<PAGE>
1
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, 2000
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., 30375
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number 404 927-1909
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF BELLSOUTH CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS
THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
<PAGE>
Table of Contents
Item Page
Part I
1. Financial Statements
Consolidated Statements of Income and Retained Earnings .... 3
Consolidated Balance Sheets ................................ 4
Consolidated Statements of Cash Flows ...................... 5
Notes to Consolidated Financial Statements ................. 6
2. Management's Discussion and Analysis of Results of Operations . 8
Part II
6. Exhibits and Reports on Form 8-K ..............................14
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PART I - FINANCIAL INFORMATION
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BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(Dollars In Millions)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 2000
<S> <C> <C>
Operating Revenues:
Local service ......................... $2,654 $2,821
Network access ........................ 1,191 1,263
Long distance ......................... 150 135
Other ................................. 271 295
Total Operating Revenues............. 4,266 4,514
Operating Expenses:
Operational and support expenses ...... 2,219 2,274
Depreciation and amortization ......... 832 879
Severance accrual ..................... -- 53
Total Operating Expenses ............ 3,051 3,206
Operating Income ......................... 1,215 1,308
Interest Expense ......................... 135 161
Other Income (Expense), net .............. 1 6
Income Before Income Taxes ............... 1,081 1,153
Provision for Income Taxes ............... 402 436
Net Income .......................... $679 $717
Retained Earnings:
At beginning of period ................. $ 1,354 $ 1,452
Add: Net Income ....................... 679 717
Deduct: Dividends Declared ............ (567) (850)
At end of period ....................... $ 1,466 $ 1,319
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In Millions)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................. $ 39 $ 235
Temporary cash investments ................ 15 1
Accounts receivable, net of allowance
for uncollectibles of $84 and $79 ....... 3,094 2,990
Material and supplies ..................... 203 203
Other current assets ...................... 82 171
Total Current Assets .................... 3,433 3,600
Investments and Advances ................... 320 313
Property, Plant and Equipment .............. 52,549 53,284
Less: accumulated depreciation ............. 32,645 33,118
Property, Plant and Equipment, net ...... 19,904 20,166
Deferred Charges and Other Assets .......... 1,638 1,879
Total Assets ............................... $25,295 $ 25,958
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Debt maturing within one year .............$ 3,331 $3,829
Accounts payable .......................... 1,230 1,433
Other current liabilities ................. 2,250 2,338
Total Current Liabilities ............... 6,811 7,600
Long-Term Debt ............................. 6,135 6,137
Noncurrent Liabilities:
Deferred income taxes ..................... 1,628 1,634
Unamortized investment tax credits ........ 126 116
Other noncurrent liabilities ............. 1,790 1,778
Total Noncurrent Liabilities ............ 3,544 3,528
Shareholder's Equity:
Common stock, one share, no par value ..... 7,353 7,374
Retained earnings ......................... 1,452 1,319
Total Shareholder's Equity .............. 8,805 8,693
Total Liabilities and Shareholder's Equity .$25,295 $ 25,958
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 2000
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ....................................................... $ 679 $ 717
Adjustments to net income:
Depreciation and amortization ................................ 832 879
Provision for uncollectibles ................................. 34 43
Deferred income taxes and unamortized investment tax credits . 68 17
Severance accrual............................................. -- 53
Net change in:
Accounts receivable and other current assets ................. 33 (23)
Accounts payable and other current liabilities ............... (65) 530
Deferred charges and other assets ............................ (120) (262)
Other liabilities and deferred credits ....................... (80) (17)
Other reconciling items, net ..................................... 24 38
Net cash provided by operating activities .................... 1,405 1,975
Cash Flows from Investing Activities:
Capital expenditures ............................................. (1,086) (1,176)
Other investing activities, net .................................. 6 22
Net cash used for investing activities ....................... (1,080) (1,154)
Cash Flows from Financing Activities:
Net borrowings (repayments) of short-term debt ................... 48 (55)
Repayments of long-term debt...................................... (6) (276)
Advances from parent and affiliates .............................. 156 941
Repayments of advances from parent and affiliates ................ (141) (154)
Dividends paid to parent ......................................... (517) (1,152)
Capital infusions by parent....................................... -- 71
Net cash used for financing activities ....................... (460) (625)
Net (Decrease) Increase in Cash and Cash Equivalents .............. (135) 196
Cash and Cash Equivalents at Beginning of Period .................. 337 39
Cash and Cash Equivalents at End of Period ........................ $ 202 $ 235
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Millions)
Note A - Preparation of Interim Financial Statements
In this report, BellSouth Telecommunications, Inc. and its subsidiaries are
referred to as "we" or "BST".
