTINUED)
services are provided. Revenues derived from other telecommunications services,
principally network access and toll, are recognized monthly as services are
provided. Directory publishing fees are recognized over the life of the related
directories, published by an affiliated company, which is generally one year.
MAINTENANCE AND REPAIRS. The cost of maintenance and repairs of plant,
including the cost of replacing minor items not effecting substantial
betterments, is charged to operating expenses.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Regulatory authorities allow
BellSouth Telecommunications to recognize the cost of capital (debt and equity
components) associated with the construction of certain plant as income. Such
income is not realized in cash currently but will be realized over the service
life of the related plant as the resulting higher depreciation expense and plant
investment are recovered in the form of increased revenues.
INCOME TAXES. Effective January 1, 1993, BellSouth Telecommunications
adopted SFAS No. 109, "Accounting for Income Taxes." In accordance with the
standard, the balance sheet reflects deferred tax balances associated with the
anticipated tax impact of future income or deductions implicit in the balance
sheet in the form of temporary differences. Temporary differences primarily
result from the use of accelerated methods and shorter lives in computing
depreciation for tax purposes. Prior to 1993, BellSouth Telecommunications
accounted for income taxes under the provisions of Accounting Principles Board
Opinion No. 11.
For financial reporting purposes, BellSouth Telecommunications is amortizing
deferred investment tax credits earned prior to the 1986 repeal of the
investment tax credit and also some transitional credits earned after the
repeal. The credits are being amortized as a reduction to the provision for
income taxes over the estimated useful lives of the assets to which the credits
relate.
NOTE B -- INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments In and Advances to Affiliates consists primarily of 3,766,199
shares of BellSouth common stock. During 1993, grantor trusts established by
BellSouth Telecommunications purchased for $199.9 such BellSouth common stock to
provide partial funding for the benefits payable under certain non-qualified
benefit plans. Dividend income earned from the BellSouth shares, included as a
component of Other Income, net, was $10.4 and $7.6 for 1994 and 1993,
respectively.
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Outside plant................................................................ $ 19,291.5 $ 18,595.7
Central office equipment..................................................... 15,443.5 14,668.0
Building and building improvements........................................... 2,784.6 2,682.8
Furniture and fixtures....................................................... 2,215.9 2,109.9
Operating and other equipment................................................ 844.5 825.1
Station equipment............................................................ 600.5 631.0
Plant under construction..................................................... 289.5 355.4
Land......................................................................... 161.9 157.6
Other........................................................................ 64.2 76.0
----------- -----------
41,696.1 40,101.5
Less: Accumulated depreciation............................................... 18,180.9 16,657.1
----------- -----------
Total Property, Plant and Equipment, net................................. $ 23,515.2 $ 23,444.4
----------- -----------
----------- -----------
</TABLE>
Depreciation of telephone plant and equipment as a percentage of average
depreciable telephone plant was 7.20%, 7.51% and 7.67% for 1994, 1993 and 1992,
respectively.
32
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE D -- OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Restructuring accrual (see Note J)............................................. $ 614.7 $ 513.4
Advanced billing and customer deposits......................................... 416.3 414.8
Taxes accrued.................................................................. 314.1 405.3
Compensated absences........................................................... 307.4 307.4
Salaries and wages payable..................................................... 306.3 299.4
Interest and rents accrued..................................................... 250.0 231.2
Dividends payable to parent.................................................... 153.9 164.6
Other.......................................................................... 139.7 79.3
---------- ----------
Total Other Current Liabilities............................................ $ 2,502.4 $ 2,415.4
---------- ----------
---------- ----------
</TABLE>
NOTE E -- DEBT
DEBT MATURING WITHIN ONE YEAR: Debt maturing within one year is included as
debt in BellSouth Telecommunications' computation of debt ratios and consisted
of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Commercial paper................................................ $ 1,181.0 $ 1,085.6
Current maturities of long-term debt............................ 37.2 9.0
--------- ---------
Total....................................................... $ 1,218.2 $ 1,094.6
--------- ---------
--------- ---------
Weighted average interest rate at end of period:
Commercial paper.............................................. 5.87% 3.31%
</TABLE>
BellSouth Telecommunications has committed credit lines aggregating $1,271.4
with various banks. There were no borrowings under the committed lines at
December 31, 1994. BellSouth Telecommunications does not have any uncommitted
lines of credit at December 31, 1994. There are no significant commitment fees
or requirements for compensating balances associated with any lines of credit.
