SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1049
BellSouth Telecommunications, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-0436120
(State of Incorporation) (I.R.S.
Employer
Identification Number)
675 West Peachtree Street, N. E., Atlanta, Georgia 30375
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 404 529-8611
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF BELLSOUTH
CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE
FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No ___
Table of Contents
Item
Page
Part I
1. Financial Statements 3
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash
Flows 5
Notes to Consolidated Financial
Statements 6
Selected Operating Data 7
2. Management's Discussion and Analysis of
Results of Operations 9
Results of Operations 9
Volumes of Business 9
Operating Revenues 10
Operating Expenses 11
Other Income Statement Items 12
Restructuring of Telephone Operations 12
Regulatory Environment 13
Federal Regulation 13
State Regulation 14
Accounting Under SFAS No. 71 15
Business Developments 16
Accounting Pronouncement 16
Part II
6. Exhibits and Reports on Form 8-K 17
PART I -- FINANCIAL INFORMATION
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(In Millions)
For the Three Months
Ended March 31,
1995 1994
Operating Revenues:
Network and related services
Local service $1,768.3 $1,679.7
Interstate access 795.1 802.4
Intrastate access 226.1 230.1
Toll 280.9 300.2
Other 490.2 513.4
Total Operating Revenues 3,560.6 3,525.8
Operating Expenses:
Cost of services and products 1,287.3 1,315.7
Depreciation and amortization 746.4 728.9
Selling, general and
administrative 536.0 561.9
Total Operating Expenses 2,569.7 2,606.5
Operating Income 990.9 919.3
Interest Expense 140.4 135.5
Other Income, net 4.7 4.0
Income Before Income Taxes 855.2 787.8
Provision for Income Taxes 322.8 291.7
Net Income $532.4 $496.1
Retained Earnings:
At beginning of period $3,521.5 $3,180.0
Net Income 532.4 496.1
Dividends declared (399.5) (387.1)
At end of period $3,654.4 $3,289.0
The accompanying notes are an integral part of these
financial statements.
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In Millions)
March 31, December 31,
1995 1994
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $113.6 $94.4
Accounts receivable, net of
allowance for
uncollectibles of $77.9
and $84.6 2,197.4 2,316.5
Material and supplies 351.0 375.2
Other current assets 283.9 380.1
2,945.9 3,166.2
Investments In and Advances 251.7 248.9
to Affiliates
Property, Plant and
Equipment, net 23,460.0 23,515.2
Deferred Charges and Other 453.1 441.5
Assets
Total Assets $27,110.7 $27,371.8
LIABILITIES AND SHAREHOLDER'S
EQUITY
Current Liabilities:
Debt maturing within one year $1,047.5 $1,218.2
Accounts payable 975.3 1,121.9
Other current liabilities 2,437.8 2,502.4
4,460.6 4,842.5
Long-Term Debt 6,509.3 6,511.8
Deferred Credits and Other
Liabilities:
Accumulated deferred income 2,947.4 2,992.1
taxes
Unamortized investment tax 428.5 443.3
credits
Other liabilities and 1,707.0 1,657.6
deferred credits
5,082.9 5,093.0
Shareholder's Equity:
Common stock, one share, no 7,403.5 7,403.0
par value
Retained earnings 3,654.4 3,521.5
11,057.9 10,924.5
Total Liabilities and $27,110.7 $27,371.8
Shareholder's Equity
The accompanying notes are an integral part of
these financial statements.