The accompanying unaudited consolidated financial statements have been prepared
based upon Securities and Exchange Commission (SEC) rules that permit reduced
disclosure for interim periods. In our opinion, these statements include all
adjustments necessary for a fair presentation of the results of the interim
periods shown. All adjustments are of a normal recurring nature unless otherwise
disclosed. Revenues, expenses, assets and liabilities can vary during each
quarter of the year. Therefore, the results and trends in these interim
financial statements may not be the same as those for the full year. For a more
complete discussion of our significant accounting policies and other
information, you should read this report in conjunction with the consolidated
financial statements included in our latest annual report on Form 10-K.
Certain amounts within the prior year's information have been reclassified to
conform to the current year's presentation.
Note B - Recent Accounting Pronouncements
Revenue Recognition
In December 1999, the SEC issued Staff Accounting Bulletin Number 101, "Revenue
Recognition in Financial Statements", (SAB 101). SAB 101 requires that revenues
and costs of revenues derived from services rendered at the beginning of a
contract or business relationship be deferred and recognized over the life of
the related contract or relationship. The guidelines in SAB 101 must be adopted
during the second quarter 2000. We are currently assessing the impact that
adoption of these guidelines will have on our results of operations and
financial position.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The effective date of this standard was delayed
via the issuance of SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
an amendment of FASB Statement 133". The effective date for SFAS No. 133 is now
for fiscal years beginning after June 15, 2000, though earlier adoption is
encouraged and retroactive application is prohibited. This means that the
standard must be adopted by us no later that January 1, 2001. We do not expect
the adoption of this standard will have a material impact on results of
operations, financial position or cash flows.
Note C - Segment Information
Our predominant products are local exchange and long distance communications
services within LATAs (referred to as intraLATA) and network access services,
all of which are provided over a single network. Operating decisions regarding
resource allocation and performance evaluation are made based on total
operations. Based on these factors, we have determined that we operate as one
operating segment as defined by Statement of Financial Accounting Standards No.
131.
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BELLSOUTH TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(In Millions)
Note D - Supplemental Cash Flow Information
For the Three Months
Ended March 31,
1999 2000
Cash Paid For:
Income taxes ......... $155 $ 41
Interest ............. $ 77 $107
Note E - Contingencies
Following the enactment of the Telecommunications Act of 1996, we entered into
interconnection agreements with various CLECs (competitive local exchange
carriers) providing for, among other things, the payment of reciprocal
compensation for local calls initiated by the customers of one carrier that are
completed on the network of the other carrier. Numerous CLECs have claimed
entitlement from us for compensation associated with dial-up calls originating
on our network and connecting with Internet service providers (ISPs) served by
the CLECs' networks. We have maintained that dial-up calls to ISPs are not local
calls for which terminating compensation is due under the interconnection
agreements.
In February 1999, the FCC issued a decision that such ISP traffic does not
terminate at the ISP and, therefore, is interstate in nature, rather than local.
The FCC stated, however, that it would not interfere with prior state
commissions' decisions regarding this matter. The courts and state regulatory
commissions in our operating territory that have considered the matter have, in
most cases, ruled that we are responsible for paying reciprocal compensation on
these calls. We have appealed the adverse decisions and continue to believe that
we have a good legal basis for our position that such reciprocal compensation is
not owed to the CLECs. For those cases where we believe that it is probable that
we have incurred a liability, we have recorded an estimate of the amount owed.
At March 31, 2000, the exposure related to unrecorded amounts withheld from
CLECs was approximately $270 including accrued interest.
In March 2000, the United States Court of Appeals for the D.C. Circuit vacated
and remanded the FCC decision, concluding that the FCC had not adequately
explained its finding that ISP traffic was interstate. Based on statements made
by the FCC since the court's decision, we do not believe that this most recent
court decision adversely affects the ultimate outcome of pending state
proceedings. Nonetheless, we have commenced discussions with several CLECs
concerning settlement of some claims and agreements have been reached in certain
circumstances.