33
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE E -- DEBT (CONTINUED)
LONG-TERM: Long-term debt is summarized as follows at December 31:
<TABLE>
<CAPTION>
CONTRACTUAL
INTEREST RATES MATURITIES 1994 1993
---------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Debentures: 3 1/4% - 6 3/4% 1995-2033 $ 1,270.0 $ 1,270.0
7 3/8% - 8 1/4% 2010-2033 1,935.0 1,935.0
8 1/2% - 8 3/4% 2024-2029 1,400.0 1,400.0
--------- ---------
4,605.0 4,605.0
Notes........................ 5 1/4% - 7% 1998-2008 1,875.0 1,875.0
Other........................ 129.3 137.4
Unamortized discount, net of
premium..................... (60.3) (61.9)
--------- ---------
6,549.0 6,555.5
Current maturities........... (37.2) (9.0)
--------- ---------
Total Long-Term Debt....... $ 6,511.8 $ 6,546.5
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt outstanding (face amounts) at December 31, 1994
are summarized below:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturities..................... $ 37.2 $ -- $ 75.0 $ 570.0 $ .5 $ 5,926.6 $ 6,609.3
--------- --------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- --------- ---------- ----------
</TABLE>
During 1993 and 1992, BellSouth Telecommunications refinanced certain
long-term debt issues at more favorable interest rates. As a result of the early
extinguishment of these issues, charges of $86.6, net of taxes of $58.8, and
$40.7, net of taxes of $30.0, were recognized as extraordinary losses in 1993
and 1992, respectively.
At December 31, 1994, a shelf registration statement had been filed with the
Securities and Exchange Commission by BellSouth Telecommunications under which
$725.0 of debt securities could be offered.
NOTE F -- OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits is summarized as follows at December
31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accrued pension cost........................................................... $ 566.6 $ 539.4
Compensation related........................................................... 307.2 274.5
Regulatory liability related to income taxes (see Note L)...................... 304.0 378.9
Sharing accrual under FCC price cap plan....................................... 141.6 41.7
Postemployment benefits........................................................ 128.3 116.6
Restructuring accrual (see Note J)............................................. -- 570.0
Other.......................................................................... 209.9 73.6
---------- ----------
Total Other Liabilities and Deferred Credits............................... $ 1,657.6 $ 1,994.7
---------- ----------
---------- ----------
</TABLE>
34
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE G -- TRANSACTIONS WITH AFFILIATES
BellSouth Telecommunications has a contractual agreement with BellSouth
Advertising & Publishing Corporation (BAPCO), an affiliated company, wherein
BAPCO publishes certain telephone directories and in return pays BellSouth
Telecommunications a publishing rights fee in its franchise area. For the years
ended December 31, 1994, 1993 and 1992, these fees, included in Other operating
revenue, were $638.1, $616.3 and $598.2, respectively.
At December 31, 1994 and 1993, amounts receivable from affiliated companies
were $21.4 and $20.2, respectively. Amounts payable to affiliated companies at
December 31, 1994 and 1993, both short and long-term, were $432.3 and $465.8,
respectively.
NOTE H -- EMPLOYEE BENEFITS
PENSION PLANS. Substantially all employees of BellSouth Telecommunications
are covered by noncontributory defined benefit pension plans sponsored by
BellSouth. Principal plans are discussed below; other plans are not significant
individually or in the aggregate.
The plan covering non-represented employees is a cash balance plan which
provides pension benefits determined by a combination of compensation-based
service and additional credits and individual account-based interest credits.