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
For the Three Months
Ended March 31,
1995 1994
Cash Flows from Operating Activities:
Net income $ 532.4 $ 496.1
Adjustments to net income:
Depreciation 746.3 727.9
Provision for losses on bad debts 28.9 33.1
Deferred income taxes and (26.4) (29.0)
unamortized investment tax credits
Allowance for funds used during (3.6) (4.0)
construction
Net change in accounts receivable 90.2 67.0
Net change in material and supplies 6.6 (14.6)
Net change in accounts payable (211.1) (120.2)
and other current liabilities
Net change in deferred charges 17.2 (77.9)
and other assets
Net change in other liabilities 79.0 72.3
and deferred credits
Other reconciling items, net 12.7 (17.8)
Net cash provided by 1,272.2 1,132.9
operating activities
Cash Flows from Investing Activities:
Capital expenditures (675.0) (636.5)
Proceeds from disposals of 1.0 23.8
property, plant and equipment
Other investing activities, net (.3) (.2)
Net cash used for investing (674.3) (612.9)
activities
Cash Flows from Financing Activities:
Proceeds from short-term 2,989.7 2,709.0
borrowings
Repayment of short-term (3,162.9) (2,795.5)
borrowings
Advances from parent and 167.7 161.4
affiliates
Repayment of advances from parent (169.3) (145.8)
and affiliates
Repayment of long-term (.1) (.1)
debt
Payment of capital lease (4.7) (3.1)
obligations
Equity investment of .5 ---
parent
Dividends paid to (399.6) (368.4)
parent
Net cash used for financing
activities (578.7) (442.5)
Net Increase in Cash and Cash 19.2 77.5
Equivalents
Cash and Cash Equivalents at Beginning 94.4 84.3
of Period
Cash and Cash Equivalents at End of $ 113.6 $ 161.8
Period
The accompanying notes are an integral part of these
financial statements.
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions)
(Unaudited)
(a) Preparation of Interim Financial Statements
The consolidated financial statements of BellSouth
Telecommunications, Inc. (BellSouth Telecommunications)
have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC).
Certain amounts have been reclassified from previous
presentations. In the opinion of BellSouth
Telecommunications, these statements include all adjustments
necessary for a fair presentation of the results of all
interim periods reported herein. All adjustments are of a
normal recurring nature unless otherwise disclosed. Certain
information and footnote disclosures prepared in accordance
with generally accepted accounting principles have been
either condensed or omitted pursuant to SEC rules and
regulations. However, BellSouth Telecommunications believes
that the disclosures made are adequate for a fair
presentation of results of operations, financial position
and cash flows. These consolidated financial statements
should be read in conjunction with the consolidated
financial statements and accompanying notes included in
BellSouth Telecommunications' latest annual report on Form
10-K . BellSouth Telecommunications is a wholly-owned
subsidiary of BellSouth Corporation (BellSouth).
(b) Supplemental Cash Flow Information
BellSouth Telecommunications considers all highly liquid
investments with an original maturity of three months or
less to be cash equivalents. The following supplemental
information is presented in accordance with the provisions
of Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows."
For the Three Months
Ended March 31,
1995 1994
Cash Paid For:
Income taxes $27.6 $125.2
Interest $166.8 $148.0
BELLSOUTH TELECOMMUNICATIONS, INC.
SELECTED OPERATING DATA
(Unaudited)
Network Access Lines in Service at March 31 (Thousands)(a):
Percent Change
for the
Three Months Ended
March 31,
1995 vs. 1994 vs.
1995 1994 1993
By Type:
Residence 14,357.8 3.44 3.10
Busines 5,901.9 7.71 6.23
Other 254.8 0.59 (2.88)
Total Access Lines 20,514.5 4.60 3.87
By State:
Florida 5,425.9 4.92 4.17
Georgia 3,412.5 5.83 4.65
Tennessee 2,365.7 4.46 4.06
Louisiana 2,061.8 3.68 2.68
North Carolina 2,028.4 5.44 4.39
Alabama 1,747.2 3.53 3.48
South Carolina 1,262.7 3.83 2.96
Mississippi 1,135.6 3.73 3.52
Kentucky 1,074.8 3.22 2.99
Total Access Lines 20,514.5 4.60 3.87
For the Percent Change
Three Months for the Three
Ended Months Ended
March 31, March 31,
1995 vs. 1994 vs.