Other reciprocal compensation issues
In a related matter, a CLEC was claiming terminating compensation of
approximately $165 for service arrangements that we did not believe involved
"traffic" under our interconnection agreements. We filed a complaint with the
state regulatory commission asking that agency to declare that we did not owe
reciprocal compensation for these arrangements. In March 2000, the state
commission ruled in our favor finding that compensation was not owed to the
CLEC.
Note F - Workforce Reduction
In February 2000, BellSouth announced that it would reduce its domestic general
and administrative staff by approximately 2,100 positions. These reductions are
the result of the streamlining of work processes in conjunction with BellSouth's
shift to a more simplified management structure. As a result of these
reductions, we recorded a one-time charge of $53 ($32 after tax) for severance
and post-employment health benefits.
<PAGE>
BELLSOUTH TELECOMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
(Dollars in Millions)
For a more complete understanding of our industry, the drivers of our business
and our current period results, you should read the following Management's
Discussion and Analysis of Results of Operations (MD&A) in conjunction with the
MD&A in our latest annual report on Form 10-K.
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Results of Operations
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Our reported results include the effect of the previously announced plan to
reduce our domestic workforce. Also included in our reported results is the
effect of charges from an affiliated company for use of intellectual property
rights related to trademarks, service marks and patents, which are eliminated in
the consolidated financial results of our parent company, BellSouth Corporation.
When compared to 1999, these charges increased our reported operational and
support expenses by $61, and reduced our reported net income by $37. To assist
your understanding of the results of operations, the following discussion
excludes the effect of these charges.
Key financial and operating data for first quarter 2000 and 1999, adjusted to
exclude the effect of the charges discussed above, are as follows:
First Quarter %
---------------------
1999 2000 Change
--------- ----------- --------------
Results of Operations
- ---------------------------------------------- ----------- --------------
Revenues. $4,266 $4,514 5.8
- ---------------------------------------------- ----------- --------------
Expenses. $2,862 $2,956 3.3
- ---------------------------------------------- ----------- --------------
Operating income.. $1,404 $1,558 11.0
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Net income........ $ 794 $ 870 9.6
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EBITDA... (a) $2,236 $2,437 9.0
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EBITDA margin..... 52.4% 54.0% +160bps
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- ---------------------------------------------- ----------- --------------
Key Indicators
- ---------------------------------------------- ----------- --------------
Access line counts (000's):
- ---------------------------------------------- ----------- --------------
Switched access lines:
- ---------------------------------------------- ----------- --------------
Residential 16,764 17,234 2.8
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Business 7,325 7,230 (1.3)
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Other 272 262 (3.7)
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Total switched access lines 24,361 24,726 1.5
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Access line equivalents(b) 14,586 20,917 43.4
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Total equivalent access lines 38,947 45,643 17.2
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Access minutes of use (millions) 26,825 28,716 7.0
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Long distance messages (millions) 177 136 (23.2)
- ---------------------------------------------- ----------- --------------
Digital and data services revenues $ 597 $ 767 28.5
- ---------------------------------------------- ----------- --------------
Convenience feature revenues $ 444 $ 515 16.0
- ---------------------------------------------- ----------- --------------
(a)......EBITDA represents income before net interest expense, income taxes,
depreciation and amortization, severance accrual and other income, net. We
present EBITDA because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis of
operating performance and because we believe that EBITDA is an additional
meaningful measure of performance and liquidity. EBITDA does not represent cash
flows for the period, nor is it an alternative to operating income (loss) as an
indicator of operating performance. You should not consider it in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. The items excluded from the
calculation of EBITDA are significant components in understanding and assessing
our financial performance. Our computation of EBITDA may not be comparable to
the computation of similarly titled measures of other companies. EBITDA does not
represent funds available for discretionary uses.
(b) Access line equivalents represent a conversion of non-switched data circuits
to a switched access line basis and is presented for comparability purposes.
Equivalents are calculated by converting data circuits (ISDN, ADSL, DS0, DS1 and
DS3) and SONET-based (optical) services (OC3 to OC48) to the equivalent of a
switched access line based on transport capacity. While the revenues generated
by access line equivalents have a directional relationship with these counts,
growth rates cannot be compared on an equivalent basis.
<PAGE>
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Overview
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Our 2000 results reflect strong revenue growth driven by growth in digital and
data services revenues when compared to the first quarter 1999. Expense growth
was driven by increased spending for customer service and network support
functions and expenses for development and promotion of new business initiatives
including high-speed data and Internet service offerings.