The cash balance plan is subject to a minimum benefit determined under a plan in
existence for non-represented employees prior to July 1, 1993 which provided
benefits based upon credited service and employees' average compensation for a
specified period. The minimum benefit under the prior plan is applicable to
employees retiring through 2005. Both the 1994 and 1993 projected benefit
obligations assume interest and additional credits greater than the minimum
levels specified in the written plan. Pension benefits provided for represented
employees are based on specified benefit amounts and years of service and
includes the projected effect of future bargained-for improvements.
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all pension benefits for
which BellSouth is liable. Contributions are actuarially determined using the
aggregate cost method, subject to ERISA and Internal Revenue Service
limitations. Pension plan assets consist primarily of equity securities and
fixed income investments.
Effective January 1, 1994, the non-represented cash balance plan was divided
from one into four cash balance plans which allowed for costs to be accounted
for more precisely based upon specific company demographic information. The plan
division had no material impact on BellSouth Telecommunications' 1994 costs.
35
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE H -- EMPLOYEE BENEFITS (CONTINUED)
The components of net periodic pension cost for the non-represented plan are
summarized below:
<TABLE>
<CAPTION>
1994
----------
<S> <C>
Service cost -- benefits earned during the year............................................. $ 81.1
Interest cost on projected benefit obligation............................................... 324.9
Actual loss on plan assets.................................................................. 57.8
Net amortization and deferral............................................................... (505.7)
----------
Net periodic pension income............................................................... $ (41.9)
----------
----------
The following table sets forth the funded status of the plan at December 31:
<CAPTION>
1994
----------
<S> <C>
Actuarial present value of:
Vested benefit obligation................................................................. $ 3,470.6
----------
----------
Accumulated benefit obligation............................................................ $ 3,740.0
----------
----------
Projected benefit obligation.............................................................. $ 4,104.8
Plan assets at market value................................................................. 5,282.2
----------
Plan assets in excess of projected benefit obligation....................................... 1,177.4
Unrecognized net gain due to past experience different from assumptions made................ (880.2)
Unrecognized prior service cost............................................................. (304.3)
Unrecognized net asset at transition........................................................ (49.0)
----------
Accrued pension cost...................................................................... $ (56.1)
----------
----------
</TABLE>
Prior to 1994, BellSouth Telecommunications was allocated a portion of the
expenses for both the non-represented and represented plans' pension expense.
Pension cost allocated to BellSouth Telecommunications in 1994 for the
represented plan was $63.6, and for both non-represented and represented plans
in 1993, and 1992 was $113.4, and $155.3, respectively. The decrease in 1994
pension expense is primarily the result of a reduction in assumed benefit levels
partially offset by the decrease in the discount rate assumption. The
consolidated net pension expense amounts reflected above are exclusive of
curtailment gains reflected in the restructuring activities discussed below.
SFAS No. 87, "Employers' Accounting for Pensions," requires certain
disclosures to be made with respect to the components of net periodic pension
cost for the period and a reconciliation of the funded status of the plan with
amounts reported in the balance sheets. Such disclosures are not presented in
1994 for the represented plan and for years prior to 1994 for both
non-represented and represented plans because the structure of the BellSouth
plans does not permit disaggregation of relevant plan information on an
individual company basis.
The significant actuarial assumptions at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Weighted average discount rate........................................................ 8.25% 7.5%
Weighted average rate of compensation increase........................................ 5.7% 5.7%
Expected long-term rate of return on plan assets...................................... 8.0% 8.0%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. Substantially all
non-represented and represented employees of BellSouth Telecommunications
participate in BellSouth's postretirement health and life insurance welfare
plans. Effective January 1, 1993, BellSouth adopted SFAS No. 106, "Employers'
36
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE H -- EMPLOYEE BENEFITS (CONTINUED)
Accounting for Postretirement Benefits Other Than Pensions," to account for
these plans. BellSouth's transition benefit obligation is being amortized over
15 years, the average remaining service period of active plan participants at
adoption. The accounting for the health care plan does not anticipate future
adjustments to the cost-sharing arrangements provided for in the written plan
for employees retiring after December 31, 1991.