1995 1994 1993
Access Minutes of Use (Millions)(a)(b):
Interstate 15,131.3 7.69 7.94
Intrastate 4,529.1 13.07 11.39
Total Minutes of Use 19,660.4 8.88 8.69
Toll Messages (Millions)(a)(c) 370.0 (4.31) 5.28
(a) Prior period operating data are often revised at later
dates to reflect updated information. The above information reflects the
latest data available for the periods indicated.
(b) Minutes of Use are classified as either interstate or
intrastate based on the percentage interstate usage factor. This factor
is updated periodically.
(c) Effective in 1994, Toll Messages include messages
completed under optional calling plans. Prior
period toll message volumes have been restated to
reflect this change. See "Management's
Discussion and Analysis of Results of Operations -
Volumes of Business."
BELLSOUTH TELECOMMUNICATIONS, INC.
SELECTED OPERATING DATA (Continued)
(Unaudited)
For the Three
Months Ended
March 31, Year Ended December 31,
1995 1994 1993 1992 1991 1990
Ratio of Earnings to Fixed
Charges (d) 6.25 5.68 3.17 4.53 3.86 4.23
(d) For the purpose of this ratio: (i) earnings have been
calculated by adding income before income taxes,
gross interest expense and such portion of rental
expense representative of the interest factor on such
rentals; (ii) fixed charges are comprised of gross
interest expense and such portion of rental expense
representative of the interest factor on such rentals.
At March 31,
1995 1994
Debt Ratio (e) 40.2% 40.8%
(e) This ratio is calculated by dividing the sum of debt
maturing within one year and long-term debt, net
of unamortized debt issuance costs, by the sum of
shareholder's equity, debt maturing within one year
and long-term debt, net of unamortized debt issuance
costs.
BELLSOUTH TELECOMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS
(Dollars in Millions)
Management's Discussion and Analysis of Results of Operations (MD&A)
should be read in conjunction with MD&A in BellSouth
Telecommunications, Inc.'s (BellSouth Telecommunications)
latest annual report on Form 10-K.
BellSouth Telecommunications is a wholly-owned subsidiary of
BellSouth Corporation (BellSouth) and is headquartered in
Atlanta, Georgia. BellSouth Telecommunications serves, in
the aggregate, approximately two-thirds of the population
and one-half of the territory within Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina and Tennessee. BellSouth Telecommunications
primarily provides local exchange 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% and 85% of BellSouth Telecommunications'
Total Operating Revenues for the three-month periods ended
March 31, 1995 and 1994, respectively, were from wireline
services. Charges for local, access and toll services for
the three months ended March 31, 1995 accounted for
approximately 58%, 33% and 9%, respectively, of the wireline
revenues discussed above. The remainder of BellSouth
Telecommunications' Total Operating Revenues was derived
principally from directory publishing fees, customer
premises equipment sales and other nonregulated services.
RESULTS OF OPERATIONS
For the Three
Months Ended March 31,
1995 1994
Net Income $ 532.4 $ 496.1
Net Income increased $36.3 (7.3%) for the three-month period
ended March 31, 1995 when compared to the same prior year
period. The increase for the period was attributable to
continued growth in key business volumes, partially offset
by the impact of rate reductions since March 31, 1994, and
cost containment measures, including expense savings
attributable to the restructuring plan begun in 1993. For
the first quarter of 1995, total operating expenses declined
by 1.4% compared to the same period last year.
Volumes of Business
The total number of access lines in service since March 31,
1994 increased by approximately 901,800 (4.6%) to
20,514,500, compared to a 3.9% rate of increase for the same
prior year period. Business and residence access lines
increased by 7.7% and 3.4%, respectively, compared to growth
rates of 6.2% and 3.1% in 1994. The number of second
residence lines, included in total residence lines,
increased by 212,000 (23.9%) to 1,100,500 and accounted for
approximately 44.4% and 23.5% of the overall increase in
residence access lines and total access lines, respectively,
since March 31, 1994. The growth in all categories of
access lines was primarily attributable to continued
economic improvement in the Southeast.