Operating Revenues
- -------------------------------------- ------------------------- ----------
First Quarter %
-------------------------
1999 2000 Change
- -------------------------------------- ------------ ------------ ----------
Operating revenues:
Local service ...................... $2,654 $2,821 6.3
Network access ..................... 1,191 1,263 6.0
Long distance ...................... 150 135 (10.0)
Other wireline...................... 271 295 8.9
- -------------------------------------- ------------ ------------ ----------
Total operating revenues ......... $4,266 $4,514 5.8
- -------------------------------------- ------------ ------------ ----------
Local service
The $167 increase in local service revenues is attributable to growth in
switched access lines and strong demand for digital and data services and
convenience features.
We ended the first quarter with over 45 million total equivalent access lines,
an increase of 17.2% since March 31, 1999. Residential access lines rose 2.8% to
17,234,000, driven by economic growth in our nine-state region as well as demand
for secondary residence lines which accounted for 47.9% of the growth in
residential access lines. We added 225,000 secondary residence lines since March
31, 1999, extending the total to over 2.5 million lines and ending the current
period with a penetration rate of 17.1%. Business access lines, including both
switched access lines and data circuits, grew 28.5% propelled by expanding
demand for our digital and data services. Switched business access lines
decreased 1.3% reflecting continued migration of new and existing business
customers to high-capacity data lines.
Revenues from optional convenience features such as custom calling features
(e.g., Caller ID, Call Waiting, Call Return) and MemoryCall(R) service increased
$71 (16.0%) when compared to first quarter 1999. These increases were driven by
growth in convenience feature usage through our Complete Choice(R) Package, a
one-price bundled offering of over 20 features.
Increased penetration of extended local area calling plans also increased local
service revenues by approximately $49 compared to first quarter 1999.
Network access
Network access revenues grew $72 in first quarter due largely to higher demand.
Access minutes of use rose 7.0% to 28,716 million in first quarter 2000 from
26,825 million in first quarter 1999. Increases in switched access lines and
promotional activities by long distance carriers continue to be the primary
drivers of the increase in minutes of use. First quarter 2000 growth in minutes
of use was also positively impacted by the additional day of activity resulting
from the leap year.
<PAGE>
The growth rate in total minutes of use continues to be negatively impacted by
the trend of business customers migrating from traditional switched circuits to
higher capacity data line offerings which are fixed-charge based rather than
per-minute-of-use based. Revenues from these dedicated circuit services grew
approximately $59 as Internet service providers and high-capacity users
increased their use of our network. The growth rate in switched minutes of use
has also been negatively impacted by competition from CLECs whose traffic
completely bypasses our network.
Volume-related growth was largely offset by net rate impacts that decreased
revenues by $65 compared to first quarter 1999. These rate reductions are
primarily related to the FCC's access reform and productivity factor adjustment.
The reductions were partially offset by recoveries of local number portability
costs.
Long distance
The $15 decrease is primarily attributable to a 23.2% decrease in long distance
message volumes since first quarter 1999. The decrease was offset by the impact
in 1999 of a regulatory ruling related to compensation we receive from long
distance carriers for interconnection to our public payphones. Also offsetting
the decreases were increased revenues from the provision of digital and data
services.
Competition from alternative intraLATA long distance carriers and increased
penetration of extended local area calling plans continue to have an adverse
impact on our long distance message volumes. We believe that competition in the
intraLATA long distance market will continue to adversely impact long distance
message volumes and revenues.
Other wireline
Other wireline revenues increased 8.9%, from $271 in first quarter 1999 to $295
in first quarter 2000. Higher revenues from resale of paging products and
services, sales of unbundled network elements, collocation of competing
carriers' equipment in our facilities, demand for our Internet access offering
and interconnection charges to wireless carriers were offset by decreases in
revenues from sales of customer premises equipment. At March 31, 2000 we had
735,000 subscribers to our BellSouth Internet Service (sm), an increase of 56.7%
compared to the same 1999 period. We expect continued strong growth associated
with an alliance with MyWay.com, an Internet portal operated by CMGI.
