UNITED STATES
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 September 30, 2006
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8607
BELLSOUTH CORPORATION
(Exact name of registrant as specified in its charter)
|
Georgia |
58-1533433 |
|
(State of Incorporation) |
(I.R.S. Employer |
|
Identification Number) |
|
1155 Peachtree Street, N. E., |
30309-3610 |
|
Atlanta, Georgia |
(Zip Code) |
|
(Address of principal executive offices) |
Registrant's telephone number 404-249-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
X |
Accelerated filer___ |
Non-accelerated filer___ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes___ No __X_
At October 30, 2006, 1,824,067,817 common shares were outstanding.
|
Table of Contents |
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Item |
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Page |
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Part I |
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1. |
Financial Statements |
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Consolidated Statements of Income |
3 |
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Consolidated Balance Sheets |
4 |
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Consolidated Statements of Cash Flows |
5 |
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Consolidated Statements of Shareholders Equity and Comprehensive Income |
6 |
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Notes to Consolidated Financial Statements |
7 |
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2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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3. |
Qualitative and Quantitative Disclosures about Market Risk |
34 |
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4. |
Controls and Procedures |
34 |
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Part II |
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1. |
Legal Proceedings |
35 |
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1A. |
Risk Factors |
35 |
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2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
36 |
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4. |
Submission of Matters to a Vote of Security Holders |
36 |
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6. |
Exhibits |
36 |
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PART I FINANCIAL INFORMATION
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
|
For the Three Months |
|
For the Nine Months |
| ||||
|
Ended September 30, |
|
Ended September 30, |
| ||||
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
Communications Group |
$ 4,558 |
|
$ 4,669 |
|
$ 13,749 |
|
$13,969 |
|
Advertising & Publishing Group |
506 |
|
535 |
|
1,521 |
|
1,581 |
|
All other |
8 |
|
14 |
|
35 |
|
45 |
|
Total operating revenues |
5,072 |
|
5,218 |
|
15,305 |
|
15,595 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of services and products (excludes depreciation |
|
|
|
|
|
|
|
|
and amortization shown separately below) |
2,017 |
|
1,905 |
|
5,862 |
|
5,974 |
|
Selling, general, and administrative expenses |
996 |
|
967 |
|
2,833 |
|
2,868 |
|
Depreciation and amortization |
922 |
|
894 |
|
2,756 |
|
2,685 |
|
Provisions for restructuring and asset impairments |
166 |
|
7 |
|
181 |
|
72 |
|
Total operating expenses |
4,101 |
|
3,773 |
|
11,632 |
|
11,599 |
|
|
|
|
|
|
|
|
|
|
Operating income |
971 |
|
1,445 |
|
3,673 |
|
3,996 |
|
Interest expense |
274 |
|
302 |
|
850 |
|
860 |
|
Net earnings (losses) of equity affiliates |
97 |
|
342 |
|
85 |
|
694 |
|
Gain on sale of operations |
351 |
|
|
|
351 |
|
|
|
Other income (expense), net |
64 |
|
90 |
|
176 |
|
212 |
|
Income from continuing operations before income taxes |
1,209 |
|
1,575 |
|
3,435 |
|
4,042 |
|
Provision for income taxes |
392 |
|
516 |
|
1,140 |
|
1,312 |
|
Income from continuing operations |
817 |
|
1,059 |
|
2,295 |
|
2,730 |
|
Income from discontinued operations, net of tax |
|
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ 817 |
|
$1,059 |
|
$ 2,676 |
|
$2,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
1,831 |
|
1,814 |
|
1,831 |
|
1,806 |
|
Diluted |
1,836 |
|
1,822 |
|
1,835 |
|
1,813 |
|
Dividends declared per common share |
$ 0.29 |
|
$ 0.29 |
|
$ 0.85 |
|
$ 0.87 |
|
|
|
|
|
|
|
|
|
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Basic earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
$ 0.45 |
|
$ 0.58 |
|
$ 1.25 |
|
$ 1.51 |
|
Discontinued operations, net of tax |
|
|
|
|
0.21 |
|
|
|
Net income |
$ 0.45 |
|
$ 0.58 |
|
$ 1.46 |
|
$ 1.51 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
$ 0. 44 |
|
$ 0.58 |
|
$ 1.25 |
|
$ 1.51 |
|
Discontinued operations, net of tax |
|
|
|
|
0.21 |
|
|
|
Net income |
$ 0.44 |
|
$ 0.58 |
|
$ 1.46 |
|
$ 1.51 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BELLSOUTH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
December 31, |
September 30, | ||||
|
2005 |
2006 | ||||
|
|
|
|
|
(unaudited) |
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
427 |
|
$ |
731 |
|
Short-term investments |
|
|
|
|
1,327 |
|
Accounts receivable, net of allowance for uncollectibles of $289 and $244 |
|
2,555 |
|
|
2,562 |
|
Material and supplies |
|
385 |
|
|
383 |
|
Other current assets |
|
842 |
|
|
928 |
|
Total current assets |
|
4,209 |
|
|
5,931 |
|
|
|
|
|
|
|
|
Investments in and advances to Cingular Wireless |
|
21,274 |
|
|
22,357 |
|
Property, plant and equipment, net |
|
21,723 |
|
|
21,820 |
|
Other assets |
|
7,814 |
|
|
8,725 |
|
Intangible assets, net |
|
1,533 |
|
|
1,540 |
|
Total assets |
$ |
56,553 |
|
$ |
60,373 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Debt maturing within one year |
$ |
4,109 |
|
$ |
3,926 |
|
Accounts payable |
|
1,040 |
|
|
909 |
|
Other current liabilities |
|
3,505 |
|
|
4,047 |
|
Total current liabilities |
|
8,654 |
|
|
8,882 |
|
|
|
|
|
|
|
|
Long-term debt |
|
13,079 |
|
|
14,278 |
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
Deferred income taxes |
|
6,607 |
|
|
6,818 |
|
Other noncurrent liabilities |
|
4,679 |
|
|
4,959 |
|
Total noncurrent liabilities |
|
11,286 |
|
|
11,777 |
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
Common stock, $1 par value (8,650 shares authorized; 1,798 and 1,822 shares outstanding) |
|
2,020 |
|
|
2,020 |
|
Paid-in capital |
|
7,960 |
|
|
8,130 |
|
Retained earnings |
|
20,383 |
|
|
21,525 |
|
Accumulated other comprehensive income (loss) |
|
(14) |
|
|
35 |
|
Shares held in trust and treasury |
|
(6,815) |
|
|
(6,274) |
|
Total shareholders equity |
|
23,534 |
|
|
25,436 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
$ |
56,553 |
|
$ |
60,373 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(Unaudited)
|
For the Nine Months Ended September 30, | ||||
|
|
2005 |
|
|
2006 |
Cash Flows from Operating Activities: |
|
|
|
|
|
Net income |
$ |
2,676 |
|
$ |
2,730 |
Less income from discontinued operations, net of tax |
|
(381) |
|
|
|
Income from continuing operations |
$ |
2,295 |
|
$ |
2,730 |
Adjustments to reconcile income to cash provided by operating activities from continuing operations: |
|
|
|
|
|
Depreciation and amortization |
|
2,756 |
|
|
2,685 |
Provision for uncollectibles |
|
258 |
|
|
230 |
Net earnings of equity affiliates |
|
(85) |
|
|
(694) |
Deferred income taxes |
|
51 |
|
|
165 |
Pension income |
|
(399) |
|
|
(391) |
Stock-based compensation expense |
|
70 |
|
|
45 |
Loss on extinguishment of debt |
|
42 |
|
|
|
Gain on sale of operations |
|
(351) |
|
|
|
Asset impairments |
|
166 |
|
|
|
Net change in: |
|
|
|
|
|
Accounts receivable and other current assets |