Access minutes of use represent the volume of traffic
carried by interexchange carriers between LATAs, both
interstate and intrastate, using BellSouth
Telecommunications' local facilities. Total access minutes
of use increased by 1,604.0 million (8.9%) for the three-
month period ended March 31, 1995 compared to an increase of
8.7% for the same period last year. The increase in access
minutes of use was partially attributable to access line
growth, promotions by the interexchange carriers and
intraLATA toll competition, which has the effect of
increasing access minutes of use while reducing toll
messages carried over BellSouth Telecommunications'
facilities. The growth rate in total minutes of use
continues to be negatively impacted by competition 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.
Toll messages are comprised of Message Telecommunications
Service and Wide Area Telecommunications Service. For the
three-month period ended March 31, 1995, toll messages
decreased by 16.6 million (4.3%) compared to an increase of
5.3% for the corresponding period in 1994. The decrease in
1995 was attributable to the expansion of local area calling
plans in Florida, Kentucky, Mississippi and South Carolina.
These plans 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 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.
Operating Revenues
Total Operating Revenues increased $34.8 (1.0%) for the
three-month period ended March 31, 1995 when compared to the
corresponding 1994 period. The components of Total
Operating Revenues were as follows:
For the Three
Months Ended March 31,
1995 1994
Local Service $1,768.3 $1,679.7
Interstate Access 795.1 802.4
Intrastate Access 226.1 230.1
Toll 280.9 300.2
Other 490.2 513.4
Total Operating
Revenues $3,560.6 $3,525.8
Local Service revenues increased $88.6 (5.3%) for the three-
month period ended March 31, 1995 as compared to the same
1994 period due primarily to 4.6% growth in access lines in
service. The increase for the period was partially offset
by approximately $13 of net rate reductions since March 31,
1994, principally in Alabama.
Interstate Access revenues decreased $7.3 (0.9%) for the
three-month period ended March 31, 1995 as compared to the
same prior year period. The decrease for the period was
attributable to rate reductions of approximately $38 since
March 31, 1994, including $35 of revenue deferrals under the
Federal Communications Commission's (FCC) price cap plan.
The decrease was partially offset by 7.7% growth in minutes
of use and a $12 increase in end-user charges attributable
to growth in the number of access lines in service.
Intrastate Access revenues decreased $4.0 (1.7%) for the
three-month period ended March 31, 1995 from the comparable
1994 period. The decrease was due to rate reductions of
approximately $28 since March 31, 1994, primarily in Florida
and, to a lesser extent, in North Carolina and South
Carolina. The decrease was partially offset by 13.1% growth
in minutes of use.
Toll revenues decreased $19.3 (6.4%) for the three-month
period ended March 31, 1995 when compared to the same prior
year period. The decrease was primarily attributable to net
rate reductions of approximately $10 since March 31, 1994
and a 4.3% decrease in toll messages. The decrease was
partially offset by the effect of an independent company
settlement in first quarter 1994, which reduced revenues by
approximately $5 for that period.
Other revenues are principally comprised of revenues from
publishing rights fees, customer premises equipment (CPE)
sales and maintenance services, billing and collection
services and other nonregulated services (primarily inside
wire services).
Other revenues decreased $23.2 (4.5%) for the three-month
period ended March 31, 1995 when compared to the
corresponding 1994 period. Of such decrease, approximately
$33 was attributable to the sale in April 1994 of the out-of-
region CPE sales and service operations and approximately $6
was due to reduced demand for billing and collection
services. The decrease for the period was partially offset
by increases of $11 due to higher demand for inside wire and
voice messaging services and $7 in directory publishing
fees.
