Case 8-3
BellSouth Corporation
BellSouth Corporation invested in two wireless communicationsoperations in Brazil in the mid-1990s that are being accounted forunder the equity method. The following note is taken from BellSouthCorporationâs interim report for the quar- ter ended March 31,1999:
Note EâDevaluation of Brazilian Currency
We hold equity interests in two wireless communicationsoperations in Brazil. During January 1999, the government of Brazilallowed its currency to trade freely against other currencies. As aresult, the Brazilian Real experienced a devaluation against theU.S. Dollar. The devaluation resulted in the entities recordingexchange losses related to their net U.S. Dollar-denominatedliabilities. Our share of the for- eign exchange rate losses forthe first quarter was $280. These exchange losses are subject tofurther upward or downward adjustment based on fluctuations in theexchange rates between the U.S. Dollar and the Brazil- ianReal.
in a press release announcing first quarter 1999 results,BellSouth Corporation provided the following information (as foundon the companyâs Web site):
BellSouth Corporation (NYSE: BLS) reported a 15-percent increasein first quarter earnings per share (EPS) before special items. EPSwas 46 cents before a non-cash expense of 14 cents related toBrazilâs currency devalue
BELLSOUTH CORPORATION
Normalized Earnings Summary ($ in millions, except per shareamount
Quarter Ended
Quarter Ended
3/31/99 3/31/98 %Change
Reported NetIncome $615 $892 (31.1%)
Foreign currency loss m 280 -
Gain on sale of ITT World Directories - (96)
Normalized NetIncome $895 $796 12.4%
Reponed Diluted Earnings per Share $0.32 $0.45 (28.9%)
Foreign currency loss@ 0.14 -
Gain on sale of ITT World Directories _ (0.05)
Normalized Diluted Earnings perShare,0.46 $0.40 15.0%
Required
Given the disclosure provided by BellSouth Corporation, answerthe following questions:
1. Why did the company report a foreign currency loss as aresult of the devalua- tion of the Brazilian real?
2. What does the company mean when it states: âThese exchangelosses are sub- ject to further upward or downward adjustment basedon fluctuations in the exchange rates between the U.S. Dollar andthe Brazilian Realâ?
3. What is the companyâs objective in reporting âNormalized NetIncomeâ? Do you agree with the companyâs assessment that it had a15 percent increase in first-quarter earnings per share?
Case 8-3
BellSouth Corporation
BellSouth Corporation invested in two wireless communicationsoperations in Brazil in the mid-1990s that are being accounted forunder the equity method. The following note is taken from BellSouthCorporationâs interim report for the quar- ter ended March 31,1999:
Note EâDevaluation of Brazilian Currency
We hold equity interests in two wireless communicationsoperations in Brazil. During January 1999, the government of Brazilallowed its currency to trade freely against other currencies. As aresult, the Brazilian Real experienced a devaluation against theU.S. Dollar. The devaluation resulted in the entities recordingexchange losses related to their net U.S. Dollar-denominatedliabilities. Our share of the for- eign exchange rate losses forthe first quarter was $280. These exchange losses are subject tofurther upward or downward adjustment based on fluctuations in theexchange rates between the U.S. Dollar and the Brazil- ianReal.
in a press release announcing first quarter 1999 results,BellSouth Corporation provided the following information (as foundon the companyâs Web site):
BellSouth Corporation (NYSE: BLS) reported a 15-percent increasein first quarter earnings per share (EPS) before special items. EPSwas 46 cents before a non-cash expense of 14 cents related toBrazilâs currency devalue
BELLSOUTH CORPORATION
Normalized Earnings Summary ($ in millions, except per shareamount
Quarter Ended
Quarter Ended
3/31/99 3/31/98 %Change
Reported NetIncome $615 $892 (31.1%)
Foreign currency loss m 280 -
Gain on sale of ITT World Directories - (96)
Normalized NetIncome $895 $796 12.4%
Reponed Diluted Earnings per Share $0.32 $0.45 (28.9%)
Foreign currency loss@ 0.14 -
Gain on sale of ITT World Directories _ (0.05)
Normalized Diluted Earnings perShare,0.46 $0.40 15.0%
Required
Given the disclosure provided by BellSouth Corporation, answerthe following questions:
1. Why did the company report a foreign currency loss as aresult of the devalua- tion of the Brazilian real?
2. What does the company mean when it states: âThese exchangelosses are sub- ject to further upward or downward adjustment basedon fluctuations in the exchange rates between the U.S. Dollar andthe Brazilian Realâ?
3. What is the companyâs objective in reporting âNormalized NetIncomeâ? Do you agree with the companyâs assessment that it had a15 percent increase in first-quarter earnings per share?