BellSouth's funding policy is to make contributions to trust funds with the
objective of accumulating sufficient assets to pay all health and life benefits
for which BellSouth is liable. Contributions are actuarially determined using
the aggregate cost method, subject to ERISA and Internal Revenue Service
limitations. Assets in the health and life plans consist primarily of equity
securities and fixed income investments.
Postretirement benefit cost allocated to BellSouth Telecommunications was
$288.5 and $243.7 for 1994 and 1993. The consolidated net postretirement benefit
cost amounts reflected above are exclusive of curtailment losses reflected in
the restructuring activities discussed below. Prior to 1993, BellSouth
Telecommunications recognized the cost of providing postretirement benefits
based on funded amounts. The cost of providing health and life benefits for both
active and retired employees was $524.1 for 1992. SFAS No. 106 requires certain
disclosures to be made with respect to the components of net periodic
postretirement benefit cost for the period and a reconciliation of the funded
status of the plan with amounts reported in the balance sheets. Such disclosures
are not presented because the structure of the BellSouth plan does not permit
disaggregation of relevant plan information on an individual company basis.
The significant actuarial assumptions at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Weighted average discount rate....................................................... 8.75% 7.5%
Weighted average rate of compensation increase....................................... 5.7% 5.7%
Health care cost trend rate (1)...................................................... 11.0% 11.5%
Expected long-term rate of return on plan assets (2)................................. 8.0% 8.0%
<FN>
- ------------------------
(1) Trend rate to decrease gradually to 5% in 2007
(2) Rate net of an estimated 30% tax reduction for the non-represented
employees' trust for both 1994 and 1993
</TABLE>
The health care cost trend rate assumption affects the amounts reported. A
one-percentage-point increase in the assumed health care cost trend rates for
each future year would increase BellSouth's accumulated postretirement benefit
obligation by $108 at December 31, 1994 and the estimated aggregate service and
interest cost components of the 1994 postretirement benefit cost by $14.
Most regulatory jurisdictions have accepted BellSouth Telecommunications'
SFAS No. 106 implementation plan. However, two states are requiring a 20-year
and 30-year amortization of the transition benefit obligation, the impact of
which is not material to BellSouth.
EFFECT OF RESTRUCTURING ON PENSIONS AND POSTRETIREMENT BENEFITS. As a part
of the restructuring charge in 1993 (see Note J), BellSouth Telecommunications
recorded a liability of $88 for estimated net curtailment losses expected to
impact BellSouth Telecommunications' pension and postretirement benefit plans.
Of the amount recognized, $32 and $16 were realized and charged against the
restructuring liability in 1994 and 1993, respectively.
37
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE H -- EMPLOYEE BENEFITS (CONTINUED)
DEFINED CONTRIBUTION PLANS. BellSouth maintains contributory savings plans
which cover substantially all employees of BellSouth Telecommunications.
Employees' eligible contributions are matched with BellSouth common stock based
on defined percentages determined annually by the Board of Directors. BellSouth
Telecommunications recognized compensation expense of $113.4, $107.3 and $112.6
in 1994, 1993 and 1992, respectively, related to these plans.
POSTEMPLOYMENT BENEFITS. Effective January 1, 1993, BellSouth
Telecommunications adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." SFAS No. 112 requires employers to accrue the cost of
postemployment benefits provided to former or inactive employees after
employment but before retirement, including but not limited to workers'
compensation, disability, and continuation of health care benefits. Previously,
BellSouth Telecommunications used the cash method to account for such costs. A
one-time charge of $64.8, net of a deferred tax benefit of $40.8, related to
adoption of this statement was recognized as a change in accounting principle.
The effect of the change on BellSouth Telecommunications' 1993 operating results
was not material.