|
(174) |
|
|
(275) |
Accounts payable and other current liabilities |
|
1,009 |
|
|
447 |
Deferred charges and other assets |
|
(79) |
|
|
(49) |
Other liabilities and deferred credits |
|
337 |
|
|
332 |
Other reconciling items, net |
|
38 |
|
|
43 |
Net cash provided by operating activities from continuing operations |
|
5,934 |
|
|
5,268 |
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
Capital expenditures |
|
(2,465) |
|
|
(2,761) |
Investment in short-term instruments |
|
(88) |
|
|
(5,227) |
Proceeds from sale of short-term instruments |
|
104 |
|
|
3,901 |
Proceeds from sale of operations |
|
1,555 |
|
|
|
Investments in debt and equity securities |
|
(156) |
|
|
(819) |
Proceeds from sale of debt and equity securities |
|
45 |
|
|
289 |
Net repayments from (advances to) Cingular Wireless |
|
1,736 |
|
|
(416) |
Other investing activities, net |
|
(37) |
|
|
(32) |
Net cash provided by (used for) investing activities from continuing operations |
|
694 |
|
|
(5,065) |
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
Net borrowings (repayments) of short-term debt |
|
(2,110) |
|
|
234 |
Proceeds from issuance of long-term debt |
|
|
|
|
1,200 |
Repayments of long-term debt |
|
(1,500) |
|
|
(433) |
Dividends paid |
|
(1,520) |
|
|
(1,572) |
Purchase of treasury shares |
|
(137) |
|
|
(52) |
Proceeds from issuing common stock |
|
60 |
|
|
654 |
Other financing activities, net |
|
44 |
|
|
70 |
Net cash (used in) provided by financing activities from continuing operations |
|
(5,163) |
|
|
101 |
|
|
|
|
|
|
Net increase in cash and cash equivalents from continuing operations |
|
1,465 |
|
|
304 |
|
|
|
|
|
|
Cash flows from discontinued operations: |
|
|
|
|
|
Net cash provided by operating activities |
|
10 |
|
|
|
Net cash used for investing activities |
|
(125) |
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
Net decrease in cash and cash equivalents from discontinued operations |
|
(115) |
|
|
|
Net increase in cash and cash equivalents |
|
1,350 |
|
|
304 |
Cash and cash equivalents at beginning of period |
|
680 |
|
|
427 |
Cash and cash equivalents at end of period |
$ |
2,030 |
|
$ |
731 |
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BELLSOUTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(IN MILLIONS)
(Unaudited)
|
|
Number of Shares |
|
Amount | ||||||
|
|
Common Stock |
(a) Shares Held in Trust and Treasury |
|
Common Stock |
Paid-in Capital |
Retained Earnings |
Accum. Other Comprehensive Income (Loss) |
(a) Shares Held in Trust and Treasury |
Total |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
2,020 |
(189) |
|
$ 2,020 |
$ 7,840 |
$ 19,267 |
$ (157) |
$ (5,904) |
$ 23,066 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
2,676 |
|
|
2,676 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
129 |
|
129 |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
2,805 |
Dividends declared |
|
|
|
|
|
|
(1,556) |
|
|
(1,556) |
Purchase of treasury stock |
|
|
(5) |
|
|
|
|
|
(137) |
(137) |
Share issuances for employee benefit plans |
|
|
5 |
|
|
(54) |
(61) |
|
176 |
61 |
Stock-based compensation |
|
|
|
|
|
70 |
|
|
|
70 |
Tax benefit related to stock options |
|
|
|
|
|
5 |
|
|
|
5 |
Balance at September 30, 2005 |
|
2,020 |
(189) |
|
$ 2,020 |
$ 7,861 |
$ 20,326 |
$ (28) |
$ (5,865) |
$ 24,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
2,020 |
(222) |
|
$ 2,020 |
$ 7,960 |
$ 20,383 |
$ (14) |
$ (6,815) |
$ 23,534 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
2,730 |
|
|
2,730 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
49 |
|
49 |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
2,779 |
Dividends declared |
|
|
|
|
|
|
(1,571) |
|
|
(1,571) |
Purchase of treasury stock |
|
|
(2) |
|
|
|
|
|
(52) |
(52) |
Share issuances for employee benefit plans |
|
|
26 |
|
|
(144) |
(17) |
|
838 |
677 |
Purchases and sales of treasury stock with grantor trusts |
|
|
|
|
|
245 |
|
|
(245) |
|
Stock-based compensation |
|
|
|
|
|
45 |
|
|
|
45 |
Tax benefit related to stock options |
|
|
|
|
|
24 |
|
|
|
24 |
Balance at September 30, 2006 |
|
2,020 |
(198) |
|
$ 2,020 |
$ 8,130 |
$ 21,525 |
$ 35 |
$ (6,274) |
$ 25,436 |
(a) |
Trust and treasury shares are not considered to be outstanding for financial reporting purposes.
|
|
As of September 30, |
| |
|
2005 |
2006 |
|
Shares held in trust |
26 |
8 |
|
Shares held in treasury |
163 |
190 |
|
Total |
189 |
198 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE A - PREPARATION OF INTERIM FINANCIAL STATEMENTS
In this report, BellSouth Corporation and its subsidiaries are referred to as we, the Company, or BellSouth.
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 presented. 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 annual report on Form 10-K for the year ended December 31, 2005.
Certain amounts within the prior years information have been reclassified to conform to the current years presentation.
NOTE B RECENTLY ISSSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158, "Employers Accounting for Defined Benefit Pension and Other Postretirement Plans" (SFAS No. 158). SFAS No. 158 amends FASB Statements No. 87, 88, 106, and 132(R) by requiring recognition of the over-funded or under-funded status of our defined benefit postretirement plans as assets or liabilities in our statement of financial position and to recognize changes in that funded status through comprehensive income in the year in which the changes occur. SFAS No. 158 is effective for BellSouth on a prospective basis beginning December 31, 2006. We are currently evaluating the impact SFAS No. 158 will have on our financial statements. If the standard had been applied based on balances as of December 31, 2005, net liabilities would have increased $2.9 billion with a corresponding decline in equity.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." This Interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. This Interpretation is effective for BellSouth beginning January 1, 2007. We are currently evaluating the impact FIN 48 will have on our financial statements.
NOTE C - EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted-average number of common shares outstanding during each year. Nonvested restricted stock carries dividend and voting rights and, in accordance with Generally Accepted Accounting Principles (GAAP), is not included in the weighted-average number of common shares outstanding used to compute basic earnings per share. Diluted earnings per share are based on the weighted-average number of common shares outstanding plus net incremental shares arising out of employee stock compensation and benefit plans. The earnings amounts used for per-share calculations are the same for both the basic and diluted methods. The following is a reconciliation of the weighted-average share amounts (in millions) used in calculating earnings per share:
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
| ||
|
2005 |
2006 |
|
2005 |
2006 |
|
Basic common shares outstanding |
1,831 |
1,814 |
|
1,831 |
1,806 |
|
Incremental shares from stock-based compensation and benefit plans |
5 |
8 |
|
4 |
7 |
|
Diluted common shares outstanding |
1,836 |
1,822 |
|
1,835 |
1,813 |
|
Common stock equivalents excluded from the computation |
77 |
44 |
|
77 |
57 |
|
Options with an exercise price greater than the average market price of the common stock or that have an anti-dilutive effect on the computation are excluded from the calculation of diluted earnings per share. Restricted stock or restricted stock units that have an anti-dilutive effect on the computation are also excluded from the calculation of diluted earnings per share.