Operating Expenses
- ---------------------------------------------------------------- ----------
First Quarter %
-------------------------
1999 2000 Change
- --------------------------------------------------- ------------ ----------
Operating expenses:
Operational and support expenses ... $2,030 $2,077 2.3
Depreciation and amortization ...... 832 879 5.6
- --------------------------------------------------- ------------ ----------
Total operating expenses ......... $2,862 $2,956 3.3
- --------------------------------------------------- ------------ ----------
Operational and support expenses
Operational and support expenses increased $47 (2.3%) for first quarter 2000
when compared to the first quarter 1999. The increase was attributable to
accruals related to reciprocal compensation, volume-related increases in
interconnection expense and higher payments to FCC mandated universal access
funds. These increases were offset by reductions in contract service expense and
volume-driven costs from sales of CPE and paging equipment. The increases were
further offset by lower pension and benefit costs attributable to favorable
pension plan investment returns.
Also contributing to the increase were expenses related to new data initiatives,
including Asymmetric Digital Subscriber Line (ADSL) and integrated
fiber-in-the-loop (IFITL), and promotional expenses related to expanding our
Internet customer base. We made ADSL service available in 31 markets, with an
addressable market of approximately 8 million access lines, and we plan to
increase the addressable market to 11.5 million access lines by the end of 2000.
In January 2000, we began offering a self-install kit for ADSL in seven cities
and announced a partnership with Darwin Networks to expand ADSL offerings to
additional areas in the southeastern US. We are deploying IFITL in nearly all
newly built neighborhoods and are also retrofitting some 200,000 existing homes
in Atlanta and Miami.
<PAGE>
Depreciation and amortization
Depreciation and amortization expense increased $47 (5.6%) for first quarter
2000. The increase is primarily attributable to amortization of capitalized
internally developed software and depreciation resulting from higher levels of
net property, plant and equipment.
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Other Nonoperating Items
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
First Quarter %
-----------------------
1999 2000 Change
- ------------------------------------------------------- ------------ -----------
Interest Expense ............................ $ 135 $ 161 19.3
Other Income, net ........................... 1 6 N/M*
Provision for Income Taxes .................. 475 533 12.2
- ------------------------------------------------------- ------------ -----------
* Not Meaningful
Interest expense
Higher interest expense in 2000 is attributable to higher average debt balances
and increases in interest rates.
Provision for income taxes
The provision for income taxes increased $58 from first quarter 1999 to first
quarter 2000. The effective income tax rate for first quarter 2000 was 38.0%
compared to 37.4% for first quarter 1999 and is in line with our expected rate
for 2000.
- -------------------------------------------------------------------------------
Operating Environment and Trends of the Business
- -------------------------------------------------------------------------------
Regulatory Developments
Our future operating and financial results will be substantially influenced by
developments in a number of federal and state regulatory proceedings. Adverse
results in these proceedings could materially affect our revenues, expenses and
ability to compete effectively against other telecommunications carriers.
Federal policies being implemented by the Federal Communications Commission
(FCC) strongly favor access reform, whereby the historical subsidy for local
service that is contained in network access charges paid by long distance
carriers is eliminated. Unless compensatory changes are adopted, such as
Universal Service Fund contribution mandates, our revenues from this source are
at risk. In addition, other aspects of access charge regulation and Universal
Service Fund contribution requirements that are applicable to local service
carriers such as BST are also under consideration and could result in greater
expense levels or reduced revenues.
During first quarter 2000, a coalition of local and long distance providers,
including BellSouth, Bell Atlantic, GTE, SBC, AT&T and Sprint submitted a
proposal designed to result in lower consumer prices for long distance service
by reforming the way in which access costs are recovered. The proposal is a
comprehensive package that would adjust the FCC's price cap, access charge and
universal service rules for those price cap local exchange carriers electing to
adopt the proposal. The FCC asked for and received public comment on this
proposal and is expected to reach a decision by midyear. If this proposal were
approved, rates for access charges, and the revenues which we derive from access
charges, would be reduced.
The FCC has considerable authority to establish pricing, interconnection and
other policies that had once been considered within the exclusive jurisdiction
of the state public service commissions. We expect the FCC to accelerate the
growth of local service competition by aggressively utilizing such power.
We have petitioned the FCC for permission under the 1996 Act to offer full long
distance services in South Carolina and Louisiana. The FCC has denied these
petitions. We have been testing our operations support systems in Georgia and
expect to file with the FCC during the second quarter of 2000. We do not know if
the FCC will require further changes in our interconnection and network element
offerings and operations support systems before it will approve such petitions.
These changes could result in significant additional expenses and promote local
service competition. In December 1999, the FCC granted the first approval to
another Baby Bell to provide in-region interLATA service.