NOTE I -- LEASES
BellSouth Telecommunications has entered into operating leases for
facilities and equipment used in operations. Rental expenses under operating
leases were $239.9, $228.6 and $258.7 for 1994, 1993 and 1992, respectively.
Capital leases currently in effect are not significant.
The following table summarizes the approximate future minimum rentals under
non-cancelable operating leases in effect at December 31, 1994:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum rentals..................... $ 85.7 $ 69.4 $ 62.9 $ 56.1 $ 52.8 $ 523.6 $ 850.5
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
NOTE J -- RESTRUCTURING CHARGE
The results of operations for the year ended December 31, 1993 include a
$1,136.4 restructuring charge which reduced net income by $696.6. The
restructuring is being undertaken to redesign and streamline the fundamental
processes and work activities in the telephone operations to better respond to
an increasingly competitive business environment. The restructuring is expected
to improve overall responsiveness to customer needs and reduce costs.
The material components of the charge related to the reduction of the
workforce by 10,200 employees. Through December 31, 1994, cumulative employee
reductions related to the restructuring plan were 5,200, consisting of 1,300 in
1993 and 3,900 in 1994. The components of the charge consisted of provisions of
$368.2 for separation payments and relocations of remaining employees, $342.8
for consolidation and elimination of certain operations facilities and $425.4
for enabling changes to information systems, primarily those used to provide
services to existing customers.
At December 31, 1994, the remaining liability associated with the
restructuring plan was $614.7, all of which was current.
38
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE K -- ADDITIONAL INCOME STATEMENT DATA
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Interest Expense:
Long-term debt......................................................... $ 465.2 $ 500.4 $ 530.2
Commercial paper....................................................... 45.8 35.4 27.2
Other.................................................................. 37.8 26.8 25.9
--------- --------- ---------
Total.............................................................. $548.8 $562.6 $583.3
--------- --------- ---------
--------- --------- ---------
Other Income, net:
Interest and dividend income........................................... $13.9 $11.9 $69.4
Other, net............................................................. 4.4 9.5 6.1
--------- --------- ---------
Total.............................................................. $18.3 $21.4 $75.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
Interest and dividend income for 1992 includes $56.6 relating to the
settlement of an Internal Revenue Service summary assessment for the tax years
1979 and 1980.
Revenues from services provided to AT&T Corp., BellSouth Telecommunications'
largest customer, were approximately 13%, 16% and 16% of consolidated operating
revenues for 1994, 1993 and 1992, respectively.
NOTE L -- INCOME TAXES
Effective January 1, 1993, BellSouth Telecommunications adopted SFAS No.
109, "Accounting for Income Taxes," which applies a balance sheet approach to
income tax accounting. In accordance with the new standard, the balance sheet
reflects the anticipated tax impact of future taxable income or deductions
implicit in the balance sheet in the form of temporary differences. These
temporary differences reflect the difference between the basis in assets and
liabilities as measured in the financial statements and as measured by tax laws
using enacted tax rates. The cumulative effect of the adoption of SFAS No. 109
was not material.
In accordance with the provisions of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," BellSouth Telecommunications has, for
its regulated operations, only reflected the balance sheet impact of the
adoption of SFAS No. 109. Specifically, BellSouth Telecommunications in 1993
recorded a net regulatory liability of $538.0 to correspond to the net reduction
in deferred tax liabilities; the reduction resulted from changes in tax rates
and from temporary differences which were previously flowed through. The balance
of such net liability at December 31, 1994, included in Other Liabilities and
Deferred Credits, was $304.0. This net regulatory liability is adjusted as the
related temporary differences reverse.
BellSouth Telecommunications is included in the consolidated Federal income
tax return filed by BellSouth. Consolidated tax expense is allocated among the
separate members of the group in accordance with the applicable sections of the
Internal Revenue Code.