NOTE D DISCONTINUED OPERATIONS
In March 2004, we signed an agreement with Telefónica Móviles, S.A., the wireless affiliate of Telefónica, S.A., to sell all of our interests in Latin America. During 2004, we closed on the sale of 8 of the 10 properties. During January 2005, we closed on the sale of the operations in the remaining two Latin American countries for gross proceeds of $1,077 and a gain of $390, net of tax. The gain includes the recognition of cumulative foreign currency translation losses of $68.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE D DISCONTINUED OPERATIONS (Continued)
Summarized results of operations for the discontinued operations for the nine months ended September 30, 2005 are as follows:
|
2005 |
|
Revenue |
$ 66 |
|
Operating loss |
(5) |
|
Gain on sale of operations |
629 |
|
Income before income taxes |
616 |
|
Income tax expense |
235 |
|
Income from discontinued operations |
$ 381 |
|
NOTE E - MERGER OF BELLSOUTH AND AT&T
On March 4, 2006, we agreed to merge with a subsidiary of AT&T Inc. (AT&T) in a transaction in which each share of BellSouth common stock will be exchanged for 1.325 shares of AT&T common stock. The stock consideration in the transaction is expected to be tax-free to our shareholders. On July 21, 2006, AT&T and BellSouth received approval from their stockholders for AT&T to acquire BellSouth. The acquisition is subject to approval by regulatory authorities and to other customary closing conditions. The US Department of Justice cleared the merger on October 11, 2006. The Federal Communications Commission has scheduled a meeting to vote on the merger on November 3, 2006. The acquisition is currently expected to close in the fall of 2006. However, it is possible that factors outside of our control could require us to complete the merger at a later time or not to complete it at all. The terms of certain of our agreements, including contracts, employee benefit arrangements and debt instruments, have provisions which could result in changes to the terms of these agreements upon a change in control of BellSouth.
NOTE F - INVESTMENTS IN AND ADVANCES TO CINGULAR WIRELESS
Investment
We own a 40 percent economic interest in Cingular Wireless, a joint venture with AT&T. Because we exercise influence over the financial and operating policies of Cingular Wireless, we use the equity method of accounting for this investment. Under the equity method of accounting, we record our proportionate share of Cingular Wireless' earnings in our consolidated statements of income. These earnings are included in the caption "Net earnings (losses) of equity affiliates."
The following table displays the summary financial information of Cingular Wireless. These amounts are shown on a 100 percent basis.
|
December 31, 2005 |
September 30, 2006 |
|
Balance Sheet Information: |
|
|
|
Current assets |
$ 6,049 |
$ 6,826 |
|
Noncurrent assets |
$ 73,270 |
$ 73,466 |
|
Current liabilities |
$ 10,008 |
$ 9,543 |
|
Noncurrent liabilities |
$ 23,790 |
$ 23,486 |
|
Minority interest |
$ 543 |
$ 618 |
|
Members capital |
$ 44,978 |
$ 46,645 |
|
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
| ||
|
2005 |
2006 |
|
2005 |
2006 |
|
Income Statement Information: |
|
|
|
|
|
|
Revenues |
$ 8,746 |
$ 9,553 |
|
$ 25,584 |
$ 27,751 |
|
Operating income |
$ 657 |
$ 1,416 |
|
$ 1,275 |
$ 3,240 |
|
Net income (loss) |
$ 222 |
$ 847 |
|
$ 129 |
$ 1,741 |
|
As of September 30, 2006, our book investment exceeded our proportionate share of the net assets of Cingular Wireless by $456.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE F - INVESTMENTS IN AND ADVANCES TO CINGULAR WIRELESS (Continued)
Advance
We have an advance to Cingular Wireless that, with interest, totaled $2,622 at December 31, 2005 and September 30, 2006. This advance earns an interest rate of 6.0 percent per annum and matures on June 30, 2008.
Revolving Line of Credit
BellSouth and AT&T provide unsubordinated short-term financing on a pro rata basis for Cingular Wireless ordinary course of business cash requirements. Under the terms of the line of credit, Cingular Wireless available cash (as defined), if any, is applied first to repay amounts loaned to Cingular Wireless under the line of credit. Remaining available cash is applied to the repayment of the advance described above. Borrowings bear interest at 1-Month LIBOR plus 0.05 percent payable monthly. The line of credit terminates on July 31, 2007. Borrowings from BellSouth under the revolving credit line, including interest, were $204 at December 31, 2005 and $621 at September 30, 2006.
Provision of Services
We also generate revenues from Cingular Wireless in the ordinary course of business for the provision of local interconnection services, long distance services, sales agency fees and customer billing and collection fees.
Interest and Revenue Earned from Cingular Wireless:
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
| ||
|
2005 |
2006 |
|
2005 |
2006 |
|
Revenues |
$ 193 |
$ 214 |
|
$ 527 |
$ 607 |
|
Interest income on advances |
$ 47 |
$ 49 |
|
$ 163 |
$ 140 |
|
Interest expense on line of credit |
$ 2 |
$ |
|
$ 2 |
$ |
|
Interest income on advances and interest expense on the line of credit are offset by a like amount of interest expense and interest income recorded by Cingular Wireless and reported in our financial statements in the caption Net earnings (losses) of equity affiliates.
Receivables and payables incurred in the ordinary course of business are recorded on our balance sheets as follows:
|
December 31, 2005 |
September 30, 2006 |
Receivable from Cingular |
$ 51 |
$ 73 |
Payable to Cingular |
$ 54 |
$ 60 |
NOTE G - DEBT
Issuances & Maturities
On August 2, 2006, we sold $1,200 of 2-year, floating rate notes due August 15, 2008. In addition, we incurred debt issuance costs of $2 related to this transaction.
The proceeds were used in part to fund $1,000 of maturing 5-year, 5.0 percent notes on October 16, 2006.
Early Redemptions
On January 18, 2005, we redeemed $400 of 40-year, 6.75 percent debentures, due October 15, 2033. The redemption price was 103.33 percent of the principal amount, and resulted in recognition of a loss of $22, or $14 net of tax, which includes $9 associated with fully expensing remaining discount and deferred debt issuance costs.
On May 18, 2005 we redeemed $300 of 40-year, 7.625 percent debentures, due May 15, 2035. The redemption price was 103.66 percent of the principal amount, and resulted in recognition of a loss of $20, or $12 net of tax, which includes $9 associated with fully expensing remaining discount and deferred debt issuance costs.
NOTE H - WORKFORCE REDUCTION AND RESTRUCTURING
Based on competitive activity in the telecommunications industry, realignment of our business and productivity improvements, we have periodically initiated workforce reductions and recorded charges for early termination benefits.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE H - WORKFORCE REDUCTION AND RESTRUCTURING (Continued)
In December 2005, we announced that we would reduce our management workforce by approximately 1,500 employees. The plan included a voluntary program offering a special termination benefit followed by an involuntary program to the extent necessary to achieve the targeted reductions. As a result of the pending merger of BellSouth and AT&T, we modified the terms of the fourth quarter 2005 announced workforce reduction by eliminating the involuntary component that was scheduled to follow the voluntary offer. Accordingly, in the first quarter of 2006 we reversed the minimum liability accrued (except with respect to the 60 employees who had already accepted under that program). Based on the acceptances of the voluntary offer, we accrued $73 for the second quarter of 2006 and $127 for the first half of 2006. Under the modified plan, we reduced our management workforce by approximately 1,350 employees. This reduction program was substantially complete at the end of June 2006.
In addition, we recorded restructuring charges totaling $7 for non-management surpluses announced in the third quarter of 2006 and $31 for the nine months ended September 30, 2006.
The following table summarizes activity associated with the workforce reduction and restructuring liability for the nine months ended September 30, 2006:
Balance at December 31, 2005 |
$ 100 |
Accruals |
158 |
Cash Payments |
(151) |
Adjustments |
(86) |
Balance at September 30, 2006 |
$ 21 |
Adjustments to the employee separations accrual are due to the reversal noted above for $77 as well as estimated demographics being different than actual demographics of employees that separated from the Company.
NOTE I - EMPLOYEE BENEFITS PLANS
Substantially all of our employees are covered by noncontributory defined benefit pension plans. We provide certain medical, dental and life insurance benefits to substantially all retired employees under various plans and accrue actuarially-determined postretirement benefit costs as active employees earn these benefits. Management employees hired after January 1, 2001 are provided access to medical benefits at retirement but are required to pay 100 percent of the cost.
