Case - BellSouth Corporation
BellSouth Corporation invested in two wireless communications operations in Brazil in the mid-1990s that are being accounted for under the equity method. The following note is taken from BellSouth Corporation's interim report for the quar- ter ended March 31, 1999:
Note E-Devaluation of Brazilian Currency
We hold equity interests in two wireless communications operations in Brazil. During January 1999, the government of Brazil allowed its currency to trade freely against other currencies. As a result, the Brazilian Real experienced a devaluation against the U.S. Dollar. The devaluation resulted in the entities recording exchange losses related to their net U.S. Dollar-denominated liabilities. Our share of the foreign exchange rate losses for the first quarter was $280. These exchange losses are subject to further upward or downward adjustment based on fluctuations in the exchange rates between the U.S. Dollar and the Brazilian Real.
Required
Given the disclosure provided by BellSouth Corporation, answer the following questions:
1. Why did the company report a foreign currency loss as a result of the devalua- tion of the Brazilian real?
2. What does the company mean when it states: "These exchange losses are sub- ject to further upward or downward adjustment based on fluctuations in the exchange rates between the U.S. Dollar and the Brazilian Real"?
3. What is the company's objective in reporting "Normalized Net Income"? Do you agree with the company's assessment that it had a 15 percent increase in first-quarter earnings per share?
Attachment:- Assignment File.rar