Generally, under this method each company calculates its current tax expense
as if it filed a separate return. The sum of the separate company liabilities is
compared to the consolidated return liability. The resulting difference, the
benefit of consolidation, is allocated to companies contributing benefits
(operating losses, excess credits and capital losses) in proportion to the
amounts contributed. Deferred taxes are not allocated among the members of the
group.
39
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE L -- INCOME TAXES (CONTINUED)
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current.......................................................... $ 983.3 $ 973.3 $ 810.3
Deferred, net.................................................... 20.4 (513.2) (74.4)
Investment tax credits, net...................................... (72.6) (88.3) (87.9)
---------- ---------- ----------
931.1 371.8 648.0
---------- ---------- ----------
State:
Current.......................................................... 157.5 152.1 134.2
Deferred, net.................................................... 17.0 (62.4) 18.6
---------- ---------- ----------
174.5 89.7 152.8
---------- ---------- ----------
Total provision for income taxes............................. $ 1,105.6 $ 461.5 $ 800.8
---------- ---------- ----------
---------- ---------- ----------
Amortization of investment tax credits........................... $ 72.6 $ 88.3 $ 88.2
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax
assets and (liabilities) at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Pensions...................................................................... $ 265.3 $ 228.5
Restructuring charge.......................................................... 238.1 419.5
Regulatory sharing accruals................................................... 92.3 21.3
Compensated absences.......................................................... 90.8 79.9
Deferred compensation......................................................... 79.2 66.8
Bad debts..................................................................... 70.2 64.8
Leveraged employee stock ownership plan....................................... 41.1 34.0
Other......................................................................... 44.0 35.2
----------- -----------
Deferred Tax Assets......................................................... 921.0 950.0
----------- -----------
Depreciation.................................................................. (3,647.2) (3,581.8)
Other......................................................................... (5.4) --
----------- -----------
Deferred Tax Liabilities.................................................... (3,652.6) (3,581.8)
----------- -----------
Net Deferred Tax Liability................................................ $ (2,731.6) $ (2,631.8)
----------- -----------
----------- -----------
</TABLE>
Of the Net Deferred Tax Liability at December 31, 1994 and 1993, $260.5 and
$199.6, respectively, was current and $(2,992.1) and $(2,831.4), respectively,
was noncurrent.
Prior to 1993, deferred tax expense resulted from timing differences in the
recognition of revenue and expense items for tax and financial reporting
purposes, as follows:
<TABLE>
<CAPTION>
1992
---------
<S> <C>
Property, plant and equipment................................................................. $ (8.4)
Pension benefits.............................................................................. (51.6)
Other timing differences...................................................................... 4.2
---------
Total....................................................................................... $ (55.8)
---------
---------
</TABLE>
40
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE L -- INCOME TAXES (CONTINUED)
A reconciliation of the Federal statutory income tax rate to BellSouth
Telecommunications' effective tax rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate................................................. 35.0% 35.0% 34.0%
State income taxes, net of Federal income tax benefit...................... 3.8 4.4 4.2
Amortization of investment tax credits..................................... (2.4) (6.1) (3.7)
Miscellaneous items, net................................................... (0.2) (1.4) (1.4)
--------- --------- ---------
Effective tax rate....................................................... 36.2% 31.9% 33.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE M -- SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is presented in accordance with the
provisions of SFAS No. 95, "Statement of Cash Flows":
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Cash paid for Interest and Income Taxes:
Interest....................................................................... $ 554.4 $ 615.9 $ 578.8
---------- --------- ---------
---------- --------- ---------
Income taxes................................................................... $ 1,258.5 $ 791.7 $ 959.5
---------- --------- ---------
---------- --------- ---------
Net assets (liabilities) transferred to BellSouth
Telecommunications.............................................................. $ -- $ 25.5 $ (47.3)
---------- --------- ---------
---------- --------- ---------
</TABLE>
NOTE N -- FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the provisions of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined using available market information described
below. Since judgment is required to develop the estimates, the estimated
amounts presented herein may not be indicative of the amounts that BellSouth
Telecommunications could realize in a current market exchange.