The following details pension and postretirement benefit costs included in operating expenses (in cost of sales and selling, general and administrative expenses) in the accompanying Consolidated Statements of Income. Approximately 10 percent of these costs are capitalized to property, plant and equipment with labor related to network construction. During the quarter, lump sum distributions from our management pension plan exceeded the settlement threshold equal to the sum of the service cost and interest cost components of net periodic pension cost; therefore, we recognized a settlement gain in addition to our normal periodic cost. Components of net periodic benefit costs were as follows:
|
Pension Benefits |
|
Other Benefits |
| ||
|
For the Three Months Ended September 30, |
|
For the Three Months Ended September 30, |
| ||
|
2005 |
2006 |
|
2005 |
2006 |
|
Service cost |
$ 52 |
$ 49 |
|
$ 31 |
$ 31 |
|
Interest cost |
147 |
150 |
|
145 |
146 |
|
Expected return on plan assets |
(322) |
(319) |
|
(84) |
(86) |
|
Amortizations: |
|
|
|
|
|
|
Unrecognized net obligation |
|
|
|
19 |
12 |
|
Unrecognized prior service cost |
(10) |
(10) |
|
56 |
45 |
|
Unrecognized (gain) loss |
|
|
|
26 |
29 |
|
Net periodic benefit cost (income) |
$ (133) |
$ (130) |
|
$ 193 |
$ 177 |
|
Settlements |
|
(8) |
|
|
|
|
Net periodic benefit cost (income), adjusted |
$ (133) |
$ (138) |
|
$ 193 |
$ 177 |
|
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE I - EMPLOYEE BENEFITS PLANS (Continued)
|
Pension Benefits |
|
Other Benefits |
| ||
|
For the Nine Months Ended September 30, |
|
For the Nine Months Ended September 30, |
| ||
|
2005 |
2006 |
|
2005 |
2006 |
|
Service cost |
$ 155 |
$ 147 |
|
$ 92 |
$ 94 |
|
Interest cost |
441 |
449 |
|
437 |
438 |
|
Expected return on plan assets |
(964) |
(956) |
|
(252) |
(260) |
|
Amortizations: |
|
|
|
|
|
|
Unrecognized net obligation |
|
|
|
55 |
38 |
|
Unrecognized prior service cost |
(31) |
(31) |
|
169 |
135 |
|
Unrecognized (gain) loss |
|
|
|
77 |
86 |
|
Net periodic benefit cost (income) |
$ (399) |
$ (391) |
|
$ 578 |
$ 531 |
|
Settlements |
|
(8) |
|
|
|
|
Net periodic benefit cost (income), adjusted |
$ (399) |
$ (399) |
|
$ 578 |
$ 531 |
|
Employer Contributions
Due to the funded status of our pension plans, we do not expect to make contributions to these plans in 2006. Consistent with prior years, we expect to contribute cash to the Voluntary Employee Beneficiary Association trusts to fund other benefit payments. During the nine months ended September 30, 2006, we contributed $268 to fund these other benefits and expect to contribute approximately $80 to $130 during the remainder of 2006.
Cash Balance Pension Plans
In July 2003, a Federal district court in Illinois ruled that the benefit formula used in International Business Machines Corporation's (IBM) cash balance pension plan violated the age discrimination provisions of the Age Discrimination in Employment Act (ADEA) and certain provisions of the Employee Retirement Income Security Act (ERISA). Subsequent opinions of several other courts have conflicted with that court's view, while others have agreed. Recently, the Seventh Circuit Court of Appeals overturned the district court's opinion in the IBM case and determined that cash balance pension plan formulas are not inherently age discriminatory. Further, recent legislation, the Pension Protection Act of 2006, specifically validated prospectively the legal status of certain cash balance designs, including the types of cash balance formulas specified under our tax-qualified cash balance pension plans. At this time, it is unclear what effect, if any, the remaining negative decisions regarding cash balance formulas may have on our tax-qualified cash balance pension plans or our financial condition.
NOTE J - STOCK COMPENSATION PLANS
We have granted stock-based compensation awards to key employees under several plans. One share of BellSouth common stock is the underlying security for any award under these plans. Under the stock plan approved by shareholders in 2004, the maximum number of shares available for future grants is limited to 80 million reduced by awards granted and increased by shares tendered in option exercises. In 2003, we used the retroactive restatement method provided by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, to adopt the expense recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123) by restating all periods beginning on or after January 1, 1995 (the effective date of SFAS No. 123). Effective January 1, 2006, we adopted SFAS No. 123 (Revised 2004), Share-Based Payment, (SFAS No. 123R) using the modified prospective application of its provisions; therefore, our financial statements for prior periods will not be restated. The cumulative effect of adopting SFAS No. 123R was immaterial. Because we previously adopted the expense recognition provisions of SFAS No. 123, the impact of adopting SFAS No. 123R resulted in essentially three changes: (1) use of an estimated forfeiture rate versus recognition of actual forfeitures as incurred, (2) use of fair value to measure expense for awards classified as liabilities, and (3) use of the alternative transition method to calculate the pool of excess tax benefits available to absorb tax deficiencies in future years, which increased the pool by $130. Effective with the adoption of SFAS No. 123R, we instituted a policy of recognizing expense for awards with graded vesting provisions using the straight-line method of expense attribution.
Given trends in long-term compensation awards and market conditions, over the last few years we have moved toward granting a mix of restricted stock (or restricted stock units) and performance share units in lieu of stock options. The table below summarizes the total compensation cost for each type of award and the related total tax benefit included in our results of operations:
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE J - STOCK COMPENSATION PLANS (Continued)
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, | ||
Compensation cost: |
2005 |
2006 |
2005 |
2006 |
Stock options |
$ 9 |
$ 2 |
$ 32 |
$ 9 |
Restricted stock and restricted stock units |
13 |
12 |
39 |
36 |
Performance share units |
19 |
57 |
49 |
133 |
Total compensation cost |
41 |
71 |
120 |
178 |
Income tax benefit |
(15) |
(27) |
(44) |
(69) |
Compensation cost net of income tax benefit |
$ 26 |
$ 44 |
$ 76 |
$ 109 |
Stock Option Awards
Stock options granted under the plans entitle recipients to purchase shares of BellSouth common stock within prescribed periods at a price either equal to, or in excess of, the fair market value on the date of grant. Options generally become exercisable at the end of three to five years, have a term of ten years, and provide for accelerated vesting if there is a change in control (as defined in the plans). The grant date fair value of each option granted, which is estimated using the Black-Scholes option-pricing formula, is expensed over the vesting period. A summary of option activity under the plans is presented below:
|
Number of options |
Weighted- average option prices per common share |
Weighted- average remaining contractual term in years |
Aggregate intrinsic value |
Outstanding at December 31, 2005 |
96,802,789 |
$36.12 |
|
|
Granted |
|
|
|
|
Exercised |
(26,430,051) |
$25.97 |
|
|
Forfeited or expired |
(2,443,580) |
$38.58 |
|
|
Outstanding at September 30, 2006 |
67,929,158 |
$39.97 |
3.98 |
$252 |
Exercisable at September 30, 2006 |
65,928,420 |
$40.33 |
3.91 |
$223 |
As of September 30, 2006, total compensation cost related to unvested stock options of $1 is expected to be amortized by the end of 2006. Information related to stock option exercises is provided below:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, | ||
|
2005 |
2006 |
2005 |
2006 |
Total value received by employees for options exercised |
$ 6 |
$ 109 |
$ 23 |
$ 246 |
Tax benefit realized for options exercised |
$ 2 |
$ 40 |
$ 8 |
$ 91 |
Cash received for options exercised |
$ 22 |
$ 274 |
$ 60 |
$ 654 |
Restricted Stock and Restricted Stock Unit Awards
Restricted stock and restricted stock unit awards granted to key employees under the plans are settled by issuing shares of common stock at the vesting date. Generally, the restrictions lapse in full on the third anniversary of the grant date, or on a pro rata basis on each of the first three anniversaries of the grant date. The vesting of restricted stock and restricted stock units accelerates if there is a change in control (as defined in the plans) and the employee is terminated or resigns for good reason within two years of the change in control. The grant date fair value of the restricted stock and restricted stock units, which is the stock price on the grant date, is expensed over the period during which the restrictions lapse. The shares represented by restricted stock awards (but not restricted stock unit awards) are considered outstanding at the grant date, as the recipients are entitled to dividends and voting rights. A summary of restricted stock and restricted stock unit activity under the plans is presented below:
|
Number of shares & units |
Weighted-average grant date fair value |
|
Unvested at December 31, 2005 |
4,270,080 |
$27.02 |
|
Granted |
1,604,386 |
$31.88 |
|
Vested |
(848,920) |
$27.52 |
|
Forfeited |
(190,625) |
$28.55 |
|
Unvested at September 30, 2006 |
4,834,921 |
$28.48 |
|
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE J - STOCK COMPENSATION PLANS (Continued)
The weighted-average grant date fair value of restricted stock and restricted stock units granted during the three months ended September 30, 2005 and 2006 was $26.90 and $38.79, respectively. The weighted-average grant date fair value of restricted stock and restricted stock units granted during the nine months ended September 30, 2005 and 2006 was $26.06 and $31.88, respectively. As of September 30, 2006, the total unrecognized compensation cost for unvested restricted stock and restricted stock units of $65 is expected to be amortized over a weighted-average period of approximately 14 months. Information related to shares vested is provided below:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, | ||
|
2005 |
2006 |
2005 |
2006 |
Total value received by employees for shares vested |
$ 1 |
$ 1 |
$ 16 |
$ 27 |
Tax benefit realized for shares vested |
$ |
$ |
$ 4 |
$ 9 |
Performance Share Unit Awards
Performance share units granted to key employees are settled in cash based on an average stock price at the end of the three-year performance period multiplied by the number of units earned. The number of performance share units actually earned by recipients is based on the achievement of certain performance goals as defined by the terms of the awards, and can range from 0% to 150% of the number of units granted. At the end of the performance period, recipients also receive a cash payment equal to the dividends paid on a share of BellSouth stock during the performance period for each performance share unit earned. Vesting accelerates and the performance period is modified if there is a change in control (as defined in the plans). For awards granted prior to 2006, performance share unit expense is generally recognized over the performance period; for awards granted in 2006, performance share unit expense is recognized over the vesting period, which approximates the performance period. Since performance share units are settled in cash, our obligations related to these awards are classified as liabilities. A summary of performance share unit activity under the plans is presented below:
|
Number of units |
Unvested at December 31, 2005 |
5,857,605 |
Granted |
2,259,675 |
Vested |
|
Forfeited |
(101,070) |
Unvested at September 30, 2006 |
8,016,210 |
Effective with the adoption of the provisions of SFAS No. 123R on January 1, 2006, the amount of expense recognized for all unvested performance share units is based on the fair value of the performance shares at each reporting date and, as applicable, the expected outcome of performance conditions. The fair value of each performance share unit is determined at the grant date and at each reporting date using a Monte Carlo simulation model. The simulation model includes ranges of assumptions for stock price volatility, risk-free interest rates, and expected dividends. Expected volatilities for the three unvested awards are estimated based on a blend of historical volatility of our stock and implied volatilities from traded options on our stock and are currently estimated at 19% to 20%. The risk-free interest rate for periods within each performance period is based on the US Treasury yield curve in effect at the valuation date and currently ranges from 4.72% to 5.01%. Expected dividends are estimated based on historical patterns of increases.
The weighted-average fair value of unvested performance share units as of September 30, 2006 was $47.83, and the total unrecognized compensation cost of $181, based on this value, is expected to be amortized over a weighted-average period of approximately 15 months. Information related to performance share units vested and paid is provided below:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, | ||
|
2005 |
2006 |
2005 |
2006 |
Total value received by employees for units vested and paid |
$ 5 |
$ 14 |
$ 12 |
$ 35 |
Tax benefit realized for units vested and paid |
$ 2 |
$ 6 |
$ 4 |
$ 14 |
NOTE K - SEGMENT INFORMATION
We have three reportable operating segments: (1) Communications Group; (2) Wireless; and (3) Advertising & Publishing Group. We own a 40 percent economic interest in Cingular Wireless, and share joint control of the venture with AT&T. We account for the investment under the equity method. For management purposes we evaluate our Wireless segment
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE K - SEGMENT INFORMATION (Continued)
based on our proportionate share of Cingular Wireless results. Accordingly, results for our Wireless segment reflect the proportional consolidation of 40 percent of Cingular Wireless results.
The Companys chief decision makers evaluate the performance of each business unit based on segment net income, exclusive of internal charges for use of intellectual property and adjustments for unusual items that may arise. Unusual items are transactions or events that are included in reported consolidated results but are excluded from segment results due to their nonrecurring or nonoperational nature.
The following table provides information for each operating segment:
|
|
For the Three Months |
|
|
For the Nine Months | ||||||
|
|
Ended September 30, |
|
|
Ended September 30, | ||||||
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
Communications Group |
|
|
|
|
|
|
|
|
|
|
|
External revenues |
$ |
4,558 |
|
$ |
4,669 |
|
$ |
13,749 |
|
$ |
13,969 |
Intersegment revenues |
|
30 |
|
|
27 |
|
|
82 |
|
|
79 |
Total segment revenues |
|
4,588 |
|
|
4,696 |
|
|
13,831 |
|
|
14,048 |
Segment operating income |
|
1,021 |
|
|
1,205 |
|
|
3,228 |
|
|
3,474 |
Segment net income |
$ |
611 |
|
$ |
720 |
|
$ |
1,935 |
|
$ |
2,072 |
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
$ |
3,499 |
|
$ |
3,821 |
|
$ |
10,234 |
|
$ |
11,100 |
Segment operating income |
|
555 |
|
|
748 |
|
|
1,301 |
|
|
1,914 |
Segment net income |
$ |
242 |
|
$ |
360 |
|
$ |
477 |
|
$ |
879 |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising & Publishing Group |
|
|
|
|
|
|
|
|
|
|
|
External revenues |
$ |
506 |
|
$ |
535 |
|
$ |
1,521 |
|
$ |
1,581 |
Intersegment revenues |
|
3 |
|
|
2 |
|
|
10 |
|
|
9 |
Total segment revenues |
|
509 |
|
|
537 |
|
|
1,531 |
|
|
1,590 |
Segment operating income |
|
233 |
|
|
245 |
|
|
709 |
|
|
723 |
Segment net income |
$ |
146 |
|
$ |
154 |
|
$ |
441 |
|
$ |
450 |
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
|
|
For the Three Months |
|
|
For the Nine Months | |||||||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, | |||||||||||||||
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 | |||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total reportable segments |
$ |
8,596 |
|
$ |
9,054 |
|
$ |
25,596 |
|
$ |
26,738 | |||||||||
Cingular proportional consolidation |
|
(3,499) |
|
|
(3,821) |
|
|
(10,234) |
|
|
(11,100) | |||||||||
Corporate, eliminations and other |
|
(25) |
|
|
(15) |
|
|
(57) |
|
|
(43) | |||||||||
Total consolidated |
$ |
5,072 |
|
$ |
5,218 |
|
$ |
15,305 |
|
$ |
15,595 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total reportable segments |
$ |
1,809 |
|
$ |
2,198 |
|
$ |
5,238 |
|
$ |
6,111 | |||||||||
Cingular proportional consolidation |
|
(555) |
|
|
(748) |
|
|
(1,301) |
|
|
(1,914) | |||||||||
Hurricane Katrina-related expenses, net |
|
(124) |
|
|
|
|
|
(124) |
|
|
(119) | |||||||||
Asset impairment |
|
(166) |
|
|
|
|
|
(166) |
|
|
| |||||||||
AT&T merger costs |
|
|
|
|
(17) |
|
|
|
|
|
(44) | |||||||||
Severance charges |
|
|
|
|
|
|
|
|
|
|
(73) | |||||||||
Corporate, eliminations and other |
|
7 |
|
|
12 |
|
|
26 |
|
|
35 | |||||||||
Total consolidated |
$ |
971 |
|
$ |
1,445 |
|
$ |
3,673 |
|
$ |
3,996 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE K - SEGMENT INFORMATION (Continued)
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION (Continued)
|
|
For the Three Months |
|
|
For the Nine Months | ||||||