Operating Expenses
Total Operating Expenses decreased $36.8 (1.4%) for the
three-month period ended March 31, 1995 compared to the same
period in 1994. The components of Total Operating Expenses
were as follows:
For the Three
Months Ended March 31,
1995 1994
Depreciation and
Amortization $ 746.4 $ 728.9
Other Operating Expenses:
Cost of Services
and Products 1,287.3 1,315.7
Selling, General and
Administrative 536.0 561.9
1,823.3 1,877.6
Total Operating
Expenses $2,569.7 $2,606.5
Depreciation and Amortization increased $17.5 (2.4%) for the
three-month period ended March 31, 1995 compared to the same
period in 1994. The increase was due primarily to higher
levels of property, plant and equipment since March 31, 1994
resulting from continued growth in the customer base and
modernization of the network.
Other Operating Expenses are comprised of Cost of Services
and Products and Selling, General and Administrative. Cost
of Services and Products includes employee and employee-
related expenses associated with network repair and
maintenance, material and supplies expense, cost of tangible
goods sold and other expenses associated with providing
services. Selling, General and Administrative includes
expenses related to sales activities such as salaries,
commissions, benefits, travel, marketing and advertising
expenses and administrative expenses.
Other Operating Expenses decreased $54.3 (2.9%) for the
three-month period ended March 31, 1995 when compared to the
corresponding 1994 period. The decrease for the period was
due primarily to a decrease of $37 in labor costs, including
expenses for employee benefits, in the wireline business.
Such decrease reflects employee reductions since March 31,
1994 attributable to the restructuring plan begun in 1993,
partially offset by annual compensation increases for
management and represented employees. Also contributing
were decreases of approximately $34 at the CPE business,
primarily attributable to the sale in April 1994 of the out-
of-region CPE sales and service operations, and $18 due to
reduced levels of license fees for software used in the
operation of network switching equipment. The decrease for
the period was partially offset by increases of $17 and $15
for materials and contract services, respectively, resulting
from network service activities necessitated primarily by
volume growth.
Other Income Statement Items
The other income statement components were as follows:
For the Three
Months Ended March 31,
1995 1994
Interest Expense $140.4 $135.5
Other Income,net 4.7 4.0
Provision for
Income Taxes 322.8 291.7
Interest Expense increased $4.9 (3.6%) for the three-month
period ended March 31, 1995 compared to the same period last
year. The increase was primarily attributable to higher
average levels of short-term borrowings at higher average
interest rates.
Provision for Income Taxes increased $31.1 (10.7%) for the
three-month period ended March 31, 1995 over the comparable
1994 period. BellSouth Telecommunications' effective tax
rates were 37.8% and 37.0% for the three months ended March
31, 1995 and 1994, respectively.
RESTRUCTURING OF TELEPHONE OPERATIONS
In the fourth quarter of 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.
At March 31, 1995, the remaining liability associated with
the 1993 restructuring plan was $504.1, all of which was
classified as current. Since inception of the restructuring
plan, total employee reductions were approximately 5,400,
including 3,900 since March 31, 1994. As a result of this
reduction of 3,900 employees, operating expenses for the
three months ended March 31, 1995 were reduced by
approximately $50.
A summary of employee reductions and expenditures through
March 31, 1995 under the 1993 restructuring plan is as
follows:
First
Year Year Quarter
1993 1994 1995 Total
Employee Reductions 1,300 3,900 200 5,400
Expenditures By Component:
Consolidation and Elimination
of Operations $ 14.7 $164.6 $ 28.3 $207.6
Systems --- 170.3 43.3 213.6
Employee Separation 38.3 133.8 39.0 211.1
Total $53.0 $468.7 $110.6 $632.3
Expenditures By Type:
Cash $53.0 $390.2 $ 93.9 $537.1
Non-cash --- 78.5 16.7 95.2
Total $53.0 $468.7 $110.6 $632.3
Capital Expenditures (not
included in above
expenditures) $--- $203.6 $ 29.5 $233.1
BellSouth Telecommunications expects to substantially
complete the 1993 restructuring plan activities in 1995. In
connection with the plan, total employee reductions in 1995
are projected to be approximately 5,000, including the
reduction of 200 which occurred in first quarter.