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
RECORDED ESTIMATED RECORDED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS (LIABILITIES):
Cash and cash equivalents.................................... $ 94.4 $ 94.4 $ 84.3 $ 84.3
Marketable securities........................................ 199.9 203.8 199.9 218.4
Commercial paper............................................. (1,181.0) (1,181.0) (1,085.6) (1,085.6)
Long-Term Debt:
Debentures................................................. (4,605.0) (4,176.8) (4,605.0) (4,707.0)
Notes...................................................... (1,875.0) (1,670.0) (1,875.0) (1,901.0)
</TABLE>
CASH AND CASH EQUIVALENTS. At December 31, 1994 and 1993, the recorded
amount for Cash and cash equivalents approximates fair value due to the
short-term nature of these instruments.
MARKETABLE SECURITIES. The fair value of Marketable securities
(representing BellSouth Common Stock), included as a component of Investments in
and Advances to Affiliates, is based on the quoted market prices at December 31,
1994 and 1993, respectively (see Note B).
41
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
NOTE N -- FINANCIAL INSTRUMENTS (CONTINUED)
DEBT. At December 31, 1994 and 1993, the recorded amount for Commercial
paper approximates the fair value due to the short-term nature of the liability.
The estimates of fair value for Debentures and Notes are based on the closing
market prices for each issue at December 31, 1994 and 1993, respectively (see
Note E).
CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
subject BellSouth Telecommunications to credit risk consist principally of trade
accounts receivable. Concentrations of credit risk with respect to these
receivables are limited due to the composition of the customer base, which
includes a large number of individuals and businesses. At December 31, 1994,
approximately $448 of trade accounts receivable were from interexchange
carriers.
NOTE O -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In the following summary of quarterly financial information, all adjustments
necessary for a fair presentation of each period were included. The results for
first quarter 1993 were restated to reflect the one-time, non-cash charge for
retroactive adoption of SFAS No. 112. The results for fourth quarter 1993
include a restructuring charge of $1,136.4, which reduced net income by $696.6.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
Operating Revenues.............................................. $ 3,525.8 $ 3,441.9 $ 3,510.1 $ 3,562.1
Operating Income................................................ $ 919.3 $ 880.3 $ 851.4 $ 936.7
Net Income...................................................... $ 496.1 $ 474.8 $ 461.1 $ 519.6
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(RESTATED)
<S> <C> <C> <C> <C>
1993
Operating Revenues.............................................. $ 3,337.0 $ 3,321.0 $ 3,447.5 $ 3,474.1
Operating Income (Loss)......................................... $ 740.5 $ 769.0 $ 831.1 $ (351.5)
Income (Loss) Before Extraordinary Loss on Early Extinguishment
of Debt and Cumulative Effect of Change in Accounting
Principle...................................................... $ 387.9 $ 410.3 $ 441.0 $ (252.8)
Extraordinary Loss on Early Extinguishment of Debt, net of
tax............................................................ -- (55.4) (7.8) (23.4)
Cumulative Effect of Change in Accounting Principle, net of
tax............................................................ (64.8) -- -- --
Net Income (Loss)............................................... $ 323.1 $ 354.9 $ 433.2 $ (276.2)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change in accountants or disagreements on the adoption of appropriate
accounting standards or financial disclosure have occurred during the periods
included in this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Documents filed as a part of the report:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C> <C>
(1) Financial Statements:
Report of Independent Accountants/Consent of Independent
Accountants.................................................... 27
Consolidated Statements of Income and Retained Earnings......... 28
Consolidated Balance Sheets..................................... 29
Consolidated Statements of Cash Flows........................... 30
Notes to Consolidated Financial Statements...................... 31 - 42
</TABLE>
(2) Financial statement schedules have been omitted because the required
information is contained in the financial statements and notes
thereto or because such schedules are not required or applicable.