|
|
Ended September 30, |
|
|
Ended September 30, | ||||||
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
Net Income |
|
|
|
|
|
|
|
|
|
|
|
Total reportable segments |
$ |
999 |
|
$ |
1,234 |
|
$ |
2,853 |
|
$ |
3,401 |
Wireless merger intangible amortization |
|
(93) |
|
|
(75) |
|
|
(284) |
|
|
(240) |
Wireless merger integration costs |
|
(56) |
|
|
(33) |
|
|
(119) |
|
|
(127) |
Hurricane Katrina-related expenses, net |
|
(98) |
|
|
|
|
|
(98) |
|
|
(73) |
Asset impairment |
|
(102) |
|
|
|
|
|
(102) |
|
|
|
AT&T merger costs |
|
|
|
|
(13) |
|
|
|
|
|
(30) |
Severance charges |
|
|
|
|
|
|
|
|
|
|
(45) |
Early extinguishment of debt |
|
|
|
|
|
|
|
(26) |
|
|
|
Gain on sale of operations |
|
228 |
|
|
|
|
|
228 |
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
381 |
|
|
|
Corporate, eliminations and other |
|
(61) |
|
|
(54) |
|
|
(157) |
|
|
(156) |
Total consolidated |
$ |
817 |
|
$ |
1,059 |
|
$ |
2,676 |
|
$ |
2,730 |
NOTE L - OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) is comprised of the following components:
|
December 31, 2005 |
|
September 30, 2006 |
|
Cumulative foreign currency translation adjustments |
$ (2) |
|
$ (2) |
|
Minimum pension liability adjustment |
(133) |
|
(125) |
|
Net unrealized gains on derivatives |
5 |
|
5 |
|
Net unrealized gains on securities |
116 |
|
157 |
|
|
$ (14) |
|
$ 35 |
|
Total comprehensive income details are presented in the table below:
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
| ||
|
2005 |
2006 |
|
2005 |
2006 |
| |
Net Income |
$ 817 |
$ 1,059 |
|
$ 2,676 |
$ 2,730 |
| |
Other comprehensive income, net of tax: |
|
|
|
|
|
| |
Foreign currency translation: |
|
|
|
|
|
| |
Adjustments |
(11) |
|
|
(1) |
|
| |
Sale of foreign entities |
10 |
|
|
78 |
|
| |
|
(1) |
|
|
77 |
|
| |
|
|
|
|
|
|
| |
Minimum pension liability adjustment, net of tax |
|
3 |
|
|
8 |
| |
|
|
|
|
|
|
| |
Deferred gains on derivatives: |
|
|
|
|
|
| |
Deferred gains |
5 |
|
|
16 |
|
| |
Reclassification adjustment for (gains) losses included in net income |
(1) |
|
|
(1) |
|
| |
|
4 |
|
|
15 |
|
| |
Unrealized gains (losses) on securities: |
|
|
|
|
|
| |
Unrealized holdings gains (losses) |
35 |
22 |
|
34 |
48 |
| |
Reclassification adjustment for (gains) losses included in net income |
4 |
(9) |
|
3 |
(7) |
| |
|
39 |
13 |
|
37 |
41 |
| |
Other comprehensive income |
42 |
16 |
|
129 |
49 |
| |
Total comprehensive income |
$ 859 |
$ 1,075 |
|
$ 2,805 |
$ 2,779 |
|
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE M - CONTINGENCIES
GUARANTEES |
In most of our sale and divestiture transactions, we indemnify the purchaser for various items including labor and general litigation as well as certain tax matters. Generally, the terms last one to five years for general and specific indemnities and for the statutory review periods for tax matters. The events or circumstances that would require us to perform under the indemnity are transaction and circumstance specific. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have accrued for expected losses that are probable. In addition, in the normal course of business, we indemnify counterparties in certain agreements. The nature and terms of these indemnities vary by transaction. Historically, we have not incurred significant costs related to performance under these types of indemnities.
LEGAL PROCEEDINGS
Regulatory-related claims
In May 2005, we sued AT&T in the U.S. District Court for the Northern District of Georgia for unpaid access charges associated with AT&Ts prepaid calling cards and its IP in the middle services that use Internet Protocol technology for internal call processing but use the public switched network to originate and terminate calls. The lawsuit follows two separate rulings by the Federal Communications Commission (FCC), one in April 2004 concerning IP in the middle services and one in February 2005 concerning prepaid card services, that each service was a telecommunications service subject to access charges. AT&T estimated in securities filings that it had saved $340 in access charges on its prepaid card services and $250 in access charges on its IP in the middle services. We believe that some of the improperly avoided access charges should have been paid to us for the use of our network. AT&T appealed the FCCs decision relating to the prepaid card services to the Court of Appeals for the D.C. Circuit, which denied the appeal in July 2006. If the U.S. District Court lawsuit in Georgia progresses, we expect to obtain information from AT&T and other sources that will determine the amount of BellSouth access charges AT&T avoided. In addition, AT&T has asserted certain defenses against BellSouth and has filed the New York lawsuit described below in an effort to reduce any amount it may owe to BellSouth. In April 2006, BellSouth and AT&T agreed to stay the U.S. District Court lawsuit in Georgia until the earlier of 12 months or the consummation or termination of the Merger Agreement between BellSouth and AT&T. At this time, the likely outcome of the case cannot be predicted, nor can a reasonable estimate of the amount of gain, if any, be made. Accordingly, no revenue has been recognized with respect to this matter in our consolidated financial statements.
On November 4, 2005, AT&T sued BellSouth Long Distance, Inc. (BSLD) and Qwest Communications Corporation (Qwest) in the U.S. District Court for the Southern District of New York. AT&T has asserted claims of breach of contract, fraudulent misrepresentation and unjust enrichment against BSLD and related claims against Qwest. AT&Ts claims arise from a contract with BSLD pursuant to which BSLD purchased wholesale long distance minutes that it resold to Qwest. The complaint does not specify the amount of damages sought by AT&T. The parties have agreed to stay the New York lawsuit pending the arbitration of the dispute between AT&T and BSLD. To date, no arbitration has been initiated by AT&T. At this time, the likely outcome of the case cannot be predicted, nor can a reasonable estimate of the amount of loss, if any, be made.
In June 2004, the U.S. Court of Appeals for the 11th Circuit affirmed the District Courts dismissal of most of the antitrust and state law claims brought by a plaintiff competitive local exchange carrier (CLEC) in a case captioned Covad Communications Company, et al v. BellSouth Corporation, et al. The appellate court, however, permitted a price squeeze claim and certain state tort claims to proceed. In November 2005, Covad dismissed with prejudice the civil action and then contemporaneously filed complaints with the public service commissions of Florida and Georgia and filed an informal complaint with the FCC. The commission complaints allege breaches of our interconnection contracts approved by the state commissions, including failure to provide collocation, mishandling of orders, ineffective support systems, and failure to provide unbundled loops. The complaints also allege improper solicitation of Covad customers. These claims are similar to the claims raised in the civil action dismissed by Covad. The complaints seek credits and equitable relief. Covad has asked the state commissions to stay proceedings on its complaints pending resolution of its FCC complaint. At this time, the likely outcome of the case cannot be predicted, nor can a reasonable estimate of the amount of loss, if any, be made.
Employment claim
On April 29, 2002, five African-American employees filed a putative class action lawsuit, captioned Gladys Jenkins et al. v. BellSouth Corporation, against the Company in the U.S. District Court for the Northern District of Alabama. The complaint alleges that BellSouth discriminated against current and former African-American employees with respect to compensation and promotions in violation of Title VII of the Civil Rights Act of 1964 and 42 USC Section 1981. Plaintiffs purport to bring the claims on behalf of two classes: a class of all African-American hourly workers employed by BellSouth
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE M - CONTINGENCIES (Continued)
Telecommunications at any time since April 29, 1998, and a class of all African-American salaried workers employed by BellSouth Telecommunications at any time since April 29, 1998 in management positions at or below Job Grade 59/Level C. The plaintiffs are seeking unspecified amounts of back pay, benefits, punitive damages and attorneys fees and costs, as well as injunctive relief. The District Court denied plaintiffs motion for class certification on September 19, 2006. The plaintiffs have filed a motion for reconsideration of the class certification ruling.