In addition to executing the existing restructuring plan,
BellSouth Telecommunications is continuing to enhance
customer service and productivity and to further improve its
cost structure and competitiveness. As a result of these
efforts, additional changes to fundamental business
processes and work activities, as well as further employee
reductions, are expected.
REGULATORY ENVIRONMENT
Federal Regulation
In March, the FCC adopted an interim price cap regulation
plan which becomes effective on August 1, 1995. The interim
plan establishes three productivity factor options, which
are offsets to the inflation-based increase in rates that
local exchange carriers (LEC) are permitted to make each
year. Similar to the existing plan, two of the productivity
options in the interim plan, 4.0% and 4.7%, provide defined
earnings limitations with a sharing mechanism. A third
option in the interim plan, 5.3%, removes both earnings
limitations and sharing requirements.
In May, the 1995 annual access tariff was filed with the FCC
with proposed access charges scheduled to become effective
on August 1, 1995. Consistent with a pricing strategy that
is compatible with an increasingly competitive business
environment, BellSouth Telecommunications selected a 5.3%
productivity factor, which, together with other adjustments,
would decrease interstate access revenues by approximately
$220 annually based on 1994 access volume levels.
The FCC is expected to further consider the interim rules as
well as other issues related to competition and streamlined
regulation. A final order is expected to be issued in 1996.
State Regulation
South Carolina. In March, BellSouth Telecommunications filed
with the South Carolina Public Service Commission a proposed
price regulation plan. Under the proposed plan, the
regulatory focus would shift from the company's earnings to
rates that customers pay for services. The proposal
includes provisions that basic local exchange residence and
business service flat rates, as well as rates for switched
access services, will not increase for three years. The
rates for non-basic services would be set by BellSouth
Telecommunications based on market considerations, with
defined limitations on price increases. The South Carolina
Commission has scheduled hearings in August 1995 on the
proposed plan and, in addition, has indicated that it will
review BellSouth Telecommunications' earnings.
North Carolina. In April, a law was enacted which, effective
July 1, 1996, authorizes the North Carolina Utilities
Commission to permit local exchange and exchange access
competition in BellSouth Telecommunications' service areas;
however, such competition may be permitted prior to July 1,
1996 in the territory of a LEC for which the North Carolina
Commission approves a price regulation plan.
The law, among other provisions, allows BellSouth
Telecommunications to elect to operate under a price
regulation plan, which must be approved by the North
Carolina Commission; requires that basic local exchange and
toll switched access services be tariffed; and authorizes
the North Carolina Commission to adopt rules for
interconnection, unbundling and resale. BellSouth
Telecommunications expects to file a price regulation plan
for approval by the North Carolina Commission early in the
third quarter of 1995.
Georgia. In April, a law was enacted which, effective July
1, 1995, authorizes the Georgia Public Service Commission to
permit qualified service providers to compete with BellSouth
Telecommunications in the local exchange telecommunications
market and allows BellSouth Telecommunications to elect
alternative regulation. Following implementation of
alternative regulation, basic residence and single-line
business rates will be capped for five years, after which an
inflation-based formula will be used to change rates. Rates
for intrastate switched access services will be no higher
than the rates charged for interstate switched access
services. In addition, the Georgia Commission will be
authorized to establish rules for the resale and unbundling
of services. BellSouth Telecommunications expects to file
an election for alternative regulation with the Georgia
Commission early in the third quarter of 1995.
Other States. In April, hearings before the Kentucky Public
Service Commission were concluded with respect to BellSouth
Telecommunications' proposed price regulation plan, and an
order is pending. The Kentucky Commission has also opened a
docket to consider local exchange competition. In addition,
hearings before the Mississippi Public Service Commission
regarding BellSouth Telecommunications' proposed price
regulation plan in that state are expected to be completed
in June. Various price regulation proposals are also
currently being considered by either state regulatory
commissions or legislative bodies in Alabama, Florida,
Louisiana and Tennessee. The outcome of these proceedings
cannot be predicted with certainty.