Our intrastate prices are regulated under price regulation plans provided by
statute or approved by state public service commissions. Some plans are subject
to periodic review and may require renewal. These commissions generally may
require price reductions and/or other concessions from us as conditions to
approving these plans.
In North Carolina, we reached a joint stipulation with the North Carolina Public
Staff and AT&T regarding revisions to the price regulation plan, switched access
reductions, ADSL deployment and service quality issues. The North Carolina
Utilities Commission conducted a hearing in late April on the Joint Stipulation,
and a decision by that commission on approval of the stipulation is pending.
We are involved in numerous legal proceedings associated with state and federal
regulatory matters, the disposition of which could materially impact our
operating results and prospects. See Note E to the consolidated financial
statements.
New Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin Number 101, "Revenue
Recognition in Financial Statements", (SAB 101). SAB 101 requires that revenues
and costs of revenues derived from services rendered at the beginning of a
contract or business relationship be deferred and recognized over the life of
the related contract or relationship. The guidelines in SAB 101 must be adopted
during the second quarter 2000. We are currently assessing the impact that
adoption of these guidelines will have on our results of operations and
financial position.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The effective date of this standard was delayed
via the issuance of SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
an amendment of FASB Statement 133". The effective date for SFAS No. 133 is now
for fiscal years beginning after June 15, 2000, though earlier adoption is
encouraged and retroactive application is prohibited. This means that the
standard must be adopted by us no later that January 1, 2001. We do not expect
that the adoption of this standard will have a material impact on results of
operations, financial position or cash flows.
- -------------------------------------------------------------------------------
Cautionary Language Concerning Forward-Looking Statements
- -------------------------------------------------------------------------------
In addition to historical information, management's discussion and analysis
contains forward-looking statements regarding events and financial trends that
may affect our future operating results, financial position and cash flows.
These statements are based on our assumptions and estimates and are subject to
risks and uncertainties. For these statements, we claim the protection of the
safe harbor for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995.
Factors that could affect future operating results, financial position and cash
flows and could cause actual results to differ materially from those expressed
in the forward-looking statements are:
* a change in economic conditions in markets where we operate or have
material investments which would affect demand for our services;
* the intensity of competitive activity and its resulting impact on pricing
strategies and new product offerings;
* protracted delay in BellSouth Corporation's entry into the interLATA long
distance market;
* higher than anticipated start-up costs or significant up-front investments
associated with new business initiatives;
* unanticipated higher capital spending from, or delays in, the deployment of
new technologies; and
* unsatisfactory results in regulatory actions including access reform,
universal service, terms of interconnection and unbundled network elements
and resale rates.
This list of cautionary statements is not exhaustive. These and other
developments could cause our actual results to differ materially from those
forecast or implied in the forward-looking statements. You are cautioned not to
place undue reliance on these forward-looking statements, which are current only
as of the date of this filing. We have no obligation, and we do not intend, to
publicly release the results of any revisions to these forward-looking
statements to reflect events or circumstances after the date of this filing.
<PAGE>
- -------------------------------------------------------------------------------
PART II -- OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
4a No instrument which defines the rights of holders of our long-
and intermediate-term debt is filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, we agree to furnish a copy of any such instrument
to the SEC upon request.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule as of March 31, 2000.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELLSOUTH TELECOMMUNICATIONS, INC.
By /s/ Guy L. Cochran
GUY L. COCHRAN
Vice President, Chief Financial Officer and Comptroller
(Principal Financial and Accounting Officer)
May 5, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule as of March 31, 2000.
EXHIBIT 12
BellSouth Telecommunications, Inc.
Computation Of Earnings To Fixed Charges
(Dollars In Millions)
For the Three Months
Ended March 31,
2000
1. Earnings
(a) Income from continuing
operations before deductions
for taxes and interest $ 1,314
(b) Portion of rental expense
representative of interest
factor 11
TOTAL $ 1,325
2. Fixed Charges
(a) Interest $ 171
(b) Portion of rental expense
representative of interest
factor 11
TOTAL $ 182
Ratio (1 divided by 2) 7.28
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 235
<SECURITIES> 314
<RECEIVABLES> 3,069
<ALLOWANCES> 79
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<PP&E> 53,284
<DEPRECIATION> 33,118
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0
0
<COMMON> 7,374
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<SALES> 28
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