Securities and ERISA claims
From August through October 2002, several individual shareholders filed substantially identical class action lawsuits against BellSouth and three of its senior officers alleging violations of the federal securities laws. The parties have reached a settlement agreement, subject to court approval, pursuant to which the class will receive $35 (all of which will be funded by insurance except for a $2.5 deductible).
In February 2003, a similar complaint was filed in the Superior Court of Fulton County, Georgia on behalf of participants in BellSouths Direct Investment Plan alleging violations of Section 11 of the Securities Act. We believe the settlement in the securities case described above will also resolve the claims brought in this litigation.
In September and October 2002, three substantially identical class action lawsuits were filed in the U.S. District Court for the Northern District of Georgia against BellSouth, its directors, three of its senior officers, and other individuals, alleging violations of the Employee Retirement Income Security Act (ERISA). Subject to approval of the court, the parties reached a settlement of the ERISA lawsuits. The settlement is on behalf of the Plans and certain participants who brought claims individually and on behalf of the Plans pursuant to ERISA section 502(a)(2). BellSouth does not expect the settlement to have a material effect on the Company. The principal terms of the settlement increase the minimum levels below which the Company matching contributions may not fall for a three-year period. The settlement does not require any other unreimbursed cash payments by the Company.
Antitrust claims
In December 2002, a consumer class action alleging antitrust violations of Section 1 of the Sherman Antitrust Act was filed against BellSouth, Verizon, AT&T (formerly known as SBC) and Qwest, captioned William Twombly, et al v. Bell Atlantic Corp., et al, in U.S. District Court for the Southern District of New York. The complaint alleged that defendants conspired to restrain competition by agreeing not to compete with one another and to impede competition with others. The plaintiffs are seeking an unspecified amount of treble damages and injunctive relief, as well as attorneys fees and expenses. In October 2003, the district court dismissed the complaint for failure to state a claim. In October 2005, the Second Circuit Court of Appeals reversed the District Courts decision and remanded the case to the District Court. In June 2006, the U.S. Supreme Court granted the defendants petition for writ of certiorari. At this time, the likely outcome of the case cannot be predicted, nor can a reasonable estimate of the amount of loss, if any, be made.
Other claims
We are subject to claims arising in the ordinary course of business involving allegations of personal injury, breach of contract, anti-competitive conduct, employment law issues, regulatory matters and other actions. BellSouth Telecommunications, Inc. is also subject to claims attributable to pre-divestiture events, including environmental liabilities, rates and contracts. Certain contingent liabilities for pre-divestiture events are shared with AT&T. While complete assurance cannot be given as to the outcome of these claims, we believe that any financial impact would not be material to our results of operations, financial position or cash flows.
NOTE N - SUBSIDIARY FINANCIAL INFORMATION
We have fully and unconditionally guaranteed all of the outstanding debt securities of BellSouth Telecommunications, Inc. (BST), which is a 100 percent owned subsidiary of BellSouth. In accordance with SEC rules, we are providing the following condensed consolidating financial information. BST is listed separately because it has debt securities, registered with the SEC, that we have guaranteed. The Other column represents all other wholly owned subsidiaries excluding BST and BST subsidiaries. The Adjustments column includes the necessary amounts to eliminate the intercompany balances and transactions between BST, Other and Parent and to consolidate wholly-owned subsidiaries to reconcile to our consolidated financial information.
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE N - SUBSIDIARY FINANCIAL INFORMATION (Continued)
Condensed Consolidating Statements of Income
|
|
For the Three Months Ended September 30, 2005 | ||||||||||||||||||
|
|
BST |
|
Other |
|
Parent |
|
Adjustments |
|
Total | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total operating revenues |
|
$ |
4,165 |
|
|
$ |
1,810 |
|
|
$ |
|
|
|
$ |
(903) |
|
|
$ |
5,072 |
|
Total operating expenses |
|
|
4,065 |
|
|
|
1,366 |
|
|
|
(6) |
|
|
|
(1,324) |
|
|
|
4,101 |
|
Operating income (loss) |
|
|
100 |
|
|
|
444 |
|
|
|
6 |
|
|
|
421 |
|
|
|
971 |
|
Interest expense |
|
|
129 |
|
|
|
7 |
|
|
|
222 |
|
|
|
(84) |
|
|
|
274 |
|
Net earnings (losses) of equity affiliates |
|
|
292 |
|
|
|
96 |
|
|
|
819 |
|
|
|
(1,110) |
|
|
|
97 |
|
Other income (expense), net |
|
|
6 |
|
|
|
400 |
|
|
|
52 |
|
|
|
(43) |
|
|
|
415 |
|
Income (loss) from continuing operations before income taxes |
|
|
269 |
|
|
|
933 |
|
|
|
655 |
|
|
|
(648) |
|
|
|
1,209 |
|
Provision (benefit) for income taxes |
|
|
(28) |
|
|
|
411 |
|
|
|
(162) |
|
|
|
171 |
|
|
|
392 |
|
Income (loss) from continuing operations |
|
|
297 |
|
|
|
522 |
|
|
|
817 |
|
|
|
(819) |
|
|
|
817 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
297 |
|
|
$ |
522 |
|
|
$ |
817 |
|
|
$ |
(819) |
|
|
$ |
817 |
|
|
|
For the Three Months Ended September 30, 2006 | ||||||||||||||||||
|
|
BST |
|
Other |
|
Parent |
|
Adjustments |
|
Total | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total operating revenues |
|
$ |
4,230 |
|
|
$ |
1,757 |
|
|
$ |
|
|
|
$ |
(769) |
|
|
$ |
5,218 |
|
Total operating expenses |
|
|
3,677 |
|
|
|
1,214 |
|
|
|
20 |
|
|
|
(1,138) |
|
|
|
3,773 |
|
Operating income (loss) |
|
|
553 |
|
|
|
543 |
|
|
|
(20) |
|
|
|
369 |
|
|
|
1,445 |
|
Interest expense |
|
|
152 |
|
|
|
9 |
|
|
|
251 |
|
|
|
(110) |
|
|
|
302 |
|
Net earnings (losses) of equity affiliates |
|
|
257 |
|
|
|
352 |
|
|
|
1,154 |
|
|
|
(1,421) |
|
|
|
342 |
|
Other income (expense), net |
|
|
14 |
|
|
|
45 |
|
|
|
99 |
|
|
|
(68) |
|
|
|
90 |
|
Income (loss) from continuing operations before income taxes |
|
|
672 |
|
|
|
931 |
|
|
|
982 |
|
|
|
(1,010) |
|
|
|
1,575 |
|
Provision (benefit) for income taxes |
|
|
139 |
|
|
|
299 |
|
|
|
(77) |
|
|
|
155 |
|
|
|
516 |
|
Income (loss) from continuing operations |
|
|
533 |
|
|
|
632 |
|
|
|
1,059 |
|
|
|
(1,165) |
|
|
|