Accounting Under SFAS No. 71
BellSouth Telecommunications continues to account for the
economic effects of regulation under Statement of Financial
Accounting Standards (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 on
a regulated entity. As a result of such actions by
regulators, BellSouth Telecommunications' balance sheet at
March 31, 1995 reflects net deferred charges (regulatory
assets) of approximately $174, related primarily to
compensated absences and unamortized issuance costs for debt
that has been refinanced, and net deferred credits
(regulatory liabilities) of approximately $273, 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.
Currently, various forms of earnings-based regulation are in
effect at the federal level and in all nine states served by
BellSouth Telecommunications. Price-based regulation is not
now in effect in any regulatory jurisdiction. However, the
recent legislative and regulatory activities, as discussed
above, suggest that fully competitive markets and regulation
of prices rather than earnings for telecommunications
services will be established in the future.
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 that provides for the recovery
of costs. Additionally, SFAS No. 71 would no longer apply
if BellSouth Telecommunications continues to be 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
the company 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's 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 are not
recoverable or are overstated due to longer regulator-
prescribed asset lives. BellSouth Telecommunications'
overall depreciation reserve at March 31, 1995 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 fully adopt issue
basis accounting for its directory publishing fees and
eliminate its regulatory assets and liabilities, which, at
March 31, 1995, would have resulted in an estimated increase
in income of approximately $320 and $99, respectively,
before the effects of income taxes. BellSouth
Telecommunications would also adjust by approximately $20
its unamortized investment tax credits, partially offsetting
the adjustment to telephone plant. 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.
BUSINESS DEVELOPMENTS
In April, the regional Bell holding companies, including
BellSouth, announced their intention to dispose of their
respective interests in Bell Communications Research, Inc.
(Bellcore), a research and development consortium formed at
the time of the AT&T divestiture. Currently, the method of
disposition has not been definitively determined. A final
decision regarding the disposition of Bellcore and the
structure of such a transaction is subject to obtaining
satisfactory financial and other terms and all necessary
approvals. There can be no assurance that a disposition will
occur.
ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting and Standards Board
issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which BellSouth Telecommunications is required to adopt
effective January 1, 1996. SFAS No. 121 establishes
accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill. The
adoption of SFAS No. 121 is not expected to have a material
impact on BellSouth Telecommunications' operating results or
financial position.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
4 No instrument which defines the rights of holders of
long and intermediate term debt of BellSouth
Telecommunications, Inc. is filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to
this regulation, BellSouth Telecommunications, Inc.
hereby agrees to furnish a copy of any such instrument
to the SEC upon request.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
BELLSOUTH TELECOMMUNICATIONS, INC.
By /s/ Patrick H. Casey
PATRICK H. CASEY
Vice President and Comptroller
(Principal Accounting Officer)
May 11, 1995
EXHIBIT INDEX
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
BellSouth Telecommunications Inc.
Computation Of Earnings To Fixed Charges
(Dollars In Millions)
For the
Three
Months
Ended
March 31, Year Ended December 31,
1995 1994 1993 1992 1991 1990
1. Earnings
(a) Income from
continuing
operations
before deductions
for taxes and
interest $995.6 $3,606.0 $2,034.1 $3,014.4 $2,722.5 $2,930.1
(b) Portion of
rental expense
representative
of interest factor 18.2 80.3 79.7 86.5 74.8 88.2
TOTAL $1,013.8 $3,686.3 $2,113.8 $3,100.9 $2,797.3 $3,018.3
2. Fixed Charges
(a) Interest $144.0 $568.2 $586.2 $598.6 $649.8 $626.2
(b) Portion of
rental expense
representative
of interest
factor 18.2 80.3 79.7 86.5 74.8 88.2
TOTAL $162.2 $648.8 $665.9 $685.1 $724.6 $714.4
Ratio
(1 divided by 2) 6.25 5.68 3.17 4.53 3.86 4.23
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