(3) Exhibits: Exhibits identified in parentheses below, on file with the
SEC, are incorporated herein by reference as exhibits hereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
3a Restated Articles of Incorporation of BellSouth Telecommunications, Inc. (Exhibit 3a to Form 10-K for
the year ended December 31, 1991, File No. 1-1049).
3b Bylaws of BellSouth Telecommunications, Inc. as amended, effective November 22, 1993. (Exhibit 3b to
Form 10-K for the year ended December 31, 1993, File No. 1-1049).
4 No instrument which defines the rights of holders of long and intermediate term debt of BellSouth
Telecommunications 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.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K:
None.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BELLSOUTH TELECOMMUNICATIONS, INC.
/s/ PATRICK H. CASEY
--------------------------------------
Patrick H. Casey
VICE PRESIDENT AND COMPTROLLER
March 6, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER:
Jere A. Drummond*
President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER:
Patrick H. Casey*
Vice President and Comptroller
DIRECTORS:
Irving W. Bailey II*
Robert H. Boh*
Edward E. Crutchfield, Jr.*
Frank R. Day*
Jere A. Drummond*
Lloyd C. Elam*
John W. Harris*
Mark C. Hollis*
Harry M. Lightsey, Jr.*
Thomas H. Meeker*
Joe M. Rodgers*
Charles J. Zwick*
*By: /s/ PATRICK H. CASEY
----------------------------------
Patrick H. Casey
(INDIVIDUALLY AND AS
ATTORNEY-IN-FACT)
March 6, 1995
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
BELLSOUTH TELECOMMUNICATIONS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Year Ended December 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
1. Earnings
(a) Income from continuing operations before deductions for taxes and
interest $3,606.0 $2,034.1 $3,014.4 $2,722.5 $2,930.1
(b) Portion of rental expense representative of interest factor 80.3 79.7 86.5 74.8 88.2
-------- -------- -------- -------- --------
TOTAL $3,686.3 $2,113.8 $3,100.9 $2,797.3 $3,018.3
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
2. Fixed Charges
(a) Interest $568.5 $586.2 $598.6 $649.8 $626.2
(b) Portion of rental expense representative of interest factor 80.3 79.7 86.5 74.8 88.2
-------- -------- -------- -------- --------
TOTAL $648.8 $665.9 $685.1 $724.6 $714.4
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio (1 divided by 2) 5.68 3.17 4.53 3.86 4.23
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, each of the undersigned is an officer or both
an officer and a director of the Company as indicated below under
his name;
NOW THEREFORE, the undersigned, and each of them,
hereby constitutes and appoints JERE A. DRUMMOND, PATRICK H.
CASEY and JERRY W. ROBINSON, and each of them, as attorneys for
him and in his name, place and stead, and in each of his
respective capacities with the Company, to execute and file such
annual report, and thereafter to execute and file any amendment
or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set
his hand this 27th day of February, 1995.
/s/ Jere A. Drummond /s/ Patrick H. Casey
- ----------------------------- -----------------------------
Jere A. Drummond Patrick H. Casey
President and Chief Executive Vice President and Comptroller
Officer; Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Irving W. Bailey II
-------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Robert H. Boh
-------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Edward E. Crutchfield, Jr.
--------------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Frank R. Day
------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Lloyd C. Elam
-------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ John W. Harris
--------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Mark C. Hollis
--------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Harry M. Lightsey, Jr.
----------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Thomas H. Meeker
----------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Joe M. Rodgers
--------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, BELLSOUTH TELECOMMUNICATIONS, INC., a Georgia
corporation (hereinafter referred to as the "Company"), proposes
to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW THEREFORE, the undersigned hereby constitutes and
appoints JERE A. DRUMMOND, PATRICK H. CASEY and JERRY W.
ROBINSON, and each of them, as attorneys for him and in his name,
place and stead as a director of the Company, to execute and file
such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to
said attorneys full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done
in and about the premises as fully, to all intents and purposes,
as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 27th day of February, 1995.
/s/ Charles J. Zwick
----------------------
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