1,059 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
533 |
|
|
$ |
632 |
|
|
$ |
1,059 |
|
|
$ |
(1,165) |
|
|
$ |
1,059 |
|
|
|
For the Nine Months Ended September 30, 2005 | ||||||||||||||||||
|
|
BST |
|
Other |
|
Parent |
|
Adjustments |
|
Total | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total operating revenues |
|
$ |
12,567 |
|
|
$ |
5,329 |
|
|
$ |
|
|
|
$ |
(2,591) |
|
|
$ |
15,305 |
|
Total operating expenses |
|
|
11,543 |
|
|
|
3,927 |
|
|
|
3 |
|
|
|
(3,841) |
|
|
|
11,632 |
|
Operating income (loss) |
|
|
1,024 |
|
|
|
1,402 |
|
|
|
(3) |
|
|
|
1,250 |
|
|
|
3,673 |
|
Interest expense |
|
|
375 |
|
|
|
14 |
|
|
|
668 |
|
|
|
(207) |
|
|
|
850 |
|
Net earnings (losses) of equity affiliates |
|
|
855 |
|
|
|
86 |
|
|
|
2,494 |
|
|
|
(3,350) |
|
|
|
85 |
|
Other income (expense), net |
|
|
(24) |
|
|
|
505 |
|
|
|
161 |
|
|
|
(115) |
|
|
|
527 |
|
Income (loss) from continuing operations before income taxes |
|
|
1,480 |
|
|
|
1,979 |
|
|
|
1,984 |
|
|
|
(2,008) |
|
|
|
3,435 |
|
Provision (benefit) for income taxes |
|
|
184 |
|
|
|
771 |
|
|
|
(311) |
|
|
|
496 |
|
|
|
1,140 |
|
Income (loss) from continuing operations |
|
|
1,296 |
|
|
|
1,208 |
|
|
|
2,295 |
|
|
|
(2,504) |
|
|
|
2,295 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
381 |
|
|
|
381 |
|
|
|
(381) |
|
|
|
381 |
|
Net income (loss) |
|
$ |
1,296 |
|
|
$ |
1,589 |
|
|
$ |
2,676 |
|
|
$ |
(2,885) |
|
|
$ |
2,676 |
|
|
|
For the Nine Months Ended September 30, 2006 | ||||||||||||||||||
|
|
BST |
|
Other |
|
Parent |
|
Adjustments |
|
Total | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total operating revenues |
|
$ |
12,652 |
|
|
$ |
5,503 |
|
|
$ |
|
|
|
$ |
(2,560) |
|
|
$ |
15,595 |
|
Total operating expenses |
|
|
11,409 |
|
|
|
3,913 |
|
|
|
(16) |
|
|
|
(3,707) |
|
|
|
11,599 |
|
Operating income (loss) |
|
|
1,243 |
|
|
|
1,590 |
|
|
|
16 |
|
|
|
1,147 |
|
|
|
3,996 |
|
Interest expense |
|
|
455 |
|
|
|
24 |
|
|
|
715 |
|
|
|
(334) |
|
|
|
860 |
|
Net earnings (losses) of equity affiliates |
|
|
807 |
|
|
|
704 |
|
|
|
2,974 |
|
|
|
(3,791) |
|
|
|
694 |
|
Other income (expense), net |
|
|
24 |
|
|
|
141 |
|
|
|
253 |
|
|
|
(206) |
|
|
|
212 |
|
Income (loss) from continuing operations before income taxes |
|
|
1,619 |
|
|
|
2,411 |
|
|
|
2,528 |
|
|
|
(2,516) |
|
|
|
4,042 |
|
Provision (benefit) for income taxes |
|
|
252 |
|
|
|
787 |
|
|
|
(202) |
|
|
|
475 |
|
|
|
1,312 |
|
Income (loss) from continuing operations |
|
|
1,367 |
|
|
|
1,624 |
|
|
|
2,730 |
|
|
|
(2,991) |
|
|
|
2,730 |
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,367 |
|
|
$ |
1,624 |
|
|
$ |
2,730 |
|
|
$ |
(2,991) |
|
|
$ |
2,730 |
|
BELLSOUTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(Unaudited)
NOTE N - SUBSIDIARY FINANCIAL INFORMATION (Continued)
Condensed Consolidating Balance Sheets
|
|
|
| ||||||||||||||||
|
December 31, 2005 |
|
September 30, 2006 | ||||||||||||||||
|
|
|
| ||||||||||||||||
|
BST |
|
Other |
|
Parent |
|
Adjust- ments |
|
Total |
|
BST |
|
Other |
|
Parent |
|
Adjust- ments |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ 98 |
|
$ 141 |
|
$ 138 |
|
$ 50 |
|
$ 427 |
|
$ 4 |
|
$ 108 |
|
$ 576 |
|
$ 43 |
|
$ 731 |
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,327 |
|
|
|
1,327 |
Accounts receivable, net |
25 |
|
2,058 |
|
4,510 |
|
(4,038) |
|
2,555 |
|
58 |
|
1,029 |
|
4,194 |
|
(2,719) |
|
2,562 |
Other current assets |
537 |
|
531 |
|
39 |
|
120 |
|
1,227 |
|
507 |
|
519 |
|
84 |
|
201 |
|
1,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
660 |
|
2,730 |
|
4,687 |
|
(3,868) |
|
4,209 |
|
569 |
|
1,656 |
|
6,181 |
|
(2,475) |
|
5,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in and advances to Cingular Wireless |
|
|
21,069 |
|
205 |
|
|
|
21,274 |
|
|
|
21,736 |
|
621 |
|
|
|
22,357 |
Property, plant and equipment, net |
21,045 |
|
644 |
|
3 |
|
31 |
|
21,723 |
|
21,176 |
|
590 |
|
2 |
|
52 |
|
21,820 |
Deferred charges and other assets |
9,117 |
|
611 |
|
34,322 |
|
(36,236) |
|
7,814 |
|
9,529 |
|
548 |
|
35,671 |
|
(37,023) |
|
8,725 |
Intangible assets, net |
1,040 |
|
400 |
|
3 |
|
90 |
|
1,533 |
|
1,095 |
|
367 |
|
2 |
|
76 |
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ 31,862 |
|
$ 25,454 |
|
$ 39,220 |
|
$ (39,983) |
|
$ 56,553 |
|
$ 32,369 |
|
$ 24,897 |
|
$ 42,477 |
|
$ (39,370) |
|
$ 60,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt maturing within one year |
$ 5,003 |
|
$ 270 |
|
$ 3,985 |
|
$ (5,149) |
|
$ 4,109 |
|
$ 3,744 |
|
$ 176 |
|
$ 3,857 |
|
$ (3,851) |
|
$ 3,926 |
Other current liabilities |
3,307 |
|
1,437 |
|
1,113 |
|
(1,312) |
|
4,545 |
|
3,868 |
|
1,104 |
|
1,115 |
|
(1,131) |
|
4,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
8,310 |
|
1,707 |
|
5,098 |
|
(6,461) |
|
8,654 |
|
7,612 |
|
1,280 |
|
4,972 |
|
(4,982) |
|
8,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
2,931 |
|
99 |
|
10,571 |
|
(522) |
|
13,079 |
|
2,894 |
|
94 |
|
11,772 |
|
(482) |
|
14,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
5,032 |
|
1,927 |
|
(574) |
|
222 |
|
6,607 |
|
4,972 |
|
1,991 |
|
(298) |
|
153 |
|
6,818 |
Other noncurrent liabilities |
3,185 |
|
757 |
|
591 |
|
146 |
|
4,679 |
|
3,268 |
|
847 |
|
595 |
|
249 |
|
4,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities |
8,217 |
|
2,684 |
|
17 |
|
368 |
|
11,286 |
|
8,240 |
|
2,838 |
|
297 |
|
402 |
|
11,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
12,404 |
|
20,964 |
|
23,534 |
|
(33,368) |
|
23,534 |
|
13,623 |
|
20,685 |
|
25,436 |
|
(34,308) |
|
25,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
$ 31,862 |
|
$ 25,454 |
|
$ 39,220 |
|
$ (39,983) |
|
$ 56,553 |
|
$ 32,369 |
|
$ 24,897 |
|
$ 42,477 |
|
$ (39,370) |
|
$ 60,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Cash Flow Statements
|
|
For the Nine Months Ended September 30, 2005 | ||||||||||||||||||
|
|
| ||||||||||||||||||
|
|
BST |
|
Other |
|
Parent |
|
Adjustments |
|
Total | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Cash flows from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
$ |
5,254 |
|
|
$ |
1,257 |
|
|
$ |
6,473 |
|
|
$ |
(7,050) |
|
|
$ |
5,934 |
|
Cash flows from investing activities |
|
|
(2,344) |
|
|
|
4,709 |
|
|
|
1,975 |
|
|
|
(3,646) |
|
|
|
694 |
|
Cash flows from financing activities |
|
|
(2,905) |
|
|
|
(6,053) |
|
|
|
(6,935) |
|
|
|
10,730 |
|
|
|
(5,163) |
|
Cash flows from discontinued operations |
|
|
|
|
|
|
(115) |
|
|
|
|
|
|
|
|
|
|
|
(115) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash |
|
$ |
5 |
|
|
$ |
(202) |
|
|
$ |
1,513 |
|
|
$ |
34 |
|
|
$ |
1,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|